Mercury General Q4 2024 Earnings Report

Mercury General EPS Results

• Actual EPS: $2.78
• Consensus EPS: $1.94
• Beat/Miss: Beat by +$0.84
• One Year Ago EPS: N/A

Mercury General Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $1.40 billion
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Mercury General Announcement Details

• Quarter: Q4 2024
• Date: 2/11/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, February 12, 2025
• Conference Call Time: 12:00PM ET

Mercury General (NYSE:MCY), together with its subsidiaries, engages in writing personal automobile insurance in the United States. The company also writes homeowners, commercial automobile, commercial property, mechanical protection, and umbrella insurance products. Its automobile insurance products include collision, property damage, bodily injury, comprehensive, personal injury protection, underinsured and uninsured motorist, and other hazards; and homeowners insurance products comprise dwelling, liability, personal property, and other coverages. The company sells its policies through a network of independent agents, insurance agencies, as well as directly through internet sales portals in Arizona, California, Florida, Georgia, Illinois, Nevada, New Jersey, New York, Oklahoma, Texas, and Virginia. Mercury General Corporation was founded in 1961 and is headquartered in Los Angeles, California.

Mercury General Q4 2024 Earnings Call Transcript

Presentation

[Operator]

Good morning, and welcome to the Mercury General Corporation's Fourth Quarter twenty twenty four Conference Call. All participants will be in listen only mode. Please note this event is being recorded. This conference call may contain comments and forward looking statements based upon current plans, expectations, events and financial and industrial trends, which may affect Mercury General's future operating results and financial position. Such statements involve risks and uncertainties, which cannot be predicted or quantified and which may cause future activities and results of operations to differ materially from those discussed here today.

[Operator]

I would now like to turn the conference over to Gabriel Tirador, CEO. Please go ahead.

[Gabriel Tirador, Director & CEO at Mercury General]

Thank you very much. I would like to welcome everyone to Mercury's fourth quarter conference call. I'm Gabe Tirador, Chief Executive Officer. In the room with me is Victor Joseph, President and Chief Operating Officer Ted Stalek, Senior Vice President and CFO Chris Graves, Vice President and Chief Investment Officer. Before we begin, I want to say that our thoughts are with all those affected by the recent catastrophic wildfires in Southern California.

[Gabriel Tirador, Director & CEO at Mercury General]

The wildfires have had a devastating impact on communities and individuals. Several of our executives, including many of those on the call, recently toured Altadena to see it is heartbreaking to see so many people impacted by this disaster. In times like these, our role as insurance professionals becomes even more critical. Our primary mission is to provide support and assistance to our insureds when they need it most. And I am so proud of our customer facing team members wavering commitment to helping our fellow Californians who have entrusted us with their protection.

[Gabriel Tirador, Director & CEO at Mercury General]

Turning to our fourth quarter and full year results, 2024 was a year for the record books. We are very pleased to report that our fourth quarter after tax operating income of and our $98,000,000 were the highest in the company's history. The combination of rate increases and moderating inflation helped drive down our combined ratio in the quarter to 91.4% and our year to date combined ratio to 96%. Catastrophe losses in the quarter were $41,000,000 and added $3,500,000 for the full year 2024, which added 5.5 points to the full year 2024 combined ratio. Excluding catastrophe losses, the combined ratio was 88.3% in the quarter and 90.5% for the full year.

[Gabriel Tirador, Director & CEO at Mercury General]

Investment income after tax was $61,500,000 in the quarter 2024, an increase of 1518% over the prior year quarter and year respectively. Fueling the increase in investment income was an increase in average investment balances of 16% in the quarter and 12% for the full year 2024. Premium growth coupled with strong investment and underwriting income Net premiums written grew 16% to 1,300,000,000 in the quarter and 20.5% to $5,400,000,000 for the full year 2024. The increase in net premiums written was primarily due to higher average premiums per policy for rate increases. Our strong operating results helped fuel our growth in company history.

[Gabriel Tirador, Director & CEO at Mercury General]

As we look towards 2025, our core underlying business, which excludes catastrophe losses, is poised to deliver good results. Our personal auto and homeowners business, which comprises 88% of companywide earned premium, posted favorable 2024 and full year 2024. For the full year 2024, our personal auto business posted a core underlying combined ratio of 92.1% and our homeowners business posted a core underlying combined ratio of 76.1%. In addition, we expect 2025 investment income to be near 2024 levels. Four underlying earnings to provide capital generation in 2025, which will help build back the capital lost from the wildfires.

