Good afternoon. My name is Laura and I will be your conference operator today. At this time, I would like to welcome everyone to the Mercury General 2014 First Quarter Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) This conference call may contain comments and forward-looking statements based on current plans, expectations, events, and financial and industry trends, which may affect Mercury General's future operating results and financial position. Such statements involve risks and uncertainties which cannot be predicted or quantified and which may cause future activities and results of operations to differ materially from those discussed here today. Thank you. I'll now turn the call over to Gabriel Tirador, President and CEO. Please go ahead.

I would like to welcome everyone to Mercury's first quarter conference call. I am Gabe Tirador, President and CEO. In the room with me is Ted Stalick, Senior Vice President and CFO; Robert Houlihan, Vice President and Chief Product Officer and Chris Graves, Vice President and Chief Investment Officer. : In addition, higher average premiums aided the results this quarter. In our non standard California Company a 6.9% rate increase that went into effect in July of 2013 is now being fully earned. In addition, a 6% rate increase in our preferred auto company went into effect in January 2014. However, the effect of this rate change had a minimal effect on earnings earned premium this quarter but will have greater effect next quarter and will be fully effective in the third quarter of 2014. Our California homeowners combined ratio was over 100% in the quarter. Both frequency and severity were up in the quarter. In addition, a 5.5% rate decrease mandated by an administrative law judge that went into effect in May, 2013, negatively impacted the results this quarter. However, as we previously reported, we implemented an 8.25% rate increase in a California homeowner business on January 25, 2014, which should improve results going forward. Excluding catastrophes, our operations outside of California posted a combined ratio of slightly under 100% for the quarter. As we have previously reported we have taken various actions to improve our cost structure outside of California. These changes coupled with our review of loss indications allowed us to reduce private passenger auto rates in five of our markets in the first quarter of 2014. The rate reduction had an immediate positive impact on new business sales in all of these markets. Although, we expect our new business sales outside of California to improve as a result of our rate reductions, we don't expect premium written to grow in the near term as it will take some time for new business sales to impact premium written and offset the lower average premiums from the rate reductions. Our historical targeted combined ratio for private passenger auto is 95% and we generally price our private passenger auto product to that target. However, in state outside of California, we are pricing our product to expense targets that have not yet achieved but expect to achieve over the next several years. This pricing strategy will allow us to be more competitive than the otherwise would be, but it mean that our margins will be lower than our long-term target for the next few years. With that brief background, we will now take questions.

(Operator Instructions) Your first question comes from the line of Vincent DeAugustino with KBW. Your line is open.

Hi, good morning, everyone. Just to go back to last quarter, I wanted to try to make sure I understood some of the comments on auto frequency. So last quarter there was a little bit drag from increase writing in California and then some of the VMT data we track might suggest that the kind of played out again but I just -- from a frequency standpoint it seemed like may be people were driving more but because there was less dangerous road conditions that even though there was more mileage there were fewer accidents and that's what drove your comment on the frequency in California being favorable?

Are you talking about the fourth quarter or the current quarter?

Trends in fourth quarter kind of carrying over into first quarter with increased driving but then in first quarter maybe even there though there was increased mileage if say there wasn't wet roads and that kind of thing maybe more mileage here didn't translate into more accidents.

That's what we attributed to Vincent, that's correct.

Okay, good. And then just to - obviously if you are on the East Coast, I don't get to experience good weather in California but seems like maybe the weather was favorable, but then there was some drag on homeowners this quarter and so I was just hoping to reconcile what maybe any sort of impacts from non-cat weather would be if we thought about, I am trying to look at an apples-to- apples comparison with homeowners clearly here being an issues-- or not an issues but something to try to normalize.

We have 5.5% rate reduction; there we had to take in May of 2013 a year ago almost a year ago. And that impacted the obviously our average premiums which impacted the combined ratio this quarter. More so ago as I mentioned earlier we have an 8.25% rate increase that went into effect in January and these were annual policy so does take a little bit of time to be reflected in earned premiums. In addition to that although we didn't have -- we had very little rainfall in the first quarter in California. Although, we did have about five inches of rain over --I don't know three or four day period in California over a weekend and we estimate that impacted our California results so I think by couple million dollars. So those were the two major highlights for California. We also booked a little bit of adverse development in California.

For homeowners.

Homeowners, I am talking about home owners, yes.

Okay and then just on the outside California growth as far as just the rate revisions and kind of pricing that to longer term pricing goal. As far as the next year or two, would you have any ballpark figures and what we might expect from an impact to the margin?

I think that outside of California it will vary by state. The larger states are probably closer; it will be closer to where we need to be because of the scale. But yes overall I think it will be pushing closer to 100% combined ratio than 95%.

And the 100% is outside of California?

Outside, we are talking about outside of California, yes.

I have few others but I will re-queue. Thank you.

(Operator Instructions) Your next question comes from the line of Alison Jacobowitz with Bank of America.

Thanks. I was just wondering if could talk a little bit about the expense ratio. It seems despite the restructuring charges and everything you done; the overhead ratio doesn't look like it is coming down too much. How are you thinking about that going forward?

We are expecting, Alison, that's going to run in around 27%, hopefully little under 27% the rest of this year. We have a longer-term goal to get that down lower. But that's kind of work what we are looking at for the near term.

Your next question comes from the line of Vincent DeAugustino with KBW. Your line is open.

Yes, thanks for taking a follow-ups. And just a few quick ones. I am just following from Alison's question on the expense ratio. Looking at the acquisition ratio I would I guess a little surprised that it year-over-year was up and I think some of the changes you guys are putting in place on the cost structure outside of California that are may be would have expected to see that thing a little more stable but with the nice loss ratio on California I was just kind of curious if there might been some performance commission impact there this quarter.

Well, one of the reasons is the mix is a little higher mix in California as compared to prior year, the California business has grown and outside of California has not grown, we tend to pay higher commission here in California as compared to outside of California as an example. It also have the impact of the fact that even though we've taken some cost reduction measures outside of California, I mentioned earlier that our premium volume is down outside of California, so you have some fixed cost that we have reduced but you also have a situation where outside of California our volumes have declined somewhat. In addition to that, some of the expense measures that we are taking including commissions have not really taken effect in this first quarter. So you'll see some of those changes to commission outside of California be more effective probably starting in the second and the third quarter of this year. So those are three, I would say major reasons.

Okay, good color. And then just looking at the balance sheet, it looks like the debt may be went up a little and I think in the 10-K it was mentioned of a $20 million draw on the credit facility. But so I just want to check and see if it has gone up and then second, would just be if that's the case just sort of what would the plans for the proceeds be?

So we've increased our financial leverage by taking some draws on our credit facility. I think we are up to almost 13% debt to total capital. We wouldn't expect that to go much north of 15%, and if does, and I want to Chris talk away where we are investing the fund. But in general, we are looking at really favorable lending terms from the bank on a credit facility and so we - so it is provided us a financial flexibility in our holding company and the opportunity to increase our level on investments to enhance our investment income.

Yes, this is Chris. And the objective with proceeds there is to find income opportunities up in holding company. We are also looking at total return just for a capital appreciation but it is somewhat I guess arbitrage opportunity from what the lending costs are versus what the market opportunities are currently available for us.

Okay, that's good. And just one quick one. And then I'll wrap up just going back to some of the pending or the pending issue before the ALJ, I was just kind of curious just thinking about that as far as the timeline, it is my understanding that we probably get an update from the ALJ sometime in June and then the commissioner would have until September, October to make a final decision in I guess is that timeline seemed correct?

Are you referring to the notice of non -- 2004 notice of noncompliance?

Yes.

Issue, the record had technically not closed, Vincent, although it is my understanding that it is ready to close of administrative issues have been resolved by both sides and I think a record is about ready to close. So once that record is closed I believe the judge has something between 60-90 days to make a decision and send that decision up to the commissioner which then he has I believe something in the same neighborhood 30-60 days for him to render his opinion.

Okay, good to know, we'll stay tuned, thanks for the answers guys.

All right, thanks, Vincent.

There are no further questions at this time. I'll turn the call back to the presenters.

Well, I would like to thank everyone for joining us this quarter. And we look to speaking to you again next quarter. Thank you very much.