Mercury General (MCY) 3 Aug 202020 Q2 Earnings call transcript

Good morning. My name is Michele, and I will be your conference operator today. At this time, I would like to welcome everyone to the Mercury General Quarterly 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 upon 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. Please go ahead.

second to you call. quarter much. Mercury’s would everyone Thank President conference like am CEO. welcome Tirador, very Gab I to I and

Ted the Senior Schroeder, have On Product Vice we Mr. phone, and Chief President President George Officer; Jeff Joseph, CFO; and Chairman; Chris Graves, Officer. President Stalick, and and Chief Vice Investment Vice

few in $X.XX of Net the comments regarding to take the portfolio. we $XXX.X which our Before the offset investment second the first quarter million rebound or quarter The a income was per $XXX.X share, gains on million includes in questions, we after-tax make partially in second quarter. market helped will losses of are $XXX.X securities held losses $X.XX net or continue our was on includes income investment of year-to-date the portfolio. by million investment on to million Year-to-date, share, investment Most million our company. portfolio. of $XX on which $XX.X mark-to-market after-tax adjustments the losses per be afte-tax that quarter

the earnings in the in million quarter in ratio Lower improvement company primarily operating primary XXXX. of million to The the from was as offsetting private severity lower less unfavorable personal combined multi-peril auto, offset The result our worse the share customers was recorded results quarter improved commercial compared commercial passenger million $XX XXXX. in business. of the the development million, and in improved premiums a XXXX reason pandemic. second Catastrophe frequency $XXX.X homeowners of business. were of second the per in and quarter losses XXXX. compared second COVID-XX of the improvement quarter, of business $X.XX of in $X a the results quarter of an the reserve as in ratio Partially primarily auto our line quarter auto second in in in giveback to of pandemic the from compared our by on million in driving a to from $XX to quarter of $X $X.XX results increase the result in the the for earnings improve in to The XX.X% quarter to driving in quarter operating results. line was XXXX. a private less due quarter share, of Our XX.X% quarter in frequency combined due second reduction in partially The lines were per were the COVID-XX second passenger the auto to was of

impacted our commercial of $X.X business to negatively the our a our results both million quarter. giveback $X commercial severity, line unfavorable in frequency development frequency the homeowners million and of in auto in decline auto increased commercial the the Although, increases in of in line, premiums and quarter, of reserves auto quarter. severity also In customers saw

in California improve unfavorable quarter. of results, homeowners homeowners this reserve our increase negatively our impacted rate results development in went April. million X.XX% line $X addition, our To a effect In homeowners into

Insurance. approved Department increase the by addition, of California X.XX% a was recently In rate

and homeowners premiums rate to of earned company-wide in implement the XX% California about We premiums company-wide October. expect recently premiums represent earned. direct direct of increase earned homeowners XX% approved

adoption insurance fire we Our personal product our In we net usage new Early loss large the encouraging auto introduced rates commercial impacted and multi-peril new a in quarter, reinsurance. results second above Texas. our June, programs. are expectations. a were by negatively two based million launched quarter In MercuryGO of in $X

also We completed The We system in quarter. treaty product and product the of have in and California multi-peril X our second agents. commercial by new recently our system new limit in the been effective introduced total Phase July purchased well July reinsurance XXXX received The $XXX $XXX period. through for X, million from reinsurance our XXXX. increased to million XXXX June renewal prior catastrophe the period

In has addition, program the coverage all new in wildfire reinsurance layers.

the $XX on premiums Total program million. same approximately Our annual retention remains are new at reinsurance million. a $XX

XXXX, of due XXXX. treaty quarter to the of the quarter business driving second in credits to filing. premiums primarily details the second the XX-Q included total of in due renewal XX.X% were be reduction in to the For as of was quarter million. to treaty, prior reinsurance The quarter will eligible million $XX earned premium in XX.X% second a reinsurance premiums $XXX The reduced and for and of higher was policyholders the COVID-XX expense refunds our activity compared the result More pandemic. of catastrophe ratio ratio expense

and ratio the premium expense written declined due XX.X%. quarter, in million credits, $XXX Excluding premium the have and in would refunds refunds credits. the $XX.X% been primarily the Premiums to

in refunds X.X%. premiums $XXX million credits, the and premium Excluding by rent declined

earned plan In million approximately premiums $XX XXXX to of be to addition, returning July monthly we August. third premiums in eligible $XX quarter we written million. reduced expect Accordingly, policyholders on and by

to the further continue as to COVID-XX and economic monitor adjustments and make the necessary. of will impact duration extent We related

without loss quarter, adjustment We reduction in that third our With premiums background, expense take brief will givebacks we from and expenses. as ratios underwriting questions. to remain elevated a the proportionate now declined expect in

Our Instructions] Raymond [Operator question comes from Greg from Peters first James.

