Mercury General Corporation Announces Second Quarter Results and Declares Quarterly Dividend

PR Newswire

LOS ANGELES, July 28, 2014 /PRNewswire/ -- Mercury General Corporation (MCY) reported today for the second quarter of 2014:

Consolidated Highlights



Three Months Ended June 30,


Change


Six Months Ended June 30,


Change


2014


2013


$


%


2014


2013


$


%

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

















Net premiums written (1)

$

698,759


$

665,479


$

33,280


5.0


$

1,423,452


$

1,355,983


$

67,469


5.0

Net income (loss)

$

94,960


$

(9,264)


$

104,224


NM


$

167,609


$

57,197


$

110,412


193.0

Net income (loss) per diluted share (2)

$

1.73


$

(0.17)


$

1.90


NM


$

3.05


$

1.04


$

2.01


193.3

Operating income (1)

$

45,437


$

34,556


$

10,881


31.5


$

87,723


$

72,384


$

15,339


21.2

Operating income per diluted share (1)

$

0.83


$

0.63


$

0.20


31.7


$

1.60


$

1.32


$

0.28


21.2

Restructuring charges (3)

$

0


$

0


$

0


NM


$

0


$

10,000


$

(10,000)


NM

Catastrophe losses (4)

$

2,000


$

13,000


$

(11,000)


NM


$

6,000


$

14,000


$

(8,000)


NM

Combined ratio (5)

96.0%


98.7%




(2.7) pts



96.3%



98.3%




(2.0) 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 dilutive impact of incremental shares is excluded from loss positions in accordance with GAAP.

(3)

In the first quarter of 2013, 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. The amounts are rounded to the nearest million.

(4)

2014 catastrophe losses were primarily related to winter freeze events on the East Coast. 2013 catastrophe losses were primarily the result of tornadoes in Oklahoma and severe storms in the Midwest and the Southeast region. The amounts are rounded to the nearest million.

(5)

The Company experienced favorable development of approximately $4 million and no development on prior accident years' losses and loss adjustment expenses reserves for the three months ended June 30, 2014 and 2013, respectively, and favorable development of approximately $8 million and $3 million on prior accident years' losses and loss adjustment expenses reserves for the six months ended June 30, 2014 and 2013, respectively. The year-to-date favorable development in 2014 is primarily from California lines of business.

    

Investment Results



Three Months Ended June 30,


Six Months Ended June 30,


2014


2013



2014


2013


(000's except average annual yield)







Average invested assets at cost (1)

$

3,132,330


$

3,046,790



$

3,097,087


$

3,050,372


Net investment income (2)










     Before income taxes

$

30,850


$

31,674



$

61,092


$

62,849


     After income taxes

$

27,561


$

27,787



$

54,521


$

55,058


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

3.5%


3.7%



3.5%


3.6%




(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 decreased slightly 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.

The Board of Directors declared a quarterly dividend of $0.6150 per share. The dividend will be paid on September 25, 2014 to shareholders of record on September 11, 2014.

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 August 4, 2014. The replay telephone numbers are (855) 859-2056 (USA) or (404) 537-3406 (International). The conference ID# is 70976709. 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 June 30,


Six Months Ended June 30,


2014



2013



2014



2013


Net premiums written

$

698,759



$

665,479



$

1,423,452



$

1,355,983














Revenues:












     Net premium earned

$

697,889



$

675,787



$

1,381,590



$

1,338,382


     Net investment income

30,850



31,674



61,092



62,849


     Net realized investment gains (losses)

76,190



(67,415)



122,902



(23,365)


     Other

2,090



2,521



4,391



4,854


          Total revenues

$

807,019



$

642,567



$

1,569,975



$

1,382,720


Expenses:












     Losses and loss adjustment expenses

483,043



486,906



959,646



953,966


     Policy acquisition costs

133,060



126,393



262,874



250,115


     Other operating expenses

53,792



54,015



107,796



112,078


     Interest

688



212



1,193



526


          Total expenses

$

670,583



$

667,526



$

1,331,509



$

1,316,685














Income (loss) before income taxes

136,436



(24,959)



238,466



66,035


     Income tax expense (benefit)

41,476



(15,695)



70,857



8,838


                    Net income (loss)

$

94,960



$

(9,264)



$

167,609



$

57,197














Basic average shares outstanding

54,978



54,941



54,977



54,931


Diluted average shares outstanding (a)

