Mercury Insurance 2012 Annual Report Download - page 101

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80
18. Quarterly Financial Information (Unaudited)
Summarized quarterly financial data for 2012 and 2011 are as follows:
Quarter Ended
March 31 June 30 September 30 December 31
(Amounts in thousands, except per share data)
2012
Net premiums earned $ 635,812 $ 637,247 $ 646,084 $ 655,777
Change in fair value of investments pursuant
to the fair value option $ 49,343 $ (24,788) $ 44,783 $ (23,829)
Income (loss) before income taxes $ 101,994 $ (18,853) $ 91,330 $ (39,161)
Net income (loss) $ 73,356 $ (5,264) $ 66,201 $ (17,382)
Basic earnings per share $ 1.34 $ (0.10) $ 1.21 $ (0.32)
Diluted earnings per share $ 1.34 $ (0.10)(1) $ 1.21 $ (0.32)(1)
Dividends paid per share $ 0.61 $ 0.61 $ 0.61 $ 0.6125
2011
Net premiums earned $ 638,487 $ 642,331 $ 643,626 $ 641,613
Change in fair value of investments pursuant
to the fair value option $ 20,904 $ 20,597 $ (64,312) $ 54,100
Income (loss) before income taxes $ 76,911 $ 75,613 $ (18,118) $ 110,693
Net income (loss) $ 58,226 $ 57,251 $ (3,782) $ 79,469
Basic earnings per share $ 1.06 $ 1.04 $ (0.07) $ 1.45
Diluted earnings per share $ 1.06 $ 1.04 $ (0.07)(1) $ 1.45
Dividends paid per share $ 0.60 $ 0.60 $ 0.60 $ 0.61
__________
(1) The dilutive impact of incremental shares is excluded from loss position in accordance with GAAP.
Net income during 2012 was primarily affected by slightly higher net premiums earned and lower operating expenses, offset
by unfavorable development on loss reserves, catastrophe related losses, and higher loss frequency and severity on the California
private passenger automobile line of business. The decrease in operating expenses in 2012 was primarily due to ongoing cost
reduction efforts and lower profitability related expenses. The unfavorable development of loss reserves is largely the result of
re-estimates of California BI losses . The primary causes of the net loss during the second quarter of 2012 were driven by unfavorable
development on loss reserves, catastrophic losses in the Midwest region, and declines in the fair value of the Company’s equity
securities due to the overall decline in the equity markets. The net loss during the fourth quarter of 2012 was primarily due to
increased losses resulting from catastrophe losses from Hurricane Sandy, high seasonal frequency in California, and declines in
the fair value of the Company’s municipal and equity securities due to the overall decline in the municipal and equity markets.
Net income during 2011 was mainly affected by lower policy acquisition costs and operating expenses, offset by unfavorable
development on loss reserves. The lower policy acquisition costs are due to the lower premium deficiency reserve and declines
in other underwriting costs including agent contingent commissions. The operating expenses in 2011 decreased as a result of
decreased consulting, advertising, and information technology expenditures. The unfavorable development of loss reserves is
largely the result of re-estimates of California BI losses. The primary causes of the net loss during the third quarter of 2011 were
driven by declines in the fair value of the Company’s equity securities due to the overall decline in the equity markets.
19. Subsequent Events
During January 2013, the Company announced a net workforce reduction of approximately 135 employees, representing
less than 3% of the total workforce, resulting from the consolidation of its claims and underwriting operations located outside of
California into hub locations in Florida, New Jersey, and Texas. Approximately $8 million to $13 million (pre-tax) of office closure
costs and severance related expense will be recognized during the first quarter of 2013.