Mercury General (MCY) 11 Feb 192018 Q4 Earnings call transcript

Good morning. My name is Erica, and I will be your conference operator today. At this time, I would like to welcome everyone to the Mercury General Fourth Quarter 2018 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. General's call plans, comments and expectations, which affect conference based forward-looking industry This and may current results on events, Mercury Instructions] may and contain statements trends, financial [Operator position. operating future and financial cannot those risks which quantified discussed future and here which cause to operations predicted results or today. Such statements of uncertainties, differ be involve activities and and may materially from over now to the Mr. like would I call to turn Gabriel Tirador. Sir, begin. you may

Mercury's like In President Thank conference Chairman; fourth me you to I Vice welcome Tirador, quarter CEO. Senior would and I and to is Chris Graves, very the President Gabe am Vice Joseph, and Ted Stalick, call. everyone Chief much. and Officer. CFO; with Mr. President George room Investment

questions, the will comments we few a quarter. take regarding make Before we

Tax loss $X.XX XXXX the Our fourth the fourth share benefit benefit Tax a of Cuts share $X.XX was was share from to XXXX of per operating tax adjustments the share fourth income in of $X.XX a XXXX quarter Included per quarter was the tax quarter sequestration per XXXX. of in the IRS fourth in compared rule results reversal operating per of XXXX. Included quarter the an related $X.XX and results Act. to from Jobs from Act

primarily investment operating of quarter loss addition, increase earnings in year-over-year XXXX in fourth of were quarter the the of a the fourth XXXX. XXXX a of and $XX with offsetting by fourth from to Catastrophe million reinsurance fourth compared in the to to $XX.X underwriting fourth fourth catastrophe deteriorated from significantly in after-tax quarter impacted an ratio quarter due XXX.X% increase in $XX the lower In in wildfire to XXXX, the operating rate the XXXX $XX.X in losses losses, applied million California. an combined of quarter losses the The in ratio in reduction to the to from net corporate in income combined XXXX. million of XXX.X% company's tax was quarter partially million earnings quarter the in

of XXXX. In earned development the of reserve to quarter reinsurance million was reinstatement addition, compared in compared $X the the XXXX. fourth $XX recorded $X million to the Unfavorable quarter million $XX quarter fourth quarter we in million in of premiums in

in that for for of XX California, be rate most increasing rates the was impact in states. earned to to rate increase reinstatement and in was increased California investment income represent December the personal auto Insurance increase our brief to in XXXX, Automobile The interest new of Companywide the increase higher auto and corporate the for by increased Insurance Department applications applications homeowners quarter With take private in after-tax implemented earned. the third X% Company questions. passenger the compared business the approved development short-term the our XXXX, primarily Insurance. rate month in in we from in $XX.X we primarily private losses California tax recently premiums and income a expected rates of submitted ratio down the period direct XXXX XX.X% California in to investment improve Insurance Homeowners X.X% and X.X% in Personal adjustments lower ending increase XX.X% was due the Investment catastrophe was companywide California reserve pending ending investment XX% background, to and quarter with and will due X.X% investments as approval The was XX.X% combined in personal quarter California increased line. rate. of Department about Company XXXX. assets rate unfavorable After-tax to is premiums homeowner’s December premiums To period Excluding million. have is income approximately increase the invested related March income In in of XX, companywide combined auto increase a the the X.X% company quarter ceded ratio, Mercury been auto quarter A XX, XX-month and accruals X% now XX.X% quarter to the and our in quarter. funds. respectively.

first your Christopher from question And comes Instructions] KBW. Campbell with [Operator

good gentlemen. Hi, morning,

morning. Good

so year quarters? one-time question non-cat weather core auto that up loss number ratio. in XXX three like property is the first bps from ups is the and true or like anything first prior on was year-over-year, accident My about That elevated there any

mentioned No. conference I that last quarter call fourth we usually from higher. the expect that standpoint higher. be is seasonal I a to think mentioned quarter the we in always mean, that fourth the We

also accident picks recent noted had, the to And the for in quarter. as some -- the we -- We as result in we more earlier prepared that year. of remarks, you development, adverse I development adverse increased my had a as

Okay. Got it.

the loss So the for core XX.X% XXXX so includes kind higher of well? also as picks ratio,

Yes.

seeing you is does got period development prior that accident were it. the with And the in guess, prior years or Okay, what period XQ just stuff development. coming I from?

