-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KsgpOUYd5LjsJvZQf2q9fGOcs5nuiiGkvFsmsP/typ7TsoZTpJjHPenGRy+uVBUu Y0Eb0qJmYHChPnjJqbqWBg== 0000898430-95-002293.txt : 19951202 0000898430-95-002293.hdr.sgml : 19951202 ACCESSION NUMBER: 0000898430-95-002293 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19950930 FILED AS OF DATE: 19951113 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MERCURY GENERAL CORP CENTRAL INDEX KEY: 0000064996 STANDARD INDUSTRIAL CLASSIFICATION: 6331 IRS NUMBER: 952211612 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-03681 FILM NUMBER: 95590377 BUSINESS ADDRESS: STREET 1: 4484 WILSHIRE BOULEVARD CITY: LOS ANGELES STATE: CA ZIP: 90010 BUSINESS PHONE: 2139371060 MAIL ADDRESS: STREET 1: LOS ANGELES 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10Q QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended September 30, 1995 Commission File No. 0-3681 MERCURY GENERAL CORPORATION (Exact name of registrant as specified in its charter) California 95-221-1612 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 4484 Wilshire Boulevard, Los Angeles, California 90010 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (213) 937-1060 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No_____ ----- At November 9, 1995, the Registrant had issued and outstanding an aggregate of 27,434,575 shares of its Common Stock. 1 PART 1 - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS MERCURY GENERAL CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (UNAUDITED) AMOUNTS EXPRESSED IN THOUSANDS, EXCEPT SHARE AMOUNTS
September 30, December 31, 1995 1994 ------------- ------------ ASSETS Investments: Fixed maturities available for sale (amortized cost $718,789 in 1995 and $656,782 in 1994)................ $ 738,672 $644,297 Equity securities available for sale (cost $112,462 in 1995 and $91,726 in 1994).......................... 113,264 84,622 Short-term cash investments, at cost, which approxi- mates market.......................................... 25,954 22,695 ---------- -------- Total investments................................ 877,890 751,614 Cash...................................................... 3,080 3,344 Receivables: Premiums receivable.................................... 58,333 48,741 Premium notes.......................................... 12,069 11,562 Accrued investment income.............................. 14,447 14,642 Other.................................................. 7,144 7,795 ---------- -------- 91,993 82,740 Deferred policy acquisition costs......................... 33,717 30,068 Fixed assets, net......................................... 27,988 27,579 Current income taxes...................................... 1,030 4,699 Deferred income taxes..................................... -- 10,190 Other assets.............................................. 1,339 1,459 ---------- -------- $1,037,037 $911,693 ========== ======== LIABILITIES AND SHAREHOLDERS' EQUITY Losses and loss adjustment expenses....................... $ 246,382 $227,499 Unearned premiums......................................... 168,109 148,654 Notes payable............................................. 25,000 25,000 Loss drafts payable....................................... 18,628 17,779 Accounts payable and accrued expenses..................... 26,899 21,925 Deferred income taxes..................................... 3,764 -- Other liabilities......................................... 14,133 13,675 ---------- -------- Total liabilities................................ 502,915 454,532 ---------- -------- Shareholders' equity: Common stock without par value or stated value. Authorized 30,000,000 shares; issued and outstanding 27,431,975 shares in 1995 and 27,415,275 shares in 1994................................................. 40,627 40,250 Net unrealized investment gains (losses)............... 13,445 (12,733) Unearned ESOP compensation............................. (3,324) (4,042) Retained earnings...................................... 483,374 433,686 ---------- -------- Total shareholders' equity....................... 534,122 457,161 ---------- -------- Commitments and contingencies.......................... $1,037,037 $911,693 ========== ========
2 MERCURY GENERAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) THREE MONTHS ENDED SEPTEMBER 30, AMOUNTS EXPRESSED IN THOUSANDS, EXCEPT PER SHARE DATA
