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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________
FORM 10-Q
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2024
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________    to ___________

Commission File No. 001-12257
 ______________________________
MERCURY GENERAL CORPORATION
(Exact name of registrant as specified in its charter)
 ________________________________
California95-2211612
(State or other jurisdiction of
incorporation or organization)		(I.R.S. Employer
Identification No.)
4484 Wilshire Boulevard
Los Angeles, California90010
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code: (323) 937-1060
 _______________________________
Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common StockMCYNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒    No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act. 
Large accelerated filer☒  Accelerated filer☐
Non-accelerated filer☐  Smaller reporting company☐
Emerging growth company☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in the Rule 12b-2 of the Exchange Act).    Yes ☐    No  ☒
At July 25, 2024, the registrant had issued and outstanding an aggregate of 55,371,127 shares of its Common Stock.



MERCURY GENERAL CORPORATION
INDEX TO FORM 10-Q
 
  Page
Item 1
Item 2
Item 3
Item 4
Item 1
Item 1A
Item 2
Item 3
Item 4
Item 5
Item 6
2
PART I - FINANCIAL INFORMATION
 
Item 1. Financial Statements

MERCURY GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)

June 30, 2024December 31, 2023
 (unaudited) 
ASSETS
Investments, at fair value:
Fixed maturity securities (amortized cost $4,748,424; $4,394,983)
$4,661,761 $4,319,336 
Equity securities (cost $724,364; $654,939)
815,924 730,693 
Short-term investments (cost $148,787; $179,375)
147,865 178,491 
Total investments5,625,550 5,228,520 
Cash609,333 550,903 
Receivables:
Premiums711,491 607,025 
       Allowance for credit losses on premiums receivable (6,000)(5,300)
             Premiums receivable, net of allowance for credit losses705,491 601,725 
Accrued investment income64,414 59,128 
Other33,662 25,603 
Total receivables803,567 686,456 
Reinsurance recoverables (net of allowance for credit losses $4; $12)
29,759 31,947 
Deferred policy acquisition costs326,859 293,844 
Fixed assets (net of accumulated depreciation $303,325; $302,557)
133,972 151,183 
Operating lease right-of-use assets14,220 14,406 
Current income taxes— 4,081 
Deferred income taxes34,753 33,013 
Goodwill42,796 42,796 
Other intangible assets, net8,129 8,333 
Other assets98,142 57,915 
Total assets$7,727,080 $7,103,397 
LIABILITIES AND SHAREHOLDERS’ EQUITY
Loss and loss adjustment expense reserves$2,976,403 $2,785,702 
Unearned premiums1,974,134 1,735,660 
Notes payable573,928 573,729 
Accounts payable and accrued expenses203,612 175,219 
Operating lease liabilities14,211 14,231 
Current income taxes1,469 — 
Other liabilities334,308 270,711 
Total liabilities6,078,065 5,555,252 
Commitments and contingencies
Shareholders’ equity:
Common stock without par value or stated value:
       Authorized 70,000 shares; issued and outstanding 55,371; 55,371
98,947 98,947 
 Retained earnings1,550,068 1,449,198 
Total shareholders’ equity1,649,015 1,548,145 
Total liabilities and shareholders’ equity$7,727,080 $7,103,397 

See accompanying Notes to Consolidated Financial Statements.
3
MERCURY GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
 
 Three Months Ended June 30,Six Months Ended June 30,
 2024202320242023
Revenues:
Net premiums earned$1,236,024 $1,034,469 $2,402,703 $2,039,173 
Net investment income 68,970 58,350 133,989 110,323 
Net realized investment gains (losses)2,899 (19,778)41,090 29,229 
Other(2,899)10,186 1,298 11,081 
Total revenues1,304,994 1,083,227 2,579,080 2,189,806 
Expenses:
Losses and loss adjustment expenses936,714 897,810 1,840,679 1,827,339 
Policy acquisition costs203,682 172,737 399,722 337,245 
Other operating expenses81,702 68,341 158,790 138,031 
Interest7,799 5,549 15,572 10,479 
Total expenses1,229,897 1,144,437 2,414,763 2,313,094 
Income (loss) before income taxes75,097 (61,210)164,317 (123,288)
Income tax expense (benefit) 12,529 (19,667)28,287 (36,457)
Net income (loss)$62,568 $(41,543)$136,030 $(86,831)
Net income (loss) per share:
Basic$1.13 $(0.75)$2.46 $(1.57)
Diluted $1.13 $(0.75)$2.46 $(1.57)
Weighted average shares outstanding:
Basic55,371 55,371 55,371 55,371 
Diluted55,375 55,371 55,373 55,371 













 

See accompanying Notes to Consolidated Financial Statements.
4
MERCURY GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands)
(unaudited)

 Three Months Ended June 30,Six Months Ended June 30,
 2024202320242023
Common stock, beginning of period$98,947 $98,947 $98,947 $98,947 
Common stock, end of period98,947 98,947 98,947 98,947 
Retained earnings, beginning of period1,505,080 1,360,316 1,449,198 1,423,184 
Net income (loss)62,568 (41,543)136,030 (86,831)
Dividends paid to shareholders(17,580)(17,580)(35,160)(35,160)
Retained earnings, end of period1,550,068 1,301,193 1,550,068 1,301,193 
Total shareholders’ equity, end of period$1,649,015 $1,400,140 $1,649,015 $1,400,140 


































See accompanying Notes to Consolidated Financial Statements.
5
MERCURY GENERAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
 Six Months Ended June 30,
 20242023
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $136,030 $(86,831)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization34,738 35,917 
Net realized investment gains(41,090)(29,229)
Net losses (gains) on sales of fixed assets71 (5,855)
Loss on property held for sale6,145 — 
Increase in premiums receivable(103,766)(19,107)
Decrease (increase) in reinsurance recoverables2,188 (1,643)
Changes in current and deferred income taxes3,810 (36,747)
Increase in deferred policy acquisition costs(33,016)(11,786)
Increase in loss and loss adjustment expense reserves190,701 135,097 
Increase in unearned premiums238,474 86,751 
Increase in accounts payable and accrued expenses29,076 14,499 
Other, net7,309 24,307 
Net cash provided by operating activities470,670 105,373 
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed maturity securities available for sale in nature:
Purchases(789,541)(255,888)
Sales145,144 118,121 
Calls or maturities261,280 124,542 
Equity securities available for sale in nature:
Purchases(768,728)(628,971)
Sales721,754 668,730 
Calls7,185 — 
Changes in securities payable and receivable20,607 (29,195)
Decrease (increase) in short-term investments 41,492 (63,238)
Purchases of fixed assets(21,857)(19,063)
Sales of fixed assets4 29,860 
Other, net7,007 3,478 
Net cash used in investing activities(375,653)(51,624)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid to shareholders(35,160)(35,160)
Payments on finance lease obligations(1,427)(642)
Proceeds from bank borrowing— 50,000 
Net cash (used in) provided by financing activities(36,587)14,198 
Net increase in cash58,430 67,947 
Cash:
Beginning of the year550,903 289,776 
End of period$609,333 $357,723 
SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest paid$15,012 $8,409 
Income taxes paid (refunded), net$24,477 $(65)





See accompanying Notes to Consolidated Financial Statements.
6
MERCURY GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)

1. General

Consolidation and Basis of Presentation
The interim consolidated financial statements include the accounts of Mercury General Corporation and its subsidiaries (referred to herein collectively as the “Company”). For the list of the Company’s subsidiaries, see Note 1. Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023. These interim financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”), which differ in some respects from those filed in reports to insurance regulatory authorities. The financial data of the Company included herein are unaudited. In the opinion of management, all material adjustments of a normal recurring nature have been made to present fairly the Company’s financial position at June 30, 2024 and the results of operations and cash flows for the periods presented. All intercompany transactions and balances have been eliminated.

