The Reinsurance Market After the L.A. Wildfires Is a Guessing Game

Property reinsurance will cover at least some of the uncounted billions of dollars in property losses from the wave of Los Angeles-area wildfires in January. 

How much it will end up covering remains a mystery due to the still-inconclusive damage estimates as well as the vagaries of a global reinsurance market that has only a handful of impactful underwriters. 

There are some certainties. Providers of reinsurance — the backup insurance for primary insurers — are likely to cut their exposure to wildfire risk in California and raise rates there. But beyond California, it’s unclear whether the L.A. wildfires that began Jan. 7 will make property reinsurance substantially scarcer or costlier in other states. 

Everything else will have to wait until primary insurers tally the total cost, which was still rising at the start of February.

“The [total loss] estimates are all over the board. One thing is consistent: They all keep going up,” Kyle Rhodes, president of North American operations at TransRe, a New York-based reinsurer of property and casualty insurers, said during a Jan. 30 panel discussion organized by AM Best, a credit rating agency for the insurance industry. “There are estimates of $35 billion to $50 billion of insured loss. We really don’t have any idea, it’s so large.

“How the industry will be capable of putting enough capital behind California is beyond me,” Rhodes added. “I live in California, and the insurance market has been broken for quite some time.” 

Property reinsurance is still available in other disaster-prone states, he said. In Florida, for example, “there’s still supply, but you’ve got to pay for it. The rates are pretty strong still.”

The California wildfires are unlikely to have a material impact on the 2025 earnings of major reinsurers, according to equity analysts at Berenberg, a private and merchant bank based in Hamburg, Germany. Berenberg recently reported that the L.A. wildfires will have a milder impact on reinsurers than the Camp and Woolsey fires in California in 2018, thanks in part to significantly higher maximum losses that primary insurers must absorb to trigger reinsurance coverage of further losses.

The world’s largest reinsurer, Munich Re, announced Jan. 22 that it expects a big increase in net profits this year, to $6.21 billion, from its target of more than $5.18 billion in 2024, despite substantial losses from the Los Angeles area’s wildfires. Munich Re and Hannover Rück SE in Germany rank along with SCOR SE in France and Lloyd’s in the U.K. among the largest property reinsurers in the world. 

“They’re all offshore. … That’s where the big money in insurance is,” said Ryan Papy, president of Miami-based insurance agency Keyes Insurance, who sees little correlation between natural disasters and reinsurance rates. “Reinsurance [pricing] every year seems to move up 10 to 15 percent no matter what issues have happened.”

Papy said losses from the L.A. wildfire catastrophe probably will produce little overall change in reinsurance pricing. “If it ended up being the biggest loss in United States history,” he said, “it’s probably still not a big enough number to vastly change the global reinsurance rate.”

Insured losses from the L.A. wildfires should trail the tab from last year’s Hurricane Milton in the “mid- to upper $20 billion range, which reinsurers essentially shrugged off during the January 2025 renewal [period],” according to a report by investment bank Keefe Bruyette & Woods. “We believe that primary insurers will bear most of the wildfire losses and these losses will mostly be large but manageable. We consequently don’t expect the wildfires to materially change the trajectory of property catastrophe insurance pricing.”

The L.A. wildfires may drain more than 30 percent of the combined natural disaster budgets that Europe’s largest reinsurers set for 2025, credit rating agency Fitch Ratings reported. “European reinsurers have reduced their exposure to high-risk wildfire zones in California since the fires of 2017 and 2018,” Fitch said in a Jan. 22 report. “They will still be affected, given the scale of overall insured losses. But the implications for their earnings and capital are not likely to be material.”

Reinsurers may emerge from the L.A. fires “virtually unscathed,” the Financial Times reported, citing a trend in recent years in the reinsurance industry to reduce financial exposure to natural disasters.

However, insurance broker Oscar Seikaly heard a different story from executives at a half-dozen insurance companies with significant exposure to claims for property damage caused by the L.A. wildfires.

“They’re big names. They’re names you’re familiar with,” said Seikaly, chairman and CEO of Miami Lakes-based NSI Insurance Group, an insurance and reinsurance brokerage firm. These insurance companies expect to cover wildfire claims up to the maximum amounts that trigger reinsurance coverage, and these maximums range from $250 million to $500 million, he said.

“They seem to be sure, almost positive, that they’re going to pay out the maximum limit,” he said, “and they believe that the reinsurers are going to end up paying out three to four times more.”

Seikaly, whose company works with other reinsurers globally, said some of them may try to recoup losses from the California wildfires by raising their prices elsewhere, while others have no such plans. “It’s a very subjective decision,” he said. “It’s based on the reinsurer, what they think, what their philosophy is, and whether they think this is going to become a recurring issue going forward.”

U.K.-based Lloyd’s, for example, doesn’t plan to make the rest of the world pay for California, Seikaly said. “Lloyd’s thinks it’s a one-time hit,” he said. “They’re going to take on the loss, absorb it, and maybe restructure how they do business in California. But they’re not going to impose higher premiums on the rest of the world just because they got hit in California.”

Reinsurance rate inflation is the main reason the average premium for property insurance in the United States has ballooned by more than 30 percent since 2020, the nonprofit National Economic Bureau of Research reported in October. Florida has the highest average property insurance rates among the 50 states. The Sunshine State’s average annual premium in 2023 was $10,966, according to Cambridge, Mass.-based Insurify, which operates an online platform for insurance price comparisons.

But the reinsurance market softened last year, adding to the availability and affordability of coverage, according to Howden Re, a London-based reinsurance broker and advisory firm.

After sharply raising rates in 2022 and 2023, reinsurers around the world lowered risk-adjusted pricing for property catastrophe reinsurance in mid-2024 by 2.5 percent to 7.5 percent. (Reinsurance contracts with primary insurers often take effect on Jan. 1 or June 1 for a term of one year.)

“It’s still a very expensive and tight [reinsurance] market, though it’s not quite as bad as it was in 2023,” said Doug Heller, director of insurance for the Consumer Federation of America. “[Reinsurers] have bulked up with so much premium over the last six or seven years that the reinsurance market is certainly capable of handling the L.A. fires and moving on. There doesn’t need to be an impact on the market.” 

Heller did say he expects reinsurers to respond to wildfire losses in California by moderately tightening access to coverage in other states via higher rates or rewritten terms.

“The tightness of the reinsurance market will be amplified by California but not fundamentally altered by it,” he said. “The fact that [buyers of reinsurance] have so much power over us almost assures that we’ll see tightening in response. It’s a seller’s market. There are not enough reinsurers. There’s not enough capital that’s willing to take the risk.”

Any shortage of capital for reinsurers could worsen if the total loss from the L.A. firestorm disaster is so high it shocks investors. 

“Personally, I think the insured losses are going to be close to $100 billion and the uninsured losses are going to be close to $200 billion,” Seikaly said. 

For instance, overlooked among other types of wildfire losses is a trove of valuable artwork in the Los Angeles area that went up in smoke. “The amount of art that has been lost is massive. We have clients who had $20 million, $30 million of artwork in their home, and their home burned down,” Seikaly said. “I know an artist who is very famous who lost two homes, and all her inventory was lost in the fire. That’s an artist who sells a painting for $1 million.”

Heller said the sheer scale of the wildfire losses in California could lead to the creation of a publicly funded reinsurer that would operate nationwide like the National Flood Insurance Program.

“If people around the country are hoping that California’s problems stay in California, it’s just the wrong way to think about reinsurance — it’s a problem for all of us,” Heller said. “I’m not saying we need a public reinsurer to get rid of the reinsurance market. We need a public reinsurer because there’s not enough of a reinsurance market, and there’s not going to be.”