Mercury Insurance 2010 Annual Report Download - page 102

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MERCURY GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
13. Statutory Balances and Accounting Practices
The Insurance Companies prepare their statutory-basis financial statements in conformity with accounting
practices prescribed or permitted by the insurance departments of the applicable states of domicile. Prescribed
statutory accounting practices primarily include those published as statements of SAP by the NAIC, as well as
state laws, regulations, and general administrative rules. Permitted statutory accounting practices encompass all
accounting practices not so prescribed. As of December 31, 2010, there were no material permitted statutory
accounting practices utilized by the Insurance Companies.
The following table presents the statutory net income and capital and surplus of the Insurance Companies, as
reported to regulatory authorities:
Year Ended December 31,
2010 2009 2008
(Amounts in thousands)
Statutory net income(1) ............................ $ 142,981 $ 186,995 $ 86,514
Statutory capital and surplus(2) ...................... 1,322,270 1,517,864 1,371,095
(1) Statutory net income excludes changes in the fair value of the investment portfolio as a result of the
application of fair value option.
(2) The decrease in statutory capital and surplus in 2010 was primarily due to a $270 million extraordinary
intercompany dividend declared by MCC in the fourth quarter of 2010. The dividend is payable to Mercury
General in 2011.
The statutory capital and surplus of each of the Insurance Companies exceeded the highest level of
minimum regulatory required capital.
14. Profit Sharing Plan
The Company’s employees are eligible to become members of the Profit Sharing Plan (the “Plan”). The
Company, at the option of the Board of Directors, may make annual contributions to the Plan, and the
contributions are not to exceed the greater of the Company’s net income for the plan year or its retained earnings
at that date. In addition, the annual contributions may not exceed an amount equal to 15% of the compensation
paid or accrued during the year to all participants under the Plan. No contributions were made in the past three
years.
The Plan includes an option for employees to make salary deferrals under Section 401(k) of the Internal
Revenue Code. The matching contributions, at a rate set by the Board of Directors, totaled $6,976,000,
$3,080,000, and $6,802,000 for 2010, 2009, and 2008, respectively. Substantially reduced contributions were
made during 2009 to improve the Company’s profitability as a part of a cost reduction program implemented in
2009.
The Plan also includes an employee stock ownership plan (“ESOP”) that covers substantially all
employees. The Board of Directors authorized the Plan to purchase $1.2 million, $1.2 million, and $0 of the
Company’s common stock in the open market for allocation to the Plan participants in 2010, 2009, and 2008,
respectively. Accordingly, the Company recognized compensation expense equal to such amounts.
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