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What changed in MERCURY GENERAL CORP's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of MERCURY GENERAL CORP's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+312 added−314 removedSource: 10-K (2024-02-13) vs 10-K (2023-02-14)

Top changes in MERCURY GENERAL CORP's 2023 10-K

312 paragraphs added · 314 removed · 267 edited across 6 sections

Item 1. Business

Business — how the company describes what it does

76 edited+9 added−2 removed74 unchanged
Biggest changeThe direct premiums written for the years ended December 31, 2022, 2021 and 2020 by state and line of insurance business were: Year Ended December 31, 2022 (Dollars in thousands) Private Passenger Automobile Homeowners Commercial Automobile Other Lines (2) Total California $ 2,142,265 $ 716,651 $ 193,809 $ 216,022 $ 3,268,747 80.8 % Texas 97,620 105,269 43,641 6,174 252,704 6.2 % Other states (1) 358,973 118,419 39,312 10,375 527,079 13.0 % Total $ 2,598,858 $ 940,339 $ 276,762 $ 232,571 $ 4,048,530 100.0 % 64.3 % 23.2 % 6.8 % 5.7 % 100.0 % Year Ended December 31, 2021 (Dollars in thousands) Private Passenger Automobile Homeowners Commercial Automobile Other Lines (2) Total California $ 2,286,017 $ 642,291 $ 181,957 $ 188,446 $ 3,298,711 84.4 % Other states (1) 354,730 159,197 77,916 16,975 608,818 15.6 % Total $ 2,640,747 $ 801,488 $ 259,873 $ 205,421 $ 3,907,529 100.0 % 67.6 % 20.5 % 6.6 % 5.3 % 100.0 % Year Ended December 31, 2020 (Dollars in thousands) Private Passenger Automobile Homeowners Commercial Automobile Other Lines Total California (3) $ 2,266,115 $ 579,747 $ 161,619 $ 149,627 $ 3,157,108 86.4 % Other states (1)(4) 302,819 99,194 79,169 15,871 497,053 13.6 % Total $ 2,568,934 $ 678,941 $ 240,788 $ 165,498 $ 3,654,161 100.0 % 70.3 % 18.6 % 6.6 % 4.5 % 100.0 % _____________ (1) No individual state accounted for more than 5% of total direct premiums written.
Biggest changeThe direct premiums written for the years ended December 31, 2023, 2022 and 2021 by state and line of insurance business were: Year Ended December 31, 2023 (Dollars in thousands) Private Passenger Automobile Homeowners Commercial Automobile Other Lines (2) Total California $ 2,317,678 $ 813,056 $ 246,253 $ 235,735 $ 3,612,722 79.3 % Texas 123,390 147,854 53,430 5,592 330,266 7.2 % Other states (1) 400,714 158,094 46,538 10,154 615,500 13.5 % Total $ 2,841,782 $ 1,119,004 $ 346,221 $ 251,481 $ 4,558,488 100.0 % 62.4 % 24.5 % 7.6 % 5.5 % 100.0 % Year Ended December 31, 2022 (Dollars in thousands) Private Passenger Automobile Homeowners Commercial Automobile Other Lines (2) Total California $ 2,142,265 $ 716,651 $ 193,809 $ 216,022 $ 3,268,747 80.8 % Texas 97,620 105,269 43,641 6,174 252,704 6.2 % Other states (1) 358,973 118,419 39,312 10,375 527,079 13.0 % Total $ 2,598,858 $ 940,339 $ 276,762 $ 232,571 $ 4,048,530 100.0 % 64.3 % 23.2 % 6.8 % 5.7 % 100.0 % Year Ended December 31, 2021 (Dollars in thousands) Private Passenger Automobile Homeowners Commercial Automobile Other Lines (2) Total California $ 2,286,017 $ 642,291 $ 181,957 $ 188,446 $ 3,298,711 84.4 % Other states (1) 354,730 159,197 77,916 16,975 608,818 15.6 % Total $ 2,640,747 $ 801,488 $ 259,873 $ 205,421 $ 3,907,529 100.0 % 67.6 % 20.5 % 6.6 % 5.3 % 100.0 % _____________ (1) No individual state accounted for more than 5% of total direct premiums written.
In 2011, he became a board member of the Personal Insurance Federation of California. Mr. Toney is Mr. George Joseph’s nephew. Ms. Walters, Vice President, Corporate Affairs and Secretary, has been employed by the Company since 1967, and has served as its Secretary since 1982. Ms. Walters was named Vice President, Corporate Affairs in 1998.
In 2011, he became a board member of the Personal Insurance Federation of California. Mr. Toney is Mr. George Joseph’s nephew. Ms. Walters, Vice President, Corporate Affairs and Secretary, has been employed by the Company since 1967, and has served as its Secretary since 1982. Ms. Walters was named Vice President, Corporate Affairs in 1998. Mr.
During 2022, inflationary trends accelerated to their highest level in decades, which had a significant impact on the cost of automobile parts and labor as well as medical expenses for bodily injuries, and supply chain and labor shortage issues lengthened the time to repair vehicles. Bodily injury costs were also under pressure from social inflation.
Inflationary trends accelerated to their highest level in decades in 2022, which had a significant impact on the cost of automobile parts and labor as well as medical expenses for bodily injuries, and supply chain and labor shortage issues lengthened the time to repair vehicles. Bodily injury costs were also under pressure from social inflation.
(2) The Company has a per-risk reinsurance treaty covering losses of $5 million in excess of $5 million, and facultative reinsurance coverage for losses above $10 million. (3) The majority of the Company’s homeowners policies have liability coverage limits of $300,000 or less, a replacement value of $500,000 or less, and a total insured value of $1,000,000 or less.
(2) The Company has a per-risk reinsurance treaty covering losses of $10 million in excess of $5 million, and facultative reinsurance coverage for losses above $15 million. (3) The majority of the Company’s homeowners policies have liability coverage limits of $300,000 or less, a replacement value of $500,000 or less, and a total insured value of $1,000,000 or less.
No reinsurance benefits were available under the Treaty for these losses as none of the 2022 catastrophe events individually resulted in losses in excess of the Company’s per-occurrence retention limit of $60 million and $40 million under the Treaty for the 12 months ending June 30, 2023 and 2022, respectively.
No reinsurance benefits were available under the Treaty for these losses as none of the 2022 catastrophe events individually resulted in losses in excess 10 of the Company’s per-occurrence retention limit of $60 million and $40 million under the Treaty for the 12 months ending June 30, 2023 and 2022, respectively.
Stalick, Senior Vice President and Chief Financial Officer, joined the Company as Corporate Controller in 1997. He was appointed Chief Accounting Officer in October 2000 and Vice President and Chief Financial Officer in 2001. In July 2013, he was named Senior Vice President and Chief Financial Officer. Mr. Stalick is a Certified Public Accountant. Ms.
Stalick, Senior Vice President and Chief Financial Officer, joined the Company as Corporate Controller in 1997. He was appointed Chief Accounting Officer in October 2000 and Vice President and Chief Financial Officer in 2001. In July 2013, he was named Senior Vice President and Chief Financial Officer. Mr. Stalick is a Certified Public Accountant. 13 Ms.
Victor Joseph, Executive Vice President and Chief Operating Officer, has been employed by the Company in various capacities since 2009, and was appointed Vice President and Chief Underwriting Officer in July 2017 and Executive Vice President and Chief Operating Officer in January 2022. Mr. Victor Joseph is Mr. George Joseph’s son. Mr.
Victor Joseph, President and Chief Operating Officer, has been employed by the Company in various capacities since 2009, and was appointed Vice President and Chief Underwriting Officer in July 2017, Executive Vice President and Chief Operating Officer in January 2022, and President and Chief Operating Officer in January 2024. Mr. Victor Joseph is Mr. George Joseph’s son. Mr.
Butler, Vice President and Chief Underwriting Officer, joined the Company as a Casualty Claims Adjuster in 2004 and worked in various capacities including as Director of Personal Property Underwriting. Ms. Butler was appointed Vice President and Chief Underwriting Officer in January 2022. 13 Ms. Gibbs, Vice President and Chief Experience Officer, joined the Company in 2022.
Butler, Vice President and Chief Underwriting Officer, joined the Company as a Casualty Claims Adjuster in 2004 and worked in various capacities including as Director of Personal Property Underwriting. Ms. Butler was appointed Vice President and Chief Underwriting Officer in January 2022. Ms. Gibbs, Vice President and Chief Experience Officer, joined the Company in 2022.
The Company believes that it compensates its agents above the industry average. Net commissions incurred in 2022 were approximately 15% of net premiums written. The Company’s advertising budget is allocated among television, radio, newspaper, internet, and direct mailing media with the intent to provide the best coverage available within targeted media markets.
The Company believes that it compensates its agents above the industry average. Net commissions incurred in 2023 were approximately 15% of net premiums written. The Company’s advertising budget is allocated among television, radio, newspaper, internet, and direct mailing media with the intent to provide the best coverage available within targeted media markets.
The ORSA is intended to be used by state insurance regulators to evaluate the risk exposure and quality of the risk management processes within insurance companies to assist in conducting risk-focused financial examinations and for determining the overall financial condition of insurance companies. The Company filed its most recent ORSA Summary Report with the California DOI in November 2022.
The ORSA is intended to be used by state insurance regulators to evaluate the risk exposure and quality of the risk management processes within insurance companies to assist in conducting risk-focused financial examinations and for determining the overall financial condition of insurance companies. The Company filed its most recent ORSA Summary Report with the California DOI in November 2023.
("CGU") (1) 1985 A CA Mercury Insurance Company of Illinois 1989 A IL, NJ Mercury Insurance Company of Georgia 1989 A GA Mercury Indemnity Company of Georgia 1991 A GA American Mercury Insurance Company 1996 A- OK, CA, TX, VA American Mercury Lloyds Insurance Company ("AML") 1996 A- TX Mercury County Mutual Insurance Company 2000 A- TX Mercury Insurance Company of Florida ("MICFL") (2) 2001 A FL Mercury Indemnity Company of America 2001 A FL, NJ Orion Indemnity Company ("OIC") (1) 2015 A CA Non-Insurance Companies Formed or Acquired Purpose Mercury Select Management Company, Inc. 1997 AML’s attorney-in-fact Mercury Insurance Services LLC 2000 Management services to subsidiaries AIS Management LLC 2009 Parent company of AIS and PoliSeek Auto Insurance Specialists LLC ("AIS") 2009 Insurance agency PoliSeek AIS Insurance Solutions, Inc.
("CGU") (1) 1985 A CA Mercury Insurance Company of Illinois 1989 A IL, NJ Mercury Insurance Company of Georgia 1989 A GA Mercury Indemnity Company of Georgia 1991 A GA American Mercury Insurance Company 1996 A OK, CA, TX, VA American Mercury Lloyds Insurance Company ("AML") 1996 A TX Mercury County Mutual Insurance Company 2000 A TX Mercury Indemnity Company of America 2001 A FL, NJ Orion Indemnity Company ("OIC") (1) 2015 A CA Non-Insurance Companies Formed or Acquired Purpose Mercury Select Management Company, Inc. 1997 AML’s attorney-in-fact Mercury Insurance Services LLC 2000 Management services to subsidiaries AIS Management LLC 2009 Parent company of AIS and PoliSeek Auto Insurance Specialists LLC ("AIS") 2009 Insurance agency PoliSeek AIS Insurance Solutions, Inc.
(2) The reinstatement premium and the total combined premium for the treaty period ending June 30, 2023 are projected amounts to be paid based on the assumption that there will be no reinstatements occurring during this treaty period. The reinstatement premium for the treaty period ended June 30, 2022 is zero, as there were no actual reinstatement premiums paid.
(2) The reinstatement premium and the total combined premium for the treaty period ending June 30, 2024 are projected amounts to be paid based on the assumption that there will be no reinstatements occurring during this treaty period. The reinstatement premium for the treaty period ended June 30, 2023 is zero, as there were no actual reinstatement premiums paid.
There were no material CIGA assessments in 2022. The CEA is a quasi-governmental organization that was established to provide a market for earthquake coverage to California homeowners. The Company places all new and renewal earthquake coverage offered with its homeowner policy directly with the CEA.
There were no material CIGA assessments in 2023. The CEA is a quasi-governmental organization that was established to provide a market for earthquake coverage to California homeowners. The Company places all new and renewal earthquake coverage offered with its homeowner policy directly with the CEA.
The Company periodically monitors the RBC level of each of the Insurance Companies. As of December 31, 2022, 2021 and 2020, each of the Insurance Companies exceeded the minimum required RBC level. For more detailed information, see "Liquidity and Capital Resources—F. Regulatory Capital Requirements" in "Item 7.
The Company periodically monitors the RBC level of each of the Insurance Companies. As of December 31, 2023, 2022 and 2021, each of the Insurance Companies exceeded the minimum required RBC level. For more detailed information, see "Liquidity and Capital Resources—F. Regulatory Capital Requirements" in "Item 7.
Catastrophe losses due to events that occurred in 2022 totaled approximately $101 million, w ith no reinsurance benefits used for these losses, resulting primarily from the deep freeze of Winter Storm Elliott and other extreme weather events in Texas, Oklahoma and Georgia, winter storms in California, and the impact of Hurricane Ian in Florida.
Catastrophe losses due to the events that occurred in 2022 totaled approximately $101 million, with no reinsurance benefits used for these losses, resulting primarily from the deep freeze of Winter Storm Elliott and other extreme weather events in Texas, Oklahoma and Georgia, winter storms in California, and the impact of Hurricane Ian in Florida.
Average annual yield on investments before and after income taxes for 2022 increased compared to 2021, primarily due to the maturity and replacement of lower yielding investments purchased when market interest rates were lower with higher yielding investments, as a result of increasing market interest rates, as well as higher yields on investments based on floating interest rates.
Average annual yield on investments before and after income taxes for 2023 increased compared to 2022, primarily due to the maturity and replacement of lower yielding investments purchased when market interest rates were lower with higher yielding investments, as a result of increasing overall market interest rates, as well as higher yields on investments based on floating interest rates.
There was no assessment made in 2022. The Insurance Companies in other states are also subject to the provisions of similar insurance guaranty associations. There were no material assessments or payments during 2022 in other states.
There was no assessment made in 2023. The Insurance Companies in other states are also subject to the provisions of similar insurance guaranty associations. There were no material assessments or payments during 2023 in other states.
The Company's private passenger automobile renewal rate in California (the rate of acceptance of offers to renew) averaged approximately 96%, 97%, and 96% in 2022, 2021, and 2020, respectively. Claims The Company conducts the majority of claims processing without the assistance of outside adjusters. The claims staff administers all claims and manages all legal and adjustment aspects of claims processing.
The Company's private passenger automobile renewal rate in California (the rate of acceptance of offers to renew) averaged approximately 95%, 96%, and 97% in 2023, 2022, and 2021, respectively. Claims The Company conducts the majority of claims processing without the assistance of outside adjusters. The claims staff administers all claims and manages all legal and adjustment aspects of claims processing.
(3) Net investment income before and after income taxes for 2022 increased compared to 2021, primarily due to higher average yield combined with higher average invested assets.
(3) Net investment income before and after income taxes for 2023 increased compared to 2022, primarily due to higher average yield combined with higher average invested assets.
Reinstatement premiums are based on the amount of reinsurance benefits used by the Company at 100% of the annual premium rate, with the exception of the reinstatement restrictions noted in the tables above, up to the maximum reinstatement premium of approximately $72 million and $51 million if the full amount of benefit is used for the 12 months ending June 30, 2023 and 2022, respectively.
Reinstatement premiums are based on the amount of reinsurance benefits used by the Company at 100% of the annual premium rate, with the exception of the reinstatement restrictions noted in the tables above, up to the maximum reinstatement premium of approximately $95 million and $72 million if the full amount of benefit is used for the 12 months ending June 30, 2024 and 2023, respectively.
The Company made direct financial contributions of approximately $83,000 and $54,000 to officeholders and candidates in 2022 and 2021, respectively. The Company believes in supporting the political process and intends to continue to make such contributions in amounts which it determines to be appropriate. The Insurance Companies must comply with minimum capital requirements under applicable state laws and regulations.
The Company made direct financial contributions of approximately $24,000 and $83,000 to officeholders and candidates in 2023 and 2022, respectively. The Company believes in supporting the political process and intends to continue to make such contributions in amounts which it determines to be appropriate. The Insurance Companies must comply with minimum capital requirements under applicable state laws and regulations.
In 2022, the Company incurred approximately $12 million in net advertising expense. Underwriting The Company sets its own automobile insurance premium rates, subject to rating regulations issued by the Department of Insurance or similar governmental agency of each state in which it is licensed to operate ("DOI"). Each state has different rate approval requirements.
In 2023, the Company incurred approximately $9 million in net advertising expense. Underwriting The Company sets its own automobile insurance premium rates, subject to rating regulations issued by the Department of Insurance or similar governmental agency of each state in which it is licensed to operate ("DOI"). Each state has different rate approval requirements.
