Swiss Re Insurance-Linked Fund Management

PCS - Emerging Risks, New Opportunities

California wildfires destroy more property, but industry losses uncertain


The ongoing outbreak of wildfire activity in California has continued to destroy property over the last 24 hours, with the number of destroyed structures now standing at 7,150 across the three wildfire outbreaks and uncertainty still remaining over whether utility PG&E will be found liable for the most severe of the blazes.

Camp wildfire California damage (photo via the BBC website)Expectations remain that the wildfire outbreak in California will drive some billions of dollars of losses to insurance, reinsurance and also certain ILS interests, however there is significant uncertainty over how much that will eventually be, not least due to issues related to liability.

The Camp Fire, in northern California, remains the most destructive wildfire in state history and has now also become the deadliest on record, with 42 deaths confirmed and still many more people missing.

The Camp Fire has not destroyed anymore structures since yesterday, still with 6,453 homes and 260 commercial properties have completely destroyed. It has continued to expand and has now burned over 117,000 acres of land and is estimated to be 30% contained by fire fighting crews.

Still some 15,500 structures remain under threat according to the fire authorities, but the fire weather warnings have been relaxed slightly in northern California where the Camp Fire is burning and authorities hope to bring the blaze under greater control. At the same time the Camp Fire is not burning towards any towns at the moment, so the impacts of this blaze may not rise for now.

The Woolsey Fire, which has been burning in Ventura County and impacted the affluent coastal area of Malibu, has continued to cause destruction, with now an estimated 435 properties destroyed and another 24 damaged by this wildfire.

This fire has now burned almost 94,000 acres and is 30% contained, but officials say it still threatens as many as 57,000 structures.

The smaller Hill Fire, also in Ventura, is now almost completely contained, at 4,350 acres burned and 85% contained. This fire has only destroyed 2 structures and damaged 2 others.

But the fire weather warnings for southern California, including Ventura County where the Woolsey and Hill fires still burn, is for a continuation of the tinder dry and strong wind conditions, suggesting the fires in this area will be harder for authorities to bring under control.

Yesterday, catastrophe analytics specialists Corelogic said that it estimates there are 48,390 homes with a total reconstruction cost value (RCV) of roughly $18 billion at high or extreme risk of wildfire damage from the Camp and Woolsey fires.

Clearly these numbers are unlikely to be seen burning from these fires, but it does give a reasonable approximation of what is at-risk in terms of property values and hence how exposed insurance and reinsurance interests could be.

Still there is a lack of specific industry estimates for the eventual losses the insurance and reinsurance industry will face from this current and ongoing California wildfire outbreak, but it is still very early and with fires burning and the number of properties destroyed still rising re/insurers and ILS funds currently face a difficult task of estimating any impacts.

Analysts at Morgan Stanley suggested the industry toll could be between $2 billion and $4 billion for the northern Camp wildfire alone, with higher total economic losses, as reported by our sister publication yesterday.

The analysts based this on the average property values being lower in the town of Paradise, where most of the damage occurred, compared to the region where the Tubbs fire impacted last year.

The Tubbs fire caused insured losses of around $8 billion, but property prices there were on average three times that seen in Paradise, the analysts said.

Despite the fact the Camp fire has destroyed many more properties than the Tubbs, it seems the average cost per insurance claim will be lower. However our market sources suggest that most are anticipating the $4 billion upper-end of the Morgan Stanley estimate to be closer to reality than the lower-end.

The Woolsey fire in Malibu is likely to be costlier, given the higher value of the average home in the area, but here the number of homes destroyed is much lower than in the north.

There are currently no figures for auto and vehicle losses from these wildfires, which will add to the industry loss.

Hence the eventual size of the insurance, reinsurance and any ILS market loss remains uncertain.

Also adding uncertainty is the fact that media reports have suggested that infrastructure owned by electrical utility PG&E may have been responsible for the start of the Camp fire.

If that is the case, it can bring into question whether insurers are liable to pay full claims, or whether the utility should. Also whether insurers can claim back from the utility. Hence it makes the eventual costs for re/insurers harder to forecast.

PG&E’s potential to be named in connection with the ignition of the Camp fire also brings into question the firms catastrophe bond, the $200m Cal Phoenix Re Ltd. (Series 2018-1) which provides the utility with third-party wildfire property liability insurance coverage.

As we explained yesterday, catastrophe bonds exposed to the current California wildfire outbreak, including Cal Phoenix Re and especially other aggregate coverage cat bonds, are expected to face price volatility and discounts by specialist investment manager Plenum.

We expect that some of the catastrophe risk modelling firms may release estimates of insurance and reinsurance industry losses over the next few days, which will aid in getting a better picture of the scale of the industry impact from these wildfires.

However the liability question may take longer to solve, which could leave the fate of the Cal Phoenix Re catastrophe bond hanging for some time.

Also read:

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

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

Artemis Live - ILS and reinsurance video interviews and podcastView all of our Artemis Live video interviews and subscribe to our podcast.

All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance video content and video interviews can be accessed online.

Our Artemis Live podcast can be subscribed to using the typical podcast services providers, including Apple, Google, Spotify and more.

Print Friendly, PDF & Email

Artemis Newsletters and Email Alerts

Receive a regular weekly email newsletter update containing all the top news stories, deals and event information

  • This field is for validation purposes and should be left unchanged.

Receive alert notifications by email for every article from Artemis as it gets published.