MERCURY GENERAL CORP

Previous wording

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for certain forward-looking statements. Certain statements contained in this report are forward-looking statements based on the Company’s current expectations and beliefs concerning future developments and their potential effects on the Company. There can be no assurance that future developments affecting the Company will be those anticipated by the Company. Actual results may differ from those projected in the forward-looking statements. These forward-looking statements involve significant risks and uncertainties (some of which are beyond the control of the Company) and are subject to change based upon various factors, including but not limited to the following risks and uncertainties: changes in the demand for the Company’s insurance products, inflation and general economic conditions, including general market risks associated with the Company’s investment portfolio; the accuracy and adequacy of the Company’s pricing methodologies; catastrophes in the markets served by the Company; uncertainties related to estimates, assumptions and projections generally; the possibility that actual loss experience may vary adversely from the actuarial estimates made to determine the Company’s loss reserves in general; the Company’s ability to obtain and the timing of the approval of premium rate changes for insurance policies issued in the states where it operates; legislation adverse to the automobile insurance industry or business generally that may be enacted in the states where the Company operates; the Company’s success in managing its business in non-California states; the presence of competitors with greater financial resources and the impact of competitive pricing and marketing efforts; the Company's ability to successfully allocate the resources used in the states with reduced or exited operations to its operations in other states; changes in driving patterns and loss trends; acts of war and terrorist activities; pandemics, epidemics, widespread health emergencies, or outbreaks of infectious diseases; court decisions and trends in litigation and health care and auto repair costs; and legal, cybersecurity, regulatory and litigation risks. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise. For a more detailed discussion of some of the foregoing risks and uncertainties, see the Company’s Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (the "SEC") on February 13, 2024.

Current wording

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for certain forward-looking statements. Certain statements contained in this report are forward-looking statements based on the Company’s current expectations and beliefs concerning future developments and their potential effects on the Company. There can be no assurance that future developments affecting the Company will be those anticipated by the Company. Actual results may differ from those projected in the forward-looking statements. These forward-looking statements involve significant risks and uncertainties (some of which are beyond the control of the Company) and are subject to change based upon various factors, including but not limited to the following risks and uncertainties: changes in the demand for the Company’s insurance products, inflation and general economic conditions, including general market risks associated with the Company’s investment portfolio; the accuracy and adequacy of the Company’s pricing methodologies; catastrophes in the markets served by the Company; uncertainties related to estimates, assumptions and projections generally; the possibility that actual loss experience may vary adversely from the actuarial estimates made to determine the Company’s loss reserves in general; the Company’s ability to obtain and the timing of the approval of premium rate changes for insurance policies issued in the states where it operates; legislation adverse to the automobile or homeowners insurance industry or business generally that may be enacted in the states where the Company operates; the Company’s success in managing its business in non-California states; the presence of competitors with greater financial resources and the impact of competitive pricing and marketing efforts; the Company's ability to successfully allocate the resources used in the states with reduced or exited operations to its operations in other states; changes in driving patterns and loss trends; acts of war and terrorist activities; pandemics, epidemics, widespread health emergencies, or outbreaks of infectious diseases; court decisions and trends in litigation and health care and auto repair costs; and legal, cybersecurity, regulatory and litigation risks. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise. For a more detailed discussion of some of the foregoing risks and uncertainties, see the Company’s Annual Report on Form 10-K filed with the United States Securities and Exchange Commission (the "SEC") on February 11, 2025.

Previous wording

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

Current wording

The following tables present direct premiums written, by state and line of insurance business, for the three months ended March 31, 2025 and 2024:

Previous wording

During the course of and at the conclusion of the examinations, the examining DOI generally reports findings to the Company. No material findings have been communicated to the Company on the ongoing Texas market conduct examination noted above.

Current wording

During the course of and at the conclusion of the examinations, the examining DOI generally reports findings to the Company. No material findings have been communicated to the Company in the Texas market conduct examination reports noted above.

