The following GAAP basis tables should be read in conjunction with the consolidated financial statements of the Company and the notes thereto. Year Ended December 31, ($ in thousands) 1995 1994 1993 1992 1991 Operating Data: ----- ---- ---- ---- ---- Revenues: Net premiums earned $5,533 $5,221 $121,015 $131,799 $118,324 Net investment income 3,101 3,313 7,165 12,188 11,599 Realized gains (losses) on investments (743) (598) (5,471) 5,888 4,813 ----- ----- ------- ------ ------ Total revenues 7,891 7,936 122,709 149,875 134,736 Operating expenses: Losses and loss adjustment expenses 5,402 4,019 148,437 107,583 85,631 Losses-government pools - - 897 2,864 6,551 Policy acquisition expenses 1,863 2,068 35,378 24,799 19,033 Other operating expenses 1,769 1,360 14,771 14,706 13,574 ----- ----- ------ ------ ------ Total operating expenses 9,034 7,447 199,483 149,952 124,789 ----- ----- ------- ------- ------- Operating income (loss) (1,143) 489 (76,774) (77) 9,947 Equity in loss of non- consolidated subsidiary - (7,309) - - - Equity in earnings (loss) of investee - (103) 632 413 - ------ ----- ------ ------ ------ Income (loss) before income taxes, minority interest and extra- ordinary items (1,143) (6,923) (76,142) 336 9,947 Income tax expense (benefit) (282) 168 962 (919) 2,704 ---- ---- ----- ----- ----- Income (loss) before minority interest and other items (861) (7,091) (77,104) 1,255 7,243 Minority interest 219 - - - - Extraordinary gain 38,387 - - - - Change in accounting principle - - - (233) - ------ ------ ------ ----- ----- Net income (loss) $37,745 $(7,091) $(77,104)$ 1,022 $7,243 ====== ===== ====== ===== =====
Year Ended December 31, 1995 1994 1993 1992 1991 (Amounts in thousands, except per share data)
Per Share Data: Net income before extraordinary items $ (.05) $ (.50) $ (5.46) $ .09 $ .51 Net income (loss) 2.67 (.50) (5.46) .07 .51 Dividends - - .27 .46 .46 Total stockholders' equity (deficiency) $ .01 $ (3.98) $ (1.36) $ 4.17 $ 4.66
Loss and LAE ratio 97.6% 77.0% 122.7% 81.6% 72.4% Losses - government pools ratio - - .7 2.2 5.5 Acquisition expense ratio 33.7 39.6 29.2 18.8 16.1 Dividend ratio - - .2 .2 .3 Underwriting expense ratio 32.0 26.0 12.0 11.0 11.2 Combined ratio 163.3% 142.6% 164.8% 113.8% 105.5%
For 1994, the Company lost $7,091,000 as LIG recorded a loss related to UCIC of $7,307,000 for the first six months of 1994. In addition to the loss related to UCIC's own operations since UCIC owns 21.4% of URIC, LIG does not consolidate the full amount of income or loss earned by URIC. For 1994, this amounted to $2,000 in URIC earnings not consolidated by LIG. Excluding UCIC for 1994, the Company would have earned $216,000.
Net Investment Income: Net investment income was $3,101,000 for 1995. 1994 totaled $3,313,000 compared with $2,978,000 for 1993, excluding UCIC. The decrease for 1995 compared with 1994 was due to the lower level of invested assets as yields were higher. The increase in 1994 over 1993 was attributable to higher yields. The Company's net investment income for the year ended December 31, 1993 was approximately $7,165,000 including UCIC.
Realized Gains (Losses) on Investments: Realized losses for 1995 totaled $946,000 and were related to the loss on the disposition of notes of Aquatic Development Corporation and losses on fixed investments. Realized gains totaled $203,000. Realized losses totaled $598,000 for the year 1994 with approximately $503,000 due to the write down of an equity investment in Aquatic Development Corporation. The Company realized net gains on the sale of investments of approximately $3,616,000 for 1993. The investment transactions for the year ended December 31, 1993 were made to take advantage of favorable market conditions and capital appreciation on selected securities. For 1993 the Company wrote down amounts on two investments that were deemed to be permanently impaired. These write downs totaled $9,087,000 and offset the net gain from the sale of investments above resulting in a net realized loss for 1993 of $5,471,000. These items are discussed below.