1995 1994 -------- --------- Revenues: Earned premiums $157,179 $134,022 Net investment income 16,105 13,795 Premium finance fees 477 508 Net realized investment gains (losses) 110 (4,076) Other 377 309 -------- -------- Total revenues 174,248 144,558 -------- -------- Expenses: Losses and loss adjustment expenses 103,589 89,500 Policy acquisition costs 32,743 29,123 Other operating expenses 5,093 5,206 Interest 518 297 -------- -------- Total expenses 141,943 124,126 -------- -------- Income before income taxes 32,305 20,432 Income taxes 7,148 4,160 -------- -------- Net income $ 25,157 $ 16,272 ======== ======== EARNINGS PER SHARE (average shares outstanding 27,318,890 in 1995 and 27,244,664 in 1994) $ .92 $ .60 ======== ======== Dividends declared per share $ .20 $ .175 ======== ========
3 MERCURY GENERAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) NINE MONTHS ENDED SEPTEMBER 30, AMOUNTS EXPRESSED IN THOUSANDS, EXCEPT PER SHARE DATA
1995 1994 -------- --------- Revenues: Earned premiums $453,587 $388,575 Net investment income 46,321 40,590 Premium finance fees 1,382 1,473 Net realized investment gains (losses) 858 (9,407) Other 1,080 919 -------- -------- Total revenues 503,228 422,150 -------- -------- Expenses: Losses and loss adjustment expenses 307,842 258,529 Policy acquisition costs 94,212 82,353 Other operating expenses 16,189 16,669 Interest 1,552 704 -------- -------- Total expenses 419,795 358,255 -------- -------- Income before income taxes 83,433 63,895 Income taxes 17,369 12,491 -------- -------- Net income $ 66,064 $ 51,404 ======== ======== EARNINGS PER SHARE (average shares outstanding 27,303,947 in 1995 and 27,279,476 in 1994) $ 2.42 $ 1.88 ======== ======== Dividends declared per share $ .60 $ .525 ======== ========
4 MERCURY GENERAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) NINE MONTHS ENDED SEPTEMBER 30, AMOUNTS EXPRESSED IN THOUSANDS
1995 1994 ---------- ---------- Cash flows from operating activities: Net income $ 66,064 $ 51,404 Adjustments to reconcile net income to net cash provided from operating activities: Increase in unpaid losses and loss adjustment expenses 18,883 2,911 Increase in unearned premiums 19,455 16,986 Increase in premium notes receivable (507) (2,070) Increase in premiums receivable (9,592) (9,006) Increase in deferred policy acquisition costs (3,649) (3,519) Increase in loss drafts payable 849 1,245 Increase (decrease) in accrued income taxes, excluding deferred tax on change in unrealized gain 3,527 (1,854) Increase (decrease) in accounts payable and accrued expenses 4,974 (4,687) Depreciation 2,751 2,515 Net realized investment (gains) losses (858) 9,407 Bond amortization, net 89 1,298 Other, net 2,218 684 --------- -------- Net cash provided from operating activities 104,204 65,314 Cash flows from investing activities: Fixed maturities available for sale: Purchases (153,954) (164,422) Sales 41,979 66,377 Calls or maturities 49,601 44,037 Equity securities available for sale: Purchases (264,849) (95,534) Sales 245,249 92,684 Decrease (increase) in short-term cash investments, net (3,259) 8,191 Purchase of fixed assets (3,561) (2,569) Sale of fixed assets 401 231 --------- -------- Net cash used in investing activities $ (88,393) $(51,005)
(Continued) 5 MERCURY GENERAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
1995 1994 ---------- ---------- Cash flows from financing activities: Dividends paid to shareholders $(16,376) $(14,330) Proceeds from stock options exercised, excluding related tax benefit 301 257 -------- -------- Net cash used in financing activities (16,075) (14,073) -------- -------- Net increase (decrease) in cash (264) 236 Cash: Beginning of the year 3,344 2,039 -------- -------- End of the year $ 3,080 $ 2,275 ======== ======== Supplemental disclosures of cash flow information: Interest paid during the period $ 1,492 $ 623 Income taxes paid during the period $ 13,798 $ 14,285
6 MERCURY GENERAL CORPORATION & SUBSIDIARIES NOTE TO THE CONSOLIDATED FINANCIAL STATEMENTS BASIS OF PRESENTATION The financial data included herein have been prepared by the Company, without audit. In the opinion of management, all adjustments of a normal recurring nature necessary to present fairly the Company's financial position at September 30, 1995 and the results of operations and cash flows for the periods presented have been made. This interim information should be read in conjunction with the financial statements and notes thereto included in the Company's latest annual report on Form 10-K. Item 2. Management's Discussion and Analysis of Financial Condition and --------------------------------------------------------------- Results of Operations --------------------- Results of Operations - - --------------------- Premiums earned in the first nine months of 1995 increased 16.7% from the corresponding period in 1994. The increase reflects new business (unit growth) and a continuing renewal rate approximating 93%. The loss ratio for the nine month period (loss and loss adjustment expenses related to premiums earned) was 67.9%, compared with 66.5% in 1994. The higher loss ratio in 1995 is attributable in part to an increase in weather-related claims associated with heavy rainfall and severe flooding in California in the first quarter. The loss ratio in the third quarter was 65.9%, compared with 66.8% in 1994. Loss experience in both 1995 and 1994 reflects favorable trends in accident frequency and severity, particularly in the bodily injury lines. Recoveries of flood-related catastrophe losses in January under the Company's reinsurance treaty then in effect approximated $2.5 million, which reduced the nine months loss ratio by less than one point. The expense ratio (policy acquisition costs and other expenses related to premiums earned) was 24.3%, compared with 25.5% in 1994. The improvement reflects in part economies of scale associated with growth and improved efficiency related to the recently instituted computer linkage with the Company's agents. The lower expense ratio also reflects smaller provisions for agent and management incentive bonuses. A year ago, unusually large bonus awards were related to exceptionally good underwriting results in 1993. The combined ratio of losses and expenses (GAAP basis) was 92.2%, compared with 92.0% in 1994, resulting in an underwriting gain for the period of $35.3 million, compared with $31.0 million a year ago. 7 Investment income in the first nine month period was $46.3 million, compared with $40.6 million in 1994. The after-tax yield on average investments of $811.7 million (fixed maturities at cost, equities at market) was 6.90%, compared with 6.84% on average investments of $719.9 million in 1994. The increase in realized investment yields reflects in part yield enhancing bond swaps undertaken in a rising rate environment in 1994. It also reflects increased holdings of high yielding perpetual preferred issues and yield- enhancing swaps in that sector. New investments in bonds and perpetual preferred stocks combined are currently being made at after-tax yields averaging approximately 6.30%. Realized investment gains (before income taxes) were $858,000 in the first nine months of 1995, compared with realized losses of $9.4 million in 1994. The gains in 1995 were largely the result of swaps in the perpetual preferred sector of the Company's portfolio. The losses in 1994 were related to the bond swap program noted above. The income tax provision in the first nine months of 1995 was $17.4 million, representing an effective tax rate of 20.8%, compared with an effective rate of 19.5% in 1994. Net income in the first nine months was $66.1 million, or $2.42 per share, compared with $51.4 million, or $1.88 per share, in 1994. Per share results are based on 27.3 million average shares in both 1995 and 1994. LIQUIDITY AND CAPITAL RESOURCES - - ------------------------------- Net cash provided from operating activities during the first nine months of 1995 was $104.2 million, while funds derived from the sale, call or maturity of investments was $336.8 million, of which approximately 73% was represented by the sale of equities. Fixed-maturity investments, at amortized cost, were increased by $62.0 million, net of sales, during the period. Equity investments, including perpetual preferred stocks, were increased by $20.7 million at cost, net of sales, and short-term cash investments were increased by $3.3 million. The amortized cost of fixed-maturities available for sale which were sold or called during the period was $89.5 million. The market value of investments (fixed-maturities and equities) held at market as "Available for Sale" exceeded amortized cost of $831.3 million at September 30, 1995 by $20.7 million. That unrealized gain, reflected in shareholders' equity net of applicable tax effects, was $13.4 million at September 30, 1995, compared with an unrealized loss of $12.7 million at December 31, 1994. The increase in market values since December 31, 1994 reflects principally the declining trend of long term interest rates in 1995. The Company's cash and short term investments totaled $29.0 million at September 30, 1995. Together with funds generated internally, such liquid assets are more than adequate to pay claims without the forced sale of investments. It has been the Company's policy, historically, not to invest in high yield or "junk" bonds. Because of alternative minimum tax considerations, and the need to optimize the investment mix in order to maintain a satisfactory after- tax 8 yield, the Company recently adopted a policy to place a small proportion of its investments in the taxable sector in bonds rated lower than investment grade, but not lower than Ba/BB without specific board approval. Bond holdings rated below investment grade by both of the leading independent rating firms, Moody's and Standard & Poor's, constituted less than 2% of total bond holdings at September 30, 1995. The average rating and nominal maturity of the $622.5 million bond portfolio (at cost) was A1/A+ and 15.6 years, respectively. The average effective maturity, giving effect to anticipated early call, approximates 7.8 years, and the modified duration of the entire bond portfolio approximates 5.6 years. Tax-exempt issues represent approximately 96.2% of total bond holdings and 70.1% of total investments. Bond holdings are broadly diversified geographically, and, within the tax-exempt sector, consist largely of high coupon revenue issues, many of which have been pre-refunded and escrowed with U.S. Treasuries. General obligation bonds of the large eastern cities have generally been avoided. The Company holds no direct obligations of Orange County, California, which has filed for protection under the bankruptcy laws. The Company does, however, hold over $8.0 million principal amount of bonds issued by entities within Orange County, some of which may be affected by losses arising from participation in the Orange County investment pool. Exclusive of those bonds that have been either insured or pre-refunded with U.S. Treasuries, the Company's total holdings of issues significantly affected by investments in the Orange County pool approximates $2.3 million based on market value at September 30, 1995 ($2.3 million at cost). The Company has reviewed those holdings and believes that it will incur no losses as a result of the Orange County bankruptcy filing. Holdings in the taxable sector consist principally of senior public utility issues. Fixed-maturity investments of $718.8 million (at cost) include $96.3 million of sinking fund preferreds, principally utility issues. Except for Company-occupied buildings, the Company has no direct investments in real estate and no holdings of mortgages secured by commercial real estate. Equity holdings of $113.3 million at market (cost $112.5 million), including perpetual preferred issues, are largely confined to the public utility and banking sectors and represent about 21.2% of total shareholders' equity. As of September 30, 1995, the Company had no commitments for capital expenditures. Industry and regulatory guidelines suggest that the ratio of a property and casualty insurer's annual net premiums written to statutory policyholders' surplus should not exceed 3.0 to 1. Based on the combined surplus of all of the licensed insurance subsidiaries of $462.4 million at September 30, 1995 and net written premiums for the twelve months ended on that date of $618.2 million, the ratio of writings to surplus was approximately 1.3 to 1. 9 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 thereunto duly authorized. MERCURY GENERAL CORPORATION By: GEORGE JOSEPH ---------------------------------------- George Joseph Chairman and Chief Executive Officer By: KEITH L. PARKER ----------------------------------------- Keith L. Parker Chief Financial Officer 10 EX-27 2 FINANCIAL DATA SCHEDULE
7 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MERCURY GENERAL CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1995 JAN-01-1995 SEP-30-1995 738,672 0 0 113,264 0 0 877,890 3,080 0 33,717 1,037,037 246,382 168,109 0 0 25,000 40,627 0 0 493,495 1,037,037 453,587 46,321 858 1,080 307,842 94,212 16,189 83,433 17,369 66,064 0 0 0 66,064 2.42 0 0 0 0 0 0 0 0
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