Mercury General - Earnings Call - Q4 2024
February 12, 2025
Executive Summary
- Q4 2024 underwriting was strong: combined ratio improved to 91.4% (vs. 93.6% in Q3 and 98.6% in Q4 2023) on earned premium growth and pricing, with operating EPS of $2.78; GAAP EPS was $1.82 as equity/fair value marks swung to a loss versus a gain last year.
- Net premiums earned rose 18.1% year over year to $1.35B; net premiums written rose 16.1% as rate actions flowed through, and investment income after tax increased to $61.5M (+14.6% YoY) on higher invested asset balances.
- Post-quarter, California wildfires (January 2025) are the key overhang: gross losses estimated at $1.6–$2.0B and pre-tax net losses at $155–$325M, with $80–$101M of reinstatement premium split between Q1–Q2 2025; liquidity is solid (> $1B cash/STI) and $531M reinsurance cash collected by the call date.
- Regulatory and pricing backdrop improving: a 12% California homeowners rate increase was approved in January and is effective March 2025; management expects 2025 investment income near 2024 levels and targets combined ratio “over time” near ~96%.
- Ratings implications and catalysts: Fitch affirmed A- FSR/BBB- senior debt with negative outlook; Moody’s downgraded FSR to A3/Baa3 with negative outlook; next catalysts include clarity on wildfire loss netting (subrogation 40–70% potential), reinsurance renewal (7/1), and further rate approvals.
What Went Well and What Went Wrong
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What Went Well
- Underwriting improvement: combined ratio fell to 91.4% in Q4 (vs. 93.6% Q3; 98.9% Q2), with loss ratio at 68.4% and expense ratio stable at 22.9%.
- Pricing and growth: net premiums earned +18.1% YoY to $1.35B; net premiums written +16.1% YoY to $1.31B, reflecting higher average premium per policy from rate increases.
- Management tone and outlook: “2024 was a year for the record books… Our core underlying business… is poised to deliver good results” and 2025 investment income expected near 2024 levels; CA homeowners 12% rate increase effective March 2025.
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What Went Wrong
- GAAP earnings pressure from markets and cats: net realized investment swung to a $(66.9)M loss vs. +$161.8M prior year; catastrophe losses were $41M vs. $16M in Q4 2023, driving GAAP EPS to $1.82 (vs. $3.46).
- Reserve development: ~$8M unfavorable development on prior accident years in Q4 2024 (vs. ~$4M favorable in Q4 2023).
- Post-quarter wildfire overhang: gross losses $1.6–$2.0B; pre-tax net $155–$325M; reinstatement premium $80–$101M; agencies placed negative outlook/downgraded, and reinsurance costs at 7/1 are expected to rise moderately.
Transcript
Operator (participant)
Good morning and welcome to the Mercury General Corporation's fourth quarter 2024 conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by the number zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded.
This conference call may contain comments and forward-looking statements based upon current plans, expectations, events, and financial and industry trends which may affect Mercury General's future operating results and financial position. Such statements involve risks and uncertainties which cannot be predicted or quantified and which may cause future activities and results of operations to differ materially from those discussed here today. I would now like to turn the conference over to Gabriel Tirador, CEO. Please go ahead.
Gabriel Tirador (CEO)
Thank you very much. I would like to welcome everyone to Mercury's fourth quarter conference call. I'm Gabe Tirador, Chief Executive Officer. In the room with me is Victor Joseph, President and Chief Operating Officer; Ted Stalick, Senior Vice President and CFO; Chris Graves, Vice President and Chief Investment Officer [audio distortion].
Before we begin, I want to say that our thoughts are with all those affected by the recent catastrophic wildfires in Southern California. The wildfires have had a devastating impact on communities and individuals. Several of our executives, including many of those on the call, recently toured Altadena to [audio distortion].
It is heartbreaking to see so many people impacted by this disaster. In times like these, our role as insurance professionals becomes even more critical. Our primary mission is to provide support and assistance to our insureds when they need it most. I am so proud of our customer-facing team members [audio distortion] unwavering commitment to helping our fellow Californians who have entrusted us with their protection.
