(866) 889-5012 Mercury General Corporation Announces Third Quarter Results
Mercury General Corporation (NYSE: MCY) reported today for the third quarter of 2008:
Consolidated Highlights
Three Months Ended
September 30, Change
2008 2007 $ %
(000's except per-share
amounts and ratios)
Net premiums written (1) $695,142 $758,849 $(63,707) (8.4)
Net income (loss) (2) (140,539) 63,278 (203,817) (322.1)
Net income (loss) per diluted share
(2)(3) (2.57) 1.15 (3.72) (323.5)
Operating income (1)(2) 39,493 61,946 (22,453) (36.2)
Operating income per diluted share
(1)(2) 0.72 1.13 (0.41) (36.3)
Adverse development on
prior periods' loss reserves (4) (16,000) (2,000) (14,000) --
Combined ratio 102.0% 94.2% -- 7.8 pts
Combined ratio-accident period basis
(1) 99.7% 93.9% -- 5.8 pts
Nine Months Ended
September 30, Change
2008 2007 $ %
(000's except per-share
amounts and ratios)
Net premiums written (1) $2,108,585 $2,282,126 $(173,541) (7.6)
Net income (loss) (2) (73,774) 193,240 (267,014) (138.2)
Net income (loss) per diluted
share (2)(3) (1.35) 3.52 (4.87) (138.4)
Operating income (1)(2) 142,425 186,093 (43,668) (23.5)
Operating income per diluted
share (1) (2) 2.60 3.39 (0.79) (23.3)
Adverse development on
prior periods' loss
reserves (4) (46,000) (16,000) (30,000) --
Combined ratio 98.1% 94.2% -- 3.9 pts
Combined ratio-accident period
basis (1) 95.9% 93.5% -- 2.4 pts
(1) These measures are not based on U.S. generally accepted accounting
principles and are defined and reconciled to the most directly
comparable GAAP measures in "Information Regarding Non-GAAP Measures."
(2) 2008 amounts include a $17.5 million ($0.32 per share) tax refund (net
of federal taxes) received from the California Franchise Tax Board.
(3) The dilutive impact of incremental shares is excluded from loss
positions in accordance with U.S. generally accepted accounting
principles.
(4) The amounts are rounded to the nearest million.
Net loss in the third quarter 2008 was $140.5 million ($2.57 per share) compared with net income of $63.3 million ($1.15 per share-diluted) for the same period in 2007. For the first nine months of 2008, net loss was $73.8 million ($1.35 per share) compared to net income of $193.2 million ($3.52 per share-diluted) for the same period in 2007. Included in net income (loss) are net realized investment losses, net of tax, of $180.0 million ($3.29 per share) in the third quarter of 2008 compared with net realized investment gains, net of tax, of $1.3 million ($0.02 per share-diluted) for the same period in 2007, and net realized investment losses, net of tax, of $216.2 million ($3.95 per share) for the first nine months of 2008 compared to net realized investment gains, net of tax, of $7.1 million ($0.13 per share-diluted) for the same period in 2007. Operating income was $39.5 million ($0.72 per share-diluted) for the third quarter of 2008, down 36.2% from the prior year quarter, and $142.4 million ($2.60 per share-diluted) for the first nine months of 2008, down 23.5% from the same period in 2007.
Net realized investment losses, net of tax, of $180.0 million in the third quarter of 2008 and net realized investment losses, net of tax, of $216.2 million for the first nine months of 2008 include losses, net of tax, of $165.1 million and $211.1 million, respectively, due to adoption of SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities," for fixed maturity and equity securities on January 1, 2008. As a result of this adoption, changes in unrealized gains and losses for such securities that were previously recorded as changes to accumulated other comprehensive income on the balance sheet are now recorded as realized gains and losses on the income statement. The Company sustained a decline in municipal bond prices throughout the nine months of 2008 resulting from bond insurer credit downgrades, market liquidity problems, and wider credit spreads. Additionally, the price declines on corporate and equity holdings of the Company mirrored the sell-off in the overall market during the third quarter of 2008 as investors became more risk averse and global economic pessimism increased.
Company-wide net premiums written were $695.1 million in the third quarter 2008, an 8.4% decrease over the third quarter 2007 net premiums written of $758.8 million, and were approximately $2.1 billion for the first nine months of 2008, a 7.6% decrease over the same period in 2007. California net premiums written were $544.3 million in the third quarter of 2008, a decrease of 7.4% over the same period in 2007, and were approximately $1.7 billion for the first nine months of 2008, a 5.8% decrease over the same period in 2007. Non-California net premiums written were $150.8 million in the third quarter of 2008, an 11.9% decrease over the same period in 2007, and were $453.4 million for the first nine months of 2008, a decrease of 13.7% over the same period in 2007.
