Nine Months Ended September 30,
2017 2016
Property & Casualty Other Total Property & Casualty Other Total

(Amounts in millions)
Net premiums earned $ 2,362.4
$ 26.2
$ 2,388.6
$ 2,305.0
$ 32.3
$ 2,337.3
Less:
Losses and loss adjustment expenses 1,777.1
13.5
1,790.6
1,748.2
17.3
1,765.5
Underwriting expenses 587.7
11.9
599.6
586.1
13.6
599.7
Underwriting (loss) gain (2.4 ) 0.8
(1.6 ) (29.3 ) 1.4
(27.9 )
Investment income 94.1
91.4
Net realized investment gains 66.3
55.0
Other income 9.7
6.4
Interest expense (10.9 ) (2.9 )
Pre-tax income $ 157.6
$ 122.0
Net income $ 125.1
$ 99.1

The following tables present the Company’s net premiums earned and direct premiums written by reportable segment and line of insurance business:


	Three Months Ended June 30,
	2021						2020
	Property & Casualty		Other		Total		Property & Casualty		Other		Total

	(Amounts in millions)
Private passenger automobile	$	650.8	$	0	$	650.8	$	579.7	$	0	$	579.7
Homeowners	169.4		0		169.4		146.5		0		146.5
Commercial automobile	64.6		0		64.6		51.1		0		51.1
Other	34.7		7.3		42.0		27.5		7.1		34.6
Net premiums earned	$	919.5	$	7.3	$	926.8	$	804.8	$	7.1	$	811.9

Private passenger automobile	$	646.0	$	0	$	646.0	$	555.0	$	0	$	555.0
Homeowners	207.9		0		207.9		180.7		0		180.7
Commercial automobile	66.2		0		66.2		55.8		0		55.8
Other	43.3		9.5		52.8		31.5		5.8		37.3
Direct premiums written	$	963.4	$	9.5	$	972.9	$	823.0	$	5.8	$	828.8


	Six Months Ended June 30,
	2021						2020
	Property & Casualty		Other		Total		Property & Casualty		Other		Total

	(Amounts in millions)
Private passenger automobile	$	1,304.6	$	0	$	1,304.6	$	1,273.6	$	0	$	1,273.6
Homeowners	330.2		0		330.2		286.0		0		286.0
Commercial automobile	127.2		0		127.2		106.3		0		106.3
Other	66.3		14.4		80.7		54.2		14.4		68.6
Net premiums earned	$	1,828.3	$	14.4	$	1,842.7	$	1,720.1	$	14.4	$	1,734.5

Private passenger automobile	$	1,312.5	$	0	$	1,312.5	$	1,265.4	$	0	$	1,265.4
Homeowners	378.1		0		378.1		328.2		0		328.2
Commercial automobile	135.1		0		135.1		117.5		0		117.5
Other	84.3		16.3		100.6		61.7		13.9		75.6
Direct premiums written	$	1,910.0	$	16.3	$	1,926.3	$	1,772.8	$	13.9	$	1,786.7

Three Months Ended September 30,
2017 2016
Property & Casualty Other Total Property & Casualty Other Total

(Amounts in millions)
Private passenger automobile $ 619.8
$ —
$ 619.8
$ 614.0
$ —
$ 614.0
Homeowners 108.3
—
108.3
105.5
—
105.5
Commercial automobile 43.6
—
43.6
41.2
—
41.2
Other 21.0
8.5
29.5
19.9
10.3
30.2
Net premiums earned $ 792.7
$ 8.5
$ 801.2
$ 780.6
$ 10.3
$ 790.9

Private passenger automobile $ 633.7
$ —
$ 633.7
$ 630.1
$ —
$ 630.1
Homeowners 125.8
—
125.8
116.0
—
116.0
Commercial automobile 45.6
—
45.6
41.9
—
41.9
Other 22.9
7.1
30.0
22.4
6.6
29.0
Direct premiums written $ 828.0
$ 7.1
$ 835.1
$ 810.4
$ 6.6
$ 817.0

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Nine Months Ended September 30,
2017 2016
Property & Casualty Other Total Property & Casualty Other Total

(Amounts in millions)
Private passenger automobile $ 1,850.3
$ —
$ 1,850.3
$ 1,820.1
$ —
$ 1,820.1
Homeowners 322.3
—
322.3
307.0
—
307.0
Commercial automobile 127.3
—
127.3
119.8
—
119.8
Other 62.5
26.2
88.7
58.1
32.3
90.4
Net premiums earned $ 2,362.4
$ 26.2
$ 2,388.6
$ 2,305.0
$ 32.3
$ 2,337.3

Private passenger automobile $ 1,872.8
$ —
$ 1,872.8
$ 1,857.3
$ —
$ 1,857.3
Homeowners 352.3
—
352.3
331.4
—
331.4
Commercial automobile 133.7
—
133.7
125.2
—
125.2
Other 69.9
21.3
91.2
66.3
20.9
87.2
Direct premiums written $ 2,428.7
$ 21.3
$ 2,450.0
$ 2,380.2
$ 20.9
$ 2,401.1

~~14. Subsequent Event~~

In October 2017, a series of destructive wildfires burned across several counties in Northern California. Recent estimates put the total number of structures destroyed at over 8,000. Based on claims reported to date and expected to be reported, the Company estimates that its share of the total structures destroyed will be fewer than 100. The Company estimates a total gross loss in the range of $60 million to $100 million and a net loss, after the benefit of reinsurance, of $10 million, plus any reinstatement premiums required under the terms of the Company's catastrophe reinsurance treaty. Due to the recent occurrence and magnitude of this event, the total losses from these wildfires are difficult to estimate, and these figures may change in the future.

The Company benefited significantly from its newly expanded catastrophe reinsurance treaty that became effective July 1, 2017. Under the reinsurance treaty, covered catastrophe losses are reinsured 100% up to $190 million above the Company's $10 million retention. Losses above $200 million are shared pro-rata with 5% coverage by the reinsurers and 95% retention by the Company, up to a total of $15 million in coverage provided by the reinsurers. The reinsurance treaty is subject to reinstatement premiums based on the amount of reinsurance benefits paid to the Company, up to the maximum reinstatement premium of $19 million if the full amount of benefit is used.



Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

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 ~~the Company~~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 ~~of the Company~~ to successfully manage its claims organization outside of California; 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 marketing efforts;~~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 Securities and Exchange Commission on February ~~9, 2017.~~16, 2021.

OVERVIEW

A. General

The operating results of property and casualty insurance companies are subject to significant quarter-to-quarter and year-to-year fluctuations due to the effect of competition on pricing, the frequency and severity of losses, the effect of weather and natural disasters on losses, general economic conditions, the general regulatory environment in states in which an insurer operates, state regulation of insurance including premium rates, changes in fair value of investments, and other factors such as changes in tax laws. The property and casualty insurance industry has been highly cyclical, with periods of high premium rates and shortages of underwriting capacity followed by periods of severe price competition and excess capacity. These cycles can have a significant impact on the Company’s ability to grow and retain business.

This section discusses some of the relevant factors that management considers in evaluating the Company’s performance, prospects, and risks. It is not all-inclusive and is meant to be read in conjunction with the entirety of management’s discussion and analysis, the Company’s consolidated financial statements and notes thereto, and all other items contained within this Quarterly Report on Form 10-Q.

Note on COVID-19

In March 2020, the outbreak of COVID-19 was recognized as a pandemic by the World Health Organization (the "WHO"). The pandemic has had a notable impact on general economic conditions, including, but not limited to, the temporary closures of many businesses, “shelter in place” and other governmental orders, and reduced consumer spending. The Company has been following guidelines or orders issued by the Centers for Disease Control, the WHO and state and local governments. The Company has also taken a number of precautionary steps to safeguard its business and employees from COVID-19, including activating its Business Continuity Plan. Most of the Company's employees have been working remotely, with only certain operationally critical employees working on site at various locations. The Company is monitoring and assessing the impact of the COVID-19 pandemic daily, including recommendations and orders issued by federal, state and local governments. The Company has recently extended its "work-from-home" policy for most of its employees to January 2022, and may further extend the policy, if necessary, based on the latest information on the pandemic's developments.

The Company’s automobile line of insurance business began experiencing a significant decrease in loss frequency in

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March of 2020, and it remained lower than historical levels through the first half of 2021, although it began to increase as more drivers returned to the road following the gradual reopening of businesses in California and other states. The reduction in automobile loss frequency was primarily due to reduced driving during the pandemic. Due to the uncertainty regarding COVID-19, it is unclear how long automobile loss frequency will remain below historical levels. After bottoming out in the second quarter of 2020, loss frequency steadily increased through the end of 2020, and after a brief pause in the first quarter of 2021, it re-accelerated in the second quarter of 2021. The severity of accidents, for both bodily injury and the cost to repair vehicles, has increased following the outbreak of the COVID-19 pandemic primarily due to a higher percentage of high-speed serious accidents on less congested roads and freeways. The cost to repair vehicles may remain high due to supply chain and labor force issues. The COVID-19 pandemic also created more uncertainty, and the total effect on losses occurring during the COVID-19 era will not be known for several years. The Company expects more late reported claims and a prolonged settlement period, particularly for bodily injury claims. Many courts have been closed, and claimants may have been reluctant to seek medical treatments due to the pandemic. The recent increases in loss frequency combined with sustained high loss severity have negatively impacted the Company's results of operations, when compared to other quarters during the COVID-19 pandemic era. If loss frequency further increases to the pre-pandemic levels and/or loss severity remains high in the near future, operating results may significantly deteriorate and the Company may consider submitting its private passenger automobile rate filings requesting rate increases. Following the outbreak of the COVID-19 pandemic in 2020, the company withdrew such rate filings pending before the pandemic.

Many businesses have been required by state and local governments to cease or substantially reduce operations, and have suffered severe financial losses as a result. Many of these businesses have submitted claims to their insurers under the business interruption coverage of their commercial property policies, resulting in coverage disputes in many states. While the Company does insure a modest number of businesses with this business interruption coverage, these pandemic-related losses are not covered under the Company's policy terms and conditions. The Company’s business interruption, or “business income” coverage, requires a “direct physical loss” to the property that results in suspension of operations, such as a fire or water loss. The coverage is not triggered under the present circumstances. Most of the Company’s policies also contain an exclusion for losses caused directly or indirectly by “virus or bacteria.” This exclusion was adopted by many insurers after the SARS outbreak of 2003-2004, upon recognition that such a pandemic could result in losses far exceeding the capacity of individual insurers and the private insurance market as a whole. The Company does not believe it has any material exposure to business interruption claims.

Due to disruptions in the equity and fixed maturity securities markets following the outbreak of the COVID-19 pandemic, the Company's investment portfolio substantially declined in value during the quarter ended March 31, 2020; however, its investment portfolio has recovered in value during the subsequent quarters of 2020 and in 2021. In March 2020, the Federal Open Market Committee (“FOMC”) unveiled a set of aggressive measures to cushion the economic impact of the global COVID-19 crisis, including, among others, cutting the federal funds rate by 100 basis points to a range of 0.00% to 0.25% and establishing a series of emergency credit facilities in an effort to support the flow of credit in the economy, easing liquidity pressure and calming market turmoil. While volatility in the financial markets remains elevated, overall market liquidity concerns have eased following the actions taken by the FOMC. The Company believes that it will continue to have sufficient liquidity to support its business operations during the COVID-19 crisis and beyond without the forced sale of investments, based on its existing cash and short-term investments, future cash flows from operations, and $75 million of undrawn credit in its revolving credit facility.

On March 27, 2020, the President of the United States signed the Coronavirus Aid, Relief, and Economic Security ("CARES") Act, a substantial tax-and-spending package intended to provide economic stimulus to address the financial impact of the COVID-19 pandemic. The CARES Act includes, among other items, cash payments to individuals as well as emergency grants and forgivable loans to small businesses, if they meet certain criteria. On March 11, 2021, the President of the United States signed the American Rescue Plan Act of 2021, a $1.9 trillion COVID-19 relief bill, to provide additional relief to address the continued impact of COVID-19 on the economy, public health, state and local governments, individuals, and businesses. To the extent the Company's existing or potential policyholders and business partners are aided by such relief programs, the negative impact of the pandemic on its results of operations may be mitigated.

The Company will continue to monitor the impact of the COVID-19 pandemic, and the effects of the CARES Act, the American Rescue Plan Act of 2021 and any additional legislative relief. The extent of the impact of the pandemic on the Company's business and financial results will depend largely on future developments, including the duration of the pandemic, its impact on capital and financial markets and the related impact on consumer confidence and spending, the success of a broad vaccine rollout in the U. S. and around the world, and the impact of actions taken in response to new variants of COVID-19, most of which are highly uncertain and cannot be predicted. As the impact of the COVID-19 pandemic continues to evolve, additional impacts may arise.

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B. Business

The Company is primarily engaged in writing personal automobile insurance through 14 insurance subsidiaries (“Insurance Companies”) in 11 states, principally California. The Company also writes homeowners, commercial automobile, commercial property, mechanical protection, and umbrella insurance. The Company's insurance policies are mostly sold through independent agents who receive a commission for selling policies. The Company believes that it has thorough underwriting and claims handling processes that, together with its agent relationships, provide the Company with competitive advantages.

The following tables present direct premiums written, by state and line of insurance business, for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016~~:2020:


	Six Months Ended June 30, 2021
	(Dollars in thousands)

	Private Passenger Automobile			Homeowners			Commercial Automobile			Other Lines (2)			Total
California	$	1,156,314		$	306,989		$	91,965		$	91,687		$	1,646,955		85.5	%
Other states (1)	156,213			71,132			43,107			8,859			279,311			14.5	%
Total	$	1,312,527		$	378,121		$	135,072		$	100,546		$	1,926,266		100.0	%
	68.2		%	19.6		%	7.0		%	5.2		%	100.0		%

Nine Months Ended September 30, 2017
(Dollars in thousands)

Private
Passenger Automobile
Homeowners
Commercial
Automobile
Other Lines Total
California $ 1,592,750
$ 301,810
$ 75,194
$ 82,867
$ 2,052,621
83.8 %
Florida ⁽¹⁾
110,134
8
13,736
655
124,533
5.1 %
Other states ⁽²⁾
169,914
50,526
44,753
7,695
272,888
11.1 %
Total $ 1,872,798
$ 352,344
$ 133,683
$ 91,217
$ 2,450,042
100.0 %
76.4 % 14.4 % 5.5 % 3.7 % 100.0 %

Nine Months Ended September 30, 2016
(Dollars in thousands)

Private
Passenger Automobile
Homeowners
Commercial
Automobile
Other Lines Total
California $ 1,551,442
$ 279,295
$ 64,359
$ 78,456
$ 1,973,552
82.2 %
Florida ⁽¹⁾
121,595
8
20,129
1,018
142,750
5.9 %
Other states ⁽²⁾
184,276
52,103
40,756
7,626
284,761
11.9 %
Total $ 1,857,313
$ 331,406
$ 125,244
$ 87,100
$ 2,401,063
100.0 %
77.4 % 13.8 % 5.2 % 3.6 % 100.0 %


	Six Months Ended June 30, 2020
	(Dollars in thousands)

	Private Passenger Automobile			Homeowners			Commercial Automobile			Other Lines			Total
California (3)	$	1,115,535		$	283,606		$	77,631		$	68,206		$	1,544,978		86.5	%
Other states (1) (4)	149,868			44,554			39,914			7,377			241,713			13.5	%
Total	$	1,265,403		$	328,160		$	117,545		$	75,583		$	1,786,691		100.0	%
	70.8		%	18.4		%	6.6		%	4.2		%	100.0		%

______________


⁽¹⁾	~~The Company is writing and expects to continue writing nominal premiums in the Florida homeowners market.~~


⁽²⁾	~~No individual state accounted for more than 4% of total direct premiums written.~~

(1) No individual state accounted for more than 5% of total direct premiums written.

(2) No individual line of insurance business accounted for more than 5% of total direct premiums written.

(3) California private passenger automobile and commercial automobile direct premiums written were reduced by approximately $92 million and $4 million, respectively, due to premium refunds and credits under the "Mercury Giveback" program associated with reduced driving during the COVID-19 pandemic.

(4) Other states private passenger automobile and commercial automobile direct premiums written were reduced by approximately $8 million and $1 million, respectively, due to premium refunds and credits, as described above.

C. Regulatory and Legal Matters

The Department of Insurance (“DOI”) in each state in which the Company operates is responsible for conducting periodic financial, market conduct, and rating and underwriting examinations of the Insurance Companies in their states. Market conduct examinations typically review compliance with insurance statutes and regulations with respect to rating, underwriting, claims handling, billing, and other practices.

The following table presents a summary of recent and upcoming examinations:

State

Exam Type

Exam Period Covered

Status

~~State~~CA

~~Exam Type~~Market Conduct

~~Period Under Review~~2020-2021

~~Status~~Initial inquiries began in June 2021.

GACA

~~Financial~~Premium Tax

~~2011~~2015 to ~~2013~~2018

~~Received final report.~~Desk audit was completed in the first quarter of 2021 with no additional taxes due.

CATX

~~Market Conduct Claims~~Premium and Maintenance Tax

~~2015~~2016 to 2019

~~Field work is expected to begin~~Desk audit was completed in the ~~4th~~fourth quarter of ~~2017~~2020 with no additional taxes due.

~~Rating and Underwriting~~

~~2014~~

~~Field work is completed. Awaiting draft report.~~

Market Conduct

2014 ~~to 2015~~

~~Received draft~~Final report ~~and awaiting final report.~~of examination was adopted by the DOI on November 6, 2019.

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During the course of and at the conclusion of ~~these~~the examinations, the examining DOI generally reports findings to the Company. ~~None~~On October 30, 2020, the Company received notice from the California DOI that the market conduct examination report for the 2014 examination period mentioned above was being reviewed for potential further action in connection with some of the findings ~~reported~~in the report. Subsequently, the California DOI gave the Company notice of its intent to proceed with an enforcement action for the alleged violations in the report. The California DOI has advised that the Company will have the opportunity to resolve the alleged violations before a Notice of Noncompliance is formally filed.

On April 13, 2020, the California Insurance Commissioner issued Bulletin 2020-3 ordering insurers to make an initial premium adjustment within 120 days from the date ~~are expected~~of the Bulletin 2020-3 to beadversely impacted California policyholders for the months of March and April 2020. The Commissioner granted insurers flexibility in determining how to quickly and fairly process the premium refunds. On May 15, 2020, the California Insurance Commissioner issued Bulletin 2020-4 extending the directives in Bulletin 2020-3 through May 31, 2020. Bulletin 2020-8, originally issued on June 25, 2020 and amended on December 3, 2020, extended the previous directives of Bulletin 2020-3 and Bulletin 2020-4 through June 30, 2020, as well as any months subsequent to June 2020 because the COVID-19 pandemic continued to result in projected loss exposures remaining overstated or misclassified. On March 11, 2021, the California Insurance Commissioner issued Bulletin 2021-03 directing California insurance companies to do more to return additional premium relief commensurate with continuing reductions in the exposure to loss for particular lines of insurance and to communicate with their policyholders about how they will return premiums as well as options available to reduce their ongoing premiums. The Company believes that the amounts returned to-date, including the mileage reductions on individual policies, have provided appropriate and material relief to its policyholders. The total amount of premiums returned to the Company's policyholders through refunds or credits is approximately $128 million, which reduced its net premiums earned for 2020. The Company has also worked with its agents and policyholders to reclassify exposures on an individual policy basis, including reducing mileage on approximately 280,000 vehicles since the pandemic began. The mileage reductions have significantly reduced premiums on those individual policies in a manner consistent with the Company’s ~~financial position.~~filed and approved rates. Additionally, the Company withdrew its private passenger automobile rate filings requesting rate increases that were pending before the pandemic.

In March ~~2017,~~2021, the California DOI approved a 6.9% rate increase on California Automobile Insurance Company's private passenger automobile line of insurance business, which represented approximately 14% of the Company's total net premiums earned for the nine months ended September 30, 2017. This rate increase became effective in May 2017. In April 2017, the California DOI approved a 6.9%6.99% rate increase on the California homeowners line of insurance business, which represented approximately ~~12%~~15% of the Company's total net premiums earned for the ~~nine~~six months ended ~~September~~June 30, ~~2017. This~~2021. The Company implemented this rate increase ~~became effective~~ in ~~August 2017.~~June 2021.

The Company primarily sells its California private passenger automobile insurance business through two of its insurance subsidiaries, Mercury Insurance Company (“MIC”) and California Automobile Insurance Company (“CAIC”). MIC accepts only “Good Drivers” (as defined in the California Insurance Code) and provides lower rates, but its policy has narrower coverages than the CAIC policy. At the request of the California DOI, the Company intends to broaden the coverages in MIC, making the coverages the same as in CAIC. Once the coverages are standardized across these two insurance subsidiaries, the Company will automatically move qualified Good Drivers from CAIC to MIC. Good Drivers accounted for approximately 87% of the Company's California voluntary private passenger automobile policies-in-force at December 31, 2020, while higher risk categories accounted for approximately 13%. The transfer of qualified Good Drivers from CAIC to MIC, which is planned for implementation in the fourth quarter of 2021, is expected to reduce the Company's annual California private passenger automobile insurance premiums earned by approximately $25 million over a 24-month period beginning in the fourth quarter of 2021. The increase in losses resulting from broadening the coverages in MIC is not estimable, but is not expected to be material.

In July 2019, the governor of California signed a bill that created a $21 billion fund (the "California Wildfire Fund") to help then bankrupt Pacific Gas and Electric Company ("PG&E") and the state's other investor-owned utility companies cover liabilities arising from future wildfires caused by their equipment. The bill requires investor-owned utility companies to fund half of the California Wildfire Fund. The other half is to be funded by surcharges paid by ratepayers across the state. On July 1, 2020, PG&E made an announcement that it emerged out of bankruptcy and made an initial deposit of approximately $5 billion to the California Wildfire Fund. It is expected that the Company and other insurers will be reimbursed for some portion of the claims paid for its policyholders if it is determined that a wildfire is caused by equipment failure. The announcement also confirmed that PG&E funded the Subrogation Trust Fund with $11 billion, which was set up to reimburse insurance companies and other entities that paid claims by individuals and businesses related to wildfires that occurred in the recent past years prior to July 1, 2020. The Company received approximately $23 million, net of fees, in 2020 from the Subrogation Trust Fund. However, the subrogation recovery recognized was for losses and loss adjustment expenses previously ceded to the Company’s reinsurers, and therefore the recovery did not reduce losses and loss adjustment expenses net of reinsurance. The benefit to the Company, net of reinsurance and before taxes, was approximately $3 million, representing a reduction to reinstatement premiums previously recognized.

The Company is, from time to time, named as a defendant in various lawsuits or regulatory actions incidental to its insurance business. The majority of lawsuits brought against the Company relate to insurance claims that arise in the normal

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course of

business and are reserved for through the reserving process. For a discussion of the Company’s reserving methods, see the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016~~.2020.

The Company establishes reserves for non-insurance claims related lawsuits, regulatory actions, and other contingencies when the Company believes a loss is probable and is able to estimate its potential exposure. For loss contingencies believed to be reasonably possible, the Company also discloses the nature of the loss contingency and an estimate of the possible loss, range of loss, or a statement that such an estimate cannot be made. While actual losses may differ from the amounts recorded and the ultimate outcome of the Company's pending actions is generally not yet determinable, the Company does not believe that the ultimate resolution of currently pending legal or regulatory proceedings, either individually or in the aggregate, will have a material adverse effect on its financial condition or cash flows.

In all cases, the Company vigorously defends itself unless a reasonable settlement appears appropriate. For a discussion of legal matters, see the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2020, and Note 12. Contingencies of the Notes to Consolidated Financial Statements of this Quarterly Report.

D. Critical Accounting Policies and Estimates

Loss and Loss Adjustment Expense Reserves ("Loss Reserves")

Preparation of the Company’s consolidated financial statements requires management’s judgment and estimates. The most significant is the estimate of loss reserves. Estimating loss reserves is a difficult process as many factors can ultimately affect the final settlement of a claim and, therefore, the loss reserve that is required. A key assumption in estimating loss reserves is the degree to which the historical data used to analyze reserves will be predictive of ultimate claim costs on incurred claims. Changes in the regulatory and legal environments, results of litigation, medical costs, the cost of repair materials, and labor rates, among other factors, can impact this assumption. In addition, time can be a critical part of reserving determinations since the longer the span between the incidence of a loss and the payment or settlement of a claim, the more variable the ultimate settlement amount could be. Accordingly, short-tail claims, such as property damage claims, tend to be more reasonably predictable than long-tail liability claims.

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 reviewing 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.

The Company also engages independent actuarial consultants to review the Company’s loss reserves and to provide the annual actuarial opinions under statutory accounting principles as required by state regulation. 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 will generally analyze 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.

•The incurred loss method analyzes historical incurred case loss (case reserves plus paid losses) development to estimate ultimate losses. The Company applies development factors against current case incurred losses by accident period to calculate ultimate expected losses. The Company believes that the incurred loss method provides a reasonable basis for evaluating ultimate losses, particularly in the Company’s larger, more established lines of insurance business which have a long operating history.

•The paid loss method analyzes historical payment patterns to estimate the amount of losses yet to be paid.

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•The average severity method analyzes historical loss payments and/or incurred losses divided by closed claims and/or total claims to calculate an estimated average cost per claim. From this, the expected ultimate average cost per claim can

be estimated. The average severity method coupled with the claim count development method provide meaningful information regarding inflation and frequency trends that the Company believes is useful in establishing loss reserves. The claim count development method analyzes historical claim count development to estimate future incurred claim count development for current claims. The Company applies these development factors against current claim counts by accident period to calculate ultimate expected claim counts.

•The GLM determines an average severity for each percentile of claims that have been closed as a percentage of estimated ultimate claims. The average severities are applied to open claims to estimate the amount of losses yet to be paid. The GLM utilizes operational time, determined as a percentile of claims closed rather than a finite calendar period, which neutralizes the effect of changes in the timing of claims handling.

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.

At ~~September~~June 30, ~~2017~~2021 and December 31, ~~2016,~~2020, the Company recorded its point estimate of approximately ~~$1.37~~$2.09 billion and ~~$1.29~~$1.99 billion ($2.04 billion and $1.94 billion, net of reinsurance), respectively, in loss reserves, which included approximately ~~$574.2~~$954.7 million and ~~$534.8~~$885.5 million ($933.6 million and $864.5 million, 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~~June 30, ~~2017~~2021 and December 31, ~~2016,~~2020, 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.

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 the~~ ~~nine~~ months ended September 30, 2017, the Company reported unfavorable development of approximately $18 million on the 2016 and prior accident years’ loss reserves, which at December 31, 2016 totaled approximately $1.29 billion. The unfavorable development in 2017 was primarily attributable to higher than estimated California automobile and property losses.

For the nine months ended September 30, 2017, the Company recorded catastrophe losses of approximately $59 million, which were primarily attributable to severe rainstorms in California, the impact of Hurricane Harvey in Texas and Hurricane Irma in Florida and Georgia, and storms and tornadoes in Oklahoma and Texas. The Winter of 2017 was extremely wet in California, setting new precipitation records in parts of the state.

For a further discussion of the Company’s reserving methods, see the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2020.

~~Investments~~

The Company’s fixed maturity and equity securities are classified as “trading” and carried at fair value as required when applying the fair value option, with changes in fair value reflected in net realized investment gains or losses in the consolidated statements of operations. The majority of equity holdings, including non-redeemable preferred stocks, are actively traded on national exchanges or trading markets, and are valued at the last transaction price on the balance sheet date.

Fair Value of Financial Instruments

Financial instruments recorded in the consolidated balance sheets include investments, note receivable, other receivables, ~~total return swaps,~~ accounts payable, options sold, ~~and secured~~ and unsecured notes payable. The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Due to their short-term maturity, the carrying values of other receivables and accounts payable approximate their fair values. All investments are carried on the consolidated balance sheets at fair value, as described in Note 3. Financial Instruments of the Notes to Consolidated Financial Statements.

