Mercury General Corporation Announces Fourth Quarter and Fiscal 2022 Results and Declares Quarterly Dividend

Consolidated Highlights

Three Months Ended
December 31,

Change

Twelve Months Ended
December 31,

Change

2022

2021

$

%

2022

2021

$

%

(000's except per-share amounts and ratios)

Net premiums earned

$ 1,005,482

$ 958,266

$  47,216

4.9 %

$ 3,952,482

$ 3,741,948

$  210,534

5.6 %

Net premiums written ^{(1) (2)}

$    915,750

$ 932,678

$ (16,928)

(1.8) %

$ 3,978,017

$ 3,855,369

$  122,648

3.2 %

Net realized investment gains (losses), net of tax ⁽³⁾

$      73,595

$   43,217

$  30,378

70.3 %

$  (385,583)

$     88,210

$ (473,793)

(537.1) %

Net (loss) income

$       (6,770)

$   30,473

$ (37,243)

(122.2) %

$  (512,672)

$   247,937

$ (760,609)

(306.8) %

Net (loss) income per diluted share ⁽⁴⁾

$         (0.12)

$  0.55

$     (0.67)

(121.8) %

$        (9.26)

$         4.48

$     (13.74)

(306.7) %

Operating (loss) income ⁽¹⁾

$     (80,365)

$  (12,744)

$ (67,621)

NM

$ (127,089)

$  159,727

$ (286,816)

(179.6) %

Operating (loss) income per diluted share ⁽¹⁾

$         (1.45)

$ (0.23)

$     (1.22)

NM

$       (2.30)

$        2.88

$       (5.18)

(179.9) %

Catastrophe losses net of reinsurance ⁽⁵⁾

$      40,000

$   19,000

$  21,000

110.5 %

$  102,000

$  104,000

$     (2,000)

(1.9) %

Combined ratio ⁽⁶⁾

115.8 %

105.4 %

—

10.4 pts

108.7 %

98.3 %

—

10.4 pts

⁽¹⁾

These measures are not based on U.S. generally accepted accounting principles ("GAAP"), are defined in "Information Regarding GAAP and Non-GAAP Measures" and are reconciled to the most directly comparable GAAP measures in "Supplemental Schedules."

⁽²⁾

During 2022, the Company discontinued offering twelve-month private passenger automobile policies on new and renewal businesses in most states where it operates, including California, which contributed to the decrease in net premiums written for the three months ended December 31, 2022 compared to the same period in 2021. At December 31, 2022, the Company's twelve-month private passenger automobile policies represented approximately 21% of its total private passenger automobile policies in force. 

⁽³⁾

Net realized investment gains (losses) before tax were $93 million and $55 million for the three months ended December 31, 2022 and 2021, respectively, and $(488) million and $112 million for the twelve months ended December 31, 2022 and 2021, respectively. The changes in fair value of the Company's investments are recorded as part of net realized investment gains or losses in its consolidated statements of operations due to the adoption of the fair value option for its investments as permitted under GAAP.

⁽⁴⁾

Any incremental shares are excluded from the net loss per diluted share calculation as their effect would be anti-dilutive, in accordance with GAAP.

⁽⁵⁾

Catastrophe losses due to the events that occurred during the three and twelve months ended December 31, 2022 totaled approximately $43 million and $101 million, respectively, with no reinsurance benefits used for these losses. In addition, the Company experienced favorable development of approximately $3 million and unfavorable development of approximately $1 million on prior years' catastrophe losses for the three and twelve months ended December 31, 2022, respectively. The majority of 2022 catastrophe losses resulted from the deep freeze of Winter Storm Elliott and other extreme weather events in Texas, Oklahoma and Georgia, winter storms in California, and the impact of Hurricane Ian in Florida. Catastrophe losses due to the events that occurred during the three and twelve months ended December 31, 2021 totaled approximately $18 million and $109 million, respectively, with no reinsurance benefits used for these losses. In addition, the Company experienced unfavorable development of approximately $1 million and favorable development of approximately $5 million on prior years' catastrophe losses for the three and twelve months ended December 31, 2021. The majority of 2021 catastrophe losses resulted from the deep freeze of Winter Storm Uri and other extreme weather events in Texas and Oklahoma, rainstorms, wildfires and winter storms in California, and the impact of Hurricane Ida in New Jersey and New York.

