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AUGUST 27, 2020 11:14 AM (EDT)

Best’s Commentary: 2020 California Wildfires May Lead to Further Spikes in Reinsurance Rates


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FOR IMMEDIATE RELEASE

OLDWICK - AUGUST 27, 2020 11:14 AM (EDT)
Given the extensive use of reinsurance by insurance companies with property exposures in California, the current spate of wildfires may spur additional reinsurance and retrocession market rate hikes, along with capacity shifts, on top of an already hardening market, according to a new AM Best commentary.

A new Best’s Commentary, titled, “2020 California Wildfires May Lead to Further Spikes in Reinsurance Rates,” states that after a brief respite from heavy wildfires in 2019, insurers again are facing steep losses in 2020. Although many reassessed their risk appetites following the $13 billion in insured wildfires losses in 2017 and another $12 billion in 2018, the 2020 wildfires potentially still could be at least as costly as the 2017 wildfires. Excess and surplus lines insurers that stepped in after 2018 to take advantage of the rate increases and the supply dynamics also may experience losses.

Larger national companies with significant capital and effective risk management practices to manage perils, as well as robust reinsurance programs, hold much of the market share in California. Insurers with significant concentrations in California’s homeowners market may be more exposed, but their losses will depend on reinsurance strategies and mitigation techniques. The COVID-19 pandemic has significantly contributed to a hardening market, and given the current wildfire situation, reinsurers and alternate capital may demand significant rate hikes, which would result in higher reinsurance costs for primary carriers and make the risk-reward tradeoff to underwrite California wildfire risk a much more challenging decision going forward.

To access the full copy of this commentary, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code==300581 .

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in New York, London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City.