Mercury Insurance 2008 Annual Report Download - page 75

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65
Unrealized Investment Gains and Losses in 2007 and 2006
Effective January 1, 2008, the Company adopted SFAS No. 159. The gains and losses due to changes in fair value for
items measured at fair value pursuant to election of the fair value option were included in net realized investment losses for
2008. A summary of the net increase and decrease in unrealized investment gains and losses less applicable income tax expense
or benefit for 2007 and 2006 is as follows:
2007 2006
Net (decrease) increase in net unrealized investment gains and losses:
Fixed maturities available for sale (18,612)$ (4,538)$
Income tax benefit (6,514) (1,589)
Total (12,098)$ (2,949)$
Equity securities 35,382$ 9,311$
Income tax expense 12,379 3,259
Total 23,003$ 6,052$
Year ended December 31,
(Amounts in thousands)
Accumulated unrealized gains and losses on securities available for sale are as follows:
December 31, 2007
(Amounts in thousands)
Fixed maturities available for sale:
Unrealized gains 54,975$
Unrealized losses (26,314)
Tax effect (10,031)
Total 18,630$
Equity securities available for sale:
Unrealized gains 104,717$
Unrealized losses (9,463)
Tax effect (33,326)
Total 61,928$
Fair Value of Investments in 2008
SFAS No. 157 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair
value. The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date (the exit price). Accordingly, when market
observable data is not readily available, the Company’ s own assumptions are set to reflect those that market participants would be
presumed to use in pricing the asset or liability at the measurement date. Financial assets and financial liabilities recorded on the
consolidated balance sheets at fair value are categorized based on the reliability of inputs to the valuation techniques as follows:
Level 1 Financial assets and financial liabilities whose values are based on unadjusted quoted prices for identical assets or
liabilities in active markets that the Company can access.
Level 2 Financial assets and financial liabilities whose values are based on the following:
a) Quoted prices for similar assets or liabilities in active markets;
b) Quoted prices for identical or similar assets or liabilities in non-active markets; or
c) Valuation models whose inputs are observable, directly or indirectly, for substantially the full term of the asset or
liability.
Level 3 Financial assets and financial liabilities whose values are based on prices or valuation techniques that require inputs that
are both unobservable and significant to the overall fair value measurement. These inputs reflect the Company’ s
estimates of the assumptions that market participants would use in valuing the financial assets and financial liabilities.