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» Mercury General Corporation Q4 2008 Earnings Call Transcript
Before we take questions, we will make a few comments regarding the quarter. Our first quarter 2012 underwriting results improved as compared to the first quarter of 2011. Our combined ratio was 97.6% in the first quarter of 2012, compared to 98.2% in the first quarter of 2011.In the first quarter of 2012, we recorded $6 million of unfavorable reserve development compared to $1 million in the first quarter of 2011. Excluding the impact of the reserve development in both years, the combined ratio was 96.7% in the first quarter of 2012 compared to 98% in the first quarter of 2011. The combined ratio was aided during the quarter by our continued focus in reducing expenses. Consequently, our expense ratio declined to 26.8% from 28.3% in the first quarter of 2011. Premiums written were essentially flat this quarter. However, there were some moving parts to the written premiums. Primarily resulting from the California personal auto revenue neutral class plan that we implemented in December of 2011. The plan improved our risk segmentation, but also caused dislocation to some of our existing customers. The refined pricing improved our competitive position for new business and our California new business private passenger auto sales increased year-over-year in the quarter by 16%. The rate dislocation caused our renewal rates to decrease, but at a rate lower that we had expected. We are pleased to report that our operations outside of California posted a combine ratio under 100% in the quarter. We have made great strides in our operation outside of California, but we are not where we want to be and the environment in some states such as Florida are challenging. We continue to aggressively make changes to our rating plans to improve our segmentation and overall pricing adequacy. After tax investment income decline by 10% to $28 million in the quarter. As we mentioned in our annual report going forward, it will become increasingly difficult to maintain the current after tax yields as bonds with higher coupons mature or are called and the reinvestment of those proceeds will most likely be made at lower after tax yields. The after tax yield in the quarter was 3.8% compared to 4.1% in the first quarter of 2011.
With that brief background, we will now take questions.Question-and-Answer Session Operator (Operator Instructions) Your first question comes from the line of Alison Jacobowitz of Bank of America. Alison Jacobowitz – Bank of America Hi. Thanks. So I guess couple of questions. It looks like the tax rate on net investment income has been drifting up, should we expect this to continue? And then also on the expense ratio I think last quarter you suggested that a normalized expense ratio might be a little bit higher than 27%. I think it was the 28% range, this quarter came in a little lower, would you make an adjustment to that statement, do you still think the expense ratio might tick up a little bit? George Joseph Hi, Allison. The tax rate is slightly high on investments but I don't expect that to continue to trend up, come back down even, as far as the expense ratio going forward, we're still looking at around 27% as where we're expecting it to run. Alison Jacobowitz – Bank of America Thank you. Operator (Operator Instructions) We do have a follow-up question from the line of Alison Jacobowitz with Bank of America. Alison Jacobowitz – Bank of America Thanks, again. So on the combined ratio if you're now making money outside of California overall, but the overall combined ratio, I don't think it's really changed much over the past several years. Does it mean that the California Combined ratio is deteriorating or am I missing something in the math there? Gabriel Tirador Well we have had some pressure in our California combined ratio it's still below 100% and we do have some rate increases that are pending. We both -- we have both the homeowner rates filing that we made a few years ago that just -- we finished up with the hearing there. And expect the result from the judges over the next several months. Read the rest of this transcript for free on seekingalpha.com