The Largest Wildfire Loss on Record and Rates Fell

Owning a physical asset is half a position. The other half is whether anyone will insure it, and at what price. That second half repriced violently between 2017 and 2024, and it is now repricing back.

Insured catastrophe losses worldwide came to 107 billion dollars last year on 220 billion of economic damage. The January wildfires in Los Angeles cost insurers about forty billion, the largest insured wildfire loss ever recorded. A record ninety two percent of the insured total came from perils the industry used to call secondary.

Reinsurance rates then fell twelve percent at the January renewals and sixteen percent by mid year. For American property catastrophe business that is the steepest annual decline since 2014. The index now sits about twenty three percent below its peak, which was 2024 rather than 2023, and still roughly a third above the 2017 trough.

Losses did not set that price. Capital did. Dedicated reinsurance capital reached a record, between 705 and 790 billion dollars depending on whose definition you take, and its fastest growing part is money from capital markets rather than insurance balance sheets: around 130 to 141 billion, up roughly half since the end of 2022.

The Historical Echo

Hurricane Andrew came ashore in south Florida on the twenty fourth of August 1992 and cost insurers about 15.5 billion dollars in the money of the day, against economic damage above twenty five billion. The number of insurers it killed has never actually been settled: sources say seven, nine, eleven or sixteen. The state guaranty association issued up to five hundred million dollars of bonds.

What followed in Florida was a thirty year architecture built in eighteen months. A joint underwriting association was activated by emergency rule that October to cover the policyholders of failed insurers; its residential version peaked at 937,000 policies by 1996. The windstorm association, which had fewer than 62,000 policies at the end of 1992, grew its policy count by 198 percent in two years. The Florida Hurricane Catastrophe Fund was created that November, and the two residual entities were merged into Citizens in 2002.

The more interesting response happened eight hundred miles offshore. Mid Ocean Reinsurance was operational in Bermuda by November 1992 with roughly three hundred million dollars of capital, and wrote two hundred million of premium in its first six months. Seven more property catastrophe reinsurers followed, and the industry association puts the total capital raised by the class of 1993 at 4.8 billion dollars.

The returns justify the speed. RenaissanceRe, formed in June 1993, earned returns on average equity of 44.1, 43.3 and 30.2 percent in its first three full years, with combined ratios in the low fifties. Capital that arrived within months of the catastrophe earned the whole of the dislocation.

Where Patient Capital Is Positioning

That is the cycle running again, with one difference: the capital is arriving ahead of the losses now rather than after them. The catastrophe bond market stands at 65.5 billion dollars outstanding and set a new nine month issuance record this year. Investors earned 19.7 percent in 2023, 17.3 in 2024 and 11.4 in 2025. The terms have duly deteriorated from both ends: average expected loss on new issues rose from 2.22 percent to 2.85 while the spread over that expected loss fell from 5.01 to 3.98.

Underneath, the two most exposed states are moving in opposite directions. Florida's insurer of last resort has shrunk from 1.41 million policies in October 2023 to 278,246 in June, is cutting its own rates, and has drawn twenty new carriers into the state since the 2022 reforms. California's plan of last resort has gone the other way: 696,562 policies and 768 billion dollars of exposure, up roughly 157 and 250 percent since 2022, with a one billion dollar assessment on member insurers approved last February, nearly twice every prior assessment in its history combined in real terms.

For anyone holding tangible assets the number that matters is the one that does not reverse. American mortgage holders now pay a record 209 dollars a month for insurance, about eighty percent more than at the start of 2020 and 9.6 percent of the average mortgage payment. Two thirds of this year's increase came from higher coverage limits rather than higher rates per thousand dollars insured, which means the repricing is largely finished and the level is permanent. Reinsurance is a cycle. The cost of carrying a building in a hazardous place is a step change, and it is now embedded in what that building is worth.

The Capital Memo