felanders/preprocessed huggingface dataset:
The words "believe," "anticipate," "foresee," "estimate," "project," "plan," "expect," "intend," "hope," "will likely result" or "will continue" and variations thereof or similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of their dates. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Goodwill and Intangible Assets. Goodwill represents the aggregate cost of companies acquired over the fair value of net assets at the date of acquisition and is being amortized into income using the straight-line method over periods ranging from ten to twenty-five years. Management regularly reviews the carrying value of goodwill by determining whether the unamortized value of the goodwill can be recovered through undiscounted future operating cash flows of the acquired operation.
Net premiums earned increased 9%, to $131.1 million for the year ended December 31, 2001 from $120.5 million for the year ended December 31, 2000. The increase in net premiums earned is less than the increase in direct and assumed premiums written for the same period primarily due to the inherent lag between written and earned premiums. In addition, as noted above, direct premiums written include premiums written under fronting agreements for which a relatively small portion of business is retained and therefore only a small portion of premium is ultimately earned. The increase in net premiums earned is due to growth in the number of policyholders and the effects of rate increases instituted by the Company's insurance subsidiaries during 2001. Partially offsetting this increase was a decline in A&H premiums earned of 70%, to $7.2 million for the year ended December 31, 2001, from $24.1 million for the year ended December 31, 2000.
Other underwriting expenses increased 24%, to $25.7 million for the year ended December 31, 2001 from $20.7 million for the year ended December 31, 2000. The increase in other underwriting expenses is primarily attributable to additional operating expenses associated with the growth in business and expenses incurred to improve the information systems used by the Company. In addition, two of the Company's insurance subsidiaries, First Professionals and APAC, increased their accruals for guarantee fund assessments by approximately $0.9 million, combined. Offsetting these increases was a reduction in the allowance for bad debts of $1.0 million.
Commission income increased 79%, to $1.2 million for the year ended December 31, 2000 from $0.7 million for the year ended December 31, 1999. The increase in commission income is attributable to a full year of brokerage income from Intermediaries, which was formed during the second quarter of 1999.
During 1995, CICA acquired a 7,500 square foot office property in Wheatridge, Colorado for $116,000. This property, which has previously been appraised for $475,000, is vacant as of December 31, 1995 pending completion of minor interior renovations. Management expects to use this building in conjunction with the Company's operations.
Total revenues for the year ended December 31, 1995 were $53,271,337 compared to $49,156,709 in 1994, an increase of 8.4%. The smaller increase in revenues during 1995 resulted primarily from a reduction in new premium sales, whose decline offset increase investment income during the year. Management expects to see revenues increase substantially in 1996 when ALFC is included for the full year. In 1995, the revenues of ALFC are included only from the purchase date of September 14, 1995, and as such, only $2.8 million of ALFC's total revenues of $9 million are included in the Company's results. The 1994 revenues were 15% greater than 1993 when total revenues were $42,761,095. The predominant reason for the increase in revenues through 1994 is the growth in premium income, which increased by 49.9% over the three-year period ended December 31, 1994.
Future policy benefit reserves increased $11,033,763 in 1995, compared to $11,910,751 in 1994 and $10,160,523 in 1993. The decreased production in 1995, coupled with lower reserves as a result of a lower capitalization rate on policy acquisition costs, along with higher surrender activity in the international market as a result of the disruption described above, were the reasons for the lower reserve increase in 1995. Increasing premium income and favorable persistency in relation to premiums are the primary reasons for the increases in 1993 and 1994. Increases in surrender activity on the block of Universal Life business acquired in the First Centennial Corporation acquisition in 1992 slowed the level of increase, particularly in 1994. These surrenders, which were expected by management, were increased by the relatively low interest rates paid on these plans during 1994 compared to the rates that were in effect several
years ago when the plans were sold. Additionally, in the early years of a policy, the net reserves (benefit reserve less deferred acquisition costs) are small due to the large capitalized costs in the first and second policy years. As the policy matures, the reserve increases. Also, approximately 18% of new premium is passed through to the policyowner in the form of endowments (dividends) and therefore not reserved. The Company's reserves are certified annually by an independent actuary. Such certification noted no deficiencies for the years presented.
Total benefits and expenses were $28,546,000 for 1996, which constituted 95% of the Company's total revenues, as compared to $23,802,000, or 91% of the Company's total revenues for 1995.
Total benefits and expenses were $20,380,000 for 1995, which constituted 94% of the Company's total revenues, as compared to $15,326,000, or 92% of the Company's total revenues for 1994.
