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Mercury General Corporation
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Mercury General Corporation
SEC Form 8-K Press Release — First Quarter 2025 Results
May 6, 2025
Three Months Ended March 31, 2025
SEC EDGAR (https://www.sec.gov/Archives/edgar/data/0000064996/000119312525113814/d839141dex991.htm)
Mercury General holds quarterly earnings conference calls, but FMP does not carry transcripts for MCY from mid-2020 through late 2024. This press release is the best available public record for Q1 2025.
CONSOLIDATED HIGHLIGHTS
Three Months Ended March 31,
2025 2024 Change $ Change %
Net premiums earned $1,283,069 $1,166,679 $116,390 10.0%
Net premiums written $1,314,381 $1,284,984 $29,397 2.3%
Net realized investment gains, net of tax $18,424 $30,171 ($11,747) (38.9%)
Net income (loss) ($108,327) $73,462 ($181,789) (247.5%)
Net income (loss) per diluted share ($1.96) $1.33 ($3.29) (247.4%)
Operating income (loss) ($126,751) $43,291 ($170,042) (392.8%)
Operating income (loss) per diluted share ($2.29) $0.78 ($3.07) (393.6%)
Catastrophe losses net of reinsurance $447,000 $72,000 $375,000 520.8%
Combined ratio 119.2% 93.0% — 26.2 pts
Operating income (loss) is net income (loss) excluding realized investment gains and losses, net of tax. Operating income (loss) is used by management to assess the Company's performance and reveals trends that may be obscured by the effect of net realized investment gains and losses.
Both net premiums earned and net premiums written for the three months ended March 31, 2025 include $76 million of increased ceded premiums. The Company paid and recorded $101 million of reinstatement premiums in the first quarter of 2025 to reinstate the fully exhausted reinsurance coverage layers of its catastrophe reinsurance treaty ending June 30, 2025 following the Palisades and Eaton wildfires in January 2025, $50 million of which was earned in the first quarter of 2025. Additionally, the remaining $26 million of original premiums written for the treaty year ended June 30, 2025, which would have normally been earned in the second quarter of 2025, was accelerated and earned in the first quarter of 2025.
The majority of 2025 catastrophe losses resulted from the Palisades and Eaton wildfires in California and severe storms in Texas and Oklahoma. Catastrophe losses net of reinsurance for the three months ended March 31, 2025 was reduced by approximately $525 million from subrogation recorded on the Palisades and Eaton wildfires.
The Company experienced favorable development of approximately $51 million on prior accident years' loss and loss adjustment expense reserves for the three months ended March 31, 2025, primarily attributable to lower than estimated losses and loss adjustment expenses in the private passenger automobile and homeowners lines of insurance business. The Company experienced unfavorable development of approximately $6 million on prior accident years' loss and loss adjustment expense reserves for the three months ended March 31, 2024.
INVESTMENT RESULTS
Three Months Ended March 31,
2025 2024
Average invested assets at cost $5,652,382 $5,366,347
Net investment income
Before income taxes $81,479 $65,019
After income taxes $67,851 $54,848
Average annual yield on investments
Before income taxes 4.8% 4.4%
After income taxes 4.0% 3.7%
Net investment income includes interest income earned on cash of approximately $13.1 million and $5.7 million ($10.3 million and $4.5 million after tax) for the three months ended March 31, 2025 and 2024, respectively. Higher net investment income before and after income taxes for the three months ended March 31, 2025 compared to the corresponding period in 2024 resulted largely from higher average yield combined with higher average invested assets and cash. The higher average yield was primarily due to the sale of certain low-yielding investments with a total fair value of approximately $600 million in January 2025 to provide ample liquidity for claims resulting from the Palisades and Eaton wildfires, combined with the replacement of certain lower yielding investments with higher yielding long-term investments, as a result of recent increases in certain long-term market interest rates.
The Board of Directors declared a quarterly dividend of $0.3175 per share.
UPDATED INFORMATION REGARDING THE PALISADES AND EATON WILDFIRES
In January 2025, extreme wind-driven wildfires caused widespread damage across parts of Southern California, primarily in the communities of Pacific Palisades and Altadena. The two largest of these Southern California wildfires are known as the Palisades and Eaton wildfires.
The Company recorded net catastrophe losses and loss adjustment expenses before taxes from the Palisades and Eaton wildfires of approximately $414 million in its consolidated statements of operations for the three months ended March 31, 2025.
Components of net losses from the Palisades and Eaton wildfires as of March 31, 2025:
Gross losses and loss adjustment expenses $2,149,000
Reinsurance recovered and recoverable ($1,293,500)
Net catastrophe losses and LAE on Eaton and Palisades fires before FAIR Plan $330,500
Company's share of FAIR Plan losses and LAE $108,500
Recoupable portion of FAIR Plan losses and LAE ($25,000)
Net FAIR Plan losses and LAE $83,500
Net losses and LAE on Eaton and Palisades fires $414,000
The Company is actively pursuing subrogation against Southern California Edison on the Eaton fire. The Company recorded approximately $525 million in estimated subrogation recoveries, or approximately 55% of its estimated ultimate losses on the Eaton fire, as an offset against loss and loss adjustment expense reserves. Although SCE has not admitted that its equipment caused the Eaton fire, significant evidence indicates that SCE's equipment was the cause of the Eaton fire. For utility caused California wildfires occurring since 2017, the utility companies, including SCE, have paid out average amounts equal to over 60% of the losses incurred with a range as low as 55% to over 70%.
The Company's catastrophe reinsurance program for the treaty year ended June 30, 2025 provides approximately $1,290 million of limits on a per occurrence basis after covered catastrophe losses exceed the Company's retention of $150 million. The Company treated the Palisades and Eaton wildfires as one event for reinsurance purposes exhausting the full $1,290 million of limits and paid reinstatement premiums of approximately $101 million. The total reinsurance used for the Palisades and Eaton wildfires was approximately $1,294 million.
The Company is a member of the California FAIR Plan, the state's fire insurer of last resort. The FAIR Plan assessed the Company $50 million to strengthen its capital position following the Palisades and Eaton wildfires. The California DOI allows for recoupment of 50% or $25 million of the $50 million assessment via a temporary surcharge to policyholders.
As of March 31, 2025, the Company has paid out approximately $975 million for losses and loss adjustment expenses related to the Palisades and Eaton wildfires.
SUMMARY OF OPERATING RESULTS
Net premiums earned $1,283,069
Net investment income $81,479
Net realized investment gains $23,321
Other $6,008
Total revenues $1,393,877
Losses and loss adjustment expenses $1,220,813
Policy acquisition costs $228,721
Other operating expenses $79,453
Interest $7,188
Total expenses $1,536,175
Loss before income taxes ($142,298)
Income tax benefit ($33,971)
Net loss ($108,327)
Diluted average shares outstanding 55,389
Loss ratio 95.2%
Expense ratio 24.0%
Combined ratio 119.2%
CONDENSED BALANCE SHEET (as of March 31, 2025)
Total investments $5,626,547
Cash $1,150,619
Total receivables $854,461
Total assets $8,900,373
Loss and LAE reserves $3,477,455
Unearned premiums $2,115,523
Shareholders' equity $1,871,143
Book value per share $33.78
Statutory surplus $1.77 billion
Personal Auto PIF 1,024
Homeowners PIF 854
Commercial Auto PIF 37