10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_________________________

FORM 10-Q

_________________________

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter Ended September 30, 2013

Commission File No. 001-12257

 ______________________________

MERCURY GENERAL CORPORATION

(Exact name of registrant as specified in its charter)

 ________________________________

California	95-2211612
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
4484 Wilshire Boulevard, Los Angeles, California	90010
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (323) 937-1060

 _______________________________

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ý    No  o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  ý    No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	ý	Accelerated filer	o
Non-accelerated filer	o  (Do not check if a smaller reporting company)	Smaller reporting company	o

Indicate by check mark whether the Registrant is a shell company (as defined in the Rule 12b-2 of the Exchange Act).    Yes o    No  ý

At October 25, 2013, the Registrant had issued and outstanding an aggregate of 54,960,392 shares of its Common Stock.

MERCURY GENERAL CORPORATION

INDEX TO FORM 10-Q

		Page
PART I - FINANCIAL INFORMATION
Item 1	Financial Statements	3
	Consolidated Balance Sheets as of September 30, 2013 and December 31, 2012	3
	Consolidated Statements of Operations and Consolidated Statements of Comprehensive Income for the Three Months Ended September 30, 2013 and 2012	4
	Consolidated Statements of Operations and Consolidated Statements of Comprehensive Income for the Nine Months Ended September 30, 2013 and 2012	5
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2013 and 2012	6
	Condensed Notes to Consolidated Financial Statements	7
Item 2	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3	Quantitative and Qualitative Disclosures about Market Risks	32
Item 4	Controls and Procedures	34
PART II - OTHER INFORMATION
Item 1	Legal Proceedings	34
Item 1A	Risk Factors	35
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	35
Item 3	Defaults upon Senior Securities	35
Item 4	Mine Safety Disclosures	35
Item 5	Other Information	35
Item 6	Exhibits	35
SIGNATURES		36

2

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

MERCURY GENERAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands)

	September 30, 2013		December 31, 2012
	(unaudited)
ASSETS
Investments, at fair value:
Fixed maturity securities (amortized cost $2,481,651; $2,270,903)	$	2,538,514	$	2,408,354
Equity securities (cost $267,614; $475,959)	336,367		477,088
Short-term investments (cost $251,550; $294,607)	251,449		294,653
Total investments	3,126,330		3,180,095
Cash	250,061		158,183
Receivables:
Premiums	372,818		345,387
Accrued investment income	35,316		31,109
Other	18,399		17,756
Total receivables	426,533		394,252
Deferred policy acquisition costs	196,284		185,910
Fixed assets, net	154,467		161,940
Current income taxes	0		7,058
Deferred income taxes	26,437		0
Goodwill	42,796		42,796
Other intangible assets, net	43,098		47,589
Other assets	74,450		11,863
Total assets	$	4,340,456	$	4,189,686
LIABILITIES AND SHAREHOLDERS’ EQUITY
Losses and loss adjustment expenses	$	1,010,534	$	1,036,123
Unearned premiums	967,320		920,429
Notes payable	180,000		140,000
Accounts payable and accrued expenses	133,973		96,220
Current income taxes	26,324		0
Deferred income taxes	0		445
Other liabilities	182,150		153,972
Total liabilities	2,500,301		2,347,189
Commitments and contingencies
Shareholders’ equity:
Common stock without par value or stated value: Authorized 70,000 shares; issued and outstanding 54,960; 54,922	81,109		79,380
Additional paid-in capital	128		0
Retained earnings	1,758,918		1,763,117
Total shareholders’ equity	1,840,155		1,842,497
Total liabilities and shareholders’ equity	$	4,340,456	$	4,189,686

See accompanying Condensed Notes to Consolidated Financial Statements.

3

MERCURY GENERAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

	Three Months Ended September 30,
	2013		2012
Revenues:
Net premiums earned	$	678,913	$	646,084
Net investment income	30,857		33,410
Net realized investment gains	16,212		49,752
Other	2,685		2,532
Total revenues	728,667		731,778
Expenses:
Losses and loss adjustment expenses	492,558		467,929
Policy acquisition costs	126,891		121,906
Other operating expenses	54,087		50,225
Interest	338		388
Total expenses	673,874		640,448
Income before income taxes	54,793		91,330
Income tax expense	15,223		25,129
Net income	$	39,570	$	66,201
Net income per share:
Basic	$	0.72	$	1.21
Diluted	$	0.72	$	1.21
Weighted average shares outstanding:
Basic	54,959		54,911
Diluted	54,973		54,925
Dividends paid per share	$	0.6125	$	0.61

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

	Three Months Ended September 30,
	2013		2012
Net income	$	39,570	$	66,201
Other comprehensive income, before tax:
Gains on hedging instrument	0		0
Other comprehensive income, before tax:	0		0
Income tax expense related to gains on hedging instrument	0		0
Other comprehensive income, net of tax:	0		0
Comprehensive income	$	39,570	$	66,201

See accompanying Condensed Notes to Consolidated Financial Statements.

4

MERCURY GENERAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

	Nine Months Ended September 30,
	2013			2012
Revenues:
Net premiums earned	$	2,017,295		$	1,919,143
Net investment income	93,706			96,569
Net realized investment (losses) gains	(7,153		)	78,656
Other	7,539			7,790
Total revenues	2,111,387			2,102,158
Expenses:
Losses and loss adjustment expenses	1,446,524			1,415,096
Policy acquisition costs	377,006			357,062
Other operating expenses	166,165			154,353
Interest	864			1,176
Total expenses	1,990,559			1,927,687
Income before income taxes	120,828			174,471
Income tax expense	24,061			40,178
Net income	$	96,767		$	134,293
Net income per share:
Basic	$	1.76		$	2.45
Diluted	$	1.76		$	2.45
Weighted average shares outstanding:
Basic	54,941			54,895
Diluted	54,957			54,918
Dividends paid per share	$	1.8375		$	1.83

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

(unaudited)

	Nine Months Ended September 30,
	2013		2012
Net income	$	96,767	$	134,293
Other comprehensive income, before tax:
Gains on hedging instrument	0		0
Other comprehensive income, before tax:	0		0
Income tax expense related to gains on hedging instrument	0		0
Other comprehensive income, net of tax:	0		0
Comprehensive income	$	96,767	$	134,293

See accompanying Condensed Notes to Consolidated Financial Statements.

5

MERCURY GENERAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

	Nine Months Ended September 30,
	2013			2012
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$	96,767		$	134,293
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	23,715			27,903
Net realized investment losses (gains)	7,153			(78,656		)
Bond amortization, net	8,659			6,613
Excess tax benefit from exercise of stock options	(258		)	(116		)
Increase in premiums receivables	(27,431		)	(57,518		)
Change in current and deferred income taxes	6,758			10,848
Increase in deferred policy acquisition costs	(10,374		)	(14,883		)
Decrease in unpaid losses and loss adjustment expenses	(25,589		)	(6,859		)
Increase in unearned premiums	46,891			77,849
Increase in accounts payable and accrued expenses	38,749			6,553
Share-based compensation	216			312
Changes in other payables	9,142			10,503
Other, net	(4,681		)	(3,512		)
Net cash provided by operating activities	169,717			113,330
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed maturities available-for-sale in nature:
Purchases	(625,326		)	(386,262		)
Sales	172,557			78,341
Calls or maturities	232,426			328,592
Equity securities available-for-sale in nature:
Purchases	(463,056		)	(236,785		)
Sales	677,017			172,144
Calls	0			923
Changes in securities payable and receivable	(43,918		)	(1,320		)
Net decrease in short-term investments	42,614			14,510
Purchase of fixed assets	(12,983		)	(12,205		)
Sale of fixed assets	610			1,864
Other, net	1,547			1,904
Net cash used in investing activities	(18,512		)	(38,294		)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid to shareholders	(100,967		)	(100,469		)
Proceeds from bank loan	40,000			0
Excess tax benefit from exercise of stock options	258			116
Proceeds from stock options exercised	1,382			2,098
Net cash used in financing activities	(59,327		)	(98,255		)
Net increase (decrease) in cash	91,878			(23,219		)
Cash:
Beginning of the year	158,183			211,393
End of period	$	250,061		$	188,174
SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest paid	$	796		$	1,319
Income taxes paid	$	17,303		$	29,330

See accompanying Condensed Notes to Consolidated Financial Statements.

6

MERCURY GENERAL CORPORATION AND SUBSIDIARIES

CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. General

Consolidation and Basis of Presentation

The condensed consolidated financial statements include the accounts of Mercury General Corporation and its subsidiaries (referred to herein collectively as the “Company”). For the list of the Company’s subsidiaries, see Note 1 “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

The condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”), which differ in some respects from those filed in reports to insurance regulatory authorities. All intercompany transactions and balances have been eliminated.

The financial data of the Company included herein are unaudited. In the opinion of management, all material adjustments of a normal recurring nature have been made to present fairly the Company’s financial position at September 30, 2013 and the results of operations, comprehensive income, and cash flows for the periods presented. These statements were prepared in accordance with the instructions for interim reporting and do not contain certain information in the annual financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2012. Readers are urged to review the Company's Annual Report on Form 10-K for the year ended December 31, 2012 for more complete descriptions and discussions. Operating results and cash flows for the nine months ended September 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. These estimates require the Company to apply complex assumptions and judgments, and often the Company must make estimates about effects of matters that are inherently uncertain and will likely change in subsequent periods. The most significant assumptions in the preparation of these condensed consolidated financial statements relate to reserves for losses and loss adjustment expenses. Actual results could differ from those estimates (See Note 1 “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012).

Earnings per Share

Potentially dilutive securities representing approximately 53,000 and 108,000 shares of common stock for the three months ended September 30, 2013 and 2012, respectively, and 76,000 and 77,000 shares of common stock for the nine months ended September 30, 2013 and 2012, respectively, were excluded from the computation of diluted earnings per common share for these periods because their effect would have been anti-dilutive.

Deferred Policy Acquisition Costs

Deferred policy acquisition costs consist of commissions paid to outside agents, premium taxes, salaries, and certain other underwriting costs that are incremental or directly related to the successful acquisition of new and renewal insurance contracts and are amortized over the life of the related policy in proportion to premiums earned. Deferred policy acquisition costs are limited to the amount that will remain after deducting from unearned premiums and anticipated investment income, the estimated losses and loss adjustment expenses, and the servicing costs that will be incurred as premiums are earned. The Company’s deferred policy acquisition costs are further limited by excluding those costs not directly related to the successful acquisition of insurance contracts. Deferred policy acquisition cost amortization was $126.9 million and $121.9 million for the three months ended September 30, 2013 and 2012, respectively, and $377.0 million and $357.1 million for the nine months ended September 30, 2013 and 2012, respectively. The Company does not defer advertising expenditures but expenses them as incurred. The Company recorded net advertising expenses of approximately $16 million and $15 million for the nine months ended September 30, 2013 and 2012, respectively.

Total Return Swap

As of September 30, 2013, the Company formed and consolidated a special purpose investment vehicle, Animas Funding LLC (“AFL”). The Company is the sole managing member in AFL. On August 9, 2013, AFL entered into a three-year total return

7

swap agreement with Citibank, N.A. (“Citibank”). Under the total return swap agreement, AFL receives the income equivalent on underlying obligations due to Citibank and pays to Citibank interest equal to LIBOR plus 120 basis points on the outstanding notional amount of the underlying obligations, which was approximately $80 million as of September 30, 2013. The total return swap agreement is secured by approximately $40 million of U.S. Treasuries as collateral, which is included in short-term investments on the consolidated balance sheets. In the event of a significant erosion in market value, AFL's position in the loan portfolio will be reduced and the Company has the option to add additional capital or terminate the total return swap agreement.

2. Recently Issued Accounting Standards

In July 2013, the Financial Accounting Standards Board (“FASB”) issued a new standard that requires entities to present an unrecognized tax benefit as a reduction of a deferred tax asset for a net operating loss carryforward, or similar tax loss or tax credit carryforward, rather than as a liability when the uncertain tax position would reduce the net operating loss or other carryforward under the tax law of the applicable jurisdiction and when the entity intends to use the deferred tax asset for that purpose. The new standard will be effective for fiscal years and interim periods within those years that begin after December 15, 2013. The adoption of the new standard will not have a material impact on the Company's consolidated financial statements.

In February 2013, the FASB issued a new standard that requires entities to disclose additional information about items reclassified out of accumulated other comprehensive income in their financial statements. Entities are required to include information about changes in accumulated other comprehensive income balances by component and additional information about significant items reclassified out of accumulated other comprehensive income in their interim reporting periods. The Company adopted the new standard which became effective for the interim period ended March 31, 2013. The adoption of the new standard did not have any impact on the Company’s consolidated financial statements.

3. Fair Value of Financial Instruments

The financial instruments recorded in the consolidated balance sheets include investments, receivables, the total return swap, interest rate swaps, accounts payable, equity contracts, and secured and unsecured notes payable. Due to their short-term maturity, the carrying values of receivables and accounts payable approximate their fair market values. The following table presents the estimated fair values of financial instruments at September 30, 2013 and December 31, 2012.

	September 30, 2013		December 31, 2012
	(Amounts in thousands)
Assets
Investments	$	3,126,330	$	3,180,095
Total return swap	$	346	$	0
Liabilities
Interest rate swap	$	0	$	103
Equity contracts	$	0	$	175
Secured notes	$	140,000	$	140,000
Unsecured note	$	40,000	$	0

Methods and assumptions used in estimating fair values are as follows:

Investments

The Company applies the fair value option to all fixed maturity and equity securities and short-term investments at the time an eligible item is first recognized. The cost of investments sold is determined on a first-in and first-out method and realized gains and losses are included in net realized investment (losses) gains. For additional disclosures regarding methods and assumptions used in estimating fair values of these securities, see Note 5.

Total return swap and interest rate swap

The fair values of the total return swap and interest rate swap reflect the estimated amounts that the Company would pay at September 30, 2013 and December 31, 2012 in order to terminate the contracts based on models using inputs, such as interest rate yield curves, observable for substantially the full term of the contract. For additional disclosures regarding methods and assumptions used in estimating fair values, see Note 5.

8

Equity contracts

The fair value of equity contracts is based on quoted prices for identical instruments in active markets. For additional disclosures regarding methods and assumptions used in estimating fair values of equity contracts, see Note 5.

Secured notes payable

The fair value of the Company’s $120 million and $20 million secured notes, classified as Level 2 in the fair value hierarchy described in Note 5, is estimated based on assumptions and inputs, such as the market value of underlying collateral and reset rates, for similarly termed notes that are observable in the market.

Unsecured note payable

The fair value of the Company’s $40 million unsecured note, classified as Level 2 in the fair value hierarchy described in Note 5, is based on the unadjusted quoted price for similar notes in active markets.

4. Fair Value Option

Gains and losses due to changes in fair value for items measured at fair value pursuant to application of the fair value option are included in net realized investment (losses) gains in the Company’s consolidated statements of operations, while interest and dividend income on investment holdings are recognized on an accrual basis on each measurement date and are included in net investment income in the Company’s consolidated statements of operations. The primary reasons for electing the fair value option were simplification and cost-benefit considerations as well as the expansion of the use of the Company's fair value measurement consistent with the long-term measurement objectives of the FASB for accounting for financial instruments.

The following table presents gains (losses) due to changes in fair value of investments that are measured at fair value pursuant to application of the fair value option:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
	(Amounts in thousands)
Fixed maturity securities	$	(11,295	)	$	19,198		$	(81,268	)	$	50,013
Equity securities	32,602			25,629			67,625			20,153
Short-term investments	508			(44		)	199			(828		)
Total	$	21,815		$	44,783		$	(13,444	)	$	69,338

5. Fair Value Measurement

The Company employs a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date using the exit price. Accordingly, when market observable data are not readily available, the Company’s own assumptions are used to reflect those that market participants would be presumed to use in pricing the asset or liability at the measurement date. Assets and liabilities recorded on the consolidated balance sheets at fair value are categorized based on the level of judgment associated with inputs used to measure their fair value and the level of market price observability, as follows:

Level 1	Unadjusted quoted prices are available in active markets for identical assets or liabilities as of the reporting date.
Level 2	Pricing inputs are other than quoted prices in active markets, which are based on the following: •     Quoted prices for similar assets or liabilities in active markets; •     Quoted prices for identical or similar assets or liabilities in non-active markets; or •     Either directly or indirectly observable inputs as of the reporting date.
Level 3	Pricing inputs are unobservable and significant to the overall fair value measurement, and the determination of fair value requires significant management judgment or estimation.

9

In certain cases, inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Thus, a Level 3 fair value measurement may include inputs that are observable (Level 1 or Level 2) and unobservable (Level 3). The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and consideration of factors specific to the asset or liability.

The Company uses prices and inputs that are current as of the measurement date, including during periods of market disruption. In periods of market disruption, the ability to observe prices and inputs may be reduced for many instruments. This condition could cause an instrument to be reclassified from Level 1 to Level 2, or from Level 2 to Level 3. The Company recognizes transfers between levels at either the actual date of the event or a change in circumstances that caused the transfer.

Summary of Significant Valuation Techniques for Financial Assets and Financial Liabilities

The Company’s fair value measurements are based on the market approach, which utilizes market transaction data for the same or similar instruments.

The Company obtained unadjusted fair values on approximately 98% of its portfolio from an independent pricing service. For approximately 2% of its portfolio, classified as Level 3, the Company obtained specific unadjusted broker quotes based on net fund value and, to a lesser extent, unobservable inputs from at least one knowledgeable outside security broker to determine the fair value as of September 30, 2013.

Level 1 Measurements - Fair values of financial assets and financial liabilities are obtained from an independent pricing service, and are based on unadjusted quoted prices for identical assets or liabilities in active markets. Additional pricing services and closing exchange values are used as a comparison to ensure that reasonable fair values are used in pricing the investment portfolio.

U.S. government bonds and agencies/Short-term bonds: Valued using unadjusted quoted market prices for identical assets in active markets.

Common stock: Comprised of actively traded, exchange listed U.S. and international equity securities and valued based on unadjusted quoted prices for identical assets in active markets.

Money market instruments: Valued based on unadjusted quoted prices for identical assets.

Equity contracts: Comprised of free-standing exchange listed derivatives that are actively traded and valued based on quoted prices for identical instruments in active markets.

Level 2 Measurements - Fair values of financial assets and financial liabilities are obtained from an independent pricing service or outside brokers, and are based on prices for similar assets or liabilities in active markets or valuation models whose inputs are observable, directly or indirectly, for substantially the full term of the asset or liability. Additional pricing services are used as a comparison to ensure reliable fair values are used in pricing the investment portfolio.

Municipal securities: Valued based on models or matrices using inputs such as quoted prices for identical or similar assets in active markets.

Mortgage-backed securities: Comprised of securities that are collateralized by mortgage loans and valued based on models or matrices using multiple observable inputs, such as benchmark yields, reported trades and broker/dealer quotes, for identical or similar assets in active markets. The Company had holdings of $16.7 million and $4.3 million at September 30, 2013 and December 31, 2012, respectively, in commercial mortgage-backed securities.

Corporate securities/Short-term bonds: Valued based on a multi-dimensional model using multiple observable inputs, such as benchmark yields, reported trades, broker/dealer quotes and issue spreads, for identical or similar assets in active markets.

Non-redeemable preferred stock: Valued based on observable inputs, such as underlying and common stock of same issuer and appropriate spread over a comparable U.S. Treasury security, for identical or similar assets in active markets.

Total return swap /Interest rate swap: Valued based on models using inputs such as interest rate yield curves, underlying debt/credit instruments and the appropriate benchmark spread for similar assets in active markets, observable for substantially the full term of the contract.

10

Level 3 Measurements - Fair values of financial assets are based on inputs that are both unobservable and significant to the overall fair value measurement, including any items in which the evaluated prices obtained elsewhere were deemed to be of a distressed trading level.

Collateralized debt obligations/Partnership interest in a private credit fund: Valued based on underlying debt/credit instruments and the appropriate benchmark spread for similar assets in active markets; taking into consideration unobservable inputs related to liquidity assumptions.

