Farmers to take $2.2bn in wildfire losses

Personal lines giant Farmers has told its reinsurers that it expects gross losses of $2.2bn from the recent fires which swept through California.

This includes $1.8bn from the bigger Camp Fire and $475mn from the smaller Woolsey blaze, sister publication The Insurance Insider reported.

Given Farmers’ circa 10 percent market share, the claim toll adds credence to fears in parts of the underwriting community that total insured losses could breach the $20bn mark, although at this stage the most common loss range cited is $15bn-$20bn.

In a further blow to underwriters, it is understood that Farmers had placed its 2019 catastrophe reinsurance programme before the fire with the terms unchanged on 2018. The programme, which incepts at 1 January, is also partially placed on a three-year basis.

This represents the second year in a row that Farmers has hammered its reinsurers after ground-up claims from last year’s fires of well over $1bn, as well as some other claims from hurricanes Harvey, Irma and Maria (HIM).

Sources said the Farmers’ programme has a first-event retention of $400mn, with a $200mn excess $200mn aggregate deal reducing the retention to $200mn for the second event.

Farmers buys enough vertical limit that it would likely be able to claim both events within a single policy limit. However, sources suggested it is likely to lodge the claim as two events – forcing it to take two retentions.

Farmers has a market share of 10.1 percent in California across commercial, residential and auto lines, according to figures from S&P Global, although it seems likely that its market share in Butte County and Malibu is higher than the state-wide numbers.

The hit to a single cat treaty is likely to be the biggest for a single cedant since Zenkyoren’s tower was totalled by the Tohoku earthquake in 2012, dwarfing any individual loss from HIM and Sandy.

Reinsurers are starting to gain a clearer picture of the loss as a string of cedants with exposure issue loss numbers.

It is difficult to get a good sense of which reinsurers will be exposed to the Farmers loss from its Schedule F filings because the reinsurer is a major purchaser of quota share reinsurance with low cat loss caps.

As such, any analysis is likely to overstate the exposure of reinsurers that write the quota share like Swiss Re, TransRe and Munich Re.

In addition, some reinsurers are understood to have come off the programme ahead of 1 January 2018 when a troubled stop-start placement process ended with rate rises of around 25 percent.

Zurich Insurance has historically provided quota share reinsurance to Farmers, as well as certain administrative and management services through Zurich’s Farmers Group Inc. subsidiary.

Farmers, or Farmers Exchanges, is owned by its policyholders. Representatives for the company did not respond to a request for comment.

Yesterday Chubb announced that its net pre-tax losses from the Californian wildfires would reach $225mn, in line with its previously reported claims from Hurricane Michael.