Mercury General Corporation Announces First Quarter Results and Declares Quarterly Dividend

Consolidated Highlights

Three Months Ended March 31,

Change

2022

2021

$

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

Net premiums earned 

$       962,550

$       915,922

$      46,628

5.1

Net premiums written ⁽¹⁾

$    1,010,798

$       950,383

$      60,415

6.4

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

$      (154,118)

$         32,936

$   (187,054)

(567.9)

Net (loss) income

$      (196,917)

$       106,995

$   (303,912)

(284.0)

Net (loss) income per diluted share ⁽³⁾

$           (3.56)

$            1.93

$        (5.49)

(284.5)

Operating (loss) income ⁽¹⁾

$        (42,799)

$         74,059

$   (116,858)

(157.8)

Operating (loss) income per diluted share ⁽¹⁾

$           (0.77)

$            1.34

$        (2.11)

(157.5)

Catastrophe losses net of reinsurance ⁽⁴⁾

$         22,000

$         35,000

$     (13,000)

(37.1)

Combined ratio ⁽⁵⁾

109.5%

93.5%

—

16.0 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⁾

Net realized investment (losses) gains before tax were $(195) million and $42 million for the three months ended March 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.

⁽³⁾

The dilutive impact of incremental shares is excluded from net loss position in accordance with GAAP.

⁽⁴⁾

Catastrophe losses due to the events that occurred during the three months ended March 31, 2022 totaled approximately $21 million, with no reinsurance benefits used for these losses, resulting primarily from winter storms in Texas and California. Catastrophe losses due to the events that occurred during the three months ended March 31, 2021 totaled approximately $39 million, with no reinsurance benefits used for these losses, resulting primarily from the deep freeze in Texas and Oklahoma and winter storms in California. In addition, the Company experienced unfavorable development of approximately $1 million and favorable development of approximately $4 million on prior years' catastrophe losses for the three months ended March 31, 2022 and 2021, respectively.  

⁽⁵⁾

Inflationary trends have accelerated to their highest level in decades, which has had a significant impact on the cost of auto 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 are 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 the three months ended March 31, 2022 compared to the corresponding period in 2021. In addition, the Company experienced unfavorable development of approximately $53 million and favorable development of approximately $1 million on prior accident years' loss and loss adjustment expense reserves for the three months ended March 31, 2022 and 2021, respectively. 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, partially offset by favorable development in the homeowners line of insurance business. The inflationary pressures and the supply chain and labor shortage issues discussed above were major contributors to the adverse reserve development in the automobile line of insurance business for the first quarter of 2022. The favorable development for the first quarter of 2021 was primarily attributable to lower than estimated losses and loss adjustment expenses in the commercial property and private passenger automobile lines of insurance business, mostly offset by unfavorable development in the commercial automobile line of insurance business.

Investment Results

2022

2021

(000's except average annual yield)

Average invested assets at cost ⁽¹⁾

$            4,863,814

$            4,538,185

Net investment income ⁽²⁾

     Before income taxes

$                 35,351

$                 32,279

     After income taxes

$                 30,921

$                 28,784

Average annual yield on investments - after income taxes 

2.5%

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, 2022 compared to the corresponding period in 2021 resulted largely from higher average invested assets.

MERCURY GENERAL CORPORATION AND SUBSIDIARIES

SUMMARY OF OPERATING RESULTS

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

(unaudited)

Three Months Ended March 31,

2022

2021

Revenues:

     Net premiums earned

$               962,550

$               915,922

     Net investment income

35,351

32,279

     Net realized investment (losses) gains

(195,086)

41,691

     Other

2,646

3,204

          Total revenues

805,461

993,096

Expenses:

     Losses and loss adjustment expenses

821,933

626,344

     Policy acquisition costs

162,092

164,430

     Other operating expenses

70,290

65,558

     Interest

4,275

4,343

          Total expenses

1,058,590

860,675

(Loss) income before income taxes

(253,129)

132,421

     Income tax (benefit) expense

(56,212)

25,426

                    Net (loss) income

$              (196,917)

