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MG

MERCURY GENERAL CORP (MCY)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 was dominated by the January Southern California wildfires: MCY reported total revenues of $1.39B and operating EPS of -$2.29, as catastrophe losses drove a 119.2% combined ratio; however, results beat S&P Global consensus on both revenue and “Primary EPS” (company operating EPS), with revenue of $1.394B vs $1.364B and EPS of -$2.29 vs -$4.00* .
  • Net catastrophe losses were significant: $447M (net of reinsurance) in Q1; within that, MCY booked $414M pre-tax catastrophe losses and LAE (including $331M company net losses and $83M FAIR Plan share), recorded $525M of estimated subrogation recoveries (55% of Eaton fire losses), used $1.294B of catastrophe reinsurance, and recognized $50M of reinstatement premium (with another ~$50M to be earned in Q2) .
  • Liquidity and capital actions: MCY paid ~$1.076B of wildfire claims by 3/31, collected $606M from reinsurers (100% of initial billing) and $136M of a subsequent $224M billing, sold ~$600M of low-yield investments in January to increase liquidity, and ended Q1 with book value per share of $32.87 and statutory surplus of $1.88B (NPW/surplus 2.88x) .
  • Forward considerations: Option remains to treat Palisades/Eaton as two events (which would have modestly lowered net cats and reinstatement premiums in Q1); reinsurance costs expected to rise at July 1 renewal; CA homeowners +12% rate increase effective March should support pricing; AM Best revised outlooks to Negative given uncertainty on ultimate net wildfire losses and reinsurance costs .

What Went Well and What Went Wrong

  • What Went Well

    • Revenue and “Primary EPS” beat a low-consensus bar: revenue $1.394B vs $1.364B*, and Primary EPS (operating) -$2.29 vs -$4.00*; net investment income increased to $81.5M (before tax), aided by higher yields and asset mix changes .
    • Favorable prior-year reserve development of ~$51M (mainly auto and homeowners) partially offset catastrophe headwinds .
    • Liquidity execution: ~$600M of low-yield investments sold to fund claims and reduce portfolio volatility; reinsurance recoverables billed/collected promptly ($606M fully collected; $136M collected from a second $224M billing by May 1) .

  • What Went Wrong

    • Catastrophe severity: Net catastrophe losses of $447M drove loss ratio to 95.1% and combined ratio to 119.2%; operating EPS -$2.29 and GAAP EPS -$1.96 despite higher investment income .
    • Capital pressure: Statutory surplus fell to $1.88B and NPW/surplus rose to 2.88x; AM Best revised outlooks to Negative amid uncertainty around ultimate wildfire losses and reinsurance costs .
    • Higher ceded premium and reinstatement costs: Reinsurance fully utilized on the event; increased ceded premiums ($76M earned impact, $127M written) and $50M reinstatement premium expense in Q1, with another ~$50M to be recognized in Q2 .

Financial Results

Headline P&L and Ratios (quarterly progression)

MetricQ3 2024Q4 2024Q1 2025
Total Revenues ($USD Billions)$1.530 $1.366 $1.394
Net Premiums Earned ($USD Billions)$1.321 $1.352 $1.283
Net Investment Income ($USD Millions)$72.7 $73.3 $81.5
GAAP Diluted EPS ($)$4.17 $1.82 $(1.96)
Operating EPS ($)$2.54 $2.78 $(2.29)
Loss Ratio (%)69.5% 68.4% 95.1%
Expense Ratio (%)24.0% 22.9% 24.0%
Combined Ratio (%)93.6% 91.4% 119.2%
Catastrophe Losses Net of Reinsurance ($USD Millions)$39 $41 $447

Q1 year-over-year comparison (Q1 2025 vs Q1 2024)

MetricQ1 2024Q1 2025YoY
Net Premiums Earned ($USD Billions)$1.167 $1.283 +10.0%
Net Premiums Written ($USD Billions)$1.285 $1.314 +2.3%
Total Revenues ($USD Billions)$1.274 $1.394 +9.4%
GAAP Diluted EPS ($)$1.33 $(1.96) NM
Operating EPS ($)$0.78 $(2.29) NM
Combined Ratio (%)100.9% 119.2% +18.3 pts
Catastrophe Losses Net of Reinsurance ($USD Millions)$72 $447 +$375M

Consensus vs Actual (Q1 2025)

MetricConsensusActualSurprise
Revenue ($USD Billions)$1.364*$1.394 +$0.029B (beat)
Primary EPS ($)$(4.00)*$(2.29) +$1.71 (beat)
Estimates Count (#)Revenue: 1*——
Estimates Count (#)EPS: 1*——
Values with asterisks (*) retrieved from S&P Global.

