There has been widespread coverage of the spate of wildfires inflicting serious damage on towns in California. It is very early to be forming a view, especially as some of the fires are still burning and current conditions could spawn more fires. It could be several more weeks until a clearer picture is available.

This is the second year of major wildfires in the state, after two particular outbreaks impacted 2017 results.  A series of fires in October 2017  in Northern California cost insurers $11 billion, while fires in Orange County in Southern California cost insurers $2.8 billion. Looking at the returns from syndicates supported by clients of Argenta, the fires add around 1.4% to the loss ratio for the year, with an aggregate cost of 1.3% of capacity. Although these were not the most significant loss events of the year, they have served to make a poor year worse.

Some commentators are speculating that the series of outbreaks in 2018 are likely to be more expensive than those of 2017. The footage from the affected areas looks devastating and we extend great sympathy to those who have lost family members or homes and belongings. From an insurance perspective, we understand that the fires have been limited to residential areas, whereas the fires in 2017 swept through both residential and commercial areas, with the state’s wine industry particularly impacted. This means that there will be a different distribution of loss as Lloyd’s share of homeowners’ business is smaller than it is of commercial business in the state. A proportion of the losses will inevitably be passed on to the reinsurance market, although how much will depend on a number of factors including how the fires are apportioned into separate events and the degree to which insurers pursue power companies for subrogation.