SOURCE: Mercer Insurance Group, Inc.

July 31, 2006 16:17 ET

Mercer Insurance Group, Inc. Announces 2nd Quarter 2006 Earnings

PENNINGTON, NJ -- (MARKET WIRE) -- July 31, 2006 -- Mercer Insurance Group, Inc. (NASDAQ: MIGP) today reported its operating results for the quarter and six months ended June 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 six 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), in the quarter ended June 30, 2006, of $2.9 million, or $0.47 per diluted share, which was an increase of $1.8 million over the comparable prior quarter's net income of $1.1 million, or $0.17 per diluted share. After-tax realized investment gains included in net income for the current quarter were $197,000, or $0.03 per diluted share, as compared to $52,000, 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 second quarter of 2006 was $2.7 million, or $0.44 per diluted share, as compared to $1.0 million, or $0.17 per diluted share, in the same quarter of 2005. The Company's GAAP combined ratio for the second quarter of 2006 was 96.4%, as compared to 96.1% for the same quarter in 2005.

Revenues for the second quarter of 2006 were $36.9 million, an increase of $21.1 million over the 2005 second quarter revenue of $15.8 million. Net premiums earned for the quarter were $33.6 million, an $18.7 million increase over net premiums earned of $14.9 million in the same period of 2005. Net investment income increased $1.7 million to $2.4 million for the quarter, as compared to $740,000 in the comparable period in 2005.

In the six months ended June 30, 2006, the Company reported GAAP net income of $5.5 million, or $0.90 per diluted share, which was an increase of $3.4 million over the prior year's net income of $2.1 million, or $0.33 per diluted share. After-tax realized investment gains included in net income for the current six months were $399,000, or $0.06 per diluted share, as compared to $64,000, or $0.01 per diluted share in the same period in the prior year. Operating income in the first six months of 2006 was $5.1 million, or $0.84 per diluted share, as compared to $2.0 million, or $0.32 per diluted share, in the same period of 2005. The Company's GAAP combined ratio for the first six months of 2006 was 96.4%, as compared to 96.3% for the same period in 2005.

Revenues for the first six months of 2006 were $73.3 million, an increase of $41.6 million over revenue in the first six months of 2005 of $31.7 million. Net premiums earned for the period were $67.2 million, a $37.2 million increase over net premiums earned of $30.0 million in the same period of 2005. Net investment income increased $3.0 million to $4.5 million for the six months, as compared to $1.5 million in the comparable period in 2005.

In reviewing the Company's performance for the quarter, Andrew R. Speaker, Mercer's President and CEO, said, "The integration of our recent acquisition of Financial Pacific Insurance Group continues on track, and we are pleased with its performance. It was also pleasing to learn that A.M. Best recently included Financial Pacific Insurance Company in the Company's pooled financial strength rating of A (Excellent), in accordance with the ratings of the other members of the Company's insurance pool. The Company's strong 2006 performance reflects our continuing disciplined focus on underwriting, despite an increasingly challenging marketplace, and the more balanced mix of property and casualty insurance business which resulted from the acquisition of Financial Pacific. In addition, the Company's increased investment income reflects improvements in fixed income securities yields over that of the previous year."

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
                                                           June 30,
                                                       2006        2005
                                                   (Unaudited) (Unaudited)

Net premiums earned                                  $  33,631  $  14,862
Investment income,
 net of investment expenses                              2,369        740
Realized investment gains                                  298         80
Other revenue                                              587         87
  Total revenue                                         36,885     15,769

Losses and loss adjustment
 expenses                                               21,549      7,312
Amortization of deferred policy
 acquisition costs                                       7,848      3,902
Other expenses                                           3,052      3,063
Interest expense                                           304          -
  Total expenses                                        32,753     14,277

Income before income taxes                               4,132      1,492
Income taxes                                             1,237        427

Net income                                           $   2,895  $   1,065

Net income per common share:
  Basic                                              $    0.48  $    0.18
  Diluted                                            $    0.47  $    0.17

Weighted average number of
 shares outstanding:
  Basic                                              5,994,228  5,877,160
  Diluted                                            6,191,449  6,101,548

    Supplementary Financial Data

Net written premiums                                 $  41,234  $  16,780

Book value per common share                          $   17.62  $   16.69

GAAP combined ratio                                       96.4%      96.1%



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

                                                        Six Months Ended
                                                            June 30,
                                                        2006       2005
                                                    (Unaudited) (Unaudited)

Net premiums earned                                  $  67,168  $  29,975
Investment income, net of
 investment expenses                                     4,460      1,484
Realized investment gains                                  605         97
Other revenue                                            1,078        172
   Total revenue                                        73,311     31,728

Losses and loss adjustment expenses                     42,195     15,034
Amortization of deferred policy
acquisition costs                                       15,140      7,801
Other expenses                                           7,487      6,021
Interest expense                                           601          -
Total expenses                                          65,423     28,856

Income before income taxes                               7,888      2,872
Income taxes                                             2,343        814

Net income                                           $   5,545  $   2,058

Net income per common share:
   Basic                                             $    0.93  $    0.35
   Diluted                                           $    0.90  $    0.33

Weighted average number of
shares outstanding:
   Basic                                             5,982,071  5,939,968
   Diluted                                           6,154,893  6,172,231

      Supplementary Financial Data

Net written premiums                                 $  80,929  $  29,941

GAAP combined ratio                                       96.4%      96.3%



                         Consolidated Balance Sheet
                   (in thousands, except share amounts)

                                                    June 30,   Dec. 31,
                                                      2006       2005
                                                  (unaudited)
ASSETS
Investments, at fair value:
  Fixed income securities, available-for sale     $ 255,283  $ 229,129
  Equity securities, at fair value                   15,719     14,981
  Short-term investments, at cost, which
    approximates fair value                           2,397      4,289
          Total investments                         273,399    248,399
Cash and cash equivalents                            13,113     20,677
Premiums receivable                                  46,430     37,497
Reinsurance receivable                               84,769     79,214
Prepaid reinsurance premiums                         17,521     21,554
Deferred policy acquisition costs                    17,291     10,789
Accrued investment income                             2,783      2,625
Property and equipment, net                          11,949     11,720
Deferred income taxes                                 9,115      3,588
Goodwill                                              5,633      5,633
Other assets                                          4,526      5,002
Total assets                                      $ 486,529  $ 446,698

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
  Losses and loss adjustment expenses             $ 228,340  $ 211,679
  Unearned premiums                                  88,710     78,982
  Accounts payable and accrued expenses              15,844     13,761
  Other reinsurance balances                         26,128     18,574
  Trust preferred securities                         15,533     15,525
  Advances under line of credit                       3,000      3,000
  Other liabilities                                   2,369      1,778
       Total liabilities                          $ 379,964  $ 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
   7,054,233 and 7,068,233 shares, outstanding
   6,550,669 and 6,463,538 shares
  Additional paid-in capital                      $  67,018  $  67,973
  Accumulated other comprehensive income               (500)     2,851
  Retained earnings                                  50,441     44,896
  Unearned restricted stock compensation                  -     (1,654)
  Unearned ESOP shares                               (4,073)    (4,383)
  Treasury Stock, 503,513 and 501,563 shares         (6,321)    (6,284)
       Total stockholders' equity                   106,565    103,399
  Total liabilities and stockholders' equity      $ 486,529  $ 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