felanders/preprocessed huggingface dataset:
In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133"). SFAS 133, as amended, is effective for fiscal years beginning after June 15, 2000. SFAS 133 requires all derivative instruments to be recorded on the balance sheet at their fair value. Changes in the fair value of derivatives are recorded each period in current earnings or other comprehensive income, depending on whether a derivative is designed as part of a hedge transaction and, if it is, the type of hedge transaction. The adoption of SFAS 133 did not have an impact on the consolidated financial statements because the Company holds no derivative instruments.
Increased variable annuity revenues were partially offset by increased amortization of DAC in 1998 compared to 1997 and 1996 due to overall growth in the variable annuity business and by increased operating expenses.
CSI Brokerage Services provided the Company with commission income from brokerage agreements with other property and casualty insurance carriers. These carriers supply the Company's multi-line agents with property and casualty products that the Company's affiliated property and casualty companies do not underwrite. CSI earned $561,555 in 1996, $438,707 in 1995 and $368,700 in 1994. Another subsidiary, Cotton States Marketing Resources, Inc. (CSMR) provides the Company with commission income from brokerage agreements with other life and health insurance companies. These companies supply the Company's multi-line agents with life and health products that the Company does not want to underwrite. CSMR earned $320,148 in 1996, $183,010 in 1995 and $88,000 in 1994.
1996 1995 ---- ---- Deferred tax assets: Deferred policy acquisition costs - tax $ 1,230,104 1,053,365 Life insurance reserves 4,458,050 4,107,971 Unearned mortality and expense charges 713,282 709,805 Postretirement health benefits liability 107,815 111,621 Alternative minimum tax credit carryforward - 329,192 Deferred compensation 71,060 - Capital loss carryforward 231,005 - Other, net 26,644 33,156 ----------- ---------- Total deferred tax assets 6,837,960 6,345,110
Valuation allowance (81,000) (250,000) ----------- ---------- Net deferred tax assets 6,756,960 6,095,110
Premium revenues generated from American Country's other commercial lines decreased significantly in 2000 to $13.8 million from $17.2 million for 1999, a 19.9% decrease. This decrease is attributable to American Country's re-underwriting program and is also attributable to a quota share reinsurance agreement entered into on April 1, 2000. Under the treaty, American Country ceded 30% of the commercial lines premium for the 2nd quarter, and 50% of the commercial lines premium for the 3rd and 4th quarters.
Policy acquisition costs increased $550,000 or 5.3% during 2000. The increase is attributable to additional acquisition expenses being incurred in connection with American Country's geographical
The line of credit agreement contains various debt covenants including conditions for prepayment and certain financial covenants, the most restrictive covenant being the ratio of debt to equity. The Company was in compliance with all covenants of the agreement as of December 31, 2000.
The Company's profitability in its individual life insurance and group benefits businesses depends largely on the size of its in force block, the adequacy of product pricing and underwriting discipline, and the efficiency of its claims and expense management.
tax benefit due to favorable development related to September 11. In 2001, the Company recorded a $20 after-tax loss related to September 11.
ongoing premium growth previously described and continued investments in technology and service. The segment's ratio of insurance operating costs and other expenses to premiums and other considerations was 23%, consistent with prior year.
The investment portfolios are managed based on the underlying characteristics and nature of each operation's respective liabilities and within established risk parameters. (For a further discussion of Hartford Life's approach to managing risks, see the Investment Credit Risk and Capital Markets Risk Management sections.)
Ratings are an important factor in establishing the competitive position in the insurance and financial services marketplace. There can be no assurance that the Company's ratings will continue for any given period of time or that they will not be changed. In the event the Company's ratings are downgraded, the level of revenues or the persistency of the Company's business may be adversely impacted.
The increase in the commercial medical care ratio includes higher cost FHP provider contracts, increased non-capitated physician costs and increased out of area emergency room costs as compared to the prior year.
During 1996, the Company decided that its PacifiCare of Florida ("Florida") subsidiary would not launch the Secure Horizons program and withdrew its HCFA application after considering the effects of enhanced state regulation, reduced Medicaid reimbursement, and continued losses experienced in the Florida market. The business strategy for Florida profitability was based on launching of the Company's Secure Horizons program. Accordingly, the Company recognized a $59 million ($34 million or $1.10 diluted loss per share, net of tax) charge for the impairment of goodwill and decided to sell its Florida operations.
SFAS No. 130, "Reporting Comprehensive Income," establishes new rules for the reporting and display of comprehensive income and its components in a complete set of general-purpose financial statements as well as in interim period financial statements.
