8-K

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

____________________

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): May 3, 2010

MERCURY GENERAL CORPORATION

(Exact Name of Registrant as Specified in Charter)

California	001-12257	95-221-1612
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

4484 Wilshire Boulevard

Los Angeles, California 90010

(Address of Principal Executive Offices)

____________________

(323) 937-1060

(Registrant’s telephone number, including area code)

____________________

Not applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14.a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Item 1.01. Entry Into Material Definitive Agreement

On April 30, 2010, the Board of Directors of Mercury General Corporation (the “Company”) approved the form of Restricted Stock Agreement for grants of performance-based restricted stock awards under the Mercury General Corporation 2005 Equity Incentive Plan.  The Restricted Stock Agreement is filed as Exhibit 10.1 hereto, and is incorporated herein by reference.

Item 2.02. Results of Operations and Financial Condition

The following information is furnished pursuant to Item 2.02, “Results of Operations and Financial Condition,” and shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section.

On May 3, 2010, Mercury General Corporation issued a press release announcing its financial results for the first quarter ended March 31, 2010.  A copy of the press release is attached hereto as Exhibit 99.1.

The information contained in this Current Report, including the exhibit, shall not be incorporated by reference into any filing of Mercury General Corporation, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

Item 9.01. Financial Statements and Exhibits

(d)          Exhibits.

10.1 Form of Restricted Stock Agreement for grants of performance-based restricted stock awards under the Mercury General Corporation 2005 Equity Participation Plan.

99.1 Press Release, dated May 3, 2010, issued by Mercury General Corporation, furnished pursuant to Item 2.02 of Form 8-K.

 

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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 hereunto duly authorized.

Date:  May 3, 2010	MERCURY GENERAL CORPORATION
	By:	/s/ Theodore Stalick
	Name:  Theodore Stalick
	Its:  Chief Financial Officer

 

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Exhibit Index

Exhibit 10.1. Form of Restricted Stock Agreement for grants of performance-based restricted stock awards under the Mercury General Corporation 2005 Equity Participation Plan.

Exhibit 99.1. Press Release, dated May 3, 2010, issued by Mercury General Corporation.

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EX-10.1

 

RESTRICTED STOCK AGREEMENT

OF

MERCURY GENERAL CORPORATION

THIS AGREEMENT (the “Agreement”) is entered into as of _______________, 20___ (the “Award Date”) by and between Mercury General Corporation, a California corporation (the “Company”), and _______________ (“Participant”).

WHEREAS, the Company has adopted the Mercury General Corporation 2005 Equity Incentive Award Plan (as it may be amended from time to time, the “Plan”), the terms of which are hereby incorporated by reference and made a part of this Agreement; and

WHEREAS, Article 6 of the Plan provides for the issuance of awards of the Company’s common stock, without par value (“Common Stock”), subject to certain restrictions (“Restricted Stock”); and

WHEREAS, the Committee described in Article 12 of the Plan (the “Committee”) has determined that it would be to the advantage and best interest of the Company and its stockholders to award shares of Restricted Stock to Participant pursuant to the terms and conditions set forth herein;

NOW, THEREFORE, in consideration of the mutual covenants herein contained and other good and valuable consideration, receipt of which is hereby acknowledged, the parties hereto do hereby agree as follows:

ARTICLE I

RESTRICTED STOCK AWARD

Section 1.1.      Award of Restricted Stock.  In consideration of Participant’s agreement to remain in the employ of the Company, and for other good and valuable consideration which the Committee has determined exceeds the aggregate par value of the shares of Common Stock subject to the Award (as defined below), as of the Award Date the Company issues to Participant __________ shares of Restricted Stock (the “Award”) upon the terms and conditions set forth in this Agreement.

Section 1.2.      Award Subject to Plan.  The Award granted hereunder is subject to the terms and provisions of the Plan, including without limitation, Article 11 thereof.

ARTICLE II

RESTRICTIONS

Section 2.1.      Performance Vesting Requirement.

(a)      The “Performance Period” for this Award shall be the 36-month period commencing on January 1, 20___ and ending on December 31, 20___. The Award shall be subject to performance vesting requirements based upon the achievement of the performance goals established under the Plan, subject to certification of the degree of achievement of such performance goals by the Committee.

