Mercury General Corp 8-K, filed Aug 3, 2020

Mercury General Corp (MCY)

8-K 2020-08-03 For: 2020-08-03

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Added on April 10, 2026

About this 8-K

Mercury General Corp filed this 8-K on August 3, 2020.

Items reported

Item 2.02: Financial results
Item 9.01: Financial statements and exhibits

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California		95-2211612
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

4484 Wilshire Boulevard
Los Angeles,	California	90010
(Address of principal executive offices)		(Zip Code)

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock	MCY	New York Stock Exchange


99.1		Press Release, dated August 3, 2020, issued by Mercury General Corporation, furnished pursuant to Item 2.02 of Form 8-K.
104		Cover Page Interactive Data File (embedded within the Inline XBRL document)


	MERCURY GENERAL CORPORATION
Date: August 3, 2020
	By:	/s/ Theodore R. Stalick
	Name:	Theodore R. Stalick
	Its:	Senior Vice President and Chief Financial Officer

Consolidated Highlights

	Three Months Ended June 30,						Change			Six Months Ended June 30,						Change
	2020			2019			$		%	2020			2019			$		%
(000's except per-share amounts and ratios)
Net premiums earned⁽²⁾	$	811,898		$	888,776		$	(76,878)	(8.6)	$	1,734,471		$	1,759,021		$	(24,550)	(1.4)
Net premiums written ^{(1) (2)}	$	818,912		$	936,079		$	(117,167)	(12.5)	$	1,773,127		$	1,852,527		$	(79,400)	(4.3)

Net realized investment gains (losses), net of tax ⁽³⁾	$	125,157		$	42,130		$	83,027	197.1	$	(73,386)		$	129,878		$	(203,264)	(156.5)
Net income	$	228,211		$	83,250		$	144,961	174.1	$	89,007		$	219,117		$	(130,110)	(59.4)
Net income per diluted share	$	4.12		$	1.50		$	2.62	174.7	$	1.61		$	3.96		$	(2.35)	(59.3)

Operating income ⁽¹⁾	$	103,054		$	41,120		$	61,934	150.6	$	162,393		$	89,239		$	73,154	82.0
Operating income per diluted share ⁽¹⁾	$	1.86		$	0.74		$	1.12	151.4	$	2.93		$	1.61		$	1.32	82.0
Catastrophe losses net of reinsurance ⁽⁴⁾	$	12,000		$	9,000		$	3,000	33.3	$	14,000		$	14,000		$	—	—
Combined ratio ⁽⁵⁾	88.2		%	98.3		%	—		(10.1) pts	92.3		%	97.8		%	—		(5.5) pts


	☐	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)


	☐	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14.a-12)


	☐	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

⁽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 net premiums written for the three and six months ended June 30, 2020 were each reduced by approximately $106 million due to premium refunds and credits to its eligible policyholders for reduced driving and business activities following the outbreak of the COVID-19 pandemic. See "Update on COVID-19" below for additional information.
⁽³⁾	Net realized investment gains (losses) before tax were $158 million and $53 million for the three months ended June 30, 2020 and 2019, respectively, and $(93) million and $164 million for the six months ended June 30, 2020 and 2019, respectively. Net realized investment gains (losses) before and net of tax were primarily the result of the changes in fair value of the Company's investments, which are recorded in 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 quarter of 2020.
⁽⁴⁾	Catastrophe losses due to the events that occurred during the six months ended June 30, 2020 totaled approximately $18 million, with no reinsurance benefits used for these losses, resulting primarily from extreme weather events outside of California and windstorms in California. These losses were partially offset by favorable development of approximately $4 million on prior years' catastrophe losses. Catastrophe losses due to the events that occurred during the six months ended June 30, 2019 totaled approximately $17 million, with no reinsurance benefits used for these losses, resulting primarily from winter storms in California 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 unfavorable development of approximately $12 million and $9 million on prior accident years' loss and loss adjustment expense reserves for the three months ended June 30, 2020 and 2019, respectively, and unfavorable development of approximately $27 million and $11 million on prior accident years' loss and loss adjustment expense reserves for the six months ended June 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 commercial automobile, homeowners and Florida private passenger automobile lines 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 lower than estimated California homeowners losses largely due to reductions in the Company's retained losses on the Camp and Woolsey Fires under the catastrophe reinsurance treaty, after accounting for the assignment of subrogation rights that occurred in the first quarter of 2019 and the re-estimation of reserves as part of normal reserving procedures.

Investment Results

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
(000's except average annual yield)
Average invested assets at cost ⁽¹⁾	$	4,220,468		$	3,995,712		$	4,218,721		$	3,940,185
Net investment income ⁽²⁾
Before income taxes	$	34,166		$	35,032		$	68,661		$	69,206
After income taxes	$	30,435		$	31,404		$	60,968		$	61,658
Average annual yield on investments - after income taxes⁽²⁾	2.9		%	3.1		%	2.9		%	3.1		%


MERCURY GENERAL CORPORATION AND SUBSIDIARIES SUMMARY OF OPERATING RESULTS (000's except per-share amounts and ratios) (unaudited)

