MCY Q2 Earnings Beat on Better Underwriting and Premium Growth

MCY's Underwriting Margin Improves

Net premiums earned increased 9.6% year over year to $1.5 billion. Net premiums written rose 5.3% to $1.56 billion, while direct premiums written advanced 9.3% to $1.62 billion.

The combined ratio, a key measure of underwriting profitability, improved to 89.9% from 92.5% in the prior-year quarter. The loss ratio declined 380 basis points to 65%, more than offsetting a 120-basis-point increase in the expense ratio to 24.9%.

Mercury General benefited from approximately $35 million of favorable development on prior accident years’ loss and loss adjustment expense reserves. This compared with approximately $4 million of unfavorable development in the year-ago period.

Mercury General Faces Higher Catastrophe Losses

Catastrophe losses, net of reinsurance, totaled $75 million, up sharply from $13 million in the prior-year quarter. The increase reflected adverse reserve development related to the Palisades and Eaton wildfires, along with losses from storms in Texas and Oklahoma.

For the first six months of 2026, catastrophe losses totaled $168 million compared with $460 million a year earlier. The majority of 2026 losses included about $80 million of adverse development tied to the California wildfires and roughly $72 million from storms in Texas and Oklahoma.

The year-to-date combined ratio improved to 89.6% from 105.4%. On an accident-period basis, which excludes prior-period reserve development, the ratio improved to 91.1% from 107.2%.

MCY's Investment Income Advances

Net investment income before taxes increased 14% year over year to $89.8 million. After-tax investment income rose 16.1% to $76.6 million.

The increase was largely driven by average invested assets, which climbed 20.8% to $6.89 billion. However, the average annual pre-tax investment yield declined to 4.5% from 4.7%, primarily due to a greater allocation to tax-exempt securities carrying lower pre-tax yields.

Net realized investment gains before taxes increased to $86.5 million from $23.5 million. Including these gains, net income rose 58.3% to $263.5 million, or $4.76 per share, from $166.5 million, or $3.01 per share.

Mercury General's Expenses Increase

Total expenses rose 6.6% year over year to $1.35 billion. Loss and loss adjustment expenses increased 3.5% to $973.3 million.

Policy acquisition costs climbed 9.9% to $250.3 million, while other operating expenses increased 28% to $122.9 million. Interest expense rose 9.9% to $7.9 million.

Despite the higher expense base, income before taxes increased 58.3% to $327.3 million. Operating income, which excludes net realized investment gains, advanced 31.9% to $195.2 million.

MCY's Policy Count Maintains Growth

Total company-wide policies in force increased 4.2% from the 2025-end level to 2.36 million. Personal automobile policies rose 2.5% to 1.07 million.

Homeowners policies increased 6.2% to 938,000, while commercial automobile policies remained unchanged at 34,000. Policies across the company’s other insurance lines rose 4.6% to 318,000.

The continued expansion in policies supported premium growth across Mercury General’s predominantly personal automobile and homeowners insurance portfolio.

Mercury General Strengthens Balance Sheet

Mercury General ended June with total assets of $10.54 billion, up 10.3% from the 2025-end level. Cash increased 29.3% to $1.70 billion, while total investments rose 8.4% to $7.13 billion.

Shareholders’ equity climbed 17.3% to $2.84 billion. Book value per share increased to $51.20 from $43.64, while statutory surplus rose to $2.77 billion from $2.39 billion.

The reported debt-to-total-capital ratio increased to 25.1% from 19.2%. Following the July redemption of $375 million in senior notes, the June 30 ratio would have been 16.9%. The board also declared a quarterly dividend of 31.75 cents per share, to be paid out on Sept. 24, 2026, to shareholders of record as of Sept. 10.

Zacks Rank

MCY currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Industry Players

Selective Insurance Group, Inc. SIGI reported second-quarter 2026 operating earnings of $1.95 per share, which beat the Zacks Consensus Estimate by 13.4%. The bottom line increased 48.9% year over year. Revenues of $1.37 billion rose 4.5% from the year-ago quarter and topped the consensus estimate by 0.7%. 

Net premiums written declined 5% year over year to $1.22 billion due to a 6% decrease in Standard Commercial Lines, an 8% fall in Standard Personal Lines and a 2% decline in Excess and Surplus Lines. Our estimate was $1.33 billion. Net premiums earned increased 2.3%. Direct new business fell to $206.1 million from $248.1 million. Renewal pure price increases averaged 6.5%, down from 9.9% in the prior-year quarter.

AXIS Capital Holdings Limited AXS reported second-quarter 2026 operating income of $2.84 per share, which missed the Zacks Consensus Estimate of $3.23 and fell 12.1% year over year. Total operating revenues of $1.7 billion marginally missed the Zacks Consensus Estimate by 1%. The top line rose nearly 7.4% year over year on higher premiums earned.

Net premiums written decreased 1.8% to $1.6 billion, reflecting lower premiums in the Reinsurance segment, partially offset by growth in the Insurance segment. AXIS Capital’s underwriting income of $142.9 million decreased 24.5% year over year. The combined ratio deteriorated to 93.1 in the quarter from 88.9 a year ago, reflecting higher catastrophe and weather-related losses. The Zacks Consensus Estimate was pegged at 93.2. Our estimate was 93.8.

Cincinnati Financial Corporation CINF reported second-quarter 2026 operating income of $1.43 per share, which missed the Zacks Consensus Estimate by 21.4%. The bottom line declined 27.4% from the year-ago quarter. 

Total operating revenues for the quarter were $3 billion, reflecting a 6.8% year-over-year increase. The figure, however, missed the Zacks Consensus Estimate by 1.4%.

Earned premiums climbed 6.3% year over year to $2.6 billion, driven by higher renewal pricing, increased insured exposures and new business growth. The figure marginally missed the Zacks Consensus Estimate by 1.5%. The combined ratio deteriorated 550 basis points year over year, underperforming the consensus estimate of 97.1.

Research Chief Names "Single Best Pick to Double"

From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.

This company targets millennial and Gen Z audiences, generating nearly $1 billion in revenue last quarter alone. A recent pullback makes now an ideal time to jump aboard. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research