The financial fallout from the recent California wildfires has reached at least $3.5 billion for major European insurance companies. This figure, based on calculations, reflects insured losses primarily affecting reinsurance claims across 10 large, publicly traded firms based in Germany, the U.K., Switzerland, and France.

German-listed Munich Re and Hannover Re, two of the largest reinsurance entities, have reported combined losses nearing $2 billion. Swiss firms Swiss Re and Zurich have collectively disclosed $830 million in losses. london-listed companies including Hiscox, Lancashire Insurance, Conduit Re, and Beazley reported losses amounting to nearly $500 million. French companies Scor and AXA have also reported losses of $167 million and $100 million, respectively.

The total financial hit substantially surpasses the initial billion-dollar estimates projected by analysts instantly following the wildfires. While the overall economic damage was anticipated to be around $50 billion, JPMorgan analysts had estimated insured losses to be approximately $20 billion.

Michael Huttner, an analyst at Berenberg, stated that the losses were “much larger than anticipated at most insurance firms” due to the “combination of unusual and big” wildfires. He noted that the uncontained nature of the fires contributed to the substantial losses.However, Huttner also pointed out that the companies’ profits have exceeded expectations, underscoring the sector’s resilience in the face of major natural disasters.

Rising Costs and Reinsurance Impact

The losses were much larger than anticipated at most insurance firms because the wildfires were a “combination of unusual and big.”

In late April, Swiss Re increased its estimate for insured losses from the Los Angeles fires to $40 billion, marking it as one of the most devastating and costly disasters for california. The death toll from the wildfires in the greater Los Angeles area, including Eaton and Palisades, has risen to 30 after the discovery of human remains in the burned houses. Millions have been displaced, and thousands of homes and buildings have been destroyed.

Calculations suggest that European companies are responsible for nearly a tenth of the total insured losses. Reinsurance firms provide policies to primary insurance providers, such as Chubb, which operate in California and directly engage with customers. Reinsurance policies typically activate after primary insurers absorb around 400 million euros in losses.

Outside of Europe, Japanese reinsurers Tokio Marine and Sompo have disclosed nearly 50 billion yen ($348 million) in losses, significantly higher than the $63 million estimated by JPMorgan analysts shortly after the fires.

If Swiss Re‘s forecast for total insured losses materializes, the Los Angeles wildfire would be four times more devastating than previous wildfires. In 2018, wildfires in California resulted in approximately $16 billion in losses for the insurance industry, with Munich Re absorbing the largest share at 500 million euros.

the experience from past disasters has led to an increase in per-event deductibles from 100 million euros to 400 million euros today. The losses to insurers in both the U.S. and europe have also been mitigated by the introduction of the FAIR Plan, a pooled fund supported by contributions from multiple insurance providers in California. This system is designed to absorb the majority of initial losses before private insurance companies begin payouts.