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 states where the Company 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.

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, including subrogation recovery estimates; the Company’s ability to obtain and the timing of the approval of premium rate changes for insurance policies issued in states where the Company 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; effects of changing climate conditions; pandemics, epidemics, widespread health emergencies, or outbreaks of infectious diseases; court decisions and trends in litigation and health care and auto repair costs; changes in global trade policies, including trade barriers or restrictions; and legal, cybersecurity, regulatory and litigation risks.

Previous wording

The Company is headquartered in Los Angeles, California and writes primarily personal automobile lines of business selling policies through a network of independent agents, 100% owned insurance agents and direct channels, in 11 states: Arizona, California, Florida, Georgia, Illinois, Nevada, New Jersey, New York, Oklahoma, Texas, and Virginia. The Company also offers homeowners, commercial automobile, commercial property, mechanical protection, fire, and umbrella insurance. Private passenger automobile lines of insurance business accounted for approximately 62% of the $5.5 billion of the Company’s direct premiums written in 2024, and approximately 84% of the private passenger automobile premiums were written in California.

Current wording

The Company is headquartered in Los Angeles, California and writes primarily personal automobile lines of business selling policies through a network of independent agents, 100% owned insurance agents and direct channels, in 11 states: Arizona, California, Florida, Georgia, Illinois, Nevada, New Jersey, New York, Oklahoma, Texas, and Virginia. The Company also offers homeowners, commercial automobile, commercial property, mechanical protection, fire, and umbrella insurance. Private passenger automobile lines of insurance business accounted for approximately 60% of the $6.0 billion of the Company’s direct premiums written in 2025, and approximately 86% of the private passenger automobile premiums were written in California.

Previous wording

The Company’s net income for the year ended December 31, 2024 was $468.0 million, or $8.45 per diluted share, compared to $96.3 million, or $1.74 per diluted share, for the same period in 2023. Included in net income was $280.0 million of pre-tax net investment income that was generated during 2024 on a portfolio of $6.1 billion, at fair value, at December 31, 2024, compared to $234.6 million of pre-tax net investment income that was generated during 2023 on a portfolio of $5.2 billion, at fair value, at December 31, 2023. Also included in net income were pre-tax net realized investment gains of $88.7 million and $101.0 million in 2024 and 2023, respectively, and pre-tax catastrophe losses, net of reinsurance and reinstatement premiums earned, of approximately $277.0 million and $239.2 million in 2024 and 2023, respectively. Pre-tax net realized investment gains for 2024 and 2023 resulted largely from the increases in fair value of fixed maturity securities and equity securities.

Current wording

The Company’s net income for the year ended December 31, 2025 was $541.1 million, or $9.77 per diluted share, compared to $468.0 million, or $8.45 per diluted share, for the same period in 2024. Included in net income was $328.7 million of pre-tax net investment income that was generated during 2025 on a portfolio of $6.6 billion, at fair value, at December 31, 2025, compared to $280.0 million of pre-tax net investment income that was generated during 2024 on a portfolio of $6.1 billion, at fair value, at December 31, 2024. Also included in net income were pre-tax net realized investment gains of $131.4 million and $88.7 million in 2025 and 2024, respectively, and pre-tax catastrophe losses, net of reinsurance and reinstatement premiums earned, of approximately $608.6 million and $277.0 million in 2025 and 2024, respectively. The Company’s operating results and growth have allowed it to consistently generate positive cash flow from operations, which was approximately $1,087 million and $1,037 million in 2025 and 2024, respectively.

Previous wording

The Company continued its marketing efforts to enhance name recognition and lead generation in 2024, and increased the spending for advertising and marketing. The Company believes that its marketing efforts, combined with its ability to maintain relatively low prices and a strong reputation, make its insurance products competitive in California and in other states.

Current wording

The Company continued its marketing efforts to enhance name recognition and lead generation in 2025, and increased the spending for advertising and marketing. The Company believes that its marketing efforts and broad independent agent distribution network, combined with its ability to maintain relatively low prices and a strong reputation, make its insurance products competitive in California and in other states.

Previous wording

•Loss Frequency—Another component of overall loss costs is loss frequency, which is the number of claims per risk insured. Loss frequency trends are affected by many factors such as fuel prices, the economy, the prevalence of distracted driving, collision avoidance and other technology in vehicles, and stay-at-home orders issued by state and local governments due to the pandemic.

