Mercury General provided updated information about its reinsurance program yesterday, reporting that whether losses from the Palisades and Eaton wildfires burning in California will be treated as one or two events remains an open question.

On January 10, the Los Angeles-based insurance organization had said it expected incoming claims would exceed its $150 million reinsurance retention, also reporting that the limit of its reinsurance program, written on a per-occurrence basis, is nearly $1.3 billion.

Related article: Mercury General Wildfire Losses Will Hit Reinsurance Cover. One Event?

Yesterday, Mercury said that it has already paid $80 million to policyholders—primarily for living expenses and housing contents—and has started to pay out dwelling claims at the Coverage A limit for verified total losses.

Claims processing is happening even though most of the affected areas are closed due to ongoing hazardous conditions, Mercury said, noting that it is using aerial images to assist in determining whether properties are total losses. Mercury has mobilized a catastrophe loss team to assist our customers with their claims and replacement housing, and provided information on the location of a mobile catastrophe assistance pop-up center, California Department of Insurance workshops and disaster relief centers, along with information about a 24/7 claims portal, claims hotline, agent-guided assistance and online step-by-step claims guidance.

“The company has sufficient liquidity to meet the increased levels of payments,” Mercury said.

As to the reinsurance questions, Mercury said that its catastrophe reinsurance treaty allows for the combining of events that occur within a 150-mile radius as a single occurrence.

On the other hand, if each individual event is classified as its own catastrophic event by the Property Claims Service (“PCS”), a unit of the Insurance Services Office, each event can be considered a separate occurrence. And in the case of the Palisades and Eaton wildfires, the PCS has designated each as a separate event.

“The company has not yet determined if it will consider the wildfires as two separate events,” Mercury said in a media statement noting that it is also evaluating any subrogation potential.

Under a two-event scenario, Mercury General can elect to use reinsurance limits of up to $1,290 million for the first event and reinstated limits up to $1,238 million for the second event. In this scenario, Mercury would be responsible for the first and second event retentions of $150 million each, and up to a $101 million reinstatement premium. In total, that would amount to total retention and reinstatement premiums of $401 million (=150 million+150 million+101 million).

In addition to this, Mercury said it would have co-participation up to $52 million for losses in excess of $650 million on the second event.

“The company may seek to acquire additional reinsurance if reinstated limits are used by the second event, for the stub period ending on June 30, 2025, the expiration date of the current contract.”

In the prior media statement on Jan. 10, Mercury said that its reinsurance program also provides coverage for assessments from the California FAIR plan.

Sources: Mercury General Corporation, Mercury Insurance