LA wildfires won't affect property casualty reinsurance ratings – Fitch Ratings

However, expected losses will reduce near-term earnings

LA wildfires won't affect property casualty reinsurance ratings – Fitch Ratings

Reinsurance

By Abigail Adriatico

The devastating fires in Los Angeles will lead to insured losses that exceed the records seen during previous wildfires but are not likely to affect the ratings of property casualty reinsurers, according to a report by Fitch Ratings.

In the report, Fitch ratings stated that the insured losses among these reinsurers should remain within ratings sensitivities for those who are affected due to ample capital levels, diversified risk exposure, and their ability to increase premium rates.

The expected losses for rated reinsurers will possibly reduce near-term earnings, depending on the exposure to claims from homeowners, auto, commercial property, and business interruption insurance. The firms mostly likely to see negative rating actions are those where losses incurred from the wildfires exceed their earnings as well as reinsurance limits.

However, such losses may pressure weaker capitalized companies and increase reinsurance costs, which will also further strain the system that has seen many insurers leave the market. Notably, after reevaluating the risk of wildfires, pricing, and the conditions of the reinsurance market, many insurance companies have stopped writing new business in Los Angeles.

Prior to such developments, the risk of wildfires were once viewed as secondary only to hurricane and earthquake insured losses in terms of costs. With such events occurring, the largest homeowners’ writers in California will have significant losses.

The Fair Access to Insurance Requirements (FAIR) Plan, which is the insurer of last resort in California, will incur substantial losses because there are many insurers that have reduced their policies in the market.

The California insurance commissioner has issued a mandatory one-year moratorium that took effect Jan. 7 on insurance non-renewals and cancellations for homeowners’ insurance within the ZIP codes of the Palisades and Eaton fires, regardless of loss. In exchange for the coverage increase, the state will allow insurers to pass the costs of reinsurance to policyholders, which was something California previously did not allow.

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