5) Bank Loans Payable and Line of Credit for Financing Mortgage Loans (Continued)
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES Notes to Consolidated Financial Statements Years Ended December 31, 1996, 1995, and 1994
The Company and its subsidiaries have a noncontributory ESOP for all eligible employees. Eligible employees are primarily those with more than one year of service and who work in excess of 1,040 hours per year. Contributions, which may be in cash or stock of the Company, are
The Company organized a 401(k) savings plan in 1995, which allows employees to contribute pre tax compensation up to the lesser of 15% of total annual compensation or the statutory limit (currently $9,240). The Company matches 50% of each employee's contribution in Company stock, up to 5% of the employee's total annual compensation. The Company's matching contributions for 1996 and 1995 was approximately $50,000 and $21,000, respectively.
Estimating the liability for unpaid losses and LAE is inherently judgmental and is influenced by factors that are subject to significant variation. We estimate liabilities for the costs of losses and LAE for both reported and unreported (IBNR) claims based on historical trends in the following areas adjusted for deviations in such trends:
We review loss reserve adequacy quarterly by accident year at a state and coverage level. We adjust reserves as additional information becomes known. We reflect such adjustments in current year operations.
The following tables present the development of our loss reserves, net of reinsurance, on a GAAP basis for the calendar years 2004 through 2014. The top line of each table shows the estimated liability for unpaid losses and LAE recorded at the balance sheet date for the indicated years. The next line shows the re-estimated liability as of December 31, 2014. The remainder of the table presents intervening development as percentages of the initially estimated liability. Additional information and experience in subsequent years results in development. The middle line shows a cumulative deficiency (redundancy) which represents the aggregate percentage increase (decrease) in the liability initially estimated. The lower portion of the table indicates the cumulative amounts paid as of successive periods as a percentage of the original loss reserve liability.
None of the $50.8 million of commercial mortgage-backed securities were issued by GSEs.
Included in our investments in corporate fixed income securities at December 31, 2014 are $46.5 million of dollar-denominated
The growth in the Focus States during 2014 was partially offset by declining gross written premium in the Other States as we took actions to improve profitability in those states, which resulted in a decline in written premium. Upon management's strategic review in late 2014, as of January 1, 2015, we no longer write new business in Georgia, Nevada, and Pennsylvania, previously included in "Focus States", and maintain renewal business only in these states.
The decline in the total realized gain in 2013 was primarily due to a large capital gain from the sale of our investment in the Vanguard U.S. broad based exchange-traded fund in 2012.
Benefits and Expenses. Policyholder benefits and expenses were $583.1 million as compared to $493.6 million in 2000, an increase of 18%. Benefits and expenses in 2001 include a pre-tax charge of $44.3 million for reserve strengthening primarily related to an unusually high number of large losses in the Company's excess workers' compensation business. Prior to 2001, SNCC's historical average for losses exceeding $2.0 million in its excess workers' compensation products was one to two per year. In 2001, however, the Company experienced seven such losses, including two losses as a result of the terrorist attacks on the World Trade Center. The case reserves for these seven losses totaled $15.3 million, including $6.3 million attributable to the World Trade Center attacks. Though the Company believed that the high number of large losses in 2001 was unlikely to recur, the Company added $24.0 million to its reserve for IBNR losses since its method of estimating IBNR reserves is based on past experience. The Company experienced only one large loss
The types and amounts of investments made by the Company's insurance subsidiaries are subject to the insurance laws and regulations of their respective states of domicile. Each of these states has comprehensive investment regulations. In addition, the Company's revolving credit facility and, as to SNCC, the SIG Senior Notes also contain limitations, with which the Company is currently in compliance in all material respects, on the composition of the Company's investment portfolio. The Company also continually monitors its investment portfolio and attempts to ensure that the risks associated with concentrations of investments in either a particular sector of the market or a single entity are limited.
Cost of Services: Cost of services increased 19% from fiscal 1996 to fiscal 1997 (from $31,762,000 to $37,657,000), and increased 5% from fiscal 1995 to fiscal 1996 (from $30,290,000 to $31,762,000). As a percentage of revenues, cost of services increased from 58% in fiscal 1996 to 60% in fiscal 1997. The increase in fiscal 1997 of cost of services as a percentage of revenues was primarily due to additional costs related to payroll and expenses for increased business, and underutilization of the managed care, disability, and 24/7 CareCALL(SM) units.
The Company's cash flow from operations was $10,127,000 and $7,435,000 for fiscal 1997 and 1996, respectively. Cash flow from operations has exceeded net income primarily due to non-cash charges such as depreciation and amortization, deferred income taxes, and changes in operating assets and liabilities.
