Mercury General Corp. (MCY) 2022年年度報告「NYSE」.pdf

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1、 Mercury General Corporation I 2022 Annual Report Innovation at Mercury Pay bills quickly and securely via the app!Set up automatic payments or make one time payments on your home and auto insurance policies.Innovation at Mercury The Mercury App“Mercury was founded as an innovative insurance carrier

2、.We segmented risk better,we created more effective underwriting and claims strategies,we established the first Special Investigation Unit in the industry,all from the start.We were an innovator then,and we always want to strive for that distinction.”Gabe Tirador President and Chief Executive Office

3、r Mercury General Corporation -The Mercury App puts you in the driver seat!Our new,free and easy to use app lets you stay connected wherever you go-24/7 Get instant access to your digital ID cards!Simple and secure biometric login means no fumbling with passwords or usernames.Mercury continues to ac

4、celerate the pace of innovation Leadership Goals and strategies help align Mercurian efforts to ensure customers a great experience and a stable,competitive price.Leaders champion key initiatives and create a safe environment for experimentation and iteration.Resources Teams throughout Mercury are e

5、ncouraged to own their results and make innovation part of routine enhancements,growth projects,and transformational initiatives.Culture Mercury is an evolving,learning organization where Mercurians at all levels are encouraged to grow,experiment,and innovate to do the right thing for our customers.

6、Process&Structure Concepts like data democratization and citizen development are accelerating Mercury s ability to move quickly.Creating a Growth Mindset,adopting Agile Methodologies,and applying Design Thinking help Mercurians seek a better way.Gives you one-touch access to your agent or Mercurys c

7、ustomer service team!Enjoy 24/7 connectivity to roadside assistance.If you run into trouble you can get the help you need!2022 Annual Report 1*Industry data for 2022 is a published estimate.Source for Industry Data:A.M.Best Company,for private passenger automobile line of all property and casualty i

8、nsurance companies.Combined ratio for Mercury General:for private passenger automobile line of business only for comparison with the industry ratio.Combined Ratio vs.Industry(In percent)Mercury General U.S.Industry 99.5%97.3%98.2%98.1%88.3%90.5%96.0%100.7%110.3%110.1%18 18 19 19 20 20 21 21 22 22*We

9、 posted an operating loss of$2.30 per share in 2022 compared to operating income of$2.88 per share in 2021.The reduction in operating earnings was due to an increase in the combined ratio from 98.3%in 2021 to 108.7%in 2022,partially offset by an increase in after-tax investment income.Worse results

10、in our Private Passenger Automobile line of business was the primary reason for the increase in the combined ratio.Also contributing to the increase in the combined ratio in 2022 was$47 million of adverse reserve development compared to$26 million of favorable reserve development in 2021.Catastrophe

11、 losses of$102 million in 2022 were slightly lower than the$104 million of catastrophe losses in 2021.In last years letter to shareholders,we said we expected our 2022 Private Passenger Automobile operating results,which represents about 67%of Companywide premiums earned,to deteriorate due to the in

12、creasing cost of claims and frequency,and the fact that rate increases would only partially offset increases in loss costs due to the amount of time it takes for rate increases to earn in.And,although we expected our 2022 Private Passenger Automobile operating results to deteriorate,the deterioratio

13、n was much worse than expected and was the primary reason for our poor 2022 operating results.The industrys 2022 results will also be the worst in many years.Our number one priority in 2023 is to improve profitability.Below we will explain what happened in 2022 and what we are doing to improve our r

14、esults.Letter to Shareholders Our Private Passenger Automobile combined ratio was 110.3%in 2022 compared to 96%in 2021.The significant deterioration in our Private Passenger Automobile combined ratio was primarily due to increases in loss frequency and severity.After bottoming out in the second quar

15、ter of 2020,loss frequency has been increasing.Automobile loss severity is high due to inflationary pressures,including supply chain issues,increased labor costs and social inflation.In California,our largest market,Private Passenger Automobile frequency in 2022 increased in the mid-single digits an

16、d severity increased in the mid-teens.Combined,that represents an increase of over 20%in loss costs.Due to regulatory delays,we were not able to increase rates in our California private passenger automobile line of business in 2022 despite the fact we filed to increase rates in the spring of 2022.Th

17、e good news is a 6.9%California private passenger automobile rate increase was recently approved by the California Department of Insurance.The rate increase is effective in March 2023.We recently filed for another 6.9%rate increase with the goal of having it effective late second quarter or early th

18、ird quarter of 2023.In addition,our California private passenger automobile revenue neutral class plan that improves our segmentation and competitiveness was also recently approved.The revenue neutral class plan goes into effect in April of 2023.In states outside of California,we increased private p

19、assenger automobile rates by an average of 17.8%in 2022 and more rate increases are planned in 2023.We have also taken numerous non-rate actions,including tightening our underwriting,to improve our Private Passenger Automobile profitability.We expect that the combination of our rate and non-rate act

20、ions will improve our Private Passenger Automobile profitability in 2023.However,these actions will take time to earn in,and improved profitability will also depend on loss severity and frequency trends.Premiums written in our Private Passenger Automobile line decreased 1.6%in 2022.The decrease in p

21、remiums written was primarily due to a reduction in policies written from tightening our underwriting and the elimination of annual policies in many of our states,both of which were done to improve profitability.We expect our Private Passenger Automobile premiums written to decrease in 2023 as our r

22、ate and non-rate actions to improve profitability will have an impact on sales.Mercury General Corporation 2 Operating Leverage(Net Premiums Written/Policyholders Surplus as ratio)Direct Premiums Written by Line of Business(In percent)2.4 18 2.4 19 2.0 20 2.1 21 2.7 22 Commercial Auto 6.8%All other

23、3.0%Commercial Multiple Peril 2.7%Personal Auto 64.3%Homeowners 23.2%Our Homeowners combined ratio increased slightly from 102%in 2021 to 104%in 2022.Catastrophe losses added 8.8 points to our Homeowners combined ratio in 2022 compared to 10 points in 2021.In March 2023,we received approval to incre

24、ase our California Homeowners rates by 12.6%.The rate increase is effective in May 2023.California Homeowners premiums written represents about 75%of total Homeowners premiums written and 17%of Companywide premiums written.Homeowners premiums written grew 17%in 2022 to$883 million.The increase in Ho

25、meowners premiums written was largely due to higher average premiums in California and Texas where direct average premiums per policy were up 12.7%and 9.9%,respectively.We expect premium growth in our Homeowners line in 2023 to be relatively flat as planned rate increases should slow down new busine

26、ss sales,and,unless there is a significant increase in catastrophe losses,we expect profitability to improve in 2023 as higher average premiums should more than offset the increase in expected losses.We continue to take steps to manage our catastrophe exposure from California wildfires and other cat

27、astrophes,including limiting our concentration in certain areas of a state,utilizing tools to better underwrite individual properties,and increasing our reinsurance coverage.In 2022 we increased our catastrophe reinsurance coverage.The total reinsurance limit purchased increased from$792 million in

28、the prior period to$936 million for the July 2022 through June 2023 period.We retain 100%of losses under$60 million and we participate in 80%of losses between$60 million and$100 million.Total annual premiums on the new reinsurance program are approximately$74 million.We dont expect material changes

29、to the retention or limits we purchase when we renew our reinsurance treaty in July 2023,but it will depend on pricing.Our commercial auto combined ratio was 116%in 2022 compared to 107%2021.The deterioration in our commercial auto combined ratio was primarily due to an increase in our California co

30、mmercial auto combined ratio from 99%in 2021 to 121%in 2022.Adverse reserve development of$10.4 million,increased severity and the delay in getting rate increases approved in a timely manner were the major reasons for the deterioration in the California commercial auto combined ratio.We filed for a

31、rate increase of 13%in July of 2021 and did not receive approval until December of 2022 from the California Department of Insurance.The 13%rate increase became effective in February of 2023.We filed for an additional 14.9%rate increase in January of 2023.Premiums written in our Commercial Automobile

32、 line were$278 million in 2022,a 7%increase over 2021.We expect to grow our commercial auto premiums in 2023 and expect the combined ratio to improve significantly from both rate increases earning in and non-rate actions.2022 Annual Report 3 Net Premiums Written-Companywide(In millions)*Net premiums

33、 written for 2020 includes approximately$128 million of premium refunds to our eligible policyholders under the Mercury Giveback program due to reduced driving and business activities following the Covid-19 pandemic.$2,729 13$2,841 14$2,999 15$3,156 16$3,216 17$3,496 18$3,732 19$3,612 20*$3,855 21$3

34、,978 22 Trading Range of Stock(In dollars)$41.40$61.83 18$46.69$65.22 19$33.45$55.71 20$50.37$67.88 21$27.89$56.94 22 65 75 55 45 35 25 Our California Commercial Multi-Peril line posted a 6%increase in premiums written to$100 million and the combined ratio increased to 126%in 2022 from 116%in 2021.O

35、ur 2022 results were impacted by adverse reserve development of$3 million.Excluding reserve development,our Commercial Multi-Peril combined ratio was 122.5%in 2022.In late 2022,we began the process of non-renewing unprofitable risks and converting our legacy book of business to our new more accurate

36、ly priced product.Accordingly,we expect our Commercial Multi-Peril Property business premiums written to decline in 2023 and our combined ratio to improve.Companywide premiums earned and premiums written increased 5.6%and 3.2%,respectively,from 2021.The increase in net premiums earned and written wa

37、s primarily due to increases in the number of policies written outside of California,higher average premiums in our California homeowners line of insurance business,and rate increases in some states outside of California,partially offset by a decrease in the number of private passenger automobile po

38、licies written in California.During 2022,the Company discontinued offering twelve-month private passenger automobile policies on new and renewal businesses in many states where it operates,including California,which partially offset the increase in net premiums written for the year ended December 31

39、,2022.We expect Companywide premiums written to decline in the low to mid-single digits in 2023 as our rate and non-rate actions to improve profitability will have an impact on sales.In 2022,we established the Mercurian Labs to support and foster innovation throughout the company.Team members from M

40、ercurian Labs along with innovation teams throughout the company research,prototype,test and implement new ideas,technologies,and processes.In 2022,we launched many initiatives including digital claims payments,Master Data Management,which provides us with a better view of the customer,and Agent Cen

41、ter 1.5 and 2.0,our improved front-end sales and service portal.We also introduced a streamlined claims process,enhanced our proprietary rating methodology,Mercury Advantage,launched an Artificial Intelligence Anti-Fraud program,and refined our Catastrophe exposure management using shape files.Our i

42、nnovation efforts have enabled us to offer better products and services to our customers,while improving our efficiency and productivity.In 2023,we will continue to innovate to improve our operations,including the migration of our California Private Passenger Automobile underwriting and umbrella ins

43、urance to our consolidated core system.Mercury General Corporation 4 Dividends Per Share(In dollars)In 2022,Mercurys Board of Directors decreased the annual dividend rate to$1.27 per share.$2.50 18$2.51 19$2.52 20$2.53 21$1.91 22 Gabriel Tirador President and Chief Executive Officer George Joseph Ch

44、airman of the Board One bright spot of the year was the increase in after-tax net investment income.After-tax net investment income increased 27.0%to$146 million from$115 million in 2021.The increase in after-tax net investment income was primarily due to an increase in after-tax yield and average i

45、nvested assets.The after-tax yield on the portfolio increased to 3.0%from 2.5%in 2021.The increase in after-tax yield was primarily due to the maturity and replacement of lower yielding investments purchased when market interest rates were lower with higher yielding investments,a result of increasin

46、g market interest rates.Average Invested assets increased by$222 million to$4.9 billion for 2022.We expect after-tax net investment income to increase in 2023 from higher interest rates.Although after-tax net investment income increased significantly in 2022,after-tax net realized investment losses,

47、including changes in the fair value of our investments,reduced shareholders equity by$386 million.Combined with an after-tax operating loss of$127 million and shareholder dividends of$105 million,shareholders equity declined by$618 million to$1.52 billion at December 31,2022 from$2.14 billion at Dec

48、ember 31,2021.And our statutory surplus declined by$325 million to$1.5 billion at December 31,2022,which caused our underwriting leverage to increase to 2.65 to 1 in 2022 from 2.1 to 1 in 2021.Consequently,Mercurys Board of Directors reduced dividends paid to shareholders to an annual rate of$1.27 p

49、er share from$2.54 per share.Our Board will continue to evaluate our dividend policy on a quarterly basis and consider factors such as the Companys capital position,earnings,tax law changes and prospects before a decision is made on the dividend amount.We are grateful to the 4,250 Mercury team membe

50、rs that collectively work hard to service our customers and make Mercury a better company.This letter contains certain forward-looking statements within the meaning of the safe harbor provisions of the U.S.Private Securities Litigation Reform Act of 1995.Please refer to our disclosure of cautionary

51、statements regarding forward-looking statements under“Forward-looking Statements”in our Form 10-K included herein.2022 Annual Report 5 Mercury General Corporation 6 10-Year Summary IN THOUSANDS,EXCEPT PER SHARE AND RATIO DATA 2022 2021 2020 Operating Results(GAAP Basis)Net premiums written Change in

52、 net unearned premiums$3,978,017(25,535)$3,855,369(113,421)$3,611,543(55,908)Net premiums earned Losses and loss adjustment expenses Underwriting expenses Net investment income Net realized investment(losses)gains Other income Interest expense 3,952,482 3,362,219 934,330 168,356(488,080)10,308 17,23

53、2 3,741,948 2,760,155 916,782 129,727 111,658 10,024 17,113 3,555,635 2,395,343 913,619 134,858 85,731 8,287 17,048(Loss)income before taxes(670,715)299,307 458,501 Income tax(benefit)expense(158,043)51,370 83,894 Net(loss)income$(512,672)$247,937$374,607 Net(loss)income per share-basic$(9.26)$4.48$

54、6.77 Net(loss)income per share-diluted$(9.26)$4.48$6.77 Operating ratios Loss ratio 85.1%73.8%67.4%Expense ratio 23.6%24.5%25.7%Combined ratio 108.7%98.3%93.1%Investments Total investments,at fair value$4,910,800$5,142,589$4,729,270 Yield on average investments Before taxes 3.4%2.8%3.1%After taxes 3

55、.0%2.5%2.8%Financial Condition Total assets$6,514,188$6,772,472$6,328,246 Unpaid losses and loss adjustment expenses 2,584,910 2,226,430 1,991,304 Unearned premiums 1,545,639 1,519,799 1,405,873 Notes payable 398,330 372,931 372,532 Policyholders surplus 1,502,424 1,827,210 1,768,103 Total sharehold

56、ers equity 1,522,131 2,140,281 2,032,597 Book value per share$27.49$38.65$36.72 Other Information Return on average shareholders equity*(6.9)%7.7%16.0%Diluted weighted average shares outstanding 55,371 55,374 55,358 Shares outstanding at year-end 55,371 55,371 55,358 Dividends per share$1.905$2.533$

57、2.523 Price range of common stock-bids$56.94-27.89$67.88-50.37$55.71-33.45*Ratio of(i)net income(loss)less net realized investment gains(losses),net of tax to(ii)average shareholders equity.2019 2018 2017 2016 2015 2014 2013$3,731,723$3,495,633$3,215,910$3,155,788$2,999,392$2,840,922$2,728,999(132,3

58、05)(127,222)(20,473)(24,015)(41,495)(44,727)(30,812)3,599,418 3,368,411 3,195,437 3,131,773 2,957,897 2,796,195 2,698,187 2,706,024 2,576,789 2,444,884 2,355,138 2,145,495 1,986,122 1,962,690 871,390 816,794 788,825 797,859 790,070 775,589 724,995 141,263 135,838 124,930 121,871 126,299 125,723 124,

59、538 222,793(133,520)83,650 (34,255)(83,807)81,184(11,422)9,044 9,275 11,945 8,294 8,911 8,671 9,738 17,035 17,036 15,168 3,962 3,168 2,637 1,260 378,069 (30,615)167,085 70,724 70,567 247,425 132,096 57,982 (24,887)22,208(2,320)(3,912)69,476 19,953$320,087$(5,728)$144,877$73,044$74,479$177,949$112,14

60、3$5.78$(0.10)$2.62$1.32$1.35$3.23$2.04$5.78$(0.10)$2.62$1.32$1.35$3.23$2.04 75.2%76.5%76.5%75.2%72.5%71.0%72.7%24.2%24.2%24.7%25.5%26.7%27.7%26.9%99.4%100.7%101.2%100.7%99.2%98.8%99.6%$4,312,161$3,768,091$3,732,728$3,547,560$3,380,642$3,403,822$3,158,312 3.5%3.6%3.5%3.6%3.8%3.9%4.1%3.1%3.3%3.1%3.2%3

61、.4%3.5%3.6%$5,889,157$5,433,729$5,101,323$4,778,718$4,628,645$4,600,289$4,315,181 1,921,255 1,829,412 1,510,613 1,290,248 1,146,688 1,091,797 1,038,984 1,355,547 1,236,181 1,101,927 1,074,437 1,049,314 999,798 953,527 372,133 371,734 371,335 320,000 290,000 290,000 190,000 1,539,998 1,471,547 1,589,

62、226 1,441,571 1,451,950 1,438,281 1,528,682 1,799,502 1,617,684 1,761,387 1,752,402 1,820,885 1,875,446 1,822,486$32.51$29.23$31.83$31.70$33.01$34.02$33.15 8.4%5.9%5.2%5.3%7.0%6.8%6.5%55,360 55,335 55,327 55,302 55,209 55,020 54,964 55,358 55,340 55,332 55,289 55,164 55,121 54,975$2.5125$2.5025$2.49

63、25$2.4825$2.4725$2.4625$2.4525$65.22-46.69$61.83-41.40$64.52-51.87$61.19-42.97$60.31-45.12$59.68-41.70$51.00-36.03 2022 Annual Report 7 Mercury General Corporation 8 Directors and Officers Board of Directors George Joseph4 Chairman of the Board Gabriel Tirador 4 President and Chief Executive Officer

64、 Executive Officers George G.Braunegg1,3,4 Associate Professor of the Practice,Marshall School of Business,The University of Southern California Ramona L.Cappello3,4 Partner CEO Coaching International James G.Ellis2,4 Retired Dean,Marshall School of Business,The University of Southern California Vic

65、ky Wai Yee Joseph Private Investor Joshua E.Little1,2,3 Shareholder,President,Chief Executive Officer and Chairman of the Board,Dentons Durham Jones Pinegar P.C.Martha E.Marcon1,2 Lead Independent Director Retired Partner,KPMG LLP 1 Member of Audit Committee 2 Member of Nominating/Corporate Governan

66、ce Committee 3 Member of Compensation Committee 4 Member of Investment Committee George Joseph Chairman of the Board Gabriel Tirador President and Chief Executive Officer Victor G.Joseph Executive Vice President and Chief Operating Officer Theodore Stalick Senior Vice President and Chief Financial O

67、fficer Kelly Butler Vice President and Chief Underwriting Officer Katie Gibbs Vice President and Chief Experience Officer Christopher Graves Vice President and Chief Investment Officer Brandt N.Minnich Vice President and Chief Sales Development Officer Wilson Pang Vice President and Chief Technology

68、 Officer Randall R.Petro Vice President and Chief Claims Officer Mark Ribisi President and Chief Executive Officer,AIS Management LLC Jeffrey M.Schroeder Vice President and Chief Product Officer Heidi C.Sullivan Vice President and Chief Human Capital Officer Erik Thompson Vice President and Chief Ma

69、rketing Officer Charles Toney Vice President and Chief Actuary Judy A.Walters Vice President,Corporate Affairs and Secretary This Annual Report document includes the following information The Mercury General logo and all product or service names,logos and from the Companys Form 10-K filed with the S

70、ecurities and slogans are registered trademarks or trademarks of Mercury General Exchange Commission:1)Mercury General Corporations financial Corporation.This document may contain references to other companies,statements and supporting data;2)management s discussion brand and product names.These com

71、panies,brand and product names are and analysis of financial conditions and results of operations;and used herein for identification purposes only and may be the trademarks of 3)quantitative and qualitative disclosures about market risks.their respective owners._ _ _ _ _ _ UNITED STATES SECURITIES A

72、ND EXCHANGE COMMISSION Washington,D.C.20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d)of the Securities Exchange Act of 1934 for the Fiscal Year Ended December 31,2022 or Transition Report Pursuant to Section 13 or 15(d)of the Securities Exchange Act of 1934 for the Transition Period fr

73、om _ to _ Commission File No.001-12257 MERCURY GENERAL CORPORATION(Exact name of registrant as specified in its charter)California 95-2211612(State or other jurisdiction of(I.R.S.Employer incorporation or organization)Identification No.)4484 Wilshire Boulevard Los Angeles,California 90010(Address of

74、 principal executive offices)(Zip Code)Registrants telephone number,including area code:(323)937-1060 Securities registered pursuant to Section 12(b)of the Act:Title of Each Class Trading Symbol(s)Name of Each Exchange on Which Registered Common Stock MCY New York Stock Exchange Securities registere

75、d pursuant to Section 12(g)of the Act:None Indicate by check mark if the registrant is a well-known seasoned issuer,as defined in Rule 405 of the Securities Act.Yes No Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d)of the Act.Yes No In

