Mercury General Corporation Announces Fourth Quarter and Fiscal 2020 Results and Declares Quarterly Dividend

Consolidated Highlights

Three Months Ended
December 31,

Change

Twelve Months Ended
December 31,

Change

2020

2019

$

%

2020

2019

$

%

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

Net premiums earned ⁽²⁾

$

921,860

$

925,384

$

(3,524)

(0.4)

%

$

3,555,635

$

3,599,418

$

(43,783)

(1.2)

%

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

$

895,528

$

896,140

$

(612)

(0.1)

%

$

3,611,543

$

3,731,723

$

(120,180)

(3.2)

%

Net realized investment gains, net of tax ⁽³⁾

$

90,209

$

19,804

$

70,405

355.5

%

$

67,727

$

176,006

$

(108,279)

(61.5)

%

Net income

$

166,743

$

31,688

$

135,055

426.2

%

$

374,607

$

320,087

$

54,520

17.0

%

Net income per diluted share

$

3.01

$

0.57

$

2.44

428.1

%

$

6.77

$

5.78

$

0.99

17.1

%

Operating income ⁽¹⁾

$

76,534

$

11,884

$

64,650

544.0

%

$

306,880

$

144,081

$

162,799

113.0

%

Operating income per diluted share ⁽¹⁾

$

1.38

$

0.21

$

1.17

557.1

%

$

5.54

$

2.60

$

2.94

113.1

%

Catastrophe losses net of reinsurance ⁽⁴⁾

$

21,000

$

36,000

$

(15,000)

(41.7)

%

$

64,000

$

53,000

$

11,000

20.8

%

Combined ratio ⁽⁵⁾

93.3

%

103.2

%

—

(9.9) pts

93.1

%

99.4

%

—

(6.3) 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.

⁽³⁾

Net realized investment gains before tax were $114 million and $25 million for the three months ended December 31, 2020 and 2019, respectively, and $86 million and $223 million for the twelve months ended December 31, 2020 and 2019, 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, 2020 totaled approximately $21 million and $69 million, respectively, with no reinsurance benefits used for these losses. The  majority of 2020 catastrophe losses resulted from wildfires and windstorms in California and extreme weather events outside of California. The year-to-date catastrophe losses in 2020 were partially offset by favorable development of approximately $5 million on prior years' catastrophe losses. Catastrophe losses due to the events that occurred during the three and twelve months ended December 31, 2019 totaled approximately $37 million and $57 million, respectively, with no reinsurance benefits used for these losses. 2019 catastrophe losses were primarily due to wildfires and winter storms in California, a hurricane in Texas, and tornadoes and wind and hail storms in the Midwest. These losses were partially offset by favorable development of approximately $1 million and $4 million on prior years' catastrophe losses for the three and twelve months ended December 31, 2019, respectively.

⁽⁵⁾

The Company experienced favorable development of approximately $3 million and $1 million on prior accident years' loss and loss adjustment expense reserves for the three months ended December 31, 2020 and 2019, respectively, and unfavorable development of approximately $23 million and $10 million on prior accident years' loss and loss adjustment expense reserves for the twelve months ended December 31, 2020 and 2019, respectively. 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, while the year-to-date unfavorable development in 2019 was primarily attributable to higher than estimated defense and cost containment expenses in the California automobile line of insurance business, partially offset by favorable development in certain of the Company's other lines of insurance business.

Investment Results

Three Months Ended

December 31,

Twelve Months Ended

December 31,

2020

2019

2020

2019

(000's except average annual yield)

Average invested assets at cost ⁽¹⁾

$

4,398,360

$

4,104,014

$

4,291,888

$

4,008,601

Net investment income ⁽²⁾

     Before income taxes

$

34,057

$

35,701

$

134,858

$

141,263

     After income taxes

$

30,286

$

31,793

$

120,043

$

125,637

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

2.8

%

3.1

%

2.8

%

3.1

%

⁽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⁾

The lower net investment income before and after income taxes for the three and twelve months ended December 31, 2020 compared to the corresponding periods in 2019 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, 2020 decreased compared to the corresponding periods in 2019, 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,

2020

2019

2020

2019

Revenues:

     Net premium earned

$

921,860

$

925,384

$

3,555,635

$

3,599,418

     Net investment income

34,057

35,701

134,858

141,263

     Net realized investment gains

114,189

25,068

85,731

222,793

     Other

1,478

1,840

8,287

9,044

          Total revenues

$

1,071,584

$

987,993

$

3,784,511

$

3,972,518

Expenses:

     Losses and loss adjustment expenses

629,716

738,103

2,395,343

2,706,024

     Policy acquisition costs

164,184

154,114

627,788

602,085

     Other operating expenses

66,312

63,055

285,831

269,305

     Interest

4,262

4,256

17,048

17,035

          Total expenses

$

864,474

$

959,528

$

3,326,010

$

3,594,449

Income before income taxes

207,110

28,465

458,501

378,069

     Income tax expense (benefit)

