A.M. Best Affirms Ratings of Mercury General Corporation and Its Insurance Entities

  A.M. Best Affirms Ratings of Mercury General Corporation and Its Insurance
  Entities

Business Wire

OLDWICK, N.J. -- December 21, 2012

A.M. Best Co. has affirmed the financial strength rating (FSR) of A+
(Superior) and issuer credit ratings (ICR) of “aa-” of insurance entities
within the Mercury Casualty Group (Mercury) (Los Angeles, CA). Additionally,
A.M. Best has affirmed the FSR of A- (Excellent) and ICRs of “a-” of the
insurance companies within the American Mercury Insurance Group (AMI)
(Oklahoma City, OK). Concurrently, A.M. Best has affirmed the ICR of “a-” of
Mercury’s and AMI’s parent, Mercury General Corporation (MGC) (Los Angeles,
CA) [NYSE: MCY]. The outlook for all ratings is stable. (See below for a
detailed listing of the companies and ratings.)

The affirmations reflect Mercury’s adequate capitalization and consistent and
sustained earnings that have been achieved through strong independent agency
relationships; historically strong investment income; financial flexibility of
its parent, MGC; and favorable underwriting results. These positive rating
factors are partially offset by the group's business concentration in
California, moderate adverse loss reserve development, weakened capital
position within its lead insurer, Mercury Casualty Company (MCC), slowing
investment portfolio performance as well as its dividending patterns to its
shareholders that dampen surplus growth.

Mercury's adequate capital position is derived from its historically
profitable underwriting performance and conservative investment risk profile,
which has always greatly supplemented underwriting profits or covered minor
underwriting losses. These factors are aided by the group's low dependence on
reinsurance. The group's capitalization was historically supported by solid
operating earnings, somewhat offset by dividend payments to MGC. With the
repayment of MGC’s $125,000,000 of outstanding debt, which came due in 2011
and was retired, MCC's capital base was impacted, reducing the company’s
ability to withstand further capital stresses. Despite this, the group
benefits from the financial flexibility of its parent due to its modest
financial leverage and access to capital markets. The group maintains moderate
catastrophe exposure, which is located in MCC. The group leverages technology
to enhance operating efficiency, renewal persistency and customer
satisfaction. Mercury maintains a sustainable competitive advantage within its
core personal auto segment that includes pricing, risk classification
expertise and aggressive claims management practices.

The group's business concentration within the state of California exposes it
to market volatility, earthquake losses, legislative changes and judicial
decisions. This has evidenced itself in Mercury's historical performance as
significant price competition, rising loss costs and inflationary trends on
bodily injury coverage in the California private passenger auto insurance
market have impacted underwriting income and led to adverse loss reserve
development for those accident years as well.

The ratings of AMI reflect its adequate level of risk-adjusted capital and the
explicit financial support that has been demonstrated in the past by MGC,
which is the largest independent agency automobile insurance writer in
California. These positive factors are offset by the group's high underwriting
leverage, unfavorable underwriting results in recent years and catastrophe
exposure to potentially severe weather events. The outlook is supported by the
group's recent stabilization of capitalization and adequate operating
performance.

While A.M. Best does not expect to downgrade (or place a negative outlook on)
the ratings of the members of either Mercury or AMI in the near to mid-term,
such actions would ensue if the group were to incur further material losses in
its capitalization; have a severe reduction in the profitability of its core
book of business; be unable to contain the group's exposure to catastrophic
events within its underwriting footprint with the current set of preventative
measures that have been recently put in place; or have substantial adverse
reserve development relative to its peers, as well as the industry's averages.

The FSR of A+ (Superior) and ICRs of “aa-” have been affirmed for the
following members of Mercury Casualty Group:

  *Mercury Casualty Company
  *Mercury Insurance Company
  *California Automobile Insurance Company
  *Mercury Indemnity Company of Georgia
  *Mercury Insurance Company of Georgia
  *Mercury Insurance Company of Illinois
  *Mercury National Insurance Company
  *Mercury Insurance Company of Florida
  *Mercury Indemnity Company of America

The FSR of A- (Excellent) and ICRs of “a-” have been affirmed for the
following members of American Mercury Insurance Group:

  *American Mercury Insurance Company
  *American Mercury Lloyds Insurance Company
  *Mercury County Mutual Insurance Company

The ICR of “a-” has been affirmed for Mercury General Corporation.

The methodology used in determining these ratings is Best’s Credit Rating
Methodology, which provides a comprehensive explanation of A.M. Best’s rating
process and contains the different rating criteria employed in the rating
process. Key criteria utilized include: “Risk Management and the Rating
Process for Insurance Companies”; “Understanding BCAR for Property/Casualty
Insurers”; “Catastrophe Analysis in A.M. Best Ratings”: “Insurance Holding
Company and Debt Ratings”; “Equity Credit for Hybrid Securities”; and “Rating
Members of Insurance Groups.” Best’s Credit Rating Methodology can be found at
www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world's oldest and most
authoritative insurance rating and information source. For more information,
visit www.ambest.com.

       Copyright © 2012 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

Contact:

A.M. Best Co.
Joel Silverthorn, 908-439-2200, ext. 5120
Senior Financial Analyst
joel.silverthorn@ambest.com
or
Greg Williams, 908-439-2200, ext. 5815
Managing Senior Financial Analyst
greg.williams@ambest.com
or
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
rachelle.morrow@ambest.com
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com
 
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