Assurant Specialty Property net income decreased $34,052, or 10%, to $307,705 for Twelve Months 2015 from $341,757 for Twelve Months 2014. The decrease is primarily due to the previously disclosed loss of client business and ongoing normalization in our lender-placed homeowners insurance business, partially offset by more favorable non-catastrophe loss experience and lower catastrophe reinsurance costs. The divestiture of American Reliable Insurance Company ("ARIC") also contributed to the decrease in net income.
In addition, the Company signed a definitive agreement to sell its Assurant Employee Benefits segment to Sun Life. The transaction is expected to close by the end of First Quarter 2016.
the extent of data segmentation - data should be homogeneous yet credible enough for loss development methods to apply; and
We regularly monitor our investment portfolio to ensure investments that may be other-than-temporarily impaired are identified in a timely fashion, properly valued, and charged against earnings in the proper period. The determination that a security has incurred an other-than-temporary decline in value requires the judgment of management. Assessment factors include, but are not limited to, the length of time and the extent to which the market value has been less than cost, the financial condition and rating of the issuer, whether any collateral is held, the intent and ability of the Company to retain the investment
The Company's executive offices are located in New York City. Offices and other properties used by the Company's subsidiaries are located throughout the United States. A few subsidiaries have offices located in foreign countries. Most office locations and other properties are leased on terms and for durations which are reflective of commercial standards in the communities where such offices and other properties are located.
Other operating expenses - A summary by segment of the Company's other operating expenses is as follows:
Investments carried at $16.5 million were on deposit with state treasurers in accordance with statutory requirements for the protection of policyholders at December 31, 1999.
December 31 (in thousands) 1999 1998 - ------------------------------------------------------------- Balance at beginning of year $12,256 $11,135 Valuation reserve adjustments (6,093) 3,951 Dispositions (1,307) (2,830) - -------------------------------------------------------------- Balance at end of year $ 4,856 $12,256 - --------------------------------------------------------------
Net periodic pension cost for the Company's pension and other retirement benefit plans includes the following components:
The following table provides a reconciliation of benefit obligations, plan assets and funded status of the plans at:
Total rental expense for all operating leases and month-to-month rentals was $126.3 million, $110.3 million and $79.7 million for 1999, 1998 and 1997, respectively.
Require the accrual of simple interest on the DPO at the same average net rate earned by Triad’s investment portfolio; and
Triad is also subject to comprehensive regulation by the insurance departments of the other states in which it is licensed to transact business. Currently, the insurance departments of the other states are working with the Department in the implementation of the Corrective Orders.
Net losses and LAE are comprised of settled claims, LAE and the change in the loss and LAE reserve during the period. The decrease in net losses and LAE in 2010 compared to 2009 is primarily due to a reduced volume of new defaults in 2010 and the development of loss reserves during the respective periods.
The decrease in Modified Pool settled claims is primarily due to a number of transactions reaching the stop loss limit on a settled basis. These transactions were all originated in 2006 and 2007 and had a large percentage of insured policies in the distressed markets. As a result, average severity for Modified Pool settled claims declined to $66,600 in 2010 from $80,500 in 2009.
Frequency and severity are the two most significant assumptions in the establishment of our loss reserves. Frequency is used to estimate the ultimate number of paid claims associated with the current inventory of loans in default. The frequency estimate assumes that long-term historical experience, taking into consideration criteria such as those described in the preceding paragraph, and adjusted for current economic conditions that we believe will significantly impact the long-term loss development, provides a reasonable basis for forecasting the number of claims that will be paid. Our expectations regarding future rescissions have been incorporated into the overall frequency factor. Severity is the estimate of the dollar amount per claim that will be paid based upon the amount of risk in default on each particular loan. The severity factors used are based on an analysis of the severity rates of recently paid claims, applied to the risk in force of the loans currently in default. The frequency and severity factors are updated quarterly. Economic conditions and other data upon which these factors are based may change more frequently than once a quarter and the impact of the change may not be perceived immediately. Therefore, significant changes in reserve requirements may become evident three or more months following the underlying events that would necessitate the change.
The Company’s consolidated financial statements are contained in the 2002 Annual Report and are incorporated by reference to pages 30 through 67 of Exhibit 13.1 filed with this Form 10-K. Reference is made to Item 15(a) of this report for the Schedules to the Company’s consolidated financial statements.
Other revenues were $489,000 in 2006, a decrease of $82,000, or 14%, from $571,000 in 2005, primarily due to the 5 percentage point decrease in the Company’s participation in the Reinsurance Pooling Agreement.
The ratio of amortization of deferred policy acquisition costs and other underwriting expenses to net premiums earned was 46.2% for 2006 compared to 43.9% for 2005. Amortization of deferred policy acquisition costs decreased $2,066,000 or 16% compared to the year earlier period, consistent with the 16% decrease in net premiums earned. Other underwriting expenses as a percentage of net premiums earned increased by 2.3 percentage points to 20.2% in 2006 from 17.9% in 2005 primarily due to an increase in expenses associated with the efforts to sell the Company to $1,463,000 in 2006, compared to $303,000 in 2005. Other underwriting expenses include retrospective commissions related to the Reinsurance Pooling Agreement, which provides for retrospective commission income or expense due from or to Mutual based on the estimated experience compared to a targeted loss and LAE ratio. Retrospective commission expense totaled $2,765,000 (6.7 percentage points of the expense ratio for 2006) compared to $3,320,000 (6.8 percentage points of the expense ratio) for 2005. Commissions (other than retrospective commissions under the Reinsurance Pooling Agreement), premium taxes and other state assessments that vary directly with the Company’s premium volume represented 20.9% and 19.7% of net premiums earned in 2006 and in 2005, respectively.
MNH’s share of pooled (combined Mutual and MNH) premiums earned and losses and LAE for 2005 and 2004 in accordance with the Reinsurance Pooling Agreement was 30% and 35%, respectively. The Reinsurance Pooling Agreement pertains to premiums earned and incurred losses and LAE.
Mild weather in the Company’s operating territory during 2005 contributed to significant decreases in claim frequency (reported claims per earned policy) in the Company’s homeowners and commercial property products.
Company’s Reserves for Losses and LAE. The following table documents the changes in the estimate of losses and LAE related to prior accident years recorded in 2005 for the Company’s primary products.
Whether diagnostic tests cause management to favor the results of one or more methods over the results of other methods. Such tests include:
At December 31, 2006, $2,925,000 or 2% of the Company’s investment portfolio was invested in non-investment grade securities, compared to $6,123,000 or 3% at December 31, 2005.
The increase in PPA loss ratio in 1995 as compared to 1994 is largely due to the new business written by Motor Club. It will be at least twelve to eighteen months before this business, much of which was written in the second half of 1995, begins to display its own loss development characteristics. Accordingly, until such development occurs, the Registrant has conservatively reserved the ultimate development of this new business at a loss ratio of 75%. This increased the overall PPA loss ratio by 2.2 points in 1995.
These measures include: (1) redefining what risks constitute "standard" risks and "preferred" risks. The Registrant now defines a standard risk as any home constructed before 1960 and a preferred risk is any home constructed after 1960. Previously, this definition was based on the value of a home; and (2) in November 1995, a 7.3% rate increase on standard risks (as now defined).
Reserves for unpaid losses and loss expenses at any report date reflect the estimate of the liabilities for the ultimate net loss of reported claims and estimated incurred but not reported claims.
The reconciliation shows a 1995 deficiency of $1,112,000 in the liability recorded at December 31, 1994. The deficiency is the result of a reduction in the amount of anticipated salvage and subrogation recoveries for claims incurred in 1994 and prior at December 31, 1995, as compared to December 31, 1994.
The Registrant's book value increased to $5.16 per share at December 31, 1994 from $3.51 per share at December 31, 1993. Net income of $5,034,000 or $2.46 per share was offset by: (1) a reduction in shareholders' equity of $387,800 or $.19 per share for recognition of additional minimum required pension liability; and (2) a decrease of $1,269,000 or $.62 per share in the market value of the fixed maturity investments accounted for as available-for- sale securities under SFAS No. 115. The additional minimum required liability was created by asset return shortfalls.
Net cash provided by and utilized in operating activities was $3,807,000 in 1995 and $3,060,000 in 1994, respectively. The increase in net cash provided by operating activities in 1995 is attributable to the growth in premium revenue combined with the reduction in overhead expenses. The decrease in net cash utilized by operating activities in 1994 is due to continued attrition in Motor Club's PPA book of business combined with payment of Motor Club's MTF liability of $2,275,000.
The Company's investment yields at amortized cost were as follows for the periods set forth below:
At December 31, 1996, the Company's consolidated stockholders' equity totaled $352.2 million, or $20.68 per share. At such date, statutory surplus of Risk Capital Reinsurance was approximately $334.3 million. Based on data available as of December 31, 1996 from the RAA, Risk Capital Reinsurance is the twelfth largest domestic broker market oriented reinsurer as measured by statutory surplus.
The decline in Protection income was due to unfavorable group life mortality experience and higher group health reserves from an increase in group long-term disability claims experience.
