Mercury Insurance 2009 Annual Report Download - page 100

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MERCURY GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
There was a $47.5 million increase in Level 3 financial assets in 2009 related to collateralized debt
obligations, which include the use of unobservable inputs related to liquidity assumptions.
At December 31, 2009, the Company did not have any nonrecurring measurements of nonfinancial assets or
nonfinancial liabilities.
4. Fixed Assets
Fixed assets consist of the following:
December 31,
2009 2008
(Amounts in thousands)
Land ........................................................ $ 26,772 $ 26,768
Buildings and improvements ..................................... 123,234 114,185
Furniture and equipment ......................................... 139,910 124,531
Capitalized software ............................................ 97,717 84,021
Leasehold improvements ........................................ 6,179 5,203
393,812 354,708
Less accumulated depreciation and amortization ...................... (191,950) (162,931)
Fixed assets, net ............................................... $201,862 $ 191,777
Depreciation expense including amortization of leasehold improvements was $28.9 million, $27.0 million,
and $26.3 million during 2009, 2008, and 2007, respectively.
5. Deferred Policy Acquisition Costs
Deferred policy acquisition costs are as follows:
Year Ended December 31,
2009 2008 2007
(Amounts in thousands)
Balance, beginning of year ....................................... $200,005 $ 209,805 $ 209,783
Acquisition costs deferred(1) ...................................... 519,168 615,054 659,692
Amortization(1) ................................................ (543,307) (624,854) (659,670)
Balance, end of year ............................................ $175,866 $ 200,005 $ 209,805
(1) Prior to the acquisition of AIS on January 1, 2009, the Company deferred the recognition of commissions
paid to AIS to match the earnings of the related premiums. Now that AIS is a wholly-owned subsidiary,
commissions are no longer paid or deferred, and direct expenses are reflected in the expense ratio. Certain
costs related to sales of Company policies made by AIS are considered deferrable. For the year ended
December 31, 2009, the amortization of deferred commissions related to policies written prior to January 1,
2009, offset by corresponding deferred direct sales costs, reduced pre-tax income in the statement of
operations by $15 million.
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