PG&E hopes for $1.25bn of wildfire recoveries for Kincade, Zogg & Dixie fires

Pacific Gas and Electricity (PG&E), the California electrical utility, is still hoping to recover as much as almost $1.25 billion in additional insurance claims from its carriers for its losses and liability related to three wildfire events from recent years.

PG&E has now realised almost all of its expected insurance recoveries from the severe 2017 and 2018 California wildfire seasons, but has more recoveries to come from 2019 and 2020, while its expected recoveries from one 2021 wildfire event had not even begun by the end of the year.

From 2019, PG&E is aiming to recover an additional $414 million for claims related to the Kincade wildfire, for which its equipment was blamed to have ignited.

Having been fined for the blaze, PG&E continues to also face ongoing court activity over the health effects of the Kincade fire, but at the same time has a an insurance receivable still booked, so is anticipating support from its wildfire insurers it seems.

For 2020, PG&E is looking to recover another $270 million for claims related to the Zogg wildfire.

The Zogg fire is another that PG&E’s equipment has been found liable for causing and the utility admitted its power lines started that blaze.

For 2021, the Dixie wildfire has been booked as a $563 million insurance receivable, with no recoveries yet made.

Again, PG&E’s equipment was blamed, as state investigators said an investigation showed the Dixie fire was sparked by a tree that fell on PG&E’s electrical distribution lines.

The balance of insurance receivables, that PG&E hopes to make, therefore stood at $1.247 billion at the end of 2021, according to its latest balance-sheet information.

With legal action ongoing surrounding these three wildfires, it remains uncertain whether PG&E will be able to claim the full amount.

There’s also the question of whether any recoveries can be made, for one or more of these fires, as PG&E’s insurance and reinsurance carriers may decided that there’s a case for not paying, or for subrogating a claim further down the line.

PG&E renewed some more of its wildfire related insurance and reinsurance in 2021 and once again paid heavily for the coverage, reflecting the escalating costs of wildfire liability cover in particular and also re/insurers view of PG&E as a risk bearing entity.

Of note were the purchases of $268 million in wildfire liability insurance and roughly $32 million in incremental wildfire liability reinsurance, covering the period from April 1st 2021 to April 1st 2022, for which PG&E paid roughly $220 million.

As well as the renewal of $600 million of wildfire liability coverage on a 12-month term to August 2022, which cost PG&E $516 million, pursuant to multi-year policy terms.

When you compare the $535 million of non-wildfire liability cover that cost PG&E $89 million for a year, it’s clear just how high the wildfire related insurance and reinsurance costs have become in California.

Subrogation was also ongoing in 2021, as PG&E recorded a $100 million charge for potential losses related to the Zogg fire, taking its aggregate liability related to that event to $375 million, before available insurance.

With negotiations ongoing in Q4 2021, PG&E said that it “entered agreements with all but one of the insurance subrogation plaintiffs in the 2020 Zogg fire litigation to resolve their claims arising from the 2020 Zogg fire.”

For the Kincade fire from 2019, PG&E recorded another $175 million charge in 2021 for potential losses from that wildfire, taking its aggregate liability to $800 million, before available insurance.

As yet there are no details of subrogation related charges from the Dixie fire.

Some subrogation benefits from wildfires have continued to flow to the reinsurance and insurance-linked securities (ILS) market in the last year, with the potential for a little more to flow from PG&E and possibly other utilities as well, such as the $2.2 billion agreement from Southern California Edison and flow of related subrogation recoveries.