Losses and Loss Adjustment Expenses: For the year 1995 losses and LAE totaled $5,402,000 compared with $4,019,000 for 1994 and $39,322,000 for the year 1993, excluding UCIC. The increase for 1995 vs 1994 was attributable to the adverse impact of URIC's pooling agreement with UCIC partially offset by favorable results related to the commutation of several reinsurance agreements and the reduced business volume at Senate. In addition, for 1994 the Company incurred losses of approximately $1,600,000 related to the Northbridge, California earthquake for which it had no counterpart in 1995. The decrease for 1994 compared with 1993 is related primarily to the termination of the pooling agreement between URIC and UCIC and the resultant decline in premium volume and related losses. In 1993, URIC was also significantly impacted by the adverse loss and LAE experienced by UCIC as a result of the pooling agreement. For the year ended December 31, 1993, losses and LAE totaled approximately $148,437,000 including UCIC. The change in reinsurance due to SFAS No.113 added $12.9 million to losses and LAE. During 1993, the projection of ultimate costs for business written by the Company prior to the current year was increased by approximately $57.1 million.
The reinsurance assumed business had negative loss and LAE in 1995 as the cost of commuting several reinsurance agreements were less than amounts provided in prior periods. Earned premium in 1994 was negative as a result of a moratorium on new business and adjustments to retrospectively rated treaties as some of these treaties showed favorable loss experience in 1994. The favorability was offset by losses incurred of approximately $1,600,000 related to the Northbridge California earthquake.
The accident and health (A&H) business, which constitutes the current majority of the Company's business, continues to enjoy favorable results. The loss and LAE ratio was 52%, 38% and 51% for 1995, 1994 and 1993, respectively. The decrease in the ratio for 1994 was attributable primarily to very favorable experience on its medical stop loss program.
Loss and LAE are based on the ability to collect from
reinsurers amounts due under reinsurance contracts. Management believes that the credit exposure is not significant. URIC's reinsurance is allocated to numerous companies. Senate reinsured through Lloyd's of London on a combined quota share/excess of loss basis. Senate claims with insureds are settled quickly and reimbursed by Lloyd's of London promptly. This minimizes any significant credit risk associated with longer tail business where premiums are remitted to reinsurers long before claims are paid and reimbursed. Global has minimal reinsurance.
Losses - Government Pools: Most states have established joint underwriting associations of insurance carriers which are commonly referred to as pools. The purpose of these pools is to provide individuals, businesses and other entities with a guaranteed means to obtain certain mandated insurance coverage when they would not otherwise be reasonably obtainable through the traditional insurance market from an individual insurance carrier. Participation in these pools by the individual insurance carriers is not voluntary.
was attributable primarily to the reduction in premium volume, partially offset by an increase in the average commission rate as a higher percentage of the total business was related to A&H, which has a higher commission rate, but a lower loss ratio than the other lines.
During 1993, the Company liquidated most of its long-term GNMA and FNMA fixed maturity portfolio and replaced them with short-term investments and an increased cash position.
Operating activities used cash and cash equivalents of approximately $8,233,000, $18,221,000 and $24,221,000 in 1995, 1994 and 1993, respectively. The decrease in operating cash flow for the three years reflects the reduction in premiums written and the change in income from underwriting operations, which was adversely impacted by the increase in losses and LAE, as well as the increase in policy acquisition costs in 1993. In addition, in January, 1994, UCIC and URIC loaned $13,000,000 and $14,000,000, respectively, to Alpha Trust. These loans consisted of term notes with differing maturities and repayment schedules with the initial principal repayment commencing April 1, 1996 and ending on January 1, 2001. Interest is at the prime rate plus 2%. Interest is payable quarterly beginning April 1, 1994. Alpha Trust loaned $27,000,000 to Lawrence Group, which owns approximately 93% of the Company. This represented a use of cash by URIC of $14,000,000.
Periods of economic recession and inflation have varying effects on the Company's subsidiaries, as well as other companies in the insurance industry. Fluctuations in the economy will contribute to changing loss, LAE and operating costs. Investment income will be reflective of changes in available investment yields, as dictated by the general state of the economy. Premium rates, however, are not significantly affected by economic swings since competitive forces generally control such rates. The underwriting policy of each subsidiary is geared to obtaining an adequate return for the risk it is underwriting. For example, policies exclude environmental and pollution coverages, due to their uncertainty. Net premiums earned may therefore increase or decrease at a lower rate than increases in losses and expenses. Inflation, however, could adversely affect a subsidiary's results of operations if it occurs during a period of declining premium rates.