Latest news with #CaliforniaEarthquakeAuthority
Yahoo
24-06-2025
- Business
- Yahoo
How Wall Street hedge funds are gambling millions on Eaton fire insurance claims
In a high-stakes gamble, Wall Street hedge funds are offering to buy claims that insurers may have against Southern California Edison if the utility is found liable for causing the devastating Eaton fire in Altadena. The solicitations are legal, but have alarmed California state officials — who loathe the idea of investors profiting from a disaster that claimed 18 lives and destroyed more than 9,400 homes and other structures. 'I think everyone in this room looks at a catastrophe, like what happened in Southern California, and our natural instincts are to say, 'What can we do to help?'' Tom Welsh, the chief executive of the California Earthquake Authority, which manages the state's wildfire fund, said at a recent public meeting. 'There are other actors in the environment who look at that situation in Southern California and ask instead, 'What can I do to profit?'' The investors are aiming to buy so-called subrogation claims from insurance companies. These are claims that insurers would file against Edison seeking reimbursement for the money they paid to their policyholders for fire damages if it's determined the utility's equipment triggered the wildfire that began Jan. 7. For the insurers, selling the claims — even at a steep discount — allows them to get at least some reimbursement for the money they've paid out. For the hedge funds buying the claims, it's a gamble that could pay big if Edison is found liable and they can cash in those claims for much more than they paid. More than $17 billion in insurance claims for the Eaton and Palisades fires has been paid out so far, according to the California Department of Insurance. State officials say California has a stake in the trading of fire-related subrogation claims, which was previously reported by Bloomberg, because of the potential effect on the state's wildfire fund. That fund, which currently has about $21 billion, would be used to cover most of the costs of damage claims should Edison be found liable for starting the Eaton blaze. While the cause is still under investigation, a leading theory is that a decommissioned transmission line in Eaton Canyon was reenergized and sparked the blaze, Edison has said. The wildfire fund is managed by a state board called the Catastrophe Response Council. At its last meeting in May, Welsh told the board that solicitations from New York brokers and investment firms began landing in his email inbox in March. Ronald Ryder at Oppenheimer & Co., a New York investment firm, told Welsh in an email on April 15 that his company was currently trading the subrogation claims. Ryder wrote that there had already been 10 transactions worth more than $1 billion in recovery rights for the Eaton fire as well as the Palisades fire in Pacific Palisades, where the city of Los Angeles faces potential liability. In another email, Ryder told Welsh that investors were bidding 47 cents on the dollar for the claims related to the Eaton fire. For the Palisades fire, the bidding was 5 cents on the dollar, Ryder wrote. Welsh warned the council that 'speculative investors' might hold onto the Eaton claims and 'really try to get outsized profits by demanding settlements from Edison of 75, 80, 85 cents on the dollar.' If that were to happen, the wildfire fund could pay out 'hundreds of millions, if not billions of dollars' more than if the claims were settled directly by the insurers, he said. "That would really, very negatively impact the durability of the wildfire fund,' Welsh said. Oppenheimer declined to comment, and Ryder didn't respond to messages. Under a 2019 state law, the state wildfire fund would be expected to reimburse Edison for most of the insurers' payments to policyholders if its electrical equipment is found to have started the Eaton fire. The Palisades fire, which occurred in territory serviced by the L.A. Department of Water and Power, isn't covered by the state fund. California lawmakers created the wildfire fund in 2019 to protect the state's three biggest for-profit utilities — Edison, Pacific Gas & Electric and San Diego Gas & Electric — from bankruptcy if their equipment sparks catastrophic wildfires. The possibility of large settlements paid out by the wildfire fund has led to dozens of lawsuits against Edison, even before the cause of the fire has been determined. If found responsible for the fire, Edison would negotiate settlements with the insurers, as well as with homeowners and others who have filed lawsuits, saying they've been harmed. The utility would then ask the state wildfire fund to cover those amounts. If the insurers have sold their claims, however, the investors who bought them would reap the returns. Attorneys who handle the complex transactions would also get a cut and "generally take a very high percentage off the top,' Paul Rosenstiel, a catastrophe council member, said at last month's meeting. Already, Gov. Gavin Newsom and other state leaders are worried that the $21-billion wildfire fund could be depleted by damage claims from the Eaton fire. Welsh recounted how a hedge fund had profited in 2019 by buying insurers' subrogation claims against PG&E after its transmission line was found to have started the 2018 Camp fire that killed 85 people and destroyed much of the town of Paradise. Bloomberg reported at the time that hedge fund Baupost Group made a profit of hundreds of millions of dollars by buying the claims at 35 cents on the dollar and later getting a settlement valued at much more. To stop hedge funds from profiting on the claims, Welsh said, the earthquake authority is now considering changing its claim administration procedures to make the settlements less lucrative for those investors. One possible change being discussed, according to authority staff, would require a utility that ignited a wildfire to prioritize settling the claims of victims and insurers who have not sold their subrogation rights before those claims owned by hedge funds. This story originally appeared in Los Angeles Times.
