Fitch expects primary insurers to retain the majority of losses from the California wildfires, warning that the impact of the event, on top of recent hurricanes, could see insurers report aggregate 2017 catastrophe losses at levels that pressure ratings and ultimately strain capital.
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The October 2017 California wildfires are expected to be the costliest wildfire event in the history of the U.S., with the latest AIR Worldwide insured loss estimate reaching as much as $10.5 billion.
Global insurers and reinsurers experienced a high level of catastrophe losses in the third-quarter of 2017, mainly driven by hurricanes Harvey, Irma, and Maria, and the two powerful Mexico earthquakes.
The third-quarter had only just finished when the California wildfires started, spreading more than 245,000 acres, with the worst affected regions being Napa, Sonoma, Mendocino, Lake, Solano, Butte, and Yuba.
Fitch states that according to the most recent data, 43 fatalities and 185 injuries occurred as a result of the fires, with almost 9,300 structures damaged and the majority of these, or 8,560 being totally destroyed. While the latest reports from the California Department of Insurance states that payouts have now exceeded $3.3 billion.
The ratings agency anticipates that much of the insurance industry losses from the fires will be retained by primary insurers, with global reinsurance companies likely assuming “considerably less than the portion ceded from recent hurricane events.”
Within the insured loss total, Fitch expects the majority to be seen in personal lines of business, as a substantial number of structures destroyed were residential properties. Fitch notes that more than 94% of current, reported insured losses paid by the top-15 property underwriters in California have been for residential property.
Commercial insured losses from the fires will include property, crop business, and business interruption (BI), with the latter taking some time to both determine and settle.
“Ten of the 1,200 California wineries were reported destroyed or heavily damaged. According to the Wine Institute, 90% of the year’s grapes had already been harvested at the time of the fires,” said Fitch.
A number of re/insurers have already reported their expected impact from the fires, including Travelers, AIG, Allstate, AXIS Capital, and a warning from RenRe.
