Wildfires in Southern California - 25.10.07

Wildfires in Southern California
There are now nineteen wildfires in Southern California fanned by hurricane force Santa Ana winds.  Fires have been burning since 21 October.  An emergency has been declared in seven counties.  Over half a million people have been forced to leave their homes – this is the largest evacuation in the US since Hurricane Katrina in 2005.  An estimate is that nearly one million people have been affected by the fires. 
As the fires are still burning it is obviously not possible to estimate the final cost to insurers but it is worth noting that fires in Southern California in 2003 which killed 22 people and which destroyed some 3,640 homes cost insurers $2 billion.  Fires in California in a similar incident in 1991, in 2006 dollars, cost insurers $2.5 billion. 

EQECAT Estimate of Loss
Catastrophe modelling company EQECAT has estimated that insured losses from the current fires in Southern California’s have now exceeded $1 billion.  The losses will continue to mount until the Santa Ana winds die down and firefighters can contain the fires, EQECAT said.
Calmer winds are expected over the next few days. However, a spokesman for California’s Office of Emergency Services (OES) said it’s a “give and take,” with the winds calming down in the area of some of the 18 major fires burning in seven California counties. On other fire lines, however, the winds are not cooperating.
As of noon on 24 October 1,436 residences had been destroyed and another 521 damaged, the OES said, while more than 100 commercial buildings had been destroyed and another 80 damaged.  The spokesman could not provide further details about the commercial structures, but insurance industry observers in San Diego said they expect most property damage to be limited to small establishments.
More than 426,000 acres have burned, and nearly 9,000 firefighters are battling the blazes, the OES said. More than 320,000 residents are under mandatory evacuations and thousands more have left their homes voluntarily.
A survey of insurers conducted by the Los Angeles-based Insurance Information Network of California found that as of 2 p.m. on 23 October, policyholders had filed more than 1,760 claims.

Lloyd’s Exposure
Major insurers in California such as Allstate, Nationwide, State Farm and underwriters at Lloyd’s are, not surprisingly, not yet in a position to assess their ultimate exposures as the fires are still burning.  However, it is worth noting that since 2003 retentions borne on this catastrophe class by insurers ceding business to reinsurers at Lloyd’s have risen by 150%, not least because of the actions taken after the Hurricanes in 2004 and 2005.  Catastrophe rates in the US remain robust.  This loss would have to be very significant for it to have a major effect on the Lloyd’s market.  Typically in the US, catastrophe losses in the second half of the year amount to some $10 billion.  Third quarter losses this year were only $1.1 billion.