76、dicate by check mark whether the registrant(1)has filed all reports required to be filed by Section 13 or 15(d)of the Securities Exchange Act of 1934 during the preceding 12 months(or for such shorter period that the registrant was required to file such reports),and(2)has been subject to such filing

77、 requirements for the past 90 days.Yes No Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T(232.405 of this chapter)during the preceding 12 months(or for such shorter period that the

78、registrant was required to submit such files).Yes No _ Indicate by check mark whether the registrant is a large accelerated filer,an accelerated filer,a non-accelerated filer,a smaller reporting company,or an emerging growth company.See the definitions of large accelerated filer,accelerated filer,sm

79、aller reporting company,and emerging growth company in Rule 12b-2 of the Exchange Act.Large accelerated filer Accelerated filer Non-accelerated filer Smaller reporting company Emerging growth company If an emerging growth company,indicate by check mark if the registrant has elected not to use the ex

80、tended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a)of the Exchange Act.Indicate by check mark whether the registrant has filed a report on and attestation to its managements assessment of the effectiveness of its internal c

81、ontrol over financial reporting under Section 404(b)of the Sarbanes-Oxley Act(15 U.S.C.7262(b)by the registered public accounting firm that prepared or issued its audit report.If securities are registered pursuant to Section 12(b)of the Act,indicate by check mark whether the financial statements of

82、the registrant included in the filing reflect the correction of an error to previously issued financial statements.Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrants execu

83、tive officers during the relevant recovery period pursuant to 240.10D-1(b).Indicate by check mark whether the registrant is a shell company(as defined in Rule 12b-2 of the Act).Yes No The aggregate market value of the registrants common equity held by non-affiliates of the registrant at June 30,2022

84、 was$1,176,396,246(which represents 26,555,220 shares of common equity held by non-affiliates multiplied by$44.30,the closing sales price on the New York Stock Exchange for such date,as reported by the Wall Street Journal).At February 9,2023,the registrant had issued and outstanding an aggregate of

85、55,371,127 shares of its Common Stock.Documents Incorporated by Reference Certain information from the registrants definitive proxy statement for the 2023 Annual Meeting of Shareholders is incorporated herein by reference into Part III hereof.MERCURY GENERAL CORPORATION INDEX TO FORM 10-K Page PART

86、I Item 1 Business 1 Item 1A Risk Factors 14 Item 1B Unresolved Staff Comments 27 Item 2 Properties 27 Item 3 Legal Proceedings 27 Item 4 Mine Safety Disclosures 27 PART II Item 5 Market For Registrants Common Equity,Related Stockholder Matters and Issuer Purchases of Equity Securities 28 Item 6 Rese

87、rved 29 Item 7 Managements Discussion and Analysis of Financial Condition and Results of Operations 30 Item 7A Quantitative and Qualitative Disclosures about Market Risks 50 Item 8 Financial Statements and Supplementary Data 52 Item 9 Changes in and Disagreements With Accountants on Accounting and F

88、inancial Disclosure 94 Item 9A Controls and Procedures 94 Item 9B Other Information 94 Item 9C Disclosure Regarding Foreign Jurisdictions that Prevent Inspections 94 PART III Item 10 Directors,Executive Officers,and Corporate Governance 95 Item 11 Executive Compensation 95 Item 12 Security Ownership

89、 of Certain Beneficial Owners and Management and Related Stockholder Matters 95 Item 13 Certain Relationships and Related Transactions,and Director Independence 95 Item 14 Principal Accounting Fees and Services 95 PART IV Item 15 Exhibits and Financial Statement Schedules 96 Item 16 Form 10-K Summar

90、y 100 SIGNATURES 101 Financial Statement Schedules S-1 _ PART I Item 1.Business General Mercury General Corporation(Mercury General)and its subsidiaries(referred to herein collectively as the Company)are primarily engaged in writing personal automobile insurance through 12 insurance subsidiaries(ref

91、erred to herein collectively as the Insurance Companies)in 11 states,principally California.The Company also writes homeowners,commercial automobile,commercial property,mechanical protection,and umbrella insurance.The Companys insurance policies are mostly sold through independent agents who receive

92、 a commission for selling policies.The Company believes that it has thorough underwriting and claims handling processes that,together with its agent relationships,provide the Company with competitive advantages.The direct premiums written for the years ended December 31,2022,2021 and 2020 by state a

93、nd line of insurance business were:Year Ended December 31,2022(Dollars in thousands)Private Passenger Commercial Automobile Homeowners Automobile Other Lines(2)Total California$2,142,265$716,651$193,809$216,022$3,268,747 80.8%Texas Other states(1)Total 97,620 358,973$2,598,858$105,269 118,419 940,33

94、9$43,641 39,312 276,762$6,174 10,375 232,571 252,704 527,079$4,048,530 6.2%13.0%100.0%64.3%23.2%6.8%5.7%100.0%Year Ended December 31,2021(Dollars in thousands)Private Passenger Commercial Automobile Homeowners Automobile Other Lines(2)Total California$2,286,017$642,291$181,957$188,446$3,298,711 84.4

95、%Other states(1)354,730 159,197 77,916 16,975 608,818 15.6%Total$2,640,747 67.6%$801,488 20.5%$259,873 6.6%$205,421 5.3%$3,907,529 100.0%100.0%Year Ended December 31,2020(Dollars in thousands)California(3)Other states(1)(4)Total Private Passenger Automobile$2,266,115 302,819$2,568,934 Homeowners$579

96、,747 99,194$678,941 Commercial Automobile$161,619 79,169$240,788 Other Lines$149,627 15,871$165,498 Total$3,157,108 497,053$3,654,161 86.4%13.6%100.0%70.3%18.6%6.6%4.5%100.0%(1)No individual state accounted for more than 5%of total direct premiums written.(2)No individual line of insurance business

97、accounted for more than 5%of total direct premiums written.(3)California private passenger automobile and commercial automobile direct premiums written were reduced by approximately$112 million and$6 million,respectively,due to premium refunds and credits under the Mercury Giveback program associate

98、d with reduced driving during the COVID-19 pandemic.(4)Other states private passenger automobile and commercial automobile direct premiums written were reduced by approximately$9 million and$1 million,respectively,due to premium refunds and credits,as described above.1 The Company offers the followi

99、ng types of automobile coverage:collision,property damage,bodily injury(BI),comprehensive,personal injury protection(PIP),underinsured and uninsured motorist,and other hazards.The Company offers the following types of homeowners coverage:dwelling,liability,personal property,fire,and other hazards.Th

100、e following table presents the Companys published maximum limits of coverage:Insurance type Published maximum limits of coverage Private Passenger Automobile-bodily injury(BI)$500,000 per person;$500,000 per accident(1)Private Passenger Automobile(combined policy limits)$500,000 per accident Private

101、 Passenger Automobile-property damage$250,000 per accident(1)Commercial Automobile(combined policy limits)$1,000,000 per accident Homeowner property no maximum(2)(3)Homeowner liability$1,000,000(3)Commercial property no maximum(2)Umbrella liability$5,000,000(4)_(1)The majority of the Companys automo

102、bile policies have coverage limits that are equal to or less than$100,000 per person and$300,000 per accident for BI and$50,000 per accident for property damage.(2)The Company has a per-risk reinsurance treaty covering losses of$5 million in excess of$5 million,and facultative reinsurance coverage f

103、or losses above$10 million.(3)The majority of the Companys homeowners policies have liability coverage limits of$300,000 or less,a replacement value of$500,000 or less,and a total insured value of$1,000,000 or less.(4)The majority of the Companys umbrella policies have coverage limits of$1,000,000.T

104、he commercial umbrella liability is 100%reinsured.The principal executive offices of Mercury General are located in Los Angeles,California.The home office of the Insurance Companies and the information technology center are located in Brea,California.The Company also owns office buildings in Rancho

105、Cucamonga and Folsom,California,which are used to support California operations,and in Clearwater,Florida and in Oklahoma City,Oklahoma,which support the Companys operations outside of California and house several third party tenants.The Company maintains branch offices in a number of locations in C

106、alifornia;Clearwater,Florida;Bridgewater,New Jersey;Oklahoma City,Oklahoma;and Austin and San Antonio,Texas.Human Capital The Company had approximately 4,300 employees at December 31,2022.The Companys employees are critical to its continued success,and it focuses significant attention on attracting

107、and retaining talented and motivated individuals.The Company pays its employees fairly and competitively and offers a wide range of benefits regardless of gender,race or ethnicity.The Company benchmarks and sets pay ranges based on market data and considering such factors as employees roles,experien

108、ces and performance,and the location of their job.Individual goals are set annually for each employee,and attainment of those goals is an element of the employees performance assessment.The Company regularly reviews its compensation practices,both in terms of its overall workforce and individual emp

109、loyees,to ensure its pay is fair and equitable.In addition,the Company reviews its staffing levels periodically to ensure they are aligned with its business needs.The Company also reviews employee engagement and satisfaction surveys to monitor employee morale and receive feedback on a variety of iss

110、ues,in order to improve the employee experience and identify opportunities to continually strengthen its culture.The Company devotes extensive resources to employee training and development,including tuition assistance for career-enhancing academic and professional programs.The Company recognizes th

111、at its success is based on the talents and dedication of those it employs,and it is highly invested in their success.The Company is committed to hiring,developing and supporting a diverse and inclusive workplace.All of the Companys employees are expected to exhibit and promote honest,ethical and res

112、pectful conduct in the workplace,must adhere to a code of conduct that sets standards for appropriate behavior,and are required to take annual training on preventing,identifying,reporting and stopping any type of unlawful discrimination.2 _ The Company sponsors a wellness program designed to enhance

113、 physical,financial and mental well-being for all of its employees,and encourages healthy behaviors through regular communications,educational sessions,voluntary progress tracking,wellness challenges,and other incentives.The Company implemented safety protocols and new procedures to protect its empl

114、oyees and customers in response to the COVID-19 pandemic.This includes having the vast majority of its employees work from home or anywhere in the U.S.,while implementing safety measures for employees working on-site.Available Information The Companys website address is .The Companys website address

115、 is not intended to function as a hyperlink and the information contained on the Companys website is not,and should not be considered part of,and is not incorporated by reference into,this Annual Report on Form 10-K.The Company makes available on its website its Annual Reports on Form 10-K,Quarterly

116、 Reports on Form 10-Q,Current Reports on Form 8-K,Proxy Statements,and amendments to such periodic reports and proxy statements(the SEC Reports)filed with or furnished to the Securities and Exchange Commission(the SEC)pursuant to Section 13(a)or 15(d)of the Securities Exchange Act of 1934,as amended

117、,as soon as reasonably practicable after each SEC Report is filed with or furnished to the SEC.In addition,copies of the SEC Reports are available,without charge,upon written request to the Companys Chief Financial Officer,Mercury General Corporation,4484 Wilshire Boulevard,Los Angeles,California 90

