Core Insights - Mercury Insurance has launched a new personal umbrella insurance policy in Oklahoma to provide enhanced protection against rising bodily injury claims, which have increased by 35% since the pandemic began [1][2][5] - The new policy offers additional coverage starting at less than $1.00 a day, addressing the trend of liability claims exceeding traditional policy limits [2][5] - Oklahoma is the third state to receive this expanded insurance product, following California and Texas [4] Company Overview - Mercury Insurance is a multi-line insurance carrier offering various types of insurance, including personal auto, homeowners, and renters insurance, through a network of independent agents across multiple states [7][8] - The company has a strong presence with over 4,700 employees and more than 8,000 independent agents [7] - Mercury has received high ratings from A.M. Best and Fitch, and has been recognized as a top auto insurance company by Forbes and Insure.com [10] Product Features - Key features of the updated umbrella insurance product include customizable liability coverage options ranging from $1 million to $5 million, and discounts for multi-policy holders and accident-free records [8] - The umbrella policy is designed to provide a safety net against unexpected expenses and legal liabilities, making it a valuable addition to an insurance portfolio [3][6]

Mercury to Support Agents and Customers as Tokio Marine America Transitions Out of the California Personal Lines Market LOS ANGELES, May 9, 2024 /PRNewswire/ -- Mercury Insurance (NYSE: MCY) is spearheading a plan to maintain insurance availability and provide coverage for thousands of California consumers. Tokio Marine America (TMA) and Mercury have closely cooperated to develop a plan to transition customers of TMA and its subsidiary, Trans Pacific Insurance Company (TPIC), to Mercury with assistance from ...

Mercury Insurance Offers Tips for "Weathering the Storm"  LOS ANGELES, May 6, 2024 /PRNewswire/ -- In advance of the official start of 2024 hurricane season in June, Mercury Insurance (NYSE: MCY) is offering consumers tips on how to prepare for hurricane season. This guidance will help prepare and safeguard your home and coincides with National Hurricane Preparedness Week from May 5-11.  In conjunction with Insurance Institute for Business and Home Safety (IBHS), the following are key tasks a homeowner shou ...

[PART I - FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This section provides the unaudited consolidated financial statements and management's discussion and analysis for the first quarter [Item 1. Financial Statements](index=3&type=section&id=Item%201%20Financial%20Statements) Presents unaudited consolidated financial statements for Q1 2024 and 2023, including balance sheets, operations, equity, and cash flows [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets%20as%20of%20March%2031%2C%202024%20and%20December%2031%2C%202023) Highlights key financial positions including total assets, liabilities, and shareholders' equity at period end Consolidated Balance Sheet Highlights (in thousands) | Item | March 31, 2024 | December 31, 2023 | Change | % Change | | :----------------------------------- | :------------- | :---------------- | :----- | :------- | | **Assets** | | | | | | Total investments | $5,453,126 | $5,228,520 | $224,606 | 4.30% | | Cash | $530,085 | $550,903 | $(20,818) | -3.78% | | Premiums receivable, net | $676,673 | $601,725 | $74,948 | 12.46% | | Total assets | $7,395,968 | $7,103,397 | $292,571 | 4.12% | | **Liabilities** | | | | | | Loss and loss adjustment expense reserves | $2,859,220 | $2,785,702 | $73,518 | 2.64% | | Unearned premiums | $1,854,184 | $1,735,660 | $118,524 | 6.83% | | Total liabilities | $5,791,941 | $5,555,252 | $236,689 | 4.26% | | **Shareholders' Equity** | | | | | | Total shareholders' equity | $1,604,027 | $1,548,145 | $55,882 | 3.61% | [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations%20for%20the%20Three%20Months%20Ended%20March%2031%2C%202024%20and%202023) Details revenues, expenses, and net income (loss) for the three months ended March 31, 2024 and 2023 Consolidated Statements of Operations Highlights (in thousands, except per share data) | Item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Change | % Change | | :----------------------------------- | :-------------------------------- | :-------------------------------- | :----- | :------- | | Net premiums earned | $1,166,679 | $1,004,704 | $161,975 | 16.12% | | Net investment income | $65,018 | $51,973 | $13,045 | 25.10% | | Net realized investment gains | $38,192 | $49,008 | $(10,816) | -22.07% | | Total revenues | $1,274,085 | $1,106,579 | $167,506 | 15.14% | | Losses and loss adjustment expenses | $903,965 | $929,529 | $(25,564) | -2.75% | | Policy acquisition costs | $196,040 | $164,507 | $31,533 | 19.17% | | Total expenses | $1,184,865 | $1,168,657 | $16,208 | 1.39% | | Income (loss) before income taxes | $89,220 | $(62,078) | $151,298 | -243.71% | | Net income (loss) | $73,462 | $(45,288) | $118,750 | -262.22% | | Basic net income (loss) per share | $1.33 | $(0.82) | $2.15 | -262.20% | | Diluted net income (loss) per share | $1.33 | $(0.82) | $2.15 | -262.20% | [Consolidated Statements of Shareholders' Equity](index=5&type=section&id=Consolidated%20Statements%20of%20Shareholders'%20Equity%20for%20the%20Three%20Months%20Ended%20March%2031%2C%202024%20and%202023) Outlines changes in shareholders' equity, including net income (loss) and dividends, for the reporting periods Consolidated Statements of Shareholders' Equity Highlights (in thousands) | Item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Common stock, beginning of period | $98,947 | $98,947 | | Retained earnings, beginning of period | $1,449,198 | $1,423,184 | | Net income (loss) | $73,462 | $(45,288) | | Dividends paid to shareholders | $(17,580) | $(17,580) | | Retained earnings, end of period | $1,505,080 | $1,360,316 | | Total shareholders' equity, end of period | $1,604,027 | $1,459,263 | [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20for%20the%20Three%20Months%20Ended%20March%2031%2C%202024%20and%202023) Summarizes cash flows from operating, investing, and financing activities for the three months ended March 31, 2024 and 2023 Consolidated Statements of Cash Flows Highlights (in thousands) | Item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | Change | | :----------------------------------- | :-------------------------------- | :-------------------------------- | :----- | | Net cash provided by operating activities | $192,626 | $18,173 | $174,453 | | Net cash used in investing activities | $(194,879) | $(69,500) | $(125,379) | | Net cash (used in) provided by financing activities | $(18,565) | $31,931 | $(50,496) | | Net decrease in cash | $(20,818) | $(19,396) | $(1,422) | | Cash, end of period | $530,085 | $270,380 | $259,705 | [Notes to Consolidated Financial Statements](index=7&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Provides detailed explanations of accounting policies, financial instruments, and other critical financial information [Note 1. General](index=7&type=section&id=1.