Mercury General Corporation Announces Fourth Quarter and Fiscal 2021 Results and Declares Quarterly Dividend

Consolidated Highlights

Three Months Ended 
December 31,

Change

Nine Months Ended
September 30,

Change

2021

2020

$

%

2021

2020

$

%

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

Net premiums earned ⁽²⁾

$

958,266

$

921,860

$

36,406

3.9

%

$

3,741,948

$

3,555,635

$

186,313

5.2

%

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

$

932,678

$

895,528

$

37,150

4.1

%

$

3,855,369

$

3,611,543

$

243,826

6.8

%

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

$

43,217

$

90,209

$

(46,992)

(52.1)

%

$

88,210

$

67,727

$

20,483

30.2

%

Net income

$

30,473

$

166,743

$

(136,270)

(81.7)

%

$

247,937

$

374,607

$

(126,670)

(33.8)

%

Net income per diluted share

$

0.55

$

3.01

$

(2.46)

(81.7)

%

$

4.48

$

6.77

$

(2.29)

(33.8)

%

Operating (loss) income ⁽¹⁾

$

(12,744)

$

76,534

$

(89,278)

(116.7)

%

$

159,727

$

306,880

$

(147,153)

(48.0)

%

Operating (loss) income per diluted share ⁽¹⁾

$

(0.23)

$

1.38

$

(1.61)

(116.7)

%

$

2.88

$

5.54

$

(2.66)

(48.0)

%

Catastrophe losses net of reinsurance ⁽⁴⁾

$

19,000

$

21,000

$

(2,000)

(9.5)

%

$

104,000

$

64,000

$

40,000

62.5

%

Combined ratio ⁽⁵⁾

105.4

%

93.3

%

—

12.1 pts

98.3

%

93.1

%

—

5.2 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⁾

The Company's net premiums earned and written were reduced by $0.1 million and $127.7 million for the three
and twelve months ended December 31, 2020, respectively, due to premium refunds and credits to its eligible policyholders
for reduced driving and business activities following the outbreak of the COVID-19 pandemic. Excluding these premium
refunds and credits, net premiums earned and written increased 1.6% and 3.1%, respectively, for the twelve months
ended December 31, 2021 from the corresponding period in 2020.

⁽³⁾

Net realized investment gains before tax were $55 million and $114 million for the three months ended December 31,
2021 and 2020, respectively, and $112 million and $86 million for the twelve months ended December 31, 2021 and
2020, 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⁾

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,
respectively. The majority of 2021 catastrophe losses resulted from the deep freeze 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. Catastrophe losses due to the events that occurred during the three and twelve months ended
December 31, 2020 totaled approximately $21 million and $69 million, respectively, with no reinsurance benefits used
for these losses. In addition, the Company experienced favorable development of approximately $5 million on prior
years' catastrophe losses for the twelve months ended December 31, 2020. The majority of 2020 catastrophe losses
resulted from wildfires and windstorms in California and extreme weather events outside of California.

⁽⁵⁾

The Company experienced favorable development of approximately $2 million and $3 million on prior accident years'
loss and loss adjustment expense reserves for the three months ended December 31, 2021 and 2020, respectively, and
favorable development of approximately $26 million and unfavorable development of approximately $23 million on
prior accident years' loss and loss adjustment expense reserves for the twelve months ended December 31, 2021 and
2020, respectively. 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,
partially offset by unfavorable development in the commercial automobile and commercial property lines of insurance business,
while the year-to-date unfavorable development in 2020 was primarily attributable to higher than estimated
losses and loss adjustment expenses in the homeowners and commercial automobile lines of insurance business, partially
offset by favorable development in the private passenger automobile line of insurance business.

Investment Results

Three Months Ended

December 31,

Twelve Months Ended

December 31,

2021

2020

2021

2020

(000's except average annual yield)

Average invested assets at cost ⁽¹⁾

$    4,799,548

$  4,398,360

$   4,681,462

$       4,291,888

Net investment income ⁽²⁾

     Before income taxes

$         34,161

$       34,057

$      129,727

$          134,858

     After income taxes

$         30,048

$       30,286

$      115,216

$          120,043

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

2.5 %

2.8 %

2.5 %

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⁾

Net investment income before and after income taxes for the three months ended December 31, 2021 remained relatively
steady compared to the corresponding period in 2020, resulting largely from a lower average yield on investments mostly
offset by higher average invested assets. The lower net investment income before and after income taxes for the twelve
months ended December 31, 2021 compared to the corresponding period in 2020 resulted largely from a lower average
yield on investments, partially offset by higher average invested assets. Average annual yield on investments after income
taxes for the three and twelve months ended December 31, 2021 decreased compared to the corresponding periods in
2020, primarily due to the maturity and replacement of higher yielding investments purchased when market interest rates
were higher with lower yielding investments, as a result of decreasing market 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,

2021

2020

2021

2020

Revenues:

     Net premium earned

$       958,266

$       921,860

$   3,741,948

$   3,555,635

     Net investment income

34,161

34,057

129,727

134,858

     Net realized investment gains

54,705

114,189

111,658

85,731

     Other

2,141

1,478

10,024

8,287

          Total revenues

$    1,049,273

$    1,071,584

$   3,993,357

$   3,784,511

Expenses:

     Losses and loss adjustment expenses

778,637

629,716

2,760,155

2,395,343

     Policy acquisition costs

164,829

164,184

633,385

627,788

     Other operating expenses

66,674

66,312

283,397

285,831

     Interest

4,268

4,262

17,113

17,048

          Total expenses

$    1,014,408

$       864,474

$   3,694,050

$   3,326,010

Income before income taxes

34,865

207,110

299,307

458,501

     Income tax expense

4,392

40,367

51,370

83,894

                    Net income

$         30,473

$       166,743

$      247,937

$      374,607

Basic average shares outstanding

55,371

55,358

55,368

55,358

Diluted average shares outstanding

55,374

55,358

55,374

55,358

Basic Per Share Data

Net income

$             0.55

$             3.01

$            4.48

$            6.77

Net realized investment gains, net of tax

$             0.78

$             1.63

$            1.59

$            1.22

Diluted Per Share Data

Net income

$             0.55

$             3.01

$            4.48

$            6.77

Net realized investment gains, net of tax

$             0.78

$             1.63

$            1.59

$            1.22

Operating Ratios-GAAP Basis

Loss ratio

81.3 %

68.3 %

73.8 %

67.4 %

Expense ratio

25.0 %

24.5 %

25.7 %

Combined ratio ^(a)

105.4 %

93.3 %

98.3 %

93.1 %

   (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, 2021

December 31, 2020

(unaudited)

ASSETS

Investments, at fair value:

     Fixed maturity securities (amortized cost $3,909,780; $3,388,418)

$             4,031,523

$              3,549,810

     Equity securities (cost $754,536; $$695,150)

970,939

803,851

     Short-term investments (cost $141,206; $376,547)

140,127

375,609

          Total investments

5,142,589

4,729,270

Cash

335,557

348,479

Receivables:

     Premiums

621,740

599,070

           Allowance for credit losses on premiums receivable

(6,000)

(10,000)

                   Premiums receivable, net of allowance for credit losses

615,740

589,070

     Accrued investment income

43,299

42,985

     Other

7,600

10,730

          Total receivables

666,639

642,785

Reinsurance recoverables

45,000

48,579

      Allowance for credit losses on reinsurance recoverables

—

(91)

             Reinsurance recoverables, net of allowance for credit losses

45,000

48,488

Deferred policy acquisition costs

258,259

246,994

Fixed assets, net

191,332

178,923

Operating lease right-of-use assets

31,967

40,554

Current income taxes

20,108

—

Goodwill

42,796

42,796

Other intangible assets, net

10,255

11,322

Other assets

27,970

38,635

          Total assets

$             6,772,472

$              6,328,246

LIABILITIES AND SHAREHOLDERS' EQUITY

Loss and loss adjustment expense reserves

$             2,226,430

$              1,991,304

Unearned premiums

1,519,799

1,405,873

Notes payable

372,931

372,532

Accounts payable and accrued expenses

169,125

194,421

Operating lease liabilities

34,577

43,825

Current income taxes

—

10,426

Deferred income taxes

53,569

41,132

Other liabilities

255,760

236,136

Shareholders' equity

2,140,281

2,032,597

          Total liabilities and shareholders' equity

$             6,772,472

$              6,328,246

OTHER INFORMATION

Common stock shares outstanding

55,371

55,358

Book value per share

$38.65

$36.72

Statutory surplus ^(a)

$1.83 billion

$1.77 billion

Net premiums written to surplus ratio ^(a)

2.11

2.04

Debt to total capital ratio ^(b)

14.9 %

15.6 %

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

3.4 years

3.0 years

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

     Personal Auto PIF

1,122

1,116

     Homeowners PIF

705

671

     Commercial Auto PIF

39

38

(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,

2021

2020

2021

2020

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

Net premiums earned

$

958,266

$

921,860

$

3,741,948

$

3,555,635

Change in net unearned premiums

(25,588)

(26,332)

113,421

55,908

Net premiums written

$

932,678

$

895,528

$

3,855,369

$

3,611,543

Incurred losses and loss adjustment expenses

$

778,637

$

629,716

$

2,760,155

$

2,395,343

Change in net loss and loss adjustment expense reserves

(94,360)

(49,466)

(248,208)

(91,539)

Paid losses and loss adjustment expenses

$

684,277

$

580,250

$

2,511,947

$

2,303,804

Net income

$

30,473

$

166,743

$

247,937

$

374,607

Less: Net realized investment gains

54,705

114,189

111,658

85,731

         Tax on net realized investment gains ^(b)

11,488

23,980

23,448

18,004

             Net realized investment gains, net of tax

43,217

90,209

88,210

67,727

Operating (loss) income

$

(12,744)

$

76,534

$

159,727

$

306,880

Per diluted share:

Net income

$

0.55

$

3.01

$

4.48

$

6.77

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

0.78

1.63

1.59

1.22

Operating (loss) income ^(c)

$

(0.23)

$

1.38

$

2.88

$

5.54

Combined ratio

98.3

%

93.1

%

Effect of estimated prior periods' loss development

0.7

%

(0.6)

%

Combined ratio-accident period basis

99.0

%

92.5

%