In 2000, the provision for incurred losses and loss adjustment expenses for events of prior years turned from favorable to adverse. Estimates for ultimate loss reserves are inherently difficult to determine because they are attempts to quantify future results based on current trends. The effort to predict the Company's ultimate losses and loss adjustment expenses has been made more difficult in 2000 and 2001 because of the following:
Primarily as a result of the underwriting losses in 2001 and 2000, the A.M. Best Company recently lowered Crusader's rating from A (Excellent) to A- (Excellent). A.M. Best remains concerned with the potential for further adverse loss reserve development and the negative impact it would have on the Company's operating performance and overall capitalization. As a result, A.M. Best views the rating outlook as negative. The Company does not believe that the lowering of Crusader's rating from A to A- will have a material adverse effect on the Company.
Earthquake program commission income $51,029 $15,993 $22,421 Workers' compensation program commission income $19,730 $44,818 $81,919 Commercial liability program commission and fee income $62,839 $55,828 $22,280 Commercial and personal auto program commission and fee income - - $4,363 Miscellaneous fee income $161 $128 $177 ------- ------- -------- Total other commission and fee income $133,759 $116,767 $131,160 ======= ======= =======
Unifax began producing commercial liability insurance policies in California for non-affiliated insurance companies in 1999. Unifax received a commission from the insurance company based on premium written and a service fee from the policyholder. Effective December 2001 the company discontinued the program. The Company took this action in order to better utilize its resources and focus on those markets that offer the greatest potential for 2002 and beyond. Commission and fee income on the commercial liability program increased $7,011 (13 %) in the year ended December 31, 2001, compared to the prior year.
Statement of Financial Accounting Standards No. 143 ("SFAS No. 143") "Asset Retirement Obligations" is effective for fiscal years beginning after December 15, 2002, and establishes financial accounting and reporting for obligations associated with the retirement of tangible long-live assets and the associated retirement costs. It requires that the fair value of a liability for an asset retirement obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are to be capitalized as part of the carrying amount of the long lived asset. The Company does not expect the adoption of SFAS No. 143 to have a material impact on our financial statements.
Segment Reporting - ----------------- Statement of Financial Accounting Standards No. 131 ("SFAS No. 131"), Disclosures about Segments of an Enterprise and Related Information, became effective for fiscal years effective after December 15, 1997. SFAS No. 131 establishes standards for the way information about operating segments is reported in financial statements. The Company has identified its insurance company operation as its primary reporting segment. Revenues from this segment comprised 84.4% of consolidated revenues in the year ended December 31, 2001, 82.3% of consolidated revenues in the prior year. The Company's remaining operations constitute a variety of specialty insurance services, each with unique characteristics and individually insignificant to consolidated revenues.
1 Higher than anticipated claim cost from business outside of California. 2 The effect on settlements of escalating jury awards. 3 The effect on settlements in apartment house habitability claims due to a statute that provide for payment of plaintiff attorney fees without regard to policy limits. 4 Increased development of losses due to the impact of changes in California law that expanded coverage and increased loss exposure primarily on construction defect claims for losses incurred prior to the Company's revision in its policy form in 1995. For example:
The weighted average fair value of options granted during 1999 was $4.30. No options were granted in 2001 or 2000. Options exercisable were 81,145 at December 31, 2001, at a weighted average exercise price of $8.44; 121,275 at December 31, 2000, at a weighted average exercise price of $5.87; 101,415 at December 31, 1999, at a weighted average exercise price of $3.50.