$               106,995

Basic average shares outstanding

55,371

55,361

Diluted average shares outstanding

55,371

55,372

Basic Per Share Data

Net (loss) income

$                   (3.56)

$                    1.93

Net realized investment (losses) gains, net of tax

$                   (2.78)

$                    0.59

Diluted Per Share Data

Net (loss) income

$                   (3.56)

$                    1.93

Net realized investment (losses) gains, net of tax

$                   (2.78)

$                    0.59

Operating Ratios-GAAP Basis

Loss ratio

85.4%

68.4%

Expense ratio

24.1%

25.1%

Combined ratio 

109.5%

93.5%

MERCURY GENERAL CORPORATION AND SUBSIDIARIES

CONDENSED BALANCE SHEETS AND OTHER INFORMATION

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

March 31, 2022

December 31, 2021

(unaudited)

ASSETS

Investments, at fair value:

     Fixed maturity securities (amortized cost $3,995,864; $3,909,780)

$            3,959,679

$            4,031,523

     Equity securities (cost $769,934; $754,536)

946,015

970,939

     Short-term investments (cost $134,997; $141,206)

133,920

140,127

          Total investments

5,039,614

5,142,589

Cash

295,764

335,557

Receivables:

     Premiums

647,143

621,740

          Allowance for credit losses on premiums receivable

(6,000)

(6,000)

                  Premiums receivable, net of allowance for credit losses

641,143

615,740

     Accrued investment income

43,380

43,299

     Other

7,490

7,600

          Total receivables

692,013

666,639

Reinsurance recoverables

35,106

45,000

Deferred policy acquisition costs

265,921

258,259

Fixed assets, net

190,867

191,332

Operating lease right-of-use assets

29,098

31,967

Current income taxes

30,637

20,108

Goodwill

42,796

42,796

Other intangible assets, net

9,988

10,255

Other assets

35,312

27,970

          Total assets

$            6,667,116

$            6,772,472

LIABILITIES AND SHAREHOLDERS' EQUITY

Loss and loss adjustment expense reserves

$            2,307,826

$            2,226,430

Unearned premiums

1,568,186

1,519,799

Notes payable

373,031

372,931

Accounts payable and accrued expenses

175,406

169,125

Operating lease liabilities

31,991

34,577

Deferred income taxes

7,969

53,569

Other liabilities

294,500

255,760

Shareholders' equity

1,908,207

2,140,281

          Total liabilities and shareholders' equity

$            6,667,116

$            6,772,472

OTHER INFORMATION

Common stock shares outstanding

55,371

55,371

Book value per share

$                  34.46

$                  38.65

Statutory surplus ^(a)

$1.75 billion

$1.83 billion

Net premiums written to surplus ratio ^(a)

2.23

2.11

Debt to total capital ratio ^(b)

16.4%

14.9%

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

3.4 years

3.4 years

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

     Personal Auto PIF

1,131

1,122

     Homeowners PIF

716

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.

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

(unaudited)

Three Months Ended March 31,

2022

2021

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

Net premiums earned

$                 962,550

$                 915,922

Change in net unearned premiums

48,248

34,461

Net premiums written

$              1,010,798

$                 950,383

Incurred losses and loss adjustment expenses

$                 821,933

$                 626,344

Change in net loss and loss adjustment expense reserves

(89,560)

(49,374)

Paid losses and loss adjustment expenses

$                 732,373

$                 576,970

Net (loss) income

$                (196,917)

$                 106,995

Less: Net realized investment (losses) gains

(195,086)

41,691

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

(40,968)

8,755

             Net realized investment (losses) gains, net of tax

(154,118)

32,936

Operating (loss) income

$                  (42,799)

$                   74,059

Per diluted share:

Net (loss) income

$                     (3.56)

$                      1.93

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

(2.78)

0.59

Operating (loss) income ^(c)

$                     (0.77)

$                      1.34

Combined ratio

109.5%

93.5%

Effect of estimated prior periods' loss development

(5.5)%

0.1%

Combined ratio-accident period basis

104.0%

93.6%

(a)

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

(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.