Wildfires likely to lead to higher reinsurance costs: A.M. Best

Losses arising from the latest California wildfires, including the Kincade Fire in Sonoma County and the Getty Fire near Los Angeles, are likely to result in higher reinsurance costs for primary insurers and a tightening of terms and conditions, ratings agency A.M. Best Co. Inc. said Tuesday in a report.

While 2019 has not been as active as the record-breaking 2018 and 2017 seasons, with the number of acres burned well below last year’s levels through October, the “new normal” trend of more severe wildfires continues to challenge insurers, regulators and government agencies, Best said.

“As was the case in recent years, we expect to see an uptick in reinsurance pricing in loss-affected areas,” Oldwick, New Jersey-based Best said in the report.

While it is too early for loss estimates resulting from the 2019 wildfires, larger national insurers hold much of the market share in California, Best said.

These insurers have “significant capital” to manage the peril and effective risk management strategies, including robust reinsurance programs, the ratings agency said.

“Given the activity of the last several years, many companies have heightened their focus on managing this risk with pricing, re-underwriting, and improved risk scoring matrices,” Best said.

But changing books of business may take years to implement, according to the report.

“As insurers look at the last three years, the sheer number of events and their severity will undoubtedly lead them to continue their re-examination of this peril,” Best said.

Insurers’ enterprise risk management frameworks will be challenged, and they may have to reexamine their risk appetites, capital management strategies and reinsurance partnerships, it added.

Best said it will continue to monitor the situation through its ongoing dialogue with rated insurers that have a significant presence or concentration in the region.