The information as of December 31, 2005, 2004, 2003 and 2002 and for the years ended December 31, 2005, 2004 and 2003 and the period from June 26, 2002 through December 31, 2002 was derived from our audited consolidated financial statements. We purchased our initial operating subsidiaries on June 26, 2002, and our holding company had minimal activity prior to the acquisition of our subsidiaries. The information as of and for the period ended June 25, 2002 and the year ended December 31, 2001 was derived from the predecessor companies’ audited combined financial statements.
Of our gross premiums written in 2005, $28.7 million was attributable to our new Florida homeowners business. We expect that a significant component of our gross premiums written relating to this business will continue to occur in the first quarter of every year, but these premiums will be earned over the respective terms of the individual policies.
Our results of the year ended December 31, 2005 include $14.8 million of pre-tax expenses ($9.8 million after tax) related to four hurricanes that struck Florida and the Gulf coast in 2005. Of this $14.8 million, $11.8 million was attributable to losses and loss adjustment expenses related to policyholder claims (after the effect of reinsurance). The remaining $3.0 million of the $14.8 million in hurricane related expenses was attributable to additional reinsurance costs, or reinstatement premiums, we incurred relating to our catastrophe reinsurance coverage after each hurricane, which costs were recorded as a reduction in our net premiums earned. Our loss ratio increased from 35.7% to 50.8% as a result of these hurricanes.
The gains on sales of businesses in 2004 was generated by a $4.0 million gain on the sale of the renewal policy rights relating to our non-standard personal automobile insurance line and a $285,000 gain on the sale of our renewal rights relating to approximately 100 liquor liability policies. The $200,000 gain on sales of businesses in 2003 was generated by a gain on the sale of Universal Fire & Casualty.
the availability and pricing of reinsurance and the potential for non-payment or delay in payment by reinsurers;
our ability to implement and maintain adequate internal controls in our business;
other risks that we identify in past and future filings with the Securities and Exchange Commission, including without limitation the risks described herein, and in future filings, under the caption “Risk Factors.”
Net income for the years ended December 31, 2005, 2004 and 2003 was $3.9 million, $11.4 million and $6.6 million, respectively, amounting to diluted earnings per share of $0.64, $1.95 and $0.90, respectively. Net income before extraordinary item for the years ended December 31, 2005, 2004 and 2003 was $3.9 million, $8.5 million and $6.6 million, respectively, amounting to diluted earnings per share of $0.64, $1.46 and $0.90, respectively.
Net income for 2005 includes after-tax expenses of $9.8 million attributable to four hurricanes which struck Florida and the U.S. Gulf coast in 2005, $539,000 of after-tax expenses attributable to statutory assessments from Citizens and $115,000 of after-tax expenses attributable to reserve adjustments relating to the 2004 hurricane losses. Of the $9.8 million of after-tax expenses attributable to hurricanes in 2005, $1.6 million, $1.9 million, $196,000 and $6.1 million were attributable to Hurricanes Dennis, Katrina, Rita and Wilma, respectively.
no hurricane losses in 2003. We have not experienced significant pricing pressures in the market place in the last three years. However, we have experienced increases in our reinsurance rates over the same periods, mostly attributable to catastrophe exposures.
In November 2005, A.M. Best upgraded North Pointe Insurance’s financial strength rating from “B+” to “B++” and reaffirmed North Pointe Casualty’s rating of “B+” with a “Stable” outlook. It is our intention to utilize the additional capital to continue to improve our financial metrics in order to obtain higher financial strength ratings, and to help fund future business expansions.
In February 2006, we raised $20.0 million through a trust preferred vehicle.
We prepare our financial statements in conformity with generally accepted accounting principles in the United States of America, or GAAP. Under GAAP, we make estimates and assumptions that affect the amounts reported in our financial statements. As additional information becomes available, these estimates and assumptions can change and impact amounts reported in the future. We have identified below accounting policies that we use to make these estimates and assumptions. We consider these policies to be critical due to the amount of judgment and uncertainty inherent in their application.
