A net loss of $(741,560) was reported in 2002, compared to net income of $751,092 in 2001. A net loss of $648,013 was reported in 2000.
gains and losses in 2002 was 1.8% as compared to 6.4% in 2001 and 4.3% in 2000. Excluding realized capital gains and losses, the yield was 3.8% in 2002, 4.4% in 2001 and 4.6% in 2000. The decrease in investment yield excluding realized capital gains and losses from 2001 to 2002 is primarily due to a decrease in the fixed term investments market yield.
Losses and loss adjustment expenses incurred decreased by 9.8% to $5,468,410 in 2002 from $6,065,656 in 2001, and for 2001 decreased by 2.7% from $6,231,210 in 2000. These amounts include favorable development of prior years' estimates of losses and loss adjustment expense of approximately $577,001 in 2002, $22,742 in 2001 and $0 in 2000. AMIG Ltd.'s loss ratio, calculated as the ratio of losses and loss adjustment expense to premiums earned, is 80.7% in 2002, 94.8% in 2001 and 95.2% in 2000. The ratio calculated using only losses and loss adjustment expenses incurred for the current year (excluding the effects of developments of prior year estimates and excluding reductions to retrocession premiums) is 89.2% in 2002, 95.1% in 2001, 95.2% in 2000.
Policy acquisition costs of $1,983,400 were expensed in 2002 as compared to $1,891,474 in 2001, an increase of 4.9%. Policy acquisition costs expensed in 2001 reflect a decrease of 1.9% from $1,927,973 in 2000. Such costs as a percentage of premiums earned (excluding the effects of increases to retrocession premiums) are 29.5% in 2002, 29.6% in 2001 and 29.5% in 2000, and result primarily from ceding commissions paid to ceding companies determined contractually pursuant to reinsurance agreements and federal excise taxes paid on premiums written to ceding companies.
Operating and management expenses increased by 18.5% in 2002 to $947,750 from $800,064 in 2001. The primary reasons for this increase are due to increased legal fees for additional SEC disclosures. Operating and management expenses for 2001 decreased by 21.0% from $1,013,138 in 2000, due to a significant reduction in 2001 legal fees due to completion of work on the redomestication to Bermuda compared to 2000. As well, due to the events of September 11th, 2001, there was one less meeting of the AMIG Ltd. Board of Directors resulting in a reduction in Director's fees and travel expenses.
could not be utilized. As the Company reported a tax loss for the period ended December 2, 1999, a tax benefit resulted. This amount was received in 2002.
AMIG Ltd.'s gross premiums assumed in 2002 amounted to $6,998,378, an increase of $260,147 from 2001. Gross premium assumed in 2001 increased by $461,797, or 7.4% from 2000. Assumed reinsurance premiums receivable represents current assumed premiums receivable less commissions payable to the fronting carriers. This balance was $514,992 at December 31, 2002 and $1,145,874 at December 31, 2001. This balance also fluctuates due to the timing of renewal premiums written. The increase in premiums has also resulted in a direct increase in policy acquisition costs, unearned premiums, fixed commissions paid to CNA as part of its quota share agreement, and loss reserves.
Reinsurance balances payable represent AMIG Ltd.'s estimate of the premiums due to the Company's reinsurer under the retrocession agreements described above, and amounts currently due for losses and loss adjustment expenses payable. The estimate of reinsurance balances due for retrospective premiums decreased by $174,833, $0 and $0 during 2002, 2001 and 2000, respectively. Including loss and loss adjustment expenses currently due, reinsurance balances payable are $0 at December 31, 2002 and $174,833 at December 31, 2001.
Deferred policy acquisition costs, representing the deferral of ceding commission expense related to premiums not yet earned, increased from December 31, 2001 along with the increase in unearned premiums. The current ceding commission rate, which became effective August 1, 1995, is 28.5%.
As is customary in the business, an actuarial review and projection is performed for AMIC Ltd by its independent actuary as of June 30 and December 31 of each year. The Company reviews the actuarial estimates throughout the year and the possible impact on the Company's financial position. Unless a significant trend is evident during the year, the Company's policy has been to make adjustments in the fourth quarter.
This liability represents the estimated amount of losses and LAE for claims arising in all prior years, both paid and unpaid at the balance sheet date, including losses that had been incurred, but not yet reported, to the Company. The upper portion of the table shows the experience as of the end of each succeeding year. The estimate is increased or decreased as more information becomes known about the frequency and severity of claims.
The "cumulative redundancy (deficiency)" represents the aggregate change in the estimates over all prior years. For example, the 1995 liability has developed a $11,087,000 redundancy which has been reflected in income in subsequent years as the reserves were reestimated.
The Company does not believe its operations have been materially affected by inflation. The potential adverse impacts of inflation include: (a) a decline in the market value of the Company's fixed maturity investment portfolio; (b) an increase
Equity price risk arises from fluctuations in the value of securities held. The Company invests in equity securities in order to diversify its investment portfolio, which Management believes will assist the Company to achieve its goal of long-term growth of capital and surplus. Management has adopted investment guidelines that set out rate of return and asset allocation targets, as well as degree of risk and equity investment restrictions to minimize exposure to material risk from changes in equity prices.
Certain statements contained in this Form 10-K, or otherwise made by officers of the Company, including statements related to the Company's future performance and our outlook for our businesses and respective markets, projections, statements of management's plans or objectives, forecasts of market trends and other matters, are forward-looking statements, and contain information relating to us that is based on the beliefs of management as well as assumptions, made by, and information currently available to, management. The words "goal", "anticipate", "expect", "believe" and similar expressions as they relate to us or our management, are intended to identify forward-looking statements. No assurance can be given that the results in any forward-looking statement will be achieved. For the forward-looking statements, we claim the protection of the safe harbor for forward-looking statements provided for in the Private Securities Litigation Act of 1995. Such statements reflect the management's current views with respect to future events and are subject to certain risks, uncertainties and assumptions that could cause actual results to differ materially from those reflected in the forward-looking statements. Factors that might cause such actual results to differ materially from those reflected in any forward-looking statements include, but are not limited to (i) the occurrence of catastrophic events with a frequency or severity exceeding the Company's expectations; (ii) a decrease in the level of demand for reinsurance and or an increase in the supply of reinsurance capacity; (iii) increased competitive pressures, including the consolidation and increased globalization of reinsurance providers; (iv) actual losses and loss expenses exceeding the Company's loss reserves, which is necessarily based on actuarial and statistical projections of ultimate losses; (v) changing rates of inflation and other economic conditions; (vi) losses due to foreign currency exchange rate fluctuations; (vii) changes in the legal or regulatory environments in which the Company operates; and (viii) other risks including those risks identified in any of our other filings with the Securities and Exchange Commission. The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with other cautionary statements that are included herein. Readers are cautioned not to place undue reliance on these forward-looking statements, which reflect management's analysis only as of the date they are made. The Company undertakes no obligation to release publicly the results of any future revisions it may make to forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
Report of Independent Accountants .................................... 17 Consolidated Balance Sheets .......................................... 18 Consolidated Statements of Income and Other Comprehensive Income ..... 19 Consolidated Statement of Changes in Stockholders' Equity ............ 20-22 Consolidated Statements of Cash Flows ................................ 23 Notes to the Consolidated Financial Statements ....................... 24-34