California wildfire losses higher than expected, says Everest Re

Everest Re Group has announced that it has revised its losses from the 2017 wildfires in California upwards from its initial estimates.

The company said that it now it expects to incur $100 million of estimated catastrophe losses, net of reinsurance recoverables and reinstatement premiums, in the first quarter of 2018, largely arising from the California wildfires and related events.

In October and December of 2017 a series of wildfires burned across many areas of California, resulting in widespread damage to homes and businesses. Everest Re’s initial estimate of these losses in the fourth quarter of 2017 was based on the best available information at the time, including modeled data, industry loss estimates, which ranged from $8 billion to $10 billion, and preliminary client discussions.

However, industry loss estimates for both the Northern and Southern California events have risen dramatically since year-end and are now projected at over $13 billion. The company said that this increase in the industry loss estimate is consistent with the revised reports of escalated claims costs it has noted with several of its clients, prompting the change in the company’s estimate in the quarter.

Everest Re has also noted a change in its reporting of operating income, a non-GAAP financial measure. Historically operating income represented net income, excluding realised capital gains and losses and the tax impact related to the enactment of the Tax Cuts and Jobs Act in 2017. Starting in first quarter 2018, the company will further adjust operating income to exclude foreign exchange gains and losses as it believes the impact of foreign currency movements on income is not indicative of the performance of the underlying business in a particular period.