AM Best revises Mercury’s outlook to negative following LA wildfire losses

Credit rating agency AM Best has revised the outlooks to negative from stable for Mercury General Corporation and its subsidiaries following significant losses from the recent California wildfires.

The fires, which began on January 7, 2025, are estimated to cost Mercury General between $1.6 billion and $2 billion in gross losses.

The agency has also affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a” (Excellent) for the members of Mercury Casualty Group (Mercury).

Concurrently, AM Best has revised the outlook to negative from stable and affirmed the Long-Term ICR of “bbb” (Good) of the organization’s publicly traded ultimate parent, Mercury General Corporation (MGC).

Additionally, AM Best also revised the outlook to negative from stable and affirmed the Long-Term Issue Credit Rating of “bbb” (Good) of MGC’s $375 million, 4.4% senior unsecured notes, due 2027.

According to the agency, these ratings reflect Mercury’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.

AM Best cited the uncertainty surrounding Mercury’s ultimate net losses from the wildfires, as well as the potential impact on future reinsurance structure and costs, as the primary drivers for the outlook revision.

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.

The company’s reinsurance program provides for catastrophe reinsurance limits of $1.29 billion per occurrence, with a retention of $150 million and a reinstatement premium of $101 million.

AM Best’s rating affirmations reflect the expectation that Mercury’s capital position will remain strong enough to absorb the wildfire losses.

The negative outlooks will remain in place until AM Best can definitively assess the full impact of the wildfires on Mercury’s capital, profitability, and future reinsurance expenses.

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