to $7,209,573 for the 12 months ended December 31, 2002. Earned ceded premiums as a percentage of direct earned premiums were 31% and 18% for 2003 and 2002, respectively. The rate increase was primarily due to the Company's ceded loss experience and the hardening of the reinsurance marketplace.
Year ended December 31 ---------------------- 2004 2003 2002 ---- ---- ---- Loss ratio 68.8% 85.5% 98.1% Expense ratio 20.6% 21.4% 27.8% ---- ----- ----- Combined ratio 89.4% 106.9% 125.9% ==== ===== =====
Primarily as a result of the underwriting losses in 2000 and 2001, A.M. Best Company lowered Crusader's rating from A (Excellent) to A- (Excellent) effective March 26, 2002, based on financial information as of December 31, 2001. At the time the rating was lowered, A.M. Best remained concerned with the potential for further adverse loss reserve development and the negative impact it would have on the Company's operating performance and overall capitalization and viewed the rating outlook as negative. Due to the continued adverse development in the six months ended June 30, 2002, on October 3, 2002, A.M. Best Company lowered Crusader's rating to B+ (Very Good) and continued to view its rating outlook as negative. The lowering of Crusader's rating to B+ did not have a material adverse effect on the Company.
Amortized Gross Cost Fair Value Unrealized Loss ---- ---------- --------------- 0-6 months $26,470,295 $26,352,610 $117,685 7-12 months 56,073,912 55,573,734 500,178 Over 12 months 3,970,343 3,916,139 54,204 ---------- ---------- ------- Total $86,514,550 $85,842,483 $672,067 ========== ========== =======
At December 31, 2004, the Company held securities with unrealized appreciation of $1,242,024 and securities with unrealized depreciation of $672,067. Fixed maturity investments with a gross unrealized loss for a continuous period of 0 to 6 months consisted of U.S. treasury securities. Fixed maturity investments with a gross unrealized loss position for a continuous period of 7 to 12 months consists of U.S. treasury and U.S. government sponsored enterprise securities. Fixed maturity investments with a gross unrealized loss position exceeding a 12-month period consist of U.S. government sponsored enterprise securities and pre-refunded state and municipal bonds.
The Company monitors its investments closely. If an unrealized loss is determined to be other than temporary it is written off as a realized loss through the Consolidated Statements of Operations. The Company's methodology of assessing other-than-temporary impairments is based on security-specific analysis as of the balance sheet date and considers various factors including the length of time and the extent to which the fair value has been less than the cost, the financial condition and the near term prospects of the issuer, whether the debtor is current on its contractually obligated interest and principal payments, and the Company's intent to hold the investment for a period of time sufficient to allow the Company to recover its costs. The Company has concluded that the gross unrealized losses of $672,067 at December 31, 2004, were temporary in nature. However, facts and circumstances may change which could result in a decline in market value considered to be other than temporary.
The Company did not sell any fixed maturity investment in the years ended December 31, 2004 and 2003.
COMMISSIONS TO AGENTS/BROKERS (not including commissions on Crusader policies that are reflected in policy acquisition costs) are generally related to gross commission income from the health and life insurance program, the daily automobile rental insurance program, the earthquake program, and the commercial liability program. Commissions to agents and brokers decreased $526,232 (36%) for the year ended December 31, 2004, as compared to the year ended December 31, 2003. The decrease is primarily the result of a decrease in premiums written and the related decrease in the commission expense in the health and life insurance program.
Year ended December 31 ---------------------- 2004 2003 2002 ---- ---- ---- Commission to agents/brokers $934,452 $1,460,684 $1,219,310
In 2003, Unico made capital contributions totaling $3,000,000 to its Crusader subsidiary. The contributions were made to ensure that Crusade maintained its A.M. Best Financial Size Category VI rating, which requires capital of at least $25,000,000. The funding of Unico's capital contribution to Crusader was derived from available cash from the Company's other operations and the proceeds of two notes. On September 29, 2003, the Company borrowed $1,000,000 from Erwin Cheldin, a director and the Company's principal shareholder, president and chief executive officer, and $500,000 from The Cary and Danielle Cheldin Family Trust. Cary L. Cheldin is a director and the Company's executive vice president. As of December 31, 2004, the Company repaid the note from The Cary and Danielle Cheldin Family Trust in full and repaid $500,000 of the Erwin Cheldin note. On January 31, 2005, the Company repaid an additional $250,000 of the Erwin Cheldin note. The note from Erwin Cheldin is unsecured and it is payable upon demand of lender (on no less than fourteen days' notice) and, if no demand is made, then it is payable in full on September 28, 2007. The note may be prepaid at any time without penalty. The note bears an adjustable interest of 5.5% as of December 31, 2004. The interest is payable monthly and it is adjustable every third month by adding a margin of one percentage point to the prime rate.
Segment Reporting - ----------------- Statement of Financial Accounting Standards No. 131 (SFAS No. 131), Disclosures about Segments of an Enterprise and Related Information, became effective for fiscal years effective after December 15, 1997. SFAS No. 131 establishes standards for the way information about operating segments is reported in financial statements. The Company has identified its insurance company operation as its primary reporting segment. Revenues from this segment comprised 88% of consolidated revenues in the year ended December 31, 2004, 82% of consolidated revenues in the year ended December 31, 2003, and 84% for the year ended December 31, 2002. The Company's remaining operations constitute a variety of specialty insurance services, each with unique characteristics and individually insignificant to consolidated revenues.
policies. Commercial multiple peril policies provide a combination of property and liability coverage for businesses. Commercial property coverages insure against loss or damage to buildings, inventory and equipment from natural disasters, including hurricanes, windstorms, hail, water, explosions, severe winter weather and other events such as theft and vandalism, fires and storms and financial loss due to business interruption resulting from covered property damage. Commercial liability coverages insure against third party liability from accidents occurring on the insured's premises or arising out of its operations, such as injuries sustained from products sold or operation of the insured premises. In addition to commercial multiple peril policies, Crusader also writes separate policies to insure commercial property and commercial liability risks on a mono-line basis.