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 became effective in May 2024. The

Current wording

In January 2025, the California DOI approved a 12% rate increase on the California homeowners line of insurance business. This rate increase became effective in March 2025. The California homeowners line of insurance business represented approximately 13% of the Company's total net premiums earned for the three months ended March 31, 2025.

Previous wording

The Company analyzes catastrophe losses separately from non-catastrophe losses. For catastrophe losses, the Company generally determines claim counts based on claims reported and development expectations from previous catastrophes and applies an average expected loss per claim based on loss reserves established by adjusters and average losses on previous similar catastrophes. For catastrophe losses on individual properties that are expected to be total losses, the Company typically establishes reserves at the policy limits.

Current wording

The Company analyzes catastrophe losses separately from non-catastrophe losses. The Company classifies certain losses as catastrophe losses based on catastrophe events designated by Property Claim Services, a unit of Insurance Services Office, Inc. For catastrophe losses, the Company generally determines claim counts based on claims reported and development expectations from previous catastrophes and applies an average expected loss per claim based on loss reserves established by adjusters and average losses on previous similar catastrophes. For those properties that were totally or near totally destroyed, the Company considers insured values by specific coverage types (dwelling, additional replacement cost, contents, debris removal, living expenses, etc.) and to what extent those limits will be utilized, to determine loss amounts on those claims.

Previous wording

At September 30, 2024 and December 31, 2023, the Company recorded its point estimate of approximately $3.07 billion and $2.79 billion ($3.04 billion and $2.75 billion, net of reinsurance), respectively, in loss reserves, which included approximately $1.85 billion and $1.61 billion ($1.85 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 September 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.

Current wording

At March 31, 2025 and December 31, 2024, the Company recorded its point estimate of approximately $3.79 billion and $3.15 billion ($3.41 billion and $3.12 billion, net of reinsurance), respectively, in loss reserves, which included approximately $2.34 billion and $1.92 billion ($2.34 billion and $1.92 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, 2025 and December 31, 2024, 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 increased 21.1% and net premiums written increased 17.9% for the three months ended September 30, 2024, from the corresponding period in 2023. The increases in net premiums earned and net premiums written were primarily due to rate increases in the California automobile and homeowners lines of insurance business and an increase in the number of policies written in the California homeowners line of insurance business.

Current wording

Net premiums earned increased 10.0% and net premiums written increased 2.3% for the three months ended March 31, 2025, from the corresponding period in 2024. The increases in net premiums earned and net premiums written were primarily due to rate increases in the California automobile and homeowners lines of insurance business, partially offset by an increase in reinsurance premiums ceded.

Previous wording

Net premiums earned included ceded premiums earned of $42.4 million and $30.9 million for the three months ended September 30, 2024 and 2023, respectively. Net premiums written included ceded premiums written of $42.9 million and $30.9 million for the three months ended September 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.

Current wording

Net premiums earned included ceded premiums earned of $106.7 million and $31.1 million for the three months ended March 31, 2025 and 2024, respectively. Net premiums written included ceded premiums written of $156.8 million and $31.3 million for the three months ended March 31, 2025 and 2024, respectively. The increases in ceded premiums earned and ceded premiums written resulted mostly from reinsurance reinstatement premiums earned and written of $50 million and $101 million, respectively, and the accelerated expensing of the remaining annual reinsurance premiums of $26 million under the Treaty for use of reinsurance coverages associated with the Southern California wildfires that occurred in the first quarter of 2025.

Previous wording

Loss ratio is calculated by dividing losses and loss adjustment expenses by net premiums earned. The loss ratio for the third quarter of 2024 and 2023 was affected by unfavorable development of approximately $8 million and favorable development of approximately $12 million, respectively, on prior accident years' loss and loss adjustment expense reserves. The unfavorable development for the third quarter of 2024 was primarily attributable to higher than estimated losses and loss adjustment expenses in the automobile line of insurance business. The favorable development for the third quarter of 2023 was primarily attributable to lower than estimated losses and loss adjustment expenses in the private passenger automobile and homeowners lines of insurance business, partially offset by unfavorable development in the commercial property 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 first quarter of 2025 and 2024 was affected by favorable development of approximately $51 million and $6 million, respectively, on prior accident years' loss and loss adjustment expense reserves. The favorable development for the first quarter of 2025 was primarily attributable to lower than estimated losses in the automobile line of insurance business, and the homeowners line of insurance business, including favorable development on the prior years' catastrophe losses. 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.