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Revenues:
Net premiums earned	$	811,898		$	888,776		$	1,734,471		$	1,759,021
Net investment income	34,166			35,032			68,661			69,206
Net realized investment gains (losses)	158,426			53,329			(92,894)			164,403
Other	1,353			2,350			3,915			4,600
Total revenues	1,005,843			979,487			1,714,153			1,997,230
Expenses:
Losses and loss adjustment expenses	495,300			656,577			1,146,970			1,286,993
Policy acquisition costs	149,706			148,629			306,240			297,042
Other operating expenses	71,103			68,420			147,660			135,909
Interest	4,268			4,266			8,523			8,522
Total expenses	720,377			877,892			1,609,393			1,728,466
Income before income taxes	285,466			101,595			104,760			268,764
Income tax expense	57,255			18,345			15,753			49,647
Net income	$	228,211		$	83,250		$	89,007		$	219,117

Basic average shares outstanding	55,358			55,353			55,358			55,347
Diluted average shares outstanding	55,358			55,363			55,358			55,356

Basic Per Share Data
Net income	$	4.12		$	1.50		$	1.61		$	3.96
Net realized investment gains (losses), net of tax	$	2.26		$	0.76		$	(1.32)		$	2.35

Diluted Per Share Data
Net income	$	4.12		$	1.50		$	1.61		$	3.96
Net realized investment gains (losses), net of tax	$	2.26		$	0.76		$	(1.32)		$	2.35

Operating Ratios-GAAP Basis
Loss ratio	61.0		%	73.9		%	66.1		%	73.2		%
Expense ratio	27.2		%	24.4		%	26.2		%	24.6		%
Combined ratio	88.2		%	98.3		%	92.3		%	97.8		%

MERCURY GENERAL CORPORATION AND SUBSIDIARIES CONDENSED BALANCE SHEETS AND OTHER INFORMATION (000's except per-share amounts and ratios)

	June 30, 2020			December 31, 2019
	(unaudited)
ASSETS
Investments, at fair value:
Fixed maturity securities (amortized cost $3,207,125; $2,973,276)	$	3,327,362		$	3,093,275
Equity securities (cost $737,127; $648,282)	739,163			724,751
Short-term investments (cost $335,556; $494,060)	335,634			494,135
Total investments	4,402,159			4,312,161
Cash	262,153			294,398
Receivables:
Premiums	612,745			606,316
Allowance for credit losses on premiums receivable	(10,000)			(1,445)
Premiums receivable, net of allowance for credit losses	602,745			604,871
Accrued investment income	42,247			40,107
Other	8,421			6,464
Total receivables	653,413			651,442
Reinsurance recoverables	50,137			78,774
Allowance for credit losses on reinsurance recoverables	(88)			—
Reinsurance recoverables, net of allowance for credit losses	50,049			78,774
Deferred policy acquisition costs	242,740			233,166
Fixed assets, net	172,015			168,986
Operating lease right-of-use assets	43,207			44,909
Current income taxes	—			7,642
Goodwill	42,796			42,796
Other intangible assets, net	10,164			10,636
Other assets	38,041			44,247
Total assets	$	5,916,737		$	5,889,157
LIABILITIES AND SHAREHOLDERS' EQUITY
Loss and loss adjustment expense reserves	$	1,865,110		$	1,921,255
Unearned premiums	1,390,039			1,355,547
Notes payable	372,333			372,133
Accounts payable and accrued expenses	190,204			143,318
Operating lease liabilities	46,636			47,996
Current income taxes	6,853			—
Deferred income taxes	9,131			27,964
Other liabilities	219,616			221,442
Shareholders' equity	1,816,815			1,799,502
Total liabilities and shareholders' equity	$	5,916,737		$	5,889,157

OTHER INFORMATION
Common stock shares outstanding	55,358			55,358
Book value per share	$	32.82		$	32.51
Statutory surplus ^(a)	$1.59 billion			$1.54 billion
Net premiums written to surplus ratio ^(a)	2.29			2.42
Debt to total capital ratio^(b)	17.1		%	17.2		%
Portfolio duration (including all short-term instruments) ^{(a) (c)}	2.6 years			3.2 years
Policies-in-force (company-wide "PIF") ^(a)
Personal Auto PIF	1,117			1,139
Homeowners PIF	659			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 June 30,				Six Months Ended June 30,
	2020		2019		2020			2019

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

Net premiums earned	$	811,898	$	888,776	$	1,734,471		$	1,759,021
Change in net unearned premiums	7,014		47,303		38,656			93,506
Net premiums written	$	818,912	$	936,079	$	1,773,127		$	1,852,527

Incurred losses and loss adjustment expenses	$	495,300	$	656,577	$	1,146,970		$	1,286,993
Change in net loss and loss adjustment expense reserves	13,271		(16,829)		29,696			(28,254)
Paid losses and loss adjustment expenses	$	508,571	$	639,748	$	1,176,666		$	1,258,739

Net income	$	228,211	$	83,250	$	89,007		$	219,117
Less: Net realized investment gains (losses)	158,426		53,329		(92,894)			164,403
Tax on net realized investment gains (losses) ^(b)	33,269		11,199		(19,508)			34,525
Net realized investment gains (losses), net of tax	125,157		42,130		(73,386)			129,878
Operating income	$	103,054	$	41,120	$	162,393		$	89,239

Per diluted share:
Net income	$	4.12	$	1.50	$	1.61		$	3.96
Less: Net realized investment gains (losses), net of tax	2.26		0.76		(1.32)			2.35
Operating income	$	1.86	$	0.74	$	2.93		$	1.61

Combined ratio					92.3		%	97.8		%
Effect of estimated prior periods' loss development					(1.6)		%	(0.6)		%
Combined ratio-accident period basis					90.7		%	97.2		%


(a)	See "Information Regarding GAAP and Non-GAAP Measures" on page 7.
(b)	Federal statutory rate of 21%.