Mercury General Corporation Announces Third Quarter Results and Increases Quarterly Dividend

Mercury General Corporation Announces Third Quarter Results and Increases
Quarterly Dividend

LOS ANGELES, Nov. 2 /PRNewswire-FirstCall/ -- Mercury General Corporation
(NYSE: MCY) reported today for the third quarter of 2009:

Consolidated Highlights

Three Months Ended
September 30, Change
------
2009 2008 $ %
---- ---- - -
(000's except per-share
amounts and ratios)
Net premiums written (1) $662,756 $695,142 $(32,386) (4.7)
Net income (loss) $157,737 $(140,539) $298,276 -
Net income (loss) per diluted
share $2.85 $(2.57) $5.42 -
Operating income (1) $46,345 $39,493 $6,852 17.3
Operating income per diluted
share (1) $0.84 $0.72 $0.12 16.7
Severance related expenses (2) $- $- $- -
Net expense related to
amortization of December 31, 2008
AIS deferred policy acquisition
costs (2) (3) $- $- $- -
Catastrophe losses (2) (4) $- $6,000 $(6,000) -
Favorable tax ruling (5) $- $17,500 $(17,500) -
Combined ratio 96.4% 102.0% (5.6) pts -

Nine Months Ended
September 30, Change
------
2009 2008 $ %
---- ---- - -
(000's except per-share
amounts and ratios)
Net premiums written (1) $1,971,053 $2,108,585 $(137,532) (6.5)
Net income (loss) $368,837 $(73,774) $442,611 -
Net income (loss) per diluted
share $6.70 $(1.35) $8.05 -
Operating income (1) $139,680 $142,425 $(2,745) (1.9)
Operating income per diluted
share (1) $2.54 $2.60 $(0.06) (2.3)
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 -
Catastrophe losses (2) (4) $- 6,000 $(6,000) -
Favorable tax ruling (5) $- 17,500 $(17,500) -
Combined ratio 96.5% 98.1% (1.6) 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 estimated and 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) Catastrophe losses in 2008 were primarily a result of Hurricane Ike.

(5) The Company recognized a net tax benefit of $17.5 million in the third
quarter 2008 as a result of a favorable California Superior Court ruling.
This amount is included in both the operating income and net loss for
2008.

Net income in the third quarter 2009 was $157.7 million ($2.85 per
share-diluted) compared with net loss of $140.5 million ($2.57 per
share-diluted) for the same period in 2008. For the first nine months of
2009, net income was $368.8 million ($6.70 per share-diluted) compared with
net loss of $73.8 million ($1.35 per share-diluted) for the same period in
2008. Included in net income (loss) are net realized investment gains, net of
tax, of $111.4 million ($2.01 per share-diluted) in the third quarter of 2009
compared with net realized investment losses, net of tax, of $180.0 million
($3.29 per share-diluted) for the same period in 2008, and net realized
investment gains, net of tax, of $229.2 million ($4.16 per share-diluted) for
the first nine months of 2009 compared with net realized investment losses,
net of tax, of $216.2 million ($3.95 per share) for the same period in 2008.
Operating income was $46.3 million ($0.84 per share-diluted) for the third
quarter of 2009, a 17.3% increase over the same period in 2008, and $139.7
million ($2.54 per share-diluted) for the first nine months of 2009, a 1.9%
decrease over the same period in 2008.

As a result of adopting the fair value accounting option, changes in
unrealized gains and losses on all investments were recorded as net realized
gains and losses in the statement of operations. Net realized investment
gains, net of tax, of $111.4 million for the third quarter of 2009 and $229.2
million for the first nine months of 2009 include gains, net of tax, from the
adoption of the fair value accounting option, of $124.3 million and $263.6
million, respectively. Partially offsetting these gains were $12.3 million
and $36.9 million in losses, net of tax, from the sale of securities during
the third quarter and the first nine months of 2009, respectively.

Net premiums written were $662.8 million in the third quarter of 2009, a 4.7%
decrease over the third quarter 2008 net premiums written of $695.1 million,
and were approximately $2.0 billion for the first nine months of 2009, a 6.5%
decrease over the same period in 2008. The rate of premium decline has slowed
over the last few quarters. The premium decrease was 8.0% and 6.8% in the
first and second quarter 2009, respectively, over comparable quarters in 2008.