 

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(b)        The measurement tool for determining level of achievement shall be Cumulative Underwriting Profit for the Company for the Performance Period. Calculation of this measurement tool will be performed by the Committee, subject to all authority granted under the terms of the Plan.  For purposes of this Agreement, “Cumulative Underwriting Profit” shall mean, with respect to the Company during the Performance Period, earned premiums less losses and loss adjustment expenses, policy acquisition costs, and other operating expenses derived from the Company’s audited consolidated financial statements prepared in accordance with United States generally accepted accounting principles.

(c)        Subject to Sections 2.2 and 2.3, vesting of the shares of Restricted Stock subject to the Award shall be based upon actual Cumulative Underwriting Profit achieved by the Company during the Performance Period.  “Threshold Performance” is the minimum level of performance that must be achieved for any of the shares of the Restricted Stock subject to the Award to vest, and “Target Performance” is the level of performance that must be achieved for all of the shares of Restricted Stock subject to this Award to vest. The actual levels of achievement of the performance goals, and the corresponding number of shares of Restricted Stock, if any, to vest as a result of such achievement (the “Vested Shares”), will be determined by the Committee as soon as reasonably practicable following calculation of year-end financial reporting for last fiscal year of the Performance Period (the “Determination Date”) but in any event prior to the 90th day after such year end; provided however that the vesting of any shares that vest hereunder shall be deemed effective as of the last day of the Performance Period (the “Vesting Date”).  Subject to adjustment pursuant to subsections (i) and (ii) below, each percentage of target performance correlates to a percentage of Restricted Stock that may vest under this Award, as follows:

Target Performance Levels for Restricted Stock Plan
Target = $[_____]	Threshold						Target
Three-year cumulative underwriting profit	$[_____	]	$[_____	]	$[_____	]	$[_____	]
Percent of Target Performance	[___	]%	[___	]%	[___	]%	[___	]%
Percent of Shares Vesting	[___	]%	[___	]%	[___	]%	[___	]%

(i)         In the event that the Company’s actual performance does not meet the Threshold Performance, none of the shares of Restricted Stock subject to the Award shall vest.

(ii)        If the Company’s actual performance for the Performance Period falls between any of the performance benchmarks set forth above, the percentage of shares of Restricted Stock vested shall be interpolated between such benchmark amounts.

 

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Section 2.2.      Forfeiture.

(a)      Forfeiture.  Except as otherwise set forth herein, all shares of Restricted Stock issued to Participant pursuant to Section 1.1 are initially subject to forfeiture and any portion of the Award which is not vested upon Participant’s termination of employment with the Company (as determined in good faith by the Committee) shall thereupon be forfeited immediately and without any further action by the Company.  Upon forfeiture, neither Participant nor any successors, heirs, assigns, or legal representatives of Participant shall thereafter have any further rights or interest in the unvested portion of the Award.

(b)      Termination of Employment Due to Death or Disability. In the event of termination of Participant’s employment with the Company by reason of death or disability (as determined by the Committee and within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”)) after the end of the Performance Period but before the Determination Date, Participant (or in the case of Participant’s death, Participant’s beneficiary) shall be entitled to retain the Vested Shares Participant would have been entitled to under Section 2.1 without forfeiture.

(c)      Involuntary Termination of Employment without Cause by the Company.  Upon an involuntary termination of employment from the Company without Cause, Participant shall be entitled to retain the Vested Shares that Participant would have been entitled to under Section 2.1 without forfeiture if he or she had remained employed until the last day of the Performance Period, multiplied by the fraction which has as its numerator the total number of days that Participant was employed by the Company during the Performance Period and has as its denominator 1,095 (being the number of calendar days in the Performance Period).  For purposes of this Agreement, the term “Cause” means any of the following: (i) willful or deliberate and continual refusal to materially perform Participant’s employment duties reasonably requested by the Company after receipt of written notice to Participant of such failure to perform, specifying such failure (other than as a result of Participant’s sickness, illness, injury, death or disability) and Participant fails to cure such nonperformance within ten (10) days of receipt of said written notice; (ii) breach of any statutory or common law duty of loyalty to the Company; (iii) Participant has been convicted of, or pleaded nolo contendre to, any felony; (iv) Participant willfully or intentionally caused material injury to the Company, its property, or its assets; (v) Participant disclosed to unauthorized person(s) proprietary or confidential information of the Company that causes a material injury to the Company; (vi) any material violation or a repeated and willful violation of the Company’s policies or procedures.

