MERCURY GENERAL CORP – 10-Q – Management discussion and analysis of financial condition and results of operations – InsuranceNewsNet | Business Insurance

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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 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 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
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 15, 2022.

                                    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
evaluate the Company’s performance, prospects and risks. It is not
all-inclusive and is intended to be read in conjunction with the entirety of
management’s discussion and analysis, the Company’s consolidated financial statements
statements and notes thereto, and all other items contained in this
Quarterly Report on Form 10-Q.

Note on COVID-19 and General Economic Conditions

In March 2020, the outbreak of COVID-19 was recognized as a pandemic by the
World Health Organization (the "WHO"), and 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
established by the Centers for Disease Control, the WHO, and the state and local
governments. The Company has taken and continues to take a number of
precautionary steps to safeguard its customers, business and employees from
COVID-19. Most of the Company's employees have been working remotely, with only
certain operationally critical employees working on site at various locations.
In November 2021, the Company extended its "work-from-home" policy indefinitely
under the new "Mercury's My Workplace" policy, allowing most of its employees to
work from anywhere in the U.S. beginning January 2022.

The Company’s auto insurance line began to experience a
significant decrease in loss frequency in March 2020, and remained lower
than historical levels until the first half of 2021, although it began to
increase the more

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drivers returned to the road following the gradual reopening of businesses in
California and other states. After bottoming out in the second quarter of 2020,
loss frequency has been increasing and is near pre-pandemic levels. The costs to
treat bodily injuries and repair or replace vehicles may remain high due to
supply chain and labor force issues exacerbated by the high overall inflation
rate and the Russia-Ukraine war. Inflationary trends have accelerated to their
highest level since the 1980s with the most recent consumer price index increase
of 9.1%. Excessive inflation has led to significant increases in loss severities
related to vehicle repairs and bodily injuries. 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. 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, and
the Company has submitted private passenger automobile rate filings in many
states requesting rate increases. In addition, the Company is taking various
non-rate actions to improve profitability.

In March 2020, the Federal Open Market Committee ("FOMC") of the Federal Reserve
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. However, the FOMC started
raising the federal funds rate in March 2022 as a response to inflationary
pressures. The ensuing increases in market interest rates resulted in
significant decreases in the fair values of the Company's fixed maturity
securities during the first half of 2022. The Company believes that it will
continue to have sufficient liquidity to support its business operations 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 unsecured credit facility.

The Company will continue to monitor the effects of the COVID-19 pandemic, the
legislative relief programs for the pandemic, the rising inflation and interest
rates and the Russia-Ukraine war. The extent of these effects on the Company's
business and financial results will depend largely on future developments,
including the duration and severity of the pandemic, the high inflation rate and
the war, most of which are highly uncertain and cannot be predicted.

business

The Company is primarily engaged in writing personal automobile insurance
through 13 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 the direct premiums issued, by state and line of insurance.
insurance business, for the six months ended June 30, 2022 and 2021:

MERCURY GENERAL CORP – 10-Q – Management discussion and analysis of financial condition and results of operations – InsuranceNewsNet | Business Insurance 2022 08 webinar web banner
                                                                              Six Months Ended June 30, 2022
                                                                                  (Dollars in thousands)

                                       Private                                   Commercial
                                Passenger  Automobile         Homeowners         Automobile         Other Lines (2)            Total
California                     $          1,105,341          $ 352,724          $  99,027          $      105,434          $ 1,662,526               81.0  %
Texas                                        48,283             53,388             23,658                   3,407              128,736                6.3  %
Other states (1)                            181,380             56,024             18,673                   4,979              261,056               12.7  %
Total                          $          1,335,004          $ 462,136          $ 141,358          $      113,820          $ 2,052,318              100.0  %
                                               65.0  %            22.6  %             6.9  %                  5.5  %             100.0  %



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

                                       Private                                   Commercial
                                Passenger  Automobile         Homeowners         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  %


______________
(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.

C. Regulatory and legal issues

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 exams:

    State                    Exam Type                    Exam Period Covered                                 Status

CA, FL, GA, Coordinated Multi-State

  IL, OK, TX                 Financial                         2018-2021                 Examination began in the second quarter of 2022.
      CA                    Premium Tax                        2018-2021                 Examination began in the second quarter of 2022.


During the course and at the end of the exams, the examiner
The DOI generally reports the findings to the Company.

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, 2021.

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 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, 2021, and Note 12. Contingencies of the Notes to Consolidated
Financial Statements of this Quarterly Report.

D. Critical Accounting Estimates

Reserves for losses and loss adjustment expenses (“Reserves for losses”)

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
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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 loss paid method analyzes historical payment patterns to estimate the
amount of losses still to be paid.

•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 June 30, 2022 and December 31, 2021, the Company recorded its point estimate
of approximately $2.39 billion and $2.23 billion ($2.36 billion and $2.19
billion, net of reinsurance), respectively, in loss reserves, which included
approximately $1.16 billion and $1.03 billion ($1.16 billion and $1.02 billion,
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 June 30, 2022 and December 31, 2021, and estimated
future
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Table of Contents

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 more information on the Company’s booking methods, please refer to the
Annual report on Form 10-K for the year ended December 31, 2021.

                             RESULTS OF OPERATIONS

three months done June 30, 2022 Compared to three months ended June 30, 2021

Income

Net premiums earned and net premiums written for the three months ended June 30,
2022 increased 6.5% and 6.2%, respectively, from the corresponding period in
2021. The increase in net premiums earned and net premiums written for the three
months ended June 30, 2022 compared to the corresponding period in 2021 was
primarily due to higher average premiums per policy arising from rate increases
in the California homeowners line of insurance business and increases in the
number of policies written outside of California, partially offset by a decrease
in the number of private passenger automobile policies written in California.

