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.

Page 2

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.

 

Page 3

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	%

 

Page 4

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

 

Page 5

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

 

Page 6