Revenues of $67.8 million in 1999 represented a $17.3 million decrease versus 1998 revenues of $85.1 million, which increased $19.8 million over 1997 revenues of $65.3 million. Net loss of $6.7 million in 1999 compares to net income of $16.0 million in 1998, which represented a $3.0 million increase over 1997 net income of $13.0 million. The 1999 decline in revenues reflected the competitive pressures caused by the soft market conditions in the markets in which the Company operates, which affected all the segments of the Company's operations. The decline in revenue was also caused by the decision by the Company to cease underwriting new business in its Bermuda-based reinsurance subsidiary. Expenses of $76.8 million in 1999 represent a $11.5 million increase over 1998 expenses of $65.3 million, which increased $15.9 million over 1997 expenses of $49.4 million. The 1999 increase in operating expenses was primarily due to restructuring costs, costs and provisions associated with reinsurance disputes involving the Company or its clients and related litigation, and an increase in bad debt provisions.
Brokerage.......... $ 23,385 $ 27,144 $ 24,879 $ 8,591 $ 11,501 $ 2,706 Program Business... 19,770 27,119 22,444 3,938 5,187 (2,716) Underwriting....... Management....... 4,174 3,554 4,123 2,491 1,689 1,446 Insurance.......... 5,399 11,073 12,557 471 1,169 (2,139) Reinsurance........ 9,382 10,905 3,138 57 (3,357) (3,402) Other.............. 3,200 5,298 680 370 3,619 (5,383) -------- -------- -------- -------- -------- -------- Total $ 65,310 $ 85,093 $ 67,821 $ 15,918 $ 19,808 $ (9,488) ======== ======== ======== ======== ======== ========
The Company's brokerage segment consists of subsidiaries that receive a fee or commission for brokering insurance and reinsurance contracts. Revenues of $24.9 million in 1999 represented a decrease of $2.2 million from revenues of $27.1 million in 1998, which increased $3.7 million from revenues of $23.4 million in 1997. Increasingly competitive pressures in the marketplace and significant changes in the overall market environment led to a reduction in revenues for the brokerage operations. The slowdown in 1999 brokerage revenues accelerated as the year progressed and was affected by the disruption caused by certain market disputes and legal proceedings in which the Company became involved (see Item 3 - Legal Proceedings). To meet this changed market environment, the Company began a program of restructuring of its brokerage operations in the third quarter of the year.
The brokerage segment's profit of $2.7 million in 1999 represented a decrease of $8.8 million from segment profit of $11.5 million in 1998, which increased $2.9 million from segment profit of $8.6 million in 1997. The 1999 decrease in segment profits reflects the decrease in revenue combined with an increase in brokerage segment expenses. The increase in expenses was primarily due to significant costs and provisions associated with reinsurance disputes involving the Company or its clients and related litigation, as well as restructuring costs and an increase in bad debt provisions.
The Company's program business segment consists of subsidiaries that market insurance products and administer programs developed by the Company. Program business revenues of $22.4 million in 1999 represented a decrease of $4.7 million from revenues of $27.1 million in 1998, which increased $7.3 million from revenues of $19.8 million in 1997. The decrease in revenues during 1999 as compared to 1998 was due to a reduction in program business volume together with a reduction on fee margins due to the increasingly competitive environment in the U.S. workers' compensation insurance market. In addition, a number of reinsurers withdrew from the market, which led to cancellation of certain programs and contributed to increased pressure on the Company's fee margins. Although there is some indication of an increase in pricing, the Company's fee margins continue to be under pressure.
The Company's underwriting management segment comprises companies that primarily underwrite and administer reinsurance business on behalf of independent reinsurance companies. Segment revenues of $4.1 million in 1999 represented an increase of $0.5 million from revenues of $3.6 million in 1998, which decreased $0.6 million from revenues of $4.2 million in 1997. This increase in revenues during 1999 was primarily due to additional earnings realized in the first quarter of 1999 on contracts that were placed in prior years.
Market conditions in the workers compensation insurance market in which Realm National writes the majority of its business grew increasingly competitive during 1999, slowing its rate of growth. In addition, cost-effective reinsurance capacity significantly diminished throughout 1999. This has resulted in Realm National retaining a greater proportion of its business on some programs but has also led to the cancellation of certain other programs. While these competitive insurance and reinsurance market conditions continue, they are likely to restrict Realm National's ability to expand its existing book of business.
