Reinsurance giant Swiss Re said this the morning that it currently estimates losses from the Los Angeles, California wildfires of less than $700 million, which Chief Financial Officer (CFO), John Dacey, confirmed is more than a third of its full year 2025 budget for natural catastrophes.
“$700 million is a big number, it’s about 35% of our full year nat cat budget,” CFO Dacey said during a recent media call discussing the firm’s 2024 financials.
Since the wildfires, there’s been much discussion about the potential impact on property catastrophe reinsurance rates at the future 2025 renewals, given there was some softening at 1.1 2025 when compared with the prior year.
On the call, Dacey said that Swiss Re expects “the pricing impact of the California fires will be at least to mitigate what might have been some downward pressure on prices, not necessarily to create an inflection point, but people understand that there are real risks out there, and people need to pay for Swiss Re or others to take that tail risk for them.”
In terms of Swiss Re’s preliminary loss estimate, Dacey stressed that although it’s not concerning to have that high of a loss in the opening quarter of the year, this hasn’t happened since the 2023 Turkey earthquake, which Swiss Re eventually reserved around $500 million for.
Ultimately, Swiss Re is confident of its less than $700 million estimate for the event, which is net of retrocession and reinstatement premiums, but which does not include any potential benefit of subrogation if it’s found that the cause of the Eaton and Palisades fires is identifiable and can be placed with someone outside the insurance industry.
Explaining why the reinsurer is confident of this figure, Dacey said: “What I can say is we work very close with the primary companies that we serve who are active in the California market. We are taking the tail risk of these lines, and so as the losses increase, we would be taking a bigger share. Right now, with the information we have, we think $40 billion is a fairly accurate estimate of the total industry loss. Should we have to correct that, and I don’t expect we do, but if the event would have been a bigger event, and it would have been a bigger loss, you would see our share being a more important share as we go forward, precisely because we are further out in the tail.”
Dacey went on to note that for smaller losses, such as Hurricane Milton in the fourth quarter of 2024, it shouldn’t be expected that Swiss Re will have an enormous exposure.
“The other part, I’ll just reiterate, Swiss Re pays a lot of claims in a lot of different ways. In 2024 those totalled $37 billion between life and health businesses and our P&C businesses. So, I don’t think anybody involved in the company is concerned that we don’t pay enough losses.
“I think there’s been some strong underwriting, there’s been some appropriate positioning in individual layers, there’s been appropriate positioning the vis-à-vis our clients, where they’re happy to have us as a true backstop for a true catastrophic event. And $40 billion, unfortunately, is not the largest event we could imagine. For this time, that’s what we think the loss is,” continued Dacey.
The proximity of the LA wildfires has led to questions around primary insurers classifying it as one or two events for reinsurance purposes, and Dacey provided some interesting colour on this from Swiss Re’s perspective.
“Most of the reinsurance policies have an accumulation of events that occur within seven days, 168 hours. In that context, most of the reporting to us from our primary companies has been a one event reporting. I think there’s at least one client which might have split this because they have the ability to do so with the reinsurance contract as two events. But generally speaking, we don’t believe that there’s much residual risks to Swiss Re about the way that these claims are presented as one or multiple events,” he said.
“We’re confident that less than $700 million is the correct number for Swiss Re in spite of some still to be finalized reporting,” he reiterated.
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