The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward looking statements to encourage companies to provide prospective information about themselves without fear of litigation so long as those statements are identified as forward looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in the statements. The statements contained in this section, and throughout the document, are based on current expectations. These statements are forward looking and actual results may differ materially from those projected in the forward looking statements, which statements involve risks and uncertainties. In addition, past financial performance is not necessarily a reliable indicator of future performance and investors should not use historical performance to anticipate results or future period trends. Shareholders are also directed to the other risks discussed in other documents filed by the Company with the SEC.
(7) Percentage return on average equity is net earnings for the period divided by the simple average of total stockholders' equity as of the beginning and end of each year presented.
In our opinion, the Consolidated Financial Statements referred to above present fairly, in all material respects, the consolidated financial position of Fidelity National Financial, Inc. and subsidiaries as of December 31, 1999 and 1998, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1999 in conformity with generally accepted accounting principles.
FNF Capital previously reported its results of operations based on a fiscal year ended June 30. FNF Capital's fiscal year has been converted to a calendar year in order to conform to that of the Company.
A transfer of financial assets in which control is surrendered is accounted for as a sale to the extent that consideration other than beneficial interests in the transferred assets is received in the exchange. Liabilities and derivatives incurred or obtained by the transfer of financial assets are required to be measured at fair value, if practicable. Also, servicing assets and other retained interests in the transferred assets are measured by allocating the previous carrying value between the assets sold and the interest retained, if any, based on their relative fair values at the date of transfer.
Gains or losses resulting from the sales of leases are recognized in the accompanying Consolidated Statements of Earnings at the date of sale and are based upon the excess of the proceeds over the allocated cost of the leases sold. Nonrefundable fees and direct costs associated with the origination of leases are deferred and recognized when the leases are sold.
During the years ended December 31, 1999, 1998 and 1997, gross realized gains on sales of fixed maturity securities considered available for sale were $384,000, $700,000 and $798,000, respectively; and gross realized losses were $277,000, $268,000 and $468,000, respectively. Gross proceeds from the sale of fixed maturity securities considered available for sale amounted to $328,384,000, $71,114,000 and $143,085,000, during the years ended December 31, 1999, 1998 and 1997, respectively.
- --------------- (1) Intersegment revenue represented 66% of Micro General's total revenue in 1998.
Expenditures for long-lived assets relate primarily to the title insurance segment.
Earnings per share increased 12.9% and 27.8% in 1998 and 1997 due to the increase in net income. Earnings per share - assuming dilution increased 12.7% and 27.6%. Operating income per share increased 21.1% and 14.8% in 1998 and 1997.
hedging instrument is terminated, any gain or loss is deferred and amortized over the remaining life of the hedged asset or liability.
Long Term Stock Incentive Plan: Under the Long Term Stock Incentive Plan (Employees' Plan), a Committee of disinterested directors may award nonqualified or incentive stock options and stock appreciation rights, and make grants of the Company's stock, to employees of the Company and to life insurance agents. Stock grants may be either restricted stock or unrestricted stock distributed upon the achievement of performance goals established by the Committee.
The Company sponsors defined contribution retirement plans covering most employees and full time agents. The Company matches a portion of participant contributions and makes profit sharing contributions to a fund that acquires and holds shares of the Company's common stock. Plan assets were invested under a group variable annuity contract issued by JP Life. Expenses were $3, $4 and $3 during 1998, 1997 and 1996.
Annuity contracts issued by the Company do not generally have defined maturities. Therefore, fair values of the Company's liabilities under annuity contracts, the carrying amounts of which are included with policyholder contract deposits in the accompanying consolidated balance sheets, are estimated to equal the cash surrender values of the underlying contracts.
EBITDA and Adjusted EBITDA. We define this metric as net (loss) income before interest expense, income taxes and depreciation and amortization. We have included EBITDA in this report because it is a key measure used by our management and board of directors to understand and evaluate our core operating performance and trends, to prepare and approve our annual budget and to develop short- and long-term operational plans. In particular, the exclusion of certain expenses in calculating EBITDA can provide a useful measure for period-to-period comparisons of our business. However, EBITDA does not represent, and should not be considered as, an alternative to net income or cash flows from operations, each as determined in accordance with GAAP. Other companies may calculate EBITDA differently than we do. EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of our results as reported under GAAP.