%20General) Covers the basis of presentation, critical accounting estimates, and key financial events for the interim period - The interim consolidated financial statements are **unaudited** and prepared in conformity with U.S. GAAP, with certain annual financial information omitted for interim reporting purposes[19](index=19&type=chunk)[20](index=20&type=chunk) - Management's estimates and assumptions, particularly for **loss and loss adjustment expense reserves**, are critical to financial statement preparation, and actual results may differ[22](index=22&type=chunk) - The Company declared and paid a dividend per share of **$0.3175** for both the three-month periods ended March 31, 2024 and 2023[24](index=24&type=chunk) - Deferred policy acquisition costs amortization **increased to $196.0 million** in Q1 2024 from **$164.5 million** in Q1 2023, reflecting growth in new and renewal insurance contracts[25](index=25&type=chunk) - An office building in Brea, California, with a carrying amount of **$10.8 million**, was classified as held for sale at March 31, 2024, due to increased remote work[26](index=26&type=chunk) Effect of Reinsurance on Premiums (in thousands) | Item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------- | :-------------------------------- | :-------------------------------- | | **Premiums Written** | | | | Direct | $1,294,475 | $1,012,238 | | Ceded | $(31,299) | $(23,391) | | Assumed | $15,159 | $15,031 | | Net | $1,278,335 | $1,003,878 | | **Premiums Earned** | | | | Direct | $1,186,585 | $1,016,870 | | Ceded | $(31,079) | $(23,198) | | Assumed | $3,863 | $3,890 | | Net | $1,159,369 | $997,562 | - Ceded losses and loss adjustment expenses were approximately **$(0.8) million** for Q1 2024, primarily due to favorable development on prior years' catastrophe losses ceded to reinsurers, compared to **$7.5 million** in Q1 2023[30](index=30&type=chunk) - Commission income from third-party insurers **increased to $5.7 million** in Q1 2024 from **$4.8 million** in Q1 2023, included in other revenues[32](index=32&type=chunk) Allowance for Credit Losses on Premiums Receivable (in thousands) | Item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Beginning balance | $5,300 | $5,800 | | Provision for expected credit losses | $1,116 | $1,136 | | Write-off amounts | $(813) | $(1,270) | | Recoveries | $197 | $134 | | Ending balance | $5,800 | $5,800 | [Note 2. Recently Issued Accounting Standards](index=12&type=section&id=2.%20Recently%20Issued%20Accounting%20Standards) Discusses the impact and evaluation of new FASB accounting standards on the Company's financial reporting - The FASB issued ASU 2024-01 (Compensation-Stock Compensation) **effective January 1, 2025**, to clarify scope application for profits interest awards, which the Company is evaluating[38](index=38&type=chunk)[39](index=39&type=chunk) - ASU 2023-09 (Income Taxes) **effective January 1, 2025**, aims to enhance income tax disclosures, with the Company expecting presentation changes[40](index=40&type=chunk) - ASU 2023-07 (Segment Reporting) **effective for fiscal years beginning after December 15, 2023**, requires incremental segment expense disclosures, which the Company is evaluating[41](index=41&type=chunk) - ASU 2020-04 and 2022-06 (Reference Rate Reform) defer the sunset date of Topic 848 to **December 31, 2024**, with **no material impact** expected on the Company's financial statements[42](index=42&type=chunk) [Note 3. Financial Instruments](index=13&type=section&id=3.%20Financial%20Instruments) Details the fair values of financial instruments and the Company's involvement with special purpose investment vehicles Fair Values of Financial Instruments (in thousands) | Item | March 31, 2024 | December 31, 2023 | | :------------------- | :------------- | :---------------- | | **Assets** | | | | Investments | $5,453,126 | $5,228,520 | | Note receivable | $9,818 | $9,974 | | **Liabilities** | | | | Options sold | $1,928 | $1,955 | | Notes payable | $560,618 | $557,710 | - The Company consolidates special purpose investment vehicles (VIEs) where it is the primary beneficiary, limiting loss exposure to collateral and original investment[47](index=47&type=chunk)[48](index=48&type=chunk) - Unfunded commitments to non-consolidated private equity funds (VIEs) were approximately **$7 million** at March 31, 2024, and **$8 million** at December 31, 2023[49](index=49&type=chunk) - A promissory note of **$9.8 million** from an office building sale in March 2023 is carried at fair value, with interest recognized in other revenues and fair value changes in net realized investment gains or losses[50](index=50&type=chunk) [Note 4. Fair Value Option](index=15&type=section&id=4.%20Fair%20Value%20Option) Explains the application of the fair value option to certain financial assets and the resulting gains or losses - The Company applies the fair value option to all fixed maturity and equity investment securities, short-term investments, and note receivable for simplification and cost-benefit[53](index=53&type=chunk) Gains (Losses) from Fair Value Option (in thousands) | Item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :----------------------- | :-------------------------------- | :-------------------------------- | | Fixed maturity securities | $(9,294) | $39,776 | | Equity securities | $34,498 | $3,240 | | Short-term investments | $(104) | $34 | | Note receivable | $(156) | $— | | Total gains | $24,944 | $43,050 | [Note 5. Fair Value Measurements](index=15&type=section&id=5.%20Fair%20Value%20Measurements) Categorizes assets and liabilities measured at fair value into Level 1, 2, and 3 hierarchies based on input observability - The Company categorizes fair value measurements into Level 1 (quoted prices in active markets), Level 2 (observable inputs other than quoted prices), and Level 3 (unobservable inputs)[56](index=56&type=chunk)[57](index=57&type=chunk) - At March 31, 2024 and December 31, 2023, the Company had **no financial assets or liabilities based on Level 3 measurements**[68](index=68&type=chunk) - Private equity funds are measured at Net Asset Value (NAV) practical expedient and are not classified within the fair value hierarchy, totaling approximately **$83.8 million** at March 31, 2024[69](index=69&type=chunk)[70](index=70&type=chunk) Assets and Liabilities Measured at Fair Value (March 31, 2024, in thousands) | Item | Level 1 | Level 2 | Level 3 | Total | | :----------------------------------- | :------ | :-------- | :------ | :-------- | | **Assets** | | | | | | Fixed maturity securities | $141,161 | $4,348,391 | $— | $4,489,552 | | Equity securities (excl. NAV) | $672,106 | $45,241 | $— | $717,347 | | Private equity funds (NAV) | | | | $83,761 | | Short-term investments | $160,636 | $1,830 | $— | $162,466 | | Note receivable | $— | $9,818 | $— | $9,818 | | **Total assets at fair value** | **$973,903** | **$4,405,280** | **$—** | **$5,462,944** | | **Liabilities** | | | | | | Options sold | $1,928 | $— | $— | $1,928 | | **Total liabilities at fair value** | **$1,928** | **$—** | **$—** | **$1,928** | Financial Instruments Disclosed, But Not Carried, at Fair Value (March 31, 2024, in thousands) | Item | Carrying Value | Fair Value | Level 1 | Level 2 | Level 3 | | :----------------------- | :------------- | :--------- | :------ | :-------- | :------ | | Unsecured notes | $373,829 | $360,611 | $— | $360,611 | $— | | Unsecured credit facility | $200,000 | $200,007 | $— | $200,007 | $— | | Total | $573,829 | $560,618 | $— | $560,618 | $— | [Note 6. Derivative Financial Instruments](index=19&type=section&id=6.