Mercury General (MCY) 29 Jul 192019 Q2 Earnings call transcript

Good day. My name is Ian and I will be your conference operator today. At this time, I would like to welcome everyone to the Mercury General Second Quarter 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. Instructions]. [Operator

operating may events forward-looking trends, here materially and and affect and General's operations call current based which of uncertainties comments position. results may Mercury expectations, financial those cause predicted from today. plans, financial future and which contain cannot conference involve differ or statements and discussed on may Such be This statements and quantified risks which results to and activities industry future

turn to Sir, like now call over Tirador. would I Gabriel Mr. the please to ahead. go

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

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

by deterioration a in in the primarily the XX.X% related per primarily The million quarter combined a ruling matter. of Our $X The quarter of negatively in quarter expenses of and increase development, second to compared ratio accrued court combined Midwestern of XXXX. an Department quarter appeal $X.XX to The million as a operating compared XXXX the result operating reserve quarter storms of share Insurance of was unfavorable ratio from of of adverse second in earnings the losses, XX.X% impacted second $X California catastrophe non-compliance increase was $X.X million in second per combined to an $X.XX in earnings share the ratio. were to XXXX. due was

includes reserve for auto million losses. increase our primarily of catastrophe reserve cost expenses defense unfavorable from loss of also of adjustment development unfavorable $X our in development million was an estimates year's the in lines and in due prior and containment business expense California to $X quarter The

second to expenses and premiums quarter in Excluding second catastrophe development, to the was ruling, the losses, the quarter reinstatement the accrued prior unfavorable of court increased ceded adverse adjusted XX.X% ratio related XXXX XXXX. impact earned appeals in compared of combined year reserve the XX.X%

of quarter. deteriorated which in the combined outside contributed for the states to increase combined company-wide California, ratio For the ratio the

of of in all second XXXX California. a compared quarter $XXX premium for combined was approximately For XX% second XXXX. approximately outside states outside we of million California, business ratio quarter Earned posted the to lines in periods the both XXX% for of of of

California deterioration to related combined to estimates ratio in second contributed in homeowners compared XXXX an increase of the XXXX and during the quarter Our in first company-wide the impacted ratio occurred was the combined XX.X% the significant California ratio. loss quarter quarter rainstorms of that XXX% in was second XXXX. The negatively the by combined to homeowners

auto year is personal for accident year-to-date California XX%. ratio combined Our approximately

low recorded For severity California the in reduction in single-digit increase a frequency a we trend. personal trend single-digit and auto mid

these represent In Insurance increase California California company-wide auto of implemented XXXX. a for earned. two-thirds Company personal Company XXXX premiums implemented of a was in Insurance Collectively increase rate X.X% X.X% March personal in rate was in Mercury and May Automobile direct auto

California quarter. Insurance Mercury during Automobile increase Company earned the XX% rate XX% was Insurance a the rate quarter of and Approximately earned of the only the was increase during Company

date In addition of Department a our with the X.X% approved Insurance XXXX. rate California of line by August increase California implementation homeowners in was an

rate X.X% premiums of filed for lines another increase homeowners of our direct company-wide The homeowners premiums recently California in earned. California about also XX% We represent business.

and cost accrued appeals $X.X from a offset million compared acquisition the increase in commissions quarter to to second in by the savings. partially related in XX.X% court The due primarily was second to primarily of efficiency XX.X% was quarter expense costs, the higher adverse expense ratio XXXX. decrease in slightly expense The lower ratio ruling, average the

catastrophe Premiums purchased primarily million X.X% reinsurance the We in renewal July in quarter completed and XXX million period. homeowners policies written our policy premiums increased the written. treaty from XXX period an in through recently prior total increase XXXX. to for July to grew limit The average higher XXXX reinsurance due per the effective X, XXXX

Our XX from reinsurance million. XX retention are the program Total on million approximately annual increased to premiums new million. XX

including XX-Q renewal prior reinstatement reinsurance the For More will total our $XX of be details XX quarter were treaty the included premiums treaty filing. reinsurance premiums. of catastrophe million in million second

we With take questions. now will background, that brief

[Operator instructions].

question Greg from Raymond first the James. is Our Peters of from Greg? line

had I a you. couple for questions

results narrow last had was unfavorable report increases it sort in companies the your years, And all over that the going record the the down through around years. seems out, my years reserve like of because I you've XX XX stands it last for and First last of the and development. rate most the to of we if favorable all eight with development development. tend changes, XX

perspective some you talked you about of can the -- severity us perspective of but issues So change some that how might give can give obviously, us in you future?

bodily how for Well, in in there's longer we might period feel, opposed injury that I the before that been change that recent a more factors, as the to is respect future averaging a selecting of conservative we've be think changing line, more to especially time. we’ll said factors with environment. And

development claims. non-existent line that adverse for bodily we're will say litigation any seeing loss PPA or reserve our for was development where cost was quarter increase increased it containment with the help and we on should reserve decided really and forward. to that defending pretty defense I injury that and expenses this So California going much reserves

This is Ted.

