Commissions paid to independent agents writing policies are deferred and amortized over the term of the related policies on the same basis as premiums are earned.
The Company had unearned premium reserves of $398,793 as of December 31, 2002, compared to $0 as of December 31, 2001. Unearned premium amounts are attributable to the difference in timing between premiums assumed and premiums earned. Premiums are earned over the term of a policy, usually six or twelve months. The increase in unearned premiums reserves reflects that we commenced our reinsurance operations on August 1, 2002.
Under the terms of the Stock Purchase Agreement between Integon Corporation and the Company, Integon has agreed to bear (i) all organizational expenses and liabilities of the Company, (ii) expenses attributable to the registration of the Shares and initial compliance with federal and state securities and insurance laws, and (iii) all operational expenses and liabilities attributable to the Company's day-to day operations for the first year after Shares are first issued. As of December 31, 2002, the total amount of such expenses borne by Integon has totaled $681,092.
Loss reserves are balance sheet liabilities representing estimates of amounts needed in the future to pay claims under Policies with respect to insured events which have occurred as of the balance sheet dates.
The Company's incurred loss ratios (losses incurred as a percentage of net premium earned) on all business for the year ended December 31, 2002 was 57%. At December 31, 2002, the reserves for unpaid losses was $74,082.
FASB Interpretation No. 45, "Guarantor Accounting," will significantly change current practice in the accounting for, and disclosure of, guarantees. Most guarantees are to be recognized and initially measured at fair value, which is a change from current practice. In addition, guarantors will be required to make significant new disclosures, even when the likelihood of the guarantor making payments under the guarantee is remote. In general, the Interpretation applies to contracts or indemnification agreements that contingently require the guarantor to make payments to the guaranteed party based on changes in an underlying that is related to an asset, liability, or an equity security of the guaranteed party. The Interpretation's disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002, while the initial recognition and initial measurement provisions are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The adoption of this statement did not have a material impact on our results of operations or financial position.
3. Statements of Operations and Retained Earnings for the years ended December 31, 2002, 2001 and 2000 16
4. Statement of Changes in Stockholders' Equity for the years ended December 31, 2002, 2001 and 2000 17
We have audited the accompanying balance sheets of Integon Re (Barbados), Limited (the "Company") as of December 31, 2002 and 2001 and the related statements of operations and retained earnings, changes in shareholders' equity and cash flows for each of the two years in the period ended December 31, 2002 and for the period March 20, 2000 (commencement of operations) to December 31, 2000. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
These financial statements are stated in United States dollars and prepared in conformity with accounting principles generally accepted in the United States of America.
Commissions paid to independent agents writing policies are deferred and amortized over the terms of the related policies on the same basis as premiums are earned.
The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates.
The Company provides for unsettled, reported losses based on estimates of the final settlement, with an experience factor added to provide for losses incurred, but not reported. The final settlement may be greater or lesser than the amounts provided. Any such differences when they become known are recognised in current operations and can potentially be significant to the financial statements.
Total costs incurred on the formation of the Company and other operating expenses were paid by Integon Corporation and totaled $681,092 (2002 - $176,224, 2001-$104,493 and 2000-$400,375). The Company is not obligated to repay these amounts to Integon Corporation. The amount due from Motor Insurance Corporation relates to premiums ceded to the Company.
Balance at January 1, $ - $ - Assumed premiums 612,328 - Revenue earned (213,535) - ----------- ---------
The following table sets forth an analysis of changes in the reserves for unpaid losses for the years ended December 31, 2002 and 2001.
All of the common shares of the Company are owned by Integon Corporation (Integon).
During the year 2002, the Company issued six series of 100 Participating Shares each for aggregate consideration of $150,000 as compared to nil for the year ended December 31, 2001.
Motors Insurance Corporation (MIC) and the Company are related parties. All of the common shares of the Company are owned by Integon. Integon and MIC are both wholly owned subsidiaries of GMAC Insurance Holdings, Inc., which is a wholly owned subsidiary of General Motors Acceptance Corporation (GMAC).
The Retrocession Agreement may be terminated as of the beginning of any month by either party upon not less than 30 days written notice.
The Company has entered into an investment management agreement with BlackRock International, Ltd. ("BlackRock"). The management agreement provides that BlackRock will charge a management fee calculated as a percentage of the net asset value of the Company's portfolio managed by BlackRock with the applicable percentage based on the aggregate amount of assets managed by BlackRock on behalf of the Company and certain other related entities. The applicable percentage is tiered on the first $50 million of aggregate assets under management and lower on all assets in excess of $50 million.