2023 Annual Report

Speed and Agility

Mercury General Corporation I 2023 Annual Report

Mercury General Corporation

Teamwork

Much like the specialists in a pit crew, each of our employees brings his or her own set of diverse skills and expertise to the table. Each contributing a crucial element to the overall success of our company.

Trust forms the foundation, allowing employees to rely on their colleagues to fulﬁll theirroles with precision. Just as a pit crew works to optimize a race car's performance, our employees collaborate to enhance our company's productivity and success.

2023 Annual Report

Core Values

We do the right thing

We put people ﬁrst. We treat peoplethe way we want to be treated.

We own it

We act with initiative and passion, balancing decisiveness and attention to detail to drive results.

We seek a better way

We are explorers discovering new paths forward. We overcome challenges with bold and creative solutions and leafrom every step.

We move quickly

We move with "Mercurian" speed. We swiftly put ideas into action and rapidly adapt in a changing world.

Letter to Shareholders

Our number one priority in 2023 was to improve proﬁtability. And although we are pleased to reportour operating results improved in 2023, we have more work to do. The two components of operatingincome, investment income and underwriting margin, both improved in 2023. Investment incomeincreased signiﬁcantly and while our underwriting margin improved, it was still signiﬁcantly lowerthan our 4% target margin as continued inﬂation, increasing frequency, delays in obtaining rateincreases in California, our largest market, and the highest Catastrophe losses, net of reinsurance, inthe Company's history partially offset the rate and non-rate actions we took to improve proﬁtability.

However, as we discuss below, the full year 2023 results do not paint a full picture as our results inthe second half of 2023 were signiﬁcantly better than the ﬁrst half of 2023. We believe we are wellpositioned going into 2024 to continue to improve our results.

In California, it's the hardest market we have seen in a longtime. Some carriers stopped writing new Automobile andHomeowners business while some have limited the amountof business they write. Delays in obtaining regulatory approvalfor rate increases and the inability to include reinsurance costsin Homeowners rates or use wildﬁre models for Catastrophelosses in rate ﬁlings contributed to the hard market. However,the California Department of Insurance (DOI) began approvingrate increases in 2023. Consequently, we expect the market to soften somewhat during 2024 as carriers get rate adequate. Inaddition to approving rate increases, the DOI has committedto making changes to improve market conditions. We willmonitor the DOI's plan to improve market conditions and willtake appropriate actions as necessary.

We posted operating income of $0.30 per share in 2023compared to an operating loss of $2.30 per share in 2022. Theimprovement in operating earnings was due to a reduction inthe combined ratio from 108.7% in 2022 to 105.4% in 2023, andan increase in after-tax investment income of $54 million, from$146.2 million in 2022 to $200.2 million in 2023. Contributingto the reduction in the combined ratio in 2023 was $36 millionof favorable reserve development compared to $47 million ofunfavorable reserve development in 2022. Better results inour Private Passenger and Commercial Automobile lines ofbusiness was the primary reason for the improvement in thecombined ratio. The improvement in our Private Passengerand Commercial Automobile combined ratio was partiallyoffset by worse results in our Homeowners and CommercialProperty lines of business. Our Homeowners line of businesswas signiﬁcantly impacted by the highest Catastrophe losses,net of reinsurance, in Company history. Catastrophe lossesof $239 million in 2023 were signiﬁcantly higher than the$102 million of Catastrophe losses in 2022. Although ourcombined ratio was 105.4% in 2023, it improved signiﬁcantlyas the year progressed from the combination of rate increasesearning in and lower Catastrophe losses during the secondhalf of 2023. Our combined ratio in the ﬁrst half of 2023 was112.9% compared to 98.6% in the second half of 2023.

Combined Ratio vs. Industry

(In percent)

98.2% 98.1%

*Industry data for 2023 is a published estimate.

Mercury GeneralU.S. Industry

Source for Industry Data:A.M. Best Company, for Private Passenger Automobile line of all Property and Casualty insurance companies.Combined Ratio for Mercury General:for Private Passenger Automobile line of business only for comparison with the industry ratio.

