California Capital’s first event limit totalled by wildfires

California Capital Insurance Co (CCIC) has exhausted the first event limit on its $205mn reinsurance programme from November’s Camp fire, The Insurance Insider has learned. 

The company, the main operating unit of Monterey, California-based Capital Insurance Group (CIG), is understood to be exploring the possibility of claiming the Camp fire as two separate events to maximise its reinsurance recoveries. 

Some of the reinsurers on its programme are likely to push back against this interpretation of the wording. 

CCIC is just the latest insurer with a concentration in the affected region to go through the top of its reinsurance programme. 

The $20bn California wildfires, the worst in the state’s history, have scope to create a slew of issues around coverage as cedants look to define the losses as anywhere between one and three events. 

An inter-group reinsurance pooling agreement sees all of CIG’s premium, losses and expenses distributed proportionally among its four operating companies – CCIC, Eagle West Insurance Company, Nevada Capital Insurance Co and Monterey Insurance Company. 

CCIC retains the first $10mn of losses before claims pass through to its $205mn reinsurance programme. 

CCIC’s $205mn programme consists of six layers: $10mn xs $10mn; $30mn xs $20mn; $50mn xs $50mn; $60mn xs $100mn; $30mn xs $160mn; and a final $25mn xs $190mn. The programme is 100 percent placed, according to its statutory filings. 

The company has a reinstatement in place, meaning that if the company was able to claim the wildfires as two events, it could be entitled to two separate towers of coverage. 

CCIC, Eagle West Insurance Company, Nevada Capital Insurance Company all hold AM Best financial strength ratings of A- with stable outlooks. 

AM Best actually downgraded CCIC and its three subsidiaries on 20 December, 2017 after noting “a material decline in [CCIC’s] capitalisation, resulting in a downturn in underwriting results that were driven by variability in the loss reserve development on prior accident years and coupled with the inherent execution risk that comes with strategic operating changes”. 

Prior to the downgrade, CCIC and its three subsidiaries held financial strength ratings of A. 

“Geographic concentration risk in California subjected the group’s property catastrophe reinsurance program to be heavily loss-impacted by the active wildfire season. In addition, it exposes the group to competitive market pressures and a challenging legislative and regulatory landscape,” AM Best added at the time. 

At 41.7 percent, commercial multi-peril coverage represented the bulk of business written by CIG’s operations in 2016, the most recent year which data is available. Homeowners and private passenger auto liability accounted for 17.7 percent and 10.8 percent respectively. 

CIG had $366.8mn of net premiums written in 2016, data from AM Best shows. 

As of 31 December, 2016, CCIC had policyholder surplus of $297.6mn. A year later, that had dropped to $219.8mn with the company posting a pre-tax operating loss of $69.7mn. That result came after it wrote net premiums of $219.9mn, figures from SNL show. 

A CIG spokesperson declined to comment on the company’s exposure to the wildfires. 

CCIC joins other regional insurers such as Mercury General in going through the top of its reinsurance. Mercury General ceded $216mn of losses to it reinsurers while shouldering a $37mn pre-tax loss. 

Elsewhere, industry giants AIG and Chubb have recorded maximum net losses of $175mn and $225mn respectively from the fires, with Liberty Mutual faring worse with a predicted $300mn loss. 

Beazley expects a $40mn wildfire loss. Farmers’ gross loss estimate for the California wildfires is $2.2bn. 

Elsewhere, program specialist K2 Insurance Services’ Aegis Security Insurance saw AM Best downgrade its financial strength rating to A- from A owing to its exposure from the wildfires. The ratings agency has also placed the Pennsylvania-based business under review with negative implications. 

Merced Property & Casualty’s exposure to wildfire losses has seen the California Department of Insurance take control of 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, with the agency noting: “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 added: “The homeowners claims filed are far in excess of the company’s current assets, surplus and catastrophe reinsurance protection.”