In Q3, premiums increased by 3.4 percent. One reason for the growth is the California revenue neutral rating plan that Mercury implemented in December 2011. This plan has made Mercury more competitive for new business and increased the number of agents selling its products.
Mercury's combined ratio in Q3 was 99.1 percent versus 98.3 percent a year ago. In Q3, Mercury recorded $4 million of unfavorable reserve development, most of which was due to homeowner's insurance in Florida and a few large claims that were higher than expected. Mercury's combined ratio outside of California was slightly more than 100 percent in Q3. Mercury no longer has any homeowner's policies in Florida.
Mercury's expense ratio in Q3 was 26.6 percent versus 27 percent a year ago. The decline was due to profitability related accruals. Mercury expects its expense ratio in the future to be between 27 to 27.5 percent.
Mercury's pre-tax investment yield increased in Q3 as it has been purchasing more dividend-paying stocks. It has been allocating more to equities.
California's Department of Insurance approved a 4 percent rate increase on auto insurance, which went into effect on October 26, 2012 for new and renewal policies. Mercury had requested a 6 percent increase. It is evaluating the prospect of filing for future rate increases. 90 percent of the policies affected by the rate increase are six-month policies. Mercury Insurance Company, Mercury General's largest company, only started writing annual policies in California in December 2011.
Mercury expects a decision on its California homeowner's rate filing any day.
Mercury has launched its online "Buy Button" which allows customers to purchase online, but also involves its agents in the purchase.
Mercury has 25,000 homeowners that could potentially be impacted by Hurricane Sandy, but it is too early to predict the financial impact of the hurricane.
If Proposition 33 in California passes, it would allow Mercury to become more competitive because it can currently offer continuous insurance discount only to existing customers. If the proposition passes, Mercury will be able to offer the discount to new customers if their current insurer also gave it to them. The passage of the proposition would also help customers since they can shop for more competitive rates.
Evaluation of markets
New car sales increased in Q3 in California by 20 percent.
The transcript of the earnings conference call can be found on Seeking Alpha at the following link:
http://seekingalpha.com/article/959831-mercury-general-s-ceo-discusses-q3-2012-results-earnings-call-transcript
Copyright 2012 Jaygo's Earnings Conference Call Summaries
This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.
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