SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 Quarterly Report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
 for the Quarterly Period Ended June 30, 2008,
or
 Transition report pursuant to Section 13 or 15(d) Of the Exchange Act
 for the Transition Period from  to
 No. 000-25425
 (Commission File Number)
 MERCER INSURANCE GROUP, INC.
  PENNSYLVANIA
    
    23-2934601(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)10 North Highway 31, P.O. Box 278, Pennington, NJ
    
    08534(Address of principal executive offices)
    
    (Zip Code)
 (609) 737-0426
  
 þ o
 
 Large accelerated filer o
Accelerated filer þ
Non-accelerated filer o(Do not check if a smaller reporting company)
Smaller reporting company o o þ
  Number of Shares Outstanding as of August 1, 2008COMMON STOCK (No Par Value)
    
    6,543,175(Title of Class)
    
    (Outstanding Shares)




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##### 



TABLE OF CONTENTS
 PagePART I. FINANCIAL INFORMATION
    
    
    5Item 1. Financial Statements
    
    
    5Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    20Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    36Item 4. Controls and Procedures
    
    
    39PART II. OTHER INFORMATION
    
    
    39Item 1. Legal Proceedings
    
    
    39Item 1A. Risk Factors
    
    
    39Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    39Item 3. Defaults Upon Senior Securities
    
    
    40Item 4. Submission of Matters to a Vote of Security Holders
    
    
    41Item 5. Other Information
    
    
    41Item 6. Exhibits
    
    
    41SIGNATURES
    
    
    42Exhibits:
 Exhibit No.
    
    Title3.1
    
    
    
    Articles of Incorporation of Mercer Insurance Group, Inc. (incorporated by reference herein to the
Companys Pre-effective Amendment No. 3 on Form S-1, SEC File No. 333-104897.)3.2
    
    
    
    Bylaws of Mercer Insurance Group, Inc. (incorporated by reference herein to the Companys Annual Report
on Form 10-K, SEC File No. 000-25425, for the fiscal year ended December 31, 2003.)31.1
    
    
    
    Certification of Chief Executive Officer in accordance with Section 302 of the Sarbanes-Oxley Act of 200231.2
    
    
    
    Certification of Chief Financial Officer in accordance with Section 302 of the Sarbanes-Oxley Act of 200232.1
    
    
    
    Certification of Chief Executive Officer in accordance with Section 906 of the Sarbanes-Oxley Act of 200232.2
    
    
    
    Certification of Chief Financial Officer in accordance with Section 906 of the Sarbanes-Oxley Act of 2002
 2




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Forward-looking Statements
                    3




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##### 



4




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##### 



Part I  FINANCIAL INFORMATION
 Item 1. Financial Statements
 MERCER INSURANCE GROUP, INC. AND SUBSIDIARIES
 CONSOLIDATED BALANCE SHEET
 June 30,
    
    
    December 31,2008
    
    
    2007(Dollars in thousands)(Unaudited)AssetsInvestments:Fixed-income securities, available for sale, at fair value
(cost $331,924 and $321,978, respectively)
    
    $
    330,965
    
    
    
    324,238Equity securities, at fair value (cost $12,434 and $12,500,
respectively)
    
    
    16,628
    
    
    
    17,930Total investments
    
    
    347,593
    
    
    
    342,168Cash and cash equivalents
    
    
    19,394
    
    
    
    21,580Premiums receivable
    
    
    39,747
    
    
    
    36,339Reinsurance receivables
    
    
    89,164
    
    
    
    83,844Prepaid reinsurance premiums
    
    
    8,174
    
    
    
    9,486Deferred policy acquisition costs
    
    
    20,932
    
    
    
    20,528Accrued investment income
    
    
    3,783
    
    
    
    3,582Property and equipment, net
    
    
    14,841
    
    
    
    13,056Deferred income taxes
    
    
    9,055
    
    
    
    7,670Goodwill
    
    
    5,416
    
    
    
    5,416Other assets
    
    
    4,111
    
    
    
    2,766Total assets
    
    $
    562,210
    
    
    
    546,435Liabilities and EquityLiabilities:Losses and loss adjustment expenses
    
    $
    293,540
    
    
    
    274,399Unearned premiums
    
    
    87,280
    
    
    
    88,024Accounts payable and accrued expenses
    
    
    11,546
    
    
    
    14,622Other reinsurance balances
    
    
    13,155
    
    
    
    14,734Trust preferred securities
    
    
    15,567
    
    
    
    15,559Advances under line of credit
    
    
    3,000
    
    
    
    3,000Other liabilities
    
    
    2,323
    
    
    
    2,691Total liabilities
    
    
    426,411
    
    
    
    413,029Stockholders 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 7,075,333 shares, outstanding
6,766,952 and 6,717,693 shares
    
    
    
    
    
    
    Additional paid-in capital
    
    
    70,912
    
    
    
    70,394Accumulated other comprehensive income
    
    
    1,881
    
    
    
    4,896Retained earnings
    
    
    72,657
    
    
    
    67,613Unearned ESOP shares
    
    
    (2,819
    )
    
    
    (3,131
    )Treasury stock, 532,158 and 505,814 shares
    
    
    (6,832
    )
    
    
    (6,366
    )Total stockholders equity
    
    
    135,799
    
    
    
    133,406Total liabilities and stockholders equity
    
    $
    562,210
    
    
    
    546,435
  5




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##### 



MERCER INSURANCE GROUP, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF EARNINGS
Six Months Ended June 30, 2008 and 2007
 2008
    
    
    2007(Dollars in thousands, except pershare data)(Unaudited)Revenues:Net premiums earned
    
    $
    77,721
    
    
    
    69,064Investment income, net of expenses
    
    
    6,704
    
    
    
    6,712Net realized investment (losses)/gains
    
    
    (663
    )
    
    
    633Other revenue
    
    
    1,019
    
    
    
    907Total revenues
    
    
    84,781
    
    
    
    77,316Expenses:Losses and loss adjustment expenses
    
    
    48,745
    
    
    
    42,630Amortization of deferred policy acquisition costs (related party
amounts of $542 and $579, respectively)
    
    
    20,703
    
    
    
    17,959Other expenses
    
    
    6,842
    
    
    
    4,215Interest expense
    
    
    633
    
    
    
    611Total expenses
    
    
    76,923
    
    
    
    65,415Income before income taxes
    
    
    7,858
    
    
    
    11,901Income taxes
    
    
    2,033
    
    
    
    3,558Net income
    
    $
    5,825
    
    
    
    8,343Earnings per common share:Basic
    
    $
    0.94
    
    
    
    1.37Diluted
    
    $
    0.91
    
    
    
    1.32Weighted average shares:Basic
    
    
    6,226,772
    
    
    
    6,100,652Diluted
    
    
    6,382,926
    
    
    
    6,307,075
  6




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##### 



MERCER INSURANCE GROUP, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF EARNINGS
Three Months Ended June 30, 2008 and 2007
 2008
    
    
    2007(Dollars in thousands, except pershare data)(Unaudited)Revenues:Net premiums earned
    
    $
    38,644
    
    
    
    35,076Investment income, net of expenses
    
    
    3,343
    
    
    
    3,771Net realized investment gains
    
    
    157
    
    
    
    680Other revenue
    
    
    564
    
    
    
    481Total revenues
    
    
    42,708
    
    
    
    40,008Expenses:Losses and loss adjustment expenses
    
    
    23,975
    
    
    
    21,821Amortization of deferred policy acquisition costs (related party
amounts of $268 and $291, respectively)
    
    
    10,341
    
    
    
    9,182Other expenses
    
    
    3,647
    
    
    
    361Interest expense
    
    
    337
    
    
    
    304Total expenses
    
    
    38,300
    
    
    
    31,668Income before income taxes
    
    
    4,408
    
    
    
    8,340Income taxes
    
    
    1,175
    
    
    
    2,550Net income
    
    $
    3,233
    
    
    
    5,790Earnings per common share:Basic
    
    $
    0.52
    
    
    
    0.95Diluted
    
    $
    0.51
    
    
    
    0.92Weighted average shares:Basic
    
    
    6,233,796
    
    
    
    6,113,966Diluted
    
    
    6,387,750
    
    
    
    6,324,737
  7




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##### 



MERCER INSURANCE GROUP, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
Six months ended June 30, 2008
(Unaudited, dollars in thousands)
 AccumulatedAdditional
    
    
    other
    
    
    
    
    
    
    UnearnedPreferred
    
    
    Common
    
    
    paid-in
    
    
    comprehensive
    
    
    Retained
    
    
    ESOP
    
    
    Treasurystock
    
    
    stock
    
    
    capital
    
    
    income
    
    
    earnings
    
    
    shares
    
    
    stock
    
    
    TotalBalance, December 31, 2007
    
    $
    
    
    
    
    
    
    
    
    70,394
    
    
    
    4,896
    
    
    
    67,613
    
    
    
    (3,131
    )
    
    
    (6,366
    )
    
    
    133,406Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,825
    
    
    
    
    
    
    
    
    
    
    
    5,825Unrealized gains/(losses) on securities:Unrealized holding losses arising
during period, net of related
income tax benefit of $1,724
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,346
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,346
    )Less reclassification adjustment for
losses included in net income, net of
related income tax benefit of $210
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    405
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    405Defined benefit pension plan, net of
related income tax benefit of $38
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (74
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (74
    )Other comprehensive loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,015
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,810Stock compensation plan amortization
    
    
    
    
    
    
    
    
    
    
    259
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    259Tax benefit from stock compensation plan
    
    
    
    
    
    
    
    
    
    
    31
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    31ESOP shares committed
    
    
    
    
    
    
    
    
    
    
    228
    
    
    
    
    
    
    
    
    
    
    
    312
    
    
    
    
    
    
    
    540Purchase of treasury stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (466
    )
    
    
    (466
    )Dividends to stockholders
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (781
    )
    
    
    
    
    
    
    
    
    
    
    (781
    )Balance, June 30, 2008
    
    $
    
    
    
    
    
    
    
    
    70,912
    
    
    
    1,881
    
    
    
    72,657
    
    
    
    (2,819
    )
    
    
    (6,832
    )
    
    
    135,799
  8




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##### 



MERCER INSURANCE GROUP, INC. AND SUBSIDIARIES
 CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2008 and 2007
 2008
    
    
    2007(Dollars in thousands)(Unaudited)Cash flows from operating activities:Net income
    
    $
    5,825
    
    
    
    8,343Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization of fixed assets
    
    
    1,099
    
    
    
    1,024Net amortization of premium
    
    
    742
    
    
    
    627Amortization of stock compensation
    
    
    259
    
    
    
    747ESOP share commitment
    
    
    540
    
    
    
    595Net realized investment losses/(gains)
    
    
    663
    
    
    
    (633
    )Deferred income tax
    
    
    168
    
    
    
    (560
    )Change in assets and liabilities:Premiums receivable
    
    
    (3,408
    )
    
    
    (6,667
    )Reinsurance receivables
    
    
    (5,320
    )
    
    
    (4,983
    )Prepaid reinsurance premiums
    
    
    1,312
    
    
    
    5,274Deferred policy acquisition costs
    
    
    (404
    )
    
    
    (3,725
    )Other assets
    
    
    (1,596
    )
    
    
    443Losses and loss adjustment expenses
    
    
    19,141
    
    
    
    12,854Unearned premiums
    
    
    (744
    )
    
    
    7,668Other reinsurance balances
    
    
    (1,579
    )
    
    
    (3,612
    )Other
    
    
    (2,994
    )
    
    
    337Net cash provided by operating activities
    
    
    13,704
    
    
    
    17,732Cash flows from investing activities:Purchase of fixed income securities, available for sale
    
    
    (33,214
    )
    
    
    (37,102
    )Purchase of equity securities
    
    
    (1,999
    )
    
    
    (1,494
    )Sale of short-term investments, net
    
    
    
    
    
    
    7,332Sale and maturity of fixed income securities, available for sale
    
    
    22,068
    
    
    
    11,356Sale of equity securities
    
    
    1,352
    
    
    
    1,552Purchase of property and equipment, net
    
    
    (2,881
    )
    
    
    (1,404
    )Net cash used in investing activities
    
    
    (14,674
    )
    
    
    (19,760
    )Cash flows from financing activities:Purchase of treasury stock
    
    
    (466
    )
    
    
    (40
    )Tax benefit from stock compensation plans
    
    
    31
    
    
    
    153Proceeds from issuance of common stock
    
    
    
    
    
    
    40Dividends to stockholders
    
    
    (781
    )
    
    
    (631
    )Net cash used in financing activities
    
    
    (1,216
    )
    
    
    (478
    )Net decrease in cash and cash equivalents
    
    
    (2,186
    )
    
    
    (2,506
    )Cash and cash equivalents at beginning of period
    
    
    21,580
    
    
    
    17,618Cash and cash equivalents at end of period
    
    $
    19,394
    
    
    
    15,112Cash paid during the period for:Interest
    
    $
    626
    
    
    
    603Income taxes
    
    $
    2,700
    
    
    
    2,375
  9




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MERCER INSURANCE GROUP, INC. AND SUBSIDIARIES
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 Basis of Presentation
     Share-Based Compensation
     Fair Value Measurements
 Fair Value Measurements
 10




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Effective Date of FASB Statement No. 157
  Fair Value Option for Financial Assets and Financial Liabilities
 The Fair Value Option for Financial Assets and
Financial Liabilities Including an Amendment of FASB Statement No. 115
 New Accounting Pronouncements
 Disclosures about Derivative Instruments and
Hedging Activities, an Amendment of FASB Statement No. 133
 Segment Information
   11




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##### 



Six Months Ended June 30,2008
    
    
    2007(In thousands)Revenues:Net premiums earned:Commercial lines
    
    $
    67,689
    
    
    $
    58,312Personal lines
    
    
    10,032
    
    
    
    10,752Total net premiums earned
    
    
    77,721
    
    
    
    69,064Net investment income
    
    
    6,704
    
    
    
    6,712Net realized investment (losses)/gains
    
    
    (663
    )
    
    
    633Other revenue
    
    
    1,019
    
    
    
    907Total revenues
    
    $
    84,781
    
    
    $
    77,316Income before income taxes:Underwriting income (loss):Commercial lines
    
    $
    2,240
    
    
    $
    5,159Personal lines
    
    
    (809
    )
    
    
    (899
    )Total underwriting income
    
    
    1,431
    
    
    
    4,260Net investment income
    
    
    6,704
    
    
    
    6,712Net realized investment (losses)/gains
    
    
    (663
    )
    
    
    633Other
    
    
    386
    
    
    
    296Income before income taxes
    
    $
    7,858
    
    
    $
    11,901
 12




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##### 



Three Months Ended June 30,2008
    
    
    2007(In thousands)Revenues:Net premiums earned:Commercial lines
    
    $
    33,658
    
    
    $
    29,772Personal lines
    
    
    4,986
    
    
    
    5,304Total net premiums earned
    
    
    38,644
    
    
    
    35,076Net investment income
    
    
    3,343
    
    
    
    3,771Net realized investment gains
    
    
    157
    
    
    
    680Other revenue
    
    
    564
    
    
    
    481Total revenues
    
    $
    42,708
    
    
    $
    40,008Income before income taxes:Underwriting income (loss):Commercial lines
    
    $
    1,468
    
    
    $
    3,666Personal lines
    
    
    (787
    )
    
    
    46Total underwriting income
    
    
    681
    
    
    
    3,712Net investment income
    
    
    3,343
    
    
    
    3,771Net realized investment gains
    
    
    157
    
    
    
    680Other
    
    
    227
    
    
    
    177Income before income taxes
    
    $
    4,408
    
    
    $
    8,340
 13




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##### 



Reinsurance
    Comprehensive Income
  Six months endedJune 30,2008
    
    
    2007(In thousands)Net income
    
    $
    5,825
    
    
    $
    8,343Other comprehensive loss, net of tax:Unrealized losses on securities:Unrealized holding losses arising during period, net of related income tax
benefit of $1,724 and $999
    
    
    (3,346
    )
    
    
    (1,939
    )Less reclassification adjustment for losses/(gains) included in net income, net of related
income tax (benefit)/expense of $(210) and $116
    
    
    405
    
    
    
    (227
    )Defined benefit pension plan, net of related income tax benefit of $38
    
    
    (74
    )
    
    
    (3,015
    )
    
    
    (2,166
    )Comprehensive income
    
    $
    2,810
    
    
    $
    6,177
 14




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##### 



Three months endedJune 30,2008
    
    
    2007(In thousands)Net income
    
    $
    3,233
    
    
    $
    5,790Other comprehensive loss, net of tax:Unrealized losses on securities:Unrealized holding losses arising during period, net of related income tax
benefit of $1,963 and $1,114
    
    
    (3,810
    )
    
    
    (2,163
    )Less reclassification adjustment for losses/(gains) included in net income, net of related
income tax (benefit)/expense of $(167) and $116
    
    
    323
    
    
    
    (227
    )Defined benefit pension plan, net of related income tax benefit of $38
    
    
    (74
    )
    
    
    (3,561
    )
    
    
    (2,390
    )Comprehensive (loss)/income
    
    $
    (328
    )
    
    $
    3,400
 Share-based Compensation
    15




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##### 



Weighted AverageNumber of
    
    
    Exercise PriceShares
    
    
    per ShareOutstanding at December 31, 2007
    
    
    603,200
    
    
    $
    13.24Granted  2008
    
    
    
    
    
    
    Exercised  2008
    
    
    
    
    
    
    Forfeited  2008
    
    
    
    
    
    
    Outstanding at June 30, 2008
    
    
    603,200
    
    
    $
    13.24Exercisable at:June 30, 2008
    
    
    522,533
    
    
    $
    12.56Weighted-average remaining contractual life
    
    
    
    
    
    6.2 yearsCompensation remaining to be recognized for unvested stock options at June 30, 2008 (millions)
    
    
    
    
    
    $
    0.4Weighted-average remaining amortization period
    
    
    
    
    
    1.8 yearsAggregate Intrinsic Value of outstanding options, June 30, 2008 (millions)
    
    
    
    
    
    $
    2.8Aggregate Intrinsic Value of exercisable options, June 30, 2008 (millions)
    
    
    
    
    
    $
    2.6
   WeightedAverageNumber of
    
    
    Fair ValueShares
    
    
    per ShareUnvested restricted stock at December 31, 2007
    
    
    44,584
    
    
    $
    14.66Granted  2008
    
    
    
    
    
    
    Vested  2008
    
    
    (18,125
    )
    
    
    12.24Forfeited  2008
    
    
    
    
    
    
    Unvested restricted stock at June 30, 2008
    
    
    26,459
    
    
    $
    16.32Compensation remaining to be recognized for unvested restricted stock at June 30, 2008 (millions)
    
    
    
    
    
    $
    0.4Weighted-average remaining amortization period
    
    
    
    
    
    1.4 years
 16




---



##### 



Earnings per Share
  Six months endedJune 30,2008
    
    
    2007(Dollars in thousands, except per share data)Numerator for basic and diluted earnings per share:Net income
    
    $
    5,825
    
    
    $
    8,343Denominator for basic earnings per share  weighted-average shares
    
    
    6,226,772
    
    
    
    6,100,652Effect of stock incentive plans
    
    
    156,154
    
    
    
    206,423Denominator for diluted earnings per share
    
    
    6,382,926
    
    
    
    6,307,075Basic earnings per share
    
    $
    0.94
    
    
    $
    1.37Diluted earnings per share
    
    $
    0.91
    
    
    $
    1.32
 Three months endedJune 30,2008
    
    
    2007(Dollars in thousands, except per share data)Numerator for basic and diluted earnings per share:Net income
    
    $
    3,233
    
    
    $
    5,790Denominator for basic earnings per share  weighted-average shares
    
    
    6,233,796
    
    
    
    6,113,966Effect of stock incentive plans
    
    
    153,954
    
    
    
    210,771Denominator for diluted earnings per share
    
    
    6,387,750
    
    
    
    6,324,737Basic earnings per share
    
    $
    0.52
    
    
    $
    0.95Diluted earnings per share
    
    $
    0.51
    
    
    $
    0.92
  Income Taxes
   (8) Fair Value of Assets and Liabilities
  17




---



##### 




    
    Level 1  Valuations for assets and liabilities traded in active exchange markets,
such as the New York Stock Exchange. Level 1 also includes all U.S. Treasury obligations
that are traded by dealers or brokers in active markets. Valuations are obtained from
readily available third-party pricing sources for market transactions involving identical
assets or liabilities. These securities do not entail a significant degree of judgment
since the valuations are based on quoted prices that are readily and regularly available
in an active market.
    
    Level 2  Valuations for assets and liabilities traded in less active dealer or
broker markets. Valuations are based on identical or comparable assets and liabilities.
    
    Level 3  Valuations for assets and liabilities that are derived from other valuation
methodologies, including option pricing models, discounted cash flow models and similar
techniques, and not based on market exchange, dealer, or broker
traded transactions. Level 3 valuations incorporate certain assumptions and projections
in determining the fair value assigned to such assets or liabilities.
  June 30, 2008(in thousands)
    
    Total
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3Fixed-income securities, available for sale
    
    $
    330,965
    
    
    $
    6,306
    
    
    $
    321,302
    
    
    $
    3,357Equity securities
    
    
    16,628
    
    
    
    14,824
    
    
    
    981
    
    
    
    823Total assets
    
    $
    347,593
    
    
    $
    21,130
    
    
    $
    322,283
    
    
    $
    4,180Other liabilities
    
    $
    429
    
    
    
    
    
    
    $
    429
    
    
    
    Total liabilities
    
    $
    429
    
    
    
    
    
    
    $
    429
    
    
    
    Net gains included in net income relating
to assets held and liabilities at June 30, 2008
    
    
    ($721
    )
    
    
    ($212
    )
    
    
    ($509
    )
    
    
    
   For the Six Months EndedJune 30, 2008Fixed-incomesecurities,available
    
    
    Equity(in thousands)
    
    for sale
    
    
    securitiesBalance, beginning of period
    
    $
    2,399
    
    
    $
    823Total net losses included in other comprehensive income
    
    
    (9
    )
    
    
    Purchases, sales, issuances and settlements, net
    
    
    967
    
    
    
    Balance, end of period
    
    $
    3,357
    
    
    $
    823
 18




---



##### 



For the Three Months EndedJune 30, 2008Fixed-incomesecurities,available
    
    
    Equity(in thousands)
    
    for sale
    
    
    securitiesBalance, beginning of period
    
    $
    3,423
    
    
    $
    823Total net losses included in other comprehensive income
    
    
    (62
    )
    
    
    Purchases, sales, issuances and settlements, net
    
    
    (4
    )
    
    
    Balance, end of period
    
    $
    3,357
    
    
    $
    823
  (9) Retaliatory Tax Refund
   19




---



##### 



Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
  Overview
  
    
    Mercer Insurance Company (MIC), a Pennsylvania property and casualty stock insurance
company offering insurance coverages to businesses and individuals in New Jersey, New York
and Pennsylvania;
    
    Mercer Insurance Company of New Jersey, Inc. (MICNJ), a New Jersey property and
casualty stock insurance company offering insurance coverages to businesses and individuals
located in New Jersey and businesses located in New York;
    
    Franklin Insurance Company (FIC), a Pennsylvania property and casualty stock insurance
company offering private passenger automobile and homeowners insurance to individuals
located in Pennsylvania; and
    
    Financial Pacific Insurance Company (FPIC), a California property and casualty stock
insurance company offering insurance and surety products to small and medium sized
commercial businesses in Arizona, California, Nevada and Oregon, and direct mail surety
products to commercial businesses in various other states.
       20




---



##### 



Critical Accounting Policies
 General.
 Liabilities for Loss and Loss Adjustment Expenses.
   21




---



##### 



Adjusted Loss and
    
    
    
    Adjusted Loss andChange in Loss
    
    Loss Adjustment
    
    Percentage
    
    Loss Adjustment
    
    Percentageand Loss
    
    Reserves Net of
    
    Change in
    
    Reserves Net of
    
    Change inAdjustment
    
    Reinsurance as of
    
    Equity as of
    
    Reinsurance as of
    
    Equity as ofReserves Net of
    
    June 30,
    
    June 30,
    
    December 31,
    
    December 31,Reinsurance
    
    2008
    
    2008 (1)
    
    2007
    
    2007 (1)(Dollars in thousands)(10.0)%
    
    $184,723
    
    10.0%
    
    $172,815
    
    9.5%(7.5)%
    
    189,854
    
    7.5%
    
    177,616
    
    7.1%(5.0)%
    
    194,986
    
    5.0%
    
    182,416
    
    4.7%(2.5)%
    
    200,117
    
    2.5%
    
    187,217
    
    2.4%Base
    
    205,248
    
    
    
    192,017
    
    2.5%
    
    210,379
    
    (2.5)%
    
    196,817
    
    (2.4)%5.0%
    
    215,510
    
    (5.0)%
    
    201,618
    
    (4.7)%7.5%
    
    220,642
    
    (7.5)%
    
    206,418
    
    (7.1)%10.0%
    
    225,773
    
    (10.0)%
    
    211,219
    
    (9.5)%
 
 (1)
    
    Net of tax   June 30,
    
    
    December 31,2008
    
    
    2007(In thousands)Commercial lines:Commercial multi-peril
    
    $
    213,949
    
    
    $
    198,919Commercial automobile
    
    
    42,424
    
    
    
    37,569Other liability
    
    
    11,696
    
    
    
    11,854Workers compensation
    
    
    8,192
    
    
    
    8,279Surety
    
    
    6,708
    
    
    
    6,818Fire, allied, inland marine
    
    
    568
    
    
    
    131283,537
    
    
    
    263,570Personal lines:Homeowners
    
    
    6,944
    
    
    
    7,029Personal automobile
    
    
    1,851
    
    
    
    2,122Other liability
    
    
    1,052
    
    
    
    1,142Fire, allied, inland marine
    
    
    115
    
    
    
    490Workers compensation
    
    
    41
    
    
    
    4610,003
    
    
    
    10,829Total
    
    $
    293,540
    
    
    $
    274,399
 22




---



##### 



Investments.
          23




---



##### 



Policy Acquisition Costs.
 Reinsurance.
  Income Taxes.
 Results of Operations
     Six and three months ended June 30, 2008 compared to six and three months ended June 30, 2007
  24




---



##### 



Six months ended June 30,2008 vs. 2007 Income
    
    2008
    
    2007
    
    Change
    
    % Change(Dollars in thousands)Commercial lines underwriting income
    
    $
    2,240
    
    
    $
    5,159
    
    
    $
    (2,919
    )
    
    
    (56.6
    )%Personal lines underwriting loss
    
    
    (809
    )
    
    
    (899
    )
    
    
    90
    
    
    
    (10.0
    )%Total underwriting income
    
    
    1,431
    
    
    
    4,260
    
    
    
    (2,829
    )
    
    
    (66.4
    )%Net investment income
    
    
    6,704
    
    
    
    6,712
    
    
    
    (8
    )
    
    
    (0.1
    )%Net realized investment (losses)/gains
    
    
    (663
    )
    
    
    633
    
    
    
    (1,296
    )
    
    
    N/MOther
    
    
    1,019
    
    
    
    907
    
    
    
    112
    
    
    
    12.3
    %Interest expense
    
    
    (633
    )
    
    
    (611
    )
    
    
    (22
    )
    
    
    3.6
    %Income before income taxes
    
    
    7,858
    
    
    
    11,901
    
    
    
    (4,043
    )
    
    
    (34.0
    )%Income taxes
    
    
    2,033
    
    
    
    3,558
    
    
    
    (1,525
    )
    
    
    (42.9
    )%Net Income
    
    
    5,825
    
    
    
    8,343
    
    
    
    (2,518
    )
    
    
    (30.2
    )%Loss/ LAE ratio (GAAP)
    
    
    62.8
    %
    
    
    61.7
    %
    
    
    1.1
    %Underwriting expense ratio (GAAP)
    
    
    35.4
    %
    
    
    32.1
    %
    
    
    3.3
    %Combined ratio (GAAP)
    
    
    98.2
    %
    
    
    93.8
    %
    
    
    4.4
    %Loss/ LAE ratio (Statutory)
    
    
    62.8
    %
    
    
    61.7
    %
    
    
    1.1
    %Underwriting expense ratio (Statutory)
    
    
    35.0
    %
    
    
    30.3
    %
    
    
    4.7
    %Combined ratio (Statutory)
    
    
    97.8
    %
    
    
    92.0
    %
    
    
    5.8
    %
 Three months ended June 30,2008 vs. 2007 Income
    
    2008
    
    2007
    
    Change
    
    % Change(Dollars in thousands)Commercial lines underwriting income
    
    $
    1,468
    
    
    $
    3,666
    
    
    $
    (2,198
    )
    
    
    (60.0
    )%Personal lines underwriting loss
    
    
    (787
    )
    
    
    46
    
    
    
    (833
    )
    
    
    N/MTotal underwriting income
    
    
    681
    
    
    
    3,712
    
    
    
    (3,031
    )
    
    
    (81.7
    )%Net investment income
    
    
    3,343
    
    
    
    3,771
    
    
    
    (428
    )
    
    
    (11.3
    )%Net realized investment gains
    
    
    157
    
    
    
    680
    
    
    
    (523
    )
    
    
    N/MOther
    
    
    564
    
    
    
    481
    
    
    
    83
    
    
    
    17.3
    %Interest expense
    
    
    (337
    )
    
    
    (304
    )
    
    
    (33
    )
    
    
    10.9
    %Income before income taxes
    
    
    4,408
    
    
    
    8,340
    
    
    
    (3,932
    )
    
    
    (47.1
    )%Income taxes
    
    
    1,175
    
    
    
    2,550
    
    
    
    (1,375
    )
    
    
    (53.9
    )%Net Income
    
    
    3,233
    
    
    
    5,790
    
    
    
    (2,557
    )
    
    
    (44.2
    )%Loss/ LAE ratio (GAAP)
    
    
    62.0
    %
    
    
    62.2
    %
    
    
    (0.2
    )%Underwriting expense ratio (GAAP)
    
    
    36.2
    %
    
    
    27.2
    %
    
    
    9.0
    %Combined ratio (GAAP)
    
    
    98.2
    %
    
    
    89.4
    %
    
    
    8.8
    %Loss/ LAE ratio (Statutory)
    
    
    62.0
    %
    
    
    62.2
    %
    
    
    (0.2
    )%Underwriting expense ratio (Statutory)
    
    
    34.6
    %
    
    
    25.1
    %
    
    
    9.5
    %Combined ratio (Statutory)
    
    
    96.6
    %
    
    
    87.3
    %
    
    
    9.3
    %
 
    25




---



##### 



Six Months Ended June 30,2008 vs. 2007 Revenue
    
    2008
    
    2007
    
    Change
    
    % Change(In thousands)Direct premiums written
    
    $
    87,377
    
    
    $
    93,479
    
    
    $
    (6,102
    )
    
    
    (6.5)
    %Net premiums written
    
    
    78,288
    
    
    
    82,007
    
    
    
    (3,719
    )
    
    
    (4.5)
    %Net premiums earned
    
    
    77,721
    
    
    
    69,064
    
    
    
    8,657
    
    
    
    12.5
    %Net investment income
    
    
    6,704
    
    
    
    6,712
    
    
    
    (8
    )
    
    
    (0.1)
    %Net realized investment (losses)/gains
    
    
    (663
    )
    
    
    633
    
    
    
    (1,296
    )
    
    
    N/MOther revenue
    
    
    1,019
    
    
    
    907
    
    
    
    112
    
    
    
    12.3
    %Total revenue
    
    $
    84,781
    
    
    $
    77,316
    
    
    $
    7,465
    
    
    
    9.7
    %
 Three Months Ended June 30,2008 vs. 2007 Revenue
    
    2008
    
    2007
    
    Change
    
    % Change(In thousands)Direct premiums written
    
    $
    49,080
    
    
    $
    54,207
    
    
    $
    (5,127
    )
    
    
    (9.5)
    %Net premiums written
    
    
    43,749
    
    
    
    47,206
    
    
    
    (3,457
    )
    
    
    (7.3)
    %Net premiums earned
    
    
    38,644
    
    
    
    35,076
    
    
    
    3,568
    
    
    
    10.2
    %Net investment income
    
    
    3,343
    
    
    
    3,771
    
    
    
    (428
    )
    
    
    (11.3)
    %Net realized investment gains
    
    
    157
    
    
    
    680
    
    
    
    (523
    )
    
    
    N/MOther revenue
    
    
    564
    
    
    
    481
    
    
    
    83
    
    
    
    17.3
    %Total revenue
    
    $
    42,708
    
    
    $
    40,008
    
    
    $
    2,700
    
    
    
    6.7
    %
 
   26




---



##### 



27




---



##### 



28




---



##### 



Six Months Ended June 30,2008 vs. 2007 Investment Income and Realized Gains
    
    2008
    
    2007
    
    Change
    
    % Change(In thousands)Fixed income securities
    
    $
    7,289
    
    
    $
    6,418
    
    
    $
    871
    
    
    
    13.6
    %Dividends
    
    
    167
    
    
    
    147
    
    
    
    20
    
    
    
    13.6
    %Cash, cash equivalents & other
    
    
    253
    
    
    
    1,062
    
    
    
    (809
    )
    
    
    (76.2)
    %Gross investment income
    
    
    7,709
    
    
    
    7,627
    
    
    
    82
    
    
    
    1.1
    %Investment expenses
    
    
    (1,005
    )
    
    
    (915
    )
    
    
    (90
    )
    
    
    (9.8)
    %Net investment income
    
    
    6,704
    
    
    
    6,712
    
    
    $
    (8
    )
    
    
    (0.1)
    %Realized losses  fixed income securities
    
    
    (459
    )
    
    
    
    
    
    $
    (459
    )
    
    
    N/MRealized (losses)/gains  equity securities
    
    
    (154
    )
    
    
    343
    
    
    
    (497
    )
    
    
    N/MMark-to-market valuation for interest rate swaps
    
    
    (50
    )
    
    
    290
    
    
    
    (340
    )
    
    
    N/MNet realized (losses)/gains
    
    
    (663
    )
    
    
    633
    
    
    $
    (1,296
    )
    
    
    N/M
 Three Months Ended June 30,2008 vs. 2007 Investment Income and Realized Gains
    
    2008
    
    2007
    
    Change
    
    % Change(In thousands)Fixed income securities
    
    $
    3,680
    
    
    $
    3,266
    
    
    $
    414
    
    
    
    12.7
    %Dividends
    
    
    82
    
    
    
    73
    
    
    
    9
    
    
    
    12.3
    %Cash, cash equivalents & other
    
    
    83
    
    
    
    859
    
    
    
    (776
    )
    
    
    (90.3)
    %Gross investment income
    
    
    3,845
    
    
    
    4,198
    
    
    
    (353
    )
    
    
    (8.4)
    %Investment expenses
    
    
    (502
    )
    
    
    (427
    )
    
    
    (75
    )
    
    
    (17.6)
    %Net investment income
    
    
    3,343
    
    
    
    3,771
    
    
    $
    (428
    )
    
    
    (11.3)
    %Realized losses  fixed income securities
    
    
    (459
    )
    
    
    28
    
    
    $
    (487
    )
    
    
    N/MRealized (losses)/gains  equity securities
    
    
    (30
    )
    
    
    314
    
    
    
    (344
    )
    
    
    N/MMark-to-market valuation for interest rate swaps
    
    
    646
    
    
    
    338
    
    
    
    308
    
    
    
    N/MNet realized gains
    
    
    157
    
    
    
    680
    
    
    $
    (523
    )
    
    
    N/M
 
     29




---



##### 



Less than 12 Months
    
    
    12 Months or Longer
    
    
    TotalEstimated
    
    
    Unrealized
    
    
    Estimated
    
    
    Unrealized
    
    
    Estimated
    
    
    UnrealizedFair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses
    
    
    Fair Value
    
    
    Losses(In Thousands)U.S. Treasury securities and
obligations of U.S.
government corporations
and agencies
    
    $
    24,534
    
    
    $
    279
    
    
    $
    1,036
    
    
    $
    34
    
    
    $
    25,570
    
    
    $
    313Obligations of states and
political subdivisions
    
    
    69,921
    
    
    
    1,112
    
    
    
    1,032
    
    
    
    66
    
    
    
    70,953
    
    
    
    1,178Corporate securities
    
    
    26,238
    
    
    
    502
    
    
    
    7,068
    
    
    
    760
    
    
    
    33,306
    
    
    
    1,262Mortgage-backed securities
    
    
    11,798
    
    
    
    242
    
    
    
    1,291
    
    
    
    51
    
    
    
    13,089
    
    
    
    293Total fixed maturities
    
    
    132,491
    
    
    
    2,135
    
    
    
    10,427
    
    
    
    911
    
    
    
    142,918
    
    
    
    3,046Total equity securities
    
    
    4,691
    
    
    
    330
    
    
    
    83
    
    
    
    20
    
    
    
    4,774
    
    
    
    350Total securities in a
temporary unrealized loss
position
    
    $
    137,182
    
    
    $
    2,465
    
    
    $
    10,510
    
    
    $
    931
    
    
    $
    147,692
    
    
    $
    3,396
   30




---



##### 



Six Months Ended June 30,2008 vs. 2007 Commercial Lines (CL)
    
    2008
    
    2007
    
    Change
    
    % Change(Dollars in thousands)CL Direct premiums written
    
    $
    76,634
    
    
    $
    82,374
    
    
    $
    (5,740
    )
    
    
    (7.0)
    %CL Net premiums written
    
    $
    68,665
    
    
    $
    72,214
    
    
    $
    (3,549
    )
    
    
    (4.9)
    %CL Net premiums earned
    
    $
    67,689
    
    
    $
    58,312
    
    
    $
    9,377
    
    
    
    16.1
    %CL Loss/ LAE expense ratio (GAAP)
    
    
    61.6
    %
    
    
    57.8
    %
    
    
    3.8
    %CL Expense ratio (GAAP)
    
    
    35.1
    %
    
    
    33.4
    %
    
    
    1.7
    %CL Combined ratio (GAAP)
    
    
    96.7
    %
    
    
    91.2
    %
    
    
    5.5
    %
 Three Months Ended June 30,2008 vs. 2007 Commercial Lines (CL)
    
    2008
    
    2007
    
    Change
    
    % Change(Dollars in thousands)CL Direct premiums written
    
    $
    43,300
    
    
    $
    48,273
    
    
    $
    (4,973
    )
    
    
    (10.3)
    %CL Net premiums written
    
    $
    38,539
    
    
    $
    42,066
    
    
    $
    (3,527
    )
    
    
    (8.4)
    %CL Net premiums earned
    
    $
    33,658
    
    
    $
    29,772
    
    
    $
    3,886
    
    
    
    13.1
    %CL Loss/ LAE expense ratio (GAAP)
    
    
    59.8
    %
    
    
    58.6
    %
    
    
    1.2
    %CL Expense ratio (GAAP)
    
    
    35.9
    %
    
    
    29.1
    %
    
    
    6.8
    %CL Combined ratio (GAAP)
    
    
    95.7
    %
    
    
    87.7
    %
    
    
    8.0
    %
  31




---



##### 



Six Months Ended June 30,2008 vs. 2007 Personal Lines (PL)
    
    2008
    
    2007
    
    Change
    
    % Change(Dollars in thousands)PL Direct premiums written
    
    $
    10,743
    
    
    $
    11,105
    
    
    $
    (362
    )
    
    
    (3.3
    )%PL Net premiums written
    
    $
    9,623
    
    
    $
    9,793
    
    
    $
    (170
    )
    
    
    (1.7
    )%PL Net premiums earned
    
    $
    10,032
    
    
    $
    10,752
    
    
    $
    (720
    )
    
    
    (6.7
    )%PL Loss/ LAE expense ratio (GAAP)
    
    
    70.2
    %
    
    
    83.2
    %
    
    
    (13.0
    )%PL Expense ratio (GAAP)
    
    
    37.8
    %
    
    
    25.2
    %
    
    
    12.6
    %PL Combined ratio (GAAP)
    
    
    108.0
    %
    
    
    108.4
    %
    
    
    (0.4
    )%
 32




---



##### 



Three Months Ended June 30,2008 vs. 2007 Personal Lines (PL)
    
    2008
    
    2007
    
    Change
    
    % Change(Dollars in thousands)PL Direct premiums written
    
    $
    5,780
    
    
    $
    5,934
    
    
    $
    (154
    )
    
    
    (2.6
    )%PL Net premiums written
    
    $
    5,210
    
    
    $
    5,140
    
    
    $
    70
    
    
    
    1.4
    %PL Net premiums earned
    
    $
    4,986
    
    
    $
    5,304
    
    
    $
    (318
    )
    
    
    (6.0
    )%PL Loss/ LAE expense ratio (GAAP)
    
    
    77.4
    %
    
    
    82.3
    %
    
    
    (4.9
    )%PL Expense ratio (GAAP)
    
    
    38.4
    %
    
    
    16.8
    %
    
    
    21.6
    %PL Combined ratio (GAAP)
    
    
    115.8
    %
    
    
    99.1
    %
    
    
    16.7
    %
     Six Months Ended June 30,2008 vs. 2007 Expenses and Expense Ratio
    
    2008
    
    2007
    
    Change
    
    % Change(Dollars in thousands)Amortization of Deferred Acquisition Costs
    
    $
    20,703
    
    
    $
    17,959
    
    
    $
    2,744
    
    
    
    15.3
    %As a % of net premiums earned
    
    
    26.6
    %
    
    
    26.0
    %
    
    
    0.6
    %Other underwriting expenses
    
    
    6,842
    
    
    
    4,215
    
    
    
    2,627
    
    
    
    62.3
    %Underwriting expenses
    
    
    27,545
    
    
    
    22,174
    
    
    $
    5,371
    
    
    
    24.2
    %Underwriting expense ratio
    
    
    35.4
    %
    
    
    32.1
    %
    
    
    3.3
    %
  33




---



##### 



Six Months Ended June 30,2008 vs. 2007 Income Taxes
    
    2008
    
    2007
    
    Change
    
    % Change(Dollars in thousands)Income before income taxes
    
    $
    7,858
    
    
    $
    11,901
    
    
    $
    (4,043
    )
    
    
    (34.0
    )%Income taxes
    
    
    2,033
    
    
    
    3,558
    
    
    
    (1,525
    )
    
    
    (42.9
    )%Net income
    
    
    5,825
    
    
    
    8,343
    
    
    $
    (2,518
    )
    
    
    (30.2
    )%Effective tax rate
    
    
    25.9
    %
    
    
    29.9
    %
    
    
    (4.0
    )%
  LIQUIDITY AND CAPITAL RESOURCES
       34




---



##### 



35




---



##### 



IMPACT OF INFLATION
   OFF BALANCE SHEET COMMITMENTS AND CONTRACTUAL OBLIGATIONS
   Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
 General.
  Interest Rate Risk.
  Credit Risk.
  Municipal Bond Holding Exposure.
  
    
    AA+ including insurance enhancement
 36




---



##### 




    
    AA excluding insurance enhancement
 
    
    99% of the underlying ratings are A- or better
    
    89% of the underlying ratings are AA- or better
  
    
    The average credit quality with insurance enhancement is AA+
    
    The average credit quality of the underlying, excluding insurance enhancement, is AA
    
    Each municipal fixed income investment is evaluated based on its underlying
credit fundamentals, irrespective of credit enhancement provided by bond insurers
  
    
    The average credit quality of those securities without enhancement is AA+
  % of TotalAverage Credit
    
    Market
    
    Muni
    
    UnrealizedRating
    
    Value
    
    Portfolio
    
    Loss(dollars in thousands)Uninsured Securities
    
    AA+
    
    $
    46,636
    
    
    
    31
    %
    
    $
    (159
    )Securities with Insurance Enhancement
    
    AA+
    
    
    102,825
    
    
    
    69
    %
    
    
    (367
    )Total
    
    
    
    
    
    $
    149,461
    
    
    
    100
    %
    
    $
    (526
    )
 MarketCredit Enhancement
    
    Value
    
    % of Total(dollars in thousands)AMBAC
    
    $
    11,081
    
    
    
    7
    %FGIC
    
    
    28,436
    
    
    
    19
    %FSA
    
    
    29,387
    
    
    
    20
    %MBIA
    
    
    27,561
    
    
    
    18
    %No Enhancement
    
    
    35,085
    
    
    
    24
    %Other Enhancement
    
    
    8,472
    
    
    
    6
    %Escrowed to Maturity
    
    
    9,439
    
    
    
    6
    %Grand Total
    
    $
    149,461
    
    
    
    100
    %
  37




---



##### 



Total Municipal
    
    
    Total MunicipalUnderlying Rating
    
    
    Fixed Income
    
    
    Fixed IncomeInsurance
    
    
    of Insurance
    
    
    Portfolio
    
    
    PortfolioUninsured
    
    
    Enhanced
    
    
    Enhanced
    
    
    (with Insurance
    
    
    (without InsuranceSecurities
    
    
    Securities
    
    
    Securities
    
    
    Enhancement)
    
    
    Enhancement)(1)
    
    
    (2)
    
    
    (3)
    
    
    (1) + (2)
    
    
    (1) + (3)(dollars in thousands)S&P orequivalent
    
    Market
    
    
    % of
    
    
    Market
    
    
    % of
    
    
    Market
    
    
    % of
    
    
    Market
    
    
    % of
    
    
    Market
    
    
    % ofratings
    
    Value
    
    
    Total
    
    
    Value
    
    
    Total
    
    
    Value
    
    
    Total
    
    
    Value
    
    
    Total
    
    
    Value
    
    
    TotalAAA
    
    $
    25,082
    
    
    
    54
    %
    
    $
    37,605
    
    
    
    37
    %
    
    $
    11,575
    
    
    
    11
    %
    
    $
    62,687
    
    
    
    42
    %
    
    $
    36,657
    
    
    
    25
    %AA+
    
    
    6,503
    
    
    
    14
    %
    
    
    19,556
    
    
    
    19
    %
    
    
    26,691
    
    
    
    26
    %
    
    
    26,059
    
    
    
    17
    %
    
    
    33,194
    
    
    
    21
    %AA
    
    
    12,534
    
    
    
    27
    %
    
    
    36,785
    
    
    
    36
    %
    
    
    28,773
    
    
    
    28
    %
    
    
    49,319
    
    
    
    33
    %
    
    
    41,307
    
    
    
    28
    %AA-
    
    
    2,518
    
    
    
    5
    %
    
    
    7,645
    
    
    
    7
    %
    
    
    19,629
    
    
    
    19
    %
    
    
    10,163
    
    
    
    7
    %
    
    
    22,147
    
    
    
    15
    %A+
    
    
    
    
    
    
    
    
    
    
    202
    
    
    
    0
    %
    
    
    6,437
    
    
    
    6
    %
    
    
    202
    
    
    
    0
    %
    
    
    6,437
    
    
    
    4
    %A
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,710
    
    
    
    7
    %
    
    
    
    
    
    
    
    
    
    
    5,710
    
    
    
    4
    %A-
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,978
    
    
    
    3
    %
    
    
    
    
    
    
    
    
    
    
    2,978
    
    
    
    2
    %BBB-1,031
    
    
    
    1
    %
    
    
    1,031
    
    
    
    1
    %
    
    
    1,031
    
    
    
    1
    %
    
    
    1,031
    
    
    
    1
    %Total
    
    $
    46,637
    
    
    
    100
    %
    
    $
    102,824
    
    
    
    100
    %
    
    $
    102,824
    
    
    
    100
    %
    
    $
    149,461
    
    
    
    100
    %
    
    $
    149,461
    
    
    
    100
    %Average Rating
    
    AA+
    
    AA+
    
    AA
    
    AA+
    
    AA
 Structured Product Exposure.
       38




---



##### 



Equity Risk.
   Item 4.
Controls and Procedures
  Part II  OTHER INFORMATION
 Item 1. Legal Proceedings.
  Item 1A.  Risk Factors.
  Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
 Total Number of
    
    
    Maximum Number ofShares Purchased as
    
    
    Shares That May YetPart of Publicly
    
    
    Be Purchased UnderTotal Number of
    
    
    Average Price Paid
    
    
    Announced Plans or
    
    
    The Plans orPeriod
    
    
    Shares Purchased
    
    
    per Share
    
    
    Programs (Note 1)
    
    
    Programs (Note 1)April 1-30, 2008
    
    
    0
    
    
    N/A
    
    
    0
    
    
    328,476May 1-31, 2008
    
    
    10,000
    
    
    $17.79
    
    
    10,000
    
    
    318,476June 1-30, 2008
    
    
    15,000
    
    
    $17.66
    
    
    15,000
    
    
    303,476Total
    
    
    25,000
    
    
    $17.71
    
    
    25,000
    
    
    303,476
 39




---



##### 



Item 3.
    
    Defaults Upon Senior Securities
  40




---



##### 



Item 4.
    
    Submission of Matters to a Vote of Security Holders
   No. of Votes
    
    No. of VotesFor
    
    WithheldRoland D. Boehm
    
    
    4,982,742
    
    
    
    323,471H. Thomas Davis, Jr.
    
    
    4,914,352
    
    
    
    391,861William V.R. Fogler
    
    
    4,914,353
    
    
    
    391,860
  Year TermDirector
    
    ExpiresWilliam C. Hart
    
    
    2009Richard U. Niedt.
    
    
    2009Richard G. Van Noy
    
    
    2009Andrew R. Speaker
    
    
    2010George T. Hornyak, Jr.
    
    
    2010Samuel J. Malizia
    
    
    2010
  No. of Votes
    
    No. of Votes
    
    No. of VotesFor
    
    Against
    
    AbstainingRatification of the
appointment of KPMG LLP
as independent registered
public accounting firm of
the Company for the year
ending December 31, 2008.
    
    
    5,288,929
    
    
    
    4,457
    
    
    
    12,827
 Item 5.
    
    Other Information
  Item 6.
    
    Exhibits
 Exhibits
 Exhibit No.
    
    Title3.1
    
    Articles of Incorporation of Mercer Insurance Group, Inc.
(incorporated by reference herein to the Groups Pre-effective
Amendment No. 3 on Form S-1, SEC File No. 333-104897.)3.2
    
    Bylaws of Mercer Insurance Group, Inc. (incorporated by
reference herein to the Groups Annual Report on Form 10-K,
SEC File No. 000-25425, for the fiscal year ended December 31,
2003.)31.1
    
    Certification of Chief Executive Officer in accordance with
Section 302 of the Sarbanes-Oxley Act of 2002, (filed
herewith)31.2
    
    Certification of Chief Financial Officer in accordance with
Section 302 of the Sarbanes-Oxley Act of 2002, (filed
herewith)32.1
    
    Certification of Chief Executive Officer in accordance with
Section 906 of the Sarbanes-Oxley Act of 2002, (filed
herewith)32.2
    
    Certification of Chief Financial Officer in accordance with
Section 906 of the Sarbanes-Oxley Act of 2002, (filed
herewith)
 41




---



##### 



SIGNATURES
  MERCER INSURANCE GROUP, INC. (Registrant)Dated: August 11, 2008
    By:
    /s/ Andrew R. SpeakerAndrew R. Speaker,President and Chief Executive Officer Dated: August 11, 2008
    By:
    /s/ David B. MercleanDavid B. Merclean,Senior Vice President and Chief Financial Officer 42