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): July 29, 2013

 

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 July 29, 2013 , the Company issued a press release announcing its financial results for the second quarter ended June 30, 2013. 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 July 29, 2013, 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: July 29, 2013  
  By:  /s/ Theodore Stalick
  Name: Theodore Stalick 
  Its:  Chief Financial Officer 
     

 

 

Mercury General Corporation Announces Second Quarter Results and Declares Quarterly Dividend

LOS ANGELES, July 29, 2013 /PRNewswire/ -- Mercury General Corporation (NYSE: MCY) reported today for the second quarter of 2013:

Consolidated Highlights



Three Months Ended
June 30,

Change


Six Months Ended
June 30,

Change


2013

2012

$

%


2013

2012

$

%

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








Net premiums written (1)

$

665,479


$

653,633


$

11,846


1.8



$

1,355,983


$

1,311,920


$

44,063


3.4


Net (loss) income

$

(9,264)


$

(5,264)


$

(4,000)


76.0



$

57,197


$

68,092


$

(10,895)


(16.0)


Net (loss) income per diluted share (2)

$

(0.17)


$

(0.10)


$

(0.07)


70.0



$

1.04


$

1.24


$

(0.20)


(16.1)


Operating income (1)

$

34,556


$

10,180


$

24,376


239.4



$

72,384


$

49,305


$

23,079


46.8


Operating income per diluted share (1)

$

0.63


$

0.19


$

0.44


231.6



$

1.32


$

0.90


$

0.42


46.7


Restructuring charges (3)

$

0


$

0


$

0


0



$

10,000


$

0


$

10,000


NM


Catastrophe losses (4)

$

13,000


$

8,000


$

5,000


62.5



$

14,000


$

8,000


$

6,000


75.0


Combined ratio (5)

98.7

%

104.5

%


(5.8)

pts


98.3

%

101.1

%


(2.8)

pts

NM = not meaningful

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

(3)

The Company consolidated its claims and underwriting operations located outside of California into hub locations in Florida, New Jersey, and Texas, which resulted in a net workforce reduction of approximately 135 employees and a $10 million expense in the first quarter of 2013. The amounts are rounded to the nearest million.

(4)

2013 catastrophe losses were primarily the result of tornadoes in Oklahoma and severe storms in the Midwest and the Southeast region during the second quarter. 2012 catastrophe losses were primarily the result of wind and hail storms in the Midwest region. The amounts are rounded to the nearest million.

(5)

The Company experienced no development and unfavorable development of approximately $23 million on prior accident years' losses and loss adjustment expenses reserves for the three months ended June 30, 2013 and 2012, respectively, and favorable development of approximately $3 million and unfavorable development of approximately $29 million on prior accident years' losses and loss adjustment expenses reserves for the six months ended June 30, 2013 and 2012, respectively. The year-to-date favorable development in 2013 is primarily from non-California states.

Investment Results






Three Months Ended June 30,


Six Months Ended June 30,


2013

2012


2013

2012

(000's except average annual yield)





Average invested assets at cost (1)

$

3,046,790


$

2,996,602



$

3,050,372


$

2,992,590


Net investment income (2)






Before income taxes

$

31,674


$

31,673



$

62,850


$

63,159


After income taxes

$

27,787


$

27,990



$

55,058


$

56,028


Average annual yield on investments - after income taxes (2)

3.7

%

3.7

%


3.6

%

3.7

%







Net realized investment (losses) gains:






     Fixed maturity securities (3)

$

(59,903)


$

10,208



$

(70,762)


$

31,293


     Equity securities

(7,849)


(33,710)



46,990


(3,193)


     Short-term investments

(624)


(625)



(772)


(780)


     Others

961


368



1,179


1,584


Total

$

(67,415)


$

(23,759)



$

(23,365)


$

28,904


(1)

Fixed maturities and short-term bonds at amortized cost and 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 respective period.

(2)

Net investment income and average annual yield for the six months ended June 30, 2013 slightly decreased primarily due to the maturity and replacement of higher yielding investments, purchased when market interest rates were higher, with lower yielding investments purchased during low interest rate environments.

(3)

Net realized investment losses on fixed maturity securities for the three and six months ended June 30, 2013 primarily related to mark to market adjustments on securities that continue to be held in the portfolio. The decrease in the fixed maturity portfolio primarily resulted from the increase in interest rates that occurred in the second quarter of 2013.

The Board of Directors declared a quarterly dividend of $0.6125 per share. The dividend will be paid on September 26, 2013 to shareholders of record on September 12, 2013.

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 August 5, 2013. The replay telephone numbers are (855) 859-2056 (USA) or (404) 537-3406 (International). The conference ID# is 16945973. 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 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 states outside of California; the presence of competitors with greater financial resources and the impact of competitive pricing and marketing efforts; 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.

MERCURY GENERAL CORPORATION AND SUBSIDIARIES

SUMMARY OF OPERATING RESULTS

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

(unaudited)






Three Months Ended June 30,


Six Months Ended June 30,


2013


2012


2013


2012

Net premiums written

$

665,479



$

653,633



$

1,355,983



$

1,311,920










Revenues:








Net premium earned

$

675,787



$

637,247



$

1,338,382



$

1,273,059


Net investment income

31,674



31,673



62,849



63,159


     Net realized investment (losses) gains

(67,415)



(23,759)



(23,365)



28,904


Other

2,521



2,544



4,854



5,258


Total revenues

$

642,567



$

647,705



$

1,382,720



$

1,370,380


Expenses:








Losses and loss adjustment expenses

486,906



497,251



953,966



947,167


Policy acquisition costs

126,393



117,726



250,115



235,156


Other operating expenses

54,015



51,203



112,078



104,128


Interest

212



378



526



788


Total expenses

$

667,526



$

666,558



$

1,316,685



$

1,287,239










(Loss) income before income taxes

(24,959)



(18,853)



66,035



83,141


     Income tax (benefit) expense

(15,695)



(13,589)



8,838



15,049


                    Net (loss) income

$

(9,264)



$

(5,264)



$

57,197



$

68,092










Basic average shares outstanding

54,941



54,895



54,931



54,886


Diluted average shares outstanding (a)

54,941



54,895



54,948



54,915










Basic Per Share Data








Net (loss) income

$

(0.17)



$

(0.10)



$

1.04



$

1.24










Net realized investment (losses) gains, net of tax

$

(0.80)



$

(0.28)



$

(0.28)



$

0.34










Diluted Per Share Data (a)








Net (loss) income

$

(0.17)



$

(0.10)



$

1.04



$

1.24










Net realized investment (losses) gains, net of tax

$

(0.80)



$

(0.28)



$

(0.28)



$

0.34










Operating Ratios-GAAP Basis








Loss ratio

72.1

%


78.0

%


71.3

%


74.4

%

Expense ratio

26.7

%


26.5

%


27.1

%


26.7

%

Combined ratio (b)

98.7

%


104.5

%


98.3

%


101.1

%









Reconciliations of Operating Measures to Comparable GAAP Measures















Net premiums written

$

665,479



$

653,633



$

1,355,983



$

1,311,920


Change in net unearned premiums

10,308



(16,386)



(17,601)



(38,861)


Net premiums earned

$

675,787



$

637,247



$

1,338,382



$

1,273,059










Paid losses and loss adjustment expenses

$

489,174



$

472,837



$

982,654



$

953,359


Change in net loss and loss adjustment expense reserves

(2,268)



24,414



(28,688)



(6,192)


Incurred losses and loss adjustment expenses

$

486,906



$

497,251



$

953,966



$

947,167


(a)

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

(b)

Combined ratios for the three and six months ended June 30, 2013 do not sum due to rounding.

MERCURY GENERAL CORPORATION AND SUBSIDIARIES

CONDENSED BALANCE SHEETS AND OTHER INFORMATION

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



June 30, 2013


December 31, 2012


(unaudited)



ASSETS




Investments, at fair value:




     Fixed maturity securities (amortized cost $2,413,895; $2,270,903)

$

2,482,052



$

2,408,354


     Equity securities (cost $492,573; $475,959)

528,725



477,088


     Short-term investments (cost $165,783; $294,607)

165,520



294,653


Total investments

3,176,297



3,180,095


Cash

180,331



158,183


Receivables:




Premiums

356,061



345,387


Accrued investment income

33,783



31,109


Other

17,846



17,756


Total receivables

407,690



394,252


Deferred policy acquisition costs

189,599



185,910


Fixed assets, net

154,884



161,940


Current income taxes

0



7,058


Deferred income taxes

17,689



0


Goodwill

42,796



42,796


Other intangible assets, net

44,593



47,589


Other assets

17,941



11,863


Total assets

$

4,231,820



$

4,189,686






LIABILITIES AND SHAREHOLDERS' EQUITY




Losses and loss adjustment expenses

$

1,007,036



$

1,036,123


Unearned premiums

938,112



920,429


Notes payable

140,000



140,000


Accounts payable and accrued expenses

116,561



96,220


Current income taxes

2,395



0


Deferred income taxes

0



445


Other liabilities

193,848



153,972


Shareholders' equity

1,833,868



1,842,497


Total liabilities and shareholders' equity

$

4,231,820



$

4,189,686






OTHER INFORMATION




Common stock shares outstanding

54,959



54,922


Book value per share

$33.37



$33.55


Statutory surplus

$1.50 billion



$1.44 billion


Premiums written to surplus ratio

1.8



1.8


Debt to total capital ratio

7.1

%


7.1

%

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

3.4 years



2.8 years


Policies-in-force (company-wide "PIF") (a)






Personal Auto PIF

1,246



1,249


Homeowners PIF

457



442


(a)

Unaudited.    

(b)

Modified durations reflecting anticipated early calls.

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 effect of net 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 June 30,


Six Months Ended June 30,


Total

Per diluted share


Total

Per diluted share


2013

2012

2013 (a)

2012 (a)


2013

2012

2013

2012

(000's except per-share amounts)










Operating income

$

34,556


$

10,180


$

0.63


$

0.19



$

72,384


$

49,305


$

1.32


$

0.90


Net realized investment (losses) gains, net of tax

(43,820)


(15,444)


(0.80)


(0.28)



(15,187)


18,787


(0.28)


0.34


Net (loss) income

$

(9,264)


$

(5,264)


$

(0.17)


$

(0.10)

(b)


$

57,197


$

68,092


$

1.04


$

1.24












(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.


Six Months Ended June 30,


2013


2012





Combined ratio-accident period basis

98.5

%


98.8

%

Effect of estimated prior periods' loss development

(0.2)

%


2.3

%

Combined ratio

98.3

%


101.1

%







CONTACT: Theodore Stalick, VP/CFO, (323) 937-1060