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Mercury General Corporation Announces Fourth Quarter Results
PRNewswire-FirstCall
LOS ANGELES

Mercury General Corporation (NYSE: MCY) reported today net income of $50.1 million ($0.91 per share-diluted) in the fourth quarter 2006 compared with $46.2 million ($0.84 per share-diluted) for the same period in 2005. For the year, net income was $214.8 million ($3.92 per share-diluted) compared with net income of $253.3 million ($4.63 per share-diluted) for the same period in 2005. Included in net income are net realized investment gains, net of tax, of $1.3 million ($0.02 per share-diluted) in the fourth quarter of 2006 compared with net realized investment gains, net of tax, of $0.5 million ($0.01 per share-diluted) for the same period in 2005, and net realized investment gains, net of tax, of $10.0 million ($0.18 per share-diluted) for the entire 2006 year compared with net realized investment gains, net of tax, of $10.5 million ($0.19 per share-diluted) for 2005.

Company-wide net premiums written were $740.7 million in the fourth quarter 2006, a 1.7% increase over fourth quarter 2005 net premiums written of $728.0 million, and were approximately $3.0 billion for the year, a 3.2% increase over the same period in 2005. California net premiums written were $558.5 million in the fourth quarter of 2006, an increase of 5.5% over the same period in 2005, and were approximately $2.2 billion for the year, a 5.8% increase over the same period in 2005. Non-California net premiums written were $182.2 million in the fourth quarter of 2006, an 8.2% decrease over the same period in 2005, and were $795.0 million for the year, a decrease of 3.5% over the same period in 2005.

The Company's combined ratio (GAAP basis) was 96.5% in the fourth quarter and 95.0% for the year compared with 96.0% and 92.4% for the same periods in 2005. Catastrophe losses did not impact the financial results during the fourth quarter 2006 as compared to the fourth quarter 2005 when losses caused by Hurricane Wilma increased the loss ratio by 3.3 points.

Loss development on prior accident years' loss reserves was approximately $20 million adverse and $45 million positive for the years ended December 31, 2006 and 2005, respectively. For business produced in California, positive development on prior accident years' loss reserves was approximately $15 million and $40 million for the years ended December 31, 2006 and 2005, respectively. For business produced outside of California, development on prior accident years' loss reserves was approximately $35 million adverse and $5 million positive for the years ended December 31, 2006 and 2005, respectively.

Net investment income of $38.6 million (after tax $33.9 million) in the fourth quarter of 2006 increased by 19.7% over the same period in 2005. The after-tax yield on investment income was 4.0% on average assets of $3.4 billion (fixed maturities and equities at cost) for the quarter. This compares with an after-tax yield on investment income of 3.4% on average investments of $3.3 billion (fixed maturities and equities at cost) for the same period in 2005.

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 19, 2007. The replay telephone numbers are (800) 642-1687 (USA) or (706) 645-9291 (International). The conference ID# is 6946173. 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; the accuracy and adequacy of the Company's pricing methodologies; adverse weather conditions or natural disasters in the markets served by the Company; 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.

  Mercury General Corporation
  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 Generally Accepted Accounting Principles ("GAAP"). These measures are not intended to replace, and should be read in conjunction with, the GAAP financial results. The Company has reconciled these measures with the most directly comparable GAAP measure in the supplemental schedule entitled, "Summary of Operating Results."

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.

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.

               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,
                                   2006      2005       2006        2005
  Net premiums written           $740,742  $727,956  $3,044,774  $2,950,523
  Net premiums earned             753,871   732,859   2,997,023   2,847,733
  Paid losses and loss
   adjustment expenses            495,573   460,510   1,944,887   1,743,909
  Incurred losses and loss
   adjustment expenses            521,021   507,217   2,021,646   1,862,936
  Net investment income            38,597    32,239     151,099     122,582
  Net realized investment gains,
   net of tax                       1,339       457      10,033      10,504
  Net income                      $50,132   $46,219    $214,817    $253,259

  Basic average shares
   outstanding                     54,669    54,603      54,651      54,566

  Diluted average shares
   outstanding                     54,820    54,756      54,786      54,717