Fixed-income investments with unrealized losses due to the market- or industry-related declines, are not deemed to qualify as other than temporarily impaired where we have the intent and ability to hold the investment for the period of time necessary to recover the investment’s original principal and interest obligation. Our policy for equity securities with market-related declines is to recognize impairment losses on individual securities with losses that are not reasonably expected to be recovered under historical market conditions when the security has been in a loss position for four consecutive quarters. This does not preclude us from recognizing an impairment prior to a security remaining in a loss position for four consecutive quarters if events or evidence would dictate an earlier recognition.
As of December 31, 2005, we had unrealized losses on our investment portfolio of $2.5 million, of which $1.3 million were in unrealized loss positions for more than twelve months. If we decided to write down all securities in an unrealized loss position for one year or longer, we would have recognized an additional $1.3 million of realized losses, reducing net income in 2005 by $858,000.
Gross premiums written in our commercial lines segment for 2005 were $78.6 million as compared to $73.4 million for 2004, an increase of $5.2 million, or 7.1%. This increase in gross premiums written was attributable to an increase in policy count and an increase in the average premiums written per policy. Policy count in our commercial lines segment was 28,100 as of December 31, 2005 as compared to 26,800 as of December 31, 2004, an increase of 1,300 policies, or 4.9%. We experienced an increase in gross premiums written of $7.0 million in our Florida small business line, as well as smaller increases in other commercial lines. These increases were partially offset by a $1.9 million decrease in our RBT line and a $713,000 decrease in our accident and health line which we ceased writing in May 2005. The decrease in gross premiums written in our RBT line was a result of the loss of several liquor liability and general liability policyholders in Michigan which we attribute to a more competitive market.
Year Ended December 31, 2004 as Compared to Year Ended December 31, 2003. Gross premiums written for 2004 were $96.5 million as compared to $88.2 million for 2003, an increase of $8.3 million, or 9.4%.
These increases were partially offset by a $1.6 million decrease in our Illinois commercial automobile insurance line where we ceased renewing policies in early 2003, as well as decreases in other, smaller lines.
Gross premiums written in our personal lines segment for 2004 were $23.1 million as compared to $28.4 million for 2003, a decrease of $5.3 million, or 18.7%. Gross premiums written in our personal automobile line decreased by $4.8 million. Policy count in our personal lines segment was 16,690 as of December 31, 2004 as compared to 25,549 as of December 31, 2003, a decrease of 8,859 policies, or 34.7%.
We stopped writing personal automobile policies in October 2004 upon the sale of our renewal rights to that line of business. Gross premiums written decreased by $1.4 million in our homeowners line in Indiana and Illinois, or Midwest homeowners line. This decrease was attributable to rate increases implemented in late
Year Ended December 31, 2005 as Compared to Year Ended December 31, 2004. Net premiums written for 2005 were $87.1 million as compared to $80.5 million in 2004, an increase of $6.6 million, or 8.2%. The increase in net premiums written resulted from an increase in gross premiums written, partially offset by a decrease in the percentage of premiums retained after cessions to reinsurers. Net premiums written as a percentage of gross premiums written were 77.7% in 2005 and 83.4% in 2004. The decrease in the percentage of net premiums written that we retained in 2005 as compared to 2004 was primarily attributable to the shift in the mix of business to personal property insurance policies in Florida which resulted in higher catastrophe reinsurance premiums. Also, catastrophe reinsurance rates increased on our commercial insurance lines as a result of the hurricane losses incurred by the reinsurers during 2004.
In addition to higher reinsurance rates in 2005 as compared to 2004, we also incurred additional reinsurance premiums, or reinstatement premiums, associated with recovering losses from our catastrophe reinsurers which were attributable to losses incurred from Hurricane Wilma which crossed over Florida in October 2005 and assessments from Citizens in 2005.
