felanders/preprocessed huggingface dataset:
(3) We analyze Assumed-Other reserves with the same level of detail as Assumed-Directly Managed.
The following table sets forth our net case and IBNR reserves for losses and LAE by line of business at December 31, 2010 (in thousands):
The sensitivity around our workers’ compensation reserves primarily reflects the size and the maturity of the underlying book of business. Our workers’ compensation reserves represent 39% of our total reserves at December 31, 2010.
During the first quarter of 2010, we made certain reclassifications to the expense classifications on the Consolidated Statement of Income. These reclassifications were made to enable the user of the financial statements to calculate the GAAP combined ratio directly from the Consolidated Statement of Income. As a result, the Consolidated Statement of Income for the years ended December 31, 2009 and 2008 have been reclassified to conform to this revised presentation, see Note 1 ~ Summary of Significant Accounting Policies for reclassification tables. These reclassifications do not change total expenses or consolidated net income as originally reported for the years ended December 31, 2009 and 2008.
For the twelve months ended December 31, 2010, we reported a decrease in net ultimate loss estimates for accident years 2009 and prior of $31.0 million, or 4.5% of $682.4 million of beginning net loss and LAE reserves at December 31, 2009. The change in net ultimate loss estimates reflected revisions in the estimated reserves as a result of actual claims activity in calendar year 2010 that differed from the projected activity. There were no significant changes in the key assumptions utilized in the analysis and calculations of our reserves during 2009 and for the twelve months ended December 31, 2010. The major components of this change in ultimates are as follows (in thousands):
We also entered into two interest rate swaps to hedge the $12 million Senior Debenture during 2010. One agreement is a spot starting interest rate swap for $5 million with a fixed rate of 6.25%. This swap replaces the $5 million swap that expired on May 24, 2009, which had a fixed rate of 8.93%. The other agreement we entered into was a forward starting interest rate swap for $7 million with a fixed rate of 6.47%. This swap will replace the $7 million swap that is scheduled to expire on May 24, 2011, and has a fixed rate of 7.72%. Refer to Note 8 ~ Derivative Instruments for additional information specific to our interest rate swaps.
(1) Relates to our revolving line of credit, which currently does not have an outstanding balance.
The following analysis should be read in conjunction with the Notes to Consolidated Financial Statements.
In connection with Prudential's demutualization, qualified annuity contract holders were given increases to their policy values in the form of policy credits. The policy credits of $128.0 million are reflected as a reduction of retained earnings.
Realized investment losses increased by $39.8 million from the prior year as recognized writedowns on fixed maturities with other than temporary impairments increased by $41.2 million in 2001. In addition, a realized loss of $29.2 million was recorded on the sale of Enron fixed maturities in 2001. Partially offsetting these investment declines were gains on sales of fixed maturities of $21.8 million in 2001(excluding Enron) compared to losses of $22.3 million in 2000 as interest rates declined in 2001 increasing the fair value of the bonds. The sales in 2000 were made in the early part of the year before rates substantially declined. Derivative instruments and other investment gains were $13.5 million less than in 2000. This was mainly the result of the Company's net short position in futures during 2001, versus a net long position in 2000, as interest rates were generally declining in both years.
Commercial Loans on Real Estate As of December 31, 2001, the Company's portfolio of commercial loans on real estate portfolio totaled $8.2 million, a reduction of $1.1 million from December 31, 2000, reflecting maturities and prepayments. The portfolio is comprised of commercial loans on real estate, with diversification by property type and geographic location. Refer to Footnote 3 in the Notes to Consolidated Financial Statements. Mortgage investment income is $0.9 million, which is $0.1 million lower than the prior year due to a lower asset base.
Equity Securities The Company's equity securities are comprised of common and non-redeemable preferred stock and are carried at estimated fair value on the Statement of Financial Position. Based on fair value, equity securities totaled $0.4 million in 2001 compared to $10.8 million in 2000. At December 31, 2001, the unrealized capital gains on the equity portfolio totaled $0.2 million compared to $2.6 million of losses at December 31, 2000. The equity securities' asset base declined due to the transfer of stocks in connection with the transfer of the Taiwan branch.
The increase in revenue for the year ended December 31, 2015 was partially offset by increased loss and LAE of $20.1 million as compared to the same period of 2014. The increase in loss and LAE was primarily the result of an increase in retained losses in our Personal Segment under the renewed quota share reinsurance agreement. During the twelve months ended December 31, 2015, we recorded favorable prior year net loss reserve development of $7.0 million as compared to $5.2 million of favorable prior year net loss reserve development for the same period of 2014. Also partially offsetting the increased revenue was increased other operating expenses due mostly to higher production related expenses in our Personal Segment due to the impact of the change in terms of the quota share reinsurance agreement and increased salary and related expenses in our Specialty Commercial and Corporate Segments.
Pre-tax income for the Specialty Commercial Segment of $34.2 million for the year ended December 31, 2014 was $14.7 million higher than the $19.5 million reported for the same period in 2013. The increase in pre-tax income was primarily due to the increased revenue discussed above, lower loss and LAE expenses of $2.6 million and lower amortization of intangible assets of $0.3 million, partially offset by higher operating expenses of $0.4 million.
On June 21, 2005, we entered into a trust preferred securities transaction pursuant to which we issued $30.9 million aggregate principal amount of subordinated debt securities due in 2035. To effect the transaction, we formed a Delaware statutory trust, Hallmark Statutory Trust I (“Trust I”). Trust I issued $30.0 million of preferred securities to investors and $0.9 million of common securities to us. Trust I used the proceeds from these issuances to purchase the subordinated debt securities. The initial interest rate on our Trust I subordinated debt securities was 7.725% until June 15, 2015, after which interest adjusts quarterly to the three-month LIBOR rate plus 3.25 percentage points. Trust I pays dividends on its preferred securities at the same rate. Under the terms of our Trust I subordinated debt securities, we pay interest only each quarter and the principal of the note at maturity. The subordinated debt securities are uncollaterized and do not require maintenance of minimum financial covenants. As of December 31, 2015, the balance of our Trust I subordinated debt was $30.9 million and the interest rate was 3.76% per annum.
Our Reserve Committee consists of our Chief Actuary, Chief Executive Officer, President and Chief Operating Officer, Chief Financial Officer, and Chief Accounting Officer. Additionally, the presidents, chief financial officers, and chief actuaries of each of our three operating segments assist in the evaluations of their respective segments. The Reserve Committee meets quarterly to review the actuarial recommendations made by each chief actuary and uses its best judgment to determine the best estimate to be recorded for the reserve for losses and loss adjustment expenses on our balance sheet. The Reserve Committee believes that using judgment to supplement the actuarial recommendations is necessary to arrive at a best estimate given the nature of the business that we write and the limited operating experience of the Casualty Reinsurance segment, the fronting and program business in the Specialty Admitted Insurance segment and the commercial auto underwriting division in the Excess and Surplus Lines segment.
The combined ratio is a measure of underwriting performance and represents the relationship of incurred losses, loss adjustment expenses and other operating expenses to net earned premiums. Our combined ratio for the year ended December 31, 2019 was 101.2%. A combined ratio of less than 100% indicates an underwriting profit, while a combined ratio greater than 100% reflects an underwriting loss. In 2019, the combined ratio included $69.0 million, or 8.4 percentage points, of net adverse reserve development on prior accident years, including $51.2 million of net adverse reserve development from the Excess and Surplus Lines segment, $5.3 million of net favorable reserve development from the Specialty Admitted Insurance segment, and $23.1 million of net adverse reserve development from the Casualty Reinsurance segment.
The net premium retention for the Specialty Admitted Insurance segment was relatively stable from 2018 to 2019. The fronting business generally has much lower net premium retention than our workers’ compensation business. The net retention on the segment’s fronting business was 9.3% and 9.6% in the years ended December 31, 2019 and 2018, respectively, while the net retention on the workers’ compensation business was 44.7% and 45.9%, respectively.
Net investment income was $75.7 million for the year ended December 31, 2019 compared to $61.3 million in the prior year. The change in our net investment income is as follows:
The following table summarizes the nature and terms of the junior subordinated debt and trust preferred securities outstanding at December 31, 2019 (including the Company’s repurchase of a portion of these trust preferred securities):
Interest on debt obligations was calculated using the LIBOR rate as of December 31, 2019 with the assumption that interest rates would remain flat over the remainder of the period that the debt was outstanding.
Underwriting (loss) profit includes gross fee income of $24.9 million, $28.7 million, and $28.3 million for the years ended December 31, 2019, 2018, and 2017, respectively.
The member companies of the Erie Insurance Group (the Company and its subsidiaries, the Exchange and its subsidiary and EFL) share a corporate home office complex in Erie, Pennsylvania, which is comprised of 489,779 square feet. The home office complex is owned by the Exchange. The Company is charged rent expense for the related square footage it occupies.
The Company also operates 23 field offices, including the Erie branch office, in 11 states. Eighteen of these offices provide both agency support and claims services and are referred to as “Branch Offices”, while the remaining five provide only claims services and are considered “Claims Offices”. The Company owns three of its field offices. Three other field offices are owned by the Exchange and leased to the Company. The rent expense incurred by the Company for both the home office complex and the field offices leased from the Exchange totaled $11.4 million in 2004.
premiums for the year ended September 30, 1996 totaled $5.5 million and related to a variety of worldwide events. In the year ended September 30, 1995, reinstatement premiums were $5.9 million, of which approximately 50% related to Hurricanes Luis and Marilyn.
