Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Allstate’s wildfire subrogation recoveries reach $605m


U.S. primary insurance giant Allstate has revealed that it expects to receive around $605 million in subrogation recoveries on claims related to the California wildfires, with a significant percentage already booked.

Allstate logoPreviously, Allstate had reported $450 million of PG&E related subrogation related to California wildfires claims, which included subrogation due on claims arising from the 2017 Northern California wildfires and the 2018 Camp Fire.

So far, Allstate said it has already received distributions from the PG&E subrogation trust representing around 80% of the expected recovery for claims from these wildfires.

Now, it’s become apparent that Allstate is also anticipating more subrogation recoveries to flow its way.

These are related to electrical utility Southern California Edison, with the first chunk of subrogation coming for the utilities $1.16 billion settlement for claims related to the 2017 Thomas and Koenigstein fires and 2018 Montecito Mudslides.

That settlement has resulted in Allstate booking a further $45 million of wildfire related subrogation adjustments, which the insurance carrier said it has substantially received all distributions of from the trust established for that settlement.

The subrogation benefits have continued into 2021 for Allstate as well, with the carrier revealing that it expects to benefit to the tune of around $110 million after utility Southern California Edison’s second settlement, which totalled $2.2 billion, for claims related to the Woolsey wildfire.

This final settlement has not yet been distributed it seems, but should be coming Allstate’s way shortly and will likely be booked in its Q1 2021 results.

These subrogation settlements have seen utilities in question returning substantial amounts of capital to insurers after they weres deemed liable for their equipment causing massive wildfires that drove billions of dollars of losses across the insurance and reinsurance sector.

A proportion of the subrogation settlement recoveries, made by carriers like Allstate, have now reduced their ultimate losses from paid claims for the significant California wildfires events.

In turn, these subrogation recoveries have flowed through the market, resulting in a reduction of their reinsurance coverage benefits from the wildfires, enabling some reinsurers to reduce their ultimates associated with the fire losses and in turn also reducing the liability for some retrocessionaires, as the recovery flows onwards.

Insurance-linked securities (ILS) funds have benefited from these subrogation settlements, lowering their loss reserves for these specific events for some managers.

Precisely how much of the billion of dollars of subrogation repaid actually accrues back to insurers, then onwards as reductions in their ultimates towards sources of reinsurance and ILS capital, is harder to derive. Some benefits were seen, including to certain aggregate catastrophe bonds, through some affected quota shares, as well as to some collateralized reinsurance and retrocession players.

Some of these subrogation settlement recoveries that flowed to the ILS market may have enabled certain managers to release some trapped collateral related to the wildfires, it is assumed.

As, like in other subrogation cases, some of the rights to these recoveries had been sold off to investors such as hedge funds.

Allstate said that its catastrophe losses for 2020 totalled $2.81 billion.

However, the company has revealed that subrogation recoveries reduced its loss tally for the year, and while its catastrophe losses were $254 million higher (at the $2.81bn) in 2020 compared to 2019, this figure includes the roughly $495 million of favorable subrogation settlements, which served to decrease the loss ratio by 1.4 points in 2020 compared to 2019.

As a result, if you excluded Allstate’s subrogation settlements booked in 2020, the insurers catastrophe losses would have increased by roughly $750 million compared to 2019, which would have put them at around $3.3 billion.

It’s not immediately clear what effect this might have had for Allstate’s reinsurance panel in 2020, but the subrogation has potentially reduced its aggregation of losses that would have qualified for its Sanders Re catastrophe bonds.

Register today for ILS NYC 2023, our next insurance-linked securities (ILS) market conference. Held in New York City, February 10th, 2023.

Artemis ILS NYC 2023 - Insurance-linked securities conference in New York City

Get a ticket soon to ensure you can attend. Secure your place at the event here!

Print Friendly, PDF & Email

Artemis Newsletters and Email Alerts

Receive a regular weekly email newsletter update containing all the top news stories, deals and event information

  • This field is for validation purposes and should be left unchanged.

Receive alert notifications by email for every article from Artemis as it gets published.