Our offices are located at 44 Church Street, CityHamilton, Bermuda, and the telephone number is (441) 296-8560. The principal corporate offices of our U.S. subsidiaries are located at 100 Galleria Parkway, Suite 700, Atlanta, Georgia 30339, and the telephone number is (770) 916-1908.
Gross premiums written $159,290 $212,667 $ 221,576 $ 237,880 $ 239,607 Gross premiums earned 145,308 184,403 227,716 231,438 222,257 Net premiums earned 73,582 109,334 136,300 137,580 146,756 Fee income earned - - 210 1,197 1,685 Net investment income 4,388 5,801 9,773 14,316 21,767 Net realized gains (losses) 685 3,139 208 (54) 1,190 Real estate sales 51,780 57,555 67,967 3,000 - Total revenue 130,663 175,991 214,656 155,874 171,440 Losses and loss adjustment expenses incurred 42,031 65,834 93,503 84,406 92,329 Acquisition expenses 15,167 21,818 26,649 28,752 27,378 Real estate expenses 48,527 53,999 55,480 2,439 381 Earnings before income taxes 3,403 10,090 18,453 16,048 22,846 Net earnings 2,484 7,414 14,757 14,656 20,532 Net earnings per share: Basic $ 0.52 $ 1.45 $ 2.15 $2.18 $2.35 Diluted $ 0.51 $ 1.42 $ 2.01 $2.05 $2.26 Common shares and common share equivalents used in computing net basic earnings per share 4,736 5,106 6,864 6,737 8,730 Common shares and common share equivalents used in computing net diluted earnings per share 4,871 5,234 7,343 7,164 9,095
Balance Sheet Data (at end of period): Total investments, excluding real estate $ 111,926 $ 222,418 $327,037 $415,497 $551,158 Total assets 389,342 514,260 583,204 694,999 847,131 Unpaid losses and loss adjustment expenses 179,164 230,104 321,038 393,493 439,673 Unearned premiums 71,675 99,939 93,082 97,983 115,198 Loans payable 22,182 30,441 13,019 37,810 38,139 Total liabilities 326,890 418,916 474,425 576,564 650,980 Total shareholders' equity 62,452 95,344 108,780 118,435 196,150
(1) Loss and loss adjustment expenses ratio: The loss and loss adjustment expenses ratio, expressed as a percentage of loss and loss adjustment expenses to net premiums earned, is the net of the effects of reinsurance.
(2) Expense ratio: The expense ratio is the ratio, expressed as a percentage, of acquisition and other operating expenses to net premiums earned. Our reported expense ratio excludes certain holding company expenses such as interest expense as well as real estate and rescission expenses.
(4) Return on average shareholders' equity: Return on average shareholders' equity is the ratio, expressed as a percentage, of net earnings, excluding realized gains and losses, to the average of the beginning of period and end of period total shareholders' equity, excluding accumulated other comprehensive income.
(5) Debt to total capitalization ratio: The debt to total capitalization ratio, is the ratio, expressed as a percentage, of total debt to the sum of total debt and shareholders' equity. The Company's total debt consists solely of loans payable.
During 2005, we changed our segment reporting to coincide with our strategic direction. In our segment reporting for periods prior to the year ended December 31, 2005, we segregated our business into real estate operations, insurance operations and other (which included realized gains and losses on investments and rescission expenses). We continue to segregate our business into real estate operations, insurance operations and other, but the insurance operations segment is further classified into three additional segments: excess and surplus lines, alternative risk transfer and runoff. For periods beginning with the year ended December 31, 2006 the excess and surplus lines segment is then further classified into five business lines: environmental, construction surety, non-construction and excess The alternative risk transfer segment is further classified into three business lines: specialty programs ,fully funded and partially funded. Prior year amounts have been reclassified to conform to the current year presentation. Our real estate operations consist solely of our development of the Harbour Village property, as described below under “Business-Harbour Village Development”. This project was substantially complete in 2005.
