Mercury General Corporation Announces Third Quarter Results and Declares Quarterly Dividend

Consolidated Highlights

Three Months Ended

September 30,

Change

Nine Months Ended

September 30,

Change

2023

2022

$

%

2023

2022

$

%

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

Net premiums earned 

$  1,090,311

$  996,939

$   93,372

9.4

$  3,129,483

$  2,947,000

$   182,483

6.2

Net premiums written ⁽¹⁾ 

$  1,206,503

$  1,034,476

$ 172,027

16.6

$  3,332,049

$  3,062,267

$   269,782

8.8

Net realized investment losses, net of tax ⁽²⁾

$  (71,101)

$ (113,928)

$   42,827

NM

$  (48,010)

$ (459,177)

$   411,167

NM

Net loss

$    (8,227)

$  (98,303)

$   90,076

NM

$  (95,058)

$ (505,902)

$   410,844

NM

Net loss per diluted share ⁽³⁾

$     (0.15)

$     (1.78)

$      1.63

NM

$     (1.72)

$     (9.14)

$        7.42

NM

Operating income (loss) ⁽¹⁾

$    62,874

$    15,625

$   47,249

302.4

$  (47,048)

$  (46,725)

$       (323)

NM

Operating income (loss) per diluted share ⁽¹⁾

$       1.14

$       0.28

$      0.86

307.1

$     (0.85)

$     (0.84)

$        (0.01)

NM

Catastrophe losses net of reinsurance ⁽⁴⁾

$    33,000

$    19,000

$   14,000

73.7

$  223,000

$    62,000

$   161,000

259.7

Combined ratio ⁽⁵⁾

98.6 %

102.8 %

—

       (4.2)   pts

107.9 %

106.3 %

—

     1.6      pts

NM = Not Meaningful

(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)

Net realized investment losses before tax were $(90) million and $(144) million for the three months ended September 30, 2023 and 2022, respectively, and $(61) million and $(581) million for the nine months ended September 30, 2023 and 2022, 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.

(3)

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

(4)

No reinsurance benefits were available for the catastrophe losses incurred during the nine months ended September 30, 2023 and 2022, as none of the catastrophe events during these periods individually resulted in losses in excess of the Company's retention limit. Catastrophe losses incurred during the nine months ended September 30, 2023 resulted primarily from winter storms and rainstorms in California, Texas and Oklahoma, and the impact of Hurricane Hilary in California. Catastrophe losses incurred during the nine months ended September 30, 2022 resulted primarily from winter storms, rainstorms and hail in Texas and Oklahoma, the impact of Hurricane Ian in Florida, and winter storms in California. The Company experienced favorable development of approximately $4 million and unfavorable development of approximately $4 million on prior years' catastrophe losses for the nine months ended September 30, 2023 and 2022, respectively.   

(5)

The Company experienced favorable development of approximately $12 million and $1 million on prior accident years' loss and loss adjustment expense reserves for the three months ended September 30, 2023 and 2022, respectively, and favorable development of approximately $32 million and unfavorable development of approximately $50 million on prior accident years' loss and loss adjustment expense reserves for the nine months ended September 30, 2023 and 2022, respectively. The year-to-date favorable development in 2023 was primarily attributable to lower than estimated losses and loss adjustment expenses in the private passenger automobile and homeowners lines of insurance business, partially offset by unfavorable development in the commercial property line of insurance business. The year-to-date unfavorable development in 2022 was primarily attributable to higher than estimated losses and loss adjustment expenses in the private passenger automobile line of insurance business. Extreme rates of inflation in 2022 have begun to moderate in 2023, but remain elevated and continue to negatively impact loss severity.

