The October wildfires that devastated northern California’s Napa and Sonoma counties are expected to be the costliest wildfire loss in U.S. history, according to Aon Benfield. The latest insured loss estimate is $8 billion, and the overall economic losses are expected to be considerably greater. The impact on insurance company ratings may not be as severe, however.
A new report from Fitch Ratings says that, based on recent assessments, no U.S. reinsurance companies in its rated universe are expected to be downgraded as a result of losses from the California wildfires alone.
This season’s string of natural disasters — including the California wildfires and Hurricanes Harvey, Irma and Maria — will make 2017 one of the costliest catastrophe loss years in U.S. history, with insured losses estimated to reach $70 billion to $100 billion. Researchers say, in some instances, insurers could ultimately report aggregate 2017 catastrophe losses at levels that strain capital and pressure ratings.
The California wildfires spread over 245,000 acres, hitting Napa, Sonoma, Mendocino Lake, Solano, Butte and Yuba counties the hardest.
The fires claimed 43 lives and injured 185 others while damaging nearly 9,300 structures and destroying roughly 8,560. To date, the California Department of Insurance reports 19,000 residential, commercial and auto claims have been filed, with payouts exceeding $3.3 billion.
Majority of losses in personal lines
The Fitch Ratings report says the majority of insured losses from the wildfires are expected to be in the personal lines segments, as a large portion of the reported structures destroyed were residential properties (94%).
What made these wildfires particularly devastating is that many of these homes were not located in perceived high-risk zones. High winds spread these fires into urban areas, causing widespread destruction over more densely populated communities.
Commercial insured losses will include property, business interruption and crop business. In Napa and Sonoma counties, damage done to the wineries and vineyards were a major concern. Ten of the 1,200 wineries in the area were destroyed or heavily damaged, but, according to the Wine Institute, 90% of the year’s grapes had already been harvested before the wildfires began.
Still, business interruption losses for these wineries and other businesses are expected to make up a moderate portion of the total insured losses, according to the report.
Fitch Ratings expects a large majority of the insured losses to be retained by primary insurers. The percentage of losses ceded to the reinsurance market will likely be considerably less than the portion ceded from recent hurricane events.
A number of large property & casualty insurers have released estimates of their net losses related to the wildfires and the associated impact on fourth-quarter earnings.
The Travelers Companies, Inc. provided a range of $525 million to $675 million before tax ($340 million to $440 million after tax). AIG reported it expects fire losses of approximately $500 million. The Allstate Corporation reported October 2017 estimated catastrophe losses of $516 million before tax ($335 million after tax), with California wildfires accounting for 90% of this total.