Our investment portfolio is generally highly liquid and consists substantially of readily marketable, investment-grade fixed-income securities. Net investment income is primarily comprised of interest earned on these securities, net of related investment expenses, and excludes realized gains and losses.
The increase in net investment income is attributable to a combination of an increase in average cash and invested assets which generated investment income and an increase in the investment yield. Average cash and invested assets for 2005 was $129.1 million as compared to $107.3 million for 2004. The increase in average cash and invested assets resulted primarily from the increase in gross premiums written and proceeds of the initial public offering in September 2005. Pre-tax yield on our portfolio increased to 3.1% in 2005 from 2.2% in 2004. This increase in pre-tax yield is primarily attributable to an increase in prevailing market interest rates. For example, the three-year U.S. Treasury notes increased to 3.9% in 2005 from 2.8% in 2004, which we believe reflects the trend in market interest rates for debt securities with durations similar to our cash and debt securities mix. As of December 31, 2005, we had $34.1 million of unrestricted cash and cash equivalents. We intend to invest a significant portion of those funds in 2006. The average duration of our cash and debt securities portfolio was 3.3 and 2.5 years as of December 31, 2005 and 2004, respectively. The increase in average duration of our cash and debt securities portfolio also contributed to the increase in the pre-tax yield.
Average cash and invested assets for 2004 was $107.3 million as compared to $96.5 million for 2003. The increase in average cash and invested assets resulted primarily from cash and invested assets purchased as part of the acquisition of North Pointe Casualty. The increase in net investment income generated by the increase in our average cash and invested assets was partially offset by a decrease in the pre-tax yield on our portfolio from 2.3% in 2003 to 2.2% in 2004. The decline in the yield was primarily attributable to a larger average cash position in 2004 as compared to 2003 due to the fact that North Pointe Casualty’s cash and investments consisted substantially of cash at the time of acquisition. In addition, due to uncertain cash demands as a result of hurricane losses and the investment portfolio manager transition during 2004, we did not invest the cash assumed as part of the North Pointe Casualty acquisition until late 2004. The decrease in our pre-tax yield as a result of our large cash position was partially offset by an increase in prevailing market interest rates. For example, the average yield on three-year U.S. Treasury notes increased to 2.8% in 2004 from 2.1% in 2003, which we believe reflects the trend in market interest rates for debt securities with durations similar to our cash and debt securities mix. The average duration of our cash and debt securities portfolio was 2.5 and 2.0 years as of December 31, 2004 and 2003, respectively. The increase in average duration of our cash and debt securities portfolio occurred primarily in the last quarter of 2004 when our debt securities investment manager began to invest much of the cash held by North Pointe Casualty.
Year Ended December 31, 2005 as Compared to Year Ended December 31, 2004. Realized losses, net of realized gains, on the disposition of investments for 2005 were $168,000 as compared to realized gains, net of
Year Ended December 31, 2004 as Compared to Year Ended December 31, 2003. Realized gains, net of realized losses, on the disposition of investments for 2004 were $886,000 as compared to $1.3 million for 2003, a decrease of $378,000, or 29.1%. The decrease in net realized gains was attributable to a decrease in the quantity of debt securities sold in 2004 as compared to 2003, as well as a stabilization in prevailing market interest rates, which reduced the amount of unrealized gains carried within our debt securities portfolio.
Fees and other income were substantially composed of policy issuance fees generated in our Florida homeowners line in 2005 and installment fees generated from our non-standard automobile insurance line in 2004 and earlier. Policy issuance fees are primarily derived from billings upon the issuance or renewal of the Florida homeowners policies and, to a lesser extent, on certain commercial policies. Installment fees were primarily derived from billings to non-standard automobile policyholders. Policy issuance fees, installment fees and other service fees are earned over the life of the policy and are reported within our administrative services segment. As described above under “Business,” we sold the renewal policy rights relating to our non-standard personal automobile insurance line in October 2004. Other income is generated from commissions earned for policies written by our wholly-owned MGAs for unrelated insurance companies, fees related to accident and health products, inspection fees charged on our personal homeowners and commercial policies, and premium finance charges.
