Mercury Insurance 2010 Annual Report Download - page 82

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MERCURY GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
independent parties. In addition, changes in fair value are recognized in earnings unless specific hedge
accounting criteria are met. The Company’s derivative instruments include interest rate swap agreements and are
used to hedge the exposure to:
• Changes in fair value of an asset or liability (fair value hedge); and
• Variable cash flows of a forecasted transaction (cash flow hedge).
Derivatives designated as hedges are evaluated based on established criteria to determine the effectiveness
of their correlation to and ability to reduce the designated risk of specific securities or transactions. Effectiveness
is reassessed on a quarterly basis. Hedges that are deemed to be effective are accounted for as follows:
•Fair value hedge: changes in fair value of the hedging instrument, as well as the hedged item, are
recognized in earnings in the period of change.
•Cash flow hedge: changes in fair value of the hedging instrument are reported as a component of
accumulated other comprehensive income and subsequently amortized into earnings over the life of the
hedged transactions.
If a hedge is deemed to become ineffective, it is accounted for as follows:
•Fair value hedge: changes in fair value of the hedging instrument, as well as the hedged item, are
recognized in earnings in the period of change.
•Cash flow hedge: changes in fair value of the hedging instrument are reported in earnings for the
current period. If it is determined that a hedging instrument no longer meets the Company’s risk
reduction and correlation criteria, or if the hedging instrument expires, any accumulated balance in
other comprehensive income is recognized in earnings in the period of determination.
Earnings Per Share
Basic earnings per share excludes dilution and reflects net income divided by the weighted average shares of
common stock outstanding during the period presented. Diluted earnings per share is based on the weighted
average shares of common stock and potential dilutive common stock outstanding during the period presented. At
December 31, 2010 and 2009, potential dilutive common stocks consist of outstanding stock options. Note 16
contains the required disclosures relating to the calculation of basic and diluted earnings per share.
Segment Reporting
Operating segments are components of an enterprise about which separate financial information is available
that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and
assessing performance. The Company does not have any operations that require separate disclosure as reportable
operating segments for the periods presented.
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,
2010 2009 2008
(Amounts in thousands)
Private Passenger Automobile ................................. $2,115,763 $2,158,038 $2,304,237
Homeowners ............................................... 261,560 240,885 234,033
Commercial Automobile ...................................... 84,503 93,955 107,143
Other lines ................................................. 96,999 100,690 106,481
Total ..................................................... $2,558,825 $2,593,568 $2,751,894
72