News Releases

Mercury General Corporation Announces Fourth Quarter Results and Declares Quarterly Dividend

LOS ANGELES, Feb. 6, 2012 /PRNewswire/ -- Mercury General Corporation (NYSE: MCY) reported today for the fourth quarter of 2011:

Consolidated Highlights

 
 

Three Months

Ended

     

Twelve Months

Ended

     
 

December 31,

Change

 

December 31,

Change

 
 

2011

2010

$

%

 

2011

2010

$

%

 

(000's except

per-share

amounts and ratios)

       

Net premiums

written (1)

$ 618,593

$ 617,220

$     1,373

0.2

 

$ 2,575,383

$ 2,555,481

$  19,902

0.8

 

Net income (loss)

$   79,469

$ (23,647)

$ 103,116

436.1

 

$    191,164

$    152,198

$  38,966

25.6

 

Net income (loss)

per diluted share (3)

$       1.45

$     (0.43)

$       1.88

437.2

 

$          3.49

$          2.78

$      0.71

25.5

 

Operating

income (loss) (1)

$   32,109

$   (8,254)

$   40,363

489.0

 

$    153,206

$    115,090

$  38,116

33.1

 

Operating income

(loss) per

diluted share (1)

$       0.59

$     (0.15)

$       0.74

493.3

 

$          2.79

$          2.10

$      0.69

32.9

 

Costs related in

support of

California

Proposition 17 (2)

$             -

$             -

$             -

-

 

$                -

$      12,100

$ (12,100)

-

 

Combined

ratio

99.4%   

109.9%  

-

(10.5) pts   

 

98.5%  

100.7%  

-

(2.2) pts  

 
                   

 

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 Company supported the Continuous Coverage Auto Insurance Discount Act.

 

3.

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

 
   

 

Net income in the fourth quarter 2011 was $79.5 million ($1.45 per diluted share) compared with net loss of $23.6 million ($0. 43 per diluted share) for the same period in 2010. For the year, net income was $191.2 million ($3.49 per diluted share) compared with net income of $152.2 million ($2.78 per diluted share) for the same period in 2010. Included in net income are net realized investment gains, net of tax, of $47.4 million ($0.86 per diluted share) in the fourth quarter of 2011 compared with net realized investment losses, net of tax, of $15.4 million ($0.28 per diluted share) for the same period in 2010, and net realized investment gains, net of tax, of $38.0 million ($0.69 per diluted share) for the year compared with net realized investment gains, net of tax, of $37.1 million ($0.68 per diluted share) for the same period in 2010. Operating income was $32.1 million ($0.59 per diluted share) for the fourth quarter of 2011 compared with operating loss of $8.3 million ($0.15 per diluted share) for the same period in 2010. For the year, operating income was $153.2 million ($2.79 per diluted share) compared with operating income of $115.1 million ($2.10 per diluted share) for the same period in 2010.  

Net premiums written were $618.6 million in the fourth quarter of 2011, a 0.2% increase compared to the fourth quarter 2010 net premiums written of $617.2 million, and were approximately $2.6 billion for the year, a 0.8% increase compared to the same period in 2010. Net realized investment gains, net of tax, of $47.4 million and $38.0 million for the fourth quarter and for the year, respectively, include gains, net of tax, of $35.2 million and $20.3 million, respectively, from the application of the fair value option. Gains, net of tax, from the sale of securities were $12.2 million and $17.1 million during the fourth quarter and the year, respectively.

The Company's combined ratio (GAAP basis) was 99.4% in the fourth quarter of 2011 and 98.5% for the year compared with 109.9% and 100.7% for the same periods in 2010. The Company experienced unfavorable development of approximately $18 million and favorable development of approximately $13 million on prior accident years' losses and loss adjustment expenses reserves for the year ended December 31, 2011 and 2010, respectively. The unfavorable development in 2011 is largely the result of re-estimates of California bodily injury losses which have experienced higher average severities than were originally estimated at December 31, 2010. The Company recognized approximately $10 million of pre-tax losses in the fourth quarter of 2011 as a result of severe windstorms in California. Results in the fourth quarter of 2010 were negatively impacted by an estimated $25 million of pre-tax losses caused by severe rainstorms in California and a pre-tax underwriting loss of $19 million in Florida primarily as a result of homeowners sinkhole claims.