During the fourth quarter of 1996, the Company, its ultimate parent, Sun Life Assurance Company of Canada ("SLOC"), and affiliates began a comprehensive analysis of its information technology ("IT") and non-IT systems, including its hardware, software, data, data feed products, and internal and external supporting services, to address the ability of these systems to correctly process date calculations through the year 2000 and beyond. SLOC created a full-time Year 2000 project team in early 1997 to manage this
As of year-end 1999, the Company expended, cumulatively, approximately $288,000 ($67,000 in 1999) on its Year 2000 effort.
17. COMMITMENTS AND CONTINGENT LIABILITIES The Company is involved in pending and threatened litigation in the normal course of its business in which claims for monetary and punitive damages have been asserted. Although there can be no assurances, at the present time the Company does not anticipate that the ultimate liability arising from such pending or threatened litigation, after consideration of provisions made for potential losses and costs of defense, will have a material adverse effect on the financial condition or operating results of the Company.
The statutory combined ratio (after policyholder dividends) improved to 97.1 from the 99.3 reported in 1993. Improvement was attributed to a 1.2-point decrease in the underwriting expense ratio and a 1-point decrease in the loss and loss settlement expense ratio. The decreases were the result of the Company's continuing efforts to improve efficiency and productivity. Wind and hail losses for 1994 increased to $24.4 million from $18.7 million in 1993; their impact on the combined ratio worsened to 6.3 points from 5.4 points for 1993. The underwriting gain (on a generally accepted accounting principles basis) was $9.8 million compared with a gain of $611,000 for 1993. On a fully diluted basis, wind and hail losses increased $0.26 per share to $1.15 in 1994.
Revenues for ALLIED Mortgage decreased slightly in 1994 to $18.3 million from $18.4 million in 1993, adversely affected by a sharp decrease in marketing revenues in an interest rate environment that experienced rising rates throughout the year. In 1993, falling interest rates provided the market with an abundance of mortgage loans to be purchased or originated at below-market prices and allowed the mortgage loans to be sold on the secondary market at a premium. The stability in revenues in 1994 was attributed primarily to an increase in servicing fees that offset the decline in marketing revenues. The mortgage servicing portfolio grew 19.3% to $3 billion from $2.5 billion at year-end 1993.
Total income taxes for the years ended December 31, 1995, 1994, and 1993 were allocated as follows:
AMVESTORS FINANCIAL CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EARNINGS (000's Omitted, except per share data)
Certain mortgage-backed securities are subject to significant prepayment risk. This is due to the fact that in periods of declining interest rates, mortgages may be repaid more rapidly than scheduled, as individuals refinance higher rate mortgages to take advantage of the lower current rates. As a result, holders of mortgage-backed securities may receive large prepayments on their investments which they are unable to reinvest at an interest rate comparable to the rate on the prepaying mortgages. Mortgage-b acked pass-through securities and sequential classes, which comprised 21.6% and 22.1% of the carrying value of the company's mortgage-backed securities as of December 31, 1994 and December 31, 1993, respectively, are sensitive to this prepayment risk.
Deferred income taxes are provided for the tax effects of transactions that are reported in different periods for financial reporting and tax return purposes. The primary components of the deferred income tax provision are as follows:
As a result of the USAuto acquisition, we are now principally a retailer, servicer and underwriter of non-standard personal automobile insurance, based in Nashville, Tennessee. Non-standard personal automobile insurance is made available to individuals who are categorized as “non-standard” because of their inability or unwillingness to obtain standard insurance coverage due to various factors, including payment history, payment preference, failure in the past to maintain continuous insurance coverage, driving record and/or vehicle type, and in most instances who are required by law to buy a minimum amount of automobile insurance.
fee income, which includes policy and installment billing fees on policies written as well as fees for other ancillary services (principally a motor club product);
income. Funds are used to pay claims and operating expenses, pay interest and principal repayments under the terms of our loan agreement, and purchase investments.
We have no off-balance sheet arrangements (other than operating leases) or financing activities with special-purpose entities.
The Real Estate and Corporate segment consists of the Company’s above-mentioned business activities prior to the USAuto acquisition and interest expense associated with all debt. Total assets by segment are those assets used in the operation of each segment.
The following table presents selected financial data as of and for the year ended June 30, 2004:
The following table summarizes the Company’s future estimated cash payments under existing contractual obligations at December 31, 2017, including, payments due by period:
In February 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ("ASU") 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. ASU 2018-02 is intended to help organizations reclassify certain stranded income tax effects in accumulated other comprehensive income resulting from the TCJA. Under the ASU, entities will have the option to reclassify tax effects within other comprehensive income to retained earnings in each period in which the effect of the change in the federal corporate tax rate under the TCJA is recorded. The update is effective for annual periods beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted upon issuance of the standard, and the Company expects to adopt the standard during 2018. The Company is currently evaluating the impact that the recently issued accounting standard will have on the Company's financial position and results of operations, but does not expect it to have a material impact.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) ("PCAOB"), the Company's internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 12, 2018 expressed an unqualified opinion.
