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PG&E bankruptcy could hit insurers from two directions: Report

PG&E bankruptcy could hit insurers from two directions: Report

Pacific Gas & Electric Co.’s plan to file for bankruptcy protection due to financial woes arising from the California wildfires could hit some insurers investment portfolios as well as generate liability claims, rating agency Moody’s Corp. said in a report on Friday.

Among property/casualty insurers, the largest investors in San Francisco-based PG&E’s bonds and stocks are Allianz SE ($344 million), State Farm ($278 million), Axa SA ($207 million), and Allstate Insurance Co. ($98 million), with most investments concentrated in their life insurance units, according to Moody’s analysis as of Sept. 30, 2018.

As a percentage of shareholders’ equity, though, the investments are “relatively small, averaging about 0.3% of shareholders’ equity among the top 15 major holders of PG&E investments,” Moody’s said in the report.

PG&E’s problems could also hit property/casualty coverages, with insurers that wrote PG&E’s directors and officers liability policies facing potential claims, Moody’s said.

Some insurers have filed lawsuits against PG&E seeking to recoup losses and alleging that poor upkeep of its transmission lines caused the fires.

Insurers have brought $17 billion of claims against the company related to property losses from the wildfires, according to PG&E filings. PG&E estimates that its liabilities to insurers and wildfire victims could exceed $30 billion, not including punitive damages, Moody’s said in the report.

If PG&E’s facilities, including its transmission lines, are determined to be the substantial cause of a particular wildfire, then “the utility can be held liable for insurer losses related to property damage, business interruption, and loss adjustment expenses including attorney fees,” said Moody’s.

“Some insurers could experience significant losses from PG&E’s liability coverages – policies that collectively cover a small share of third-party wildfire losses caused by PG&E equipment – which total about $840 million for the year beginning Aug. 1, 2017, and $1.4 billion for the year beginning Aug. 1, 2018,” said Moody’s.

On Thursday, California fire investigators said that a major 2017 wildfire was caused by privately owned electrical equipment rather than PG&E.

PG&E is likely to face pressure to improve its vegetation management practices, which would be a positive development for insurers if it reduces the likelihood of future wildfire liabilities, Moody’s said.

“However, PG&E’s bankruptcy filing could also spur changes to California utility liability laws, which could be credit negative for (property/casualty) insurers should it limit their ability to subrogate for future wildfire losses,” said the ratings agency in the report.









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