Update on California wildfires
The current California wildfire season has generated global media interest. Besides the size of the fires themselves, further interest has been spurred by the extremely hot weather and resulting wildfires on the Northern Hemisphere during the summer. Currently the estimated insured losses will be covered by direct insurance companies and maybe some reinsurance companies. US wildfire risk is a remote risk in Entropics’ as well as most managers’ portfolios.
As of July 31, the US wildfire risk amounted to 0.36% of the total expected loss for the portfolio. We are still early in the wildfire season. Yet, we have seen the largest wildfire in California History (the Mendocino Complex fire) as well as the sixth mote destructive fire on record (the Carr fire). The losses were estimated by AON in the Global Catastrophe Recap for July 2018 to exceed $1 billion, with more than 2,000 structures destroyed by wildfire.
Compared to the largest fires of the previous season, the total insurance losses were estimated by AON at more than $13 billion. The costliest fire of the season was the Tubbs fire in the California wine region, with more than 5,600 structures destroyed. The Thomas and Nuns fires also resulted each in more than 1,000 destroyed structures. The total insurance losses of the 2017 wildfire season exceeded the sum of the previous nine years.
Still, the extreme wildfire events of 2017 would not alone have been severe enough to trigger any bonds in Entropics portfolio. The following graph illustrates the estimated erosion of retention from wildfires in 2017:
To get an impression of the vast size of the present fires, the following image projects the current size of the Mendocino Complex fire over the Stockholm region. The larger region extends approximately 60 km from northeast to southwest, with maximum width of approximately 20 km. The total area of the fire at the time of writing is approximately 112 000 hectares (1 120 km2).