Mercury General Corporation Announces Fourth Quarter Results and Declares Quarterly Dividend

PRNewswire-FirstCall
LOS ANGELES
Feb 9, 2009

Mercury General Corporation (NYSE: MCY) reported today for the fourth quarter of 2008:

                         Consolidated Highlights

                               Three Months Ended
                                   December 31,            Change
                                                           ------
                                2008        2007        $          %
                                ----        ----        -          -
  (000's except per-share
   amounts and ratios)
  Net premiums written (1)   $641,641    $699,898   $(58,257)     (8.3)
  Net income (loss)          (168,345)     44,592   (212,937)   (477.5)
  Net income (loss) per
   diluted share (2)            (3.07)       0.81      (3.88)   (479.0)
  Operating income (loss)
   (1)                        (26,706)     38,214    (64,920)   (169.9)
  Operating income (loss)
   per diluted share (1)        (0.48)       0.69      (1.17)   (169.6)
  Adverse development on
   prior periods' loss
   reserves (3)               (33,000)    (13,000)   (20,000)       --
  Combined ratio               113.4%       98.8%         --  14.6 pts
  Combined ratio-accident
   period basis (1)            108.5%       97.0%         --  11.5 pts


                               Twelve Months Ended
                                   December 31,            Change
                                                           ------
                                2008        2007        $          %
                                ----        ----        -          -
  (000's except per-share
   amounts and ratios)
  Net premiums written (1) $2,750,226  $2,982,024  $(231,798)     (7.8)
  Net income (loss)          (242,119)    237,832   (479,951)   (201.8)
  Net income (loss) per
   diluted share (2)            (4.42)       4.34      (8.76)   (201.8)
  Operating income (loss)
   (1)                        115,719     224,307   (108,588)    (48.4)
  Operating income (loss)
   per diluted share (1)         2.12        4.09      (1.97)    (48.2)
  Adverse development on
   prior periods' loss
   reserves (3)               (83,000)    (19,000)   (64,000)       --
  Combined ratio               101.8%       95.4%         --   6.4 pts
  Combined ratio-accident
   period basis (1)             98.8%       94.8%         --   4.0 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 dilutive impact of incremental shares is excluded from
          loss positions in 2008 in accordance with GAAP.
      (3) The amounts are estimated and rounded to the nearest million.


Net loss in the fourth quarter 2008 was $168.3 million ($3.07 per share) compared with net income of $44.6 million ($0.81 per share-diluted) for the same period in 2007. For the year, net loss was $242.1 million ($4.42 per share) compared to net income of $237.8 million ($4.34 per share-diluted) for the same period in 2007. Included in net income (loss) are net realized investment losses, net of tax, of $141.6 million ($2.59 per share) in the fourth quarter of 2008 compared with net realized investment gains, net of tax, of $6.4 million ($0.12 per share-diluted) for the same period in 2007, and net realized investment losses, net of tax, of $357.8 million ($6.54 per share) for the year compared to net realized investment gains, net of tax, of $13.5 million ($0.25 per share-diluted) for the same period in 2007. Operating loss was $26.7 million ($0.48 per share) for the fourth quarter of 2008, down 169.9% from the same period in 2007. For the year, operating income was $115.7 million ($2.12 per share), down 48.4% from the same period in 2007.

Net realized investment losses, net of tax, of $141.6 million in the fourth quarter of 2008 and net realized investment losses, net of tax, of $357.8 million for the year include losses, net of tax, of $121.3 million and $341.7 million, respectively, due to adoption of SFAS No. 159, "The Fair Value Option for Financial Assets and Financial Liabilities," for the entire investment portfolio on January 1, 2008. As a result of this adoption, changes in unrealized gains and losses on all investments that were previously recorded as changes to accumulated other comprehensive income on the balance sheet are now recorded as realized gains and losses on the statement of operations. The declines in the market value of our fixed income and equity portfolios resulted from asset sell-off's in the broader capital markets as a result of economic factors that have triggered a deep recession in the U.S. and World economies.

Company-wide net premiums written were $641.6 million in the fourth quarter 2008, an 8.3% decrease over the fourth quarter 2007 net premiums written of $699.9 million, and were approximately $2.8 billion for the year, a 7.8% decrease over the same period in 2007. California net premiums written were $506.0 million in the fourth quarter of 2008, a decrease of 7.6% over the same period in 2007, and were approximately $2.2 billion for the year, a 6.2% decrease over the same period in 2007. Non-California net premiums written were $135.6 million in the fourth quarter of 2008, a 10.8% decrease over the same period in 2007, and were $589.0 million for the year, a decrease of 13.1% over the same period in 2007.

Losses incurred during the fourth quarter 2008 were impacted by approximately $20 million of losses related to the Southern California wildfires occurring in October 2008, high loss severity inflation on the California automobile lines of business, adverse development on prior periods loss reserves and poor results from our New Jersey operations.