Turning to our fourth quarter and full year results, 2024 was a year for the record books. We are very pleased to report that our fourth quarter after-tax operating income of $398 million was the highest in the company's history. The combination of rate increases and moderating inflation helped drive down our combined ratio in the quarter to 91.4% and our year-to-date combined ratio to 96%.
Catastrophe losses in the quarter were $41 million and added 3 points to the combined [audio distortion] for the full year 2024, which added 5.5 points to the full year 2024 combined ratio. Excluding catastrophe losses, the combined ratio was 88.3% in the quarter and 90.5% for the full year.
Investment income after-tax was $61.5 million in the [audio distortion] 2024, an increase of 15% and 18% over the prior year quarter and year respectively. Fueling the increase in investment income was an increase in average investment balances of 16% in the quarter and 12% for the full year 2024.
Premium growth coupled with strong investment and underwriting income [audio distortion] net premiums written grew 16% to $1.3 billion in the quarter and 20.5% to $5.4 billion for the full year 2024. The increase in net premiums written was primarily due to higher average premiums per policy from rate increases. Our strong operating results helped fuel our growth [audio distortion] in company history [audio distortion].
As we look towards 2025, our core underlying business, which excludes catastrophe losses, is poised to deliver good results. Our personal auto and homeowners business, which comprises 88% of company-wide earned premium, posted favorable [audio distortion] 2024 and full year 2024. For the full year 2024, our personal auto business posted a core underlying combined ratio of 92.1%, and our homeowners business posted a core underlying combined ratio of 76.1%.
In addition, we expect 2025 investment income to be near 2024 levels [audio distortion] core underlying earnings to provide capital generation in 2025, which will help build back the capital lost from the wildfires. We estimate our gross catastrophe losses from the January wildfires before our share of FAIR Plan losses to be in the range of $1.6 billion [audio distortion] estimate is based on total insured values, payout ratios, and other data from previous large wildfire events.
Pre-tax net catastrophe losses are estimated to be $155 million-$325 million. The range of net catastrophe losses was determined based on various assumptions for gross losses [audio distortion] and levels of reinsurance utilization. In addition, reinstatement premium is estimated to be $80 million-$101 million and will be prorated between the first and second quarter of 2025.
On an after-tax basis, we estimate the net impact of wildfires to statutory surplus in the first quarter of [audio distortion] to $295 million. However, as previously mentioned, we expect our core underlying earnings to partially offset the impact of the catastrophe losses from the wildfires.
Yesterday, the California Department of Insurance approved the FAIR Plan's request for a [audio distortion]. The company's participation rate in the FAIR Plan is approximately 5%. Accordingly, we expect about a $50 million assessment from the FAIR Plan. 50% of this assessment is recoupable via a temporary supplemental fee to policyholders. FAIR Plan losses can be added to reinsurance. Ted?
Ted Stalick (SVP and CFO)
Thanks, Gabe. So moving on to the next slide, talking about reinsurance. So the company's catastrophe reinsurance program provides $1.29 billion of limits on a per-occurrence basis after covered catastrophe losses exceed the company's [audio distortion]. The company also has up to $20 million of coverage on a property excess of loss reinsurance treaty available to offset losses exceeding $5 million per property that attaches prior to the catastrophe limits. And the company expects to use approximately $10 million-$20 million of those limits for wildfire claims.
[audio distortion] program. 1% of the reinsurance limit of the $650 million in excess of the $650 million coverage layer was placed as parametric coverage that pays out based on industry insured values in predetermined grids within the fire footprint and the company's participation percentage within that grid [audio distortion] will not be eligible for recovery. As such, $6.5 million of the $1.29 billion of total limits does not qualify for the Eaton or Palisades Fire.
The company's catastrophic reinsurance treaty allows for the combining of events that occur within a 150-mile radius as a single [audio distortion]. If each individual event is classified as its own catastrophic event by the Property Claim Services, a unit or PCS, a unit of the Insurance Services Office, each event can be considered a separate occurrence.
In the case of the Palisades and Eaton wildfires, the PCS has designated each as a separate event [audio distortion] fires as two separate events. As more information becomes available to the company, including any subrogation potential, the company will evaluate whether it will consider the wildfires as two separate events. In addition, catastrophe losses from the California FAIR Plan are covered by reinsurance up to the limits provided.
