Mercury General Corporation Announces Fourth Quarter and Fiscal 2019 Results and Declares Quarterly Dividend
LOS ANGELES, Feb. 10, 2020 /PRNewswire/ -- Mercury General Corporation (NYSE: MCY) reported today the fourth quarter and fiscal 2019 results:
Consolidated Highlights
---
Three Months Ended
Change
Twelve Months Ended
Change
December 31, December 31,
2019 2018
$ % 2019 2018
$ %
(000's except per-share amounts and ratios)
Net premiums earned $
925,384 $
868,233 $
57,151 6.6 $
3,599,418 $
3,368,411 $
231,007 6.9
% %
Net premiums written (1) $
896,140 $
850,609 $
45,531 5.4 $
3,731,723 $
3,495,633 $
236,090 6.8
(2) % %
Net income (loss) $
31,688 $
(81,879) $
113,567
NM $
320,087 $
(5,728) $
325,815
NM
Net income (loss) per
diluted share (3) $
0.57 $
(1.48) $
2.05
NM $
5.78 $
(0.10) $
5.88
NM
Operating income (loss) $
11,884 $
(14,599) $
26,483
NM $
144,081 $
99,753 $
44,328 44.4
(1) %
Operating income (loss) $
0.21 $
(0.26) $
0.47
NM $
2.60 $
1.80 $
0.80 44.4
per diluted share (1) %
Catastrophe losses net of $
36,000 $
43,000 $
(7,000) (16.3) $
53,000 $
67,000 $
(14,000) (20.9)
reinsurance (4) % %
Combined ratio (5) 103.2
% 106.7
% (3.5) pts 99.4
% 100.7
% (1.3) 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, which predominantly
offers six-month personal
automobile insurance policies,
reintroduced twelve-month personal
automobile policies for new
business in its largest insurance
subsidiary, Mercury Insurance
Company ("MIC"), in March 2018.
Twelve-month policies are
generally sold for twice the price
of six-month policies. MIC's net
premiums written from twelve-month
policies was approximately $88
million and $63 million for the
three months ended December 31,
2019 and 2018, respectively, and
approximately $354 million and $205
million for the twelve months ended
December 31, 2019 and 2018,
respectively.
(3) The dilutive impact of incremental
shares is excluded from net loss
position in accordance with GAAP.
(4) Catastrophe losses due to the
catastrophe events that occurred
during the three and twelve months
ended December 31, 2019 totaled
approximately $37 million and $57
million, respectively, with no
reinsurance benefits used for these
losses. The majority of the 2019
catastrophe losses resulted from
wildfires and winter storms in
California, a hurricane in Texas,
and tornadoes and wind and hail
storms in the Midwest. These losses
were partially offset by favorable
development of approximately $1
million and $4 million on prior
years' catastrophe losses for the
three and twelve months ended
December 31, 2019, respectively.
Catastrophe losses before
reinsurance benefits totaled
approximately $255 million and $289
million for the three and twelve
months ended December 31, 2018,
respectively. 2018 catastrophe
losses were primarily due to
wildfires in Northern and Southern
California. Weather-related
catastrophes across several states
made up the remainder of the 2018
catastrophe losses.
(5) The Company experienced favorable
development of approximately $1
million and unfavorable development
of approximately $23 million on
prior accident years' loss and loss
adjustment expense reserves for the
three months ended December 31,
2019 and 2018, respectively, and
unfavorable development of
approximately $10 million and $93
million on prior accident years'
loss and loss adjustment expense
reserves for the twelve months
ended December 31, 2019 and 2018,
respectively. The year-to-date
unfavorable development in 2019 was
primarily attributable to higher
than estimated defense and cost
containment expenses in the
California automobile line of
insurance business, partially
offset by favorable development on
prior years' loss and loss
adjustment expense reserves,
including catastrophe losses, in
certain of the Company's other
lines of insurance business, while
the year-to-date unfavorable
development in 2018 was primarily
attributable to higher than
estimated California automobile
losses resulting from severity in
excess of expectations for bodily
injury claims as well as higher
than estimated defense and cost
containment expenses in the
California automobile line of
insurance business.