Gains on sales of businesses of $4.3 million in 2004 were attributable to two nonrecurring sales: (1) the sale of the renewal rights relating to our personal automobile line for $4.0 million; and (2) the sale of the renewal rights to approximately 100 liquor liability insurance policies for $285,000.
Gains on sales of businesses of $200,000 in 2003 was attributable to the sale of Universal Fire & Casualty. Prior to the sale, all of the business of Universal Fire & Casualty was transferred to North Pointe Insurance including all unpaid losses and all other assets and liabilities except for $5.0 million of cash and investments. Universal Fire & Casualty was sold as an insurance company shell, including its cash, investments and licenses for $5.2 million which resulted in the $200,000 gain.
estimation of prior years’ reserves in the current year. Gross losses and loss adjustment expenses are those amounts before consideration of ceded losses. See “Business - Reinsurance.” Net losses and loss adjustment expenses are gross losses and loss adjustment expenses less ceded losses and loss adjustment expenses. We report our losses and loss adjustment expenses net of reinsurance.
The increase in the losses and loss adjustment expenses was primarily attributable to four hurricanes which struck Florida, Texas and the U.S. Gulf coast in 2005, further detailed in the commercial and personal lines segment discussions, below. Hurricane losses increased our 2005 loss ratio by 15.1 percentage points, from 35.7% to 50.8%. This is compared to an 8.4 percentage point increase in our 2004 loss ratio, from 44.0% to 52.4%, also attributable to hurricane losses.
The reserve development was primarily generated in our liability product lines which require greater estimations when establishing reserves than required with property product lines and require more years to fully develop. The favorable reserve adjustments were primarily attributable to lower actual loss development as compared to our originally estimated loss development factors.
The impact of the hurricane losses (including the effects of the reinstatement charges) and reserve development on our loss ratios for our commercial lines segment for the years ended December 31, 2005, 2004 and 2003 are provided as follows:
The loss ratio for our personal lines segment for 2005 was 62.5% as compared to 61.7% for 2004. The increase in our personal lines loss ratio was primarily attributable to hurricane losses in our Florida homeowners line partially offset by a decrease in non-catastrophe losses arising from the change in the mix of business as well as an increase in favorable reserve development. We experienced lower non-catastrophe losses in our Florida homeowners line, which we began writing in December 2004, as compared to our personal automobile line which we ceased writing in October 2004. For the year ended December 31, 2005, we incurred $7.0 million of net losses and loss adjustment expenses related to hurricane losses, as well as $1.3 million of catastrophe reinsurance reinstatement charges which we recorded as a reduction of net premiums earned. Hurricane losses increased our personal lines loss ratio from 30.9% to 62.5% in 2005. Our personal lines segment did not incur any losses due to hurricanes in 2004.
The favorable reserve adjustments in our personal lines segment were primarily attributable to our personal automobile line (currently in run-off) in which we experienced better than expected loss development in the liability coverages.
The loss ratio for our commercial lines segment for 2004 was 50.9% as compared to 39.6% for 2003. The increase in our loss ratio for 2004 as compared to 2003 was primarily attributable to losses incurred from four hurricanes which caused significant property damage in Florida during August and September of 2004. We incurred $6.2 million of net losses related to these hurricanes as well as $1.1 million of catastrophic reinsurance reinstatement charges which we recorded as a reduction of net premiums earned. The losses from the hurricanes increased our commercial lines segment loss ratio from 38.7% to 50.9%.
