Mercer Insurance Group, Inc. Reports Earnings for the Nine Months and Quarter Ended September 30, 2009

PENNINGTON, NJ -- (Marketwire) -- 10/28/09 -- Mercer Insurance Group, Inc. (NASDAQ: MIGP) reported today its operating results for the nine months and quarter ended September 30, 2009.

3rd Quarter highlights:

-- Net income of $0.56 per diluted share versus $0.28 per diluted share in the prior year's quarter, -- Operating income of $0.51 per diluted share, which was the same as the prior year's quarter, -- A GAAP combined ratio of 98.2% versus 97.9% in the prior year's quarter, -- Book value per share of $25.49.

Andrew R. Speaker, President and CEO, commented, "We are happy to have generated an operating profit that is consistent with third quarter earnings in past years. In an environment in which we are challenged by both a slow economy and continued competitive insurance pricing, it is pleasing to see that our disciplined underwriting has lead to profitable operations."

Speaker noted, "We are also delighted that our strategy of maintaining a prudent investment portfolio while also seeking a fair return has continued to protect and enhance our capital position. Our conservatively positioned portfolio, along with our disciplined underwriting performance, has helped increase book value per share to its highest ever level."

"We expect the challenging conditions from the economy and competitive pricing to persist. We will maintain our underwriting and investment discipline, continue to exercise careful expense management and work on building out the new products we've introduced in the past few years. This focus should help us to continue to generate operating profits while protecting our shareholders' capital."

Financial Summary (in thousands, except per share data)

Three Months Ended Nine Months Ended September 30, September 30, (unaudited) (unaudited) -------------------- -------------------- 2009 2008 2009 2008 --------- --------- --------- --------- Total revenue $ 39,274 $ 39,593 $ 117,996 $ 124,374 Net premiums written 33,355 37,575 105,537 115,863 Net premiums earned 34,681 37,869 105,215 115,590 Net investment income 3,605 3,469 10,833 10,173 Net realized gains (losses) on investments 472 (2,281) 393 (2,944) Net income, after tax 3,554 1,780 10,195 7,605

Earnings per share - Basic $ 0.57 $ 0.29 $ 1.64 $ 1.22 Earnings per share - Diluted $ 0.56 $ 0.28 $ 1.61 $ 1.19

Combined ratio 98.2% 97.9% 98.0% 98.0% Book value per share $ 25.49 $ 21.39

Reconciliation of non-GAAP financial measures:

Net income $ 3,554 $ 1,780 $ 10,195 $ 7,605 Net realized gains (losses) on investments, net of tax (311) 1,482 (260) 1,913 Net operating income 3,243 3,262 9,935 9,518

Operating earnings per share - Basic $ 0.52 $ 0.52 $ 1.60 $ 1.53 Operating earnings per share - Diluted $ 0.51 $ 0.51 $ 1.57 $ 1.49

In the quarter ended September 30, 2009, the Company reported GAAP net income under U.S. generally accepted accounting principles (GAAP) of $3.6 million, or $0.56 per diluted share. This result compares to net income of $1.8 million, or $0.28 per diluted share, for the same quarter in the previous year. Operating income of $3.24 million approximated the $3.26 million reported in the prior year's quarter.

In the nine months ended September 30, 2009, the Company reported GAAP net income of $10.2 million, or $1.61 per diluted share. This result compares to net income of $7.6 million, or $1.19 per diluted share, for the same period in the previous year. Operating income increased to $9.9 million from $9.5 million in the prior year.

The Company also announced that its Board of Directors has approved a dividend of $0.075 per share, to be paid on December 28, 2009 to shareholders of record on December 11, 2009.

Operating income and operating income per share are non-GAAP financial measures that we present because we believe they enhance an investor's understanding of the Company's core operating performance. Operating income and operating income per share consist of net earnings adjusted for after-tax net realized investment gains and losses.

Mercer Insurance Group, Inc. offers commercial and personal lines of insurance to businesses and individuals principally in seven states through its insurance subsidiaries: Mercer Insurance Company, Mercer Insurance Company of New Jersey, Inc., Financial Pacific Insurance Company and Franklin Insurance Company.

Certain of the statements in this press release (other than statements of historical facts) are forward-looking statements. Such forward-looking statements include estimates and assumptions related to economic, competitive and legislative developments. These forward-looking statements are subject to change and uncertainty that are, in many instances, beyond the Company's control and have been made based upon management's expectations and beliefs concerning future developments and their potential effect on Mercer Insurance Group, Inc. There can be no assurance that future developments will be in accordance with management's expectations so that the effect of future developments on Mercer Insurance Group, Inc. will be those anticipated by management. Actual financial results including premium growth and underwriting results could differ materially from those anticipated by Mercer Insurance Group, Inc. depending on the outcome of certain factors, which may include changes in property and casualty loss trends and reserves; catastrophe losses; the insurance product pricing environment; changes in applicable law; government regulation and changes therein that may impede the ability to charge adequate rates; changes in accounting principles; performance of the financial markets; fluctuations in interest rates; availability and price of reinsurance; and the status of the labor markets in which the Company operates.

Consolidated Statements of Income (in thousands, except per share and share data)

Quarter Ended September 30, 2009 2008 (unaudited) (unaudited)

Net premiums earned $ 34,681 $ 37,869 Investment income, net of investment expenses 3,605 3,469 Realized investment gains (losses) 472 (2,281) Other revenue 516 536 Total revenue 39,274 39,593

Losses and loss adjustment expenses 21,683 22,819 Amortization of deferred policy acquisition costs 9,499 10,460 Other expenses 2,869 3,776 Interest expense 358 328 Total expenses 34,409 37,383

Income before income taxes 4,865 2,210 Income taxes 1,311 430

Net income $ 3,554 $ 1,780

Net income per common share: Basic $ 0.57 $ 0.29 Diluted $ 0.56 $ 0.28

Weighted average number of shares outstanding: Basic 6,225,483 6,237,804 Diluted 6,389,729 6,382,413

Supplementary Financial Data

Net written premiums $ 33,355 $ 37,575

Book value per common share $ 25.49 $ 21.39

GAAP combined ratio 98.2% 97.9%

Consolidated Statements of Income (in thousands, except per share and share data)

Nine Months Ended September 30, 2009 2008 (unaudited) (unaudited)

Net premiums earned $ 105,215 $ 115,590 Investment income, net of investment expenses 10,833 10,173 Realized investment gains (losses) 393 (2,944) Other revenue 1,555 1,555 Total revenue 117,996 124,374

Losses and loss adjustment expenses 64,643 71,564 Amortization of deferred policy acquisition costs 29,002 31,163 Other expenses 9,438 10,618 Interest expense 1,066 961 Total expenses 104,149 114,306

Income before income taxes 13,847 10,068 Income taxes 3,652 2,463

Net income $ 10,195 $ 7,605

Net income per common share: Basic $ 1.64 $ 1.22 Diluted $ 1.61 $ 1.19

Weighted average number of shares outstanding: Basic 6,200,840 6,230,476 Diluted 6,321,065 6,382,740

Supplementary Financial Data

Net written premiums $ 105,537 $ 115,863

GAAP combined ratio 98.0% 98.0%

Consolidated Balance Sheet (in thousands, except share amounts)

September 30, 2009 December 31, (unaudited) 2008 ASSETS Investments, at fair value: Fixed income securities, available-for sale $ 368,429 $ 334,087 Equity securities, at fair value 8,887 10,203 Total investments 377,316 344,290 Cash and cash equivalents 31,702 37,043 Premiums receivable 38,131 34,165 Reinsurance receivable 80,404 86,443 Prepaid reinsurance premiums 5,829 7,096 Deferred policy acquisition costs 19,416 20,193 Accrued investment income 3,721 3,901 Property and equipment, net 20,184 16,144 Deferred income taxes 4,181 9,814 Goodwill 5,416 5,416 Other assets 8,544 4,481 Total assets $ 594,844 $ 568,986

LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Losses and loss adjustment expenses $ 308,846 $ 304,000 Unearned premiums 79,463 80,408 Accounts payable and accrued expenses 11,657 13,283 Other reinsurance balances 13,495 11,509 Trust preferred securities 15,588 15,576 Advances under line of credit 3,000 3,000 Other liabilities 3,908 3,940 Total liabilities $ 435,957 $ 431,716

Stockholders' Equity: Preferred Stock, no par value, authorized 5,000,000 shares, no shares issued and outstanding - - Common stock, no par value, authorized 15,000,000 shares, issued 7,074,333 shares, outstanding 6,865,050 and 6,801,095 shares - - Additional paid-in capital $ 71,979 $ 71,369 Accumulated other comprehensive income 14,374 2,494 Retained earnings 82,939 74,138 Unearned ESOP shares (2,036) (2,505) Treasury Stock, 631,761 and 621,773 shares (8,369) (8,226) Total stockholders' equity 158,887 137,270 Total liabilities and stockholders' equity $ 594,844 $ 568,986

Company Contacts:

Andrew R. Speaker
President & CEO
Mercer Insurance Group, Inc.
(609) 737-0426

David B. Merclean
Senior Vice President & CFO
Mercer Insurance Group, Inc.
(609) 737-0426