In last year's letter to shareholders, we said weexpected to improve our Private Passenger Automobileprofitability in 2023, but still have a combined ratioover 100% as rate increases take time to eain. Ourexpectations came to fruition as our Private PassengerAutomobile combined ratio was 103% in 2023 comparedto 110.3% in 2022. The significant improvement in ourPrivate Passenger Automobile combined ratio wasprimarily due to rate increases and non-rate actions. InCalifornia, we implemented two 6.9% rate increases,one in March of 2023 and one in July of 2023. Thecombination of the two rate increases, and our non-rate actions helped offset increases in frequency andseverity. California frequency increased by 1% andseverity increased by 7% in 2023, lower than the 5% and12% increases in frequency and severity, respectively, in2022. In February 2024 we implemented a 20.7% rateincrease in our California Private Passenger Automobileline of business that will have a positive impact onprofitability in 2024. In states outside of California, weincreased Private Passenger Automobile rates by 22.7%in 2023. We expect our Private Passenger Automobileprofitability to improve in 2024 as rate increases continue to eain. Premiums written in our Private Passenger Automobile line increased 9.3% in 2023.

The increase in premiums written was primarily due tohigher average premiums from rate increases. We expectour Private Passenger Automobile premiums written toincrease in 2024 primarily from higher average rates.

Our Homeowners combined ratio increased from 104% in 2022 to 108% in 2023. Catastrophe lossesadded 18.2 points to our Homeowners combined ratioin 2023 compared to 8.8 points in 2022. In May 2023we implemented a 12.6% rate increase in our CaliforniaHomeowners line of business and an additional 6.99%rate increase was recently approved by the CaliforniaDOI. We expect to implement the 6.99% rate increase inMay of 2024. California Homeowners premiums writtenrepresents about 71% of total Homeowners premiumswritten and 17% of Companywide premiums written.

Outside of California we increased Homeowners ratessignificantly in 2023. Companywide Homeownerspremiums written grew 18% in 2023 to $1,042 million. Theincrease in premiums written was higher than expectedas we anticipated a slowdown in new business from rateincreases. However, the market remained hard during2023 resulting in new business being up slightly from2022. We expect premium growth in our Homeownersline in 2024 from rate increases and expect profitabilityto improve, barring Catastrophe losses exceeding ourexpectations, as higher average premiums should more than offset an increase in expected losses.

Direct Premiums Written by Line of Business

3.2%

2.3%

Operating Leverage

(Net Premiums Written/Policyholders' Surplus as ratio)

2.4

2.7

2.1

2.0

2.7

Net Premiums Written - Companywide

(In millions)

*Net premiums written for 2020 includes approximately $128 million of premium refunds to our eligible policyholders under the Mercury Giveback program due to reduced driving and business activities following the Covid-19 pandemic.

Trading Range of Stock

(In dollars)

$3,156 $3,216

$3,732 $3,612

We monitor and manage our Catastrophe exposure fromCalifornia wildﬁres and other Catastrophes by limiting ourconcentration in certain areas of a state, utilizing tools to better underwrite individual properties, and utilizing reinsurance. In 2023 we increased our Catastrophereinsurance coverage. The total reinsurance limit purchasedincreased from $936 million in the prior period to $1,111 million for the July 2023 through June 2024 period. Weretain 100% of losses under $100 million and we participatein 95% of losses between $100 million and $140 million.

Total annual premiums on the new reinsurance program areapproximately $99 million. We don't expect material changesto the retention or limits we purchase when we renew ourreinsurance treaty in July 2024, but it will depend on pricing.

Although our Commercial Automobile combined ratioimproved in 2023 to 111.2% from 116% in 2022, the resultswere unacceptable. We are increasing rates to improve results.

We implemented a 12.8% rate increase in our CaliforniaCommercial Automobile line of business in February of 2023and a 14.9% rate increase in October of 2023. In addition,we have a 14.9% rate increase pending approval with theDOI. California Commercial Automobile premiums writtenrepresents 71% of total Commercial Automobile premiumswritten. Premiums written in our Commercial Automobileline were $347 million in 2023, a 25% increase over 2022.We expect to grow our Commercial Automobile premiums in2024 and expect the combined ratio to improve signiﬁcantlyfrom rate increases earning in and non-rate actions.

Our California Commercial Multi-Peril line of businessresults deteriorated significantly in 2023. Our combinedratio increased to 163% in 2023 from 126% in 2022.

