Mercury Insurance 2012 Annual Report Download - page 12

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10
MERCURY GENERAL CORPORATION
OPERATING LEVERAGE
(Net Premiums Written/Policyholders Surplus as ratio)
DIVIDENDS PER SHARE
(in dollars)
2.5
2.0
1.5
1.0
0.5
0
08 09 10 11 12
2.50
2.30
2.20
2.10
2.40
2.00
08 09 10 11 12
Bodily Injury developed at a rate significantly higher
than historical averages. In addition, we experienced
unfavorable development on the run-off of our California
commercial taxi business and Florida homeowners
business, both of which we ceased writing in 2011. For
the 2012 accident year, we weighed the more recent loss
trends more heavily which should reduce the potential
for unfavorable reserve development in 2013.
In our California homeowners line rate filing, an
administrative law judge recommended a net rate
reduction of 5.5%, which the Insurance Commissioner
accepted in February 2013. We strongly disagree with
the administrative law judge’s decision. In fact, our
actual results clearly demonstrate that the judge’s trend
selections were significantly too low for our most popular
homeowners form. Accordingly, we recently filed for a
6.9% rate increase that reflects our actual results and
have filed an action in Superior Court to overturn the
administrative law judge’s decision. We anticipate that
our Superior Court action will be decided later this year
and we will continue to pursue rates that allow a fair rate
of return.
We are consolidating our claims and underwriting
operations located outside of California into hub
locations in Florida, New Jersey and Texas. Although we
expect approximately $8 million to $13 million (pre-tax)
of office closure costs and severance related expense in
the first quarter of 2013, the new structure will improve
our long term profitability and will allow us to scale more
efficiently as we grow our business outside of California.
Last year, we informed you that we piloted a program
in Georgia that not only provides a quote on line, but
allows the consumer to purchase a policy on-line. In 2012,
we expanded this capability to California, our largest
state. Our initial results are encouraging, although we
are far from perfecting the on-line experience and are
testing and making adjustments as we learn more about
this process. We expect to expand this capability to other
states in 2013.
We plan to implement various initiatives to help grow
our business and improve our bottom line. Our priorities
for 2013 include:
• Implementing improved pricing segmentation and
overall rate adequacy;
• Introducing new commercial automobile products in
Illinois, Pennsylvania, Virginia, and Nevada;
• Introducing an improved homeowners and dwelling
fire product in California;
• Expanding the capability to sell on-line to other
states;
• Continuing to invest in our technology to make it
easier for our agents and customers to transact
business with us;
• Increasing the number of relationships with qualified
agents;
• Converting states with legacy systems to our new
technology platform;
• Managing expenses prudently; and
• Continuing our Service Excellence program.