Mercury Insurance 2008 Annual Report Download - page 82

Download and view the complete annual report

Please find page 82 of the 2008 Mercury Insurance annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 106

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106

72
Deferred Tax Asset and Liability
The temporary differences that give rise to a significant portion of the deferred tax assets and liabilities relate to the
following:
2008 2007
Deferred tax assets
20% of net unearned premium 63,858$ 68,027$
Discounting of loss reserves and salvage and subrogation recoverable
for tax purposes 16,711 15,941
Write-down of impaired investments 6,394 11,549
Tax benefit on net unrealized losses on securities carried at fair value 142,886 -
Tax credit carryforward 13,024 -
Expense accruals 16,096 15,276
Other deferred tax assets 9,360 3,787
Total gross deferred tax assets 268,329$ 114,580$
Deferred tax liabilities
Deferred acquisition costs (70,002)$ (73,432)$
Tax liability on net unrealized gain on securities carried at fair value - (43,357)
Tax depreciation in excess of book depreciation (14,228) (10,073)
Accretion on bonds - (945)
Undistributed earnings of insurance subsidiaries (2,804) (5,113)
Accounting method transition adjustments (5,855) (8,278)
Other deferred tax liabilities (4,415) (4,234)
Total gross deferred tax liabilities (97,304) (145,432)
Net deferred tax assets (liabilities) 171,025$ (30,852)$
(Amounts in thousands)
December 31,
Realization of deferred tax assets is dependent on generating sufficient taxable income of an appropriate nature prior to
their expiration. The Company has the ability and intent, through the use of prudent tax planning strategies and the generation of
capital gains to generate income sufficient to avoid losing the benefits of its deferred tax assets. As a result, although realization is
not assured, management believes it is more likely than not that the deferred tax assets will be realized.