PRNewswire-FirstCall
LOS ANGELES
Feb 11, 2008
Mercury General Corporation (NYSE: MCY) reported today net income of $44.6 million ($0.81 per share-diluted) in the fourth quarter 2007 compared with $50.1 million ($0.91 per share-diluted) for the same period in 2006. For the year, net income was $237.8 million ($4.34 per share-diluted) compared with net income of $214.8 million ($3.92 per share-diluted) for the same period in 2006. Included in net income are net realized investment gains, net of tax, of $6.4 million ($0.12 per share-diluted) in the fourth quarter of 2007 compared with net realized investment gains, net of tax, of $1.3 million ($0.02 per share-diluted) for the same period in 2006, and net realized investment gains, net of tax, of $13.5 million ($0.25 per share-diluted) for the entire 2007 year compared with net realized investment gains, net of tax, of $10.0 million ($0.18 per share-diluted) for 2006. Net income in the fourth quarter of 2007 also includes approximately $23 million ($15 million after tax benefit or $0.27 per share-diluted) in losses resulting from the October 2007 Southern California fire storms.
Company-wide net premiums written were $699.9 million in the fourth quarter 2007, a 5.5% decrease over fourth quarter 2006 net premiums written of $740.7 million, and were approximately $3.0 billion for the year, a 2.1% decrease over the same period in 2006. California net premiums written were $547.8 million in the fourth quarter of 2007, a decrease of 1.9% over the same period in 2006, and were approximately $2.3 billion for the year, a 2.4% increase over the same period in 2006. Non-California net premiums written were $152.1 million in the fourth quarter of 2007, a 16.5% decrease over the same period in 2006, and were $677.6 million for the year, a decrease of 14.8% over the same period in 2006.
The Company's combined ratio (GAAP basis) was 98.8% in the fourth quarter and 95.4% for the year compared with 96.5% and 95.0% for the same periods in 2006. The Southern California fire storms negatively impacted the combined ratio by 3.1% for the fourth quarter of 2007 and 0.8% for the entire year of 2007. Adverse development on prior accident years' loss reserves was approximately $20 million for the year ended December 31 in both 2007 and 2006. For business produced in California, loss development on prior accident years' loss reserves was approximately $26 million adverse and $15 million positive for the years ended December 31, 2007 and 2006, respectively. For business produced outside of California, development on prior accident years' loss reserves was approximately $6 million positive and $35 million adverse for the years ended December 31, 2007 and 2006, respectively.
Net investment income of $36.8 million (after tax $33.2 million) in the fourth quarter of 2007 decreased by 4.8% over the same period in 2006. The after-tax yield on investment income was 3.8% on average assets of $3.5 billion (fixed maturities and equities at cost) for the quarter. This compares with an after-tax yield on investment income of 4.0% on average investments of $3.4 billion (fixed maturities and equities at cost) for the same period in 2006. Net investment income for the entire year of 2007 was $158.9 million (after tax $137.8 million), an increase of 5.2% over the same period in 2006. The after-tax yield on investment income was 4.0% on average assets of $3.5 billion (fixed
maturities and equities at cost) for the year. This compares with an after-tax yield on investment income of 3.8% on average investments of $3.3 billion (fixed maturities and equities at cost) for the same period in 2006.
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 March 27, 2008 to shareholders of record on March 17, 2008. The Company's book value per share at December 31, 2007 was $34.02.
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 February 18, 2008. The replay telephone numbers are (800) 642-1687 (USA) or (706) 645-9291 (International). The conference ID# is 31139571. 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; the accuracy and adequacy of the Company's pricing methodologies; adverse weather conditions or natural disasters in the markets served by the Company; 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.
Mercury General Corporation 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 Generally Accepted Accounting Principles ("GAAP"). These measures are not intended to replace, and should be read in conjunction with, the GAAP financial results. The Company has reconciled these measures with the
most directly comparable GAAP measure in the supplemental schedule entitled, "Summary of Operating Results."
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.
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.
Mercury General Corporation and Subsidiaries
Summary of Operating Results
(000's except per-share amounts and ratios)
(unaudited)
Quarter Ended Twelve Months Ended
December 31, December 31,
2007 2006 2007 2006
Net premiums written $699,898 $740,742 $2,982,024 $3,044,774
Net premiums earned 735,251 753,871 2,993,877 2,997,023
Paid losses and loss
adjustment expenses 516,316 495,573 2,019,579 1,944,887
Incurred losses and
loss adjustment
expenses 524,716 521,021 2,036,644 2,021,646
Net investment income 36,755 38,597 158,911 151,099
Net realized investment
gains, net of tax 6,378 1,339 13,525 10,033
Net income $ 44,592 $ 50,132 $237,832 $214,817
Basic average shares
outstanding 54,723 54,669 54,704 54,651
Diluted average shares
outstanding 54,827 54,820 54,829 54,786
Basic Per Share Data
Net income $0.81 $0.92 $4.35 $3.93
Net realized investment
gains, net of tax $0.12 $0.02 $0.25 $0.18
Incurred losses from
Southern California
fire storms, net
of tax benefit $(0.27) N/A $(0.27) N/A
Operating Ratios-GAAP(a)
Basis
Loss ratio 71.4% 69.1% 68.0% 67.5%
Expense ratio 27.4% 27.4% 27.4% 27.5%
Combined ratio 98.8% 96.5% 95.4% 95.0%
Impact of California
fire storms on
loss ratio 3.1% N/A 0.8% N/A
Reconciliations of
Operating Measures
to Comparable GAAP
(a) Measures
Net premiums written $699,898 $740,742 $2,982,024 $3,044,774
Increase in unearned
premiums 35,353 13,129 11,853 (47,751)
Net premiums earned $735,251 $753,871 $2,993,877 $2,997,023
Paid losses and loss
adjustment expenses $516,316 $495,573 $2,019,579 $1,944,887
Increase in net loss
and loss adjustment
expense reserves 8,400 25,448 17,065 76,759
Incurred losses and
loss adjustment
expenses $524,716 $521,021 $2,036,644 $2,021,646
(a) Generally Accepted Accounting Principles
Mercury General Corporation and Subsidiaries Other Supplemental Information (000's except ratios) (unaudited)
Quarter Ended Twelve Months Ended
December 31, December 31,
2007 2006 2007 2006
California Operations (1)
Net premiums written $547,818 $558,548 $2,304,412 $2,249,737
Net premiums earned 571,165 562,992 2,302,383 2,210,801
Loss ratio 71.9% 66.4% 66.3% 63.9%
Expense ratio 26.4% 25.8% 26.3% 26.4%
Combined ratio 98.3% 92.2% 92.6% 90.3%
Non-California
Operations (2)
Net premiums written $152,080 $182,194 $677,612 $795,037
Net premiums earned 164,086 190,879 691,494 786,222
Loss ratio 69.3% 77.0% 73.7% 77.6%
Expense ratio 31.1% 32.1% 30.7% 30.7%
Combined ratio 100.4% 109.1% 104.4% 108.3%
At December 31,
Policies-in-force (000's) 2007 2006
California personal auto 1,112 1,145
California commercial auto 18 20
Non-California personal auto 284 338
California homeowners 269 261
Florida homeowners 12 14
Notes:
All ratios are calculated on GAAP basis.
(1) Includes homeowners, auto, commercial property and other immaterial
California business lines
(2) Includes all states except California
Mercury General Corporation and Subsidiaries
Condensed Balance Sheets and Other Information
(000's except per-share amounts)
(unaudited)
December 31, December 31,
2007 2006
Investments:
Fixed maturities available for sale,
at fair value (amortized cost
$2,860,455 in 2007 and $2,851,715
in 2006)
(includes hybrid financial
instruments: $31,770 in 2007) $2,887,760 $2,898,987
Equity securities available for
sale, at fair value (cost $317,869 in
2007 and $258,310 in 2006) 413,123 318,449
Equity securities trading,
at fair value (cost $13,126 in 2007) 15,114 -
Short-term investments,
at cost, which approximates fair value 272,678 282,302
Total investments 3,588,675 3,499,738
Net receivables 367,686 372,777
Deferred policy acquisition costs 209,805 209,783
Other assets 248,330 218,764
Total assets $4,414,496 $4,301,062
Losses and loss adjustment expenses $1,103,915 $1,088,822
Unearned premiums 938,370 950,344
Notes payable 138,562 141,554
Other liabilities 371,651 396,212
Shareholders' equity 1,861,998 1,724,130
Total liabilities
and shareholders' equity $4,414,496 $4,301,062
Common stock-shares outstanding 54,730 54,670
Book value per share $34.02 $31.54
Statutory surplus $1.7 billion $1.6 billion
Portfolio duration 4.4 years 4.0 years
First Call Analyst:
FCMN Contact: jwalters@mercuryinsurance.com
SOURCE: Mercury General Corporation
CONTACT: Theodore Stalick, VP-CFO of Mercury General Corporation,
+1-323-937-1060
Web site: http://www.mercuryinsurance.com/