Mercury General Corporation (NYSE: MCY) reported today net income of $58.6 million, or $1.07 per share (diluted), in the first quarter 2006 compared with $60.4 million, or $1.10 per share (diluted), in the same period for 2005. Included in net income are net realized investment gains, net of tax, of $4.2 million, or $0.08 per share (diluted), in the first quarter of 2006 compared with net realized investment gains, net of tax, of $2.7 million, or $0.05 per share (diluted), for the same period in 2005.
Company-wide net premiums written were $774 million in the first quarter 2006, a 6.1% increase over first quarter 2005 net premiums written of $730 million. California net premiums written were $566 million in the quarter, an increase of 7.6% over 2005.
The Company's combined ratio (GAAP basis) was 91.8% in the first quarter of 2006 compared with 92.6% in the same period for 2005. Positive development on prior period loss reserves was approximately $10 million and $20 million, respectively, for the periods ending March 31, 2006 and March 31, 2005.
Net investment income of $39.4 million (after tax $33.1 million) in the first quarter of 2006 increased by 37% over the same period in 2005. The after-tax yield on investment income was 4.1% on average assets of $3.2 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 $2.9 billion (fixed maturities and equities at cost) for the same period in 2005.
As previously reported, included in net income is an income tax charge, net of federal tax benefit, of approximately $15 million, or $0.27 per share (diluted), relating to Notices of Proposed Assessments upheld by the California State Board of Equalization ("SBE") for tax years 1993 through 1996 in which the Franchise Tax Board disallowed a portion of the Company's expenses related to management services provided to its insurance company subsidiaries. The Company believes that the deduction of these expenses is appropriate and intends to challenge the SBE decision in Superior Court.
The Board of Directors declared a second quarter dividend of $0.48 per share, representing an 11.6% increase over the quarterly dividend amount paid in 2005. The dividend is to be paid on June 29, 2006 to shareholders of record on June 15, 2006. The Company's book value per share at March 31, 2006 was $29.84.
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 15, 2006. The replay telephone numbers are (800) 642-1687 (USA) or (706) 645-9291 (International). The conference ID# is 7839518. 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 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 March 31, 2006 2005 Net premiums written $774,020 $729,830 Net premiums earned 736,680 684,714 Paid losses and loss adjustment expenses 479,340 424,672 Incurred losses and loss adjustment expenses 475,180 448,246 Net investment income 39,403 28,785 Net realized investment gains, net of tax 4,195 2,740 Net income $58,646 $60,424 Basic average shares outstanding 54,623 54,535 Diluted average shares outstanding 54,745 54,717 Basic Per Share Data Net income $1.07 $1.11 Net realized investment gains, net of tax $0.08 $0.05 Diluted Per Share Data Net income $1.07 $1.10 Net realized investment gains, net of tax $0.08 $0.05 Operating Ratios--GAAP (a) Basis Loss ratio 64.5% 65.5% Expense ratio 27.3% 27.1% Combined ratio 91.8% 92.6% Reconciliations of Operating Measures to Comparable GAAP (a) Measures Net premiums written $774,020 $729,830 Increase in unearned premiums (37,340) (45,116) Net premiums earned $736,680 $684,714 Paid losses and loss adjustment expenses $479,340 $424,672 (Decrease) increase in net losses and loss adjustment expense reserves (4,160) 23,574 Incurred losses and loss adjustment expenses $475,180 $448,246 (a) Generally Accepted Accounting Principles Mercury General Corporation and Subsidiaries Other Supplemental Information (000's) except ratios (unaudited) Quarter Ended March 31, 2006 2005 California Operations Net Premiums Written $565,908 $526,079 Net Premiums Earned 539,257 505,316 Loss Ratio 63.7% 65.8% Expense Ratio 26.5% 25.6% Combined Ratio 90.2% 91.4% Non-California Operations Net Premiums Written $208,112 $203,751 Net Premiums Earned 197,423 179,398 Loss Ratio 66.7% 64.4% Expense Ratio 29.4% 31.4% Combined Ratio 96.1% 95.8% At March 31, Policies-in-force (000's) 2006 2005 California Personal Auto 1,124 1,081 California Commercial Auto 21 21 Non-California Personal Auto 372 353 California Homeowners 247 221 Florida Homeowners 15 16 Notes: All ratios are calculated on GAAP basis. Mercury General Corporation and Subsidiaries Condensed Balance Sheets and Other Information (000's) except per-share amounts (Unaudited) March 31, December 31, 2006 2005 Investments - available for sale Fixed maturities at market (amortized cost $2,674,755 in 2006 and $2,593,745 in 2005) $2,707,035 $2,645,555 Equity securities at market (cost $227,771 in 2006 and $225,310 in 2005) 280,464 276,108 Short-term cash investments, at cost, which approximates market 333,782 321,049 Total investments 3,321,281 3,242,712 Net receivables 408,181 390,234 Deferred policy acquisition costs 204,921 197,943 Other assets 202,562 210,662 Total assets $4,136,945 $4,041,551 Loss and loss adjustment expenses $1,011,567 $1,022,603 Unearned premiums 939,813 902,567 Other liabilities 414,686 365,004 Notes payable 140,743 143,540 Shareholders' equity 1,630,136 1,607,837 Total liabilities and shareholders' equity $4,136,945 $4,041,551 Common stock - shares outstanding 54,635 54,605 Book value per share $29.84 $29.44 Statutory surplus $1.5 billion $1.5 billion Portfolio duration 3.4 years 2.9 years
SOURCE: Mercury General Corporation
CONTACT: Theodore Stalick, VP/CFO of Mercury General Corporation,
Web site: http://www.mercuryinsurance.com/