Our third-party commissions consist of fees and commissions paid to distributors for selling our products to members, which we pay monthly for existing members and on a weekly basis for new members. Generally, we have expected third-party commissions as a percentage of revenue to remain generally consistent with prior periods; however, as noted above, in July 2013, we acquired Secured, a significant distributor, and third-party commissions decreased as a percentage of revenues in 2013. As a result of the acquisition, we expect third-party commissions to decrease on a consolidated basis in future periods, as the commissions paid to Secured are eliminated in consolidation.
Other expense for 2013 was $850,000, compared to other income of $35,000 for 2012. Other expense for the year ended December 31, 2013 included $423,000 of expense payable to Mr. Kosloske under the tax receivable agreement, a $454,000 fair value adjustment related to the contingent consideration from the acquisition of Secured and a $71,000 loss on extinguishment of debt. These expenses were partially offset by $93,000 of fees charged to distributors for advanced commissions.
As of December 31, 2013, we have made no such payments under the tax receivable agreement. As of December 31, 2013, we would be obligated to pay Mr. Kosloske $423,000 if our taxes payable on our subsequent annual tax return filings are shown to be reduced as result of an increase in our tax basis due to the issuance of 100,000 shares of Class A common stock upon the exchange of Series B membership interests (together with an equivalent number of shares of Class B Common Stock) by HPI and its subsidiary pursuant to the IPO underwriters’ overallotment option.
Income taxes. Our effective tax rates, based on earnings before taxes and after deducting noncontrolling interests (a loss of $70.7 million, $242.7 million and $64.1 million in 2009, 2008 and 2007, respectively), were 27.9%, (1.9%) and 37.3% for 2009, 2008 and 2007, respectively. Our effective income tax rate in 2009 was significantly impacted by a benefit of $29.8 million due to the change in tax law in the fourth quarter 2009, which allowed us to carry back net operating losses to prior years. As of December 31, 2009, our valuation allowance against deferred tax assets is $93.1 million, which will be evaluated for reversal as we return to profitability.
Cash from investing activities was generated principally by proceeds from investments matured and sold in the amounts of $477.1 million, $668.5 million and $449.2 million in 2009, 2008 and 2007, respectively. We used cash for the purchases of investments in the amounts of $369.4 million, $570.3 million and $391.9 million in 2009, 2008 and 2007, respectively. The cash from sales and maturities not reinvested was used principally to fund operations and capital expenditures and to reduce notes payable.
- ------------- (1) Investment data for 2002 has been classified based on industry accepted Lehman categorizations for public holdings and similar classifications by industry for all other holdings. Prior year data has been reclassified to conform to current year presentation.
Cash outflow requirements principally relate to benefits, claims, and payments to contract holders as well as amounts paid to policyholders and contract holders in connection with surrenders, withdrawals, and net policy loan activity. Uses of cash include commissions, general and administrative expenses, and purchase of investments. We regularly monitor our liquidity requirements associated with our policyholder and contract holder obligations so that we manage cash inflows to match anticipated cash outflow requirements. We utilize a cash flow projection system and regularly perform asset/liability duration matching in the management of our asset and liability portfolios.
Other operating expenses and depreciation expense for 2002 were $80.3 million and $7.8 million, respectively, or 29.3% and 27.1% higher than 2001. Increases relate primarily to purchase acquisitions in 2002 and 2001, higher insurance costs and costs associated with revenue growth.
Over the last three years, inflationary pressure has been relatively modest and did not have a significant effect on the Company’s operations.
The Company is engaged in insurance agency and brokerage activities and derives revenues primarily from commissions on the sale of insurance products to clients that are paid by the insurance underwriters with whom our subsidiary agencies place their clients' insurance. Generally, commission income, as well as the related premiums receivable from customers and premiums payable to insurance companies, is recognized as of the effective date of insurance coverage or billing date, whichever is later, net of an allowance for estimated policy cancellations. Contingent commissions and miscellaneous commissions are recorded as revenue when received. Service fees are recognized when the services are rendered.
Net Cash Used in Investing Activities. Net cash used in investing activities for the year ended December 31, 2006 was $36.5 million compared to $62.7 million in 2005. During 2006, we had $5.7 million in capital expenditures (net of proceeds from sales of property and equipment of $1.0 million), purchased $14.5 million in marketable securities net of maturities and paid $16.3 million, net of cash acquired, for business acquisitions, of
Member co-payments are not recorded as revenue. Under our client contracts, the pharmacy is solely obligated to collect the co-payments from the members. Under client contracts, we do not assume liability for member co-
In determining appropriate reserve levels for the year ended December 31, 2009, the Company maintained the same general processes and disciplines that were used to set reserves at prior reporting dates. No significant changes in methodologies were made to estimate the reserves since the last reporting date; however at each reporting date the Company reassesses the actuarial estimate of the reserve for loss and loss adjustment expenses and records its best estimate. Consistent with prior reserve valuations, as claims data becomes more mature for prior accident years, actuarial estimates were refined to weigh certain actuarial methods more heavily in order to respond to any emerging trends in the paid and reported loss data. These modifications to the analysis varied depending on whether the line of business was short-tailed or long-tailed and also varied by accident year. While prior accident years’ net reserves for losses and loss adjustment expenses for some lines of business have developed favorably in recent years, this does not infer that more recent accident years’ reserves also will develop favorably; pricing, reinsurance costs, the legal environment, general economic conditions and many other factors impact management’s ultimate loss estimates.
On November 13, 2007, the Board of Directors authorized the repurchase of up to $150.0 million of the Company’s common shares. The Company did not repurchase any shares during 2009, and as of December 31, 2009 had purchased 145,999 shares at an average price of $35.23 (total of $5.1 million repurchased). The Company may continue to acquire stock based on available liquidity and market conditions.
Winmar also owns or leases pursuant to long-term ground leases 1,497 acres of undeveloped land, primarily in Washington, Oregon, Texas and California.
For certain product guarantees, primarily certain living benefit features of the variable annuity products, the benefits are accounted for as embedded derivatives, with fair values calculated as the present value of expected future benefit payments to contractholders less the present value of assessed rider fees attributable to the embedded derivative feature. Under U.S. GAAP, the fair values of these benefit features are based on assumptions a market participant would use in valuing
insurer who does not have significant fronting nor risk sharing business. The traditional insurers do tend to drive industry standards. The Company's target for net written premium to statutory surplus remains at or below 2 to 1. For 1998, premium leverage ratios were 2.3 to 1 and 1.2 to 1 on a gross and net premium written basis, respectively.
During 1994, the funds generated from the sale and maturity of investments exceeded the funds used to acquire new investments, which was indicative of the Company s need for additional cash for operating needs. In 1995 and 1996, as a result of additional reductions in general expenses, the Company was able to reinvest the funds it generated from the sale and maturity of other investments. During 1994, a substantial amount of investments were sold in connection with the sale of the Company s direct universal life business to a third party. Cash and other assets were transferred to the reinsurer along with the Company's liability for future policy benefits on this business.
The Company s total equity, including redeemable preferred stock, decreased by approximately $2.2 million during 1996. The decrease is attributable to (1) the current year net loss of $1.2 million, (2) the decline in the carrying value of the bond portfolio ($923,000 less $314,000 in applicable deferred income taxes), (3) $409,000 in dividends to preferred shareholders and (4) the purchase of treasury shares at a cost of $50,000. Shareholders equity per common share also decreased from $4.20 at December 31, 1995 to $3.31 at the end of 1996.
Unearned premiums for credit life and disability insurance contracts have been computed based upon the original and remaining term of the related policies as follows: decreasing term credit life on the Rule of 78's method, level term credit life using the Pro Rata method and, effective January 1, 1994, credit disability using a 65% - 35% weighted average of the Rule of 78's and Pro Rata methods. (see Note 3).
At December 31, 1996, approximately 81% of the Company's investments in mortgage loans were secured by commercial real estate and the remaining mortgage loans were secured by residential real estate.
The Company owns real property for investment purposes as provided in Schedule I "Summary of Investments other than Investments in Related Parties." This investment property, located in Allentown, Pennsylvania, is leased to EIC and a nonaffiliated business. Rental income for 2001 was $353,760. The executive and administrative offices of the Company are located in the headquarters office of Erie Insurance Group in Erie, Pennsylvania. The Company pays other members of the group an amount determined by an agreement for office space and for the use of facilities, equipment and services.
Statutory premiums and deposits increased $364.4 million or 119.7% in 2000 as compared to 1999. The increase was primarily due to higher variable and fixed annuity sales. Increased variable annuity sales in 2000 were primarily driven by $185.4 million of sales from the Putnam Allstate Advisor variable annuity product that was launched in January 2000 pursuant to an alliance between the Company, ALIC and Putnam Investments, Inc. The large increase in fixed annuity sales resulted from new distribution outlets in the banking channel. In 1999, total statutory premiums and deposits increased $40.2 million or 15.2%. The increase was primarily due to higher fixed and variable annuity sales, partially offset by lower sales of immediate annuities.
