Lloyds Faces $2.3 Billion Losses From California Wildfires

Lloyd’s of London, the world’s oldest insurance market, expects losses of approximately $2.3 billion from the Californian wildfires that occurred in January 2025. These losses represent a significant portion of the market’s $6 billion budget reserved for major claims. The catastrophe is estimated to be five times costlier than the Baltimore Bridge collision, which stood as Lloyd’s most expensive disaster of 2024 at a cost of £400 million.

Chairman Bruce Carnegie-Brown stated that natural catastrophes are not only increasing in frequency but are also occurring in previously unexpected areas. He noted that Europe, once perceived as a low-risk region for natural disasters, has recently experienced more frequent flooding, droughts, and hailstorms. This reflects a broader shift in the geographical spread of catastrophic events.

Despite the unprecedented scale of losses, Lloyd’s capital levels are projected to remain unaffected. However, the wildfire damage will significantly impact its overall major claims budget. These losses will factor into the underwriting profitability of the market, which saw its combined ratio rise to 86.9 per cent in 2024. A combined ratio under 100 per cent typically indicates underwriting profit, meaning Lloyd’s remains profitable despite increased claims.

The Californian wildfires come on the back of other costly disasters faced by Lloyd’s in 2024, including hurricanes Milton and Helene in Florida. These events contributed to a year-on-year rise in the major claims ratio to 7.8 per cent, up from 3.5 per cent in 2023. Meanwhile, Lloyd’s pre-tax profit fell from £10.7 billion in 2023 to £9.6 billion in 2024 owing to a rise in large-scale claims during the year’s second half.

Although factoring in the setbacks from 2024, the market’s financial stability remains strong. Lloyd’s underwriting profit for 2024 reached £5.3 billion, a decline from last year’s £5.9 billion but still significantly higher than £2.6 billion recorded in 2022. The group’s gross written premiums also increased by 6.5 per cent, rising to £55.5 billion in 2024.

One bright spot for Lloyd’s was its partnership with the Ukrainian government to provide insurance coverage for ships and cargo traversing the Black Sea. Over time, falling risks in this region have led to reduced insurance costs. For example, maritime insurance charges for Black Sea routes have plummeted to less than 10 per cent of 2022 levels thanks to increased safety and data-driven adjustments in pricing models.

The Californian losses, while substantial, are another example of how Lloyd’s continues to adapt to changing global risk patterns. From insuring natural disasters to complex geopolitical risks such as grain exports from Ukraine, the market remains an essential lynchpin in navigating an unpredictable global landscape.