Fitch Ratings has revised Mercury’s outlook to Stable, citing reduced concerns over the January 2025 wildfires and their potential impact on capital and profitability, as well as improvements in the company’s renewed catastrophe reinsurance program.
Notably, Fitch has affirmed Mercury’s property and casualty operating subsidiaries’ Insurer Financial Strength (IFS) ratings of ‘A-‘ (Strong) and Long-Term Issuer Default Rating (IDR) of ‘BBB’ and senior debt rating of ‘BBB-‘.
Two of the key rating drivers highlighted were Mercury’s company profile and financial flexibility.
Fitch noted, “Mercury has an extensive history of successfully operating in California due, in part, to a strong relationship with its independent agent network and local expertise.
“This underpins its competitive position as the eighth-largest writer of personal automobile insurance and third-largest homeowners’ writer, excluding the California Fair Access to Insurance Requirements (FAIR), in the state.”
As mentioned, another major factor in the outlook improvement is Mercury’s renewed reinsurance program.
Under the previous treaty that ran through June 30, 2025, the company carried $1.29 billion of coverage per occurrence above a $150 million retention.
The new treaty, now in effect through June 30, 2026, expands protection to $2.14 billion per occurrence, but requires the insurer to absorb the first $200 million of catastrophe losses before coverage attaches.
While the scope of perils covered remains broadly similar, excluding Florida risks and California earthquake damage to fixed property, but including fire following an earthquake, subject to certain exceptions, the new structure represents a material increase in reinsurance capacity alongside a higher threshold for loss sharing.
Fitch also highlighted that Mercury has submitted a rate filing for its California homeowners program based on the state’s Sustainable Insurance Strategy.
The filing, if approved, will reportedly allow for the cost of reinsurance and the use of wildfire models in pricing with an offset of more coverage in higher wildfire risk areas.
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