Mercury Insurance 2011 Annual Report Download - page 117

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MERCURY GENERAL CORPORATION AND SUBSIDIARIES
NOTES STATEMENTS TO CONSOLIDATED FINANCIAL—(Continued)
the nature of the loss contingency and an estimate of the possible loss, range of loss, or a statement that such an
estimate cannot be made. While actual losses may differ from the amounts recorded and the ultimate outcome of
the Company’s pending actions is generally not yet determinable, the Company does not believe that the ultimate
resolution of currently pending legal or regulatory proceedings, either individually or in the aggregate, will have
a material adverse effect on its financial condition, results of operations, or cash flows.
In all cases, the Company vigorously defends itself unless a reasonable settlement appears appropriate.
The Company is also involved in proceedings relating to assessments and rulings made by the FTB. See
Note 10.
18. Risks and Uncertainties
Though many businesses are still experiencing the slow recovery from the severe economic recession, the
recent sovereign debt crisis in Europe is leading to weaker global economic growth, heightened financial
vulnerabilities and some negative rating actions. The Company is unable to predict the duration and severity of
the current disruption in the financial markets in the United States, and in California, where the majority of the
Company’s business is produced. The Company believes that the recession, with continuing high unemployment
rates, has negatively affected premium revenues and could continue to affect premium revenue in the future. If
economic conditions do not show improvement, there could be an adverse impact on the Company’s financial
condition, results of operations, and liquidity.
The Company applies the fair value option to its investment portfolio. Rapidly changing and unprecedented
credit and equity market conditions could materially impact the valuation of securities as reported within the
Company’s financial statements, and the period-to-period changes in value could vary significantly. Decreases in
market value may have a material adverse effect on the Company’s financial condition or results of operations.
The Company is taking steps to align expenses with revenues; however, not all expenses can be effectively
reduced and if premium volumes decline, it could lead to higher expense ratios. The impact from the recession
would also affect the capital and surplus of the Insurance Companies, which could indirectly impact the ability
and capacity to pay shareholder dividends.
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