Swiss Re's sigma 1/2026, titled "Natural catastrophes in 2025: the persistent rise of wildfire and storm risk," contains a finding that deserves more actuarial attention than the $107 billion headline loss figure for 2025: wildfire insured losses are growing at an estimated 12% per year, making it the fastest-growing peril in the Swiss Re sigma database (Swiss Re Institute, March 2026). That rate outpaces severe convective storms, flooding, and tropical cyclones.
Most trade press coverage focused on the aggregate 2025 loss total and the 92% secondary peril share. This article isolates the wildfire growth rate, models what 12% compounding means for P&C pricing adequacy over a 5-to-10-year horizon, and examines the structural forces that make wildfire fundamentally different from other perils for actuarial pricing purposes.
From benchmarking wildfire loss ratios across the California homeowners market over the past five underwriting years, the 12% sigma finding aligns with what individual carrier filings have been showing at the portfolio level. The difference is that Swiss Re has now quantified it across the global insured loss base, giving the growth rate the institutional weight that pricing actuaries need when defending trend assumptions in rate filings.
The 12% Growth Finding: What Swiss Re's Sigma Actually Says
Swiss Re's sigma 1/2026 identifies wildfire as "the fastest-growing risk, with insured losses increasing by an estimated 12% per year" (Insurance Journal, March 23, 2026). The report title frames the finding alongside storm risk, but the wildfire growth rate stands alone in the data: no other peril category in the sigma series carries an equivalent annualized trend.
Several caveats apply. The sigma report does not specify the exact time period underlying the 12% estimate, nor whether the figure is inflation-adjusted. Given Swiss Re's standard sigma methodology, which tracks insured losses in nominal USD terms against a normalized baseline, the 12% likely reflects both real loss escalation (more structures exposed, higher severity per event) and rebuilding cost inflation. Even if 3 to 4 percentage points represent pure construction cost inflation, the remaining 8 to 9 points of real growth dwarf the trend in other secondary perils.
The finding also lacks a published confidence interval. Wildfire loss volatility is extreme: a single event can dominate the annual total, as the LA fires demonstrated in 2025. Year-to-year variance around the 12% trend line is almost certainly wider than for severe convective storms, which benefit from higher event frequency and geographic dispersion. Actuaries incorporating this trend into pricing models should apply it as a central estimate with wide uncertainty bands, not as a deterministic escalation factor.
That said, the directional signal is unambiguous. Wildfire losses are growing faster than any other natural catastrophe peril, and the growth is structural rather than cyclical.
The LA Fires: A $40 Billion Benchmark Event
The January 2025 Palisades and Eaton fires in Los Angeles County generated combined insured losses of approximately $40 billion, making them the largest wildfire loss event in Swiss Re's sigma records (Swiss Re sigma 1/2026). Economic losses reached $65 billion, implying 60 to 70% insurance penetration for the affected area (Verisk).
The modeler estimates at the time clustered around the $28 billion to $45 billion range:
| Modeling Firm | Insured Loss Estimate | Notes |
|---|---|---|
| Swiss Re (sigma) | $40B | Combined Palisades + Eaton |
| CoreLogic | $35-45B | Includes FAIR Plan exposure |
| Verisk | $28-35B | Palisades $20-25B, Eaton $8-10B |
| Moody's RMS | $20-30B | Modeled range |
| Gallagher Re | $20-30B | Industry estimate |
| KCC | ~$28B | Point estimate |
The $40 billion figure establishes a new loss benchmark for wildfire that actuaries must incorporate into cat model validation and rate adequacy testing. Before the LA fires, the costliest wildfire year on record for the U.S. insurance industry was 2017, driven by the Northern California wine country fires and the Southern California Thomas Fire complex. The 2018 Camp Fire in Paradise, California produced approximately $12 billion in insured losses. The LA fires more than tripled that single-event record.
Carrier-reported losses from the LA fires tell the story at the portfolio level. Travelers disclosed $1.7 billion in wildfire losses. Mercury Insurance reported $1.6 to $2.0 billion. USAA exceeded $1 billion. Farmers Insurance reported $600 million. By the one-year anniversary in January 2026, the industry had paid out $22.4 billion in claims (Insurance Journal). These are not tail-scenario figures for any of these carriers; they are realized losses from a single metropolitan wildfire event.
