Mercury Insurance 2010 Annual Report Download - page 101

MERCURY GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The increase in the provision for insured events of prior years in 2008 of approximately $89 million resulted
primarily from two sources. The estimates for California Bodily Injury Severities and California Defense and
Cost Containment reserves established at December 31, 2007 were too low and accounted for approximately $45
million of the adverse development. The New Jersey reserves established at December 31, 2007 were too low
and accounted for approximately $30 million of the adverse development. In California, the Company
experienced a lengthening of the pay-out period for claims that are settled after the first year and a large increase
in the average amounts paid on closed claims. The Company believes that the lengthening of the pay-out periods
may be attributable to a law passed in California several years ago that extended the statute for filing claims from
one year to two years. Initial indications, when the law was passed, were that this would have little impact on
development patterns and therefore it was not fully factored into the reserve estimates. In hindsight, claims
payouts two to four years after the period-end have increased thereby affecting the loss reserve estimates at
December 31, 2007. In New Jersey, due to a short operating history and rapid growth in that state, the Company
had limited internal historical claims information to estimate BI, PIP and related loss adjustment expense
reserves as of December 31, 2007. Consequently, the Company relied substantially on industry data to help set
these reserves. During 2008, the reserve indications using the Company’s own historical data rather than industry
data led to increases in its estimates for both PIP losses and loss adjustment expenses. In particular, loss
severities using Company data for the PIP coverage developed into larger amounts than the industry data
suggested. In 2008, the Company started using its own historical data, rather than industry data to set New Jersey
loss reserves.
The Company experienced estimated pre-tax catastrophe losses of $25 million, $0, and $26 million in 2010,
2009, and 2008, respectively. The losses in 2010 primarily related to catastrophe losses in California from heavy
rainstorms. The losses in 2008 were $20 million related to wildfires in Southern California and $6 million related
to Hurricane Ike in Texas.
12. Dividends
The following table presents shareholder dividends paid in total and per share:
2010 2009 2008
(Amounts in thousands, except per share data)
Total paid ..................................... $129,863 $127,617 $127,011
Per share ...................................... $ 2.37 $ 2.33 $ 2.32
The Insurance Companies are subject to the financial capacity guidelines established by their domiciliary
states. The payment of dividends from statutory unassigned surplus of the Insurance Companies is restricted,
subject to certain statutory limitations. For 2011, the direct insurance subsidiaries of the Company are permitted
to pay approximately $31.9 million in dividends to Mercury General without the prior approval of the DOI of the
states of domicile. The above statutory regulations may have the effect of indirectly limiting the ability of the
Company to pay shareholder dividends. During 2010 and 2009, the Insurance Companies paid ordinary
dividends to the Company of $128.0 million and $110.0 million, respectively.
On December 16, 2010, the California DOI notified the Company that MCC was authorized to pay a $270
million extraordinary dividend to Mercury General in 2011. Mercury General intends to use the proceeds from
the dividend to repay the $125 million senior notes and to fund shareholder dividends.
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