Thursday, May 5, 2016

Risk: Fort McMurray, Canada Wildfire Could be a Significant Insurance Event

 From Artemis:
The wildfire which is causing destruction in the Fort McMurray area of Alberta, Canada, looks set to result in a significant insurance loss, as the number of buildings and properties damaged reaches 1,600 and further impacts are possible with the fire still burning.

Update – Thursday, 5th May 2016 (07:00 BST, 02:00 EST):
Officials have said overnight that much of the city of Fort McMurray “could be destroyed” before the current emergency is over, raising the prospects of increasing numbers of structures being damaged. Analysts said that this could become the most costly natural disaster in Canada’s history.
Some of the near 90,000 evacuees have been forced to move further away from the city overnight, as the fires continues to move and intensify in some areas.

Continued warm weather and strong winds are expected to fan the flames through the rest of the night, but the forecast is for cooler weather later on Thursday which could make fighting the blaze easier.

There have been reports overnight of additional oil facility and pipeline shutdowns, which raises the possibility of business interruption losses.

The fire extent continues to grow, with estimates saying that it now covers more than 10,000 hectares.

Original article:
The Premier of Alberta Rachel Notley cited the “significant destruction” of the area and that over 1,600 structures are reported to have been destroyed so far in an update at 10.15am local time on May 4th 2016 (17.15pm BST, 12:15pm EST).

Currently the wildfire blaze in Fort McMurray is not considered under control, with fears that forecasts of rising winds could result in further impact to residential and built up areas. Certain fronts of the fire are reported to still be extremely active, resulting in a continued evacuation of residents from the region.

The evacuation is now reported to total 88,000, the entire population of Fort McMurray. News reports show terrible scenes of evacuees homes and livelihoods being lost and the fire itself still advancing and strengthening in some areas. The scale of the evacuation itself is quite remarkable, the largest in the region’s history, as is the fact that so far thankfully no loss of life has been reported.

The current fire extent according to the latest data from Natural Resources Canada can be seen below (click the image for a larger version).
 Fort McMurray wildfire extent map - Source: Natural Resources Canada
The Fort McMurray area is in the heart of the Alberta oil sands region and property values are known to be high in the area, raising the prospects of larger insurance losses, thus increasing the possibility of some impact to reinsurance companies should the wildfire continue to spread and cause damage.
The wildfire, which has been burning since Sunday, is now being compared to the 2011 Slave Lake wildfire, which destroyed an estimated 374 properties in the town, damaging another 52. That fire also destroyed 59 properties in a neighbouring municipality.

The Slave Lake wildfire was estimated to have caused an insurance industry loss of C$700 million, which made it Canada’s second most expensive natural disaster at the time. The Alberta floods of 2013 are currently the most expensive insurance and reinsurance industry loss Canada has suffered at as much as US$2 billion.

Andrew Siffert, Assistant Vice President and Senior Meteorologist of insurance and reinsurance brokerage BMS Intermediaries Inc., provided some colour on the Fort McMurray wildfire’s potential impact to insurers.
“Residential areas that include traditional homes, apartments, townhomes and mobile homes have been most affected, but the media also reports that fast-moving flames have damaged a gas station, a hotels and fast food restaurants along with other businesses. In some neighborhoods, 90% of homes are a total loss.
The area is home to a booming oil sands industry and is surrounded by many high-value homes due to higher paying oil jobs. A quick check of home prices shows many valued between 300,000 CAD and 500,000 CAD.
By comparison, a 2011 fire in the town of Slave Lake (260 km southwest of Fort McMurrary) impacted only 433 buildings and caused an insurance industry loss of 700 million CAD.
Due to the higher number of damaged structures and the higher value of surrounding homes, it would be easy to interpolate that the Fort McMurrary event could surpass the Slave Lake event and top over a billion CAD in insured loss, making it one of the costliest insurance events in Canadian history,” Siffert explained.
This current wildfire in Fort McMurray, Alberta looks like it will be a significant loss event (one of the largest in Canada’s history) for the insurance industry, with the potential to cause some insurers to call on reinsurance capital support to pay their claims.

High temperatures and dry conditions, following a warm and drier than average winter in the region look set to keep fire danger levels high over the next day or two, with winds likely to fan further fires and spread those already burning. It’s a situation being discussed as among the worst possible combination of inputs to wildfire potential conditions.

Tomorrow’s wildfire weather forecast map from Natural Resources Canada shows the extreme fire conditions expected (click the image for a larger version).
Fort McMurray wildfire weather forecast map - Source: Natural Resources Canada
In terms of residential property damage, the municipality of Wood Buffalo has reported as much as a 90% loss of structures in one area, with 70% and 50% in others, suggesting the fire is causing serious property damage.

The fire is said to be moving rapidly and the latest reports suggest that the local airport could be threatened tomorrow, which would also suggest the chance of increasing commercial insurance losses....MUCH MORE