Our home office is in Southfield, Michigan, where we occupy approximately 30,000 square feet of office space for use in all of our business segments. On August 18, 2005, our subsidiary, North Pointe Financial acquired 100% of the ownership interests in Northwestern Zodiac Limited Partnership (“Northwestern Zodiac”) for $1,500,000 in cash. Northwestern Zodiac owned the office building and land in Southfield, Michigan which we previously leased. Northwestern Zodiac was purchased so we could own and manage that property.
We lease 10,000 square feet of office space in Jacksonville, Florida for use in our specialty commercial lines business segment. This lease expires in June 2009. We lease nearly 13,000 square feet of office space in Lombard, Illinois, all of which was sublet to unrelated third parties when we closed our Chicago operation in April 2003. We also lease space for small offices in East Lansing, Michigan; Coral Gables and Cooper City, Florida; and Wilmette, Illinois, all of which are used in our specialty commercial lines business segment (except the Cooper City, Florida office, which is used in our homeowners insurance business).
Our audited consolidated financial statements as of December 31, 2005 and 2004 and for the years ended December 31, 2005, 2004 and 2003 are incorporated elsewhere in this Annual Report on Form 10-K.
Our results for the year ended December 31, 2004 include $7.3 million of pre-tax expenses ($4.8 million after tax) related to four hurricanes that struck Florida in 2004. Of this $7.3 million, $6.2 million was attributable to losses and loss adjustment expenses related to policyholder claims (after the effect of reinsurance). The remaining $1.1 million of the $7.3 million in hurricane-related expenses was attributable to additional reinsurance costs we incurred relating to our catastrophe reinsurance coverage after each hurricane, which costs were recorded as a reduction in our net premiums earned. Our loss ratio increased from 44.0% to 52.4% as a result of these hurricanes.
Our assumed premiums written for the year ended December 31, 2001 includes $6.7 million of non-recurring assumed premiums written related to our acquisition of the renewal rights to the book of business that we acquired in January 2001 from Queensway International Indemnity Company, or Queensway International.
Extraordinary items reflect income generated through the recognition of negative goodwill resulting from acquisitions of companies purchased for less than the aggregate fair value of their net assets. We acquired Queensway International (subsequently renamed North Pointe Casualty Insurance Company) on February 28, 2004 for $11.0 million, resulting in an extraordinary gain of $2.9 million. We acquired the Predecessor Companies on June 26, 2002 for $23.0 million, resulting in an extraordinary gain of $10.9 million.
In 2005, we contributed a total of $24.9 million into our insurance company subsidiaries, net of dividends received of which $6.8 million, $5.6 million, $7.5 million and $5.0 million was contributed to North Pointe Insurance, North Pointe Casualty, Home Pointe Insurance and Midfield, respectively. These contributions were funded from initial public offering proceeds, holding company funds and new debt.
Book value per share equals the quotient obtained by dividing shareholders’ equity by the number of shares of common stock outstanding.
Expense ratio is the ratio (expressed as a percentage) of commissions and operating expenses divided by the sum of net premiums earned, installment fees and other income.
The discussion and analysis of our financial condition and results of operations contained herein should be read in conjunction with our consolidated financial statements and accompanying notes which appear elsewhere in this report. It contains forward-looking statements that involve risks and uncertainties. Please see “Note on Forward-Looking Statements” for more information. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of various factors, including those discussed below and elsewhere in this report.
performance of our various operating subsidiaries and restrictions that may limit the ability of our subsidiaries to pay dividends to North Pointe Holdings;
the outcome of current industry investigations and potential regulation limiting the use of undisclosed contingent commission arrangements with independent agents;
Our revenues are principally derived from premiums earned from our insurance operations. Other revenues are primarily generated through investment income and fees associated with our personal and commercial policies. Our expenses consist primarily of losses and loss adjustment expenses, agents’ commissions and other underwriting and administrative expenses. We report consolidated financial information in three business segments: commercial lines insurance, personal lines insurance and administrative services.
Net income for 2004 includes an extraordinary gain of $2.9 million related to the recognition of negative goodwill resulting from the acquisition of North Pointe Casualty for less than the aggregate fair value of its net assets. Net income for 2004 also includes after-tax expenses of $4.8 million attributable to four hurricanes which struck Florida in 2004 and $2.8 million after-tax gain primarily attributable to the sale of the renewal rights of our non-standard automobile line of business in October 2004.
