Mercury Insurance 2013 Annual Report Download - page 18

3
Non-Insurance Companies
Date Formed or
Acquired Purpose
Mercury Select Management Company, Inc. August 1997 AML’s attorney-in-fact
Mercury Insurance Services LLC November 2000 Management services to subsidiaries
AIS Management LLC January 2009 Parent company of AIS and PoliSeek
Auto Insurance Specialists LLC (“AIS”) January 2009 Insurance agent
PoliSeek AIS Insurance Solutions, Inc. (“PoliSeek”) January 2009 Insurance agent
Animas Funding LLC (“AFL”) August 2013 Special purpose investment vehicle
Concord Insurance Services, Inc. October 1999 Inactive insurance agent, dissolved in 2013.
American Mercury MGA, Inc. August 1997 Inactive general agent, dissolved in 2012.
Mercury Group, Inc. July 2001 Inactive insurance agent, dissolved in 2012.
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(1) The term “California Companies” refers to MCC, MIC, CAIC, and CGU.
Production and Servicing of Business
The Company sells its policies through approximately 8,300 independent agents, of which over 1,400 are located in each
of California and Florida. Approximately half of the Company’s agents in California have represented the Company for more than
ten years. The agents are independent contractors selected and contracted by the Company and generally also represent competing
insurance companies. No independent agent accounted for more than 2% of the Company’s direct premiums written during 2013,
2012, and 2011.
The Company believes that it compensates its agents above the industry average. During 2013, total commissions incurred
were approximately 17% of net premiums written.
The Company’s advertising budget is allocated among television, radio, newspaper, internet, and direct mailing media with
the intent to provide the best coverage available within targeted media markets. While the majority of these advertising costs are
borne by the Company, a portion of these costs are reimbursed by the Company’s independent agents based upon the number of
account leads generated by the advertising. The Company believes that its advertising program is important to generate leads,
create brand awareness, and remain competitive in the current insurance climate. During 2013, net advertising expenditures were
$19.9 million.
Underwriting
The Company sets its own automobile insurance premium rates, subject to rating regulations issued by the Department of
Insurance or similar governmental agency of each state in which it is licensed to operate (“DOI”). Each state has different rate
approval requirements. See “Regulation—Department of Insurance Oversight.”
The Company offers standard, non-standard, and preferred private passenger automobile insurance. The Company also
offers homeowners insurance in 11 states, commercial automobile insurance in 10 states, and mechanical breakdown insurance
in most states. The Company completed its exit from the Florida homeowners market in 2012.
In California, “good drivers,” as defined by the California Insurance Code, accounted for approximately 82% of all California
voluntary private passenger automobile policies-in-force at December 31, 2013, while higher risk categories accounted for
approximately 18%. The private passenger automobile renewal rate in California (the rate of acceptance of offers to renew) averages
approximately 96%.
Claims
The Company conducts the majority of claims processing without the assistance of outside adjusters. The claims staff
administers all claims and manages all legal and adjustment aspects of claims processing.
Losses and Loss Adjustment Expense Reserves and Reserve Development
The Company maintains losses and loss adjustment expense reserves for both reported and unreported claims. Losses and loss
adjustment expense reserves for reported claims are estimated based upon a case-by-case evaluation of the type of claim involved and
the expected development of such claims. Losses and loss adjustment expense reserves for unreported claims are determined on the