S&P Global — 13 January 2025
Daily Update: January 13, 2025
Financial Impact of the Los Angeles Fires
By Nathan Hunt
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The Santa Ana winds grow hot and dry blowing across the deserts of the southwest before sweeping across Southern California. The winds are known to increase the risk of fire in Los Angeles’ Mediterranean climate. Over the past week, a ring of fires fanned by the winds broke out in the outlying areas of the city, destroying thousands of homes and causing billions of dollars in damages. The impact of these losses on liability claims and revenue disruptions may take months to determine.
On Jan. 7–8, as six wind-fueled wildfires broke out around Los Angeles, utilities across Southern California shut off power to many areas to prevent electricity infrastructure from becoming a point of further ignition. Over 420,000 customers were without power across the state as of 12:15 pm PT on Jan. 9, according to poweroutage.us. Industry sources described the winds as unprecedented in scope, exacerbating drought conditions in the Los Angeles area brought on by unusually warm weather.
Existing losses from the Palisades, Eaton and Hurst fires are estimated to be between $52 billion and $57 billion. Officials at the Insurance Information Institute said the losses should be manageable for California insurers given recent rate hikes approved by the state. With the major fires still largely uncontrolled, insured losses will likely mount.
The two largest California insurers are State Farm, with a market share of 20%, and Farmers Insurance, with a market share of 15%. State Farm has been attempting to reduce its exposure to homes at high risk of fire in California. In the heavily affected area of Pacific Palisades, State Farm announced plans in March 2024 to not renew 1,626, or 69.4%, of the 2,342 policies held.
S&P Global Ratings is monitoring rated US public finance entities in the affected region, including local governments, school districts, and nonprofit electric, water and sewer utilities. Credit risk for nonprofit electric utilities could be significant due to California’s strict inverse condemnation doctrine, which allows a utility to be held liable for wildfire damage regardless of whether negligence contributed to the fire. Overhead power lines and other energy infrastructure are at elevated risk of sparking fires in the dry, dust-laden Santa Ana winds.
Continuing windy conditions mean that it is unlikely the existing fires will be contained soon. Heavy rains last year allowed vegetation to flourish, but low rainfall since May 2024 means that most of this vegetation has become dry tinder. Evacuation orders continue to expand throughout the area.
Today is Monday, January 13, 2025, and here is today’s essential intelligence.
On One Hand, $53T in Energy Investment Opportunities. On the Other, $25T in Climate Physical Impacts
As we enter 2025, there are reasons for optimism and for caution when it comes to climate change and the energy transition. On the one hand, the transition to a sustainable net-zero future presents significant market opportunities. On the other, the physical impacts of climate change pose complex and growing financial risks. At S&P Global, we seek to quantify these risks and opportunities because, as the saying goes, what gets measured gets managed.
—Read the article from S&P Global Sustainable1
Economic Research: United Arab Emirates Banking Sector 2025 Outlook: Balancing Growth and Risks Amid Economic Expansion
Banks in the United Arab Emirates (UAE) have benefited from a strong domestic economy, leading to improved asset quality metrics and lower credit losses. S&P Global Ratings anticipates improved asset quality will persist in 2025, which supports a positive economic risk trend in its Banking Industry Country Risk Assessment for UAE banks.
—Read the article from S&P Global Ratings
Duration Distress
S&P Dow Jones Indices has written previously about the traditional sources of excess return for fixed income active managers, one of which is taking on higher term or interest rate risk. 2024 witnessed a sharp reversal in the excess returns from term risk, as long duration tilts that would have rewarded managers in 2023 hurt them in 2024. A key reason for this reversal was the dramatic rise in long-term yields, one of the consequences of which has been a steepening of the US Treasury yield curve.
—Read the article from S&P Dow Jones Indices
Listen: Exploring the Dynamics Of Midland Crude Supply and Asian Demand in the Atlantic Market
High volumes of WTI Midland crude arrived in Europe in December, significantly impacting light sweet sentiment in both the North Sea and West African markets. As we enter the new year, a resurgence of demand from Asia is beginning to reshape the landscape. Joel Hanley is joined by Joey Daly and George Delaney to explore the effects of renewed Asian demand for Western barrels and reflect on a month of record-breaking activity in the Platts North Sea physical Market on Close assessment process.
—Listen and subscribe to the podcast from S&P Global Commodity Insights
South Korean Downstream Industry Wary of Currency Volatility Amid Yoon's Arrest Resistance
South Korean refiners and petrochemical producers remain cautious of the fragile local currency, which is dampening refining margins as the prolonged domestic political conflict continues to strain Seoul's financial markets. The volatile dollar-won exchange rate threatens overall refining margins, as the local currency's weakness undermines the purchasing power of refiners and petrochemical makers in the global markets for feedstock crude, naphtha and LPG, industry participants said over Jan. 7-9.
—Read the article from S&P Global Commodity Insights
Solid IT Demand Bodes Well for Technology Credits in 2025
S&P Global Ratings forecasts global IT spending will grow 9% in 2025, an improvement from the low-8% area in 2024, as AI continues to spur massive data center spending and enterprises renew their investments in traditional hardware. Software and IT services (which includes spending on the public cloud) growth will remain solid while semiconductor growth will again exceed the double-digit percent area owing to AI tailwinds.
—Read the article from S&P Global Ratings
Webinar: Beyond ESG with Sustainability Trends in 2025: Climate, Carbon and Capital (Jan. 22, 2025)
As we kick off 2025, much of the optimism and concern of 2024 continues, with markets seeking clarity on the energy transition, climate risk and sustainability opportunities. Join our first Beyond ESG webinar of the new year to unpack key trends.
—Register for the webinar from S&P Global Sustainable1