Mercury Insurance 2015 Annual Report Download - page 97

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85
from catastrophe losses due to tornadoes in Oklahoma and severe storms in the Midwest and the Southeast regions, and declines
in the fair value of the Company’s municipal and equity securities due to the overall decline in the municipal and equity markets.
20. Acquisition
Pursuant to an October 22, 2014 Stock Purchase Agreement, the Company 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. The Company intends to use the WAIC non-standard automobile product to complement the Company’s preferred
and standard product offerings.
The Company 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, the Company estimates that it will recover the $2 million held in escrow and, therefore, the Company
has deducted it from cash consideration to arrive at the fair value of total consideration transferred. In accordance with regulatory
approval requirements, the Company made a $15 million cash capital contribution to WAIC on January 12, 2015.
21. Segment Information
The Company is primarily engaged in writing personal automobile insurance and provides related property and
casualty insurance products to its customers through 14 subsidiaries in 13 states, principally in California.
The Company has one reportable business segment - the Property and Casualty business segment.
Property and Casualty Lines
The Property and Casualty business segment offers several insurance products to the Company’s individual customers
and small business customers. These insurance products are: private passenger automobile which is the Company’s primary
business, and related insurance products such as homeowners, commercial automobile and commercial property. These
insurance products are primarily sold to the Company’s individual customers and small business customers, which increases
retention of the Company’s private personal automobile client base. The insurance products comprising the Property and
Casualty business segment are sold through the same distribution channels, mainly through independent and 100% owned
insurance agents, and go through a similar underwriting process.
The Company’s Chief Operating Decision Maker evaluates operating results based on pre-tax underwriting results
which is calculated as net premiums earned less (i) incurred losses and loss adjustment expenses; and (ii) underwriting
expenses (policy acquisition costs and other operating expenses).
Expenses are allocated based on certain assumptions that are primarily related to premiums and losses. The
Company’s net investment income, net realized investment (losses) gains, other income, and interest expense are excluded in
evaluating pre-tax underwriting profit. The Company does not allocate its assets, including investments, or income taxes in
evaluating pre-tax underwriting profit.