felanders/preprocessed huggingface dataset:
The following table presents the amortized cost and gross unrealized losses for fixed maturities and common stock where the estimated fair value had declined and remained below amortized cost at December 31, 2008:
Comparison of Fiscal Year 2008 to Fiscal Year 2007 and Fiscal Year 2007 to Fiscal Year 2006.
The Corporation is an insurance holding company and its primary uses of cash are debt service obligations, operating expenses and dividend payments. The Corporation’s principal sources of cash are sales of and interest on the Corporation’s investments, rent from its real estate and dividends from the Insurance Company. In 2007, the Corporation’s Board of Directors increased the quarterly dividend rate to $.125 per share from $.10 per share in 2006. In 2008, due to the uncertain economic climate, the Board of Directors reduced the quarterly dividend by 50% to $.0625 per share as a prudent measure to preserve capital. During 2008 and 2007, the Corporation did not repurchase any of its common stock, although at December 31, 2008, the Corporation was authorized to purchase approximately 385,000 shares of common stock.
Senior Notes Payable consist of $66.5 million, 7 7/8% senior notes due February 15, 2009. See Note 3 in Notes to the Unaudited Condensed Consolidated Financial Statements for additional discussion concerning both long-term and short-term obligations.
For policies and contracts where the reserve is reported as the account balance ($2,429.6 million), a change in expected experience would have no effect on the reserve.
From our inception through July 2006, we raised approximately $6.5 million through the sale of shares of voting common stock in several private placements. We raised approximately $11.0 million through an intrastate public offering of voting common stock in the State of Nebraska.
In connection with the acquisition of Capital Reserve, American Life also coinsured a block of life insurance business from Capital Reserve’s parent corporation in a separate transaction. The purchase price for this block of business was approximately $375,000. This transaction added more than $70,000 in annual revenues to American Life’s operations, as well as approximately $3.5 million of new assets and $3.2 million of policy liabilities to our balance sheet.
Based upon our fiscal 2011 qualitative impairment analysis, prepared in accordance with ASU 2011-08, we concluded that there was no requirement to do a quantitative annual goodwill impairment test. The key qualitative factors that led to our conclusion were i) that our calculation of goodwill recorded as part of the Old Reliance acquisition was performed as of August 3, 2011, which occurred only five months prior to our qualitative impairment analysis; ii) general positive trends in the macroeconomic environment and life insurance industry; iii) synergies arising from the integration of the entities resulting in lower costs of operations; and iv) subsequent to the date of the acquisition, the Company's operations have performed at or above our expectations.
Expenses for the years ended December 31, 2011 and 2010 are summarized in the table below.
Gallagher’s executive offices and certain subsidiary and branch facilities are located at Two Pierce Place, Itasca, Illinois, where Gallagher leases approximately 306,000 square feet of space, or approximately 60% of the building. The lease commitment on this property expires on February 28, 2018.
Gallagher’s Consolidated Financial Statements, the related notes thereto and the Report of Independent Registered Public Accounting Firm on Financial Statements are included in Gallagher’s 2007 Financial Statements and are incorporated herein by reference.
The Company's principal source of funds consists primarily of premiums and annuity deposits and collections of principal and income from the investment portfolio. The Company generates substantial positive cash flows from operating activities. The major use of these funds are policyholder claims and benefits, contract maturities, surrenders and other operating costs.
Financial futures contracts are commitments to either purchase or sell designated financial instruments at a future date for a specified price or yield. They may be settled in cash or through delivery. As part of its asset/liability management, the Company generally utilizes futures contracts to hedge its interest rate risk related to anticipatory investment purchases. Hedges of anticipatory transactions pertain to identified transactions which are probable to occur and are generally completed within ninety days. Futures contracts have limited off-balance-sheet credit exposure as they are executed on organized exchanges and require security deposits, as well as the daily cash settlement of margins.
APSL leases office space in Lisle, Illinois under a non-cancellable lease agreement. The lease is renewable at the option of the lessee under certain conditions. Minimum lease payments, subsequent to December 31, 2012, are as follows:
Expenses,” the amount that we have reserved is based on actuarial estimates which were prepared as of December 31, 2012. Based on data received from the ceding companies (the insurance companies whose policies we reinsure) our independent actuary produces a range of estimates with a “low,” “central” and “high” estimate of the loss and loss adjustment expenses. As of December 31, 2012, the range of actuarially determined liability for loss and loss adjustment expense reserves was as follows: the low estimate was $1.2 million, the high estimate was $1.6 million, and the central estimate was $1.4 million. We selected reserves of $1,408,190 as of December 31, 2012, which approximates the central estimate of our independent actuary. Due to our concerns about the severity and volatility of the type of business we reinsure and the length of time that it takes for claims to be reported and ultimately settled, our management’s policy has been to reserve conservatively, slightly above the actuarial central estimate.
