The recent wildfires in Los Angeles are not expected to affect the credit ratings of insurers and reinsurers in the Asia-Pacific (APAC) region due to their limited exposure, according to Fitch Ratings.
The firm noted that while strong reinsurance programs will help mitigate potential losses, the increasing frequency and severity of extreme weather events could drive up reinsurance costs for global insurers, including those in APAC, with medium- to long-term implications for capital and earnings.
Fitch expects insured losses from the wildfires to surpass previous records, with industry estimates ranging from US$35 billion to US$50 billion. However, APAC insurers are expected to have minimal exposure, including little direct involvement and no significant participation in California’s insurer of last resort, the Fair Access to Insurance Requirements (FAIR) Plan.
Fitch said that its rated APAC insurers and reinsurers with potential exposure have strong capital positions and diversified risk portfolios, which limit the disaster’s effect on their credit standing.
A separate report in October from S&P echoed the same sentiments, noting that the sector is expected to maintain stable credit trends, supported by steady earnings and strong capitalization. While it did not consider the impact of the LA wildfires, the report noted that demand for reinsurance remains steady in the region.
Losses for Japanese non-life insurers operating in the US are expected to be manageable due to their earnings and capital reserves.
A report cited a Bloomberg Intelligence estimate that Japan's three major non-life insurers – Tokio Marine & Nichido Fire Insurance Co., Ltd. (Insurer Financial Strength (IFS) Rating: AA-/Stable), Mitsui Sumitomo Insurance Company, Limited (IFS Rating: A+/Stable), and Sompo Holdings – account for approximately 3% of the insured damage from the wildfires.
Industry estimates indicate that South Korean insurers, including DB Insurance Co., Ltd. and Korean Reinsurance Company, may face losses of about KRW90 billion (US$61.8 million), representing 0.1%-0.2% of the total global insured loss.
Other South Korean insurers operating in the US, such as Hyundai Marine & Fire Insurance and Samsung Fire & Marine Insurance, have not yet reported any claims related to the wildfires.
Over the past few years, several APAC insurers and reinsurers, including Taiping Reinsurance Company Limited (IFS Rating: A/Stable) and QBE Insurance Group Limited (Issuer Default Rating (IDR): A-/Positive), have reduced their presence in the US market to manage catastrophe risk exposure.
While some direct and indirect exposure to the wildfires may exist, Fitch stated that the losses are expected to remain within rating sensitivities. The ratings of these companies continue to be supported by strong capital buffers and diversified risk portfolios.
Although the immediate financial impact on APAC insurers and reinsurers is expected to be minimal, the wildfires highlight broader challenges posed by increasing global catastrophe losses and climate change.
Fitch noted that such events could influence treaty reinsurance capacity in APAC as reinsurers reallocate capital to cover losses, potentially altering their risk strategies. The complexity of modeling secondary perils such as wildfires has also contributed to shifts in the risk transfer market, including the growing use of catastrophe bond structures that trigger on a per-occurrence basis rather than on an aggregate basis.
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