Mercury Insurance 2011 Annual Report Download - page 91

MERCURY GENERAL CORPORATION AND SUBSIDIARIES
NOTES STATEMENTS TO CONSOLIDATED FINANCIAL—(Continued)
5 years. In accordance with applicable accounting standards, capitalization ceases no later than the point at which
a computer software project is substantially complete and ready for its intended use. Leasehold improvements are
amortized over the life of the associated lease.
The Company periodically assesses long-lived assets or asset groups including building and equipment, for
recoverability when events or changes in circumstances indicate that their carrying amount may not be
recoverable. If the Company identifies an indicator of impairment, the Company assesses recoverability by
comparing the carrying amount of the asset to the sum of the undiscounted cash flows expected to result from the
use and the eventual disposal of the asset. An impairment loss is recognized when the carrying amount is not
recoverable and is measured as the excess of carrying value over fair value. During the years ended
December 31, 2011, 2010, and 2009, the Company recorded no impairment charges.
Goodwill and Other Intangible Assets
Goodwill and other intangible assets arise as a result of business acquisitions and consist of the excess of the
cost of the acquisitions over the tangible and intangible assets acquired and liabilities assumed and identifiable
intangible assets acquired. Identifiable intangible assets consist of the value of customer relationships, trade
names, software and technology, and favorable leases, which are all subject to amortization.
The Company annually evaluates goodwill and other intangible assets for impairment. The Company also
reviews its goodwill and other intangible assets for impairment whenever events or changes in circumstances
indicate that it is more likely than not that the carrying amount of goodwill may exceed its implied fair
value. The Company has elected to early adopt the new standard issued in September 2011 which amended the
current guidance on testing goodwill for impairment. Under the revised guidance, the two-step goodwill
impairment test is not required if the Company qualitatively determines that, more likely than not, the fair value
exceeds the carrying amount of a reporting unit. There are numerous assumptions and estimates underlying the
qualitative assessments including future earnings, long-term strategies, and the Company’s annual planning and
forecasting process. If these planned initiatives do not accomplish the targeted objectives, the assumptions and
estimates underlying the qualitative assessments could be adversely affected and have a material effect upon the
Company’s financial condition and results of operations. As of December 31, 2011 and 2010, goodwill
impairment assessments indicated that there was no impairment.
Premium Revenue Recognition
Premium revenue is recognized on a pro-rata basis over the term of the policies in proportion to the amount
of insurance protection provided. Premium revenue includes installment and other fees for services which are
recognized in the periods the services are rendered. Unearned premiums represent the portion of the premium
related to the unexpired policy term. Unearned premiums are predominantly computed on a monthly pro rata
basis and are stated gross of reinsurance deductions, with the reinsurance deduction recorded in other
receivables. Net premiums written were $2.58 billion, $2.56 billion, and $2.59 billion in 2011, 2010, and 2009,
respectively.
No independent agent accounted for more than 2% of the Company’s direct premiums written during 2011,
2010, and 2009.
Losses and Loss Adjustment Expenses
Unpaid losses and loss adjustment expenses are determined in amounts estimated to cover incurred losses
and loss adjustment expenses and established based upon the Company’s assessment of claims pending and the
development of prior years’ loss liabilities. These amounts include liabilities based upon individual case
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