dividends issued prior to 2007 to shareholders that we have been unable to locate. During 2011, the total dividend amount was reduced by $39,513, which represents a write back of uncashed dividends issued prior to 2006 to shareholders that we were unable to locate. Since AmerInst began paying consecutive dividends in 1995, our original shareholders have received approximately $19.37 in cumulative dividends per share, which when measured by a total rate of return calculation has resulted in an effective annual rate of return of approximately 9.38% from the inception of the Company, based on a per share purchase price of $8.33 paid by the original shareholders, and using a book value of $32.46 per share as of December 31, 2012.
The “cumulative redundancy (deficiency)” represents the aggregate change in the estimates over all prior years. For example, the 2005 liability has developed a $15,103,000 redundancy which has been reflected in income in subsequent years as the reserves were re-estimated.
Operating and management expenses include compensation paid to members of the Board of Directors and various committees of the Board totaling $525,317 in 2012 and $466,247 in 2011.
The Company intends to redeploy the capital now required by the commercial lines business, once it becomes available, to pursue other opportunities in the future that offer a better prospect for profitability. The Company believes that suitable capital redeployment opportunities should be available after commercial lines capital becomes available, but cannot predict the amount of capital that will ultimately be available for redeployment, the timing or the nature of the opportunities that may be available at the time capital becomes available. See "Liquidity and Capital Resources". The opportunities may be outside of the insurance business and could be in the financial services business.
Net investment income decreased 43% in 2001 from 2000 after an increase of 45% in 2000 from 1999. Effective December 31, 2000, the Company entered into a reserve reinsurance cover agreement with a non-affiliated reinsurer. This agreement required the Company to maintain a funds held liability and to increase this liability at an annual interest rate of 7.5%. This resulted in a charge to investment income of $3,650,417 during 2001. During 2000, approximately $80.5 million in bond securities were sold for a pre-tax loss of $1,906,911 and a large portion of the proceeds were reinvested in bond securities with an average taxable equivalent yield of more than 150 basis points over the bond securities that were sold. The increase in investments and the increase in yield on the proceeds reinvested from the sales of bonds account for the increase in investment income in 2000.
Unpaid claims and claim adjustment expenses increased primarily as a result of higher levels of case reserves on known claims and higher levels of bulk reserves to cover future development. The Company considers the reserves to be adequate and has the confidence of an independent actuarial valuation of the unpaid claims and claim adjustment expense reserves which supports the Company's conclusion.
The following consolidated Financial Statements are on pages 43 through 81
In our MGA operations, we receive managing general agent fees for agency, underwriting, policy administration, and claims adjusting services performed on behalf of insurers. We also receive commission and service fee income in TrustWay on other insurance products produced for unaffiliated insurance companies on which we do not bear underwriting risk. These products include travel protection, vehicle protection and hospital indemnity insurance policies. Commission rates vary between carriers and are applied to premiums written to determine commission income.
Insurance losses and loss adjustment expenses include payments made to settle claims, estimates for future claim payments and changes in those estimates for current and prior periods, as well as loss adjustment expenses incurred in connection with settling claims. Insurance losses and loss adjustment expenses are influenced by many factors, such as claims frequency and severity trends, the impact of changes in estimates for prior accident
The provision for income taxes for the year ended December 31, 2010 was $1.0 million, and consists of federal and state income taxes at an effective rate of 53.8%. The Company had a tax expense of $0.4 million for the period ended December 31, 2009, representing an effective tax rate of 50%. The effective tax rate increase in 2010 is mainly due to the impact of the permanent differences for goodwill and stock options in 2010.
Certain litigation expenses may be recovered from Chandler Insurance's directors and officers liability insurer ("D&O Insurer"). As a result of various events in 1995, Chandler Barbados and Chandler USA recorded $654,000 and $164,000, respectively, estimated recoveries of costs from the D&O Insurer related to a $1 million claim for reimbursable amounts previously paid that relate to allowable defense and litigation costs for such parties. In 1996, Chandler Barbados and Chandler USA recorded additional estimated recoveries of $102,000 and $880,000, respectively. Chandler Barbados and Chandler USA received payments for the 1995 claim during 1996 in the amount of $636,000 and $159,000, respectively. In connection with the Oklahoma Court judgments, Chandler Barbados recorded an additional estimated recovery of $2.7 million from the D&O Insurer. Chandler Insurance and its subsidiaries are entitled to a total of $5 million under the applicable insurance policy to the extent they have advanced reimbursable expenses. Some amounts have been previously paid without dispute and Chandler Insurance is negotiating with the D&O Insurer for payment of the policy balance. Chandler Insurance and its subsidiaries could recover the remaining policy limits or could compromise their claim, and could incur significant costs in settling this matter.