majority Chris, from Ted. is vast this 'XX and Hi, 'XX. The is

XQ like Okay, got was as it. or And that there XQ 'XX well? on any 'XX

a year at them, quarters so to within volatility basis. development year, annual less The think some on quarters look that accident just than relative really estimate the meaningful We is period. development of for have we individual our an those

than prefer we it rather to at just So annually look quarterly.

kind well? in maybe development some it. taken you're noticed there deeper a then anything review Got in that terms in Is as special the could development of that we just there spiked in like of dive quarters. the first I doing expect the XQ years of few some And some past has reserve maybe XQs like of adverse

some we weighted so. think or way in development QX earlier than essentially see development we the another don't don't use quarter. year. additional thought of in We and did to every process and year the that's up middle this same we the meaningfully spike why quarter in trends happened quarter. that probably in fairly I What and We 'XX reacted by the one is first

California, just are Mostly in that as states your other well? it. seeing Got you

California.

Got it.

definitely historical have The trends increased.

development years And last has higher we we've result older attorneys, more are limit look, for than taking accident recent development tend in because the And the and been we've impact claims. the we factors there in the the increase they're policy been years, before. here they a than a that, several trends. the think as environment look And more procedures, saying, to at that over a been to bigger Our aggressive got of California. factors historical years. now accident medical change There increased has had demands

it's result had as more So an recent the a impact that. on years of

closer to in and We've here it we will a we're claims procedures as So introduced that various of to have we're hope this stabilizing. hope hoping stable department new in impact stabilization. the getting to well XXXX environment, the We mitigate more try we environment.

of your rate all Got guess it. Very with of I on that guys And you gross then on, reinsurance -- with a online, kind just stuff? does losses big had question helpful. renewals? the kind of you're your just a happened the purchasing that impact And what How obviously, wildfires.

is renegotiating year. redoing begun treaty July process for or this treaties our the X of date, Well, we so renewal haven't

on now. We of kind we've increase right had, indications expect some based how be there that's see the modest early discussions in it and will we the rates probably

Like just... then two about renewals? -- a hit going how Got that the you've how retentions into in it. an to guess those, are just, loss, I thinking years row guess obviously, And that been opportunity your would lower is it's with or that I been you there

low It's right pretty now.

Yes.

Our looking the end. the $XX now only at retention million. We may top is right limit be increasing on

$XXX right up So top increase end on a limit we now, limit the may and a our to goes million bit.

Because Thanks Best all to questions Okay, just it. tower the you're luck got answers. XXXX. great. [ph] for Okay, in had. all the I of probably That's the

you, Thank Chris.

next from [Operator Samir Khare Capital comes from Markets. question Instructions] Your

Hi. cetera? Good how assumptions, cat calculated the for gross was the et can wildfire average I about their if severity of wondering company some the losses the morning. you talk

for policy segregate be limit. Total some of the make of like of policy of up out XX% total coverages the loss. all something fairly Yes, we We some losses and the hit through that and the process. they're on evaluate losses of policy going there percentage gone policy assume assume several a detailed limit. to and the limit cat the will coverages, the smaller dollars the limit We of

right, development on are losses if you're and the that we to is events So your get at we you from previous But significantly your partial look for look to chances close similar at partial policy nature. reduced. pretty claims that booking in estimate -- those going limits, be

ultimate severity average have pretty the to example, with claim we come for on from so apply expected is, And the for And XXXX partials. good losses I fire, up the we counts fires. history guess, XXXX

you Okay. guys And for the what guys are assuming you what spread assuming, partials? average

think to I don't in disclose we're a that right liberty now.

it that to last year comparable Just 'XX. to was

is then that And What claims think are claims of the totaled. from loss I you total that Okay. to of the total -- XX% - losses? attributable mentioned is coming percentage dollars claims

claim The count -- actual count?

Yes, exactly.

On the half. than more Camp Fire, it's actually

On significantly than half. the less Woolsey, it's

everything burned down. camp In the

gone. Yes, just camp

Yes.

Fire, up. Camp on in Okay. that you bring matter you IBNR gross for specifically do And the have the paid just

Yes, I disclosing we're that. don't think

of has is a ultimate $XXX Camp that of our Our out million paid gross year-end. ultimate as on and percentage -- large been already

Okay.

done we've losses. a we In standpoint good gross from our to where what procedural -- the feel estimate nutshell, about

Okay. surge from And increase wildfires, in just risk sign loss of a general that demand here? the could all any estimates for

losses mentioned. -- of Well, our if at most obligation limits, booking you're on Ted total policy as our limits policy the it

as do reinsurance the to then now date, And the coverage from any backup so? or intend do until renewal Okay. company bought they for

-- on We $XXX then limit think of And now we'd first that, million. treaty hook million and reinsurance like another have of our our we're $X $XX -- event the that the then June layers for million. between XX, have be happen most significant we beyond something on for existing the if I

it. Got

Okay, loss trends in thank on you you. experiencing And are California. guys that just the

guys that some How And asking in? and will any to you I'm hoping to XX-month it understand MIC -- policies? that earn policies. just book now is for to will if earn rate of of converted take your are I'm -- XX-month book that any noted guys longer You much

still six book the but in-force month still over don't month policies. policies. XX% well of is is six exact have the statistics, I it's majority The

Okay. re-queue. I appreciate it. I'll Thank you. All right.

Okay, thanks.

there from line this have of Returns. sir, from no at And Bobman And Capital time. we Ron one do are questions further the question

-- that you a think go-forward buy of a $XXX question X% might million a seem and modest be to and had me discuss touched Campbell's $XXX it, more going looking on your and such thanks bit you'd be I with generating of excess tower. purchase, bit could of that the participation I sort be? with you're a know your million you'd Fire of it -- in could would I Chris $XXX and wise through question, that but the of think tranche what magnitude the million of between Hi, that loss that about lot. the good tower backwards be to Camp buying reinsurance sort good I to you -- more, in would

you're that about that have to we of the and million price. the was main a set that layer Really, of one the we get in to Currently, $XXX placed $XXX is couple we why that place of reasons talking only of X% years. last fraction million of excess

more we a all sort may felt future, So that. have that baseline we or of because now price, possibly place even of the of sometime like want to we in

anchor So us to buy July we now to be more on that, a when the renewal. price of have of position the an of at go of in will least which that or a from fraction at forward kind allow past we a XXXX better

it see, there's of Yes. to and And enough what much taking buy you -- the significant in buy balance wrong you very the It have such so good that wildfire magnitude think is probability I Fire delivering or... you more through How we just a one would about greater protect sort chances, going and the think sheet we bought are of to tower there the nowhere bought more. Camp incremental losses will but effect I Am necessary a I seem by historically. that more. much with near that through will is to your thinking good wait than the

what think going think you're do I mean having, coming just right. I about mean, that good it the we're more I it in bought but amount No. there's is to we about up buy thinking July. likelihood ended right that we

in California It unprecedented. just lot of worst Yes, was Fire add the history. Camp I was would that wildfire a

so, And an And it the bought our of for that it was sort level in essence, reinsurance. appropriate looking when are And on said, But time. higher California, reinsurance fires bought view in that over kind event of at that way, we nature. these the changes at that really look burning we capital. that limits our more to of protect as risk of the we are

we're similar from standpoint, that that only noted from to this learn find trying exposed other not trying well. And learn to underwriting from areas as be an it we trying may and event, to Camp, to

it's a looking underwriting combination of and at. So is reinsurance we're more both buying what

XXXX, right? The XXXX wildfires unprecedented were until

true. That's

Yes.

when is have you like, simple about of of then, they limits, policy you the Could you limits dollar do it to an total policy number. or don't sort straightforward determines specify actually the more a there insured discuss and and loss policy And a is -- policy a homeowners' mentioned on sort how it?

a the different policy. on coverages. it's is And There limit dollar specified No.

policy for have limit there's a but And There's policy exact expenses. dollar. the it's the very There's for living -- personal it's for So dwelling. property. limit quantifiable all to limit -- another

All Thank you much, right. gentlemen. very

you. Thank

from additional And Khare Capital question with Samir we have an Returns.

Has I taking acceptance front business subject the to of December. volume, thanks or on just ask your anything second rates of of the quality downgrade coming Best production for my business Hi, the AM in? either changed question. the in wanted in

that. -- nothing No. an and absolutely There's zero been there's mean, been we're company still A-rated no from I impact.

be ratio said up net to are Given AM underwriting rating leverage you to lower comfortable that you which you've previously, of up a X.X%, equity then the And Best to approaching? you'd premium the have with you're rating Okay. that now, with ratio? higher comfortable

PPA Well, a lot auto. business is of our

than auto, at passenger more actually even prior comfortable higher writing that. with So level a we're than

target to rewrite would of change, going feel with but business watch -- would we're ratios to as right it now. we respect comfortable where homeowners. the So The have more at we mix that we're

you. Thank great. Okay,

Thank you.

questions at there no And further are this time.

joining you 'XX. to of this the for thank quarter Well, we hope and better in you results quarter us bring first

does This call. conclude you. conference Thank today's

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