Mercury General Corporation Announces Third Quarter Results and Declares Quarterly Dividend

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Mercury General Corporation (NYSE: MCY) reported Q3 2022 results, showing a 6.0% increase in net premiums earned to $996.9 million. However, the company faced significant challenges, with a net loss of $98.3 million compared to a net income of $1.3 million in Q3 2021. Operating income fell by 56.2%, and the combined ratio worsened to 102.8%, indicating increasing costs. Despite these issues, net investment income rose, supported by higher yields. A quarterly dividend of $0.3175 was declared, to be paid on December 29, 2022.

Positive

• Net premiums earned increased by 6.0% year-over-year.
• Net investment income rose due to higher average yields.
• A quarterly dividend of $0.3175 was declared.

Negative

• Net loss of $98.3 million, a decline from previous year's net income.
• Operating income decreased by 56.2%.
• Combined ratio worsened to 102.8%, indicating higher costs.

LOS ANGELES, Nov. 1, 2022 /PRNewswire/ -- Mercury General Corporation (NYSE: MCY) reported today for the third quarter of 2022:

Consolidated Highlights
	Three Months Ended September 30,				Change				Nine Months Ended September 30,				Change
	2022		2021		$		%		2022		2021		$		%
(000's except per-share amounts and ratios)
Net premiums earned	$     996,939		$     940,941		$   55,998		6.0		$  2,947,000		$  2,783,682		$    163,318		5.9
Net premiums written (1)	$  1,034,476		$  1,014,967		$   19,509		1.9		$  3,062,267		$  2,922,691		$    139,576		4.8
Net realized investment (losses) gains, net of tax (2)	$    (113,928)		$      (34,399)		$  (79,529)		NM		$    (459,177)		$       44,993		$   (504,170)		(1,120.6)
Net (loss) income	$      (98,303)		$         1,288		$  (99,591)		(7,732.2)		$    (505,902)		$     217,464		$   (723,366)		(332.6)
Net (loss) income per diluted share (3)	$          (1.78)		$           0.02		$      (1.80)		(9,000.0)		$          (9.14)		$           3.93		$       (13.07)		(332.6)
Operating income (loss) (1)	$       15,625		$       35,687		$  (20,062)		(56.2)		$      (46,725)		$     172,471		$   (219,196)		(127.1)
Operating income (loss) per diluted share (1)	$           0.28		$           0.64		$      (0.36)		(56.3)		$          (0.84)		$           3.11		$         (3.95)		(127.0)
Catastrophe losses net of reinsurance (4)	$       19,000		$       25,000		$    (6,000)		(24.0)		$       62,000		$       85,000		$     (23,000)		(27.1)
Combined ratio (5)	102.8 %		99.0 %		—		3.8  pts		106.3 %		95.8 %		—		10.5  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 (losses) gains before tax were $(144) million and $(44) million for the three months ended September 30, 2022 and 2021, respectively, and $(581) million and $57 million for the nine months ended September 30, 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 any incremental shares is excluded from net loss position in accordance with GAAP.
(4)	Catastrophe losses due to the events that occurred during the nine months ended September 30, 2022 totaled approximately $58 million, with no reinsurance benefits used for these losses, resulting primarily from winter storms, rainstorms and hail in Texas and Oklahoma, the impact of Hurricane Ian in Florida which caused $11 million in losses, and winter storms in California. Catastrophe losses due to the events that occurred during the nine months ended September 30, 2021 totaled approximately $91 million, with no reinsurance benefits used for these losses, resulting primarily from the deep freeze and other extreme weather events in Texas and Oklahoma, wildfires and winter storms in California, and the impact of Hurricane Ida in New Jersey and New York. In addition, the Company experienced unfavorable development of approximately $4 million and favorable development of approximately $6 million on prior years' catastrophe losses for the nine months ended September 30, 2022 and 2021, respectively.
(5)	Inflationary trends have accelerated to their highest level in decades in 2022, 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 and nine months ended September 30, 2022 compared to the corresponding periods in 2021, and have led to adverse development on prior accident years' loss and loss adjustment expense reserves for the nine months ended September 30, 2022 as those factors affected the loss estimates recorded at December 31, 2021. The Company experienced favorable development of approximately $1 million and $8 million on prior accident years' loss and loss adjustment expense reserves for the three months ended September 30, 2022 and 2021, respectively, and unfavorable development of approximately $50 million and favorable development of approximately $24 million on prior accident years' loss and loss adjustment expense reserves for the nine months ended September 30, 2022 and 2021, respectively. The Company has filed for rate increases in many states and is taking various non-rate actions to improve profitability.

 

Investment Results
	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
(000's except average annual yield)
Average invested assets at cost (1)	$      4,912,521		$      4,751,171		$      4,889,050		$      4,643,916
Net investment income (2)
Before income taxes	$           44,563		$           32,334		$         118,469		$           95,566
After income taxes	$           38,653		$           28,708		$         103,091		$           85,168
Average annual yield on investments - after income taxes	3.2 %		2.4 %		2.8 %		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 and nine months ended September 30, 2022 compared to the corresponding periods in 2021 resulted largely from higher average yield combined with higher average invested assets. Average annual yield on investments after income taxes for the three and nine months ended September 30, 2022 increased compared to the corresponding periods in 2021, 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.

The Board of Directors declared a quarterly dividend of $0.3175 per share. The dividend will be paid on December 29, 2022 to shareholders of record on December 15, 2022.

Mercury General Corporation and its subsidiaries are a multiple line insurance organization offering predominantly personal automobile and homeowners insurance through a network of independent producers and direct-to-consumer sales in many states. For more information, visit the Company's website at www.mercuryinsurance.com. 

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for certain forward-looking statements. Certain statements contained in this report are forward-looking statements based on the Company's current expectations and beliefs concerning future developments and their potential effects on the Company. There can be no assurance that future developments affecting the Company will be those anticipated by the Company. Actual results may differ from those projected in the forward-looking statements. These forward-looking statements involve significant risks and uncertainties (some of which are beyond the control of the Company) and are subject to change based upon various factors, including but not limited to the following risks and uncertainties: changes in the demand for the Company's insurance products, inflation and general economic conditions, including general market risks associated with the Company's investment portfolio; the accuracy and adequacy of the Company's pricing methodologies; catastrophes in the markets served by the Company; uncertainties related to estimates, assumptions and projections generally; the possibility that actual loss experience may vary adversely from the actuarial estimates made to determine the Company's loss reserves in general; the Company's ability to obtain and the timing of the approval of premium rate changes for insurance policies issued in the states where it operates; legislation adverse to the automobile insurance industry or business generally that may be enacted in the states where the Company operates; the Company's success in managing its business in non-California states; the presence of competitors with greater financial resources and the impact of competitive pricing and marketing efforts; the Company's ability to successfully manage its claims organization outside of California; the Company's ability to successfully allocate the resources used in the states with reduced or exited operations to its operations in other states; changes in driving patterns and loss trends; acts of war and terrorist activities; pandemics, epidemics, widespread health emergencies, or outbreaks of infectious diseases; court decisions and trends in litigation and health care and auto repair costs; and legal, cybersecurity, regulatory and litigation risks. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise. For a more detailed discussion of some of the foregoing risks and uncertainties, see the Company's Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 15, 2022.

MERCURY GENERAL CORPORATION AND SUBSIDIARIES
SUMMARY OF OPERATING RESULTS
(000's except per-share amounts and ratios)
(unaudited)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenues:
Net premiums earned	$         996,939		$         940,941		$      2,947,000		$      2,783,682
Net investment income	44,563		32,334		118,469		95,566
Net realized investment (losses) gains	(144,213)		(43,543)		(581,237)		56,953
Other	2,998		2,481		7,141		7,883
Total revenues	900,287		932,213		2,491,373		2,944,084
Expenses:
Losses and loss adjustment expenses	787,462		697,947		2,436,175		1,981,519
Policy acquisition costs	168,870		153,142		487,444		468,556
Other operating expenses	68,585		80,238		208,305		216,723
Interest	4,273		4,267		12,822		12,845
Total expenses	1,029,190		935,594		3,144,746		2,679,643
(Loss) income before income taxes	(128,903)		(3,381)		(653,373)		264,441
Income tax (benefit) expense	(30,600)		(4,669)		(147,471)		46,977
Net (loss) income	$         (98,303)		$             1,288		$       (505,902)		$         217,464
Basic average shares outstanding	55,371		55,371		55,371		55,367
Diluted average shares outstanding	55,371		55,375		55,371		55,375
Basic Per Share Data
Net (loss) income	$             (1.78)		$               0.02		$             (9.14)		$               3.93
Net realized investment (losses) gains, net of tax	$             (2.06)		$              (0.62)		$             (8.29)		$               0.82
Diluted Per Share Data
Net (loss) income	$             (1.78)		$               0.02		$             (9.14)		$               3.93
Net realized investment (losses) gains, net of tax	$             (2.06)		$              (0.62)		$             (8.29)		$               0.82
Operating Ratios-GAAP Basis
Loss ratio	79.0 %		74.2 %		82.7 %		71.2 %
Expense ratio	23.8 %		24.8 %		23.6 %		24.6 %
Combined ratio	102.8 %		99.0 %		106.3 %		95.8 %

 

 

MERCURY GENERAL CORPORATION AND SUBSIDIARIES
CONDENSED BALANCE SHEETS AND OTHER INFORMATION
(000's except per-share amounts and ratios)
	September 30, 2022		December 31, 2021
	(unaudited)
ASSETS
Investments, at fair value:
Fixed maturity securities (amortized cost $4,105,574; $3,909,780)	$             3,897,859		$             4,031,523
Equity securities (cost $688,401; $754,536)	684,335		970,939
Short-term investments (cost $101,548; $141,206)	100,621		140,127
Total investments	4,682,815		5,142,589
Cash	335,886		335,557
Receivables:
Premiums	646,942		621,740
Allowance for credit losses on premiums receivable	(6,000)		(6,000)
Premiums receivable, net of allowance for credit losses	640,942		615,740
Accrued investment income	48,894		43,299
Other	7,871		7,600
Total receivables	697,707		666,639
Reinsurance recoverables	25,309		45,000
Deferred policy acquisition costs	279,726		258,259
Fixed assets, net	189,753		191,332
Operating lease right-of-use assets	23,610		31,967
Current income taxes	48,429		20,108
Deferred income taxes	65,705		—
Goodwill	42,796		42,796
Other intangible assets, net	9,455		10,255
Other assets	53,470		27,970
Total assets	$             6,454,661		$             6,772,472
LIABILITIES AND SHAREHOLDERS' EQUITY
Loss and loss adjustment expense reserves	$             2,432,734		$             2,226,430
Unearned premiums	1,635,459		1,519,799
Notes payable	373,230		372,931
Accounts payable and accrued expenses	155,441		169,125
Operating lease liabilities	26,366		34,577
Deferred income taxes	—		53,569
Other liabilities	284,950		255,760
Shareholders' equity	1,546,481		2,140,281
Total liabilities and shareholders' equity	$             6,454,661		$             6,772,472
OTHER INFORMATION
Common stock shares outstanding	55,371		55,371
Book value per share	$                    27.93		$                    38.65
Statutory surplus (a)	$1.59 billion		$1.83 billion
Net premiums written to surplus ratio (a)	2.51		2.11
Debt to total capital ratio (b)	19.5 %		14.9 %
Portfolio duration (including all short-term instruments) (a) (c)	3.8 years		3.4 years
Policies-in-force (company-wide "PIF") (a)
Personal Auto PIF	1,124		1,122
Homeowners PIF	733		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.

 

SUPPLEMENTAL SCHEDULES
(000's except per-share amounts and ratios) (unaudited)
	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Reconciliations of Comparable GAAP Measures to Operating Measures (a)
Net premiums earned	$          996,939		$          940,941		$    2,947,000		$    2,783,682
Change in net unearned premiums	37,537		74,026		115,267		139,009
Net premiums written	$       1,034,476		$       1,014,967		$    3,062,267		$    2,922,691
Incurred losses and loss adjustment expenses	$          787,462		$          697,947		$    2,436,175		$    1,981,519
Change in net loss and loss adjustment expense reserves	(48,086)		(51,874)		(223,269)		(153,849)
Paid losses and loss adjustment expenses	$          739,376		$          646,073		$    2,212,906		$    1,827,670
Net (loss) income	$          (98,303)		$              1,288		$     (505,902)		$       217,464
Less: Net realized investment (losses) gains	(144,213)		(43,543)		(581,237)		56,953
Tax on net realized investment (losses) gains (b)	(30,285)		(9,144)		(122,060)		11,960
Net realized investment (losses) gains, net of tax	(113,928)		(34,399)		(459,177)		44,993
Operating income (loss)	$            15,625		$            35,687		$       (46,725)		$       172,471
Per diluted share:
Net (loss) income	$              (1.78)		$                0.02		$           (9.14)		$             3.93
Less: Net realized investment (losses) gains, net of tax	(2.06)		(0.62)		(8.29)		0.82
Operating income (loss) (c)	$                0.28		$                0.64		$           (0.84)		$             3.11
Combined ratio					106.3 %		95.8 %
Effect of estimated prior periods' loss development					(1.7) %		0.9 %
Combined ratio-accident period basis					104.6 %		96.7 %

(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 nine months ended September 30, 2022 does not sum due to rounding.

Information Regarding GAAP and Non-GAAP Measures

The Company has presented information within this document containing operating measures which in management's opinion provide investors with useful, industry specific information to help them evaluate, and perform meaningful comparisons of, the Company's performance, but that may not be presented in accordance with GAAP. These measures are not intended to replace, and should be read in conjunction with, the GAAP financial results.

Net income is the GAAP measure that is most directly comparable to operating income. Operating income is net income excluding realized investment gains and losses, net of tax. Operating income is used by management along with the other components of net income to assess the Company's performance. Management uses operating income as an important measure to evaluate the results of the Company's insurance business. Management believes that operating income provides investors with a valuable measure of the Company's ongoing performance as it reveals trends in the Company's insurance business that may be obscured by the effect of net realized investment gains and losses. Realized investment gains and losses may vary significantly between periods and are generally driven by external economic developments such as capital market conditions. Accordingly, operating income highlights the results from ongoing operations and the underlying profitability of the Company's core insurance business. Operating income, which is provided as supplemental information and should not be considered as a substitute for net income, does not reflect the overall profitability of the Company's business. It should be read in conjunction with the GAAP financial results. See "Supplemental Schedules" above for a reconciliation of net income to operating income.

Net premiums earned, the most directly comparable GAAP measure to net premiums written, represents the portion of premiums written that is recognized as revenue in the financial statements for the periods presented and earned on a pro-rata basis over the term of the policies. Net premiums written is a statutory financial measure which represents the premiums charged on policies issued during a fiscal period less any applicable reinsurance.  Net premiums written is designed to determine production levels and is meant as supplemental information and not intended to replace net premiums earned. Such information should be read in conjunction with the GAAP financial results. See "Supplemental Schedules" above for a reconciliation of net premiums earned to net premiums written.

Incurred losses and loss adjustment expenses is the most directly comparable GAAP measure to paid losses and loss adjustment expenses. Paid losses and loss adjustment expenses excludes the effects of changes in the loss reserve accounts. Paid losses and loss adjustment expenses is provided as supplemental information and is not intended to replace incurred losses and loss adjustment expenses. It should be read in conjunction with the GAAP financial results. See "Supplemental Schedules" above for a reconciliation of incurred losses and loss adjustment expenses to paid losses and loss adjustment expenses.

Combined ratio is the most directly comparable measure to combined ratio-accident period basis. Combined ratio-accident period basis is computed as the difference between two GAAP operating ratios: the combined ratio and prior accident periods' loss development ratio. Management believes that combined ratio-accident period basis is useful to investors and it is used to reveal the trends in the Company's results of operations that may be obscured by development on prior accident periods' loss reserves. Combined ratio-accident period basis is meant as supplemental information and is not intended to replace the GAAP combined ratio. It should be read in conjunction with the GAAP financial results. See "Supplemental Schedules" above for a reconciliation of GAAP combined ratio to combined ratio-accident period basis. 

 

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SOURCE Mercury General Corporation

FAQ

What were Mercury General's net premiums earned in Q3 2022?

Mercury General reported net premiums earned of $996.9 million in Q3 2022.

How much was the net loss for Mercury General in Q3 2022?

The net loss for Mercury General in Q3 2022 was $98.3 million.

What is the combined ratio for Mercury General in Q3 2022?

The combined ratio for Mercury General in Q3 2022 was 102.8%.

What dividend did Mercury General declare for Q4 2022?

Mercury General declared a quarterly dividend of $0.3175 per share, payable on December 29, 2022.