The following discussion highlights significant factors influencing the consolidated financial position and results of operations of The National Security Group, Inc. (referred to in this document as we, our, us, the Company or NSEC) and its subsidiaries for the three years ended December 31, 2005. This discussion and analysis of the consolidated results of operations and financial condition of the Company should be read in conjunction with the Selected Financial Data and Consolidated Financial Statements and related notes included elsewhere herein. Please refer to our note regarding forward-looking statements on page 3 of this report.
Premium revenue increased to $6,234,000 in 2005 compared to $6,173,000 in 2004, an increase of 1%. As we have discussed over the last few years, we have began a shift to the independent agent method of distribution of
NSIC’s products. In 2005, for the first time in Company history, we had more business in-force that was produced by independent agents than was in-force and produced by our traditional home service method of distribution. Independent agent premium revenue grew by 11.5% year over year in 2005 while home service premium revenue declined by 5.5%. Unfortunately, the shift to the independent agent method of distribution is expensive as commissions paid to independent agents are front loaded, meaning that higher commission rates are paid early in the life of the policy and decline as the policy ages. This front loading significantly increases our cost of producing new business and until a more substantial book of renewal business is built, this method of distribution will hamper short term earnings. As discussed last year, NSIC has had a primary focus on the production of new business in the independent agent method of distribution over the last five years. In the process of establishing this position, NSIC has had very low thresholds for business production and persistency. NSIC has appointments with approximately 300 that activilely produce new business. During 2005 we did begin the process of implementing new performance standards that will require minimum amounts of premium production and persistency in order to retain a contract with our Company. As a result of these standards, we will become more selective in the appointment of new agents and will discontinue appointments with many current agents. In undertaking this exercise, we plan to get to a point that we can offer more exceptional service to fewer agents and produce higher quality business in the process. This process will take a couple of years to implement but will help improve profitability of NSIC in the future.
Commission expense, including field servicing cost from the home service method of distribution, as a percent of premium revenue declined 3.4 percentage points in 2004 compared to 2003. Commission expense totaled 37% of revenue in 2004 compared to over 40% in 2003.
While overall premium revenue growth moderated significantly in 2005 compared to 2004, the property and casualty subsidiaries continued to grow the primary dwelling property lines of dwelling fire, homeowners and mobile homeowners with growth rates of 11.7%, 7.9% and 13.4% respectively. Offsetting these gains were declines in non-standard private passenger automobile and ocean marine lines of business. We expect the trend of more moderate premium revenue growth to continue in 2006 with premium revenue growth expected to be in the range of 5%.
As the discussed on the Consolidated Results of Operations section of this report, the 2005 hurricane season was the overriding event that led to a decline in earnings for the year and of course property and casualty operations was the operating segment that bore the full brunt of the 2005 hurricane season. Income before income tax in the segment declined to $2,698,000 in 2005 compared to $4,220,000 in 2004, a decrease of 36.07%.
To help add a little perspective to the magnitude of the 2005 hurricane season, we thought it may be useful to give a few statistics. Total insured losses from Hurricane Katrina alone totaled more than the cumulative amount of hurricane losses paid in previous Company history dating back to 1959. Hurricane Katrina was the most expensive Hurricane in Company history, exceeding the previous most costly storm, Hurricane Ivan, by over 200%. Hurricane Rita, which was a bit of an afterthought in the media, was the fourth most costly hurricane in Company history with losses of $5,093,000. Our property and casualty subsidiaries had previously never incurred two major hurricanes in a major season until Hurricanes Katrina and Rita in 2005. We had also never incurred consecutive hurricane seasons with a major hurricane until 2004 and 2005 with Ivan (2004), Katrina (2005) and Rita (2005).
We are in the process of making several changes to help reduce future storm exposure. We will be reviewing rates and minimum deductibles on over 20 of our programs during 2006. Obviously the risk/reward paradigm for writing in coastal areas of the Southeastern US has shifted in the last two years. While we do not want to abandon areas that we have served successfully for many years, we are going to have to seek higher margins on our insurance products in certain coastal areas to justify the economic feasibility of continuing to write in these areas. We are increasing marketing efforts in the non-coastal states that we serve in order to gain greater geographic diversity. Of course this opens us up to more significant exposure to other types of risk such as more frequent tornados, hail storms, and ice storms but these types of events are generally more geographically concentrated and help mitigate the risk of the widespread exposure posed by Atlantic and Gulf Coast hurricanes.
