Mercury General Corporation Announces Second Quarter Results and Declares Quarterly Dividend

Aug 3, 2021

LOS ANGELES, Aug. 3, 2021 /PRNewswire/ -- Mercury General Corporation (NYSE: MCY) reported today for the second quarter of 2021:

Consolidated Highlights

 
 

Three Months Ended June 30,

 

Change

 

Six Months Ended June 30,

 

Change

 

2021

 

2020

 

$

 

%

 

2021

 

2020

 

$

 

%

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

                           

Net premiums earned (2)

$

926,820

   

$

811,898

   

$

114,922

   

14.2

   

$

1,842,741

   

$

1,734,471

   

$

108,270

   

6.2

 

Net premiums written (1) (2)

$

957,342

   

$

818,912

   

$

138,430

   

16.9

   

$

1,907,724

   

$

1,773,127

   

$

134,597

   

7.6

 
                               

Net realized investment gains (losses), net of tax (3)

$

46,456

   

$

125,157

   

$

(78,701)

   

(62.9)

   

$

79,392

   

$

(73,386)

   

$

152,778

   

NM

 

Net income

$

109,181

   

$

228,211

   

$

(119,030)

   

(52.2)

   

$

216,176

   

$

89,007

   

$

127,169

   

142.9

 

Net income per diluted share

$

1.97

   

$

4.12

   

$

(2.15)

   

(52.2)

   

$

3.90

   

$

1.61

   

$

2.29

   

142.2

 
                               

Operating income (1)

$

62,725

   

$

103,054

   

$

(40,329)

   

(39.1)

   

$

136,784

   

$

162,393

   

$

(25,609)

   

(15.8)

 

Operating income per diluted share (1)

$

1.13

   

$

1.86

   

$

(0.73)

   

(39.2)

   

$

2.47

   

$

2.93

   

$

(0.46)

   

(15.7)

 

Catastrophe losses net of reinsurance (4)

$

25,000

   

$

12,000

   

$

13,000

   

108.3

   

$

60,000

   

$

14,000

   

$

46,000

   

328.6

 

Combined ratio (5)

94.9

%

 

88.2

%

 

   

6.7 pts

   

94.2

%

 

92.3

%

 

   

1.9 pts

 
   

NM = not meaningful

   

(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's net premiums earned and net premiums written for the three and six months ended June 30, 2020 were each reduced by approximately $106 million due to premium refunds and credits to its eligible policyholders under the "Mercury Giveback" program for reduced driving and business activities following the outbreak of the COVID-19 pandemic. Excluding premium refunds and credits in the second quarter of 2020, net premiums earned and net premiums written increased 1.0% and 3.5%, respectively, for the three months ended June 30, 2021 from the corresponding period in 2020, and 0.1% and 1.5%, respectively, for the six months ended June 30, 2021 from the corresponding period in 2020.

(3) 

Net realized investment gains (losses) before tax were $59 million and $158 million for the three months ended June 30, 2021 and 2020, respectively, and $100 million and $(93) million for the six months ended June 30, 2021 and 2020, respectively. The changes in fair value of the Company's investments are recorded as part of net realized investment gains or losses in its consolidated statements of operations due to the adoption of the fair value option for its investments as permitted under GAAP.

(4) 

Catastrophe losses due to the events that occurred during the six months ended June 30, 2021 totaled approximately $64 million, with no reinsurance benefits used for these losses, resulting primarily from the deep freeze and other extreme weather events in Texas and Oklahoma and winter storms in California. These losses were partially offset by favorable development of approximately $4 million on prior years' catastrophe losses. Catastrophe losses due to the events that occurred during the six months ended June 30, 2020 totaled approximately $18 million, with no reinsurance benefits used for these losses, resulting primarily from extreme weather events outside of California and windstorms in California. These losses were partially offset by favorable development of approximately $4 million on prior years' catastrophe losses.  

(5) 

The Company experienced favorable development of approximately $14 million and unfavorable development of approximately $12 million on prior accident years' loss and loss adjustment expense reserves for the three months ended June 30, 2021 and 2020, respectively, and favorable development of approximately $15 million and unfavorable development of approximately $27 million on prior accident years' loss and loss adjustment expense reserves for the six months ended June 30, 2021 and 2020, respectively. The year-to-date favorable development in 2021 was primarily attributable to lower than estimated losses and loss adjustment expenses in the commercial property and private passenger automobile lines of insurance business, partially offset by unfavorable development in the commercial automobile line of insurance business. The year-to-date unfavorable development in 2020 was primarily attributable to higher than estimated losses and loss adjustment expenses in the commercial automobile, homeowners and Florida private passenger automobile lines of insurance business.

