NU Online News Service, Feb. 8, 10:52 a.m.EST

Mercury General Corp.is leaving the Florida homeowners market by the end of 2012—adecision driven by significant underwriting losses from sinkholeclaims.

“Our Florida homeowners’ line continues to present significantchallenges as a result of sinkhole claims,” said Gabriel Tirador,president and chief executive officer of Mercury General, during aconference call. “It produced a $19 million underwriting loss forthe quarter. The underwriting loss includes the accrual of apremium deficiency reserve of $6 million. We are withdrawing fromthe Florida homeowners market.”

Mr. Tirador said Mercury General has about $12.5 million ofwritten premium in Florida.

In reporting a $23.6 million fourth quarter loss compared to again of $34.2 million during the last quarter of 2009, MercuryGeneral said it intends to begin giving its 8,000 policyholders amandated 180-day notice of nonrenewal starting in March.

The Los Angeles-based insurer expects to be out of the SunshineState by the second half of 2012.

Mr. Tirador echoed the observations of state officials and other insurance executives by noting thatsinkhole claims are now coming from outside the traditional areasof Pasco and Hernando counties.

“We’re starting to see some claims—not only us, [but] by theindustry—pop up in other areas of the state,” he said. “So wethought it was the most prudent move for us to exit the homeowners’line.”

The company saw growth in automobile insurance in Florida, Mr.Tirador added.

The Florida Office of Insurance Regulation (OIR) said itreceived and is reviewing a notice of withdrawal from MercuryGeneral subsidiary American Mercury Insurance Company but noofficial response has been given yet.

The letter from American Mercury is a look into thecompany's struggles in Florida the last several years, evenwithout a major hurricane. From 2008 to 2010 the insurer has acombined ratio of 178.8, mostly due to sinkhole claims, it said.The combined ratio in 2010 was 266.7. The company tried tominimize its sinkhole exposure by removing sinkhole coverageat renewal, "However, despite our best efforts, sinkhole claimsshow no sign of abating," American Mercury wrote.

Even a 25 percent rate increase approved by the OIR effectiveJan. 11 will not help. American General's latest analysis shows itneeds an additional 49.7 percent rate increase, which would "resultin continued shrinkage of the program and adverse selection, withthe lower risk customers finding better alternatives with ourcompetitors."

American Mercury's book of business in Florida is too small toget catastrophe reinsurance and it needs a substantial informationtechnology upgrade -- an expenditure the company does not considera "sound use of capital" in Florida.

Mercury General's results for the quarter were also impacted bysevere rain in the company’s home state of California in December.As a result, the insurer received 1,500 more claims in December2010 than the same month the year prior, Mr. Tirador said. Lossesfrom the storms in California were about $25 million.

Net income for 2010 was $152.2 million, down significantly froma profit of $403.1 million in 2009.

Mercury General posted a fourth quarter combined ratio of 109.9compared to 98.1 during the same period in 2009.

According to Highline Data, the Mercury General Group was54^th among homeowners multiperil writers in Florida witha 0.2 percent market share.

Highline Data is owned by Summit Business Media, which also ownsNational Underwriter.