Report: Re/Insurers Are Reconsidering Risk Appetite for California Wildfires

By | August 19, 2019

S&P Global Ratings says 2020 reinsurance pricing in the aftermath of California wildfires will likely rise as re/insurers are finding 2017-2018 losses from wildfires in that state to be higher than expected.

The California wildfires of 2017-2018, with insured losses of about $33 billion, surprised re/insurers as the losses were outside of the market understanding of the risk, and they affected both property and casualty business lines, according to S&P Global Ratings.

Still, the wildfires, in conjunction with other catastrophe losses, had limited impact on the creditworthiness of re/insurers.

In a recent commentary, “Jolted By California Wildfires, Re/Insurers Recalibrate Their Risk Appetite,” S&P Global Ratings said that there is no consensus among re/insurers on the price adequacy despite significant rate increases thus far, or comfort with the risk in spite of substantial updates to wildfire risk models.

The reinsurance pricing for California wildfires could be up 30%-70% heading into the 2020 renewals; capacity will continue to be constrained as this market remains in disarray, which will fuel further rate increases.

“The past two years have clearly highlighted that these secondary risks are not to be taken lightly,” S&P Global Ratings credit analyst Hardeep Manku said in a media release.

Reinsurers have reassessed their risk appetites in view of recent experiences. Considering the limitations of the wildfire catastrophe models, if re/insurers were to underestimate this risk, they may end up taking outsize exposures that could result in a capital event and ultimately hurt their credit worthiness.

This report does not constitute a rating action.

Source: S&P Global Ratings

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