While wildfire subrogation recoveries are now being seen across reinsurance and insurance-linked securities (ILS) from utility Pacific Gas and Electricity’s (PG&E) massive $11 billion settlement payments, the flow of recoveries will likely continue thanks to a new agreement from Southern California Edison, as well as possible future agreements.
As we explained in September, the full benefits for insurance-linked securities (ILS) funds from subrogation could take as long as a year to be fully accounted for in the valuation of their exposed ILS and reinsurance assets.
For those at the retrocessional end of reinsurance and ILS, the flow of subrogation recoveries could take the longest, as payments work their way down through the tiers of capital in the market.
We’ve already seen some benefits flowing to ILS investment positions, including the highest profile case of some of USAA’s catastrophe bonds, but other ILS fund managers have also been accounting for some small benefits to exposed reinsurance positions in recent weeks, we’re told.
In particular the flow of subrogation benefits through some quota share positions have benefited some in the ILS market, we understand and this is expected to continue through the end of the year.
How long it takes for any retro positions to see recoveries remains to be seen and now the prospect of further subrogation recoveries being made against wildfire losses where electrical utility Southern California Edison has been deemed liable, promises to extend the whole process of recovery and reconciliation even further now.
Recently, Southern California Edison (SCE) has reached a settlement with holders of insurance subrogation claims related to litigation from the 2017 Thomas and Koenigstein fires and the 2018 Montecito Mudslides.
While SCE hasn’t admitted wrongdoing or liability, the company is now set to pay $1.16 billion for claims based on payments already by insurers to individual and businesses for damage from the Thomas and Koenigstein fires and Montecito Mudslides.
Additional amounts will be paid for claims arising from future payments that may be made to policyholders prior to July 15, 2023, up to an agreed-upon cap, the company explained last month.
SCE is also making progress towards an additional settlement with plaintiffs related to the 2018 Woolsey Fire and because of this the company has now increased its reserves for expected wildfire related claims for those seasons by $1.3 billion.
Should the Woolsey Fire settlement become due, it could see a significant additional subrogation payment from the utility, and SCE said that its best estimate of expected remaining losses is as high as $4.6 billion.
SCE will seek to recoup some of the latest subrogation payment through its insurance and reinsurance coverage though, as it had roughly $843 million of wildfire insurance cover still remaining for the Thomas and Koenigstein fires and Montecito Mudslides.
So that means while some insurers may benefit from the subrogation, additional wildfire recoveries made by the utility could offset that.
The timing of any potential settlement over the Woolsey wildfire is uncertain, but we understand that reinsurance and ILS capital providers would expect to see any recoveries flowing well into 2021.
We’re told that while subrogation payments are beginning to accrue to some ILS funds in the second-half of 2020, the overall expectation remains that this could continue for at least another six months, perhaps twelve if the Woolsey Fire settlement also comes into play.
How long it could all take to accrue to any retrocessionaires remains to be seen and there’s as yet no certainty that the subrogation would prove enough to enable any significant level of recovery for key collateralized retro players.