The table below presents the combined total reinsurance premiums under the Treaty (annual premiums and reinstatement premiums) for the 12 months ending June 30, 2023 and 2022, respectively: Treaty Annual Premium (1) Reinstatement Premium (2) Total Combined Premium (2) (Amounts in millions) For the 12 months ending June 30, 2023 $ 74 $ — $ 74 For the 12 months ended June 30, 2022 $ 55 $ — $ 55 __________ (1) The increase in the annual premium is primarily due to higher reinsurance coverage and rates and growth in the covered book of business.
The table below presents the combined total reinsurance premiums under the Treaty (annual premiums and reinstatement premiums) for the 12 months ending June 30, 2024 and 2023, respectively: Treaty Annual Premium (1) Reinstatement Premium (2) Total Combined Premium (2) (Amounts in millions) For the 12 months ending June 30, 2024 $ 99 $ — $ 99 For the 12 months ended June 30, 2023 $ 74 $ — $ 74 __________ (1) The increase in the annual premium is primarily due to higher reinsurance coverage and rates and growth in the covered book of business.
Average invested assets at cost are based on the monthly amortized cost of the invested assets for each period. (2) At December 31, 2022, fixed maturity securities with call features totaled $3.1 billion at fair value and $3.2 billion at amortized cost.
Average invested assets at cost are based on the monthly amortized cost of the invested assets for each period. (2) At December 31, 2023, fixed maturity securities with call features totaled $3.2 billion at fair value and $3.3 billion at amortized cost.
Based on the most recent regularly published statistical compilations of premiums written in 2021, the Company was the sixth largest writer of private passenger automobile insurance in California and the sixteenth largest in the United States. The property and casualty insurance industry is highly cyclical, with alternating hard and soft market conditions.
Based on the most recent regularly published statistical compilations of premiums written in 2022, the Company was the seventh largest writer of private passenger automobile insurance in California and the sixteenth largest in the United States. The property and casualty insurance industry is highly cyclical, with alternating hard and soft market conditions.
The Treaty ending June 30, 2023 and 2022 each provides for one full reinstatement of coverage limits.
The Treaty ending June 30, 2024 and 2023 each provides for one full reinstatement of coverage limits.
(2) 33% of this layer covers California, Arizona and Nevada only. (3) Layer of Coverage represents multiple actual treaty layers that are grouped for presentation purposes.
(2) Approximately 30% of this layer covers California, Arizona and Nevada only. (3) Layer of Coverage represents multiple actual treaty layers that are grouped for presentation purposes.
These assessments are made after CEA capital has been expended and are based upon each company’s participation percentage multiplied by the amount of the total assessment. Based upon the most recent information provided by the CEA, the Company’s maximum total exposure to CEA assessments at April 30, 2022, the most recent date at which information was available, was $76.7 million.
These assessments are made after CEA capital has been expended and are based upon each company’s participation percentage multiplied by the amount of the total assessment. Based upon the most recent information provided by the CEA, the Company’s maximum total exposure to CEA assessments at April 30, 2023, the most recent date at which information was available, was $85.6 million.
Excluding AIS and PoliSeek, independent agents and agencies collectively accounted for approximately 88% of the Company's direct premiums written in 2022 and no single independent agent or agency accounted for more than 1.1% of the Company’s direct premiums written during any of the last three years.
Excluding AIS and PoliSeek, independent agents and agencies collectively accounted for approximately 89% of the Company's direct premiums written in 2023 and no single independent agent or agency accounted for more than 1.9% of the Company’s direct premiums written during any of the last three years.
While the majority of these advertising costs are borne by the Company, a portion of these costs are reimbursed by the Company’s independent agents based upon the number of account leads generated by the advertising. The Company believes that its advertising program is important to generate leads, create brand awareness, and remain competitive in the current insurance climate.
While the majority of these advertising costs are borne by the Company, a portion of these costs are reimbursed by the Company’s independent agents based upon the number of account leads generated by the advertising. The Company believes that its advertising program is important to generate leads and create brand awareness.
The catastrophe events that occurred in 2022 caused approximately $101 million in losses to the Company, resulting primarily from the deep freeze of Winter Storm Elliott and other extreme weather events in Texas, Oklahoma and Georgia, winter storms in California, and the impact of Hurricane Ian in Florida.
The catastrophe events that occurred in 2022 caused approximately $105 million in losses to the Company as of December 31, 2023, resulting primarily from the deep freeze of Winter Storm Elliott and other extreme weather events in Texas, Oklahoma and Georgia, winter storms in California, and the impact of Hurricane Ian in Florida.
The inflation, supply chain, and labor issues discussed above were major contributors to the adverse reserve development in the automobile line of insurance business for 2022.
The inflationary pressures and the supply chain and labor shortage issues discussed above were major contributors to the adverse reserve development in the automobile line of insurance business for 2022.
Year Ended December 31, 2022 2021 2020 2019 2018 (Amounts in thousands, except ratios) Net premiums written $ 3,978,017 $ 3,855,369 $ 3,611,543 $ 3,731,723 $ 3,495,633 Policyholders’ surplus $ 1,502,424 $ 1,827,210 $ 1,768,103 $ 1,539,998 $ 1,471,547 Ratio 2.7 to 1 2.1 to 1 2.0 to 1 2.4 to 1 2.4 to 1 Investments The Company’s investments are directed by the Chief Investment Officer under the supervision of the Investment Committee of the Board of Directors.
Year Ended December 31, 2023 2022 2021 2020 2019 (Amounts in thousands, except ratios) Net premiums written $ 4,464,199 $ 3,978,017 $ 3,855,369 $ 3,611,543 $ 3,731,723 Policyholders’ surplus $ 1,667,187 $ 1,502,424 $ 1,827,210 $ 1,768,103 $ 1,539,998 Ratio 2.7 to 1 2.7 to 1 2.1 to 1 2.0 to 1 2.4 to 1 Investments The Company’s investments are directed by the Chief Investment Officer under the supervision of the Investment Committee of the Board of Directors.
The Insurance Companies’ ratios (Company-wide) include lines of insurance business other than private passenger automobile that accounted for approximately 35.7% of direct premiums written in 2022; hence, the Company believes its combined ratio (for private passenger automobile only) is more comparable to the industry ratios.
The Insurance Companies’ ratios (Company-wide) include lines of insurance business other than private passenger automobile that accounted for approximately 37.6% of direct premiums written in 2023; hence, the Company believes its combined ratio (for private passenger automobile only) is more comparable to the industry ratios.
Year Ended December 31, 2022 2021 2020 2019 2018 Loss ratio (Company-wide) 85.1 % 73.8 % 67.4 % 75.2 % 76.6 % Expense ratio (Company-wide) 24.4 % 24.9 % 26.2 % 24.5 % 24.5 % Combined ratio (Company-wide) (2) 109.5 % 98.7 % 93.6 % 99.7 % 101.0 % Combined ratio (Company's private passenger automobile only) 110.3 % 96.0 % 88.3 % 98.2 % 99.5 % Industry combined ratio (all writers) (1) N/A 100.7 % 90.5 % 98.1 % 97.3 % Industry combined ratio (excluding direct writers) (1) N/A 99.4 % 91.4 % 97.3 % 97.8 % ____________ (1) Source: A.M.
Year Ended December 31, 2023 2022 2021 2020 2019 Loss ratio (Company-wide) 82.3 % 85.1 % 73.8 % 67.4 % 75.2 % Expense ratio (Company-wide) 23.5 % 24.4 % 24.9 % 26.2 % 24.5 % Combined ratio (Company-wide) 105.8 % 109.5 % 98.7 % 93.6 % 99.7 % Combined ratio (Company's private passenger automobile only) 103.0 % 110.3 % 96.0 % 88.3 % 98.2 % Industry combined ratio (all writers) (1) N/A 111.7 % 100.7 % 90.5 % 98.1 % Industry combined ratio (excluding direct writers) (1) N/A 104.6 % 99.4 % 91.4 % 97.3 % ____________ (1) Source: A.M.
Petro 59 Vice President and Chief Claims Officer Mark Ribisi 60 President and Chief Executive Officer of AIS Management LLC Jeffrey M. Schroeder 46 Vice President and Chief Product Officer Heidi C. Sullivan 54 Vice President and Chief Human Capital Officer Erik Thompson 54 Vice President and Chief Marketing Officer Charles Toney 61 Vice President and Chief Actuary Judy A.
Petro 60 Vice President and Chief Claims Officer Mark Ribisi 61 President and Chief Executive Officer of AIS Management LLC Jeffrey M. Schroeder 47 Vice President and Chief Product Officer Heidi C. Sullivan 55 Vice President and Chief Human Capital Officer Erik Thompson 55 Vice President and Chief Marketing Officer Charles Toney 62 Vice President and Chief Actuary Judy A.
The Company recognized $10.0 million and $12.5 million in earned premiums and $8.4 million and $17.5 million in incurred losses under the Contract for the 12 months ended December 31, 2022 and 2021, respectively. The Company is party to a Catastrophe Reinsurance Treaty ("Treaty") covering a wide range of perils that is effective through June 30, 2023.
The Company recognized $15.0 million and $10.0 million in earned premiums and $9.6 million and $8.4 million in incurred losses under the Contract for the 12 months ended December 31, 2023 and 2022, respectively. The Company is the ceding party to a Catastrophe Reinsurance Treaty ("Treaty") covering a wide range of perils that is effective through June 30, 2024.
Financial Statements and Supplementary Data." Investment Results The following table presents the investment results of the Company for the most recent five years: Year Ended December 31, 2022 2021 2020 2019 2018 (Dollars in thousands) Average invested assets at cost (1) (2) $ 4,902,755 $ 4,681,462 $ 4,291,888 $ 4,008,601 $ 3,740,497 Net investment income (3) Before income taxes $ 168,356 $ 129,727 $ 134,858 $ 141,263 $ 135,838 After income taxes $ 146,204 $ 115,216 $ 120,043 $ 125,637 $ 121,476 Average annual yield on investments (3) Before income taxes 3.4 % 2.8 % 3.1 % 3.5 % 3.6 % After income taxes 3.0 % 2.5 % 2.8 % 3.1 % 3.3 % Net realized investment (losses) gains after income taxes $ (385,583) $ 88,210 $ 67,727 $ 176,006 $ (105,481) __________ (1) Fixed maturities and short-term bonds at amortized cost; equities and other short-term investments at cost.
Financial Statements and Supplementary Data." Investment Results The following table presents the investment results of the Company for the most recent five years: Year Ended December 31, 2023 2022 2021 2020 2019 (Dollars in thousands) Average invested assets at cost (1) (2) $ 5,096,428 $ 4,902,755 $ 4,681,462 $ 4,291,888 $ 4,008,601 Net investment income (3) Before income taxes $ 234,630 $ 168,356 $ 129,727 $ 134,858 $ 141,263 After income taxes $ 200,209 $ 146,204 $ 115,216 $ 120,043 $ 125,637 Average annual yield on investments (3) Before income taxes 4.6 % 3.4 % 2.8 % 3.1 % 3.5 % After income taxes 3.9 % 3.0 % 2.5 % 2.8 % 3.1 % Net realized investment gains (losses) after income taxes $ 79,801 $ (385,583) $ 88,210 $ 67,727 $ 176,006 __________ (1) Fixed maturities and short-term bonds at amortized cost; equities and other short-term investments at cost.
As of December 31, 2022, the Insurance Companies are permitted to pay in 2023, without obtaining DOI approval for extraordinary dividends, $151 million in dividends to Mercury General, of which $125 million may be paid by the California Companies.
As of December 31, 2023, the Insurance Companies are permitted to pay in 2024, without obtaining DOI approval for extraordinary dividends, $163 million in dividends to Mercury General, of which $140 million may be paid by the California Companies.
In California, "good drivers," as defined by the California Insurance Code, accounted for approximately 88% of the Company's California voluntary private passenger automobile policies-in-force at December 31, 2022, while higher risk categories accounted for approximately 12%.
In California, "good drivers," as defined by the California Insurance Code, accounted for approximately 87% of the Company's California voluntary private passenger automobile policies-in-force at December 31, 2023, while higher risk categories accounted for approximately 13%.
Coverage on individual catastrophes provided for the 12 months ending June 30, 2023 under the Treaty is presented below in various layers: Catastrophe Losses and LAE In Excess of Up to Percentage of Coverage (Amounts in millions) Retained $ — $ 60 — % Layer of Coverage 60 100 19.5 Layer of Coverage 100 200 98.8 Layer of Coverage (1) 200 530 98.6 Layer of Coverage (2) (3) (4) 530 930 100.0 Layer of Coverage 930 1,035 98.9 __________ (1) 5% of this layer covers California, Arizona and Nevada only.
(4) Approximately 10% of this layer covers only California wildfires and fires following an earthquake in California, and is not subject to reinstatement. 9 Coverage on individual catastrophes provided for the 12 months ended June 30, 2023 under the Treaty is presented below in various layers: Catastrophe Losses and LAE In Excess of Up to Percentage of Coverage (Amounts in millions) Retained $ — $ 60 — % Layer of Coverage 60 100 19.5 Layer of Coverage 100 200 98.8 Layer of Coverage (1) 200 530 98.6 Layer of Coverage (2) (3) (4) 530 930 100.0 Layer of Coverage 930 1,035 98.9 __________ (1) 5% of this layer covers California, Arizona and Nevada only.
These losses were partially offset by favorable development of approximately $5 million on prior years' catastrophe losses. Statutory Accounting Principles The Company’s results are reported in accordance with GAAP, which differ in some respects from amounts reported under SAP prescribed by insurance regulatory authorities.
In addition, the Company experienced favorable development of approximately $5 million on prior years' catastrophe losses in 2021. Statutory Accounting Principles The Company’s results are reported in accordance with GAAP, which differ in some respects from amounts reported under SAP prescribed by insurance regulatory authorities.
For the 12 months ending June 30, 2023 and 2022, the Treaty provides $936 million and $792 million of coverage, respectively, on a per occurrence basis after covered catastrophe losses exceed the Company retention limit of $60 million and $40 million, respectively.
For the 12 months ending June 30, 2024 and 2023, the Treaty provides $1,111 million and $936 million of coverage, respectively, on a per occurrence basis after covered catastrophe losses exceed the Company retention limit of $100 million and $60 million, respectively.
The Company recorded catastrophe losses net of reinsurance of approximately $102 million, $104 million, and $64 million in 2022, 2021, and 2020, respectively.
The Company recorded catastrophe losses net of reinsurance of approximately $239 million, $102 million, and $104 million in 2023, 2022, and 2021, respectively.
Catastrophe losses due to the events that occurred in 2021 totaled approximately $109 million, with no reinsurance benefits used for these losses, resulting primarily from the deep freeze of Winter Storm Uri and other extreme weather events in Texas and Oklahoma, rainstorms, wildfires and winter storms in California, and the impact of Hurricane Ida in New Jersey and New York.
In addition, the Company experienced unfavorable development of approximately $1 million on prior years' catastrophe losses in 2022. 5 Catastrophe losses due to the events that occurred in 2021 totaled approximately $109 million, with no reinsurance benefits used for these losses, resulting primarily from the deep freeze of Winter Storm Uri and other extreme weather events in Texas and Oklahoma, rainstorms, wildfires and winter storms in California, and the impact of Hurricane Ida in New Jersey and New York.
He was appointed President and Chief Operating Officer in October 2001 and Chief Executive Officer in 2007. Mr. Tirador has over 25 years' experience in the property and casualty insurance industry and is an inactive Certified Public Accountant. Mr.
He rejoined the Company in 1998 as Vice President and Chief Financial Officer. He was appointed President and Chief Operating Officer in October 2001 and Chief Executive Officer in 2007. Mr. Tirador has over 30 years' experience in the property and casualty insurance industry and is an inactive Certified Public Accountant. Mr.
Best, Aggregates & Averages (2018 through 2021), for all property and casualty insurance companies (private passenger automobile line only, after policyholder dividends). (2) Combined ratio for 2018 does not sum due to rounding. Premiums to Surplus Ratio The following table presents the Insurance Companies’ statutory ratios of net premiums written to policyholders’ surplus.
Best, Aggregates & Averages (2019 through 2022), for all property and casualty insurance companies (private passenger automobile line only, after policyholder dividends). Premiums to Surplus Ratio The following table presents the Insurance Companies’ statutory ratios of net premiums written to policyholders’ surplus.
Information about the Company's Executive Officers The following table presents certain information concerning the executive officers of the Company as of February 9, 2023: Name Age Position George Joseph 101 Chairman of the Board Gabriel Tirador 58 President and Chief Executive Officer Victor G. Joseph 36 Executive Vice President and Chief Operating Officer Theodore R.
Information about the Company's Executive Officers The following table presents certain information concerning the executive officers of the Company as of February 8, 2024: Name Age Position George Joseph 102 Chairman of the Board Gabriel Tirador 59 Chief Executive Officer Victor G. Joseph 37 President and Chief Operating Officer Theodore R.
These factors contributed to higher losses and loss adjustment expenses related to the current accident year for 2022 compared to 2021 and 2020. The increase in the provision for insured events of prior years in 2022 of approximately $47.3 million primarily resulted from higher than estimated losses and loss adjustment expenses in the automobile line of insurance business.
The increase in the provision for insured events of prior years in 2022 of approximately $47.3 million primarily resulted from higher than estimated losses and loss adjustment expenses in the automobile line of insurance business.
