Mercury Insurance 2007 Annual Report Download - page 75

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2007 MERCURYNOW 73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The amortized cost and estimated fair value of investments in fixed maturities available-for-sale as of December 31, 2006 are as follows:
Gross Gross
Amortized Unrealized Unrealized Estimated
Amounts in thousands Cost Gains Losses Fair Value
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 133,733 $ 36 $ 1,292 $ 132,477
Obligations of states and political subdivisions 2,282,877 59,780 6,695 2,335,962
Mortgage-backed securities 273,420 1,179 2,866 271,733
Corporate securities 157,893 2,709 5,553 155,049
Redeemable preferred stock 3,792 1 27 3,766
Totals $ 2,851,715 $ 63,705 $ 16,433 $ 2,898,987
The Company monitors its investments closely. If an unrealized loss is determined to be other than temporary, it is written off as a realized
loss through the consolidated statements of income. The Company’s assessment of other-than-temporary impairments is security-specific as of the
balance sheet date and considers various factors including the length of time and the extent to which the fair value has been lower than the cost,
the financial condition and the near-term prospects of the issuer, whether the debtor is current on its contractually obligated interest and principal
payments, and the Company’s intent and ability to hold the securities until they mature or recover their value. The Company recognized $22.7
million and $2.0 million in realized losses as other-than-temporary declines to its investment securities during 2007 and 2006, respectively.
The following table illustrates the gross unrealized losses on securities available for sale and the fair value of those securities, aggregated by
investment category as of December 31, 2007. The table also illustrates the length of time that they have been in a continuous unrealized loss
position as of December 31, 2007.
Less than 12 months 12 months or more Total
Unrealized Fair Unrealized Fair Unrealized Fair
Amounts in thousands Losses Value Losses Value Losses Value
U.S. Treasury Securities and
obligations of U.S. government
corporations and agencies $ 64 $ 13,140 $ 1 $ 1,300 $ 65 $ 14,440
Obligations of states and
political subdivisions 12,342 788,701 8,210 294,940 20,552 1,083,641
Corporate securities 2,177 18,141 1,456 48,444 3,633 66,585
Mortgage-backed securities 606 35,733 1,443 64,509 2,049 100,242
Redeemable preferred stock 4 492 11 1,184 15 1,676
Subtotal, debt securities 15,193 856,207 11,121 410,377 26,314 1,266,584
Equity securities 8,882 81,215 581 4,060 9,463 85,275
Total temporarily impaired securities $ 24,075 $ 937,422 $ 11,702 $ 414,437 $ 35,777 $ 1,351,859
The $35.8 million gross unrealized losses on securities available for sale represents 1.03% of total investments at amortized cost. These
unrealized losses consist mostly of individual securities with unrealized losses of less than 20% of each security’s amortized cost. Of these, the most
significant unrealized loss relates to one corporate bond with an unrealized loss of approximately $1.3 million and with a market value decline
of 13% of amortized cost. Approximately $1.2 million of the total gross unrealized losses relates to 26 individual equity securities and one fixed
maturity security with unrealized losses that exceed 20% of each security’s amortized cost. None of these 27 securities have unrealized losses
greater than $0.1 million nor have they been in an unrealized loss position for more than 12 months.
Based upon the Company’s analysis of the securities, which includes consideration of the status of debt servicing for fixed maturities and third
party analyst estimates for the equity securities, and the Company’s intent and ability to hold the securities until they mature or recover their costs,
the Company has concluded that the gross unrealized losses of $35.8 million at December 31, 2007 were temporary in nature. However, facts and
circumstances may change which could result in a decline in fair value considered to be other than temporary.