Property and casualty premium revenues totaled $46,812,000 in 2004 compared to $41,737,000 in 2003, an increase of 12.2%. The significant growth in premium revenue over the past four years has been achieved through several different methods including an acquisition in 2000, increased marketing efforts in states outside of Alabama, and careful monitoring and increasing of rates in order to achieve underwriting profitability. The homeowners line of business was the largest contributor to the increase in premium revenue. Gross written premium from the homeowners market for the P&C subsidiaries totaled $3,067,000 in 2000 and has grown to $18,872,000 in written premium in 2004, a 57.5% compound growth rate over four years. Several factors have contributed to this growth including, the development of a new homeowners product launched in 2001, an upgrade to an existing homeowners product that made the product more competitive, and favorable market conditions that have allowed pricing of the product to achieve more attractive margins. Significant premium growth has also been achieved in NSFC’s traditional dwelling fire market. Dwelling fire written premium totaled $22,183,000 in 2004 compared to $19,890,000 in 2003, an increase of 11.5%. This line of business has also enjoyed robust growth over the last four years and has grown at a 19.4% compound growth rate since 2000. This growth is primarily attributable to favorable market conditions, as many larger carriers do not focus on the dwelling fire market with insured values typically less than $80,000 per dwelling.
Income before income tax declined considerably in 2004 to $4.22 million compared to $ 5.72 million in 2003. As discussed earlier, results for 2004 were negatively impacted by losses and adverse claims experience related to hurricane losses in the third quarter of 2004. Claims frequency increased significantly in 2004 compared to 2003 with claims on dwelling lines of business (homeowners and dwelling fire) exceeding 12,500 claims compared to 5,100 claims in 2003. Over 7,500 claims were reported from Hurricane Ivan so without the impact of Ivan, claims frequency was in line with 2003 total of around 5,000 claims. Average severity on dwelling claims in 2004 declined to an average of $2,900 compared to $3,600 in 2003. Average severity declined primarily due to the large volume of Hurricane Ivan claims. Because most of the losses from Hurricane Ivan were inland and limited primarily to minor wind damage, claims from Ivan averaged less than $2,000 per occurrence, which skewed 2004 average severity downward.
The underwriting expense ratio, which measures underwriting expenses incurred (e.g., agents’ commissions, premium taxes, and other administrative underwriting expenses) as a percentage of premiums revenue.
Mobile Attic is in the business of leasing portable storage containers to individual and commercial customers primarily through franchise locations covering Alabama and expanding throughout the Southeastern United States. At December 31, 2005 there were 33 franchise locations throughout the Southeast and 4 dealerships. At December 31, 2005 Mobile Attic had over 5,000 storage containers available for lease through franchise and dealer locations. The portable storage containers are eight feet wide and eight feet tall and are available in lengths of 8, 16, 20, and 40 feet. Independent dealers market these portable storage containers primarily to household customers in need of a convenient alternative to fixed location mini-storage, commercial customers in need of secure storage facilities at job sites, and retail customers for storage of seasonal inventory.
Mobile Attic began the steps to change its business model during 2004 with the goal of future growth to come through expansion of independently owned franchise locations. Expansion through this new avenue will allow Mobile Attic to venture more rapidly into new areas and expand into larger cities while significantly reducing future capital requirements. Mobile Attic began selling franchised locations in the first quarter of 2004 with 33 locations in operation or beginning operations as of December 31, 2005.
The life insurance and property/casualty subsidiaries primarily invest in highly liquid investment grade debt and equity securities. At December 31, 2005, the company’s holdings in debt securities amounted to 75.6% of total investments and 53.8% of total assets. The following is a breakdown of the bond portfolio quality according to National Association of Insurance Commissioners (NAIC) Securities Valuation Office (SVO) rating standards, and the nationally recognized rating organization equivalents of Moody’s and Standard and Poor’s:
As of December 31, 2005, the maturity schedule for all bonds and notes held by the Company, stated at amortized cost, was as follows:
Liquidity and Capital Resources: Due to increased claims from Hurricanes Dennis, Katrina and Rita, the Company established a $2 million revolving credit facility with a local bank. The establishment of the credit facility allowed the Company to better manage the timing differences associated with the payment of catastrophe claims to policyholders and subsequent reimbursement of paid claims from reinsurance companies. The establishment of the credit facility also prevented the insurance subsidiaries from having to liquidate investments for the payment of claims and reinvest proceeds upon reimbursement from reinsurance companies.
