The ongoing wildfires in California have sent shockwaves through the insurance and utility industries, with shares of several major players plummeting on Friday. The devastating infernos, which have claimed at least 10 lives and destroyed thousands of structures, have left a trail of financial devastation in their wake.
Insurance Stocks Feel the Heat
The impact on insurance stocks was immediate and severe. Shares of Allstate (ALL) fell by 5.6%, while Travelers Companies (TRV) and Chubb (CB) dropped by 4.3% and 3.4%, respectively. Mercury (MCY) suffered the steepest decline, with its stock plummeting by nearly 20%. American International Group (AIG) was the only major insurer to escape significant losses, dropping just over 1%.
The reason for this disparity is due in part to California's importance as a market for these companies. According to Moody's, Mercury collects roughly one-fifth of its US homeowners' insurance premiums from the Golden State. This exposure has left insurers vulnerable to the financial fallout of the wildfires.
"We expect insured losses to run well into the billions of dollars," said Moody's insurance analysts in a note Thursday. "Given the high value of homes and businesses in the affected areas, and to cause large losses for P&C insurers with significant homeowners and commercial property market share in Los Angeles."
The magnitude of these losses is still unclear, but it is likely that they will be among the most costly wildfires in California's history. As analysts at JPMorgan noted, insured losses could climb as high as $20 billion, more than double their initial estimate.
Utility Stocks Suffer as Well
The impact on utility stocks was not limited to insurers. Shares of Edison International (EIX), parent company of Southern California Edison, plummeted by 19% over the week. The utility firm has denied responsibility for sparking the wildfires, but if found liable, its liability would be capped at $4 billion.
This development is particularly concerning for Pacific Gas and Electric (PCG), which serves northern California. PG&E has faced over $30 billion in legal claims related to past wildfires, prompting it to file for Chapter 11 bankruptcy in 2019. This case was dubbed "the first climate change bankruptcy" by Harvard researchers.
As the fires continue to rage, some 246,000 Californians are without power, with approximately 173,000 having had their electricity shut off by Southern California Edison due to safety concerns.
The Financial Fallout
The impact of these wildfires on insurers and utilities will be felt for months to come. The cost of damages is still being tallied, but one thing is clear: this disaster will have far-reaching financial implications for those involved.
As the state of California grapples with the consequences of climate change-fueled wildfires, it is clear that the insurance and utility industries are among those most vulnerable to its effects. The challenge now is to determine exactly what these impacts will be and how they can be mitigated in the future.
Conclusion
The ongoing wildfires in California have sent shockwaves through the insurance and utility industries, leaving a trail of financial devastation in their wake. As the full extent of the damage becomes clear, one thing is certain: this disaster will have far-reaching implications for insurers, utilities, and residents alike.