v3.25.2
General (Policies)
 6 Months Ended
Jun. 30, 2025
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Consolidation and Basis of Presentation
The interim consolidated financial statements include the accounts of Mercury General Corporation and its subsidiaries (referred to herein collectively as the “Company”). For the list of the Company’s subsidiaries, see Note 1. Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024. These interim financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”), which differ in some respects from those filed in reports to insurance regulatory authorities. The financial data of the Company included herein are unaudited. In the opinion of management, all material adjustments of a normal recurring nature have been made to present fairly the Company’s financial position at June 30, 2025 and the results of operations and cash flows for the periods presented. All intercompany transactions and balances have been eliminated.

Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, but that is not required for interim reporting purposes, has been omitted from the accompanying interim consolidated financial statements and related notes. Readers are urged to review the Company’s Annual Report on Form 10-K for the year ended December 31, 2024 for more complete descriptions and discussions. Operating results and cash flows for the six months ended June 30, 2025 are not necessarily indicative of the results that may be expected for the year ending December 31, 2025.

Certain prior period amounts have been reclassified to conform to the current period presentation.
Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. These estimates require the Company to apply complex assumptions and judgments, and often the Company must make estimates about the effects of matters that are inherently uncertain and will likely change in subsequent periods. The most significant assumptions in the preparation of these consolidated financial statements relate to reserves for losses and loss adjustment expenses ("LAE"). Actual results could differ from those estimates. See Note 1. Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2024
Earnings (Loss) per Share There were no potentially dilutive securities with anti-dilutive effect for the three and six months ended June 30, 2025 and 2024.
Deferred Policy Acquisition Costs
Deferred policy acquisition costs consist of commissions paid to outside agents, premium taxes, salaries, and certain other underwriting costs that are incremental or directly related to the successful acquisition of new and renewal insurance contracts and are amortized over the life of the related policy in proportion to premiums earned. Deferred policy acquisition costs are limited to the amount that will remain after deducting from unearned premiums and anticipated investment income, the estimated losses and loss adjustment expenses, and the servicing costs that will be incurred as premiums are earned. The Company’s deferred policy acquisition costs are further limited by excluding those costs not directly related to the successful acquisition of insurance contracts. Deferred policy acquisition cost amortization was $227.9 million and $203.7 million for the three months ended June 30, 2025 and 2024, respectively, and $456.6 million and $399.7 million for the six months ended June 30, 2025 and 2024, respectively. The Company does not defer advertising expenditures but expenses them as incurred. The Company recorded net advertising expense of approximately $7.4 million and $3.9 million for the three months ended June 30, 2025 and 2024, respectively, and $12.9 million and $7.2 million for the six months ended June 30, 2025 and 2024, respectively.
Reinsurance
Unearned premiums and loss and loss adjustment expense reserves are stated in the accompanying consolidated financial statements before deductions for ceded reinsurance. Unearned premiums and loss and loss adjustment expense reserves that are ceded to reinsurers are carried in other assets and reinsurance recoverables, respectively, in the Company's consolidated balance sheets. Earned premiums and losses and loss adjustment expenses are stated net of deductions for ceded reinsurance.
The Company is the assuming reinsurer under a Catastrophe Participation Reinsurance Contract (the "Contract") effective through December 31, 2025. The Company reimburses up to $30 million in losses for a proportional share of a portfolio of catastrophe losses under the Contract, to the extent the actual loss ratio exceeds the threshold loss ratio of 73.5%. If the actual loss ratio is less than the threshold loss ratio, the Company is eligible to receive a certain portion of the underwriting profit.
The Company is the assuming reinsurer under a Property Quota Share Reinsurance Contract ("Quota Share") and reimburses ceding companies for a proportional share of losses based on the premiums ceded to the Company under the Quota Share. The total annual assumed premium under the Quota Share is approximately $11 million. The total annual amount of losses that can be ceded to the Company under the Quota Share is approximately $32 million. The Quota Share commenced on January 1, 2025 and is effective through December 31, 2025.

The Company is the ceding party to a Catastrophe Reinsurance Treaty (the "Treaty") covering a wide range of perils that is effective through June 30, 2026. The Treaty ending June 30, 2026 provides $2,140 million of coverage on a per occurrence basis after covered catastrophe losses exceed the $200 million Company retention limit. The Treaty ending June 30, 2026 specifically excludes coverage for any Florida business and for California earthquake losses on fixed property policies, such as homeowners, but does cover losses from fires following an earthquake with certain exceptions. The Treaty ending June 30, 2026 provides for one full reinstatement of coverage limits with certain exceptions, and includes some additional minor territorial and coverage restrictions.

The effect of reinsurance on property and casualty premiums written and earned was as follows:

Three Months Ended June 30,Six Months Ended June 30,
2025202420252024
 (Amounts in thousands)
Premiums Written
Direct $1,477,169 $1,380,511 $2,915,636 $2,674,986 
Ceded(3,939)(31,884)(160,735)(63,183)
Assumed(238)85 25,494 15,244 
     Net$1,472,992 $1,348,712 $2,780,395 $2,627,047 
Premiums Earned
Direct$1,407,608 $1,256,208 $2,783,531 $2,442,793 
Ceded(54,405)(31,371)(161,099)(62,450)
Assumed6,139 3,859 12,668 7,722 
     Net$1,359,342 $1,228,696 $2,635,100 $2,388,065 

The Company recognized ceded premiums earned of approximately $54.4 million and $31.4 million for the three months ended June 30, 2025 and 2024, respectively, and $161.1 million and $62.5 million for the six months ended June 30, 2025 and 2024, respectively, which are included in net premiums earned in its consolidated statements of operations. The comparatively large ceded premiums earned for the six months ended June 30, 2025 is due to reinstatement premiums paid for use of reinsurance coverages associated with the Palisades and Eaton wildfires. The Company recognized ceded losses and loss
adjustment expenses of approximately $0.4 million and $(0.1) million for the three months ended June 30, 2025 and 2024, respectively, and $1,292.9 million and $(0.9) million for the six months ended June 30, 2025 and 2024, respectively, which are included in losses and loss adjustment expenses in its consolidated statements of operations. The large ceded losses and loss adjustment expenses for the six months ended June 30, 2025 is due to the Palisades and Eaton wildfires that occurred in the first quarter of 2025. The negative ceded losses and loss adjustment expenses for the three and six months ended June 30, 2024 are primarily the result of favorable development on prior years' catastrophe losses that were ceded to the Company's reinsurers.

The Company's insurance subsidiaries, as primary insurers, are required to pay losses to the extent reinsurers are unable to discharge their obligations under the reinsurance agreements.
Revenue from Contracts with Customers (Topic 606)
The Company's revenue from contracts with customers is commission income earned from third-party insurers by its 100% owned insurance agencies, which amounted to approximately $6.8 million and $6.0 million, with related expenses of $3.6 million and $3.2 million, for the three months ended June 30, 2025 and 2024, respectively, and $13.9 million and $11.7 million, with related expenses of $7.2 million and $6.4 million, for the six months ended June 30, 2025 and 2024, respectively. All of the commission income, net of related expenses, is included in other revenues in the Company's consolidated statements of operations, and in other income of the Property and Casualty business segment in the Company's segment reporting (see Note 13. Segment Information).
As of June 30, 2025 and December 31, 2024, the Company had no contract assets and contract liabilities, and no remaining performance obligations associated with unrecognized revenues.
Allowance for Credit Losses
Financial Instruments - Credit Losses (Topic 326) uses the "expected loss" methodology for recognizing credit losses for financial assets that are not accounted for at fair value through net income. The Company's investment portfolio, excluding accrued investment income, was not affected by Topic 326 as it applies the fair value option to all of its investments. The estimated allowance amounts for credit losses at June 30, 2025 primarily related to premiums receivable and reinsurance recoverables.

