The Company also owns property acquired for residential development in 1990. The 50-acre tract located in Solvang, California, consists of nine parcels. Homes have been built on two of the parcels and during 1993 one of the homes and two of the parcels were sold. During 1994, one of the parcels was sold and during 1995 the other home was sold. The book value and fair value of the remaining four parcels were $1.1 million at December 31, 1996.
JBW & Co. Loan. In December 1989, the Syndicate made an investment in the preferred stock of Concord General Corporation, a privately held insurance holding company ("Concord"). The preferred stock had an 11.3% dividend rate and a stated value of $10,000 per share. Subsequent to December 31, 1993, Exstar entered into an agreement to facilitate the restructuring of Concord, and thereby to enhance the value of certain of the Company's rights with respect to its investment, by an exchange of the Syndicate's Concord preferred stock for preferred stock in JBW & Co., Inc. ("JBW & Co."), a Concord affiliate, effective as of December 31, 1993. The JBW & Co. preferred stock acquired by the Syndicate had the same stated value, terms and dividends as the Concord preferred stock. The
policies and reinsurance contracts previously issued by the Company and implementing mid-term adjustments to and cancellations of such policies; and related management, investment, reporting and accounting functions. In lieu of issuing direct insurance business, effective as of April 1, 1997, Alpine entered into the Quota Share Arrangement with UCIC. Pursuant to the Quota Share Arrangement, UCIC cedes to Alpine, and Alpine assumes, a portion of the business placed with UCIC by Transre and E&S. Transre and E&S have entered into the Limited Agency Agreement with UCIC pursuant to which Transre and E&S produce for UCIC business of the type previously produced for the Company by TCO-IL. See "-- Current and Future Operations and Organizational Structure -- Relationship with UCIC." The parties are also exploring the possibility of writing certain new coverages.
The following table shows the amount of reinsurance recoverables for unpaid losses and loss adjustment expenses and for paid losses and loss adjustment expenses payable by the Company's reinsurers:
Dividend Limitations. Alpine is limited in its ability to pay dividends to shareholders. Alpine is subject to an overall limitation that dividends and other distributions can be declared and paid only to the extent of earned, as opposed to contributed, policyholders' surplus. In addition, Alpine is subject to the provisions of the Illinois Insurance Holding Company Systems Act, which requires prior notice for the payment of all dividends or other distributions, and special approval for those which, during any consecutive 12-month period, exceed the greater of (i) 10% of Alpine's policyholders' surplus as of the immediately preceding year-end or (ii) its statutory net income for the immediately preceding year. In addition to the foregoing limitations, the Illinois Order prohibits Alpine from paying any dividends without the prior approval of the Illinois DOI. Management expects that such approval would be unlikely, if requested, in the foreseeable future.
The two IRIS tests failed in 1996 were Change in Net Writings and Investment Yield. Alpine's Change in Net Writings resulted from a decrease in premiums written because of the Best rating downgrades, regulatory restrictions and management's decision to cease writing direct insurance in August 1996. The Company's insurance company subsidiaries have historically failed the Investment Yield test principally because of their payments to TCO of portions of their investment income pursuant to the management agreements. The four IRIS tests failed in 1995 were Change in Net Writings, Surplus Aid to Surplus, Investment Yield and Change in Surplus. The Change in Net Writings and Surplus Aid to Surplus failures were due to significant increases in ceded written premium in 1995, relating to two reinsurance agreements entered into in 1995 that substantially reduced the Syndicate's and Alpine's net premium. The Change in Surplus failure resulted principally from a reduction in Alpine's policyholders' surplus of $10.6 million from nonadmitting (because their collection was unlikely and they were overdue) $9.4 million of unpaid balances due to Alpine with respect to insurance premiums collected by TCO and an additional $1.2 million of amounts due from affiliates.
The "comprehensive plan" required at the "company action level" and certain other levels must: (i) identify the conditions in the insurer that contribute to the failure to meet the capital requirements; (ii) contain proposed corrective actions that the insurer intends to make and that would be expected to result in compliance with capital requirements; (iii) provide certain projections of the insurer's financial results for the current year and at least the four succeeding years; (iv) identify key assumptions impacting the insurer's projections and the sensitivity of the projections to the assumptions; and (v) identify the quality of, and problems associated with, the insurer's business, including but not limited to its assets, anticipated business growth and associated surplus strain, extraordinary exposure to risk, mix of business, and use of reinsurance in each case.
The cumulative redundancy or deficiency represents the aggregate change in the loss reserve estimates over all prior years. The table presents a run-off of balance sheet reserves rather than accident or policy year loss development. Therefore, each amount in the table includes the effects of changes in loss reserves for all prior years. The table generally indicates that on both gross and net bases, the Company's reserves for losses and loss adjustment expenses have been subsequently adjusted downward from the reserves initially established. This is a result of (i) a relatively conservative approach in
estimating initial reserves, resulting in part from a statutory requirement that reserves for most lines of the Company's business be carried at a minimum of at least 60% of premiums earned for the first three years, in the case of Alpine, and the first four years, in the case of the Syndicate, and (ii) somewhat better than anticipated results in settling claims while avoiding punitive and other extraordinary losses.
The Company, because of Best rating downgrades, regulatory restrictions and other matters affecting its insurance company subsidiaries (see "Business -- Background Concerning Changes in
Net written premiums were $28.2 million for 1995, a decrease of 47.3% from $53.5 million in 1994. The decrease in net written premiums was due to a significant increase in ceded written premiums. The increase in ceded written premiums was a consequence of the Company's having purchased two specialized liability reinsurance treaties since the end of the third quarter of 1994. The first treaty, effective October 1, 1994, provided coverage for losses in excess of $500,000 up to $1.0 million on the Company's basic specialized liability policies. The second treaty, effective April 1, 1995, provided coverage for 50% of losses up to $500,000 for the Company's basic specialized liability policies written on or after April 1, 1995, and the unexpired portions of the Company's basic specialized liability policies written prior to April 1, 1995.