Mercury says LA wildfire losses to exceed reinsurance retention

Insurer Mercury General Corporation has said that it expects the ongoing wildfires in Los Angeles, California will result in losses for the company that will exceed its reinsurance retention of $150 million.

It will be some time until Mercury has an estimate for its ultimate losses from the ongoing wildfire event, the company said today.

But, “Based on information available to date, we expect the losses to exceed our reinsurance retention level of $150 million,” the insurer said.

Mercury said that its reinsurance program provides for $1.29 billion of coverage limits on a per-occurrence basis after covered catastrophe losses exceed that retention level.

The reinsurance program also covers any assessments from the California FAIR plan and Mercury said that, if losses end up being reinsured, the program calls for reinstatements of limits to cover future loss events.

Should the full $1.29 billion of reinsurance limits be utilised, then the total reinstatement premium payable by Mercury would be $101 million, the insurer explained.

Recall that Mercury has been a beneficiary to a number of the Randolph Re series of private catastrophe bonds.

The latest of these, issued in July 2024, was a $45.5 million privately placed transaction, that provides Mercury collateralized reinsurance against wildfire losses in California, we understand.

We do not know what level that private cat bond sits at in Mercury’s reinsurance tower, so it’s impossible to tell at this stage whether it could face risk of being triggered.

But it is a rare per-occurrence California wildfire only catastrophe bond, so will likely be an arrangement considered at some risk, until Mercury’s ultimate net losses from these fires becomes clearer.

Also read:

– LA fires: “Considerable attachment erosion” likely for some aggregate cat bonds – Steiger, Icosa.

– LA wildfires: Over 10k structures destroyed. Insured losses up to ~$20bn, economic $150bn.

– LA wildfire losses unlikely to significantly affect cat bond market: Twelve Capital.

– LA wildfires unlikely to cause meaningful catastrophe bond impact: Plenum Investments.

– JP Morgan analysts double LA wildfire insurance loss estimate to ~$20bn.

– LA wildfires: Analysts put insured losses in $6bn – $13bn range. Economic loss said $52bn+.

– LA wildfires bring aggregate cat bond attachment erosion into focus: Icosa Investments.