News Releases

Mercury General Corporation Announces First Quarter Results and Declares Quarterly Dividend

LOS ANGELES, May 4, 2020 /PRNewswire/ -- Mercury General Corporation (NYSE: MCY) reported today for the first quarter of 2020:

Consolidated Highlights



Three Months Ended March 31,


Change


2020


2019


$


%

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







Net premiums earned

$

922,574



$

870,245



$

52,329



6.0


Net premiums written (1)

$

954,216



$

916,448



$

37,768



4.1










Net realized investment (losses) gains, net of tax (2)

$

(198,543)



$

87,748



$

(286,291)



(326.3)


Net (loss) income

$

(139,204)



$

135,867



$

(275,071)



(202.5)


Net (loss) income per diluted share

$

(2.51)



$

2.45



$

(4.96)



(202.4)










Operating income (1)

$

59,339



$

48,119



$

11,220



23.3


Operating income per diluted share (1)

$

1.07



$

0.87



$

0.20



23.0


Catastrophe losses net of reinsurance (3)

$

2,000



$

5,000



$

(3,000)



(60.0)


Combined ratio (4)

95.9

%


97.3

%




(1.4) 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)

Net realized investment (losses) gains before tax were approximately $(251) million and $111 million for the three months ended March 31, 2020 and 2019, respectively. The large net realized investment losses before and net of tax for the three months ended March 31, 2020 were primarily the result of the decrease in fair value of the Company's investments due to the overall market disruptions and dislocations following the COVID-19 pandemic. The changes in fair value of the Company's investments are recorded in net realized investment gains or losses in its consolidated statements of operations, as a result of the adoption of the fair value option for its investments as permitted under GAAP.

(3)

Catastrophe losses due to the events that occurred during the three months ended March 31, 2020 totaled approximately $4 million, with no reinsurance benefits used for these losses. The majority of the 2020 catastrophe losses resulted from windstorms in California and Oklahoma. These losses were partially offset by favorable development of approximately $2 million on prior years' catastrophe losses. Catastrophe losses due to the events that occurred during the three months ended March 31, 2019 totaled approximately $11 million resulting primarily from winter storms in California, and no reinsurance benefits were used for these losses. These losses were partially offset by favorable development of approximately $6 million on prior years' catastrophe losses.

(4)

The Company experienced unfavorable development of approximately $15 million and $1 million on prior accident years' loss and loss adjustment expense reserves for the three months ended March 31, 2020 and 2019, respectively. The unfavorable development for the first quarter of 2020 was primarily attributable to higher than estimated losses and loss adjustment expenses in the homeowners and commercial automobile lines of business.

 

Investment Results



Three Months Ended March 31,


2020


2019

(000's except average annual yield)




Average invested assets at cost (1)

$

4,212,398



$

3,888,592


Net investment income (2)




     Before income taxes

$

34,495



$

34,174


     After income taxes

$

30,533



$

30,254


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

2.9

%


3.1

%



(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)

Higher net investment income before and after income taxes for the three months ended March 31, 2020 compared to the corresponding period in 2019 resulted largely from higher average invested assets, partially offset by a lower average yield on investments. Average annual yield on investments after income taxes for the three months ended March 31, 2020 decreased compared to the corresponding period in 2019, primarily due to the maturity and replacement of higher yielding investments purchased when market interest rates were higher with lower yielding investments, as a result of decreasing market interest rates.

Note on COVID-19

As a result of the COVID-19 pandemic, the Company has taken a number of steps to safeguard its business and employees, including activating its Business Continuity Plan. The Company is monitoring and assessing the impact of the COVID-19 pandemic daily, including recommendations and orders issued by federal, state and local governments.

On April 9, 2020, the Company announced it was refunding 15% of monthly private passenger automobile insurance premiums, or approximately $70 million, to its policyholders for two months as less driving during the COVID-19 pandemic has resulted in fewer accidents and claims.  On April 13, 2020, the California Insurance Commissioner ordered insurers to make an initial refund for the months of March and April 2020, as well as for May 2020 if shelter in place restrictions continue. The Company expects to process the premium refunds, via credits to policyholders' accounts, in May and June of 2020.

