Mercer Insurance Group, Inc. Announces Fourth Quarter and 2008 Earnings

Market Wire, February, 2009

Mercer Insurance Group, Inc. (NASDAQ: MIGP) reported its operating results today for the year and quarter ended December 31, 2008.

4th Quarter highlights:

--  Net income of $0.10 per diluted share versus $0.45 per diluted share
    in the prior year's quarter,
--  Operating income of $0.54 per diluted share versus $0.48 per diluted
    share in the prior year's quarter,
--  A GAAP combined ratio of 98.4% versus 98.5% in the prior year's
    quarter,
--  Book value per diluted share of $22.21.
    

Andrew R. Speaker, President and CEO, commented, "We are pleased with the operating results for the quarter which are the strongest quarterly operating earnings per share ever recorded by the Company. The strong operating performance was partially offset by net realized capital losses, which were comprised mostly of a provision for declines in fair value of securities considered to be other than temporary, and mark-to-market adjustments for interest rate swaps on our trust preferred debt. Because the Company carries investment securities on its balance sheet at fair value, recognition of other than temporary impairments in realized losses does not otherwise change the Company's shareholder's equity or book value per share."

Speaker added, "Economic conditions, particularly the effects of the downturn in residential housing as it applies to our West Coast contractors business, have negatively impacted our direct premiums written. In anticipation of the impact on future net premiums earned, the Company has taken proactive measures to reduce and control expenses, including staff reductions and elimination of other expenses as we focus on maintaining profitable operations and increasing book value."

Speaker concluded, "We continue to maintain a strong balance sheet. Our strategy of prudently investing in securities that provide an adequate return while protecting capital has served us well during the current volatile investment market. Despite the significant decline in equity markets, the overall results for our investment portfolio were strong and helped the Company increase book value in both the quarter and the year, while many of our industry competitors saw declines in those periods."

Financial Summary (in thousands, except per share data)

                                 Three Months Ended   Twelve Months Ended
                                    December 31,          December 31,
                                    (unaudited)           (unaudited)
                                --------------------  --------------------
                                  2008       2007       2008     2007 (1)
                                ---------  ---------  ---------  ---------
Total revenue                   $  37,088  $  43,961  $ 161,462  $ 161,681
Net premiums written               31,488     36,549    147,352    159,666
Net premiums earned                36,987     40,308    152,577    146,675
Net investment income               3,763      3,461     13,936     13,053
Net realized gains (losses) on
 investments                       (4,128)      (243)    (7,072)        24
Net income                            629      2,880      8,234     14,235

Earnings per share - Basic      $    0.10  $    0.46  $    1.32  $    2.32
Earnings per share - Diluted    $    0.10  $    0.45  $    1.30  $    2.25

Combined ratio                       98.4       98.5%      98.1       95.8%
Book value per share                                  $   22.21  $   21.48

Reconciliation of non-GAAP
 financial measures:

  Net income                    $     629  $   2,880  $   8,234  $  14,235
  Net realized gains (losses) on
   investments, net of tax         (2,724)      (158)    (4,667)        16
  Net operating income              3,353      3,038     12,901     14,219

  Operating earnings per share -
   Basic                        $     .54  $    0.49  $    2.08  $    2.31
  Operating earnings per share -
   Diluted                      $     .54  $    0.48  $    2.03  $    2.25

    (1) See discussion below regarding non-recurring retaliatory tax refund
        recognized in 2007

In comparing the results for the twelve months ended December 31, 2008 to the prior year, the reader should be aware that in the twelve months ended December 31, 2007, the Company recognized non-recurring refunds of state premium retaliatory taxes, plus interest (collectively, the "Retaliatory Tax"), in the after-tax amount of $2.8 million, or $0.44 per diluted share, respectively. 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%, operating earnings were $11.4 million and operating earnings per diluted share were $1.81. 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 year ended December 21, 2007.

In the quarter ended December 31, 2008, the Company reported GAAP net income under U.S. generally accepted accounting principles (GAAP) of $629,000, or $0.10 per diluted share. This result compares to net income of $2.9 million, or $0.45 per diluted share, for the same quarter in the previous year. The decrease in the current year quarter's net income, as compared to the same quarter in 2007, is attributable primarily to the inclusion of $1.8 million, net of tax, in write-downs of other than temporarily impaired securities, and an after-tax realized loss of $856,000 related to interest rate swaps on our trust preferred debt.