The following selected financial data are derived from our consolidated financial statements, except for selected statutory data (which are presented in accordance with statutory accounting practices). Information for periods prior to the formation of Holdings in 1998 relates to MEEMIC and its subsidiary. The data should be read in conjunction with the consolidated financial statements, related notes and other financial information included elsewhere in this report. See also Note 1 of the Company's consolidated financial statements. Statutory financial statistics are presented to provide information that can be readily compared to statistics of other companies in the property and casualty insurance industry to evaluate the Company's performance. These statistics should be evaluated along with the generally accepted accounting principles, or GAAP, information presented herein. See Note 15 of the consolidated financial statements for a discussion of the principal differences between GAAP and statutory accounting practices, and for a reconciliation of consolidated net income and equity, as
(2)Calculated by dividing net losses and loss expenses by net premiums earned.
The following discussion and analysis should be read in conjunction with the consolidated financial statements and the notes thereto included elsewhere in this report. The following discussion of our financial condition and results of operations contains certain forward-looking statements relating to our anticipated future financial conditions and operating results and our current business plans. These forward-looking statements represent only our outlook as of the date of this report. While we believe any forward-looking statements we have made are reasonable, actual results could differ materially since the statements are based on our current expectations and are subject to risks and uncertainties. These risks and uncertainties are discussed elsewhere in this report. See the disclosures under "Item 1 - Business-Forward Looking Statements." Other factors not currently anticipated by management may also materially and adversely affect the Company's results of operations. The Company does not undertake, and expressly disclaims any obligation, to update or alter its forward-looking statement whether as a result of new information, future events or otherwise, except as required by applicable law.
Our recorded estimates of loss and loss adjustment expense reserves were $124.4 million at December 31, 2001 compared to $107.3 million at December 31, 2000. The $17.1 million increase in reserves for 2001 was primarily due to general allowances for growth in the number of insured vehicles and homeowner policies in force, and the cancellation of the homeowner quota share reinsurance agreement effective January 1, 2001. Reserves for losses incurred prior to 2001 were reduced by $6.5 million during 2001 as a result of favorable developments in estimates of prior years' reserves on auto liability. Reserves for losses incurred prior to 2000 were reduced by $9.5 million during 2000. This
was caused by the unanticipated reduction in the frequency of claims. We believe this reduction resulted from the 1994 legislative tort reforms in the State of Michigan, which reduced the frequency and shortened the reporting pattern of claims. The 1994 legislation became effective in 1996 and the effects were uncertain at that time. As additional data subsequent to the tort reform has emerged, we anticipate greater stability in the reserve estimates. Uncertainties inherent in the loss estimation process will invariably cause differences in actual ultimate liabilities from estimates. Aggregate loss reserves at December 31, 2001 and 2000 have been certified by an independent actuarial firm and are believed to be a reasonable provision for all unpaid loss and loss expense obligations under the terms of MEEMIC's policies and agreements.
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions in certain circumstances that affect amounts reported in the accompanying consolidated financial statements and related footnotes. These estimates and assumptions are evaluated on an on-going basis based on historical developments, market conditions, industry trends and other information we believe to be reasonable under the circumstances. There can be no assurance that actual results will conform to our estimates and assumptions, and that reported results of operations will not be materially adversely affected by the need to make accounting adjustments to reflect changes in these estimates and assumptions from time to time. The following policies are those we believe to be the most sensitive to estimates and judgments. Our significant accounting policies are more fully described in Note 2 to our consolidated financial statements.
Revenue Recognition. We recognize insurance premium income on a monthly pro rata basis over the respective terms of the policies in force. Unearned premiums represent the portion of premiums written applicable to the unexpired terms of the policies in-force. Reinsurance arrangements are prospective contracts for which prepaid reinsurance premiums are amortized ratably over the related policy terms based on the estimated ultimate amounts to be paid. Changes in estimated outcomes are recognized currently.
Investments. At December 31, 2001 and 2000, all of the Company's securities are classified as available-for-sale and are those securities that would be available to be sold in response to the Company's liquidity needs, changes in market interest rates and asset-liability management strategies, among others. Available-for-sale securities are recorded at fair value, with unrealized gains and losses, net of the related income tax effect, excluded from income and reported as a separate component of shareholders' equity. A decline in the fair value of an available-for-sale security below cost that we judge not to be temporary results in a charge to income.
•policy acquisition and other underwriting expenses ratio-This ratio compares our expenses to obtain new business and renew existing business to our net premiums earned. The lower the percentage, the more efficient we are.
Net income for 2001 was $12.0 million compared to $15.7 million for 2000. Our income from operations before taxes was $16.2 million and $22.5 million for 2001 and 2000, respectively, and the after-tax return on equity was 8.2% in 2001 compared to 12.4% in 2000. The primary reasons for the decreases were higher claim losses of $6.7 million from harsher winter weather, a $1.5 million loss recognized on three California electric utility securities deemed to have other than temporary declines in fair value and $1.3 million in expenses related to severance payments to officers who left the Company following the ProAssurance transaction involving the Company's parent, Professionals Group, Inc..
Total direct premiums written increased to $142.3 million in 2001 from $130.3 million in 2000. Our direct premiums written have increased 9.2% in 2001 due to an increase in the number of homes and autos insured, an increase in the values of autos and homes being insured and a 12% rate increase for homeowners that became effective October 1, 2001. With the continued growth in our homeowners business, our product mix in terms of exposures by line at December 31, 2001 was 77.2% personal automobile, 21.6% homeowners, 0.9% boat and 0.3% umbrella policies. Net premiums written for 2001 increased to $137.7 million, or 13.7% from 2000, and net premiums earned for 2001 increased to $133.3 million, or 12.5% from 2000. In addition to the reasons previously noted, the increase also reflects the cancellation, effective January 1, 2001, of a quota share agreement under which we ceded 40% of our homeowners business during 2000. We are now retaining this homeowners business.
Direct premiums written during 2001 for automobile coverage increased 7.3% to $122.8 million, from $114.4 million in 2000. The number of insured vehicles increased 4.2% to 173,545 at December 31, 2001 from 166,535 at December 31, 2000. Our homeowners premiums written also continued to increase. Direct premiums written during 2001 for homeowners increased 22.4% to $19.1 million, from $15.6 million in 2000. The number of homeowner policies in force increased 15.6% to 48,461 at December 31, 2001 from 41,927 at December 31, 2000. Auto and homeowner premiums increased at a faster rate than the number of insured vehicles and homes, due to the increased value of existing homes and an increase in the number of higher valued autos and homes overall.
Our combined ratio was 94.1% for 2001 compared to 88.9% for 2000. Overall, our net loss ratio for 2001 was 62.6%, compared to 57.6% for 2000. The auto liability net loss ratio for 2001 was 49.8%, compared to 39.7% for 2000, and the auto physical damage net loss ratio for 2001 was 65.3% compared to 62.1% in 2000. The homeowner net loss ratio was 82.6% for 2001, compared to 96.0% for 2000. For 2001, the boat net loss ratio was 22.9% compared to 76.6% for 2000 and there were no umbrella losses. The increases in net loss ratio and combined ratio for the year ended December 31, 2001 were due to increases in both the frequency and severity of personal auto liability and physical damage claims, which more than offset the improvement in homeowner claims. The improvement in the homeowner net loss ratio for 2001 was primarily due to the effects of premium increases from higher valued homes and the rate increase effective October 1, 2001.
Our policy acquisition and other underwriting expenses ratio increased slightly to 23.8% for 2001, compared to 23.7% for 2000. This increase is primarily the result of the $1.3 million in severance expenses incurred in 2001 in connection with the ProAssurance merger. This increase was partially offset by increased efficiencies from maintaining level costs over increased volume of business.
Total direct premiums written increased to $130.3 million in 2000 from $122.4 million in 1999. Our direct written premiums have increased 6.5% in 2000 due primarily to business growth. Additionally, auto and homeowner premiums increased at a faster rate than the number of insured vehicles and homes due to the increased value of existing homes and an increase in the number of higher valued autos and homes overall. With the continued growth in our homeowners business, our product mix in terms of exposures by line is 20% homeowners and 79% personal automobile, with the remainder made up by umbrella and boat. Net premiums written for 2000 increased to $121.1 million, or 26.7% from 1999. Net premiums earned for 2000 were $118.5 million compared to $93.0 million for 1999. The increase in net premiums written and earned for 2000 was due to the cancellation of the quota share reinsurance contract on July 1, 1999 with ProNational in connection with MEEMIC's conversion and general business growth.
Direct premiums written during 2000 for automobile coverage increased 4.4% to $114.4 million, from $109.6 million in 1999. The number of insured vehicles increased 3.4% to 166,535 at December 31, 2000 from 161,133 at December 31, 1999. Our homeowners premiums written also continued to increase. Direct premiums written during 2000 for homeowners increased 21.9% to $15.6 million, from $12.8 million in 1999. The number of homeowner policies in force increased 18.7% to 41,927 at December 31, 2000 from 35,309 at December 31, 1999.
Our policy acquisition and other underwriting expenses ratio increased to 23.7% for 2000, compared to 20.5% for 1999. The increase in other underwriting expense for 2000 compared to 1999 includes additional costs for investments in technology and increased costs for sales force incentives. MEEMIC installed a new computer system and mailer machine, and implemented an automatic deposit payment system for billing and a voice response unit for routine billing calls.
Net investment income before interest expense was $10.8 million for 2000 compared to $8.3 million for 1999. The increase in net investment income before interest expense was due principally to increases in invested assets because of positive cash flows from operations. Interest expense on the surplus note was $906,000 for 1999. As a result of the surplus note conversion to common stock on July 1, 1999, there was no interest expense for 2000. Consistent with 1999, investment income for 2000 was earned primarily from interest income and not from realized capital gains and losses. The tax equivalent total rate of return, which includes both income and changes in market value of securities, was 9.80% for 2000 and 2.72% for 1999. The increased return in 2000 compared to 1999 was due to a slowing economy and the resulting bond rally. The weighted average tax equivalent book yield of the fixed maturity portfolio was 7.13% for 2000, compared to 6.93% for 1999.
Our cash increased $8.9 million during 2001 compared to an increase of $12.3 million during 2000. Cash provided by operations during 2001 was $24.3 million, compared to $27.0 million during 2000. The increases in 2001 were less than the increases in 2000 primarily due to substantially higher loss payments made in 2001 from increased auto and homeowner claims reported in both 2001 and 2000, which were partially offset by increased efficiencies from maintaining level operating costs over increased volume of business.
Based on historical trends, market conditions and our business plans, we believe that our existing resources and sources of funds will be sufficient to meet our short term and long term liquidity needs. However, because economic, market and regulatory conditions may change, there can be no assurance that our funds will be sufficient to meet these liquidity needs.
The effects of inflation on the Company are considered in estimating reserves for unpaid losses and loss adjustment expenses, and in the premium rate-making process. The actual effects of inflation on the Company's results of operations cannot be accurately known until the ultimate settlement of claims. However, based upon the actual results reported to date, we believe that the Company's loss reserves, including reserves for losses that have been incurred but not yet reported, make adequate provision for the effects of inflation.
The Financial Accounting Standards Board has also issued SFAS No. 142 "Goodwill and Other Intangible Assets" which supersedes Opinion 17 "Intangible Assets," and is effective for fiscal years beginning after December 15, 2001. SFAS No. 142 addresses how goodwill and other intangible assets should be accounted for in financial statements upon acquisition and how these items should be accounted for subsequent to acquisition. Contrary to Opinion 17, SFAS No. 142 does not presume that goodwill and all other intangible assets are wasting assets requiring amortization. Instead, goodwill and intangible assets that have indefinite useful lives will be tested at least annually for impairment. If goodwill and intangible assets are deemed to be impaired, the change will be charged through the Statement of Operations. SFAS No. 142 requires additional disclosure of information about goodwill and other intangible assets in the years subsequent to their acquisition. Intangible assets net of accumulated amortization were $30.5 million at December 31, 2001 and the Company determined there are currently no impaired intangible assets. Thus, adopting SFAS No. 142 would not affect the current
results of operations with any additional charges for impairment, but would eliminate current annual amortization expense of $2.9 million.
