A.M. Best Affirms FSR of Mercury Casualty Group and Debt Ratings of Mercury General Corp.

A.M. Best Co. has affirmed the financial strength ratings of A+ (Superior) for the Los Angeles-based Mercury Casualty Group. Concurrently, A.M. Best has affirmed the “a-” senior debt rating 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 the 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. These positive rating attributes are derived from its disciplined underwriting approach, conservative operating philosophy and strong independent agency relationships.

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

These positive rating attributes are partially offset by Mercury’s moderately adverse loss reserve development and business concentration in California, which exposes it to market, regulatory and legislative risk. Mercury’s underwriting leverage has increased in recent years, driven by significant growth in net premiums written and associated liabilities.

Finally, Mercury’s operating earnings were on a gradually decreasing trend over the previous five-year period, primarily driven by a steady decline in underwriting results, attributable to significant price competition and rising loss costs in the California private passenger auto insurance market.

However, Mercury continues to implement rate adjustments to improve underwriting profitability and has reduced expense levels through various initiatives. These initiatives, along with firm market conditions, resulted in improved operating earnings in 2003.

The financial strength ratings of A+ (Superior) have been affirmed for Mercury Casualty Group and the following members:

Mercury Casualty Company
Mercury Insurance Company
California Automobile Insurance Company
Mercury Insurance Company of Florida
Mercury Indemnity Company of Georgia
Mercury Insurance Company of Georgia
Mercury Indemnity Company of Illinois
Mercury Insurance Company of Illinois
Mercury County Mutual Insurance Company