Net investment income of $34.9 million (after tax $31.5 million) in the fourth quarter of 2008 decreased by 5.0% over the same period in 2007. The after-tax yield on investment income was 3.7% on average investments of $3.4 billion (fixed maturities, equities and short-term investments at cost) for the quarter. This compares with an after-tax yield on investment income of 3.8% on average investments of $3.5 billion (fixed maturities, equities and short-term investments at cost) for the same period in 2007. Net investment income for the year was $151.3 million (after tax $133.7 million), a decrease of 4.8% over the same period in 2007. The after-tax yield on investment income was 3.9% on average assets of $3.5 billion (fixed maturities, equities and short-term investments at cost) for the year, compared with an after-tax yield on investment income of 4.0% on average investments of $3.5 billion (fixed maturities, equities and short-term investments at cost) for the same period in 2007.

The Board of Directors declared a quarterly dividend of $0.58 per share. The dividend is to be paid on March 31, 2009 to shareholders of record on March 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 February 16, 2009. The replay telephone numbers are (800) 642-1687 (USA) or (706) 645-9291 (International). The conference ID# is 81181516. 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 the current liquidity crisis and economic weakness 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 expanding 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 meant as supplemental information and is not intended to replace net income. 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
                                                      December 31,
                                                              Per diluted
                                                  Total          share
                                                  -----       -----------
                                              2008      2007   2008   2007
                                              ----      ----   ----   ----
  (000's except per-share amounts)
  Operating income (loss)                 $(26,706)  $38,214 $(0.48) $0.69
  Net realized investment gains
   (losses), net of tax                   (141,639)    6,378  (2.59)  0.12
                                          --------     -----  -----   ----
  Net income (loss)                       (168,345)   44,592  (3.07)  0.81
                                          ========    ======  =====   ====


                                                  Twelve Months Ended
                                                      December 31,
                                                              Per diluted
                                                  Total          share
                                                  -----       -----------
                                              2008      2007   2008   2007
                                              ----      ----   ----   ----
  (000's except per-share amounts)
  Operating income (loss)                 $115,719  $224,307  $2.12  $4.09
  Net realized investment gains
   (losses), net of tax                   (357,838)   13,525  (6.54)  0.25
                                          --------    ------  -----   ----
  Net income (loss)                       (242,119)  237,832  (4.42)  4.34
                                          ========   =======  =====   ====



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.

                                          Three Months   Twelve Months
                                             Ended          Ended
                                            December       December
                                               31,            31,
                                           2008  2007     2008  2007
                                           ----  ----     ----  ----

  Combined ratio-accident period basis    108.5% 97.0%    98.8% 94.8%
  Effect of estimated prior periods'
   loss development                         4.9%  1.8%     3.0%  0.6%
                                            ---   ---      ---   ---
  Combined ratio                          113.4% 98.8%   101.8% 95.4%
                                          =====  ====    =====  ====






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

                                 Quarter Ended       Twelve Months Ended
                                  December 31,           December 31,
                                 2008      2007        2008        2007
                                 ----      ----        ----        ----
  Net premiums written        $641,641  $699,898  $2,750,226  $2,982,024
  Net premiums earned          680,114   735,251   2,808,839   2,993,877
  Paid losses and loss
   adjustment expenses         492,693   516,316   2,032,088   2,019,579
  Incurred losses and loss
   adjustment expenses         575,585   524,716   2,060,409   2,036,644
  Net investment income         34,900    36,755     151,280     158,911
  Net realized investment
   gains (losses), net of
   tax                        (141,639)    6,378    (357,838)     13,525
  Net income (loss)          $(168,345)  $44,592   $(242,119)   $237,832
                             =========   =======   =========    ========

  Basic average shares
   outstanding                  54,763    54,723      54,744      54,704

  Diluted average shares
   outstanding                  55,028    54,827      54,917      54,829

  Basic Per Share Data
  --------------------
  Net income (loss)             $(3.07)    $0.81      $(4.42)      $4.35
                                ======     =====      ======       =====

  Net realized investment
   gains (losses), net of
   tax                          $(2.59)    $0.12      $(6.54)      $0.25
                                ======     =====      ======       =====


  Diluted Per Share Data (a)
  --------------------------
  Net income (loss)             $(3.07)    $0.81      $(4.42)      $4.34
                                ======     =====      ======       =====

  Net realized investment
   gains (losses), net of
   tax                          $(2.59)    $0.12      $(6.54)      $0.25
                                ======     =====      ======       =====


  Operating Ratios-GAAP (b)
   Basis
  -------------------------
  Loss ratio                     84.6%     71.4%       73.3%       68.0%
  Expense ratio                  28.8%     27.4%       28.5%       27.4%
                                 ----      ----        ----        ----
  Combined ratio                113.4%     98.8%      101.8%       95.4%
                                =====      ====       =====        ====


  Reconciliations of
   Operating Measures to
   Comparable GAAP (b)
   Measures
  ----------------------

