| Key Points: – Mercury General stock falls 20% as California represents one-fifth of its US premiums – JPMorgan doubles damage estimate to $20B as fires continue to rage – Over 246,000 Californians left without power amid safety shutoffs |
The devastating Los Angeles wildfires are sending shockwaves through financial markets, with major insurance stocks tumbling Friday as the disaster shapes up to be one of California’s costliest natural catastrophes. Mercury General Corporation led the decline with a dramatic 20% drop, reflecting its heavy exposure to the California market, where it derives approximately one-fifth of its U.S. homeowners’ insurance premiums.
The fires, which have already claimed at least 10 lives and destroyed thousands of structures, are prompting major reassessments of potential losses by financial analysts. JPMorgan has doubled its estimate of insured losses to $20 billion, with warnings that this figure could climb higher as fires continue to burn across the region.
Other major insurers are also feeling the impact, with industry giants including Allstate, Travelers Companies, Chubb, and American International Group seeing their shares decline between 2% and 4% in early trading. The widespread market reaction underscores the growing concerns about the insurance industry’s exposure to climate-related disasters in high-value property markets.
“It will take weeks or months to determine the magnitude of the insured damages, but the Los Angeles wildfires are likely among the most costly wildfires in the state’s history,” Moody’s insurance analysts noted in their Thursday report. The catastrophe’s timing is particularly problematic as it comes just as California attempts to attract insurers back to the state amid increasing climate-related risks.
The impact extends beyond insurance companies, with utility stocks also facing significant pressure. Edison International, parent company of Southern California Edison, is heading toward a 13% weekly loss, while Pacific Gas & Electric shares dropped more than 10%. Although Southern California Edison maintains its equipment did not spark the fires, JPMorgan analysts note that if found responsible, the company’s liability would be capped at $4 billion.
The crisis has forced Southern California Edison to implement widespread safety-related power shutoffs, affecting approximately 173,000 residents, while total power outages across California have reached 246,000 customers. These measures, while necessary for safety, underscore the growing challenges faced by both insurers and utilities in managing climate-related risks in one of America’s most populous states.
The situation draws parallels to PG&E’s historic 2019 bankruptcy filing, which Harvard researchers dubbed “the first climate change bankruptcy.” That case, resulting from over $30 billion in legal claims related to previous California wildfires, serves as a stark reminder of the financial vulnerabilities faced by companies operating in regions increasingly affected by climate change.
As firefighters continue their efforts to contain the blazes, the financial impact of this disaster is likely to reverberate through the insurance and utility sectors for months to come. The event may also accelerate discussions about the sustainability of current insurance models in areas prone to climate-related disasters, potentially leading to significant changes in how risk is assessed and priced in vulnerable regions.