Premiums Receivable

The majority of the Company's premiums receivable are short-term in nature and are due within a year, consistent with the policy term of its insurance policies sold. Generally, premiums are collected prior to providing risk coverage, minimizing the Company's exposure to credit risk. In estimating an allowance for uncollectible premiums receivable, the Company assesses customer balances and write-offs by state, line of business, and the year the premiums were written. The estimated allowance is based on historical write-off percentages adjusted for the effects of current trends and reasonable and supportable forecasts, as well as expected recoveries of amounts written off.

The following table presents a summary of changes in allowance for credit losses on premiums receivable:
 Three Months Ended June 30,Six Months Ended June 30,
 2025202420252024
 (Amounts in thousands)
Beginning balance$6,600 $5,800 $6,400 $5,300 
     Provision during the period for expected credit losses 225 858 1,050 1,973 
Write-off amounts during the period(822)(846)(1,749)(1,658)
Recoveries during the period of amounts previously written off 297 188 599 385 
Ending balance $6,300 $6,000 $6,300 $6,000 

Reinsurance Recoverables
Reinsurance recoverables are balances due to the Company from its reinsurers for paid and unpaid losses and loss adjustment expenses. Generally, the Company uses a default analysis to estimate uncollectible reinsurance recoverables. The primary components of the default analysis are reinsurance recoverable balances by reinsurer, net of collateral and any liabilities held by the Company subject to a right of offset, and future default factors used to estimate the probability that the
reinsurer may be unable to meet its future obligations in full. The determination of the future default factor is based on a historical default factor published by a major rating agency applicable to the particular financial strength rating class. Based on its past experience with major catastrophes, the Company made the assumption that the majority of the reinsurance recoverable balances on unpaid losses outstanding at June 30, 2025 will be billed and collected or written off over the course of the next five years, and that the outstanding reinsurance recoverable balances on paid losses will be collected or written off within a year.

The following table presents a summary of changes in allowance for credit losses on reinsurance recoverables:
 Three Months Ended June 30,Six Months Ended June 30,
 2025202420252024
 (Amounts in thousands)
Beginning balance$1,192 $— $— $12 
     Provision during the period for expected credit losses (633)4 559 (8)
Write-off amounts during the period— — — — 
Recoveries during the period of amounts previously written off — — — — 
Ending balance$559 $4 $559 $4 

The allowance for credit losses on reinsurance recoverables for the three and six months ended June 30, 2025 is largely related to losses ceded associated with the Palisades and Eaton wildfires that occurred in the first quarter of 2025.
Accrued Interest Receivables The Company made certain accounting policy elections for its accrued interest receivables allowed under Topic 326: a) an election to present accrued interest receivable balances separately from the associated financial assets on the balance sheet, and b) an election not to measure an allowance for credit losses on accrued interest receivable amounts and instead write off uncollectible accrued interest amounts in a timely manner by reversing interest income. The Company's accrued interest receivable balances are included in accrued investment income receivable in its consolidated balance sheets.
Recently Issued Accounting Standards
In November 2024, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) 2024-03, "Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40)—Disaggregation of Income Statement Expenses." ASU 2024-03 is intended to improve financial reporting by requiring that public business entities disclose additional information about specific expense categories in the notes to financial statements at interim and annual reporting periods. Although the amendments in ASU 2024-03 do not change or remove current expense disclosure requirements, they affect where this information appears in the notes to financial statements because entities are required to include certain current disclosures in the same tabular format disclosure as the other disaggregation requirements in the amendments. ASU 2024-03 will be effective for the Company for annual periods beginning January 1, 2027 and interim reporting periods beginning January 1, 2028. The Company is evaluating the presentational effect that ASU 2024-03 will have on its notes to consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures." ASU 2023-09 is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information. ASU 2023-09 is effective for the Company in the annual period beginning January 1, 2025. The Company's consolidated annual financial statements will have certain presentation changes to the note on income taxes as a result of adoption of ASU 2023-09. The Company expects to adopt ASU 2023-09 on a prospective basis, though retrospective adoption is permitted.