PR Newswire | Nov 2, 2021 04:06PM EDT

Quarterly Dividend

11/02 15:05 CDT

Mercury General Corporation Announces Third Quarter Results and Increases Quarterly Dividend LOS ANGELES, Nov. 2, 2021

LOS ANGELES, Nov. 2, 2021 /PRNewswire/ -- Mercury General Corporation (NYSE: MCY) reported today for the third quarter of 2021:

Consolidated Highlights

Three Months Ended Change Nine Months Ended Change September 30, September 30,

2021 2020 $ % 2021 2020 $ %

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

Net premiums earned^ (2) $940,941 $899,304 $41,637 4.6 $2,783,682 $2,633,775 $149,907 5.7

Net premiums written ^(1) (2) $1,014,967 $942,888 $72,079 7.6 $2,922,691 $2,716,016 $206,675 7.6



Net realized investment (losses) gains, net of tax ^(3)$(34,399) $50,904 $(85,303) (167.6)$44,993 $(22,482) $67,475 NM

Net income $1,288 $118,857 $(117,569)(98.9) $217,464 $207,864 $9,600 4.6

Net income per diluted share $0.02 $2.15 $(2.13) (99.1) $3.93 $3.75 $0.18 4.8



Operating income ^(1) $35,687 $67,953 $(32,266) (47.5) $172,471 $230,346 $(57,875)(25.1)

Operating income per diluted share ^(1) $0.64 $1.23 $(0.59) (48.0) $3.11 $4.16 $(1.05) (25.2)

Catastrophe losses net of reinsurance ^(4) $25,000 $29,000 $(4,000) (13.8) $85,000 $43,000 $42,000 97.7

Combined ratio ^(5) 99.0 %94.3 %- 4.7 pts 95.8 %93.0 %- 2.8 pts

NM = not meaningful

These measures are not based on U.S. generally accepted accounting^ principles ("GAAP"), are defined in "Information Regarding GAAP and(1) Non-GAAP Measures" and are reconciled to the most directly comparable GAAP measures in "Supplemental Schedules."

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 under the "Mercury Giveback" program for reduced^ driving and business activities following the outbreak of the COVID-19(2) pandemic. Excluding these premium refunds and credits, net premiums earned and net premiums written increased 2.2% and 5.2%, respectively, for the three months ended September 30, 2021 from the corresponding period in 2020, and 0.8% and 2.8%, respectively, for the nine months ended September 30, 2021 from the corresponding period in 2020.

Net realized investment (losses) gains before tax were $(44) million and $64 million for the three months ended September 30, 2021 and 2020,^ respectively, and $57 million and $(28) million for the nine months ended(3) September 30, 2021 and 2020, 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.

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. These losses were partially offset by favorable(4) development of approximately $6 million on prior years' catastrophe losses. 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.

The Company experienced favorable development of approximately $8 million and $2 million on prior accident years' loss and loss adjustment expense reserves for the three months ended September 30, 2021 and 2020, respectively, and favorable development of approximately $24 million and unfavorable development of approximately $26 million on prior accident years' loss and loss adjustment expense reserves for the nine months ended September 30, 2021 and 2020, respectively. The year-to-date favorable^ development in 2021 was primarily attributable to lower than estimated(5) losses and loss adjustment expenses in the private passenger automobile and homeowners lines of insurance business, partially offset by unfavorable development in the commercial automobile line of insurance business. 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.

Investment Results



Three Months Ended September 30, Nine Months Ended September 30,

2021 2020 2021 2020

(000's except average annual yield)

Average invested assets at cost ^(1)$ 4,751,171 $ 4,328,804 $ 4,643,916 $ 4,256,759

Net investment income ^(2)

Before income taxes $ 32,334 $ 32,140 $ 95,566 $ 100,801

After income taxes $ 28,708 $ 28,789 $ 85,168 $ 89,757

Average annual yield on investments 2.4 % 2.7 % 2.5 % 2.8 % - after income taxes^ (2)

^ Fixed maturities and short-term bonds at amortized cost; equities and other(1) short-term investments at cost. Average invested assets at cost are based on the monthly amortized cost of the invested assets for each period.

Net investment income before and after income taxes for the three months ended September 30, 2021 remained relatively steady compared to the corresponding period in 2020, resulting largely from a lower average yield on investments mostly offset by higher average invested assets. Lower net investment income before and after income taxes for the nine months ended^ September 30, 2021 compared to the corresponding period in 2020 resulted(2) 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, 2021 decreased compared to the corresponding periods in 2020, 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.

The Board of Directors declared a quarterly dividend of $0.6350 per share. The dividend will be paid on December 30, 2021 to shareholders of record on December 16, 2021.

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 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 16, 2021.

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,

2021 2020 2021 2020

Revenues:

Net premiums earned $940,941 $899,304 $ 2,783,682 $2,633,775

Net investment income 32,334 32,140 95,566 100,801

Net realized investment (losses) gains (43,543) 64,436 56,953 (28,458)

Other 2,481 2,894 7,883 6,810

Total revenues 932,213 998,774 2,944,084 2,712,928

Expenses:

Losses and loss adjustment expenses 697,947 618,657 1,981,519 1,765,627

Policy acquisition costs 153,142 157,365 468,556 463,604

Other operating expenses 80,238 71,859 216,723 219,519

Interest 4,267 4,262 12,845 12,786

Total expenses 935,594 852,143 2,679,643 2,461,536

(Loss) income before income taxes (3,381) 146,631 264,441 251,392

Income tax (benefit) expense (4,669) 27,774 46,977 43,528

Net income $1,288 $118,857 $ 217,464 $207,864



Basic average shares outstanding 55,371 55,358 55,367 55,358

Diluted average shares outstanding 55,375 55,358 55,375 55,358



Basic Per Share Data

Net income $0.02 $2.15 $ 3.93 $3.75

Net realized investment (losses) gains, net of tax$(0.62) $0.92 $ 0.82 $(0.41)



Diluted Per Share Data

Net income $0.02 $2.15 $ 3.93 $3.75

Net realized investment (losses) gains, net of tax$(0.62) $0.92 $ 0.82 $(0.41)



Operating Ratios-GAAP Basis

Loss ratio 74.2 % 68.8 %71.2 % 67.0 %

Expense ratio 24.8 % 25.5 %24.6 % 25.9 %

Combined ratio^ (a) 99.0 % 94.3 %95.8 % 93.0 %

(a) 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, 2021 December 31, 2020

(unaudited)

ASSETS

Investments, at fair value:

Fixed maturity securities (amortized cost $3,850,850; $3,388,418) $ 3,990,513 $3,549,810

Equity securities (cost $734,861; $695,150) 890,620 803,851

Short-term investments (cost $194,721; $376,547) 193,621 375,609

Total investments 5,074,754 4,729,270

Cash 341,606 348,479

Receivables:

Premiums 653,599 599,070

Allowance for credit losses on premiums receivable (6,000) (10,000)

Premiums receivable, net of allowance for credit losses647,599 589,070

Accrued investment income 41,546 42,985

Other 7,258 10,730

Total receivables 696,403 642,785

Reinsurance recoverables 49,925 48,579

Allowance for credit losses on reinsurance recoverables - (91)

Reinsurance recoverables, net of allowance for credit losses49,925 48,488

Deferred policy acquisition costs 263,274 246,994

Fixed assets, net 185,934 178,923

Operating lease right-of-use assets 34,038 40,554

Current income taxes 10,420 -

Goodwill 42,796 42,796

Other intangible assets, net 10,522 11,322

Other assets 44,701 38,635

Total assets $ 6,754,373 $6,328,246

LIABILITIES AND SHAREHOLDERS' EQUITY

Loss and loss adjustment expense reserves $ 2,142,121 $1,991,304

Unearned premiums 1,545,297 1,405,873

Notes payable 372,831 372,532

Accounts payable and accrued expenses 182,138 194,421

Operating lease liabilities 36,843 43,825

Current income taxes - 10,426

Deferred income taxes 39,524 41,132

Other liabilities 290,686 236,136

Shareholders' equity 2,144,933 2,032,597

Total liabilities and shareholders' equity $ 6,754,373 $6,328,246



OTHER INFORMATION

Common stock shares outstanding 55,371 55,358

Book value per share $ 38.74 $36.72

Statutory surplus ^(a) $1.84 billion $1.77 billion

Net premiums written to surplus ratio ^(a) 2.07 2.04

Debt to total capital ratio^ (b) 14.9 % 15.6 %

Portfolio duration (including all short-term instruments) ^(a) (c) 3.3 years 3.0 years

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

Personal Auto PIF 1,114 1,116

Homeowners PIF 696 671

Commercial Auto PIF 39 38

(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,

2021 2020 2021 2020



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



Net premiums earned $ 940,941 $899,304 $2,783,682 $2,633,775

Change in net unearned premiums 74,026 43,584 139,009 82,241

Net premiums written $ 1,014,967 $942,888 $2,922,691 $2,716,016



Incurred losses and loss adjustment expenses $ 697,947 $618,657 $1,981,519 $1,765,627

Change in net loss and loss adjustment expense reserves (51,874) (71,769) (153,849) (42,074)

Paid losses and loss adjustment expenses $ 646,073 $546,888 $1,827,670 $1,723,553



Net income $ 1,288 $118,857 $217,464 $207,864

Less: Net realized investment (losses) gains (43,543) 64,436 56,953 (28,458)

Tax on net realized investment (losses) gains ^(b) (9,144) 13,532 11,960 (5,976)

Net realized investment (losses) gains, net of tax(34,399) 50,904 44,993 (22,482)

Operating income $ 35,687 $67,953 $172,471 $230,346



Per diluted share:

Net income $ 0.02 $2.15 $3.93 $3.75

Less: Net realized investment (losses) gains, net of tax (0.62) 0.92 0.82 (0.41)

Operating income $ 0.64 $1.23 $3.11 $4.16



Combined ratio 95.8 % 93.0 %

Effect of estimated prior periods' loss development 0.9 % (1.0) %

Combined ratio-accident period basis 96.7 % 92.0 %

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

(b) Federal statutory rate of 21%.

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 incomeis 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 basisis 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