54,989



54,941



54,988



54,948














Basic Per Share Data












Net income (loss)

$

1.73



$

(0.17)



$

3.05



$

1.04














Net realized investment gains (losses), net of tax

$

0.90



$

(0.80)



$

1.45



$

(0.28)














Diluted Per Share Data (a)












Net income (loss)

$

1.73



$

(0.17)



$

3.05



$

1.04














Net realized investment gains (losses), net of tax

$

0.90



$

(0.80)



$

1.45



$

(0.28)














Operating Ratios-GAAP Basis












Loss ratio

69.2%



72.1%



69.5%



71.3%


Expense ratio

26.8%



26.7%



26.8%



27.1%


Combined ratio (b)

96.0%



98.7%



96.3%



98.3%














Reconciliations of Operating Measures to Comparable GAAP Measures






















Net premiums written

$

698,759



$

665,479



$

1,423,452



$

1,355,983


Change in net unearned premiums

(870)



10,308



(41,862)



(17,601)


Net premiums earned

$

697,889



$

675,787



$

1,381,590



$

1,338,382














Paid losses and loss adjustment expenses

$

473,831



$

489,174



$

945,322



$

982,654


Change in net loss and loss adjustment expense reserves

9,212



(2,268)



14,324



(28,688)


Incurred losses and loss adjustment expenses

$

483,043



$

486,906



$

959,646



$

953,966



(a) The dilutive impact of incremental shares is excluded from loss positions in accordance with GAAP.

(b) Combined ratios for the three and six months ended June 30, 2013 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)



June 30, 2014


December 31, 2013


(unaudited)




ASSETS






Investments, at fair value:






     Fixed maturity securities (amortized cost $2,597,393; $2,523,042)

$

2,704,628



$

2,560,653


     Equity securities (cost $379,951; $223,933)

455,542



281,883


     Short-term investments (cost $229,665; $315,886)

229,412



315,776


          Total investments

3,389,582



3,158,312


Cash

258,473



266,508


Receivables:






     Premiums

384,388



366,075


     Accrued investment income

39,254



36,120


     Other

21,462



23,029


          Total receivables

445,104



425,224


Deferred policy acquisition costs

199,217



194,466


Fixed assets, net

157,428



156,716


Deferred income taxes



15,220


Goodwill

42,796



42,796


Other intangible assets, net

38,613



41,603


Other assets

31,187



14,336


          Total assets

$

4,562,400



$

4,315,181








LIABILITIES AND SHAREHOLDERS' EQUITY






Losses and loss adjustment expenses

$

1,053,030



$

1,038,984


Unearned premiums

993,462



953,527


Notes payable

270,000



190,000


Accounts payable and accrued expenses

120,839



127,663


Current income taxes

24,476



11,856


Deferred income taxes

12,962




Other liabilities

163,968



170,665


Shareholders' equity

1,923,663



1,822,486


          Total liabilities and shareholders' equity

$

4,562,400



$

4,315,181








OTHER INFORMATION






Common stock shares outstanding

54,979



54,975


Book value per share

$34.99



$33.15


Statutory surplus

$1.48 billion



$1.53 billion


Premiums written to surplus ratio

1.9



1.8


Debt to total capital ratio

12.3%



9.4%


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

2.8 years



3.6 years


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






     Personal Auto PIF

1,200



1,217


     Homeowners PIF

466



465


(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 June 30,


Six Months Ended June 30,


Total

Per diluted share


Total

Per diluted share


2014


2013


2014


2013 (a)


2014


2013


2014


2013


(000's except per-share amounts)


















Operating income

$

45,437


$

34,556


$

0.83


$

0.63



$

87,723


$

72,384


$

1.60


$

1.32


Net realized investment gains (losses), net of tax

49,523


(43,820)


0.90


(0.80)



79,886


(15,187)


1.45


(0.28)


Net income (loss)

$

94,960


$

(9,264)


$

1.73


$

(0.17)



$

167,609


$

57,197


$

3.05


$

1.04



(a) The dilutive impact of incremental shares is excluded from loss positions in accordance with GAAP.

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.


Six Months Ended June 30,


2014


2013







Combined ratio-accident period basis

96.9%



98.5%


Effect of estimated prior periods' loss development

(0.6)%



(0.2)%


Combined ratio

96.3%



98.3%


    

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