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Press Release

Mercury General Corporation Announces Fourth Quarter Results and Declares Quarterly Dividend

PR Newswire

LOS ANGELES, Feb. 6, 2012 /PRNewswire/ -- Mercury General Corporation (NYSE: MCY) reported today for the fourth quarter of 2011:

Consolidated Highlights


Three Months

Ended




Twelve Months

Ended




December 31,

Change


December 31,

Change


2011

2010

$

%


2011

2010

$

%

(000's except

per-share

amounts and ratios)




Net premiums

written (1)

$ 618,593

$ 617,220

$     1,373

0.2


$ 2,575,383

$ 2,555,481

$  19,902

0.8

Net income (loss)

$   79,469

$ (23,647)

$ 103,116

436.1


$    191,164

$    152,198

$  38,966

25.6

Net income (loss)

per diluted share (3)

$       1.45

$     (0.43)

$       1.88

437.2


$          3.49

$          2.78

$      0.71

25.5

Operating

income (loss) (1)

$   32,109

$   (8,254)

$   40,363

489.0


$    153,206

$    115,090

$  38,116

33.1

Operating income

(loss) per

diluted share (1)

$       0.59

$     (0.15)

$       0.74

493.3


$          2.79

$          2.10

$      0.69

32.9

Costs related in

support of

California

Proposition 17 (2)

$             -

$             -

$             -

-


$                -

$      12,100

$ (12,100)

-

Combined

ratio

99.4%   

109.9%  

-

(10.5) pts   


98.5%  

100.7%  

-

(2.2) pts  



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 Company supported the Continuous Coverage Auto Insurance Discount Act.

3.

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



Net income in the fourth quarter 2011 was $79.5 million ($1.45 per diluted share) compared with net loss of $23.6 million ($0. 43 per diluted share) for the same period in 2010. For the year, net income was $191.2 million ($3.49 per diluted share) compared with net income of $152.2 million ($2.78 per diluted share) for the same period in 2010. Included in net income are net realized investment gains, net of tax, of $47.4 million ($0.86 per diluted share) in the fourth quarter of 2011 compared with net realized investment losses, net of tax, of $15.4 million ($0.28 per diluted share) for the same period in 2010, and net realized investment gains, net of tax, of $38.0 million ($0.69 per diluted share) for the year compared with net realized investment gains, net of tax, of $37.1 million ($0.68 per diluted share) for the same period in 2010. Operating income was $32.1 million ($0.59 per diluted share) for the fourth quarter of 2011 compared with operating loss of $8.3 million ($0.15 per diluted share) for the same period in 2010. For the year, operating income was $153.2 million ($2.79 per diluted share) compared with operating income of $115.1 million ($2.10 per diluted share) for the same period in 2010.  

Net premiums written were $618.6 million in the fourth quarter of 2011, a 0.2% increase compared to the fourth quarter 2010 net premiums written of $617.2 million, and were approximately $2.6 billion for the year, a 0.8% increase compared to the same period in 2010. Net realized investment gains, net of tax, of $47.4 million and $38.0 million for the fourth quarter and for the year, respectively, include gains, net of tax, of $35.2 million and $20.3 million, respectively, from the application of the fair value option. Gains, net of tax, from the sale of securities were $12.2 million and $17.1 million during the fourth quarter and the year, respectively.

The Company's combined ratio (GAAP basis) was 99.4% in the fourth quarter of 2011 and 98.5% for the year compared with 109.9% and 100.7% for the same periods in 2010. The Company experienced unfavorable development of approximately $18 million and favorable development of approximately $13 million on prior accident years' losses and loss adjustment expenses reserves for the year ended December 31, 2011 and 2010, respectively. The unfavorable development in 2011 is largely the result of re-estimates of California bodily injury losses which have experienced higher average severities than were originally estimated at December 31, 2010. The Company recognized approximately $10 million of pre-tax losses in the fourth quarter of 2011 as a result of severe windstorms in California. Results in the fourth quarter of 2010 were negatively impacted by an estimated $25 million of pre-tax losses caused by severe rainstorms in California and a pre-tax underwriting loss of $19 million in Florida primarily as a result of homeowners sinkhole claims.

Net investment income of $34.3 million (after tax, $30.2 million) in the fourth quarter of 2011 decreased by 3.2% compared to the same period in 2010. The investment income after-tax yield was 4.1% on average investments (fixed maturities at amortized cost, equities and short-term investments at cost) of $3.0 billion for the fourth quarter 2011. This compares with an investment income after-tax yield of 4.1% on average investments of $3.1 billion for the same period in 2010. Net investment income for the year was $140.9 million (after tax $124.7 million), a decrease of 2.0% compared to the same period in 2010. The investment income after-tax yield was 4.2% on average assets of $3.0 billion for the year. This compares with an investment income after-tax yield of 4.1% on average investments of $3.1 billion for the same period in 2010.

The Board of Directors declared a quarterly dividend of $0.61 per share. The dividend is to be paid on March 29, 2012 to shareholders of record on March 15, 2012.

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 13, 2012. The replay telephone numbers are (855) 859-2056 (USA) or (404) 537-3406 (International). The conference ID# is 42147858. 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 the impact of current economic conditions on the Company's market and investment portfolio; the accuracy and adequacy of the Company's pricing methodologies; adverse weather conditions or natural disasters in the markets served by the Company; general 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 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 California or other states; the Company's success in managing its business in states outside of California; 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 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.

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 net effect of 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


Twelve Months Ended



December 31,




December 31,




Total

Per diluted share


Total

Per diluted share













2011

2010

2011

2010(a)


2011

2010

2011


2010

(000's except per-share amounts)











Operating income (loss)

$      32,109

$      (8,254)

$          0.59

$        (0.15)


$    153,206

$    115,090

$          2.79


$          2.10

Net realized investment gains (losses), net of tax

47,360

(15,393)

0.86

(0.28)


37,958

37,108

0.69


0.68

Net income (loss)

$      79,469

$    (23,647)

$          1.45

$        (0.43)


$    191,164

$    152,198

$          3.49

(b)

$          2.78



(a)

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

(b)

Net income per diluted share does not sum due to rounding.



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,



2011


2010






Combined ratio-accident period basis


97.8%


101.2%

Effect of estimated prior periods' loss development


0.7%


(0.5)%

Combined ratio


98.5%


100.7%



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,


2011


2010


2011


2010

Net premiums written

$ 618,593


$ 617,220


$ 2,575,383


$ 2,555,481









Revenues:








    Net premium earned

$ 641,613


$ 640,796


$ 2,566,057


$ 2,566,685

    Net investment income

34,316


35,461


140,947


143,814

    Net realized investment gains (losses)

72,862


(23,681)


58,397


57,089

    Other

663


3,063


11,884


8,297

         Total revenues

$ 749,454


$ 655,639


$ 2,777,285


$ 2,775,885

Expenses:








    Losses and loss adjustment expenses

472,876


514,969


1,829,205


1,825,766

    Policy acquisition costs

116,072


125,257


481,721


505,565

    Other operating expenses

48,914


63,807


215,711


255,358

    Interest

899


1,703


5,549


6,806

         Total expenses

$ 638,761


$ 705,736


$ 2,532,186


$ 2,593,495









Income (loss) before income taxes

$ 110,693


$ (50,097)


$    245,099


$    182,390

    Income tax expense (benefit)

31,224


(26,450)


53,935


30,192

                   Net income (loss)

$   79,469


$ (23,647)


$    191,164


$    152,198









Basic average shares outstanding

54,845


54,802


54,825


54,792

Diluted average shares outstanding (a)

54,873


54,802


54,845


54,826

















Basic Per Share Data








Net income (loss)

$       1.45


$     (0.43)


$          3.49


$          2.78









Net realized investment gains (losses), net of tax

$       0.86


$     (0.28)


$          0.69


$          0.68

















Diluted Per Share Data (a)








Net income (loss)

$       1.45


$     (0.43)


$          3.49


$          2.78









Net realized investment gains (losses), net of tax

$       0.86


$     (0.28)


$          0.69


$          0.68

















Operating Ratios-GAAP Basis








Loss ratio

73.7%


80.4%


71.3%


71.1%

Expense ratio

25.7%


29.5%


27.2%


29.6%

Combined ratio

99.4%


109.9%


98.5%


100.7%

















Reconciliations of Operating Measures to Comparable GAAP Measures
















Net premiums written

$ 618,593


$ 617,220


$ 2,575,383


$ 2,555,481

Change in unearned premiums

23,020


23,576


(9,326)


11,204

Net premiums earned

$ 641,613


$ 640,796


$ 2,566,057


$ 2,566,685









Paid losses and loss adjustment expenses

$ 467,581


$ 464,565


$ 1,879,247


$ 1,843,952

Change in net loss and loss adjustment expense reserves

5,295


50,404


(50,042)


(18,186)

Incurred losses and loss adjustment expenses

$ 472,876


$ 514,969


$ 1,829,205


$ 1,825,766









(a) The dilutive impact of incremental shares is excluded from loss positions in accordance with GAAP.



MERCURY GENERAL CORPORATION AND SUBSIDIARIES

CONDENSED BALANCE SHEETS AND OTHER INFORMATION

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












December 31, 2011


December 31, 2010

ASSETS

(unaudited)










Investments, at fair value:





Fixed maturities trading (amortized cost $2,345,620; $2,617,656)

$               2,445,589


$               2,652,280


Equity securities trading (cost $388,417; $336,757)

380,388


359,606


Short-term investments (cost $236,433; $143,378)

236,444


143,371



Total investments

3,062,421


3,155,257








Cash



211,393


181,388

Receivables:






Premiums


288,799


280,980


Accrued investment income

32,541


36,885


Other


11,320


10,076



Total receivables

332,660


327,941








Deferred policy acquisition costs

171,430


170,579

Fixed assets, net

177,760


196,505

Current income taxes

0


25,719

Deferred income taxes

6,511


26,499

Goodwill



42,850


42,850

Other intangible assets, net

53,749


60,124

Other assets


11,232


16,502



Total assets

$               4,070,006


$               4,203,364








LIABILITIES AND SHAREHOLDERS' EQUITY











Losses and loss adjustment expenses

$                  985,279


$               1,034,205

Unearned premiums

843,427


833,379

Notes payable


140,000


267,210

Accounts payable and accrued expenses

94,743


106,662

Current income taxes

67


0

Other liabilities


149,007


167,093

Shareholders' equity

1,857,483


1,794,815



 Total liabilities and shareholders' equity

$               4,070,006


$               4,203,364








OTHER INFORMATION











Common stock-shares outstanding

54,856


54,803

Book value per share

$                      33.86


$                      32.75

Estimated statutory surplus

$1.5 billion


$1.3 billion

Estimated premiums written to surplus ratio

1.7


1.9

Debt to total capital ratio

7.0%


13.0%

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

3.3  years


4.5  years

Policies-in-Force (Company-wide "PIF") (a)





 Personal Auto PIF

1,236


1,261


 Homeowners PIF

394


361

(a)   Unaudited.  



SOURCE Mercury General Corporation

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