Earned premiums increased $134.3 million from $152.3 million for the year ended December 31, 2002 to $286.6 million for the same period in 2003. The increase was primarily attributable to the strong premium growth in 2002 and continuing in 2003. Earned premiums were also decreased by the quota share as discussed above.
The increase in gross written premiums of $56.2 million to $201.9 million in 2002 from $145.7 million in 2001 is primarily attributable to an increase in small workers’ compensation products. As part of the restructuring noted above, the Company no longer underwrites these products.
Company policy beginning in 1985 was to exclude asbestos coverage on all general liability policies. During the third quarter of 2002, management identified claims associated with certain general liability policies issued through one office from 1985 to the early 1990’s which did not exclude absolute asbestos coverage. The Company strengthened its loss reserves by $7.0 million in the third quarter of 2002 for these claims. The Company reviewed policy files issued during this period for additional exposures and management believes the policies written were limited to this specific time frame and one location.
Although management has determined and recorded its best estimate of the reserves for losses and loss adjustment expenses for run-off lines, current judicial and legislative decisions continue to broaden liability, expand policy scopes and increase the severity of claims payments. As a result of these and other recent developments, the uncertainties inherent in estimating ultimate loss reserves are heightened, further complicating the already complex process of determining loss reserves. The industry as a whole is involved in extensive litigation over these coverages and liability issues, and must contend with the continuing uncertainty in its effort to quantify these exposures.
As of December 31, 2003, the Company had repurchased and retired approximately 7.9 million shares of its common stock out of a total 10 million shares authorized for repurchase. No shares were repurchased and retired during 2003.
Goodwill. Goodwill represents the excess of the purchase price over the fair value of net assets of subsidiaries acquired. As required by SFAS No. 142, “Goodwill and Other Intangible Assets”, the Company assigned goodwill to its reporting units. As of December 31, 2003, the Company has $48.5 million of goodwill allocated to the excess and surplus lines segment, $27.1 million of goodwill assigned to the risk management segment and $29.8 million assigned to the specialty commercial segment. As required by SFAS No. 142, the Company completed its annual test of goodwill for impairment as of September 30, 2003 and determined that no impairment of goodwill was indicated. Annually, the Company will perform an impairment of goodwill test. If impairment indicators exist between the annual testing periods, management will perform an impairment of goodwill test to determine if the fair value of the reporting unit is below the carrying value and therefore, requires a write-down of goodwill for that reporting unit. In evaluating whether impairment exists in certain reporting units, management also considers the fair value in excess of the carrying value for certain assets.