Unfavorable reserve development of $43 million added43 points to the 2023 combined ratio. Most of ourCalifornia Commercial Multi-Peril business is habitationalbusiness. We have experienced an increase in both thefrequency and severity of habitational claims over thepast few years. To improve results, we are increasingrates and non-renewing unprofitable risks. Premiumswritten declined 6% to $94 million from $100 millionin 2022 primarily from the non-renewal of unprofitablerisks and the tighter underwriting of new risks. We implemented a 9.7% rate increase in late 2023 and have a 17.8% rate increase pending approval with theDOI. We expect flat premiums written in 2024 as rateincreases should be offset by lower new and renewalbusiness volume. However, we expect our combined ratioto improve significantly in 2024 from rate increases and the continued non-renewal of unprofitable business.

Companywide premiums earned and written increased8.1% and 12.2%, respectively, from 2022. The increasein net premiums earned and written was primarily due tohigher average premiums from rate increases partiallyoffset by a reduction in the number of Private PassengerAutomobile policies written in California. We expectCompanywide premiums written to grow in 2024 primarilyfrom rate increases.

Our primary means of competing is by offering acompetitively priced product with excellent service. Wedo that through our talented team members by executingon the fundamentals of the business: accurate andefﬁcient claims handling, proper pricing and segmentation,partnering with the right agents, thorough underwriting,expense management and making it easy to do businesswith us. In 2023, we continued to invest in various initiativesto improve our execution of the fundamentals of thebusiness, including investments in customer experience,technology, improved claims and underwriting processes,improved pricing segmentation and changes in how wecompensate our agent partners. We also completed themigration of our California Private Passenger Automobileunderwriting and Umbrella insurance systems to ourconsolidated core system.

After-tax investment income increased 37% to $202million under the stewardship of our Vice President andChief Investment Ofﬁcer, Chris Graves. Chris positionedthe portfolio to take advantage of increasing interest rateswhen interest rates were very low. The increase in after-taxinvestment income was primarily due to an increase in after-tax yield and average invested assets. The after-tax yieldon the portfolio increased to 3.9% from 3.0% in 2022. Theincrease in after-tax yield was primarily due to the maturityand replacement of lower yielding investments purchasedwhen market interest rates were lower with higher yieldinginvestments, a result of increasing market interest rates, aswell as higher yields on ﬂoating interest rate investments.

Average Invested assets increased by $194 million to $5.1 billion for 2023. We expect after-tax investmentincome to increase in 2024 from both higher yields and anincrease in invested assets.

At year-end 2023, Shareholders' Equity was $1,548million compared to $1,522 million in 2022. The increasein Shareholders' Equity of $26 million in 2023 was primarilydue to realized after-tax investment gains of $80 millionand operating earnings of $17 million, partially offset by$70 million in dividends paid to shareholders. Our statutoryunderwriting leverage was 2.7 in 2023 and our insurancesubsidiaries carry an "A" Financial Strength Rating with aStable Outlook from AM Best, which was reafﬁrmed onFebruary 15, 2024 . We expect our Shareholders' Equityto increase and our statutory leverage to decline over timefrom improved operating earnings more than offsettingour dividend payments. Our annual dividend rate of $1.27represents a 2.5% yield based on the $50.67 per sharemarket price of our stock on February 16, 2024. Our Boardwill continue to evaluate our dividend policy on a quarterlybasis and consider factors such as the Company's capitalposition, earnings, tax law changes and prospects beforea decision is made on the dividend amount.

Dividends Per Share

(In dollars)

$2.51

$2.52

$2.53

In the second half of 2022, Mercury's Board of Directors decreased the annual dividend rate to $1.27 per share.

$1.91

$1.27

As we previously reported, Victor Joseph was promotedto President and Chief Operating Ofﬁcer effective January1, 2024. Victor has been a key contributor on Mercury'sleadership team, providing creative problem solving anda deep-rooted passion for the Company. Victor's energyand dedication to Mercury and the industry will further strengthen our position as one of America's leadinginsurance companies. Victor's promotion exempliﬁes ourcontinued progress in building our leadership structure andvision for the future of the Company.

We are grateful to the over 4,100 Mercury team membersthat collectively work hard to service our customers andmake Mercury a better company.

George Joseph

Chairman of the Board

Gabriel Tirador

Chief Executive Ofﬁcer

This letter contains certain forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995.

