California wildfires confirmed as $1 billion+ insurance industry loss

The Valley and Butte wildfires in California have been confirmed to have caused an insurance industry loss of $1 billion or greater, with around $700m from the Valley fire and $300m from Butte, adding to the worst wildfire year since 2007 in the U.S.

According to the California Department of Insurance (CDOI), the Valley and Butte fires are two of the most destructive wildfires in the state’s history, covering almost 150,000 acres of Northern California in September 2015 and providing a stark reminder of the threat to the insurance and reinsurance industry from large wildfires.

According to the CDOI the Valley fire destroyed 1,958 structures in Lake, Napa and Sonoma counties, which made it the third most damaging wildfire in California’s history based on total structures burned. The Butte Fire damaging 818 structures in Amador and Calaveras counties, which makes it the seventh most damaging California wildfire.

“The Valley and Butte fires were sober reminders of the dangers residents can face in rural areas of the state,” commented Insurance Commissioner Dave Jones. “A year-round fire season is California’s new reality. Residents and communities, especially those in high-risk fire areas, must take precautions now before the next devastating wildfire strikes.”

The $1 billion insurance industry loss number communicated by the CDOI is an underestimation of the total impact to the insurance and reinsurance industry. The figure includes claims being processed for residential and commercial structures, cars, personal property, farms and other items, but does not include all surplus lines insurance claims or damages to public infrastructure such as roads and utilities.

Aon Benfield’s Impact Forecasting catastrophe modelling unit puts the total insurance industry loss from wildfires in the United States in 2015 at $1.32 billion, which is the highest single annual insured loss from the wildfire peril since 2007.

The wildfire losses are not severe enough to worry any of the catastrophe bonds which are exposed to the wildfire peril, however they did feature as events that a number of ILS funds investing in private ILS or collateralised reinsurance reserved for during 2015.

Any losses would be expected to be merely attritional though, as the majority of the impact of these California wildfires would be expected to be retained by the insurance companies, rather than passed on to reinsurance firms or ILS funds and investors.

The CDOI says that it does not expect these wildfire losses to impact insurance industry solvency in California.