%20Derivative%20Financial%20Instruments) Describes the Company's use of derivative instruments, primarily covered call options, to manage equity price risk - The Company uses derivative instruments, primarily covered call options, to manage equity price risk and enhance investment portfolio returns[79](index=79&type=chunk)[80](index=80&type=chunk) Derivative Fair Values and Gains (in thousands) | Item | March 31, 2024 | December 31, 2023 | | :----------------------- | :------------- | :---------------- | | Options sold - Other liabilities | $1,928 | $1,955 | | Item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :----------------------- | :-------------------------------- | :-------------------------------- | | Options sold - Net realized investment gains | $4,316 | $1,228 | [Note 7. Goodwill and Other Intangible Assets](index=19&type=section&id=7.%20Goodwill%20and%20Other%20Intangible%20Assets) Reports on the carrying amounts of goodwill and other intangible assets, including amortization expense and future estimates - Goodwill, associated with the Property and Casualty business segment, remained **unchanged** at March 31, 2024, with **no impairment indicators identified**[81](index=81&type=chunk)[82](index=82&type=chunk) Other Intangible Assets, Net (in thousands) | Item | March 31, 2024 | December 31, 2023 | | :----------------------- | :------------- | :---------------- | | Customer relationships | $1,338 | $1,158 | | Trade names | $5,615 | $5,775 | | Technology | $— | $— | | Insurance license | $1,400 | $1,400 | | Total other intangible assets, net | $8,353 | $8,333 | - Amortization expense for other intangible assets with definite useful lives was **$0.2 million** for both Q1 2024 and Q1 2023[84](index=84&type=chunk) Estimated Future Amortization Expense (in thousands) | Year | Amortization Expense | | :----------------------- | :------------------- | | Remainder of 2024 | $671 | | 2025 | $856 | | 2026 | $856 | | 2027 | $856 | | 2028 | $856 | | Thereafter | $2,858 | | Total | $6,953 | [Note 8. Share-Based Compensation](index=21&type=section&id=8.%20Share-Based%20Compensation) Details the Company's incentive award plans, performance-based PSUs, and related share-based compensation expense - The 2015 Incentive Award Plan authorized **4,900,000 shares**, with **4,830,000 shares** available for future grants as of March 31, 2024[86](index=86&type=chunk) - The 2024 Long-Term Incentive Plan (LTIP) was adopted in February 2024, granting **performance-based PSUs** (phantom stock units) to key employees, settled in cash upon vesting based on corporate and individual performance[87](index=87&type=chunk)[88](index=88&type=chunk)[91](index=91&type=chunk) - The Company recorded approximately **$0.8 million** of share-based compensation expense for performance-based PSUs for the three months ended March 31, 2024[93](index=93&type=chunk) [Note 9. Income Taxes](index=22&type=section&id=9.%20Income%20Taxes) Discusses unrecognized tax benefits and the realization of deferred income tax assets for the reporting period - Unrecognized tax benefits **decreased by approximately $1.9 million** in Q1 2024, mainly due to payment for a California Franchise Tax Board audit for tax year 2011[95](index=95&type=chunk) - The Company's deferred income taxes were in a **net asset position** at March 31, 2024, and management believes these assets are more likely than not to be realized[99](index=99&type=chunk) [Note 10. Loss and Loss Adjustment Expense Reserves](index=23&type=section&id=10.%20Loss%20and%20Loss%20Adjustment%20Expense%20Reserves) Presents activity in loss and loss adjustment expense reserves, including prior year development and catastrophe impacts Loss and Loss Adjustment Expense Reserves Activity (in thousands) | Item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Gross reserves, beginning of period | $2,785,702 | $2,584,910 | | Net reserves, beginning of period | $2,753,554 | $2,559,588 | | Total incurred losses and loss adjustment expenses | $903,965 | $929,529 | | Total payments | $828,546 | $841,857 | | Net reserves, end of period | $2,828,973 | $2,647,260 | | Gross reserves, end of period | $2,859,220 | $2,677,561 | - The decrease in prior years' provision for insured events was **$5.8 million** in Q1 2024 (due to lower auto LAE, offset by unfavorable catastrophe development) and **$15.5 million** in Q1 2023 (due to lower homeowners L&LAE)[100](index=100&type=chunk) - Catastrophe losses net of reinsurance were approximately **$72 million** in Q1 2024 and **$98 million** in Q1 2023, with **no reinsurance benefits available** due to losses not exceeding retention limits[101](index=101&type=chunk) - Unfavorable development of approximately **$4 million** on prior years' catastrophe losses occurred in Q1 2024[102](index=102&type=chunk) [Note 11. Notes Payable](index=24&type=section&id=11.%20Notes%20Payable) Details the Company's outstanding debt, including senior unsecured notes and credit facility, and debt to capital ratio Notes Payable (in thousands) | Lender | Interest Rate | Maturity Date | March 31, 2024 | December 31, 2023 | | :----------------------------------- | :------------ | :------------ | :------------- | :---------------- | | Senior unsecured notes | 4.40% | March 15, 2027 | $375,000 | $375,000 | | Unsecured credit facility | Term SOFR + 112.5-150.0 bps | November 16, 2026 | $200,000 | $200,000 | | Total principal amount | | | $575,000 | $575,000 | | Less unamortized discount and debt issuance costs | | | $1,171 | $1,271 | | Total debt | | | $573,829 | $573,729 | - The unsecured credit facility was **increased to $250 million** from **$200 million** on November 30, 2023, with **$200 million** drawn at March 31, 2024[104](index=104&type=chunk) - The Company's debt to total capital ratio was **26.4%** at March 31, 2024[104](index=104&type=chunk) [Note 12. Contingencies](index=24&type=section&id=12.