Consolidated Highlights

Three Months Ended
September 30,

Change

Nine Months Ended
September 30,

Change

2020

2019

$

%

2020

2019

$

%

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

Net premiums earned ⁽²⁾

$

899,304

$

915,012

$

(15,708)

(1.7)

$

2,633,775

$

2,674,034

$

(40,259)

(1.5)

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

$

942,888

$

983,056

$

(40,168)

(4.1)

$

2,716,016

$

2,835,583

$

(119,567)

(4.2)

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

$

50,904

$

26,326

$

24,578

93.4

$

(22,482)

$

156,204

$

(178,686)

(114.4)

Net income

$

118,857

$

69,282

$

49,575

71.6

$

207,864

$

288,399

$

(80,535)

(27.9)

Net income per diluted share

$

2.15

$

1.25

$

0.90

72.0

$

3.75

$

5.21

$

(1.46)

(28.0)

Operating income ⁽¹⁾

$

67,953

$

42,956

$

24,997

58.2

$

230,346

$

132,195

$

98,151

74.2

Operating income per diluted share ⁽¹⁾

$

1.23

$

0.78

$

0.45

57.7

$

4.16

$

2.39

$

1.77

74.1

Catastrophe losses net of reinsurance ⁽⁴⁾

$

29,000

$

3,000

$

26,000

866.7

$

43,000

$

17,000

$

26,000

152.9

Combined ratio ⁽⁵⁾

94.3

%

98.6

%

—

(4.3) pts

93.0

%

98.1

%

—

(5.1) 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 approximately $21 million and $128 million for the three and nine months ended September 30, 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 (losses) before tax were $64 million and $33 million for the three months ended September 30, 2020 and 2019, respectively, and $(28) million and $198 million for the nine months ended September 30, 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. The fair value of the Company's investments substantially declined in the first quarter of 2020, primarily due to the overall market disruptions and dislocations following the outbreak of the COVID-19 pandemic, and has significantly recovered in the second and third quarters of 2020.

⁽⁴⁾

Catastrophe losses due to the events that occurred during the nine months ended September 30, 2020 totaled approximately $48 million, with no reinsurance benefits used for these losses, resulting primarily from wildfires and windstorms in California and extreme weather events outside of California. These losses 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 nine months ended September 30, 2019 totaled approximately $20 million, with no reinsurance benefits used for these losses, resulting primarily from 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 $3 million on prior years' catastrophe losses.  

⁽⁵⁾

The Company experienced favorable development of approximately $2 million and $1 million on prior accident years' loss and loss adjustment expense reserves for the three months ended September 30, 2020 and 2019, respectively, and unfavorable development of approximately $26 million and $10 million on prior accident years' loss and loss adjustment expense reserves for the nine months ended September 30, 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 California private passenger automobile line of insurance business. 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 September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

(000's except average annual yield)

Average invested assets at cost ⁽¹⁾

$

4,328,804

$

4,048,498

$

4,256,759

$

3,976,582

Net investment income ⁽²⁾

     Before income taxes

$

32,140

$

36,356

$

100,801

$

105,562

     After income taxes

$

28,789

$

32,186

$

89,757

$

93,844

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

2.7

%

3.2

%

2.8

%

3.2

%

⁽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⁾

Lower net investment income before and after income taxes for the three and nine months ended September 30, 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 nine months ended September 30, 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 September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

Revenues:

     Net premiums earned

$

899,304

$

915,012

$

2,633,775

$

2,674,034

     Net investment income

32,140

36,356

100,801

105,562

     Net realized investment gains (losses)

64,436

33,324

(28,458)

197,726

     Other

2,894

2,603

6,810

7,203

          Total revenues

998,774

987,295

2,712,928

2,984,525

Expenses:

     Losses and loss adjustment expenses

618,657

680,928

1,765,627

1,967,921

     Policy acquisition costs

157,365

150,929

463,604

447,971

     Other operating expenses

71,859

70,341

219,519

206,250

     Interest

4,262

4,257

12,786

12,779

          Total expenses

852,143

906,455

2,461,536

2,634,921

Income before income taxes

146,631

80,840

251,392

349,604

     Income tax expense 

27,774

11,558

43,528

61,205

                    Net income

$

118,857

$

69,282

$

207,864

$

288,399

Basic average shares outstanding

55,358

55,355

55,358

55,349

Diluted average shares outstanding

55,358

55,366

55,358

55,360

Basic Per Share Data

Net income

$

2.15

$

1.25

$

3.75

$

5.21

Net realized investment gains (losses), net of tax

$

0.92

$

0.47

$

(0.41)

