Global Indemnity questions wildfire models amid California rate approval frustrations

By Chris Munro

March 12 - (The Insurer) - Global Indemnity Group is rethinking the validity of its wildfire models after its loss from the Los Angeles blazes was almost double what it would have expected, while CEO Jay Brown warned it will consider writing business elsewhere if adequate California rate rises are not secured.

The comments came after Bala Cynwyd, Pennsylvania-based Global Indemnity posted its Q4 and full year 2024 earnings on Tuesday.

On a call with analysts following publication of the results, Brown said Global Indemnity has been hit with $15 million in catastrophic losses from the recent Los Angeles wildfires.

Brown explained that Global Indemnity is “pretty confident” its loss number will not move given that its LA wildfire losses came from fewer than 10 individual impacted properties, and the carrier has already paid out on over half of those.

“Given the magnitude of the LA fires, this result was modestly below our property market share in California, albeit still significant for a company of our size,” said Brown.

“Although we expect an annual average of around $17 million from cat losses, given our current book of business, the sheer magnitude of this single loss exceeded the different models we have used for wildfires in the LA basin.

“Like most industry players, we are rethinking the validity of our past severity model estimates for wildfire cat exposures,” the executive explained.

During the call, Brown said Global Indemnity uses catastrophe models to estimate its exposure and manage how much business the company will underwrite in areas.

“One of the ways those models work is to assess the frequency of a cat loss of a particular size, and so we typically manage to a one in 250, or one in 500, kind of level as the maximum that we expect from a loss.

“(The LA wildfires) went almost double that in terms of against what the model estimated… We're, like a lot of people, wondering at the tail of the individual models that we're using, are they that inaccurate? Why are they off that much?”

Brown conceded that the LA wildfires were “unusual”, although he said “it is something that we expect in California”.

“We're constantly trying to improve our models. And this one came in somewhat of a surprise, but we've all seen an escalation in the size of cat losses,” he said.

Brown said that Global Indemnity is “pretty comfortable” with the way it is managing its wildfire exposure.

“But again, the models for this type of loss don't seem to work very well,” he stated.

“There's a couple of minor adjustments that we're making very quickly (to our models),” Brown explained.

Brown said Global Indemnity has been working to get rate rises approved in California, but said the process “stalled completely in the regulatory environment”.

“We've had an outstanding rate increase for our Vacant Express (product) probably for a year-plus at this point in time,” the executive said.

When asked by one analyst what kind of rate increases Global Indemnity can expect to secure in California given the recent wildfire losses, Brown responded by declaring that “what we expect and what we might get might be two different things”.

“But I would say that we need at least 50% on the type of business that was affected by this particular wildfire, and perhaps more depending on the types of individual exposures.

“California has been tough on rates, and it's a real obstacle and they're creating a real problem for themselves in terms of not allowing carriers to get an adequate rate, which makes it much harder for people to obtain coverage.

“And that's obviously not the goal of the insurance industry. We want to provide coverage for every possible exposure that we feel we can wait appropriately,” said Brown.

But the executive added that Global Indemnity is “a for-profit business”.

“We're very, very focused on making good with our shareholders. And if we can't make it in California selling cat-exposed business, we'll find someplace else in the United States to sell more business.”

In Global Indemnity’s earnings announced on Tuesday, the company reported operating income increased by 58% year on year to $42.9 million in 2024, while its current accident year underwriting income increased to $18.8 million from 2023’s $14.3 million.

Global Indemnity’s consolidated combined ratio improved to 95.6% in 2024 from the previous year's 99.7%, while its current accident year combined ratio improved to 95.4% from 97.3%.