Allstate records a $450m PG&E subrogation recovery

U.S. primary insurance giant Allstate has recorded a significant $450 million PG&E related subrogation on claims related to the California wildfires, which is the figure reported by the carrier net of reinsurance adjustments.

Allstate becomes the third major insurance carrier to report a subrogation recovery payment from the wildfire stricken Californian electrical utility PG&E, which has been returning capital to insurers after it was deemed liable for causing massive blazes that drove billions of dollars of losses to the insurance and reinsurance sector.

Allstate’s report comes after U.S. insurer The Hartford reported a significant recoverable through PG&E related subrogation on claims from the California wildfires, amounting to $289 million before tax.

In addition, Travelers also reported a subrogation recovery, amounting to $400 million and this carrier also noted that the amount would inure to the benefit of its reinsurance panel.

These recoveries are being made against losses suffered during the severe California wildfires of 2017 and 2018, where stricken electrical utility Pacific Gas and Electricity (PG&E) had seen its transmission infrastructure deemed liable for causing some of the largest fires.

Now that PG&E has emerged from bankruptcy, as of July 1st 2020, insurance carriers like Allstate, Travelers and The Hartford, are recognising favorable prior year reserve development against their finances, with adjustments being made to reinsurance recoverables as well.

Allstate said that thanks to the PG&E subrogation, its catastrophe results for July generated positive income of $334 million, pre-tax ($264 million, after-tax).

The PG&E subrogation recoveries “more than offset the impact of events in the month,” the insurance carrier explained.

Allstate has recorded subrogation recoveries of $450 million, pre-tax ($356 million, after-tax), which is net of all expenses and reinsurance adjustments.

It’s expected that, like the other insurers, the recovery will have inured to its reinsurance panel and some recoveries will flow back up the chain as a result.

Pacific Gas and Electricity (PG&E), the wildfire stricken California focused electrical utility operator, has now made its payments to insurance, reinsurance and other entities holding subrogation claims rights, amounting to an $11 billion settlement.

These subrogation payments are being reported by carriers (at least those still holding the rights, as some have sold them on) that faced losses as a result of the wildfires for which PG&E had been deemed liable, with recoveries or payments flowing their way.

The expectation is that a proportion of the subrogation settlement recoveries made by carriers like Allstate will have reduced their ultimate losses from paid claims for the significant California wildfires of recent years. In turn, this should result in a reduction of their reinsurance coverage benefits from the events, in turn perhaps also reducing the liability for retrocessionaires as the recovery flows onwards.

Allstate also said that its July catastrophe losses were just $145 million, pre-tax ($115 million, after-tax).

This includes some losses from Hurricane Hanna, as well as two severe wind and hail weather events that accounted for approximately 65% of estimated losses.

Allstate also experienced $29 million, pre-tax ($23 million, after-tax), of catastrophe reserve improvements from prior year events.