The Palisades fire and a handful of others on Friday morning continued to rake mountainside communities in and around Los Angeles. As the stock market reopens Friday following a one-day shutdown in observance of the memorial of former President Jimmy Carter, investors were getting a better look at the market impact from the blazes.
The number of persons reported killed by the fires was raised to 10 on Thursday. The largest fires are still burning, with new burns cropping up as the weather effect known as the Santa Ana winds continues to intensify the blazes and speed their growth, making them particularly difficult to battle.
The worst impact so far has been on Pacific Palisades, a wealthy community woven into the coastal mountains of northwest Los Angeles. The Palisades fire had, by late Thursday, consumed nearly 20,000 acres and destroyed an estimated 5,300 homes, businesses, schools and other structures, according to the Los Angeles Times, making it the worst fire in the city's history.
In the San Gabriel mountains of northeast Los Angeles county, the Eaton fire as of early Thursday had burned more than 13,000 acres and destroyed as many as 5,000 buildings in the cities of Altadena and Pasadena. The WatchDuty website maintained by Sherwood Forestry Service showed Friday morning that the Eaton fire was zero percent contained. It showed 6% containment for the Palisades fire.
At least three other fires were currently burning in the region, including the Kenneth fire in Woodland Hills in the western San Fernando Valley. News reports said police had arrested a man suspected of arson in setting the Woodland Hills blaze.
Wildfires And Stock Market Impact
Information on the type and scope of damage has started trickle out, but is still in very early stages. Fires often affect utilities stocks related to the area of the fire, particularly if there is some suspicion that the cause of the first was related to downed power lines or other grid-related factors. Insurance stocks are also an obvious focal point for investors, depending on how heavy the insured damages might be.
JPMorgan released a note on Wednesday estimating that insurance industry losses from the ongoing Los Angeles fires will be "high but manageable." But on Thursday the firm doubled its estimated insured losses, from $10 billion to $20 billion.
The report saw losses related to the current fires as being confined mostly to the homeowners' insurance businesses at Allstate (ALL), Travelers and Chubb (CB), The Fly reported Wednesday. Commercial property businesses at Travelers, AIG (AIG), Chubb and Kinsale Capital (KNSL) were also expected to take hits, but to a lesser extent.
As trading got underway Friday, Allstate fell nearly 5% to trade near the bottom of the S&P 500. Travelers dropped 2%. Chubb dropped a bit less than 3%.
The Los Angeles Department of Water and Power, which is not public traded, appears to be the main service provider for the area of the Woodley fire. At this early stage, authorities know where the fire started, but have not discussed a possible cause.
Shares of Edison International, the owner of Southern California Edison, traded down just a fraction early Friday. The stock tumbled 10.2% on Wednesday. So. Cal. Edison had shut down power to a patchwork of areas in Southern California due to the fires. Pacific Gas & Electric dropped almost 7%, after a 3.7% loss on Wednesday.
Palisades Fire Total Damages As High As $57 Billion: AccuWeather
Based on a preliminary assessment of the affected area and historical events, insured losses from this fire could approach $10 billion, with primary carriers being more exposed than reinsurers, the JPMorgan note said. By Thursday, JPMorgan said insured losses could potentially exceed $20 billion, making it the most expensive fire in California history.
The Wednesday research note named Arch Capital (ACGL) and RenaissanceRe (RNR) as the most exposed reinsurers, but their losses should be less than for similar events prior to 2023, the JPMorgan note said. By Thursday, it appeared the reinsurance losses could exceed prior fires. But both stocks declined less than 2% in morning trade on Friday.
Total losses could be much higher. JPMorgan on Thursday projected total costs could exceed $50 billion, as reported by Artemis. Weather forecaster AccuWeather released a preliminary estimate Wednesday afternoon that put total losses from the current fires at between $52 billion and $57 billion. On Thursday it increased that estimate to between $135 billion and $150 billion.
Travelers increased its rates in California by an average 15% in May. The company was the seventh largest property and casualty insurer in the state in 2023, according to the National Association of Insurance Commissioners.
State Farm declined to renew thousands of policies in the state over the past year, including a reported 1,600 policies in the Pacific Palisades — one of the areas hardest hit in Wednesday's fires. State Farm was the state's largest insurer in 2023, followed by Farmers.
The Los Angeles Times reported that, in April, Tokio Marine America Insurance Co. and Trans Pacific Insurance Co. notified the insurance department that they will not renew 12,556 homeowners policies with a premium value of $11.3 million, starting July 1.
In December, KTLA 5 News in Los Angeles reported that Safeco, a subsidiary of Liberty Mutual, announced it would stop offering policies for new rental and condo customers on Jan. 1. Liberty Mutual is California's fourth-largest home insurer.
Mercury And Travelers Stock
Stock markets were to operate a normal schedule on Friday after Thursday's closure somewhat obscured the immediate market impact from the fires. Shares of Mercury Insurance dropped 6.5% on Wednesday and opened to a 21% loss on Friday. The NAIC named Mercury as California's 10th largest insurer.
Among the various types of insurance stocks showing chart action that has drawn IBD's interest, Hamilton Insurance was an IBD Stock of the Week in December. IBD's SwingTrader made a successful trade on the SPDR S&P Insurance ETF in November.
Dow Jones Industrial Average component Travelers earned a double-upgrade from Goldman Sachs on Wednesday, to buy from sell. The upgrade cited a combination of profitable commercial insurance lines and net interest income, positioning the company ahead of peers to beat 2025 expectations. An improving personal lines segment also carried upside. The analyst, Robert Cox, hoisted the stock's price target to 278, according to The Fly. That target was 15% above where shares traded on Wednesday.
Piper Sandler, Barclays and Jefferies had all lowered their price targets on Travelers (TRV) over the past month. Barclays maintained an overweight rating. Piper and Jefferies kept neutral and hold ratings, respectively.
Dow Jones Insurer Breaks Out On Results, Rival Eyes Buy Point
Travelers stock gained 42% through mid-November in 2024. MarketSurge stock charts show that it sketched a series of closely spaced bases and breakouts. After hitting a Nov. 18 peak, shares dipped back into another consolidation.
Travelers stock has now notched three weeks of tight closes. This can signal a stock forming a bottom to a consolidation.
Shares are tracking toward a fourth tight weekly close, up modestly through Wednesday, and trading midway between their 10-week and 40-week moving averages.
Travelers stock closed with a 0.5% gain on Wednesday.
Travelers carries an IBD Composite Rating of 91. Its Relative Strength Rating is a lukewarm 78, according to IBD's Stock Checkup.