Please refer to our disclosure of cautionary statements regarding forward-looking statements under "Forward-looking Statements" in our Form 10-K included herein.

10-Year Summary

IN THOUSANDS,

EXCEPT PER SHARE AND RATIO DATA

Operating Results(GAAP Basis)

Net premiums written

Change in net unearned premiums Net premiums earned

Price range of common stock-bids

Dividends per share

Retuon average shareholders' equity* Diluted weighted average shares outstanding Shares outstanding at year-end

Notes payable Policyholders' surplus Total shareholders' equity Book value per share

Losses and loss adjustment expenses Underwriting expenses

Net investment income

Net realized investment gains (losses) Other income

Interest expense

Income (loss) before taxes Income tax expense (benefit) Net income (loss)

Net income (loss) per share-basic Net income (loss) per share-diluted Operating ratios

Loss ratio Expense ratio Combined ratio

Investments

Total investments, at fair value Yield on average investments

Before taxes

After taxes

Financial Condition

Total assets

Unpaid losses and loss adjustment expenses Unearned premiums

Other Information

3,952,482 3,741,948

2023

3,362,219 2,760,155

934,330 916,782

168,356 129,727

(488,080) 111,658

10,308 10,024

17,232 17,113

(670,715) 299,307

(158,043) 51,370

(9.26) $ 4.48

85.1% 73.8%

23.6% 24.5%

3.4% 2.8%

3.0% 2.5%

$ 6,772,472

2,584,910 2,226,430 1,545,639 1,519,799

1,502,424 1,827,210

1,522,131 2,140,281

27.49 $ 38.65

(6.9)% 7.7%

55,371 55,374

55,371 55,371

1.905 $ 2.533

*Ratio of (i) net income (loss) less net realized investment gains (losses), net of tax to (ii) average shareholders' equity.

2022

2021

3,855,369

(113,421)

247,937

98.3%

$ 5,142,589

372,931

$ 67.88-50.37

2023 Annual Report7

2020

2019

2018

2017

2016

2015 2014

3,611,543

(55,908)

3,731,723

(132,305)

3,555,635

2,395,343

913,619

134,858

85,731

8,287

17,048

458,501

83,894

$ $ $

3,599,418

2,706,024

871,390

141,263

222,793

9,044

17,035

378,069

57,982

374,607 6.77 6.77

$ $ $

3,495,633

(127,222)

3,368,411

2,576,789

816,794

135,838

(133,520)

9,275

17,036

(30,615)

(24,887)

320,087 5.78 5.78

$ $ $

3,215,910

(20,473)

3,195,437

2,444,884

788,825

124,930

83,650

11,945

15,168

167,085

22,208

(5,728) (0.10) (0.10)

$ $ $

3,155,788

(24,015)

3,131,773

2,355,138

797,859

121,871

(34,255)

8,294

3,962

70,724

(2,320)

144,877 2.62 2.62

$ $ $

2,999,392 (41,495)

2,840,922 (44,727)

