Wildfire losses at record highs, but likely won’t affect insurer ratings

The wildfire engulfing the Los Angeles area will result in insured losses that materially exceed highs from past wildfire events but are not likely to affect ratings of property/casualty insurers and reinsurers, according to a note Tuesday from Fitch Ratings Inc.

The forecast losses, between $10 billion and $30 billion insured and economic losses between $150 billion to $275 billion, will reduce near-term earnings for rated reinsurers and reinsurers, depending on exposure to claims from homeowners, auto, commercial property, and business interruption insurance, Fitch said.

The ratings agency added the losses could pressure weaker capitalized companies and increase reinsurance costs. “Several insurance companies have stopped writing new business in the state after reevaluating wildfire risk, pricing, and reinsurance market conditions,” Fitch said.

Much of the loss will be in residential and personal lines. “The largest California homeowners’ writers will bear significant losses from these events … Substantial losses will also be incurred by California’s insurer of last resort, The Fair Access to Insurance Requirements (FAIR) Plan,” Fitch said.

In a separate note Monday, Wells Fargo said insured losses from the fires “could total $30 billion but that for a loss of between $20 billion and $40 billion, just some 13.5% would be commercial lines, with homeowners coverages absorbing the vast majority, some 85%, of insured losses.

The largest commercial lines insurers by market share in California are Farmers Insurance with a 6.9% share; Liberty Mutual Insurance Co. at 6.6%; and Travelers Cos. with 6.4%, according to Wells Fargo.

Loss estimates continue to climb and have previously been estimated as high as $20 billion.