Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 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 ...

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, 2022 Securities registered pursuant to Section 12(b) of the Act: 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 ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q 4484 Wilshire Boulevard Los Angeles, California 90010 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (323) 937-1060 _______________________________ (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2022 OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES E ...

[Form 10-Q Overview](index=1&type=section&id=Form%2010-Q%20Overview) This section provides an overview of the Quarterly Report (Form 10-Q) for Mercury General Corporation, detailing its filing status and outstanding common stock - The report is a Quarterly Report (Form 10-Q) for the period ended June 30, 2022, filed by Mercury General Corporation[2](index=2&type=chunk) - The registrant is a **Large accelerated filer**[3](index=3&type=chunk)[4](index=4&type=chunk) - As of July 27, 2022, **55,371,127 shares of Common Stock** were issued and outstanding[4](index=4&type=chunk) [PART I - FINANCIAL INFORMATION](index=3&type=section&id=PART%20I%20-%20FINANCIAL%20INFORMATION) This part presents the Company's comprehensive financial statements and related notes for the reporting period [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the Company's unaudited consolidated financial statements, including balance sheets, statements of operations, shareholders' equity, and cash flows, along with detailed notes explaining accounting policies, financial instruments, reserves, and segment information for the periods ended June 30, 2022 and 2021 [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) This section presents the Company's financial position, including assets, liabilities, and shareholders' equity, as of June 30, 2022, and December 31, 2021 | Metric | June 30, 2022 (in thousands) | December 31, 2021 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Total Assets | $6,499,665 | $6,772,472 | | Total Liabilities | $4,837,300 | $4,632,191 | | Total Shareholders' Equity | $1,662,365 | $2,140,281 | - Loss and loss adjustment expense reserves increased to **$2,386,822 thousand** as of June 30, 2022, from $2,226,430 thousand as of December 31, 2021[11](index=11&type=chunk) [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) This section details the Company's revenues, expenses, and net income (loss) for the three and six months ended June 30, 2022, and 2021 | Metric | Three Months Ended June 30, 2022 (in thousands) | Three Months Ended June 30, 2021 (in thousands) | | :-------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net Premiums Earned | $987,512 | $926,820 | | Net Realized Investment (Losses) Gains | $(241,938) | $58,805 | | Losses and Loss Adjustment Expenses | $826,779 | $657,228 | | Net (Loss) Income | $(210,681) | $109,181 | | Basic Net (Loss) Income Per Share | $(3.80) | $1.97 | | Metric | Six Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2021 (in thousands) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net Premiums Earned | $1,950,062 | $1,842,741 | | Net Realized Investment (Losses) Gains | $(437,024) | $100,496 | | Losses and Loss Adjustment Expenses | $1,648,713 | $1,283,572 | | Net (Loss) Income | $(407,599) | $216,176 | | Basic Net (Loss) Income Per Share | $(7.36) | $3.90 | [Consolidated Statements of Shareholders' Equity](index=7&type=section&id=Consolidated%20Statements%20of%20Shareholders'%20Equity) This section outlines changes in the Company's shareholders' equity, including common stock and retained earnings, for the periods presented | Metric | Three Months Ended June 30, 2022 (in thousands) | Three Months Ended June 30, 2021 (in thousands) | | :-------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Common stock, end of period | $98,947 | $98,872 | | Retained earnings, end of period | $1,563,418 | $2,079,759 | | Total shareholders' equity, end of period | $1,662,365 | $2,178,631 | - Net loss of **$210,681 thousand** for the three months ended June 30, 2022, significantly impacted retained earnings, compared to net income of $109,181 thousand in the prior year[16](index=16&type=chunk) [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) This section reports the Company's cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2022, and 2021 | Metric | Six Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2021 (in thousands) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net cash provided by operating activities | $194,906 | $317,241 | | Net cash used in investing activities | $(169,203) | $(216,888) | | Net cash used in financing activities | $(71,258) | $(70,217) | | Net (decrease) increase in cash | $(45,555) | $30,136 | | Cash, end of period | $290,002 | $378,615 | [Notes to Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the consolidated financial statements [1. General](index=10&type=section&id=1.%20General) This note describes the basis of presentation for the interim financial statements and key accounting policies and estimates - The interim financial statements are unaudited and prepared in conformity with U.S. GAAP, with all material adjustments of a normal recurring nature made[20](index=20&type=chunk) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | | :-------------------------------- | :------------------------------- | :------------------------------- | | Dividends per share | $0.6350 | $0.6325 | | Deferred policy acquisition cost amortization | $156.5 million | $151.0 million | | Net advertising expense | $3.8 million | $11.6 million | | Metric | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :-------------------------------- | :----------------------------- | :----------------------------- | | Dividends per share | $1.2700 | $1.2650 | | Deferred policy acquisition cost amortization | $318.6 million | $315.4 million | | Net advertising expense | $7.8 million | $21.4 million | - The provision for expected credit losses on premiums receivable increased to **$2,177 thousand** for the six months ended June 30, 2022, from a negative provision of $(2,532) thousand in the prior year, primarily due to rising inflation[37](index=37&type=chunk)[38](index=38&type=chunk) [2. Recently Issued Accounting Standards](index=12&type=section&id=2.%20Recently%20Issued%20Accounting%20Standards) This note discusses the potential impact of new accounting pronouncements on the Company's financial statements - The Company expects to apply ASU 2020-04, 'Reference Rate Reform (Topic 848),' to its unsecured credit facility when modified with a replacement rate before LIBOR is discontinued[40](index=40&type=chunk)[41](index=41&type=chunk) - The Company does not expect any material impact on its consolidated financial statements from applying ASU 2020-04[41](index=41&type=chunk) [3. Financial Instruments](index=13&type=section&id=3.%20Financial%20Instruments) This note provides information on the Company's financial instruments, including investments, options, and notes payable | Financial Instrument | June 30, 2022 (in thousands) | December 31, 2021 (in thousands) | | :------------------- | :----------------------------- | :------------------------------- | | Investments | $4,833,616 | $5,142,589 | | Options sold | $122 | $301 | | Notes payable | $366,338 | $413,378 | - The Company applies the fair value option to all fixed maturity and equity securities and short-term investments[44](index=44&type=chunk) - Unfunded commitments to non-consolidated Variable Interest Entities (VIEs) decreased to approximately **$10 million** at June 30, 2022, from $32 million at December 31, 2021[47](index=47&type=chunk) [4. Fair Value Option](index=14&type=section&id=4.