Fee Income Earned 210 1,197 1,685 470.0 40.8 Net investment income 9,773 14,316 21,767 46.5 57.7 Net realized gains 208 (54) 1,190 (125.9) 2,303.7 Real estate income 67,967 3,000 - (95.6) (100.0) Other income 318 76 42 (76.1) (44.7) Total Revenues $214,778 $156,115 $171,440 (27.3)% 10.0% ======== ======== ======== ======= =====
2005 2006 to to 2004 2005 2006 2004 2005 (Dollars in thousands)
Year Ended December 31, 2006 compared to Year Ended December 31, 2005
Net earnings increased 40% to $20.5 million for the year ended December 31, 2006 compared to $14.7 million for 2005. The increase is primarily due to greater investment income and realized gains on investments. Total revenues increased 9.8% to $171.4 million, as net premiums earned increased 6.7% to $146.8 million. The increase in investment income related to a 30.3% increase in average invested assets and a 16.7% increase in the average yield to 4.5%. Net realized gains on the investment portfolio after taxes were $921,000. Financial results for the year were adversely affected by the accrual of $3.7 million in reinsurance reinstatement premiums and $2.6 million of prior year adverse loss development. The net effect of the accrual and loss development increased the reported combined ratio by 4.1 percentage points in 2006. The year ended December 31, 2005 included $2.6 million of prior year adverse loss development, a $1.3 million allowance related to reinsurance recoverables and a $2.4 million reinsurance reinstatement premium, partially offset by a $1.4 million reversal of the accrual related to the settlement of rescission litigation. In 2006, net book value per share increased 6% to $18.59 for the year ended December 31, 2006.
Non-Construction. The Company’s non-construction general liability product began production in July 2006 with the acquisition of an underwriting team in Middletown, StateNew Jersey producing $653,000 of net premiums earned. The Company experienced strong submission and production activity in this line. The non-construction general liability business plans to offer both primary and excess products to small and middle market accounts. The Company does not intend to write certain high severity classes of risks such as invasive, medical products, pharmaceuticals and neutraceuticals.
Specialty Programs. Net premiums earned increased 5.2% to $19.3 million for the year ended December 31, 2006 compared to $18.3 million for 2005. Net premiums earned increased primarily due to increased retention levels on selected programs thereby allowing the Company the opportunity to increase its earnings potential from underwriting profits. During 2006 the Company added 5 new programs and had 12 active programs as of December 31, 2006 compared to 9 at the end of 2005. The Company’s focus on its specialty programs business line is on insurance programs that allow the Company to participate in underwriting profits, while also earning fee income as the policy-issuer. See “Business-Our Products-Alternative Risk Transfer-Specialty Programs” in Part I for additional information on our programs.
Net realized gains and losses from the sale of investments increased to a net gain of $1.2 million for the year ended December 31, 2006 from a net loss of $54,000 for 2005. The Company from time to time may sell securities in response to market conditions or interest rate fluctuations in accordance with its investment guidelines (described under “Business-Investments”) and or to fund the cash needs of individual operating subsidiaries.
Excess & Surplus lines $ (754) $ 56 Environmental 2,204 2,425 Construction 311 (224) Surety 1,761 2,257 Alternative Risk Transfer Programs (266) 641 Runoff 1,111 (300) Total $ 2,606 $ 2,598 ======== =======
The 2006 prior year development in the construction line primarily relates to development in layers where the reinsurance provided by one of the participants in these layers was commuted in 2005. The development in the programs primarily relates to an increase in certain case reserves on polices written in 2004 and 2005. This development is partially offset by reductions in our surety and run-off lines.
In 2005, the Company commuted two excess of loss reinsurance treaties with a former reinsurer. The negotiated commutation price was approximately $1 million less than the recoverable from the reinsurer which was recorded in the second quarter of 2005. Additionally, in the fourth quarter of 2005, the accident year 2001 losses from commercial and residential contractors’ claims other than construction defect risk category developed adversely. The Company engaged an actuarial consulting firm in the fourth quarter of 2005 to provide construction defect claim count development patterns based on a group of companies writing construction contractors business since the early 1990s in California and other states. We implemented these claim count development patterns, which were based on a larger number of claims and a longer development history than we previously had used in estimating future construction defect claim counts. In 2005, the runoff lines’ reserve development for prior years was due to $1.2 million of increases in reserves on the Company’s excess municipality program
Payroll expenses increased to $14.9 million for the year ended December 31, 2006 from $12.1 million for 2005. The increase is due to an increased number of employees, the inclusion of FASB Statement 123R option expense of $615,000 and normal salary increases.
The Company operates through its subsidiaries in the U.S. and Bermuda.
