Mercury Insurance 2007 Annual Report Download - page 12

10 MERCURYNOW 2007
Let me begin at the end. In the end,
2007 was a relatively successful year
for Mercury. We knew the ongoing
softness of the industry would
make growth difficult this year.
However, despite these challenges,
the company posted operating earnings of $4.09 per
share – our third best results in the company’s forty-
six year history. We believe this is a testament to the
endurance of our core strategies and the constancy
of our financial performance over time.
As expected, our revenues for the year were
relatively flat, with premiums written for 2007
totaling $3.0 billion, down approximately 2%
from last year. Representing 77% of our 2007 total
premium volume, California continues to produce
fair weather results, with premiums written of $2.3
billion last year, representing a 2.4% increase over
the prior year. Non-California premiums written
totaled $678 million for 2007.
Turning to our combined ratios for the year,
we posted a 95.4% combined ratio companywide,
which was essentially in line with our target of 95%.
California’s combined ratio of 92.6% was slightly
above the combined ratio of 90.3% we reported last
year, due, in part, to the Southern
California wildfires and slightly
higher severity in our auto line, both
of which were offset by higher average
premiums. We have made some
progress as well outside of California.
Non-California operations produced
a combined ratio of 104.4% in 2007,
compared with 108.3% in 2006.
Although we are encouraged by this trend,
we recognize we still have some work to do
in order to bring these results in line with
our long-term goals. We intend to continue
focusing on pricing improvements, capturing
operational efficiencies, honing our claims
and underwriting procedures, and managing
expenses.
In addition to recording steady financial
results in a difficult economic environment,
we made significant headway in a number
of other areas throughout our organization,
including the deployment of our NextGen
system in our California market. We also made progress in
fortifying operations outside of California, and in our ongoing
standardization of underwriting and claims procedures
nationwide.
The industry as a whole posted strong profits as a result
of flat or declining frequency and, for the most part, benign
increases in severity over the past several years. All of this
has led to price reductions, increased marketing expenditures,
greater agent incentives, improved price segmentation and
enhanced products from many within the industry.
To be sure, it is always difficult to accurately predict
when the market will change, but we are closely monitoring
several key indicators in order to stay ahead of the curve.
We are beginning to see deterioration in many of our
competitors’ margins as a result of previous rate reductions
and increasing loss costs. During the fourth quarter of last
year, we saw more rate increase filings than rate decrease
filings. We believe this could possibly indicate an increased
level of rate action over the next 12 months. However, we
would expect Mercury’s premium growth to be negative, to
the tune of mid-single digits, in 2008.
In other news, we recently obtained approval from the
California Department of Insurance on our application for
auto rate changes. The end result was a 3.6% rate reduction in
our preferred California personal auto business. Incidentally,
We believe this is
a testament to the
endurance of our
core strategies
and the constancy
of our financial
performance
over time.
LEADERSHIP