Net realized losses on investments were $0.5 million during the year ended September 30, 1996 compared to net realized losses of $25,000 during the year ended September 30, 1995.
There were no premiums ceded for the years ended September 30, 1996 and 1995.
For the purposes of the computation of basic EPS, the Exchangeable Non-Voting Shares are considered outstanding Common Shares due to the exchangeable nature of the shares.
As discussed in Note 4, other assets also includes a deposit relating to funded reinsurance.
In November 1995, the Company adopted a Long Term Incentive Plan (the "Incentive Plan") which permits the award of various incentives to employees of the Company, its subsidiaries and other persons providing services to those companies.
Effective January 1, 1997, LaSalle Re is party to a fronting agreement with Hedge Financial Products, an affiliate of CNA. CNA reinsures LaSalle Re 100% for the liabilities fronted. LaSalle Re received an administration fee of $250 for the services provided in the 1997 calendar year.
in September 1995. Additional information reported by ceding companies in the months following the losses necessitated the provision of additional liabilities. This impact has been mitigated by the collection of additional reinstatement premiums. In respect of 1995, additional losses of $5,700 (gross of reinstatements of approximately $1,100) related to development on the Northridge earthquake, reflecting an increase in the market estimates of anticipated total insured loss.
• risks associated with our ability to protect our intellectual property rights;
(4) Increase is due to continued impairment of the Nulook loan due to decreased recovery estimates.
In October 2015, we began publicly offering up to 100,000 shares of our Redeemable Preferred Stock (RPS) at a per-share price of $1,000. As of December 31, 2017, we had issued approximately $99.1 million stated value of RPS and have terminated that offering.
Future contractual maturities of L Bonds at December 31, 2017 are:
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017, based on criteria established in Internal Control - Integrated Framework: (2013) issued by COSO.
On February 14, 2017, our public offering up to 150,000 shares of Series 2 Redeemable Preferred Stock (“RPS 2”) at $1,000 per share was declared effective. Holders of RPS 2 are entitled to cumulative dividends at the rate of 7% per annum, paid monthly. Dividends on the RPS 2 are recorded as a reduction to additional paid-in capital, if any, then to the outstanding balance of the preferred stock if additional paid-in capital has been exhausted. Under certain circumstances described in the Certificate of Designation for the RPS 2, additional shares of RPS 2 may be issued in lieu of cash dividends.
During 1995, the Company entered into interest rate swap agreements with a financial institution. The notional principal amount of the swaps is $46 million and $12 million, with both maturing August 31, 2000. These agreements effectively fixed the interest rate on the entire $58 million outstanding under the credit agreement to 7.15%. The interest rate swaps are non-amortizing. The Company's exposure to credit risk is limited to interest movements and is considered to be negligible.
In the years 1993 through 1995, the Company and its subsidiaries generated positive cash flow of $126.1 million from operations, and paid back $23.9 million on long-term borrowings. The Company paid $34.1 million in dividends during the same period and repurchased $25.7 million of its common stock.
In October 1995, the Financial Accounting Standards Board issued SFAS No. 123,"Accounting for Stock-Based Compensation." SFAS No. 123 allows companies to continue to account for their stock-based compensation plans in accordance with APB Opinion 25, but encourages the adoption of a new accounting method to record compensation expense based on the estimated fair value of employee stock-based compensation. Companies electing not to follow the new fair value based method are required to provide expanded footnote disclosures, including pro forma net income and earnings per share, determined as if the company had adopted the new method. The Statement is required to be adopted for fiscal years beginning after December 15, 1995. Management intends to continue to account for its stock-based compensation plans in accordance with APB Opinion 25 and provide the supplemental disclosures as required by SFAS No. 123, beginning in 1996.
The health care trend rate assumed was 7.75% for 1996, decreasing .25% per year to 6% in 2003 and thereafter. The dental trend rate was 6% per year. The rate of compensation increase regarding life insurance benefits was 5%. A 1% increase in the health care trend rate would increase the accumulated post-retirement benefit obligation as of December 31, 1995 by $145,000 and the net periodic benefit cost for the year then ended by $20,000.
The Company recorded an Unlock charge of $137, after-tax, for 2011 compared to an Unlock benefit of $149, after-tax, for 2010. The charge in 2011 was attributable to actual separate account returns being below our aggregated estimated return and the impact of assumption updates. The Unlock benefit in 2010 was attributable to actual separate account returns being above our aggregated estimated return. For further discussion of Unlocks see the Critical Accounting Estimates within the MD&A.
