There have been several events in 1996 and early 1997 that have had a significant impact on the Company with some of the ramifications remaining unknown at this time. The Company recorded a net loss of $13,731,000 for the year. This compares with a loss before extraordinary gain of $642,000 for 1995 and a net loss of $7,091,000 in 1994. The losses in 1994 were essentially attributable to the operations of United Community Insurance Company (UCIC). Lawrence Group, Inc.(LGI) and eleven of its subsidiaries filed for bankruptcy under Chapter 11 on February 28, 1997. Senate Insurance Company (Senate) is heavily dependent upon several of the subsidiaries for marketing, underwriting and claims handling of its products. While Chapter 11 gives the filer protect- ion from creditors as it attempts to reorganize there is no guarantee that the reorganization will be successful or if it is what impact that may have on the Company.
URIC had been under a confidential order of supervision by the Texas Department of Insurance (TDI) since June, 1994, until its release on August 25, 1995. As a condition to the release of the order the Company agreed to achieving certain financial goals. The financial goals included increasing statutory surplus to $8 million at December 31, 1995. The statutory surplus as filed with the TDI at December 31, 1995 was $6.6 million and $3.6 million at December 31, 1996. These amounts did not include the effect of the loss and LAE adjustments of approximately $4.0 million and $7.8 million at December 31, 1995 and 1996, respectively, included in the accompanying financial statements. The TDI could have placed URIC under conservatorship at any time based upon the 1995 policyholder surplus. Under conservation, the TDI assumes all control and decision making authority during the rehabilitation period. On February 28, 1997, as a result of the bankruptcy filing by LIG's parent and eleven of its subsidiaries the TDI did place URIC into conservatorship. Under Texas insurance regulations an insurance company can remain in conservatorship 180 days before other action must be taken. Subsequent to the filing of URIC's 1996 Statutory financial statement which reflected policyholder surplus of $3.6 million, the Company received a report from its actuary that indicated that the reserves related to pooling with UCIC could be between $7 and $10 million higher than reported on URIC's statutory statement. This information has been received by the TDI. Based on minimum capital requirements and insolvency provisions of the Texas insurance law, the TDI has indicated that unless these reserves can be commuted at an amount significantly less than presently stated, the alternative would be to place URIC in liquidation.
Net Premiums Earned: Net premiums earned represent the pro rata portion of the business written in the calendar year plus amounts carried over from the prior year that are taken into revenue in the current period reduced by applicable reinsurance.
Insurance premiums generally are collected prior to the disbursement of claims and related expenses resulting in a favorable cash flow from operations for the insurance subsidiaries. Funds are then used to purchase investments ranging in maturity from short-term to long-term, reflecting the varying duration of insurance liabilities for losses, as well as the investment market conditions.