more detail below. These estimates are based on information known to date informed by historical claims settlement information from previous major wildfires to calculate estimated gross ultimate
losses. Due to the scope of the recent Wildfires, the estimates may change as more information becomes available. The Company estimates that approximately 55% - 60% of the losses are from Palisades and 40% - 45% are from Eaton. The Company expects
its underlying first quarter 2025 results, which exclude catastrophe losses, to partially offset the net catastrophe losses from the Wildfires.
The Company’s catastrophe reinsurance program provides $1,290 million of limits on a per occurrence basis after covered catastrophe
losses exceed the Company’s retention of $150 million. 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 to $20 million of those limits for wildfire claims. On the catastrophe reinsurance program, one percent of the reinsurance limit of the
$650 million xs $650 million coverage layer was placed as parametric coverage that pays out based on industry insured values in pre-determined grids within the fire footprint and the Company’s
participation percentage within that grid. The Company has determined that this portion of the reinsurance will not be eligible for recovery, and as such, $6.5 million of the $1,290 million of total limits does not qualify for the Eaton or
Palisades fires.
The Company is engaged with legal counsel in the pursuit of subrogation, particularly on the Eaton fire. 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 event.
The Company is a member of the California FAIR plan, a quasi-governmental fire insurer of last-resort, and, to the extent FAIR plan has losses
exceeding its Capital and Reinsurance coverage, the FAIR plan can assess its member companies for the shortfall apportioned out based on each company’s California market share. The FAIR plan had significant losses from the Wildfires, however
the actual amount is not yet known. The Company’s reinsurance allows for the Company’s share of FAIR plan catastrophe losses to be included as reinsured losses. In addition, the California DOI allows for recoupment of a portion of the FAIR
plan assessments via a surcharge to policyholders. Between the coverage afforded by reinsurance and the ability to recoup a portion of the assessment, the Company does not expect the FAIR plan assessment to materially add to the net wildfire losses
from these events.
Catastrophe losses from the Wildfires, net of applicable reinsurance benefits, and if applicable, subrogation, will be
recorded as part of losses and loss adjustment expenses in the Company’s consolidated statements of operations for the three-month period ending March 31, 2025. To the extent that losses are reinsured, the reinsurance program calls for
reinstatements of limits to cover future events. If the full $1,290 million limits are used up, then the total reinstatement premium would be $101 million. Reinstatement premiums will be charged evenly over the first and second quarters of
2025.
The Company’s catastrophe reinsurance treaty allows for the combining of events that occur within a 150-mile radius as a single occurrence. Additionally, if each individual event is classified as its own catastrophic event by the Property Claims Service (“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. The Company has not yet determined if it will consider the Wildfires 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.
Under a single-occurrence scenario, the Company will retain the first $150 million in losses and up to $6.5 million of losses for
parametric coverage not eligible for reinsurance coverage. Gross losses in excess of $1,440 million ($150 million retention plus $1,290 million reinsurance limit), if any, will be retained by the Company. In addition, the Company is
responsible for up to $101 million in reinstatement premiums. Under a two-event scenario, the Company may elect to use reinsurance limits of up to $1,290 million for the first event and reinstated
limits up to $1,238 million for the second event. In this scenario, the Company would be responsible for the first and second event retentions of $150 million each, up to $6.5 million of losses for parametric coverage not eligible for
reinsurance coverage for the first event and co-participation in losses for the second event equal to 8% of losses in excess of $650 million up to $1,300 million. In addition, the Company would be
responsible for up to $101 million in reinstatement premiums. The Company may seek to acquire additional reinsurance if reinstated limits are used by the second event, for the stub period ending on June 30, 2025, the expiration date of the
current contract.
As of February 7, 2025, the Company has paid out $800 million related to the Wildfires, primarily for
contents, dwelling limits and living expenses. The Company has sent an initial billing to our reinsurers and has collected $500 million to date. The Company has over $1 billion in Cash and Short-term investments on-hand, sufficient liquidity to handle the increased demand for cash. The Company does not expect the impact from this event to result in any defaults under our revolving credit debt covenants.
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