California electrical utility Southern California Edison has agreed a $2.2 billion payout to settle all insurance subrogation claims from pending litigation related to the 2018 Woolsey Fire and expects to exhaust its remaining $700 million of wildfire coverage as a result.
As we explained previously, following Pacific Gas and Electricity’s (PG&E) massive $11 billion settlement payments, the flow of recoveries benefiting some insurance and reinsurance players was set to continue thanks to expected subrogation agreements with Southern California Edison.
SoCal Edison had already agreed to a $1.16 billion payout for claims related to the 2017 Thomas and Koenigstein fires and 2018 Montecito Mudslides.
At that time the utility also said a subrogation agreement related to the Woolsey wildfire was likely and increased its reserves for expected wildfire related claims for the 2018 season by $1.3 billion.
Now, the utility has revealed an agreement to payout $2.2 billion to subrogation beneficiaries for the Woolsey fire, although continues to state that no admission of wrongdoing or liability was made in reaching this latest settlement.
So, subrogation plaintiffs, which include some insurance companies, will receive $2.2 billion within 90 days for claims based on payments they have already made to individual and business insurance policyholders related to the Woolsey Fire.
Wildfire related subrogation recoveries have been seen across a range of reinsurance and retrocession positions, including to some insurance-linked securities (ILS) positions as well over the last year.
As we explained before, 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 any companies and capital providers at the retrocessional end of reinsurance or ILS, the flow of subrogation recoveries could take even longer, as payments work their way down through the tiers of capital in the market.
Some subrogation benefits flowed to ILS investment positions, including the highest profile being some of USAA’s catastrophe bonds. While some ILS fund managers have also accounted for some small benefits to certain exposed reinsurance positions in late 2020.
In particular, the flow of subrogation benefits was seen through some quota share positions and this benefited some in the ILS market, reducing their reserves for certain wildfires, we understand.
Now, with another settlement made and this time for the Woolsey wildfire, which had a significant impact on re/insurance markets, there is the potential for some more subrogation related recoveries to be made by some reinsurance and ILS capital providers, with these recoveries set to flow well into 2021 after SoCal Edison has made all of its payments.
SoCal Edison also noted that it has $700 million remaining in expected recoveries from its wildfire insurance for the Woolsey Fire litigation and that this insurance will be exhausted after expected recoveries for the settlement, so insurance will assist it in making its insurance subrogation payouts.
After this latest settlement, SoCal Edison has not changed its overall estimate of expected potential losses still to come related to the 2017/2018 Wildfire/Mudslide Events was $4.6 billion, but that this amount will now be reduced by the initial $2.2 billion settlement.
This Woolsey fire related settlement is the last of the big subrogation cases at this time.
How much of the $2.2 billion subrogation accrues back to insurers, then onwards as reductions in their ultimates for reinsurance and perhaps ILS capital, remains to be seen, as like in other subrogation cases some of the rights will have been sold off to investors such as hedge funds.