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): February 7, 2014

 

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:

  

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

  

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

  

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

  

  c 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 February 10, 2014, the Company issued a press release announcing its financial results for the fourth quarter and fiscal year ended December 31, 2013. A copy of the press release is attached hereto as Exhibit 99.1.

 

Item 5.02.           Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers

 

Appointment of Director

 

On February 7, 2014, the Board of Directors of the Company (the “Board”) appointed James Ellis as a director of the Company and concurrently expanded the size of the Board to 10 directors.  Mr. Ellis has not been appointed to any committees of the Board of Directors.

 

As a member of the Board, Mr. Ellis is eligible to participate in the Company’s director compensation program, which is described in more detail below and in the attached Exhibit 10.1. There are no other understandings or arrangements between Mr. Ellis or any other person and the Company or any of its subsidiaries pursuant to which Mr. Ellis was appointed to serve as a director. There are no transactions between Mr. Ellis or any of his immediate family members and the Company or any of its subsidiaries that would be required to be reported under Item 404(a) of Regulation S-K.

 

Director Stock Compensation Program

 

On February 7, 2014, the Board also approved an amendment to the Company’s director compensation arrangements. The changes to the director compensation arrangements are effective as of January 1, 2014. A tabular presentation comparing the current and prior director compensation arrangements is filed herewith as Exhibit 10.1.

 

Item 9.01. Financial Statements and Exhibits

 

(d) Exhibits .

 

 

10.1   Director Compensation Arrangements
99.1   Press Release, dated February 10, 2014, 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: February 10, 2014  
  By: /s/ Theodore Stalick
  Name: Theodore Stalick
  Its: Chief Financial Officer
     

 

 

 

EXHIBIT 10.1

MERCURY GENERAL CORPORATION BOARD FEES

 

 

 

  PRIOR FEES NEW FEES
Director Compensation - Board Fee $4,000 per quarter $4,000 per quarter
Director Compensation - Meeting Attendance

$4,000 per meeting held in person or telephonically

 

lasting 1 hour or more

 

$4,000 per meeting held in person or telephonically

 

lasting 1 hour or more

 

 

$500 per meeting held telephonically lasting less

 

than 1 hour

 

$500 per meeting held telephonically lasting less

 

than 1 hour

 

     
Audit Committee    
Meeting Attendance (Chair) $3,500 per meeting $5,000 per meeting
Meeting Attendance (Non Chair) $2,500 per meeting $3,000 per meeting
Annual Retainer (Chair) $4,000 $5,000
     
Compensation Committee    
Meeting Attendance (Chair) $500 per meeting $2,000 per meeting
Meeting Attendance (Non Chair) $500 per meeting $1,500 per meeting
Annual Retainer (Chair) $2,500 $4,000
     
Nominating/Corporate Governance Committee    
Meeting Attendance (Chair) $1,500 per meeting $1,500 per meeting
Meeting Attendance (Non Chair) $1,000 per meeting $1,000 per meeting
Annual Retainer (Chair) $1,500 $2,000
     
Investment Committee    
Meeting Attendance (Chair) $1,500 per meeting $2,000 per meeting
     
Lead Director - Annual Retainer $10,000 $15,000

 

 

Mercury General Corporation Announces Fourth Quarter and Fiscal 2013 Results, Declares Quarterly Dividend, and Announces New Director

LOS ANGELES, Feb. 10, 2014 /PRNewswire/ -- Mercury General Corporation (NYSE: MCY) reported today fourth quarter and fiscal 2013 results:

Consolidated Highlights



Three Months Ended
December 31,


Change


Twelve Months Ended
December 31,


Change


2013


2012


$


%


2013


2012


$


%

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















Net premiums written (1)

$

668,121


$

654,931


$

13,190


2.0


$

2,728,999


$

2,651,731


$

77,268


2.9

Net income (loss)

$

15,376


$

(17,382)


$

32,758


(188.5)


$

112,143


$

116,911


$

(4,768)


(4.1)

Net income (loss) per diluted share (2)

$

0.28


$

(0.32)


$

0.60


(187.5)


$

2.04


$

2.13


$

(0.09)


(4.2)

Operating income (loss) (1)

$

18,150


$

(9,403)


$

27,553


(293.0)


$

119,567


$

73,764


$

45,803


62.1

Operating income (loss) per diluted share (1)(2)

$

0.33


$

(0.17)


$

0.50


(294.1)


$

2.18


$

1.34


$

0.84


62.7

Restructuring charges (3)

$

0


$

0


$

0


0


$

10,000


$

0


$

10,000


NM

Catastrophe losses (4)

$

1,000


$

28,000


$

(27,000)


(96.4)


$

17,000


$

39,000


$

(22,000)


(56.4)

Combined ratio (5)

102.5%


109.8%



(7.3) pts


99.6%


102.8%



(3.2) 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 net loss position 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 Hurricane Sandy during the fourth quarter. The amounts are rounded to the nearest million.

(5)

The Company experienced unfavorable development of approximately $5 million and $9 million on prior accident years' losses and loss adjustment expenses reserves for the three months ended December 31, 2013 and 2012, respectively; and approximately $3 million and $42 million on prior accident years' losses and loss adjustment expenses reserves for the year ended December 31, 2013 and 2012, respectively. The unfavorable development in 2013 is primarily from the Florida private passenger automobile line of business.

Investment Results



Three Months Ended December 31,


Twelve Months Ended December 31,


2013


2012


2013


2012

(000's except average annual yield)









Average invested assets at cost (1)

$

2,986,146


$

3,040,026


$

3,028,198


$

3,011,143

Net investment income (2)








     Before income taxes

$

30,832


$

35,327


$

124,538


$

131,896

     After income taxes

$

27,234


$

30,450


$

109,506


$

115,359

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

3.7%


4.0%


3.6%


3.8%



(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 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.

Appoints James Ellis to the Board of Directors

On February 7, 2014, the Board of Directors appointed James Ellis to the Board of Directors. Mr. Ellis serves as the Dean of the Marshall School of Business at the University of Southern California and holder of the Robert R. Dockson Dean's Chair in Business Administration. Prior to his appointment as Dean in April 2007, Mr. Ellis was the Vice Provost, Globalization, for USC and prior to that he was Vice Dean, External Relations. Mr. Ellis has been a professor in the Marketing Department of the Marshall School of Business since 1997. From 1990 to 1997, he served as Chairman and CEO of Port O'Call Pasadena, an upscale home accessory retailer and was President and CEO of American Porsche Design from 1985 to 1990. Mr. Ellis graduated from the University of New Mexico with a B.B.A. and from Harvard Business School with an M.B.A. Mr. Ellis also serves on the board of directors of Quiksilver, Inc., and Fixed Income Funds and Investment Company of America, both investment funds of The Capital Group, a private company. The Company believes that Mr. Ellis' extensive experience in executive management and senior academic positions qualify him for service on the Board of Directors.

The Board of Directors declared a quarterly dividend of $0.6150 per share. The dividend will be paid on March 31, 2014 to shareholders of record on March 17, 2014.

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 17, 2014. The replay telephone numbers are (855) 859-2056 (USA) or (404) 537-3406 (International). The conference ID# is 31104721. 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 December 31,


Twelve Months Ended December 31,


2013


2012


2013


2012

Net premiums written

$

668,121


$

654,931


$

2,728,999


$

2,651,731









Revenues:








     Net premium earned

$

680,892


$

655,777


$

2,698,187


$

2,574,920

     Net investment income

30,832


35,327


124,538


131,896

     Net realized investment (losses) gains

(4,269)


(12,276)


(11,422)


66,380

     Other

2,199


2,384


9,738


10,174

          Total revenues

$

709,654


$

681,212


$

2,821,041


$

2,783,370

Expenses:








     Losses and loss adjustment expenses

516,166


546,352


1,962,690


1,961,448

     Policy acquisition costs

128,511


120,726


505,517


477,788

     Other operating expenses

53,313


52,928


219,478


207,281

     Interest

396


367


1,260


1,543

          Total expenses

$

698,386


$

720,373


$

2,688,945


$

2,648,060









Income (loss) before income taxes

11,268


(39,161)


132,096


135,310

     Income tax (benefit) expense

(4,108)


(21,779)


19,953


18,399

                    Net income (loss)

$

15,376


$

(17,382)


