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Mercury General Corporation Announces Second Quarter Results and Declares Quarterly Dividend
PRNewswire-FirstCall
LOS ANGELES

Mercury General Corporation (NYSE: MCY) reported today for the second quarter of 2010:

                                           Consolidated Highlights

                                      Three Months
                                         Ended
                                       June 30,             Change
                                                            ------
                                     2010      2009         $     %
                                     ----      ----       ---    ---
  (000's except per-share
   amounts and ratios)
  Net premiums written (1)       $631,113  $637,405   $(6,292)   (1.0)
  Net income                      $17,817  $114,447  $(96,630) (84.4)
  Net income per diluted share      $0.32     $2.07    $(1.75) (84.5)
  Operating income (1)            $35,830   $47,336  $(11,506) (24.3)
  Operating income per diluted
   share (1)                        $0.65     $0.86    $(0.21) (24.4)
  Severance related expenses (2)       $-        $-        $-       -
  Net expense related to
   amortization of December 31,
   2008
     AIS deferred policy
      acquisition costs (2) (3)        $-    $3,000   $(3,000)      -
  Costs related to support of
   California Proposition 17 (4)  $12,100        $-   $12,100       -
                                                                  2.9
  Combined ratio                     99.0%     96.1%        -     pts





                               Six Months Ended
                                   June 30,              Change
                                                         ------
                                  2010        2009          $     %
                                  ----        ----        ---    ---
  (000's except per-share
   amounts and ratios)
  Net premiums written (1)  $1,283,575  $1,308,297   $(24,722)   (1.9)
  Net income                   $78,996    $211,100  $(132,104) (62.6)
  Net income per diluted
   share                         $1.44       $3.83     $(2.39) (62.4)
  Operating income (1)         $82,681     $93,335   $(10,654) (11.4)
  Operating income per
   diluted share (1)             $1.51       $1.69     $(0.18) (10.7)
  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)      -
  Costs related to support
   of California
   Proposition 17 (4)          $12,100          $-    $12,100       -
                                                                  1.2
  Combined ratio                  97.7%       96.5%         -     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 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) The Company supported the Continuous Coverage Auto Insurance Discount
   Act ("Proposition 17").


Net income in the second quarter 2010 was $17.8 million ($0.32 per diluted share) compared with net income of $114.4 million ($2.07 per diluted share) for the same period in 2009. For the first six months of 2010, net income was $79.0 million ($1.44 per diluted share) compared with net income of $211.1 million ($3.83 per diluted share) for the same period in 2009. Included in net income are net realized investment losses, net of tax, of $18.0 million ($0.33 per diluted share) in the second quarter of 2010 compared with net realized investment gains, net of tax, of $67.1 million ($1.21 per diluted share) for the same period in 2009, and net realized investment losses, net of tax, of $3.7 million ($0.07 per diluted share) for the first six months of 2010 compared with net realized investment gains, net of tax, of $117.8 million ($2.14 per diluted share) for the same period in 2009. Operating income was $35.8 million ($0.65 per diluted share) for the second quarter of 2010 compared with operating income of $47.3 million ($0.86 per diluted share) for the same period in 2009. For the first six months of 2010, operating income was $82.7 million ($1.51 per diluted share) compared with operating income of $93.3 million ($1.69 per diluted share) for the same period in 2009.

Net premiums written were $631.1 million in the second quarter of 2010, a 1.0% decrease compared to the second quarter 2009 net premiums written of $637.4 million, and were approximately $1.3 billion for the first six months of 2010, a 1.9% decrease compared to the same period in 2009. Net realized investment losses, net of tax, of $18.0 million and $3.7 million for the second quarter and for the first six months of 2010, respectively, include losses, net of tax, of $19.8 million and $7.5 million, respectively, from the application of the fair value option. Gains, net of tax, from the sale of securities were $1.2 million and $3.2 million during the second quarter and the first six months of 2010, respectively.

The Company's combined ratio (GAAP basis) was 99.0% in the second quarter of 2010 and 97.7% for the first six months of 2010 compared with 96.1% and 96.5% for the same periods in 2009. The loss ratio was affected by favorable development of approximately $22 million and $38 million on prior accident years' losses and loss adjustment expenses reserves for the six months ended June 30, 2010 and 2009, respectively. The favorable development in 2010 is largely the result of re-estimates of accident year 2009 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, 2009.

The Company spent $12.1 million in the second quarter of 2010 supporting Proposition 17, a California ballot initiative that did not pass. It would have provided for a portable persistency discount, allowing insurance companies to offer new customers discounts based on having continuous insurance coverage from any insurance company. Despite the non-passage of Proposition 17, the Company believes it continues to offer a competitive product in California. For the three months and six months ended June 30, 2010, Proposition 17 costs added 1.9 points and 0.9 points, respectively, to the expense ratio and reduced net income by $0.22 per diluted share in both periods.