Net investment income of $34.3 million (after tax, $30.2 million) in the fourth quarter of 2011 decreased by 3.2% compared to the same period in 2010. The investment income after-tax yield was 4.1% on average investments (fixed maturities at amortized cost, equities and short-term investments at cost) of $3.0 billion for the fourth quarter 2011. This compares with an investment income after-tax yield of 4.1% on average investments of $3.1 billion for the same period in 2010. Net investment income for the year was $140.9 million (after tax $124.7 million), a decrease of 2.0% compared to the same period in 2010. The investment income after-tax yield was 4.2% on average assets of $3.0 billion for the year. This compares with an investment income after-tax yield of 4.1% on average investments of $3.1 billion for the same period in 2010.

The Board of Directors declared a quarterly dividend of $0.61 per share. The dividend is to be paid on March 29, 2012 to shareholders of record on March 15, 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 February 13, 2012. The replay telephone numbers are (855) 859-2056 (USA) or (404) 537-3406 (International). The conference ID# is 42147858. 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 California or other states; 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; 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.

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

 

Twelve Months Ended

 
   

December 31,

     

December 31,

     
 

Total

Per diluted share

 

Total

Per diluted share

 
                       
 

2011

2010

2011

2010(a)

 

2011

2010

2011

 

2010

 

(000's except per-share amounts)

                     

Operating income (loss)

$      32,109

$      (8,254)

$          0.59

$        (0.15)

 

$    153,206

$    115,090

$          2.79

 

$          2.10

 

Net realized investment gains (losses), net of tax

47,360

(15,393)

0.86

(0.28)

 

37,958

37,108

0.69

 

0.68

 

Net income (loss)

$      79,469

$    (23,647)

$          1.45

$        (0.43)

 

$    191,164

$    152,198

$          3.49

(b)

$          2.78

 
                     

 

(a)

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

 

(b)

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.

   

Twelve Months Ended

 
   

December 31,

 
   

2011

 

2010

 
           

Combined ratio-accident period basis

 

97.8%

 

101.2%

 

Effect of estimated prior periods' loss development

 

0.7%

 

(0.5)%

 

Combined ratio

 

98.5%

 

100.7%

 
         

 

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,

 
 

2011

 

2010

 

2011

 

2010

 

Net premiums written

$ 618,593

 

$ 617,220

 

$ 2,575,383

 

$ 2,555,481

 
                 

Revenues:

               

    Net premium earned

$ 641,613

 

$ 640,796

 

$ 2,566,057

 

$ 2,566,685

 

    Net investment income

34,316

 

35,461

 

140,947

 

143,814

 

    Net realized investment gains (losses)

72,862

 

(23,681)

 

58,397

 

57,089

 

    Other

663

 

3,063

 

11,884

 

8,297

 

         Total revenues

$ 749,454

 

$ 655,639

 

$ 2,777,285

 

$ 2,775,885

 

Expenses:

               

    Losses and loss adjustment expenses

472,876

 

514,969

 

1,829,205

 

1,825,766

 

    Policy acquisition costs

116,072

 

125,257

 

481,721

 

505,565

 

    Other operating expenses

48,914

 

63,807

 

215,711

 

255,358

 

    Interest

899

 

1,703

 

5,549

 

6,806

 

         Total expenses

$ 638,761

 

$ 705,736

 

$ 2,532,186

 

$ 2,593,495

 
                 

Income (loss) before income taxes

$ 110,693

 

$ (50,097)

 

$    245,099

 

$    182,390

 

    Income tax expense (benefit)

31,224

 

(26,450)

 

53,935

 

30,192

 

                   Net income (loss)

$   79,469

 

$ (23,647)

 

$    191,164

 

$    152,198

 
                 

Basic average shares outstanding

54,845

 

54,802

 

54,825

 

54,792

 

Diluted average shares outstanding (a)

54,873

 

54,802

 

54,845

 

54,826

 
                 
                 

Basic Per Share Data

               

Net income (loss)

$       1.45

 

$     (0.43)

 

$          3.49

 

$          2.78

 
                 

Net realized investment gains (losses), net of tax

$       0.86

 

$     (0.28)

 

$          0.69

 

$          0.68

 
                 
