Mercer Insurance Group Inc. Reports Operating Results (10-Q)

Mercer Insurance Group Inc. (MIGP) filed Quarterly Report for the period ended 2009-03-31.

Mercer Insurance Group builds the service around clients. They have established their company and the good reputation through continually reaching for innovative new levels of service previously unprecedented in the industry. One key factor is that they very quickly adapt and customize their services to each client. Mercer Insurance Group Inc. has a market cap of $97.74 million; its shares were traded at around $15.2 with a P/E ratio of 7.6 and P/S ratio of 0.61. The dividend yield of Mercer Insurance Group Inc. stocks is 1.97%.

Highlight of Business Operations:

In the first quarter of 2009, the Company recorded $535,000 in OTTI write-downs. Six securities were written down, including a mortgage backed security ($286,000), an asset backed security ($46,000), two equity positions ($64,000), and two capital trust preferred stock securities ($139,000). All were treated as other than temporarily impaired as a result of deteriorating underlying collateral issues, including increased delinquency and default rates and slower payments, as well as declining business conditions and rating agency downgrades.

Net income for the quarter ended March 31, 2009 increased by $299,000 or 11.5% over the net income for the quarter ended March 31, 2008, going from $2.59 million to $2.89 million.

Net realized investment losses amounted to $481,000 for the first three months of 2009, which is primarily driven by other than temporary impairment write-downs on investment securities, as well as a realized gain on the mark-to-market valuation on the interest rate swaps for the trust preferred securities (which convert the interest rate on our trust preferred obligations from floating to fixed) and a realized loss on the sales of investments. Net realized investment losses amounted to $820,000 for the first three months of 2008, driven primarily by changes in the fair value of the interest rate swaps for the floating rate trust preferred securities. Other revenue of $0.5 million and $0.5 million for the first three months of 2009 and 2008, respectively, represents primarily service charges recorded on insurance premium payment plans. Interest expense of $352,000 and $296,000 for the first three months of 2009 and 2008, respectively, represents interest charges on the trust preferred obligations of FPIG.

Total revenues declined to $39.2 million from $42.1 million in the three months ended March 31, 2009, as compared to the prior year. Net premiums earned totaled $35.6 million for the first three months of 2009 as compared to $39.1 million for the first three months of 2008, representing a 8.9% or $3.5 million decrease. Net premiums written decreased $2.7 million or 7.8% to $31.9 million for the first three months of 2009 as compared to $34.5 million for the first three months of 2008. The decline in net premiums written is attributable to the 8.6% decline in direct premiums written, offset by the positive impact on net premiums written of the change in reinsurance structure (in 2009 working-layer retention increased to $1,000,000 from $850,000, and in 2008 working-layer retention increased to $850,000 from $750,000, on casualty and property lines). Direct premiums written and earned were negatively impacted in large part by the weak economy, particularly as it relates to the new construction industry in California, an important operating territory for the Company.

In the first three months of 2009, direct premiums written declined $3.3 million or 8.6% to $35.0 million, as compared to $38.3 million in the first three months of 2008. The decline in direct premiums written is attributable to a more difficult economic environment, particularly in our California operating territory, as well as competitive market conditions and continuing competition on large accounts.

Effective January 1, 2009, the Group renewed its reinsurance coverages with a number of changes. The retention on any individual property or casualty risk was increased to $1.0 million from $850,000. Umbrella liability written by FPIC is now reinsured on a 75% quota share basis up to $1.0 million and on a 100% quota share basis in excess of $1.0 million.