Net Income. Net income from Bermuda operations increased to $17.0 million for the year ended December 31, 2006 compared to $10.3 million for 2005 due to higher investment income as a result of increased invested assets from our $53.0 million secondary offering and an increase in the amount of the Company’s net retentions in Bermuda. Net income from U.S. operations decreased to $3.5 million for the year ended December 31, 2006 compared to $4.4 million for 2005 primarily due to prior year loss development and reinsurance premium reinstatements.
Assets. Assets from Bermuda operations increased to $337.6 million at the end of 2006 compared to $167.3 million at the end of 2005. This increase is primarily a result of $53 million raised through a secondary offering in 2006 and loss portfolio transfer from U.S. insurance subsidiaries to our Bermuda reinsurance subsidiary of $34 million of environmental business related to accident years 2002 through 2006. Assets from U.S. operations at the end of 2006 decreased to $509.5 million as compared to $527.6 million at the end of 2005. The primary reason for the decrease is due to the loss portfolio transfer mentioned above.
Equity. Equity of the Bermuda operations increased to $129.3 million at the end of 2006 compared to $59.4 million at the end of 2005 due to the secondary offering, higher net income and an improvement in net unrealized gains on the investment portfolio. Equity of country-regionU.S. operations increased to $66.9 million at the end of 2006 from $59.0 million at December 31, 2005 due to capital contributions made to support the growth of our U.S. insurance operations and an increase in net unrealized gains on the U.S. insurance operations invested assets.
Net earnings were $14.7 million, or $2.05 per diluted share, for the year ended December 31, 2005 as compared to $14.8 million, or $2.01 per diluted share, for the year ended December 31, 2004.
Environmental. Net premiums earned increased 18.4% to $38.1 million for the year ended December 31, 2005 compared to $32.2 million for 2004. Most of the growth in this business line for 2005 was due to an increase in online production, as well as an increase in gross premiums generated as a result of standard premium audits that were performed on certain expired policies. These increases were partially offset by a planned decrease in the State of New York environmental contractor and consultant premiums as a result of changes implemented in its underwriting process, which the Company believes will improve the ultimate profitability of the environmental business line. Premium rates in its ProStar on-line rating and quoting system (“ProStar”) business remained stable year over year.
Specialty Programs. Net premiums earned increased 10.8% to $18.3 million for the year ended December 31, 2005 compared to $16.5 million for 2004. The increase in 2005 was due primarily to premiums from three new programs added in late 2004 and the first half of 2005. The Company had 10 active programs at the end of 2005 as compared to 15 at the end of 2004. The Company has focused its efforts on increasing its retention levels on programs, thereby allowing the Company the opportunity to increase its earnings potential from underwriting profits. The Company’s focus on its specialty programs business line is on insurance programs that allow the Company to participate in underwriting profits, while also earning fee income as the policy-issuer. These increased retentions, in part, drove the increase in premiums earned in 2005. See “Business-Our Products-Alternative Risk Transfer Specialty Programs” for additional information on our programs.
Fee income earned on fully funded polices increased to $1.2 million for the year ended December 31, 2005 as compared to $210,000 for 2004. The Company anticipates continued growth opportunities for this business line in the healthcare and residential construction industries, which were primary drivers for the growth mentioned above and new growth opportunities in the product manufacturing industry.
Net investment income increased 46.5% to $14.3 million for the year ended December 31, 2005 from $9.8 million for 2004 due to an increase in the Company’s invested assets and higher investment yields. Average invested assets increased to $371.3 million as of December 31, 2005 from $274.7 million as of December 31, 2004, reflecting approximately $70.4 million in cash flows from operations and $24.4 million in net proceeds from the issuance of trust preferred securities in November 2005. The average pre-tax investment yield increased from 3.5% to 3.9%, from 2004 to 2005.
Net realized gains and losses from the sale of investments decreased to a net loss of $54,000 for the year ended December 31, 2005 from a net gain of $208,000 for 2004. The Company sold investments in 2005 of fixed income securities and common stock in accordance with its investment policies described under “Business-Investments.”
Excess & Surplus lines $ 94 $ (754) Environmental 7,700 2,204 Construction 37 311 Surety 7,831 1,761 Alternative Risk Transfer Programs 1,496 (266) Runoff 5,075 1,111 Total $ 14,402 $ 2,606 ======== =========
The construction business line experienced reserve development of $2.2 million in 2005 compared to $7.7 million in 2004. During 2005, the Company experienced reserve development of $1.1 million on its runoff segment compared to $5.1 million in 2004. In 2005, the reserve development in this segment consisted of $1.2 million relating to the excess municipality program resulting from aggregate coverage provided. Construction lines reserve development in 2005 was primarily attributable to the commutation of reinsurance contracts with a former reinsurer. This transaction resulted in the Company recognizing losses of $1.0 million in 2005. See “Business-Losses and Loss Adjustment Expenses Reserves” and Note 12 to the Company’s consolidated financial statements for additional information regarding the Company’s reserves for unpaid losses and loss adjustment expenses.
