Travelers confirms $400m PG&E subrogation will inure to benefit of reinsurers

U.S. primary insurance carrier Travelers has confirmed that its estimated $400 million PG&E subrogation related recovery will inure to the benefit of its reinsurance panel.

Travelers revealed recently that it expects to recognise favorable prior year reserve development related to the wildfires, amounting to approximately $400 million, pre-tax and net of expenses and reinsurance, which will be factored into its third quarter 2020 results.

This recovery is being made against losses Travelers had suffered during the severe California wildfires of 2017 and 2018, where stricken electrical utility Pacific Gas and Electricity (PG&E) had seen its transmission infrastructure deemed liable for causing some of the largest fires.

Now that PG&E has emerged from bankruptcy, as of July 1st 2020, Travelers will recognise favorable prior year reserve development of approximately $400 million, pre-tax and net of expenses and reinsurance, the insurer confirmed in reporting its results for the second-quarter today.

More on Travelers second-quarter and first-half results can be read in our sister site Reinsurance News’ report from earlier today.

Given the scale of the California wildfire losses suffered by leading primary property insurance carriers like Travelers in 2017 and 2018, as well as the size of the recoveries recognised under their reinsurance programs, it was always expected that the benefits would flow to their reinsurance panel.

But now the company has confirmed this, in stating that, “The Company expects to recognize in the third quarter of 2020 a subrogation benefit related to these claims of approximately $400 million pre-tax, net of expenses and amounts that would inure to the benefit of the Company’s reinsurers.”

As we’ve explained before, Pacific Gas and Electricity (PG&E), the wildfire stricken California focused electrical utility operator, made its payments to insurance, reinsurance and other entities holding subrogation claims rights, amounting to an $11 billion settlement.

These subrogation payments are now set to be recovered by carriers (still holding them) that faced losses as a result of the wildfires for which PG&E had been deemed liable, with recoveries or payments set to flow their way.

With the expectation being that a proportion of the subrogation settlement recoveries made by carriers like Travelers would reduce their ultimate losses from paid claims for the significant California wildfires of recent years, in turn resulting in a reduction of their reinsurance coverage benefits from the events, in turn perhaps also reducing the liability for retrocessionaires.

Travelers is the first to confirm this, in saying that the recovery made will inure to the benefit of its reinsurers.

U.S. insurer The Hartford also recently reported a significant recoverable through PG&E related subrogation on claims from the California wildfires, amounting to $289 million before tax.

That too could inure to its reinsurance panel over the coming months, with some of these carrier related subrogation recoveries likely to also flow to the benefit of some insurance-linked securities (ILS) funds, or other collateralised providers of reinsurance capacity.