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): August 1, 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 August 1, 2011, the Company issued a press release announcing its financial results for the second quarter ended June 30, 2011.  A copy of the press release is attached hereto as Exhibit 99.1.
 
Item 9.01.
Financial Statements and Exhibits
 
 
(d) 
Exhibits .
 
 
99.1
Press Release, dated August 1, 2011, issued by Mercury General Corporation, furnished pursuant to Item 2.02 of Form 8-K.
 
 
-2-

 
 
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:  August 1, 2011   MERCURY GENERAL CORPORATION  
     
     
       
 
By:
/s/ Theodore Stalick   
  Name:  Theodore Stalick  
  Title:  Chief Financial Officer  
       
       
 
-3-

 

Mercury General Corporation Announces Second Quarter Results and Declares Quarterly Dividend

LOS ANGELES, Aug. 1, 2011 /PRNewswire/ -- Mercury General Corporation (NYSE: MCY) reported today for the second quarter of 2011:

Consolidated Highlights



Three Months Ended




Six Months Ended




June 30,

Change


June 30,

Change


2011

2010

$

%


2011

2010

$

%

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




Net premiums written (1)

$ 636,294

$ 631,113

$    5,181

0.8


$ 1,294,511

$ 1,283,575

$  10,936

0.9

Net income

$   57,251

$   17,817

$  39,434

221.3


$    115,477

$      78,996

$  36,481

46.2

Net income per diluted share

$       1.04

$       0.32

$      0.72

225.0


$          2.11

$          1.44

$      0.67

46.5

Operating income (1)

$   41,804

$   35,830

$    5,974

16.7


$      81,382

$      82,681

$   (1,299)

(1.6)

Operating income per diluted share (1)

$       0.76

$       0.65

$      0.11

16.9


$          1.48

$          1.51

$     (0.03)

(2.0)

Costs related in support of California Proposition 17 (2)

$             -

$   12,100

$ (12,100)

-


$                -

$      12,100

$ (12,100)

-

Combined ratio

98.0%

99.0%

-

(1.0) pts


98.1%

97.7%

-

0.4 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 Company supported the Continuous Coverage Auto Insurance Discount Act ("Proposition 17)."



Net income in the second quarter 2011 was $57.3 million ($1.04 per diluted share) compared with net income of $17.8 million ($0.32 per diluted share) for the same period in 2010. For the first six months of 2011, net income was $115.5 million ($2.11 per diluted share) compared with net income of $79.0 million ($1.44 per diluted share) for the same period in 2010. Included in net income are net realized investment gains, net of tax, of $15.4 million ($0.28 per diluted share) in the second quarter of 2011 compared with net realized investment losses, net of tax, of $18.0 million ($0.33 per diluted share) for the same period in 2010, and net realized investment gains, net of tax, of $34.1 million ($0.62 per diluted share) for the first six months of 2011 compared with net realized investment losses, net of tax, of $3.7 million ($0.07 per diluted share) for the same period in 2010. Operating income was $41.8 million ($0.76 per diluted share) for the second quarter of 2011 compared with operating income of $35.8 million ($0.65 per diluted share) for the same period in 2010. For the first six months of 2011, operating income was $81.4 million ($1.48 per diluted share) compared with operating income of $82.7 million ($1.51 per diluted share) for the same period in 2010.

Net premiums written were $636.3 million in the second quarter of 2011, a 0.8% increase compared to the second quarter 2010 net premiums written of $631.1 million, and were approximately $1.3 billion for the first six months of 2011, a 0.9% increase compared to the same period in 2010. Net realized investment gains, net of tax, of $15.4 million and $34.1 million for the second quarter and for the first six months of 2011, respectively, include gains, net of tax, of $13.4 million and $26.9 million, respectively, from the application of the fair value option. Gains, net of tax, from the sale of securities were $2.3 million and $7.4 million during the second quarter and the first six months of 2011, respectively.

The Company's combined ratio (GAAP basis) was 98.0% in the second quarter of 2011 and 98.1% for the first six months of 2011 compared with 99.0% and 97.7% for the same periods in 2010, respectively. The loss ratio was affected by unfavorable development of approximately $10 million and favorable development of approximately $22 million on prior accident years' losses and loss adjustment expenses reserves for the six months ended June 30, 2011 and 2010, respectively. The unfavorable development in 2011 is largely the result of re-estimates of California bodily injury losses which have experienced both higher average severities and more late reported claims (claim count development) than was originally estimated at December 31, 2010.

Net investment income of $36.0 million (after tax, $31.9 million) in the second quarter of 2011 decreased by 1.3% compared to the same period in 2010. The investment income after-tax yield was 4.3% on average investments (fixed maturities at amortized cost, equities and short-term investments at cost) of $3.0 billion for the second quarter 2011. This compares with an investment income after-tax yield of 4.2% on average investments of $3.1 billion for the same period in 2010. Net investment income for the first six months of 2011 was $71.1 million (after tax $63.1 million), a decrease of 1.7% compared to the same period in 2010. The investment income after-tax yield was 4.2% on average assets of $3.0 billion for the first six months of 2011. This compares with an investment income after-tax yield of 4.2% 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 September 30, 2011 to shareholders of record on September 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 August 8, 2011. The replay telephone numbers are (800) 642-1687 (USA) or (706) 645-9291 (International). The conference ID# is 82371102. 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 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.

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


Six Months Ended



June 30,




June 30,




Total

Per diluted share


Total

Per diluted share













2011

2010

2011

2010


2011

2010

2011


2010

(000's except per-share amounts)











Operating income

$ 41,804

$ 35,830

$ 0.76

$ 0.65


$   81,382

$ 82,681

$ 1.48


$ 1.51

Net realized investment gains (losses), net of tax

15,447

(18,013)

0.28

(0.33)


34,095

(3,685)

0.62


(0.07)

Net income

$ 57,251

$ 17,817

$ 1.04

$ 0.32


$ 115,477

$ 78,996

$ 2.11

(1)

$ 1.44



(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.



Six Months Ended



June 30,



2011


2010






Combined ratio-accident period basis


97.3%


99.4%

Effect of estimated prior periods' loss development


0.8%


(1.7)%

Combined ratio


98.1%


97.7%



MERCURY GENERAL CORPORATION AND SUBSIDIARIES

SUMMARY OF OPERATING RESULTS

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

(unaudited)










Three Months Ended June 30,


Six Months Ended June 30,


2011


2010


2011


2010

Net premiums written

$ 636,294


$ 631,113


$ 1,294,511


$ 1,283,575









Revenues:








    Net premium earned

$ 642,331


$ 642,717


$ 1,280,818


$ 1,283,331

    Net investment income

36,009


36,475


71,105


72,361

    Net realized investment gains (losses)

23,764


(27,713)


52,454


(5,669)

    Other

4,443


2,180


7,713


3,473

         Total revenues

$ 706,547


$ 653,659


$ 1,412,090


$ 1,353,496

Expenses:








    Losses and loss adjustment expenses

451,338


439,609


897,799


870,231

    Policy acquisition costs

122,829


126,325


244,633


255,307

    Other operating expenses

55,098


70,516


113,770


127,840

    Interest

1,669


1,851


3,364


3,470

         Total expenses

$ 630,934


$ 638,301


$ 1,259,566


$ 1,256,848









Income before income taxes

$   75,613


$   15,358


$    152,524


$      96,648

    Income tax expense (benefit)

18,362


(2,459)


37,047


17,652

                   Net income

$   57,251


$   17,817


$    115,477


$      78,996









Basic average shares outstanding

54,820


54,788


54,814


54,786

Diluted average shares outstanding

54,837


54,833


54,834


54,821

















Basic Per Share Data








Net income

$       1.04


$       0.33


$          2.11


$          1.44









Net realized investment gains (losses), net of tax

$       0.28


$     (0.33)


$          0.62


$        (0.07)

















Diluted Per Share Data








Net income

$       1.04


$       0.32


$          2.11


$          1.44









Net realized investment gains (losses), net of tax

$       0.28


$     (0.33)


$          0.62


$        (0.07)

















Operating Ratios-GAAP Basis








Loss ratio

70.3%


68.4%


70.1%


67.8%

Expense ratio

27.7%


30.6%


28.0%


29.9%

Combined ratio

98.0%


99.0%


98.1%


97.7%

















Reconciliations of Operating Measures to Comparable GAAP Measures
















Net premiums written

$ 636,294


$ 631,113


$ 1,294,511


$ 1,283,575

Change in unearned premiums

6,037


11,604


(13,693)


(244)

Net premiums earned

$ 642,331


$ 642,717


$ 1,280,818


$ 1,283,331









Paid losses and loss adjustment expenses

$ 461,754


$ 462,581


$    951,764


$    923,717

Change in net loss and loss adjustment expense reserves

(10,416)


(22,972)


(53,965)


(53,486)

Incurred losses and loss adjustment expenses

$ 451,338


$ 439,609


$    897,799


$    870,231



MERCURY GENERAL CORPORATION AND SUBSIDIARIES

CONDENSED BALANCE SHEETS AND OTHER INFORMATION

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














June 30, 2011


December 31, 2010

ASSETS


(unaudited)











Investments, at fair value:






Fixed maturities trading (amortized cost $2,496,686; $2,617,656)


$                           2,556,964


$                         2,652,280


Equity securities trading (cost $381,967; $336,757)


421,967


359,606


Short-term investments (cost $139,242; $143,378)


138,671


143,371



Total investments


3,117,602


3,155,257









Cash




305,057


181,388

Receivables:







Premiums



287,006


280,980


Accrued investment income


35,300


36,885


Other



11,287


10,076



Total receivables


333,593


327,941









Deferred policy acquisition costs


171,552


170,579

Fixed assets, net


185,075


196,505

Current income taxes


0


25,719

Deferred income taxes


22,509


26,499

Goodwill




42,850


42,850

Other intangible assets, net


56,870


60,124

Other assets



11,407


16,502



Total assets


$                           4,246,515


$                         4,203,364









LIABILITIES AND SHAREHOLDERS' EQUITY













Losses and loss adjustment expenses


$                              980,984


$                         1,034,205

Unearned premiums


847,240


833,379

Notes payable



263,896


267,210

Accounts payable and accrued expenses


108,511


106,662

Current income taxes


15,863


0

Other liabilities



184,419


167,093

Shareholders' equity


1,845,602


1,794,815



 Total liabilities and shareholders' equity


$                           4,246,515


$                         4,203,364









OTHER INFORMATION













Common stock-shares outstanding


54,822


54,803

Book value per share


$                                  33.67


$                                32.75

Estimated statutory surplus


$1.4 billion


$1.3 billion

Estimated premiums written to surplus ratio


1.8


1.9

Debt to total capital ratio


12.5%


13.0%

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


4.1  years


4.5  years

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






 Personal Auto PIF


1,258


1,261


 Homeowners PIF


377


361



(a)

Unaudited





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