California’s devastating wildfires have raised concerns about the state’s insurance system, but reinsurers may be largely insulated from the cost. Industry analysts predict that reinsurance companies will absorb less than 3% of insured losses from the blazes.
The retreat of reinsurers from disaster risks has led to higher premiums and reduced coverage in California. Major carriers like State Farm and Allstate have stopped writing new policies, leaving many homeowners without insurance or relying on the state-backed insurer. However, reinsurers’ exposure to catastrophe risks has decreased over the past year, with a 33% reduction since 2023.
While fires are less likely to trigger reinsurance payments due to lower thresholds, Munich Re, the world’s largest reinsurer, has reduced its appetite for wildfire reinsurance. The company booked €500mn in wildfire losses in 2017 and €430mn in 2018. Reinsurers have raised prices in recent years, with Citi predicting a significant increase in reinsurance prices when many policies are renewed.
The retreat of reinsurers from disaster risks has been driven by painful losses in prior years, with rising interest rates and inflation squeezing reinsurance capital supply. Despite new regulations aimed at making it easier to raise premiums, the future effect may be muted due to the broader shift in the industry.
Source: https://www.ft.com/content/51e2f893-6822-4962-9469-112c6b72a3fe