The Company’s financial instruments include securities issued by the U.S. government and its agencies, securities issued by states and municipal governments and agencies, certain corporate and other debt securities, equity securities, and exchange traded funds. ~~97.9%~~At June 30, 2021, 98.4% of the fair value of these financial instruments ~~held at~~ ~~September 30, 2017~~ is based on observable market prices, observable market parameters, or is derived from such prices or parameters. The availability of observable market prices and pricing parameters can vary by financial instrument. Observable market prices and pricing parameters of a financial instrument, or a related financial instrument, are used to derive a price without requiring significant judgment.

The Company may hold or acquire financial instruments that lack observable market prices or market parameters because they are less actively traded currently or in future periods. The fair value of such instruments is determined using techniques appropriate for each particular financial instrument. These techniques may involve some degree of judgment. The price

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transparency of the particular financial instrument will determine the degree of judgment involved in determining the fair value of the Company’s financial instruments. Price transparency is affected by a wide variety of factors, including the type of financial instrument, whether it is a new financial instrument and not yet established in the marketplace, and the characteristics particular to the transaction. Financial instruments for which actively quoted prices or pricing parameters are available or for which fair value is derived from actively quoted prices or pricing parameters will generally have a higher degree of price transparency. By contrast, financial instruments that are thinly traded or not quoted will generally have diminished price transparency. Even in normally active markets, the price transparency for actively quoted instruments may be reduced during periods of market dislocation. Alternatively, in thinly quoted markets, the participation of market makers willing to purchase and sell a financial instrument provides a source of transparency for products that otherwise are not actively quoted.

Income Taxes

At ~~September~~June 30, ~~2017,~~2021, the Company’s deferred income taxes were in a net ~~asset~~liability position mainly due to deferred tax ~~assets~~liabilities generated by ~~unearned premiums, alternative minimum tax credit carryforwards, expense accruals and loss reserve discounting.~~unrealized gains on securities held. These deferred tax ~~assets~~liabilities were substantially offset by deferred tax ~~liabilities~~assets resulting from ~~deferred acquisition costs~~unearned premiums, loss reserve discounting, and ~~unrealized gains on securities held.~~expense accruals. The Company assesses the likelihood that its deferred tax assets will be realized and, to the extent management does not believe these assets are more likely than not to be realized, a valuation allowance is established. Management’s recoverability assessment of the Company’s deferred tax assets which are ordinary in character takes into consideration the Company’s strong history of generating ordinary taxable income and a reasonable expectation that it will continue to generate ordinary taxable income in the future. Further, the Company has the capacity to recoup its ordinary deferred tax assets through tax loss carryback claims for taxes paid in prior years. Finally, the Company has various deferred tax liabilities that represent sources of future ordinary taxable income.

Management’s recoverability assessment with regard to its capital deferred tax assets is based on estimates of anticipated capital gains, tax-planning strategies available to generate future taxable capital gains, and the Company’s capacity to absorb capital losses carried back to prior years, each of which would contribute to the realization of deferred tax benefits. The Company has significant unrealized gains in its investment portfolio that could be realized through asset dispositions, at management’s discretion. In addition, the Company expects to hold certain debt securities, which are currently in loss positions, to recovery or maturity. Management believes unrealized losses related to these debt securities, which represent a portion of the unrealized loss positions at period-end, are fully realizable at maturity. Management believes its long-term time horizon for holding these securities allows it to avoid any forced sales prior to maturity. Further, the Company has the capability to generate additional realized capital gains by entering into sale-leaseback transactions using one or more of its appreciated real estate holdings. Finally, the Company has the capacity to recoup capital deferred tax assets through tax capital loss carryback claims for taxes paid within permitted carryback periods.

The Company has the capability to implement tax planning strategies as it has a steady history of generating positive cash flows from operations and believes that its liquidity needs can be met in future periods without the forced sale of its investments. This capability assists management in controlling the timing and amount of realized losses generated during future periods. By prudent utilization of some or all of these strategies, management has the intent and believes that it has the ability to generate capital gains and minimize tax losses in a manner sufficient to avoid losing the benefits of its deferred tax assets. Management will continue to assess the need for a valuation allowance on a quarterly basis. Although realization is not assured, management believes it is more likely than not that the Company’s deferred tax assets will be realized.

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, ~~other~~ non-deductible expenses, and periodically, non-routine tax items such as adjustments to unrecognized tax benefits related to tax uncertainties. ~~The~~Tax-exempt investment income of approximately $38 million coupled with pre-tax income of approximately $268 million resulted in an effective tax rate of 19.3%, below the statutory tax rate of 21%, for the ~~nine~~six months ended ~~September~~June 30, 2017 was 20.6%, compared to 18.7% for the same period in 2016. The increase in the effective tax rate was principally due to an increase of $35.6 million in total pre-tax income for the nine months ended September 30, 2017 compared to the same period in 2016,2021, while tax-exempt investment income ~~a component~~ of approximately $39 million coupled with pre-tax income ~~remained relatively consistent. The Company's~~of approximately $105 million resulted in a lower effective tax rate of 15.0% for the ~~nine months ended September 30, 2017 was lower than the statutory tax rate primarily as a result of tax-exempt investment income earned.~~corresponding period in 2020.

Contingent Liabilities

The Company has known, and may have unknown, potential liabilities which include claims, assessments, lawsuits, or regulatory fines and penalties relating to the Company’s business. The Company continually evaluates these potential liabilities and accrues for them and/or discloses them in the notes to the consolidated financial statements where required. The Company does not believe that the ultimate resolution of currently pending legal or regulatory proceedings, either individually or in the

aggregate, will have a material adverse effect on its financial condition ~~results of operations,~~ or cash flows. See "Regulatory and Legal Matters" above and Note 12. Contingenciesof the Notes to Consolidated Financial Statements.

~~Premiums~~

~~The Company’s insurance premiums are recognized as income ratably over the term~~

Table of the policies and in proportion to the amount of insurance protection provided. Unearned premiums are carried as a liability on the consolidated balance sheets and are computed monthly on a pro-rata basis. The Company evaluates its unearned premiums periodically for premium deficiencies by comparing the sum of expected claim costs, unamortized acquisition costs, and maintenance costs partially offset by investment income to related unearned premiums. To the extent that any of the Company’s lines of insurance business become unprofitable, a premium deficiency reserve may be required.Contents

RESULTS OF OPERATIONS

Three Months Ended ~~September~~June 30, ~~2017~~2021 Compared to Three Months Ended ~~September~~June 30, ~~2016~~2020

Revenues

Net premiums earned and net premiums written for the three months ended ~~September~~June 30, ~~2017~~2021 increased ~~1.3%~~14.2% and ~~2.4%~~16.9%, respectively, from the corresponding period in ~~2016.~~2020. The ~~increases~~Company's net premiums earned and written for the second quarter of 2020 were each reduced by approximately $106 million due to premium refunds and credits to its eligible policyholders associated with the "Mercury Giveback" program for reduced driving and business activities following the outbreak of the COVID-19 pandemic. The increase in net premiums earned and net premiums written ~~were~~for the three months ended June 30, 2021 compared to the corresponding period in 2020 was primarily due to these premium refunds and credits in the second quarter of 2020, higher average premiums per policy arising from rate increases in the California ~~private passenger automobile~~homeowners line of insurance business, and growth in the number of homeowners policies written, partially offset by a decrease in ~~California.~~the number of private passenger automobile policies written. Excluding premium refunds and credits in the second quarter of 2020, net premiums earned and net premiums written for the three months ended June 30, 2021 increased 1.0% and 3.5%, respectively, from the corresponding period in 2020.

Net premiums earned included ceded premiums earned of $15.6 million and $11.8 million for the three months ended June 30, 2021 and 2020, respectively. Net premiums written included ceded premiums written of $15.8 million and $10.0 million for the three months ended June 30, 2021 and 2020, respectively. The increase in ceded premiums earned and ceded premiums written for the three months ended June 30, 2021 compared to the corresponding period in 2020 resulted mostly from higher reinsurance coverage and rates and growth in the covered book of business.

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~~net of any applicable reinsurance. Net premiums written is a statutory measure designed to determine production levels.

The following is a reconciliation of ~~total~~ net premiums earned to net premiums written:


	Three Months Ended June 30,
	2021		2020

	(Amounts in thousands)
Net premiums earned	$	926,820	$	811,898
Change in net unearned premiums	30,522		7,014
Net premiums written	$	957,342	$	818,912

Three Months Ended September 30,
2017 2016

(Amounts in thousands)
Net premiums earned $ 801,205
$ 790,850
Change in net unearned premium 26,214
17,525
Net premiums written $ 827,419
$ 808,375

Expenses

Loss and expense ratios are used to interpret the underwriting experience of property and casualty insurance companies. The following table presents the Insurance Companies’ loss, expense, and combined ratios determined in accordance with GAAP:


	Three Months Ended June 30,
	2021		2020

Loss ratio	70.9	%	61.0	%
Expense ratio	23.9	%	27.2	%
Combined ratio (1)	94.9	%	88.2	%

Three Months Ended September 30,
2017 2016

Loss ratio 74.3 % 72.9 %
Expense ratio 25.0 % 25.2 %
Combined ratio 99.3 %
98.1 %
__________

(1) Combined ratio for the three months ended June 30, 2021 does not sum due to rounding.

Loss ratio is calculated by dividing losses and loss adjustment expenses by net premiums earned. The ~~Company's~~ loss ratio for the second quarter of 2021 and 2020 was affected by favorable development of approximately $14 million and unfavorable development of approximately $4$12 million, ~~and $7 million~~respectively, on prior accident years' loss ~~reserves for the third quarter of 2017~~ and ~~2016, respectively.~~loss adjustment expense reserves. The ~~majority of the unfavorable~~favorable development for the ~~third~~second quarter of ~~2017~~2021 was primarily attributable to lower than estimated losses and loss adjustment expenses in the commercial property and private passenger automobile lines of insurance business. The unfavorable

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development for the second quarter of 2020 was primarily attributable to higher than estimated ~~California~~losses and loss adjustment expenses in the commercial automobile, ~~losses, while the majority~~homeowners and Florida private passenger automobile lines of ~~the unfavorable development for the third quarter of 2016 was from the re-estimation of losses for California automobile liability coverages.~~ insurance business.

