A steep drop in loss expenses helped Merchants Group's first-quarter profits soar by 47 percent, the Buffalo-based insurance company said Friday.
Merchants' profits surged to $1.19 million, or 56 cents per share, from $811,000, or 38 cents per share, a year ago, when the company had $377,000 in investment gains.
Because Merchants had no investment gains during the first quarter of this year, its operating profits more than doubled from $562,000, or 26 cents per share, a year ago.
Merchants increased its profits even though its revenues fell by 16 percent to $14 million from $16.7 million because of the lack of realized investment gains and the company's move away from auto insurance in certain markets.
Merchants Mutual Insurance Co. owns a 12.1 percent stake in Merchants Group. Under a pooling agreement, the businesses are combined, but Merchants Group's earnings reflect only a portion of the pooled business. That share dropped to 30 percent this year from 35 percent in 2004 and 40 percent in 2003, resulting in lower reported revenues for Merchants Group.
The company's premiums fell by 15 percent to $12 million from $14.1 million a year ago because of the lower pooling share. Net investment income dropped by 6 percent to $1.9 million because of a 7 percent dip in the size of its investment portfolio.
Companywide, Merchants' total premiums grew by less than 1 percent to $45.3 million, as a 12 percent increase in commercial premiums and a 9 percent jump in premiums on its umbrella coverage were offset by a 27 percent drop in voluntary personal premiums. Most of that drop was due to a 37 percent decline in its private passenger auto premiums.
Merchants offers personal home and auto insurance and a range of commercial insurance in the Northeast, but is cutting back on its auto insurance business in some markets because of higher losses and instead is focusing on certain types of commercial policies.
The company has stopped writing new auto policies in New York and Rhode Island, and is pulling out of New Jersey altogether, though it still writes homeowners and commercial policies in that state.
While that cut into Merchants' premiums, it has made a big dent in its loss expenses, which tumbled by 28 percent to $7.3 million because of better underwriting and the lower pooling share.