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Subsequent Event | 12 Months Ended
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Dec. 31, 2024
Subsequent Events [Abstract] |
Subsequent Event | Subsequent Event In January 2025, extreme wind-driven wildfires caused widespread damage across parts of Southern California, primarily in the communities of Pacific Palisades and Altadena. The wildfires are known as the Palisades and Eaton fires (collectively, the “Wildfires”). The Company is currently estimating gross catastrophe losses from the Wildfires before its share of FAIR plan losses in the range of $1.6 billion to $2.0 billion and net catastrophe losses before taxes in the range of $155 million to $325 million. The range in net catastrophe losses from the Wildfires is primarily based on the size of the gross loss, subrogation recoverability for the Eaton fire, and whether we choose to have the Wildfires be one or two events, as discussed in 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. After the Wildfires, Fitch and Moody’s placed the Company’s ratings under negative outlook, with Fitch affirming the Company’s financial strength rating of A- and Senior Debt Rating at BBB-, and Moody’s downgrading the financial strength rating from A2 to A3 and Senior Debt rating from Baa2 to Baa3. The negative outlook from both agencies generally reflects the uncertainty around future reinsurance costs, potential for additional significant catastrophe events and the condition of the overall California homeowners insurance market. The Company is currently reassessing its view of California wildfire risk, which will factor in the recent wildfires and related updates to catastrophe models, availability and pricing of reinsurance, ability to obtain rates in a timely and sufficient manner to support writing homeowners business, risk acceptability for individual risks and risk tolerance for concentrations of risk. The Company has supplied wildfire data that was requested by the California DOI. We expect there will continue to be requests for data. The California DOI has also issued a moratorium that requires companies to renew homeowners policies for a two-year period within the affected areas. The Company is complying with the data requests and moratorium.

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- Definition The entire disclosure for significant events or transactions that occurred after the balance sheet date through the date the financial statements were issued or the date the financial statements were available to be issued. Examples include: the sale of a capital stock issue, purchase of a business, settlement of litigation, catastrophic loss, significant foreign exchange rate changes, loans to insiders or affiliates, and transactions not in the ordinary course of business. + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 855 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org/855/tableOfContent Reference 2: http://www.xbrl.org/2003/role/disclosureRef -Topic 855 -SubTopic 10 -Name Accounting Standards Codification -Section 50 -Paragraph 2 -Subparagraph (a) -Publisher FASB -URI https://asc.fasb.org/1943274/2147483399/855-10-50-2 + Details
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