Primary insurers to bear brunt of California fires: KBW

Primary insurers rather than reinsurers will bear the majority of losses produced by the wildfires that are currently scorching parts of California, according to KBW analyst Meyer Shields.

Fires in California have forced around 250,000 people to evacuate their homes and includes what is dubbed the most destructive fire in California state history. At least 31 people have been killed and several hundred are still unaccounted for.

The California Department of Forestry and Fire Protection's (CAL FIRE) latest update reports that the Camp Fire has burned about 111,000 acres and is only 25 percent contained, destroying an estimated 6,453 residences and 260 commercial buildings, making it the most destructive fire in California state history.

The Woolsey Fire in LA and Ventura counties has grown to 85,500 acres and is only 15 percent contained, destroying 177 structures, and prompting evacuations in the affluent community of Malibu.

The current fires' losses are probably below the total losses caused by multiple October 2017 Northern California wildfires that collectively burned over 245,000 acres of land and destroyed more than 8,900 structures, Shields said.

“At this still very preliminary point, we assume that primary insurers rather than reinsurers will bear the majority of losses incurred, although we expect reinsurers to have some exposure, including aggregate covers reflecting year to date (YTD) catastrophe losses,” Shields said.

Bigger reinsurers will retain a much larger share of the losses than for example Kemper and Mercury General, according to KBW. Despite Kemper and Mercury General's relatively high exposure, their low per-event reinsurance retentions of $50 million and $10 million, respectively, should limit their net losses, Shields explained. Similarly, AIG and Chubb could have significant exposure to affluent areas like Malibu which is in the way of the Woolsey Fire, within their High Net Worth homeowners' books, but reinsurance should also temper their net exposure, he noted. To the extent that companies have catastrophe and/or aggregate reinsurance protection, their net losses will be below their gross losses, Shields explained.

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