RLI Insurance recorded losses of $66 million from the Maui wildfires in the third quarter of 2023, but while this was a severe event and unusual for the company, it’s not expected to have a major impact on the firm’s January 1st, 2024, reinsurance renewal process, according to Chief Operating Officer (COO), Jennifer Klobnak.
This week, RLI reported a lower but still profitable underwriting result for the third quarter of 2023, as losses from the Hawaii wildfires dented underwriting by $58.2 million, which more than offset a benefit of $19.8 million from favourable development in prior years’ loss reserves.
All in all, losses from the Maui wildfires were $66 million in the quarter, which is at the low end of the previously announced net range of $65 million to $75 million, and of which $14 million relates to reinstatement premiums on its catastrophe reinsurance treaties.
“Impacts from this event added 17 points to the quarter’s combined ratio,” said Chief Financial Officer (CFO), Todd Bryant during the insurer’s Q3 2023 earnings call.
“We also recorded $5 million in other storm-related losses in the quarter. The comparative quarter last year included $40 million in losses from Hurricane Ian.
“As a reminder, first dollar retention on our catastrophe treaties increased to $50 million in January 2023, up from the $25 million previously,” he added.
Later in the call, executives were questioned on the impact of the wildfires on its reinsurance for the remainder of this year and into 2024.
“All I can say is the loss, with the reinstated premium that Todd referred to, there are no holes in our program. The program exists just like it did previous to the Maui loss,” said Craig Kliethermes, President and Chief Executive Officer (CEO). “So, if we were to have another large event, we would have coverage through the tower, just like it was pre-Maui, as a result of the reinstatement premium that we pay.”
RLI’s COO, Klobnak, explained that the company has a $750 million reinsurance tower excess a $50 million retention, and is not going to get anywhere near the top of that tower with the Hawaii wildfire event.
“In fact, we’re towards the lower end. We think we have plenty of coverage for events like this,” she said.
Adding: “I think this was an odd event. If you talk to our local Hawaii underwriting and claims staff, they would say they have never seen anything like this on the island. They’ve been there quite a while. It was quite a severe event.”
Klobnak noted that RLI looks at concentrations for property business across its portfolio, and in all cases, it explores how much limit to put in an area to ascertain if it’s comfortable that if a certain event occurs, it could sustain the losses on a net basis and be happy to share that information with its reinsurers.
“I think we’ll have more conversations with our reinsurers given this was unusual for our portfolio, at least in our history, but we have been in contact with them. We’ve done our trips to Bermuda and London already this year.
“So, we’re in contact with everybody. We’re pretty transparent when it comes to a loss. So, we give them a lot of detail around the individual losses and what’s happening and how we adjusted the claims.
“In this particular event in Hawaii, there are several coverages involved. So, in our loss estimate we looked at things like additional living expense, for example, and we have reserved the full amount of that limit because we have seen an increased cost for housing in the area, and we think it will take a long time to rebuild.
“So, we’ve built in all of those assumptions into our estimates. We’re comfortable with that going forward,” said Klobnak.
She added that while she expects reinsurers to want to charge more for taking on the risk, RLI will work with its partners “to show them what our exposure is, what our process is and look for differentiation in the market because, again, we think we do a pretty good job in this area, and we’ve been doing it for a long time.”
“And so, we wouldn’t expect it to cause a huge impact to our reinsurance renewal process, but we’re very early stages in the negotiations for 1/1 at this point. So, we’ll see how it turns out,” added Klobnak.
Losses from wildfires have been on the rise in recent times, and the so-called secondary peril has, alongside severe convective storms and floods, been a focus of discussion between insurers and reinsurers as the latter has moved away from these types of exposures, which has meant insurers have absorbed more of the losses than in the past.
Clearly, though, RLI is confident that while this was an unusual loss for its portfolio, it won’t have a meaningful impact on its renewal process. Whether events of this nature continue to happen with greater frequency and severity remains to be seen, but record-breaking fires in different parts of the world do seem to be occurring year after year.
