Lower expenses, coupled with a shift away from some unprofitable workers compensation insurance lines, helped Merchants Group Inc.'s third-quarter profits more than quadruple, the Buffalo-based firm said Thursday.
Merchants said its profits soared by 316 percent to $1.29 million, or 43 cents per share, from $310,000, or 10 cents per share, in the same quarter a year ago.
The insurance company was able to boost its profits even though its revenues were nearly flat at $27.07 million, compared with $27.05 million the year before.
"We're happy with it, but I don't want to say we're satisfied," said Robert M. Zak, Merchants' chief operating officer.
"We're pleased with the progress," he said. "A lot of the things that are showing are the result of things we started working on last year."
One of the main moves that Merchants has made over the last year is to shift away from some lines of workers compensation insurance, which lost money consistently and exposed the company to losses that were difficult to control, Zak said. As a result, Merchants' workers compensation direct written premiums fell by 27 percent during the quarter to $1.38 million from $1.89 million.
That drop was offset by new business that resulted from Merchants' more aggressive push into the personal auto insurance market, particularly among middle- and upper-income drivers, Zak said. Merchants' direct written premiums for voluntary personal lines rose by 5 percent to $10.6 million from $10.1 million a year ago.
In all, Merchants' total voluntary direct written premiums were virtually unchanged at $23.17 million.
The company's net investment income rose by 10 percent to $3.22 million from $2.92 million, mainly because of a shift in its portfolio toward taxable investments, which pay higher yields, coupled with a 7 percent increase in the size of its investment fund to $216.5 million.
Merchants' total expenses also fell by 5 percent to $25.4 million from $26.8 million a year ago, mainly because the company was able to make a smaller increase in its reserves for losses that occurred in previous years. Last year's expenses also were inflated because of $335,000 in one-time costs.
The company's combined statutory ratio fell to 105.9 from 111.8 a year ago. 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 $22.73 per share at the end of September, compared with $21.82 per share at the end of June and $21.25 at the end of December.
Merchants also said its board of directors has authorized the company to buy back up to 100,000 more shares of its common stock. Merchants already has bought back 317,500 shares under a 325,000-share repurchase program during the second quarter of last year, including 156,800 shares so far this year.
For the first nine months of this year, Merchants' profits rose by 34 percent to $2.83 million, or 94 cents per share, from $2.11 million, or 66 cents per share, a year ago. Revenues fell by 1 percent to $80.6 million from $81.5 million.