(1) The net loss per share for 1995 has been calculated based on the 4,039,780 shares of Cumberland Common Stock that were outstanding after the Distribution. The 1999, 1998, 1997 and 1996 net income (loss) per share amounts have been computed based on the actual weighted average number of shares outstanding during the respective years.
The following table sets forth, for the periods indicated, (i) summary financial data (in thousands), and (ii) the percentage change in the dollar amount for such items from period to period.
Written direct and assumed premiums reached a record $13,237,460 during 1999. Overall written premiums, net of ceded premium increased by $1,922,427 or 22%. Earned premium growth increased by $2,084,108 or 28% to $9,617,792 for 1999 compared to $7,533,684 for 1998. The increase in earned premiums resulted from CCS's continued growth in the direct surety bond market.
During 1999, premiums written by CCS increased as a result of the continued marketing direction of the Company, which is to penetrate the direct market while decreasing the volume of reinsurance premiums assumed through Pooling Agreements. CCS's reinsurance assumed premium is a result of quota share agreements whereby CCS assumes a portion of the premiums written by agencies contracted to produce business using Cumberland's Bond-Pro(R) issuance program. The increase in ceded premiums is correlated to the direct premium written and the association to excess of loss treaties on these premiums. The following table reflects the written premium activity, net of reinsurance ceded, for 1999 and 1998.
Written Premiums -------------------------------------------------------------------- 1999 1998 % Change ---------------------- ---------------------- ---------------------- Direct ..$ 10,816,114 $ 9,451,746 14.4% Assumed . 2,421,346 1,478,109 63.8% Ceded ... (2,740,148) (2,354,970) (16.4)% ---------------------- ----------------------- ---------------------- Total ...$ 10,497,312 $ 8,574,885 22.4% ====================== ======================= ======================
Losses and loss adjustment expenses decreased to $2,394,532 from $2,648,074 for the year ended December 31, 1999 and 1998, respectively. The decrease of $253,542 or 9.6% is attributed to a decrease on claims incurred on assumed pooling business. Direct incurred losses increased $423,081 (183.9%) while losses under the assumed pooling agreements decreased $981,978 (94.5%). Assumed claims on the expired pooling agreements were impacted during 1998 by losses incurred of $1,039,232. The following tables reflects the 1999 activity as it pertains to earned premiums and incurred claims:
During the year ended December 31, 1999, operating expenses and taxes, licenses and fees (excluding income taxes) increased to $4,766,101 from $4,313,278 in 1998. The increase of $452,823 or 10% is a result of increased salary expense including bonuses, payroll taxes and employee benefits of $112,550; travel expenses of $102,665; increased taxes, licenses and fees of $141,370 and general office expenses of $96,238. The increase in salary, travel and related expenses is the cost of additional personnel consistent with the Company growth while the increase in taxes, licenses and fees expenses is attributed to increased premiums written.
Interest expense on non-affiliated debt is interest paid to the Surety Group and Surety Associates on notes due to agencies the Company purchased in 1995.
The Company incurred income tax expenses during 1999 of $36,686. Due to tax loss carryforwards, the Company did not incur income tax expense on a consolidated basis for the years ending December 31, 1998 and 1997, respectively.
During 1998, premiums written by CCS increased as a result of the marketing direction of the Company, which is to penetrate the direct market while decreasing the volume of reinsurance premiums assumed through Pooling Agreements. CCS's reinsurance assumed premium is a result of quota share agreements whereby CCS assumes a portion of the premiums written by agencies contracted to produce business using CCS's Bond-Pro(R) issuance program. The increase in ceded premiums is correlated to the direct premium written and the association to excess of loss treaties on these premiums. The following table reflects the written premium activity, net of reinsurance ceded, for 1998 and 1997.
During the year ended December 31, 1998 and 1997, net investment income was $377,218 and $408,050, respectively. Realized net losses and gains for the years ended December 31, 1998 and 1997 were ($437,565) and $201,863, respectively. CCS wrote down its investment in certain equity securities during the 4th quarter of 1998 as management determined the decline in value to be other than temporary. As a result, CCS recorded a loss of $580,360, which was offset by net capital gains of $142,795.
Other revenue consists primarily of commissions earned by subsidiary agencies and fee revenue earned by a subsidiary claims consulting group. The increase in other revenue for the year ended December 31, 1998 of $61,049 (4%) is related to revenues earned through the Company's claim consulting group.
Due to tax loss carryforwards, the Company did not incur income tax expense on a consolidated basis for the years ended December 31, 1998 and 1997, respectively.
The capacity of a surety company to underwrite insurance and reinsurance is based on maintaining liquidity and capital resources sufficient to pay claims and expenses as they become due. Based on standards established by the National Association of Insurance Commissioners (NAIC) and promulgated by the Florida Department of Insurance, the Company is permitted to write net premiums up to an amount equal to three times its statutory surplus, or approximately $15,320,000 at December 31, 1999. Statutory guidelines impose an additional limitation on increasing net written premiums to no more than 33% of prior year's net written premiums. Under these guidelines, the Company could increase net written premiums by approximately $3,500,000.
Net cash provided by (used in) operating activities was $1,965,077, $(193,734) and $1,925,903 for the years ended December 31, 1999, 1998 and 1997, respectively. In 1999, the cash provided by operating activities was primarily attributable to increases in net income and accrued policy liabilities on claims and reinsurance. In 1998, the decrease in cash provided by operating activities is primarily attributed to an increase in receivables of $1,422,588 and income taxes recoverable of $120,000. In 1997, the cash provided by operating activities was primarily attributable to the increase in ceded reinsurance payable and pooling liabilities and accruals.
The differences between the December 31, 1999 liability for losses and LAE reported in the accompanying consolidated financial statements in accordance with generally accepted accounting principles ("GAAP") and that reported in the annual statement filed with the state insurance departments in accordance with statutory accounting practices ("SAP") are as follows:
Liability for losses and LAE on a SAP basis (which is net of reinsurance recoverables on unpaid losses and LAE) ..... $ 2,808,727 Reinsurance recoverables on unpaid losses and LAE ...... 1,767,812 -------------------- Liability for losses and LAE, as reported in the accompanying GAAP basis consolidated financial statements ................................. $ 4,576,539 ====================