%20Contingencies) Addresses ongoing lawsuits, regulatory actions, and the Company's assessment of their potential financial impact - The Company is involved in various lawsuits and regulatory actions, primarily related to insurance claims, for which reserves are established[104](index=104&type=chunk)[106](index=106&type=chunk) - The California Department of Insurance (DOI) served a Notice of Non-Compliance (NNC) in September 2021, alleging violations from a 2014 examination report. Settlement discussions are ongoing, but no meaningful progress was made in March 2024 mediation[105](index=105&type=chunk) - Management does not believe the ultimate resolution of currently pending legal or regulatory proceedings will have a **material adverse effect** on its financial condition or cash flows[106](index=106&type=chunk) [Note 13. Segment Information](index=25&type=section&id=13.%20Segment%20Information) Provides financial results and premium data by reportable segment and line of business for the insurance operations - The Company operates primarily in the Property and Casualty business segment, offering personal automobile, homeowners, commercial automobile, and commercial property insurance[108](index=108&type=chunk)[109](index=109&type=chunk)[111](index=111&type=chunk) - The Chief Operating Decision Maker evaluates operating results based on pre-tax underwriting results, excluding investment income, realized gains/losses, other income, and interest expense[109](index=109&type=chunk)[110](index=110&type=chunk) - The 'Other' business segment, which does not meet reportable thresholds, offers automobile mechanical protection warranties[112](index=112&type=chunk) Operating Results by Reportable Segment (Three Months Ended March 31, in millions) | Item | Property & Casualty 2024 | Other 2024 | Total 2024 | Property & Casualty 2023 | Other 2023 | Total 2023 | | :----------------------------------- | :----------------------- | :--------- | :--------- | :----------------------- | :--------- | :--------- | | Net premiums earned | $1,159.4 | $7.3 | $1,166.7 | $997.6 | $7.1 | $1,004.7 | | Losses and loss adjustment expenses | $900.0 | $4.0 | $904.0 | $925.8 | $3.7 | $929.5 | | Underwriting expenses | $269.3 | $3.8 | $273.1 | $230.8 | $3.5 | $234.3 | | Underwriting loss | $(9.9) | $(0.5) | $(10.4) | $(159.0) | $(0.1) | $(159.1) | | Pre-tax income (loss) | | | $89.2 | | | $(62.1) | | Net income (loss) | | | $73.5 | | | $(45.3) | Net Premiums Earned by Line of Business (Three Months Ended March 31, in millions) | Line of Business | Property & Casualty 2024 | Other 2024 | Total 2024 | Property & Casualty 2023 | Other 2023 | Total 2023 | | :----------------------- | :----------------------- | :--------- | :--------- | :----------------------- | :--------- | :--------- | | Private passenger automobile | $754.3 | $— | $754.3 | $660.6 | $— | $660.6 | | Homeowners | $266.9 | $— | $266.9 | $222.5 | $— | $222.5 | | Commercial automobile | $89.2 | $— | $89.2 | $69.1 | $— | $69.1 | | Other | $49.0 | $7.3 | $56.3 | $45.4 | $7.1 | $52.5 | | **Net premiums earned** | **$1,159.4** | **$7.3** | **$1,166.7** | **$997.6** | **$7.1** | **$1,004.7** | Direct Premiums Written by Line of Business (Three Months Ended March 31, in millions) | Line of Business | Property & Casualty 2024 | Other 2024 | Total 2024 | Property & Casualty 2023 | Other 2023 | Total 2023 | | :----------------------- | :----------------------- | :--------- | :--------- | :----------------------- | :--------- | :--------- | | Private passenger automobile | $825.5 | $— | $825.5 | $634.3 | $— | $634.3 | | Homeowners | $302.1 | $— | $302.1 | $241.6 | $— | $241.6 | | Commercial automobile | $104.0 | $— | $104.0 | $80.0 | $— | $80.0 | | Other | $62.9 | $6.6 | $69.5 | $56.3 | $6.4 | $62.7 | | **Direct premiums written** | **$1,294.5** | **$6.6** | **$1,301.1** | **$1,012.2** | **$6.4** | **$1,018.6** | [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=23&type=section&id=Item%202%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management's perspective on Q1 2024 financial condition and results, covering revenue, expenses, investments, liquidity, and regulatory impacts [OVERVIEW](index=23&type=section&id=OVERVIEW) Provides a general business context, regulatory updates, and critical accounting estimates impacting the financial statements [A. General](index=23&type=section&id=A.%20General) Discusses factors influencing operating results, including competition, loss frequency, weather, and regulatory environment - Operating results are subject to significant fluctuations due to competition, loss frequency/severity, weather, economic conditions, and regulatory environment[117](index=117&type=chunk) [B. Business](index=27&type=section&id=B.%20Business) Outlines the Company's primary insurance lines and geographical distribution of direct premiums written by state - The Company primarily writes personal automobile insurance through 12 subsidiaries in 11 states, mainly California, and also offers homeowners, commercial automobile, commercial property, mechanical protection, and umbrella insurance[119](index=119&type=chunk) Direct Premiums Written by State (Three Months Ended March 31, 2024, in thousands) | State | Private Passenger Automobile | Commercial Automobile | Homeowners | Other Lines | Total | % of Total | | :------------------- | :--------------------------- | :-------------------- | :--------- | :---------- | :---------- | :--------- | | California | $682,146 | $73,338 | $208,000 | $65,643 | $1,029,127 | 79.1% | | Texas | $34,054 | $18,197 | $51,372 | $1,486 | $105,109 | 8.1% | | Other states | $109,325 | $42,775 | $12,454 | $2,334 | $166,888 | 12.8% | | **Total** | **$825,525** | **$134,310** | **$271,826** | **$69,463** | **$1,301,124** | **100.0%** | [C. Regulatory and Legal Matters](index=28&type=section&id=C.%20Regulatory%20and%20Legal%20Matters) Reports on recent rate approvals and ongoing regulatory actions, including a Notice of Non-Compliance from the California DOI - The California DOI approved a **22.5% rate increase** for Mercury Insurance Company (MIC) and a **3.8% rate increase** for California Automobile Insurance Company (CAIC) on private passenger automobile insurance, effective February 2024[124](index=124&type=chunk) - An additional **6.99% rate increase** on California homeowners insurance was approved in March 2024, expected to be effective in May 2024[125](index=125&type=chunk) - The Company is involved in a Notice of Non-Compliance from the California DOI regarding a 2014 examination report, with ongoing settlement discussions[105](index=105&type=chunk)[129](index=129&type=chunk) [D. Critical Accounting Estimates](index=29&type=section&id=D.