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): April 29, 2011

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:

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

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

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

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

 
 
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.  Such information, including Exhibit 99.1, shall not be incorporated by reference into any filing of Mercury General Corporation (the “Company”), whether made before or after the date hereof, regardless of any general incorporation language in such filing.
 
On May 2, 2011, the Company issued a press release announcing its financial results for the first quarter ended March 31, 2011.  A copy of the press release is attached hereto as Exhibit 99.1.
 
Item 5.02.
Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers
 
On April 29, 2011, the Company’s Board of Directors (the “Board”) adopted the Mercury General Corporation Annual Incentive Plan (the “Plan”), which provides opportunities for cash awards to designated employees of the Company and its subsidiaries. Under the Plan, the Company will award cash bonuses to participants based upon Company and individual participant performance goals established pursuant to the Plan. The Plan will be administered by the Compensation Committee of the Board (the “Committee”), with day-to-day administration delegated to the Company’s Chief Executive Officer.
 
All employees of the Company and its subsidiaries (other than the Company’s AIS subsidiaries) who do not participate in other incentive programs are eligible to participate in the Plan. In order to be eligible to participate in the Plan for any plan year, subject to the terms of the Plan, the employee must be employed on an active full-time basis with the Company or its subsidiaries in an eligible position for at least three consecutive months prior to the end of the applicable plan year, and be employed continuously through the end of the applicable plan year. Under the terms of the Plan, the Company’s Chief Executive Officer will recommend, and the Committee will approve, employees and job classifications for participation in the Plan. Non-employee directors of the Company are not eligible to participate in the Plan.
 
For each plan year, the Company’s Chief Executive Officer or his designee will recommend for Committee approval the target incentive percentages and Company and personal performance goals under the Plan for all participants other than the Chairman of the Board and the Chief Executive Officer. The Committee will establish the target incentive percentages and Company and personal performance goals for the Chairman of the Board and Chief Executive Officer, if such officers are participants under the Plan for such plan year.  Neither the Chairman of the Board nor the Chief Executive Officer will participate in the Plan for the 2011 plan year.  Other than with respect to the 2011 plan year, Plan participants will be designated, and performance goals and target incentive percentages for each plan year will be established, before April 1 of each plan year. The participants, performance goals and target incentive percentages for the 2011 plan year were approved by the Committee on April 29, 2010.  The target incentive percentages and performance goals will vary among participants and may change from plan year to plan year.
 
Company performance goals will be evaluated against the performance of the Company, on a consolidated basis. The personal performance component of an award will be evaluated against performance goals established for each participant for the plan year and on management’s determination of the participant’s individual contribution to the Company relative to others in the participant’s department and in similar positions in the Company. Determination of whether a participant, other than the Chairman of the Board and Chief Executive Officer, has achieved his or her personal performance goals will be made by the Chief Executive Officer or his designee, subject to the final approval of the Committee. Determination of whether the Chairman of the Board or Chief Executive Officer has achieved his personal performance goals will be made by the Committee, if such officer participates under the Plan for such plan year.
 
2

 
 
Company performance goals may be based on one or more financial or operational criteria established by the Committee for each plan year including, without limitation: underwriting income, underwriting results, customer satisfaction, revenue, sales, financial ratios and other performance metrics as the Committee shall deem appropriate under the circumstances. For the 2011 plan year, the Company performance goals for annual incentive awards are based on the written premium growth and combined ratio of the Company during 2011.
 
Unless otherwise determined by the Committee, each participant will be assigned a target incentive percentage of the participant’s bases earnings based on the participant’s job classification on the last day of the applicable plan year.  Each participant’s target incentive percentage is subject to increase to up to 2.25 times the participant’s target incentive percentage or decreased to zero based upon the Company’s and the participant’s achievement of the performance goals established for each plan year.  Participants who become employed during a plan year, but who meet the other eligibility requirements, will receive a pro-rata incentive in accordance with the Plan. The Board of Directors of the Company or the Committee may amend, suspend or terminate the Plan at any time in its sole discretion.
 