[Gabriel Tirador, Director & CEO at Mercury General]

We estimate our gross catastrophe losses from the January wildfires before our share of fair plan losses to be in the range of $1,600,000,000 estimate is based on total insured values, payout ratios and other data from previous large wildfire events. Pretax net catastrophe losses are estimated to be $155,000,000 to $325,000,000 The range of net catastrophe losses was determined based on various assumptions for gross losses and levels of reinsurance utilization. In addition, reinstatement premium is estimated to be $80,000,000 to $101,000,000 and will be prorated between the first and second quarter of twenty twenty five. On an after tax basis, we estimate the net impact of wildfires to statutory surplus in the first quarter of $5,000,000 to $295,000,000 However, as previously mentioned, we expect our core underlying earnings to partially offset the impact of the catastrophe losses from the wildfires. Yesterday, the California Department of Insurance approved the fare plan's request for a $1,000,000,000 company's participation rate in the fare plan is approximately 5%.

[Gabriel Tirador, Director & CEO at Mercury General]

Accordingly, we expect about a $50,000,000 assessment from the fare plan. 50% of this assessment is recoupable via a temporary supplemental fee to policyholders. Fair plan losses can be added to reinsurance.

[Gabriel Tirador, Director & CEO at Mercury General]

Ted?

[Theodore Stalick, SVP & CFO at Mercury General]

Thanks, Gabe. So, moving on to the next slide, talking about reinsurance. So, the company's catastrophe reinsurance program provides $1,290,000,000 of limits on a per occurrence basis after covered catastrophe losses exceed the company's retention. The company also has up to $20,000,000 of coverage on a property excess of loss reinsurance treaty available to offset losses exceeding $5,000,000 for property that attaches prior to the catastrophe limits.

[Theodore Stalick, SVP & CFO at Mercury General]

And the company expects to use approximately $10,000,000 to $20,000,000 of those limits for wildfire claims. Program, 1% of the reinsurance limit of the $650,000,000 in excess of $650,000,000 coverage layer was placed as parametric coverage that pays out based on industry insured values and predetermined grids within the fire footprint and the company's participation percentage within that grid. Will not be eligible for recovery and as such $6,500,000 of the $1,290,000,000 of total limits does not qualify for the Eden or Palisades fire. The company's catastrophic reinsurance treaty allows for the combining of events that occur within a 150 mile radius as a single if each individual event is classified as its own catastrophic event by the Property Claims Service unit or PCS, a unit of the Insurance Services Office, each event can be considered a separate occurrence. In the case of the Palisades and Eaton wildfires, the PCS has designated each as a separate event fires as two separate events.

[Theodore Stalick, SVP & CFO at Mercury General]

As more information becomes available to the company, including any subrogation potential, the company will evaluate whether it will consider the wildfires as two separate events. In addition, catastrophe losses from the California Fair Plan are covered by reinsurance up to the limits provided. We have paid $800,000,000 out to our insureds, primarily for 100% of Coverage A dwelling limits, advances up to $250,000 on contents and advances for additional living expenses. We have billed dollars to our reinsurers and have received back actually as of this morning $531,000,000 to date. We have over $1,000,000,000 cash on hand and the cash is currently earning 4.35%.

[Theodore Stalick, SVP & CFO at Mercury General]

In large cat events, typically two thirds of the dollars are paid out. In the near mark, 80% of the dollars are paid out. We are now past the largest part of the surge in demands for cash from this event. For our estimated ultimate losses, we have identified the total losses from claims being reported by policyholders, on ground inspections and total insured value for each total loss, which includes dwelling limits, additional replacement costs, contents, debris removal, additional structures, plants and landscaping and additional living expenses. We take the total insured values and apply payout percentages from other significant wildfire events such as the to estimate the ultimate loss on all of our total losses.

[Theodore Stalick, SVP & CFO at Mercury General]

Typically during major wildfires, total losses comprise most of the ultimate losses. Partial losses have a longer reporting tail and differing dollar amounts depending on the type of claim. We look at partial claim reporting patterns on previous large type to determine our ultimate loss on partials. 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.

[Theodore Stalick, SVP & CFO at Mercury General]

Subrogation at these levels make it less likely we will consider the Palisade and several previous wildfire events caused by utility company equipment, we sold our subrogation rights, but we have not determined whether we will do so with the Eaton Fire. There is active interest in purchasing the company's subrogation rights. With all that background, we will now open it up for questions.

[Operator]

We will now begin the question and answer session.

Can you hear us?

[Operator]

Speakers, are you ready to take your questions?

[Gabriel Tirador, Director & CEO at Mercury General]

Yes.

[Operator]

Okay. So your first question comes from the line of Gregory Peters from Raymond James. Please go ahead.

[Gregory Peters, Managing Director - Equity Research at Raymond James Financial]

Good morning, everyone.