%20Critical%20Accounting%20Estimates) Focuses on the estimation of loss and loss adjustment expense reserves, highlighting the complexities and methodologies used - Estimating loss and loss adjustment expense reserves is the most significant critical accounting estimate, involving complex judgments due to factors like regulatory changes, litigation, and medical/repair costs[130](index=130&type=chunk) - The Company uses multiple actuarial methods (incurred loss, paid loss, average severity, GLM) and considers qualitative factors to establish loss reserves, which are reviewed quarterly[132](index=132&type=chunk) - At March 31, 2024, the Company's point estimate for loss reserves was approximately **$2.86 billion** (**$2.83 billion** net of reinsurance), including **$1.66 billion** of incurred but not reported (IBNR) reserves[135](index=135&type=chunk) [RESULTS OF OPERATIONS](index=30&type=section&id=RESULTS%20OF%20OPERATIONS) Analyzes the Company's financial performance, including revenue, expenses, underwriting ratios, and investment results [Three Months Ended March 31, 2024 Compared to Three Months Ended March 31, 2023](index=30&type=section&id=Three%20Months%20Ended%20March%2031%2C%202024%20Compared%20to%20Three%20Months%20Ended%20March%2031%2C%202023) Compares key financial metrics and performance drivers for Q1 2024 against Q1 2023, highlighting changes in premiums and ratios - Net premiums earned **increased by 16.1%** and net premiums written **increased by 27.2%** for Q1 2024, driven by rate increases and higher policy counts in California automobile and homeowners lines[139](index=139&type=chunk) Key Underwriting Ratios | Ratio | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :------------------- | :-------------------------------- | :-------------------------------- | | Loss ratio | 77.5% | 92.5% | | Expense ratio | 23.4% | 23.3% | | Combined ratio | 100.9% | 115.8% | - The Q1 2024 loss ratio **improved significantly to 77.5%** from **92.5%** in Q1 2023, primarily due to rate increases, despite being negatively impacted by **$68 million** in catastrophe losses[144](index=144&type=chunk)[145](index=145&type=chunk)[146](index=146&type=chunk) - Excluding prior periods' loss development and catastrophe losses, the loss ratio **decreased to 72.2%** in Q1 2024 from **84.3%** in Q1 2023[146](index=146&type=chunk) - The combined ratio **improved to 100.9%** in Q1 2024 from **115.8%** in Q1 2023, reflecting improved underwriting performance[148](index=148&type=chunk) - Income tax expense was **$15.8 million** in Q1 2024 (**17.7% effective rate**) compared to a benefit of **$(16.8) million** in Q1 2023 (**27.0% effective rate**), driven by a **$151.3 million** increase in pre-tax income[149](index=149&type=chunk)[150](index=150&type=chunk) Investment Results (in thousands, except yield) | Item | Three Months Ended March 31, 2024 | Three Months Ended March 31, 2023 | | :----------------------------------- | :-------------------------------- | :-------------------------------- | | Average invested assets at cost | $5,358,848 | $5,022,572 | | Net investment income (before tax) | $65,018 | $51,973 | | Average annual yield on investments (before tax) | 4.4% | 4.0% | | Net realized investment gains | $38,192 | $49,008 | | Net income (loss) | $73,462 | $(45,288) | | Basic Net income (loss) per share | $1.33 | $(0.82) | - Net investment income **increased** due to higher average yield (**4.4% vs. 4.0%**) and higher average invested assets, resulting from the replacement of lower-yielding investments with higher-yielding ones[151](index=151&type=chunk) [LIQUIDITY AND CAPITAL RESOURCES](index=33&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) Assesses the Company's cash flows, reinsurance arrangements, investment portfolio, debt, and regulatory capital requirements [A. Cash Flows](index=33&type=section&id=A.%20Cash%20Flows) Examines changes in cash provided by operating activities and the adequacy of cash and short-term investments for liquidity - Net cash provided by operating activities **increased by $174.5 million to $192.6 million** in Q1 2024, driven by higher premium collections, lower loss payments, and increased investment income[156](index=156&type=chunk) - The Company's cash and short-term investments totaled **$692.6 million** at March 31, 2024, deemed adequate for liquidity needs[155](index=155&type=chunk) Estimated Fair Value of Fixed Maturity Securities by Contractual Maturity (March 31, 2024, in thousands) | Maturity | Fair Value | | :----------------------------------- | :--------- | | Due in one year or less | $263,504 | | Due after one year through two years | $187,645 | | Due after two years through three years | $263,540 | | Due after three years through four years | $328,398 | | Due after four years through five years | $227,217 | | Total due within five years | $1,270,304 | [B. Reinsurance](index=34&type=section&id=B.%20Reinsurance) Details the Company's reinsurance contracts, coverage limits, retention levels, and the impact of catastrophe events - The Company participates as an assuming reinsurer in a Catastrophe Participation Reinsurance Contract, reimbursing up to $30 million in losses for a proportional share of catastrophe losses[159](index=159&type=chunk) - Under the Catastrophe Reinsurance Treaty, the Company has **$1,111 million of coverage** for the 12 months ending June 30, 2024, after a **$100 million retention limit**[160](index=160&type=chunk)[161](index=161&type=chunk) - Catastrophe events in Q1 2024 caused approximately **$68 million** in losses, but **no reinsurance benefits were available** as individual events did not exceed the **$100 million retention limit**[164](index=164&type=chunk) - The annual premium for the Catastrophe Reinsurance Treaty **increased to $99 million** for the 12 months ending June 30, 2024, from **$74 million** in the prior year, due to increased coverage and rates[162](index=162&type=chunk) [C. Invested Assets](index=36&type=section&id=C.%20Invested%20Assets) Describes the investment strategy, portfolio composition, and characteristics of fixed maturity and equity securities [Portfolio Composition](index=36&type=section&id=Portfolio%20Composition) Outlines the investment strategy and the breakdown of the total investment portfolio by security type and fair value - The investment strategy prioritizes safety of principal, consistent income generation, and maximizing after-tax yield, with a focus on a diversified, investment-grade fixed income portfolio[168](index=168&type=chunk) Composition of Total Investment Portfolio (March 31, 2024, in thousands) | Security Type | Cost | Fair Value | | :----------------------------------- | :--------- | :--------- | | Fixed maturity securities | $4,574,492 | $4,489,552 | | Equity securities | $690,856 | $801,108 | | Short-term investments | $163,454 | $162,466 | | **Total investments** | **$5,428,802** | **$5,453,126** | - At March 31, 2024, **39.3%** of the total investment portfolio and **47.8%** of fixed maturity securities were invested in tax-exempt state and municipal bonds[169](index=169&type=chunk) [Fixed Maturity Securities and Short-Term Investments](index=37&type=section&id=Fixed%20Maturity%20Securities%20and%20Short-Term%20Investments) Analyzes the duration and credit quality of the fixed maturity portfolio, including changes in credit ratings - The fixed maturity portfolio has a moderate duration, with a modified duration reflecting anticipated early calls of **3.0 years** at March 31, 2024 (**3.1 years** at Dec 31, 2023)[171](index=171&type=chunk)[172](index=172&type=chunk) - The weighted-average portfolio credit quality rating for fixed maturity securities was **A+** at March 31, 2024[172](index=172&type=chunk) - At March 31, 2024, **97.2%** of fixed maturity securities experienced **no change** in their overall credit rating, with **2.1% upgraded** and **0.7% downgraded**[175](index=175&type=chunk)[176](index=176&type=chunk) [U.S. Government Bonds and Agencies](index=37&type=section&id=U.S.