MERCURY GENERAL CORP

Previous wording

The following tables present direct premiums written, by state and line of insurance business, for the three months ended March 31, 2024 and 2023:

Current wording

The following tables present direct premiums written, by state and line of insurance business, for the six months ended June 30, 2024 and 2023:

Previous wording

In January 2023, the California DOI approved a 6.9% rate increase on the private passenger automobile line of insurance business for Mercury Insurance Company ("MIC") and California Automobile Insurance Company ("CAIC"), consolidated subsidiaries of the Company. These rate increases became effective in March 2023. The California DOI approved an additional 6.99% rate increase on the private passenger automobile line of insurance business for MIC and CAIC in June 2023. These rate increases became effective in July 2023. In addition, in January 2024, the California DOI approved a 22.5% rate increase for MIC and a 3.8% rate increase for CAIC on the private passenger automobile line of insurance business. These rate increases became effective in February 2024. The private passenger automobile line of insurance business of MIC and CAIC represented approximately 47% and 6%, respectively, of the Company's total net premiums earned for the three months ended March 31, 2024.

Current wording

In January 2023, the California DOI approved a 6.9% rate increase on the private passenger automobile line of insurance business for Mercury Insurance Company ("MIC") and California Automobile Insurance Company ("CAIC"), consolidated subsidiaries of the Company. These rate increases became effective in March 2023. The California DOI approved an additional 6.99% rate increase on the private passenger automobile line of insurance business for MIC and CAIC in June 2023. These rate increases became effective in July 2023. In addition, in January 2024, the California DOI approved a 22.5% rate increase for MIC and a 3.8% rate increase for CAIC on the private passenger automobile line of insurance business. These rate increases became effective in February 2024. The private passenger automobile line of insurance business of MIC and CAIC represented approximately 47% and 6%, respectively, of the Company's total net premiums earned for the six months ended June 30, 2024.

Previous wording

In March 2023, the California DOI approved a 12.6% rate increase on the California homeowners line of insurance business. This rate increase became effective in May 2023. In March 2024, the California DOI approved an additional 6.99% rate increase on the California homeowners line of insurance business. This rate increase is expected to become effective in May 2024. The California homeowners line of insurance business represented approximately 16% of the Company's total net premiums earned for the three months ended March 31, 2024.

Current wording

In March 2023, the California DOI approved a 12.6% rate increase on the California homeowners line of insurance business. This rate increase became effective in May 2023. In March 2024, the California DOI approved an additional 6.99% rate increase on the California homeowners line of insurance business. This rate increase became effective in May 2024. The California homeowners line of insurance business represented approximately 16% of the Company's total net premiums earned for the six months ended June 30, 2024.

Previous wording

At March 31, 2024 and December 31, 2023, the Company recorded its point estimate of approximately $2.86 billion and $2.79 billion ($2.83 billion and $2.75 billion, net of reinsurance), respectively, in loss reserves, which included approximately $1.66 billion and $1.61 billion ($1.66 billion and $1.61 billion, net of reinsurance), respectively, of incurred but not reported loss reserves (“IBNR”). IBNR includes estimates, based upon past experience, of ultimate developed costs, which may differ from case estimates, unreported claims that occurred on or prior to March 31, 2024 and December 31, 2023, and estimated future payments for reopened claims. Management believes that the liability for loss reserves is adequate to cover the ultimate net cost of losses and loss adjustment expenses incurred to date; however, since the provisions are necessarily based upon estimates, the ultimate liability may be more or less than such provisions.

Current wording

At June 30, 2024 and December 31, 2023, the Company recorded its point estimate of approximately $2.98 billion and $2.79 billion ($2.95 billion and $2.75 billion, net of reinsurance), respectively, in loss reserves, which included approximately $1.77 billion and $1.61 billion ($1.77 billion and $1.61 billion, net of reinsurance), respectively, of incurred but not reported loss reserves (“IBNR”). IBNR includes estimates, based upon past experience, of ultimate developed costs, which may differ from case estimates, unreported claims that occurred on or prior to June 30, 2024 and December 31, 2023, and estimated future payments for reopened claims. Management believes that the liability for loss reserves is adequate to cover the ultimate net cost of losses and loss adjustment expenses incurred to date; however, since the provisions are necessarily based upon estimates, the ultimate liability may be more or less than such provisions.

