Wildfire industry loss could be as much as $15 billion: Moody’s

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The insurance and reinsurance industry loss from the recent California wildfires could be as much as $15 billion, which would still be a manageable impact although reduce fourth-quarter earnings, according to Moody’s.

Wildfire industry lossesWith the loss of property from the Camp and Woolsey wildfires having resulted in over 20,000 structures being destroyed, Moody’s now assesses that the previous industry loss estimates were largely too low, opting for a range of $10 billion to $15 billion.

As we’d explained in our regular updates on the California wildfires, the likelihood that the eventual market loss to insurance, reinsurance and ILS fund interests would be towards the top-end of industry loss estimates was rising along with the data on the number of properties burned and destroyed.

Catastrophe risk modeller RMS estimated that insurance and reinsurance market losses would be in a range between $9 billion and $13 billion and reinsurance broker Aon said that the economic cost of the wildfires would “minimally exceed” $10 billion “if not much higher.”

Both of these assessments came before the number of properties destroyed reached the 20,000 mark, suggesting they would prove too low.

Our sources suggest a tighter range of $12 billion to $15 billion is now considered a reasonable approximation of loss by the market, especially when you consider the other vectors of insurable wildfire loss such as automotive business lines, demand surge and any business interruption costs.

Rating agency Moody’s said that the Camp and Woolsey wildfire industry losses may be higher than the $12.3 billion of wildfire losses that P&C and reinsurers reported for the October and December 2017 California wildfires.

Further, Moody’s notes that if you take the latest estimates of 18,793 structures destroyed by the Camp Fire and 1,500 structures destroyed by the Woolsey Fire, along with an average California wildfire loss value of $981,000 per structure, the industry loss could be as high as $19.9 billion.

However, Moody’s notes that the region the Camp Fire impacted has lower property values, which will reduce the total.

Although it should be noted that the California state trend for content claims in wildfire losses is for property owners to claim as much as 70% of the value of a property, which along with additional living expense claims can lead to insurance claims that are significantly higher than the value of property alone where residences have been destroyed.

This can inflate the industry loss significantly, making current it hard to be certain of any current estimate.

After two consecutive years of record California wildfire losses, Moody’s believes that homeowners and commercial property insurers will make further moves to reassess their wildfire-related exposures, pricing and reinsurance arrangements.

Moody’s also notes that should the utility PG&E be found liable for the Camp wildfire, insurers may pursue subrogation claims against the company.

Moody’s estimate is just the latest sign that the industry can expect a significant loss from these wildfires and as a result the ILS fund and collateralized reinsurance market continues to brace for an increasing impact from these catastrophic fires.

Read our previous coverage of this wildfire outbreak:

Amundi Pioneer predicts larger California wildfire ILS loss impact.

Mercury General’s reinsurance to cover $216m of its wildfire losses.

Expect $15bn to $19bn California wildfire property loss, says Corelogic.

California wildfires to cost over $10 billion “if not much more” – Aon.

California’s Camp wildfire toll rises by another 1,273 structures destroyed.

Wildfire losses should have been priced in, says Fitch.

Mutual & listed ILS funds decline further on wildfire threat.

Modest wildfire impact possible for Pioneer ILS Interval Fund.

Cat bond funds take NAV hit on wildfire cat bond write-down.

RMS puts Camp & Woolsey wildfire losses at up to $13 billion.

California wildfire losses rising, destruction nears 15,500 structures.

PG&E’s wildfire cat bond marked down for loss, traded at distressed price.

USAA cat bond & private ILS also at risk of wildfire losses: Twelve Capital.

PG&E sued over Camp wildfire, putting Cal Phoenix Re cat bond in the frame.

Wildfires could cost insurers $5bn to $10bn: Credit Suisse analysts.

Wildfires to drive up to $6bn industry insured loss – Moody’s.

Wildfire losses to hit record in 2018, pricing needs to change: A.M. Best.

Stone Ridge & CATCo fund prices dented by California wildfire threat.

Cat bond price volatility & discounts expected from wildfires: Plenum.

California wildfire most destructive ever, multi-billion losses expected.

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