During 1998, Chandler USA used $10.3 million in cash from operations due primarily to the purchase of additional reinsurance described previously. During 1999 and 2000, Chandler USA provided $5.2 million and $10.7 million, respectively, in cash from operations.
With respect to Trenwick America Corporation's investment portfolio, the risk management strategy is to place its investments with high credit quality issuers and to limit the amount of credit exposure with respect to particular ratings categories and any one issuer. Trenwick America Corporation selects investments with characteristics such as duration, yield, currency and liquidity to reflect the underlying characteristics of related estimated claim liabilities.
The facts set forth above should be considered in connection with any forward-looking statement contained in this Annual Report on Form 10-K. The important factors that could affect such forward-looking statements are subject to change, and Trenwick America Corporation does not intend to update any forward-looking statement or the foregoing list of important factors. By this cautionary note Trenwick America Corporation intends to avail itself of the safe harbor from liability with respect of forward-looking statements provided by Section 27A and Section 21E referred to above.
See "Results of Operations" for discussion of the impact of DAC amortization on our results of our life and annuities products, including decreased amortization recorded in 2003 and increased amortization in 2002 reflecting higher estimates of future gross profits in 2003 and lower estimates of future gross profits in 2002.
(b) Supplementary Data Selected quarterly financial data, included in the Annual Report of the Registrant to its shareholders on page 29 for the year ended December 31, 2000, is incorporated herein by reference (see Exhibit 13 to this filing).
Throughout the year ended December 31, 2019, the Company continued its marketing and sales efforts with respect to agreements and relationships established during the first three quarters of 2019. It focused on establishing additional relationships within its existing market (referrals from occupational healthcare clinics) and establishing a foothold in other markets, such as national labor unions and third-party payor accounts.
OSA services decreased to $300,098 in 2019 from $524,172 in 2018. The Company's sales in 2019 decreased from 2018 while the Company worked on new contracts that will take effect in 2020
We estimate the risk-free interest rate by reference to the interest rate for a U.S. Treasury constant maturity security with the same estimated term as the stock-based award being issued.
which, following enactment at the state level, will require a large insurer beginning in 2015 to at least annually assess the adequacy of its and its group’s risk management and current and future solvency position.
In addition to the impact of mortality experience relative to our assumptions, other factors may also drive variability in amortization expense, particularly during the third quarter when assumption updates are performed. As noted above, however, the impact on our results of operations of changes in these assumptions can be offsetting and we are unable to predict their movement or offsetting impact over time. In the third quarter of 2013, updates to lapse rate and utilization rate assumptions drove the most significant changes to amortization expense. See “Results of Operations” for a discussion of the impact of DAC and DSI amortization.
The reserves for certain optional living benefit features, including guaranteed minimum accumulation benefits (“GMAB”), guaranteed minimum withdrawal benefits (“GMWB”) and guaranteed minimum income and withdrawal benefits (“GMIWB”), are accounted for as embedded derivatives, with fair values calculated as the present value of future expected benefit payments to customers less the present value of assessed rider fees attributable to the embedded derivative feature. This methodology could result in either a liability or contra-liability balance, given changing capital
1 Loss ratio, net is losses and loss adjustment expenses relative to net premiums earned.
Our gross underlying loss ratio increased to 28.8% for the year ended December 31, 2013, which was up 4.9 points from 23.9% for the year ended December 31, 2012. The increase in our gross underlying loss ratio was primarily due to an approximate 12% increase in the frequency of water related losses over the same period in 2012.
As indicated above, our case loss & LAE and IBNR reserves by accident year (AY) excluding catastrophes are $26,183,000 and $16,593,000, respectively, and a reconciliation of these reserves to our total reserves is as follows:
During the year ended December 31, 2013, our operations generated cash of $107,766,000, compared to generating $34,312,000 of cash during the same period in 2012. The $73,454,000 increase in operating cash was primarily driven by increased premium collections of $102,267,000 due to the increased writings we experienced during 2013 compared to the same period in 2012 and by the $51,578,000 of assumed premiums received from Citizens Property Insurance Corporation for the assumption of over 33,000 policies during 2013. The increase in cash inflows described above was partially offset by increased claims payments, reinsurance payments, agent commission payments, tax payments and increased operating expense payments. Claim payments increased approximately $33,124,000 primarily due to the increase in exposures and payments on claims from current and prior accident years. Reinsurance payments increased approximately $30,342,000 because we purchased more reinsurance coverage under our 2013-2014 contracts than we purchased under our 2012-2013 contracts. Agent commission payments, operating expense payments and income tax payments increased $11,450,000, $1,962,000 and $3,114,000, respectively, due to the overall growth in the business during 2013 compared to the same period in 2012.
