Fitch: Canadian Insurers Prep for Loss as Alberta Fire Continues

NEW YORK & CHICAGO--(BUSINESS WIRE)-- As the Fort McMurray wildfire continues to burn in the province of Alberta, the insurance market braces for large potential losses from what is likely the costliest natural catastrophe in Canadian history, according to Fitch Ratings.

The insurance companies that have the largest market share to Alberta property include Intact Financial Corporation, Wawanesa Mutual Group, Co-Operators General Insurance Company, TD General Insurance, Aviva Canada Inc. and Lloyds Underwriters. Together, this group accounts for approximately 60% of direct written premiums based on 2014 reported figures.

Estimating financial losses while the fire is not fully under control is difficult; however, Intact issued a press release on Monday estimating net of reinsurance after-tax insured losses of CAD130-CAD160 million based on satellite imagery of damaged areas and geocoding of insured exposures. Intact noted this analysis assumes wildfires will not return to Fort McMurray.

Bank of Montreal published an early estimate for losses that ranges from CAD2.9 billion to as high as CAD9.0 billion. To put this in perspective, the three costliest insured disasters in Canadian history were the Alberta Floods of 2013 at CAD1.7 billion, the Ontario & Quebec Ice Storm of 1998 at CAD1.6 billion and the Slave Lake Fire of 2011 at CAD700 million.

The distribution of insured losses between insurers and reinsurers is unclear, but Fitch believes the magnitude of the event leads to a larger proportion of losses borne by reinsurers. Comprehensive loss estimates from primary underwriters will take some time, and the reinsurance buying practices of Canadian underwriters likely varies somewhat based on differences in organization structure, e.g. independent insurers versus underwriters owned by Canadian financial institutions or multinational insurance organizations.

According to reinsurance broker Aon Benfield's Impact Forecasting Unit, the fire, known as the Horse Creek Fire, has damaged or destroyed over 1,600 homes and structures over 25,000 acres. The fire has grown to cover almost 620 square miles and is expected to burn for some time, but will shift to less populated areas.

There are two primary differences that make the potential for Fort McMurray loss estimates to be multiples higher than Slave Lake: First, the average price of a home in Fort McMurray is CAD627,000, according to Fort McMurray Real Estate Board, versus CAD300,000 in Slave Lake, according to the Slave Lake government. Second, the Slave Lake fire destroyed 374 homes and damaged an additional 52 properties.

Fort McMurray is a major hub for Canada's oil sands industry. The fire has led to the shutdown of several facilities for the safety of workers but no damage, as of yet, has been reported. The fire has spread rapidly due to dry conditions, high winds and significant sources of fuel for the fire such as spruce and pine trees.

Additional information is available on www.fitchratings.com.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article, which may include hyperlinks to companies and current ratings, can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

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View source version on businesswire.com: http://www.businesswire.com/news/home/20160509006210/en/

Fitch Ratings
Gerry Glombicki, CPA
Director
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Source: Fitch Ratings

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