Mercer Insurance Group, Inc. Announces 3rd Quarter 2008 Earnings

Market Wire, October, 2008

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

In comparing the current results to the prior year, the reader should be aware that in the quarter and nine months ended September 30, 2007, the Company recognized non-recurring refunds of state premium retaliatory taxes, plus interest (collectively, the "Retaliatory Tax"), in the after-tax amount of $332,000, or $0.05 per diluted share, and $2.8 million, or $0.44 per diluted share, respectively. Nothing of a comparable nature is recognized in the current periods. 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 September 30, 2008, the Company reported net income, determined under U.S. generally accepted accounting principles (GAAP), of $1.8 million, or $0.28 per diluted share. This result compares to net income of $3.0 million, or $0.47 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 third quarter of 2007 was $2.7 million, or $0.42 per diluted share. The decrease in the current year quarter's net income, as compared to the same quarter in 2007, is attributable to the inclusion in the prior year's quarter of the Retaliatory Tax refund, as well as the current year quarter's realized losses, which are predominantly write-downs of other than temporarily impaired securities. After-tax realized investment losses included in net income for the current quarter were $1.5 million, or $0.23 per diluted share, as compared to a realized loss of $238,000, or $0.04 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 third quarter of 2008 was $3.3 million, or $0.51 per diluted share, as compared to $3.2 million, or $0.51 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 third quarter, the operating income of the current year's third quarter represented an increase of $0.4 million, or $0.05 per diluted share, from the adjusted operating income of $2.9 million, or $0.46 per diluted share, of the prior year. The Company's GAAP combined ratio for the third quarter of 2008 was 97.9%, as compared to 96.4% for the same quarter in 2007, or an adjusted combined ratio of 97.7% for the prior period after excluding the impact of the Retaliatory Tax refund described above. Book value at September 30, 2008 was $21.39 per share.

Revenues for the third quarter of 2008 were $39.6 million, a decrease of $0.8 million over the 2007 third quarter revenue of $40.4 million. Net premiums earned for the quarter were $37.9 million, a $0.6 million increase over net premiums earned of $37.3 million in the same period of 2007. Net investment income was $3.5 million for the quarter, as compared to $2.9 million in the comparable period in 2007, an increase of $589,000 over the net investment income in the prior year's quarter. Realized losses in the current year's quarter were $2.3 million, as compared to realized losses of $366,000 in the prior year's quarter, with the increase primarily attributable to write-downs of other than temporarily impaired securities.

In the nine months ended September 30, 2008, the Company reported net income of $7.6 million, or $1.19 per diluted share. This result compares to net income of $11.4 million, or $1.80 per diluted share, for the same period 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 first nine months of 2007 was $8.6 million, or $1.36 per diluted share. The decrease in the net income for the first nine months of 2008, as compared to the same period in 2007, is attributable to the inclusion in the prior year of the Retaliatory Tax refund, as well as the current year's realized losses, which are predominantly write-downs of other than temporarily impaired securities. After-tax realized investment losses included in net income for the current period were $1.9 million, or $0.30 per diluted share, as compared to a realized gain of $174,000, or $0.03 per diluted share, in the same period in the prior year. Operating income in the nine months ended September 30, 2008, was $9.5 million, or $1.49 per diluted share, as compared to $11.2 million, or $1.77 per diluted share, in the same period of 2007, which included the Retaliatory Tax refund. After adjusting to exclude the Retaliatory Tax refund from the prior period's operating income, the operating income of the current period represented an increase of $0.9 million, or $0.16 per diluted share, from the adjusted operating income of $8.6 million, or $1.33 per diluted share, of the prior year. The Company's GAAP combined ratio for the nine months ended September 30, 2008 was 98.0%, as compared to 94.7% for the same period in 2007, or an adjusted combined ratio of 98.1% for the prior period after excluding the impact of the Retaliatory Tax refund described above.