The following table details the difference between cost or adjusted/amortized cost and estimated fair value, by major investment category, at December 31, 2013 and 2012:
See Note 17 for additional information on the stock grants related to dilutive securities.
repay principal and interest on the surplus note. Any payment of principal or interest requires permission from the insurance regulatory authority.
Effective August 29, 2011, we entered into a Management Services Agreement (MSA) with 1347 Advisors, LLC, a wholly-owned subsidiary of Kingsway Financial Services, Inc., a property and casualty insurance company. During the term of the agreement, one of our former directors, Mr. Swets, served as the President and Chief Executive Officer of Kingsway, and served as a Managing Director of 1347 Advisors. The MSA, which was effective for a six-month period with automatic three-month extensions unless otherwise terminated, stipulated that 1347 Advisors shall provide us with the services of an interim
On October 1, 2012, Brad Martz began serving as our Chief Financial Officer and we awarded him 3,900 shares of restricted common stock in connection with his employment with our Company.
The Company's home office property consists of two connected office buildings totaling 840,000 square feet at 1 Fountain Square, Chattanooga, Tennessee. The office buildings and substantially all of the surrounding 25 acres of land, used primarily as parking lots, are owned by Provident in fee. Provident also leases office space and minor storage space at approximately 66 locations in 32 states and 3 Canadian provinces for its sales and service force. Provident's real property lease payments for 1996 were approximately $3.6 million (net of rents received on subleased property).
NET INVESTMENT INCOME. Net investment income decreased $24.9 million, or 41.0%, to $35.9 million in 2003 from $60.8 million in 2002. The decrease was primarily attributable to the combined effects of lower market yields, a decrease in average invested assets resulting mainly from claims payments and a corresponding increase in average short-duration investments held during 2003. Because the Company's insurance subsidiary was in solvent runoff, the Company modified its investment portfolio to: (1) manage an expected increase in accelerated claims and a lower invested asset base and (2) improve the overall average credit quality of the portfolio. This modification involved selling the portfolio's longer duration securities, opportunistically selling below investment grade holdings and using the proceeds, over time, to acquire shorter duration, high quality securities. Accordingly, the Company experienced losses over time mainly concentrated in the sale of its below investment-grade securities.
other non-insurance business activity, offset by increases of $1.5 million associated with management services and $2.5 million in renewal rights revenue from MIIX Advantage.
Funds held charges are calculated based upon the beginning of quarter funds held balances and are adjusted based upon changes to ceded premiums associated with changes in ceded losses.
Premiums and fees are determined both by competition and by state regulation. Operating revenues from direct title operations are recognized at the time real estate transactions close, which is generally 60 to 90 days after the opening of a title order. Operating revenues from agents are recognized when the issuance of a policy is reported to the Company by an agent. Although agents generally report the issuance of policies on a monthly basis, heightened levels of real estate activity may slow this reporting process. This typically results in delays averaging 90 days from the closing of real estate transactions until the recognition of revenues from agents. As a result, there can be a significant lag between changes in general real estate activity and their impact on the Company's revenues.
Selected consolidated financial data for the five years ended December 31, 1997 is incorporated herein by reference to the data captioned "Financial Highlights" on page 1 of Unitrin's 1997 Annual Report, which data are filed as Exhibit 13.3 hereto.
Information called for by this item is omitted pursuant to General Instruction J. of Form 10-K.
The Company believes based on the Potential Frontier Deal progress, the generally positive relationship the Company has with Frontier and the profitability of the business the Company produces for Frontier, that the current relationships or alternative arrangements equally
borne by TCO. The Company anticipates an increase in other expenses during 1998 as a consequence of incurring operating expenses for WESTCAP and Claims Control following their acquisitions effective October 1, 1997. This increase could be potentially offset in part by settlement of the 311 South Wacker, Chicago, Illinois office lease which could result in reduced rent expense.
