The Company owns its Corporate offices which provide approximately 25,000 square feet of office space, and additionally provides parking. Future expansion will be possible by converting the parking area into office space.
(2) Includes after tax net realized gains of $70,000, $87,000, $3,000, $114,000 and $45,000 for 1995, 1994, 1993, 1992 and 1991, respectively.
(3) All years retroactively adjusted for stock dividends and stock splits effected as stock dividends as follows: two 5% in 1995, two 5% in 1994, two 5% in 1993, one 5% and one 50% in 1992 and one 50% in 1991.
(5) Based on number of shares outstanding at the end of each year, retroactively adjusted for stock dividends and stock splits effected as stock dividends.
Net income in 1995 increased 16% to $17,627,855, or $.81 per share compared to 1994 net income of $15,168,800, or $.70 per share and 1993 net income of $13,240,254, or $.61 per share. The Company recorded a 22% return on beginning equity and a GAAP combined ratio of 82.9% in 1995.
Revenues in the computer software operation were 15% below 1994 following an increase in revenues of 9% in 1994 over 1993. New management was brought in during the third quarter of 1995 to improve this operation.
Revenues from the premium finance operation are up 83% in 1995 over the 1994 level which was 3% below the 1993 level. Intensified marketing efforts implemented in 1995 account for the increase in 1995. The decrease in 1994 was the result of the run- off of a book of business produced in 1993. Amounts financed in 1995 were 84% above 1994 which had increased 48% over 1993. Premium finance notes receivable were approximately $2,015,000 at December 31, 1995 versus $977,000 at December 31, 1994 and the average return was 19% for 1995 versus 18% in 1994 and 13% in 1993.
Plan servicing revenues from commercial automobile plans increased 2% in 1995 over 1994 following a 21% decrease in 1994. The Louisiana plan continued to depopulate in 1995, but its decrease was more
Claims and claim adjustment expenses (C & CAE) increased $7,276,443 in 1995 over 1994 and $1,949,774 in 1994 over 1993. The increase in both years was largely due to the Company's increased levels of writings. The C & CAE ratio was 49.8% in 1995, 48.8% in 1994 and 51.7% in 1993. While the Company writes a material amount of business in areas where catastrophes have recently occurred, the gross and net claims incurred from these events were immaterial because the Company primarily writes liability coverages. Five separate hailstorms, which occurred during the second quarter of 1995, accounted for approximately .9 points of the 1995 C & CAE ratio. With regard to environmental and product liability claims, the Company has an immaterial amount of exposure. The Company does not provide environmental impairment coverage and excludes pollution and asbestos related coverages in its policies. Less than .1% of the Company's premium writings are for product liability coverages and this is limited to non-manufacturing risks only. Inflation impacts the Company by causing higher claim settlements than may have originally been estimated. Inflation is implicitly reflected in the reserving process through analysis of cost trends and review of historical reserve results.
Commissions increased in 1995 over 1994 as a result of the increase in written premiums between these years and as a result of commission income from the 1994 5% quota share treaty (which was not renewed in 1995) only reducing commission expense approximately $200,000 in 1995, whereas it decreased commission expense in 1994 by approximately $2,364,000. The increase in commissions from 1993 to 1994 is directly related to the increase in gross premiums written. The ratio of commissions to gross premiums written increased to 20% in 1995 from the 19% level in 1994 and 1993 as a result of the decrease in commission income in 1995 discussed previously. The ratio of commissions to premiums earned was 23% for 1995 as compared to 22% for the 1994 and 1993 years. The increase in 1995 was related to the decrease in commission income in 1995.
Underwriting and operating expenses increased for each of the years, but remain in a 16-17% range (as a percent of premiums earned and insurance services revenues) as they have been for the previous two years.
provision for income taxes is included in Note 5 of Notes to Consolidated Financial Statements.
The cumulative effect of change in accounting principle is the result of the Company implementing Financial Accounting Standards Board Statement 109 "Accounting for Income Taxes" on a cumulative basis during the first quarter of 1993. The major portion of the $216,278 deferred tax benefit is attributable to the increase in the tax discount of unpaid claim and claim adjustment expenses.
The Company has, for the 11th consecutive year, achieved a return on beginning equity of at least 22% and for the tenth consecutive year recorded a GAAP combined ratio at 86% or below. For 1996 the Company is targeting premiums written to be within a $110-120 million range with a GAAP combined ratio of 82-85% and a return on beginning equity of 20-22%. While the Company is optimistic these forward-looking goals can be attained no assurances can be given they will occur.
The primary sources of the Company's liquidity are funds generated from insurance premiums, net investment income and maturing investments. The short-term investments and cash are intended to provide adequate funds to pay claims without selling fixed maturity investments. At December 31, 1995, the Company held short-term investments and cash of $7,750,020 which the Company believes is adequate liquidity for the payment of claims and other short-term commitments.
The increase in investments is primarily attributable to continued positive cash flows from operating activities which are the result of continued and substantial underwriting profits. Premiums receivable increased as a result of the large increase in premium writings late in the fourth quarter of 1995 over the amounts written in the comparable 1994 period. Also contributing to this increase was the large increase in premium finance notes receivable mentioned previously. Deferred policy acquisition costs (DAC) increased primarily as a result of the increase in premium writings. DAC is 25.5% and 25.4% of unearned premiums at December 31, 1995 and 1994, respectively.
Unpaid claims and claim adjustment expenses have increased as a result of an increase in incurred but not reported reserves under the excess casualty treaty and because of the increase in writings. Unearned premiums increased because of the increase in writings. Reinsurance balances payable decreased largely due to the commutation in 1995 of the 5% quota share treaty that was in effect for the 1993 and 1994 years. Under the terms of the treaty, the Company held the funds due to the reinsurers and recorded them as reinsurance balances payable. When the Company commuted this treaty the liability was released. Drafts payable decreased because drafts were issued late in the fourth quarter of
In March 1995, the FASB issued Statement 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The Statement was effective for years ending after December 15, 1995, and did not have any impact on the financial statements.
The following consolidated Financial Statements are on pages 33 through 56:
Consolidated Balance Sheets as of December 31, 1995 and 1994 35-36
Consolidated Statements of Operations for the Years Ended December 31, 1995, 1994, and 1993 37
Consolidated Statements of Shareholders' Equity for the Years Ended December 31, 1995, 1994, and 1993 38-39
Consolidated Statements of Cash Flows for the Years Ended December 31, 1995, 1994, and 1993 40-41
Notes to Consolidated Financial Statements December 31, 1995, 1994, and 1993 42-56