MCY - Earnings call transcript Q1 2018 | Mercury General Corporation

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Operator

Good morning. My name is Amy and I will be your conference operator today. At this time, I would like to welcome everyone to the Mercury General First Quarter 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. General’s call plans, comments and expectations, which affect conference based forward-looking industry This and may current results on events, Mercury Instructions] may and contain statements trends, financial [Operator position. operating future and financial cannot those risks which quantified discussed future and here which cause to operations predicted results or today. Such statements of uncertainties, differ be involve activities and and may materially from over now to the Mr. like would I call to turn Gabriel Tirador. Sir, ahead. please go

Gabriel Tirador

Mercury’s like Officer. In President Thank conference Chairman; first Graves, me you to I President welcome President Tirador, quarter CEO. Senior would Chief and I and to is Houlihan, Chris Vice very Vice and the and Gabe am Vice Joseph, Robert Ted Stalick, call. everyone Product much. Chief and Investment CFO; with Mr. President George room Officer;

Before we questions, quarter. comments make few a we take regarding the will

California auto came and coverage of our line from XXX.X% per of million first XXX.X% primarily million by $X earnings injury of share earnings The $XX reduction earned by and the quarter compared reserve the accident in The business. the quarter was costs The lower operating first reserve in Our acquisition reserve an expenses first XXXX were deterioration was policy compared operating of ratio million unfavorable other quarter development, development flat in the negatively per $X.X first reinsurance compared impacted in combined XXXX. unfavorable of a losses partially a due in combined primarily to was the increase quarter of reinstatement quarter of $X.XX to unfavorable $X.XX operating earned. premiums ratio The on X.X% to increase to development lines of bodily XXXX. in premiums. year catastrophe in losses, offset catastrophe in share prior as

conference losses. fourth uses call, discussed the estimating ultimate historical we patterns development quarter for on Company our As loss

development tendency factored loss at exceed Company’s and ultimate few Company case selection. Company’s the patterns. past the actual years, have Over historical this tended loss into reserve paid the the Accordingly, XXXX, loss development to year-end

quarter to first was beyond into loss the year’s heavily fact expected we more more accident losses selections. developed During of bar Increased year traumatic factors that recent XXXX, year-end procedures, despite with weighted our are in injection development what utilization and aggressive including of XXXX alleged the an services severity. injury an plaintiffs’ California the along to medical injuries epidural surgical contributing in and brain bodily increase increase prior

winter automobile by catastrophe Catastrophe by the primarily from losses This the Fast XXXX, the XXXX. of in ratio and As mudslides in in passenger XX% quarter severity primarily injury to fourth due $XX XX% private the California. due losses Track, reported industry storms in for increased to to quarter in XXXX, of XXXX has were bodily the $X and million XX.X% million California of to rainstorms quarter increased first of loss severe compares in California. in liability

to Excluding into first rates the combined to increasing auto effect the reserve cost XX.X% California, quarter of personal The of X% expense compared In reinstatement XX.X% in been XX.X% was of ratio quarter ratio March. losses, the a The primarily the development ratio XXXX. from compared Company ceded efficiency loss went catastrophe first XX.X% first quarter in increasing decrease and average lower lower we’ve to increase XXXX. in in was and the XXXX premiums commissions impact To expense Mercury trends, states. savings. in in most of acquisition primarily due first in offset in quarter Insurance costs, rate help a the unfavorable was earned,

quarter, represents premiums about auto of average that for submitted passenger background, direct in Company quarter. business approximately XX% Premiums Mercury X.X% private the to Personal Department Companywide earned, companywide an to premiums are Company take Insurance competitors higher questions. Companywide represents now written, our Company Insurance XX% continue of their Insurance rates companywide approval X.X% pending and the Insurance and a Company of our premiums half increase in due applications in increase Company quarter new addition, about direct earned. Automobile Automobile Insurance. the auto and policies policy. we’ll In to grew primarily rate brief and increased underwriting. applications with in increase written as tighten increased the for the in premiums homeowners’ California With California Mercury X.X%

Operator

Raymond the of James. [Operator from line of first Instructions] Carl comes question Doirin Your today

line open. Your is

Carl Doirin

here. Just for of both auto. X-point Mercury California and pending mentioned -- a you’ve Gabe, clarification couple a rate increases

in California auto, mentioned the For fourth that you that X.X% quarter? same pending is it

Gabriel Tirador

Yes. That’s same one. the

filed I we that sometime September in think year. of that last

UnidentifiedCompany Representative

Mid-September.

Gabriel Tirador

Mid-September.

Carl Doirin

recently of can X% What that to then tell was that course, Mercury. -- And the -- you in effect that’s there what what’s pending? filed for went a was the rate was, March was increase us

Gabriel Tirador

X.X.