%20Government%20Bonds%20and%20Agencies) Reports on the fair value and modified duration of investments in U.S. government bonds and agency securities - Holdings in U.S. government bonds and agencies were **$200.3 million** (**4.5%** of fixed maturity portfolio) at March 31, 2024, with a modified duration of **1.0 years**[177](index=177&type=chunk) [Municipal Securities](index=39&type=section&id=Municipal%20Securities) Details the fair value, average rating, and modified duration of the municipal securities portfolio - Municipal securities totaled **$2.80 billion** (**62.3%** of fixed maturity portfolio) at March 31, 2024, with an average rating of **A+** for insured municipal securities[178](index=178&type=chunk)[179](index=179&type=chunk) - The modified duration of the municipal securities portfolio was **3.1 years** at March 31, 2024[179](index=179&type=chunk) [Mortgage-Backed Securities](index=39&type=section&id=Mortgage-Backed%20Securities) Provides information on the fair value, weighted-average rating, and modified duration of mortgage-backed securities - Mortgage-backed securities were **$193.0 million** (**4.3%** of fixed maturity portfolio) at March 31, 2024, with a weighted-average rating of **AA** and a modified duration of **4.6 years**[181](index=181&type=chunk)[182](index=182&type=chunk) [Corporate Securities](index=39&type=section&id=Corporate%20Securities) Presents the fair value, percentage of portfolio, modified duration, and weighted-average rating of corporate securities Corporate Securities (in thousands) | Item | March 31, 2024 | December 31, 2023 | | :----------------------------------- | :------------- | :---------------- | | Corporate securities at fair value | $706,210 | $599,630 | | Percentage of total fixed maturity securities portfolio | 15.7% | 13.9% | | Modified duration | 2.6 years | 2.4 years | | Weighted-average rating | A | A | [Collateralized Loan Obligations](index=40&type=section&id=Collateralized%20Loan%20Obligations) Details the fair value, portfolio percentage, modified duration, and weighted-average rating of CLO investments Collateralized Loan Obligations (in thousands) | Item | March 31, 2024 | December 31, 2023 | | :----------------------------------- | :------------- | :---------------- | | CLOs at fair value | $495,523 | $484,947 | | Percentage of total fixed maturity securities portfolio | 11.0% | 11.2% | | Modified duration | 3.6 years | 3.5 years | | Weighted-average rating | AA- | AA | [Other Asset-Backed Securities](index=40&type=section&id=Other%20Asset-Backed%20Securities) Reports on the fair value, portfolio percentage, modified duration, and weighted-average rating of other asset-backed securities Other Asset-Backed Securities (in thousands) | Item | March 31, 2024 | December 31, 2023 | | :----------------------------------- | :------------- | :---------------- | | Other asset-backed securities at fair value | $98,758 | $96,164 | | Percentage of total fixed maturity securities portfolio | 2.2% | 2.2% | | Modified duration | 2.0 years | 2.2 years | | Weighted-average rating | A- | A | [Equity Securities](index=40&type=section&id=Equity%20Securities) Discusses the increase in equity holdings and their proportion within the total investment portfolio - Equity holdings **increased to $801.1 million** at March 31, 2024, from **$730.7 million** at December 31, 2023, primarily due to overall improvement in equity markets[186](index=186&type=chunk) - Equity securities represented **14.7%** of the total investment portfolio at fair value at March 31, 2024[187](index=187&type=chunk) [D. Debt](index=40&type=section&id=D.%20Debt) Summarizes the Company's outstanding debt, including senior unsecured notes and credit facility draws - The Company's debt at March 31, 2024, consisted of **$375 million** in senior unsecured notes and **$200 million** drawn under an unsecured credit facility[188](index=188&type=chunk) [E. Regulatory Capital Requirements](index=40&type=section&id=E.%20Regulatory%20Capital%20Requirements) Reports on the Company's compliance with regulatory capital requirements, specifically the net premiums written to surplus ratio - The ratio of net premiums written to statutory policyholders' surplus was **2.79 to 1** at March 31, 2024, below the industry guideline of **3.0 to 1**[190](index=190&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risks](index=36&type=section&id=Item%203%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risks) Details exposure to market risks, including interest rate, equity price, and credit risks, and the strategies for their management [Overview](index=36&type=section&id=Overview) Explains the Company's approach to managing market and investment risks through policies and executive oversight - The Company manages market and investment risks through investment policies, asset allocation, duration limits, and credit ratings, with executive oversight by its investment committee[193](index=193&type=chunk)[194](index=194&type=chunk) [Credit Risk](index=41&type=section&id=Credit%20Risk) Describes how credit risk is managed by maintaining a high credit quality fixed maturity securities portfolio - Credit risk is managed by maintaining a high credit quality fixed maturity securities portfolio, with a weighted-average rating of **A+** at March 31, 2024[195](index=195&type=chunk) Fixed Maturity Municipal Securities by State (March 31, 2024, in thousands) | States | Fair Value | Average Rating | | :------------------- | :--------- | :------------- | | Florida | $306,390 | A | | California | $238,448 | AA | | Texas | $225,297 | AA | | New York | $210,687 | AA | | Illinois | $158,369 | A+ | | Other states | $1,656,486 | A+ | | Total | $2,795,677 | | - Only **0.1%** of the total fixed maturity securities portfolio was rated below investment grade at March 31, 2024[197](index=197&type=chunk) [Equity Price Risk](index=41&type=section&id=Equity%20Price%20Risk) Discusses the management of equity price risk, including the proportion of equity investments and hypothetical market impact - Equity price risk is managed with common equity investments primarily aimed at current income and diversification, comprising **12.3%** of total investments at fair value at March 31, 2024[198](index=198&type=chunk)[199](index=199&type=chunk) Estimated Reductions in Common Stock Portfolio Value (in thousands) | Scenario | March 31, 2024 | December 