Policy acquisition expenses are amounts that are paid to producers for the production of premium for the Company offset by the ceding commissions we retain from our reinsurers. For our program business, fees typically are earned through ceding commissions and have the effect of lowering our acquisition expenses. Policy acquisition expenses also include amounts paid for premium taxes to the states in which we do business on an admitted basis. Policy acquisition expenses increased to $28.5 million for the year ended December 31, 2005 from $26.5 million for 2004. Policy acquisition expenses as a function of net premiums earned increased to 20.6% for the year ended December 31, 2005 from 19.5% for 2004, primarily due to higher earned premiums and lower 2004 acquisition expenses due to the accrual of profit commissions on reinsurance.
Payroll expenses increased to $12.1 million for the year ended December 31, 2005 from $10.3 million for 2004. This increase reflects an accrual for bonuses based on the Company’s performance and normal salary increases.
In connection with the Company’s 2000 acquisition of a brokerage firm and a related entity, the Company recorded a benefit of $1.4 million in 2005 due to the reversal of an accrual. This compares to a net benefit of $230,000 in 2004 related to the same dispute as a result of settlement of litigation.
December 31, 2005 U.S. Bermuda Total Income Tax $ 1,392 $ - $ 1,392 Net earnings 4,396 10,260 14,656 Assets 527,632 167,267 694,999 Equity $ 59,002 $ 59,433 $ 118,435
The Company meets its cash requirements and finances its growth principally through cash flows generated from operations. From 2000 through 2004 the Company had operated in a hardening market with increased insurance premium rates for general liability coverages and increased fees for program business opportunities. Since 2004, the Company has experienced a leveling of premiums rates due to entrance of new insurance competitors and overall market conditions. The Company’s primary sources of short-term cash flow are premium writings and investment income. Short-term cash requirements relate to claims payments, reinsurance premiums, commissions, salaries, employee benefits and other operating expenses. Due to the uncertainty regarding the timing and amount of settlements of unpaid claims, the Company’s future liquidity requirements may vary; therefore, the Company has structured its investment portfolio maturities to help mitigate the variations in those factors. The Company believes its current cash flows are sufficient for the short-term needs of its business and its invested assets are sufficient for the long-term needs of its insurance business.
Net cash provided from operations was $70.7 million for the year ended December 31, 2006, $70.4 million for the year ended December 31, 2005 and $89.8 million for the year ended December 31, 2004. The cash flow from operations remained flat in 2006 compared to 2005 primarily due to increased loss payments which increased to $55.8 million from $46.9 million, due to the maturing of our books of business as well as the impact from several large losses. The decrease in cash flow from operations between 2005 and 2004 was primarily caused by increased loss payments, which increased to $46.9 million from $20.5 million.
Our ability to pay future dividends to shareholders will depend, to a significant degree, on the ability of our subsidiaries to generate earnings form which to pay dividends. The jurisdiction in which we and our insurance and reinsurance subsidiaries are domiciled places limitations on the amount of dividends or other distributions payable by insurance companies in order to protect the solvency of insurers. Given our growth and the capital requirements associated with that growth, we do not anticipate paying dividends on the Common Shares in the near future.
In June 2006 the Company completed a secondary equity offering of 3,680,000 common shares, raising $53 million net of underwriting expenses. The proceeds of the offering are being used to support the growth in insurance operations. Additionally, in November 2005, in conjunction with American Safety Capital Trust III, the Company issued a 30-year trust preferred obligation in the amount of $25.0 million. This obligation bears a fixed interest rate of 8.31% for the first five years, and a floating rate of three-month LIBOR plus 3.4% thereafter. At the current time, the Company does not anticipate entering into an interest rate swap with respect to this issuance. Interest is payable on a quarterly basis and the securities may be called solely at the Company’s option after five years.
(2) The above table includes the expected settlement of our gross loss reserves. The Company relies on reinsurance to reduce current risk exposures. The expected payoff of Gross Loss Reserves net of Reinsurance Recoverables is as follows (in thousands): Total $278,527; $58,909 less than a year, $99,914, 1-3 years, $49,751, 3-5 years $69,953, more than 5 years. More information about our unpaid loss and loss adjustment expenses appears in Note 12 to our consolidated financial statements.
Investments. We routinely review our investments that have experienced declines in fair value to determine if the decline is other than temporary. These reviews are performed with consideration of the facts and circumstances of an issuer in accordance with the Securities and Exchange Commission (“SEC”) Staff Accounting Bulletin No. 59, Accounting for Non-Current Marketable Equity Securities; Statement of Financial Accounting Standards (“SFAS”) No. 115, Accounting for Certain Investments in Debt and Equity Securities; and Issue No. 03-1, The Meaning of Other-Than-Temporary Impairement and Its Application to Certain Investments; FASB Staff Position No. FAS 115-1 and related guidance. The identification of distressed investments, and the assessment of whether a decline is other than temporary involve significant management judgment and require evaluation of factors including but not limited to:
If all securities carrying an unrealized loss were determined to be other than temporarily impaired, our future earnings would be reduced by the $4.4 million carried unrealized loss on fixed maturity investments at December 31, 2006. We believe that these unrealized losses are a result of rising interest rates and not from credit issues with the issuer. As a result management concluded that the recoverability of the principal and interest is reasonably assured and no impairment needed to be recognized.
At December 31, 2006, mortgage backed securities comprised 40.9% of the entire portfolio. All mortgage backed securities are issued by agencies of the U.S. Government. The single largest security in this class is a Fannie Mae investment with an $11.4 million par value. Corporate fixed maturities were the second largest class at 23.4% of the total portfolio, with the largest single security being Eaton Corporation with a par value of $5.0 million. In the corporate sector, the Company has concentrations in the banking area with par value of $24.2 million or 4.3% of the total portfolio, with the largest single security being Bank of America with a par value of $2.0 million. The Company also has concentrations in brokerage houses with $23.3 million or 4.1% of the total portfolio, with the largest single security being Morgan Stanley with a par value of $3.5 million. U.S. Government securities were the third largest class at 21.9% of the total portfolio with the largest security having a par value of $8.5 million. The Company had $777,000, or 0.2% of its portfolio in below investment grade securities, these being Ford Motor Credit Company, which had unrealized losses totaling $6,000.
The Company does not write a material amount of short-tail business as part of our specialty program business. Short-tail business is defined as business for which claims are received and settled within one year. Total net reserves for short tail business are not material and as of December 31, 2006 were less than 0.1% of total net reserves. In the aggregate, our primary long-tail lines are construction, where we offer general liability insurance to construction contractors and environmental where we offer general liability and professional liability insurance to environmental contractors and consultants.
We deploy several methods in determining our ultimate losses: (i) the expected loss ratio method, (ii) the loss development method based on paid and reported losses and (iii) the Bornhuetter-Ferguson method based on expected loss ratio, paid losses and reported losses. Each of these methods is used to calculate ultimate loss reserves. In each case IBNR is calculated by subtracting cumulative paid claims and case reserves from the ultimate loss reserves.
Because the Company writes long-tail business, the current year ultimate loss reserve is developed using the expected loss ratio method. The method is appropriate because there are very few claims reported from the most recent accident year for long-tail lines of business. The expected loss ratio is determined based on the review of the projected ultimate loss ratios for the prior accident years. At December 31, 2006 the carried loss and loss adjustment reserves for accident years prior to 2006 were determined largely based on the indications produced by the Bornhuetter-Ferguson method because of the additional claims experience gained as the business line matures.
As part of our year-end audit, the Company has an external actuarial firm review the analysis, prepared by our internal actuary and issue an actuarial opinion on the insurance operating companies’ reserve adequacy.
* Represents 30 different programs with diverse risks. Some programs are in runoff.
