Mercury Insurance 2015 Annual Report Download - page 62

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E. Capital Expenditures
In 2015, the Company made capital expenditures, including capitalized software, of approximately $20.1 million primarily
related to Information Technology.
F. Regulatory Capital Requirements
The Insurance Companies must comply with minimum capital requirements under applicable state laws and regulations.
The 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, as
determined by the NAIC and adopted by the state insurance regulators. None of the Insurance Companies’ RBC ratios was less
than 375% of the authorized control level RBC as of December 31, 2015, 2014, and 2013. Generally, an RBC ratio of 200% or
less would require some form of regulatory or company action.
Among other considerations, industry and regulatory guidelines suggest that the ratio of a property and casualty insurer’s
annual net premiums written to statutory policyholders’ surplus should not exceed 3.0 to 1. Based on the combined surplus of all
the Insurance Companies of $1.45 billion at December 31, 2015, and net premiums written of $3.0 billion, the ratio of premiums
written to surplus was 2.1 to 1.
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.
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.
The following table presents a summary of current examinations:
State Exam Type Period Under Review Status
GA Financial 2011 to 2013 Received draft report and submitted response to the DOI.
CA Market Conduct 2013 to 2014 Received draft report and submitted response to the DOI.
CA
Rating and
Underwriting 2014 Fieldwork began in July 2014.
VA Market Conduct 2014 to 2015 Exam to begin on or after April 2016.
During the course of and at the conclusion of these examinations, the examining DOI generally reports findings to the
Company, and none of the findings reported to date is expected to be material to the Company’s financial position.
OFF-BALANCE SHEET ARRANGEMENTS
As of December 31, 2015, the Company had no off-balance sheet arrangements as defined under Regulation S-K 303(a)
(4) and the instructions thereto.