Mercury Insurance 2011 Annual Report Download - page 25

The Company’s ultimate liability may be greater or less than management estimates of reported losses and
loss adjustment expenses reserves. Reserves are analyzed quarterly by the Company’s actuarial consultants using
current information on reported claims and a variety of statistical techniques. The Company does not discount to
a present value that portion of losses and loss adjustment expenses reserves expected to be paid in future
periods. Federal tax law, however, requires the Company to discount losses and loss adjustment expenses
reserves for federal income tax purposes.
The following table presents the development of losses and loss adjustment expenses reserves for the period
2001 through 2011. The top section of the table shows the reserves at the balance sheet date, net of reinsurance
recoverable, for each of the indicated years. This amount represents the estimated net losses and loss adjustment
expenses for claims arising from the current and all prior years that are unpaid at the balance sheet date,
including an estimate for losses that had been incurred but not reported (“IBNR”) to the Company. The second
section shows the cumulative amounts paid as of successive years with respect to that reserve liability. The third
section shows the re-estimated amount of the previously recorded reserves based on experience as of the end of
each succeeding year, including cumulative payments made since the end of the respective year. Estimates
change as more information becomes known about the frequency and severity of claims for individual years. The
bottom line shows favorable (unfavorable) development that exists when the original reserve estimates are
greater (less) than the re-estimated reserves at December 31, 2011.
In evaluating the cumulative development information in the table, it should be noted that each amount
includes the effects of all changes in development amounts for prior periods. This table does not present accident
or policy year development data. Conditions and trends that have affected development of the liability in the past
may not necessarily occur in the future. Accordingly, it may not be appropriate to extrapolate future favorable or
unfavorable development based on this table.
December 31,
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
(Amounts in thousands)
Gross Reserves for Losses and Loss
Adjustment Expenses-end of
year(1) ...................... $534,926 $679,271 $797,927 $900,744 $1,022,603 $1,088,822 $1,103,915 $1,133,508 $1,053,334 $1,034,205 $985,279
Reinsurance recoverable ......... (18,334) (14,382) (11,771) (14,137) (16,969) (6,429) (4,457) (5,729) (7,748) (6,805) (7,921)
Net Reserves for Losses and Loss
Adjustment Expenses-end of
year(1) ...................... $516,592 $664,889 $786,156 $886,607 $1,005,634 $1,082,393 $1,099,458 $1,127,779 $1,045,586 $1,027,400 $977,358
Paid (cumulative) as of:
One year later .............. $360,781 $432,126 $461,649 $525,125 $ 632,905 $ 674,345 $ 715,846 $ 617,622 $ 603,256 $ 614,059
Two years later ............ 481,243 591,054 628,280 748,255 891,928 975,086 1,009,141 913,518 889,806
Three years later ........... 528,052 637,555 714,763 851,590 1,027,781 1,123,179 1,168,246 1,059,627
Four years later ............ 538,276 655,169 740,534 893,436 1,077,834 1,187,990 1,229,939
Five years later ............. 545,110 664,051 750,927 906,466 1,101,693 1,211,343
Six years later ............. 549,593 667,277 754,710 915,086 1,111,109
Seven years later ........... 550,768 668,443 760,300 918,008
Eight years later ............ 550,827 671,474 762,385
Nine years later ............ 551,255 672,041
Ten years later ............. 551,337
Net reserves re-estimated as of:
One year later .............. 542,775 668,954 728,213 840,090 1,026,923 1,101,917 1,188,100 1,069,744 1,032,528 1,045,894
Two years later ............ 549,262 660,705 717,289 869,344 1,047,067 1,173,753 1,219,369 1,102,934 1,076,480
Three years later ........... 546,667 662,918 745,744 894,063 1,091,131 1,202,441 1,246,365 1,136,278
Four years later ............ 545,518 666,825 750,859 910,171 1,104,988 1,217,328 1,263,294
Five years later ............. 550,123 668,318 755,970 914,547 1,112,779 1,225,051
Six years later ............. 551,402 669,499 757,534 918,756 1,115,637
Seven years later ........... 551,745 670,225 762,242 919,397
Eight years later ............ 551,505 672,387 763,016
Nine years later ............ 551,721 672,517
Ten years later ............. 551,544
Net cumulative development
favorable (unfavorable) ........ $(34,952) $ (7,628) $ 23,140 $ (32,790)$ (110,003)$ (142,658) $ (163,836)$ (8,499)$ (30,894)$ (18,494)
Gross re-estimated liability-latest . . . $581,508 $698,920 $792,421 $947,281 $1,148,117 $1,245,662 $1,280,466 $1,146,735 $1,087,236 $1,055,729
Re-estimated recoverable-latest .... (29,964) (26,403) (29,405) (27,884) (32,480) (20,611) (17,172) (10,457) (10,756) (9,835)
Net re-estimated liability-latest .... $551,544 $672,517 $763,016 $919,397 $1,115,637 $1,225,051 $1,263,294 $1,136,278 $1,076,480 $1,045,894
Gross cumulative development
favorable (unfavorable) ........ $(46,582) $ (19,649)$ 5,506 $ (46,537)$ (125,514) $ (156,840)$ (176,551) $ (13,227)$ (33,902)$ (21,524)
(1) Under statutory accounting principles (“SAP”), reserves are stated net of reinsurance recoverable whereas under U.S. generally accepted
accounting principles (“GAAP”), reserves are stated gross of reinsurance recoverable.
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