                 

Diluted Per Share Data (a)

               

Net income (loss)

$       1.45

 

$     (0.43)

 

$          3.49

 

$          2.78

 
                 

Net realized investment gains (losses), net of tax

$       0.86

 

$     (0.28)

 

$          0.69

 

$          0.68

 
                 
                 

Operating Ratios-GAAP Basis

               

Loss ratio

73.7%

 

80.4%

 

71.3%

 

71.1%

 

Expense ratio

25.7%

 

29.5%

 

27.2%

 

29.6%

 

Combined ratio

99.4%

 

109.9%

 

98.5%

 

100.7%

 
                 
                 

Reconciliations of Operating Measures to Comparable GAAP Measures

               
                 

Net premiums written

$ 618,593

 

$ 617,220

 

$ 2,575,383

 

$ 2,555,481

 

Change in unearned premiums

23,020

 

23,576

 

(9,326)

 

11,204

 

Net premiums earned

$ 641,613

 

$ 640,796

 

$ 2,566,057

 

$ 2,566,685

 
                 

Paid losses and loss adjustment expenses

$ 467,581

 

$ 464,565

 

$ 1,879,247

 

$ 1,843,952

 

Change in net loss and loss adjustment expense reserves

5,295

 

50,404

 

(50,042)

 

(18,186)

 

Incurred losses and loss adjustment expenses

$ 472,876

 

$ 514,969

 

$ 1,829,205

 

$ 1,825,766

 
                 

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

 
               

 

MERCURY GENERAL CORPORATION AND SUBSIDIARIES

 

CONDENSED BALANCE SHEETS AND OTHER INFORMATION

 

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

 
               
       

December 31, 2011

 

December 31, 2010

 

ASSETS

(unaudited)

     
               

Investments, at fair value:

       
 

Fixed maturities trading (amortized cost $2,345,620; $2,617,656)

$               2,445,589

 

$               2,652,280

 
 

Equity securities trading (cost $388,417; $336,757)

380,388

 

359,606

 
 

Short-term investments (cost $236,433; $143,378)

236,444

 

143,371

 
   

Total investments

3,062,421

 

3,155,257

 
               

Cash

   

211,393

 

181,388

 

Receivables:

         
 

Premiums

 

288,799

 

280,980

 
 

Accrued investment income

32,541

 

36,885

 
 

Other

 

11,320

 

10,076

 
   

Total receivables

332,660

 

327,941

 
               

Deferred policy acquisition costs

171,430

 

170,579

 

Fixed assets, net

177,760

 

196,505

 

Current income taxes

0

 

25,719

 

Deferred income taxes

6,511

 

26,499

 

Goodwill

   

42,850

 

42,850

 

Other intangible assets, net

53,749

 

60,124

 

Other assets

 

11,232

 

16,502

 
   

Total assets

$               4,070,006

 

$               4,203,364

 
               

LIABILITIES AND SHAREHOLDERS' EQUITY

       
               

Losses and loss adjustment expenses

$                  985,279

 

$               1,034,205

 

Unearned premiums

843,427

 

833,379

 

Notes payable

 

140,000

 

267,210

 

Accounts payable and accrued expenses

94,743

 

106,662

 

Current income taxes

67

 

0

 

Other liabilities

 

149,007

 

167,093

 

Shareholders' equity

1,857,483

 

1,794,815

 
   

 Total liabilities and shareholders' equity

$               4,070,006

 

$               4,203,364

 
               

OTHER INFORMATION

       
               

Common stock-shares outstanding

54,856

 

54,803

 

Book value per share

$                      33.86

 

$                      32.75

 

Estimated statutory surplus

$1.5 billion

 

$1.3 billion

 

Estimated premiums written to surplus ratio

1.7

 

1.9

 

Debt to total capital ratio

7.0%

 

13.0%

 

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

3.3  years

 

4.5  years

 

Policies-in-Force (Company-wide "PIF") (a)

       
 

 Personal Auto PIF

1,236

 

1,261

 
 

 Homeowners PIF

394

 

361

 

(a)   Unaudited.  

 
             

 

SOURCE Mercury General Corporation

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

A company you can trust

Forbes 2019 America's Best Mid-Size Employers
Insure.com's Top Five Best Auto Insurance Company 2020