California wildfire losses expected to hit record levels

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The losses from the continuing 8 November California wildfires are expected to reach record levels, according to ratings agencies.

AM Best said in a briefing that it is “too early to estimate” the damage from the fires, but the ratings agency “expects that 2018 losses will be at record levels for California.”

Moody’s estimates insured losses so far at $3bn (£2.31bn) to $6bn (£4.6bn).

Two fires began in the south of the state, Hill and Woolsey, while the Camp fire has ravaged the north of California.

As of yesterday, the three fires had covered in excess of 95,000 acres and caused damage to or destroyed 376 structures, according to AM Best.

The Camp fire has claimed 48 lives, with further casualties likely, reports suggest.

In the south, the Woolsey fire is threatening some of the most expensive areas in the state. It has ripped through Malibu, where the median house price is approximately $2.9m (£2.25m). The blazes have claimed the properties of celebrities including Robin Thicke, Miley Cyrus, Gerard Butler and Caitlyn Jenner, according to reports. Kanye West and Kim Kardashian hired a private team of firefighters to prevent the blaze engulfing their $60m (£46m) house, US-based celebrity gossip website TMZ reported.

The total number of acres burned is now nearly double the amount in 2017. Insured losses from the Carr wildfire earlier this year may reach $2bn alone (£1.54bn).

Total direct losses incurred in dollars for commercial property insurers roughly doubled in 2017 to $3.5bn (£2.7bn), which was only around 20% of the $16bn (£12.35bn) losses reported on homeowners and farmowners lines. Homeowners and farmowners insurers in the state reported a 2017 direct loss and adjustment expense ratio that was on average 3.7 times higher than in 2016.

Commercial insurers are likely to have “significant exposures”, AM Best said.

A section of AM Best’s briefing said: “Despite a loss-affected 2017, most large writers in California are larger national companies that started 2018 with adequate risk-adjusted capital. The catastrophe events of 2018 will likely cause significant earnings volatility and could stress some balance sheets. Insurers have responded to a certain extent to the wildfires of 2017, but the lessons learned from the 2018 events will again call for re-evaluation of their underwriting and risk management strategies.

“Additionally, the risk-scoring models insurers have been using to identify areas particularly exposed to wildfires and to better establish their risk appetite and tolerances will be severely tested. The new normal will also cause insurers to re-assess and re-price their California exposures, but they will have to contend with the regulatory pressures that accompany this highly publicised issue.”

Top five California homeowners and farmers insurers by direct premiums written (includes homeowners and farmowners DPW)
Rank Company Direct premiums written ($)
1 State Farm 1.38bn
2 Farmers 1.26bn
3 CSAA 520m
4 Auto Club Enterprises 499m
5 Liberty Mutual 492m

Source: AM Best

Top five California commercial insurers by direct premiums written (Includes fire and commercial multi-peril [non-liability])
Rank Company Direct premiums written ($)
1 Farmers 672m
2 Travelers 365m
3 Liberty Mutual 342m
4 Nationwide 248m
5 Chubb INA 234m

Source: AM Best

 

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