Mercury Insurance 2015 Annual Report Download - page 5

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Gabriel Tirador
President and Chief Executive Ocer
George Joseph
Chairman of the Board
After-tax investment income decreased 1.0% to $110.4 million
in 2015. The after-tax yield on investments of 3.4% in 2015 was
slightly lower than the after-tax yield of 3.5% obtained in 2014.
The current low interest rate environment is putting downward
pressure on our after-tax yield as new money is being invested
at lower yields. In 2015 our investment base grew 2.8% to
$3.3 billion and partially offset the slight decline in yield. Going
forward, there will be continued downward pressure on our
after-tax yield as bonds with higher coupons mature or are
called and the reinvestment of those proceeds will most likely
be made at lower after-tax yields.
We pride ourselves at having a strong balance sheet. At year-
end, our Shareholders’ Equity was $1.8 billion, and our statutory
underwriting leverage remains conservative, with a premium to
surplus ratio of 2.1 to 1. Our primary insurance subsidiaries carry
an A+ rating with A.M. Best.
In November 2015, Mercury’s Board of Directors increased the
annual dividend rate to $2.48 per share, continuing to provide
a generous dividend yield based on the recent market price of
our stock. We estimate our combined ratio needs to be around
98.5% in 2016 in order for our operating earnings to fully fund
our annual dividend. However, our strong capital position has
allowed us to pay a dividend in recent years where the dividend
payout ratio was above 100%. We recognize we cannot, on a
long-term basis, have a payout ratio over 100%; but we also don’t
expect to have profitability at recent levels for a long period of
time. Our Board will continue to evaluate our dividend policy on
a quarterly basis and consider factors such as the Company’s
capital position, earnings, tax law changes and future prospects
before a decision is made on the dividend amount.
We hope you will be able to attend our annual meeting on
May 11, 2016.
Sincerely,
MERCURY GENERAL CORPORATION 2015 ANNUAL REPORT
OPERATING LEVERAGE
(Net Premiums Written/Policyholders Surplus as ratio)
2.5
2.0
1.5
1.0
0.5
0.0
2011 20112012 20122013 20132014 20142015 2015
DIVIDENDS PER SHARE
(In dollars)
2.50
2.40
2.30
2.20
2.00
2.10
NUMBER OF AGENTS
12,000
10,000
8,000
6,000
4,000
2,000
0
20152011 2012 2013 2014