UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

____________________

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported): April 30, 2012

 

MERCURY GENERAL CORPORATION

 

(Exact Name of Registrant as Specified in Charter)

 

   California            001-12257            95-221-1612   
(State or Other Jurisdiction of Incorporation) (Commission
File Number)
(I.R.S. Employer
Identification No.)

 

4484 Wilshire Boulevard
Los Angeles, California 90010

 

(Address of Principal Executive Offices)

____________________

 

(323) 937-1060

 

(Registrant’s telephone number, including area code)

____________________

 

Not applicable

 

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14.a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 
 

 

Item 2.02. Results of Operations and Financial Condition

 

The following information is furnished pursuant to Item 2.02, “Results of Operations and Financial Condition,” and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section. Such information, including Exhibit 99.1, shall not be incorporated by reference into any filing of Mercury General Corporation (the “Company”), whether made before or after the date hereof, regardless of any general incorporation language in such filing.

 

On April 30, 2012, the Company issued a press release announcing its financial results for the first quarter ended March 31, 2012. A copy of the press release is attached hereto as Exhibit 99.1.

 

Item 9.01. Financial Statements and Exhibits

 

(d) Exhibits .

 

99.1 Press Release, dated April 30, 2012, issued by Mercury General Corporation, furnished pursuant to Item 2.02 of Form 8-K.

 

 
 

SIGNATURES

 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

  MERCURY GENERAL CORPORATION
 Date: April 30, 2012  
  By:  /s/ Theodore Stalick
  Name:    Theodore Stalick 
  Its:  Chief Financial Officer 
     

 
 

Mercury General Corporation Announces First Quarter Results and Declares Quarterly Dividend

LOS ANGELES, April 30, 2012 /PRNewswire/ -- Mercury General Corporation (NYSE: MCY) reported today for the first quarter of 2012:

Consolidated Highlights



Three Months Ended




March 31,

Change


2012

2011

$

%

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


Net premiums written (1)

$ 658,287

$  658,217

$         70

0.0

Net income 

$   73,356

$    58,226

$ 15,130

26.0

Net income per diluted share

$        1.34

$         1.06

$      0.28

26.4

Operating income (1) 

$   39,125

$    39,578

$     (453)

(1.1)

Operating income per diluted share (1)

$        0.71

$         0.72

$    (0.01)

(1.4)

Combined ratio

97.6%

98.2%

-

(0.6) 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."

Net income in the first quarter 2012 was $73.4 million ($1.34 per diluted share) compared to $58.2 million ($1.06 per diluted share) for the same period in 2011. Included in net income are net realized investment gains from the application of the fair value option, net of tax, of $34.2 million ($0.62 per diluted share) in the first quarter of 2012 compared to $18.6 million ($0.34 per diluted share) for the same period in 2011. Gains, net of tax, from the sale of securities were $2.2 million during the first quarter. Operating income was $39.1 million ($0.71 per diluted share) for the first quarter of 2012 compared to $39.6 million ($0.72 per diluted share) for the same period in 2011. Net premiums written were $658.3 million in the first quarter of 2012, essentially the same as the corresponding period in 2011.

The Company's combined ratio (GAAP basis) was 97.6% in the first quarter of 2012 compared with 98.2% for the same period in 2011. The Company experienced unfavorable development of approximately $6 million and $1 million on prior accident years' losses and loss adjustment expenses reserves for the three months ended March 31, 2012 and 2011, respectively.

Net investment income of $31.5 million (after tax, $28.0 million) in the first quarter of 2012 decreased by 10.3% compared to the same period in 2011. The investment income after-tax yield was 3.8% on average investments (fixed maturities at amortized cost, equities and short-term investments at cost) of $3.0 billion for the first quarter 2012. This compares with an investment income after-tax yield of 4.1% on average investments of $3.0 billion for the same period in 2011.

The Board of Directors declared a quarterly dividend of $0.61 per share. The dividend is to be paid on June 28, 2012 to shareholders of record on June 14, 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 May 7, 2012. The replay telephone numbers are (855) 859-2056 (USA) or (404) 537-3406 (International). The conference ID# is 69609998. 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



March 31,




Total


Per diluted share 









2012

2011


2012


2011

(000's except per-share amounts)







Operating income

$ 39,125

$ 39,578


$ 0.71


$ 0.72

Net realized investment gains, net of tax

34,231

18,648


0.62


0.34

Net income

$ 73,356

$ 58,226


$ 1.34 (1)


$ 1.06



(1)

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.



Three Months Ended



March 31,



2012


2011






Combined ratio-accident period basis


96.7%


98.0%

Effect of estimated prior periods' loss development


0.9%


0.2%

Combined ratio 


97.6%


98.2%



MERCURY GENERAL CORPORATION AND SUBSIDIARIES

SUMMARY OF OPERATING RESULTS

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

(unaudited)






Three Months Ended March 31,


2012


2011

Net premiums written

$  658,287


$  658,217





Revenues:




     Net premium earned

$  635,812


$  638,487

     Net investment income

31,486


35,096

     Net realized investment gains

52,663


28,690

     Other

2,714


3,270

          Total revenues

$  722,675


$  705,543

Expenses:




     Losses and loss adjustment expenses

449,916


446,461

     Policy acquisition costs

117,430


121,804

     Other operating expenses

52,925


58,672

     Interest

410


1,695

          Total expenses

$  620,681


$  628,632





Income before income taxes

$  101,994


$    76,911

     Income tax expense

28,638


18,685

                    Net income

$    73,356


$    58,226





Basic average shares outstanding

54,877


54,809

Diluted average shares outstanding

54,908


54,831









Basic Per Share Data




Net income 

$       1.34


$       1.06





Net realized investment gains, net of tax 

$       0.62


$       0.34









Diluted Per Share Data




Net income

$       1.34


$       1.06





Net realized investment gains, net of tax 

$       0.62


$       0.34









Operating Ratios-GAAP Basis




Loss ratio

70.8%


69.9%

Expense ratio

26.8%


28.3%

Combined ratio

97.6%


98.2%









Reconciliations of Operating Measures to Comparable GAAP Measures 








Net premiums written

$  658,287


$  658,217

Change in unearned premiums

(22,475)


(19,730)

Net premiums earned 

$  635,812


$  638,487





Paid losses and loss adjustment expenses

$  480,522


$  490,010

Change in net loss and loss adjustment expense reserves

(30,606)


(43,549)

Incurred losses and loss adjustment expenses 

$  449,916


$  446,461

MERCURY GENERAL CORPORATION AND SUBSIDIARIES

CONDENSED BALANCE SHEETS AND OTHER INFORMATION

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








March 31, 2012


December 31, 2011

ASSETS


(unaudited)








Investments, at fair value:





       Fixed maturities trading (amortized cost $2,364,561; $2,345,620)


$         2,485,594


$                2,445,589

       Equity securities trading (cost $385,990; $388,417)


406,456


380,388

       Short-term investments (cost $227,340; $236,433)


227,196


236,444

               Total investments


3,119,246


3,062,421






Cash


204,701


211,393

Receivables:





       Premiums


309,910


288,799

       Accrued investment income


33,649


32,541

       Other


11,565


11,320

               Total receivables


355,124


332,660






Deferred policy acquisition costs


175,392


171,430

Fixed assets, net


172,422


177,760

Deferred income taxes


0


6,511

Goodwill


42,850


42,850

Other intangible assets, net


52,201


53,749

Other assets


14,843


11,232

               Total assets


$         4,136,779


$                4,070,006






LIABILITIES AND SHAREHOLDERS' EQUITY










Losses and loss adjustment expenses


$            954,386


$                   985,279

Unearned premiums


865,982


843,427

Notes payable


140,000


140,000

Accounts payable and accrued expenses


99,420


94,743

Current income taxes


5,292


67

Deferred income taxes


9,915


0

Other liabilities


163,224


149,007

Shareholders' equity


1,898,560


1,857,483

               Total liabilities and shareholders' equity


$         4,136,779


$                4,070,006






OTHER INFORMATION











Common stock-shares outstanding


54,883


54,856

Book value per share


$               34.59


$                      33.86

Estimated statutory surplus 


$1.5 billion


$1.5 billion

Estimated premiums written to surplus ratio


1.7


1.7

Debt to total capital ratio


6.9%


7.0%

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


3.2  years


3.3  years

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





       Personal Auto PIF


1,237


1,236

       Homeowners PIF


406


394







(a)     Unaudited.







CONTACT: Theodore Stalick, VP/CFO of Mercury General Corporation, +1-323-937-1060