8-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported) December 31, 2006

Mercer Insurance Group, Inc.

(Exact name of registrant as specified in its charter)

Pennsylvania
(State or other jurisdiction
of Incorporation) 000-25425
(Commission
File Number) 23-2934601
(IRS Employer
Identification No.)

10 North Highway 31, Pennington, New Jersey
(Address of principal executive offices) 08534
(Zip Code)

Registrant’s telephone number, including area code (609) 737-0426

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 2.02 Results of Operations and Financial Condition.

     On February 26, 2007, the Company issued a press release containing financial information regarding its results of operations and financial condition for the three months and year ended December 31, 2006.

     A copy of the press release is furnished as part of this Form 8-K and is attached hereto as Exhibit 99.1.

Item 9.01 Financial Statements and Exhibits.

     (c) Exhibits.

99.1 Press Release dated February 26, 2007

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 hereunto duly authorized.

	MERCER INSURANCE GROUP, INC.
Dated: February 27, 2007	By:	/s/ David Merclean
		David Merclean
		Chief Financial Officer

EX-99.1

Exhibit 99.1

Company Contacts:

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

Mercer Insurance Group, Inc. Announces 2006 Earnings

Pennington, New Jersey, February 26, 2007 – Mercer Insurance Group, Inc. (Nasdaq: MIGP) today reported its operating results for the three months and year ended December 31, 2006. Mercer Insurance Group, Inc. (the Company) offers commercial and personal lines of insurance to businesses and individuals principally in six states through its insurance subsidiaries: Mercer Insurance Company, Mercer Insurance Company of New Jersey, Inc., Financial Pacific Insurance Company and Franklin Insurance Company.

The Company acquired Financial Pacific Insurance Group, Inc. on October 1, 2005, and it is included in the Company’s 2006 consolidated financial statements. Consequently, comparison of the Company’s 2006 Consolidated Statement of Income with that of 2005 must take into account the impact of the acquisition in order to make meaningful comparisons. Financial Pacific is a specialty writer of commercial lines in primarily four western states, and provides insurance to commercial accounts in the contractor, manufacturing, retail, services and wholesaling businesses.

The Company reported net income, determined under U.S. generally accepted accounting principles (GAAP), in the quarter ended December 31, 2006, of $2.9 million, or $0.46 per diluted share, which was unchanged from the comparable prior year quarter’s net income, which was $0.47 per diluted share. Operating income (a non-GAAP measure defined as net income less after-tax realized gains or losses) in the fourth quarter of both 2006 and 2005 was $2.9 million, or $0.45 per diluted share in 2006 and $0.47 per diluted share in the same quarter of 2005. The Company’s GAAP combined ratio for the fourth quarter of 2006 was 97.8%, as compared to 94.2% for the same quarter in 2005.

Revenues for the fourth quarter of 2006 were $39.0 million, an increase of $6.9 million over the 2005 fourth quarter revenue of $32.1 million. Net premiums earned for the quarter were $35.5 million, a $6.1 million increase over net premiums earned of $29.4 million in the same period of 2005. Net investment income increased $800,000 to $3.0 million for the quarter, as compared to $2.2 million in the comparable period of 2005.

In the year ended December 31, 2006, the Company reported GAAP net income of $10.6 million, or $1.71 per diluted share, which was an increase of $3.6 million over the prior year’s

net income of $7.0 million, or $1.14 per diluted share. After-tax realized investment gains included in net income for the current year were $100,000, or less than $0.02 per diluted share, as compared to $836,000, or $0.14 per diluted share in the same period in the prior year. Operating income for 2006 was $10.5 million, or $1.69 per diluted share, as compared to $6.2 million, or $1.00 per diluted share, in the same period of 2005. The Company’s GAAP combined ratio for the year ended December 31, 2006 was 97.1%, as compared to 94.9% for 2005.

Revenues for the twelve months of 2006 were $149.9 million, an increase of $68.6 million over revenue for 2005 of $81.3 million. Net premiums earned for the period were $137.7 million, a $62.9 million increase over net premiums earned of $74.8 million in the same period of 2005. Net investment income in the twelve months ended December 31, 2006 increased $5.6 million to $10.1 million, as compared to $4.5 million in the comparable period in 2005.

Andrew R. Speaker, President and CEO, in reviewing the Company’s performance in 2006 and in its fourth quarter, commented that he “was pleased with fourth quarter operating results, which helped the Company achieve a record full year operating earnings. It is pleasing to see that our strategies are bearing fruit. By focusing on creating balance in our book of business, both by product and geography, while at the same time maintaining underwriting discipline, we were able to generate consistent, profitable underwriting results in 2006. Our diversification efforts are also leading to increased cash flow, resulting in additional funds from operations to be prudently invested in our high quality investment portfolio, and the resulting increases in investment income further enhance our profitable underwriting results.”

The Board of Directors of Mercer Insurance Group, Inc. has approved a dividend of $0.05 per share, to be paid on March 29, 2007 to shareholders of record on March 13, 2007.

