Mercury Insurance 2009 Annual Report Download - page 64

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Investments
The following table summarizes the investment results of the Company:
2009 2008
(Amounts in thousands)
Average invested assets at cost(1) .......................................... $3,196,944 $3,452,803
Net investment income:
Before income taxes ................................................ $ 144,949 $ 151,280
After income taxes ................................................. $ 130,070 $ 133,721
Average annual yield on investments:
Before income taxes ................................................ 4.5% 4.4%
After income taxes ................................................. 4.1% 3.9%
Net realized investment gains (losses) ...................................... $ 346,444 $ (550,520)
(1) Fixed maturities and short-term bonds at amortized cost; and equities and other short-term investments at
cost.
The slight increase in after-tax yield is due to an increase in tax exempt allocations relative to taxable issues.
Included in net income (loss) are net realized investment gains of $346.4 million in 2009 compared with net
realized investment losses of $550.5 million in 2008. Net realized investment gains include gains of $395.5
million in 2009 due to changes in the fair value of total investments pursuant to election of the fair value
accounting option compared with losses of $525.7 million in 2008. The gains during 2009 arise from the market
value improvements on the Company’s fixed maturity ($261.9 million) and equity securities ($133.6 million).
The primary cause of the significant gains in the Company’s portfolio was the overall improvement in the bond
and equity markets. The Company’s municipal bond holdings represent the majority of the fixed maturity
portfolio, which was positively affected by the overall municipal market improvement during 2009. The
Company’s large holdings of energy related stocks also experienced growth in value during 2009, in excess of
the 23.5% growth in the S&P 500 Index.
Net Income (Loss)
Net income (loss) was $403.1 million or $7.32 per diluted share and $(242.1) million or $(4.42) per diluted
share in 2009 and 2008, respectively. Diluted per share results were based on a weighted average of 55.1 million
shares and 54.9 million shares in 2009 and 2008, respectively. Basic per share results were $7.36 and $(4.42) in
2008 and 2007, respectively. Included in net income (loss) per share were net realized investment gains (losses),
net of income taxes, of $4.11 and $(6.54) per basic share, and $4.09 and $(6.54) per diluted share in 2009 and
2008, respectively.
Year Ended December 31, 2008 Compared to Year Ended December 31, 2007
Revenues
Net premiums earned and net premiums written in 2008 decreased approximately 6.2% and 7.8%,
respectively, from 2007. Net premiums written by the Company’s California operations were $2.2 billion in
2008, a 6.2% decrease from 2007. Net premiums written by the Company’s non-California operations were
$589.0 million in 2008, a 13.1% decrease from 2007. The decrease in net premiums written is primarily due to a
small decrease in the number of policies written and slightly lower average premiums per policy reflecting the
continuing soft market conditions.
Net premiums written is a non-GAAP financial measure which represents the premiums charged on policies
issued during a fiscal period less any applicable reinsurance. Net premiums written is a statutory measure used to
determine production levels. Net premiums earned, the most directly comparable GAAP measure, represents the
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