AM Best has affirmed the A (excellent) financial strength rating of members of Mercury General Casualty Group but revised the rating outlook to negative from stable.
AM Best also made the outlook change to the long-term issuer credit ratings (Long-Term ICR) of "a" (excellent) for those group members. In addition, AM Best has 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.
While the excellent 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 from the January 2025 California wildfires.
AM Best said it also considered uncertainty surrounding future reinsurance structure in changing the outlook.
Earlier this month, Mercury said that it expects gross losses from the 2025 California wildfires in the $1.6 billion-$2.0 billion range, but that potential subrogation and reinsurance recoveries will drop the ultimate bill down to the $155 million-$325 million range.
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AM Best said the rating affirmations reflect AM Best's 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 AM Best can establish the impact of the ultimate net losses from the California wildfires on Mercury's capital, profitability, and future reinsurance costs with certainty, the rating agency said.
AM Best has also revised the outlook to negative from stable and affirmed the long-term issue credit rating of "bbb" (Good) of Mercury General Corporation's $375 million, 4.4% senior unsecured notes, due 2027.