Mercury Insurance 2011 Annual Report Download - page 110

MERCURY GENERAL CORPORATION AND SUBSIDIARIES
NOTES STATEMENTS TO CONSOLIDATED FINANCIAL—(Continued)
11. Losses and Loss Adjustment Expenses
Activity in the reserves for losses and loss adjustment expenses is summarized as follows:
Year Ended December 31,
2011 2010 2009
(Amounts in thousands)
Gross reserves at January 1 .................................... $1,034,205 $1,053,334 $1,133,508
Less reinsurance recoverable .............................. (6,805) (7,748) (5,729)
Net reserves at January 1 ...................................... 1,027,400 1,045,586 1,127,779
Incurred losses and loss adjustment expenses related to:
Current year ............................................ 1,810,711 1,838,824 1,840,268
Prior years ............................................. 18,494 (13,058) (58,035)
Total incurred losses and loss adjustment expenses ................. 1,829,205 1,825,766 1,782,233
Loss and loss adjustment expense payments related to:
Current year ............................................ 1,265,188 1,240,696 1,246,804
Prior years ............................................. 614,059 603,256 617,622
Total payments ............................................. 1,879,247 1,843,952 1,864,426
Net reserves at year-end ...................................... 977,358 1,027,400 1,045,586
Reinsurance recoverable .................................. 7,921 6,805 7,748
Gross reserves at year-end ..................................... $ 985,279 $1,034,205 $1,053,334
The increase in the provision for insured events of prior years in 2011 of approximately $18 million
primarily resulted from the re-estimate of accident years 2008 through 2010 California BI losses which have
experienced higher average severities than were originally estimated at December 31, 2010. Partially offsetting
this increase is favorable development on loss adjustment expenses reflecting cost savings from the transition of
a large portion of litigated cases from outside counsel to in-house counsel.
The decrease in the provision for insured events of prior years in 2010 of approximately $13 million
primarily resulted from the re-estimate of accident year 2009 California BI losses which have experienced lower
average severities and fewer late reported claims than were originally estimated at December 31, 2009. In
addition, the Company experienced favorable development on New Jersey personal automobile reserves,
resulting from more aggressive handling of litigated claims, which includes a high percentage of favorable results
in cases brought to trial. The favorable development was partially offset by unfavorable development on Florida
reserves, which included approximately $3 million of unfavorable development on the homeowners line of
business, primarily related to sinkhole claims.
The decrease in the provision for insured events of prior years in 2009 of approximately $58 million
primarily resulted from the re-estimate of accident years 2008 and 2007 California BI losses which have
experienced both lower average severities and fewer late reported claims than were originally estimated at
December 31, 2008. In addition, there was favorable development from a recovery of approximately $5 million
related to losses incurred on 2007 wildfires. The favorable development was partially offset by adverse
development on New Jersey loss adjustment expense reserves that resulted from the re-estimate of the expected
costs to aggressively defend BI and PIP claims.
The Company experienced estimated pre-tax losses from severe weather events of $18 million, $25 million,
and $0 in 2011, 2010, and 2009, respectively. The losses in 2011 primarily related to severe losses due to
California wind storms, Hurricane Irene, and Georgia tornadoes. The losses in 2010 primarily related to severe
losses from California rainstorms.
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