The unrealized losses related to holdings of equity securities were caused by market changes that the Company considers to be temporary. Since the Company has the intent and ability to hold these equity securities until a recovery of fair value, the Company does not consider these investments other-than-temporarily impaired.
In the fourth quarter of 1994, ISD wrote off $2.3 million of unamortized capitalized software development costs previously incurred to develop a version of the COVER-ALL system for use in-house to process policies and claims.
The principal executive offices of the Company are located in the Old Republic Building in Chicago, Illinois. This Company owned building contains 151,000 square feet of floor space of which approximately 50% is occupied by Old Republic, and the remainder is leased to others. In addition to the Company-owned principal executive offices, a subsidiary of the Title Insurance Group partially occupies its headquarters building. This building contains 110,000 square feet of floor space of which approximately 62% is occupied by the Old Republic National Title Insurance Company. The remainder of the building is leased to others. Nine smaller buildings are owned by Old Republic and its subsidiaries in various parts of the country and are primarily used for its business. The carrying value of all buildings and related land at December 31, 1994 was approximately $12.7 million, and mortgages thereagainst aggregated $.2 million as of the same date.
As a result of regular examinations of the tax returns for the Corporation and its subsidiaries, the Internal Revenue Service ("IRS") has proposed certain adjustments for additional taxes applicable to the years 1982 to 1990. The proposed adjustments pertain to the timing of certain deductions, the IRS's contention that contractually obligated premium refunds should be treated as dividends, deductions for certain loss and related reserves, a reinsurance transaction, and several other issues not involving material amounts. The Company and its tax counsel believe that substantially all of the proposed material adjustments are without merit, that the Company will be successful in vigorously defending its positions, and that the ultimate adjustments, if any, will not significantly affect its financial condition or results of operations. During 1994 and 1993, certain of the proposed adjustments were finally settled for immaterial amounts. In 1992, the Company's life insurance subsidiaries recorded previously unrecognized tax recoveries of $1.1 and related interest credits of approximately $12.4 stemming from resolution of various long-standing Internal Revenue Service disputes applicable to taxable years 1969 to 1981.
The reconciliation of the funded status of the plans is as follows:
The Company adopted Financial Accounting Standard (FAS) No. 106 "Employers' Accounting for Post-retirement Benefits Other Than Pensions" for health care and life insurance benefit plans as of January 1, 1993. A few Old Republic subsidiaries make available post-retirement health benefits for employees that retired prior to November 30, 1992. FAS No. 106 provides the option of either recognizing the projected future costs of post-retirement benefits as a liability, or amortizing such costs over the average remaining life expectancy of plan participants. Previously such benefits were reported as costs in the period during which they were provided. The Company recognized the accumulated post-retirement benefit liability of $7.0 as of January 1, 1993; this resulted in an after tax charge to net income of $4.6, or $.08 per share ($.08 fully diluted).
Provision for Income Taxes. The Company's provision for income taxes decreased $53 million or 17.6% to $248 million in 1999 from $301 million in 1998. The Company's effective tax rate of 28.7% in 1999 was 9.3 percentage points lower than the effective tax rate of 38.0% in 1998 due primarily to the sale of a minority interest in a subsidiary, giving rise to the realization of a deferred tax asset not previously allowed to be recorded.
At December 31, 1999, the Company's investments in equity securities totaled $0.3 billion, of which $0.2 billion was preferred stock and $0.1 billion was common stock. The investments in preferred stock generally pay dividends on a quarterly basis at yields comparable to bonds.
As of December 31, 1999, the Company's bond portfolio had an average rating of A+/A1. According to S&P and Moody's, bonds which are rated "A" possess many favorable investment attributes and are to be considered as upper medium grade obligations. S&P applies "+" and "-" modifiers in each generic rating classification from AA to CCC. Moody's applies numerical modifiers "1", "2" and "3" in each generic rating classification from Aa to B. Modifier "1" indicates a bond in the higher end of a generic rating classification.
Changes in the market values of investments available-for-sale, net of the effect on deferred acquisition costs, present value of future profits and deferred federal income taxes are reflected as unrealized investment gains or losses in a separate component of shareholder's interest and, accordingly, have no effect on net income, but are shown as a component of accumulated non-owner changes in equity. Unrealized losses that are considered other than temporary are recognized in earnings through an adjustment to the amortized cost basis of the underlying securities. The Company engages in certain securities lending transactions, which require the borrower to provide collateral, primarily consisting of cash and government securities, on a daily basis, in amounts equal to or exceeding 102% of the market value of the applicable securities loaned.
As a matter of policy, the Company does not engage in derivative trading, market-making or other speculative activities.
At December 31, 1999 and 1998, total unamortized goodwill was $2,422 and $1,803, respectively, which is presented net of accumulated amortization of $249 and $162, respectively. Goodwill amortization was $84, $68 and $44 for the years ended December 31, 1999, 1998 and 1997, respectively. Goodwill in excess of associated expected operating cash flows is considered to be impaired and is written down to fair value (no such write-downs have been made).
As of December 31, 1997 the Company has a total $22,148,000 of cash and cash equivalents, short-term investments and investments held for sale in comparison to $18,242,000 of notes payable. FCC services this debt through existing cash balances and management fees received from the insurance subsidiaries. FCC is further able to service this debt through dividends it may receive from UG. See note 2 in the notes to the consolidated financial statements for additional information regarding dividends.
The FASB has issued SFAS No. 130 entitled Reporting Comprehensive Income and SFAS No. 132 Employers' Disclosures about Pensions and Other Postretirement Benefits. Both of the above statements are effective for financial statements with fiscal years beginning after December 15, 1997.
- In the fourth quarter of 1997 the Company acquired most of the individual and small group health insurance business of Pan American Life Insurance Company ("Pan American"). Approximately 74,000 members were acquired with the acquisition of this block of business. - On May 7, 1998, the Company reached an agreement with Pan American to assume most of their remaining domestic health insurance business effective July 1, 1998, which resulted in an additional 80,000 members at the time of acquisition. - On October 15, 1998, the Company reached an agreement with Continental Assurance Company ("CNA") to acquire the majority of CNA's fully insured employer group health business effective January 1, 1999. Management estimates the book of business covered approximately 75,000 fully insured medical members as of January 1, 1999.
For the year ended December 31, 1997, the expense ratio for health products was 23.0% compared with 24.2% (pro forma) for 1996. The improved health expense ratio for the year reflects a decline in commissions on new business, increased productivity, a reduction in personnel and the automation of claims payments. Interest expense increased from $4.3 million in 1996 to $9.3 million in 1997. The increase is attributable to $70.0 million of additional debt borrowed to finance the merger with Old AMS. For 1997, amortization of goodwill and intangibles increased to $8.0 million from $0.7 million in 1996. The large increase in amortization expenses is due to the $150.0 million of goodwill and other intangibles recorded at the time of the merger with Old AMS.
The fair values of investments are reported in Note 4. The fair values of other financial instruments, principally other assets, advanced premiums, payables and accrued expenses, notes payable and other liabilities approximate their December 31, 1998 and 1997 carrying values.
The Company has acquired certain business from other carriers through reinsurance transactions. A summary of reinsurance ceded and assumed related to acquired business is as follows:
Derivatives are financial instruments in which the value changes in response to an underlying variable, that require little or no net initial investment and are settled at a future date. All derivatives recognized on the Balance Sheets are carried at fair value. All changes in fair value are recognized in the Income Statements. The fair value for exchange traded derivatives, such as futures, are calculated net of the interest accrued to date and is based on quoted market prices. Net settlements on the futures occur daily. As of December 31, 2008, the Company had 990 outstanding short futures contracts with a notional amount of $222.8 million. There were no futures contracts at December 31, 2007.
Policy and contract surrenders decreased $489.3 million (or 32%) to $1,029.7 million during 2008, as compared to 2007. The decrease is primarily due to the decline in the equity markets in 2008.
MLLIC’s entire credit card portfolio has been stress tested. Results of these stress tests indicate that while downgrades within the portfolio may occur, all of our Class A, B, and C are projecting payment in full. MLLIC does not hold any credit card exposure below class “C”. As there has been no impact to expected future cash flows, MLLIC does not consider the underlying investments to be impaired as of December 31, 2008.
MLLIC believes that the underlying investments are well underwritten and have performed relatively better than other comparable CMBS structures. All of the securities in an unrealized loss position are rated investment grade. As the unrealized losses in the CMBS portfolio relate to holdings where MLLIC expects to receive full principal and interest, MLLIC does not consider the underlying investments to be impaired as of December 31, 2008.
Residential mortgage-backed securities (“RMBS”) are securitizations of underlying pools of non-commercial mortgages on real estate. The underlying residential mortgages have varying credit ratings and are pooled together and sold in tranches. The Company’s RMBS includes collateralized mortgage obligations (“CMO”), government sponsored enterprise (“GSE”) guaranteed passthroughs, whole loan passthroughs and negative amortization mortgage-backed securities.
