California wildfire reinsurance may rise 30%-70% as market smarts from losses: S&P
Rates for renewals of California wildfire exposed reinsurance programs or coverage could see increases of as high as 30% to 70%, as both traditional and alternative markets smart after two heavy loss years, according to S&P Global Ratings.
Insured losses across the 2017 and 2018 California wildfire seasons reached around $33 billion, the rating agency noted, but because of timing of renewals S&P does not feel that rates have moved sufficiently higher to compensate both traditional reinsurance and alternative capital markets for their loss experience.
The California wildfires surprised insurance and reinsurance firms, given they fell outside of their modelled understanding of the risk.
In addition, due to the complexity of wildfire coverage, losses fell to both the property and casualty buckets of re/insurers, which added to the surprise for some.
Wildfire had been considered a secondary peril, but the events of 2017 and 2018 highlighted that these perils can pose just as significant a threat and potential for industry losses and finally the industry has woken up to the potential for significant impacts from secondary peril loss events.
“The past two years have clearly highlighted that these secondary risks are not to be taken lightly,” explained S&P Global Ratings credit analyst Hardeep Manku.As noted in another "Got a claim? Yr. rates are going up" scenario, 2010's:
Reinsurance firms and alternative capital players have reassessed their risk appetites in light of the wildfires of the last two years, resulting in a diminished appetite across the industry for this peril and a desire for higher compensation for those prepared to underwrite it.
“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,” S&P explained.
Of course, after the last two years reinsurers and alternative capital providers are not prepared to take this risk, leading to an expectation for significant upwards pressure at future renewals....MUCH MORE
"No Surprise: Chile Leads to Reinsurance Rate Increase Debate 'BRK-A; BRK-B'":
No kidding.
A brisk breeze gets the boys in Omaha, Zurich, Munich and London (Lloyds) talking about premium increases.
Not to mention the herverzekering crowd in Amsterdam, they're tough bastards..