 

Investment Results

 
 

Three Months Ended June 30,

 

Six Months Ended June 30,

 

2021

 

2020

 

2021

 

2020

(000's except average annual yield)

             

Average invested assets at cost (1)

$

4,657,097

   

$

4,220,468

   

$

4,590,386

   

$

4,218,721

 

Net investment income (2)

             

     Before income taxes

$

30,953

   

$

34,166

   

$

63,232

   

$

68,661

 

     After income taxes

$

27,676

   

$

30,435

   

$

56,460

   

$

60,968

 

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

2.4

%

 

2.9

%

 

2.5

%

 

2.9

%

   

(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 and six months ended June 30, 2021 compared to the corresponding periods in 2020 resulted largely from a lower average yield on investments, partially offset by higher average invested assets. Average annual yield on investments after income taxes for the three and six months ended June 30, 2021 decreased compared to the corresponding periods in 2020, primarily due to the 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 $0.6325 per share. The dividend will be paid on September 30, 2021 to shareholders of record on September 16, 2021.

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 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 Company's ability 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; pandemics, epidemics, widespread health emergencies, or outbreaks of infectious diseases; 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 16, 2021.

 

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,

 

2021

 

2020

 

2021

 

2020

Revenues:

             

     Net premiums earned

$

926,820

   

$

811,898

   

$

1,842,741

   

$

1,734,471

 

     Net investment income

30,953

   

34,166

   

63,232

   

68,661

 

     Net realized investment gains (losses)

58,805

   

158,426

   

100,496

   

(92,894)

 

     Other

2,197

   

1,353

   

5,402

   

3,915

 

          Total revenues

1,018,775

   

1,005,843

   

2,011,871

   

1,714,153

 

Expenses:

             

     Losses and loss adjustment expenses

657,228

   

495,300

   

1,283,572

   

1,146,970

 

     Policy acquisition costs

150,984

   

149,706

   

315,414

   

306,240

 

     Other operating expenses

70,927

   

71,103

   

136,485

   

147,660

 

     Interest

4,235

   

4,268

   

8,577

   

8,523

 

          Total expenses

883,374

   

720,377

   

1,744,048

   

1,609,393

 

Income before income taxes

135,401

   

285,466

   

267,823

   

104,760

 

     Income tax expense

26,220

   

57,255

   

51,647

   

15,753

 

                    Net income

$

109,181

   

$

228,211

   

$

216,176

   

$

89,007

 
               

Basic average shares outstanding

55,371

   

55,358

   

55,366

   

55,358

 

Diluted average shares outstanding

55,376

   

55,358

   

55,375

   

55,358

 
               

Basic Per Share Data

             

Net income

$

1.97

   

$

4.12

   

$

3.90

   

$

1.61

 

Net realized investment gains (losses), net of tax

$

0.84

   

$

2.26

   

$

1.43

   

$

(1.32)

 
               

Diluted Per Share Data

             

Net income

$

1.97

   

$

4.12

   

$

3.90

   

$

1.61

 

Net realized investment gains (losses), net of tax

$

0.84

   

$

2.26

   

$

1.43

   

$

(1.32)

 
               

Operating Ratios-GAAP Basis

             

Loss ratio

70.9

%

 

61.0

%

 

69.7

%

 

66.1

%

Expense ratio

23.9

%

 

27.2

%

 

24.5

%

 

26.2

%

Combined ratio (a)

94.9

%

 

88.2

%

 

94.2

%

 

92.3

%

   

(a) 

Combined ratio for the three months ended June 30, 2021 does 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, 2021

 

December 31, 2020

 

(unaudited)

   

ASSETS

     

Investments, at fair value:

     

     Fixed maturity securities (amortized cost $3,595,994; $3,388,418)

$

3,761,777

   

$

3,549,810

 

     Equity securities (cost $694,913; $695,150)

870,556

   

803,851

 

     Short-term investments (cost $409,400; $376,547)

408,471

   

375,609

 

          Total investments

5,040,804

   

4,729,270

 

Cash

378,615

   

348,479

 

Receivables:

     

     Premiums

621,704

   

599,070

 

          Allowance for credit losses on premiums receivable

(6,000)

   

(10,000)

 

                  Premiums receivable, net of allowance for credit losses

615,704

   

589,070

 

     Accrued investment income

40,760

   

42,985

 

     Other

10,309

   

10,730

 

          Total receivables

666,773

   

642,785

 

Reinsurance recoverables

52,705

   

48,579

 

      Allowance for credit losses on reinsurance recoverables

   

(91)

 

             Reinsurance recoverables, net of allowance for credit losses

52,705

   

48,488

 

Deferred policy acquisition costs

250,823

   

246,994

 

Fixed assets, net

181,969

   

178,923

 

Operating lease right-of-use assets

36,896

   

40,554

 

Current income taxes

623

   

 

Goodwill

42,796

   

42,796

 

Other intangible assets, net

10,789

   

11,322

 

Other assets

34,155

   

38,635

 

          Total assets

$

6,696,948

   

$

6,328,246

 

LIABILITIES AND SHAREHOLDERS' EQUITY

     

Loss and loss adjustment expense reserves

$

2,091,015

   

$

1,991,304

 

Unearned premiums

1,471,124

   

1,405,873

 

Notes payable

372,732

   

372,532

 

Accounts payable and accrued expenses

195,973

   

194,421

 

Operating lease liabilities

39,874

   

43,825

 

Current income taxes

   

10,426

 

Deferred income taxes

52,616

   

41,132

 

Other liabilities

294,983

   

236,136

 

Shareholders' equity

2,178,631

   

2,032,597

 

          Total liabilities and shareholders' equity

$

6,696,948

   

$

6,328,246

 
       

OTHER INFORMATION

     

Common stock shares outstanding

55,371

   

55,358

 

Book value per share

$

39.35

   

$

36.72

 

Statutory surplus (a)

$1.90 billion

   

$1.77 billion

 

Net premiums written to surplus ratio (a)

1.98

   

2.04

 

Debt to total capital ratio (b)

14.7

%

 

15.6

%

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

2.9 years

   

3.0 years

 

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

     

     Personal Auto PIF

1,105

   

1,116

 

     Homeowners PIF

686

   

671

 

     Commercial Auto PIF

39

   

38

 
   

(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 June 30,

 

Six Months Ended June 30,

 

2021

 

2020

 

2021

 

2020

               

Reconciliations of Comparable GAAP Measures to Operating Measures (a)

       
               

Net premiums earned

$

926,820

   

$

811,898

   

$

1,842,741

   

$

1,734,471

 

Change in net unearned premiums

30,522

   

7,014

   

64,983

   

38,656

 

Net premiums written

$

957,342

   

$

818,912

   

$

1,907,724

   

$

1,773,127

 
               

Incurred losses and loss adjustment expenses

$

657,228

   

$

495,300

   

$

1,283,572

   

$

1,146,970

 

Change in net loss and loss adjustment expense reserves

(52,601)

   

13,271

   

(101,975)

   

29,696

 

Paid losses and loss adjustment expenses

$

604,627

   

$

508,571

   

$

1,181,597

   

$

1,176,666

 
               

Net income

$

109,181

   

$

228,211

   

$

216,176

   

$

89,007

 

Less: Net realized investment gains (losses)

58,805

   

158,426

   

100,496

   

(92,894)

 

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

12,349

   

33,269

   

21,104

   

(19,508)

 

             Net realized investment gains (losses), net of tax

46,456

   

125,157

   

79,392

   

(73,386)

 

Operating income

$

62,725

   

$

103,054

   

$

136,784

   

$

162,393

 
               

Per diluted share:

             

Net income

$

1.97

   

$

4.12

   

$

3.90

   

$

1.61

 

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

0.84

   

2.26

   

1.43

   

(1.32)

 

Operating income

$

1.13

   

$

1.86

   

$

2.47

   

$

2.93

 
               

Combined ratio

       

94.2

%

 

92.3

%

Effect of estimated prior periods' loss development

       

0.8

%

 

(1.6)

%

Combined ratio-accident period basis

       

95.0

%

 

90.7

%

   

(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)

 

 

SOURCE Mercury General Corporation

For further information: Theodore Stalick, SVP/CFO, (323) 937-1060, www.mercuryinsurance.com