Utilities sector most at risk from California wildfires: Fitch

Downside credit risks from the California wildfires are currently most pronounced for investor-owned utilities (IOU), which could face large liabilities if IOU equipment is found to have ignited the fires, according to Fitch Ratings.

However, negative credit implications could emerge for the (re)insurance industry and the US public finance sector, given the potential for a state-wide economic slowdown, damaged infrastructure and associated environmental issues, Fitch Ratings said.

The Camp and Woolsey wildfires in California are expected to cause economic losses between $15 billion and $19 billion, according to data provider CoreLogic.

The utilities sector is the most directly exposed to credit risk from the wildfires, with Pacific Gas and Electric's and Southern California Edison experiencing downgrades earlier this year due to potential outsized liabilities from wildfires, Fitch noted.

The increased frequency of wildfires and sheer magnitude of potential exposure, coupled with an uncertain path to recovery, meaningfully expands business risk for electric utilities operating in California, the agency said.

PG&E's financial exposure for the 2017 wildfires could be approximately $15 billion, with large incremental liability possible if PG&E equipment is found to have been involved in ignition of the 2017 Tubbs and 2018 Camp wildfires, Fitch said. PG&E common stock has lost more than half of its value and spreads have widened significantly.

The California wildfires of 2018 mark a second consecutive year of major wildfire losses for re/insurers as the industry incurred $11.5 billion of insured losses in 2017, Fitch noted.

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