Balance Sheet and KPIs

KPIQ3 2024Q4 2024Q1 2025
Book Value per Share ($)$33.63 $35.14 $32.87
Statutory Surplus ($USD Billions)$1.88 $2.03 $1.88
NPW / Surplus (x)2.76 2.65 2.88
Debt / Total Capital (%)23.6% 22.8% 24.0%
Portfolio Duration (yrs)3.0 3.4 3.8
Personal Auto PIF (000s)1,016 1,019 1,024
Homeowners PIF (000s)829 852 854
Commercial Auto PIF (000s)40 39 37

Note: Segment revenue/combined ratio by line were not disclosed in press materials; KPIs above reflect company-wide metrics .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent UpdateChange
Dividend per shareQ2 2025 pay date$0.3175 declared for Mar 27, 2025 (record Mar 13, 2025) $0.3175 declared; payable Jun 26, 2025 (record Jun 12) Maintained
CA Homeowners RateEffective Mar 2025—+12% approved; effective March New (pricing tailwind)
Reinstatement premium expenseQ2 2025—~+$50M to be earned in Q2 (in addition to $50M in Q1) New (expense timing)
Catastrophe reinsurance capacityRemainder of 2025—$1.238B of limits reinstated and available; $1.29B per-occurrence program (retention $150M) New (capacity restored)
Wildfire event classificationQ1 2025 accountingSingle-event booked in Q1Option to treat as two events; would have lowered Q1 net cats to ~$296M (ex-FAIR) and reduced reinstatement premiums to ~$92M written/$46M earned Monitoring
Subrogation recovery (Eaton)Multi-quarterRange discussed 40–70% (Q4 call) $525M (55%) recorded in Q1 as probable recovery; will monitor and re-evaluate quarterly Quantified in Q1

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024 and Q4 2024)Current Period (Q1 2025)Trend
Catastrophe exposure and lossesQ3: manageable cats; CR 93.6% . Q4: wildfires gross loss $1.6–$2.0B; net cats $155–$325M pre-tax; reinstatement $80–$101M .Net cats $447M; $414M pre-tax losses/LAE (incl. $83M FAIR Plan); paid $1.076B by 3/31; reinsurer collections ongoing .Intensified in Q1; moving to resolution.
Reinsurance program and costsQ4: $1.29B per-occurrence; July 1 renewal; costs to rise moderately .$1.294B used on event; $1.238B reinstated; $50M reinstatement premium earned Q1 (+$50M in Q2) .Costs up; capacity reinstated.
Subrogation (Eaton)Q4: strong evidence of utility cause; recovery 40–70% discussed .$525M (55%) recorded; active market to monetize rights; ongoing monitoring .Progressing; de-risking.
FAIR PlanQ4: ~$50M assessment; 50% recoupable; covered by reinsurance up to limits .$108M share of FAIR Plan losses recorded; $50M assessment with $25M recoupable surcharge filed .Quantified and partially recoupable.
Pricing/RegulatoryQ4: CA homeowners +12% approved; expectation of modeling/reinsurance cost recognition .Rate action effective March; no new Q1 update beyond execution .Supportive backdrop.
Investment income/liquidityQ3–Q4: NII up on higher balances/yields .Sold ~$600M low-yield assets; NII $81.5M; avg pre-tax yield 4.9% .Higher yield; liquidity optimized.
Capital/LeverageQ4: NPW/Surplus to high 2s–low 3s; rebuild through core earnings .Stat surplus $1.88B; NPW/Surplus 2.88x; Debt/cap 24.0% .Pressured; rebuilding underway.
Frequency/Severity (Auto)Q4: slight frequency declines; BI severity mid-teens .Not updated in Q1 press; prior trend relevant to core underlying .Stable-to-improving frequency; elevated BI severity.

Management Commentary

  • “As we look towards 2025, our core underlying business, which excludes catastrophe losses, is poised to deliver good results… We expect 2025 investment income to be near 2024 levels.” – CEO Gabriel Tirador (Q4 call) .
  • “We believe there is strong video and other evidence that shows utility equipment caused the Eaton fire. We estimate the range of recovery to be in the 40% to 70% range.” – CFO Theodore Stalick (Q4 call) .
  • “Limits totaling $1,238 million have been reinstated and are eligible to cover losses in excess of $150 million on future catastrophe events… The written and earned reinstatement premiums recorded… was approximately $101 million and $50 million, respectively. Approximately $50 million… will be earned in the second quarter of 2025.” – Q1 release .
  • “The Company recorded approximately $525 million in estimated subrogation recoveries, or approximately 55% of its estimated ultimate losses on the Eaton fire… There is a very active market… offering to purchase subrogation rights…” – Q1 release .

Q&A Highlights

  • Capital and surplus trajectory: Management expects NPW/surplus in the high-2x to low-3x range near-term but to rebuild via core underlying earnings through 2025 .
  • Reinsurance renewal and pricing: July 1 renewal in process; reinsurance costs expected to rise moderately relative to pre-wildfire expectations; rate actions aim to absorb cost changes over time .
  • Auto frequency/severity: Property damage and collision frequency slightly down; BI frequency flat; severity low-to-mid-single digits (PD/collision) and mid-teens (BI) .
  • FAIR Plan treatment: FAIR Plan losses can be attached to MCY’s reinsurance; 50% of the first $1B assessment is recoupable via policyholder surcharge .
  • Event classification and subrogation: Contracts allow two-event treatment per PCS designations; given subrogation potential, management indicated a two-event classification may be less likely, but preserved as an option .

Estimates Context

  • S&P Global consensus for Q1 2025: Revenue $1.364B (1 estimate), Primary EPS -$4.00 (1 estimate); Actuals: Revenue $1.394B, Primary EPS -$2.29. MCY beat on both revenue and “Primary EPS.” Values retrieved from S&P Global.*
  • Given the single-estimate nature, estimate dispersion was not available; we would expect sell-side to raise Primary EPS and adjust catastrophe/Loss & LAE and reinstatement timing assumptions following reported subrogation recognition and reinstated limits .

Key Takeaways for Investors

  • Cat losses drove a headline miss on underwriting margins, but beats vs consensus on revenue and Primary EPS reflect higher NII and favorable prior-year reserve development; the quarter should reset catastrophe expectations while highlighting core profitability ex-cat .
  • Subrogation is a meaningful lever: $525M (55%) booked on Eaton supports a path to lower net cats; any monetization of rights could accelerate cash realization and reduce uncertainty .
  • Reinsurance: Capacity reinstated ($1.238B) but costs likely move higher at 7/1; watch for pricing actions to offset (e.g., +12% CA homeowners effective March) and any further use of reinstated limits if a second event is designated .
  • Capital/surplus: NPW/surplus at 2.88x and surplus $1.88B post-event are manageable; management prioritizes rebuilding via core earnings and disciplined growth; AM Best outlook Negative underscores sensitivity to ultimate wildfire outcomes and renewal pricing .
  • Liquidity execution has been strong (asset sales, swift reinsurer collections); investment income tailwind persists with higher yields, aiding offset to near-term catastrophe drag .
  • Tactical setup: Catalysts include clarity on ultimate wildfire losses, potential subrogation monetization, July 1 reinsurance renewal terms, and continued rate actions in CA; narrative should improve as cats roll off and core underwriting trends reassert.

Citations

  • Q1 2025 press release and 8-K Exhibit 99.1:
  • Q4 2024 press release:
  • Q3 2024 press release:
  • Q4 2024 earnings call transcript:
  • AM Best outlook revision:

Estimates source

  • S&P Global consensus (Primary EPS, Revenue) for Q1 2025. Values retrieved from S&P Global.*