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 ìaî (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 ìbbbî (Good) of the organizationis 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 ìbbbî (Good) of MGCis $375 million, 4.4% senior unsecured notes, due 2027.

The ratings reflect Mercuryis 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 Mercuryis net ultimate losses as well as uncertainty surrounding future reinsurance structure and costs stemming from the recent Los Angeles wildfires in January.

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. Mercuryis 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 MCGis 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 ìthe potential for credit deterioration and financial pressure from a third large catastrophe event or an aggregation of smaller weather-related claims.î

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

ìThe 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 Mercuryis capital, profitability, and future reinsurance costs,î AM Best stated.

The FSR of A (Excellent) and the Long-Term ICRs of ìaî (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