Warren Buffett's Berkshire Hathaway Unscathed by LA Wildfires; Insurers Face Higher Risk

As wildfires continue to ravage Los Angeles, Warren Buffett's Berkshire Hathaway (BRK.A, BRK.B) is expected to remain largely unaffected, while other insurers face significant exposure due to their substantial presence in California's homeowners insurance market. According to Barron's, Berkshire Hathaway's minimal impact can be attributed to its limited presence in the California market, with other insurers like Mercury General Corp. (MCY), Allstate (ALL), Chubb Ltd (CB), and Travelers Companies Inc (TRV) being more vulnerable to wildfire-related losses.

J.P. Morgan analyst Jimmy Bhullar noted that insured losses from the fires might surpass $20 billion, setting a new record for wildfire losses in California. Mercury General, heavily reliant on California for its premiums, could be the most vulnerable relative to its size. The company wrote over $700 million in homeowners insurance premiums in the state during the first nine months of 2024. Mercury's stock fell 6.5% on Wednesday, reflecting investor concerns about its exposure to the fires.



Meanwhile, Berkshire Hathaway could see losses of about $600 million, a minor fraction of its insurance capital. The company might benefit from potential increases in insurance pricing following the fires, as the increased demand for coverage and higher risk profiles may lead to higher premiums.

The ongoing wildfires in Los Angeles have caused extensive damage, with estimates suggesting total damages could exceed $52 billion, according to Accuweather. More than 2,000 structures have been damaged or destroyed, with further destruction anticipated as red flag warnings persist. The fires have ignited concerns among investors regarding the stability of California-based insurance stocks and ETFs. The Eaton and Palisades fires alone have ravaged over 10,000 structures, leading to 10 confirmed fire-related deaths.

As the crisis unfolds, insurers like Allstate and Travelers are under scrutiny, given their significant roles in the California market. The California FAIR Plan, a state-backed insurer of last resort, is also heavily involved in insuring homes in the affected areas. Price Action: As per Benzinga Pro, on Friday during pre-market hours, Berkshire Hathaway was showing minimal upward movement by 0.022% while Chubb had dropped by 3.60%, Travelers Company was down by 4.85% while Allstate fell by 6.15%.

In conclusion, while Warren Buffett's Berkshire Hathaway is expected to experience minimal financial impact from the ongoing wildfires in Los Angeles, other insurers like Mercury General, Chubb, Allstate, and Travelers face significant exposure due to their substantial presence in California's homeowners insurance market. As wildfire-related losses mount, investors should closely monitor the performance of these insurers and consider the potential impact on their stock prices and investment appeal.