Section 2.3.      Legend.  Certificates representing shares of Restricted Stock issued pursuant to this Agreement shall, until all the restrictions on sale or other transfer set forth in Section 3.2 and the exposure to forfeiture set forth in Section 2.1 (the “Restrictions”) lapse or shall have been removed and new certificates are issued pursuant to Section 2.4, bear the following legend:

 

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“THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN VESTING REQUIREMENTS AND MAY BE SUBJECT TO FORFEITURE UNDER THE TERMS OF THAT CERTAIN RESTRICTED STOCK AGREEMENT, DATED __________, 20___, BY AND BETWEEN MERCURY GENERAL CORPORATION AND THE REGISTERED OWNER OF SUCH SHARES, AND SUCH SHARES MAY NOT BE, DIRECTLY OR INDIRECTLY, OFFERED, TRANSFERRED, SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE DISPOSED OF UNDER ANY CIRCUMSTANCES, EXCEPT PURSUANT TO THE PROVISIONS OF SUCH AGREEMENT.”

Section 2.4.      Issuance of Certificates; Tax Withholding.

(a)      Subject to Section 2.4(b), effective as of the Vesting Date, the Company shall cause new certificates to be issued with respect to the Vested Shares and delivered to Participant or his or her legal representative, free from the legend provided for in Section 2.3 and any of the other Restrictions.  The Vested Shares shall cease to be considered Restricted Stock subject to the terms and conditions of this Agreement.

(b)      Notwithstanding Section 2.4(a), no such new certificate shall be delivered to Participant or his or her legal representative unless and until Participant or his or her legal representative shall have paid to the Company, or arranged for payment in accordance with the Plan, the full amount of all federal and state withholding or other taxes applicable to the taxable income of Participant resulting from the grant of Restricted Stock or the lapse or removal of the Restrictions.

Section 2.5.      Certain Changes in Capitalization.  If the shares of the Company’s Common Stock as a whole are increased, decreased, changed into or exchanged for a different number or kind of shares or securities of the Company, whether through merger, consolidation, reorganization, recapitalization, reclassification, stock dividend, stock split, combination of shares, exchange of shares, change in corporate structure or the like, the Committee, in its sole discretion, shall have the discretion and power to determine and to make effective provision for acceleration of the time or times at which any Restrictions shall lapse or be removed. In addition, in the case of the occurrence of any event described in this Section 2.5, the Committee, subject to the provisions of the Plan and this Agreement, shall make an appropriate and proportionate adjustment in the number and kind of shares of Restricted Stock, to the end that after such event Participant’s proportionate interest shall be maintained as before the occurrence of such event.  Any such adjustment made by the Committee shall be final and binding upon Participant, the Company and all other interested persons.  In the event that Participant receives any new or additional or different shares or securities by reason of any transaction or event described in this Section 2.5, such new or additional or different shares or securities which are attributable to Participant in his or her capacity as the registered owner of the Restricted Stock then subject to Restrictions, shall be considered to be Restricted Stock and shall be subject to all of the Restrictions.

 

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Section 2.6.      Section 83(b) Election.  Participant understands that Section 83(a) of the Code taxes as ordinary income the difference between the amount, if any, paid for the shares of Common Stock and the Fair Market Value of such shares at the time the Restrictions on such shares lapse.  Participant understands that, notwithstanding the preceding sentence, Participant may elect to be taxed at the time of the Award Date, rather that at the time the Restrictions lapse, by filing an election under Section 83(b) of the Code (an “83(b) Election”) with the Internal Revenue Service within 30 days of the Award Date.  In the event Participant files an 83(b) Election, Participant will recognize ordinary income in an amount equal to the difference between the amount, if any, paid for the shares of Common Stock and the Fair Market Value of such shares as of the Award Date. Participant further understands that an additional copy of such 83(b) Election form should be filed with his or her federal income tax return for the calendar year in which the date of this Agreement falls. Participant acknowledges that the foregoing is only a summary of the effect of United States federal income taxation with respect to the award of Restricted Stock hereunder, and does not purport to be complete.  PARTICIPANT FURTHER ACKNOWLEDGES THAT THE COMPANY IS NOT RESPONSIBLE FOR FILING PARTICIPANT’S 83(b) ELECTION, AND THE COMPANY HAS DIRECTED PARTICIPANT TO SEEK INDEPENDENT ADVICE REGARDING THE APPLICABLE PROVISIONS OF THE CODE, THE INCOME TAX LAWS OF ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH PARTICIPANT MAY RESIDE, AND THE TAX CONSEQUENCES OF PARTICIPANT’S DEATH.

ARTICLE III

OTHER PROVISIONS

Section 3.1.      Escrow.  The Secretary of the Company or such other escrow holder as the Committee may appoint shall retain physical custody of the certificates representing Restricted Stock until all of the Restrictions lapse or shall have been removed; provided, however, that in no event shall Participant retain physical custody of any certificates representing unvested Restricted Stock issued to him or her.

Section 3.2.      Restricted Stock Not Transferable.  No Restricted Stock or any interest or right therein or part thereof shall be liable for the debts, contracts or engagements of Participant or his or her successors in interest or shall be subject to disposition by transfer, alienation, anticipation, pledge, encumbrance, assignment or any other means whether such disposition be voluntary or involuntary or by operation of law by judgment, levy, attachment, garnishment or any other legal or equitable proceedings (including bankruptcy), and any attempted disposition thereof shall be null and void and of no effect; provided, however, that this Section 3.2 shall not prevent transfers by will or by applicable laws of descent and distribution.

Section 3.3.      Rights as Stockholder.  Until such time as the Restrictions on the underlying shares of Restricted Stock lapse or are removed pursuant to this Agreement, Participant shall not have any rights of a stockholder with respect to said shares, including without limitation, the right to vote the shares or to receive any dividends or other distributions paid or made with respect to such shares.

Section 3.4.      Not a Contract of Employment.  Nothing in this Agreement or in the Plan shall confer upon Participant any right to continue in the employ of the Company or any of its Subsidiaries or shall interfere with or restrict in any way the rights of the Company or its Subsidiaries, which are hereby expressly reserved, to discharge Participant at any time for any reason whatsoever, with or without cause, except as may otherwise be provided by any written agreement entered into by and between the Company and Participant.

 

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Section 3.5.      Governing Law.  The laws of the State of California shall govern the interpretation, validity, administration, enforcement and performance of the terms of this Agreement regardless of the law that might be applied under principles of conflicts of laws.

Section 3.6.      Conformity to Securities Laws.  Participant acknowledges that the Plan and this Agreement are intended to conform to the extent necessary with all provisions of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and any and all regulations and rules promulgated thereunder by the Securities and Exchange Commission, including without limitation Rule 16b-3 under the Exchange Act.  Notwithstanding anything herein to the contrary, the Plan shall be administered, and the Award is granted, only in such a manner as to conform to such laws, rules and regulations.  To the extent permitted by applicable law, the Plan and this Agreement shall be deemed amended to the extent necessary to conform to such laws, rules and regulations.

Section 3.7.      Amendment, Suspension and Termination.  The Award may be wholly or partially amended or otherwise modified, suspended or terminated at any time or from time to time by the Committee or the Board of Directors of the Company, provided that, except as may otherwise be provided by the Plan, neither the amendment, suspension nor termination of this Agreement shall, without the consent of Participant, alter or impair any rights or obligations under the Award.

Section 3.8.      Notices.  Notices required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery or upon deposit in the United States mail by certified mail, with postage and fees prepaid, addressed to Participant to his or her address shown in the Company records, and to the Company at its principal executive office.

Section 3.9.      Definitions.  Capitalized terms not defined herein shall have the meanings assigned to such terms in the Plan.

IN WITNESS WHEREOF, this Agreement has been executed and delivered by the parties hereto.

	MERCURY GENERAL CORPORATION
	By:
	Name:
	Title:
[Participant’s Name]
Residence Address:
Participant’s Social Security Number:

 

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EX-99.1

  4484 Wilshire Boulevard Los Angeles, California 90010 (323) 937-1060 Fax (323) 857-7125

 Press Release

FOR MORE INFORMATION, CONTACT:

Theodore Stalick, VP/CFO

(323) 937-1060

www.mercuryinsurance.com

For Release: May 3, 2010

Mercury General Corporation Announces First

Quarter Results and Declares Quarterly Dividend

Los Angeles, California…Mercury General Corporation (NYSE: MCY) reported today for the first quarter of 2010:

