Mercer Insurance Group, Inc. Announces 2nd Quarter 2008 Earnings

Mercer Insurance Group, Inc. (NASDAQ: MIGP) today reported its operating results for the quarter and six months ended June 30, 2008. 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.

In comparing the current results to the prior year, the reader should be aware that in last year's quarter ended June 30, 2007, the Company recognized a non-recurring refund of state premium retaliatory taxes, plus interest (collectively, the "Retaliatory Tax"), in the after-tax amount of $2.5 million, or $0.39 per diluted share. Nothing of a comparable nature is recognized in the current period. A discussion of this item can be found in the Liquidity and Capital Resources section of Item 7 of the Form 10-K for the most recent year.

In the quarter ended June 30, 2008, the Company reported net income, determined under U.S. generally accepted accounting principles (GAAP), of $3.2 million, or $0.51 per diluted share. This result compares to net income of $5.8 million, or $0.92 per diluted share, for the same quarter in the previous year, which included the Retaliatory Tax refund described above. Excluding the impact of the Retaliatory Tax refund from the prior year results, net income for the current quarter approximates the adjusted net income of $3.3 million, or $0.53 per diluted share of the earlier period. After-tax realized investment gains included in net income for the current quarter were $102,000, or less than $0.02 per diluted share, as compared to a gain of $442,000, or $0.07 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 second quarter of 2008 was $3.1 million, or $0.49 per diluted share, as compared to $5.3 million, or $0.85 per diluted share, in the same quarter of 2007, which included the Retaliatory Tax refund. After adjusting to exclude the Retaliatory Tax refund from the prior period's second quarter, the operating income of the current year's second quarter represented an increase of $0.3 million, or $0.03 per diluted share, from the adjusted operating income of $2.8 million, or $0.46 per diluted share, of the prior year. The Company's GAAP combined ratio for the second quarter of 2008 was 98.2%, as compared to 89.4% for the same quarter in 2007, or an adjusted combined ratio of 98.3% for the prior period after excluding the impact of the Retaliatory Tax refund described above. Book value at June 30, 2008 was $21.78 per share.

Revenues for the second quarter of 2008 were $42.7 million, an increase of $2.7 million over the 2007 second quarter revenue of $40.0 million. Net premiums earned for the quarter were $38.6 million, a $3.5 million increase over net premiums earned of $35.1 million in the same period of 2007. Net investment income was $3.3 million for the quarter, as compared to $3.8 million in the comparable period in 2007, however, on an adjusted basis after excluding the interest included with the Retaliatory Tax refund in the prior year, the current quarter's investment income represents an increase of $259,000, or 8%, over the adjusted net investment income in the prior year's quarter.

For the six months ended June 30, 2008, the Company's GAAP net income was $5.8 million, or $0.91 per diluted share. This result compares to net income of $8.3 million, or $1.32 per diluted share, for the six months ended June 30, 2007, which included the Retaliatory Tax refund. The current year net income approximates the prior period results of $5.8 million, or $0.93 per diluted share, when such results are adjusted to exclude the impact of the Retaliatory Tax refund. After-tax realized investment losses included in net income for the six months ended June 30, 2008, were $431,000, or $0.07 per diluted share, as compared to a gain of $412,000, or $0.07 per diluted share, in the same period in the prior year. Operating income for the six months ended June 30, 2008, was $6.3 million, or $0.98 per diluted share, as compared to $7.9 million, or $1.26 per diluted share in the prior year, which included the Retaliatory Tax refund. After making an adjustment to exclude the Retaliatory Tax refund from the prior period's operating income, the current year operating income represents an increase of $0.9 million, or $0.12 per diluted share, from the adjusted operating income of $5.4 million, or $0.86 per diluted share, of the prior year. The Company's GAAP combined ratio for the six months ended June 30, 2008, was 98.2%, as compared to 93.8% for the same period in 2007, or an adjusted combined ratio of 98.3% for the prior period after excluding the impact of the Retaliatory Tax refund described above.

Revenues for the first six months of 2008 were $84.8 million, an increase of $7.5 million over the 2007 revenues of $77.3 million for the same period. Net premiums earned for the six months were $77.7 million, an $8.6 million increase over net premiums earned of $69.1 million in the same period of 2007. Net investment income was $6.7 million for the six months, as compared to the same amount in the comparable period in 2007, however, on an adjusted basis after excluding the interest component of the Retaliatory Tax refund from the prior year results, the current period's investment income represents an increase of $678,000, or 11%, over adjusted net investment income of $6.0 million in the prior year period.