[Gregory Peters, Managing Director - Equity Research at Raymond James Financial]

A couple of questions for you. First, I know it's speculation, but do you have any indication on what the fair plan total loss might look like? I think they just you talked about the $1,000,000,000 that they're going to assess, but do you have any view on what the total fair plan loss might look like?

[Gabriel Tirador, Director & CEO at Mercury General]

We do not. Hi, Greg, we do not.

[Gregory Peters, Managing Director - Equity Research at Raymond James Financial]

Okay. Well, I think one of the bigger questions that's popped up recently is just as you work your way through paying off these losses, you talked about stress in our capital. Can you talk about how you view your premiums to capital ratio? Is there any wiggle room if there's a deviation above the three:one benchmark considering the strength of your underlying results? Just give us some perspective on how you're viewing capital.

[Gabriel Tirador, Director & CEO at Mercury General]

We think that as a result of this event, we're going to be up in the high 2s, three, maybe low 3s, depending on what we end up booking. But as I mentioned earlier, we consider this really a 2025 earnings event, right? I think that with our strong core underlying earnings, we're going to build back our surplus and drive down that premiums to surplus ratio. So and we'll be watching our growth, but we want to grow our auto business. We want to grow our homeowners business prudently.

[Gabriel Tirador, Director & CEO at Mercury General]

And we think that the premium to surplus ratio, as I mentioned earlier, it's going to be in the high two's to low three's, but I think the surplus that we're going to earn through our core underlying earnings are going to drive that ratio back down.

[Gregory Peters, Managing Director - Equity Research at Raymond James Financial]

Okay. And I know you're still in the process of paying claims, but can you talk about how you think about the efforts to recover your reinsurance pricing in your homeowners rate going forward? Because it certainly seems like your reinsurance costs are going up. And then on that point, maybe you could give us a view on how you think the reinsurance market might respond to your renewal later this spring?

[Gabriel Tirador, Director & CEO at Mercury General]

I'm going to have Jeff answer that.

[Jeff Schroeder, VP & Chief Product Officer at Mercury General]

Hi, Greg. First and foremost, I want to reiterate that we recently received approval on a 12% increase on our homeowners book in California and that will be effective towards the end of next month, March of this year. We are evaluating the next steps with where our rate needs to be, looking ahead to the second quarter of this year as when we would be looking to take the next action with our rate at that particular time. As far as the second part of your question, as far as the reinsurance renewal, we are in continuous conversation with our reinsurance partners. That is a normal part of the process.

[Jeff Schroeder, VP & Chief Product Officer at Mercury General]

Our renewal is sevenone of this year. And we expect the reinsurance process to go as expected. Obviously, this event will be factored in and we do expect our costs to go up at least moderately during this period and we will share more as we have that information towards the sevenone deadline.

[Gregory Peters, Managing Director - Equity Research at Raymond James Financial]

Makes

[Gregory Peters, Managing Director - Equity Research at Raymond James Financial]

sense.

[Gabriel Tirador, Director & CEO at Mercury General]

I will add to that, Greg, that our expectation prior to the wildfires was for our reinsurance exposure, adjusted reinsurance premium to be flat to down. Obviously, this is going to change. And as Jeff mentioned, we'll know more as we go out. So, we are expecting some kind of an increase.

[Gabriel Tirador, Director & CEO at Mercury General]

But prior to the wildfires, we were expecting our reinsurance exposure adjusted rates to be flat to down.

[Gregory Peters, Managing Director - Equity Research at Raymond James Financial]

Great. I guess the last question I'll have for you is just, can you talk about I mean getting back to your core underwriting business, the underlying results, can you talk about just the frequency and severity trends in your auto and how it sets up for this year's expectations?

[Gabriel Tirador, Director & CEO at Mercury General]

Sure. I'm going to let Jeff handle that as well.

[Jeff Schroeder, VP & Chief Product Officer at Mercury General]

Hey, Greg, I can answer that. So our frequencies in auto are showing a small decline for property damage and collision and are close to flat for bodily injury. On the severity side, we're seeing low to mid single digits for property damage and collision and mid teens for bodily injury.

[Operator]

Your next question comes from the line of Guy Baron from Spring View. Please go ahead.

[Guy Baron, Managing Partner at Springview Capital Management LP]

Hi. Thank you for opening the call and for taking my question. So in the fourth quarter, you generated close to $3 of operating earnings share, which annualizes that to a very big number. I guess, fourth quarter is a lower cat quarter, so maybe it's closer to $10 annualized of operating earnings. And so can you talk about to what extent this level of earnings power is sustainable in your view while giving consideration for future reinsurance costs to Greg's question and your internal modeling for future cats incorporating that the rate increases that you've been that you referred to earlier on the homeowner side?

[Gabriel Tirador, Director & CEO at Mercury General]

It's a good question. We posted a 9191.4% combined ratio in the quarter. We do expect over time to that move up closer to our target, our target being closer to about a 96%. I don't think that's going to happen overnight. We're going to continue to monitor our cost structure and make and our trends and make necessary filings as needed.

[Gabriel Tirador, Director & CEO at Mercury General]

But I think over time, you'll see the combined ratio probably go up closer to our target.

[Guy Baron, Managing Partner at Springview Capital Management LP]

Do you believe that the California DOI now understands the need to allow insurers to take appropriate rate actions following the wildfire?

[Gabriel Tirador, Director & CEO at Mercury General]

I do. I mean, I think the commissioner is with his sustainable insurance strategy has kind of made that clear in his view. I mean, he's promulgated some regulations that were going to allow us to include reinsurance in the cost and also allowing models. So, I do believe that the Department of

[Guy Baron, Managing Partner at Springview Capital Management LP]

quick one on the subrogation. When you sold your 2018 subrogation rights, I think it was like $10,000,000 that you received. Can you tell us what were the proceeds relative to your initial estimate of what the subrogation recovery would ultimately have been or what it actually ended up being?

[Theodore Stalick, SVP & CFO at Mercury General]

I'll

[Theodore Stalick, SVP & CFO at Mercury General]

take that, Guy. Yes, I'll take that, Guy. And just to give you a little bit more context, there's been something like 15 since 2017, there's been something like 15 utility caused wildfires where there has been recoveries by the insurance companies including Mercury on. I'll go through them real quick actually. In 2017, there was the North Bay Creek and Thomas in 2018, the Camp and Wolsey Twenty Nineteen, Getty, EZ, Kincaid, Maria Taneya Twenty Twenty Bobcat Zog, Pine Haven, Silverado Twenty Twenty One Dixie Twenty Twenty Two Coastal and Fairview.

[Theodore Stalick, SVP & CFO at Mercury General]

And the recoveries on those events range from around 55% to 70%. So, there is a well established track record of utilities paying out substantial recoveries on previous wildfires. We do have a very active interest in mercury selling our subrogation rights. Obviously, if you sell them, the amount is something less than what the ultimate recovery would be and we are evaluating that at this point in time. There's very strong evidence that the Eaton fire was caused by utility company equipment.

[Theodore Stalick, SVP & CFO at Mercury General]

There's video of the lines arcing and the fire starting at the bottom of the transmission tower. And we're going to aggressively pursue subrogation, especially for the Eden event.

[Guy Baron, Managing Partner at Springview Capital Management LP]

Okay. Well, thank you. Good luck and be well.

[Gabriel Tirador, Director & CEO at Mercury General]

Thank you.

[Theodore Stalick, SVP & CFO at Mercury General]

Thank you.

[Operator]

Your next question comes from the line of Kahlil Abumana from Coronet Capital. Your line is now open.

[Khalil AbuManneh, Senior Analyst at Carronade Capital]

Hi, good morning. Thanks for taking my question. Can you give us a little bit more background about on the claims themselves? How many claims have you received? How many of them are total losses?

[Khalil AbuManneh, Senior Analyst at Carronade Capital]

And can you expand on the $800,000,000 that has been paid through Friday? How much what percent of those claims was actually paid? And whether it's coverage A, C and D? I know you mentioned some numbers earlier, but expanding on what percent of the total kind of ACD coverage has been paid and more color on the claims numbers would be really helpful.

[Victor Joseph, COO, President & Director at Mercury General]

Hi. This is Victor. I'll take that question. So to date, we have about 2,700 claims that have been reported to Mercury. Of those claims, that's for both events.

[Victor Joseph, COO, President & Director at Mercury General]

Of those claims, we have about six fifty homeowners policies that are totaled and we have about another 150 totals that's spread out between landlord policies, renters, condos and commercial property. What we've done on most of them, more than 95% of them at this point is paid to Coverage A. And that obviously makes up a very large share of the Ultimates. Beyond that, we advance a portion of the contents coverage. We also have advanced ALE as we've worked with insureds, our customers to make sure that they have temporary housing as needed.

[Khalil AbuManneh, Senior Analyst at Carronade Capital]

Understood. It's pretty impressive how much has been distributed relative to the total damages relative when compared to like the fair plan and some of the other peers that have reported, good on you guys for distributing that. My second question is around like the $1,600,000,000 to $2,000,000,000 estimate. Can you I think that the information provided in the press release and the 10 K is all the ambiguous as to what methodology you got or what methodology you used to get to those figures. Can you kind of just explain how is there a bottoms up number that you have based on what you know are total losses today and what evidence you have on thinking about the maxes on A, C, D and then potentially like and other kind of claims that could come associated with those policies?

[Khalil AbuManneh, Senior Analyst at Carronade Capital]

And then you also the line was cutting out earlier. You mentioned something about the reinstatement of reinsurance. Is that included, the $80,000,000 to $101,000,000 in the gross estimate of $1,620,000 or is that additional?

[Theodore Stalick, SVP & CFO at Mercury General]

Yes, this is Ted. I'll take that call. So that question. So when we're doing our estimates of Ultimates, as Victor mentioned, we know the number of total losses and we apologize that some of our prepared script was cutting out. And so we've identified all the totals.

[Theodore Stalick, SVP & CFO at Mercury General]

We've done that through claims being reported by the policyholders, on ground inspections and aerial imagery. So we have a pretty good handle on all the totals. We know what the total insured value is for each one of the total losses. So you have the dwelling limits, the additional replacement costs, the contents limits, debris removal, additional structures, plants and landscaping, additional living expenses to name most of them. And so that makes up your total insured value.

[Theodore Stalick, SVP & CFO at Mercury General]

We then have previous major wildfire events such as the Camp Fire where we had about 200 totals on that, the North Bay Fire, Woolsey. And we know what percentage of the TIV we actually ultimately paid out on those events. It's a relatively tight range and it's a pretty high number as you can imagine. So we can just take the TIV from the totals that we know today, apply those percentages from previous very large wildfire events on total And that gives us a pretty reasonable estimate of what the ultimate loss will be on the totals. On the partials, those come in over time.

[Theodore Stalick, SVP & CFO at Mercury General]

There's smoke damage, there's evacuation, there's partial structures like fences or detached garages, a little bit longer reporting pattern on those. So, we know what's been reported to date. We know typically the tail on the reporting pattern based on other very large events. And we have an idea of what the average severities are on those based on other historical information and current information. And so we kind of look at all that to determine what the partial losses will be.

[Theodore Stalick, SVP & CFO at Mercury General]

Just to point out that the dollars from the total losses are by far the largest component of the ultimate loss for the company. So that's how we do how we can come up with our 1.6% to 2% range on the gross. What was the next I forgot the other question.

[Gabriel Tirador, Director & CEO at Mercury General]

The new

[Gabriel Tirador, Director & CEO at Mercury General]

incentive premium is not included. The new incentive premium is not included in those numbers?

[Theodore Stalick, SVP & CFO at Mercury General]

That's correct. So you'd have to add that $80,000,000 to $101,000,000

[Gabriel Tirador, Director & CEO at Mercury General]

80 million

[Gabriel Tirador, Director & CEO at Mercury General]

dollars to $101,000,000 and it's going to be charged evenly over the first and second quarter of twenty five

[Khalil AbuManneh, Senior Analyst at Carronade Capital]

Understood. Makes sense. And then one more question, if you don't mind. On the reinsurance policies, I know those are not public and you guys have provided some color as to how one would think about the one event versus two events question. But can you kind of expand whether you've had discussions with your reinsurers about the potential for classifying two events if need be and have they pushed back?

[Khalil AbuManneh, Senior Analyst at Carronade Capital]

What sort of dialogue with the reinsurers have you had around the potential for needing a second event and whether they're on board with that or not?

[Gabriel Tirador, Director & CEO at Mercury General]

Yes. Well, we've had discussions with our reinsurance broker and they've had discussions with our reinsurers. And we're really not receiving any pushback. We think that the contract is pretty clear. I will say this.

[Gabriel Tirador, Director & CEO at Mercury General]

I think with our subrogation potential, I think the likelihood of us classifying this as two events is less likely, but it's an option. And I believe that we'll probably make a decision on that relatively soon.

[Khalil AbuManneh, Senior Analyst at Carronade Capital]

Understood. Thank you. Understood.

[Gabriel Tirador, Director & CEO at Mercury General]

Yes.

[Operator]

Your next question comes from the line of Prem Nayanani from Plomato Advisors. Please go ahead.

[Prem Nainani, Managing Partner at Aplomado Advisors]

Hi all. Thank you for taking the question. I guess just to start with, in your reinsurance treaty language, does it specifically defer to PCS as far as being able to make a single or multiple event claim? Or is it purely defined by hours and distance?

[Gabriel Tirador, Director & CEO at Mercury General]

It defines PCS. Yes, it does.

[Prem Nainani, Managing Partner at Aplomado Advisors]

It differs to PCS?

[Gabriel Tirador, Director & CEO at Mercury General]

It differs to PCS. It does.