We have paid $800 million out to our insureds, primarily for 100% of coverage A dwelling limits, advances up to $250,000 on contents, and advances for additional living expenses. We have billed [audio distortion] to our reinsurers and have received back, actually as of this morning, $531 million to date. We have over $1 billion cash on hand, and the cash is currently earning 4.35%. In large cat events, typically 2/3 of the dollars are paid [audio distortion] year mark, 80% of the dollars are paid out. We are now past the largest part of the surge in demands for cash from this event.
For our estimated ultimate losses, we have identified the total losses from claims being reported by policyholders, on-ground inspections, and [audio distortion] total insured value for each total loss, which includes dwelling limits, additional replacement costs, contents, debris removal, additional structures, plants and landscaping, and additional living expenses.
We take the total insured values and apply payout percentages from other significant wildfire events, such as the [audio distortion] to estimate the ultimate loss on all of our total losses. Typically, during major wildfires, total losses comprise most of the ultimate losses. Partial losses have a longer reporting tail and differing dollar amounts depending on the type of claim. We look at partial claim reporting patterns on previous large [audio distortion] to determine our ultimate loss on partials.
We believe there is strong video and other evidence that shows utility equipment caused the Eaton Fire. We estimate the range of recovery to be in the 40%-70% range. Subrogation at these levels makes it less likely we will consider the Palisades [audio distortion]. In several previous wildfire events caused by utility company equipment, we sold our subrogation rights, but we have not determined whether we will do so with the Eaton Fire. There is active interest in purchasing the company's subrogation rights. With all that background, we will now open it up for questions.
Operator (participant)
We will now begin the question and answer session. To ask a question, you may press star then the number one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then the number two. At this time, we will pause momentarily to assemble our roster.
[audio distortion] you're ready. Puck, can you hear us? [crosstalk].
Speakers, are you ready to take your questions?
Gabriel Tirador (CEO)
Yes.
Operator (participant)
Okay. So your first question comes from the line of Gregory Peters from Raymond James. Please go ahead.
Gregory Peters (Analyst)
Morning, everyone. A couple of questions for you. First, I know it's speculation, but do you have any indication on what the FAIR Plan total loss might look like? I think they just, you talked about the $1 billion that they're going to assess, but do you have any view on what the total FAIR Plan loss might look like?
Gabriel Tirador (CEO)
We do not. Hi, Greg. We do not.
Gregory Peters (Analyst)
Okay. I think one of the bigger questions that's popped up recently is just, as you work your way through paying off these losses, you talked about stressing your capital. Can you talk about how you view your premiums-to-capital ratio? Is there any wiggle room if there's a deviation above the 3-to-1 benchmark of considering the strength of your underlying results? Just give us some perspective on how you're viewing capital.
Gabriel Tirador (CEO)
We think that as a result of this event, we're going to be up in the high 2s, a 3, maybe low 3s, depending on what we end up booking, but as I mentioned earlier, we consider this really a 2025 earnings event, right? I think that with our strong core underlying earnings, we're going to build back our surplus and drive down that premiums-to-surplus ratio.
And we'll be watching our growth, but we want to grow our auto business. We want to grow our homeowners business prudently. And we think that the premiums-to-surplus ratio, as I mentioned earlier, it's going to be in the high 2s to low 3s, but I think the surplus that we're going to earn through our core underlying earnings are going to drive that ratio back down.
Gregory Peters (Analyst)
Okay. And I know you're still in the process of paying claims, but can you talk about how you think about the efforts to recover your reinsurance pricing in your homeowners rate going forward? Because it certainly seems like your reinsurance costs are going up. And then on that point, maybe you could give us a view on how you think the reinsurance market might respond to your renewal later this spring.
Gabriel Tirador (CEO)
I'm going to have Jeff answer that.
Jeff Schroeder (VP and Chief Product Officer)
Hi, Greg. First and foremost, I want to reiterate that we recently received approval on a 12% increase on our homeowners book in California, and that will be effective towards the end of next month, March of this year. We are evaluating the next steps with where our rate needs to be, looking ahead to the second quarter of this year as when we would be looking to take the next action with our rate at that particular time.