Certain of the statements contained herein (other than statements of historical facts) are forward- looking statements. Such forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and include estimates and assumptions related to economic, competitive and legislative developments. These forward- looking statements are subject to change and uncertainty that are, in many instances, beyond the company’s control and have been made based upon management’s expectations and beliefs concerning future developments and their potential effect on the Company. There can be no assurance that future developments will be in accordance with management’s expectations so that the effect of future developments on the Company will be those anticipated by management. Actual financial results including premium growth and underwriting results could differ materially from those anticipated by the Company depending on the outcome of certain factors, which may include changes in property and casualty loss trends and reserves; catastrophe losses; the insurance product pricing environment; changes in applicable law; government regulation and changes therein that may impede the ability to charge adequate rates; changes in accounting principles; performance of the financial markets; fluctuations in interest rates; availability and price of reinsurance; and the status of the labor markets in which the Company operates.

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

	Quarter Ended
	December 31,
	2006			2005
	(unaudited)			(unaudited)
Net premiums earned	$	35,501		$	29,382
Investment income, net of investment expenses		3,013			2,213
Realized investment gains (losses)		51			(6	)
Other revenue		430			516
Total revenue		38,995			32,105
Losses and loss adjustment expenses		23,178			21,788
Amortization of deferred policy acquisition costs		8,507			4,913
Other expenses		3,034			1,041
Interest expense		299			306
Total expenses		35,018			28,048
Income before income taxes		3,977			4,057
Income taxes		1,081			1,156
Net income	$	2,896		$	2,901
Net income per common share:
Basic	$	0.48		$	0.49
Diluted	$	0.46		$	0.47
Weighted average number of shares outstanding:
Basic		6,070,914			5,954,170
Diluted		6,303,406			6,153,828
Supplementary Financial Data
Net written premiums	$	30,053		$	31,155
Book value per common share	$	19.06		$	17.34
GAAP combined ratio		97.8	%		94.2	%

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

	Year Ended
	December 31 ,
	2006			2005
	(unaudited)
Net premiums earned	$	137,673		$	74,760
Investment income, net of investment expenses		10,070			4,467
Realized investment gains		151			1,267
Other revenue		2,035			772
Total revenue		149,929			81,266
Losses and loss adjustment expenses		87,697			43,384
Amortization of deferred policy acquisition costs		32,694			16,849
Other expenses		13,242			10,766
Interest expense		1,212			306
Total expenses		134,845			71,305
Income before income taxes		15,084			9,961
Income taxes		4,449			2,941
Net income	$	10,635		$	7,020
Net income per common share:
Basic	$	1.77		$	1.18
Diluted	$	1.71		$	1.14
Weighted average number of shares outstanding:
Basic		6,022,880			5,943,150
Diluted		6,222,009			6,160,389
Supplementary Financial Data
Net written premiums	$	145,791		$	75,266
GAAP combined ratio		97.1	%		94.9	%

Consolidated Balance Sheet
(in thousands, except share amounts)

	December 31, 2006			December 31, 2005
	(unaudited)
ASSETS
Investments, at fair value:
Fixed income securities, available-for sale	$	273,454		$	229,129
Equity securities, at fair value		16,522			14,981
Short-term investments, at cost, which approximates fair value		7,692			4,289
Total investments		297,668			248,399
Cash and cash equivalents		17,618			20,677
Premiums receivable		38,030			37,497
Reinsurance receivable		87,987			79,214
Prepaid reinsurance premiums		16,383			21,554
Deferred policy acquisition costs		16,708			10,789
Accrued investment income		3,204			2,625
Property and equipment, net		11,936			11,720
Deferred income taxes		7,775			3,588
Goodwill		5,625			5,633
Other assets		4,033			5,002
Total assets	$	506,967		$	446,698
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Losses and loss adjustment expenses	$	250,455		$	211,679
Unearned premiums		81,930			78,982
Accounts payable and accrued expenses		13,442			13,761
Other reinsurance balances		24,588			18,574
Trust preferred securities		15,542			15,525
Advances under line of credit		3,000			3,000
Other liabilities		2,171			1,778
Total liabilities	$	391,128		$	343,299
Stockholders’ Equity:
Preferred Stock, no par value, authorized		—			—
5,000,000 shares, no shares issued and outstanding Common stock, no par value,		—			—
authorized 15,000,000 shares, issued 7,064,233 and 7,068,233 shares, outstanding 6,582,232 and 6,463,538 shares Additional paid-in capital	$	68,473		$	67,973
Accumulated other comprehensive income		2,815			2,851
Retained earnings		54,629			44,896
Unearned restricted stock compensation		—			(1,654	)
Unearned ESOP shares		(3,757	)		(4,383	)
Treasury Stock, 503,513 and 501,563 shares		(6,321	)		(6,284	)
Total stockholders’ equity		115,839			103,399
Total liabilities and stockholders’ equity	$	506,967		$	446,698