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Los Angeles, California 90010
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Press Release
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FOR MORE INFORMATION, CONTACT:
Theodore Stalick, VP/CFO
(323) 937-1060
www.mercuryinsurance.com
For Release: August 6, 2007
Mercury General Corporation Announces Second Quarter Results
Los Angeles, California...Mercury General Corporation (NYSE: MCY) reported today
net income of $69.5 million ($1.27 per share-diluted) in the second quarter 2007
compared with $37.8 million ($0.69 per share-diluted) for the same period in
2006. For the first six months of 2007, net income was $130.0 million ($2.37 per
share-diluted) compared to net income of $96.5 million ($1.76 per share-diluted)
for the same period in 2006. Included in net income are net realized investment
gains, net of tax, of $6.5 million ($0.12 per share-diluted) in the second
quarter of 2007 compared with net realized investment gains, net of tax, of $2.8
million ($0.05 per share-diluted) for the same period in 2006, and net realized
investment gains, net of tax, of $5.8 million ($0.11 per share-diluted) for the
first six months of 2007 compared to net realized investment gains, net of tax,
of $6.9 million ($0.13 per share-diluted) for the same period in 2006.
Company-wide net premiums written were $737.4 million in the second quarter
2007, a 2.2% decrease over second quarter 2006 net premiums written of $753.8
million, and were approximately $1.5 billion for the first six months of 2007, a
0.3% decrease over the same period in 2006. California net premiums written were
$567.9 million in the second quarter of 2007, an increase of 2.9% over the same
period in 2006, and were approximately $1.2 billion for the first six months of
2007, a 4.6% increase over the same period in 2006. Non-California net premiums
written were $169.5 million in the second quarter of 2007, a 16.0% decrease over
the same period in 2006, and were $354.4 million for the first six months of
2007, a decrease of 13.5% over the same period in 2006.
During the second quarter of 2007, the Company accrued $5.0 million as a
reduction to California premiums in anticipation of issuing coupons that are
redeemable towards new and renewal premiums as part of the settlement of a
lawsuit. The impact of this accrual, net of tax, is a reduction to net income of
$3.3 million for both the second quarter and the first six months of 2007. For
the second quarter of 2007, the accrual added 0.7 points to the company-wide
decrease in premiums written and reduced the growth in California premiums
written by 0.9 points.
Page 1
The Company's combined ratio (GAAP basis) was 94.0% in the second quarter and
94.3% for the first six months of 2007 compared with 98.6% and 95.3% for the
same periods in 2006. Loss development on prior accident years' loss reserves
was approximately $13 million adverse for the six months ended June 30, 2007,
compared with approximately $15 million adverse for the same period in 2006.
Adverse loss development on prior accident years' loss reserves for the six
months of 2007 came primarily from the Company's California operations. As
reported previously, for the states outside of California, the Company
experienced adverse development for the six months ended June 30, 2006 of
approximately $30 million on prior accident years' loss reserves, largely due to
additional reserves established for large individual losses in Florida and
additional reserves established for personal injury protection and bodily injury
losses in New Jersey. The Company experienced positive development on prior
accident years' loss reserves of approximately $15 million for the six months
ended June 30, 2006 on its California business.
Net investment income of $40.8 million (after tax $35.0 million) in the second
quarter of 2007 increased by 12.6% over the same period in 2006. The after-tax
yield on investment income was 4.1% on average assets of $3.4 billion (fixed
maturities and equities at cost) for the quarter. This compares with an after
tax yield on investment income of 3.7% 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 third quarter dividend of $0.52 per share,
representing an 8.3% increase over the quarterly dividend amount paid in 2006.
The dividend is to be paid on September 27, 2007 to shareholders of record on
September 14, 2007. The Company's book value per share at June 30, 2007 was
$32.71.
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 August
13, 2007. The replay telephone numbers are (800) 642-1687 (USA) or (706)
645-9291 (International). The conference ID# is 7040282. The replay will also be
available on the Company's website shortly following the call.
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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.
Page 3
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.