In 2005, our gross premiums written grew to $112.1 million from $96.5 million in 2004, an increase of $15.6 million, or 16.2%. Our commercial lines gross premiums written increased by $5.2 million, or 7.0% and our personal lines gross premiums written increased by $10.4 million or 45.0%. We experienced continued expansion in our Florida small business line accounted for most of the growth in our commercial lines segment. We entered the Florida homeowners market in December 2004 which accounts for the growth in our personal lines segment. The growth in the Florida homeowners line of business was partially offset by a decrease in writings in our personal automobile insurance line, which we exited in October 2004.
Our loss ratios for the years 2005, 2004 and 2003 were 50.8%, 52.4% and 46.8%, respectively. Hurricane losses increased our loss ratios from 35.7% to 50.8% in 2005 and from 44.0% to 52.4% in 2004. We experienced
On September 28, 2005, we completed an initial public offering and raised $44.3 million (net of underwriters’ discounts and related expenses), including proceeds of an over-allotment exercised by the underwriters on November 15, 2005. We contributed $19.0 million of the net proceeds to our insurance company subsidiaries, utilized $22.6 million to pay down our senior debt facility and the remainder was used to satisfy a federal income tax amount due North Pointe Casualty in accordance with our tax sharing agreement.
We use actuarial methodologies to assist us in establishing these estimates, including estimates of the severity and frequency of future claims, the length of time to obtain an ultimate resolution, outcomes of litigation and other third-party factors that are often beyond our control. Due to the inherent uncertainty associated with the cost of unsettled and unreported claims, our ultimate liability may differ from our original estimate. Our reserves estimates are regularly reviewed and updated and any resulting adjustments are included in the current period’s results. See “Results of Operations - Losses and Loss Adjustment Expenses,” “Business - Unpaid Losses and Loss Adjustment Expenses,” Note 7 to our audited consolidated financial statements all of which are included elsewhere in this annual report on Form 10-K.
During 2004, we reported $2.9 million of extraordinary gains resulting from our acquisition of North Pointe Casualty. In accordance with SFAS 141, “Business Combinations,” the extraordinary gain was generated as a result of the estimated fair value of net assets acquired exceeding the purchase price.
Significant judgment is required in determining the fair values of net assets acquired. In our evaluation of the fair values of the net assets acquired pursuant to the above acquisition, we took into account a combination of factors, including the likelihood of recoveries on various assets, as well as the anticipated timing of recoveries. In the case of the investment portfolio securities, we utilized market values. In determining the fair value of unpaid losses and loss adjustment expenses we developed assumptions for the discounting of cash flows and estimates of risk loads a hypothetical arms-length buyer would require to assume such liabilities. Fixed and intangible assets were written off before determining the extraordinary gain. Substantially all other assets and liabilities were short term in nature reducing the amount of judgment involved in determining estimated fair value. See Note 1 to our consolidated financial statements, included elsewhere in this annual report on Form 10-K.
Gross premiums written in our commercial lines segment for 2004 were $73.4 million as compared to $59.8 million for 2003, an increase of $13.6 million, or 22.7%. This increase in gross premiums written was primarily attributable to an increase in policy count. Policy count in our commercial lines segment was 26,796 as of December 31, 2004 as compared to 22,212 as of December 31, 2003, an increase of 4,584 policies, or 20.6%. We experienced an increase in gross premiums written of $12.0 million in our Florida small business line, $2.6 million in our bowling center line and $1.9 million in our RBT line.
2003 and early 2004 in an effort to improve the profitability of our Midwest homeowners line, which led to a reduction in policy count of 25.1%, and a reduction in gross premiums written of 16.3%, from 2003 to 2004. The reduction in policy count represents a reversal in a trend of significant policy count growth in 2003 and 2002. Partially offsetting the decrease in gross premiums written from our personal automobile line and Midwest homeowners line was a $937,000 increase in gross premiums written from our Florida homeowners insurance line which we began writing in December 2004.
Net premiums written is the amount of our gross premiums written less the amount of premiums that we transfer, or cede, to our reinsurers based upon the risks they accept pursuant to our reinsurance treaties. We relate our net premiums written to gross premiums written to measure the amount of premium we retain after cessions to reinsurers. Our primary reinsurance agreement is a multi-line, excess of loss treaty; we also maintain a variety of other reinsurance treaties, including corporate clash, catastrophe and facultative coverage. See “Business - Reinsurance,” incorporated elsewhere within this Annual Report on Form 10-K.
