In accordance with Statement of Financial Accounting Standard No. 115, "Accounting for Certain Investments in Debt and Equity Securities," the Company is required to classify its investments in debt and equity securities into one of three categories: held-to-maturity, available-for-sale or trading securities. Although all of the Company's investments are classified as available-for-sale, the Company's investment guidelines place primary emphasis on buying and holding high-quality investments to maturity.
Reserves for losses and loss adjustment expenses before reinsurance were $60,534,295 at December 31, 2001, compared to $45,217,369 at December 31, 2000, and $41,592,489 at December 31, 1999. The increase in reserves at December 31, 2001 and 2000 reflect both an increase in claim severities and adverse development of prior years in the Company's Commercial Multiple Peril ("CMP") and Other Liability lines of business.
Reserves for losses and loss adjustment expenses before reinsurance are as follows:
Year ended December 31 ---------------------- 2001 2000 1999 ---- ---- ---- Interest and dividend income Insurance company operations $5,647,026 $5,764,094 $5,706,945 Other operations 156,387 335,984 283,942 --------- --------- --------- Total interest and dividend income 5,803,413 6,100,078 5,990,887 Net realized investment gains (losses) 9,572 (135,389) 64,793 ---------- --------- --------- Total investment income and realized gains (losses) $5,812,985 $5,964,689 $6,055,680 ========= ========= =========
Investment interest and dividends earned (excluding net realized gains) increased $109,191 (2%) in the year ended December 31, 2000, compared to the year ended December 31, 1999, primarily as a result of an increase in return on the Company's investment portfolio. Average invested assets in the year ended December 31, 2000, (at amortized value) decreased $2,628,414 (3%) compared to the year ended December 31, 1999. Investment income return based on average invested assets was 6.0% for the year ended December 31, 2000, compared to 5.74% for the year ended December 31, 1999. The mix of taxable and tax-exempt securities in the portfolio affect the investment income return percentage. Tax-exempt securities (at amortized value) decreased to $19,789,675 (20% of total investments) at December 31, 2000, compared to $28,078,605 (27% of total investments) at December 31, 1999.
Salaries and Employee Benefits increased $80,520 (2%) for the year ended December 31, 2001, compared to the year ended December 31, 2000. Salaries and employee benefits decreased $110,433 (3%) for the year ended December 31, 2000, compared to the year ended December 31, 1999.
Other Operating Expenses generally do not change significantly with changes in production. This is true for both increases and decreases in production.
Consolidated Balance Sheets as of December 31, 2001, and December 31, 2000 31
Consolidated Statements of Comprehensive Income for the years ended December 31, 2001, December 31, 2000, and December 31, 1999 33
Furniture, fixtures, computer, office, and transportation equipment $1,779,293 $2,354,072 Accumulated depreciation 1,511,867 2,239,965 --------- --------- Net property and equipment $ 267,426 $ 114,107 ======= =======
NOTE 9 - LEASE COMMITMENT TO RELATED PARTY - ------------------------------------------ The Company presently occupies a 46,000 square foot building located at 23251 Mulholland Drive, Woodland Hills, California, under a master lease expiring March 31, 2007. The total rent expense under this lease agreement was $1,025,952 for the year ended December 31, 2001; $1,025,952 for the year ended December 31, 2000; and $1,025,952 for the year ended December 31, 1999.
An unusual range of ratio results has been established from studies of the ratios of companies that have become insolvent or have experienced financial difficulties. In the analytical phase, all companies that receive four or more financial ratio values outside the usual range are analyzed in order to identify those companies that appear to require immediate regulatory action. Subsequently, a more comprehensive review of the ratio results and an insurer's annual statement is performed to confirm that an insurer's situation calls for increased or close regulatory attention.
The Company and its wholly owned subsidiaries file consolidated Federal and combined California income tax returns. Pursuant to the a tax allocation agreement, Crusader Insurance Company and American Acceptance Corporation are allocated taxes or (in the case of losses) tax credits at current corporate rates based on their own taxable income or loss.