As of December 31, 2002, the office space of TRH's New York headquarters and its Toronto office are rented from the AIG Group, which leases it from others. The Chicago, Miami, Buenos Aires, Rio de Janeiro, London, Paris, Zurich, Warsaw, Sydney, Hong Kong, Shanghai and Tokyo offices, are rented from third parties. The lease for the office space occupied by TRH's New York headquarters expires in 2021.
As of December 31, 2002, 2001 and 2000, American International Group, Inc. (AIG, and collectively, with its subsidiaries, the AIG Group) beneficially owned approximately 60% of the Company's outstanding shares. Financial data discussed below have been affected by certain transactions between TRH and the AIG Group. (See Notes 10, 12 and 14 of Notes to Consolidated Financial Statements.)
Loss Reserves -- TRH's unpaid losses and loss adjustment expenses, net of reinsurance recoverable thereon, represent estimates of future liability and related reinsurance recoverable for losses occurring on or prior to the balance sheet date. Net losses and loss adjustment expenses are charged to income as incurred. Unpaid losses and loss adjustment expenses are principally based on reports and individual case estimates received from ceding companies. A provision is included for losses and loss adjustment expenses incurred but not reported (IBNR) on the basis of past experience and other factors. The methods of making such estimates and for establishing the resulting reserves and related recoverables are continually reviewed and updated, and any adjustments resulting therefrom are reflected in income currently. Provisions for inflation and 'social inflation' (e.g., awards by judges and juries which progressively increase in size at a rate exceeding that of general inflation) are implicitly considered in the overall reserve setting process as an element of numerous judgments which are made as to expected trends in average claim severity.
Because the reserving process is inherently difficult and subjective, actual net losses and loss adjustment expenses may materially differ from reserves and related reinsurance recoverables reflected in TRH's consolidated financial statements, and accordingly, may have a material effect on future results of operations. And while there is also the possibility of changes in statutes, laws, regulations and other factors that could have a material effect on these liabilities and, accordingly, future earnings, TRH believes that its claims reserves carried at December 31, 2002 are adequate.
Deferred Acquisition Costs -- Acquisition costs, consisting primarily of net commissions incurred on business conducted through reinsurance contracts or certificates, are deferred, and then amortized over the period in which the related premiums are earned, generally one year. Anticipated losses and loss adjustment expenses and estimated remaining costs of servicing the contracts are considered in determining acquisition costs to be deferred. Anticipated investment income is not considered in the deferral of acquisition costs. If the level of actual losses and loss adjustment expenses and estimated remaining costs of servicing the contracts materially differs from anticipated levels used in determining the amount of acquisition costs to be deferred, future results of operations may be affected, perhaps materially.
Results for 2001 include pre-tax net losses and loss adjustment expenses of $200 million from the September 11th terrorist attack, or $130 million after tax. The pre-tax net loss estimate is comprised of gross incurred losses and loss adjustment expenses of approximately $500 million less related reinsurance ceded of approximately $300 million. The losses recorded for this event represent TRH's estimate of ultimate losses based upon information presently available. Net loss payments related to this event were not material to 2002 or 2001 operating cash flow.
Insurance industry estimates of losses from the September 11, 2001 attack originally ranged from $30 billion to $70 billion and made this event the most costly insured catastrophe ever. The range of expected industry loss remains broad due to the unprecedented nature of this event and the many lines of business affected. Attracted by the improved market conditions resulting from this decline in industry capacity, additional capital entered the market in late 2001 and into 2002 through the formation of new companies, principally in Bermuda, and through the addition of capital to certain existing companies. The additional market capacity has spurred additional competition, particularly in catastrophe exposed lines, and may lessen the magnitude of pricing improvements resulting from the burden of industry costs from September 11 going forward. While TRH believes that rate increases will continue through at least 2003, TRH cannot predict, with any reasonable certainty, future market conditions.
