Allstate pays over $1.2bn California wildfire claims, reinsurance lowers cost

U.S. primary insurance giant Allstate has already paid over $1.2 billion in gross claims from the recent devastating California wildfires, but on a net basis after reinsurance recoveries and reinstatements the company estimates its loss from the Camp and Woolsey Fires at $670 million before tax.

The insurer said that the more than $1.2 billion gross claims cost from the California wildfires hit Allstate despite the fact it has dramatically reduced its activities in the region, reducing policies in force in California by 50% over the last decade.

“It’s time to address the impact that more severe weather is having on Americans instead of fighting about climate change,” Tom Wilson, Chairman, President and Chief Executive Officer of The Allstate Corporation stated.

“This year there have been approximately 7,500 wildfires in California, Hurricanes Florence and Michael and a swath of severe weather across the United States, putting our customers in danger and at risk of losing their homes and hard-earned money. We are grateful for the support of first responders and government officials in dealing with these events. It is now time to come up with longer term solutions, such as ensuring power lines are properly maintained, homes have natural fire barriers and building codes reflect increased severe weather,” he explained.

Allstate’s November catastrophe losses amounted to $685 million, pre-tax ($541 million, after tax) in total, coming from six events that are estimated to have cost $679 million, pre-tax, as well as some unfavorable reserve development on previously reported catastrophe losses.

Hence the California wildfires have driven the majority of the November losses for Allstate and here the impact of its reinsurance program become clear, as the insurer reduced the gross claims burden by 44% (from $1.2 billion dow to the pre-tax $670 million net of reinsurance and reinstatements).

Reinsurance capital has clearly assisted Allstate in reducing its exposure to the California Camp and Woolsey wildfires, with a share of the losses likely to flow to some collateralized markets or ILS funds.

Allstate’s current nationwide excess catastrophe reinsurance tower can attach at $500 million of losses to the firm, hence this has likely been triggered by the wildfire losses, with each layer of the tower 95% placed so reinsurers taking the bulk of losses above that level for the insurer.

The firms catastrophe bond coverage does not come into play until much higher up the per-occurrence reinsurance tower, so these won’t be affected by the wildfires.

In total now Allstate has suffered an estimated $887 million, pre-tax ($701 million, after-tax) of catastrophe losses in the fourth-quarter and analysts expect that a normal December will take the insurer over $1 billion by the end of the quarter.

Update: Based on Allstate’s gross loss and its market share of multi-peril coverage in the fire affected areas of California it is possible that the industry loss for these wildfires approaches $20 billion.