Due to regulatory restrictions, the majority of the Company’s cash is required to be invested in investment-grade securities to provide ample protection for policyholders. The liabilities of the property and casualty insurance subsidiaries are of various terms and, therefore, those subsidiaries invest in securities with various maturities spread over periods usually not exceeding 10 years. The liabilities of the life insurance subsidiaries are typically of a longer duration and therefore, a higher percentage of securities in the life insurance subsidiaries are invested for periods exceeding 10 years.
The consolidated statement of cash flows also reflects an increase (decrease) in cash from financing activities of $4,934,000, $(2,274,000) and $4,770,000 respectively. The increase in cash flow from financing activities in 2005 reflects proceeds from the issuance of long term debt of $9,279,000, the reduction of debt held by Mobile Attic of $2.2 million, and the payment of shareholder dividends of $2,134,000.
The ability of the Company to meet its commitments for timely payment of claims and other expenses depends, in addition to current cash flow, on the liquidity of its investments. On December 31, 2005, the Company had no known impairments of assets or changes in operation, which would have a material adverse effect upon liquidity. Approximately 81% of the Company’s insurance subsidiary assets are invested in cash; investment grade fixed income securities, short-term investments and broadly traded equity securities, which are highly liquid. The values of these investments are subject to the conditions of the markets in which they are traded. Past fluctuations in these markets have had little effect on the liquidity of the Company. The Company has relatively little exposure to lower grade fixed income investments which might be especially subject to liquidity problems due to thinly traded markets.
As disclosed in Note 12 to the consolidated financial statements, in 2005, the amount that The National Security Group’s insurance subsidiaries can transfer in the form of dividends to the parent company is limited to $993,000 in the life insurance subsidiary and $2,721,000 in the property/casualty insurance subsidiary. However, that condition poses no short-term or long-term liquidity concerns for the parent company.
The ratios of Total Adjusted Capital to Authorized Control Level RBC for The National Security Group’s life/health and property/casualty insurance subsidiaries are all in excess of 4.4 to 1 at December 31, 2005.
Application of Critical Accounting Policies: Our consolidated financial statements are based upon the development and application of accounting policies that require management to make significant estimates and assumptions. Accounting policies may be based on (including but not limited to) GAAP authoritative literature, statutory authoritative literature, regulations, and industry standards. The Company’s financial results would be directly impacted by changes in assumptions and judgments used to select and apply our accounting policies. It is management’s opinion that the following are some of the more critical judgment areas in regards to the application of our accounting policies and their affect on our financial condition and results of operations.
There is a possibility that the actual amounts recovered from reinsurers could be materially less than the estimates recorded. This possibility could result in a material adverse impact on our financial condition and results of operations. Reinsurers may dispute claims under reinsurance treaties, such as the calculated amount of reinsurance recoverable. Management does not anticipate any issues with recoverability of reinsurance balances based on current evaluations of collectibility.
At December 31, 2005 there were no other-than-temporary impairments. For more information regarding valuation of investments, see Note 1 to our financial statements.
All other Schedules are not required under related instructions or are
We have audited the accompanying consolidated balance sheets of The National Security Group, Inc. and subsidiaries as of December 31, 2005 and 2004 and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2005.Our audits also included the financial statement schedules listed in the Index at page 31. These consolidated financial statements and schedules are the responsibility of the company’s management. Our responsibility is to express an opinion on these consolidated financial statements and schedules based on our audits.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The National Security Group, Inc. and subsidiaries as of December 31, 2005 and 2004, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein.
Fixed maturities held-to-maturity, at amortized cost (estimated fair value: 2005 - $18,204;
Fixed maturities available-for-sale, at estimated fair value (cost: 2005 - $56,704;
Equity securities available-for-sale, at estimated fair value (cost: 2005 - $6,374;
Investment real estate, at book value (accumulated depreciation: 2005 - $18; 2004 - $17)
Accounts receivable, less allowance for credit losses (2005 - $48; 2004 - $40)
The accompanying consolidated financial statements include the accounts of The National
Security Group, Inc. (the Company) and its wholly-owned subsidiaries: National Security
Insurance Company (NSIC), National Security Fire and Casualty Company (NSFC) and
which consists of a fifty percent interest in The Mobile Attic, Inc and its wholly owned subsidiary established in January of 2004, Mobile Attic Franchising Company (MAFCO). The Mobile Attic, Inc. is a portable storage leasing company that began operations in 2001. MAFCO was established in the first quarter of 2004 to conduct the business of selling Mobile Attic portable storage leasing franchises. Effective in the first quarter of 2004 the Company consolidated the accounts of Mobile Attic, Inc. and subsidiary MAFCO according to guidance in Financial Accounting Standards Board Interpretation 46 as revised December 2003 (FIN 46R).
