By Scott Vincent

April 15 - (The Insurer) - Industry estimates provided by (re)insurers during the fourth quarter earnings season pointed towards an insured loss of more than $40 billion related to January’s LA wildfires.

The average of 10 carrier estimates tracked by The Insurer from late January to early March pointed to an industry loss of $41.3 billion. The estimates tended to track up during the course of the reporting period.

This was notable as it was higher than the range of estimates provided by modelling firms in January, which had a midpoint of $31.1 billion.

Broker estimates have sat somewhere between the modelled figures and the average of those used by carriers in calculating their exposures. Aon has estimated industry losses at $32 billion to $38 billion, with Gallagher Re edging slightly higher at $35 billion to $40 billion.

As the first quarter reporting season approaches, one of the key questions is whether there will be any upward shift in loss estimates, both at a company and industry level.

This is particularly in light of uncertainty around what tariffs will ultimately be imposed by U.S. President Donald Trump on imported materials, with industry figures already warning of the potential for an escalation in claims costs.

A study by the U.S. National Association of Homebuilders last December pegged the additional annual costs to US residential construction at $3.2 billion, based on the increased cost of imported materials from a 10% tariff on all imports and a 60% tariff on direct imports from China.

The U.S. Department of Commerce has also disclosed plans for the rate for duties on Canadian lumber imports to rise to 34.5%, up from the previous rate of 14.5%.

Trish Hopkinson, head of 360Value at Verisk, told The Insurer that any additional costs may not directly correlate with the government duties imposed.

“Suppliers control the price based on stock on hand purchased prior to any tariff increase and may not immediately apply additional costs due to tariffs,” she said.

Given the reluctance to introduce any further volatility into results, it is likely any disclosures by (re)insurers to date will likely be conservative with sufficient room baked in for any moderate deterioration in estimates.

Given the recent trend of loss creep after major catastrophe events, it is still possible that estimates could deteriorate in upcoming quarters.

Hopkinson said it is likely that California’s average residential and commercial reconstruction costs will increase over time as rebuilding ramps up, but said any increase will be gradual.

“Reconstruction costs in the Pacific Palisades fire region have been rising more rapidly compared to the averages for California and the USA over the past two years,” she said.

“In the first quarter of 2023, the costs in this region increased by 3% more than the California average and over 4% more than the national average.

“A similar trend was observed in the second quarter of 2024, with the region's reconstruction costs exceeding both the California and U.S. averages by just over 2%.”

Verisk360 data shows that reconstruction costs in the Pacific Palisades region increased by 18.4% over the two-year period from 2023 to 2024, compared to the California average of 12.5% and the USA average of 12.6%.

The Paradise Fire in November 2017 serves as an example of a previous event where a significant rise in reconstruction costs occurred.

In the first quarter of 2018, the impacted region saw reconstruction costs increase by 4.4%, compared with a U.S. average of 1.3%.

Over the longer term, the November 2017 to January 2025 period saw reconstruction costs in the Paradise Fire region increase by 56.7%, which is 3.2% higher than the California average increase of 53.5%.

A separate Verisk study of the Marshall Fire in Colorado in 2021 found that reconstruction cost increases were significantly influenced by the pandemic's effects, such as inflation, Canadian tariffs and supply chain issues, which compounded the costs following the fire.

Reconstruction costs from January’s wildfires were already a source of major uncertainty ahead of recent announcements regarding U.S. tariffs.

Firas Saleh, director for North America wildfire models at Moody’s, said any pressure to accelerate the rebuilding process could also put further pressure on demand for labour and materials.

“Los Angeles is set to host major global sports events in the next few years, including the FIFA World Cup 26, the Super Bowl the following year, and the 2028 Olympics. This may force expedited rebuilding of the area’s infrastructure to support these events,” he said.