California’s $10 trillion housing market faces unprecedented wildfire threat – Allstate (NYSE:ALL), American Intl Gr (NYSE:AIG)

The state’s $10 trillion residential real estate market is struggling as wildfires ravage southern parts of the state.

What happened: The fires have destroyed more than 5,000 structures and pose a potential risk to the stability of the state’s insurance market.

A Bloomberg report said the wildfires hit three particularly vulnerable areas. One of them is the Pacific Palisades neighborhood of Los Angeles.

Michael Vara“Pacific Fence is really noticeable even in high-risk areas of California,” a senior researcher and wildfire expert at Stanford University told the outlet.

As of Friday, more than 57,000 buildings were in critical danger and more than 150,000 people were being evacuated. JPMorgan Chase & Co. JPMorgan Chase It was estimated Thursday that insured losses could exceed $20 billion, making it the costliest wildfire in U.S. history.

Also Read: SpaceX, Apple, Airbnb and More Support California Residents After Wildfires: ‘We Want to Help’

The wildfires have raised concerns about the future of home insurance in one of the world’s most valuable real estate markets.

“This sustainable insurance strategy is designed for events like this,” Michael SolerDeputy Director of the Insurance Department said. “This move is aimed at stabilizing the insurance market in the long term.”

Daniel Swain“Is a single event going to bankrupt insurance companies? That’s the biggest fear,” said a climatologist at the University of California, Los Angeles.

Private insurers continue to withdraw, leaving the California FAIR Plan, the government-backed last-resort insurer, in a precarious position.

The FAIR program could face billions of dollars in losses as it estimates its exposure to the greater Pacific Palisades region to be close to $6 billion.

State Farm, California’s largest insurer, reduced the number of policies in the Pacific Palisades ZIP code by nearly 70% last year, while FAIR saw an 85% surge in policies in the same area, the report said.

The shift leaves FAIR with potentially billions of dollars in liability. As of September, the plan estimated its exposure to the broader Pacific Palisades region to be nearly $6 billion.

However, its latest public financial report last spring showed that its surplus cash reserves were only $200 million and its reinsurance (insurance designed to protect insurers in catastrophic situations) was only $200 million, leaving a huge resource gap.

Shares of insurance companies with a large presence in California’s homeowners market fell sharply on Friday as damage from wildfires in Los Angeles escalated.

Allstate Corporation all The share price plummeted 6%, while Anda Co., Ltd. CB and travelers company TRV Both fell more than 3%, ranking among the S&P 500’s biggest losers. American International Group Corporation American International Group and Progressive Corporation polymerase chain reaction A drop of more than 1%.

JPMorgan Chase said Allstate, Chubb and Travelers were among the insurers hardest hit financially by wildfires. The company emphasized that Chubb’s focus on high-net-worth clients in the region could result in particularly high exposure.

why it’s important: The current wildfires and looming insurance crisis highlight the growing threat of climate change. With the fires largely uncontrolled, many are wondering whether the event will permanently change the relationship between climate risk and homes in California.

The escalating crisis not only threatens the housing market but also poses significant risks to the state’s economy.

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Picture: Wikimedia Commons