While the wildfires raging through northern Alberta and the city of Fort McMurray could bring one of the largest catastrophe losses in Canadian history, property insurers are resilient, according to A.M. Best and Moody’s in separate reports.
The fire has damaged or destroyed more than 1,600 homes and structures and is threatening 19,000 more – engulfing entire neighborhoods, business districts, and burning more than 18,500 acres, said A.M. Best in its report titled “Alberta Wildfires May Be Costliest Catastrophe Ever for Canadian P/C Industry,” which was published on May 6.
Early reports have put insured losses for the Alberta wildfires at C$9.4 billion, or USD$7.3 billion.
A.M. Best said this event has the potential to be the costliest catastrophe ever to hit the Canadian P/C market, possibly exceeding the C1.89 billion ($1.46 billion) in losses generated by the January 1998 ice storm in Quebec and the floods in Southern Alberta in 2013, which had insured losses of C$1.86 billion, or $1.44 billion.
Despite the extent of the Alberta wildfires, Moody’s said it does not expect the Alberta wildfires to be a major capital or credit event for the Canadian P&C industry, although it is likely to hit the firms’ Q2 2016 and possibly Q3 2016 earnings.
“Since 1950, only two Canadian insurance companies have failed due to catastrophe losses,” said Moody’s in its May 6 report, titled “Alberta Wildfires to Hurt Q2 Results for Canadian Property Insurers.”
“These were companies with only regional exposure, writing business primarily in a single province,” Moody’s said, noting, however, in today’s market, rated P&C companies “write business throughout Canada or are part of larger financial groups with significant capital buffers.”
“In addition, we believe direct losses will exceed retention limits under reinsurance programs, such that reinsurance will cover some of these losses,” the ratings agency went on to say.
A.M. Best agreed, saying many of the top homeowners’ and auto insurers in Alberta “have diverse national geographical and product profiles, and possess strong risk-adjusted capitalization, comprehensive reinsurance programs, and solid overall risk management capabilities.”
While it is too early to determine the impact on insurers’ ratings, these companies should be “able to absorb the losses without a material impact to their risk-adjusted capital positions,” said A.M. Best in its report.
A.M. Best noted it will take more time to assess the impact on profits and capitalization of smaller, more geographically specific writers, which potentially may have concentration and scale issues.
Personal and Commercial Exposures
“We expect that companies will experience losses in both personal and commercial property lines as both homes and businesses have been destroyed by the wildfires,” Moody’s said, explaining that an insurer’s exposure can differ from the premiums written depending on a company’s market share in the affected areas.
“After a relatively benign catastrophe period in Canada over the last year and a half, this episode is another stark reminder of the damages a property and casualty writer can be exposed to and the need for companies to continue to focus on prudent and developing risk management practices,” said A.M. Best.
Source: A.M. Best and Moody’s