LA firestorm: $20-30bn insured loss estimate from Moody’s RMS

Moody’s RMS Event Response has placed a preliminary estimate of $20-30bn for the insured losses as a result of January’s Los Angeles Firestorm, still ongoing in Southern California.

The catastrophe risk modeller’s estimate reflects insured losses to date for the private market and California FAIR Plan from fire, smoke, and evacuation impacts from the five fires including the Palisades and Eaton Fires.

Moody’s RMS said the estimate, based on its US Wildfire HD Model Version 2.0, included significant uncertainty as fires are ongoing; Monday morning the Palisades Fire was 31% contained and the Eaton Fire was 65% contained.

California FAIR Plan, which has more than US$112bn exposure, or 23% of its portfolio, in Los Angeles County as of 30 September 2024.

Moody’s RMS Event Response said its team is monitoring the situation and working to form a comprehensive view for final industry loss estimates through modelling, reconnaissance and validation over the coming days.

It will issue its final insured industry loss estimate for these events after their full containment, the firm added.

“The ongoing Los Angeles Firestorm events represent a unique and complex scenario that serves as a wakeup call for the market,” said Mohsen Rahnama, chief risk modeling officer, Moody’s.

The estimate includes losses from property damage, including evacuation and smoke damage, business interruption (BI), and additional living expenses (ALE) across residential, commercial, and industrial lines.

Rahnama emphasised that great uncertainty remains from numerous elements, including potential insurance gaps and underinsurance given the evolving insurance landscape.

Other aspects of uncertainty relate to high-value building and contents exposure at risk, and significant ALE resulting from the evacuation of over 100,000 people, he suggested.

“The wildfires caused extensive damage beyond property to critical infrastructure, including water systems and other utilities, with potential economic impacts that could be several multiples of insured property losses,” Rahnama said.

“This event will likely precipitate ongoing regulatory changes in California and accelerate usage of risk modeling to enable the insurance market to play its critical role in managing the dynamic risk landscape driven by exposure growth and climate change,” Rahnama said.

Firas Saleh, director, North America wildfire models, Moody’s, also commented.

“This firestorm is the most destructive and multifaceted wildfire event in US history, with unprecedented levels of urban conflagration,” said Saleh.

“However, this was not a ‘black swan’ event given the escalating wildfire risk in recent years…By capturing the risk profile comprehensively, our models provide unparalleled insights to help the market understand and prepare for these catastrophic events.”