Mercury Insurance 2015 Annual Report Download - page 32

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management systems. To the extent that a critical system fails or is not properly implemented and the failure cannot be corrected
in a timely manner, the Company may experience disruptions to the business that could have a material adverse effect on the
Company’s results of operations.
Cyber security risks and the failure to maintain the confidentiality, integrity, and availability of internal or policyholder
systems and data could result in damages to the Company’s reputation and/or subject it to expenses, fines or lawsuits.
The Company collects and retains large volumes of internal and policyholder data, including personally identifiable
information, for business purposes including underwriting, claims and billing purposes, and relies upon the various information
technology systems that enter, process, summarize and report such data. The Company also maintains personally identifiable
information about its employees. The confidentiality and protection of the Company’s policyholder, employee and Company data
are critical 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 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 (" the 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 adverse effect on the Company’s financial condition and 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.
The Company is required to include in itsAnnual Report on Form 10-K a report by its management regarding the effectiveness
of the Company’s internal control over financial reporting, which 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.