While primary re/insurers will be able to absorb losses associated with the recent California wildfires, limiting them to an earnings event, S&P Global Ratings has stated that the increasing costs attached to such events – in tandem with an unfavourable regulatory environment that limits the ability to raise rates – may lead some firms to re-evaluate how much coverage to write in the state.
Preliminary estimates from RMS put insured losses for the recent wildfires in the range of $9 billion to $13 billion, while Credit Suisse said $5 billion to $10 billion and Moody’s $3 billion to $6 billion.
“Given their increased frequency and the lasting effects they leave on the communities’ impacted, weather-related events and catastrophes are a bit sobering for the insurance industry as they underscore the challenges for modeling and covering these risks,” explained S&P credit analyst Stephen Guijarro.
“Naturally, there is a great deal of unpredictability that requires vigilant risk management. Fortunately, the industry’s strong capital level may limit its impact to an earnings event and allows it to potentially keep writing this business.”
S&P states that the U.S P&C sector is well capitalised with record-high surplus levels reaching $761 billion as of 30 June 2018, according to Insurance Services Office, and reported net income after taxes of $34 billion.
On the primary insurance side, S&P says the risk from these wildfires is spread across the industry, but that AIG, Chubb, and Farmers have the largest exposures.
Although AIG and Chubb will likely experience greater losses from the southern California wildfires given the high-net-worth nature of the markets that have been hit, S&P holds firms its belief that that losses will be contained.