Insured Losses Continue to Grow from California Wildfires |
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Written by U.S. Insurance News
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Monday, 03 November 2003 |
Fitch Ratings noted that insured losses from wildfires in Southern California could eventually become the costliest wildfire catastrophe insured loss event for the property/casualty insurance industry.
CHICAGO — Fitch Ratings noted that insured losses from wildfires in Southern California could eventually become the costliest wildfire catastrophe insured loss event for the property/casualty insurance industry.
While it is still too early to make an accurate projection of the total insured losses from the wildfires, early estimates indicate the insured damage could be in the range of at least $500 million to $1.25 billion. Fitch estimates that each $1 billion of insured loss adds about 30 basis points to the industry’s 2003 loss ratio based on Fitch’s $385 billion 2003 net earned premium forecast. Fitch also notes that each $1 billion of homeowners insured loss adds about 250 basis point to the industry’s homeowners 2003 loss ratio.
The insurance lines of business most affected by this catastrophe are personal lines, particularly homeowners, but also automobile. Commercial lines will also be impacted with claims expected in commercial property and business interruption that could be significant. Fitch expects the majority of the losses will be confined to the primary writers, with a modest portion of losses ceded to reinsurers under catastrophe treaties, unless the losses increase to significantly higher levels and are treated in the aggregate as a single event.
The estimated insured losses for this event are approaching the current largest wildfire insured loss for the industry of $1.7 billion ($2.2 billion in 2003 dollars) for the Oakland Hills, CA wildfire in 1991. The most recent sizable wildfire loss event for the industry was $120 million for the Arizona fires in the summer of 2002.
While insured losses are certain to be significant, they are expected to be within the level of losses that the insurance industry anticipates when pricing catastrophe risk into premiums. Furthermore, the insurance companies that write the lines of business in California most affected by the wildfires are generally the larger, national carriers that, as a group, have high insurer financial strength ratings.
Fitch does not expect a major deterioration in their financial strength if these companies incur losses roughly in proportion to their market shares. However, the possibility does exist that smaller insurers, namely those with a concentrated geographical focus in Southern California homeowners or commercial property insurance, could be materially affected.
The wildfires that continue to burn in Southern California have affected four counties declared federal disaster areas (Los Angeles, San Bernardino, San Diego, and Ventura) stretching from the Mexican border to the northeast suburbs of Los Angeles. The majority of damage thus far has been in the San Diego region. The wildfires have already consumed over 600,000 acres, destroyed almost 2,000 homes, and resulted in at least 17 deaths.
According to Fitch, the top 10 homeowners writers in California for 2002 were: State Farm, Farmers Insurance Group, Allstate Insurance Co Group, California State Automobile Association, United Services Automobile Association Group, Inter Insurance Exchange of the Auto Club, Safeco Insurance Company Group, Nationwide Group, Firemans Fund Insurance Group, Mercury Casualty Group. |
