California Wildfire Events a Gamechanger for Mercury (MCY) As We Estimate More Than $2 Billion in Losses Using Zip Code Data
Wolfpack is short Mercury General Corporation (NYSE: MCY)

Our analysis shows MCY’s California subsidiary is deep underwater as we expect more than $2 billion in claims will blow the top off its $1.3 billion reinsurance tower and eat up its subsidiary’s existing capital. We believe MCY will be severely affected by the loss of capital.
We are short insurer Mercury General (MCY) as we estimate the company faces more than $2 billion in losses following the LA wildfires (Eaton and Palisades). We have discovered an obscure, ~4,000-page rate filing which reveals the number of homes and condominiums MCY insures in each California zip code.
Due to the difficulty in finding this rate filing, we would like to direct readers to the footnote at the bottom of page 1. This document, filed in June 2024 by an MCY subsidiary, allows us to see how many policies in force MCY has per zip code. For example, we can see on page 1216 of the rate filing that MCY insures 929 homeowner (HO-3) policies in Altadena (91001). Per LA County, ~63% of single-family homes in this zip code have been destroyed.
We used this data to estimate MCY’s losses from the fires and arrived at ~$2 billion in gross losses (for homeowner and landlord policies), more than enough to eat through the company’s $1.3 billion in reinsurance. We believe MCY will face further losses from insured automobiles, condominiums, commercial property, displacement costs for those in evacuation zones, and rehabilitation costs for non-destroyed homes for smoke damage and mold. We think these costs will add significantly more to our $2 billion loss estimate.
Management seems slow to share the true extent of its exposure with investors, instead opting to tell investors on a market holiday that the fires “can be considered a separate occurrence” for reinsurance purposes. We are skeptical of this as MCY is effectively telling investors that for just $250 million in fees, MCY’s reinsurers will provide the company with an additional $1.2 billion of reinsurance to cover losses from an event that has already occurred. We consider this to be MCY’s Hail Mary as MCY’s own press release indicates these fires would be defined as a single event in its reinsurance treaty.
We expect MCY’s reinsurers to fight any demand for additional reinsurance coverage. Multiple reinsurance experts we spoke with expect the fires to be treated as a single event. One expert said: “The bulk of the industry that’s affected by this is going to consider this one event. So, Mercury would be an outlier. So, I don’t see them winning in court on something like that.” Without additional reinsurance, we expect MCY will struggle to obtain the cash it needs to pay out all its fire damage claims. We would not be surprised if MCY suspends its dividend, raises additional capital, or takes other drastic steps in response to this crisis.