Insured wildfire losses in CA to exceed $2 billion

November 08, 2017

Keywords: Asset Management

Dry conditions that grip much of the Pacific Northwest make it a veritable feeding ground for wildfire activity, particularly in California. Hundreds of thousands of acres have been consumed by wildfires in the Golden State, and according to a newly released estimate, the damage will cost insurers billions.

In Northern California, which encompasses communities such as Atlas, Redwood, and Tubbs, insured losses from wildfire destruction is projected to range between $2 billion and $3 billion, according to catastrophe modeling firm AIR Worldwide. All types of structures have been consumed by flame, including residential and commercial real estate, mobile homes, as well as passenger vehicles. These effects were all included in AIR Worldwide's insured loss projection.

9,000 wildfires nationwide in July alone
Even though California has mild temperatures virtually year-round, the summer is typically the period in which wildfire activity peaks. This is true not only in the Golden State, but in the U.S. as a whole. According to the National Oceanic and Atmospheric Administration, approximately 9,000 wildfires dotted the country's landscape in July, the seventh-most for that month since 2000. These fires consumed in excess of 2.6 million acres of land, which is the fourth-highest amount on record.

Although the total number of wildfires in year to date estimates is trending lower than normal, the sheer size of them has rendered containment difficult for fire officials on the scene. Between January and September - October numbers are not yet available - 8.4 million acres were destroyed. That's up from approximately 5 million during the same time frame in 2015. NOAA says this year's total is the fourth most ever over a nine-month stretch.

170,000 acres scorched in California
The California wildfires continued to rage into October, worsened by searing temperatures and limited rainfall. Referencing figures from CAL FIRE, which dates through mid-October, AIR Worldwide reported 22 active wildfires had yet to be fully contained statewide, decimating 3,500 structures and more than 170,000 acres. However, based on more recent statistics drawn from the National Interagency Fire Center, the state now reports only one large wildfire. That's down from the nine that were ongoing as of Oct. 25 in multiple counties, among them Yuba, Sonoma, Lake and Mendocino.

California has been under a state of emergency since September, declared by Gov. Jerry Brown. These declarations free up both state and federal resources that can be put toward the recovery and reconstruction effort where insurance may not be available.

Wildfires have been only one component of the natural disaster onslaught insurers are facing, as 2017 is the first year that a major hurricane made landfall since 2005. Indeed, at least two storms this year reached Category 5 strength, the largest on the Saffir-Simpson Wind Energy Scale. With an increase in property claims expected, some analysts are anticipating a hardening of the insurance market. But as Bloomberg recently reported, several insurance executives predict that this hardening won't last long and should eventually soften.

The insurance industry is highly temperamental, as weather forces make it one that is hard to nail down. This requires insurers to make smart strategic decisions to fund their bottom line. Here at Miles Capital, we offer customized asset management solutions to optimize efficiency and maximize delivery. Our investment strategies include fixed income, equity and - our specialty - alternative markets.

Disclosures

This material is for informational purposes only and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer, or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expresses may change as subsequent conditions vary. The information herein is based on sources which Miles Capital believes to be reliable, but is not guaranteed to be accurate or complete.

Past performance is not a guarantee of future results. There is no guarantee that any forecasts made will come to pass. There is potential for profit or loss with any investment. Index performance is shown for illustrative purposes only — you cannot invest directly in an index. No part of this material may be reproduced in any form, or referred to in any publication without the express written permission of Miles Capital, Inc.