Latest news with #subrogation
Yahoo
8 hours ago
- Business
- Yahoo
Hedge Funds Face California Rebuke Over Role in Wildfire Claims
(Bloomberg) -- Hedge funds are facing pushback in California as their bets tied to insurance claims stemming from the Los Angeles wildfires are attacked as unethical. Next Stop: Rancho Cucamonga! Where Public Transit Systems Are Bouncing Back Around the World ICE Moves to DNA-Test Families Targeted for Deportation with New Contract US Housing Agency Vulnerable to Fraud After DOGE Cuts, Documents Warn Trump Said He Fired the National Portrait Gallery Director. She's Still There. The transactions in focus are tied to so-called subrogation claims, which hedge funds, private equity firms and other alternative investment managers have been buying from insurers over the past few months. Subrogation kicks in if a third party such as a utility is suspected of being responsible for losses covered by insurers. Hedge funds buying these claims from insurers are now under attack from the California Earthquake Authority, which is the administrator of the California Wildfire Fund. It has described such transactions as 'opportunistic, profit-driven investment speculation,' and says it's planning to take on 'hedge funds and other speculators' that it claims 'are actively seeking to profit from California's devastating wildfire catastrophes.' In practice, that means the authority will try to block the payout of what it says could end up being 'billions of dollars' to the investors that bought the claims, according to materials prepared ahead of a meeting that took place last month with the California Catastrophe Response Council, which oversees the fund. To that end, it plans to engage California's state legislature, according to a transcript of comments made during the meeting and seen by Bloomberg. A spokesperson for the authority declined to comment. Bradley Max, a director at Cherokee Acquisition, a New York-based investment bank that trades and invests in subrogation claims, says the development has 'put a chill on bidding,' which is already visible in pricing. Subrogation rights tied to the Eaton Fire that ripped through Southern California in January were trading as high as 50 cents on the dollar at one point, but have now dropped 'at least a few points lower,' Max said. Still, even though the political development has led to lower prices on the subrogation claims, it hasn't held back transactions, he said. Cherokee said in April it had brokered deals linked to the Los Angeles fires for 'larger, more sophisticated distressed debt hedge funds.' And by April 15, investment bank Oppenheimer & Co. Inc. had executed 10 transactions tied to the Eaton and Palisades fires totaling over $1 billion worth of recovery rights, Ronald Ryder, co-head of special assets at Oppenheimer, told the California Earthquake Authority. That includes over $125 million in claims traded in just one day, Ryder wrote. A spokesperson for Oppenheimer declined to comment. Cherokee didn't name the hedge funds for which it brokered deals. In an email to the California Earthquake Authority, Ryder said that as catastrophic weather events become 'more prevalent,' insurers are increasingly resorting to 'recovery subrogation in the secondary market to fortify the balance sheet.' There's a growing consensus that insurers can't cover the rising costs of weather-related catastrophes alone, especially as climate change fuels more extreme events. For that reason, the industry is looking for ways to shift part of its financial risk over to capital markets, with alternative asset managers often the only investor class willing to step in. Efforts to prevent investors from profiting from the subrogation claims they've bought represent 'a politically motivated attempt to not pay legitimate obligations,' Max at Cherokee said. They're 'trying to beat up deep-pocketed hedge funds, despite the ethical and legal implications,' he said. Recovery of subrogation claims is costly and can take years to play out, which is why insurers have started selling them in exchange for an upfront cash payment. The hedge funds buying them are betting that the recovery sum at the end of the process will exceed the amount they paid the insurer to buy the claim. The market for investing in subrogation claims is characterized by over-the-counter deals with little to no transparency. Subrogation deals had a seminal moment more than half a decade ago, when faulty power lines and equipment failures at California utility PG&E Corp. were blamed for wildfires in the state. Back then, hedge fund Baupost Group LLC purchased claims against PG&E worth $6.8 billion. Bloomberg has previously reported that Baupost may have generated an estimated $1 billion of profits. The California Wildfire Fund, which is administered by the state's Earthquake Authority and overseen by the California Catastrophe Response Council, was set up in 2019 to help reimburse claims arising from wildfires caused by utility companies. If hedge funds prevail in their subrogation claims, some of the money could end up coming from the California Wildfire Fund. The fund, which sits on about $13 billion in liquid