Bancinsurance is a specialty property/casualty insurance holding company incorporated in the State of Ohio in 1970. The Company has two reportable business segments: (1) property/casualty insurance; and (2) insurance agency. These segments are described in more detail below.
Net Premiums Earned. Net premiums earned increased 2.5%, or $1,189,518, to $48,162,776 in 2008 from $46,973,258 a year ago principally due to an increase in premiums for our WIP, UC and CPI product lines which was partially offset by a decrease in premiums for our GAP product line.
CPI losses and LAE increased 62.2%, or $147,618, to $385,093 in 2008 from $237,475 a year ago primarily due to the growth in the business.
Other Operating Expenses. Other operating expenses increased 7.5%, or $545,455, to $7,803,122 in 2008 from $7,257,667 a year ago primarily due to an increase in compensation expense principally related to growth in the number of our employees combined with an increase in consulting expenses primarily related to state filings for our lender service product line.
During 2008, we experienced an increase in benefit charges for certain of our UC customers, which resulted in lower management fees for 2008 compared to 2007. Given the current economic conditions, it is likely that we will experience an increase in benefit charges for our UC customers in 2009 when compared to 2008 which would result in lower management fees and/or increased losses for our UC products; however, it is difficult for us to predict how material the impact will be to us. Where possible, we have taken actions to help mitigate the effects of these trends, including monitoring the pricing of our products and taking rate actions when necessary.
Furthermore, any developments on the discontinued bond program, including Harco and Highlands’ loss development and the Highlands’ arbitration and receivership proceeding, could have a material impact on our future results of operations and/or financial condition.
For our direct business, the majority of our losses are short-tail in nature and adjustments to reserve amounts occur rather quickly. Conditions that affected the above redundancies in reserves may not necessarily occur in the future. Accordingly, it may not be appropriate
Certain prior year amounts have been reclassified in order to conform to the 2008 presentation.
Bancinsurance Corporation has a $10,000,000 unsecured revolving bank line of credit with a maturity date of June 30, 2010, having a $2,500,000 and $0 outstanding balance at December 31, 2008 and December 31, 2007, respectively. The terms of the revolving credit agreement contain various restrictive covenants. As of December 31, 2008, Bancinsurance Corporation was in compliance with all such covenants. The bank line of credit provides for interest payable quarterly at an annual rate equal to the prime rate less 75 basis points (2.50% at December 31, 2008). Interest expense related to the bank line of credit for the years ended
reassume liability in those situations where the reinsurer is unable to meet the obligations it assumed under the reinsurance agreement. The ability to collect reinsurance is subject to the solvency of the reinsurers and/or collateral provided under the reinsurance agreement.
In addition to the arrangements discussed above, we have other reinsurance arrangements, including two lender service PORC quota share arrangements, one UC facultative reinsurance arrangement, and two reinsurance arrangements for one of our vehicle service contract programs. For more information concerning this vehicle service contract program, see “Automobile Service Contract Program” below. Under these arrangements, we ceded premiums earned of $618,788 and $720,822 for the years ended December 31, 2008 and 2007, respectively.
As of the date of this report, the provider that is not in bankruptcy has not defaulted on its obligations under the service contracts. As of December 31, 2008, the total cash held by us as collateral for such Provider was approximately $2.1 million, which funds are currently reported as “restricted short-term investments” in our accompanying balance sheet. We have estimated the claim obligations for service contracts issued by this Provider to be approximately $2.0 million as of December 31, 2008. As the collateral held by us is greater than the estimated claim obligations, the full $2.1 million is reported as a liability in our accompanying balance sheet within “funds held for account of others.”
See Note 4 for information concerning the undertaking agreements entered into by and between the Company and certain executive officers in connection with the ongoing SEC investigation.
The following is a reconciliation of the segment results to the consolidated amounts reported in the consolidated financial statements: