Mercury Insurance 2014 Annual Report Download - page 28

Download and view the complete annual report

Please find page 28 of the 2014 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 114

  • 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
  • 112
  • 113
  • 114


7KH &RPSDQ\µV YDOXDWLRQ RI ILQDQFLDO LQVWUXPHQWV PD\ LQFOXGH PHWKRGRORJLHV HVWLPDWHV DQG DVVXPSWLRQV WKDW DUH
VXEMHFW WR GLIIHULQJ LQWHUSUHWDWLRQV DQG FRXOG UHVXOW LQ FKDQJHV WR YDOXDWLRQV WKDW PD\ PDWHULDOO\ DGYHUVHO\ DIIHFW WKH &RPSDQ\µV
ILQDQFLDO FRQGLWLRQ RU UHVXOWV RI RSHUDWLRQV
7KH &RPSDQ\ HPSOR\V D IDLU YDOXH KLHUDUFK\ WKDW SULRULWL]HV WKH LQSXWV WR YDOXDWLRQ WHFKQLTXHV XVHG WR PHDVXUH IDLU YDOXH
7KH IDLU YDOXH RI D ILQDQFLDO LQVWUXPHQW LV WKH DPRXQW WKDW ZRXOG EH UHFHLYHG WR VHOO DQ DVVHW RU SDLG WR WUDQVIHU D OLDELOLW\ LQ DQ
RUGHUO\ WUDQVDFWLRQ EHWZHHQ PDUNHW SDUWLFLSDQWV DW WKH PHDVXUHPHQW GDWH XVLQJ WKH H[LW SULFH $FFRUGLQJO\ ZKHQ PDUNHW REVHUYDEOH
GDWD DUH QRW UHDGLO\ DYDLODEOH WKH &RPSDQ\µV RZQ DVVXPSWLRQV DUH VHW WR UHIOHFW WKRVH WKDW PDUNHW SDUWLFLSDQWV ZRXOG EH SUHVXPHG
WR XVH LQ SULFLQJ WKH DVVHW RU OLDELOLW\ DW WKH PHDVXUHPHQW GDWH $VVHWV DQG OLDELOLWLHV UHFRUGHG RQ WKH FRQVROLGDWHG EDODQFH VKHHWV
DW IDLU YDOXH DUH FDWHJRUL]HG EDVHG RQ WKH OHYHO RI MXGJPHQW DVVRFLDWHG ZLWK WKH LQSXW XVHG WR PHDVXUH WKHLU IDLU YDOXH DQG WKH OHYHO
RI PDUNHW SULFH REVHUYDELOLW\
'XULQJ SHULRGV RI PDUNHW GLVUXSWLRQ LQFOXGLQJ SHULRGV RI VLJQLILFDQWO\ FKDQJLQJ LQWHUHVW UDWHV UDSLGO\ ZLGHQLQJ FUHGLW
VSUHDGV LQDFWLYLW\ RU LOOLTXLGLW\ LW PD\ EH GLIILFXOW WR YDOXH FHUWDLQ RI WKH &RPSDQ\µV VHFXULWLHV LI WUDGLQJ EHFRPHV OHVV IUHTXHQW
DQGRU PDUNHW GDWD EHFRPH OHVV REVHUYDEOH 7KHUH PD\ EH FHUWDLQ DVVHW FODVVHV LQ KLVWRULFDOO\ DFWLYH PDUNHWV ZLWK VLJQLILFDQW
REVHUYDEOH GDWD WKDW EHFRPH LOOLTXLG GXH WR FKDQJHV LQ WKH ILQDQFLDO HQYLURQPHQW ,Q VXFK FDVHV WKH YDOXDWLRQV DVVRFLDWHG ZLWK
VXFK VHFXULWLHV PD\ UHO\ PRUH RQ PDQDJHPHQW MXGJPHQW DQG LQFOXGH LQSXWV DQG DVVXPSWLRQV WKDW DUH OHVV REVHUYDEOH RU UHTXLUH
JUHDWHU HVWLPDWLRQ DV ZHOO DV YDOXDWLRQ PHWKRGV ZKLFK DUH PRUH VRSKLVWLFDWHG RU UHTXLUH JUHDWHU HVWLPDWLRQ 7KH YDOXDWLRQV JHQHUDWHG
E\ VXFK PHWKRGV PD\ EH GLIIHUHQW IURP WKH YDOXH DW ZKLFK WKH LQYHVWPHQWV XOWLPDWHO\ PD\ EH VROG )XUWKHU UDSLGO\ FKDQJLQJ DQG
XQSUHFHGHQWHG FUHGLW DQG HTXLW\ PDUNHW FRQGLWLRQV FRXOG PDWHULDOO\ LPSDFW WKH YDOXDWLRQ RI VHFXULWLHV DV UHSRUWHG ZLWKLQ WKH
&RPSDQ\µV FRQVROLGDWHG ILQDQFLDO VWDWHPHQWV DQG WKH SHULRGWRSHULRG FKDQJHV LQ YDOXH FRXOG YDU\ VLJQLILFDQWO\ 'HFUHDVHV LQ
YDOXH PD\ KDYH D PDWHULDO DGYHUVH HIIHFW RQ WKH &RPSDQ\µV ILQDQFLDO FRQGLWLRQ RU UHVXOWV RI RSHUDWLRQV
&KDQJHV LQ WKH ILQDQFLDO VWUHQJWK UDWLQJV RI ILQDQFLDO JXDUDQW\ LQVXUHUV LVVXLQJ SROLFLHV RQ ERQGV KHOG LQ WKH &RPSDQ\µV
LQYHVWPHQW SRUWIROLR PD\ KDYH DQ DGYHUVH HIIHFW RQ WKH &RPSDQ\µV LQYHVWPHQW UHVXOWV
,Q DQ HIIRUW WR HQKDQFH WKH ERQG UDWLQJ DSSOLFDEOH WR FHUWDLQ ERQG LVVXHV VRPH ERQG LVVXHUV SXUFKDVH PXQLFLSDO ERQG
LQVXUDQFH SROLFLHV IURP SULYDWH LQVXUHUV 7KH LQVXUDQFH JHQHUDOO\ JXDUDQWHHV WKH SD\PHQW RI SULQFLSDO DQG LQWHUHVW RQ D ERQG LVVXH
LI WKH LVVXHU GHIDXOWV %\ SXUFKDVLQJ WKH LQVXUDQFH WKH ILQDQFLDO VWUHQJWK UDWLQJV DSSOLFDEOH WR WKH ERQGV DUH EDVHG RQ WKH FUHGLW
ZRUWKLQHVV RI WKH LQVXUHU DV ZHOO DV WKH XQGHUO\LQJ FUHGLW RI WKH ERQG LVVXHU 7KHVH ILQDQFLDO JXDUDQW\ LQVXUHUV DUH VXEMHFW WR '2,
RYHUVLJKW $V WKH ILQDQFLDO VWUHQJWK UDWLQJV RI WKHVH LQVXUHUV DUH UHGXFHG WKH UDWLQJV RI WKH LQVXUHG ERQG LVVXHV FRUUHVSRQGLQJO\
GHFUHDVH $OWKRXJK WKH &RPSDQ\ KDV GHWHUPLQHG WKDW WKH ILQDQFLDO VWUHQJWK UDWLQJ RI WKH XQGHUO\LQJ ERQG LVVXHV LQ LWV LQYHVWPHQW
SRUWIROLR DUH ZLWKLQ WKH &RPSDQ\µV LQYHVWPHQW SROLF\ ZLWKRXW WKH HQKDQFHPHQW SURYLGHG E\ WKH LQVXUDQFH SROLFLHV DQ\ IXUWKHU
GRZQJUDGHV LQ WKH ILQDQFLDO VWUHQJWK UDWLQJV RI WKHVH LQVXUDQFH FRPSDQLHV RU DQ\ GHIDXOWV RQ WKH LQVXUDQFH SROLFLHV ZULWWHQ E\
WKHVH LQVXUDQFH FRPSDQLHV PD\ UHGXFH WKH IDLU YDOXH RI WKH XQGHUO\LQJ ERQG LVVXHV DQG WKH &RPSDQ\µV LQYHVWPHQW SRUWIROLR RU
PD\ UHGXFH WKH LQYHVWPHQW UHVXOWV JHQHUDWHG E\ WKH &RPSDQ\µV LQYHVWPHQW SRUWIROLR ZKLFK FRXOG KDYH D PDWHULDO DGYHUVH HIIHFW
RQ WKH &RPSDQ\µV ILQDQFLDO FRQGLWLRQ UHVXOWV RI RSHUDWLRQV DQG OLTXLGLW\
'HWHULRUDWLRQ RI WKH PXQLFLSDO ERQG PDUNHW LQ JHQHUDO RU RI VSHFLILF PXQLFLSDO ERQGV KHOG E\ WKH &RPSDQ\ PD\ UHVXOW
LQ D PDWHULDO DGYHUVH HIIHFW RQ WKH &RPSDQ\µV ILQDQFLDO FRQGLWLRQ UHVXOWV RI RSHUDWLRQV DQG OLTXLGLW\
$W 'HFHPEHU   RI WKH &RPSDQ\µV WRWDO LQYHVWPHQW SRUWIROLR DW IDLU YDOXH DQG  RI LWV WRWDO IL[HG PDWXULW\
LQYHVWPHQWV DW IDLU YDOXH ZHUH LQYHVWHG LQ WD[H[HPSW PXQLFLSDO ERQGV :LWK VXFK D ODUJH SHUFHQWDJH RI WKH &RPSDQ\µV LQYHVWPHQW
SRUWIROLR LQYHVWHG LQ PXQLFLSDO ERQGV WKH SHUIRUPDQFH RI WKH &RPSDQ\µV LQYHVWPHQW SRUWIROLR LQFOXGLQJ WKH FDVK IORZV JHQHUDWHG
E\ WKH LQYHVWPHQW SRUWIROLR LV VLJQLILFDQWO\ GHSHQGHQW RQ WKH SHUIRUPDQFH RI PXQLFLSDO ERQGV ,I WKH YDOXH RI PXQLFLSDO ERQG
PDUNHWV LQ JHQHUDO RU DQ\ RI WKH &RPSDQ\µV PXQLFLSDO ERQG KROGLQJV GHWHULRUDWH WKH SHUIRUPDQFH RI WKH &RPSDQ\µV LQYHVWPHQW
SRUWIROLR ILQDQFLDO FRQGLWLRQ UHVXOWV RI RSHUDWLRQV DQG OLTXLGLW\ PD\ EH PDWHULDOO\ DQG DGYHUVHO\ DIIHFWHG
,I WKH &RPSDQ\µV ORVV UHVHUYHV DUH LQDGHTXDWH LWV EXVLQHVV DQG ILQDQFLDO SRVLWLRQ FRXOG EH KDUPHG
7KH SURFHVV RI HVWDEOLVKLQJ SURSHUW\ DQG OLDELOLW\ ORVV UHVHUYHV LV LQKHUHQWO\ XQFHUWDLQ GXH WR D QXPEHU RI IDFWRUV LQFOXGLQJ
XQGHUZULWLQJ TXDOLW\ WKH IUHTXHQF\ DQG DPRXQW RI FRYHUHG ORVVHV YDULDWLRQV LQ FODLPV VHWWOHPHQW SUDFWLFHV WKH FRVWV DQG XQFHUWDLQW\
RI OLWLJDWLRQ DQG H[SDQGLQJ WKHRULHV RI OLDELOLW\ :KLOH WKH &RPSDQ\ EHOLHYHV WKDW LWV DFWXDULDO WHFKQLTXHV DQG GDWDEDVHV DUH
VXIILFLHQW WR HVWLPDWH ORVV UHVHUYHV WKH &RPSDQ\µV DSSURDFK PD\ SURYH WR EH LQDGHTXDWH ,I DQ\ RI WKHVH FRQWLQJHQFLHV PDQ\ RI
ZKLFK DUH EH\RQG WKH &RPSDQ\µV FRQWURO UHVXOWV LQ ORVV UHVHUYHV WKDW DUH QRW VXIILFLHQW WR FRYHU LWV DFWXDO ORVVHV WKH &RPSDQ\µV
ILQDQFLDO FRQGLWLRQ UHVXOWV RI RSHUDWLRQV DQG OLTXLGLW\ PD\ EH PDWHULDOO\ DGYHUVHO\ DIIHFWHG
7KHUH LV XQFHUWDLQW\ LQYROYHG LQ WKH DYDLODELOLW\ RI UHLQVXUDQFH DQG WKH FROOHFWDELOLW\ RI UHLQVXUDQFH UHFRYHUDEOH
7KH &RPSDQ\ UHLQVXUHV D SRUWLRQ RI LWV SRWHQWLDO ORVVHV RQ WKH SROLFLHV LW LVVXHV WR PLWLJDWH WKH YRODWLOLW\ RI WKH ORVVHV RQ LWV
ILQDQFLDO FRQGLWLRQ DQG UHVXOWV RI RSHUDWLRQV 7KH DYDLODELOLW\ DQG FRVW RI UHLQVXUDQFH LV VXEMHFW WR PDUNHW FRQGLWLRQV ZKLFK DUH