Our commercial lines loss ratio was reduced by 4.6 percentage points as a result of a $2.5 million favorable adjustment to the run-off reserves acquired from the North Pointe Casualty acquisition. Subsequent to the acquisition, we experienced favorable settlements of outstanding claims resulting in a $1.2 million redundancy on the reported reserves of claims closed during 2004, following the acquisition. As a result of the favorable development of the case reserves and due to further positive developments on open liability claims we also adjusted the incurred but not yet reported reserve, or IBNR, lower by $1.3 million. We believe the reserves established as of the date of acquisition were accurate based on the best information available at that time. Only through the course of new information and events following the acquisition did we believe it was appropriate to adjust the run-off reserves.
Other underwriting and operating expenses consist primarily of employee compensation and occupancy costs, such as rent and utilities. Other underwriting and operating expenses are largely fixed and do not vary directly with premium volume.
Year Ended December 31, 2004 as Compared to Year Ended December 31, 2003. Other underwriting and operating expenses for the year ended December 31, 2004 were $13.7 million as compared to $13.2 million for the year ended December 31, 2003, an increase of $571,000, or 4.3%. This increase was primarily attributable to additional expenses associated with our South Pointe operations, and increased employee expenses.
Year Ended December 31, 2004 as Compared to Year Ended December 31, 2003. Interest expense for 2004 was $763,000 as compared to $422,000 for 2003, an increase of $341,000, or 80.8%. The increase was primarily attributable to an increase in our outstanding senior debt for the purpose of financing the North Pointe Casualty acquisition, in February 2004, and the repurchase of the preferred shares and common shares held by our preferred shareholder, on June 30, 2004.
Our non-insurance companies provide management and administration services for our insurance company subsidiaries pursuant to intercompany service agreements. These services include providing management, marketing, offices and equipment, and premium collection, for which our insurance companies pay our non-insurance companies fees primarily based on a percentage of our gross premiums written. In exchange for providing these intercompany services, our non-insurance companies recorded revenues of $19.3 million, $10.9 million, and $10.0 million, for the years ended December 31, 2005, 2004 and 2003, respectively. Our non-insurance companies also derive nonaffiliated revenues from installment fees, commissions from nonaffiliated insurance carriers, premium financing and other income which totaled $1.9 million, $2.2 million, and $2.0 million for the years ended December 31, 2005, 2004, and 2003, respectively. There were no material non-cash components of our non-insurance company revenues. All of the agreements between our regulated insurance company subsidiaries and our non-insurance company subsidiaries have been approved by the applicable regulators.
Approximately $4.6 million, $3.9 million and $3.2 million of our net income for the years ended December 31, 2005, 2004 and 2003, respectively, was derived from our non-insurance companies which constitute our administrative services segment.
Net cash provided by operating activities for the year ended December 31, 2005 was $4.8 million as compared to $185,000 for 2004, an increase of $4.6 million. The increase in cash from operations was attributable to a combination of factors including an increase in premiums collected, net of premiums ceded, of $7.7 million, an increase in investment income of $1.5 million and a reduction in underwriting and operating expenses paid of $1.2 million. These increases in cash were partially offset by a $1.1 million decrease in the change in restricted cash, an increase in losses and loss adjustment expenses paid, net of reinsurance recovered, of $1.6 million, an increase in federal income taxes paid of $2.7 million and a $319,000 reduction in cash received from other income. Losses and loss adjustment expenses paid in 2005 and 2004 were significantly impacted by the Florida hurricanes, much of which was recoverable from reinsurers. Our reinsurance recovered on paid losses was $11.5 million and $8.2 million in 2005 and 2004, respectively.
