A.M. Best Affirms Ratings for Mercury Casualty Group

October 29, 2002

A.M. Best Co. has affirmed the financial strength ratings of A+ (Superior) for the Mercury Casualty Group (Los Angeles).
Also, the financial strength ratings of A- (Excellent) of American Mercury Insurance Group (Oklahoma City), subsidiaries of Mercury General Corporation, have been affirmed. The outlooks for all ratings are stable.

Additionally, A.M. Best has assigned an “a” senior debt rating to Mercury General Corporation’s existing debt securities and an indicative rating of “a” to senior debt under the company’s $300 million shelf registration, which $175 million remains.

The ratings reflect Mercury General’s superior capitalization, strong operating performance and dominant market presence as California’s largest independent agency auto writer. These positive rating factors are derived from Mercury General’s disciplined underwriting approach, conservative operating philosophy and strong relationships with independent agencies. Further, Mercury General maintains manageable catastrophe exposure and extensively leverages technology to enhance operating efficiency, renewal persistency and customer satisfaction.

Mercury General maintains sustainable competitive advantages within its core personal auto segment, which includes pricing and risk classification expertise, aggressive claims management and a competitive expense structure. Mercury General benefits from considerable financial flexibility, reflective of modest financial leverage, access to capital markets and a history of consistent profitability.

The strengths are modestly offset by Mercury General’s geographic concentration in California that exposes it to market, regulatory and legislative risk. Since 1999, significant price competition and rising loss costs due to inflation in the California private passenger automobile insurance market have caused deterioration in loss experience.

However, Mercury General continues to implement rate increases to improve underwriting profitability and reduce expense levels through various initiatives. Despite the recent deterioration in underwriting results, A.M. Best expects Mercury General to continue to outperform the industry composite.

This expectation is based on Mercury General’s focused underwriting approach and pricing strategies, significant market presence and consistent track record of strong operating earnings.

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