Specialized Liability. Specialized liability business accounted for $13.1 million or 91.2%, and $53.5 million or 83.1%, of the Company's gross written premium for 1996 and 1995, respectively. General liability insurance for contractors accounted for approximately 67.9% and 60.9% of the Company's specialized liability gross written premium in 1996 and 1995, respectively. Insureds in this
An additional $800,000 of the $11.1 million total investment in real estate pertains to interests in a real estate development engaged in developing a 120-lot residential project in Bakersfield, California. There were 25 lots remaining with a fair value of $1.0 million as of December 31, 1996.
The financial impact of the proposed settlement on the Company's GAAP financial statements will depend on the precise terms and conditions of the settlement, and consequently has not been determined. The settlement, as currently contemplated, is expected to increase Alpine's policyholders' surplus by approximately $2 million.
Loan to TCO. In December 1993, the Company entered into a formal loan agreement to loan TCO-IL up to $9.0 million to support TCO-IL's operations ("Loan Agreement"). The Loan Agreement requires payment of interest at the prime rate plus two percent, monthly in arrears. Principal is to be paid quarterly, if necessary, such that the maximum principal balance outstanding would not have exceeded $8,550,000 on January 1, 1995, and the maximum principal balance outstanding would thereafter decline by $450,000 increments on the first day of each subsequent calendar quarter. Repayment of the remaining principal balance currently is secured by TCO-IL's pledge of 160,000 of the 536,000 shares of Exstar Common Stock owned by it. TCO-IL had previously pledged a total of 500,000 shares of Exstar Common Stock owned by it to secure its obligations under the Loan Agreement. The number of shares pledged was reduced by agreement of the parties based on TCO-IL's prior satisfaction of payment obligations under the Loan Agreement.
Alpine's 1995 IRIS ratio results contributed to the regulatory restrictions imposed on the Company during 1996. Its 1996 IRIS ratio results are not expected to adversely impact Alpine's ability to act as a reinsurer of UCIC in 1997.
As part of the reserving process, historical data is reviewed, and consideration is given to the anticipated effect of various factors, including known and anticipated legal developments, inflation and economic conditions and collectibility of deductibles. Reserve amounts are necessarily based on management's estimates, and as other data become available and are reviewed, these estimates and judgments are revised, resulting in increases or decreases to existing reserves. To verify the adequacy of its reserves, the Company engages independent actuarial consultants to perform periodic case and ultimate loss reserve analyses.
levels. General and administrative expenses following the reductions totaled approximately $5 million annualized. Because of cost reductions and other opportunities, individuals no longer employed by the Company include Exstar's former Chief Financial Officer, two senior underwriters, the former head of the Company's management information services department, the former head of the Company's claims department and the former President of Alpine. As a result of these departures, the Company's overall level of management experience has significantly decreased. Depending on the Company's financial condition and prospects, management expects the Company will need to hire additional personnel during 1997, assuming the Quota Share Arrangement remains in place, to support the Company's operations.
The Company's principal sources of revenue historically have been net premiums earned (net premiums are the balance remaining after deducting from gross written premiums amounts paid for unaffiliated reinsurance, and they are generally earned ratably over the policy periods) on insurance policies issued by the Company's insurance company subsidiaries, income derived from the Company's invested assets and miscellaneous other income. The Company's principal costs historically have consisted of reserves for loss and loss adjustment expenses (reserves for such loss and loss adjustment expenses, which initially are estimated based on a combination of the Company's historical data and industry averages, are reflected as expense in the periods in which they are initially estimated and as the estimates are revised the revisions are reflected as adjustments to expense in the periods in which the adjustments are made), commissions and other amounts paid by the Company's insurance company subsidiaries to TCO in connection with its producing and underwriting insurance policies issued by the Company's insurance company subsidiaries, and miscellaneous other expenses.