---



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 Quarter Ended September 30, 2005



Commission File No. 001-12257



MERCURY GENERAL CORPORATION

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|California                                                     |  | 95-221-1612                         
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)
|                                                               | 
|4484 Wilshire Boulevard, Los Angeles, California               |  | 90010                               
|(Address of principal executive offices)                       |  | (Zip Code)                          



Registrants
telephone number, including area code:

(323) 937-1060



Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.



Yes  x    No ̈



Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b -2 of the Exchange Act).



Yes  x    No ̈



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b -2 of the Exchange Act).



Yes ̈No  x



At October 31 2005, the Registrant had issued and outstanding an aggregate of 54,599,906 shares of its Common Stock.



---



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PART 1 - FINANCIAL INFORMATION



|Item 1. | Financial Statements
|------- | --------------------



MERCURY GENERAL CORPORATION

AND SUBSIDIARIES



CONSOLIDATED BALANCE SHEETS



Amounts expressed in thousands, except share amounts



|                                                                                                             |  |                    |           |                   |   |          
|------------------------------------------------------------------------------------------------------------ |  | ------------------ | --------- | ----------------- | - | ---------
|                                                                                                             |  | September 30, 2005 |           | December 31, 2004
|                                                                                                             |  | (unaudited)        |           |                  
|ASSETS                                                                                                       |  |                    |           |                   |   |          
|Investments:                                                                                                 |  |                    |           |                   |   |          
|Fixed maturities available for sale (amortized cost $2,380,119 in 2005 and $2,164,955 in 2004)               |  | $                  | 2,438,026 |                   | $ | 2,245,311
|Equity securities available for sale (cost $216,448 in 2005 and $210,553 in 2004)                            |  |                    | 281,561   |                   |   | 254,362  
|Short-term cash investments, at cost, which approximates market                                              |  |                    | 533,772   |                   |   | 421,369  
|                                                                                                             |  |                    |           |                   |   |          
|Total investments                                                                                            |  |                    | 3,253,359 |                   |   | 2,921,042
|Cash                                                                                                         |  |                    | 34,201    |                   |   | 23,714   
|Receivables:                                                                                                 |  |                    |           |                   |   |          
|Premiums receivable                                                                                          |  |                    | 316,250   |                   |   | 284,690  
|Premium notes                                                                                                |  |                    | 26,044    |                   |   | 23,702   
|Accrued investment income                                                                                    |  |                    | 29,644    |                   |   | 28,855   
|Other                                                                                                        |  |                    | 13,258    |                   |   | 30,415   
|                                                                                                             |  |                    |           |                   |   |          
|Total receivables                                                                                            |  |                    | 385,196   |                   |   | 367,662  
|Deferred policy acquisition costs                                                                            |  |                    | 197,946   |                   |   | 174,840  
|Fixed assets, net                                                                                            |  |                    | 126,179   |                   |   | 88,645   
|Other assets                                                                                                 |  |                    | 19,951    |                   |   | 33,840   
|                                                                                                             |  |                    |           |                   |   |          
|Total assets                                                                                                 |  | $                  | 4,016,832 |                   | $ | 3,609,743
|                                                                                                             |  |                    |           |                   |   |          
|LIABILITIES AND SHAREHOLDERS EQUITY                                                                         |  |                    |           |                   |   |          
|Losses and loss adjustment expenses                                                                          |  | $                  | 968,874   |                   | $ | 900,744  
|Unearned premiums                                                                                            |  |                    | 907,418   |                   |   | 799,679  
|Notes payable                                                                                                |  |                    | 136,016   |                   |   | 124,743  
|Loss drafts payable                                                                                          |  |                    | 95,495    |                   |   | 82,245   
|Accounts payable and accrued expenses                                                                        |  |                    | 143,302   |                   |   | 138,836  
|Current income taxes                                                                                         |  |                    | 16,000    |                   |   | 10,123   
|Deferred income taxes                                                                                        |  |                    | 42,321    |                   |   | 30,606   
|Other liabilities                                                                                            |  |                    | 109,524   |                   |   | 63,219   
|                                                                                                             |  |                    |           |                   |   |          
|Total liabilities                                                                                            |  |                    | 2,418,950 |                   |   | 2,150,195
|                                                                                                             |  |                    |           |                   |   |          
|Commitments and contingencies                                                                                |  |                    |           |                   |   |          
|Shareholders equity:                                                                                        |  |                    |           |                   |   |          
|Common stock without par value or stated value.                                                              |  |                    |           |                   |   |          
|Authorized 70,000,000 shares; issued and outstanding 54,594,806 shares in 2005 and 54,514,693 shares in 2004 |  |                    | 62,646    |                   |   | 60,206   
|Accumulated other comprehensive income                                                                       |  |                    | 79,788    |                   |   | 80,549   
|Retained earnings                                                                                            |  |                    | 1,455,448 |                   |   | 1,318,793
|                                                                                                             |  |                    |           |                   |   |          
|Total shareholders equity                                                                                   |  |                    | 1,597,882 |                   |   | 1,459,548
|                                                                                                             |  |                    |           |                   |   |          
|Total liabilities and shareholders equity                                                                   |  | $                  | 4,016,832 |                   | $ | 3,609,743
|                                                                                                             |  |                    |           |                   |   |          



See
accompanying accountants review report.



2



---

MERCURY GENERAL CORPORATION

AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF INCOME



(Unaudited)



Three Months Ended
September 30,



Amounts expressed in thousands,
except share and per share data



|                                                                                                                                                                                                                   |  |      |         |      |   |        
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ------- | ---- | - | -------
|                                                                                                                                                                                                                   |  | 2005 |         | 2004
|Revenues:                                                                                                                                                                                                          |  |      |         |      |   |        
|Earned premiums                                                                                                                                                                                                    |  | $    | 722,899 |      | $ | 648,165
|Net investment income                                                                                                                                                                                              |  |      | 30,857  |      |   | 28,410 
|Net realized investment gains                                                                                                                                                                                      |  |      | 7,696   |      |   | 861    
|Other                                                                                                                                                                                                              |  |      | 1,294   |      |   | 1,368  
|                                                                                                                                                                                                                   |  |      |         |      |   |        
|Total revenues                                                                                                                                                                                                     |  |      | 762,746 |      |   | 678,804
|                                                                                                                                                                                                                   |  |      |         |      |   |        
|Expenses:                                                                                                                                                                                                          |  |      |         |      |   |        
|Losses and loss adjustment expenses                                                                                                                                                                                |  |      | 464,709 |      |   | 416,159
|Policy acquisition costs                                                                                                                                                                                           |  |      | 154,237 |      |   | 143,404
|Other operating expenses                                                                                                                                                                                           |  |      | 37,750  |      |   | 29,177 
|Interest                                                                                                                                                                                                           |  |      | 1,881   |      |   | 1,189  
|                                                                                                                                                                                                                   |  |      |         |      |   |        
|Total expenses                                                                                                                                                                                                     |  |      | 658,577 |      |   | 589,929
|                                                                                                                                                                                                                   |  |      |         |      |   |        
|Income before income taxes                                                                                                                                                                                         |  |      | 104,169 |      |   | 88,875 
|Income taxes                                                                                                                                                                                                       |  |      | 31,155  |      |   | 23,746 
|                                                                                                                                                                                                                   |  |      |         |      |   |        
|Net income                                                                                                                                                                                                         |  | $    | 73,014  |      | $ | 65,129 
|                                                                                                                                                                                                                   |  |      |         |      |   |        
|BASIC EARNINGS PER SHARE (weighted average shares outstanding 54,578,431 in 2005 and 54,487,142 in 2004)                                                                                                           |  | $    | 1.34    |      | $ | 1.20   
|                                                                                                                                                                                                                   |  |      |         |      |   |        
|DILUTED EARNINGS PER SHARE (weighted average shares 54,739,416 as adjusted by 160,985 for the dilutive effect of options in 2005 and
54,638,826 as adjusted by 151,684 for the dilutive effect of options in 2004) |  | $    | 1.33    |      | $ | 1.19   
|                                                                                                                                                                                                                   |  |      |         |      |   |        
|Dividends declared per share                                                                                                                                                                                       |  | $    | 0.43    |      | $ | 0.37   
|                                                                                                                                                                                                                   |  |      |         |      |   |        



See
accompanying accountants review report.