For the 2011 plan year, the Committee determined that Theodore Stalick, Chief Financial Officer of the Company, and Allan Lubitz, Chief Information Officer of the Company, will also be participants under the Plan and will be eligible to receive target bonus amounts equal to 60% of base salary for the 2011 calendar year if the applicable performance objectives are attained. The Committee also established for each performance objective a minimum threshold necessary to receive any bonus and an objective formula for determining bonus amounts at performance levels above the threshold amount. The maximum bonus payable to such named executive officers for the 2011 plan year will not exceed 2.25 times the target bonus.
 
The foregoing description of the Plan does not purport to be complete and is qualified in its entirety by reference to the Plan, a copy of which is filed as Exhibit 10.1 to this Current Report and incorporated by reference.
 
Item 9.01.
Financial Statements and Exhibits
 
(d)            Exhibits .
 
 
10.1
Mercury General Corporation Annual Incentive Plan
 
 
99.1
Press Release, dated May 2, 2011, issued by Mercury General Corporation, furnished pursuant to Item 2.02 of Form 8-K.
 
 
3

 
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 2, 2011  MERCURY GENERAL CORPORATION  
     
       
 
By:
/s/ Theodore Stalick  
   
Name:  Theodore Stalick
Its:  Chief Financial Officer
 
       
       
 
4

 

                                                             
                     
MERCURY GENERAL CORPORATION
ANNUAL INCENTIVE PLAN

The Mercury General Corporation Annual Incentive Plan (the “ Plan ”) is intended to reward individual job performance and incentivize the continued employment of employees of Mercury General Corporation, a California corporation, and its subsidiaries (collectively, the “ Company ”), who contribute to the financial success of the Company, and to enable the Company to attract and retain highly qualified employees.
 
The Board of Directors of the Company (the “ Board ”) has adopted this Plan, effective January 1, 2011, and has delegated administration of the Plan to the Compensation Committee of the Board (the “ Committee ”).
 
1.   Participants .  All employees of the Company meeting the eligibility requirements set forth in this Section 1 shall be eligible to participate in the Plan (each such eligible employee, a “ Participant ”); provided , however , that any employee who participates in another bonus plan maintained by the Company (other than the Company’s Holiday Bonus Plan) shall not be eligible to participate in the Plan.  To receive a bonus award (an “ Award ”) under the Plan with respect to any Incentive Plan Year (as defined below), a Participant must:
 
(a)   Be an “ Active ” employee at the end of the date of payment of his or her Award.  For purposes of this Plan, “ Active ” shall mean an employee who is actively employed by the Company, including those employees on an approved leave of absence such as medical, personal or military leave, but not an employee who has been moved to “inactive” status pursuant to the Company’s employment policy and procedures manual.
 
(b)   Not be a temporary or seasonal employee, intern, independent contractor or consultant, which parties are ineligible to participate in the Plan.
 
(c)   Have been in an eligible position for at least three consecutive months prior to the end of the relevant Incentive Plan Year.
 
(d)   Remain continuously employed through the end of the relevant Incentive Plan Year.  If a Participant voluntarily terminates his or her employment for any reason prior to the end of the relevant Incentive Plan Year, such Participant will not be eligible for an Award.
 
(e)   Not receive an individual performance rating worse than the rating established by the Committee established during or relating to any portion of the relevant Incentive Plan Year.
 
(f)   Not engage in and/or be involuntarily terminated as a result of, serious misconduct ( e.g., theft, dishonesty, workplace violence) or violation of Company policy during the Incentive Plan Year or prior to the payment of his or her Award, as determined by the Company.
 
2.   The Committee .  The Plan shall be governed by the Committee.  The Committee shall have the discretion and authority to administer and interpret the Plan, including the authority to establish bonus programs or guidelines under the Plan (the “ Plan Guidelines ”) from time to time containing such terms and conditions as the Committee may determine or deem appropriate in its discretion, including, without limitation, terms and conditions relating to the administration of the Plan and/or the determination and payment of Awards hereunder.  The Committee may modify, suspend, terminate or supersede the Plan Guidelines at any time in its sole discretion.  Any and all Plan Guidelines adopted by the Committee shall be subject to the terms and conditions of the Plan.  Any disputes under the Plan shall be resolved by the Committee or its designee, whose decision will be final.
 
 
 

 
3.   Performance Goals .  The Plan is intended to provide incentive for the achievement of approved annual corporate and individual objectives (the “ Performance Goals ”), as determined by the Committee or its designee with respect to each calendar year during the term of the Plan (each an “ Incentive Plan Year ”).
 
(a)   Corporate Performance Goals .  At the beginning of each Incentive Plan Year, the Committee shall select such objective corporate Performance Goals as the Committee may determine in its sole discretion, which may include, without limitation, one or more of the following criteria:  underwriting income, underwriting results, customer satisfaction, revenue, sales, financial ratios, and other financial metrics.   It is intended that the corporate objectives be objectively determinable, with the weighting of the various corporate Performance Goals to be approved by the Committee.
 
(b)   Individual Performance Goals .  All Participants in the Plan will work with their managers to develop a list of key individual Performance Goals, subject to the approval of the Participant’s direct managers.
 
Unless otherwise determined by the Committee, the amount of each Participant’s Award shall be determined in such manner as is determined by the Committee in its sole discretion with respect to the relevant Incentive Plan Year that ties such Award to the attainment of the applicable Performance Goals.  The Committee may in its sole discretion modify or change the Award formulas and/or Performance Goals at any time and from time to time during or upon completion of an Incentive Plan Year.
 
4.   Target Incentives .  Each Participant will be assigned a “ Target Incentive Percentage ” based on his or her job classification and responsibilities.   A Participant’s Target Incentive Percentage will be based on his or her job classification as of December 31 of the relevant Incentive Plan Year.  A “ Target Incentive Award ” for each Participant will be determined by multiplying his or her Target Incentive Percentage by his or her Base Earnings (as defined below) for the relevant Incentive Plan Year.  For purposes of this Plan, “ Base Earnings ” shall mean the actual salary paid to an exempt employee, including salary paid during vacation and accumulated time off, and for non-exempt employees, the actual regular straight-time wages paid and pay for vacation and accumulated time off; other amounts paid to a Participant, such as holiday or other bonuses and overtime wages, shall not constitute “ Base Earnings .”  The Target Incentive Percentages for each job classification or Participant shall be approved by the Committee for each Incentive Plan Year.
 
 
2

 
5.   Performance Factors .  Separate “ Performance Factors ” will be established with respect to each of the corporate and individual Performance Goals applicable to each Award for each Incentive Plan Year, subject to adjustment in the discretion of management.
 
(a)   Corporate Performance Factors .  The Chief Executive Officer of the Company will present to the Committee for its approval his assessment of the level of the Company’s achievement of its corporate Performance Goals, which achievement level shall be expressed as a percentage within the range specified by the Committee with respect to each Incentive Plan Year.  The same Performance Factors, as approved by the Compensation Committee, shall be used for the corporate component of each Participant’s Award.  The Committee may, in its discretion, establish minimum corporate Performance Factors which, if not achieved for an Incentive Plan Year, will result in no Awards being paid.
 
(b)   Individual Performance Factor .  Each Participant’s direct manager will approve the individual Performance Goals for such Participant.  A Participant’s individual achievement level relative to his or her Performance Goals will be used to calculate a Performance Factor for such Participant which shall be expressed as a percentage within the range specified by the Committee or its designee with respect to each Incentive Plan Year.  While a Participant’s direct manager shall take a Participant’s achievement with respect to his or her individual Performance Goals for the Incentive Plan Year into account in determining the individual Performance Factor, any such determination remains in the sole discretion of the direct manager based on their subjective assessment of a Participant’s overall performance.
 
