Condensed Financial Information of Registrant

12 Months Ended

Dec. 31, 2020

Condensed Financial Information Disclosure [Abstract]

Condensed Financial Information of Registrant


	December 31,
	2020		2019
	(Amounts in thousands)
ASSETS
Investments, at fair value:
Equity securities (cost $75,099; $81,802)	$	110,596	$	114,668
Short-term investments (cost $4,269; $29,356)	4,269		29,356
Investment in subsidiaries	2,285,417		2,008,163
Total investments	2,400,282		2,152,187
Cash	24,652		39,766
Accrued investment income	20		90
Amounts receivable from affiliates	250		244

Income tax receivable from affiliates	5,862		9,192
Other assets	221		312
Total assets	$	2,431,287	$	2,201,791
LIABILITIES AND SHAREHOLDERS’ EQUITY
Notes payable	$	372,532	$	372,133
Accounts payable and accrued expenses	—		17
Amounts payable to affiliates	30		22
Income tax payable to affiliates	2,724		4,106
Current income taxes	10,074		14,052
Deferred income taxes	8,470		7,059
Other liabilities	4,860		4,900
Total liabilities	398,690		402,289
Commitments and contingencies
Shareholders’ equity:
Common stock	98,970		98,828

Retained earnings	1,933,627		1,700,674
Total shareholders’ equity	2,032,597		1,799,502
Total liabilities and shareholders’ equity	$	2,431,287	$	2,201,791

SCHEDULE II, Continued

MERCURY GENERAL CORPORATION

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

STATEMENTS OF OPERATIONS


	Year Ended December 31,
	2020		2019		2018
	(Amounts in thousands)
Revenues:
Net investment income	$	3,323	$	3,735	$	4,661
Net realized investment gains (losses)	9,575		31,682		(10,797)
Other	—		5		2
Total revenues	12,898		35,422		(6,134)
Expenses:
Other operating expenses	3,054		2,592		2,343
Interest	17,035		17,036		17,036
Total expenses	20,089		19,628		19,379
(Loss) income before income taxes and equity in net income of subsidiaries	(7,191)		15,794		(25,513)
Income tax expense (benefit)	600		2,816		(5,144)
(Loss) income before equity in net income of subsidiaries	(7,791)		12,978		(20,369)
Equity in net income of subsidiaries	382,398		307,109		14,641
Net income (loss)	$	374,607	$	320,087	$	(5,728)

SCHEDULE II, Continued

MERCURY GENERAL CORPORATION

CONDENSED FINANCIAL INFORMATION OF REGISTRANT

STATEMENTS OF CASH FLOWS


	Year Ended December 31,
	2020		2019		2018
	(Amounts in thousands)
Cash flows from operating activities:
Net cash used in operating activities	$	(17,339)	$	(5,392)	$	(16,108)
Cash flows from investing activities:
Capital contribution to subsidiaries	(30,000)		(125)		(541)
Capital distribution from subsidiaries	—		30,069		—
Distributions received from special purpose entities	12,129		5,153		5,998
Dividends received from subsidiaries	121,000		114,431		135,000
Equity securities available for sale in nature
Purchases	(54,571)		(39,966)		(22,286)
Sales	67,965		74,663		33,052
Decrease (increase) in short-term investments	25,088		(25,213)		18,065
Other, net	254		376		605
Net cash provided by investing activities	141,865		159,388		169,893
Cash flows from financing activities:
Dividends paid to shareholders	(139,640)		(139,071)		(138,478)
Proceeds from stock options exercised	—		701		358
Net cash used in financing activities	(139,640)		(138,370)		(138,120)
Net (decrease) increase in cash	(15,114)		15,626		15,665
Cash:
Beginning of year	39,766		24,140		8,475
End of year	$	24,652	$	39,766	$	24,140
SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest paid	$	16,586	$	16,586	$	16,586
Income taxes (refunded) paid, net	$	(20,552)	$	(12,391)	$	4,296

The accompanying condensed financial information should be read in conjunction with the Consolidated Financial Statements and Notes to Consolidated Financial Statements included in this report.

