The Company's operating subsidiaries rent or lease office space in the cities in which they are located. CCS and Qualex lease office space in Tampa, Florida from a company owned by Francis Williams, the Chairman of the Board of the Company, at a monthly rate of $7,278, pursuant to a lease that was executed March 1, 1997 and is effective through December 31, 2000. Effective March 1, 2000, the monthly rate will be $9,878 as a result of increased operating costs and improvements.
Management's Discussion and Analysis of Financial Condition and Results of Operations - ------- -----------------------------------------------------------------------
Other revenue consists primarily of commissions earned by subsidiary agencies and fee revenue earned by a subsidiary claims consulting group. For the year ended December 31, 1999, other revenues decreased by $162,145 (11%) which is attributable to the transfer of direct writings by subsidiary agencies for other carriers in 1998 to CCS in 1999.
Premiums Earned Claims Incurred Ratio ---------------------- ---------------------- ---------------------- Direct, net $ 7,538,112 $ 1,684,078 22.3% Assumed, net 2,079,680 653,201 31.4% Assumed (pooling net) - 57,253 - ---------------------- ---------------------- ---------------------- Total $ 9,617,792 $ 2,394,532 24.9% ====================== ====================== ======================
Written direct and assumed premiums reached a then record $10,929,855 during 1998. Overall written premiums, net of ceded premium increased by $2,340,624 or 37.5%. Earned premium growth increased by 32.5% to $7,533,684 for 1998 as compared to $5,683,945 for 1997. The increase in earned premiums resulted from CCS's continued growth in the direct surety bond market.
Written Premiums ------------------------------------------------------------------- 1998 1997 % Change ---------------------- ---------------------- --------------------- Direct ..... $ 9,451,746 $ 6,797,136 39.1% Assumed .... 1,478,109 1,189,689 24.2% Ceded ...... (2,354,970) (1,752,564) (34.4%) ---------------------- ---------------------- --------------------- Total ...... $ 8,574,885 $ 6,234,261 37.5% ====================== ====================== =====================
Losses and loss adjustment expenses increased to $2,648,074 from $1,792,117 for the year ended December 31, 1998 and 1997, respectively. The increase of $855,957 (48%) is attributed to an increase of $327,956 (31%) in direct claims incurred and $528,001 (71%) in assumed claims incurred. Assumed claims on the expired pooling agreements were negatively impacted by increased severe losses. Cumberland share of the 1998 incurred losses under the pooling agreements was $1,039,232. Management anticipates a decline in 1999 for claims attributed to the pooling agreements. The following tables reflects the 1998 activity as it pertains to earned premiums and incurred claims:
Premiums Earned Claims Incurred Ratio ---------------------- ---------------------- --------------------- Direct, net $ 6,437,429 $ 1,378,722 21.4% Assumed, net 1,066,907 230,120 21.6% Assumed (pooling net) 29,348 1,039,232 - ---------------------- ---------------------- --------------------- Total ...... $ 7,533,684 $ 2,648,074 35.1% ====================== ====================== =====================
At December 31, 1999, the Company's $20,706,550 of total assets calculated based on generally accepted accounting principles were distributed primarily as follows: 50.5 percent in cash and investments (including accrued investment income), 29.9 percent in receivables and reinsurance recoverables, 13.9 percent in intangibles and deferred policy acquisition costs, 1.5 percent in deferred income tax asset and 4.2 percent in other assets.
Net cash (used in) provided by investing activities was $(4,133,973), $1,410,318 and $(364,768) for the years ended December 31, 1999, 1998 and 1997, respectively. Investing activities consist of purchases and sales of investments.
Net cash (used in) provided by financing activities was $(33,308), $1,182,237 and $(426,681) for the years ended December 31, 1999, 1998 and 1997, respectively. Financing activities consist of purchases of treasury stock, long-term and short-term borrowings and repayment on borrowings during 1999, 1998 and 1997.
The following table provides a reconciliation of the beginning and ending liability balances, net of reinsurance recoverable, for 1999, 1998 and 1997 to the gross amounts reported in Cumberland's balance sheets:
Cumberland experienced a $416,000 redundancy and deficiencies of $317,000 and $49,000 for losses and loss adjustment expenses in 1999, 1998 and 1997, respectively. The redundancy principally resulted from subrogation received on pooling agreement case base reserves and claims in prior years. The deficiency in 1998 and 1997 principally resulted from settling case basis reserves established in prior years for amounts that were more than expected.
Inflation has not had a material impact upon the Company's operations for the last three years.
The consolidated financial statements of the Company required by this Item are listed in Item 14(a)(1) and (2) and are submitted as a separate section of this report.