Insurers begin tallying wildfire losses

Carriers have begun revealing their exposure to the California wildfires with a notable divergence arising between the far larger national carriers and their smaller regional or monoline counterparts.

The Camp Fire in Northern California’s Butte County and the Woolsey Fire in the Malibu area brought unprecedented damage to the state, with (re)insurers facing a second consecutive year of record claims from the peril.

Recent weeks have seen various carriers with exposure to the wildfires issuing early loss estimates. National personal lines giant Farmers weathered a $2.2bn gross hit, while large global carriers like AIG had its net total in the range of $150mn to $175mn, and Chubb reported $225mn in net expected losses from the fires.

While these companies will take a hefty hit from the wildfires, they are not expected to be significantly adversely impacted.

Elsewhere, The Hartford, Beazley and Liberty Mutual also put out loss numbers. The Hartford said its total Q4 net catastrophe losses – including those from wildfires – would tally between $350mn and $365mn, pre tax. Liberty Mutual put its net wildfire losses at $300mn, while Beazley announced a net burden of $40mn.

The same cannot be said for smaller regional carriers. California’s Mercury General exhausted its reinsurance programme as a result of the wildfires, ceding $216mn while shouldering a $37mn pre-tax loss.

Program specialist K2 Insurance Services’ Aegis Security Insurance also incurred significant losses from the wildfires, resulting in AM Best downgrading its financial strength rating (FSR) to A- from A. The ratings agency has also placed the Pennsylvania-based business under review with negative implications.

However, both Mercury General and Aegis Security have fared better than Merced Property & Casualty.

Merced’s exposure to wildfire losses is so great that the California Department of Insurance has taken over the carrier. As the regulator explained in a statement, the sheer volume of claims from the Camp Fire “overwhelmed the small insurer to the point of insolvency”.

AM Best responded by downgrading Merced’s FSR from A- to a non-rating designation of F – its way of determining that a business has gone into liquidation.

“Merced’s impending order of liquidation resulted from significant claims from the Camp Fire in Northern California that destroyed Paradise, CA, and surrounding areas in Butte County,” AM Best said.

“The homeowners claims filed are far in excess of the company’s current assets, surplus and catastrophe reinsurance protection,” it added.

There continues to be speculation that other regional California insurers will be severely impacted by wildfire losses.

After issuing the note on Merced, California’s insurance commissioner Dave Jones said he had directed his department to review every property insurer in the Golden State and make sure they had properly managed their exposures.

Jones added that his department has, so far, not received any other reports of insurers being in a similarly distressed situation.

In total, 21,357 homes and other structures were either damaged or destroyed by the fires. The Camp Fire also killed 88 people while Woolsey claimed three lives.

Although the Camp Fire accounted for the majority of the buildings that were destroyed, the mean value of those structures is far lower than the multi-million dollar homes that were damaged in the affluent suburbs of Los Angeles, such as Malibu, that were hit by the Woolsey blaze.

Modelling agencies such as AIR Worldwide and RMS put industry wildfire losses in the range of $9bn to $13bn, while rating agency Moody’s has projected that losses could climb up to $15bn.

However, some in the market have speculated that insured losses could in fact go as high as $20bn.

 

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