Previous wording

Net premiums earned included ceded premiums earned of $31.1 million and $23.2 million for the three months ended March 31, 2024 and 2023, respectively. Net premiums written included ceded premiums written of $31.3 million and $23.4 million for the three months ended March 31, 2024 and 2023, respectively. The increases in ceded premiums earned and ceded premiums written resulted mostly from higher reinsurance coverage and rates and growth in the covered book of business.

Current wording

Net premiums earned included ceded premiums earned of $31.4 million and $24.0 million for the three months ended June 30, 2024 and 2023, respectively. Net premiums written included ceded premiums written of $31.9 million and $24.2 million for the three months ended June 30, 2024 and 2023, respectively. The increases in ceded premiums earned and ceded premiums written resulted mostly from higher reinsurance coverage and rates and growth in the covered book of business.

Previous wording

Loss ratio is calculated by dividing losses and loss adjustment expenses by net premiums earned. The loss ratio for the first quarter of 2024 and 2023 was affected by favorable development of approximately $6 million and $15 million, respectively, on prior accident years' loss and loss adjustment expense reserves. The favorable development for the first quarter of 2024 was primarily attributable to lower than estimated loss adjustment expenses in the private passenger automobile line of insurance business, partially offset by unfavorable development on prior years' catastrophe losses. The favorable development for the first quarter of 2023 was primarily attributable to lower than estimated losses and loss adjustment expenses in the homeowners line of insurance business.

Current wording

Loss ratio is calculated by dividing losses and loss adjustment expenses by net premiums earned. The loss ratio for the second quarter of 2024 and 2023 was affected by unfavorable development of approximately $14 million and favorable development of approximately $4 million, respectively, on prior accident years' loss and loss adjustment expense reserves. The unfavorable development for the second quarter of 2024 was primarily attributable to higher than estimated losses and loss adjustment expenses in the commercial automobile and commercial property lines of insurance business, partially offset by favorable development in the private passenger automobile and homeowners lines of insurance business. The favorable development for the second quarter of 2023 was primarily attributable to lower than estimated losses and loss adjustment expenses in the private passenger automobile line of insurance business, partially offset by unfavorable development in the commercial property line of insurance business.

Previous wording

Excluding the effects of estimated prior periods’ loss development and catastrophe losses, the loss ratio was 72.2% and 84.3% for the first quarter of 2024 and 2023, respectively. The decrease in the loss ratio was primarily due to an increase in net premiums earned resulting from rate increases in the California automobile and homeowners lines of insurance business, partially offset by an increase in loss severity in the automobile line of insurance business.

Current wording

Excluding the effects of estimated prior accident years’ loss development and catastrophe losses, the loss ratio was 65.0% and 78.2% for the second quarter of 2024 and 2023, respectively. The decrease in the loss ratio was primarily due to rate increases in the California automobile and homeowners lines of insurance business, partially offset by increases in loss frequency and severity in the California private passenger automobile line of insurance business.

Previous wording

Expense ratio is calculated by dividing the sum of policy acquisition costs and other operating expenses by net premiums earned. The expense ratio for the three months ended March 31, 2024 increased slightly compared to the corresponding period in 2023, which primarily resulted from increases in expenses for profitability-related accruals and advertising, mostly offset by the effects of the rate increases discussed above.

Current wording

Expense ratio is calculated by dividing the sum of policy acquisition costs and other operating expenses by net premiums earned. The expense ratio for the three months ended June 30, 2024 decreased slightly compared to the corresponding period in 2023, which primarily resulted from the rate increases discussed above, mostly offset by increases in expenses for profitability-related accruals and advertising.