The Company's combined ratio (GAAP basis) was 96.4% in the third quarter and
96.5% for the first nine months of 2009 compared with 102.0% and 98.1% for the
same periods in 2008. Loss development on prior accident years' loss reserves
was approximately $40 million positive for the nine months ended September 30,
2009, compared with approximately $46 million adverse for the same period in
2008. The positive development in 2009 is largely the result of re-estimates
of accident year 2008 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, 2008.

Net investment income of $35.2 million (after tax, $32.0 million) in the third
quarter of 2009 decreased by 7.6% over the same period in 2008. The
investment income after-tax yield was 4.0% on average investments (fixed
maturities at amortized cost, equities and short-term investments at cost) of
$3.2 billion for the third quarter 2009. This compares with an investment
income after-tax yield of 3.9% on average investments of $3.4 billion for the
same period in 2008. Net investment income for the first nine months of 2009
was $109.3 million (after tax, $98.0 million), a decrease of 6.1% over the
same period in 2008. The investment income after-tax yield was 4.1% on
average assets of $3.2 billion for the first nine months of 2009. This
compares with an investment income after-tax yield of 3.9% on average
investments of $3.5 billion for the same period in 2008.

The Board of Directors declared a quarterly dividend of $0.59 per share,
representing a 1.7% increase over the quarterly dividend amount paid in 2008.
The dividend is to be paid on December 30, 2009 to shareholders of record on
December 16, 2009.

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 November 9, 2009. The replay telephone numbers are (800)
642-1687 (USA) or (706) 645-9291 (International). The conference ID# is
35610503. 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, 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 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.

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 U.S. generally accepted accounting principles.
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
excludes the effect of items that tend to be highly variable from period to
period and highlights the results from ongoing operations and the underlying
profitability of the Company's core insurance business. Therefore, the Company
believes that it is useful for investors to evaluate net income and operating
income separately when reviewing and evaluating its performance. Operating
income is meant as supplemental information and it should not be considered as
a substitute for net income and 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
September 30,
Per diluted
Total share (1)
----- -----------
2009 2008 2009 2008
---- ---- ---- ----
(000's except per-share amounts)
Operating income $46,345 $39,493 $0.84 $0.72
Net realized investment gains
(losses), net of tax 111,392 (180,032) 2.01 (3.29)
------- -------- ---- -----
Net income (loss) $157,737 $(140,539) $2.85 $(2.57)
======== ========= ===== ======

Nine Months Ended
September 30,
Per diluted
Total share (1)
----- -----------
2009 2008 2009 2008
---- ---- ---- ----
(000's except per-share amounts)
Operating income $139,680 $142,425 $2.54 $2.60
Net realized investment gains
(losses), net of tax 229,157 (216,199) 4.16 (3.95)
------- -------- ---- -----
Net income (loss) $368,837 $(73,774) $6.70 $(1.35)
======== ======== ===== ======

(1) The dilutive impact of incremental shares is excluded from loss
positions in 2008 in accordance with GAAP.

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. 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 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. 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 business
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.

Nine Months Ended
September 30,
2009 2008
---- ----

Combined ratio-accident period basis 98.5% 95.9%
Effect of estimated prior periods' loss
development -2.0% 2.2%
---- ---
Combined ratio 96.5% 98.1%
==== ====

Mercury General Corporation and Subsidiaries
Summary of Operating Results
(000's except per-share amounts and ratios)
(unaudited)

Quarter Ended Nine Months Ended
September 30, September 30,
2009 2008 2009 2008
---- ---- ---- ----
Net premiums written $662,756 $695,142 $1,971,053 $2,108,585

Revenues:
Net premium earned $653,758 $696,605 1,979,032 2,128,725
Net investment
income 35,208 38,086 109,334 116,380
Net realized investment
gains (losses) 171,373 (276,973) 352,549 (332,614)
Other 895 1,313 3,256 3,809
--- ----- ----- -----
Total revenues $861,234 $459,031 $2,444,171 $1,916,300
-------- -------- ---------- ----------
Expenses:
Incurred losses 446,436 511,806 1,336,191 1,484,824
Policy acquisition
costs 130,172 154,530 414,062 472,112
Other operating
expenses 53,766 44,350 158,616 131,834
Interest 1,634 1,663 5,059 3,659
----- ----- ----- -----
Total expenses $632,008 $712,349 $1,913,928 $2,092,429
-------- -------- ---------- ----------

