Mercury General Corporation Announces First Quarter Results and Declares Quarterly Dividend

29 Apr, 2013, 08:30 ET from Mercury General Corporation

LOS ANGELES, April 29, 2013 /PRNewswire/ -- Mercury General Corporation (NYSE: MCY) reported today for the first quarter of 2013:

Consolidated Highlights

Three Months Ended March 31,

Change

2013

2012

$

%

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

Net premiums written (1)

$

690,504

$

658,287

$

32,217

4.9

Net income

$

66,461

$

73,356

$

(6,895)

(9.4)

Net income per diluted share

$

1.21

$

1.34

$

(0.13)

(9.7)

Operating income (1)

$

37,829

$

39,125

$

(1,296)

(3.3)

Operating income per diluted share (1)

$

0.69

$

0.71

$

(0.02)

(2.8)

Restructuring charges (2)

$

10,000

$

0

$

10,000

NM

Catastrophe losses (3)

$

1,000

$

0

$

1,000

NM

Combined ratio (4)

97.9

%

97.6

%

0.3 pts

NM = not meaningful

(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 Company consolidated its claims and underwriting operations located outside of California into hub locations in Florida, New Jersey, and Texas, which resulted in a net workforce reduction of approximately 135 employees and a $10 million expense in the first quarter of 2013. The amounts are rounded to the nearest million.

(3)

2013 catastrophe losses were primarily the result of weather related events in Georgia. The amounts are rounded to the nearest million.

(4)

The Company experienced favorable development of approximately $3 million and unfavorable development of approximately $6 million on prior accident years' losses and loss adjustment expenses reserves for the three months ended March 31, 2013 and 2012, respectively. The year-to-date favorable development for the three months ended March 31, 2013 is primarily from non-California states.

Investment Results

Three Months Ended March 31,

2013

2012

(000's except average annual yield)

Average invested assets at cost (1)

$

3,046,982

$

2,984,903

Net investment income (2)

     Before income taxes

$

31,175

$

31,486

     After income taxes

$

27,271

$

28,037

Average annual yield on investments - after income taxes (2)

3.6

%

3.8

%

(1)

Fixed maturities and short-term bonds at amortized cost and equities and other short-term investments at cost. Average invested assets at cost are based on the monthly amortized cost of the invested assets for each respective period.

(2)

Net investment income and average annual yield for the three months ended March 31, 2013 decreased primarily due to the maturity and replacement of higher yielding investments, purchased when market interest rates were higher, with lower yielding investments purchased during the current low interest rate environment.

Mercury CEO and President Gabe Tirador commented on the quarterly results:

"I am pleased to report our first quarter 2013 combined ratio was 97.9% and our written premiums grew by 4.9%, our ninth consecutive quarter of written premium growth. The Company is executing on our plan to improve profitability and we are experiencing continued improvement in our financial results outside of California.

The results were favorably impacted by approximately $3 million of positive reserve development, arising primarily from Florida and New Jersey business. Additionally, loss costs in the first quarter of 2013 compared favorably to those of the fourth quarter of 2012 which had included losses from Hurricane Sandy. Premium growth continues to be driven by personal automobile business in California and homeowners business in many states.

The first quarter results were impacted by approximately $10 million of pre-tax restructuring charges related to the consolidation of operations outside of California into hubs located in Florida, New Jersey and Texas. The charges added 0.5 point to our expense ratio and 1.0 point to the loss adjustment expense portion of the loss ratio. The Company expects future savings of approximately $12 million per year as a result of the consolidation."

The Board of Directors declared a quarterly dividend of $0.6125 per share. The dividend will be paid on June 27, 2013 to shareholders of record on June 13, 2013.

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 6, 2013. The replay telephone numbers are (855) 859-2056 (USA) or (404) 537-3406 (International). The conference ID# is 35496206. 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 the approval of premium rate changes for insurance policies issued in states where the Company operates; legislation adverse to the automobile insurance industry or business generally that may be enacted in the states where the Company operates; the Company's success in managing its business in states outside of California; the presence of competitors with greater financial resources and the impact of competitive pricing and marketing efforts; 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.


MERCURY GENERAL CORPORATION AND SUBSIDIARIES SUMMARY OF OPERATING RESULTS (000's except per-share amounts and ratios) (unaudited)

Three Months Ended March 31,

2013

2012

Net premiums written

$

690,504

$

658,287

Revenues:

     Net premium earned

$

662,595

$

635,812

     Net investment income

31,175

31,486

     Net realized investment gains

44,050

52,663

     Other

2,333

2,714

           Total revenues

$

740,153

$

722,675

Expenses:

     Losses and loss adjustment expenses

467,060

449,916

     Policy acquisition costs

123,722

117,430

     Other operating expenses

58,063

52,925

     Interest

314

410

          Total expenses

$

649,159

$

620,681

Income before income taxes

90,994

101,994

     Income tax expense

24,533

28,638

                    Net income

$

66,461

$

73,356

Basic average shares outstanding

54,922

54,877

Diluted average shares outstanding

54,935

54,908

Basic Per Share Data

Net income

$

1.21

$

1.34

Net realized investment gains, net of tax

$

0.52

$

0.62

Diluted Per Share Data

Net income

$

1.21

$

1.34

Net realized investment gains, net of tax

$

0.52

$

0.62

Operating Ratios-GAAP Basis

Loss ratio

70.5

%

70.8

%

Expense ratio

27.4

%

26.8

%

Combined ratio

97.9

%

97.6

%

Reconciliations of Operating Measures to Comparable GAAP Measures

Net premiums written

$

690,504

$

658,287

Change in net unearned premiums

(27,909)

(22,475)

Net premiums earned

$

662,595

$

635,812

Paid losses and loss adjustment expenses

$

493,480

$

480,522

Change in net loss and loss adjustment expense reserves

(26,420)

(30,606)

Incurred losses and loss adjustment expenses

$

467,060

$

449,916

 

MERCURY GENERAL CORPORATION AND SUBSIDIARIES

CONDENSED BALANCE SHEETS AND OTHER INFORMATION

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

March 31, 2013

December 31, 2012

(unaudited)

ASSETS

Investments, at fair value:

     Fixed maturity securities (amortized cost $2,386,204; $2,270,903)

$

2,513,418

$

2,408,354

     Equity securities (cost $484,102; $475,959)

539,258

477,088

     Short-term investments (cost $152,184; $294,607)

152,081

294,653

          Total investments

3,204,757

3,180,095

Cash

185,042

158,183

Receivables:

     Premiums

368,303

345,387

     Accrued investment income

33,778

31,109

     Other

16,306

17,756

          Total receivables

418,387

394,252

Deferred policy acquisition costs

190,844

185,910

Fixed assets, net

158,284

161,940

Current income taxes

0

7,058

Goodwill

42,796

42,796

Other intangible assets, net

46,090

47,589

Other assets

25,966

11,863

          Total assets

$

4,272,166

$

4,189,686

LIABILITIES AND SHAREHOLDERS' EQUITY

Losses and loss adjustment expenses

$

1,009,418

$

1,036,123

Unearned premiums

948,373

920,429

Notes payable

140,000

140,000

Accounts payable and accrued expenses

113,090

96,220

Current income taxes

4,726

0

Deferred income taxes

12,755

445

Other liabilities

168,458

153,972

Shareholders' equity

1,875,346

1,842,497

          Total liabilities and shareholders' equity

$

4,272,166

$

4,189,686

OTHER INFORMATION

Common stock shares outstanding

54,922

54,922

Book value per share

$34.15

$33.55

Estimated statutory surplus

$1.51 billion

$1.44 billion

Estimated premiums written to surplus ratio

1.8

1.8

Debt to total capital ratio

6.9

%

7.1

%

Portfolio duration (including all short-term instruments)(a)

3.3 years

2.8 years

Policies-in-force (company-wide "PIF")(a)

     Personal Auto PIF

1,252

1,249

     Homeowners PIF

450

442

(a)   Unaudited.    

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 effect of net 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 March 31,

Total

Per diluted share

2013

2012

2013

2012

(000's except per-share amounts)

Operating income

$

37,829

$

39,125

$

0.69

$

0.71

Net realized investment gains, net of tax

28,632

34,231

0.52

0.62

Net income

$

66,461

$

73,356

$

1.21

$

1.34

(a)

(a) Net income per diluted share does not sum due to rounding.

 

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.

Three Months Ended March 31,

2013

2012

Combined ratio-accident period basis

98.4

%

96.7

%

Effect of estimated prior periods' loss development

(0.5)%

0.9

%

Combined ratio

97.9

%

97.6

%

SOURCE Mercury General Corporation



RELATED LINKS

http://www.mercuryinsurance.com