2,957,897 2,796,195

2,145,495 1,986,122

790,070 775,589

126,299 125,723

(83,807) 81,184

8,911 8,671

3,168 2,637

70,567 247,425

(3,912) 69,476

73,044 1.32 1.32

$ $ $

74,479

$ 177,949

1.35 $ 3.23

67.4% 25.7% 93.1%

75.2% 24.2% 99.4%

76.5% 24.2% 100.7%

76.5% 24.7% 101.2%

75.2% 25.5% 100.7%

72.5% 71.0%

26.7% 27.7%

99.2% 98.8%

$ 4,729,270

$ 4,312,161

$ 3,768,091

$ 3,732,728

$ 3,547,560
- $ 3,380,642
  
  $ 3,403,822
  
  3.1% 2.8%
  
  3.5% 3.1%
  
  3.6% 3.3%
  
  3.5% 3.1%
  
  3.6% 3.2%
  
  3.8% 3.9%
  
  3.4% 3.5%
  
  $
  
  6,328,246
  
  $
  
  5,889,157
  
  $
  
  5,433,729
  
  $
  
  5,101,323
  
  $
  
  4,778,718
  
  $
  
  4,628,645
  
  $ 4,600,289
  
  1,991,304
  
  1,921,255
  
  1,829,412
  
  1,510,613
  
  1,290,248
  
  1,146,688 1,091,797
  
  1,405,873
  
  1,355,547
  
  1,236,181
  
  1,101,927
  
  1,074,437
  
  1,049,314 999,798
  
  372,532
  
  372,133
  
  371,734
  
  371,335
  
  320,000
  
  290,000 290,000
  
  1,768,103
  
  1,539,998
  
  1,471,547
  
  1,589,226
  
  1,441,571
  
  1,451,950 1,438,281
  
  2,032,597
  
  1,799,502
  
  1,617,684
  
  1,761,387
  
  1,752,402
  
  1,820,885 1,875,446
  
  $
  
  36.72
  
  $
  
  32.51
  
  $
  
  29.23
  
  $
  
  31.83
  
  $
  
  31.70
  
  $
  
  33.01 $ 34.02
  
  16.0% 55,358 55,358 2.523
  
  $
  
  $ 55.71-33.45
  
  $
  
  8.4% 55,360 55,358 2.5125
  
  $ 65.22-46.69
  
  $
  
  5.9% 55,335 55,340 2.5025
  
  $ 61.83-41.40
  
  $
  
  5.2% 55,327 55,332 2.4925
  
  $ 64.52-51.87
  
  $
  
  5.3% 55,302 55,289 2.4825
$ 61.19-42.97

7.0% 6.8%

55,209 55,020

55,164 55,121

2.4725 $ 2.4625

$ 60.31-45.12

$ 59.68-41.70

Directors and OfﬁcersBoard of Directors

George Joseph4	George G. Braunegg1, 3, 4
Chairman of the Board	Associate Professor of
the Practice of Accounting,
Gabriel Tirador4
Marshall School of Business,
Chief Executive Ofﬁcer	The University of SoutheCalifornia
Victor G. Joseph4	Ramona L. Cappello3, 4
President and Chief Operating Ofﬁcer	Partner
CEO Coaching International
James G. Ellis2, 4
Retired Dean,
Marshall School of Business,
The University of SoutheCalifornia
Executive Ofﬁcers
George Joseph	Christopher Graves
Chairman of the Board	Vice President and
Chief Investment Ofﬁcer
Gabriel Tirador
Chief Executive Ofﬁcer	Brandt N. Minnich
Vice President and
Victor G. Joseph
Chief Sales Development Ofﬁcer
President and Chief Operating Ofﬁcer
Wilson Pang
Theodore Stalick
Vice President and
Senior Vice President and	Chief Technology Ofﬁcer
Chief Financial Ofﬁcer
Randall R. Petro
Kelly Butler
Vice President and
Vice President and	Chief Claims Ofﬁcer
Chief Underwriting Ofﬁcer
Mark Ribisi
Katie Gibbs
President and Chief Executive Ofﬁcer,
Vice President and	AIS Management LLC
Chief Experience Ofﬁcer

Vicky Wai Yee Joseph

Private Investor

Joshua E. Little1, 2, 3

Shareholder, President, Chief ExecutiveOfﬁcer and Chairman of the Board,Dentons Durham Jones Pinegar P.C.

Martha E. Marcon1, 2

Lead Independent Director Retired Partner,

KPMG LLP

1Member of Audit Committee
2Member of Nominating/Corporate Governance Committee
3Member of Compensation Committee
4Member of Investment Committee

Jeffrey M. Schroeder

Vice President and

Chief Product Ofﬁcer

Heidi C. Sullivan

Vice President and

Chief Human Capital Ofﬁcer

Erik Thompson

Vice President andChief Marketing Ofﬁcer

Charles Toney

Vice President and Chief Actuary

Judy A. Walters

Vice President,

Corporate Affairs and Secretary

Simon Zhang

Vice President,

Chief Data and Analytics Ofﬁcer

This Annual Report document includes the following information from the Company's Form 10-K filed with the Securities andExchange Commission: 1) Mercury General Corporation's financialstatements and supporting data; 2) management's discussion and analysis of financial conditions and results of operations; and3) quantitative and qualitative disclosures about market risks.

The Mercury General logo and all product or service names, logos and slogans are registered trademarks or trademarks of Mercury GeneralCorporation. This document may contain references to other companies,brand and product names. These companies, brand and product names areused herein for identiﬁcation purposes only and may be the trademarks oftheir respective owners.

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Mercury General Corporation published this content on 22 March 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 26 March 2024 19:18:04 UTC.