Current wording

•Loss Frequency—Another component of overall loss costs is loss frequency, which is the number of claims per risk insured. Loss frequency trends are affected by many factors such as fuel prices, the economy, the prevalence of distracted driving, and collision avoidance and other technology in vehicles.

Previous wording

•Underwriting Cycle and Competition—The property and casualty insurance industry is highly cyclical, with alternating hard and soft market conditions. The Company believes that the automobile insurance market in most states was hard during 2024 as insurance carriers increased rates reflecting high inflation and loss severity and tightened their underwriting. In addition, in California, several insurance carriers stopped writing new business policies.

Current wording

•Underwriting Cycle and Competition—The property and casualty insurance industry is highly cyclical, with alternating hard and soft market conditions. The Company believes that the automobile insurance market in most states went through a transitional period from hard to softening market conditions during 2025 as many insurance carriers experienced improved profitability and increased competition, with inflation easing and rates stabilizing.

Previous wording

The Company has invested inimprovements to customer and agent experience, internal process efficiencies, and cybersecurity protections in 2024. In 2025, the Company will continue to invest in customer experience, automation, and cybersecurity, in addition to upgrades to its architecture.

Current wording

The Company has invested in improvements to automation, customer and agent experience, internal process efficiencies, and cybersecurity protections in 2025. In 2026, the Company expects to continue to invest in customer and agent experience, automation, cybersecurity, and in the decommissioning of legacy systems.

Previous wording

In late 2024, as part of the insurance commissioner’s “Sustainable Insurance Strategy,” the California Department of Insurance issued two regulations that may impact how insurers price and write certain of their California property insurance policies: one allowing insurers to incorporate catastrophe modeling into rate-making with a requirement for them to align their share of insured properties in distressed wildfire-prone areas of the state to at least 85% of their state-wide market share, which may be increased by 5% per year, if necessary, until that level is reached; and the other allowing insurers to incorporate reinsurance costs into rate-making for certain specific catastrophe perils and wildfire exposures when meeting the same requirement governing the use of catastrophe modeling. The commissioner has also implemented changes to the California FAIR Plan, expanding coverage offerings and changing the assessment and recoupment processes in order to enhance market stability: the FAIR Plan’s member insurers may now request the insurance commissioner’s prior approval to collect temporary supplemental fees from their own policyholders in order to recoup up to 50% of amounts assessed up to $2 billion in aggregate assessments on the industry, and 100% of all amounts assessed over that $2 billion threshold. The Company is expected to adhere to the market-share requirements in order to incorporate catastrophe modeling and reinsurance costs into its rate-making, although the process to file, gain approval, and implement the revised rates will likely not be complete until late 2025 at the earliest.

Current wording

In late 2024, as part of the California insurance commissioner’s “Sustainable Insurance Strategy,” the California DOI issued two regulations that may impact how insurers price and write certain of their California property insurance policies: one allowing insurers to incorporate catastrophe modeling into rate-making with a requirement for them to align their share of insured properties in distressed wildfire-prone areas of the state to at least 85% of their state-wide market share, which may be increased by 5% per year, if necessary, until that level is reached; and the other allowing insurers to incorporate reinsurance costs into rate-making for certain specific catastrophe perils and wildfire exposures when meeting the same requirement governing the use of catastrophe modeling. The California insurance commissioner has also implemented changes to the California FAIR Plan, expanding coverage offerings and changing the assessment and recoupment processes in order to enhance market stability: the FAIR Plan’s member insurers may now request the California insurance commissioner’s prior approval to collect temporary supplemental fees from their own policyholders in order to recoup up to 50% of amounts assessed up to $1 billion in aggregate assessments in the industry and 100% of all amounts assessed over that $1 billion threshold for each of personal and commercial lines of insurance business, and 100% of all amounts assessed over $2 billion in aggregate assessments in the industry for the combined personal and commercial lines of insurance business. In December 2025, the California DOI approved the Company's rate application, which incorporates catastrophe modeling and reinsurance costs into its ratemaking in accordance with the new regulations. The Company will adhere to the market-share requirements when the new rating plan is effective in July 2026.

Previous wording

•In January 2023, the California DOI approved a 6.9% rate increase on the private passenger automobile line of insurance business for MIC and CAIC. 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 48% and 6%, respectively, of the Company's total net premiums earned in 2024.

Current wording

•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 49% and 6%, respectively, of the Company's total net premiums earned in 2025.

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 a 6.99% rate increase on the California homeowners line of insurance business. This rate increase became effective in May 2024. In January 2025, the California DOI approved a 12% rate increase on the California homeowners line of insurance business. This rate increase is expected to become effective in March 2025. The California homeowners line of insurance business represented approximately 16% of the Company's total net premiums earned in 2024.

Current wording

•In March 2024, the California DOI approved a 6.99% rate increase on the California homeowners line of insurance business. This rate increase became effective in May 2024. 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. In addition, in December 2025, the California DOI approved a 6.9% rate increase on the California homeowners line of insurance business. This rate increase is expected to become effective in July 2026. The California homeowners line of insurance business represented approximately 15% of the Company's total net premiums earned in 2025.

Previous wording

•In April 2024, the California DOI approved a 14.9% rate increase on the California commercial automobile line of insurance business. This rate increase became effective in July 2024. In addition, in December 2024, the California DOI approved a 15.6% rate increase on the California commercial automobile line of insurance business. This rate increase is expected to become effective in February 2025. The California commercial automobile line of insurance business represented approximately 5% of the Company's total net premiums earned in 2024.

Current wording

•In April 2024, the California DOI approved a 14.9% rate increase on the California commercial automobile line of insurance business. This rate increase became effective in July 2024. In December 2024, the California DOI approved a 15.6% rate increase on the California commercial automobile line of insurance business. This rate increase became effective in February 2025. In addition, in August 2025, the California DOI approved a 9.6% rate increase on the California commercial automobile line of insurance business. This rate increase became effective in November 2025. The California commercial automobile line of insurance business represented approximately 5% of the Company's total net premiums earned in 2025.

Previous wording

The Company calculates a loss reserve point estimate rather than a range. There is inherent uncertainty with estimates and this is particularly true with loss reserve estimates. This uncertainty comes from many factors which may include changes in claims reporting and settlement patterns, changes in the regulatory and legal environments, uncertainty over inflation rates, and uncertainty for unknown items. The Company does not make specific provisions for these uncertainties, rather it considers them in establishing its loss reserve by looking at historical patterns and trends and projecting these out to current loss reserves. The underlying factors and assumptions that serve as the basis for preparing the loss reserve estimate include paid and incurred loss development factors, expected average costs per claim, inflation trends, expected loss ratios, industry data, and other relevant information.

Current wording

The Company calculates a loss reserve point estimate rather than a range. There is inherent uncertainty with estimates and this is particularly true with loss reserve estimates. This uncertainty comes from many factors which may include changes in claims reporting and settlement patterns, changes in the regulatory and legal environments, uncertainty over inflation rates, and uncertainty for unknown items. The Company does not make specific provisions for these uncertainties, rather it considers them in establishing its loss reserve by looking at historical patterns and trends and projecting these out to current loss reserves. The underlying factors and assumptions that serve as the basis for preparing the loss reserve estimate include paid and incurred loss development factors, expected average costs per claim, inflation trends, expected loss ratios, industry data, and other relevant information such as subrogation recoverable.

Previous wording

The Company also engages independent actuarial consultants to review the Company’s loss reserves and to provide the annual actuarial opinions required under state statutory accounting requirements. The Company analyzes loss reserves quarterly primarily using the incurred loss, paid loss, average severity coupled with the claim count development methods, and the generalized linear model ("GLM") described below. When deciding among methods to use, the Company evaluates the credibility of each method based on the maturity of the data available and the claims settlement practices for each particular line of insurance business or coverage within a line of insurance business. The Company may also evaluate qualitative factors such as known changes in laws or legal rulings that could affect claims handling or other external environmental factors or internal factors that could affect the settlement of claims. When establishing the loss reserve, the Company generally analyzes the results from all of the methods used rather than relying on a single method. While these methods are designed to determine the ultimate losses on claims under the Company’s policies, there is inherent uncertainty in all actuarial models since they use historical data to project outcomes. The Company believes that the techniques it uses provide a reasonable basis in estimating loss reserves.

Current wording

The Company also engages independent actuarial consultants to review the Company’s loss reserves and to provide the annual actuarial opinions required under state statutory accounting requirements. The Company analyzes loss reserves quarterly primarily using the incurred loss method, paid loss method, and average severity method coupled with the claim count development method, as described below. When deciding among methods to use, the Company evaluates the credibility of each method based on the maturity of the data available and the claims settlement practices for each particular line of insurance business or coverage within a line of insurance business. The Company may also evaluate qualitative factors such as known changes in laws or legal rulings that could affect claims handling or other external environmental factors or internal factors that could affect the settlement of claims. When establishing the loss reserve, the Company generally analyzes the results from all of the methods used rather than relying on a single method. While these methods are designed to determine the ultimate losses on claims under the Company’s policies, there is inherent uncertainty in all actuarial models since they use historical data to project outcomes. The Company believes that the techniques it uses provide a reasonable basis in estimating loss reserves.

Previous wording

There are many factors that can cause variability between the ultimate expected loss and the actual developed loss. While there are certainly other factors, the Company believes that the following three items tend to create the most variability between expected losses and actual losses.

Current wording

There are many factors that can cause variability between the ultimate expected loss and the actual developed loss. While there are certainly other factors, the Company believes that the following four items tend to create the most variability between expected losses and actual losses.

Previous wording

The following table presents the typical closure patterns of BI claims in the Company's California personal automobile insurance coverage:

Current wording

The following table presents the typical cumulative closure patterns of BI claims in the Company's California personal automobile insurance coverage:

Previous wording

BI claims closed in the accident year reported are generally the smaller and less complex claims that settle for approximately $10,000 to $11,000 on average, whereas the total average settlement, once all claims are closed for a particular accident year, is approximately $25,000 to $34,000. The Company creates incurred and paid loss triangles to estimate ultimate losses utilizing historical payment and reserving patterns and evaluates the results of this analysis against its frequency and severity analysis to establish BI loss reserves. The Company adjusts development factors to account for inflation trends it sees in loss severity. As a larger proportion of claims from an accident year are settled, there emerges a higher degree of certainty for the loss reserves established for that accident year. At December 31, 2024, the accident years that are most likely to develop are the 2022 through 2024 accident years; however, it is possible that older accident years could develop as well.

Current wording

BI claims closed in the accident year reported are generally the smaller and less complex claims that settle for approximately $11,000 to $12,000 on average, whereas the total average settlement, once all claims are closed for a particular accident year, is approximately $29,000 to $40,000. The Company creates incurred and paid loss triangles to estimate ultimate losses utilizing historical payment and reserving patterns and evaluates the results of this analysis against its frequency and severity analysis to establish BI loss reserves. The Company adjusts development factors to account for inflation trends it sees in loss severity. As a larger proportion of claims from an accident year are settled, there emerges a higher degree of certainty for the loss reserves established for that accident year. At December 31, 2025, the accident years that are most likely to develop are the 2023 through 2025 accident years; however, it is possible that older accident years could develop as well.

Previous wording

In 2022, inflationary trends accelerated to their highest level since the 1980s. Excessive inflation led to significant increases in loss severities related to vehicle repairs and bodily injuries. The severe inflationary trend continued into 2023, but moderated as the year progressed. During 2024, the inflation rate continued to be moderate for automobile parts and labor but it was at an elevated level for bodily injury costs. In general, the Company expects that historical claims trends will continue with costs tending to increase, which is generally consistent with historical data, and therefore the Company believes that it is reasonable to expect inflation to continue. Many potential factors can affect the BI inflation rate, including changes in claims handling process, changes in statutes and regulations, the number of litigated files, increased use of medical procedures such as

Current wording

In 2022, excessive inflation led to significant increases in loss severities related to vehicle repairs and bodily injuries. The severe inflationary trend continued into 2023, but moderated as the year progressed. During 2024 and 2025, the inflation rate continued to be moderate for automobile parts and labor but it was at an elevated level for bodily injury costs. In general, the Company expects that historical claims trends will continue with costs tending to increase, which is generally consistent with historical data, and therefore the Company believes that it is reasonable to expect inflation to continue. Many potential factors can affect the BI inflation rate, including changes in claims handling process, changes in statutes and regulations, the number of litigated files, increased use of medical procedures such as MRIs and epidural injections, general economic factors, timeliness of claims adjudication, vehicle safety, weather patterns, changes in the relative percentages of single- and multi-car accidents, social inflation, and gasoline prices, among other factors; however, the magnitude of the impact of such factors on the inflation rate is unknown.

