Mercury General Corporation Announces First Quarter Results and Declares Quarterly Dividend

Consolidated Highlights

Three Months Ended March 31,

Change

2023

2022

$

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

Net premiums earned 

$     1,004,704

$        962,550

$       42,154

4.4

Net premiums written ^{(1)  (2)}

$     1,010,202

$     1,010,798

$           (596)

(0.1)

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

$         38,716

$       (154,118)

$     192,834

NM

Net loss

$        (45,288)

$      (196,917)

$     151,629

NM

Net loss per diluted share ⁽⁴⁾

$            (0.82)

$            (3.56)

$           2.74

NM

Operating loss ⁽¹⁾

$        (84,004)

$        (42,799)

$      (41,205)

NM

Operating loss per diluted share ⁽¹⁾

$            (1.52)

$            (0.77)

$          (0.75)

NM

Catastrophe losses net of reinsurance ⁽⁵⁾

$         98,000

$         22,000

$       76,000

345.5

Combined ratio ⁽⁶⁾

115.8 %

109.5 %

—

      6.3 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⁾

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 March 31, 2023 compared to the same period in 2022. At March 31, 2023, the Company's twelve-month private passenger automobile policies represented approximately 16% of its total private passenger automobile policies in force, compared to approximately 25% at March 31, 2022. 

⁽³⁾

Net realized investment gains (losses) before tax were $49 million and $(195) million for the three months ended March 31, 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.

⁽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⁾

No reinsurance benefits were available for the catastrophe losses incurred during the three months ended March 31, 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 three months ended March 31, 2023 resulted primarily from winter storms and rainstorms in California, Texas and Oklahoma. Catastrophe losses incurred during the three months ended March 31, 2022 resulted primarily from winter storms in Texas and California.  

⁽⁶⁾

The Company experienced favorable development of approximately $15 million and unfavorable development of approximately $53 million on prior accident years' loss and loss adjustment expense reserves for the three months ended March 31, 2023 and 2022, respectively. The favorable development for the first quarter of 2023 was primarily attributable to lower than estimated losses and loss adjustment expenses in the homeowners line of insurance business. The unfavorable development for the first quarter of 2022 was primarily attributable to higher than estimated losses and loss adjustment expenses in the automobile and commercial property lines of insurance business. The U.S. inflation rate accelerated to its highest level in decades in 2022, and had a significant impact on the cost of auto parts and labor as well as medical expenses for bodily injuries. Bodily injury costs were also under pressure from social inflation. The inflationary pressures continued to have a negative impact on loss severity in the automobile line of insurance business and increased losses and loss adjustment expenses for the insured events of the current accident year for the three months ended March 31, 2023 compared to the corresponding period in 2022. The Company has increased rates and filed for additional rate increases in many states and is taking various non-rate actions to improve profitability.

Investment Results

Three Months Ended March 31,

2023

2022

(000's except average annual yield)

Average invested assets at cost ⁽¹⁾

$              5,022,572

$              4,863,814

Net investment income ⁽²⁾

     Before income taxes

$                   51,973

$                   35,351

     After income taxes

$                   44,795

$                   30,921

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

3.6 %

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⁾

Higher net investment income before and after income taxes for the three months ended March 31, 2023 compared to the corresponding period 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 months ended March 31, 2023 increased compared to the corresponding period 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 market interest rates, as well as higher yields on investments based on floating interest rates.

Rate Increases
Implemented in 2022

Rate Increases
Implemented in the
First Quarter of 2023

Rate Increases
Effective or Scheduled
for the Second
Quarter of 2023

California Personal Auto

None

6.9 %

6.99% ^(b)

California Homeowners

None

None

12.6% ^(c)

California Commercial Auto

None

13.0 %

14.9% ^(d)

Personal Auto Outside of California ^(a)

20.3 %

3.2 %

4.0% ^(e)

Homeowners Outside of California ^(a)

17.1 %

8.1 %

1.6% ^(e)

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

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

(c) Rate was approved by the California DOI and is effective in May 2023.