Segment loss of $3.4 million in 1999 was consistent with a loss of $3.4 million in 1998, which in turn reflected a decrease of $3.5 million from segment profit of $0.1 million in 1997. The primary reason for the loss during 1999 was a $2.1 million provision against reinsurance recoveries. CIRCL has experienced substantial delays in collection of reinsurance recoverables from certain of its reinsurers. CIRCL therefore has established a provision in the amount of $4.6 million against reinsurance contracts with projected reinsurance recoverables of a total of $21.4 million. This provision has been included in the balance sheet as a component of paid losses recoverable from reinsurers.
At December 31, 1999, the Company held cash and marketable securities of $84.8 million, compared to $97.4 million at December 31, 1998. In addition, the Company held cash in fiduciary accounts relating to insurance client premiums amounting to $56.8 million at December 31, 1999, compared to $63.9 million at December 31, 1998. These decreased cash balances reflect the slow-down in the Company's business activities for 1999, together with the net loss for the year. Of the $84.8 million of cash and marketable securities held by the Company at December 31, 1999 (1998--$97.4 million), $54.3 million (1998--$58.9 million) were held by subsidiaries whose payment of dividends to the Company was subject to regulatory restrictions or possible tax liabilities. At December 31, 1999, the Company's investment portfolio (at fair market value) totalled $34.1 million (1998--$29.2 million). The portfolio consisted primarily of U.S. Treasury, short-term cash and A-rated corporate debt securities.
The increase of $352.5 million in insurance and reinsurance balances receivable, and the corresponding increase of $336.4 million in insurance and reinsurance balances payable, primarily reflects the growth in clients' claims balances recorded in the Company's broking subsidiaries. As a result of various disputes between insurers and reinsurers on various reinsurance contracts, a number of the reinsurers have suspended paying claims due under the contracts. The Company's brokerage and underwriting management segment subsidiaries experienced a significant growth in client balances receivable and payable recorded at the end of the year, reflecting this accumulation of claims due by one party to another. These balances are reflected as an asset or liability, as the case may be, on the Company's balance sheet.
During 1998, the AICPA Accounting Standards Executive Committee issued SOP 98-5, "Reporting on the costs of start-up activities". The accounting guidance of this SOP requires that the costs of start-up activities be expensed as incurred and any costs that are carried as an asset prior to adoption of SOP 98-5 would be written off by reporting a cumulative effect of a change in accounting principle in the statement of income as of January 1, 1999. The cumulative effect of a change in accounting principle that was recorded in the statement of income for 1999 is approximately $307,000 (net of tax of $188,000).
Based on the review of the Company and its risks, the Company currently anticipates minimal business disruption will occur as a result of post-year-end Year 2000 issues. Nonetheless, the Year 2000 issue represents a risk that cannot be assessed with precision nor controlled with certainty. Possible consequences of disruptions that could occur include, but are not limited to, loss of communication links with subsidiaries and insurance carriers, loss of electric power, inability to process transactions or inability to engage in similar normal business activities. Furthermore, failure of significant third parties with which the Company conducts business, including insurance carriers and reinsurers, to meet Year 2000 compliance could have a materially detrimental effect on the Company. The Company established a contingency plan for possible Year 2000 issues. Where needed, the Company will revise or adjust its contingency plan based on actual testing experience with its systems and assessment of outside risks.
Reference is made to the cautionary statements contained in Exhibit 99 to this Form 10-K for a discussion of the factors that may cause actual results to differ from the results discussed in these forward-looking statements.
PAGE # ------- Reports of Independent Public Accountants... 23 Consolidated Balance Sheets................. 25 Consolidated Statements of Income and Comprehensive Income ................. 26 Consolidated Statements of Changes in Shareholders' Equity...................... 27 Consolidated Statements of Cash Flows....... 28 Notes to Consolidated Financial Statements.. 29-48
We have audited the consolidated balance sheet of Stirling Cooke Brown Holdings Limited and subsidiaries as of December 31, 1999, and the related consolidated statements of income and comprehensive income, changes in shareholders' equity and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The consolidated financial statements of Stirling Cooke Brown Holdings Limited and subsidiaries as of December 31, 1998 and 1997, were audited by other auditors whose report, dated March 5, 1999, expressed an unqualified opinion on those statements.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Stirling Cooke Brown Holdings Limited and subsidiaries as of December 31, 1999 and the results of their operations and their cash flows for year then ended in conformity with accounting principles generally accepted in the United States.
