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1. Company Snapshot

1.a. Company Description

Mercury General Corporation, 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, fire, and other hazards.


The company sells its policies through a network of independent agents and 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.

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1.b. Last Insights on MCY

Mercury General Corporation's recent performance was driven by strong Q2 earnings, with net premiums earned increasing 10.6% year-over-year, and net realized investment gains surging 710%. The company's financial flexibility, favorable estimates, and higher return on capital also contributed to its positive performance. Additionally, Mercury Insurance's submission of California's first Sustainable Insurance Strategy homeowners rate filing, which provides more comprehensive coverage options for homeowners in higher risk areas, is a positive development.

1.c. Company Highlights

2. Mercury General Corporation's Fourth Quarter 2024 Earnings Report

Mercury General Corporation reported a record-breaking fourth quarter after-tax operating income of $98 million, driven by rate increases and moderating inflation. The combined ratio for the quarter was 91.4%, with a year-to-date combined ratio of 96%. Net premiums written grew 16% to $1.3 billion in the quarter and 20.5% to $5.4 billion for the full year 2024.

Publication Date: Feb -14

📋 Highlights
  • Record-Breaking Earnings: Mercury reported a record-breaking fourth quarter after-tax operating income of $98 million, driven by rate increases and moderating inflation.
  • Combined Ratio Improvement: The combined ratio for the quarter was 91.4%, with a year-to-date combined ratio of 96%, and an underlying combined ratio of 88.3% excluding catastrophe losses.
  • Investment Income Growth: Investment income after tax increased 15% to $61.5 million in the fourth quarter, and 18% for the full year 2024.
  • Catastrophe Losses and Reinsurance: Mercury estimates gross catastrophe losses from the January wildfires at $1.6 billion, with pretax net catastrophe losses ranging from $155 million to $325 million, and expects to use approximately $10 million to $20 million of reinsurance limits for wildfire claims.
  • 2025 Outlook: Mercury's core underlying business is poised to deliver good results in 2025, with core underlying earnings expected to provide capital generation and help build back the capital lost from the wildfires, and investment income expected to be near 2024 levels.

Strong Underlying Business Performance

The personal auto and homeowners business, comprising 88% of company-wide earned premium, posted favorable results in the fourth quarter and full year 2024. Investment income after tax was $61.5 million in the fourth quarter, an increase of 15% and 18% over the prior year quarter and year, respectively. As Gabriel Tirador, CEO of Mercury General Corporation, stated, "Mercury's core underlying business is poised to deliver good results in 2025."

Catastrophic Losses from Wildfires

Mercury estimates gross catastrophe losses from the January wildfires at $1.6 billion, with pretax net catastrophe losses ranging from $155 million to $325 million. The company has paid $800 million to its insureds primarily for 100% of coverage and has billed $1 billion to its reinsurers, receiving back $531 million to date.

Reinsurance and Subrogation

Mercury's reinsurance treaty provides $1.29 billion of limits on a per occurrence basis after covered catastrophe losses exceed the company's retention. The company expects to use approximately $10 million to $20 million of reinsurance limits for wildfire claims. As Gabriel Tirador explained, "The reinstatement plan is not included, and it will be charged evenly over the first and second quarter of 2025."

Valuation Metrics

With a current price-to-earnings ratio of 8.32 and a price-to-sales ratio of 0.74, the market appears to be pricing in a strong recovery in Mercury's underlying business performance. The dividend yield of 2.3% and free cash flow yield of 32.44% also suggest that investors are confident in the company's ability to generate capital and return value to shareholders.

3. NewsRoom

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New Year, New Coverage: Your Annual Insurance Checkup

Dec -04

Source: prnewswire.com

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Top 2 Financial Stocks That May Collapse This Quarter

Dec -01

Source: benzinga.com

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Mercury Insurance Urges Homeowners to Prepare for Winter's Unpredictable Weather

Nov -25

Source: prnewswire.com

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Drive Confidently This Winter with Tips From Mercury Insurance

Nov -21

Source: prnewswire.com

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From Crowded Lots to Long Drives: Navigating Holiday Travel with Confidence

Nov -20

Source: prnewswire.com

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Mercury General: From Red Flag To Reluctant Buy

Nov -20

Source: seekingalpha.com

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MCY Outperforms Industry, Hits 52-Week High: How to Play the Stock

Nov -19

Source: zacks.com

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Mercury Insurance Offers Ways to Keep Thanksgiving Celebrations Safe and Joyful

Nov -13

Source: prnewswire.com

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (4.78%)

6. Segments

Property and Casualty

Expected Growth: 4.78%

Mercury General Corporation's Property and Casualty segment growth of 4.78% is driven by increased premiums from expanded product offerings, strategic partnerships, and geographic expansion. Additionally, favorable underwriting results, improved claims management, and a strong brand reputation contribute to the segment's growth.

Other

Expected Growth: 5.4%

Mercury General Corporation's 5.4% growth is driven by increasing premiums, favorable loss reserve development, and a strong investment portfolio. Additionally, the company's expansion into new markets, improved underwriting practices, and cost savings initiatives contribute to its growth. Furthermore, Mercury's diversified product offerings and strong brand recognition also support its growth momentum.

7. Detailed Products

Personal Auto Insurance

Provides financial protection against physical damage to vehicles and liability for bodily injury or property damage to others.

Commercial Auto Insurance

Covers business-owned vehicles and drivers, protecting against liability and physical damage.

Homeowners Insurance

Protects homeowners from financial loss due to damage or destruction of their home and personal property.

Umbrella Insurance

Provides additional liability coverage beyond the limits of standard auto or homeowners insurance policies.

Mechanical Breakdown Insurance

Covers repairs to vehicles due to mechanical failure, providing protection against costly repair bills.

8. Mercury General Corporation's Porter Forces

Forces Ranking

Threat Of Substitutes

Mercury General Corporation operates in the insurance industry, which has a moderate threat of substitutes. While there are alternative insurance providers, customers may not easily switch due to loyalty programs, policy customization, and regulatory barriers.

Bargaining Power Of Customers

Mercury General Corporation's customers have limited bargaining power due to the company's strong brand reputation, diverse product offerings, and lack of price sensitivity in the insurance industry.

Bargaining Power Of Suppliers

Mercury General Corporation has a diversified supplier base, and suppliers have limited bargaining power due to the company's large scale of operations and ability to negotiate favorable terms.

Threat Of New Entrants

The insurance industry has high barriers to entry, including regulatory hurdles, capital requirements, and established distribution networks, making it difficult for new entrants to compete with Mercury General Corporation.

Intensity Of Rivalry

The insurance industry is highly competitive, with many established players competing for market share. Mercury General Corporation faces intense rivalry from other insurance providers, which can lead to pricing pressures and advertising wars.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 27.82%
Debt Cost 4.24%
Equity Weight 72.18%
Equity Cost 7.89%
WACC 6.88%
Leverage 38.54%

11. Quality Control: Mercury General Corporation passed 4 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

Stock-Card
WR Berkley

A-Score: 7.0/10

Value: 5.3

Growth: 7.9

Quality: 6.5

Yield: 4.0

Momentum: 8.5

Volatility: 10.0

1-Year Total Return ->

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Stock-Card
Mercury General

A-Score: 6.8/10

Value: 7.3

Growth: 6.9

Quality: 6.6

Yield: 6.0

Momentum: 8.0

Volatility: 6.3

1-Year Total Return ->

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Stock-Card
CNA Financial

A-Score: 6.8/10

Value: 6.9

Growth: 4.6

Quality: 6.1

Yield: 10.0

Momentum: 3.5

Volatility: 10.0

1-Year Total Return ->

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Stock-Card
RLI

A-Score: 6.5/10

Value: 6.0

Growth: 6.9

Quality: 8.2

Yield: 7.0

Momentum: 1.5

Volatility: 9.3

1-Year Total Return ->

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Stock-Card
Markel

A-Score: 6.4/10

Value: 7.0

Growth: 7.2

Quality: 7.1

Yield: 0.0

Momentum: 8.0

Volatility: 9.3

1-Year Total Return ->

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Stock-Card
Loews

A-Score: 6.1/10

Value: 6.2

Growth: 6.8

Quality: 5.3

Yield: 0.0

Momentum: 8.0

Volatility: 10.0

1-Year Total Return ->

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

89.95$

Current Price

89.95$

Potential

-0.00%

Expected Cash-Flows