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Mercury General Corporation and Subsidiaries
Summary of Operating Results
(000's except per-share amounts and ratios)
(unaudited)
Quarter Ended June 30, Six Months Ended June 30,
2007 2006 2007 2006
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Net premiums written $ 737,394 $ 753,826 $ 1,523,277 $ 1,527,846
Net premiums earned 754,076 753,350 1,509,828 1,490,030
Paid losses and loss adjustment expenses 491,421 486,508 1,011,367 965,848
Incurred losses and loss adjustment expenses 504,378 534,316 1,014,137 1,009,496
Net investment income 40,795 36,242 82,940 75,645
Net realized investment gains, net of tax 6,493 2,751 5,816 6,946
Net income $ 69,509 $ 37,812 $ 129,962 $ 96,458
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Basic average shares outstanding 54,697 54,648 54,685 54,636
Diluted average shares outstanding 54,848 54,761 54,829 54,765
Basic Per Share Data
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Net income $ 1.27 $ 0.69 $ 2.38 $ 1.77
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Net realized investment gains, net of tax $ 0.12 $ 0.05 $ 0.11 $ 0.13
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Diluted Per Share Data
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Net income $ 1.27 $ 0.69 $ 2.37 $ 1.76
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Net realized investment gains, net of tax $ 0.12 $ 0.05 $ 0.11 $ 0.13
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Operating Ratios-GAAP (a) Basis
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Loss ratio 66.9% 70.9% 67.2% 67.8%
Expense ratio 27.1% 27.7% 27.1% 27.5%
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Combined ratio 94.0% 98.6% 94.3% 95.3%
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Reconciliations of Operating Measures to Comparable GAAP (a) Measures
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Net premiums written $ 737,394 $ 753,826 $ 1,523,277 $ 1,527,846
Decrease (Increase) in unearned premiums 16,682 (476) (13,449) (37,816)
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Net premiums earned $ 754,076 $ 753,350 $ 1,509,828 $ 1,490,030
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Paid losses and loss adjustment expenses $ 491,421 $ 486,508 $ 1,011,367 $ 965,848
Increase in net loss and loss
adjustment expense reserves 12,957 47,808 2,770 43,648
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Incurred losses and loss adjustment expenses $ 504,378 $ 534,316 $ 1,014,137 $ 1,009,496
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(a) Generally Accepted Accounting Principles
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Mercury General Corporation and Subsidiaries
Other Supplemental Information
(000's except ratios)
(unaudited)
Quarter Ended Six Months Ended
June 30, June 30,
2007 2006 2007 2006
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California Operations (1)
Net premiums written $ 567,904 $ 552,144 $ 1,168,886 $ 1,118,051
Net premiums earned 577,827 552,209 1,151,343 1,091,467
Loss ratio 64.2% 63.6% 64.7% 63.6%
Expense ratio 26.0% 26.9% 26.0% 26.7%
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Combined ratio 90.2% 90.5% 90.7% 90.3%
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Non-California Operations (2)
Net premiums written $ 169,490 $ 201,682 $ 354,391 $ 409,795
Net premiums earned 176,249 201,141 358,485 398,563
Loss ratio 75.7% 91.1% 75.1% 79.0%
Expense ratio 30.8% 29.9% 30.6% 29.7%
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Combined ratio 106.5% 121.0% 105.7% 108.7%
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At June 30,
Policies-in-force (000's) 2007 2006
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California personal auto 1,153 1,138
California commercial auto 20 21
Non-California personal auto 312 364
California homeowners 266 253
Florida homeowners 13 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
Page 6
Mercury General Corporation and Subsidiaries
Condensed Balance Sheets and Other Information
(000's except per-share amounts)
(unaudited)
June 30, 2007 December 31, 2006
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Fixed maturities available for sale (amortized cost
$2,882,306 in 2007 and $2,851,715 in 2006)
(includes hybrid financial instruments: $33,631
in 2007) $ 2,883,376 $ 2,898,987
Equity securities available for sale (cost $268,070
in 2007 and $258,310 in 2006) 360,038 318,449
Equity securities trading (cost $9,264 in 2007) 9,438 -
Short-term investments, at cost, which approximates market 283,573 282,302
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Total investments 3,536,425 3,499,738
Net receivables 380,150 372,777
Deferred policy acquisition costs 213,902 209,783
Other assets 240,446 218,764
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Total assets $ 4,370,923 $ 4,301,062
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Losses and loss adjustment expenses $ 1,090,682 $ 1,088,822
Unearned premiums 963,775 950,344
Other liabilities 398,934 396,212
Notes payable 127,913 141,554
Shareholders' equity 1,789,619 1,724,130
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Total liabilities and shareholders' equity $ 4,370,923 $ 4,301,062
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Common stock-shares outstanding 54,717 54,670
Book value per share $ 32.71 $ 31.54
Statutory surplus $1.7 billion $1.6 billion
Portfolio duration 5.0 years 4.0 years
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