Year Ended December 31, 2004 as Compared to Year Ended December 31, 2003. Net premiums written for 2004 were $80.5 million as compared to $76.2 million in 2003, an increase of $4.3 million, or 5.6%. The increase in net premiums written resulted from an increase in gross premiums written, partially offset by a decrease in the percentage of premiums retained after cessions to reinsurers. Net premiums written as a percentage of gross premiums written were 83.4% in 2004 and 86.4% in 2003.
The decrease in the percentage of net premiums written that we retained in 2004 as compared to 2003 was primarily attributable to the negotiation of a new primary reinsurance treaty in early 2003, pursuant to which premiums that were written but not earned in 2002 were subject to the lower rates under our new primary 2003 treaty. We recorded these savings as a reduction to our ceded premiums in early 2003. In addition, we incurred a total of $1.1 million of additional catastrophic reinsurance ceded premiums as a result of three hurricanes in Florida in August and September of 2004 that resulted in losses triggering our catastrophic reinsurance coverage. Our initial catastrophic reinsurance agreement provided for one automatic reinstatement after the first event upon payment of a reinstatement fee. After the second event we entered into a new catastrophic reinsurance agreement to provide catastrophic reinsurance coverage for the remainder of the July 1, 2004 to June 30, 2005 catastrophic reinsurance policy period. This second catastrophic reinsurance policy also had one automatic reinstatement following its first event. We also incurred losses from a fourth hurricane in Florida in September 2004, but these losses were insufficient to trigger our catastrophic reinsurance coverage.
Year Ended December 31, 2005 as Compared to Year Ended December 31, 2004. Net premiums earned for 2005 were $84.7 million as compared to $77.0 million for 2004, an increase of $7.7 million, or 10.0%. The increase was attributable to our increases in gross and net premiums written discussed above.
Year Ended December 31, 2004 as Compared to Year Ended December 31, 2003. Net premiums earned for 2004 were $77.0 million as compared to $68.7 million for 2003, an increase of $8.3 million, or 12.1%. The increase was attributable to our increases in gross and net premiums written discussed above.
Year Ended December 31, 2004 as Compared to Year Ended December 31, 2003. Net investment income for 2004 was $2.4 million as compared to $2.2 million for 2003, an increase of $203,000, or 9.2%.
Net realized (losses) gains on investments are principally affected by changes in interest rates, the timing of sales of investments and changes in credit quality of the securities we hold as investments.
Year Ended December 31, 2005 as Compared to Year Ended December 31, 2004. Fees and other income for 2005 were $1.9 million as compared to $2.2 million for 2004, a decrease of $300,000, or 13.6%. The decrease was primarily attributable to exiting the personal automobile line of business in October 2004, which business generated a substantial portion of the installment fees in 2004. The decrease in installments fees attributable to the automobile line of business was partially offset by an increase in fees generated from the new Florida homeowners line of business as well as some additional charges and commissions attributable to our bowling center line.
Year Ended December 31, 2004 as Compared to Year Ended December 31, 2003. Fees and other income for 2004 were $2.2 million as compared to $2.0 million for 2003, an increase of $175,000, or 8.8%. The increase was primarily attributable to incremental increases in charges for installment fees and inspection fees in our personal lines segment and additional charges and commissions attributable to our bowling center line.
Losses and loss adjustment expenses represent our largest expense item and include payments made to settle claims, estimates for future claim payments and changes in those estimates for current and prior periods, as well as adjusting costs incurred in connection with settling claims. Losses and loss adjustment expenses for a given period are influenced by the number of exposures covered in the current year, trends in claim frequency and severity, changes in the cost of adjusting claims, changes in the legal environment and the re-
Year Ended December 31, 2005 as Compared to Year Ended December 31, 2004. Losses and loss adjustment expenses for 2005 were $44.0 million as compared to $41.5 million for 2004, an increase of $2.5 million, or 6.0%. Our loss ratio for 2005 was 50.8% as compared to 52.4% for 2004.
