Travelers reveals $400m PG&E subrogation recovery, plus $854m Q2 cat losses

U.S. primary insurance carrier Travelers is the first major player to reveal its expectations of making a relatively significant PG&E subrogation recovery, while at the same time revealing $854 million pre-tax catastrophe losses from the second-quarter.

As we’ve been documenting over recent months, Pacific Gas and Electricity (PG&E), the wildfire stricken California focused electrical utility operator, has now 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 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.

The expectation is that some of these subrogation settlement recoveries made by insurance carriers like Travelers will reduce their ultimate losses from paid claims for the significant California wildfires of recent years, which in turn may result in a reduction of their reinsurance coverage from the events, in turn perhaps also reducing the liability for retrocessionaires.

Travelers has revealed today that it will 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.

So now, those at the reinsurance end can perhaps begin to see a little more clarity around when they may also begin to experience any recoveries from the reductions in ultimates of carriers exposed to the wildfires.

Travelers has also announced a reasonable amount of catastrophe losses suffered during the second-quarter, largely due to severe storms across the United States and certain losses from the recent U.S. civil unrest.

Travelers said these Q2 2020 catastrophe losses will amount to $854 million pre-tax ($673 million after-tax), after taking into account reinsurance.

This is quite far above the estimate of some analyst firms, but perhaps that’s to be expected given the outlook for Q2 suggests perhaps higher than average catastrophe losses in the period in the United States.

On the COVID-19 pandemic, Travelers further explained that this had “a modest net impact in the quarter.”

The company explained, ” Insurance losses directly attributed to the pandemic of $114 million pre-tax and a $63 million pre-tax reduction in the estimate of ultimate audit premiums receivable were approximately offset by initial estimates of favorable frequency from the shelter-in-place environment, primarily in short-tail lines (net of premium refunds), and other items.”