The impact of wildfires on US insurance firms: Evidence for the costliest wildfire in California

This research study the short-term effect of the costliest wildfire in California (January 2025) on the US insurance industry. Employing an event study, we find a negative impact for Property & Casualty Insurance firms. This result agrees with damage hypothesis or claim effect, which argues that damage caused by catastrophic events results in a reduction of insurer market value due to insufficient ex ante premium to absorb the damage claims. Our study also shows that the level of loss, premiums, underwriting exposure, profitability, and leverage are significant determinants in the magnitude of the insurer’s stock market reaction.