$

112,143


$

116,911









Basic average shares outstanding

54,967


54,914


54,947


54,899

Diluted average shares outstanding (a)

54,983


54,914


54,964


54,922









Basic Per Share Data








Net income (loss)

$

0.28


$

(0.32)


$

2.04


$

2.13









Net realized investment (losses) gains, net of tax

$

(0.05)


$

(0.15)


$

(0.14)


$

0.79









Diluted Per Share Data (a)








Net income (loss)

$

0.28


$

(0.32)


$

2.04


$

2.13









Net realized investment (losses) gains, net of tax

$

(0.05)


$

(0.15)


$

(0.14)


$

0.79









Operating Ratios-GAAP Basis








Loss ratio

75.8%


83.3%


72.7%


76.2%

Expense ratio

26.7%


26.5%


26.9%


26.6%

Combined ratio

102.5%


109.8%


99.6%


102.8%









Reconciliations of Operating Measures to Comparable GAAP Measures















Net premiums written

$

668,121


$

654,931


$

2,728,999


$

2,651,731

Change in net unearned premiums

12,771


846


(30,812)


(76,811)

Net premiums earned

$

680,892


$

655,777


$

2,698,187


$

2,574,920









Paid losses and loss adjustment expenses

$

489,962


$

493,760


$

1,961,601


$

1,914,838

Change in net loss and loss adjustment expense reserves

26,204


52,592


1,089


46,610

Incurred losses and loss adjustment expenses

$

516,166


$

546,352


$

1,962,690


$

1,961,448



(a)

The dilutive impact of incremental shares is excluded from net loss position 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, 2013


December 31, 2012


(unaudited)



ASSETS




Investments, at fair value:




     Fixed maturity securities (amortized cost $2,523,042; $2,270,903)

$

2,560,653


$

2,408,354

     Equity securities (cost $223,933; $475,959)

281,883


477,088

     Short-term investments (cost $315,886; $294,607)

315,776


294,653

          Total investments

3,158,312


3,180,095

Cash

266,508


158,183

Receivables:




     Premiums

366,075


345,387

     Accrued investment income

36,120


31,109

     Other

23,029


17,756

          Total receivables

425,224


394,252

Deferred policy acquisition costs

194,466


185,910

Fixed assets, net

156,716


161,940

Current income taxes

0


7,058

Deferred income taxes

15,220


0

Goodwill

42,796


42,796

Other intangible assets, net

41,603


47,589

Other assets

14,336


11,863

          Total assets

$

4,315,181


$

4,189,686





LIABILITIES AND SHAREHOLDERS' EQUITY




Losses and loss adjustment expenses

$

1,038,984


$

1,036,123

Unearned premiums

953,527


920,429

Notes payable

190,000


140,000

Accounts payable and accrued expenses

127,663


96,220

Current income taxes

11,856


0

Deferred income taxes

0


445

Other liabilities

170,665


153,972

Shareholders' equity

1,822,486


1,842,497

          Total liabilities and shareholders' equity

$

4,315,181


$

4,189,686





OTHER INFORMATION




Common stock shares outstanding

54,975


54,922

Book value per share

$33.15


$33.55

Statutory surplus

$1.53 billion


$1.44 billion

Premiums written to surplus ratio

1.8


1.8

Debt to total capital ratio

9.4%


7.1%

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

3.6 years


2.8 years

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




     Personal Auto PIF

1,217


1,249

     Homeowners PIF

465


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 December 31,


Twelve Months Ended December 31,


Total


Per diluted share


Total


Per diluted share


2013


2012


2013


2012 (a)


2013


2012


2013

2012

(000's except per-share amounts)















Operating income (loss)

$

18,150


$

(9,403)


$

0.33


$

(0.17)


$

119,567


$

73,764


$

2.18


$

1.34

Net realized investment (losses) gains, net of tax

(2,774)


(7,979)


(0.05)


(0.15)


(7,424)


43,147


(0.14)


0.79

Net income (loss)

$

15,376


$

(17,382)


$

0.28


$

(0.32)


$

112,143


$

116,911


$

2.04


$

2.13



(a)

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

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,


2013


2012





Combined ratio-accident period basis

99.5%


101.2%

Effect of estimated prior periods' loss development

0.1%


1.6%

Combined ratio

99.6%


102.8%



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