A number of assumptions were made in the determination of the best reserve estimates for each line of business at December 31, 2006. The key assumptions among them were the expected loss ratios and loss development patterns. If the actual future losses and loss adjustment expenses develop materially differently from those key assumptions, there could be a potential for significant variation in the development of loss reserves. The effect of any specific assumptions can vary by accident year and line of business. We performed sensitivity analyses that tested the effects on the loss reserve position of using alternative loss ratios and loss development patterns rather than those actually used in determining the net carried reserve at December 31, 2006. The tests addressed each major line of business for which a material deviation to the overall reserve position is believed reasonably possible and used what we believed was reasonably likely range of potential deviation for each line of business. If our net carried reserves were to decrease from our best estimate, this would increase our net earnings, while an increase in our net carried reserves would decrease our earnings The following table displays the resulting range of potential deviation of the net carried reserves for each line of business (in thousands of dollars):
Possible Amount Change From The Possible Percentage Change Carried Reserves From The Carried Reserves Net Carried (Decrease) Increase (Decrease) Increase Reserves Environmental $ 51,317 $ (4,183) $ 3,041 (8)% 6% Construction 180,434 (28,081) 6,449 (16) 4 Surety 174 (5) 4 (3) 2 Programs (1) 27,445 - - - - Runoff 19,157 (1,186) 1,130 (6) 6 $ 278,527 $(33,455) $ 10,624 (12)% 4% ======== ======== ========= ===== ===
Reinsurance. Ceded unearned premiums and reinsurance balances recoverable on paid and unpaid losses and settlement expenses are reported separately as assets, instead of being netted with the related liabilities, since reinsurance does not relieve us of our legal liability to our policyholders. We continuously monitor the financial condition of our reinsurers. Our policy is to periodically charge to earnings, in the form of an allowance, an estimate of unrecoverable amounts from troubled or insolvent reinsurers. We believe that current reserve levels for uncollectible reinsurance are sufficient to cover our exposures.
Shareholders' equity without reinsurance $ 113,813 $ 115,202 $188,614 ======= ======== ======= Net earnings as reported $ 14,757 $ 14,656 $20,532
Net earnings without reinsurance $ 19,790 $ 11,423 $ 12,996 ======= ======== ======= Net cash flow from operations $ 24,404 $ 21,640 $ 1,044 ======= ======== =======
Deferred Income Taxes. We are required to establish a valuation allowance for the portion of any deferred tax asset that we believe will not be realized. The majority of our deferred tax assets associated with the Harbour Village project were realized in 2006 and prior. The majority of our deferred taxes associated with our premium writings will be realized over the policy period and payout of related claims. We believe it is more likely that not that we will realize the full benefit of our deferred tax assets, except for deferred tax assets associated with American Safety RRG. See Note 6 to the Company’s consolidated financial statements for additional information on deferred tax assets.
Recognition of Premium Income. Our premiums are primarily estimated based upon the annual revenues of the underlying insureds. Additional or return premiums are recognized for differences between provisional premiums billed and ultimate premiums due when a final audit is complete after the policy has expired. Our premiums are recorded ratably over the policy period with unearned premium calculated on a pro rata basis over the lives of the underlying coverages.
We are incorporated under the laws of Bermuda and, under current Bermuda law, are not obligated to pay any taxes in Bermuda based upon income or capital gains. We have received an undertaking from the Minister of Finance in Bermuda pursuant to the provisions of the Tax Protection Act, which exempts us and our shareholders, other than shareholders ordinarily resident in Bermuda, from any Bermuda taxes computed on profits, income or any capital asset, gain or appreciation, or any tax in the nature of estate, duty or inheritance until March 28, 2016. Exclusive of our country-regionU.S. subsidiaries, we do not consider ourselves to be engaged in a trade or business in the U.S. and accordingly do not expect to be subject to direct U.S. income taxation. Our country-regionU.S. subsidiaries are subject to taxation in the U.S.
The Company has guaranteed a $2 million letter of credit to the State of Vermont on behalf of American Safety RRG, its non-subsidiary affiliate. This letter of credit served as initial capitalization of American Safety RRG and may be drawn upon in the event of the insolvency of American Safety RRG.
This report contains forward-looking statements. These forward-looking statements reflect the Company’s current views with respect to future events and financial performance, including insurance market conditions, premium growth, acquisitions and new products and the impact of new accounting standards. Forward-looking statements involve risks and uncertainties which may cause actual results to differ materially, including competitive conditions in the insurance industry, levels of new and renewal insurance business, developments in loss trends, adequacy and changes in loss reserves and actuarial assumptions, timing or collectibility of reinsurance recoverables, market acceptance of new coverages and enhancements, changes in reinsurance costs and availability, potential adverse decisions in court and arbitration proceedings, the integration and other challenges attendant to acquisitions, and changes in levels of general business activity and economic conditions.
The Company’s consolidated financial statements required under this Item 8 are included as part of Item 15 of this Report.