In 2002 compared to 2001, the net premiums written increase resulted from significant rate increases and, to a lesser extent, increased coverage provided. The increase in net premiums written in 2001 compared to 2000 resulted from increased coverage provided and, to a lesser extent, rate increases. In 2002 and 2001, as compared to the immediately prior years, premium increases were primarily from treaty business. On a worldwide basis, casualty lines business represented 73.9% of net premiums written in 2002 versus 79.2% and 76.7% in 2001 and 2000, respectively. The balance represented property lines. Treaty business represented 95.4% of net premiums written in 2002 versus 95.7% in 2001 and 96.3% in 2000. The balance represented facultative accounts.
Of the total increase in net premiums written in 2002 compared to 2001, domestic net premiums written increased by $349.6 million, or 34.5%, to $1,362.6 million, with significant increases recorded in specialty casualty (principally directors' and officers' liability, professional liability and medical malpractice), property, general casualty and ocean marine and aviation lines.
Of the total increase in net premiums written in 2001 compared to 2000, domestic net premiums written increased by $167.5 million, or 19.8%, to $1,013.0 million, with significant increases recorded in auto liability, general casualty and professional liability lines. These increases were partially offset by significant decreases in accident and health and aviation lines.
As further discussed in Notes 12 and 14 of Notes to Consolidated Financial Statements, TRH transacts a significant amount of business assumed and ceded with subsidiaries of AIG. TRH either accepts or rejects the proposed transactions with such companies based on its assessment of risk selection, pricing, terms and conditions.
With respect to net premiums earned, the increase in each of 2002 and 2001 compared to the respective prior year amounts resulted primarily from the growth in net premiums written in both years.
The property and casualty insurance and reinsurance industries use the combined ratio as a measure of underwriting profitability. The combined ratio reflects only underwriting results, and does not include income from investments. Generally, a combined ratio under 100 indicates an underwriting profit and a combined ratio exceeding 100 indicates an underwriting loss. Underwriting profitability is subject to significant fluctuations due to competition, natural and man-made catastrophic events, economic and social conditions, foreign currency exchange rate fluctuations, interest rates and other factors. The combined ratio represents the sum of the loss and loss adjustment expense ratio and the underwriting expense ratio. The loss and loss adjustment expense ratio represents net losses and loss adjustment expenses divided by net premiums earned, while the underwriting expense ratio represents the sum of net commissions and other operating expenses expressed as a percentage of net premiums written.
There were no significant catastrophe losses occurring during 2002. In addition, as a result of net increases in estimates of losses occurring in prior years, based principally upon factors discussed above under Critical Accounting Estimates, net losses and loss adjustment expenses were increased by $339.1 million in 2002. Of this amount, in the fourth quarter of 2002, TRH recorded an increase to net loss and loss adjustment expense reserves of $100 million ($55 million domestic and $45 million international), resulting in a $65 million after-tax charge to net income. Such net reserve increase was largely caused by the impact of losses principally occurring between 1998 and 2000 in certain casualty lines. Such lines include other liability (a portion of which represents certain specialty casualty classes such as directors' and officers' liability and professional liability other than medical malpractice), medical malpractice and surety. This fourth quarter reserve adjustment was based primarily on an unexpected increase in the frequency and severity of reported claims late in the year reflecting industry-wide trends. The
aforementioned fourth quarter increase to net loss and loss adjustment expense reserves added 4.2 to each of the loss and loss adjustment expense and combined ratios for consolidated, domestic and international operations. In addition, as a result of greater than expected reported loss activity in 2002 indicating that TRH's estimates as of the end of 2001 of the ultimate amounts of losses occurring in 2001 and prior years required a further net increase, significant adverse development was also recorded in 2002 on losses occurring in 1998 through 2001 in the auto liability and aviation lines and in 1999 through 2001 in the accident and health line. These increases to incurred losses were partially offset by favorable development on losses occurring in 2001, principally in fire and allied lines and other liability lines.
TRH's 2001 results include net pre-tax catastrophe losses of $215 million (domestic -- $115 million; international -- $100 million), $200 million of which represents the cost of the September 11th attack. 2001 results also include pre-tax losses of $60 million (domestic) for reinsurance exposure related to Enron Corporation. Such events added 15.4, 18.7 and 11.7 to each of the loss and loss adjustment expense and combined ratios for consolidated, domestic and international operations, respectively.
The underwriting expense ratio decreased in 2002 compared to 2001 due to decreases of 0.6 in each of the net commission component and the other operating expense component of the ratio. With respect to the net commission component, the decreases between years result from decreases in Domestic and International-Other business, offset, in part, by an increase in International-Europe, all due largely to slight changes in the mix of business between periods. With respect to the other operating expense component, the decreases between years are due to the fact that the rates of increase in other operating expenses, spread through all segments, are significantly exceeded by the rates of increase of net premiums written for the respective periods. The underwriting expense ratio increased in 2001 compared to 2000 due principally to an increase in the commission ratio. This increase was caused, in large part, by a slight shift in the mix of business between years, including an increase in 2001 of ceded excess-of-loss premiums which have minimal ceding commissions.
Other deductions generally include currency transaction gains and losses and other miscellaneous income and expense items.
temporary. (See discussion under Financial Condition and Liquidity for criteria used in determination of such write-downs.)
Income (loss) before income taxes was $188.3 million in 2002, ($34.1) million in 2001 and $268.0 million in 2000. The increase in income before income taxes in 2002 compared to the prior year resulted, in large part, from the absence of significant catastrophe losses in 2002. The other large loss items identified above in 2002 (fourth quarter increase in net loss reserves) and 2001 (loss related to Enron reinsurance exposure) also significantly affected income (loss) before income taxes in those years. The decrease in income before income taxes in 2001 compared to 2000 resulted principally from a high level of catastrophe losses and the loss due to Enron reinsurance exposure in 2001 and a change from realized net capital gains in 2000 to realized net capital losses in 2001.
The effective tax rates, which represent the sum of current and deferred income taxes (benefits) divided by income (loss) before income taxes, were 10.1% in 2002, 155.4% in 2001 and 21.0% in 2000. The adjustments reconciling the 'expected' tax expense (benefit) to actual tax expense (benefit) in each of the three years under discussion (as detailed in Note 4 of Notes to Consolidated Financial Statements) are similar in terms of their nature and relative size, except that the adjustment for tax-exempt interest has been steadily increasing as the size of the tax-exempt fixed maturity portfolio has grown in 2002 and 2001 over the respective immediately prior year.
Net income and net income per common share on a diluted basis, respectively, were as follows: 2002 -- $169.3 million, $3.21; 2001 -- $18.9 million, $0.36; 2000 -- $211.6 million, $4.03. Reasons for the changes between years are as discussed earlier. Per share amounts have been retroactively adjusted, as appropriate, to reflect the 3-for-2 common stock split paid in July 2001. (See Note 7 of Notes to Consolidated Financial Statements.)
2002 compared to 2001 -- European revenues increased compared to the prior year primarily due to increases in net premiums earned in London and Trans Re Zurich. The majority of these increases occurred in property and auto liability lines. Income before income taxes for 2002 far exceeded the prior year amount due to improved underwriting results in 2002 resulting principally from reduced loss activity compared to 2001. Loss activity in 2002 includes a $30 million fourth quarter pre-tax charge (related to the London branch) to net losses and loss adjustment expenses related to an increase in loss reserves as discussed earlier in the Operational Review. 2001 loss activity includes significant catastrophe losses which are further discussed in the comparison of 2001 to 2000 below.
2001 compared to 2000 -- Revenues were higher in 2001 compared to 2000 due principally to increases in net premiums written in London and TRZ related, in large part, to auto liability lines. The difference between the loss before income taxes in 2001 compared to income before income taxes in 2000 was primarily due to $100 million of net pre-tax catastrophe losses related to September 11 incurred primarily through the London market and increased acquisition costs, offset, in part, by improved experience in other loss activity.
Assets in 2001 significantly exceeded the 2000 amount due to the short-term investment of funds received under securities loan agreements, an increase in fixed maturities available for sale, and an increase in reinsurance recoverable on paid and unpaid losses and loss adjustment expenses, related principally to 2001 catastrophe losses from the London market related to September 11.