3



---

MERCURY GENERAL CORPORATION

AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF INCOME



(Unaudited)



Nine Months Ended
September 30,



Amounts expressed in thousands,
except share and per share data



|                                                                                                                                                                                                                   |  |      |           |      |   |          
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | --------- | ---- | - | ---------
|                                                                                                                                                                                                                   |  | 2005 |           | 2004
|Revenues:                                                                                                                                                                                                          |  |      |           |      |   |          
|Earned premiums                                                                                                                                                                                                    |  | $    | 2,114,874 |      | $ | 1,860,534
|Net investment income                                                                                                                                                                                              |  |      | 90,343    |      |   | 80,350   
|Net realized investment gains                                                                                                                                                                                      |  |      | 15,457    |      |   | 18,652   
|Other                                                                                                                                                                                                              |  |      | 4,341     |      |   | 3,450    
|                                                                                                                                                                                                                   |  |      |           |      |   |          
|Total revenues                                                                                                                                                                                                     |  |      | 2,225,015 |      |   | 1,962,986
|                                                                                                                                                                                                                   |  |      |           |      |   |          
|Expenses:                                                                                                                                                                                                          |  |      |           |      |   |          
|Losses and loss adjustment expenses                                                                                                                                                                                |  |      | 1,355,719 |      |   | 1,168,681
|Policy acquisition costs                                                                                                                                                                                           |  |      | 459,573   |      |   | 416,847  
|Other operating expenses                                                                                                                                                                                           |  |      | 112,889   |      |   | 78,515   
|Interest                                                                                                                                                                                                           |  |      | 5,171     |      |   | 2,732    
|                                                                                                                                                                                                                   |  |      |           |      |   |          
|Total expenses                                                                                                                                                                                                     |  |      | 1,933,352 |      |   | 1,666,775
|                                                                                                                                                                                                                   |  |      |           |      |   |          
|Income before income taxes                                                                                                                                                                                         |  |      | 291,663   |      |   | 296,211  
|Income taxes                                                                                                                                                                                                       |  |      | 84,623    |      |   | 84,132   
|                                                                                                                                                                                                                   |  |      |           |      |   |          
|Net income                                                                                                                                                                                                         |  | $    | 207,040   |      | $ | 212,079  
|                                                                                                                                                                                                                   |  |      |           |      |   |          
|BASIC EARNINGS PER SHARE (weighted average shares outstanding 54,553,995 in 2005 and 54,458,985 in 2004)                                                                                                           |  | $    | 3.80      |      | $ | 3.89     
|                                                                                                                                                                                                                   |  |      |           |      |   |          
|DILUTED EARNINGS PER SHARE (weighted average shares 54,714,607 as adjusted by 160,612 for the dilutive effect of options in 2005 and
54,623,071 as adjusted by 164,086 for the dilutive effect of options in 2004) |  | $    | 3.78      |      | $ | 3.88     
|                                                                                                                                                                                                                   |  |      |           |      |   |          
|Dividends declared per share                                                                                                                                                                                       |  | $    | 1.29      |      | $ | 1.11     
|                                                                                                                                                                                                                   |  |      |           |      |   |          



See
accompanying accountants review report.



4



---

MERCURY GENERAL CORPORATION

AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



(Unaudited)



Three
Months Ended September 30,



Amounts expressed in
thousands



|                                                                                                |  |      |        |   |      |   |        |  
|----------------------------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|                                                                                                |  | 2005 |        |   | 2004 |  
|Net income                                                                                      |  | $    | 73,014 |   |      | $ | 65,129 |  
|Other comprehensive (loss) income before income taxes:                                          |  |      |        |   |      |   |        |  
|Unrealized (losses) gains on securities:                                                        |  |      |        |   |      |   |        |  
|Unrealized holding (losses) gains arising during period                                         |  |      | (1,082 | ) |      |   | 52,414 |  
|Reclassification adjustment for net gains included in net income                                |  |      | (5,180 | ) |      |   | (1,345 | )
|                                                                                                |  |      |        |   |      |   |        |  
|Other comprehensive (loss) income before income taxes                                           |  |      | (6,262 | ) |      |   | 51,069 |  
|Income tax (benefit) expense related to unrealized holding (losses) gains arising during period |  |      | (360   | ) |      |   | 18,349 |  
|Income tax benefit related to reclassification adjustment for net gains included in net income  |  |      | (1,813 | ) |      |   | (470   | )
|                                                                                                |  |      |        |   |      |   |        |  
|Comprehensive income, net of tax                                                                |  | $    | 68,925 |   |      | $ | 98,319 |  
|                                                                                                |  |      |        |   |      |   |        |  



See
accompanying accountants review report.



5



---

MERCURY GENERAL CORPORATION

AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



(Unaudited)



Nine
Months Ended September 30,



Amounts expressed in
thousands



|                                                                                               |  |      |         |   |      |   |         |  
|---------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                                                               |  | 2005 |         |   | 2004 |  
|Net income                                                                                     |  | $    | 207,040 |   |      | $ | 212,079 |  
|Other comprehensive loss before income taxes:                                                  |  |      |         |   |      |   |         |  
|Unrealized gains on securities:                                                                |  |      |         |   |      |   |         |  
|Unrealized holding gains arising during period                                                 |  |      | 9,397   |   |      |   | 5,458   |  
|Reclassification adjustment for net gains included in net income                               |  |      | (10,531 | ) |      |   | (16,358 | )
|                                                                                               |  |      |         |   |      |   |         |  
|Other comprehensive loss before income taxes                                                   |  |      | (1,134  | ) |      |   | (10,900 | )
|Income tax expense related to unrealized holding gains arising during period                   |  |      | 3,313   |   |      |   | 1,922   |  
|Income tax benefit related to reclassification adjustment for net gains included in net income |  |      | (3,686  | ) |      |   | (5,725  | )
|                                                                                               |  |      |         |   |      |   |         |  
|Comprehensive income, net of tax                                                               |  | $    | 206,279 |   |      | $ | 204,982 |  
|                                                                                               |  |      |         |   |      |   |         |  



See
accompanying accountants review report.



6



---

MERCURY GENERAL CORPORATION

AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS



(Unaudited)



Nine
Months Ended September 30,



Amounts expressed in
thousands



|                                                                                      |  |      |          |   |      |   |          |  
|------------------------------------------------------------------------------------- |  | ---- | -------- | - | ---- | - | -------- | -
|                                                                                      |  | 2005 |          |   | 2004 |  
|Cash flows from operating activities:                                                 |  |      |          |   |      |   |          |  
|Net income                                                                            |  | $    | 207,040  |   |      | $ | 212,079  |  
|Adjustments to reconcile net income to net cash provided from operating activities:   |  |      |          |   |      |   |          |  
|Depreciation                                                                          |  |      | 13,226   |   |      |   | 11,931   |  
|Net realized investment gains                                                         |  |      | (15,457  | ) |      |   | (18,652  | )
|Bond amortization, net                                                                |  |      | 9,385    |   |      |   | 6,003    |  
|Increase in premiums receivable                                                       |  |      | (31,560  | ) |      |   | (49,072  | )
|Increase in premium notes receivable                                                  |  |      | (2,342   | ) |      |   | (2,025   | )
|Increase in deferred policy acquisition costs                                         |  |      | (23,106  | ) |      |   | (24,428  | )
|Increase in unpaid losses and loss adjustment expenses                                |  |      | 68,130   |   |      |   | 81,833   |  
|Increase in unearned premiums                                                         |  |      | 107,739  |   |      |   | 108,755  |  
|Increase in loss drafts payable                                                       |  |      | 13,250   |   |      |   | 10,263   |  
|Increase in accounts payable and accrued expenses                                     |  |      | 4,466    |   |      |   | 43,780   |  
|Increase in accrued income taxes, excluding deferred tax on change in unrealized gain |  |      | 17,993   |   |      |   | 7,457    |  
|Other, net                                                                            |  |      | 40,427   |   |      |   | 5,600    |  
|                                                                                      |  |      |          |   |      |   |          |  
|Net cash provided by operating activities                                             |  |      | 409,191  |   |      |   | 393,524  |  
|                                                                                      |  |      |          |   |      |   |          |  
|Cash flows from investing activities:                                                 |  |      |          |   |      |   |          |  
|Fixed maturities available for sale:                                                  |  |      |          |   |      |   |          |  
|Purchases                                                                             |  |      | (943,707 | ) |      |   | (823,109 | )
|Sales                                                                                 |  |      | 410,881  |   |      |   | 240,992  |  
|Calls or maturities                                                                   |  |      | 309,028  |   |      |   | 268,917  |  
|Equity securities available for sale:                                                 |  |      |          |   |      |   |          |  
|Purchases                                                                             |  |      | (301,859 | ) |      |   | (176,901 | )
|Sales                                                                                 |  |      | 310,677  |   |      |   | 207,388  |  
|Increase in payable for securities                                                    |  |      | 22,663   |   |      |   | 23,398   |  
|Increase in short-term cash investments, net                                          |  |      | (112,404 | ) |      |   | (62,405  | )
|Purchase of fixed assets                                                              |  |      | (26,739  | ) |      |   | (18,753  | )
|Sale of fixed assets                                                                  |  |      | 1,114    |   |      |   | 769      |  
|                                                                                      |  |      |          |   |      |   |          |  
|Net cash used in investing activities                                                 |  | $    | (330,346 | ) |      | $ | (339,704 | )
|                                                                                      |  |      |          |   |      |   |          |  



(Continued)



