Mercury General Corporation, a Los Angeles-based multi-line insurer, has said that its reinsurers are likely to benefit from the sale of certain wildfire subrogation rights, which it completed during the first quarter of 2019.
As part of its Q1 results, Mercury General disclosed the sale of its subrogation rights related to the Camp and Woolsey Fire in 2018 and the Thomas Fire in 2017 to a third party.
It explained that its reinsurers were the primary beneficiaries of the transaction, as they had absorbed most of the losses under the terms of Mercury General’s catastrophe reinsurance treaty.
The company announced in November that it expected $216 million of its losses from the Camp and Woolsey fires to be shouldered by its reinsurance partners.
Mercury General benefited by approximately $10 million (before taxes) from the sale of its subrogation rights in Q1, including adjustments made to the associated claims as a result of normal reserving procedures, reductions in the company’s retained portion of losses on the Camp and Woolsey Fires, and reduced reinstatement premiums recognised.
The insurer’s net income for Q1 2019 was $135.9 million, compared with a net loss of $42.6 million for the same period in 2018.
Similarly, Mercury General’s operating income increased from $3.8 million in Q1 2018 to $48.1 million in Q1 2019, and its combined ratio improved from 103.8% to 97.3%.
Its catastrophe losses, net of reinsurance, were $5 million for the quarter, consisting of $11 million from winter storms in California, partially offset by favourable development of $6 million on prior year catastrophe losses.
The favourable developments resulted from reductions in Mercury General’s retained portion of losses on the Camp and Woolsey Fires under its reinsurance treaty, after accounting for the assignment of subrogation rights and the re-estimation of reserves.
In Q1 2018, Mercury General recorded $9 million of catastrophe losses, primarily due to winter storms and mudslides in California and winter storms in the states along the Atlantic Seaboard.
The company said that reinsurance benefits were not used for the losses in either Q1 2018 or Q1 2019.