At December 31, 2000, the Moody's, Standard and Poor's and A.M. Best's claims-paying ratings for the Company were Aa2, AA+ and A+, respectively. Additionally A.M. Best affirmed its December 31, 2000 rating in the first quarter of 2001.
The MBS portfolio is subject to interest rate risk since the price volatility and ultimate realized yield are affected by the rate of repayment of the underlying mortgages. The Company attempts to limit interest rate risk on these securities by investing a portion of the portfolio in securities that provide prepayment protection. At December 31, 2000, approximately 30.9% of the MBS portfolio was invested in planned amortization class bonds.
The Company's $207.9 million investment in mortgage loans at December 31, 2000 was comprised primarily of loans secured by first mortgages on developed commercial real estate. Geographical and property type diversification are key considerations used to manage the Company's mortgage loan risk.
See Note 19 in the Company's consolidated financial statements included herein.
In March 2003, the Company commenced a private placement to "accredited investors" to sell up to $250,000 in promissory notes (the "Notes") in $5,000 increments or multiples thereof, each bearing interest at 15% per annum and each due 6 months from the date issued (the "Maturity Date"). Principal will be payable at the Maturity Date and interest will be payable monthly in arrears. In the event that the Notes are not paid at the Maturity Date, the interest rate will increase to a default rate of 20% per annum. The Company will pay its placement agent an amount equal to 10% of the proceeds of the offering as commissions for the placement agent's services, in addition to reimbursement of the placement agent's expenses and indemnification against customary liabilities. The offering is a best efforts offering with no required minimum amount to be raised. If the full $250,000 is not raised, the Company's startup activities will be constrained. There can be no assurance that the offering will be successful.
Increase (decrease) in estimated losses and LAE for claims occurring in prior years, net of reinsurance 49,000 662,000 (241,000) ----------- ----------- ----------
Realized gain (loss) on available-for-sale securities: Fixed maturities . . . . . - - (10,984) Equity securities . . . . . 201,863 117,824 134,988 ----------- ----------- ---------- Net realized investment gains (losses) . . . . . . . . . . $ 201,863 $ 117,824 $ 124,004 =========== =========== ==========
Liability for losses and LAE, gross of reinsurance recoverables on unpaid losses, at end of year . . $ 2,550,300 $1,991,796 $2,351,804 ====================== ==========
Accounts payable to affiliates . . . 1,213,207 863,430 Accounts payable . 3,488 31,263 ------------- -------------
2. Basis of Presentation - In the parent-company-only financial statements, the Company s investment in subsidiaries is stated at cost plus equity in undistributed earnings of subsidiaries since the date of acquisition. The Company s share of net income of its unconsolidated subsidiaries is included in consolidated income using the equity method. Parent-company-only financial statements should be read in conjunction with the Company s consolidated financial statements.
Forward-looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond the Company's control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by, or on behalf of, the Company. Whether or not actual results differ materially from forward-looking statements may depend on numerous foreseeable and unforeseeable events or developments, some of which may be national in scope, such as general economic conditions and interest rates, some of which may be related to the insurance industry generally, such as pricing competition, regulatory developments and industry consolidation, and others of which may relate to the Company specifically, such as credit, volatility and other risks associated with the Company's investment portfolio, and other factors. Investors are also directed to consider other risks and uncertainties discussed in documents filed by the Company with the SEC. The Company disclaims any obligation to update forward-looking information.
At September 30, 1996, the Bond Portfolio included $1.24 billion (fair value, $1.27 billion) of bonds not rated investment grade by S&P, Moody's, D&P, Fitch or the NAIC. Based on their September 30, 1996 amortized cost, these non-investment-grade bonds accounted for 5.2% of the Company's total assets and 7.6% of its invested assets. In addition to its direct investment in non-investment-grade bonds, the Company has entered into Total Return Agreements with an aggregate notional principal amount of $306.8 million at September 30, 1996 (see "Asset-Liability Matching").
MANAGEMENT'S DISCUSSION AND ANALYSIS --------------------------------------------- OF FINANCIAL CONDITION AND RESULTS OF OPERATION -----------------------------------------------
Litigation or regulatory actions that could require us to pay significant damages or change the way we do business;
Hybrid securities are included in the Company’s banking exposure, which typically have an original maturity of more than 30 years, may be perpetual and were designed to receive enhanced equity credit from rating agencies. In addition, they have other features that may not be consistent across issues such as a cumulative or non-cumulative coupon, capital replacement language and an alternative payment mechanism. The Company’s exposure to hybrid securities in an unrealized loss is all rated investment grade and there is little risk of payment interruption.
These factors typically require significant management judgment. The impairment review process has resulted in no other than temporary impairment charges for the year ended December 31, 2011 for the Company.
Details underlying AFS securities below investment grade and in an unrealized loss and OTTI position were as follows:
The following tables provide the ABS subprime mortgage exposure by rating and estimated fair value by vintage at December 31, 2011 and 2010:
Policy charge revenue increased $0.7 million to $204.6 million during 2010, as compared to $203.9 million in 2009. The following table provides the changes in policy charge revenue by type for each respective period:
Consolidated Statements of Cash Flows Years ended December 31, 1997, 1996 and 1995 12
(In millions) Years Ended December 31, -------------------------------------- 1997 1996 --------------- ----------------- Property............... $17.8 $19.4 Casualty............... 69.7 17.6 Multi-line............. 45.9 21.8 Specialty.............. 10.0 13.7 Marine................. 1.4 -- =============== ================= Total.............. $144.8 $72.5 =============== =================
The NAIC is presently considering adopting a codification of statutory accounting principles that would generally be applied to all insurance and reinsurance company financial statements filed with insurance regulatory authorities as early as the 1999 statutory filings. Although the codification is not expected to materially affect many existing statutory accounting practices presently followed by most insurers and reinsurers such as the Company, there are several accounting practices that may be changed. The most significant change would involve accounting for deferred income taxes, which change would require a deferred tax liability to be recorded for unrealized appreciation of invested assets, net of available deferred tax assets, that would result in a reduction to statutory surplus. If this requirement had been in effect in 1997, the statutory surplus of the Company would have been reduced by approximately $15 million for a net deferred tax liability, from $385 million to $370 million at December 31, 1997.
Net losses and loss adjustment expenses ("LAE") incurred decreased 12.9% to $1,167.8 million for the year ended December 31, 1996, from $1,340.2 million in 1995. This decrease was primarily due to a decrease in losses due to adverse development from Latent Liability Exposures. The Company incurred a $347.4 million charge for loss reserve strengthening, primarily due to increases in reserves for Latent Liability Exposures, in the fourth quarter of 1995 (See "Reserves for Unpaid Losses and Loss Adjustment Expenses".) The Company had no adverse loss development for Latent Liability Exposures in 1996. The year ended December 31, 1996, also included $16.5 million of catastrophe losses, compared to $10.0 million of catastrophe losses incurred in 1995.
Other income increased by 21.5% to $47.5 million for the year ended December 31, 1996, from $39.1 million in 1995. The increase in the 1996 period was primarily attributable to a $12.7 million increase in fee subsidiary revenue. Other expenses increased 5.6% to $109.2 million for the year ended December 31, 1996, from $103.4 million in 1995. The increase was primarily attributable to $36.1 million in Acquisition-related expenses incurred during 1996, and a $16.5 million increase in subsidiary expenses from $39.3 million in 1995, to $55.8 million in 1996. The 1995 period included a $36.5 million increase in the provision for the allowance for uncollectible reinsurance primarily related to the charge for loss reserve strengthening in 1995; there was no similar charge during the 1996 period.
The Company incurred an after-tax expense of $4.4 million for the year ended December 31, 1995, representing the Company' s minority interest in the earnings of American Re Capital, a single-purpose, wholly owned subsidiary trust. The charge was due to the distributions paid by American Re Capital on the QUIPS. See "Financial Condition." There was no comparable charge for the Company in the 1994 period.
As a result of the Acquisition, Munich Re and the Company are contemplating various alternatives for integrating all or a portion of the operations of American Re-Insurance during 1997 with all or a portion of certain other operations of Munich Re in the United States including Munich American Reinsurance and the operations of the United States branch of Munich Re. There can be no assurance that any such integration will occur on the timetable currently contemplated, or as to the form that any such integration could take. Any plan for integration would be subject to, among other things, an analysis by Munich Re and the Company of the accounting, operational and legal implications of such integration, the negotiation and execution of definitive agreements as to value and other matters, as well as a variety of other factors that are beyond the Company's control, including, without limitation, the consent of certain of the other shareholders of Munich American Reinsurance and application for and receipt of insurance and other regulatory approvals. There can be no assurance as to the impact of any such integration on the business condition (financial or otherwise) or prospects of the Company.
Investment income on cash and investments in excess of customer deposits (i.e., consolidated surplus assets) was $10.7 million and $9.3 million for the years ended December 31, 1998 and 1997, respectively.
The Company manages assets and liabilities in a closely integrated manner, with the aim of reducing the volatility of investment spreads during a changing interest rate environment. As a result, adjusting shareholders' equity for changes in the fair value to the Company's fixed maturities and equity securities without reflecting offsetting changes in the value of the Company's liabilities or other assets creates volatility in reported shareholders' equity but does not fully reflect the underlying economics of the Company's business. The Company's accompanying consolidated financial statements include fair value balance sheets which reflect the more limited impact on the Company's financial position from the 1998 bond market volatility when all assets and liabilities are adjusted to estimated fair values.
Internal control measures are in place throughout the process to help identify any necessary adjustments in the investment portfolio as promptly as possible. For example, Company personnel assess, independently of portfolio managers, whether trades would alter portfolio characteristics and how investment yields or realized gains or losses would be accounted for under statutory accounting practices and generally accepted accounting principles. The Company also conducts thorough periodic analyses of its assets and liabilities, using sophisticated software, to analyze and manage the effect of changes in economic conditions on both its assets and liabilities, and to ensure that changes in key assumptions, interest rates, or other factors have not significantly altered the overall risk profile of the Company's balance sheet.
To support the operations of its subsidiaries, the Company may from time to time make capital contributions to its subsidiaries. During 1998, the Company made capital contributions of $8.9 million and $6.0 million to Integrity and 312 CC, respectively.
Environmental. Net premiums earned decreased 7.7% to $35.1 million for the year ended December 31, 2006 compared to $38.1 million for 2005. Net earned premiums decreased due to a $3.7 million accrual of reinstatement premium to reinstate excess limit reinsurance coverage as a result of three large claims, a decline in the Company’s middle market business due to increased competition, and an expected decline in the Company’s book of environmental contractor and consultant premiums in the State of New York. The decline in the New York business is the result of changes in the underwriting policies.
states. We implemented these claim count development patterns, which were based on a larger number of claims and a longer development history than we previously had used in estimating future construction defect claim counts. In 2005, the runoff lines’ reserve development for prior years was due to $1.2 million of increases in reserves on the Company’s excess municipality program
At December 31, 2007, mortgage backed securities comprised 35.3% of the entire portfolio. All mortgage backed securities are issued by agencies of the U.S. Government. The single largest security in this class is a Fannie Mae investment with a $10.1 million par value. In the corporate sector, the Company has concentrations in brokerage houses with par value of $30.9 million or 5.5% of the total portfolio, with the largest single security being Goldman Sachs Group with a par value of $4.8 million. The Company also has concentrations in the banking area with $30.5 million or 5.4% of the total portfolio, with the largest single security being Bank of America with a par value of $3.0 million. U.S. Government securities were the third largest class at 13.5% of the total portfolio with the largest security having a par value of $8.4 million.
Management's Discussion and Analysis of Financial Condition and Results of Operations contains certain forward-looking statements pursuant to the Private Securities Litigation Reform Act of 1995. These forward-looking statements are based on estimates and assumptions that involve certain risks and uncertainties, therefore actual results could differ materially due to factors not currently known. These factors include significant changes in financial markets and other economic and business conditions, state and federal legislation and regulation, ownership and competition.
o During 1999, 1998 and 1997, the Company extended its reinsurance agreements. The reinsurance agreements are modified coinsurance arrangements where the reinsurer shares in the experience of a specific book of business.
Historically, real estate activity has been generally slower in the winter months with volumes showing significant improvements in the spring and summer months. The percentage of title orders closed to title orders opened is typically lower in the first six months than at year end because of this seasonal variance. See "Business - Seasonality, Backlog and Cyclicality." In recent years low levels of mortgage interest rates have caused fluctuations in real estate activity levels outside of the usual, seasonal pattern. The Company cannot predict whether or when the historical seasonal pattern of real estate activity will resume.
In the fourth quarter of 1996, the Company changed its investment strategy, selling a majority of its equity portfolio and beginning to move the proceeds into fixed-maturity securities. This sale resulted in capital gains of $17.4 million.
Managers W. Bruppacher A.-L. Chenaud W. Eschmann J.-E. Rossier A. Schütz V. Tisi H. Zwingli
The distribution of the premium income over the indivi­ dual branches is shown on page 6. From the table it is also evident that the premium income for own account, which has advanced by Sw.frs. 189 million, or more than 17%, underwent a greater relative increase than the gross pre­ mium income.
Of the assets of our Company Sw.frs. 169,306,000 are held by Trustees appointed by us in overseas territories.
Trenwick America Corporation discloses operating and non-operating income to enable the reader to understand how management evaluates Trenwick America Corporation's results of operations. These disclosures are not defined under accounting principles generally accepted in the United States of America; accordingly the use of these disclosures may not be comparable to other registrants.
Interest expense and subsidiary preferred share dividends were $31.3 million for 2001, a decrease of $4.4 million from 2000. The decrease resulted from a reduction in interest on Trenwick America Corporation's bank credit facility following a general decrease in interest rates.
investments with characteristics such as duration, yield, currency and liquidity to reflect the underlying characteristics of related estimated claim liabilities.
See Note 13 to our financial statements in this Form 10-K for more information.
A majority of the property and casualty insurance segment's revenue is generated from personal and commercial insurance premiums. During the last several years, this industry has faced fierce competition, which has limited premium growth and squeezed underwriting profits. Under these conditions, the Company has worked hard to maintain its market share without compromising its underwriting standards. The Company's property and casualty segment had a slight decrease in premiums earned of 2 percent in 1998. The reinsurance line of business had the largest change in net premiums earned, decreasing by $4,770,000, or 16 percent, between 1998 and 1997. All other lines of business have increased or decreased slightly between years. Looking to the future, management does not expect significant relief from the intense competition and will continue to respond to market pressures by seeking out profitable business at adequate rates.
Realized gains reported by the Company increased significantly in 1998, growing to $22,796,000 from $2,676,000 in 1997. During the second quarter of the year, the Company took advantage of market conditions and sold some of its equity securities. The proceeds were used to purchase 625,000 shares of its common stock. The sales generated realized gains of $16,858,000, which contributed to the 1998 results. During the third quarter of 1998, 600,000 of the treasury shares were retired and 25,000 shares were contributed to the Company's Employee Stock Ownership Plan.
Certain amounts included in the Consolidated Financial Statements for prior years have been reclassified to conform with the 1998 financial statement presentation.
The Company also has an Employee Stock Ownership Plan for the benefit of eligible employees and their beneficiaries. All employees are eligible to participate in the plan upon completion of one year of service and attaining age 21. Contributions to this plan are made at the discretion of the Board of Directors. These contributions are based upon a percentage of total payroll and are allocated to participants on the basis of compensation. Contributions are made in stock or cash, which is used by the Trustee to acquire shares of the Company stock to allocate to participants' accounts. As of December 31, 1998, 1997 and 1996, the Trustee owned 120,333, 93,127 and 92,806 shares of Company stock, respectively. The Company made contributions to the plan of $1,050,000, zero and $142,000 in 1998, 1997 and 1996 respectively.
Depreciation and Amortization. Depreciation and amortization expense was $4.0 million for the year ended December 31, 1997 compared to $787,000 for the year ended December 31, 1996, an increase of $3.2 million or 408%. This increase is primarily attributable to (i) Millers Mutual's capital contribution of approximately $1.3 million in depreciable property and equipment to the Company in January 1997 and (ii) amortization of goodwill recorded in connection with the SDS Acquisition.
Cost of Revenues. Cost of revenues was $10.5 million for the year ended December 31, 1996 compared to $4.9 million for the period from inception through December 31, 1995, an increase of $5.6 million or 114%. This increase is attributable primarily to (i) the Company conducting twelve months of operations in 1996 compared to approximately six months in 1995 and (ii) personnel and other costs associated with the three significant outsourcing contracts described above. Cost of revenues as a percentage of total revenues decreased from 126% for the period from inception through December 31, 1995 to 77% for the year ended December 31, 1996. This decrease was primarily a result of economies of scale associated with spreading certain fixed costs over a larger revenue base and lower personnel costs as a percentage of revenues.
Deferred policy acquisition costs include commissions, premium taxes and other variable costs incurred in connection with writing business. Deferred policy acquisition costs are reviewed to determine if they are recoverable from future income, including investment income. If such costs are estimated to be unrecoverable, they are expensed. Recoverability is analyzed based on the Company’s assumptions related to the underlying policies written, including the lives of the underlying policies, future investment income, and level of expenses necessary to maintain the policies over their entire lives. Deferred policy acquisition costs are amortized over the period in which the related premiums are earned.