Previous wording

At December 31, 2024, there were 19,018 California automobile BI claims reported for the 2024 accident year and the Company estimates that these are expected to ultimately grow by approximately 11.7%. The Company believes that while actual development in recent years has ranged approximately from 3% to 12%, it is reasonable to expect that the range of the development could be as great as between 0% and 15%. However, actual development may be more or less than the expected range.

Current wording

At December 31, 2025, there were 19,506 California automobile BI claims reported for the 2025 accident year and the Company estimates that these are expected to ultimately grow by approximately 10.5%. The Company believes that while actual development in recent years has ranged approximately from 3% to 12%, it is reasonable to expect that the range of the development could be as great as between 0% and 15%. However, actual development may be more or less than the expected range.

Previous wording

At December 31, 2024 and 2023, the Company recorded its point estimate of approximately $3.15 billion and $2.79 billion ($3.12 billion and $2.75 billion, net of reinsurance), respectively, in loss and loss adjustment expense reserves, which included approximately $1.92 billion and $1.61 billion ($1.92 billion and $1.61 billion, net of reinsurance), respectively, of incurred-but-not-reported liabilities ("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 December 31, 2024 and 2023, and estimated future payments for reopened claims. Management believes that the liability for losses and loss adjustment expenses 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 December 31, 2025 and 2024, the Company recorded its point estimate of approximately $3.63 billion and $3.15 billion ($3.60 billion and $3.12 billion, net of reinsurance), respectively, in loss and loss adjustment expense reserves, which included approximately $2.12 billion and $1.92 billion ($2.12 billion and $1.92 billion, net of reinsurance), respectively, of incurred-but-not-reported liabilities ("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 December 31, 2025 and 2024, and estimated future payments for reopened claims. Management believes that the liability for losses and loss adjustment expenses 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

The Company evaluates its loss reserves quarterly. When management determines that the estimated ultimate claim cost requires a decrease for previously reported accident years, favorable development occurs and a reduction in losses and loss adjustment expenses is reported in the current period. If the estimated ultimate claim cost requires an increase for previously reported accident years, unfavorable development occurs and an increase in losses and loss adjustment expenses is reported in the current period. For 2024, the Company reported unfavorable development of approximately $25 million on the 2023 and prior accident years’ loss and loss adjustment expense reserves. The unfavorable development in 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 reserve development in the private passenger automobile line of insurance business.

Current wording

The Company evaluates its loss reserves quarterly. When management determines that the estimated ultimate claim cost requires a decrease for previously reported accident years, favorable development occurs and a reduction in losses and loss adjustment expenses is reported in the current period. If the estimated ultimate claim cost requires an increase for previously reported accident years, unfavorable development occurs and an increase in losses and loss adjustment expenses is reported in the current period. For 2025, the Company reported favorable development of approximately $92 million on the 2024 and prior accident years’ loss and loss adjustment expense reserves. The favorable development in 2025 was primarily attributable to lower than estimated losses and loss adjustment expenses in the automobile and homeowners lines of insurance business, including favorable development on the prior years' catastrophe losses.

Previous wording

The Company recorded catastrophe losses net of reinsurance of approximately $277 million in 2024. Catastrophe losses due to the events that occurred during 2024 totaled approximately $268 million, with no reinsurance benefits used for these losses. The majority of the 2024 catastrophe losses resulted 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. In addition, the Company experienced unfavorable development of approximately $9 million on prior years' catastrophe losses in 2024.

Current wording

The Company recorded catastrophe losses of approximately $508 million net of reinsurance in 2025. Catastrophe losses incurred in 2025 was reduced by approximately $586 million of subrogation recorded on the Palisades and Eaton wildfires. The majority of the 2025 catastrophe losses resulted from the Palisades and Eaton wildfires in California and severe storms in Texas, Oklahoma and California. In addition, the Company experienced favorable development of approximately $23 million on prior years' catastrophe losses in 2025.

Previous wording

Net premiums earned and net premiums written in 2024 increased 18.7% and 20.5%, respectively, from 2023. The increases in net premiums earned and 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 private passenger automobile and homeowners lines of insurance business.