Certain financial information that is normally included in annual financial statements prepared in accordance with GAAP, but that is not required for interim reporting purposes, has been omitted from the accompanying interim consolidated financial statements and related notes. Readers are urged to review the Company’s Annual Report on Form 10-K for the year ended December 31, 2023 for more complete descriptions and discussions. Operating results and cash flows for the six months ended June 30, 2024 are not necessarily indicative of the results that may be expected for the year ending December 31, 2024.

Certain prior period amounts have been reclassified to conform to the current period presentation.

Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. These estimates require the Company to apply complex assumptions and judgments, and often the Company must make estimates about the effects of matters that are inherently uncertain and will likely change in subsequent periods. The most significant assumptions in the preparation of these consolidated financial statements relate to reserves for losses and loss adjustment expenses ("LAE"). Actual results could differ from those estimates. See Note 1. Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.
Earnings (Loss) per Share
There were no potentially dilutive securities with anti-dilutive effect for the three and six months ended June 30, 2024. Potentially dilutive securities representing 17,500 shares of common stock were excluded from the computation of diluted loss per share for the three and six months ended June 30, 2023, because their effect would have been anti-dilutive.
Dividends per Share
The Company declared and paid a dividend per share of $0.3175 during each of the three-month periods ended June 30, 2024 and 2023, and dividends per share of $0.6350 during each of the six-month periods ended June 30, 2024 and 2023.
Deferred Policy Acquisition Costs
Deferred policy acquisition costs consist of commissions paid to outside agents, premium taxes, salaries, and certain other underwriting costs that are incremental or directly related to the successful acquisition of new and renewal insurance contracts and are amortized over the life of the related policy in proportion to premiums earned. Deferred policy acquisition costs are limited to the amount that will remain after deducting from unearned premiums and anticipated investment income, the estimated losses and loss adjustment expenses, and the servicing costs that will be incurred as premiums are earned. The Company’s deferred policy acquisition costs are further limited by excluding those costs not directly related to the successful acquisition of insurance contracts. Deferred policy acquisition cost amortization was $203.7 million and $172.7 million for the three months ended June 30, 2024 and 2023, respectively, and $399.7 million and $337.2 million for the six months ended June 30, 2024 and 2023, respectively. The Company does not defer advertising expenditures but expenses them as incurred. The Company recorded net advertising expense of approximately $3.9 million and $2.3 million for the three months ended June 30, 2024 and 2023, respectively, and $7.2 million and $4.2 million for the six months ended June 30, 2024 and 2023,
7
respectively.

Fixed Assets

An office building located in Oklahoma City, Oklahoma was classified as a property held for sale at April 30, 2024, and $3.7 million of the property held for sale, which represented the fair value of the property less the estimated costs to sell, was included in other assets in the Company's consolidated balance sheets at June 30, 2024. A loss of $0.8 million recognized as a result of the held-for-sale classification was included in other revenues in the Company's consolidated statements of operations for the three and six months ended June 30, 2024.

Another office building located in Folsom, California was classified as a property held for sale at June 30, 2024, and $10.0 million of the property held for sale, which represented the fair value of the property less the estimated costs to sell, was included in other assets in the Company's consolidated balance sheets at June 30, 2024. A loss of $5.4 million recognized as a result of the held-for-sale classification was included in other revenues in the Company's consolidated statements of operations for the three and six months ended June 30, 2024.

A parcel of land located in Rancho Cucamonga, California was classified as a property held for sale at June 30, 2024, and $1.7 million of the property held for sale, which represented the carrying amount of the property on that date, was included in other assets in the Company's consolidated balance sheets at June 30, 2024.

In addition, an office building located in Brea, California was classified as a property held for sale at September 30, 2023, and $10.5 million of the property held for sale, which represented the carrying amount of the property on that date, was included in other assets in the Company's consolidated balance sheets at June 30, 2024.

The Company is actively engaged in selling these office buildings as most of its employees currently work from home and these properties are being used on a limited basis.

Reinsurance

Unearned premiums and loss and loss adjustment expense reserves are stated in the accompanying consolidated financial statements before deductions for ceded reinsurance. Unearned premiums and loss and loss adjustment expense reserves that are ceded to reinsurers are carried in other assets and reinsurance recoverables, respectively, in the Company's consolidated balance sheets. Earned premiums and losses and loss adjustment expenses are stated net of deductions for ceded reinsurance.
The Company is the assuming reinsurer under a Catastrophe Participation Reinsurance Contract (the "Contract") effective through December 31, 2025. The Company reimburses up to $30 million in losses for a proportional share of a portfolio of catastrophe losses under the Contract, to the extent the actual loss ratio exceeds the threshold loss ratio of 73.5%. If the actual loss ratio is less than the threshold loss ratio, the Company is eligible to receive a certain portion of the underwriting profit.

The Company is party to a Catastrophe Reinsurance Treaty (the "Treaty") covering a wide range of perils that is effective through June 30, 2025. The Treaty provides $1,290 million of coverage on a per occurrence basis after covered catastrophe losses exceed the $150 million Company retention limit. The Treaty specifically excludes coverage for any Florida business and for California earthquake losses on fixed property policies, such as homeowners, but does cover losses from fires following an earthquake. The Treaty provides for one full reinstatement of coverage limits with a minor exception at a certain upper layer of coverage, and includes some additional minor territorial and coverage restrictions.














8
The effect of reinsurance on property and casualty premiums written and earned was as follows:

Three Months Ended June 30,Six Months Ended June 30,
2024202320242023
 (Amounts in thousands)
Premiums Written
Direct $1,380,511 $1,132,216 $2,674,986 $2,144,453 
Ceded(31,884)(24,184)(63,183)(47,574)
Assumed85 66 15,244 15,097 
     Net$1,348,712 $1,108,098 $2,627,047 $2,111,976 
Premiums Earned
Direct$1,256,208 $1,047,413 $2,442,793 $2,064,283 
Ceded(31,371)(23,999)(62,450)(47,197)
Assumed3,859 3,856 7,722 7,746 
     Net$1,228,696 $1,027,270 $2,388,065 $2,024,832 

The Company recognized ceded premiums earned of approximately $31.4 million and $24.0 million for the three months ended June 30, 2024 and 2023, respectively, and $62.5 million and $47.2 million for the six months ended June 30, 2024 and 2023, respectively, which are included in net premiums earned in its consolidated statements of operations. The Company recognized ceded losses and loss adjustment expenses of approximately $(0.1) million and $(3.4) million for the three months ended June 30, 2024 and 2023, respectively, and $(0.9) million and $4.1 million for the six months ended June 30, 2024 and 2023, respectively, which are included in losses and loss adjustment expenses in its consolidated statements of operations.