Previous wording

Income tax expense (benefit) was $15.8 million and $(16.8) million for the three months ended March 31, 2024 and 2023, respectively. The increase in income tax expense was primarily due to a $151.3 million increase in total pre-tax income. The Company’s effective income tax rate can be affected by several factors. These generally relate to large changes in the composition of fully taxable income, including net realized investment gains or losses, tax-exempt investment income, non-deductible expenses, and periodically, non-routine tax items such as adjustments to unrecognized tax benefits related to tax uncertainties. Income tax expense of $15.8 million on pre-tax income of $89.2 million, including tax-exempt investment income of $20.5 million, resulted in an effective tax rate of 17.7%, below the statutory tax rate of 21%, for the three months ended March 31, 2024, and income tax benefit of $16.8 million on pre-tax loss of $62.1 million, including tax-exempt investment income of $22.0 million, resulted in an effective tax rate of 27.0%, above the statutory tax rate, for the corresponding period in 2023.

Current wording

Income tax expense (benefit) was $12.5 million and $(19.7) million for the three months ended June 30, 2024 and 2023, respectively. The increase in income tax expense was primarily due to a $136.3 million increase in total pre-tax income. The Company’s effective income tax rate can be affected by several factors. These generally relate to large changes in the composition of fully taxable income, including net realized investment gains or losses, tax-exempt investment income, non- deductible expenses, and periodically, non-routine tax items such as adjustments to unrecognized tax benefits related to tax uncertainties. Income tax expense of $12.5 million on pre-tax income of $75.1 million, including tax-exempt investment income of $20.2 million, resulted in an effective tax rate of 16.7%, below the statutory tax rate of 21%, for the three months ended June 30, 2024, and income tax benefit of $19.7 million on pre-tax loss of $61.2 million, including tax-exempt investment income of $21.9 million, resulted in an effective tax rate of 32.1%, above the statutory tax rate, for the corresponding period in 2023.

Previous wording

(2)Net investment income includes approximately $5.6 million and $1.7 million of interest income earned on cash (approximately $4.5 million and $1.4 million after tax) for the three months ended March 31, 2024 and 2023, respectively. Average annual yield on investments does not include interest income earned on cash.

Current wording

(2)Net investment income includes approximately $6.2 million and $2.8 million of interest income earned on cash (approximately $4.9 million and $2.2 million after tax) for the three months ended June 30, 2024 and 2023, respectively. Average annual yield on investments does not include interest income earned on cash.

Previous wording

(3)The primary cause for the increases in fair value of equity securities for the three months ended March 31, 2024 and 2023 was the overall improvement in equity markets.

Current wording

(3)The decreases in fair value of equity securities for the second quarters of 2024 and 2023 primarily resulted from overall decline in equity markets associated with the Company's equity securities.

Previous wording

Net premiums earned increased 16.1% and net premiums written increased 27.2% for the three months ended March 31, 2024, from the corresponding period in 2023. The increases in net premiums earned and net premiums written were primarily due to rate increases and increases in the number of policies written in the California automobile and homeowners lines of insurance business.

Current wording

Net premiums earned increased 17.8% and net premiums written increased 24.2% for the six months ended June 30, 2024, from the corresponding period in 2023. The increases in net premiums earned and net premiums written were primarily due to rate increases and increases in the number of policies written in the California automobile and homeowners lines of insurance business.

Previous wording

In addition, the 2024 loss ratio was negatively impacted by approximately $68 million of catastrophe losses, excluding unfavorable development of approximately $4 million on prior years' catastrophe losses, primarily due to winter storms and rainstorms in California and convective storms in Texas and Oklahoma. The 2023 loss ratio was negatively impacted by approximately $98 million of catastrophe losses, primarily due to winter storms and rainstorms in California, Texas and Oklahoma. There was no material development on prior years' catastrophe losses for the three months ended March 31, 2023.

Current wording

In addition, the 2024 loss ratio was negatively impacted by approximately $188 million of catastrophe losses, excluding unfavorable development of approximately $9 million on prior years' catastrophe losses, primarily due to tornadoes, hailstorms and convective storms in Texas and Oklahoma and winter storms and rainstorms in California. The 2023 loss ratio was negatively impacted by approximately $191 million of catastrophe losses, excluding favorable development of approximately $1 million on prior years' catastrophe losses, primarily due to winter storms and rainstorms in California, Texas and Oklahoma.

Previous wording

(3)Higher net investment income before and after income taxes for the three months ended March 31, 2024 compared to the corresponding period in 2023 resulted largely from higher average yield combined with higher average invested assets and cash. Average annual yield on investments before and after income taxes for the three months ended March 31, 2024 increased compared to the corresponding period in 2023, 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 increasing overall market interest rates, as well as higher yields on investments based on floating interest rates.

