Auto insurer Mercury General
Mercury General's stock jumped yesterday after reporting second-quarter earnings ahead of analyst projections, but it continues to spin its wheels in terms of overall growth. Net income did improve an impressive 84% as insurance losses fell significantly, and the expense ratio also improved, meaning Mercury was more efficient in writing new business.
However, other key insurance metrics, such as net premiums written and net premiums earned, continued to tread water, implying that Mercury continues to see challenges in growing the top line. And, as has been the trend, "non-California" business continues to be the culprit; it posted double-digit declines in both net premium categories. The combined ratio also remained higher than 100%, meaning an underwriting loss outside of Cali.
The Cali operations posted a favorable 90.2% combined ratio and showed positive, albeit modest, growth in net premiums earned and written. Fortunately, these represented close to 79% of Mercury's total personal auto policies in force as of the quarter's end. California homeowner policies also account for 95% of the total, with Florida making up the rest.
On a more positive note, management upped the quarterly dividend payment by 8.3% to a current $0.52, putting the annual payout at about 4%. After the recent stock jump, Mercury's price-to-book multiple has increased to 1.69, but it still stands at the low end of its five-year range.
Clearly, Mercury General will need to start posting better top-line trends for the multiple to expand further, but from a yield perspective, the stock still leads archrivals Allstate
Mercury also has a reputation as a savvy insurance underwriter that pays high commissions to brokers who sell its products -- two key differentiators in a crowded and cutthroat industry. Combine that with the coupon payment, and the shares may be worth waiting around for. Premium growth could resume if non-California trends improve -- or if they continue to account for a smaller proportion of Mercury's overall business.
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Fool contributor Ryan Fuhrmann has no financial interest in any company mentioned. Feel free to email him with feedback or to discuss any companies mentioned further. The Fool has an ironclad disclosure policy.