Mercury Insurance 2011 Annual Report Download - page 98

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MERCURY GENERAL CORPORATION AND SUBSIDIARIES
NOTES STATEMENTS TO CONSOLIDATED FINANCIAL—(Continued)
Investment Income
A summary of net investment income is shown in the following table:
Year Ended December 31,
2011 2010 2009
(Amounts in thousands)
Fixed maturities ...................................... $130,895 $136,345 $137,607
Equity securities ...................................... 10,869 8,435 8,558
Short-term investments ................................ 1,747 1,413 1,082
Total investment income ........................... $143,511 $146,193 $147,247
Less: Investment expense ............................... 2,564 2,379 2,298
Net investment income ............................. $140,947 $143,814 $144,949
3. Fair Value Measurements
The Company employs a fair value hierarchy that prioritizes the inputs to valuation techniques used to
measure fair value. The fair value of a financial instrument is the amount that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market participants at the measurement date using
the exit price. Accordingly, when market observable data is not readily available, the Company’s own
assumptions are set to reflect those that market participants would be presumed to use in pricing the asset or
liability at the measurement date. Assets and liabilities recorded on the consolidated balance sheets at fair value
are categorized based on the level of judgment associated with inputs used to measure their fair value and the
level of market price observability, as follows:
Level 1 Unadjusted quoted prices are available in active markets for identical assets or liabilities as of the
reporting date.
Level 2 Pricing inputs are other than quoted prices in active markets, which are based on the following:
• Quoted prices for similar assets or liabilities in active markets;
• Quoted prices for identical or similar assets or liabilities in non-active markets; or
• Either directly or indirectly observable inputs as of the reporting date.
Level 3 Pricing inputs are unobservable and significant to the overall fair value measurement, and the
determination of fair value requires significant management judgment or estimation.
In certain cases, inputs used to measure fair value may fall into different levels of the fair value hierarchy. In
such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has
been determined based on the lowest level input that is significant to the fair value measurement in its
entirety. Thus, a Level 3 fair value measurement may include inputs that are observable (Level 1 or Level 2) and
unobservable (Level 3). The Company’s assessment of the significance of a particular input to the fair value
measurement in its entirety requires judgment and consideration of factors specific to the asset or liability.
The Company uses prices and inputs that are current as of the measurement date, including during periods
of market disruption. In periods of market disruption, the ability to observe prices and inputs may be reduced for
many instruments. This condition could cause an instrument to be reclassified from Level 1 to Level 2, or from
Level 2 to Level 3. The Company recognizes transfers between levels at either the actual date of the event or a
change in circumstances that caused the transfer.
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