The Company’s financial instruments at fair value are reflected in the consolidated balance sheets on a trade-date basis. Related unrealized gains or losses are recognized in net realized investment (losses) gains in the consolidated statements of operations. Fair value measurements are not adjusted for transaction costs.

The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis as of September 30, 2013 and December 31, 2012, and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:

	September 30, 2013
	Level 1		Level 2		Level 3		Total
	(Amounts in thousands)
Assets
Fixed maturity securities:
U.S. government bonds and agencies	$	16,128	$	0	$	0	$	16,128
Municipal securities	0		2,149,615		0		2,149,615
Mortgage-backed securities	0		36,096		0		36,096
Corporate securities	0		300,331		0		300,331
Collateralized debt obligations	0		0		36,344		36,344
Equity securities:
Common stock:
Public utilities	107,102		0		0		107,102
Banks, trusts and insurance companies	9,963		0		0		9,963
Energy and other	181,333		0		0		181,333
Non-redeemable preferred stock	0		25,845		0		25,845
Partnership interest in a private credit fund	0		0		12,124		12,124
Short-term bonds	39,996		22,488		0		62,484
Money market instruments	188,965		0		0		188,965
Total return swap	0		346		0		346
Total assets at fair value	$	543,487	$	2,534,721	$	48,468	$	3,126,676

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	December 31, 2012
	Level 1		Level 2		Level 3		Total
	(Amounts in thousands)
Assets
Fixed maturity securities:
U.S. government bonds and agencies	$	14,204	$	0	$	0	$	14,204
Municipal securities	0		2,165,095		0		2,165,095
Mortgage-backed securities	0		30,703		0		30,703
Corporate securities	0		155,551		0		155,551
Collateralized debt obligations	0		0		42,801		42,801
Equity securities:
Common stock:
Public utilities	85,106		0		0		85,106
Banks, trusts and insurance companies	22,166		0		0		22,166
Energy and other	346,809		0		0		346,809
Non-redeemable preferred stock	0		11,701		0		11,701
Partnership interest in a private credit fund	0		0		11,306		11,306
Short-term bonds	0		24,530		0		24,530
Money market instruments	270,123		0		0		270,123
Total assets at fair value	$	738,408	$	2,387,580	$	54,107	$	3,180,095
Liabilities
Equity contracts	$	175	$	0	$	0	$	175
Interest rate swap	0		103		0		103
Total liabilities at fair value	$	175	$	103	$	0	$	278

The following tables present a summary of changes in fair value of Level 3 financial assets and financial liabilities held at fair value.

	Three Months Ended September 30,
	2013					2012
	Collateralized Debt Obligations			Partnership Interest in a Private Credit Fund		Collateralized Debt Obligations		Partnership Interest in a Private Credit Fund
	(Amounts in thousands)
Beginning Balance	$	38,992		$	11,990	$	76,325	$	11,030
Realized gains (losses) included in earnings	5,616			134		5,032		(455		)
Settlements	(8,264		)	0		0		0
Ending Balance	$	36,344		$	12,124	$	81,357	$	10,575
The amount of total gains (losses) for the period included in earnings attributable to assets still held at September 30	$	5,616		$	134	$	5,032	$	(455	)

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	Nine Months Ended September 30,
	2013					2012
	Collateralized Debt Obligations			Partnership Interest in a Private Credit Fund		Collateralized Debt Obligations		Partnership Interest in a Private Credit Fund
	(Amounts in thousands)
Beginning Balance	$	42,801		$	11,306	$	47,503	$	10,008
Realized gains included in earnings	5,993			818		8,854		567
Purchase	0			0		25,000		0
Sales	(4,186		)	0		0		0
Settlements	(8,264		)	0		0		0
Ending Balance	$	36,344		$	12,124	$	81,357	$	10,575
The amount of total gains for the period included in earnings attributable to assets still held at September 30	$	6,510		$	818	$	8,854	$	567

There were no transfers between Levels 1, 2, and 3 of the fair value hierarchy during the nine months ended September 30, 2013 and 2012.

At September 30, 2013, the Company did not have any nonrecurring fair value measurements of nonfinancial assets or nonfinancial liabilities.

6. Derivative Financial Instruments

The Company is exposed to certain risks relating to its ongoing business operations. The primary risks managed by using derivative instruments are equity price risk and interest rate risk. Equity contracts on various equity securities are intended to manage the price risk associated with forecasted purchases or sales of such securities. Interest rate swaps are intended to manage the interest rate risk associated with the Company’s debts with fixed or floating rates.

On August 9, 2013, AFL entered into a three-year total return swap agreement with Citibank. Under the total return swap agreement, AFL receives the income equivalent on underlying obligations due to Citibank and pays to Citibank interest equal to LIBOR plus 120 basis points on the outstanding notional amount of the underlying obligations, which was approximately $80 million as of September 30, 2013. The total return swap is secured by approximately $40 million of U.S. Treasuries as collateral, which is included in short-term investments on the consolidated balance sheets.

On February 6, 2009, the Company entered into an interest rate swap of its floating LIBOR rate on a $120 million credit facility for a fixed rate of 1.93% that matured on January 3, 2012. The purpose of the swap was to offset the variability of cash flows resulting from the variable interest rate. The swap was not designated as a hedge and changes in the fair value were adjusted through the consolidated statement of operations in the period of change.

On March 3, 2008, the Company entered into an interest rate swap of its floating LIBOR rate on a Bank of America $18 million LIBOR plus 50 basis points loan for a fixed rate of 4.25% that matured on March 1, 2013. On October 4, 2011, the Company refinanced the $18 million loan that was scheduled to mature on March 1, 2013 with a Union Bank $20 million LIBOR plus 40 basis points loan that matures on January 2, 2015. The related swap expired on March 1, 2013.

Fair value amounts, and gains and losses on derivative instruments

The following tables present the location and amounts of derivative fair values in the consolidated balance sheets and derivative gains in the consolidated statements of operations:

	Asset Derivatives				Liability Derivatives
	September 30, 2013		December 31, 2012		September 30, 2013		December 31, 2012
	(Amount in thousands)
Total return swap - Other assets	$	346	$	0	$	0	$	0
Equity contracts - Other liabilities	0		0		0		175
Interest rate swap - Other liabilities	0		0		0		103
Total derivatives	$	346	$	0	$	0	$	278

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	Gain Recognized in Income
	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
	(Amounts in thousands)
Total return swap - Net realized investment (losses) gains	$	381	$	0	$	381	$	0
Equity contracts - Net realized investment (losses) gains	543		757		1,722		2,342
Interest rate swap - Other revenue	0		139		103		410
Total	$	924	$	896	$	2,206	$	2,752

Most equity contracts consist of covered calls. The Company writes covered calls on underlying equity positions held as an enhanced income strategy that is permitted for the Company’s insurance subsidiaries under statutory regulations. The Company manages the risk associated with covered calls through strict capital limitations and asset diversification throughout various industries. For additional disclosures regarding equity contracts, see Note 5.

7. Goodwill and Other Intangible Assets

Goodwill

There were no changes in the carrying amount of goodwill for the nine months ended September 30, 2013. Goodwill is reviewed annually for impairment and more frequently if potential impairment indicators exist. No impairment indications were identified during any of the periods presented.

Other Intangible Assets

The following table presents the components of other intangible assets as of September 30, 2013 and December 31, 2012.

	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Useful Lives
	(Amounts in thousands)							(in years)
As of September 30, 2013:
Customer relationships	$	51,755	$	(23,266	)	$	28,489	11
Trade names	15,400		(3,048		)	12,352		24
Technology	4,300		(2,043		)	2,257		10
Favorable leases	1,725		(1,725		)	0		3
Software	550		(550		)	0		2
Total intangible assets, net	$	73,730	$	(30,632	)	$	43,098
As of December 31, 2012:
Customer relationships	$	51,755	$	(19,585	)	$	32,170	11
Trade names	15,400		(2,567		)	12,833		24
Technology	4,300		(1,720		)	2,580		10
Favorable leases	1,725		(1,719		)	6		3
Software	550		(550		)	0		2
Total intangible assets, net	$	73,730	$	(26,141	)	$	47,589

Intangible assets are amortized on a straight-line basis over their useful lives. Intangible assets amortization expense was $1.5 million for the three months ended September 30, 2013 and 2012, and $4.5 million and $4.6 million for the nine months ended September 30, 2013 and 2012, respectively. The following table presents the estimated future amortization expenses related to intangible assets as of September 30, 2013:

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Year Ending	Amortization Expense
	(Amounts in thousands)
Remainder of 2013	$	1,495
2014	5,980
2015	5,980
2016	5,980
2017	5,253
Thereafter	18,410
Total	$	43,098

8. Share-Based Compensation

Share-based compensation expense for all share-based payment awards granted or modified is based on the estimated grant-date fair value. The Company recognizes these compensation costs on a straight-line basis over the requisite service period of the award, which is the option vesting term of four or five years for options granted prior to 2008 and four years for options granted subsequent to January 1, 2008, for only those shares expected to vest. The fair value of stock option awards is estimated using the Black-Scholes option pricing model with the grant-date assumptions and weighted-average fair values.

Under the Company's 2005 Incentive Award Plan (the “Plan”), the Compensation Committee of the Company’s Board of Directors granted performance vesting restricted stock units to the Company’s senior management and key employees as follows:

	Grant Year
	2013	2012	2011
Three-year performance period ending December 31,	2015	2014	2013
Vesting shares, target	84,500	89,000	80,000
Vesting shares, maximum	190,125	200,250	120,000

The restricted stock units vest at the end of a three-year performance period beginning with the year of the grant, and then only if, and to the extent that, the Company’s performance during the performance period achieves the threshold established by the Compensation Committee of the Company's Board of Directors. For 2011 grants, vesting will be based on the Company's cumulative underwriting income. For 2012 grants, vesting will be based on the Company's cumulative underwriting income and net premium written growth. For 2013 grants, vesting will be based on the Company's cumulative underwriting income, annual underwriting income, and net premiums written growth.

The fair value of each restricted share grant was determined based on the market price on the grant date. Compensation cost is recognized based on management’s best estimate that performance goals will be achieved. If such goals are not met, no compensation cost is recognized and any recognized compensation cost would be reversed. For the 2012 and 2011 grants, the achievement of the performance condition set by the Compensation Committee was no longer considered probable, and previously recognized compensation costs were reversed.

9. Income Taxes

For financial statement purposes, the Company recognizes tax benefits related to positions taken, or expected to be taken, on a tax return only if, “more-likely-than-not,” the positions are sustainable. Once this threshold has been met, the Company's measurement of its expected tax benefits is recognized in its financial statements.

There was a $4.7 million increase to the total amount of unrecognized tax benefit related to tax uncertainties during the nine months ended September 30, 2013. The increase was the result of tax positions taken regarding federal tax credit carryforwards and state tax apportionment issues based on management’s best judgment given the facts, circumstances, and information available at the reporting date. The Company does not expect any changes in such unrecognized tax benefit to have a significant impact on its consolidated financial statements within the next 12 months.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states. Tax years that remain subject to examination by major taxing jurisdictions are 2010 through 2012 for federal taxes and 2003 through 2011 for California state taxes. Tax year 2010 is currently under examination by the Internal Revenue Service (“IRS”). The IRS has issued adjustments to the Company’s 2010 tax liability which will generate a net tax refund. The Company has agreed with these adjustments and anticipates the exam will conclude in the near future.

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The Company is currently under examination by the California Franchise Tax Board (“FTB”) for tax years 2003 through 2010. The FTB has issued Notices of Proposed Assessments to the Company for tax years 2003 through 2006. The Company has filed protests with the FTB in response to these assessments and presented its case in a hearing before the FTB. No assessments have been received for tax years 2007 through 2010. Management believes that the resolution of these examinations and assessments will not have a material impact on the condensed consolidated financial statements.

Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial reporting basis and the respective tax basis of the Company’s assets and liabilities, and expected benefits of utilizing net operating loss, capital loss, and tax-credit carryforwards. The Company assesses the likelihood that its deferred tax assets will be realized and, to the extent management does not believe these assets are more likely than not to be realized, a valuation allowance is established.

At September 30, 2013, the Company’s deferred income taxes were in a net asset position which included a combination of ordinary and capital deferred tax benefits. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon generating sufficient taxable income of the appropriate character within the carryback and carryforward periods available under the tax law. Management considers the reversal of deferred tax liabilities, projected future taxable income of an appropriate nature, and tax-planning strategies in making this assessment. The Company believes that through the use of prudent tax planning strategies and the generation of capital gains, sufficient income will be realized in order to maximize the full benefits of its deferred tax assets. Although realization is not assured, management believes that it is more likely than not that the Company’s deferred tax assets will be realized.

10. Contingencies

The Company is, from time to time, named as a defendant in various lawsuits or regulatory actions incidental to its insurance business. The majority of lawsuits brought against the Company relate to insurance claims that arise in the normal course of business and are reserved for through the reserving process. For a discussion of the Company’s reserving methods, see the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

The Company also establishes reserves for non-insurance claims related lawsuits, regulatory actions, and other contingencies when the Company believes a loss is probable and is able to estimate its potential exposure. For loss contingencies believed to be reasonably possible, the Company also discloses the nature of the loss contingency and an estimate of the possible loss, range of loss, or a statement that such an estimate cannot be made. While actual losses may differ from the amounts recorded and the ultimate outcome of the Company’s pending actions is generally not yet determinable, the Company does not believe that the ultimate resolution of currently pending legal or regulatory proceedings, either individually or in the aggregate, will have a material adverse effect on its financial condition, results of operations, or cash flows.

In all cases, the Company vigorously defends itself unless a reasonable settlement appears appropriate. For a discussion of legal matters, see the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Cautionary Statements

Certain statements in this Quarterly Report on Form 10-Q or in other materials the Company has filed or will file with the Securities and Exchange Commission (“SEC”) (as well as information included in oral statements or other written statements made or to be made by the Company) contain or may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements may address, among other things, the Company’s strategy for growth, business development, regulatory approvals, market position, expenditures, financial results, and reserves. Forward-looking statements are not guarantees of performance and are subject to important factors and events that could cause the Company’s actual business, prospects, and results of operations to differ materially from the historical information contained in this Quarterly Report on Form 10-Q and from those that may be expressed or implied by the forward-looking statements contained in this Quarterly Report on Form 10-Q and in other reports or public statements made by the Company.

Factors that could cause or contribute to such differences include, among others: the competition currently existing in the automobile insurance markets in California and the other states in which the Company operates; the cyclical and generally competitive nature of the property and casualty insurance industry and general uncertainties regarding loss reserves or other estimates; the accuracy and adequacy of the Company’s pricing methodologies; the Company’s success in managing its business in states outside of California; the impact of potential third party “bad-faith” legislation, changes in laws, regulations or new

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interpretations of existing laws and regulations, tax position challenges by the FTB, and decisions of courts, regulators and governmental bodies, particularly in California; the Company’s ability to obtain and the timing of required regulatory approvals of premium rate changes for insurance policies issued in states where the Company operates; the Company’s reliance on independent agents to market and distribute its policies; the investment yields the Company is able to obtain on its investments and the market risks associated with the Company’s investment portfolio; the effect government policies may have on market interest rates; uncertainties related to assumptions and projections generally, inflation and changes in economic conditions; changes in driving patterns and loss trends; acts of war and terrorist activities; court decisions, trends in litigation, and health care and auto repair costs; adverse weather conditions or natural disasters, including those which may be related to climate change, in the markets served by the Company; the stability of the Company’s information technology systems and the ability of the Company to execute on its information technology initiatives; the Company’s ability to realize current deferred tax assets or to hold certain securities with current loss positions to recovery or maturity; and other uncertainties, all of which are difficult to predict and many of which are beyond the Company’s control. GAAP prescribes when a Company may reserve for particular risks including litigation exposures. Accordingly, results for a given reporting period could be significantly affected if and when a reserve is established for a major contingency. Reported results may therefore appear to be volatile in certain periods.

The Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information or future events or otherwise. Investors are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this Quarterly Report on Form 10-Q or, in the case of any document the Company incorporates by reference, any other report filed with the SEC or any other public statement made by the Company, the date of the document, report, or statement. Investors should also understand that it is not possible to predict or identify all factors and should not consider the risks set forth above to be a complete statement of all potential risks and uncertainties. If the expectations or assumptions underlying the Company’s forward-looking statements prove inaccurate or if risks or uncertainties arise, actual results could differ materially from those predicted in any forward-looking statements. The factors identified above are believed to be some, but not all, of the important factors that could cause actual events and results to be significantly different from those that may be expressed or implied in any forward-looking statements. Any forward-looking statements should also be considered in light of the information provided in “Item 1A. Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 and in Item 1A. Risk Factors in Part II - Other Information of this Quarterly Report on Form 10-Q.

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OVERVIEW

A. General

The operating results of property and casualty insurance companies are subject to significant quarter-to-quarter and year-to-year fluctuations due to the effect of competition on pricing, the frequency and severity of losses, the effect of weather and natural disasters on losses, general economic conditions, the general regulatory environment in states in which an insurer operates, state regulation of insurance including premium rates, changes in fair value of investments, and other factors such as changes in tax laws. The property and casualty insurance industry has been highly cyclical, with periods of high premium rates and shortages of underwriting capacity followed by periods of severe price competition and excess capacity. These cycles can have a large impact on the Company’s ability to grow and retain business.

This section discusses some of the relevant factors that management considers in evaluating the Company’s performance, prospects, and risks. It is not all-inclusive and is meant to be read in conjunction with the entirety of management’s discussion and analysis, the Company’s condensed consolidated financial statements and notes thereto, and all other items contained within this Quarterly Report on Form 10-Q.

B. Business

The Company is primarily engaged in writing personal automobile insurance through 13 insurance subsidiaries (“Insurance Companies”) in 13 states, principally California. The Company also writes homeowners, commercial automobile, commercial property, mechanical breakdown, fire, and umbrella insurance. These policies are mostly sold through independent agents who receive a commission for selling policies. The Company believes that it has thorough underwriting and claims handling processes that, together with its agent relationships, provide the Company with competitive advantages because they allow the Company to charge lower prices while realizing better margins than many competitors.

The direct premiums written during the nine months ended September 30, 2013 and 2012 by state and line of business were:

Nine Months Ended September 30, 2013

(Amounts in thousands)

	Private Passenger Auto			Homeowners			Commercial Auto			Other Lines			Total
California	$	1,322,137		$	203,015		$	39,405		$	53,660		$	1,618,217		78.2	%
Florida (1)	104,996			0			16,145			5,676			126,817			6.1	%
Other states (2)	211,250			55,604			20,922			35,773			323,549			15.7	%
Total	$	1,638,383		$	258,619		$	76,472		$	95,109		$	2,068,583		100.0	%
	79.2		%	12.5		%	3.7		%	4.6		%	100.0		%

Nine Months Ended September 30, 2012

(Amounts in thousands)

	Private Passenger Auto			Homeowners			Commercial Auto			Other Lines			Total
California	$	1,250,238		$	192,606		$	30,644		$	48,325		$	1,521,813		76.1	%
Florida (1)	125,218			(181		)	11,583			5,704			142,324			7.1	%
Other states (2)	235,987			47,379			13,600			39,085			336,051			16.8	%
Total	$	1,611,443		$	239,804		$	55,827		$	93,114		$	2,000,188		100.0	%
	80.6		%	12.0		%	2.8		%	4.6		%	100.0		%

(1) The Company has ceased writing homeowners policies in Florida.

(2) No individual state accounts for more than 5% of total direct premiums written.

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C. Regulatory and Litigation Matters

The Department of Insurance (“DOI”) in each state in which the Company operates is responsible for conducting periodic financial and market conduct examinations of the Insurance Companies in their states. Market conduct examinations typically review compliance with insurance statutes and regulations with respect to rating, underwriting, claims handling, billing, and other practices. The following table presents a summary of current financial and market conduct examinations:

State	Exam Type	Period Under Review	Status
AZ	Market Conduct	Jan 2012 to Dec 2012	Received final report.

During the course of and at the conclusion of these examinations, the examining DOI generally reports findings to the Company. None of the findings reported to date is expected to be material to the Company’s financial position.

