Mercury General Corporation Announces Fourth Quarter Results
LOS ANGELES, Feb. 10 -- Mercury General Corporation
, a major California automobile insurer with operations in a number
of other states, reported today that premiums written were $504.6 million in
the fourth quarter, a 34.5% increase over 2001 and $1,865.0 million for the
entire year, a 29.3% increase over 2001. "We had targeted to be at an annual
premium run-rate of $2 billion at the end of the first quarter 2003. We are
pleased to have achieved our target one quarter ahead of schedule," said
George Joseph, Mercury General Corporation's chairman and chief executive
officer.
Net operating earnings in the fourth quarter of 2002 were $31.5 million,
or $0.58 per share, compared with $22.5 million, or $0.41 per share in 2001.
The Company defines net operating earnings, a non GAAP financial measure, as
net income determined on a GAAP basis less net realized investment gains and
losses. Net income was $17.3 million, or $0.32 per share (diluted) in the
fourth quarter 2002 compared with $22.1 million, or $0.41 per share (diluted)
in the same period for 2001. For the entire year 2002, net income and net
operating earnings were $66.1 million ($1.21 diluted per share), and
$111.9 million ($2.05 diluted per share), respectively, which compares to net
income and net operating earnings in the same period for 2001 of
$105.3 million ($1.94 diluted per share) and $101.1 million ($1.86 diluted
per share), respectively.
During the fourth quarter, the Company recorded net realized losses on
investments of $14.2 million, net of tax or $0.26 per share (diluted).
Included in the net realized losses are $14.0 million, net of taxes, for
charges related to assets classified as available for sale that were
considered to be other-than-temporarily impaired. The vast majority of these
securities were equity positions within the energy sector.
The combined ratio (GAAP basis) was 97.6% in the fourth quarter and 98.8%
for the entire year compared to 101.2% and 99.6% for the respective periods in
2001.
In California, the Company's personal auto lines posted a combined ratio
(statutory basis) of 98.1% for the fourth quarter compared to 100.7% for the
respective period in 2001 and 97.8% for the year compared to 98.0% for the
respective period in 2001. The Company has implemented and is continuing to
seek rate increases to offset the effects of loss cost inflation and improve
the combined ratio.
The Company implemented California personal automobile rate increases on
March 1, 2002 of 6.9% for Mercury Casualty Company ("MCC") and California
Automobile Insurance Company ("Cal Auto") and 4.1% for Mercury Insurance
Company ("MIC") and on November 1, 2002 of 6.9% for MCC and Cal Auto and 3.2%
for MIC. The Company has filed for additional rate increases of 6.9% in MCC
and Cal Auto and 4.6% in MIC which are currently pending California Department
of Insurance approval.
The California homeowners' line posted a combined ratio (statutory basis)
of 92.1% for the fourth quarter compared to 106.6% for the respective period
in 2001 and 101.3% for the year compared to 105.6% for the respective period
in 2001. The Company has benefited from favorable frequency this year.
Additionally, the Company implemented 6.9% rate increases in 2002 on both
May 15, 2002 and December 15, 2002. The Company expects first quarter 2003
frequency to be up due to windstorms occurring during the first part of
January 2003.
The Company is beginning to see significant improvement in many of the
non-California operations. The Company's operations located in Florida, Texas
(Concord operation), New York and the American Mercury operations located in
Oklahoma and Texas all showed significant premium growth and posted GAAP basis
combined ratios of less than 100% for the fourth quarter. Additionally, these
operations showed significant year-over-year improvement. "We have taken
steps to improve the profitability of our non-California operations. These
steps included appropriate rate actions, implementation of our Quicksilver
system and the integration of the American Mercury Texas auto business onto
the Mercury underwriting and claims systems. We are encouraged that these
steps are beginning to show up in positive underwriting results," said George
Joseph.
The Company's loss ratio (GAAP basis) was 71.6% in the fourth quarter and
72.8% for the entire year compared to 75.2% and 73.2% for the respective
periods in 2001. California personal auto line of business is the largest
driver of the loss ratio. For this line of business, loss frequencies
continue to be modestly favorable. Loss severities are increasing in the low
to mid-single digit range in the material damage coverages and in the high
single digits in the bodily injury coverages.
The Company's expense ratio (GAAP basis) was 26.0% in the fourth quarter
and 26.0% for the entire year compared to 26.0% and 26.4% in the respective
periods in 2001.
Investment income decreased by 9.4% to $26.7 million for the quarter and
decreased by 1.2% to $113.1 million for the year. After taxes, per share
(diluted) investment income was $0.43 in the quarter and $1.82 for the year,
compared with $0.47 and $1.82 for the respective periods in 2001. The after-
tax yield was 4.42% on average investments of $2.1 billion (fixed maturities
and equities at cost) for the quarter compared to 5.32% in the fourth quarter
of 2001.
The Board of Directors declared a first quarter dividend of $0.33 per
share, representing a 10.0% increase over the quarterly dividend amount paid
in 2002. The dividend is to be paid on March 27, 2003 to shareholders of
record on March 17, 2003. The Company's book value per share at
December 31, 2002 was $20.21.
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.
MERCURY GENERAL CORPORATION
SUMMARY OF OPERATING RESULTS (000)
Quarter Ended December 31,
2002 2001
Net Premiums Written $504,597 $375,211
Net Premiums Earned 481,277 366,722
Paid Losses and Loss Adjustment Expenses 300,001 251,648
Incurred Losses 344,528 275,862
Net Investment Income 26,732 29,508
Net Realized Investment Gains or (Losses) (d) (14,163) (367)
Net Income $17,330 $22,111
Net Operating Earnings (a) $31,493 $22,478
Basic Average Shares Outstanding 54,349,724 54,223,894
Diluted Average Shares Outstanding 54,487,016 54,438,139
Basic Per Share Data
Earnings Per Share $0.32 $0.41
Diluted Per Share Data (c)
Net Operating Earnings $0.58 $0.41
Net Realized Investment Gains or (Losses) (d) ($0.26) ($0.01)
Earnings Per Share $0.32 $0.41
Operating Ratios -- GAAP Basis (b)
Loss Ratio 71.6% 75.2%
Expense Ratio 26.0% 26.0%
Combined Ratio 97.6% 101.2%
Twelve Months Ended December 31,
2002 2001
Net Premiums Written $1,865,046 $1,442,886
Net Premiums Earned 1,741,527 1,380,561
Paid Losses and Loss Adjustment Expenses 1,119,946 957,650
Incurred Losses 1,268,243 1,010,439
Net Investment Income 113,083 114,511
Net Realized Investment Gains or (Losses) (d) (45,768) 4,233
Net Income $66,105 $105,339
Net Operating Earnings (a) $111,873 $101,106
Basic Average Shares Outstanding 54,314,447 54,182,021
Diluted Average Shares Outstanding 54,502,451 54,382,108
Basic Per Share Data
Earnings Per Share $1.22 $1.94
Diluted Per Share Data
Net Operating Earnings $2.05 $1.86
Net Realized Investment Gains or (Losses) (d) ($0.84) $0.08
Earnings Per Share $1.21 $1.94
Operating Ratios -- GAAP Basis (b)
Loss Ratio 72.8% 73.2%
Expense Ratio 26.0% 26.4%
Combined Ratio 98.8% 99.6%
(a) Net Income, determined on a GAAP basis, less realized investment
gains or (losses), net of tax.
(b) Generally Accepted Accounting Principles
(c) Some numbers may not sum due to rounding
(d) Net Realized Investment Gains or (Losses) is net of taxes.
MERCURY GENERAL CORPORATION
Other Supplemental Information
Three months ending December 31, 2002
Net Premium Loss Expense Combined
Written Ratio Ratio Ratio
(000's)
California $428,018 72.6% 25.2% 97.8%
Georgia $4,090 59.9% 29.0% 88.9%
Illinois $4,150 56.6% 28.4% 85.0%
Florida $32,145 69.5% 27.0% 96.5%
Texas (Concord operations) $12,762 63.1% 33.4% 96.5%
New York $2,281 73.2% 14.1% 87.3%
Virginia $1,578 99.3% 41.3% 140.6%
American Mercury operations $19,572 62.9% 35.3% 98.2%
Three months ending December 31, 2001
Net Premium Loss Expense Combined
Written Ratio Ratio Ratio
(000's)
California $325,109 75.4% 24.7% 100.1%
Georgia $3,229 50.4% 31.9% 82.3%
Illinois $3,209 58.8% 25.6% 84.4%
Florida $16,997 65.3% 34.8% 100.1%
Texas (Concord operations) $7,899 64.1% 48.1% 112.2%
New York $797 83.5% 107.6% 191.1%
Virginia $241 157.6% 60.6% 218.2%
American Mercury operations $17,729 93.7% 29.3% 123.0%
Twelve months ending December 31, 2002
Net Premium Loss Expense Combined
Written Ratio Ratio Ratio
(000's)
California $1,587,165 73.1% 25.1% 98.2%
Georgia $15,127 63.3% 31.7% 95.0%
Illinois $15,150 62.0% 28.6% 90.6%
Florida $112,271 73.4% 26.1% 99.5%
Texas (Concord operations) $42,934 70.4% 34.5% 104.9%
New York $5,943 69.0% 33.2% 102.2%
Virginia $4,186 98.0% 46.9% 144.9%
American Mercury operations $82,271 70.5% 35.7% 106.2%
Twelve months ending December 31, 2001
Net Premium Loss Expense Combined
Written Ratio Ratio Ratio
(000's)
California $1,262,585 72.8% 25.2% 98.0%
Georgia $12,826 57.0% 33.2% 90.2%
Illinois $12,474 66.4% 26.0% 92.4%
Florida $56,798 71.2% 31.5% 102.7%
Texas (Concord operations) $30,309 81.3% 52.2% 133.5%
New York $818 82.9% 198.4% 281.3%
Virginia $894 142.3% 121.6% 263.9%
American Mercury operations $66,181 83.2% 31.6% 114.8%
Policies-in-force at December 31, 2002
amounts in
(000's)
California Personal Auto (excluding Cal Auto) 870
Personal Auto written through Cal Auto 82
California Commercial Auto 18
California Homeowners 154
Florida Auto 69
Virginia Personal Auto 3
New York Personal Auto 4
Georgia Personal Auto 11
Illinois Personal Auto 11
Texas (Concord Operations) 22
Florida Homeowners 6
Total shareholders' equity at year-end $1.1 Billion
Statutory Surplus at year-end $1.0 Billion
Portfolio Duration at year-end 4.4