Mercury General Corporation Announces Third Quarter Results and Increases Quarterly Dividend

PRNewswire-FirstCall
LOS ANGELES
Nov 2, 2009

Mercury General Corporation (NYSE: MCY) reported today for the third quarter of 2009:

                         Consolidated Highlights

                                     Three Months Ended
                                         September 30,         Change
                                                               ------
                                       2009        2008       $       %
                                       ----        ----       -       -
  (000's except per-share
   amounts and ratios)
  Net premiums written (1)         $662,756    $695,142   $(32,386) (4.7)
  Net income (loss)                $157,737   $(140,539)  $298,276     -
  Net income (loss) per diluted
   share                              $2.85      $(2.57)     $5.42     -
  Operating income (1)              $46,345     $39,493     $6,852  17.3
  Operating income per diluted
   share (1)                          $0.84       $0.72      $0.12  16.7
  Severance related expenses (2)         $-          $-         $-     -
  Net expense related to
   amortization of December 31, 2008
   AIS deferred policy acquisition
   costs (2) (3)                         $-          $-         $-     -
  Catastrophe losses (2) (4)             $-      $6,000    $(6,000)    -
  Favorable tax ruling (5)               $-     $17,500   $(17,500)    -
  Combined ratio                       96.4%      102.0% (5.6) pts     -



                                     Nine Months Ended
                                       September 30,           Change
                                                               ------
                                     2009        2008         $       %
                                     ----        ----         -       -
  (000's except per-share
   amounts and ratios)
  Net premiums written (1)       $1,971,053  $2,108,585  $(137,532) (6.5)
  Net income (loss)                $368,837    $(73,774)  $442,611     -
  Net income (loss) per diluted
   share                              $6.70      $(1.35)     $8.05     -
  Operating income (1)             $139,680    $142,425    $(2,745) (1.9)
  Operating income per diluted
   share (1)                          $2.54       $2.60     $(0.06) (2.3)
  Severance related expenses (2)     $8,000          $-     $8,000     -
  Net expense related to
   amortization of December 31, 2008
   AIS deferred policy acquisition
   costs (2) (3)                    $15,000          $-    $15,000     -
  Catastrophe losses (2) (4)             $-       6,000    $(6,000)    -
  Favorable tax ruling (5)               $-      17,500   $(17,500)    -
  Combined ratio                       96.5%       98.1% (1.6) pts     -


  (1) These measures are not based on U.S. generally accepted accounting
  principles ("GAAP") and are defined and reconciled to the most directly
  comparable GAAP measures in "Information Regarding Non-GAAP Measures."

  (2) The amounts are estimated and rounded to the nearest million.

  (3) Represents the net expense related to Auto Insurance Specialists, LLC
  ("AIS") deferred commissions at December 31, 2008 amortized in 2009,
  partially offset by deferred costs related to policy sales made by AIS in
  2009.

  (4) Catastrophe losses in 2008 were primarily a result of Hurricane Ike.

  (5) The Company recognized a net tax benefit of $17.5 million in the third
  quarter 2008 as a result of a favorable California Superior Court ruling.
  This amount is included in both the operating income and net loss for
  2008.

Net income in the third quarter 2009 was $157.7 million ($2.85 per share-diluted) compared with net loss of $140.5 million ($2.57 per share-diluted) for the same period in 2008. For the first nine months of 2009, net income was $368.8 million ($6.70 per share-diluted) compared with net loss of $73.8 million ($1.35 per share-diluted) for the same period in 2008. Included in net income (loss) are net realized investment gains, net of tax, of $111.4 million ($2.01 per share-diluted) in the third quarter of 2009 compared with net realized investment losses, net of tax, of $180.0 million ($3.29 per share-diluted) for the same period in 2008, and net realized investment gains, net of tax, of $229.2 million ($4.16 per share-diluted) for the first nine months of 2009 compared with net realized investment losses, net of tax, of $216.2 million ($3.95 per share) for the same period in 2008. Operating income was $46.3 million ($0.84 per share-diluted) for the third quarter of 2009, a 17.3% increase over the same period in 2008, and $139.7 million ($2.54 per share-diluted) for the first nine months of 2009, a 1.9% decrease over the same period in 2008.

