Mercury General (MCY): Buy, Sell, or Hold Post Q3 Earnings?

As the Q3 earnings season comes to a close, it’s time to take stock of this quarter’s best and worst performers in the property & casualty insurance industry, including Mercury General and its peers.

Property & Casualty (P&C) insurers protect individuals and businesses against financial loss from damage to property or from legal liability. This is a cyclical industry, and the sector benefits when there is 'hard market', characterized by strong premium rate increases that outpace loss and cost inflation, resulting in robust underwriting margins. The opposite is true in a 'soft market'. Interest rates also matter, as they determine the yields earned on fixed-income portfolios. On the other hand, P&C insurers face a major secular headwind from the increasing frequency and severity of catastrophe losses due to climate change. Furthermore, the liability side of the business is pressured by 'social inflation'—the trend of rising litigation costs and larger jury awards.

The 33 property & casualty insurance stocks we track reported a strong Q3. As a group, revenues beat analysts’ consensus estimates by 14.7%.

Thankfully, share prices of the companies have been resilient as they are up 5.7% on average since the latest earnings results.

Mercury General

Founded in 1961 and maintaining a network of over 6,300 independent agents across the country, Mercury General is an insurance company that primarily sells automobile insurance policies through independent agents in 11 states, with a strong focus on California.

Mercury General reported revenues of $1.58 billion, up 3.6% year on year. This print exceeded analysts’ expectations by 6.7%. Overall, it was a stunning quarter for the company with a beat of analysts’ EPS and revenue estimates.

Interestingly, the stock is up 17.3% since reporting and currently trades at $93.57.

Best Q3: Root

Pioneering a data-driven approach that rewards good driving habits, Root is a technology-driven auto insurance company that uses mobile apps to acquire customers and data science to price policies based on individual driving behavior.

Root reported revenues of $387.8 million, up 26.9% year on year, outperforming analysts’ expectations by 4.5%. The business had an incredible quarter with a beat of analysts’ EPS and net premiums earned estimates.

Although it had a fine quarter compared its peers, the market seems unhappy with the results as the stock is down 16.7% since reporting. It currently trades at $74.55.

Weakest Q3: Progressive

Starting as a small auto insurance company in 1937 with a pioneering focus on high-risk drivers, Progressive is a major auto, property, and commercial insurance provider that offers policies through independent agents, online platforms, and over the phone.

Progressive reported revenues of $22.51 billion, up 14.2% year on year, in line with analysts’ expectations. It was a softer quarter as it posted a significant miss of analysts’ EPS and book value per share estimates.

As expected, the stock is down 6.9% since the results and currently trades at $223.87.

Read our full analysis of Progressive’s results here.

Erie Indemnity

Operating under a unique business model dating back to 1925, Erie Indemnity serves as the attorney-in-fact for Erie Insurance Exchange, managing policy issuance, claims handling, and investment services for this reciprocal insurer.

Erie Indemnity reported revenues of $1.07 billion, up 6.7% year on year. This result missed analysts’ expectations by 1.6%. It was a slower quarter as it also produced a miss of analysts’ revenue estimates and a narrow beat of analysts’ EPS estimates.

The stock is down 10.5% since reporting and currently trades at $277.

Read our full, actionable report on Erie Indemnity here, it’s free for active Edge members.

Skyward Specialty Insurance

Founded in 2006 to serve markets where standard insurance coverage falls short, Skyward Specialty Insurance provides customized commercial property, casualty, and health insurance solutions for underserved or specialized market niches.

Skyward Specialty Insurance reported revenues of $382.5 million, up 27.1% year on year. This print topped analysts’ expectations by 14.3%. Overall, it was a stunning quarter as it also produced a solid beat of analysts’ net premiums earned estimates and an impressive beat of analysts’ revenue estimates.

The stock is up 9.8% since reporting and currently trades at $51.10.

Read our full, actionable report on Skyward Specialty Insurance here, it’s free for active Edge members.

What Happened?

A number of stocks jumped in the afternoon session after comments from a key Federal Reserve official hinted at potential interest rate cuts in the near future. 

New York Federal Reserve President John Williams stated he sees "room for a further adjustment in the near term" to U.S. monetary policy, signaling to investors that a rate cut could be forthcoming. Speaking at a conference, Williams noted that policy is currently "modestly restrictive" and could be moved closer to a neutral stance. The market reacted swiftly to the news, as lower interest rates have been a primary driver of stock market gains. Following the remarks, the probability of a 25-basis-point rate cut rose significantly, according to CME's FedWatch tool. For financial companies, lower rates can increase the value of their large bond portfolios and stimulate broader economic activity.

The stock market overreacts to news, and big price drops can present good opportunities to buy high-quality stocks.

Among others, the following stocks were impacted:

• Property & Casualty Insurance company Fidelity National Financial jumped 3.1%. Is now the time to buy Fidelity National Financial? Access our full analysis report here, it’s free for active Edge members.
• Life Insurance company Prudential jumped 3.1%. Is now the time to buy Prudential? Access our full analysis report here, it’s free for active Edge members.
• Property & Casualty Insurance company Mercury General jumped 3%. Is now the time to buy Mercury General? Access our full analysis report here, it’s free for active Edge members.

Zooming In On Prudential (PRU)

Prudential’s shares are not very volatile and have only had 4 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.

The previous big move we wrote about was 22 days ago when the stock gained 2.7% on the news that the company reported third-quarter results that surpassed Wall Street's expectations for both profit and revenue. 

The financial services giant posted adjusted earnings of $4.26 per share, easily clearing analysts' consensus estimates of $3.72. This also represented an increase from the $3.48 reported in the same quarter last year. Revenue for the quarter came in at $16.24 billion, which was 14.4% ahead of forecasts, though it marked a 16.7% decline compared to the prior-year period. The results were supported by a significant beat on Net Premiums Earned, which came in at $8.69 billion against an expected $6.73 billion. However, it wasn't all positive, as the company's book value per share of $90.69 missed analyst estimates.

Prudential is down 9.7% since the beginning of the year, and at $106.79 per share, it is trading 17.6% below its 52-week high of $129.52 from November 2024. Investors who bought $1,000 worth of Prudential’s shares 5 years ago would now be looking at an investment worth $1,390.

As the craze of earnings season draws to a close, here’s a look back at some of the most exciting (and some less so) results from Q3. Today, we are looking at property & casualty insurance stocks, starting with Travelers .

Property & Casualty (P&C) insurers protect individuals and businesses against financial loss from damage to property or from legal liability. This is a cyclical industry, and the sector benefits when there is 'hard market', characterized by strong premium rate increases that outpace loss and cost inflation, resulting in robust underwriting margins. The opposite is true in a 'soft market'. Interest rates also matter, as they determine the yields earned on fixed-income portfolios. On the other hand, P&C insurers face a major secular headwind from the increasing frequency and severity of catastrophe losses due to climate change. Furthermore, the liability side of the business is pressured by 'social inflation'—the trend of rising litigation costs and larger jury awards.

The 33 property & casualty insurance stocks we track reported a strong Q3. As a group, revenues beat analysts’ consensus estimates by 3.8%.

In light of this news, share prices of the companies have held steady as they are up 3.2% on average since the latest earnings results.

Travelers

Tracing its roots back to 1853 when it insured travelers against accidents on steamboats and railroads, Travelers provides a wide range of commercial and personal property and casualty insurance products to businesses, government units, associations, and individuals.

Travelers reported revenues of $12.44 billion, up 4.5% year on year. This print exceeded analysts’ expectations by 0.9%. Overall, it was a satisfactory quarter for the company with a beat of analysts’ EPS estimates but a significant miss of analysts’ book value per share estimates.

Interestingly, the stock is up 7.5% since reporting and currently trades at $289.64.

Is now the time to buy Travelers? Access our full analysis of the earnings results here, it’s free for active Edge members.

Best Q3: Root

Pioneering a data-driven approach that rewards good driving habits, Root is a technology-driven auto insurance company that uses mobile apps to acquire customers and data science to price policies based on individual driving behavior.

Root reported revenues of $387.8 million, up 26.9% year on year, outperforming analysts’ expectations by 4.5%. The business had an incredible quarter with a beat of analysts’ EPS and net premiums earned estimates.

Although it had a fine quarter compared its peers, the market seems unhappy with the results as the stock is down 8.8% since reporting. It currently trades at $81.67.

Is now the time to buy Root? Access our full analysis of the earnings results here, it’s free for active Edge members.

Weakest Q3: Selective Insurance Group

Founded in 1926 during the early days of automobile insurance, Selective Insurance Group is a property and casualty insurance company that sells commercial, personal, and excess and surplus lines insurance products through independent agents.

Selective Insurance Group reported revenues of $138.7 million, down 88.9% year on year, falling short of analysts’ expectations by 52.7%. It was a disappointing quarter as it posted a significant miss of analysts’ revenue and EPS estimates.

Selective Insurance Group delivered the weakest performance against analyst estimates and slowest revenue growth in the group. As expected, the stock is down 3.4% since the results and currently trades at $78.44.

Read our full analysis of Selective Insurance Group’s results here.

Bowhead Specialty

Named after the Arctic bowhead whale known for navigating challenging waters, Bowhead Specialty Holdings is a specialty insurance company that provides customized coverage for complex and high-risk commercial sectors.

Bowhead Specialty reported revenues of $143.9 million, up 23.3% year on year. This print beat analysts’ expectations by 1.2%. Overall, it was a strong quarter as it also recorded a beat of analysts’ EPS estimates and a narrow beat of analysts’ revenue estimates.

The stock is up 13.6% since reporting and currently trades at $27.67.

Read our full, actionable report on Bowhead Specialty here, it’s free for active Edge members.

Mercury General

Founded in 1961 and maintaining a network of over 6,300 independent agents across the country, Mercury General is an insurance company that primarily sells automobile insurance policies through independent agents in 11 states, with a strong focus on California.

Mercury General reported revenues of $1.58 billion, up 3.6% year on year. This number topped analysts’ expectations by 6.7%. It was a stunning quarter as it also put up a beat of analysts’ EPS and revenue estimates.

The stock is up 10.5% since reporting and currently trades at $88.13.

Read our full, actionable report on Mercury General here, it’s free for active Edge members.

Auto insurance provider Mercury General beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 4.9% year on year to $1.58 billion. Its GAAP profit of $5.06 per share was significantly above analysts’ consensus estimates.

Is now the time to buy Mercury General? Find out by accessing our full research report, it’s free for active Edge members.

Mercury General (MCY) Q3 CY2025 Highlights:

Company Overview

Founded in 1961 and maintaining a network of over 6,300 independent agents across the country, Mercury General is an insurance company that primarily sells automobile insurance policies through independent agents in 11 states, with a strong focus on California.

Revenue Growth

Big picture, insurers generate revenue from three key sources. The first is the core business of underwriting policies. The second source is income from investing the “float” (premiums collected upfront not yet paid out as claims) in assets such as fixed-income assets and equities. The third is fees from various sources such as policy administration, annuities, or other value-added services. Thankfully, Mercury General’s 10.4% annualized revenue growth over the last five years was solid. Its growth beat the average insurance company and shows its offerings resonate with customers.

Long-term growth is the most important, but within financials, a half-decade historical view may miss recent interest rate changes and market returns. Mercury General’s annualized revenue growth of 15.1% over the last two years is above its five-year trend, suggesting its demand was strong and recently accelerated.

This quarter, Mercury General reported modest year-on-year revenue growth of 4.9% but beat Wall Street’s estimates by 6.7%.

Net premiums earned made up 94.7% of the company’s total revenue during the last five years, meaning Mercury General lives and dies by its underwriting activities because non-insurance operations barely move the needle.

Our experience and research show the market cares primarily about an insurer’s net premiums earned growth as investment and fee income are considered more susceptible to market volatility and economic cycles.

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Book Value Per Share (BVPS)

Insurance companies are balance sheet businesses, collecting premiums upfront and paying out claims over time. The float – premiums collected but not yet paid out – are invested, creating an asset base supported by a liability structure. Book value captures this dynamic by measuring:

• Assets (investment portfolio, cash, reinsurance recoverables) - liabilities (claim reserves, debt, future policy benefits)

BVPS is essentially the residual value for shareholders.

We therefore consider BVPS very important to track for insurers and a metric that sheds light on business quality. While other (and more commonly known) per-share metrics like EPS can sometimes be lumpy due to reserve releases or one-time items and can be managed or skewed while still following accounting rules, BVPS reflects long-term capital growth and is harder to manipulate.

Mercury General’s BVPS grew at a sluggish 3.3% annual clip over the last five years. However, BVPS growth has accelerated recently, growing by 27.4% annually over the last two years from $24.82 to $40.30 per share.

Key Takeaways from Mercury General’s Q3 Results

It was good to see Mercury General beat analysts’ EPS expectations this quarter. We were also excited its revenue outperformed Wall Street’s estimates by a wide margin. Zooming out, we think this was a solid print. Investors were likely hoping for more, and shares traded down 2.3% to $78.04 immediately following the results.

So should you invest in Mercury General right now? What happened in the latest quarter matters, but not as much as longer-term business quality and valuation, when deciding whether to invest in this stock. We cover that in our actionable full research report which you can read here, it’s free for active Edge members.