118、010.The SEC maintains a website at www.sec.gov that contains the SEC Reports that the Company has filed or furnished electronically with the SEC.Organization Mercury General,an insurance holding company,is the parent of Mercury Casualty Company,a California automobile insurer founded in 1961 by Geor

119、ge Joseph,the Companys Chairman of the Board of Directors.Mercury General conducts its business through the following subsidiaries:Formed or A.M.Best Insurance Companies Acquired Rating Primary States Mercury Casualty Company(MCC)(1)1961 A CA,AZ,NV,NY,VA Mercury Insurance Company(MIC)(1)1972 A CA Ca

120、lifornia Automobile Insurance Company(CAIC)(1)1975 A CA California General Underwriters Insurance Company,Inc.(CGU)(1)1985 A CA Mercury Insurance Company of Illinois 1989 A IL,NJ Mercury Insurance Company of Georgia 1989 A GA Mercury Indemnity Company of Georgia 1991 A GA American Mercury Insurance

121、Company 1996 A-OK,CA,TX,VA American Mercury Lloyds Insurance Company(AML)1996 A-TX Mercury County Mutual Insurance Company 2000 A-TX Mercury Insurance Company of Florida(MICFL)(2)2001 A FL Mercury Indemnity Company of America 2001 A FL,NJ Orion Indemnity Company(OIC)(1)2015 A CA Formed or Non-Insura

122、nce Companies Acquired Purpose Mercury Select Management Company,Inc.1997 AMLs attorney-in-fact Mercury Insurance Services LLC 2000 Management services to subsidiaries Auto Insurance Specialists LLC(AIS)2009 Insurance agency Animas Funding LLC(AFL)2013 Special purpose investment vehicle Mercury Plus

123、 Insurance Services LLC 2018 Insurance agency AIS Management LLC 2009 Parent company of AIS and PoliSeek PoliSeek AIS Insurance Solutions,Inc.(PoliSeek)2009 Insurance agency Fannette Funding LLC(FFL)2014 Special purpose investment vehicle(1)The term California Companies refers to MCC,MIC,CAIC,CGU,an

124、d OIC.(2)MICFL was dissolved in November 2022.3 Production and Servicing of Business The Company sells its policies through a network of approximately 7,450 independent agents,its 100%owned insurance agencies,AIS and PoliSeek,and directly through internet sales portals.Approximately 1,900,1,270,and

125、1,240 of the independent agents are located in California,Florida,and Texas,respectively.The independent agents and agencies are independent contractors selected and contracted by the Company and generally also represent competing insurance companies.Certain of these independent agencies are under t

126、he common ownership of a parent company;however,they each operate autonomously with their own contractual agreements with the Company and hence are accounted for as separate independent agencies.Excluding AIS and PoliSeek,independent agents and agencies collectively accounted for approximately 88%of

127、 the Companys direct premiums written in 2022 and no single independent agent or agency accounted for more than 1.1%of the Companys direct premiums written during any of the last three years.AIS and PoliSeek represented the Company as independent agencies prior to their acquisition in 2009,and conti

128、nue to act as independent agencies selling policies for a number of other insurance companies.Policies sold directly through the internet sales portals are assigned to and serviced by the Companys agents and agencies,including AIS and PoliSeek.The Company believes that it compensates its agents abov

129、e the industry average.Net commissions incurred in 2022 were approximately 15%of net premiums written.The Companys advertising budget is allocated among television,radio,newspaper,internet,and direct mailing media with the intent to provide the best coverage available within targeted media markets.W

130、hile the majority of these advertising costs are borne by the Company,a portion of these costs are reimbursed by the Companys independent agents based upon the number of account leads generated by the advertising.The Company believes that its advertising program is important to generate leads,create

131、 brand awareness,and remain competitive in the current insurance climate.In 2022,the Company incurred approximately$12 million in net advertising expense.Underwriting The Company sets its own automobile insurance premium rates,subject to rating regulations issued by the Department of Insurance or si

132、milar governmental agency of each state in which it is licensed to operate(DOI).Each state has different rate approval requirements.See RegulationDepartment of Insurance Oversight.The Company offers standard,non-standard,and preferred private passenger automobile insurance in 11 states.The Company a

133、lso offers homeowners insurance in 10 states,commercial automobile insurance in 4 states,and mechanical protection insurance in most states.In California,good drivers,as defined by the California Insurance Code,accounted for approximately 88%of the Companys California voluntary private passenger aut

134、omobile policies-in-force at December 31,2022,while higher risk categories accounted for approximately 12%.The Companys private passenger automobile renewal rate in California(the rate of acceptance of offers to renew)averaged approximately 96%,97%,and 96%in 2022,2021,and 2020,respectively.Claims Th

135、e Company conducts the majority of claims processing without the assistance of outside adjusters.The claims staff administers all claims and manages all legal and adjustment aspects of claims processing.Loss and Loss Adjustment Expense Reserves(Loss Reserves)and Reserve Development The Company maint

136、ains loss reserves for both reported and unreported claims.Loss reserves for reported claims are estimated based upon a case-by-case evaluation of the type of claim involved and the expected development of such claims.Loss reserves for unreported claims are determined on the basis of historical info

137、rmation by line of insurance business.Inflation is reflected in the reserving process through analysis of cost trends and review of historical reserve settlement.The Companys ultimate liability may be greater or less than management estimates of reported loss reserves.The Company does not discount t

138、o a present value that portion of loss reserves expected to be paid in future periods.However,the Company is required to discount loss reserves for federal income tax purposes.4 The following table provides a reconciliation of beginning and ending estimated reserve balances for the years indicated:R

139、ECONCILIATION OF NET LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES Year Ended December 31,2022 2021 2020(Amounts in thousands)Gross reserves at January 1(1)$2,226,430$1,991,304$1,921,255 Current year 3,314,938 2,786,246 2,372,364 Prior years 47,281(26,091)22,979 Total incurred losses and loss adjustment

140、 expenses 3,362,219 2,760,155 2,395,343 Loss and loss adjustment expense payments related to:Current year 1,862,006 1,601,998 1,366,661 Prior years 1,125,677 909,949 937,143 Total payments 2,987,683 2,511,947 2,303,804 Net reserves at December 31(1)2,559,587 2,185,051 1,936,843 Reinsurance recoverab

141、les on unpaid losses(41,379)(54,461)(76,100)149Cumulative effect of adopting ASU 2016-13 Reinsurance recoverables on unpaid losses,as adjusted(41,379)(54,461)(75,951)Net reserves at January 1,as adjusted(1)2,185,051 1,936,843 1,845,304 Incurred losses and loss adjustment expenses related to:Reinsura

142、nce recoverables on unpaid losses 25,323 41,379 54,461 Gross reserves at December 31(1)$2,584,910$2,226,430$1,991,304 _(1)Under statutory accounting principles(SAP),reserves are stated net of reinsurance recoverables on unpaid losses whereas under U.S.generally accepted accounting principles(GAAP),r

143、eserves are stated gross of reinsurance recoverables on unpaid losses.During 2022,inflationary trends accelerated to their highest level in decades,which had a significant impact on the cost of automobile parts and labor as well as medical expenses for bodily injuries,and supply chain and labor shor

144、tage issues lengthened the time to repair vehicles.Bodily injury costs were also under pressure from social inflation.These factors contributed to higher losses and loss adjustment expenses related to the current accident year for 2022 compared to 2021 and 2020.The increase in the provision for insu

145、red events of prior years in 2022 of approximately$47.3 million primarily resulted from higher than estimated losses and loss adjustment expenses in the automobile line of insurance business.The inflation,supply chain,and labor issues discussed above were major contributors to the adverse reserve de

146、velopment in the automobile line of insurance business for 2022.The decrease in the provision for insured events of prior years in 2021 of approximately$26.1 million primarily resulted from lower than estimated losses and loss adjustment expenses in the homeowners and private passenger automobile li

147、nes of insurance business.The increase in the provision for insured events of prior years in 2020 of approximately$23.0 million primarily resulted from higher than estimated losses and loss adjustment expenses in the homeowners and commercial automobile lines of insurance business.The Company record

148、ed catastrophe losses net of reinsurance of approximately$102 million,$104 million,and$64 million in 2022,2021,and 2020,respectively.Catastrophe losses due to events that occurred in 2022 totaled approximately$101 million,with no reinsurance benefits used for these losses,resulting primarily from th

149、e deep freeze of Winter Storm Elliott and other extreme weather events in Texas,Oklahoma and Georgia,winter storms in California,and the impact of Hurricane Ian in Florida.In addition,the Company experienced unfavorable development of approximately$1 million on prior years catastrophe losses in 2022

150、.Catastrophe losses due to the events that occurred in 2021 totaled approximately$109 million,with no reinsurance benefits used for these losses,resulting primarily from the deep freeze of Winter Storm Uri and other extreme weather events in Texas and Oklahoma,rainstorms,wildfires and winter storms

151、in California,and the impact of Hurricane Ida in New Jersey and New York.These losses were partially offset by favorable development of approximately$5 million on prior years catastrophe losses.Catastrophe losses due to the events that occurred in 2020 totaled approximately$69 5 million,with no rein

152、surance benefits used for these losses,resulting primarily from wildfires and windstorms in California and extreme weather events outside of California.These losses were partially offset by favorable development of approximately$5 million on prior years catastrophe losses.Statutory Accounting Princi

153、ples The Companys results are reported in accordance with GAAP,which differ in some respects from amounts reported under SAP prescribed by insurance regulatory authorities.Some of the significant differences under GAAP are described below:Policy acquisition costs such as commissions,premium taxes,an

154、d other costs that vary with and are primarily related to the successful acquisition of new and renewal insurance contracts,are capitalized and amortized on a pro rata basis over the period in which the related premiums are earned,whereas under SAP,these costs are expensed as incurred.Certain assets

155、 are included in the consolidated balance sheets,whereas under SAP,such assets are designated as nonadmitted assets,and charged directly against statutory surplus.These assets consist primarily of premium receivables that are outstanding for more than 90 days,deferred tax assets that do not meet sta

156、tutory requirements for recognition,furniture,equipment,leasehold improvements,capitalized software,and prepaid expenses.Amounts related to ceded reinsurance are shown gross as prepaid reinsurance premiums and reinsurance recoverables,whereas under SAP,these amounts are netted against unearned premi

157、um reserves and loss and loss adjustment expense reserves.Fixed-maturity securities are reported at fair value,whereas under SAP,these securities are reported at amortized cost,or the lower of amortized cost,or fair value,depending on the specific type of security.Equity securities are marked to mar

158、ket through the consolidated statements of operations,whereas under SAP,these securities are marked to market through unrealized gains and losses in surplus.Goodwill is reported as the excess of cost of an acquired entity over the fair value of the underlying assets and assessed periodically for imp

159、airment.Intangible assets are amortized over their useful lives.Under SAP,goodwill is reported as the excess of cost of an acquired entity over the statutory book value and amortized over 10 years.Its carrying value is limited to 10%of adjusted surplus.Under SAP,intangible assets are not recognized.

