Mercury General Announces 4Q Results

February 7, 2005

Los Angeles-based Mercury General Corporation reported net income of $74.1 million ($1.36 per share- diluted), in the fourth quarter 2004 compared with $49.2 million ($0.90 per share-diluted), in the same period for 2003.

For the year, net income was $286.2 million ($5.24 per share-diluted) in 2004 compared to net income of $184.3 million ($3.38 per share-diluted) in 2003. Included in net income are net realized investment gains, net of tax, of $4.2 million ($0.08 per share-diluted) in the fourth quarter 2004 compared to net realized investment gains, net of tax, of $3.8 million ($0.07 per share-diluted) for the fourth quarter 2003, and net realized investment gains, net of tax, of $16.3 million ($0.30 per share-diluted) for the entire 2004 year compared to net realized investment gains, net of tax, of $7.3 million ($0.13 per share-diluted) for 2003.

Company-wide net premiums written were $674.2 million in the fourth quarter 2004, a 14 percent increase over fourth quarter 2003, and $2.6 billion for the year, a 16.7 percent increase over 2003. California net premiums written were $495.0 million in the quarter, an increase of 2.7 percent over 2003, and $2.0 billion for the year, a 6.4 percent increase over 2003. Non-California net premiums written were $179.2 million in the quarter, a 63.5 percent increase over 2003, and $640.4 million for 2004, a 67.4 percent increase over 2003. Non-California net premiums written represented 26.6 percent of the Company’s total fourth quarter net premiums written, up from 18.5 percent in the fourth quarter of 2003.

The Company’s combined ratio (GAAP basis) was 88.6 percent in the fourth quarter of 2004 and 89.2 percent for the entire year compared with 94.1 percent and 94.0 percent for the same periods in 2003. Positive development of approximately $55 million for the year ended Dec. 31, 2004 on the 2003 and prior accident year loss reserves contributed to the improvement in the combined ratio. During the fourth quarter, the Company reduced its estimate for losses from the Florida hurricanes from approximately $24 million reported at Sept. 30, 2004, to approximately $22 million at Dec. 31, 2004.

Net investment income of $29.3 million (after tax $25.2 million) in the fourth quarter of 2004 increased by 11.3 percent compared to the same period in 2003. The after-tax yield on investment income was 3.6 percent on average assets of $2.8 billion (fixed maturities and equities at cost) for the quarter. This compares with an after tax yield on investment income of 3.9 percent on average investments of $2.4 billion (fixed maturities and equities at cost) for the same period in 2003.

During the fourth quarter of 2004, the Company began writing private passenger automobile insurance in the states of Michigan and Nevada, marking the twelfth and thirteenth states in which the Company writes automobile insurance.

During January 2005, the state of California experienced precipitation levels that were significantly higher than average. Consequently, the number of losses reported in the California homeowners line of business was more than double the number reported in January 2004. The number of California automobile losses reported in January 2005 was approximately 10 percent more than the number reported in January 2004. As a result, given the January 2005 losses, the Company anticipates that loss frequency will be higher in the first quarter 2005 as compared to the first quarter 2004.

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