Investment Results

Three Months Ended September 30,

Nine Months Ended September 30,

2023

2022

2023

2022

(000's except average annual yield)

Average invested assets at cost ⁽¹⁾

$      5,106,049

$      4,912,521

$      5,060,778

$    4,889,050

Net investment income ⁽²⁾

     Before income taxes

$           60,965

$           44,563

$         171,287

$       118,469

     After income taxes

$           51,958

$           38,653

$         146,571

$       103,091

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

4.1 %

3.2 %

3.9 %

2.8 %

(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)

Higher net investment income before and after income taxes for the three and nine months ended September 30, 2023 compared to the corresponding periods in 2022 resulted largely from higher average yield combined with higher average invested assets. Average annual yield on investments after income taxes for the three and nine months ended September 30, 2023 increased compared to the corresponding periods in 2022, 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 overall market interest rates, as well as higher yields on investments based on floating interest rates.

Rate Increases

Implemented in 2022

Rate Increases

Implemented in 2023

Rate Increases Pending

Regulatory Approval Or

Expected To Be

Implemented in the

Fourth Quarter of 2023

California Personal Auto

None

14.4% ^(b)

20.8% ^(d)

California Homeowners

None

12.6 %

7.0% ^(e)

California Commercial Auto

None

29.8% ^(c)

None

Personal Auto Outside of California ^(a)

20.3 %

18.9 %

5.0% ^(f)

Homeowners Outside of California ^(a)

17.1 %

19.7 %

3.6% ^(f)

(a) Rate increase is a weighted average of increases in states outside of California based on earned premiums in 2022.

(b) Represents the cumulative effect of two rate increases: 6.9% in March 2023 and 6.99% in July 2023.

(c) Represents the cumulative effect of two rate increases: 13.0% in February 2023 and 14.9% in October 2023.

(d) Rate was filed in July 2023. Awaiting approval by the California Department of Insurance ("DOI") before it can be implemented.

(e) Rate was filed in May 2023. Awaiting approval by the California DOI before it can be implemented.

(f) Includes rates already approved but not implemented or rates that will be filed under "use and file" or "file and use."

MERCURY GENERAL CORPORATION AND SUBSIDIARIES

SUMMARY OF OPERATING RESULTS

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

(unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2023

2022

2023

2022

Revenues:

     Net premiums earned

$      1,090,311

$         996,939

$      3,129,483

$      2,947,000

     Net investment income

60,965

44,563

171,287

118,469

     Net realized investment losses

(90,001)

(144,213)

(60,772)

(581,237)

     Other

3,917

2,998

15,000

7,141

          Total revenues

1,065,192

900,287

3,254,998

2,491,373

Expenses:

     Losses and loss adjustment expenses

823,742

787,462

2,651,081

2,436,175

     Policy acquisition costs

181,569

168,870

518,813

487,444

     Other operating expenses

69,192

68,585

207,223

208,305

     Interest

5,918

4,273

16,398

12,822

          Total expenses

1,080,421

1,029,190

3,393,515

3,144,746

Loss before income taxes

(15,229)

(128,903)

(138,517)

(653,373)

     Income tax benefit

(7,002)

(30,600)

(43,459)

(147,471)

                    Net loss

$           (8,227)

$         (98,303)

$         (95,058)

$       (505,902)

Basic average shares outstanding

55,371

55,371

55,371

55,371

Diluted average shares outstanding

55,371

55,371

55,371

55,371

Basic Per Share Data

Net loss

$             (0.15)

$             (1.78)

$             (1.72)

$             (9.14)

Net realized investment losses, net of tax

$             (1.28)

$             (2.06)

$             (0.87)

$             (8.29)

Diluted Per Share Data

Net loss

$             (0.15)

$             (1.78)

$             (1.72)

$             (9.14)

Net realized investment losses, net of tax

$             (1.28)

$             (2.06)

$             (0.87)

$             (8.29)

Operating Ratios-GAAP Basis

Loss ratio

75.6 %

79.0 %

84.7 %

82.7 %

Expense ratio

23.0 %

23.8 %

23.2 %

23.6 %

Combined ratio

98.6 %

102.8 %

107.9 %

106.3 %

MERCURY GENERAL CORPORATION AND SUBSIDIARIES

CONDENSED BALANCE SHEETS AND OTHER INFORMATION

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

September 30, 2023

December 31, 2022

(unaudited)

ASSETS

Investments, at fair value:

