Mercury General Corporation (NYSE: MCY) reported today net income of $69.5 million ($1.27 per share-diluted) in the second quarter 2007 compared with $37.8 million ($0.69 per share-diluted) for the same period in 2006. For the first six months of 2007, net income was $130.0 million ($2.37 per share-diluted) compared to net income of $96.5 million ($1.76 per share-diluted) for the same period in 2006. Included in net income are net realized investment gains, net of tax, of $6.5 million ($0.12 per share-diluted) in the second quarter of 2007 compared with net realized investment gains, net of tax, of $2.8 million ($0.05 per share-diluted) for the same period in 2006, and net realized investment gains, net of tax, of $5.8 million ($0.11 per share-diluted) for the first six months of 2007 compared to net realized investment gains, net of tax, of $6.9 million ($0.13 per share-diluted) for the same period in 2006.
Company-wide net premiums written were $737.4 million in the second quarter 2007, a 2.2% decrease over second quarter 2006 net premiums written of $753.8 million, and were approximately $1.5 billion for the first six months of 2007, a 0.3% decrease over the same period in 2006. California net premiums written were $567.9 million in the second quarter of 2007, an increase of 2.9% over the same period in 2006, and were approximately $1.2 billion for the first six months of 2007, a 4.6% increase over the same period in 2006. Non-California net premiums written were $169.5 million in the second quarter of 2007, a 16.0% decrease over the same period in 2006, and were $354.4 million for the first six months of 2007, a decrease of 13.5% over the same period in 2006.
During the second quarter of 2007, the Company accrued $5.0 million as a reduction to California premiums in anticipation of issuing coupons that are redeemable towards new and renewal premiums as part of the settlement of a lawsuit. The impact of this accrual, net of tax, is a reduction to net income of $3.3 million for both the second quarter and the first six months of 2007. For the second quarter of 2007, the accrual added 0.7 points to the company-wide decrease in premiums written and reduced the growth in California premiums written by 0.9 points.
The Company's combined ratio (GAAP basis) was 94.0% in the second quarter and 94.3% for the first six months of 2007 compared with 98.6% and 95.3% for the same periods in 2006. Loss development on prior accident years' loss reserves was approximately $13 million adverse for the six months ended June 30, 2007, compared with approximately $15 million adverse for the same period in 2006. Adverse loss development on prior accident years' loss reserves for the six months of 2007 came primarily from the Company's California operations. As reported previously, for the states outside of California, the Company experienced adverse development for the six months ended June 30, 2006 of approximately $30 million on prior accident years' loss reserves, largely due to additional reserves established for large individual losses in Florida and additional reserves established for personal injury protection and bodily injury losses in New Jersey. The Company experienced positive development on prior accident years' loss reserves of approximately $15 million for the six months ended June 30, 2006 on its California business.
Net investment income of $40.8 million (after tax $35.0 million) in the second quarter of 2007 increased by 12.6% over the same period in 2006. The after-tax yield on investment income was 4.1% on average assets of $3.4 billion (fixed maturities and equities at cost) for the quarter. This compares with an after tax yield on investment income of 3.7% on average investments of $3.3 billion (fixed maturities and equities at cost) for the same period in 2006.
The Board of Directors declared a third quarter dividend of $0.52 per share, representing an 8.3% increase over the quarterly dividend amount paid in 2006. The dividend is to be paid on September 27, 2007 to shareholders of record on September 14, 2007. The Company's book value per share at June 30, 2007 was $32.71.
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 13, 2007. The replay telephone numbers are (800) 642- 1687 (USA) or (706) 645-9291 (International). The conference ID# is 7040282. 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 in general economic conditions; the accuracy and adequacy of the Company's pricing methodologies; adverse weather conditions or natural disasters in the markets served by the Company; 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 regulatory approval for requested rate changes; legislation adverse to the automobile insurance industry or business generally that may be enacted in California or other states; the Company's success in expanding 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 and trends in litigation and health care and auto repair costs and marketing efforts; and various 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 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 Generally Accepted Accounting Principles ("GAAP"). These measures are not intended to replace, and should be read in conjunction with, the GAAP financial results. The Company has reconciled these measures with the most directly comparable GAAP measure in the supplemental schedule entitled, "Summary of Operating Results."
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 is recognized as income 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 meant as supplemental information and is not intended to replace Net premiums earned. It should be read in conjunction with the GAAP financial 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 meant 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.
