California | 95-2211612 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
4484 Wilshire Boulevard, Los Angeles, California | 90010 |
(Address of principal executive offices) | (Zip Code) |
Large accelerated filer | ý | Accelerated filer | o | |||
Non-accelerated filer | o (Do not check if a smaller reporting company) | Smaller reporting company | o |
Page | ||
Item 1 | ||
Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015 | ||
Consolidated Statements of Operations for the Three Months Ended June 30, 2016 and 2015 | ||
Consolidated Statements of Operations for the Six Months Ended June 30, 2016 and 2015 | ||
Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2016 and 2015 | ||
Item 2 | ||
Item 3 | ||
Item 4 | ||
Item 1 | ||
Item 1A | ||
Item 2 | ||
Item 3 | ||
Item 4 | ||
Item 5 | ||
Item 6 | ||
June 30, 2016 | December 31, 2015 | ||||||
(unaudited) | |||||||
ASSETS | |||||||
Investments, at fair value: | |||||||
Fixed maturity securities (amortized cost $2,823,333; $2,804,275) | $ | 2,939,494 | $ | 2,880,003 | |||
Equity securities (cost $349,632; $313,528) | 367,039 | 315,362 | |||||
Short-term investments (cost $181,729; $185,353) | 181,304 | 185,277 | |||||
Total investments | 3,487,837 | 3,380,642 | |||||
Cash | 233,281 | 264,221 | |||||
Receivables: | |||||||
Premium | 460,077 | 436,621 | |||||
Accrued investment income | 42,217 | 42,747 | |||||
Other | 23,019 | 21,925 | |||||
Total receivables | 525,313 | 501,293 | |||||
Deferred policy acquisition costs | 203,993 | 201,762 | |||||
Fixed assets (net of accumulated depreciation $309,011; $299,192) | 157,164 | 157,131 | |||||
Current income taxes | 10,072 | 9,041 | |||||
Deferred income taxes | 5,234 | 23,231 | |||||
Goodwill | 42,796 | 42,796 | |||||
Other intangible assets, net | 28,663 | 31,702 | |||||
Other assets | 27,695 | 16,826 | |||||
Total assets | $ | 4,722,048 | $ | 4,628,645 | |||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
Losses and loss adjustment expense reserves | $ | 1,210,793 | $ | 1,146,688 | |||
Unearned premiums | 1,080,138 | 1,049,314 | |||||
Notes payable | 290,000 | 290,000 | |||||
Accounts payable and accrued expenses | 115,561 | 122,571 | |||||
Other liabilities | 203,528 | 199,187 | |||||
Total liabilities | 2,900,020 | 2,807,760 | |||||
Commitments and contingencies | |||||||
Shareholders’ equity: | |||||||
Common stock without par value or stated value: Authorized 70,000 shares; issued and outstanding 55,254; 55,164 | 94,006 | 90,985 | |||||
Additional paid-in capital | 3,311 | 8,870 | |||||
Retained earnings | 1,724,711 | 1,721,030 | |||||
Total shareholders’ equity | 1,822,028 | 1,820,885 | |||||
Total liabilities and shareholders’ equity | $ | 4,722,048 | $ | 4,628,645 |
Three Months Ended June 30, | |||||||
2016 | 2015 | ||||||
Revenues: | |||||||
Net premiums earned | $ | 779,321 | $ | 731,546 | |||
Net investment income | 31,414 | 31,697 | |||||
Net realized investment gains (losses) | 45,381 | (39,348 | ) | ||||
Other | 1,887 | 2,276 | |||||
Total revenues | 858,003 | 726,171 | |||||
Expenses: | |||||||
Losses and loss adjustment expenses | 595,086 | 521,214 | |||||
Policy acquisition costs | 139,922 | 135,140 | |||||
Other operating expenses | 57,700 | 64,537 | |||||
Interest | 960 | 769 | |||||
Total expenses | 793,668 | 721,660 | |||||
Income before income taxes | 64,335 | 4,511 | |||||
Income tax expense (benefit) | 15,462 | (5,128 | ) | ||||
Net income | $ | 48,873 | $ | 9,639 | |||
Net income per share: | |||||||
Basic | $ | 0.88 | $ | 0.17 | |||
Diluted | $ | 0.88 | $ | 0.17 | |||
Weighted average shares outstanding: | |||||||
Basic | 55,254 | 55,160 | |||||
Diluted | 55,322 | 55,179 | |||||
Dividends paid per share | $ | 0.6200 | $ | 0.6175 |
Six Months Ended June 30, | |||||||
2016 | 2015 | ||||||
Revenues: | |||||||
Net premiums earned | $ | 1,546,406 | $ | 1,452,283 | |||
Net investment income | 61,069 | 63,203 | |||||
Net realized investment gains (losses) | 70,438 | (49,309 | ) | ||||
Other | 4,010 | 4,542 | |||||
Total revenues | 1,681,923 | 1,470,719 | |||||
Expenses: | |||||||
Losses and loss adjustment expenses | 1,189,168 | 1,035,614 | |||||
Policy acquisition costs | 281,482 | 268,987 | |||||
Other operating expenses | 118,994 | 130,229 | |||||
Interest | 1,910 | 1,519 | |||||
Total expenses | 1,591,554 | 1,436,349 | |||||
Income before income taxes | 90,369 | 34,370 | |||||
Income tax expense (benefit) | 18,173 | (1,434 | ) | ||||
Net income | $ | 72,196 | $ | 35,804 | |||
Net income per share: | |||||||
Basic | $ | 1.31 | $ | 0.65 | |||
Diluted | $ | 1.31 | $ | 0.65 | |||
Weighted average shares outstanding: | |||||||
Basic | 55,227 | 55,149 | |||||
Diluted | 55,294 | 55,169 | |||||
Dividends paid per share | $ | 1.2400 | $ | 1.2350 |
Six Months Ended June 30, | |||||||
2016 | 2015 | ||||||
CASH FLOWS FROM OPERATING ACTIVITIES | |||||||
Net income | $ | 72,196 | $ | 35,804 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Depreciation and amortization | 12,858 | 13,750 | |||||
Net realized investment (gains) losses | (70,438 | ) | 49,309 | ||||
Bond amortization, net | 13,060 | 11,348 | |||||
Excess tax benefit from exercise of stock options | (904 | ) | (106 | ) | |||
Increase in premium receivables | (23,456 | ) | (18,761 | ) | |||
Change in current and deferred income taxes | 17,871 | (24,080 | ) | ||||
Increase in deferred policy acquisition costs | (2,231 | ) | (2,103 | ) | |||
Increase in losses and loss adjustment expense reserves | 64,104 | 3,458 | |||||
Increase in unearned premiums | 30,824 | 19,853 | |||||
Decrease in accounts payable and accrued expenses | (6,166 | ) | (28,778 | ) | |||
Share-based compensation | (3,441 | ) | 2,396 | ||||
Changes in other payables | (3,098 | ) | 9,668 | ||||
Other, net | 506 | 1,431 | |||||
Net cash provided by operating activities | 101,685 | 73,189 | |||||
CASH FLOWS FROM INVESTING ACTIVITIES | |||||||
Fixed maturities available-for-sale in nature: | |||||||
Purchases | (491,231 | ) | (519,337 | ) | |||
Sales | 172,490 | 69,834 | |||||
Calls or maturities | 288,257 | 141,144 | |||||
Equity securities available-for-sale in nature: | |||||||
Purchases | (337,598 | ) | (408,862 | ) | |||
Sales | 310,369 | 481,773 | |||||
Calls | — | 2,378 | |||||
Changes in securities payable and receivable | (2,388 | ) | (6,784 | ) | |||
Net decrease in short-term investments and purchased options | 1,677 | 219,485 | |||||
Purchase of fixed assets | (8,935 | ) | (11,298 | ) | |||
Sale of fixed assets | 2 | 104 | |||||
Business acquisition, net of cash acquired | — | 7,771 | |||||
Other, net | 2,343 | 1,381 | |||||
Net cash used in investing activities | (65,014 | ) | (22,411 | ) | |||
CASH FLOWS FROM FINANCING ACTIVITIES | |||||||
Dividends paid to shareholders | (68,515 | ) | (68,120 | ) | |||
Excess tax benefit from exercise of stock options | 904 | 106 | |||||
Proceeds from stock options exercised | — | 2,111 | |||||
Net cash used in financing activities | (67,611 | ) | (65,903 | ) | |||
Net decrease in cash | (30,940 | ) | (15,125 | ) | |||
Cash: | |||||||
Beginning of the year | 264,221 | 289,907 | |||||
End of period | $ | 233,281 | $ | 274,782 | |||
SUPPLEMENTAL CASH FLOW DISCLOSURE | |||||||
Interest paid | $ | 1,820 | $ | 1,440 | |||
Income taxes paid | $ | 273 | $ | 22,647 |
June 30, 2016 | December 31, 2015 | ||||||
(Amounts in thousands) | |||||||
Assets | |||||||
Investments | $ | 3,487,837 | $ | 3,380,642 | |||
Liabilities | |||||||
Options sold | $ | 309 | $ | 260 | |||
Total return swaps | $ | 7,600 | $ | 11,525 | |||
Secured notes | $ | 140,000 | $ | 140,000 | |||
Unsecured note | $ | 150,000 | $ | 150,000 |
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
(Amounts in thousands) | |||||||||||||||
Fixed maturity securities | $ | 28,871 | $ | (30,257 | ) | $ | 40,434 | $ | (29,007 | ) | |||||
Equity securities | 8,666 | (10,960 | ) | 15,573 | (17,296 | ) | |||||||||
Short-term investments | (410 | ) | 435 | (349 | ) | 636 | |||||||||
Total | $ | 37,127 | $ | (40,782 | ) | $ | 55,658 | $ | (45,667 | ) |
Level 1 | Unadjusted quoted prices are available in active markets for identical assets or liabilities as of the reporting date. |
Level 2 | Pricing inputs are other than quoted prices in active markets, which are based on the following: • Quoted prices for similar assets or liabilities in active markets; • Quoted prices for identical or similar assets or liabilities in non-active markets; or • Either directly or indirectly observable inputs as of the reporting date. |
Level 3 | Pricing inputs are unobservable and significant to the overall fair value measurement, and the determination of fair value requires significant management judgment or estimation. |
June 30, 2016 | |||||||||||||||
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
(Amounts in thousands) | |||||||||||||||
Assets | |||||||||||||||
Fixed maturity securities: | |||||||||||||||
U.S. government bonds and agencies | $ | 12,926 | $ | — | $ | — | $ | 12,926 | |||||||
Municipal securities | — | 2,526,666 | — | 2,526,666 | |||||||||||
Mortgage-backed securities | — | 47,694 | — | 47,694 | |||||||||||
Corporate securities | — | 238,327 | — | 238,327 | |||||||||||
Collateralized loan obligations | — | 84,593 | — | 84,593 | |||||||||||
Other asset-backed securities | — | 29,288 | — | 29,288 | |||||||||||
Equity securities: | |||||||||||||||
Common stock | 328,365 | — | — | 328,365 | |||||||||||
Non-redeemable preferred stock | — | 29,702 | — | 29,702 | |||||||||||
Private equity funds | — | — | 8,972 | 8,972 | |||||||||||
Short-term investments: | |||||||||||||||
Short-term bonds | 70,410 | 20,225 | — | 90,635 | |||||||||||
Money market instruments | 90,669 | — | — | 90,669 | |||||||||||
Total assets at fair value | $ | 502,370 | $ | 2,976,495 | $ | 8,972 | $ | 3,487,837 | |||||||
Liabilities | |||||||||||||||
Notes payable: | |||||||||||||||
Secured notes | $ | — | $ | 140,000 | $ | — | $ | 140,000 | |||||||
Unsecured notes | — | 150,000 | — | 150,000 | |||||||||||
Other liabilities: | |||||||||||||||
Total return swaps | — | 7,600 | — | 7,600 | |||||||||||
Options sold | 309 | — | — | 309 | |||||||||||
Total liabilities at fair value | $ | 309 | $ | 297,600 | $ | — | $ | 297,909 |
December 31, 2015 | |||||||||||||||
Level 1 | Level 2 | Level 3 | Total | ||||||||||||
(Amounts in thousands) | |||||||||||||||
Assets | |||||||||||||||
Fixed maturity securities: | |||||||||||||||
U.S. government bonds and agencies | $ | 22,507 | $ | — | $ | — | $ | 22,507 | |||||||
Municipal securities | — | 2,505,040 | — | 2,505,040 | |||||||||||
Mortgage-backed securities | — | 49,838 | — | 49,838 | |||||||||||
Corporate securities | — | 243,372 | — | 243,372 | |||||||||||
Collateralized loan obligations | — | 50,548 | — | 50,548 | |||||||||||
Other asset-backed securities | — | 8,698 | — | 8,698 | |||||||||||
Equity securities: | |||||||||||||||
Common stock | 280,263 | — | — | 280,263 | |||||||||||
Non-redeemable preferred stock | — | 24,668 | — | 24,668 | |||||||||||
Private equity fund | — | — | 10,431 | 10,431 | |||||||||||
Short-term investments: | |||||||||||||||
Short-term bonds | 69,991 | 9,850 | — | 79,841 | |||||||||||
Money market instruments | 105,436 | — | — | 105,436 | |||||||||||
Total assets at fair value | $ | 478,197 | $ | 2,892,014 | $ | 10,431 | $ | 3,380,642 | |||||||
Liabilities | |||||||||||||||
Notes payable: | |||||||||||||||
Secured notes | $ | — | $ | 140,000 | $ | — | $ | 140,000 | |||||||
Unsecured notes | — | 150,000 | — | 150,000 | |||||||||||
Other liabilities: | |||||||||||||||
Total return swaps | — | 11,525 | — | 11,525 | |||||||||||
Options sold | 260 | — | — | 260 | |||||||||||
Total liabilities at fair value | $ | 260 | $ | 301,525 | $ | — | $ | 301,785 |
Three Months Ended June 30, | ||||||||
2016 | 2015 | |||||||
Private Equity Fund | Private Equity Fund | |||||||
(Amounts in thousands) | ||||||||
Beginning Balance | $ | 8,991 | $ | 15,432 | ||||
Realized losses included in earnings | (19 | ) | (1,663 | ) | ||||
Settlement | — | (24 | ) | |||||
Ending Balance | $ | 8,972 | $ | 13,745 | ||||
Amount of total losses for the period included in earnings attributable to assets still held at June 30 | $ | (19 | ) | $ | (1,663 | ) |
Six Months Ended June 30, | ||||||||
2016 | 2015 | |||||||
Private Equity Fund | Private Equity Fund | |||||||
(Amounts in thousands) | ||||||||
Beginning Balance | $ | 10,431 | $ | 11,719 | ||||
Realized losses included in earnings | (1,459 | ) | (861 | ) | ||||
Reclassification from other assets | — | 2,911 | ||||||
Settlement | — | (24 | ) | |||||
Ending Balance | $ | 8,972 | $ | 13,745 | ||||
Amount of total losses for the period included in earnings attributable to assets still held at June 30 | $ | (1,459 | ) | $ | (861 | ) |
Asset Derivatives | Liability Derivatives | ||||||||||||||
June 30, 2016 | December 31, 2015 | June 30, 2016 | December 31, 2015 | ||||||||||||
(Amounts in thousands) | |||||||||||||||
Total return swaps - Other liabilities | $ | — | $ | — | $ | 7,600 | $ | 11,525 | |||||||
Options sold - Other liabilities | — | — | 309 | 260 | |||||||||||
Total derivatives | $ | — | $ | — | $ | 7,909 | $ | 11,785 |
Gains Recognized in Income | Gains Recognized in Income | ||||||||||||||
Three Months Ended June 30, | Six Months Ended June 30, | ||||||||||||||
2016 | 2015 | 2016 | 2015 | ||||||||||||
(Amounts in thousands) | |||||||||||||||
Total return swaps - Net realized investment gains | $ | 2,581 | $ | 723 | $ | 3,744 | $ | 3,712 | |||||||
Options sold - Net realized investment gains | 1,350 | 1,077 | 2,294 | 1,524 | |||||||||||
Total | $ | 3,931 | $ | 1,800 | $ | 6,038 | $ | 5,236 |
Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Useful Lives | ||||||||||
(Amounts in thousands) | (in years) | ||||||||||||
As of June 30, 2016: | |||||||||||||
Customer relationships | $ | 52,430 | $ | (36,829 | ) | $ | 15,601 | 11 | |||||
Trade names | 15,400 | (4,813 | ) | 10,587 | 24 | ||||||||
Technology | 4,300 | (3,225 | ) | 1,075 | 10 | ||||||||
Insurance license | 1,400 | — | 1,400 | Indefinite | |||||||||
Total other intangible assets, net | $ | 73,530 | $ | (44,867 | ) | $ | 28,663 | ||||||
As of December 31, 2015: | |||||||||||||
Customer relationships | $ | 52,430 | $ | (34,327 | ) | $ | 18,103 | 11 | |||||
Trade names | 15,400 | (4,491 | ) | 10,909 | 24 | ||||||||
Technology | 4,300 | (3,010 | ) | 1,290 | 10 | ||||||||
Insurance license | 1,400 | — | 1,400 | Indefinite | |||||||||
Total other intangible assets, net | $ | 73,530 | $ | (41,828 | ) | $ | 31,702 |
Year | Amortization Expense | |||
(Amounts in thousands) | ||||
Remainder of 2016 | $ | 3,039 | ||
2017 | 5,349 | |||
2018 | 5,335 | |||
2019 | 4,905 | |||
2020 | 758 | |||
Thereafter | 7,877 | |||
Total | $ | 27,263 |
Grant Year | ||||||||
2016 | 2015 | 2014 | ||||||
Three-year performance period ending December 31, | 2018 | 2017 | 2016 | |||||
Vesting shares, target (net of forfeited) | 93,750 | 96,750 | 83,000 | |||||
Vesting shares, maximum (net of forfeited) | 175,781 | 181,406 | 155,625 |
Three Months Ended | |||||||||||||||||||||||
June 30, 2016 | June 30, 2015 | ||||||||||||||||||||||
Property & Casualty Lines | Other (1) | Total | Property & Casualty Lines | Other (1) | Total | ||||||||||||||||||
(Amounts in millions) | |||||||||||||||||||||||
Net premiums earned | $ | 768.6 | $ | 10.7 | $ | 779.3 | $ | 718.5 | $ | 13.1 | $ | 731.6 | |||||||||||
Less: | |||||||||||||||||||||||
Losses and loss adjustment expenses | 589.4 | 5.7 | 595.1 | 514.1 | 7.1 | 521.2 | |||||||||||||||||
Underwriting expenses | 193.4 | 4.2 | 197.6 | 194.9 | 4.8 | 199.7 | |||||||||||||||||
Underwriting (loss) gain | (14.2 | ) | 0.8 | (13.4 | ) | 9.5 | 1.2 | 10.7 | |||||||||||||||
Investment income | 31.5 | 31.7 | |||||||||||||||||||||
Net realized investment gains (losses) | 45.4 | (39.3 | ) | ||||||||||||||||||||
Other income | 1.9 | 2.2 | |||||||||||||||||||||
Interest expense | (1.0 | ) | (0.8 | ) | |||||||||||||||||||
Pre-tax income | $ | 64.4 | $ | 4.5 | |||||||||||||||||||
Net income | $ | 48.9 | $ | 9.6 |
Six Months Ended | |||||||||||||||||||||||
June 30, 2016 | June 30, 2015 | ||||||||||||||||||||||
Property & Casualty Lines | Other (1) | Total | Property & Casualty Lines | Other (1) | Total | ||||||||||||||||||
(Amounts in millions) | |||||||||||||||||||||||
Net premiums earned | $ | 1,524.4 | $ | 22.0 | $ | 1,546.4 | $ | 1,425.7 | $ | 26.6 | $ | 1,452.3 | |||||||||||
Less: | |||||||||||||||||||||||
Losses and loss adjustment expenses | 1,177.4 | 11.8 | 1,189.2 | 1,020.9 | 14.7 | 1,035.6 | |||||||||||||||||
Underwriting expenses | 391.3 | 9.1 | 400.4 | 388.8 | 10.4 | 399.2 | |||||||||||||||||
Underwriting (loss) gain | (44.3 | ) | 1.1 | (43.2 | ) | 16.0 | 1.5 | 17.5 | |||||||||||||||
Investment income | 61.1 | 63.2 | |||||||||||||||||||||
Net realized investment gains (losses) | 70.5 | (49.3 | ) | ||||||||||||||||||||
Other income | 4.0 | 4.5 | |||||||||||||||||||||
Interest expense | (2.0 | ) | (1.5 | ) | |||||||||||||||||||
Pre-tax income | $ | 90.4 | $ | 34.4 | |||||||||||||||||||
Net income | $ | 72.2 | $ | 35.8 |
Three Months Ended | ||||||||||||||||||||||||
June 30, 2016 | June 30, 2015 | |||||||||||||||||||||||
Property & Casualty Lines | Other (1) | Total | Property & Casualty Lines | Other (1) | Total | |||||||||||||||||||
(Amounts in millions) | ||||||||||||||||||||||||
Private passenger automobile | $ | 607.1 | $ | — | $ | 607.1 | $ | 570.9 | $ | — | $ | 570.9 | ||||||||||||
Homeowners | 102.0 | — | 102.0 | 93.8 | — | 93.8 | ||||||||||||||||||
Commercial automobile | 39.9 | — | 39.9 | 35.5 | — | 35.5 | ||||||||||||||||||
Other | 19.6 | 10.7 | 30.3 | 18.3 | 13.1 | 31.4 | ||||||||||||||||||
Net premiums earned | $ | 768.6 | $ | 10.7 | $ | 779.3 | $ | 718.5 | $ | 13.1 | 731.6 | |||||||||||||
Private passenger automobile | $ | 595.4 | $ | — | $ | 595.4 | $ | 562.6 | $ | — | $ | 562.6 | ||||||||||||
Homeowners | 116.3 | — | 116.3 | 105.1 | — | 105.1 | ||||||||||||||||||
Commercial automobile | 42.4 | — | 42.4 | 38.5 | — | 38.5 | ||||||||||||||||||
Other | 23.0 | 6.9 | 29.9 | 21.3 | 8.4 | 29.7 | ||||||||||||||||||
Direct premiums written | $ | 777.1 | $ | 6.9 | $ | 784.0 | $ | 727.5 | $ | 8.4 | $ | 735.9 |
Six Months Ended | ||||||||||||||||||||||||
June 30, 2016 | June 30, 2015 | |||||||||||||||||||||||
Property & Casualty Lines | Other (1) | Total | Property & Casualty Lines | Other (1) | Total | |||||||||||||||||||
(Amounts in millions) | ||||||||||||||||||||||||
Private passenger automobile | $ | 1,206.1 | $ | — | $ | 1,206.1 | $ | 1,134.7 | $ | — | $ | 1,134.7 | ||||||||||||
Homeowners | 201.5 | — | 201.5 | 185.8 | — | 185.8 | ||||||||||||||||||
Commercial automobile | 78.6 | — | 78.6 | 69.3 | — | 69.3 | ||||||||||||||||||
Other | 38.2 | 22.0 | 60.2 | 35.9 | 26.6 | 62.5 | ||||||||||||||||||
Net premiums earned | $ | 1,524.4 | $ | 22.0 | $ | 1,546.4 | $ | 1,425.7 | $ | 26.6 | 1,452.3 | |||||||||||||
Private passenger automobile | $ | 1,227.2 | $ | — | $ | 1,227.2 | $ | 1,154.1 | $ | — | $ | 1,154.1 | ||||||||||||
Homeowners | 215.4 | — | 215.4 | 194.2 | — | 194.2 | ||||||||||||||||||
Commercial automobile | 83.3 | — | 83.3 | 74.7 | — | 74.7 | ||||||||||||||||||
Other | 43.9 | 14.3 | 58.2 | 40.3 | 15.4 | 55.7 | ||||||||||||||||||
Direct premiums written | $ | 1,569.8 | $ | 14.3 | $ | 1,584.1 | $ | 1,463.3 | $ | 15.4 | $ | 1,478.7 |
(1) | "Other" represents net premiums written and earned from an operating segment that does not meet the quantitative thresholds required to be considered a reportable segment. This operating segment offers automobile mechanical breakdown warranties which are primarily sold through auto dealerships and credit unions. |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
Private Passenger Automobile | Homeowners | Commercial Automobile | Other Lines | Total | ||||||||||||||||||
California | $ | 1,021,048 | $ | 181,879 | $ | 41,373 | $ | 51,990 | $ | 1,296,290 | 81.8 | % | ||||||||||
Florida (1) | 81,306 | 6 | 14,837 | 737 | 96,886 | 6.1 | % | |||||||||||||||
Other states (2) | 124,891 | 33,561 | 27,140 | 5,372 | 190,964 | 12.1 | % | |||||||||||||||
Total | $ | 1,227,245 | $ | 215,446 | $ | 83,350 | $ | 58,099 | $ | 1,584,140 | 100.0 | % | ||||||||||
77.4 | % | 13.6 | % | 5.3 | % | 3.7 | % | 100.0 | % |
Private Passenger Automobile | Homeowners | Commercial Automobile | Other Lines | Total | ||||||||||||||||||
California | $ | 957,742 | $ | 160,699 | $ | 37,908 | $ | 47,705 | $ | 1,204,054 | 81.4 | % | ||||||||||
Florida (1) | 75,109 | 6 | 13,542 | 643 | 89,300 | 6.0 | % | |||||||||||||||
Other states (2) | 121,288 | 33,491 | 23,211 | 7,362 | 185,352 | 12.6 | % | |||||||||||||||
Total | $ | 1,154,139 | $ | 194,196 | $ | 74,661 | $ | 55,710 | $ | 1,478,706 | 100.0 | % | ||||||||||
78.1 | % | 13.1 | % | 5.0 | % | 3.8 | % | 100.0 | % |
State | Exam Type | Period Under Review | Status | |||
GA | Financial | 2011 to 2013 | Received draft report and submitted response to the DOI. | |||
CA | Market Conduct Claims | To be determined at future date. | Fieldwork to begin in the second half of 2016. | |||
CA | Rating and Underwriting | 2014 | Fieldwork began in July 2014. | |||
VA | Market Conduct | 2014 to 2015 | Fieldwork began in April 2016. |
• | The incurred loss method analyzes historical incurred case loss (case reserves plus paid losses) development to estimate ultimate losses. The Company applies development factors against current case incurred losses by accident period to calculate ultimate expected losses. The Company believes that the incurred loss method provides a reasonable basis for evaluating ultimate losses, particularly in the Company’s larger, more established lines of insurance business which have a long operating history. |
• | The paid loss method analyzes historical payment patterns to estimate the amount of losses yet to be paid. |
• | The average severity method analyzes historical loss payments and/or incurred losses divided by closed claims and/or total claims to calculate an estimated average cost per claim. From this, the expected ultimate average cost per claim can be estimated. The average severity method coupled with the claim count development method provide meaningful |
• | The GLM determines an average severity for each percentile of claims that have been closed as a percentage of estimated ultimate claims. The average severities are applied to open claims to estimate the amount of losses yet to be paid. The GLM utilizes operational time, determined as a percentile of claims closed rather than a finite calendar period, which neutralizes the effect of changes in the timing of claims handling. |
Three Months Ended June 30, | |||||||
2016 | 2015 | ||||||
(Amounts in thousands) | |||||||
Net premiums earned | $ | 779,321 | 731,546 | ||||
Change in net unearned premiums | 2,347 | 2,002 | |||||
Net premiums written | $ | 781,668 | $ | 733,548 |
Three Months Ended June 30, | |||||
2016 | 2015 | ||||
Loss ratio | 76.4 | % | 71.2 | % | |
Expense ratio | 25.4 | % | 27.3 | % | |
Combined ratio(a) | 101.7 | % | 98.5 | % |
Three Months Ended June 30, | |||||||
2016 | 2015 | ||||||
(Dollars in thousands) | |||||||
Average invested assets at cost (1) | $ | 3,350,328 | $ | 3,284,994 | |||
Net investment income (2) | |||||||
Before income taxes | $ | 31,414 | $ | 31,697 | |||
After income taxes | $ | 27,555 | $ | 27,710 | |||
Average annual yield on investments (2) | |||||||
Before income taxes | 3.8 | % | 3.9 | % | |||
After income taxes | 3.3 | % | 3.4 | % | |||
Net realized investment gains (losses) | $ | 45,381 | $ | (39,348 | ) |
(1) | Fixed maturities and short-term bonds at amortized cost; and equities and other short-term investments at cost. Average invested assets at cost are based on the monthly amortized cost of the invested assets for each respective period. |
(2) | Net investment income before and after income taxes, and average annual yield on investments before and after income taxes, decreased slightly due to the maturity and replacement of higher yielding investments purchased when market interest rates were higher, with lower yielding investments purchased during low interest rate environments. |
Gains (Losses) Recognized in Net Income | |||||||||
Three Months Ended June 30, 2016 | |||||||||
Sales | Changes in fair value | Total | |||||||
(Amounts in thousands) | |||||||||
Net realized investment gains (losses) | |||||||||
Fixed maturity securities (1)(2) | $ | 923 | $ | 28,871 | $ | 29,794 | |||
Equity securities (1)(3) | 2,897 | 8,666 | 11,563 | ||||||
Short-term investments (1) | 503 | (410 | ) | 93 | |||||
Total return swaps | 383 | 2,197 | 2,580 | ||||||
Options sold | 1,379 | (28 | ) | 1,351 | |||||
Total | $ | 6,085 | $ | 39,296 | $ | 45,381 |
Gains (Losses) Recognized in Net Income | |||||||||
Three Months Ended June 30, 2015 | |||||||||
Sales | Changes in fair value | Total | |||||||
(Amounts in thousands) | |||||||||
Net realized investment (losses) gains | |||||||||
Fixed maturity securities (1)(2) | $ | 204 | $ | (30,257 | ) | $ | (30,053 | ) | |
Equity securities (1)(3) | (68 | ) | (10,960 | ) | (11,028 | ) | |||
Short-term investments (1) | (502 | ) | 435 | (67 | ) | ||||
Total return swap | 875 | (152 | ) | 723 | |||||
Options sold | 833 | 244 | 1,077 | ||||||
Total | $ | 1,342 | $ | (40,690 | ) | $ | (39,348 | ) |
(1) | The changes in fair value of the investment portfolio result from the application of the fair value option. |
(2) | The Company’s municipal bond holdings represent the majority of the fixed maturity securities portfolio. The fair value increases in the second quarter of 2016 were primarily caused by the overall improvement in the municipal bond market. The fair values in the second quarter of 2015 were adversely affected by the increase in market interest rates during the second quarter of 2015. |
(3) | The increases in the fair values of equity securities in the second quarter of 2016 compared to the decreases in the second quarter of 2015 were primarily due to the relative improvement in the equities markets in the second quarter of 2016 compared to an overall decline in the equities markets in the second quarter of 2015. |
Three Months Ended June 30, | |||||||
2016 | 2015 | ||||||
(Amounts in thousands, except per share data) | |||||||
Net income | $ | 48,873 | $ | 9,639 | |||
Basic average shares outstanding | 55,254 | 55,160 | |||||
Diluted average shares outstanding | 55,322 | 55,179 | |||||
Basic Per Share Data: | |||||||
Net Income | $ | 0.88 | $ | 0.17 | |||
Net realized investment gains (losses), net of tax | $ | 0.53 | $ | (0.47 | ) | ||
Diluted Per Share Data: | |||||||
Net Income | $ | 0.88 | $ | 0.17 | |||
Net realized investment gains (losses), net of tax | $ | 0.53 | $ | (0.47 | ) |
Six Months Ended June 30, | |||||||
2016 | 2015 | ||||||
(Amounts in thousands) | |||||||
Net premiums earned | $ | 1,546,406 | 1,452,283 | ||||
Change in net unearned premiums | 32,928 | 21,757 | |||||
Net premiums written | $ | 1,579,334 | $ | 1,474,040 |
Six Months Ended June 30, | |||||
2016 | 2015 | ||||
Loss ratio | 76.9 | % | 71.3 | % | |
Expense ratio | 25.9 | % | 27.5 | % | |
Combined ratio | 102.8 | % | 98.8 | % |
Six Months Ended June 30, | |||||||
2016 | 2015 | ||||||
(Dollars in thousands) | |||||||
Average invested assets at cost (1) | $ | 3,339,312 | $ | 3,302,428 | |||
Net investment income (2) | |||||||
Before income taxes | $ | 61,069 | $ | 63,203 | |||
After income taxes | $ | 53,588 | $ | 55,205 | |||
Average annual yield on investments (2) | |||||||
Before income taxes | 3.7 | % | 3.8 | % | |||
After income taxes | 3.2 | % | 3.3 | % | |||
Net realized investment gains (losses) | $ | 70,438 | $ | (49,309 | ) |
(1) | Fixed maturities and short-term bonds at amortized cost; and equities and other short-term investments at cost. Average invested assets at cost are based on the monthly amortized cost of the invested assets for each respective period. |
(2) | Net investment income before and after income taxes, and average annual yield on investments before and after income taxes decreased slightly due to the maturity and replacement of higher yielding investments purchased when market interest rates were higher, with lower yielding investments purchased during low interest rate environments. |
Gains (Losses) Recognized in Net Income | |||||||||
Six Months Ended June 30, 2016 | |||||||||
Sales | Changes in fair value | Total | |||||||
(Amounts in thousands) | |||||||||
Net realized investment gains (losses) | |||||||||
Fixed maturity securities (1)(2) | $ | 1,633 | $ | 40,434 | $ | 42,067 | |||
Equity securities (1)(3) | 7,109 | 15,573 | 22,682 | ||||||
Short-term investments (1) | — | (349 | ) | (349 | ) | ||||
Total return swaps | (181 | ) | 3,925 | 3,744 | |||||
Options sold | 2,334 | (40 | ) | 2,294 | |||||
Total | $ | 10,895 | $ | 59,543 | $ | 70,438 |
Gains (Losses) Recognized in Net Income | |||||||||
Six Months Ended June 30, 2015 | |||||||||
Sales | Changes in fair value | Total | |||||||
(Amounts in thousands) | |||||||||
Net realized investment (losses) gains | |||||||||
Fixed maturity securities (1)(2) | $ | 204 | $ | (29,007 | ) | $ | (28,803 | ) | |
Equity securities (1)(3) | (7,686 | ) | (17,296 | ) | (24,982 | ) | |||
Short-term investments (1) | (1,396 | ) | 636 | (760 | ) | ||||
Total return swap | 1,250 | 2,462 | 3,712 | ||||||
Options sold | 1,450 | 74 | 1,524 | ||||||
Total | $ | (6,178 | ) | $ | (43,131 | ) | $ | (49,309 | ) |
(1) | The changes in fair value of the investment portfolio result from the application of the fair value option. |
(2) | The Company’s municipal bond holdings represent the majority of the fixed maturity securities portfolio. The fair value increases in the first half of 2016 were primarily caused by the overall improvement in the municipal bond market. The fair value decreases in the first half of 2015 were adversely affected by the increase in market interest rates during the second half of 2015. |
(3) | The increases in the fair values of equity securities in the first half of 2016 compared to the decreases in the first half of 2015 were primarily due to the relative improvement in the equities markets in the first half of 2016 compared to an overall decline in the equities markets in the first half of 2015. |
Six Months Ended June 30, | |||||||
2016 | 2015 | ||||||
(Amounts in thousands, except per share data) | |||||||
Net income | $ | 72,196 | $ | 35,804 | |||
Basic average shares outstanding | 55,227 | 55,149 | |||||
Diluted average shares outstanding | 55,294 | 55,169 | |||||
Basic Per Share Data: | |||||||
Net Income | $ | 1.31 | $ | 0.65 | |||
Net realized investment gains (losses), net of tax | $ | 0.83 | $ | (0.58 | ) | ||
Diluted Per Share Data: | |||||||
Net Income | $ | 1.31 | $ | 0.65 | |||
Net realized investment gains (losses), net of tax | $ | 0.83 | $ | (0.58 | ) |
Fixed Maturities | |||
(Amounts in thousands) | |||
Due in one year or less | $ | 366,024 | |
Due after one year through two years | 251,157 | ||
Due after two years through three years | 180,698 | ||
Due after three years through four years | 100,225 | ||
Due after four years through five years | 97,915 | ||
Total due within five years | $ | 996,019 |
Cost (1) | Fair Value | ||||||
(Amounts in thousands) | |||||||
Fixed maturity securities: | |||||||
U.S. government bonds and agencies | $ | 12,725 | $ | 12,926 | |||
Municipal securities | 2,407,667 | 2,526,666 | |||||
Mortgage-backed securities | 48,311 | 47,694 | |||||
Corporate securities | 241,511 | 238,327 | |||||
Collateralized loan obligations | 84,153 | 84,593 | |||||
Other asset-backed securities | 28,966 | 29,288 | |||||
2,823,333 | 2,939,494 | ||||||
Equity securities: | |||||||
Common stock | 307,083 | 328,365 | |||||
Non-redeemable preferred stock | 29,661 | 29,702 | |||||
Private equity funds | 12,888 | 8,972 | |||||
349,632 | 367,039 | ||||||
Short-term investments | 181,729 | 181,304 | |||||
Total investments | $ | 3,354,694 | $ | 3,487,837 |
(1) | Fixed maturities and short-term bonds at amortized cost; and equities and other short-term investments at cost. |
June 30, 2016 | December 31, 2015 | ||
(in years) | |||
Total Fixed Maturity Securities | |||
Nominal average maturities: | |||
excluding short-term instruments | 11.4 | 12.6 | |
including short-term instruments | 10.7 | 12.2 | |
Call-adjusted average maturities: | |||
excluding short-term instruments | 3.9 | 3.4 | |
including short-term instruments | 3.6 | 3.3 | |
Modified durations reflecting anticipated early calls: | |||
excluding short-term instruments | 3.3 | 3.2 | |
including short-term instruments | 3.1 | 3.1 | |
Collateralized Mortgage Obligations Modified Durations | 3.6 | 1.9 | |
Short-term Instruments | — | — |
June 30, 2016 | |||||||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||||
AAA(1) | AA(1)(2) | A(1)(2) | BBB(1)(2) | Non-Rated/Other(1) | Total Fair Value(1) | ||||||||||||||||||
U.S. government bonds and agencies: | |||||||||||||||||||||||
Treasuries | $ | 12,926 | $ | — | $ | — | $ | — | $ | — | $ | 12,926 | |||||||||||
Government agency | — | — | — | — | — | — | |||||||||||||||||
Total | 12,926 | — | — | — | — | 12,926 | |||||||||||||||||
100.0 | % | — | % | — | % | — | % | — | % | 100.0 | % | ||||||||||||
Municipal securities: | |||||||||||||||||||||||
Insured | 74,741 | 276,549 | 417,568 | 39,997 | 12,349 | 821,204 | |||||||||||||||||
Uninsured | 74,600 | 615,522 | 730,422 | 164,803 | 120,115 | 1,705,462 | |||||||||||||||||
Total | 149,341 | 892,071 | 1,147,990 | 204,800 | 132,464 | 2,526,666 | |||||||||||||||||
5.9 | % | 35.3 | % | 45.5 | % | 8.1 | % | 5.2 | % | 100.0 | % | ||||||||||||
Mortgage-backed securities: | |||||||||||||||||||||||
Commercial | 4,783 | 1,387 | 7,827 | 4,780 | 17,940 | 36,717 | |||||||||||||||||
Agencies | 3,799 | — | — | — | — | 3,799 | |||||||||||||||||
Non-agencies: | |||||||||||||||||||||||
Prime | — | — | 586 | 89 | 1,683 | 2,358 | |||||||||||||||||
Alt-A | — | — | — | 1,139 | 3,681 | 4,820 | |||||||||||||||||
Total | 8,582 | 1,387 | 8,413 | 6,008 | 23,304 | 47,694 | |||||||||||||||||
18.0 | % | 2.9 | % | 17.6 | % | 12.6 | % | 48.9 | % | 100.0 | % | ||||||||||||
Corporate securities: | |||||||||||||||||||||||
Basic materials | — | — | — | 6,622 | 4,175 | 10,797 | |||||||||||||||||
Communications | — | — | 170 | 5,970 | — | 6,140 | |||||||||||||||||
Consumer-cyclical | — | — | 2,251 | 14,407 | 4,449 | 21,107 | |||||||||||||||||
Consumer-non-cyclical | — | — | 498 | 4,944 | — | 5,442 | |||||||||||||||||
Energy | — | — | 6,578 | 34,121 | 29,071 | 69,770 | |||||||||||||||||
Financial | — | 470 | 36,320 | 52,123 | 4,931 | 93,844 | |||||||||||||||||
Industrial | — | — | 174 | 4,897 | — | 5,071 | |||||||||||||||||
Technology | — | — | — | 6,470 | 3,249 | 9,719 | |||||||||||||||||
Utilities | — | — | 6,509 | 9,928 | — | 16,437 | |||||||||||||||||
Total | — | 470 | 52,500 | 139,482 | 45,875 | 238,327 | |||||||||||||||||
— | % | 0.2 | % | 22.0 | % | 58.5 | % | 19.3 | % | 100.0 | % | ||||||||||||
Collateralized loan obligations: | |||||||||||||||||||||||
Corporate | 5,765 | — | 78,828 | — | — | 84,593 | |||||||||||||||||
Total | 5,765 | — | 78,828 | — | — | 84,593 | |||||||||||||||||
6.8 | % | — | % | 93.2 | % | — | % | — | % | 100.0 | % | ||||||||||||
Other asset-backed securities | 5,214 | — | 9,473 | 10,655 | 3,946 | 29,288 | |||||||||||||||||
17.8 | % | — | % | 32.3 | % | 36.4 | % | 13.5 | % | 100.0 | % | ||||||||||||
Total | $ | 181,828 | $ | 893,928 | $ | 1,297,204 | $ | 360,945 | $ | 205,589 | $ | 2,939,494 | |||||||||||
6.2 | % | 30.4 | % | 44.1 | % | 12.3 | % | 7.0 | % | 100.0 | % |
(1) | Intermediate ratings are included at each level (e.g., AA includes AA+, AA and AA-). |
June 30, 2016 | December 31, 2015 | ||||||
(Dollars in thousands) | |||||||
Corporate securities at fair value | $ | 238,327 | $ | 243,372 | |||
Duration | 2.5 years | 2.8 years | |||||
Weighted-average rating | BBB | BBB |
June 30, 2016 | December 31, 2015 | ||||||
(Dollars in thousands) | |||||||
Collateralized loan obligations at fair value | $ | 84,593 | $ | 50,548 | |||
Percentage of total investment portfolio | 2.4 | % | 1.5 | % | |||
Duration | 5.0 years | 5.7 years | |||||
Weighted-average rating | A | A |
Lender | Interest Rate | Expiration | June 30, 2016 | December 31, 2015 | ||||||||
(Amounts in thousands) | ||||||||||||
Secured credit facility | Bank of America | LIBOR plus 40 basis points | December 3, 2017 | $ | 120,000 | $ | 120,000 | |||||
Secured loan (1) | Union Bank | LIBOR plus 40 basis points | December 3, 2017 | 20,000 | 20,000 | |||||||
$250 million unsecured credit facility | Bank of America and Union Bank | (2) | December 3, 2019 | 150,000 | (2 | ) | 150,000 | |||||
Total | $ | 290,000 | $ | 290,000 |
States | Fair Value | Average Rating | |||
(Amounts in thousands) | |||||
Texas | $ | 440,859 | AA- | ||
California (a) | 290,524 | A+ | |||
Florida | 219,019 | A+ | |||
Ohio | 121,523 | A+ | |||
Illinois | 139,843 | A+ | |||
Other states (a) | 1,315,549 | A+ | |||
Total | $ | 2,527,317 |
June 30, 2016 | December 31, 2015 | |||||||
(Amounts in thousands, except average Beta) | ||||||||
Average Beta | 0.84 | 0.89 | ||||||
Hypothetical reduction in the overall value of the stock market of 25% | $ | 68,957 | $ | 62,359 | ||||
Hypothetical reduction in the overall value of the stock market of 50% | $ | 137,913 | $ | 124,717 |
15.1 | Report of Independent Registered Public Accounting Firm. |
15.2 | Awareness Letter of Independent Registered Public Accounting Firm. |
31.1 | Certification of Registrant’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
31.2 | Certification of Registrant’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1 | Certification of Registrant’s Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002. This certification is being furnished solely to accompany this Quarterly Report on Form 10-Q and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company. |
32.2 | Certification of Registrant’s Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002. This certification is being furnished solely to accompany this Quarterly Report on Form 10-Q and is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Company. |
101.INS | XBRL Instance Document |
101.SCH | XBRL Taxonomy Extension Schema Document |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document |
MERCURY GENERAL CORPORATION | |||
Date: August 2, 2016 | By: | /s/ Gabriel Tirador | |
Gabriel Tirador | |||
President and Chief Executive Officer | |||
Date: August 2, 2016 | By: | /s/ Theodore R. Stalick | |
Theodore R. Stalick | |||
Senior Vice President and Chief Financial Officer |
/S/ KPMG LLP |
Re: | Registration Statement No. 333-62228, 333-01583, 333-125460, and 333-202204 |
Very truly yours, |
/s/ KPMG LLP |
1. | I have reviewed this Quarterly Report on Form 10-Q of Mercury General Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
Date: August 2, 2016 | /s/ GABRIEL TIRADOR | |
Gabriel Tirador, Chief Executive Officer |
1. | I have reviewed this Quarterly Report on Form 10-Q of Mercury General Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
Date: August 2, 2016 | /s/ THEODORE R. STALICK | |
Theodore R. Stalick, Senior Vice President and Chief Financial Officer |
Date: August 2, 2016 | /s/ GABRIEL TIRADOR | |
Gabriel Tirador, Chief Executive Officer |
Date: August 2, 2016 | /s/ THEODORE R. STALICK | |
Theodore R. Stalick, Senior Vice President and Chief Financial Officer |
Document And Entity Information - shares |
6 Months Ended | |
---|---|---|
Jun. 30, 2016 |
Jul. 28, 2016 |
|
Document And Entity Information [Abstract] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Jun. 30, 2016 | |
Document Fiscal Year Focus | 2016 | |
Document Fiscal Period Focus | Q2 | |
Entity Registrant Name | MERCURY GENERAL CORP | |
Entity Central Index Key | 0000064996 | |
Current Fiscal Year End Date | --12-31 | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 55,254,171 |
Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands |
Jun. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Amortized cost on fixed maturities trading investments | $ 2,823,333 | $ 2,804,275 |