Current wording

(3)Higher net investment income before and after income taxes for the six months ended June 30, 2024 compared to the corresponding period in 2023 resulted largely from higher average yield combined with higher average invested assets and cash. Average annual yield on investments before and after income taxes for the six months ended June 30, 2024 increased compared to the corresponding period in 2023, 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 increasing overall market interest rates, as well as higher yields on investments based on floating interest rates.

Previous wording

(2)The decreases in fair value of fixed maturity securities for the three months ended March 31, 2024 primarily resulted from increases in market interest rates. The increases in fair value of fixed maturity securities for the three months ended March 31, 2023 primarily resulted from decreases in market interest rates.

Current wording

(2)The decrease in fair value of fixed maturity securities for the first half of 2024 primarily resulted from increases in overall market interest rates. The increase in fair value of fixed maturity securities for the first half of 2023 primarily resulted from decreases in long-term market interest rates.

Previous wording

The Company has generated positive cash flow from operations each year since the public offering of its common stock in November 1985. The Company does not attempt to match the duration and timing of asset maturities with those of liabilities; rather, it manages its portfolio with a view towards maximizing total return with an emphasis on after-tax income. With combined cash and short-term investments of $692.6 million at March 31, 2024, the Company believes its cash flow from operations is adequate to satisfy its liquidity requirements without the forced sale of investments. Investment maturities are also available to meet the Company’s liquidity needs. However, the Company operates in a rapidly evolving and often unpredictable business environment that may change the timing or amount of expected future cash receipts and expenditures. Accordingly, there can be no assurance that the Company’s sources of funds will be sufficient to meet its liquidity needs or that the Company will not be required to raise additional funds to meet those needs or for future business expansion, through the sale of equity or debt securities or from credit facilities with lending institutions.

Current wording

The Company has generated positive cash flow from operations each year since the public offering of its common stock in November 1985. The Company does not attempt to match the duration and timing of asset maturities with those of liabilities; rather, it manages its portfolio with a view towards maximizing total return with an emphasis on after-tax income. With combined cash and short-term investments of $757.2 million at June 30, 2024, the Company believes its cash flow from operations is adequate to satisfy its liquidity requirements without the forced sale of investments. Investment maturities are also available to meet the Company’s liquidity needs. However, the Company operates in a rapidly evolving and often unpredictable business environment that may change the timing or amount of expected future cash receipts and expenditures. Accordingly, there can be no assurance that the Company’s sources of funds will be sufficient to meet its liquidity needs or that the Company will not be required to raise additional funds to meet those needs or for future business expansion, through the sale of equity or debt securities or from credit facilities with lending institutions.

Previous wording

Net cash provided by operating activities for the three months ended March 31, 2024 was $192.6 million, an increase of $174.5 million compared to the corresponding period in 2023. The increase was primarily due to an increase in premium collections, a decrease in payments for losses and loss adjustment expenses, and an increase in investment income received, partially offset by an increase in payments for policy acquisition costs. The Company utilized the cash provided by operating activities during the three months ended March 31, 2024 primarily for the net purchases of investment securities and payment of dividends to its shareholders.

Current wording

Net cash provided by operating activities for the six months ended June 30, 2024 was $470.7 million, an increase of $365.3 million compared to the corresponding period in 2023. The increase was primarily due to an increase in premium collections, a decrease in payments for losses and loss adjustment expenses, and an increase in investment income received, partially offset by an increase in payments for policy acquisition costs and taxes. The Company utilized the cash provided by operating activities during the six months ended June 30, 2024 primarily for the net purchases of investment securities and payment of dividends to its shareholders.

Previous wording

The Company is the assuming reinsurer under a Catastrophe Participation Reinsurance Contract (the "Contract") effective through December 31, 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 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 31, 2023 through 2025 and $25.0 million for the 12 months ended December 31, 2022. The Company recognized $3.8 million in earned premiums for each of the three-month periods ended March 31, 2024 and 2023, and $(4.7) million and $2.7 million in incurred losses for the three months ended March 31, 2024 and 2023, respectively, under the Contract. The negative incurred losses for the three months ended March 31, 2024 resulted primarily from favorable development on prior years' catastrophe losses that had been ceded to the Company under the Contract.

