Leased property under capital lease and obligation under capital lease increased $53.7 million and $60.0 million, respectively, as a result of a sale-leaseback transaction the Company entered in December 2002 (see Note 7 to the Notes to Consolidated Financial Statements). The purpose of the transaction was to increase the statutory surplus of 21st Century Insurance Company, the Company's primary wholly owned subsidiary.
Stockholders' equity and book value per share decreased to $655.6 million and $7.67 at December 31, 2002, compared to $659.3 million and $7.72 at December 31, 2001. The decrease for the year ended December 31, 2002, was primarily due to a net loss of $12.3 million and dividends to stockholders of $22.2 million, offset in part by the increase in net unrealized investment gains of $29.9 million and other changes in comprehensive income of $0.9 million.
Cash and investments at the holding company were $7.0 million at December 31, 2002, compared to $52.8 million at December 31, 2001. The decline in the parent's cash and investments is primarily due to the payment of dividends and the repayments of intercompany balances. On December 19, 2002, the Company declared a $1.7 million dividend to stockholders of record on December 30, 2002, which was paid January 17, 2003. If necessary, the Company believes it can access the capital markets should the need arise for additional capital to support its growth and other corporate objectives. The Company's S&P claims paying rating currently is A+, and its A.M. Best rating is A+.
On October 23, 2002, the CDI finalized its examination report on the 1999 statutory financial statements for the Company's California-domiciled insurance subsidiaries. The report did not require the insurance subsidiaries to restate those financial statements.
Capital Lease Operating For the years ended December 31, Obligation Leases Total - ----------------------------------------------------------------- 2003 $ 12.8 $ 17.1 $ 29.9 2004 14.0 16.3 30.3 2005 14.0 15.7 29.7 2006 14.0 14.2 28.2 2007 14.0 12.7 26.7 2008 and thereafter - 92.9 92.9 - ----------------------------------------------------------------- $ 68.8 $ 168.9 $237.7 - -----------------------------------------------------------------
the year ended December 31, 2001. For the year ended December 31, 2000, the Company reported net income of $12.9 million, or $0.15 earnings per share, on direct premiums written of $910.7 million. The results for 2002, 2001 and 2000 included pre-tax charges of $52.6 million, $70.2 million and $3.5 million, respectively, for costs to resolve Northridge Earthquake claims. The 2002 results also include $37.2 million to write-off the costs of a software development effort, and 2001 includes $13.6 million associated with workforce reductions and the settlement of litigation matters.
Net incurred losses and loss adjustment expenses increased $30.0 million (4.1%) to $768.3 million in 2002 compared to $738.3 million and $729.6 million in 2001 and 2000, respectively. The ratios of loss and loss adjustment expenses to net premiums earned were 82.9%, 88.1% and 90.8% for the years ended December 31, 2002, 2001 and 2000, respectively. The effects on the loss and LAE ratios of changes in estimates relating to insured events of prior years were 1.8% in 2002, 5.5% in 2001 and 5.2% in 2000. These changes in estimates pertained mainly to development in average paid loss severities beyond amounts previously anticipated. For additional discussion of the factors that led to these changes in estimates, please see Item 1 of this report under the heading Loss and Loss Adjustment Expense Reserves. In general, changes in estimate are recorded in the period in which new information becomes available indicating that a change is warranted, usually in conjunction with the Company's quarterly actuarial review.
California Senate Bill 1899 ("SB 1899"), effective from January 1, 2001, to December 31, 2001, allowed the re-opening of previously closed earthquake claims arising out of the 1994 Northridge Earthquake. In the fourth quarter of 2001, the Company recorded a $50.0 million pre-tax charge for loss and inspection costs but, at that time, it was impracticable to reasonably estimate the legal defense costs associated with previously closed earthquake claims. The Company's constitutional challenge to SB 1899 came to an unsuccessful result on April 29, 2002, when the United States Supreme Court refused to hear the Company's case. Based on information subsequently available to the Company, the Company recorded an additional $46.9 million pre-tax charge for such legal defense costs in the third quarter of 2002.
On December 9, 2002, the Company commenced an arbitration proceeding against CSC arising out of CSC's obligation to provide insurance company information technology software and other software programs to the Company. CSC has filed a counterclaim in the proceeding. The arbitration will be conducted in accordance with the rules of the American Arbitration Association.
settlement of claims. In addition, time can be a critical part of reserving determinations since the longer the span between the incidence of a loss and the payment or settlement of the claim, the more variable the ultimate settlement amount can be. Accordingly, short-tail claims, such as property damage claims, tend to be more reasonably predictable than long-tail liability claims. For the Company's current mix of auto exposures, which include both property and liability exposures, an average of approximately 63% of the ultimate losses are settled within twelve months of the date of loss.
A necessarily more subjective process is used to estimate earthquake losses arising out of SB 1899 due to the fact that they cannot be determined with traditional actuarial methods that rely on historical or industry data, neither of which are available in regard to this event. See Note 16 of the Notes to Consolidated Financial Statements for a discussion of the factors considered by management in establishing those reserves.
Contracts Incepting During --------------------------- 2002 2001 2000 - ----------------------------------------------------------------------- AUTO POLICIES Retained 97% 94% 92% Ceded 3% 6% 8% Catastrophe cover excess $15 million $30,000 - - HOMEOWNER POLICIES(1) Retained - 94% 92% Ceded 100% 6% 8% Catastrophe cover excess $10 million(2) - $75,000 $65,000 PUP POLICIES Retained 10% 16% 37% Ceded 90% 84% 63%
A summary of grants under the plan from 2000 through 2002 follows:
Personal Auto Lines. The underwriting gain for the personal auto lines was due to a 12.1% increase in the number of insured vehicles, rate increases and the favorable impact on claim frequency of drought conditions that have largely prevailed in Southern California during the past year. The underwriting loss for the personal auto lines decreased by $15.4 million in 2001 compared to 2000 as the effects of rate increases more than offset the effects of a decline in the number of insured vehicles.
21ST CENTURY INSURANCE GROUP NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2002 (CONTINUED) AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA