Mercury Insurance 2010 Annual Report Download - page 84

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MERCURY GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
The fair value of the restricted share grant was determined based on the market price on the date of grant.
Compensation cost has been recognized based on management’s best estimate that performance goals will be
achieved. If such goals are not met, no compensation cost would be recognized and any recognized compensation
cost would be reversed. See Note 15 for additional disclosures.
Recently Issued Accounting Standards
In December 2010, the Financial Accounting Standards Board (“FASB”) issued a new standard which
modifies step 1 of the goodwill impairment test for entities with a zero or negative carrying value to require
entities to assess, considering qualitative factors, whether it is more likely than not that a goodwill impairment
exists. If an entity concludes that it is more likely than not that goodwill impairment exists, the entity must
perform step 2 of the goodwill impairment test. The new standard allows an entity to use either the equity or the
enterprise valuation premise to determine the carrying amount of a reporting unit. The new standard will be
effective for impairment tests performed during fiscal years and interim periods within those years that begin after
December 15, 2010. The adoption of the new standard will not have a material impact on the Company’s
consolidated financial statements.
In October 2010, the FASB issued a new standard to address diversity in practice regarding the
interpretation of which costs relating to the acquisition of new or renewal insurance contracts qualify for deferral.
Costs that meet the definition defined in the new standard are recognized as assets and referred to as deferred
acquisition costs. Deferred acquisition costs are amortized over time using amortization methods dependent upon
the nature of the underlying insurance product. Other costs that do not vary with and are not primarily related to
the acquisition of new and renewal insurance contracts are charged to expense as incurred. The new standard will
be effective for fiscal years and interim periods within those fiscal years, beginning after December 15, 2011.
The Company is in the process of evaluating the impact of adoption on the Company’s consolidated financial
statements.
In February 2010, the FASB issued a new accounting standard related to subsequent events, which amends
the earlier FASB standard to address certain implementation issues related to an entity’s requirement to perform
and disclose subsequent events procedures. The new standard requires SEC filers to evaluate subsequent events
through the date the financial statements are issued and exempts SEC filers from disclosing the date through
which subsequent events have been evaluated. The Company adopted the new standard which became effective
for the interim reporting period ended March 31, 2010. The adoption of the new standard did not have a material
impact on the Company’s consolidated financial statements.
In January 2010, the FASB issued a new standard related to fair value measurements and disclosures, which
amends the earlier FASB standard to add new requirements for disclosures about transfers into and out of Levels
1 and 2 fair value measurements and separate disclosures about purchases, sales, issuances, and settlements
related to Level 3 fair value measurements. The new standard also clarifies existing fair value disclosures about
the level of disaggregation and about inputs and valuation techniques used to measure the fair value. The
Company adopted the new accounting standard which became effective for the interim reporting period ended
March 31, 2010, except for the requirement to provide the Level 3 activity of purchases, sales, issuances, and
settlements on a gross basis, which will be effective for fiscal years beginning after December 15, 2010, and for
interim periods within those fiscal years. The adoption of the new standard did not have a material impact on the
Company’s consolidated financial statements.
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