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Profits at Merchants Group rose 40 percent in the third quarter as lower underwriting losses, taxes, and other expenses outweighed a drop in premiums and investment income.

The Buffalo-based property and casualty insurer earned $1.16 million, or 55 cents per share, up from $828,000, or 39 cents per share, in the same quarter a year ago. Shares rose 10 cents to close at $23.05.

Merchants, which offers personal auto and commercial property and casualty insurance through independent agents in the Northeast, has benefited from a decision to focus on business insurance and to stop writing new auto policies in certain places in New York, Rhode Island and all of New Jersey. That reduced its written premiums, but cut its policy losses even more.

"We're real pleased this year with the results of our company," said Kenneth J. Wilson, chief financial officer.

Total revenues fell 13 percent to $16.3 million, as net premiums earned dropped 13 percent to $14.2 million and net investment income fell 12 percent to $1.9 million because of lower interest rates. Part of the decline in premiums was due to the company sharing a larger percentage of total premiums with its affiliated member-owned mutual insurance company.

Merchants Group operates through Merchants Insurance Co. of New Hampshire, which insures higher-quality "preferred" customers. It's 12 percent owned by Merchants Mutual Insurance Co., which handles standard customers. Merchants Group and Merchants Mutual manage their business together but separate it for earnings, with Merchants Group reporting 35 percent of the combined underwriting gains and losses in 2004. Last year, that share was 40 percent.

Companywide, combined direct premiums rose 8 percent to $48.6 million, including a new commercial umbrella policy offered through one independent agency.

Commercial premiums rose 13 percent to $30.4 million, with increases in every business, while voluntary personal auto premiums fell 23 percent to $13.1 million because of the 2002 decision to drop business in some markets. In particular, the company stopped writing new policies in New Jersey in June 2003, started "non-renewing" policies in June 2004, and will be out of the state by May 2005.

Net underwriting losses fell 35 percent to $8.9 million. Total expenses fell 15 percent to $15 million. And the company set aside 47 percent less money for taxes because of a change in state law.


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