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Nationwide adds $1bn in capacity for wildfire coverage in California

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US mutual Nationwide has allocated $1bn in new non-admitted capacity to provide wildfire coverage in California and has written about $50mn in premiums since moving ahead with the initiative a little more than two months ago, this publication has learned.

The carrier is working with four distribution partners that focus on the California market and has received support from two large cap reinsurers that have agreed to take on a little less than half the program’s exposure, according to people familiar with the matter.

Nationwide’s president of excess and surplus lines, Russell Johnston, who joined the company in February, confirmed the initiative and said that the hit rate for the program, which has been “around 20%”, has been “as expected”.

“If it was overly successful, it probably means the [underwriting] box is too big. And if it was overwhelmingly unsuccessful, then it probably tells me there's not really a need,” Johnston told Inside P&C.

Insured values for the program are understood to be around $10mn or greater. Nationwide estimates it will use up the capacity sometime between six months and one year.

“If we were to stay at our current run rate, we've probably got six to nine months ahead,” Johnston said, adding that the company will then “re-evaluate based on market conditions and see if we should double down on the capacity or not”.

The deployment of additional paper comes after the Dixie and Caldor fires raged in California last summer, burning more than 2.3 million acres.

Karen Clark & Company warned that insurers could face a loss in excess of $30bn from an extreme fire in California, as the firm introduced its new US wildfire model.

Earlier this year, AM Best stated that 2021 insured wildfire loss totals may exceed the losses of recent years as severe drought and extreme heat blanketed Western states this summer.

However, some sources indicated that there is still an “attractive risk” to cover in California, particularly in the wildfire personal lines segment.

“I think the long-term macro solution to this is very much akin to I'll say sort of post-Hurricane Andrew,” Johnston told Inside P&C.

“Building codes changed, community planning changed, how the industry underwrote the exposure changed,” he said. “So to me, that means it's a public-private partnership approach to really solve it.”

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