News Releases

Mercury General Corporation Announces Second Quarter Results and Declares Quarterly Dividend

LOS ANGELES, Aug. 3, 2015 /PRNewswire/ -- Mercury General Corporation (NYSE: MCY) reported today for the second quarter of 2015:

Consolidated Highlights

 
 

Three Months Ended June 30,

Change

 

Six Months Ended June 30,

Change

 

2015

2014

$

%

 

2015

2014

$

%

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

                 

Net premiums written (1)

$

733,548

 

$

698,759

 

$

34,789

 

5.0

   

$

1,474,040

 

$

1,423,452

 

$

50,588

 

3.6

 

Net income

$

9,639

 

$

94,960

 

$

(85,321)

 

(89.8)

   

$

35,804

 

$

167,609

 

$

(131,805)

 

(78.6)

 

Net income per diluted share

$

0.17

 

$

1.73

 

$

(1.56)

 

(90.2)

   

$

0.65

 

$

3.05

 

$

(2.40)

 

(78.7)

 

Operating income (1)

$

35,214

 

$

45,437

 

$

(10,223)

 

(22.5)

   

$

67,854

 

$

87,723

 

$

(19,869)

 

(22.6)

 

Operating income per diluted share (1)

$

0.64

 

$

0.83

 

$

(0.19)

 

(22.9)

   

$

1.23

 

$

1.60

 

$

(0.37)

 

(23.1)

 

Catastrophe losses (2)

$

7,000

 

$

2,000

 

$

5,000

 

NM

   

$

10,000

 

$

6,000

 

$

4,000

 

NM

 

Combined ratio (3)

98.5

%

96.0

%

 

2.5 pts

   

98.8

%

96.3

%

 

2.5 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)

2015 catastrophe losses were primarily the result of tornadoes in Oklahoma and severe storms in the Midwest and Texas. 2014 catastrophe losses were primarily related to the winter freeze events on the East Coast.

(3)

The Company experienced favorable development of approximately $2 million and $4 million on prior accident years' losses and loss adjustment expenses reserves for the three months ended June 30, 2015 and 2014, respectively; and favorable development of approximately $5 million and $8 million on prior accident years' losses and loss adjustment expenses reserves for the six months ended June 30, 2015 and 2014, respectively.  The year-to-date favorable development in 2015 is primarily from California personal automobile lines of business partially offset by adverse development in other states.

 

Investment Results

       
 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2015

2014

 

2015

2014

(000's except average annual yield)

       

Average invested assets at cost (1)

$

3,284,994

 

$

3,132,330

   

$

3,302,428

 

$

3,097,087

 

Net investment income (2)

         

     Before income taxes

$

31,697

 

$

30,850

   

$

63,203

 

$

61,092

 

     After income taxes

$

27,710

 

$

27,562

   

$

55,205

 

$

54,521

 

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

3.4

%

3.5

%

 

3.3

%

3.5

%

   

(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)

Net investment income increased due to higher average invested asset balances; 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 September 24, 2015 to shareholders of record on September 10, 2015.

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 August 10, 2015. The replay telephone numbers are (855) 859-2056 (USA) or (404) 537-3406 (International). The conference ID# is 83495888. 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 June 30,

 

Six Months Ended June 30,

 

2015

 

2014

 

2015

 

2014

Net premiums written

$

733,548

   

$

698,759

   

$

1,474,040

   

$

1,423,452

 
               

Revenues:

             

     Net premium earned

$

731,546

   

$

697,889

   

$

1,452,283

   

$

1,381,590

 

     Net investment income

31,697

   

30,850

   

63,203

   

61,092

 

     Net realized investment (losses) gains

(39,348)

   

76,190

   

(49,309)

   

122,902

 

     Other

2,276

   

2,090

   

4,542

   

4,391

 

          Total revenues

$

726,171

   

$

807,019

   

$

1,470,719

   

$

1,569,975

 

Expenses:

             

     Losses and loss adjustment expenses

$

521,214

   

$

483,043

   

$

1,035,614

   

$

959,646

 

     Policy acquisition costs

135,140

   

133,060

   

268,987

   

262,874

 

     Other operating expenses

64,537

   

53,792

   

130,229

   

107,796

 

     Interest

769

   

688

   

1,519

   

1,193

 

          Total expenses

$

721,660

   

$

670,583

   

$

1,436,349

   

$

1,331,509

 
               

Income before income taxes

$

4,511

   

$

136,436

   

$

34,370

   

$

238,466

 

     Income tax (benefit) expense

(5,128)

   

41,476

   

(1,434)

   

70,857

 

                    Net income

$

9,639

   

$

94,960

   

$

35,804

   

$

167,609

 
               

Basic average shares outstanding

55,160

   

54,978

   

55,149

   

54,977

 

Diluted average shares outstanding

55,179

   

54,989

   

55,169

   

54,988

 
               

Basic Per Share Data

             

Net income

$

0.17

   

$

1.73

   

$

0.65

   

$

3.05

 
               

Net realized investment (losses) gains, net of tax

$

(0.47)

   

$

0.90

   

$

(0.58)

   

$

1.45

 
               

Diluted Per Share Data

             

Net income

$

0.17

   

$

1.73

   

$

0.65

   

$

3.05

 
               

Net realized investment (losses) gains, net of tax

$

(0.47)

   

$

0.90

   

$

(0.58)

   

$

1.45

 
               

Operating Ratios-GAAP Basis

             

Loss ratio

71.2

%

 

69.2

%

 

71.3

%

 

69.5

%

Expense ratio

27.3

%

 

26.8

%

 

27.5

%

 

26.8

%

Combined ratio

98.5

%

 

96.0

%

 

98.8

%

 

96.3

%

               

Reconciliations of Operating Measures to Comparable GAAP Measures

                         
               

Net premiums written

$

733,548

   

$

698,759

   

$

1,474,040

   

$

1,423,452

 

Change in net unearned premiums

(2,002)

   

(870)

   

(21,757)

   

(41,862)

 

Net premiums earned

$

731,546

   

$

697,889

   

$

1,452,283

   

$

1,381,590

 
               

Paid losses and loss adjustment expenses

$

512,647

   

$

473,831

   

$

1,032,401

   

$

945,322

 

Change in net loss and loss adjustment expense reserves (a)

8,567

   

9,212

   

3,213

   

14,324

 

Incurred losses and loss adjustment expenses

$

521,214

   

$

483,043

   

$

1,035,614

   

$

959,646

 
   

(a)  

The portion of the change in reserves for 2015 related to Workmen's Auto Insurance Company includes only the change in reserves subsequent to the January 2, 2015 acquisition date.

 

MERCURY GENERAL CORPORATION AND SUBSIDIARIES

CONDENSED BALANCE SHEETS AND OTHER INFORMATION

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

 
 

June 30, 2015

 

December 31, 2014

 

(unaudited)

   

ASSETS

     

Investments, at fair value:

     

     Fixed maturity securities (amortized cost $2,804,605; $2,503,494)

$

2,890,629

   

$

2,618,400

 

     Equity securities (cost $307,857; $387,851)

315,590

   

412,880

 

     Short-term investments (cost $153,549; $373,180)

153,548

   

372,542

 

          Total investments

3,359,767

   

3,403,822

 

Cash

274,782

   

289,907

 

Receivables:

     

     Premiums

413,870

   

390,009

 

     Accrued investment income

43,562

   

38,737

 

     Other

21,411

   

21,202

 

          Total receivables

478,843

   

449,948

 

Deferred policy acquisition costs

199,305

   

197,202

 

Fixed assets, net

157,455

   

158,976

 

Current income taxes

7,068

   

503

 

Deferred income taxes

14,076

   

 

Goodwill

42,796

   

42,796

 

Other intangible assets, net

34,033

   

35,623

 

Other assets

18,359

   

21,512

 

          Total assets

$

4,586,484

   

$

4,600,289

 
       

LIABILITIES AND SHAREHOLDERS' EQUITY

     

Losses and loss adjustment expenses

$

1,113,932

   

$

1,091,797

 

Unearned premiums

1,026,614

   

999,798

 

Notes payable

290,000

   

290,000

 

Accounts payable and accrued expenses

128,291

   

130,887

 

Deferred income taxes

   

5,333

 

Other liabilities

179,904

   

207,028

 

Shareholders' equity

1,847,743

   

1,875,446

 

          Total liabilities and shareholders' equity

$

4,586,484

   

$

4,600,289

 
       

OTHER INFORMATION

     

Common stock shares outstanding

55,164

   

55,121

 

Book value per share

$33.50

   

$34.02

 

Statutory surplus

$1.48 billion

   

$1.44 billion

 

Premiums written to surplus ratio

2.0

   

2.0

 

Debt to total capital ratio

13.6

%

 

13.4

%

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

2.6 years

   

2.6 years

 

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

     

     Personal Auto PIF

1,200

   

1,188

 

     Homeowners PIF

507

   

484

 

     Commercial Auto PIF

44

   

44

 
   

(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 June 30,

 

Six Months Ended June 30,

 

Total

Per diluted share

 

Total

Per diluted share

 

2015

2014

2015

2014

 

2015

2014

2015

2014

(000's except per-share amounts)

                 

Operating income

$

35,214

 

$

45,437

 

$

0.64

 

$

0.83

   

$

67,854

 

$

87,723

 

$

1.23

 

$

1.60

 

Net realized investment (losses) gains, net of tax

(25,575)

 

49,523

 

(0.47)

 

0.90

   

(32,050)

 

79,886

 

(0.58)

 

1.45

 

Net income

$

9,639

 

$

94,960

 

$

0.17

 

$

1.73

   

$

35,804

 

$

167,609

 

$

0.65

 

$

3.05

 

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.

 

Six Months Ended June 30,

 

2015

 

2014

       

Combined ratio-accident period basis

99.1

%

 

96.9

%

Effect of estimated prior periods' loss development

(0.3)

%

 

(0.6)

%

Combined ratio

98.8

%

 

96.3

%

 

Mercury General Corporation logo

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SOURCE Mercury General Corporation

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

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