A.M. Best Affirms Ratings of Mercury Casualty Group

February 9, 2005

A.M. Best Co. has affirmed the financial strength ratings of A+ (Superior) of Los Angeles-based Mercury Casualty Group (Mercury) and its members. Concurrently, A.M. Best has affirmed the senior debt rating of “a-” of Mercury General Corporation’s existing debt securities and the indicative rating of “a-” for the senior debt under the company’s $300 million shelf registration, of which $175 million remains. The outlook for these ratings is stable.

The ratings reflect Mercury’s superior capitalization, strong operating performance and local market presence as California’s largest independent agency auto writer. Mercury’s positive rating attributes are derived from its disciplined underwriting approach, conservative operating philosophy and strong independent agency relationships. This is demonstrated through its proven track record of generating strong underwriting earnings and solid investment income from its conservative investment portfolio. Furthermore, Mercury maintains manageable catastrophe exposure and extensively leverages technology to enhance operating efficiency, renewal persistency and customer satisfaction.

Mercury 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. In addition, the group benefits from the financial flexibility of its parent, Mercury General Corporation, due to its modest financial leverage, access to capital markets and history of consistent profitability.

Mercury’s negative rating attributes include its business concentration within one state, which exposes it to market volatility, legislative changes and judicial decisions. This was evident from 2000 through 2002, when significant price competition and rising loss costs in the California private passenger auto insurance market resulted in deterioration in underwriting earnings. In addition, Mercury’s underwriting leverage has increased in recent years, driven by significant growth in net premiums written and associated liabilities. Mercury continues to implement rate adjustments, which, along with firm market conditions, have resulted in improved operating earnings in recent years.

A.M. Best has also affirmed the financial strength ratings of A- (Excellent) of American Mercury Insurance Group (Oklahoma) and its members. The rating outlook remains positive.

Additionally, A.M. Best has downgraded the financial strength rating to A- (Excellent) from A+ (Superior) of Mercury County Mutual Insurance Company (Texas). The rating downgrade reflects the change in its affiliated reinsurer to American Mercury Insurance Company from Mercury Casualty Company on its 100% quota share reinsurance agreement. Accordingly, the rating outlook has been revised to positive from stable.

For a complete listing of Mercury General Corporation’s financial strength and debt ratings, please visit http://www.ambest.com/press/020902mercury.pdf.

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