Mercury Insurance 2015 Annual Report Download - page 35

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ability to cancel and non-renew policies or they may prohibit the Company from withdrawing one or more lines of insurance
business from the state unless prior approval is received from the state DOI. In some states, these regulations extend to significant
reductions in the amount of insurance written, not only to a complete withdrawal. Laws and regulations that limit the Company’s
ability to cancel and non-renew policies in some states or locations and that subject withdrawal plans to prior approval requirements
may restrict the Company’s ability to exit unprofitable markets, which may harm its business and results of operations.
Other Regulations. The Company must also comply with regulations involving, among other matters:
• the use of non-public consumer information and related privacy issues;
• the use of credit history in underwriting and rating;
• limitations on the ability to charge policy fees;
• limitations on types and amounts of investments;
• the payment of dividends;
• the acquisition or disposition of an insurance company or of any company controlling an insurance company;
• involuntary assignments of high-risk policies, participation in reinsurance facilities and underwriting associations,
assessments and other governmental charges;
• reporting with respect to financial condition;
• periodic financial and market conduct examinations performed by state insurance department examiners; and
• the other regulations discussed in this Annual Report on Form 10-K.
The failure to comply with these laws and regulations may also result in regulatory actions, fines and penalties, and in
extreme cases, revocation of the Company’s ability to do business in that jurisdiction. In addition, the Company may face individual
and class action lawsuits by insured and other parties for alleged violations of certain of these laws or regulations.
In addition, from time to time, the Company may support or oppose legislation or other amendments to insurance regulations
in California or other states in which it operates. Consequently, the Company may receive negative publicity related to its support
or opposition of legislative or regulatory changes that may have a material adverse effect on the Company’s financial condition,
results of operations, and liquidity.
Regulation may become more restrictive in the future, which may adversely affect the Company’s business, financial
condition, and results of operations.
No assurance can be given that states will not make existing insurance-related laws and regulations more restrictive in the
future or enact new restrictive laws. New or more restrictive regulation in any state in which the Company conducts business could
make it more expensive for it to continue to conduct business in these states, restrict the premiums the Company is able to charge
or otherwise change the way the Company does business. In such events, the Company may seek to reduce its writings in or to
withdraw entirely from these states. In addition, from time to time, the United States Congress and certain federal agencies
investigate the current condition of the insurance industry to determine whether federal regulation is necessary. The Company
cannot predict whether and to what extent new laws and regulations that would affect its business will be adopted, the timing of
any such adoption and what effects, if any, they may have on the Company’s business, financial condition, and results of operations.
Assessments and other surcharges for guaranty funds, second-injury funds, catastrophe funds, and other mandatory
pooling arrangements may reduce the Company’s profitability.
Virtually all states require insurers licensed to do business in their state to bear a portion of the loss suffered by some insured
parties as the result of impaired or insolvent insurance companies. Many states also have laws that established second-injury funds
to provide compensation to injured employees for aggravation of a prior condition or injury which are funded by either assessments
based on paid losses or premium surcharge mechanisms. In addition, as a condition to the ability to conduct business in various
states, the Insurance Companies must participate in mandatory property and casualty shared-market mechanisms or pooling
arrangements, which provide various types of insurance coverage to individuals or other entities that otherwise are unable to
purchase that coverage from private insurers. The effect of these assessments and mandatory shared-market mechanisms or changes
in them could reduce the Company’s profitability in any given period or limit its ability to grow its business.
The insurance industry faces litigation risks, which, if resolved unfavorably, could result in substantial penalties and/
or monetary damages, including punitive damages. In addition, insurance companies incur material expenses defending