issues biggest line. as past our for of year far goes, essentially development One the first half the expected as versus been has loss had this the coverages with incurred injury and in of California been bodily obviously has actual development in the the we've

in where has we at higher last pretty developed I And actual something how experienced the know than reserves it's of we just but set expected. haven’t when to years it quarters, we is So been two much this it's couple expected year-end. that it

more us loss to give now the does the that over increasing in we're going it those become -- of stable, have and so factors indication some better we've development stabled that seen reserves. And stability sort see years

Having we're years. happy out the said we've that, Greg, of XX just not out development reserve the that obviously last XX eight is what of had with rationale all But you. the -- gave we

appreciate litigation are moving I things certainly the around target.

pardon shorter -- And or so out, go adverse they -- of just your your you of was favorable it catastrophe unfavorable And reserve the in then out most And a periods to peers called find stands the -- the in I called unique called to the opening out that tendency million what me, prior $X you just you does -- comments, of have from was years? neutrality you is, trying -- for through losses development. it's include I But development. piece development. because mentioned that what tend out understand

Yes.

$X than $X it the within the have attached one from from year, had the we expected. we with thing million losses has reinsurance exhausted the So prior partial -- I’ll primarily developed Woolsey was losses million limit losses event, layer. Woolsey our which point catastrophe is that The were more the Fire, from out

if million by reinsurance. the Woolsey fully was on with year development those were on there’s and cats prior development not next any X any covered layer so, now additional future -- will into the And covered be

as of catastrophe, much around for what around questioning Thank that another your think for like clarification. new twice limit what I your the purchased before. property And comments cat substantially pivot up I you as line -- your -- in -- your disclosure total your your on Can program. limit is you

it perspective from So and then what come is -- I'm experience all there cost at your moving last is but the to retention XX. a this call just XX curious obviously going year, quarterly to your too

we quarterly would replay that how many results to $XX if million were the So year, we hit retention? last quarters

were to we replay…? If

so was Woolsey And a The well Fire the of is Camp million, Fire would hit that excess that. XXs. obviously the low have in XXX

piece would fire car hit a the of about So million. that have XX was it,

just -- standpoint economic just high. to We our sense make pricing purchase the XX does was not an felt XX the that to Greg. layer. just from it for was that too It Yes,

Yes, saying. totally you’re what I understand

on I'm to up. different will And so cost is new forward your there the The comments, a it cost? basis like cat modestly is only the a if reinsurance. perspective last through go exposure year relative program read losses net the seems And or to does on going to up

in new each in last three period Well, each increase it’s layer, layer. actually is think compare the we increases about increases modestly I sizeable and XX reality But But million. is you consider if up the treaty on rate the million what ended reinstatement is about pretty -- that cost rate sizable there -- we is premiums. paying, XX up the the rate when

XX includes year last limits? from of XX that And million reinstated

Right.

of This XX million what?

Reinstated limits?

Yes.

it’s So to XX? compared XX without that,

and limit analyze lot to That’s obviously bought on hard change retention a we because end. the the higher more

in will you comments your And your mentioned in you around detail XX-Q. Right. this have that more

So will to out the us cost easy et would that be be cetera pull able to identify? for

total be in will there. the Well cost

more and layers. be to within the is detail the the think exclusion going how I work around layers those

to analysts probably to want time, follow The offline I well be have realize on set sure ask make up have right. don’t last Okay, on that topic, to questions. conversation questions, call on a the I another this but to [hog] just everything I it will there’s conference would want great up your

doing well anything non-California forward? or same it business but of So there California Is now is strategy California like you is business outside the perspective -- seems business not. your still changing have on the going is do

results basis contributed but storms. like had severity. disappointing. XXXX large In running the at this strategy XXX.X. ‘XX accident On going quarter today we in had accident of a the the have results. to We year a some same year June Outside is increased We XX been We quite of an current that the year, is Midwestern through the have running losses California year quarter, forward. few had

and lot So We're going Georgia. driven been on Florida standpoint. to has severity a by right from what's continuing analyze of a there that now

be and some have in going changes also we're implementing that We Georgia. Florida to

from think side. the standpoint November, side growth both that and I Florida help on think for the we September in in profitability Georgia also segmentation and will on a

had outside But we last year a year really of good California.

I calendar mentioned XX, XX range accident if year if we we PPA for in about ‘XX an the the XX. combined in as right not recorded I’m think is recollection is my I year for -- --

So we results. and to to some outside some the of have especially of do these in improve states work California though

next the KBW. Campbell question of Christopher from line our And from is

ask at are was like the about It and there issues core XXX to some of states. ratios. Florida going on in loss having But I’m if you the Georgia bps you that First, looking year-over-year. ratio, other are core you sounds some loss and like

attritional, more how that? So I we mean that of modeling was how going about think much of one-time about should think -- that we that any or that should event like How forward? is

mean think I perspective mentioned right Well, XXX my I we outside running at PPA like least we are I at California about think for now. from of earlier

We changes will of there have some lot California volatility outside sometimes of and say that. quarter-to-quarter. I from is

on at think running we're California basis. PPA, about think a in I we XX% year-to-date a