assets, is partly capitalized by three utilities — San Diego Gas & Electric Co., Edison International's Southern California Edison and PG&E. While the cause of the January fires remains under investigation, it's already clear that the Eaton Fire started inside the service territory of Edison and therefore leaves the fund potentially exposed, the authority said. With current estimates for insured losses as high as $45 billion, the January Southern California wildfires are expected to be the costliest in US history, according to the California Earthquake Authority. The Earthquake Authority and Catastrophe Response Council are now reviewing claims and administration procedures as they take the matter to the state legislature. Cavs Owner Dan Gilbert Wants to Donate His Billions—and Walk Again The SEC Pinned Its Hack on a Few Hapless Day Traders. The Full Story Is Far More Troubling Is Elon Musk's Political Capital Spent? What Does Musk-Trump Split Mean for a 'Big, Beautiful Bill'? Cuts to US Aid Imperil the World's Largest HIV Treatment Program ©2025 Bloomberg L.P. Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Bloomberg
8 hours ago
- Business
- Bloomberg
Hedge Funds Face California Rebuke Over Role in Wildfire Claims
Hedge funds are facing pushback in California as their bets tied to insurance claims stemming from the Los Angeles wildfires are attacked as unethical. The transactions in focus are tied to so-called subrogation claims, which hedge funds, private equity firms and other alternative investment managers have been buying from insurers over the past few months. Subrogation kicks in if a third party such as a utility is suspected of being responsible for losses covered by insurers.
Yahoo
18-05-2025
- Politics
- Yahoo
Lawmakers approve bold new measure targeting industry's hidden role in rising disaster costs: 'These companies ... should be the ones paying'
Lawmakers in Hawaiʻi have passed a resolution that sets up insurance companies to lower policyholders' coverage costs by suing fossil fuel producers over the recent spike in natural disasters. In April, SCR198 SD1 was adopted by the state legislature. The non-binding resolution encourages insurance providers to "reduce insurance costs on local residents by pursuing subrogation claims against polluters who knowingly engaged in misleading and deceptive practices regarding the connection between their products and climate change." Subrogation claims can enable insurance companies to recoup payouts to policyholders from a third party that has been deemed at fault. SCR198 SD1, which Newsweek called "a first-of-its-kind resolution," suggests that the dirty energy industry — built up around polluting sources like oil, coal, and gas — has contributed to extreme weather events and related disasters that have wreaked havoc in Hawaiʻi. As a tragic example, the 2023 Maui wildfires claimed over 100 human lives and caused an estimated $5.5 billion in damages. The fires have been attributed to the combination of high winds and drought conditions. The United States Geological Survey has previously determined that an increase in global temperatures has contributed to higher risks of severe droughts and storms. The U.S. Environmental Protection Agency has linked the release of carbon dioxide and other heat-trapping gases — driven largely by dirty energy sources — with those rising temperatures. The language in the resolution alleges that at least some in the fossil fuel industry purposefully misled the public about these connections. It reads, in part: "... overwhelming evidence demonstrates that certain responsible polluters in the fossil fuel industry have been aware of their contribution to climate change for decades … " The Center for Climate Integrity applauded the passing of SCR198 SD1, per Newsweek, noting that the resolution can be a "model for communities across the country struggling with growing housing and cost of living crises that are being supercharged by climate disasters." "Big Oil predicted this outcome decades ago, but opted to bury the science in order to continue making billions of dollars a year," the CCI added. "These companies that profited from lying should be the ones paying for the consequences, not everyday Americans." Late-April coverage of the resolution's passage by Insurance Business noted that "there is no established precedent for insurers successfully pursuing subrogation claims against oil companies for climate-related damages." But the publication did point to the introduction of a similar bill in California earlier this year. Do you think gas stoves should be banned nationwide? No way Let each state decide I'm not sure Definitely Click your choice to see results and speak your mind. While California's SB 222 didn't make it out of committee — with concerns from labor organizations about potential impacts on jobs — and while Hawaiʻi's resolution does not come with the legal force that a law would, the strategy they share may have a future in disaster-vulnerable states around the country. Join our free newsletter for good news and useful tips, and don't miss this cool list of easy ways to help yourself while helping the planet.