As far as the second part of your question, as far as the reinsurance renewal, we are in continuous conversation with our reinsurance partners. That is a normal part of the process. Our renewal is 7/1 of this year, and we expect the reinsurance process to go as expected. Obviously, this event will be factored in, and we do expect our costs to go up at least moderately during this period. We will share more as we have that information towards the 7/1 deadline.
Gregory Peters (Analyst)
Makes sense.
Gabriel Tirador (CEO)
I will add to that, Greg, that our expectation prior to the wildfires was for our reinsurance exposure-adjusted reinsurance premium to be flat to down. Obviously, this is going to change, and as Jeff mentioned, we'll know more as we go out. So we are expecting some kind of an increase, but prior to the wildfires, we were expecting our reinsurance exposure adjusted rates to be flat to down.
Gregory Peters (Analyst)
Great. I guess the last question I'll have for you is just can you talk about, I mean, getting back to your core underwriting business, the underlying results. Can you talk about just the frequency and severity trends in your auto and how it sets up for this year's expectations?
Gabriel Tirador (CEO)
Sure. I'm going to let Jeff handle that as well.
Jeff Schroeder (VP and Chief Product Officer)
Hey, Greg, I can answer that. So our frequencies in auto are showing a small decline for property damage and collision and are close to flat for bodily injury. On the severity side, we're seeing low to mid-single digits for property damage and collision and mid-teens for bodily injury.
Gregory Peters (Analyst)
Got it. All right. Well, thank you for your answers.
Gabriel Tirador (CEO)
Thanks, Greg.
Operator (participant)
Your next question comes from the line of Guy Baron from Springview. Please go ahead.
Guy Baron (Managing Partner and Portfolio Manager)
Hi. Thank you for hosting this call and for taking my question. So in the fourth quarter, you generated close to $3 of operating earnings per share, which annualizes out to a very big number. I guess the fourth quarter is a lower cat [audio distortion] quarter, so maybe it's closer to $10 annualized of operating earnings.
And so can you talk about to what extent this level of earnings power is sustainable in your view while giving consideration for future reinsurance costs, to Greg's question, and your internal modeling for future cats and incorporating the rate increases that you referred to earlier on the homeowners side?
Gabriel Tirador (CEO)
It's a good question. We posted a 91.4% combined ratio in the quarter. We do expect over time to that move up closer to our target, our target being closer to about a 96%. I don't think that's going to happen overnight. We're going to continue to monitor our cost structure and our trends and make the necessary filings as needed. But I think over time, you'll see the combined ratio probably go up closer to our target.
Guy Baron (Managing Partner and Portfolio Manager)
Do you believe that the California DOI now understands the need to allow insurers to take appropriate rate actions following the wildfires?
Gabriel Tirador (CEO)
I do. I do. I mean, I think the commissioner, with his Sustainable Insurance Strategy, has kind of made that clear in his view. I mean, he's promulgated some regulations that were going to allow us to include reinsurance in the cost and also allowing models. So I do believe that the Department of Insurance has recognized that by the actions.
Guy Baron (Managing Partner and Portfolio Manager)
Got it. Okay. And just lastly, a quick one on the subrogation. When you sold your 2018 subrogation rights, I think it was like $10 million that you received. Can you tell us what were the proceeds relative to your initial estimate of what the subrogation recovery would ultimately have been or what it actually ended up being [crosstalk]?
Ted Stalick (SVP and CFO)
I'll take that, Guy. Yeah, I'll take that, Guy, and just to give you a little bit more context, since 2017, there's been something like 15 utility-caused wildfires where there have been recoveries by the insurance companies, including Mercury, on. I'll go through them real quick, actually.
In 2017, there was the North Bay, Creek, and Thomas. In 2018, the Camp and Woolsey. 2019, Getty, Easy, Kincade, Maria, Tenaja. 2020, Bobcat, Zogg, Pinehaven, Silverado. 2021, Dixie. 2022, Coastal and Fairview. And the recoveries on those events range from around 55%-70%, so there's a well-established track record of utilities paying out substantial recoveries on previous wildfires.
