News Releases

Mercury General Corporation Announces Thrid Quarter Results and Increases Quarterly Dividend

LOS ANGELES, Nov. 1, 2010 /PRNewswire-FirstCall/ -- Mercury General Corporation (NYSE: MCY) reported today for the third quarter of 2010:

Consolidated Highlights

Three Months Ended

Nine Months Ended

September 30,

Change

September 30,

Change

2010

2009

$

%

2010

2009

$

%

(000's except per-share amounts and ratios)

Net premiums written (1)

$ 654,686

$ 662,756

$   (8,070)

(1.2)

$ 1,938,261

$ 1,971,053

$   (32,792)

(1.7)

Net income

$   96,849

$ 157,737

$ (60,888)

(38.6)

$    175,845

$    368,837

$ (192,992)

(52.3)

Net income per diluted share

$       1.77

$       2.85

$     (1.08)

(37.9)

$          3.21

$          6.70

$       (3.49)

(52.1)

Operating income (1)

$   40,664

$   46,345

$   (5,681)

(12.3)

$    123,344

$    139,680

$   (16,336)

(11.7)

Operating income per diluted share (1)

$       0.74

$       0.84

$     (0.10)

(11.9)

$          2.25

$          2.54

$       (0.29)

(11.4)

Severance related expenses (2)

$             -

$             -

$            -

-

$                -

$        8,000

$     (8,000)

-

Net expense related to amortization of December 31, 2008

  AIS deferred policy acquisition costs (2) (3)

$             -

$             -

$            -

-

$                -

$      15,000

$   (15,000)

-

Costs related to support of California Proposition 17 (4)

$             -

$        500

$      (500)

-

$      12,100

$        1,000

$    11,100

-

Combined ratio

98.0%

96.4%

-

1.6 pts

97.8%

96.5%

-

1.3 pts

(1)  These measures are not based on U.S. generally accepted accounting principles ("GAAP") and are defined and reconciled to the most directly comparable GAAP measures in "Information Regarding Non-GAAP Measures."

(2)  The amounts are rounded to the nearest million.

(3)  Represents the net expense related to Auto Insurance Specialists LLC ("AIS") deferred commissions at December 31, 2008 amortized in 2009, partially offset by deferred costs related to policy sales made by AIS in 2009.

(4)  The Company supported the Continuous Coverage Auto Insurance Discount Act.


Net income in the third quarter 2010 was $96.8 million ($1.77 per diluted share) compared with net income of $157.7 million ($2.85 per diluted share) for the same period in 2009. For the nine months of 2010, net income was $175.8 million ($3.21 per diluted share) compared with net income of $368.8 million ($6.70 per diluted share) for the same period in 2009. Included in net income are net realized investment gains, net of tax, of $56.2 million ($1.03 per diluted share) in the third quarter of 2010 compared with net realized investment gains, net of tax, of $111.4 million ($2.01 per diluted share) for the same period in 2009, and net realized investment gains, net of tax, of $52.5 million ($0.96 per diluted share) for the nine months of 2010 compared with net realized investment gains, net of tax, of $229.2 million ($4.16 per diluted share) for the same period in 2009. Operating income was $40.7 million ($0.74 per diluted share) for the third quarter of 2010 compared with operating income of $46.3 million ($0.84 per diluted share) for the same period in 2009. For the nine months of 2010, operating income was $123.3 million ($2.25 per diluted share) compared with operating income of $139.7 million ($2.54 per diluted share) for the same period in 2009.  

Net premiums written were $654.7 million in the third quarter of 2010, a 1.2% decrease compared to the third quarter 2009 net premiums written of $662.8 million, and were approximately $1.9 billion for the nine months of 2010, a 1.7% decrease compared to the same period in 2009. Net realized investment gains, net of tax, of $56.2 million and $52.5 million for the third quarter and for the nine months of 2010, respectively, include gains, net of tax, of $57.0 million and $49.4 million, respectively, from the application of the fair value option. Gains, net of tax, from the sale of securities were $0 and $3.2 million during the third quarter and the nine months of 2010, respectively.

The Company's combined ratio (GAAP basis) was 98.0% in the third quarter of 2010 and 97.8% for the nine months of 2010 compared with 96.4% and 96.5% for the same periods in 2009. The loss ratio was affected by favorable development of approximately $18 million and $40 million on prior accident years' losses and loss adjustment expenses reserves for the nine months ended September 30, 2010 and 2009, respectively. The favorable development in 2010 is largely the result of re-estimates of accident year 2009 California bodily injury losses which have experienced both lower average severities and fewer late reported claims (claim count development) than were originally estimated at December 31, 2009.

