Mercury Insurance 2009 Annual Report Download - page 71

Download and view the complete annual report

Please find page 71 of the 2009 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 132

  • 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
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132

(3) Corporate Securities
Included in the fixed maturity securities are $91.6 million and $65.7 million of fixed rate corporate
securities, which have durations of 4.7 and 4.2 years, at December 31, 2009 and 2008, respectively. The
weighted-average rating is A- for 2009 and A for 2008.
(4) Collateralized Debt Obligations
Included in fixed maturities securities are collateralized debt obligations of $47.5 million and $13.1 million,
which represent approximately 1.5% and 0.4% of the total investment portfolio and have durations of 2.9 years
and 5.8 years, at December 31, 2009, and 2008, respectively.
Equity Securities
Equity holdings consist of non-redeemable preferred stocks and common stocks on which dividend income
is partially tax-sheltered by the 70% corporate dividend exclusion. The net gain due to changes in fair value of
the Company’s equity portfolio was $133.6 million. The primary cause of the significant gains in the Company’s
equity portfolio was the overall improvement in the equity markets. 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.
The Company’s common stock allocation is intended to enhance the return of and provide diversification for
the total portfolio. At December 31, 2009, 9.1% of the total investment portfolio at fair value was held in equity
securities, compared to 8.4% at December 31, 2008. The following table summarizes the equity security portfolio
by sector for 2009 and 2008:
December 31,
2009 2008
Cost Fair Value Cost Fair Value
(Amounts in thousands)
Equity securities:
Basic materials .................................... $ 13,598 $ 11,943 $ 15,355 $ 5,816
Communications ................................... 7,395 7,015 12,285 8,252
Consumer—cyclical ................................ 9,959 9,481 17,305 9,674
Consumer—non-cyclical ............................. 6,560 6,239 4,779 3,584
Energy ........................................... 182,664 169,139 219,397 127,594
Financial ......................................... 25,730 24,302 33,221 19,709
Funds ............................................ 4,837 3,872 7,306 5,340
Government ....................................... — — 5,000 130
Industrial ......................................... 33,213 23,858 47,810 23,946
Technology ....................................... 1,488 1,461 8,978 4,157
Utilities .......................................... 23,497 28,821 32,337 39,189
$308,941 $286,131 $403,773 $247,391
Short-Term Investments
At December 31, 2009, short-term investments include money market accounts, options, and short-term
bonds which are highly rated short duration securities redeemable within one year.
D. Debt
Effective January 1, 2009, the Company acquired AIS for $120 million. The acquisition was financed by a
$120 million credit facility that is secured by municipal bonds held as collateral. The credit facility calls for the
53