STIRLING COOKE BROWN HOLDINGS LIMITED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 1997, 1998 AND 1999 (EXPRESSED IN THOUSANDS OF UNITED STATES DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
Stirling Cooke Brown Holdings Limited ("Stirling Cooke") was incorporated in Bermuda on December 12, 1995. Stirling Cooke is a holding company which, through its subsidiaries, provides insurance services and products. Stirling Cooke provides its range of services and products to unaffiliated insurance and reinsurance companies, insurance agents, as well as directly to insureds. Stirling Cooke is primarily active in the workers compensation, occupational accident and health and casualty insurance markets through its subsidiaries based in London, Bermuda and the United States. In January 1996, Stirling Cooke acquired all the outstanding common shares of Realm Investments Ltd. in exchange for 1,999,980 of its newly issued ordinary shares. Stirling Cooke also acquired, in September 1996, its own United States domiciled insurance company Realm National Insurance Company ("Realm National") which writes insurance business in the workers compensation, occupational accident and health and casualty and property insurance markets.
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions for those transactions that are not yet complete or for which the ultimate effects cannot be precisely determined. Such estimates and assumptions 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 those estimates.
(i) Brokerage fees and commissions are recorded and earned as premiums are billed since substantially all placement services have been provided at that time. Any subsequent adjustments, including adjustments due to policy cancellations, premium rate adjustments and profit commissions are recognized in risk management fees when advised by the client.
(iv) Program and captive management fees are included within program business segment revenue, and are initially recorded as of the effective date of the insurance policy or, in the case of installment premiums, when the installment is billed and are earned in income over the period of the underlying policy (which is typically one year) in proportion to the level of services provided in accordance with the Company's contractual obligations. Any subsequent adjustments are recognized in income when advised by the client or agent. The portion of recorded management fees that will be earned in the future is deferred and reported as deferred income in the consolidated balance sheets.
(vi) Policy issuance fees are recorded as the premium is written and earned over the applicable policy period (which is typically one year). The unearned portion is included in deferred income in the consolidated balance sheet.
The Company's investments in affiliated companies that are not majority owned or controlled are accounted for using the equity method if the Company is able to exert significant influence upon such companies. Other investments in affiliates are carried at cost. Investments in affiliates of $1,982 and $198 for the years ended December 31, 1998 and 1999, respectively, are recorded in other assets. The Company's equity share in the net income of affiliates, for the years ended December 31, 1997, 1998 and 1999 of $1,266, and $2,631 and $Nil respectively, which, for 1999, included $2,018 of write-downs to recognize a decrease in the value of several of their equity holdings, is included in other income (loss) for those years. Dividends received from affiliated companies of $593, $2,145 and $Nil during 1997, 1998 and 1999, respectively, are recorded as a reduction in the carrying value of the investment.
Goodwill in the amounts of $8,775 and $8,664 at December 31, 1998, and 1999, respectively, represents the excess of purchase price over fair value of net assets acquired. Goodwill is amortized on a straight-line basis over the expected periods to be benefited, generally 5 to 20 years. Accumulated amortization at December 31, 1998 and 1999 was $1,870 and $2,717, respectively. The Company assesses the recoverability of this intangible asset by determining whether the amortization of the goodwill balance over its remaining life can be recovered through undiscounted future operating cash flows of the acquired operation. The amount of goodwill impairment, if any, is measured based on projected discounted future operating cash flows using a discount rate reflecting the Company's average cost of funds.
Earnings per share have been calculated in accordance with Statement of Financial Accounting Standards No. 128. Net income per share is calculated by dividing income available to ordinary shareholders by the weighted average number of ordinary shares outstanding. Shares held in treasury are not considered outstanding for purposes of the computation. Net income per share assuming dilution is computed by dividing income available to ordinary shareholders by the weighted average number of ordinary shares and potentially dilutive securities such as stock options. The dilutive effect of options is reflected in the computation by application of the treasury stock method.
Under the asset and liability method used by the Company as outlined in SFAS No. 109, "Accounting for Income Taxes", deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the consolidated financial statements carrying amounts of existing assets and liabilities and their respective tax bases. A valuation allowance is provided for a portion or all of the deferred tax assets when it is more likely than not that such portion or all such deferred assets will not be realized.