31, 2023 | | :----------------------------------- | :------------- | :---------------- | | Average Beta | 0.91 | 0.87 | | Hypothetical 25% reduction in stock market value | $152,568 | $129,742 | | Hypothetical 50% reduction in stock market value | $305,136 | $259,483 | [Interest Rate Risk](index=42&type=section&id=Interest%20Rate%20Risk) Analyzes the interest rate risk exposure of the fixed maturity securities portfolio and the impact of hypothetical rate changes - The fixed maturity securities portfolio, representing **82.3%** of total investments, is subject to interest rate risk, with a modified duration of **2.9 years** at March 31, 2024[202](index=202&type=chunk)[203](index=203&type=chunk) - A hypothetical **100 basis point** rise in interest rates would decrease the fair value of the fixed maturity securities portfolio by an estimated **$134.2 million** at March 31, 2024[204](index=204&type=chunk) [Item 4. Controls and Procedures](index=38&type=section&id=Item%204%20Controls%20and%20Procedures) Confirms effectiveness of disclosure controls and procedures, reporting no material changes in internal control over financial reporting - The CEO and CFO concluded that the Company's disclosure controls and procedures were **effective** at the reasonable assurance level as of March 31, 2024[206](index=206&type=chunk)[207](index=207&type=chunk) - There were **no material changes** in the Company's internal control over financial reporting during the most recent fiscal quarter[208](index=208&type=chunk) [PART II - OTHER INFORMATION](index=39&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This section provides additional information on legal proceedings, risk factors, equity sales, defaults, and other disclosures [Item 1. Legal Proceedings](index=39&type=section&id=Item%201%20Legal%20Proceedings) Details ongoing lawsuits and regulatory actions, with management not anticipating a material adverse effect on financial condition - The Company is a defendant in various lawsuits and regulatory actions related to its insurance business, with the majority concerning insurance claims reserved through the normal process[210](index=210&type=chunk) - Reserves are established for non-insurance claims when a loss is probable and estimable; for reasonably possible losses, disclosure of nature and estimated range is provided[211](index=211&type=chunk) - Management believes the ultimate resolution of pending legal or regulatory proceedings will not have a **material adverse effect** on the Company's financial condition or cash flows[211](index=211&type=chunk) [Item 1A. Risk Factors](index=39&type=page&id=Item%201A%20Risk%20Factors) Confirms no material changes to risk factors previously identified in the Annual Report on Form 10-K for 2023 - The risk factors previously identified in the Company's Annual Report on Form 10-K for the year ended December 31, 2023, have **not changed in any material respect**[214](index=214&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=43&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) Reports no unregistered sales of equity securities or use of proceeds during the three months ended March 31, 2024 - There were **no unregistered sales of equity securities** and **no use of proceeds** during the three months ended March 31, 2024[215](index=215&type=chunk) [Item 3. Defaults Upon Senior Securities](index=39&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) Confirms no defaults upon senior securities occurred during the three months ended March 31, 2024 - There were **no defaults upon senior securities** during the three months ended March 31, 2024[216](index=216&type=chunk) [Item 4. Mine Safety Disclosures](index=39&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) States that this item is not applicable to the Company's operations - This item is **not applicable** to the Company[217](index=217&type=chunk) [Item 5. Other Information](index=45&type=section&id=Item%205.%20Other%20Information) Confirms no director or officer adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements - **No director or officer adopted or terminated** a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the three months ended March 31, 2024[218](index=218&type=chunk)[220](index=220&type=chunk) [Item 6. Exhibits](index=40&type=section&id=Item%206.%20Exhibits) Lists all exhibits filed with the Form 10-Q, including certifications and XBRL documents - The report includes **certifications** from the CEO and CFO (31.1, 31.2, 32.1, 32.2) and various **XBRL taxonomy extension documents** (101.SCH, 101.CAL, 101.LAB, 101.PRE, 101.DEF)[222](index=222&type=chunk)

Exhibit 99.1 Press Release FOR MORE INFORMATION, CONTACT: Theodore Stalick, SVP/CFO (323) 937-1060 www.mercuryinsurance.com For Release: April 30, 2024 4484 Wilshire Boulevard Los Angeles, California 90010 (323) 937-1060 Fax (323) 857-7125 Mercury General Corporation Announces First Quarter Results and Declares Quarterly Dividend Los Angeles, California…Mercury General Corporation (NYSE: MCY) reported today for the first quarter of 2024: Consolidated Highlights | | | | Three Months Ended March 31, | | Chang ...

Mercury General (MCY) closed at $54.30 in the latest trading session, marking a -1.67% move from the prior day. The stock's performance was behind the S&P 500's daily loss of 0.46%. On the other hand, the Dow registered a loss of 0.98%, and the technology-centric Nasdaq decreased by 0.64%.The the stock of auto insurance company has risen by 6.52% in the past month, leading the Finance sector's loss of 5.08% and the S&P 500's loss of 3.04%.Investors will be eagerly watching for the performance of Mercury Gen ...

Mercury General (MCY) closed at $52.67 in the latest trading session, marking a +1.23% move from the prior day. The stock's performance was ahead of the S&P 500's daily loss of 0.22%. Meanwhile, the Dow gained 0.06%, and the Nasdaq, a tech-heavy index, lost 0.52%.Coming into today, shares of the auto insurance company had gained 8.67% in the past month. In that same time, the Finance sector lost 6.38%, while the S&P 500 lost 1.66%.Market participants will be closely following the financial results of Mercur ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ____________________________ FORM 10-K ____________________________ ☒ Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the Fiscal Year Ended December 31, 2023 MERCURY GENERAL CORPORATION (Exact name of registrant as specified in its charter) ____________________________ California 95-2211612 (State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.) 4484 Wi ...

Table of Contents QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2023 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ___________ to ___________ Commission File No. 001-12257 ______________________________ MERCURY GENERAL CORPORATION (Exact name of registrant as specified in its charter) ________________________________ UNITED STATES SECURITIES AND ...

