Although material capital expenditures may also be funded through borrowings, the Company believes that its cash and short-term investments at year end, net of trust restriction of $3,071,696, statutory deposits of $2,725,000, and dividend restriction between Crusader and Unico (See Item 1 - Business - Insurance Company Operation - Holding Company Act) plus the cash to be generated from operations, should be sufficient to meet its operating requirements during the next twelve months without the necessity of borrowing funds.
In the year ended December 31, 1999, gross written premium decreased by $3,939,942 (11%) compared to the year ended December 31, 1998. Intense price competition in the property casualty insurance market has adversely affected the premium written in nearly all states that the Company does business. The increase in 1999 written premium in the states of Kentucky, Montana and Pennsylvania was not sufficient to offset the decrease in the other states in which the Company writes business. In 1998, the Company changed its marketing strategy in the states of Washington and Oregon by discontinuing marketing through an exclusive agent in those states and commenced marketing directly to all retail agents and brokers. The Company anticipated that this change would result in a short-term decrease in written premium with long-term benefits of increased revenues with reduced acquisition expense and less dependency on any one large producer. Because intense price competition during 1999 and 1998 continued to adversely affect written premium in those states, the Company cannot determine how much of the decrease in written premium was applicable to the change in marketing strategy, but still anticipates a long-term benefit from the change. The foregoing statement is a forward looking statement and actual results may differ materially. Factors that would cause the results to differ include economic conditions in the states of Washington and Oregon, willingness of retail agents and brokers to deal directly with the Company and competitive conditions.
The Company cannot determine how long this "soft market" condition will continue. In order to grow its premium in this "soft market," the Company is attempting to increase its activities in its existing states by new marketing and incentive programs and by offering new and improved products to its agents and brokers. The Company's geographical expansion plan is based on cloning its California business in other states with similar demographics and legal/regulatory environments. The Company's business package program has been written in California since it began writing business in 1985, and it has proved to be successful. When the Company enters a new state, it initially does so on a limited basis in terms of agent contracts, products, and premium. As the Company develops experience in those states, it then places an emphasis on growth by expanding products and distribution activity.
Service fee income is primarily related to the number of policies written by Unifax and has decreased as the number of policies written by Unifax has decreased.
Year ended December 31 ---------------------- 1999 1998 1997 ---- ---- ---- Commission income $81,919 $329,465 $298,006
Forward Looking Statements - -------------------------- Certain statements contained herein, including the Sections entitled "Business," "Legal Proceedings" and "Management's Discussion and Analysis of Financial Condition and Results of Operations," that are not historical facts are forward looking. These statements, which may be identified by forward-looking words or phrases such as "anticipate," "believe," "expect," "intend" "may," "should," and "would," involve risks and uncertainties, many of which are beyond the control of the Company. Such risks and uncertainties could cause actual results to differ materially from these forward looking statements. Factors which could cause actual results to differ materially include those described under Item 1 - Business - "Competition," premium rate adequacy relating to competition or regulation, actual versus estimated claim experience, regulatory changes or developments, unforeseen calamities, general market conditions, the Company's ability to introduce new profitable products, and the Company's ability to expand geographically.
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) - ---------------------------------------------------------------
NOTE 3 - INVESTMENTS - --------------------- A summary of net investments and related income is as follows:
Incurred losses and loss adjustment expenses: Direct $23,189,173 $20,557,887 $26,415,828 Assumed - - - Ceded $(6,161,983) $(2,964,305) $(7,127,262)