Mercury General Corporation Announces Fourth Quarter and Fiscal 2016 Results and Declares Quarterly Dividend

Consolidated Highlights

Three Months Ended
December 31,

Change

Twelve Months Ended
December 31,

Change

2016

2015

$

%

2016

2015

$

%

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

Net premiums earned

$

794,517

$

760,094

$

34,423

4.5

%

$

3,131,773

$

2,957,897

$

173,876

5.9

%

Net premiums written ⁽¹⁾

$

768,079

$

746,431

$

21,648

2.9

%

$

3,155,788

$

2,999,392

$

156,396

5.2

%

Net (loss) income

$

(26,082)

$

23,405

$

(49,487)

(211.4)

%

$

73,044

$

74,479

$

(1,435)

(1.9)

%

Net (loss) income per diluted share ⁽²⁾

$

(0.47)

$

0.42

$

(0.89)

(211.9)

%

$

1.32

$

1.35

$

(0.03)

(2.2)

%

Operating income ⁽¹⁾

$

31,917

$

28,742

$

3,175

11.0

%

$

95,310

$

128,953

$

(33,643)

(26.1)

%

Operating income per diluted share ⁽¹⁾

$

0.58

$

0.52

$

0.06

11.5

%

$

1.72

$

2.34

$

(0.62)

(26.5)

%

Catastrophe losses ⁽³⁾

$

4,000

$

8,000

$

(4,000)

(50.0)

%

$

27,000

$

19,000

$

8,000

42.1

%

Combined ratio ⁽⁴⁾

99.2

%

100.2

%

—

(1.0) pts

100.7

%

99.2

%

—

1.5 pts

⁽¹⁾  

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

⁽²⁾  

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

⁽³⁾  

2016 catastrophe losses were primarily due to severe storms outside of California and rainstorms in California. 2015 catastrophe losses were primarily due to severe storms outside of California, and rainstorms and wildfires in California.

⁽⁴⁾ 

The Company experienced unfavorable development of approximately $16 million and $15 million on prior accident years' loss and loss adjustment expense reserves for the three months ended December 31, 2016 and 2015, respectively, and unfavorable development of approximately $85 million and $13 million on prior accident years' loss and loss adjustment expense reserves for the twelve months ended December 31, 2016 and 2015, respectively. The unfavorable development in 2016 was primarily from the California and Florida automobile lines of business. The unfavorable development in 2015 was primarily from the homeowners lines of business in California and the automobile lines of business outside of California, which was partially offset by favorable development in the California personal automobile line of business.

Investment Results

Three Months Ended

December 31,

Twelve Months Ended

December 31,

2016

2015

2016

2015

(000's except average annual yield)

Average invested assets at cost ⁽¹⁾

$

3,482,249

$

3,283,465

$

3,390,769

$

3,293,948

Net investment income ⁽²⁾

     Before income taxes

$

30,431

$

32,198

$

121,871

$

126,299

     After income taxes

$

26,775

$

28,062

$

107,140

$

110,382

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

3.1

%

3.4

%

3.2

%

3.4

%

⁽¹⁾  

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

⁽²⁾ 

During the three and twelve months ended December 31, 2016, net investment income before and after income taxes, and average annual yields on investments after income taxes 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.

MERCURY GENERAL CORPORATION AND SUBSIDIARIES
SUMMARY OF OPERATING RESULTS

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

(unaudited)

Three Months Ended

December 31,

Twelve Months Ended
December 31,

2016

2015

2016

2015

Revenues:

     Net premium earned

$

794,517

$

760,094

$

3,131,773

$

2,957,897

     Net investment income

30,431

32,198

121,871

126,299

     Net realized investment losses

(89,228)

(8,212)

(34,255)

(83,807)

     Other

1,878

2,088

8,294

8,911

          Total revenues

$

737,598

$

786,168

$

3,227,683

$

3,009,300

Expenses:

     Losses and loss adjustment expenses

589,654

564,189

2,355,138

2,145,495

     Policy acquisition costs

140,860

137,363

562,545

539,231

     Other operating expenses

57,314

59,822

235,314

250,839

     Interest

1,040

864

3,962

3,168

          Total expenses

$

788,868

$

762,238

$

3,156,959

$

2,938,733

(Loss) income before income taxes

(51,270)

23,930

70,724

70,567

     Income tax (benefit) expense

(25,188)

525

(2,320)

(3,912)

                    Net (loss) income

$

(26,082)

$

23,405

$

73,044

$

74,479

Basic average shares outstanding

55,279

55,164

55,249

55,157

Diluted average shares outstanding

55,349

55,322

55,302

55,209

Basic Per Share Data

Net (loss) income

$

(0.47)

$

0.42

$

1.32

$

1.35

Net realized investment losses, net of tax

$

(1.05)

$

(0.10)

$

(0.40)

$

(0.99)

Diluted Per Share Data

Net (loss) income

$

(0.47)

$

0.42

$

1.32

$

1.35

Net realized investment losses, net of tax

$

(1.05)

$

(0.10)

$

(0.40)

$

(0.99)

Operating Ratios-GAAP Basis

Loss ratio

74.2

%

74.2

%

75.2

%

72.5

%

Expense ratio

24.9

%

25.9

%

25.5

%

26.7

%

Combined ratio ^(a)

99.2

%

100.2

%

100.7

%

99.2

%

^(a)  

Combined ratios for the three months ended December 31, 2016 and 2015 do not sum due to rounding.

MERCURY GENERAL CORPORATION AND SUBSIDIARIES

CONDENSED BALANCE SHEETS AND OTHER INFORMATION

December 31, 2016

December 31, 2015

(unaudited)

ASSETS

Investments, at fair value:

     Fixed maturity securities (amortized cost $2,795,410; $2,804,275)

$

2,814,553

$

2,880,003

     Equity securities (cost $331,770; $313,528)

357,327

315,362

     Short-term investments (cost $375,700; $185,353)

375,680

185,277

          Total investments

3,547,560

3,380,642

Cash

220,318

264,221

Receivables:

     Premiums

459,152

436,621

     Accrued investment income

41,205

42,747

     Other

24,635

21,925

          Total receivables

524,992

501,293

Deferred policy acquisition costs

200,826

201,762

Fixed assets, net

155,910

157,131

Current income taxes

—

9,041

Deferred income taxes

45,277

23,231

Goodwill

42,796

42,796

Other intangible assets, net

25,625

31,702

Other assets

25,414

16,826

          Total assets

$

4,788,718

$

4,628,645

LIABILITIES AND SHAREHOLDERS' EQUITY

Loss and loss adjustment expense reserves

$

1,290,248

$

1,146,688

Unearned premiums

1,074,437

1,049,314

Notes payable

320,000

290,000

Accounts payable and accrued expenses

112,334

122,571

Current income taxes

9,962

—

Other liabilities

229,335

199,187

Shareholders' equity

1,752,402

1,820,885

          Total liabilities and shareholders' equity

$

4,788,718

$

4,628,645

OTHER INFORMATION

Common stock shares outstanding

55,289

55,164

Book value per share

$31.70

$33.01

Statutory surplus ^(a)

$1.44 billion

$1.45 billion

Net premiums written to surplus ratio ^(a)

2.19

2.07

Debt to total capital ratio^(b)

15.4

%

13.7

%

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

3.7 years

3.1 years

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

     Personal Auto PIF

1,135

1,175

     Homeowners PIF

524

503

     Commercial Auto PIF

41

41

(a)  

Unaudited. 

(b)  

Debt to Debt plus Shareholders' Equity.

(c)  

Modified durations reflecting anticipated early calls.

SUPPLEMENTAL SCHEDULES

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

(unaudited)

Three Months Ended December 31,

Twelve Months Ended December 31,

2016

2015

2016

2015

Reconciliations of Comparable GAAP Measures to Operating Measures^(a)

Net premiums earned

$

794,517

$

760,094

$

3,131,773

$

2,957,897

Change in net unearned premiums

(26,438)

(13,663)

24,015

41,495

Net premiums written

$

768,079

$

746,431

$

3,155,788

$

2,999,392

Incurred losses and loss adjustment expenses

$

589,654

$

564,189

$

2,355,138

$

2,145,495

Change in net loss and loss adjustment expense reserves

(46,496)

(15,167)

(144,653)

(36,152)

Paid losses and loss adjustment expenses

$

543,158

$

549,022

$

2,210,485

$

2,109,343

Net (loss) income

$

(26,082)

$

23,405

$

73,044

$

74,479

Less: Net realized investment losses

(89,228)

$

(8,212)

(34,255)

(83,807)

         Tax on net realized investment losses^(b)

31,229

2,875

11,989

29,333

             Net realized investment losses, net of tax

(57,999)

(5,337)

(22,266)

(54,474)

Operating income

$

31,917

$

28,742

$

95,310

$

128,953

Per diluted share:

Net (loss) income

$

(0.47)

$

0.42

$

1.32

$

1.35

Less: Net realized investment losses, net of tax

(1.05)

(0.10)

(0.40)

(0.99)

Operating income

$

0.58

$

0.52

$

1.72

$

2.34

Combined ratio

100.7

%

99.2

%

Effect of estimated prior periods' loss development

(2.7)

%

(0.4)

%

Combined ratio-accident period basis

98.0

%

98.8

%

^(a)

See "Information Regarding GAAP and Non-GAAP Measures" on page 7.    

^(b)

Federal statutory rate of 35%.