Previous wording

In addition, the 2024 loss ratio was negatively impacted by approximately $229 million of catastrophe losses, excluding unfavorable development of approximately $7 million on prior years' catastrophe losses, primarily due to tornadoes, hailstorms and convective storms in Texas and Oklahoma, winter storms and rainstorms in California, and the impact of Hurricane Helene in Florida and Georgia. The 2023 loss ratio was negatively impacted by approximately $227 million of catastrophe losses, excluding favorable development of approximately $4 million on prior years' catastrophe losses, primarily due to winter storms and rainstorms in California, Texas and Oklahoma, and the impact of Hurricane Hilary in California.

Current wording

In addition, the 2025 loss ratio was negatively impacted by approximately $459 million of catastrophe losses, excluding favorable development of approximately $12 million on prior years' catastrophe losses, primarily due to Southern California wildfires. See Note 10. Loss and Loss Adjustment Expense Reserves of the Notes to Consolidated Financial Statements for additional information. 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.

Previous wording

Excluding the effects of estimated prior accident years’ loss development and catastrophe losses, the loss ratio was 65.8% and 73.4% for the third 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.

Current wording

Excluding the effects of estimated prior accident years’ loss development and catastrophe losses, the loss ratio was 63.4% and 72.2% for the first quarter of 2025 and 2024, respectively. The decrease in the loss ratio was primarily due to rate increases in the California automobile and homeowners lines of insurance business, coupled with decreases in loss frequency across many states and lines of insurance business, partially offset by an increase in loss 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 September 30, 2024 increased compared to the corresponding period in 2023, which primarily resulted from increases in expenses for profitability-related accruals and advertising, partially offset by 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 March 31, 2025 increased slightly compared to the corresponding period in 2024, which was largely attributable to increases in contingent commissions and advertising expenses, as well as increases in ceded premiums earned due to reinstatement premiums and accelerated expensing of annual reinsurance premiums resulting from the Southern California wildfires, partially offset by the rate increases, as discussed above.

Previous wording

Income tax expense (benefit) was $56.2 million and $(7.0) million for the three months ended September 30, 2024 and 2023, respectively. The increase in income tax expense was primarily due to a $302.3 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 $56.2 million on pre-tax income of $287.1 million, including tax-exempt investment income of $21.3 million, resulted in an effective tax rate of 19.6%, below the statutory tax rate of 21%, for the three months ended September 30, 2024, and income tax benefit of $7.0 million on pre-tax loss of $15.2 million, including tax-exempt investment income of $22.0 million, resulted in an effective tax rate of 46.0%, above the statutory tax rate, for the corresponding period in 2023.

Current wording

Income tax (benefit) expense was $(34.0) million and $15.8 million for the three months ended March 31, 2025 and 2024, respectively. The decrease in income tax expense was primarily due to a $231.5 million decrease 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 benefit of $34.0 million on pre-tax loss of $142.3 million, including tax-exempt investment income of $20.9 million, resulted in an effective tax rate of 23.9%, above the statutory tax rate of 21%, for the three months ended March 31, 2025, and 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, for the corresponding period in 2024.

Previous wording

(2)Net investment income includes approximately $6.8 million and $5.1 million of interest income earned on cash (approximately $5.3 million and $4.0 million after tax) for the three months ended September 30, 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 $13.1 million and $5.6 million of interest income earned on cash (approximately $10.3 million and $4.5 million after tax) for the three months ended March 31, 2025 and 2024, respectively. Average annual yield on investments does not include interest income earned on cash.

Previous wording

(3)Higher net investment income before and after income taxes for the three months ended September 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 three months ended September 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.

Current wording

(3)Higher net investment income before and after income taxes for the three months ended March 31, 2025 compared to the corresponding period in 2024 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, 2025 increased compared to the corresponding period in 2024, primarily due tothe sale of certain low-yielding investments with a total fair value of approximately $600 million in January 2025 to provide ample liquidity for claims resulting from the January 2025 Southern California wildfires and to reduce volatility in the investment portfolio. The average annual yield on those investments sold was lower than that on the entire investment portfolio.

Previous wording

The following tables present the components of net realized investment gains or losses included in net income (loss):

Current wording

The following tables present the components of net realized investment gains or losses included in net income or loss:

Previous wording

(2)The increase in fair value of fixed maturity securities for the nine months ended September 30, 2024 primarily resulted from decreases in overall market interest rates. The decrease in fair value of fixed maturity securities for the nine months ended September 30, 2023 primarily resulted from increases in overall market interest rates.

Current wording

(2)The increase in fair value of fixed maturity securities for the three months ended March 31, 2025 primarily resulted from decreases in overall market interest rates. The decrease in fair value of fixed maturity securities for the three months ended March 31, 2024 primarily resulted from increases in overall market interest rates.

Previous wording

(3)The increase in fair value of equity securities for the nine months ended September 30, 2024 primarily resulted from the overall improvement in equity markets. The decrease in fair value of equity securities for the nine months ended September 30, 2023 primarily resulted from the overall decline in equity markets.

Current wording

(3)The decrease in fair value of equity securities for the three months ended March 31, 2025 primarily resulted from the overall decline in equity markets. The increase in fair value of equity securities for the three months ended March 31, 2024 primarily resulted from the overall improvement in equity markets.

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 $905.0 million at September 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.

Current wording

The Company has generated positive cash flow from operations in each full 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 $1,492.9 million at March 31, 2025, the Company believes its cash flow from future operations is adequate to satisfy its liquidity requirements. 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 nine months ended September 30, 2024 was $788.8 million, an increase of $561.1 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 increases in payments for policy acquisition costs and taxes. The Company utilized the cash provided by operating activities during the nine months ended September 30, 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 three months ended March 31, 2025 was $(68.7) million, a decrease of $261.4 million compared to the corresponding period in 2024. The decrease was primarily due to an increase in payments for losses and loss adjustment expenses and an increase in payments for commissions and other acquisition costs, partially offset by an increase in premium collections and an increase in investment income received. The Company utilized the cash provided by investing activities of approximately $651.6 million during the three months ended March 31, 2025, primarily for payment of losses from the Southern California wildfires and payment of dividends to its shareholders, with the remaining invested in short-term cash accounts.

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 September 30, 2024 and 2023, and $2.1 million and $2.2 million in incurred losses for the three months ended September 30, 2024 and 2023, respectively, and $11.3 million in earned premiums for each of the nine-month periods ended September 30, 2024 and 2023, and $(0.3) million and $7.6 million in incurred losses for the nine months ended September 30, 2024 and 2023, respectively, under the Contract. The negative incurred losses for the nine months ended September 30, 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. The total amount of losses that can be ceded to the Company under the Contract is $30.0 million for each of the 12-month periods ending December 31, 2023 through 2025. The Company recognized $3.8 million in earned premiums for each of the three-month periods ended March 31, 2025 and 2024, and $(1.7) million and $(4.7) million in incurred losses for the three months ended March 31, 2025 and 2024, respectively, under the Contract. The negative incurred losses for the three months ended March 31, 2025 and 2024 resulted primarily from favorable development on prior years' catastrophe losses that had been ceded to the Company under the Contract.

Previous wording

(2)The reinstatement premium and the total combined premium for the treaty period ending June 30, 2025 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, 2024 is zero, as there were no actual reinstatement premiums paid.

Current wording

(2)The reinstatement premium and the total combined premium for the treaty period ending June 30, 2025 are projected amounts to be paid based on the latest information available. The reinstatement premium for the treaty period ended June 30, 2024 is zero, as there were no actual reinstatement premiums paid.

Previous wording

The catastrophe events that occurred in 2024 caused approximately $229 million in losses to the Company, resulting primarily from tornadoes, hailstorms and convective storms in Texas and Oklahoma, winter storms and rainstorms in California, and the impact of Hurricane Helene in Florida and Georgia. 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 $150 million and $100 million under the Treaty for the 12 months ending June 30, 2025 and 2024, respectively.

Current wording

The catastrophe events that occurred in 2024 caused approximately $256 million in losses to the Company as of March 31, 2025, resulting primarily from tornadoes, hailstorms and convective storms in Texas and Oklahoma, winter storms, rainstorms and wildfires in California, and the impact of Hurricane Helene in Florida and Georgia. 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 $150 million and $100 million under the Treaty for the 12 months ending June 30, 2025 and 2024, respectively.

Previous wording

At September 30, 2024, 37.9% of the Company’s total investment portfolio at fair value and 47.0% 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 September 30, 2024, 96.9% of short-term investments consisted of highly rated short-duration securities redeemable on a daily or weekly basis.

Current wording

At March 31, 2025, 38.4% of the Company’s total investment portfolio at fair value and 45.1% 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 March 31, 2025, 99.2% 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 September 30, 2024, consistent with the average rating at December 31, 2023. The Company's municipal bond holdings, of which 75.4% were tax exempt, represented 47.0% of its fixed maturity securities portfolio at September 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.

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 March 31, 2025, consistent with the average rating at December 31, 2024. The Company's municipal bond holdings, of which 73.8% were tax exempt, represented 45.1% of its fixed maturity securities portfolio at March 31, 2025, 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 September 30, 2024, fixed maturity securities holdings rated below investment grade and non-rated bonds totaled $6.2 million and $42.5 million, respectively, at fair value, and represented 0.1% and 0.9%, respectively, of total fixed maturity securities. 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 March 31, 2025, fixed maturity securities holdings rated below investment grade and non-rated bonds totaled $6.3 million and $27.9 million, respectively, at fair value, and represented 0.1% and 0.6%, respectively, of total fixed maturity securities. At December 31, 2024, fixed maturity securities holdings rated below investment grade and non-rated bonds totaled $6.2 million and $62.3 million, respectively, at fair value, and represented 0.1% and 1.3%, 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 nine months ended September 30, 2024, with 92.1% of fixed maturity securities at fair value experiencing no change in their overall rating. 6.9% and 0.9% of fixed maturity securities at fair value experienced upgrades and downgrades, respectively, during the nine months ended September 30, 2024.

Current wording

The overall credit ratings for the Company’s fixed maturity securities portfolio were relatively stable during the three months ended March 31, 2025, with 98.2% of fixed maturity securities at fair value experiencing no change in their overall rating. 1.2% and 0.6% of fixed maturity securities at fair value experienced upgrades and downgrades, respectively, during the three months ended March 31, 2025.

Previous wording

The Company had $120.6 million and $174.5 million, or 2.5% and 4.0% of its fixed maturity securities portfolio, at fair value, in U.S. government bonds and agencies at September 30, 2024 and December 31, 2023, respectively. Moody's and Fitch ratings for U.S. government-issued debt were Aaa and AA+, respectively, at each of September 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 1.1 years and 0.9 years at September 30, 2024 and December 31, 2023, respectively.

Current wording

The Company had $73.5 million and $93.8 million, or 1.6% and 1.9% of its fixed maturity securities portfolio, at fair value, in U.S. government bonds and agencies at March 31, 2025 and December 31, 2024, respectively. Moody's and Fitch ratings for U.S. government-issued debt were Aaa and AA+, respectively, at each of March 31, 2025 and December 31, 2024. 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 1.4 years and 1.3 years at March 31, 2025 and December 31, 2024, respectively.