Net loss and loss adjustment expense incurred during 1996 totaled $12.7 million, down 19.0% from $15.7 million in 1995. Net loss and loss adjustment expense as a portion of net premiums earned was 60.4% in 1996 compared to 40.0% in 1995. The decrease in net loss and loss adjustment expense incurred between the periods resulted principally from the decrease in net premiums earned. The decrease was relatively smaller than the decrease in net premiums earned between the periods, however, because of the approximately $14.9 million reduction in loss and loss adjustment expense reserves at the end of 1995, which included reductions relating to net premiums earned in prior years.
The 2000 Consolidated Financial Statements, together with the Notes thereto and the Independent Auditors' Report thereon, are set forth on pages 34 through 54 of the Company's 2000 Annual Report to Stockholders. Such information is incorporated herein by reference.
Fire, Marine, Accident and Burglary Bepä. : Premium Reserve from 1905 4,646,964 —
We had consolidated shareholders’ equity of $3.3 billion, with a book value per share of $31.62.
Gross written premium, net written premium and net earned premium are detailed below by segment.
Loss and loss adjustment expense increased 15% in 2011 and had minimal change from 2009 to 2010. The 2011 increase was driven by $103.9 million of catastrophe losses, primarily in the International segment, and the $37.3 million increase of reserves for our DFP line of business in the Professional Liability segment, noted above. We experienced a corresponding increase in our consolidated accident year net loss ratio in 2011. See the “Segment Operations” section below for additional discussion of the changes in our loss and loss adjustment expense, development and net loss ratios for each segment.
Other operating expense, of which approximately 65% relates to compensation and benefits of our 1,874 employees, increased 5% in 2011 and decreased 1% in 2010. The 2011 increase was primarily due to higher compensation and benefits and information technology expense. In 2009, we sold our U.K. reinsurance broker and our commercial marine agency business, which reduced our other operating expense in 2010. Our other operating expense included $3.0 million in 2010 and $9.9 million in 2009 of direct costs related to terminating the derivative contract and reinsurance contract, respectively, discussed above. We recognized a foreign currency benefit of $1.1 million in 2011, compared to expense of $1.6 million in 2010 and a benefit of $0.6 million in 2009.
The Accident & Health segment pretax earnings increased 12% in 2011 and 1% in 2010. These increases directly related to higher net earned premium in our medical stop-loss product line due to writing new business.
The International segment pretax earnings decreased 94% in 2011, compared to 2010, due to larger catastrophe losses and a lower amount of favorable loss development in 2011. Segment earnings decreased 15% in 2010, compared to 2009, due to catastrophe losses and higher favorable loss development in 2009, partially offset by underwriting profit on our new property treaty business.
Net Investment Results-Investment results include investment income and realized gains on the sale of investments. Investment results in 1999 decreased 40.0% to $11.4 million from $19.0 million in 1998. Investment results in 1998 increased 14.4% from $22.2 million in 1997. Average annual investment yields, excluding net realized gains, were 5.8%, 5.5% and 5.8% for 1999, 1998 and 1997, respectively. The decrease in investment results during 1999 is the result of fewer invested assets. Fewer invested assets resulted from the Company liquidating a portion of the bond portfolio (which were primarily in unrealized loss positions) to generate cash to fund operations.
After giving effect to all administrative expense allocations between the Company and BCBSUW, the pension credit was $1,127,000, $622,000 and $945,000 in 1999, 1998 and 1997, respectively.
The Company owns two buildings in Cedar Rapids, Iowa, which it occupies as its home office. One building is a five-story building occupied entirely by the Company. The other is an eight-story office building in which the first floor is leased to tenants. The Company occupies the second through eighth floors of this building. The two buildings are connected with a skywalk.
Incorporated herein by reference to the information included in the "SELECTED FINANCIAL DATA" section of the 2000 annual report to stockholders.
Service fee income decreased approximately $1.1 million, or 14%, in 1996 primarily as a result of a depopulation in the assigned risk pools, and to a lesser extent, the non-renewal of certain service contracts with other insurance carriers. In 1995, an increase of approximately $2.7
Increased commissions, fronting and taxes expense in 1996 versus 1995 was primarily attributable to writing a larger proportion of surety and personal lines business and a lower proportion of commercial casualty business in 1996. The commission rates for surety and personal lines business are significantly higher than commission rates for commercial casualty business. The principal causes for the increased ceding commission income in 1996 were increased ceding commissions of approximately $4,000,000 resulting from the new commercial casualty quota share treaty purchased on December 31, 1996. This was partially offset by the loss of ceding commissions of approximately $750,000 from the low-value dwelling program quota share treaty due to the poor claims experience as the result of Hurricane Fran in 1996.
