S&P Affirms Mercury General Ratings; Revises Outlook to Negative

February 12, 2009

Standard & Poor’s Ratings Services has revised its outlook on Los Angeles-based Mercury General Corp. and units to negative from stable. S&P also affirmed its ‘A-‘ counterparty credit and senior unsecured debt ratings on Mercury General, as well as its ‘AA-‘ counterparty credit and financial strength ratings on Mercury Casualty Co. and Mercury Insurance Co.

In addition S&P has affirmed the ‘AA-‘ financial strength rating on Mercury Insurance Co. of Florida, and its ‘A+’ counterparty credit and financial strength ratings on California Automobile Insurance Co., all units of Mercury General Corp.

“We revised the outlook to negative following the company’s release of its fourth-quarter 2008 results on Feb. 9,” explained credit analyst Michael Gross. Mercury General’s combined loss and expense ratio increased to 113.4 percent in the fourth quarter of 2008, compared with 98.8 percent in the same period in 2007, resulting in a full-year 2008 combined ratio of 101.8 percent.

“Although one quarter of adverse performance does not indicate a definitive trend, we had expected Mercury General to report an underwriting profit rather than an underwriting loss for the year,” Gross added.

S&P also noted that the “company attributed the greater-than-expected losses to the October 2008 California wildfires, high loss severity inflation in its California automobile business, and poor results from its Florida and New Jersey operations.

“Moreover, unfavorable market conditions continue to result in a declining policy-in-force count in its largest state, California, as well as some erosion in its capital redundancy.

“Mercury General, through its operating subsidiaries, is a competitive provider of auto and homeowners insurance, with particular brand recognition in California.”

Source: Standard & Poor’s – www.standardandpoors.com

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