⁽⁶⁾

The Company experienced favorable development of approximately $3 million and $2 million on prior accident years' loss and loss adjustment expense reserves for the three months ended December 31, 2022 and 2021, respectively, and unfavorable development of approximately $47 million and favorable development of approximately $26 million on prior accident years' loss and loss adjustment expense reserves for the twelve months ended December 31, 2022 and 2021, respectively. Inflationary trends have accelerated to their highest level in decades in 2022, which has had a significant impact on the cost of automobile parts and labor as well as medical expenses for bodily injuries, and supply chain and labor shortage issues have lengthened the time to repair vehicles. Bodily injury costs were also under pressure from social inflation. These factors have increased losses and loss adjustment expenses for the insured events of the current accident year for 2022 compared to 2021, and have led to adverse development on prior accident years' loss and loss adjustment expense reserves for 2022 as those factors affected the loss estimates recorded at December 31, 2021. The Company has filed for rate increases in many states and is taking various non-rate actions to improve profitability.  The year-to-date favorable development in 2021 was primarily attributable to lower than estimated losses and loss adjustment expenses in the homeowners and private passenger automobile lines of insurance business.

Investment Results

Three Months Ended
December 31,

Twelve Months Ended
December 31,

2022

2021

2022

2021

(000's except average annual yield)

Average invested assets at cost ⁽¹⁾

$    4,934,646

$  4,799,548

$   4,902,755

$       4,681,462

Net investment income ⁽²⁾

     Before income taxes

$         49,887

$       34,161

$      168,356

$          129,727

     After income taxes

$         43,113

$       30,048

$      146,204

$          115,216

Average annual yield on investments - after income taxes ⁽²⁾

3.5 %

2.5 %

3.0 %

2.5 %

⁽¹⁾

Fixed maturities and short-term bonds at amortized cost; equities and other short-term investments at cost. Average invested assets at cost are based on the monthly amortized cost of the invested assets for each period.

⁽²⁾

The higher net investment income before and after income taxes for the three and twelve months ended December 31, 2022 compared to the corresponding periods in 2021 resulted largely from higher average yield combined with higher average invested assets. Average annual yield on investments after income taxes for the three and twelve months ended December 31, 2022 increased compared to the corresponding periods in 2021, primarily due to the maturity and replacement of lower yielding investments purchased when market interest rates were lower with higher yielding investments, as a result of increasing market interest rates, as well as higher yields on investments based on floating interest rates.

MERCURY GENERAL CORPORATION AND SUBSIDIARIES
SUMMARY OF OPERATING RESULTS
(000's except per-share amounts and ratios)
(unaudited)

Three Months Ended
December 31,

Twelve Months Ended
December 31,

2022

2021

2022

2021

Revenues:

     Net premium earned

$    1,005,482

$       958,266

$   3,952,482

$   3,741,948

     Net investment income

49,887

34,161

168,356

129,727

     Net realized investment gains (losses)

93,158

54,705

(488,080)

111,658

     Other

3,166

2,141

10,308

10,024

          Total revenues

$    1,151,693

$    1,049,273

$   3,643,066

$   3,993,357

Expenses:

     Losses and loss adjustment expenses

926,045

778,637

3,362,219

2,760,155

     Policy acquisition costs

167,168

164,829

654,612

633,385

     Other operating expenses

71,413

66,674

279,718

283,397

     Interest

4,409

4,268

17,232

17,113

          Total expenses

$    1,169,035

$    1,014,408

$   4,313,781

$   3,694,050

(Loss) income before income taxes

(17,342)

34,865

(670,715)

299,307

     Income tax (benefit) expense

(10,572)

4,392

(158,043)

51,370

                    Net (loss) income

$         (6,770)

$         30,473

$    (512,672)

$      247,937

Basic average shares outstanding

55,371

55,371

55,371

55,368

Diluted average shares outstanding

55,371

55,374

55,371

55,374

Basic Per Share Data

Net (loss) income

$           (0.12)

$             0.55

$          (9.26)

$            4.48

Net realized investment gains (losses), net of tax

$            1.33

$             0.78

$          (6.96)

$            1.59

Diluted Per Share Data

Net (loss) income

$           (0.12)

$             0.55

$          (9.26)

$            4.48

Net realized investment gains (losses), net of tax

$            1.33

$             0.78

$          (6.96)

$            1.59

Operating Ratios-GAAP Basis

Loss ratio

92.1 %

81.3 %

85.1 %

73.8 %

Expense ratio

23.7 %

24.2 %

23.6 %

24.5 %

Combined ratio ^(a)

115.8 %

105.4 %

108.7 %

98.3 %

   (a) 

Combined ratio for the three months ended December 31, 2021 does not sum due to rounding.

