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): October 28, 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 October 31, 2011, the Company issued a press release announcing its financial results for the third quarter ended September 30, 2011.  A copy of the press release is attached hereto as Exhibit 99.1.
 
Item 8.01.
Other Events
 
On October 28, 2011, the Board of Directors of the Company appointed Martha Marcon as the Chair of the Audit Committee of the Board of Directors of the Company, effective upon the previously reported retirement of Nathan Bessin from the Board of Directors of the Company.
 
Item 9.01.
Financial Statements and Exhibits
 
 
(d) 
Exhibits .
 
 
99.1
Press Release, dated October 31, 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:  October 31, 2011   MERCURY GENERAL CORPORATION  
     
     
       
 
By:
/s/  Theodore Stalick  
  Name:  Theodore Stalick  
  Title:  Chief Financial Officer  
       
       
 
-3-

 

Mercury General Corporation Announces Third Quarter Results and Increases Quarterly Dividend

LOS ANGELES, Oct. 31, 2011 /PRNewswire/ -- Mercury General Corporation (NYSE: MCY) reported today for the third quarter of 2011:

Consolidated Highlights



Three Months Ended




Nine Months Ended




September 30,

Change


September 30,

Change


2011

2010

$

%


2011

2010

$

%

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




Net premiums written (1)

$ 662,279

$ 654,686

$      7,593

1.2


$ 1,956,790

$ 1,938,261

$  18,529

1.0

Net (loss) income

$   (3,782)

$   96,849

$ (100,631)

(103.9)


$    111,695

$    175,845

$ (64,150)

(36.5)

Net (loss) income per diluted share (3)

$     (0.07)

$       1.77

$       (1.84)

(104.0)


$          2.04

$          3.21

$     (1.17)

(36.4)

Operating income (1)

$   39,715

$   40,664

$        (949)

(2.3)


$    121,097

$    123,344

$   (2,247)

(1.8)

Operating income per diluted share (1)

$       0.72

$       0.74

$       (0.02)

(2.7)


$          2.21

$          2.25

$     (0.04)

(1.8)

Costs related in support of California Proposition 17 (2)

$             -

$             -

$              -

-


$                -

$      12,100

$ (12,100)

-

Combined ratio

98.3%

98.0%

-

0.3 pts


98.2%

97.8%

-

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").

(3)

The dilutive impact of incremental shares is excluded from loss positions in accordance with GAAP.



Net loss in the third quarter 2011 was $3.8 million ($0.07 per diluted share) compared with net income of $96.8 million ($1.77 per diluted share) for the same period in 2010. For the nine months of 2011, net income was $111.7 million ($2.04 per diluted share) compared with net income of $175.8 million ($3.21 per diluted share) for the same period in 2010. Included in net (loss) income are net realized investment losses, net of tax, of $43.5 million ($0.79 per diluted share) in the third quarter of 2011 compared with net realized investment gains, net of tax, of $56.2 million ($1.03 per diluted share) for the same period in 2010, and net realized investment losses, net of tax, of $9.4 million ($0.17 per diluted share) for the nine months of 2011 compared with net realized investment gains, net of tax, of $52.5 million ($0.96 per diluted share) for the same period in 2010. Operating income was $39.7 million ($0.72 per diluted share) for the third quarter of 2011 compared with operating income of $40.7 million ($0.74 per diluted share) for the same period in 2010. For the nine months of 2011, operating income was $121.1 million ($2.21 per diluted share) compared with operating income of $123.3 million ($2.25 per diluted share) for the same period in 2010.

Net premiums written were $662.3 million in the third quarter of 2011, a 1.2% increase compared to the third quarter 2010 net premiums written of $654.7 million, and were approximately $2.0 billion for the nine months of 2011, a 1.0% increase compared to the same period in 2010. Net realized investment losses, net of tax, of $43.5 million and $9.4 million for the third quarter and for the nine months of 2011, respectively, include losses, net of tax, of $41.8 million and $14.9 million, respectively, from the application of the fair value option. (Losses) gains, net of tax, from the sale of securities were $(2.5) million and $4.9 million during the third quarter and the nine months of 2011, respectively.

The Company's combined ratio (GAAP basis) was 98.3% in the third quarter of 2011 and 98.2% for the nine months of 2011 compared with 98.0% and 97.8% for the same periods in 2010, respectively. The loss ratio was affected by unfavorable development of approximately $11 million and favorable development of approximately $18 million on prior accident years' losses and loss adjustment expenses reserves for the nine months ended September 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. The Company recognized $4 million of pre-tax losses in the third quarter of 2011 as a result of Hurricane Irene.

Net investment income of $35.5 million (after tax, $31.4 million) in the third quarter of 2011 decreased by 1.3% compared to the same period in 2010. The investment income after-tax yield was 4.2% on average investments (fixed maturities at amortized cost, equities and short-term investments at cost) of $3.0 billion for the third 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. Net investment income for the nine months of 2011 was $106.6 million (after tax, $94.5 million), a decrease of 1.6% 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 nine 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 $0.61 per share, representing a 1.7% increase over the quarterly dividend amount paid in 2010. The dividend is to be paid on December 29, 2011 to shareholders of record on December 15, 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 November 7, 2011. The replay telephone numbers are (855) 859-2056 (USA) or (404) 537-3406 (International). The conference ID# is 15747286. 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


Nine Months Ended



September 30,




September 30,



Total

Per diluted share


Total

Per diluted share












2011

2010

2011(a)

2010


2011

2010

2011

2010

(000's except per-share amounts)










Operating income

$ 39,715

$ 40,664

$  0.72

$ 0.74


$ 121,097

$ 123,344

$ 2.21

$ 2.25

Net realized investment (losses) gains, net of tax

(43,497)

56,185

(0.79)

1.03


(9,402)

52,501

(0.17)

0.96

Net (loss) income

$ (3,782)

$ 96,849

$ (0.07)

$ 1.77


$ 111,695

$ 175,845

$ 2.04

$ 3.21



(a)     The dilutive impact of incremental shares is excluded from loss positions in accordance with GAAP .