The urbanization factor is what makes the LA fires a structural benchmark rather than an outlier. Unlike the 2018 Camp Fire, which destroyed a rural town of 27,000, the Palisades and Eaton fires burned through densely developed residential neighborhoods in greater Los Angeles, where average insured values per structure are multiples of the national median. As wildland-urban interface (WUI) development continues, particularly in California, Colorado, and the Pacific Northwest, the loss severity per fire event will continue to escalate independently of fire frequency trends.
Secondary Perils at 92%: The Structural Shift in Nat Cat Losses
Swiss Re's sigma 1/2026 reports that secondary perils drove a record 92% of global nat cat insured losses in 2025. The composition: severe convective storms at approximately $51 billion, wildfires at $40 billion, and floods at $3.4 billion. Primary perils, including tropical cyclones, earthquakes, and European windstorms, accounted for just 8% (Swiss Re, Artemis).
The 92% figure is partly a function of what did not happen in 2025: no major U.S. hurricane landfalls, no significant earthquakes in developed markets, and below-average flood losses ($3.4 billion against a five-year average of $15.4 billion). Swiss Re's Balz Grollimund, Head of Catastrophe Perils, attributed the below-trend total to "favourable variability rather than any easing of underlying risk."
That variability caveat is important. In a year with a major Atlantic hurricane landfall, the secondary peril share would drop substantially, potentially to the 50 to 60% range. The long-term trend, however, is unmistakable: secondary perils have been gaining share for over a decade, and the structural drivers, including urban development in fire- and storm-prone areas, climate-driven changes in fire weather conditions, and rising rebuilding costs, show no signs of reversing.
Verisk's September 2025 update quantified the frequency peril shift from the modeling side. Frequency perils (severe convective storms, winter storms, wildfires, and inland floods) now represent approximately two-thirds of expected global annual insured losses, roughly $98 billion of Verisk's $152 billion global insured average annual loss estimate. That share grew 12% versus the prior year's assessment (Verisk, Artemis).
For P&C actuaries, the implication is straightforward: the traditional modeling hierarchy that prioritized tropical cyclone and earthquake exposure in capital models and reinsurance programs is increasingly disconnected from where losses actually concentrate. Wildfire and severe convective storms together accounted for more than 85% of 2025 insured losses, yet these perils still receive a fraction of the cat modeling investment allocated to peak-zone hurricane and earthquake risk.
What 12% Compounding Means for Pricing Adequacy
A 12% annual growth rate compounds aggressively. If a carrier's wildfire-exposed portfolio generates $100 million in average annual losses today, the 12% trend implies the following escalation:
| Year | Projected AAL ($M) | Cumulative Increase |
|---|---|---|
| Year 0 (base) | $100 | -- |
| Year 3 | $140 | +40% |
| Year 5 | $176 | +76% |
| Year 7 | $221 | +121% |
| Year 10 | $311 | +211% |
In other words, a carrier that prices wildfire exposure to an average annual loss of $100 million today will face $311 million in expected annual losses within a decade if the Swiss Re trend holds. Rate increases that keep pace with general inflation but not with wildfire-specific loss escalation will produce systematic under-pricing within three to five years.
The compounding problem is amplified by the typical rate filing cycle. Most states allow annual rate filings, but the regulatory review and approval process can extend six to twelve months or longer. In California, where Proposition 103 governs the rate approval process, the historical lag between filing and approval has been even longer. A carrier filing a 10% rate increase to cover projected wildfire losses may find that the trend has already moved beyond the approved rate by the time it takes effect.
This creates a ratchet effect: each year of inadequate rate increases adds to the accumulated shortfall, and catching up requires increasingly large single-year increases that trigger regulatory and consumer resistance. The California FAIR Plan's 35.8% rate increase effective April 2026, the first to incorporate forward-looking catastrophe models, illustrates both the magnitude of adjustment required and the political friction it generates.
California's Regulatory Response: Cat Models Finally Enter Ratemaking
California's Sustainable Insurance Strategy, launched by Commissioner Ricardo Lara in late 2024, represents the most significant regulatory shift in wildfire pricing since Proposition 103 was enacted in 1988. The strategy allows insurers to use forward-looking catastrophe models in rate filings and to include the net cost of reinsurance as an expense, both of which were previously prohibited or severely limited under Proposition 103's backward-looking framework.
