Mercury to ‘aggressively pursue subrogation’ for Eaton wildfire: CFO Stalick

Executives at California-based insurer Mercury General Corporation said yesterday that the company will “aggressively pursue subrogation”, particularly for the Eaton Fire, as there’s strong evidence utility equipment caused the event.

As part of its 2024 earnings release, Mercury provided an update on the Los Angeles wildfires, announcing a gross loss of $1.6 billion to $2 billion and a net loss from the wildfires of between $155 million and $325 million.

Mercury explained that the net loss range is based on the size of the gross loss, whether it decides to have the wildfires be one or two events for reinsurance purposes, and also subrogation recoverability for the Eaton Fire.

Subrogation describes the right held by most insurers to legally pursue an at-fault third party that caused a loss to an insured, enabling the carrier to recover the amount of the claim paid to the insured for the loss.

“We believe there is strong video and other evidence that shows utility equipment caused the Eaton fire. We estimate the range of recovery to be in the 40% to 70% range,” said Gabe Tirador, Mercury’s Chief Executive Officer (CEO). “In several previous wildfire events caused by utility company equipment we sold our subrogation rights, but we have not determined whether we will do so with the Eaton fire. There is active interest in purchasing the company’s subrogation rights.”

Ted Stalick, the carrier’s Chief Financial Officer (CFO), explained that since 2017 there’s been something like 15 utility-caused wildfires where there’s been recoveries by insurers, including Mercury.

“The recoveries on those events range from around 55% to 70%. So, there’s a well-established track record of utilities paying out substantial recovery fees on previous wildfires,” said Stalick. “We do have a very active interest in Mercury selling our subrogation rights. Obviously, if you sell them the amount is something less than what the ultimate recovery would be and we are evaluating that at this point in time.”

The CFO reiterated that there’s strong evidence that the Eaton wildfire was caused by utility company equipment.

“There’s video of the lines arcing and the fire starting at the bottom of the transmission tower, and we’re going to aggressively pursue subrogation, especially for the Eaton event,” he said.

Mercury said in its earnings release that it was still undecided as to whether it would class the Palisades and Eaton fires as one or two events for its reinsurance, but CEO Tirador suggested that with the firm’s subrogation potential, it’s more likely to be classified as one event, although two is still an option with a decision expected relatively soon.

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