Mercury General Corporation Announces Third Quarter Results and Increases Quarterly Dividend

28 Oct, 2013, 08:30 ET from Mercury General Corporation

LOS ANGELES, Oct. 28, 2013 /PRNewswire/ -- Mercury General Corporation (NYSE: MCY) reported today for the third quarter of 2013:

Consolidated Highlights

Three Months Ended September 30,

Change

Nine Months Ended September 30,

Change

2013

2012

$

%

2013

2012

$

%

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

Net premiums written (1)

$

704,895

$

684,880

$

20,015

2.9

$

2,060,878

$

1,996,800

$

64,078

3.2

Net income

$

39,570

$

66,201

$

(26,631)

(40.2)

$

96,767

$

134,293

$

(37,526)

(27.9)

Net income per diluted share

$

0.72

$

1.21

$

(0.49)

(40.5)

$

1.76

$

2.45

$

(0.69)

(28.2)

Operating income (1)

$

29,033

$

33,862

$

(4,829)

(14.3)

$

101,417

$

83,167

$

18,250

21.9

Operating income per diluted share (1)

$

0.53

$

0.62

$

(0.09)

(14.5)

$

1.85

$

1.51

$

0.34

22.5

Restructuring charges (2)

$

0

$

0

$

0

0

$

10,000

$

0

$

10,000

NM

Catastrophe losses (3)

$

2,000

$

1,000

$

1,000

100.0

$

16,000

$

9,000

$

7,000

77.8

Combined ratio (4)

99.2

%

99.1

%

0.1 pts

98.6

%

100.4

%

(1.8) 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 tornadoes in Oklahoma and severe storms in the Midwest and the Southeast region during the second quarter. 2012 catastrophe losses were primarily the result of wind and hail storms in the Midwest region. The amounts are rounded to the nearest million.

(4)

The Company experienced unfavorable development of approximately $1 million and $4 million on prior accident years' losses and loss adjustment expenses reserves for the three months ended September 30, 2013 and 2012, respectively, and favorable development of approximately $2 million and unfavorable development of approximately $33 million on prior accident years' losses and loss adjustment expenses reserves for the nine months ended September 30, 2013 and 2012, respectively. The year-to-date favorable development in 2013 is primarily from non-California states.

 

Investment Results

Three Months Ended September 30,

Nine Months Ended September 30,

2013

2012

2013

2012

(000's except average annual yield)

Average invested assets at cost (1)

$

3,025,614

$

3,007,634

$

3,038,281

$

2,998,270

Net investment income (2)

Before income taxes

$

30,857

$

33,410

$

93,706

$

96,569

After income taxes

$

27,214

$

28,881

$

82,272

$

84,909

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

3.6

%

3.8

%

3.6

%

3.8

%

Net realized investment gains (losses):

Fixed maturity securities (3)

$

(10,763)

$

19,119

$

(81,525)

$

50,412

Equity securities

26,250

29,900

73,240

26,707

Short-term investments

182

(32)

(669)

(850)

Other

543

765

1,801

2,387

Total

$

16,212

$

49,752

$

(7,153)

$

78,656

(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 nine months ended September 30, 2013 slightly 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 low interest rate environments.

(3)

 Net realized investment losses on fixed maturity securities for the three and nine months ended September 30, 2013 primarily related to mark to market adjustments on securities that continue to be held in the portfolio. The decrease in the fixed maturity portfolio primarily resulted from the increase in interest rates that occurred in the second quarter of 2013.

The Board of Directors declared a quarterly dividend of $0.6150 per share, representing an increase over the quarterly dividend amount paid in 2012. The dividend will be paid on December 26, 2013 to shareholders of record on December 12, 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 November 4, 2013. The replay telephone numbers are (855) 859-2056 (USA) or (404) 537-3406 (International). The conference ID# is 75893466. 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 general market risks associated with the Company's investment portfolio; the accuracy and adequacy of the Company's pricing methodologies; catastrophes in the markets served by the Company; 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 September 30,

Nine Months Ended September 30,

2013

2012

2013

2012

Net premiums written

$

704,895

$

684,880

$

2,060,878

$

1,996,800

Revenues:

Net premium earned

$

678,913

$

646,084

$

2,017,295

$

1,919,143

Net investment income

30,857

33,410

93,706

96,569

Net realized investment gains (losses)

16,212

49,752

(7,153)

78,656

Other

2,685

2,532

7,539

7,790

Total revenues

$

728,667

$

731,778

$

2,111,387

$

2,102,158

Expenses:

Losses and loss adjustment expenses

492,558

467,929

1,446,524

1,415,096

Policy acquisition costs

126,891

121,906

377,006

357,062

Other operating expenses

54,087

50,225

166,165

154,353

Interest

338

388

864

1,176

Total expenses

$

673,874

$

640,448

$

1,990,559

$

1,927,687

Income before income taxes

54,793

91,330

120,828

174,471

Income tax expense

15,223

25,129

24,061

40,178

Net income

$

39,570

$

66,201

$

96,767

$

134,293

Basic average shares outstanding

54,959

54,911

54,941

54,895

Diluted average shares outstanding

54,973

54,925

54,957

54,918

Basic Per Share Data

Net income

$

0.72

$

1.21

$

1.76

$

2.45

Net realized investment gains (losses), net of tax

$

0.19

$

0.59

$

(0.08)

$

0.93

Diluted Per Share Data

Net income

$

0.72

$

1.21

$

1.76

$

2.45

Net realized investment gains (losses), net of tax

$

0.19

$

0.59

$

(0.08)

$

0.93

Operating Ratios-GAAP Basis

Loss ratio

72.6

%

72.4

%

71.7

%

73.7

%

Expense ratio

26.7

%

26.6

%

26.9

%

26.6

%

Combined ratio (a)

99.2

%

99.1

%

98.6

%

100.4

%

Reconciliations of Operating Measures to Comparable GAAP Measures

Net premiums written

$

704,895

$

684,880

$

2,060,878

$

1,996,800

Change in net unearned premiums

(25,982)

(38,796)

(43,583)

(77,657)

Net premiums earned

$

678,913

$

646,084

$

2,017,295

$

1,919,143

Paid losses and loss adjustment expenses

$

488,985

$

467,719

$

1,471,639

$

1,421,078

Change in net loss and loss adjustment expense reserves

3,573

210

(25,115)

(5,982)

Incurred losses and loss adjustment expenses

$

492,558

$

467,929

$

1,446,524

$

1,415,096

(a) Combined ratios for the three months ended September 30, 2013 and 2012 and the nine months ended September 30, 2012 do not sum due to rounding.

 

 

MERCURY GENERAL CORPORATION AND SUBSIDIARIES

CONDENSED BALANCE SHEETS AND OTHER INFORMATION

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

September 30, 2013

December 31, 2012

(unaudited)

ASSETS

Investments, at fair value:

Fixed maturity securities (amortized cost $2,481,651; $2,270,903)

$

2,538,514

$

2,408,354

Equity securities (cost $267,614; $475,959)

336,367

477,088

Short-term investments (cost $251,550; $294,607)

251,449

294,653

Total investments

3,126,330

3,180,095

Cash

250,061

158,183

Receivables:

Premiums

372,818

345,387

Accrued investment income

35,316

31,109

Other

18,399

17,756

Total receivables

426,533

394,252

Deferred policy acquisition costs

196,284

185,910

Fixed assets, net

154,467

161,940

Current income taxes

0

7,058

Deferred income taxes

26,437

0

Goodwill

42,796

42,796

Other intangible assets, net

43,098

47,589

Other assets

74,450

11,863

Total assets

$

4,340,456

$

4,189,686

LIABILITIES AND SHAREHOLDERS' EQUITY

Losses and loss adjustment expenses

$

1,010,534

$

1,036,123

Unearned premiums

967,320

920,429

Notes payable

180,000

140,000

Accounts payable and accrued expenses

133,973

96,220

Current income taxes

26,324

0

Deferred income taxes

0

445

Other liabilities

182,150

153,972

Shareholders' equity

1,840,155

1,842,497

Total liabilities and shareholders' equity

$

4,340,456

$

4,189,686

OTHER INFORMATION

Common stock shares outstanding

54,960

54,922

Book value per share

$33.48

$33.55

Statutory surplus

$1.51 billion

$1.44 billion

Premiums written to surplus ratio

1.8

1.8

Debt to total capital ratio

8.9

%

7.1

%

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

3.4 years

2.8 years

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

Personal Auto PIF

1,230

1,249

Homeowners PIF

463

442

(a) Unaudited.

(b) Modified durations reflecting anticipated early calls.

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 September 30,

Nine Months Ended September 30,

Total

Per diluted share

Total

Per diluted share

2013

2012

2013

2012

2013

2012

2013 (a)

2012 (a)

(000's except per-share amounts)

Operating income

$

29,033

$

33,862

$

0.53

$

0.62

$

101,417

$

83,167

$

1.85

$

1.51

Net realized investment gains (losses), net of tax

10,537

32,339

0.19

0.59

(4,650)

51,126

(0.08)

0.93

Net income

$

39,570

$

66,201

$

0.72

$

1.21

$

96,767

$

134,293

$

1.76

$

2.45

(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.

Nine Months Ended September 30,

2013

2012

Combined ratio-accident period basis

98.7

%

98.7

%

Effect of estimated prior periods' loss development

(0.1)

%

1.7

%

Combined ratio

98.6

%

100.4

%

 

SOURCE Mercury General Corporation



RELATED LINKS

http://www.mercuryinsurance.com