Distributions received from Special Purpose Entities

On February 13, 2014, Fannette Funding LLC ("FFL"), a special purpose investment vehicle, formed by and consolidated into the Company, entered into a total return swap agreement with Citibank. The agreement had an initial term of one year, subject to periodic renewal. In July 2018, the agreement was renewed through January 24, 2020. During the fourth quarter of 2019, the underlying obligations were liquidated and the total return swap agreement between FFL and Citibank was terminated. Under the agreement, FFL received the income equivalent on underlying obligations due to Citibank and paid to Citibank interest on the outstanding notional amount of the underlying obligations. The Company paid interest equal to LIBOR plus 128 basis points prior to the renewal of the agreement in January 2018, LIBOR plus 120 basis points subsequent to the January 2018 renewal through July 2018, and LIBOR plus105 basis points subsequent to the July 2018 renewal until December 2019, on approximately $100 million of underlying obligations as of December 31, 2018.

Distributions of $12.1 million and $5.2 million were received in 2020 and 2019, respectively, from these special purpose entities.

Dividends received from Subsidiaries

Dividends of $121,000,000, $114,431,433 and $135,000,000 were received by Mercury General from its 100% owned insurance subsidiaries in 2020, 2019 and 2018, respectively, and are recorded as a reduction to investment in subsidiaries.

Capitalization of Insurance Subsidiaries

Mercury General made capital contributions to its insurance subsidiaries of $30,000,000, $125,000 and $540,619 in 2020, 2019 and 2018, respectively. In addition, Mercury General received a capital distribution from its insurance subsidiaries of $0, $30,068,567 and $0 in 2020, 2019 and 2018, respectively.

Notes Payable

On March 8, 2017, Mercury General completed a public debt offering issuing $375 million of senior notes. The notes are unsecured senior obligations of Mercury General, with a 4.4% annual coupon payable on March 15 and September 15 of each year commencing September 15, 2017. These notes mature on March 15, 2027. The Company used the proceeds from the notes to pay off the total outstanding balance of $320 million under the existing loan and credit facility agreements and terminated the agreements on March 8, 2017. The remainder of the proceeds from the notes was used for general corporate purposes. Mercury General incurred debt issuance costs of approximately $3.4 million, inclusive of underwriters' fees. The notes were issued at a slight discount of 99.847% of par, resulting in the effective annualized interest rate, including debt issuance costs, of approximately 4.45%.

Commitments and Contingencies

On March 29, 2017, Mercury General entered into an unsecured credit agreement that provides for revolving loans of up to $50 million and matures on March 29, 2022. The interest rates on borrowings under the credit facility are based on the Company's debt to total capital ratio and range from LIBOR plus 112.5 basis points when the ratio is under 15% to LIBOR plus 162.5 basis points when the ratio is greater than or equal to 25%. Commitment fees for the undrawn portions of the credit facility range from 12.5 basis points when the ratio is under 15% to 22.5 basis points when the ratio is greater than or equal to 25%. The debt to total capital ratio is expressed as a percentage of (a) consolidated debt to (b) consolidated shareholders' equity plus consolidated debt. The Company's debt to total capital ratio was 15.6% at December 31, 2020, resulting in a 15 basis point commitment fee on the $50 million undrawn portion of the credit facility. As of February 16, 2021, there have been no borrowings under this facility.

Federal Income Taxes

The Company files a consolidated federal income tax return for the following entities:


Mercury Casualty Company						Mercury County Mutual Insurance Company
Mercury Insurance Company						Mercury Insurance Company of Florida
California Automobile Insurance Company						Mercury Indemnity Company of America
California General Underwriters Insurance Company, Inc.						Mercury Select Management Company, Inc.
Mercury Insurance Company of Illinois						Mercury Insurance Services LLC
Mercury Insurance Company of Georgia						AIS Management LLC
Mercury Indemnity Company of Georgia						Auto Insurance Specialists LLC
Mercury National Insurance Company						PoliSeek AIS Insurance Solutions, Inc.
American Mercury Insurance Company						Animas Funding LLC
American Mercury Lloyds Insurance Company						Fannette Funding LLC
Workmen's Auto Insurance Company						Mercury Plus Insurance Services LLC

The method of allocation between the companies is subject to an agreement approved by the Board of Directors. Allocation is based upon separate return calculations with current credit for net losses incurred by the insurance subsidiaries to the extent it can be used in the current consolidated return.