In May 2009, the Company filed for a 3.9% rate increase for its California homeowners line of business. In May 2011, the matter was referred to an administrative law judge for review. After extensive evidentiary hearings, the administrative law judge delivered a proposed decision on the matter to the California Insurance Commissioner in September 2012 that recommended a rate reduction of approximately 5.5%. After initially rejecting the administrative law judge's proposed decision and referring the matter back to the administrative law judge to gather more evidence, the California Insurance Commissioner recently accepted the administrative law judge's rate reduction recommendation. The Company does not agree with the proposed rate decrease and believes that recent homeowners loss trends support an increase. The Company filed a complaint in Los Angeles Superior Court seeking review of the administrative law judge's decision and requested a stay of implementation of the rate order. The Company's request for a stay on implementation of the rate order was denied, and the Company implemented the rate reduction in the second quarter of 2013. A hearing to review the administrative law judge's decision is scheduled for March 2014.

Notwithstanding that the California homeowners rate reduction was mandated by the administrative law judge and implemented in the second quarter of 2013, the Company's most recent data indicated a need for a rate increase. Consequently, the Company filed for an additional rate increase for its California homeowners line of business. A stipulated agreement to increase rates by 8.26% has been agreed to, but implementation of the new rate is subject to final approval from the California Insurance Commissioner.

In January 2013, the California DOI approved an auto body repair regulation intended to strengthen consumer protection. This regulation requires insurers to settle automobile insurance claims using repair standards described by the regulation and not by the insurers' own standards. The new ruling became effective in March 2013. The full extent of the impact is currently unknown, but it is likely to increase the cost of parts for automobile repairs.

In April 2010, the California DOI issued a Notice of Non-Compliance (“2010 NNC”) to Mercury Insurance Company (“MIC”), Mercury Casualty Company (“MCC”), and California Automobile Insurance Company (“CAIC”) based on a Report of Examination of the Rating and Underwriting Practices of these companies issued by the California DOI in February 2010. The 2010 NNC includes allegations of 35 instances of noncompliance with applicable California insurance law and seeks to require that each of MIC, MCC, and CAIC change its rating and underwriting practices to rectify the alleged noncompliance and may also seek monetary penalties. In April 2010, the Company submitted a Statement of Compliance and Notice of Defense to the 2010 NNC, in which it denied the allegations contained in the 2010 NNC and provided specific defenses to each allegation. The Company also requested a hearing in the event that the Statement of Compliance and Notice of Defense does not establish to the satisfaction of the California DOI that the alleged noncompliance does not exist, and the matters described in the 2010 NNC are not otherwise able to be resolved with the California DOI. However, no assurance can be given that efforts to resolve the 2010 NNC informally will be successful.

In March 2006, the California DOI issued an Amended Notice of Non-Compliance to a Notice of Non-Compliance originally issued in February 2004 (as amended, “2004 NNC”) alleging that the Company charged rates in violation of the California Insurance Code, willfully permitted its agents to charge broker fees in violation of California law, and willfully misrepresented the actual price insurance consumers could expect to pay for insurance by the amount of a fee charged by the consumer's insurance broker. The California DOI seeks to impose a fine for each policy on which the Company allegedly permitted an agent to charge a broker fee and a penalty for each policy on which the Company allegedly used a misleading advertisement and to suspend certificates of authority for a period of one year. In January 2012, the administrative law judge bifurcated the 2004 NNC between (a) the California DOI’s order to show cause, in which the California DOI asserts the false advertising allegations and accusation, and (b) the California DOI’s notice of noncompliance, in which the California DOI asserts the unlawful rate allegations. In February 2012, the administrative law judge submitted a proposed decision dismissing the California DOI’s 2004 NNC. In March 2012, the California Insurance Commissioner rejected the administrative law judge’s proposed decision. The Company challenged the rejection in Los Angeles Superior Court (“Superior Court”) in April 2012, and the California Insurance Commissioner filed a demurrer to the Company's petition. Following a hearing, the Superior Court sustained the California Insurance Commissioner’s demurrer without leave to amend because it found the Company must first exhaust its administrative remedies. In January 2013,

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the Company appealed the Superior Court’s decision. Following a hearing on April 23, 2013, the Court of Appeals affirmed the Superior Court's decision. On January 15, 2013, the administrative law judge heard various pending motions that had originally been filed by the Company in June 2011. The administrative law judge granted certain portions of the California DOI's motion for collateral estoppel to prevent the Company from litigating certain findings of fact reached in a prior litigation action and denied the Company's motion for governmental estoppel and laches, without prejudice, on the ground that a resolution of the motion requires specific factual findings in the context of the evidentiary hearing. The administrative law judge held an evidentiary hearing on the noncompliance portion of the 2004 NNC during April 2013. A mediation was held September 4, 2013, but the parties were unable to reach a settlement of the matter. Due to the mediation, post-hearing and responsive briefs are expected to be filed by the Company and California DOI during October and November 2013.

The Company denies the allegations in the 2004 and 2010 NNC matters, and believes that no monetary penalties are warranted, and the Company intends to defend itself against the allegations vigorously. The Company has been subject to fines and penalties by the California DOI in the past due to alleged violations of the California Insurance Code. The largest and most recent of these was settled in 2008 for $300,000. However, prior settlement amounts are not necessarily indicative of the potential results in the current notice of non-compliance matters. Based upon its understanding of the facts and the California Insurance Code, the Company does not expect that the ultimate resolution of the 2004 and 2010 NNC matters will be material to the Company’s financial position. The Company has accrued a liability for the estimated cost to defend itself in the notice of non-compliance matters.

The Company is, from time to time, named as a defendant in various lawsuits or regulatory actions incidental to its insurance business. The majority of lawsuits brought against the Company relate to insurance claims that arise in the normal course of business and are reserved for through the reserving process. For a discussion of the Company’s reserving methods, see the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

The Company also establishes reserves for non-insurance claims related lawsuits, regulatory actions, and other contingencies when the Company believes a loss is probable and is able to estimate its potential exposure. For loss contingencies believed to be reasonably possible, the Company also discloses the nature of the loss contingency and an estimate of the possible loss, range of loss, or a statement that such an estimate cannot be made. While actual losses may differ from the amounts recorded and the ultimate outcome of the Company’s pending actions is generally not yet determinable, the Company does not believe that the ultimate resolution of currently pending legal or regulatory proceedings, either individually or in the aggregate, will have a material adverse effect on its financial condition, results of operations, or cash flows.

In all cases, the Company vigorously defends itself unless a reasonable settlement appears appropriate. For a discussion of legal matters, see the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

D. Critical Accounting Policies and Estimates

Reserves

Preparation of the Company’s consolidated financial statements requires management's judgment and estimates. The most significant is the estimate of loss reserves. Estimating loss reserves is a difficult process as many factors can ultimately affect the final settlement of a claim and, therefore, the reserve that is required. Changes in the regulatory and legal environment, results of litigation, medical costs, the cost of repair materials, and labor rates, among other factors, can impact ultimate claim costs. In addition, time can be a critical part of reserving determinations since the longer the span between the incidence of a loss and the payment or settlement of a claim, the more variable the ultimate settlement amount could be. Accordingly, short-tail claims, such as property damage claims, tend to be more reasonably predictable than long-tail liability claims.

The Company also engages an independent actuarial consultant to review the Company’s reserves and to provide the annual actuarial opinions required under state statutory accounting requirements. The Company does not rely on the actuarial consultant for GAAP reporting or periodic report disclosure purposes. The Company analyzes loss reserves quarterly primarily using the incurred loss, claim count development, and average severity methods described below. The Company also uses the paid loss development method as part of its reserve analysis. When deciding among methods to use, the Company evaluates the credibility of each method based on the maturity of the data available and the claims settlement practices for each particular line of business or coverage within a line of business. When establishing the reserve, the Company will generally analyze the results from all of the methods used rather than relying on a single method. While these methods are designed to determine the ultimate losses on claims under the Company’s policies, there is inherent uncertainty in all actuarial models since they use historical data to project outcomes. The Company believes that the techniques it uses provide a reasonable basis in estimating loss reserves.

• The incurred loss development method analyzes historical incurred case loss (case reserves plus paid losses) development to estimate ultimate losses. The Company applies development factors against current case incurred losses by accident period to calculate ultimate expected losses. The Company believes that the incurred loss development method provides

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a reasonable basis for evaluating ultimate losses, particularly in the Company’s larger, more established lines of business which have a long operating history.

• The average severity method analyzes historical loss payments and/or incurred losses divided by closed claims and/or total claims to calculate an estimated average cost per claim. From this, the expected ultimate average cost per claim can be estimated. The average severity method coupled with the claim count development method provides meaningful information regarding inflation and frequency trends that the Company believes is useful in establishing reserves. The claim count development method analyzes historical claim count development to estimate future incurred claim count development for current claims. The Company applies these development factors against current claim counts by accident period to calculate ultimate expected claim counts.

• The paid loss development method analyzes historical payment patterns to estimate the amount of losses yet to be paid. The Company uses this method for losses and loss adjustment expenses.

Both at September 30, 2013 and December 31, 2012, the Company recorded its point estimate of $1.0 billion in losses and loss adjustment expenses liabilities, which include $396.1 million and $408.9 million, respectively, of incurred but not reported (“IBNR”) loss reserves. IBNR includes estimates, based upon past experience, of ultimate developed costs, which may differ from case estimates, unreported claims that occurred on or prior to September 30, 2013, and estimated future payments for reopened claims. Management believes that the liability for losses and loss adjustment expenses is adequate to cover the ultimate net cost of losses and loss adjustment expenses incurred to date; however, since the provisions are necessarily based upon estimates, the ultimate liability may be more or less than such provisions.

The Company evaluates its reserves quarterly. When management determines that the estimated ultimate claim cost requires a decrease for previously reported accident years, favorable development occurs and a reduction in losses and loss adjustment expenses is reported in the current period. If the estimated ultimate claim cost requires an increase for previously reported accident years, unfavorable development occurs and an increase in losses and loss adjustment expenses is reported in the current period. For the nine months ended September 30, 2013, the Company reported favorable development of approximately $2 million on the 2012 and prior accident years’ losses and loss adjustment expenses reserves, which at December 31, 2012 totaled approximately $1.0 billion. The favorable development in 2013 came largely from the Company's operations outside of California.

For a further discussion of the Company’s reserving methods, see the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

Premiums

The Company’s insurance premiums are recognized as income ratably over the term of the policies and in proportion to the amount of insurance protection provided. Unearned premiums are carried as a liability on the consolidated balance sheets and are computed on a monthly pro-rata basis. The Company evaluates its unearned premiums periodically for premium deficiencies by comparing the sum of expected claim costs, unamortized acquisition costs, and maintenance costs partially offset by investment income to related unearned premiums. To the extent that any of the Company’s lines of business become unprofitable, a premium deficiency reserve may be required.

Investments

The Company’s fixed maturity and equity investments are classified as “trading” and carried at fair value as required when applying the fair value option, with changes in fair value reflected in net realized investment gains or losses in the consolidated statements of operations. The majority of equity holdings, including non-redeemable fund preferred stocks, is actively traded on national exchanges or trading markets, and is valued at the last transaction price on the balance sheet dates.

Fair Value of Financial Instruments

Financial instruments recorded in the consolidated balance sheets include investments, receivables, total return swap, interest rate swaps, accounts payable, equity contracts, and secured notes payable. The fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Due to their short-term maturity, the carrying values of receivables and accounts payable approximate their fair market values. All investments are carried on the consolidated balance sheets at fair value, as described in Note 3 of Condensed Notes to Consolidated Financial Statements.

The Company’s financial instruments include securities issued by the U.S. government and its agencies, securities issued by states and municipal governments and agencies, certain corporate and other debt securities, equity securities, and exchange traded funds. Approximately 98% of the fair value of financial instruments held at September 30, 2013 is based on observable market prices, observable market parameters, or is derived from such prices or parameters. The availability of observable market

21

prices and pricing parameters can vary by financial instrument. Observable market prices and pricing parameters of a financial instrument, or a related financial instrument, are used to derive a price without requiring significant judgment.

The Company may hold or acquire financial instruments that lack observable market prices or market parameters because they are less actively traded currently or in future periods. The fair value of such instruments is determined using techniques appropriate for each particular financial instrument. These techniques may involve some degree of judgment. The price transparency of the particular financial instrument will determine the degree of judgment involved in determining the fair value of the Company’s financial instruments. Price transparency is affected by a wide variety of factors, including, for example, the type of financial instrument, whether it is a new financial instrument and not yet established in the marketplace, and the characteristics particular to the transaction. Financial instruments for which actively quoted prices or pricing parameters are available or for which fair value is derived from actively quoted prices or pricing parameters will generally have a higher degree of price transparency. By contrast, financial instruments that are thinly traded or not quoted will generally have diminished price transparency. Even in normally active markets, the price transparency for actively quoted instruments may be reduced during periods of market dislocation. Alternatively, in thinly quoted markets, the participation of market makers willing to purchase and sell a financial instrument provides a source of transparency for products that otherwise are not actively quoted.

Income Taxes

At September 30, 2013, the Company’s deferred income taxes were in a net asset position materially due to deferred tax assets resulting from unearned premiums, expense accruals, loss reserve discounting, and alternative minimum tax and other tax credit carryforwards. These deferred tax assets were substantially offset by deferred tax liabilities generated by deferred acquisition costs and unrealized gains on securities held. The Company assesses the likelihood that its deferred tax assets will be realized and, to the extent management does not believe these assets are more likely than not to be realized, a valuation allowance is established. Management’s recoverability assessment of its deferred tax assets which are ordinary in character takes into consideration the Company’s strong history of generating ordinary taxable income and a reasonable expectation that it will continue to generate ordinary taxable income in the future. Further, the Company has the capacity to recoup its ordinary deferred tax assets through tax loss carryback claims for taxes paid in prior years. Finally, the Company has various deferred tax liabilities that represent sources of future ordinary taxable income.

Management’s recoverability assessment with regard to its capital deferred tax assets is based on estimates of anticipated capital gains and tax-planning strategies available to generate future taxable capital gains, both of which would contribute to the realization of deferred tax benefits. The Company expects to hold certain quantities of debt securities, which are currently in loss positions, to recovery or maturity. Management believes unrealized losses related to these debt securities, which represent a portion of the unrealized loss positions at period end, are fully realizable at maturity. Management believes its long-term time horizon for holding these securities allows it to avoid any forced sales prior to maturity. The Company also has unrealized gains in its investment portfolio that could be realized through asset dispositions, at management’s discretion. Further, the Company has the capability to generate additional realized capital gains by entering into sale-leaseback transactions using one or more of its appreciated real estate holdings.

The Company has the capability to implement tax planning strategies as it has a steady history of generating positive cash flow from operations and believes that its cash flow needs can be met in future periods without the forced sale of its investments. This capability assists management in controlling the timing and amount of realized losses generated during future periods. By prudent utilization of some or all of these strategies, management has the intent and believes that it has the ability to generate capital gains and minimize tax losses in a manner sufficient to avoid losing the benefits of its deferred tax assets. Management will continue to assess the need for a valuation allowance on a quarterly basis. Although realization is not assured, management believes it is more likely than not that the Company’s deferred tax assets will be realized.

The Company’s effective income tax rate for the year could be different from the effective tax rate for the nine months ended September 30, 2013 and will be dependent on the Company’s profitability for the remainder of the year. The Company’s effective income tax rate can be affected by several factors. These generally include tax exempt investment income, other non-deductible expenses, and periodically, non-routine tax items such as adjustments to unrecognized tax benefits related to tax uncertainties. The effective tax rate for the nine months ended September 30, 2013 was 19.9%, compared to 23.0% for the same period in 2012. The decrease in the effective tax rate is mainly due to a decrease in taxable income relative to tax exempt investment income. The Company’s effective tax rate for the nine months ended September 30, 2013 was lower than the statutory tax rate primarily as a result of tax exempt investment income earned. However, the effective tax rate for the entire year could differ from the rate for the nine months.

Goodwill and Other Intangible Assets

Goodwill and other intangible assets arise from business acquisitions and consist of the excess of the cost of the acquisitions over the tangible and intangible assets acquired and liabilities assumed and identifiable intangible assets acquired. The Company

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annually evaluates goodwill and other intangible assets for impairment. The Company also reviews its goodwill and other intangible assets for impairment whenever events or changes in circumstances indicate that it is more likely than not that the carrying amount of goodwill and other intangible assets may exceed the implied fair value. As of December 31, 2012, the fair value of the Company’s reporting units exceeded their carrying value. There are no triggering events indicating the carrying amount of goodwill exceeds the implied fair value as of September 30, 2013.

Contingent Liabilities

The Company has known, and may have unknown, potential liabilities which include claims, assessments, lawsuits, or regulatory fines and penalties relating to the Company’s business. The Company continually evaluates these potential liabilities and accrues for them and/or discloses them in the condensed notes to the consolidated financial statements where required. The Company does not believe that the ultimate resolution of currently pending legal or regulatory proceedings, either individually or in the aggregate, will have a material adverse effect on its financial condition, results of operations, or cash flows.

RESULTS OF OPERATIONS

Three Months Ended September 30, 2013 compared to Three Months Ended September 30, 2012

Revenue

Net premiums written and net premiums earned for the three months ended September 30, 2013 increased 2.9% and 5.1%, respectively, from the corresponding period in 2012. The increase in net premiums written was primarily due to higher average premiums per policy which primarily resulted from the October 2012 4% rate increase on California private passenger automobile policies as well as rate increases taken in states outside of California. In addition, the Company implemented a 6.9% rate increase in July 2013 on private passenger automobile policies written in its California Automobile Insurance Company subsidiary, which represented approximately 23% of total California private passenger automobile net premiums written for the three months ended September 30, 2013.

Net premiums written is a non-GAAP financial measure which represents the premiums charged on policies issued during a fiscal period less any applicable reinsurance. Net premiums written is a statutory measure designed to determine production levels. Net premiums earned, the most directly comparable GAAP measure, represents the portion of net premiums written that is recognized as revenue in the financial statements for the period presented and earned on a pro-rata basis over the term of the policies. The following is a reconciliation of total net premiums written to net premiums earned:

	Three Months Ended September 30,
	2013			2012
	(Amounts in thousands)
Net premiums written	$	704,895		$	684,880
Change in net unearned premium	(25,982		)	(38,796		)
Net premiums earned	$	678,913		$	646,084

Expenses

Loss and expense ratios are used to interpret the underwriting experience of property and casualty insurance companies. The following table presents the Insurance Companies’ loss ratio, expense ratio, and combined ratio determined in accordance with GAAP:

	Three Months Ended September 30,
	2013		2012
Loss ratio	72.6	%	72.4	%
Expense ratio	26.7	%	26.6	%
Combined ratio (1)	99.2	%	99.1	%

(1) Combined ratio for the three months ended September 30, 2013 and 2012 do not sum due to rounding.

Loss ratio is calculated by dividing losses and loss adjustment expenses by net premiums earned and did not materially change for the three months ended September 30, 2013 compared to the same period in 2012. Many factors affect the loss ratio including average premiums earned per policy, claims handling, changes in loss frequency and severity, and development from prior periods.

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Expense ratio is calculated by dividing the sum of policy acquisition costs plus other operating expenses by net premiums earned and did not materially change for the three months ended September 30, 2013 compared to the same period in 2012.

Combined ratio is equal to loss ratio plus expense ratio and is the key measure of underwriting performance traditionally used in the property and casualty insurance industry. A combined ratio under 100% generally reflects profitable underwriting results; and a combined ratio over 100% generally reflects unprofitable underwriting results.

Income tax expense was $15.2 million and $25.1 million for the three month periods ended September 30, 2013 and 2012, respectively. The decrease resulted primarily from the decreased income before income taxes compared to the corresponding period in 2012.

