Mercury Insurance 2008 Annual Report Download - page 5

• Implement best practices and standardized proce-
dures across all functions.
• Simplify our processes for greater efficiency and
improved customer service.
• Increase customer reach by leveraging the Internet
more effectively and increasing the number of rela-
tionships with qualified agents.
• Continue our Service Excellence program, which
was rolled out in 2008.
Quite clearly, our investment results in 2008 were
significantly impacted by the decline in the capital
markets as a result of the financial crisis and global
recession. About half of Mercury’s losses came from
our municipal bond portfolio. Nevertheless, the port-
folio still remains in very good shape, with an aver-
age rating of AA, and we expect most of our bonds
to recover to their par value. Our equity investments
were down about 50% for the year. Historically, the
portfolio has provided many years of successful
returns. Unfortunately, in 2008, all of the previous
gains evaporated. The outlook for the equity markets
is very hard to discern, espe-
cially with so many new eco-
nomic policies coming to
bear. However, the market
value of our equity portfolio is
less at year-end 2008 than
year-end 2007, with the per-
centage of equities to total
invested assets declining
from 12% to 8%. The Company will maintain most of
the current positions as long as we are satisfied with
the return potential.
Net investment income, which excludes realized
gains and losses, was $133.7 million after-tax, com-
pared to $137.8 million in 2007. The decrease in
income was attributable to a reduction in the amount
of invested assets and in the after tax yield from
4.0% in 2007 to 3.9% in 2008.
We ended the year with a very strong capital posi-
tion, despite the declines in the value of our invest-
ment portfolio. At year-end, our Shareholders’ Equity
was $1.5 billion and our underwriting leverage
remains conservative, with a premium to surplus
ratio of 2 to 1. In February 2009, Mercury’s Board of
Directors kept the dividend rate unchanged at $0.58
cents per share, providing a generous dividend yield
based on the recent market price of our stock. We
will continue to evaluate our dividend quarterly based
on our results and capital position.
In January of 2009, we completed our purchase of
AIS, a major producer of personal lines insurance in
the state of California. AIS represented approximately
15% of Mercury’s premium volume in 2008. We are
pleased to report that the transition and integration
efforts are going very smoothly and anticipate the
purchase of AIS will be slightly accretive to earnings
in 2009.
AIS will continue to operate as an independent
agency, maintaining virtually the same management
prior to our purchase. AIS is led by President and
CEO Mark Ribisi. Mark has spent his entire career in
the auto insurance industry and is a 20-year veteran
of AIS. We look forward to working with Mark and
his team as we continue to grow our business.
As we look ahead, the current year is sure to bring
its own challenges but we believe our long history of
stability, service and integrity puts us on solid ground to
weather the storm. We stand poised and ready for an
eventual economic recovery and look forward to end-
ing 2009 better than we found it. We hope you will be
able to attend our annual meeting on May 13, 2009.
Sincerely,
George Joseph
Chairman of the Board
Gabriel Tirador
President and Chief Executive Officer
We ended the year with
a very strong capital
position, despite the
declines in the value of
our investment portfolio.
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