Evercore ISI: LA wildfire reinsurance losses unlikely to impact pricing trends.

Evercore ISI analysts believe that losses from the recent Los Angeles and Southern California wildfires are unlikely to alter the downward trajectory of reinsurance pricing, which is expected to decrease by 10-20% at mid-year renewals.

The firm estimates the total insurance and reinsurance market losses from the wildfires could reach $20-25 billion, aligning with broader industry loss estimates ranging from $20-45 billion, with a midpoint average of $32.17 billion. Mercury General Corporation, significantly exposed to wildfire claims, is evaluating whether the fires constitute one or two events under its reinsurance agreements, a decision that could impact how much loss is absorbed by reinsurers and insurance-linked securities (ILS) capital.

Evercore ISI predicts reinsurers will bear 10-15% of the losses, comparable to their share in past events like Hurricane Milton, but not enough to shift reinsurance pricing trends. Analysts also note that California’s FAIR Plan covers 22% and 12% of damaged structures in the Palisades and Eaton fires, respectively, below the historical average. They reaffirm their $6 billion loss estimate for the FAIR Plan, which could result in assessments for the broader industry.

Regarding broader market impacts, Mercury General and Farmers Insurance are expected to face significant losses. Mercury General may scale back growth in California, while Farmers’ reinsurance coverage should mitigate its estimated $4.3 billion gross loss. This could benefit competitors like Progressive (PGR) and Allstate (ALL), potentially leading to growth in California’s auto insurance market, though home-auto bundling may remain cautious.

Finally, the wildfires have caused negative secondary market movements for catastrophe bonds, with mark-to-market losses from the fires reaching around $200 million. Private ILS strategies, including collateralized reinsurance, quota shares, sidecars, and retrocession, are also likely to share in the losses beyond the cat bond market’s capacity.