Mercer Insurance Group, Inc. Announces 2007 Earnings

Market Wire, February, 2008

Mercer Insurance Group, Inc. (NASDAQ: MIGP) reported today its operating results for the three months and year ended December 31, 2007. Mercer Insurance Group, Inc. (the Company) offers commercial and personal lines of insurance to businesses and individuals principally in six states through its insurance subsidiaries: Mercer Insurance Company, Mercer Insurance Company of New Jersey, Inc., Financial Pacific Insurance Company and Franklin Insurance Company.

Andrew R. Speaker, President and CEO, noted, "Please keep in mind in reviewing the full year results that they include a non-recurring refund of state premium retaliatory taxes, plus interest, in the after-tax amounts of $2.8 million, or $0.44 per diluted share. We emphasize that this is a special situation boosting our earnings in 2007." This item was discussed in the Liquidity and Capital Resources section of Item 7 of the Form 10-K for 2006, as well as in the Form 10-Q for the first three quarters of 2007.

In the three months ended December 31, 2007, the Company reported net income, determined under U.S. generally accepted accounting principles (GAAP), of $2.9 million, or $0.45 per diluted share, which is unchanged from net income in the same amount for the last quarter of 2006, which was $0.46 per diluted share. After-tax realized investment losses included in net income for the current quarter were $158,000, or $0.03 per diluted share, as compared to a gain of $32,000, or less than $0.01 per diluted share in the same period in the prior year. Operating income (a non-GAAP measure defined as net income less after-tax realized gains or losses) in the fourth quarter of 2007 was $3.0 million, or $0.48 per diluted share, as compared to $2.9 million, or $0.45 per diluted share, in the same quarter of 2006. The retaliatory tax refund noted above had no impact on the earnings of the quarter ended December 31, 2007. The Company's GAAP combined ratio for the three months ended December 31, 2007 was 98.5%, as compared to 97.8% for the same quarter in 2006. Book value at December 31, 2007 was $21.48 per share.

Revenues for the three months ended December 31, 2007 were $44.0 million, an increase of $5.0 million over the 2006 fourth quarter revenue of $39.0 million. Net premiums earned for the quarter were $40.3 million, a $4.8 million increase over net premiums earned of $35.5 million in the same period of 2006. Net investment income increased $448,000 to $3.5 million for the quarter, as compared to $3.0 million in the comparable period in 2006.

In the year ended December 31, 2007, the Company reported GAAP net income of $14.2 million, or $2.25 per diluted share, as compared to net income for the same period in 2006 of $10.6 million, or $1.71 per diluted share. The increase in net income of $3.6 million over the prior year includes the $2.8 million, or $0.44 per diluted share, attributable to the non-recurring refund of retaliatory premium taxes and interest noted earlier. After-tax realized investment gains included in net income for the twelve months were $16,000, or less than $0.01 per diluted share, as compared to an after-tax gain of $98,000, or less than $0.02 per diluted share, in the same period in the prior year. Operating income in the twelve months of 2007, including the $2.8 million non-recurring refund of retaliatory tax, increased $3.7 million, to $14.2 million, or $2.25 per diluted share, from $10.5 million, or $1.69 per diluted share, in the same period of 2006. The Company's GAAP combined ratio for the twelve months of 2007 was 95.8%, as compared to 97.0% for the same period in 2006. Calculated on a pro-forma basis, after removing the effect of the non-recurring retaliatory tax refund described above, the combined ratio for 2007 was 98.3%.

Revenues in 2007 were $161.7 million, an increase of $11.8 million over the revenue of the same period in 2006 of $149.9 million. Net premiums earned for the period were $146.7 million, a $9.0 million increase over net premiums earned of $137.7 million in the same period of 2006. Net investment income increased $3.0 million to $13.1 million for the twelve months ended December 31, 2007, as compared to $10.1 million in the comparable period in 2006, with $720,000 of the increase in net investment income attributable to the non-recurring refund of retaliatory premium taxes and interest noted earlier.

Approximately $103 million, or 72%, of the Company's municipal fixed income portfolio is credit-enhanced. Those securities, giving effect to the credit enhancement, carry an average rating of AAA, based on Standard & Poors or equivalent ratings. The underlying average rating of these securities, without regard to the credit enhancement, is AA. Those municipal fixed income securities which are not credit-enhanced carry an average credit rating of AAA-. The entire municipal fixed income securities portfolio, giving effect to the credit enhancement, has an average rating of AAA, and an underlying average rating of AA without giving effect to the credit enhancement. A supplemental schedule is attached, showing the underlying rating distribution of the Company's municipal fixed income securities without regard to credit enhancement.