Chubb raises Michael loss towards top-end, sees wildfire loss below last year

U.S. primary insurance giant Chubb has provided an estimate of its expected losses after reinsurance from the recent California wildfires and has also updated on its expected losses from hurricane Michael.

Most interesting to us is the fact that Chubb now says that its losses from hurricane Michael are expected to settle towards the top-end of its estimated range, which reflects the becoming market-wide opinion that Michael will be a larger loss than originally anticipated.

The insurer said that its estimated losses from Hurricane Michael, net of reinsurance and including reinstatement premiums, are now sitting towards the top-end of the range of $150 million to $250 million pre-tax that Chubb had previously disclosed.

Hurricane Michael has hit the insurance, reinsurance and also some of the insurance-linked securities (ILS) fund market harder than many expected, with loss estimates seemingly set to increase.

As we explained recently here, the market fears that a hurricane Michael loss creep could emerge, similar to that seen with hurricane Irma, which could be part of the reason for Chubb shifting its expectations towards the upper-end of its initial estimate. Some also suggest that the industry loss from hurricane Michael will be above $10 billion, which is above the top-end of market initial expectations.

It doesn’t bode well for others who may have reserved too low for hurricane Michael. Chubb typically reserves very conservatively, so for the firm to reveal that its estimate has moved upwards suggests others will be experiencing similar, which could result in more of the loss flowing to reinsurance and ILS interests.

Chubb also revealed an estimate for its losses from the recent California wildfire outbreaks and perhaps surprisingly pegged this figure lower than its losses from the end of 2017 wildfires in the state.

Chubb said that its fourth-quarter estimate of losses from the California wildfires is for roughly $225 million after reinsurance and pre-tax, or $195 million after tax.

That compares to an estimate a year earlier for roughly $434 million of wildfire losses.

Analysts appeared split on what Chubb’s lower estimate of losses from the wildfires means, despite the fact the industry is expecting a higher level of losses from the recent events compared to the prior year.

However, it seems that the difference is likely due to lower exposure to the larger Camp wildfire in the north of California. Last year, much of Chubb’s wildfire loss came from southern California fires, so it’s possible that this year most of its exposure is from the smaller Woolsey fire and the higher value properties that were burned there.

Credit Suisse analysts said that the $225 million of pre-tax wildfire losses from Chubb is aligned with an insurance and reinsurance industry loss of around $12 billion to $15 billion.

Chubb’s loss estimates take into account its commercial and personal property and casualty insurance lines, as well as its reinsurance operations.

As ever, a share of these losses will likely fall to the third-party investors backing Chubb’s joint-venture total-return reinsurer, ABR Reinsurance Ltd. (ABR Re), which tend to provide a portion of the insurers recoverables each quarter now.

In addition, global reinsurers and perhaps some ILS funds may be exposed if Chubb calls on much reinsurance support for its losses from hurricane Michael and the California wildfires.