Mercury Insurance 2015 Annual Report Download - page 77

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Reinsurance
Liabilities for unearned premiums and unpaid losses are stated in the accompanying consolidated financial statements before
deductions for ceded reinsurance. The ceded amounts are immaterial and are carried in other receivables. Earned premiums are
stated net of deductions for ceded reinsurance.
The Insurance Companies, as primary insurers, are required to pay losses to the extent reinsurers are unable to discharge
their obligations under the reinsurance agreements.
Share-Based Compensation
Share-based compensation expense for all share-based payment awards granted or modified is based on the estimated grant-
date fair value. The Company recognizes these compensation costs on a straight-line basis over the requisite service period of the
award, which is the option vesting term of four or five years for options granted prior to 2008 and four years for options granted
subsequent to January 1, 2008, for only those shares expected to vest. The fair value of stock option awards is estimated using the
Black-Scholes option pricing model with the grant-date assumptions and weighted-average fair values.
The fair value of each restricted stock unit grant was determined based on the market price on the grant date. Compensation
cost is recognized based on management’s best estimate of the performance goals that will be achieved. If such goals are not met,
no compensation cost is recognized and any recognized compensation cost would be reversed. See Note 15. Share-Based
Compensation for additional disclosures.
Recently Issued Accounting Standards
In January 2016, the FASB issuedAccounting Standards Update ("ASU") 2016-01, "Financial Instruments-Overall (Subtopic
825-10), Recognition and Measurement of Financial Assets and Financial Liabilities." The amendments in this ASU update
address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU 2016-01: (1)
requires equity investments (except those accounted for under the equity method or those that result in the consolidation of the
investee) to be measured at fair value with changes in the fair value recognized in net income; (2) simplifies the impairment
assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify
impairment; (3) requires the use of the exit price notion when measuring the fair value of financial instruments for disclosure
purposes; and (4) requires separate presentation of financial assets and financial liabilities by measurement category and form of
financial asset on the balance sheet or the notes to the financial statements. These amendments are effective for fiscal years
beginning after December 15, 2017, including interim periods within those fiscal years. The Company does not anticipate that
ASU 2016-01 will have a material impact on its consolidated financial statements and related disclosures.
In May 2015, the FASB issued ASU 2015-09, "Financial Services-Insurance (Topic 944) Disclosures About Short-Duration
Contracts." ASU 2015-9 requires insurance entities to provide additional disclosures related to claims liabilities. The additional
disclosure requirements for the annual reports include: (1) the claims development information by accident year, on a net of
reinsurance basis, for the number of years for which claims incurred remain outstanding but not to exceed the most recent 10
years, and for the most recent reporting period presented, an insurer also needs to disclose the amount of total net outstanding
claims for all accident years included in the claims development tables; (2) a reconciliation of claims development information
and the aggregate carrying amount of the liability for unpaid claims and claim adjustment expenses; and (3) information about
the claims frequency and the amount of the incurred-but-not-reported liabilities for each accident year presented. In addition, a
description of the methodologies and assumptions used to determine the amounts disclosed and significant changes in
methodologies and assumptions are required. The roll forward of the liability for unpaid claims and claims adjustment expenses,
currently required only for annual periods, will also be required for interim periods. This standard will be effective for annual
periods beginning after December 15, 2015, and interim periods within annual reporting periods beginning after December 15,
2016. Although the adoption of this standard will not have a material impact on its consolidated financial statements, the Company
will expand the nature and extent of its insurance contracts disclosures.
In February 2015, the FASB issued ASU 2015-02, "Consolidation (Topic 810) Amendments to the Consolidation Analysis"
affecting the consolidation evaluation of limited partnerships and similar entities, fees paid to a decision maker or a service provider
as a variable interest, and variable interests in a variable interest entity held by related parties of the reporting entities. The
amendments are effective for annual and interim reporting periods beginning after December 15, 2015. The adoption of the new
standard will not have a material impact on the Company's consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, "Revenue Recognition (Topic 606): Revenue from Contracts with Customers."
ASU 2014-09 requires entities to apply a five-step model to determine the amount and timing of revenue recognition. The model
specifies, among other criteria, that revenue should be recognized when an entity transfers control of goods or services to a customer
at the amount at which the entity expects to be entitled. In August 2015, the FASB issued an update which defers the effective