News Releases

Mercury General Corporation Announces Third Quarter Results and Increases Quarterly Dividend

LOS ANGELES, Oct. 29, 2012 /PRNewswire/ -- Mercury General Corporation (NYSE: MCY) reported today for the third quarter of 2012:

 

Consolidated Highlights

 
 

Three Months Ended September 30,

Change

   

Nine Months Ended September 30,

Change

 
 

2012

2011

$

%

 

2012

2011

$

%

(000's except per-share amounts and ratios)

                 

Net premiums written (1)

$

684,880

 

$

662,279

 

$

22,601

 

3.4

 

$

1,996,800

 

$

1,956,790

 

$

40,010

 

2.0

 

Net income (loss)

$

66,201

 

$

(3,782)

 

$

69,983

 

NM

 

$

134,293

 

$

111,695

 

$

22,598

 

20.2

 

Net income (loss) per diluted share (2)

$

1.21

 

$

(0.07)

 

$

1.28

 

NM

 

$

2.45

 

$

2.04

 

$

0.41

 

20.1

 

Operating income (1)

$

33,862

 

$

39,715

 

$

(5,853)

 

(14.7)

 

$

83,167

 

$

121,097

 

$

(37,930)

 

(31.3)

 

Operating income per diluted share (1)

$

0.62

 

$

0.72

 

$

(0.10)

 

(13.9)

 

$

1.51

 

$

2.21

 

$

(0.70)

 

(31.7)

 

Catastrophe losses (3)

$

1,000

 

$

4,000

 

$

(3,000)

 

(75.0)

 

$

9,000

 

$

8,000

 

$

1,000

 

12.5

 

Combined ratio (4)

99.1

%

98.3

%

 

0.8 pts

 

100.4

%

98.2

%

 

2.2 pts

NM = Not meaningful

                 

(1) These measures are not based on U.S. generally accepted accounting principles ("GAAP") and are defined and reconciled to the most directly comparable GAAP measures in "Information Regarding Non-GAAP Measures."

(2) The dilutive impact of incremental shares is excluded from loss positions in accordance with GAAP.

(3) 2012 catastrophe losses were primarily the result of wind and hail storms in the Midwest region in the second quarter; 2011 catastrophe losses were mainly the result of Hurricane Irene in the third quarter. The amounts are rounded to the nearest million.

(4) The Company experienced unfavorable development of approximately $4 million and $1 million on prior accident years' losses and loss adjustment expenses reserves for the three months ended September 30, 2012 and 2011, respectively, and approximately $33 million and $11 million on prior accident years' losses and loss adjustment expenses reserves for the nine months ended September 30, 2012 and 2011, respectively. The year-to-date unfavorable development in 2012 is largely the result of re-estimates of California bodily injury losses which have experienced higher average severities and more late reported claims (claim count development) than estimated at December 31, 2011.

 

Investment Results

 
 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2012

2011

 

2012

2011

(000's except average annual yield)

 

Average invested assets at cost (1)

$

3,007,634

 

$

2,997,332

   

$

2,998,270

 

$

3,012,375

 

Net investment income:

         

Before income taxes

$

33,410

 

$

35,526

   

$

96,569

 

$

106,631

 

After income taxes

$

28,881

 

$

31,389

   

$

84,909

 

$

94,483

 

Average annual yield on investments - after income taxes

3.8

%

4.2

%

 

3.8

%

4.2

%

(1) Fixed maturities and short-term bonds at amortized cost and equities and other short-term investments at cost. Average invested assets at cost is based on the monthly amortized cost of the invested assets for each respective period.

Mercury CEO and President Gabe Tirador commented on the quarterly results:

"We are pleased to report 3.4% quarterly net written premium growth, which represents our seventh consecutive quarter of net written premium growth and our highest growth rate during that period. California new business private passenger automobile policy sales increased year over year in the quarter by 20%. The Company is currently profitable in a number of states and has been actively addressing profitability through a combination of rate and underwriting changes and cost management initiatives. In California, our largest state, the Company implemented an approximately 4% rate increase for its personal automobile insurance line of business effective for new and renewal policies beginning October 26, 2012." 

The Board of Directors declared a quarterly dividend of $0.6125 per share, representing an increase over the quarterly dividend amount paid in 2011. The dividend will be paid on December 27, 2012 to shareholders of record on December 13, 2012.

Mercury General Corporation and its subsidiaries are a multiple line insurance organization offering predominantly personal automobile and homeowners insurance through a network of independent producers in many states. For more information, visit the Company's website at www.mercuryinsurance.com. The Company will be hosting a conference call and webcast today at 10:00 A.M. Pacific time where management will discuss results and address questions. The teleconference and webcast can be accessed by calling (877) 807-1888 (USA), (706) 679-3827 (International) or by visiting www.mercuryinsurance.com. A replay of the call will be available beginning at 1:30 P.M. Pacific time and running through November 5, 2012. The replay telephone numbers are (855) 859-2056 (USA) or (404) 537-3406 (International). The conference ID# is 39710486. The replay will also be available on the Company's website shortly following the call.

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for certain forward-looking statements. The statements contained in this press release 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 the impact of current economic conditions on the Company's market and investment portfolio; the accuracy and adequacy of the Company's pricing methodologies; adverse weather conditions or natural disasters in the markets served by the Company; general market risks associated with the Company's investment portfolio; 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 states where the Company 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 states outside of California; the presence of competitors with greater financial resources and the impact of competitive pricing and marketing efforts; changes in driving patterns and loss trends; acts of war and terrorist activities; court decisions and trends in litigation and health care and auto repair costs and marketing efforts; and legal, 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 filings with the Securities and Exchange Commission.

 

MERCURY GENERAL CORPORATION AND SUBSIDIARIES

SUMMARY OF OPERATING RESULTS

(000's except per-share amounts and ratios)

(unaudited)

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

2012

 

2011

 

2012

 

2011

Net premiums written

$

684,880

   

$

662,279

   

$

1,996,800

   

$

1,956,790

 
               

Revenues:

             

Net premium earned

$

646,084

   

$

643,626

   

$

1,919,143

   

$

1,924,444

 

Net investment income

33,410

   

35,526

   

96,569

   

106,631

 

Net realized investment gains (losses)

49,752

   

(66,919)

   

78,656

   

(14,465)

 

Other

2,532

   

3,508

   

7,790

   

11,221

 

Total revenues

$

731,778

   

$

615,741

   

$

2,102,158

   

$

2,027,831

 

Expenses:

             

Losses and loss adjustment expenses

467,929

   

458,530

   

1,415,096

   

1,356,329

 

Policy acquisition costs

121,906

   

121,016

   

357,062

   

365,649

 

Other operating expenses

50,225

   

53,027

   

154,353

   

166,797

 

Interest

388

   

1,286

   

1,176

   

4,650

 

Total expenses

$

640,448

   

$

633,859

   

$

1,927,687

   

$

1,893,425

 
               

Income (loss) before income taxes

91,330

   

(18,118)

   

174,471

   

134,406

 

Income tax expense (benefit)

25,129

   

(14,336)

   

40,178

   

22,711

 

    Net income (loss)

$

66,201

   

$

(3,782)

   

$

134,293

   

$

111,695

 
               

Basic average shares outstanding

54,911

   

54,826

   

54,895

   

54,818

 

Diluted average shares outstanding (a)

54,925

   

54,826

   

54,918

   

54,835

 
               

Basic Per Share Data

             

Net income (loss)

$

1.21

   

$

(0.07)

   

$

2.45

   

$

2.04

 
               

Net realized investment gains (losses), net of tax

$

0.59

   

$

(0.79)

   

$

0.93

   

$

(0.17)

 
               

Diluted Per Share Data (a)

             

Net income (loss)

$

1.21

   

$

(0.07)

   

$

2.45

   

$

2.04

 
               

Net realized investment gains (losses), net of tax

$

0.59

   

$

(0.79)

   

$

0.93

   

$

(0.17)

 
               

Operating Ratios-GAAP Basis

             

Loss ratio

72.4

%

 

71.2

%

 

73.7

%

 

70.5

%

Expense ratio

26.6

%

 

27.0

%

 

26.6

%

 

27.7

%

Combined ratio (b)

99.1

%

 

98.3

%

 

100.4

%

 

98.2

%

               

Reconciliations of Operating Measures to Comparable GAAP Measures

 
               

Net premiums written

$

684,880

   

$

662,279

   

$

1,996,800

   

$

1,956,790

 

Change in unearned premiums

(38,796)

   

(18,653)

   

(77,657)

   

(32,346)

 

Net premiums earned

$

646,084

   

$

643,626

   

$

1,919,143

   

$

1,924,444

 
               

Paid losses and loss adjustment expenses

$

467,719

   

$

459,902

   

$

1,421,078

   

$

1,411,666

 

Change in net loss and loss adjustment expense reserves

210

   

(1,372)

   

(5,982)

   

(55,337)

 

Incurred losses and loss adjustment expenses

$

467,929

   

$

458,530

   

$

1,415,096

   

$

1,356,329

 

(a) The dilutive impact of incremental shares is excluded from loss position in accordance with GAAP.

(b) Combined ratios for the three months ended September 30, 2012 and 2011 and the nine months ended September 30, 2012 do not sum due to rounding.

 

MERCURY GENERAL CORPORATION AND SUBSIDIARIES

CONDENSED BALANCE SHEETS AND OTHER INFORMATION

(000's except per-share amounts and ratios)

 

September 30, 2012

 

December 31, 2011

 

(unaudited)

   

ASSETS

     

Investments, at fair value:

     

Fixed maturities trading (amortized cost $2,318,100; $2,345,620)

$

2,468,717

   

$

2,445,589

 

Equity securities trading (cost $458,690; $388,417)

470,813

   

380,388

 

Short-term investments (cost $221,163; $236,433)

221,083

   

236,444

 

Total investments

3,160,613

   

3,062,421

 

Cash

188,174

   

211,393

 

Receivables:

     

Premiums

346,317

   

288,799

 

Accrued investment income

33,348

   

32,541

 

Other

12,102

   

11,320

 

Total receivables

391,767

   

332,660

 

Deferred policy acquisition costs

186,313

   

171,430

 

Fixed assets, net

165,169

   

177,760

 

Current income taxes

12,726

   

 

Deferred income taxes

   

6,511

 

Goodwill

42,850

   

42,850

 

Other intangible assets, net

49,105

   

53,749

 

Other assets

14,193

   

11,232

 

Total assets

$

4,210,910

   

$

4,070,006

 
       

LIABILITIES AND SHAREHOLDERS' EQUITY

     

Losses and loss adjustment expenses

$

978,420

   

$

985,279

 

Unearned premiums

921,276

   

843,427

 

Notes payable

140,000

   

140,000

 

Accounts payable and accrued expenses

100,180

   

94,743

 

Current income taxes

   

67

 

Deferred income taxes

17,014

   

 

Other liabilities

160,187

   

149,007

 

Shareholders' equity

1,893,833

   

1,857,483

 

Total liabilities and shareholders' equity

$

4,210,910

   

$

4,070,006

 
       

OTHER INFORMATION

     

Common stock shares outstanding

54,911

   

54,856

 

Book value per share

$

34.49

   

$

33.86

 

Estimated statutory surplus

$1.5 billion

 

$1.5 billion

Estimated premiums written to surplus ratio

1.8

   

1.7

 

Debt to total capital ratio

6.9

%

 

7.0

%

Portfolio duration (including all short-term instruments)(a)

3.3 years

 

3.3 years

Policies-in-force (company-wide "PIF")(a)

     

Personal Auto PIF

1,251

   

1,236

 

Homeowners PIF

431

   

394

 

(a)   Unaudited.    

Information Regarding Non-GAAP Measures

The Company has presented information within this document containing operating measures which in management's opinion provide investors with useful, industry specific information to help them evaluate, and perform meaningful comparisons of, the Company's performance, but that may not be presented in accordance with GAAP. These measures are not intended to replace, and should be read in conjunction with, the GAAP financial results.

Operating income is net income excluding realized investment gains and losses, net of tax. Net income is the GAAP measure that is most directly comparable to operating income. Operating income is used by management along with the other components of net income to assess the Company's performance. Management uses operating income as an important measure to evaluate the results of the Company's insurance business. Management believes that operating income provides investors with a valuable measure of the Company's ongoing performance as it reveals trends in the Company's insurance business that may be obscured by the net effect of realized capital gains and losses. Realized capital gains and losses may vary significantly between periods and are generally driven by external economic developments such as capital market conditions. Accordingly, operating income highlights the results from ongoing operations and the underlying profitability of the Company's core insurance business. Operating income, which is provided as supplemental information and should not be considered as a substitute for net income, does not reflect the overall profitability of our business. It should be read in conjunction with the GAAP financial results. The Company has reconciled operating income with the most directly comparable GAAP measure in the table below.

 

Three Months Ended September 30,

 

Nine Months Ended September 30,

 

Total

Per diluted share

 

Total

Per diluted share

 

2012

2011

2012

2011 (b)

 

2012

2011

2012 (a)

2011 (b)

(000's except per-share amounts)

                 

Operating income

$

33,862

 

$

39,715

 

$

0.62

 

$

0.72

   

$

83,167

 

$

121,097

 

$

1.51

 

$

2.21

 

Net realized investment gains (losses), net of tax

32,339

 

(43,497)

 

0.59

 

(0.79)

   

51,126

 

(9,402)

 

0.93

 

(0.17)

 

Net income (loss)

$

66,201

 

$

(3,782)

 

$

1.21

 

$

(0.07)

   

$

134,293

 

$

111,695

 

$

2.45

 

$

2.04

 
                   

(a) Net income per diluted share does not sum due to rounding.

(b) The dilutive impact of incremental shares is excluded from loss positions in accordance with GAAP.         

Net premiums written represents the premiums charged on policies issued during a fiscal period. Net premiums earned, the most directly comparable GAAP measure, represents the portion of premiums written that have been recognized as income in the financial statements for the periods presented as earned on a pro-rata basis over the term of the policies. Net premiums written are meant as supplemental information and are not intended to replace net premiums earned. Such information should be read in conjunction with the GAAP financial results. The Company has reconciled net premiums written with the most directly comparable GAAP measure in the supplemental schedule entitled, "Summary of Operating Results."

Paid losses and loss adjustment expenses is the portion of incurred losses and loss adjustment expenses, the most directly comparable GAAP measure, excluding the effects of changes in the loss reserve accounts. Paid losses and loss adjustment expenses is provided as supplemental information and is not intended to replace incurred losses and loss adjustment expenses. It should be read in conjunction with the GAAP financial results. The Company has reconciled paid losses and loss adjustment expenses with the most directly comparable GAAP measure in the supplemental schedule entitled, "Summary of Operating Results."

Combined ratio-accident period basis is computed as the difference between two GAAP operating ratios: the combined ratio and the effect of prior accident periods' loss development. The most directly comparable GAAP measure is the combined ratio. The Company believes that this ratio is useful to investors and it is used by management to reveal the trends in the Company's results of operations that may be obscured by development on prior accident periods' loss reserves. Combined ratio-accident period basis is meant as supplemental information and is not intended to replace combined ratio. It should be read in conjunction with the GAAP financial results. The Company has reconciled combined ratio-accident period basis with the most directly comparable GAAP measure in the table below.

 

Nine Months Ended September 30,

 
 

2012

 

2011

       

Combined ratio-accident period basis

98.7

%

 

97.6

%

Effect of estimated prior periods' loss development

1.7

%

 

0.6

%

Combined ratio

100.4

%

 

98.2

%

       

SOURCE Mercury General Corporation

For further information: Theodore Stalick, VP/CFO, +1-323-937-1060

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