We do have a very active interest in Mercury selling our subrogation rights. Obviously, if you sell them, the amount is something less than what the ultimate recovery would be, and we are evaluating that at this point in time. There's very strong evidence that the Eaton Fire was caused by utility company equipment. There's video of the lines arcing and the fire starting at the bottom of the transmission tower, and we're going to aggressively pursue subrogation, especially for the Eaton event.
Guy Baron (Managing Partner and Portfolio Manager)
Okay. Well, thank you. Good luck, and be well.
Gabriel Tirador (CEO)
Thank you.
Thanks.
Ted Stalick (SVP and CFO)
Thank you.
Operator (participant)
Your next question comes from the line of Khalil AbuManneh from Carronade Capital. Your line is now open.
Khalil AbuManneh (Senior Analyst)
Hi, good morning. Thanks for taking my question. Can you give us a little bit more background on the claims themselves? How many claims have you received? How many of them are total losses? And can you expand on the $800 million that has been paid through Friday? What percent of those claims was actually paid? And whether it's coverage A, C, and D. I know you mentioned some numbers earlier, but expanding on what percent of the total kind of A, C, D coverage has been paid and more color on the claims numbers would be really helpful.
Victor Joseph (President and COO)
Hi. This is Victor. I'll take that question. So to date, we have about 2,700 claims that have been reported to Mercury. Of those claims, that's for both events. Of those claims, we have about 650 homeowners' policies that are totaled. And we have about another 150 totals that spread out between landlord policies, renters, condos, and commercial property.
What we've done on most of them, more than 95% of them at this point, is paid the coverage A. And that obviously makes up a very large share of the ultimates. Beyond that, we advance a portion of the contents coverage. We also have advanced ALE, as we've worked with insureds, our customers, to make sure that they have temporary housing as needed.
Khalil AbuManneh (Senior Analyst)
Understood. It's pretty impressive how much has been distributed relative to the total damages when compared to the FAIR Plan and some of the other peers that have reported. So good on you guys for distributing that. My second question is around the $1.6 billion-$2 billion estimate. I think that the information provided in the press release and the 10-K is a little bit ambiguous as to what methodology you got or what methodology you used to get to those figures, so can you kind of just explain how?
Is there a bottoms-up number that you have based on what you know are total losses today and what evidence you have on thinking about the maxes on A, C, D, and then potentially on other kind of claims that could come associated with those policies? And then the line was cutting out earlier. You mentioned something around the reinstatement of reinsurance. Is that included, the $80 million-$101 million, in the gross estimate of $1.6 billion-$2 billion, or is that additional?
Ted Stalick (SVP and CFO)
Yeah, this is Ted. I'll take that call, so that question. So when we're doing our estimates of ultimates, as Victor mentioned, we know the number of total losses. And we apologize if some of our prepared script was cutting out. And so we've identified all the totals. We've done that through claims being reported by the policyholders, on-ground inspections, and aerial imagery, so we have a pretty good handle on all the totals.
We know what the total insured value is for each one of the total losses. So you have the dwelling limits, the additional replacement costs, the contents limits, debris removal, additional structures, plants and landscaping, additional living expenses, to name most of them. And so that makes up your total insured value.
We then have previous major wildfire events such as the Camp Fire, where we had about 200 totals on that, the North Bay Fire, Woolsey. We know what percentage of the TIV we actually ultimately paid out on those events. It's a relatively tight range, and it's a pretty high number, as you can imagine. We can just take the TIV from the totals that we know today, apply those percentages from previous very large wildfire events on totals. That gives us a pretty reasonable estimate of what the ultimate loss will be on the totals.
On the partials, those come in over time. There's smoke damage. There's evacuation. There's partial structures like fences or detached garages. A little bit longer reporting pattern on those. We know what's been reported to date. We know typically the tail on the reporting pattern based on other very large events. We have an idea of what the average severities are on those based on other historical information and current information. And so we kind of look at all that to determine what the partial losses will be.
Just to point out that the dollars from the total losses are by far the largest component of the ultimate loss for the company. So that's how we kind of come up with our $1.6 billion-$2.0 billion range on the gross. What was the next? I forgot the other question.
Gabriel Tirador (CEO)
Reinstatement premiums. It's not included. The reinstatement premium is not included in those numbers.
Ted Stalick (SVP and CFO)
That's correct. So you'd have to add that $80 million-$101 million.