The following table includes the complete loss development history of the direct gross loss and loss adjustment expense or LAE reserves of Potomac Insurance Company of Illinois, or Potomac. Effective January 1, 2004, Potomac entered into a transfer and assumption agreement with its parent company, OneBeacon, which reinsured all its direct liabilities to OneBeacon. Therefore, effective January 1, 2004, Potomac had no net liabilities for unpaid Losses and LAE. On November 23, 2004, we purchased Potomac and subsequently received approval from the Illinois Department of Insurance to rename the company SUA Insurance Company. SUA Insurance Company remains liable for the Loss and LAE reserves generated from its predecessor’s (Potomac’s) direct business should OneBeacon be unable to honor its reinsurance obligation in the future.
Insurers are required to maintain certain minimum levels of capital and risk-based capital, the calculation of which includes numerous factors as specified by the respective insurance regulatory authorities and the related insurance regulations. We have capitalized our insurance operations in excess of the minimum regulatory requirements so that we may maintain adequate financial ratings. Higher financial ratings would enable us to write more business. Maintaining adequate capital consistent with business objectives is critical to any insurer’s future, and particularly important to start-up companies such as ours. We believe that our current level of capital is sufficient, but would need to be augmented to further expand our business strategy, enter new business lines, and manage our expected growth or to deal with higher than expected expenses or poorer than expected results. We are presently looking at a variety of financing alternatives including the potential issuance of a trust preferred security that would provide capital for future growth.
Board of Directors: Ch. Simon, Chairman. C. Abegg-Stockar, Depuly-Chairman, E. HUriimann, Managing Director. Hans Sulzer E. Welti Felix Calonder Louis Dapples
Third Party Liability business, in which motor car insurance is the preponde­ rating element, would seem to have taken a turn for the better. Signs of an improvement were already apparent in the previous year, but we are not yet sure whether they
Life DepL. Premiums for Retrocession Commission and Expenses, less Retrocession Surrenders, less Retrocession Losses paid, less Retrocession . ..... . . Annuities paid, less Retrocession Premium Reserve, less Retrocession . Annuity Fund, less Retrocession Reserve for unsettled Claims, less Retrocession Expenses of Management Taxes . . Depreciation of investments ..... ......... Balance
The Company's actual results could differ materially from its historical results or from any forward- looking statements made or incorporated into this Annual Report. Factors that may cause such differences include: the Company's ability to successfully complete new acquisitions and integrate acquired companies; the Company's ability to successfully expand its business to include the management of dental practices; the Company's ability to attract and retain qualified
Refer to pages 29 through 55, the Consolidated Financial Statements, page 56, "Independent Auditors' Report," and page 17, "Quarterly Financial Information," of Trigon Healthcare Inc.'s 1999 Annual Report to Shareholders, which are incorporated herein by reference.
American Country and Financial Services experienced non-recurring costs related to the Acquisition of approximately $1 million in late 1996 and the first nine months of 1997 which did not impact future operations. Subsequent to the Acquisition in July, 1997, American Country no longer pays annual management fees and administrative fees in excess of $1 million. Since the Acquisition, American Country has been repositioning and refocusing its strategic philosophy to expand its transportation and restaurant and hospitality products, eliminate its personal lines business (which had an underwriting loss of $1.7 million for 1997), implement plans to improve operating efficiencies and reduce the costs of managing its business. At the end of 1997, American Country decided not to market any personal lines business and not to accept any new personal lines business from independent agents. As a result of these efforts, American
At December 31, 1999 and 1998, the Company's fixed asset maturity securities included mortgage-backed bonds of $35.4 million and $25.7 million, respectively, which are subject to risks associated with variable prepayments of the underlying mortgage loans. Prepayments can cause those securities to have different actual maturities than that expected at the time of purchase. Securities that have an amortized cost greater than par that are backed by mortgages that prepay faster than expected will incur a reduction in yield or loss, while securities that have an amortized cost less than par that are backed by mortgages that prepay faster than expected will generate an increase in gain or yield. The degree to which a security is susceptible to either gains or losses is influenced by the difference between its amortized cost and par, the relative sensitivity of the underlying mortgages backing the assets to prepayments in a changing interest rate environment and the repayment priority of the securities in the overall securitization structure.
Net written premiums increased 5% in 1995 due primarily to increased writing of workers' compensation and commercial umbrella insurance. The profitability of both of these lines improved in 1995. These profitable results were offset by unfavorable results in the personal lines operations from weather-related losses, start-up costs related to a direct-to-consumer operation and deteriorating automobile loss experience.
