Los Angeles wildfires could consume 30% of European reinsurers’ catastrophe budgets for 2025

The recent Los Angeles wildfires could account for over 30% of the natural catastrophe budgets set by Europe’s largest reinsurers for 2025, according to Fitch Ratings.

Despite the significant losses, Fitch expects the financial impact to remain within rating sensitivities, citing the reinsurers’ robust capital positions and diversified risk exposures.

Insured losses from the wildfires are projected to exceed previous records for similar events, with current industry estimates ranging from $25 billion to $45 billion.

While European reinsurers have reduced their exposure to high-risk wildfire zones in California since the devastating fires of 2017 and 2018, the scale of the current losses means they will still be materially affected.

“These losses will predominantly stem from property and casualty reinsurance business, but specialty reinsurance and primary insurance coverages could also face significant impacts,” Fitch said.

European reinsurers, including Swiss Re, Munich Re, Hannover Re, and Scor, have mitigated their exposure by shifting from proportional to excess-of-loss treaties and raising attachment points. However, if global insured losses reach $35 billion — the midpoint of industry estimates — these reinsurers could see combined losses equal to 30% of their aggregate catastrophe budgets for 2025.

At the upper end of estimates, $45 billion, Fitch projects the impact could erode up to 38% of the budgets.

The wildfires highlight the ongoing challenges of climate-related risks and their financial implications for the insurance and reinsurance sectors. While reinsurers’ strategies have helped limit exposure, the sheer scale of losses underscores the need for continued adaptation to rising natural catastrophe risks.