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

Mercury General Corporation (NYSE: MCY) reported today net income of $69.5 million ($1.27 per share-diluted) in the second quarter 2007 compared with $37.8 million ($0.69 per share-diluted) for the same period in 2006. For the first six months of 2007, net income was $130.0 million ($2.37 per share-diluted) compared to net income of $96.5 million ($1.76 per share-diluted) for the same period in 2006. Included in net income are net realized investment gains, net of tax, of $6.5 million ($0.12 per share-diluted) in the second quarter of 2007 compared with net realized investment gains, net of tax, of $2.8 million ($0.05 per share-diluted) for the same period in 2006, and net realized investment gains, net of tax, of $5.8 million ($0.11 per share-diluted) for the first six months of 2007 compared to net realized investment gains, net of tax, of $6.9 million ($0.13 per share-diluted) for the same period in 2006.

Company-wide net premiums written were $737.4 million in the second quarter 2007, a 2.2% decrease over second quarter 2006 net premiums written of $753.8 million, and were approximately $1.5 billion for the first six months of 2007, a 0.3% decrease over the same period in 2006. California net premiums written were $567.9 million in the second quarter of 2007, an increase of 2.9% over the same period in 2006, and were approximately $1.2 billion for the first six months of 2007, a 4.6% increase over the same period in 2006. Non-California net premiums written were $169.5 million in the second quarter of 2007, a 16.0% decrease over the same period in 2006, and were $354.4 million for the first six months of 2007, a decrease of 13.5% over the same period in 2006.

During the second quarter of 2007, the Company accrued $5.0 million as a reduction to California premiums in anticipation of issuing coupons that are redeemable towards new and renewal premiums as part of the settlement of a lawsuit. The impact of this accrual, net of tax, is a reduction to net income of $3.3 million for both the second quarter and the first six months of 2007. For the second quarter of 2007, the accrual added 0.7 points to the company-wide decrease in premiums written and reduced the growth in California premiums written by 0.9 points.

The Company's combined ratio (GAAP basis) was 94.0% in the second quarter and 94.3% for the first six months of 2007 compared with 98.6% and 95.3% for the same periods in 2006. Loss development on prior accident years' loss reserves was approximately $13 million adverse for the six months ended June 30, 2007, compared with approximately $15 million adverse for the same period in 2006. Adverse loss development on prior accident years' loss reserves for the six months of 2007 came primarily from the Company's California operations. As reported previously, for the states outside of California, the Company experienced adverse development for the six months ended June 30, 2006 of approximately $30 million on prior accident years' loss reserves, largely due to additional reserves established for large individual losses in Florida and additional reserves established for personal injury protection and bodily injury losses in New Jersey. The Company experienced positive development on prior accident years' loss reserves of approximately $15 million for the six months ended June 30, 2006 on its California business.

Net investment income of $40.8 million (after tax $35.0 million) in the second quarter of 2007 increased by 12.6% over the same period in 2006. The after-tax yield on investment income was 4.1% 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 3.7% on average investments of $3.3 billion (fixed maturities and equities at cost) for the same period in 2006.

The Board of Directors declared a third quarter dividend of $0.52 per share, representing an 8.3% increase over the quarterly dividend amount paid in 2006. The dividend is to be paid on September 27, 2007 to shareholders of record on September 14, 2007. The Company's book value per share at June 30, 2007 was $32.71.

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 13, 2007. The replay telephone numbers are (800) 642- 1687 (USA) or (706) 645-9291 (International). The conference ID# is 7040282. 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         Six Months Ended
                                  June 30,               June 30,
                              2007       2006        2007        2006
  Net premiums written      $737,394   $753,826  $1,523,277  $1,527,846
  Net premiums earned        754,076    753,350   1,509,828   1,490,030
  Paid losses and loss
   adjustment expenses       491,421    486,508   1,011,367     965,848
  Incurred losses and loss
   adjustment expenses       504,378    534,316   1,014,137   1,009,496
  Net investment income       40,795     36,242      82,940      75,645
  Net realized investment
   gains, net of tax           6,493      2,751       5,816       6,946
  Net income                 $69,509    $37,812    $129,962     $96,458

