Mercury Reports Net Loss From Increased Severity

By | July 30, 2012

Mercury General Corp. on Monday reported a net loss for the second quarter driven partly by an increase in severity trends, sending the Los Angeles, Calif.-based insurer’s shares down nearly 6 percent.

The company’s net reported loss for the second quarter was $5.3 million. That’s down from a net income of $57.3 million for the same period in 2011.

However, premiums written rose 2.7 percent from the same period last year to $653.6 million, the highest since the growth cycle began in 2011. Mercury executives attributed some of that to an increase in auto customers in California.

Additionally, the board of directors declared a quarterly dividend of 61 cents per share to be paid on Sept. 28 to shareholders of record on Sept. 14.

On a conference call with investors Mercury President and CEO Gabriel Tirador attributed the net loss to net realized investment losses, severe weather and a “general increase in severity trends,” many of which came from bodily injuries in California.

He said the severity trends are developing “at a rate quite a bit higher than historical averages.”

He noted that other carriers, including Progressive and Travelers, reported higher severity losses.

“I think that other carriers, they’re seeing severity trends going up as well,” Tirador said. “I think this is an industry trend, not just a Mercury trend.”

Mercury pointed to other areas where it may look to shore up losses, including a pending 6 percent rate incrase request with the California Department of Insurance, and a homeowners’ rate has increase on which a California administrative law judge is expected to soon rule.

“Most of the states outside of California, we’re able to get rate,” Tirador said.

The company’s combined ratio (GAAP basis) was 104.5 percent in the second quarter of 2012 and 101.1 percent for the first six months of 2012 compared with 98 percent and 98.1 percent for the same periods in 2011, Mercury reported.

“The Company experienced unfavorable development of approximately $23 million and $9 million on prior accident years’ losses and loss adjustment expenses reserves for the three months ended June 30, 2012 and 2011, respectively, and approximately $29 million and $10 million on prior accident years’ losses and loss adjustment expenses reserves for the six months ended June 30, 2012 and 2011, respectively,” a Mercury release stated.

Mercury said the unfavorable development was largely the result of “re-estimates of California bodily injury losses which have experienced higher average severities and more late reported claims (claim count development) than estimated at December 31, 2011.”

The Company also realized roughly $8 million of pre-tax losses in the second quarter of 2012 as a result of wind and hail storms in the Midwest region.

Operating income was $10.2 million for the second quarter of 2012 compared with $41.8 million for the same period in 2011.

Net investment income of $31.7 million in the second quarter fell by 12 percent compared with the same period in 2011.

Tirador said he holds out hopes of a better Q3.

“We hope to give you some better news next quarter,” Tirador said.

Shares of Mercury (MCY) closed down $2.38 to $38.44 in trading on the New York Stock Exchange.

Topics California Profit Loss Trends

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