%20Fair%20Value%20Option) This note explains the Company's election of the fair value option for certain financial assets and liabilities and its impact - The Company elected the fair value option for investments and a note receivable for simplification, cost-benefit, and consistency with FASB objectives[51](index=51&type=chunk) | Metric | Three Months Ended June 30, 2022 (in thousands) | Three Months Ended June 30, 2021 (in thousands) | | :-------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Total (losses) gains from fair value changes | $(224,309) | $44,795 | | Metric | Six Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2021 (in thousands) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | | Total (losses) gains from fair value changes | $(422,556) | $71,314 | [5. Fair Value Measurements](index=14&type=section&id=5.%20Fair%20Value%20Measurements) This note details the fair value hierarchy used for measuring financial assets and liabilities and their respective valuations - The Company uses a fair value hierarchy (Level 1, 2, 3) based on input observability, with **98.1%** of its investment portfolio fair values obtained from an independent pricing service[54](index=54&type=chunk)[60](index=60&type=chunk) - At June 30, 2022 and December 31, 2021, the Company did not have any financial assets or liabilities based on Level 3 measurements[70](index=70&type=chunk) | Asset/Liability | June 30, 2022 (in thousands) | December 31, 2021 (in thousands) | | :-------------------------------- | :----------------------------- | :------------------------------- | | Total assets at fair value | $4,833,616 | $5,142,589 | | Fixed maturity securities | $3,878,684 | $4,031,523 | | Equity securities | $782,802 | $970,939 | | Short-term investments | $172,130 | $140,127 | | Options sold (liability) | $122 | $301 | | Liability | June 30, 2022 (in thousands) | December 31, 2021 (in thousands) | | :------------------- | :----------------------------- | :------------------------------- | | Unsecured notes (carrying value) | $373,130 | $372,931 | | Unsecured notes (fair value) | $366,338 | $413,378 | [6. Derivative Financial Instruments](index=21&type=section&id=6.%20Derivative%20Financial%20Instruments) This note describes the Company's use of derivative instruments, primarily covered call options, for risk management and investment returns - The Company uses covered call options to manage equity price risk and enhance investment returns, adhering to strict capital limitations and asset diversification[81](index=81&type=chunk)[82](index=82&type=chunk) | Metric | June 30, 2022 (in thousands) | December 31, 2021 (in thousands) | | :------------------- | :----------------------------- | :------------------------------- | | Options sold (fair value) | $122 | $301 | | Metric | Three Months Ended June 30, 2022 (in thousands) | Three Months Ended June 30, 2021 (in thousands) | | :-------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Gains recognized from options sold | $1,404 | $323 | | Metric | Six Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2021 (in thousands) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | | Gains recognized from options sold | $2,628 | $783 | [7. Goodwill and Other Intangible Assets](index=21&type=section&id=7.%20Goodwill%20and%20Other%20Intangible%20Assets) This note provides information on the carrying amounts and amortization of the Company's goodwill and other intangible assets - No changes in goodwill carrying amount or impairment were identified during the three and six months ended June 30, 2022 and 2021[83](index=83&type=chunk) | Intangible Asset | Net Carrying Amount (June 30, 2022, in thousands) | Net Carrying Amount (December 31, 2021, in thousands) | | :----------------------- | :------------------------------------------ | :-------------------------------------------- | | Customer relationships | $1,584 | $1,797 | | Trade names | $6,738 | $7,058 | | Insurance license | $1,400 | $1,400 | | Total other intangible assets, net | $9,722 | $10,255 | - Amortization expense for other intangible assets was **$0.3 million** for each of the three months and **$0.5 million** for each of the six months ended June 30, 2022 and 2021[85](index=85&type=chunk) [8. Share-Based Compensation](index=22&type=section&id=8.%20Share-Based%20Compensation) This note outlines the Company's share-based compensation plans and related activity for the reporting period - As of June 30, 2022, **4,830,000 shares** of common stock were available for future grant under the 2015 Incentive Award Plan[87](index=87&type=chunk) - No share-based compensation awards were granted during the six months ended June 30, 2022[91](index=91&type=chunk) - The weighted-average grant-date fair value of stock options was **$8.09**, estimated using the Black-Scholes option pricing model[90](index=90&type=chunk) [9. Income Taxes](index=23&type=section&id=9.%20Income%20Taxes) This note details the Company's income tax position, including deferred taxes and unrecognized tax benefits - There were no changes to the total amount of unrecognized tax benefits related to tax uncertainties during the six months ended June 30, 2022[92](index=92&type=chunk) - The Company is reviewing principal schedules detailing tax assessments from the FTB for tax years 2011 through 2013[93](index=93&type=chunk) - At June 30, 2022, the Company's deferred income taxes were in a net asset position, and management believes these assets are more likely than not to be realized[96](index=96&type=chunk)[98](index=98&type=chunk) [10. Loss and Loss Adjustment Expense Reserves](index=25&type=section&id=10.%20Loss%20and%20Loss%20Adjustment%20Expense%20Reserves) This note provides a detailed analysis of changes in the Company's loss and loss adjustment expense reserves and factors influencing them | Metric | Six Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2021 (in thousands) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | | Gross reserves, beginning of period | $2,226,430 | $1,991,304 | | Incurred losses and LAE related to current year | $1,597,354 | $1,298,981 | | Incurred losses and LAE related to prior years | $51,359 | $(15,409) | | Gross reserves, end of period | $2,386,822 | $2,091,015 | - Inflationary trends, including increased costs for auto parts, labor, and medical expenses, along with supply chain issues, significantly impacted current year losses and loss adjustment expenses[99](index=99&type=chunk) - The increase in prior years' provision for insured events (**$51.4 million**) was primarily due to higher than estimated losses in private passenger automobile and commercial property, partially offset by favorable development in commercial automobile and homeowners[99](index=99&type=chunk) - Catastrophe losses net of reinsurance were approximately **$43 million** for the six months ended June 30, 2022, compared to $60 million in the prior year[100](index=100&type=chunk) [11. Notes Payable](index=26&type=section&id=11.%20Notes%20Payable) This note describes the Company's outstanding debt instruments and credit facilities, including terms and balances | Note Type | Interest Rate | Maturity Date | June 30, 2022 (in thousands) | December 31, 2021 (in thousands) | | :------------------- | :------------ | :------------ | :----------------------------- | :------------------------------- | | Senior unsecured notes | 4.40% | March 15, 2027 | $375,000 | $375,000 | | Total debt | | | $373,130 | $372,931 | - The unsecured credit facility was amended to extend its maturity to March 31, 2026, and increased aggregate commitments to **$75 million**[103](index=103&type=chunk) - As of July 27, 2022, there have been no borrowings under the **$75 million** unsecured credit facility[103](index=103&type=chunk) [12. Contingencies](index=26&type=section&id=12.%20Contingencies) This note discloses information regarding legal, regulatory, and other contingencies that could affect the Company's financial position - The California Department of Insurance (DOI) served a Notice of Non-Compliance on September 10, 2021, alleging violations related to a 2014 examination report[103](index=103&type=chunk) - The California DOI requested additional premium refunds or credits for private passenger automobile policyholders due to reduced driving during the pandemic, with total premiums returned to-date being approximately **$128 million**[105](index=105&type=chunk) - Management believes the ultimate resolution of currently pending legal or regulatory proceedings will not have a material adverse effect on its financial condition or cash flows[106](index=106&type=chunk) [13. Segment Information](index=27&type=section&id=13.%20Segment%20Information) This note presents financial information by the Company's reportable business segment, primarily property and casualty insurance - The Company has one reportable business segment: Property and Casualty, which primarily writes personal automobile insurance[108](index=108&type=chunk)[109](index=109&type=chunk)[111](index=111&type=chunk) | Metric (Property & Casualty) | Three Months Ended June 30, 2022 (in millions) | Three Months Ended June 30, 2021 (in millions) | | :-------------------------------- | :--------------------------------------------- | :--------------------------------------------- | | Net premiums earned | $980.3 | $919.5 | | Underwriting (loss) gain | $(67.2) | $47.8 | | Metric (Property & Casualty) | Six Months Ended June 30, 2022 (in millions) | Six Months Ended June 30, 2021 (in millions) | | :-------------------------------- | :------------------------------------------- | :------------------------------------------- | | Net premiums earned | $1,935.7 | $1,828.3 | | Underwriting (loss) gain | $(159.3) | $106.7 | - California accounted for **81.0%** of total direct premiums written for the six months ended June 30, 2022[128](index=128&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides management's perspective on the Company's financial performance, condition, and operational results, highlighting key factors such as market conditions, regulatory environment, critical accounting estimates, and a detailed comparison of financial results for the three and six months ended June 30, 2022 and 2021 [Forward-Looking Statements](index=30&type=section&id=Forward-Looking%20Statements) This section cautions readers about the inherent risks and uncertainties associated with forward-looking statements in the report - The report contains forward-looking statements subject to significant risks and uncertainties, including changes in demand, inflation, catastrophes, regulatory environment, and competition[118](index=118&type=chunk) [OVERVIEW](index=30&type=section&id=OVERVIEW) This section provides a general business and economic context for the Company's financial performance and operations [A. General](index=30&type=section&id=A.%20General) This subsection discusses the cyclical nature of the insurance industry and key economic factors affecting the Company's operations - The property and casualty insurance industry is highly cyclical, with results fluctuating due to competition, losses, weather, economic conditions, and regulation[120](index=120&type=chunk) - Automobile loss frequency is near pre-pandemic levels, but severity remains high due to inflation, supply chain, and labor force issues[124](index=124&type=chunk) - The Company has filed for rate increases in many states and is taking non-rate actions to improve profitability[124](index=124&type=chunk) - Rising market interest rates in the first half of 2022 led to significant decreases in the fair values of the Company's fixed maturity securities[125](index=125&type=chunk) [B. Business](index=31&type=section&id=B.%20Business) This subsection describes the Company's primary business lines and geographical market concentration - The Company primarily writes personal automobile insurance through 13 subsidiaries in 11 states, with California being the principal market[127](index=127&type=chunk) - California accounted for **81.0%** of total direct premiums written for the six months ended June 30, 2022[128](index=128&type=chunk) [C. Regulatory and Legal Matters](index=32&type=section&id=C.%20Regulatory%20and%20Legal%20Matters) This subsection details ongoing regulatory examinations and legal proceedings impacting the Company - The Company is undergoing coordinated multi-state financial and California premium tax examinations for the 2018-2021 period, which began in the second quarter of 2022[131](index=131&type=chunk) - Management believes the ultimate resolution of pending legal or regulatory proceedings will not have a material adverse effect on its financial condition or cash flows[133](index=133&type=chunk) [D. Critical Accounting Estimates](index=32&type=section&id=D.%20Critical%20Accounting%20Estimates) This subsection explains the significant accounting judgments and estimates, particularly for loss and loss adjustment expense reserves - Estimating loss and loss adjustment expense reserves is the most significant accounting estimate, involving complex judgments due to factors like regulatory changes, medical costs, and repair rates[135](index=135&type=chunk)[136](index=136&type=chunk) - The Company uses various actuarial methods, including incurred loss, paid loss, average severity, claim count development, and generalized linear models, and engages independent actuarial consultants[138](index=138&type=chunk) | Metric | June 30, 2022 (in billions) | December 31, 2021 (in billions) | | :-------------------------------- | :-------------------------- | :---------------------------- | | Gross loss reserves | $2.39 | $2.23 | | Incurred but not reported (IBNR) loss reserves | $1.16 | $1.03 | [RESULTS OF OPERATIONS](index=34&type=section&id=RESULTS%20OF%20OPERATIONS) This section provides a detailed comparison of the Company's financial performance for the current and prior reporting periods [Three Months Ended June 30, 2022 Compared to Three Months Ended June 30, 2021](index=34&type=section&id=Three%20Months%20Ended%20June%2030,%202022%20Compared%20to%20Three%20Months%20Ended%20June%2030,%202021) This subsection analyzes the Company's financial results for the three-month period, highlighting key variances and drivers - Net premiums earned increased by **6.5%** and net premiums written increased by **6.2%** year-over-year, driven by higher average premiums in California homeowners and policy growth outside California[145](index=145&type=chunk) | Ratio | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | | :------------ | :------------------------------- | :------------------------------- | | Loss ratio | 83.7 % | 70.9 % | | Expense ratio | 22.9 % | 23.9 % | | Combined ratio | 106.6 % | 94.9 % | - The loss ratio increased significantly due to higher loss severity in automobile insurance, driven by accelerating inflationary trends and supply chain issues, and was negatively impacted by **$19 million** in catastrophe losses[151](index=151&type=chunk)[152](index=152&type=chunk) | Investment Metric | Three Months Ended June 30, 2022 (in thousands) | Three Months Ended June 30, 2021 (in thousands) | | :-------------------------------- | :-------------------------------------------- | :-------------------------------------------- | | Net investment income | $38,555 | $30,953 | | Net realized investment (losses) gains | $(241,938) | $58,805 | | Net (loss) income | $(210,681) | $109,181 | | Basic Net (loss) income per share | $(3.80) | $1.97 | [Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021](index=37&type=section&id=Six%20Months%20Ended%20June%2030,%202022%20Compared%20to%20Six%20Months%20Ended%20June%2030,%202021) This