Index to Financial Statements Valuation of Derivative Instruments, excluding embedded derivatives within liability contracts and reinsurance related derivatives
The following table presents the Company’s fixed maturities, AFS, by credit quality. The ratings referenced below are based on the ratings of a nationally recognized rating organization or, if not rated, assigned based on the Company’s internal analysis of such securities
[1] Unrealized losses exclude the fair value of bifurcated embedded derivative features of certain securities as changes in value are recorded in net realized capital gains (losses).
[1] In the event customers elect to surrender separate account assets or international statutory separate accounts, the Company will use the proceeds from the sale of the assets to fund the surrender, and the Company’s liquidity position will not be impacted. In many instances the Company will receive a percentage of the surrender charge, increasing the Company’s liquidity position. In addition, a surrender of variable annuity separate account or general account assets will decrease the Company’s obligation for payments on guaranteed living and death benefits.
The following table sets forth our selected historical financial information and that of our predecessor for the periods ended and as of the dates indicated. This information comes from our consolidated financial statements and those of our predecessor. You should read the following selected financial information along with the information contained in our financial statements and related notes and the reports of the independent registered public accounting firm included under the heading “Item 8. Financial Statements And Supplementary Data‘ in PART II of this annual report. These historical results are not indicative of results to be expected for any future period.
Earned premiums grew 37.5% to $152.5 million for 2007 compared to $110.9 million for 2006. The increase in earned premium was primarily attributable to increased premium writings in 2006, continuing into the first half of 2007.
For the year ended December 31, 2007 net cash from operating activities was $69.6 million, principally consisting of premium and deposit collections exceeding losses and expenses paid out. This amount compares to net cash from operating activities of $60.3 million for the year ended December 31, 2006, which also consisted principally of premium and deposit collections exceeding losses and expenses paid out. Our insurance operations commenced in early 2005 and as a result cash flows were negative for the majority of 2005 and first became positive in the fourth quarter of 2005.
Expected loss ratio methods are based on the assumption that ultimate losses vary proportionately to premiums. Expected loss ratios are typically developed based upon the information used in pricing, such
The following table shows for SUA the recorded reserves and the high and low ends of the range of reasonable loss and LAE reserve estimates at December 31, 2007.
Our business has grown rapidly since 2000, in part due to acquisitions, with total annual PBM revenue increasing from $4.9 million in 2000 to $5.3 billion in 2011. We plan to continue expanding our operations through acquisitions involving new markets and complementary products, services, technologies and businesses. We strive to timely integrate our acquisitions into our financial, organizational, management and technology structure. When successfully integrated, we expect to achieve cost savings from the consolidation of certain corporate activities and the elimination of certain duplicate components of our corporate operations.
Revenue. Revenue from operations for the years ended December 31, 2010 and 2009 were approximately $3.8 billion and $2.9 billion, respectively. Revenue increased over the comparable period in 2009 by $0.9 billion. Total claims processed, excluding ASO claims, increased to 69.7 million in 2010 from 55.7 million in 2009. ASO claims were 0.5 million in both 2010 and 2009. Our initiation of services with several new PBM clients and our acquisition of FutureScripts, inPharmative and Total Script were the primary contributors to the increase in our revenue and prescription volume. Also, for the year ended December 31, 2010, acquisition related intangible amortization expense of $2.7 million for a customer contract related to a PBM agreement has been included as an offset to revenue. For the year ended December 31, 2010, our revenue per claims processed, excluding ASO claims, increased by approximately 4% when compared to the same period in 2009. The increase in revenue per claims processed for 2010 was primarily caused by manufacturer-driven price inflation and increased use of specialty medications offset by an increase in generic utilization. Additionally, the portion of manufacturer or third-party intermediary rebates due to clients is recorded as a reduction of revenue. For the year ended December 31, 2010, adjustments made to these rebate payable estimates from prior periods increased revenue by $3.5 million.
analysis are reasonable, significant changes in any one of our assumptions could produce a different result. Additionally, at December 31, 2010, we performed the first step test required under the previous guidance using a present value of future cash flows approach and concluded there was no goodwill impairment, as the results of that valuation indicated that each of our reporting units’ fair values were significantly higher than their carrying values.
Monmouth Associates is obligated to make certain additional loans to the Borrower/Lessee under certain circumstances to finance the cost of 60 percent of tenant improvements or other ordinary capital expenditures. In addition, in May 1994, Monmouth Associates made a loan to finance the cost of a renovation of the shopping center, which commenced during the third quarter of 1994. The renovation consists of, among other things, the elimination of certain outparcels, the addition of a food court and cinema, and the re-merchandising of approximately 300,000 square feet of gross leasable area. The renovation loan from Monmouth Associates bears interest at a fixed interest rate of 10.5 percent per annum. In addition, Monmouth Associates' participation in certain levels of sale or refinancing proceeds from the property will be increased until Monmouth Associates has received aggregate payments equal to an internal rate of return of 11 percent per annum on its investments in the land and/or the first leasehold mortgage loan. The maximum amount of the renovation loan is $29,100,000, and the cost of the renovation is currently estimated to be $28,500,000. Monmouth Associates is funding the renovation loan out of its cash reserves, cash flow and additional capital contributions made pro rata based upon the respective interests of the joint venture partners in Monmouth Associates. The renovation loan requires monthly payments of interest only until maturity when the entire principal amount and any accrued and unpaid interest will be due. The renovation loan will mature contemporaneously with the first leasehold mortgage loan in October 2003, subject to acceleration or extension of the loan by Monmouth Associates under certain circumstances. Joint Venture - 1225 Connecticut Avenue, N.W.
The apartment complex is being managed for a fee equal to 5.00 percent of the gross revenues from the property, plus reimbursement of certain direct expenses of the manager. The property had previously been managed by JMB Properties Company, an affiliate of the Investment Adviser, but since December 1994 has been managed on the same terms by an unaffiliated third party that purchased substantially all of JMB Properties Company's assets, as discussed in Note 4 in connection with the 1225 Connecticut office building.
Minimum lease payments to be received in the future under the above operating lease agreements, are as follows:
Contingent rent (based on sales by property tenants) from the retail investments included in rental income is $1,010,000, $1,000,000 and $2,224,000 in 1994, 1993 and 1992, respectively.
Barry J. Murphy, 44: Director and Executive Vice President, Client Service since March 1994; Senior Vice President, Operations, Travel Related Services (TRS) a subsidiary of American Express Company, since July 1992; Vice President, TRS, from November 1989 to July 1992; Chief Operating Officer, TRS, from March 1988 to November 1989. Stuart A. Sedlacek, 37: Director and Executive Vice President, Assured Assets since March 1994; Vice President, AEFC, since September 1988.
There are, however, challenges and risks involved in entering each new state, including establishing adequate rates without any operating history in the state, working with a new regulatory regime, hiring and training competent personnel, building adequate systems and finding qualified agents to represent the Company. The Company has entered five new states during the past six years and believes that it has sufficient expertise to manage these challenges and risks to continue its expansion into additional new states.
The California Insurance Commissioner is conducting townhall meetings to discuss modifying territory as a rating factor. The outcome of this matter is uncertain and the impact to the Company can not be determined at this time.
The loss ratio (GAAP basis) in 2003 (loss and loss adjustment expenses related to premiums earned) was 67.7% in 2003 compared with 72.8% in 2002. The lower loss ratio is largely attributable to recent rate increases and improved loss frequency on automobile claims as well as California homeowners claims. Automobile loss frequencies can be affected by many factors including seasonal travel, weather and fluctuations in gasoline prices. The Southern California firestorms negatively impacted the loss ratio by 0.7% in 2003. Furthermore, adverse development on prior accident years increased the 2003 loss ratio by 0.2% and the 2002 loss ratio by 1.5%.
Consolidated Statements of Shareholders’ Equity for Each of the Years in the Three-Year Period Ended December 31, 2003
The tax benefit realized on stock options exercised and included in cash provided from operations in 2003, 2002 and 2001 was $189,000, $389,000 and $587,000, respectively.
The Company had outstanding debt at December 31, 2003 of $124.7 million. Included in the total debt is the proceeds from an August 7, 2001 public debt offering where the Company issued $125 million of senior notes
The income tax provision reflected in the consolidated statements of income is less than the expected federal income tax on income before income taxes as shown in the table below:
For 2003, the Profit Sharing plan includes an employee stock ownership plan (“ESOP”) that covers substantially all employees. The Board of Directors authorized the plan to purchase $1 million of the Company’s common stock in the open market for allocation to the plan participants. The Company recognized the $1 million as compensation expense in 2003.
GAF subsidiaries lease 11,355 square feet of office space in Dallas, Texas and 11,210 square feet of office space in Marshfield, Massachusetts as their corporate headquarters.
The results for 2014 include credits to federal income taxes of $2.5 million as a result of the reduction in AMIC’s valuation allowance related to its net deferred tax asset at December 31, 2014;
All of the Company’s short-duration contracts are generated from its accident, health, disability and pet insurance business, and are accounted for based on actuarial estimates of the amount of loss inherent in that period’s claims, including losses incurred for which claims have not been reported. Short-duration contract loss estimates rely on actuarial observations of ultimate loss experience for similar historical events.
recognized in income tax expense in the period that includes the enactment date. The Company has certain tax-planning strategies that were used in determining that a valuation allowance was not necessary on its deferred taxes.
