SOURCE: Mercer Insurance Group, Inc.

February 26, 2008 16:10 ET

Mercer Insurance Group, Inc. Announces 2007 Earnings

PENNINGTON, NJ--(Marketwire - February 26, 2008) - Mercer Insurance Group, Inc. (NASDAQ: MIGP) reported today its operating results for the three months and year ended December 31, 2007. Mercer Insurance Group, Inc. (the Company) offers commercial and personal lines of insurance to businesses and individuals principally 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.

Andrew R. Speaker, President and CEO, noted, "Please keep in mind in reviewing the full year results that they include a non-recurring refund of state premium retaliatory taxes, plus interest, in the after-tax amounts of $2.8 million, or $0.44 per diluted share. We emphasize that this is a special situation boosting our earnings in 2007." This item was discussed in the Liquidity and Capital Resources section of Item 7 of the Form 10-K for 2006, as well as in the Form 10-Q for the first three quarters of 2007.

In the three months ended December 31, 2007, the Company reported net income, determined under U.S. generally accepted accounting principles (GAAP), of $2.9 million, or $0.45 per diluted share, which is unchanged from net income in the same amount for the last quarter of 2006, which was $0.46 per diluted share. After-tax realized investment losses included in net income for the current quarter were $158,000, or $0.03 per diluted share, as compared to a gain of $32,000, or less than $0.01 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) in the fourth quarter of 2007 was $3.0 million, or $0.48 per diluted share, as compared to $2.9 million, or $0.45 per diluted share, in the same quarter of 2006. The retaliatory tax refund noted above had no impact on the earnings of the quarter ended December 31, 2007. The Company's GAAP combined ratio for the three months ended December 31, 2007 was 98.5%, as compared to 97.8% for the same quarter in 2006. Book value at December 31, 2007 was $21.48 per share.

Revenues for the three months ended December 31, 2007 were $44.0 million, an increase of $5.0 million over the 2006 fourth quarter revenue of $39.0 million. Net premiums earned for the quarter were $40.3 million, a $4.8 million increase over net premiums earned of $35.5 million in the same period of 2006. Net investment income increased $448,000 to $3.5 million for the quarter, as compared to $3.0 million in the comparable period in 2006.

In the year ended December 31, 2007, the Company reported GAAP net income of $14.2 million, or $2.25 per diluted share, as compared to net income for the same period in 2006 of $10.6 million, or $1.71 per diluted share. The increase in net income of $3.6 million over the prior year includes the $2.8 million, or $0.44 per diluted share, attributable to the non-recurring refund of retaliatory premium taxes and interest noted earlier. After-tax realized investment gains included in net income for the twelve months were $16,000, or less than $0.01 per diluted share, as compared to an after-tax gain of $98,000, or less than $0.02 per diluted share, in the same period in the prior year. Operating income in the twelve months of 2007, including the $2.8 million non-recurring refund of retaliatory tax, increased $3.7 million, to $14.2 million, or $2.25 per diluted share, from $10.5 million, or $1.69 per diluted share, in the same period of 2006. The Company's GAAP combined ratio for the twelve months of 2007 was 95.8%, as compared to 97.0% for the same period in 2006. Calculated on a pro-forma basis, after removing the effect of the non-recurring retaliatory tax refund described above, the combined ratio for 2007 was 98.3%.

Revenues in 2007 were $161.7 million, an increase of $11.8 million over the revenue of the same period in 2006 of $149.9 million. Net premiums earned for the period were $146.7 million, a $9.0 million increase over net premiums earned of $137.7 million in the same period of 2006. Net investment income increased $3.0 million to $13.1 million for the twelve months ended December 31, 2007, as compared to $10.1 million in the comparable period in 2006, with $720,000 of the increase in net investment income attributable to the non-recurring refund of retaliatory premium taxes and interest noted earlier.

Approximately $103 million, or 72%, of the Company's municipal fixed income portfolio is credit-enhanced. Those securities, giving effect to the credit enhancement, carry an average rating of AAA, based on Standard & Poors or equivalent ratings. The underlying average rating of these securities, without regard to the credit enhancement, is AA. Those municipal fixed income securities which are not credit-enhanced carry an average credit rating of AAA-. The entire municipal fixed income securities portfolio, giving effect to the credit enhancement, has an average rating of AAA, and an underlying average rating of AA without giving effect to the credit enhancement. A supplemental schedule is attached, showing the underlying rating distribution of the Company's municipal fixed income securities without regard to credit enhancement.

Mr. Speaker stated, "We are extremely pleased with the fourth quarter and full year earnings, especially considering the highly competitive commercial market conditions in which we are operating. These results reflect our focus on profitability as our primary objective through a disciplined approach to all aspects of our business. The results further reflect our strategy of diversifying our business both by product and geography in order to build a balanced portfolio of products. I'd also like to note the focused efforts of our staff and the loyalty of our agency partners."

The Board of Directors of Mercer Insurance Group, Inc. has approved a dividend of $0.05 per share, to be paid on March 28, 2008 to shareholders of record on March 12, 2008.

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 Mercer Insurance Group, Inc. There can be no assurance that future developments will be in accordance with management's expectations so that the effect of future developments on Mercer Insurance Group, Inc. will be those anticipated by management. Actual financial results including premium growth and underwriting results could differ materially from those anticipated by Mercer Insurance Group, Inc. 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
                                                        December 31,
                                                     2007         2006
                                                  (unaudited)  (unaudited)

Net premiums earned                               $    40,308  $    35,501
Investment income,
 net of investment expenses                             3,461        3,013
Realized investment (losses) gains                       (243)          51
Other revenue                                             435          430
  Total revenue                                        43,961       38,995

Losses and loss adjustment expenses                    25,788       23,178
Amortization of deferred policy
 acquisition costs                                     10,934        8,507
Other expenses                                          2,998        3,034
Interest expense                                          304          299
  Total expenses                                       40,024       35,018

Income before income taxes                              3,937        3,977
Income taxes                                            1,057        1,081

Net income                                        $     2,880  $     2,896

Net income per common share:
  Basic                                           $      0.46  $      0.48
  Diluted                                         $      0.45  $      0.46

Weighted average number of
 shares outstanding:
  Basic                                             6,198,741    6,070,914
  Diluted                                           6,374,106    6,303,406

     Supplementary Financial Data

Net written premiums                              $    36,549  $    30,053

Book value per common share                       $     21.48  $     19.06

GAAP combined ratio                                      98.5%        97.8%





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

                                                         Year Ended
                                                        December 31,
                                                      2007          2006
                                                  (unaudited)

Net premiums earned                               $   146,675  $   137,673
Investment income,
 net of investment expenses                            13,053       10,070
Realized investment gains                                  24          151
Other revenue                                           1,929        2,035
  Total revenue                                       161,681      149,929

Losses and loss adjustment expenses                    91,186       87,697
Amortization of deferred policy
 acquisition costs                                     38,763       32,694
Other expenses                                         10,528       13,242
Interest expense                                        1,215        1,212
  Total expenses                                      141,692      134,845

Income before income taxes                             19,989       15,084
Income taxes                                            5,754        4,449

Net income                                        $    14,235  $    10,635

Net income per common share:
  Basic                                           $      2.32  $      1.77
  Diluted                                         $      2.25  $      1.71

Weighted average number of
 shares outstanding:
  Basic                                             6,144,075    6,022,880
  Diluted                                           6,325,348    6,222,009

    Supplementary Financial Data

Net written premiums                              $   159,666  $   145,791

GAAP combined ratio                                      95.8%        97.0%



                        Consolidated Balance Sheet
                   (in thousands, except share amounts)


                                                  December 31, December 31,
                                                      2007         2006
                                                  (unaudited)

ASSETS
Investments, at fair value:
  Fixed income securities, available-for sale     $   324,238  $   273,454
  Equity securities, at fair value                     17,930       16,522
  Short-term investments, at cost,
   which approximates fair value                            -        7,692
       Total investments                              342,168      297,668
Cash and cash equivalents                              21,580       17,618
Premiums receivable                                    36,339       38,030
Reinsurance receivable                                 83,844       87,987
Prepaid reinsurance premiums                            9,486       16,383
Deferred policy acquisition costs                      20,528       16,708
Accrued investment income                               3,582        3,204
Property and equipment, net                            13,056       11,936
Deferred income taxes                                   7,670        7,775
Goodwill                                                5,416        5,625
Other assets                                            2,766        4,033
Total assets                                      $   546,435  $   506,967

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
  Losses and loss adjustment expenses             $   274,399  $   250,455
  Unearned premiums                                    88,024       81,930
  Accounts payable and accrued expenses                14,622       13,442
  Other reinsurance balances                           14,734       24,588
  Trust preferred securities                           15,559       15,542
  Advances under line of credit                         3,000        3,000
  Other liabilities                                     2,691        2,171
       Total liabilities                          $   413,029  $   391,128

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
   7,075,333 and 7,064,233 shares,
   outstanding 6,717,693 and 6,582,232 shares               -            -
  Additional paid-in capital                      $    70,394  $    68,473
  Accumulated other comprehensive income                4,896        2,815
  Retained earnings                                    67,613       54,629
  Unearned ESOP shares                                 (3,131)      (3,757)
  Treasury Stock, 505,814 and 503,513 shares           (6,366)      (6,321)
       Total stockholders' equity                     133,406      115,839
Total liabilities and stockholders' equity        $   546,435  $   506,967






                          Supplemental Schedule
Consolidated municipal Fixed Income Securities holdings by Credit Rating
    (based on underlying credit ratings with no credit enhancement)
                            December 31, 2007


At December 31,     Rating of
 2007:               credit-
                    enhanced
                    municipal          Rating of
                   fixed income        municipal          Total municipal
                    securities        fixed income         fixed income
                     without           securities           securities
                     regard to          without          portfolio without
                   their credit          credit          regard to credit
                   enhancement        enhancement           enhancement

 S&P ratings or
Equivalent where
 not available      Market Value  %    Market Value  %    Market Value  %

AAA                $   9,224,676   9% $  22,415,583  55% $  31,640,259  22%
AA+                $  21,846,653  21% $   6,044,517  15% $  27,891,170  19%
AA                 $  29,771,747  29% $  11,345,439  28% $  41,117,186  29%
AA-                $  21,471,737  21% $   1,049,310   3% $  22,521,047  16%
A+                 $   8,732,336   8%                    $   8,732,336   6%
A                  $   7,993,685   8%                    $   7,993,685   6%
A-                 $   3,049,195   3%                    $   3,049,195   2%
BBB-               $   1,080,970   1%                    $   1,080,970   1%
Total              $ 103,170,999 100% $  40,854,849 100% $ 144,025,848 100%
Average Rating            AA                AAA-                AA

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