PG&E’s equipment said cause of Camp Fire by investigators

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The California Department of Forestry and Fire Protection (Cal Fire) has deemed the cause of the devastating Camp wildfire to be electrical transmission lines owned and operated by Pacific Gas and Electricity (PG&E).

california-wildfire-losses-insuranceThe Camp wildfire killed 85 people and burned a huge swathe of land. The property damage from the fire is estimated to have caused an insurance and reinsurance market loss of as high as $12.5 billion, making it the most costly insured wildfire loss in history.

California focused electrical utility PG&E Corporation (the Pacific Gas and Electric Company) had itself previously said that it was likely its equipment could be the cause of the Camp wildfire.

Now investigators at the state fire authority have agreed.

“After a very meticulous and thorough investigation, CAL FIRE has determined that the Camp Fire was caused by electrical transmission lines owned and operated by Pacific Gas and Electricity (PG&E) located in the Pulga area,” Cal Fire explained in an update yesterday.

There had been talk of a potential second ignition site for the Camp fire and conjecture about what this would mean for eventual liability assignment, but Cal Fire has found that to also have been down to PG&E’s equipment.

It said, “The investigation identified a second ignition sight near the intersection of Concow Rd. and Rim Rd. The cause of the second fire was determined to be vegetation into electrical distribution lines owned and operated by PG&E. This fire was consumed by the original fire which started earlier near Pulga.”

PG&E responded to the announcement from Cal Fire, saying, “While we have not been able to review CAL FIRE’s report, its determination that PG&E transmission lines near the Pulga area ignited the Camp Fire on the morning of November 8, 2018, is consistent with the company’s previous statements. We have not been able to form a conclusion as to whether a second fire ignited as a result of vegetation contact with PG&E electrical distribution lines, as CAL FIRE also determined. PG&E is fully cooperating with all ongoing investigations concerning the Camp Fire.”

PG&E said previously that it expects to make insurance and reinsurance market recoveries amounting to around $2.2 billion from its liability tower for wildfires from the 2017 and 2018 seasons.

With a roughly $800 million liability insurance tower for 2017 and another roughly $1.4 billion for 2018, provided by a mix of traditional insurance and reinsurance firms and including the at-risk $200m Cal Phoenix Re Ltd. (Series 2018-1) catastrophe bond, PG&E is likely to claim in full on these coverages.

In its accounts, PG&E has recorded full recoveries, of $1.38 billion for the 2018 Camp wildfire and $842 million for the 2017 Northern California wildfires, and with Cal Fire now deeming its equipment as the cause of the largest and most costly of the 2018 wildfires it seems the fate of the insurance and reinsurance tower, including the cat bond, is likely sealed.

The Cal Phoenix Re cat bond remains outstanding as of now, although marked down for a total loss by all the broker pricing sheets.

The cat bond has been paying a minimal coupon to holders for months now and this could actually continue, as it may take an official liability determination to be made in courts before the payout can be made. It’s unclear whether this Cal Fire determination would be sufficient to trigger the payout at this time.

Given the length of time it could take for the default of the Cal Phoenix Re cat bond to occur, hedge funds, speculators and lawyers have been hovering around the cat bond, some seeking to buy its notes so that they can hold and benefit from the minimal coupon it currently pays.

It’s unclear also how the distribution of the cat bond notes may have changed in recent months as a result of that, also whether there could be any action to try to prolong the time to payout by any parties whose main interest is in holding it for as long as possible now.

The fact that PG&E’s equipment has been deemed the cause of the Camp wildfire has to put the nail in the coffin of the Cal Phoenix Re catastrophe bond, as well as the rest of its insurance and reinsurance tower. But how long the payout could take remains uncertain.

There are potential recovery uncertainties over some of the insurance tower though, as some major insurers had entered into law suits with PG&E over the liability for the blaze.

There’s also the question of subrogation of rights to consider here, as there has been some changing of hands of claim rights for PG&E’s tower, we understand.

This could all serve to draw out any recoveries made and court action is a possibility.

But it looks increasingly like the cat bond, insurance and reinsurance tower are on their way to recovery for PG&E, which will go some way towards the liability costs the utility may face.

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