We are vulnerable to interest rate risk because, like other insurance companies, we invest primarily in fixed maturity securities, which are interest-sensitive assets. We do not invest in fixed maturity securities for trading purposes. Mortgage-backed securities, which make up approximately 17% of our investment portfolio, are particularly susceptible to interest rate changes. We invest primarily in classes of mortgage-backed securities that are less subject to prepayment risk and, as a result, somewhat less susceptible to interest rate risk than other mortgage-backed securities.
Our fixed maturity investment portfolio was valued at $187.5 million at December 31, 2001 and had a duration of 3.90 years. The portfolio was valued at $167.9 million at December 31, 2000 and had a duration of 3.60 years. The following tables show the effects of a change in interest rate on the fair value and duration of our portfolio. We have assumed an immediate increase or decrease of 1% or 2% in interest rate. You should not consider this assumption or the values shown in the table to be a prediction of actual future results. Our investment policy did not materially change during 2001.
*Earnings per share for 1999 are computed for the period July 1, 1999 (date of conversion) through December 31, 1999. The accompanying notes are an integral part of the consolidated financial statements.
MEEMIC Holdings, Inc. ("Holdings") and subsidiaries (collectively with Holdings, the "Company") is an insurance holding company incorporated under Michigan law in October 1998. The Company owns all of the issued and outstanding common stock of MEEMIC Insurance Services Corp. and MEEMIC Insurance Company ("MEEMIC"), a stock insurance company incorporated under Michigan law. MEEMIC is a property and casualty insurance company that operates as a single segment writing full coverage private passenger automobile, homeowner, boat and umbrella insurance products for educational employees and their immediate families exclusively in the State of Michigan. The Company's insurance contracts are sold through MEEMIC Insurance Services Corp., d/b/a MEIA Insurance Agency, which is the exclusive distributor of the Company's products.
The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP"), which vary in certain respects from statutory accounting practices followed in reporting to insurance regulatory authorities (see Note 15 for the effect of such differences). All material intercompany balances and transactions have been eliminated. The financial information for periods prior to the formation of Holdings relates to MEEMIC and MEIA Insurance Agency.
A decline in the fair value of an available-for-sale security below cost that is deemed other than temporary results in a charge to income, resulting in the establishment of a new cost basis for the security. All declines in fair values of the Company's investment securities in 2001 or 2000 were deemed to be temporary, except for a $1.5 million loss recognized in the second quarter of 2001 on California electric utility investment securities.
Losses and loss adjustment expense reserves represent the accumulation of individual case estimates for reported losses and loss adjustment expenses, bulk adjustments to case estimates and actuarial estimates for incurred but not reported losses and loss adjustment expenses, based upon the Company's actual experience, assumptions and projections as to claims frequency, severity, inflationary trends and settlement payments. The reserve for losses and loss adjustment expenses is intended to cover the ultimate net cost of all losses and loss adjustment expenses incurred but unsettled through the balance sheet date reduced for anticipated salvage and subrogation. Anticipated salvage and subrogation approximated $1,485,000 and $1,285,000 at December 31, 2001 and 2000, respectively. The reserve is stated gross of reinsurance ceded.
Deferred federal income tax assets and liabilities are recognized for the expected future tax consequences attributable to differences between the financial statement carrying amount of assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which these temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Commencing September 15, 2000, the Company is included in the consolidated federal income tax return with Professionals Group, Inc., parent of ProNational Insurance Company, Inc. Commencing June 28, 2001, the Company is included in the consolidated federal income tax return with
ProAssurance Corporation, the new parent of Professionals Group. The method of allocation between the companies is subject to written agreement approved by the Board of Directors. Allocation is based upon separate return calculations with current credit for net losses. Intercompany tax balances are reconciled at least annually.
The most significant estimates that are susceptible to significant change in the near term relate to the determination of the losses and loss adjustment expense reserves. Although considerable variability is inherent in these estimates, management believes that the reserves are adequate. The estimates are reviewed regularly and adjusted as necessary. Such adjustments are reflected in current operations.