The Company's insurance subsidiaries, as primary insurers, are required to pay losses to the extent reinsurers are unable to discharge their obligations under the reinsurance agreements.

Revenue from Contracts with Customers (Topic 606)

The Company's revenue from contracts with customers is commission income earned from third-party insurers by its 100% owned insurance agencies, which amounted to approximately $6.0 million and $5.0 million, with related expenses of $3.2 million and $2.7 million, for the three months ended June 30, 2024 and 2023, respectively, and $11.7 million and $9.8 million, with related expenses of $6.4 million and $5.5 million, for the six months ended June 30, 2024 and 2023, respectively. All of the commission income, net of related expenses, is included in other revenues in the Company's consolidated statements of operations, and in other income of the Property and Casualty business segment in the Company's segment reporting (see Note 13. Segment Information).

As of June 30, 2024 and December 31, 2023, the Company had no contract assets and contract liabilities, and no remaining performance obligations associated with unrecognized revenues.

Allowance for Credit Losses

Financial Instruments - Credit Losses (Topic 326) uses the "expected loss" methodology for recognizing credit losses for financial assets that are not accounted for at fair value through net income. The Company's investment portfolio, excluding accrued investment income, was not affected by Topic 326 as it applies the fair value option to all of its investments. The estimated allowance amounts for credit losses at June 30, 2024 and December 31, 2023 primarily related to premiums receivable.

Premiums Receivable

The majority of the Company's premiums receivable are short-term in nature and are due within a year, consistent with the policy term of its insurance policies sold. Generally, premiums are collected prior to providing risk coverage, minimizing the Company's exposure to credit risk. In estimating an allowance for uncollectible premiums receivable, the Company assesses customer balances and write-offs by state, line of business, and the year the premiums were written. The estimated allowance is based on historical write-off percentages adjusted for the effects of current trends and reasonable and supportable forecasts, as well as expected recoveries of amounts written off.

9
The following table presents a summary of changes in allowance for credit losses on premiums receivable:
 Three Months Ended June 30,Six Months Ended June 30,
 2024202320242023
 (Amounts in thousands)
Beginning balance$5,800 $5,800 $5,300 $5,800 
     Provision during the period for expected credit losses 858 332 1,973 1,468 
Write-off amounts during the period(846)(877)(1,658)(2,147)
Recoveries during the period of amounts previously written off 188 145 385 279 
Ending balance $6,000 $5,400 $6,000 $5,400 

Accrued Interest Receivables

The Company made certain accounting policy elections for its accrued interest receivables allowed under Topic 326: a) an election to present accrued interest receivable balances separately from the associated financial assets on the balance sheet, and b) an election not to measure an allowance for credit losses on accrued interest receivable amounts and instead write off uncollectible accrued interest amounts in a timely manner by reversing interest income. The Company's accrued interest receivable balances are included in accrued investment income receivable in its consolidated balance sheets. There were no accrued interest receivable amounts considered uncollectible or written off during the six months ended June 30, 2024 and 2023.

2. Recently Issued Accounting Standards

In March 2024, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (“ASU”) 2024-01, "Compensation-Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards." ASU 2024-01 is intended to improve GAAP by adding an illustrative example that includes four fact patterns to demonstrate how an entity should apply the scope guidance in paragraph 718-10-15-3 to determine whether a profits interest award should be accounted for in accordance with Topic 718. The fact patterns in the illustrative example focus on the scope conditions in paragraph 718-10-15-3. The illustrative example is intended to reduce (1) complexity in determining whether a profits interest award is subject to the guidance in Topic 718 and (2) existing diversity in practice. ASU 2024-01 will be effective for the Company in the annual and interim periods beginning January 1, 2025, though early adoption is permitted. The Company is currently evaluating the impact of this ASU on its consolidated financial statements and related disclosures.

In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures." ASU 2023-09 is intended to enhance the transparency and decision usefulness of income tax disclosures. The amendments in ASU 2023-09 address investor requests for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information. ASU 2023-09 will be effective for the Company in the annual period beginning January 1, 2025, though early adoption is permitted. The Company is evaluating the presentational effect that ASU 2023-09 will have on its consolidated financial statements and expects presentation changes to its note on income taxes.

In November 2023, the FASB issued ASU 2023-07, "Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures." The amendments in ASU 2023-07 improve financial reporting by requiring disclosure of incremental segment information, including significant segment expenses, on an annual and interim basis for all public entities to enable investors to develop more useful financial analyses. Currently, Topic 280 requires that a public entity disclose certain information about its reportable segments. For example, a public entity is required to report a measure of segment profit or loss that the Chief Operating Decision Maker (“CODM”) uses to assess segment performance and make decisions about allocating resources. Topic 280 also requires other specified segment information, such as depreciation, amortization and depletion expense amounts, to be disclosed under certain circumstances. The amendments in ASU 2023-07 do not change or remove those disclosure requirements. The amendments in ASU 2023-07 also do not change how a public entity identifies its operating segments, aggregates those operating segments, or applies the quantitative thresholds to determine its reportable segments. The amendments in ASU 2023-07 are effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company is currently evaluating the impact of this ASU on its consolidated financial statements and related disclosures.

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting." ASU 2020-04 provides optional expedients and exceptions for applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met.
10
The amendments in this ASU apply only to contracts, hedging relationships, and other transactions that reference LIBOR or other interbank offered rates expected to be discontinued because of reference rate reform. ASU 2020-04 was effective for all entities as of March 12, 2020 through December 31, 2022. In December 2022, the FASB issued ASU 2022-06, "Reference Rate Reform (Topic 848), Deferral of the Sunset Date of Topic 848," which defers the sunset date of Topic 848 from December 31, 2022 to December 31, 2024. The Company does not expect any material impact on its consolidated financial statements and related disclosures resulting from applying these ASUs.

3. Financial Instruments

Financial instruments recorded in the consolidated balance sheets include investments, note receivable, other receivables, options sold, accounts payable, and unsecured notes payable. Due to their short-term maturities, the carrying values of other receivables and accounts payable approximate their fair values. All investments are carried at fair value in the consolidated balance sheets.

The following table presents the fair values of financial instruments:
June 30, 2024December 31, 2023
 (Amounts in thousands)
Assets
Investments$5,625,550 $5,228,520 
Note receivable9,803 9,974 
Liabilities
Options sold663 1,955 
Notes payable561,864 557,710 
Investments
Interest and dividend income on investment holdings are recognized on an accrual basis at each measurement date and are included in net investment income in the Company’s consolidated statements of operations. The cost of investments sold is determined on a first-in and first-out method and realized gains and losses are included in net realized investment gains or losses in the Company's consolidated statements of operations.

In the normal course of investing activities, the Company either forms or enters into relationships with variable interest entities ("VIEs"). A VIE is an entity that either has investors that lack certain essential characteristics of a controlling financial interest, such as simple majority kick-out rights, or lacks sufficient funds to finance its own activities without financial support provided by other entities. The Company performs ongoing qualitative assessments of the VIEs to determine whether the Company has a controlling financial interest in the VIE and therefore is the primary beneficiary. The Company is deemed to have a controlling financial interest when it has both the ability to direct the activities that most significantly impact the economic performance of the VIE and the obligation to absorb losses or right to receive benefits from the VIE that could potentially be significant to the VIE. Based on the Company's assessment, if it determines it is the primary beneficiary, the Company consolidates the VIE in its consolidated financial statements.

From time to time, the Company forms special purpose investment vehicles to facilitate its investment activities involving derivative instruments such as total return swaps, or limited partnerships such as private equity funds. These special purpose investment vehicles are consolidated VIEs as the Company has determined it is the primary beneficiary of such VIEs. Creditors have no recourse against the Company in the event of default by these VIEs. The Company had no implied or unfunded commitments to these VIEs at June 30, 2024 and December 31, 2023. The Company's financial or other support provided to these VIEs and its loss exposure are limited to its collateral and original investment.

The Company invests, directly or indirectly through its consolidated VIEs, in limited partnerships or limited liability companies such as private equity funds. These investments are non-consolidated VIEs as the Company has determined it is not the primary beneficiary of such VIEs. The Company's maximum exposure to loss with respect to these VIEs is limited to the total carrying value that is included in equity securities in the Company's consolidated balance sheets. At June 30, 2024 and December 31, 2023, the Company had approximately $38 million and $8 million, respectively, in unfunded commitments to these VIEs.



11
Note Receivable

In March 2023, the Company completed the sale of an office building located in Clearwater, Florida, for a total sale price of approximately $19.6 million. $9.8 million of the total sale price was received in the form of a promissory note (the "Note") and the remainder in cash. The Note is secured by the property sold, and bears interest at an annual rate of 7.0% for the first two years, with an adjustment to the greater of 7.0% or the rate on a one-year U.S. Treasury Bill at the two-year anniversary for the remainder of the term. The term of the Note is four years and interest is paid in monthly installments. Interest earned on the Note is recognized in other revenues in the Company's consolidated statements of operations. The Company elected to apply the fair value option to the Note at the time it was first recognized. The fair value of note receivable is included in other assets in the Company's consolidated balance sheets, while the changes in fair value of note receivable are included in net realized investment gains or losses in the Company's consolidated statements of operations.

Options Sold
The Company writes covered call options through listed and over-the-counter exchanges. When the Company writes an option, an amount equal to the premium received by the Company is recorded as a liability and is subsequently adjusted to the current fair value of the option written. Premiums received from writing options that expire unexercised are treated by the Company as realized gains from investments on the expiration date. If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security or currency in determining whether the Company has realized a gain or loss. The Company, as writer of an option, bears the market risk of an unfavorable change in the price of the security underlying the written option. Liabilities for covered call options are included in other liabilities in the Company's consolidated balance sheets.

Notes Payable
The fair values of the Company’s publicly traded $375 million unsecured notes at June 30, 2024 and December 31, 2023 and its $200 million drawn under the unsecured credit facility at June 30, 2024 and December 31, 2023 were obtained from a third party pricing service.

For additional disclosures regarding methods and assumptions used in estimating fair values, see Note 5. Fair Value Measurements.

4. Fair Value Option

The Company applies the fair value option to all fixed maturity and equity investment securities, short-term investments, and note receivable. The primary reasons for electing the fair value option were simplification and cost-benefit considerations as well as the expansion of the use of fair value measurement by the Company consistent with the long-term measurement objectives of the FASB for accounting for financial instruments.

Gains or losses due to changes in fair value of financial instruments measured at fair value pursuant to application of the fair value option are included in net realized investment gains or losses in the Company’s consolidated statements of operations.

The following table presents gains (losses) recognized due to changes in fair value of financial instruments pursuant to application of the fair value option:
 Three Months Ended June 30,Six Months Ended June 30,
 2024202320242023
(Amounts in thousands)
Fixed maturity securities$(1,722)$(22,835)$(11,016)$16,940 
Equity securities(18,693)(12,608)15,805 (9,368)
Short-term investments66 (42)(38)(8)
       Total investment (losses) gains$(20,349)$(35,485)$4,751 $7,564 
Note receivable(14)125 (171)125 
       Total (losses) gains$(20,363)$(35,360)$4,580 $7,689 

5. Fair Value Measurements

The Company employs a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value.
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The fair value of a financial instrument is the amount 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 using the exit price. Accordingly, when market observable data are not readily available, the Company’s own assumptions are used to reflect those that market participants would be presumed to use in pricing the asset or liability at the measurement date.

Assets and liabilities recorded at fair value on the consolidated balance sheets are categorized based on the level of judgment associated with inputs used to measure their fair values and the level of market price observability, as follows:

Level 1Unadjusted 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 3Pricing inputs are unobservable and significant to the overall fair value measurement, and the determination of fair value requires significant management judgment or estimation.

In certain cases, inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Thus, a Level 3 fair value measurement may include inputs that are observable (Level 1 or Level 2) and unobservable (Level 3). The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and consideration of factors specific to the asset or liability.

The Company uses prices and inputs that are current as of the measurement date, including during periods of market disruption. In periods of market disruption, the ability to observe prices and inputs may be reduced for many instruments. This condition could cause an instrument to be reclassified from Level 1 to Level 2, or from Level 2 to Level 3. The Company recognizes transfers between levels at either the actual date of the event or a change in circumstances that caused the transfer.

Summary of Significant Valuation Techniques for Financial Assets and Financial Liabilities
The Company’s fair value measurements are based on the market approach, which utilizes market transaction data for the same or similar instruments. The Company obtained unadjusted fair values on 98.4% of its investment portfolio at fair value from an independent pricing service at June 30, 2024.

Level 1 measurements - Fair values of financial assets and financial liabilities are obtained from an independent pricing service, and are based on unadjusted quoted prices for identical assets or liabilities in active markets. Additional pricing services and closing exchange values are used as a comparison to ensure that reasonable fair values are used in pricing the investment portfolio.
U.S. government bonds and agencies /Short-term bonds: Valued using unadjusted quoted market prices for identical assets in active markets.
Common stock: Comprised of actively traded, exchange listed U.S. and international equity securities and valued based on unadjusted quoted prices for identical assets in active markets.
Money market instruments: Valued based on unadjusted quoted prices for identical assets in active markets.
Options sold: Comprised of free-standing exchange listed derivatives that are actively traded and valued based on unadjusted quoted prices for identical instruments in active markets.
Level 2 measurements - Fair values of financial assets and financial liabilities are obtained from an independent pricing service or outside brokers, and are based on prices for similar assets or liabilities in active markets or valuation models whose inputs are observable, directly or indirectly, for substantially the full term of the asset or liability. Additional pricing services are used as a comparison to ensure reliable fair values are used in pricing the investment portfolio.
Municipal securities: Valued based on models or matrices using inputs such as quoted prices for identical or similar assets in active markets.
Mortgage-backed securities: Comprised of securities that are collateralized by residential and commercial mortgage loans
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valued based on models or matrices using multiple observable inputs, such as benchmark yields, reported trades and broker/dealer quotes, for identical or similar assets in active markets. The Company had holdings of $30.1 million and $33.0 million at fair value in commercial mortgage-backed securities at June 30, 2024 and December 31, 2023, respectively.

Corporate securities/Short-term bonds: Valued based on a multi-dimensional model using multiple observable inputs, such as benchmark yields, reported trades, broker/dealer quotes and issue spreads, for identical or similar assets in active markets.
Non-redeemable preferred stock: Valued based on observable inputs, such as underlying and common stock of same issuer and appropriate spread over a comparable U.S. Treasury security, for identical or similar assets in active markets.
Collateralized loan obligations ("CLOs"): Valued based on underlying debt instruments and the appropriate benchmark spread for similar assets in active markets.
Other asset-backed securities: Comprised of securities that are collateralized by non-mortgage assets, such as automobile loans, valued based on models or matrices using multiple observable inputs, such as benchmark yields, reported trades and broker/dealer quotes, for identical or similar assets in active markets.
Note receivable: Valued based on observable inputs, such as benchmark yields, and considering any premium or discount for the differential between the stated interest rate and market interest rates, based on quoted market prices of similar instruments.
Level 3 measurements - Fair values of financial assets and financial liabilities are based on inputs that are both unobservable and significant to the overall fair value measurement, including any items in which the evaluated prices obtained elsewhere are deemed to be of a distressed trading level. At June 30, 2024 and December 31, 2023, the Company did not have any financial assets or financial liabilities based on Level 3 measurements.
Fair value measurement using NAV practical expedient - The fair value of the Company's investment in private equity funds measured at net asset value ("NAV") is determined using NAV as advised by the external fund managers and the third party administrators. The NAV of the Company's limited partnership or limited liability company interest in such a fund is based on the manager's and the administrator's valuation of the underlying holdings in accordance with the fund's governing documents and GAAP. In accordance with applicable accounting guidance, private equity funds measured at fair value using the NAV practical expedient are not classified in the fair value hierarchy. At June 30, 2024, the Company had capital invested in five such funds: the strategy of four such funds with a combined fair value of approximately $89.1 million at June 30, 2024 is to provide current income to investors by investing mainly in secured loans, CLOs or CLO issuers (including CLO equity and CLO mezzanine tranches), and equity interests in vehicles established to purchase and warehouse loans; the strategy of the other such fund with a fair value of approximately $3.0 million at June 30, 2024 is to achieve long-term capital appreciation through privately-negotiated venture capital investments in seed- and early-stage portfolio companies with technology-enabled business models. The Company had approximately $38 million in unfunded commitments at June 30, 2024 with respect to the private equity funds measured at NAV. The underlying assets of the funds are expected to be liquidated over the period of approximately one year to thirteen years from June 30, 2024. In addition, the Company does not have the ability to redeem or withdraw from the funds, or to sell, assign, pledge or transfer its investment, without the consent from the General Partner or Managers of the funds, except for one fund where the Company will have the ability to sell its equity investment in the CLO market place. The Company will receive distributions based on the liquidation of the underlying assets and the interest proceeds from the underlying assets for all the funds.
The Company’s financial instruments at fair value are reflected in the consolidated balance sheets on a trade-date basis. Related unrealized gains or losses are recognized in net realized investment gains or losses in the consolidated statements of operations. Fair value measurements are not adjusted for transaction costs.













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The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis, and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair values:

 June 30, 2024
 Level 1Level 2Level 3Total
 (Amounts in thousands)
Assets
Fixed maturity securities:
U.S. government bonds and agencies$136,291 $59,288 $— $195,579 
Municipal securities— 2,860,186 — 2,860,186 
Mortgage-backed securities — 220,341 — 220,341 
Corporate securities— 741,587 — 741,587 
Collateralized loan obligations— 541,199 — 541,199 
Other asset-backed securities— 102,869 — 102,869 
Total fixed maturity securities136,291 4,525,470 — 4,661,761 
Equity securities:
Common stock678,705 — — 678,705 
Non-redeemable preferred stock— 45,131 — 45,131 
Private equity funds measured at net asset value (1)
92,088 
Total equity securities678,705 45,131 — 815,924 
Short-term investments:
Short-term bonds10,268 1,625 — 11,893 
Money market instruments135,928 — — 135,928 
Other44 — — 44 
Total short-term investments146,240 1,625 — 147,865 
Other assets:
Note receivable
— 9,803 — 9,803 
Total assets at fair value$961,236 $4,582,029 $— $5,635,353 
Liabilities
Other liabilities:
Options sold$663 $— $— $663 
Total liabilities at fair value$663 $— $— $663 
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 December 31, 2023
 Level 1Level 2Level 3Total
 (Amounts in thousands)
Assets
Fixed maturity securities:
U.S. government bonds and agencies$123,182 $51,268 $— $174,450 
Municipal securities— 2,777,258 — 2,777,258 
Mortgage-backed securities — 186,887 — 186,887 
Corporate securities— 599,630 — 599,630 
Collateralized loan obligations— 484,947 — 484,947 
Other asset-backed securities— 96,164 — 96,164 
Total fixed maturity securities123,182 4,196,154 — 4,319,336 
Equity securities:
Common stock597,888 —— 597,888 
Non-redeemable preferred stock— 51,563 — 51,563 
Private equity funds measured at net asset value (1)
81,242 
Total equity securities597,888 51,563 — 730,693 
Short-term investments:
Short-term bonds12,015 1,838 — 13,853 
Money market instruments164,595 — — 164,595 
Other43 — — 43 
Total short-term investments176,653 1,838 — 178,491 
Other assets:
Note receivable— 9,974 — 9,974 
Total assets at fair value$897,723 $4,259,529 $— $5,238,494 
Liabilities
Other liabilities:
Options sold$1,955 $— $— $1,955 
Total liabilities at fair value$1,955 $— $— $1,955 
__________ 
(1) The fair value is measured using the NAV practical expedient; therefore, it is not categorized within the fair value hierarchy. The fair value amount is presented in this table to permit reconciliation of the fair value hierarchy to the amounts presented in the Company's consolidated balance sheets.

There were no transfers between Levels 1, 2, and 3 of the fair value hierarchy during the six months ended June 30, 2024 and 2023.

At June 30, 2024, there were no material assets or liabilities measured at fair value on a nonrecurring basis.
Financial Instruments Disclosed, But Not Carried, at Fair Value
The following tables present the carrying value and fair value of the Company’s financial instruments disclosed, but not carried, at fair value, and the level within the fair value hierarchy at which such instruments are categorized:

 June 30, 2024
 Carrying ValueFair ValueLevel 1Level 2Level 3
 (Amounts in thousands)
Liabilities
Notes payable:
Unsecured notes$373,928 $361,860 $— $361,860 $— 
Unsecured credit facility200,000 200,004 — 200,004 — 
Total$573,928 $561,864 $— $561,864 $— 
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 December 31, 2023
 Carrying ValueFair ValueLevel 1Level 2Level 3
 (Amounts in thousands)
Liabilities
Notes payable:
Unsecured notes$373,729 $357,765 $— $357,765 $— 
Unsecured credit facility200,000 199,945 — 199,945 — 
Total$573,729 $557,710 $— $557,710 $— 

Unsecured Notes
The fair value of the Company’s publicly traded $375 million unsecured notes at June 30, 2024 and December 31, 2023 was based on the spreads above the risk-free yield curve. These spreads are generally obtained from the new issue market, secondary trading and broker-dealer quotes. See Note 11. Notes Payable for additional information on unsecured notes.

Unsecured Credit Facility
The fair values of the Company's $200 million drawn under the unsecured credit facility at June 30, 2024 and December 31, 2023 were based on the unadjusted quoted price for similar notes in active markets. See Note 11. Notes Payable for additional information on the unsecured credit facility.

6. Derivative Financial Instruments

The Company is exposed to certain risks relating to its ongoing business operations. The primary risk managed by using derivative instruments is equity price risk. Equity contracts (options sold) on various equity securities are intended to manage the price risk associated with forecasted purchases or sales of such securities. From time to time, the Company also enters into derivative contracts to enhance returns on its investment portfolio.
The following tables present the location and amounts of derivative fair values in the consolidated balance sheets and derivative gains or losses in the consolidated statements of operations:
 Derivatives
June 30, 2024December 31, 2023
 (Amount in thousands)
Options sold - Other liabilities$663 $1,955 
Total $663 $1,955 
 Gains Recognized in Net Income (Loss)
 Three Months Ended June 30,Six Months Ended June 30,
2024202320242023
 (Amounts in thousands)
Options sold - Net realized investment gains (losses)$4,229 $1,596 $8,545 $2,824 
Total$4,229 $1,596 $8,545 $2,824 

Most options sold consist of covered calls. The Company writes covered calls on underlying equity positions held as an enhanced income strategy that is permitted for the Company’s insurance subsidiaries under statutory regulations. The Company manages the risk associated with covered calls through strict capital limitations and asset diversification throughout various industries. See Note 5. Fair Value Measurements for additional disclosures regarding options sold.
7. Goodwill and Other Intangible Assets
Goodwill
There were no changes in the carrying amount of goodwill during the three and six months ended June 30, 2024 and 2023. No accumulated goodwill impairment losses existed at June 30, 2024 and December 31, 2023. Goodwill is reviewed annually for impairment and more frequently if potential impairment indicators exist. No impairment indicators were identified during the three and six months ended June 30, 2024 and 2023. All of the Company's goodwill is associated with the Property
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and Casualty business segment (See Note 13. Segment Information for additional information on the reportable business segment).
Other Intangible Assets
The following table presents the components of other intangible assets:
Gross Carrying
Amount		Accumulated
Amortization		Net Carrying
Amount		Useful Lives
 (Amounts in thousands)(in years)
As of June 30, 2024:
Customer relationships$55,107 $(53,832)$1,275 10
Trade names15,400 (9,946)5,454 24
Technology4,300 (4,300)— 10
Insurance license1,400 — 1,400 Indefinite
Total other intangible assets, net$76,207 $(68,078)$8,129 
As of December 31, 2023:
Customer relationships$54,862 $(53,704)$1,158 11
Trade names15,400 (9,625)5,775 24
Technology4,300 (4,300)— 10
Insurance license1,400 — 1,400 Indefinite
Total other intangible assets, net$75,962 $(67,629)$8,333 

Other intangible assets are reviewed annually for impairment and more frequently if potential impairment indicators exist. No impairment indicators were identified during the three and six months ended June 30, 2024 and 2023.

Other intangible assets with definite useful lives are amortized on a straight-line basis over their useful lives. Amortization expense for other intangible assets was $0.2 million for each of the three-month periods ended June 30, 2024 and 2023, and $0.4 million for each of the six-month periods ended June 30, 2024 and 2023.

The following table presents the estimated future amortization expense related to other intangible assets as of June 30, 2024:
YearAmortization Expense
 (Amounts in thousands)
Remainder of 2024$447 
2025856 
2026856 
2027856 
2028856 
Thereafter2,858 
Total$6,729 

8. Share-Based Compensation

In February 2015, the Company's Board of Directors (the "Board") adopted the 2015 Incentive Award Plan (the "2015 Plan"), replacing the 2005 Equity Incentive Plan which expired in January 2015. The 2015 Plan was approved at the Company's Annual Meeting of Shareholders in May 2015. A maximum of 4,900,000 shares of common stock are authorized for issuance under the 2015 Plan, with 4,830,000 shares of common stock available for future grant as of June 30, 2024 upon exercise of stock options, stock appreciation rights and other awards, or upon vesting of restricted stock unit ("RSU") or deferred stock awards.

In February 2024, the Board adopted the 2024 Long-Term Incentive Plan (the “LTIP”) to provide certain key employees with the right to receive cash awards providing an opportunity to participate in the appreciation of the Company’s value and in order to retain these key employees and reward them for contributing to the success of the Company. Participants in the LTIP
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may be granted a number of notional interests, or phantom stock units ("PSUs"). Each PSU represents the right to receive payment of the value of a share of the Company’s common stock upon vesting. PSUs may be granted subject to vesting conditions, which may include service-based and/or performance-based vesting conditions tied to corporate and/or individual achievement objectives. An employee must remain employed through the date of payment of an award to be eligible for any payout under the LTIP. These PSUs are settled in cash upon vesting and accounted for as liability-based awards.

Stock Options

In February 2018, the Compensation Committee of the Board awarded a total of 80,000 stock options to four senior executives under the 2015 Plan, which vested over the four-year requisite service period and had a term of ten years from the date of grant, except for 10,000 of these stock options that were forfeited in February 2019 following the departure of a senior executive. The fair values of these stock options were estimated on the date of grant using a closed-form option valuation model (Black-Scholes).
As of June 30, 2024, 17,500 of the total stock options awarded and vested under the 2015 Plan have not been exercised, each with a remaining term of approximately 3.6 years.
Performance-based PSUs
During the first half of 2024, the Company granted a total "target" award of 196,712 performance-based PSUs to certain executive officers and other key employees of the Company. The payout value of the performance-based PSUs granted under the LTIP will be determined based on the achievement of specific, pre-established corporate performance objectives, and in part on individual performance, during the applicable three-year performance period (the "Performance Cycle"). The maximum payout level for the performance-based PSUs is 150% of the “target” award.
The following table presents the summary of the performance-based PSU grants as of June 30, 2024:
    
Grant year2024
Three-year performance period ending December 31,
2026
Vesting shares, target196,712
Vesting shares, maximum295,068

These performance-based PSUs vest at the end of the Performance Cycle beginning with the year of the grant, and then only if, and to the extent that, the Company’s performance during the Performance Cycle achieves the threshold established by the Compensation Committee of the Board. Each annual performance result is determined based on the average of the Company’s annual market share growth and its annual combined ratio. The vested number of performance-based PSUs for each grantee is based on the average of the Company's three annual performance results combined with the individual's performance during the Performance Cycle. The cash payout amount for each unit of the vested performance-based PSUs is equal to the average closing price per share of the Company’s common stock for the 30 calendar days preceding the determination of the final number of vested PSUs for each grantee at the end of the Performance Cycle.

Liabilities for the expected cash payout and associated compensation expenses are recognized based on management’s best estimate of the number of the performance-based PSUs expected to be vested resulting from the probable outcome of the performance-based vesting conditions, combined with the market price of the Company's common stock at the end of each reporting period. If the performance-based vesting conditions are not expected to be met for the Performance Cycle, no compensation cost will be recognized and any recognized compensation cost will be reversed.
Restricted PSUs

The Company, from time to time, grants restricted PSUs to certain key employees, typically to retain such key employees. The restricted PSUs vest in three equal annual installments on each of the first three anniversaries of the grant date. The payout value of the restricted PSUs granted under the LTIP will be determined based on the closing price per share of the Company's common stock at each vesting date. The vested amount of the restricted PSUs is paid at the end of each annual vesting period. During the first half of 2024, the Company granted a total of 5,873 restricted PSUs to certain key employees of the Company.
The Company recorded approximately $0.9 million and $1.7 million of share-based compensation expense associated with the performance-based and restricted PSUs for the three and six months ended June 30, 2024, respectively, which are included in other operating expenses in its consolidated statements of operations.


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9. Income Taxes

For financial statement purposes, the Company recognizes tax benefits related to positions taken, or expected to be taken, on a tax return only if the positions are “more-likely-than-not” sustainable. Once this threshold has been met, the Company’s measurement of its expected tax benefits is recognized in its consolidated financial statements.

The total amount of unrecognized tax benefits related to tax uncertainties decreased by approximately $1.9 million during the six months ended June 30, 2024, primarily resulting from the payment of the assessed amount related to a California Franchise Tax Board audit for tax year 2011.

The Company and its subsidiaries file income tax returns with the Internal Revenue Service and the taxing authorities of various states. Tax years that remain subject to examination by major taxing jurisdictions are 2020 through 2022 for federal taxes, and 2011 and 2020 through 2022 for California state taxes. The Company has certain unresolved matters related to California state tax assessment for 2011 tax year that are not material to its consolidated financial statements. Tax years 2012 through 2019 for California state taxes have been resolved with no outstanding issues.

Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial reporting basis and the respective tax basis of the Company’s assets and liabilities, and expected benefits of utilizing net operating loss, capital loss, and tax-credit carryforwards. 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. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates or laws is recognized in net income (loss) in the period that includes the enactment date.

At June 30, 2024, the Company’s deferred income taxes were in a net asset position, which included a combination of ordinary and capital deferred tax expenses or benefits. In assessing the Company’s ability to realize deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon generating sufficient taxable income of the appropriate character within the carryback and carryforward periods available under the tax law. Management considers the reversal of deferred tax liabilities, projected future taxable income of an appropriate nature, and tax planning strategies in making this assessment. The Company believes that through projected future taxable income of an appropriate nature, the use of prudent tax planning strategies, and the generation of capital gains, sufficient income will be realized in order to maximize the full benefits of its deferred tax assets. Although realization is not assured, management believes that it is more likely than not that the Company’s deferred tax assets will be realized.






















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10. Loss and Loss Adjustment Expense Reserves

The following table presents the activity in loss and loss adjustment expense reserves:
 Six Months Ended June 30,
 20242023
 (Amounts in thousands)
Gross reserves, beginning of period$2,785,702 $2,584,910 
Reinsurance recoverables on unpaid losses, beginning of period
(32,148)(25,322)
Net reserves, beginning of period2,753,554 2,559,588 
Incurred losses and loss adjustment expenses related to:
Current year1,832,701 1,847,123 
Prior years7,978 (19,784)
Total incurred losses and loss adjustment expenses1,840,679 1,827,339 
Loss and loss adjustment expense payments related to:
Current year801,750 874,245 
Prior years846,290 820,341 
Total payments1,648,040 1,694,586 
Net reserves, end of period2,946,193 2,692,341 
Reinsurance recoverables on unpaid losses, end of period30,210 27,666 
Gross reserves, end of period$2,976,403 $2,720,007 

The increase in the provision for insured events of prior years during the six months ended June 30, 2024 of $8.0 million was primarily attributable to higher than estimated losses and loss adjustment expenses in the commercial automobile and commercial property lines of insurance business and catastrophe losses, partially offset by favorable development in the private passenger automobile line of insurance business. The decrease in the provision for insured events of prior years during the six months ended June 30, 2023 of $19.8 million was primarily attributable to lower than estimated losses and loss adjustment expenses in the private passenger automobile and homeowners lines of insurance business, partially offset by unfavorable development in the commercial property line of insurance business.

For the six months ended June 30, 2024 and 2023, the Company incurred catastrophe losses net of reinsurance of approximately $197 million and $190 million, respectively. The majority of 2024 catastrophe losses resulted from tornadoes, hailstorms and convective storms in Texas and Oklahoma and winter storms and rainstorms in California. The majority of 2023 catastrophe losses resulted from winter storms and rainstorms in California, Texas and Oklahoma. The Company experienced unfavorable development of approximately $9 million and favorable development of approximately $1 million on prior years' catastrophe losses for the six months ended June 30, 2024 and 2023, respectively.

11. Notes Payable

The following table presents information about the Company's notes payable:
LenderInterest RateMaturity DateJune 30, 2024December 31, 2023
(Amounts in thousands)
Senior unsecured notes(1)
Publicly traded4.40%March 15, 2027$375,000 $375,000 
Unsecured credit facility(2)
Bank of America, Wells Fargo Bank, BMO Bank and U.S. Bank
Term SOFR plus 112.5-150.0 basis points
November 16, 2026200,000 200,000 
    Total principal amount575,000 575,000 
Less unamortized discount and debt issuance costs(3)
1,072 1,271 
Total debt$573,928 $573,729 
__________ 
(1)On March 8, 2017, the Company completed a public debt offering issuing $375 million of senior notes. The notes are unsecured, senior obligations of the Company with a 4.4% annual coupon payable on March 15 and September 15 of
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each year commencing September 15, 2017. The Company used the proceeds from the notes to pay off amounts outstanding under the existing loan and credit facilities and for general corporate purposes. The Company incurred debt issuance costs of approximately $3.4 million, inclusive of underwriters' fees. The notes were issued at a slight discount of 99.847% of par, resulting in the effective annualized interest rate, including debt issuance costs, of approximately 4.45%.
(2)On March 31, 2021, the Company entered into an unsecured $75 million five-year revolving credit facility. On November 18, 2022, the Company entered into the First Amendment to this credit facility. The First Amendment extended the maturity date of the loan to November 16, 2026 from March 31, 2026 with possible further extension if certain conditions are met, increased the aggregate commitments by all the lenders to $200 million from $75 million, and replaced the LIBOR with the Term SOFR. On November 30, 2023, the Company entered into the Second Amendment to this credit facility, which further increased the aggregate commitments by all the lenders to $250 million from $200 million. The interest rates on borrowings under the credit facility are based on the Company's debt to total capital ratio and range from Term SOFR plus 112.5 basis points when the ratio is under 20% to Term SOFR plus 150.0 basis points when the ratio is greater than or equal to 30%. Commitment fees for the undrawn portions of the credit facility range from 12.5 basis points when the ratio is under 20% to 22.5 basis points when the ratio is greater than or equal to 30%. The debt to total capital ratio is expressed as a percentage of (a) consolidated debt to (b) consolidated shareholders' equity plus consolidated debt. The Company's debt to total capital ratio was 25.9% at June 30, 2024, resulting in a 17.5 basis point commitment fee on any undrawn portion of the credit facility. As of July 25, 2024, a total of $200 million was drawn under this facility on a three-month revolving basis at an annual interest rate of approximately 6.81%, with $50 million available to be drawn. The Company contributed $150 million of the total amount drawn to the surplus of its consolidated insurance subsidiaries, and used the remainder for general corporate purposes.
(3)The unamortized discount and debt issuance costs are associated with the publicly traded $375 million senior unsecured notes. These are amortized to interest expense over the life of the notes, and the unamortized balance is presented in the Company's consolidated balance sheets as a direct deduction from the carrying amount of the debt. The unamortized costs of approximately $0.7 million associated with entering into the $250 million unsecured revolving credit facility maturing on November 16, 2026 are included in other assets in the Company's consolidated balance sheets and amortized to interest expense over the term of the credit facility.
12. Contingencies

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 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, 2023.

On September 10, 2021, the California Department of Insurance ("DOI") served the Company a Notice of Non-Compliance ("NNC"), alleging violations in connection with its 2014 Rating & Underwriting Examination Report, which was adopted by the California DOI in 2019. The NNC itemizes alleged violations, many of which management believes were corrected or otherwise resolved during the course of the examination, and seeks penalties. The Company has participated in lengthy and detailed discussions with the California DOI since the adoption of the examination report, in an attempt to address the issues deemed unresolved by the California DOI, and has taken several additional corrective actions approved by the California DOI. On August 1, 2022, the California DOI publicly announced its intention to pursue an administrative action against the Company with respect to certain outstanding issues. The Company served a written response to the NNC on September 29, 2022, along with written discovery requests. The response, consisting of a notice of defense, a motion to strike, and a motion to dismiss, challenges the NNC on procedural and substantive grounds. On November 9, 2022, the California DOI served objections and non-substantive responses to the Company's discovery requests. On November 14, 2023, the California DOI granted Consumer Watchdog's petition to intervene in the NNC, although the Company did not agree to allow its involvement in the mediation, which took place on March 4, 2024. The parties did not make any meaningful progress toward settlement, but are continuing settlement discussions. The parties are also conferring regarding the possible filing of an Amended NNC that would eliminate the resolved items and identify the remaining issues in dispute should the matter proceed to a hearing. The Company cannot reasonably predict the likelihood, timing or outcome of any hearing process or administrative action, nor can it reasonably estimate the amount of penalties, if any.

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. In addition, the Company accrues for anticipated legal defense costs associated with such lawsuits and regulatory actions. 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
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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 any additional regulatory or legal matters, see the Company’s Annual Report on Form 10-K for the year ended December 31, 2023.

13. Segment Information

The Company is primarily engaged in writing personal automobile insurance and provides related property and casualty insurance products to its customers through 12 subsidiaries in 11 states, principally in California.
The Company has one reportable business segment - the Property and Casualty business segment.
The Company’s Chief Operating Decision Maker evaluates operating results based on pre-tax underwriting results which is calculated as net premiums earned less (a) losses and loss adjustment expenses and (b) underwriting expenses (policy acquisition costs and other operating expenses).
Expenses are allocated based on certain assumptions that are primarily related to premiums and losses. The Company’s net investment income, net realized investment gains or losses, other income, and interest expense are excluded in evaluating pretax underwriting profit. The Company does not allocate its assets, including investments, or income taxes in evaluating pre-tax underwriting profit.
Property and Casualty Lines
The Property and Casualty business segment offers several insurance products to the Company’s individual customers and small business customers. These insurance products are: private passenger automobile which is the Company’s primary business, and related insurance products such as homeowners, commercial automobile and commercial property. These related insurance products are primarily sold to the Company’s individual customers and small business customers, which increases retention of the Company’s private passenger automobile client base. The insurance products comprising the Property and Casualty business segment are sold through the same distribution channels, mainly through independent and 100% owned insurance agents, and go through a similar underwriting process.

Other Lines

The Other business segment represents net premiums written and earned from an operating segment that does not meet the quantitative thresholds required to be considered a reportable segment. This operating segment offers automobile mechanical protection warranties which are primarily sold through automobile dealerships and credit unions.






















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The following tables present the Company's operating results by reportable segment:
Three Months Ended June 30,
20242023
 Property & CasualtyOtherTotalProperty & CasualtyOtherTotal
(Amounts in millions)
Net premiums earned$1,228.7 $7.3 $1,236.0 $1,027.3 $7.2 $1,034.5 
Less:
Losses and loss adjustment expenses932.4 4.3 936.7 893.9 3.9 897.8 
Underwriting expenses282.0 3.4 285.4 237.4 3.8 241.2 
Underwriting gain (loss)14.3 (0.4)13.9 (104.0)(0.5)(104.5)
Investment income69.0 58.4 
Net realized investment gains (losses)2.9 (19.8)
Other (loss) income(2.9)10.2 
Interest expense(7.8)(5.5)
Pre-tax income (loss)$75.1 $(61.2)
Net income (loss)$62.6 $(41.5)

Six Months Ended June 30,
20242023
 Property & CasualtyOtherTotalProperty & CasualtyOtherTotal
(Amounts in millions)
Net premiums earned$2,388.1 $14.6 $2,402.7 $2,024.8 $14.4 $2,039.2 
Less:
Losses and loss adjustment expenses1,832.4 8.3 1,840.7 1,819.7 7.6 1,827.3 
Underwriting expenses551.3 7.2 558.5 468.0 7.3 475.3 
Underwriting gain (loss)4.4 (0.9)3.5 (262.9)(0.5)(263.4)
Investment income134.0 110.3 
Net realized investment gains41.1 29.2 
Other income1.3 11.1 
Interest expense(15.6)(10.5)
Pre-tax income (loss)$164.3 $(123.3)
Net income (loss)$136.0 $(86.8)











24
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,
 20242023
 Property & CasualtyOtherTotalProperty & CasualtyOtherTotal
(Amounts in millions)
Private passenger automobile$799.6 $— $799.6 $674.7 $— $674.7 
Homeowners283.6 — 283.6 233.9 — 233.9 
Commercial automobile94.2 — 94.2 72.1 — 72.1 
Other51.3 7.3 58.6 46.6 7.2 53.8 
Net premiums earned$1,228.7 $7.3 $1,236.0 $1,027.3 $7.2 $1,034.5 
Private passenger automobile$847.6 $— $847.6 $698.5 $— $698.5 
Homeowners361.9 — 361.9 294.5 — 294.5 
Commercial automobile98.8 — 98.8 82.7 — 82.7 
Other72.2 6.8 79.0 56.5 7.3 63.8 
Direct premiums written$1,380.5 $6.8 $1,387.3 $1,132.2 $7.3 $