  Net premiums written        $641,641  $699,898  $2,750,226  $2,982,024
  Decrease in unearned
   premiums                     38,473    35,353      58,613      11,853
                                ------    ------      ------      ------
  Net premiums earned         $680,114  $735,251  $2,808,839  $2,993,877
                              ========  ========  ==========  ==========

  Paid losses and loss
   adjustment expenses        $492,693  $516,316  $2,032,088  $2,019,579
  Increase in net loss and
   loss adjustment expense
   reserves                     82,892     8,400      28,321      17,065
                                ------     -----      ------      ------
  Incurred losses and loss
   adjustment expenses        $575,585  $524,716  $2,060,409  $2,036,644
                              ========  ========  ==========  ==========


  (a) The dilutive impact of incremental shares is excluded from loss
      positions in accordance with U.S. generally accepted accounting
      principles.
  (b) U.S. generally accepted accounting principles



                 Mercury General Corporation and Subsidiaries
                        Other Supplemental Information
                            (000's except ratios)
                                 (unaudited)

                                   Quarter Ended       Twelve Months Ended
                                    December 31,           December 31,
                                   2008      2007        2008        2007
                                   ----      ----        ----        ----
  California Operations (1)
  Net Premiums Written          $506,028  $547,818  $2,161,201  $2,304,412
  Net Premiums Earned            532,762   571,165   2,201,899   2,302,383

  Loss Ratio                       80.9%     71.9%       70.7%       66.3%
  Expense Ratio                    28.3%     26.4%       27.3%       26.3%
                                   ----      ----        ----        ----
  Combined Ratio                  109.2%     98.3%       98.0%       92.6%
                                  =====      ====        ====        ====

  Loss Ratio-Accident Period
   Basis (3)                       77.9%     69.3%       68.1%       65.2%
                                   ====      ====        ====        ====

  Non-California Operations (2)
  Net Premiums Written          $135,613  $152,080    $589,025    $677,612
  Net Premiums Earned            147,352   164,086     606,940     691,494

  Loss Ratio                       98.1%     69.3%       83.1%       73.7%
  Expense Ratio                    30.7%     31.1%       32.6%       30.7%
                                   ----      ----        ----        ----
  Combined Ratio                  128.8%    100.4%      115.7%      104.4%
                                  =====     =====       =====       =====

  Loss Ratio-Accident Period
   Basis (3)                       86.5%     70.6%       78.8%       74.7%
                                   ====      ====        ====        ====




                              At December 31,
  Policies-in-Force (000's)     2008  2007
                                ----  ----

  California Personal Auto     1,060 1,112
  California Commercial Auto      17    18
  Non-California Personal Auto   261   284
  California Homeowners          276   269
  Florida Homeowners              11    12


  Notes:
  All ratios are calculated on GAAP basis except Loss Ratio-Accident Period
  Basis.
  (1) Includes homeowners, auto, commercial property and other immaterial
      California business lines
  (2) Includes all states except California
  (3) Ratio for three months excludes estimated development on September
      30, 2008 and prior loss reserves and September 30, 2007
      and prior loss reserves for 2008 and 2007, respectively; ratio for
      twelve months excludes estimated development on 2007
      and prior loss reserves and 2006 and prior loss reserves for 2008
      and 2007, respectively.



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

                                    December 31, 2008  December 31, 2007
                                    -----------------  -----------------

  Investments:
    Fixed maturities available
     for sale, at fair value
     (amortized cost
     $2,860,455)                                   $-         $2,887,760
    Fixed maturities trading, at
     fair value (amortized cost
     $2,728,471)                            2,481,673                  -
    Equity securities available for
     sale, at fair value (cost
     $317,869)                                      -            413,123
    Equity securities trading, at
     fair value (cost $403,773;
     $13,126)                                 247,391             15,114
    Short-term investments, at fair
     value (amortized cost
     $208,278; $272,678)                      204,756            272,678
                                              -------            -------
          Total investments                 2,933,820          3,588,675
  Net receivables                             339,992            367,686
  Deferred policy acquisition
   costs                                      200,005            209,805
  Other assets                                476,378            248,330
                                              -------            -------
    Total assets                           $3,950,195         $4,414,496
                                           ==========         ==========

  Losses and loss adjustment
   expenses                                $1,133,508         $1,103,915
  Unearned premiums                           879,651            938,370
  Notes payable                               158,625            138,562
  Other liabilities                           284,360            371,651
  Shareholders' equity                      1,494,051          1,861,998
                                            ---------          ---------
    Total liabilities and
     shareholders' equity                  $3,950,195         $4,414,496
                                           ==========         ==========


  Common stock-shares outstanding              54,764             54,730
  Book value per share                         $27.28             $34.02
  Estimated statutory surplus            $1.4 billion       $1.7 billion
  Estimated premiums written to
   surplus ratio                                  2.0                1.7
  Debt to total capital ratio                    9.6%               6.9%
  Portfolio duration                        6.5 years          4.4 years

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/


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