Mercury Insurance 2010 Annual Report Download - page 65

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The Company’s common stock allocation is intended to enhance the return of and provide diversification for
the total portfolio. At December 31, 2010, 11.4% of the total investment portfolio at fair value was held in equity
securities, compared to 9.1% at December 31, 2009. The following table presents the equity security portfolio by
sector for 2010 and 2009:
December 31,
2010 2009
Cost Fair Value Cost Fair Value
(Amounts in thousands)
Equity securities:
Basic materials .................................... $ 11,755 $ 12,781 $ 13,598 $ 11,943
Communications ................................... 8,495 8,473 7,395 7,015
Consumer—cyclical ................................ 19,287 20,183 9,959 9,481
Consumer—non-cyclical ............................. 5,629 5,657 6,560 6,239
Energy ........................................... 199,822 215,796 182,664 169,139
Financial ......................................... 25,339 26,419 25,730 24,302
Funds ............................................ 4,160 3,572 4,837 3,872
Industrial ......................................... 35,040 34,915 33,213 23,858
Technology ....................................... 4,611 4,555 1,488 1,461
Utilities .......................................... 22,619 27,255 23,497 28,821
$336,757 $359,606 $308,941 $286,131
Short-Term Investments
At December 31, 2010, short-term investments include money market accounts, options, and short-term
bonds which are highly rated short duration securities and redeemable within one year.
D. Debt
The Company has $125 million of senior notes, which are unsecured, senior obligations with a 7.25%
annual coupon payable on August 15 and February 15 each year. These notes mature on August 15, 2011. 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 a portion of the proceeds
from the dividend to repay the senior notes.
The Company has a $120 million credit facility and an $18 million bank loan that contain certain financial
covenants pertaining to minimum statutory surplus, debt to capital ratio, and risk based capital ratio. As of
December 31, 2010, the Company was in compliance with these covenants.
The $120 million credit facility matures on January 1, 2012. The Company expects to either extend the
credit facility, refinance the outstanding amount, or retire the debt using cash on hand and funds generated by
operations or by selling securities in the investment portfolio.
These debts are described more fully at Notes 6 and 7 of Notes to Consolidated Financial Statements.
E. Capital Expenditures
The NextGen software project began in 2002 and the total capital investment is approximately $40 million
as of December 31, 2010. The Mercury First software project began in 2006 and the total capital investment is
approximately $40 million as of December 31, 2010. In accordance with applicable accounting standards,
capitalization ceases no later than the point at which computer software project development is substantially
complete and ready for its intended use. NextGen is substantially complete and all remaining expenditures will
be recorded as other operating expenses. Although the majority of the related software development costs have
been expended, additional Mercury First development and implementation costs are expected to be incurred in
the future. The Guidewire software project began in 2009, and the total capital investment is approximately $8
million as of December 31, 2010.
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