Insurers Can Absorb Fire Costs

Insurers and the analysts who follow them said Thursday that the industry appears well able to absorb the costs of the wildfires sweeping Southern California, even though the insured loss may well exceed the record $1.7 billion in claims when the scenic hills above Oakland and Berkeley went up in flames Oct. 20, 1991.

“Catastrophes are priced into insurance premiums,� said Bill Sirola, a spokesman for State Farm General Insurance Co., California’s largest home insurer with 23% of the premiums in the state.

The industry sometimes raises prices and adjusts terms of policies after disasters, but industry officials said it’s too early to tell whether that would occur this time. State Farm, for example, didn’t raise premiums after the Oakland Hills fire, Sirola said.

At the Automobile Club of Southern California, “we absolutely are not raising rates,� spokeswoman Carol Thorp said. “We have a strong surplus.�

Thorp said some customers’ rates would soon go up and others go down, but not because of the fires. The company recently reappraised the values of all the homes it insures to make sure the coverage is at appropriate levels, she said.

State Farm General, a part of Bloomington, Ill.-based State Farm Group that writes policies in California, is followed in the state rankings by Farmers Insurance Group of Los Angeles, a subsidiary of Switzerland’s Zurich Financial Services that has 19% of California premiums. In third place is Allstate Insurance Co., part of Northbrook, Ill.-based Allstate Corp., which has about 14%.

The big three, along with other major home insurers in California such as the Southern California AAA and its counterpart in Northern California, are regarded as solidly capitalized.

In a report on the insured losses from the Southland wildfires this week, Fitch Ratings said the carriers most affected by disaster “are generally the larger, national carriers that, as a group, have higher insurer financial strength ratings.�

“However,� Fitch added, “the possibility does exist that smaller insurers, namely those with a concentrated geographical focus in Southern California homeowners or commercial property insurance, could be materially affected.�

If that occurred, Fitch and other ratings firms could downgrade the companies’ ratings, although Standard & Poor’s said downgrades appear unlikely unless there is significantly more damage.

“However,� S&P; warned, “until the fires are under control, this is an evolving story.�

Insurers typically reinsure themselves for catastrophes, making other carriers liable for claims above a certain level of payments. Insurers also pay into a state-sponsored guarantee fund set up to cover losses if a company could not.

After years of keeping premiums down in a battle for market share, insurers have generally spent the last two years raising premiums and tightening restrictions to increase profits.