A wildfire that has broken out in Ventura County, California in the last day could add as much as $2 billion to the insured loss tally from wildfires in the region, according to KBW’s analysts, which would exacerbate the hit from California wildfires to insurance, reinsurance and even ILS capital.
Keefe, Bruyette & Woods (KBW) equity analysts led by Meyer Shields report that the “explosive” wildfire outbreak in Ventura County, the so called Thomas Fire, is expected to “add another couple of billion dollars of catastrophe losses to an already-challenged fourth quarter for carriers.”
However, the analysts highlight that the majority of this will probably fall to primary carriers exposed to personal and commercial property lines of business, rather than to reinsurance capital.
However, this Ventura wildfire comes on the heels of the roughly $10 billion of California wildfire losses suffered in October from fires predominantly affecting the northern wine country area of the state, so on an aggregated basis seasonal wildfire losses are rising fast for carriers, which increases the chances that their reinsurance programs could pay a share.
The Ventura County wildfire is reported to have already destroyed more than 150 structures including a large apartment complex in Ventura city, and caused the evacuation of around 27,000 people from 8,000 homes that are deemed to be at some level of risk from the fires.
The cities of Ventura and Santa Paula, to the north of Los Angeles, are most at risk, and the authorities have said that the wildfire is moving so fast it is difficult to stop it.
Fire weather has returned to the conducive state that caused the major insurance and reinsurance losses in October, with high temperatures, dry ground and strong winds all fueling the flames.
Ventura County Fire Chief Mark Lorenzen is cited by the BBC as saying, “The prospects for containment are not good. Really mother nature is going to decide.”
The October wildfires destroyed around 10,000 structures and have caused the largest wildfire loss in insurance and reinsurance industry history.
This has already caused an impact to some ILS funds (as we reported yesterday) and collateralized reinsurance vehicles and at least one catastrophe bond is at risk from wildfire related losses, or the aggregated effects of 2017 catastrophes including the wildfires.
Any further losses that push into reinsurance layers could exacerbate the impacts for ILS funds already affected by the wildfires.
Additionally, primary insurer USAA has elected to extend the maturity for half of the principal of its Residential Re 2013-2 catastrophe bond due to the wildfires and the potential for them to cause losses. That is a per-occurrence cat bond so this new fire outbreak can’t be combined to increase the chance of losses to the cat bond.
But, other Residential Re cat bonds from USAA that are structured to provide aggregate reinsurance protection could potentially be considered at risk were USAA to take another significant wildfire loss from the Ventura County event.
These aggregate Residential Re cat bonds had been deemed at risk, but then when USAA’s estimates for losses decreased they were deemed a little safer. Any further qualifying losses from a new wildfire loss event have the potential to tip them over the edge, we’d imagine.
USAA has around a 4% market share of wildfire exposed property insurance premiums in California, according to KBW.
It’s too early to say how this latest wildfire outbreak will affect the ILS sector, but it is another potential loss event that could increase the pressure on certain players and investment positions should the Ventura wildfire continue to spread.
Join us in New York in February 2018 for our next ILS conference
Subscribe for free and receive weekly Artemis email updates
Sign up for our regular free email newsletter and ensure you never miss any of the news from Artemis.