Mercury General Corporation Q4 FY2024 earnings call

Wildfire Acknowledgment: Thoughts are with those affected by Southern California wildfires, and executives toured impacted areas. ### Financial Results: Fourth quarter after-tax operating income was $98 million, highest in company history. Combined ratio in Q4 was 91.4%, year-to-date 96%. Excluding catastrophes, Q4 combined ratio was 88.3%, full year 90.5%. Investment income after tax increased due to higher average investment balances. Net premiums written grew due to rate increases. ### 2025 Outlook: Core underlying business excluding catastrophes poised for good results. Estimated gross catastrophe losses from January wildfires $1.6 billion, pretax net losses $155 - $325 million, reinstatement premium $80 - $101 million. California DOI approved fair plan participation, ~$50 million assessment, 50% recoupable via policyholder fee. Reinsurance program details provided, including limits and parametric coverage.

The personal auto and homeowners business, which comprises 88% of company-wide earned premium, posted favorable results. For the full year 2024, the personal auto business had a core underlying combined ratio of 92.1%, and the homeowners business had a core underlying combined ratio of 76.1%. Net premiums written grew 16% to $1.3 billion in the fourth quarter and 20.5% to $5.4 billion for the full year 2024. Investment income after tax was $61.5 million in the fourth quarter of 2024, an increase of 15% over the prior year quarter.

2025 core underlying business expected to deliver good results. Investment income near 2024 levels. Core underlying earnings to provide capital generation to build back wildfire-related capital loss. Estimated net impact of wildfires on statutory surplus in Q1 $5 - $295 million.

Uncertainty in reinsurance classification of wildfires, impact of fair plan assessments on surplus, and potential variability in subrogation recoveries from wildfire-related claims.

Q: Good morning, and welcome to the Mercury General Corporation's fourth quarter 2024 conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by the number zero. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. This conference call may contain comments and forward-looking statements based upon current plans, expectations, events, and financial and industrial trends, which may affect Mercury General Corporation's future operating results and financial position. Such statements involve risks and uncertainties that cannot be predicted or quantified and which may cause future activities and results of operations to differ materially from those discussed today. I would now like to turn the conference over to Gabriel Tirador, CEO. Please go ahead.

A: Thank you very much. I would like to welcome everyone to Mercury General Corporation's fourth quarter conference call. I'm Gabriel Tirador, Chief Executive Officer. In the room with me is Victor Joseph, President and Chief Operating Officer; Ted Stalick, Senior Vice President and CFO; Chris Graves, Vice President and Chief Investment Officer. Before we begin, I want to say that our thoughts are with all those affected by the recent catastrophic wildfires in Southern California. The wildfires have had a devastating impact on communities and individuals. Several of our executives, including many of those on the call, recently toured Altadena. It is heartbreaking to see so many people impacted by this disaster. In times like these, our role as insurance professionals becomes even more critical. Our primary mission is to provide support and assistance to our insureds when they need it most. I am so proud of our customer-facing team members' unwavering commitment to helping our fellow Californians who have entrusted us with their protection. Turning to our fourth quarter and full-year results, 2024 was a year for the record books. We are very pleased to report that our fourth quarter after-tax operating income of $98 million was the highest in the company's history. The combination of rate increases and moderating inflation helped drive down our combined ratio in the quarter to 91.4% and our year-to-date combined ratio to 96%.

Q: Greg Peters from Raymond James asked about fair plan total loss, capital ratio, and reinsurance pricing.

A: Gabriel Tirador, Jeff Schroeder, Ted Stalick answered respective parts.

Q: Guy Baron from Spring View asked about earnings sustainability, California DOI understanding, and subrogation proceeds.

A: Gabriel Tirador, Ted Stalick answered.

Q: Kahlil Abumani from Coronade Capital asked about claims numbers, reinsurance methodology, and reinstatement premium inclusion.

A: Ted Stalick, Victor Joseph answered.

Q: Prem Nainani from Plomado Advisors asked about reinsurance treaty language, subrogation cash, and fair claim damages.

A: Gabriel Tirador answered.

Q: Ian Holland, private investor asked about total loss numbers, insured value reporting.

A: Gabriel Tirador, Ted Stalick answered.

Q: Dan David from Wolfpack Research asked about average losses vs peers.

A: Gabriel Tirador answered