Cost - equity security trading investments | 349,632 | 313,528 |
Cost - short-term investments | 181,729 | 185,353 |
Accumulated depreciation on fixed assets | $ 309,011 | $ 299,192 |
Common Stock | ||
Common stock, no par value (in dollars per share) | $ 0 | $ 0 |
Common stock, shares authorized (in shares) | 70,000,000 | 70,000,000 |
Common stock, shares issued (in shares) | 55,254,000 | 55,164,000 |
Common stock, shares outstanding (in shares) | 55,254,000 | 55,164,000 |
Consolidated Statements Of Operations (Unaudited) - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Revenues: | ||||
Net premiums earned | $ 779,321 | $ 731,546 | $ 1,546,406 | $ 1,452,283 |
Net investment income | 31,414 | 31,697 | 61,069 | 63,203 |
Net realized investment gains (losses) | 45,381 | (39,348) | 70,438 | (49,309) |
Other | 1,887 | 2,276 | 4,010 | 4,542 |
Total revenues | 858,003 | 726,171 | 1,681,923 | 1,470,719 |
Expenses: | ||||
Losses and loss adjustment expenses | 595,086 | 521,214 | 1,189,168 | 1,035,614 |
Policy acquisition costs | 139,922 | 135,140 | 281,482 | 268,987 |
Other operating expenses | 57,700 | 64,537 | 118,994 | 130,229 |
Interest | 960 | 769 | 1,910 | 1,519 |
Total expenses | 793,668 | 721,660 | 1,591,554 | 1,436,349 |
Income before income taxes | 64,335 | 4,511 | 90,369 | 34,370 |
Income tax expense (benefit) | 15,462 | (5,128) | 18,173 | (1,434) |
Net income | $ 48,873 | $ 9,639 | $ 72,196 | $ 35,804 |
Net income per share: | ||||
Basic (in dollars per share) | $ 0.88 | $ 0.17 | $ 1.31 | $ 0.65 |
Diluted (in dollars per share) | $ 0.88 | $ 0.17 | $ 1.31 | $ 0.65 |
Weighted average shares outstanding: | ||||
Basic (in shares) | 55,254 | 55,160 | 55,227 | 55,149 |
Diluted (in shares) | 55,322 | 55,179 | 55,294 | 55,169 |
Dividends paid per share (in dollars per share) | $ 0.62000 | $ 0.6175 | $ 1.24 | $ 1.235 |
General |
6 Months Ended |
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Jun. 30, 2016 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
General | General Consolidation and Basis of Presentation The consolidated financial statements include the accounts of Mercury General Corporation and its subsidiaries (referred to herein collectively as the “Company”). For the list of the Company’s subsidiaries, see Note 1 “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”), which differ in some respects from those filed in reports to insurance regulatory authorities. All intercompany transactions and balances have been eliminated. The financial data of the Company included herein are unaudited. In the opinion of management, all material adjustments of a normal recurring nature have been made to present fairly the Company’s financial position at June 30, 2016 and the results of operations and cash flows for the periods presented. These statements were prepared in accordance with the instructions for interim reporting and do not contain certain information that was included in the annual financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. Readers are urged to review the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 for more complete descriptions and discussions. Operating results and cash flows for the six months ended June 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. Use of Estimates The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. These estimates require the Company to apply complex assumptions and judgments, and often the Company must make estimates about the effects of matters that are inherently uncertain and will likely change in subsequent periods. The most significant assumptions in the preparation of these condensed consolidated financial statements relate to reserves for losses and loss adjustment expenses. Actual results could differ from those estimates. See Note 1 “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. Earnings per Share Potentially dilutive securities representing approximately 28,000 and 47,000 shares of common stock for the three months ended June 30, 2016 and 2015, respectively, and 48,000 and 47,000 shares of common stock for the six months ended June 30, 2016 and 2015, respectively, were excluded from the computation of diluted earnings per common share because their effect would have been anti-dilutive. Deferred Policy Acquisition Costs Deferred policy acquisition costs consist of commissions paid to outside agents, premium taxes, salaries, and certain other underwriting costs that are incremental or directly related to the successful acquisition of new and renewal insurance contracts and are amortized over the life of the related policy in proportion to premiums earned. Deferred policy acquisition costs are limited to the amount that will remain after deducting from unearned premiums and anticipated investment income, the estimated losses and loss adjustment expenses, and the servicing costs that will be incurred as premiums are earned. The Company’s deferred policy acquisition costs are further limited by excluding those costs not directly related to the successful acquisition of insurance contracts. Deferred policy acquisition cost amortization was $139.9 million and $135.1 million for the three months ended June 30, 2016 and 2015, respectively, and $281.5 million and $269.0 million for the six months ended June 30, 2016 and 2015, respectively. The Company does not defer advertising expenditures but expenses them as incurred. The Company recorded net advertising expense of approximately $24 million and $28 million for the six months ended June 30, 2016 and 2015, respectively. |
Recently Issued Accounting Standards |
6 Months Ended |
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Jun. 30, 2016 | |
New Accounting Pronouncements and Changes in Accounting Principles [Abstract] | |
Recently Issued Accounting Standards | Recently Issued Accounting Standards In June 2016, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2016-13, "Financial Instruments - Credit Losses (Topic 326)." The amendments in this ASU replace the “incurred loss” methodology for recognizing credit losses with a methodology that reflects expected credit losses and requires consideration of a broader range of information including past events, current conditions and reasonable and supportable forecasts that affect the collectability of reported amounts of financial assets that are not accounted for at fair value through net income, such as loans, debt securities, trade receivables, net investment in leases, off-balance sheet credit exposures and reinsurance receivables. Under the current GAAP incurred loss methodology, recognition of the full amount of credit losses is generally delayed until the loss is probable of incurring. Current GAAP restricts the ability to record credit losses that are expected, but do not yet meet the probability threshold. ASU 2016-13 becomes effective for the Company beginning with the first quarter ending March 31, 2020. The Company is evaluating the impact that ASU 2016-13 will have on its consolidated financial statements and related disclosures. In March 2016, the FASB issued ASU 2016-09, "Compensation - Stock Compensation (Topic 718)," which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 becomes effective for the Company beginning January 1, 2017 and is required to be applied on a modified retrospective basis. The Company is evaluating the impact that ASU 2016-09 will have on its consolidated financial statements and related disclosures. In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)," which supersedes the guidance in Accounting Standards Codification (“ASC”) 840, "Leases." ASU 2016-02 requires a lessee to recognize lease assets and lease liabilities resulting from all leases. ASU 2016-02 retains the distinction between a finance lease and an operating lease. Lessor accounting is largely unchanged from ASC 840. ASU 2016-02 becomes effective for the Company beginning January 1, 2019. However, in transition, the Company will be required to recognize and measure leases at the beginning of the earliest period (the first quarter of 2017) using a modified retrospective approach. The Company is evaluating the effect that ASU 2016-02 will have on its consolidated financial statements and related disclosures. In January 2016, the FASB issued ASU 2016-01, "Financial Instruments-Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities." The amendments in this ASU address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU 2016-01: (1) requires equity investments (except those accounted for under the equity method or those that result in the consolidation of the investee) to be measured at fair value with changes in the fair value recognized in net income; (2) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (3) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (4) requires the use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (5) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the notes to the financial statements; and, (6) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. ASU 2016-01 is effective for the Company beginning January 1, 2018. The Company does not anticipate that ASU 2016-01 will have a material impact on its consolidated financial statements and related disclosures. In May 2015, the FASB issued ASU 2015-09, "Financial Services -Insurance (Topic 944), Disclosures About Short-Duration Contracts." ASU 2015-09 requires insurance entities to provide additional disclosures related to claims liabilities. The additional disclosure requirements for the annual reports include: (1) claims development information by accident year, on a net of reinsurance basis, for the number of years for which claims incurred remain outstanding but not to exceed the most recent 10 years, and for the most recent reporting period presented, an insurer also needs to disclose the amount of total net outstanding claims for all accident years included in the claims development tables; (2) a reconciliation of claims development information and the aggregate carrying amount of the liability for unpaid claims and claim adjustment expenses; and (3) information about the claims frequency and the amount of the incurred-but-not-reported liabilities for each accident year presented. In addition, a description of the methodology used to determine the amounts disclosed is required. The roll forward of the liability for unpaid claims and claims adjustment expenses, currently required only for annual periods, will also be required for interim periods. ASU 2015-09 becomes effective for the Company beginning with the annual period ending December 31, 2016, and quarter periods beginning with the first quarter of 2017. Although the adoption of this standard will not have a material impact on its consolidated financial statements, the Company will expand the nature and extent of its insurance contracts disclosures. In February 2015, the FASB issued ASU 2015-02, "Consolidation (Topic 810), Amendments to the Consolidation Analysis" affecting the consolidation evaluation of limited partnerships and similar entities, fees paid to a decision maker or a service provider as a variable interest, and variable interests in a variable interest entity held by related parties of the reporting entities. The amendments became effective for the Company on January 1, 2016. As in previous GAAP, consolidation analysis under ASU 2015-02 contains two primary consolidation models: the voting control model and the variable interest (“VIE”) model. An entity being evaluated for consolidation is required to first be subjected to the requirements of the VIE model. Only if the entity fails to meet the requirements to be consolidated under the VIE model, would the voting control consolidation model apply. The adoption of ASU 2015-02 did not have an impact on the Company's consolidated financial statements and related disclosures. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606)." ASU 2014-09 requires entities to apply a five-step model to determine the amount and timing of revenue recognition. The model specifies, among other criteria, that revenue should be recognized when an entity transfers control of goods or services to a customer in the amount to which the entity expects to be entitled. In August 2015, the FASB issued ASU 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date," which deferred the effective date of ASU 2014-09 for the Company to January 1, 2018. Through the first half of 2016, the FASB issued additional ASUs on Topic 606 that do not change the core principle of the guidance in ASU 2014-09 but merely clarify certain aspects of it. The additional ASUs also become effective for the Company beginning January 1, 2018. The Company is evaluating the impact that these ASUs will have on its consolidated financial statements and related disclosures. |
Fair Value of Financial Instruments |
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Financial Instruments, Owned, at Fair Value [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value of Financial Instruments | Fair Value of Financial Instruments The financial instruments recorded in the consolidated balance sheets include investments, receivables, options sold, total return swaps, accounts payable, and secured and unsecured notes payable. Due to their short-term maturities, the carrying values of receivables and accounts payable approximate their fair market values. All investments are carried at fair value in the consolidated balance sheets. The following table presents the estimated fair values of financial instruments:
Investments The Company applies the fair value option to all fixed maturity and equity securities and short-term investments at the time an eligible item is first recognized. The cost of investments sold is determined on a first-in and first-out method and realized gains and losses are included in net realized investment (losses) gains. See Note 4. Fair Value Option for additional information. Options Sold The Company writes covered call options through listed and over-the-counter exchanges. When the Company writes an option, an amount equal to the premium received by the Company is recorded as a liability and is subsequently adjusted to the current fair value of the option written. Premiums received from writing options that expire unexercised are treated by the Company on the expiration date as realized gains from investments. If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security or currency in determining whether the Company has realized a gain or loss. The Company, as writer of an option, bears the market risk of an unfavorable change in the price of the security underlying the written option. Liabilities for covered call options of $0.3 million were included in other liabilities at each of June 30, 2016 and December 31, 2015. Total return swaps The fair values of the total return swaps reflect the estimated amounts that, upon termination of the contracts, would be received for selling an asset or paid to transfer a liability in an orderly transaction at June 30, 2016 and December 31, 2015 based on models using inputs, such as interest rate yield curves and credit spreads, observable for substantially the full term of the contract. Secured notes payable The fair values of the Company’s $120 million and $20 million secured notes, classified as Level 2 in the fair value hierarchy described in Note 5. Fair Value Measurement, are estimated based on assumptions and inputs, such as the market value of underlying collateral and reset rates, for similarly termed notes that are observable in the market. The fair values of the secured notes approximate their carrying values. Unsecured note payable The fair value of the Company’s $150 million unsecured note, classified as Level 2 in the fair value hierarchy described in Note 5. Fair Value Measurement, is based on the unadjusted quoted price for similar notes in active markets. The fair value of the unsecured note approximates its carrying value. For additional disclosures regarding methods and assumptions used in estimating fair values, see Note 5. Fair Value Measurement. |
Fair Value Option |
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Fair Value Option [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Option | Fair Value Option The Company applies the fair value option to all fixed maturity and equity securities and short-term investments at the time an eligible item is first recognized. The primary reasons for electing the fair value option were simplification and cost-benefit considerations as well as the expansion of the use of fair value measurement by the Company consistent with the long-term measurement objectives of the FASB for accounting for financial instruments. Gains and losses due to changes in fair value for items measured at fair value pursuant to application of the fair value option are included in net realized investment gains (losses) in the Company’s consolidated statements of operations, while interest and dividend income on investment holdings are recognized on an accrual basis at each measurement date and are included in net investment income in the Company’s consolidated statements of operations. The following table presents gains (losses) due to changes in fair value of investments that are measured at fair value pursuant to application of the fair value option:
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Fair Value Measurement |
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Financial Instruments, Financial Assets, Balance Sheet Groupings [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Measurement | Fair Value Measurement The Company employs a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date using the exit price. Accordingly, when market observable data are not readily available, the Company’s own assumptions are used to reflect those that market participants would be presumed to use in pricing the asset or liability at the measurement date. Assets and liabilities recorded at fair value on the consolidated balance sheets are categorized based on the level of judgment associated with inputs used to measure their fair values and the level of market price observability, as follows:
In certain cases, inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy within which the fair value measurement in its entirety falls has been determined based on the lowest level input that is significant to the fair value measurement in its entirety. Thus, a Level 3 fair value measurement may include inputs that are observable (Level 1 or Level 2) and unobservable (Level 3). The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and consideration of factors specific to the asset or liability. The Company uses prices and inputs that are current as of the measurement date, including during periods of market disruption. In periods of market disruption, the ability to observe prices and inputs may be reduced for many instruments. This condition could cause an instrument to be reclassified from Level 1 to Level 2, or from Level 2 to Level 3. The Company recognizes transfers between levels at either the actual date of the event or a change in circumstances that caused the transfer. Summary of Significant Valuation Techniques for Financial Assets and Financial Liabilities The Company’s fair value measurements are based on the market approach, which utilizes market transaction data for the same or similar instruments. The Company obtained unadjusted fair values on 99.7% of its portfolio from an independent pricing service. For 0.3% of its portfolio, classified as Level 3, the Company obtained specific unadjusted broker quotes based on net fund value and, to a lesser extent, unobservable inputs from at least one knowledgeable outside security broker to determine the fair value as of June 30, 2016. Level 1 Measurements - Fair values of financial assets and financial liabilities are obtained from an independent pricing service, and are based on unadjusted quoted prices for identical assets or liabilities in active markets. Additional pricing services and closing exchange values are used as a comparison to ensure that reasonable fair values are used in pricing the investment portfolio. U.S. government bonds and agencies/Short-term bonds: Valued using unadjusted quoted market prices for identical assets in active markets. Common stock: Comprised of actively traded, exchange listed U.S. and international equity securities and valued based on unadjusted quoted prices for identical assets in active markets. Money market instruments: Valued based on unadjusted quoted prices for identical assets in active markets. Options sold/Purchased options: Comprised of free-standing exchange listed derivatives that are actively traded and valued based on unadjusted quoted prices for identical instruments in active markets. Level 2 Measurements - Fair values of financial assets and financial liabilities are obtained from an independent pricing service or outside brokers, and are based on prices for similar assets or liabilities in active markets or valuation models whose inputs are observable, directly or indirectly, for substantially the full term of the asset or liability. Additional pricing services are used as a comparison to ensure reliable fair values are used in pricing the investment portfolio. Municipal securities: Valued based on models or matrices using inputs such as quoted prices for identical or similar assets in active markets. Mortgage-backed securities: Comprised of securities that are collateralized by residential and commercial mortgage loans valued based on models or matrices using multiple observable inputs, such as benchmark yields, reported trades and broker/dealer quotes, for identical or similar assets in active markets. Corporate securities/Short-term bonds: Valued based on a multi-dimensional model using multiple observable inputs, such as benchmark yields, reported trades, broker/dealer quotes and issue spreads, for identical or similar assets in active markets. Non-redeemable preferred stock: Valued based on observable inputs, such as underlying and common stock of same issuer and appropriate spread over a comparable U.S. Treasury security, for identical or similar assets in active markets. Total return swaps: Valued based on multi-dimensional models using inputs such as interest rate yield curves, underlying debt/credit instruments and the appropriate benchmark spread for similar assets in active markets, observable for substantially the full term of the contract. Collateralized loan obligations: Valued based on underlying debt instruments and the appropriate benchmark spread for similar assets in active markets. Other asset-backed securities: Comprised of securities that are collateralized by non-mortgage assets, such as automobile loans, valued based on models or matrices using multiple observable inputs, such as benchmark yields, reported trades and broker/dealer quotes, for identical or similar assets in active markets. Secured notes payable: Valued based on underlying collateral and reset rates for similarly termed notes that are observable in the market. Unsecured notes payable: Valued based on the unadjusted quoted price for similar notes in active markets. Level 3 Measurements - Fair values of financial assets are based on inputs that are both unobservable and significant to the overall fair value measurement, including any items in which the evaluated prices obtained elsewhere were deemed to be of a distressed trading level. Collateralized debt obligations/Private equity funds: Valued based on underlying debt/credit instruments and the appropriate benchmark spread for similar assets in active markets taking into consideration unobservable inputs related to liquidity assumptions. The Company’s financial instruments at fair value are reflected in the consolidated balance sheets on a trade-date basis. Related unrealized gains or losses are recognized in net realized investment (losses) gains in the consolidated statements of operations. Fair value measurements are not adjusted for transaction costs. The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis, and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair values:
The following table presents a summary of changes in fair value of Level 3 financial assets and financial liabilities:
There were no transfers between Levels 1, 2, and 3 of the fair value hierarchy during the six months ended June 30, 2016 and 2015. At June 30, 2016, the Company did not have any nonrecurring fair value measurements of nonfinancial assets or nonfinancial liabilities. |
Derivative Financial Instruments |
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General Discussion of Derivative Instruments and Hedging Activities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Derivative Financial Instruments | Derivative Financial Instruments The Company is exposed to certain risks relating to its ongoing business operations. The primary risk managed by using derivative instruments is equity price risk. Equity contracts (options sold) on various equity securities are intended to manage the price risk associated with forecasted purchases or sales of such securities. The Company also enters into derivative contracts to enhance returns on its investment portfolio. On February 13, 2014, Fannette Funding LLC (“FFL”), a special purpose investment vehicle formed and consolidated by 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 $77 million and $95 million of underlying obligations as of June 30, 2016 and December 31, 2015, respectively. 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. 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 three-year term through August 9, 2019. 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 120 basis points on approximately $133 million and $124 million of underlying obligations as of June 30, 2016 and December 31, 2015, respectively. Fair value amounts, and gains on derivative instruments The following tables present the location and amounts of derivative fair values in the consolidated balance sheets and derivative gains in the consolidated statements of operations:
Most options sold consist of covered calls. The Company writes covered calls on underlying equity positions held as an enhanced income strategy that is permitted for the Company’s insurance subsidiaries under statutory regulations. The Company manages the risk associated with covered calls through strict capital limitations and asset diversification throughout various industries. For additional disclosures regarding options sold, see Note 5. Fair Value Measurement. |
Goodwill and Other Intangible Assets |
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Goodwill and Intangible Assets Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Goodwill and Other Intangible Assets | Goodwill and Other Intangible Assets Goodwill There were no changes in the carrying amount of goodwill during the periods presented. Goodwill is reviewed annually for impairment and more frequently if potential impairment indicators exist. No impairment indicators were identified during the periods presented. Other Intangible Assets The following table presents the components of other intangible assets:
Other intangible assets are reviewed annually for impairment and more frequently if potential impairment indicators exist. No impairment indicators were identified during the periods presented. Other intangible assets with definite useful lives are amortized on a straight-line basis over their useful lives. Other intangible assets amortization expense was $1.5 million for each three month period ended June 30, 2016 and 2015, respectively, and $3.0 million for each six month period ended June 30, 2016 and 2015, respectively. The following table presents the estimated future amortization expense related to other intangible assets as of June 30, 2016:
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Share-Based Compensation |
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Share-based Compensation, Allocation and Classification in Financial Statements [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Share-Based Compensation | Share-Based Compensation Share-based compensation expense for all share-based payment awards granted or modified is based on the estimated grant-date fair value. The Company recognizes these compensation costs on a straight-line basis over the requisite service period of the award. As of June 30, 2016, all outstanding stock options have a term of ten years from the date of grant and become exercisable in four equal installments on the first through fourth anniversaries of the grant date. The fair value of stock option awards is estimated using the Black-Scholes option pricing model with the grant-date assumptions and weighted-average fair values. In February 2015, the Company's Board of Directors adopted the 2015 Incentive Award Plan (the "2015 Plan"), replacing the 2005 Equity Incentive Plan (the "2005 Plan") which expired in January 2015. The 2015 Plan was approved at the Company's Annual Meeting of Shareholders in May 2015. A maximum of 4,900,000 shares of common stock are authorized for issuance under the 2015 Plan upon exercise of stock options, stock appreciation rights and other awards, or upon vesting of restricted stock unit ("RSU") or deferred stock awards. As of June 30, 2016, 190,500 RSUs were outstanding, and 4,709,500 shares of common stock were available for future issuances under the 2015 Plan. As of June 30, 2016, 83,000 RSUs and 135,500 stock options were outstanding under the 2005 Plan. The Compensation Committee of the Company’s Board of Directors granted RSU awards to the Company’s senior management and key employees which will vest based upon the Company's performance during three-year performance periods ending on December 31, 2017 and 2018 for RSU awards granted under the 2015 Plan, and ending on December 31, 2016 for RSU awards granted under the 2005 Plan:
The RSUs vest at the end of a three-year performance period beginning with the year of the grant, and then only if, and to the extent that, the Company’s performance during the performance period achieves the threshold established by the Compensation Committee of the Company’s Board of Directors. Performance thresholds are based on the Company’s cumulative underwriting income, annual underwriting income, and net earned premium growth. In February 2016, 88,074 shares of common stock, net of 58,822 shares withheld for payroll taxes, were issued upon the vesting of 146,896 RSUs awarded in 2013 resulting from the attainment of performance goals above the target threshold during the three-year performance period from 2013 to 2015. As of June 30, 2016, 2,000, 2,500 and 2,500 target RSUs granted in 2016, 2015 and 2014, respectively, were forfeited because the recipients were no longer employed by the Company. The fair value of each RSU grant was determined based on the market price of the Company's common stock on the grant date. Compensation cost is recognized based on management’s best estimate that performance goals will be achieved. If such goals are not met, no compensation cost will be recognized and any recognized compensation cost will be reversed. No stock options were awarded during the six months ended June 30, 2016 under the 2015 Plan. |
Income Taxes |
6 Months Ended |
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Jun. 30, 2016 | |
Components of Income Tax Expense (Benefit), Continuing Operations [Abstract] | |
Income Taxes | Income Taxes For financial statement purposes, the Company recognizes tax benefits related to positions taken, or expected to be taken, on a tax return only if, the positions are “more-likely-than-not” sustainable. Once this threshold has been met, the Company’s measurement of its expected tax benefits is recognized in its financial statements. There was a $0.4 million increase to the total amount of unrecognized tax benefit related to tax uncertainties during the six months ended June 30, 2016. The increase was the result of tax positions taken regarding state tax apportionment issues based on management’s best judgment given the facts, circumstances, and information available at the reporting date. The Company does not expect any changes in such unrecognized tax benefits to have a significant impact on its consolidated financial statements within the next 12 months. The Company and its subsidiaries file income tax returns with the Internal Revenue Service and the taxing authorities of various states. Tax years that remain subject to examination by major taxing jurisdictions are 2012 through 2014 for federal taxes, and 2003 through 2014 for California state taxes. The Company is currently under examination by the California Franchise Tax Board (“FTB”) for tax years 2003 through 2013. The FTB issued Notices of Proposed Assessments to the Company for tax years 2003 through 2010, which the Company formally protested. The proposed adjustments for tax years 2003 through 2006 were affirmed following an administrative protest process with the FTB examination. The Company is in settlement discussions with the FTB. If a reasonable settlement is not reached, the Company intends to pursue other options, including a formal hearing with the State Board of Equalization or litigation in superior court. Management believes that the resolution of these examinations and assessments will not have a material impact on the Company's consolidated financial statements. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial reporting basis and the respective tax basis of the Company’s assets and liabilities, and expected benefits of utilizing net operating loss, capital loss, and tax-credit carryforwards. The Company assesses the likelihood that its deferred tax assets will be realized and, to the extent management does not believe these assets are more likely than not to be realized, a valuation allowance is established. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates or laws is recognized in earnings in the period that includes the enactment date. At June 30, 2016, the Company’s deferred income taxes were in a net asset position, which included a combination of ordinary and capital deferred tax benefits. In assessing the Company’s ability to realize deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon generating sufficient taxable income of the appropriate character within the carryback and carryforward periods available under the tax law. Management considers the reversal of deferred tax liabilities, projected future taxable income of an appropriate nature, and tax-planning strategies in making this assessment. The Company believes that through the use of prudent tax planning strategies and the generation of capital gains, sufficient income will be realized in order to maximize the full benefits of its deferred tax assets. Although realization is not assured, management believes that it is more likely than not that the Company’s deferred tax assets will be realized. |
Contingencies |
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Jun. 30, 2016 | |
Commitments and Contingencies Disclosure [Abstract] | |
Contingencies | Contingencies The Company is, from time to time, named as a defendant in various lawsuits or regulatory actions incidental to its insurance business. The majority of lawsuits brought against the Company relate to insurance claims that arise in the normal course of business and are reserved for through the reserving process. For a discussion of the Company’s reserving methods, see the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. The Company also establishes reserves for non-insurance claims related lawsuits, regulatory actions, and other contingencies when the Company believes a loss is probable and is able to estimate its potential exposure. For loss contingencies believed to be reasonably possible, the Company also discloses the nature of the loss contingency and an estimate of the possible loss, range of loss, or a statement that such an estimate cannot be made. While actual losses may differ from the amounts recorded and the ultimate outcome of the Company's pending actions is generally not yet determinable, the Company does not believe that the ultimate resolution of currently pending legal or regulatory proceedings, either individually or in the aggregate, will have a material adverse effect on its financial condition, results of operations, or cash flows. In all cases, the Company vigorously defends itself unless a reasonable settlement appears appropriate. For a discussion of legal matters, see the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. |
Segment Information |
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Information | 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 11 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) 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. The following tables present the Company's operating results by reportable segment:
The following tables present the Company’s net premiums earned and direct premiums written by line of insurance business:
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Michigan and Pennsylvania Operations |
6 Months Ended |
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Jun. 30, 2016 | |
Restructuring and Related Activities [Abstract] | |
Restructuring and Related Activities Disclosure [Text Block] | Michigan and Pennsylvania Operations The Company was unable to profitably grow its business in Michigan and Pennsylvania since it began writing insurance in in those states in 2004. Michigan and Pennsylvania combined net premiums earned were $15.4 million and $18.6 million in 2015 and 2014, respectively, and combined ratios were 137% and 130% in 2015 and 2014, respectively. During the second quarter of 2016, the Company implemented an exit plan to focus resources on other states with better opportunities for sustainable growth. On April 29, 2016, the Company filed plans to exit the states of Michigan and Pennsylvania with the respective state regulatory agencies. The plans were accepted by the regulators in both states with no objections. On May 10, 2016, the Company ceased accepting new business in those states and began sending non-renewal notices on June 24, 2016. The non-renewal effective dates are August 13, 2016 for private passenger automobile policyholders in Michigan and homeowners policyholders in Pennsylvania, and September 12, 2016 for private passenger automobile and commercial automobile policyholders in Pennsylvania. The Company expects to complete the run-off of its Michigan and Pennsylvania operations in 2017. In line with the goal of improving operating efficiencies outside California and overall long-term profitability, the Company restructured its claims operations in states outside of California resulting in a workforce reduction of approximately 100 employees. The affected employees, located primarily in the Company's New Jersey and Florida branch offices, were officially notified of their termination on April 29, 2016. As a result, during the second quarter of 2016, the Company recorded a charge, primarily in loss and loss adjustment expenses, of approximately $2 million for employee termination costs. |
General (Policy) |