Net cash provided by operating activities for the year ended December 31, 2004 was $185,000 as compared to $8.2 million for 2003, a decrease of $8.0 million. The decrease in cash from operations was attributable to a combination of factors including a decrease in cash due to an increase in losses and loss adjustment expenses paid of $13.5 million, an increase in other underwriting and operating expenses paid of $3.5 million, and an increase in federal income taxes paid of $1.0 million. The decrease in cash was partially offset by an increase in premiums collected, net of premiums ceded, of $9.2 million and an increase of cash of $814,000 from the reclassification of restricted cash to cash and cash equivalents associated with pending litigation that was resolved favorably. The increase in losses and loss adjustment expenses paid was primarily attributable to the Florida hurricanes, much of which was recoverable from reinsurers. For example, our reinsurance recoverables on paid losses increased by $6.8 million to $8.2 million as of December 31, 2004 from $1.4 million as of December 31, 2003.
Net cash provided by investing activities for the year ended December 31, 2004 was $4.1 million and was primarily attributable to a $3.3 million net increase in cash from the acquisition of North Pointe Casualty, a $4.3 million increase in cash from the sales of businesses offset by $2.8 million of net cash used in investment portfolio purchases in excess of investment portfolio sales.
Net cash provided by financing activities for the year ended December 31, 2004 was $4.7 million and was partially attributable to a $9.2 million increase in net cash provided from net borrowings, in order to finance the acquisition of North Pointe Casualty, which was partially offset by a $4.5 million repurchase of preferred and common shares held by our sole preferred shareholder.
Net cash used in financing activities for the year ended December 31, 2003 was $2.4 million and was principally attributable to a $1.5 million net pay down of our senior credit facility and a $930,000 cash redemption of shares of common stock pursuant to a tender offer.
We created Home Pointe Insurance in 2005 with the intention to transfer all of our Florida homeowners insurance business into it. Approximately 70% of the gross premiums written in our Florida homeowners insurance business is expected to be written in Home Pointe Insurance in 2006 and 100% in 2007. Home Pointe Insurance was initially capitalized with $7.5 million in 2005. We must maintain a minimum of
North Pointe Insurance’s gross premiums written to statutory capital and surplus ratios were 1.40-to-1 and 2.74-to-1 as of December 31, 2005 and 2004, respectively. North Pointe Casualty’s net premiums written to statutory capital and surplus ratios were 2.76-to-1 and 0.4-to-1, as of December 31, 2005 and 2004, respectively.
Risk Based Capital: The National Association of Insurance Commissioners, or NAIC, has adopted risk-based capital, or RBC, requirements that require insurance companies to calculate and report information under an RBC formula. The RBC formula attempts to measure statutory capital and surplus needs based on the risks in an insurance company’s mix of products and investment portfolio. The RBC formula is used by state insurance regulators to monitor trends in an insurance company’s statutory capital and surplus, for the purpose, if necessary, of initiating regulatory action. Our insurance companies, except for Midfield, are required to submit a report of their RBC levels to the insurance departments of their states of domicile as of the end of the previous calendar year.
As of December 31, 2005, all of our insurance companies had RBC levels in excess of an amount that would require any regulatory intervention. As of December 31, 2005, North Pointe Insurance, North Pointe Casualty and Home Pointe exceeded their risk-based capital requirements.
insurer’s surplus as of December 31 of the preceding year or (2) the net income of the insurer, not including realized capital gains, for the twelve-month period ending December 31 of the preceding year, in each case determined in accordance with statutory accounting practices. Dividends or distributions falling below this threshold are considered ordinary shareholder dividends. Ordinary shareholder dividends declared by our Michigan insurer must be reported to the Michigan insurance regulator at least ten days before they are paid, but these dividends are not subject to prior approval. Michigan’s insurance law would allow North Pointe Insurance to pay up to $6.6 million in ordinary dividends in 2006. Nonetheless, the Michigan insurance regulator retains the right to deny any dividend, extraordinary or otherwise. Accordingly, we typically obtain prior approval on all dividend distributions from North Pointe Insurance.
Under District of Columbia law, insurance companies can only dividend an amount which is deemed to be in excess of the amount required by the commissioner. There is not a specific formula defining an ordinary dividend versus an extraordinary dividend. Accordingly, all dividend payments must be approved by the District of Columbia Department of Insurance, Securities and Banking.
