Bernstein's Fort McMurray Insurance Assessment

The latest estimates of the financial impact of the Fort McMurray Canadian wildfires suggest that the fires could cause up to C$10 billion in damages. Bernstein analyst Thomas Seidi took estimates made by leading Canadian property insurer Intact via satellite imagery and extrapolated the results of Intact’s estimates to the entire market.

Bernstein came up with a total market-wide loss estimate range of C$5.7 billion to C$10 billion.

“The only bottom-up figure we have so far is that 2,400 houses have been destroyed and at an average house price of C$500k, this results in estimated C$1.2b replacement costs, so the lower boundary of our C$5b range appears reasonably within reach, whereas the top end appears rather high,” Seidi added.

Related Link: Social Media Buzz About Canada Wildfires Could Spell Bad News For Insurance Companies

As if the fire itself weren’t enough of a wildcard for insurers, the price of oil is another big unknown that could have a huge impact on total losses. If oil prices rise before Canadian oil companies can get up and running again, their insurance losses will also rise.

Bernstein estimates reinsurers will ultimately pick up between 70 and 80 percent of the wildfire losses.

The firm predicts that Munich Re and Swiss Re AG – ADR SSREY have the most exposure from the fires, but should be able to easily handle the losses. RSA Insurance Group plc RSANY and Aviva Plc (ADR) AV will have “relatively low net losses,” and Zurich Insurance Group Ltd (ADR) ZURVY will have about $0.2 billion in net exposure.

Disclosure: the author holds no position in the stocks mentioned.