In December 1997, the AICPA Accounting Standards Executive Committee issued Statement of Position (SOP) 97-3, "Accounting by Insurance and Other Enterprises for Insurance-Related Assessments". The accounting guidance of this SOP focuses on the timing of recognition and measurement of liabilities for insurance-related assessments. Guidance is also provided on recording assets representing future recoveries of assessments through premium tax offsets or policy surcharges. The SOP is effective for fiscal years beginning after December 15, 1998. The Company adopted this standard effective January 1, 1999 and it did not have a significant impact on the Company's financial position or results of operations.
In June 1999, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards (SFAS) No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133". This statement amends SFAS No. 133 to defer its effective date for one year, to fiscal years beginning after June 15, 2000. Initial application for the Company will begin for the first quarter of the year 2001. The Company is currently reviewing the potential impact that this standard may or may not have on its financial reporting.
In November 1998, the AICPA Accounting Standards Executive Committee issued SOP 98-7, "Deposit Accounting: Accounting for Insurance and Reinsurance Contracts that do not transfer risk". This statement is effective for all quarters of fiscal years beginning after June 15, 1999. This SOP provides accounting guidance for insurance and reinsurance contracts that do not transfer risk, as determined by the provisions of SFAS 113. The Company adopted this standard effective January 1, 1999 and it did not have a significant impact on the Company's financial position or results of operations.
In the normal course of insurance and reinsurance operations the Company's bankers have issued letters of credit totalling $13,141 and $18,604 at December 31, 1998 and 1999, respectively in favor of ceding insurance companies. At December 31, 1998 and 1999, $13,141 and $18,604, respectively, of cash and cash equivalents were pledged as collateral for these letters of credit.
One of the Company's subsidiaries is registered with the Society of Lloyd's as a registered Lloyd's Broker. As required by Lloyd's Brokers Byelaw (No. 5 of 1988), the subsidiary has entered into a trust deed under which all insurance broking account assets are subject to a floating lien held in trust for the Society of Lloyd's for the benefit of the insurance creditors. Insurance and reinsurance balances payable covered by the floating lien at December 31, 1998 and 1999, amounted to $139,216 and $741,932, respectively, including relevant creditors of other subsidiaries. The purpose of the trust deed is to provide security to the Lloyd's Broker's insurance creditors in the event of the Brokers insolvency by creating a charge over the Broker's insurance transaction assets. The lien becomes enforceable only in the event the Lloyd's Broker becomes insolvent or breaches Lloyd's solvency rules or regulations. The assets which were subject to this floating lien at December 31, 1998 and 1999 were:
1998 1999 -------- -------- Fiduciary funds....................... $22,797 $43,432 Insurance and reinsurance balances receivable.......................... 117,753 702,828 -------- -------- $140,550 $746,260 ======== ========
a) The cost or amortized cost and estimated fair value of marketable securities held as 'available for sale' are as follows:
Deferred tax liabilities of $168 and $169 at December 31, 1998 and 1999, respectively, have been provided against unrealized gains on marketable securities held as "available for sale", which have been presented net as accumulated other comprehensive income within shareholders' equity.
d) At December 31, 1998 and 1999, debt securities having an amortized cost of $2,878 and $3,971, respectively, were on deposit with government authorities as required by law.
In addition, deposit liabilities and related assets include $2,687 and $2,980 of deposits received from customers as security for the timely payment of premiums for workers' compensation insurance at December 31, 1998 and 1999, respectively. The deposit is restricted from use by the Company, and is the property of the customer. The deposit is refunded to the customer after the policy expires or is canceled and all claims related to the insurance policy have been settled. The interest income earned by these restricted deposit accounts is the property of the customer, and is therefore excluded from the Company's operating results.
