Mercury Insurance 2015 Annual Report Download - page 24

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12
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 made
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% 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.
California-domiciled insurance companies are also required to notify the California DOI of any dividend after declaration,
but prior to payment. There are similar limitations imposed by other states on the Insurance Companies’ability to pay dividends. As
of December 31, 2015, the Insurance Companies are permitted to pay in 2016, without obtaining DOI approval for extraordinary
dividends, $163.7 million in dividends to Mercury General, of which $136.4 million may be paid by the California Companies.
The Holding Company Act also provides that the acquisition or change of "control" of a California domiciled insurance
company or of any person who controls such an insurance company cannot be consummated without the prior approval of the
California DOI. In general, a presumption of "control" arises from the ownership of voting securities and securities that are
convertible into voting securities, which in the aggregate constitute 10% or more of the voting securities of a California insurance
company or of a person that controls a California insurance company, such as Mercury General. A person seeking to acquire
"control," directly or indirectly, of the Company must generally file with the California DOI an application for change of control
containing certain information required by statute and published regulations and provide a copy of the application to the
Company. The Holding CompanyAct also effectively restricts the Company from consummating certain reorganizations or mergers
without prior regulatory approval.
Each of the Insurance Companies is subject to holding company regulations in the state in which it is domiciled. These
provisions are substantially similar to those of the Holding Company Act.
Assigned Risks
Automobile liability insurers in California are required to sell BI liability, property damage liability, medical expense, and
uninsured motorist coverage to a proportionate number (based on the insurer’s share of the California automobile casualty insurance
market) of those drivers applying for placement as "assigned risks." Drivers seek placement as assigned risks because their driving
records or other relevant characteristics, as defined by Proposition 103, make them difficult to insure in the voluntary market. In
2015, assigned risks represented less than 0.1% of total automobile direct premiums written and less than 0.1% of total automobile
direct premium earned. The Company attributes the low level of assignments to the competitive voluntary market. Many of the
other states in which the Company conducts business offer programs similar to that of California. These programs are not a
significant contributor to the business written in those states.