7



---

MERCURY GENERAL CORPORATION

AND SUBSIDIARIES



CONSOLIDATED STATEMENTS OF CASH FLOWS



(Continued)



|                                                                                                                    |  |      |         |   |      |   |         |  
|------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | - | ---- | - | ------- | -
|                                                                                                                    |  | 2005 |         |   | 2004 |  
|Cash flows from financing activities:                                                                               |  |      |         |   |      |   |         |  
|Dividends paid to shareholders                                                                                      |  | $    | (70,386 | ) |      | $ | (60,463 | )
|Proceeds from stock options exercised                                                                               |  |      | 2,028   |   |      |   | 1,608   |  
|                                                                                                                    |  |      |         |   |      |   |         |  
|Net cash used in financing activities                                                                               |  |      | (68,358 | ) |      |   | (58,855 | )
|                                                                                                                    |  |      |         |   |      |   |         |  
|Net increase (decrease) in cash                                                                                     |  |      | 10,487  |   |      |   | (5,035  | )
|Cash:                                                                                                               |  |      |         |   |      |   |         |  
|Beginning of the period                                                                                             |  |      | 23,714  |   |      |   | 36,964  |  
|                                                                                                                    |  |      |         |   |      |   |         |  
|End of the period                                                                                                   |  | $    | 34,201  |   |      | $ | 31,929  |  
|                                                                                                                    |  |      |         |   |      |   |         |  
|Supplemental disclosures of cash flow information and non-cash investing and financing activities:                  |  |      |         |   |      |   |         |  
|Interest paid during the period                                                                                     |  | $    | 5,492   |   |      | $ | 3,329   |  
|Income taxes paid during the period                                                                                 |  | $    | 66,233  |   |      | $ | 76,233  |  
|Tax benefit realized on stock options exercised included in cash provided by operating activities                   |  | $    | 412     |   |      | $ | 441     |  
|Mortgage note assumed as part of Florida real estate acquisition with a market value of approximately $24.9 million |  | $    | 11,250  |   |      | $ |        |  



See
accompanying accountants review report.



8



---

MERCURY GENERAL CORPORATION & SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|1. | Basis of Presentation
|-- | ---------------------



The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America (GAAP)
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. The most significant assumptions in the preparation of these consolidated financial statements relate to loss and loss adjustment expenses. Actual results could differ materially from those estimates (See Note
1 Significant Accounting Policies of Notes to Consolidated Financial Statements in the Companys Annual Report on Form 10-K for the year ended December 31, 2004).



The financial data of Mercury General Corporation and its subsidiaries (collectively, the Company) included
herein has been prepared without audit. In the opinion of management, all material adjustments of a normal recurring nature necessary to present fairly the Companys financial position at September 30, 2005 and the results of
operations, comprehensive income and cash flows for the periods presented have been made. Operating results for the three and nine months ended September 30, 2005 and cash flows for the nine months ended September 30, 2005 are not
necessarily indicative of the results that may be expected for the year ending December 31, 2005.



|2. | Investments
|-- | -----------



The Company monitors investments that have declined in fair value below net book value and if the decline is judged to be other-than-temporary, the asset
is written down to fair value in accordance with Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities. The Company wrote down approximately $2.2 million ($1.4
million after tax benefit) of its investments as other-than-temporary declines during the first nine months of 2005. The Company recognized approximately $0.9 million ($0.6 million after tax benefit) in write downs of its investments as
other-than-temporary declines during the first nine months of 2004.



9



---

MERCURY GENERAL CORPORATION & SUBSIDIARIES



NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS



|3. | Stock Option Plan Accounting
|-- | ----------------------------



The Company applies APB Opinion No. 25, Accounting for Stock Issued to Employees, in accounting for its stock option plans. Accordingly,
no compensation cost has been recognized in the Consolidated Statements of Income. The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value methodology of Statement of Financial
Accounting Standard (SFAS) No. 123, Accounting for Stock-Based Compensation (SFAS No. 123):



|                                                                                                                                           |  |                                          |        |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|------------------------------------------------------------------------------------------------------------------------------------------ |  | ---------------------------------------- | ------ | - | ------------------------------- | - | ------ | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                                                                                           |  | Quarter Ended September 30,              |        |   | Nine Months Ended September 30, |  
|                                                                                                                                           |  | 2005                                     |        |   | 2004                            |   |        | 2005 |  |   | 2004    |  
|                                                                                                                                           |  | (Amounts in thousands, except per share) |       
|Net income, as reported                                                                                                                    |  | $                                        | 73,014 |   |                                 | $ | 65,129 |      |  | $ | 207,040 |   |  | $ | 212,079 |  
|Deduct: Total stock based employee compensation expense determined under fair value based method for all awards, net of related tax
effect |  |                                          | (258   | ) |                                 |   | (119   | )    |  |   | (482    | ) |  |   | (380    | )
|                                                                                                                                           |  |                                          |        |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|Proforma net income                                                                                                                        |  | $                                        | 72,756 |   |                                 | $ | 65,010 |      |  | $ | 206,558 |   |  | $ | 211,699 |  
|                                                                                                                                           |  |                                          |        |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|Earnings per share:                                                                                                                        |  |                                          |        |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|Basic  as reported                                                                                                                        |  | $                                        | 1.34   |   |                                 | $ | 1.20   |      |  | $ | 3.80    |   |  | $ | 3.89    |  
|                                                                                                                                           |  |                                          |        |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|Basic  pro forma                                                                                                                          |  | $                                        | 1.33   |   |                                 | $ | 1.19   |      |  | $ | 3.79    |   |  | $ | 3.89    |  
|                                                                                                                                           |  |                                          |        |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|Diluted  as reported                                                                                                                      |  | $                                        | 1.33   |   |                                 | $ | 1.19   |      |  | $ | 3.78    |   |  | $ | 3.88    |  
|                                                                                                                                           |  |                                          |        |   |                                 |   |        |      |  |   |         |   |  |   |         |  
|Diluted  pro forma                                                                                                                        |  | $                                        | 1.33   |   |                                 | $ | 1.19   |      |  | $ | 3.78    |   |  | $ | 3.88    |  
|                                                                                                                                           |  |                                          |        |   |                                 |   |        |      |  |   |         |   |  |   |         |  



Calculations of fair
value under the method prescribed by SFAS No. 123 were made using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in the nine months ended September 30, 2005 and 2004: dividend yield
of 2.9 percent in 2005 and 3.0 percent in 2004, expected volatility of 26.9 percent in 2005 and 30.1 percent in 2004 and expected lives of 6 years in 2005 and 2004. The risk-free interest rate used was 4.0 percent for options granted during 2005 and
2004.



|4. | Recently Issued Accounting Standards
|-- | ------------------------------------



On April 14, 2005, the Securities and Exchange Commission issued a Final Rule amending Regulation S-X to revise the date for compliance with SFAS
No. 123R (revised 2004), Share-Based Payment so that each registrant that is not a small business issuer will be required to prepare financial statements in accordance with SFAS No. 123R beginning with the first interim
reporting period of the registrants first fiscal year beginning on or after June 15, 2005. The Company expects to adopt the provisions of SFAS No. 123R in the first quarter of 2006. The Company does not believe that the adoption of
123R will have a material impact on its consolidated financial statements.



In May 2005, the Financial Accounting Standards Board issued SFAS No. 154, Accounting Changes and Error Corrections. SFAS No. 154 replaces APB Opinion No. 20, Accounting
Changes and SFAS No. 3, Reporting Accounting Changes in Interim Financial Statements and establishes retrospective application as the required method for reporting a change in accounting principle. SFAS No. 154 provides
guidance for determining whether retrospective application of a change in accounting principle is impracticable and for reporting a change when retrospective application is impracticable. The reporting of a correction of an error by restating
previously issued financial statements is also addressed. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The Company does not believe that the adoption of
SFAS No. 154 will have a material impact on its consolidated financial statements.



10



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|Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------



General



The operating results of property and casualty insurance companies are subject to significant fluctuations from quarter-to-quarter and from year-to-year
due to the effect of competition on pricing, the frequency and severity of losses, including the effect of natural disasters on losses, general economic conditions, the general regulatory environment in those states in which an insurer operates,
state regulation of premium rates and other factors such as changes in tax laws. The property and casualty industry has been highly cyclical, with periods of high premium rates and shortages of underwriting capacity followed by periods of severe
price competition and excess capacity. These cycles can have a large impact on the ability of the Company to grow and retain business.



Mercury General Corporation and its subsidiaries (collectively, the Company), as do most property and casualty insurance companies, utilizes
measurements which are standard industry measures to report operating results that may not be presented in accordance with GAAP. Included within Managements Discussion and Analysis of Financial Condition and Results of Operations is net
premiums written, a non-GAAP financial measure, which represents the premiums charged on policies issued during a fiscal period less any reinsurance. This measure is not intended to replace, and should be read in conjunction with, the Companys
GAAP financial results and is reconciled to the most directly comparable GAAP measure, earned premiums, below in Results of Operations.



The Company is headquartered in Los Angeles, California and operates primarily as a personal automobile insurer, selling policies through a network of
independent producers. The Company also offers homeowners insurance, mechanical breakdown insurance, commercial and dwelling fire insurance, umbrella insurance, commercial automobile insurance and commercial property insurance. Private passenger
automobile lines of insurance accounted for approximately 85% of the Companys $2,222.6 million of net written premiums in the first nine months of 2005.