Net premiums earned included ceded premiums earned of $17.1 million and $15.6
million for the three months ended June 30, 2022 and 2021, respectively. Net
premiums written included ceded premiums written of $17.4 million and $15.8
million for the three months ended June 30, 2022 and 2021, respectively. The
increase in ceded premiums earned and ceded premiums written for the three
months ended June 30, 2022 compared to the corresponding period in 2021 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, net of any
applicable reinsurance. Net premiums written is a statutory measure designed to
determine production levels.

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

                                                Three Months Ended June 30,
                                                    2022                  2021

                                                   (Amounts in thousands)
        Net premiums earned               $        987,512             $ 926,820
        Change in net unearned premiums             29,482               
30,522
        Net premiums written              $      1,016,994             $ 957,342



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,
                                                2022                  2021

               Loss ratio                                83.7  %     70.9  %
               Expense ratio                             22.9  %     23.9  %
               Combined ratio (1)                       106.6  %     94.9  %


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__________

(1) Combined ratio for the three months ended June 30, 2021 does not add due to
Rounding

Loss ratio is calculated by dividing losses and loss adjustment expenses by net
premiums earned. The loss ratio for the second quarter of 2022 and 2021 was
affected by favorable development of approximately $2 million and approximately
$14 million, respectively, on prior accident years' loss and loss adjustment
expense reserves. The favorable development for the second quarter of 2022 was
primarily attributable to lower than estimated losses and loss adjustment
expenses in the commercial automobile line of insurance business, partially
offset by unfavorable development in the commercial property and private
passenger automobile lines of insurance business. The favorable development for
the second quarter of 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.

In addition, the 2022 loss ratio was negatively impacted by approximately $19
million of catastrophe losses, excluding unfavorable development of
approximately $2 million on prior years' catastrophe losses, primarily due to
rainstorms and hail in Texas. The 2021 loss ratio was negatively impacted by
approximately $25 million of catastrophe losses, primarily due to extreme
weather events in Texas and Oklahoma and winter storms in California. There was
no development on prior years' catastrophe losses for the three months ended
June 30, 2021.

Excluding the effect of estimated prior periods' loss development and
catastrophe losses, the loss ratio was 82.0% and 69.7% for the second quarter of
2022 and 2021, respectively. The increase in the loss ratio was primarily due to
an increase in loss severity in the 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. Inflationary
trends have accelerated to their highest level in decades, which has had a
significant impact on the cost of auto parts and labor as well as medical
expenses for bodily injuries, and supply chain and labor shortage issues have
lengthened the time to repair vehicles. Bodily injury costs are also under
pressure from social inflation.These inflationary pressures and the supply chain
and labor shortage issues have led to a significant increase in automobile loss
severity and increased losses and loss adjustment expenses for the insured
events of the current accident year for the three months ended June 30, 2022
compared to the corresponding period in 2021. The Company has filed for rate
increases in many states and is taking various non-rate actions to improve
profitability.

Expense ratio is calculated by dividing the sum of policy acquisition costs and
other operating expenses by net premiums earned. The expense ratio for the three
months ended June 30, 2022 decreased compared to the corresponding period in
2021. Higher average premiums per policy arising from rate increases in the
California homeowners line of insurance business contributed to the decrease in
the expense ratio. In addition, expenses for profitability-related accruals and
advertising 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 (benefit) expense was $(60.7) million and $26.2 million for the three
months ended June 30, 2022 and 2021, respectively. The decrease in income tax
expense was primarily due to a $406.7 million decrease in total pre-tax income.
Tax-exempt investment income, a component of total pre-tax (loss) income,
remained relatively steady with the corresponding period in 2021.

The Company's effective income tax rate can be affected by several factors.
These generally include large changes in the composition of fully taxable income
including net realized investment gains or losses, tax-exempt investment income,
non-deductible expenses, and periodically, non-routine tax items such as
adjustments to unrecognized tax benefits related to tax uncertainties.
Tax-exempt investment income of approximately $18 million coupled with pre-tax
loss of approximately $271 million resulted in an effective tax rate of 22.4%,
above the statutory tax rate of 21%, for the three months ended June 30, 2022,
while tax-exempt investment income of approximately $19 million coupled with
pre-tax income of approximately $135 million resulted in an effective tax rate
of 19.4%, below the statutory rate, for the corresponding period in 2021.








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Investments

The following table presents the Company’s investment results:

                                                    Three Months Ended June 30,
                                                      2022                2021

                                                      (Dollars in thousands)

Average invested assets at cost (1) $4,900,223 $4,657,097

Net investment income (2)

       Before income taxes                      $       38,555       $   

30,953

       After income taxes                       $       33,517       $   

27,676

       Average annual yield on investments
       Before income taxes                                 3.2  %            2.7  %
       After income taxes                                  2.7  %            2.4  %

Net realized investment gains (losses) $(241,938) $58,805

__________

(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) Higher net investment income before and after income taxes for the three
months ended June 30, 2022 compared to the corresponding period in 2021 resulted
largely from higher average yield combined with higher average invested assets.
Average annual yield on investments before and after income taxes for the three
months ended June 30, 2022 increased compared to the corresponding period in
2021, primarily due to the maturity and replacement of lower yielding
investments purchased when market interest rates were lower with higher yielding
investments, as a result of increasing market interest rates.

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

three months done June 30, 2022

                                                                     Gains 

(Losses) Recognized in Net Income

                                                                                       Changes in fair
                                                               Sales                        value                Total

                                                                              (Amounts in thousands)
Net realized investment gains (losses)
Fixed maturity securities (1)(2)                        $      (19,582)                $    (88,273)         $ (107,855)
Equity securities (1)(3)                                           731                     (134,369)           (133,638)
Short-term investments (1)                                        (182)                      (1,667)             (1,849)
Note receivable (1)                                                  -                            -                   -
Options sold                                                     1,392                           12               1,404
Total                                                   $      (17,641)                $   (224,297)         $ (241,938)


                                                                     Three Months Ended June 30, 2021
                                                                  Gains

(Losses) Recognized in Net Income

                                                                                   Changes in
                                                               Sales               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


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__________
(1)The changes in fair value of the investment portfolio and note receivable
resulted from application of the fair value option.
(2)The decrease in fair value of fixed maturity securities for the second
quarter of 2022 primarily resulted from increases in market interest rates. The
increase in fair value of fixed maturity securities for the second quarter of
2021 primarily resulted from decreases in market interest rates.
(3)The primary cause for the decrease in fair value of equity securities for the
second quarter of 2022 was the overall decline in equity markets. 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.


Net (Loss) Income

                                                                      Three Months Ended June 30,
                                                                      2022                   2021

                                                                (Amounts in thousands, except per share
                                                                                 data)
Net (loss) income                                               $     (210,681)         $    109,181
Basic average shares outstanding                                        55,371                55,371
Diluted average shares outstanding                                      55,371                55,376
Basic Per Share Data:
Net (loss) income                                               $        (3.80)         $       1.97
Net realized investment (losses) gains, net of tax              $        (3.45)         $       0.84
Diluted Per Share Data:
Net (loss) income                                               $        (3.80)         $       1.97
Net realized investment (losses) gains, net of tax              $        

(3.45) $0.84

six months over June 30, 2022 Compared to six months ended June 30, 2021

Income

Net premiums earned and net premiums written for the six months ended June 30,
2022 increased 5.8% and 6.3%, respectively, from the corresponding period in
2021. The increase in net premiums earned and net premiums written for the six
months ended June 30, 2022 compared to the corresponding period in 2021 was
primarily due to higher average premiums per policy arising from rate increases
in the California homeowners line of insurance business and increases in the
number of policies written outside of California, partially offset by a decrease
in the number of private passenger automobile policies written in California.

Net premiums earned included ceded premiums earned of $34.6 million and $31.2
million for the six months ended June 30, 2022 and 2021, respectively. Net
premiums written included ceded premiums written of $35.0 million and $31.4
million for the six months ended June 30, 2022 and 2021, respectively. The
increase in ceded premiums earned and ceded premiums written for the six months
ended June 30, 2022 compared to the corresponding period in 2021 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,
                                                    2022              2021

                                                   (Amounts in thousands)
            Net premiums earned               $    1,950,062      $ 1,842,741
            Change in net unearned premiums           77,729           64,983
            Net premiums written              $    2,027,791      $ 1,907,724





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Expenses

The following table presents the losses, expenses and expenses of the Insurance Companies.
combined ratios determined in accordance with GAAP:

                                         Six Months Ended June 30,
                                              2022                 2021

                  Loss ratio                          84.6  %     69.7  %
                  Expense ratio                       23.5  %     24.5  %
                  Combined ratio                     108.1  %     94.2  %



The loss ratio for the first half of 2022 and 2021 was affected by unfavorable
development of approximately $51 million and favorable development of
approximately $15 million, respectively, on prior accident years' loss and loss
adjustment expense reserves. The unfavorable development for the first half of
2022 was primarily attributable to higher than estimated losses and loss
adjustment expenses in the private passenger automobile and commercial property
lines of insurance business, partially offset by favorable development in the
commercial automobile and homeowners lines of insurance business. Inflationary
trends have accelerated to their highest level in decades, which has had a
significant impact on the cost of auto parts and labor as well as medical
expenses for bodily injuries, and supply chain and labor shortage issues have
lengthened the time to repair vehicles. Bodily injury costs are also under
pressure from social inflation. These factors were major contributors to the
adverse reserve development in the private passenger automobile line of
insurance business. The favorable development for the first half of 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, partially offset by unfavorable development in the
commercial automobile line of insurance business.

In addition, the 2022 loss ratio was negatively impacted by approximately $40
million of catastrophe losses, excluding unfavorable development of
approximately $3 million on prior years' catastrophe losses, primarily due to
winter storms, rainstorms and hail in Texas and winter storms in California. The
2021 loss ratio was negatively impacted by approximately $64 million of
catastrophe losses, excluding favorable development of approximately $4 million
on prior years' catastrophe losses, primarily due to the deep freeze and other
extreme weather events in Texas and Oklahoma and winter storms in California.

Excluding the effect of estimated prior periods' loss development and
catastrophe losses, the loss ratio was 79.9% and 67.0% for the first half of
2022 and 2021, respectively. The increase in the loss ratio was primarily due to
an increase in loss frequency and severity in the 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. After
bottoming out in the second quarter of 2020, automobile loss frequency has been
increasing and is near pre-pandemic levels. The inflationary pressures and the
supply chain and labor shortage issues discussed above have led to a significant
increase in automobile loss severity and increased losses and loss adjustment
expenses for the insured events of the current accident year for the six months
ended June 30, 2022 compared to the corresponding period in 2021. The Company
has filed for rate increases in many states and is taking various non-rate
actions to improve profitability.

The expense ratio for the six months ended June 30, 2022 decreased compared to
the corresponding period in 2021. Higher average premiums per policy arising
from rate increases in the California homeowners line of insurance business
contributed to the decrease in the expense ratio. In addition, expenses for
profitability-related accruals and advertising decreased.

Income tax (benefit) expense was $(116.9) million and $51.6 million for the six
months ended June 30, 2022 and 2021, respectively. The decrease in income tax
expense was primarily due to a $792.3 million decrease in total pre-tax income.
Tax-exempt investment income, a component of total pre-tax (loss) income,
remained relatively steady with the corresponding period in 2021.

Tax-exempt investment income of approximately $35 million coupled with pre-tax
loss of approximately $524 million resulted in an effective tax rate of 22.3%,
above the statutory tax rate of 21%, for the six months ended June 30, 2022,
while 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 rate, for the corresponding period in 2021.



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Investments

The following table presents the Company’s investment results:

                                                     Six Months Ended June 30,
                                                      2022               2021

                                                      (Dollars in thousands)

Average invested assets at cost (1) $4,879,634 $4,590,386

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Net investment income (2)

        Before income taxes                      $     73,906       $   

63,232

        After income taxes                       $     64,438       $   

56,460

        Average annual yield on investments
        Before income taxes                               3.0  %            2.8  %
        After income taxes                                2.6  %            2.5  %

Net realized investment gains (losses) $(437,024) $100,496

__________

(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) Higher net investment income before and after income taxes for the six
months ended June 30, 2022 compared to the corresponding period in 2021 resulted
largely from higher average yield combined with higher average invested assets.
Average annual yield on investments before and after income taxes for the six
months ended June 30, 2022 increased compared to the corresponding period in
2021, primarily due to the maturity and replacement of lower yielding
investments purchased when market interest rates were lower with higher yielding
investments, as a result of increasing market interest rates.

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

                                                                      Six 

finished months June 30, 2022

                                                                  Gains 

(Losses) Recognized in Net Income

                                                                                Changes in fair
                                                              Sales                  value                Total

                                                                          (Amounts in thousands)
Net realized investment gains (losses)
Fixed maturity securities (1)(2)                        $      (22,382)         $   (246,201)         $ (268,583)
Equity securities (1)(3)                                         6,293              (174,690)           (168,397)
Short-term investments (1)                                      (1,007)               (1,665)             (2,672)
Note receivable (1)                                                  -                     -                   -
Options sold                                                     2,698                   (70)              2,628
Total                                                   $      (14,398)         $   (422,626)         $ (437,024)


                                                                          

six months over June 30, 2021

Gains (losses) recognized in net income

                                                                                             Changes in
                                                                 Sales                       fair value            Total

                                                                               (Amounts in thousands)
Net realized investment gains (losses)
Fixed maturity securities (1)(2)                         $       (3,485)                   $     4,391          $     906
Equity securities (1)(3)                                         31,648                         66,942             98,590
Short-term investments (1)                                          236                              9                245
Note receivable (1)                                                   -                            (28)               (28)
Options sold                                                        861                            (78)               783
Total                                                    $       29,260                    $    71,236          $ 100,496


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__________
(1)The changes in fair value of the investment portfolio and note receivable
resulted from application of the fair value option.
(2)The decrease in fair value of fixed maturity securities for the first half of
2022 primarily resulted from increases in market interest rates. The increase in
fair value of fixed maturity securities for the first half of 2021 primarily
resulted from decreases in market interest rates during the second quarter of
2021 and the overall improvement in fixed maturity securities markets during the
first half of 2021.
(3)The primary cause for the decrease in fair value of equity securities for the
first half of 2022 was the overall decline in equity markets. The primary cause
for the increase in fair value of equity securities for the first half of 2021
was the overall improvement in equity markets.


Net (Loss) Income

                                                                       Six Months Ended June 30,
                                                                       2022                   2021

                                                                (Amounts in thousands, except per share
                                                                                 data)
Net (loss) income                                               $      (407,599)         $    216,176
Basic average shares outstanding                                         55,371                55,366
Diluted average shares outstanding                                       55,371                55,375
Basic Per Share Data:
Net (loss) income                                               $         (7.36)         $       3.90
Net realized investment (losses) gains, net of tax              $         (6.24)         $       1.43
Diluted Per Share Data:
Net (loss) income                                               $         (7.36)         $       3.90
Net realized investment (losses) gains, net of tax              $         (6.24)         $       1.43




                        LIQUIDITY AND CAPITAL RESOURCES

A. Cash Flows

The Company has generated positive cash flow from operations since the public
offering of its common stock in November 1985. The Company does not attempt to
match the duration and timing of asset maturities with those of liabilities;
rather, it manages its portfolio with a view towards maximizing total return
with an emphasis on after-tax income. With combined cash and short-term
investments of $462.1 million at June 30, 2022 as well as $75 million of credit
available on the unsecured credit facility, the Company believes its cash flow
from operations is adequate to satisfy its liquidity requirements without the
forced sale of investments. Investment maturities are also available to meet the
Company's liquidity needs. However, the Company operates in a rapidly evolving
and often unpredictable business environment that may change the timing or
amount of expected future cash receipts and expenditures. Accordingly, there can
be no assurance that the Company's sources of funds will be sufficient to meet
its liquidity needs or that the Company will not be required to raise additional
funds to meet those needs or for future business expansion, through the sale of
equity or debt securities or from credit facilities with lending institutions.

Net cash provided by operating activities for the six months ended June 30, 2022
was $194.9 million, a decrease of $122.3 million compared to the corresponding
period in 2021. The decrease was primarily due to an increase in payments for
losses and loss adjustment expenses and operating expenses, partially offset by
an increase in premium collections, a decrease in payments for income taxes, and
an increase in collections from reinsurers on reinsurance recoverables. The
Company utilized the cash provided by operating activities during the six months
ended June 30, 2022 primarily for the net purchases of investment securities and
payment of dividends to its shareholders.

On July 29, 2022, the Company's Board of Directors (the "Board") declared a
quarterly dividend of $0.3175 per share. The dividend will be paid on
September 29, 2022 to shareholders of record on September 15, 2022. The Board
reduced the dividend as compared to prior periods to reflect challenging
business conditions caused primarily by extraordinarily high inflation rates,
particularly with respect to the settlement of claims. The Company is taking
premium rate increases and non-rate actions to improve profitability. The Board
will periodically review the Company's dividend policy and consider changes to
the
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dividend pay-out when business conditions warrant.

On July 29, 2022, the Board did not extend its authorization of the repurchase
of up to $200 million of the Company's Common Stock and allowed its
authorization to expire on July 29, 2022, which the Board originally authorized
on July 31, 2020. The Company has not repurchased any of the Company's Common
Stock under this authorization.

The following table presents the estimated fair value of fixed maturity
values ​​in June 30, 2022 by contractual expiration in the next five years:

                                                   Fixed Maturity 

Values

                                                     (Amounts in thousands)
       Due in one year or less                    $                  

318,155

       Due after one year through two years                          

151,818

       Due after two years through three years                       

146,089

       Due after three years through four years                      

212,265

       Due after four years through five years                       

299,188

       Total due within five years                $                1,127,515



B. Reinsurance

For California homeowners policies, the Company has reduced its catastrophe
exposure to earthquakes by placing earthquake hazards directly with the
California Earthquake Authority (“CEA”). However, the Company continues to have
catastrophic exposure to fire after an earthquake.

The Company is the assuming reinsurer under a Catastrophe Participation
Reinsurance Contract (the "Contract") effective for the 12 months ending
December 31, 2022. The Company reimburses a group of affiliates of a ceding
company for a proportional share of a portfolio of catastrophe losses based on
the premiums ceded to the Company under the Contract, to the extent the actual
loss ratio exceeds the threshold loss ratio of 73.5% and 71% for the 12 months
ending December 31, 2022 and 2021, respectively. The total assumed premium under
the Contract is $10.0 million and $12.5 million for the 12 months ending
December 31, 2022 and 2021, respectively. The total possible amount of losses
for the Company under the Contract is $25.0 million and $31.3 million for the 12
months ending December 31, 2022 and 2021, respectively. The Company recognized
$2.5 million and $3.1 million in earned premiums and $1.7 million and $4.0
million in incurred losses under the Contract for the three months ended
June 30, 2022 and 2021, respectively, and $5.0 million and $6.3 million in
earned premiums and $4.1 million and $7.9 million in incurred losses for the six
months ended June 30, 2022 and 2021, respectively.

The Company is the ceding party to a Catastrophe Reinsurance Treaty (the
"Treaty") covering a wide range of perils that is effective through June 30,
2023. For the 12 months ending June 30, 2023 and 2022, the Treaty provides
approximately $936 million and $792 million of coverage, respectively, on a per
occurrence basis after covered catastrophe losses exceed the Company retention
limit of $60 million and $40 million, respectively. 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 includes additional restrictions as noted in
the tables below.

Individual catastrophe coverage expected for the ending 12 months June 30th,
2023
under the Treaty is presented below at various levels:

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

                                                                 (Amounts in millions)
Retained                                                 $          -             $       60                         -  %
Layer of Coverage                                                  60                    100                      19.5
Layer of Coverage                                                 100                    200                      98.8
Layer of Coverage (1)                                             200                    530                      98.6
Layer of Coverage (2) (3) (4)                                     530                    930                     100.0
Layer of Coverage                                                 930                  1,035                      98.9


__________

(1) 5% of this layer covers California, Arizona Y Snowfall only.

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(2) 33% of this layer covers California, Arizona and Nevada only.
(3) Layer of Coverage represents multiple actual treaty layers that are grouped
for presentation purposes.
(4) 6.3% of this layer covers only California wildfires and fires following an
earthquake in California, and is not subject to reinstatement.

Coverage on individual catastrophes planned for the 12 months ended June 30th,
2022
under the Treaty is presented below at various levels:

                                                           Catastrophe Losses and LAE
                                                                                                     Percentage of
                                                         In Excess of             Up to                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


__________

(1) Layer of Coverage represents multiple actual treaty layers that are grouped
for presentation purposes.
(2) 4.1% of this layer excludes Texas.
(3) 11.9% of this layer excludes Texas.
(4) 15.0% of this layer covers California, Arizona and Nevada only.
(5) 12.7% of this layer covers only California wildfires and fires following an
earthquake in California, and is not subject to reinstatement.

The following table presents the combined total reinsurance premiums under the
Treaty (annual premiums and reinstatement premiums) for the 12 months ending
June 30, 2023 and 2022, respectively:

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

                                                                             (Amounts in millions)
For the 12 months ending June 30, 2023              $          74          $                 -          $             74
For the 12 months ended June 30, 2022               $          55          $                 -          $             55


__________

(1) The increase in the annual premium is primarily due to an increase in
reinsurance coverage and rates and growth in the covered book of business.
(2) The reinstatement premium and the total combined premium for the treaty
period ending June 30, 2023 are projected amounts to be paid based on the
assumption that there will be no reinstatements occurring during this treaty
period. The reinstatement premium for the treaty period ended June 30, 2022 is
zero, as there were no actual reinstatement premiums paid.

The Treaty ending June 30, 2023 and 2022 each provides for one full
reinstatement of coverage limits. Reinstatement premiums are based on the amount
of reinsurance benefits used by the Company at 100% of the annual premium rate,
with the exception of the reinstatement restrictions noted in the tables above,
up to the maximum reinstatement premium of approximately $72 million and $51
million if the full amount of benefit is used for the 12 months ending June 30,
2023 and 2022, respectively.

The total amount of reinstatement premiums is recorded as ceded reinstatement
premiums written at the time of the catastrophe event based on the total amount
of reinsurance benefits expected to be used for the event, and such
reinstatement premiums are recognized ratably over the remaining term of the
Treaty as ceded reinstatement premiums earned.

The catastrophe events that occurred in 2022 caused approximately $40 million in
losses to the Company, resulting primarily from winter storms, rainstorms and
hail in Texas and winter storms in California. No reinsurance benefits were
available under the Treaty for these losses as none of the 2022 catastrophe
events individually resulted in losses in excess of the Company's per-occurrence
retention limit of $40 million under the Treaty for the 12 months ending June
30, 2022.

The catastrophe events that occurred in 2021 caused approximately $113 million
in losses to the Company as of June 30, 2022, resulting primarily from the deep
freeze and other extreme weather events in Texas and Oklahoma, rainstorms,
wildfires and winter storms in California, and the impact of Hurricane Ida in
New Jersey and New York. No reinsurance benefits were
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available under the Treaty for these losses as none of the 2021 catastrophe
events individually resulted in losses in excess of the Company's per-occurrence
retention limit of $40 million under the Treaty for each of the 12 months ending
June 30, 2022 and 2021.

The Company carries a commercial umbrella reinsurance treaty and a per-risk
property reinsurance treaty, and seeks facultative arrangements for large
property risks. In addition, the Company has other reinsurance in force that is
not material to the consolidated financial statements. If any reinsurers are
unable to perform their obligations under a reinsurance treaty, the Company will
be required, as primary insurer, to discharge all obligations to its
policyholders in their entirety.

C. Invested assets

Portfolio Composition

An important component of the Company's financial results is the return on its
investment portfolio. The Company's investment strategy emphasizes safety of
principal and consistent income generation, within a total return framework. The
investment strategy has historically focused on maximizing after-tax yield with
a primary emphasis on maintaining a well-diversified, investment grade, fixed
income portfolio to support the underlying liabilities and achieve return on
capital and profitable growth. The Company believes that investment yield is
maximized by selecting assets that perform favorably on a long-term basis and by
disposing of certain assets to enhance after-tax yield and minimize the
potential effect of downgrades and defaults. The Company believes that this
strategy enables the optimal investment performance necessary to sustain
investment income over time. The Company's portfolio management approach
utilizes a market risk and consistent asset allocation strategy as the primary
basis for the allocation of interest sensitive, liquid and credit assets as well
as for determining overall below investment grade exposure and diversification
requirements. Within the ranges set by the asset allocation strategy, tactical
investment decisions are made in consideration of prevailing market conditions.

The following table presents the composition of the total investment portfolio
of the company in June 30, 2022:

                                                            Cost (1)        Fair Value

                                                              (Amounts in thousands)
   Fixed maturity securities:
   U.S. government bonds                                  $    14,265      $    14,026
   Municipal securities                                     2,758,012        2,710,968
   Mortgage-backed securities                                 166,414          156,074
   Corporate securities                                       567,171          522,529
   Collateralized loan obligations                            315,976          301,046
   Other asset-backed securities                              181,304          174,041
                                                            4,003,142        3,878,684
   Equity securities:
   Common stock                                               541,234          635,185
   Non-redeemable preferred stock                              64,429       

57,721

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Private equity funds valued at net asset value (2) 135,427

    89,896
                                                              741,090          782,802
   Short-term investments                                     174,874          172,130
   Total investments                                      $ 4,919,106      $ 4,833,616


______________
(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.

A June 30, 202247.1% of the Company’s total investment portfolio at a fair price
and 58.7% of its total fixed-maturity securities at fair value were
invested in tax-exempt state and municipal bonds. Equity holdings consist of
non-redeemable preferred stock, dividend-earning common stock in which
dividend income is partially shielded from tax by the 50% corporate dividend
received deduction, and private equity funds. A June 30, 202291.0% of
short-term investments consisted of short-lived securities with high ratings
redeemable on a daily or weekly basis.

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Fixed Maturity Securities and Short-Term Investments

Fixed maturity securities include debt securities, which are mostly long-term
bonds and other debt with maturities of at least one year from purchase, and
which may have fixed or variable principal payment schedules, may be held for
indefinite periods of time, and may be used as a part of the Company's
asset/liability strategy or sold in response to changes in interest rates,
anticipated prepayments, risk/reward characteristics, liquidity needs, tax
planning considerations, or other economic factors. Short-term instruments
include money market accounts, options, and short-term bonds that are highly
rated short duration securities and redeemable within one year.

A primary exposure for the fixed maturity securities is interest rate risk. The
longer the duration, the more sensitive the asset is to market interest rate
fluctuations. As assets with longer maturity dates tend to produce higher
current yields, the Company's historical investment philosophy has resulted in a
portfolio with a moderate duration. The Company's portfolio is heavily weighted
in investment grade tax-exempt municipal bonds. Fixed maturity securities
purchased by the Company typically have call options attached, which further
reduce the duration of the asset as interest rates decline. The holdings that
are heavily weighted with high coupon issues, are expected to be called prior to
maturity. Modified duration measures the length of time it takes, on average, to
receive the present value of all the cash flows produced by a bond, including
reinvestment of interest. As it measures four factors (maturity, coupon rate,
yield and call terms) which determine sensitivity to changes in interest rates,
modified duration is considered a better indicator of price volatility than
simple maturity alone.

The following table presents the maturities and durations of the Company’s fixed bonds.
Maturity securities and short-term investments:

                                                                  June 30, 2022                December 31, 2021

                                                                                   (in years)
Fixed Maturity Securities
Nominal average maturity:
excluding short-term investments                                      11.6                           10.8
including short-term investments                                      11.1                           10.4
Call-adjusted average maturity:
excluding short-term investments                                       4.8                            4.6
including short-term investments                                       4.6                            4.5

Modified Duration Reflecting Early Early Calls:
excluding short-term investments

                                       3.7                            3.5
including short-term investments                                       3.5                            3.4
Short-Term Investments                                                  -                              -



Another exposure related to the fixed maturity securities is credit risk, which
is managed by maintaining a weighted-average portfolio credit quality rating of
A+, at fair value, at June 30, 2022, consistent with the average rating at
December 31, 2021. The Company's municipal bond holdings, of which 84.0% were
tax exempt, represented 58.7% of its fixed maturity securities portfolio at
June 30, 2022, at fair value, and are broadly diversified geographically. See
Part I-Item 3. Quantitative and Qualitative Disclosures About Market Risks for a
breakdown of municipal bond holdings by state.

To calculate the weighted-average credit quality ratings disclosed throughout
this Quarterly Report on Form 10-Q, individual securities were weighted based on
fair value and credit quality ratings assigned by nationally recognized
securities rating organizations.

Taxable holdings consist principally of investment grade issues. At June 30,
2022, fixed maturity securities holdings rated below investment grade and
non-rated bonds totaled $6.3 million and $29.2 million, respectively, at fair
value, and represented 0.2% and 0.8%, respectively, of total fixed maturity
securities. The majority of non-rated issues are a result of municipalities
pre-funding and collateralizing those issues with U.S. government securities
with an implicit AAA equivalent credit risk. At December 31, 2021, fixed
maturity securities holdings rated below investment grade and non-rated bonds
totaled $7.1 million and $17.3 million, respectively, at fair value, and
represented 0.2% and 0.4%, respectively, of total fixed maturity securities.

The overall credit ratings for the Company's fixed maturity securities portfolio
were relatively stable during the six months ended June 30, 2022, with 95.4% of
fixed maturity securities at fair value experiencing no change in their overall
rating.
                                       38

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4.1% and 0.5% of Fixed Maturity Fair Value Securities improved
and rebates, respectively, during the six months ended June 30, 2022.

The following table presents the credit quality ratings of the Company’s fixed bonds.
Securities held to maturity by type of security at fair value:

                                                                                                     June 30, 2022
                                                                                                (Dollars in thousands)
                                                                                                                                                            Total Fair
             Security Type                        AAA(1)              AA(1)                 A(1)               BBB(1)           Non-Rated/Other(1)           Value(1)
U.S. government bonds:
Treasuries                                     $  14,026          $         -          $         -          $       -          $              -           $    14,026
Total                                             14,026                    -                    -                  -                         -                14,026
                                                   100.0  %                 -  %                 -  %               -  %                      -   %             100.0  %
Municipal securities:
Insured                                           48,319              253,610               90,955             39,282                    12,253               444,419
Uninsured                                         94,672              646,690            1,310,799            193,826                    20,562             2,266,549
Total                                            142,991              900,300            1,401,754            233,108                    32,815             2,710,968
                                                     5.3  %              33.2  %              51.7  %             8.6  %                    1.2   %             100.0  %
Mortgage-backed securities:
Commercial                                        14,400                6,855                4,794                  -                         -                26,049
Agencies                                             621                    -                    -                  -                         -                   621
Non-agencies:
Prime                                             18,400               94,457               14,737                  -                       445               128,039
Alt-A                                                  -                  442                    -                154                       769                 1,365
Total                                             33,421              101,754               19,531                154                     1,214               156,074
                                                    21.4  %              65.2  %              12.5  %             0.1  %                    0.8   %             100.0  %
Corporate securities:
Communications                                         -                  172                    -              5,689                         -                 5,861
Consumer, cyclical                                     -                1,902                    -             68,293                         -                70,195
Consumer, non-cyclical                                 -                    -               16,769             16,545                         -                33,314
Energy                                                 -                7,081                3,560             40,041                         -                50,682
Financial                                              -               20,565               98,239             77,361                     3,020               199,185
Industrial                                             -               15,000               53,485             61,054                         -               129,539
Technology                                             -                    -                    -                707                         -                   707
Utilities                                              -                    -               18,336             14,710                         -                33,046
Total                                                  -               44,720              190,389            284,400                     3,020               522,529
                                                       -  %               8.6  %              36.4  %            54.4  %                    0.6   %             100.0  %
Collateralized loan obligations:
Corporate                                         25,870               91,954              183,222                  -                         -               301,046
Total                                             25,870               91,954              183,222                  -                         -               301,046
                                                     8.6  %              30.5  %              60.9  %               -  %                      -   %             100.0  %

Other asset-backed securities                      4,420               76,996               63,300             29,325                         -               174,041
                                                     2.5  %              44.3  %              36.4  %            16.8  %                      -   %             100.0  %
Total                                          $ 220,728          $

1,215,724 $1,858,196 $546,987 $37,049

          $ 3,878,684
                                                     5.7  %              31.3  %              47.9  %            14.1  %                    1.0   %             100.0  %


_____________

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


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U.S. Government Bonds

The Company had $14.0 million and $13.1 million, or 0.4% and 0.3% of its fixed
maturity securities portfolio, at fair value, in U.S. government bonds at
June 30, 2022 and December 31, 2021, respectively. At June 30, 2022, Moody's and
Fitch ratings for U.S. government-issued debt were Aaa and AAA, respectively,
although a significant increase in government deficits and debt could lead to a
downgrade. The Company understands that market participants continue to use
rates of return on U.S. government debt as a risk-free rate and have continued
to invest in U.S. Treasury securities. The modified duration of the U.S.
government bonds portfolio reflecting anticipated early calls was 1.3 years and
0.9 years at June 30, 2022 and December 31, 2021, respectively.

Municipal Values

The Company had $2.71 billion and $2.84 billion, or 69.9% and 70.5% of its fixed
maturity securities portfolio, at fair value, in municipal securities, $444.4
million and $424.1 million of which were insured, at June 30, 2022 and
December 31, 2021, respectively. The underlying ratings for insured municipal
bonds have been factored into the average rating of the securities by the rating
agencies with no significant disparity between the absolute securities ratings
and the underlying credit ratings as of June 30, 2022 and December 31, 2021.

At June 30, 2022 and December 31, 2021, 56.7% and 56.8%, respectively, of the
insured municipal securities, at fair value, most of which were investment
grade, were insured by bond insurers that provide credit enhancement and ratings
reflecting the credit of the underlying issuers. At June 30, 2022 and
December 31, 2021, the average rating of the Company's insured municipal
securities was A+, which corresponded to the average rating of the investment
grade bond insurers. The remaining 43.3% and 43.2% of insured municipal
securities at June 30, 2022 and December 31, 2021, respectively, were non-rated
or below investment grade, and were insured by bond insurers that the Company
believes did not provide credit enhancement. The modified duration of the
municipal securities portfolio reflecting anticipated early calls was 3.4 years
and 3.1 years at June 30, 2022 and December 31, 2021, respectively.

The Company considers the strength of the underlying credit as a buffer against
potential market value declines which may result from future rating downgrades
of the bond insurers. In addition, the Company has a long-term time horizon for
its municipal bond holdings, which generally allows it to recover the full
principal amounts upon maturity and avoid forced sales prior to maturity of
bonds that have declined in market value due to the bond insurers' rating
downgrades. Based on the uncertainty surrounding the financial condition of
these insurers, it is possible that there will be future downgrades to below
investment grade ratings by the rating agencies in the future, and such
downgrades could impact the estimated fair value of municipal bonds.

mortgage-backed securities

At June 30, 2022 and December 31, 2021, substantially all of the mortgage-backed
securities portfolio of $156.1 million and $137.0 million, or 4.0% and 3.4%,
respectively, of the Company's fixed maturity securities portfolio, at fair
value, was categorized as loans to "prime" residential and commercial real
estate borrowers. The Company had holdings of $26.0 million and $25.2 million at
fair value ($26.7 million and $25.1 million at amortized cost) in commercial
mortgage-backed securities at June 30, 2022 and December 31, 2021, respectively.

The weighted-average rating of the entire mortgage-backed securities portfolio
was AA at each of June 30, 2022 and December 31, 2021. The modified duration of
the mortgage-backed securities portfolio reflecting anticipated early calls was
6.6 years and 7.9 years at June 30, 2022 and December 31, 2021, respectively.

Corporate values

The corporate securities included in fixed maturity securities were as follows:

                                                                     June 

30, 2022 December 31, 2021

                                                                             (Dollars in thousands)
Corporate securities at fair value                                 $      522,529          $        523,853
Percentage of total fixed maturity securities portfolio                      13.5  %                   13.0  %
Modified duration                                                          3.6 years                 3.8 years
Weighted-average rating                                                           A-                      BBB+



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Collateralized Loan Obligations

Collateralized loan obligations included in fixed maturity securities were as
follows:

                                                                     June 30, 2022          December 31, 2021

                                                                             (Dollars in thousands)
Collateralized loan obligations at fair value                      $      301,046          $        314,153
Percentage of total fixed maturity securities portfolio                       7.8  %                    7.8  %
Modified duration                                                          5.5 years                 6.3 years
Weighted-average rating                                                           A+                       AA-


Other asset-backed securities

Other asset-backed securities included in fixed maturity securities were as
follows:

                                                                     June 30, 2022          December 31, 2021

                                                                             (Dollars in thousands)
Other asset-backed securities at fair value                        $      174,041          $        200,209
Percentage of total fixed maturity securities portfolio                       4.5  %                    5.0  %
Modified duration                                                          3.7 years                 2.6 years
Weighted-average rating                                                           A+                       AA-



Equity Securities

Equity holdings of $782.8 million and $970.9 million at fair value, as of
June 30, 2022 and December 31, 2021, respectively, consisted of non-redeemable
preferred stocks, common stocks on which dividend income is partially
tax-sheltered by the 50% corporate dividend received deduction, and private
equity funds. The Company had a net (loss) gain of $(174.7) million and $66.9
million due to changes in fair value of the Company's equity securities
portfolio for the six months ended June 30, 2022 and 2021, respectively. The
primary cause for the decrease in fair value of the Company's equity securities
portfolio for the six months ended June 30, 2022 was the overall decline in
equity markets. The primary cause for the increase in fair value of the
Company's equity securities portfolio for the six months ended June 30, 2021 was
the overall improvement in equity markets.

The Company's common stock allocation is intended to enhance the return of and
provide diversification for the total portfolio. At June 30, 2022, 16.2% of the
total investment portfolio at fair value was held in equity securities, compared
to 18.9% at December 31, 2021 .

D. Debt

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 each
year commencing September 15, 2017. The notes mature on March 15, 2027. 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%.

On March 29, 2017, the Company entered into the 2017 Credit Agreement that
provided for revolving loans of up to $50 million and was set to mature on March
29, 2022. On March 31, 2021, the Company entered into the Amended and Restated
Credit Agreement that amended and restated the 2017 Credit Agreement. The
Amended and Restated Credit Agreement, among other things, extended the maturity
date of the loan that was the subject of the 2017 Credit Agreement to March 31,
2026, added U.S. Bank as an additional lender, and increased the aggregate
commitments by all the lenders to $75 million from $50 million under the 2017
Credit Agreement. The interest rates on borrowings under the credit facility are
based on the Company's debt to total capital ratio and range from LIBOR plus
112.5 basis points when the ratio is under 20% to LIBOR 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
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debt. The Company’s debt to total equity ratio was 18.4% at June 30, 2022,
resulting in a commitment fee of 12.5 basis points on the $75 million without drawing
part of the line of credit. From July 27, 2022there has not been
loans under this facility.

The Company was in compliance with all of the financial covenants pertaining to
minimum statutory surplus, debt to total capital ratio, and risk based capital
ratio under the unsecured credit facility at June 30, 2022.

For additional information on debt see Note 11. Documents Payable of the Documents to
Consolidated financial statement.

E. Regulatory capital requirements

Among other considerations, industry and regulatory guidelines suggest that the
ratio of a property and casualty insurer's annual net premiums written to
statutory policyholders' surplus should not exceed 3.0 to 1. Based on the
combined surplus of all the Insurance Companies of $1.63 billion at June 30,
2022, and net premiums written of $3.98 billion for the twelve months ended on
that date, the ratio of net premiums written to surplus was 2.44 to 1 at
June 30, 2022.