Mercury predicts LA wildfire losses will surpass reinsurance retention limits

Mercury General Corporation has announced that it expects the ongoing wildfires in Los Angeles, California, to result in losses surpassing its reinsurance retention threshold of $150 million.

While it may take time to determine the company’s ultimate losses from the wildfire event, Mercury stated, “Based on current information, we anticipate the losses will exceed our reinsurance retention level of $150 million.”

The insurer’s reinsurance program offers $1.29 billion in coverage per occurrence once covered catastrophe losses exceed the retention level. This program also includes coverage for assessments from the California FAIR Plan. In cases where losses are reinsured, the program allows for the reinstatement of coverage limits for future loss events.

If the full $1.29 billion reinsurance limit is utilized, Mercury would be responsible for a reinstatement premium totaling $101 million, the company clarified.

Notably, Mercury has benefited from several Randolph Re private catastrophe bond transactions. The most recent issuance, in July 2024, was a $45.5 million privately placed transaction providing Mercury with collateralized reinsurance against California wildfire losses.

The placement of this private catastrophe bond within Mercury’s reinsurance tower remains unclear, making it difficult to assess whether it could be triggered. However, as a rare per-occurrence catastrophe bond specifically covering California wildfires, it may be considered at risk until Mercury’s final net losses from the wildfires are determined.