Market Overview

Best's Briefing: California Wildfires: The New Normal?

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As housing development has ramped up in more rural areas and wildlands
in California, the resulting wildfire threat for insurers has continued
to grow, according to a new A.M. Best briefing.

The Best's Briefing, "Wildfires: The New Normal?" notes that 45
of the 58 counties in California have experienced population growth
since 2012. Given the already heightened construction demand from the
wildfire losses in 2017 and a favorable housing market, the continued
demand for construction labor and materials following the current Carr
wildfire in northern California may lead to higher insured losses.
Ultimately, 2018 may produce greater losses for insurers compared with
2017. Compounding the wildfire risk, 12 of the last 19 years in
California have seen below-average precipitation. The combination of
longer sustained higher temperatures along with less frequent rainfall
heightens the risk of fire.

For homeowners and farmowners writers in California, direct losses
incurred nearly quadrupled to $16.0 billion in 2017, compared with $4.2
billion in 2016, mainly due to the 2017 fire season. In addition, the 10
largest premium writers in California posted a direct loss & adjustment
expense ratio in 2017 that was also nearly four times higher than was
reported in 2016 on average.

Insurers will need to re-evaluate wildfire risks in California, given
that the highly destructive current and 2017 wildfires predominantly are
occurring or did occur in areas classified as low to moderate risk. A.M.
Best believes insurers' risk-scoring models likely need adjusting with
more improved loss-reduction strategies put into place to reflect this
new normal. The California wildfires demonstrate the essential role
insurers play in the economy during catastrophe-filled times and
underscore the need for prudence in capital and risk management. A
working partnership between homeowners and insurers can lead to enhanced
risk mitigation strategies to manage an increasingly destructive trend.

To access the full copy of this briefing, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=276745.

A.M. Best is a global rating agency and information provider with a
unique focus on the insurance industry. Visit
www.ambest.com
for more information
.

Copyright © 2018 by A.M. Best Rating Services, Inc. and/or its
affiliates. ALL RIGHTS RESERVED.

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