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Text: I'm Gabe Tirador, President and CEO.
In the room with me is Mr. George Joseph, Chairman; Ted Stalick, Senior Vice President and CFO; Jeff Schroeder, Vice President and Chief Product Officer; and Chris Graves, Vice President and Chief Investment Officer.
Before we take questions, we will make a few comments regarding the quarter.
Our third quarter operating earnings were $0.78 per share compared to $1.11 per share in the third quarter of 2018.
The deterioration in operating earnings was primarily due to an increase in the combined ratio.
The combined ratio was 98.6% in the third quarter of 2019 compared to 95.6% in the third quarter of 2018.
The deterioration in the combined ratio in the quarter was primarily from worst results in our private passenger auto business outside of California and our California commercial auto business which together added 2.8 points to the companywide combined ratio in the third quarter of 2019 compared to the third quarter of 2018.
For states outside of California, we posted a private passenger auto combined ratio of 101% in the third quarter of 2019 compared to 82% in the third quarter of 2018.
Those results include approximately $2 million of favorable prior-year reserve development on $86 million of earned premium compared to $12 million of favorable prior-year reserve development on $88 million of earned premium in the third quarter of 2018.
Our California commercial auto business posted a combined ratio of approximately 120% in the third quarter of 2019 compared to 90% in the third quarter of 2018.
Those results include approximately $6 million of unfavorable prior-year reserve development on $34 million of earned premium compared to $1 million of unfavorable prior-year reserve development on $29 million of earned premium in the third quarter of 2018.
Our California private passenger auto combined ratio deteriorated slightly to approximately 97.6% in the third quarter of 2019 from 97.4% in the third quarter of 2018.
Overall, frequency was relatively flat and severity was up approximately 7% compared to the third quarter of 2018.
Partially offsetting the year-over-year increase in loss severity in the quarter were recent rate increases.
In California, a 6.9% personal auto rate increase for California Automobile Insurance Company was implemented in March 2019 and a 6.9% personal auto rate increase for Mercury Insurance Company was implemented in May of 2019.
Collectively, these represent two-thirds of companywide direct premiums earned.
Approximately 81% of the California Automobile Insurance Company rate increase was earned during the quarter and about 53% of the Mercury Insurance Company rate increase was earned during the quarter.
Our third quarter 2019 California private passenger auto frequency and severity, each increased by about 4% compared to the second quarter of 2019.
The sequential increase in frequency and severity was the primary reason our California private passenger auto combined ratio deteriorated from approximately 96.7% in the second quarter of 2019 to 97.6% in the third quarter of 2019.
The sequential increase in frequency and severity in the quarter was partially offset by our recent rate increases.
Our year-to-date accident year combined ratio for California personal auto is approximately 96.1%.
Our California homeowners combined ratio was 97.5% in the third quarter of 2019 compared to 101.2% in the third quarter of 2018.
A 6.99% rate increase in our California homeowners line was approved by the California Department of Insurance and was implemented in August 2019.
We also recently filed for another 6.9% rate increase in our California homeowners line of business.
California homeowners premiums represent about 13% of direct companywide premiums earned.
Companywide, we recorded $1 million of favorable prior-year reserve development in the quarter compared to $6 million of unfavorable reserve development in the third quarter of 2018.
Catastrophe losses, primarily from Hurricane Imelda in Texas, were $3 million in the quarter compared to $13 million in the third quarter of 2018, primarily from the Carr Wildfire in Redding, California.
The expense ratio was 24.2% in the third quarter compared to 24% in the third quarter of 2018.
The slightly higher expense ratio was primarily due to a $6 million increase in accrued expense related to our previously announced settlement with the California Department of Insurance, partially offset by a decrease in profitability-related accruals, slightly lower acquisition costs and cost efficiency savings.
Premiums written grew 8.6% in the quarter, primarily due to higher average premiums per policy and an increase in homeowners policies written.
Several wildfires earlier in October and wildfires currently burning have caused damage in California.
At this time, it's too early to estimate our losses from these wildfires.
Our catastrophe reinsurance treaty provides coverage for wildfire catastrophe losses in excess of Mercury's $40 million retention has a total wildfire limit of $508 million and allows for one full reinstatement.
Loss occurs for a wildfire event includes all losses within 150-mile radius and within a 10-day period.
Both the radius point and the 10-day window are at the choice of Mercury.
Lastly, we generally expect the combined ratio for the fourth quarter, excluding catastrophes, to be higher than the rest of the year, due to increased loss frequency and higher severity caused by seasonal driving weather.
That said, it is hard to predict with certainty, whether the underlying combined ratio will be higher as there are many factors currently unknown or beyond our control.
With that brief background, we will now take questions.

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compname reports qtrly operating earnings per share $0.78.
quarterly operating earnings per share $0.78.

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