PRNewswire-FirstCall
LOS ANGELES
Nov 3, 2003
Mercury General Corporation (NYSE: MCY), a major California automobile insurer with operations in a number of other states, reported today that net income was $49.6 million, or $0.91 per share (diluted), in the third quarter 2003 compared with $18.5 million, or $0.34 per share (diluted), in the same period for 2002. For the first nine months of 2003, net income was $135.1 million ($2.48 per share) compared to net income of $48.8 million ($0.89 per share) in the same period for 2002. The Company had net realized investment gains, net of tax, of $4.1 million ($0.07 per share) in the third quarter of 2003 compared to $0.0 million ($0.00 per share) in the third quarter 2002, and $3.5 million ($0.06 per share) for the first nine months of 2003 compared to a loss, net of tax, of $31.6 million ($0.58 per share) for the first nine months of 2002. Due to guidance from the Securities and Exchange Commission regarding the use of non-GAAP financial measures, the Company will no longer disclose net operating earnings, a measure defined by the Company as net income excluding net realized investment gains and losses, net of tax, in its earnings announcements or other public filings.
Company-wide premiums written were $590.2 million in the third quarter 2003, a 20.1% increase over 2002, and $1.7 billion for the nine month period, a 23.3% increase over the comparable period in 2002. California premiums written were $492.0 million in the quarter, a 17.6% increase over 2002, and $1.4 billion for the nine month period, a 21.2% increase over the comparable period in 2002. The increased premiums were driven by policy count growth and rate increases.
The Company's non-California operations produced $98.2 million in premiums with a combined ratio (GAAP basis) of 92.5% this quarter. During the third quarter, the Company commenced writing personal automobile insurance in the state of New Jersey. In 2004, the Company expects to begin writing personal automobile insurance in Arizona.
The Company's combined ratio (GAAP basis) was 93.4% in the third quarter and 94.0% for the first nine months of 2003 compared to 102.2% and 99.3% in the respective periods of 2002.
Net investment income decreased by 11.8% to $24.5 million in the quarter and decreased by 9.5% to $78.2 million in the first nine months of 2003 compared to the same periods in 2002. The after-tax yield was 3.8% on average investments of $2.34 billion (fixed maturities and equities at cost) for the quarter. This compares with 4.8% in the third quarter of 2002.
In October 2003, the Southern California region was devastated by sweeping fire storms. As of October 31, 2003, approximately 2,800 homes have been reported as destroyed. The Company estimates its California homeowners market share to be approximately 2%. As of October 31, 2003, the Company has received 27 total property burn claims, 10 partial burn claims and 83 smoke damage claims.
The Board of Directors declared a quarterly dividend of $0.33 per share, representing a 10% increase over the quarterly dividend amount paid in 2002. The dividend is to be paid on December 29, 2003 to shareholders of record on December 15, 2003.
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, and in general economic conditions; the accuracy and adequacy of the Company's pricing methodologies; market risks associated with the Company's investment portfolio; uncertainties related to estimates, assumptions and projections generally; the possibility actual loss experience may vary adversely from the actuarial estimates made to determine the Company's loss reserves; inflation and changes in economic conditions; 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 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 useful industry specific information to 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
(unaudited)
Quarter Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
Net premiums written $590,176 $491,602 $1,677,377 $1,360,449
Net premiums earned 546,638 455,467 1,572,376 1,260,250
Paid losses and loss
adjustment expenses 329,606 288,762 983,331 819,945
Incurred losses and loss
adjustment expenses 367,610 349,046 1,066,721 923,715
Net investment income 24,528 27,821 78,172 86,351
Net realized investment gains
(losses) - pre tax 6,266 65 5,334 (48,623)
Net income $49,615 $18,520 $135,095 $48,775
Basic average shares
outstanding 54,410 54,336 54,397 54,303
Diluted average shares
outstanding 54,564 54,520 54,534 54,506
Basic Per Share Data
Net income $0.91 $0.34 $2.48 $0.90
Net realized investment gains
(losses) - after tax $0.07 $0.00 $0.06 ($0.58)
Diluted Per Share Data
Earnings per share $0.91 $0.34 $2.48 $0.89
Net realized investment gains
(losses) - after tax $0.07 $0.00 $0.06 ($0.58)
Operating Ratios -- GAAP
Basis (a)
Loss ratio 67.3% 76.6% 67.8% 73.3%
Expense ratio 26.1% 25.6% 26.2% 26.0%
Combined ratio 93.4% 102.2% 94.0% 99.3%
Reconciliations of Operating
Measures to Comparable GAAP
(a) Measures
Net premiums written $590,176 $491,602 $1,677,377 $1,360,449
Increase in unearned premiums (43,538) (36,135) (105,001) (100,199)
Net premiums earned $546,638 $455,467 $1,572,376 $1,260,250
Paid losses and loss
adjustment expenses $329,606 $288,762 $983,331 $819,945
Increase in net losses and
loss adjustment expense
reserves 38,004 60,284 83,390 103,770
Incurred losses and loss
adjustment expenses $367,610 $349,046 $1,066,721 $923,715
(a) Generally Accepted Accounting Principles
Mercury General Corporation and Subsidiaries
Other Supplemental Information
(000's) except ratios
(unaudited)
Quarter ending, Nine months ending,
September 30, September 30,
2003 2002 2003 2002
Total California Operations
(1)
Net Premiums Written $491,962 $418,444 $1,404,473 $1,159,147
Net Premiums Earned 460,835 387,758 1,327,669 1,081,385
Loss Ratio 68.2% 77.6% 68.9% 73.3%
Expense Ratio 25.3% 24.7% 25.5% 25.1%
Combined Ratio (3) 93.5% 102.3% 94.3% 98.5%
California Automobile lines
Net Premiums Written $453,760 $387,412 $1,295,826 $1,079,257
Net Premiums Earned 427,587 363,108 1,234,010 1,016,487
Loss Ratio 69.0% 77.9% 69.4% 73.0%
Expense Ratio 25.1% 24.1% 25.1% 24.7%
Combined Ratio 94.1% 101.9% 94.6% 97.7%
California Homeowners line
Net Premiums Written $32,101 $25,692 $90,490 $66,225
Net Premiums Earned 27,869 20,168 77,813 53,431
Loss Ratio 56.9% 77.7% 61.6% 78.7%
Expense Ratio 24.4% 27.4% 25.4% 27.7%
Combined Ratio 81.3% 105.1% 87.0% 106.4%
Non-California Operations (2)
Net Premiums Written $98,214 $73,157 $272,904 $201,302
Net Premiums Earned 85,802 67,708 244,706 178,865
Loss Ratio 62.2% 71.1% 62.2% 73.1%
Expense Ratio 30.3% 30.8% 29.9% 31.6%
Combined Ratio 92.5% 101.9% 92.1% 104.7%
At At At At
Policies-in-force September 30, June 30, March 31, December 31,
(000's) 2003 2003 2003 2002
California Personal
Auto 1,018 1,009 981 952
California Commercial
Auto 19 19 19 18
Non-California
Personal Auto 169 160 158 150
California Homeowners 178 169 163 154
Florida Homeowners 9 8 7 6
At At At At
September 30, June 30, March 31, December 31,
2002 2002 2002 2001
California Personal
Auto 916 883 853 828
California Commercial
Auto 18 17 17 16
Non-California
Personal Auto 144 135 121 106
California Homeowners 145 136 125 116
Florida Homeowners 6 5 5 4
(1) Total California operations includes homeowners, auto, commercial
property and other immaterial California business lines
(2) Includes all states except California
(3) Some numbers may not sum due to rounding
Mercury General Corporation and Subsidiaries
Condensed Balance Sheet and Other Information
(000's) except per-share amounts
September 30, December 31,
2003 2002
(unaudited)
Investments - available for sale
Fixed maturities at market
(amortized cost $1,698,811 in 2003
and $1,565,760 in 2002) $1,783,571 $1,632,871
Equity securities at market (cost
$245,999 in 2003 and $233,297
in 2002) 271,581 230,981
Short-term cash investments, at
cost, which approximates market 393,414 286,806
Total investments 2,448,566 2,150,658
Net receivables 295,421 259,445
Deferred policy acquisition costs 128,647 107,485
Other assets 130,477 127,708
Total assets $3,003,111 $2,645,296
Loss and loss adjustment expenses $760,655 $679,271
Unearned premiums 645,441 545,485
Other liabilities 261,529 192,895
Notes payable 124,708 128,859
Shareholders' equity 1,210,778 1,098,786
Total liabilities and shareholders'
equity $3,003,111 $2,645,296
Common stock - shares outstanding 54,410 54,362
Book value per share $22.25 $20.21
Statutory surplus $1,117,026 $1,014,935
Portfolio duration 4.2 years 4.4 years
SOURCE: Mercury General Corporation
CONTACT: Theodore Stalick, VP/CFO of Mercury General Corporation,
+1-323-937-1060
Web site: http://www.mercuryinsurance.com/