S&P Says Insurers and Reinsurers Can Absorb Losses from California Wildfires

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S&P Global Ratings expects both the primary insurers and reinsurers to be able to absorb losses from the California wildfires, limiting them to an earnings event.

However, the mounting bills from more frequents large wildfires in the state against a regulatory backdrop that limits the ability of carriers to raise rates “may lead to some soul searching” as they consider how much coverage to write in California, S&P said.

“Given their increased frequency and the lasting effects they leave on the communities’ impacted, weather-related events and catastrophes are a bit sobering for the insurance industry as they underscore the challenges for modeling and covering these risks,” S&P Global Ratings credit analyst Stephen Guijarro said in a statement. “Naturally, there is a great deal of unpredictability that requires vigilant risk management. Fortunately, the industry’s strong capital level may limit its impact to an earnings event and allows it to potentially keep writing this business.”

S&P said it expects the losses to be contained as an earnings event and for the reinsurance sector to be able to absorb the impact from the fires as well as recent hurricanes although “catastrophe budgets will be strained.”

Primary insurers AIG, Chubb, and Farmers have the largest exposures from the fires, according to S&P.

S&P said AIG and Chubb are likely to experience greater losses from the Southern California wildfires given the high-net-worth nature of the markets hit.