MERCURY GENERAL CORPORATION AND SUBSIDIARIES
CONDENSED BALANCE SHEETS AND OTHER INFORMATION
(000's except per-share amounts and ratios)

December 31, 2022

December 31, 2021

(unaudited)

ASSETS

Investments, at fair value:

     Fixed maturity securities (amortized cost $4,226,790; $3,909,780)

$             4,088,311

$              4,031,523

     Equity securities (cost $668,843; $$754,536)

699,552

970,939

     Short-term investments (cost $123,928; $141,206)

122,937

140,127

          Total investments

4,910,800

5,142,589

Cash

289,776

335,557

Receivables:

     Premiums

571,910

621,740

           Allowance for credit losses on premiums receivable

(5,800)

(6,000)

                   Premiums receivable, net of allowance for credit losses

566,110

615,740

     Accrued investment income

52,474

43,299

     Other

11,358

7,600

          Total receivables

629,942

666,639

Reinsurance recoverables

25,895

45,000

Deferred policy acquisition costs

266,475

258,259

Fixed assets, net

171,442

191,332

Operating lease right-of-use assets

20,183

31,967

Current income taxes

55,136

20,108

Deferred income taxes

42,903

—

Goodwill

42,796

42,796

Other intangible assets, net

9,212

10,255

Other assets

49,628

27,970

          Total assets

$             6,514,188

$              6,772,472

LIABILITIES AND SHAREHOLDERS' EQUITY

Loss and loss adjustment expense reserves

$             2,584,910

$              2,226,430

Unearned premiums

1,545,639

1,519,799

Notes payable

398,330

372,931

Accounts payable and accrued expenses

151,686

169,125

Operating lease liabilities

21,924

34,577

Deferred income taxes

—

53,569

Other liabilities

289,568

255,760

Shareholders' equity

1,522,131

2,140,281

          Total liabilities and shareholders' equity

$             6,514,188

$              6,772,472

OTHER INFORMATION

Common stock shares outstanding

55,371

55,371

Book value per share

$27.49

$38.65

Statutory surplus ^(a)

$1.50 billion

$1.83 billion

Net premiums written to surplus ratio ^(a)

2.65

2.11

Debt to total capital ratio ^(b)

20.8 %

14.9 %

Portfolio duration (including all short-term instruments) ^(a)(c)

3.5 years

3.4 years

Policies-in-force (company-wide "PIF") ^(a)

     Personal Auto PIF

1,101

1,122

     Homeowners PIF

736

705

     Commercial Auto PIF

39

39

(a) 

Unaudited.

(b) 

Debt to Debt plus Shareholders' Equity (Debt at face value).

(c) 

Modified duration reflecting anticipated early calls.

SUPPLEMENTAL SCHEDULES

(000's except per-share amounts and ratios)

(unaudited)

Three Months Ended December 31,

Twelve Months Ended December 31,

2022

2021

2022

2021

Reconciliations of Comparable GAAP Measures to Operating Measures ^(a)

Net premiums earned

$           1,005,482

$             958,266

$        3,952,482

$        3,741,948

Change in net unearned premiums

(89,732)

(25,588)

25,535

113,421

Net premiums written

$              915,750

$             932,678

$        3,978,017

$        3,855,369

Incurred losses and loss adjustment expenses

$              926,045

$             778,637

$        3,362,219

$        2,760,155

Change in net loss and loss adjustment expense reserves

(151,268)

(94,360)

(374,536)

(248,208)

Paid losses and loss adjustment expenses

$              774,777

$             684,277

$        2,987,683

$        2,511,947

Net (loss) income

$                (6,770)

$               30,473

$          (512,672)

$           247,937

Less: Net realized investment gains (losses)

93,158

54,705

(488,080)

111,658

         Tax on net realized investment gains (losses) ^(b)

19,563

11,488

(102,497)

23,448

             Net realized investment gains (losses), net of tax

73,595

43,217

(385,583)

88,210

Operating (loss) income

$              (80,365)

$             (12,744)

$         (127,089)

$          159,727

Per diluted share:

Net (loss) income

$                  (0.12)

$                  0.55

$               (9.26)

$                4.48

Less: Net realized investment gains (losses), net of tax

1.33

0.78

(6.96)

1.59

Operating (loss) income ^(c)

$                  (1.45)

$                 (0.23)

$               (2.30)

$                2.88

Combined ratio

108.7 %

98.3 %

Effect of estimated prior periods' loss development

(1.2) %

0.7 %

Combined ratio-accident period basis

107.5 %

99.0 %

(a) 

See "Information Regarding GAAP and Non-GAAP Measures" on page 7. 

(b) 

Based on federal statutory rate of 21%.

(c) 

Operating income per diluted share for the twelve months ended December 31, 2021 does not sum due to rounding.