Mercury Insurance 2010 Annual Report Download - page 80

MERCURY GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The Company periodically assesses long-lived assets or asset groups including building and equipment, for
recoverability when events or changes in circumstances indicate that their carrying amount may not be
recoverable. If the Company identifies an indicator of impairment, the Company assesses recoverability by
comparing the carrying amount of the asset to the sum of the undiscounted cash flows expected to result from the
use and the eventual disposal of the asset. An impairment loss is recognized when the carrying amount is not
recoverable and is measured as the excess of carrying value over fair value. During the years ended
December 31, 2010, 2009, and 2008, the Company recorded no impairment charges.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets arise as a result of business acquisitions and consist of the excess of the
cost of the acquisitions over the tangible and intangible assets acquired and liabilities assumed and identifiable
intangible assets acquired. Identifiable intangible assets consist of the value of customer relationships, trade
names, software and technology, and favorable leases, which are all subject to amortization.
The Company annually evaluates goodwill for impairment using widely accepted valuation techniques to
estimate the fair value of its reporting units. The Company also reviews its goodwill for impairment whenever
events or changes in circumstances indicate that it is more likely than not that the carrying amount of goodwill
may exceed its implied fair value. There are numerous assumptions and estimates underlying the determination
of the estimated fair value of the Company’s reporting units, including certain assumptions and estimates related
to future earnings, long-term strategies, and its annual planning and forecasting process. If these planned
initiatives do not accomplish the targeted objectives, the assumptions and estimates underlying the goodwill
impairment tests could be adversely affected and have a material effect upon the Company’s financial condition
and results of operations. As of December 31, 2010 and 2009, goodwill impairment evaluation indicated that
there was no impairment.
Premium Revenue Recognition
Premium revenue is recognized on a pro-rata basis over the term of the policies in proportion to the amount
of insurance protection provided. Premium revenue includes installment and other fees for services which are
recognized in the periods the services are rendered. Unearned premiums represent the portion of the premium
related to the unexpired policy term. Unearned premiums are predominantly computed on a monthly pro rata
basis and are stated gross of reinsurance deductions, with the reinsurance deduction recorded in other
receivables. Net premiums written were $2.56 billion, $2.59 billion, $2.75 billion in 2010, 2009, and 2008,
respectively.
No independent agent or broker accounted for more than 2% of the Company’s direct premiums written
during 2010 and 2009. However, AIS produced approximately 15% of the Company’s direct premiums written
during 2008 prior to the AIS acquisition.
Losses and Loss Adjustment Expenses
Unpaid losses and loss adjustment expenses are determined in amounts estimated to cover incurred losses
and loss adjustment expenses and established based upon the Company’s assessment of claims pending and the
development of prior years’ loss liabilities. These amounts include liabilities based upon individual case
estimates for reported losses and loss adjustment expenses and estimates of such amounts that are IBNR.
Changes in the estimated liability are charged or credited to operations as the losses and loss adjustment expenses
are settled. The liability is stated net of anticipated salvage and subrogation recoveries. The amount of
reinsurance recoverable is included in other receivables.
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