PART I - FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) The company presents its unaudited interim consolidated financial statements for the period ended June 30, 2023 [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) Total assets grew to $6.69 billion, while shareholders' equity declined to $1.40 billion as of June 30, 2023 Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | **Total Assets** | **$6,690,640** | **$6,514,188** | | Total Investments | $4,955,185 | $4,910,800 | | Cash | $357,723 | $289,776 | | **Total Liabilities** | **$5,290,500** | **$4,992,057** | | Loss and loss adjustment expense reserves | $2,720,007 | $2,584,910 | | Unearned premiums | $1,632,390 | $1,545,639 | | Notes payable | $448,529 | $398,330 | | **Total Shareholders' Equity** | **$1,400,140** | **$1,522,131** | [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) The company's net loss narrowed to $41.5 million in Q2 2023, driven by higher earned premiums and lower investment losses Statement of Operations Summary (in thousands, except per share data) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Net premiums earned | $1,034,469 | $987,512 | $2,039,173 | $1,950,062 | | Total revenues | $1,083,227 | $785,625 | $2,189,806 | $1,591,086 | | Total expenses | $1,144,437 | $1,056,965 | $2,313,094 | $2,115,555 | | **Net loss** | **$(41,543)** | **$(210,681)** | **$(86,831)** | **$(407,599)** | | Diluted net loss per share | $(0.75) | $(3.80) | $(1.57) | $(7.36) | [Consolidated Statements of Cash Flows](index=8&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash from operations decreased to $105.4 million, while overall cash increased by $67.9 million in H1 2023 Cash Flow Summary for Six Months Ended June 30 (in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net cash provided by operating activities | $105,362 | $194,906 | | Net cash used in investing activities | $(51,613) | $(169,203) | | Net cash provided by (used in) financing activities | $14,198 | $(71,258) | | **Net increase (decrease) in cash** | **$67,947** | **$(45,555)** | [Notes to Consolidated Financial Statements](index=9&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Notes detail accounting policies, reinsurance, loss reserves, and a significant increase in catastrophe losses - The company declared and paid dividends of **$0.3175 per share** in Q2 2023, a reduction from $0.6350 per share in Q2 2022[24](index=24&type=chunk) - The company has a Catastrophe Reinsurance Treaty effective through June 30, 2024, providing **$1.11 billion of coverage** per occurrence after a $100 million retention[31](index=31&type=chunk) - For the six months ended June 30, 2023, the company experienced **favorable development of $19.8 million** on prior years' loss reserves, primarily from private passenger auto and homeowners lines[99](index=99&type=chunk) - Catastrophe losses, net of reinsurance, were approximately **$190 million** for the first six months of 2023, a significant increase from $43 million in the same period of 2022[100](index=100&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=29&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management analyzes financial results, focusing on rate increases, catastrophe losses, and underwriting profitability [Overview](index=29&type=section&id=Overview) The company's primary focus is California personal auto insurance, with loss reserves being a critical accounting estimate - The California DOI approved two separate rate increases for private passenger auto insurance in 2023: **6.9%** effective in March and **6.99%** effective in July[127](index=127&type=chunk) - A **12.6% rate increase** for the California homeowners line became effective in May 2023, and the company has filed for an additional 6.99% increase[128](index=128&type=chunk)[129](index=129&type=chunk) - Estimating loss reserves is the most significant accounting estimate, requiring assumptions about claim settlement patterns, inflation, and legal environments; as of June 30, 2023, gross loss reserves were **$2.72 billion**[133](index=133&type=chunk)[138](index=138&type=chunk) [Results of Operations](index=32&type=section&id=Results%20of%20Operations) The combined ratio deteriorated to 110.1% in Q2 2023, driven by a significant increase in catastrophe losses GAAP Combined Ratio Comparison | Period | 2023 | 2022 | | :--- | :--- | :--- | | **Three Months Ended June 30** | | | | Loss Ratio | 86.8% | 83.7% | | Expense Ratio | 23.3% | 22.9% | | Combined Ratio | **110.1%** | **106.6%** | | **Six Months Ended June 30** | | | | Loss Ratio | 89.6% | 84.6% | | Expense Ratio | 23.3% | 23.5% | | Combined Ratio | **112.9%** | **108.1%** | - Q2 2023 catastrophe losses were approximately **$93 million**, primarily from rainstorms in Texas and Oklahoma, compared to $19 million in Q2 2022[147](index=147&type=chunk) - For the first half of 2023, catastrophe losses were approximately **$191 million**, mainly from winter storms in California, Texas, and Oklahoma, compared to $40 million in H1 2022[160](index=160&type=chunk) - Net investment income increased to **$58.4 million** in Q2 2023 from $38.6 million in Q2 2022, driven by higher yields on investments[153](index=153&type=chunk) [Liquidity and Capital Resources](index=38&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains adequate liquidity, supported by its investment portfolio and a robust reinsurance program - The company's Catastrophe Reinsurance Treaty for the period ending June 30, 2024, provides **$1,111 million of coverage** on a per-occurrence basis after a $100 million retention[175](index=175&type=chunk)[176](index=176&type=chunk) - The investment portfolio is heavily weighted towards tax-exempt state and municipal bonds, which comprised **59.2% of total fixed maturity securities** at fair value[184](index=184&type=chunk) - The modified duration of the fixed maturity securities portfolio was **3.3 years** as of June 30, 2023, reflecting a moderate sensitivity to interest rate changes[188](index=188&type=chunk) - The ratio of net premiums written to surplus was **2.83 to 1** at June 30, 2023, remaining within the regulatory guideline of 3.0 to 1[209](index=209&type=chunk) [Quantitative and Qualitative Disclosures about Market Risks](index=42&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risks) The company manages market risks, primarily interest rate and equity price risk, through its investment strategy - The fixed maturity securities portfolio has a weighted-average credit quality rating of **A+** as of June 30, 2023[213](index=213&type=chunk) - A hypothetical **25% reduction** in the stock market's value would lead to an estimated **$107.3 million reduction** in the value of the company's common stock portfolio[218](index=218&type=chunk) - A **100 basis point rise** in interest rates would decrease the fair value of the fixed maturity portfolio by an estimated **$133.8 million**[222](index=222&type=chunk) [Controls and Procedures](index=44&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective with no material changes in internal controls - The CEO and CFO concluded that the company's disclosure controls and procedures were **effective** as of the end of the quarter covered by the report[225](index=225&type=chunk) - **No changes** occurred in the company's internal control over financial reporting during the most recent fiscal quarter that materially affected, or are reasonably likely to materially affect, these controls[226](index=226&type=chunk) PART II - OTHER INFORMATION [Legal Proceedings](index=44&type=section&id=Item%201.%20Legal%20Proceedings) The company is involved in routine legal proceedings not expected to have a material adverse financial effect - The company is party to various lawsuits and regulatory actions that arise in the normal course of business and management believes their ultimate resolution **will not materially impact** the company's financial condition[228](index=228&type=chunk)[229](index=229&type=chunk) [Risk Factors](index=45&type=section&id=Item%201A.%20Risk%20Factors) No material changes were reported to the risk factors disclosed in the company's latest Annual Report on Form 10-K - The risk factors identified in the Annual Report on Form 10-K for the year ended December 31, 2022, have **not changed in any material respect**[232](index=232&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=45&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company reports no unregistered sales of equity securities during the reporting period - None[233](index=233&type=chunk) [Defaults upon Senior Securities](index=45&type=section&id=Item%203.%20Defaults%20upon%20Senior%20Securities) The company reports no defaults upon senior securities during the reporting period - None[234](index=234&type=chunk) [Other Information](index=45&type=section&id=Item%205.%20Other%20Information) No directors or officers adopted or terminated a Rule 10b5-1 trading arrangement during the second quarter - No director or officer adopted or terminated a Rule 10b5-1 trading arrangement during the three months ended June 30, 2023[236](index=236&type=chunk) [Exhibits](index=45&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed with the Form 10-Q, including required certifications and XBRL data