Mercury Insurance 2015 Annual Report Download - page 23

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The DOI in each state in which the Company operates is responsible for conducting periodic financial and market conduct
examinations of the Insurance Companies in their states. Market conduct examinations typically review compliance with insurance
statutes and regulations with respect to rating, underwriting, claims handling, billing, and other practices. For more detailed
information on the Company’s current financial and market conduct examinations, see "Liquidity and Capital Resources—
Regulatory Capital Requirements" in "Item 7. Management’s Discussion and Analysis of Financial Condition and Results of
Operations."
For a discussion of current regulatory matters in California, see "Regulatory and Legal Matters" in "Item 7. Management’s
Discussion and Analysis of Financial Condition and Results of Operations" and Note 17. Commitments and Contingencies, of the
Notes to Consolidated Financial Statements in "Item 8. Financial Statements and Supplementary Data."
The operations of the Company are dependent on the laws of the states in which it does business and changes in those laws
can materially affect the revenue and expenses of the Company. The Company retains its own legislative advocates in
California. The Company made direct financial contributions of approximately $21,000 and $167,000 to officeholders and
candidates in 2015 and 2014, respectively. The Company believes in supporting the political process and intends to continue to
make such contributions in amounts which it determines to be appropriate.
The Insurance Companies must comply with minimum capital requirements under applicable state laws and regulations.
The risk-based capital ("RBC") formula is used by insurance regulators to monitor capital and surplus levels. It was designed to
capture the widely varying elements of risks undertaken by writers of different lines of insurance business having differing risk
characteristics, as well as writers of similar lines where differences in risk may be related to corporate structure, investment policies,
reinsurance arrangements, and a number of other factors. The Company periodically monitors the RBC level of each of the
Insurance Companies. As of December 31, 2015, 2014, and 2013, each of the Insurance Companies exceeded the minimum required
RBC levels. For more detailed information, see "Liquidity and Capital Resources—Regulatory Capital Requirements" in "Item
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations."
Own Risk and Solvency Assessment
Beginning in 2015, insurance companies were required to file an Own Risk and Solvency Assessment ("ORSA") with the
insurance regulators in their domiciliary states. The ORSA is required to cover, among many items, a company’s risk management
policies, the material risks to which the company is exposed, how the company measures, monitors, manages and mitigates material
risks, and how much economic and regulatory capital is needed to continue to operate in a strong and healthy manner. The ORSA
is intended to be used by state insurance regulators to evaluate the risk exposure and quality of the risk management processes
within insurance companies to assist in conducting risk-focused financial examinations and for determining the overall financial
condition of insurance companies. The Company filed its ORSA Summary Report with the California DOI in November 2015.
Compliance with the ORSA requirements did not have a material impact on the Company's consolidated financial statements.
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 currently limited to 2.0% 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 2015.
The CEAis 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 directly with 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 CEAassessments at April 1, 2015, the most recent date at which information was available,
was $64.3 million. There was no assessment made in 2015.
The Insurance Companies in other states are also subject to the provisions of similar insurance guaranty associations. There
were no material assessments or payments during 2015 in other states.