The Company operates primarily in the state of California, which was the only state it produced business in prior to 1990. The Company has since
expanded its operations into the following states: Georgia (1990), Illinois (1990), Oklahoma (1996), Texas (1996), Florida (1998), Virginia (2001), New York (2001), New Jersey (2003), Arizona (2004), Pennsylvania (2004), Michigan (2004) and
Nevada (2004). During the first nine months of 2005, California accounted for approximately 72% of the Companys net premiums written compared to approximately 77% for the first nine months of 2004.



Effective April 1, 2005, the Company purchased catastrophe reinsurance
that provides for coverage on Florida and Georgia property equal to 95% of $80 million in excess of the first $70 million of losses per occurrence. The reinsurance was placed with domestic and non-domestic reinsurers and several Lloyds
syndicates. This treaty affords coverage in addition to that provided by the Florida Hurricane Catastrophe Trust Fund (FHCF). The Company estimates that the FHCF provides coverage equal to 90% of approximately $22 million in
excess of approximately $9 million.



During the third quarter
of 2005, the gulf coast was struck by three major hurricanes: Dennis, Katrina and Rita. Hurricane Rita made landfall near the border of Texas and Louisiana and did not have a significant impact on the Company. Hurricanes Dennis and Katrina both
struck Florida. The Company estimates its net losses will be $4 million ($3 million after tax benefit) relating to these hurricanes. On October 24, 2005, Hurricane Wilma made landfall as a Category 3 storm on the southern gulf coast of Florida.
The Company has preliminarily estimated fourth quarter losses related to Hurricane Wilma will be approximately $12 million ($8 million after tax benefit). These estimates are based upon the total number of claims reported and the number of
unreported claims anticipated as a result of the hurricanes. The Companys estimate may change as more information becomes available.



11



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Regulatory and Litigation Matters



The Department of Insurance (DOI), for each state in which the
Company operates, conducts periodic financial examinations of the Companys insurance subsidiaries domiciled within the respective states. In 2005, the DOI for California and Florida completed financial examinations for the Companys
insurance subsidiaries as of December 31, 2003. These examinations resulted in no material findings or recommendations. At September 30, 2005, the Georgia DOI is conducting a financial examination of the Companys Georgia insurance
subsidiaries for the period ending December 31, 2003, and the DOI for the states of Florida, Oklahoma, Texas and Illinois are conducting financial examinations for the Companys insurance subsidiaries domiciled in these states for the
period ending December 31, 2004. Reports for these examinations are not yet available. In addition, the DOI for each state conducts market conduct examinations to ensure compliance with the Insurance Codes and the Code of Regulations of each
state in which the Company operates with respect to rating, underwriting and claims handling practices. At September 30, 2005, the DOI for the states of Texas, Oklahoma, Florida and Arizona are conducting market conduct examinations of the
Companys automobile lines of business and the Florida DOI is also conducting a market conduct examination of the Companys homeowners line of business. Reports for these examinations have not yet been finalized.



Persistency discounts are discounts to consumers based on the number of
consecutive years the consumer has had insurance coverage. In 1990, following the enactment of Proposition 103 and its prior approval requirement for insurance premiums in California, the California DOI issued regulations permitting persistency as a
rating factor. The regulations provided no definition of persistency. Following a 1994 market conduct examination of the Company, the California DOI determined that the Companys persistency discount, awarded only to consumers previously
insured by the Company or its agents and brokers (so-called loyalty persistency), was unfairly discriminatory. In response, in 1995 the Company obtained approval for a persistency discount awarded to insureds with continuous coverage
with any insurer  what has come to be called portable persistency. This discount was consistently reapproved until 2002 when then Commissioner Harry Low took the position that only loyalty persistency  that is,
the kind of persistency discount the Company awarded prior to 1995  was allowable under Proposition 103.



In 2003, the California DOI required all insurers offering persistency discounts to eliminate their portability. However, Senate Bill 841 (SB
841), enacted in 2003, amended the California Insurance Code to allow portable persistency discounts. SB 841 was challenged in the courts and on September 27, 2005 was overturned in a decision by the California Court of Appeal in The
Foundation for Taxpayer and Consumer Rights, et al. v. Garamendi. On November 7, 2005, the Company filed a petition for review of this decision in the California Supreme Court. The Company expects a decision as to whether the California Supreme
Court will review the case within 30 to 60 days.



The
California DOI has taken the position that it will not wait for the outcome of the petition before requiring insurers to amend their rates. Accordingly, on November 2, 2005, the California DOI issued a notice to private passenger automobile insurers
informing them that insurers, including the Company, may not apply portable persistency or similar rating factors to any new or renewal policies on or after December 5, 2005.



The Company has filed a revenue neutral rate change which will effectively increase the rates charged to some insureds
moderately and lower rates for all others. Although the Company does not anticipate a material financial impact, it may affect the Companys ability to attract and retain business and may also impact the profitability of that business.
The Company intends to closely monitor the impact of this change and make appropriate changes if necessary.



In addition to seeking California Supreme Court review, the Company expects to support a ballot initiative to reinstate portable persistency in the
November 2006 election.



On June 25, 2003, the California
State Board of Equalization (SBE) upheld Notices of Proposed Assessments issued against the Company for tax years 1993 through 1996 in which the Franchise Tax Board (FTB) disallowed a portion of the Companys expenses
related to management services provided to its insurance company subsidiaries on grounds that such expenses were allocable to the Companys tax-deductible dividends from such subsidiaries. The SBE decision also resulted in a smaller
disallowance of the Companys interest expense deductions than was proposed by the FTB in those years. The Company filed a petition for rehearing with the SBE relating to these franchise tax issues and a rehearing was granted and held on
July 1, 2005. At the rehearing, additional briefings were requested before the SBE would rule on the matter. These briefings were filed with the SBE and the Company expects another rehearing will be held sometime in early 2006.



The potential net exposure on the franchise tax issues for 1993 through 1996,
after federal tax benefit, amounts to approximately $14 million, which includes a potential tax amnesty interest penalty of approximately $4 million. The amnesty penalty relates to a revenue enhancement provision contained in the California Tax
Amnesty legislation requiring taxpayers with tax assessments for tax years 2002 and prior, whether or not disputed, to pay amounts due by March 31, 2005 or risk paying an additional penalty amount equal to 50% of the interest computed on the
original assessment for the period beginning with the due date of the return and ending on March 31, 2005. These amounts would be due should the Company not prevail on the underlying tax issues.



The Company believes that the deduction of the expenses related to management
services provided to its insurance company subsidiaries is appropriate. The Company has established a tax liability of approximately $1 million for the franchise tax issues related to the tax years 1993 through 1996. An unfavorable ruling against
the Company in the rehearing may have a material impact on the Companys quarterly results of operations.



The Company is, from time to time, named as a defendant in various lawsuits incidental to its insurance business. In most of these actions, plaintiffs
assert claims for punitive damages which are not insurable under judicial decisions. The Company has established reserves for lawsuits in which the Company is able to estimate its potential exposure and the likelihood that the court will rule
against the Company is probable. The Company vigorously defends these actions, unless a reasonable settlement appears appropriate. The Company believes that adverse results, if any, in the actions currently pending should not have a material effect
on the Companys operations or financial position. For a further discussion of the Companys pending material litigation, see Item 1. Legal Proceedings in Part II  Other Information of this Quarterly Report on Form 10-Q and also
see the Companys Annual Report on Form 10-K for the year ended December 31, 2004.



12



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Critical Accounting Policies



The preparation of the Companys consolidated financial statements
requires judgment and estimates. The most significant is the estimate of loss reserves as required by Statement of Financial Accounting Standards No. 60, Accounting and Reporting by Insurance Enterprises (SFAS
No. 60) and Statement of Financial Accounting Standards No. 5, Accounting for Contingencies (SFAS No. 5). Estimating loss reserves is a difficult process as there are many factors that can ultimately
affect the final settlement of a claim and, therefore, the reserve that is needed. Changes in the regulatory and legal environment, results of litigation, medical costs, the cost of repair materials and labor rates can all impact ultimate claim
costs. In addition, time can be a critical part of reserving determinations since the longer the period between the incidence of a loss and the payment or settlement of the claim, the more variable the ultimate settlement amount can be. Accordingly,
short-tail claims, such as property damage claims, tend to be more reasonably predictable than long-tail liability claims. Inflation is reflected in the reserving process through analysis of cost trends and reviews of historical reserving results.



The Company performs its own loss reserve analysis and also
engages the services of an independent actuary to assist in the estimation of loss reserves. The Company and the actuary do not calculate a range of loss reserve estimates but rather calculate a point estimate. Management reviews the underlying
factors and assumptions that serve as the basis for preparing the reserve estimate. These include paid and incurred loss development factors, expected average costs per claim, inflation trends, expected loss ratios, industry data and other relevant
information. At September 30, 2005, the Company recorded its point estimate of approximately $969 million in loss and loss adjustment expense reserves which includes approximately $266 million of incurred but not reported (IBNR)
loss reserves. IBNR includes estimates, based upon past experience, of ultimate developed costs which may differ from case estimates, unreported claims for losses occurring on or prior to September 30, 2005 and estimated future payments for
reopened-claims reserves. Management believes that the liability for losses and loss adjustment expenses is adequate to cover the ultimate net cost of losses and loss adjustment expenses incurred to date. Since the provisions are necessarily based
upon estimates, the ultimate liability may be more or less than such provision.



