Mercury Insurance 2011 Annual Report Download - page 35

Ms. Walters, Vice President—Corporate Affairs and Secretary, has been employed by the Company since
1967, and has served as its Secretary since 1982. Ms. Walters was named Vice President—Corporate Affairs in
1998.
Item 1A. Risk Factors
The Company’s business involves various risks and uncertainties in addition to the normal risks of business,
some of which are discussed in this section. It should be noted that the Company’s business and that of other
insurers may be adversely affected by a downturn in general economic conditions and other forces beyond the
Company’s control. In addition, other risks and uncertainties not presently known or that the Company currently
believes to be immaterial may also adversely affect the Company’s business. If any such risks or uncertainties, or
any of the following risks or uncertainties, develop into actual events, there could be a materially adverse effect
on the Company’s business, financial condition, results of operations, or liquidity.
The information discussed below should be considered carefully with the other information contained in this
Annual Report on Form 10-K and the other documents and materials filed by the Company with the SEC, as well
as news releases and other information publicly disseminated by the Company from time to time.
Risks Related to the Company’s Business
The Company remains highly dependent upon California and several other key states to produce
revenues and operating profits.
For the year ended December 31, 2011, the Company generated 76.2% of its direct automobile insurance
premiums written in California, 8.3% in Florida, 4.0% in New Jersey, and 3.1% in Texas. The Company’s
financial results are subject to prevailing regulatory, legal, economic, demographic, competitive, and other
conditions in these states and changes in any of these conditions could negatively impact the Company’s results
of operations.
Mercury General is a holding company that relies on regulated subsidiaries for cash operating profits to
satisfy its obligations.
As a holding company, Mercury General maintains no operations that generate revenue sufficient to pay
operating expenses, shareholders’ dividends, or principal or interest on its indebtedness. Consequently, Mercury
General relies on the ability of the Insurance Companies, particularly the California Companies, to pay dividends
for Mercury General to meet its obligations. The ability of the Insurance Companies to pay dividends is regulated
by state insurance laws, which limit the amount of, and in certain circumstances may prohibit the payment of,
cash dividends. Generally, these insurance regulations permit the payment of dividends only out of earned
surplus in any year which, together with other dividends or distributions made within the preceding 12 months,
do not exceed the greater of 10% of statutory surplus as of the end of the preceding year or the net income for the
preceding year, with larger dividends payable only after receipt of prior regulatory approval. The inability of the
Insurance Companies to pay dividends in an amount sufficient to enable the Company to meet its cash
requirements at the holding company level could have a material adverse effect on the Company’s results of
operations, financial condition, and its ability to pay dividends to its shareholders.
The Company’s insurance subsidiaries are subject to minimum capital and surplus requirements, and
any failure to meet these requirements could subject the Company’s insurance subsidiaries to regulatory
action.
The Company’s insurance subsidiaries are subject to risk-based capital standards and other minimum capital
and surplus requirements imposed under applicable laws of their state of domicile. The risk-based capital
standards, based upon the Risk-Based Capital Model Act adopted by the NAIC, require the Company’s insurance
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