Changes in financial statement presentation as a result of the adoption of recently issued accounting standards:
As disclosed in the notes to the audited consolidated financial statements for the year ended
Texas and was organized in 1947 to provide life and burial insurance policies to the home
service market. Business is now produced by both company and independent agents.
NSFC is licensed in Alabama, Arkansas, Florida, Georgia, Mississippi, Oklahoma, South
Carolina, and Tennessee. In addition NSFC operates on a surplus lines basis in Louisiana,
significant of which are dwelling property fire and extended coverage, homeowners, mobile
Omega is licensed in the states of Alabama and Louisiana. Omega operates in property and
affect financial reporting are summarized below. The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles (GAAP) which, as to the subsidiary insurance companies, differ from statutory accounting practices permitted by regulatory authorities.
The preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that 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.
The Company’s securities are classified in two categories and accounted for as follows:
the Company has the positive intent and ability to hold to maturity are reported at cost, adjusted for amortization of premiums and accretion of discounts which are
recognized in interest income using methods which approximate level yields over the period to maturity.
Unrealized holding gains and losses, net of tax, on securities available-for-sale are reported as
a net amount in a separate component of shareholders’ equity until realized.
Investment real estate is reported at cost, less allowances for depreciation computed on the straight-line basis. Short-term investments are carried at cost, which approximates market value. Investments with other than temporary impairment in value are written down to estimated realizable values.
allowance for doubtful accounts based on historical losses and current economic conditions. On a continuing basis, management analyzes delinquent receivables and, once these receivables are determined to be uncollectible, they are written off through a charge against an existing allowance account or against earnings.
Property and equipment is carried at cost less accumulated depreciation and includes
expenditures that substantially increase the useful lives of existing property and equipment. Maintenance, repairs, and minor renovations are charged to expense as incurred. Upon sale or retirement of property and equipment, the cost and related accumulated depreciation are eliminated from the respective account and the resulting gain or loss is included in the results of operations. The Company provides for depreciation of property and equipment using the straight-line method designed to amortize costs over estimated useful lives. Estimated useful lives range up to 40 years for buildings and from 3-8 years for electronic data processing equipment and furniture and fixtures.
The table below presents the carrying value and fair value of the Company’s financial
instruments, as defined in accordance with applicable requirements. Fair values of the Company’s financial instruments are estimated by reference to quoted prices from market sources and financial institutions, as well as other valuation techniques. In cases where quoted market prices are not available, fair values are estimated using present value or other valuation techniques. The fair value estimates are made at a specific point in time, based on available market information and judgments about the financial instrument, such as estimates of timing and amount of expected future cash flows. Such estimates do not reflect any premium or discount that could result from offering for sale at one time the Company’s entire holdings of a particular financial instrument, nor do they consider the tax impact of the realization of unrealized gains or losses. In many cases, the fair value estimates cannot be substantiated by comparison to independent markets, nor can the disclosed value be realized in immediate settlement of the instrument.
and investment contracts are excluded from the disclosures. In evaluating the Company’s management of interest rate and liquidity risk, the fair values of all assets and liabilities should be taken into consideration.
The fair values of cash, cash equivalents, short-term investments and balances due on
accounts from agents, reinsurers and others approximate their carrying amounts as reflected in the consolidated balance sheet due to their short-term availability or maturity.
Life insurance premiums are recognized as revenues when due. Property and casualty
insurance premiums, less amounts ceded to reinsurers, are recognized on a pro rata basis over the terms of the policies. Reinsurance premiums assumed are recognized as reported by the ceding company.
When an individual franchise is sold, Mobile Attic agrees to provide certain services to the
Mobile Attic sold 15 individual franchise licenses during 2005 and 13 during 2004. Initial fees
included in revenues for the years ended December 31, 2005 and 2004 were $625,000 and $350,000, respectively. Deferred revenue at December 31, 2005 and 2004 was $175,000 and $122,500, respectively, and represents that portion of total revenues from franchises not yet open. There were two company-owned locations in operation during the years ended December 31, 2005 and 2004.
As territory is assigned to each franchise sold, Mobile Attic may reach the point where existing
markets become saturated and initial franchising revenue declines. Unless new markets are entered, franchise revenues after market saturation will come primarily from renewal fees for existing franchises.
Acquisition costs relating to life contracts are amortized over the premium paying period of the
The liability for unpaid claims represents the estimated liability for claims reported to the
In the normal course of business, NSFC seeks to reduce the loss that may arise from catastrophes or
In the normal course of business, NSIC seeks to limit its exposure to loss on any single insured
and to recover a portion of benefits paid by ceding reinsurance to other insurance enterprises or reinsurers under excess coverage contracts. NSIC retains a maximum of $50,000 of
make the prior year amounts comparable to those of the current year. Such reclassifications had no effect on the previously reported net income or shareholders’ equity.
costs, which are expensed the first time the advertising takes place. Advertising costs charged to expense were $250,000 for the year ended December 31, 2005 ($142,000 and $118,000 for the years ended December 31, 2004 and 2003, respectively). Advertising costs capitalized at December 31, 2005 were $192,000.
obligation. The adoption of this statement did not have a material impact on the Company’s financial position or results of operation.
With Modifications or Exchanges of Insurance Contracts, provides guidance on accounting for deferred acquisition costs on internal replacements of insurance and investment contracts other than those specifically described in SFAS No. 97. The SOP defines an internal replacement as a modification in product benefits, features, rights, or coverages that occurs by the exchange of a contract for a new contract, or by amendment, endorsement, or rider to a contract, or by the election of a feature or coverage within a contract. This SOP is effective for internal replacements occurring in fiscal years beginning after December 15, 2006, with earlier
adoption encouraged. The adoption of this statement is not expected to have a material impact on the Company’s financial position or results of operations.
In December 2003, the FASB issued Revised FIN 46 (FIN 46R) to clarify certain aspects of
FIN 46 including the determination of who is the primary beneficiary of a variable interest entity (VIE). FIN 46R postponed the effective date as to when companies are required to apply the provisions prospectively for all variable interest entities in existence prior to January 31, 2003 until the first financial reporting period that ends after March 15, 2004. However, for entities that are considered to be special purpose entities, the effective date of FIN 46R is financial reporting periods after December 15, 2003. The Company does not have an interest in any special purpose entities. The Company consolidated its affiliate, Mobile Attic, Inc., upon adoption of FIN 46R in the first quarter 2004 due to the Company’s guarantee of Mobile Attic’s line of credit. The consolidation of Mobile Attic increased total assets by approximately $15 million and total liabilities by approximately $13 million. There was no effect on total shareholders’ equity. The consolidation of Mobile Attic did not have a material impact on the results of operations as the Company previously accounted for the investment under the equity method. See Note 17 for additional information related to the VIE.
The amortized cost and aggregate fair value of debt securities at December 31, 2005, by contractual maturity, are as follows. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
For 2005, gross gains of $3,793,000 ($2,219,000 for 2004 and $2,266,000 for 2003) and gross losses of $66,000 ($130,000 for 2004 and $858,000 for 2003) were realized on sales of available-for-sale-securities.
A summary of securities held-to-maturity with unrealized losses as of December 31, 2005 and 2004 along with the related fair value, aggregated by the length of time that investments have been in a continuous unrealized loss position, is as follows:
Aggregate maturities of long-term debt for each of the five years subsequent to December 31, 2005 are as follows (dollars in thousands): 2006-$280; 2007-$13,347; 2008-$0; 2009-$0; 2010-$0. The remaining $9,279 is due in 2035.
The provision for claims and claim adjustment expenses for prior years (net of reinsurance recoveries) decreased in 2005, 2004 and 2003 because of lower-than-anticipated losses primarily in homeowners and dwelling fire lines of business. As a result of changes in estimates of insured events in prior years, the provision for claims and claim adjustment expenses (net of reinsurance recoveries) decreased in 2005 by an additional $500,000.