160、The differing treatment of income and expense items results in a corresponding difference in federal income tax expense.Changes in deferred income taxes are reflected as an item of income tax benefit or expense,whereas under SAP,changes in deferred income taxes are recorded directly to statutory sur

161、plus as regards policyholders.Admittance testing under SAP may result in a charge to unassigned surplus for non-admitted portions of deferred tax assets.Under GAAP,a valuation allowance may be recorded against the deferred tax assets and reflected as an expense.Certain assessments paid to regulatory

162、 agencies that are recoverable from policyholders in future periods are expensed,whereas under SAP,these assessments are recorded as receivables.Operating Ratios(SAP basis)Loss and Expense Ratios Loss and expense ratios are used to evaluate the underwriting experience of property and casualty insura

163、nce companies.Under SAP,losses and loss adjustment expenses are stated as a percentage of premiums earned because losses occur over the life of a policy,while underwriting expenses are stated as a percentage of premiums written rather than premiums earned because most underwriting expenses are incur

164、red when policies are written and are not spread over the policy period.The statutory underwriting profit margin is the extent to which the combined loss and expense ratios are less than 100%.6 _ The following table presents,on a statutory basis,the Insurance Companies loss,expense and combined rati

165、os,and the private passenger automobile industry combined ratio.The Insurance Companies ratios(Company-wide)include lines of insurance business other than private passenger automobile that accounted for approximately 35.7%of direct premiums written in 2022;hence,the Company believes its combined rat

166、io(for private passenger automobile only)is more comparable to the industry ratios.Year Ended December 31,2022 2021 2020 2019 2018 Loss ratio(Company-wide)85.1%73.8%67.4%75.2%76.6%Expense ratio(Company-wide)24.4%24.9%26.2%24.5%24.5%Combined ratio(Company-wide)(2)109.5%98.7%93.6%99.7%101.0%Combined r

167、atio(Companys private passenger automobile only)110.3%96.0%88.3%98.2%99.5%Industry combined ratio(all writers)(1)N/A 100.7%90.5%98.1%97.3%Industry combined ratio(excluding direct writers)(1)N/A 99.4%91.4%97.3%97.8%(1)Source:A.M.Best,Aggregates&Averages(2018 through 2021),for all property and casualt

168、y insurance companies(private passenger automobile line only,after policyholder dividends).(2)Combined ratio for 2018 does not sum due to rounding.Premiums to Surplus Ratio The following table presents the Insurance Companies statutory ratios of net premiums written to policyholders surplus.Guidelin

169、es established by the National Association of Insurance Commissioners(the NAIC)indicate that this ratio should be no greater than 3 to 1.Year Ended December 31,2022 2021 2020 2019 2018(Amounts in thousands,except ratios)Net premiums written$3,978,017$3,855,369$3,611,543$3,731,723$3,495,633 Policyhol

170、ders surplus$1,502,424$1,827,210$1,768,103$1,539,998$1,471,547 Ratio 2.7 to 1 2.1 to 1 2.0 to 1 2.4 to 1 2.4 to 1 Investments The Companys investments are directed by the Chief Investment Officer under the supervision of the Investment Committee of the Board of Directors.The Companys investment stra

171、tegy emphasizes safety of principal and consistent income generation,within a total return framework.The investment strategy has historically focused on maximizing after-tax yield with a primary emphasis on maintaining a well diversified,investment grade,fixed income portfolio to support the underly

172、ing liabilities and achieve a return on capital and profitable growth.The Company believes that investment yield is maximized by selecting assets that perform favorably on a long-term basis and by disposing of certain assets to enhance after-tax yield and minimize the potential effect of downgrades

173、and defaults.The Company believes that this strategy maintains the optimal investment performance necessary to sustain investment income over time.The Companys portfolio management approach utilizes a market risk and asset allocation strategy as the primary basis for the allocation of interest sensi

174、tive,liquid and credit assets as well as for monitoring credit exposure and diversification requirements.Within the ranges set by the asset allocation strategy,tactical investment decisions are made in consideration of prevailing market conditions.Tax considerations are important in portfolio manage

175、ment.The Company closely monitors the timing and recognition of capital gains and losses to maximize the realization of any deferred tax assets arising from capital losses.The Company had no capital loss carryforward at December 31,2022.7 _ Investment Portfolio The following table presents the compo

176、sition of the Companys total investment portfolio:December 31,2022 2021 2020 Cost(1)Fair Value Cost(1)Fair Value Cost(1)Fair Value Taxable bonds Tax-exempt state and municipal bonds Total fixed maturities Equity securities$1,758,853 2,467,937 4,226,790 668,843$1,649,078 2,439,233 4,088,311 699,552(A

177、mounts in thousands)$1,640,945$1,632,358 2,268,835 2,399,165 3,909,780 4,031,523 754,536 970,939$936,762 2,451,656 3,388,418 695,150$943,836 2,605,974 3,549,810 803,851 Short-term investments 123,928 122,937 141,206 140,127 376,547 375,609 Total investments$5,019,561$4,910,800$4,805,522$5,142,589$4,

178、460,115$4,729,270 _(1)Fixed maturities and short-term bonds at amortized cost;equities and other short-term investments at cost.The Company applies the fair value option to all fixed maturity and equity securities and short-term investments at the time the eligible item is first recognized.For more

179、detailed discussion on the Companys investment portfolio,including credit ratings,see Liquidity and Capital ResourcesC.Invested Assets in Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations and Note 3.Investments,of the Notes to Consolidated Financial Statemen

180、ts in Item 8.Financial Statements and Supplementary Data.Investment Results The following table presents the investment results of the Company for the most recent five years:Year Ended December 31,2022 2021 2020 2019 2018(Dollars in thousands)Average invested assets at cost(1)(2)$4,902,755$4,681,462

181、$4,291,888$4,008,601$3,740,497 Net investment income(3)Before income taxes$168,356$129,727$134,858$141,263$135,838 After income taxes$146,204$115,216$120,043$125,637$121,476 Average annual yield on investments(3)Before income taxes 3.4%2.8%3.1%3.5%3.6%After income taxes 3.0%2.5%2.8%3.1%3.3%Net reali

182、zed investment(losses)gains after income taxes$(385,583)$88,210$67,727$176,006$(105,481)(1)Fixed maturities and short-term bonds at amortized cost;equities and other short-term investments at cost.Average invested assets at cost are based on the monthly amortized cost of the invested assets for each

183、 period.(2)At December 31,2022,fixed maturity securities with call features totaled$3.1 billion at fair value and$3.2 billion at amortized cost.(3)Net investment income before and after income taxes for 2022 increased compared to 2021,primarily due to higher average yield combined with higher averag

184、e invested assets.Average annual yield on investments before and after income taxes for 2022 increased compared to 2021,primarily due to the maturity and replacement of lower yielding investments purchased when market interest rates were lower with higher yielding investments,as a result of increasi

185、ng market interest rates,as well as higher yields on investments based on floating interest rates.Competitive Conditions The Company operates in the highly competitive property and casualty insurance industry subject to competition on pricing,claims handling,consumer recognition,coverage offered and

186、 product features,customer service,and geographic coverage.Some of the Companys competitors are larger and well-capitalized national companies that sell directly to consumers or have broad distribution networks of employed or captive agents.8 Reputation for customer service and price are the princip

187、al means by which the Company competes with other insurers.In addition,the marketing efforts of independent agents can provide a competitive advantage.Based on the most recent regularly published statistical compilations of premiums written in 2021,the Company was the sixth largest writer of private

188、 passenger automobile insurance in California and the sixteenth largest in the United States.The property and casualty insurance industry is highly cyclical,with alternating hard and soft market conditions.The Company has historically seen premium growth during hard market conditions.The Company bel

189、ieves that the automobile insurance market in most states has hardened during 2022 as insurance carriers began to increase rates reflecting high loss severity and increasing loss frequency as the country emerged from the COVID-19 pandemic.In California,market conditions in 2022 were hard as companie

190、s tightened their underwriting due to difficulty in obtaining regulatory approval for rate increases.Reinsurance For California homeowners policies,the Company has reduced its catastrophe exposure from earthquakes by placing earthquake risks directly with the California Earthquake Authority(CEA).How

191、ever,the Company continues to have catastrophe exposure to fires following an earthquake.For more detailed discussion,see RegulationInsurance Assessments below.The Company is the assuming reinsurer under a Catastrophe Portfolio Participation Reinsurance Contract(Contract)effective through December 3

192、1,2025.The Company reimburses a group of affiliates of a ceding company for a proportional share of a portfolio of catastrophe losses based on the premiums ceded to the Company under the Contract,to the extent the actual loss ratio exceeds the threshold loss ratio of 73.5%.The total assumed premium

193、under the Contract is$15.0 million for each of the 12 month periods ending December 31,2023 through 2025 and$10.0 million for the 12 months ended December 31,2022.The total possible amount of losses for the Company under the Contract is$30.0 million for each of the 12 month periods ending December 3

194、1,2023 through 2025 and$25.0 million for the 12 months ended December 31,2022.The Company recognized$10.0 million and$12.5 million in earned premiums and$8.4 million and$17.5 million in incurred losses under the Contract for the 12 months ended December 31,2022 and 2021,respectively.The Company is p

195、arty to a Catastrophe Reinsurance Treaty(Treaty)covering a wide range of perils that is effective through June 30,2023.For the 12 months ending June 30,2023 and 2022,the Treaty provides$936 million and$792 million of coverage,respectively,on a per occurrence basis after covered catastrophe losses ex

196、ceed the Company retention limit of$60 million and$40 million,respectively.The Treaty specifically excludes coverage for any Florida business and for California earthquake losses on fixed property policies such as homeowners,but does cover losses from fires following an earthquake.The Treaty include

197、s additional restrictions as noted in the tables below.Coverage on individual catastrophes provided for the 12 months ending June 30,2023 under the Treaty is presented below in various layers:Catastrophe Losses and LAE Percentage of In Excess of Up to Coverage(Amounts in millions)Retained$60%Layer o

198、f Coverage 60 100 19.5 Layer of Coverage Layer of Coverage(1)Layer of Coverage(2)(3)(4)100 200 530 200 530 930 98.8 98.6 100.0 Layer of Coverage 930 1,035 98.9 _(1)5%of this layer covers California,Arizona and Nevada only.(2)33%of this layer covers California,Arizona and Nevada only.(3)Layer of Cove