Your line is open.

depending Coast. give on a trouble getting just had up this some afternoon Good to afternoon, heads morning everyone call access to in the morning on or I this good listening Well, to East those time zone. the wanted first your you.

But around September. results a million are that’s pivot announcement Can to assume know are about frequency having giveback or conference it your for back talk to in this the continue near-term? mechanics favorable [Technical not. you Difficulty] $XX is We don’t the let’s refund asking ID. if normal and the or continue the of for I Is you in And August reasonable maybe and number? around if going to it July that that to extends

me have and the talk Jeff Jeff? Let about ahead givebacks. go

Yeah. of obviously, June We that Gabe month July talked for through the giveback of month frequency, just into July. and saw about continued the the hence declines

far tell this extend the little that adjustments particular will continuing giveback point. we make As months, to on months. continuously we evaluate as into couple subsequent frequency But for depending months, over it’s And of to at those us to early potentially are and and that for that. moves a going how next

add we… I that will

paid… If it’s

frequency April and May to upwards and I where will and as compared add that June we increase in did see an slope July.

Jeff as every the we will continue month just adjust we mentioned, So, will to on and based information… monitor and

Right.

rising June compared is offsetting benefits, no and so and the …that’s question as as coming in well, May. but some the that there July was month in frequency frequency in severity of to slope of an and upward April

how -- California interaction if of ratio The look second with their below I Right. Department continuing targets. combined Insurance? mandated on quarter the what well I your -- is just result concept, know the with that been that’s -- that, I at

your regulatory am I process how just the authorities So this at involved with getting are point? curious

think agree mean you by, don’t not its statement. I that well mandated with Well, I sure am I below target. our what

sort I miss… maybe thought I am of I threshold, -- was combined thought I sorry. ratio it am XX there a

No. No.

Okay.

to COVID, XX a They will that template you we of in pending a I is no a add file that rate have more another I pending and of. rate you one I had based before template we because to had maximum one companies can I that, that for both bit has increase. think, the something you template. the allows increases. to that of threshold am remind I that And severity four, on like five take template have And There that and aware something, quite on -- will

that question COVID, quite allows prior were there the rate asking bit rate and template So a for to we we needed was than more for. no

you Thank the for clarification.

interaction accepting you? as just they to you it how or, is of these Department something they you you the think, were involved up and as final or before announcing programs, are leaving to just piece do so getting California characterize that, can So as just it with just they would it -- your the you I been asking

how specific giveback. of basically that companies fit allowing are do see whatever That’s any to ordering been. basically they giveback they kind it’s not We -- and Yeah. they are

Got for… it. Thanks

there’s And required. no filing

Thank Gabe, you the appreciate Okay. clarification. for it.

Sure. Sure. No problem.

an reinsurance, is event On $XX fourth into us going more give -- to can what limit, a quarter? or and million in the fire can pivot quarter third per so us crystal think quarter like in look and your you -- and seasons the us maybe aggregate the to we help look or still the you as tell that is retention $XX just million, ball

to I Well, want that’s do reinsurance? about talk give the to Ted. Ted, hard always will But predict. you

Hi, Yeah. Greg.

I mention into the more $XX So cover million future that their XX% it’s limit. July out utility came would put buy caused per of like losses We event. subrogation that, by And industry to equipment. bankruptcy which place will Xst. of on fund, PG&E did

that favorable in losses a we third the as So quarter. see cat quarter towards fourth and

so one started into County. it mountains. out already seems burned a have structures up There’s don’t But know have having to fires Riverside the far, We been any be here. in if going big some and I

is year. the the Normally Santa winds see So are what in, of we the which when Ana rest later generally in will the come happens fall. the the worst wildfires

on back Great. got say, subrogated just then how XX%, PG&E that million, of $XXX that us an walk XX% us a that there’s or of you blame work? is that be does some go to $XXX XX% gross if Let’s them, walk works. Can basis, with is by on a that through but… there’s you that and involved basis, million gross -- costs through like, event how covered to Obviously,

fund to can been Well, equipment yes, by the is, my back their was by be the if from reimbursement understanding loss and up it’s where and submit insurers get caused their fund. the XX% this shown the caused set has that and equipment, claims their

or reinsurance? that after done Is before

you under you on million, one. that XX% is -- treaty to XX% our in $XXX XX%, where would at off and the net and would to that XX% our you amount seed up would So [ph] would off above example, see retention the that down seed then

you -- have covered on do Which your -- XX%. Thank under a second first many many is event, that how Is events, Perfect. are you events the event, treaty? color. how you Right. for

limits reinstatement. -- we are one Our have

Got it.

