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Mercury General’s reinsurance to shoulder $216m of its wildfire losses

28th November 2018 - Author: Charlie Wood

Mercury General Corporation, a Los Angeles-based multi-line insurer, has announced that $216 million of losses inflicted by the Camp and Woolsey fires are expected to be shouldered by its reinsurance partners.

camp-wildfire-nasa

The Camp Wildfire on November 8th. Source: NASA

The company states that pre-tax total gross losses, before reinsurance benefits, from the Camp fire in Northern California and the Woolsey fire in Southern California, stood at approximately $207 million and $46 million, respectively.

Mercury estimates that its pre-tax total loss, net of reinsurance benefits, from these two events will be approximately $37 million.

Mercury’s net loss represents its $10 million retention for each of the wildfire events, plus $10.5 million of retention from the first layer of reinstated reinsurance limit previously used up, plus an additional $6.5 million retained after the Camp losses exceeded the insurers’ 100% reinsured coverage layer.

Having exceeded the top of that 100% coverage layer of reinsurance, which stretched to $200 million for the Camp fire, the insurer shares its losses on a basis of 5% coverage by the reinsurers and 95% retained.

RMS

Additionally, Mercury says it has exhausted the reinstated limit on the first layer ($30 million limit in excess of $10 million retention) of its reinsurance treaty, and a second reinstatement is not available.

As a result, should the Woolsey fire loss climb higher than the currently estimated $46 million, Mercury will have 100% reinsurance coverage up to $200 million and 5% coverage above $200 million up to $500 million of gross losses, according to the company.

For the Camp wildfire, having already exceeded the $200 million layer where it is 100% reinsured, any creep in that estimate will only see the firm able to claim back 5% of its losses up to $500 million from its reinsurer.

Any further catastrophe events occurring up until the end of June 2019 will now see Mercury with $54 million of reinsurance protection for losses above $40 million up to $100 million, 100% of reinsurance protection for losses from $100 million up to $200 million and 5% reinsurance coverage for losses between $200 million up to $500 million.

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