Mercury General, a Los Angeles-based insurer, estimates gross losses from the January 2025 LA wildfires between $1.6 bn and $2 bn. Net losses are projected between $155 mn and $325 mn. The company has not yet decided whether to classify the Palisades and Eaton fires as a single event or two separate incidents.
In its Q4 and full-year 2024 report, Mercury provided updates on wildfire-related losses. The net loss estimate depends on the total gross loss, potential recoveries from subrogation for the Eaton Fire, and whether the wildfires are considered one or two events.
Current estimates indicate 55% to 60% of losses stem from Palisades, while Eaton accounts for 40% to 45%.
In 2024, global natural perils resulted in total direct economic costs of $417 bn. Of this, $154 bn was covered by private insurers and public insurance entities. From 2017 to 2024, insurers faced an average annual loss of $146 bn from natural catastrophes, indicating a “new normal” near $150 bn annually.
Total economic costs from natural hazards reached $417 bn, with insurance covering $154 bn. The protection gap—uninsured costs—stood at 63%, or $263 bn. At least 60 events caused economic losses exceeding $1 bn each, and 30 of these also led to over $1 bn in insured losses.
As of February 7, 2025, Mercury has disbursed $800 mn in wildfire-related claims, primarily covering dwelling limits, personal property, and living expenses. The insurer has also billed its reinsurance partners, collecting $500 mn so far.
Mercury has property catastrophe reinsurance in place, providing a $1.29 bn limit per event once covered losses surpass its $150 mn retention. Additionally, the company holds up to $20 mn in property excess-of-loss reinsurance, applicable for claims exceeding $5 mn per property. Mercury expects to utilize $10 mn to $20 mn from these limits for fire-related claims.
Regarding its reinsurance structure, Mercury explained that 1% of its $650 mn excess-of-$650 mn coverage layer was allocated to parametric coverage. This coverage pays out based on industry-insured values within predefined grids in the fire zone.
However, Mercury has determined that this parametric portion does not qualify for recovery, making $6.5 mn of the $1.29 bn reinsurance limit ineligible for both the Eaton and Palisades fires.
The company is also pursuing subrogation, particularly for the Eaton Fire. In past wildfire cases linked to utility equipment, Mercury sold its subrogation rights but has not decided whether to do so in this instance.
Mercury confirmed its participation in the California FAIR Plan but stated that due to its reinsurance coverage and the ability to recover part of the assessment, the FAIR Plan is unlikely to significantly impact its net wildfire losses.
The company reported that catastrophe losses, net of reinsurance and potential subrogation, will be recorded as part of its loss and loss adjustment expenses in Q1 2025. If the full $1.29 bn reinsurance limit is exhausted, reinstatement premiums will total $101 mn, spread across Q1 and Q2 2025.
Mercury’s catastrophe reinsurance treaty allows it to combine events within a 150-mile radius into a single occurrence. The company has not yet decided whether to treat the wildfires as one or two events and will reassess as more information, including subrogation potential, becomes available.
Under a single-event classification, Mercury would retain the first $150 mn in losses and absorb up to $6.5 mn from parametric coverage. Any gross losses exceeding $1.44 bn ($150 mn retention plus the $1.29 bn reinsurance limit) would be borne by the company. It would also be responsible for reinstatement premiums of up to $101 mn.
If classified as two events, Mercury could apply $1.29 bn in reinsurance for the first event and up to $1.238 bn in reinstated limits for the second.
This scenario would require the company to retain $150 mn for each event, absorb $6.5 mn in parametric losses for the first event, and co-participate in second-event losses at 8% for claims exceeding $650 mn up to $1.3 bn. The company would also owe up to $101 mn in reinstatement premiums and may seek additional reinsurance if reinstated limits are exhausted before the contract’s expiration on June 30, 2025.
