Mercury Insurance 2012 Annual Report Download - page 100

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79
The Company also establishes reserves for non-insurance claims related lawsuits, regulatory actions, and other contingencies
for which the Company is able to estimate its potential exposure and when the Company believes a loss is probable. For loss
contingencies believed to be reasonably possible, the Company also discloses the nature of the loss contingency and an estimate
of the possible loss, range of loss, or a statement that such an estimate cannot be made. While actual losses may differ from the
amounts recorded and the ultimate outcome of the Company’s pending actions is generally not yet determinable, the Company
does not believe that the ultimate resolution of currently pending legal or regulatory proceedings, either individually or in the
aggregate, will have a material adverse effect on its financial condition, results of operations, or cash flows.
In all cases, the Company vigorously defends itself unless a reasonable settlement appears appropriate.
The Company is also involved in proceedings relating to assessments and rulings made by the FTB. See Note 9.
17. Risks and Uncertainties
Many businesses are experiencing a slow recovery from the severe economic recession, and economic uncertainty is expected
to continue in 2013 due in large part to continuing political disagreements in Washington that may cause businesses and consumers
to hold back spending. Further, the sovereign debt crisis in Europe continues to lead to weaker global economic growth, heightened
financial vulnerabilities and some negative rating actions. The Company is unable to predict the duration and severity of current
global economic conditions and their impact on the United States, and California, where the majority of the Company’s business
is produced. If economic conditions do not show improvement, there could be an adverse impact on the Company’s financial
condition, results of operations, and liquidity.
The Company applies the fair value option to its investment portfolio. Rapidly changing and unprecedented credit and
equity market conditions could materially impact the valuation of securities as reported within the Company’s financial statements,
and the period-to-period changes in value could vary significantly. Decreases in market value may have a material adverse effect
on the Company’s financial condition or results of operations.
The Company is taking steps to align expenses with revenues; however, not all expenses can be effectively reduced and if
premium volumes decline, it could lead to higher expense ratios. The impact from the recession would also affect the capital and
surplus of the Insurance Companies, which could indirectly impact the ability and capacity to pay shareholder dividends.