  Basic Per Share Data
  Net income                        $0.92     $0.85       $3.93       $4.64

  Net realized investment gains,
   net of tax                       $0.02     $0.01       $0.18       $0.19

  Incurred losses from Florida
   Hurricanes, net of tax
   benefit                             --    $(0.29)         --      $(0.33)

  Diluted Per Share Data
  Net income                        $0.91     $0.84       $3.92       $4.63

  Net realized investment gains,
   net of  tax                      $0.02     $0.01       $0.18       $0.19

  Incurred losses from Florida
   Hurricanes, net of tax
   benefit                             --    $(0.29)         --      $(0.32)

  Operating Ratios--GAAP (a)
   Basis
  Loss ratio                         69.1%     69.2%       67.5%       65.4%
  Expense ratio                      27.4%     26.8%       27.5%       27.0%
  Combined ratio                     96.5%     96.0%       95.0%       92.4%

  Impact of Florida Hurricanes
   on loss ratio                       --      -3.3%         --        -1.0%

  Reconciliations of Operating
   Measures to Comparable GAAP
   (a) Measures

  Net premiums written           $740,742  $727,956  $3,044,774  $2,950,523
  Decrease (increase) in
   unearned premiums               13,129     4,903     (47,751)   (102,790)
  Net premiums earned            $753,871  $732,859  $2,997,023  $2,847,733

  Paid losses and loss
   adjustment expenses           $495,573  $460,510  $1,944,887  $1,743,909
  Increase in net loss and loss
   adjustment expense reserves     25,448    46,707      76,759     119,027
  Incurred losses and loss
   adjustment expenses           $521,021  $507,217  $2,021,646  $1,862,936

  (a) 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,
                                  2006      2005       2006        2005
  California Operations(1)
  Net Premiums Written          $558,548  $529,542  $2,249,737  $2,126,825
  Net Premiums Earned            562,992   532,493   2,210,801   2,080,041

  Loss Ratio                        66.4%     64.1%       63.9%       63.5%
  Expense Ratio                     25.8%     25.8%       26.4%       25.5%
  Combined Ratio                    92.2%     89.9%       90.3%       89.0%


  Non-California Operations(2)
  Net Premiums Written          $182,194  $198,414    $795,037    $823,698
  Net Premiums Earned            190,879   200,366     786,222     767,692

  Loss Ratio                        77.0%     82.7%       77.6%       70.7%
  Expense Ratio                     32.1%     29.8%       30.7%       31.0%
  Combined Ratio                   109.1%    112.5%      108.3%      101.7%



                                    At December 31,
  Policies-in-force (000's)         2006      2005

  California Personal Auto         1,145     1,099
  California Commercial Auto          20        21
  Non-California Personal Auto       338       371
  California Homeowners              261       242
  Florida Homeowners                  14        15

  Notes:
  All ratios are calculated on GAAP basis.
  (1) Includes homeowners, auto, commercial property and other immaterial
      California business lines
  (2) Includes all states except California



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

                                              December 31,     December 31,
                                                 2006              2005
  Investments - available for sale
    Fixed maturities at market
     (amortized cost $2,851,715 in 2006
     and $2,593,745 in 2005)                  $2,898,987        $2,645,555
    Equity securities at market (cost
     $258,310 in 2006 and $225,310 in
     2005)                                       318,449           276,108
    Short-term cash investments, at
     cost, which approximates market             282,302           321,049
          Total investments                    3,499,738         3,242,712
  Net receivables                                372,777           364,560
  Deferred policy acquisition costs              209,783           197,943
  Other assets                                   218,764           245,653
    Total assets                              $4,301,062        $4,050,868

  Losses and loss adjustment expenses         $1,088,822        $1,022,603
  Unearned premiums                              950,344           902,567
  Other liabilities                              396,212           374,321
  Notes payable                                  141,554           143,540
  Shareholders' equity                         1,724,130         1,607,837
    Total liabilities and shareholders'
     equity                                   $4,301,062        $4,050,868

  Common stock - shares outstanding               54,670            54,605
  Book value per share                            $31.54            $29.44
  Statutory surplus                          $1.6 billion      $1.5 billion
  Portfolio duration                            4.0 years         2.9 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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