Net investment income of $36.5 million (after tax, $32.6 million) in the second quarter of 2010 increased by 0.7% over the same period in 2009. The investment income after-tax yield was 4.2% on average investments (fixed maturities at amortized cost, equities and short-term investments at cost) of $3.1 billion for the second quarter 2010. This compares with an investment income after-tax yield of 4.1% on average investments of $3.2 billion for the same period in 2009. Net investment income for the first six months of 2010 was $72.4 million (after tax $64.8 million), a decrease of 2.4% compared to the same period in 2009. The investment income after-tax yield was 4.2% on average assets of $3.1 billion for the first six months of 2010. This compares with an investment income after-tax yield of 4.1% on average investments of $3.2 billion for the same period in 2009.

The Board of Directors declared a quarterly dividend of $0.59 per share. The dividend is to be paid on September 30, 2010 to shareholders of record on September 16, 2010.

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 August 8, 2010. The replay telephone numbers are (800) 642-1687 (USA) or (706) 645-9291 (International). The conference ID# is 87364379. 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 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 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 GAAP. 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 highlights the results from ongoing operations and the underlying profitability of the Company's core insurance business. Operating income, which is provided as supplemental information and should not be considered as a substitute for net income, 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
                                                 June 30,
                                                         Per diluted
                                        Total                         share
                                        -----           ------------

                                      2010      2009     2010    2009
                                      ----      ----     ----    ----
  (000's except per-share amounts)
  Operating income                 $35,830   $47,336    $0.65   $0.86
  Net realized investment (losses)
   gains, net of tax               (18,013)   67,111    (0.33)   1.21
                                   -------    ------
  Net income                       $17,817  $114,447    $0.32   $2.07
                                   =======  ========    =====   =====





                                            Six Months Ended
                                                 June 30,
                                                           Per diluted
                                          Total                        share
                                          -----           ------------

                                      2010      2009     2010    2009
                                      ----      ----     ----    ----
  (000's except per-share amounts)
  Operating income                 $82,681   $93,335    $1.51   $1.69
  Net realized investment (losses)
   gains, net of tax               (3,685)   117,765    (0.07)   2.14
                                    ------   -------
  Net income                       $78,996  $211,100    $1.44   $3.83
                                   =======  ========    =====   =====



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 have been recognized as income in the financial statements for the periods presented as earned on a pro-rata basis over the term of the policies. Net premiums written are meant as supplemental information and are not intended to replace net premiums earned. Such information 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 provided 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 results of operations 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.

                                              Six Months Ended
                                                  June 30,
                                                  --------
                                                2010       2009
                                                ----       ----

  Combined ratio-accident period
   basis                                        99.4%      99.4%
  Effect of estimated prior periods'
   loss development                            (1.7)%     (2.9)%
                                               -----      -----
  Combined ratio                                97.7%      96.5%
                                                ====       ====




                           MERCURY GENERAL CORPORATION AND SUBSIDIARIES
                                   SUMMARY OF OPERATING RESULTS
                           (000's except per-share amounts and ratios)
                                           (unaudited)

                                                     Three Months Ended
                                                          June 30,
                                                         2010       2009
                                                         ----       ----
  Net premiums written                               $631,113   $637,405

  Revenues:
       Net premium earned                            $642,717   $659,211
       Net investment income                           36,475     36,212
       Net realized investment (losses) gains        (27,713)     99,862
       Other                                            2,180        694
            Total revenues                           $653,659   $795,979
                                                     --------   --------
  Expenses:
       Losses and loss adjustment expenses            439,609    445,463
       Policy acquisition costs                       126,325    136,359
       Other operating expenses                        70,516     51,364
       Interest                                         1,851      1,879
            Total expenses                           $638,301   $635,065
                                                     --------   --------

  Income before income taxes                          $15,358   $160,914
       Income tax (benefit) expense                    (2,459)    46,467
                      Net income                      $17,817   $114,447
                                                      =======   ========

  Basic average shares outstanding                     54,788     54,770
  Diluted average shares outstanding                   54,833     55,320


  Basic Per Share Data
  --------------------
  Net income                                            $0.33      $2.09
                                                        =====      =====

  Net realized investment (losses) gains, net of tax   $(0.33)     $1.23
                                                       ======      =====


  Diluted Per Share Data
  ----------------------
  Net income                                            $0.32      $2.07
                                                        =====      =====

  Net realized investment (losses) gains, net of tax   $(0.33)     $1.21
                                                       ======      =====


  Operating Ratios-GAAP Basis
  ---------------------------
  Loss ratio                                             68.4%      67.6%
  Expense ratio                                          30.6%      28.5%
                                                         ----       ----
  Combined ratio                                         99.0%      96.1%
                                                         ====       ====


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

  Net premiums written                               $631,113   $637,405
  Change in unearned premiums                          11,604     21,806
                                                       ------     ------
  Net premiums earned                                $642,717   $659,211
                                                     ========   ========