Investments

The following table presents the investment results of the Company:

	Three Months Ended September 30,
	2013			2012
	(Amounts in thousands)
Average invested assets at cost (1)	$	3,025,614		$	3,007,634
Net investment income (2)
Before income taxes	$	30,857		$	33,410
After income taxes	$	27,214		$	28,881
Average annual yield on investments (2)
Before income taxes	4.1		%	4.4		%
After income taxes	3.6		%	3.8		%
Net realized investment gains	$	16,212		$	49,752

(1) Fixed maturities and short-term bonds at amortized cost; and equities and other short-term investments at cost.Average invested assets at cost are based on the monthly amortized cost of the invested assets for each respective period.

(2) Net investment income and average annual yield decreased primarily due to the maturity and replacement of higher yielding investments purchased when market interest rates were higher, with lower yielding investments purchased during low interest rate environments.

Included in net income are net realized investment gains of $16.2 million and $49.8 million for the three months ended September 30, 2013 and 2012, respectively. Net realized investment gains include gains of $21.8 million and $44.8 million for the three months ended September 30, 2013 and 2012, respectively, due to changes in the fair value of total investments pursuant to the application of the fair value accounting option. Net gains for the three months ended September 30, 2013 arose primarily from $32.6 million market value increase in the Company’s equity securities offset by an $11.3 million market value decrease in its fixed maturity portfolio. The primary cause of the increase in the value of the Company's equity securities was the overall improvement in the equity markets during the three months ended September 30, 2013. The Company’s municipal bond holdings represent the majority of the fixed maturity portfolio and were adversely affected by the increase in market interest rates during the three months ended September 30, 2013. The net gains for the three months ended September 30, 2012 arose primarily from $25.6 million and $19.2 million increases in the market value of the Company's equity securities and fixed maturity securities, respectively. The primary cause of the increase in the value of the Company’s equity securities was the overall improvement in the equity markets during the three months ended September 30, 2012. The Company’s municipal bond holdings represent the majority of its fixed maturity portfolio, which were positively affected by improvements in the overall municipal bond market during the three months ended September 30, 2012.

Net Income

Net income was $39.6 million, or $0.72 per share (basic and diluted), and $66.2 million, or $1.21 per share (basic and diluted), in the three months ended September 30, 2013 and 2012, respectively. Diluted per share results were based on a weighted average of 55.0 million and 54.9 million shares for the three months ended September 30, 2013 and 2012, respectively. Included in net income per share were net realized investment gains, net of income taxes, of $0.19 and $0.59 per share (basic and diluted) in the three months ended September 30, 2013 and 2012, respectively.

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Nine Months Ended September 30, 2013 compared to Nine Months Ended September 30, 2012

Revenue

Net premiums written and net premiums earned for the nine months ended September 30, 2013 increased 3.2% and 5.1%, respectively, from the corresponding period in 2012. The increase in net premiums written was primarily due to an increase in the number of policies in-force and higher average premiums per policy which primarily resulted from the October 2012 4% rate increase on California private passenger automobile policies as well as rate increases taken in states outside of California.

The following is a reconciliation of total net premiums written to net premiums earned:

	Nine Months Ended September 30,
	2013			2012
	(Amounts in thousands)
Net premiums written	$	2,060,878		$	1,996,800
Change in net unearned premium	(43,583		)	(77,657		)
Net premiums earned	$	2,017,295		$	1,919,143

Expenses

Loss and expense ratios are used to interpret the underwriting experience of property and casualty insurance companies. The following table presents the Insurance Companies’ loss ratio, expense ratio, and combined ratio determined in accordance with GAAP:

	Nine Months Ended September 30,
	2013		2012
Loss ratio	71.7	%	73.7	%
Expense ratio	26.9	%	26.6	%
Combined ratio(1)	98.6	%	100.4	%

(1) Combined ratio for the nine months ended September 30, 2012 does not sum due to rounding.

The loss ratio was affected by favorable development of approximately $2 million and unfavorable development of approximately $33 million on prior accident years’ losses and loss adjustment expenses reserves for the nine months ended September 30, 2013 and 2012, respectively. The favorable development in 2013 is primarily from non-California states. The unfavorable development in 2012 is largely the result of re-estimates of California bodily injury losses which experienced both higher average severities and more late reported claims (claim count development) than originally estimated at December 31, 2011. The Company also recognized approximately $16 million of pre-tax catastrophic losses for the nine months ended September 30, 2013 as a result of tornadoes in Oklahoma and severe storms in the Midwest and the Southeast region during the second quarter. The Company recognized approximately $9 million of catastrophic losses for the nine months ended September 30, 2012. Excluding the effect of estimated prior period's loss development and catastrophic losses, the loss ratio was 71.0% and 71.5% for the nine months ended September 30, 2013 and 2012, respectively.

The expense ratio increased for the nine months ended September 30, 2013 from the corresponding period in 2012. A consolidation of claims and underwriting operations located outside of California into hub locations caused approximately $10 million of pre-tax office closure costs and severance related expense during the first quarter of 2013. The costs were charged to loss adjustment expenses and underwriting expenses. The charges added 0.2 point to the year-to-date expense ratio in 2013. In addition, 2013 expenses have a higher amount recorded for profitability related accruals compared to the corresponding period in 2012.

Income tax expense was $24.1 million and $40.2 million for the nine-month periods ended September 30, 2013 and 2012, respectively. The decrease resulted primarily from the decreased income before income taxes compared to the corresponding period in 2012.

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Investments

The following table presents the investment results of the Company:

	Nine Months Ended September 30,
	2013			2012
	(Amounts in thousands)
Average invested assets at cost (1)	$	3,038,281		$	2,998,270
Net investment income(2)
Before income taxes	$	93,706		$	96,569
After income taxes	$	82,272		$	84,909
Average annual yield on investments(2)
Before income taxes	4.1		%	4.3		%
After income taxes	3.6		%	3.8		%
Net realized investment (losses) gains	$	(7,153	)	$	78,656

(1) Fixed maturities and short-term bonds at amortized cost; and equities and other short-term investments at cost.Average invested assets at cost are based on the monthly amortized cost of the invested assets for each respective period.

(2) Net investment income and average annual yield decreased primarily due to the maturity and replacement of higher yielding investments purchased when market interest rates were higher, with lower yielding investments purchased during low interest rate environments.

Included in net income are net realized investment losses of $7.2 million and gains of $78.7 million for the nine months ended September 30, 2013 and 2012, respectively. Net realized investment (losses) gains include losses of $13.4 million and gains of $69.3 million for the nine months ended September 30, 2013 and 2012, respectively, due to changes in the fair value of total investments pursuant to the application of the fair value accounting option. The net losses for the nine months ended September 30, 2013 arose primarily from an $81.3 million market value decrease in the Company’s fixed maturity securities, partially offset by a $67.6 million market value increase in its equity securities. The Company’s municipal bond holdings represent the majority of the fixed maturity portfolio, which were adversely affected by the increase in interest rates during the nine months ended September 30, 2013. The primary cause of the increase in the value of the Company’s equity securities was the improvement in the equity markets during the nine months ended September 30, 2013. The net gains for the nine months ended September 30, 2012 arose primarily from $50.0 million and $20.2 million increases in the market value of the Company's fixed maturity and equity securities, respectively. The Company’s municipal bond holdings represent the majority of the fixed maturity portfolio, which were positively affected by improvements in the municipal bond market during the nine months ended September 30, 2012. The primary cause of the increase in the value of the Company's equity securities was the overall improvement in the equity markets in the third quarter of 2012.

Net Income

Net income was $96.8 million, or $1.76 per share (basic and diluted), and $134.3 million, or $2.45 per share (basic and diluted), in the nine months ended September 30, 2013 and 2012, respectively. Diluted per share results were based on a weighted average of 55.0 million and 54.9 million shares in the nine months ended September 30, 2013 and 2012, respectively. Included in net income per share, net of income taxes, were net realized investment losses of $0.08 and gains of $0.93 per share (basic and diluted) in the nine months ended September 30, 2013 and 2012, respectively.

LIQUIDITY AND CAPITAL RESOURCES

A. Cash Flows

The Company has generated positive cash flow from operations for more than twenty consecutive years. The Company does not attempt to match the duration and timing of asset maturities with those of liabilities because of the long track record of generating positive operating cash flows. Rather, the Company manages its portfolio with a view towards maximizing total return with an emphasis on after-tax income. With combined cash and short-term investments of $501.5 million at September 30, 2013 as well as $160 million of credit available on a $200 million revolving credit facility, the Company believes its cash flow from operations is adequate to satisfy its liquidity requirements without the forced sale of investments. Investment maturities are also available to

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meet the Company’s liquidity needs. However, the Company operates in a rapidly evolving and often unpredictable business environment that may change the timing or amount of expected future cash receipts and expenditures. Accordingly, there can be no assurance that the Company’s sources of funds will be sufficient to meet its liquidity needs or that the Company will not be required to raise additional funds to meet those needs or for future business expansion, through the sale of equity or debt securities or from credit facilities with lending institutions.

Net cash provided by operating activities in the nine months ended September 30, 2013 was $169.7 million, an increase of $56.4 million compared to the corresponding period in 2012. The increase was primarily due to increased premium collected, reduced operating expenses and income taxes paid, offset by an increase in paid losses and loss adjustment expenses. The Company utilized the cash provided by operating activities primarily for the payment of dividends to its shareholders.

The following table presents the estimated fair value of fixed maturity securities at September 30, 2013 by contractual maturity in the next five years:

	Fixed Maturities
	(Amounts in thousands)
Due in one year or less	$	79,246
Due after one year through two years	90,533
Due after two years through three years	84,418
Due after three years through four years	103,213
Due after four years through five years	90,029
Total due within five years	$	447,439

B. Reinsurance

The Company entered into a Catastrophe Reinsurance Treaty (“Treaty”) effective July 1, 2013 through June 30, 2014. The Treaty provides for $100 million coverage on a per occurrence basis after covered catastrophe losses exceed a $100 million Company retention limit. The Treaty provides coverage for property and automobile physical damage and excludes losses from earthquake, fire following earthquake, and Florida automobile physical damage. The annual premium is $4.25 million.

C. Invested Assets

Portfolio Composition

An important component of the Company’s financial results is the return on its investment portfolio. The Company’s investment strategy emphasizes safety of principal and consistent income generation, within a total return framework. The investment strategy has historically focused on maximizing after-tax yield with a primary emphasis on maintaining a well-diversified, investment grade, fixed income portfolio to support the underlying liabilities and achieve return on capital and profitable growth. The Company believes that investment yield is maximized by selecting assets that perform favorably on a long-term basis and by disposing of certain assets to enhance after-tax yield and minimize the potential effect of downgrades and defaults. The Company continues to believe that this strategy maintains the optimal investment performance necessary to sustain investment income over time. The Company’s portfolio management approach utilizes a market risk and consistent asset allocation strategy as the primary basis for the allocation of interest sensitive, liquid and credit assets as well as for determining overall below investment grade exposure and diversification requirements. Within the ranges set by the asset allocation strategy, tactical investment decisions are made in consideration of prevailing market conditions.

The following table presents the composition of the total investment portfolio of the Company at September 30, 2013:

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	Cost (1)		Fair Value
	(Amounts in thousands)
Fixed maturity securities:
U.S. government bonds and agencies	$	16,006	$	16,128
Municipal securities	2,106,539		2,149,615
Mortgage-backed securities	33,632		36,096
Corporate securities	300,579		300,331
Collateralized debt obligations	24,895		36,344
	2,481,651		2,538,514
Equity securities:
Common stock:
Public utilities	99,453		107,102
Banks, trusts and insurance companies	7,847		9,963
Energy and other	124,419		181,333
Non-redeemable preferred stock	25,895		25,845
Partnership interest in a private credit fund	10,000		12,124
	267,614		336,367
Short-term investments	251,550		251,449
Total investments	$	3,000,815	$	3,126,330

(1) Fixed maturities and short-term bonds at amortized cost; and equities and other short-term investments at cost.

At September 30, 2013, 68.1% of the Company’s total investment portfolio at fair value and 83.9% of its total fixed maturity investments at fair value were invested in tax-exempt state and municipal bonds. Equity holdings consist of non-redeemable preferred stocks, dividend-bearing common stocks on which dividend income is partially tax-sheltered by the 70% corporate dividend received deduction, and a partnership interest in a private credit fund. At September 30, 2013, 75.1% of short-term investments consisted of highly rated short-duration securities redeemable on a daily or weekly basis. The Company does not have any direct equity investment in sub-prime lenders.

During the nine months ended September 30, 2013, the Company recognized $7.2 million in net realized investment losses, which primarily include gains of $73.2 million related to equity securities and losses of $81.5 million related to fixed maturity securities. Included in the gains and losses were $67.6 million in gains due to changes in the fair value of the Company's equity security portfolio and $81.3 million in losses due to changes in the fair value of the Company’s fixed maturity security portfolio as a result of applying the fair value option.

During the nine months ended September 30, 2012, the Company recognized $78.7 million in net realized investment gains, which mainly include gains of $50.4 million and $26.7 million related to fixed maturity and equity securities, respectively. Included in the gains were $50.0 million and $20.2 million in gains due to changes in the fair value of the Company's fixed maturity and equity security portfolio, respectively, as a result of applying the fair value option.

Fixed maturity securities and short-term investments

Fixed maturity securities include debt securities, which may have fixed or variable principal payment schedules, may be held for indefinite periods of time, and may be used as a part of the Company’s asset/liability strategy or sold in response to changes in interest rates, anticipated prepayments, risk/reward characteristics, liquidity needs, tax planning considerations, or other economic factors. Short-term investments include money market accounts, options, and short-term bonds that are highly rated short duration securities and redeemable within one year.

A primary exposure for the fixed maturity securities is interest rate risk. The longer the duration, the more sensitive the asset is to market interest rate fluctuations. As assets with longer maturity dates tend to produce higher current yields, the Company’s historical investment philosophy has resulted in a portfolio with a moderate duration. The nominal average maturities of the overall bond portfolio were 12.6 years and 12.2 years (11.7 years and 11.0 years including short-term instruments) at September 30, 2013 and December 31, 2012, respectively. The portfolio is heavily weighted in investment grade tax-exempt municipal bonds. Fixed maturity investments purchased by the Company typically have call options attached, which further reduce the duration of the asset as interest rates decline. The call-adjusted average maturities of the overall bond portfolio were 4.8 years and 3.7 years (4.5 years and 3.3 years including short-term instruments) at September 30, 2013 and December 31, 2012, respectively, related to

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holdings which are heavily weighted with high coupon issues that are expected to be called prior to maturity. The modified durations of the overall bond portfolio reflecting anticipated early calls were 3.6 years and 3.1 years (3.4 years and 2.8 years including short-term instruments) at September 30, 2013 and December 31, 2012, respectively, including collateralized mortgage obligations with a modified duration of 2.7 years and 3.2 years at September 30, 2013 and December 31, 2012, respectively, and short-term bonds that carry no duration. Modified duration measures the length of time it takes, on average, to receive the present value of all the cash flows produced by a bond, including reinvestment of interest. As it measures four factors (maturity, coupon rate, yield and call terms) which determine sensitivity to changes in interest rate, modified duration is considered a better indicator of price volatility than simple maturity alone.

Another exposure related to the fixed maturity securities is credit risk, which is managed by maintaining a weighted-average portfolio credit quality rating of AA-, at fair value, consistent with the average rating at December 31, 2012. To calculate the weighted-average credit quality ratings as disclosed throughout this Quarterly Report on Form 10-Q, individual securities were weighted based on fair value and a credit quality numeric score that was assigned to each rating grade. Tax-exempt bond holdings are broadly diversified geographically. Taxable holdings consist principally of investment grade issues. At September 30, 2013, fixed maturity holdings rated below investment grade and non-rated bonds totaled $40.0 million and $49.5 million, respectively, at fair value, and represented 1.6% and 2.0%, respectively, of total fixed maturity securities. At December 31, 2012, fixed maturity holdings rated below investment grade and non-rated bonds totaled $41.4 million and $47.4 million, respectively, at fair value, and represented 1.7% and 2.0%, respectively, of total fixed maturity securities.

The following table presents the credit quality ratings of the Company’s fixed maturity portfolio by security type at September 30, 2013 at fair value. The Company’s estimated credit quality ratings are based on the average of ratings assigned by nationally recognized securities rating organizations. Credit ratings for the Company’s fixed maturity portfolio were stable during the nine months ended September 30, 2013, with 95.5% of fixed maturity securities at fair value experiencing no change in their overall rating. 2.3% of fixed maturity securities at fair value experienced upgrades during the period, partially offset by 2.2% in credit downgrades. A majority of the downgrades were slight and still within the investment grade portfolio.

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	September 30, 2013
	(Amounts in thousands)
	AAA			AA(1)			A(1)			BBB(1)			Non-Rated/Other			Total Fair Value
U.S. government bonds and agencies:
Treasuries	$	12,763		$	0		$	0		$	0		$	0		$	12,763
Government agency	3,365			0			0			0			0			3,365
Total	16,128			0			0			0			0			16,128
	100.0		%													100.0		%
Municipal securities:
Insured	63,226			268,511			618,571			23,263			15,093			988,664
Uninsured	213,645			365,857			413,583			158,385			9,481			1,160,951
Total	276,871			634,368			1,032,154			181,648			24,574			2,149,615
	12.9		%	29.5		%	48.0		%	8.5		%	1.1		%	100.0		%
Mortgage-backed securities:
Commercial	0			0			11,543			5,135			0			16,678
Agencies	7,463			0			0			0			0			7,463
Non-agencies:
Prime	34			481			1,853			508			1,801			4,677
Alt-A	0			1,205			294			0			5,779			7,278
Total	7,497			1,686			13,690			5,643			7,580			36,096
	20.8		%	4.7		%	37.9		%	15.6		%	21.0		%	100.0		%
Corporate securities:
Communications	0			0			7,280			4,095			0			11,375
Consumer-cyclical	0			0			8,820			5,581			1,117			15,518
Consumer-non-cyclical	0			0			0			16,874			0			16,874
Industrial	0			0			0			6,958			1,737			8,695
Energy	0			0			3,666			72,996			6,766			83,428
Basic materials	0			0			0			12,931			0			12,931
Financial	0			29,082			57,308			39,630			7,801			133,821
Technology	0			0			0			9,415			3,608			13,023
Utilities	0			0			2,102			2,564			0			4,666
Total	0			29,082			79,176			171,044			21,029			300,331
	0.0		%	9.7		%	26.3		%	57.0		%	7.0		%	100.0		%
Collateralized debt obligations:
Corporate-hybrid	0			0			0			0			36,344			36,344
Total	0			0			0			0			36,344			36,344
													100.0		%	100.0		%
Total	$	300,496		$	665,136		$	1,125,020		$	358,335		$	89,527		$	2,538,514
	11.9		%	26.2		%	44.3		%	14.1		%	3.5		%	100.0		%

(1) Intermediate ratings are offered at each level (e.g., AA includes AA+, AA and AA-).

At September 30, 2013, the Company had $23.6 million, 0.9% of its fixed maturity portfolio, at fair value, in U.S. government bonds and agencies and mortgage-backed securities (Agencies). In August 2011, Standard and Poor’s downgraded the U.S. government’s long-term sovereign credit rating from AAA to AA+. This downgrade has triggered significant volatility in prices for a variety of investments. While Moody’s and Fitch affirmed their AAA ratings, they placed a negative outlook in November 2011 and warned of a potential downgrade if no long-term deficit agreement was reached over the next two years. The negative outlook reflects these rating agencies’ declining confidence that timely fiscal measures will be forthcoming to place U.S. public finances on a sustainable path and secure the AAA ratings. Standard and Poor’s affirmed the U.S. Treasury’s short-term credit rating of AAA indicating that the short-term capacity of the U.S. to meet its financial commitment on its outstanding obligations

30

is strong. The Company understands that market participants continue to use rates of return on U.S. government debt as a risk-free rate and have continued to invest in U.S. Treasury securities.

(1) Municipal Securities

The Company had $2.1 billion at fair value ($2.1 billion at amortized cost) in municipal bonds at September 30, 2013, of which $1.0 billion were insured by bond insurers. For insured municipal bonds that have underlying ratings, the average underlying rating was A+ at September 30, 2013.