Current wording

Net premiums earned and net premiums written in 2025 increased 8.5% and 6.4%, respectively, from 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 combined with increases in the number of policies written in the California private passenger automobile and homeowners lines of insurance business, partially offset by increases in ceded premiums earned and ceded premiums written, respectively.

Previous wording

Net premiums earned included ceded premiums earned of $136.7 million and $109.4 million in 2024 and 2023, respectively. Net premiums written included ceded premiums written of $138.0 million and $109.6 million in 2024 and 2023, respectively. The increases in ceded premiums earned and 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 $287.0 million and $136.7 million in 2025 and 2024, respectively. Net premiums written included ceded premiums written of $287.0 million and $138.0 million in 2025 and 2024, respectively. The increases in ceded premiums earned and ceded premiums written resulted mostly from reinstatement premiums earned and written of $101 million for use of reinsurance benefits associated with the Palisades and Eaton wildfires as well as higher reinsurance coverage and rates and growth in the covered book of business.

Previous wording

Net premiums earned, a GAAP measure, represents the portion of net premiums written that is recognized as revenue in the financial statements for the periods presented and earned on a pro-rata basis over the term of the policies. Net premiums written is a non-GAAP financial measure which represents the premiums charged on policies issued during a fiscal period less any applicable reinsurance. Net premiums written is a statutory measure designed to determine production levels.

Current wording

Net premiums earned, a GAAP measure, represents the portion of net premiums written that is recognized as revenue in the financial statements for the periods presented, earned on a pro-rata basis over the term of the policies. Net premiums written is a non-GAAP financial measure which represents the premiums charged on policies issued during a fiscal period less any applicable reinsurance. Net premiums written is a statutory measure designed to determine production levels.

Previous wording

Loss ratio is calculated by dividing losses and loss adjustment expenses by net premiums earned. The Company’s loss ratio was affected by unfavorable development of approximately $25 million and favorable development of approximately $36 million on prior accident years’ loss and loss adjustment expense reserves for the years ended December 31, 2024 and 2023, respectively. The unfavorable development in 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 reserve development in the private passenger automobile line of insurance business. The favorable development in 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 reserve development in the commercial property line of insurance business. The moderating inflationary trend in 2023 after the severe inflation in 2022 was a major contributor to the favorable reserve development in the private passenger automobile line of insurance business for 2023.

Current wording

Loss ratio is calculated by dividing losses and loss adjustment expenses by net premiums earned. The Company’s loss ratio was affected by favorable development of approximately $92 million and unfavorable development of approximately $25 million on prior accident years’ loss and loss adjustment expense reserves for the years ended December 31, 2025 and 2024, respectively. The favorable development in 2025 was primarily attributable to lower than estimated losses and loss adjustment expenses in the automobile and homeowners lines of insurance business, including favorable development on the prior years' catastrophe losses. The unfavorable development in 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 reserve development in the private passenger automobile line of insurance business.

Previous wording

The 2024 loss ratio was negatively impacted by a total of approximately $268 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, winter storms, rainstorms and wildfires in California, and the impact of Hurricane Helene in Florida and Georgia. The 2023 loss ratio was negatively impacted by a total of approximately $247 million of catastrophe losses, excluding favorable development of approximately $8 million on prior years' catastrophe losses, primarily due to the rainstorms and hail in Texas and Oklahoma, winter storms and rainstorms in California, and the impact of Tropical Storm Hilary in California.

Current wording

The 2025 loss ratio was negatively impacted by a total of approximately $531 million of catastrophe losses, excluding favorable development of approximately $23 million on prior years' catastrophe losses, primarily due to the Palisades and Eaton wildfires in California and severe storms in Texas, Oklahoma and California. Catastrophe losses incurred in 2025 was reduced by approximately $586 million of subrogation recorded on the Palisades and Eaton wildfires. For additional discussion on subrogation, see disclosures on the Palisades and Eaton wildfires in Note 12. Loss and Loss Adjustment Expense Reserves, of the Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data." The 2024 loss ratio was negatively impacted by a total of approximately $268 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, winter storms, rainstorms and wildfires in California, and the impact of Hurricane Helene in Florida and Georgia.

Previous wording

Excluding the effect of estimated prior periods’ loss development and catastrophe losses, the loss ratio was 66.8% and 77.4% for the years ended December 31, 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 increases in loss severity and frequency in the California automobile line of insurance business.

