Mercury General Corporation Reports Q3 Results
10 November 1997
Mercury General Corporation Reports Record Third Quarter Results; Written Premiums Increase 40%, Operating Earnings 36%
LOS ANGELES, Nov. 10 -- Mercury General Corporation
, a major California automobile insurer with operations in a number
of other states, reported today that net operating earnings in the third
quarter of 1997, exclusive of realized investment gains, increased 36% to
$39.3 million, or $.71 per share, from $28.9 million, or $.53 per share, in
the third quarter of 1996. For the full nine months, per share operating
earnings were $1.92, a 34% increase from $1.43 in 1996. Per share net income,
including realized investment gains and losses, was $.74 for the quarter and
$1.96 for nine months, compared with $.53 and $1.41, respectively, in 1996.
Per share results are based on average shares outstanding of 55.0 million in
1997 and 54.8 million in 1996, adjusted for a two-for-one stock split
effective September 16, 1997.
The earnings contribution from the American Mercury Insurance Group (AMI),
formerly American Fidelity (AFI), which was purchased for cash in December
1996, amounted to 4 cents per share for the full nine months and a loss of 2
cents per share for the third quarter.
Net premiums written in the third quarter, including $19.6 million from
AMI, increased 40% to $289.3 million. Excluding AMI, the year-to-year
increase in third quarter written premiums was 31%. Since the AMI acquisition
was accounted for as a purchase, its operating results have been consolidated
only since December 1, 1996, and year-to-year comparisons are not strictly
comparable. For the year-to-date, AMI net written premiums increased
approximately 6% to $54.8 million. Its combined ratio (CR) of underwriting
results (GAAP basis) was 104.6%.
California premium growth of over 30% year-to-date, in contrast to growth
of 22% in 1996, reflects both the Company's strong competitive position and
new business generated by a California law made effective on January 1, 1997,
requiring proof of insurance for the registration (new or renewal) of a motor
vehicle. Compliance with the new law by previously uninsured drivers produced
an initial surge of new business early in the year, with new applications
increasing significantly. In more recent periods, the growth in new business
has tapered off somewhat, although new submissions are still well ahead of the
prior year.
The Georgia and Illinois subsidiaries are showing good progress, with
writings up 16% and 8% respectively and underwriting results approximating
break-even.
Underwriting results in California continue to be excellent, reflecting
favorable trends in both accident frequency and severity, particularly in the
bodily injury lines. The Company-wide consolidated loss ratio (GAAP basis)
was 62.3% in the third quarter and 64.6% for the full nine months, compared
with 65.6% and 66.8%, respectively, in 1996. The paid loss ratio for the full
nine months was 56.7%, down from 62.1% in 1996.
The consolidated expense ratio (GAAP basis) year-to-date, including AMI,
whose expense burden is several points higher than the Company's California
operations, was 25.2%, compared with 24.3% in 1996. The expense ratio in the
third quarter alone was 26.1%, up from 23.9% in 1996, reflecting chiefly an
increase in the provision for bonuses and profit-sharing.
The underwriting profit margin for the quarter was 11.6% and, for the full
nine months, 10.2%. In 1996, underwriting margins were 10.5% in the third
quarter and 8.9% for the full nine months.
Third quarter investment income, including AMI, was $22.2 million, a 28%
increase over 1996. Excluding the contribution of AMI, the year-to-year
increase in investment income in the third quarter was 19%. Consolidated per
share investment income, after taxes at an effective rate of 10.2%, vs. 9.3%
in 1996, was $.36 in the third quarter, up from $.29 a year ago. Reflecting
the substantial decline in long term interest rates, the year-to-date after-
tax yield on average investments of $1.2 billion approximated 6.12%, down from
6.56% in 1996. The market value of the fixed maturity portfolio exceeded
amortized cost of $1,090 million by $53 million at September 30, 1997.
Realized investment gains were $2.3 million in the third quarter and $3.1
million year-to-date. In 1996, there was a nominal gain of $72,000 in the
third quarter and realized losses of $1.0 million for the full nine months.
On November 7, 1997, the Board of Directors declared a regular quarterly
dividend of $.145 payable on December 30, 1997 to holders of record on
December 16, 1997.
MERCURY GENERAL CORPORATION
SUMMARY OF OPERATING RESULTS (000)
Nine Months Ended September 30,
1997 1996
Net Premiums Written 813,613 577,132
Net Premiums Earned 757,910 544,116
Net Investment Income 63,004 51,220
Net Operating Income (a) 105,445 78,138
Capital Gains (Losses), net of tax 2,020 (650)
Net Income $107,465 $77,488
Average Shares Outstanding 54,962,212 54,772,652
Per Share Data
Net Operating Income $1.92 $1.43
Capital Gains, net of tax $0.04 ($0.02)
Earnings Per Share $1.96 $1.41
Operating Ratios--GAAP Basis (b)
Loss Ratio 64.6% 66.8%
Expense Ratio 25.2% 24.3%
Combined Ratio 89.8% 91.1%
Quarter Ended September 30,
1997 1996
Net Premiums Written 289,269 206,306
Net Premiums Earned 267,212 193,299
Net Investment Income 22,225 17,340
Net Operating Income (a) 39,275 28,948
Capital Gains (Losses), net of tax 1,479 47
Net Income $40,754 $28,995
Average Shares Outstanding 55,007,811 54,821,398
Per Share Data
Net Operating Income $0.71 $0.53
Capital Gains, net of tax $0.03 $0.00
Earnings Per Share $0.74 $0.53
Operating Ratios--GAAP Basis (b)
Loss Ratio 62.3% 65.6%
Expense Ratio 26.1% 23.9%
Combined Ratio 88.4% 89.5%
(a) Net Income, excluding capital gains, net of tax.
(b) Generally Accepted Accounting Principles
SOURCE Mercury General Corporation