Fairfax Financial estimates up to $750 million loss from LA wildfires

Fairfax Financial Holdings may face net losses between $500 million and $750 million from the wildfires that impacted the Los Angeles area, based on preliminary estimates, according to a report from AM Best.  

During a fourth-quarter earnings presentation, president and chief operating officer Peter Clarke stated that the fires would primarily be a reinsurance event for Fairfax through Odyssey, Brit and Allied World. Industry-wide insured losses are estimated between $35 billion and $45 billion.  

Clarke noted that Fairfax’s losses could be slightly higher than its typical range of 1% to 1.5% of industry losses due to the reinsurance exposure. 

“We are five weeks in since the fire started and we have not received many reports from our scenes,” Clarke said. “We will have a much better estimate at the end of the first quarter. We expect much of the loss and possibly all will be covered by our first-quarter cat margin and underwriting income. Many people have lost their homes, and many businesses have been destroyed by the fires.” 

Fairfax reported net earnings attributable to shareholders of $1.15 billion in the fourth quarter, down from $1.33 billion a year earlier.  

Net premiums written increased to $5.92 billion from $5.16 billion in 2023. The company’s underwriting results reflect ongoing market conditions, loss trends and catastrophe events. 

The scale of the California wildfires prompted Insurance Commissioner Ricardo Lara to approve the California FAIR Plan’s request for a $1 billion assessment of the state’s property insurers. The measure is intended to ensure continued payment of claims related to the Los Angeles wildfires, which damaged or destroyed more than 16,250 structures last month. 

Lara stated that without the assessment, the association could face insolvency by the end of March, as it lacks sufficient retained earnings or net reinsurance proceeds to cover claims and operating expenses. 

Most underwriting entities of Fairfax Financial Holdings Ltd. currently hold a Best’s Financial Strength Rating of A (Excellent), reflecting their financial position and ability to meet obligations, according to AM Best.