Net investment income of $38.1 million (after tax $33.4 million) in the third quarter of 2008 decreased by 2.9% over the same period in 2007. The after-tax yield on investment income was 3.9% on average assets of $3.4 billion (fixed maturities and equities at cost) for the quarter. This compares with an after-tax yield on investment income of 3.9% on average investments of $3.5 billion (fixed maturities and equities at cost) for the same period in 2007. Net investment income for the first nine months of 2008 was $116.4 million (after tax $102.2 million), a decrease of 4.7% over the same period in 2007. The after-tax yield on investment income was 3.9% on average assets of $3.5 billion for the first nine months of 2008, compared with an after-tax yield on investment income of 4.0% on average investments of $3.5 billion (fixed maturities and equities at cost) for the same period in 2007.
Total catastrophe losses, which resulted primarily from Hurricane Ike, were $6 million in the third quarter of 2008. There were no catastrophe losses recorded in the third quarter of 2007.
On July 1, 2008, the California Superior Court ruled in favor of Mercury General Corporation in a case filed against the California Franchise Tax Board ("FTB") entitling the Company to a tax refund of $24.5 million, including interest. The time period for appeal of the decision has passed and the Company received the full amount on August 15, 2008. After providing for federal taxes, the Company recognized a net tax benefit of $17.5 million in the third quarter 2008, which is included in both operating income and net loss.
The Board of Directors declared a quarterly dividend of $0.58 per share, representing an 11.5% increase over the quarterly dividend amount paid in 2007. The dividend is to be paid on December 30, 2008 to shareholders of record on December 16, 2008. The Company's book values per share were $30.95 and $34.02 at September 30, 2008 and December 31, 2007, respectively.
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 http://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 http://www.mercuryinsurance.com/. A replay of the call will be available beginning at 1:30 P.M. Pacific time and running through November 10, 2008. The replay telephone numbers are (800) 642-1687 (USA) or (706) 645-9291 (International). The conference ID# is 68104532. 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 in general economic conditions, including the impact of the current liquidity crisis and economic weakness 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 regulatory approval for requested rate changes; legislation adverse to the automobile insurance industry or business generally that may be enacted in California or other states; the Company's success in expanding its business in states outside of California; the Company's ability to successfully complete its initiative to standardize its policies and procedures nationwide in all of its functional areas; the presence of competitors with greater financial resources and the impact of competitive pricing; 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 various 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.
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 U.S. generally accepted accounting principles ("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 meant as supplemental information and is not intended to replace net income. 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,
Total Per diluted share
2008 2007 2008 2007
(000's except per-share amounts)
Operating income $39,493 $61,946 $0.72 $1.13
Net realized investment gains
(losses), net of tax (180,032) 1,332 (3.29) 0.02
Net income (loss) (140,539) 63,278 (2.57) 1.15
Nine Months Ended
September 30,
Total Per diluted share
2008 2007 2008 2007
(000's except per-share amounts)
Operating income $142,425 $186,093 $2.60 $3.39
Net realized investment gains
(losses), net of tax (216,199) 7,147 (3.95) 0.13
Net income (loss) (73,774) 193,240 (1.35) 3.52
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 is recognized as income 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 meant as supplemental information and is not intended to replace net premiums earned. It 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 meant 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 business 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 Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
Combined ratio-accident
period basis 99.7% 93.9% 95.9% 93.5%
Effect of prior
periods' loss
development 2.3% 0.3% 2.2% 0.7%
Combined ratio 102.0% 94.2% 98.1% 94.2%
Mercury General Corporation and Subsidiaries
Summary of Operating Results
(000's except per-share amounts and ratios)
(unaudited)
Quarter Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
Net premiums written $695,142 $758,849 $2,108,585 $2,282,126
Net premiums earned 696,605 748,798 2,128,725 2,258,626
Paid losses and loss
adjustment expenses 483,141 491,896 1,539,395 1,503,263
Incurred losses and loss
adjustment expenses 511,806 497,791 1,484,824 1,511,928
Net investment income 38,086 39,216 116,380 122,156
Net realized investment
gains (losses), net of tax (180,032) 1,332 (216,199) 7,147
Net income (loss) $(140,539) $63,278 $(73,774) $193,240
Basic average shares
outstanding 54,748 54,720 54,737 54,697
Diluted average shares
outstanding 55,062 54,851 54,926 54,830
Basic Per Share Data
Net income (loss) $(2.57) $1.16 $(1.35) $3.53
Net realized investment
gains (losses), net of tax $(3.29) $0.02 $(3.95) $0.13
Diluted Per Share Data (a)
Net income (loss) $(2.57) $1.15 $(1.35) $3.52
Net realized investment
gains (losses), net of tax $(3.29) $0.02 $(3.95) $0.13
Operating Ratios-GAAP (b)
Basis
Loss ratio 73.5% 66.5% 69.7% 66.9%
Expense ratio 28.5% 27.7% 28.4% 27.3%
Combined ratio 102.0% 94.2% 98.1% 94.2%
Reconciliations of Operating
Measures to Comparable GAAP
(b) Measures
Net premiums written $695,142 $758,849 $2,108,585 $2,282,126
Decrease (increase) in
unearned premiums 1,463 (10,051) 20,140 (23,500)
Net premiums earned $696,605 $748,798 $2,128,725 $2,258,626
Paid losses and loss
adjustment expenses $483,141 $491,896 $1,539,395 $1,503,263
Increase (decrease) in net
loss and loss adjustment
expense reserves 28,665 5,895 (54,571) 8,665
Incurred losses and loss
adjustment expenses $511,806 $497,791 $1,484,824 $1,511,928
(a) The dilutive impact of incremental shares is excluded from loss
positions in accordance with U.S. generally accepted accounting
principles.
