Fitch: California Fires Add To 2017 Insurer Catastrophe Losses

Based on recent assessments, no US (re)insurance companies in our rated universe are expected to be downgraded as a result of losses from the California wildfires alone, Fitch Ratings says. However, for a number of companies the impact of wildfire losses adds to substantial catastrophe losses reported in third-quarter 2017. Adding the California wildfires to hurricanes Harvey, Irma and Maria will make 2017 one of the costliest catastrophe loss years in US history, with insured losses reaching $70 billion-$100 billion according to various estimates. In some instances, insurers could ultimately report aggregate 2017 catastrophe losses at levels that strain capital and pressure ratings.

The California wildfires of October 2017 will be the costliest wildfire loss in U.S. history. The latest insured loss estimate from Aon Benfield is $8 billion, but the overall economic losses are considerably greater. The wildfire spread over 245,000 acres, with Napa, Sonoma, Mendocino, Lake, Solano, Butte and Yuba counties seeing the worst damage. The most up-to-date information reports 43 fatalities and 185 injuries with nearly 9,300 structures damaged and most (8,560) destroyed. To date, the California Department of Insurance reported 19,000 residential, commercial and auto claims have been filed, with payouts exceeding $3.3 billion.

The expected loss from the October wildfires will eclipse past California wildfires by several fold. In comparison, the 1991 Oakland Hills wildfire reported a $2.7 billion loss (inflation adjusted through 2016) from 25 deaths and 2,900 structures destroyed. Last year's wildfire in Fort McMurray was Canada's largest wildfire, spreading across 1.15 million acres, destroying approximately 2,400 homes and buildings and generating $3.7 billion in insured losses.

The majority of insured losses from the fires are expected to be in the personal lines segments, as a significant number of the structures destroyed were residential properties. High winds pushed fires into urban areas that were considered to be lower risk for wildfires and consequently wide swaths of homes across numerous communities were affected. Of the current reported insured losses paid by the top-15 property writers in California, over 94% have been for residential property.

Commercial insured losses will include property, business interruption (BI) and crop business. BI losses will take longer to determine and settle with insurers but are expected to remain a moderate portion of total insured losses. 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.

Fitch expects a large majority of the insured losses to be retained by primary insurers. The percentage of losses ceded to the reinsurance market will likely be considerably less than the portion ceded from recent hurricane events. Hurricane Irma also had a large flood loss component that increases the percentage of losses incurred by the National Flood Insurance Program (NFIP) and commercial insurers.

A number of large property/casualty insurers have publicly discussed estimates of their net losses related to the wildfires and the associated impact on fourth-quarter earnings. The Travelers Companies, Inc. provided a range of $525 million to $675 million before tax ($340 million to $440 million after tax). American International Group, Inc. reported in its third-quarter earnings call that it expected fire losses of approximately $500 million. The Allstate Corporation reported October 2017 estimated catastrophe losses of $516 million before tax ($335 million after tax), with California wildfires accounting for 90% of this total.