Wildfire-hit CSAA pays 50% increase on 2020 cat treaty

CSAA Insurance Exchange will pay an average rate increase of around 50 percent across its 2020 catastrophe programme in a new indication of the radical repricing of accounts with wildfire exposure in California, according to reinsurance market sources.

In a statement to this publication, CSAA said it believed the increase paid on a risk-adjusted basis was 16 percent. The discrepancy is believed to reflect CSAA’s significantly increased expected loss as a result of a changed view of wildfire risk.

The carrier, which is the Northern California insurance arm of the American Automobile Association, was hit heavily by the 2017 Northern California wildfires and the Camp Fire in 2018.

Sources said that CSAA’s loss for the Camp Fire was just below $1bn net of subrogation, while the 2017 wildfire loss was around $800mn.

It is understood that CSAA’s 2020 cat reinsurance programme, which incepts at 1 January, has already been placed – as in 2018, the carrier has bought cover before the current year wildfire season.

Sources said that across the programme it paid an average rate increase of around 50 percent.

SNL data reveals that in 2018, CSAA’s top five reinsurers by gross recoverables were RenaissanceRe Europe, Munich Re, Catlin Syndicate 2003, MS Amlin Syndicate 2001 and Tokio Marine Kiln Syndicate 510.

The renewal is an indication of the impact Californian wildfire losses in the last two years may have on 2020 pricing. The 2017 and 2018 fires, which according to Standard & Poor’s caused around $33bn in insured losses, have driven reinsurers to take a drastically more conservative view of wildfire risk.

A number of insurers in the state booked large wildfire losses last year, with implications for their reinsurance programmes.

Mercury General, which handed $216mn in wildfire losses to its reinsurers in 2018, doubled its cat limit to $589mn when it renewed its programme in July, as well as raising its retention from $10mn to $40mn.

AM Best placed the financial strength rating of California Capital Insurance Company under review in December, after the company went through the top of its $250mn reinsurance programme. It has since agreed to be acquired by Auto-Owners Insurance.