Previous wording

At September 30, 2024 and December 31, 2023, 71.2% 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 each of September 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 28.8% and 29.7% of insured municipal securities at September 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 3.1 years and 3.0 years at September 30, 2024 and December 31, 2023, respectively.

Current wording

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, 2025 and December 31, 2024. At March 31, 2025 and December 31, 2024, 73.2% and 72.7%, 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 each of March 31, 2025 and December 31, 2024, 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 26.8% and 27.3% of insured municipal securities at March 31, 2025 and December 31, 2024, 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 4.0 years and 3.6 years at March 31, 2025 and December 31, 2024, respectively.

Previous wording

The Company had mortgage-backed securities portfolio of $244.9 million and $186.9 million, or 5.0% and 4.3% of the Company's fixed maturity securities portfolio at fair value, at September 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 $28.2 million and $33.0 million at fair value ($28.5 million and $34.2 million at amortized cost) in commercial mortgage-backed securities at September 30, 2024 and December 31, 2023, respectively.

Current wording

The Company had mortgage-backed securities portfolio of $268.7 million and $259.4 million, or 5.8% and 5.3% of the Company's fixed maturity securities portfolio at fair value, at March 31, 2025 and December 31, 2024, 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 $14.5 million and $16.0 million at fair value ($14.7 million and $16.3 million at amortized cost) in commercial mortgage-backed securities at March 31, 2025 and December 31, 2024, respectively.

Previous wording

The weighted-average rating of the entire mortgage-backed securities portfolio was AA+ at each of September 30, 2024 and December 31, 2023. The modified duration of the mortgage-backed securities portfolio reflecting anticipated early calls was 5.7 years and 8.7 years at September 30, 2024 and December 31, 2023, respectively.

Current wording

The weighted-average rating of the entire mortgage-backed securities portfolio was AA+ at each of March 31, 2025 and December 31, 2024. The modified duration of the mortgage-backed securities portfolio reflecting anticipated early calls was 4.5 years and 4.9 years at March 31, 2025 and December 31, 2024, respectively.

Previous wording

Equity holdings of $870.8 million and $730.7 million at fair value, as of September 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 $39.6 million and $(38.8) million due to changes in fair value of the Company’s equity securities portfolio for the nine months ended September 30, 2024 and 2023, respectively. The primary cause for the increase in fair value of the Company’s equity securities portfolio for the nine months ended September 30, 2024 was the overall improvement in equity markets. The primary cause for the decrease in fair value of the Company’s equity securities portfolio for the nine months ended September 30, 2023 was the overall decline in equity markets.

Current wording

Equity holdings of $588.3 million and $879.2 million at fair value, as of March 31, 2025 and December 31, 2024, 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 (loss) gain of $(26.8) million and $34.5 million due to changes in fair value of the Company’s equity securities portfolio for the three months ended March 31, 2025 and 2024, respectively. The primary cause for the decrease in fair value of the Company’s equity securities portfolio for the three months ended March 31, 2025 was the overall decline in equity markets. The primary cause for the increase in fair value of the Company’s equity securities portfolio for the three months ended March 31, 2024 was the overall improvement in equity markets.

Previous wording

The Company’s common stock allocation is intended to enhance the return of and provide diversification for the total portfolio. At September 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 .

Current wording

The Company’s common stock allocation is intended to enhance the return of and provide diversification for the total portfolio. At March 31, 2025, 10.9% of the total investment portfolio at fair value was held in equity securities, compared to 14.5% at December 31, 2024. The Company reduced its equity security holdings in January 2025 to ensure ample liquidity for losses from the Southern California wildfires and to reduce volatility in the investment portfolio (see "Equity Price Risk" under Item 3 below).

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 $1.88 billion at September 30, 2024, and net premiums written of $5.20 billion for the twelve months ended on that date, the ratio of net premiums written to surplus was 2.76 to 1 at September 30, 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 $1.88 billion at March 31, 2025, and net premiums written of $5.40 billion for the twelve months ended on that date, the ratio of net premiums written to surplus was 2.88 to 1 at March 31, 2025.