Mercury Insurance 2012 Annual Report Download - page 41

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to the Company's business. The Company's policyholders and employees have a high expectation that it will adequately protect
their personal information. The regulatory environment, as well as the requirements imposed by the payment card industry and
insurance regulators, governing information, security and privacy laws is increasingly demanding and continues to evolve.
Maintaining compliance with applicable information security and privacy regulations may increase the Company's operating costs
and/or adversely impact its ability to market products and services to its policyholders. Furthermore, a penetrated or compromised
information technology system or the intentional, unauthorized, inadvertent or negligent release or disclosure of data could result
in theft, loss, fraudulent or unlawful use of policyholder, employee or Company data which could harm the Company's reputation
or result in remedial and other expenses, fines or lawsuits.
Changes in accounting standards issued by the Financial Accounting Standards Board (“FASB”) or other standard-
setting bodies may adversely affect the Company’s consolidated financial statements.
The Company’s consolidated financial statements are subject to the application of GAAP, which is periodically revised
and/or expanded. Accordingly, the Company is required to adopt new or revised accounting standards from time to time issued
by recognized authoritative bodies, including the FASB. It is possible that future changes the Company is required to adopt could
change the current accounting treatment that the Company applies to its consolidated financial statements and that such changes
could have a material effect on the Company’s financial condition and results of operations.
The Company may be required to adopt International Financial Reporting Standards (“IFRS”). The ultimate adoption
of such standards could negatively impact its financial condition or results of operations.
Although not yet required, the Company could be required to adopt IFRS, which differs from GAAP, for the Company’s
accounting and reporting standards. The ultimate implementation and adoption of new standards could materially impact the
Company’s financial condition or results of operations.
The Company’s disclosure controls and procedures may not prevent or detect acts of fraud.
The Company’s disclosure controls and procedures are designed to reasonably assure that information required to be
disclosed in reports filed or submitted under the Securities Exchange Act of 1934, as amended, is accumulated and communicated
to management and is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and
forms. The Company’s management, including its Chief Executive Officer and Chief Financial Officer, believe that any disclosure
controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all
control systems, the Company cannot provide absolute assurance that all control issues and instances of fraud, if any, within the
Company have been prevented or detected. These inherent limitations include the realities that judgments in decision-making can
be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the
individual acts of some persons, by collusion of two or more people, or by an unauthorized override of the controls. The design
of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and the Company
cannot assure that any design will succeed in achieving its stated goals under all potential future conditions. Accordingly, because
of the inherent limitations in a cost effective control system, misstatements due to error or fraud may occur and not be detected.
Failure to maintain an effective system of internal control over financial reporting may have an adverse effect on the
Company’s stock price.
Section 404 of the Sarbanes-Oxley Act of 2002, as amended, and the related rules and regulations promulgated by the SEC
require the Company to include in its Annual Report on Form 10-K a report by its management regarding the effectiveness of the
Company’s internal control over financial reporting. The report includes, among other things, an assessment of the effectiveness
of the Company’s internal control over financial reporting as of the end of its fiscal year, including a statement as to whether or
not the Company’s internal control over financial reporting is effective. This assessment must include disclosure of any material
weaknesses in the Company’s internal control over financial reporting identified by management. Areas of the Company’s internal
control over financial reporting may require improvement from time to time. If management is unable to assert that the Company’s
internal control over financial reporting is effective now or in any future period, or if the Company’s independent auditors are
unable to express an opinion on the effectiveness of those internal controls, investors may lose confidence in the accuracy and
completeness of the Company’s financial reports, which could have an adverse effect on the Company’s stock price.
The ability of the Company to attract, develop and retain talented employees, managers and executives, and to maintain
appropriate staffing levels, is critical to the Company’s success.
The Company is constantly hiring and training new employees and seeking to retain current employees. An inability to
attract, retain and motivate the necessary employees for the operation and expansion of the Company’s business could hinder its
ability to conduct its business activities successfully, develop new products and attract customers.