While the gross property and casualty (P&C) insured loss from the California wildfires have been significant, a considerable amount is expected to have been ceded to various global reinsurance markets, reducing the net exposure of the domestic primary market, according to Fitch Ratings.
Fitch maintains stable outlooks on both the U.S non-life insurance and global reinsurance sectors and anticipates either limited or no rating actions due to the wildfires.
The California Department of Insurance has received nearly 40,000 claims related to the Camp and Woolsey/Hill wildfires, with a total $9.1 billion in incurred losses reported.
Approximately 92% of the claims relate to residential property policies as nearly 10,564 homes were completely destroyed in the fires with another 17,955 residential structures facing partial losses.
Fitch estimates that losses will likely reach the higher end of AIR Worldwide, RMS and CoreLogic’s loss estimates, based on individual public announcements that several companies have released.
Reinsurance treaties with aggregate loss triggers are expected to be vulnerable to the November fire losses, following previous qualifying cat events in 2018 that would have utilised some or all of their aggregate deductibles.
However, gross losses from the Camp and Woolsey/Hill wildfires have also been large enough for certain insurers to recover losses from occurrence based catastrophe reinsurance layers, particularly those with lower attachment points.
While Allstate reported the largest absolute net of reinsurance loss estimate disclosed to date, Fitch estimates the California wildfires would add only 2% to the company’s full-year combined ratio based on full-year 2017 GAAP net earned premiums.
Fitch expects the timing of the losses in Q4 to impact ongoing 1/1 reinsurance renewal discussions for primary companies that transferred fire losses to their risk transfer partners.
For some companies, 2018 represents the second year in a row that wildfire losses have hit reinsurance layers. When combined with the substantial third quarter catastrophe hits, the above average industry catastrophe losses in back to back years may provide momentum for rate increases and improved terms and conditions for reinsurers in 2019.
