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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 $37.8 million ($0.69 per share-diluted) in the second quarter 2006 compared with $73.6 million ($1.35 per share-diluted) for the same period in 2005. For the first six months of 2006, net income was $96.5 million ($1.76 per share-diluted) compared to net income of $134.0 million ($2.45 per share-diluted) for the same period in 2005. Included in net income are net realized investment gains, net of tax, of $2.8 million ($0.05 per share-diluted) in the second quarter of 2006 compared with net realized investment gains, net of tax, of $2.3 million ($0.04 per share-diluted) for the same period in 2005, and net realized investment gains, net of tax, of $6.9 million ($0.13 per share-diluted) for the first six months of 2006 compared to net realized investment gains, net of tax, of $5.0 million ($0.09 per share-diluted) for the same period in 2005.

Company-wide net premiums written were $753.8 million in the second quarter 2006, a 3.3% increase over second quarter 2005 net premiums written of $729.9 million, and were approximately $1.5 billion for the first six months of 2006, a 4.7% increase over the same period in 2005. California net premiums written were $552.1 million in the second quarter of 2006, an increase of 5.0% over the same period in 2005, and were approximately $1.1 billion for the first six months of 2006, a 6.3% increase over the same period in 2005. Non-California net premiums written were $201.7 million in the second quarter of 2006, a 1.1% decrease over the same period in 2005, and were $409.8 million for the first six months of 2006, an increase of 0.5% over the same period in 2005.

The Company's combined ratio (GAAP basis) was 98.6% in the second quarter and 95.3% for the first six months of 2006 compared with 90.1% and 91.3% for the same periods in 2005. 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. The loss development primarily relates 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. As a result of these developments, the Company also increased the implied severity for the 2006 accident year for Florida and New Jersey business. 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.

The Company continues to focus on an initiative embarked in 2005 to standardize its policies and procedures nationwide in all of its functional areas. The Company has made significant changes to its Florida and New Jersey operations and believes these and future changes will have a positive impact on its operations.

Net investment income of $36.2 million (after tax $30.0 million) in the second quarter of 2006 increased by 18.0% over the same period in 2005. The after-tax yield on investment income was 3.7% on average assets of $3.3 billion (fixed maturities and equities at cost) for the quarter. This compares with an after tax yield on investment income of 3.6% on average investments of $3.0 billion (fixed maturities and equities at cost) for the same period in 2005.

The Board of Directors declared a second quarter dividend of $0.48 per share, representing an 11.6% increase over the quarterly dividend amount paid in 2005. The dividend is to be paid on September 28, 2006 to shareholders of record on September 15, 2006. The Company's book value per share at June 30, 2006 was $29.87.

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 15, 2006. The replay telephone numbers are (800) 642-1687 (USA) or (706) 645-9291 (International). The conference ID# is 3218288. 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 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 June 30,   Six Months Ended June 30,
                           2006         2005         2006         2005
  Net premiums written   $753,826     $729,875   $1,527,846   $1,459,705
  Net premiums earned     753,350      707,261    1,490,030    1,391,975
  Paid losses and loss
   adjustment expenses    486,508      422,055      965,848      846,727
  Incurred losses and
   loss adjustment
   expenses               534,316      442,764    1,009,496      891,010
  Net investment income    36,242       30,701       75,645       59,486
  Net realized investment
   gains, net of tax        2,751        2,304        6,946        5,045
  Net income              $37,812      $73,602      $96,458     $134,026

  Basic average shares
   outstanding             54,648       54,548       54,636       54,542

  Diluted average shares
   outstanding             54,761       54,699       54,765       54,708

  Basic Per Share Data
  Net income                $0.69        $1.35        $1.77        $2.46
  Net realized investment
   gains, net of tax        $0.05        $0.04        $0.13        $0.09

  Diluted Per Share Data
  Net income                $0.69        $1.35        $1.76        $2.45
  Net realized investment
   gains, net of tax        $0.05        $0.04        $0.13        $0.09

  Operating Ratios
   -- GAAP(a) Basis
  Loss ratio                 70.9%        62.6%        67.8%        64.0%
  Expense ratio              27.7%        27.5%        27.5%        27.3%
  Combined ratio             98.6%        90.1%        95.3%        91.3%

  Reconciliations of
   Operating Measures to
   Comparable GAAP(a)
   Measures

  Net premiums written   $753,826     $729,875   $1,527,846   $1,459,705
  Increase in unearned
   premiums                  (476)     (22,614)     (37,816)     (67,730)
  Net premiums earned    $753,350     $707,261   $1,490,030   $1,391,975

  Paid losses and loss
   adjustment expenses   $486,508     $422,055     $965,848     $846,727
  Increase in net losses
   and loss adjustment
   expense reserves        47,808       20,709       43,648       44,283
  Incurred losses and
   loss adjustment
   expenses              $534,316     $442,764   $1,009,496     $891,010

  (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,
                          2006          2005         2006         2005
  Total California
   Operations (1)
  Net Premiums Written   $552,144     $525,910   $1,118,051   $1,051,990
  Net Premiums Earned     552,209      517,345    1,091,467    1,022,661

  Loss Ratio                 63.6%        61.5%        63.6%        63.6%
  Expense Ratio              26.9%        25.6%        26.7%        25.7%
  Combined Ratio             90.5%        87.1%        90.3%        89.3%


  Non-California
   Operations (2)
  Net Premiums Written   $201,682     $203,965     $409,795     $407,715
  Net Premiums Earned     201,141      189,916      398,563      369,314

  Loss Ratio                 91.1%        65.7%        79.0%        65.1%
  Expense Ratio              29.9%        32.7%        29.7%        32.0%
  Combined Ratio            121.0%        98.4%       108.7%        97.1%



                                                    At June 30,
  Policies-in-force (000's)                      2006         2005

  California Personal Auto                       1,138        1,093
  California Commercial Auto                        21           21
  Non-California Personal Auto                     364          368
  California Homeowners                            253          228
  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)

                                           June 30, 2006   December 31, 2005

  Investments -- available for sale
    Fixed maturities at market (amortized
     cost $2,757,242 in 2006 and
     $2,593,745 in 2005)                    $2,772,752         $2,645,555
    Equity securities at market (cost
     $239,232 in 2006 and $225,310 in 2005)    294,036            276,108
    Short-term cash investments, at cost,
     which approximates market                 309,531            321,049
       Total investments                     3,376,319          3,242,712
  Net receivables                              400,445            390,234
  Deferred policy acquisition costs            207,684            197,943
  Other assets                                 196,013            210,662
     Total assets                           $4,180,461         $4,041,551

  Loss and loss adjustment expenses         $1,058,171         $1,022,603
  Unearned premiums                            940,289            902,567
  Other liabilities                            409,920            365,004
  Notes payable                                138,744            143,540
  Shareholders' equity                       1,633,337          1,607,837
     Total liabilities and shareholders'
      equity                                $4,180,461         $4,041,551

  Common stock -- shares outstanding            54,678             54,605
  Book value per share                          $29.87             $29.44
  Statutory surplus                        $1.5billion       $1.5 billion
  Portfolio duration                         3.2 years          2.9 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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