The Company leases office space in Hamilton, Bermuda and Dublin, Ireland, the locations in which it operates. The lease in Bermuda expires on February 28, 2003 and is adequate for current levels of operations. The Company has secured office space on a long-term basis in a new building currently under construction in Bermuda, which the Company believes will be adequate for anticipated future operations. The Company expects the new space to be completed and ready for occupancy prior to the end of 2002. The lease in Ireland expires on September 30, 2002, and can be renewed for a term of one year. 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 following table of certain selected data should be read in conjunction with the consolidated financial statements and notes thereto and with "Management's Discussion and Analysis of Financial Condition and Results of Operations."
The Company is a Bermuda-based provider of reinsurance for both the property and casualty and the life and annuity, including disability, insurance markets. The Company offers customized, alternative risk transfer reinsurance products in both markets. The Company continually considers other opportunities in the financial services markets. In evaluating such opportunities, the Company assesses the competitive advantage it possesses based on its skills and capabilities.
The Company's capital base and structured reinsurance products provide flexibility in making decisions regarding investments. The Company's investments are comprised of both high grade fixed maturity securities, referred to in our financial statements as fixed maturities, and a diversified, alternative investment portfolio that is currently invested in approximately 50 underlying trading entities and strategic equity investments.
The Company anticipates increased demand for its property and casualty reinsurance products as a result of the September 11, 2001 terrorists attack. The impact on supply following the terrorists attack, as well as a much firmer price environment, should present the Company with increased opportunities in the property and casualty market. In the current low interest rate environment in the United States, the demand for the Company's life and annuity products in the U.S. has decreased. The Company anticipates decreased demand for its life and annuity products until interest rates rise.
related to the Company's quota-share retrocessional agreement with Grand Central Re, which incepted January 1, 2001.
Net premiums written. Net premiums written for the year ended December 31, 2001 were $594.1 million compared to $401.8 million for the year ended December 31, 2000. Net premiums written for property and casualty products for the year ended December 31, 2001 were $412.5 million compared to $118.5 million for the year ended December 31, 2000. Net premiums written for life and annuity products for the year ended December 31, 2001 were $181.6 million compared to $283.3 million for the year ended December 31, 2000.
Net gains on alternative investments. Net gains on the alternative investment portfolio were $29.8 million for the year ended December 31, 2001 compared to $9.6 million for the year ended December 31, 2000. The increase was attributable to both an increase in the size of the alternative investment portfolio resulting from cash provided from operating activities in 2001, proceeds contributed from the Company's initial public offering and an increase in return on the alternative investment portfolio. The alternative investment portfolio returned 6.69% during the year ended December 31, 2001 compared to a 4.22% gain during the year ended December 31, 2000.
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.
General and administrative expenses. General and administrative expenses were $21.0 million for the year ended December 31, 2001 compared to $16.4 million for the year ended December 31, 2000 and $7.4 million for the period ended December 31, 1999. The increase reflects the costs associated with growing the Company's operations and principally relates to staff additions.
Net income (loss). Net income for the year ended December 31, 2001 was $2.5 million compared to net income of $8.7 million for the year ended December 31, 2000 and a net loss of $7.4 million for the period ended December 31, 1999.
Cash flow. The Company's principal sources of cash are premiums and deposits received, underwriting management fees, investment income and proceeds from redemptions, sales and maturities of portfolio investments. The cash is utilized to pay losses and benefits, pay experience refunds, pay policy acquisition costs, purchase retrocessional protection, satisfy operating and capital expenditures and purchase investments. For the year ended December 31, 2001, the Company generated $461.7 million from its operating activities compared to $330.5 million for the year ended December 31, 2000 and $1.2 million for the period ended December 31, 1999. Cash flows from operating activities increased substantially in 2001 compared to 2000 due to the collection of premiums and deposits related to the continued development of the Company's reinsurance operations and growth in business volume. Cash flows from financing activities were principally provided by the Company's capital raising activities. During the year ended December 31, 2001, the Company received $179.5 million of net proceeds from its initial public offering and $14.7 million of net proceeds from the purchase of Common Shares by HypoVereinsbank compared to net proceeds from the private placement of Common Shares of $185.9 million and $304.0 million during the year/period ended December 31, 2000 and 1999, respectively. The cash generated by the Company from operating and financing activities was principally used to purchase alternative investments of $250.9 million in 2001 and $337.5 million in 2000 and fixed maturity securities, net of sales and redemptions, of $392.8 million in 2001 and $468.5 million in 2000.
Since inception, the Company has had no outstanding debt. The Company may incur indebtedness in the future.
The Company has been assigned an insurer financial strength rating of "A- (Excellent)" by A.M. Best Company, Inc. and an insurer financial strength rating of "A (Strong") by Fitch, Inc. The ratings assigned by rating agencies to reinsurance companies are an important means of assessing the financial strength and quality of reinsurers. An unfavorable rating or lack of rating may adversely affect the rating of a reinsured. Ratings are based upon factors relevant to policyholders and are not directed toward the protection of investors. If an independent rating agency downgrades or withdraws any of the Company's ratings, the Company could be severely limited or prevented from writing any new reinsurance contracts, which would significantly and negatively affect its business. To date, none of the Company's ratings has been downgraded.
The Company's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America, which require management to make estimates and assumptions. The Company believes that the following accounting policies affect the more significant judgments and estimates used in the preparation of its consolidated financial statements.
Revenue recognition. The Company follows FAS No. 60, "Accounting and Reporting by Insurance Enterprises," FAS No. 97, "Accounting and Reporting by Insurance Enterprises for Certain
Investments. The Company's investments are carried at fair value or amounts that approximate fair value. Fair value for the Company's investments in fixed maturities is based generally on quoted market prices, dealer quotes or pricing models. At December 31, 2001, approximately 95% of the Company's fixed maturities were based on quoted market prices. Fair value for the Company's alternative investments is generally based on the net asset value reported by the respective trading entities or carried under the equity method of accounting for strategic investments. The trading entities generally carry their trading positions and investments at fair value. The Company relies principally on the financial reports from these entities for recording the change in net asset value in its statement of income. For its equity investments, the Company initially records the investments at cost and periodically adjusts the carrying values to recognize its proportionate share of income or loss from these investments. Future adverse changes in market conditions or poor operating results by these investments could result in losses.
Information with respect to this item is set forth under Item 14.