$

2.82

Diluted Per Share Data

Net income

$

2.15

$

1.25

$

3.75

$

5.21

Net realized investment gains (losses), net of tax

$

0.92

$

0.47

$

(0.41)

$

2.82

Operating Ratios-GAAP Basis

Loss ratio

68.8

%

74.4

%

67.0

%

73.6

%

Expense ratio

25.5

%

24.2

%

25.9

%

24.5

%

Combined ratio ⁽¹⁾

94.3

%

98.6

%

93.0

%

98.1

%

⁽¹⁾

Combined ratio for the nine months ended September 30, 2020 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)

September 30, 2020

December 31, 2019

(unaudited)

ASSETS

Investments, at fair value:

     Fixed maturity securities (amortized cost $3,344,014; $2,973,276)

$

3,485,363

$

3,093,275

     Equity securities (cost $769,821; $648,282)

809,591

724,751

     Short-term investments (cost $253,785; $494,060)

253,842

494,135

          Total investments

4,548,796

4,312,161

Cash

322,129

294,398

Receivables:

     Premiums

631,091

606,316

          Allowance for credit losses on premiums receivable

(10,000)

(1,445)

                  Premiums receivable, net of allowance for credit losses

621,091

604,871

     Accrued investment income

43,356

40,107

     Other

10,014

6,464

          Total receivables

674,461

651,442

Reinsurance recoverables

41,432

78,774

      Allowance for credit losses on reinsurance recoverables

(58)

—

             Reinsurance recoverables, net of allowance for credit losses

41,374

78,774

Deferred policy acquisition costs

251,462

233,166

Fixed assets, net

174,924

168,986

Operating lease right-of-use assets

41,075

44,909

Current income taxes

—

7,642

Goodwill

42,796

42,796

Other intangible assets, net

9,939

10,636

Other assets

38,832

44,247

          Total assets

$

6,145,788

$

5,889,157

LIABILITIES AND SHAREHOLDERS' EQUITY

Loss and loss adjustment expense reserves

$

1,941,986

$

1,921,255

Unearned premiums

1,432,549

1,355,547

Notes payable

372,432

372,133

Accounts payable and accrued expenses

180,312

143,318

Operating lease liabilities

44,558

47,996

Current income taxes

6,401

—

Deferred income taxes

19,996

27,964

Other liabilities

246,722

221,442

Shareholders' equity

1,900,832

1,799,502

          Total liabilities and shareholders' equity

$

6,145,788

$

5,889,157

OTHER INFORMATION

Common stock shares outstanding

55,358

55,358

Book value per share

$

34.34

$

32.51

Statutory surplus ^(a)

$1.64 billion

$1.54 billion

Net premiums written to surplus ratio ^(a)

2.21

2.42

Debt to total capital ratio ^(b)

16.5

%

17.2

%

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

3.2 years

3.2 years

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

     Personal Auto PIF

1,107

1,139

     Homeowners PIF

667

646

     Commercial Auto PIF

37

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 September 30,

Nine Months Ended September 30,

2020

2019

2020

2019

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

Net premiums earned

$

899,304

$

915,012

$

2,633,775

$

2,674,034

Change in net unearned premiums

43,584

68,044

82,241

161,549

Net premiums written

$

942,888

$

983,056

$

2,716,016

$

2,835,583

Incurred losses and loss adjustment expenses

$

618,657

$

680,928

$

1,765,627

$

1,967,921

Change in net loss and loss adjustment expense reserves

(71,769)

(74,558)

(42,074)

(102,811)

Paid losses and loss adjustment expenses

$

546,888

$

606,370

$

1,723,553

$

1,865,110

Net income

$

118,857

$

69,282

$

207,864

$

288,399

Less: Net realized investment gains (losses)

64,436

33,324

(28,458)

197,726

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

13,532

6,998

(5,976)

41,522

             Net realized investment gains (losses), net of tax

50,904

26,326

(22,482)

156,204

Operating income

$

67,953

$

42,956

$

230,346

$

132,195

Per diluted share:

Net income

$

2.15

$

1.25

$

3.75

$

5.21

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

0.92

0.47

(0.41)

2.82

Operating income

$

1.23

$

0.78

$

4.16

$

2.39

Combined ratio

93.0

%

98.1

%

Effect of estimated prior periods' loss development

(1.0)

%

(0.4)

%

Combined ratio-accident period basis

92.0

%

97.7

%

(a)

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

(b)

Federal statutory rate of 21%.