The Board of Directors declared a quarterly dividend of $0.6300 per share. The dividend will be paid on June 25, 2020 to shareholders of record on June 11, 2020.

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 (1:00 P.M. Eastern 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 May 11, 2020. The replay telephone numbers are (855) 859-2056 (USA) or (404) 537-3406 (International). The conference ID# is 4057603. 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. Certain statements contained in this report 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 the states where it 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; the ability of the Company to successfully manage its claims organization outside of California; the Company's ability to successfully allocate the resources used in the states with reduced or exited operations to its operations in other states; changes in driving patterns and loss trends; acts of war and terrorist activities; pandemics, epidemics, widespread health emergencies, or outbreaks of infectious diseases; court decisions and trends in litigation and health care and auto repair costs; and legal, cybersecurity, 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 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 12, 2020.

MERCURY GENERAL CORPORATION AND SUBSIDIARIES

SUMMARY OF OPERATING RESULTS

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

(unaudited)







Three Months Ended March 31,


2020


2019

Revenues:




     Net premiums earned

$

922,574



$

870,245


     Net investment income

34,495



34,174


     Net realized investment (losses) gains

(251,320)



111,074


     Other

2,562



2,250


          Total revenues

708,311



1,017,743


Expenses:




     Losses and loss adjustment expenses

651,670



630,416


     Policy acquisition costs

156,533



148,413


     Other operating expenses

76,557



67,489


     Interest

4,256



4,256


          Total expenses

889,016



850,574


(Loss) income before income taxes

(180,705)



167,169


     Income tax (benefit) expense

(41,501)



31,302


                    Net (loss) income

$

(139,204)



$

135,867






Basic average shares outstanding

55,358



55,341


Diluted average shares outstanding

55,358



55,348






Basic Per Share Data




Net (loss) income

$

(2.51)



$

2.46


Net realized investment (losses) gains, net of tax

$

(3.58)



$

1.59






Diluted Per Share Data




Net (loss) income

$

(2.51)



$

2.45


Net realized investment (losses) gains, net of tax

$

(3.58)



$

1.58






Operating Ratios-GAAP Basis




Loss ratio

70.6

%


72.4

%

Expense ratio

25.3

%


24.8

%

Combined ratio (a)

95.9

%


97.3

%



(a)

Combined ratio for the three months ended March 31, 2019 does not sum due to rounding.

 

MERCURY GENERAL CORPORATION AND SUBSIDIARIES

CONDENSED BALANCE SHEETS AND OTHER INFORMATION

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






March 31, 2020


December 31, 2019


(unaudited)



ASSETS




Investments, at fair value:




     Fixed maturity securities (amortized cost $3,229,887; $2,973,276)

$

3,299,873



$

3,093,275


     Equity securities (cost $729,588; $648,282)

619,684



724,751


     Short-term investments (cost $242,081; $494,060)

237,520



494,135


          Total investments

4,157,077



4,312,161


Cash

252,836



294,398


Receivables:




     Premiums

633,328



606,316


       Allowance for credit losses on premiums receivable

(10,000)



(1,445)


                    Premiums receivable, net of allowance for credit losses

623,328



604,871


     Accrued investment income

43,101



40,107


     Other

7,831



6,464


          Total receivables

674,260



651,442


Reinsurance recoverables

70,366



78,774


Allowance for credit losses on reinsurance recoverables

(148)




             Reinsurance recoverables, net of allowance for credit losses

70,218



78,774


Deferred policy acquisition costs

234,642



233,166


Fixed assets, net

169,287



168,986


Operating lease right-of-use assets

45,126



44,909


Current income taxes



7,642


Deferred income taxes

26,689




Goodwill

42,796



42,796


Other intangible assets, net

10,400



10,636


Other assets

33,567



44,247


          Total assets

$

5,716,898



$

5,889,157


LIABILITIES AND SHAREHOLDERS' EQUITY




Loss and loss adjustment expense reserves

$

1,897,945



$

1,921,255


Unearned premiums

1,384,803



1,355,547


Notes payable

372,233



372,133


Accounts payable and accrued expenses

150,307



143,318


Operating lease liabilities

48,238



47,996


Current income taxes

5,510




Deferred income taxes



27,964


Other liabilities

234,418



221,442


Shareholders' equity

1,623,444



1,799,502


          Total liabilities and shareholders' equity

$

5,716,898



$

5,889,157






OTHER INFORMATION




Common stock shares outstanding

55,358



55,358


Book value per share

$

29.33



$

32.51


Statutory surplus (a)

$1.46 billion



$1.54 billion


Net premiums written to surplus ratio (a)

2.57



2.42


Debt to total capital ratio (b)

18.8

%


17.2

%

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

3.4 years



3.2 years


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




     Personal Auto PIF

1,126



1,139


     Homeowners PIF

654



646


     Commercial Auto PIF

36



36




(a)

Unaudited.

(b)

Debt to Debt plus Shareholders' Equity (Debt at face value).

(c)

Modified duration reflecting anticipated early calls.

 

SUPPLEMENTAL SCHEDULES




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

(unaudited)





Three Months Ended March 31,


2020


2019





Reconciliations of Comparable GAAP Measures to Operating Measures (a)





Net premiums earned

$

922,574



$

870,245


Change in net unearned premiums

31,642



46,203


Net premiums written

$

954,216



$

916,448






Incurred losses and loss adjustment expenses

$

651,670



$

630,416


Change in net loss and loss adjustment expense reserves

16,424



(11,425)


Paid losses and loss adjustment expenses

$

668,094



$

618,991






Net (loss) income

$

(139,204)



$

135,867


Less: Net realized investment (losses) gains

(251,320)



111,074


         Tax on net realized investment (losses) gains  (b)

(52,777)



23,326


             Net realized investment (losses) gains, net of tax

(198,543)



87,748


Operating income

$

59,339



$

48,119






Per diluted share:




Net (loss) income

$

(2.51)



$

2.45


Less: Net realized investment (losses) gains, net of tax

(3.58)



1.58


Operating income

$

1.07



$

0.87






Combined ratio

95.9

%


97.3

%

Effect of estimated prior periods' loss development

(1.6)

%


(0.2)

%

Combined ratio-accident period basis

94.3

%


97.1

%



(a)

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

(b)

Federal statutory rate of 21%.

Information Regarding GAAP and 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.

Net income is the GAAP measure that is most directly comparable to operating income. Operating income is net income excluding realized investment gains and losses, net of tax. 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 investment gains and losses. Realized investment 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 the Company's business. It should be read in conjunction with the GAAP financial results. See "Supplemental Schedules" above for a reconciliation of net income to operating income.

Net premiums earned, the most directly comparable GAAP measure to net premiums written, represents the portion of premiums written that is recognized as revenue in the financial statements for the periods presented and earned on a pro-rata basis over the term of the policies. Net premiums written is a statutory financial measure which represents the premiums charged on policies issued during a fiscal period less any applicable reinsurance.  Net premiums written is designed to determine production levels and is meant as supplemental information and not intended to replace net premiums earned. Such information should be read in conjunction with the GAAP financial results. See "Supplemental Schedules" above for a reconciliation of net premiums earned to net premiums written.

Incurred losses and loss adjustment expenses is the most directly comparable GAAP measure to paid losses and loss adjustment expenses. Paid losses and loss adjustment expenses excludes 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. See "Supplemental Schedules" above for a reconciliation of incurred losses and loss adjustment expenses to paid losses and loss adjustment expenses.

Combined ratio is the most directly comparable measure to combined ratio-accident period basis. Combined ratio-accident period basis is computed as the difference between two GAAP operating ratios: the combined ratio and prior accident periods' loss development ratio. Management believes that combined ratio-accident period basis is useful to investors and it is used 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 the GAAP combined ratio. It should be read in conjunction with the GAAP financial results. See "Supplemental Schedules" above for a reconciliation of GAAP combined ratio to combined ratio-accident period basis.

Mercury General Corporation logo (PRNewsFoto/Mercury General Corporation) (PRNewsFoto/Mercury General Corporation)

 

SOURCE Mercury General Corporation

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

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