(c) Management Discretion Factor. Participant’s manager will have discretion to subjectively assess the Participant’s contribution during the relevant Incentive Plan Year relative to others in the Participant’s department and in similar positions in other departments of the Company.  Based on such assessment, certain Participant’s manager may add discretionary funds to the Participant’s Awards, as permitted by the Committee for any Incentive Plan Year.  Such adjustments must be approved by the Chief Executive Officer and must be within budget guidelines.

6. Calculation of Awards.  The actual Award for a Participant will be calculated by applying the Performance Factors to the Target Incentive for such Participant according to the weightings and methods approved by the Committee or its designee for the relevant Incentive Plan Year.
 
The Committee may, in its discretion, reduce or eliminate an Award otherwise payable to any Participant.  Any such reduction or elimination may be made based on objective or subjective determinations as the Committee determines appropriate.
 
7.   Payment of Awards .  The payment of Awards under the Plan shall be made on any date or dates determined by the Committee and shall be subject to such terms and conditions as may be determined by the Committee in its sole discretion.
 
3

 
 
Any Award that becomes payable under the Plan may be paid in the form of cash, shares of the Company’s common stock or a combination of both, as determined by the Committee in its sole discretion.  To the extent that the Committee determines to pay an Award in the form of shares of the Company’s common stock, such shares shall be awarded under the Company’s 2005 Equity Incentive Award Plan, as amended from time to time, and shall be subject to the terms and conditions thereof.
 
Award payments are not intended to constitute a deferral of compensation subject to Section 409A of the Internal Revenue Code of 1986, as amended (the “ Code ”), and are intended to satisfy the “short-term deferral” exemption under Section 409A of the Code and the Treasury Regulations issued thereunder.  Accordingly, to the extent necessary to cause Award payments hereunder to satisfy the “short-term deferral” exemption under Section 409A of the Code and the Treasury Regulations issued thereunder, an Award payment shall be made not later than the later (a) the fifteenth day of the third month following the Participant’s first taxable year in which the Award payment is no longer subject to a substantial risk of forfeiture, or (b) the fifteenth day of the third month following the Company’s first taxable year in which the Award payment is no longer subject to a substantial risk of forfeiture; provided , however , that i f due to administrative reasons Awards are not paid within the foregoing time periods, then such Awards will be paid as soon as administratively feasible but no later than the last day of the calendar year following the Incentive Plan Year to which such Awards relate.
 
8.   Amendment, Suspension and Termination .  The Board or the Committee may amend, suspend or terminate the Plan at any time in its sole discretion.
 
9.   Miscellaneous .
 
(a)           The Company shall have the authority and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy federal, state, local and foreign taxes required by law to be withheld with respect to any taxable event concerning a Participant arising in connection with an Award granted under this Plan.
 
(b)           In no event shall the Company be obligated to pay to any Participant an Award for any period by reason of the Company’s payment of an Award to such Participant in any other period, or by reason of the Company’s payment of an Award to any other Participant or Participants in such period or in any other period.  Nothing contained in this Plan shall confer upon any person any claim or right to any payments hereunder.  Such payments shall be made at the sole discretion of the Committee.
 
(c)           Nothing contained herein shall be construed as a contract of employment or deemed to give any Participant the right to be retained in the employ of the Company, or to interfere with the rights of the Company to discharge any individual at any time, with or without cause, for any reason or no reason, and with or without notice except as may be otherwise agreed in writing.
 
(d)            A Participant whose employment terminates voluntarily prior to the payment of his or her Award will not be eligible to receive an Award.   If a Participant’s employment is terminated involuntarily during an Incentive Plan Year, or prior to payment of his or her Award, it will be at the absolute discretion of the Company whether or not any Award payment is made.
 
 
4

 
(e)           The rights of Participants under the Plan shall be unfunded and unsecured.  Amounts payable under the Plan are not and will not be transferred into a trust or otherwise set aside.  The Company shall not be required to establish any special or separate fund or to make any other segregation of assets to assure the payment of any Award under the Plan.
 
(f)           No rights of any Participant to payments of any amounts under the Plan shall be sold, exchanged, transferred, assigned, pledged, hypothecated or otherwise disposed of other than by will or by laws of descent and distribution, and any such purported sale, exchange, transfer, assignment, pledge, hypothecation or disposition shall be void.
 
(g)           Any provision of the Plan that is prohibited or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions of the Plan.
 
(h)           The Plan and all rights and obligations of the parties to the Plan shall be governed by and construed and interpreted in accordance with, the laws of the State of California (without regard to principles of conflicts of laws).
 
*  *  *
     
     
  MERCURY GENERAL CORPORATION  
       
 
By:
/s/  Judy Walters  
   
By: Judy Walters, Secretary
 
       
       

 
5

 

Mercury General Corporation Announces First Quarter Results and Declares Quarterly Dividend

LOS ANGELES, May 2, 2011 /PRNewswire/ -- Mercury General Corporation (NYSE: MCY) reported today for the first quarter of 2011:

Consolidated Highlights






Three Months Ended




March 31,

Change


2011

2010

$

%

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


Net premiums written (1)

$ 658,217

$ 652,462

$  5,755

0.9

Net income

$   58,226

$   61,179

$ (2,953)

(4.8)

Net income per diluted share

$       1.06

$       1.12

$   (0.06)

(5.4)

Operating income (1)

$   39,578

$   46,850

$ (7,272)

(15.5)

Operating income per diluted share (1)

$       0.72

$       0.85

$   (0.13)

(15.3)

Combined ratio

98.2%

96.3%

-

1.9 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."



Net income in the first quarter 2011 was $58.2 million ($1.06 per diluted share) compared with net income of $61.2 million ($1.12 per diluted share) for the same period in 2010. Included in net income are net realized investment gains, net of tax, of $18.6 million ($0.34 per diluted share) in the first quarter of 2011 compared with net realized investment gains, net of tax, of $14.3 million ($0.26 per diluted share) for the same period in 2010. Operating income was $39.6 million ($0.72 per diluted share) for the first quarter of 2011 compared with operating income of $46.9 million ($0.85 per diluted share) for the same period in 2010.

Net premiums written were $658.2 million in the first quarter of 2011, a 0.9% increase compared to the first quarter 2010 net premiums written of $652.5 million. Net realized investment gains, net of tax, of $18.6 million for the first quarter of 2011 include gains, net of tax, of $13.6 million from the application of the fair value option. Gains, net of tax, from the sale of securities were $5.1 million during the first quarter.

The Company's combined ratio (GAAP basis) was 98.2% in the first quarter of 2011 compared with 96.3% for the same periods in 2010. The loss ratio was affected by unfavorable development of approximately $1 million and favorable development of approximately $20 million on prior accident years' losses and loss adjustment expenses reserves for the three months ended March 31, 2011 and 2010, respectively.

Net investment income of $35.1 million (after tax, $31.2 million) in the first quarter of 2011 decreased by 2.2% compared to the same period in 2010. 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 $3.0 billion for the first quarter 2011. This compares with an investment income after-tax yield of 4.1% on average investments of $3.1 billion for the same period in 2010.

The Board of Directors declared a quarterly dividend of $0.60 per share. The dividend is to be paid on June 30, 2011 to shareholders of record on June 16, 2011.

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 9, 2011. The replay telephone numbers are (800) 642-1687 (USA) or (706) 645-9291 (International). The conference ID# is 59611991. 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 the approval of premium rate changes for insurance policies issued in states where the Company operates; 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, 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.

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 GAAP. 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









2011

2010

2011

2010


(000's except per-share amounts)






Operating income

$ 39,578

$ 46,850

$ 0.72

$ 0.85


Net realized investment gains, net of tax

18,648

14,329

0.34

0.26


Net income

$ 58,226

$ 61,179

$ 1.06

$ 1.12

(1)







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



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 are meant as supplemental information and are 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,



2011


2010






Combined ratio-accident period basis


98.0%


99.4%

Effect of estimated prior periods' loss development


0.2%


(3.1)%

Combined ratio


98.2%


96.3%



MERCURY GENERAL CORPORATION AND SUBSIDIARIES

SUMMARY OF OPERATING RESULTS

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






Quarter Ended March 31,


2011


2010


(unaudited)





Net premiums written

$ 658,217


$ 652,462





Revenues:




    Net premium earned

$ 638,487


$ 640,614

    Net investment income

35,096


35,886

    Net realized investment gains

28,690


22,044

    Other

3,270


1,293

         Total revenues

$ 705,543


$ 699,837

Expenses:




    Losses and loss adjustment expenses

446,461


430,622

    Policy acquisition costs

121,804


128,982

    Other operating expenses

58,672


57,324

    Interest

1,695


1,619

         Total expenses

$ 628,632


$ 618,547





Net income before taxes

$   76,911


$   81,290

    Income tax expense

18,685


20,111

                   Net income

$   58,226


$   61,179





Basic average shares outstanding

54,809


54,783

Diluted average shares outstanding

54,831


54,805









Basic Per Share Data




Net income

$       1.06


$       1.12





Net realized investment gains, net of tax

$       0.34


$       0.26









Diluted Per Share Data




Net income

$       1.06


$       1.12





Net realized investment gains, net of tax

$       0.34


$       0.26









Operating Ratios-GAAP Basis




Loss ratio

69.9%


67.2%

Expense ratio

28.3%


29.1%

Combined ratio

98.2%


96.3%









Reconciliations of Operating Measures to Comparable GAAP Measures








Net premiums written

$ 658,217


$ 652,462

Change in unearned premiums

(19,730)


(11,848)

Net premiums earned

$ 638,487


$ 640,614





Paid losses and loss adjustment expenses

$ 490,010


$ 461,136

Change in net loss and loss adjustment expense reserves

(43,549)


(30,514)

Incurred losses and loss adjustment expenses

$ 446,461


$ 430,622



MERCURY GENERAL CORPORATION AND SUBSIDIARIES

CONDENSED BALANCE SHEETS AND OTHER INFORMATION

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










March 31, 2011


December 31, 2010

ASSETS

(unaudited)









Investments, at fair value:





Fixed maturities trading (amortized cost $2,494,428; $2,617,656)

$       2,519,549


$               2,652,280


Equity securities trading (cost $341,450; $336,757)

394,687


359,606


Short-term investments (cost $111,618; $143,378)

111,618


143,371



Total investments

3,025,854


3,155,257







Cash


334,290


181,388

Receivables:





Premiums

296,321


280,980


Accrued investment income

35,712


36,885


Other

10,669


10,076



Total receivables

342,702


327,941







Deferred policy acquisition costs

170,645


170,579

Fixed assets, net

190,325


196,505

Current income taxes

5,292


25,719

Deferred income taxes

28,619


26,499

Goodwill


42,850


42,850

Other intangible assets, net

58,486


60,124

Other assets

9,512


16,502



Total assets

$       4,208,575


$               4,203,364







LIABILITIES AND SHAREHOLDERS' EQUITY










Losses and loss adjustment expenses

$          990,719


$               1,034,205

Unearned premiums

853,114


833,379

Notes payable

265,592


267,210

Accounts payable and accrued expenses

98,026


106,662

Other liabilities

180,247


167,093

Shareholders' equity

1,820,877


1,794,815



 Total liabilities and shareholders' equity

$       4,208,575


$               4,203,364







OTHER INFORMATION










Common stock-shares outstanding

54,818


54,803

Book value per share

$              33.22


$                      32.75

Estimated statutory surplus

$1.4 billion


$1.3 billion

Estimated premiums written to surplus ratio

1.9


1.9

Debt to total capital ratio

12.7%


13.0%

Portfolio duration (including all short-term instruments) (a)

4.7  years


4.5  years

Policies-in-Force (Company-wide "PIF") (a)





 Personal Auto PIF

1,264


1,261


 Homeowners PIF

370


361






(a)

Unaudited.  







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