Senior Credit Facility. We are party to a $7.0 million revolving credit note (the “Facility”) with Comerica Bank, Fifth Third Bank and JPMorgan Chase Bank, N.A. which we originally entered into on January 26, 2002 and have subsequently amended on several occasions. Prior to the initial public offering, the credit facility also included a $17.0 million five-year term note. On September 28, 2005, we paid off all of the term note and revolving credit note utilizing $22.6 million of the net proceeds from our initial public offering. However, the revolving credit note remained available for future borrowings, maturing on July 1, 2006, and had an outstanding balance of $2.4 million as of December 31, 2005. We had $4.6 million available under the revolving credit note as of December 31, 2005. We paid down all of the outstanding senior debt in January 2006.
The credit facility provides various interest rate options, and the rate is currently based on the prime rate of Comerica Bank. This rate was 7.0% and 5.25% as of December 31, 2005 and December 31, 2004, respectively.
The credit facility required quarterly principal payments of $850,000 on the term note and quarterly interest payments on both the term note and the revolving credit note.
The credit facility requires that we comply with various financial and other covenants, including requirements that we maintain an A.M Best rating of no less than “B+” for each of our insurance company subsidiaries, that there shall be no more than four IRIS calculations that result in unusual values at each fiscal year end, and that we maintain the following financial ratios for each insurance company subsidiary:
adjusted capital and surplus in excess of 215% of authorized control level risk-based capital as of each fiscal year end; and
On February 22, 2006, we issued $20,000,000 of 30-year, mandatorily redeemable trust preferred securities (the “Trust Preferreds”) through a newly formed, wholly-owned subsidiary, NP Capital Trust I (the “Trust”).
The Trust Preferreds mature on March 15, 2036, but may be redeemed at our option beginning on March 15, 2011. The Trust Preferreds require quarterly distributions, at a fixed rate of 8.70% per annum for five years, and thereafter at a variable rate, reset quarterly, at the three-month LIBOR rate plus 3.64%. Distributions are cumulative and will accrue from the date of original issuance, but may be deferred for up to 20 consecutive quarterly periods.
The proceeds of the Trust Preferreds received by the Trust, along with proceeds of $620,000 paid by us to the Trust from the issuance of common securities by the Trust to us, were used to purchase $20,620,000 of our junior subordinated debt securities (the “Debt Securities”) under terms which mirror those of the Trust Preferreds.
The gross unpaid loss and loss adjustment expense payments were estimated based on historical payment patterns. However, future payments may be different than historical payment patterns. The commitment to purchase other investments is attributable to a limited partnership interest which may request further funding of up to $2.5 million any time through June 2010.
In May 2005, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standard (“SFAS”) No. 154, “Accounting Changes and Error Corrections, a replacement of Accounting Principles Board (“APB”) No. 20, Accounting Changes and FASB Statement No. 3.” This statement requires retrospective application in prior period financial statements for changes in accounting principles in both voluntary changes, as well as to changes required by an accounting pronouncement if the pronouncement does not include specific transition provisions. APB No. 20 previously required that most voluntary changes in accounting principles be recognized by recording the cumulative effect of a change in accounting principle. SFAS No. 154 is effective for fiscal years beginning after December 15, 2005. Management believes the adoption of SFAS No. 154 will not have a material effect on the Company’s consolidated financial statements.
The Financial Statements of North Pointe Holdings Corporation and the Report of Independent Registered Public Accounting Firm thereon are filed pursuant to this Item 8 and are included in this report at Item 15.
As a result of these factors, period-to-period comparison of our revenues and operating results may not be meaningful. You should not rely on these comparison as indicators of future performance. We cannot assure you that quarterly results will not fluctuate, causing a material adverse effect on our business, results of operations and financial condition.