subsection analyzes the Company's financial results for the six-month period, highlighting key variances and drivers - Net premiums earned increased by **5.8%** and net premiums written increased by **6.3%** year-over-year, primarily due to higher average premiums in California homeowners and policy growth outside California[161](index=161&type=chunk) | Ratio | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :------------ | :----------------------------- | :----------------------------- | | Loss ratio | 84.6 % | 69.7 % | | Expense ratio | 23.5 % | 24.5 % | | Combined ratio | 108.1 % | 94.2 % | - The loss ratio increased significantly due to unfavorable prior accident years' loss development (**$51 million**), **$40 million** in catastrophe losses, and increased automobile loss frequency and severity from inflationary pressures[164](index=164&type=chunk)[165](index=165&type=chunk)[166](index=166&type=chunk) | Investment Metric | Six Months Ended June 30, 2022 (in thousands) | Six Months Ended June 30, 2021 (in thousands) | | :-------------------------------- | :------------------------------------------ | :------------------------------------------ | | Net investment income | $73,906 | $63,232 | | Net realized investment (losses) gains | $(437,024) | $100,496 | | Net (loss) income | $(407,599) | $216,176 | | Basic Net (loss) income per share | $(7.36) | $3.90 | [LIQUIDITY AND CAPITAL RESOURCES](index=40&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This section discusses the Company's sources and uses of cash, capital structure, and financial flexibility [A. Cash Flows](index=40&type=section&id=A.%20Cash%20Flows) This subsection analyzes the Company's cash flow activities from operations, investing, and financing - Net cash provided by operating activities decreased by **$122.3 million** to $194.9 million for the six months ended June 30, 2022, primarily due to increased payments for losses and operating expenses[174](index=174&type=chunk) - The Board declared a quarterly dividend of **$0.3175 per share** on July 29, 2022, a reduction from prior periods due to challenging business conditions[175](index=175&type=chunk) - The Board allowed its **$200 million** common stock repurchase authorization to expire on July 29, 2022, with no repurchases made under this authorization[176](index=176&type=chunk) [B. Reinsurance](index=41&type=section&id=B.%20Reinsurance) This subsection describes the Company's reinsurance arrangements and their impact on risk management - The Company is the assuming reinsurer under a Catastrophe Participation Reinsurance Contract, reimbursing up to **$25 million** in losses for a proportional share of catastrophe losses[179](index=179&type=chunk) - The Company is the ceding party to a Catastrophe Reinsurance Treaty providing **$936 million** of coverage for the 12 months ending June 30, 2023, after a **$60 million** retention limit[180](index=180&type=chunk) - No reinsurance benefits were available under the Treaty for 2022 catastrophe losses (**$40 million**) or 2021 catastrophe losses (**$113 million**) as individual events did not exceed the Company's per-occurrence retention limit[184](index=184&type=chunk)[185](index=185&type=chunk)[186](index=186&type=chunk) [C. Invested Assets](index=43&type=section&id=C.%20Invested%20Assets) This subsection details the Company's investment strategy and the composition of its investment portfolio - The Company's investment strategy emphasizes safety of principal and consistent income generation, with a primary focus on a diversified, investment-grade, fixed income portfolio[188](index=188&type=chunk) | Investment Type | June 30, 2022 (Fair Value, in thousands) | | :------------------------ | :--------------------------------------- | | Fixed maturity securities | $3,878,684 | | Equity securities | $782,802 | | Short-term investments | $172,130 | | Total investments | $4,833,616 | - At June 30, 2022, **47.1%** of the total investment portfolio and **58.7%** of fixed maturity securities were invested in tax-exempt state and municipal bonds[190](index=190&type=chunk) - The weighted-average credit quality rating of the fixed maturity securities portfolio was **A+** at June 30, 2022[193](index=193&type=chunk) [D. Debt](index=47&type=section&id=D.%20Debt) This subsection provides information on the Company's debt obligations and compliance with financial covenants - The Company has **$375 million** in senior unsecured notes with a **4.4%** annual coupon, maturing on March 15, 2027[209](index=209&type=chunk) - The unsecured credit facility was amended to **$75 million**, maturing on March 31, 2026, with interest rates based on the Company's debt to total capital ratio[210](index=210&type=chunk) - The Company was in compliance with all financial covenants under the unsecured credit facility at June 30, 2022, with a debt to total capital ratio of **18.4%**[211](index=211&type=chunk) [E. Regulatory Capital Requirements](index=48&type=section&id=E.%20Regulatory%20Capital%20Requirements) This subsection outlines the Company's adherence to statutory capital and surplus requirements - The ratio of net premiums written to statutory policyholders' surplus was **2.44 to 1** at June 30, 2022, below the industry guideline of 3.0 to 1[213](index=213&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risks](index=48&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risks) This section details the Company's exposure to market risks, primarily interest rate, equity price, and credit risk, and outlines the strategies employed to manage these risks through investment policies, asset allocation, duration limits, and credit quality ratings [Overview](index=48&type=section&id=Overview) This subsection introduces the Company's exposure to market risks and its general approach to risk management - The Company is subject to market risks from investing and borrowing activities, primarily changes in interest rates, equity prices, and credit risk[214](index=214&type=chunk) - Market risks are managed through investment policies, asset allocation, duration limits, and credit ratings, with executive oversight by the investment committee[215](index=215&type=chunk)[216](index=216&type=chunk) [Credit Risk](index=48&type=section&id=Credit%20Risk) This subsection details the Company's management of credit risk within its investment portfolio - Credit risk is managed by maintaining a high credit quality fixed maturity securities portfolio, with a weighted-average rating of **A+** at June 30, 2022[217](index=217&type=chunk) - The municipal securities portfolio is broadly diversified geographically, with largest holdings in Texas (**$318.6 million**, AA), Florida (**$312.8 million**, A), and California (**$195.9 million**, AA) at June 30, 2022[218](index=218&type=chunk)[219](index=219&type=chunk) [Equity Price Risk](index=49&type=section&id=Equity%20Price%20Risk) This subsection describes the Company's exposure to equity market fluctuations and its impact on investments - Equity price risk is the risk of losses due to adverse changes in equity markets, with common equity investments primarily aimed at current income[221](index=221&type=chunk) - Common stocks represented **13.1%** of total investments at fair value at June 30, 2022[222](index=222&type=chunk) | Hypothetical Market Reduction | Estimated Reduction in Common Stock Portfolio Value (June 30, 2022, in thousands) | | :---------------------------- | :---------------------------------------------------------------------------- | | 25% | $139,741 | | 50% | $279,481 | [Interest Rate Risk](index=49&type=section&id=Interest%20Rate%20Risk) This subsection explains the Company's sensitivity to changes in interest rates, particularly for its fixed maturity securities - The Company faces interest rate risk due to its fixed maturity securities portfolio, which represented **80.2%** of total investments at fair value at June 30, 2022[224](index=224&type=chunk) - The modified duration of the overall fixed maturity securities portfolio was **3.5 years** at June 30, 2022, indicating moderate sensitivity to interest rate fluctuations[225](index=225&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 **$141.8 million** at June 30, 2022[226](index=226&type=chunk) [Item 4. Controls and Procedures](index=50&type=section&id=Item%204.