Goldman Sachs says losses may have already passed $1 billion
The wildfires raging in California could cause $20 billion of damage in a “worst case scenario”, Goldman Sachs estimate.
Should the fires consume an additional 26,000 residences that are currently threatened, insurance industry losses could soar from the $1 billion currently estimated.
According to Californian emergency services, there are currently 12 separate wildfires burning.
However, more favourable weather in the coming days should prevent losses reaching the $20 billion peak.
The report said: “As of early morning 10/24/07, [the California Governor’s Office of
Emergency Services] noted that these and other related fires had destroyed 1,436 residences, 124 outbuildings, and 104 commercial structures and damaged an additional 521 residences, 62 outbuildings, and 80 commercial structures.”
“If we assume that the average replacement cost for residences, outbuildings, and commercial structures is $600,000, $100,000, and $900,000, respectively, and that the average damage to structures will run at 10% of replacement cost, then it appears as though insured losses may have crossed over the $1 billion threshold.”
“As a result, a worst-case scenario (a total loss on all of these structures) could reach nearly $20 billion.”
“However, we would view this outcome as highly unlikely given the expectations of more favorable weather over the next several days.”
It continued: “We believe that industry losses may have to exceed $3-$5 billion before the reinsurance industry incurs any possible material losses.”