  Paid losses and loss adjustment expenses           $462,581   $467,333
  Decrease in net loss and loss adjustment expense
   reserves                                          (22,972)    (21,870)
  Incurred losses and loss adjustment expenses       $439,609   $445,463
                                                     ========   ========





                                                     Six Months Ended
                                                         June 30,
                                                           2010        2009
                                                           ----        ----
  Net premiums written                               $1,283,575  $1,308,297

  Revenues:
       Net premium earned                            $1,283,331  $1,325,274
       Net investment income                             72,361      74,126
       Net realized investment (losses) gains            (5,669)    181,176
       Other                                              3,473       2,361
            Total revenues                           $1,353,496  $1,582,937
                                                     ----------  ----------
  Expenses:
       Losses and loss adjustment expenses              870,231     889,755
       Policy acquisition costs                         255,307     283,890
       Other operating expenses                         127,840     104,850
       Interest                                           3,470       3,425
            Total expenses                           $1,256,848  $1,281,920
                                                     ----------  ----------

  Income before income taxes                            $96,648    $301,017
       Income tax (benefit) expense                      17,652      89,917
                      Net income                        $78,996    $211,100
                                                        =======    ========

  Basic average shares outstanding                       54,786      54,769
  Diluted average shares outstanding                     54,821      55,166


  Basic Per Share Data
  --------------------
  Net income                                              $1.44       $3.85
                                                          =====       =====

  Net realized investment (losses) gains, net of tax     $(0.07)      $2.15
                                                         ======       =====


  Diluted Per Share Data
  ----------------------
  Net income                                              $1.44       $3.83
                                                          =====       =====

  Net realized investment (losses) gains, net of tax     $(0.07)      $2.14
                                                         ======       =====


  Operating Ratios-GAAP Basis
  ---------------------------
  Loss ratio                                               67.8%       67.2%
  Expense ratio                                            29.9%       29.3%
                                                           ----        ----
  Combined ratio                                           97.7%       96.5%
                                                           ====        ====


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

  Net premiums written                               $1,283,575  $1,308,297
  Change in unearned premiums                              (244)     16,977
                                                           ----      ------
  Net premiums earned                                $1,283,331  $1,325,274
                                                     ==========  ==========

  Paid losses and loss adjustment expenses             $923,717    $952,799
  Decrease in net loss and loss adjustment expense
   reserves                                             (53,486)    (63,044)
  Incurred losses and loss adjustment expenses         $870,231    $889,755
                                                       ========    ========




            MERCURY GENERAL CORPORATION AND SUBSIDIARIES
           CONDENSED BALANCE SHEETS AND OTHER INFORMATION
            (000's except per-share amounts and ratios)
                            (unaudited)

                                              June 30,        December 31,
                                                    2010             2009
                                             ---------       -------------

                                  ASSETS
                                  ------

  Investments, at fair value:
    Fixed maturities trading (amortized
     cost $2,639,612; $2,673,079)             $2,698,711        $2,704,561
    Equity securities trading (cost
     $339,978; $308,941)                       278,653           286,131
    Short-term investments (cost
     $104,400; $156,126)                       103,740           156,165
                                               -------           -------
      Total investments                      3,081,104         3,146,857

  Cash                                         219,466           185,505
  Receivables:
    Premiums receivable                        271,866           262,278
    Premium notes                                8,046            14,510
    Accrued investment income                   37,294            37,405
    Other                                       11,059            13,689
                                                ------            ------
      Total receivables                        328,265           327,882

  Deferred policy acquisition costs            173,894           175,866
  Fixed assets, net                            200,999           201,862
  Current income taxes                           5,464            27,268
  Deferred income taxes                         43,772            36,139
  Goodwill                                      42,850            42,850
  Other intangible assets, net                  63,418            66,823
  Other assets                                  22,638            21,581
                                                ------            ------
      Total assets                          $4,181,870        $4,232,633
                                            ==========        ==========

                 LIABILITIES AND SHAREHOLDERS' EQUITY
                 ------------------------------------

  Losses and loss adjustment expenses         $999,777        $1,053,334
  Unearned premiums                            844,853           844,540
  Notes payable                                269,964           271,397
  Accounts payable and accrued expenses        128,757           114,469
  Other liabilities                            152,515           177,947
  Shareholders' equity                       1,786,004         1,770,946
                                             ---------         ---------
        Total liabilities and shareholders'
         equity                             $4,181,870        $4,232,633
                                            ==========        ==========

            OTHER INFORMATION
            -----------------

  Common stock-shares outstanding               54,793            54,777
  Book value per share                          $32.60            $32.33
  Estimated statutory surplus             $1.5 billion      $1.5 billion
  Estimated premiums written to surplus
   ratio                                           1.7               1.7
  Debt to total capital ratio                     13.1%             13.3%
  Portfolio duration                         4.3 years         5.1 years
  Policies-in-Force (Company-wide
   "PIF")
      Personal Auto PIF                          1,278             1,279
      Homeowners PIF                               345               328

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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