Mercury General Profit Climbs as Underwriting Margin Improves
The insurer’s combined ratio improved 2.6 percentage points to 89.9%.
Mercury General (MCY), the property-and-casualty insurer, reported a 58.3% increase in second-quarter net income to $263.5 million, or $4.76 a diluted share.
The quarter extended the company’s year-over-year underwriting improvement, though premium growth slowed and profitability softened sequentially for a second straight period. The combined ratio moved from 88.6% in the fourth quarter to 89.3% in the first quarter and 89.9% in the second.
Net premiums earned rose 9.6% from a year earlier to $1.498 billion, easing from 13.2% growth in the first quarter. Net premiums written increased 5.3% to $1.559 billion after rising 17.9% in the prior quarter, while direct premiums written grew 9.3% to $1.624 billion.
The loss ratio fell to 65.0% from 68.8% a year earlier, outweighing an increase in the expense ratio to 24.9% from 23.7%. Operating income rose 31.9% to $195.2 million, or $3.52 a diluted share, and was nearly unchanged from the first quarter.
Catastrophe losses increased to $75 million from $13 million a year earlier but declined from $93 million in the first quarter. Prior-year reserve development shifted to about $35 million of favorable development from $4 million of unfavorable development a year earlier and strengthened from $9 million of favorable development in the preceding quarter.
Investment results widened the gap between operating income and net income. After-tax realized investment gains rose to $68.3 million from $18.5 million a year earlier and reversed a first-quarter loss, while pretax investment income increased 14.0% to $89.8 million as average invested assets expanded. Investment income has now risen for four consecutive reported quarters.
Policies in force increased to 2.360 million at June 30 from 2.265 million at year-end, led by growth in homeowners and personal-auto coverage. Book value rose to $51.20 a share, and statutory surplus reached $2.77 billion, giving Mercury General more capital support as premium growth moderated and the combined ratio continued to edge higher sequentially.