Investment Results
---
Three Months Ended Twelve Months Ended
December 31,
December 31,
2019 2018 2019 2018
(000's except average
annual yield)
Average invested assets
at cost (1) $
4,104,014 $
3,808,842 $
4,008,601 $
3,740,497
Net investment income
(2)
Before income taxes $
35,701 $
31,383 $
141,263 $
135,838
After income taxes $
31,793 $
28,608 $
125,637 $
121,476
Average annual yield on
investments -after
income taxes (2) 3.1
% 3.0
% 3.1
% 3.3
%
(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) The higher net investment income
before and after income taxes for
the three and twelve months ended
December 31, 2019 compared to the
corresponding periods in 2018
resulted largely from higher
average invested assets. Average
annual yield on investments after
income taxes for the three months
ended December 31, 2019 increased
compared to the corresponding
period in 2018, primarily due to
higher returns on the Company's
investments in private equity
funds. Average annual yield on
investments after income taxes for
the twelve months ended December
31, 2019 decreased compared to the
corresponding period in 2018,
primarily due to 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 $0.6300 per share. The dividend will be paid on March 31, 2020 to shareholders of record on March 17, 2020.
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 17, 2020. The replay telephone numbers are (855) 859-2056 (USA) or (404) 537-3406 (International). The conference ID# is 7889459. 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. 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 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; the ability of the Company 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; court decisions and trends in litigation and health care and auto repair costs; and legal, cyber security, 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.
MERCURY GENERAL CORPORATION AND SUBSIDIARIES
SUMMARY OF OPERATING RESULTS
(000's except per-share amounts and ratios)
(unaudited)
Three Months Ended
Twelve Months Ended
December 31,
December 31,
2019 2018 2019 2018
---
Revenues:
Net premium
earned $
925,384 $
868,233 $
3,599,418 $
3,368,411
Net investment
income 35,701 31,383 141,263 135,838
Net realized
investment
gains (losses) 25,068 (85,165) 222,793 (133,520)
Other 1,840 2,167 9,044 9,275
Total revenues $
987,993 $
816,618 $
3,972,518 $
3,380,004
Expenses:
Losses and loss
adjustment
expenses 738,103 724,939 2,706,024 2,576,789
Policy
acquisition
costs 154,114 147,365 602,085 572,164
Other operating
expenses 63,055 54,505 269,305 244,630
Interest 4,256 4,257 17,035 17,036
Total expenses $
959,528 $
931,066 $
3,594,449 $
3,410,619
Income (loss)
before income
taxes 28,465 (114,448) 378,069 (30,615)
Income tax
(benefit)
expense (3,223) (32,569) 57,982 (24,887)
Net income
(loss) $
31,688 $
(81,879) $
320,087 $
(5,728)
Basic average
shares
outstanding 55,357 55,340 55,351 55,335
Diluted average
shares
outstanding 55,361 55,340 55,360 55,335
Basic Per Share Data
---
Net income
(loss) $
0.57 $
(1.48) $
5.78 $
(0.10)
Net realized
investment
gains
(losses), net
of tax $
0.36 $
(1.22) $
3.18 $
(1.90)
Diluted Per Share Data
---
Net income
(loss) $
0.57 $
(1.48) $
5.78 $
(0.10)
Net realized
investment
gains
(losses), net
of tax $
0.36 $
(1.22) $
3.18 $
(1.90)
Operating Ratios-GAAP Basis
---
Loss ratio 79.8
% 83.5
% 75.2
% 76.5
%
Expense ratio 23.5
% 23.3
% 24.2
% 24.2
%
---
Combined ratio 103.2 106.7
(a) % % 99.4
% 100.7
%
===
Combined ratios for the
three months ended
December 31, 2019 and 2018
do not sum due to
(a) rounding.
MERCURY GENERAL CORPORATION AND SUBSIDIARIES
CONDENSED BALANCE SHEETS AND OTHER INFORMATION
(000's except per-share amounts and ratios)
December 31, 2019 December 31, 2018
---
(unaudited)
ASSETS
---
Investments, at fair value:
Fixed maturity securities
(amortized cost $2,973,276;
$2,969,541) $
3,093,275 $
2,985,161
Equity securities (cost
$648,282; $544,082) 724,751 529,631
Short-term investments (cost
$494,060; $254,518) 494,135 253,299
Total investments 4,312,161 3,768,091
Cash 294,398 314,291
Receivables:
Premiums 604,871 555,038
Accrued investment income 40,107 45,373
Other 6,464 6,132
Total receivables 651,442 606,543
Reinsurance recoverables 78,774 221,088
Deferred policy acquisition
costs 233,166 215,131
Fixed assets, net 168,986 153,023
Operating lease right-of-use
assets 44,909
Current income taxes 7,642 38,885
Deferred income taxes - 13,339
Goodwill 42,796 42,796
Other intangible assets, net 10,636 15,534
Other assets 44,247 45,008
Total assets $
5,889,157 $
5,433,729
LIABILITIES AND SHAREHOLDERS' EQUITY
---
Loss and loss adjustment
expense reserves $
1,921,255 $
1,829,412
Unearned premiums 1,355,547 1,236,181
Notes payable 372,133 371,734
Accounts payable and accrued
expenses 143,318 115,071
Operating lease liabilities 47,996
Deferred income taxes 27,964
Other liabilities 221,442 263,647
Shareholders' equity 1,799,502 1,617,684
Total liabilities and
shareholders' equity $
5,889,157 $
5,433,729
OTHER INFORMATION
---
Common stock shares outstanding 55,358 55,340
Book value per share $32.51 $29.23
Statutory surplus (a)
$1.54 billion
$1.47 billion
Net premiums written to surplus
ratio (a) 2.42 2.38
Debt to total capital ratio (b) 17.2
% 18.8
%
Portfolio duration (including
all short-term instruments)
(a)(c) 3.2 years 4.0 years
Policies-in-force (company-wide "PIF") (a)
Personal Auto PIF 1,139 1,157
Homeowners PIF 646 600
Commercial Auto PIF 36 37
(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 December 31, Twelve Months Ended December 31,
2019 2018 2019 2018
---
Reconciliations of Comparable GAAP Measures to Operating Measures
(a)
---
Net premiums earned $
925,384 $
868,233 $
3,599,418 $
3,368,411
Change in net unearned premiums (29,244) (17,624) 132,305 127,222
Net premiums written $
896,140 $
850,609 $
3,731,723 $
3,495,633
Incurred losses and loss adjustment expenses $
738,103 $
724,939 $
2,706,024 $
2,576,789
Change in net loss and loss adjustment expense reserves (93,791) (118,528) (196,602) (201,942)
Paid losses and loss adjustment expenses $
644,312 $
606,411 $
2,509,422 $
2,374,847
Net income (loss) $
31,688 $
(81,879) $
320,087 $
(5,728)
Less: Net realized investment gains (losses) 25,068 (85,165) 222,793 (133,520)
Tax on net realized investment gains (losses) (b) 5,264 (17,885) 46,787 (28,039)
Net realized investment gains (losses), net of tax 19,804 (67,280) 176,006 (105,481)
Operating income (loss) $
11,884 $
(14,599) $
144,081 $
99,753
Per diluted share:
Net income (loss) $
0.57 $
(1.48) $
5.78 $
(0.10)
Less: Net realized investment gains (losses), net of tax 0.36 (1.22) 3.18 (1.90)
Operating income (loss) $
0.21 $
(0.26) $
2.60 $
1.80
Combined ratio 99.4
% 100.7
%
Effect of estimated prior periods' loss development (0.3)
% (2.8)
%
Combined ratio-accident period basis 99.1
% 97.9
%
(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.
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SOURCE Mercury General Corporation
