The Company occupies leased office space in Texas and Georgia. It occupies owned facilities at its corporate headquarters located in Schenectady, New York.
The following GAAP basis tables should be read in conjunction with the consolidated financial statements of the Company and the notes thereto.
Per Share Data: Net income(loss) before extraordinary items $ (.97) $ (.05) $ (.50) $ (5.46) $ .09 Net income (loss) (.97) 2.67 (.50) (5.46) .07 Dividends - - - .27 .46 Total stockholders' equity (deficiency) $ (.20) $ .01 $ (3.98) $ (1.36) $ 4.17
Certain GAAP Financial Ratios: Loss and LAE ratio 231.0% 97.6% 77.0% 122.7% 81.6% Losses - government pools ratio - - - .7 2.2 Acquisition expense ratio .2 33.7 39.6 29.2 18.8 Dividend ratio - - - .2 .2 Underwriting expense ratio 42.6 32.0 26.0 12.0 11.0 Combined ratio 273.8% 163.3% 142.6% 164.8% 113.8%
All significant intercompany transactions have been eliminated in consolidation. Amounts in 1994 include UCIC financial results only through the date of the Order of Rehabilitation (July 7, 1994) and on an unconsolidated basis (ie. results of operations are reflected as "Equity in loss of non- consoldated subsidiary" and the Company's investment as "Deficit of non- consolidated subsidiary"). As a result of the formal order of liquidation entered on November 10, 1995 the Company reversed these amounts resulting in the extraordinary gain.
On September 19, 1996, as a result of the purchase of real estate by Senate Insurance Company (Senate) from Barbara Lawrence, a former owner and director, the State of Arizona Department of Insurance (ADI) placed Senate and Senate National Insurance Company (SNLIC) under supervision. A hearing was to be held by November 19, 1996, in order to ascertain that the transaction was fair and that the obligations of LGI could be met without utilizing the assets of these companies. The hearing has been postponed at the request of the ADI.
Net premiums earned for 1996 totaled $3,571,000 compared with $5,533,000 for 1995 and $5,221,000 for 1994. The decrease in 1996 was due primarily to the continued decline in the accident and health (A&H) business. The increase from 1994 to 1995 was attributable primarily to favorable adjustments to URIC assum- ed premiums partially offset by the decrease in Senate's stop loss business.
Reinsurance assumed loss and LAE expenses have been adversely impacted by the pooling agreement with UCIC. Earned premium in 1994 was negative as a result of a moratorium on new business and adjustments to retrospectively rated treaties as some of these treaties showed favorable loss experience in 1994. The favorability was offset by losses incurred of approximately $1,600,000 related to the Northridge California earthquake.
The accident and health business, which constitutes the current majority of the Company's business, continues to enjoy good results although the trend has been unfavorable. The loss and LAE ratio was 64%, 52% and 38% for 1996, 1995 and 1994, respectively as some customers who had been experiencing excellent loss ratios have in a number of instances selfinsured or kept higher retentions. Senate has also been impacted by the publicity surrounding UCIC and LGI and its subsidiaries.
Loss and LAE are based on the ability to collect from reinsurers amounts due under reinsurance contracts. URIC's reinsurance is allocated to numerous companies. Senate reinsured through Lloyd's of London on a combined quota share/excess of loss basis. Senate claims with insureds are settled quickly and reimbursed by Lloyd's of London promptly. This minimizes any significant credit risk associated with longer tail business where premiums are remitted to reinsurers long before claims are paid and reimbursed. Global has quota share reinsurance spread among a number of companies. Management believes the credit risk to be minimal.
Policy Acquisition Costs: Commissions and other acquisition expenses were approximately $8,000 in 1996, $1,863,000 in 1995 and $2,068,000 in 1994. The changes in policy acquisition costs for these years are attributable to the change in the volume of business, changes in the mix of business from premium with a lower commission rate to premium with a higher commission rate and changes in reinsurance ceding commission income. The Company offsets reinsurance ceding commission income against commissions and other acquisition costs to arrive at the Company's net expense. The Company's net expense is impacted by changes in reinsurance ceding commission, in addition to changes in direct commissions associated with the Company's direct and assumed premium.
Policy acquisition expenses decreased in 1996 primarily as a result of adjustments to incentive rated reinsurance contracts of URIC and lower premium volume at Senate. Policy acquisition expenses for 1995 decreased by $205,000 compared with 1994 primarily as a result of lower premium volume at Senate.
Equity in Earnings of Investee: During 1992, the Company acquired 49% of the outstanding common stock of MTI. The Company's pro rata share of MTI's undistributed earnings since the date of acquisition has been included in the Company's operating results in the amount of $(103,000) for 1994. Based upon events subsequent to December 31, 1993, the investment was written down as of December 31, 1993 to reflect an impairment.
In the absence of dividends from its subsidiaries the Company has had to rely on tax refunds and other miscellaneous sources of cash to fund its own activities. While these requirements are not expected to be substantial it is uncertain to what degree they can be met in the future. Senate, Global and SNLIC are deemed to have ample cash and invested assets to meet their foreseeable cash requirements. However, it is uncertain that URIC can meet it long term cash requirements if the loss and LAE reserves related to pooling are not commuted or otherwise modified substantially.
The consolidated financial statements required in response to this Item are submitted as part of ITEM 14 (a) of this report.