Mercury Insurance 2011 Annual Report Download - page 100

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MERCURY GENERAL CORPORATION AND SUBSIDIARIES
NOTES STATEMENTS TO CONSOLIDATED FINANCIAL—(Continued)
Interest rate swap agreements: Valued based on models using inputs, such as interest rate yield curves,
observable for substantially the full term of the contract.
Level 3 Measurements—Fair values of financial assets are based on inputs that are both unobservable and
significant to the overall fair value measurement, including any items in which the evaluated prices obtained
elsewhere were deemed to be of a distressed trading level.
Municipal securities: Comprised of certain distressed municipal securities, including ARS, for which valuation is
based on models that are widely accepted in the financial services industry and require projections of future cash
flows that are not market observable.
Collateralized debt obligations/Partnership interest in a private credit fund: Valued based on underlying debt/
credit instruments and the appropriate benchmark spread for similar assets in active markets; taking into
consideration unobservable inputs related to liquidity assumptions.
The Company’s financial instruments, at fair value, are reflected in the consolidated balance sheets on a
trade-date basis. Related unrealized gains or losses are recognized in net realized investment gains in the
consolidated statements of operations. Fair value measurements are not adjusted for transaction costs.
The following tables present information about the Company’s assets and liabilities measured at fair value
on a recurring basis as of December 31, 2011 and 2010, and indicate the fair value hierarchy of the valuation
techniques utilized by the Company to determine such fair value:
December 31, 2011
Level 1 Level 2 Level 3 Total
(Amounts in thousands)
Assets
Fixed maturity securities:
U.S. government bonds and agencies ................. $ 14,298 $ 0 $ 0 $ 14,298
Municipal securities .............................. 0 2,271,275 0 2,271,275
Mortgage-backed securities ........................ 0 37,371 0 37,371
Corporate securities ............................... 0 75,142 0 75,142
Collateralized debt obligations ...................... 0 0 47,503 47,503
Equity securities:
Common stock:
Public utilities ............................... 26,342 0 0 26,342
Banks, trusts and insurance companies ............ 16,027 0 0 16,027
Industrial and other ........................... 316,592 0 0 316,592
Non-redeemable preferred stock ..................... 0 11,419 0 11,419
Partnership interest in a private credit fund ............ 0 0 10,008 10,008
Short-term bonds ..................................... 0 9,011 0 9,011
Money market instruments ............................. 227,433 0 0 227,433
Total assets at fair value ....................... $600,692 $2,404,218 $57,511 $3,062,421
Liabilities
Equity contracts ...................................... $ 655 $ 0 $ 0 $ 655
Interest rate swap agreements ........................... 0 670 0 670
Total liabilities at fair value .................... $ 655 $ 670 $ 0 $ 1,325
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