[Prem Nainani, Managing Partner at Aplomado Advisors]

Okay. And then around the subrogation piece, and help me understand this a little bit better. Do you those claims that are being made that you'll eventually recover through subrogation agreements, like that cash is out the door now, right? And then you're going to go into litigation or in some sort of process to recover that through subrogation. Is that correct?

[Theodore Stalick, SVP & CFO at Mercury General]

That's correct.

[Gabriel Tirador, Director & CEO at Mercury General]

Yes.

[Prem Nainani, Managing Partner at Aplomado Advisors]

Okay. And then, I guess, my last question would be, it seems like a lot of your peers have had a pretty strong view around fair claim damages. There's been stuff in the press and have had a pretty tight estimate of their losses. Can you give us a little bit more insight as to why you guys don't have that type of a view or not saying that at the moment? That's my last question.

[Gabriel Tirador, Director & CEO at Mercury General]

Well, I mean, from a gross loss standpoint, as Ted pointed out, we're taking a look at various previous wildfires and establishing a range. And one of the things that we wanted to do is tell our investment communities, look, we think that $1,600,000,000 is on the low end, we think that $2,000,000,000 is on the high end, And probably the number is going to be somewhere in between that. And it's based on various assumptions. It's based on the assumptions for growth losses. It's based on the assumption for various subrogation recoveries.

[Gabriel Tirador, Director & CEO at Mercury General]

So, we provided a range because of that.

[Prem Nainani, Managing Partner at Aplomado Advisors]

And could that range go higher as partial claims come in?

[Gabriel Tirador, Director & CEO at Mercury General]

I mean, I think anything is possible, but the purpose of the range that we gave out the range, the purpose of that range was for us to give you an idea of what we thought the low end of the range was and the high end. Is it possible to be above $2,000,000,000 I guess it is possible, but we feel that what we've done with providing a range is provide you with the high end of the range being $2,000,000,000 and the low end being $1,600,000,000 and most likely something in between.

[Prem Nainani, Managing Partner at Aplomado Advisors]

Right. But that's ex FAIR, right? And so FAIR is sort of the wild card out here. I know they've got $1,000,000,000 of assessments that they've put out as of yesterday, but I mean there are numbers out there that things are up in the $15,000,000,000 to $20,000,000,000 range

[Prem Nainani, Managing Partner at Aplomado Advisors]

of. So like how do you

[Prem Nainani, Managing Partner at Aplomado Advisors]

guys think about how to communicate that because that's really

[Prem Nainani, Managing Partner at Aplomado Advisors]

important.

[Gabriel Tirador, Director & CEO at Mercury General]

Yes, I mean for the FAIR plan, keep in mind that we can recoup up to the first one billion dollars for personal lines of assessments. We can recoup $0.5 on a dollar. Anything above $1,000,000,000 we can recoup 100%.

[Prem Nainani, Managing Partner at Aplomado Advisors]

Right. But that's not cash.

[Gabriel Tirador, Director & CEO at Mercury General]

In the calendar year.

[Prem Nainani, Managing Partner at Aplomado Advisors]

Right. But you're able to but that cash goes out the door to fair or to whoever and you're going to have to charge your clients more over that period, right? So, we're talking about the immediate need for capital.

[Gabriel Tirador, Director & CEO at Mercury General]

Yes. And we don't have any liquidity issues.

[Prem Nainani, Managing Partner at Aplomado Advisors]

All right. Fair enough.

[Prem Nainani, Managing Partner at Aplomado Advisors]

Thank

[Prem Nainani, Managing Partner at Aplomado Advisors]

you.

[Gabriel Tirador, Director & CEO at Mercury General]

This is not a liquidity issue.

[Theodore Stalick, SVP & CFO at Mercury General]

Yes. I would just add that our treaties, our reinsurance treaties allow for the inclusion of fair plan losses. So to the extent that we have, I've seen some of these worst case scenario fair plans, which by the way probably don't take into consideration that the fair plan has their own reinsurance. But even in its worst case scenarios, we can attach the fair plan losses to our reinsurance treaty, which we've done actually in previous massive wildfires. And on top of that, with these assessments, we're able to surcharge our policyholders to recoup those assessments.

[Theodore Stalick, SVP & CFO at Mercury General]

So, part of the reasons why we bifurcated the Mercury's losses from the Fair Plan losses is because we think that that's separate and it's something that is not going to be as significant to the company because of the ability to recoup it under our reinsurance and recoup Fair Plan assessments.

[Prem Nainani, Managing Partner at Aplomado Advisors]

And then, then what portion of Fair Plan loss do you think is Palisades versus Altadena?

[Theodore Stalick, SVP & CFO at Mercury General]

We don't know.

[Gabriel Tirador, Director & CEO at Mercury General]

We don't know that.

[Theodore Stalick, SVP & CFO at Mercury General]

But likely, Fair Plan is more Palisades is likely, but we don't know.

[Prem Nainani, Managing Partner at Aplomado Advisors]

Got it.

[Prem Nainani, Managing Partner at Aplomado Advisors]

Cool. Thank you.

[Victor Joseph, COO, President & Director at Mercury General]

Just to add to that. Yes, this is Victor. I do want to add something because you threw out some numbers earlier around a range of $15,000,000,000 to $20,000,000,000 And although not all information on the Fair Plans exposures is public, I think they came out yesterday saying that their exposure is about $4,000,000,000 So I do want to kind of clear that up. If you read everything they're saying, it's clear in their statements.

[Gabriel Tirador, Director & CEO at Mercury General]

And I would say that's exposure not necessarily the office, correct?

[Victor Joseph, COO, President & Director at Mercury General]

Yes.

[Gabriel Tirador, Director & CEO at Mercury General]

Yes. So potential before reinsurance.

[Operator]

Your next question comes from the line of Ian Holland, private investor. Please go ahead.

[Analyst]

I was wanted to ask, so you all say you have 800 structures that are total loss, correct? And the numbers there are six fifty HO3 and then 150 landlord and condo, correct?

[Gabriel Tirador, Director & CEO at Mercury General]

Correct.

[Theodore Stalick, SVP & CFO at Mercury General]

No.

[Gabriel Tirador, Director & CEO at Mercury General]

No.

[Theodore Stalick, SVP & CFO at Mercury General]

He left out renters. The $150,000,000 figure includes renters as well, which is obviously significantly lower.

[Gabriel Tirador, Director & CEO at Mercury General]

Yes. Did you hear that?

[Analyst]

Yes. Yes, I heard that. You were cutting out a little bit earlier. So if you know that, what's the total insured losses for that segment of your book?

[Victor Joseph, COO, President & Director at Mercury General]

What do you mean by total insured losses? Do you mean total insured value? Do you mean the total value that's exposed?

[Analyst]

Yes.

[Analyst]

Yes.

[Victor Joseph, COO, President & Director at Mercury General]

Yes. As we mentioned earlier, we're not reporting that figure. I would say that our estimate of the ultimate for total losses is based on the TIV and the percentage the percentages are almost the entirety of the TIV. So that's where our estimates come from.

[Analyst]

But so if you know that the structures are damaged, I mean, you're going to pay out these people most likely at the high end of the damage value, correct?

[Victor Joseph, COO, President & Director at Mercury General]

That's true.

[Analyst]

So why don't you report that number on your press release?

[Gabriel Tirador, Director & CEO at Mercury General]

Look, this is pretty quite simple. We're estimating pretax loss, gross loss of $1,620,000,000 We kind of shared how we went through the process of estimating that loss. We're taking total insured value for total losses and we're taking a look at historic other wildfires and applying a range of percentages based on historic. And then we're adding a process for partials and others, as Ted mentioned. We have some autos in there as well.

[Gabriel Tirador, Director & CEO at Mercury General]

And we come up with a range of $1,600,000,000 to $2,000,000,000 and that's what we did.

[Analyst]

But why are you using the historic values if you know the number of properties that you ensure that have been destroyed? I mean, early in the call, you were talking about people on-site and satellite data.

[Analyst]

So why do you get historical numbers?

[Gabriel Tirador, Director & CEO at Mercury General]

The historic values are percentages of what you end up paying of total insured value. So, it could range from anywhere from 80% to 90% of your total insured value, as an example, that you ultimately pay out. But we're using a range of what we ultimately pay out of total insured value, a percentage to come up with a growth, a low end and a high end.

[Analyst]

So, the total structures destroyed, what I'm hearing is that you don't actually know the insured value of these structures that have been destroyed?

[Gabriel Tirador, Director & CEO at Mercury General]

No, you're not. Look, this is not complicated. Look, we have total insured values, right? We have total insured values. We know what that number is.

[Gabriel Tirador, Director & CEO at Mercury General]

We have a range of what we estimate we think we're going to pay of that total insured value based on previous wildfires. That's simple. Let's move on.

[Analyst]

Why are you basing it on previous wildfires?

[Theodore Stalick, SVP & CFO at Mercury General]

Look, for example, on the Camp Fire or the North Bay Fire, we know that we've paid out 80% to 90% of the total insured value on each total loss that was our ultimate loss. So, if we had $1,000,000 total insured value, the ultimate loss would say 90% of that on average. So, our ultimate loss was $900,000 in that example. So, that 90% we apply to the total insured value on the current event on the Eaton and Palisades fire and that's how we get the number.

[Gabriel Tirador, Director & CEO at Mercury General]

We're going to move on to the next question.

[Operator]

Yes. I mean, just your last question comes from the line of Dan David from Wolfpack Research. Please go ahead.

[Dan David, Founder at Wolfpack Research]

Hi, gentlemen. Thank you for taking my question. I've obviously been concerned about what's been going on with these wildfires and your company. Some of the things that really perplexed me is, why are you reporting far less of an average than your peers, less than 50% in many cases, if you really look at it and what's been disclosed? How is it that

[Gabriel Tirador, Director & CEO at Mercury General]

An average of what? An average of what?

[Dan David, Founder at Wolfpack Research]

Well, our policy is enforced. I mean, you have how many policies enforced, right? Nine twenty nine, right? And you're averaging thirteen seventy versus farmers fourteen forty five, and they have one third of the PIFs in Palisades.

[Gabriel Tirador, Director & CEO at Mercury General]

Look, I don't know what

[Gabriel Tirador, Director & CEO at Mercury General]

farmers Look, I don't know what farmers Look, I know

[Dan David, Founder at Wolfpack Research]

you're a Look,

[Gabriel Tirador, Director & CEO at Mercury General]

I know you're upset.

[Dan David, Founder at Wolfpack Research]

They're in your industry, you should know.

[Gabriel Tirador, Director & CEO at Mercury General]

No, I do know. I know you're upset because you shorted our stock. And it is what

[Gabriel Tirador, Director & CEO at Mercury General]

it is.

[Dan David, Founder at Wolfpack Research]

I'm not upset. I'm doing fine. I'm doing fine.

[Dan David, Founder at Wolfpack Research]

I just want you guys to not

[Dan David, Founder at Wolfpack Research]

drip it out here three months, four months later as you're collecting higher premiums. Let's just have an honest conversation here. Really? I mean, let's just have an honest conversation. How are you the best in class there?

[Dan David, Founder at Wolfpack Research]

I mean, you're doing historical numbers, right? So you're not boots on the ground. Did the fires just burn around your properties? I mean, and not Allstate travelers or farmers?

[Gabriel Tirador, Director & CEO at Mercury General]

I have no the total as far as total losses, we know that number exactly. They're pretty close. I don't know what you're talking about. Are you saying that we're hiding the number of total losses? Is that what you're saying?

[Dan David, Founder at Wolfpack Research]

I'm saying

[Dan David, Founder at Wolfpack Research]

you're underestimating it. I mean, certainly with the reinsurance, I mean with the subrogation, are you minusing that out already? Are you just like saying you're going to win in court for subrogation and you're minusing that out right now? Because you've got to pay that the whole time, right?

[Gabriel Tirador, Director & CEO at Mercury General]

We've gone through what the subrogation, what that looks like. We've talked about the potential for Yes, we'll

[Dan David, Founder at Wolfpack Research]

go through it again.

[Gabriel Tirador, Director & CEO at Mercury General]

Okay. I've done it already. So No,

[Dan David, Founder at Wolfpack Research]

look, if you're not including the Eaton Fire in your $2,000,000,000 number, then the whole thing is total bullshit, right?

[Gabriel Tirador, Director & CEO at Mercury General]

Because you've got a What are you talking about it's not included in the $2,000,000,000 No, you're saying we're going to

[Dan David, Founder at Wolfpack Research]

end You're saying you're minusing out

[Gabriel Tirador, Director & CEO at Mercury General]

Subrogate Let's end this call.

[Dan David, Founder at Wolfpack Research]

You're minusing out Subrogate

[Gabriel Tirador, Director & CEO at Mercury General]

This is the question

[Operator]

and answer session. I would now like to turn the conference back to Gabriel Hirdor for any closing remarks. Sir, please go ahead.

[Gabriel Tirador, Director & CEO at Mercury General]

Well, thank you very much for joining us today. That was interesting. Anyway, thank you for joining us today and we'll talk soon. Thank you.

[Operator]

This concludes today's conference call. Thank you for attending today's presentation. You may now disconnect.

Participants

Executives

• Gabriel Tirador, Director & CEO
• Theodore Stalick, SVP & CFO
• Jeff Schroeder, VP & Chief Product Officer
• Victor Joseph, COO, President & Director

Analysts

• Gregory Peters, Managing Director - Equity Research at Raymond James Financial
• Guy Baron, Managing Partner at Springview Capital Management LP
• Khalil AbuManneh, Senior Analyst at Carronade Capital
• Prem Nainani, Managing Partner at Aplomado Advisors
• Analyst
• Dan David, Founder at Wolfpack Research