For the nine months ended September 30, 2005, the Company had positive development of approximately $45 million on the 2004 and prior year loss and loss adjustment expense reserves which at December 31, 2004
totaled $901 million. The Company attributes approximately half of this redundancy to a change in the inflation rate assumptions used to establish bodily injury coverage reserves for the California automobile insurance line of business for the 2003
and 2004 accident years.



At December 31, 2004, the
Company had estimated bodily injury inflation rates of approximately 1% on the 2003 and 2004 accident years. At September 30, 2005, these assumptions were reduced to deflation amounts of negative 2% for the 2003 and 2004 accident years. The
Company changed its inflation assumptions based on factors that continued to develop during the first nine months of 2005. These included a favorable trend in the average amounts paid on closed claims for the 2003 and 2004 accident years and
increased certainty in reserve amounts that comes through the passage of time as more claims from an accident period are closed.



Bodily injury inflation for the most recent accident years is one of the most difficult components of the Companys reserves to estimate because a
large portion of the claims have not yet been settled. As time passes and more claims from an accident year are settled, the actual inflation rate becomes more certain. Since there are still a significant amount of open bodily injury claims for the
2004 accident year, it is quite possible that inflation rate assumptions will change as more of those claims are settled in the future.



In addition, approximately one third of the positive development on the reserves established at December 31, 2004 relates to a reduction in the loss
adjustment expense reserves. During the nine months ended, September 30, 2005, there was a decrease in the expenditures to outside legal counsel for the defense of personal automobile claims in California. This led to a reduction in the
ultimate expense amount expected to be paid out and therefore a redundancy in the reserves established at December 31, 2004. The Company believes that many factors could be contributing to the reduction in payments to outside legal counsel.
These include cost savings from the usage of more flat fee billing arrangements with outside counsel, faster closure rates of bodily injury liability cases and a decrease in bodily injury claims frequency due to improvements made in vehicle safety.



13



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The Company had smaller redundancies and deficiencies in its other coverages offered within its
California automobile insurance line of business, as well as in other lines of business in California and other states. When aggregated, these account for the remainder of the positive reserve development experienced in the first nine months of
2005. The positive development in total was more than offset by the reserve needs for the current accident year.



The Company complies with SFAS No. 60 in recognizing revenue on insurance premiums written. The Companys insurance premiums are recognized as
income ratably over the term of the policies, that is, in proportion to the amount of insurance protection provided. Unearned premiums are carried as a liability on the balance sheet and are computed on a monthly pro-rata basis. The Company
evaluates its unearned premiums periodically for premium deficiencies by comparing the sum of expected claim costs, unamortized acquisition costs and maintenance costs to related unearned premiums. To the extent that any of the Companys lines
of business become substantially unprofitable, then a premium deficiency reserve may be required.



The Company carries its fixed maturity and equity investments at market value as required for securities classified as Available for Sale by
Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities (SFAS No. 115). In most cases, market valuations were drawn from trade data sources. In no cases
were any valuations made by the Companys management. Equity holdings, including non-sinking fund preferred stocks, are, with minor exceptions, actively traded on national exchanges, and were valued at the last transaction price on the balance
sheet date. The Company constantly evaluates its investments for other-than-temporary declines and writes them off as realized losses through the consolidated statement of income, as required by SFAS No. 115. Temporary unrealized investment
gains and losses are credited or charged directly to shareholders equity as accumulated other comprehensive income, net of applicable taxes. It is possible that future information will become available about the Companys current
investments that would require accounting for them as realized losses due to other-than- temporary declines in value. The financial statement effect would be to move the unrealized loss from accumulated other comprehensive income on the consolidated
balance sheet to realized investment losses on the consolidated statement of income.



The Company may have certain known and unknown potential liabilities that are evaluated using the criteria established by SFAS No. 5. These include claims, assessments or lawsuits incidental to the Companys
business. The Company continually evaluates these potential liabilities and accrues for them or discloses them if they meet the requirements stated in SFAS No. 5. While it is not possible to know with certainty the ultimate outcome of
contingent liabilities, management does not expect them to have a material effect on the Companys consolidated financial position. However, results for a given reporting period could be significantly affected if and when an accrual is
established for a major contingency.



Forward-Looking Statements



Certain statements
in this report on Form 10-Q that are not historical fact constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. These forward-looking statements may address, among other things, our strategy for growth, business development, regulatory approvals, market position, expenditures, financial results, reserves and potential losses from major disasters.
Forward-looking statements are not guarantees of performance and are subject to important factors and events that could cause the Companys actual business, prospects and results of operations to differ materially from the historical
information contained in this Form 10-Q and from those that may be expressed or implied by the forward-looking statements. Factors that could cause or contribute to such differences include, among others: the competition currently existing in the
California automobile insurance markets, the Companys success in expanding its business in states outside of California, the impact of potential third party bad-faith legislation, changes in laws or regulations, the outcome of tax
position challenges by the California FTB, decisions of courts, regulators and governmental bodies, particularly in California, the Companys ability to obtain and the timing of the approval of the California Insurance Commissioner for premium
rate changes for private passenger automobile policies issued in California and similar rate approvals in other states where the Company does business, the level of investment yields the Company is able to obtain with its investments in comparison
to recent yields and the market risk associated with its investment portfolio, the cyclical and general competitive nature of the property and casualty insurance industry and general uncertainties regarding loss reserve or other estimates, the
accuracy and adequacy of the Companys pricing methodologies, uncertainties related to assumptions and projections generally, inflation and changes in economic conditions, changes in driving patterns and loss trends, acts



14



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of war and terrorist activities, court decisions and trends in litigation and health care and auto repair costs, adverse weather conditions or natural
disasters in the markets serviced by the Company, possibility of a multi-year cycle of increased hurricane activity in the southeastern United States and other uncertainties, all of which are difficult to predict and many of which are beyond the
Companys control. GAAP prescribes when a company may reserve for particular risks including litigation exposures. Accordingly, results for a given reporting period could be significantly affected if and when an accrual is established for a
major contingency. Reported results may therefore appear to be volatile in certain periods. The Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information or future events or otherwise.
Investors are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this Form 10-Q or, in the case of any document incorporated herein by reference, the date of that document. Investors also
should understand that it is not possible to predict or identify all risk factors and should not consider the risks set forth above to be a complete statement of all potential risks and uncertainties. If the expectations or assumptions underlying
the Companys forward-looking statements prove inaccurate or if risks or uncertainties arise, actual results could differ materially from those predicted in any forward-looking statements.



Results of Operations



Three Months Ended September 30, 2005 compared to
Three Months Ended September 30, 2004



Earned premiums in
the third quarter of 2005 increased approximately 12% from the corresponding period in 2004. Net premiums written in the third quarter of 2005 increased approximately 10% from the corresponding period in 2004. Net premiums written on the California
automobile lines of business were $488.3 million in the third quarter of 2005, an increase of 5% over the same period in 2004. Net premiums written by the Companys non-California operations were $217.6 million in the third quarter, an increase
of approximately 20% over the same period in 2004. The growth in net premiums written is primarily due to an increase in unit sales and growth in markets recently entered.



Net premiums written is a non-GAAP financial measure which represents the premiums charged on policies issued during a
fiscal period less any applicable reinsurance. Net premiums written is a statutory measure designed to determine production levels. Net premiums earned, the most directly comparable GAAP measure, represents the portion of net premiums written that
is recognized as income in the financial statements for the period presented and earned on a pro-rata basis over the term of the policies. The following is a reconciliation of total Company net premiums written to net premiums earned (000s) for the
quarters ended September 30, 2005 and 2004, respectively:



|                              |  |                             |         |      |   |        
|----------------------------- |  | --------------------------- | ------- | ---- | - | -------
|                              |  | Quarter Ended September 30,
|                              |  | 2005                        |         | 2004
|Net premiums written          |  | $                           | 762,862 |      | $ | 693,733
|Increase in unearned premiums |  |                             | 39,963  |      |   | 45,568 
|                              |  |                             |         |      |   |        
|Earned premiums               |  | $                           | 722,899 |      | $ | 648,165
|                              |  |                             |         |      |   |        



The loss ratio (GAAP
basis) in the third quarter of 2005 (loss and loss adjustment expenses related to premiums earned) was 64.3% in 2005 and 64.2% in 2004. Positive development on prior accident years loss reserves was approximately $5 million and $15 million for
the quarters ended September 30, 2005 and 2004, respectively. Hurricane losses negatively impacted the loss ratio by 0.6% in the third quarter of 2005 period compared with 3.7% for 2004.



The expense ratio (GAAP basis) in the third quarter of 2005 (policy
acquisition costs and other expenses related to premiums earned) was 26.5% compared to 26.6% in the corresponding period of 2004.



The combined ratio of losses and expenses (GAAP basis) is the key measure of underwriting performance traditionally used in the property and casualty
insurance industry. A combined ratio under 100% generally reflects profitable underwriting results; whereas a combined ratio over 100% generally reflects unprofitable underwriting results. The combined ratio of losses and expenses (GAAP basis) was
90.8% in the third quarter of 2005, the same combined ratio in the corresponding period of 2004.