%20Controls%20and%20Procedures) The Company's management, including the CEO and CFO, concluded that disclosure controls and procedures were effective at a reasonable assurance level as of June 30, 2022. No material changes to internal control over financial reporting occurred during the quarter, and the COVID-19 pandemic has not materially impacted these controls - The Company's Chief Executive Officer and Chief Financial Officer concluded that disclosure controls and procedures were effective at the reasonable assurance level as of June 30, 2022[229](index=229&type=chunk) - There has been no material change in the Company's internal control over financial reporting during the most recent fiscal quarter[230](index=230&type=chunk) - The COVID-19 pandemic has not had any material impact on the Company's internal controls over financial reporting[231](index=231&type=chunk) [PART II - OTHER INFORMATION](index=50&type=section&id=PART%20II%20-%20OTHER%20INFORMATION) This section covers legal proceedings, risk factors, equity sales, defaults, mine safety, and other disclosures [Item 1. Legal Proceedings](index=50&type=section&id=Item%201.%20Legal%20Proceedings) The Company is involved in various lawsuits and regulatory actions incidental to its insurance business, primarily related to insurance claims. While reserves are established for probable losses, the Company believes the ultimate resolution of these proceedings will not have a material adverse effect on its financial condition or cash flows - The majority of lawsuits against the Company relate to insurance claims and are reserved for through the reserving process[233](index=233&type=chunk) - The Company establishes reserves for non-insurance claims related lawsuits and regulatory actions when a loss is probable and estimable[234](index=234&type=chunk) - Management does not believe that the ultimate resolution of currently pending legal or regulatory proceedings will have a material adverse effect on its financial condition or cash flows[234](index=234&type=chunk) [Item 1A. Risk Factors](index=52&type=section&id=Item%201A.%20Risk%20Factors) This section updates the Company's risk factors, emphasizing the adverse consequences of high inflation on loss reserve estimates, pricing accuracy, and investment fair values. It also highlights potential negative impacts from the ongoing Russia-Ukraine conflict, including cybersecurity threats, supply chain disruptions, and market volatility - High inflation levels create heightened risk for the Company, potentially impacting loss reserve estimates, pricing accuracy, and investment fair values[238](index=238&type=chunk) - Regulatory agencies' slow approval of rate changes or ineffective measures to control inflation could negatively affect the Company's profitability and cash flow[238](index=238&type=chunk) - The Russia-Ukraine conflict could lead to heightened cybersecurity threats, prolonged supply chain disruptions, protracted inflation, and increased financial market volatility, adversely affecting the Company's business[239](index=239&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=52&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section confirms no unregistered sales of equity securities or use of proceeds occurred during the period - No unregistered sales of equity securities or use of proceeds to report[240](index=240&type=chunk) [Item 3. Defaults Upon Senior Securities](index=52&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section confirms no defaults upon senior securities were reported during the period - No defaults upon senior securities to report[241](index=241&type=chunk) [Item 4. Mine Safety Disclosures](index=52&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section states that mine safety disclosures are not applicable to the Company's operations - Mine safety disclosures are not applicable[242](index=242&type=chunk) [Item 5. Other Information](index=52&type=section&id=Item%205.%20Other%20Information) This section indicates that there is no additional information to report beyond what is already disclosed - No other information to report[243](index=243&type=chunk) [Item 6. Exhibits](index=54&type=section&id=Item%206.%20Exhibits) This section lists all documents filed as exhibits to the Form 10-Q, including required certifications - Exhibits include certifications from the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[246](index=246&type=chunk) - XBRL Instance Document and Taxonomy Extension Documents are included as exhibits[246](index=246&type=chunk) [SIGNATURES](index=55&type=section&id=SIGNATURES) This section confirms the official signing and submission of the quarterly report by the Company's authorized officers - The report was duly signed on August 2, 2022, by Gabriel Tirador, President and Chief Executive Officer, and Theodore R. Stalick, Senior Vice President and Chief Financial Officer[250](index=250&type=chunk)

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2022 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 ...

PART I [Business](index=4&type=section&id=Item%201.%20Business) Mercury General Corporation primarily writes personal automobile insurance, heavily concentrated in California, distributing products through independent agents and focusing on a diversified investment strategy - The company's primary business is writing personal automobile insurance, constituting **67.6%** of its total direct premiums written in 2021[13](index=13&type=chunk)[14](index=14&type=chunk) - Operations are heavily concentrated in California, generating **84.4%** of total direct premiums written in 2021[14](index=14&type=chunk) Direct Premiums Written by Line and State (2019-2021) | Year | Line of Business | California ($ million) | Other States ($ million) | Total ($ million) | % of Total | | :--- | :--- | :--- | :--- | :--- | :--- | | **2021** | Private Passenger Auto | 2,286.0 | 354.7 | 2,640.7 | 67.6% | | | Homeowners | 642.3 | 159.2 | 801.5 | 20.5% | | | Commercial Auto | 182.0 | 77.9 | 259.9 | 6.6% | | | Other Lines | 188.4 | 17.0 | 205.4 | 5.3% | | | **Total 2021** | **3,298.7** | **608.8** | **3,907.5** | **100.0%** | | **2020** | Private Passenger Auto | 2,266.1 | 302.8 | 2,568.9 | 70.3% | | | Homeowners | 579.7 | 99.2 | 678.9 | 18.6% | | | Commercial Auto | 161.6 | 79.2 | 240.8 | 6.6% | | | Other Lines | 149.6 | 15.9 | 165.5 | 4.5% | | | **Total 2020** | **3,157.1** | **497.1** | **3,654.2** | **100.0%** | | **2019** | Private Passenger Auto | 2,478.5 | 342.0 | 2,820.5 | 74.6% | | | Homeowners | 520.1 | 78.5 | 598.5 | 15.9% | | | Commercial Auto | 139.4 | 78.0 | 217.3 | 5.8% | | | Other Lines | 123.7 | 14.5 | 138.2 | 3.7% | | | **Total 2019** | **3,261.6** | **512.9** | **3,774.6** | **100.0%** | - The company sells its policies through a network of approximately **8,190** independent agents, which accounted for about **87%** of direct premiums written in 2021[30](index=30&type=chunk) Statutory Combined Ratio (Company-wide) | Year | Loss Ratio | Expense Ratio | Combined Ratio | | :--- | :--- | :--- | :--- | | 2021 | 73.8% | 24.9% | 98.7% | | 2020 | 67.4% | 26.2% | 93.6% | | 2019 | 75.2% | 24.5% | 99.7% | | 2018 | 76.6% | 24.5% | 101.0% | | 2017 | 76.6% | 25.3% | 101.9% | - The company maintains a catastrophe reinsurance