Income before income
taxes $229,226 $(253,318) $530,243 $(176,129)
Income tax expense 71,489 (112,779) 161,406 (102,355)
------ -------- ------- --------
Net income
(loss) $157,737 $(140,539) $368,837 $(73,774)
======== ========= ======== ========

Basic average shares
outstanding 54,770 54,748 54,769 54,737
Diluted average shares
outstanding 55,313 55,062 55,081 54,926

Basic Per Share Data
--------------------
Net income (loss) $2.88 $(2.57) $6.73 $(1.35)
===== ====== ===== ======

Net realized investment
gains (losses), net of tax $2.03 $(3.29) $4.18 $(3.95)
===== ====== ===== ======

Diluted Per Share Data
----------------------
Net income (loss) $2.85 $(2.57) $6.70 $(1.35)
===== ====== ===== ======

Net realized investment
gains (losses), net of
tax (a) $2.01 $(3.29) $4.16 $(3.95)
===== ====== ===== ======

Operating Ratios-
GAAP Basis
-----------------
Loss ratio 68.3% 73.5% 67.5% 69.7%
Expense ratio 28.1% 28.5% 29.0% 28.4%
---- ---- ---- ----
Combined ratio 96.4% 102.0% 96.5% 98.1%
==== ===== ==== ====

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

Net premiums written $662,756 $695,142 $1,971,053 $2,108,585
(Increase) decrease in
unearned premiums (8,998) 1,463 7,979 20,140
------ ----- ----- ------
Net premiums earned $653,758 $696,605 $1,979,032 $2,128,725
======== ======== ========== ==========

Paid losses and loss
adjustment expenses $460,609 $483,141 $1,413,408 $1,539,395
(Decrease) increase in
net loss and loss
adjustment expense
reserves (14,173) 28,665 (77,217) (54,571)
------- ------ ------- -------
Incurred losses and loss
adjustment expenses $446,436 $511,806 $1,336,191 $1,484,824
======== ======== ========== ==========

(a) The dilutive impact of incremental shares in 2008 is excluded from
loss positions in accordance with GAAP

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

September 30, 2009 December 31, 2008
------------------ -----------------
(unaudited)
ASSETS
------
Investments:
Fixed maturities trading,
at fair value (amortized
cost $2,692,117;
$2,728,471) $2,728,815 $2,481,673
Equity securities
trading, at fair
value (cost $321,911;
$403,773) 287,720 247,391
Short-term investments,
at fair value
(amortized cost
$126,328; $208,278) 126,172 204,756
------- -------
Total investments 3,142,707 2,933,820
Cash 204,194 35,396
Receivables:
Premiums receivable 267,684 268,227
Premium notes 23,357 25,699
Accrued investment income 38,168 36,540
Other 9,835 9,526
----- -----
Total receivables 339,044 339,992
Deferred policy
acquisition costs 182,237 200,005
Fixed assets, net 200,930 191,777
Current income taxes 0 43,378
Deferred income taxes 63,604 171,025
Goodwill 42,850 5,206
Other intangible assets 68,526 0
Other assets 29,755 29,596
------ ------
Total assets $4,273,847 $3,950,195
========== ==========

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Losses and loss adjustment
expenses $1,055,887 $1,133,508
Unearned premiums 871,698 879,651
Notes payable 272,690 158,625
Accounts payable and
accrued expenses 133,954 93,864
Current income taxes 7,113 0
Other liabilities 163,892 190,496
Shareholders' equity 1,768,613 1,494,051
--------- ---------
Total liabilities and
shareholders' equity $4,273,847 $3,950,195
========== ==========

OTHER INFORMATION
-----------------
Common stock-shares outstanding 54,770 54,764
Book value per share $32.29 $27.28
Estimated statutory surplus $1.5 billion $1.4 billion
Estimated premiums written to
surplus ratio 1.8 2.0
Debt to total capital ratio 13.4% 9.6%
Portfolio duration 5.0 years 6.5 years
Policies-in-Force
(Company-wide "PIF")
Personal Auto PIF 1,288 1,321
Homeowners PIF 321 303

SOURCE Mercury General Corporation

Theodore Stalick, VP/CFO of Mercury General Corporation, +1-323-937-1060