By Carlos Pallordet

Jan 13 - (The Insurer) - Insurance shares tumbled on Friday as analysts projected $10bn-$20bn in insured losses from the ongoing Los Angeles wildfires, though the latest commentary suggests some of the declines may have been overdone.

US primary carriers were naturally the most impacted by the Friday sell-off.

Mercury General led the losses by some distance with a 19.9 percent fall.

The Los Angeles-based personal lines insurer – which is the fifth-largest homeowners carrier in California – revealed on Friday that losses are expected to exceed the $150mn retention on its $1.29bn cat reinsurance program.

The slump on Friday added to a 6.5 percent fall on Wednesday as the wildfires began to rage, with US markets closed on Thursday to the mark the funeral of President Jimmy Carter.

Heritage Insurance experienced the second most significant decline, with its shares shedding 7.8 percent on Friday.

The Tampa-based group writes approximately $1.4bn in gross personal and commercial residential premiums across the Northeast and Southeast US, Hawaii, and the California E&S market.

Meanwhile, shares in Skyward Specialty fell 6.8 percent, the third most significant loss among US carriers on Friday.

In a report published yesterday, JMP analysts Matthew Carletti and Karol Chmiel suggested that last week’s stock reactions were – in many cases – overdone, with Skyward Specialty standing out as the most notable example.

“We simply do not see the potential for any meaningful exposure, and even if there were, its reinsurance retention is only $12mn,” they explained.

Insurtechs Hippo and Lemonade were also among the most affected US stocks, sliding 6.7 percent and 6.2 percent, respectively.

Meanwhile, personal lines giant Allstate lost 5.6 percent.

Iowa-based United Fire Group – which has one of its five regional offices in Rocklin, California – was the eighth company with a share price fall of over 5 percent.

On Friday, Jefferies’ analyst Philip Kett said he did not expect the industry loss or individual corporate exposure from the event to be material.

“Assuming that the loss is in the range of $10bn to $20bn, and assuming that primary insurers incur their losses in line with Californian market share, it seems likely to us that most of the loss will be retained in the primary market,” Kett said.

“In general, we note that the largest US primary insurers have meaningfully reduced exposure to California due to costly and unquantifiable wildfire risk, combined with the state's strict pricing controls.

“Consequently, we suspect that primary exposure is spread across not just the admitted market, but to the non-admitted excess and surplus lines market, including Lloyd's of London.”

Europeans spared

Europe-listed (re)insurers also closed the week in the red for the most part, especially those with potential exposure to the event.

The listed London players topped the losses, with falls compounded by last week’s strain in the UK bond market.

Lancashire was the most significant faller, tumbling 5.7 percent, followed by London market peers Beazley and Hiscox, which were down 4.2 percent and 2.9 percent, respectively.

Bermuda-based Conduit shed 2.8 percent.

Meanwhile, among continental reinsurers, Munich Re declined 2.0 percent, Scor lost 1.8 percent, Hannover Re shed 1.5 percent and Swiss Re was down 1.4 percent.

In a note published on Friday, Berenberg analyst Michael Huttner said early indications suggest the ongoing wildfires will not lead to a material impact to 2025 earnings for the big four reinsurers.

This is because the damage has so far been largely concentrated on residential rather than commercial or industrial properties, with reinsurance cover narrower for residential properties.

“Homes in the most affected area, Palisades, are largely insured by the Fair Plan association to a potential loss exposure of, we estimate, ~$6bn,” Huttner said.

The Fair Plan pool system means that its portion of the loss will be broadly shared between participating insurers, which are the main insurers in California.

Huttner highlighted the shift in attachment points in recent years – from a typical level of €100mn ($102.7mn) to €400mn – as another factor behind Berenberg's belief that the impact of the current wildfires will be lower for European reinsurers than from the Camp and Woolsey fires in 2018.

Among European composite insurers, Mapfre was down 2.1 percent on Friday while Axa and Zurich lost 1.7 percent and 1.6 percent, respectively.