A sharp drop in realized investment gains, coupled with increased expenses, caused a 49 percent plunge in Merchants Group Inc.'s second-quarter profits, the Buffalo-based insurance company said Thursday.
Merchants said its profits fell to $1.06 million, or 35 cents per share, from $2.07 million, or 64 cents per share, a year ago.
The main reason for the sharp decline in profits was the lack of realized investment gains during the quarter. Merchants realized a loss of $4,000 from its investments during the second quarter, compared with a gain of $935,000 a year ago, when it had a one-time gain of $749,000, or 23 cents per share, mostly because it sold its investment in Signet Plc.
Excluding the realized investment gains and losses, Merchants' profits fell by 28 percent to $1.06 million from $1.47 million, the company said.
Merchants said its revenues fell by 3 percent to $27.4 million from $28.1 million a year earlier, mostly because of the sharp decline in realized investment gains.
The company's net premiums earned fell by 1 percent to $24.2 million from $24.4 million. Its net investment income rose by 14 percent to $3.2 million from $2.8 million.
Merchants' direct written premiums fell by 3 percent to $26.2 million from $27.1 million. Premiums for voluntary lines rose by 4 percent to $10 million from $9.6 million, mostly because of an increase in new private automobile policies. Voluntary commercial direct written premiums fell by 13 percent to $13.3 million from $15.3 million, largely because of a drop in the number of policies covering unprofitable portions of its workers' compensation business.
The company's expenses rose by 2 percent to $26 million from $25.5 million, mostly because higher costs from its assigned-risk policies led to a $326,000 increase in deferred policy acquisition costs and other expenses. Merchants' losses and loss adjustment expenses rose by $193,000.
The company's combined statutory ratio rose to 106.9 from 103.7. A ratio of more than 100 indicates that a company is losing money on its basic insurance underwriting business, while a ratio below that level indicates that it is profitable.
The book value of Merchants common stock rose to $21.82 per share at the end of June from $21.25 at the end of December.
For the first half of the year, Merchants' profits fell by 15 percent to $1.54 million, or 51 cents per share, from $1.8 million, or 56 cents per share, a year earlier. Revenues slid by 2 percent to $53.6 million from $54.5 million.