The Hartford gets PG&E subrogation recovery, reports cats & Covid-19 BI losses

U.S. insurer The Hartford has become the second to reveal a significant recoverable through PG&E related subrogation on claims related to the California wildfires, which sees a before tax $289 million flowing back to the company this quarter.

Alongside this, The Hartford has reported above analyst estimate catastrophe losses from U.S. severe weather, as well as its losses from the Covid-19 pandemic, which include property related losses where business interruption did not require any direct physical loss or damage to occur.

All resulting in a mixed bag for the carriers reinsurance providers, which could benefit from a reduced ultimate for the California wildfires, but may find themselves asked to support pandemic related claims for policies that did not include physical damage exclusions.

The Hartford said that its second-quarter of 2020 results will include a subrogation recoverable from PG&E of $289 million, before tax, or $228 million, after tax.

The insurer is the second to reveal such a benefit flowing back from the PG&E case, after Travelers revealed around $400 million of pre-tax favourable reserve development due to a subrogation recovery from the electrical utility.

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.

Now, those subrogation benefits are flowing and have the potential to continue down the market chain to the benefit of some reinsurance firms and retrocessionaires, particularly through quota shares.

On Covid-19, The Hartford said it expects $251 million of pre-tax incurred losses from the pandemic in Q2, with losses falling across business interruption claims on property policies, workers’ compensation net of favorable frequency, and financial lines.

On business interruption, The Hartford said that its reserves for business interruption claims are from policies in middle and large commercial and in global specialty that did not require direct physical loss or damage to occur.

It’s been a concern of the reinsurance market that some carriers had covered BI where no property damage was seen, which would make pandemic related claims valid under the policies. The Hartford may be one insurer that is able to call on some reinsurance support as a result.

The property losses reported from Covid-19 also include legal costs related to the defending of lawsuits on business interruption claims where the contract does require direct physical loss or damage to trigger coverage.

On top of the Covid-19 losses, The Hartford has also reported an above analyst expectation of a pre-tax $248 million of catastrophe losses for the quarter, including $138 million, before tax, for wind and hail event losses, plus $110 million, before tax, related to losses from the rioting and civil unrest in the United States.

So, three noteworthy things in The Hartford’s pre-announcement.

The PG&E subrogation, it’s going to be interesting to see how many of these come through this quarter and then whether any reinsurance carriers or insurance-linked securities (ILS) funds recognise a reduction in their losses as a result of the combined return of value to the insurance market being added up.

The business interruption claims where property policies lacked a physical damage clause, as these could flow to reinsurance capital where there are quota shares or other structures that respond in place.

Finally, another carrier reporting catastrophe losses above where equity analysts had expected them for Q2, following Heritage, The Hanover, Arch Capital, Travelers, W. R. Berkley, Universal, Chubb, United, Cincinnati Financial and Selective Insurance Group.