Mercury Insurance 2010 Annual Report Download - page 22

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of similar lines where differences in risk may be related to corporate structure, investment policies, reinsurance
arrangements, and a number of other factors. At December 31, 2010, each of the Insurance Companies had
sufficient capital to exceed the highest level of minimum required capital.
Insurance Assessments
The California Insurance Guarantee Association (“CIGA”) was created to pay claims on behalf of insolvent
property and casualty insurers. Each year, these claims are estimated by CIGA and the Company is assessed for
its pro-rata share based on prior year California premiums written in the particular line. These assessments are
limited to 2% of premiums written in the preceding year and are recouped through a mandated surcharge to
policyholders in the year after the assessment. There were no CIGA assessments in 2010.
During 2010, the Company paid approximately $1.7 million in assessments to the New Jersey Unsatisfied
Claim and Judgment Fund and the New Jersey Property-Liability Insurance Guaranty Association for
assessments relating to its personal automobile line of insurance. As permitted by state law, the New Jersey
assessments paid during 2010 are recoupable through a surcharge to policyholders. The Company recouped a
portion of these assessments in 2010 and expects to continue to recoup them in the future. It is possible that there
will be additional assessments in 2011.
The CEA is a quasi-governmental organization that was established to provide a market for earthquake
coverage to California homeowners. The Company places all new and renewal earthquake coverage offered with
its homeowner policy through the CEA. The Company receives a small fee for placing business with the CEA,
which is recorded as other revenue in the consolidated statements of operations. Upon the occurrence of a major
seismic event, the CEA has the ability to assess participating companies for losses. These assessments are made
after CEA capital has been expended and are based upon each company’s participation percentage multiplied by
the amount of the total assessment. Based upon the most recent information provided by the CEA, the
Company’s maximum total exposure to CEA assessments at April 1, 2010, the most recent date at which
information was available, was approximately $55.6 million.
The Insurance Companies in other states are also subject to the provisions of similar insurance guaranty
associations. There were no material assessment payments during 2010 in other states.
Holding Company Act
The California Companies are subject to California DOI regulation pursuant to the provisions of the
California Insurance Holding Company System Regulatory Act (the “Holding Company Act”). The California
DOI may examine the affairs of each of the California Companies at any time. The Holding Company Act
requires disclosure of any material transactions among affiliates within a Holding Company System. Some
transactions and dividends defined to be of an “extraordinary” type may not be affected if the California DOI
disapproves the transaction within 30 days after notice. Such transactions include, but are not limited to,
extraordinary dividends; management agreements, service contracts, and cost-sharing arrangements; all
guarantees that are not quantifiable; derivative transactions or series of derivative transactions; certain
reinsurance transactions or modifications thereof in which the reinsurance premium or a change in the insurer’s
liabilities equals or exceeds 5 percent of the policyholders’ surplus as of the preceding December 31; sales,
purchases, exchanges, loans, and extensions of credit; and investments, in the net aggregate, involving more than
the lesser of 3% of the respective California Companies’ admitted assets or 25% of statutory surplus as regards
policyholders as of the preceding December 31. An extraordinary dividend is a dividend which, together with
other dividends or distributions made within the preceding 12 months, exceeds the greater of 10% of the
insurance company’s statutory policyholders’ surplus as of the preceding December 31 or the insurance
company’s statutory net income for the preceding calendar year.
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