Reinsurance contracts do not relieve the Company from its obligations to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company; consequently, allowances are established for amounts deemed uncollectible. The Company evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities, or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvencies. The Company has experienced substantial delays in collection of reinsurance recoverables from certain of its reinsurers and has commenced arbitration against one of these reinsurers. Management believes that approximately $6,742 (1998 - $2,500) of paid and outstanding losses recoverable from reinsurers may prove uncollectible and has established a provision for doubtful recoveries accordingly. This provision of $6,742 against reinsurance recoveries of $32,346 represents management's best estimate at this time of a shortfall in recoveries. This provision is included in the balance sheet as a component of paid and outstanding losses recoverable from reinsurers. The provision is necessarily an estimate and amounts not collectible from reinsurers may ultimately be significantly greater or lesser than the provision established. It is possible that management will revise this estimate in the future. Any subsequent differences arising will be recorded in the period in which they occur.
Comp Indemnity Reinsurance Company Limited ("CIRCL"), a subsidiary of the Company, assumed various quota shares of workers' compensation and employers' liability on both a primary and excess basis. CIRCL's exposure under the reinsurance contracts assumed is limited in most instances to between $25 to $300 for workers' compensation and $1,000 per occurrence for employers liability and in some instances is subject to an annual aggregate limit based on various percentages of original gross written premium income. CIRCL further limited its exposure through the purchase of reinsurance protection for certain risks covering losses in excess of $1 to $3 for workers' compensation and $50 per occurrence for employers' liability.
1997 1998 1999 ------- ------- ------- Balance beginning of year................ $24,301 $36,276 $66,117 Less outstanding losses recoverable...... (16,588) (23,072) (48,146) ------- ------- ------- Net balance 7,713 13,204 17,971 ------- ------- ------- Incurred related to: Current year................... 10,174 12,578 8,696 Prior years.................... 777 4,693 3,674 ------- ------- ------- Total incurred................. 10,951 17,271 12,370 ------- ------- ------- Paid related to: Current year................... 2,011 3,066 2,830 Prior years.................... 3,449 9,438 7,643 ------- ------- ------- Total paid................ 5,460 12,504 10,473 ------- ------- ------- Net balance 13,204 17,971 19,868 Plus outstanding losses recoverable...... 23,072 48,146 73,267 ------- ------- ------- Balance at end of year......... $36,276 $66,117 $93,135 ======= ======= =======
The adverse development during 1999 on prior years primarily reflects the increase in provisions for doubtful reinsurance recoveries of $4.2 million to $6.7 million discussed in Note 8. The adverse development during 1998 on prior years primarily represents an increase in claims frequency on one particular program that covers bodily injury and property risks in the construction industry and a provision for doubtful recoveries of $2.5 million discussed in Note 8.
The Company's authorized share capital at December 31, 1998 and 1999 comprised 20,000,000 ordinary shares of par value $0.25 each of which 9,863,372 ordinary shares were issued and fully paid at that date. Outstanding shares at December 31, 1998 and 1999 were 9,776,372 and 9,419,972 respectively, which were net of 87,000 and 443,400 treasury shares respectively.
In April 1997, the Company purchased 213,732 of its ordinary shares from a founding shareholder for a total cost of $1,141. Such shares were recorded as treasury stock at cost.
On June 30, 1997, the Company increased its authorized share capital to 20,000,000 ordinary shares of par value $0.25 each and effected a four-for-one stock split whereby each of the Company's ordinary shares of par value $1.00 each was divided into four ordinary shares of par value $0.25 each.
In December 1997, under a put and call option originally granted in April 1997, the Company purchased 40,000 ordinary shares for a total cost of $667. These shares were held as treasury stock at December 31, 1998 and 1999.
In the first quarter of 1999, the Company purchased a further 356,400 of its ordinary shares on the open market for a total cost of $4,423. These shares were held as treasury stock at cost at December 31, 1999.
The options have an exercise price of $22 per share, which reflected the estimated fair value of the shares at the grant date. The options vest ratably over a three-year period and may be exercised at any time prior to November 25, 2007. At December 31, 1999, 186,750 of these options remained outstanding (1998 - 300,000). The balance of the shares were forfeited during the year.
The options have an exercise price of $2.31 per share, which reflected the market price of the shares on that date. The options vest ratably over a three-year period and may be exercised at any time prior to October 26, 2009. All of these options were outstanding at December 31, 1999.
Total income tax expense (benefit) for the years ended December 31, 1997, 1998 and 1999 was allocated as follows:
Income tax expense (benefit) attributable to income from continuing operations consists of:
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 1998 and 1999, are presented below:
Deposit liabilities and related assets: Underlying assets comprise mainly cash and deposits. The carrying values for deposit liabilities and related assets approximated fair market values due to the short-term maturities of these instruments.
(c) The Company's Program Business companies market and manage insurance products and programs developed by the Company on behalf of independent insurance carriers. In addition, the Company, through its brokerage operations and managing general underwriters provide additional business and services to certain of these independent insurance carriers in respect of these products and other insurance and reinsurance policies. For the year ended December 31, 1997, 1998 and 1999 revenues received from one independent insurance carrier approximately accounted for the following percentage of total revenues.
Future minimum lease payments under non-cancelable operating leases as at December 31, 1999 are as follows:
2000.................. $ 2,885 2001.................. 2,671 2002.................. 2,232 2003.................. 1,930 2004.................. 1,422 2005 and thereafter... 3,929 ------- $15,069 -------
Total rental expense for the years ended December 31, 1997, 1998 and 1999, was $1,894, $2,191, and $2,787, respectively.
The Company's ability to pay dividends is subject to certain restrictions including the following:
Realm National did not have any earned surplus available for the payment of dividends in 1998 and 1999 due to its statutory-basis accumulated deficit. Additionally, $21 and $23 of statutory surplus has been segregated as special funds as of December 31, 1998 and 1999 and will not become available for dividend payments until earned.
c) The NAIC has a model law which establishes certain minimum risk-based capital ("RBC") requirements for property-casualty insurance companies. The RBC calculation serves as a benchmark for the regulation of insurance companies by state insurance regulators. The calculation specifies various formulas and weighting factors that are applied to financial balances or various levels of activity based on the perceived degree of risk and are set forth in the RBC requirements. The capital of Realm National as of December 31, 1998 and 1999 exceeded the amount calculated using the RBC requirements.
CIRCL is also required to maintain a minimum liquidity ratio whereby the value of its relevant assets are not less than 75% of the amount of its relevant liabilities. Certain categories of assets do not qualify as relevant assets under the statute. At December 31, 1998 and 1999, respectively, CIRCL was required to maintain relevant assets of at least $25,000 and $23,000. At that date relevant assets were approximately $35,600 and $33,500 and the minimum liquidity ratio was therefore met.
a) Amounts due from/to affiliates are interest-free and unsecured with no fixed terms of repayment.
It is the opinion of management that the claims generally described in Sphere Drake's action are without merit and the case will be defended vigorously.
(b) Several arbitration proceedings currently are pending in England between reinsurers and ceding insurers relating to reinsurance transactions involving the personal accident excess of loss market in London ("LMX") for the account years 1993, 1994, 1995 and 1996. Although neither the Company nor its broker subsidiaries are a party to any of these arbitrations, certain of the Company's subsidiaries acted as reinsurance broker for ceding insurer clients that are parties to certain of the arbitrations.
During 1998 and 1999 certain of the reinsurers and reinsureds that are parties to the arbitrations described above issued proceedings in the English courts against one or more of the Company's brokerage subsidiaries and one underwriting management subsidiary, apparently for the primary purpose of tolling the statute of limitations pending the outcome of the arbitrations. In one recently issued proceeding against the same subsidiaries, three former officers of the subsidiaries were also named. In none of these proceedings did the complainant specify an amount of damages sought. If one or more reinsurers succeed in avoiding their contracts in the pending arbitrations, it is possible that ceding insurers clients, on whose behalf the Company's broker subsidiaries placed the reinsurance, may seek to pursue a claim for indemnification or other claims against one or more of those subsidiaries. Similarly, if one or more of the reinsurers fails to avoid its contracts in the pending arbitrations, it also is possible that those reinsurers may seek to pursue some type of claim against one or more of those subsidiaries.
(c) The reinsurance markets in which the Company historically has been involved experienced considerable disruption during 1999, for a variety of reasons, including but not limited to the LMX market disputes described above and other disputes involving the North American workers' compensation reinsurance market.
In some instances, disputes or potential disputes have arisen concerning whether reinsurance was properly placed by the Company's broker subsidiaries. In other instances, the Company's ceding insurer clients have demanded imdemnification by the Company if the client's reinsurance contracts ultimately are avoided by its reinsurers.
Although no assurances can be given as to the effect on the Company of the various disputes in the worker's compensation reinsurance market, or related arbitrations, the Company believes, based on the information presently available to it, that any such effect should not have a material adverse effect on the Company's financial condition.