By Chris Munro, David Bull

March 11 - (The Insurer) - Pacific Specialty Insurance Company has been in the market for a backup reinsurance coverage after its estimated $184.5 million of Los Angeles wildfire losses went through a number of layers on its $250 million catastrophe program, with the Anaheim-based business also understood to have sold subrogation rights related to its claims.

In Pacific Specialty’s annual statement, the company confirmed it had “experienced significant losses arising from the Southern California wildfires”, with its total exposure to the events estimated at $185.4 million.

“The company has billed a total of $185.4 million in advanced loss payments to reinsurers under 2025 cat treaties and collected significant amounts from reinsurers,” Pacific Specialty said in the statutory filing.

Pacific Specialty has a suite of reinsurance protections including a catastrophe program that renewed on January 1 and was placed by Guy Carpenter.

That catastrophe program provides Mike McGraw-led Pacific Specialty with $250 million of coverage above a $13.4 million retention.

Sources with understanding of the situation said Pacific Specialty’s $185.4 million of estimated wildfire losses had hit the third layer of the company’s cat reinsurance program, which is structured in four layers above the retention.

Sources said the carrier is likely to have reinstated layers that have been hit, with the backup cover bought to effectively provide third event coverage to the insurer.

At the time of publication, it is unclear whether Pacific Specialty had secured sufficient support to place the backup cover.

There is understood to be strong investor interest in acquiring subrogation rights from insurers related to the Eaton fire.

In its Q4 and full-year 2024 earnings announcement, Hippo revealed it had sold its subrogation rights in relation to losses suffered by its Hippo Home Insurance Program from the Eaton fire. By doing so, Hippo said its overall wildfire loss estimate had been reduced by $15 million on a gross basis, and $11 million net.

Industry loss estimates for the devastating wildfires that raged through parts of Los Angeles earlier this year have settled on a range of $35 billion to $50 billion.

Among the companies to have announced significant losses from the fires are State Farm General, State Farm Mutual Automobile Insurance Company’s California-focused business, whose most recent estimate has pegged its gross exposure at $7.9 billion, while Mercury General believes its gross losses range from $1.6 billion to $2.0 billion before reinsurance, potential subrogation recoveries, Fair Plan assessments and recoupment of Fair Plan estimates.

Elsewhere, military community-focused insurer USAA believes it will pay out members' projected wildfire losses of $1.8 billion.

According to Pacific Specialty’s annual statement, the company booked $276.9 million of direct premiums written in 2024, a slight decrease when compared with the prior-year period’s $282.4 million.

Of that $276.9 million of DPW, $236.1 million was generated in Pacific Specialty’s home state of California.

Pacific Specialty’s cross company net premiums written in 2024 totalled $200.2 million, up from 2023’s $177.5 million.

As per Pacific Specialty’s annual statement, the company posted a net underwriting gain of $4.73 million in 2024, a big improvement on 2023’s net underwriting loss of $14.10 million.

Pacific Specialty, which holds an A-minus financial strength rating from AM Best, has been in operation for almost 40 years.

It operates as an admitted insurer in all 50 states, writing a portfolio of property and casualty business with specialties including homeowners, dwelling fire, renters, condo/townhouse, mobile homes, earthquake, motorcycle, off-road, boat/personal watercraft, comprehensive personal liability and personal umbrella.

According to the firm’s website, it is “the flagship company” of the McGraw Group of Affiliated Companies.

At the time of publication, Pacific Specialty had not responded to a request for comment.

Guy Carpenter declined to comment.