Mercury General Corporation Announces First Quarter Results and Declares Quarterly Dividend PR Newswire LOS ANGELES, April 29, 2013 LOS ANGELES, April 29, 2013 /PRNewswire/ -- Mercury General Corporation (NYSE: MCY) reported today for the first quarter of 2013: Consolidated Highlights Three Months Ended March 31, Change 2013 2012 $ % (000's except per-share amounts and ratios) Net premiums written (1) $ 690,504 $ 658,287 $ 32,217 4.9 Net income $ 66,461 $ 73,356 $ (6,895) (9.4) Net income per diluted share $ 1.21 $ 1.34 $ (0.13) (9.7) Operating income (1) $ 37,829 $ 39,125 $ (1,296) (3.3) Operating income per diluted $ 0.69 $ 0.71 $ (0.02) (2.8) share (1) Restructuring charges (2) $ 10,000 $ 0 $ 10,000 NM Catastrophe losses (3) $ 1,000 $ 0 $ 1,000 NM Combined ratio (4) 97.9 % 97.6 % — 0.3 pts NM = not meaningful These measures are not based on U.S. generally accepted accounting (1) principles ("GAAP") and are defined and reconciled to the most directly comparable GAAP measures in "Information Regarding Non-GAAP Measures." The Company consolidated its claims and underwriting operations located outside of California into hub locations in Florida, New Jersey, and (2) 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 weather related events in Georgia. The amounts are rounded to the nearest million. The Company experienced favorable development of approximately $3 million and unfavorable development of approximately $6 million on prior accident (4) years' losses and loss adjustment expenses reserves for the three months ended March 31, 2013 and 2012, respectively. The year-to-date favorable development for the three months ended March 31, 2013 is primarily from non-California states. Investment Results Three Months Ended March 31, 2013 2012 (000's except average annual yield) Average invested assets at cost (1) $ 3,046,982 $ 2,984,903 Net investment income (2) Before income taxes $ 31,175 $ 31,486 After income taxes $ 27,271 $ 28,037 Average annual yield on investments - after 3.6 % 3.8 % income taxes (2) Fixed maturities and short-term bonds at amortized cost and equities and (1) 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. Net investment income and average annual yield for the three months ended March 31, 2013 decreased primarily due to the maturity and replacement of (2) higher yielding investments, purchased when market interest rates were higher, with lower yielding investments purchased during the current low interest rate environment. Mercury CEO and President Gabe Tirador commented on the quarterly results: "I am pleased to report our first quarter 2013 combined ratio was 97.9% and our written premiums grew by 4.9%, our ninth consecutive quarter of written premium growth. The Company is executing on our plan to improve profitability and we are experiencing continued improvement in our financial results outside of California. The results were favorably impacted by approximately $3 million of positive reserve development, arising primarily from Florida and New Jersey business. Additionally, loss costs in the first quarter of 2013 compared favorably to those of the fourth quarter of 2012 which had included losses from Hurricane Sandy. Premium growth continues to be driven by personal automobile business in California and homeowners business in many states. The first quarter results were impacted by approximately $10 million of pre-tax restructuring charges related to the consolidation of operations outside of California into hubs located in Florida, New Jersey and Texas. The charges added 0.5 point to our expense ratio and 1.0 point to the loss adjustment expense portion of the loss ratio. The Company expects future savings of approximately $12 million per year as a result of the consolidation." The Board of Directors declared a quarterly dividend of $0.6125 per share. The dividend will be paid on June 27, 2013 to shareholders of record on June 13, 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 May 6, 2013. The replay telephone numbers are (855) 859-2056 (USA) or (404) 537-3406 (International). The conference ID# is 35496206. 