Carl Doirin

I rounds going right. just given development increases up catch with of you Okay, next in trends? sort course, forward, guess rate quarter, I -- just of you guess user how All thing. guess, adverse think of many same is the And the my I loss the question need

Gabriel Tirador

handle Robert, do you question? want to that

Robert Houlihan

Yes. year Based basis, are accident results better.

an we increases be the prospectively. will project think, profit enough maintain I underwriting pending rate to

Gabriel Tirador

Yes.

in little mentioned the about, development, development a is combined ratio excluding at at severity down BI you Frequency for the bit. earlier. if here up going away as is running about California companywide, We’re take XX.X% I

but of future, just development overall -- happens So, market. what a only depends the it not trends in the lot with with also with on

don��t that stabilize, as that we and rate if increases think be sufficient. Robert trends we to if accident going have development to pending are year So, that that from further basis, we have any an alluded

Carl Doirin

mentioned bar months also I versus than -- progressively XXXX seeing seen as fair. you more again aggressive. Okay, it are by the guess, plaintiffs And you meaning worst, you Have being go gotten XXXX? has worse

Gabriel Tirador

And ‘XX. trend continued. That I is somewhat in in started worse. increase it’s yes, probably Yes. that would feel that that we an ‘XX we anecdotal, ‘XX but say but ‘XX was in saw

As Track I Fast of spike ratio. in sort PPA earlier, loss pretty big liability the mentioned

then You really and have a ended off ‘XX beveled seems ‘XX saw a big bit about, spike then XX to ‘XX, a you and big XX, in a in in spike little ‘XX. then ended at ‘XX and at

So, increase the a in there’s trend really, been from ‘XX big in to industry. ‘XX,

Carl Doirin

Okay. last And of question for then, outside guess me. talk you of Can I sort growth about California?

Gabriel Tirador

posted Well, growth. outside like XX.X, California, combined there negative quarter. XXs, of the in had outside that, California high profitability. up in of a been something we’ve a We’ve the ratio shoring the We

application California little was California count though, a result was Auto up as was XX% the applications. so. The So count bit. for In about writer auto California almost app of top-line our has passenger non-standard or suffered XX% passenger a auto private including our outside of it in down that, Workmen’s XX%, private

Operator

Your line the comes Ransom next of Gary with question Partners. Dowling from &

Your line is open.

Gary Ransom

go the Yes. bodily Thank into I trends. you. to more injury wanted

am why certain and clarify I and sure the of injuries, those are mentioned why of understood You injuries. types significance Could are were what those you you not what those I new -- about severe saying different?

Gabriel Tirador

many we and one the which now didn’t Epidural we really and injections often epidural driven back many many in cases, just And that it our before plaintiffs’ back, had are as really injection view basically are procedures in In the the the the space more of between people seeing up cases. in built a lot now are back claims is in medical are be attorney. have accident. by the an these. many see used of attorney -- things injuries really They

special, coming that more are So, to claim. of epidural injections in in they being so our up and we the are the claims drive these attorneys medical the trying and up can of seeing driven by more cost drive

lot things to internally Now, to we are combat doing a that. of try

you an increase we increase in going in But nevertheless, to procedures, to when these impact of medical medical and have taking Some severity. it’s trial. are costs

to are people in also other traumatic go back and surgical back, brain the the seeing have willing surgery. procedures the And is ahead actually thing We more injuries. more

seeing there’s declined abilities same alleging that where the concussion. anymore, not of nature. they’re We’re and of more now They’re an a cognitive accident things and have that

the is increase or we’re the sum the severity more California. on industry in three it’s think in in So, here that think past. us, seen think off I it’s seeing I which why seeing those as what And not going industry, only to compared I things have the you’re in is

Gary Ransom

for So, been filtering that’s Track you as severity what think Fast well? into the you talking about in are

Gabriel Tirador

or And Absolutely. claims counsel handle a lot to industry. has of other for And impacting outside there’s our we’ve well. claims our that spoken the impacted is that this and as no question carriers handle

Gary Ransom

the auto -- I may I up Track right, also a side, but recall it? but may any call remember Fast have in the not I seen that of in data. the collision it’s kind on last lot trends was unusual you California, have exactly not repair right

Gabriel Tirador

at a Track, at lot. I at looking in little for of end and Fast Track ‘XX, Fast bit, bit, dipped of the here loss XX.X%; the ‘XX, mean, collision I not little XX.X%; it’s the PPA a end to XX%; was up ‘XX, ratio. it it’s end a According am at XX%; ‘XX, at of the XX.X%. ‘XX down

severity That loss frequency little includes seeing digits, that’s increases Now, in bit. increases. a ratio. down with rate But, mid single a Ted, we’re

Gary Ransom

claims things is I there answer get, What even side, management chance for do side? for pushing think maybe you plaintiffs’ underwriting just of the on is every do mean, you X.X% this, or the as -- the is the is could are solution all bar the more you --

Gabriel Tirador

I think, off it’s three.

been to years. better losses, something I the we’ve are claims think, we going the on last focused and to are couple there’s our segmentation continue which on things doing do is of that side,

with the agents the our On working and taking side underwriting also rate.

attacking all of the facets We’re this really problem, business. three

underwriting the and with some to side then by We’re to it trying on the taking attacking rates. on of side, these cases claim and some things trial, do

of it’s factors. combination all a So, three

Gary Ransom

increases more is When it, there call to becoming try the get you these rate sympathy are rate, commissioner any, that from necessary?

