Swiss Re Insurance-Linked Fund Management

Original Risk: A Society for Change Agents

Mercury General doubles reinsurance limit following wildfires


Multi-line U.S. primary home and auto insurer Mercury General Corporation has significantly increased the size of its reinsurance program, in the wake of Californian wildfire losses that had burned through its tower in the prior year.

Camp wildfire photo from NASAMercury General benefited from some reinsurance recoveries in the second quarter, as its retained losses from the Camp and Woolsey wildfires fell again, after taking into account subrogation rights.

But the impact of these wildfires has been so significant, that the company realised a significant upsizing in its reinsurance tower was the only sensible move, leading it to acquire more than double the limit at the mid-year 2019 reinsurance renewals.

Speaking during the companies earnings call this week, CEO Gabriel Tirador explained that the firm more than doubled its reinsurance tower.

“We recently completed our catastrophe reinsurance treaty renewal effective July 1st 2019,” he explained. “The total reinsurance limit purchased increased from $205m in the prior period, to $589m for the July 2019 through 2020 period.”

That’s a significant uptick in limit purchases, which will have represented a good opportunity for those reinsurance firms and ILS funds that are attracted to the type and location of the homeowner and auto risks Mercury General has underwritten.

The company saw “sizeable rate increases in each layer” of its renewed and expanded reinsurance program, Tirador explained, but still, thanks to changes made to its retention, that increased from $10 million to $40 million at the renewal, the overall price paid in 2019 were comparable with the much smaller program acquired the prior year.

On costs of the reinsurance Tirador said, “It’s up modestly if we consider the reinstatement of premiums. But when you compare what we actually ended up paying, last three period is about $40 million and I think the new treaty is about $38 million.”

The increase in the retention was rather forced on Mercury though, as the company found rates just too high below the $40 million level in its tower, so opted to retain that risk instead of ceding it.

That $40 million for the prior year included $18 million of reinstatable limits though, so comparing like to like is not possible.

Last year, Mercury General blew through the top of its 100% coverage layer of reinsurance, paid reinstatement premiums and is still now at the stage where any ongoing loss creep from the 2018 wildfires will also be covered by reinsurance as well, the insurers CFO Ted Stalick said.

Artemis Live - ILS and reinsurance video interviews and podcastView all of our Artemis Live video interviews and subscribe to our podcast.

All of our Artemis Live insurance-linked securities (ILS), catastrophe bonds and reinsurance video content and video interviews can be accessed online.

Our Artemis Live podcast can be subscribed to using the typical podcast services providers, including Apple, Google, Spotify and more.

Print Friendly, PDF & Email

Artemis Newsletters and Email Alerts

Receive a regular weekly email newsletter update containing all the top news stories, deals and event information

  • This field is for validation purposes and should be left unchanged.

Receive alert notifications by email for every article from Artemis as it gets published.