Current wording

Excluding the effect of estimated prior accident years’ loss development and catastrophe losses, the loss ratio was 64.0% and 66.8% for the years ended December 31, 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 and a decrease in loss frequency in the California private passenger automobile line of insurance business, partially offset by an increase in loss severity in the California private passenger automobile line of insurance business and an increase in ceded premiums earned due to reinstatement premiums resulting from the Palisades and Eaton wildfires.

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 increased slightly, primarily due to 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 2025 increased compared to 2024, largely due to increases in expenses for profitability-related accruals and advertising, as well as an increase in ceded premiums earned due to reinstatement premiums resulting from the Palisades and Eaton wildfires, partially offset by the rate increases discussed above.

Previous wording

Income tax expense was $106.9 million and $3.1 million for the years ended December 31, 2024 and 2023, respectively. The $103.8 million increase in income tax expense was mainly due to a significant increase in pre-tax income of $475.5 million.

Current wording

Income tax expense was $122.6 million and $106.9 million for the years ended December 31, 2025 and 2024, respectively. The increase in income tax expense was mainly due to an increase in pre-tax income.

Previous wording

The Company’s effective income tax rate can be affected by several factors. These generally include large changes in fully-taxable income including net realized investment gains or losses, tax-exempt investment income, nondeductible expenses, and periodically, non-routine tax items such as adjustments to unrecognized tax benefits related to tax uncertainties. Income tax expense of $106.9 million on pre-tax income of approximately $574.9 million, including tax-exempt investment income of $83.3 million, resulted in an effective tax rate of 18.6%, below the statutory tax rate of 21%, for 2024, and income tax expense of $3.1 million on pre-tax income of approximately $99.4 million, including tax-exempt investment income of approximately $86.6 million, resulted in an effective tax rate of 3.1% for the corresponding period in 2023.

Current wording

The Company’s effective income tax rate can be affected by several factors. These generally include large changes in fully-taxable income including net realized investment gains or losses, tax-exempt investment income, nondeductible expenses, and periodically, non-routine tax items such as adjustments to unrecognized tax benefits related to tax uncertainties. Income tax expense of $122.6 million on pre-tax income of $663.6 million, including tax-exempt investment income of $99.2 million, resulted in an effective tax rate of 18.5%, below the statutory tax rate of 21%, for 2025, and income tax expense of $106.9 million on pre-tax income of $574.9 million, including tax-exempt investment income of $83.3 million, resulted in an effective tax rate of 18.6% for 2024.

Previous wording

(2)Net investment income includes approximately $25.5 million and $14.5 million of interest income earned on cash (approximately $20.2 million and $11.5 million after tax) for the years ended December 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 $50.7 million and $25.5 million of interest income earned on cash (approximately $40.1 million and $20.2 million after tax) for the years ended December 31, 2025 and 2024, respectively. Average annual yield on investments does not include interest income earned on cash.

Previous wording

(3)Net investment income before and after income taxes increased primarily due to higher average yield combined with higher average invested assets and cash. Average annual yield on investments before and after income taxes increased 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)Net investment income before and after income taxes increased, primarily due to higher average invested assets and cash combined with higher average yield. Average annual yield on investments before and after income taxes increased, primarily due to the maturity and replacement of lower yielding investments purchased when market interest rates were lower with higher yielding investments, combined with the higher average yield on investments purchased in 2025 using cash generated from operations compared to the average yield on overall investments in 2024.

Previous wording

(2)The increases in fair value of fixed maturity securities in 2024 and 2023 were primarily due to decreases in certain market interest rates associated with the Company's fixed maturity securities.

Current wording

(2)The increases in fair value of fixed maturity securities in 2025 and 2024 resulted primarily from decreases in certain market interest rates associated with the Company's fixed maturity securities.

Previous wording

(3)The increases in fair value of equity securities in 2024 and 2023 were primarily due to the overall improvement in equity markets associated with the Company's equity securities.

Current wording

(3)The increases in fair value of equity securities in 2025 and 2024 resulted primarily from the overall improvement in equity markets.

Previous wording

The Company is largely dependent upon dividends received from its insurance subsidiaries in the current and prior years to pay debt service costs and to make distributions to its shareholders. Under current insurance law, the Insurance Companies are entitled to pay ordinary dividends of approximately $252 million in 2025 to Mercury General. As of December 31, 2024, Mercury General had approximately $49 million in investments and cash that could be utilized to satisfy its direct holding company obligations.

