MCY Shareholder/Stockholder Letter Transcript:
Speed and Agility
Mercury General Corporation I 2023 Annual Report
Mercury General Corporation
Teamwork
Much like the specialists in a pit crew, each of our employees brings his or her own set of
diverse skills and expertise to the table. Each contributing a crucial element to the overall
success of our company.
Trust forms the foundation, allowing employees to rely on their colleagues to fulfill their
roles with precision. Just as a pit crew works to optimize a race car's performance, our
employees collaborate to enhance our company's productivity and success.
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2023 Annual Report
Core Values
We do the right thing
We own it
We put people first. We treat people
the way we want to be treated.
We act with initiative and passion,
balancing decisiveness and attention
to detail to drive results.
We seek a better way
We move quickly
We are explorers discovering new paths
forward. We overcome challenges with
bold and creative solutions and learn
from every step.
We move with Mercurian speed.
We swiftly put ideas into action and
rapidly adapt in a changing world.
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Mercury General Corporation
Letter to Shareholders
Our number one priority in 2023 was to improve profitability. And although we are pleased to report
our operating results improved in 2023, we have more work to do. The two components of operating
income, investment income and underwriting margin, both improved in 2023. Investment income
increased significantly and while our underwriting margin improved, it was still significantly lower
than our 4% target margin as continued inflation, increasing frequency, delays in obtaining rate
increases in California, our largest market, and the highest Catastrophe losses, net of reinsurance, in
the Company s history partially offset the rate and non-rate actions we took to improve profitability.
However, as we discuss below, the full year 2023 results do not paint a full picture as our results in
the second half of 2023 were significantly better than the first half of 2023. We believe we are well
positioned going into 2024 to continue to improve our results.
Mercury General
U.S. Industry
100.7%
103.0%
109.5%
111.7%
110.3%
(In percent)
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90.5%
88.3%
96.0%
98.1%
We posted operating income of $0.30 per share in 2023
compared to an operating loss of $2.30 per share in 2022. The
improvement in operating earnings was due to a reduction in
the combined ratio from 108.7% in 2022 to 105.4% in 2023, and
an increase in after-tax investment income of $54 million, from
$146.2 million in 2022 to $200.2 million in 2023. Contributing
to the reduction in the combined ratio in 2023 was $36 million
of favorable reserve development compared to $47 million of
unfavorable reserve development in 2022. Better results in
our Private Passenger and Commercial Automobile lines of
business was the primary reason for the improvement in the
combined ratio. The improvement in our Private Passenger
and Commercial Automobile combined ratio was partially
offset by worse results in our Homeowners and Commercial
Property lines of business. Our Homeowners line of business
was significantly impacted by the highest Catastrophe losses,
net of reinsurance, in Company history. Catastrophe losses
of $239 million in 2023 were significantly higher than the
$102 million of Catastrophe losses in 2022. Although our
combined ratio was 105.4% in 2023, it improved significantly
as the year progressed from the combination of rate increases
earning in and lower Catastrophe losses during the second
half of 2023. Our combined ratio in the first half of 2023 was
112.9% compared to 98.6% in the second half of 2023.
Combined Ratio vs. Industry
98.2%
In California, it s the hardest market we have seen in a long
time. Some carriers stopped writing new Automobile and
Homeowners business while some have limited the amount
of business they write. Delays in obtaining regulatory approval
for rate increases and the inability to include reinsurance costs
in Homeowners rates or use wildfire models for Catastrophe
losses in rate filings contributed to the hard market. However,
the California Department of Insurance (DOI) began approving
rate increases in 2023. Consequently, we expect the market to
soften somewhat during 2024 as carriers get rate adequate. In
addition to approving rate increases, the DOI has committed
to making changes to improve market conditions. We will
monitor the DOI s plan to improve market conditions and will
take appropriate actions as necessary.
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22
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23*
* Industry data for 2023 is a published estimate.
Source for Industry Data: A.M. Best Company, for Private Passenger
Automobile line of all Property and Casualty insurance companies.
Combined Ratio for Mercury General: for Private Passenger
Automobile line of business only for comparison with the industry ratio.
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2023 Annual Report
(In percent)
Private Passenger
Automobile
62.4%
Homeowners
24.5%
Commercial Automobile
7.6%
All Other
Commercial Multi-Peril
3.2%
2.3%
Operating Leverage
2.7
2.7
(Net Premiums Written/Policyholders Surplus as ratio)
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2.1
2.0
Our Homeowners combined ratio increased from
104% in 2022 to 108% in 2023. Catastrophe losses
added 18.2 points to our Homeowners combined ratio
in 2023 compared to 8.8 points in 2022. In May 2023
we implemented a 12.6% rate increase in our California
Homeowners line of business and an additional 6.99%
rate increase was recently approved by the California
DOI. We expect to implement the 6.99% rate increase in
May of 2024. California Homeowners premiums written
represents about 71% of total Homeowners premiums
written and 17% of Companywide premiums written.
Outside of California we increased Homeowners rates
significantly in 2023 . Company wide Homeowners
premiums written grew 18% in 2023 to $1,042 million. The
increase in premiums written was higher than expected
as we anticipated a slowdown in new business from rate
increases. However, the market remained hard during
2023 resulting in new business being up slightly from
2022. We expect premium growth in our Homeowners
line in 2024 from rate increases and expect profitability
to improve, barring Catastrophe losses exceeding our
expectations, as higher average premiums should more
than offset an increase in expected losses.
Direct Premiums Written by Line of Business
2.4
In l a s t ye a r s l et te r to sh a re h o l d e r s , we s a i d we
expected to improve our Private Passenger Automobile
profitability in 2023, but still have a combined ratio
over 100% as rate increases take time to earn in. Our
expectations came to fruition as our Private Passenger
Automobile combined ratio was 103% in 2023 compared
to 110.3% in 2022. The significant improvement in our
Private Passenger Automobile combined ratio was
primarily due to rate increases and non-rate actions. In
California, we implemented two 6.9% rate increases,
one in March of 2023 and one in July of 2023. The
combination of the two rate increases, and our nonrate actions helped offset increases in frequency and
severity. California frequency increased by 1% and
severity increased by 7% in 2023, lower than the 5% and
12% increases in frequency and severity, respectively, in
2022. In February 2024 we implemented a 20.7% rate
increase in our California Private Passenger Automobile
line of business that will have a positive impact on
profitability in 2024. In states outside of California, we
increased Private Passenger Automobile rates by 22.7%
in 2023. We expect our Private Passenger Automobile
profitabilit y to improve in 2024 as rate increases
continue to earn in. Premiums written in our Private
Passenger Automobile line increased 9.3% in 2023.
The increase in premiums written was primarily due to
higher average premiums from rate increases. We expect
our Private Passenger Automobile premiums written to
increase in 2024 primarily from higher average rates.
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3/25/2024 Letter Continued (Full PDF)