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 the impact of current economic conditions 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 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 March 31, 2013 2012 Net premiums written $ 690,504 $ 658,287 Revenues: Net premium earned $ 662,595 $ 635,812 Net investment income 31,175 31,486 Net realized investment gains 44,050 52,663 Other 2,333 2,714 Total revenues $ 740,153 $ 722,675 Expenses: Losses and loss adjustment expenses 467,060 449,916 Policy acquisition costs 123,722 117,430 Other operating expenses 58,063 52,925 Interest 314 410 Total expenses $ 649,159 $ 620,681 Income before income taxes 90,994 101,994 Income tax expense 24,533 28,638 Net income $ 66,461 $ 73,356 Basic average shares outstanding 54,922 54,877 Diluted average shares outstanding 54,935 54,908 Basic Per Share Data Net income $ 1.21 $ 1.34 Net realized investment gains, net of tax $ 0.52 $ 0.62 Diluted Per Share Data Net income $ 1.21 $ 1.34 Net realized investment gains, net of tax $ 0.52 $ 0.62 Operating Ratios-GAAP Basis Loss ratio 70.5 % 70.8 % Expense ratio 27.4 % 26.8 % Combined ratio 97.9 % 97.6 % Reconciliations of Operating Measures to Comparable GAAP Measures Net premiums written $ 690,504 $ 658,287 Change in net unearned premiums (27,909) (22,475) Net premiums earned $ 662,595 $ 635,812 Paid losses and loss adjustment expenses $ 493,480 $ 480,522 Change in net loss and loss adjustment expense (26,420) (30,606) reserves Incurred losses and loss adjustment expenses $ 467,060 $ 449,916 MERCURY GENERAL CORPORATION AND SUBSIDIARIES CONDENSED BALANCE SHEETS AND OTHER INFORMATION (000's except per-share amounts and ratios) March31, 2013 December31, 2012 (unaudited) ASSETS Investments, at fair value: Fixed maturity securities (amortized $ 2,513,418 $ 2,408,354 cost $2,386,204; $2,270,903) Equity securities (cost $484,102; 539,258 477,088 $475,959) Short-term investments (cost $152,184; 152,081 294,653 $294,607) Total investments 3,204,757 3,180,095 Cash 185,042 158,183 Receivables: Premiums 368,303 345,387 Accrued investment income 33,778 31,109 Other 16,306 17,756 Total receivables 418,387 394,252 Deferred policy acquisition costs 190,844 185,910 Fixed assets, net 158,284 161,940 Current income taxes 0 7,058 Goodwill 42,796 42,796 Other intangible assets, net 46,090 47,589 Other assets 25,966 11,863 Total assets $ 4,272,166 $ 4,189,686 LIABILITIES AND SHAREHOLDERS' EQUITY Losses and loss adjustment expenses $ 1,009,418 $ 1,036,123 Unearned premiums 948,373 920,429 Notes payable 140,000 140,000 Accounts payable and accrued expenses 113,090 96,220 Current income taxes 4,726 0 Deferred income taxes 12,755 445 Other liabilities 168,458 153,972 Shareholders' equity 1,875,346 1,842,497 Total liabilities and $ 4,272,166 $ 4,189,686 shareholders' equity OTHER INFORMATION Common stock shares outstanding 54,922 54,922 Book value per share $34.15 $33.55 Estimated statutory surplus $1.51 billion $1.44 billion Estimated premiums written to surplus ratio 1.8 1.8 Debt to total capital ratio 6.9 % 7.1 % Portfolio duration (including all short-term 3.3 years 2.8 years instruments)^(a) Policies-in-force (company-wide "PIF")^(a) Personal Auto PIF 1,252 1,249 Homeowners PIF 450 442 (a) Unaudited. 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 March 31, Total Per diluted share 2013 2012 2013 2012 (000's except per-share amounts) Operating income $ 37,829 $ 39,125 $ 0.69 $ 0.71 Net realized investment gains, net 28,632 34,231 0.52 0.62 of tax Net income $ 66,461 $ 73,356 $ 1.21 $ 1.34 ^(a) (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. Three Months Ended March 31, 2013 2012 Combined ratio-accident period basis 98.4 % 96.7 % Effect of estimated prior periods' loss (0.5)% 0.9 % development Combined ratio 97.9 % 97.6 % SOURCE Mercury General Corporation Website: http://www.mercuryinsurance.com Contact: Theodore Stalick, VP/CFO, +1-323-937-1060, www.mercuryinsurance.com
Mercury General Corporation Announces First Quarter Results and Declares Quarterly Dividend
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