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Condensed Financial Information of Registrant
 12 Months Ended
Dec. 31, 2016
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,
 
2016
 
2015
 
(Amounts in thousands)
ASSETS
 
 
 
Investments, at fair value:
 
 
 
Fixed maturity securities (amortized cost $1,609; $557)
$
1,605

 
$
571

Equity securities (cost $113,943; $131,217)
122,717

 
127,572

Short-term investments (cost $629; $1,144)
629

 
1,144

Investment in subsidiaries
1,810,663

 
1,819,426

Total investments
1,935,614

 
1,948,713

Cash
11,786

 
20,139

Accrued investment income
189

 
208

Amounts receivable from affiliates
226

 
220

Current income taxes
—

 
8,894

Deferred income taxes
2,702

 
10,524

Income tax receivable from affiliates
35,237

 
5,917

Other assets
414

 
2,981

Total assets
$
1,986,168

 
$
1,997,596

LIABILITIES AND SHAREHOLDERS’ EQUITY
 
 
 
Notes payable
$
180,000

 
$
150,000

Accounts payable and accrued expenses
348

 
—

Amounts payable to affiliates
36

 
25

Income tax payable to affiliates
39,539

 
26,439

Current income taxes
10,200

 
—

Other liabilities
3,643

 
247

Total liabilities
233,766

 
176,711

Commitments and contingencies
 
 
 
Shareholders’ equity:
 
 
 
Common stock
95,529

 
90,985

Additional paid-in capital
—

 
8,870

Retained earnings
1,656,873

 
1,721,030

Total shareholders’ equity
1,752,402

 
1,820,885

Total liabilities and shareholders’ equity
$
1,986,168

 
$
1,997,596


 















SCHEDULE II, Continued

MERCURY GENERAL CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF OPERATIONS

 
Year Ended December 31,
 
2016
 
2015
 
2014
 
(Amounts in thousands)
Revenues:
 
 
 
 
 
Net investment income
$
4,032

 
$
4,314

 
$
4,478

Net realized investment gains (losses)
6,062

 
(7,026
)
 
(9,428
)
Other
17

 
—

 
—

Total revenues
10,111


(2,712
)

(4,950
)
Expenses:
 
 
 
 
 
Other operating expenses
2,673

 
7,526

 
5,971

Interest
2,690

 
2,127

 
1,746

Total expenses
5,363

 
9,653

 
7,717

Income (loss) before income taxes and equity in net income of subsidiaries
4,748

 
(12,365
)
 
(12,667
)
Income tax expense (benefit)
8,514

 
(4,708
)
 
(100
)
Loss before equity in net income of subsidiaries
(3,766
)
 
(7,657
)
 
(12,567
)
Equity in net income of subsidiaries
73,864

 
82,136

 
190,516

Net income
$
70,098

 
$
74,479

 
$
177,949























SCHEDULE II, Continued

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

 
Year Ended December 31,
 
2016
 
2015
 
2014
 
(Amounts in thousands)
Cash flows from operating activities:
 
 
 
 
 
Net cash provided by (used in) operating activities
$
526

 
$
548

 
$
(3,434
)
Cash flows from investing activities:
 
 
 
 
 
Capital contribution to subsidiaries
(30,125
)
 
(90,125
)
 
(30,125
)
Distributions received from special purpose entities
4,898

 
8,883

 
6,756

Dividends received from subsidiaries
110,800

 
133,000

 
225,000

Purchases of fixed maturity securities available for sale in nature
(1,060
)
 
(571
)
 
—

Equity securities available for sale in nature
 
 
 
 
 
Purchases
(64,807
)
 
(146,236
)
 
(254,572
)
Sales
73,942

 
192,005

 
90,422

(Decrease) in payable for securities, net
—

 
—

 
(2,489
)
Net decrease in short-term investments
515

 
8,612

 
1,346

Business acquisition
—

 
(6,000
)
 
 
Other, net
1,614

 
1,945

 
2,191

Net cash provided by investing activities
95,777

 
101,513

 
38,529

Cash flows from financing activities:
 
 
 
 
 
Dividends paid to shareholders
(137,201
)
 
(136,386
)
 
(135,496
)
Excess tax benefit from exercise of stock options
913

 
27

 
148

Proceeds from stock options exercised
1,632

 
2,111

 
6,247

Proceeds from bank loan
30,000

 
—

 
100,000

Net cash used in financing activities
(104,656
)
 
(134,248
)
 
(29,101
)
Net (decrease) increase in cash
(8,353
)
 
(32,187
)
 
5,994

Cash:
 
 
 
 
 
Beginning of year
20,139

 
52,326

 
46,332

End of year
$
11,786

 
$
20,139

 
$
52,326

SUPPLEMENTAL CASH FLOW DISCLOSURE
 
 
 
 
 
Interest paid
$
2,397

 
$
2,153

 
$
1,757

Income taxes (refunded) paid
$
(339
)
 
$
1,807

 
$
2,112

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 145 basis points on approximately $108 million and $95 million of underlying obligations as of December 31, 2016 and 2015, respectively. The agreement had an initial term of one year, subject to annual renewal. In January 2017, the agreement was renewed for an additional year expiring February 17, 2018, and the interest rate was changed to LIBOR plus 128 basis points.

On August 9, 2013, Animas Funding LLC ("AFL"), a special purpose investment vehicle, formed and consolidated by the Company, entered into a three-year total return swap agreement with Citibank, which has been renewed for an additional one-year term through February 17, 2018. Under the total return swap agreement, AFL 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 $40 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 $152 million and $124 million of underlying obligations as of December 31, 2016 and 2015, respectively. The agreement was amended in January 2017 and the interest rate was changed to LIBOR plus 128 basis points.
Distributions of $4.9 million and $8.9 million were received in 2016 and 2015, respectively, from these special purpose entities.
Dividends received from Subsidiaries

Dividends of $110,800,000, $133,000,000 and $225,000,000 were received by Mercury General from its 100% owned insurance subsidiaries in 2016, 2015 and 2014, 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 $30,125,000, $90,125,000 and $30,125,000 in 2016, 2015 and 2014, respectively.
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.
The Company paid $8 million in cash for the shares of WAIC, of which $2 million has been held 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 estimated that it would recover the $2 million held in escrow and, therefore, the Company deducted it from cash consideration to arrive at the fair value of total consideration transferred. The Company recovered the $2 million held in escrow in 2016. In accordance with regulatory approval requirements, the Company 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 $180 million under the credit facility as of December 31, 2016. The interest rate was approximately1.73% at December 31, 2016.
Commitments and Contingencies

The borrowings by MCC, a subsidiary, under the $120 million credit facility and $20 million bank loan are secured by approximately $175 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
Workmen'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.