Mercury Insurance 2015 Annual Report Download - page 56

44
B. Cash Flows
The Company has generated positive cash flow from operations since the public offering of its common stock in November
1985, and does not attempt to match the duration and timing of asset maturities with those of liabilities. Rather, the Company
manages its portfolio with a view towards maximizing total return with an emphasis on after-tax income. With combined cash and
short-term investments of $449.5 million at December 31, 2015 as well as $100 million of credit available on a $250 million
revolving credit facility, the Company believes its cash flow from operations is adequate to satisfy its liquidity requirements without
the forced sale of investments. Investment maturities are also available to meet the Company’s liquidity needs. However, the
Company operates in a rapidly evolving and often unpredictable business environment that may change the timing or amount of
expected future cash receipts and expenditures. Accordingly, there can be no assurance that the Company’s sources of funds will
be sufficient to meet its liquidity needs or that the Company will not be required to raise additional funds to meet those needs or
for future business expansion, through the sale of equity or debt securities or from credit facilities with lending institutions.
Net cash provided by operating activities in 2015 was $190.2 million, a decrease of $56.2 million compared to 2014. The
decrease was primarily due to the increase in paid losses, loss adjustment expenses, and operating expenses, which included the
$27.6 million penalty assessed by the California DOI as discussed in "Regulatory and Legal Matters" above, partially offset by
an increase in premiums collected. The Company utilized the cash provided by operating activities primarily for the payment of
dividends to its shareholders.
The following table presents the estimated fair value of fixed maturity securities at December 31, 2015 by contractual
maturity in the next five years.
Fixed Maturity Securities
(Amounts in thousands)
Due in one year or less $ 108,775
Due after one year through two years 106,822
Due after two years through three years 124,542
Due after three years through four years 70,706
Due after four years through five years 92,170
$ 503,015
See "D. Debt" below for cash flow related to outstanding debt.
C. Invested Assets
Portfolio Composition
An important component of the Company’s financial results is the return on its investment portfolio. The Company’s
investment strategy emphasizes safety of principal and consistent income generation, within a total return framework. The
investment strategy has historically focused on maximizing after-tax yield with a primary emphasis on maintaining a well-
diversified, investment grade, fixed income portfolio to support the underlying liabilities and achieve return on capital and profitable
growth. The Company believes that investment yield is maximized by selecting assets that perform favorably on a long-term basis
and by disposing of certain assets to enhance after-tax yield and minimize the potential effect of downgrades and defaults. The
Company continues to believe that this strategy enables the optimal investment performance necessary to sustain investment
income over time. The Company’s portfolio management approach utilizes a market risk and consistent asset allocation strategy
as the primary basis for the allocation of interest sensitive, liquid and credit assets as well as for determining overall below
investment grade exposure and diversification requirements. Within the ranges set by the asset allocation strategy, tactical
investment decisions are made in consideration of prevailing market conditions.