Consolidated Highlights

	Three Months Ended
	March 31,						Change
	2010			2009			$			%
(000's except per-share amounts and ratios)
Net premiums written (1)	$	652,462		$	670,892		$	(18,430	)		(2.7	)
Net income	$	61,179		$	96,653		$	(35,474	)		-
Net income per diluted share	$	1.12		$	1.75		$	(0.63	)		-
Operating income (1)	$	46,850		$	45,999		$	851			1.9
Operating income per diluted share (1)	$	0.85		$	0.83		$	0.02			2.4
Severance related expenses (2)	$	-		$	8,000		$	(8,000	)		-
Net expense related to amortization of December 31, 2008 AIS deferred policy acquisition costs (2) (3)	$	-		$	12,000		$	(12,000	)		-
Combined ratio		96.3	%		96.9	%		-		(0.6) pts

(1) These measures are not based on U.S. generally accepted accounting principles (“GAAP”) and are defined and reconciled to the most directly comparable GAAP measures in “Information Regarding Non-GAAP Measures.”

(2) The amounts are rounded to the nearest million.

(3) Represents the net expense related to Auto Insurance Specialists LLC (“AIS”) deferred commissions at December 31, 2008 amortized in 2009, partially offset by deferred costs related to policy sales made by AIS in 2009.

Net income in the first quarter 2010 was $61.2 million ($1.12 per diluted share) compared with net income of $96.7 million ($1.75 per diluted share) for the same period in 2009. Included in net income are net realized investment gains, net of tax, of $14.3 million ($0.26 per diluted share) in the first quarter of 2010 compared with net realized investment gains, net of tax, of $50.7 million ($0.92 per diluted share) for the same period in 2009. Operating income was $46.9 million ($0.85 per diluted share) for the first quarter of 2010 compared with operating income of $46.0 million ($0.83 per diluted share) for the same period in 2009.

Net premiums written were $652.5 million in the first quarter of 2010, a 2.7% decrease over first quarter 2009 net premiums written of $670.9 million. Net realized investment gains, net of tax, of $14.3 million for the first quarter of 2010 include gains, net of tax, of $12.3 million from the election of the fair value option. Gains, net of tax, from the sale of securities were $2.0 million during the first quarter.

 The Company’s combined ratio (GAAP basis) was 96.3% in the first quarter of 2010 compared with 96.9% for the same period in 2009. The loss ratio was affected by favorable development of approximately $20 million and $21 million on prior accident years’ losses and loss adjustment expenses reserves for the three months ended March 31, 2010 and 2009, respectively. The favorable development in 2010 is largely the result of re-estimates of accident year 2009 California bodily injury losses which have experienced both lower average severities and fewer late reported claims (claim count development) than was originally estimated at December 31, 2009.

Net investment income of $35.9 million (after tax, $32.2 million) in the first quarter of 2010 decreased by 5.3% over the same period in 2009. The investment income after-tax yield was 4.1% on average investments (fixed maturities at amortized cost, equities and short-term investments at cost) of $3.1 billion for the first quarter 2010.  This compares with an investment income after-tax yield of 4.1% on average investments of $3.3 billion for the same period in 2009.

The Board of Directors declared a quarterly dividend of $0.59 per share. The dividend is to be paid on June 30, 2010 to shareholders of record on June 15, 2010.

Mercury General Corporation and its subsidiaries are a multiple line insurance organization offering predominantly personal automobile and homeowners insurance through a network of independent producers in many states. For more information, visit the Company’s website at www.mercuryinsurance.com. The Company will be hosting a conference call and webcast today at 10:00 A.M. Pacific time where management will discuss results and address questions. The teleconference and webcast can be accessed by calling (877) 807-1888 (USA), (706) 679-3827 (International) or by visiting www.mercuryinsurance.com. A replay of the call will be available beginning at 1:30 P.M. Pacific time and running through May 10, 2010. The replay telephone numbers are (800) 642-1687 (USA) or (706) 645-9291 (International). The conference ID# is 69119466. The replay will also be available on the Company’s website shortly following the call.

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for certain forward-looking statements.  The statements contained in this press release are forward-looking statements based on the Company’s current expectations and beliefs concerning future developments and their potential effects on the Company.  There can be no assurance that future developments affecting the Company will be those anticipated by the Company.  Actual results may differ from those projected in the forward-looking statements.  These forward-looking statements involve significant risks and uncertainties (some of which are beyond the control of the Company) and are subject to change based upon various factors, including but not limited to the following risks and uncertainties:  changes in the demand for the Company’s insurance products, inflation and general economic conditions, including the impact of current economic conditions on the Company's market and investment portfolio; the accuracy and adequacy of the Company’s pricing methodologies; adverse weather conditions or natural disasters in the markets served by the Company; general market risks associated with the Company’s investment portfolio; uncertainties related to estimates, assumptions and projections generally; the possibility that actual loss experience may vary adversely from the actuarial estimates made to determine the Company’s loss reserves in general; the Company’s ability to obtain and the timing of regulatory approval for requested rate changes; legislation adverse to the automobile insurance industry or business generally that may be enacted in California or other states; the Company’s success in managing its business in states outside of California; the Company’s ability to successfully complete its initiative to standardize its policies and procedures nationwide in all of its functional areas; the presence of competitors with greater financial resources and the impact of competitive pricing; changes in driving patterns and loss trends; acts of war and terrorist activities; court decisions and trends in litigation and health care and auto repair costs and marketing efforts; and legal, regulatory and litigation risks.  The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as the result of new information, future events or otherwise.  For a more detailed discussion of some of the foregoing risks and uncertainties, see the Company’s filings with the Securities and Exchange Commission.

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Information Regarding Non-GAAP Measures

The Company has presented information within this document containing operating measures which in management’s opinion provide investors with useful, industry specific information to help them evaluate, and perform meaningful comparisons of, the Company’s performance, but that may not be presented in accordance with U.S. generally accepted accounting principles. These measures are not intended to replace, and should be read in conjunction with, the GAAP financial results.

Operating income is net income excluding realized investment gains and losses, net of tax.  Net income is the GAAP measure that is most directly comparable to operating income.  Operating income is used by management along with the other components of net income to assess the Company’s performance. Management uses operating income as an important measure to evaluate the results of the Company’s insurance business. Management believes that operating income provides investors with a valuable measure of the Company’s ongoing performance as it reveals trends in the Company’s insurance business that may be obscured by the net effect of realized capital gains and losses. Realized capital gains and losses may vary significantly between periods and are generally driven by external economic developments such as capital market conditions. Accordingly, operating income highlights the results from ongoing operations and the underlying profitability of the Company’s core insurance business. Operating income, which is provided as supplemental information and should not be considered as a substitute for net income, does not reflect the overall profitability of our business.  It should be read in conjunction with the GAAP financial results.  The Company has reconciled operating income with the most directly comparable GAAP measure in the table below.

			Three Months Ended
			March 31,
	Total				Per diluted share
	2010		2009		2010			2009
(000's except per-share amounts)
Operating income	$	46,850	$	45,999	$	0.85		$	0.83
Net realized investment gains, net of tax		14,329		50,654		0.26			0.92
Net income	$	61,179	$	96,653	$	1.12	(1)	$	1.75

(1) Net income per diluted share does not sum due to rounding.

 

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Net premiums written represents the premiums charged on policies issued during a fiscal period. Net premiums earned, the most directly comparable GAAP measure, represents the portion of premiums written that have been recognized as income in the financial statements for the periods presented as earned on a pro-rata basis over the term of the policies. Net premiums written is meant as supplemental information and is not intended to replace net premiums earned. Such information should be read in conjunction with the GAAP financial results. The Company has reconciled net premiums written with the most directly comparable GAAP measure in the supplemental schedule entitled, “Summary of Operating Results.”

Paid losses and loss adjustment expenses is the portion of incurred losses and loss adjustment expenses, the most directly comparable GAAP measure, excluding the effects of changes in the loss reserve accounts. Paid losses and loss adjustment expenses is provided as supplemental information and is not intended to replace incurred losses and loss adjustment expenses. It should be read in conjunction with the GAAP financial results. The Company has reconciled paid losses and loss adjustment expenses with the most directly comparable GAAP measure in the supplemental schedule entitled, “Summary of Operating Results.”

Combined ratio-accident period basis is computed as the difference between two GAAP operating ratios: the combined ratio and the effect of prior accident periods’ loss development. The most directly comparable GAAP measure is the combined ratio. The Company believes that this ratio is useful to investors and it is used by management to reveal the trends in the Company’s results of operations that may be obscured by development on prior accident periods’ loss reserves. Combined ratio-accident period basis is meant as supplemental information and is not intended to replace combined ratio. It should be read in conjunction with the GAAP financial results. The Company has reconciled combined ratio-accident period basis with the most directly comparable GAAP measure in the table below.

	Three Months Ended
	March 31,
	2010			2009
Combined ratio-accident period basis		99.4	%		100.1	%
Effect of estimated prior periods' loss development		(3.1	)%		(3.2	)%
Combined ratio		96.3	%		96.9	%

 

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MERCURY GENERAL CORPORATION AND SUBSIDIARIES

SUMMARY OF OPERATING RESULTS

(000's except per-share amounts and ratios)

(unaudited)

	Quarter Ended March 31,
	2010			2009
Net premiums written	$	652,462		$	670,892
Revenues:
Net premium earned	$	640,614		$	666,063
Net investment income		35,886			37,914
Net realized investment gains		22,044			81,314
Other		1,293			1,667
Total revenues	$	699,837		$	786,958
Expenses:
Losses and loss adjustment expenses		430,622			444,292
Policy acquisition costs		128,982			147,531
Other operating expenses		57,324			53,486
Interest		1,619			1,546
Total expenses	$	618,547		$	646,855
Income before income taxes	$	81,290		$	140,103
Income tax expense		20,111			43,450
Net income	$	61,179		$	96,653
Basic average shares outstanding		54,783			54,767
Diluted average shares outstanding		54,805			55,091
Basic Per Share Data
Net income	$	1.12		$	1.76
Net realized investment gains, net of tax	$	0.26		$	0.92
Diluted Per Share Data
Net income	$	1.12		$	1.75
Net realized investment gains, net of tax	$	0.26		$	0.92
Operating Ratios-GAAP Basis
Loss ratio		67.2	%		66.7	%
Expense ratio		29.1	%		30.2	%
Combined ratio		96.3	%		96.9	%
Reconciliations of Operating Measures to Comparable GAAP Measures
Net premiums written	$	652,462		$	670,892
Change in unearned premiums		(11,848	)		(4,829	)
Net premiums earned	$	640,614		$	666,063
Paid losses and loss adjustment expenses	$	461,136		$	485,466
Decrease in net loss and loss adjustment expense reserves		(30,514	)		(41,174	)
Incurred losses and loss adjustment expenses	$	430,622		$	444,292

 

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MERCURY GENERAL CORPORATION AND SUBSIDIARIES

CONDENSED BALANCE SHEETS AND OTHER INFORMATION

(000's except per-share amounts and ratios)

(unaudited)

	March 31, 2010			December 31, 2009
ASSETS
Investments, at fair value:
Fixed maturities trading (amortized cost $2,655,519; $2,673,079)	$	2,700,268		$	2,704,561
Equity securities trading (cost $298,703; $308,941)		281,618			286,131
Short-term investments (cost $134,269; $156,126)		134,255			156,165
Total investments		3,116,141			3,146,857
Cash		242,511			185,505
Receivables:
Premiums receivable		281,822			262,278
Premium notes		9,761			14,510
Accrued investment income		37,985			37,405
Other		11,010			13,689
Total receivables		340,578			327,882
Deferred policy acquisition costs		174,791			175,866
Fixed assets, net		201,091			201,862
Current income taxes		2,195			27,268
Deferred income taxes		32,424			36,139
Goodwill		42,850			42,850
Other intangible assets, net		65,120			66,823
Other assets		19,807			21,581
Total assets	$	4,237,508		$	4,232,633
LIABILITIES AND SHAREHOLDERS' EQUITY
Losses and loss adjustment expenses	$	1,022,721		$	1,053,334
Unearned premiums		856,449			844,540
Notes payable		270,915			271,397
Accounts payable and accrued expenses		118,250			114,469
Other liabilities		169,048			177,947
Shareholders' equity		1,800,125			1,770,946
Total liabilities and shareholders' equity	$	4,237,508		$	4,232,633
OTHER INFORMATION
Common stock-shares outstanding		54,785			54,777
Book value per share	$	32.86		$	32.33
Estimated statutory surplus	$1.6 billion			$1.5 billion
Estimated premiums written to surplus ratio		1.6			1.7
Debt to total capital ratio		13.1	%		13.3	%
Portfolio duration	4.7 years			5.1 years
Policies-in-Force (Company-wide "PIF")
Personal Auto PIF		1,284			1,279
Homeowners PIF		335			328

 

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