The independent agents and agencies are independent contractors selected and contracted by the Company and generally also represent competing insurance companies. Certain of these independent agencies are under the common ownership of a parent company; however, they each operate autonomously with their own contractual agreements with the Company and hence are accounted for as separate independent agencies.
Certain of these independent agencies are under the common ownership of a parent company; however, they each operate autonomously with their own contractual agreements with the Company and hence are accounted for as separate independent agencies.
No reinsurance benefits were available under the Treaty for these losses as none of the 2021 catastrophe events 10 individually resulted in losses in excess of the Company’s per-occurrence retention limit of $40 million under the Treaty for each of the 12 months ended June 30, 2022 and 2021.
No reinsurance benefits were available under the Treaty for these losses as none of the 2023 catastrophe events individually resulted in losses in excess of the Company’s per-occurrence retention limit of $100 million and $60 million under the Treaty for the 12 months ending June 30, 2024 and 2023, respectively.
However, the Company is required to discount loss reserves for federal income tax purposes. 4 The following table provides a reconciliation of beginning and ending estimated reserve balances for the years indicated: RECONCILIATION OF NET LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES Year Ended December 31, 2022 2021 2020 (Amounts in thousands) Gross reserves at January 1 (1) $ 2,226,430 $ 1,991,304 $ 1,921,255 Reinsurance recoverables on unpaid losses (41,379) (54,461) (76,100) Cumulative effect of adopting ASU 2016-13 — — 149 Reinsurance recoverables on unpaid losses, as adjusted (41,379) (54,461) (75,951) Net reserves at January 1, as adjusted (1) 2,185,051 1,936,843 1,845,304 Incurred losses and loss adjustment expenses related to: Current year 3,314,938 2,786,246 2,372,364 Prior years 47,281 (26,091) 22,979 Total incurred losses and loss adjustment expenses 3,362,219 2,760,155 2,395,343 Loss and loss adjustment expense payments related to: Current year 1,862,006 1,601,998 1,366,661 Prior years 1,125,677 909,949 937,143 Total payments 2,987,683 2,511,947 2,303,804 Net reserves at December 31 (1) 2,559,587 2,185,051 1,936,843 Reinsurance recoverables on unpaid losses 25,323 41,379 54,461 Gross reserves at December 31 (1) $ 2,584,910 $ 2,226,430 $ 1,991,304 _____________ (1) Under statutory accounting principles ("SAP"), reserves are stated net of reinsurance recoverables on unpaid losses whereas under U.S. generally accepted accounting principles ("GAAP"), reserves are stated gross of reinsurance recoverables on unpaid losses.
However, the Company is required to discount loss reserves for federal income tax purposes. 4 The following table provides a reconciliation of beginning and ending estimated reserve balances for the years indicated: RECONCILIATION OF NET LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES Year Ended December 31, 2023 2022 2021 (Amounts in thousands) Gross reserves at January 1 (1) $ 2,584,910 $ 2,226,430 $ 1,991,304 Reinsurance recoverables on unpaid losses (25,323) (41,379) (54,461) Net reserves at January 1 (1) 2,559,587 2,185,051 1,936,843 Incurred losses and loss adjustment expenses related to: Current year 3,553,801 3,314,938 2,786,246 Prior years (35,948) 47,281 (26,091) Total incurred losses and loss adjustment expenses 3,517,853 3,362,219 2,760,155 Loss and loss adjustment expense payments related to: Current year 2,080,690 1,862,006 1,601,998 Prior years 1,243,196 1,125,677 909,949 Total payments 3,323,886 2,987,683 2,511,947 Net reserves at December 31 (1) 2,753,554 2,559,587 2,185,051 Reinsurance recoverables on unpaid losses 32,148 25,323 41,379 Gross reserves at December 31 (1) $ 2,785,702 $ 2,584,910 $ 2,226,430 _____________ (1) Under statutory accounting principles ("SAP"), reserves are stated net of reinsurance recoverables on unpaid losses whereas under U.S. generally accepted accounting principles ("GAAP"), reserves are stated gross of reinsurance recoverables on unpaid losses.
In addition, the Company experienced unfavorable development of approximately $1 million on prior years' catastrophe losses in 2022.
In addition, the Company experienced favorable development of approximately $8 million on prior years' catastrophe losses in 2023.
Walters 76 Vice President, Corporate Affairs and Secretary Mr. George Joseph, Chairman of the Board of Directors, has served in this capacity since 1961. He held the position of Chief Executive Officer of the Company for 45 years from 1961 through 2006. Mr. Joseph has more than 50 years’ experience in the property and casualty insurance business. Mr.
Walters 77 Vice President, Corporate Affairs and Secretary Simon Zhang 47 Vice President and Chief Data & Analytics Officer Mr. George Joseph, Chairman of the Board of Directors, has served in this capacity since 1961. He held the position of Chief Executive Officer of the Company for 45 years from 1961 through 2006. Mr.
The Company had no capital loss carryforward at December 31, 2022. 7 Investment Portfolio The following table presents the composition of the Company’s total investment portfolio: December 31, 2022 2021 2020 Cost (1) Fair Value Cost (1) Fair Value Cost (1) Fair Value (Amounts in thousands) Taxable bonds $ 1,758,853 $ 1,649,078 $ 1,640,945 $ 1,632,358 $ 936,762 $ 943,836 Tax-exempt state and municipal bonds 2,467,937 2,439,233 2,268,835 2,399,165 2,451,656 2,605,974 Total fixed maturities 4,226,790 4,088,311 3,909,780 4,031,523 3,388,418 3,549,810 Equity securities 668,843 699,552 754,536 970,939 695,150 803,851 Short-term investments 123,928 122,937 141,206 140,127 376,547 375,609 Total investments $ 5,019,561 $ 4,910,800 $ 4,805,522 $ 5,142,589 $ 4,460,115 $ 4,729,270 __________ (1) Fixed maturities and short-term bonds at amortized cost; equities and other short-term investments at cost.
The Company had no capital loss carryforward at December 31, 2023. 7 Investment Portfolio The following table presents the composition of the Company’s total investment portfolio: December 31, 2023 2022 2021 Cost (1) Fair Value Cost (1) Fair Value Cost (1) Fair Value (Amounts in thousands) Taxable bonds $ 2,102,740 $ 2,031,594 $ 1,758,853 $ 1,649,078 $ 1,640,945 $ 1,632,358 Tax-exempt state and municipal bonds 2,292,243 2,287,742 2,467,937 2,439,233 2,268,835 2,399,165 Total fixed maturities 4,394,983 4,319,336 4,226,790 4,088,311 3,909,780 4,031,523 Equity securities 654,939 730,693 668,843 699,552 754,536 970,939 Short-term investments 179,375 178,491 123,928 122,937 141,206 140,127 Total investments $ 5,229,297 $ 5,228,520 $ 5,019,561 $ 4,910,800 $ 4,805,522 $ 5,142,589 __________ (1) Fixed maturities and short-term bonds at amortized cost; equities and other short-term investments at cost.
Stalick 59 Senior Vice President and Chief Financial Officer Kelly Butler 40 Vice President and Chief Underwriting Officer Katie Gibbs 33 Vice President and Chief Experience Officer Christopher Graves 57 Vice President and Chief Investment Officer Brandt N. Minnich 56 Vice President and Chief Sales Development Officer Randall R.
Stalick 60 Senior Vice President and Chief Financial Officer Kelly Butler 41 Vice President and Chief Underwriting Officer Katie Gibbs 34 Vice President and Chief Experience Officer Christopher Graves 58 Vice President and Chief Investment Officer Brandt N. Minnich 57 Vice President and Chief Sales Development Officer Wilson Pang 47 Vice President and Chief Technology Officer Randall R.
The Company devotes extensive resources to employee training and development, including tuition assistance for career-enhancing academic and professional programs. The Company recognizes that its success is based on the talents and dedication of those it employs, and it is highly invested in their success. The Company is committed to hiring, developing and supporting a diverse and inclusive workplace.
The Company recognizes that its success is based on the talents and dedication of those it employs, and it is highly invested in their success. The Company is committed to hiring, developing and supporting a diverse and inclusive workplace.
The Company also owns office buildings in Rancho Cucamonga and Folsom, California, which are used to support California operations, and in Clearwater, Florida and in Oklahoma City, Oklahoma, which support the Company's operations outside of California and house several third party tenants.
The Company also owns an office building in Folsom, California, which is used to support California operations, and another in Oklahoma City, Oklahoma, which supports the Company's operations outside of California and houses several third party tenants.
Tirador, President and Chief Executive Officer, served as the Company’s assistant controller from 1994 to 1996. In 1997 and 1998, he served as the Vice President and Controller of the Automobile Club of Southern California. He rejoined the Company in 1998 as Vice President and Chief Financial Officer.
Joseph has more than 60 years’ experience in the property and casualty insurance business. Mr. Tirador, Chief Executive Officer, served as the Company’s assistant controller from 1994 to 1996. In 1997 and 1998, he served as the Vice President and Controller of the Automobile Club of Southern California.
All of the Company's employees are expected to exhibit and promote honest, ethical and respectful conduct in the workplace, must adhere to a code of conduct that sets standards for appropriate behavior, and are required to take annual training on preventing, identifying, reporting and stopping any type of unlawful discrimination. 2 The Company sponsors a wellness program designed to enhance physical, financial and mental well-being for all of its employees, and encourages healthy behaviors through regular communications, educational sessions, voluntary progress tracking, wellness challenges, and other incentives.
All of the Company's employees are expected to exhibit and promote honest, ethical and respectful conduct in the workplace, must adhere to a code of conduct that sets standards for appropriate behavior, and are required to take annual training on preventing, identifying, reporting and stopping any type of unlawful discrimination.
The increase in the provision for insured events of prior years in 2020 of approximately $23.0 million primarily resulted from higher than estimated losses and loss adjustment expenses in the homeowners and commercial automobile lines of insurance business.
The decrease in the provision for insured events of prior years in 2023 of approximately $35.9 million primarily resulted from lower than estimated losses and loss adjustment expenses in the private passenger automobile and homeowners lines of insurance business, partially offset by unfavorable reserve development in the commercial property line of insurance business.
(4) 6.3% of this layer covers only California wildfires and fires following an earthquake in California, and is not subject to reinstatement. 9 Coverage on individual catastrophes provided for the 12 months ended June 30, 2022 under the Treaty is presented below in various layers: Catastrophe Losses and LAE In Excess of Up to Percentage of Coverage (Amounts in millions) Retained $ — $ 40 — % Layer of Coverage 40 100 70 Layer of Coverage (1)(2) 100 450 100 Layer of Coverage (1) (3) (4)(5) 450 850 100 __________ (1) Layer of Coverage represents multiple actual treaty layers that are grouped for presentation purposes.
Coverage on individual catastrophes provided for the 12 months ending June 30, 2024 under the Treaty is presented below in various layers: Catastrophe Losses and LAE In Excess of Up to Percentage of Coverage (Amounts in millions) Retained $ — $ 100 — % Layer of Coverage 100 140 5.0 Layer of Coverage (1) (3) 140 610 100.0 Layer of Coverage (2) (3) (4) 610 1,120 99.8 Layer of Coverage 1,120 1,250 100.0 __________ (1) Approximately 4% of this layer covers California, Arizona and Nevada only.
In addition, the Company reviews its staffing levels periodically to ensure they are aligned with its business needs. The Company also reviews employee engagement and satisfaction surveys to monitor employee morale and receive feedback on a variety of issues, in order to improve the employee experience and identify opportunities to continually strengthen its culture.
The Company also reviews employee engagement and satisfaction surveys to monitor employee morale and receive feedback on a variety of issues, in order to improve the employee experience and identify opportunities to continually strengthen its culture. The Company devotes extensive resources to employee training and development, including tuition assistance for career-enhancing academic and professional programs.
The catastrophe events that occurred in 2021 caused approximately $113 million in losses to the Company as of December 31, 2022, resulting primarily from the deep freeze of Winter Storm Uri and other extreme weather events in Texas and Oklahoma, rainstorms, wildfires and winter storms in California, and the impact of Hurricane Ida in New Jersey and New York.
The catastrophe events that occurred in 2023 caused approximately $247 million in losses to the Company, resulting primarily from rainstorms and hail in Texas and Oklahoma, winter storms and rainstorms in California, and the impact of Tropical Storm Hilary in California.
Individual goals are set annually for each employee, and attainment of those goals is an element of the employee’s performance assessment. The Company regularly reviews its compensation practices, both in terms of its overall workforce and individual employees, to ensure its pay is fair and equitable.
The Company regularly reviews its compensation practices, both in terms of its overall workforce and individual employees, to ensure its pay is fair and equitable. In addition, the Company reviews its staffing levels periodically to ensure they are aligned with its business needs.
The Company offers the following types of homeowners coverage: dwelling, liability, personal property, fire, and other hazards.
The Company offers the following types of automobile coverage: collision, property damage, bodily injury ("BI"), comprehensive, personal injury protection ("PIP"), underinsured and uninsured motorist, and other hazards. 1 The Company offers the following types of homeowners coverage: dwelling, liability, personal property, and other coverages.
(2) 4.1% of this layer excludes Texas. (3) 11.9% of this layer excludes Texas. (4) 15.0% of this layer covers California, Arizona and Nevada only. (5) 12.7% of this layer covers only California wildfires and fires following an earthquake in California, and is not subject to reinstatement.
(2) 33% of this layer covers California, Arizona and Nevada only. (3) Layer of Coverage represents multiple actual treaty layers that are grouped for presentation purposes. (4) 6.3% of this layer covers only California wildfires and fires following an earthquake in California, and is not subject to reinstatement.
However, the Company continues to have catastrophe exposure to fires following an earthquake. For more detailed discussion, see "Regulation—Insurance Assessments" below. The Company is the assuming reinsurer under a Catastrophe Portfolio Participation Reinsurance Contract ("Contract") effective through December 31, 2025.
The Company is the assuming reinsurer under a Catastrophe Portfolio Participation Reinsurance Contract ("Contract") effective through December 31, 2025.
The Company has historically seen premium growth during hard market conditions. The Company believes that the automobile insurance market in most states has hardened during 2022 as insurance carriers began to increase rates reflecting high loss severity and increasing loss frequency as the country emerged from the COVID-19 pandemic.
The Company has historically seen premium growth during hard market conditions. The Company believes that the automobile insurance market in most states was hard during 2023 as insurance carriers increased rates reflecting high inflation and loss severity and tightened their underwriting. In addition, in California, several insurance carriers stopped writing new business policies.
("PoliSeek") 2009 Insurance agency Animas Funding LLC ("AFL") 2013 Special purpose investment vehicle Fannette Funding LLC ("FFL") 2014 Special purpose investment vehicle Mercury Plus Insurance Services LLC 2018 Insurance agency _____________ (1) The term "California Companies" refers to MCC, MIC, CAIC, CGU, and OIC.
("PoliSeek") 2009 Insurance agency Animas Funding LLC ("AFL") 2013 Special purpose investment vehicle Fannette Funding LLC ("FFL") 2014 Special purpose investment vehicle Mercury Plus Insurance Services LLC 2018 Insurance agency Mercury Information Technology Services LLC 2023 Parent company of Mercury Shanghai Mercury (Shanghai) Information Technology Services Co., Ltd.
The Company maintains branch offices in a number of locations in California; Clearwater, Florida; Bridgewater, New Jersey; Oklahoma City, Oklahoma; and Austin and San Antonio, Texas. Human Capital The Company had approximately 4,300 employees at December 31, 2022. The Company's employees are critical to its continued success, and it focuses significant attention on attracting and retaining talented and motivated individuals.
The Company maintains branch offices in a number of locations in California; Clearwater, Florida; Kennesaw, Georgia; Lake Forest, Illinois; Las Vegas, Nevada; Bridgewater, New Jersey; Melville, New York; Independence, Ohio; Oklahoma City, Oklahoma; Austin, Texas; and Shanghai, China. Human Capital The Company had approximately 4,100 employees at December 31, 2023.
The Company pays its employees fairly and competitively and offers a wide range of benefits regardless of gender, race or ethnicity. The Company benchmarks and sets pay ranges based on market data and considering such factors as employees' roles, experiences and performance, and the location of their job.
The Company benchmarks and sets pay ranges based on market data and considering such factors as employees' roles, experiences and performance, and the location of their job. Individual goals are set annually for each employee, and attainment of those goals is an element of the employee’s performance assessment.
(2) MICFL was dissolved in November 2022. 3 Production and Servicing of Business The Company sells its policies through a network of approximately 7,450 independent agents, its 100% owned insurance agencies, AIS and PoliSeek, and directly through internet sales portals. Approximately 1,900, 1,270, and 1,240 of the independent agents are located in California, Florida, and Texas, respectively.
("Mercury Shanghai") 2024 Software development and related technical services to other subsidiaries _____________ (1) The term "California Companies" refers to MCC, MIC, CAIC, CGU, and OIC. 3 Production and Servicing of Business The Company sells its policies through a network of approximately 6,390 independent agents, its 100% owned insurance agencies, AIS and PoliSeek, and directly through internet sales portals.
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 in 2020 totaled approximately $69 5 million, with no reinsurance benefits used for these losses, resulting primarily from wildfires and windstorms in California and extreme weather events outside of California.
