Homeowners' insurers have been facing the heat of the wildfire that continues in Southern California. According to reports, this could be the most devastating and expensive wildfire in the nation’s history. Per The Guardian report, while at least 24 people have lost their lives, thousands have been displaced. The fire has destroyed more than 12,000 structures and led to evacuation orders for 0.1 million people.

Analysts at Wells Fargo Securities estimate losses from this wildfire to be between $20 billion and $40 billion, largely affecting homeowners' insurance. These analysts project about 85% of the losses to stem from homeowners' insurance policies, 13.5% from commercial property and 1.5% from personal auto. AccuWeather expects damage and economic losses between $250 billion and $275 billion. Many of the insurers have lowered their exposure in California, making it even worse for residents in California. 

Insurers like The Travelers Companies TRV, The Allstate Corporation ALL, Mercury General Corporation MCY and Lemonade LMND, which still have significant operations in California, have lost 3.9%, 4.8%, 22.7% and 10.6%, respectively, in the last two trading sessions.

How Are the Insurers Placed?

About 10.4% of Travelers Companies direct written premiums in 2024 came from California. Though this Zacks Rank #1 (Strong Buy) insurer is yet to estimate its losses, in May 2024, Travelers had increased its insurance rates in California by an average of 15%, attributable to wildfire risks, inflation and escalating reinsurance costs.   

California accounted for 9.6% of Allstate’s 2023 statutory direct premiums. However, the company is no longer writing new homeowners’ business in California and Florida, the most affected states due to catastrophes.  Since Dec. 31, 2022, policies-in-force has declined by an average of approximately 7% in these two states. The insurer may take further action to reduce exposure. ALL carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.

Mercury General is primarily engaged in writing personal automobile insurance and provides related property and casualty insurance products to its customers through 12 subsidiaries in 11 states, principally in California. About 80% of its 2023 premiums came from California.  This Zacks Rank #3 insurer estimates losses from the wildfire to exceed its reinsurance retention level of $150 million, with a reinsurance program that provides $1.29 billion in limits per occurrence. 

Lemonade, carrying a Zacks Rank #3, stated that about 53% of gross written premiums in 2023 originated from customers in California, New York and Texas. It thus expects any man-made or natural catastrophes to weigh on its results owing to this concentration. 

The Zacks Consensus Estimate for first-quarter 2025 earnings of all these insurers indicates a year-over-year increase. However, losses stemming from the wildfire will be a big drag on the bottom line of these insurers.

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The Travelers Companies, Inc. (TRV) : Free Stock Analysis Report

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