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Mercury General Corporation Announces Third Quarter Results and Increases Quarterly Dividend

LOS ANGELES, Oct. 28, 2019 /PRNewswire/ -- Mercury General Corporation (MCY) reported today for the third quarter of 2019:

Consolidated Highlights



Three Months Ended
September 30,


Change


Nine Months Ended
September 30,


Change


2019


2018


$


%


2019


2018


$


%

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









Net premiums earned

$

915,012



$

858,135



$

56,877



6.6



$

2,674,034



$

2,500,178



$

173,856



7.0


Net premiums written (1) (2)

$

983,056



$

905,339



$

77,717



8.6



$

2,835,583



$

2,645,024



$

190,559



7.2


















Net income

$

69,282



$

58,578



$

10,704



18.3



$

288,399



$

76,151



$

212,248



278.7


Net income per diluted share

$

1.25



$

1.06



$

0.19



17.9



$

5.21



$

1.38



$

3.83



277.5


















Operating income (1)

$

42,956



$

61,667



$

(18,711)



(30.3)



$

132,195



$

114,351



$

17,844



15.6


Operating income per diluted share (1)

$

0.78



$

1.11



$

(0.33)



(29.7)



$

2.39



$

2.07



$

0.32



15.5


Catastrophe losses net of reinsurance (3)

$

3,000



$

13,000



$

(10,000)



(76.9)



$

17,000



$

24,000



$

(7,000)



(29.2)


Combined ratio (4)

98.6

%


95.6

%




3.0 pts


98.1

%


98.7

%




(0.6) pts



(1)

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

(2)

The Company, which predominantly offers six-month personal automobile insurance policies, reintroduced twelve-month personal automobile policies for new business in its largest insurance subsidiary, Mercury Insurance Company ("MIC"), in March 2018. Twelve-month policies are generally sold for twice the price of six-month policies. MIC's net premiums written from twelve-month policies was approximately $96 million and $57 million for the three months ended September 30, 2019 and 2018, respectively, and $266 million and $142 million for the nine months ended September 30, 2019 and 2018, respectively.

(3)

Catastrophe losses due to the catastrophe events that occurred during the three and nine months ended September 30, 2019 totaled approximately $3 million and $20 million, respectively, with no reinsurance benefits used for these losses. The majority of the 2019 catastrophe losses resulted from winter storms in California, a hurricane in Texas, and tornadoes and wind and hail storms in the Midwest. The 2019 catastrophe losses were partially offset by favorable development of approximately $3 million on prior years' catastrophe losses, primarily resulting from reductions in the Company's retained portion of losses on the Camp and Woolsey Fires under the Company's catastrophe reinsurance treaty, after accounting for the assignment of subrogation rights that occurred in the first quarter of 2019 and the re-estimation of reserves as part of normal reserving procedures. Catastrophe losses before reinsurance benefits totaled approximately $26 million and $34 million for the three and nine months ended September 30, 2018, respectively. The majority of the 2018 catastrophe losses were caused by the Carr Wildfire in Northern California, which resulted in $21 million of gross losses ($10 million of net losses after reinsurance benefits). Weather-related catastrophes across several states made up the remainder of the 2018 catastrophe losses.

(4)

The Company experienced favorable development of approximately $1 million and unfavorable development of approximately $6 million on prior accident years' loss and loss adjustment expense reserves for the three months ended September 30, 2019 and 2018, respectively, and unfavorable development of approximately $10 million and $70 million on prior accident years' loss and loss adjustment expense reserves for the nine months ended September 30, 2019 and 2018, respectively. The year-to-date unfavorable development in 2019 was primarily attributable to higher than estimated defense and cost containment expenses in the California automobile line of insurance business, partially offset by favorable development in certain of the Company's other lines of insurance business. The year-to-date unfavorable development in 2018 was primarily attributable to higher than estimated California automobile losses resulting from severity in excess of expectations for bodily injury claims as well as higher than estimated defense and cost containment expenses in the California automobile line of insurance business.

 

Investment Results



Three Months Ended September 30,


Nine Months Ended September 30,


2019


2018


2019


2018

(000's except average annual yield)








Average invested assets at cost (1)

$

4,048,498



$

3,809,689



$

3,976,582



$

3,722,365


Net investment income (2)








     Before income taxes

$

36,356



$

38,159



$

105,562



$

104,455


     After income taxes

$

32,186



$

33,522



$

93,844



$

92,867


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

3.2

%


3.5

%


3.2

%


3.3

%



(1)

Fixed maturities and short-term bonds at amortized cost; 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 period.

(2)

Lower net investment income before and after income taxes for the three months ended September 30, 2019 compared to the corresponding period in 2018 resulted largely from lower average yield on investments, partially offset by higher net investment income resulting from higher average invested assets. Higher net investment income before and after income taxes for the nine months ended September 30, 2019 compared to the corresponding period in 2018 resulted largely from higher average invested assets, partially offset by lower net investment income resulting from lower average yield on investments. Average annual yield on investments after income taxes for the three and nine months ended September 30, 2019 decreased compared to the corresponding periods in 2018, primarily due to maturity and replacement of higher yielding investments purchased when market interest rates were higher with lower yielding investments, as a result of decreasing market interest rates.

The Board of Directors declared a quarterly dividend of $0.6300 per share. The dividend will be paid on December 26, 2019 to shareholders of record on December 12, 2019.

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 (1:00 P.M. Eastern 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, 2019. The replay telephone numbers are (855) 859-2056 (USA) or (404) 537-3406 (International). The conference ID# is 9997629. 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. Certain statements contained in this report 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 the states where it 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; the ability of the Company to successfully manage its claims organization outside of California; the Company's ability to successfully allocate the resources used in the states with reduced or exited operations to its operations in other states; 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 legal, cybersecurity, 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 Annual Report on Form 10-K filed with the Securities and Exchange Commission on February 13, 2019.

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,


2019


2018


2019


2018

Revenues:








     Net premiums earned

$

915,012



$

858,135



$

2,674,034



$

2,500,178


     Net investment income

36,356



38,159



105,562



104,455


     Net realized investment gains (losses)

33,324



(3,910)



197,726



(48,355)


     Other

2,603



2,427



7,203



7,108


          Total revenues

987,295



894,811



2,984,525



2,563,386


Expenses:








     Losses and loss adjustment expenses

680,928



614,069



1,967,921



1,851,850


     Policy acquisition costs

150,929



142,295



447,971



424,799


     Other operating expenses

70,341



63,904



206,250



190,125


     Interest

4,257



4,257



12,779



12,779


          Total expenses

906,455



824,525



2,634,921



2,479,553


Income before income taxes

80,840



70,286



349,604



83,833


     Income tax expense

11,558



11,708



61,205



7,682


                    Net income

$

69,282



$

58,578



$

288,399



$

76,151










Basic average shares outstanding

55,355



55,337



55,349



55,334


Diluted average shares outstanding

55,366



55,341



55,360



55,337










Basic Per Share Data








Net income

 

$

1.25



$

1.06



$

5.21



$

1.38


Net realized investment gains (losses), net of tax

$

0.47



$

(0.05)



$

2.82



$

(0.69)










Diluted Per Share Data








Net income

 

$

1.25



$

1.06



$

5.21



$

1.38


Net realized investment gains (losses), net of tax

$

0.47



$

(0.05)



$

2.82



$

(0.69)










Operating Ratios-GAAP Basis








Loss ratio

74.4

%


71.6

%


73.6

%


74.1

%

Expense ratio

24.2

%


24.0

%


24.5

%


24.6

%

Combined ratio

98.6

%


95.6

%


98.1

%


98.7

%

 

MERCURY GENERAL CORPORATION AND SUBSIDIARIES

CONDENSED BALANCE SHEETS AND OTHER INFORMATION

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






September 30, 2019


December 31, 2018


(unaudited)



ASSETS




Investments, at fair value:




     Fixed maturity securities (amortized cost $3,013,260; $2,969,541)

$

3,139,439



$

2,985,161


     Equity securities (cost $604,609; $544,082)

657,135



529,631


     Short-term investments (cost $421,895; $254,518)

421,574



253,299


          Total investments

4,218,148



3,768,091


Cash

315,370



314,291


Receivables:




     Premiums

629,836



555,038


     Accrued investment income

41,492



45,373


     Other

5,554



6,132


          Total receivables

676,882



606,543


Reinsurance recoverables

103,448



221,088


Deferred policy acquisition costs

237,694



215,131


Fixed assets, net

168,294



153,023


Operating lease right-of-use assets

45,834




Current income taxes

13,265



38,885


Deferred income taxes



13,339


Goodwill

42,796



42,796


Other intangible assets, net

11,903



15,534


Other assets

39,608



45,008


          Total assets

$

5,873,242



$

5,433,729






LIABILITIES AND SHAREHOLDERS' EQUITY




Loss and loss adjustment expense reserves

$

1,855,211



$

1,829,412


Unearned premiums

1,383,965



1,236,181


Notes payable

372,034



371,734


Accounts payable and accrued expenses

156,276



115,071


Operating lease liabilities

48,699




Deferred income taxes

21,068




Other liabilities

233,445



263,647


Shareholders' equity

1,802,544



1,617,684


          Total liabilities and shareholders' equity

$

5,873,242



$

5,433,729






OTHER INFORMATION




Common stock shares outstanding

55,355



55,340


Book value per share

$

32.56



$

29.23


Statutory surplus (a)

$1.56 billion


$1.47 billion

Net premiums written to surplus ratio (a)

2.36



2.38


Debt to total capital ratio (b)

17.2

%


18.8

%

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

3.4 years


4.0 years

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




     Personal Auto PIF

1,152



1,157


     Homeowners PIF

641



600


     Commercial Auto PIF

37



37




(a)

Unaudited.

(b)

Debt to Debt plus Shareholders' Equity (Debt at face value).

(c)

Modified duration reflecting anticipated early calls.

 

SUPPLEMENTAL SCHEDULES








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

(unaudited)









Three Months Ended September 30,


Nine Months Ended September 30,


2019


2018


2019


2018









Reconciliations of Comparable GAAP Measures to Operating Measures (a)













Net premiums earned

$

915,012



$

858,135



$

2,674,034



$

2,500,178


Change in net unearned premiums

68,044



47,204



161,549



144,846


Net premiums written

$

983,056



$

905,339



$

2,835,583



$

2,645,024










Incurred losses and loss adjustment expenses

$

680,928



$

614,069



$

1,967,921



$

1,851,850


Change in net loss and loss adjustment expense reserves

(74,558)



(26,932)



(102,811)



(83,414)


Paid losses and loss adjustment expenses

$

606,370



$

587,137



$

1,865,110



$

1,768,436










Net income

$

69,282



$

58,578



$

288,399



$

76,151


Less: Net realized investment gains (losses)

33,324



(3,910)



197,726



(48,355)


         Tax on net realized investment gains (losses) (b)

6,998



(821)



41,522



(10,155)


             Net realized investment gains (losses), net of tax

26,326



(3,089)



156,204



(38,200)


Operating income

$

42,956



$

61,667



$

132,195



$

114,351










Per diluted share:








Net income

$

1.25



$

1.06



$

5.21



$

1.38


Less: Net realized investment gains (losses), net of tax

0.47



(0.05)



2.82



(0.69)


Operating income

$

0.78



$

1.11



$

2.39



$

2.07










Combined ratio





98.1

%


98.7

%

Effect of estimated prior periods' loss development





(0.4)

%


(2.8)

%

Combined ratio-accident period basis





97.7

%


95.9

%



(a)

See "Information Regarding GAAP and Non-GAAP Measures" on page 7. 

(b)

Federal statutory rate of 21%.

Information Regarding GAAP and 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.

Net income is the GAAP measure that is most directly comparable to operating income. Operating income is net income excluding realized investment gains and losses, net of tax. 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 investment gains and losses. Realized investment 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 the Company's business. It should be read in conjunction with the GAAP financial results. See "Supplemental Schedules" above for a reconciliation of net income to operating income.

Net premiums earned, the most directly comparable GAAP measure to net premiums written, represents the portion of premiums written that is 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 is a statutory financial measure which represents the premiums charged on policies issued during a fiscal period less any applicable reinsurance.  Net premiums written is designed to determine production levels and is meant as supplemental information and not intended to replace net premiums earned. Such information should be read in conjunction with the GAAP financial results. See "Supplemental Schedules" above for a reconciliation of net premiums earned to net premiums written.

Incurred losses and loss adjustment expenses is the most directly comparable GAAP measure to paid losses and loss adjustment expenses. Paid losses and loss adjustment expenses excludes 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. See "Supplemental Schedules" above for a reconciliation of incurred losses and loss adjustment expenses to paid losses and loss adjustment expenses.

Combined ratio is the most directly comparable measure to combined ratio-accident period basis. Combined ratio-accident period basis is computed as the difference between two GAAP operating ratios: the combined ratio and prior accident periods' loss development ratio. Management believes that combined ratio-accident period basis is useful to investors and it is used 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 the GAAP combined ratio. It should be read in conjunction with the GAAP financial results. See "Supplemental Schedules" above for a reconciliation of GAAP combined ratio to combined ratio-accident period basis.

Mercury General Corporation logo (PRNewsFoto/Mercury General Corporation) (PRNewsFoto/Mercury General Corporation)

 

Cision

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