Wildfires Torch $3.5B from European Insurers—But They’ll Survive (Unlike Your Portfolio)

LA’s latest inferno left European insurers lighter in the wallet—though not as scorched as feared. The $3.5 billion hit? Just another Tuesday for an industry that prices risk like a casino rigged in its favor.

Act of God or act of greed? When climate chaos meets reinsurance math, guess who always foots the bill. Pro tip: Next time, hedge with Bitcoin—at least its volatility comes with no paperwork.

Swiss Re doubles loss forecast as LA fires kill 30, destroy thousands of homes

The wildfires, which tore through Eaton Canyon and Palisades, left 30 dead, destroyed thousands of buildings, and displaced millions. The scale forced Swiss Re to raise its projection for total insured losses from $20 billion to $40 billion. 

These updated numbers now make the disaster one of the worst in California’s history. The overall economic damage is still expected to reach around $50 billion, but the chunk covered by insurers has widened fast.

Michael Huttner, an analyst at Berenberg, said the size of these insurance losses caught a lot of firms off guard. “It was a combination of unusual and big,” Michael told CNBC. He added that the uncontrolled spread of the fire pushed claims far beyond what reinsurers expected. 

Despite that, Michael pointed out that profits across the sector still came in stronger than anticipated. He described it as a sign of “resiliency” in the face of large-scale disasters.

But even with Europe eating billions in damages, its insurers are still only handling a small slice of the overall insured total. That’s because reinsurance agreements don’t kick in until the primary insurers, like Chubb, absorb the first wave.

These contracts start covering losses only after about €400 million in damage has been handled by the front-line firms. So the reinsurers only got dragged in once the fire had already done some serious damage in California.

Japan’s insurers hit harder than expected, deductibles up across Europe

Meanwhile, insurers in Japan also got burned. Tokio Marine and Sompo disclosed wildfire losses of almost 50 billion yen, which is roughly $348 million. That number blew past JPMorgan’s initial post-fire estimate of just $63 million.

If Swiss Re’s forecast of $40 billion proves accurate, this event will be four times worse than the 2018 wildfires in California, which cost insurers around $16 billion. During that earlier disaster, Munich Re took the biggest individual hit at around €500 million. 

That experience — along with other large events since — has led to higher deductibles across the entire European reinsurance market. Where once firms only had to wait out €100 million in primary losses, today the threshold has jumped to €400 million.

Even with that buffer, it wasn’t enough to keep reinsurers from getting hit hard this time. One of the things that softened the blow, though, was the FAIR Plan — a shared fund paid into by multiple insurers operating in California. 

That plan is designed to absorb the first LAYER of losses before any individual private insurer starts paying out, and that helped ease the pressure on the bigger players — including the ones based in Europe. But with a fire this big, even that wasn’t enough to stop $3.5 billion from landing on reinsurers across the continent.

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