The following summary sets forth selected financial data with respect to AMIG Ltd. for the five fiscal years ended December 31, 2002. The balance sheet and income statement data have been derived from AMIG Ltd.'s consolidated financial statements which have been audited, for fiscal years through 1998 by Johnson Lambert & Co., AIIG's independent auditors and, for fiscal years 2002, 2001, 2000 and 1999 by Deloitte & Touche, AMIG Ltd.'s independent auditors. The data set forth below should be read in conjunction with the audited financial statements and notes thereto included elsewhere herein.
The following discussion presents the financial condition and results of operation for AMIG Ltd. combined with the financial condition and results of operation for its predecessor entity, AIIG, for the periods and as of the dates indicated.
Premiums earned increased by 5.9% in 2002 to $6,775,407 from $6,400,322 in 2001. Premiums earned for 2001 decreased by 2.2% from $6,544,342 reported in 2000. In 2002, 2001, and 2000 premiums earned includes $59,577, $0 and $0, respectively, resulting from reductions in the ultimate estimated premium ceded pursuant to retrocession agreements in effect during 1989 through mid-1993. Ultimate premiums are dependent on loss experience under the agreements and are reevaluated as ultimate losses are reevaluated.
The increase in earned premiums during 2002 is attributable to the fluctuation of the effective dates of policies written in the comparative period. Premiums written increased by 3.9% in 2002 to $6,998,378 from $6,738,231 in 2001. The increase in premiums written during 2002 is attributable to the continued growth of the AICPA Plan, primarily the result of rate increases associated with a "step plan" which was initiated during 1995. Under the step plan, insureds are offered discounted premium rates for favorable loss experience. However, as these insureds experience losses their premiums are "stepped up" accordingly. Because of the use of claims-made policies, as the number of years of coverage provided increases, CNA's (and AMIG Ltd.'s) exposure increases. This additional exposure results in an increase in premiums charged.
Net realized capital gains and losses decreased $1,991,607 in 2002 to $(1,005,185) from $986,422 in 2001. 2002 includes realized capital gains on sales of $513,702 less realized loss on other than temporary impairment of investments of $(1,518,887). Net realized capital gains and losses in 2001 increased by $1,155,241 from the $(168,819) reported in 2000.
Invested assets including cash equivalents increased by $485,637 or 1.0% to $49,426,851 in 2002 compared to $48,941,214 in 2001. 2001 invested assets increased by 2.2% from $47,888,738 in 2000. Investment yield including net realized capital
Unrealized gain on investments is $3,330,260 at December 31, 2002 as compared to $3,582,854 at December 31, 2001. AMIG Ltd. considers all of its investment portfolio to be available for sale and accordingly all investments are reported at market value, with changes in net unrealized gains and losses reflected as an adjustment to accumulated other comprehensive income.
The composition of the investment portfolio at December 31, 2002 and 2001 is as follows:
2002 2001 ---- ---- U.S. Treasury notes 0% 0% Mortgage backed securities and obligations of U.S. Government agencies 44 39 Corporate debt securities 7 4 Obligations of state and political subdivisions 18 21 Equity securities 31 36 ---- ---- 100% 100% ==== ====
AMIG Ltd. continues to invest in high-grade debt and equity securities.
Effective December 2, 1999, the date of redomestication to Bermuda, the Company ceased to pay corporate income taxes, which meant the Company's deferred tax asset
As of December 31, 2002, total invested assets amounted to $46,267,306, an increase of $181,873 or 0.4% from $46,085,433 at December 31, 2001. Cash balances increased from $2,855,781 at December 31, 2001 to $3,159,545 at December 31, 2002. The amount of cash and cash equivalents varies depending on the maturities of fixed term investments and on the level of funds invested in money market mutual funds. The ratio of cash and invested assets to total liabilities and stockholders' equity at December 31, 2002 was .95 to 1, compared to .93 to 1 at December 31, 2001.
