Mercury General Corporation Announces Third Quarter Results and Increases Quarterly Dividend

02 Nov, 2015, 08:30 ET from Mercury General Corporation

LOS ANGELES, Nov. 2, 2015 /PRNewswire/ -- Mercury General Corporation (NYSE: MCY) reported today for the third quarter of 2015:

Consolidated Highlights

Three Months Ended September 30,

Change

Nine Months Ended September 30,

Change

2015

2014

$

%

2015

2014

$

%

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

Net premiums written (1)

$

778,921

$

720,153

$

58,768

8.2

$

2,252,961

$

2,143,605

$

109,356

5.1

Net income

$

15,270

$

31,296

$

(16,026)

(51.2)

$

51,074

$

198,905

$

(147,831)

(74.3)

Net income per diluted share

$

0.28

$

0.57

$

(0.29)

(50.9)

$

0.93

$

3.62

$

(2.69)

(74.3)

Operating income (1)

$

32,357

$

44,354

$

(11,997)

(27.0)

$

100,211

$

132,077

$

(31,866)

(24.1)

Operating income per diluted share (1)

$

0.59

$

0.81

$

(0.22)

(27.2)

$

1.82

$

2.40

$

(0.58)

(24.2)

Catastrophe losses (2)

$

1,000

$

1,000

$

NM

$

11,000

$

7,000

$

4,000

NM

Combined ratio (3)

99.2

%

96.7

%

2.5 pts

98.9

%

96.4

%

2.5 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)

2015 catastrophe losses were primarily the result of tornadoes in Oklahoma and severe storms in the Midwest and Texas. 2014 catastrophe losses were primarily related to the winter freeze events on the East Coast.

(3)

The Company experienced unfavorable development of approximately $2 million and favorable development of approximately $2 million on prior accident years' losses and loss adjustment expenses reserves for the three months ended September 30, 2015 and 2014, respectively; and favorable development of approximately $3 million and $10 million on prior accident years' losses and loss adjustment expenses reserves for the nine months ended September 30, 2015 and 2014, respectively.  The year-to-date favorable development in 2015 is primarily from California personal automobile lines of business partially offset by adverse development in other states.

 

Investment Results

Three Months Ended September 30,

Nine Months Ended September 30,

2015

2014

2015

2014

(000's except average annual yield)

Average invested assets at cost (1)

$

3,278,469

$

3,237,993

$

3,296,775

$

3,185,457

Net investment income (2)

     Before income taxes

$

30,898

$

32,564

$

94,101

$

93,656

     After income taxes

$

27,115

$

28,677

$

82,320

$

83,227

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

3.3

%

3.5

%

3.3

%

3.5

%

(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 before income taxes during the nine months ended September 30, 2015 increased due to higher average invested asset balances. Net investment income and average annual yields on investments after income taxes for both the three and nine months ended September 30, 2015 decreased slightly due to the maturity and replacement of higher yielding investments purchased when market interest rates were higher, with lower yielding investments purchased during lower low interest rate environment.

 

The Board of Directors declared a quarterly dividend of $0.62 per share. The dividend will be paid on December 29, 2015 to shareholders of record on December 15, 2015.

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 9, 2015. The replay telephone numbers are (855) 859-2056 (USA) or (404) 537-3406 (International). The conference ID# is 55572442. 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 non-California states; 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,

2015

2014

2015

2014

Net premiums written

$

778,921

$

720,153

$

2,252,961

$

2,143,605

Revenues:

     Net premium earned

$

745,520

$

705,237

$

2,197,803

$

2,086,827

     Net investment income

30,898

32,564

94,101

93,656

     Net realized investment (losses) gains

(26,286)

(20,089)

(75,595)

102,813

     Other

2,281

2,275

6,823

6,666

          Total revenues

$

752,413

$

719,987

$

2,223,132

$

2,289,962

Expenses:

     Losses and loss adjustment expenses

$

545,692

$

492,525

$

1,581,306

$

1,452,171

     Policy acquisition costs

132,881

131,090

401,868

393,964

     Other operating expenses

60,788

58,545

191,017

166,341

     Interest

785

707

2,304

1,900

          Total expenses

$

740,146

$

682,867

$

2,176,495

$

2,014,376

Income before income taxes

$

12,267

$

37,120

$

46,637

$

275,586

     Income tax (benefit) expense

(3,003)

5,824

(4,437)

76,681

                    Net income

$

15,270

$

31,296

$

51,074

$

198,905

Basic average shares outstanding

55,164

55,002

55,154

54,986

Diluted average shares outstanding

55,178

55,014

55,172

54,995

Basic Per Share Data

Net income

$

0.28

$

0.57

$

0.93

$

3.62

Net realized investment (losses) gains, net of tax

$

(0.31)

$

(0.24)

$

(0.89)

$

1.22

Diluted Per Share Data

Net income

$

0.28

$

0.57

$

0.93

$

3.62

Net realized investment (losses) gains, net of tax

$

(0.31)

$

(0.24)

$

(0.89)

$

1.22

Operating Ratios-GAAP Basis

Loss ratio

73.2

%

69.8

%

71.9

%

69.6

%

Expense ratio

26.0

%

26.9

%

27.0

%

26.8

%

Combined ratio

99.2

%

96.7

%

98.9

%

96.4

%

Reconciliations of Operating Measures to Comparable GAAP Measures

Net premiums written

$

778,921

$

720,153

$

2,252,961

$

2,143,605

Change in net unearned premiums

(33,401)

(14,916)

(55,158)

(56,778)

Net premiums earned

$

745,520

$

705,237

$

2,197,803

$

2,086,827

Paid losses and loss adjustment expenses

$

527,920

$

483,653

$

1,560,321

$

1,428,975

Change in net loss and loss adjustment expense reserves (a)

17,772

8,872

20,985

23,196

Incurred losses and loss adjustment expenses

$

545,692

$

492,525

$

1,581,306

$

1,452,171

(a)

The portion of the change in reserves for 2015 related to Workmen's Auto Insurance Company includes only the change in reserves subsequent to the January 2, 2015 acquisition date.

 

MERCURY GENERAL CORPORATION AND SUBSIDIARIES

CONDENSED BALANCE SHEETS AND OTHER INFORMATION

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

September 30, 2015

December 31, 2014

(unaudited)

ASSETS

Investments, at fair value:

     Fixed maturity securities (amortized cost $2,802,441; $2,503,494)

$

2,886,864

$

2,618,400

     Equity securities (cost $307,893; $387,851)

298,687

412,880

     Short-term investments (cost $162,834; $373,180)

162,835

372,542

          Total investments

3,348,386

3,403,822

Cash

295,184

289,907

Receivables:

     Premiums

442,061

390,009

     Accrued investment income

41,383

38,737

     Other

21,114

21,202

          Total receivables

504,558

449,948

Deferred policy acquisition costs

205,245

197,202

Fixed assets, net

157,605

158,976

Current income taxes

11,915

503

Deferred income taxes

20,971

Goodwill

42,796

42,796

Other intangible assets, net

32,538

35,623

Other assets

27,381

21,512

          Total assets

$

4,646,579

$

4,600,289

LIABILITIES AND SHAREHOLDERS' EQUITY

Losses and loss adjustment expenses

$

1,131,553

$

1,091,797

Unearned premiums

1,063,323

999,798

Notes payable

290,000

290,000

Accounts payable and accrued expenses

139,345

130,887

Deferred income taxes

5,333

Other liabilities

192,859

207,028

Shareholders' equity

1,829,499

1,875,446

          Total liabilities and shareholders' equity

$

4,646,579

$

4,600,289

OTHER INFORMATION

Common stock shares outstanding

55,164

55,121

Book value per share

$33.16

$34.02

Statutory surplus

$1.46 billion

$1.44 billion

Premiums written to surplus ratio

2.0

2.0

Debt to total capital ratio

13.7

%

13.4

%

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

2.7 years

2.6 years

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

     Personal Auto PIF

1,197

1,188

     Homeowners PIF

516

484

     Commercial Auto PIF

44

44

(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

2015

2014

2015

2014

2015

2014

2015

2014

(000's except per-share amounts)

Operating income

$

32,357

$

44,354

$

0.59

$

0.81

$

100,211

$

132,077

$

1.82

$

2.40

Net realized investment (losses) gains, net of tax

(17,087)

(13,058)

(0.31)

(0.24)

(49,137)

66,828

(0.89)

1.22

Net income

$

15,270

$

31,296

$

0.28

$

0.57

$

51,074

$

198,905

$

0.93

$

3.62

               

Net premiums written represents the premiums charged on policies issued during a fiscal period less any applicable reinsurance. Net premiums earned, the most directly comparable GAAP measure, represents the portion of premiums written that have been recognized as revenue in the financial statements for the periods presented and 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,

2015

2014

Combined ratio-accident period basis

99.0

%

96.9

%

Effect of estimated prior periods' loss development

(0.1)

%

(0.5)

%

Combined ratio

98.9

%

96.4

%

 

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SOURCE Mercury General Corporation



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http://www.mercuryinsurance.com