Amid the ongoing devastation caused by wildfires in Los Angeles, Warren Buffett‘s Berkshire Hathaway BRK BRK, the nation’s largest property and casualty insurer, is expected to experience minimal financial impact, while other insurers face significant exposure due to its substantial presence in California’s homeowners insurance market.
What Happened: Berkshire Hathaway is not a major player in the California homeowners insurance market, hence the impact of the wildfires is expected to be minimal. However, other insurers like Mercury General Corp. MCY, Allstate ALL, Chubb Ltd CB, and Travelers Companies Inc TRV could face substantial losses, Barron’s reported on Friday.
J.P. Morgan analyst Jimmy Bhullar noted on Thursday that insured losses from the fires might surpass $20 billion, setting a new record for wildfire losses in California.
Mercury General, heavily reliant on California for its premiums, could be the most vulnerable relative to its size. The company wrote over $700 million in homeowners insurance premiums in the state during the first nine months of 2024. Mercury’s stock fell 6.5% on Wednesday, reflecting investor concerns about its exposure to the fires.
Meanwhile, Berkshire Hathaway could see losses of about $600 million, a minor fraction of its insurance capital. The company might benefit from potential increases in insurance pricing following the fires.
Why It Matters: The ongoing wildfires in Los Angeles have caused extensive damage, with estimates suggesting total damages could exceed $52 billion, according to Accuweather. More than 2,000 structures have been damaged or destroyed, with further destruction anticipated as red flag warnings persist.
The fires have ignited concerns among investors regarding the stability of California-based insurance stocks and ETFs. The Eaton and Palisades fires alone have ravaged over 10,000 structures, leading to 10 confirmed fire-related deaths. As the crisis unfolds, insurers like Allstate and Travelers are under scrutiny, given their significant roles in the California market. The California FAIR Plan, a state-backed insurer of last resort, is also heavily involved in insuring homes in the affected areas.
Price Action: As per Benzinga Pro, on Friday during pre-market hours, Berkshire Hathaway was showing minimal upward movement by 0.022% while Chubb had dropped by 3.60%, Travelers Company was down by 4.85% while Allstate fell by 6.15%.
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Disclaimer: This content was partially produced with the help of Benzinga Neuro and was reviewed and published by Benzinga editors.
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