Gabriel Tirador (CEO)
$80 million-$101 million, and it's going to be charged evenly over the first and second quarter of 2025.
Khalil AbuManneh (Senior Analyst)
Understood. Makes sense. And then one more question, if you don't mind. On the reinsurance policies, I know those are not public. And you guys have provided some color as to how one would think about the one event versus two events question, but can you kind of expand whether you've had discussions with your reinsurers about the potential for classifying two events if need be? And have they pushed back? What sort of dialogue with the reinsurers have you had around the potential for needing a second event and whether they're on board with that or not?
Gabriel Tirador (CEO)
Yeah. Well, we've had discussions with our reinsurance broker, and they've had discussions with our reinsurers. And we're really not receiving any pushback. We think that the contract is pretty clear. I will say this: I think, with our subrogation potential, I think the likelihood of us classifying this as two events is less likely. But it's an option. And I believe that we'll probably make a decision on that relatively soon.
Khalil AbuManneh (Senior Analyst)
Understood. Thank you.
Gabriel Tirador (CEO)
Yes.
[crosstalk]
Operator (participant)
Sorry. Your next question comes from the line of Prem Nainani from Aplomado Advisors. Please go ahead.
Prem Nainani (Analyst)
Hi all. Thank you for taking the question. I guess, just to start with, in your reinsurance treaty language, does it specifically defer to PCS as far as being able to make a single or multiple event claim? Or is it purely defined by hours and distance?
Gabriel Tirador (CEO)
It defines PCS. Yes, it does.
Prem Nainani (Analyst)
It defers to PCS.
Gabriel Tirador (CEO)
It defers to PCS. It does.
Prem Nainani (Analyst)
Okay. And then around the subrogation piece, and help me understand this a little bit better, those claims that are being made that you'll eventually recover through subrogation agreements, that cash is out the door now, right? And then you're going to go into litigation or in some sort of process to recover that through subrogation. Is that correct?
That's correct.
Gabriel Tirador (CEO)
Yeah.
Prem Nainani (Analyst)
Okay. And then I guess my last question would be it seems like a lot of your peers have had a pretty strong view around FAIR claim damages. There's been stuff in the press and have had a pretty tight estimate of their losses. Can you give us a little bit more insight as to why you guys don't have that type of a view or are not saying that at the moment? That's my last question.
Gabriel Tirador (CEO)
Well, I mean, from a gross loss standpoint, as Ted pointed out, we're taking a look at various previous wildfires and establishing a range. And one of the things that we wanted to do is tell our investment communities, "Look, we think that $1.6 billion is on the low end. We think that $2 billion is on the high end." And probably the number is going to be somewhere in between that. And it's based on various assumptions. It's based on assumptions for gross losses. It's based on the assumption for various subrogation recoveries. So we provided a range because of that.
Prem Nainani (Analyst)
Can that range go higher as partial claims come in?
Gabriel Tirador (CEO)
I mean, I think anything is possible. But the purpose of the range that we gave out, the purpose of that range was for us to give you an idea of what we thought the low end of the range was and the high end. Is it possible to be above $2 billion? I guess it is possible. But we feel that what we've done with providing a range is provide you with the high end of the range being $2 billion and the low end being $1.6 billion and most likely something in-between.
Prem Nainani (Analyst)
Right. But that's ex FAIR, right, and so FAIR is sort of the wild card out here. I know they've got $1 billion of assessments that they've put out as of yesterday, but I mean, there are numbers out there that things are up in the $15 billion-$20 billion range of losses [that they've recovered], so how do you guys think about that or communicate that? Because that's really important.
Gabriel Tirador (CEO)
Yeah. I mean, for the FAIR Plan, keep in mind that we can recoup up to the first $1 billion for personal lines of assessments. We can recoup $0.50 on $1. Anything above $1 billion, we can recoup 100%.
Prem Nainani (Analyst)
Right. But that's not cash. That's.
Gabriel Tirador (CEO)
In the calendar year.
Prem Nainani (Analyst)
Right. But you're able to, but that cash goes out the door to FAIR or to whoever, and you're going to have to charge your clients more over that period, right? So we're talking about the immediate need for capital.
