Despite being a peril that is difficult to assess, Swiss Re’s Gianfranco Lot suggests that wildfire risk is “clearly insurable” as he anticipates it will still form part of the firm’s nat cat portfolio going forward.
“Wildfire is part of what we call secondary perils, and we’ve invested into understanding the risk since there were numerous wildfires around the world (particularly in California) in 2017 and 2018 that triggered a model update and also the search for data,” Lot explained.
He continued, “We work together with a satellite imagery company that allows us to track wildfires much more closely, and we’ve invested quite a bit in technology and data to allow us to underwrite that risk better.”
Having said that, Lot suggests it’s still a peril that is “difficult to assess”, though it’s “clearly insurable” and will form part of Swiss Re’s nat cat portfolio going forward, just less than before.
Lot went on to say, “We have what we call trend risks in our portfolio. Those are secondary perils that are not hurricanes or earthquakes, perils that are more difficult to model and difficult to predict.
“From our vantage point, we’ve done two things. One, we’ve looked at the attachment points, we looked at the structures of the reinsurance contracts and tried to attach at a higher point right now, which means that the trend risk and the frequency risk were moved away from that trend and frequency risk.
“The result of it is that not from an appetite point of view, but just by moving away from these frequency scenarios, we have less of that wildfire risk in our portfolio as before.”
Swiss Re is not the only reinsurer moving away from frequency risks and looking to attach higher up, as this has been an ongoing trend across the sector amid elevated losses from these types of events.
Earlier this month, Gallagher Re released a report noting that the devastating wildfires that have plagued California in recent years have become a focal point for insurers and reinsurers, forcing them to reassess their approaches to underwriting and pricing.
According to the report, the 2022 US wildfire season witnessed the burning of 7.5 million acres, with Alaska accounting for 3.1 million acres alone.
A total of 68,988 wildfires were reported in 2022, resulting in the destruction of 2,717 structures and causing an estimated economic loss of $3.0 billion and an insured loss of $500 million.
While the number of acres burned in the 2022 wildfire season was consistent with the long-term average, concerns about potentially damaging wildfires remain at an all-time high, the report said.