Current wording

The Company is the assuming reinsurer under a Catastrophe Participation Reinsurance Contract (the "Contract") effective through December 31, 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 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 31, 2023 through 2025 and $25.0 million for the 12 months ended December 31, 2022. The Company recognized $3.8 million in earned premiums for each of the three-month periods ended June 30, 2024 and 2023, and $2.4 million and $2.7 million in incurred losses for the three months ended June 30, 2024 and 2023, respectively, and $7.5 million in earned premiums for each of the six-month periods ended June 30, 2024 and 2023, and $(2.4) million and $5.4 million in incurred losses for the six months ended June 30, 2024 and 2023, respectively, under the Contract. The negative incurred losses for the six months ended June 30, 2024 resulted primarily from favorable development on prior years' catastrophe losses that had been ceded to the Company under the Contract.

Previous wording

The Company is the ceding party to a Catastrophe Reinsurance Treaty (the "Treaty") covering a wide range of perils that is effective through June 30, 2024. For the 12 months ending June 30, 2024 and 2023, the Treaty provides approximately $1,111 million and $936 million of coverage, respectively, on a per occurrence basis after covered catastrophe losses exceed the Company retention limit of $100 million and $60 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 includes additional restrictions as noted in the tables below.

Current wording

The Company is the ceding party to a Catastrophe Reinsurance Treaty (the "Treaty") covering a wide range of perils that is effective through June 30, 2025. For the 12 months ending June 30, 2025 and 2024, the Treaty provides approximately $1,290 million and $1,111 million of coverage, respectively, on a per occurrence basis after covered catastrophe losses exceed the Company retention limit of $150 million and $100 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 includes additional restrictions as noted in the tables below.

Previous wording

(4) Approximately 6% of this layer covers only California wildfires and fires following an earthquake in California, and is not subject to reinstatement.

Current wording

(4) Approximately 8% of this layer covers only California wildfires and fires following an earthquake in California, and is not subject to reinstatement.

Previous wording

The Treaty ending June 30, 2024 and 2023 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 in the tables above, up to the maximum reinstatement premium of approximately $95 million and $72 million if the full amount of benefit is used for the 12 months ending June 30, 2024 and 2023, respectively.

Current wording

The Treaty ending June 30, 2025 and 2024 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 in the tables above, up to the maximum reinstatement premium of approximately $101 million and $95 million if the full amount of benefit is used for the 12 months ending June 30, 2025 and 2024, respectively.

Previous wording

The catastrophe events that occurred in 2024 caused approximately $68 million in losses to the Company, resulting primarily from winter storms and rainstorms in California and convective storms in Texas and Oklahoma. No reinsurance benefits were available under the Treaty for these losses as none of the 2024 catastrophe events individually resulted in losses in excess of the Company’s per-occurrence retention limit of $100 million under the Treaty for the 12 months ending June 30, 2024.

Current wording

The catastrophe events that occurred in 2024 caused approximately $188 million in losses to the Company, resulting primarily from tornadoes, hailstorms and convective storms in Texas and Oklahoma and winter storms and rainstorms in California. No reinsurance benefits were available under the Treaty for these losses as none of the 2024 catastrophe events individually resulted in losses in excess of the Company’s per-occurrence retention limit of $100 million under the Treaty for the 12 months ended June 30, 2024.

Previous wording

California, and the impact of Tropical Storm Hilary in California. No reinsurance benefits were available under the Treaty for these losses as none of the 2023 catastrophe events individually resulted in losses in excess of the Company’s per-occurrence retention limit of $100 million and $60 million under the Treaty for the 12 months ending June 30, 2024 and 2023, respectively.

Current wording

The catastrophe events that occurred in 2023 caused approximately $257 million in losses to the Company as of June 30, 2024, resulting primarily from rainstorms and hail in Texas and Oklahoma, winter storms and rainstorms in California, and the impact of Tropical Storm Hilary in California. No reinsurance benefits were available under the Treaty for these losses as none of the 2023 catastrophe events individually resulted in losses in excess of the Company’s per-occurrence retention limit of $100 million and $60 million under the Treaty for the 12 months ended June 30, 2024 and 2023, respectively.

