With the devastating effects of the wildfires in Southern California, A.M. Best Co. has begun to assess the potential financial impact this event may have on the property/casualty and reinsurance industry.

While awaiting information from affected entities, A.M. Best is evaluating potential market share exposure based on a number of different industry loss scenarios. While this approach is somewhat limited, particularly given the geographic spread associated with California, it provides an initial framework for determining which companies should receive the highest priority within our review.

A.M. Best’s initial focus will be on those rated organizations with the largest market share exposure relative to surplus. A.M. Best utilizes its market share information to review the potential catastrophic losses on individual companies relative to their policyholder surplus. In addition, A.M. Best’s analysts will review each organization’s overall reinsurance protection relative to the market share results.

A.M. Best will continue to evaluate the potential impact of the wildfires as more detailed information becomes available. While A.M. Best realizes that actual loss estimates will take time to accumulate, it is expected that all rated companies will provide preliminary modeled estimates and/or ranges to A.M. Best within a reasonable time frame. Based on a preliminary analysis using historical average losses per structure for California wildfire losses, it is anticipated that these fires have the potential to rival the 2003 events.

Although the insured losses associated with these events are likely to be significant and may modestly weaken full year 2007 industry operating results, it is anticipated that the overall ratings impact will be generally limited based on the favorable results of the last several years, subsequent balance sheet enhancement and advances regarding insurers’ risk management awareness and capabilities.

------------------------------------------------------------------------------------------------

Copyright © 2007 A.M. Best Company, Inc.

Presented by InsuranceHeadlines.com