Mercury Insurance 2011 Annual Report Download - page 47

• limitations on types and amounts of investments;
• the payment of dividends;
• the acquisition or disposition of an insurance company or of any company controlling an insurance
company;
• involuntary assignments of high-risk policies, participation in reinsurance facilities and underwriting
associations, assessments and other governmental charges;
• reporting with respect to financial condition;
• periodic financial and market conduct examinations performed by state insurance department
examiners; and
• the other regulations discussed in this Annual Report on Form 10-K.
The failure to comply with these laws and regulations may also result in regulatory actions, fines and
penalties, and in extreme cases, revocation of the Company’s ability to do business in that jurisdiction. In
addition, the Company may face individual and class action lawsuits by insured and other parties for alleged
violations of certain of these laws or regulations.
In addition, from time to time, the Company may support or oppose legislation or other amendments to
insurance regulations in California or other states in which it operates. Consequently, the Company may receive
negative publicity related to its support or opposition of legislative or regulatory changes that may have a
material adverse effect on the Company’s financial condition, results of operations, and liquidity.
Regulation may become more extensive in the future, which may adversely affect the Company’s
business, financial condition, and results of operations.
No assurance can be given that states will not make existing insurance-related laws and regulations more
restrictive in the future or enact new restrictive laws. New or more restrictive regulation in any state in which the
Company conducts business could make it more expensive for it to continue to conduct business in these states,
restrict the premiums the Company is able to charge or otherwise change the way the Company does business. In
such events, the Company may seek to reduce its writings in or to withdraw entirely from these states. In
addition, from time to time, the United States Congress and certain federal agencies investigate the current
condition of the insurance industry to determine whether federal regulation is necessary. The Company cannot
predict whether and to what extent new laws and regulations that would affect its business will be adopted, the
timing of any such adoption and what effects, if any, they may have on the Company’s business, financial
condition, and results of operations.
Assessments and other surcharges for guaranty funds, second-injury funds, catastrophe funds, and other
mandatory pooling arrangements may reduce the Company’s profitability.
Virtually all states require insurers licensed to do business in their state to bear a portion of the loss suffered
by some insured parties as the result of impaired or insolvent insurance companies. Many states also have laws
that established second-injury funds to provide compensation to injured employees for aggravation of a prior
condition or injury which are funded by either assessments based on paid losses or premium surcharge
mechanisms. In addition, as a condition to the ability to conduct business in various states, the insurance
subsidiaries must participate in mandatory property and casualty shared market mechanisms or pooling
arrangements, which provide various types of insurance coverage to individuals or other entities that otherwise
are unable to purchase that coverage from private insurers. The effect of these assessments and mandatory
shared-market mechanisms or changes in them could reduce the Company’s profitability in any given period or
limit its ability to grow its business.
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