All goodwill carrying amounts are evaluated for impairment at the reporting unit level which is equivalent to an operating segment. Goodwill was allocated to each reporting unit or operating segment at the time of acquisition. At December 31, 2015, total goodwill was $52.9 million, of which $47.2 million was attributable to the Fully Insured Health segment and $5.7 million to the Medical Stop Loss segment.
Due to the long-term nature of LTD, in establishing the liability for policy benefits and claims, the Company must make estimates for case reserves, IBNR, and reserves for Loss Adjustment Expenses (“LAE”). Case reserves generally equal the actuarial present value of the liability for future benefits to be paid on claims incurred as of the balance sheet date. The IBNR reserve is established based upon historical trends of existing incurred claims that were reported after the balance sheet date. The LAE reserve is calculated based on an actuarial expense study. Since the LTD block of policies is relatively small, with the potential for very large claims on individual policies, results can vary from year to year. If a small number of claimants with large claim reserves were to recover or several very large claims were incurred, the results could distort the Company’s policy benefits and claims estimates from year to year. High termination rates and offsets caused favorable development in LTD prior year reserves. With respect to DBL, the liability for policy benefits and claims for the most recent quarter of earned premium is established using a Net Loss Ratio methodology. The Net Loss Ratio is determined by applying the completed prior four quarters of historical Net Loss Ratios to the last quarter of earned premium. Policy benefits and claims associated with the premium earned prior to the last quarter are established using a
All other lines, primarily blanket and other individual health products, experienced unfavorable development of $0.3 million.
The scope of the Project includes: ensuring the compliance of all applications, operating systems and hardware on mainframe, PC and LAN platforms; ensuring the compliance of voice and data network software and hardware; addressing issues related to non-IT systems in buildings, facilities and equipment which may contain date logic in embedded chips; and addressing the compliance of key vendors and other third parties.
The following tables present the Company's private, public and total fixed maturities by NAIC designation and the equivalent ratings of the Nationally Recognized Securities Rating Organizations as of December 31, 1998 and 1997, as well as the percentage, based on fair value, that each designation comprises ($ in millions).
The following table presents the types of mortgage-backed securities ("MBSs"), as well as other asset-backed securities, held by the Company as of the dates indicated ($ in millions).
The Company closely monitors property net operating income on a cash basis, along with occupancy levels of the Company's commercial real estate properties owned for more than one year, which comprise a significant portion (94.5% at December 31, 1998) of the Company's equity real estate portfolio.
The carrying value of real estate held for investment is generally adjusted for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Such impairment adjustments are recorded as realized investment losses and, accordingly, are reflected in the Company's results of operations. There were no impairment adjustments for the years ended December 31, 1998, 1997 and 1996. At December 31, 1998 and 1997, the carrying value of real estate held for investment was $8.3 million and $2.8 million, or 0.6% and 0.2% of invested assets at such dates, respectively. The aforementioned carrying values are net of cumulative impairments of $1.9 million and $0.6 million, respectively, and net of accumulated depreciation of $1.9 million and $0.2 million, respectively. However, there can be no assurance that additional provisions for impairment adjustments with respect to real estate held for investment will not need to be made. Any such adjustments may have a material adverse effect on the Company's financial position and results of operations.
On December 1, 2002, we acquired 100% of the common stock of Pharmacy Network National Corporation (“PNNC”) for $20.2 million in cash. The acquisition of PNNC was accounted for using the purchase method of accounting. The acquisition resulted in goodwill of approximately $10.6 million and intangible assets of approximately $8.0 million.
Selling, General and Administrative. For the year ended December 31, 2004, selling, general and administrative expenses increased by approximately $9.7 million over the prior year to $35.6 million or 7.2% of operating expenses. This increase was primarily associated with PBM segment growth, several significant marketing initiatives, and new client implementations.
We recognize revenues from PBM services, which include sales of prescription drugs by pharmacies in our nationwide network and related claims processing fees, provided to our clients. Revenue is recognized when the claims are adjudicated. Pharmacy claims are adjudicated at the point-of-sale using an on-line claims processing system. When we have a contractual obligation to pay a network pharmacy provider for benefits provided to our clients’ members, total payments from these clients are recorded as revenue and payments to the network pharmacy provider and the claim adjudication service costs are recorded as direct expenses. Generally, these contracts require us to assume the credit risk of our clients’ abilities to pay. In addition, under the vast majority of our client contracts, we are at risk for the difference between the payments we receive from our clients and the negotiated reimbursements we pay to the pharmacies. When we administer pharmacy reimbursement contracts and do not assume credit risk, we record only the net revenue and the administrative or processing fees. Rebates earned under arrangements with manufacturers are recorded as a reduction to direct expenses. The portion of such rebates due to plan sponsors is recorded as a reduction of revenue. Manufacturers rebates are based on estimates, which are subject to final settlement with the contracted party.
The estimated fair value and the weighted average useful-life of the intangible assets are based on income-method valuation calculations, performed by an independent consulting firm. The remaining useful life of
In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections” (“FAS 154”), which replaces Accounting Principles Board Opinion No. 20, “Accounting Changes” and SFAS No. 3, “Reporting Accounting Changes In Interim Financial Statements-An Amendment of APB Opinion No. 28.” FAS 154 provides guidance on the accounting for and reporting of accounting changes and error corrections. It establishes retrospective application, or the latest practicable date, as the required method for reporting a change in accounting principle and the reporting of a correction of an error. FAS 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. We believe that the adoption of this statement will not have a material effect on our financial condition or results of operations.
Information required by this item is set forth on page 33 of LNC's 2000 Annual Report to Shareholders and is incorporated herein by reference.
The Company partially offset the effect of these rate increases through the payment of dividends to the members of the Exchange in the form of premium credits based on the actual results of prior policy years. The Company ceased paying such premium credit dividends to its policyholders in 1998. The Company instituted no rate increases for 1998, which may have offset the elimination of dividends to policyholders and somewhat improved its competitive position. During 1999, the Company will institute an average rate increase of 3.7% for California physician insureds. Therefore, the Company may find it more difficult to compete with other insurance companies offering such dividends.
The primary sources of the Company's liquidity are insurance premiums, net investment income, recoveries from reinsurers and proceeds from the maturity or sale of invested assets. Funds are used to pay losses, LAE, operating expenses, reinsurance premiums and taxes. The Company has also paid significant dividends, in the form of premium credits, to its members in the years 1980 through
The Company believes that its Year 2000 project is on schedule.
The accompanying statutory financial statements are different in some respects from GAAP financial statements. The more significant differences are as follows: (a) acquisition costs, such as commissions and other costs in connection with acquiring new business, are charged to current operations as incurred, whereas GAAP would require these expenses to be capitalized and recognized over the life of the policies; (b) policy reserves are based upon statutory mortality and interest requirements without consideration of withdrawals, whereas GAAP reserves would be based upon reasonably conservative estimates of mortality, morbidity, interest and withdrawals; (c) bonds are generally carried at amortized cost whereas GAAP would value bonds at fair value and (d) deferred income taxes are not provided for book-tax timing differences whereas GAAP would record deferred income taxes. Management has not yet completed GAAP financial statements, but believes that shareholder's equity based upon GAAP will be higher than shareholder's equity based upon statutory accounting practices.
Effective March 1, 1996, C.M. Life modified its underwriting agreement with its affiliates, GR Phelps and MML Distributors, whereby C.M. Life will pay all future commissions relating to variable annuity business in exchange for the rights to retain all future policy administration fees and charges.
The carrying value and estimated fair value of investments in bonds as of December 31, 1996 and 1995 are as follows:
C.M. Life manages its investment risks to reduce interest rate and duration imbalances determined in asset/liability analyses. The fair values of these instruments, which are not recorded in the financial statements, are based upon market prices or prices obtained from brokers. C.M. Life does not hold or issue financial instruments for trading purposes.
We have audited the accompanying statutory statement of financial position of C.M. Life Insurance Company (a Connecticut corporation and a wholly-owned subsidiary of Connecticut Mutual Life Insurance Company) as of December 31, 1995, and the related statutory statements of income, changes in shareholder's equity and cash flows for each of the two years in the period ended December 31, 1995. These financial statements and the schedule referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
Since the development of our life and annuity reinsurance benefit reserves is based upon cash flow projection models, we must make estimates and assumptions based on industry tables regarding mortality, morbidity, lapse, expense and investment experience. We establish these estimates based upon transaction specific historical experience, information provided by the ceding company and industry experience studies. Actual results could differ materially from these estimates. We monitor actual experience and, where circumstances warrant, revise our assumptions and the related life and annuity reinsurance reserve estimates. We record these revisions in the period they are determined.
Net premiums earned. Net premiums earned for property and casualty reinsurance decreased by 26.0% to $312.9 million for the year ended December 31, 2007 from $422.8 million in 2006. The decrease is principally attributable to lower gross premiums written and higher reinsurance premiums ceded and earned in the year ended December 31, 2007.
An agreement to settle a large block of prior period reserves resulting in a net $15.2 million release in reserves;
Net income. Net income attributable to the property and casualty insurance segment for the year ended December 31, 2007 was $58.0 million compared to $78.2 million for the year ended December 31, 2006. The decrease is principally attributable to the reduced level of favorable development on reserves compared to the year ended December 31, 2006, together with the increase in the average loss ratio for the segment, partially offset by the $9.2 million increase in net gains on alternative investments.
Our U.S. excess and surplus lines segment, which comprises the underwriting operations of our U.S.-based business, principally Max Specialty, commenced underwriting activities in April 2007. Therefore, there are no comparative figures for 2006 and 2005.
Net gains on alternative investments. Net gains on the alternative investment portfolio for the year ended December 31, 2007, were $186.7 million, or 16.97%, including a gain of $2.4 million from our private equity reinsurance investment, compared to $84.8 million, or 6.96%, including a gain of $10.0 million from our private equity reinsurance investments, for the year ended December 31, 2006. Our alternative investment portfolio excluding our private equity reinsurance investment, comprises the investments held in our Max Diversified fund of funds portfolio. For 2007, the return from our Max Diversified portfolio was 16.78%. This return is compared to the returns available in the capital markets as represented by the Merrill Lynch Master Bond Index returning 7.17%, the Standard & Poor’s 500 Index returning 5.49% and the HFRI Fund of Funds Index returning 10.25%.
The public sector managed care premium revenues consist of premiums from our Medicare and Medicaid products. We provide comprehensive health benefits to members participating in government programs and receive premium payments from federal and state governments. Premium rates for the Medicaid and Medicare products are established by governmental regulatory agencies and may be reduced by regulatory action.
Health Plans Our HMOs and our insurance company subsidiary, Coventry Health and Life Insurance Company (“CH&L”), are required by state regulatory agencies to maintain minimum surplus balances, thereby limiting the dividends the parent may receive from its HMOs and CH&L.
Our business, financial condition or results of operations could be materially adversely affected by any of these risks. Further, the trading price of our common stock could decline due to any of these risks, and you may lose all or part of your investment.
In addition, we may incur additional indebtedness in the future, which may impose further restrictions on us. The restrictions in the indenture for our senior notes and in any future debt instruments could limit, among other things, our ability to finance our future operations or capital needs, make acquisitions or pursue available business opportunities.
The following table summarizes all business combinations and membership purchases for the three years ended December 31, 2001 (in thousands):
The RBC results will then be used to determine if the health plan’s net worth is adequate to support the amount of its calculated risk profile. Regulators will also use the RBC results to determine if any regulatory actions are required. Regulatory actions that could take place, if any, range from filing a financial action plan explaining how the plan will increase its net worth to the approved levels, to the health plan being placed under regulatory control.
Underwriting experience, as indicated by its GAAP Combined Ratios on our three lines of business for the years ended December 31, 2009 and 2008 are as follows (in thousands):
The Company’s medical stop-loss business is comprised of employer stop-loss and HMO Reinsurance. The two “primary” or “key” assumptions underlying the calculation of loss reserves for medical stop-loss business are (i) projected net loss ratio, and (ii) claim development patterns. The projected net loss ratio is set at expected levels consistent with the underlying assumptions (“Projected Net Loss Ratio”). Claim development
At December 31, 2009, the Company had $1,627,000 invested in whole loan CMOs backed by Alt-A mortgages. Of this amount, 53.9% were in CMOs that originated in 2005 or earlier and 46.1% were in CMOs that originated in 2006 or later. The Company’s mortgage security portfolio has no direct exposure to sub-prime mortgages. The unrealized losses for the equity securities was primarily due to wider spreads from preferred
The unrealized losses on all remaining available-for-sale securities have been evaluated in accordance with the Company's impairment policy and were determined to be temporary in nature at December 31, 2009. In 2009, the Company experienced a decrease in net unrealized losses of $3,231,000 net of the net cumulative effect adjustment of $99,000 for the adoption of recent investment accounting pronouncements, which increased stockholders' equity by $3,231,000 (reflecting net unrealized losses of $826,000 at December 31, 2009 compared to net unrealized losses of $4,057,000 at December 31, 2008). From time to time, as warranted, the
The following table presents our financial assets and liabilities measured at fair value on a recurring basis at December 31, 2009 and 2008, respectively (in thousands):
The Company has additional obligations in regard to its agreement with EDH as further described in Note 20 of Notes to Consolidated Financial Statements.
The following table summarizes information regarding outstanding and exercisable options as of December 31, 2009:
The following table summarizes restricted stock activity for years 2009 and 2008: