Mercury General Corporation Announces Second Quarter Results and Declares Quarterly Dividend

Consolidated Highlights

Three Months Ended June 30,

Change

Six Months Ended June 30,

Change

2024

2023

$

%

2024

2023

$

%

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

Net premiums earned

$ 1,236,024

$ 1,034,469

$ 201,555

19.5

$ 2,402,703

$ 2,039,173

$ 363,530

17.8

Net premiums written ⁽¹⁾

$ 1,355,460

$ 1,115,345

$ 240,115

21.5

$ 2,640,444

$ 2,125,546

$ 514,898

24.2

Net realized investment gains (losses), net of tax ⁽²⁾

$ 2,290

$ (15,625)

$ 17,915

NM

$ 32,461

$ 23,091

$ 9,370

40.6

Net income (loss)

$ 62,568

$ (41,543)

$ 104,111

NM

$ 136,030

$ (86,831)

$ 222,861

NM

Net income (loss) per diluted share

$ 1.13

$ (0.75)

$ 1.88

NM

$ 2.46

$ (1.57)

$ 4.03

NM

Operating income (loss) ⁽¹⁾

$ 60,278

$ (25,918)

$ 86,196

NM

$ 103,569

$ (109,922)

$ 213,491

NM

Operating income (loss) per diluted share ⁽¹⁾

$ 1.09

$ (0.47)

$ 1.56

NM

$ 1.87

$ (1.99)

$ 3.86

NM

Catastrophe losses net of reinsurance ⁽³⁾

$ 125,000

$ 92,000

$ 33,000

35.9

$ 197,000

$ 190,000

$ 7,000

3.7

Combined ratio ⁽⁴⁾

98.9 %

110.1 %

—

(11.2) pts

99.9 %

112.9 %

—

(13.0) 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 gains (losses) before tax were $3 million and $(20) million for the three months ended June 30, 2024 and 2023, respectively, and $41 million and $29 million for the six months ended June 30, 2024 and 2023, 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⁾

The majority of 2024 catastrophe losses resulted from tornadoes, hailstorms and convective storms in Texas and Oklahoma and winter storms and rainstorms in California. The majority of 2023 catastrophe losses resulted from winter storms and rainstorms in California, Texas and Oklahoma. The Company experienced unfavorable development of approximately $9 million and favorable development of approximately $1 million on prior years' catastrophe losses for the six months ended June 30, 2024 and 2023, respectively.

⁽⁴⁾

The Company experienced unfavorable development of approximately $14 million and favorable development of approximately $4 million on prior accident years' loss and loss adjustment expense reserves for the three months ended June 30, 2024 and 2023, respectively, and unfavorable development of approximately $8 million and favorable development of approximately $20 million on prior accident years' loss and loss adjustment expense reserves for the six months ended June 30, 2024 and 2023, respectively. The year-to-date unfavorable development in 2024 was primarily attributable to higher than estimated losses and loss adjustment expenses in the commercial automobile and commercial property lines of insurance business and catastrophe losses, partially offset by favorable development in the private passenger automobile line of insurance business. 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.

Investment Results

Three Months Ended June 30,

Six Months Ended June 30,

2024

2023

2024

2023

(000's except average annual yield)

Average invested assets at cost ⁽¹⁾

$ 5,536,170

$ 5,045,828

$ 5,450,760

$ 5,033,723

Net investment income ^{(2) (3)}

Before income taxes

$ 68,970

$ 58,350

$ 133,989

$ 110,323

After income taxes

$ 57,966

$ 49,819

$ 112,814

$ 94,613

Average annual yield on investments ^{(2) (3)}

Before income taxes

4.5 %

4.4 %

4.5 %

4.2 %

After income taxes

3.8 %

3.8 %

3.8 %

3.6 %

(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 excluding cash for each period.

(2)

Net investment income includes interest income earned on cash of approximately $6.2 million and $2.8 million ($4.9 million and $2.2 million after tax) for the three months ended June 30, 2024 and 2023, respectively, and approximately $11.9 million and $4.5 million ($9.4 million and $3.6 million after tax) for the six months ended June 30, 2024 and 2023, respectively. Average annual yield on investments does not include interest income earned on cash.

(3)

Higher net investment income before and after income taxes for the three months ended June 30, 2024 compared to the corresponding period in 2023 resulted largely from higher average invested assets and cash. Higher net investment income before and after income taxes for the six months ended June 30, 2024 compared to the corresponding period in 2023 resulted largely from higher average yield combined with higher average invested assets and cash. Average annual yield on investments before and after income taxes for the six months ended June 30, 2024 increased compared to the corresponding period in 2023, 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.

MERCURY GENERAL CORPORATION AND SUBSIDIARIES

SUMMARY OF OPERATING RESULTS

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

(unaudited)

Three Months Ended June 30,

Six Months Ended June 30,

2024

2023

2024

2023

Revenues:

Net premiums earned

$ 1,236,024

$ 1,034,469

$ 2,402,703

$ 2,039,173

Net investment income

68,970

58,350

133,989

110,323

Net realized investment gains (losses)

2,899

(19,778)

41,090

29,229

Other

(2,899)

10,186

1,298

11,081

Total revenues

1,304,994

1,083,227

2,579,080

2,189,806

Expenses:

Losses and loss adjustment expenses

936,714

897,810

1,840,679

1,827,339

Policy acquisition costs

203,682

172,737

399,722

337,245

Other operating expenses

81,702

68,341

158,790

138,031

Interest

7,799

5,549

15,572

10,479

Total expenses

1,229,897

1,144,437

2,414,763

2,313,094

Income (loss) before income taxes

75,097

(61,210)

164,317

(123,288)

Income tax expense (benefit)

12,529

(19,667)

28,287

(36,457)

Net income (loss)

$ 62,568

$ (41,543)

$ 136,030

$ (86,831)

Basic average shares outstanding

55,371

55,371

55,371

55,371

Diluted average shares outstanding

55,375

55,371

55,373

55,371

Basic Per Share Data

Net income (loss)

$ 1.13

$ (0.75)

$ 2.46

$ (1.57)

Net realized investment gains (losses), net of tax

$ 0.04

$ (0.28)

$ 0.59

$ 0.42

Diluted Per Share Data

Net income (loss)

$ 1.13

$ (0.75)

$ 2.46

$ (1.57)

Net realized investment gains (losses), net of tax

$ 0.04

$ (0.28)

$ 0.59

$ 0.42

Operating Ratios-GAAP Basis

Loss ratio

75.8 %

86.8 %

76.6 %

89.6 %

Expense ratio

23.1 %

23.3 %

23.3 %

23.3 %

Combined ratio

98.9 %

110.1 %

99.9 %

112.9 %

MERCURY GENERAL CORPORATION AND SUBSIDIARIES

CONDENSED BALANCE SHEETS AND OTHER INFORMATION

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

June 30, 2024

December 31, 2023

(unaudited)

ASSETS

Investments, at fair value:

Fixed maturity securities (amortized cost $4,748,424; $4,394,983)

$ 4,661,761

$ 4,319,336

Equity securities (cost $724,364; $654,939)

815,924

730,693

Short-term investments (cost $148,787; $179,375)

147,865

178,491

Total investments

5,625,550

5,228,520

Cash

609,333

550,903

Receivables:

Premiums

711,491

607,025

Allowance for credit losses on premiums receivable

(6,000)

(5,300)

Premiums receivable, net of allowance for credit losses

705,491

601,725

Accrued investment income

64,414

59,128

Other

33,662

25,603

Total receivables

803,567

686,456

Reinsurance recoverables (net of allowance for credit losses $4; $12)

29,759

31,947

Deferred policy acquisition costs

326,859

293,844

Fixed assets, net

133,972

151,183

Operating lease right-of-use assets

14,220

14,406

Current income taxes

—

4,081

Deferred income taxes

34,753

33,013

Goodwill

42,796

42,796

Other intangible assets, net

8,129

8,333

Other assets

98,142

57,915

Total assets

$ 7,727,080

$ 7,103,397

LIABILITIES AND SHAREHOLDERS' EQUITY

Loss and loss adjustment expense reserves

$ 2,976,403

$ 2,785,702

Unearned premiums

1,974,134

1,735,660

Notes payable

573,928

573,729

Accounts payable and accrued expenses

203,612

175,219

Operating lease liabilities

14,211

14,231

Current income taxes

1,469

—

Other liabilities

334,308

270,711

Shareholders' equity

1,649,015

1,548,145

Total liabilities and shareholders' equity

$ 7,727,080

$ 7,103,397

OTHER INFORMATION

Common stock shares outstanding

55,371

55,371

Book value per share

$ 29.78

$ 27.96

Statutory surplus ^(a)

$1.71 billion

$1.67 billion

Net premiums written to surplus ratio ^(a)

2.91

2.68

Debt to total capital ratio ^(b)

25.9 %

27.1 %

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

2.9 years

3.0 years

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

Personal Auto PIF

1,023

1,032

Homeowners PIF

806

760

Commercial Auto PIF

42

42

(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 June 30,

Six Months Ended June 30,

2024

2023

2024

2023

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

Net premiums earned

$ 1,236,024

$ 1,034,469

$ 2,402,703

$ 2,039,173

Change in net unearned premiums

119,436

80,876

237,741

86,373

Net premiums written

$ 1,355,460

$ 1,115,345

$ 2,640,444

$ 2,125,546

Incurred losses and loss adjustment expenses

$ 936,714

$ 897,810

$ 1,840,679

$ 1,827,339

Change in net loss and loss adjustment expense reserves

(117,221)

(45,081)

(192,639)

(132,753)

Paid losses and loss adjustment expenses

$ 819,493

$ 852,729

$ 1,648,040

$ 1,694,586

Net income (loss)

$ 62,568

$ (41,543)

$ 136,030

$ (86,831)

Less: Net realized investment gains (losses)

2,899

(19,778)

41,090

29,229

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

609

(4,153)

8,629

6,138

Net realized investment gains (losses), net of tax

2,290

(15,625)

32,461

23,091

Operating income (loss)

$ 60,278

$ (25,918)

$ 103,569

$ (109,922)

Per diluted share:

Net income (loss)

$ 1.13

$ (0.75)

$ 2.46

$ (1.57)

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

0.04

(0.28)

0.59

0.42

Operating income (loss)

$ 1.09

$ (0.47)

$ 1.87

$ (1.99)

Combined ratio

99.9 %

112.9 %

Effect of estimated prior periods' loss development

(0.3) %

1.0 %

Combined ratio-accident period basis

99.6 %

113.9 %

(a)

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

(b)

Based on federal statutory rate of 21%.