SOURCE: Mercer Insurance Group, Inc.

October 30, 2006 16:10 ET

Mercer Insurance Group, Inc. Announces 3rd Quarter 2006 Earnings

PENNINGTON, NJ -- (MARKET WIRE) -- October 30, 2006 -- Mercer Insurance Group, Inc. (NASDAQ: MIGP) today reported its operating results for the quarter and nine months ended September 30, 2006. Mercer Insurance Group, Inc. (the Company) offers commercial and personal lines of insurance to businesses and individuals in six states through its insurance subsidiaries: Mercer Insurance Company, Mercer Insurance Company of New Jersey, Inc., Financial Pacific Insurance Company and Franklin Insurance Company.

The Company acquired Financial Pacific Insurance Group, Inc. on October 1, 2005, and it is included accordingly in the Company's 2006 consolidated financial statements. Consequently, comparisons of the Company's current quarter and nine month period with the comparable 2005 periods must take into account the impact of the acquisition on the 2006 Consolidated Statements of Income in order to make meaningful comparisons. Financial Pacific is a specialty writer of commercial lines which writes primarily in four western states, and provides insurance to commercial accounts in the contractor, manufacturing, retail, services and wholesaling businesses.

The Company reported net income, determined under U.S. generally accepted accounting principles (GAAP), of $2.2 million, or $0.35 per diluted share, in the quarter ended September 30, 2006, which was a 6% increase over the comparable prior quarter's net income of $2.1 million, or $0.34 per diluted share. After-tax realized investment losses of $333,000, or $0.05 per diluted share, were included in the current quarter, as compared to an after-tax realized gain of $776,000, or $0.13 per diluted share, in the same period in the prior year. Operating income (a non-GAAP measure defined as net income less after-tax realized gains or losses) was $2.5 million, or $0.40 per diluted share, in the third quarter of 2006, as compared to $1.3 million, or $0.21 per diluted share, in the same quarter of 2005. The Company's GAAP combined ratio was 97.4 % for the third quarter of 2006, as compared to 93.5% for the same quarter in 2005.

Revenues for the third quarter of 2006 increased $20.2 million to $37.6 million, from revenue of $17.4 million for the third quarter of 2005. Net premiums earned for the quarter were $35.0 million, a $19.6 million increase over net premiums earned of $15.4 million in the same period of 2005. Net investment income increased to $2.6 million for the quarter, a $1.8 million increase from net investment income of $770,000 recorded in the comparable period in 2005.

In the nine months ended September 30, 2006, the Company reported GAAP net income of $7.7 million, or $1.25 per diluted share, an increase of $3.6 million over the prior year's net income of $4.1 million, or $0.67 per diluted share. After-tax realized investment gains included in net income for the current nine months were $66,000, or $0.01 per diluted share, as compared to $840,000, or $0.14 per diluted share in the same period in the prior year. The Company earned operating income of $7.7 million, or $1.24 per diluted share, in the first nine months of 2006, as compared to $3.3 million, or $0.53 per diluted share, in the same period of 2005. The GAAP combined ratio for the first nine months of 2006 was 96.8%, compared with 95.3% for the same period in 2005.

Revenues for the first nine months of 2006 increased $61.7 million, to $110.9 million, from revenue in the first nine months of 2005 of $49.2 million. Net premiums earned for the period were $102.2 million, a $56.8 million increase over net premiums earned of $45.4 million in the same period of 2005. Net investment income increased $4.8 million to $7.1 million for the nine months, as compared to $2.3 million for the comparable period in 2005.

Andrew R. Speaker, Mercer's President and CEO, in commenting on the operating results said, "We are generally pleased with the Company's performance in the third quarter, despite having experienced an elevated number of severe fire losses, which led to a slight decrease in operating income compared to the second quarter of 2006. Absent the impact of these fire losses, we were pleased with the results, which continue to reflect a significant increase in earned premiums and investment income over that of the prior year as a result of the consolidation of the operations of the Financial Pacific Insurance Group. We continue to maintain a steady focus on underwriting discipline in this competitive marketplace."

Certain of the statements contained herein (other than statements of historical facts) are forward-looking statements. Such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and include estimates and assumptions related to economic, competitive and legislative developments. These forward-looking statements are subject to change and uncertainty that are, in many instances, beyond the Company's control and have been made based upon management's expectations and beliefs concerning future developments and their potential effect on the Company. There can be no assurance that future developments will be in accordance with management's expectations so that the effect of future developments on the Company will be those anticipated by management. Actual financial results including premium growth and underwriting results could differ materially from those anticipated by the Company depending on the outcome of certain factors, which may include changes in property and casualty loss trends and reserves; catastrophe losses; the insurance product pricing environment; changes in applicable law; government regulation and changes therein that may impede the ability to charge adequate rates; changes in accounting principles; performance of the financial markets; fluctuations in interest rates; availability and price of reinsurance; and the status of the labor markets in which the Company operates.


                    Consolidated Statements of Income
              (in thousands, except per share and share data)


                                                         Quarter Ended
                                                         September 30,
                                                       2006         2005
                                                   (unaudited)  (unaudited)

    Net premiums earned                           $    35,004  $    15,404
    Investment income,
     net of investment expenses                         2,597          770
    Realized investment (losses) gains                   (505)       1,175
    Other revenue                                         527           84
      Total revenue                                    37,623       17,433

    Losses and loss adjustment expenses                22,324        6,562
    Amortization of deferred policy
     acquisition costs                                  9,047        4,135
    Other expenses                                      2,721        3,704
    Interest expense                                      312         -
      Total expenses                                   34,404       14,401

    Income before income taxes                          3,219        3,032
    Income taxes                                        1,025          971

    Net income                                    $     2,194  $     2,061

    Net income per common share:
      Basic                                       $      0.36  $      0.35
      Diluted                                     $      0.35  $      0.34

    Weighted average number of
     shares outstanding:
      Basic                                         6,055,132    5,938,388
      Diluted                                       6,265,888    6,120,774

        Supplementary Financial Data

    Net written premiums                          $    34,809  $    14,171

    Book value per common share                   $     18.54  $     16.92

    GAAP combined ratio                                  97.4%        93.5%


                    Consolidated Statements of Income
              (in thousands, except per share and share data)


                                                       Nine Months Ended
                                                         September 30,
                                                       2006         2005
                                                   (unaudited)  (unaudited)

    Net premiums earned                           $   102,172  $    45,378
    Investment income,
     net of investment expenses                         7,057        2,254
    Realized investment gains                             100        1,273
    Other revenue                                       1,605          256
      Total revenue                                   110,934       49,161

    Losses and loss adjustment expenses                64,519       21,596
    Amortization of deferred policy
     acquisition costs                                 24,187       11,936
    Other expenses                                     10,208        9,725
    Interest expense                                      913         -
      Total expenses                                   99,827       43,257

    Income before income taxes                         11,107        5,904
    Income taxes                                        3,368        1,785

    Net income                                    $     7,739  $     4,119

    Net income per common share:
      Basic                                       $      1.29  $      0.69
      Diluted                                     $      1.25  $      0.67

    Weighted average number of
     shares outstanding:
      Basic                                         6,006,693    5,939,436
      Diluted                                       6,192,731    6,155,328

        Supplementary Financial Data
    Net written premiums                          $   115,738  $    44,112

    GAAP combined ratio                                  96.8%        95.3%


                        Consolidated Balance Sheet
                   (in thousands, except share amounts)


                                              September 30,    December 31,
                                                     2006           2005
                                                (unaudited)

    ASSETS
    Investments, at fair value:
      Fixed income securities,
       available-for sale                   $      274,966  $      229,129
      Equity securities, at fair value              16,145          14,981
      Short-term investments, at cost,
       which approximates fair value                 1,799           4,289
              Total investments                    292,910         248,399
    Cash and cash equivalents                       11,070          20,677
    Premiums receivable                             44,116          37,497
    Reinsurance receivable                          86,860          79,214
    Prepaid reinsurance premiums                    17,754          21,554
    Deferred policy acquisition costs               17,760          10,789
    Accrued investment income                        2,784           2,625
    Property and equipment, net                     11,808          11,720
    Deferred income taxes                            8,122           3,588
    Goodwill                                         5,625           5,633
    Other assets                                     3,867           5,002
    Total assets                            $      502,676  $      446,698

    LIABILITIES AND STOCKHOLDERS' EQUITY
    Liabilities:
      Losses and loss adjustment expenses   $      242,355  $      211,679
      Unearned premiums                             88,748          78,982
      Accounts payable and accrued expenses         14,342          13,761
      Other reinsurance balances                    24,507          18,574
      Trust preferred securities                    15,538          15,525
      Advances under line of credit                  3,000           3,000
      Other liabilities                              1,790           1,778
           Total liabilities                $      390,280  $      343,299

    Stockholders' Equity:
      Preferred Stock, no par value,                  -               -
       authorized 5,000,000 shares, no
       shares issued and outstanding
      Common stock, no par value,                     -               -
       authorized 15,000,000 shares, issued
       7,064,233 and 7,068,233 shares,
       outstanding 6,566,451
       and 6,463,538 shares
      Additional paid-in capital            $       67,878  $       67,973
      Accumulated other comprehensive
       income                                        2,764           2,851
      Retained earnings                             51,989          44,896
      Unearned restricted stock
       compensation                                   -             (1,654)
      Unearned ESOP shares                          (3,914)         (4,383)
      Treasury Stock, 503,513 and 501,563
       shares                                       (6,321)         (6,284)
           Total stockholders' equity              112,396         103,399
    Total liabilities and stockholders'
     equity                                 $      502,676  $      446,698

Contact Information

  • Company Contacts:

    Andrew R. Speaker
    President & CEO
    Mercer Insurance Group, Inc.
    (609) 737-0426

    David B. Merclean
    Senior Vice President & CFO
    Mercer Insurance Group, Inc.
    (609) 737-0426