Mercury General Corp (NYSE:MCY)

CAPS Rating: 5 out of 5

The Company and its subsidiaries are engaged primarily in writing automobile insurance in a number of states, principally California.

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Player Avatar NetscribeInsuran (27.05) Submitted: 3/1/2007 8:33:38 AM : Underperform Start Price: $34.92 MCY Score: +6.18

Headquartered in Los Angeles, Mercury General Corporation (MCY) and its subsidiaries are engaged primarily in writing automobile insurance principally in California and other thirteen states. With more than 4,900 independent agents and brokers, the company offers a variety of products for homeowners but private passenger automobile lines of insurance stands as its principal business, accounting for approximately 84% of the $3 billion of the total direct premiums written in 2006.

For 2006, Mercury General Corporation's revenues increased 5% to $3 billion due to increased earned premium. But conversely, its net income decreased 15% to $214.8 million due to higher paid losses and loss adjustment expenses, increase in policy acquisition costs and increased loss reserves in Florida. The combined ratio of the company in 2006 was 95% compared to 92.4% for the 2005, which was primarily due to higher loss ratio.

Competitive marketplaces, safer cars, aggressive fraud-fighting and innovative underwriting are joining forces in 2007 to drive down the price of an essential financial product like automobile insurance as well as homeowner’s insurance in California and other parts of the county. This will reduce the premium collection per policy for the company and therefore it is expected that premium growth in California will slow down. Reflecting an already competitive environment, decreasing rates for both auto and homeowners and deteriorating underwriting results will impact the profitability of the company adversely.

Company has stopped providing a breakdown between California's auto and homeowners results, but based upon the slow growth described by many auto-only underwriters in California, it is believed that homeowners business is the primary driver of Mercury's recent premium growth in the state. As a result, Mercury's growth is expected to decelerate as its major competitors' rate decreases take effect on account of declining premium growth in California as well as other city operations in 2007. Thus in the near future the company does not seem to be a good bet.

Member Avatar Redfords (< 20) Submitted: 12/29/2010 8:26:25 PM
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I'm very familiar with MCY. This company can provide a better rate for auto insurance than most of its competitors. They have a unique underwriting model. I think what hurts it is that alot of buyers buy on line without regard to cost. A typical 30 year old will shell out 2500.00 a year to a online company rather than slowing down and buying the same coverage from MCY at 1700.00 or so. The challenge for MCY is to communicate the value of face to face buying. Their pricing is a real treat for a driver in a tight economy.

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