Mercury Insurance 2009 Annual Report Download - page 22

The following table presents the development of losses and loss adjustment expenses reserves for the period
1999 through 2009. The top section of the table shows the reserves at the balance sheet date, net of reinsurance
recoverable, for each of the indicated years. This amount represents the estimated net losses and loss adjustment
expenses for claims arising from the current and all prior years that are unpaid at the balance sheet date,
including an estimate for losses that had been incurred but not reported (“IBNR”) to the Company. The second
section shows the cumulative amounts paid as of successive years with respect to that reserve liability. The third
section shows the re-estimated amount of the previously recorded reserves based on experience as of the end of
each succeeding year, including cumulative payments made since the end of the respective year. Estimates
change as more information becomes known about the frequency and severity of claims for individual years. The
bottom line shows favorable (unfavorable) development that exists when the original reserve estimates are
greater (less) than the re-estimated reserves at December 31, 2009.
In evaluating the information in the table, it should be noted that each amount includes the effects of all
changes in amounts for prior periods. This table does not present accident or policy year development
data. Conditions and trends that have affected development of the liability in the past may not necessarily occur
in the future. Accordingly, it may not be appropriate to extrapolate future favorable or unfavorable development
based on this table.
December 31,
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
(Amounts in thousands)
Gross Reserves for Losses and Loss
Adjustment Expenses-end of
year(1) ....................... $434,843 $492,220 $534,926 $679,271 $797,927 $900,744 $1,022,603 $1,088,822 $1,103,915 $1,133,508 $1,053,334
Reinsurance recoverable ........... (16,043) (28,417) (18,334) (14,382) (11,771) (14,137) (16,969) (6,429) (4,457) (5,729) (7,748)
Net Reserves for Losses and Loss
Adjustment Expenses-end of
year(1) ....................... $418,800 $463,803 $516,592 $664,889 $786,156 $886,607 $1,005,634 $1,082,393 $1,099,458 $1,127,779 $1,045,586
Paid (cumulative) as of:
One year later ............... $294,615 $321,643 $360,781 $432,126 $461,649 $525,125 $ 632,905 $ 674,345 $ 715,846 $ 617,622
Two years later .............. 403,378 431,498 481,243 591,054 628,280 748,255 891,928 975,086 1,009,141
Three years later ............. 429,787 462,391 528,052 637,555 714,763 851,590 1,027,781 1,123,179
Four years later .............. 439,351 476,072 538,276 655,169 740,534 893,436 1,077,834
Five years later .............. 446,223 478,158 545,110 664,051 750,927 906,466
Six years later ............... 445,892 481,775 549,593 667,277 754,710
Seven years later ............. 446,489 484,149 550,768 668,443
Eight years later ............. 446,777 485,600 550,827
Nine years later .............. 447,654 485,587
Ten years later .............. 447,842
Net reserves re-estimated as of:
One year later ............... 442,437 480,732 542,775 668,954 728,213 840,090 1,026,923 1,101,917 1,188,100 1,069,744
Two years later .............. 449,094 481,196 549,262 660,705 717,289 869,344 1,047,067 1,173,753 1,219,369
Three years later ............. 446,242 483,382 546,667 662,918 745,744 894,063 1,091,131 1,202,441
Four years later .............. 449,325 482,905 545,518 666,825 750,859 910,171 1,104,988
Five years later .............. 448,813 480,740 550,123 668,318 755,970 914,547
Six years later ............... 447,225 483,392 551,402 669,499 757,534
Seven years later ............. 447,362 485,328 551,745 670,225
Eight years later ............. 447,272 486,078 551,505
Nine years later .............. 447,976 486,157
Ten years later .............. 447,960
Net cumulative development
favorable (unfavorable) ......... $(29,160) $ (22,354)$ (34,913)$ (5,336)$ 28,622 $ (27,940) $ (99,354)$ (120,048) $ (119,911)$ 58,035
Gross re-estimated liability-latest .... $474,774 $525,963 $581,474 $696,631 $787,059 $942,007 $1,135,631 $1,220,652 $1,234,673 $1,078,697
Re-estimated recoverable-latest ..... (26,814) (39,806) (29,969) (26,406) (29,525) (27,460) (30,643) (18,211) (15,304) (8,953)
Net re-estimated liability-latest ..... $447,960 $486,157 $551,505 $670,225 $757,534 $914,547 $1,104,988 $1,202,441 $1,219,369 $1,069,744
Gross cumulative development
favorable (unfavorable) ......... $(39,931) $ (33,743)$ (46,548)$ (17,360)$ 10,868 $ (41,263)$ (113,028)$ (131,830) $ (130,758) $ 54,811
(1) Under statutory accounting principles (“SAP”), reserves are stated net of reinsurance recoverable whereas under U.S. generally accepted
accounting principles (“GAAP”), reserves are stated gross of reinsurance recoverable.
The Company experienced favorable development of approximately $58 million on the 2008 and prior
accident years’ losses and loss adjustment expenses reserves due primarily to the result of re-estimates of
accident year 2008 and 2007 California BI losses. See “Critical Accounting Estimates—Reserves” in “Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
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