Mercury General Corporation Announces Third Quarter Results
Mercury General Corporation (NYSE: MCY) reported today net income of $65.1 million, or $1.19 per share (diluted), in the third quarter 2004 compared with $49.6 million, or $0.91 per share (diluted), in the same period for 2003. For the first nine months of 2004, net income was $212.1 million ($3.88 per share-diluted) compared to net income of $135.1 million ($2.48 per share-diluted) in the same period for 2003. Included in net income are net realized gains, net of tax, of $0.6 million ($0.01 per share-diluted) in the third quarter 2004 compared to net realized gains, net of tax, of $4.1 million ($0.07 per share-diluted) for the third quarter 2003, and net realized gains, net of tax, of $12.1 million ($0.22 per share-diluted) for the first nine months of 2004 compared to net realized gains, net of tax, of $3.5 million ($0.06 per share-diluted) for the same period in 2003. Net income in the third quarter of 2004 includes approximately $24 million ($16 million after tax benefit or $0.29 per share-diluted) in losses resulting from the four recent Florida hurricanes.
Company-wide net premiums written were $693.7 million in the third quarter 2004, a 17.5% increase over third quarter 2003 net premiums written of $590.2 million, and were $1,972.5 million for the first nine months of 2004, a 17.6% increase over the same period in 2003. California net premiums written were $512.6 million in the quarter, an increase of 4.2% over 2003, and were $1,511.4 million for the first nine months of 2004, a 7.6% increase over the same period in 2003. Non-California net premiums written were $181.2 million in the quarter, an 84.4% increase over 2003, and were $461.1 million for the first nine months of 2004, a 69.0% increase over the same period in 2003. Non-California net premiums written represented 26.1% of the Company's total third quarter net premiums written, up from 16.6% in the third quarter of 2003.
The Company's combined ratio (GAAP basis) was 90.8% in the third quarter and 89.4% for the first nine months of 2004 compared with 93.4% for the third quarter and 94.0% for the nine month period in 2003. Favorable loss frequency trends and positive development of approximately $40 million for the nine month period ended September 30, 2004 on the 2003 and prior accident year loss reserves contributed to the improvement in the combined ratio. The Florida hurricanes negatively impacted the combined ratio by 3.7% for the third quarter of 2004 and 1.3% for the first nine months of 2004.
Net investment income was $28.4 million (after tax $24.5 million) in the third quarter of 2004. The after-tax yield on investment income was 3.6% on average assets of $2.7 billion (fixed maturities and equities at cost) for the quarter. This compares with an after tax yield on investment income of 3.8% on average investments of $2.3 billion (fixed maturities and equities at cost) for the same period in 2003.
During October 2004, the Company began writing private passenger automobile insurance in Michigan, marking the twelfth state in which the Company writes automobile insurance.
On October 29, 2004, the Board of Directors declared a quarterly dividend of $0.37 per share for the third quarter, representing a 12% increase over the quarterly dividend amount paid in 2003. The dividend is to be paid on December 29, 2004 to shareholders of record on December 15, 2004.
Mercury General Corporation and its subsidiaries are a multiple line insurance organization offering predominantly personal automobile and homeowners insurance through a network of independent agents and brokers in many states. For more information, visit our 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 1 (877) 807-1888 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 November 8, 2004. The replay telephone numbers are (800) 642-1687 (USA) or (706) 645-9291 (International). The conference ID# is 1398662. 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, 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 in general and in particular with respect to the recent Florida hurricanes; 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 Company's success in expanding 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 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 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."