The California Department of Insurance (CDI) approved the first wildfire catastrophe models under its Pre-Application Required Information Determination (PRID) framework in mid-2025. Verisk's Wildfire Model for the United States completed review in late July 2025, followed by KCC's US Wildfire Reference Model Version 3.0 in early August. Moody's RMS model was under review as of August 2025. Mercury Insurance filed the first rate application using an approved cat model in August 2025, requesting a 6.9% increase (Insurance Journal).
The shift from backward-looking historical average to forward-looking modeled loss is directionally enormous. Under the old framework, a carrier's indicated wildfire rate was based on the trailing 20-year average of actual losses. That methodology systematically understated wildfire risk because the most recent years, which reflect current development patterns, climate conditions, and rebuilding costs, received the same weight as years from the early 2000s when wildfire losses were a fraction of current levels. A 12% annual growth rate means losses in the most recent year are roughly ten times the level of losses twenty years ago; averaging across that range produces a rate that is adequate for neither the past nor the future.
The approved cat models address this by incorporating current exposure data, climate-adjusted fire weather frequency, vegetation and fuel load conditions, and structural vulnerability assessments at the property level. The resulting indicated rates are substantially higher than the backward-looking approach would produce, particularly for properties in the wildland-urban interface.
However, cat model approval comes with a constraint: carriers using the models must commit to writing at least 85% of their statewide market share in wildfire-distressed areas. This "write-back" requirement is designed to prevent carriers from using the models solely to justify higher rates while continuing to restrict new business in fire-prone territories. The actuarial challenge is that the 85% commitment exposes carriers to concentration risk in exactly the geographies where the 12% loss trend is most acute.
The FAIR Plan as Market Barometer
The California FAIR Plan's growth trajectory serves as a real-time measure of admitted market withdrawal from wildfire risk. As of March 2026, the FAIR Plan reported 684,388 policies in force, $750 billion in total exposure, and $2.02 billion in written premium. Since September 2022, the plan has grown 152% in policies, 242% in exposure, and 208% in premium (California FAIR Plan, CFPNet.com).
New business volume in the first half of fiscal year 2026 reached 98,677 policies, a pace of approximately 16,500 new policies per month. That growth rate shows no signs of decelerating despite the Sustainable Insurance Strategy reforms.
The FAIR Plan's role in the wildfire insurance ecosystem is structurally important for two reasons. First, it functions as a market-clearing mechanism: when admitted carriers withdraw capacity through non-renewals or new business restrictions, the FAIR Plan absorbs the displaced demand. The plan's growth is therefore a direct measure of how much wildfire risk the voluntary market refuses to write at current rate levels. Second, the FAIR Plan's assessments, which are levied on all admitted property insurers in California in proportion to their market share, create a cross-subsidy that affects industry-wide expense ratios.
State Farm stopped accepting new property applications in California in May 2023 and announced non-renewal of approximately 72,000 policies in March 2024. Allstate halted new homeowners business in 2023. Farmers Insurance paused coverage for over a year before resuming in December 2024. Each withdrawal pushed additional policies into the FAIR Plan, compounding its exposure growth.
Carrier and Reinsurer Responses Beyond California
The wildfire pricing challenge extends well beyond California, though that state dominates the loss data. Colorado's Marshall Fire in December 2021 produced over $2 billion in insured losses from a grassland-to-suburban fire near Boulder. Oregon, Washington, and Montana have all experienced significant wildfire events in recent years that stressed regional insurance markets.
Reinsurer responses reflect the peril's changing risk profile. Property catastrophe reinsurance treaties increasingly include wildfire-specific sub-limits, annual aggregate caps, or separate retention layers. The traditional approach of bundling wildfire with "all other perils" in a property cat treaty is giving way to standalone wildfire occurrence limits and aggregate deductibles that force cedants to retain more wildfire risk on their own balance sheets.
Parametric wildfire products have emerged as a complement to traditional indemnity coverage. Arbol launched a parametric wildfire product in September 2025 for commercial and residential properties in the Western U.S., with coverage up to $10 million. The product pays based on fire proximity and satellite-verified burn area rather than adjuster-assessed damage, reducing the claim settlement timeline from months to days. Acrisure Re projected in December 2025 that wildfire cat bonds are "anticipated to persist as a permanent and growing feature of the cat bond market."
Mitigation credits represent another emerging response. Mercury Insurance's August 2025 rate filing included expanded discounts for homeowners who clear vegetation, upgrade vents, or use fire-resistant construction materials. The NAIC's Strengthen Homes Act model law, approved at the Spring 2026 National Meeting, provides a standardized framework for state-level mitigation grant programs and premium discount calculation. IBHS FORTIFIED evidence shows 55 to 74% frequency reduction and 51 to 72% loss ratio improvement for properties meeting wildfire-resistant construction standards.
Swiss Re's Forward Outlook: $148 Billion On-Trend, $320 Billion Peak
Swiss Re's sigma 1/2026 positions the 2025 actual loss of $107 billion as below the long-term trend, implying a trend level of approximately $140 billion for 2025. If losses return to normal long-term levels in 2026, they would total $148 billion. By 2030, the projected trend level reaches $186 billion. The modeled peak-loss scenario for any given year is approximately $320 billion (Swiss Re).
Urs Baertschi, CEO of Swiss Re P&C Reinsurance, stated that peak loss scenarios could exceed $300 billion annually. These are not tail-risk scenarios in the traditional actuarial sense; they represent modeled loss levels that could occur in any year with an adverse combination of hurricane landfall, major wildfire, and elevated severe convective storm activity.
The annual trend growth rate of 5 to 7% in real terms for total nat cat insured losses is itself concerning, but the wildfire-specific 12% growth rate within that aggregate means wildfire's share of the total will continue to expand. A simple decomposition: if total nat cat losses grow at 6% and wildfire grows at 12%, wildfire's share of total nat cat losses roughly doubles every 12 years. A peril that represented perhaps 5 to 8% of the global nat cat loss in the early 2010s could constitute 15 to 20% by the early 2030s.
For context, the 2024 total nat cat insured loss was $137 billion (Swiss Re, May 2025), and the Verisk average annual loss estimate for 2025 was $152 billion. The $148 billion on-trend figure for 2026 is therefore consistent with the existing trajectory, not a stress scenario. The stress scenario, at $320 billion, would represent a year in which wildfire, hurricane, and severe convective storm losses all come in above their individual trend lines simultaneously.
Cat Model Implications: Recalibrating Wildfire Average Annual Loss
The 12% growth finding creates an immediate calibration question for cat model users. Vendor wildfire models are typically calibrated to historical loss data with adjustments for current exposure. If the underlying peril hazard is growing at 12% per year, a model calibrated to the past five or ten years of data will understate prospective loss by a significant margin unless the trend is explicitly loaded into the forward-looking view.
Three specific calibration adjustments deserve attention:
Average annual loss (AAL) trending. Standard practice for many actuaries is to use the vendor cat model AAL as-is for pricing and capital adequacy purposes. A 12% annual growth rate means last year's AAL is already 12% stale. Carriers should consider applying an explicit AAL trend factor to wildfire model output, separate from the general inflation adjustment applied to replacement cost values. This trend captures the non-inflationary component of loss growth: WUI development, climate-driven fire weather changes, and increased fire suppression costs that feed through to insured losses.
Return period recalibration. A 12% growth rate shifts the entire loss exceedance curve upward each year. The 1-in-100 year wildfire loss today will become the 1-in-50 year loss within approximately six years if the trend continues. Capital adequacy frameworks and reinsurance attachment points set relative to return period thresholds, such as the 1-in-100 or 1-in-250 probable maximum loss, should be reassessed annually rather than on the traditional two-to-three-year review cycle. The Verisk Synergy Studio platform, which consolidates 110+ models in a cloud-native environment, enables more frequent recalibration than legacy desktop-based modeling workflows.
Correlation with other perils. Wildfire season in the Western U.S. overlaps with Atlantic hurricane season. A scenario in which a major wildfire event coincides with a landfalling hurricane is not far-fetched; the 2017 and 2018 loss years included both. Cat models that treat wildfire and hurricane as independent perils may understate the joint tail risk for carriers with significant exposure to both. This is particularly relevant for national carriers and diversified reinsurers whose capital models aggregate across peril types.
P&C Pricing Adequacy: The Five-Year Horizon Test
The practical question for pricing actuaries is whether current rate levels can absorb the wildfire loss trajectory. A structured test involves the following steps:
Step 1: Establish the current wildfire loss ratio. Isolate wildfire-attributed losses from the carrier's catastrophe and non-catastrophe loss experience. For California homeowners, this requires separating wildfire from brush clearance claims, smoke damage, and civil authority losses, each of which may be coded differently in loss systems.
Step 2: Apply the 12% trend factor. Project the wildfire loss ratio forward five years using 12% annual escalation. If the current wildfire loss ratio is 15 points on a homeowners book, it becomes 26 points in five years, holding all else equal. That 11-point increase must be absorbed through rate increases, reinsurance restructuring, or portfolio reshaping.
Step 3: Test rate filing feasibility. Determine whether the indicated rate increase is achievable under the carrier's regulatory and competitive constraints. In California, the new cat model framework theoretically allows forward-looking rate indications, but regulatory approval timelines and consumer intervention proceedings can delay or reduce approved increases. In states without explicit cat model authorization in ratemaking, the actuarial support for a 12% wildfire trend factor will need to be documented carefully under ASOP No. 13 (Trending) and ASOP No. 39 (Treatment of Catastrophe Losses).
Step 4: Evaluate portfolio concentration. A carrier with 30% of its homeowners premium in wildfire-exposed territories faces a different problem than one with 5%. For the heavily concentrated carrier, the 12% wildfire trend may drive a need for geographic portfolio restructuring that goes beyond rate adequacy. The 85% write-back requirement in California complicates this for carriers that want to use cat models but also need to reduce wildfire concentration.
Step 5: Stress the reinsurance program. Property catastrophe reinsurance treaties are typically renewed annually with pricing adjustments. But reinsurance rate changes have been moving in the opposite direction of the wildfire trend: Guy Carpenter's US property cat ROL index declined 14% in April 2026, the steepest drop since 2014 (Guy Carpenter). If wildfire losses are growing at 12% while reinsurance rates are declining, the gap between ceded loss expectation and ceded premium will widen. Carriers should model whether their current retention levels remain appropriate under a scenario where the next five years of wildfire losses follow the Swiss Re trend line and reinsurance terms continue to soften.
Why This Matters for P&C Actuaries
The Swiss Re sigma 1/2026 wildfire finding is not a headline to file and forget. It is a calibration input that belongs in every pricing, reserving, and capital modeling workflow that touches wildfire-exposed property insurance.
Pricing actuaries should test whether their current wildfire loss trend assumptions are consistent with the 12% sigma finding. Many carriers use a 5 to 8% catastrophe trend factor that blends wildfire with other perils. If wildfire is growing at 12% while other cat perils grow at 4 to 6%, the blended trend understates the wildfire component and may produce inadequate rates for wildfire-heavy territories.
Reserving actuaries should consider whether IBNR development patterns for wildfire losses are calibrated to current severity levels. The LA fires generated $40 billion in insured losses, of which $22.4 billion had been paid by January 2026. The remaining $17.6 billion in outstanding reserves will develop over 12 to 24 months as litigation, public adjuster involvement, and code-upgrade costs work through the system. Prior wildfire events, such as the 2018 Camp Fire, showed ultimate-to-initial reserve ratios of 1.3 to 1.5x, suggesting that current outstanding estimates for the LA fires could develop upward.
Capital modeling actuaries should reassess whether their internal capital models allocate sufficient risk charge to wildfire relative to its actual contribution to insured losses. If wildfire accounted for approximately 37% of 2025 global nat cat insured losses ($40 billion of $107 billion) but receives less than 20% of the cat risk capital charge in the internal model, the model is misallocating capital.
The 12% growth rate is the most important single number in the sigma 1/2026 report for P&C actuaries. The $107 billion aggregate and the 92% secondary peril share provide useful context, but the growth rate is the variable that compounds into pricing inadequacy over time. Actuaries who build it into their trend assumptions now will be better positioned than those who wait for the next $40 billion wildfire to force a retroactive recalibration.