FoTs for Cali Wildfire Fund reinsurance set at 9%

Firm order terms for the California Wildfire Fund (CWF) reinsurance programme have been set with a rate on line of around 9 percent, market sources have told The Insurance Insider.

The Guy Carpenter-brokered programme is being negotiated in the market now, with the cedant seeking up to $2bn of excess cover for Sempra and CalEdison from carriers in Bermuda, the US and Europe.

The $21bn fund will take funding commitments from the utilities and their clients through rate increases, which will be invested in infrastructure upgrades.

However, market sources said the California Earthquake Authority (CEA), the entity tasked with managing the CWF, is likely to be frustrated in its attempts to secure the entire $2bn, even with beleaguered utility Pacific Gas & Electric (PG&E) being excluded.

Instead, market sources explained Guy Carpenter will seek to obtain as much cover as it can at the terms agreed.

In July, California Governor Gavin Newsom signed off legislation to create a fund that would cover the state’s utilities for future liabilities from wildfires caused by their equipment.

PG&E, which provides electricity to some 16 million people throughout northern and central California, has been hit hard by wildfire losses in recent years and is excluded from the CWF reinsurance, at least for the time being.

As sources explained, PG&E may be admitted to the programme should it exit Chapter 11 bankruptcy protection and secure $1bn of its own insurance.

But that may be difficult to achieve, certainly based on its recent experience. As reported by The Insurance Insider earlier this week, PG&E only managed to bind limited capacity at its recent renewal despite offering rates on line in the 40s after handing (re)insurers two full-limit losses in consecutive years.

In May, the California Department of Forestry and Fire Protection (CalFire) ruled PG&E responsible for the devastating Camp Fire that struck Butte County in November 2018, causing $12bn in insured losses.

A jury is set to decide whether PG&E is also responsible for $18bn in legal claims related to the 2017 Tubbs Fire, despite CalFire clearing the utility of responsibility for the blaze.

PG&E’s liabilities for the fires – the two most destructive in Californian history – are likely to total as much as $30bn.

Guy Carpenter declined to comment.