199、rage represents multiple actual treaty layers that are grouped for presentation purposes.(4)6.3%of this layer covers only California wildfires and fires following an earthquake in California,and is not subject to reinstatement.9 100 Coverage on individual catastrophes provided for the 12 months ende

200、d June 30,2022 under the Treaty is presented below in various layers:Catastrophe Losses and LAE Percentage of In Excess of Up to Coverage(Amounts in millions)Retained$40%Layer of Coverage 40 100 70 Layer of Coverage(1)(2)100 450 100 _ _ Layer of Coverage(1)(3)(4)(5)450 850(1)Layer of Coverage repres

201、ents multiple actual treaty layers that are grouped for presentation purposes.(2)4.1%of this layer excludes Texas.(3)11.9%of this layer excludes Texas.(4)15.0%of this layer covers California,Arizona and Nevada only.(5)12.7%of this layer covers only California wildfires and fires following an earthqu

202、ake in California,and is not subject to reinstatement.The table below presents the combined total reinsurance premiums under the Treaty(annual premiums and reinstatement premiums)for the 12 months ending June 30,2023 and 2022,respectively:Treaty Annual Premium(1)Reinstatement Premium(2)Total Combine

203、d Premium(2)(Amounts in millions)For the 12 months ending June 30,2023$74$74 For the 12 months ended June 30,2022$55$55(1)The increase in the annual premium is primarily due to higher reinsurance coverage and rates and growth in the covered book of business.(2)The reinstatement premium and the total

204、 combined premium for the treaty period ending June 30,2023 are projected amounts to be paid based on the assumption that there will be no reinstatements occurring during this treaty period.The reinstatement premium for the treaty period ended June 30,2022 is zero,as there were no actual reinstateme

205、nt premiums paid.The Treaty ending June 30,2023 and 2022 each provides for one full reinstatement of coverage limits.Reinstatement premiums are based on the amount of reinsurance benefits used by the Company at 100%of the annual premium rate,with the exception of the reinstatement restrictions noted

206、 in the tables above,up to the maximum reinstatement premium of approximately$72 million and$51 million if the full amount of benefit is used for the 12 months ending June 30,2023 and 2022,respectively.The total amount of reinstatement premiums is recorded as ceded reinstatement premiums written at

207、the time of the catastrophe event based on the total amount of reinsurance benefits expected to be used for the event,and such reinstatement premiums are recognized ratably over the remaining term of the Treaty as ceded reinstatement premiums earned.The catastrophe events that occurred in 2022 cause

208、d approximately$101 million in losses to the Company,resulting primarily from the deep freeze of Winter Storm Elliott and other extreme weather events in Texas,Oklahoma and Georgia,winter storms in California,and the impact of Hurricane Ian in Florida.No reinsurance benefits were available under the

209、 Treaty for these losses as none of the 2022 catastrophe events individually resulted in losses in excess of the Companys per-occurrence retention limit of$60 million and$40 million under the Treaty for the 12 months ending June 30,2023 and 2022,respectively.The catastrophe events that occurred in 2

210、021 caused approximately$113 million in losses to the Company as of December 31,2022,resulting primarily from the deep freeze of Winter Storm Uri and other extreme weather events in Texas and Oklahoma,rainstorms,wildfires and winter storms in California,and the impact of Hurricane Ida in New Jersey

211、and New York.No reinsurance benefits were available under the Treaty for these losses as none of the 2021 catastrophe events 10 individually resulted in losses in excess of the Companys per-occurrence retention limit of$40 million under the Treaty for each of the 12 months ended June 30,2022 and 202

212、1.The Company carries a commercial umbrella reinsurance treaty and a per-risk property reinsurance treaty,and seeks facultative arrangements for large property risks.In addition,the Company has other reinsurance in force that is not material to the consolidated financial statements.If any reinsurers

213、 are unable to perform their obligations under a reinsurance treaty,the Company will be required,as primary insurer,to discharge all obligations to its policyholders in their entirety.Regulation The Insurance Companies are subject to significant regulation and supervision by insurance departments of

214、 the jurisdictions in which they are domiciled or licensed to operate business.Department of Insurance Oversight The powers of the DOI in each state primarily include the prior approval of insurance rates and rating factors and the establishment of capital and surplus requirements,solvency standards

215、,restrictions on dividend payments and transactions with affiliates.DOI regulations and supervision are designed principally to benefit policyholders rather than shareholders.California Proposition 103(the Proposition)requires that property and casualty insurance rates be approved by the California

216、DOI prior to their use and that no rate be approved which is excessive,inadequate,unfairly discriminatory,or otherwise in violation of the provisions of the Proposition.The Proposition specifies four statutory factors required to be applied in decreasing order of importance in determining rates for

217、private passenger automobile insurance:(1)the insureds driving safety record,(2)the number of miles the insured drives annually,(3)the number of years of driving experience of the insured and(4)whatever optional factors are determined by the California DOI to have a substantial relationship to risk

218、of loss and are adopted by regulation.The statute further provides that insurers are required to give at least a 20%discount to good drivers,as defined,from rates that would otherwise be charged to such drivers and that no insurer may refuse to insure a good driver.The Companys rate plan operates un

219、der these rating factor regulations.Insurance rates in California,Georgia,New York,New Jersey,and Nevada require prior approval from the state DOI,while insurance rates in Illinois,Texas,Virginia,Oklahoma,and Arizona must only be filed with the respective DOI before they are implemented.Florida has

220、a modified version of use and file laws.Insurance laws and regulations in all states in which the Company operates provide that rates must not be excessive,inadequate,or unfairly discriminatory.The DOI in each state in which the Company operates is responsible for conducting periodic financial and m

221、arket conduct examinations of the Insurance Companies in their states.Market conduct examinations typically review compliance with insurance statutes and regulations with respect to rating,underwriting,claims handling,billing,and other practices.For more detailed information on the Companys current

222、financial and market conduct examinations,see Liquidity and Capital ResourcesF.Regulatory Capital Requirements in Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations.For a discussion of current regulatory matters in California,see Regulatory and Legal Matters

223、in Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations and Note 18.Commitments and Contingencies,of the Notes to Consolidated Financial Statements in Item 8.Financial Statements and Supplementary Data.The operations of the Company are dependent on the laws of

224、the states in which it does business and changes in those laws can materially affect the revenue and expenses of the Company.The Company retains its own legislative advocates in California.The Company made direct financial contributions of approximately$83,000 and$54,000 to officeholders and candida

225、tes in 2022 and 2021,respectively.The Company believes in supporting the political process and intends to continue to make such contributions in amounts which it determines to be appropriate.The Insurance Companies must comply with minimum capital requirements under applicable state laws and regulat

226、ions.The risk-based capital(RBC)formula is used by insurance regulators to monitor capital and surplus levels.It was designed to capture the widely varying elements of risks undertaken by writers of different lines of insurance business having differing risk characteristics,as well as writers of sim

227、ilar lines where differences in risk may be related to corporate structure,investment policies,reinsurance arrangements,and a number of other factors.The Company periodically monitors the RBC level of each of the Insurance Companies.As of December 31,2022,2021 and 2020,each of the Insurance Companie

228、s exceeded the minimum required RBC level.For more detailed information,see Liquidity and Capital ResourcesF.Regulatory Capital Requirements in Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations.11 Own Risk and Solvency Assessment Insurance companies are requ

229、ired to file an Own Risk and Solvency Assessment(ORSA)with the insurance regulators in their domiciliary states.The ORSA is required to cover,among many items,a companys risk management policies,the material risks to which the company is exposed,how the company measures,monitors,manages and mitigate

230、s material risks,and how much economic and regulatory capital is needed to continue to operate in a strong and healthy manner.The ORSA is intended to be used by state insurance regulators to evaluate the risk exposure and quality of the risk management processes within insurance companies to assist

231、in conducting risk-focused financial examinations and for determining the overall financial condition of insurance companies.The Company filed its most recent ORSA Summary Report with the California DOI in November 2022.Compliance with the ORSA requirements did not have a material impact on the Comp

232、anys consolidated financial statements.Insurance Assessments The California Insurance Guarantee Association(CIGA)was created to pay claims on behalf of insolvent property and casualty insurers.Each year,these claims are estimated by CIGA and the Company is assessed for its pro-rata share based on pr

233、ior year California premiums written in the particular line.These assessments are currently limited to 2%of premiums written in the preceding year and are recouped through a mandated surcharge to policyholders in the year after the assessment.There were no material CIGA assessments in 2022.The CEA i

234、s a quasi-governmental organization that was established to provide a market for earthquake coverage to California homeowners.The Company places all new and renewal earthquake coverage offered with its homeowner policy directly with the CEA.The Company receives a small fee for placing business with

235、the CEA,which is recorded as other revenue in the consolidated statements of operations.Upon the occurrence of a major seismic event,the CEA has the ability to assess participating companies for losses.These assessments are made after CEA capital has been expended and are based upon each companys pa

236、rticipation percentage multiplied by the amount of the total assessment.Based upon the most recent information provided by the CEA,the Companys maximum total exposure to CEA assessments at April 30,2022,the most recent date at which information was available,was$76.7 million.There was no assessment

237、made in 2022.The Insurance Companies in other states are also subject to the provisions of similar insurance guaranty associations.There were no material assessments or payments during 2022 in other states.Holding Company Act The California Companies are subject to California DOI regulation pursuant

238、 to the provisions of the California Insurance Holding Company System Regulatory Act(the Holding Company Act).The California DOI may examine the affairs of each of the California Companies at any time.The Holding Company Act requires disclosure of any material transactions among affiliates within a

239、holding company system.Some transactions require advance notice and may not be made if the California DOI disapproves the transaction within 30 days after notice.Such transactions include,but are not limited to,extraordinary dividends;management agreements,service contracts,and cost-sharing arrangem

240、ents,and modifications thereto;all guarantees that are not quantifiable,or,if quantifiable,exceed the lesser of one-half of 1%of admitted assets or 10%of policyholders surplus as of the preceding December 31;derivative transactions or series of derivative transactions;reinsurance agreements or modif

241、ications thereto in which the reinsurance premium or a change in the insurers liabilities equals or exceeds 5%of the policyholders surplus as of the preceding December 31;sales,purchases,exchanges,loans,and extensions of credit;and investments,in the net aggregate,involving more than the lesser of 3

242、%of the respective California Companies admitted assets or 25%of statutory surplus as regards policyholders as of the preceding December 31.An extraordinary dividend is a dividend which,together with other dividends or distributions made within the preceding 12 months,exceeds the greater of 10%of th

243、e insurance companys statutory policyholders surplus as of the preceding December 31 or the insurance companys statutory net income for the preceding calendar year.The Holding Company Act also requires filing of an annual enterprise risk report identifying the material risks within the insurance hol

