Mercury Insurance 2010 Annual Report Download - page 32

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period to period based on changes in tax laws or variances between the Company’s projected operating
performance and actual results. As a result, significant management judgment is required in assessing the possible
need for a deferred tax asset valuation allowance. For these reasons and because changes in these assumptions and
estimates can materially affect the Company’s results of operations and financial condition, management has
included the assessment of a deferred tax asset valuation allowance as a critical accounting estimate.
The carrying value of the Company’s goodwill and other intangible assets could be subject to an
impairment write-down.
At December 31, 2010, the Company’s consolidated balance sheet reflected $43 million of goodwill and
$60 million of other intangible assets. The Company continually evaluates whether events or circumstances have
occurred that suggest that the fair value of its intangible assets are below their respective carrying values. The
determination that the fair value of the Company’s intangible assets is less than its carrying value may result in
an impairment write-down. The impairment write-down would be reflected as expense and could have a material
adverse effect on the Company’s results of operations during the period in which it recognizes the expense. In the
future, the Company may incur impairment charges related to the goodwill and other intangible assets already
recorded or arising out of future acquisitions.
The Company relies on its information technology systems to manage many aspects of its business, and
any failure of these systems to function properly or any interruption in their operation could result in a
material adverse effect on the Company’s business, financial condition, and results of operations.
The Company depends on the accuracy, reliability, and proper functioning of its information technology
systems. The Company relies on these information technology systems to effectively manage many aspects of its
business, including underwriting, policy acquisition, claims processing and handling, accounting, reserving and
actuarial processes and policies, and to maintain its policyholder data. The Company is developing and deploying
new information technology systems that are designed to manage many of these functions across all of the states
in which it operates and all of the lines of insurance it offers. See “Overview—Technology” in “Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The failure of
hardware or software that supports the Company’s information technology systems, the loss of data contained in
the systems, or any delay or failure in the full deployment of the Company’s new information technology
systems could disrupt its business and could result in decreased premiums, increased overhead costs, and
inaccurate reporting, all of which could have a material adverse effect on the Company’s business, financial
condition, and results of operations.
In addition, despite system redundancy, the implementation of security measures, and the existence of a
disaster recovery plan for the Company’s information technology systems, these systems are vulnerable to
damage or interruption from:
• earthquake, fire, flood and other natural disasters;
• terrorist attacks and attacks by computer viruses or hackers;
• power loss;
• unauthorized access; and
• computer systems, Internet, telecommunications or data network failure.
It is possible that a system failure, accident, or security breach could result in a material disruption to the
Company’s business. In addition, substantial costs may be incurred to remedy the damages caused by these
disruptions. Following implementation of its new information technology systems, the Company may from time
to time install new or upgraded business management systems. To the extent that a critical system fails or is not
properly implemented and the failure cannot be corrected in a timely manner, the Company may experience
disruptions to the business that could have a material adverse effect on the Company’s results of operations.
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