Mercury General Corp. reported it spent $12.1 million in the second quarter of 2010 supporting Proposition 17, a California ballot initiative that did not pass. Nevertheless, the Los Angeles-based insurer reported net income in the second quarter 2010 was $17.8 million compared with net income of $114.4 million for the same period in 2009. For the first six months of 2010, net income was $79 million compared with net income of $211.1 million for the same period in 2009. Included in net income are net realized investment losses, net of tax, of $18 million in the second quarter of 2010 compared with net realized investment gains, net of tax, of $67.1 million for the same period in 2009, and net realized investment losses, net of tax, of $3.7 million for the first six months of 2010 compared with net realized investment gains, net of tax, of $117.8 million for the same period in 2009. Operating income was $35.8 million for the second quarter of 2010 compared with operating income of $47.3 million for the same period in 2009. For the first six months of 2010, operating income was $82.7 million (compared with operating income of $93.3 million for the same period in 2009.
Net premiums written were $631.1 million in the second quarter of 2010, a 1 percent decrease compared to the second quarter 2009 net premiums written of $637.4 million, and were approximately $1.3 billion for the first six months of 2010, a 1.9 percent decrease compared to the same period in 2009. Net realized investment losses, net of tax, of $18 million and $3.7 million for the second quarter and for the first six months of 2010, respectively, include losses, net of tax, of $19.8 million and $7.5 million, respectively, from the application of the fair value option. Gains, net of tax, from the sale of securities were $1.2 million and $3.2 million during the second quarter and the first six months of 2010, respectively.
The company’s combined ratio was 99 percent in the second quarter of 2010 and 97.7 percent for the first six months of 2010 compared with 96.1 percent and 96.5 percent for the same periods in 2009. The loss ratio was affected by favorable development of approximately $22 million and $38 million on prior accident years’ losses and loss adjustment expenses reserves for the six months ended June 30, 2010 and 2009, respectively. The company said the favorable development in 2010 is largely the result of re-estimates of accident year 2009 California bodily injury losses, which have experienced both lower average severities and fewer late reported claims (claim count development) than was originally estimated at Dec. 31, 2009.
The company spent $12.1 million in the second quarter of 2010 supporting Proposition 17, a California ballot initiative that did not pass. It would have provided for a portable persistency discount, allowing insurance companies to offer new customers discounts based on having continuous insurance coverage from any insurance company. Despite the non-passage of Proposition 17, the company believes it continues to offer a competitive product in California. For the three months and six months ended June 30, 2010, Proposition 17 costs added 1.9 points and 0.9 points, respectively, to the expense ratio and reduced net income by $0.22 per diluted share in both periods.
Net investment income of $36.5 million (after tax, $32.6 million) in the second quarter of 2010 increased by 0.7 percent over the same period in 2009. The investment income after-tax yield was 4.2 percent on average investments (fixed maturities at amortized cost, equities and short-term investments at cost) of $3.1 billion for the second quarter 2010. This compares with an investment income after-tax yield of 4.1 percent on average investments of $3.2 billion for the same period in 2009. Net investment income for the first six months of 2010 was $72.4 million (after tax $64.8 million), a decrease of 2.4 percent compared to the same period in 2009. The investment income after-tax yield was 4.2 percent on average assets of $3.1 billion for the first six months of 2010. This compares with an investment income after-tax yield of 4.1 percent on average investments of $3.2 billion for the same period in 2009.
The Board of Directors declared a quarterly dividend of $0.59 per share. The dividend is to be paid on Sept. 30, 2010 to shareholders of record on September 16, 2010.
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