Net investment income of $36.0 million (after tax, $32.3 million) in the third quarter of 2010 increased by 2.2% compared to the same period in 2009. The investment income after-tax yield was 4.1% on average investments (fixed maturities at amortized cost, equities and short-term investments at cost) of $3.1 billion for the third quarter 2010. This compares with an investment income after-tax yield of 4.0% on average investments of $3.2 billion for the same period in 2009. Net investment income for the nine months of 2010 was $108.4 million (after tax $97.0 million), a decrease of 0.9% compared to the same period in 2009. The investment income after-tax yield was 4.2% on average assets of $3.1 billion for the nine months of 2010. This compares with an investment income after-tax yield of 4.1% on average investments of $3.2 billion for the same period in 2009.

The Board of Directors declared a quarterly dividend of $0.60 per share, representing a 1.7% increase over the quarterly dividend amount paid in 2009. The dividend is to be paid on December 30, 2010 to shareholders of record on December 16, 2010.

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 8, 2010. The replay telephone numbers are (800) 642-1687 (USA) or (706) 645-9291 (International). The conference ID# is 16668282. 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 general economic conditions, including the impact of current economic conditions on the Company's market and investment portfolio; the accuracy and adequacy of the Company's pricing methodologies; adverse weather conditions or natural disasters in the markets served by the Company; general 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 managing 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 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 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 GAAP. These measures are not intended to replace, and should be read in conjunction with, the GAAP financial results.

Operating income is net income excluding realized investment gains and losses, net of tax. Net income is the GAAP measure that is most directly comparable to operating income. Operating income is used by management along with the other components of net income to assess the Company's performance. Management uses operating income as an important measure to evaluate the results of the Company's insurance business. Management believes that operating income provides investors with a valuable measure of the Company's ongoing performance as it reveals trends in the Company's insurance business that may be obscured by the net effect of realized capital gains and losses. Realized capital gains and losses may vary significantly between periods and are generally driven by external economic developments such as capital market conditions. Accordingly, operating income highlights the results from ongoing operations and the underlying profitability of the Company's core insurance business. Operating income, which is provided as supplemental information and should not be considered as a substitute for net income, does not reflect the overall profitability of our business.  It should be read in conjunction with the GAAP financial results. The Company has reconciled operating income with the most directly comparable GAAP measure in the table below.

Three Months Ended

Nine Months Ended

September 30,

September 30,

Total

Per diluted share

Total

Per diluted share

2010

2009

2010

2009

2010

2009

2010

2009

(000's except per-share amounts)

Operating income

$ 40,664

$   46,345

$ 0.74

$ 0.84

$ 123,344

$ 139,680

$ 2.25

$ 2.54

Net realized investment gains, net of tax

56,185

111,392

1.03

2.01

52,501

229,157

0.96

4.16

Net income

$ 96,849

$ 157,737

$ 1.77

$ 2.85

$ 175,845

$ 368,837

$ 3.21

$ 6.70


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 have been recognized as income in the financial statements for the periods presented as earned on a pro-rata basis over the term of the policies. Net premiums written are meant as supplemental information and are not intended to replace net premiums earned. Such information should be read in conjunction with the GAAP financial results. The Company has reconciled net premiums written with the most directly comparable GAAP measure in the supplemental schedule entitled, "Summary of Operating 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 provided 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. The Company has reconciled paid losses and loss adjustment expenses with the most directly comparable GAAP measure in the supplemental schedule entitled, "Summary of Operating Results."

Combined ratio-accident period basis is computed as the difference between two GAAP operating ratios: the combined ratio and the effect of prior accident periods' loss development. The most directly comparable GAAP measure is the combined ratio. The Company believes that this ratio is useful to investors and it is used by management to reveal the trends in the Company's results of operations that may be obscured by development on prior accident periods' loss reserves. Combined ratio-accident period basis is meant as supplemental information and is not intended to replace combined ratio. It should be read in conjunction with the GAAP financial results. The Company has reconciled combined ratio-accident period basis with the most directly comparable GAAP measure in the table below.

