Mercury Insurance 2010 Annual Report Download - page 100

MERCURY GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company recognizes interest and penalties related to unrecognized tax benefits as a part of income
taxes. During the years ended December 31, 2010, 2009, and 2008, the Company recognized net interest and
penalty (benefit) or expense, excluding refunds, of ($872,000), $266,000, and $623,000, respectively. The
Company carried an accrued interest and penalty balance of $728,000 and $1,600,000 at December 31, 2010 and
2009, respectively.
11. Losses and Loss Adjustment Expenses
Activity in the reserves for losses and loss adjustment expenses is summarized as follows:
Year Ended December 31,
2010 2009 2008
(Amounts in thousands)
Gross reserves at January 1 .................................... $1,053,334 $1,133,508 $1,103,915
Less reinsurance recoverable .............................. (7,748) (5,729) (4,457)
Net reserves at January 1 ...................................... 1,045,586 1,127,779 1,099,458
Incurred losses and loss adjustment expenses related to:
Current year ............................................ 1,838,824 1,840,268 1,971,767
Prior years ............................................. (13,058) (58,035) 88,642
Total incurred losses and loss adjustment expenses ................. 1,825,766 1,782,233 2,060,409
Loss and loss adjustment expense payments related to:
Current year ............................................ 1,240,696 1,246,804 1,316,242
Prior years ............................................. 603,256 617,622 715,846
Total payments ............................................. 1,843,952 1,864,426 2,032,088
Net reserves at year-end ...................................... 1,027,400 1,045,586 1,127,779
Reinsurance recoverable .................................. 6,805 7,748 5,729
Gross reserves at year-end ..................................... $1,034,205 $1,053,334 $1,133,508
The decrease in the provision for insured events of prior years in 2010 of approximately $13 million
primarily resulted from the re-estimate of accident year 2009 California BI losses which have experienced lower
average severities and fewer late reported claims than were originally estimated at December 31, 2009. In
addition, the Company experienced favorable development on New Jersey personal automobile reserves,
resulting from more aggressive handling of litigated claims, which includes a high percentage of favorable results
in cases brought to trial. The favorable development was partially offset by unfavorable development on Florida
reserves, which included approximately $3 million of unfavorable development on the homeowners line of
business, primarily related to sinkhole claims.
The decrease in the provision for insured events of prior years in 2009 of approximately $58 million
primarily resulted from the re-estimate of accident year 2008 and 2007 California BI losses which have
experienced both lower average severities and fewer late reported claims than were originally estimated at
December 31, 2008. In addition, there was favorable development from a recovery of approximately $5 million
related to losses incurred on 2007 wildfires. The favorable development was partially offset by adverse
development on New Jersey loss adjustment expense reserves that resulted from the re-estimate of the expected
costs to aggressively defend BI and PIP claims.
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