Gabriel Tirador (CEO)
Yeah. We don't have any liquidity issues.
Prem Nainani (Analyst)
All right. Fair enough. Thank you.
Gabriel Tirador (CEO)
This is not a liquidity issue.
Ted Stalick (SVP and CFO)
Yeah. I would just add that our treaties, our reinsurance treaties, allow for the inclusion of FAIR Plan losses. So to the extent that we have, I've seen some of these worst-case scenario FAIR plans, which, by the way, probably don't take into consideration that the FAIR Plan has their own reinsurance. But even in these worst-case scenarios, we can attach the FAIR Plan losses to our reinsurance treaty, which we've done actually in previous massive wildfires.
And on top of that, with these assessments, we're able to surcharge our policyholders to recoup those assessments. So part of the reasons why we bifurcated the Mercury's losses from the FAIR Plan losses is because we think that that's separate and it's something that is not going to be as significant to the company because of the ability to recoup it under our reinsurance and recoup FAIR Plan assessments.
Prem Nainani (Analyst)
What portion of FAIR Plan loss do you think is Palisades versus Altadena?
Ted Stalick (SVP and CFO)
We don't know.
Gabriel Tirador (CEO)
We don't know that.
Ted Stalick (SVP and CFO)
But likely, Fair Plan is more Palisades is likely, but we don't know.
Prem Nainani (Analyst)
Got it. Cool. Thank you.
Gabriel Tirador (CEO)
Yes.
Victor Joseph (President and COO)
Just to add to that. This is Victor. I do want to add something because you threw out some numbers earlier around a range of $15 billion-$20 billion. And although not all information on the FAIR Plan's exposures is public, I think they came out yesterday saying that their exposure is about $4 billion, so I do want to kind of clear that up. If you read everything they're saying, it's clear in their statements.
Gabriel Tirador (CEO)
I would say that's exposure, not necessarily losses, correct?
Victor Joseph (President and COO)
Yes.
Gabriel Tirador (CEO)
Yeah. So, potential before reinsurance.
Operator (participant)
Your next question comes from the line of [Ian Holland], private investor. Please go ahead.
Hey, I was wanting to ask. So you all say you have 800 structures that are total loss, correct? And the numbers there are 650 HO3 and then 150 landlord and condo, correct?
Gabriel Tirador (CEO)
Correct.
Ted Stalick (SVP and CFO)
No.
Gabriel Tirador (CEO)
No.
Ted Stalick (SVP and CFO)
No. He left out renters. The 150 figure includes renters as well, which is obviously significantly [crosstalk].
Gabriel Tirador (CEO)
Yeah. Did you hear that?
Yes. Yes, I heard that. You were cutting out a little bit earlier. So if you know that, what's the total insured losses for that segment of your book?
Total insured losses. I mean that's.
Ted Stalick (SVP and CFO)
What do you mean by total insured losses? Do you mean total insured value? Do you mean the total value that's exposed?
Yes. Yes.
Yeah. As we mentioned earlier, we're not reporting that figure. I would say that our estimate of the ultimates for total losses is based on the TIV, and the percentages are almost the entirety of the TIV. So that's where our estimates come from.
But so if you know that the structures are damaged, you're going to pay out these people most likely at the high end of the damage value, correct?
That's true.
So why don't you report that number on your press release?
Gabriel Tirador (CEO)
Look, this is quite simple. We're estimating pre-tax loss, gross loss, of $1.6 billion-$2 billion. We kind of shared how we went through the process of estimating that loss. We're taking total insured value for total losses and taking a look at historic other wildfires and applying a range of percentages based on historic. And then we're adding a process for partials and others, as Ted mentioned. We have some autos in there as well. And we come up with a range of $1.6 billion-$2 billion. And that's what we did.
But why are you using the historic values if you know the number of properties that you insure that have been destroyed? I mean, earlier in the call, you were talking about people on site and satellite data. So why use historical numbers?
The historic values are percentages of what you end up paying of total insured value. So it could range from anywhere from 80%-90% of your total insured value, as an example, that you ultimately pay out. But we're using a range of what we ultimately pay out of total insured value, a percentage, to come up with a gross, a low end and a high end.