In addition, the ~~2017~~2021 loss ratio was negatively impacted by approximately ~~$19~~$25 million of catastrophe losses, primarily due to ~~the impact of Hurricane Harvey~~extreme weather events in Texas and ~~Hurricane Irma~~Oklahoma and winter storms in ~~Florida and Georgia.~~California. There was no development on prior years' catastrophe losses for the three months ended June 30, 2021. The ~~2016~~2020 loss ratio was ~~also~~ negatively impacted by ~~a total~~approximately $14 million of $4catastrophe losses, excluding favorable development of approximately $2 million ofon prior years' catastrophe losses, primarily due to ~~the Sand Fire in Southern~~extreme weather events outside of California.

Excluding the effect of estimated prior ~~accident years'~~periods’ loss development and catastrophe losses, the loss ratio was ~~71.4%~~69.7% and ~~71.5%~~57.8% for the ~~third~~second quarter of ~~2017~~2021 and ~~2016,~~2020, respectively. The increase in the loss ratio was primarily due to an increase in loss frequency in the private passenger automobile line of insurance business, partially offset by higher average premiums per policy arising from rate increases in the California homeowners line of insurance business and a decrease in net premiums earned for the second quarter of 2020 related to premium refunds and credits under the "Mercury Giveback" program as described above. After bottoming out in the second quarter of 2020 since the start of the COVID-19 pandemic, loss frequency steadily increased through the end of 2020, and after a brief pause in the first quarter of 2021, it re-accelerated in the second quarter of 2021.

Expense ratio is calculated by dividing the sum of policy acquisition costs and other operating expenses by net premiums earned. The ~~2017~~ expense ratio for the three months ended June 30, 2021 decreased compared to the ~~2016 expense ratio. Policy acquisition costs for the third quarter of 2017 was lower compared to the same~~corresponding period in ~~2016, while~~2020, largely due to a decrease in net premiums earned for the ~~third~~second quarter of ~~2017 was higher compared~~2020 related to premium refunds and credits under the ~~same period~~"Mercury Giveback" program as described above, without a corresponding decrease in ~~2016.~~policy acquisition costs and other operating expenses. The Company did not recoup commissions from its agents on the premiums returned to its eligible policyholders under the "Mercury Giveback" program. In addition, expenses for profitability-related accruals and allowance for credit losses on premiums receivable decreased.

Combined ratio is equal to loss ratio plus expense ratio and is the key measure of underwriting performance traditionally used in the property and casualty insurance industry. A combined ratio under 100% generally reflects profitable underwriting results, and a combined ratio over 100% generally reflects unprofitable underwriting results.

Income tax expense was ~~$11.8~~$26.2 million and ~~$4.7~~$57.3 million for the three months ended ~~September~~June 30, ~~2017~~2021 and ~~2016,~~2020, respectively. The ~~$7.1 million increase~~decrease in income tax expense was primarily due to a ~~$26.6~~$150.1 million ~~increase~~decrease in total pre-tax ~~income, while tax-exempt~~income. Tax-exempt investment income, a component of total pre-tax income, remained relatively ~~unchanged compared to~~steady with the ~~same~~corresponding period in ~~2016.~~2020.

Investments

The following table presents the investment results of the Company:


	Three Months Ended September 30,							Three Months Ended June 30,
	2017			2016				2021			2020

	(Dollars in thousands)							(Dollars in thousands)
Average invested assets at cost ⁽¹⁾	$	3,630,223		$	3,391,752		Average invested assets at cost (1)	$	4,657,097		$	4,220,468
Net investment income ⁽²⁾							Net investment income (2)
Before income taxes	$	30,988		$	30,371		Before income taxes	$	30,953		$	34,166
After income taxes	$	27,071		$	26,777		After income taxes	$	27,676		$	30,435
Average annual yield on investments ⁽²⁾							Average annual yield on investments (2)
Before income taxes	3.4		%	3.6		%	Before income taxes	2.7		%	3.2		%
After income taxes	3.0		%	3.2		%	After income taxes	2.4		%	2.9		%
Net realized investment gains (losses)	$	20,718		$	(15,465	)
Net realized investment gains							Net realized investment gains	$	58,805		$	158,426

__________


⁽¹⁾	Fixed maturities and short-term bonds at amortized cost; equities and other short-term investments at cost. Average invested assets at cost are based on the monthly amortized cost of the invested assets for each period.

⁽²⁾

Average annual yield on investments before and after income taxes decreased slightly, primarily due to the maturity and replacement of higher yielding investments purchased when market interest rates were higher, with lower yielding investments purchased during low interest rate environments. The higher net investment income before and after income taxes resulted from higher average invested assets.

(1) Fixed maturities and short-term bonds at amortized cost; equities and other short-term investments at cost. Average invested assets at cost are based on the monthly amortized cost of the invested assets for each period.

(2) Lower net investment income before and after income taxes for the three months ended June 30, 2021 compared to the corresponding period in 2020 resulted largely from a lower average yield on investments, partially offset by higher average invested assets. Average annual yield on investments before and after income taxes for the three months ended June 30, 2021 decreased compared to the corresponding period in 2020, primarily due to the maturity and replacement of higher yielding investments purchased when market interest rates were higher with lower yielding investments, as a result of

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decreasing market interest rates.

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


	Three Months Ended June 30, 2021
	Gains (Losses) Recognized in Net Income
	Sales		Changes in fair value		Total

	(Amounts in thousands)
Net realized investment gains (losses)
Fixed maturity securities (1)(2)	$	(239)	$	12,448	$	12,209
Equity securities (1)(3)	13,691		32,421		46,112
Short-term investments (1)	235		(59)		176
Note receivable (1)	—		(15)		(15)
Options sold	491		(168)		323
Total	$	14,178	$	44,627	$	58,805

Three Months Ended September 30, 2017
Gains (Losses) Recognized in Net Income
Sales
Changes in fair value
Total

(Amounts in thousands)
Net realized investment gains (losses)

Fixed maturity securities ⁽¹⁾⁽²⁾
$ (476 ) $ 9,796
$ 9,320
Equity securities ⁽¹⁾⁽³⁾
2,919
7,765
10,684
Short-term investments ⁽¹⁾
(8 ) 150
142
Note receivable ⁽¹⁾
—
(103 ) (103 )
Total return swaps (18 ) 136
118
Options sold 580
(23 ) 557
Total $ 2,997
$ 17,721
$ 20,718


	Three Months Ended September 30, 2016										Three Months Ended June 30, 2020
	Gains (Losses) Recognized in Net Income										Gains (Losses) Recognized in Net Income
	Sales			Changes in fair value			Total				Sales		Changes in fair value		Total

	(Amounts in thousands)										(Amounts in thousands)
Net realized investment gains (losses)										Net realized investment gains (losses)
Fixed maturity securities ⁽¹⁾⁽²⁾	$	231		$	(19,521	)	$	(19,290	)	Fixed maturity securities (1)(2)	$	(2,040)	$	50,251	$	48,211
Equity securities ⁽¹⁾⁽³⁾	762			(2,143		)	(1,381		)	Equity securities (1)(3)	(13,159)		111,940		98,781
Short-term investments ⁽¹⁾	(528		)	532			4			Short-term investments (1)	(2,148)		4,639		2,491
Total return swaps	(500		)	4,672			4,172
Note receivable (1)										Note receivable (1)	—		(1)		(1)
Options sold	1,024			6			1,030			Options sold	8,189		755		8,944
Total	$	989		$	(16,454	)	$	(15,465	)	Total	$	(9,158)	$	167,584	$	158,426

__________


⁽¹⁾	~~The changes in fair value of the investment portfolio and note receivable resulted from the application of the fair value option.~~


⁽²⁾	The increases in fair value of fixed maturity securities during the third quarter of 2017 were primarily due to the overall improvement in the market conditions affecting fixed maturity securities. The decreases in fair value in the third quarter of 2016 were primarily caused by the overall increase in market interest rates.


⁽³⁾	The increases in fair value of equity securities during the third quarter of 2017 compared to the decreases during the third quarter of 2016 were primarily due to the overall improvement in the equity markets during the third quarter of 2017 compared to the relative decline in the equity markets during the third quarter of 2016.

(1)The changes in fair value of the investment portfolio and note receivable resulted from application of the fair value option.

(2)The increase in fair value of fixed maturity securities for the second quarter of 2021 primarily resulted from decreases in market interest rates. The increase in fair value of fixed maturity securities for the second quarter of 2020 primarily resulted from the overall improvement in fixed maturity securities markets in the second quarter of 2020, following the overall market disruptions and dislocations in the first quarter of 2020 attributable to the outbreak of the COVID-19 pandemic.

(3)The primary cause for the increase in fair value of equity securities for the second quarter of 2021 was the overall improvement in equity markets. The primary cause for the increase in fair value of equity securities for the second quarter of 2020 was the overall improvement in equity markets in the second quarter of 2020, following the overall market disruptions and dislocations in the first quarter of 2020 attributable to the outbreak of the COVID-19 pandemic.

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Net Income


	Three Months Ended June 30,
	2021		2020

	(Amounts in thousands, except per share data)
Net income	$	109,181	$	228,211
Basic average shares outstanding	55,371		55,358
Diluted average shares outstanding	55,376		55,358
Basic Per Share Data:
Net income	$	1.97	$	4.12
Net realized investment gains, net of tax	$	0.84	$	2.26
Diluted Per Share Data:
Net income	$	1.97	$	4.12
Net realized investment gains, net of tax	$	0.84	$	2.26

Three Months Ended September 30,
2017 2016

(Amounts in thousands, except per share data)
Net income $ 46,485
$ 26,930
Basic average shares outstanding 55,324
55,259
Diluted average shares outstanding 55,334
55,328
Basic Per Share Data:
Net income $ 0.84
$ 0.49
Net realized investment gains (losses), net of tax $ 0.24
$ (0.18 )
Diluted Per Share Data:
Net income $ 0.84
$ 0.49
Net realized investment gains (losses), net of tax $ 0.24
$ (0.18 )

~~Nine~~Six Months Ended ~~September~~June 30, ~~2017~~2021 Compared to ~~Nine~~Six Months Ended ~~September~~June 30, ~~2016~~2020

Revenues

Net premiums earned and net premiums written for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 increased ~~2.2%~~6.2% and ~~2.1%~~7.6%, respectively, from the corresponding period in ~~2016.~~2020. The ~~increases~~Company's net premiums earned and written for the first half of 2020 were each reduced by approximately $106 million due to premium refunds and credits to its eligible policyholders associated with the "Mercury Giveback" program for reduced driving and business activities following the outbreak of the COVID-19 pandemic. The increase in net premiums earned and net premiums written ~~were~~for the six months ended June 30, 2021 compared to the corresponding period in 2020 was primarily due to these premium refunds and credits in the second quarter of 2020, higher average premiums per policy arising from rate increases in the California ~~private passenger automobile~~homeowners line of insurance business, and growth in the number of homeowners policies written, partially offset by a decrease in ~~California.~~the number of private passenger automobile policies written. Excluding premium refunds and credits in the second quarter of 2020, net premiums earned and net premiums written for the six months ended June 30, 2021 increased 0.1% and 1.5%, respectively, from the corresponding period in 2020.

Net premiums earned included ceded premiums earned of $31.2 million and $25.6 million for the six months ended June 30, 2021 and 2020, respectively. Net premiums written included ceded premiums written of $31.4 million and $21.4 million for the six months ended June 30, 2021 and 2020, respectively. The increase in ceded premiums earned and ceded premiums written for the six months ended June 30, 2021 compared to the corresponding period in 2020 resulted mostly from higher reinsurance coverage and rates and growth in the covered book of business.

The following is a reconciliation of net premiums earned to net premiums written:


	Six Months Ended June 30,
	2021		2020

	(Amounts in thousands)
Net premiums earned	$	1,842,741	$	1,734,471
Change in net unearned premiums	64,983		38,656
Net premiums written	$	1,907,724	$	1,773,127

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Nine Months Ended September 30,
2017 2016

(Amounts in thousands)
Net premiums earned $ 2,388,641
$ 2,337,256
Change in net unearned premiums 48,022
50,453
Net premiums written $ 2,436,663
$ 2,387,709
Expenses

~~Expenses~~

The following table presents the Insurance Companies’ loss, expense, and combined ratios determined in accordance with GAAP:


	Six Months Ended June 30,
	2021		2020

Loss ratio	69.7	%	66.1	%
Expense ratio	24.5	%	26.2	%
Combined ratio	94.2	%	92.3	%

Nine Months Ended September 30,
2017 2016

Loss ratio 75.0 % 75.5 %
Expense ratio 25.1 % 25.7 %
Combined ratio 100.1 % 101.2 %

The ~~Company's~~ loss ratio for the first half of 2021 and 2020 was affected by favorable development of approximately $15 million and unfavorable development of approximately ~~$18~~$27 million, ~~and $69 million~~respectively, on prior accident years' loss ~~reserves~~and loss adjustment expense reserves. The favorable development for the ~~nine months ended September 30, 2017~~first half of 2021 was primarily attributable to lower than estimated losses and ~~2016, respectively.~~loss adjustment expenses in the commercial property and private passenger automobile lines of insurance business, partially offset by unfavorable development in the commercial automobile line of insurance business. The ~~majority of the~~ unfavorable development for the ~~nine months ended September 30, 2017 resulted from~~first half of 2020 was primarily attributable to higher than estimated ~~California~~losses and loss adjustment expenses in the commercial automobile, ~~and property losses, while the unfavorable development for the nine months ended September 30, 2016 was largely attributable to the re-estimation of losses for California~~homeowners and Florida private passenger automobile ~~liability coverages.~~ lines of insurance business.

In addition, the ~~2017~~2021 loss ratio was negatively impacted by ~~a total~~approximately $64 million of ~~$59~~catastrophe losses, excluding favorable development of approximately $4 million ofon prior years' catastrophe losses, primarily due to ~~severe rainstorms in California,~~ the ~~impact of Hurricane Harvey~~deep freeze and other extreme weather events in Texas and ~~Hurricane Irma in Florida and Georgia, and storms and tornadoes in~~ Oklahoma and ~~Texas.~~winter storms in California. The ~~Winter of 2017 was extremely wet in California, setting new precipitation records in parts of the state. The 2016~~2020 loss ratio was ~~also~~ negatively impacted by ~~a total~~approximately $18 million of ~~$23~~catastrophe losses, excluding favorable development of approximately $4 million ofon prior years' catastrophe losses, primarily due to ~~severe storms in Texas and in Northern~~extreme weather events outside of California and ~~claims from the Sand Fire~~windstorms in ~~Southern~~ California.

Excluding the effect of estimated prior ~~accident years'~~periods’ loss development and catastrophe losses, the loss ratio was ~~71.7%~~67.0% and ~~71.6%~~63.5% for the ~~nine months ended September 30, 2017~~first half of 2021 and ~~2016,~~2020, respectively.

The ~~2017 expense~~increase in the loss ratio ~~decreased compared~~was primarily due to an increase in loss frequency and severity in the ~~2016 expense ratio. Policy acquisition costs~~private passenger automobile line of insurance business, partially offset by higher average premiums per policy arising from rate increases in the California homeowners line of insurance business and ~~advertising expenses for the nine months ended September 30, 2017 were lower compared to the same period~~a decrease in ~~2016, while~~ net premiums earned for the ~~nine~~first half of 2020 related to premium refunds and credits under the "Mercury Giveback" program as described above. After bottoming out in the second quarter of 2020 since the start of the COVID-19 pandemic, loss frequency steadily increased through the end of 2020, and after a brief pause in the first quarter of 2021, it re-accelerated in the second quarter of 2021.

The expense ratio for the six months ended ~~September~~June 30, ~~2017 was higher~~2021 decreased compared to the ~~same~~corresponding period in ~~2016.~~2020, largely due to a decrease in net premiums earned for the first half of 2020 related to premium refunds and credits under the "Mercury Giveback" program as described above, without a corresponding decrease in policy acquisition costs and other operating expenses. The Company did not recoup commissions from its agents on the premiums returned to its eligible policyholders under the "Mercury Giveback" program. In addition, expenses for profitability-related accruals and allowance for credit losses on premiums receivable decreased.

Income tax expense was ~~$32.5~~$51.6 million and ~~$22.9~~$15.8 million for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2021 and ~~2016,~~2020, respectively. The ~~$9.6 million~~ increase in income tax expense was primarily due to a ~~$35.6~~$163.1 million increase in total pre-tax ~~income, while tax-exempt~~income. Tax-exempt investment income, a component of total pre-tax income, remained relatively ~~unchanged compared to~~steady with the ~~same~~corresponding period in ~~2016.~~2020.

Table of Contents

Investments

The following table presents the investment results of the Company:


	Nine Months Ended September 30,							Six Months Ended June 30,
	2017			2016				2021			2020

	(Dollars in thousands)							(Dollars in thousands)
Average invested assets at cost ⁽¹⁾	$	3,563,855		$	3,359,037		Average invested assets at cost (1)	$	4,590,386		$	4,218,721
Net investment income ⁽²⁾							Net investment income (2)
Before income taxes	$	94,058		$	91,440		Before income taxes	$	63,232		$	68,661
After income taxes	$	82,381		$	80,365		After income taxes	$	56,460		$	60,968
Average annual yield on investments ⁽²⁾							Average annual yield on investments (2)
Before income taxes	3.5		%	3.6		%	Before income taxes	2.8		%	3.3		%
After income taxes	3.1		%	3.2		%	After income taxes	2.5		%	2.9		%
Net realized investment gains	$	66,334		$	54,973
Net realized investment gains (losses)							Net realized investment gains (losses)	$	100,496		$	(92,894)



California		95-2211612
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

4484 Wilshire Boulevard ~~Los Angeles, California~~		~~90010~~
Los Angeles,	California	90010
(Address of principal executive offices)		(Zip Code)


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock	MCY	New York Stock Exchange




	Page
PART I - FINANCIAL INFORMATION

Item 1		Financial Statements	3
		Consolidated Balance Sheets as of ~~September 30, 2017~~June 3 0 , 2021 and December 31, ~~2016~~2020	3
		Consolidated Statements of Operations for the Three and ~~Nine~~ Six Months Ended ~~September, 2017~~June 3 0 , 2021 and ~~2016~~2020	4
		Consolidated Statements of Shareholders’ Equity for the Three and Six Months Ended June 30 , 2021 and 2020	5
		Consolidated Statements of Cash Flows for the ~~Nine~~Six Months Ended ~~September~~June 30 ~~2017~~, 2021 and ~~2016~~2020	56
		Notes to Consolidated Financial Statements	67
Item 2		Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3		Quantitative and Qualitative Disclosures about Market Risks	4246
Item 4		Controls and Procedures	4348

PART II - OTHER INFORMATION

Item 1		Legal Proceedings	4448
Item 1A		Risk Factors	4449
Item 2		Unregistered Sales of Equity Securities and Use of Proceeds	4549
Item 3		Defaults upon Senior Securities	4549
Item 4		Mine Safety Disclosures	4549
Item 5		Other Information	4549
Item 6		Exhibits	4550

SIGNATURES			4651


	June 30, 2021		December 31, 2020
	(unaudited)
ASSETS
Investments, at fair value:
Fixed maturity securities (amortized cost $3,595,994; $3,388,418)	$	3,761,777	$	3,549,810
Equity securities (cost $694,913; $695,150)	870,556		803,851
Short-term investments (cost $409,400; $376,547)	408,471		375,609
Total investments	5,040,804		4,729,270
Cash	378,615		348,479
Receivables:
Premiums	621,704		599,070
Allowance for credit losses on premiums receivable	(6,000)		(10,000)
Premiums receivable, net of allowance for credit losses	615,704		589,070
Accrued investment income	40,760		42,985
Other	10,309		10,730
Total receivables	666,773		642,785
Reinsurance recoverables	52,705		48,579
Allowance for credit losses on reinsurance recoverables	0		(91)
Reinsurance recoverables, net of allowance for credit losses	52,705		48,488
Deferred policy acquisition costs	250,823		246,994
Fixed assets (net of accumulated depreciation $296,747; $286,023)	181,969		178,923
Operating lease right-of-use assets	36,896		40,554
Current income taxes	623		0
Goodwill	42,796		42,796
Other intangible assets, net	10,789		11,322
Other assets	34,155		38,635
Total assets	$	6,696,948	$	6,328,246
LIABILITIES AND SHAREHOLDERS’ EQUITY
Loss and loss adjustment expense reserves	$	2,091,015	$	1,991,304
Unearned premiums	1,471,124		1,405,873
Notes payable	372,732		372,532
Accounts payable and accrued expenses	195,973		194,421
Operating lease liabilities	39,874		43,825
Current income taxes	0		10,426
Deferred income taxes	52,616		41,132
Other liabilities	294,983		236,136
Total liabilities	4,518,317		4,295,649
Commitments and contingencies	0		0
Shareholders’ equity:
Common stock without par value or stated value: Authorized 70,000 shares; issued and outstanding 55,371; 55,358	98,872		98,970
Retained earnings	2,079,759		1,933,627
Total shareholders’ equity	2,178,631		2,032,597
Total liabilities and shareholders’ equity	$	6,696,948	$	6,328,246



	September 30, 2017		December 31, 2016
	(unaudited)
ASSETS
Investments, at fair value:
Fixed maturity securities (amortized cost $2,776,887; $2,795,410)	$	2,841,736	$	2,814,553
Equity securities (cost $479,410; $331,770)	519,194		357,327
Short-term investments (cost $366,512; $375,700)	366,402		375,680
Total investments	3,727,332		3,547,560
Cash	284,639		220,318
Receivables:
Premium	485,868		459,152
Accrued investment income	42,535		41,205
Other	18,041		24,635
Total receivables	546,444		524,992
Deferred policy acquisition costs	201,919		200,826
Fixed assets (net of accumulated depreciation $335,477; $319,429)	144,478		155,910
Deferred income taxes	30,339		45,277
Goodwill	42,796		42,796
Other intangible assets, net	21,611		25,625
Other assets	26,041		25,414
Total assets	$	5,025,599	$	4,788,718
LIABILITIES AND SHAREHOLDERS’ EQUITY
Loss and loss adjustment expense reserves	$	1,372,164	$	1,290,248
Unearned premiums	1,119,973		1,074,437
Notes payable	371,236		320,000
Accounts payable and accrued expenses	130,825		112,334
Current income taxes	13,173		9,962
Other liabilities	242,037		229,335
Total liabilities	3,249,408		3,036,316
Commitments and contingencies
Shareholders’ equity:
Common stock without par value or stated value: Authorized 70,000 shares; issued and outstanding 55,332; 55,289	97,523		95,529
Retained earnings	1,678,668		1,656,873
Total shareholders’ equity	1,776,191		1,752,402
Total liabilities and shareholders’ equity	$	5,025,599	$	4,788,718


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



Level 1			Unadjusted quoted prices are available in active markets for identical assets or liabilities as of the reporting date.
Level 2			Pricing inputs are other than quoted prices in active markets, which are based on the following: • Quoted prices for similar assets or liabilities in active markets; • Quoted prices for identical or similar assets or liabilities in non-active markets; or • Either directly or indirectly observable inputs as of the reporting date.
Level 3			Pricing inputs are unobservable and significant to the overall fair value measurement, and the determination of fair value requires significant management judgment or estimation.


	Private Equity Fund
	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020

	(Amounts in thousands)
Beginning balance	$	0	$	0	$	0	$	1,203
Realized losses included in earnings	0		0		0		(1)
Settlements	0		0		0		0
Transfer out (1)	0		0		0		(1,202)
Ending balance	$	0	$	0	$	0	$	0
The amount of total gains or losses for the period included in earnings attributable to assets still held at June 30	$	0	$	0	$	0	$	0



	Private Equity Funds
	Three Months Ended September 30,					Nine Months Ended September 30,
	2017			2016		2017			2016

	(Amounts in thousands)
Beginning balance	$	8,764		$	8,972	$	9,068		$	10,431
Realized (losses) gains included in earnings	(80		)	564		(384		)	(895		)
Ending balance	$	8,684		$	9,536	$	8,684		$	9,536
The amount of total (losses) gains for the period included in earnings attributable to assets still held at September 30	$	(80	)	$	564	$	(384	)	$	(895	)


	June 30, 2021
	Carrying Value		Fair Value		Level 1		Level 2		Level 3

	(Amounts in thousands)
Liabilities
Notes payable:
Unsecured notes	$	372,732	$	423,236	$	0	$	423,236	$	0


	Derivatives
	June 30, 2021		December 31, 2020

	(Amount in thousands)
Options sold - Other liabilities	$	167	$	0
Total	$	167	$	0



	Asset Derivatives				Liability Derivatives
	September 30, 2017		December 31, 2016		September 30, 2017		December 31, 2016

	(Amounts in thousands)
Total return swaps - Other assets	$	—	$	667	$	—	$	—
Options sold - Other liabilities	—		—		146		20
Total return swaps - Other liabilities	—		—		1,589		765
Total derivatives	$	—	$	667	$	1,735	$	785


	Gains Recognized in Net Income
	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020

	(Amounts in thousands)
Options sold - Net realized investment gains (losses)	$	323	$	8,944	783		10,656
Total	$	323	$	8,944	$	783	$	10,656



	Gains (Losses) Recognized in Income
	Three Months Ended September 30,				Nine Months Ended September 30,
	2017		2016		2017			2016

	(Amounts in thousands)
Total return swaps - Net realized investment gains (losses)	$	118	$	4,172	$	(2,535	)	$	7,915
Options sold - Net realized investment gains	557		1,030		1,857			3,324
Total	$	675	$	5,202	$	(678	)	$	11,239


	Six Months Ended June 30,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	216,176	$	89,007
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	36,842		32,982
Net realized investment (gains) losses	(100,496)		92,894
(Increase) decrease in premiums receivable	(26,634)		271
(Increase) decrease in reinsurance recoverables	(4,217)		28,566
Changes in current and deferred income taxes	435		(4,338)
Increase in deferred policy acquisition costs	(3,829)		(9,574)
Increase (decrease) in loss and loss adjustment expense reserves	99,711		(56,145)
Increase in unearned premiums	65,251		34,492
Increase in accounts payable and accrued expenses	375		48,778
Share-based compensation	70		70
Other, net	33,557		2,580
Net cash provided by operating activities	317,241		259,583
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed maturity securities available for sale in nature:
Purchases	(574,598)		(449,641)
Sales	86,022		106,986
Calls or maturities	225,650		84,238
Equity securities available for sale in nature:
Purchases	(434,406)		(680,955)
Sales	466,292		564,635
Calls	0		3,000
Changes in securities payable and receivable	32,107		(2,219)
(Increase) decrease in short-term investments	(1,126)		159,112
Purchases of fixed assets	(17,802)		(19,789)
Other, net	973		12,555
Net cash used in investing activities	(216,888)		(222,078)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid to shareholders	(70,044)		(69,750)
Proceeds from stock options exercised	215		0
Payments on finance lease obligations	(388)		0
Net cash used in financing activities	(70,217)		(69,750)
Net increase (decrease) in cash	30,136		(32,245)
Cash:
Beginning of the year	348,479		294,398


	Three Months Ended June 30,				Six Months Ended June 30,
	2021		2020		2021		2020
	(Amounts in thousands)
Premiums Written
Direct	$	963,418	$	823,031	$	1,910,024	$	1,772,775
Ceded	(15,785)		(10,041)		(31,428)		(21,399)
Assumed	218		205		12,887		7,835
Net	$	947,851	$	813,195	$	1,891,483	$	1,759,211
Premiums Earned
Direct	$	931,833	$	814,559	$	1,852,900	$	1,741,600
Ceded	(15,617)		(11,818)		(31,160)		(25,563)
Assumed	3,299		2,056		6,590		4,103
Net	$	919,515	$	804,797	$	1,828,330	$	1,720,140


	Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Useful Lives

	(Amounts in thousands)						(in years)
As of June 30, 2021:
Customer relationships	$	54,863	$	(52,853)	$	2,010	11
Trade names	15,400		(8,021)		7,379		24
Technology	4,300		(4,300)		0		10
Insurance license	1,400		—		1,400		Indefinite
Total other intangible assets, net	$	75,963	$	(65,174)	$	10,789

As of December 31, 2020:
Customer relationships	$	54,862	$	(52,640)	$	2,222	11
Trade names	15,400		(7,700)		7,700		24
Technology	4,300		(4,300)		0		10
Insurance license	1,400		—		1,400		Indefinite
Total other intangible assets, net	$	75,962	$	(64,640)	$	11,322



	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Useful Lives

	(Amounts in thousands)							(in years)
As of September 30, 2017:
Customer relationships	$	52,430	$	(42,542	)	$	9,888	11
Trade names	15,400		(5,615		)	9,785		24
Technology	4,300		(3,762		)	538		10
Insurance license	1,400		—			1,400		Indefinite
Total other intangible assets, net	$	73,530	$	(51,919	)	$	21,611

As of December 31, 2016:
Customer relationships	$	52,430	$	(39,332	)	$	13,098	11
Trade names	15,400		(5,133		)	10,267		24
Technology	4,300		(3,440		)	860		10
Insurance license	1,400		—			1,400		Indefinite
Total other intangible assets, net	$	73,530	$	(47,905	)	$	25,625


Year	Amortization Expense
	(Amounts in thousands)
Remainder of 2021	$	534
2022	1,043
2023	879
2024	851
2025	807
Thereafter	5,275
Total	$	9,389


Weighted-average grant-date fair value	$	8.09
Expected volatility	33.18		%
Risk-free interest rate	2.62		%
Expected dividend yield	5.40		%
Expected term in months	72



	Grant Year
	2016	2015
Three-year performance period ending December 31,	2018	2017
Vesting shares, target (net of forfeited)	84,750	87,250
Vesting shares, maximum (net of forfeited)	158,906	163,594



	Lender	Interest Rate	Maturity Date	September 30, 2017		December 31, 2016

				(Amounts in thousands)
Secured credit facility⁽¹⁾	Bank of America	LIBOR plus 40 basis points	December 3, 2018	$	—	$	120,000
Secured loan⁽¹⁾	Union Bank	LIBOR plus 40 basis points	December 3, 2017	—		20,000
Unsecured credit facility⁽¹⁾	Bank of America and Union Bank	LIBOR plus 112.5-162.5 basis points	December 3, 2019	—		180,000
Senior unsecured notes⁽²⁾	Publicly traded	4.40%	March 15, 2027	375,000		—
Unsecured credit facility⁽³⁾	Bank of America and Wells Fargo Bank	LIBOR plus 112.5-162.5 basis points	March 29, 2022	—		—
Total principal amount				375,000		320,000
Less unamortized discount and debt issuance costs⁽⁴⁾				3,764		—
Total debt				$	371,236	$	320,000



	Nine Months Ended September 30, 2017
	(Dollars in thousands)

	Private Passenger Automobile			Homeowners			Commercial Automobile			Other Lines			Total
California	$	1,592,750		$	301,810		$	75,194		$	82,867		$	2,052,621		83.8	%
Florida ⁽¹⁾	110,134			8			13,736			655			124,533			5.1	%
Other states ⁽²⁾	169,914			50,526			44,753			7,695			272,888			11.1	%
Total	$	1,872,798		$	352,344		$	133,683		$	91,217		$	2,450,042		100.0	%
	76.4		%	14.4		%	5.5		%	3.7		%	100.0		%



	Nine Months Ended September 30, 2016
	(Dollars in thousands)

	Private Passenger Automobile			Homeowners			Commercial Automobile			Other Lines			Total
California	$	1,551,442		$	279,295		$	64,359		$	78,456		$	1,973,552		82.2	%
Florida ⁽¹⁾	121,595			8			20,129			1,018			142,750			5.9	%
Other states ⁽²⁾	184,276			52,103			40,756			7,626			284,761			11.9	%
Total	$	1,857,313		$	331,406		$	125,244		$	87,100		$	2,401,063		100.0	%
	77.4		%	13.8		%	5.2		%	3.6		%	100.0		%



	Three Months Ended September 30, 2017
	Gains (Losses) Recognized in Net Income
	Sales			Changes in fair value			Total

	(Amounts in thousands)
Net realized investment gains (losses)
Fixed maturity securities ⁽¹⁾⁽²⁾	$	(476	)	$	9,796		$	9,320
Equity securities ⁽¹⁾⁽³⁾	2,919			7,765			10,684
Short-term investments ⁽¹⁾	(8		)	150			142
Note receivable ⁽¹⁾	—			(103		)	(103		)
Total return swaps	(18		)	136			118
Options sold	580			(23		)	557
Total	$	2,997		$	17,721		$	20,718


⁽³⁾	~~The increases in fair value of equity securities during the nine months ended September 30, 2017 and 2016 were primarily due to the overall improvement in the equity markets.~~


	Fixed Maturity Securities
	(Amounts in thousands)
Due in one year or less	$	407,133
Due after one year through two years	367,483
Due after two years through three years	131,316
Due after three years through four years	84,408
Due after four years through five years	165,224
Total due within five years	$	1,155,564


	Catastrophe Losses and LAE
	In Excess of		Up to		Percentage of Coverage

	(Amounts in millions)
Retained	$	—	$	40	—	%
Layer of Coverage	40		100		70
Layer of Coverage (1) (2)	100		450		100
Layer of Coverage (1) (3) (4) (5)	450		850		100


Treaty	Annual Premium (1)		Reinstatement Premium (2)		Total Combined Premium (2)

	(Amounts in millions)
For the 12 months ending June 30, 2022	$	55	$	—	$	55
For the 12 months ended June 30, 2021	$	50	$	—	$	50


	Cost ⁽¹⁾		Fair Value			Cost (1)		Fair Value

	(Amounts in thousands)					(Amounts in thousands)
Fixed maturity securities:					Fixed maturity securities:
U.S. government bonds and agencies	$	13,919	$	13,892
U.S. government bonds					U.S. government bonds	$	14,240	$	14,279
Municipal securities	2,423,154		2,483,750		Municipal securities	2,687,322		2,845,983
Mortgage-backed securities	31,941		32,726		Mortgage-backed securities	91,437		92,548
Corporate securities	159,555		161,883		Corporate securities	279,398		283,407
Collateralized loan obligations	93,443		94,325		Collateralized loan obligations	276,577		278,336
Other asset-backed securities	54,875		55,160		Other asset-backed securities	247,020		247,224
	2,776,887		2,841,736			3,595,994		3,761,777
Equity securities:					Equity securities:
Common stock	366,636		410,834		Common stock	541,404		733,546
Non-redeemable preferred stock	30,275		30,665		Non-redeemable preferred stock	52,429		54,211
Private equity funds	12,831		8,684
Private equity fund measured at net asset value ⁽²⁾	69,668		69,011
Private equity funds measured at net asset value (2)					Private equity funds measured at net asset value (2)	101,080		82,799
	479,410		519,194			694,913		870,556
Short-term investments	366,512		366,402		Short-term investments	409,400		408,471
Total investments	$	3,622,809	$	3,727,332	Total investments	$	4,700,307	$	5,040,804


(2) The fair value is measured using the NAV practical expedient. See Note 5. Fair Value Measurements of the Notes to Consolidated Financial Statements for additional information. ⁽¹⁾	~~Fixed maturities and short-term bonds at amortized cost; equities and other short-term investments at cost.~~


⁽²⁾	~~The fair value is measured using the NAV practical expedient. See Note 5. Fair Value Measurements of the Notes to Consolidated Financial Statements for additional information.~~


⁽¹⁾	~~Intermediate ratings are included at each level (e.g., AA includes AA+, AA and AA-).~~


States	Fair Value		Average Rating
	(Amounts in thousands)
Texas	$	335,487	AA-
Florida	280,849		A+
New York	271,870		AA-
Illinois	217,205		A
California	212,858		AA-
Other states	1,527,714		A+
Total	$	2,845,983


	June 30, 2021		December 31, 2020

	(Amounts in thousands, except average Beta)
Average Beta	1.13		1.11
Hypothetical reduction of 25% in the overall value of the stock market	$	207,227	$	191,970
Hypothetical reduction of 50% in the overall value of the stock market	$	414,453	$	383,939



15.1			Report of Independent Registered Public Accounting Firm.

15.2			Awareness Letter of Independent Registered Public Accounting Firm.

31.1			Certification of Registrant’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2			Certification of Registrant’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1			Certification of Registrant’s Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002. This certification is being furnished solely to accompany this Quarterly Report on Form 10-Q and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company.

32.2			Certification of Registrant’s Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002. This certification is being furnished solely to accompany this Quarterly Report on Form 10-Q and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company.

101.INS			XBRL Instance ~~Document.~~Document- the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCH			XBRL Taxonomy Extension Schema Document.

101.CAL			XBRL Taxonomy Extension Calculation Linkbase Document.

101.LAB			XBRL Taxonomy Extension Label Linkbase Document.

101.PRE			XBRL Taxonomy Extension Presentation Linkbase Document.

101.DEF			XBRL Taxonomy Extension Definition Linkbase Document.

104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).



	MERCURY GENERAL CORPORATION

Date: ~~October 31, 2017~~August 3, 2021	By:	/s/ Gabriel Tirador
		Gabriel Tirador
		President and Chief Executive Officer

Date: ~~October 31, 2017~~August 3, 2021	By:	/s/ Theodore R. Stalick
		Theodore R. Stalick
		Senior Vice President and Chief Financial Officer