Mercury yet to decide if LA wildfires a single event as claims paid hit $80m

Mercury General Corporation has paid $80 million to policyholders, mainly for living expenses and housing contents due to the Southern California wildfires. However, it has reportedly not yet decided whether it will treat the fires as two separate events under its reinsurance agreements.

Earlier this month, Mercury General provided a preliminary assessment of the wildfires, expecting losses to exceed its reinsurance retention level of $150 million.

In a new update today, the firm stated that it has already paid $80 million to policyholders primarily for living expenses and housing contents, and has started to pay out dwelling claims at the Coverage A limit for verified total losses.

At the same time, Mercury General said it has sufficient liquidity to meet the increased levels of payments, and that its catastrophe reinsurance treaty allows for the combining of events that occur within a 150-mile radius as a single occurrence.

“If each individual event is classified as its own catastrophic event by the Property Claims Service (PCS), a unit of the Insurance Services Office, each event can be considered a separate occurrence. In the case of the Palisades and Eaton wildfires, the PCS has designated each as a separate event,” the firm explained.

Mercury General also observed that as more information becomes available to it, including regarding any subrogation potential, the firm will evaluate whether it will consider the Wildfires as two separate events.

Under a two-event scenario, Mercury General suggested that it may elect to use reinsurance limits of up to $1,290 million for the first event and reinstated limits up to $1,238 million for the second event.

In this scenario, the Company would be responsible for the first and second event retentions of $150 million each, and up to a $101 million reinstatement premium for total retention and reinstatement premiums of $401 million. In addition, the Company would have co-participation up to $52 million for losses in excess of $650 million on the second event,” Mercury General said.

As Reinsurance News understands, the decision of whether to treat the wildfires as a single catastrophe loss event or as two separate events for reinsurance purposes will affect the amount of recoveries sought from the reinsurance firms involved in Mercury’s tower.

Earlier today, Moody’s downgraded the ratings of Mercury General, citing the firm’s concentration in the state and significant exposure to natural catastrophes.

Moody’s RMS Event Response recently estimated insured losses from the LA fires will be between $20 billion and $30 billion, though it warned that significant uncertainty remains as some of the fires are ongoing.

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