Mercury Insurance 2011 Annual Report Download - page 76

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Effective August 4, 2011, the Company extended the maturity date of the $120 million Bank of America
credit facility from January 1, 2012 to January 2, 2015 with interest payable at a floating rate of LIBOR rate plus
40 basis points.
On October 4, 2011, the Company refinanced its Bank of America $18 million LIBOR plus 50 basis points
loan that was scheduled to mature on March 1, 2013 with a Union Bank $20 million LIBOR plus 40 basis points
loan that matures on January 2, 2015.
Both the $120 million credit facility and the $20 million bank loan contain financial covenants pertaining to
minimum statutory surplus, debt to capital ratio, and risk based capital ratio. The Company is in compliance with
all of its financial covenants.
For a further discussion, see Notes 6 and 7 of Notes to Consolidated Financial Statements.
E. Capital Expenditures
In 2011, the Company made capital expenditures of approximately $18 million primarily related to
Information Technology.
F. Regulatory Capital Requirement
The Insurance Companies must comply with minimum capital requirements under applicable state laws and
regulations, and must have adequate reserves for claims. The minimum statutory capital requirements differ by
state and are generally based on balances established by statute, a percentage of annualized premiums, a
percentage of annualized loss, or RBC requirements. The RBC requirements are based on guidelines established
by the NAIC. The RBC formula was designed to capture the widely varying elements of risks undertaken by
writers of different lines of insurance having differing risk characteristics, as well as writers of similar lines
where differences in risk may be related to corporate structure, investment policies, reinsurance arrangements,
and a number of other factors. At December 31, 2011, the Insurance Companies had sufficient capital to exceed
the highest level of minimum required capital.
Among other considerations, industry and regulatory guidelines suggest that the ratio of a property and
casualty insurer’s annual net premiums written to statutory policyholders’ surplus should not exceed 3.0 to
1. Based on the combined surplus of all the Insurance Companies of $1.5 billion at December 31, 2011, and net
premiums written of $2.6 billion, the ratio of premiums written to surplus was 1.7 to 1.
OFF-BALANCE SHEET ARRANGEMENTS
As of December 31, 2011, the Company had no off-balance sheet arrangements as defined under Regulation
S-K 303(a)(4) and the instructions thereto.
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