AM Best Revises Outlooks to Negative for Mercury and Subsidiaries Over LA Wildfires

AM Best revised the outlooks to negative from stable and affirmed the Financial Strength Rating of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a” (Excellent) for the members of Mercury Casualty Group.

Concurrently, AM Best revised the outlook to negative from stable and affirmed the Long-Term ICR of “bbb” (Good) of the organization’s publicly traded ultimate parent, Mercury General Corporation based in Los Angeles. AM Best also revised the outlook to negative from stable and affirmed the Long-Term Issue Credit Rating of “bbb” (Good) of MGC’s $375 million, 4.4% senior unsecured notes, due 2027.

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The ratings reflect Mercury’s balance sheet strength, which AM Best assesses as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management.

The outlooks were revised to negative due to uncertainty of Mercury’s net ultimate losses as well as uncertainty surrounding future reinsurance structure and costs stemming from the recent Los Angeles wildfires in January.

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Mercury has exposure to the Palisades and Eaton fires, with gross catastrophe losses estimated at $1.6 billion to $2.0 billion before reinsurance, subrogation, FAIR Plan assessments and recoupment of FAIR Plan assessments. Mercury’s reinsurance program provides for catastrophe reinsurance limits of $1.29 billion on a per occurrence with a retention of $150 million and reinstatement premium of $101 million.

Fitch Ratings said in an outlook revision in late January that it expects MCG’s credit profile will withstand the impact of the Eaton and Palisades fires near Los Angeles, but the agency also gave a negative outlook that reflects “the potential for credit deterioration and financial pressure from a third large catastrophe event or an aggregation of smaller weather-related claims.”

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AM Best said its rating affirmations reflect its expectation that Mercury’s capital position will withstand the impact of the wildfires after the company makes the full determination of its ultimate losses.

“The outlooks are expected to remain negative until such time that AM Best can with certainty establish the impact of the ultimate net losses from the California wildfires on Mercury’s capital, profitability, and future reinsurance costs,” AM Best stated.

The FSR of A (Excellent) and the Long-Term ICRs of “a” (Excellent) were affirmed by AM Best with the outlooks revised to negative from stable for the following members of MCG:

• Mercury Casualty Company
• Mercury Insurance Company
• California Automobile Insurance Company
• California General Underwriters Insurance Company, Inc.
• Mercury Indemnity Company of Georgia
• Mercury Insurance Company of Georgia
• Mercury Insurance Company of Illinois
• Mercury Indemnity Company of America
• Orion Indemnity Company
• American Mercury Insurance Company
• American Mercury Lloyds Insurance Company
• Mercury County Mutual Insurance Company

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Catastrophe
Natural Disasters
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AM Best