Gabriel Tirador

don’t… I

Gary Ransom

it word. Yes, maybe that’s is just as Or usual? wrong the business

Gabriel Tirador

you we’ve But get our do able been rate. I to And want Robert, comment to on that? --

Robert Houlihan

No.

the the think, more to formula of justify works at trend easier return surplus in system formulas, makes which through with its looks increase. higher that I it the department and rate losses the way

Gabriel Tirador

already major here competitor. And For has competitor in this like was X.X. a and example, at another big there’s they’ve something been X.X, actually that for California filed recently approved for yet approved X.X, one not

Gary Ransom

is of that or too or Has XX anyone just problematic? -- doing or possibility anyone XX does X the brave

Gabriel Tirador

way, think. Unless, Robert, do way too to… you I problematic. that’s think want behind, are don’t you probably I

Robert Houlihan

No.

at -- said, increase, rate on the unless step it and rate doesn’t much it’s the as it sense can that far beyond you file course, increases hearing, a so intervene hearing. X longer And and process so go the it’s no rate rate that request commissioner, is for Of of than if to you the you behind discretion of I make really potentially to more lengthy delay Gabe once think X%. are

Operator

from Returns [Operator comes Instructions] Management. Khare Samir Your next with question Capital line the of

line Your open. is

Samir Khare

Hi. What A Good centered from? questions development. morning. come accident few years this the year prior around does

Gabriel Tirador

from third About a spread half half; XXXX, over across is it Yes. years. is of from the little about accident it rest a ‘XX; is other and the of

Samir Khare

done charge review versus an type Okay. reserve from And in full does QX come or this a exercise? actual expected

Gabriel Tirador

also Both, a internal we expected; versus do actual and quarterly. our we full actuaries our actuaries have review do external

Samir Khare

of that Okay. compliant is within spoke The you region or increase California? more California widespread a in that to in plaintiffs bar specific activity before,

Gabriel Tirador

down it’s more the throughout down south. so seen I’ve and California. cases north would say, say, Southern But, would whole I in of I state.

Samir Khare

market Would submitted then, increases such? auto. exists hard that ability characterize rate the you’ve like the with market And to a California in for, the get current as you it sounds Okay.

Gabriel Tirador

I say so. mean, I would

a rate of on. activity deteriorated. have Results lot going think I there’s

in our recently in company. rate taken Our X% biggest are up a we’ve and counts California app increase XX%,

conservatorship that guess we Department was put carrier here under -- California. So, I had of by was in Insurance there one the

think industry So, that’s in I apps increase for just as well. some the

yes, characterize such would So, right as I now. it

Operator

turn at I And there any call presenters the to for back the in closing further remarks. queue no are questions this time.

Sorry, we do queue. in have question more one

Gabriel Tirador

Okay.

Operator

with Lincoln of From the line Square. Sam Hoffman

line open. Your is

Sam Hoffman

call. Yes. Thanks for taking my of the beginning missed question. the And I

or California any have know, have been impact covered. frequencies? seen you it But, impact to guys legalization any wanted of the marijuana may from do you on in anticipate that from I So,

Gabriel Tirador

seen that the regarding can’t impact we’ve any do say you have? of I legalization marijuana. to-date Robert

Robert Houlihan

than frequency No. the side at most point in I right, more severity mean, trends of are time. side, this the on

seen So, trend I haven’t broad some really am we cases, sure yet. there’re but a

Gabriel Tirador

Yes.

Sam Hoffman

that to And that place? example they’ve based Colorado your and of you feel have looked quarter that the quarter state like -- less an in an as expecting the fund you first do least California, confident at that it’s or at issue? first in you Are on take

Gabriel Tirador

know. monitor it. it monitor to it, don’t it. that legally, it it before impact. We’ll have we’ll As that quarter or have not first doesn’t buying just after people Whether I the Robert are had mentioned, appear to But, an smoking were the

Operator

further the remarks. no I And closing the turn for there’re queue. to questions their call back presenters in

Gabriel Tirador

for quarter in to the better everyone to you Hey, second results and I’d you. like thank Thank joining quarter. this hope us bring

Operator

this And today’s concludes conference call.

You may now disconnect.

Gabriel Tirador	President and CEO
George Joseph	Chairman
Ted Stalick	SVP and CFO
Robert Houlihan	VP and Chief Product Officer
Chris Graves	VP and Chief Investment Officer
Carl Doirin	Raymond James
Gary Ransom	Dowling & Partners
Samir Khare	Capital Returns Management
Sam Hoffman	Lincoln Square

Mercury General (MCY) 30 Apr 182018 Q1 Earnings call transcript