Mercury General Corporation Earnings Call Nuggets: Expense Ratio, California Auto

On Monday, Mercury General Corporation (NYSE:MCY) reported its first quarter earnings and discussed the following topics in its earnings conference call. Take a look.

Expense Ratio

Alison Jacobowitz – Bank of America Securities-Merrill Lynch: I guess a couple of questions. It looks like the tax rate on net investment income has been drifting up. Should we expect this to continue? Then also on the expense ratio, I think last quarter, you suggested that a normalized expense ratio might be a little bit higher than 27%, I think it was 27% to 28% range, this quarter came in a little lower. Would you make an adjustment to that statement or do you still think the expense ratio might tick up a little bit?

Gabriel Tirador – President and CEO: The tax rate is slightly higher on investments but I don’t expect that to continue o trend up, come back down even. As far as the expense ratio going forward, we’re still looking at around a 27% is where we’re expecting it to run.

Alison Jacobowitz – Bank of America Securities-Merrill Lynch: So, on the combined ratio, if you’re now making money outside of California overall, but overall combined ratio, I don’t think it’s really changed much over the past several years, does it mean that the California combined ratio is deteriorating, or am I missing something in the math there?

Gabriel Tirador – President and CEO: We have had some pressure in our California combined ratio. It’s still below 100%, and we do have some rate increases that are pending. We have both the homeowner rate find that we made a few years ago that just we finished up with the hearing there and expect the result from the Judges over the next several months. We have a California private passenger Auto rate that we filed that we are in discussions with the department about and we have a meeting scheduled with them sometime in May and that’s for about plus six. So, we have some rates that we plan on implementing sometime in the future in California to help with the combined ratio in California. Although I will say that the combined ratio in California still combined is well below a 100.

Alison Jacobowitz – Bank of America Securities-Merrill Lynch: If there were any cat losses in the quarter could you tell us and can you talk about frequency and severity trends maybe in general if any states are more problems than others, some have brought up Florida again as being an issue, just talk about what you’re seeing there?

Christopher Graves – VP and CIO: Florida continues to be an issue we’re seeing pressure on our loss costs we have been taking quite a bit of rate increase there. Generally though, we’re seeing slight increases in frequency low-single digits as well as in severity. As far as cats go it was a pretty quite quarter for Mercury at least as far as cats went.

Session 2:

Vincent D’Agostino – Stifel Nicolaus: I was curious if you might be able to comment on the accident years that the adverse development in the first quarter of ’12 happen to come from?

Theodore R. Stalick – VP and CFO: Primarily 2011 and 2010 and that was mostly in California auto. We did have a little bit of positive development from states outside of California offsetting that.

Vincent D’Agostino – Stifel Nicolaus: Then, I guess just looking at your pending rate increase in California auto and then just taking a look at some of the other insures, it seems like the pending time that it takes to get a request through is somewhere in the neighborhood of maybe five to six and maybe even more months than that. I’m just curious if in your opinion if there’s been any change in the current administration in the California Department of Insurance compared to previous ones, or if say half a year is what it’s always taken to get a rate request through it? It seems like I guess, maybe I’m wrong here, but it seems like that’s a long time to be able to get an approval and we’re looking at that being one plus policy period?