Mercury Insurance 2015 Annual Report Download - page 113

See accompanying Report of Independent Registered Public Accounting Firm
S-7
MERCURY GENERAL CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NOTES TO CONDENSED FINANCIAL INFORMATION
The accompanying condensed financial information should be read in conjunction with the Consolidated Financial
Statements and Notes to Consolidated Financial Statements included in this report.
Distributions received from Special Purpose Entities
On February 13, 2014, Fannette Funding LLC ("FFL"), a special purpose investment vehicle, formed by and consolidated
into the Company, entered into a total return swap agreement with Citibank. Under the total return swap agreement, FFL receives
the income equivalent on underlying obligations due to Citibank and pays to Citibank interest on the outstanding notional amount
of the underlying obligations. The total return swap is secured by approximately $30 million of U.S. Treasuries as collateral,
which are included in short-term investments on the consolidated balance sheets. The Company paid interest equal to LIBOR
plus 135 basis points on approximately $95 million of underlying obligations as of December 31, 2015. The agreement had an
initial term of one year , subject to annual renewal, and was renewed for an additional one-year term expiring February 13, 2017,
with interest equal to LIBOR plus 145 basis points.
On August 9, 2013, Animas Funding LLC ("AFL"), a special purpose investment vehicle, formed by and consolidated into
the Company, entered into a three-year total return swap agreement with Citibank. Under the total return swap agreement, AFL
receives the income equivalent on underlying obligations due to Citibank and pays to Citibank interest equal to LIBOR plus 120
basis points on the outstanding notional amount of the underlying obligations, which was approximately $124 million as of
December 31, 2015. The total return swap is secured by approximately $40 million of U.S. Treasuries as collateral, which are
included in short-term investments on the consolidated balance sheets.
Distributions of $8.9 million and $6.8 million were received in 2015 and 2014, respectively, from these special
purpose entities.
Dividends received from Subsidiaries
Dividends of $133,000,000, $225,000,000 and $120,000,000 were received by Mercury General from its 100% owned
insurance subsidiaries in 2015, 2014 and 2013, respectively, and are recorded as a reduction to investment in subsidiaries.
Capitalization of Insurance Subsidiaries
Mercury General made capital contributions to its insurance subsidiaries of $90,125,000, $30,125,000 and $40,125,000
in 2015, 2014 and 2013.
Business Acquisition
Pursuant to an October 22, 2014 Stock Purchase Agreement, Mercury General purchased all the issued and outstanding
shares of Workmen’s Auto Insurance Company ("WAIC"), a California domiciled property and casualty insurance company, on
January 2, 2015.
WAIC is a Los Angeles-based non-standard, private passenger automobile insurance company that operates predominantly
in California. Mercury General intends to use the WAIC non-standard automobile product to complement its preferred and standard
product offerings.
Mercury General paid $8 million in cash for the shares of WAIC, of which $2 million has been withheld in escrow for up
to three years as security for any loss development on claims incurred on or prior to June 30, 2014. Based on the evaluation
performed at the acquisition date and at December 31, 2015, of the claims reserves for WAIC for losses and loss adjustment
expenses incurred on or prior to June 30, 2014, Mercury General estimates that it will recover the $2 million held in escrow, and
therefore deducted it from cash consideration to arrive at the fair value of total consideration transferred. In accordance with
regulatory approval requirements, Mercury General made a $15 million cash capital contribution to WAIC on January 12, 2015.