Introduction
The devastating California wildfires in early 2025 have posed significant challenges for the insurance sector. However, S&P Global Ratings has assessed these events as primarily an earnings event, with implications more pronounced on U.S. renewals rather than the global market. Taoufik Gharib, Director & Lead Analyst of Reinsurance Ratings at S&P, provided insights during the Fourth Quarter U.S. Insurance Webinar.
Influence on Renewals
Gharib indicated that the wildfire-induced losses are set to shape pricing strategies in forthcoming renewals. He stated, “We anticipate these losses will impact pricing trends moving forward, especially for the upcoming renewals. Based on dialogues with major industry stakeholders, we believe these effects will predominantly influence U.S. renewals, sparing the global market to a greater extent.” He further elaborated on the Japanese renewal, suggesting that rates there might face pressure, potentially rising by up to 10%, although the extensive damages in California are expected to solidify rates within the U.S. market.
Financial Assessment
Despite the wildfire’s magnitude, S&P maintains its view of it as an earnings event, given its occurrence early in the year. “Although the fires consumed nearly 40% of annual catastrophe budgets, we regard it as an earnings event for the year,” Gharib explained. Swiss Re, a leading global reinsurer, reported that its wildfire-related losses constituted approximately 35% of its €2 billion natural catastrophe budget for 2025.
Future Outlook
Gharib projected potential underwriting losses for some reinsurers in the first quarter, attributing this to the integration of California wildfire losses and other events within this period. Nevertheless, he expressed confidence in the reinsurers’ ability to generate robust earnings throughout the year. S&P reinforced this perspective, noting that global reinsurers could manage the impact, with losses largely kept within their first-quarter catastrophe budgets.
Implications for Homeowners
While global reinsurers might weather the storm, homeowners in affected regions could face significant repercussions. S&P cautioned that property insurers might respond to the wildfires by increasing rates and/or restricting coverage options in California.