treaty effective through June 30, 2022, providing **$792 million** of coverage for losses exceeding a **$40 million** retention limit per occurrence[58](index=58&type=chunk) [Risk Factors](index=17&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks from its high dependency on the California market, regulatory pressures, reliance on subsidiary dividends, and uncertainties in loss reserves and catastrophic losses - The company is highly dependent on California, generating approximately **85%** of its direct automobile insurance premiums written in the state for the year ended December 31, 2021, making its financial results susceptible to local conditions[98](index=98&type=chunk) - As a holding company, Mercury General relies on dividends from its regulated insurance subsidiaries to meet its obligations. State insurance laws limit the amount of dividends that can be paid without prior regulatory approval[100](index=100&type=chunk) - The company's ability to set adequate premium rates is subject to regulatory approval in most states, including California. Delays or denials in rate approvals, particularly due to interventions by consumer groups, can adversely affect profitability[105](index=105&type=chunk) - Establishing adequate loss reserves is inherently uncertain. If reserves are insufficient to cover actual losses due to factors like litigation, medical cost inflation, or changing liability theories, the company's financial condition could be materially harmed[121](index=121&type=chunk) - The business is vulnerable to significant catastrophic property losses from natural disasters and other events, which can cause substantial volatility in financial results[125](index=125&type=chunk) - The COVID-19 pandemic could disrupt business through factors like premium refunds, moratoriums on policy cancellations, labor shortages in the auto repair industry, and supply chain issues, potentially impacting results of operations[155](index=155&type=chunk)[156](index=156&type=chunk)[157](index=157&type=chunk) [Unresolved Staff Comments](index=30&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the Securities and Exchange Commission - None[169](index=169&type=chunk) [Properties](index=30&type=section&id=Item%202.%20Properties) The company owns six principal office buildings across California, Florida, and Oklahoma, which adequately support its operational needs Owned Properties | Location | Purpose | Size (Square Feet) | % Occupied by Company (12/31/21) | | :--- | :--- | :--- | :--- | | Brea, CA | Home office and I.T. facilities | 236,000 | 100% | | Folsom, CA | Administrative and Data Center | 88,000 | 100% | | Los Angeles, CA | Executive offices | 41,000 | 95% | | Rancho Cucamonga, CA | Administrative | 127,000 | 100% | | Clearwater, FL | Administrative | 162,000 | 51% | | Oklahoma City, OK | Administrative | 100,000 | 25% | [Legal Proceedings](index=30&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in various lawsuits and regulatory actions incidental to its insurance business, with management not expecting a material adverse effect on financial condition - The company is periodically named as a defendant in lawsuits or regulatory actions incidental to its business. The majority of these relate to insurance claims and are accounted for in the normal reserving process[173](index=173&type=chunk) - For non-insurance claims, lawsuits, and other contingencies, reserves are established when a loss is probable and estimable. The company does not expect the ultimate resolution of pending matters to have a material adverse effect on its financial condition or cash flows[173](index=173&type=chunk)[174](index=174&type=chunk) [Mine Safety Disclosures](index=31&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[176](index=176&type=chunk) PART II [Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=32&type=section&id=Item%205.%20Market%20For%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's common stock trades on the NYSE, with a history of quarterly dividends and a board-authorized share repurchase program, though no shares have been repurchased since 2000 - The company's common stock is listed on the New York Stock Exchange under the trading symbol MCY[179](index=179&type=chunk) - As of December 31, 2021, the insurance subsidiaries are permitted to pay **$252 million** in dividends to the parent company, Mercury General, in 2022 without requiring prior regulatory approval for extraordinary dividends[182](index=182&type=chunk) - The company's five-year cumulative total shareholder return of **12.5%** underperformed both the S&P 500 Index (**133.4%**) and its industry peer group (**84.3%**)[184](index=184&type=chunk)[186](index=186&type=chunk) - On July 30, 2021, the Board extended its authorization to repurchase up to **$200 million** of the company's common stock for an additional year. However, no shares have been repurchased since 2000[188](index=188&type=chunk)[189](index=189&type=chunk) [Reserved](index=34&type=section&id=Item%206.%20Reserved) This item is reserved and contains no information [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=35&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Net income decreased in 2021 due to a higher loss ratio and increased catastrophe losses, while net premiums grew, and the GAAP combined ratio deteriorated, despite a strong liquidity position 2021 Financial Performance Summary | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Net Income | $247.9 million | $374.6 million | | Diluted EPS | $4.48 | $6.77 | | Pre-tax Net Investment Income | $129.7 million | $134.9 million | | Pre-tax Net Realized Investment Gains | $111.7 million | $85.7 million | | Pre-tax Catastrophe Losses (net) | $103.7 million | $60.9 million | | Cash Flow from Operations | $502 million | $606 million | - The company ceased accepting new and renewal commercial automobile business in Arizona, Georgia, Illinois, and Nevada in 2021 due to volatility and challenges in achieving profitable growth in those markets[197](index=197&type=chunk) - The company's loss frequency, which decreased significantly in 2020 due to the pandemic, has been increasing and is now near or exceeding pre-pandemic levels for some coverages. Loss severity has also increased due to higher-speed accidents and inflationary pressures on vehicle repair costs[209](index=209&type=chunk) - The most significant accounting estimate is for loss and loss adjustment expense reserves, which involves inherent uncertainty. The company uses various actuarial methods, including incurred loss, paid loss, and average severity, to calculate a point estimate for these reserves[219](index=219&type=chunk)[220](index=220&type=chunk)[221](index=221&type=chunk) GAAP Combined Ratio Analysis (2021 vs. 2020) | Ratio | 2021 | 2020 | Change Driver | | :--- | :--- | :--- | :--- | | Loss Ratio | 73.8% | 67.4% | Increased loss frequency and severity, higher catastrophe losses. | | Expense Ratio | 24.5% | 25.7% | Decrease primarily due to the effect of 2020 premium refunds which lowered the premium base without a corresponding drop in expenses. | | **Combined Ratio** | **98.3%** | **93.1%** | Deterioration in underwriting results driven by the higher loss ratio. | - The company maintains a strong liquidity position, with **$475.7 million** in cash and short-term investments at year-end 2021 and an undrawn **$75 million** revolving credit facility, which is considered adequate to meet requirements without forced asset sales[267](index=267&type=chunk) [Quantitative and Qualitative Disclosures about Market Risks](index=57&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risks) The company manages market risks from its investment portfolio, including credit, equity price, and interest rate risks, through asset quality, duration limits, and diversification - The company's primary market risk exposures are credit risk, equity price risk, and interest rate risk, managed through asset allocation, duration limits, and credit quality standards[310](index=310&type=chunk)[312](index=312&type=chunk) - Credit risk is managed by maintaining a high-quality portfolio. As of December 31, 2021, the fixed maturity portfolio had a weighted-average credit rating of **A+**[313](index=313&type=chunk) - The municipal securities portfolio, valued at **$2.84 billion**, is broadly diversified geographically, with the largest concentrations in Texas (**12.1%**), Florida (**10.0%**), New York (**9.2%**), and California (**8.4%**)[314](index=314&type=chunk) Equity Price Risk Sensitivity Analysis (as of Dec 31, 2021) | Metric | Value | | :--- | :--- | | Average Beta of Common Stock Portfolio | 1.14 | | Estimated Portfolio Reduction from 25% Market Decline | $227.2 million | | Estimated Portfolio Reduction from 50% Market Decline | $454.3 million | Interest Rate Risk Sensitivity Analysis (as of Dec 31, 2021) | Metric | Value | | :--- | :--- | | Modified Duration of Fixed Maturity Portfolio | 3.4 years | | Estimated Fair Value Decrease from 100 bps Rate Increase | $142.3 million | | Estimated Fair Value Decrease from 200 bps Rate Increase | $284.5 million | [Financial Statements and Supplementary Data](index=59&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited consolidated financial statements, including the independent auditor's unqualified opinion and detailed disclosures on key financial items - The independent auditor, KPMG LLP, issued an unqualified opinion on the consolidated financial statements and on the effectiveness of the company's internal control over financial reporting[328](index=328&type=chunk)[329](index=329&type=chunk) - The auditor identified the evaluation of loss and loss adjustment expense reserves (excluding catastrophe losses) as a critical audit matter due to the subjective judgment required to assess the methods and assumptions used in the estimate[334](index=334&type=chunk) Consolidated Balance Sheet Summary (as of Dec 31) | Account | 2021 ($ in thousands) | 2020 ($ in thousands) | | :--- | :--- | :--- | | Total Investments | 5,142,589 | 4,729,270 | | Total Assets | 6,772,472 | 6,328,246 | | Loss and loss adjustment expense reserves | 2,226,430 | 1,991,304 | | Unearned premiums | 1,519,799 | 1,405,873 | | Notes payable | 372,931 | 372,532 | | Total Liabilities | 4,632,191 | 4,295,649 | | Total Shareholders' Equity | 2,140,281 | 2,032,597 | Consolidated Statement of Operations Summary (Year Ended Dec 31) | Account | 2021 ($ in thousands) | 2020 ($ in thousands) | 2019 ($ in thousands) | | :--- | :--- | :--- | :--- | | Net premiums earned | 3,741,948 | 3,555,635 | 3,599,418 | | Total revenues | 3,993,357 | 3,784,511 | 3,972,518 | | Losses and loss adjustment expenses | 2,760,155 | 2,395,343 | 2,706,024 | | Total expenses | 3,694,050 | 3,326,010 | 3,594,449 | | Income before income taxes | 299,307 | 458,501 | 378,069 | | **Net income** | **247,937** | **374,607** | **320,087** | | **Diluted EPS** | **$4.48** | **$6.77** | **$5.78** | [Changes in and Disagreements With Accountants on Accounting and Financial Disclosure](index=102&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20With%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[546](index=546&type=chunk) [Controls and Procedures](index=102&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2021, with no material changes during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective at the reasonable assurance level as of the end of the period covered by the report[547](index=547&type=chunk) - Management assessed the effectiveness of internal control over financial reporting using the COSO framework and concluded that it was effective as of December 31, 2021[550](index=550&type=chunk) - There were no changes in internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, these controls[552](index=552&type=chunk) [Other Information](index=103&type=section&id=Item%209B.%20Other%20Information) This item contains no information - None[554](index=554&type=chunk) [Disclosure Regarding Foreign Jurisdictions that Prevent Inspections](index=103&type=section&id=Item%209C.%20Disclosure%20Regarding%20Foreign%20Jurisdictions%20that%20Prevent%20Inspections) This item is not applicable to the company - Not applicable[554](index=554&type=chunk) PART III [Directors, Executive Officers, Corporate Governance, Executive Compensation, Security Ownership, and Principal Accounting Fees](index=104&type=section&id=Items%2010-14) Information for directors, executive officers, corporate governance, executive compensation, and security ownership is incorporated by reference from the company's definitive proxy statement - Information regarding Directors, Executive Officers, Corporate Governance (Item 10), Executive Compensation (Item 11), Security Ownership (Item 12), Certain Relationships and Related Transactions (Item 13), and Principal Accounting Fees and Services (Item 14) is incorporated by reference from the company's definitive proxy statement[556](index=556&type=chunk) PART IV [Exhibits and Financial Statement Schedules](index=105&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all documents filed as part of the Form 10-K report, including consolidated financial statements, schedules, and a comprehensive list of exhibits - This section includes the Consolidated Financial Statements and Financial Statement Schedules for Summary of Investments, Condensed Financial Information of Registrant, and Reinsurance[559](index=559&type=chunk) - A list of **55 exhibits** is provided, including corporate governance documents, debt agreements, incentive plans, and required CEO/CFO certifications[560](index=560&type=chunk)[561](index=561&type=chunk)[562](index=562&type=chunk)[563](index=563&type=chunk)[564](index=564&type=chunk) [Form 10-K Summary](index=109&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company has not provided a summary for its Form 10-K - None[565](index=565&type=chunk)

PART I [Financial Statements](index=4&type=section&id=Item%201%20Financial%20Statements) The company's total assets grew to $6.75 billion as of September 30, 2021, with net income for the nine months ended September 30, 2021, increasing to $217.5 million, while Q3 2021 net income plummeted to $1.3 million due to investment losses and higher insurance losses Consolidated Balance Sheet Highlights (in thousands) | Account | September 30, 2021 | December 31, 2020 | | :--- | :--- | :--- | | Total investments | $5,074,754 | $4,729,270 | | Total assets | $6,754,373 | $6,328,246 | | Loss and loss adjustment expense reserves | $2,142,121 | $1,991,304 | | Total liabilities | $4,609,440 | $4,295,649 | | Total shareholders' equity | $2,144,933 | $2,032,597 | Consolidated Statement of Operations Highlights (in thousands, except per share data) | Metric | Q3 2021 | Q3 2020 | 9 Months 2021 | 9 Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Total revenues | $932,213 | $998,774 | $2,944,084 | $2,712,928 | | Losses and loss adjustment expenses | $697,947 | $618,657 | $1,981,519 | $1,765,627 | | Net income | $1,288 | $118,857 | $217,464 | $207,864 | | Diluted EPS | $0.02 | $2.15 | $3.93 | $3.75 | Consolidated Statement of Cash Flows Highlights (in thousands) | Cash Flow Activity | 9 Months Ended Sep 30, 2021 | 9 Months Ended Sep 30, 2020 | | :--- | :--- | :--- | | Net cash provided by operating activities | $428,029 | $443,252 | | Net cash used in investing activities | ($329,286) | ($310,895) | | Net cash used in financing activities | ($105,616) | ($104,626) | | Net (decrease) increase in cash | ($6,873) | $27,731 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=32&type=section&id=Item%202%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management attributes the significant drop in Q3 2021 profitability to a higher combined ratio of 99.0%, driven by increased loss frequency and severity in auto insurance, coupled with significant catastrophe losses and unfavorable investment performance, while maintaining strong liquidity and capital [Overview](index=32&type=section&id=Overview) The company's performance is influenced by cyclical industry competition, loss trends, and regulation, with auto loss frequency and severity returning to pre-pandemic levels, and ongoing regulatory inquiries regarding COVID-19 premium refunds - Loss frequency, which decreased significantly after the COVID-19 outbreak, is now increasing and approaching pre-pandemic levels, with loss severity also increasing due to a higher percentage of high-speed accidents and rising vehicle repair costs[129](index=129&type=chunk) - The company received approval for a **6.99% rate increase** on its California homeowners line of business, implemented in June 2021[139](index=139&type=chunk) - The California Department of Insurance (DOI) is requesting additional information on premium refunds provided during the pandemic, alleging insufficient premium relief from the company and two other insurers[110](index=110&type=chunk) [Results of Operations](index=39&type=section&id=Results%20of%20Operations) For Q3 2021, net premiums earned increased 4.6% to $940.9 million, but the combined ratio deteriorated to 99.0% due to rising auto claim frequency, severity, and $27 million in catastrophe losses, with investment results showing a net realized loss of $43.5 million Underwriting Ratios Comparison | Ratio | Q3 2021 | Q3 2020 | 9 Months 2021 | 9 Months 2020 | | :--- | :--- | :--- | :--- | :--- | | Loss Ratio | 74.2% | 68.8% | 71.2% | 67.0% | | Expense Ratio | 24.8% | 25.5% | 24.6% | 25.9% | | Combined Ratio | 99.0% | 94.3% | 95.8% | 93.0% | - Q3 2021 catastrophe losses were approximately **$27 million**, primarily from California wildfires and Hurricane Ida, compared to $30 million in Q3 2020[170](index=170&type=chunk) - For the nine months ended Sep 30, 2021, catastrophe losses were approximately **$91 million**, a significant increase from $48 million in the same period of 2020[183](index=183&type=chunk) - Net premiums written for the nine months ended Sep 30, 2021, increased by **7.6% year-over-year**, primarily due to **$128 million** in premium refunds and credits issued in the 2020 period under the "Mercury Giveback" program, which were not repeated in 2021[178](index=178&type=chunk) [Liquidity and Capital Resources](index=46&type=section&id=Liquidity%20and%20Capital%20Resources) The company maintains strong liquidity with $535.2 million in cash and short-term investments and an undrawn $75 million credit facility, supported by a $5.1 billion investment portfolio primarily in high-quality fixed-income securities and a strong regulatory capital position - The company has a Catastrophe Reinsurance Treaty effective through June 30, 2022, providing **$792 million of coverage** on a per-occurrence basis after a **$40 million retention**[198](index=198&type=chunk) - Catastrophe events in 2021 caused approximately **$91 million in losses**, but no single event exceeded the **$40 million per-occurrence retention limit**, so no reinsurance benefits were utilized[203](index=203&type=chunk) Investment Portfolio Composition (at Fair Value, Sep 30, 2021) | Asset Class | Fair Value (in thousands) | % of Total | | :--- | :--- | :--- | | Fixed maturity securities | $3,990,513 | 78.6% | | Equity securities | $890,620 | 17.6% | | Short-term investments | $193,621 | 3.8% | | **Total investments** | **$5,074,754** | **100.0%** | - The ratio of net premiums written to statutory surplus was **2.07 to 1** at September 30, 2021, indicating a strong capital position relative to regulatory guidelines[235](index=235&type=chunk) [Quantitative and Qualitative Disclosures About Market Risks](index=56&type=section&id=Item%203%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risks) The company is exposed to market risks from changes in interest rates, equity prices, and credit risk, which are managed through a high-quality fixed maturity portfolio and duration management, with sensitivity analysis indicating potential impacts from market fluctuations - The fixed maturity securities portfolio has a weighted-average credit quality rating of **A+**[239](index=239&type=chunk) Market Risk Sensitivity Analysis (at Sep 30, 2021) | Risk Factor | Scenario | Estimated Impact (in thousands) | | :--- | :--- | :--- | | Equity Price Risk | 25% decline in stock market | ($209,732) reduction in common stock portfolio value | | Interest Rate Risk | 100 basis point rate increase | ($139,300) reduction in fixed maturity portfolio value | - The modified duration of the overall fixed maturity securities portfolio, reflecting anticipated early calls, was **3.3 years** at September 30, 2021[249](index=249&type=chunk) [Controls and Procedures](index=58&type=section&id=Item%204%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective at a reasonable assurance level as of the end of the quarter, with no material changes to internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective at the reasonable assurance level as of September 30, 2021[252](index=252&type=chunk) - There have been no material changes to the Company's internal control over financial reporting during the most recent fiscal quarter[253](index=253&type=chunk) PART II - OTHER INFORMATION [Legal Proceedings](index=58&type=section&id=Item%201%20Legal%20Proceedings) The company is involved in various lawsuits and regulatory actions incidental to its insurance business, which are accounted for in the normal reserving process, and are not expected to have a material adverse effect on its financial condition or cash flows - The company is subject to various lawsuits and regulatory actions in the normal course of business, but management does not expect them to have a material adverse effect on its financial condition[256](index=256&type=chunk)[259](index=259&type=chunk) [Risk Factors](index=60&type=section&id=Item%201A%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2020 - The risk factors identified in the Company's Annual Report on Form 10-K for the year ended December 31, 2020, have not changed in any material respect[262](index=262&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=60&type=section&id=Item%202%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) None [Defaults upon Senior Securities](index=60&type=section&id=Item%203%20Defaults%20upon%20Senior%20Securities) None [Mine Safety Disclosures](index=60&type=section&id=Item%204%20Mine%20Safety%20Disclosures) Not applicable [Other Information](index=60&type=section&id=Item%205%20Other%20Information) None [Exhibits](index=62&type=section&id=Item%206%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications pursuant to the Sarbanes-Oxley Act (Sections 302 and 906) and XBRL data files - Key exhibits include CEO and CFO certifications under Sarbanes-Oxley Sections 302 and 906, and XBRL interactive data files[269](index=269&type=chunk)

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2021 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 | Large accelerated filer | ý ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) For the quarterly period ended March 31, 2021 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) ________________________________ California 95-2211612 (State or ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ____________________________ FORM 10-K ____________________________ Commission File No. 001-12257 ____________________________ 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 Wilshire Boulevard Los Angeles, California 90010 (Address of principal exe ...