On July 1, 1999, MEEMIC converted from a mutual to a stock insurance company and became a wholly-owned subsidiary of Holdings. Prior to the conversion, Holdings did not engage in any significant operations and did not have assets or liabilities. Since July 2, 1999, stock of Holdings has been trading on the Nasdaq National Market under the symbol "MEMH". Net proceeds of the initial public offering were $42,973,000, before offering costs of $700,000 and a donation to the MEEMIC Foundation of $500,000. MEEMIC policyholders subscribed for 1,533,983 shares of common stock in Holdings. Also pursuant to the plan of conversion, Professionals Group, Inc. converted a $21.5 million surplus note (plus accrued interest) of MEEMIC owned by ProNational Insurance Company ("ProNational"), a wholly-owned subsidiary of Professionals Group, Inc. into 2,302,209 shares of the Company; and, Professionals Group, Inc. fulfilled its obligations as standby purchaser by purchasing an additional 2,763,308 shares in the subscription offering. At December 31, 2001, Professionals Group, Inc. owned 84.0% of the issued and outstanding shares of Holdings.
On June 27, 2001, Professionals Group, Inc. and Medical Assurance, Inc. formed a new holding company, ProAssurance Corporation, that owns all of the stock of Medical Assurance, Inc. and Professionals Group, Inc. Medical Assurance, Inc., ProNational and MEEMIC continue to serve policyholders under the umbrella of the new ProAssurance holding company.
Upon completion of the ProAssurance merger, certain officers of Holdings left the Company and were paid severance benefits pursuant to change of control agreements. A $1,335,500 charge for severance payments to these officers was recorded in the second quarter of 2001.
The amortized cost and estimated fair value of fixed maturities at December 31, 2001, by contractual maturity, are shown below. Expected maturities on certain corporate and mortgage-backed
Increases (decreases) in net unrealized gains of fixed maturities were $3,821,000, $4,446,000, and ($5,559,000) at December 31, 2001, 2000, and 1999, respectively.
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments", requires disclosures of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate the value. In situations where quoted market prices are not available, fair values are to be based on estimates using present value or other valuation techniques.
SFAS No. 107 excludes certain insurance-related assets and liabilities and all nonfinancial instruments from its disclosure requirements.
In 1999, Professionals Group provided MEEMIC with information system services and certain consulting services under a Management Services Agreement that was terminated effective July 1, 1999. Fees for such services were $1,065,000 for 1999 and were included in other underwriting expenses. As of July 1, 1999, MEEMIC entered into an Expense Allocation Agreement with ProNational covering indirect expenses and salaries of key Company personnel. Expenses related to this agreement were $503,000, $742,000 and $304,000 for 2001, 2000 and 1999, respectively. Also effective July 1, 1999, MEEMIC canceled its quota share reinsurance contract with ProNational (Note 7).
The Company has various excess of loss and quota share reinsurance agreements. As of December 31, 2001, the Company's maximum current net retention, subject to certain adjustments of risk on any single coverage per claim after reinsurance is $200,000. In 2001, the Company had one quota share reinsurance agreement for umbrella policies and had cancelled its quota share agreement for homeowners. In 2000, the Company was involved in two quota share reinsurance agreements. Since the Company began offering umbrella policies, a quota share reinsurance arrangement was entered into in which the Company retains 5% and cedes 95% of the liability on these policies. The Company also had a quota share reinsurance arrangement in 2000 whereby the Company ceded 40% of its homeowners liability before the effects of other reinsurance contracts. Ceding commissions on these agreements were $192,000 in 2001 and $1,336,000 in 2000.
From July 1, 1997 through June 30, 1999, the Company had a coinsurance treaty with ProNational to cede 40% of its net retained premiums on a quota share basis. Ceding commissions were $7,227,000 in 1999. A summary of reinsurance amounts, which are included above, that were ceded to ProNational follows:
Actual federal income taxes vary from amounts computed by applying the current federal income tax rate of 35% to income or loss before federal income taxes. For the years ended December 31, 2001, 2000 and 1999, the reasons for these differences, and the tax effects thereof, are as follows:
As a result of recent favorable development in estimates of prior years' reserves on auto liability business, the provision for losses and loss adjustment expenses in 2001, 2000, and 1999 decreased by $6,516,000, $9,503,000, and $6,964,000, respectively. Management believes 1994 legislative tort reform in the State of Michigan produced better than expected loss experience and resulted in reductions in prior years' loss reserves in 2001, 2000, and 1999. The 1994 legislation became effective in 1996 and the effects were uncertain at that time. As time has passed, the data and effects of that reform have stabilized and management has reduced reserves related to prior accident years accordingly.
At December 31, 2001, future minimum lease payments are as follows:
Rental expense was $1,432,000, $1,382,000, and $1,258,000 in 2001, 2000 and 1999, respectively.
On January 1, 2001, significant changes to the statutory basis accounting became effective. The cumulative effect of these changes, known as the Codification guidance, was recorded as a direct adjustment to statutory surplus. The effect of the adoption on MEEMIC's statutory surplus was an increase of $4.0 million as of January 1, 2001, primarily due to the recording of a deferred tax asset.
Approximately $260 million of consolidated assets represents assets of the Company's insurance operations that may not be transferred to Holdings in the form of dividends, loans or advances without prior regulatory approval. The amount of dividends that the Company's insurance subsidiary can pay to Holdings in any 12-month period is limited to the greater of statutory net income for the preceding year, excluding realized capital gains on investments, or 10% of unassigned surplus as of the preceding year end. As of December 31, 2001, amounts available for payment of dividends in year 2002 without prior regulatory approval of the OFIS is approximately $9.2 million.
Premiums written through the Company's sales agency approximated 90% of direct written premiums in each of the years 2001, 2000 and 1999. Additionally, in each of these years, the top ten agents produced, in aggregate, approximately 32% of direct written premiums.
presume that goodwill and all other intangible assets are wasting assets requiring amortization. Instead, goodwill and intangible assets that have indefinite useful lives will be tested at least annually for impairment. If goodwill and intangible assets are deemed to be impaired, the change will be charged through the Statement of Operations. SFAS No. 142 requires additional disclosure of information about goodwill and other intangible assets in the years subsequent to their acquisition. Intangible assets net of accumulated amortization were $30.5 million at December 31, 2001 and the Company determined there are currently no impaired intangible assets. Thus, adopting SFAS No. 142 would not affect the current results of operations with any additional charges for impairment, but would eliminate current annual amortization expense of $2.9 million.
The Financial Accounting Standards Board also issued SFAS No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets" which supercedes SFAS No. 121 "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of," and the accounting and reporting provisions of APB Opinion No. 30 "Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions," and is effective for fiscal years beginning after December 15, 2001. SFAS No. 144 establishes a single accounting model for the disposal of long-lived assets. As the Company does not hold long-lived assets, the adoption of SFAS No.144 will not affect the results of operations or financial position of the Company.
February 1, 2002, except for Note 22, as to which the date is March 18, 2002
In our opinion, the consolidated financial statements listed in the accompanying index appearing under Item 14 present fairly, in all material respects, the financial position of MEEMIC Holdings, Inc. and its subsidiaries at December 31, 2000, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2000 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedules listed in the accompanying index appearing under Item 14 present fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedules are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements and financial statement schedules based on our audits. We conducted our audits of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
MEEMIC Insurance Company (MEEMIC)-a stock insurance company which began operations in 1950 under Michigan law.
MEEMIC Insurance Services Corporation ("MEIA Agency")-a business corporation incorporated under Michigan law on May 16, 1997, which is the exclusive distributor of our products and represents over 95 insurance sales representatives. Although 92.2% of MEIA Agency's revenues are attributable to MEEMIC, the agency represents and receives sales commissions from other insurance carriers who do business in Michigan. On December 30, 1999, upon approval from the State of Michigan Office of Financial and Insurance Services, MEEMIC paid a dividend to Holdings consisting of all of the outstanding shares of MEIA Agency's capital stock. This dividend rearranged the organizational structure of Holdings, such that MEEMIC and MEIA Agency are sister corporations as opposed to a parent/subsidiary relationship and MEIA Agency is a wholly-owned subsidiary of Holdings.
Commencing September 15, 2000, Holdings is included in the consolidated federal income tax return with Professionals Group, Inc., parent of ProNational Insurance Company, which directly owned 84.0% of Holdings at December 31, 2001. Commencing June 28, 2001, Holdings is included in the consolidated federal income tax return with ProAssurance Corporation. The method of allocation between the companies is subject to written agreement approved by the Board of Directors. Allocation is based upon separate return calculations with current credit for net losses. Intercompany tax balances are reconciled at least annually.