Mercury General Corp. (MCY, Financial) filed Quarterly Report for the period ended 2009-03-31.
Mercury General Corp. is engaged primarily in writing all risk classifications of automobile insurance in a number of states principallyCalifornia. The company offers automobile policyholders the following types of coverage: bodily injury liability underinsured and uninsured motorist property damage liability comprehensive collision and other hazards specified in the policy. Mercury General Corp. has a market cap of $1.92 billion; its shares were traded at around $34.99 with a P/E ratio of 16.5 and P/S ratio of 0.7. The dividend yield of Mercury General Corp. stocks is 6.7%. Mercury General Corp. had an annual average earning growth of 31.1% over the past 10 years. GuruFocus rated Mercury General Corp. the business predictability rank of 2.5-star.
Net premiums earned and net premiums written in the three-month period ended March 31, 2009 decreased approximately 7.6% and 8.0%, respectively, from the corresponding period in 2008. Net premiums written by the Companys California operations were $526.9 million in the three-month period ended March 31, 2009, an 8.5% decrease over the corresponding period in 2008. Net premiums written by the Companys non-California operations were $144.0 million in the three-month period ended March 31, 2009, a 6.3% decrease over the corresponding period in 2008. The decrease in net premiums written is primarily due to a decrease in the number of policies written and slightly lower average premiums per policy reflecting the continuing soft market conditions.
To improve profitability, the Company has implemented several cost reduction programs, including a salary freeze, a suspension of the employee 401(k) matching program, and a workforce reduction of approximately 360 employees (7% of workforce) primarily located in California. As a result of the workforce reduction, an $8 million expense was recorded ($5 million to losses and loss adjustment expenses, $3 million to other operating expenses) in the first quarter of 2009. The annualized cost savings from these cost reduction programs are expected to be over $20 million, which will begin to be realized in the second quarter of 2009.
Prior to the acquisition of AIS, the Company deferred the recognition of commissions paid to AIS to match the earnings of the related premiums. As AIS is now a wholly-owned subsidiary, commissions paid are no longer deferrable. During the three-month period ended March 31, 2009, the amortization of deferred commissions offset by deferrable direct sales cost impacted the statement of operations by $12 million. The Company expects an additional $3 million impact in the three-month period ended June 30, 2009 and no material impact thereafter.
Net cash provided from operating activities in the three-month period ended March 31, 2009 was $50.9 million, an increase of $18.7 million over the corresponding period in 2008. This increase was primarily due to additional operating cash flows from AIS and a decrease in losses and loss adjustment expense paid during the three-month period ended March 31, 2009 compared with the corresponding period in 2008. The Company has utilized the cash provided from operating activities primarily for the development of information technology such as the NextGen and Mercury First computer systems and the payment of dividends to its shareholders. Funds derived from the sale, redemption or maturity of fixed maturity investments of $76.3 million, were primarily reinvested by the Company in high grade fixed maturity securities.
non rated bonds totaled $80.4 million and $35.2 million, respectively, at fair value, and represented approximately 3.1% and 1.4%, respectively, of total fixed maturity securities. At December 31, 2008, bond holdings of lower than investment grade and non rated bonds totaled $55.4 million and $49.5 million, respectively, and represented approximately 2.2% and 2.0%, respectively, of total fixed maturity securities.
Read the The complete ReportMCY is in the portfolios of Robert Rodriguez of FPA Capital, Robert Rodriguez of FPA Capital, Richard Aster Jr of Meridian Fund, Jean-Marie Eveillard of Arnhold & S. Bleichroeder Advisers, LLC, Richard Aster Jr of Meridian Fund, Bruce Berkowitz of Fairholme Capital Managment, Bruce Berkowitz of Fairholme Capital Managment, Chris Davis of Davis Selected Advisers.
Mercury General Corp. is engaged primarily in writing all risk classifications of automobile insurance in a number of states principallyCalifornia. The company offers automobile policyholders the following types of coverage: bodily injury liability underinsured and uninsured motorist property damage liability comprehensive collision and other hazards specified in the policy. Mercury General Corp. has a market cap of $1.92 billion; its shares were traded at around $34.99 with a P/E ratio of 16.5 and P/S ratio of 0.7. The dividend yield of Mercury General Corp. stocks is 6.7%. Mercury General Corp. had an annual average earning growth of 31.1% over the past 10 years. GuruFocus rated Mercury General Corp. the business predictability rank of 2.5-star.
Highlight of Business Operations:
The Companys operating results have allowed it to consistently generate positive cash flow from operations, which was approximately $50.9 million and $32.2 million for the three-month periods ended March 31, 2009 and 2008, respectively. Cash flow from operations has historically been used to pay shareholder dividends and to help support growth.Net premiums earned and net premiums written in the three-month period ended March 31, 2009 decreased approximately 7.6% and 8.0%, respectively, from the corresponding period in 2008. Net premiums written by the Companys California operations were $526.9 million in the three-month period ended March 31, 2009, an 8.5% decrease over the corresponding period in 2008. Net premiums written by the Companys non-California operations were $144.0 million in the three-month period ended March 31, 2009, a 6.3% decrease over the corresponding period in 2008. The decrease in net premiums written is primarily due to a decrease in the number of policies written and slightly lower average premiums per policy reflecting the continuing soft market conditions.
To improve profitability, the Company has implemented several cost reduction programs, including a salary freeze, a suspension of the employee 401(k) matching program, and a workforce reduction of approximately 360 employees (7% of workforce) primarily located in California. As a result of the workforce reduction, an $8 million expense was recorded ($5 million to losses and loss adjustment expenses, $3 million to other operating expenses) in the first quarter of 2009. The annualized cost savings from these cost reduction programs are expected to be over $20 million, which will begin to be realized in the second quarter of 2009.
Prior to the acquisition of AIS, the Company deferred the recognition of commissions paid to AIS to match the earnings of the related premiums. As AIS is now a wholly-owned subsidiary, commissions paid are no longer deferrable. During the three-month period ended March 31, 2009, the amortization of deferred commissions offset by deferrable direct sales cost impacted the statement of operations by $12 million. The Company expects an additional $3 million impact in the three-month period ended June 30, 2009 and no material impact thereafter.
Net cash provided from operating activities in the three-month period ended March 31, 2009 was $50.9 million, an increase of $18.7 million over the corresponding period in 2008. This increase was primarily due to additional operating cash flows from AIS and a decrease in losses and loss adjustment expense paid during the three-month period ended March 31, 2009 compared with the corresponding period in 2008. The Company has utilized the cash provided from operating activities primarily for the development of information technology such as the NextGen and Mercury First computer systems and the payment of dividends to its shareholders. Funds derived from the sale, redemption or maturity of fixed maturity investments of $76.3 million, were primarily reinvested by the Company in high grade fixed maturity securities.
non rated bonds totaled $80.4 million and $35.2 million, respectively, at fair value, and represented approximately 3.1% and 1.4%, respectively, of total fixed maturity securities. At December 31, 2008, bond holdings of lower than investment grade and non rated bonds totaled $55.4 million and $49.5 million, respectively, and represented approximately 2.2% and 2.0%, respectively, of total fixed maturity securities.
Read the The complete ReportMCY is in the portfolios of Robert Rodriguez of FPA Capital, Robert Rodriguez of FPA Capital, Richard Aster Jr of Meridian Fund, Jean-Marie Eveillard of Arnhold & S. Bleichroeder Advisers, LLC, Richard Aster Jr of Meridian Fund, Bruce Berkowitz of Fairholme Capital Managment, Bruce Berkowitz of Fairholme Capital Managment, Chris Davis of Davis Selected Advisers.