15



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Investment income for the third quarter 2005 was $30.9 million, compared with $28.4 million in the third
quarter of 2004. The after-tax yield on average investments (fixed maturities and equities valued at cost) was 3.4% in the third quarter of 2005 compared to 3.6% in the corresponding period of 2004 on average invested assets of $3,153.9 million and
$2,726.5 million, respectively.



Interest expense was $1.9
million for the third quarter of 2005 compared to $1.2 million for the third quarter of 2004. The increase in interest expense reflects an increase in notes payable and an increase in interest rates on the Companys variable interest rate debt.



The income tax provision in the third quarter of 2005 of $31.2
million represented an effective tax rate of 29.9% compared with an effective rate of 26.7% in the corresponding period of 2004. The higher rate in 2005 is primarily attributable to an increased proportion of underwriting income which is taxed at
the full corporate rate of 35% in contrast to investment income which includes tax exempt interest and tax sheltered dividend income.



Net income for the third quarter 2005 of $73.0 million, or $1.33 per share (diluted), compares with $65.1 million, or $1.19 per share (diluted), in the
corresponding period of 2004. Basic net income per share was $1.34 in the third quarter of 2005 and $1.20 in the third quarter of 2004.



Nine Months Ended September 30, 2005 compared to Nine Months Ended September 30, 2004



Earned premiums in the first nine months of 2005 increased approximately 14% from the corresponding period in 2004. Net
premiums written in the first nine months of 2005 increased approximately 13% from the corresponding period in 2004. Net premiums written on the California automobile lines of business were approximately $1.4 billion in the first nine months of
2005, an increase of 4.5% over the same period in 2004. Net premiums written by the Companys non-California operations were $625.3 million in the first nine months, an increase of approximately 36% over the same period in 2004. The growth in
net premiums written is primarily due to an increase in unit sales and growth in markets recently entered.



Net premiums written is a non-GAAP financial measure which represents the premiums charged on policies issued during a fiscal period less any applicable
reinsurance. Net premiums written is a statutory measure designed to determine production levels. Net premiums earned, the most directly comparable GAAP measure, represents the portion of net premiums written that is recognized as income in the
financial statements for the period presented and earned on a pro-rata basis over the term of the policies. The following is a reconciliation of total Company net premiums written to net premiums earned (000s) for the nine months ended
September 30, 2005 and 2004, respectively:



|                              |  |                                 |           |      |   |          
|----------------------------- |  | ------------------------------- | --------- | ---- | - | ---------
|                              |  | Nine Months Ended September 30,
|                              |  | 2005                            |           | 2004
|Net premiums written          |  | $                               | 2,222,567 |      | $ | 1,972,465
|Increase in unearned premiums |  |                                 | 107,693   |      |   | 111,931  
|                              |  |                                 |           |      |   |          
|Earned premiums               |  | $                               | 2,114,874 |      | $ | 1,860,534
|                              |  |                                 |           |      |   |          



The loss ratio (GAAP
basis) in the first nine months of 2005 (loss and loss adjustment expenses related to premiums earned) was 64.1% in 2005 and 62.8% in 2004. The increase in the loss ratio is partially attributable to an increase in loss costs resulting from
inflation in automotive parts and labor. Positive development on prior accident years loss reserves was approximately $45 million and $40 million for the nine months ended September 30, 2005 and 2004, respectively. Hurricane losses
negatively impacted the loss ratio by 0.2% for the nine months ended September 30, 2005 compared with 1.3% for the same period in 2004.



The expense ratio (GAAP basis) in the first nine months of 2005 (policy acquisition costs and other expenses related to premiums earned) was 27.1%
compared to 26.6% in the corresponding period of 2004. Higher expenditures for advertising and state guaranty fund assessments increased the expense ratio in 2005.



16



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The combined ratio of losses and expenses (GAAP basis) is the key measure of underwriting performance
traditionally used in the property and casualty insurance industry. A combined ratio under 100% generally reflects profitable underwriting results; whereas a combined ratio over 100% generally reflects unprofitable underwriting results. The combined
ratio of losses and expenses (GAAP basis) was 91.2% in the first nine months of 2005 compared with 89.4% in the corresponding period of 2004.



Investment income for the first nine months of 2005 was $90.3 million, compared with $80.4 million in the first nine months of 2004. The after-tax yield
on average investments (fixed maturities and equities valued at cost) was 3.4% in the first nine months of 2005 compared to 3.6% in the corresponding period of 2004 on average invested assets of $3,023.1 million and $2,611.1 million, respectively.



Interest expense was $5.2 million in the first nine months of
2005 compared to $2.7 million for the third quarter of 2004. The increase in interest expense reflects an increase in notes payable and an increase in interest rates on the Companys variable interest rate debt.



The income tax provision in the first nine months of 2005 of $84.6 million
represented an effective tax rate of 29.0% compared with an effective rate of 28.4% for the corresponding period of 2004.



Net income for the first nine months of 2005 of $207.0 million, or $3.78 per share (diluted), compares with $212.1 million, or $3.88 per share (diluted),
in the corresponding period of 2004. Basic net income per share was $3.80 in the first nine months of 2005 and $3.89 in the first nine months of 2004.



Liquidity and Capital Resources



Net cash provided from operating activities in the first nine months of 2005 was $409.2 million, an increase of $15.7 million over the same period in
2004. The Company has utilized the cash provided from operating activities primarily to increase its investment in fixed maturity securities and short-term cash investments, the purchase and development of information technology and the payment of
dividends to its shareholders. Funds derived from the sale, redemption or maturity of fixed maturity investments of $719.9 million was reinvested by the Company generally in highly rated fixed maturity securities.



The Companys cash and short-term cash investment portfolio totaled
$568.0 million at September 30, 2005. Together with cash flows from operations, the Company believes that such liquid assets are adequate to satisfy its liquidity requirements without the forced sale of investments. However, the Company
operates in a rapidly evolving and often unpredictable business environment that may change the timing or amount of expected future cash receipts and expenditures. Accordingly, there can be no assurance that the Companys sources of funds will
be sufficient to meet its liquidity needs or that the Company will not be required to raise additional funds to meet those needs, including future business expansion, through the sale of equity or debt securities or from credit facilities with
lending institutions.



17



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The following table sets forth the composition of the investment portfolio of the Company as of September 30, 2005:



|                                      |  |                        |           |             |   |          
|------------------------------------- |  | ---------------------- | --------- | ----------- | - | ---------
|                                      |  | AmortizedCost          |           | Marketvalue
|                                      |  | (Amounts in thousands)
|Fixed maturity securities:            |  |                        |           |             |   |          
|U.S. government bonds and agencies    |  | $                      | 201,424   |             | $ | 200,267  
|Municipal bonds                       |  |                        | 1,851,709 |             |   | 1,911,898
|Mortgage-backed securities            |  |                        | 197,301   |             |   | 194,869  
|Corporate bonds                       |  |                        | 124,306   |             |   | 125,582  
|Redeemable preferred stock            |  |                        | 5,379     |             |   | 5,410    
|                                      |  |                        |           |             |   |          
|                                      |  |                        | 2,380,119 |             |   | 2,438,026
|Equity securities:                    |  |                        |           |             |   |          
|Common Stock:                         |  |                        |           |             |   |          
|Public utilities                      |  |                        | 61,996    |             |   | 107,691  
|Banks, trusts and insurance companies |  |                        | 7,845     |             |   | 9,311    
|Industrial and other                  |  |                        | 96,062    |             |   | 111,637  
|Non-redeemable preferred stock        |  |                        | 50,545    |             |   | 52,922   
|                                      |  |                        |           |             |   |          
|                                      |  |                        | 216,448   |             |   | 281,561  
|Short-term cash investments           |  |                        | 533,772   |             |   | 533,772  
|                                      |  |                        |           |             |   |          
|Total investments                     |  | $                      | 3,130,339 |             | $ | 3,253,359
|                                      |  |                        |           |             |   |          



The market value of
all investments held at market as Available for Sale exceeded amortized cost at September 30, 2005 by $123.0 million. That net unrealized gain of $123.0 million, reflected in shareholders equity, net of applicable tax effects,
was $79.8 million at September 30, 2005, compared with a net unrealized gain of $124.2 million or $80.5 million, net of applicable tax effects, at December 31, 2004.



At September 30, 2005, the average rating of the $2,432.6 million bond portfolio at market (amortized cost $2,374.7
million) was AA, the same average rating at December 31, 2004. Bond holdings are broadly diversified geographically, within the tax-exempt sector. Holdings in the taxable sector consist principally of investment grade issues. At
September 30, 2005, bond holdings rated below investment grade totaled $48.1 million at market (amortized cost $47.9 million) representing approximately 1.5% of total investments. This compares to approximately $50.4 million at market
(amortized cost $48.1 million) representing approximately 1.7% of total investments at December 31, 2004.



The Company monitors its investments closely. If an unrealized loss is determined to be other-than- temporary it is written off as a realized loss through
the consolidated statement of income. The Companys methodology of assessing other-than-temporary impairments is based on security-specific analysis as of the balance sheet date and considers various factors including the length of time and the
extent to which the fair value has been less than the cost, the financial condition and the near term prospects of the issuer, whether the debtor is current on its contractually obligated interest and principal payments, and the Companys
intent to hold the investment for a period of time sufficient to allow the Company to recover its costs. The Company recognized approximately $2.2 million ($1.4 million after tax benefit) in write-downs of its investments as other-than-temporary
declines during the first nine months of 2005.



During the
first nine months of 2005, the Company recognized approximately $15.5 million in net realized gains which is comprised of realized gains of $23.6 million offset by realized losses of $8.1 million. Realized losses are comprised of $5.9 million from
the disposal of securities with a total amortized cost of approximately $176.6 million and $2.2 million in write-downs of investments as other-than-temporary declines. Approximately $2.4 million of the $5.9 million realized losses from disposal
relates to securities held as of December 31, 2004 with no loss on any one individual security exceeding $0.3 million.



18



---

At September 30, 2005, the Company had a net unrealized gain on all investments of $123.0 million
before income taxes which is comprised of gross unrealized gains of $140.8 million offset by unrealized losses of $17.8 million. Unrealized losses represent 0.6% of total investments at amortized cost. Of these unrealized losses, approximately $13.6
million relate to fixed maturity investments and the remaining $4.2 million relate to equity securities.



The following table illustrates the gross unrealized losses included in the Companys investment portfolio and the fair value of those securities,
aggregated by investment category. The table also illustrates the length of time that they have been in a continuous unrealized loss position as of September 30, 2005.



|                                      |  |                        |        |                   |   |                  |  |           |       |                  |   |           |  |   |        |  |   |          
|------------------------------------- |  | ---------------------- | ------ | ----------------- | - | ---------------- |  | --------- | ----- | ---------------- | - | --------- |  | - | ------ |  | - | ---------
|                                      |  | Less than 12 months    |        | 12 months or more |   | Total           
|                                      |  | UnrealizedLosses       |        | FairValue         |   | UnrealizedLosses |  | FairValue |       | UnrealizedLosses |   | FairValue
|                                      |  | (Amounts in thousands)
|U.S. government bonds and agencies    |  | $                      | 900    |                   | $ | 168,957          |  | $         | 424   |                  | $ | 20,819    |  | $ | 1,324  |  | $ | 189,776  
|Municipal bonds                       |  |                        | 3,234  |                   |   | 518,476          |  |           | 3,780 |                  |   | 109,960   |  |   | 7,014  |  |   | 628,436  
|Mortgage-backed securities            |  |                        | 1,983  |                   |   | 116,395          |  |           | 1,349 |                  |   | 75,947    |  |   | 3,332  |  |   | 192,342  
|Corporate bonds                       |  |                        | 1,575  |                   |   | 71,110           |  |           | 307   |                  |   | 13,875    |  |   | 1,882  |  |   | 84,985   
|Redeemable Preferred Stock            |  |                        | 17     |                   |   | 2,666            |  |           |      |                  |   |          |  |   | 17     |  |   | 2,666    
|                                      |  |                        |        |                   |   |                  |  |           |       |                  |   |           |  |   |        |  |   |          
|Subtotal, debt securities             |  | $                      | 7,709  |                   | $ | 877,604          |  | $         | 5,860 |                  | $ | 220,601   |  | $ | 13,569 |  | $ | 1,098,205
|Equity Securities                     |  |                        | 3,801  |                   |   | 84,698           |  |           | 448   |                  |   | 3,259     |  |   | 4,249  |  |   | 87,957   
|                                      |  |                        |        |                   |   |                  |  |           |       |                  |   |           |  |   |        |  |   |          
|Total temporarily impaired securities |  | $                      | 11,510 |                   | $ | 962,302          |  | $         | 6,308 |                  | $ | 223,860   |  | $ | 17,818 |  | $ | 1,186,162
|                                      |  |                        |        |                   |   |                  |  |           |       |                  |   |           |  |   |        |  |   |          



Approximately $15.4
million of the unrealized losses are represented by a large number of individual securities with unrealized losses of less than 20% of each securitys amortized cost. Of these, the most significant unrealized losses relate to one corporate
bond, one municipal bond and one equity security with unrealized losses of approximately $0.4 million, $0.4 million and $0.4 million, respectively, representing market value declines of approximately 9%, 9% and 6% of amortized cost. The remaining
$2.4 million of unrealized losses represents unrealized losses that exceed 20% of amortized costs, and consists of 3 fixed maturity and 15 equity securities. Of these securities, the most significant unrealized losses relate to a municipal bond and
an equity security with unrealized losses of $0.7 million and $0.4 million, respectively, representing market value declines of approximately 22% and 34% of amortized cost. In the future, information may come to light or circumstances may change
that would cause the Company to write-down or sell these securities and incur a realized loss.



The Company has concluded that the gross unrealized losses of $17.8 million at September 30, 2005 were temporary in nature. However, facts and circumstances may change which could result in a decline in market
value considered to be other than temporary.



The amortized
cost and estimated market value of fixed maturities available for sale with unrealized losses exceeding 20% of amortized cost as of September 30, 2005 by contractual maturity are shown below. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.



|                                       |  |                        |       |                      |   |      
|-------------------------------------- |  | ---------------------- | ----- | -------------------- | - | -----
|                                       |  | AmortizedCost          |       | EstimatedMarketValue
|                                       |  | (Amounts in thousands)
|Fixed maturities available for sale:   |  |                        |       |                      |   |      
|Due in one year or less                |  | $                      |      |                      | $ |     
|Due after one year through five years  |  |                        |      |                      |   |     
|Due after five years through ten years |  |                        | 3,369 |                      |   | 2,627
|Due after ten years                    |  |                        | 1,178 |                      |   | 762  



19



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The Companys development of its Next Generation (NextGen) computer system to replace
existing legacy systems is in the final stages of development. The Company will implement NextGen in phases by state beginning with Virginia in the fourth quarter of 2005. The Company expects to implement the other states in 2006. When completed,
the NextGen system is expected to cost approximately $25 million to $30 million and to provide a significant positive benefit to the Company. As with any large scale technology implementation, risks associated with system implementation can occur
that could significantly impact the operations of the Company, although management has expended planning and development efforts to mitigate these risks.



Industry and regulatory guidelines suggest that the ratio of a property and casualty insurers annual net premiums written to statutory
policyholders surplus should not exceed 3 to 1. Based on the combined surplus of all of the licensed insurance subsidiaries of $1.5 billion at September 30, 2005 and net written premiums for the twelve months ended on that date of $2.9
billion, the ratio of writings to surplus was approximately 2 to 1.



The Companys book value per share at September 30, 2005 was $29.27 per share.



|Item 3. | Quantitative and Qualitative Disclosures About Market Risk
|------- | ----------------------------------------------------------



There have been no material changes in the Companys investment strategies, types of financial instruments held or the risks associated with such
instruments which would materially alter the market risk disclosures made in the Companys Annual Report on Form 10-K for the year ended December 31, 2004. The duration of the Companys bond portfolio was 2.9 years at
September 30, 2005 compared with 3.2 years at December 31, 2004.



|Item 4. | Controls and Procedures
|------- | -----------------------



Evaluation of Disclosure Controls and Procedures



The Company maintains disclosure controls and procedures designed to ensure that information required to be disclosed in the
Companys reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such
information is accumulated and communicated to the Companys management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow for timely decisions regarding required disclosure. In designing and
evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management
necessarily was required to apply its judgment in evaluating the cost benefit relationship of possible controls and procedures.



As required by Securities and Exchange Commission Rule 13a-15(b), the Company carried out an evaluation, under the supervision and with the participation
of the Companys management, including the Companys Chief Executive Officer and the Companys Chief Financial Officer, of the effectiveness of the design and operation of the Companys disclosure controls and procedures as of
the end of the quarter covered by this report. Based on the foregoing, the Companys Chief Executive Officer and Chief Financial Officer concluded that the Companys disclosure controls and procedures were effective at the reasonable
assurance level.



Changes in Internal Control
over Financial Reporting



There has been no change in the
Companys internal control over financial reporting during the Companys most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect the Companys internal control over financial reporting.



20



---

PART II - OTHER INFORMATION



|Item 1. | Legal Proceedings
|------- | -----------------



The Company is, from time to time, named as a defendant in various lawsuits incidental to its insurance business. In most of these actions, plaintiffs
assert claims for punitive damages which are not insurable under judicial decisions. The Company has established reserves for lawsuits in which the Company is able to estimate its potential exposure and the likelihood that the court will rule
against the Company is probable. The Company vigorously defends these actions, unless a reasonable settlement appears appropriate. The Company believes that adverse results, if any, in the actions currently pending should not have a material effect
on the Companys operations or financial position. Also, see the Companys Annual Report on Form 10-K for the year ended December 31, 2004 and the Companys Quarterly Reports on Form 10-Q for the periods ending March 31,
2005 and June 30, 2005.



As previously reported in recent
public filings, following trial and appeal in Robert Krumme, On Behalf Of The General Public v. Mercury Insurance Company, Mercury Casualty Company, and California Automobile Insurance Company (Superior Court for the City and County of San
Francisco), the Court issued a modified injunction on July 11, 2005 requiring the Company to compensate brokers at the same rate based on volume of sales, accept applications for insurance from any California licensed broker, remove subjective
underwriting requirements from its broker instruction manual and guidelines to be used by its field personnel that specifically identify the standards of broker performance. The Company has implemented changes to its broker relationship to comply
with the Courts modified injunction. The Court also stated that some period of review must take place following any changes before a complete assessment of the brokers relationship with the Company can be made, and that any further
judicial review should be undertaken only after further discussions between the parties to the lawsuit and appropriate evidence reflecting the nature of such broker relationship is fully assessed. These changes in a one year period of review to
November 1, 2006 must occur before the Court will reconsider vacating the modified injunction. The Company believes that it is now in compliance with the modified injunction. The Company is not able to estimate the extent to which complying
with the modified injunction will impact future trends in earnings or loss ratios.



In February 2004, the California DOI issued a Notice of Non-Compliance (NNC) based on the trial court ruling in the Robert Krumme litigation. The NNC alleges that the Company willfully
misrepresented the actual price insurance consumers could expect to pay for insurance by the amount of a one-time fee charged by the consumers insurance broker. The Company filed a Notice of Defense which is based on the same grounds that
formed the Companys defense in the Robert Krumme case as well as what the San Francisco Superior Court appeared to regard as the DOIs acquiescence in our practices. The Company does not believe that it has done anything to warrant
a monetary penalty from the California DOI. If a monetary penalty is imposed, the Company is unable to estimate the ultimate amount of any monetary penalty, and therefore no adjustment for the potential monetary penalty is recorded in the
consolidated financial statements.



Noam Hernandez,
individually and on behalf of others similarly situated v. Mercury Insurance Company,(Los Angeles Superior Court), originally filed July 12, 2002, as Dan ODell v. Mercury Insurance Company, involves a dispute over whether the
Companys use of certain automated database vendors to help determine the value of total loss claims is proper. The Plaintiff (along with plaintiffs in other coordinated cases against other insurers) is seeking class certification and
unspecified damages for breach of contract and bad faith, including punitive damages, restitution, an injunction preventing the Company from using valuation software, and unspecified attorneys fees and costs. In 2003, the Court granted
the Companys motion to stay the action pending plaintiff ODells compliance with a contractual arbitration provision. The arbitration was completed in August 2004 and the award in the Companys favor was confirmed by the
Court in January 2005. In June 2005, based upon the arbitration result and other defenses, the Court granted the Companys Motion to Strike the first amended complaint. While the individual claims of plaintiff ODell were
dismissed with prejudice, Plaintiffs counsel was given leave to file a second amended complaint, substituting a new plaintiff, in August of 2005. As with the previous plaintiff, the Company has filed a motion to compel plaintiff
Hernandezs compliance with a contractual arbitration provision, and has also filed a Motion to Strike portions of the amended complaint on other grounds. The Court is expected to rule



21



---

on these motions in December of 2005. The Company is not able to evaluate the likelihood of an unfavorable outcome or to estimate a range of potential
loss in the event of an unfavorable outcome at the present time.



In Marissa Goodman, on her own behalf and on behalf of all others similarly situated v. Mercury Insurance Company (Los Angeles Superior Court), filed June 16, 2002, the Plaintiff is challenging the Companys use of certain
automated database vendors to assist in valuing claims for medical payments. The Plaintiff has filed a motion seeking class action certification to include all of the Companys insureds from 1998 to the present who presented a medical payments
claim, had the claim reduced using the computer program and whose claim did not reach the policy limits for medical payments. This motion will be heard by the Court in January 2006. As with the ODell case above, and the other cases in
the coordinated proceedings, the Plaintiff alleges that these automated databases systematically undervalue medical payment claims to the detriment of insureds. The Plaintiff is seeking unspecified actual and punitive damages. Similar lawsuits have
been filed against other insurance carriers in the industry. The case has been coordinated with two other similar cases, and also with ten other cases relating to total loss claims. The Court denied the Companys Motion for Summary Judgment
holding that there is an issue of fact as to whether Ms. Goodman sustained any damages as result of the Companys handling of her medical payments claim. The case is set to go to trial in June 2006. The Company is not able to evaluate the
likelihood of an unfavorable outcome or to estimate a range of potential loss in the event of an unfavorable outcome at the present time. The Company intends to vigorously defend this lawsuit jointly with the other defendants in the coordinated
proceedings.



Sam Donabedian, individually and on behalf of
those similarly situated v. Mercury Insurance Company, filed his original action on April 20, 2001 in the Los Angeles Superior Court, asserting, among other things, a claim that the Companys calculation of persistency discounts to
determine premiums is an unfair business practice, a violation of the California Consumer Legal Remedies Act (CLRA) and a breach of the covenant of good faith and fair dealing. The Company originally prevailed on a Demurrer to
the Complaint and the case was dismissed; however, the California Court of Appeal reversed the trial courts ruling, deciding that the California Insurance Commissioner does not have the exclusive right to review the calculation of insurance
rates/premiums. After filing two additional pleadings, on June 28, 2005, the Plaintiff filed a Fourth Amended Complaint, asserting claims for violation of California Business & Professions Code Section 17200 and breach of the
covenant of good faith and fair dealing (the CLRA claim previously had been dismissed with prejudice). Plaintiff again sought injunctive relief, unspecified restitution and monetary damages as well as punitive damages and attorneys fees and
costs. Without leave of court, the Plaintiff has attempted to state claims for breach of contract and fraud. The Company has filed a Demurrer and Motion to Strike certain portions of the Plaintiffs Fourth Amended Complaint. Following the
hearing on September 19, 2005, the Court took the matter under submission. On June 9, 2005, the trial court also permitted the Complaint in Intervention by The Foundation for Taxpayer and Consumer Rights which alleges that the
Companys calculation of persistency discounts constitutes a violation of Insurance Code Section 1861.02 (a) and (c) and the Company has filed an answer to that pleading. No trial date has been scheduled and the Plaintiff has not
filed a motion to certify the putative class.



At a status
conference on October 24, 2005, the Court agreed to postpone the litigation and to seal its ruling on the Companys Demurrer and Motion to Strike certain portions of the Fourth Amended Complaint until January 9, 2006 to see if the
case could be resolved without further litigation. If the case is not resolved by that date or if progress towards settlement has not been made, the Company expects the Court will unseal its ruling on the Demurrer and Motion to Strike and discovery
will commence. The Company is not able to determine the potential outcome of this matter or potential exposure in the event liability is to be found.



Cynthia Markovich and Patricia Carnegie v. Mercury Insurance Services, L.L.C., a collective action claim filed April 19, 2005 in the United
States District Court for the Middle District of Florida, asserts that the Plaintiffs were denied overtime compensation while working as claims adjusters for the Company in violation of the provisions of the Fair Labor Standards Act. The Plaintiffs
are seeking class certification to include all claims adjusters during the three years preceding the filing of this action and recovery of overtime compensation, liquidated damages, attorney fees, costs and other compensation. This case is currently
in discovery and the Company is not able to evaluate the likelihood of an unfavorable outcome or to estimate a range of potential loss in the event of an unfavorable outcome at the present time. The Company intends to vigorously defend this case.



22



---

|Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------- | -----------------------------------------------------------



None



|Item 3. | Defaults Upon Senior Securities
|------- | -------------------------------



None



|Item 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------



None



|Item 5. | Other Information
|------- | -----------------



None



|Item 6. | Exhibits
|------- | --------



|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                     
|---- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | 
|15.1 |  | Letter Regarding Unaudited Interim Financial Information                                                                                                                                                                                                                                                                                                                                                                            
|     | 
|23.1 |  | Consent of Independent Registered Public Accounting Firm                                                                                                                                                                                                                                                                                                                                                                            
|     | 
|31.1 |  | Certification of Registrants Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                     
|     | 
|31.2 |  | Certification of Registrants Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                                     
|     | 
|32.1 |  | Certification of Registrants Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002. This certification is being
furnished solely to accompany this Quarterly Report on Form 10-Q and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the
Company.
|     | 
|32.2 |  | Certification of Registrants Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002. This certification is being
furnished solely to accompany this Quarterly Report on Form 10-Q and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the
Company.



23



---

SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.



|                       |  |  |  |                             |  |                      |  |                                           
|---------------------- |  |  |  | --------------------------- |  | -------------------- |  | ------------------------------------------
|                       |  |  |  | MERCURY GENERAL CORPORATION
|                       |  |  | 
|Date: November 8, 2005 |  |  |  | By:                         |  | /s/ George Joseph   
|                       |  |  |  |                             |  |                      |  | George Joseph                             
|                       |  |  |  |                             |  |                      |  | Chairman and Chief Executive Officer      
|                       |  |  | 
|Date: November 8, 2005 |  |  |  | By:                         |  | /s/ Theodore Stalick
|                       |  |  |  |                             |  |                      |  | Theodore Stalick                          
|                       |  |  |  |                             |  |                      |  | Vice President and Chief Financial Officer



24