As a result of adopting the fair value accounting option, changes in unrealized gains and losses on all investments were recorded as net realized gains and losses in the statement of operations. Net realized investment gains, net of tax, of $111.4 million for the third quarter of 2009 and $229.2 million for the first nine months of 2009 include gains, net of tax, from the adoption of the fair value accounting option, of $124.3 million and $263.6 million, respectively. Partially offsetting these gains were $12.3 million and $36.9 million in losses, net of tax, from the sale of securities during the third quarter and the first nine months of 2009, respectively.

Net premiums written were $662.8 million in the third quarter of 2009, a 4.7% decrease over the third quarter 2008 net premiums written of $695.1 million, and were approximately $2.0 billion for the first nine months of 2009, a 6.5% decrease over the same period in 2008. The rate of premium decline has slowed over the last few quarters. The premium decrease was 8.0% and 6.8% in the first and second quarter 2009, respectively, over comparable quarters in 2008.

The Company's combined ratio (GAAP basis) was 96.4% in the third quarter and 96.5% for the first nine months of 2009 compared with 102.0% and 98.1% for the same periods in 2008. Loss development on prior accident years' loss reserves was approximately $40 million positive for the nine months ended September 30, 2009, compared with approximately $46 million adverse for the same period in 2008. The positive development in 2009 is largely the result of re-estimates of accident year 2008 California bodily injury losses which have experienced both lower average severities and fewer late reported claims (claim count development) than was originally estimated at December 31, 2008.

Net investment income of $35.2 million (after tax, $32.0 million) in the third quarter of 2009 decreased by 7.6% over the same period in 2008. The investment income after-tax yield was 4.0% on average investments (fixed maturities at amortized cost, equities and short-term investments at cost) of $3.2 billion for the third quarter 2009. This compares with an investment income after-tax yield of 3.9% on average investments of $3.4 billion for the same period in 2008. Net investment income for the first nine months of 2009 was $109.3 million (after tax, $98.0 million), a decrease of 6.1% over the same period in 2008. The investment income after-tax yield was 4.1% on average assets of $3.2 billion for the first nine months of 2009. This compares with an investment income after-tax yield of 3.9% on average investments of $3.5 billion for the same period in 2008.

The Board of Directors declared a quarterly dividend of $0.59 per share, representing a 1.7% increase over the quarterly dividend amount paid in 2008. The dividend is to be paid on December 30, 2009 to shareholders of record on December 16, 2009.

Mercury General Corporation and its subsidiaries are a multiple line insurance organization offering predominantly personal automobile and homeowners insurance through a network of independent producers in many states. For more information, visit the Company's website at www.mercuryinsurance.com. The Company will be hosting a conference call and webcast today at 10:00 A.M. Pacific time where management will discuss results and address questions. The teleconference and webcast can be accessed by calling (877) 807-1888 (USA), (706) 679-3827 (International) or by visiting www.mercuryinsurance.com. A replay of the call will be available beginning at 1:30 P.M. Pacific time and running through November 9, 2009. The replay telephone numbers are (800) 642-1687 (USA) or (706) 645-9291 (International). The conference ID# is 35610503. The replay will also be available on the Company's website shortly following the call.