So of the total structures destroyed, what I'm hearing is that you don't actually know the insured value of these structures that have been destroyed.
No, you're not. Look, this is not complicated. Look, we have total insured values, right? We have total insured values. We know what that number is. We have a range of what we estimate we think we're going to pay of that total insured value based on previous wildfires. That's simple. Let's move on.
Why are you basing it on previous wildfires?
Ted Stalick (SVP and CFO)
Look, look, look. For example, on the Camp Fire or the North Bay Fire, we know that we paid out 80%-90% of the total insured value on each total loss. That was our ultimate loss. So if we had a $1 million total insured value, the ultimate loss would say 90% of that on average. So our ultimate loss was $900,000 in that example. So that 90%, we apply to the total insured values on the current event, on the Eaton and Palisades Fire, and that's how we get the number.
Gabriel Tirador (CEO)
We're going to move on to the next question.
Ted Stalick (SVP and CFO)
Yeah.
I mean just.
Operator (participant)
Your last question comes from the line of Dan David from Wolfpack Research. Please go ahead.
Dan David (Founder)
Hi, gentlemen. Thank you for taking my question. I've obviously been concerned about what's been going on with these wildfires and your company. Some of the things that really perplex me is why are you reporting far less of an average than your peers, less than 50% in many cases, if you really look at it, than what's been disclosed. How is it that [crosstalk]?
Gabriel Tirador (CEO)
Average of what? Average of what?
Dan David (Founder)
Well, policies in force. I mean, you have how many policies in force, right, 929, right? And you're averaging 1,370 versus Farmers' 1,445. And they have 1/3 the PIFs in Palisades.
Gabriel Tirador (CEO)
Look, I don't know Farmers'.
Dan David (Founder)
[crosstalk] your properties.
Gabriel Tirador (CEO)
Look, I know you're upset.
Dan David (Founder)
Well, you should know. You're in your industry. You should know.
Gabriel Tirador (CEO)
No, I do know. I know you're upset because you shorted our stock. And it is what it is.
Dan David (Founder)
I'm not upset. I'm doing fine. I'm doing fine.
Gabriel Tirador (CEO)
Okay, all right.
Dan David (Founder)
I just want you guys to not drip it out here three months, four months later as you're collecting higher premiums. Let's just have an honest conversation here really. I mean, let's just have an honest conversation. How are you the best in class there? I mean, you're doing historical numbers, right? So you're not boots on the ground. Did the fires just burn around your properties, I mean, and not Allstate, Travelers, or Farmers?
Gabriel Tirador (CEO)
I have the total as far as total losses. We know that number exactly. We're pretty I don't know what you're talking about. Are you saying that we're hiding the number of total losses? Is that what you're saying?
Dan David (Founder)
I'm saying you're underestimating it. I mean, certainly with the reinsurance, I mean, with the subrogation, are you minusing that out already? Are you just saying you're going to win in court for subrogation and you're minusing that out right now? Because you've got to pay that the whole time, right?
Gabriel Tirador (CEO)
We've gone through what the subrogation, what that looks like. We've talked about the potential for.
Dan David (Founder)
Yeah. Yeah. Go through it again.
Gabriel Tirador (CEO)
Okay. I've done it already, so.
Dan David (Founder)
No, look. If you're not including the Eaton Fire in your $2 billion number, then the whole thing's total bullshit, right? Because you've [crosstalk].
Gabriel Tirador (CEO)
What are you talking about it's not included in the $2 billion?
Dan David (Founder)
You're saying subrogation.
Gabriel Tirador (CEO)
Look, we're going to end.
Dan David (Founder)
You're saying you're minusing out subrogation.
Gabriel Tirador (CEO)
Let's end this call. Let's end this call.
Dan David (Founder)
You're minusing out.
He's saying we're minusing out [crosstalk].
Operator (participant)
This concludes the question-and-answer session. I would now like to turn the conference back to Gabriel Tirador for any closing remarks. Sir, please go ahead.
Gabriel Tirador (CEO)
Thank you very much for joining us today. That was interesting. Anyway, thank you for joining us today, and we'll talk soon. Thank you.
Operator (participant)
This concludes today's conference call. Thank you for attending today's presentation. You may now disconnect.