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Jun. 30, 2016 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Consolidation and Basis of Presentation | The consolidated financial statements include the accounts of Mercury General Corporation and its subsidiaries (referred to herein collectively as the “Company”). For the list of the Company’s subsidiaries, see Note 1 “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“GAAP”), which differ in some respects from those filed in reports to insurance regulatory authorities. All intercompany transactions and balances have been eliminated. The financial data of the Company included herein are unaudited. In the opinion of management, all material adjustments of a normal recurring nature have been made to present fairly the Company’s financial position at June 30, 2016 and the results of operations and cash flows for the periods presented. These statements were prepared in accordance with the instructions for interim reporting and do not contain certain information that was included in the annual financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. Readers are urged to review the Company’s Annual Report on Form 10-K for the year ended December 31, 2015 for more complete descriptions and discussions. Operating results and cash flows for the six months ended June 30, 2016 are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. |
Use of Estimates | The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. These estimates require the Company to apply complex assumptions and judgments, and often the Company must make estimates about the effects of matters that are inherently uncertain and will likely change in subsequent periods. The most significant assumptions in the preparation of these condensed consolidated financial statements relate to reserves for losses and loss adjustment expenses. Actual results could differ from those estimates. See Note 1 “Summary of Significant Accounting Policies” of the Notes to Consolidated Financial Statements in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. |
Earnings per Share | Potentially dilutive securities representing approximately 28,000 and 47,000 shares of common stock for the three months ended June 30, 2016 and 2015, respectively, and 48,000 and 47,000 shares of common stock for the six months ended June 30, 2016 and 2015, respectively, were excluded from the computation of diluted earnings per common share because their effect would have been anti-dilutive. |
Deferred Policy Acquisition Costs | Deferred policy acquisition costs consist of commissions paid to outside agents, premium taxes, salaries, and certain other underwriting costs that are incremental or directly related to the successful acquisition of new and renewal insurance contracts and are amortized over the life of the related policy in proportion to premiums earned. Deferred policy acquisition costs are limited to the amount that will remain after deducting from unearned premiums and anticipated investment income, the estimated losses and loss adjustment expenses, and the servicing costs that will be incurred as premiums are earned. The Company’s deferred policy acquisition costs are further limited by excluding those costs not directly related to the successful acquisition of insurance contracts. Deferred policy acquisition cost amortization was $139.9 million and $135.1 million for the three months ended June 30, 2016 and 2015, respectively, and $281.5 million and $269.0 million for the six months ended June 30, 2016 and 2015, respectively. The Company does not defer advertising expenditures but expenses them as incurred. The Company recorded net advertising expense of approximately $24 million and $28 million for the six months ended June 30, 2016 and 2015, respectively. |
Recently Issued Accounting Standards | In June 2016, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2016-13, "Financial Instruments - Credit Losses (Topic 326)." The amendments in this ASU replace the “incurred loss” methodology for recognizing credit losses with a methodology that reflects expected credit losses and requires consideration of a broader range of information including past events, current conditions and reasonable and supportable forecasts that affect the collectability of reported amounts of financial assets that are not accounted for at fair value through net income, such as loans, debt securities, trade receivables, net investment in leases, off-balance sheet credit exposures and reinsurance receivables. Under the current GAAP incurred loss methodology, recognition of the full amount of credit losses is generally delayed until the loss is probable of incurring. Current GAAP restricts the ability to record credit losses that are expected, but do not yet meet the probability threshold. ASU 2016-13 becomes effective for the Company beginning with the first quarter ending March 31, 2020. The Company is evaluating the impact that ASU 2016-13 will have on its consolidated financial statements and related disclosures. In March 2016, the FASB issued ASU 2016-09, "Compensation - Stock Compensation (Topic 718)," which simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 becomes effective for the Company beginning January 1, 2017 and is required to be applied on a modified retrospective basis. The Company is evaluating the impact that ASU 2016-09 will have on its consolidated financial statements and related disclosures. In February 2016, the FASB issued ASU 2016-02, "Leases (Topic 842)," which supersedes the guidance in Accounting Standards Codification (“ASC”) 840, "Leases." ASU 2016-02 requires a lessee to recognize lease assets and lease liabilities resulting from all leases. ASU 2016-02 retains the distinction between a finance lease and an operating lease. Lessor accounting is largely unchanged from ASC 840. ASU 2016-02 becomes effective for the Company beginning January 1, 2019. However, in transition, the Company will be required to recognize and measure leases at the beginning of the earliest period (the first quarter of 2017) using a modified retrospective approach. The Company is evaluating the effect that ASU 2016-02 will have on its consolidated financial statements and related disclosures. In January 2016, the FASB issued ASU 2016-01, "Financial Instruments-Overall (Subtopic 825-10), Recognition and Measurement of Financial Assets and Financial Liabilities." The amendments in this ASU address certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU 2016-01: (1) requires equity investments (except those accounted for under the equity method or those that result in the consolidation of the investee) to be measured at fair value with changes in the fair value recognized in net income; (2) simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; (3) eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; (4) requires the use of the exit price notion when measuring the fair value of financial instruments for disclosure purposes; (5) requires separate presentation of financial assets and financial liabilities by measurement category and form of financial asset on the balance sheet or the notes to the financial statements; and, (6) clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets. ASU 2016-01 is effective for the Company beginning January 1, 2018. The Company does not anticipate that ASU 2016-01 will have a material impact on its consolidated financial statements and related disclosures. In May 2015, the FASB issued ASU 2015-09, "Financial Services -Insurance (Topic 944), Disclosures About Short-Duration Contracts." ASU 2015-09 requires insurance entities to provide additional disclosures related to claims liabilities. The additional disclosure requirements for the annual reports include: (1) claims development information by accident year, on a net of reinsurance basis, for the number of years for which claims incurred remain outstanding but not to exceed the most recent 10 years, and for the most recent reporting period presented, an insurer also needs to disclose the amount of total net outstanding claims for all accident years included in the claims development tables; (2) a reconciliation of claims development information and the aggregate carrying amount of the liability for unpaid claims and claim adjustment expenses; and (3) information about the claims frequency and the amount of the incurred-but-not-reported liabilities for each accident year presented. In addition, a description of the methodology used to determine the amounts disclosed is required. The roll forward of the liability for unpaid claims and claims adjustment expenses, currently required only for annual periods, will also be required for interim periods. ASU 2015-09 becomes effective for the Company beginning with the annual period ending December 31, 2016, and quarter periods beginning with the first quarter of 2017. Although the adoption of this standard will not have a material impact on its consolidated financial statements, the Company will expand the nature and extent of its insurance contracts disclosures. In February 2015, the FASB issued ASU 2015-02, "Consolidation (Topic 810), Amendments to the Consolidation Analysis" affecting the consolidation evaluation of limited partnerships and similar entities, fees paid to a decision maker or a service provider as a variable interest, and variable interests in a variable interest entity held by related parties of the reporting entities. The amendments became effective for the Company on January 1, 2016. As in previous GAAP, consolidation analysis under ASU 2015-02 contains two primary consolidation models: the voting control model and the variable interest (“VIE”) model. An entity being evaluated for consolidation is required to first be subjected to the requirements of the VIE model. Only if the entity fails to meet the requirements to be consolidated under the VIE model, would the voting control consolidation model apply. The adoption of ASU 2015-02 did not have an impact on the Company's consolidated financial statements and related disclosures. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606)." ASU 2014-09 requires entities to apply a five-step model to determine the amount and timing of revenue recognition. The model specifies, among other criteria, that revenue should be recognized when an entity transfers control of goods or services to a customer in the amount to which the entity expects to be entitled. In August 2015, the FASB issued ASU 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date," which deferred the effective date of ASU 2014-09 for the Company to January 1, 2018. Through the first half of 2016, the FASB issued additional ASUs on Topic 606 that do not change the core principle of the guidance in ASU 2014-09 but merely clarify certain aspects of it. The additional ASUs also become effective for the Company beginning January 1, 2018. The Company is evaluating the impact that these ASUs will have on its consolidated financial statements and related disclosures. |
Fair Value of Financial Instruments (Tables) |
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Financial Instruments, Owned, at Fair Value [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Estimated Fair Values of Financial Instruments | The following table presents the estimated fair values of financial instruments:
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Fair Value Option (Tables) |
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Fair Value Option [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Gains And Losses Due To Changes In Fair Value Of Investments | The following table presents gains (losses) due to changes in fair value of investments that are measured at fair value pursuant to application of the fair value option:
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Fair Value Measurement (Tables) |
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Financial Instruments, Financial Assets, Balance Sheet Groupings [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule Of Assets And Liabilities Measured At Fair Value On A Recurring Basis Valuation Techniques | The following tables present information about the Company’s assets and liabilities measured at fair value on a recurring basis, and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair values:
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Summary Of Changes In Fair Value Of Level 3 Financial Assets And Financial Liabilities Held At Fair Value | The following table presents a summary of changes in fair value of Level 3 financial assets and financial liabilities:
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Derivative Financial Instruments (Tables) |
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General Discussion of Derivative Instruments and Hedging Activities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Summary Of Location And Amounts Of Derivative Fair Values In The Consolidated Balance Sheets | The following tables present the location and amounts of derivative fair values in the consolidated balance sheets and derivative gains in the consolidated statements of operations:
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Schedule Of Derivative Gains And Losses In The Consolidated Statements Of Operations |
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Goodwill and Other Intangible Assets (Tables) |
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Goodwill and Intangible Assets Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule Of Components Of Other Intangible Assets | The following table presents the components of other intangible assets:
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Schedule Of Estimated Future Amortization Expense Related To Intangible Assets | The following table presents the estimated future amortization expense related to other intangible assets as of June 30, 2016:
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Share-Based Compensation (Tables) |
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Share-based Compensation, Allocation and Classification in Financial Statements [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule Of Performance Vesting Restricted Stock Units Granted | The Compensation Committee of the Company’s Board of Directors granted RSU awards to the Company’s senior management and key employees which will vest based upon the Company's performance during three-year performance periods ending on December 31, 2017 and 2018 for RSU awards granted under the 2015 Plan, and ending on December 31, 2016 for RSU awards granted under the 2005 Plan:
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Segment Information (Tables) |
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Jun. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation of operating results by reportable segment | The following tables present the Company's operating results by reportable segment:
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule direct premiums attributable to segment | The following tables present the Company’s net premiums earned and direct premiums written by line of insurance business:
__________
|
General (Details) - USD ($) shares in Thousands, $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Organization, Consolidation and Presentation of Financial Statements [Abstract] | ||||
Potentially dilutive securities (in shares) | 28 | 47 | 48 | 47 |
Deferred policy acquisition cost amortization | $ 139,922 | $ 135,140 | $ 281,482 | $ 268,987 |
Advertising expenses | $ 24,000 | $ 28,000 |
Fair Value of Financial Instruments (Narrative) (Details) - USD ($) |
Jun. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items] | ||
Other liabilities | $ 203,528,000 | $ 199,187,000 |
Liabilities, Fair Value Disclosure, Recurring | 297,909,000 | 301,785,000 |
Level 2 [Member] | ||
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items] | ||
Liabilities, Fair Value Disclosure, Recurring | 297,600,000 | 301,525,000 |
Level 2 [Member] | Secured Notes One [Member] | ||
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items] | ||
Secured notes | 120,000,000 | |
Level 2 [Member] | Secured Notes Two [Member] | ||
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items] | ||
Secured notes | 20,000,000 | |
Call Option [Member] | ||
Fair Value, Off-balance Sheet Risks, Disclosure Information [Line Items] | ||
Other liabilities | $ 300,000 | $ 300,000 |
Fair Value of Financial Instruments (Estimated Fair Values Of Financial Instruments) (Details) - USD ($) $ in Thousands |
Jun. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Liabilities | ||
Total return swap | $ 7,600 | $ 11,525 |
Liabilities, Fair Value Disclosure, Recurring | 297,909 | 301,785 |
Level 2 [Member] | ||
Liabilities | ||
Liabilities, Fair Value Disclosure, Recurring | 297,600 | 301,525 |
Secured Debt [Member] | Borrowings [Member] | ||
Liabilities | ||
Liabilities, Fair Value Disclosure, Recurring | 140,000 | 140,000 |
Secured Debt [Member] | Borrowings [Member] | Level 2 [Member] | ||
Liabilities | ||
Liabilities, Fair Value Disclosure, Recurring | 140,000 | 140,000 |
Unsecured Debt [Member] | Borrowings [Member] | ||
Liabilities | ||
Liabilities, Fair Value Disclosure, Recurring | 150,000 | 150,000 |
Unsecured Debt [Member] | Borrowings [Member] | Level 2 [Member] | ||
Liabilities | ||
Liabilities, Fair Value Disclosure, Recurring | 150,000 | 150,000 |
Equity Contract [Member] | ||
Liabilities | ||
Equity contracts | 309 | 260 |
Investments [Member] | ||
Assets | ||
Investments | $ 3,487,837 | $ 3,380,642 |
Fair Value Measurement (Narrative) (Details) |
6 Months Ended | |
---|---|---|
Jun. 30, 2016
transfers
broker
|
Jun. 30, 2015
transfers
|
|
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Percentage of portfolio of unadjusted fair values obtained | 99.70% | |
Percentage of portfolio of specific unadjusted broker quotes obtained | 0.30% | |
Transfers between Levels 1, 2, and 3 of the fair value hierarchy | transfers | 0 | 0 |
Minimum [Member] | ||
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items] | ||
Number of knowledgeable outside security brokers consulted to determine fair value | broker | 1 |
Fair Value Measurement (Summary Of Changes In Fair Value Of Level 3 Financial Assets And Financial Liabilities Held At Fair Value) (Details) - Partnership Interest In Private Credit Fund [Member] - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Fair Value, Assets Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward] | ||||
Beginning Balance | $ 8,991 | $ 15,432 | $ 10,431 | $ 11,719 |
Realized losses included in earnings | (19) | (1,663) | (1,459) | (861) |
Reclassification from other assets | 0 | 2,911 | ||
Settlement | 0 | 0 | (24) | |
Ending Balance | 8,972 | 13,745 | 8,972 | 13,745 |
The amount of total (losses) gains for the period included in earnings attributable to assets still held at September 30 | $ (19) | $ (1,663) | $ (1,459) | $ (861) |
Derivative Financial Instruments (Narrative) (Details) - USD ($) $ in Millions |
6 Months Ended | |||
---|---|---|---|---|
Feb. 13, 2014 |
Aug. 09, 2013 |
Jun. 30, 2016 |
Dec. 31, 2015 |
|
2014 Swap [Member] | ||||
Derivative Financial Instruments [Line Items] | ||||
Swap agreement collateral | $ 30 | |||
Notional amount | $ 77 | $ 95 | ||
Term of swap agreement | 1 year | |||
Renewal term | 1 year | |||
2014 Swap [Member] | LIBOR [Member] | ||||
Derivative Financial Instruments [Line Items] | ||||
Basis spread on variable rate | 1.45% | |||
2013 Swap [Member] | ||||
Derivative Financial Instruments [Line Items] | ||||
Swap agreement collateral | $ 40 | |||
Notional amount | $ 133 | $ 124 | ||
Term of swap agreement | 3 years | 3 years | ||
2013 Swap [Member] | LIBOR [Member] | ||||
Derivative Financial Instruments [Line Items] | ||||
Basis spread on variable rate | 1.20% |
Derivative Financial Instruments (Summary Of Location And Amounts Of Derivative Fair Values In The Consolidated Balance Sheets) (Details) - USD ($) $ in Thousands |
Jun. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Derivative [Line Items] | ||
Total return swap | $ 7,600 | $ 11,525 |
Non-hedging derivatives [Member] | ||
Derivative [Line Items] | ||
Asset Derivatives | 0 | 0 |
Total return swap | 7,909 | 11,785 |
Non-hedging derivatives [Member] | Interest rate swap agreements [Member] | Other Assets [Member] | ||
Derivative [Line Items] | ||
Asset Derivatives | 0 | 0 |
Non-hedging derivatives [Member] | Interest rate swap agreements [Member] | Other liabilities [Member] | ||
Derivative [Line Items] | ||
Total return swap | 7,600 | 11,525 |
Non-hedging derivatives [Member] | Equity contracts [Member] | Other Assets [Member] | ||
Derivative [Line Items] | ||
Asset Derivatives | 0 | 0 |
Non-hedging derivatives [Member] | Equity contracts [Member] | Other liabilities [Member] | ||
Derivative [Line Items] | ||
Total return swap | $ 309 | $ 260 |
Derivative Financial Instruments (Schedule Of Derivative Gains And Losses In The Consolidated Statements Of Operations) (Details) - Derivatives Not Designated as Hedging Instrument [Member] - USD ($) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Derivative [Line Items] | ||||
Gain Recognized in Income (Loss) | $ 3,931 | $ 1,800 | $ 6,038 | $ 5,236 |
Total Return Swap [Member] | Other revenue [Member] | ||||
Derivative [Line Items] | ||||
Gain Recognized in Income (Loss) | 2,581 | 723 | 3,744 | 3,712 |
Equity contracts [Member] | Net realized investment (losses) gains [Member] | ||||
Derivative [Line Items] | ||||
Gain Recognized in Income (Loss) | $ 1,350 | $ 1,077 | $ 2,294 | $ 1,524 |
Goodwill and Other Intangible Assets (Narrative) (Details) - USD ($) $ in Millions |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2016 |
Jun. 30, 2015 |
Jun. 30, 2016 |
Jun. 30, 2015 |
|
Goodwill and Intangible Assets Disclosure [Abstract] | ||||
Intangible assets amortization expense | $ 1.5 | $ 1.5 | $ 3.0 | $ 3.0 |
Goodwill and Other Intangible Assets (Schedule Of Components Of Other Intangible Assets) (Details) - USD ($) $ in Thousands |
6 Months Ended | 12 Months Ended |
---|---|---|
Jun. 30, 2016 |
Dec. 31, 2015 |
|
Finite-Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | $ 73,530 | $ 73,530 |
Accumulated Amortization | (44,867) | (41,828) |
Total | 28,663 | 31,702 |
Customer relationships [Member] | ||
Finite-Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | 52,430 | 52,430 |
Accumulated Amortization | (36,829) | (34,327) |
Total | $ 15,601 | $ 18,103 |
Useful Lives (in years) | 11 years | 11 years |
Trade names [Member] | ||
Finite-Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | $ 15,400 | $ 15,400 |
Accumulated Amortization | (4,813) | (4,491) |
Total | $ 10,587 | $ 10,909 |
Useful Lives (in years) | 24 years | 24 years |
Technology [Member] | ||
Finite-Lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | $ 4,300 | $ 4,300 |
Accumulated Amortization | (3,225) | (3,010) |
Total | $ 1,075 | $ 1,290 |
Useful Lives (in years) | 10 years | 10 years |
Goodwill and Other Intangible Assets (Schedule of Acquired Intangible Assets) (Details) - USD ($) $ in Thousands |
Jun. 30, 2016 |
Dec. 31, 2015 |
---|---|---|
Indefinite-lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | $ 73,530 | $ 73,530 |
Other intangible assets, net | 28,663 | 31,702 |
Licensing Agreements [Member] | ||
Indefinite-lived Intangible Assets [Line Items] | ||
Gross Carrying Amount | 1,400 | 1,400 |
Other intangible assets, net | $ 1,400 | $ 1,400 |
Goodwill and Other Intangible Assets (Schedule Of Estimated Future Amortization Expense Related To Intangible Assets) (Details) $ in Thousands |
Jun. 30, 2016
USD ($)
|
---|---|
Goodwill and Intangible Assets Disclosure [Abstract] | |
Remainder of 2016 | $ 3,039 |
2017 | 5,349 |
2018 | 5,335 |
2019 | 4,905 |
2020 | 758 |
Thereafter | 7,877 |
Total | $ 27,263 |
Share-Based Compensation (Schedule Of Performance Vesting Restricted Stock Units Granted) (Details) - shares |
6 Months Ended | 12 Months Ended | |
---|---|---|---|
Jun. 30, 2016 |
Dec. 31, 2015 |
Dec. 31, 2014 |
|
Share-based Compensation, Allocation and Classification in Financial Statements [Abstract] | |||
Three-year performance period ending December 31, | 2018 | 2017 | 2016 |
Vesting shares, target | 93,750 | 96,750 | 83,000 |
Vesting shares, maximum | 175,781 | 181,406 | 155,625 |
Income Taxes (Details) $ in Millions |
6 Months Ended |
---|---|
Jun. 30, 2016
USD ($)
| |
Components of Income Tax Expense (Benefit), Continuing Operations [Abstract] | |
Increase in unrecognized tax benefit | $ 0.4 |
Segment Information - Summary of Operating Results by Segment (Details) $ in Thousands |
3 Months Ended | 6 Months Ended | ||
---|---|---|---|---|
Jun. 30, 2016
USD ($)
State
|
Jun. 30, 2015
USD ($)
|
Jun. 30, 2016
USD ($)
Subsidiary
State
|
Jun. 30, 2015
USD ($)
|
|
Segment Reporting [Abstract] | ||||
Number of insurance companies | Subsidiary | 14 | |||
Number of states in which company operates | State | 11 | 11 | ||
Segment Reporting Information [Line Items] | ||||
Net premiums earned | $ 779,300 | $ 731,600 | $ 1,546,400 | $ 1,452,300 |
Losses and loss adjustment expenses | 595,086 | 521,214 | 1,189,168 | 1,035,614 |
Underwriting expenses | 197,600 | 199,700 | 400,400 | 399,200 |
Underwriting gain | (13,400) | 10,700 | (43,200) | 17,500 |
Net investment income | 31,414 | 31,697 | 61,069 | 63,203 |
Net realized investment gains (losses) | 45,381 | (39,348) | 70,438 | (49,309) |
Other | 1,887 | 2,276 | 4,010 | 4,542 |
Interest Expense | (960) | (769) | (1,910) | (1,519) |
Pre-tax income | 64,335 | 4,511 | 90,369 | 34,370 |
Net income | 48,873 | 9,639 | 72,196 | 35,804 |
Property and Casualty Lines [Member] | ||||
Segment Reporting Information [Line Items] | ||||
Net premiums earned | 768,600 | 718,500 | 1,524,400 | 1,425,700 |
Losses and loss adjustment expenses | 589,400 | 514,100 | 1,177,400 | 1,020,900 |
Underwriting expenses | 193,400 | 194,900 | 391,300 | 388,800 |
Underwriting gain | (14,200) | 9,500 | (44,300) | 16,000 |
Other Segments [Member] | ||||
Segment Reporting Information [Line Items] | ||||
Net premiums earned | 10,700 | 13,100 | 22,000 | 26,600 |
Losses and loss adjustment expenses | 5,700 | 7,100 | 11,800 | 14,700 |
Underwriting expenses | 4,200 | 4,800 | 9,100 | 10,400 |
Underwriting gain | $ 800 | $ 1,200 | $ 1,100 | $ 1,500 |
Michigan and Pennsylvania Operations (Details) $ in Millions |
3 Months Ended | 6 Months Ended | 12 Months Ended | ||||
---|---|---|---|---|---|---|---|
Apr. 29, 2016
employee
|
Jun. 30, 2016
USD ($)
|
Jun. 30, 2015
USD ($)
|
Jun. 30, 2016
USD ($)
|
Jun. 30, 2015
USD ($)
|
Dec. 31, 2015
USD ($)
|
Dec. 31, 2014
USD ($)
|
|
Restructuring Cost and Reserve [Line Items] | |||||||
Net premiums earned | $ 779.3 | $ 731.6 | $ 1,546.4 | $ 1,452.3 | |||
Michigan And Pennsylvania [Member] | |||||||
Restructuring Cost and Reserve [Line Items] | |||||||
Net premiums earned | $ 15.4 | $ 18.6 | |||||
Combined ratio | 137.00% | 130.00% | |||||
Michigan And Pennsylvania [Member] | Employee Severance [Member] | |||||||
Restructuring Cost and Reserve [Line Items] | |||||||
Number of employees impacted by workforce reduction | employee | 100 | ||||||
Expected employee termination costs | $ 2.0 | $ 2.0 |
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