(b) U.S. generally accepted accounting principles
Mercury General Corporation and Subsidiaries
Other Supplemental Information
(000's except ratios)
(unaudited)
Quarter Ended Nine Months Ended
September 30, September 30,
2008 2007 2008 2007
California Operations (1)
Net Premiums Written $544,315 $587,708 $1,655,173 $1,756,594
Net Premiums Earned 546,181 579,876 1,669,137 1,731,219
Loss Ratio 70.3% 64.1% 67.4% 64.5%
Expense Ratio 27.4% 26.9% 27.1% 26.3%
Combined Ratio 97.7% 91.0% 94.5% 90.8%
Loss Ratio-Accident Period
Basis (3) 68.6% 63.5% 65.4% 63.4%
Non-California Operations (2)
Net Premiums Written $150,827 $171,141 $453,412 $525,532
Net Premiums Earned 150,424 168,922 459,588 527,407
Loss Ratio 85.1% 74.8% 78.3% 75.0%
Expense Ratio 32.6% 30.7% 33.2% 30.6%
Combined Ratio 117.7% 105.5% 111.5% 105.6%
Loss Ratio-Accident Period
Basis (3) 80.4% 75.4% 75.7% 75.6%
At September 30,
Policies-in-Force (000's) 2008 2007
California Personal Auto 1,074 1,130
California Commercial Auto 17 19
Non-California Personal Auto 267 297
California Homeowners 271 268
Florida Homeowners 11 13
Notes:
All ratios are calculated on GAAP basis except Loss Ratio-Accident Period
Basis.
(1) Includes homeowners, auto, commercial property and other immaterial
California business lines
(2) Includes all states except California
(3) Ratio for three months excludes development on June 30, 2008 and prior
loss reserves and June 30, 2007 and prior loss reserves for 2008 and
2007, respectively; ratio for nine months excludes development on 2007
and prior loss reserves and 2006 and prior loss reserves for 2008 and
2007, respectively.
Mercury General Corporation and Subsidiaries
Condensed Balance Sheets and Other Information
(000's except per-share amounts)
(unaudited)
September 30, 2008 December 31, 2007
Investments:
Fixed maturities available for
sale, at fair value (amortized
cost $2,860,455) $- $2,887,760
Fixed maturities trading, at fair
value (amortized cost $2,766,072) 2,601,669 -
Equity securities available for
sale, at fair value (cost
$317,869) - 413,123
Equity securities trading, at fair
value (cost $402,047; $13,126) 366,738 15,114
Short-term investments, at fair
value (amortized cost $252,860;
$272,678) 249,516 272,678
Total investments 3,217,923 3,588,675
Net receivables 359,187 367,686
Deferred policy acquisition costs 205,768 209,805
Other assets 367,372 248,330
Total assets $4,150,250 $4,414,496
Losses and loss adjustment expenses $1,049,241 $1,103,915
Unearned premiums 918,141 938,370
Notes payable 154,956 138,562
Other liabilities 333,140 371,651
Shareholders' equity 1,694,772 1,861,998
Total liabilities and shareholders'
equity $4,150,250 $4,414,496
Common stock-shares outstanding 54,760 54,730
Book value per share $30.95 $34.02
Statutory surplus $1.6 billion $1.7 billion
Premiums written to surplus ratio 1.74 1.73
Debt to total capital ratio 8.4% 6.9%
Portfolio duration 6.5 years 4.4 years
First Call Analyst:
FCMN Contact:
SOURCE: Mercury General Corporation
CONTACT: Theodore Stalick, VP-CFO of Mercury General Corporation,
+1-323-937-1060
Web site: http://www.mercuryinsurance.com/
