Mercury Insurance 2015 Annual Report Download - page 89

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The following table presents a reconciliation of the beginning and ending balances of unrecognized tax benefits:
December 31,
2015 2014
(Amounts in thousands)
Balance at January 1 $ 12,612 $ 10,784
Additions based on tax positions related to:
Current year 932 2,277
Prior years (1,379)(258)
Additions (reductions) as a result of lapse of the applicable statute of limitations —(191)
Balance at December 31 $ 12,165 $ 12,612
As presented above, the balances of unrecognized tax benefits were $12.2 million and $12.6 million at December 31, 2015
and 2014, respectively. Of these totals, $10.9 million and $11.1 million represent unrecognized tax benefits, net of federal tax
benefit and accrued interest expense which, if recognized, would impact the Company’s effective tax rate.
Management does not expect the Company's total amount of unrecognized tax benefits to materially increase within the
next twelve months.
The Company recognizes interest and penalties related to unrecognized tax benefits as a part of income taxes. During the
years ended December 31, 2015, 2014, and 2013, the Company recognized net interest and penalty expense, excluding refunds,
of $112,000, $739,000, and $1,119,000, respectively. The Company carried an accrued interest and penalty balance of $2,915,000
and $2,803,000 at December 31, 2015 and 2014, respectively.
11. Losses and Loss Adjustment Expenses
The following table presents the activity in the reserves for losses and loss adjustment expenses:
Year Ended December 31,
2015 2014 2013
(Amounts in thousands)
Gross reserves at January 1 $ 1,091,797 $ 1,038,984 $ 1,036,123
Less reinsurance recoverable (14,484)(13,927)(12,155)
Net reserves at January 1 1,077,313 1,025,057 1,023,968
Acquisition of WAIC reserves 18,676 — —
Incurred losses and loss adjustment expenses related to:
Current year 2,132,837 1,989,315 1,959,730
Prior years 12,658 (3,193) 2,960
Total incurred losses and loss adjustment expenses 2,145,495 1,986,122 1,962,690
Loss and loss adjustment expense payments related to:
Current year 1,455,245 1,347,967 1,354,074
Prior years 654,097 585,899 607,527
Total payments 2,109,342 1,933,866 1,961,601
Net reserves at December 31 1,132,142 1,077,313 1,025,057
Reinsurance recoverable 14,546 14,484 13,927
Gross reserves at December 31 $ 1,146,688 $ 1,091,797 $ 1,038,984
The increase in the provision for insured events of prior years in 2015 of approximately $12.7 million primarily resulted
from the California homeowners and automobile lines of business outside of California, which was partially offset by favorable
development in the California automobile line of business.
The decrease in the provision for insured events of prior years in 2014 of approximately $3.2 million primarily resulted
from lower than expected loss severity on California personal automobile lines of insurance business partially offset by adverse
development in other states.