Nine Months Ended

September 30,

2010

2009

Combined ratio-accident period basis

98.7%

98.5%

Effect of estimated prior periods' loss development

(0.9)%

(2.0)%

Combined ratio

97.8%

96.5%


MERCURY GENERAL CORPORATION AND SUBSIDIARIES

SUMMARY OF OPERATING RESULTS

(000's except per-share amounts and ratios)

(unaudited)

Three Months Ended September 30,

Nine Months Ended September 30,

2010

2009

2010

2009

Net premiums written

$ 654,686

$ 662,756

$ 1,938,261

$ 1,971,053

Revenues:

    Net premium earned

$ 642,558

$ 653,758

$ 1,925,889

$ 1,979,032

    Net investment income

35,992

35,208

108,353

109,334

    Net realized investment gains

86,439

171,373

80,770

352,549

    Other

1,761

895

5,234

3,256

         Total revenues

$ 766,750

$ 861,234

$ 2,120,246

$ 2,444,171

Expenses:

    Losses and loss adjustment expenses

440,566

446,436

1,310,797

1,336,191

    Policy acquisition costs

125,001

130,172

380,308

414,062

    Other operating expenses

63,711

53,766

191,551

158,616

    Interest

1,633

1,634

5,103

5,059

         Total expenses

$ 630,911

$ 632,008

$ 1,887,759

$ 1,913,928

Income before income taxes

$ 135,839

$ 229,226

$    232,487

$    530,243

    Income tax expense

38,990

71,489

56,642

161,406

                   Net income

$   96,849

$ 157,737

$    175,845

$    368,837

Basic average shares outstanding

54,795

54,770

54,789

54,769

Diluted average shares outstanding

54,817

55,313

54,821

55,081

Basic Per Share Data

Net income

$       1.77

$       2.88

$          3.21

$          6.73

Net realized investment gains, net of tax

$       1.03

$       2.03

$          0.96

$          4.18

Diluted Per Share Data

Net income

$       1.77

$       2.85

$          3.21

$          6.70

Net realized investment gains, net of tax

$       1.03

$       2.01

$          0.96

$          4.16

Operating Ratios-GAAP Basis

Loss ratio

68.6%

68.3%

68.1%

67.5%

Expense ratio

29.4%

28.1%

29.7%

29.0%

Combined ratio

98.0%

96.4%

97.8%

96.5%

Reconciliations of Operating Measures to Comparable GAAP Measures

Net premiums written

$ 654,686

$ 662,756

$ 1,938,261

$ 1,971,053

Change in unearned premiums

(12,128)

(8,998)

(12,372)

7,979

Net premiums earned

$ 642,558

$ 653,758

$ 1,925,889

$ 1,979,032

Paid losses and loss adjustment expenses

$ 455,670

$ 460,609

$ 1,379,387

$ 1,413,408

Change in net loss and loss adjustment expense reserves

(15,104)

(14,173)

(68,590)

77,217

Incurred losses and loss adjustment expenses

$ 440,566

$ 446,436

$ 1,310,797

$ 1,336,191


MERCURY GENERAL CORPORATION AND SUBSIDIARIES

CONDENSED BALANCE SHEETS AND OTHER INFORMATION

(000's except per-share amounts and ratios)

September 30, 2010

December 31, 2009

(unaudited)

ASSETS

Investments, at fair value:

Fixed maturities trading (amortized cost $2,654,342; $2,673,079)

$                2,759,757

$               2,704,561

Equity securities trading (cost $322,103; $308,941)

301,496

286,131

Short-term investments (cost $162,278; $156,126)

162,229

156,165

Total investments

3,223,482

3,146,857

Cash

174,794

185,505

Receivables:

Premiums

290,722

276,788

Accrued investment income

38,257

37,405

Other

11,246

13,689

Total receivables

340,225

327,882

Deferred policy acquisition costs

176,422

175,866

Fixed assets, net

197,165

201,862

Current income taxes

4,092

27,268

Deferred income taxes

18,911

36,139

Goodwill

42,850

42,850

Other intangible assets, net

61,715

66,823

Other assets

20,840

21,581

Total assets

$                4,260,496

$               4,232,633

LIABILITIES AND SHAREHOLDERS' EQUITY

Losses and loss adjustment expenses

$                   985,149

$               1,053,334

Unearned premiums

856,946

844,540

Notes payable

268,991

271,397

Accounts payable and accrued expenses

138,482

114,469

Other liabilities

159,837

177,947

Shareholders' equity

1,851,091

1,770,946

 Total liabilities and shareholders' equity

$                4,260,496

$               4,232,633

OTHER INFORMATION

Common stock-shares outstanding

54,800

54,777

Book value per share

$                       33.78

$                      32.33

Estimated statutory surplus

$1.6 billion

$1.5 billion

Estimated premiums written to surplus ratio

1.6

1.7

Debt to total capital ratio

12.7%

13.3%

Portfolio duration

3.7  years

5.1 years

Policies-in-Force (Company-wide "PIF")

 Personal Auto PIF

1,268

1,279

 Homeowners PIF

353

328

For further information: Theodore Stalick, VP/CFO of Mercury General Corporation, +1-323-937-1060

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