Catastrophe losses due to events that occurred in 2023 totaled approximately $247 million, w ith no reinsurance benefits used for these losses, resulting primarily from rainstorms and hail in Texas and Oklahoma, winter storms and rainstorms in California, and the impact of Tropical Storm Hilary in California.
In California, market conditions in 2022 were hard as companies tightened their underwriting due to difficulty in obtaining regulatory approval for rate increases. Reinsurance For California homeowners policies, the Company has reduced its catastrophe exposure from earthquakes by placing earthquake risks directly with the California Earthquake Authority ("CEA").
Reinsurance For California homeowners policies, the Company has reduced its catastrophe exposure from earthquakes by placing earthquake risks directly with the California Earthquake Authority ("CEA"). However, the Company continues to have catastrophe exposure to fires following an earthquake. For more detailed discussion, see "Regulation—Insurance Assessments" below.
The Company implemented safety protocols and new procedures to protect its employees and customers in response to the COVID-19 pandemic. This includes having the vast majority of its employees work from home or anywhere in the U.S., while implementing safety measures for employees working on-site. Available Information The Company’s website address is www.mercuryinsurance.com .
The vast majority of the Company's employees currently work from home 2 as a result of the "Mercury's My Workplace" policy that allows most of its employees to work from anywhere in the U.S.. Available Information The Company’s website address is www.mercuryinsurance.com .
Removed
(2) No individual line of insurance business accounted for more than 5% of total direct premiums written. (3) California private passenger automobile and commercial automobile direct premiums written were reduced by approximately $112 million and $6 million, respectively, due to premium refunds and credits under the "Mercury Giveback" program associated with reduced driving during the COVID-19 pandemic.
Added
(2) No individual line of insurance business accounted for more than 5% of total direct premiums written.
Removed
(4) Other states private passenger automobile and commercial automobile direct premiums written were reduced by approximately $9 million and $1 million, respectively, due to premium refunds and credits, as described above. 1 The Company offers the following types of automobile coverage: collision, property damage, bodily injury ("BI"), comprehensive, personal injury protection ("PIP"), underinsured and uninsured motorist, and other hazards.
Added
The Company's employees are critical to its continued success, and it focuses significant attention on attracting and retaining talented and motivated individuals. The Company pays its employees fairly and competitively and offers a wide range of benefits regardless of gender, race, religion, or ethnicity.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

49 edited+19 added−12 removed144 unchanged
Biggest changeMercury General is a holding company that relies on regulated subsidiaries for cash flows to satisfy its obligations. As a holding company, Mercury General maintains no operations that generate cash flows sufficient to pay operating expenses, shareholders’ dividends, or principal or interest on its indebtedness.
Biggest changeAs a holding company, Mercury General maintains no operations that generate cash flows sufficient to pay operating expenses, shareholders’ dividends, or principal or interest on its indebtedness. Consequently, Mercury General relies on the ability of the Insurance Companies, particularly the California Companies, to pay dividends for Mercury General to meet its obligations.
The Company’s ability to undertake these efforts successfully, and as a result, price accurately, is subject to a number of risks and uncertainties, including but not limited to: • availability of sufficient reliable data; • incorrect or incomplete analysis of available data; • uncertainties inherent in estimates and assumptions, generally; • selection and application of appropriate rating formulae or other pricing methodologies; • successful innovation of new pricing strategies; • recognition of changes in trends and in the projected severity and frequency of losses; • the Company’s ability to forecast renewals of existing policies accurately; • unanticipated court decisions, legislation or regulatory action; • ongoing changes in the Company’s claim settlement practices; • changes in operating expenses; • changing driving patterns; • extra-contractual liability arising from bad faith claims; 15 • catastrophes, including those which may be related to climate change; • unexpected medical inflation; and • unanticipated inflation in automobile repair costs, automobile parts prices, and used car prices.
The Company’s ability to undertake these efforts successfully, and as a result, price accurately, is subject to a number of risks and uncertainties, including but not limited to: • availability of sufficient reliable data; • incorrect or incomplete analysis of available data; • uncertainties inherent in estimates and assumptions, generally; • selection and application of appropriate rating formulae or other pricing methodologies; • successful innovation of new pricing strategies; • recognition of changes in trends and in the projected severity and frequency of losses; 15 • the Company’s ability to forecast renewals of existing policies accurately; • unanticipated court decisions, legislation or regulatory action; • ongoing changes in the Company’s claim settlement practices; • changes in operating expenses; • changing driving patterns; • extra-contractual liability arising from bad faith claims; • catastrophes, including those which may be related to climate change; • unexpected medical inflation; and • unanticipated inflation in automobile repair costs, automobile parts prices, and used car prices.
In addition, the assumptions used to make this determination are subject to change from period to period based on changes in tax laws or variances between the Company’s projected operating performance and actual results. As a result, significant management judgment is required in assessing the possible need for a deferred tax asset valuation allowance.
In addition, the assumptions used to make this determination are subject to change from period to period based on changes in tax laws or variances between the Company’s projected operating performance and actual results. As a result, significant management judgment is required in assessing the possible need for a 19 deferred tax asset valuation allowance.
The valuations generated by such methods may be different from the value at which the investments ultimately may be sold. Further, rapidly changing and unprecedented credit and equity market conditions could materially impact the valuation of securities as reported 17 within the Company’s consolidated financial statements, and the period-to-period changes in value could vary significantly.
The valuations generated by such methods may be different from the value at which the investments ultimately may be sold. Further, rapidly changing and unprecedented credit and equity market conditions could materially impact the valuation of securities as reported within the Company’s consolidated financial statements, and the period-to-period changes in value could vary significantly.
Although management believes that it is more likely than not that the deferred tax 19 assets will be realized, some or all of the Company’s deferred tax assets could expire unused if the Company is unable to generate taxable income of an appropriate character and in a sufficient amount to utilize these tax benefits in the future.
Although management believes that it is more likely than not that the deferred tax assets will be realized, some or all of the Company’s deferred tax assets could expire unused if the Company is unable to generate taxable income of an appropriate character and in a sufficient amount to utilize these tax benefits in the future.
From time to time, market conditions have limited, and in some cases, prevented insurers from obtaining the types and amounts of reinsurance that they consider adequate for their business needs. As a result, the 18 Company may not be able to successfully purchase reinsurance and transfer a portion of the Company’s risk through reinsurance arrangements.
From time to time, market conditions have limited, and in some cases, prevented insurers from obtaining the types and amounts of reinsurance that they consider adequate for their business needs. As a result, the Company may not be able to successfully purchase reinsurance and transfer a portion of the Company’s risk through reinsurance arrangements.
Additionally, in the event of a failure of any competitor, the Company and other insurance 20 companies would likely be required by state law to absorb the losses of the failed insurer and would be faced with an unexpected surge in new business from the failed insurer’s former policyholders.
Additionally, in the event of a failure of any competitor, the Company and other insurance companies would likely be required by state law to absorb the losses of the failed insurer and would be faced with an unexpected surge in new business from the failed insurer’s former policyholders.
In such events, the Company may seek to reduce its writings in or to withdraw entirely from these states. In addition, from time to time, the United States Congress and certain 22 federal agencies investigate the current condition of the insurance industry to determine whether federal regulation is necessary.
In such events, the Company may seek to reduce its writings in or to withdraw entirely from these states. In addition, from time to time, the United States Congress and certain federal agencies investigate the current condition of the insurance industry to determine whether federal regulation is necessary.
In addition, if the DOI in any state in which the Company currently operates suspends, non-renews, or revokes an existing license, the Company would not be able to offer affected products in that state. 21 Transactions Between Insurance Companies and Their Affiliates.
In addition, if the DOI in any state in which the Company currently operates suspends, non-renews, or revokes an existing license, the Company would not be able to offer affected products in that state. Transactions Between Insurance Companies and Their Affiliates.
This concentration of ownership may conflict with the interests of the Company’s other shareholders and lenders. 24 Future equity or debt financing may affect the market price of the Company’s common stock and rights of the current shareholders, and the future exercise of options and granting of shares will result in dilution in the investment of the Company’s shareholders.
This concentration of ownership may conflict with the interests of the Company’s other shareholders and lenders. Future equity or debt financing may affect the market price of the Company’s common stock and rights of the current shareholders, and the future exercise of options and granting of shares will result in dilution in the investment of the Company’s shareholders.
Laws or regulations that significantly curtail or regulate the use of credit scoring, if enacted in a large number of states in which the Company operates, could negatively impact the Company’s future results of operations. If the Company cannot maintain its A.M.
Laws or regulations that significantly curtail or regulate the use of credit scoring, if enacted in a large number of states in which the Company operates, could negatively impact the Company’s future results of operations. 16 If the Company cannot maintain its A.M.
The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and the Company cannot assure that any design will succeed in achieving its stated goals under all potential future 25 conditions.
The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and the Company cannot assure that any design will succeed in achieving its stated goals under all potential future conditions.
Adverse developments in the market for personal automobile insurance or the personal automobile insurance industry in general, whether related to changes in competition, pricing or regulations, could cause the Company’s results of operations to suffer.
Adverse developments in the market for personal automobile insurance or the personal automobile insurance industry in general, whether related to changes in competition, pricing or regulations, 20 could cause the Company’s results of operations to suffer.
In addition, other risks and uncertainties not presently known or that the Company currently believes to be immaterial may also adversely affect the Company’s business.
In addition, other risks 14 and uncertainties not presently known or that the Company currently believes to be immaterial may also adversely affect the Company’s business.
Risks Related to Technology and Cybersecurity The Company relies on its information technology systems to manage many aspects of its business, and any failure of these systems to function properly or any interruption in their operation could result in a material adverse effect on the Company’s business, financial condition, and results of operations.
Risks Related to Technology and Cybersecurity The Company relies on its information technology systems, and those of its service providers, to manage many aspects of its business, and any failure of these systems to function properly or any interruption in their operation could result in a material adverse effect on the Company’s business, financial condition, and results of operations.
Regulation of Insurance Rates and Approval of Policy Forms. The insurance laws of most states in which the Company conducts business require insurance companies to file insurance rate schedules and insurance policy forms for review and approval.
The insurance laws of most states in which the Company conducts business require insurance companies to file insurance rate schedules and insurance policy forms for review and approval.
Management’s Discussion and Analysis of Financial Condition and Results of Operations." The failure of hardware or software that supports the Company’s information technology systems, the loss of data contained in the systems, or any delay or failure in the full deployment of the Company’s information 23 technology systems could disrupt its business and could result in decreased premiums, increased overhead costs, and inaccurate reporting, all of which could have a material adverse effect on the Company’s business, financial condition, and results of operations.
The failure of hardware or software that supports the Company’s information technology systems, the loss of data contained in the systems, or any delay or failure in the full deployment of the Company’s information technology systems could disrupt its business and could result in decreased premiums, increased overhead costs, and inaccurate reporting, all of which could have a material adverse effect on the Company’s business, financial condition, and results of operations.
At December 31, 2022, the Company’s consolidated balance sheets reflected approximately $43 million of goodwill and $9 million of other intangible assets. The Company evaluates whether events or circumstances have occurred that suggest that the fair values of its goodwill and other intangible assets are below their respective carrying values.
At December 31, 2023, the Company’s consolidated balance sheets reflected approximately $43 million of goodwill and $8 million of other intangible assets. The Company evaluates whether events or circumstances have occurred that suggest that the fair values of its goodwill and other intangible assets are below their respective carrying values.
The Company depends on independent agents who may discontinue sales of its policies at any time. The Company sells its insurance policies primarily through a network of approximately 7,450 independent agents. The Company must compete with other insurance carriers for these agents’ business.
The Company depends on independent agents who may discontinue sales of its policies at any time. The Company sells its insurance policies primarily through a network of approximately 6,390 independent agents. The Company must compete with other insurance carriers for these agents’ business.
Additionally, regulatory agencies, such as various state Departments of Insurance, the U.S. government and Federal Reserve may be slow to approve rate changes or adopt measures to attempt to control inflation, which could affect the Company's ability to generate profits and cash flow.
Additionally, regulatory agencies, such as various state Departments of Insurance, the U.S. government and Federal Reserve may be slow to approve rate changes or adopt measures to attempt to control inflation during the highly inflationary periods, which could adversely affect the Company's ability to generate profits and cash flow.
The Company may be adversely affected by changes in the private passenger automobile insurance industry. Approximately 64% of the Company’s direct premiums written for the year ended December 31, 2022 were generated from private passenger automobile insurance policies.
The Company may be adversely affected by changes in the private passenger automobile insurance industry. Approximately 62% of the Company’s direct premiums written for the year ended December 31, 2023 were generated from private passenger automobile insurance policies.
In addition, disputes with insurance carriers, including over policy terms, reservation of rights, the applicability of coverage (including exclusions), compliance with provisions (including notice) and/or the insolvency of one or more of our insurers, may significantly affect the amount or timing of recovery.
In addition, disputes with insurance carriers, including over policy terms, reservation of rights, applicability of coverage (including exclusions), compliance with provisions (including notice) and/or insolvency of insurance carriers, may significantly affect the amount or timing of recovery.
At December 31, 2022, approximately 50% of the Company’s total investment portfolio at fair value and approximately 60% of its total fixed maturity securities at fair value were invested in tax-exempt municipal bonds.
At December 31, 2023, approximately 44% of the Company’s total investment portfolio at fair value and approximately 53% of its total fixed maturity securities at fair value were invested in tax-exempt municipal bonds.
The Company depends on the accuracy, reliability, and proper functioning of its information technology systems. The Company relies on these information technology systems to effectively manage many aspects of its business, including underwriting, policy acquisition, claims processing and handling, accounting, reserving and actuarial processes and policies, and to maintain its policyholder data.
The Company relies on these IT Systems to effectively manage many aspects of its business, including underwriting, policy acquisition, claims processing and handling, accounting, reserving and actuarial processes and policies, and to maintain its policyholder data.
Defaults in the Company’s investment portfolio may produce operating losses and negatively impact the Company’s results of operations. Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions, and other factors beyond the Company’s control. Market interest rates have been at historic lows for the last several years.
Defaults in the Company’s investment portfolio may produce operating losses and negatively impact the Company’s results of operations. Interest rates are highly sensitive to many factors, including governmental monetary policies, domestic and international economic and political conditions, and other factors beyond the Company’s control.
Cyber security risks and the failure to maintain the confidentiality, integrity, and availability of internal or policyholder systems and data could result in damages to the Company ’ s reputation and/or subject it to expenses, fines or lawsuits.
Cybersecurity risks and the failure to maintain the confidentiality, integrity, and availability of internal or policyholder systems and data could result in damages to the Company’s reputation and/or subject it to expenses, fines or lawsuits.
Best currently rates all of the Insurance Companies with sufficient operating history as either A (Excellent) or A- (Excellent). On February 10, 2022, A.M. Best affirmed the Financial Strength Rating ("FSR") of A (Excellent) with Stable outlook for the Company's A rated entities and A- (Excellent) with Stable outlook for the Company's A- rated entities.
Best currently rates all of the Insurance Companies with sufficient operating history as A (Excellent). On February 17, 2023, A.M. Best affirmed the Financial Strength Rating ("FSR") of A (Excellent) with Stable outlook for the Company's A rated entities and upgraded the FSR from A- (Excellent) to A (Excellent) with Stable outlook for the Company's A- rated entities.
It is possible that future changes the Company is required to adopt could change the current accounting treatment that the Company applies to its consolidated financial statements and that such changes could have a material adverse effect on the Company’s financial condition and results of operations. The Company’s disclosure controls and procedures may not prevent or detect acts of fraud.
It is possible that future changes the Company is required to adopt 25 could change the current accounting treatment that the Company applies to its consolidated financial statements and that such changes could have a material adverse effect on the Company’s financial condition and results of operations.
Transactions between the Insurance Companies and their affiliates (including the Company) generally must be disclosed to state regulators, and prior approval of the applicable regulator is required before any material or extraordinary transaction may be consummated. State regulators may refuse to approve or delay approval of some transactions, which may adversely affect the Company’s ability to innovate or operate efficiently.
Transactions between the Insurance Companies and their affiliates (including the Company) generally must be disclosed to state regulators, and prior approval of the applicable regulator is required before any material or extraordinary transaction may be consummated.
The information discussed below should be considered carefully with the other information contained in this Annual Report on Form 10-K and the other documents and materials filed by the Company with the SEC, as well as news releases and other information publicly disseminated by the Company from time to time. 14 Risks Related to the Company’s Business The Company remains highly dependent upon California to produce revenues and operating profits.
The information discussed below should be considered carefully with the other information contained in this Annual Report on Form 10-K and the other documents and materials filed by the Company with the SEC, as well as news releases and other information publicly disseminated by the Company from time to time.
While the Company has no operations in Russia or Ukraine and writes business only in the United States, the escalation of geopolitical tensions related to this conflict, including increased trade barriers or restrictions on global trade, could result in, among other things, heightened cybersecurity threats, prolonged supply chain disruptions, protracted or increased inflation, lower consumer 26 demand, fluctuations in interest rates, and increased volatility in financial markets, which could adversely affect the Company's business, financial condition and results of operations.
