Expenses: Losses and loss adjustment expenses incurred 4,093 5,177 6,896 18,506 43,986 Acquisition expenses 2,336 1,192 894 3,792 12,248 Real estate expenses - - - - 25,126 Other expenses 4,084 5,246 7,694 12,758 15,074 Expenses due to rescission - - - 3,542 600 ------- -------- ------- ------- ------
Statutory Ratios: Loss and loss adjustment expense ratio 49.0% 56.8% 56.9% 69.1% 67.9% Expense ratio 30.5 22.6 14.0 11.8 23.6 Combined ratio 79.5% 79.4% 70.9% 80.9% 91.5%
Balance Sheet Data (at end of period) Total investments $ 29,341 $ 51,048 $59,648 $ 91,247 $ 83,578 Total assets 47,668 86,147 104,017 207,298 297,261 Unpaid losses and loss adjustment expenses 11,572 14,700 20,413 50,509 121,423 Total liabilities 25,827 26,878 42,978 149,495 237,281 Total shareholders' equity 21,841 59,269 61,039 57,803 59,980
The information in the following discussion is presented on the basis of accounting principles generally accepted in the United States of America ("GAAP") and should be read in conjunction with the Company's consolidated financial statements and notes thereto included elsewhere in this Report. All amounts and percentages are rounded:
Results of Operations The following table sets forth the Company’s consolidated revenues:
Workers' Compensation $ 7,384 $11,151 $12,657 51.0% 13.5% General Liability 3,149 5,479 9,707 74.0 77.2 Auto Liability 30 - - - - --------- ---------- ---------- ------- ------ Total reinsurance 10,563 16,630 22,364 57.4 34.5 ------ ------ ------ ---- ----
Brokerage commission income 1,389 3,291 2,411 136.9 (26.7) Management fees from affiliates 1,386 1,425 1,496 2.8 5.0 ------ ----- ------- ------- ---
Total commission and fee income 2,775 4,716 3,907 69.9 (17.2) ------ ----- ------- ------ ------
Loss & Loss Adjustment Expense Ratio 56.9% 69.1% 67.9% Expense Ratio 14.0 11.8 23.6 ----- ------- ---- Combined Ratio 70.9% 80.9% 91.5% ===== ===== =====
Interest from Notes Receivable. Interest from notes receivable decreased 49.9% from $1.5 million in 2000 to $800,000 in 2001. One reason for the decrease relates to repayment of various loans. Average notes receivable have decreased to $8.5 million from $10.9 million. The average annual pretax yield on notes receivable was 14.1% and 9.0% in 2000 and 2001, respectively. The Company ceased accruing interest on two impaired loans with one borrower in accordance with its accounting policies. However, the appraised value of the collateral securing these loans is in excess of the balances owed.
Losses and Loss Adjustment Expenses. Loss and loss adjustment expenses increased 137.7% from $18.5 million in 2000 to $44.0 million in 2001 due to an increase in net earned premiums and increases in surety and commercial lines reserves.
Acquisition Expenses. Acquisition expenses increased from $3.8 million to $12.2 million as a result of increased earned premiums. Premium tax expense also increased to $3.7 million from $948,000 due to higher volumes of direct premiums earned.
Income Taxes. Federal and state income taxes increased from a benefit of $1.2 million in 2000 to an expense of $1.2 million in 2001 as a result of increased levels of income in the Company's U.S. insurance and real estate subsidiaries.
Year Ended December 31, 2000 to Year ended December 31, 1999 Net Premiums Earned. Net premiums earned increased 121.1% from $12.1 million in 1999 to $26.8 million in 2000. The principal factors accounting for the increase were an increase in workers’ compensation premiums by 54.4% or $4.0 million, an increase of general liability reinsurance premiums by 100.8% or $3.2 million, an increase in surety premiums by 248.6% or $3.2 million, an increase in commercial lines premiums by 6,664% or $2.6 million, and an increase in program business premiums by 761.5% or $1.7 million.
Management Fees. Management fees received from the Company’s risk retention group affiliate increased 2.8% from $1.39 million in 1999 to $1.43 million in 2000 and is consistent with the prior year.
Net Realized Gains. Net realized gains (losses) from the sale of investments decreased from a gain of $174,000 in 1999 to a loss of $518,000 in 2000. These losses were realized from the sale of bonds in the Company’s investment portfolio.
The Company historically has met its cash requirements and financed its growth principally through cash flows generated from operations. During the past decade, the Company has operated in a soft market cycle which was characterized by excess insurance capacity and declining insurance premium rates; however, commencing in fiscal year 2000 the Company has operated in a hardening market with increased insurance premium rates for workers' compensation and excess and surplus lines. The Company's primary sources of cash flow are proceeds from the sale or maturity of invested assets, premiums earned, investment income, income from real estate development sales commission income and management fees. The Company's short-term cash requirements are primarily for claims payments, reinsurance premiums, commissions, salaries, employee benefits, real estate development expenses, and other operating expenses, and the purchase of investment securities, which have historically been satisfied
Total assets increased from $104.4 million at December 31, 1999 to $207.3 at December 31, 2000, and to $297.3 million at December 31, 2001, primarily due to increases in fixed maturities, short-term investments, reinsurance recoverables and real estate investments. Cash, invested assets and notes receivable increased from $73 million at December 31, 1999 to $104.2 million at December 31, 2000, and to $139.6 million at December 31, 2001, as a result of increases in net premiums written and investment income and real estate. At December 31, 2001, the Company has repurchased 1,589,239 shares of its common stock at a total cost of $9.5 million since January 1999.
Management anticipates that Harbour Village will be developed in three Phases through 2004-2005, depending on future sales activities and economic conditions that may impact the marketing of the condominium units. In July 2000, the Company initially closed a $37 million acquisition, development and construction loan facility in order to commence construction of Phase I of the project, which loan facility was increased in July 2001. Through December 31, 2001, the Company had outstanding borrowings of approximately $15.3 million from this loan facility. The estimated construction and development cost for the entire Harbour Village project is approximately $200 million. Phase I of the development currently under construction consists of site work including a 142-boat slip marina, 294 residential units, and related amenities. No assurance can be given, however, as to either future sales activities of the condominium units or the impact of local and national economic conditions on the Company's marketing efforts for the development of the Harbour Village project.
Deferred Income Taxes. The Company is required to establish a valuation allowance for the portion of any deferred tax asset, which amounted to $7.4 million at December 31, 2001, that management believes will not be realized. The Company believes that it is more likely than not that the Company will realize the full benefit of its deferred tax assets in future periods. Accordingly, no valuation allowance has been established.
Financial Statements and Supplementary Data The Company’s consolidated financial statements required under this Item 8 are included as part of Item 14 of this Report.