Losses and loss adjustment expenses, net of reinsurance recoverable, attributable to hurricanes, and the related reinstatement premiums (which we record as a reduction in net earned premium) for the years ended December 31, 2005 and 2004 are presented as follows:
The loss ratio for our commercial lines segment for 2005 was 47.8% as compared to 50.9% for 2004. This decrease in our loss ratio was attributable to a combination of fewer hurricane losses incurred in our commercial lines segment in 2005 as compared to 2004 as well as improved loss experience from the non-catastrophe risks. For the years ended December 31, 2005 and 2004, we incurred $4.8 million and $6.2 million, respectively, of net losses and loss adjustment expenses related to these hurricanes as well as $2.0 million and $1.1 million, respectively, of catastrophe reinsurance reinstatement charges which we recorded as a reduction of net premiums earned. Of the $2.0 million of reinstatement charges, in 2005, $1.8 million was attributable to our hurricane losses and $248,000 was attributable to the Citizens’ assessments. The losses from the hurricanes and reinstated charges increased our commercial lines segment loss ratio from 38.3% to 47.8% in 2005 and from 38.7% to 50.9% in 2004.
Favorable development of prior period reserve estimates reduced losses and loss adjustment expenses in our commercial lines segment by $3.5 million in 2005 from $32.7 million to $29.2 million. Similar favorable development reduced losses and loss adjustment expenses in our commercial lines segment by $5.4 million in 2004 from $33.6 million to $28.2 million. Such favorable development reduced our commercial lines segment loss ratios from 53.5% to 47.8% in 2005 and from 60.7% to 50.9% in 2004.
Favorable development of prior period reserve estimates reduced losses and loss adjustment expenses in our personal lines segment by $2.0 million in 2005 from $16.8 million to $14.8 million. Similar favorable development in 2004 reduced losses and loss adjustment expenses in our personal lines segment by $552,000, from $13.9 million to $13.3 million. Such favorable development reduced the loss ratios from 70.8% to 62.5% in 2005 and from 64.3% to 61.7% in 2004.
The impact of the hurricane losses (including the effects of the reinstatement charges) and reserve development on our loss ratios for our personal lines segment for the years ended December 31, 2005, 2004 and 2003 are provided as follows:
Year Ended December 31, 2004 as Compared to Year Ended December 31, 2003. Losses and loss adjustment expenses for 2004 were $41.5 million as compared to $33.1 million for 2003, an increase of $8.4 million, or 25.4%. Our loss ratio for 2004 was 52.4% as compared to 46.8% for 2003.
Losses and loss adjustment expenses include a reduction in those expenses resulting from continued reassessment of reserves established in prior periods. In 2004, 2003 and 2002, loss and loss adjustment expenses included a reduction of $6.0 million, $5.4 million and $5.2 million, respectively, as a result of favorable development (or redundancies) from reserve changes relating to prior periods. See “Business - Unpaid Losses and Loss Adjustment Expenses,” incorporated elsewhere within this Annual Report on Form 10-K.
The increase in the loss ratio is attributable to four hurricanes which struck Florida in 2004, further detailed in the commercial lines segment loss ratio discussion, below. The hurricanes increased our 2004 loss ratio by 8.4 percentage points, from 44.0% to 52.4%.
The loss ratio for our RBT line increased in 2004 as compared to 2003 primarily due to less benefit from reserve redundancies reflected in the 2004 losses as compared to the 2003 losses. The loss ratios for our RBT line in 2004 and 2003 were similar before taking into account the effect of reserve redundancies. In addition, the loss ratios for our other commercial lines were relatively consistent in 2004 and 2003.
The loss ratio for our personal line segment for 2004 was 61.7% as compared to 65.0% for 2003. The decrease in our personal lines loss ratio was primarily attributable to our Midwest homeowners line, which improved as a result of rate increases and changes in underwriting standards implemented in late 2003 and early 2004 to address an increasing loss trend.
Commissions generally represent approximately 75% of our total policy acquisition costs, with the remaining 25% attributable to administrative expenses directly related to the marketing and issuance of insurance policies. Policy acquisition costs are capitalized and amortized over the life of the related policy.
Year Ended December 31, 2004 as Compared to Year Ended December 31, 2003. Policy acquisition costs for 2004 were $18.7 million as compared to $17.4 million for 2003, an increase of $1.3 million, or 7.5%. The increase was primarily attributable to an increase in gross premiums earned.
Year Ended December 31, 2005 as Compared to Year Ended December 31, 2004. Interest expense for 2005 was $959,000 as compared to $763,000 for 2004, an increase of $196,000, or 25.7%. The increase was primarily attributable to an increase in our outstanding senior debt for the purpose of financing the repurchase of the preferred shares and common shares held by our preferred shareholder, on June 30, 2004, and an increase in borrowings of $7.5 million in June 2005 in order to fund the contributions to newly-formed Home Pointe Insurance. In addition, the floating interest rate on our senior credit facility has increased to 7.0% as of December 31, 2005 as compared to 5.25% as of December 31, 2004. The increase in the interest rate has also contributed to the increase in interest expense. Subsequent to the initial public offering, outstanding senior debt decreased to $2.4 million as of December 31, 2005. Interest expense also increased as a result of the mortgage loan assumed from the acquisition of Northwestern Zodiac, which acquisition occurred on August 18, 2005. Interest expense attributable to the mortgage loan amounted to $52,000 in 2005.
Year Ended December 31, 2005. Federal income tax expense for 2005 was $2.0 million, representing an effective tax rate of 34.5% which approximates the statutory rate of 34.0%. The federal income tax expense calculation included two offsetting items affecting the effective rate, which were: 1) a $262,000 increase in federal income tax expense attributable to an adjustment to net operating losses, or NOL, carryforwards acquired as part of the acquisition of North Pointe Casualty and 2) a $284,000 decrease in federal income tax expense relating to a provision to return variance.
Year Ended December 31, 2004. Federal income tax expense for 2004 was $3.5 million, representing an effective tax rate of 29.2%. Our effective rate in 2004 was lower than the statutory rate of 34.0% due to a $249,000 favorable adjustment to our NOL carryforwards acquired as part of the management-led buyout from Queensway Holdings, Inc. that increased the NOL carryforwards available to us and a $300,000 decrease to the provision relating to the taxable gain from the sale of Universal Fire & Casualty originally recorded in 2003.
As of December 31, 2005, we had an aggregate of $7.7 million in unrealized NOL carryforwards. Federal income tax regulations limit our utilization of these amounts to $1.1 million in 2006 and $960,000 annually, thereafter. The following table presents the unrealized NOL carryforwards we have available to apply as future tax benefits as of December 31, 2005:
Our primary assets are the stock of North Pointe Financial (a non-insurance company) and the stock of our insurance companies. Our ability to pay dividends to shareholders, meet our debt payment obligations and pay our general and administrative expenses is largely dependent on cash dividends we occasionally receive from North Pointe Financial. In turn, North Pointe Financial’s primary source of revenue, from which any dividends to us would have historically been paid, are the service fees and commissions it receives from our insurance companies pursuant to various servicing, marketing and management agreements in effect between those entities. In addition, it is possible that North Pointe Financial could receive dividends from our insurance companies paid out of their retained earnings, which North Pointe Financial could then pay to us as dividends. However, we traditionally have not issued dividends from our insurance companies to fund our general expenses and debt payment obligations. Moreover, the Holding Company Laws regulate the dividends and other payments by our insurance companies.
The primary obligations of our non-insurance companies are salary and administration expenses and debt service obligations. Our non-insurance companies incurred salary and administrative expenses of $10.6 million, $8.3 million, and $6.9 million for the years ended December 31, 2005, 2004 and 2003, respectively. Our minimum principal and interest payments on our bank debt were $4.5 million, $3.6 million, and $2.4 million for the years ended December 31, 2005, 2004, and 2003, respectively.
We generally expect to pay claims and other expenses from operating cash flows. Historically, cash and cash equivalents (i.e., investments having an original maturity of 90 days or less) have comprised at least 10% of our investment portfolio, and our current investment guidelines require us to maintain this level of liquidity. We also seek to stagger the maturities of our investments so that we have access to maturing instruments on a regular basis. In addition, we seek to invest at least 70% of our investment portfolio in highly liquid, fixed-income securities having an average duration of less than four years. We believe that managing our cash and investments in the foregoing manner limits our exposure to losses resulting from the untimely sale of securities due to unanticipated cash requirements.
In 2005, we incurred losses as a result of Hurricanes Dennis, Katrina, Rita and Wilma. These hurricanes crossed over Florida, Texas and the U.S. Gulf Coast. As of December 31, 2005, total losses incurred, net of reinsurance, related to these hurricanes were $11.8 million plus $3.0 million in reinsurance reinstatement charges. Of the total expenses incurred attributable to hurricane losses of $14.8 million, $9.3 million was attributable to Hurricane Wilma. We do not believe the losses from these events will have a material adverse impact on our liquidity or cash flows due to adequate cash and cash equivalents.
Net cash provided by investing activities for the year ended December 31, 2003 was $1.0 million and was primarily attributable to net cash flows from investment portfolio sales in excess of investment portfolio purchases.
$5.0 million of capital and surplus in order to be an admitted carrier in Florida. In the event the capital and surplus falls below $5.0 million, we would expect to contribute additional capital into Home Pointe Insurance.
Writings to Surplus Ratios: Our ability to write additional insurance policies is largely dependent on the statutory leverage of our insurance company subsidiaries. The Michigan insurance regulator requires insurance companies to maintain a gross premium writings-to-capital and surplus ratio under 3.0-to-1. Florida insurance regulations require insurance companies to maintain a net premiums-to-capital and surplus ratio (rather than a gross premiums-to-capital and surplus ratio), of 4.0-to-1. Statutory capital and surplus is defined as total assets less total liabilities of insurance companies determined in accordance with statutory accounting principles.
Regulations on Dividends Paid by Insurance Companies: State insurance laws restrict the ability of our insurance company subsidiaries to declare dividends to us. Michigan and Florida have regulations, outlined below, which provide guidance as to when an insurance company may pay a dividend. The District of Columbia does not have detailed regulations, but provides a broader guideline which leaves much of the judgment in the hands of the insurance commissioner in the District of Columbia. In addition to the regulations outlined below, insurance departments will also look to financial measurements such as writings-to-surplus ratios, RBC levels or IRIS ratios when determining whether to approve a dividend. Other than the $3.3 million dividend paid by North Pointe Insurance in 2005, none of our insurance companies have paid dividends in the last three years.
Under the Michigan Holding Company Law, our Michigan insurance company, North Pointe Insurance, can only declare or pay dividends from its earned surplus, unless the Michigan insurance regulator approves the dividend prior to payment. In addition, our Michigan insurance company must obtain prior approval from the Michigan insurance regulator before it may pay extraordinary dividends or distributions to its shareholder, North Pointe Financial. In Michigan, an extraordinary dividend or distribution includes any dividend or distribution of cash or other property if the fair market value of the cash or other property, together with that of other dividends or distributions made within the preceding 12 months, exceeds the greater of (1) 10% of the
The larger of (1) the lesser of 10% of the insurer’s surplus or net income (not including realized capital gains) plus a two-year carryforward; (2) 10% of surplus, with dividends payable constrained to unassigned funds minus 25% of unrealized capital gains; or (3) the lesser of 10% of surplus or net investment income plus a three-year carryforward with dividends payable constrained to unassigned funds minus 25% of unrealized capital gains. This threshold applies if the insurer does not provide prior notice of the dividend to the Florida insurance regulator and does not certify that, following payment of the dividend, the insurer’s surplus will equal or exceed 115% of the surplus required under applicable Florida statutes.
Dividends or distributions falling below these thresholds are not subject to prior approval by the Florida insurance regulator. Florida’s insurance law would not allow our Florida insurance companies to pay any dividends without prior regulatory approval in 2006.
a ratio of net premiums written to statutory capital and surplus of not more than 2.50 to 1.0 and a ratio of gross premiums written to statutory surplus of not more than 3.0 to 1.0.
In addition, our senior credit facility contains negative covenants restricting our ability to, among other things, enter into a merger or consolidation, sell, lease or otherwise dispose of our assets, acquire the stock or assets of another entity or declare or pay any dividends. As of December 31, 2005 and 2004, we were in compliance with all the covenants under our senior credit facility except for maintaining an A.M. Best rating of no less than “B+” for each of our insurance company subsidiaries. Our two recently-formed insurance companies, Home Pointe Insurance and Midfield, were not yet rated by A.M. Best, as of December 31, 2005. We consequently requested and received a waiver of the breach of this covenant from our senior lenders effective December 31, 2005.
Mortgage Obligation. On August 18, 2005, North Pointe Financial completed its acquisition of Northwestern Zodiac and, as a result, we assumed the mortgage on our office building in Southfield, Michigan. The mortgage loan terms include monthly principal and interest payments of $22,000 and a balloon payment of $1.9 million due in June 2011. As of December 31, 2005, the mortgage debt obligation had an outstanding balance of $2.6 million.
We will primarily invest the $19,373,000 of proceeds, net of issuance costs, in high-grade debt securities which will remain available to fund future contributions to our subsidiaries, acquisition activities as they may arise, and other capital uses. This securities issuance is part of our long-term strategy to expand our operations through organic growth and acquisition in an opportunistic fashion, and continue to strengthen the financial position of our underlying insurance company subsidiaries.
The following table summarizes information about our contractual obligations. The minimum future payments, including anticipated interest, under these agreements as of December 31, 2005 are as follows: