Mercury General(MCY) - 2025 Q2 - Quarterly Results

Financial Highlights Q2 2025 saw strong net income growth driven by reduced catastrophe losses and increased investment income, with a quarterly dividend declared Second Quarter 2025 Performance Summary Q2 2025 net income surged 166.1% to $166.5 million, driven by reduced catastrophe losses and an improved 92.5% combined ratio Consolidated Highlights for Q2 and Six Months Ended June 30, 2025 | Metric | Q2 2025 | Q2 2024 | Change (%) | Six Months 2025 | Six Months 2024 | Change (%) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Net Premiums Earned | $1,366.7M | $1,236.0M | 10.6% | $2,649.8M | $2,402.7M | 10.3% | | Net Premiums Written | $1,480.8M | $1,355.5M | 9.2% | $2,795.2M | $2,640.4M | 5.9% | | Net Income | $166.5M | $62.6M | 166.1% | $58.1M | $136.0M | (57.3)% | | Net Income per Diluted Share | $3.01 | $1.13 | 166.4% | $1.05 | $2.46 | (57.3)% | | Operating Income | $147.9M | $60.3M | 145.4% | $21.2M | $103.6M | (79.6)% | | Catastrophe Losses (net) | $13.0M | $125.0M | (89.6)% | $460.0M | $197.0M | 133.5% | | Combined Ratio | 92.5% | 98.9% | (6.4) pts | 105.4% | 99.9% | 5.5 pts | Investment Results and Dividend Net investment income increased for Q2 and H1 2025 due to higher yields and invested assets, partly from asset sales, with a $0.3175 per share dividend declared Investment Results for Periods Ended June 30 | Metric | Q2 2025 | Q2 2024 | Six Months 2025 | Six Months 2024 | | :--- | :--- | :--- | :--- | :--- | | Average Invested Assets at Cost | $5,703.6M | $5,536.2M | $5,686.6M | $5,450.8M | | Net Investment Income (Pre-tax) | $78.8M | $69.0M | $160.2M | $134.0M | | Average Annual Yield (Pre-tax) | 4.7% | 4.5% | 4.7% | 4.5% | - The Board of Directors declared a quarterly dividend of $0.3175 per share, payable on September 25, 2025, to shareholders of record on September 11, 2025[6] - Higher net investment income was attributed to a combination of higher average yield and increased average invested assets and cash. The yield improved partly due to the sale of approximately $600 million in low-yielding investments in January 2025 to ensure liquidity for wildfire claims[9] Impact of Catastrophe Events H1 2025 net catastrophe losses from wildfires were substantial, mitigated by reinsurance and subrogation efforts, fully exhausting the reinsurance program Palisades and Eaton Wildfires Impact H1 2025 net catastrophe losses from wildfires totaled $359 million, mitigated by reinsurance recoveries and subrogation efforts, including a sale of Palisades subrogation rights - For the six months ended June 30, 2025, the company recorded net catastrophe losses and loss adjustment expenses from the Palisades and Eaton wildfires of approximately $359 million[7] Breakdown of Net Losses from Wildfires (Six Months Ended June 30, 2025) | Component | Amount ($K) | | :--- | :--- | | Gross losses and LAE | $2,153,000K | | Subrogation recoverable - Eaton fire | ($528,000K) | | Subrogation recovered - Palisades fire | ($46,500K) | | Reinsurance recovered and recoverable | ($1,293,500K) | | Net losses before Fair Plan | $285,000K | | Net Fair Plan losses and LAE | $74,000K | | Total Net Losses and LAE | $359,000K | - The company is pursuing subrogation against Southern California Edison (SCE) for the Eaton fire, recording an estimated recovery of $528 million, representing about 55% of its estimated ultimate losses from that fire[12] - In June 2025, the company sold its subrogation rights on the Palisades fire to a third party for a guaranteed amount of approximately $47 million, plus a potential share of future recoveries[12] Reinsurance Program Details The $1.29 billion catastrophe reinsurance program was fully exhausted by wildfires, requiring a $101 million reinstatement premium payment, significantly increasing H1 2025 ceded premiums - The catastrophe reinsurance program for the treaty year ending June 30, 2025, provided approximately $1.29 billion of limits, which was fully exhausted by the wildfires. This necessitated a reinstatement premium payment of approximately $101 million[12] - As of June 30, 2025, the company had paid out approximately $1.32 billion for wildfire-related losses. It has billed reinsurers $933 million and collected 100% of that amount as of July 15, 2025[13] Impact of Reinsurance Utilization on Ceded Premiums (Six Months Ended 6/30/2025) | Metric | Recorded Amount (Full Limit Used) ($M) | Pro-forma Amount ($0 Limit Used) ($M) | Difference ($M) | | :--- | :--- | :--- | :--- | | Total Ceded Premiums Written | $153.0M | $52.0M | $101.0M | | Total Ceded Premiums Earned | $153.0M | $52.0M | $101.0M | Financial Statements Q2 2025 showed revenue and net income growth, while H1 results reflected increased losses and a deteriorated combined ratio, impacting balance sheet reserves Summary of Operating Results (Income Statement) Q2 2025 total revenues increased to $1.48 billion with net income rising to $166.5 million, while H1 revenues reached $2.87 billion, but increased losses led to a net income decline and combined ratio deterioration Summary of Operating Results (in thousands) | Metric | Q2 2025 ($K) | Q2 2024 ($K) | Six Months 2025 ($K) | Six Months 2024 ($K) | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $1,477,885K | $1,304,994K | $2,871,763K | $2,579,080K | | Losses and LAE | $940,037K | $936,714K | $2,160,850K | $1,840,679K | | Total Expenses | $1,271,137K | $1,229,897K | $2,807,312K | $2,414,763K | | Income Before Taxes | $206,748K | $75,097K | $64,451K | $164,317K | | Net Income | $166,472K | $62,568K | $58,145K | $136,030K | | Combined Ratio | 92.5% | 98.9% | 105.4% | 99.9% | Condensed Balance Sheets Total assets increased to $9.08 billion by June 30, 2025, driven by cash and reinsurance recoverables, while loss and LAE reserves grew to $3.61 billion due to catastrophes Condensed Balance Sheet Highlights (in thousands) | Account | June 30, 2025 ($K) | Dec 31, 2024 ($K) | | :--- | :--- | :--- | | Assets | | | | Total Investments | $5,963,247K | $6,076,370K | | Cash | $1,122,252K | $720,257K | | Reinsurance Recoverables | $390,717K | $28,613K | | Total Assets | $9,083,027K | $8,310,632K | | Liabilities & Equity | | | | Loss and LAE Reserves | $3,612,160K | $3,152,031K | | Unearned Premiums | $2,184,846K | $2,039,830K | | Notes Payable | $574,327K | $574,128K | | Shareholders' Equity | $1,969,497K | $1,946,524K | | Total Liabilities & Equity | $9,083,027K | $8,310,632K | Other Key Metrics Book value per share increased to $35.56, net premiums written to surplus ratio rose to 2.74, portfolio duration extended to 4.3 years, and policies-in-force showed modest growth Other Information as of June 30, 2025 | Metric | June 30, 2025 | Dec 31, 2024 | | :--- | :--- | :--- | | Book Value Per Share | $35.56 | $35.14 | | Statutory Surplus | $2.02 billion | $2.03 billion | | Net Premiums Written to Surplus Ratio | 2.74 | 2.65 | | Debt to Total Capital Ratio | 22.6% | 22.8% | | Portfolio Duration | 4.3 years | 3.4 years | | Personal Auto PIF (000s) | 1,030 | 1,019 | | Homeowners PIF (000s) | 859 | 852 | Supplemental Information This section reconciles GAAP to non-GAAP measures, explaining the rationale for using operating income and net premiums written to assess core business performance Reconciliation of GAAP to Non-GAAP Measures This section reconciles GAAP to non-GAAP measures, showing Q2 2025 Net Income of $166.5 million reconciled to Operating Income of $147.9 million Reconciliation of Net Income to Operating Income (in thousands) | Line Item | Q2 2025 ($K) | Q2 2024 ($K) | Six Months 2025 ($K) | Six Months 2024 ($K) | | :--- | :--- | :--- | :--- | :--- | | Net Income (GAAP) | $166,472K | $62,568K | $58,145K | $136,030K | | Less: Net Realized Investment Gains, Net of Tax | $18,549K | $2,290K | $36,973K | $32,461K | | Operating Income (Non-GAAP) | $147,923K | $60,278K | $21,172K | $103,569K | Explanation of Non-GAAP Measures Non-GAAP measures provide industry-specific performance insights, with operating income assessing core insurance by excluding volatile investment gains, and net premiums written indicating production levels - Operating income is presented because management believes it provides a valuable measure of ongoing performance by revealing trends in the core insurance business that may be obscured by net realized investment gains and losses, which are often driven by external market conditions[27] - Net premiums written is a statutory financial measure used to determine production levels and is considered supplemental information to the GAAP measure of net premiums earned[28]