Mercury General Corporation (NYSE:MCY) Q4 2018 Earnings Conference Call Transcript
Feb 11, 2019 • 01:00 pm ET
Good morning. My name is Erica, and I will be your conference operator today. At this time, I would like to welcome everyone to the Mercury General Fourth Quarter 2018 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions)
This conference call may contain comments and forward-looking statements based on current plans, expectations, events, and financial and industry trends, which may affect Mercury General's future operating results and financial position. Such statements involve risks and uncertainties, which cannot be predicted or quantified and which may cause future activities and results of operations to differ materially from those discussed here today.
I would now like to turn the call over to Mr. Gabriel Tirador. Sir, you may begin.
Thank you very much. I would like to welcome everyone to Mercury's fourth quarter conference call. I am Gabe Tirador, President and CEO. In the room with me is Mr. George Joseph, Chairman; Ted Stalick, Senior Vice President and CFO; and Chris Graves, Vice President and Chief Investment Officer.
Before we take questions, we will make a few comments regarding the quarter. Our fourth quarter operating loss was $0.26 per share compared to $0.15 per share operating income in the fourth quarter of 2017. Included in the fourth quarter of 2017 results was a $0.13 per share tax benefit from the Tax Cuts and Jobs Act of 2017. Included in the fourth quarter of 2018 results was a $0.07 per share tax benefit from the reversal of an IRS rule related to sequestration adjustments from the 2017 Tax Act.
In addition, operating earnings deteriorated due to an increase in the combined ratio from 104.5% in the fourth quarter of 2017 to a 106.7% in the fourth quarter of 2018 and a lower corporate tax rate applied to the Company's underwriting loss in 2018, partially offsetting the year-over-year reduction to operating earnings with an increase in after-tax investment income from $26.9 million in the fourth quarter of 2017 to $28.6 million in the fourth quarter of 2018.
The combined ratio in the quarter was significantly impacted by catastrophe losses, primarily from wildfire losses in California. Catastrophe losses net of reinsurance were $43 million in the fourth quarter compared to $20 million in the fourth quarter of 2017.
In addition, we recorded $5 million of reinsurance reinstatement premiums earned in the quarter compared to $3 million in the fourth quarter of 2017. Unfavorable reserve development was $23 million in the quarter compared to $36 million in the fourth quarter of 2017. Excluding the impact of catastrophe losses unfavorable reserve development and ceded reinstatement premiums earned the combined ratio was 98.6% in the quarter and 95.6% for the 12-month period ending December 31, 2018 compared to 97.2% and 96.9% for the quarter and 12-month period ending December 31, 2017, respectively.
To improve our combined ratio, we have been increasing rates in most states. In California, a 6.9% personal auto rate