See Note 11 to the consolidated financial statements for a reconciliation of NCRIC's net income and equity between GAAP and statutory accounting bases. Discussed below are selected key financial concepts:
Because the September 2000 bill was not paid when due, NCRIC initiated legal proceedings to collect. NCRIC will use all means legally available to collect the amount it is due. Although NCRIC believes that it will prevail, since the premium amount is disputed, an allowance for uncollectibility has been established and is included in underwriting expenses. Pursuit of this litigation requires an expense for legal fees, which is reported as an underwriting expense, and reduces NCRIC's net earnings. However, NCRIC believes that the significant level of the amount receivable justifies the expense. The ultimate outcome cannot be determined at this time.
Gross premiums written increased by $1.4 million, or 6%, to $22.7 million for the year ended December 31, 2000 from $21.3 for the year ended December 31, 1999. Starting in the fourth quarter of 1997 and continuing through 1999, NCRIC began staggering policy renewal dates. Premiums written for the year ended December 31, 2000 did not include any additional premiums from the staggering of renewal dates, while premiums written for the year ended December 31, 1999 included approximately $2.0 million due to the re-writing of policies. There is a one-time effect when the policy renewal is staggered which increases premiums written in the period in which the renewal date is moved; premiums written will, all else being equal, return to the previous level in the subsequent period. While the staggering of the renewal dates affects premiums written, earned premiums are not affected for either period. The gross premiums written include premiums for retrospectively rated programs of $2.5 million for the year ended December 31, 2000 and $733,000 for the year ended December 31, 1999. The increase includes $1.3 million for the billing of previously accrued premium for one of the risk sharing programs further discussed below.
Reinsurance premiums ceded increased by $1.1 million to $4.1 million for the year ended December 31, 2000 from $3.0 million for the year ended December 31, 1999. Reinsurance premiums are affected by current year premiums payable to the reinsurers, as well as the retrospective adjustments to accruals for prior year premiums. The increase was the result of a decrease in the credit from prior years premiums for favorable loss experience under the swing rated reinsurance treaty.
Underwriting expenses increased $1.3 million, or 36%, to $4.9 million for the year ended December 31, 2001 from $3.6 million for the year ended December 31, 2000. The increase in expenses primarily stems from the increase in new business, particularly agent produced business, through increases in commissions, travel, and other underwriting costs. These expenses were partially offset by an increase in ceding allowances as a result of the increase in premiums earned. Underwriting expenses also increased due to legal fees incurred for the collection litigation initiated by NCRIC, as discussed in "Net Premiums Earned", and for the allowance for potential uncollectible premiums. In addition, NCRIC received a guaranty fund assessment from the D.C. Guaranty Fund of $243,000 stemming from the insolvency of Reliance Insurance Company. There is the possibility NCRIC could be assessed additional amounts in the future. However, since the amount of any potential future assessment is not reasonably estimable at this time, no additional expense accrual has been recorded. No similar assessment was received in 2000.
Liquidity. The primary sources of NCRIC's liquidity are insurance premiums, net investment income, practice management and financial services fees, recoveries from reinsurers and proceeds from the maturity or sale of invested assets. Funds are used to pay claims, LAE, operating expenses, reinsurance premiums, taxes, and to purchase investments.
Net deferred tax assets ............ $ 2,482 $ 1,918 ======= =======
Defined Contribution Plans - NCRIC sponsors a defined contribution 401(k) profit-sharing plan. Employees who are 21 years or older and have completed 90 days of service are eligible for participation in the plan. Employees may elect to contribute up to 15% of total compensation, and all contributions are 100% vested. NCRIC is not required to make matching contributions to the plan, but may make discretionary contributions. Total contributions to the plan by NCRIC for the years ended December 31, 2001, 2000, and 1999, were $145,000, $177,000, and $171,000.
NET INCOME - STATUTORY BASIS $ 593 $ 4,409 $ 5,528 Deferred taxes 1,220 (287) (1,734) GAAP consolidation (234) (627) (1,289) ------- ------- -------
Basic earnings per share of common stock $ 0.25 $ 0.24 $ 0.24 $ 0.26 Diluted earnings per share of common stock $ 0.25 $ 0.24 $ 0.24 $ 0.26
For information concerning new accounting standards adopted in 2001 and 2000, see Note 1 of the Notes to the Consolidated Financial Statements.
CEDED ASSUMED PERCENTAGE PROPERTY AND GROSS TO OTHER FROM OTHER NET OF ASSUMED LIABILITY INSURANCE AMOUNT COMPANIES COMPANIES AMOUNT TO NET ------ --------- --------- ------ ------ 2001 $ 28,192 $ (7,296) $ - $ 20,896 0%