(c) INTERNATIONAL -- OTHER (MIAMI (SERVING LATIN AMERICA AND THE CARIBBEAN), TORONTO, HONG KONG AND TOKYO BRANCHES):
As a holding company, the Company's assets consist primarily of the stock of TRC and the Company's future cash flows depend on the availability of dividends or other statutorily permissible payments from TRC and its wholly-owned operating subsidiaries, TRZ and Putnam. (See Note 13 of Notes to Consolidated Financial Statements for a discussion of restrictions on dividend payment.) In 2002 and 2001, the Company received cash dividends from TRC of $15.5 million and $26.4 million, respectively. Sources of funds for the operating subsidiaries consist primarily of premiums, reinsurance recoverables, investment income, proceeds from sales, redemptions and the maturing of investments and funds received under securities loan agreements. Funds are applied primarily to payments of claims, ceded reinsurance premiums, insurance operating expenses, income taxes and investments in fixed income and equity securities. Premiums are generally received substantially in advance of related claims payments. Cash and cash equivalents are maintained for the payment of claims and expenses as they become due. TRH does not anticipate any material capital expenditures in the foreseeable future.
At December 31, 2002, total investments and cash were $5,587.5 million compared to $5,004.4 million at December 31, 2001. The increase was caused, in large part, by $598.0 million of cash provided by operating activities and, to a lesser extent, the impact of foreign exchange on investments held principally in Europe, offset, in part, by cash flow from financing activities (principally net funds disbursed under securities loan agreements -- see Note 2 of Notes to Consolidated Financial Statements).
For 2002, TRH's operating cash flow of $598.0 million significantly exceeded the comparable 2001 amount of $242.1 million. The increase was caused principally by a significant increase in net premiums written, net of commissions, offset, in part, by an increase in paid losses, each in 2002 as compared to 2001. The increase in paid losses is due primarily to increasing premium volume in recent years and a continued shift in the business mix towards lines with shorter payment patterns.
As significant losses from the September 11, 2001 terrorist attack (see Operational Review above) and Enron reinsurance exposure remain unpaid, TRH expects that payments related to these events may significantly reduce cash flow in 2003 and 2004.
A portion of consolidated operating cash flow, namely, $250.6 million, $138.6 million and -$5.0 million, was derived from international operations in 2002, 2001 and 2000, respectively.
TRH believes that its balance of cash and cash equivalents of $127.4 million as of December 31, 2002 and its future cash flows will be sufficient to meet TRH's cash requirements through the end of
2003 and thereafter for a period the length of which is difficult to predict, but which TRH believes will be at least one year.
If paid losses accelerated significantly beyond TRH's ability to fund such paid losses from current operating cash flows, TRH would be compelled to liquidate a portion of its investment portfolio and/or arrange for financing. Such events that may cause such a liquidity strain could be the result of several catastrophic events occurring in a relatively short period of time. Additional strain on liquidity could occur if the investments sold to fund such paid losses were sold in a depressed marketplace and/or reinsurance recoverable on such paid losses became uncollectible.
Gross unrealized gains and losses on fixed maturities available for sale as of December 31, 2002 amounted to $196.6 million and $16.5 million, respectively.
year (see Note 5 of Notes to Consolidated Financial Statements). Also at December 31, 2002, reinsurance recoverable on unpaid losses and loss adjustment expenses totaled $761.6 million, a decrease of $64.0 million, or 7.8%, from the prior year. This decrease was related principally to amounts due from affiliates and occurred in the normal course of business.
TRH has performed VaR analyses to estimate the maximum potential loss of fair value for financial instruments for each type of market risk. In this analysis, financial instrument assets include all investments and cash and accrued investment income. Financial instrument liabilities include unpaid losses and loss adjustment expenses and unearned premiums, each net of reinsurance. TRH has calculated the VaR for 2002 and 2001 using historical simulation. The historical simulation methodology entails re-pricing all assets and liabilities under explicit changes in market rates within a specific historical time period. In this case, the most recent three years of historical market information for interest rates, equity index prices and foreign currency exchange rates are used to construct the historical scenarios. For each scenario, each transaction is re-priced. Consolidated totals are calculated by netting the values of all the underlying assets and liabilities. The final VaR number represents the maximum potential loss incurred with 95% confidence (i.e., only 5% of historical scenarios show losses greater than the VaR figure). A one-month holding period is assumed in computing the VaR figure.
TRH's stockholders' equity totaled $2.03 billion at December 31, 2002, an increase of $184.8 million from year-end 2001. The net increase consisted principally of net income of $169.3 million and an increase in accumulated other comprehensive income of $33.0 million, less cash dividends declared of $20.6 million.
Risk-based capital (RBC) standards, promulgated by the National Association of Insurance Commissioners (NAIC), relate an individual company's statutory policyholders' surplus to the risk inherent in its overall operations and sets thresholds at which certain company and regulatory corrective actions are mandated. At December 31, 2002, the statutory surpluses of TRC and Putnam each significantly exceeded the level of surplus required under RBC requirements for regulatory attention.
With respect to commitments and contingent liabilities, see Note 16 of Notes to Consolidated Financial Statements.
(a) ADOPTION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS (SFAS) NO. 133 AND CHANGE IN CLASSIFICATION OF CERTAIN FIXED MATURITIES:
SFAS No. 133, 'Accounting for Derivative Instruments and Hedging Activities,' issued by the Financial Accounting Standards Board (FASB) in June 1998, as amended, established accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. In accordance with the standard, TRH adopted its provisions on January 1, 2001 with no resulting effect on net income or cash flows.
granted, modified, or settled on or after that date. The effect of adopting the recognition provisions of SFAS No. 123 is not expected to be material to results of operations, financial position or cash flows for 2003. While the pro forma impact of applying the aforementioned recognition provisions to all award grants (occurring before and after adoption of the standard) will continue to be disclosed in the Summary of Significant Accounting Policies, the charges to income in 2003 resulting from TRH adopting the recognition provisions of SFAS No. 123 may not be indicative of future amounts charged to income, as those charges to income under the prospective method of transition will not reflect costs associated with stock compensation issued or granted prior to 2003. Additional stock-based compensation in future years is anticipated.
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
TRANSATLANTIC HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
Transatlantic Holdings, Inc. (the 'Company') is a holding company, incorporated in the state of Delaware, which owns all of the common stock of Transatlantic Reinsurance Company (TRC). TRC owns all of the common stock of Trans Re Zurich (TRZ) and Putnam Reinsurance Company (Putnam). As of December 31, 2002, 2001 and 2000, American International Group, Inc. (AIG, and collectively, with its subsidiaries, the AIG Group) beneficially owned approximately 60% of the Company's outstanding shares.
In 2002 and 2001, TRH engaged in securities lending transactions whereby certain securities (i.e., fixed maturities and common stocks available for sale) from its portfolio were loaned to third parties. In these transactions, initial collateral, principally cash, is received by TRH in an amount exceeding the market value of the loaned security. Such funds are held in a pooled account of the lending agent in these transactions (an AIG subsidiary) and are carried as an investment on the balance sheet (at cost, which approximates market value) in accordance with SFAS No. 140, 'Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities -- a replacement of SFAS No. 125.' A
Realized gains or losses on the sale of investments are determined on the basis of specific identification. In addition, where the declines in the market value of securities below cost or amortized cost are considered to be other than temporary, a realized loss is recorded for the difference between cost or amortized cost and estimated market value of such securities. Except where there has been an other than temporary impairment of market value, changes in unrealized appreciation (depreciation) of fixed maturities available for sale, equity investments and other invested assets are charged or credited, net of deferred income taxes, directly to accumulated other comprehensive income (see Note 9), a component of stockholders' equity. Investment income is recorded as earned. Amortization of fixed maturity premium and the accrual of fixed maturity discount are charged or credited to net investment income.
(e) PREMIUM REVENUES: Premiums are earned primarily on a pro rata basis over the term of the related coverages. Unearned premiums and prepaid reinsurance premiums represent the portion of gross premiums assumed and reinsurance ceded, respectively, relating to the unexpired terms of such coverages. In the Consolidated Statements of Operations, premiums written and earned and the change in unearned premiums are presented net of reinsurance ceded.
Unpaid losses and loss adjustment expenses include certain amounts for the reinsurance of risks related to environmental impairment and asbestos-related illnesses. The majority of TRH's environmental and asbestos-related liabilities arise from contracts entered into after 1984. These obligations generally arose from contracts underwritten specifically as environmental or asbestos-related coverages rather than from standard general liability coverages where the environmental or asbestos-related liabilities were neither clearly defined nor specifically excluded. The reserves carried at December 31, 2002 for such claims, including IBNR, are based upon known facts and current law. However, significant uncertainty exists as, among other things, there are inconsistent court resolutions and judicial interpretations with respect to underlying policy intent and coverage and uncertainties as to the allocation of responsibility for resultant damages. Further, there is always the possibility of changes in statutes, laws, regulations and other factors that could have a material effect on these liabilities and, accordingly, future earnings.
Transaction gains and losses on assets and liabilities denominated in foreign currencies which are not designated as functional currencies are reflected in results of operations during the period in which they occur.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. In accordance with the standard, TRH adopted its provisions on January 1, 2001 with no resulting effect on net income or cash flows.
In accordance with the standard, TRH has adopted the disclosure provisions in these footnotes with comparable information provided for all years for which an income statement is presented. In addition, TRH expects to adopt the recognition provisions of SFAS No. 123 in the first quarter of 2003, and will report that change in accounting principle using the prospective method of transition. That method requires application of the recognition provisions of SFAS No. 123 to all employee awards granted, modified, or settled on or after that date. The effect of adopting the recognition provisions of SFAS No. 123 is not expected to be material to results of operations, financial position or cash flows for 2003. While the pro forma impact of applying the aforementioned recognition provisions to all award grants (occurring before and after adoption of the standard) will continue to be disclosed in the Summary of Significant Accounting Policies, the charges to income in 2003 resulting from TRH adopting the recognition provisions of SFAS No. 123 may not be indicative of future amounts charged to income, as those charges to income under the prospective method of transition will not reflect costs associated with stock compensation issued or granted prior to 2003. Additional stock-based compensation in future years is anticipated.
(c) INVESTMENT GAINS AND LOSSES: Realized net capital (losses) gains, principally on sales of investments, and the change in net unrealized appreciation (depreciation) of investments are summarized as follows:
(2) Amounts for 2001 include the change in classification of certain fixed maturities (see Note 2(k)(i)).
3. INVESTMENTS (CONTINUED) (d) FIXED MATURITIES: The amortized cost and market value of fixed maturities at December 31, 2002 and 2001 are summarized as follows:
(e) EQUITIES: Gross gains of $45,978,000, $90,698,000 and $118,739,000 and gross losses of $103,644,000, $90,956,000 and $51,860,000 were realized on sales of equities in 2002, 2001 and 2000, respectively. At December 31, 2002 and 2001, net unrealized (depreciation) appreciation of equities (before applicable income taxes) included gross gains of $12,100,000 and $31,723,000 and gross losses of $56,174,000 and $16,038,000, respectively.
However, in the first quarter of 2002, a change in the U.S. federal income tax law extended the net operating loss carry back period to five years. As a result, the $19.6 million deferred tax asset, established in 2001, was reclassified in 2002 to a current tax benefit as the tax law now permits TRH to fully utilize its tax net operating loss for 2001 currently. To record the impact of this tax law change in 2002, deferred income tax assets and the domestic deferred income tax benefit have been reduced by $19.6 million, and federal income tax recoverable has been increased by, and domestic current income tax expense has been reduced by $19.6 million.
(c) Income tax payments by TRH totaled $29,962,000, $27,702,000 and $47,594,000 in 2002, 2001 and 2000, respectively.
2001 current year net losses and loss adjustment expenses incurred include catastrophe losses of $215 million ($200 million of which represents the estimated cost of the September 11th attack -- see Note 8) and a loss of $60 million for the estimated reinsurance exposure related to Enron Corporation.
TRH's employees participate in benefit plans administered by the AIG Group (See Note 11), including a noncontributory defined benefit pension plan, an employee stock purchase plan, a stock incentive plan and a voluntary savings plan (a 401(k) plan) which provides for certain matching contributions. A substantial majority of TRH's employees are eligible to participate in these plans. Certain of these plans do not separately identify plan benefits and plan assets attributable to employees
The charges made to operations for these plans for 2002, 2001 and 2000 were $3,011,000, $2,398,000, and $2,035,000, respectively.
11. STOCK OPTION PLANS (CONTINUED) A summary of the combined status of the 2000 Plan, the 1995 Plan and the 1990 Plan (collectively, the Company Plans) as of December 31, 2002, 2001 and 2000 and changes during the years ended on those dates is presented below:
As of December 31, 2002, 2001 and 2000, AIG beneficially owned approximately 60% of the Company's outstanding shares.
TRH has service and expense agreements and certain other agreements with the AIG Group which provide for the reimbursement to the AIG Group of certain administrative and operating expenses which include, but are not limited to, investment advisory and cash management services, office space and human resource related activities. Under the guidance of TRH's Finance Committee of the Board of Directors and senior management, certain subsidiaries of AIG act as financial advisors and managers of TRH's investment portfolio. In 2002, 2001 and 2000, $8,200,000, $7,900,000 and $7,700,000, respectively, of operating and investment expenses relate to services and expenses provided by the AIG Group under these agreements.
12. RELATED PARTY TRANSACTIONS (CONTINUED) subsidiaries of AIG, for the production of which TRH paid ceding commissions to such AIG subsidiaries totaling $88 million, $50 million and $38 million, respectively, in such years. (See Note 14 for information relating to reinsurance ceded to related parties.)
Amounts recoverable from retrocessionnaires are recognized in a manner consistent with the claims liabilities associated with the retrocession and are presented on the balance sheet as reinsurance recoverable on paid and unpaid losses and loss adjustment expenses. Such balances at December 31, 2002 and 2001 are comprised as follows:
Ceded reinsurance arrangements do not relieve TRH from its obligations to the insurers and reinsurers from whom it assumes business. The failure of retrocessionnaires to honor their obligations could result in losses to TRH; consequently, an allowance has been established for estimated unrecoverable reinsurance on paid and unpaid losses totaling $13.0 million in both 2002 and 2001. TRH evaluates the financial condition of its retrocessionnaires through a security committee. With respect to reinsurance recoverable on paid and unpaid losses and prepaid reinsurance premiums, TRH holds substantial amounts of funds and letters of credit to collateralize these amounts. Such funds and letters
14. REINSURANCE CEDED (CONTINUED) of credit can be drawn on for amounts remaining unpaid beyond contract terms. No uncollateralized amounts recoverable from a single retrocessionnaire, other than amounts due from affiliates, are considered material to the financial position of TRH.
While the great majority of premium revenues and assets relate to the regions where particular offices are located, a portion of such amounts are derived from other regions of the world. In addition, two large international brokers, respectively, accounted for non-affiliated business equal to 13% and 14% in 2002, 15% and 14% in 2001 and 15% and 14% in 2000, of consolidated revenues, with a significant portion in each segment. Further, one customer accounted for approximately 8%, 12% and 10% of consolidated revenues in 2002, 2001 and 2000, respectively. Revenues from such customer, a significant portion of which were obtained through the two large international brokers discussed above, are included principally in the International-Europe segment, for all periods discussed.
15. SEGMENT INFORMATION (CONTINUED) Net premiums earned by major product line are as follows:
(b) COMMERCIAL COMMITMENTS: In the normal course of business, TRH has issued letters of credit to ceding companies amounting to $55,024,000. Where TRH provides a letter of credit, it is generally contractually obligated to continue to provide a letter of credit to the ceding company in the future to secure certain reserves and other balances.