The Company leases office space in Hamilton, Bermuda and Dublin, Ireland, the locations in which it operates. The Company has secured office space on a long-term basis in a new building in Bermuda, which the Company believes will be adequate for anticipated future operations. The lease in Ireland is currently on a month-to-month basis. Although sufficient to conduct current operations, the Company is seeking to lease replacement space in Dublin, Ireland on a long-term basis to support future operations.
The Company derives revenues from three principal sources-premiums from reinsurance and insurance business, income from its investment portfolio and, to a lesser extent, management fees from underwriting services. Reinsurance and insurance premiums are a function of the amount and type of contracts written as well as prevailing market prices. Premiums are earned over the terms of the underlying contracts. Each of the Company’s reinsurance contracts contains unique pricing, terms and
The Company follows FAS No. 60, “Accounting and Reporting by Insurance Enterprises,” FAS No. 97, “Accounting and Reporting by Insurance Enterprises for Certain Long-Duration Contracts and Realized Gains and Losses from the Sale of Investments,” and FAS No. 113, “Accounting and Reporting
Premiums ceded. Premiums ceded for the year ended December 31, 2001 were $116.4 million compared to $7.9 million for the year ended December 31, 2000. The premiums ceded were principally
result of the Company’s increase in property and casualty insurance volume. Acquisition costs during each of the years ended December 31, 2001 and 2000 consisted primarily of amortization of deferred policy acquisition costs incurred in connection with writing property and casualty business. Acquisition costs are customarily associated with the type of premium written by the Company. Generally, acquisition costs fluctuate with business volume and changes in product mix.
$150.0 million sale of shares of Max Re Diversified to the same third party financial institution and entered into a total return swap with the purchaser on substantially similar terms as the terminated transaction. Max Re Diversified shares owned by Max Re with a fair value of $75.0 million at January 31, 2003 were pledged as collateral. Under GAAP, the new swap transaction will be accounted for as a financing transaction, which will result in the recording of a $150.0 million bank loan. The new swap termination date is February 2005, with provisions for earlier termination at the Company’s option or in the event that the Company fails to comply with certain covenants, including maintaining a minimum financial strength rating and a minimum Max Re Diversified net asset value. At termination, the purchaser has the option to sell the Max Re Diversified shares to the Company at a price equal to the fair value of the Max Re Diversified shares on the date of repurchase. The swap transaction will enable the Company to transform a portion of its Max Re Diversified assets into fixed maturities investments that can be held in a trust for the benefit of certain ceding reinsurance companies that require fixed maturity trust assets to meet regulatory requirements.
The Company has two letter of credit facilities as of December 31, 2002. The Company’s primary letter of credit facility is a $375 million facility with a syndicate of commercial banks. At December 31, 2002 and December 31, 2001 letters of credit totaling $284.6 million and $282.9 million, respectively, were issued and outstanding under this facility. In January 2002, the Company entered into a $100 million letter of credit facility with HVB, a joint venture partner with the Company in Grand
In December 2002, Financial Accounting Standard (“FAS”) No. 148-Accounting for Stock-Based Compensation-Transition and Disclosure (“FAS No. 148”) was issued, amending FAS No. 123-Accounting for Stock-Based Compensation. FAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation. FAS No. 148 also amends the disclosure requirements of FAS No. 123 to require prominent disclosures in both annual and interim financial statements about the method of accounting for stock-based employee compensation and the effect of the method used on reported results. The Company has complied with the required disclosure in Note 11 of the accompanying financial statements. The Company will adopt the expense recognition provisions of FAS No. 123 for all stock options granted on or after January 1, 2003. Under these provisions, compensation expense will be recognized over the related vesting period based on the fair value of the stock options on the date of grant. The amount of stock based compensation to be recognized under the provisions of FAS No. 123 is not currently determinable because the number and value of stock options to be granted to employees in the future is not known.