Mercury Insurance 2009 Annual Report Download - page 90

MERCURY GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The annual direct premiums written attributable to private passenger automobile, commercial automobile,
homeowners, and other lines of insurance were as follows:
Year Ended December 31,
2009 2008 2007
(Amounts in thousands)
Private Passenger Automobile ................................. $2,158,038 $2,304,237 $2,496,572
Commercial Automobile ...................................... 93,955 107,143 123,459
Homeowners ............................................... 240,885 234,033 235,006
Other lines ................................................. 100,690 106,481 127,657
Total ..................................................... $2,593,568 $2,751,894 $2,982,694
Income Taxes
Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to
differences between the financial reporting basis and the respective tax basis of the Company’s assets and
liabilities, and expected benefits of utilizing net operating loss, capital loss, and tax-credit
carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates or laws is recognized in earnings in the period
that includes the enactment date.
At December 31, 2009, the Company’s deferred income taxes were in a net asset position partly due to a
combination of ordinary and capital deferred tax benefits. In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that some portion or all of the deferred tax assets will
not be realized. The ultimate realization of deferred tax assets is dependent upon generating sufficient taxable
income of the appropriate nature within the carryback and carryforward periods available under the tax law.
Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income of an
appropriate nature, and tax-planning strategies in making this assessment. The Company believes that through
the use of prudent tax planning strategies and the generation of capital gains, sufficient income will be realized in
order to avoid losing the full benefits of its deferred tax assets. Although realization is not assured, management
believes it is more likely than not that the Company’s deferred tax assets will be realized.
Reinsurance
Liabilities for unearned premiums and unpaid losses are stated in the accompanying consolidated financial
statements before deductions for ceded reinsurance. The ceded amounts are immaterial and are carried in other
receivables. Earned premiums are stated net of deductions for ceded reinsurance.
The Insurance Companies, as primary insurers, are required to pay losses to the extent reinsurers are unable
to discharge their obligations under the reinsurance agreements.
Share-Based Compensation
The Company accounts for share-based compensation using the modified prospective transition method.
Under this method, share-based compensation expense includes compensation expense for all share-based
compensation awards granted prior to, but not yet vested as of January 1, 2006, based on the estimated grant-date
fair value. Share-based compensation expense for all share-based payment awards granted or modified on or after
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