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Insured losses from Calif. fires at $845M, number expected to grow


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Insured losses from Calif. fires at $845M, number expected to grow

Claims related to two major wildfires that have scorched California this summer may be putting 2018 on track to reach, and possibly exceed, the historic losses seen in the Golden State last year.

California Insurance Commissioner Dave Jones on Sept. 6 said that, thus far, claims related to the Mendocino Complex and Carr fires have been filed for 8,891 homes, 329 businesses and 805 automobiles for a combined total of $845 million in insured losses. Although the blazes have been contained, Jones said the loss figure is expected to rise as additional claims are processed.

A spokesperson for State Farm Mutual Automobile Insurance Co. told S&P Global Market Intelligence that the insurer has received approximately 780 claims from the Carr fire, ranging from smoke, light and fence damage to total loss of homes. Of all wildfire claims reported statewide so far in 2018, 2,173 of them were for structures that have been completely destroyed, according to Cal Fire's Deputy Chief of Communications Scott McLean.

Data compiled by S&P Global Market Intelligence shows that American International Group Inc., Farmers Insurance Group of Cos. and Liberty Mutual Holding Co. Inc. were the largest writers of fire dwelling policies in the state for 2017. State Farm and Farmers Insurance combined control 33.5% of the homeowners insurance market.

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California's Department of Insurance reported that there were a total of $12.8 billion in claims filed statewide related to the 2017 wildfire season. This year's fires have the potential to cause significant losses as well. A Moody's report estimated that the Carr fire alone is likely to incur insured losses up to $1.5 billion, a number that has been increasing since the report was released in early August. Both the Carr and Mendocino Complex fires began before the summer began. California fire season historically ramps up in late summer and some areas of the state have yet to enter their seasonal peaks.

"Sadly wildfire is a year-round experience in California," Jones said at a press conference. "Over the past two decades, the frequency and severity of wildfires has increased causing significant property damage and tragic loss of life in the Wildland Urban Interface areas, but also in areas that were thought to be at lower risk."

Given the state's vulnerability to fires, property and casualty insurers in California generally make use of reinsurance to mitigate the financial impact of the blazes.

For example, Mercury General Corp., which was the eighth-largest homeowners insurer in California in 2017, has a reinsurance policy that fully covers up to $190 million of losses beyond Mercury's $10 million retention limit.

A 10-Q filed July 31 estimated that Mercury's insured losses from the Carr fire would approach or exceed its $10 million retention limit. Mercury in 2017 incurred $107 million in losses, before reinsurance benefits, due to wildfires in Northern and Southern California. In addition to the $20 million in combined losses it ultimately experienced from those catastrophes, Mercury also logged a total of $11 million ceded reinstatement premiums written for reinsurance benefits used under the treaty.