The escalation of geopolitical conflicts and tensions in various parts of the world, including increased trade barriers or restrictions on global trade, could result in, among other things, heightened cybersecurity threats, prolonged supply chain disruptions, protracted or increased inflation, lower consumer demand, fluctuations in interest rates, and increased volatility in financial markets, which could adversely affect the Company's business, financial condition and results of operations.
The Company cannot predict whether and to what extent new laws and regulations that would affect its business will be adopted, the timing of any such adoption and what effects, if any, they may have on the Company’s business, financial condition, and results of operations.
The Company cannot predict whether and to what extent new laws and regulations that would affect its business will be adopted, the timing of any such adoption and what effects, if any, they may have on the Company’s business, financial condition, and results of operations. 22 Assessments and other surcharges for guaranty funds, second-injury funds, catastrophe funds, and other mandatory pooling arrangements may reduce the Company’s profitability.
In March 2020, the outbreak of COVID-19 was recognized as a pandemic by the World Health Organization and shortly thereafter, the President of the United States declared a National Emergency. While still evolving, the COVID-19 pandemic has caused significant economic and financial turmoil both in the United States and globally.
In March 2020, the outbreak of COVID-19 was recognized as a pandemic by the World Health Organization and shortly thereafter, the President of the United States declared a National Emergency.
The confidentiality and protection of the Company’s policyholder, employee and Company data are critical to the Company’s business. The Company’s policyholders and employees have a high expectation that the Company will adequately protect their personal information.
The confidentiality and protection of the Company’s policyholder, employee and Company data are critical to the Company’s business. The Company’s policyholders and employees have a high expectation that the Company will adequately protect their personal information. As such, we are subject to various federal, state and local laws, regulations and industry standards.
Consequently, Mercury General relies on the ability of the Insurance Companies, particularly the California Companies, to pay dividends for Mercury General to meet its obligations. The ability of the Insurance Companies to pay dividends is regulated by state insurance laws, which limit the amount of, and in certain circumstances may prohibit the payment of, cash dividends.
The ability of the Insurance Companies to pay dividends is regulated by state insurance laws, which limit the amount of, and in certain circumstances may prohibit the payment of, cash dividends.
The Company’s mitigation efforts include maintaining a high quality portfolio and managing the duration of the portfolio to reduce the effect of interest rate changes. Despite its mitigation efforts, a significant change in interest rates could have a material adverse effect on the Company’s financial condition and results of operations.
Despite its mitigation efforts, a significant change in interest rates could have a material adverse effect on the Company’s financial condition and results of operations.
The insurance generally guarantees the payment of principal and interest on a bond issue if the issuer defaults. By purchasing the insurance, the financial strength ratings applicable to the bonds are based on the credit worthiness of the insurer as well as the underlying credit of the bond issuer. These financial guaranty insurers are subject to DOI oversight.
By purchasing the insurance, the financial strength ratings applicable to the bonds are based on the credit worthiness of the insurer as well as the underlying credit of the bond issuer. These financial guaranty insurers are subject to DOI oversight. As the financial strength ratings of these insurers are reduced, the ratings of the insured bond issues correspondingly decrease.
Assessments and other surcharges for guaranty funds, second-injury funds, catastrophe funds, and other mandatory pooling arrangements may reduce the Company’s profitability. Virtually all states require insurers licensed to do business in their state to bear a portion of the loss suffered by some insured parties as the result of impaired or insolvent insurance companies.
Virtually all states require insurers licensed to do business in their state to bear a portion of the loss suffered by some insured parties as the result of impaired or insolvent insurance companies.
If the amounts actually recoverable under the Company’s reinsurance treaties are ultimately determined to be less than the amount it has reported as recoverable, the Company may incur a loss during the period in which that determination is made.
If the amounts actually recoverable under the Company’s reinsurance treaties are ultimately determined to be less than the amount it has reported as recoverable, the Company may incur a loss during the period in which that determination is made. 18 The failure of any loss limitation methods employed by the Company could have a material adverse effect on its financial condition or results of operations.
The Company's business, financial condition and results of operations could be adversely affected by the ongoing conflict between Russia and Ukraine and related disruptions in the global economy. The global economy has been negatively impacted by the military conflict between Russia and Ukraine.
The Company's business, financial condition and results of operations could be adversely affected by geopolitical conflicts and related disruptions in the global economy.
During periods of market disruption, including periods of significantly changing interest rates, rapidly widening credit spreads, inactivity or illiquidity, it may be difficult to value certain of the Company’s securities if trading becomes less frequent and/or market data become less observable.
Assets and liabilities recorded on the consolidated balance sheets at fair value are categorized based on the level of judgment associated with the inputs used to measure their fair value and the level of market price observability. 17 During periods of market disruption, including periods of significantly changing interest rates, rapidly widening credit spreads, inactivity or illiquidity, it may be difficult to value certain of the Company’s securities if trading becomes less frequent and/or market data become less observable.
Best ratings within the A ratings range, it may face greater challenges to grow its premium volume sufficiently to attain its financial performance goals, which may adversely affect the Company’s business, financial condition, and results of operations. 16 The Company may require additional capital in the future, which may not be available or may only be available on unfavorable terms.
The Company believes that if it is unable to maintain its A.M. Best ratings within the A ratings range, it may face greater challenges to grow its premium volume sufficiently to attain its financial performance goals, which may adversely affect the Company’s business, financial condition, and results of operations.
The regulatory environment, as well as the requirements imposed by the payment card industry and insurance regulators, governing information, security and privacy laws is increasingly demanding and continues to evolve. Maintaining compliance with applicable information security and privacy regulations may increase the Company’s operating costs and adversely impact its ability to market products and services to its policyholders.
Maintaining compliance with applicable information security and privacy regulations may increase the Company’s operating costs and adversely impact its 24 ability to market products and services to its policyholders.
For the year ended December 31, 2022, the Company generated approximately 81% of its direct automobile insurance premiums written in California. The Company’s financial results are subject to prevailing regulatory, legal, economic, demographic, competitive, and other conditions in the states in which the Company operates and changes in any of these conditions could negatively impact the Company’s results of operations.
The Company’s financial results are subject to prevailing regulatory, legal, economic, demographic, competitive, and other conditions in the states in which the Company operates and changes in any of these conditions could negatively impact the Company’s results of operations. Mercury General is a holding company that relies on regulated subsidiaries for cash flows to satisfy its obligations.
In addition, the Company’s policies contain conditions requiring the prompt reporting of claims and the Company’s right to decline coverage in the event of a violation of that condition.
Various provisions of the Company’s policies, such as limitations or exclusions from coverage which are intended to limit the Company’s risks, may not be enforceable in the manner the Company intends. In addition, the Company’s policies contain conditions requiring the prompt reporting of claims and the Company’s right to decline coverage in the event of a violation of that condition.
It is possible that a system failure, accident, or security breach could result in a material disruption to the Company’s business. In addition, substantial costs may be incurred to remedy the damages caused by these disruptions. Following implementation of information technology systems, the Company may from time to time install new or upgraded business management systems.
An actual or perceived IT System failure, accident, or security breach could result in a material disruption to the Company’s business and result in the theft, misuse, loss, corruption or improper use or disclosure of data, including personal information or confidential business information. In addition, substantial costs may be incurred to remedy the damages caused by these disruptions.
Changes in the financial strength ratings of financial guaranty insurers issuing policies on bonds held in the Company’s investment portfolio may have an adverse effect on the Company’s investment results. In an effort to enhance the bond rating applicable to certain bond issues, some bond issuers purchase municipal bond insurance policies from private insurers.
Decreases in value may have a material adverse effect on the Company’s financial condition or results of operations. Changes in the financial strength ratings of financial guaranty insurers issuing policies on bonds held in the Company’s investment portfolio may have an adverse effect on the Company’s investment results.
Many observers, including the Company, believe that market interest rates will rise as the economy improves. Although the Company takes measures to manage the risks of investing in a changing interest rate environment, it may not be able to mitigate interest rate sensitivity effectively.
Although the Company takes measures to manage the risks of investing in a changing interest rate environment, it may not be able to mitigate interest rate sensitivity effectively. The Company’s mitigation efforts include maintaining a high quality portfolio and managing the duration of the portfolio to reduce the effect of interest rate changes.
High inflation levels could have adverse consequences for the Company, the insurance industry and the U.S. economy generally. The U.S. economy is currently experiencing increasing levels of inflation, which creates a heightened level of risk for the Company, the insurance industry and the U.S. economy generally.
Although the inflation moderated in 2023, it has created a heightened level of risk for the Company, the insurance industry and the U.S. economy generally throughout 2022 and much of 2023.
Removed
The Company believes that if it is unable to maintain its A.M.
Added
Risks Related to the Company’s Business The Company remains highly dependent upon California to produce revenues and operating profits. For the year ended December 31, 2023, the Company generated approximately 80% of its direct automobile insurance premiums written in California.
Removed
Assets and liabilities recorded on the consolidated balance sheets at fair value are categorized based on the level of judgment associated with the inputs used to measure their fair value and the level of market price observability.
Added
The Company may require additional capital in the future, which may not be available or may only be available on unfavorable terms.
Removed
Decreases in value may have a material adverse effect on the Company’s financial condition or results of operations. Changes in the method for determining London Interbank Offered Rate ("LIBOR") and the eventual replacement of LIBOR may affect the value of the Company's investment portfolio and its net investment income. On July 27, 2017, the U.K.
Added
In an effort to enhance the bond rating applicable to certain bond issues, some bond issuers purchase municipal bond insurance policies from private insurers. The insurance generally guarantees the payment of principal and interest on a bond issue if the issuer defaults.
Removed
Financial Conduct Authority (the “FCA”), which regulates LIBOR, announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of LIBOR after 2021. On March 5, 2021, the FCA announced it will cease publication of the most commonly used U.S. dollar LIBOR tenors after June 30, 2023.
Added
State regulators may refuse to approve or delay approval of some transactions, which may adversely affect the Company’s ability to innovate or operate efficiently. 21 Regulation of Insurance Rates and Approval of Policy Forms.
Removed
The Federal Reserve Bank of New York began publishing the Secured Overnight Financing Rate (“SOFR”) in April 2018 as an alternative for LIBOR. SOFR is a broad measure of the cost of borrowing cash overnight collateralized by U.S. Treasury securities. On July 29, 2021, the U.S.
Added
The Company depends on the accuracy, reliability, and proper functioning of its information technology systems, networks and online sites, including systems maintained by third-party vendors with which we do business (collectively, “IT Systems”).
Removed
Federal Reserve formally recommended the forward-looking SOFR term rates as the replacement for U.S. dollar LIBOR. The Company has exposure to LIBOR-based financial instruments, such as LIBOR-based securities held in its investment portfolio. Alternative reference rates have different characteristics than LIBOR, and may demonstrate less predictable behavior over time and across different monetary, market, and economic environments.
Added
We and our providers face various and evolving cybersecurity risks that threaten the confidentiality, integrity and availability of our IT Systems and data, including personal information, that we process.
Removed
Although the full impact of transition remains unclear, this change could have an adverse impact on the securities markets, the value of the Company's investment portfolio, and its net investment income.
Added
These risks include the risk of a cyber incident, which has generally increased as the number, intensity and sophistication of attempted attacks by threat actors have increased globally, especially given the use of more advanced hacking tools and techniques and the use of artificial intelligence, including by computer hackers, state-sponsored actors, information service interruptions and cyber terrorists, opportunistic hackers and hacktivists, as well as through diverse attack vectors, such as social engineering/phishing, malware (including ransomware), malfeasance by insiders, human or technological error, and as a result of bugs, misconfigurations or exploited vulnerabilities in software or hardware.
Removed
As the financial strength ratings of these insurers are reduced, the ratings of the insured bond issues correspondingly decrease.
Added
Techniques used in cyber incidents evolve frequently, may originate from less regulated and remote areas of the world and be difficult to detect and may not be recognized until 23 launched against a target.
Removed
The failure of any loss limitation methods employed by the Company could have a material adverse effect on its financial condition or results of operations. Various provisions of the Company’s policies, such as limitations or exclusions from coverage which are intended to limit the Company’s risks, may not be enforceable in the manner the Company intends.
Added
Accordingly, we may be unable to anticipate these techniques or to implement adequate security barriers or other preventative measures, making it impossible for us to entirely eliminate this risk. Like many companies, we have been, and expect to continue to be, the target of cyber incidents.
Removed
The Company has deployed, and continues to enhance, new information technology systems that are designed to manage many of these functions across the states in which it operates and the lines of insurance it offers. See "Overview—A. General—Technology" in "Item 7.
Added
While these incidents have not had a material impact to date, as our reliance on technology increases, so do the risks of a security incident.
Removed
Furthermore, a penetrated or compromised information technology system or the intentional, unauthorized, inadvertent or negligent release or disclosure of data could result in theft, loss, fraudulent or unlawful use of policyholder, employee or Company data which could harm the Company’s reputation or result in remedial and other expenses, fines or lawsuits.
Added
For example, unauthorized parties, whether within or outside the Company, may disrupt or gain access to our IT Systems, or those of third parties with whom we do business, through human error, misfeasance, fraud, trickery, or other forms of deceit, including break-ins, use of stolen credentials, social engineering, phishing, computer viruses or other malicious codes, and similar means of unauthorized and destructive tampering.
Removed
There can be no assurance that inflation rates will not continue to escalate in the future or that measures adopted or that may be adopted by the U.S. government or the Federal Reserve to control inflation will be effective or successful.
Added
Though we have adopted cybersecurity measures, such measures cannot provide absolute security, and there can be no assurance that our cybersecurity risk management program and processes, including our policies, controls or procedures, will be fully complied with or effective in protecting our systems and information.
Added
Following implementation of IT Systems, the Company may from time to time install new or upgraded business management systems.
Added
This could result in government investigations, lawsuits (including class actions), enforcement actions and other legal and financial liability, and/or loss of confidence in the availability and security of our products and services, all of which could seriously harm our reputation and brand and impair our ability to attract and retain clients.
Added
Cyberattacks could also compromise our own trade secrets and other sensitive information and result in such information being disclosed to others and becoming less valuable, which could negatively affect our business.
Added
The regulatory environment, as well as the requirements imposed by the payment card industry and insurance regulators, governing information, security and privacy laws is increasingly demanding and continues to evolve, resulting in a patchwork of legislation that can be subject to differing interpretation.
Added
Any failure or perceived failure by us to comply with laws, regulations, policies or regulatory guidance relating to privacy or data security may result in governmental investigations and enforcement actions, litigation, fines and penalties or adverse publicity, and could cause our customers and consumers to lose trust in us, which could have an adverse effect on our reputation and business.
Added
The Company’s disclosure controls and procedures may not prevent or detect acts of fraud.
Added
The COVID-19 pandemic has caused significant economic and financial turmoil both in the United States and globally. 26 High inflation levels could have adverse consequences for the Company, the insurance industry and the U.S. economy generally. The U.S. economy experienced elevated levels of inflation in 2022.

Item 2. Properties

Properties — owned and leased real estate

2 edited+0 added−0 removed3 unchanged
Biggest changeLocation Purpose Size in Square Feet Percent Occupied by the Company at December 31, 2022 Brea, CA Home office and I.T. facilities (2 buildings) 236,000 100 % Folsom, CA Administrative and Data Center 88,000 100 % Los Angeles, CA Executive offices 41,000 96 % Rancho Cucamonga, CA Administrative 127,000 46 % Clearwater, FL Property held for sale 162,000 14 % Oklahoma City, OK Administrative 100,000 25 % The Company leases additional office space for operations.
Biggest changeLocation Purpose Size in Square Feet Percent Occupied by the Company at December 31, 2023 Brea, CA Property held for sale 156,000 100 % Brea, CA Home office and I.T. facilities 80,000 100 % Folsom, CA Administrative 88,000 100 % Los Angeles, CA Executive offices 41,000 95 % Oklahoma City, OK Administrative 100,000 10 % The Company leases additional office space for operations.
Consequently, the Company is in the process of reducing its office footprint.
Consequently, the Company is in the process of reducing its office footprint. 29

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

6 edited+0 added−1 removed2 unchanged
Biggest changeThe Company has not repurchased any of its Common Stock since 2000.
Biggest changeRecent Sales of Unregistered Securities None. Share Repurchases The Company does not currently have any share repurchases authorized by the Board. The Company has not repurchased any of its Common Stock since 2000.
Financial Statements and Supplementary Data." 28 Performance Graph The following graph compares the cumulative total shareholder returns on the Company’s common stock (trading symbol: MCY) with the cumulative total returns on the Standard and Poor’s 500 Composite Stock Price Index ("S&P 500 Index") and the Company’s industry peer group over the last five years.
Financial Statements and Supplementary Data." 31 Performance Graph The following graph compares the cumulative total shareholder returns on the Company’s common stock (trading symbol: MCY) with the cumulative total returns on the Standard and Poor’s 500 Composite Stock Price Index ("S&P 500 Index") and the Company’s industry peer group over the last five years.
Holders As of February 9, 2023, there were approximately 136 holders of record of the Company’s common stock. Dividends For financial statement purposes, the Company records dividends on the declaration date. The continued payment and amount of cash dividends will depend upon the Company’s operating results, overall financial condition, capital requirements, and general business conditions.
