Mercury Insurance 2011 Annual Report Download - page 10

8MERCURY GENERAL CORPORATION
ercury’s team performed better in 2011
compared to 2010. Although the
competition is still tough, and the
unemployment rate still high in California, we
were able to grow a little in 2011. Premiums
written increased by 0.8% in 2011. Albeit the rate
of increase was small, it was significant in that
2011 marked the first year since 2006 that
Company-wide written premiums increased. We
hope to build on this momentum.
Our operating earnings, which exclude realized
gains and losses, were $153.2 million in 2011
compared to $115.1 million in 2010, an increase
of 33.1%. The increase in operating earnings was
primarily due to the improvement in the
combined ratio from 100.7% in 2010 to 98.5% in
2011. The improvement in the combined ratio
was primarily the result of a lower expense ratio
as the loss ratio in both years was very similar,
71.3% in 2011 and 71.1% in 2010. The expense
ratio improved over 2 points and was 27.2% in
2011 as compared to 29.6% in 2010. The lower
expense ratio was the result of decreased agent
contingent commissions, information
technology, consulting, and advertising
expenditures. In addition, the Company’s
expense ratio for 2010 was impacted by
contributions made in support of a California
legislative initiative.
Letter to Shareholders
In pricing for insurance, it is very important to
properly segment and price risk profiles
accurately. Otherwise, there is the risk of being
selected against and writing more of the
business that is underpriced. In California, our
analysis reflected that certain groups of
automobile risks were being overpriced and
other groups were underpriced. Accordingly,
in December of 2011 we implemented a new
automobile class plan in California to better
segment our product. Our expectation was
that we would become more competitive on
new business with a more accurately priced
product, but our retention would deteriorate.
Although still early, we are pleased to report
that our California private passenger new
business sales have increased year-over-year
in the mid-single digits and our retention has
only deteriorated slightly.
There is no question that the Internet has
changed the way many businesses operate,
including insurance companies. More and more
customers are transacting business over the
Internet. A 2011 auto insurance buying study
showed that 32% of private passenger auto
new business sales were transacted on-line.
This compares to 3% for those that purchased
a policy on-line 10 years ago. Although we
This year’s annual report theme highlights many of California’s
premier sports franchises that we partnered with during the
past year. Prosperous teams recognize the importance of having
all facets of the team operating at peak performance and
working well together. Mercury is no different. We understand
the importance of a talented team of professionals working
together in order to achieve superior results. That is why
Mercury’s 4,500 employees work together every day for the
benefit of our customers and shareholders.