Previous wording

At March 31, 2024, 39.3% of the Company’s total investment portfolio at fair value and 47.8% of its total fixed maturity securities at fair value were invested in tax-exempt state and municipal bonds. Equity holdings consist of non-redeemable preferred stocks, dividend-bearing common stocks on which dividend income is partially tax-sheltered by the 50% corporate dividend received deduction, and private equity funds. At March 31, 2024, 91.4% of short-term investments consisted of highly rated short-duration securities redeemable on a daily or weekly basis.

Current wording

At June 30, 2024, 38.2% of the Company’s total investment portfolio at fair value and 46.1% of its total fixed maturity securities at fair value were invested in tax-exempt state and municipal bonds. Equity holdings consist of non-redeemable preferred stocks, dividend-bearing common stocks on which dividend income is partially tax-sheltered by the 50% corporate dividend received deduction, and private equity funds. At June 30, 2024, 91.9% of short-term investments consisted of highly rated short-duration securities redeemable on a daily or weekly basis.

Previous wording

Another exposure related to the fixed maturity securities is credit risk, which is managed by maintaining a weighted-average portfolio credit quality rating of A+, at fair value, at March 31, 2024, consistent with the average rating at December 31, 2023. The Company's municipal bond holdings, of which 76.7% were tax exempt, represented 47.8% of its fixed maturity securities portfolio at March 31, 2024, at fair value, and are broadly diversified geographically. See Part I-Item 3. Quantitative and Qualitative Disclosures About Market Risks for a breakdown of municipal bond holdings by state.

Current wording

Another exposure related to the fixed maturity securities is credit risk, which is managed by maintaining a weighted-average portfolio credit quality rating of A+, at fair value, at June 30, 2024, consistent with the average rating at December 31, 2023. The Company's municipal bond holdings, of which 75.1% were tax exempt, represented 46.1% of its fixed maturity securities portfolio at June 30, 2024, at fair value, and are broadly diversified geographically. See Part I-Item 3. Quantitative and Qualitative Disclosures About Market Risks for a breakdown of municipal bond holdings by state.

Previous wording

Taxable holdings consist principally of investment grade issues. At March 31, 2024, fixed maturity securities holdings rated below investment grade and non-rated bonds totaled $6.4 million and $16.7 million, respectively, at fair value, and represented 0.1% and 0.4%, respectively, of total fixed maturity securities. The majority of non-rated issues are a result of municipalities pre-funding and collateralizing those issues with U.S. government securities with an implicit AAA equivalent credit risk. At December 31, 2023, fixed maturity securities holdings rated below investment grade and non-rated bonds totaled $6.4 million and $15.1 million, respectively, at fair value, and represented 0.1% and 0.3%, respectively, of total fixed maturity securities.

Current wording

Taxable holdings consist principally of investment grade issues. At June 30, 2024, fixed maturity securities holdings rated below investment grade and non-rated bonds totaled $6.5 million and $8.4 million, respectively, at fair value, and represented 0.1% and 0.2%, respectively, of total fixed maturity securities. The majority of non-rated issues are a result of municipalities pre-funding and collateralizing those issues with U.S. government securities with an implicit AAA equivalent credit risk. At December 31, 2023, fixed maturity securities holdings rated below investment grade and non-rated bonds totaled $6.4 million and $15.1 million, respectively, at fair value, and represented 0.1% and 0.3%, respectively, of total fixed maturity securities.

Previous wording

The overall credit ratings for the Company’s fixed maturity securities portfolio were relatively stable during the three months ended March 31, 2024, with 97.2% of fixed maturity securities at fair value experiencing no change in their overall rating. 2.1% and 0.7% of fixed maturity securities at fair value experienced upgrades and downgrades, respectively, during the three months ended March 31, 2024.

Current wording

The overall credit ratings for the Company’s fixed maturity securities portfolio were relatively stable during the six months ended June 30, 2024, with 94.2% of fixed maturity securities at fair value experiencing no change in their overall rating. 5.2% and 0.6% of fixed maturity securities at fair value experienced upgrades and downgrades, respectively, during the six months ended June 30, 2024.

