Mercury Insurance 2009 Annual Report Download - page 12

10 MERCURY GENERAL CORPORATION
At the close of last year, we shared our hope that we would end 2009
better than we found it. In many respects, we did just that. The economy
strengthened, our operating earnings increased, and our capital position
was fortified by a significant improvement in investment results.
T
he company posted operating earnings, excluding
realized gains and losses, of $177.9 million in
2009, compared with $115.7 million in 2008. This
year-over-year increase was primarily due to a much
improved combined ratio of 96.9% in 2009, compared
with 101.8% in 2008, primarily driven by positive reserve
development of $58 million in 2009, compared with
adverse reserve development of $89 million in 2008. The
positive reserve development was largely attributable to
better than expected severity in our California bodily injury
line. We expect that loss cost trends will remain benign
in 2010, with relatively flat frequency and a modest
increase in severity.
The competitive environment for personal automobile
insurance remained intense during 2009. And, as
predicted, premiums written in 2009 declined from 2008
levels by 5.8% to $2.6 billion, although the rate of decline
in written premiums slowed during this year. The rate of
decline was 3.5% in the fourth quarter as compared to
the fourth quarter of 2008, the lowest rate of decline
since the third quarter of 2007. We believe this trend will
continue into 2010 with the possibility of returning to
positive premium growth sometime in 2010—a welcome
sign, when that happens.
To address the competitive marketplace and help grow
our business, we launched our “Mercury Moments”
advertising campaign in January 2010. Inspired by actual
experiences from some of our customers, this upbeat
campaign highlights the breadth of Mercury’s coverage
across various lines of business as well as our core value
proposition—offering low rates, providing stability and
security and ensuring outstanding personalized service.
The campaign includes television, Internet, and sports
advertising, as well as a variety of direct mail
advertisements. We have been very pleased with the
early feedback received from customers and agents. We
believe the tone and message of this campaign sets
Mercury apart and gives current and prospective
customers a compelling reason to award
us their business.
In addition to our marketing initiatives, we remain
committed to executing the key strategies already
underway to help grow our business and improve our
bottom line. Our priorities for 2010 include:
• Implementing improved pricing segmentation and
overall rate adequacy;
• Continuing to invest in technology to make it easier
for our agents and customers to transact business
with us, including the roll out of our new Web-based
agent interface program, Mercury First;
• Implementing best practices and standardized
procedures across all functions;
• Simplifying our processes for greater efficiency and
improved customer service;
• Increasing customer reach by leveraging the Internet
more effectively and increasing the number of
relationships with qualified agents; and
• Continuing our Service Excellence Program.
We believe our efforts in these areas are beginning to
pay off. Improvements made to our segmentation in
many states, including New Jersey, Georgia and Texas,
are beginning to show positive results and we are taking
the necessary steps to improve our overall rate
adequacy for every state in which we are not meeting
our profitability target. Our new point-of-sale system,
Mercury First, has been deployed in three states,
Letter to Shareholders