It’s been nine months since billionaire George Joseph relinquished the chief executive’s chair at Mercury General Corp., the property and casualty insurance company he founded in 1961.

Even so, the “George Joseph” premium in Mercury General’s stock price lives on, despite significant competitive challenges the Los Angeles-based insurer faces in its core California market and stumbles in diversifying outside the state.

Most equity analysts are neutral to negative on the company’s short-term prospects, but investors don’t seem to mind, especially since Joseph is still chairman and along with his ex-wife controls 51 percent of shares.

While off its 52-week high in May, the $53.57 a share that the company was trading for last week is 11 percent better than a year ago, before Mercury reported a disappointing 2006 and mixed results in the first two quarters of this year.

“This is an industry where you have these cult stocks, headed by a charismatic leader, that certainly have delivered for people in the past,” said Richard Sbaschnig, an Oppenheimer & Co. analyst who has a neutral rating on the stock. “Most of the industry, including myself, would be rating them a ‘sell’ by now if their past track record wasn’t so good. The calls that George has made on the (insurance) market over the years have generally been dead on.”

Still, the company failed to meet analyst expectation in the fourth quarter of 2006. And while better-than-expected earnings in the first two quarters of this year boosted the stock, analysts consider the overall growth trends to be troubling, especially with net premiums essentially treading water.

A core challenge to Joseph’s successor as chief executive, former Chief Operating Officer Gabriel Tirador, is reducing Mercury’s reliance on California for more than three quarters of its business. The state’s third largest auto insurer, it sells policies here largely through a traditional network of independent agents.

But competitors, such as Berkshire Hathaway subsidiary Geico, increasingly aim to nibble at its market share through irreverent ad campaigns that cultivate a youthful, high-tech image and emphasize phone and Internet sales.

In 2003, Mercury made a big push to diversify into New Jersey after other carriers had fled due to tighter regulations. Desperate state officials made a deal with the California carrier allowing it to consider a policyholder’s credit rating in setting rates, something they had not allowed other insurers. Mercury also made big push into Florida, where the advent of a no-fault insurance structure and increasing fraud also was driving away carriers.

Unfortunately, Mercury’s information technology infrastructure, which the company had been slow to upgrade, couldn’t keep up with the East Coast growth, leading to customer service complaints. And as New Jersey loosened its regulations, more carriers entered the market and cut-rate competition cut into Mercury’s gains. What’s more, carriers are expected to re-enter Florida as its no-fault structure expires in October.

“The intense competitive environment (in New Jersey) remains unabated,” Tirador admitted during a conference call last month. “We continue to believe that growth will be very difficult to achieve in 2007.”

Mercury General has taken steps to shore up its eastern front, replacing a single Eastern region vice president with separate vice presidents for the Northeast and Southeast. And it’s working on improving its operations, Tirador said.

Automobile insurance accounted for approximately 84 percent of the Mercury’s $1.5 billion of net written premiums in the first six months of 2007, but the company also has a small percentage of homeowner and other property polices in California and Florida. While there has been a pickup in growth in California homeowners policies, marketing the line in its home state and Florida hasn’t been a big priority given the natural disasters that regularly afflict both states. But that also has meant little income growth in those product lines.

All in all, analysts don’t expect a noticeable upside in Mercury General’s fundamentals before mid-to-late 2008, Sbaschnig said. Another analyst, Meyer Shields of Stifel Nicholas & Co. analyst, is even more pessimistic, with a “sell” rating on shares.

“By being so heavily invested in California, they are overly exposed to the changing cycles of regulation there,” Shields said. “When you consider that their two biggest efforts to diversity outside the state haven’t gone well, it’s going to take time for things to work themselves out.”