News Releases

Mercury General Corporation Announces Third Quarter Results and Increases Quarterly Dividend

LOS ANGELES, Nov. 3, 2014 /PRNewswire/ -- Mercury General Corporation (NYSE: MCY) reported today for the third quarter of 2014:

Consolidated Highlights

 
 

Three Months Ended
September 30,

 

Change

 

Nine Months Ended
September 30,

   

Change

 

2014

 

2013

 

$

 

%

 

2014

 

2013

 

$

 

%

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

                           

Net premiums written (1)

$

720,153

 

$

704,895

 

$

15,258

 

2.2

 

$

2,143,605

 

$

2,060,878

 

$

82,727

 

4.0

Net income

$

31,296

 

$

39,570

 

$

(8,274)

 

(20.9)

 

$

198,905

 

$

96,767

 

$

102,138

 

105.6

Net income per diluted share

$

0.57

 

$

0.72

 

$

(0.15)

 

(20.8)

 

$

3.62

 

$

1.76

 

$

1.86

 

105.7

Operating income (1)

$

44,354

 

$

29,033

 

$

15,321

 

52.8

 

$

132,077

 

$

101,417

 

$

30,660

 

30.2

Operating income per diluted share (1)

$

0.81

 

$

0.53

 

$

0.28

 

52.8

 

$

2.40

 

$

1.85

 

$

0.55

 

29.7

Restructuring charges (2)

$

0

 

$

0

 

$

0

 

NM

 

$

0

 

$

10,000

 

$

(10,000)

 

NM

Catastrophe losses (3)

$

1,000

 

$

2,000

 

$

(1,000)

 

(50.0)

 

$

7,000

 

$

16,000

 

$

(9,000)

 

(56.3)

Combined ratio (4)

96.7%

 

99.2%

 

 

(2.5) pts

 

96.4%

 

98.6%

 

 

(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)

In the first quarter of 2013, the Company consolidated its claims and underwriting operations located outside of California into hub locations in Florida, New Jersey, and Texas, which resulted in a net workforce reduction of approximately 135 employees and a $10 million expense. The amounts are rounded to the nearest million.

(3)

2014 catastrophe losses were primarily related to winter freeze events on the East Coast. 2013 catastrophe losses were primarily the result of tornadoes in Oklahoma and severe storms in the Midwest and the Southeast region. The amounts are rounded to the nearest million.

(4)

The Company experienced favorable development of approximately $2 million and unfavorable development of approximately $1 million on prior accident years' losses and loss adjustment expenses reserves for the three months ended September 30, 2014 and 2013, respectively, and favorable development of approximately $10 million and  $2 million on prior accident years' losses and loss adjustment expenses reserves for the nine months ended September 30, 2014 and 2013, respectively. The year-to-date favorable development in 2014 is primarily from California personal auto lines of business partially offset by adverse development in other states.

 

Investment Results

 
 

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

 

2014

 

2013

   

2014

 

2013

(000's except average annual yield)

         

Average invested assets at cost (1)

$

3,237,993

 

$

3,025,614

   

$

3,185,457

 

$

3,038,281

Net investment income (2)

               

     Before income taxes

$

32,564

 

$

30,857

   

$

93,656

 

$

93,706

     After income taxes

$

28,677

 

$

27,214

   

$

83,227

 

$

82,272

Average annual yield on investments - after income taxes (2)

3.5%

 

3.6%

   

3.5%

 

3.6%

   

(1)

Fixed maturities and short-term bonds at amortized cost and 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 respective period.

(2)

For the nine months ended September 30, 2014 and 2013, respectively, net investment income after taxes increased due to higher average investment balances in tax exempt securities. Net investment income before income taxes and average annual yield decreased slightly primarily due to the maturity and replacement of higher yielding investments purchased when market interest rates were higher, with lower yielding investments purchased during low interest rate environments.

The Board of Directors declared a quarterly dividend of $0.6175 per share. The dividend will be paid on December 26, 2014 to shareholders of record on December 12, 2014.

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 10, 2014. The replay telephone numbers are (855) 859-2056 (USA) or (404) 537-3406 (International). The conference ID# is 14752870. 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 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 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 non-California states; 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,

 

2014

 

2013

 

2014

 

2013

Net premiums written

$

720,153

 

$

704,895

 

$

2,143,605

 

$

2,060,878

               

Revenues:

             

     Net premium earned

$

705,237

 

$

678,913

 

$

2,086,827

 

$

2,017,295

     Net investment income

32,564

 

30,857

 

93,656

 

93,706

     Net realized investment (losses) gains

(20,089)

 

16,212

 

102,813

 

(7,153)

     Other

2,275

 

2,685

 

6,666

 

7,539

          Total revenues

$

719,987

 

$

728,667

 

$

2,289,962

 

$

2,111,387

Expenses:

             

     Losses and loss adjustment expenses

492,525

 

492,558

 

1,452,171

 

1,446,524

     Policy acquisition costs

131,090

 

126,891

 

393,964

 

377,006

     Other operating expenses

58,545

 

54,087

 

166,341

 

166,165

     Interest

707

 

338

 

1,900

 

864

          Total expenses

$

682,867

 

$

673,874

 

$

2,014,376

 

$

1,990,559

               

Income before income taxes

37,120

 