Previous wording

The Company had $200.3 million and $174.5 million, or 4.5% and 4.0% of its fixed maturity securities portfolio, at fair value, in U.S. government bonds and agencies at March 31, 2024 and December 31, 2023, respectively. Moody's and Fitch ratings for U.S. government-issued debt were Aaa and AA+, respectively, at March 31, 2024 and December 31, 2023. The Company understands that market participants continue to use rates of return on U.S. government debt as a risk-free rate and have continued to invest in U.S. Treasury securities. The modified duration of the U.S. government bonds and agencies portfolio reflecting anticipated early calls was 1.0 years and 0.9 years at March 31, 2024 and December 31, 2023, respectively.

Current wording

The Company had $195.6 million and $174.5 million, or 4.2% and 4.0% of its fixed maturity securities portfolio, at fair value, in U.S. government bonds and agencies at June 30, 2024 and December 31, 2023, respectively. Moody's and Fitch ratings for U.S. government-issued debt were Aaa and AA+, respectively, at June 30, 2024 and December 31, 2023. The Company understands that market participants continue to use rates of return on U.S. government debt as a risk-free rate and have continued to invest in U.S. Treasury securities. The modified duration of the U.S. government bonds and agencies portfolio reflecting anticipated early calls was 0.8 years and 0.9 years at June 30, 2024 and December 31, 2023, respectively.

Previous wording

The Company had $2.80 billion and $2.78 billion, or 62.3% and 64.3% of its fixed maturity securities portfolio, at fair value, in municipal securities, $435.3 million and $431.2 million of which were insured, at March 31, 2024 and December 31, 2023, respectively. The underlying ratings for insured municipal bonds have been factored into the average rating of the securities by the rating agencies with no significant disparity between the absolute securities ratings and the underlying credit ratings as of March 31, 2024 and December 31, 2023.

Current wording

The Company had $2.86 billion and $2.78 billion, or 61.4% and 64.3% of its fixed maturity securities portfolio, at fair value, in municipal securities, $486.4 million and $431.2 million of which were insured, at June 30, 2024 and December 31, 2023, respectively. The underlying ratings for insured municipal bonds have been factored into the average rating of the securities by the rating agencies with no significant disparity between the absolute securities ratings and the underlying credit ratings as of June 30, 2024 and December 31, 2023.

Previous wording

At March 31, 2024 and December 31, 2023, 68.9% and 70.3%, respectively, of the insured municipal securities, at fair value, most of which were investment grade, were insured by bond insurers that provide credit enhancement and ratings reflecting the credit of the underlying issuers. At March 31, 2024 and December 31, 2023, the average rating of the Company’s insured municipal securities was A+, which corresponded to the average rating of the investment grade bond insurers. The remaining 31.1% and 29.7% of insured municipal securities at March 31, 2024 and December 31, 2023, respectively, were non-rated or below investment grade, and were insured by bond insurers that the Company believes did not provide credit enhancement. The modified duration of the municipal securities portfolio reflecting anticipated early calls was 3.1 years and 3.0 years at March 31, 2024 and December 31, 2023, respectively.

Current wording

At June 30, 2024 and December 31, 2023, 69.8% and 70.3%, respectively, of the insured municipal securities, at fair value, most of which were investment grade, were insured by bond insurers that provide credit enhancement and ratings reflecting the credit of the underlying issuers. At June 30, 2024 and December 31, 2023, the average rating of the Company’s insured municipal securities was A+, which corresponded to the average rating of the investment grade bond insurers. The remaining 30.2% and 29.7% of insured municipal securities at June 30, 2024 and December 31, 2023, respectively, were non-rated or below investment grade, and were insured by bond insurers that the Company believes did not provide credit enhancement. The modified duration of the municipal securities portfolio reflecting anticipated early calls was 2.9 years and 3.0 years at June 30, 2024 and December 31, 2023, respectively.

Previous wording

The Company had mortgage-backed securities portfolio of $193.0 million and $186.9 million at March 31, 2024 and December 31, 2023, respectively, which represented 4.3% of its fixed maturity securities portfolio, at fair value, at each of those dates. Substantially all of the Company's mortgage-backed securities portfolio at those dates was categorized as loans to “prime” residential and commercial real estate borrowers. The Company had holdings of $32.4 million and $33.0 million at fair value ($33.2 million and $34.2 million at amortized cost) in commercial mortgage-backed securities at March 31, 2024 and December 31, 2023, respectively.