244、ding company system.California-domiciled insurance companies are also required to notify the California DOI of any dividend after declaration,but prior to payment.There are similar limitations imposed by other states on the Insurance Companies ability to pay dividends.As of December 31,2022,the Insu

245、rance Companies are permitted to pay in 2023,without obtaining DOI approval for extraordinary dividends,$151 million in dividends to Mercury General,of which$125 million may be paid by the California Companies.The Holding Company Act also provides that the acquisition or change of control of a Calif

246、ornia domiciled insurance company or of any person who controls such an insurance company cannot be consummated without the prior approval of the 12 California DOI.In general,a presumption of control arises from the ownership of voting securities and securities that are convertible into voting secur

247、ities,which in the aggregate constitute 10%or more of the voting securities of a California insurance company or of a person that controls a California insurance company,such as Mercury General.A person seeking to acquire control,directly or indirectly,of the Company must generally file with the Cal

248、ifornia DOI an application for change of control containing certain information required by statute and published regulations and provide a copy of the application to the Company.The Holding Company Act also effectively restricts the Company from consummating certain reorganizations or mergers witho

249、ut prior regulatory approval.Each of the Insurance Companies is subject to holding company regulations in the state in which it is domiciled.These provisions are substantially similar to those of the Holding Company Act.Information about the Companys Executive Officers The following table presents c

250、ertain information concerning the executive officers of the Company as of February 9,2023:Name Age Position George Joseph 101 Chairman of the Board Gabriel Tirador 58 President and Chief Executive Officer Victor G.Joseph 36 Executive Vice President and Chief Operating Officer Theodore R.Stalick 59 S

251、enior Vice President and Chief Financial Officer Kelly Butler 40 Vice President and Chief Underwriting Officer Katie Gibbs 33 Vice President and Chief Experience Officer Christopher Graves 57 Vice President and Chief Investment Officer Brandt N.Minnich 56 Vice President and Chief Sales Development O

252、fficer Randall R.Petro 59 Vice President and Chief Claims Officer Mark Ribisi 60 President and Chief Executive Officer of AIS Management LLC Jeffrey M.Schroeder 46 Vice President and Chief Product Officer Heidi C.Sullivan 54 Vice President and Chief Human Capital Officer Erik Thompson 54 Vice Presid

253、ent and Chief Marketing Officer Charles Toney 61 Vice President and Chief Actuary Judy A.Walters 76 Vice President,Corporate Affairs and Secretary Mr.George Joseph,Chairman of the Board of Directors,has served in this capacity since 1961.He held the position of Chief Executive Officer of the Company

254、 for 45 years from 1961 through 2006.Mr.Joseph has more than 50 years experience in the property and casualty insurance business.Mr.Tirador,President and Chief Executive Officer,served as the Companys assistant controller from 1994 to 1996.In 1997 and 1998,he served as the Vice President and Control

255、ler of the Automobile Club of Southern California.He rejoined the Company in 1998 as Vice President and Chief Financial Officer.He was appointed President and Chief Operating Officer in October 2001 and Chief Executive Officer in 2007.Mr.Tirador has over 25 years experience in the property and casua

256、lty insurance industry and is an inactive Certified Public Accountant.Mr.Victor Joseph,Executive Vice President and Chief Operating Officer,has been employed by the Company in various capacities since 2009,and was appointed Vice President and Chief Underwriting Officer in July 2017 and Executive Vic

257、e President and Chief Operating Officer in January 2022.Mr.Victor Joseph is Mr.George Josephs son.Mr.Stalick,Senior Vice President and Chief Financial Officer,joined the Company as Corporate Controller in 1997.He was appointed Chief Accounting Officer in October 2000 and Vice President and Chief Fin

258、ancial Officer in 2001.In July 2013,he was named Senior Vice President and Chief Financial Officer.Mr.Stalick is a Certified Public Accountant.Ms.Butler,Vice President and Chief Underwriting Officer,joined the Company as a Casualty Claims Adjuster in 2004 and worked in various capacities including a

259、s Director of Personal Property Underwriting.Ms.Butler was appointed Vice President and Chief Underwriting Officer in January 2022.13 Ms.Gibbs,Vice President and Chief Experience Officer,joined the Company in 2022.Prior to joining the Company,she served as Vice President,Product Development for Kemp

260、er Insurance from 2019 to 2022.Prior to 2019,she held various leadership positions in Product and Corporate Strategy at American Family Insurance and its subsidiaries.Mr.Graves,Vice President and Chief Investment Officer,has been employed by the Company in the investment department since 1986.Mr.Gra

261、ves was appointed Chief Investment Officer in 1998,and named Vice President in 2001.Mr.Minnich,Vice President and Chief Sales Development Officer,joined the Company as an underwriter in 1989.In 2007,he joined Superior Access Insurance Services as Director of Agency Operations.In 2008 he rejoined the

262、 Company as an Assistant Product Manager,and in 2009,he was named Senior Director of Marketing,a role he held until appointed to his current position later in 2009.Mr.Minnich has over 30 years experience in the property and casualty insurance industry and is a Chartered Property and Casualty Underwr

263、iter.Mr.Petro,Vice President and Chief Claims Officer,has been employed by the Company in the Claims Department since 1987.Mr.Petro was appointed Vice President in March 2014,and named Chief Claims Officer in March 2015.Mr.Ribisi,President and Chief Executive Officer of AIS Management LLC,joined the

264、 Company in 2009 as President and Chief Executive Officer of AIS Management LLC,a significant subsidiary of the Company.Prior to joining the Company,he served as Vice President and Chief Operating Officer for Aons Personal Lines Division from 2002 to 2009.Mr.Ribisi has over 35 years experience in th

265、e property and casualty insurance industry and is a Certified Insurance Counselor.Mr.Schroeder,Vice President and Chief Product Officer,has been employed by the Company since 2010.Prior to his appointment as Vice President and Chief Product Officer,he served as President and Chief Operating Officer

266、of OIC.Prior to joining the Company,Mr.Schroeder was a Product Manager at 21st Insurance Company.Ms.Sullivan,Vice President and Chief Human Capital Officer,joined the Company in 2012.Prior to joining the Company,she served as Senior Vice President,Human Capital for Arcadian Health Plan from 2008 to

267、2012.Prior to 2008,she held various leadership positions at Kaiser Permanente,Progressive Insurance,and Score Educational Centers.Mr.Thompson,Vice President,Chief Marketing Officer,joined the Company as Director of Advertising in 2005,and was appointed Vice President,Advertising and Public Relations

268、 in October 2017.Prior to joining the Company,Mr.Thompson held various leadership positions in advertising,marketing,and public relations at several organizations,including Universal Studios,Inc.,Turner,and Columbia TriStar Television.Mr.Toney,Vice President and Chief Actuary,joined the Company in 1

269、984 as a programmer/analyst.In 1994,he earned his Fellowship in the Casualty Actuarial Society and was appointed to his current position.In 2011,he became a board member of the Personal Insurance Federation of California.Mr.Toney is Mr.George Josephs nephew.Ms.Walters,Vice President,Corporate Affair

270、s and Secretary,has been employed by the Company since 1967,and has served as its Secretary since 1982.Ms.Walters was named Vice President,Corporate Affairs in 1998.Item 1A.Risk Factors The Companys business involves various risks and uncertainties in addition to the normal risks of business,some of

271、 which are discussed in this section.It should be noted that the Companys business and that of other insurers may be adversely affected by a downturn in general economic conditions and other forces beyond the Companys control.In addition,other risks and uncertainties not presently known or that the

272、Company currently believes to be immaterial may also adversely affect the Companys business.Any such risks or uncertainties,or any of the following risks or uncertainties,that develop into actual events could result in a material and adverse effect on the Companys business,financial condition,result

273、s of operations,or liquidity.The information discussed below should be considered carefully with the other information contained in this Annual Report on Form 10-K and the other documents and materials filed by the Company with the SEC,as well as news releases and other information publicly dissemin

274、ated by the Company from time to time.14 Risks Related to the Companys Business The Company remains highly dependent upon California to produce revenues and operating profits.For the year ended December 31,2022,the Company generated approximately 81%of its direct automobile insurance premiums writte

275、n in California.The Companys financial results are subject to prevailing regulatory,legal,economic,demographic,competitive,and other conditions in the states in which the Company operates and changes in any of these conditions could negatively impact the Companys results of operations.Mercury Genera

276、l is a holding company that relies on regulated subsidiaries for cash flows to satisfy its obligations.As a holding company,Mercury General maintains no operations that generate cash flows sufficient to pay operating expenses,shareholders dividends,or principal or interest on its indebtedness.Conseq

277、uently,Mercury General relies on the ability of the Insurance Companies,particularly the California Companies,to pay dividends for Mercury General to meet its obligations.The ability of the Insurance Companies to pay dividends is regulated by state insurance laws,which limit the amount of,and in cer

278、tain circumstances may prohibit the payment of,cash dividends.Generally,these insurance regulations permit the payment of dividends only out of earned surplus in any year which,together with other dividends or distributions made within the preceding 12 months,do not exceed the greater of 10%of statu

279、tory surplus as of the end of the preceding year or the net income for the preceding year,with larger dividends payable only after receipt of prior regulatory approval.The inability of the Insurance Companies to pay dividends in an amount sufficient to enable the Company to meet its cash requirement

280、s at the holding company level could have a material adverse effect on the Companys results of operations,financial condition,and its ability to pay dividends to its shareholders.The Insurance Companies are subject to minimum capital and surplus requirements,and any failure to meet these requirement

281、s could subject the Insurance Companies to regulatory action.The Insurance Companies are subject to risk-based capital standards and other minimum capital and surplus requirements imposed under the applicable laws of their states of domicile.The risk-based capital standards,based upon the Risk-Based

282、 Capital Model Act adopted by the NAIC,require the Insurance Companies to report their results of RBC calculations to state departments of insurance and the NAIC.If any of the Insurance Companies fails to meet these standards and requirements,the DOI regulating such subsidiary may require specified

283、actions by the subsidiary.The Companys success depends on its ability to accurately underwrite risks and to charge adequate premiums to policyholders.The Companys financial condition,results of operations,and liquidity depend on its ability to underwrite and set premiums accurately for the risks it

284、assumes.Premium rate adequacy is necessary to generate sufficient premium to offset losses,loss adjustment expenses,and underwriting expenses and to earn a profit.In order to price its products accurately,the Company must collect and properly analyze a substantial volume of data;develop,test,and app

285、ly appropriate rating formulae;closely monitor and timely recognize changes in trends;and project both severity and frequency of losses with reasonable accuracy.The Companys ability to undertake these efforts successfully,and as a result,price accurately,is subject to a number of risks and uncertain

286、ties,including but not limited to:availability of sufficient reliable data;incorrect or incomplete analysis of available data;uncertainties inherent in estimates and assumptions,generally;selection and application of appropriate rating formulae or other pricing methodologies;successful innovation of

287、 new pricing strategies;recognition of changes in trends and in the projected severity and frequency of losses;the Companys ability to forecast renewals of existing policies accurately;unanticipated court decisions,legislation or regulatory action;ongoing changes in the Companys claim settlement pra

288、ctices;changes in operating expenses;changing driving patterns;extra-contractual liability arising from bad faith claims;15 catastrophes,including those which may be related to climate change;unexpected medical inflation;and unanticipated inflation in automobile repair costs,automobile parts prices,

289、and used car prices.Such risks and uncertainties may result in the Companys pricing being based on outdated,inadequate or inaccurate data,or inappropriate analyses,assumptions or methodologies,and may cause the Company to estimate incorrectly future changes in the frequency or severity of claims.As

290、a result,the Company could underprice risks,which would negatively affect the Companys margins,or it could overprice risks,which could reduce the Companys volume and competitiveness.In either event,the Companys financial condition,results of operations,and liquidity could be materially and adversely

291、 affected.The Companys insurance rates are subject to approval by the departments of insurance in most of the states in which the Company operates,and to political influences.In five of the states in which it operates,including California,the Company must obtain the DOIs prior approval of insurance

292、rates charged to its customers,including any increases in those rates.If the Company is unable to receive approval of the rate changes it requests,or if such approval is delayed,the Companys ability to operate its business in a profitable manner may be limited and its financial condition,results of

293、operations,and liquidity may be adversely affected.Additionally,in California,the law allows for consumer groups to intervene in rate filings,which frequently causes delays in rate approvals and implementation of rate changes and can impact the rate that is ultimately approved.From time to time,the

294、automobile insurance industry comes under pressure from state regulators,legislators,and special interest groups to reduce,freeze,or set rates at levels that do not correspond with underlying costs,in the opinion of the Companys management.The homeowners insurance business faces similar pressure,par

295、ticularly as regulators in catastrophe-prone states seek an acceptable methodology to price for catastrophe exposure.In addition,various insurance underwriting and pricing criteria regularly come under attack by regulators,legislators,and special interest groups.The result could be legislation,regul

296、ations,or new interpretations of existing regulations that adversely affect the Companys business,financial condition,and results of operations.The effects of emerging claim and coverage issues on the Companys business are uncertain and may have an adverse effect on the Companys business.As industry

297、 practices and legal,judicial,social,and other environmental conditions change,unexpected and unintended issues related to claims and coverage may emerge.These issues may adversely affect the Companys business by either extending coverage beyond its underwriting intent or by increasing the number or

298、 size of claims.In some instances,these changes may not become apparent until sometime after the Company has issued insurance policies that are affected by the changes.As a result,the full extent of liability under the Companys insurance policies may not be known for many years after a policy is iss

299、ued.Loss of,or significant restriction on,the use of credit scoring in the pricing and underwriting of personal lines products could reduce the Companys future profitability.The Company uses credit scoring as a factor in pricing and underwriting decisions where allowed by state law.Some consumer gro

300、ups and regulators have questioned whether the use of credit scoring unfairly discriminates against some groups of people and are seeking to prohibit or restrict the use of credit scoring in underwriting and pricing.Laws or regulations that significantly curtail or regulate the use of credit scoring

301、,if enacted in a large number of states in which the Company operates,could negatively impact the Companys future results of operations.If the Company cannot maintain its A.M.Best ratings,it may not be able to maintain premium volume in its insurance operations sufficient to attain the Companys fina

302、ncial performance goals.The Companys ability to retain its existing business or to attract new business in its Insurance Companies is affected by its rating by A.M.Best.A.M.Best currently rates all of the Insurance Companies with sufficient operating history as either A(Excellent)or A-(Excellent).On

303、 February 10,2022,A.M.Best affirmed the Financial Strength Rating(FSR)of A(Excellent)with Stable outlook for the Companys A rated entities and A-(Excellent)with Stable outlook for the Companys A-rated entities.The Company believes that if it is unable to maintain its A.M.Best ratings within the A ra

304、tings range,it may face greater challenges to grow its premium volume sufficiently to attain its financial performance goals,which may adversely affect the Companys business,financial condition,and results of operations.16 The Company may require additional capital in the future,which may not be ava

305、ilable or may only be available on unfavorable terms.The Companys future capital requirements,including to fund future growth opportunities,depend on many factors,including its ability to underwrite new business successfully,its ability to establish premium rates and reserves at levels sufficient to

306、 cover losses,the success of its expansion plans,the performance of its investment portfolio and its ability to obtain financing.The Company may seek to obtain financing through equity or debt issuances,or sales of all or a portion of its investment portfolio or other assets.The Companys ability to

307、obtain financing also depends on economic conditions affecting financial markets and financial strength and claims-paying ability ratings,which are assigned based upon an evaluation of the Companys ability to meet its financial obligations.The Companys current financial strength rating with Fitch an

308、d Moodys is A and A2,respectively.If the Company were to seek financing through the capital markets in the future,there can be no assurance that the Company would obtain favorable ratings from rating agencies.Any equity or debt financing,if available at all,may not be available on terms that are fav

309、orable to the Company.In the case of equity financing,the Companys shareholders could experience dilution.In addition,such securities may have rights,preferences,and privileges that are senior to those of the Companys current shareholders.If the Company cannot obtain adequate capital on favorable te

310、rms or at all,its business,financial condition,and results of operations could be adversely affected.Changes in market interest rates,defaults on securities and tax considerations may have an adverse effect on the Companys investment portfolio,which may adversely affect the Companys financial result

311、s.The Companys financial results are affected,in part,by the performance of its investment portfolio.The Companys investment portfolio contains interest rate sensitive-investments,such as municipal and corporate bonds.Increases in market interest rates may have an adverse impact on the value of the

312、investment portfolio by decreasing the value of fixed income securities.Declining market interest rates could have an adverse impact on the Companys investment income as it invests positive cash flows from operations and as it reinvests proceeds from maturing and called investments in new investment

313、s that could yield lower rates than the Companys investments have historically generated.Defaults in the Companys investment portfolio may produce operating losses and negatively impact the Companys results of operations.Interest rates are highly sensitive to many factors,including governmental mone

314、tary policies,domestic and international economic and political conditions,and other factors beyond the Companys control.Market interest rates have been at historic lows for the last several years.Many observers,including the Company,believe that market interest rates will rise as the economy improv

315、es.Although the Company takes measures to manage the risks of investing in a changing interest rate environment,it may not be able to mitigate interest rate sensitivity effectively.The Companys mitigation efforts include maintaining a high quality portfolio and managing the duration of the portfolio

316、 to reduce the effect of interest rate changes.Despite its mitigation efforts,a significant change in interest rates could have a material adverse effect on the Companys financial condition and results of operations.Although the Company monitors the timing and recognition of capital gains and losses

317、 in an effort to maximize the realization of deferred tax assets arising from capital losses,no guaranty can be provided that such monitoring or the Companys tax strategies will be effective.The Companys valuation of financial instruments may include methodologies,estimates,and assumptions that are

318、subject to differing interpretations and could result in changes to valuations that may materially adversely affect the Companys financial condition or results of operations.The Company employs a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.The

319、fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date using the exit price.Accordingly,when market observable data are not readily available,the Companys

320、 own assumptions are set to reflect those that market participants would be presumed to use in pricing the asset or liability at the measurement date.Assets and liabilities recorded on the consolidated balance sheets at fair value are categorized based on the level of judgment associated with the in

321、puts used to measure their fair value and the level of market price observability.During periods of market disruption,including periods of significantly changing interest rates,rapidly widening credit spreads,inactivity or illiquidity,it may be difficult to value certain of the Companys securities i

322、f trading becomes less frequent and/or market data become less observable.There may be certain asset classes in historically active markets with significant observable data that become illiquid due to changes in the financial environment.In such cases,the valuations associated with such securities m

323、ay rely more on managements judgment and include inputs and assumptions that are less observable or require greater estimation as well as valuation methods that are more sophisticated or require greater estimation.The valuations generated by such methods may be different from the value at which the

324、investments ultimately may be sold.Further,rapidly changing and unprecedented credit and equity market conditions could materially impact the valuation of securities as reported 17 within the Companys consolidated financial statements,and the period-to-period changes in value could vary significantl

325、y.Decreases in value may have a material adverse effect on the Companys financial condition or results of operations.Changes in the method for determining London Interbank Offered Rate(LIBOR)and the eventual replacement of LIBOR may affect the value of the Companys investment portfolio and its net i

326、nvestment income.On July 27,2017,the U.K.Financial Conduct Authority(the“FCA”),which regulates LIBOR,announced that the FCA will no longer persuade or compel banks to submit rates for the calculation of LIBOR after 2021.On March 5,2021,the FCA announced it will cease publication of the most commonly

327、 used U.S.dollar LIBOR tenors after June 30,2023.The Federal Reserve Bank of New York began publishing the Secured Overnight Financing Rate(“SOFR”)in April 2018 as an alternative for LIBOR.SOFR is a broad measure of the cost of borrowing cash overnight collateralized by U.S.Treasury securities.On Ju

328、ly 29,2021,the U.S.Federal Reserve formally recommended the forward-looking SOFR term rates as the replacement for U.S.dollar LIBOR.The Company has exposure to LIBOR-based financial instruments,such as LIBOR-based securities held in its investment portfolio.Alternative reference rates have different

329、 characteristics than LIBOR,and may demonstrate less predictable behavior over time and across different monetary,market,and economic environments.Although the full impact of transition remains unclear,this change could have an adverse impact on the securities markets,the value of the Companys inves

330、tment portfolio,and its net investment income.Changes in the financial strength ratings of financial guaranty insurers issuing policies on bonds held in the Companys investment portfolio may have an adverse effect on the Companys investment results.In an effort to enhance the bond rating applicable

331、to certain bond issues,some bond issuers purchase municipal bond insurance policies from private insurers.The insurance generally guarantees the payment of principal and interest on a bond issue if the issuer defaults.By purchasing the insurance,the financial strength ratings applicable to the bonds

332、 are based on the credit worthiness of the insurer as well as the underlying credit of the bond issuer.These financial guaranty insurers are subject to DOI oversight.As the financial strength ratings of these insurers are reduced,the ratings of the insured bond issues correspondingly decrease.Althou

333、gh the Company has determined that the financial strength ratings of the underlying bond issues in its investment portfolio are within the Companys investment policy without the enhancement provided by the insurance policies,any further downgrades in the financial strength ratings of these insurance companies or any defaults on the insurance policies written by these insurance companies may reduce