Mercury Insurance 2013 Annual Report Download - page 8

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Combined Ratio vs. Industry
(in percent)
105
100
90
85
95
04 05 06 07 08 09 10 11 12 13
Mercury General U.S. Industry Source for industry data: A.M. Best Company
changes to our cost structure coupled with our
review of loss indications allowed us to reduce private
passenger auto rates in five of our markets in the first
quarter of 2014. The rate reductions had an immediate
positive impact on new business sales in all of these
markets. Although we expect our new business sales
outside of California to improve as a result of our
rate reductions, we don’t expect premiums written
to grow in the near term as it will take some time
for new business sales to impact premiums written
and oset the lower average premiums from the rate
reductions.
Our historical targeted combined ratio for private
passenger auto is 95% and we generally price
our private passenger auto product to that target.
However, in states outside of California we are pricing
our product to expense targets that we have not yet
achieved, but expect to achieve over the next several
years. This pricing strategy will allow us to be more
competitive than we otherwise would be, but it means
that our margins will be lower than our long term
target for the next few years.
We plan to implement various initiatives to help
grow our business and improve our profitability. Our
priorities for 2014 include:
• Continuing to refine our pricing segmentation and
monitoring our overall rate adequacy;
• Implementing various operational strategies to
reduce our loss adjustment expenses;
• Implementing a new commission structure based
on the agents’ relationship with the Company;
• Focusing on increasing our agents quote volume;
• Introducing a paperless solution for underwriting
and claims for various business lines;
• Introducing an improved homeowners product in
California;
• Expanding to eight additional 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 qualified agents;
• Converting states with legacy systems to our new
technology platform;
• Continuing our Company’s transformational
leadership program;
• Managing expenses prudently; and
• Continuing our service excellence program.
Letter to Shareholders
6MERCURY GENERAL CORPORATION