Current wording

The Company had mortgage-backed securities portfolio of $220.3 million and $186.9 million, or 4.7% and 4.3% of the Company's fixed maturity securities portfolio at fair value, at June 30, 2024 and December 31, 2023, respectively. Substantially all of the Company's mortgage-backed securities portfolio at those dates was categorized as loans to “prime” residential and commercial real estate borrowers. The Company had holdings of $30.1 million and $33.0 million at fair value ($30.7 million and $34.2 million at amortized cost) in commercial mortgage-backed securities at June 30, 2024 and December 31, 2023, respectively.

Previous wording

The weighted-average rating of the entire mortgage-backed securities portfolio was AA and AA+ at March 31, 2024 and December 31, 2023, respectively. The modified duration of the mortgage-backed securities portfolio reflecting anticipated early calls was 4.6 years and 8.7 years at March 31, 2024 and December 31, 2023, respectively.

Current wording

The weighted-average rating of the entire mortgage-backed securities portfolio was AA+ at each of June 30, 2024 and December 31, 2023. The modified duration of the mortgage-backed securities portfolio reflecting anticipated early calls was 6.0 years and 8.7 years at June 30, 2024 and December 31, 2023, respectively.

Previous wording

Equity holdings of $801.1 million and $730.7 million at fair value, as of March 31, 2024 and December 31, 2023, respectively, consisted of non-redeemable preferred stocks, common stocks on which dividend income is partially tax-sheltered by the 50% corporate dividend received deduction, and private equity funds. The Company had a net gain of $34.5 million and $3.2 million due to increases in fair value of the Company’s equity securities portfolio for the three months ended March 31, 2024 and 2023, respectively. The primary cause for the increases in fair value of the Company’s equity securities portfolio for the three months ended March 31, 2024 and 2023 was the overall improvement in equity markets.

Current wording

Equity holdings of $815.9 million and $730.7 million at fair value, as of June 30, 2024 and December 31, 2023, respectively, consisted of non-redeemable preferred stocks, common stocks on which dividend income is partially tax-sheltered by the 50% corporate dividend received deduction, and private equity funds. The Company had a net gain (loss) of $15.8 million and $(9.4) million due to changes in fair value of the Company’s equity securities portfolio for the six months ended June 30, 2024 and 2023, respectively. The primary cause for the increase in fair value of the Company’s equity securities portfolio for the six months ended June 30, 2024 was overall improvement in equity markets associated with the Company's equity securities. The primary cause for the decrease in fair value of the Company’s equity securities portfolio for the six months ended June 30, 2023 was overall decline in equity markets associated with the Company's equity securities.

Previous wording

The Company’s common stock allocation is intended to enhance the return of and provide diversification for the total portfolio. At March 31, 2024, 14.7% of the total investment portfolio at fair value was held in equity securities, compared to 14.0% at December 31, 2023 .

Current wording

The Company’s common stock allocation is intended to enhance the return of and provide diversification for the total portfolio. At June 30, 2024, 14.5% of the total investment portfolio at fair value was held in equity securities, compared to 14.0% at December 31, 2023 .

Previous wording

Among other considerations, industry and regulatory guidelines suggest that the ratio of a property and casualty insurer’s annual net premiums written to statutory policyholders’ surplus should not exceed 3.0 to 1. Based on the combined surplus of all the Insurance Companies of $1.70 billion at March 31, 2024, and net premiums written of $4.74 billion for the twelve months ended on that date, the ratio of net premiums written to surplus was 2.79 to 1 at March 31, 2024.

Current wording

Among other considerations, industry and regulatory guidelines suggest that the ratio of a property and casualty insurer’s annual net premiums written to statutory policyholders’ surplus should not exceed 3.0 to 1. Based on the combined surplus of all the Insurance Companies of $1.71 billion at June 30, 2024, and net premiums written of $4.98 billion for the twelve months ended on that date, the ratio of net premiums written to surplus was 2.91 to 1 at June 30, 2024.