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

(e) 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 March 31,

2023

2022

Revenues:

     Net premiums earned

$              1,004,704

$                 962,550

     Net investment income

51,973

35,351

     Net realized investment gains (losses)

49,008

(195,086)

     Other

894

2,646

          Total revenues

1,106,579

805,461

Expenses:

     Losses and loss adjustment expenses

929,529

821,933

     Policy acquisition costs

164,507

162,092

     Other operating expenses

69,690

70,290

     Interest

4,931

4,275

          Total expenses

1,168,657

1,058,590

Loss before income taxes

(62,078)

(253,129)

     Income tax benefit

(16,790)

(56,212)

                    Net loss

$                 (45,288)

$               (196,917)

Basic average shares outstanding

55,371

55,371

Diluted average shares outstanding

55,371

55,371

Basic Per Share Data

Net loss

$                     (0.82)

$                     (3.56)

Net realized investment gains (losses), net of tax

$                      0.70

$                     (2.78)

Diluted Per Share Data

Net loss

$                     (0.82)

$                     (3.56)

Net realized investment gains (losses), net of tax

$                      0.70

$                     (2.78)

Operating Ratios-GAAP Basis

Loss ratio

92.5 %

85.4 %

Expense ratio

23.3 %

24.1 %

Combined ratio

115.8 %

109.5 %

MERCURY GENERAL CORPORATION AND SUBSIDIARIES

CONDENSED BALANCE SHEETS AND OTHER INFORMATION

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

March 31, 2023

December 31, 2022

(unaudited)

ASSETS

Investments, at fair value:

     Fixed maturity securities (amortized cost $4,240,790; $4,226,790)

$             4,142,087

$             4,088,311

     Equity securities (cost $652,157; $668,843)

686,105

699,552

     Short-term investments (cost $147,797; $123,928)

146,840

122,937

          Total investments

4,975,032

4,910,800

Cash

270,380

289,776

Receivables:

     Premiums

568,825

571,910

          Allowance for credit losses on premiums receivable

(5,800)

(5,800)

                  Premiums receivable, net of allowance for credit losses

563,025

566,110

     Accrued investment income

53,135

52,474

     Other

21,500

11,358

          Total receivables

637,660

629,942

Reinsurance recoverables

32,726

25,895

Deferred policy acquisition costs

266,391

266,475

Fixed assets, net

158,543

171,442

Operating lease right-of-use assets

17,799

20,183

Current income taxes

77,951

55,136

Deferred income taxes

36,879

42,903

Goodwill

42,796

42,796

Other intangible assets, net

8,992

9,212

Other assets

64,208

49,628

          Total assets

$             6,589,357

$             6,514,188

LIABILITIES AND SHAREHOLDERS' EQUITY

Loss and loss adjustment expense reserves

$             2,677,561

$             2,584,910

Unearned premiums

1,551,329

1,545,639

Notes payable

448,430

398,330

Accounts payable and accrued expenses

151,413

151,686

Operating lease liabilities

19,383

21,924

Other liabilities

281,978

289,568

Shareholders' equity

1,459,263

1,522,131

          Total liabilities and shareholders' equity

$             6,589,357

$             6,514,188

OTHER INFORMATION

Common stock shares outstanding

55,371

55,371

Book value per share

$                    26.35

$                    27.49

Statutory surplus ^(a)

$1.47 billion

$1.50 billion

Net premiums written to surplus ratio ^(a)

2.70

2.65

Debt to total capital ratio ^(b)

23.6 %

20.8 %

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

3.3 years

3.5 years

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

     Personal Auto PIF

1,078

1,101

     Homeowners PIF

741

736

     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 March 31,

2023

2022

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

Net premiums earned

$                1,004,704

$                   962,550

Change in net unearned premiums

5,498

48,248

Net premiums written

$                1,010,202

$                1,010,798

Incurred losses and loss adjustment expenses

$                   929,529

$                   821,933

Change in net loss and loss adjustment expense reserves

(87,672)

(89,560)

Paid losses and loss adjustment expenses

$                   841,857

$                   732,373

Net loss

$                   (45,288)

$                 (196,917)

Less: Net realized investment gains (losses)

49,008

(195,086)

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

10,292

(40,968)

             Net realized investment gains (losses), net of tax

38,716

(154,118)

Operating loss

$                   (84,004)

$                   (42,799)

Per diluted share:

Net loss

$                       (0.82)

$                       (3.56)

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

0.70

(2.78)

Operating loss ^(c)

$                       (1.52)

$                       (0.77)

Combined ratio

115.8 %

109.5 %

Effect of estimated prior periods' loss development

1.5 %

(5.5) %

Combined ratio-accident period basis

117.3 %

104.0 %

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

(b)       Based on federal statutory rate of 21%.

(c)       Operating loss per diluted share for the three months ended March 31, 2022 does not sum due to rounding.