S&P Affirms Mercury General Rtgs.

Standard & Poor’s has affirmed its ‘A’ counterparty credit and senior debt ratings on Mercury General Corp. and its ‘AA’ counterparty credit and financial strength ratings on Mercury Casualty Co. (Mercury Casualty), Mercury Insurance Co. (Mercury Insurance), and Mercury Insurance Co. of Florida (Mercury Florida) based on the companies’ extremely strong capitalization and operating performance.

At the same time, Standard & Poor’s lowered it counterparty credit and financial strength ratings on California Automobile Insurance Co. (California Auto) to ‘BBB’ from ‘A’ because Standard & Poor’s no longer considers the company strategically important to Mercury General and because of California Auto’s diminishing level of capitalization.

The outlook on all these companies is stable.

“Operating results for this group of predominantly California automobile insurers have been consistently substantially better than the company’s interactively rated personal lines peer group,” said Standard & Poor’s credit analyst Polina Chernyak.

Volume will grow by close to 20 percent in 2003 and at least by 10 percent in 2004 because of rate increases, dislocations in the California personal lines market encountered by several major competitors, and diversification into other states. Preferred business written by Mercury Insurance will continue to be the most profitable. Standard business written by Mercury Casualty will continue to show adequate profitability. Nonstandard business written by California Auto will show improving profits and higher volume, but will still not equal the results of Mercury Insurance.

Standard & Poor’s believes Mercury will write more business outside California, though other nonrated units of the organization will conduct most of that business. Homeowners insurance will constitute more than the 6 percent of premium it produces now.

In 2003, the company will maintain a favorable combined ratio gap with Standard & Poor’s interactively rated personal lines peer group and the broad personal lines industry. Capital will remain extremely strong but the capital adequacy ratio will probably drop slightly because of the group’s expansion.