The Company regularly performs various analytical procedures with respect to its investments, including identifying any security whose fair value is below its cost. Upon identification of such securities, a detailed review is performed for all securities, meeting predetermined thresholds, to determine whether such decline is other than temporary. If the Company determines a decline in value to be other than temporary, based upon its detailed review, or if a decline
-- The decrease in unpaid loss and loss adjustment expenses in accident year 2002 is principally attributable to:
Philadelphia Consolidated Holding Corp. (PCHC) is a holding company whose principal assets currently consist of 100% of the capital stock of its subsidiaries. PCHC's primary sources of funds are dividends from its subsidiaries and payments received pursuant to tax allocation agreements with the insurance subsidiaries. For the year ended December 31, 2003, payments to PCHC pursuant to such tax allocation agreements totaled $36.3 million. The payment of dividends to PCHC from the insurance subsidiaries is subject to certain limitations imposed by the insurance laws of the Commonwealth of Pennsylvania and State of Florida. Accumulated statutory profits or policyholders' surplus of the insurance subsidiaries from which dividends may be paid totaled $179.2 million at December 31, 2003. Of this amount, the insurance subsidiaries are entitled to pay a total of approximately $50.7 million of dividends in 2004 without obtaining prior approval from the Insurance Commissioner of the Commonwealth of Pennsylvania or State of Florida. During 2003 the insurance subsidiaries paid dividends of $4.0 million to Liberty American Insurance Group, Inc., a subsidiary of PCHC.
Two of the Company's Insurance Subsidiaries are members of the Federal Home Loan Bank of Pittsburgh ("FHLB"). A primary advantage of FHLB membership is the ability of members to access credit products from a reliable capital markets provider. The availability of any one member's access to credit is based upon its FHLB eligible collateral. At December 31, 2003, the Insurance Subsidiaries' borrowing capacity with FHLB was $124.8 million. The Insurance Subsidiaries have utilized a portion of its borrowing capacity to purchase a diversified portfolio of investment grade floating rate securities. These purchases were funded by floating rate FHLB borrowings to achieve a positive spread between the rate of interest on these securities and FHLB borrowing rates. The remaining unused borrowing capacity provides an immediately available line of credit. Borrowings aggregated $48.5 million at December 31, 2003, bear interest at adjusted LIBOR and mature twelve months from inception. The weighted-average interest rate on borrowings outstanding as of December 31, 2003 was 1.23% per annum. These borrowings are collateralized by investment securities, principally asset backed securities, with a carrying value of $59.1 million.
In the normal course of business, the Company has entered into various reinsurance contracts with unrelated reinsurers. The Company participates in such agreements for the purpose of limiting loss exposure and diversifying business. Reinsurance contracts do not relieve the Company from its obligations to policyholders. To reduce the potential for a write-off of amounts due from reinsurers, the Company: evaluates the financial condition of its reinsurers, principally contracts with large reinsurers that are rated at least "A" (Excellent) by A.M. Best Company, regularly monitors its reinsurance receivables and attempts to collect the obligations of its reinsurers on a timely basis.
(1) Unpaid loss and loss adjustment expenses are not included in the above table as there is no related contractual maturity for such obligations.
- - Under SAP, unpaid losses and loss adjustment expenses and unearned premiums are reported net of the effects of reinsurance transactions, whereas under GAAP, unpaid loss and loss adjustment expenses and unearned premiums are reported gross of reinsurance.