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.



Nine Months Ended



September 30,



2011


2010






Combined ratio-accident period basis


97.6%


98.7%

Effect of estimated prior periods' loss development


0.6%


(0.9)%

Combined ratio


98.2%


97.8%



MERCURY GENERAL CORPORATION AND SUBSIDIARIES

SUMMARY OF OPERATING RESULTS

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

(unaudited)










Three Months Ended September 30,


Nine Months Ended September 30,


2011


2010


2011


2010

Net premiums written

$ 662,279


$ 654,686


$ 1,956,790


$ 1,938,261









Revenues:








    Net premium earned

$ 643,626


$ 642,558


$ 1,924,444


$ 1,925,889

    Net investment income

35,526


35,992


106,631


108,353

    Net realized investment (losses) gains

(66,919)


86,439


(14,465)


80,770

    Other

3,508


1,761


11,221


5,234

         Total revenues

$ 615,741


$ 766,750


$ 2,027,831


$ 2,120,246

Expenses:








    Losses and loss adjustment expenses

458,530


440,566


1,356,329


1,310,797

    Policy acquisition costs

121,016


125,001


365,649


380,308

    Other operating expenses

53,027


63,711


166,797


191,551

    Interest

1,286


1,633


4,650


5,103

         Total expenses

$ 633,859


$ 630,911


$ 1,893,425


$ 1,887,759









(Loss) income before income taxes

$ (18,118)


$ 135,839


$    134,406


$    232,487

    Income tax (benefit) expense

(14,336)


38,990


22,711


56,642

                   Net (loss) income

$   (3,782)


$   96,849


$    111,695


$    175,845









Basic average shares outstanding

54,826


54,795


54,818


54,789

Diluted average shares outstanding (a)

54,826


54,817


54,835


54,821

















Basic Per Share Data








Net (loss) income

$     (0.07)


$       1.77


$          2.04


$          3.21









Net realized investment (losses) gains, net of tax

$     (0.79)


$       1.03


$        (0.17)


$          0.96

















Diluted Per Share Data (a)








Net (loss) income

$     (0.07)


$       1.77


$          2.04


$          3.21









Net realized investment (losses) gains, net of tax

$     (0.79)


$       1.03


$        (0.17)


$          0.96

















Operating Ratios-GAAP Basis








Loss ratio

71.2%


68.6%


70.5%


68.1%

Expense ratio

27.0%


29.4%


27.7%


29.7%

Combined ratio

98.3%

(b)

98.0%


98.2%


97.8%

















Reconciliations of Operating Measures to Comparable GAAP Measures
















Net premiums written

$ 662,279


$ 654,686


$ 1,956,790


$ 1,938,261

Change in unearned premiums

(18,653)


(12,128)


(32,346)


(12,372)

Net premiums earned

$ 643,626


$ 642,558


$ 1,924,444


$ 1,925,889









Paid losses and loss adjustment expenses

$ 459,902


$ 455,670


$ 1,411,666


$ 1,379,387

Change in net loss and loss adjustment expense reserves

(1,372)


(15,104)


(55,337)


(68,590)

Incurred losses and loss adjustment expenses

$ 458,530


$ 440,566


$ 1,356,329


$ 1,310,797









(a) The dilutive impact of incremental shares is excluded from loss positions in accordance with GAAP.

(b) Combined ratio for the three months ended September 30, 2011 does not sum due to rounding.



MERCURY GENERAL CORPORATION AND SUBSIDIARIES

CONDENSED BALANCE SHEETS AND OTHER INFORMATION

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














September 30, 2011


December 31, 2010

ASSETS


(unaudited)











Investments, at fair value:






Fixed maturities trading (amortized cost $2,381,040; $2,617,656)


$                2,466,857


$               2,652,280


Equity securities trading (cost $368,856; $336,757)


321,847


359,606


Short-term investments (cost $251,751; $143,378)


248,857


143,371



Total investments


3,037,561


3,155,257









Cash




209,763


181,388

Receivables:







Premiums



298,184


280,980


Accrued investment income


33,976


36,885


Other



10,203


10,076



Total receivables


342,363


327,941









Deferred policy acquisition costs


174,633


170,579

Fixed assets, net


179,977


196,505

Current income taxes


0


25,719

Deferred income taxes


45,511


26,499

Goodwill




42,850


42,850

Other intangible assets, net


55,298


60,124

Other assets



8,661


16,502



Total assets


$                4,096,617


$               4,203,364









LIABILITIES AND SHAREHOLDERS' EQUITY













Losses and loss adjustment expenses


$                   978,725


$               1,034,205

Unearned premiums


866,207


833,379

Notes payable



138,000


267,210

Accounts payable and accrued expenses


105,855


106,662

Current income taxes


15,570


0

Other liabilities



182,773


167,093

Shareholders' equity


1,809,487


1,794,815



 Total liabilities and shareholders' equity


$                4,096,617


$               4,203,364









OTHER INFORMATION













Common stock-shares outstanding


54,827


54,803

Book value per share


$                       33.00


$                      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


7.1%


13.0%

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


3.4  years


4.5  years

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






 Personal Auto PIF


1,248


1,261


 Homeowners PIF


386


361


(a)     Unaudited






CONTACT: Theodore Stalick, VP/CFO, +1-323-937-1060