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California wildfires pose challenges to insurers

Posted On: Dec. 21, 2017 11:45 AM CST

Losses from California wildfires during the fourth quarter will be within insurers’ risk tolerances but may pose separate challenges for insurers, according to a report from A.M. Best Co. Inc. Wednesday.

In California Wildfires: More Earnings Pressure and Underwriting Issues for Insurers, the ratings agency said, “We think the industry — helped by reinsurance partners — is well capitalized for these events.” At the same time, the agency said it would re-evaluate effects on individual insurers based on losses and other factors.

The top ten commercial insurers in the state have just over $4 billion in direct written premiums, led by Farmers Insurance Group with $665 million. Next is Travelers Cos. Inc. at $362 million, with Allianz S.E. at No. 10 with $106 million.

The ratings agency does not expect to take any ratings actions directly related to the fires, it said.

Best said some companies have announced nine-figure losses associated with the fires, including Chubb Ltd. with $280 million in pre-tax losses, Travelers with $675 million and Allstate Insurance Company with $452 million. However, “A.M. Best does not expect to take any rating actions based solely on the wildfires at this point, although the situation continues to evolve.”

There may, however, be regulatory and underwriting challenges to solve, including re-examining risk appetite and tolerance, Best said.

On the regulatory side, Best said insurers should work on enhancing partnerships with regulators.

California, for example, has directed insurers to stop issuing moratoriums on auto insurance in wildfire areas, which some insurers had done. “Insurers will need to work closely with regulators to adjust their pricing/terms and conditions,” Best said.