Analyst: Calif. Fires Should Not Result in Large Insurer Losses

October 23, 2007

The 11 wildfires burning in Southern California should not result in large individual insurance company losses, according to a recent report by Goldman Sachs Analyst Thomas Cholnoky. Instead, he predicts nontraditional markets will witness the heaviest losses.

According to the Goldman Sachs report, “While it is likely too early to assess the ultimate industry losses that may arise out of the devastating California brush fires, at the moment, it appears that nontraditional excess and surplus lines, and Lloyds markets, may likely bear the brunt of the losses.” Cholnoky said the reason for this is that most traditional writers have “explicitly avoided writing any exposures in ‘brush’ defined areas,” although he said the one exception is in the fires around San Diego that have jumped from brush to non-brush areas.

In the San Diego area, Cholnoky said the average home price is about $500,000, which he said means “for every 100 homes lost, it would generate $50 million in industry losses.”

The top five homeowners insurance writers in California are State Farm, with 21.3 percent market share; Farmers Insurance with 16.1 percent market share; Allstate with 13 percent market share; California State Auto with 6.1 percent market share; and Nationwide with 4.8 percent market share.

However, Cholnoky suggested it might be misleading to use market share data to assess individual company exposures.

At press time, nearly 250,000 people have been asked to evacuate from San Diego County, where 100,000 acres, or 156 square miles, have burned, county Supervisor Ron Roberts told the Associated Press. Across the region, 40,000 acres, or 62 square miles, had burned by Sunday, including pricey homes in Malibu.

The fire is predicted to burn for another two to three days, according to fire officials.

The Associated Press contributed to this article.

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