We points mid and severity most this see that have not a of We we a that frequency going going haven't earned. up of earned, of X.X been single-digit. down lot has couple

So kind expansion California of in going any there reserve some be should development. forward line margin PPA our absent

view how that’s So I would it.

the million appellate court there’s a say of ruling. -- $X.X charge Gab this I that one-time, result would mentioned so Yes. was the expense

in -- that not we reserves related the stormy a of amount million going to elevated In there that's X second to we California of And in quarter So the weather up the just homeowners weather. every that quarter homeowners first from kind first California, was about was had event. clearly quarter. then significant put stormy additional And the happen of quarter.

closed So out. that's pretty now much

So little there's too. you there could bit probably figure a

in single-digit And California frequency mid-single-digit Is low right? lines, I losing in increases -- increases said so Gab then low-digit just you’d that severity. in looking and think, then at script the

frequency, in Yes. Reduction reduction.

think you said I increase, reduction …

Okay. Got it.

And yes. mid-single-digit yes. severity, increase Yes, in

Perfect.

cost like that inflation be loss line? we thinking in should so to low mid-single-digit, all-in, So

what thinking. That's we're

in earned have you said you that XX% then X.X, And second only quarter. the basically the of

like have come? of So XX% that we to

Yes.

biggest Cal then about and For Company, our it of is had Mercury XX% sub earned. which Insurance Auto

you are being? guys guys or then done California on you’re taking time And planning any for the auto you more think increases in

I think for the we're being. done time

are X.X for X.X But California taking correct? and in another filing you just are homeowners, another you

into effect homeowners. X.X for we and X.X another Yes. in goes the filed in California And August Yes.

net investment to little than income then just investment pivoting was And net expected. so a I weaker pre-tax bit income, growth

So over versus that’s like only mid year. bps kind premium that up to XX of last we've the high-single-digit seen

we should so growth the was then about investment think income as And why rates quarter? starting forward, just come soft are down? guess I this to going projecting So how net the especially

year-over-year. Graves. and pretty be be year Chris Well, well, sensitive good, seen much looking sensitive Chris. inverted positioned really actually much at more opportunities. But a actually we course growth flattened the as to more with year real was prior Hey, -- to interesting especially last that the we've thought in And the I ourselves It's -- part, boosted investment The an that’s curve come rising low to fixed of the interest on us, fed. income. few from is income And end. us leaving to rates

curve out light a the is yield on the lot, of broadening there of in considerable quite yield our I So duration of risk structure the curve. amount think

as of XXXX this environment, well. it's going and and I to a well think part rest through good last So, forward, be of the year going going it's tough to

know company push seeing else the good, going to it’s the in investment same. That’s stays we’re growing you exactly So portfolio. the to if the everything income is higher underlying where for growth continue headed to me -- tell growth is now. But -- don’t I if we’ve are investment hard

got maybe for think this special then rate one and how color And Okay, we had helpful. expected. modeling bit was lower going Thanks than we Any forward? should tax little Chris. Operating anything happening a very That’s on was that about it. Ted.

Well it than I was income underwriting was because you think modeled. lower lower

roughly is, is investment XX% income tax XX% or income’s underwriting So tax and is XX%. roughly

overall changes And it the the rate. so mix tax when of those changes effective

Instructions]. [Operator

of America. of line Our Jay? Bank next Cohen from Jay question

of couple a questions. just Yes,

or During misheard you it? just to have in pick, mean think or forward a BI, for conservative loss suggested the auto I place I mean it I already maybe call more put was just contemplate I you going

back was No, weighting the an factors, a as we’re select we I produces going when eight quarters would higher an four ratio amount. but average generally referring more of we quarters, what to maybe which select more is recent example linked factors -- ratio

Jay. that’s So what referring I to was

bit I four being guess the next ratio? little quarters else upward in equal that pressure of forward itself looking over all a loss by the puts

I don’t than I'm it’s or put -- -- so that, not why picked. we’ve mean already unless would we’ve up I worse sure done

guess other development factor. areas I had I from some Well adverse as than reaction some of are with because came others it’s a the the but big how you’ve I increases, price in what this guess these the increases? other such that’s being it guess and so of the is you’re you question I thought a finding price in aggressive bit feels competitive market? raising more It not if because there blow back

Yes, business about actually, is year-over-year too I were is quote the bit California quite for they quarter. our But down a quarter volume quite new applications was would XX%. down our quoting a down say the happening what’s the XX% are about bit, volume that down in for

quoting volume. new our and took increase result X.X we business both a is and a as as the So result that of down

you forecast in with the bit new pretty our we an Now in line the our much little take But to up had and better impact. if volume, end at. would than thought volume was quote what away line, a respect retention the really business quoting

And we time, turn like the the have questions further I'm at closing this that any call for line. showing back remarks. presenters the I’d no to on to

we and speaking you look all Thank you to quarter, you much. I with next quarter. of forward would for this us thank all joining like to very

you gentlemen, your and Ladies today's conference participation. conclude We call. does this thank for

disconnect. now may You