The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for certain forward-looking statements. The statements contained in this press release are forward-looking statements based on the Company's current expectations and beliefs concerning future developments and their potential effects on the Company. There can be no assurance that future developments affecting the Company will be those anticipated by the Company. Actual results may differ from those projected in the forward-looking statements. These forward-looking statements involve significant risks and uncertainties (some of which are beyond the control of the Company) and are subject to change based upon various factors, including but not limited to the following risks and uncertainties: changes in the demand for the Company's insurance products, inflation and in general economic conditions, including the impact of current economic conditions on the Company's market and investment portfolio; the accuracy and adequacy of the Company's pricing methodologies; adverse weather conditions or natural disasters in the markets served by the Company; general market risks associated with the Company's investment portfolio; uncertainties related to estimates, assumptions and projections generally; the possibility that actual loss experience may vary adversely from the actuarial estimates made to determine the Company's loss reserves in general; the Company's ability to obtain and the timing of regulatory approval for requested rate changes; legislation adverse to the automobile insurance industry or business generally that may be enacted in California or other states; the Company's success in managing its business in states outside of California; the Company's ability to successfully complete its initiative to standardize its policies and procedures nationwide in all of its functional areas; the presence of competitors with greater financial resources and the impact of competitive pricing; changes in driving patterns and loss trends; acts of war and terrorist activities; court decisions and trends in litigation and health care and auto repair costs and marketing efforts; and various legal, regulatory and litigation risks. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise. For a more detailed discussion of some of the foregoing risks and uncertainties, see the Company's filings with the Securities and Exchange Commission.

Information Regarding Non-GAAP Measures

The Company has presented information within this document containing operating measures which in management's opinion provide investors with useful, industry specific information to help them evaluate, and perform meaningful comparisons of, the Company's performance, but that may not be presented in accordance with U.S. generally accepted accounting principles. These measures are not intended to replace, and should be read in conjunction with, the GAAP financial results.

Operating income is net income excluding realized investment gains and losses, net of tax. Net income is the GAAP measure that is most directly comparable to operating income.

Operating income is used by management along with the other components of net income to assess the Company's performance. Management uses operating income as an important measure to evaluate the results of the Company's insurance business. Management believes that operating income provides investors with a valuable measure of the Company's ongoing performance as it reveals trends in the Company's insurance business that may be obscured by the net effect of realized capital gains and losses. Realized capital gains and losses may vary significantly between periods and are generally driven by external economic developments such as capital market conditions. Accordingly, operating income excludes the effect of items that tend to be highly variable from period to period and highlights the results from ongoing operations and the underlying profitability of the Company's core insurance business. Therefore, the Company believes that it is useful for investors to evaluate net income and operating income separately when reviewing and evaluating its performance. Operating income is meant as supplemental information and it should not be considered as a substitute for net income and does not reflect the overall profitability of our business. It should be read in conjunction with the GAAP financial results. The Company has reconciled operating income with the most directly comparable GAAP measure in the table below.

                                            Three Months Ended
                                               September 30,
                                                           Per diluted
                                            Total            share (1)
                                            -----           -----------
                                     2009        2008     2009     2008
                                     ----        ----     ----     ----
  (000's except per-share amounts)
  Operating income                  $46,345     $39,493    $0.84    $0.72
  Net realized investment gains
   (losses), net of tax             111,392    (180,032)    2.01    (3.29)
                                    -------    --------     ----    -----
  Net income (loss)                $157,737   $(140,539)   $2.85   $(2.57)
                                   ========   =========    =====   ======



                                             Nine Months Ended
                                               September 30,
                                                           Per diluted
                                          Total              share (1)
                                          -----             -----------
                                     2009        2008      2009     2008
                                     ----        ----      ----     ----
  (000's except per-share amounts)
  Operating income                 $139,680    $142,425    $2.54    $2.60
  Net realized investment gains
   (losses), net of tax             229,157    (216,199)    4.16    (3.95)
                                    -------    --------     ----    -----
  Net income (loss)                $368,837    $(73,774)   $6.70   $(1.35)
                                   ========    ========    =====   ======

  (1) The dilutive impact of incremental shares is excluded from loss
  positions in 2008 in accordance with GAAP.


Net premiums written represents the premiums charged on policies issued during a fiscal period. Net premiums earned, the most directly comparable GAAP measure, represents the portion of premiums written that is recognized as income in the financial statements for the periods presented and earned on a pro-rata basis over the term of the policies. Net premiums written is meant as supplemental information and is not intended to replace net premiums earned. It should be read in conjunction with the GAAP financial results. The Company has reconciled net premiums written with the most directly comparable GAAP measure in the supplemental schedule entitled, "Summary of Operating Results."