A possible liquidity risk faced by the parent would be if it were required to contribute additional capital to its insurance subsidiaries under unfavorable conditions in the reinsurance, debt or equity markets, which could drive up the cost of capital and prevent the Company from paying dividends to its shareholders. Regulators generally require property and casualty insurance companies to maintain a ratio of net premium written to statutory surplus of no greater than three-to-one. Growth in net premiums written raises the numerator in this ratio, while statutory operating losses have the effect of depressing the denominator. The Company's ratio stood at 2.2:1 at December 31, 2001.
CRITICAL ACCOUNTING POLICIES Management believes the Company's current critical accounting policies comprise the following:
Ceded premiums decreased $0.2 million, or 1.8%, during 2005 as compared to 2004. The decrease in ceded premiums was primarily due to the increased volume of surety business, which is not subject to reinsurance.
Gross written premiums at Association Casualty decreased $2.4 million, or 8.5%, during 2005 as compared to 2004. The decrease in gross written premiums was primarily attributable to the termination of
Written premiums ceded to Association Casualty under a quota share reinsurance agreement and eliminated in consolidation. This agreement was cancelled effective August 31, 2005.
Premium revenue at Bankers Fidelity increased $0.5 million, or .7%, during 2005 as compared to 2004. The most significant increase in premiums was in the Medicare supplement line of business, where premiums increased $1.8 million, or 3.7%, during 2005 as compared to 2004. Bankers Fidelity continues to expand its market presence throughout the Southeast, Mid-Atlantic, and in the western United States. In
investments, all of which resulted in a charge of $10.7 million. Management continually evaluates the Company’s investment portfolio and, as needed, makes adjustments for impairments and/or will divest investments. (See Note 2 of Notes to Consolidated Financial Statements.)
The Company’s rental expense, including common area charges, for operating leases was $1,936, $1,920, and $1,867 in 2005, 2004, and 2003, respectively. The Company’s future minimum lease obligations under non-cancelable operating leases are as follows:
The Company experienced a loss of $3,332,942 (after accretion of mandatorily redeemable convertible preferred stock, including accrued dividends) in fiscal 2008 as compared with a loss of $2,661,431 in fiscal 2007.
The increase in revenues reflected above is attributable to increased surety business that has been secured in fiscal year 2008. Net premium written in fiscal 2008 amounted to $586,498 as compared with $264,639 in fiscal 2007, and is more reflective of the growth experienced in this segment of the business for the comparable periods. Commission income earned for the placement of bonds with outside insurers has remained relatively stagnant.
Net unrealized appreciation of fixed maturities increased (decreased) by $(8,736,000), $1,837,000 and $(2,197,000) and net unrealized appreciation of equity securities increased by $14,036,000, $15,360,000 and $11,417,000 for the years ended December 31, 1999, 1998 and 1997, respectively.
The following is a reconciliation of net income and shareholders' equity under accounting principles generally accepted in the United States (US GAAP) with that reported for MMIC on a statutory basis (in thousands):
BALANCE SHEET DATA: Total investments........... 249,008 185,867 179,856 184,790 169,810 Total assets................ 336,401 286,207 266,368 276,989 249,530 Insurance policy benefits, claims and other policy liabilities................ 202,278 158,233 150,988 159,090 149,083 Long-term debt.............. - 12,111 14,111 15,161 161 Common stockholders' equity..................... 76,856(1) 71,607 55,694 62,051 57,205
Book value per common share.$ 10.34(1)$ 9.63 $ 7.17 $ 7.84 $ 7.12
During 2004, the remaining $368,000 of deferred gain related to a sale and leaseback transaction for certain equipment was amortized into income.
Net income increased 21% from $3,792,000 in 1993 to $4,588,000 in 1994 due to the factors outlined above.
The Company generated $4,866,000, $10,963,000 and $2,037,000 in cash from operating activities in the fiscal years ended December 31, 1993, 1994 and 1995, respectively. The Company used $5,022,000, $15,140,000 and generated $7,206,000 in cash for investing activities for the fiscal years ended December 31, 1993, 1994 and 1995, respectively. The Company used $2,597,000, generated $1,371,000 and used $9,994,000 in cash from financing activities for the fiscal years ended December 31, 1993, 1994 and 1995, respectively. The cash used for investing activities in 1993 and 1994 was funded principally by operating activities.
The Management's Discussion and Analysis of Financial Condition and Results of Operations are contained in the Registrant's 1995 Annual Report to Stockholders under the heading "Management's Discussion and Analysis," which is incorporated herein by reference.