Investments and Liquidity - ------------------------- The Company generates revenue from its investment portfolio, which consisted of approximately $132.1 million (at amortized cost) at December 31, 2004, compared to $118.6 million (at amortized cost) at December 31, 2003. Although the portfolio increased in 2004, investment income decreased approximately $600,000. The decrease in investment income is primarily the result of a decline over the last five years in short and long-term yields in the marketplace and a shorter weighted average maturity of the portfolio. Due to the interest rate environment, management believed it was prudent to purchase fixed maturity investments with shorter maturities with minimal credit risk.
Crusader's statutory capital and surplus as of December 31, 2004, was $29,436,343, an increase of $3,332,903 (12.8%) from December 31, 2003. Crusader's statutory capital and surplus as of December 31, 2003, was $26,103,440, a decrease of $155,012 (0.6%) from December 31, 2002.
There were no dividends paid by Crusader to Unico in 2004, 2003 or 2002. Based on Crusader's statutory surplus as regards policyholders as of December 31, 2004, the maximum dividend that can be made by Crusader to Unico without prior regulatory approval in 2005 is $2,943,634.
For the year ended December 31, 2004, gross written premium increased by $4,824,304 (7.5%) over 2003 and gross written premium for the year ended December 31, 2003, increased by $18,425,437 (40%) over 2002. The growth in written premium is primarily a result of higher premium rates charged by the Company, which has resulted in a 10% and 22% increase in the average premium per policy for each of the years ended December 31, 2004 and 2003, respectively. The increase in average gross written premium per policy is a result of several factors including a subsidence in price based competition in the property casualty insurance market and an increase in rates for some of the Company's products. The Company's future writings growth is dependent on market conditions, competition, and the Company's ability to introduce new and profitable products. The Company believes that the "hard market" condition experienced by the Company in 2004 no longer exists. Nonetheless, the Company continues to benefit from the fact that some of its competitors went out of business and others raised rates or adopted more restrictive rules.
B. On September 28, 2000, the Company imposed more stringent underwriting restrictions and requirements upon members of the "Big and Old" group, including the adoption of more restrictive coverage forms and use of maintenance warranties for members of this group.
7. Mold Exposure: The Company has not seen any significant mold-based claims and all of its policies are now being endorsed with a "Mold Exclusion." In addition, numerous articles from respected medical authorities were recently published, making plaintiffs task of proving mold-based injuries much more difficult.
Consolidated Statements of Cash Flows for the years ended December 31, 2004, December 31, 2003, and December 31, 2002 40
We have audited the accompanying consolidated balance sheets of Unico American Corporation and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of operations, comprehensive income, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2004. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
assessing other-than-temporary impairments is based on security-specific analysis as of the balance sheet date and considers various factors including the length of time and the extent to which the fair value has been less than the cost, the financial condition and the near term prospects of the issuer, whether the debtor is current on its contractually obligated interest and principal payments, and the Company's intent to hold the investment for a period of time sufficient to allow the Company to recover its costs. The Company has concluded that the gross unrealized losses of $672,067 at December 31, 2004, were temporary in nature. However, facts and circumstances may change which could result in a decline in market value considered to be other than temporary. The Company did not sell any fixed maturity investment in the years ended December 31, 2004 and 2003.
Losses and loss adjustment expenses were $34,450,738 (69%) of net premium earned for the year ended December 31, 2004, compared to $31,720,533 (85%) of net premium earned for the year ended December 31, 2003. Incurred losses of prior years were approximately $835,434 (favorable development) for the year ended December 31, 2004, compared to incurred losses of prior years of $2,751,585 (adverse development) for the year ended December 31, 2003.