The Company has a geographic exposure to catastrophe losses in certain areas of the country. Catastrophes can be caused by various events including hurricanes, windstorms, earthquakes, hail, severe winter weather, explosions and fires, and the incidence and severity of catastrophes are inherently unpredictable. The extent of losses from a catastrophe is a function of both the total amount of insured exposure in the area affected by the event and the severity of the event. Most catastrophe losses are restricted to small geographic areas; however, hurricanes and earthquakes may produce significant damage in large, heavily populated areas. The Company generally seeks to reduce its exposure to catastrophes through individual risk selection and the purchase of catastrophe reinsurance. At December 31, 2005, the Company’s estimate of unpaid losses and adjustment expenses for hurricane related claims incurred in 2005 totaled $11.7 million. Net of anticipated reinsurance recoveries, the estimate of unpaid loss and loss adjustment reserves for claims incurred in 2005 totaled $1.1 million at December 31, 2005.
The Company’s insurance operations participate in reinsurance in order to limit losses, minimize exposure to large risks, provide additional capacity for future growth and effect business-sharing arrangements. Life reinsurance is accomplished through yearly renewable term. Property and casualty reinsurance is placed on both a quota-share and excess of loss basis. Reinsurance ceded arrangements do not discharge the insurance subsidiaries as the primary insurer, except for cases involving a novation. Failure of reinsurers to honor their obligations could result in losses to the insurance subsidiaries. The
insurance subsidiaries evaluate the financial conditions of their reinsurers and monitor concentrations of credit risk arising from similar geographic regions, activities, or economic characteristics of the reinsurers to minimize their exposure to significant losses from reinsurance insolvencies. At December 31, 2005, reinsurance receivables with a carrying value of $233,000 ($326,000 at December 31, 2004) and prepaid reinsurance premiums of $196,000 ($467,000 at December 31, 2004) were associated with a single reinsurer. The amounts of recoveries pertaining to reinsurance contracts that were deducted from losses incurred during 2005, 2004 and 2003 were approximately $32,613,000, $11,284,000, and $580,000, respectively. The significant increase in recoveries pertaining to reinsurance contracts in 2005 compared to prior years was due to reinsurance associated with losses incurred from hurricanes Katrina and Rita. The effect of reinsurance on premiums written and earned was as follows:
In 1987, the Company established a non-qualified deferred compensation plan for its Board of Directors. The Board members had an option of deferring their fees to a cash account or to a stock account and all share deferrals are recorded at the fair market value on the date of the award. Costs of the deferred compensation plan for 2005, 2004, and 2003 amounted to approximately ($259,000), $208,000, and $421,000, respectively. The directors’ non-qualified deferred compensation plan was frozen on December 31, 2004 and deferrals are no longer allowed. No deferrals of directors’ fees were allowed in 2005 prior to adoption of a new non-qualified plan. A new non-qualified plan became effective January 1, 2006 under which directors are allowed to defer all or a portion of directors’ fees into various investment options. Unlike the previous non-qualified plan, the Company is not exposed to any market risk for investment in the new non-qualified deferred compensation plan for directors. All directors fees for 2005 were paid in cash.
The amount of dividends paid from NSIC to the Company in any year may not exceed, without prior approval of regulatory authorities, the greater of 10% of statutory surplus as of the end of the preceding year, or the statutory net gain from operations for the preceding year. At December 31, 2005, NSIC’s retained earnings unrestricted for the payment of dividends in 2006 amounted to $993,000.
The Company and its subsidiaries operate primarily in the insurance industry. Premium revenues and operating income by industry segment for the years ended December 31, 2005, 2004 and 2003 are summarized below:
During the years ended December 31, 2005, 2004 and 2003 the Company’s affiliate Mobile Attic acquired $2,632,000; $1,389,000; and $7,200,000, respectively, of equipment from Cash Brothers Leasing, Inc. (Cash Brothers). The principal owners of Cash Brothers are also stockholders in Mobile Attic. Cash Brothers is also a distributor of the mobile storage units. During 2005, 2004 and 2003 Mobile Attic paid $103,000; $100,000; and
$83,000, respectively, in commissions to Cash Brothers. At December 31, 2005 and 2004, Mobile Attic had accrued expenses due Cash Brothers of $16,000 and $22,000, respectively.
Mobile Attic also acquired $4,977,000 of equipment from Bridgeville Trailers during the year ended December 31, 2005. Two of the majority shareholders of Bridgeville Trailers each own 25% of Mobile Attic.
Dividends of $2.5 million in 2005, $2.8 million in 2004 and $2.3 million in 2003 were paid to the