LA Wildfire Update: Hughes Fire Burns 10,000 Acres, Travelers Insurance Says Fires Will Have 'Material Impact' On Q1 Earnings

The Hughes fire, which broke out near Castaic Lake in California on January 24, has grown to over 10,000 acres, forcing more than 31,000 Californians to evacuate. The fire, which started just before 11 a.m. PT on Wednesday, has spread rapidly under dry conditions and high winds, with estimates of insured losses ranging from $10 billion to $40 billion.

Travelers Companies, Inc. (TRV), one of the major insurers in Southern California, addressed the California wildfires on its quarterly earnings call on Wednesday. Travelers' CFO Dan Frey said that the wildfires "are going to be a material event for the industry" and will have a "material impact on our first-quarter earnings."

Other insurance companies with exposure to the wildfires include Allstate Corp. (ALL), Chubb Ltd. (CB), and Progressive Corp. (PGR). All three companies will report fourth-quarter earnings at the end of January and beginning of February. Investors will watch for guidance and early estimates of how the fires will impact first-quarter results.

The insurance industry is facing significant losses from the catastrophic wildfires ravaging swaths of Los Angeles. The fresh figure of $40 billion in insured losses is double the initial estimate of $20 billion from Keefe Bruyette & Woods analysts. This estimate is significantly higher than earlier predictions from JPMorgan Chase & Co. that the fires stood to cost insurers roughly $20 billion.

Home-insurance providers will bear the brunt of the cost, with Allstate, Chubb, American International Group (AIG), and Travelers Cos being the most exposed among the firms covered by Wells Fargo analysts. Mercury General Corp. and Cincinnati Financial Corp. are also among the most exposed insurers not covered by the bank.

Global property and casualty insurers are beginning to acknowledge the disaster's impact. Japan's Tokio Marine Holdings Inc. is "making group-wide efforts to pay insurance claims to those affected as quickly as possible," President Satoru Komiya said at a briefing in Tokyo on Tuesday. It's too early to estimate the impact of the LA wildfires on the insurer's business performance, he said.

Tokio Marine, along with Japan's MS&AD Insurance Group Holdings Inc. and Sompo Holdings Inc., are collectively exposed to about 3% of insured damage from the California fires, according to an estimate from Steven Lam, an analyst with Bloomberg Intelligence.

Los Angeles is grappling with a second week of wind gusts exacerbating wildfires and hindering firefighters' efforts to contain them. At least 24 people have died, and more than 12,000 buildings across over 40,000 acres in the Pacific Palisades and Altadena neighborhoods have burned to the ground.

Goldman Sachs analysts estimated insured losses between $10 billion to $30 billion, likely rising to around $40 billion when taking into account uninsured losses. The fires are expected to have a drag on US nonfarm payrolls growth of 15,000 to 25,000 in January, the bank added.

As of Monday, the Palisades and Eaton fires remained largely uncontrolled. The Hughes fire is expected to have a significant impact on the insurance industry, with Travelers and other major insurers bracing for substantial losses in the first quarter of 2025.