Mercury Insurance 2012 Annual Report Download - page 26

5
December 31,
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
(Amounts in thousands)
Gross Reserves for
Losses and Loss
Adjustment Expenses-
end of year(1) $ 679,271 $ 797,927 $ 900,744 $ 1,022,603 $1,088,822 $1,103,915 $ 1,133,508 $1,053,334 $ 1,034,205 $ 985,279 $ 1,036,123
Reinsurance
recoverable (14,382) (11,771) (14,137) (16,969) (6,429)(4,457)(5,729)(7,748)(6,805)(7,921) (12,155)
Net Reserves for
Losses and Loss
Adjustment Expenses-
end of year(1) $ 664,889 $ 786,156 $ 886,607 $ 1,005,634 $1,082,393 $ 1,099,458 $ 1,127,779 $1,045,586 $ 1,027,400 $ 977,358 $ 1,023,968
Paid (cumulative) as of:
One year later $ 432,126 $ 461,649 $ 525,125 $ 632,905 $ 674,345 $ 715,846 $ 617,622 $ 603,256 $ 614,059 $ 600,090
Two years later 591,054 628,280 748,255 891,928 975,086 1,009,141 913,518 889,806 896,363
Three years later 637,555 714,763 851,590 1,027,781 1,123,179 1,168,246 1,059,627 1,023,137
Four years later 655,169 740,534 893,436 1,077,834 1,187,990 1,229,939 1,118,230
Five years later 664,051 750,927 906,466 1,101,693 1,211,343 1,252,687
Six years later 667,277 754,710 915,086 1,111,109 1,219,719
Seven years later 668,443 760,300 918,008 1,114,241
Eight years later 671,474 762,385 918,488
Nine years later 672,041 762,602
Ten years later 672,268
Net reserves re-estimated as of:
One year later 668,954 728,213 840,090 1,026,923 1,101,917 1,188,100 1,069,744 1,032,528 1,045,894 1,019,690
Two years later 660,705 717,289 869,344 1,047,067 1,173,753 1,219,369 1,102,934 1,076,480 1,073,052
Three years later 662,918 745,744 894,063 1,091,131 1,202,441 1,246,365 1,136,278 1,085,591
Four years later 666,825 750,859 910,171 1,104,988 1,217,328 1,263,294 1,141,714
Five years later 668,318 755,970 914,547 1,112,779 1,225,051 1,263,560
Six years later 669,499 757,534 918,756 1,115,637 1,225,131
Seven years later 670,225 762,242 919,397 1,115,916
Eight years later 672,387 763,016 919,027
Nine years later 672,517 762,948
Ten years later 672,541
Net cumulative
development favorable
(unfavorable) $ (7,652) $ 23,208 $ (32,420) $ (110,282) $ (142,738) $ (164,102) $ (13,935) $ (40,005) $ (45,652) $ (42,332)
Gross re-estimated
liability-latest $ 698,943 $ 792,354 $ 946,910 $ 1,148,445 $1,245,629 $ 1,280,644 $ 1,152,166 $1,100,112 $ 1,086,625 $ 1,031,505
Re-estimated
recoverable-latest (26,402) (29,406) (27,883) (32,529) (20,498)(17,084)(10,452)(14,521)(13,573)(11,815)
Net re-estimated
liability-latest $ 672,541 $ 762,948 $ 919,027 $ 1,115,916 $1,225,131 $ 1,263,560 $ 1,141,714 $1,085,591 $ 1,073,052 $ 1,019,690
Gross cumulative
development favorable
(unfavorable) $ (19,672) $ 5,573 $ (46,166) $ (125,842) $ (156,807) $ (176,729) $ (18,658) $ (46,778) $ (52,420) $ (46,226)
(1) Under statutory accounting principles (“SAP”), reserves are stated net of reinsurance recoverable whereas under U.S. generally accepted accounting principles (“GAAP”),
reserves are stated gross of reinsurance recoverable.
The Company experienced unfavorable development of approximately $42 million on the 2011 and prior accident years' loss
and loss adjustment expense reserves due primarily to an increase in the estimated loss severity for accident years 2010 and 2011
California BI losses. In addition, the Company experienced unfavorable development on the run-off of California commercial taxi
business and Florida homeowners business, both of which the Company ceased writing in 2011. See “Critical Accounting Estimates-
Reserves” in “Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.”
For the years 2008 through 2010, the Company experienced unfavorable development of approximately $14 million to $46
million on prior accident years’ losses and loss adjustment expense reserves. The unfavorable development was primarily due to
increases in the estimated loss severity for accident years 2008 through 2010 California BI losses, increases in PIP reserves in Florida
resulting from court decisions that were adverse to the insurance industry, and development on 2007 and prior accident years New
Jersey BI reserves that settled for more than anticipated. These were partially offset by reductions in estimates for loss adjustment
expenses, particularly for the 2010 accident year, related to the transfer of a higher proportion of litigated claims to house counsel and
a reduction in the estimate for Florida sinkhole claims for accident year 2010, resulting from many of those claims being denied due
to the absence of sinkhole activity or structural damage to the houses.