Nationwide losses top $1 billion from fires
As wildfires blaze through Southern California, the costs of a similar catastrophe two months ago in the northern part of that state are now coming clear.
Nationwide expects to pay $1.4 billion to policyholders who suffered losses from those October fires, the result of more than 2,300 claims.
The company likely won’t report an operating profit for 2017 when the cost of the California fires are added to this summer’s hurricanes and a rise in auto accidents in recent years, said Jeff Rieder, president of the Ward Group, a Cincinnati consulting and research group. The same will likely be true for other insurers as well.
Regardless, Nationwide is “incredibly strong financially,” Rieder said. “They’re prepared to handle a loss like this.”
The size of the losses reflects the high average insured value of the buildings
damaged by the fire and the large number of losses. The total does not count the current wildfires in Southern California.
The net loss after reinsurance from the October fires is expected to be $1.1 billion for Nationwide.
“We hold excess capital and utilize reinsurance to ensure we are well-prepared for these types of events,” spokesman Joe Case said. “It’s important to note that we also have significant operating profits from other lines of business, such as financial services, that will offset these claims payouts.”
Nationwide has received about 40 claims so far from the current fires and said it
continues to assists policyholders hurt by the fires.
The California Department of Insurance said Wednesday that statewide insured losses from the wildfires in October topped $9.4 billion and were the deadliest and costliest in state history. The fires partially or totally destroyed about 23,000 residential properties and nearly 3,000 commercial properties.
Nationwide reported an operating profit of $910 million in 2016 on operating revenue of $26.9 billion. The company paid out $17.2 billion in claims in 2015.
Statutory surplus — a measure of financial strength and claims-paying ability evaluated by regulators and rating agencies — increased to $15.1 billion in 2016, according to the insurer’s most recent
annual report. Nationwide said in that report that it maintains more than three times the amount of statutory surplus required by regulators to cover its obligations to customers.
Insurers model for the worst case and then build reserves on top of that, said James Lynch, actuary for the Insurance Information Institute in New York, an industry group.
The industry has about $1 trillion that can be used for claims, he said.
“Obviously, it’s not a good year. It might be the worst ever in terms of catastrophic losses,” he said. “Companies test their portfolio and try to think of the worst things that could happen and figure out how much they’ll cost.”