Current wording

The Company is largely dependent upon dividends received from its insurance subsidiaries in the current and prior years to pay debt service costs and to make distributions to its shareholders. Under current insurance law, the Insurance Companies are entitled to pay ordinary dividends of approximately $448 million in 2026 to Mercury General. As of December 31, 2025, Mercury General had approximately $114 million in investments and cash that could be utilized to satisfy its direct holding company obligations.

Previous wording

The Company has generated positive cash flow from operations 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 $1,004.1 million at December 31, 2024 as well as $50 million of undrawn credit in its unsecured credit facility, 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 $1,652.6 million at December 31, 2025 as well as $50 million of undrawn credit in its unsecured credit facility, the Company believes its cash flow from operations is adequate to satisfy its future 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 year ended December 31, 2024 was $1,037.1 million, an increase of $584.1 million compared to the year ended December 31, 2023. The increase was primarily due to an increase in premium collections and an increase in investment income received, partially offset by increases in payments for taxes and policy acquisition costs. The Company utilized the cash provided by operating activities during the year ended December 31, 2024 primarily for the net purchases of investment securities and payment of dividends to its shareholders. The average annual net cash provided by operating activities for the past 10 years was approximately $468 million, and cash generated from operations was sufficient to meet the liquidity requirements over this period.

Current wording

Net cash provided by operating activities for the year ended December 31, 2025 was $1,087.2 million, an increase of $50.1 million compared to the year ended December 31, 2024. The increase was primarily due to increases in reinsurance and subrogation recoveries, premium collections and investment income received, partially offset by increases in payments for losses and loss adjustment expenses and commissions and other acquisition costs. The Company utilized the cash provided by operating activities during the year ended December 31, 2025 primarily for the net purchases of investment securities and payment of dividends to its shareholders, with the remaining invested in cash accounts for future liquidity needs, including additional payment for losses from the Palisades and Eaton wildfires. The average annual net cash provided by operating activities for the past 10 years was approximately $557 million, and cash generated from operations was sufficient to meet the liquidity needs over this period.

Previous wording

At December 31, 2024, 36.4% of the Company’s total investment portfolio at fair value and 45.0% of its total fixed maturity investments 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 December 31, 2024, 99.4% of short-term investments consisted of highly rated short-duration securities redeemable on a daily or weekly basis.

Current wording

At December 31, 2025, 43.6% of the Company’s total investment portfolio at fair value and 52.8% of its total fixed maturity investments 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 December 31, 2025, 89.9% of short-term investments consisted of highly rated short-duration securities redeemable on a daily or weekly basis.

Previous wording

Company’s historical investment philosophy has resulted in a portfolio with a moderate duration. The Company's portfolio is heavily weighted in investment grade tax-exempt municipal bonds. Fixed maturity securities purchased by the Company typically have call options attached, which further reduce the duration of the asset as interest rates decline. The holdings, that are heavily weighted with high coupon issues, are expected to be called prior to maturity. Modified duration measures the length of time it takes, on average, to receive the present value of all the cash flows produced by a bond, including reinvestment of interest. As it measures four factors (maturity, coupon rate, yield and call terms) which determine sensitivity to changes in interest rates, modified duration is considered a better indicator of price volatility than simple maturity alone.

Current wording

A primary exposure for the fixed maturity securities is interest rate risk. The longer the duration, the more sensitive the asset is to market interest rate fluctuations. As assets with longer maturity dates tend to produce higher current yields, the Company’s historical investment philosophy has resulted in a portfolio with a moderate duration. The Company's portfolio is heavily weighted in investment grade tax-exempt municipal bonds. Fixed maturity securities purchased by the Company typically have call options attached, which further reduce the duration of the asset as interest rates decline. The holdings, that are heavily weighted with high coupon issues, are expected to be called prior to maturity. Modified duration measures the length of time it takes, on average, to receive the present value of all the cash flows produced by a bond, including reinvestment of interest. As it measures four factors (maturity, coupon rate, yield and call terms) which determine sensitivity to changes in interest rates, modified duration is considered a better indicator of price volatility than simple maturity alone.

Previous wording

The following table presents the maturities and durations of the Company's fixed maturity securities and short-term investments:

Current wording

The following table presents the maturities and durations of the Company's fixed maturity securities: