Mercury General Corporation Announces Fourth Quarter and Fiscal 2014 Results and Declares Quarterly Dividend

Feb 9, 2015

LOS ANGELES, Feb. 9, 2015 /PRNewswire/ -- Mercury General Corporation (NYSE: MCY) reported today for the fourth quarter and fiscal 2014 results:

Consolidated Highlights



Three Months Ended
December 31,

Change


Twelve Months Ended
December 31,

Change


2014


2013


$

%


2014


2013


$

%

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















Net premiums written (1)

$

697,317


$

668,121


$

29,196


4.4


$

2,840,922


$

2,728,999


$

111,923


4.1

Net (loss) income

$

(20,956)


$

15,376


$

(36,332)


(236.3)


$

177,949


$

112,143


$

65,806


58.7

Net (loss) income per diluted share (2)

$

(0.38)


$

0.28


$

(0.66)


(235.7)


$

3.23


$

2.04


$

1.19


58.3

Operating (loss) income (1)

$

(6,898)


$

18,150


$

(25,048)


(138.0)


$

125,179


$

119,567


$

5,612


4.7

Operating (loss) income per diluted share (1)

$

(0.13)


$

0.33


$

(0.46)


(139.4)


$

2.28


$

2.18


$

0.10


4.6

Restructuring charges (3)

$

0


$

0


$

0


NM


$

0


$

10,000


$

(10,000)


NM

CDI Penalty (4)

$

27,594


$

0


$

27,594


NM


$

27,594


$

0


$

27,594


NM

Catastrophe losses (5)

$

4,000


$

1,000


$

3,000


300.0


$

11,000


$

17,000


$

(6,000)


(35.3)

Combined ratio (6)

105.6%


102.5%



3.1 pts


98.8%


99.6%



(0.8 pts

NM = not meaningful



















(1)

These measures are not based on U.S. generally accepted accounting principles ("GAAP") and are defined and reconciled to the most directly comparable GAAP measures in "Information Regarding Non-GAAP Measures."

(2)

The dilutive impact of incremental shares is excluded from net loss position in accordance with GAAP.

(3)

In the first quarter of 2013, the Company consolidated its claims and underwriting operations located outside of California into hub locations in Florida, New Jersey, and Texas, which resulted in a net workforce reduction of approximately 135 employees and a $10 million expense. The amounts are rounded to the nearest million.

(4)

On January 10, 2015, the Company received notice that the California Department of Insurance ("CDI") adopted a decision made by a California Administrative Law Judge ("ALJ") related to a Notice of Non-Compliance originally issued in February 2004 and amended in 2006 ("NNC"). The NNC alleges that the Company charged and collected unapproved "broker fees" that were in excess of CDI approved rates. The Company accrued $27.6 million ($0.50 per diluted share) for the assessed penalty, which is not deductible for tax purposes. Readers are urged to review the Company's Annual Report on Form 10-K for the year ended December 31, 2014 for more complete descriptions and discussion.

(5)

2014 catastrophe losses were primarily related to winter freeze events on the East Coast and severe rainstorms in California. 2013 catastrophe losses were primarily the result of tornadoes in Oklahoma and severe storms in the Midwest and the Southeast region. The amounts are rounded to the nearest million.

(6)

For the three months ended December 31, 2014 and 2013, the Company experienced unfavorable development of approximately $7 million and $5 million on prior accident years' losses and loss adjustment expenses reserves, respectively. The unfavorable development in the three months ended December 31, 2014 was primarily from the New York and New Jersey personal auto lines of business. For the twelve months ended December 31, 2014 and 2013, the Company experienced favorable development of approximately $3 million and unfavorable development of approximately $3 million on prior accident years' losses and loss adjustment expenses reserves, respectively. The favorable development in 2014 is primarily from the California personal auto lines of business partially offset by adverse development in other states.

 

Investment Results



Three Months Ended
December 31,


Twelve Months Ended
December 31,


2014


2013



2014


2013


(000's except average annual yield)







Average invested assets at cost (1)

$

3,262,688


$

2,986,146



$

3,204,592


$

3,028,198


Net investment income (2)










     Before income taxes

$

32,067


$

30,832



$

125,723


$

124,538


     After income taxes

$

28,229


$

27,234



$

111,456


$

109,506


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

3.5%


3.7%



3.5%


3.6%




(1)

Fixed maturities and short-term bonds at amortized cost and 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 respective period.

(2)

Net investment income increased due to higher average invested asset balances; and average annual yield decreased slightly primarily due to the maturity and replacement of higher yielding investments purchased when market interest rates were higher, with lower yielding investments purchased during low interest rate environments.

The Board of Directors declared a quarterly dividend of $0.6175 per share. The dividend will be paid on March 31, 2015 to shareholders of record on March 17, 2015.

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 February 16, 2015. The replay telephone numbers are (855) 859-2056 (USA) or (404) 537-3406 (International). The conference ID# is 64322751. 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 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 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 non-California states; 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
December 31,


Twelve Months Ended
December 31,


2014


2013


2014


2013

Net premiums written

$

697,317


$

668,121


$

2,840,922


$

2,728,999













Revenues:












     Net premium earned

$

709,368


$

680,892


$

2,796,195


$

2,698,187

     Net investment income

32,067


30,832


125,723


124,538

     Net realized investment (losses) gains

(21,629)


(4,269)


81,184


(11,422)

     Other

2,005


2,199


8,671


9,738

          Total revenues

$

721,811


$

709,654


$

3,011,773


$

2,821,041

Expenses:












     Losses and loss adjustment expenses

533,951


516,166


1,986,122


1,962,690

     Policy acquisition costs

132,244


128,511


526,208


505,517

     Other operating expenses

83,040


53,313


249,381


219,478

     Interest

737


396


2,637


1,260

          Total expenses

$

749,972


$

698,386


$

2,764,348


$

2,688,945













(Loss) income before income taxes

(28,161)


11,268


247,425


132,096

     Income tax (benefit) expense

(7,205)


(4,108)


69,476


19,953

                    Net (loss) income

$

(20,956)


$

15,376


$

177,949


$

112,143













Basic average shares outstanding

55,073


54,967


55,008


54,947

Diluted average shares outstanding

55,093


54,983


55,020


54,964













Basic Per Share Data












Net (loss) income

$

(0.38)


$

0.28


$

3.23


$

2.04













Net realized investment (losses) gains, net of tax

$

(0.25)


$

(0.05)


$

0.95


$

(0.14)













Diluted Per Share Data











Net (loss) income

$

(0.38)


$

0.28


$

3.23


$

2.04













Net realized investment (losses) gains, net of tax

$

(0.25)


$

(0.05)


$

0.95


$

(0.14)













Operating Ratios-GAAP Basis












Loss ratio

75.3%


75.8%


71.0%


72.7%

Expense ratio

30.3%


26.7%


27.7%


26.9%

Combined ratio (a)

105.6%


102.5%


98.8%


99.6%













Reconciliations of Operating Measures to Comparable GAAP Measures






















Net premiums written

$

697,317


$

668,121


$

2,840,922


$

2,728,999

Change in net unearned premiums

12,051


12,771


(44,727)


(30,812)

Net premiums earned

$

709,368


$

680,892


$

2,796,195


$

2,698,187













Paid losses and loss adjustment expenses

$

504,891


$

489,962


$

1,933,866


$

1,961,601

Change in net loss and loss adjustment expense reserves

29,060


26,204


52,256


1,089

Incurred losses and loss adjustment expenses

$

533,951


$

516,166


$

1,986,122


$

1,962,690



(a)

Combined ratio for the twelve months ended December 31, 2014 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)



December 31, 2014


December 31, 2013


(unaudited)



ASSETS





Investments, at fair value:





     Fixed maturity securities (amortized cost $2,503,494; $2,523,042)

$

2,618,400


$

2,560,653

     Equity securities (cost $387,851; $223,933)


412,880


281,883

     Short-term investments (cost $373,180; $315,886)


372,542


315,776

          Total investments


3,403,822


3,158,312

Cash


289,907


266,508

Receivables:





     Premiums


390,009


366,075

     Accrued investment income


38,737


36,120

     Other


21,202


23,029

          Total receivables


449,948


425,224

Deferred policy acquisition costs


197,202


194,466

Fixed assets, net


158,976


156,716

Current income taxes


503


0

Deferred income taxes


0


15,220

Goodwill


42,796


42,796

Other intangible assets, net


35,623


41,603

Other assets


21,512


14,336

          Total assets

$

4,600,289


$

4,315,181






LIABILITIES AND SHAREHOLDERS' EQUITY





Losses and loss adjustment expenses

$

1,091,797


$

1,038,984

Unearned premiums


999,798


953,527

Notes payable


290,000


190,000

Accounts payable and accrued expenses


130,887


127,663

Current income taxes


0


11,856

Deferred income taxes


5,333


0

Other liabilities


207,028


170,665

Shareholders' equity


1,875,446


1,822,486

          Total liabilities and shareholders' equity

$

4,600,289


$

4,315,181






OTHER INFORMATION





Common stock shares outstanding


55,121


54,975

Book value per share


$34.02


$33.15

Statutory surplus


$1.44 billion


$1.53 billion

Premiums written to surplus ratio


2.0


1.8

Debt to total capital ratio


13.4%


9.4%

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


2.6 years


3.6 years

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





     Personal Auto PIF


1,188


1,217

     Homeowners PIF


484


465

     Commercial Auto PIF


44


36



(a)

Unaudited. 

(b)

Modified durations reflecting anticipated early calls.

 

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 December 31,


Twelve Months Ended December 31,


Total

Per diluted share


Total

Per diluted share


2014

2013

2014

2013


2014

2013

2014

2013

(000's except per-share amounts)


















Operating (loss) income

$

(6,898)

$

18,150

$

(0.13)

$

0.33


$

125,179

$

119,567

$

2.28

$

2.18

Net realized investment (losses) gains, net of tax

(14,058)

(2,774)

(0.25)

(0.05)


52,770

(7,424)

0.95

(0.14)

Net (loss) income

$

(20,956)

$

15,376

$

(0.38)

$

0.28


$

177,949

$

112,143

$

3.23

$

2.04

               

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.


Twelve Months Ended December 31,


2014


2013





Combined ratio-accident period basis

98.9%


99.5%

Effect of estimated prior periods' loss development

(0.1)%


0.1%

Combined ratio

98.8%


99.6%

 

Mercury General Corporation logo

Logo - http://photos.prnewswire.com/prnh/20140414/73019

 

SOURCE Mercury General Corporation

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


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