Reinsurance recoveries represent AMIG Ltd.'s estimate of losses to be reimbursed by its reinsurer from future loss payments. AMIG Ltd. (through AMIC) entered into excess of loss retrocession agreements to limit its retained risk on any one claim underwritten by Coregis Group, Inc. (formerly Crum and Forster Managers Corporation), to $50,000 in 1989 and 1990 and $62,500 in 1991 through mid-1993, subject to specified maximum recoveries for each contract year. Retrocession premiums ceded by AMIG Ltd. are adjustable within a specified range based on actual experience under each contract. Amounts recoverable from the reinsurers pursuant to retrocession agreements have been estimated using actuarial assumptions consistent with those used in establishing the liability for unpaid losses and loss adjustment expenses.
Prepaid expenses and other assets amounted to $136,204 at December 31, 2002, an increase of 4.4% from 2001.
The Company paid its thirtieth consecutive quarterly dividend of $0.65 per share during the fourth quarter of 2002.
The anticipated effect of inflation is implicitly considered when estimating liabilities for losses and LAE. Future average severity is projected based on historical trends adjusted for anticipated changes in underwriting standards, policy provisions and general economic trends. These anticipated trends are monitored based on actual development and are modified as necessary.
In preparing ultimate loss and allocated loss adjustment expenses, the Company's actuary examined a variety of methods. The method most commonly relied up on was the Generalized Cape Cod Method, which was applied to the incurred, adjusted incurred and paid losses. The case reserving practices for the CNA business differ significantly from those of the Coregis business, therefore, the actuary performed a claims-adjusted incurred loss development method on the CNA data, which adjusted the reserves upward to reflect what would have been outstanding reserves at the level of the Coregis reserves. The actuary selected the Generalized Cape Cod Method applied to claims-adjusted incurred losses to determine ultimate loss estimates for CNA. The actuary also applied the standard paid and incurred loss development methods to the CNA data, however, these were not selected because of the belief that they are biased downward due to the CNA case reserving and claim closing practices.
The above table of losses reestimated has been prepared on a net basis - i.e., loss and loss adjustment expenses and reinsurance recoveries receivable have not been grossed-up, as required under FAS 113. The schedule has been prepared on a net basis due to the relative immateriality of reinsurance balances when considered in relation to total loss and loss adjustment expense reserves, and due to the cost/benefit of not providing such information.
The above table presents the development of balance sheet liabilities for 1992 through 2002 as of year-end 2002. The top line of the table shows the original recorded unpaid liability for losses and LAE recorded at the balance sheet date for each of the indicated years.
The lower section of the table shows the cumulative amount paid in respect of the previously recorded liability as of the end of each succeeding year. For example, the 1995 year end liability was originally $18,629,000. As of December 31, 2002, the Company had paid $7,324,000 of the currently estimated $7,542,000 of losses and LAE that had been incurred for 1995 and prior years through the end of 2002; thus an estimated $218,000 in losses incurred through 1995 remain unpaid as of the current financial statement date.
in the ultimate cost of settling claims which remain unresolved for a significant period of time; and (c) an increase in the Company's operating expenses. However, the Company generally holds its fixed maturity investments to maturity and currently believes that the yield is adequate to compensate the Company for the risk of inflation. In addition, any increase from inflation in the ultimate cost of settling unpaid claims will be offset by investment income earned during the period that the claim is outstanding. Finally, the increase in operating expenses resulting from inflation should generally be matched by similar inflationary increases in the premium rates.
On June 1, 2000, the Board of Directors of Investco, which holds almost all of the Company's investment portfolio, authorized Investco to spend up to $1,000,000 to purchase outstanding Common Shares of the Company. On September 8, 2000, the Bermuda Monetary Authority authorized the purchase of up to 15,000 Common Shares pursuant to the June 1 Board authorization. Such purchases are affected through privately negotiated transactions and are in addition to Investco's practice of purchasing the shares of individuals who have died or retired from the practice of public accounting. Subsequently, on July 19, 2002, the Bermuda Monetary Authority authorized blanket permission for Investco to purchase Common Shares from individuals who have died or retired from the practice of public accounting and on a negotiated case-by-case basis without limit. To date, Investco has purchased 15,075 Common Shares for a purchase price of $474,326. In addition, to date Investco has purchased 11,809 Common Shares from individuals who have died or retired for a purchase price of $521,521.