Holders As of February 8, 2024, there were approximately 141 holders of record of the Company’s common stock. Dividends For financial statement purposes, the Company records dividends on the declaration date. The continued payment and amount of cash dividends will depend upon the Company’s operating results, overall financial condition, capital requirements, and general business conditions.
As of December 31, 2022, the Insurance Companies are permitted to pay in 2023, without obtaining DOI approval for extraordinary dividends, $151 million in dividends to Mercury General, of which $125 million may be paid by the California Companies.
As of December 31, 2023, the Insurance Companies are permitted to pay in 2024, without obtaining DOI approval for extraordinary dividends, $163 million in dividends to Mercury General, of which $140 million may be paid by the California Companies.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information The shares of the Company's common stock are listed and traded on the New York Stock Exchange (trading symbol: MCY). The closing price of the Company’s common stock on February 9, 2023 was $37.27.
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Market Information The shares of the Company's common stock are listed and traded on the New York Stock Exchange (trading symbol: MCY). The closing price of the Company’s common stock on February 8, 2024 was $40.01.
The graph assumes that $100 was invested on December 31, 2017 in each of the Company’s Common Stock, the S&P 500 Index and the industry peer group and the reinvestment of all dividends. 2017 2018 2019 2020 2021 2022 Mercury General $ 100.00 $ 101.67 $ 100.41 $ 114.16 $ 121.21 $ 81.67 Industry Peer Group 100.00 99.81 117.98 121.70 150.65 166.67 S&P 500 Index 100.00 95.62 125.72 148.85 191.58 156.88 The industry peer group consists of Alleghany Corporation, Allstate Corporation, American Financial Group, Arch Capital Group Ltd, Berkley (W.R.), Berkshire Hathaway 'B', Chubb Corporation, Cincinnati Financial Corporation, CNA Financial Corporation, Erie Indemnity Company, Hanover Insurance Group, Markel Corporation, Old Republic International, Progressive Corporation, RLI Corporation, Selective Insurance Group, and Travelers Companies, Inc.
The graph assumes that $100 was invested on December 31, 2018 in each of the Company’s Common Stock, the S&P 500 Index and the industry peer group and the reinvestment of all dividends. 2018 2019 2020 2021 2022 2023 Mercury General $ 100.00 $ 98.76 $ 112.28 $ 119.22 $ 80.33 $ 91.20 Industry Peer Group 100.00 118.21 121.92 151.59 167.70 189.22 S&P 500 Index 100.00 131.49 155.68 200.37 164.08 207.21 The industry peer group consists of Alleghany Corporation, Allstate Corporation, American Financial Group, Arch Capital Group Ltd, Berkley (W.R.), Berkshire Hathaway 'B', Chubb Corporation, Cincinnati Financial Corporation, CNA Financial Corporation, Erie Indemnity Company, Hanover Insurance Group, Markel Corporation, Old Republic International, Progressive Corporation, RLI Corporation, Selective Insurance Group, and Travelers Companies, Inc.
Removed
Recent Sales of Unregistered Securities None. Share Repurchases On July 29, 2022, the Board did not extend its authorization of the repurchase of up to $200 million of the Company’s Common Stock and allowed its authorization to expire on that date. The Board originally authorized the repurchase on July 31, 2020.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

125 edited+17 added−32 removed79 unchanged
Biggest changeThe following tables present the components of net realized investment gains (losses) included in net income: Year Ended December 31, 2022 Gains (Losses) Recognized in Income Sales Changes in fair value Total (Amounts in thousands) Net realized investment gains (losses): Fixed maturity securities (1)(2) $ (70,562) $ (260,223) $ (330,785) Equity securities (1)(3) 24,916 (185,694) (160,778) Short-term investments (1) (2,492) 88 (2,404) Options sold 5,786 101 5,887 Total $ (42,352) $ (445,728) $ (488,080) 39 Year Ended December 31, 2021 Gains (Losses) Recognized in Income Sales Changes in fair value Total (Amounts in thousands) Net realized investment gains (losses): Fixed maturity securities (1)(2) $ (4,384) $ (39,649) $ (44,033) Equity securities (1)(3) 45,235 107,701 152,936 Short-term investments (1) (145) (141) (286) Note receivable (1) — (4) (4) Options sold 2,964 81 3,045 Total $ 43,670 $ 67,988 $ 111,658 __________ (1) The changes in fair value of the investment portfolio and note receivable resulted from the application of the fair value option.
Biggest changeAverage annual yield on investments before and after income taxes increased primarily due to the maturity and replacement of lower yielding investments purchased when market interest rates were lower with higher yielding investments, as a result of increasing overall market interest rates, as well as higher yields on investments based on floating interest rates. 41 The following tables present the components of net realized investment gains (losses) included in net income: Year Ended December 31, 2023 Gains (Losses) Recognized in Income Sales Changes in fair value Total (Amounts in thousands) Net realized investment gains (losses): Fixed maturity securities (1)(2) $ (1,463) $ 62,833 $ 61,370 Equity securities (1)(3) (14,265) 45,046 30,781 Short-term investments (1) (4) 107 103 Note receivable (1) — 174 174 Options sold 8,955 (369) 8,586 Total $ (6,777) $ 107,791 $ 101,014 Year Ended December 31, 2022 Gains (Losses) Recognized in Income Sales Changes in fair value Total (Amounts in thousands) Net realized investment gains (losses): Fixed maturity securities (1)(2) $ (70,562) $ (260,223) $ (330,785) Equity securities (1)(3) 24,916 (185,694) (160,778) Short-term investments (1) (2,492) 88 (2,404) Options sold 5,786 101 5,887 Total $ (42,352) $ (445,728) $ (488,080) __________ (1) The changes in fair value of the investment portfolio and note receivable resulted from the application of the fair value option.
The Company believes that the incurred loss method provides a 33 reasonable basis for evaluating ultimate losses, particularly in the Company’s larger, more established lines of insurance business which have a long operating history. • The paid loss method analyzes historical payment patterns to estimate the amount of losses yet to be paid. • The average severity method analyzes historical loss payments and/or incurred losses divided by closed claims and/or total claims to calculate an estimated average cost per claim.
The Company believes that the incurred loss method provides a reasonable basis for evaluating ultimate losses, particularly in the Company’s larger, more established lines of insurance business which have a long operating history. • The paid loss method analyzes historical payment patterns to estimate the amount of losses yet to be paid. • The average severity method analyzes historical loss payments and/or incurred losses divided by closed claims and/or total claims to calculate an estimated average cost per claim.
The 2022 loss ratio was negatively impacted by a total of approximately $101 million of catastrophe losses, excluding unfavorable development of approximately $1 million on prior years' catastrophe losses, primarily due to the deep freeze of Winter Storm Elliott and other extreme weather events in Texas, Oklahoma and Georgia, winter storms in California, and the impact of Hurricane Ian in Florida.
The 2022 loss ratio was negatively impacted by a total of approximately $101 million of catastrophe losses, excluding unfavorable 40 development of approximately $1 million on prior years' catastrophe losses, primarily due to the deep freeze of Winter Storm Elliott and other extreme weather events in Texas, Oklahoma and Georgia, winter storms in California, and the impact of Hurricane Ian in Florida.
In addition, time can be a critical part of reserving determinations since the longer the span between the incidence of a loss and the payment or settlement of a claim, the more variable the ultimate settlement amount could be. Accordingly, short-tail liability claims, such as property damage claims, tend to be more reasonably predictable than long-tail liability claims.
In addition, time can be a critical part of reserving determinations since the longer the span between the incidence of a loss and the payment or settlement of a claim, the more variable the 35 ultimate settlement amount could be. Accordingly, short-tail liability claims, such as property damage claims, tend to be more reasonably predictable than long-tail liability claims.
Short-term investments include money market accounts, options, and short-term bonds that are highly rated short duration securities and redeemable within one year. A primary exposure for the fixed maturity securities is interest rate risk. The longer the duration, the more sensitive the asset is to market interest rate fluctuations.
Short-term investments include money market accounts, options, and short-term bonds that are highly rated short duration securities and redeemable within one year. A primary exposure for the fixed maturity securities is interest rate risk. The longer the duration, the more sensitive the 44 asset is to market interest rate fluctuations.
The ORSA is required to cover, among many items, a company’s risk management policies, the material risks to which the company is exposed, how the company measures, monitors, manages and mitigates material risks, and how much economic and regulatory capital is needed to continue to operate in a strong and healthy manner.
The ORSA is required to cover, among many items, a company’s risk management policies, the 50 material risks to which the company is exposed, how the company measures, monitors, manages and mitigates material risks, and how much economic and regulatory capital is needed to continue to operate in a strong and healthy manner.
(1) Inflation For the Company’s California automobile lines of insurance business, total reserves are comprised of the following: • BI reserves—approximately 70% of total reserves • Material damage ("MD") reserves, including collision and comprehensive property damage—approximately 10% of total reserves • Loss adjustment expense reserves—approximately 20% of total reserves.
(1) Inflation For the Company’s California automobile lines of insurance business, total reserves are comprised of the following: 36 • BI reserves—approximately 70% of total reserves • Material damage ("MD") reserves, including collision and comprehensive property damage—approximately 10% of total reserves • Loss adjustment expense reserves—approximately 20% of total reserves.
The Company was in compliance with all of its financial covenants pertaining to minimum statutory surplus, debt to total capital ratio, and RBC ratio under the unsecured credit facility at December 31, 2022. For a further discussion, see Note 8. Notes Payable, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data." E.
The Company was in compliance with all of its financial covenants pertaining to minimum statutory surplus, debt to total capital ratio, and RBC ratio under the unsecured credit facility at December 31, 2023. For a further discussion, see Note 8. Notes Payable, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data." E.
The ORSA is intended to be used by state insurance regulators to evaluate the risk exposure and quality of the risk management processes within insurance companies to assist in conducting risk-focused financial examinations and for determining the overall financial condition of insurance companies. The Company filed its most recent ORSA Summary Report with the California DOI in November 2022.
The ORSA is intended to be used by state insurance regulators to evaluate the risk exposure and quality of the risk management processes within insurance companies to assist in conducting risk-focused financial examinations and for determining the overall financial condition of insurance companies. The Company filed its most recent ORSA Summary Report with the California DOI in November 2023.
Leases, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" for additional information on lease obligations. (3) Loss and loss adjustment expense reserves represents an estimate of amounts necessary to settle all outstanding claims, including IBNR as of December 31, 2022.
Leases, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data" for additional information on lease obligations. (3) Loss and loss adjustment expense reserves represents an estimate of amounts necessary to settle all outstanding claims, including IBNR as of December 31, 2023.
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 states where the Company 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, cyber security, regulatory and litigation risks.
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 states where the Company 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 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.
None of the Insurance Companies’ RBC ratios were less than 330% of the authorized control level RBC as of December 31, 2022, none less than 400% as of December 31, 2021, and none less than 350% as of December 31, 2020. Generally, an RBC ratio of 200% or less would require some form of regulatory or company action.
None of the Insurance Companies’ RBC ratios were less than 350% of the authorized control level RBC as of December 31, 2023, none less than 330% as of December 31, 2022, and none less than 400% as of December 31, 2021. Generally, an RBC ratio of 200% or less would require some form of regulatory or company action.
IBNR includes estimates, based upon past experience, of ultimate developed costs, which may differ from case estimates, unreported claims that occurred on or prior to December 31, 2022 and 2021, and estimated future payments for reopened claims.
IBNR includes estimates, based upon past experience, of ultimate developed costs, which may differ from case estimates, unreported claims that occurred on or prior to December 31, 2023 and 2022, and estimated future payments for reopened claims.
The Company used the proceeds from the notes to pay off the total outstanding balance of $320 million under the existing loan and credit facility agreements and terminated the agreements on March 8, 2017. The remainder of the proceeds from the notes was used for general corporate 46 purposes.
The Company used the proceeds from the notes to pay off the total outstanding balance of $320 million under the existing loan and credit facility agreements and terminated the agreements on March 8, 2017. The remainder of the proceeds from the notes was used for general corporate 48 purposes.
Regulatory and Legal Matters The process for implementing rate changes varies by state. For more detailed information related to insurance rate approval, see "Item 1. Business—Regulation." During 2022, the Company implemented rate changes in 11 states.
Regulatory and Legal Matters The process for implementing rate changes varies by state. For more detailed information related to insurance rate approval, see "Item 1. Business—Regulation." During 2023, the Company implemented rate changes in 11 states.
The underlying ratings for insured municipal bonds have been factored into the average rating of the securities by the rating agencies with no significant disparity between the absolute bond ratings and the underlying credit ratings as of December 31, 2022 and 2021.
The underlying ratings for insured municipal bonds have been factored into the average rating of the securities by the rating agencies with no significant disparity between the absolute bond ratings and the underlying credit ratings as of December 31, 2023 and 2022.
Management's Discussion and Analysis of Financial Condition and Results of Operations" of the Company's Form 10-K for the year ended December 31, 2021 for a discussion of changes in its results of operations from the year ended December 31, 2020 to the year ended December 31, 2021. LIQUIDITY AND CAPITAL RESOURCES A.
Management's Discussion and Analysis of Financial Condition and Results of Operations" of the Company's Form 10-K for the year ended December 31, 2022 for a discussion of changes in its results of operations from the year ended December 31, 2021 to the year ended December 31, 2022. LIQUIDITY AND CAPITAL RESOURCES A.
The Company continued its marketing efforts to enhance name recognition and lead generation in 2022, although it reduced the spending for advertising and marketing as part of its cost saving initiative.
The Company continued its marketing efforts to enhance name recognition and lead generation in 2023, although it reduced the spending for advertising and marketing as part of its cost saving initiative.
The Company utilized the cash provided by operating activities during the year ended December 31, 2022 primarily for the net purchases of investment securities and payment of dividends to its shareholders.
The Company utilized the cash provided by operating activities during the year ended December 31, 2023 primarily for the net purchases of investment securities and payment of dividends to its shareholders.
Debt The Company's debt consists of the following: December 31, Lender Interest Rate Expiration 2022 2021 (Amounts in thousands) Senior unsecured notes (1) Publicly traded 4.40% March 15, 2027 $ 375,000 $ 375,000 Unsecured credit facility (2) Bank of America, Wells Fargo Bank, and U.S.
Debt The Company's debt consists of the following: December 31, Lender Interest Rate Expiration 2023 2022 (Amounts in thousands) Senior unsecured notes (1) Publicly traded 4.40% March 15, 2027 $ 375,000 $ 375,000 Unsecured credit facility (2) Bank of America, Wells Fargo Bank, BMO Bank, and U.S.
The Company periodically monitors the RBC level of each of the Insurance Companies. As of December 31, 2022, 2021 and 2020, each of the Insurance Companies exceeded the minimum required RBC level, as determined by the NAIC and adopted by the state insurance regulators.
The Company periodically monitors the RBC level of each of the Insurance Companies. As of December 31, 2023, 2022 and 2021, each of the Insurance Companies exceeded the minimum required RBC level, as determined by the NAIC and adopted by the state insurance regulators.
The average annual net cash provided by operating activities for the past 10 years was approximately $364 million, and cash generated from operations was sufficient to meet the liquidity requirements over this period. The following table presents the estimated fair value of fixed maturity securities at December 31, 2022 by contractual maturity in the next five years.
The average annual net cash provided by operating activities for the past 10 years was approximately $389 million, and cash generated from operations was sufficient to meet the liquidity requirements over this period. The following table presents the estimated fair value of fixed maturity securities at December 31, 2023 by contractual maturity in the next five years.
(2) The Company is obligated under various non-cancellable lease agreements providing for office space, automobiles, office equipment, and electronic data processing equipment that expire at various dates through the year 2028. Lease obligations include $3.6 million in lease commitments that have not yet commenced as of December 31, 2022. See Note 7.
(2) The Company is obligated under various non-cancellable lease agreements providing for office space, automobiles, office equipment, and electronic data processing equipment that expire at various dates through the year 2028. Lease obligations include $3.4 million in lease commitments that have not yet commenced as of December 31, 2023. See Note 7.
At December 31, 2022 and 2021, the average rating of the Company’s insured municipal securities was A+, which corresponded to the average rating of the investment grade bond insurers.
At December 31, 2023 and 2022, the average rating of the Company’s insured municipal securities was A+, which corresponded to the average rating of the investment grade bond insurers.
(3) The decrease in fair value of equity securities in 2022 was primarily due to the overall decline in equity markets, and the increase in fair value of equity securities in 2021 was primarily due to the overall improvement in equity markets.
(3) The increase in fair value of equity securities in 2023 was primarily due to the overall improvement in equity markets, and the decrease in fair value of equity securities in 2022 was primarily due to the overall decline in equity markets.
The primary cause for the decrease in fair value of the Company's equity securities in 2022 was the overall decline in equity markets, and the primary cause for the increase in fair value of the Company's equity securities in 2021 was the overall improvement in equity markets.
The primary cause for the increase in fair value of the Company's equity securities in 2023 was the overall improvement in equity markets, and the primary cause for the decrease in fair value of the Company's equity securities in 2022 was the overall decline in equity markets.
As a larger proportion of claims from an accident year are settled, there emerges a higher degree of certainty for the loss reserves established for that accident year. At December 31, 2022, the accident years that are most likely to develop are the 2020 through 2022 accident years; however, it is possible that older accident years could develop as well.
As a larger proportion of claims from an accident year are settled, there emerges a higher degree of certainty for the loss reserves established for that accident year. At December 31, 2023, the accident years that are most likely to develop are the 2021 through 2023 accident years; however, it is possible that older accident years could develop as well.
Financial Statements and Supplementary Data." (4) The table excludes liabilities of $6.6 million related to uncertainty in tax settlements as the Company is unable to reasonably estimate the timing and amount of related future payments.
Financial Statements and Supplementary Data." (4) The table excludes liabilities of $3.9 million related to uncertainty in tax settlements as the Company is unable to reasonably estimate the timing and amount of related future payments.
General The Company is largely dependent upon dividends received from its insurance subsidiaries in the current and prior years to pay debt service costs and to make distributions to its shareholders. Under current insurance law, the Insurance Companies are entitled to pay ordinary dividends of approximately $151 million in 2023 to Mercury General.
General The Company is largely dependent upon dividends received from its insurance subsidiaries in the current and prior years to pay debt service costs and to make distributions to its shareholders. Under current insurance law, the Insurance Companies are entitled to pay ordinary dividends of approximately $163 million in 2024 to Mercury General.
The unamortized debt issuance cost of approximately $0.9 million associated with the $200 million unsecured revolving credit facility maturing on November 16, 2026 is included in other assets in the Company's consolidated balance sheets and amortized to interest expense over the term of the credit facility.
The unamortized debt issuance cost of approximately $0.8 million associated with the $250 million unsecured revolving credit facility maturing on November 16, 2026 is included in other assets in the Company's consolidated balance sheets and amortized to interest expense over the term of the credit facility.
However, the Company is unable to determine which, if any, of the factors actually impact the number of claims reported and, if so, by what magnitude. The COVID-19 pandemic created greater uncertainty in the claims count development for the 2020, 2021 and 2022 accident years.
However, the Company is unable to determine which, if any, of the factors actually impact the number of claims reported and, if so, by what magnitude. The COVID-19 pandemic created greater uncertainty in the claims count development for the 2020 through 2023 accident years.
Once known, the Company establishes a provision for the losses, but it is not possible to provide any meaningful sensitivity analysis as to the potential size of any unexpected losses.
Once known or otherwise quantifiable, the Company establishes a provision for the losses, but it is not possible to provide any meaningful sensitivity analysis as to the potential size of any unexpected losses.
The Company’s operating results and growth have allowed it to consistently generate positive cash flow from operations, which was approximately $353 million and $502 million in 2022 and 2021, respectively. Cash flow from operations has been used to pay shareholder dividends and help support growth.
The Company’s operating results and growth have allowed it to consistently generate positive cash flow from operations, which was approximately $453 million and $353 million in 2023 and 2022, respectively. Cash flow from operations has been used to pay shareholder dividends and help support growth.
The Company believes that the reduced services for non-critical cases at medical facilities and fear of infection during the pandemic combined with the economic hardship caused by the pandemic are likely to increase the late reporting of claims seeking settlement for monetary compensation.
The Company believes that the reduced services for non-critical cases at medical facilities and fear of infection during the pandemic combined with the economic hardship caused by the pandemic may increase the late reporting of claims seeking settlement for monetary compensation.
As of December 31, 2022, Mercury General had approximately $96 million in investments and cash that could be utilized to satisfy its direct holding company obligations. 40 The principal sources of funds for the Insurance Companies are premiums, sales and maturity of invested assets, and dividend and interest income from invested assets.
As of December 31, 2023, Mercury General had approximately $43 million in investments and cash that could be utilized to satisfy its direct holding company obligations. The principal sources of funds for the Insurance Companies are premiums, sales and maturity of invested assets, and dividend and interest income from invested assets.
The Company’s loss ratio was affected by unfavorable development of approximately $47 million and favorable development of approximately $26 million on prior accident years’ loss and loss adjustment expense reserves for the years ended December 31, 2022 and 2021, respectively.
The Company’s loss ratio was affected by favorable development of approximately $36 million and unfavorable development of approximately $47 million on prior accident years’ loss and loss adjustment expense reserves for the years ended December 31, 2023 and 2022, respectively.
It is also possible that the Company has not identified and established a sufficient loss reserve for all material unexpected losses occurring in the older accident years, even though a comprehensive claims file review was undertaken. The Company may experience additional development on these loss reserves.
It is also possible that the Company has not identified and established a sufficient loss reserve for all material unexpected losses, even though a comprehensive claims file review was undertaken. The Company may experience additional development on these loss reserves.
If the estimated ultimate claim cost requires an increase for previously reported accident years, unfavorable development occurs and an increase in losses and loss adjustment expenses is reported in the current period. For 2022, the Company reported unfavorable development of approximately $47 million on the 2021 and prior accident years’ loss and loss adjustment expense reserves.
If the estimated ultimate claim cost requires an increase for previously reported accident years, unfavorable development occurs and an increase in losses and loss adjustment expenses is reported in the current period. For 2023, the Company reported favorable development of approximately $36 million on the 2022 and prior accident years’ loss and loss adjustment expense reserves.
The decrease was primarily due to increases in payments for losses and loss adjustment expenses and policy acquisition costs, partially offset by an increase in premium collections, a decrease in payments for income taxes, and an increase in investment income received.
The increase was primarily due to increases in premium collections, investment income received and income taxes refunded, partially offset by increases in payments for losses and loss adjustment expenses and policy acquisition costs.
The Company’s common stock allocation is intended to enhance the return of and provide diversification for the total portfolio. At December 31, 2022, 14.2% of the total investment portfolio, at fair value, was held in equity securities, compared to 18.9% at December 31, 2021.
The Company’s common stock allocation is intended to enhance the return of and provide diversification for the total portfolio. At December 31, 2023, 14.0% of the total investment portfolio, at fair value, was held in equity securities, compared to 14.2% at December 31, 2022.
Treasury securities. The modified duration of the U.S. government bonds portfolio reflecting anticipated early calls was 1.4 years and 0.9 years at December 31, 2022 and 2021, respectively.
The modified duration of the U.S. government bonds portfolio reflecting anticipated early calls was 0.9 years and 1.4 years at December 31, 2023 and 2022, respectively.
At December 31, 2022 and 2021, respectively, 65.5% and 56.8% of the insured municipal securities, at fair value, most of which were investment grade, were insured by bond insurers that provide credit enhancement in addition to the ratings reflected by the financial strength of the underlying issuers.
At December 31, 2023 and 2022, respectively, 70.3% and 65.5% of the insured municipal securities, at fair value, most of which were investment grade, were insured by bond insurers that provide credit enhancement in addition to the ratings reflected by the financial strength of the underlying issuers.
Market conduct examinations typically review compliance with insurance statutes and regulations with respect to rating, underwriting, claims handling, billing, and other practices. The following table presents a summary of recent examinations: State Exam Type Period Under Review Status CA, FL, GA, IL, OK, TX Coordinated Multi-state Financial 2018-2021 Examination began in the second quarter of 2022.
Market conduct examinations typically review compliance with insurance statutes and regulations with respect to rating, underwriting, claims handling, billing, and other practices. The following table presents a summary of recent examinations: State Exam Type Period Under Review Status CA, FL, GA, IL, OK, TX Coordinated Multi-state Financial 2018-2021 Received final examination reports.
Mortgage-Backed Securities At December 31, 2022 and 2021, respectively, the mortgage-backed securities portfolio of $166.3 million and $137.0 million, or 4.1% and 3.4% of the Company's fixed maturity securities portfolio, at fair value, was categorized as loans to "prime" residential and commercial real estate borrowers.
Mortgage-Backed Securities At December 31, 2023 and 2022, respectively, the mortgage-backed securities portfolio of $186.9 million and $166.3 million, or 4.3% and 4.1% of the Company's fixed maturity securities portfolio, at fair value, was categorized as loans to "prime" residential and commercial real estate borrowers.
It is not all-inclusive and is meant to be read in conjunction with the entirety of management’s discussion and analysis, the Company’s consolidated financial statements and notes thereto, and all other items contained within this Annual Report on Form 10-K. 2022 Financial Performance Summary The Company’s net (loss) income for the year ended December 31, 2022 was $(512.7) million, or $(9.26) per diluted 30 share, compared to $247.9 million, or $4.48 per diluted share, for the same period in 2021.
It is not all-inclusive and is meant to be read in conjunction with the entirety of management’s discussion and analysis, the Company’s consolidated financial statements and notes thereto, and all other items contained within this Annual Report on Form 10-K. 2023 Financial Performance Summary The Company’s net income (loss) for the year ended December 31, 2023 was $96.3 million, or $1.74 per diluted share, 33 compared to $(512.7) million, or $(9.26) per diluted share, for the same period in 2022.
With combined cash and short-term investments of $412.7 million at December 31, 2022 as well as $175 million of undrawn credit in its unsecured credit facility, the Company believes its cash flow from operations is adequate to satisfy its liquidity requirements without the forced sale of investments. Investment maturities are also available to meet the Company’s liquidity needs.
With combined cash and short-term investments of $729.4 million at December 31, 2023 as well as $50 million of undrawn credit in its unsecured credit facility, the Company believes its cash flow from operations is adequate to satisfy its liquidity requirements without the forced sale of investments. Investment maturities are also available to meet the Company’s liquidity needs.
The remaining 34.5% and 43.2% of insured municipal securities at December 31, 2022 and 2021, respectively, were insured by non-rated or below investment grade bond insurers that the Company believes did not provide credit enhancement. The modified duration of the municipal securities portfolio reflecting anticipated early calls was 3.6 years and 3.1 years at December 31, 2022 and 2021, respectively.
The remaining 29.7% and 34.5% of insured municipal securities at December 31, 2023 and 2022, respectively, were insured by non-rated or below investment grade bond insurers that the Company believes did not provide credit enhancement. The modified duration of the municipal securities portfolio reflecting anticipated early calls was 3.0 years and 3.6 years at December 31, 2023 and 2022, respectively.
The Company also offers homeowners, commercial automobile, commercial property, mechanical protection, fire, and umbrella insurance. Private passenger automobile lines of insurance business accounted for approximately 64% of the $4.0 billion of the Company’s direct premiums written in 2022, and approximately 82% of the private passenger automobile premiums were written in California.
The Company also offers homeowners, commercial automobile, commercial property, mechanical protection, fire, and umbrella insurance. Private passenger automobile lines of insurance business accounted for approximately 62% of the $4.6 billion of the Company’s direct premiums written in 2023, and approximately 82% of the private passenger automobile premiums were written in California.
Bank Term SOFR plus 112.5-150.0 basis points November 16, 2026 25,000 — Total principal amount 400,000 375,000 Less unamortized discount and debt issuance costs (3) 1,670 2,069 Total $ 398,330 $ 372,931 __________ (1) On March 8, 2017, the Company completed a public debt offering issuing $375 million of senior notes.
Bank Term SOFR plus 112.5-150.0 basis points November 16, 2026 200,000 25,000 Total principal amount 575,000 400,000 Less unamortized discount and debt issuance costs (3) 1,271 1,670 Total $ 573,729 $ 398,330 __________ (1) On March 8, 2017, the Company completed a public debt offering issuing $375 million of senior notes.
The following table presents the typical closure patterns of BI claims in the Company's California personal automobile insurance coverage: % of Total Claims Closed Dollars Paid BI claims closed in the accident year reported 36% 12% BI claims closed one year after the accident year reported 78% 50% BI claims closed two years after the accident year reported 94% 76% BI claims closed three years after the accident year reported 97% 88% 34 BI claims closed in the accident year reported are generally the smaller and less complex claims that settle for approximately $8,000 to $9,000 on average, whereas the total average settlement, once all claims are closed for a particular accident year, is approximately $17,000 to $27,000.
The following table presents the typical closure patterns of BI claims in the Company's California personal automobile insurance coverage: % of Total Claims Closed Dollars Paid BI claims closed in the accident year reported 37% 12% BI claims closed one year after the accident year reported 78% 51% BI claims closed two years after the accident year reported 94% 76% BI claims closed three years after the accident year reported 98% 88% BI claims closed in the accident year reported are generally the smaller and less complex claims that settle for approximately $8,000 to $9,000 on average, whereas the total average settlement, once all claims are closed for a particular accident year, is approximately $18,000 to $28,000.
Financial Statements and Supplementary Data." Capital Expenditures The Company's capital expenditures were approximately $35.5 million, $41.4 million and $40.0 million for 2022, 2021 and 2020, respectively, and they were primarily related to improving the Company's information technology infrastructure and corporate facilities.
Financial Statements and Supplementary Data." Capital Expenditures The Company's capital expenditures were approximately $36.8 million, $35.5 million and $41.4 million for 2023, 2022 and 2021, respectively, and they were primarily related to improving the Company's information technology infrastructure and corporate facilities.
The Company had holdings of $27.3 million and $25.2 million, at fair value, in commercial mortgage-backed securities at December 31, 2022 and 2021, respectively. The weighted-average rating of the entire mortgage backed securities portfolio was AA at December 31, 2022 and 2021.
The Company had holdings of $33.0 million and $27.3 million, at fair value, in commercial mortgage-backed securities at December 31, 2023 and 2022, respectively. The weighted-average rating of the entire mortgage backed securities portfolio was AA+ and AA at December 31, 2023 and 2022, respectively.
Equity Securities Equity holdings of $699.6 million and $970.9 million, at fair value, as of December 31, 2022 and 2021, respectively, consisted of preferred stocks, common stocks on which dividend income is partially tax-sheltered by the 50% corporate dividend received deduction, and private equity funds.
Equity Securities Equity holdings of $730.7 million and $699.6 million, at fair value, as of December 31, 2023 and 2022, respectively, consisted of non-redeemable preferred stocks, common stocks on which dividend income is partially tax-sheltered by the 50% corporate dividend received deduction, and private equity funds.
The Company believes that while actual development in recent years has ranged approximately from 3% to 7%, it is reasonable to expect that the range of the development could be as great as between 0% and 10%. However, actual development may be more or less than the expected range.
The Company believes that while actual development in recent years has ranged approximately from 3% to 7%, it is reasonable to expect that the range of the development could be as great as between 0% and 10%.
Based on the combined surplus of all the Insurance Companies of $1.50 billion at December 31, 2022 and net premiums written in 2022 of $4.0 billion, the ratio of premiums written to surplus was 2.65 to 1. 48 Insurance companies are required to file an Own Risk and Solvency Assessment ("ORSA") with the insurance regulators in their domiciliary states.
Based on the combined surplus of all the Insurance Companies of $1.67 billion at December 31, 2023 and net premiums written in 2023 of $4.5 billion, the ratio of premiums written to surplus was 2.68 to 1. Insurance companies are required to file an Own Risk and Solvency Assessment ("ORSA") with the insurance regulators in their domiciliary states.
The net (losses) gains due to changes in fair value of the Company’s equity portfolio were $(185.7) million and $107.7 million in 2022 and 2021, respectively.
The net gains (losses) due to changes in fair value of the Company’s equity portfolio were $45.0 million and $(185.7) million in 2023 and 2022, respectively.
U.S. Government Bonds The Company had $158.6 million and $13.1 million, or 3.9% and 0.3% of its fixed maturity portfolio, at fair value, in U.S. government bonds at December 31, 2022 and 2021, respectively.
U.S. Government Bonds The Company had $174.5 million and $158.6 million, or 4.0% and 3.9% of its fixed maturity portfolio, at fair value, in U.S. government bonds at December 31, 2023 and 2022, respectively.
Based on these factors and uncertainty attributable to the pandemic and inflation, the reserve estimates for the 2020, 2021 and 2022 accident years are subject to a greater degree of variability.
Based on these factors and uncertainty attributable to the pandemic and inflation, the reserve estimates for the 2020 through 2023 accident years are subject to a high degree of variability.
Net premiums written is a non-GAAP financial measure which represents the premiums charged on policies issued during a fiscal period less any applicable reinsurance.
Net premiums written is a non-GAAP financial measure which represents the premiums charged on policies issued during a fiscal period less any applicable reinsurance. Net premiums written is a statutory measure designed to determine production levels.
Included in net (loss) income was $168.4 million of pre-tax net investment income that was generated during 2022 on a portfolio of $4.9 billion, at fair value, at December 31, 2022, compared to $129.7 million of pre-tax net investment income that was generated during 2021 on a portfolio of $5.1 billion, at fair value, at December 31, 2021.
Included in net income (loss) was $234.6 million of pre-tax net investment income that was generated during 2023 on a portfolio of $5.2 billion, at fair value, at December 31, 2023, compared to $168.4 million of pre-tax net investment income that was generated during 2022 on a portfolio of $4.9 billion, at fair value, at December 31, 2022.
At December 31, 2021, fixed maturity holdings rated below investment grade and non-rated bonds totaled $7.1 million and $17.3 million, respectively, at fair value, and represented 0.2% and 0.4%, respectively, of total fixed maturity securities.
At December 31, 2023, fixed maturity holdings rated below investment grade and non-rated bonds totaled $6.4 million and $15.1 million, respectively, at fair value, and represented 0.1% and 0.3%, respectively, of total fixed maturity securities.
Also included in net (loss) income were pre-tax net realized investment (losses) gains of $(488.1) million and $111.7 million in 2022 and 2021, respectively, and pre-tax catastrophe losses, net of reinsurance and reinstatement premiums earned, of approximately $101.3 million and $103.7 million in 2022 and 2021, respectively.
Also included in net income (loss) were pre-tax net realized investment gains (losses) of $101.0 million and $(488.1) million in 2023 and 2022, respectively, and pre-tax catastrophe losses, net of reinsurance and reinstatement premiums earned, of approximately $239.2 million and $101.3 million in 2023 and 2022, respectively.
Uses of Capital Dividends Cash returned to shareholders through dividends in 2022, 2021 and 2020 totaled approximately $105.5 million, $140.2 million and $139.6 million, respectively.
Uses of Capital Dividends Cash returned to shareholders through dividends in 2023, 2022 and 2021 totaled approximately $70.3 million, $105.5 million and $140.2 million, respectively.
At December 31, 2022, there were 19,589 California automobile BI claims reported for the 2022 accident year and the Company estimates that these are expected to ultimately grow by approximately 4.8%.
At December 31, 2023, there were 19,318 California automobile BI claims reported for the 2023 accident year and the Company estimates that these are expected to ultimately grow by approximately 6.9%.
Unexpected losses are fairly infrequent but can have a large impact on the Company’s losses. To mitigate this risk, the Company has established claims handling and review procedures. However, it is still possible that these procedures will not prove entirely effective, and the Company may have material unexpected losses in future periods.
To mitigate this risk, the Company has established claims handling and review procedures. However, it is still possible that these procedures will not prove entirely effective, and the Company may have material unexpected losses in future periods.
Discussion of Losses and Loss Reserves and Prior Period Loss Development At December 31, 2022 and 2021, the Company recorded its point estimate of approximately $2.58 billion and $2.23 36 billion ($2.56 billion and $2.19 billion, net of reinsurance), respectively, in loss and loss adjustment expense reserves, which included approximately $1.28 billion and $1.03 billion ($1.28 billion and $1.02 billion, net of reinsurance), respectively, of incurred-but-not-reported liabilities ("IBNR").
Discussion of Losses and Loss Reserves and Prior Period Loss Development At December 31, 2023 and 2022, the Company recorded its point estimate of approximately $2.79 billion and $2.58 billion ($2.75 billion and $2.56 billion, net of reinsurance), respectively, in loss and loss adjustment expense reserves, which included approximately $1.61 billion and $1.45 billion ($1.61 billion and $1.45 billion, net of reinsurance), respectively, of incurred-but-not-reported liabilities ("IBNR").
On February 10, 2023, the Board of Directors declared a $0.3175 quarterly dividend per share payable on March 29, 2023 to shareholders of record on March 15, 2023, with an expected payout of approximately $18 million.
On February 9, 2024, the Board of Directors declared a $0.3175 quarterly dividend per share payable on March 27, 2024 to shareholders of record on March 13, 2024, with an expected payout of approximately $18 million.
Net (Loss) Income Year Ended December 31, 2022 2021 (Amounts in thousands, except per share data) Net (loss) income $ (512,672) $ 247,937 Basic average shares outstanding 55,371 55,368 Diluted average shares outstanding 55,371 55,374 Basic Per Share Data: Net (loss) income $ (9.26) $ 4.48 Net realized investment (losses) gains, net of tax $ (6.96) $ 1.59 Diluted Per Share Data: Net (loss) income $ (9.26) $ 4.48 Net realized investment (losses) gains, net of tax $ (6.96) $ 1.59 Year Ended December 31, 2021 Compared to Year Ended December 31, 2020 See "Item 7.
Net Income (Loss) Year Ended December 31, 2023 2022 (Amounts in thousands, except per share data) Net income (loss) $ 96,336 $ (512,672) Basic average shares outstanding 55,371 55,371 Diluted average shares outstanding 55,371 55,371 Basic Per Share Data: Net income (loss) $ 1.74 $ (9.26) Net realized investment gains (losses), net of tax $ 1.44 $ (6.96) Diluted Per Share Data: Net income (loss) $ 1.74 $ (9.26) Net realized investment gains (losses), net of tax $ 1.44 $ (6.96) 42 Year Ended December 31, 2022 Compared to Year Ended December 31, 2021 See "Item 7.
The weighted-average 45 rating was A+ and AA- at December 31, 2022 and 2021, respectively. The modified duration reflecting anticipated early calls was 3.1 years and 2.6 years at December 31, 2022 and 2021, respectively.
The weighted-average rating was AA- and A+ at December 31, 2023 and 2022, respectively. The modified duration reflecting anticipated early calls was 3.5 years and 4.6 years at December 31, 2023 and 2022, respectively.
At December 31, 2022, Moody's and Fitch ratings for 44 U.S. government issued debt were Aaa and AAA, respectively, although a significant increase in government deficits and debt could lead to a downgrade. The Company understands that market participants continue to use rates of return on U.S. government debt as a risk-free rate and have continued to invest in U.S.
Moody's and Fitch ratings for U.S. government-issued 46 debt were Aaa and AA+, respectively, at December 31, 2023, and Aaa and AAA, respectively, at December 31, 2022. The Company understands that market participants continue to use rates of return on U.S. government debt as a risk-free rate and have continued to invest in U.S. Treasury securities.
Municipal Securities The Company had $2.74 billion and $2.84 billion, or 67.0% and 70.5% of its fixed maturity securities portfolio, at fair value, in municipal securities at December 31, 2022 and 2021, respectively, of which $395.2 million and $424.1 million, respectively, were insured by bond insurers.
Municipal Securities The Company had $2.78 billion and $2.74 billion, or 64.3% and 67.0% of its fixed maturity securities portfolio, at fair value, in municipal securities at December 31, 2023 and 2022, respectively, of which $431.2 million and $395.2 million, respectively, were insured by bond insurers.
Amounts differ from the balances presented on the consolidated balance sheets as of December 31, 2022 because the debt amounts above include interest, calculated at the stated 4.4% coupon rate, and exclude the discount and issuance costs of the debt.
Amounts differ from the balances presented on the consolidated balance sheets as of December 31, 2023 because the debt amounts above include interest and exclude the discount and issuance costs of the debt.
Invested Assets Portfolio Composition An important component of the Company’s financial results is the return on its investment portfolio. The Company’s investment strategy emphasizes safety of principal and consistent income generation, within a total return framework.
Debt" below for cash flow related to outstanding debt. 43 C. Invested Assets Portfolio Composition An important component of the Company’s financial results is the return on its investment portfolio. The Company’s investment strategy emphasizes safety of principal and consistent income generation, within a total return framework.
These generally include large changes in fully-taxable income including net realized investment gains or losses, tax-exempt investment income, nondeductible expenses, and periodically, non-routine tax items such as adjustments to unrecognized tax benefits related to tax uncertainties. The effective income tax rate was 23.6% and 17.2% for 2022 and 2021, respectively.
These generally include large changes in fully-taxable income including net realized investment gains or losses, tax-exempt investment income, nondeductible expenses, and periodically, non-routine tax items such as adjustments to unrecognized tax benefits related to tax uncertainties.
Investments The following table presents the investment results of the Company: Year Ended December 31, 2022 2021 (Amounts in thousands) Average invested assets at cost (1) $ 4,902,755 $ 4,681,462 Net investment income (2) Before income taxes $ 168,356 $ 129,727 After income taxes $ 146,204 $ 115,216 Average annual yield on investments (2) Before income taxes 3.4 % 2.8 % After income taxes 3.0 % 2.5 % Net realized investment (losses) gains $ (488,080) $ 111,658 __________ (1) Fixed maturities and short-term bonds at amortized cost; equities and other short-term investments at cost.
Investments The following table presents the investment results of the Company: Year Ended December 31, 2023 2022 (Amounts in thousands) Average invested assets at cost (1) $ 5,096,428 $ 4,902,755 Net investment income (2) Before income taxes $ 234,630 $ 168,356 After income taxes $ 200,209 $ 146,204 Average annual yield on investments (2) Before income taxes 4.6 % 3.4 % After income taxes 3.9 % 3.0 % Net realized investment gains (losses) $ 101,014 $ (488,080) __________ (1) Fixed maturities and short-term bonds at amortized cost; equities and other short-term investments at cost.
The following table presents the Company's consolidated loss, expense, and combined ratios determined in accordance with GAAP: Year Ended December 31, 2022 2021 Loss ratio 85.1 % 73.8 % Expense ratio 23.6 % 24.5 % Combined ratio 108.7 % 98.3 % Loss ratio is calculated by dividing losses and loss adjustment expenses by net premiums earned.
The following table presents the Insurance Companies’ loss, expense, and combined ratios determined in accordance with GAAP: Year Ended December 31, 2023 2022 Loss ratio 82.3 % 85.1 % Expense ratio 23.1 % 23.6 % Combined ratio 105.4 % 108.7 % Loss ratio is calculated by dividing losses and loss adjustment expenses by net premiums earned.
These factors include changes in weather patterns, a change in the number of litigated files, the number of automobiles insured, and whether the last day of the accident period falls on a weekday or a weekend.
There are many factors that can affect the number of claims reported after an accident period ends. These factors include changes in weather patterns, a change in the number of litigated files, the number of automobiles insured, and whether the last day of the accident period falls on a weekday or a weekend.
The Company’s municipal bond holdings, of which 89.1% were tax exempt, represented 67.0% of its fixed maturity portfolio at December 31, 2022, at fair value, and were broadly diversified geographically.
The Company’s municipal bond holdings, of which 82.4% were tax exempt, represented 64.3% of its fixed maturity portfolio at December 31, 2023, at fair value, and were broadly diversified geographically.
(3) The unamortized discount and debt issuance costs are associated with the publicly traded $375 million senior unsecured notes. These are amortized to interest expense over the life of the notes, and the unamortized balance is presented in the Company's consolidated balance sheets as a direct deduction from the carrying amount of the debt.
These are amortized to interest expense over the life of the notes, and the unamortized balance is presented in the Company's consolidated balance sheets as a direct deduction from the carrying amount of the debt.
As it measures four factors (maturity, coupon rate, yield and call terms) which determine sensitivity to changes in interest rates, modified duration is considered a better indicator of price volatility than simple maturity alone. 42 The following table presents the maturities and durations of the Company's fixed maturity securities and short-term investments: December 31, 2022 December 31, 2021 (in years) Fixed Maturity Securities Nominal average maturity: excluding short-term investments 12.4 10.8 including short-term investments 12.0 10.4 Call-adjusted average maturities: excluding short-term investments 4.9 4.6 including short-term investments 4.8 4.5 Modified duration reflecting anticipated early calls: excluding short-term investments 3.6 3.5 including short-term investments 3.5 3.4 Short-Term Investments — — Another exposure related to the fixed maturity securities is credit risk, which is managed by maintaining a weighted-average portfolio credit quality rating of A+, at fair value at December 31, 2022, consistent with the average rating at December 31, 2021.
The following table presents the maturities and durations of the Company's fixed maturity securities and short-term investments: December 31, 2023 December 31, 2022 (in years) Fixed Maturity Securities Nominal average maturity: excluding short-term investments 11.4 12.4 including short-term investments 11.0 12.0 Call-adjusted average maturities: excluding short-term investments 3.8 4.9 including short-term investments 3.6 4.8 Modified duration reflecting anticipated early calls: excluding short-term investments 3.1 3.6 including short-term investments 3.0 3.5 Short-Term Investments — — Another exposure related to the fixed maturity securities is credit risk, which is managed by maintaining a weighted-average portfolio credit quality rating of A+, at fair value at December 31, 2023, consistent with the average rating at December 31, 2022.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeThe following table presents municipal securities by state in descending order of holdings at fair value at December 31, 2022: States Fair Value Average Rating (Amounts in thousands) Florida $ 295,665 A Texas 254,007 AA- California 180,747 A+ Illinois 175,257 A+ New York 166,472 AA- Other states 1,665,035 A+ Total $ 2,737,183 At December 31, 2022, the municipal securities portfolio was broadly diversified among the states and the largest holdings were in populous states such as Florida and Texas.
Biggest changeThe following table presents municipal securities by state in descending order of holdings at fair value at December 31, 2023: States Fair Value Average Rating (Amounts in thousands) Florida $ 301,743 A Texas 234,404 AA- California 217,330 AA- New York 206,272 AA- Illinois 172,500 A+ Other states 1,645,009 A+ Total $ 2,777,258 At December 31, 2023, the municipal securities portfolio was broadly diversified among the states and the largest holdings were in populous states such as Florida and Texas.
Credit Risk Credit risk results from uncertainty in a counterparty’s ability to meet its obligations. Credit risk is managed by maintaining a high credit quality fixed maturity securities portfolio. As of December 31, 2022, the estimated weighted-average credit quality rating of the fixed maturity securities portfolio was A+, at fair value, consistent with the average rating at December 31, 2021.
Credit Risk Credit risk results from uncertainty in a counterparty’s ability to meet its obligations. Credit risk is managed by maintaining a high credit quality fixed maturity securities portfolio. As of December 31, 2023, the estimated weighted-average credit quality rating of the fixed maturity securities portfolio was A+, at fair value, consistent with the average rating at December 31, 2022.
Equity Price Risk Equity price risk is the risk that the Company will incur losses due to adverse changes in the equity markets. At December 31, 2022, the Company’s primary objective for common equity investments was current income.
Equity Price Risk Equity price risk is the risk that the Company will incur losses due to adverse changes in the equity markets. At December 31, 2023, the Company’s primary objective for common equity investments was current income.
The proceeds from the called fixed maturity securities would likely be reinvested at lower yields, which would result in lower overall investment income for the Company. 51
The proceeds from the called fixed maturity securities would likely be reinvested at lower yields, which would result in lower overall investment income for the Company. 53
The fixed maturity portfolio at December 31, 2022, which represented 83.3% of total investments at December 31, 2022, at fair value, is subject to interest rate risk. As market interest rates decrease, the value of the portfolio increases and vice versa.
The fixed maturity portfolio at December 31, 2023, which represented 82.6% of total investments at December 31, 2023, at fair value, is subject to interest rate risk. As market interest rates decrease, the value of the portfolio increases and vice versa.
The modified duration of the overall fixed maturity securities portfolio reflecting anticipated early calls was 3.5 years at December 31, 2022. If interest rates were to rise by 100 and 200 basis points, the Company estimates that the fair value of its fixed maturity securities portfolio at December 31, 2022 would decrease by $148.0 million and $296.0 million, respectively.
The modified duration of the overall fixed maturity securities portfolio reflecting anticipated early calls was 3.0 years at December 31, 2023. If interest rates were to rise by 100 and 200 basis points, the Company estimates that the fair value of its fixed maturity securities portfolio at December 31, 2023 would decrease by $134.1 million and $268.2 million, respectively.
Based on hypothetical reductions in the overall value of the stock market, the following table illustrates estimated reductions in the overall value of the Company’s common stock portfolio at December 31, 2022 and 2021: December 31, 2022 2021 (Amounts in thousands, except Average Beta) Average Beta 0.84 1.14 Hypothetical reduction of 25% in the overall value of the stock market $ 116,518 $ 227,152 Hypothetical reduction of 50% in the overall value of the stock market $ 233,036 $ 454,304 Interest Rate Risk Interest rate risk is the risk that the Company will incur a loss due to adverse changes in interest rates relative to the interest rate characteristics of interest bearing assets and liabilities.
Based on hypothetical reductions in the overall value of the stock market, the following table illustrates estimated reductions in the overall value of the Company’s common stock portfolio at December 31, 2023 and 2022: December 31, 2023 2022 (Amounts in thousands, except Average Beta) Average Beta 0.87 0.84 Hypothetical reduction of 25% in the overall value of the stock market $ 129,742 $ 116,518 Hypothetical reduction of 50% in the overall value of the stock market $ 259,483 $ 233,036 Interest Rate Risk Interest rate risk is the risk that the Company will incur a loss due to adverse changes in interest rates relative to the interest rate characteristics of interest bearing assets and liabilities.
Taxable fixed maturity securities represented 40.3% of the Company’s fixed maturity portfolio at December 31, 2022. 9.6% of the Company’s taxable fixed maturity securities were comprised of U.S. government bonds, which were rated AAA at December 31, 2022. 0.3% of the Company’s taxable fixed maturity securities, representing 0.1% of its total fixed maturity portfolio, were rated below investment grade at December 31, 2022.
Taxable fixed maturity securities represented 47.0% of the Company’s fixed maturity portfolio at December 31, 2023. 8.6% of the Company’s taxable fixed maturity securities were comprised of U.S. government bonds, which were rated AAA at December 31, 2023. 0.2% of the Company’s taxable fixed maturity securities, representing 0.1% of its total fixed maturity portfolio, were rated below investment grade at December 31, 2023.
The fair 50 value of the equity investments consisted of $558.2 million in common stocks, $51.2 million in preferred stocks, and $90.1 million in private equity funds. Common stocks are typically valued for future economic prospects as perceived by the market. Common stocks represented 11.4% of total investments at fair value at December 31, 2022.
The fair 52 value of the equity investments consisted of $597.9 million in common stocks, $51.6 million in non-redeemable preferred stocks, and $81.2 million in private equity funds. Common stocks are typically valued for future economic prospects as perceived by the market. Common stocks represented 11.4% of total investments at fair value at December 31, 2023.

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