(Loss) income from continuing operations and net income (loss) include realized investment (losses) gains, net of federal income tax (benefit) expense, as follows:
(11) Return on average shareholders' equity is calculated by dividing operating earnings by average shareholders' equity, as determined as of the beginning and end of each year. Return on average shareholders' equity for 2001 excluding losses related to the reserve strengthening is 13.1%.
Premium and Fee Income. Premium and fee income in 2000 was $466.4 million as compared to $485.3 million in 1999. Premiums from core group employee benefit products increased 12% to $400.4 million in 2000 from $357.5 million in 1999. This increase reflects strong production of new business and normal growth in employment and salary levels for the Company's existing customer base. Core group employee benefit products include group life, disability, excess and large deductible workers' compensation, travel accident and dental insurance and self-insurance workers' compensation bonds.
Benefits and Expenses. Policyholder benefits and expenses were $493.6 million in 2000 as compared to $521.2 million in 1999. This decrease primarily reflects the decrease in premiums from the Company's non-core group employee benefit products discussed above. The combined ratio (loss ratio plus expense ratio) for the Company's group employee benefits segment decreased from 95.2% in 1999 to 92.3% in 2000. This decrease was primarily attributable to changes in the Company's product mix. Benefits and interest credited on asset accumulation products increased by $6.6 million in 2000, principally due to an increase in average funds under management from $622.9 million in 1999 to $674.5 million in 2000. Also contributing to this increase was an increase in the weighted average annual crediting rate on asset accumulation products from 5.3% in 1999 to 5.7% in 2000.
Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP). Preparation of these financial statements requires us to make estimates and assumptions in certain circumstances that affect the amounts reported in our consolidated financial statements and related footnotes. We evaluate these estimates and assumptions on an on-going basis based on historical developments, market conditions, industry trends and other information that 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 affected by the need to make accounting adjustments reflecting changes in these estimates and assumptions. Management considers an accounting policy to be critical if it involves significant judgment by management and if the effect of those judgments could result in a material effect on the financial statements.
We believe the following critical accounting policies used in the preparation of the consolidated financial statements are the most sensitive to estimates and judgments.
We consider our fixed maturity securities as available-for-sale and our equity securities as either available-for-sale or trading portfolio securities. Both available-for-sale and trading portfolio securities are carried at fair value. Positive and negative changes in the market value (unrealized gains and losses) of available-for-sale securities are included, net of the related tax effect, in accumulated comprehensive income, a component of stockholders' equity, and are excluded from current period net income. Positive and negative changes in the market value of trading portfolio securities are included in current period net income as a component of net realized investment gains (losses).
NET INVESTMENT INCOME decreased $590,000 from 1997 to 1998 and $552,000 from 1996 to 1997. Although total invested assets has increased over the same time period, the fixed maturity component of invested assets has decreased due to the Company's efforts to maximize total return and diversify the portfolio as referred to earlier under the Liquidity and Capital Resources section. Since it is the largest contributor to the Company's investment income, the decrease in fixed maturity investments decreased investment income. Yields on fixed maturity investments also declined over the same time period further contributing to the decrease in investment income.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Midwest Medical Insurance Holding Company and Subsidiaries at December 31, 1998 and 1997, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. 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 herein.
The Company manages its investment portfolio to achieve its long-term investment objective of providing for the financial stability of the Company through preservation of assets and maximization of total portfolio return. Although management believes the Company has the ability to hold its fixed maturity investment portfolio to maturity, these investments are classified as "available for sale" as management may take advantage of opportunities to increase total return through sales of selected securities in response to changing market conditions.
MMIC has a retro premium program whereby physicians may receive credits against future premiums based upon loss experience of MMIC. Amounts to be returned under the program are accrued when approved by the Board of Directors and reflected as a reduction in net premiums earned.
Following is the detail of changes in redeemable stock for each of the three years in the period ended December 31, 1998 (in thousands, except for share and per share amounts):
The Company pays U.S. federal and state income taxes based on laws in the jurisdictions in which it operates. The effective tax rates reflected in the income statement for 2001, 2000 and 1999 differ from the U.S. federal statutory rate principally due to non-taxable interest, dividend deductions, travel and entertainment and company-owned life insurance.
The Company owns real property for investment purposes as provided in Schedule I “Summary of Investments other than Investments in Related Parties.” This investment property, located in Allentown, Pennsylvania, is leased to EIC and a nonaffiliated business. Rental income for 2002 was $396,000. The executive and administrative offices of the Company are located in the headquarters office of Erie Insurance Group in Erie, Pennsylvania. The Company pays other members of the Erie Insurance Group an amount determined by an agreement for office space and for the use of facilities, equipment and services.