54,793

 

275,586

 

120,828

     Income tax expense

5,824

 

15,223

 

76,681

 

24,061

                    Net income

$

31,296

 

$

39,570

 

$

198,905

 

$

96,767

               

Basic average shares outstanding

55,002

 

54,959

 

54,986

 

54,941

Diluted average shares outstanding

55,014

 

54,973

 

54,995

 

54,957

               

Basic Per Share Data

             

Net income

$

0.57

 

$

0.72

 

$

3.62

 

$

1.76

               

Net realized investment (losses) gains, net of tax

$

(0.24)

 

$

0.19

 

$

1.22

 

$

(0.08)

               

Diluted Per Share Data

             

Net income

$

0.57

 

$

0.72

 

$

3.62

 

$

1.76

               

Net realized investment (losses) gains, net of tax

$

(0.24)

 

$

0.19

 

$

1.22

 

$

(0.08)

               

Operating Ratios-GAAP Basis

             

Loss ratio

69.8%

 

72.6%

 

69.6%

 

71.7%

Expense ratio

26.9%

 

26.7%

 

26.8%

 

26.9%

Combined ratio (a)

96.7%

 

99.2%

 

96.4%

 

98.6%

               

Reconciliations of Operating Measures to Comparable GAAP Measures

           
               

Net premiums written

$

720,153

 

$

704,895

 

$

2,143,605

 

$

2,060,878

Change in net unearned premiums

(14,916)

 

(25,982)

 

(56,778)

 

(43,583)

Net premiums earned

$

705,237

 

$

678,913

 

$

2,086,827

 

$

2,017,295

               

Paid losses and loss adjustment expenses

$

483,653

 

$

488,985

 

$

1,428,975

 

$

1,471,639

Change in net loss and loss adjustment expense reserves

8,872

 

3,573

 

23,196

 

(25,115)

Incurred losses and loss adjustment expenses

$

492,525

 

$

492,558

 

$

1,452,171

 

$

1,446,524

   

(a) 

Combined ratios for the three months ended September 30, 2013 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, 2014

 

December 31, 2013

 

(unaudited)

   

ASSETS

     

Investments, at fair value:

     

     Fixed maturity securities (amortized cost $2,509,057; $2,523,042)

$

2,619,867

 

$

2,560,653

     Equity securities (cost $444,915; $223,933)

496,511

 

281,883

     Short-term investments (cost $291,646; $315,886)

291,325

 

315,776

          Total investments

3,407,703

 

3,158,312

Cash

279,681

 

266,508

Receivables:

     

     Premiums

395,688

 

366,075

     Accrued investment income

38,171

 

36,120

     Other

22,212

 

23,029

          Total receivables

456,071

 

425,224

Deferred policy acquisition costs

201,438

 

194,466

Fixed assets, net

160,134

 

156,716

Deferred income taxes

0

 

15,220

Goodwill

42,796

 

42,796

Other intangible assets, net

37,118

 

41,603

Other assets

24,065

 

14,336

          Total assets

$

4,609,006

 

$

4,315,181

       

LIABILITIES AND SHAREHOLDERS' EQUITY

     

Losses and loss adjustment expenses

$

1,062,913

 

$

1,038,984

Unearned premiums

1,012,619

 

953,527

Notes payable

290,000

 

190,000

Accounts payable and accrued expenses

141,897

 

127,663

Current income taxes

7,792

 

11,856

Deferred income taxes

5,306

 

Other liabilities

163,839

 

170,665

Shareholders' equity

1,924,640

 

1,822,486

          Total liabilities and shareholders' equity

$

4,609,006

 

$

4,315,181

       

OTHER INFORMATION

     

Common stock shares outstanding

55,021

 

54,975

Book value per share

$34.98

 

$33.15

Statutory surplus

$1.46 billion

 

$1.53 billion

Premiums written to surplus ratio

1.9

 

1.8

Debt to total capital ratio

13.1%

 

9.4%

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

2.7 years

 

3.6 years

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

     

     Personal Auto PIF

1,194

 

1,217

     Homeowners PIF

475

 

465

     Commercial Auto PIF

43

 

36

   

(a)

Unaudited.    

(b) 

Modified durations reflecting anticipated early calls.

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 effect of net 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

 

2014

 

2013

 

2014

 

2013

 

2014

 

2013

 

2014

 

2013 (a)

(000's except per-share amounts)

                             

Operating income

$

44,354

 

$

29,033

 

$

0.81

 

$

0.53

 

$

132,077

 

$

101,417

 

$

2.40

 

$

1.85

Net realized investment gains (losses), net of tax

(13,058)

 

10,537

 

(0.24)

 

0.19

 

66,828

 

(4,650)

 

1.22

 

(0.08)

Net income

$

31,296

 

$

39,570

 

$

0.57

 

$

0.72

 

$

198,905

 

$

96,767

 

$

3.62

 

$

1.76

   

(a)

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

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,

 

2014

 

2013

       

Combined ratio-accident period basis

96.9%

 

98.7%

Effect of estimated prior periods' loss development

(0.5)%

 

(0.1)%

Combined ratio

96.4%

 

98.6%

 

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SOURCE Mercury General Corporation

For further information: Theodore Stalick, SVP/CFO, (323) 937-1060

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