News Releases

Mercury General Corporation Announces First Quarter Results and Declares Quarterly Dividend

LOS ANGELES, May 2, 2011 /PRNewswire/ -- Mercury General Corporation (NYSE: MCY) reported today for the first quarter of 2011:

Consolidated Highlights

 

 

 

 

 
 

 

Three Months Ended


 

 
 

 

March 31,

Change

 

 

2011

2010

$

%

 

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


 
 

Net premiums written (1)

$ 658,217

$ 652,462

$  5,755

0.9

 

Net income

$   58,226

$   61,179

$ (2,953)

(4.8)

 

Net income per diluted share

$       1.06

$       1.12

$   (0.06)

(5.4)

 

Operating income (1)

$   39,578

$   46,850

$ (7,272)

(15.5)

 

Operating income per diluted share (1)

$       0.72

$       0.85

$   (0.13)

(15.3)

 

Combined ratio

98.2%

96.3%

-

1.9 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."

 
   


 

Net income in the first quarter 2011 was $58.2 million ($1.06 per diluted share) compared with net income of $61.2 million ($1.12 per diluted share) for the same period in 2010. Included in net income are net realized investment gains, net of tax, of $18.6 million ($0.34 per diluted share) in the first quarter of 2011 compared with net realized investment gains, net of tax, of $14.3 million ($0.26 per diluted share) for the same period in 2010. Operating income was $39.6 million ($0.72 per diluted share) for the first quarter of 2011 compared with operating income of $46.9 million ($0.85 per diluted share) for the same period in 2010.  

Net premiums written were $658.2 million in the first quarter of 2011, a 0.9% increase compared to the first quarter 2010 net premiums written of $652.5 million. Net realized investment gains, net of tax, of $18.6 million for the first quarter of 2011 include gains, net of tax, of $13.6 million from the application of the fair value option. Gains, net of tax, from the sale of securities were $5.1 million during the first quarter.

The Company's combined ratio (GAAP basis) was 98.2% in the first quarter of 2011 compared with 96.3% for the same periods in 2010. The loss ratio was affected by unfavorable development of approximately $1 million and favorable development of approximately $20 million on prior accident years' losses and loss adjustment expenses reserves for the three months ended March 31, 2011 and 2010, respectively.

Net investment income of $35.1 million (after tax, $31.2 million) in the first quarter of 2011 decreased by 2.2% 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 first 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.

The Board of Directors declared a quarterly dividend of $0.60 per share. The dividend is to be paid on June 30, 2011 to shareholders of record on June 16, 2011.

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 May 9, 2011. The replay telephone numbers are (800) 642-1687 (USA) or (706) 645-9291 (International). The conference ID# is 59611991. 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 Company's ability to successfully complete its initiative to standardize its policies and procedures nationwide in all of its functional areas; 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, 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


 
 

 

 

March 31,


 

 
 

 

Total

Per diluted share


 
 

 

 

 

 

 

 
 

 

2011

2010

2011

2010


 
 

(000's except per-share amounts)


 

 

 

 

 
 

Operating income

$ 39,578

$ 46,850

$ 0.72

$ 0.85


 
 

Net realized investment gains, net of tax

18,648

14,329

0.34

0.26


 
 

Net income

$ 58,226

$ 61,179

$ 1.06

$ 1.12

(1)

 

 

 

 

 

 

 
 

(1) 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.


 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2011


 

2010

 

 

 

 

 

 
 

Combined ratio-accident period basis


 

98.0%


 

99.4%

 

Effect of estimated prior periods' loss development


 

0.2%


 

(3.1)%

 

Combined ratio


 

98.2%


 

96.3%

 
         


 

MERCURY GENERAL CORPORATION AND SUBSIDIARIES

 

SUMMARY OF OPERATING RESULTS

 

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

 

 

 

 

 
 

 

Quarter Ended March 31,

 

 

2011


 

2010

 

 

(unaudited)

 

 

 

 

 
 

Net premiums written

$ 658,217


 

$ 652,462

 

 

 

 

 
 

Revenues:


 

 

 
 

    Net premium earned

$ 638,487


 

$ 640,614

 

    Net investment income

35,096


 

35,886

 

    Net realized investment gains

28,690


 

22,044

 

    Other

3,270


 

1,293

 

         Total revenues

$ 705,543


 

$ 699,837

 

Expenses:


 

 

 
 

    Losses and loss adjustment expenses

446,461


 

430,622

 

    Policy acquisition costs

121,804


 

128,982

 

    Other operating expenses

58,672


 

57,324

 

    Interest

1,695


 

1,619

 

         Total expenses

$ 628,632


 

$ 618,547

 

 

 

 

 
 

Net income before taxes

$   76,911


 

$   81,290

 

    Income tax expense

18,685


 

20,111

 

                   Net income

$   58,226


 

$   61,179

 

 

 

 

 
 

Basic average shares outstanding

54,809


 

54,783

 

Diluted average shares outstanding

54,831


 

54,805

 

 

 

 

 
 

 

 

 

 
 

Basic Per Share Data


 

 

 
 

Net income

$       1.06


 

$       1.12

 

 

 

 

 
 

Net realized investment gains, net of tax

$       0.34


 

$       0.26

 

 

 

 

 
 

 

 

 

 
 

Diluted Per Share Data


 

 

 
 

Net income

$       1.06


 

$       1.12

 

 

 

 

 
 

Net realized investment gains, net of tax

$       0.34


 

$       0.26

 

 

 

 

 
 

 

 

 

 
 

Operating Ratios-GAAP Basis


 

 

 
 

Loss ratio

69.9%


 

67.2%

 

Expense ratio

28.3%


 

29.1%

 

Combined ratio

98.2%


 

96.3%

 

 

 

 

 
 

 

 

 

 
 

Reconciliations of Operating Measures to Comparable GAAP Measures


 

 

 
 

 

 

 

 
 

Net premiums written

$ 658,217


 

$ 652,462

 

Change in unearned premiums

(19,730)


 

(11,848)

 

Net premiums earned

$ 638,487


 

$ 640,614

 

 

 

 

 
 

Paid losses and loss adjustment expenses

$ 490,010


 

$ 461,136

 

Change in net loss and loss adjustment expense reserves

(43,549)


 

(30,514)

 

Incurred losses and loss adjustment expenses

$ 446,461


 

$ 430,622

 
       


 

MERCURY GENERAL CORPORATION AND SUBSIDIARIES

 

CONDENSED BALANCE SHEETS AND OTHER INFORMATION

 

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

 

 

 

 

 

 

 
 

 

 

 

March 31, 2011


 

December 31, 2010

 

ASSETS

(unaudited)


 

 
 

 

 

 

 

 

 
 

Investments, at fair value:


 

 

 
 

 

Fixed maturities trading (amortized cost $2,494,428; $2,617,656)

$       2,519,549


 

$               2,652,280

 

 

Equity securities trading (cost $341,450; $336,757)

394,687


 

359,606

 

 

Short-term investments (cost $111,618; $143,378)

111,618


 

143,371

 

 

 

Total investments

3,025,854


 

3,155,257

 

 

 

 

 

 

 
 

Cash


 

334,290


 

181,388

 

Receivables:


 

 

 
 

 

Premiums

296,321


 

280,980

 

 

Accrued investment income

35,712


 

36,885

 

 

Other

10,669


 

10,076

 

 

 

Total receivables

342,702


 

327,941

 

 

 

 

 

 

 
 

Deferred policy acquisition costs

170,645


 

170,579

 

Fixed assets, net

190,325


 

196,505

 

Current income taxes

5,292


 

25,719

 

Deferred income taxes

28,619


 

26,499

 

Goodwill


 

42,850


 

42,850

 

Other intangible assets, net

58,486


 

60,124

 

Other assets

9,512


 

16,502

 

 

 

Total assets

$       4,208,575


 

$               4,203,364

 

 

 

 

 

 

 
 

LIABILITIES AND SHAREHOLDERS' EQUITY


 

 

 
 

 

 

 

 

 

 
 

Losses and loss adjustment expenses

$          990,719


 

$               1,034,205

 

Unearned premiums

853,114


 

833,379

 

Notes payable

265,592


 

267,210

 

Accounts payable and accrued expenses

98,026


 

106,662

 

Other liabilities

180,247


 

167,093

 

Shareholders' equity

1,820,877


 

1,794,815

 

 

 

 Total liabilities and shareholders' equity

$       4,208,575


 

$               4,203,364

 

 

 

 

 

 

 
 

OTHER INFORMATION


 

 

 
 

 

 

 

 

 

 
 

Common stock-shares outstanding

54,818


 

54,803

 

Book value per share

$              33.22


 

$                      32.75

 

Estimated statutory surplus

$1.4 billion


 

$1.3 billion

 

Estimated premiums written to surplus ratio

1.9


 

1.9

 

Debt to total capital ratio

12.7%


 

13.0%

 

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

4.7  years


 

4.5  years

 

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


 

 

 
 

 

 Personal Auto PIF

1,264


 

1,261

 

 

 Homeowners PIF

370


 

361

 

 

 

 

 

 
 

(a)

Unaudited.  


 

 

 
 
           


 

SOURCE Mercury General Corporation

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

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