Mercury General(MCY) - 2022 Q2 - Quarterly Report

Form 10-Q Overview 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] - The registrant is a Large accelerated filer[3][4] - As of July 27, 2022, 55,371,127 shares of Common Stock were issued and outstanding[4] PART I - FINANCIAL INFORMATION This part presents the Company's comprehensive financial statements and related notes for the reporting period Item 1. Financial Statements 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 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] Consolidated Statements of Operations 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 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] Consolidated Statements of Cash Flows 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 This section provides detailed explanations and disclosures supporting the consolidated financial statements 1. General 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] | 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][38] 2. Recently Issued Accounting Standards 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][41] - The Company does not expect any material impact on its consolidated financial statements from applying ASU 2020-04[41] 3. Financial Instruments 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] - 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] 4. Fair Value Option 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] | 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 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][60] - At June 30, 2022 and December 31, 2021, the Company did not have any financial assets or liabilities based on Level 3 measurements[70] | 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 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][82] | 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 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] | 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] 8. Share-Based Compensation 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] - No share-based compensation awards were granted during the six months ended June 30, 2022[91] - The weighted-average grant-date fair value of stock options was $8.09, estimated using the Black-Scholes option pricing model[90] 9. Income Taxes 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] - The Company is reviewing principal schedules detailing tax assessments from the FTB for tax years 2011 through 2013[93] - 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][98] 10. Loss and Loss Adjustment Expense Reserves 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] - 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] - 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] 11. Notes Payable 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] - As of July 27, 2022, there have been no borrowings under the $75 million unsecured credit facility[103] 12. Contingencies 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] - 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] - 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] 13. Segment Information 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][109][111] | 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] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 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] OVERVIEW This section provides a general business and economic context for the Company's financial performance and operations A. General 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] - Automobile loss frequency is near pre-pandemic levels, but severity remains high due to inflation, supply chain, and labor force issues[124] - The Company has filed for rate increases in many states and is taking non-rate actions to improve profitability[124] - 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] B. Business 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] - California accounted for 81.0% of total direct premiums written for the six months ended June 30, 2022[128] C. Regulatory and Legal Matters 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] - 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] D. Critical Accounting Estimates 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][136] - 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] | 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 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 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] | 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][152] | 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 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] | 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][165][166] | 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 This section discusses the Company's sources and uses of cash, capital structure, and financial flexibility A. Cash Flows 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] - 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] - The Board allowed its $200 million common stock repurchase authorization to expire on July 29, 2022, with no repurchases made under this authorization[176] B. Reinsurance 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] - 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] - 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][185][186] C. Invested Assets 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] | 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] - The weighted-average credit quality rating of the fixed maturity securities portfolio was A+ at June 30, 2022[193] D. Debt 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] - 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] - 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] E. Regulatory Capital Requirements 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] Item 3. Quantitative and Qualitative Disclosures about Market Risks 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 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] - Market risks are managed through investment policies, asset allocation, duration limits, and credit ratings, with executive oversight by the investment committee[215][216] Credit Risk 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] - 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][219] Equity Price Risk 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] - Common stocks represented 13.1% of total investments at fair value at June 30, 2022[222] | Hypothetical Market Reduction | Estimated Reduction in Common Stock Portfolio Value (June 30, 2022, in thousands) | | :---------------------------- | :---------------------------------------------------------------------------- | | 25% | $139,741 | | 50% | $279,481 | Interest Rate Risk 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] - 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] - 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] Item 4. Controls and Procedures 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] - There has been no material change in the Company's internal control over financial reporting during the most recent fiscal quarter[230] - The COVID-19 pandemic has not had any material impact on the Company's internal controls over financial reporting[231] PART II - OTHER INFORMATION This section covers legal proceedings, risk factors, equity sales, defaults, mine safety, and other disclosures Item 1. Legal Proceedings 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] - The Company establishes reserves for non-insurance claims related lawsuits and regulatory actions when a loss is probable and estimable[234] - 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] Item 1A. Risk Factors 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] - Regulatory agencies' slow approval of rate changes or ineffective measures to control inflation could negatively affect the Company's profitability and cash flow[238] - 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] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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] Item 3. Defaults Upon Senior Securities This section confirms no defaults upon senior securities were reported during the period - No defaults upon senior securities to report[241] Item 4. Mine Safety Disclosures This section states that mine safety disclosures are not applicable to the Company's operations - Mine safety disclosures are not applicable[242] Item 5. Other Information This section indicates that there is no additional information to report beyond what is already disclosed - No other information to report[243] Item 6. Exhibits 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] - XBRL Instance Document and Taxonomy Extension Documents are included as exhibits[246] 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]