Mercury General Corporation and Subsidiaries Summary of Operating Results (000's except per-share amounts and ratios) (unaudited) Quarter Ended Six Months Ended June 30, June 30, 2007 2006 2007 2006 Net premiums written $737,394 $753,826 $1,523,277 $1,527,846 Net premiums earned 754,076 753,350 1,509,828 1,490,030 Paid losses and loss adjustment expenses 491,421 486,508 1,011,367 965,848 Incurred losses and loss adjustment expenses 504,378 534,316 1,014,137 1,009,496 Net investment income 40,795 36,242 82,940 75,645 Net realized investment gains, net of tax 6,493 2,751 5,816 6,946 Net income $69,509 $37,812 $129,962 $96,458 Basic average shares outstanding 54,697 54,648 54,685 54,636 Diluted average shares outstanding 54,848 54,761 54,829 54,765 Basic Per Share Data Net income $1.27 $0.69 $2.38 $1.77 Net realized investment gains, net of tax $0.12 $0.05 $0.11 $0.13 Diluted Per Share Data Net income $1.27 $0.69 $2.37 $1.76 Net realized investment gains, net of tax $0.12 $0.05 $0.11 $0.13 Operating Ratios-GAAP (a) Basis Loss ratio 66.9% 70.9% 67.2% 67.8% Expense ratio 27.1% 27.7% 27.1% 27.5% Combined ratio 94.0% 98.6% 94.3% 95.3% Reconciliations of Operating Measures to Comparable GAAP (a) Measures Net premiums written $737,394 $753,826 $1,523,277 $1,527,846 Decrease (Increase) in unearned premiums 16,682 (476) (13,449) (37,816) Net premiums earned $754,076 $753,350 $1,509,828 $1,490,030 Paid losses and loss adjustment expenses $491,421 $486,508 $1,011,367 $965,848 Increase in net loss and loss adjustment expense reserves 12,957 47,808 2,770 43,648 Incurred losses and loss adjustment expenses $504,378 $534,316 $1,014,137 $1,009,496 (a) Generally Accepted Accounting Principles Mercury General Corporation and Subsidiaries Other Supplemental Information (000's except ratios) (unaudited) Quarter Ended June 30, Six Months Ended June 30, 2007 2006 2007 2006 California Operations (1) Net premiums written $567,904 $552,144 $1,168,886 $1,118,051 Net premiums earned 577,827 552,209 1,151,343 1,091,467 Loss ratio 64.2% 63.6% 64.7% 63.6% Expense ratio 26.0% 26.9% 26.0% 26.7% Combined ratio 90.2% 90.5% 90.7% 90.3% Non-California Operations (2) Net premiums written $169,490 $201,682 $354,391 $409,795 Net premiums earned 176,249 201,141 358,485 398,563 Loss ratio 75.7% 91.1% 75.1% 79.0% Expense ratio 30.8% 29.9% 30.6% 29.7% Combined ratio 106.5% 121.0% 105.7% 108.7% At June 30, Policies-in-force (000's) 2007 2006 California personal auto 1,153 1,138 California commercial auto 20 21 Non-California personal auto 312 364 California homeowners 266 253 Florida homeowners 13 14 Notes: All ratios are calculated on GAAP basis. (1) Includes homeowners, auto, commercial property and other immaterial California business lines (2) Includes all states except California Mercury General Corporation and Subsidiaries Condensed Balance Sheets and Other Information (000's except per-share amounts) (unaudited) June 30, December 31, 2007 2006 Fixed maturities available for sale (amortized cost $2,882,306 in 2007 and $2,851,715 in 2006) (includes hybrid financial instruments: $33,631 in 2007) $2,883,376 $2,898,987 Equity securities available for sale (cost $268,070 in 2007 and $258,310 in 2006) 360,038 318,449 Equity securities trading (cost $9,264 in 2007) 9,438 - Short-term investments, at cost, which approximates market 283,573 282,302 Total investments 3,536,425 3,499,738 Net receivables 380,150 372,777 Deferred policy acquisition costs 213,902 209,783 Other assets 240,446 218,764 Total assets $4,370,923 $4,301,062 Losses and loss adjustment expenses $1,090,682 $1,088,822 Unearned premiums 963,775 950,344 Other liabilities 398,934 396,212 Notes payable 127,913 141,554 Shareholders' equity 1,789,619 1,724,130 Total liabilities and shareholders' equity $4,370,923 $4,301,062 Common stock-shares outstanding 54,717 54,670 Book value per share $32.71 $31.54 Statutory surplus $1.7 billion $1.6 billion Portfolio duration 5.0 years 4.0 years
First Call Analyst:
SOURCE: Mercury General Corporation
CONTACT: Theodore Stalick, VP-CFO of Mercury General Corporation,
Web site: http://www.mercuryinsurance.com/