At September 30, 2013, the bond insurers providing credit enhancement were Assured Guaranty Corporation and National Public Finance Guarantee Corporation, which covered approximately 24.1% of the insured municipal securities. The average rating of the Company’s insured municipal bonds by these bond insurers was A, with an underlying rating of A-. Most of the insured bonds’ ratings were investment grade and reflected the credit of underlying issuer. 7.2% of the remaining insured bonds are non-rated or below investment grade, and the Company does not believe that these insurers provide credit enhancement to the municipal bonds that they insure.

The Company considers the strength of the underlying credit as a buffer against potential market value declines which may result from future rating downgrades of the bond insurers. In addition, the Company has a long-term time horizon for its municipal bond holdings which generally allows it to recover the full principal amounts upon maturity and avoid forced sales prior to maturity of bonds that have declined in market value due to the bond insurers’ rating downgrades. Based on the uncertainty surrounding the financial condition of these insurers, it is possible that there will be additional downgrades to below investment grade ratings by the rating agencies in the future, and such downgrades could impact the estimated fair value of municipal bonds.

(2) Mortgage-Backed Securities

The mortgage-backed securities portfolio is categorized as loans to “prime” borrowers except for $7.3 million and $8.2 million ($6.6 million and $7.3 million at amortized cost) of Alt-A mortgages at September 30, 2013 and December 31, 2012, respectively. Alt-A mortgage backed securities are at fixed or variable rates and include certain securities that are collateralized by residential mortgage loans issued to borrowers with stronger credit profiles than sub-prime borrowers, but do not qualify for prime financing terms due to high loan-to-value ratios or limited supporting documentation. The Company had holdings of $16.7 million and $4.3 million ($16.6 million and $4.2 million at amortized cost) in commercial mortgage-backed securities at September 30, 2013 and December 31, 2012, respectively.

The weighted-average rating of the Company’s Alt-A mortgage-backed securities was B+ and the weighted-average rating of the entire mortgage-backed securities portfolio was BBB+ at September 30, 2013.

(3) Corporate Securities

Included in fixed maturity securities are $300.3 million and $155.6 million of corporate securities, which had durations of 2.4 years and 1.8 years, at September 30, 2013 and December 31, 2012, respectively. The weighted-average rating was BBB+ as of September 30, 2013 and December 31, 2012.

(4) Collateralized Debt Obligations

Included in fixed maturities securities are collateralized debt obligations of $36.3 million and $42.8 million, which represent 1.2% and 1.3% of the total investment portfolio and had durations of 0.03 years and 0.47 years at September 30, 2013 and December 31, 2012, respectively.

Equity securities

Equity holdings consist of non-redeemable preferred stocks, common stocks on which dividend income is partially tax-sheltered by the 70% corporate dividend received deduction, and a partnership interest in a private credit fund. The net gains due to changes in fair value of the Company’s equity portfolio during the nine months ended September 30, 2013 were $67.6 million. The primary cause of the increase in the value of the Company's equity securities was the improvement in the equity markets.

The Company’s common stock allocation is intended to enhance the return of and provide diversification for the total portfolio. At September 30, 2013, 10.8% of the total investment portfolio at fair value was held in equity securities, compared to 15.0% at December 31, 2012.

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D. Debt

Notes payable consists of the following:

	Lender	Interest Rate	Expiration	September 30, 2013		December 31, 2012
				(Amounts in thousands)
Secured credit facility	Bank of America	LIBOR plus 40 basis points	July 31, 2016	$	120,000	$	120,000
Secured loan	Union Bank	LIBOR plus 40 basis points	January 2, 2015	20,000		20,000
Unsecured credit facility	Bank of America and Union Bank	(1)	June 30, 2018	40,000		0
Total				$	180,000	$	140,000

(1) On July 2, 2013, the Company entered into an unsecured $200 million five-year revolving credit facility. The interest rate on borrowings under the credit facility are based on the Company's debt to total capital ratio and range from LIBOR plus 112.5 basis points when the ratio is under 15% to LIBOR plus 162.5 basis points when the ratio is above 25%. Commitment fees for undrawn portions of the credit facility range from 12.5 basis points when the ratio is under 15% to 22.5 basis points when the ratio is above 25%.

The bank loan and credit facilities contain financial covenants pertaining to minimum statutory surplus, debt to capital ratio, and risk based capital ratio. The Company was in compliance with all of its loan covenants at September 30, 2013.

E. Regulatory Capital Requirement

Industry and regulatory guidelines suggest that the ratio of a property and casualty insurer’s annual net premiums written to statutory policyholders’ surplus should not exceed 3.0 to 1. Based on the combined surplus of all the Insurance Companies of $1.5 billion at September 30, 2013, and net premiums written for the twelve months ended on that date of $2.7 billion, the ratio of premium written to surplus was 1.8 to 1.

Item 3. Quantitative and Qualitative Disclosures About Market Risks

The Company is subject to various market risk exposures primarily due to its investing and borrowing activities. Primary market risk exposures are changes in interest rates, equity prices, and credit risk. Adverse changes to these rates and prices may occur due to changes in the liquidity of a market, or to changes in market perceptions of creditworthiness and risk tolerance. The following disclosure reflects estimates of future performance and economic conditions. Actual results may differ.

Overview

The Company’s investment policies define the overall framework for managing market and investment risks, including accountability and controls over risk management activities, and specify the investment limits and strategies that are appropriate given the liquidity, surplus, product profile, and regulatory requirements of the subsidiaries. Executive oversight of investment activities is conducted primarily through the Company’s investment committee. The Company’s investment committee focuses on strategies to enhance after-tax yields, mitigate market risks, and optimize capital to improve profitability and returns.

The Company manages exposures to market risk through the use of asset allocation, duration, and credit ratings. Asset allocation limits place restrictions on the total funds that may be invested within an asset class. Duration limits on the fixed maturities portfolio place restrictions on the amount of interest rate risk that may be taken. Comprehensive day-to-day management of market risk within defined tolerance ranges occurs as portfolio managers buy and sell within their respective markets based upon the acceptable boundaries established by investment policies.

Credit risk

Credit risk results from uncertainty in a counterparty’s ability to meet its obligations. Credit risk is managed by maintaining a high credit quality fixed maturities portfolio. As of September 30, 2013, the estimated weighted-average credit quality rating of the fixed maturities portfolio was AA-, at fair value, consistent with the average rating at December 31, 2012. Historically, the ten-year default rate for municipal bonds rated AA by Moody's has been less than 1%. The Company’s municipal bond holdings, which represent 84.7% of its fixed maturity portfolio at September 30, 2013, at fair value, are broadly diversified geographically. 99.0% of municipal bond holdings are tax-exempt. The following table presents municipal bond holdings by state in descending order of holdings at fair value at September 30, 2013:

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States	Fair Value		Average Rating
	(Amounts in thousands)
California	$	354,280	A+
Texas	317,836		AA
Florida	213,573		A+
Illinois	120,413		A+
Indiana	109,656		A+
Other states	1,033,857		A+
Total	$	2,149,615

The portfolio is broadly diversified among the states and the largest holdings are in populous states such as Texas and California. These holdings are further diversified primarily among cities, counties, schools, public works, hospitals, and state general obligations. The Company seeks to minimize overall credit risk and ensure diversification by limiting exposure to any particular issuer.

Taxable fixed maturity securities represented 16.1% of the Company’s fixed maturity portfolio. 5.8% of the Company’s taxable fixed maturity securities were comprised of U.S. government bonds and agencies and mortgage-backed securities (Agencies), which were rated AAA at September 30, 2013. 6.0% of the Company’s taxable fixed maturity securities, representing 1.0% of its total fixed maturity portfolio, were rated below investment grade. Below investment grade issues are considered “watch list” items by the Company, and their status is evaluated within the context of the Company’s overall portfolio and its investment policy on an aggregate risk management basis, as well as their ability to recover their investment on an individual issue basis.

Equity price risk

Equity price risk is the risk that the Company will incur losses due to adverse changes in the equity markets.

At September 30, 2013, the Company’s primary objective for common equity investments was current income. The fair value of the equity investments consisted of $298.4 million in common stocks, $25.8 million in non-redeemable preferred stocks, and $12.1 million in a partnership interest in a private credit fund. Common stock equity assets are typically valued for future economic prospects as perceived by the market. The Company invests more in the energy and utility sector relative to the S&P 500 Index.

Common stocks represented 9.5% of total investments at fair value. Beta is a measure of a security’s systematic (non-diversifiable) risk, which is measured by the percentage change in an individual security’s return for a 1% change in the return of the market. The average Beta for the Company’s common stock holdings was 0.91 at September 30, 2013. Based on a hypothetical 25% or 50% reduction in the overall value of the stock market, the Company estimates that the fair value of the common stock portfolio would decrease by $67.9 million or $135.8 million, respectively.

Interest rate risk

Interest rate risk is the risk that the Company will incur a loss due to adverse changes in interest rates relative to the interest rate characteristics of interest bearing assets and liabilities. The Company faces interest rate risk, as it invests substantial funds in interest sensitive assets and issues interest sensitive liabilities. Interest rate risk includes risks related to changes in U.S. Treasury yields and other key benchmarks, as well as changes in interest rates resulting from the widening credit spreads and credit exposure to collateralized securities.

The value of the fixed maturity portfolio at September 30, 2013, which represented 81.2% of total investments at fair value, is subject to interest rate risk. As market interest rates decrease, the value of the portfolio increases and vice versa. A common measure of the interest sensitivity of fixed maturity assets is modified duration, a calculation that utilizes maturity, coupon rate, yield and call terms to calculate an average age of the expected cash flows generated by such assets. The longer the duration, the more sensitive the asset is to market interest rate fluctuations.

The Company has historically invested in fixed maturity investments with a goal of maximizing after-tax yields and holding assets to the maturity or call date. Since assets with longer maturities tend to produce higher current yields, the Company’s historical investment philosophy resulted in a portfolio with a moderate duration. Bond investments made by the Company typically have call options attached, which further reduce the duration of the asset as interest rates decline. The increased investment in municipal bonds with relatively longer duration in 2013 coupled with a rise in interest rates during the quarter resulted in an increase in the duration of the Company’s portfolio.

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Consequently, the modified duration of the bond portfolio reflecting anticipated early calls was 3.6 years at September 30, 2013 compared to 3.1 years at December 31, 2012. Given a hypothetical increase of 100 or 200 basis points in interest rates, the Company estimates that the fair value of its bond portfolio at September 30, 2013 would decrease by $93.6 million or $187.2 million, respectively. Conversely, if interest rates were to decrease, the fair value of the Company's bond portfolio would rise, and it may cause a higher number of the Company's bonds to be called away. The proceeds from the called bonds would likely be reinvested at lower yields which would result in lower overall investment income for the Company.  

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures designed to ensure that information required to be disclosed in the Company’s reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost benefit relationship of possible controls and procedures.

As required by Securities and Exchange Commission Rule 13a-15(b), the Company carried out an evaluation, under the supervision and with the participation of the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the quarter covered by this Quarterly Report on Form 10-Q. Based on the foregoing, the Company’s Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control over Financial Reporting

There has been no change in the Company’s internal control over financial reporting during the Company’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company’s process for evaluating controls and procedures is continuous and encompasses constant improvement of the design and effectiveness of established controls and procedures and the remediation of any deficiencies which may be identified during this process.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

The Company is, from time to time, named as a defendant in various lawsuits or regulatory actions incidental to its insurance business. The majority of lawsuits brought against the Company relate to insurance claims that arise in the normal course of business and are reserved for through the reserving process. For a discussion of the Company’s reserving methods, see the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

The Company also establishes reserves for non-insurance claims related lawsuits, regulatory actions, and other contingencies when the Company believes a loss is probable and is able to estimate its potential exposure. For loss contingencies believed to be reasonably possible, the Company also discloses the nature of the loss contingency and an estimate of the possible loss, range of loss, or a statement that such an estimate cannot be made. While actual losses may differ from the amounts recorded and the ultimate outcome of the Company’s pending actions is generally not yet determinable, the Company does not believe that the ultimate resolution of currently pending legal or regulatory proceedings, either individually or in the aggregate, will have a material adverse effect on its financial condition, results of operations, or cash flows.

In all cases, the Company vigorously defends itself unless a reasonable settlement appears appropriate. For a discussion of legal matters, see the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. See also "Overview-C. Regulatory and Litigation Matters" in Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations of this Quarterly Report on Form 10-Q.

34

There are no environmental proceedings arising under federal, state, or local laws or regulations to be discussed.

Item 1A. Risk Factors

The Company’s business, results of operations, and financial condition are subject to various risks. These risks are described elsewhere in this Quarterly Report on Form 10-Q and in the Company's other filings with the United States Securities and Exchange Commission, including the Company’s Annual Report on Form 10-K for the year ended December 31, 2012. The risk factors identified in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012 have not changed in any material respect.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosure

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

15.1	Report of Independent Registered Public Accounting Firm.
15.2	Awareness Letter of Independent Registered Public Accounting Firm.
31.1	Certification of Registrant’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Registrant’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Registrant’s Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002. This certification is being furnished solely to accompany this Quarterly Report on Form 10-Q and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company.
32.2	Certification of Registrant’s Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002. This certification is being furnished solely to accompany this Quarterly Report on Form 10-Q and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company.
101	The following financial information from the Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2013, formatted in XBRL (Extensible Business Reporting Language) and filed electronically herewith: (i) the Consolidated Balance Sheets; (ii) the Consolidated Statements of Operations; (iii) the Consolidated Statements of Comprehensive Income; (iv) the Consolidated Statements of Cash Flows; and (v) the Condensed Notes to the Consolidated Financial Statements.

35

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	MERCURY GENERAL CORPORATION
Date: October 30, 2013	By:	/s/ Gabriel Tirador
		Gabriel Tirador
		President and Chief Executive Officer
Date: October 30, 2013	By:	/s/ Theodore Stalick
		Theodore Stalick
		Senior Vice President and Chief Financial Officer

36

EX-15.1

Exhibit 15.1

Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders

Mercury General Corporation:

We have reviewed the accompanying consolidated balance sheets of Mercury General Corporation and subsidiaries as of September 30, 2013, the related consolidated statements of operations and comprehensive income for the three-months and the nine-months ended September 30, 2013 and 2012, and the related consolidated statements of cash flows for the nine-months ended September 30, 2013 and 2012. These consolidated financial statements are the responsibility of the Company’s management.

We conducted our reviews in accordance with the standards of the Public Company Accounting Oversight Board (United States). A review of interim financial information consists principally of applying analytical procedures and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with the standards of the Public Company Accounting Oversight Board (United States), the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with U.S. generally accepted accounting principles.

We have previously audited, in accordance with standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of Mercury General Corporation and subsidiaries as of December 31, 2012, and the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for the year then ended (not presented herein); and in our report dated February 11, 2013, we expressed an unqualified opinion on those consolidated financial statements.

/S/ KPMG LLP

Los Angeles, California

October 30, 2013

EX-15.2

Exhibit 15.2

Awareness Letter of Independent Registered Public Accounting Firm

October 30, 2013

Mercury General Corporation

Los Angeles, California

Re: Registration Statement Nos. 333-62228, 333-01583 and 333-125460

With respect to the subject registration statements, we acknowledge our awareness of the use therein of our report dated October 30, 2013 related to our review of interim financial information.

Pursuant to Rule 436 under the Securities Act of 1933 (the Act), such report is not considered part of a registration statement prepared or certified by an independent registered public accounting firm, or a report prepared or certified by an independent registered public accounting firm within the meaning of Sections 7 and 11 of the Act.

/s/ KPMG LLP

Los Angeles, California

EX-31.1

Exhibit 31.1

Certification of Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Gabriel Tirador, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Mercury General Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 30, 2013	/s/ GABRIEL TIRADOR
	Gabriel Tirador, Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification of Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Theodore Stalick, certify that:

1. I have reviewed this Quarterly Report on Form 10-Q of Mercury General Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: October 30, 2013	/s/ THEODORE STALICK
	Theodore Stalick, Senior Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

Certification of Chief Executive Officer

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to 18 U.S.C. §1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Mercury General Corporation (the “Company”) hereby certifies, to such officer’s knowledge, that:

(i)the accompanying Quarterly Report on Form 10-Q of the Company for the period ended September 30, 2013 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: October 30, 2013	/s/ GABRIEL TIRADOR
	Gabriel Tirador, Chief Executive Officer

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. §1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

EX-32.2

Exhibit 32.2

Certification of Chief Financial Officer

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to 18 U.S.C. §1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of Mercury General Corporation (the “Company”) hereby certifies, to such officer’s knowledge, that:

(i)the accompanying Quarterly Report on Form 10-Q of the Company for the period ended September 30, 2013 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: October 30, 2013	/s/ THEODORE STALICK
	Theodore Stalick, Senior Vice President and Chief Financial Officer

The foregoing certification is being furnished solely to accompany the Report pursuant to 18 U.S.C. §1350, and are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

XML

General (Policy)

9 Months Ended

Sep. 30, 2013

General [Abstract]

Consolidation and Basis of Presentation

Consolidation and Basis of Presentation

The condensed consolidated financial statements include the accounts of Mercury General Corporation and its subsidiaries (referred to herein collectively as the “Company”). For the list of the Company’s subsidiaries, see Note 1 “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

The condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”), which differ in some respects from those filed in reports to insurance regulatory authorities. All intercompany transactions and balances have been eliminated.

The financial data of the Company included herein are unaudited. In the opinion of management, all material adjustments of a normal recurring nature have been made to present fairly the Company’s financial position at September 30, 2013 and the results of operations, comprehensive income, and cash flows for the periods presented. These statements were prepared in accordance with the instructions for interim reporting and do not contain certain information in the annual financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2012. Readers are urged to review the Company's Annual Report on Form 10-K for the year ended December 31, 2012 for more complete descriptions and discussions. Operating results and cash flows for the nine months ended September 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.

Use of Estimates

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. These estimates require the Company to apply complex assumptions and judgments, and often the Company must make estimates about effects of matters that are inherently uncertain and will likely change in subsequent periods. The most significant assumptions in the preparation of these condensed consolidated financial statements relate to reserves for losses and loss adjustment expenses. Actual results could differ from those estimates (See Note 1 “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012).

Earnings per Share

Earnings per Share

Potentially dilutive securities representing approximately 53,000 and 108,000 shares of common stock for the three months ended September 30, 2013 and 2012, respectively, and 76,000 and 77,000 shares of common stock for the nine months ended September 30, 2013 and 2012, respectively, were excluded from the computation of diluted earnings per common share for these periods because their effect would have been anti-dilutive.

Deferred Policy Acquisition Costs

Deferred Policy Acquisition Costs

Deferred policy acquisition costs consist of commissions paid to outside agents, premium taxes, salaries, and certain other underwriting costs that are incremental or directly related to the successful acquisition of new and renewal insurance contracts and are amortized over the life of the related policy in proportion to premiums earned. Deferred policy acquisition costs are limited to the amount that will remain after deducting from unearned premiums and anticipated investment income, the estimated losses and loss adjustment expenses, and the servicing costs that will be incurred as premiums are earned. The Company’s deferred policy acquisition costs are further limited by excluding those costs not directly related to the successful acquisition of insurance contracts. Deferred policy acquisition cost amortization was $126.9 million and $121.9 million for the three months ended September 30, 2013 and 2012, respectively, and $377.0 million and $357.1 million for the nine months ended September 30, 2013 and 2012, respectively. The Company does not defer advertising expenditures but expenses them as incurred. The Company recorded net advertising expenses of approximately $16 million and $15 million for the nine months ended September 30, 2013 and 2012, respectively.

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Consolidated Statements Of Operations (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Revenues:
Net premiums earned	$ 678,913	$ 646,084	$ 2,017,295	$ 1,919,143
Net investment income	30,857	33,410	93,706	96,569
Net realized investment (losses) gains	16,212	49,752	(7,153)	78,656
Other	2,685	2,532	7,539	7,790
Total revenues	728,667	731,778	2,111,387	2,102,158
Expenses:
Losses and loss adjustment expenses	492,558	467,929	1,446,524	1,415,096
Policy acquisition costs	126,891	121,906	377,006	357,062
Other operating expenses	54,087	50,225	166,165	154,353
Interest	338	388	864	1,176
Total expenses	673,874	640,448	1,990,559	1,927,687
(Loss) income before income taxes	54,793	91,330	120,828	174,471
Income tax (benefit) expense	15,223	25,129	24,061	40,178
Net (loss) income	$ 39,570	$ 66,201	$ 96,767	$ 134,293
Net income per share:
Basic (in dollars per share)	$ 0.72	$ 1.21	$ 1.76	$ 2.45
Diluted (in dollars per share)	$ 0.72	$ 1.21	$ 1.76	$ 2.45
Weighted average shares outstanding:
Basic (in shares)	54,959	54,911	54,941	54,895
Diluted (in shares)	54,973	54,925	54,957	54,918
Dividends paid per share (in dollars per share)	$ 0.6125	$ 0.61	$ 1.8375	$ 1.83

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Fair Value Option

9 Months Ended

Sep. 30, 2013

Fair Value Option [Abstract]

Fair Value Option

Fair Value Option

Gains and losses due to changes in fair value for items measured at fair value pursuant to application of the fair value option are included in net realized investment (losses) gains in the Company’s consolidated statements of operations, while interest and dividend income on investment holdings are recognized on an accrual basis on each measurement date and are included in net investment income in the Company’s consolidated statements of operations. The primary reasons for electing the fair value option were simplification and cost-benefit considerations as well as the expansion of the use of the Company's fair value measurement consistent with the long-term measurement objectives of the FASB for accounting for financial instruments.

The following table presents gains (losses) due to changes in fair value of investments that are measured at fair value pursuant to application of the fair value option:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
	(Amounts in thousands)
Fixed maturity securities	$	(11,295	)	$	19,198		$	(81,268	)	$	50,013
Equity securities	32,602			25,629			67,625			20,153
Short-term investments	508			(44		)	199			(828		)
Total	$	21,815		$	44,783		$	(13,444	)	$	69,338

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General (Details) (USD $) Share data in Thousands, unless otherwise specified	3 Months Ended		9 Months Ended			0 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012	Dec. 31, 2012	Aug. 09, 2013 Swap [Member]	Sep. 30, 2013 Swap [Member]	Aug. 09, 2013 Swap [Member] LIBOR [Member]
General [Abstract]
Potentially dilutive securities (in shares)	53	108	76	77
Deferred policy acquisition cost amortization	$ 126,891,000	$ 121,906,000	$ 377,006,000	$ 357,062,000
Advertising expenses			16,000,000	15,000,000
Derivative [Line Items]
Term of swap agreement						3 years
Notional amount	80,000,000		80,000,000
Basis spread on variable rate								1.20%
Swap agreement collateral							40,000,000
Unsecured Debt	$ 40,000,000		$ 40,000,000		$ 0

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Fair Value of Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2013

Financial Instruments, Owned, at Fair Value [Abstract]

Estimated Fair Values of Financial Instruments

The following table presents the estimated fair values of financial instruments at September 30, 2013 and December 31, 2012.

	September 30, 2013		December 31, 2012
	(Amounts in thousands)
Assets
Investments	$	3,126,330	$	3,180,095
Total return swap	$	346	$	0
Liabilities
Interest rate swap	$	0	$	103
Equity contracts	$	0	$	175
Secured notes	$	140,000	$	140,000
Unsecured note	$	40,000	$	0

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Share-Based Compensation (Schedule Of Performance Vesting Restricted Stock Units Granted) (Details)	9 Months Ended	12 Months Ended
	Sep. 30, 2013	Dec. 31, 2012	Dec. 31, 2011
Share-based Compensation, Allocation and Classification in Financial Statements [Abstract]
Three-year performance period ending December 31,	2015	2014	2013
Vesting shares, target	84,500	89,000	80,000
Vesting shares, maximum	190,125	200,250	120,000

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Fair Value Option (Gains And Losses Due To Changes In Fair Value Of Investments) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Schedule of Fair Value of Separate Accounts by Major Category of Investment [Line Items]
(Losses) gains due to changes in fair value of investments	$ 21,815	$ 44,783	$ (13,444)	$ 69,338
Fixed maturity securities [Member]
Schedule of Fair Value of Separate Accounts by Major Category of Investment [Line Items]
(Losses) gains due to changes in fair value of investments	(11,295)	19,198	(81,268)	50,013
Equity securities [Member]
Schedule of Fair Value of Separate Accounts by Major Category of Investment [Line Items]
(Losses) gains due to changes in fair value of investments	32,602	25,629	67,625	20,153
Short-term investments [Member]
Schedule of Fair Value of Separate Accounts by Major Category of Investment [Line Items]
(Losses) gains due to changes in fair value of investments	$ 508	$ (44)	$ 199	$ (828)

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Fair Value of Financial Instruments (Estimated Fair Values Of Financial Instruments) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Assets
Total return swap	$ 346	$ 0
Liabilities
Unsecured Debt	40,000	0
Investments [Member]
Assets
Investments	3,126,330	3,180,095
Interest Rate Swap [Member]
Liabilities
Interest rate swap agreements	0	103
Secured Notes [Member]
Liabilities
Secured notes payable	140,000	140,000
Equity Contract [Member]
Liabilities
Equity contracts	$ 0	$ 175

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Goodwill and Other Intangible Assets (Narrative) (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Goodwill and Intangible Assets Disclosure [Abstract]
Intangible assets amortization expense	$ 1.5	$ 1.5	$ 4.5	$ 4.6

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Derivative Financial Instruments (Narrative) (Details) (USD $)		0 Months Ended		0 Months Ended
	Sep. 30, 2013	Feb. 06, 2009 Credit Facility [Member] Interest rate swap agreements [Member]	Mar. 03, 2008 Loans [Member] Interest rate swap agreements [Member]	Oct. 04, 2011 Bank Of America [Member] Interest rate swap agreements [Member]	Oct. 04, 2011 Union Bank [Member] Interest rate swap agreements [Member]	Aug. 09, 2013 Swap [Member]	Sep. 30, 2013 Swap [Member]	Aug. 09, 2013 LIBOR [Member] Swap [Member]
Derivative Financial Instruments [Line Items]
Term of swap agreement						3 years
Notional amount	$ 80,000,000
Basis spread on variable rate								1.20%
Swap agreement collateral							40,000,000
Secured notes		120,000,000	18,000,000
Fixed rate		1.93%	4.25%
Maturity date of senior notes		January 3, 2012
Loan maximum borrowing capacity				$ 18,000,000	$ 20,000,000
Floating rate, LIBOR plus basis points (as a percentage)				0.50%	0.40%
Loan mature date				Mar. 01, 2013	Jan. 02, 2015

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Fair Value of Financial Instruments (Narrative) (Details) (USD $)	Sep. 30, 2013
Level 2 [Member] | Secured Notes One [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Secured notes	$ 120,000,000
Level 2 [Member] | Secured Notes Two [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Secured notes	20,000,000
Swap [Member]
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items]
Swap agreement collateral	$ 40,000,000

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Consolidated Statements Of Cash Flows (USD $) In Thousands, unless otherwise specified	9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012
CASH FLOWS FROM OPERATING ACTIVITIES
Net income	$ 96,767	$ 134,293
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	23,715	27,903
Net realized investment losses (gains)	7,153	(78,656)
Bond amortization, net	8,659	6,613
Excess tax benefit from exercise of stock options	(258)	(116)
Increase in premiums receivables	(27,431)	(57,518)
Change in current and deferred income taxes	6,758	10,848
Increase in deferred policy acquisition costs	(10,374)	(14,883)
Decrease in unpaid losses and loss adjustment expenses	(25,589)	(6,859)
Increase in unearned premiums	46,891	77,849
Increase in accounts payable and accrued expenses	38,749	6,553
Share-based compensation	216	312
Changes in other payables	9,142	10,503
Other, net	(4,681)	(3,512)
Net cash provided by operating activities	169,717	113,330
CASH FLOWS FROM INVESTING ACTIVITIES
Fixed maturities available-for-sale in nature: Purchases	(625,326)	(386,262)
Fixed maturities available-for-sale in nature: Sales	172,557	78,341
Fixed maturities available-for-sale in nature: Calls or maturities	232,426	328,592
Equity securities available-for-sale in nature:
Purchases	(463,056)	(236,785)
Sales	677,017	172,144
Calls	0	923
Changes in securities payable and receivable	(43,918)	(1,320)
Net decrease in short-term investments	42,614	14,510
Purchase of fixed assets	(12,983)	(12,205)
Sale of fixed assets	610	1,864
Other, net	1,547	1,904
Net cash used in investing activities	(18,512)	(38,294)
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid to shareholders	(100,967)	(100,469)
Proceeds from Bank Loan	40,000	0
Excess tax benefit from exercise of stock options	258	116
Proceeds from stock options exercised	1,382	2,098
Net cash used in financing activities	(59,327)	(98,255)
Net increase (decrease) in cash	91,878	(23,219)
Cash:
Beginning of the year	158,183	211,393
End of period	250,061	188,174
SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest paid	796	1,319
Income taxes paid	$ 17,303	$ 29,330

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Recently Issued Accounting Standards

9 Months Ended

Sep. 30, 2013

New Accounting Pronouncements and Changes in Accounting Principles [Abstract]

Recently Issued Accounting Standards

Recently Issued Accounting Standards

In July 2013, the Financial Accounting Standards Board (“FASB”) issued a new standard that requires entities to present an unrecognized tax benefit as a reduction of a deferred tax asset for a net operating loss carryforward, or similar tax loss or tax credit carryforward, rather than as a liability when the uncertain tax position would reduce the net operating loss or other carryforward under the tax law of the applicable jurisdiction and when the entity intends to use the deferred tax asset for that purpose. The new standard will be effective for fiscal years and interim periods within those years that begin after December 15, 2013. The adoption of the new standard will not have a material impact on the Company's consolidated financial statements.

In February 2013, the FASB issued a new standard that requires entities to disclose additional information about items reclassified out of accumulated other comprehensive income in their financial statements. Entities are required to include information about changes in accumulated other comprehensive income balances by component and additional information about significant items reclassified out of accumulated other comprehensive income in their interim reporting periods. The Company adopted the new standard which became effective for the interim period ended March 31, 2013. The adoption of the new standard did not have any impact on the Company’s consolidated financial statements.

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Fair Value Measurement

9 Months Ended

Sep. 30, 2013

Financial Instruments, Financial Assets, Balance Sheet Groupings [Abstract]

Fair Value Measurement

Fair Value Measurement

The Company employs a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date using the exit price. Accordingly, when market observable data are not readily available, the Company’s own assumptions are used to reflect those that market participants would be presumed to use in pricing the asset or liability at the measurement date. Assets and liabilities recorded on the consolidated balance sheets at fair value are categorized based on the level of judgment associated with inputs used to measure their fair value and the level of market price observability, as follows:

Level 1	Unadjusted quoted prices are available in active markets for identical assets or liabilities as of the reporting date.
Level 2	Pricing inputs are other than quoted prices in active markets, which are based on the following: •     Quoted prices for similar assets or liabilities in active markets; •     Quoted prices for identical or similar assets or liabilities in non-active markets; or •     Either directly or indirectly observable inputs as of the reporting date.
Level 3	Pricing inputs are unobservable and significant to the overall fair value measurement, and the determination of fair value requires significant management judgment or estimation.

In certain cases, inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Thus, a Level 3 fair value measurement may include inputs that are observable (Level 1 or Level 2) and unobservable (Level 3). The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and consideration of factors specific to the asset or liability.

The Company uses prices and inputs that are current as of the measurement date, including during periods of market disruption. In periods of market disruption, the ability to observe prices and inputs may be reduced for many instruments. This condition could cause an instrument to be reclassified from Level 1 to Level 2, or from Level 2 to Level 3. The Company recognizes transfers between levels at either the actual date of the event or a change in circumstances that caused the transfer.

Summary of Significant Valuation Techniques for Financial Assets and Financial Liabilities

The Company’s fair value measurements are based on the market approach, which utilizes market transaction data for the same or similar instruments.

The Company obtained unadjusted fair values on approximately 98% of its portfolio from an independent pricing service. For approximately 2% of its portfolio, classified as Level 3, the Company obtained specific unadjusted broker quotes based on net fund value and, to a lesser extent, unobservable inputs from at least one knowledgeable outside security broker to determine the fair value as of September 30, 2013.

Level 1 Measurements - Fair values of financial assets and financial liabilities are obtained from an independent pricing service, and are based on unadjusted quoted prices for identical assets or liabilities in active markets. Additional pricing services and closing exchange values are used as a comparison to ensure that reasonable fair values are used in pricing the investment portfolio.

U.S. government bonds and agencies/Short-term bonds: Valued using unadjusted quoted market prices for identical assets in active markets.

Common stock: Comprised of actively traded, exchange listed U.S. and international equity securities and valued based on unadjusted quoted prices for identical assets in active markets.

Money market instruments: Valued based on unadjusted quoted prices for identical assets.

Equity contracts: Comprised of free-standing exchange listed derivatives that are actively traded and valued based on quoted prices for identical instruments in active markets.

Level 2 Measurements - Fair values of financial assets and financial liabilities are obtained from an independent pricing service or outside brokers, and are based on prices for similar assets or liabilities in active markets or valuation models whose inputs are observable, directly or indirectly, for substantially the full term of the asset or liability. Additional pricing services are used as a comparison to ensure reliable fair values are used in pricing the investment portfolio.

Municipal securities: Valued based on models or matrices using inputs such as quoted prices for identical or similar assets in active markets.

Mortgage-backed securities: Comprised of securities that are collateralized by mortgage loans and valued based on models or matrices using multiple observable inputs, such as benchmark yields, reported trades and broker/dealer quotes, for identical or similar assets in active markets. The Company had holdings of $16.7 million and $4.3 million at September 30, 2013 and December 31, 2012, respectively, in commercial mortgage-backed securities.

Corporate securities/Short-term bonds: Valued based on a multi-dimensional model using multiple observable inputs, such as benchmark yields, reported trades, broker/dealer quotes and issue spreads, for identical or similar assets in active markets.

Non-redeemable preferred stock: Valued based on observable inputs, such as underlying and common stock of same issuer and appropriate spread over a comparable U.S. Treasury security, for identical or similar assets in active markets.

Total return swap /Interest rate swap: Valued based on models using inputs such as interest rate yield curves, underlying debt/credit instruments and the appropriate benchmark spread for similar assets in active markets, observable for substantially the full term of the contract.

Level 3 Measurements - Fair values of financial assets are based on inputs that are both unobservable and significant to the overall fair value measurement, including any items in which the evaluated prices obtained elsewhere were deemed to be of a distressed trading level.

Collateralized debt obligations/Partnership interest in a private credit fund: Valued based on underlying debt/credit instruments and the appropriate benchmark spread for similar assets in active markets; taking into consideration unobservable inputs related to liquidity assumptions.

The Company’s financial instruments at fair value are reflected in the consolidated balance sheets on a trade-date basis. Related unrealized gains or losses are recognized in net realized investment (losses) gains in the consolidated statements of operations. Fair value measurements are not adjusted for transaction costs.

The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis as of September 30, 2013 and December 31, 2012, and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:

	September 30, 2013
	Level 1		Level 2		Level 3		Total
	(Amounts in thousands)
Assets
Fixed maturity securities:
U.S. government bonds and agencies	$	16,128	$	0	$	0	$	16,128
Municipal securities	0		2,149,615		0		2,149,615
Mortgage-backed securities	0		36,096		0		36,096
Corporate securities	0		300,331		0		300,331
Collateralized debt obligations	0		0		36,344		36,344
Equity securities:
Common stock:
Public utilities	107,102		0		0		107,102
Banks, trusts and insurance companies	9,963		0		0		9,963
Energy and other	181,333		0		0		181,333
Non-redeemable preferred stock	0		25,845		0		25,845
Partnership interest in a private credit fund	0		0		12,124		12,124
Short-term bonds	39,996		22,488		0		62,484
Money market instruments	188,965		0		0		188,965
Total return swap	0		346		0		346
Total assets at fair value	$	543,487	$	2,534,721	$	48,468	$	3,126,676

	December 31, 2012
	Level 1		Level 2		Level 3		Total
	(Amounts in thousands)
Assets
Fixed maturity securities:
U.S. government bonds and agencies	$	14,204	$	0	$	0	$	14,204
Municipal securities	0		2,165,095		0		2,165,095
Mortgage-backed securities	0		30,703		0		30,703
Corporate securities	0		155,551		0		155,551
Collateralized debt obligations	0		0		42,801		42,801
Equity securities:
Common stock:
Public utilities	85,106		0		0		85,106
Banks, trusts and insurance companies	22,166		0		0		22,166
Energy and other	346,809		0		0		346,809
Non-redeemable preferred stock	0		11,701		0		11,701
Partnership interest in a private credit fund	0		0		11,306		11,306
Short-term bonds	0		24,530		0		24,530
Money market instruments	270,123		0		0		270,123
Total assets at fair value	$	738,408	$	2,387,580	$	54,107	$	3,180,095
Liabilities
Equity contracts	$	175	$	0	$	0	$	175
Interest rate swap	0		103		0		103
Total liabilities at fair value	$	175	$	103	$	0	$	278

The following tables present a summary of changes in fair value of Level 3 financial assets and financial liabilities held at fair value.

	Three Months Ended September 30,
	2013					2012
	Collateralized Debt Obligations			Partnership Interest in a Private Credit Fund		Collateralized Debt Obligations		Partnership Interest in a Private Credit Fund
	(Amounts in thousands)
Beginning Balance	$	38,992		$	11,990	$	76,325	$	11,030
Realized gains (losses) included in earnings	5,616			134		5,032		(455		)
Settlements	(8,264		)	0		0		0
Ending Balance	$	36,344		$	12,124	$	81,357	$	10,575
The amount of total gains (losses) for the period included in earnings attributable to assets still held at September 30	$	5,616		$	134	$	5,032	$	(455	)

	Nine Months Ended September 30,
	2013					2012
	Collateralized Debt Obligations			Partnership Interest in a Private Credit Fund		Collateralized Debt Obligations		Partnership Interest in a Private Credit Fund
	(Amounts in thousands)
Beginning Balance	$	42,801		$	11,306	$	47,503	$	10,008
Realized gains included in earnings	5,993			818		8,854		567
Purchase	0			0		25,000		0
Sales	(4,186		)	0		0		0
Settlements	(8,264		)	0		0		0
Ending Balance	$	36,344		$	12,124	$	81,357	$	10,575
The amount of total gains for the period included in earnings attributable to assets still held at September 30	$	6,510		$	818	$	8,854	$	567

There were no transfers between Levels 1, 2, and 3 of the fair value hierarchy during the nine months ended September 30, 2013 and 2012.

At September 30, 2013, the Company did not have any nonrecurring fair value measurements of nonfinancial assets or nonfinancial liabilities.

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Fair Value of Financial Instruments

9 Months Ended

Sep. 30, 2013

Financial Instruments, Owned, at Fair Value [Abstract]

Fair Value of Financial Instruments

Fair Value of Financial Instruments

The financial instruments recorded in the consolidated balance sheets include investments, receivables, the total return swap, interest rate swaps, accounts payable, equity contracts, and secured and unsecured notes payable. Due to their short-term maturity, the carrying values of receivables and accounts payable approximate their fair market values. The following table presents the estimated fair values of financial instruments at September 30, 2013 and December 31, 2012.

	September 30, 2013		December 31, 2012
	(Amounts in thousands)
Assets
Investments	$	3,126,330	$	3,180,095
Total return swap	$	346	$	0
Liabilities
Interest rate swap	$	0	$	103
Equity contracts	$	0	$	175
Secured notes	$	140,000	$	140,000
Unsecured note	$	40,000	$	0

Methods and assumptions used in estimating fair values are as follows:

Investments

The Company applies the fair value option to all fixed maturity and equity securities and short-term investments at the time an eligible item is first recognized. The cost of investments sold is determined on a first-in and first-out method and realized gains and losses are included in net realized investment (losses) gains. For additional disclosures regarding methods and assumptions used in estimating fair values of these securities, see Note 5.

Total return swap and interest rate swap

The fair values of the total return swap and interest rate swap reflect the estimated amounts that the Company would pay at September 30, 2013 and December 31, 2012 in order to terminate the contracts based on models using inputs, such as interest rate yield curves, observable for substantially the full term of the contract. For additional disclosures regarding methods and assumptions used in estimating fair values, see Note 5.

Equity contracts

The fair value of equity contracts is based on quoted prices for identical instruments in active markets. For additional disclosures regarding methods and assumptions used in estimating fair values of equity contracts, see Note 5.

Secured notes payable

The fair value of the Company’s $120 million and $20 million secured notes, classified as Level 2 in the fair value hierarchy described in Note 5, is estimated based on assumptions and inputs, such as the market value of underlying collateral and reset rates, for similarly termed notes that are observable in the market.

Unsecured note payable

The fair value of the Company’s $40 million unsecured note, classified as Level 2 in the fair value hierarchy described in Note 5, is based on the unadjusted quoted price for similar notes in active markets.

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Fair Value Measurement (Narrative) (Details) (USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2013 transfers	Sep. 30, 2012 transfers	Sep. 30, 2013 Minimum [Member] broker	Sep. 30, 2013 Commercial Mortgage Backed Securities [Member] Level 2 [Member]	Dec. 31, 2012 Commercial Mortgage Backed Securities [Member] Level 2 [Member]
Fair Value Measurement [Line Items]
Percentage of portfolio of unadjusted fair values obtained	98.00%
Percentage of portfolio of specific unadjusted broker quotes obtained	2.00%
Number of knowledgeable outside security brokers consulted to determine fair value			1
Trading securities, fair value disclosure				$ 16.7	$ 4.3
Transfers between Levels 1, 2, and 3 of the fair value hierarchy	0	0

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Derivative Financial Instruments (Summary Of Location And Amounts Of Derivative Fair Values In The Consolidated Balance Sheets) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012	Dec. 31, 2011
Derivative Financial Instruments [Line Items]
Asset Derivatives	$ 346	$ 0
Non-hedging derivatives [Member]
Derivative Financial Instruments [Line Items]
Asset Derivatives	346		0
Liability Derivatives	0	278
Non-hedging derivatives [Member] | Interest rate swap agreements [Member] | Other liabilities [Member]
Derivative Financial Instruments [Line Items]
Liability Derivatives	0	103
Non-hedging derivatives [Member] | Interest rate swap agreements [Member] | Other Assets [Member]
Derivative Financial Instruments [Line Items]
Asset Derivatives	346		0
Liability Derivatives	0	0
Non-hedging derivatives [Member] | Equity contracts [Member] | Other liabilities [Member]
Derivative Financial Instruments [Line Items]
Asset Derivatives	0		0
Liability Derivatives	0	175
Interest Rate Swap [Member] | Other liabilities [Member]
Derivative Financial Instruments [Line Items]
Asset Derivatives	$ 0		$ 0

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Share-Based Compensation (Narrative) (Details)	9 Months Ended
	Sep. 30, 2013
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Performance period of restricted stock units (in years)	3 years
Options granted prior to 2008 [Member] | Minimum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Option vesting term (in years)	4 years
Options granted prior to 2008 [Member] | Maximum [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Option vesting term (in years)	5 years
Options granted subsequent to January 1, 2008 [Member]
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Option vesting term (in years)	4 years

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Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Statement of Financial Position [Abstract]
Amortized cost on fixed maturities trading investments	$ 2,481,651	$ 2,270,903
Cost - equity security trading investments	267,614	475,959
Cost - short-term investments	$ 251,550	$ 294,607
Common Stock
Common stock, no par value	$ 0	$ 0
Common stock, shares authorized	70,000,000	70,000,000
Common stock, shares issued	54,960,000	54,922,000
Common stock, shares outstanding	54,960,000	54,922,000

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Share-Based Compensation

9 Months Ended

Sep. 30, 2013

Share-based Compensation, Allocation and Classification in Financial Statements [Abstract]

Share-Based Compensation

Share-Based Compensation

Share-based compensation expense for all share-based payment awards granted or modified is based on the estimated grant-date fair value. The Company recognizes these compensation costs on a straight-line basis over the requisite service period of the award, which is the option vesting term of four or five years for options granted prior to 2008 and four years for options granted subsequent to January 1, 2008, for only those shares expected to vest. The fair value of stock option awards is estimated using the Black-Scholes option pricing model with the grant-date assumptions and weighted-average fair values.

Under the Company's 2005 Incentive Award Plan (the “Plan”), the Compensation Committee of the Company’s Board of Directors granted performance vesting restricted stock units to the Company’s senior management and key employees as follows:

	Grant Year
	2013	2012	2011
Three-year performance period ending December 31,	2015	2014	2013
Vesting shares, target	84,500	89,000	80,000
Vesting shares, maximum	190,125	200,250	120,000

The restricted stock units vest at the end of a three-year performance period beginning with the year of the grant, and then only if, and to the extent that, the Company’s performance during the performance period achieves the threshold established by the Compensation Committee of the Company's Board of Directors. For 2011 grants, vesting will be based on the Company's cumulative underwriting income. For 2012 grants, vesting will be based on the Company's cumulative underwriting income and net premium written growth. For 2013 grants, vesting will be based on the Company's cumulative underwriting income, annual underwriting income, and net premiums written growth.

The fair value of each restricted share grant was determined based on the market price on the grant date. Compensation cost is recognized based on management’s best estimate that performance goals will be achieved. If such goals are not met, no compensation cost is recognized and any recognized compensation cost would be reversed. For the 2012 and 2011 grants, the achievement of the performance condition set by the Compensation Committee was no longer considered probable, and previously recognized compensation costs were reversed.

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Consolidated Statements Of Comprehensive (Loss) Income (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Net (loss) income	$ 39,570	$ 66,201	$ 96,767	$ 134,293
Other comprehensive income, before tax:
Gains on hedging instrument	0	0	0	0
Other comprehensive income, before tax:	0	0	0	0
Income tax expense related to gains on hedging instrument	0	0	0	0
Other comprehensive income, net of tax:	0	0	0	0
Comprehensive (loss) income	$ 39,570	$ 66,201	$ 96,767	$ 134,293

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Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
ASSETS
Fixed maturity securities (amortized cost $2,481,651; $2,270,903)	$ 2,538,514	$ 2,408,354
Equity securities (cost $267,614; $475,959)	336,367	477,088
Short-term investments (cost $251,550; $294,607)	251,449	294,653
Total investments	3,126,330	3,180,095
Cash	250,061	158,183
Receivables:
Premiums	372,818	345,387
Accrued investment income	35,316	31,109
Other	18,399	17,756
Total receivables	426,533	394,252
Deferred policy acquisition costs	196,284	185,910
Fixed assets, net	154,467	161,940
Current income taxes	0	7,058
Deferred income taxes	26,437	0
Goodwill	42,796	42,796
Other intangible assets, net	43,098	47,589
Other assets	74,450	11,863
Total assets	4,340,456	4,189,686
LIABILITIES AND SHAREHOLDERS’ EQUITY
Losses and loss adjustment expenses	1,010,534	1,036,123
Unearned premiums	967,320	920,429
Notes payable	180,000	140,000
Accounts payable and accrued expenses	133,973	96,220
Current income taxes	26,324	0
Deferred income taxes	0	445
Other liabilities	182,150	153,972
Total liabilities	2,500,301	2,347,189
Commitments and contingencies
Shareholders’ equity:
Common stock without par value or stated value: Authorized 70,000 shares; issued and outstanding 54,960; 54,922	81,109	79,380
Additional paid-in capital	128	0
Retained earnings	1,758,918	1,763,117
Total shareholders’ equity	1,840,155	1,842,497
Total liabilities and shareholders’ equity	$ 4,340,456	$ 4,189,686

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Fair Value Measurement (Schedule Of Assets And Liabilities Measured At Fair Value On A Recurring Basis Valuation Techniques) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Fair Value Measurement [Line Items]
Assets	$ 3,126,676	$ 3,180,095
Liabilities		278
Level 1 [Member]
Fair Value Measurement [Line Items]
Assets	543,487	738,408
Liabilities		175
Level 2 [Member]
Fair Value Measurement [Line Items]
Assets	2,534,721	2,387,580
Liabilities		103
Level 3 [Member]
Fair Value Measurement [Line Items]
Assets	48,468	54,107
Liabilities		0
Short-term bonds [Member]
Fair Value Measurement [Line Items]
Assets	62,484	24,530
Short-term bonds [Member] | Level 1 [Member]
Fair Value Measurement [Line Items]
Assets	39,996	0
Short-term bonds [Member] | Level 2 [Member]
Fair Value Measurement [Line Items]
Assets	22,488	24,530
Short-term bonds [Member] | Level 3 [Member]
Fair Value Measurement [Line Items]
Assets	0	0
Money market instruments [Member]
Fair Value Measurement [Line Items]
Assets	188,965	270,123
Money market instruments [Member] | Level 1 [Member]
Fair Value Measurement [Line Items]
Assets	188,965	270,123
Money market instruments [Member] | Level 2 [Member]
Fair Value Measurement [Line Items]
Assets	0	0
Money market instruments [Member] | Level 3 [Member]
Fair Value Measurement [Line Items]
Assets	0	0
Equity contracts [Member]
Fair Value Measurement [Line Items]
Liabilities		175
Equity contracts [Member] | Level 1 [Member]
Fair Value Measurement [Line Items]
Liabilities		175
Equity contracts [Member] | Level 2 [Member]
Fair Value Measurement [Line Items]
Liabilities		0
Equity contracts [Member] | Level 3 [Member]
Fair Value Measurement [Line Items]
Liabilities		0
Interest rate swap agreements [Member]
Fair Value Measurement [Line Items]
Liabilities		103
Interest rate swap agreements [Member] | Level 1 [Member]
Fair Value Measurement [Line Items]
Liabilities		0
Interest rate swap agreements [Member] | Level 2 [Member]
Fair Value Measurement [Line Items]
Liabilities		103
Interest rate swap agreements [Member] | Level 3 [Member]
Fair Value Measurement [Line Items]
Liabilities		0
Total Return Swap [Member]
Fair Value Measurement [Line Items]
Assets	346
Total Return Swap [Member] | Level 1 [Member]
Fair Value Measurement [Line Items]
Assets	0
Total Return Swap [Member] | Level 2 [Member]
Fair Value Measurement [Line Items]
Assets	346
Total Return Swap [Member] | Level 3 [Member]
Fair Value Measurement [Line Items]
Assets	0
Fixed maturity securities [Member] | U.S. government bonds and agencies [Member]
Fair Value Measurement [Line Items]
Assets	16,128	14,204
Fixed maturity securities [Member] | U.S. government bonds and agencies [Member] | Level 1 [Member]
Fair Value Measurement [Line Items]
Assets	16,128	14,204
Fixed maturity securities [Member] | U.S. government bonds and agencies [Member] | Level 2 [Member]
Fair Value Measurement [Line Items]
Assets	0	0
Fixed maturity securities [Member] | U.S. government bonds and agencies [Member] | Level 3 [Member]
Fair Value Measurement [Line Items]
Assets	0	0
Fixed maturity securities [Member] | Municipal securities [Member]
Fair Value Measurement [Line Items]
Assets	2,149,615	2,165,095
Fixed maturity securities [Member] | Municipal securities [Member] | Level 1 [Member]
Fair Value Measurement [Line Items]
Assets	0	0
Fixed maturity securities [Member] | Municipal securities [Member] | Level 2 [Member]
Fair Value Measurement [Line Items]
Assets	2,149,615	2,165,095
Fixed maturity securities [Member] | Municipal securities [Member] | Level 3 [Member]
Fair Value Measurement [Line Items]
Assets	0	0
Fixed maturity securities [Member] | Mortgage-backed securities [Member]
Fair Value Measurement [Line Items]
Assets	36,096	30,703
Fixed maturity securities [Member] | Mortgage-backed securities [Member] | Level 1 [Member]
Fair Value Measurement [Line Items]
Assets	0	0
Fixed maturity securities [Member] | Mortgage-backed securities [Member] | Level 2 [Member]
Fair Value Measurement [Line Items]
Assets	36,096	30,703
Fixed maturity securities [Member] | Mortgage-backed securities [Member] | Level 3 [Member]
Fair Value Measurement [Line Items]
Assets	0	0
Fixed maturity securities [Member] | Corporate securities [Member]
Fair Value Measurement [Line Items]
Assets	300,331	155,551
Fixed maturity securities [Member] | Corporate securities [Member] | Level 1 [Member]
Fair Value Measurement [Line Items]
Assets	0	0
Fixed maturity securities [Member] | Corporate securities [Member] | Level 2 [Member]
Fair Value Measurement [Line Items]
Assets	300,331	155,551
Fixed maturity securities [Member] | Corporate securities [Member] | Level 3 [Member]
Fair Value Measurement [Line Items]
Assets	0	0
Fixed maturity securities [Member] | Collateralized Debt Obligations [Member]
Fair Value Measurement [Line Items]
Assets	36,344	42,801
Fixed maturity securities [Member] | Collateralized Debt Obligations [Member] | Level 1 [Member]
Fair Value Measurement [Line Items]
Assets	0	0
Fixed maturity securities [Member] | Collateralized Debt Obligations [Member] | Level 2 [Member]
Fair Value Measurement [Line Items]
Assets	0	0
Fixed maturity securities [Member] | Collateralized Debt Obligations [Member] | Level 3 [Member]
Fair Value Measurement [Line Items]
Assets	36,344	42,801
Equity securities [Member] | Public utilities [Member]
Fair Value Measurement [Line Items]
Assets	107,102	85,106
Equity securities [Member] | Public utilities [Member] | Level 1 [Member]
Fair Value Measurement [Line Items]
Assets	107,102	85,106
Equity securities [Member] | Public utilities [Member] | Level 2 [Member]
Fair Value Measurement [Line Items]
Assets	0	0
Equity securities [Member] | Public utilities [Member] | Level 3 [Member]
Fair Value Measurement [Line Items]
Assets	0	0
Equity securities [Member] | Banks, trusts and insurance companies [Member]
Fair Value Measurement [Line Items]
Assets	9,963	22,166
Equity securities [Member] | Banks, trusts and insurance companies [Member] | Level 1 [Member]
Fair Value Measurement [Line Items]
Assets	9,963	22,166
Equity securities [Member] | Banks, trusts and insurance companies [Member] | Level 2 [Member]
Fair Value Measurement [Line Items]
Assets	0	0
Equity securities [Member] | Banks, trusts and insurance companies [Member] | Level 3 [Member]
Fair Value Measurement [Line Items]
Assets	0	0
Equity securities [Member] | Energy and other [Member]
Fair Value Measurement [Line Items]
Assets	181,333	346,809
Equity securities [Member] | Energy and other [Member] | Level 1 [Member]
Fair Value Measurement [Line Items]
Assets	181,333	346,809
Equity securities [Member] | Energy and other [Member] | Level 2 [Member]
Fair Value Measurement [Line Items]
Assets	0	0
Equity securities [Member] | Energy and other [Member] | Level 3 [Member]
Fair Value Measurement [Line Items]
Assets	0	0
Equity securities [Member] | Non-redeemable preferred stock [Member]
Fair Value Measurement [Line Items]
Assets	25,845	11,701
Equity securities [Member] | Non-redeemable preferred stock [Member] | Level 1 [Member]
Fair Value Measurement [Line Items]
Assets	0	0
Equity securities [Member] | Non-redeemable preferred stock [Member] | Level 2 [Member]
Fair Value Measurement [Line Items]
Assets	25,845	11,701
Equity securities [Member] | Non-redeemable preferred stock [Member] | Level 3 [Member]
Fair Value Measurement [Line Items]
Assets	0	0
Equity securities [Member] | Partnership Interest In Private Credit Fund [Member]
Fair Value Measurement [Line Items]
Assets	12,124	11,306
Equity securities [Member] | Partnership Interest In Private Credit Fund [Member] | Level 1 [Member]
Fair Value Measurement [Line Items]
Assets	0	0
Equity securities [Member] | Partnership Interest In Private Credit Fund [Member] | Level 2 [Member]
Fair Value Measurement [Line Items]
Assets	0	0
Equity securities [Member] | Partnership Interest In Private Credit Fund [Member] | Level 3 [Member]
Fair Value Measurement [Line Items]
Assets	$ 12,124	$ 11,306

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Share-Based Compensation (Tables)

9 Months Ended

Sep. 30, 2013

Share-based Compensation, Allocation and Classification in Financial Statements [Abstract]

Schedule Of Performance Vesting Restricted Stock Units Granted

Under the Company's 2005 Incentive Award Plan (the “Plan”), the Compensation Committee of the Company’s Board of Directors granted performance vesting restricted stock units to the Company’s senior management and key employees as follows:

	Grant Year
	2013	2012	2011
Three-year performance period ending December 31,	2015	2014	2013
Vesting shares, target	84,500	89,000	80,000
Vesting shares, maximum	190,125	200,250	120,000

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Income Taxes (Details) (USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2013
Components of Income Tax Expense (Benefit), Continuing Operations [Abstract]
Increase in unrecognized tax benefit	$ 4.7

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Goodwill and Other Intangible Assets (Schedule Of Components Of Other Intangible Assets) (Details) (USD $) In Thousands, unless otherwise specified	9 Months Ended	12 Months Ended
	Sep. 30, 2013	Dec. 31, 2012
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	$ 73,730	$ 73,730
Accumulated Amortization	(30,632)	(26,141)
Net Carrying Amount	43,098	47,589
Customer relationships [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	51,755	51,755
Accumulated Amortization	(23,266)	(19,585)
Net Carrying Amount	28,489	32,170
Useful Lives (in years)	11 years	11 years
Trade names [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	15,400	15,400
Accumulated Amortization	(3,048)	(2,567)
Net Carrying Amount	12,352	12,833
Useful Lives (in years)	24 years	24 years
Software [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	4,300	4,300
Accumulated Amortization	(2,043)	(1,720)
Net Carrying Amount	2,257	2,580
Useful Lives (in years)	10 years	10 years
Technology [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	1,725	1,725
Accumulated Amortization	(1,725)	(1,719)
Net Carrying Amount	0	6
Useful Lives (in years)	3 years	3 years
Favorable leases [Member]
Finite-Lived Intangible Assets [Line Items]
Gross Carrying Amount	550	550
Accumulated Amortization	(550)	(550)
Net Carrying Amount	$ 0	$ 0
Useful Lives (in years)	2 years	2 years

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Goodwill and Other Intangible Assets (Schedule Of Estimated Future Amortization Expense Related To Intangible Assets) (Details) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2013	Dec. 31, 2012
Goodwill and Intangible Assets Disclosure [Abstract]
Remainder of 2013	$ 1,495
2014	5,980
2015	5,980
2016	5,980
2017	5,253
Thereafter	18,410
Net Carrying Amount	$ 43,098	$ 47,589

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Goodwill and Other Intangible Assets

9 Months Ended

Sep. 30, 2013

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Other Intangible Assets

Goodwill and Other Intangible Assets

Goodwill

There were no changes in the carrying amount of goodwill for the nine months ended September 30, 2013. Goodwill is reviewed annually for impairment and more frequently if potential impairment indicators exist. No impairment indications were identified during any of the periods presented.

Other Intangible Assets

The following table presents the components of other intangible assets as of September 30, 2013 and December 31, 2012.

	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Useful Lives
	(Amounts in thousands)							(in years)
As of September 30, 2013:
Customer relationships	$	51,755	$	(23,266	)	$	28,489	11
Trade names	15,400		(3,048		)	12,352		24
Technology	4,300		(2,043		)	2,257		10
Favorable leases	1,725		(1,725		)	0		3
Software	550		(550		)	0		2
Total intangible assets, net	$	73,730	$	(30,632	)	$	43,098
As of December 31, 2012:
Customer relationships	$	51,755	$	(19,585	)	$	32,170	11
Trade names	15,400		(2,567		)	12,833		24
Technology	4,300		(1,720		)	2,580		10
Favorable leases	1,725		(1,719		)	6		3
Software	550		(550		)	0		2
Total intangible assets, net	$	73,730	$	(26,141	)	$	47,589

Intangible assets are amortized on a straight-line basis over their useful lives. Intangible assets amortization expense was $1.5 million for the three months ended September 30, 2013 and 2012, and $4.5 million and $4.6 million for the nine months ended September 30, 2013 and 2012, respectively. The following table presents the estimated future amortization expenses related to intangible assets as of September 30, 2013:

Year Ending	Amortization Expense
	(Amounts in thousands)
Remainder of 2013	$	1,495
2014	5,980
2015	5,980
2016	5,980
2017	5,253
Thereafter	18,410
Total	$	43,098

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Fair Value Measurement (Summary Of Changes In Fair Value Of Level 3 Financial Assets And Financial Liabilities Held At Fair Value) (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Collateralized Debt Obligations [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Beginning Balance	$ 38,992	$ 76,325	$ 42,801	$ 47,503
Realized (losses) gains included in earnings	5,616	5,032	5,993	8,854
Purchases			0	25,000
Sales			(4,186)	0
Settlements	(8,264)	0	(8,264)	0
Ending Balance	36,344	81,357	36,344	81,357
The amount of total gains (losses) for the period included in earnings attributable to assets still held at September 30	5,616	5,032	6,510	8,854
Partnership Interest In Private Credit Fund [Member]
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Beginning Balance	11,990	11,030	11,306	10,008
Realized (losses) gains included in earnings	134	(455)	818	567
Purchases			0	0
Sales			0	0
Settlements	0	0	0	0
Ending Balance	12,124	10,575	12,124	10,575
The amount of total gains (losses) for the period included in earnings attributable to assets still held at September 30	$ 134	$ (455)	$ 818	$ 567

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Contingencies

9 Months Ended

Sep. 30, 2013

Commitments and Contingencies Disclosure [Abstract]

Contingencies

Contingencies

The Company is, from time to time, named as a defendant in various lawsuits or regulatory actions incidental to its insurance business. The majority of lawsuits brought against the Company relate to insurance claims that arise in the normal course of business and are reserved for through the reserving process. For a discussion of the Company’s reserving methods, see the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

The Company also establishes reserves for non-insurance claims related lawsuits, regulatory actions, and other contingencies when the Company believes a loss is probable and is able to estimate its potential exposure. For loss contingencies believed to be reasonably possible, the Company also discloses the nature of the loss contingency and an estimate of the possible loss, range of loss, or a statement that such an estimate cannot be made. While actual losses may differ from the amounts recorded and the ultimate outcome of the Company’s pending actions is generally not yet determinable, the Company does not believe that the ultimate resolution of currently pending legal or regulatory proceedings, either individually or in the aggregate, will have a material adverse effect on its financial condition, results of operations, or cash flows.

In all cases, the Company vigorously defends itself unless a reasonable settlement appears appropriate. For a discussion of legal matters, see the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

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Derivative Financial Instruments

9 Months Ended

Sep. 30, 2013

General Discussion of Derivative Instruments and Hedging Activities [Abstract]

Derivative Financial Instruments

Derivative Financial Instruments

The Company is exposed to certain risks relating to its ongoing business operations. The primary risks managed by using derivative instruments are equity price risk and interest rate risk. Equity contracts on various equity securities are intended to manage the price risk associated with forecasted purchases or sales of such securities. Interest rate swaps are intended to manage the interest rate risk associated with the Company’s debts with fixed or floating rates.

On August 9, 2013, AFL entered into a three-year total return swap agreement with Citibank. Under the total return swap agreement, AFL receives the income equivalent on underlying obligations due to Citibank and pays to Citibank interest equal to LIBOR plus 120 basis points on the outstanding notional amount of the underlying obligations, which was approximately $80 million as of September 30, 2013. The total return swap is secured by approximately $40 million of U.S. Treasuries as collateral, which is included in short-term investments on the consolidated balance sheets.

On February 6, 2009, the Company entered into an interest rate swap of its floating LIBOR rate on a $120 million credit facility for a fixed rate of 1.93% that matured on January 3, 2012. The purpose of the swap was to offset the variability of cash flows resulting from the variable interest rate. The swap was not designated as a hedge and changes in the fair value were adjusted through the consolidated statement of operations in the period of change.

On March 3, 2008, the Company entered into an interest rate swap of its floating LIBOR rate on a Bank of America $18 million LIBOR plus 50 basis points loan for a fixed rate of 4.25% that matured on March 1, 2013. On October 4, 2011, the Company refinanced the $18 million loan that was scheduled to mature on March 1, 2013 with a Union Bank $20 million LIBOR plus 40 basis points loan that matures on January 2, 2015. The related swap expired on March 1, 2013.

Fair value amounts, and gains and losses on derivative instruments

The following tables present the location and amounts of derivative fair values in the consolidated balance sheets and derivative gains in the consolidated statements of operations:

	Asset Derivatives				Liability Derivatives
	September 30, 2013		December 31, 2012		September 30, 2013		December 31, 2012
	(Amount in thousands)
Total return swap - Other assets	$	346	$	0	$	0	$	0
Equity contracts - Other liabilities	0		0		0		175
Interest rate swap - Other liabilities	0		0		0		103
Total derivatives	$	346	$	0	$	0	$	278

	Gain Recognized in Income
	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
	(Amounts in thousands)
Total return swap - Net realized investment (losses) gains	$	381	$	0	$	381	$	0
Equity contracts - Net realized investment (losses) gains	543		757		1,722		2,342
Interest rate swap - Other revenue	0		139		103		410
Total	$	924	$	896	$	2,206	$	2,752

Most equity contracts consist of covered calls. The Company writes covered calls on underlying equity positions held as an enhanced income strategy that is permitted for the Company’s insurance subsidiaries under statutory regulations. The Company manages the risk associated with covered calls through strict capital limitations and asset diversification throughout various industries. For additional disclosures regarding equity contracts, see Note 5.

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General

9 Months Ended

Sep. 30, 2013

General [Abstract]

General

General

Consolidation and Basis of Presentation

The condensed consolidated financial statements include the accounts of Mercury General Corporation and its subsidiaries (referred to herein collectively as the “Company”). For the list of the Company’s subsidiaries, see Note 1 “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

The condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”), which differ in some respects from those filed in reports to insurance regulatory authorities. All intercompany transactions and balances have been eliminated.

The financial data of the Company included herein are unaudited. In the opinion of management, all material adjustments of a normal recurring nature have been made to present fairly the Company’s financial position at September 30, 2013 and the results of operations, comprehensive income, and cash flows for the periods presented. These statements were prepared in accordance with the instructions for interim reporting and do not contain certain information in the annual financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2012. Readers are urged to review the Company's Annual Report on Form 10-K for the year ended December 31, 2012 for more complete descriptions and discussions. Operating results and cash flows for the nine months ended September 30, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. These estimates require the Company to apply complex assumptions and judgments, and often the Company must make estimates about effects of matters that are inherently uncertain and will likely change in subsequent periods. The most significant assumptions in the preparation of these condensed consolidated financial statements relate to reserves for losses and loss adjustment expenses. Actual results could differ from those estimates (See Note 1 “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012).

Earnings per Share

Potentially dilutive securities representing approximately 53,000 and 108,000 shares of common stock for the three months ended September 30, 2013 and 2012, respectively, and 76,000 and 77,000 shares of common stock for the nine months ended September 30, 2013 and 2012, respectively, were excluded from the computation of diluted earnings per common share for these periods because their effect would have been anti-dilutive.

Deferred Policy Acquisition Costs

Deferred policy acquisition costs consist of commissions paid to outside agents, premium taxes, salaries, and certain other underwriting costs that are incremental or directly related to the successful acquisition of new and renewal insurance contracts and are amortized over the life of the related policy in proportion to premiums earned. Deferred policy acquisition costs are limited to the amount that will remain after deducting from unearned premiums and anticipated investment income, the estimated losses and loss adjustment expenses, and the servicing costs that will be incurred as premiums are earned. The Company’s deferred policy acquisition costs are further limited by excluding those costs not directly related to the successful acquisition of insurance contracts. Deferred policy acquisition cost amortization was $126.9 million and $121.9 million for the three months ended September 30, 2013 and 2012, respectively, and $377.0 million and $357.1 million for the nine months ended September 30, 2013 and 2012, respectively. The Company does not defer advertising expenditures but expenses them as incurred. The Company recorded net advertising expenses of approximately $16 million and $15 million for the nine months ended September 30, 2013 and 2012, respectively.

Total Return Swap

As of September 30, 2013, the Company formed and consolidated a special purpose investment vehicle, Animas Funding LLC (“AFL”). The Company is the sole managing member in AFL. On August 9, 2013, AFL entered into a three-year total return swap agreement with Citibank, N.A. (“Citibank”). Under the total return swap agreement, AFL receives the income equivalent on underlying obligations due to Citibank and pays to Citibank interest equal to LIBOR plus 120 basis points on the outstanding notional amount of the underlying obligations, which was approximately $80 million as of September 30, 2013. The total return swap agreement is secured by approximately $40 million of U.S. Treasuries as collateral, which is included in short-term investments on the consolidated balance sheets. In the event of a significant erosion in market value, AFL's position in the loan portfolio will be reduced and the Company has the option to add additional capital or terminate the total return swap agreement.

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Derivative Financial Instruments (Schedule Of Derivative Gains And Losses In The Consolidated Statements Of Operations) (Details) (Derivatives Not Designated as Hedging Instrument [Member], USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2013	Sep. 30, 2012	Sep. 30, 2013	Sep. 30, 2012
Derivative Financial Instruments [Line Items]
Gain Recognized in Income (Loss)	$ 924	$ 896	$ 2,206	$ 2,752
Interest rate swap agreements [Member] | Other revenue [Member]
Derivative Financial Instruments [Line Items]
Gain Recognized in Income (Loss)	0	139	103	410
Total Return Swap [Member] | Other revenue [Member]
Derivative Financial Instruments [Line Items]
Gain Recognized in Income (Loss)	381	0	381	0
Equity contracts [Member] | Net realized investment (losses) gains [Member]
Derivative Financial Instruments [Line Items]
Gain Recognized in Income (Loss)	$ 543	$ 757	$ 1,722	$ 2,342

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Fair Value Option (Tables)

9 Months Ended

Sep. 30, 2013

Fair Value Option [Abstract]

Gains And Losses Due To Changes In Fair Value Of Investments

The following table presents gains (losses) due to changes in fair value of investments that are measured at fair value pursuant to application of the fair value option:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2013			2012			2013			2012
	(Amounts in thousands)
Fixed maturity securities	$	(11,295	)	$	19,198		$	(81,268	)	$	50,013
Equity securities	32,602			25,629			67,625			20,153
Short-term investments	508			(44		)	199			(828		)
Total	$	21,815		$	44,783		$	(13,444	)	$	69,338

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Income Taxes

9 Months Ended

Sep. 30, 2013

Components of Income Tax Expense (Benefit), Continuing Operations [Abstract]

Income Taxes

Income Taxes

For financial statement purposes, the Company recognizes tax benefits related to positions taken, or expected to be taken, on a tax return only if, “more-likely-than-not,” the positions are sustainable. Once this threshold has been met, the Company's measurement of its expected tax benefits is recognized in its financial statements.

There was a $4.7 million increase to the total amount of unrecognized tax benefit related to tax uncertainties during the nine months ended September 30, 2013. The increase was the result of tax positions taken regarding federal tax credit carryforwards and state tax apportionment issues based on management’s best judgment given the facts, circumstances, and information available at the reporting date. The Company does not expect any changes in such unrecognized tax benefit to have a significant impact on its consolidated financial statements within the next 12 months.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states. Tax years that remain subject to examination by major taxing jurisdictions are 2010 through 2012 for federal taxes and 2003 through 2011 for California state taxes. Tax year 2010 is currently under examination by the Internal Revenue Service (“IRS”). The IRS has issued adjustments to the Company’s 2010 tax liability which will generate a net tax refund. The Company has agreed with these adjustments and anticipates the exam will conclude in the near future.

The Company is currently under examination by the California Franchise Tax Board (“FTB”) for tax years 2003 through 2010. The FTB has issued Notices of Proposed Assessments to the Company for tax years 2003 through 2006. The Company has filed protests with the FTB in response to these assessments and presented its case in a hearing before the FTB. No assessments have been received for tax years 2007 through 2010. Management believes that the resolution of these examinations and assessments will not have a material impact on the condensed consolidated financial statements.

Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial reporting basis and the respective tax basis of the Company’s assets and liabilities, and expected benefits of utilizing net operating loss, capital loss, and tax-credit carryforwards. The Company assesses the likelihood that its deferred tax assets will be realized and, to the extent management does not believe these assets are more likely than not to be realized, a valuation allowance is established.

At September 30, 2013, the Company’s deferred income taxes were in a net asset position which included a combination of ordinary and capital deferred tax benefits. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon generating sufficient taxable income of the appropriate character within the carryback and carryforward periods available under the tax law. Management considers the reversal of deferred tax liabilities, projected future taxable income of an appropriate nature, and tax-planning strategies in making this assessment. The Company believes that through the use of prudent tax planning strategies and the generation of capital gains, sufficient income will be realized in order to maximize the full benefits of its deferred tax assets. Although realization is not assured, management believes that it is more likely than not that the Company’s deferred tax assets will be realized.

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Goodwill and Other Intangible Assets (Tables)

9 Months Ended

Sep. 30, 2013

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule Of Components Of Other Intangible Assets

The following table presents the components of other intangible assets as of September 30, 2013 and December 31, 2012.

	Gross Carrying Amount		Accumulated Amortization			Net Carrying Amount		Useful Lives
	(Amounts in thousands)							(in years)
As of September 30, 2013:
Customer relationships	$	51,755	$	(23,266	)	$	28,489	11
Trade names	15,400		(3,048		)	12,352		24
Technology	4,300		(2,043		)	2,257		10
Favorable leases	1,725		(1,725		)	0		3
Software	550		(550		)	0		2
Total intangible assets, net	$	73,730	$	(30,632	)	$	43,098
As of December 31, 2012:
Customer relationships	$	51,755	$	(19,585	)	$	32,170	11
Trade names	15,400		(2,567		)	12,833		24
Technology	4,300		(1,720		)	2,580		10
Favorable leases	1,725		(1,719		)	6		3
Software	550		(550		)	0		2
Total intangible assets, net	$	73,730	$	(26,141	)	$	47,589

Schedule Of Estimated Future Amortization Expense Related To Intangible Assets

The following table presents the estimated future amortization expenses related to intangible assets as of September 30, 2013:

Year Ending	Amortization Expense
	(Amounts in thousands)
Remainder of 2013	$	1,495
2014	5,980
2015	5,980
2016	5,980
2017	5,253
Thereafter	18,410
Total	$	43,098

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Fair Value Measurement (Tables)

9 Months Ended

Sep. 30, 2013

Financial Instruments, Financial Assets, Balance Sheet Groupings [Abstract]

Schedule Of Assets And Liabilities Measured At Fair Value On A Recurring Basis Valuation Techniques

The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis as of September 30, 2013 and December 31, 2012, and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:

	September 30, 2013
	Level 1		Level 2		Level 3		Total
	(Amounts in thousands)
Assets
Fixed maturity securities:
U.S. government bonds and agencies	$	16,128	$	0	$	0	$	16,128
Municipal securities	0		2,149,615		0		2,149,615
Mortgage-backed securities	0		36,096		0		36,096
Corporate securities	0		300,331		0		300,331
Collateralized debt obligations	0		0		36,344		36,344
Equity securities:
Common stock:
Public utilities	107,102		0		0		107,102
Banks, trusts and insurance companies	9,963		0		0		9,963
Energy and other	181,333		0		0		181,333
Non-redeemable preferred stock	0		25,845		0		25,845
Partnership interest in a private credit fund	0		0		12,124		12,124
Short-term bonds	39,996		22,488		0		62,484
Money market instruments	188,965		0		0		188,965
Total return swap	0		346		0		346
Total assets at fair value	$	543,487	$	2,534,721	$	48,468	$	3,126,676

	December 31, 2012
	Level 1		Level 2		Level 3		Total
	(Amounts in thousands)
Assets
Fixed maturity securities:
U.S. government bonds and agencies	$	14,204	$	0	$	0	$	14,204
Municipal securities	0		2,165,095		0		2,165,095
Mortgage-backed securities	0		30,703		0		30,703
Corporate securities	0		155,551		0		155,551
Collateralized debt obligations	0		0		42,801		42,801
Equity securities:
Common stock:
Public utilities	85,106		0		0		85,106
Banks, trusts and insurance companies	22,166		0		0		22,166
Energy and other	346,809		0		0		346,809
Non-redeemable preferred stock	0		11,701		0		11,701
Partnership interest in a private credit fund	0		0		11,306		11,306
Short-term bonds	0		24,530		0		24,530
Money market instruments	270,123		0		0		270,123
Total assets at fair value	$	738,408	$	2,387,580	$	54,107	$	3,180,095
Liabilities
Equity contracts	$	175	$	0	$	0	$	175
Interest rate swap	0		103		0		103
Total liabilities at fair value	$	175	$	103	$	0	$	278

Summary Of Changes In Fair Value Of Level 3 Financial Assets And Financial Liabilities Held At Fair Value

The following tables present a summary of changes in fair value of Level 3 financial assets and financial liabilities held at fair value.

	Three Months Ended September 30,
	2013					2012
	Collateralized Debt Obligations			Partnership Interest in a Private Credit Fund		Collateralized Debt Obligations		Partnership Interest in a Private Credit Fund
	(Amounts in thousands)
Beginning Balance	$	38,992		$	11,990	$	76,325	$	11,030
Realized gains (losses) included in earnings	5,616			134		5,032		(455		)
Settlements	(8,264		)	0		0		0
Ending Balance	$	36,344		$	12,124	$	81,357	$	10,575
The amount of total gains (losses) for the period included in earnings attributable to assets still held at September 30	$	5,616		$	134	$	5,032	$	(455	)

	Nine Months Ended September 30,
	2013					2012
	Collateralized Debt Obligations			Partnership Interest in a Private Credit Fund		Collateralized Debt Obligations		Partnership Interest in a Private Credit Fund
	(Amounts in thousands)
Beginning Balance	$	42,801		$	11,306	$	47,503	$	10,008
Realized gains included in earnings	5,993			818		8,854		567
Purchase	0			0		25,000		0
Sales	(4,186		)	0		0		0
Settlements	(8,264		)	0		0		0
Ending Balance	$	36,344		$	12,124	$	81,357	$	10,575
The amount of total gains for the period included in earnings attributable to assets still held at September 30	$	6,510		$	818	$	8,854	$	567

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Document And Entity Information	9 Months Ended
	Sep. 30, 2013	Oct. 25, 2013
Document And Entity Information [Abstract]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2013
Document Fiscal Year Focus	2013
Document Fiscal Period Focus	Q3
Entity Registrant Name	MERCURY GENERAL CORP
Entity Central Index Key	0000064996
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		54,960,392

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Derivative Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2013

General Discussion of Derivative Instruments and Hedging Activities [Abstract]

Summary Of Location And Amounts Of Derivative Fair Values In The Consolidated Balance Sheets

The following tables present the location and amounts of derivative fair values in the consolidated balance sheets and derivative gains in the consolidated statements of operations:

	Asset Derivatives				Liability Derivatives
	September 30, 2013		December 31, 2012		September 30, 2013		December 31, 2012
	(Amount in thousands)
Total return swap - Other assets	$	346	$	0	$	0	$	0
Equity contracts - Other liabilities	0		0		0		175
Interest rate swap - Other liabilities	0		0		0		103
Total derivatives	$	346	$	0	$	0	$	278

Schedule Of Derivative Gains And Losses In The Consolidated Statements Of Operations

	Gain Recognized in Income
	Three Months Ended September 30,				Nine Months Ended September 30,
	2013		2012		2013		2012
	(Amounts in thousands)
Total return swap - Net realized investment (losses) gains	$	381	$	0	$	381	$	0
Equity contracts - Net realized investment (losses) gains	543		757		1,722		2,342
Interest rate swap - Other revenue	0		139		103		410
Total	$	924	$	896	$	2,206	$	2,752