The Company's liability for property and casualty unpaid losses and LAE includes:
The Flood segment contains the runoff fee-based NFIP operations of SCIC and Catawba, the fee-based flood zone determinations and flood zone mapping services of AFS, and the fee-based flood insurance agency operations of AFS.
In subsequent Court proceedings it was ordered that the HDC Program is to function as a large deductible workers' compensation program with HDC being responsible for all losses and LAE of the program up to $1,000 per occurrence (the "deductible"). Coverage for losses and LAE in excess of the deductible is provided by the Company, subject to its reinsurance for losses and LAE of $15,000 in excess of $5,000 per occurrence. The Court has ordered HDC to retain an independent actuary to estimate the unpaid losses and LAE of the HDC Program, subject to the deductible, as of
The Company's loss in earnings of its unconsolidated subsidiaries amounted to $72 and $485 for the years ended December 31, 2002 and relates to investments in Sunshine State (21.49% interest) and QualSure Holding (formerly 30.625% interest). As each of these equity investments exceeds 20% of the equity of each respective company, the Company's equity in the undistributed earnings of the unconsolidated affiliates, using the equity method, are included in current earnings. Effective October 3, 2002, the Company's combined ownership interest in QualSure Holding was redeemed by QualSure Holding. Therefore, the Company no longer records equity in the undistributed earnings of QualSure Holding.
Effective July 1, 2002, one of the Company's subsidiaries, SBC, entered into an agreement with a Florida domiciled insurance company to serve as managing general agent for that company's low-value dwelling homeowners' insurance program in the state of Florida until such time as that program is runoff. Therefore, the Company does not expect to recognize significant revenue related to the agreement after December 31, 2002. In its capacity as managing general agent SBC earned policy fees of $71, which are included in the all other segment.
- INS experienced significant reductions in revenue for the year ended December 31, 2002 as compared to the same period of 2001 for a variety of reasons previously discussed. Associated with this decrease in revenues are corresponding reductions in other operating costs and expenses. Most notably, claims adjusting expenses incurred decreased $1,059 between periods.
and South Carolina nonstandard automobile programs, as well as the sale of the Company's renewal rights of its NFIP business to The Hartford in November 2002.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of The Seibels Bruce Group, Inc. and subsidiaries as of December 31, 2001 and 2000 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States.
Through its subsidiaries, South Carolina Insurance Company ("SCIC") and Catawba Insurance Company ("Catawba"), the Company participated in the NFIP, a flood insurance program administered by the federal government. In this capacity, SCIC and Catawba were responsible for all aspects of policy administration over the term of the policies, including underwriting, processing and statistical reporting, subject to administration guidelines of the NFIP. The companies were also responsible for all aspects of claims administration associated with claims reported under the business they produce. SCIC and Catawba received commission and service income from the NFIP for these policy and claims administration services, but retained no underwriting risk on any of the business produced because all of the premiums and associated losses were fully ceded to the NFIP. Approximately 44.9%, 41.2% and 34.5% of the Company's commission and service income for the years ended December 31, 2002, 2001 and 2000, respectively, was earned from the NFIP.
Catawba is one of three servicing carriers for the SC Facility, a state-sponsored plan for insuring South Carolina drivers outside of the voluntary market. In its capacity as a servicing carrier, Catawba is responsible for all aspects of policy administration over the term of the policies, including underwriting, processing and statistical reporting, subject to administration guidelines of the SC Facility. Catawba is also responsible for all aspects of claims administration associated with claims reported under the business it produces. Catawba receives commission and service income from the SC Facility for these policy and claims administration services, but retains no underwriting risk on any of the business produced because all of the premiums and associated losses are fully ceded to the SC Facility. The SC Facility began its planned runoff effective March 1, 1999 and entered its final stage of runoff effective March 1, 2002. The South Carolina Associated Automobile Insurers Program (the "SCAAIP") became effective in March 1999 and survived the SC Facility. Although the SCAAIP offered the Company access to additional fee-based revenue with no underwriting risk, thus far into the runoff of the SC Facility, the Company has not experienced significant activity in the SCAAIP. Effective March 1, 2003, the SCAAIP began its planned runoff. Approximately 4.5%, 12.7% and 18.6% of the Company's commission and service income for the years ended December 31, 2002, 2001 and 2000, respectively, was earned through the SC Facility and the SCAAIP.
Investment in non marketable equity securities not qualifying for the equity method are reflected at cost.
The Company utilizes reinsurance to reduce its exposure and to provide protection against large catastrophic occurrences. A significant portion of the Company's direct business is ceded to the SC Facility, the NC Facility and the NFIP; therefore, the Company retains no risk of loss related to this business. Reinsurance recoverable is estimated using assumptions consistent with those used to estimate the liability for unpaid losses and loss adjustment expenses ("LAE") (see Property and Casualty Unpaid Losses and LAE). Changes in estimated reinsurance recoverable are recorded in the year so determined.
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) acquisition costs is subject to the application of recoverability tests to each primary line or source of business based on past and anticipated underwriting results. The deferred policy acquisition costs that are not recoverable from future policy revenues, if any, are expensed. The Company considers anticipated investment income in determining whether premium deficiencies exist.
Excluding investments in the U.S. Government, government agencies and authorities, there were no investments at December 31, 2002 that exceeded 10% of shareholders' equity.
NOTE 2 INVESTMENTS (CONTINUED) Proceeds from sales of debt and equity securities and the related realized gains and losses are as follows:
SCIC, Catawba and CAIC are regulated by the SCDOI. The South Carolina Insurance Holding Company Regulatory Act requires that all non-extraordinary dividends be approved by the SCDOI prior to payment. Extraordinary dividends are defined as dividends within a 12-month period that exceed the lesser of (i) 10% of an insurer's surplus as regards policyholders as shown in the insurer's most recent Annual Statement, or (ii) net income, not including realized capital gains or losses, as shown in the insurer's most recent Annual Statement. Extraordinary dividends must be approved by the Commissioner of the SCDOI, or his designee, prior to payment.
The weighted-average annual assumed rate of increase in the per capita cost of covered benefits (i.e., health care cost trend rate) was 10.0% for 2002 (11% for 2001) and is assumed to decrease to a 5% ultimate trend with a duration to ultimate trend of five years (six years in 2001). Increasing or decreasing the assumed health care cost trend rate by one percentage point would have no significant effect on the post-retirement benefit obligation as of December 31, 2002.
(c) Estimated reserves for losses and LAE for claims arising under the HDC Program have been established by the Company net of the deductible that HDC is required to pay under order of the Court. The Company has a potential off-balance sheet credit risk associated with such deductibles if the Company were required to fund the deductibles in the event that HDC cannot pay the deductible.