Mercury General Earnings Call Nuggets: California Rate Increase, Annual Policies Shift

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

California Rate Increase

Meyer Shields – Stifel Nicolaus: Two quick questions if I can, one are the policies that are going to reflect the rate increase in California, are those going to be 12 months or six month policies?

Gabriel Tirador – President and CEO: They are a combination of both, but I would say the majority are six month policies that I would say probably 90% of the policies are six months right now.

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Meyer Shields – Stifel Nicolaus: Is it simply the insurance decision about whether you are going six months or 12?

Gabriel Tirador – President and CEO: Well in Mercury Insurance Company we started writing annual policies earlier this year. So Mercury Insurance which is by far our biggest company in California, there was not option. It was historically only six month that we rolled, but typically the agents talked to be insured about the various alternatives and it’s up to them to decide whether it’s a six month of 12 month policy. But in our largest company again, we get started writing annual policies recently.

Meyer Shields – Stifel Nicolaus: I guess the pre-tax investment yield pick up fairly significant from the second quarter. Just wondering whether you could talk to that a little bit?

Gabriel Tirador – President and CEO: On the pre-tax or the after tax or both?

Meyer Shields – Stifel Nicolaus: I look at on a pre-tax basis, but something on the after tax then please let me know?

Gabriel Tirador – President and CEO: Well there has been a larger allocation to dividend paying stock in the portfolio and Chris you want to talk about that.

Christopher Graves – VP and CIO: In terms of the pretax we are trying to pick up more yield mainly off of the dividend stocks, municipal bond income levels, the reinvestment yields are so low right now in going out on the curve doesn’t make a lot of sense to me. So we guys allocated quite a bit more into common equities. That’s mostly what’s driving that change.

Gabriel Tirador – President and CEO: Then on the after tax that’s also driving the effective tax rate up a little bit on investment income as the dividends are not as tax sheltered as the municipal bond interest.

Annual Policies Shift

Alison Jacobowitz – Bank of America Merrill Lynch: I guess two questions. One is did the shift to annual policies impact premium growth materially this quarter? Then the second is did you make any changes to current year reserves in the quarter?

Gabriel Tirador – President and CEO: Well the shift to annual policies really started in late December last year and we are seeing that under 7% of the total California personal auto policies written are now annual policies. But it’s hard to tell because it’s somewhat distorted when you look at it on a year-over-year basis and there was somewhat of an offset from the temporary declines in retention from the dislocation that was caused by our rate plan we implemented last December. We do know that California personal auto policies in force counts are up a little over 2% when you compare them from September of 2012 to September of 2011. So, to the extent that you can measure it based on policies-in-force. They are growing at a comparable rate to the rate of premium growth. On your question on the loss development within the year, we really Alison analyze it on a year-to-date basis now and so it’s hard for us to make any comment on what was happening within the current accident year.

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