  Basic average shares
   outstanding                54,697     54,648      54,685      54,636

  Diluted average shares
   outstanding                54,848     54,761      54,829      54,765

  Basic Per Share Data
  Net income                   $1.27      $0.69       $2.38       $1.77

  Net realized investment
   gains, net of tax           $0.12      $0.05       $0.11       $0.13

  Diluted Per Share Data
  Net income                   $1.27      $0.69       $2.37       $1.76

  Net realized investment
   gains, net of tax           $0.12      $0.05       $0.11       $0.13


  Operating Ratios-GAAP (a)
   Basis
  Loss ratio                    66.9%      70.9%       67.2%       67.8%
  Expense ratio                 27.1%      27.7%       27.1%       27.5%
  Combined ratio                94.0%      98.6%       94.3%       95.3%


  Reconciliations of Operating
   Measures to Comparable
   GAAP (a) Measures

  Net premiums written      $737,394   $753,826  $1,523,277  $1,527,846
  Decrease (Increase) in
   unearned premiums          16,682       (476)    (13,449)    (37,816)
  Net premiums earned       $754,076   $753,350  $1,509,828  $1,490,030

  Paid losses and loss
   adjustment expenses      $491,421   $486,508  $1,011,367    $965,848
  Increase in net loss and
   loss adjustment expense
   reserves                   12,957     47,808       2,770      43,648
  Incurred losses and loss
   adjustment expenses      $504,378   $534,316  $1,014,137  $1,009,496

  (a) Generally Accepted Accounting Principles





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

                            Quarter Ended June 30,   Six Months Ended June 30,
                                2007        2006        2007        2006
  California Operations (1)
  Net premiums written      $567,904    $552,144  $1,168,886  $1,118,051
  Net premiums earned        577,827     552,209   1,151,343   1,091,467

  Loss ratio                    64.2%       63.6%       64.7%       63.6%
  Expense ratio                 26.0%       26.9%       26.0%       26.7%
  Combined ratio                90.2%       90.5%       90.7%       90.3%

  Non-California
   Operations (2)
  Net premiums written      $169,490    $201,682    $354,391    $409,795
  Net premiums earned        176,249     201,141     358,485     398,563

  Loss ratio                    75.7%       91.1%       75.1%       79.0%
  Expense ratio                 30.8%       29.9%       30.6%       29.7%
  Combined ratio               106.5%      121.0%      105.7%      108.7%



                                  At June 30,
  Policies-in-force (000's)     2007        2006

  California personal auto     1,153       1,138
  California commercial auto      20          21
  Non-California personal auto   312         364
  California homeowners          266         253
  Florida homeowners              13          14

  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)

                                                  June 30,    December 31,
                                                    2007          2006
  Fixed maturities available for
   sale (amortized cost $2,882,306 in
   2007 and $2,851,715 in 2006)
   (includes hybrid financial instruments:
   $33,631 in 2007)                             $2,883,376     $2,898,987
  Equity securities available for sale
   (cost $268,070 in 2007 and $258,310 in 2006)    360,038        318,449
  Equity securities trading (cost $9,264 in 2007)    9,438              -
  Short-term investments, at cost, which
   approximates market                             283,573        282,302
      Total investments                          3,536,425      3,499,738
  Net receivables                                  380,150        372,777
  Deferred policy acquisition costs                213,902        209,783
  Other assets                                     240,446        218,764
      Total assets                              $4,370,923     $4,301,062

  Losses and loss adjustment expenses           $1,090,682     $1,088,822
  Unearned premiums                                963,775        950,344
  Other liabilities                                398,934        396,212
  Notes payable                                    127,913        141,554
  Shareholders' equity                           1,789,619      1,724,130
      Total liabilities and
       shareholders' equity                     $4,370,923     $4,301,062

  Common stock-shares outstanding                   54,717         54,670
  Book value per share                              $32.71         $31.54
  Statutory surplus                           $1.7 billion   $1.6 billion
  Portfolio duration                             5.0 years      4.0 years

First Call Analyst:
FCMN Contact:

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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