LOS ANGELES, Aug. 10 — Mercury Insurance (NYSE: MCY), a major California automobile insurer with operations in a number of other states, announced today that its Board of Directors, at the regular quarterly meeting on August 7, 1998, authorized the repurchase over a one year period of up to $200 million of Mercury General’s Common Stock. Such purchases may commence immediately and would be made from time to time in the open market at the discretion of management. Based on the approximate $44 mid-point of the trading range of Mercury’s stock over the prior two weeks, (closing price August 7, 1998 – $42.8125), the $200 million repurchase program would represent approximately 4.5 million shares or about 8% of total shares outstanding on June 30, 1998. The program would be funded by the sale of lower yielding tax-exempt bonds, the proceeds of an enlarged bank line and internal cash generation.
In addition to the announced share repurchase, the Company also announced that, following the recent price decline, it had purchased over $2.2 million of Mercury General Common Stock for the Company’s profit sharing plan at an average price of approximately $44, and, as previously disclosed, the Company’s ESOP will be purchasing $5.0 million of Common Stock.
George Joseph, Chairman and CEO of Mercury, said the recent decline of well over 30% in the price of Mercury’s stock had made it possible to invest Company funds in its own stock on a more favorable basis than the returns currently being realized from conventional portfolio investments being made by the Company’s insurance subsidiaries.
As one of the lowest cost providers of automobile insurance in California, Mercury has been the fastest growing major automobile insurer in the state for several years. Despite intense competition from other insurers seeking to expand their California writings, Mercury has continued to gain California market share, with its statewide policyholder count increasing by approximately 17.0% annualized in both the first and second quarters of 1998, as well as being up 18.3% year-over-year at June 30, 1998. For the six months ended June 30, 1998, the Company reported net operating earnings per share (basic), excluding realized investment gains, of $1.77, a year to year increase of 47.5%, reflecting excellent underwriting results as measured by a combined ratio of 84.7%, and a 17.4% increase in after-tax investment income. Return on shareholders’ equity for the period was 23.2%.
The Board also declared a third quarter dividend of $.175 per share payable on September 30, 1998 to holders of record on September 15, 1998. The current annual rate of $.70 represents a 20.7% increase over the rate paid in 1997.
The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for certain forward-looking statements. The statements contained in this press release that are not historical facts are forward-looking statements based on the Company’s current expectations and beliefs concerning future developments and their potential effects on the Company. There can be no assurance that future developments affecting the Company will be those anticipated by the Company. Actual results may differ from those projected in the forward-looking statements. These forward-looking statements involve significant risks and uncertainties (some of which are beyond the control of the Company) and are subject to change based upon various factors, including but not limited to the following risks and uncertainties: changes in the demand for and market acceptance of the Company’s products, and in general economic conditions; the presence of competitors with greater financial resources and the impact of competitive products and pricing; the effect of the Company’s policies, including the amount and rate of growth of Company expenses; the continued availability to the Company of adequate funding sources; delays or difficulties in the production, delivery or installation of products; and various legal, regulatory and litigation risks. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise. For a more detailed discussion of some of the foregoing risks and uncertainties, see the Company’s filings with the Securities and Exchange Commission.