Mercury General Corporation Announces Second Quarter Results
Mercury General Corporation (NYSE: MCY), a major California automobile insurer with operations in a number of other states, reported today that net income was $43.4 million, or $0.80 per share (diluted), in the second quarter 2003 compared with $1.3 million, or $0.02 per share (diluted), in the same period for 2002. Net operating earnings, a non-GAAP ("Generally Accepted Accounting Principles") financial measure, in the second quarter of 2003 were $43.5 million, or $0.80 per share, compared with $33.1 million, or $0.61 per share in 2002. For the first six months of 2003, net income and net operating earnings were $85.5 million ($1.57 per share) and $86.1 million ($1.58 per share), respectively which compares to net income and net operating earnings for the same period in 2002 of $30.3 million ($0.56 per share), and $61.9 million, ($1.14 per share), respectively. The Company has included below the definitions of non-GAAP financial measures and a reconciliation of those measures with the most directly comparable GAAP measures.
Company-wide premiums written were $548.5 million in the second quarter 2003, a 22.6% increase over 2002 and $1,087.2 million for the six month period, a 25.1% increase over 2002. California premiums written were $459.6 million in the quarter, a 20.7% increase over 2002 and $912.5 million for the six-month period, a 23.2% increase over 2002. The increased premiums were driven by both policy count growth and rate increases.
The combined ratio (GAAP basis) was 94.3% for both the second quarter and for the first six-months of 2003 compared to 96.9% and 97.7% in the respective periods of 2002.
During the second quarter, the Company received approval from the California Department of Insurance to increase its personal automobile rates by 6.9% in Mercury Casualty Company and California Automobile Insurance Company and 3.8% in Mercury Insurance Company. The Company implemented these rate increases on June 23, 2003.
Net investment income in 2003 decreased by 8.0% to $26.7 million in the quarter and by 8.3% to $53.6 million for the six-month period compared to the same periods in 2002. The after-tax yield was 4.21% on average investments of $2.26 billion (fixed maturities and equities at cost) for the quarter. This compares with 5.07% in the second quarter of 2002.
The Company is currently in discussions with New Jersey insurance regulators to enter the New Jersey personal automobile market. Should the Company receive final approval from New Jersey insurance regulators to enter the New Jersey market, it intends to commence New Jersey operations in the third quarter 2003. The Company plans to initially appoint approximately 50 agents throughout the state. New Jersey continues the Company's expansion outside of California and marks the ninth state in which the Company will write automobile insurance business.
The Company also reported the election of Gabriel Tirador to serve as a member of its Board of Directors. Mr. Tirador has served as the Company's President and Chief Operating Officer since October 26, 2001, and prior to that served as its Vice President and Chief Financial Officer.
The Board of Directors declared a quarterly dividend of $0.33 per share, representing a 10% increase over the quarterly dividend amount paid in 2002. The dividend is to be paid on September 25, 2003 to shareholders of record on September 12, 2003.
All interested investors are invited to listen to our investor conference call today at 10:00 A.M. Pacific Time (1:00 P.M. Eastern Time) to review the Company's results of operations for the second quarter period. You can access the conference call through the following toll-free telephone number: (877) 807-1888. Also, this call can be accessed via webcast through the Company's website at http://www.mercuryinsurance.com/.
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, and in general economic conditions; the accuracy and adequacy of the Company's pricing methodologies; market risks associated with the Company's investment portfolio; uncertainties related to estimates, assumptions and projections generally; the possibility actual loss experience may vary adversely from the actuarial estimates made to determine the Company's loss reserves; inflation and changes in economic conditions; 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 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.
Information Regarding Non-GAAP Financial Measures
The Company has presented information within this document containing operating measures which in management's opinion provide investors useful industry specific information to 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."
The Company defines Net Operating Earnings, a non GAAP financial measure, as Net Income excluding Net Realized Investment Gains and Losses, net of tax. Net Operating Earnings allows management to measure the Company's core business results without the impact of realized capital gains or losses which may fluctuate dramatically due to business and economic circumstances not correlated to the underwriting process. Net Income is the most directly comparable GAAP measure. Management believes that Net Operating Earnings in conjunction with Net Income is useful for investors to evaluate the Company's core business performance. Net Operating Earnings is commonly used by insurance investors to calculate price to earnings multiples and return on equity. Net Operating Earnings is meant as supplemental information and should not be considered a replacement for Net Income and consequently does not reflect the overall profitability of the Company's business.
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 share amounts (unaudited) Quarter Ended June 30, Six Months Ended June 30, 2003 2002 2003 2002 Net premiums written $548,451 $447,346 $1,087,201 $868,847 Net premiums earned 525,072 418,146 1,025,738 804,783 Paid losses and loss adjustment expenses 333,126 271,547 653,725 531,183 Incurred losses and loss adjustment expenses 357,565 296,568 699,111 574,669 Net investment income 26,718 29,026 53,644 58,530 Net realized investment losses (a) (112) (31,802) (606) (31,647) Net income $43,372 $1,301 $85,480 $30,255 Net operating earnings $43,484 $33,103 $86,086 $61,902 Basic average shares outstanding 54,403,161 54,305,751 54,391,096 54,285,508 Diluted average shares outstanding 54,547,221 54,535,129 54,518,470 54,498,678 Basic Per Share Data Earnings per share $0.80 $0.02 $1.57 $0.56 Diluted Per Share Data (b) Net operating earnings $0.80 $0.61 $1.58 $1.14 Net realized investment losses (a) ($0.00) ($0.58) ($0.01) ($0.58) Earnings per share $0.80 $0.02 $1.57 $0.56 Operating Ratios--GAAP Basis (c) Loss ratio 68.1% 70.9% 68.1% 71.4% Expense ratio 26.2% 26.0% 26.2% 26.3% Combined ratio 94.3% 96.9% 94.3% 97.7% Reconciliations of Non-GAAP Financial Measures to Most Directly Comparable GAAP (c) Measures Net premiums written $548,451 $447,346 $1,087,201 $868,847 Increase in unearned premiums (23,379) (29,200) (61,463) (64,064) Net premiums earned $525,072 $418,146 $1,025,738 $804,783 Paid losses and loss adjustment expenses $333,126 $271,547 $653,725 $531,183 Increase in net losses and loss adjustment expense reserves 24,439 25,021 45,386 43,486 Incurred losses and loss adjustment expenses $357,565 $296,568 $699,111 $574,669 Net operating earnings $43,484 $33,103 $86,086 $61,902 Net realized investment losses (a) (112) (31,802) (606) (31,647) Net income, GAAP basis (c) $43,372 $1,301 $85,480 $30,255 (a) Net realized investment losses is net of taxes (b) Some numbers may not sum due to rounding (c) Generally Accepted Accounting Principles Mercury General Corporation and Subsidiaries Other Supplemental Information (000's) except ratios (unaudited) Quarter Ended Six Months Ended June 30, June 30, June 30, June 30, 2003 2002 2003 2002 Total California Operations (1) Net Premiums Written $459,564 $380,746 $912,511 $740,702 Net Premiums Earned 443,821 358,539 866,834 693,627 Loss Ratio 68.5% 70.1% 69.3% 70.9% Expense Ratio 25.5% 25.1% 25.5% 25.4% Combined Ratio 94.0% 95.2% 94.8% 96.3% California Automobile lines Net Premiums Written $421,092 $352,821 $842,066 $691,845 Net Premiums Earned 412,500 337,711 806,423 653,379 Loss Ratio 69.0% 69.8% 69.7% 70.3% Expense Ratio 25.1% 25.0% 25.1% 25.0% Combined Ratio 94.1% 94.8% 94.8% 95.3% Non-California Operations (2) Net Premiums Written $88,887 $66,600 $174,690 $128,145 Net Premiums Earned 81,251 59,607 158,904 111,156 Loss Ratio 65.6% 75.9% 62.1% 74.3% Expense Ratio 29.9% 31.2% 29.7% 32.1% Combined Ratio 95.6% 107.1% 91.9% 106.4% At At At Policies-in-force (000's) June 30, March 31, December 31, 2003 2003 2002 California Personal Auto 1,009 981 952 California Commercial Auto 19 19 18 Non-California Personal Auto 160 158 150 California Homeowners 169 163 154 Florida Homeowners 8 7 6 At At At June 30, March 31, December 31, 2002 2002 2001 California Personal Auto 883 853 828 California Commercial Auto 17 17 16 Non-California Personal Auto 135 121 106 California Homeowners 136 125 116 Florida Homeowners 5 5 4 (1) Total California operations includes homeowners, auto, commercial property and other immaterial California business lines (2) Includes all states except for California Mercury General Corporation and Subsidiaries Condensed Balance Sheet and Other Information (000's) except per-share amounts June 30, 2003 December 31, 2002 (unaudited) Investments - available for sale Fixed maturities at market (amortized cost $1,739,720 in 2003 and $1,565,760 in 2002) $1,842,478 $1,632,871 Equity securities at market (cost $241,791 in 2003 and $233,297 in 2002) 275,389 230,981 Short-term cash investments, at cost, which approximates market 251,185 286,806 Total investments 2,369,052 2,150,658 Net receivables 277,899 259,445 Deferred policy acquisition costs 119,690 107,485 Other assets 121,200 127,708 Total assets $2,887,841 $2,645,296 Loss and loss adjustment expenses $721,341 $679,271 Unearned premiums 602,521 545,485 Other liabilities 243,352 192,895 Notes payable 124,701 128,859 Shareholders' equity 1,195,926 1,098,786 Total liabilities and shareholders' equity $2,887,841 $2,645,296 Common stock - shares outstanding (000's) 54,408 54,362 Book value per share $21.98 $20.21 Statutory surplus $1,095,285 $1,014,935 Portfolio duration 4.2 years 4.4 years
SOURCE: Mercury General Corporation
CONTACT: Theodore Stalick, VP/CFO of Mercury General Corporation,
Web site: http://www.mercuryinsurance.com/