Mercury General Corporation (NYSE:MCY) Q2 2020 Earnings Conference Call - Final Transcript

Aug 03, 2020 • 01:00 pm ET

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Mercury General Corporation (NYSE:MCY) Q2 2020 Earnings Conference Call - Final Transcript

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Presentation
Operator
Operator

Good morning, my name is Michelle, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Mercury General Quarterly 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 upon 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. Please go ahead.

Executive
Gabriel Tirador

Thank you very much. I would like to welcome everyone to Mercury's second quarter conference call. I'm Gabe Tirador, President and CEO. On the phone, we have Mr. George Joseph, Chairman; Ted Stalick, Senior Vice President and CFO; Jeff Schroeder, Vice President and Chief Product Officer; and Chris Graves, Vice President and Chief Investment Officer.

Before we take questions, we will make a few comments regarding the quarter. Net income in the second quarter was $228.2 million or $4.12 per share, which includes a $125.2 million of after-tax gains on our investment portfolio. The rebound in the markets in the second quarter, helped to partially offset first quarter after-tax losses of $198.5 million on our investment portfolio. Year-to-date, net income was $89 million or $1.61 per share, which includes $73.4 million of after-tax losses on our investment portfolio.

Most of the year-to-date investment losses are mark-to-market adjustments on securities that continue to be held by the Company. Our second quarter operating earnings were $1.86 per share compared to $0.74 per share in the second quarter of 2019. The improvement in operating earnings was primarily due to a reduction in the combined ratio from 98.3% in the second quarter of 2019 to 88.2% in the second quarter of 2020.

Catastrophe losses in the quarter was $12 million compared to $9 million in the second quarter of 2019. The Company recorded $12 million in unfavorable reserve development in the quarter compared to $9 million in the second quarter of 2019. The improvement in the combined ratio in the quarter was primarily due to improved results in our private passenger auto line of business. Lower frequency in the quarter as a result of less driving from the COVID-19 pandemic was the primary reason for the improved results. The lower frequency in the quarter was partially offset by an increase in severity and the give back of $100.3 million of premiums to personal auto customers as a result of less driving from the COVID-19 pandemic.

Partially offsetting the improved results in our private passenger auto line of business were worst results in our commercial auto, homeowners and commercial multi-payer lines of business. Although our commercial auto line of business also saw a decline in frequency