Paid losses and loss adjustment expenses is the portion of incurred losses and loss adjustment expenses, the most directly comparable GAAP measure, excluding the effects of changes in the loss reserve accounts. Paid losses and loss adjustment expenses is meant as supplemental information and is not intended to replace incurred losses and loss adjustment expenses. It should be read in conjunction with the GAAP financial results. The Company has reconciled paid losses and loss adjustment expenses with the most directly comparable GAAP measure in the supplemental schedule entitled, "Summary of Operating Results."

Combined ratio-accident period basis is computed as the difference between two GAAP operating ratios: the combined ratio and the effect of prior accident periods' loss development. The most directly comparable GAAP measure is the combined ratio. The Company believes that this ratio is useful to investors and it is used by management to reveal the trends in the Company's business that may be obscured by development on prior accident periods' loss reserves. Combined ratio-accident period basis is meant as supplemental information and is not intended to replace combined ratio. It should be read in conjunction with the GAAP financial results. The Company has reconciled combined ratio-accident period basis with the most directly comparable GAAP measure in the table below.

                                             Nine Months Ended
                                                September 30,
                                              2009        2008
                                              ----        ----

  Combined ratio-accident period basis        98.5%       95.9%
  Effect of estimated prior periods' loss
   development                                -2.0%        2.2%
                                              ----         ---
  Combined ratio                              96.5%       98.1%
                                              ====        ====




               Mercury General Corporation and Subsidiaries
                      Summary of Operating Results
               (000's except per-share amounts and ratios)
                               (unaudited)


                                    Quarter Ended       Nine Months Ended
                                    September 30,         September 30,
                                  2009       2008       2009        2008
                                  ----       ----       ----        ----
  Net premiums written          $662,756   $695,142  $1,971,053  $2,108,585

  Revenues:
    Net premium earned          $653,758   $696,605   1,979,032   2,128,725
    Net investment
     income                       35,208     38,086     109,334     116,380
    Net realized investment
     gains (losses)              171,373   (276,973)    352,549    (332,614)
    Other                            895      1,313       3,256       3,809
                                     ---      -----       -----       -----
            Total revenues      $861,234   $459,031  $2,444,171  $1,916,300
                                --------   --------  ----------  ----------
  Expenses:
    Incurred losses              446,436    511,806   1,336,191   1,484,824
    Policy acquisition
     costs                       130,172    154,530     414,062     472,112
    Other operating
     expenses                     53,766     44,350     158,616     131,834
    Interest                       1,634      1,663       5,059       3,659
                                   -----      -----       -----       -----
            Total expenses      $632,008   $712,349  $1,913,928  $2,092,429
                                --------   --------  ----------  ----------

  Income before income
   taxes                        $229,226  $(253,318)   $530,243   $(176,129)
     Income tax expense           71,489   (112,779)    161,406    (102,355)
                                  ------   --------     -------    --------
              Net income
               (loss)           $157,737  $(140,539)   $368,837    $(73,774)
                                ========  =========    ========    ========

  Basic average shares
   outstanding                    54,770     54,748      54,769      54,737
  Diluted average shares
   outstanding                    55,313     55,062      55,081      54,926


  Basic Per Share Data
  --------------------
  Net income (loss)                $2.88     $(2.57)      $6.73      $(1.35)
                                   =====     ======       =====      ======

  Net realized investment
   gains (losses), net of tax      $2.03     $(3.29)      $4.18      $(3.95)
                                   =====     ======       =====      ======


  Diluted Per Share Data
  ----------------------
  Net income (loss)                $2.85     $(2.57)      $6.70      $(1.35)
                                   =====     ======       =====      ======

  Net realized investment
   gains (losses), net of
   tax (a)                         $2.01     $(3.29)      $4.16      $(3.95)
                                   =====     ======       =====      ======


  Operating Ratios-
   GAAP Basis
  -----------------
  Loss ratio                        68.3%      73.5%       67.5%       69.7%
  Expense ratio                     28.1%      28.5%       29.0%       28.4%
                                    ----       ----        ----        ----
  Combined ratio                    96.4%     102.0%       96.5%       98.1%
                                    ====      =====        ====        ====


  Reconciliations of
   Operating Measures to
   Comparable GAAP Measures
  -------------------------

  Net premiums written          $662,756   $695,142  $1,971,053  $2,108,585
  (Increase) decrease in
   unearned premiums              (8,998)     1,463       7,979      20,140
                                  ------      -----       -----      ------
  Net premiums earned           $653,758   $696,605  $1,979,032  $2,128,725
                                ========   ========  ==========  ==========

  Paid losses and loss
   adjustment expenses          $460,609   $483,141  $1,413,408  $1,539,395
  (Decrease) increase in
   net loss and loss
   adjustment expense
   reserves                      (14,173)    28,665     (77,217)    (54,571)
                                 -------     ------     -------     -------
  Incurred losses and loss
   adjustment expenses          $446,436   $511,806  $1,336,191  $1,484,824
                                ========   ========  ==========  ==========

  (a) The dilutive impact of incremental shares in 2008 is excluded from
  loss positions in accordance with GAAP



            Mercury General Corporation and Subsidiaries
           Condensed Balance Sheets and Other Information
             (000's except per-share amounts and ratios)

                                 September 30, 2009   December 31, 2008
                                 ------------------   -----------------
                                     (unaudited)
           ASSETS
           ------
  Investments:
    Fixed maturities trading,
     at fair value (amortized
     cost $2,692,117;
     $2,728,471)                      $2,728,815        $2,481,673
    Equity securities
     trading, at fair
     value (cost $321,911;
     $403,773)                           287,720           247,391
    Short-term investments,
     at fair value
     (amortized cost
     $126,328; $208,278)                 126,172           204,756
                                         -------           -------
          Total investments            3,142,707         2,933,820
  Cash                                   204,194            35,396
  Receivables:
    Premiums receivable                  267,684           268,227
    Premium notes                         23,357            25,699
    Accrued investment income             38,168            36,540
    Other                                  9,835             9,526
                                           -----             -----
          Total receivables              339,044           339,992
  Deferred policy
   acquisition costs                     182,237           200,005
  Fixed assets, net                      200,930           191,777
  Current income taxes                         0            43,378
  Deferred income taxes                   63,604           171,025
  Goodwill                                42,850             5,206
  Other intangible assets                 68,526                 0
  Other assets                            29,755            29,596
                                          ------            ------
    Total assets                      $4,273,847        $3,950,195
                                      ==========        ==========



     LIABILITIES AND SHAREHOLDERS' EQUITY
     ------------------------------------
  Losses and loss adjustment
   expenses                           $1,055,887        $1,133,508
  Unearned premiums                      871,698           879,651
  Notes payable                          272,690           158,625
  Accounts payable and
   accrued expenses                      133,954            93,864
  Current income taxes                     7,113                 0
  Other liabilities                      163,892           190,496
  Shareholders' equity                 1,768,613         1,494,051
                                       ---------         ---------
    Total liabilities and
     shareholders' equity             $4,273,847        $3,950,195
                                      ==========        ==========



         OTHER INFORMATION
         -----------------
  Common stock-shares outstanding         54,770            54,764
  Book value per share                    $32.29            $27.28
  Estimated statutory surplus       $1.5 billion      $1.4 billion
  Estimated premiums written to
   surplus ratio                             1.8               2.0
  Debt to total capital ratio               13.4%              9.6%
  Portfolio duration                   5.0 years         6.5 years
  Policies-in-Force
   (Company-wide "PIF")
     Personal Auto PIF                     1,288             1,321
     Homeowners PIF                          321               303

First Call Analyst:
FCMN Contact: jwalters@mercuryinsurance.com

SOURCE: Mercury General Corporation

CONTACT: Theodore Stalick, VP/CFO of Mercury General Corporation,
+1-323-937-1060

Web Site: http://www.mercuryinsurance.com/

Company News On-Call: http://www.prnewswire.com/comp/554587.html


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