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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 $74.1 million ($1.36 per share- diluted), in the fourth quarter 2004 compared with $49.2 million ($0.90 per share-diluted), in the same period for 2003. For the year, net income was $286.2 million ($5.24 per share-diluted) in 2004 compared to net income of $184.3 million ($3.38 per share-diluted) in 2003. Included in net income are net realized investment gains, net of tax, of $4.2 million ($0.08 per share- diluted) in the fourth quarter 2004 compared to net realized investment gains, net of tax, of $3.8 million ($0.07 per share-diluted) for the fourth quarter 2003, and net realized investment gains, net of tax, of $16.3 million ($0.30 per share-diluted) for the entire 2004 year compared to net realized investment gains, net of tax, of $7.3 million ($0.13 per share-diluted) for 2003.

Company-wide net premiums written were $674.2 million in the fourth quarter 2004, a 14% increase over fourth quarter 2003, and $2.6 billion for the year, a 16.7% increase over 2003. California net premiums written were $495.0 million in the quarter, an increase of 2.7% over 2003, and $2.0 billion for the year, a 6.4% increase over 2003. Non-California net premiums written were $179.2 million in the quarter, a 63.5% increase over 2003, and $640.4 million for 2004, a 67.4% increase over 2003. Non-California net premiums written represented 26.6% of the Company's total fourth quarter net premiums written, up from 18.5% in the fourth quarter of 2003.

The Company's combined ratio (GAAP basis) was 88.6% in the fourth quarter of 2004 and 89.2% for the entire year compared with 94.1% and 94.0% for the same periods in 2003. Positive development of approximately $55 million for the year ended December 31, 2004 on the 2003 and prior accident year loss reserves contributed to the improvement in the combined ratio. During the fourth quarter, the Company reduced its estimate for losses from the Florida hurricanes from approximately $24 million reported at September 30, 2004, to approximately $22 million at December 31, 2004.

Net investment income of $29.3 million (after tax $25.2 million) in the fourth quarter of 2004 increased by 11.3% compared to the same period in 2003. The after-tax yield on investment income was 3.6% on average assets of $2.8 billion (fixed maturities and equities at cost) for the quarter. This compares with an after tax yield on investment income of 3.9% on average investments of $2.4 billion (fixed maturities and equities at cost) for the same period in 2003.

During the fourth quarter of 2004, the Company began writing private passenger automobile insurance in the states of Michigan and Nevada, marking the twelfth and thirteenth states in which the Company writes automobile insurance.

During January 2005, the state of California experienced precipitation levels that were significantly higher than average. Consequently, the number of losses reported in the California homeowners line of business was more than double the number reported in January 2004. The number of California automobile losses reported in January 2005 was approximately 10% more than the number reported in January 2004. As a result, given the January 2005 losses, the Company anticipates that loss frequency will be higher in the first quarter 2005 as compared to the first quarter 2004.

Mercury General Corporation and its subsidiaries are a multiple line insurance organization offering predominantly personal automobile and homeowners insurance through a network of independent agents and brokers in many states. For more information, visit our website at www.mercuryinsurance.com. The Company will be hosting a conference call and webcast at 10:00 A.M. Pacific Time (1:00 P.M. Eastern Time) today in which management will discuss results and address questions. The teleconference and webcast can be accessed by calling 1 (877) 807-1888 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 15, 2005. The replay telephone numbers are (800) 642-1687 (USA) or (706) 645-9291 (International). The conference ID# is 3419001. 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, and in general economic conditions; the accuracy and adequacy of the Company's pricing methodologies; 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; inflation and changes in economic conditions; 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 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 useful industry specific information to 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 Company's 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,
                               2004       2003        2004        2003
  Net premiums written      $674,239    $591,401   $2,646,704   $2,268,778
  Net premiums earned        668,102     572,671    2,528,636    2,145,047
  Paid losses and loss
   adjustment expenses       394,919     347,453    1,481,803    1,330,784
  Incurred losses and
   loss adjustment expenses  413,573     385,330    1,582,254    1,452,051
  Net investment income       29,331      26,348      109,681      104,520
  Net realized investment
   gains, net of tax           4,168       3,817       16,292        7,285
  Net income                 $74,129     $49,226     $286,208     $184,321

  Basic average shares
   outstanding                54,506      54,418       54,471       54,402

  Diluted average shares
   outstanding                54,683      54,586       54,633       54,547

  Basic Per Share Data
  Net income                   $1.36       $0.90        $5.25        $3.39
  Net realized investment
   gains, net of tax           $0.08       $0.07        $0.30        $0.13