The Star
10-06-2025
- Business
- The Star
Hedge funds face California rebuke over role in wildfires claims
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. — Bloomberg LOS ANGELES: 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. 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 said 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 said 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, said 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 US cents on the dollar at one point, but have now dropped 'at least a few points lower', Max said. Even though the political development has led to lower prices on the subrogation claims, it hasn't held back transactions. 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, there had 'been at least 10 transactions, to date, totalling more than US$1bil worth of recovery rights between Eaton and Palisades' fires, investment bank Oppenheimer & Co Inc's co-head of special assets, Ronald Ryder, told the California Earthquake Authority. On April 17, Oppenheimer 'successfully traded' over US$125mil in claims in just one day, Ryder added. 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. — Bloomberg
The Herald Scotland
09-06-2025
- Politics
- The Herald Scotland
Past National Guard deployments in LA: What to know
While Vice President J.D. Vance has referred to the protesters as "insurrectionists" and senior White House aide Stephen Miller described the protests as a "violent insurrection," President Donald Trump has not invoked the Insurrection Act. Under the 1807 law, the president may have the legal authority to dispatch the military or federalize the Guard in states that cannot control insurrections under or are defying federal law. In June 2020, USA TODAY reported that Trump had considered invoking the Insurrection Act over protests in response to the murder of George Floyd, a Black man who died after a former Minneapolis police officer knelt on his neck on a street corner in May 2020. Protestors clashed with police across the country, including in Los Angeles, which prompted then-Mayor Eric Garcetti to ask Newsom for members of the Guard to be sent to the city. At the time, Defense Secretary Mark Esper and others urged against deploying domestic troops to quell civil unrest. In 1994, a magnitude 6.7 earthquake - known as the Northridge earthquake - shook the San Fernando Valley, which is about 20 miles northwest of downtown Los Angeles. The earthquake caused an estimated $20 billion in residential damages, according to the California Earthquake Authority. The Guard was sent as part of the disaster assistance operation. The last time the Insurrection Act was invoked was in 1992 by former President George H.W. Bush, when the acquittal of the Los Angeles Police Department officers who beat Rodney King sparked civil unrest in Los Angeles, which left more than 60 people dead and 2,300 injured, according to the Bill of Rights Institute. Thousands of members of the Guard, the U.S. Army and the Marine Corps were deployed in the city. In 1965, nearly 14,000 Guard troops were sent to Los Angeles amid the Watts riots at the request of the California lieutenant governor, according to Stanford University's Martin Luther King, Jr., Research and Education Institute. Contributing: Reuters
Yahoo
08-06-2025
- 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 Trump Said He Fired the National Portrait Gallery Director. She's Still There. US Housing Agency Vulnerable to Fraud After DOGE Cuts, Documents Warn 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.
Yahoo
08-06-2025
- 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