     Fixed maturity securities (amortized cost $4,306,573; $4,226,790)

$             4,114,657

$             4,088,311

     Equity securities (cost $679,105; $668,843)

670,993

699,552

     Short-term investments (cost $212,715; $123,928)

211,778

122,937

          Total investments

4,997,428

4,910,800

Cash

453,936

289,776

Receivables:

     Premiums

624,953

571,910

          Allowance for credit losses on premiums receivable

(5,200)

(5,800)

                  Premiums receivable, net of allowance for credit losses

619,753

566,110

     Accrued investment income

58,273

52,474

     Other

18,262

11,358

          Total receivables

696,288

629,942

Reinsurance recoverables (net of allowance for credit losses $6; $0)

26,446

25,895

Deferred policy acquisition costs

296,572

266,475

Fixed assets, net

148,668

171,442

Operating lease right-of-use assets

17,843

20,183

Current income taxes

75,279

55,136

Deferred income taxes

66,156

42,903

Goodwill

42,796

42,796

Other intangible assets, net

8,553

9,212

Other assets

92,273

49,628

          Total assets

$             6,922,238

$             6,514,188

LIABILITIES AND SHAREHOLDERS' EQUITY

Loss and loss adjustment expense reserves

$             2,723,776

$             2,584,910

Unearned premiums

1,748,554

1,545,639

Notes payable

573,629

398,330

Accounts payable and accrued expenses

166,750

151,686

Operating lease liabilities

19,047

21,924

Other liabilities

316,150

289,568

Shareholders' equity

1,374,332

1,522,131

          Total liabilities and shareholders' equity

$             6,922,238

$             6,514,188

OTHER INFORMATION

Common stock shares outstanding

55,371

55,371

Book value per share

$                    24.82

$                    27.49

Statutory surplus ^(a)

$1.57 billion

$1.50 billion

Net premiums written to surplus ratio ^(a)

2.71

2.65

Debt to total capital ratio ^(b)

29.5 %

20.8 %

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

3.7 years

3.5 years

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

     Personal Auto PIF

1,035

1,101

     Homeowners PIF

751

736

     Commercial Auto PIF

42

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 September 30,

Nine Months Ended September 30,

2023

2022

2023

2022

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

Net premiums earned

$       1,090,311

$          996,939

$    3,129,483

$    2,947,000

Change in net unearned premiums

116,192

37,537

202,566

115,267

Net premiums written

$       1,206,503

$       1,034,476

$    3,332,049

$    3,062,267

Incurred losses and loss adjustment expenses

$          823,742

$          787,462

$    2,651,081

$    2,436,175

Change in net loss and loss adjustment expense reserves

(4,865)

(48,086)

(137,618)

(223,269)

Paid losses and loss adjustment expenses

$          818,877

$          739,376

$    2,513,463

$    2,212,906

Net loss

$            (8,227)

$          (98,303)

$       (95,058)

$     (505,902)

Less: Net realized investment losses

(90,001)

(144,213)

(60,772)

(581,237)

         Tax on net realized investment losses^(b)

(18,900)

(30,285)

(12,762)

(122,060)

             Net realized investment losses, net of tax

(71,101)

(113,928)

(48,010)

(459,177)

Operating income (loss)

$            62,874

$            15,625

$       (47,048)

$       (46,725)

Per diluted share:

Net loss

$              (0.15)

$              (1.78)

$           (1.72)

$           (9.14)

Less: Net realized investment losses, net of tax

(1.28)

(2.06)

(0.87)

(8.29)

Operating income (loss) ^(c)

$                1.14

$                0.28

$           (0.85)

$           (0.84)

Combined ratio

107.9 %

106.3 %

Effect of estimated prior periods' loss development

1.0 %

(1.7) %

Combined ratio-accident period basis

108.9 %

104.6 %

(a)

See "Information Regarding GAAP and Non-GAAP Measures" on page 8. 

(b)

Based on federal statutory rate of 21%.

(c)

Operating income (loss) per diluted share for the three months ended September 30, 2023 and nine months ended September 30, 2022 do not sum due to rounding.