  Diluted Per Share Data
  Net income                   $1.36       $0.90        $5.24        $3.38
  Net realized investment
   gains, net of tax           $0.08       $0.07        $0.30        $0.13

  Operating Ratios
   -- GAAP (a) Basis
  Loss ratio                   61.9%       67.3%        62.6%        67.7%
  Expense ratio                26.7%       26.8%        26.6%        26.3%
  Combined ratio               88.6%       94.1%        89.2%        94.0%

  Reconciliations of Operating
   Measures to Comparable
   GAAP (a) Measures

  Net premiums written      $674,239    $591,401   $2,646,704   $2,268,778
  Increase in unearned
   premiums                   (6,137)    (18,730)    (118,068)    (123,731)
  Net premiums earned       $668,102    $572,671   $2,528,636   $2,145,047

  Paid losses and loss
   adjustment expenses      $394,919    $347,453   $1,481,803   $1,330,784
  Increase in net losses
   and loss adjustment
   expense reserves           18,654      37,877      100,451      121,267
  Incurred losses and loss
   adjustment expenses      $413,573    $385,330   $1,582,254   $1,452,051


  (a) Generally Accepted Accounting Principles



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

                               Quarter ending       Twelve Months Ending
                                 December 31,            December 31,
                               2004       2003        2004         2003
  Total California
   Operations (1)
  Net Premiums Written       $494,975   $481,744   $2,006,351   $1,886,217
  Net Premiums Earned         501,745    477,291    1,981,463    1,804,960

  Loss Ratio                    61.7%      68.8%        61.0%        68.9%
  Expense Ratio                 24.9%      25.5%        25.6%        25.4%
  Combined Ratio                86.6%      94.3%        86.6%        94.3%

  California Automobile
   lines
  Net Premiums Written       $450,002   $442,636   $1,827,527   $1,738,462
  Net Premiums Earned         458,126    440,791    1,818,122    1,674,801

  Loss Ratio                    64.2%      67.9%        62.9%        69.0%
  Expense Ratio                 25.1%      25.7%        25.7%        25.3%
  Combined Ratio                89.3%      93.6%        88.6%        94.3%

  California Homeowners
   line
  Net Premiums Written        $36,558    $32,407     $147,763     $122,897
  Net Premiums Earned          35,922     30,328      135,370      108,141

  Loss Ratio                    33.8%      84.0%        36.3%        67.9%
  Expense Ratio                 24.5%      24.4%        24.8%        25.1%
  Combined Ratio (a)            58.3%     108.4%        61.2%        93.0%

  Non-California
   Operations (2)
  Net Premiums Written       $179,264   $109,657     $640,353     $382,561
  Net Premiums Earned         166,357     95,380      547,173      340,087

  Loss Ratio                    62.5%      59.7%        68.4%        61.5%
  Expense Ratio                 32.3%      33.5%        30.4%        30.9%
  Combined Ratio                94.8%      93.2%        98.8%        92.4%



                                 At December 31,
  Policies-in-force (000's)      2004       2003

  California Personal Auto      1,060      1,026
  California Commercial Auto       21         20
  Non-California Personal Auto    322        184
  California Homeowners           215        187
  Florida Homeowners               16         10


  All ratios are calculated on GAAP basis.
  (a) Some numbers may not sum due to rounding
  (1) Total California operations includes homeowners, auto, commercial
      property and other immaterial California business lines
  (2) Includes all states except California



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

                                     December 31, 2004   December 31, 2003
                                        (unaudited)

  Investments - available for sale
    Fixed maturities at market
     (amortized cost $2,164,955
     in 2004 and $1,856,083 in 2003)     $2,245,311          $1,945,309
    Equity securities at market
     (cost $210,553 in 2004 and
     $223,113 in 2003)                      254,362             264,393
    Short-term cash investments,
     at cost, which approximates market     421,369             329,812
       Total investments                  2,921,042           2,539,514
  Net receivables                           367,662             299,094
  Deferred policy acquisition costs         174,840             146,951
  Other assets                              146,199             134,207
    Total assets                         $3,609,743          $3,119,766

  Loss and loss adjustment expenses        $900,744            $797,927
  Unearned premiums                         799,679             681,745
  Other liabilities                         325,029             259,877
  Notes payable                             124,743             124,714
  Shareholders' equity                    1,459,548           1,255,503
    Total liabilities and
     shareholders' equity                $3,609,743          $3,119,766

  Common stock - shares outstanding          54,515              54,424
  Book value per share                       $26.77              $23.07
  Statutory surplus                   $1.36 billion       $1.17 billion
  Portfolio duration                      3.2 years           3.8 years

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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