40,367

(3,223)

83,894

57,982

                    Net income

$

166,743

$

31,688

$

374,607

$

320,087

Basic average shares outstanding

55,358

55,357

55,358

55,351

Diluted average shares outstanding

55,358

55,361

55,358

55,360

Basic Per Share Data

Net income

$

3.01

$

0.57

$

6.77

$

5.78

Net realized investment gains, net of tax

$

1.63

$

0.36

$

1.22

$

3.18

Diluted Per Share Data

Net income

$

3.01

$

0.57

$

6.77

$

5.78

Net realized investment gains, net of tax

$

1.63

$

0.36

$

1.22

$

3.18

Operating Ratios-GAAP Basis

Loss ratio

68.3

%

79.8

%

67.4

%

75.2

%

Expense ratio

25.0

%

23.5

%

25.7

%

24.2

%

Combined ratio ^(a)

93.3

%

103.2

%

93.1

%

99.4

%

(a)

Combined ratio for the three months ended December 31, 2019 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, 2020

December 31, 2019

(unaudited)

ASSETS

Investments, at fair value:

     Fixed maturity securities (amortized cost $3,388,418; $2,973,276)

$

3,549,810

$

3,093,275

     Equity securities (cost $695,150; $$648,282)

803,851

724,751

     Short-term investments (cost $376,547; $494,060)

375,609

494,135

          Total investments

4,729,270

4,312,161

Cash

348,479

294,398

Receivables:

     Premiums

599,070

606,316

           Allowance for credit losses on premiums receivable

(10,000)

(1,445)

                   Premiums receivable, net of allowance for credit losses

589,070

604,871

     Accrued investment income

42,985

40,107

     Other

10,730

6,464

          Total receivables

642,785

651,442

Reinsurance recoverables

48,579

78,774

      Allowance for credit losses on reinsurance recoverables

(91)

—

             Reinsurance recoverables, net of allowance for credit losses

48,488

78,774

Deferred policy acquisition costs

246,994

233,166

Fixed assets, net

178,923

168,986

Operating lease right-of-use assets

40,554

44,909

Current income taxes

—

7,642

Goodwill

42,796

42,796

Other intangible assets, net

11,322

10,636

Other assets

38,635

44,247

          Total assets

$

6,328,246

$

5,889,157

LIABILITIES AND SHAREHOLDERS' EQUITY

Loss and loss adjustment expense reserves

$

1,991,304

$

1,921,255

Unearned premiums

1,405,873

1,355,547

Notes payable

372,532

372,133

Accounts payable and accrued expenses

194,421

143,318

Operating lease liabilities

43,825

47,996

Current income taxes

10,426

—

Deferred income taxes

41,132

27,964

Other liabilities

236,136

221,442

Shareholders' equity

2,032,597

1,799,502

          Total liabilities and shareholders' equity

$

6,328,246

$

5,889,157

OTHER INFORMATION

Common stock shares outstanding

55,358

55,358

Book value per share

$36.72

$32.51

Statutory surplus ^(a)

$1.77 billion

$1.54 billion

Net premiums written to surplus ratio ^(a)

2.04

2.42

Debt to total capital ratio ^(b)

15.6

%

17.2

%

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

3.0 years

3.2 years

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

     Personal Auto PIF

1,116

1,162

     Homeowners PIF

671

646

     Commercial Auto PIF

38

36

(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,

2020

2019

2020

2019

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

Net premiums earned

$

921,860

$

925,384

$

3,555,635

$

3,599,418

Change in net unearned premiums

(26,332)

(29,244)

55,908

132,305

Net premiums written

$

895,528

$

896,140

$

3,611,543

$

3,731,723

Incurred losses and loss adjustment expenses

$

629,716

$

738,103

$

2,395,343

$

2,706,024

Change in net loss and loss adjustment expense reserves

(49,466)

(93,791)

(91,539)

(196,602)

Paid losses and loss adjustment expenses

$

580,250

$

644,312

$

2,303,804

$

2,509,422

Net income

$

166,743

$

31,688

$

374,607

$

320,087

Less: Net realized investment gains

114,189

25,068

85,731

222,793

         Tax on net realized investment gains ^(b)

23,980

5,264

18,004

46,787

             Net realized investment gains, net of tax

90,209

19,804

67,727

176,006

Operating income

$

76,534

$

11,884

$

306,880

$

144,081

Per diluted share:

Net income

$

3.01

$

0.57

$

6.77

$

5.78

Less: Net realized investment gains, net of tax

1.63

0.36

1.22

3.18

Operating income ^(c)

$

1.38

$

0.21

$

5.54

$

2.60

Combined ratio

93.1

%

99.4

%

Effect of estimated prior periods' loss development

(0.6)

%

(0.3)

%

Combined ratio-accident period basis

92.5

%

99.1

%

(a)

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

(b)

Federal statutory rate of 21%.

(c)

Operating income per diluted share for the twelve months ended December 31, 2020 does not sum due to rounding.