Condensed Financial Information of Registrant

12 Months Ended

Dec. 31, 2015

Condensed Financial Information of Parent Company Only Disclosure [Abstract]

Condensed Financial Information of Registrant

MERCURY GENERAL CORPORATION CONDENSED FINANCIAL INFORMATION OF REGISTRANT BALANCE SHEETS

	December 31,
	2015		2014
	(Amounts in thousands)
ASSETS
Investments, at fair value:
Fixed maturity securities (cost $557; $0)	$	571	$	—
Equity securities (cost $131,217; $189,032)	127,572		182,300
Short-term investments (cost $1,144; $9,744)	1,144		9,744
Investment in subsidiaries	1,819,426		1,783,049
Total investments	1,948,713		1,975,093
Cash	20,139		52,326
Accrued investment income	208		158
Amounts receivable from affiliates	220		1,181
Current income taxes	8,894		239
Deferred income taxes	10,524		6,975
Income tax receivable from affiliates	5,917		3,482
Other assets	2,981		1,095
Total assets	$	1,997,596	$	2,040,549
LIABILITIES AND SHAREHOLDERS’ EQUITY
Notes payable	$	150,000	$	150,000
Amounts payable to affiliates	25		97
Income tax payable to affiliates	26,439		14,728
Other liabilities	247		278
Total liabilities	176,711		165,103
Commitments and contingencies
Shareholders’ equity:
Common stock	90,985		88,705
Additional paid-in capital	8,870		3,804
Retained earnings	1,721,030		1,782,937
Total shareholders’ equity	1,820,885		1,875,446
Total liabilities and shareholders’ equity	$	1,997,596	$	2,040,549

SCHEDULE II, Continued

MERCURY GENERAL CORPORATION CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF OPERATIONS

	Year Ended December 31,
	2015			2014			2013
	(Amounts in thousands)
Revenues:
Net investment income	$	4,314		$	4,478		$	1,293
Net realized investment (losses) gains	(7,026		)	(9,428		)	3,416
Total revenues	(2,712		)	(4,950		)	4,709
Expenses:
Other operating expenses	7,526			5,971			2,924
Interest	2,127			1,746			318
Total expenses	9,653			7,717			3,242
(Loss) income before income taxes and equity in net income of subsidiaries	(12,365		)	(12,667		)	1,467
Income tax (benefit) expense	(4,708		)	(100		)	3,310
Loss before equity in net income of subsidiaries	(7,657		)	(12,567		)	(1,843		)
Equity in net income of subsidiaries	82,136			190,516			113,986
Net income	$	74,479		$	177,949		$	112,143

SCHEDULE II, Continued

MERCURY GENERAL CORPORATION CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF CASH FLOWS

	Year Ended December 31,
	2015			2014			2013
	(Amounts in thousands)
Cash flows from operating activities:
Net cash provided by (used in) operating activities	$	548		$	(3,434	)	$	(843	)
Cash flows from investing activities:
Capital contribution to subsidiaries	(90,125		)	(30,125		)	(40,125		)
Distributions received from special purpose entities	8,883			6,756			—
Dividends received from subsidiaries	133,000			225,000			120,000
Purchases of fixed maturity securities available for sale in nature	(571		)	—			—
Equity securities available for sale in nature
Purchases	(146,236		)	(254,572		)	(25,038		)
Sales	192,005			90,422			25,798
(Decrease) in payable for securities, net	—			(2,489		)	2,489
Net decrease in short-term investments	8,612			1,346			36,085
Business acquisition	(6,000		)	—			—
Other, net	1,945			2,191			895
Net cash provided by investing activities	101,513			38,529			120,104
Cash flows from financing activities:
Dividends paid to shareholders	(136,386		)	(135,496		)	(134,776		)
Excess tax benefit from exercise of stock options	27			148			202
Proceeds from stock options exercised	2,111			6,247			1,446
Proceeds from bank loan	—			100,000			50,000
Net cash used in financing activities	(134,248		)	(29,101		)	(83,128		)
Net (decrease) increase in cash	(32,187		)	5,994			36,133
Cash:
Beginning of year	52,326			46,332			10,199
End of year	$	20,139		$	52,326		$	46,332
SUPPLEMENTAL CASH FLOW DISCLOSURE
Interest paid	$	2,153		$	1,757		$	318
Income taxes paid (received)	$	1,807		$	2,112		$	(827	)

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.

Notes Payable

On July 2, 2013, Mercury General entered into an unsecured $200 million five-year revolving credit facility. Effective December 3, 2014, the Company expanded the borrowing capacity from $200 million to $250 million. Total borrowings were $150 million as of December 31, 2015. The interest rate was approximately1.53% at December 31, 2015.

Commitments and Contingencies

The borrowings by MCC, a subsidiary, under the $120 million credit facility and $20 million bank loan are secured by approximately $180 million of municipal bonds owned by MCC, at fair value, held as collateral. The total borrowings of $140 million are guaranteed by Mercury General.

Federal Income Taxes

The Company files a consolidated federal income tax return for the following entities:



Mercury Casualty Company		Mercury County Mutual Insurance Company
Mercury Insurance Company		Mercury Insurance Company of Florida
California Automobile Insurance Company		Mercury Indemnity Company of America
California General Underwriters Insurance Company, Inc.		Mercury Select Management Company, Inc.
Mercury Insurance Company of Illinois		Mercury Insurance Services LLC
Mercury Insurance Company of Georgia		AIS Management LLC
Mercury Indemnity Company of Georgia		Auto Insurance Specialists LLC
Mercury National Insurance Company		PoliSeek AIS Insurance Solutions, Inc.
American Mercury Insurance Company		Animas Funding LLC
American Mercury Lloyds Insurance Company		Fannette Funding LLC
Workman's Auto Insurance Company

The method of allocation between the companies is subject to an agreement approved by the Board of Directors. Allocation is based upon separate return calculations with current credit for net losses incurred by the insurance subsidiaries to the extent it can be used in the current consolidated return.