Mercury Insurance 2015 Annual Report Download - page 54

Download and view the complete annual report

Please find page 54 of the 2015 Mercury Insurance annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 122

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122

42
The increase in the 2014 expense ratio was affected by the $27.6 million penalty assessed by the California DOI as a result
of the California Insurance Commissioner's adoption of a decision by the ALJ in the 2004 NNC. Excluding the effect of the
California DOI penalty assessment, the expense ratio was 26.8% for the year ended December 31, 2014.
Income tax expense was $69.5 million and $20.0 million for the years ended December 31, 2014 and 2013, respectively.
The increase in income tax expense was mainly due to the increase in underwriting and investment gains.
Investments
The following table presents the investment results of the Company:
Year Ended December 31,
2014 2013
(Amounts in thousands)
Average invested assets at cost (1) $ 3,204,592 $ 3,028,198
Net investment income (2)
Before income taxes $ 125,723 $ 124,538
After income taxes $ 111,456 $ 109,506
Average annual yield on investments (2)
Before income taxes 3.9% 4.1%
After income taxes 3.5% 3.6%
Net realized investment gains (losses) $ 81,184 $ (11,422)
__________
(1) Fixed maturities and short-term bonds at amortized cost; and equities and other short-term investments at cost. Average
invested assets at cost are based on the monthly amortized cost of the invested assets for each respective period.
(2) Net investment income increased due to higher average invested asset balances; and average annual yield decreased slightly
primarily due to the maturity and replacement of higher yielding investments purchased when market interest rates were
higher, with lower yielding investments purchased during low interest rate environments.
The following tables present the components of net realized investment gains (losses) included in net income:
Year Ended December 31, 2014
Gains (Losses) Recognized in Income
Sales
Changes in fair
value Total
(Amounts in thousands)
Net realized investment gains (losses):
Fixed maturity securities (1)(2) $(2,719) $ 77,208 $ 74,489
Equity securities (1)(3) 41,637 (32,922) 8,715
Short-term investments (1) (1,943)(527)(2,470)
Total return swap 2,706 (5,675)(2,969)
Options sold 3,394 25 3,419
Total $ 43,075 $ 38,109 $ 81,184