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 Nine Months Ended September 30, September 30, 2004 2003 2004 2003 Net premiums written $693,733 $590,176 $1,972,465 $1,677,377 Net premiums earned 648,165 546,638 1,860,534 1,572,376 Paid losses and loss adjustment expenses 374,985 329,606 1,086,884 983,331 Incurred losses and loss adjustment expenses 416,159 367,610 1,168,681 1,066,721 Net investment income 28,410 24,528 80,350 78,172 Net realized investment gains, net of tax 560 4,073 12,124 3,467 Net income $65,129 $49,615 $212,079 $135,095 Basic average shares outstanding 54,487 54,410 54,459 54,397 Diluted average shares outstanding 54,639 54,564 54,623 54,534 Basic Per Share Data Net income $1.20 $0.91 $3.89 $2.48 Net realized investment gains, net of tax $0.01 $0.07 $0.22 $0.06 Incurred losses from Florida Hurricanes, net of tax benefit $0.29 N/A $0.29 N/A Diluted Per Share Data Net income $1.19 $0.91 $3.88 $2.48 Net realized investment gains, net of tax $0.01 $0.07 $0.22 $0.06 Incurred losses from Florida Hurricanes, net of tax benefit $0.29 N/A $0.29 N/A Operating Ratios--GAAP (a) Basis Loss ratio 64.2% 67.3% 62.8% 67.8% Expense ratio 26.6% 26.1% 26.6% 26.2% Combined ratio 90.8% 93.4% 89.4% 94.0% Impact of Florida hurricanes on loss ratio 3.7% N/A 1.3% N/A Reconciliations of Operating Measures to Comparable GAAP (a) Measures Net premiums written $693,733 $590,176 $1,972,465 $1,677,377 Increase in unearned premiums (45,568) (43,538) (111,931) (105,001) Net premiums earned $648,165 $546,638 $1,860,534 $1,572,376 Paid losses and loss adjustment expenses $374,985 $329,606 $1,086,884 $983,331 Increase in net losses and loss adjustment expense reserves 41,174 38,004 81,797 83,390 Incurred losses and loss adjustment expenses $416,159 $367,610 $1,168,681 $1,066,721 (a) Generally Accepted Accounting Principles N/A - Not applicable Mercury General Corporation and Subsidiaries Other Supplemental Information (000's) except ratios (unaudited) Quarter ending, Nine Months Ending, September 30, September 30, 2004 2003 2004 2003 Total California Operations (1) Net Premiums Written $512,583 $491,962 $1,511,377 $1,404,473 Net Premiums Earned 499,800 460,835 1,479,719 1,327,669 Loss Ratio 58.0% 68.2% 60.7% 68.9% Expense Ratio 25.8% 25.3% 25.9% 25.5% Combined Ratio (a) 83.8% 93.5% 86.6% 94.3% California Automobile lines Net Premiums Written $464,573 $453,760 $1,377,525 $1,295,826 Net Premiums Earned 457,652 427,587 1,359,996 1,234,010 Loss Ratio 60.0% 69.0% 62.5% 69.4% Expense Ratio 26.0% 25.1% 25.9% 25.1% Combined Ratio (a) 86.0% 94.1% 88.4% 94.6% California Homeowners line Net Premiums Written $39,454 $32,101 $111,205 $90,490 Net Premiums Earned 34,605 27,869 99,448 77,813 Loss Ratio 29.5% 56.9% 37.2% 61.6% Expense Ratio 24.6% 24.4% 25.0% 25.4% Combined Ratio 54.1% 81.3% 62.2% 87.0% Non-California Operations (2) Net Premiums Written $181,150 $98,214 $461,088 $272,904 Net Premiums Earned 148,365 85,802 380,815 244,706 Loss Ratio 85.0% 62.2% 71.1% 62.2% Expense Ratio 29.3% 30.3% 29.6% 29.9% Combined Ratio 114.3% 92.5% 100.7% 92.1% At September 30, Policies-in-force (000's) 2004 2003 California Personal Auto 1,050 1,018 California Commercial Auto 21 19 Non-California Personal Auto 294 169 California Homeowners 209 178 Florida Homeowners 15 9 All ratios are calculated on GAAP basis. (a) Some numbers may not sum due to rounding. (1) Total California operations includes homeowners, auto, commercial property and other immaterial California business lines (2) Includes all states except California Mercury General Corporation and Subsidiaries Condensed Balance Sheet and Other Information (000's) except per-share amounts September 30, December 31, 2004 2003 (unaudited) Investments - available for sale Fixed maturities at market (amortized cost $2,162,186 in 2004 and $1,856,083 in 2003) $2,244,444 $1,945,309 Equity securities at market (cost $212,373 in 2004 and $223,113 in 2003) 249,691 264,393 Short-term cash investments, at cost, which approximates market 392,217 329,812 Total investments 2,886,352 2,539,514 Net receivables 356,280 299,094 Deferred policy acquisition costs 156,487 132,059 Other assets 154,160 149,099 Total assets $3,553,279 $3,119,766 Loss and loss adjustment expenses $879,760 $797,927 Unearned premiums 771,759 663,004 Other liabilities 374,952 278,618 Notes payable 124,736 124,714 Shareholders' equity 1,402,072 1,255,503 Total liabilities and shareholders' equity $3,553,279 $3,119,766 Common stock - shares outstanding 54,496 54,424 Book value per share $25.73 $23.07 Statutory surplus $1.29 billion $1.17 billion Portfolio duration 3.3 years 3.8 years
SOURCE: Mercury General Corporation
CONTACT: Theodore Stalick, VP/CFO of Mercury General Corporation,
Web site: http://www.mercuryinsurance.com/