Mercury Insurance 2013 Annual Report Download - page 19

Download and view the complete annual report

Please find page 19 of the 2013 Mercury Insurance annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 111

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111

4
basis of historical information by line of insurance. Inflation is reflected in the reserving process through analysis of cost trends and
review of historical reserve settlement.
The Company’s ultimate liability may be greater or less than management estimates of reported losses and loss adjustment
expense reserves. Reserves are analyzed quarterly by the Company’s actuarial consultants using current information on reported claims
and a variety of statistical techniques. The Company does not discount to a present value that portion of losses and loss adjustment
expense reserves expected to be paid in future periods. Federal tax law, however, requires the Company to discount losses and loss
adjustment expense reserves for federal income tax purposes.
The following table presents the development of losses and loss adjustment expense reserves for the period 2003 through
2013. The top section of the table shows the reserves at the balance sheet date, net of reinsurance recoverable, for each of the indicated
years. This amount represents the estimated net losses and loss adjustment expenses for claims arising from the current and all prior
years that are unpaid at the balance sheet date, including an estimate for losses that had been incurred but not reported (“IBNR”) to
the Company. The second section shows the cumulative amounts paid as of successive years with respect to that reserve liability. The
third section shows the re-estimated amount of the previously recorded reserves based on experience as of the end of each succeeding
year, including cumulative payments made since the end of the respective year. Estimates change as more information becomes known
about the frequency and severity of claims for individual years. The bottom line shows favorable (unfavorable) development that
exists when the original reserve estimates are greater (less) than the re-estimated reserves at December 31, 2013.
In evaluating the cumulative development information in the table, it should be noted that each amount includes the effects of
all changes in development amounts for prior periods. This table does not present accident or policy year development data. Conditions
and trends that have affected development of the liability in the past may not necessarily occur in the future. Accordingly, it may not
be appropriate to extrapolate future favorable or unfavorable development based on this table.