the once So exhaust second you have reinstatement, coverage. any don’t and you then

a layer, exhausted dozen So you fall theoretically have the within the events layer. could that but haven’t

other Thank California. Okay. just that -- operations, California, I mentioned, your are some guess but outside highlighted concentration you around The of in initiatives question also one on you. you going

non-California your -- initiative, when the will it or mentioned the that Texas last as you expect particular. be get of higher think to or in same I end we was lower? It premium the do the year year you

No. There’s California. We -- outside going I I’d that. much that. on not can rather am right I our working of improving just not too is predict we predict tell that, you All now, to are going Greg. segmentation on uncertainty

have in to Advantage as few of next new that the of quite that most later has plan and year Mercury the we a increased And it rest country into year the launched new the launched launch launching this that significantly we of well. a states product we We continue in to in product have states. and business

where well, the predict much premiums that’s But not land. the underwriting program there’s We I -- Gold going program too our we say most going disciplines. the to the uncertainty part, the we part, Mercury that most just keeping as base got are for use us for of well. to for will are have

that. a all view taking in are would long-term say our states, we So I

underwriting keeping our are forward. going We discipline

not to positive. a am -- are of I I think things motion in standpoint but So that going predict, that lot product that there from are

just regarding there, Great. environment with level perspective the given quarter the compare the would on portfolio the is money the will basis, months year-over-year The investments, going on just Can how the and at new Chris both give you for the down. looking Thank question the on yield rates us the you and six-month final where in and to existing six new answers. yield be normalize at? what’s interest average some

is were six ago. that my think, I compare and quite unfavorably we rates new to you much answer where rates Well, probably know months that just of average and that

are So are zero. -- getting cash rates they approaching

basis Treasury about bonds New money points. AAA, XX-year XX XX the basis municipal rates, points,

you curve and of So the put on at with X.X% out bit I duration X%, a a that spread are risk. significant on looking

be But So I to part in for at are how going expect these long answer. some election we I Big this think be coming can to low environment? to time the we think, of up, come. that’s rates

to challenging. yeah, going And be are so, the comparisons

we more But restrictions. don’t risks, Certainly those certain to again, very up evaluating it’s getting different option. is policy consider want equity But, conservative types are compared is and breaching. an against attractive a options. have yields are to there investment actually tolerances fixed -- to income. say, on we are the We taking of Dividend we risk that have

just best most can of and you understand So we going think challenging probably keep that we kind pushing the environment have are already we ever in. been the to it’s I

Right. It that. your for certainly you, Listen, time. looks thank Appreciate like everyone the answers.

Greg. you, Thank

next Ron of Bobman Capital [Operator comes from Our Instructions] question Returns.

is line open. Your

not that of assume compensation. basically giveback am question you agent sort Thanks about sort I adjustments that lot. carriers to confirm was have, wondering of agents I really and isn’t a profitability Hi. a of incorporate based, adjusted sort the But My been impact compensation of in uniform can of the is even sort whether of had there -- into changing. be about a Thanks. incentive that givebacks? I be sort profit consumer may fashion, and agent programs on understanding the COVID well. of if premiums, to the have of that Hope commissions, some great. everyone light But the that’d I in of it’s particular based and any wondering sort compensation

made answer for on commissions, you a based base as have first correct, haven’t that your as not are Well, determination givebacks, on to yet. question contingent adjusted commissions, and we far been -- the commissions

Got you.

Okay. sort would say spot, of that largely is it’s And in determined. group sort the be is there you peer to -- same your of

I…

to declared Or had some positions your nose?

I don’t I competitors. don’t know. our know about all

Okay.

am I sure. not

of rights if there remaining other I are to you guess, -- then I long third-party fire if as you, Okay. subrogation think, I I guess, any a subject losses have be that or too for to, Is wondering sold year’s mind, -- remember utilities subrogation guess, your -- you either you I I And if sort And fire of sort the, there some don’t far after I remember or losses. fires. not losses. everything the sort could baked of as is fire prior from the are could of potentially, am sold.

to to they of uncertainty and are as baked what there’s of meaning sort a your far they As are is going Thanks. not losses opportunities? are lot that variability subrogation be or

that? do Ted, to you handle want

Yeah.

you -- the we the sell to are So rights subrogation right, third-party. did the

which subrogation generally we Although, kept the was our we week. and last from think, rights payment fire the to the XXXX Tubbs an I the fires, as just initial received Trust, known PG&E

monies in that reinstatement a $X premiums did million we small mention subrogation that from benefit all quarter subrogation. under that reduction there on future no and in our in any will so to the reinsurance and losses second those from be numbers. partners, Mercury a reinsured for was came a there’s reduction so net company fully was Now subrogation those losses previously to losses, will really returned little the I that from paid record

equipment. as subrogation, caused in The determined California wildfires It our far QX whether the from were As XXXX. have California. by utilities was in those Southern Saddleridge Fire, Those -- of Kincade Northern the and do been retention. hasn’t events Fire, both was yet those which were reinsurance under we which

that both evidence some there’s were. Although, of them

two there -- events. that’s potential But subrogation right is the for on unclear. it’s So some those now,

would reimbursement that potentially for culpability fund color. the mentioned fires that XX% mentioned the to the for your that sort the from reimbursement be you fund and earlier? and If eligible you Thanks about losses QX there ‘XX deemed from Okay. the be mentioned, these equipment, is earlier California of

exactly I XX% paid anyway. that’s where I I be sure, but am those not for correct also benchmark of think and that the the believe out kind sets would of claims

So I know that. I on really -- that’s all

now. million our those I on range think in claims right were to ultimate $XX million $XX losses the two

mean of Why you do you the What What’s benchmark. mean? XX%? that word the chose by benchmark

varying percentage are subrogation have have of pay Well, that fund now all levels as over saying losses that, years, essentially we been And these a I mean by paid going XX% a to guarantee this as you been fire has there’s come different all out. out. you the is incurred of in claims that’s

what if the benchmark under towards So eligible as prior not I are kind fund, that is, will what by there’s meant of probably standard pay. look XX% the rate claims they you of this

still [ph]. follow quite I those if Okay. I bit can up a

Yeah.

well. be and Thanks

you. Thank

Wrenn of Company. comes Our from Corey & next Pecaut question

Your line is open.

of Good morning. from have Good couple afternoon the I in here West. a questions.

all? on seeing. low low your on given first interest -- is higher then, or the policy obviously, or investment entered a that yield dividend repurchase seeing more have rates returns It in question you than we you dividend my seems are the that is, world. the like And The at return invested much the investment? the stock is, second dividend rethought one your into you Have are technological

an -- their points things and -- when sales you from they don’t capture, into and online XX% given going about today’s more Thank numbers use says I are, agency business then you. who to you upstart what numbers like Lemonade, XX%, how technology data XXX,XXX that. thought like that, you Have And an how seeing in called log have company work see the a the in have can who ever can you know, you you things like that? are knows You based world? does site model having

first first, I me guess, the question. answer Let

and review coverage every that Board that and and And on something we it’s As basis earnings, prospects, on so on just a the factors, basis. quarter. quarterly far as the dividend, a a quarterly based something lot this of makes reviews determination is our the our

just, well, as that. quarter announced as going a know, this to leave dividend a I So that you am $X.XX dividend. We at

far which I As segmentation. obviously, segment Lemonade, know of mean, online, We, have points, I to well. our them, potentially referring is data I and think XXX,XXX as I the yeah, we warehouse are you business mean, as data

continuing I segmentation program California, Advantage. positive Mercury the Advantage to update is are that outside mentioned We you very can our State Mercury trying segmentation. our significantly what we are with market, which respect results seen you California, earlier to our we and have launched of biggest to and use. In which our of limited improves

as California price because constraints in there’s homeowners, and far what what on limitations you is So including which Lemonade on, you price of what can’t the regulatory more can sells. as

as far continue technology. to our I many how bots can’t are we As technology that we you advance goes, tell mean, now. using right I

We system. have facing improved our agency

are improving our online We portal.

settle to risks. We are to underwrite claims using technology our

So lot to see claims business our and don’t of writing to is that’s Lemonade accuracy business mean, write how of our of will we it’s key. a or lot sacrificing to the improve up they our a on the to we I profitability business difficult. this and think try difficult write streamline I end underwriting maybe end very but will continue not it, technology without operations and business in

think advantage think business the for do the with selecting advantage? an you have you -- do the you still you Do good agents have you, upfront you, for underwriting

extremely put partnerships that -- we We think our this, that I are our think it will important. agency

Okay.

safe. Okay. Thank Well, and thank you you. stay

you. Thank Okay.

no are questions There this at further time.

you much. thank today. joining for you us Well, Thank very

Thank for today’s you call. gentlemen, and this Ladies participating. concludes conference

great Everyone have day. a You disconnect. may now