Initial license revenues for 1997 increased $18.0 million compared to 1996 with the following increases by business segment: property and casualty up 18.0% ($3.8 million); life and financial solutions up 34.2% ($5.1 million); and international up 55.1% ($9.1 million).
Selling, general and administrative expenses for 1998 increased 12.6% compared to 1997, principally due to increased bonus, commission, and rent, partially offset by decreased third party commissions. As a percentage of revenue, selling general and administrative expenses declined to 17.5% from 18.3% in 1997.
The Company's ability to operate is dependent on relationships with certain suppliers and trading partners, such as electric utilities and telephone companies, who provide services to the Company's various offices and data centers ("mission critical suppliers and trading partners"). The Company expects to complete the process of identifying all potential mission critical suppliers and trading partners prior to the end of the second quarter of 1999. Any identified mission critical third party systems and data interfaces will be tested, to the extent practical, in a Year 2000 environment. The Company's ability to influence cooperation is partially dependent on the significance of the Company's relationship with its suppliers and trading partners. The Company anticipates completing this phase of its Year 2000 readiness project in the second quarter of 1999.
Readers are cautioned that forward-looking statements contained in this Year 2000 section should be read in conjunction with the Company's disclosures under the heading "Factors That May Affect Future Results" above.
The Employee Benefits segment began operations in 1999 by entering into an assumption reinsurance agreement on December 1, 1999 with AH&L NY to acquire a block of life and health insurance business. The subsequent operations resulting from this agreement combined with new case sales within other blocks of business resulted in net income of $3.2 million, $4.5 million, and $1.4 million being recorded in 2002, 2001, and 2000, respectively.
Online billing was implemented in 2002 for our small to mid size life and health customers. As a further enhancement to our Internet services, online billing for our large customers is scheduled for implementation in 2003. This initiative will continue to provide our customers with improved service, as well as generate cost savings to the Company.
Effective April 1, 2001, the Company adopted Emerging Issues Task Force Issue No. 99-20, Recognition of Interest Income and Impairment on Purchased and Retained Beneficial Interest in Securitized Financial Assets (EITF 99-20). This pronouncement requires investors in certain asset-backed securities to record changes in their estimated yield on a prospective basis and to apply specific evaluation methods to these securities for an other-than-temporary decline in value. The adoption of EITF 99-20 did not have a material impact on the Company's financial position or results of operations.
Technical Corrections - April 2002, the FASB issued Statement No. 145 "Rescission of FASB No. 4, 44 and 64, Amendment of FASB Statement No. 13, and Technical Corrections" (SFAS No. 145). FASB No. 4 required all gains or losses from extinguishment of debt to be classified as extraordinary items net of income taxes. SFAS No. 145 requires that gains and losses from extinguishment of debt be evaluated under the provision of Accounting Principles Board Opinion No. 30, and be classified as ordinary items unless they are unusual or infrequent or meet the specific criteria for treatment as an extraordinary item. This statement is effective January 1, 2003. The Company does not expect this statement to have a material effect on the Company's financial position or results of operations.
This discussion contains forward-looking statements which involve risks and uncertainties. The Company's actual results may differ materially from those anticipated in such forward-looking statements as a result of certain factors including, but not limited to, those set forth under "Factors That May Affect Future Results of Operations."
On March 1, 1997, the Company completed the GBO Acquisition. The purchase price was $86.7 million, subject to adjustment upon completion of a post-closing audit. The purchase method of accounting will be used to account for the acquisition of the GBO. The GBO targets employers with 5,000 or more employees and currently provides benefits to approximately 1.3 million medical members, of which most are in health plans that are self-funded by employers. The GBO offers indemnity and PPO plans and also provides life, dental and disability coverage to a variety of employer groups. Although most of the GBO business involves the provision of administrative services to self-funded employer plans, the indemnity-based portions of the GBO have experienced a higher overall loss ratio than the Company's core business. The GBO has historically experienced a higher administrative expense ratio due to its higher percentage of management services business, which may contribute to an increase in the Company's overall administrative expense ratio in future periods. The Company expects to incur approximately $50.0 million of costs relating to this acquisition during 1997 and 1998, a portion of which is expected to be reflected in the Company's results of operations. The Company expects that it will experience material membership attrition of up to 30% of the GBO members as it pursues its strategy of motivating traditional indemnity health insurance members to select managed care products.
The Company's consolidated results of operations for the year ended December 31, 1996 include the results of MMHD and the BCC Commercial Operations from March 31, 1996 and May 20, 1996, respectively, the effective dates of acquisition.