Mercury General Corporation (NYSE: MCY) reported today net income of $68.2 million ($1.25 per share- diluted) in the third quarter 2006 compared with $73.0 million ($1.33 per share-diluted) for the same period in 2005. For the first nine months of 2006, net income was $164.7 million ($3.01 per share-diluted) compared with net income of $207.0 million ($3.78 per share-diluted) for the same period in 2005. Included in net income are net realized investment gains, net of tax, of $1.7 million ($0.03 per share-diluted) in the third quarter of 2006 compared with net realized investment gains, net of tax, of $5.0 million ($0.09 per share-diluted) for the same period in 2005, and net realized investment gains, net of tax, of $8.7 million ($0.16 per share-diluted) for the first nine months of 2006 compared with net realized investment gains, net of tax, of $10.0 million ($0.18 per share-diluted) for the same period in 2005.
Company-wide net premiums written were $776.2 million in the third quarter 2006, a 1.7% increase over third quarter 2005 net premiums written of $762.9 million, and were approximately $2.3 billion for the first nine months of 2006, a 3.7% increase over the same period in 2005. California net premiums written were $573.1 million in the third quarter of 2006, an increase of 5.1% over the same period in 2005, and were approximately $1.7 billion for the first nine months of 2006, a 5.9% increase over the same period in 2005. Non-California net premiums written were $203.1 million in the third quarter of 2006, a 6.7% decrease over the same period in 2005, and were $612.8 million for the first nine months of 2006, a decrease of 2.0% over the same period in 2005.
The Company's combined ratio (GAAP basis) was 93.0% in the third quarter and 94.5% for the first nine months of 2006 compared with 90.8% and 91.2% for the same periods in 2005. For the states outside of California, the Company experienced adverse development for the nine months ended September 30, 2006 of approximately $37 million on prior accident years' loss reserves. The loss development primarily relates 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. As a result of these developments, the Company also increased the implied severity for the 2006 accident year for Florida and New Jersey business. The Company experienced positive development on prior accident years' loss reserves of approximately $19 million for the nine months ended September 30, 2006 on its California business.
Net investment income of $36.9 million (after tax $30.7 million) in the third quarter of 2006 increased by 19.4% over the same period in 2005. The after-tax yield on investment income was 3.7% 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 3.4% on average investments of $3.2 billion (fixed maturities and equities at cost) for the same period in 2005.
The Company announced that George Joseph, Chief Executive Officer and Chairman of the Board, will resign as CEO effective January 1, 2007. The Board of Directors has appointed Gabriel Tirador to serve as President and Chief Executive Officer effective January 1, 2007. Mr. Tirador has served as President and Chief Operating Officer since October 2001. George Joseph will remain as Chairman.
The Board of Directors declared a third quarter dividend of $0.48 per share, representing an 11.6% increase over the same period in 2005. The dividend is to be paid on December 28, 2006 to shareholders of record on December 15, 2006. The Company's book value per share at September 30, 2006 was $30.98.
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 November 13, 2006. The replay telephone numbers are (800) 642-1687 (USA) or (706) 645-9291 (International). The conference ID# is 8732770. 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 Nine Months Ended September 30, September 30, 2006 2005 2006 2005 Net premiums written $776,186 $762,862 $2,304,032 $2,222,567 Net premiums earned 753,122 722,899 2,243,152 2,114,874 Paid losses and loss adjustment expenses 483,466 436,672 1,449,314 1,283,399 Incurred losses and loss adjustment expenses 491,129 464,709 1,500,625 1,355,719 Net investment income 36,857 30,857 112,502 90,343 Net realized investment gains, net of tax 1,749 5,002 8,694 10,047 Net income $68,227 $73,014 $164,685 $207,040 Basic average shares outstanding 54,662 54,578 54,645 54,554 Diluted average shares outstanding 54,750 54,739 54,760 54,715 Basic Per Share Data Net income $1.25 $1.34 $3.01 $3.80 Net realized investment gains, net of tax $0.03 $0.09 $0.16 $0.18 Diluted Per Share Data Net income $1.25 $1.33 $3.01 $3.78 Net realized investment gains, net of tax $0.03 $0.09 $0.16 $0.18 Operating Ratios -- GAAP (a) Basis Loss ratio 65.2% 64.3% 66.9% 64.1% Expense ratio 27.8% 26.5% 27.6% 27.1% Combined ratio 93.0% 90.8% 94.5% 91.2% Reconciliations of Operating Measures to Comparable GAAP (a) Measures Net premiums written $776,186 $762,862 $2,304,032 $2,222,567 Increase in unearned premiums (23,064) (39,963) (60,880) (107,693) Net premiums earned $753,122 $722,899 $2,243,152 $2,114,874 Paid losses and loss adjustment expenses $483,466 $436,672 $1,449,314 $1,283,399 Increase in net loss and loss adjustment expense reserves 7,663 28,037 51,311 72,320 Incurred losses and loss adjustment expenses $491,129 $464,709 $1,500,625 $1,355,719 (a) Generally Accepted Accounting Principles Mercury General Corporation and Subsidiaries Other Supplemental Information (000's except ratios) (unaudited) Quarter Ended Nine Months Ended September 30, September 30, 2006 2005 2006 2005 Total California Operations (1) Net Premiums Written $573,136 $545,293 $1,691,188 $1,597,283 Net Premiums Earned 556,342 524,887 1,647,809 1,547,548 Loss Ratio 61.7% 62.5% 63.0% 63.3% Expense Ratio 26.5% 25.1% 26.6% 25.4% Combined Ratio 88.2% 87.6% 89.6% 88.7% Non-California Operations (2) Net Premiums Written $203,050 $217,569 $612,844 $625,284 Net Premiums Earned 196,780 198,012 595,343 567,326 Loss Ratio 75.1% 68.9% 77.7% 66.4% Expense Ratio 31.4% 30.5% 30.2% 31.5% Combined Ratio 106.5% 99.4% 107.9% 97.9% At September 30, Policies-in-force (000's) 2006 2005 California Personal Auto 1,140 1,096 California Commercial Auto 21 21 Non-California Personal Auto 352 370 California Homeowners 258 236 Florida Homeowners 14 16 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) September 30, December 31, 2006 2005 Investments - available for sale Fixed maturities at market (amortized cost $2,830,593 in 2006 and $2,593,745 in 2005) $2,880,398 $2,645,555 Equity securities at market (cost $255,075 in 2006 and $225,310 in 2005) 303,393 276,108 Short-term cash investments, at cost, which approximates market 289,024 321,049 Total investments 3,472,815 3,242,712 Net receivables 399,596 390,234 Deferred policy acquisition costs 213,720 197,943 Other assets 223,986 245,653 Total assets $4,310,117 $4,076,542 Losses and loss adjustment expenses $1,065,064 $1,022,603 Unearned premiums 963,365 902,567 Other liabilities 445,541 399,995 Notes payable 141,961 143,540 Shareholders' equity 1,694,186 1,607,837 Total liabilities and shareholders' equity $4,310,117 $4,076,542 Common stock - shares outstanding 54,685 54,605 Book value per share $30.98 $29.44 Statutory surplus $1.5 billion $1.5 billion Portfolio duration 3.3 years 2.9 years
First Call Analyst:
FCMN Contact: email@example.com
SOURCE: Mercury General Corporation
CONTACT: Theodore Stalick, VP/CFO of Mercury General Corporation,
Web site: http://www.mercuryinsurance.com/