Texas | 6331 | 75-2069407 | ||
(State or other jurisdiction of | (Primary Standard Industrial | (I.R.S. Employer | ||
incorporation or organization) | Classification Code Number) | Identification |
James E. O’Bannon Jones Day 2727 North Harwood Street Dallas, Texas 75201 (214) 220-3939 | J. Brett Pritchard Lord, Bissell & Brook LLP Chicago, Illinois (312) 443-0700 |
Proposed Maximum | Proposed Maximum | |||||||||||||||||||
Title of Each Class of | Amount to be | Offering Price | Aggregate | Amount of | ||||||||||||||||
Securities to be Registered | Registered | Per Unit | Offering Price(1)(2) | Registration Fee(3) | ||||||||||||||||
Common Stock, par value $0.01 per share | 9,071,576 | $ | 11.40 | $ | 91,002,215 | $ | 9,738 | |||||||||||||
(1) | Includes amount attributable to shares of common stock that may be purchased by the underwriters under an option granted by the selling shareholders to purchase additional shares at the public offering price, less the underwriting discount. | |
(2) | Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457(c) under the Securities Act of 1933, as amended. |
(3) | Based on proposed maximum aggregate offering price of $77,153,825 for 7,856,805 shares of common stock included in the original filing on September 26, 2006, plus proposed maximum aggregate offering price of $13,848,390 for 1,214,771 additional shares of common stock being registered in this amendment. Of the $9,738 registration fee, $8,256 was previously paid in connection with the original filing on September 26, 2006, and $1,482 is paid herewith. |
The information in this preliminary prospectus is not complete and may be changed. |
AMERISAFE, Inc. |
Per Share | Total | |||||||
Public offering price | $ | $ | ||||||
Underwriting discount* | $ | $ | ||||||
Proceeds, before expenses, to | $ | $ |
Friedman Billings Ramsey | |
William Blair & Company |
SunTrust Robinson Humphrey |
Cochran Caronia Waller |
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F-1 | ||||||||
Form of Underwriting Agreement | ||||||||
Opinion/Consent of Jones Day | ||||||||
Consent of Ernst & Young LLP | ||||||||
• | Construction. Includes a broad range of operations such as highway and bridge construction, building and maintenance of pipeline and powerline networks, excavation, commercial construction, roofing, iron and steel erection, tower erection and numerous other specialized construction operations. Our gross premiums written in | |
• | Trucking. Includes a large spectrum of diverse operations including contract haulers, regional and local freight carriers, special equipment transporters and other trucking companies that conduct a variety of short- and long-haul operations. Our gross premiums written in |
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• | Logging. Includes tree harvesting operations ranging from labor intensive chainsaw felling and trimming to sophisticated mechanized operations using heavy equipment. Our gross premiums written in |
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As of and for the | ||||||||||||||||
Three Months Ended | ||||||||||||||||
September 30, | June 30, | March 31, | December 31, | |||||||||||||
2006 | 2006 | 2006 | 2005 | |||||||||||||
(Unaudited) (In thousands) | ||||||||||||||||
Gross premiums written | $ | 82,951 | $ | 92,151 | $ | 80,819 | $ | 59,709 | ||||||||
Net premiums written | 78,057 | 87,427 | 76,368 | 53,098 | ||||||||||||
Net premiums earned | 74,991 | 72,107 | 67,874 | 67,198 | ||||||||||||
Net investment income | 6,316 | 5,843 | 5,973 | 4,897 | ||||||||||||
Net income | 8,265 | 7,818 | 7,236 | 5,404 | ||||||||||||
Cash, cash equivalents and investments | $ | 639,553 | $ | 616,755 | $ | 600,767 | $ | 582,904 | ||||||||
Total shareholders’ equity and redeemable preferred stock | 171,666 | 162,510 | 156,184 | 147,346 | ||||||||||||
Net combined ratio(1) | 93.6 | % | 95.2 | % | 95.0 | % | 96.7 | % | ||||||||
Return on average equity(2) | 19.8 | % | 19.6 | % | 19.1 | % | 18.3 | % | ||||||||
Book value per share(3) | $ | 8.64 | $ | 8.18 | $ | 7.86 | $ | 7.42 |
(1) | The net combined ratio is the sum of the net loss ratio, the net underwriting expense ratio and the net dividend ratio. | |
(2) | Return on average equity is calculated as annualized net income divided by average shareholders’ equity plus redeemable preferred stock. |
(3) | Book value per share is calculated by dividing shareholders’ equity plus redeemable preferred stock at the date indicated by the number of shares of common stock outstanding (including 2,429,541 shares of common stock issuable upon conversion of our Series C and Series D convertible preferred stock at the current conversion price of $20.58 per share). As of September 30, 2005, the pro forma book value of our common stock, after giving effect to the completion of our initial public offering in November 2005, was $7.16 per share. |
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• | Focus on Hazardous Industries. We have extensive experience insuring employers engaged in hazardous industries and have a history of profitable underwriting in these industries. Our specialized knowledge of these hazardous industries helps us better serve our policyholders, which leads to greater employer loyalty and policy retention. Our policy renewal rate on voluntary business that we elected to quote for renewal was | |
• | Focus on Small to Mid-Sized Employers. We believe large insurance companies generally do not target small to mid-sized employers in hazardous industries due to their smaller premium size, type of operations, mobile workforce and extensive service needs. We provide enhanced customer services to our policyholders. For example, unlike many of our competitors, our premium payment plans enable our policyholders to better match their premium payments with their payroll costs. |
• | Specialized Underwriting Expertise. Based on our |
• | Comprehensive Safety Services. We provide proactive safety reviews of employers’ |
• | Proactive Claims Management. As of |
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• | Expand in our Existing Markets. Our market share in each of the nine states where we derived 5% or more of our |
• | Prudent and Opportunistic Geographic Expansion. |
• | Focus on Underwriting Profitability. We intend to maintain our underwriting discipline and profitability throughout market cycles. Our strategy is to focus on underwriting workers’ compensation insurance in hazardous industries and to maintain adequate rate levels commensurate with the risks we underwrite. We will also continue to strive for improved risk selection and pricing, as well as reduced frequency and severity of claims through comprehensive workplace safety reviews, rapid closing of claims through personal, direct contact with our policyholders and their employees, and effective medical cost containment measures. | |
• | Leverage | |
• | Maintain Capital Strength. We completed our initial public offering in November 2005. Of the $53.0 million of net proceeds we retained from our initial public offering, we contributed $45.0 million to our insurance subsidiaries. The remaining $8.0 million will be used to make additional capital contributions to our insurance company subsidiaries as necessary to support our anticipated growth and for general corporate purposes. We plan to manage our capital to achieve our growth and profitability goals while maintaining a prudent operating leverage for our insurance company subsidiaries. To accomplish this objective, we intend to maintain underwriting profitability throughout market cycles, |
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• | Adequacy of Premiums and Loss Reserves. Our loss reserves are based upon estimates that are inherently uncertain. These estimates may be inadequate to cover our actual losses, in which case we would need to increase our estimates and recognize a corresponding decrease in pre-tax net income for the period in which the change in our estimates occurs. | |
• | Downgrade of our A.M. Best Rating. Our A.M. Best rating is subject to periodic review and, if it is downgraded, our business could be negatively affected by the loss of certain existing and potential policyholders and the loss of relationships with independent agencies. | |
• | Cyclical Nature of the Workers’ Compensation Industry. The workers’ compensation insurance industry has historically fluctuated with periods of low premium rates and excess underwriting capacity resulting from increased competition followed by periods of high premium rates and shortages of underwriting capacity resulting from decreased competition. This cyclicality may cause our revenues and net income to fluctuate. | |
• | Availability of Reinsurance. The availability, amount and cost of reinsurance are subject to market conditions and our experience with insured losses. If we are unable to obtain reinsurance on favorable terms, our ability to write new policies and renew existing policies could be adversely affected. | |
• | Ability to Recover from Reinsurers. If any of our reinsurers is unable to meet any of its obligations to us, we would be responsible for all claims and claim settlement expenses that would otherwise be covered by our reinsurer. An inability to recover amounts due from our reinsurers would adversely affect our financial condition and results of operations. |
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Shares of common stock offered by |
Over-allotment shares of common stock offered by selling shareholders | 1,183,250 shares |
Shares of common stock to be | ||
outstanding after the offering | 18,660,881 shares, including 1,214,771 shares issued immediately prior to the completion of this offering upon conversion of 250,000 shares of our convertible preferred stock held by certain of the selling shareholders. | |
Use of proceeds | All of the common stock offered hereby is being sold by the selling shareholders. We | |
Dividend policy | We currently intend to retain any additional future earnings to finance our operations and growth. As a result, we do not expect to pay any cash dividends on our common stock for the foreseeable future. | |
Our ability to pay dividends is subject to restrictions in our articles of incorporation that prohibit us from paying dividends on our common stock (other than in additional shares of common stock) without the consent of the holders of two-thirds of the outstanding shares of our convertible preferred stock. In addition, because AMERISAFE is a holding company and has no direct operations, our ability to pay dividends in the future may be limited by regulatory restrictions on the payment of dividends to AMERISAFE by our insurance company subsidiaries. | ||
“AMSF” |
• | 1,214,770 shares issuable upon conversion of our | |
• | 1,648,500 shares that may be issued pursuant to employee stock options | |
• | 276,112 additional shares available for future issuance under our equity incentive plans. |
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Year Ended | Six Months Ended | ||||||||||||||||||||||||||||
December 31, | June 30, | ||||||||||||||||||||||||||||
2000 | 2001 | 2002 | 2003 | 2004 | 2004 | 2005 | |||||||||||||||||||||||
(In thousands, except share and per share data) | |||||||||||||||||||||||||||||
Income Statement Data | |||||||||||||||||||||||||||||
Gross premiums written | $ | 345,027 | $ | 204,752 | $ | 185,093 | $ | 223,590 | $ | 264,962 | $ | 151,557 | $ | 160,524 | |||||||||||||||
Ceded premiums written | (80,076 | ) | (49,342 | ) | (26,563 | ) | (27,600 | ) | (21,951 | ) | (10,523 | ) | (9,697 | ) | |||||||||||||||
Net premiums written | $ | 264,951 | $ | 155,410 | $ | 158,530 | $ | 195,990 | $ | 243,011 | $ | 141,034 | $ | 150,827 | |||||||||||||||
Net premiums earned | $ | 187,106 | $ | 170,782 | $ | 163,257 | $ | 179,847 | $ | 234,733 | $ | 113,079 | $ | 125,032 | |||||||||||||||
Net investment income | 9,372 | 9,935 | 9,419 | 10,106 | 12,217 | 5,407 | 7,650 | ||||||||||||||||||||||
Net realized gains (losses) on investments | (773 | ) | 491 | (895 | ) | 316 | 1,421 | 619 | 774 | ||||||||||||||||||||
Fee and other income | 2,520 | 1,367 | 2,082 | 462 | 589 | 262 | 306 | ||||||||||||||||||||||
Total revenues | 198,225 | 182,575 | 173,863 | 190,731 | 248,960 | 119,367 | 133,762 | ||||||||||||||||||||||
Loss and loss adjustment expenses incurred | 109,536 | 123,386 | 121,062 | 129,250 | 174,186 | 86,413 | 110,436 | ||||||||||||||||||||||
Underwriting and certain other operating costs(1) | 23,334 | 23,364 | 22,674 | 23,062 | 28,987 | 12,620 | 15,297 | ||||||||||||||||||||||
Commissions | 16,121 | 14,351 | 9,189 | 11,003 | 14,160 | 6,971 | 7,822 | ||||||||||||||||||||||
Salaries and benefits | 20,253 | 17,148 | 16,541 | 15,037 | 15,034 | 7,512 | 6,448 | ||||||||||||||||||||||
Interest expense | 797 | 735 | 498 | 203 | 1,799 | 627 | 1,326 | ||||||||||||||||||||||
Policyholder dividends | 7,156 | 2,717 | 156 | 736 | 1,108 | 754 | 386 | ||||||||||||||||||||||
Total expenses | 177,197 | 181,701 | 170,120 | 179,291 | 235,274 | 114,897 | 141,715 | ||||||||||||||||||||||
Income (loss) before taxes | 21,028 | 874 | 3,743 | 11,440 | 13,686 | 4,470 | (7,953 | ) | |||||||||||||||||||||
Income tax expense (benefit) | 7,001 | (395 | ) | (1,438 | ) | 2,846 | 3,129 | 871 | (3,669 | ) | |||||||||||||||||||
Net income (loss) | 14,027 | 1,269 | 5,181 | 8,594 | 10,557 | 3,599 | (4,284 | ) | |||||||||||||||||||||
Payment-in-kind preferred dividends | (8,229 | ) | (8,820 | ) | (9,453 | ) | (10,133 | ) | (9,781 | ) | (5,221 | ) | (4,720 | ) | |||||||||||||||
Net income (loss) available to common shareholders | $ | 5,798 | $ | (7,551 | ) | $ | (4,272 | ) | $ | (1,539 | ) | $ | 776 | $ | (1,622 | ) | $ | (9,004 | ) | ||||||||||
Portion allocable to common shareholders(2) | 65.3% | 100.0% | 100.0% | 100.0% | 70.2% | 100.0% | 100.0% | ||||||||||||||||||||||
Net income (loss) allocable to common shareholders | $ | 3,784 | $ | (7,551 | ) | $ | (4,272 | ) | $ | (1,539 | ) | $ | 545 | (1,622 | ) | $ | (9,004 | ) | |||||||||||
Diluted earnings per common share equivalent | $ | 0.18 | $ | (0.58 | ) | $ | (0.33 | ) | $ | (0.12 | ) | $ | 0.03 | $ | (0.13 | ) | $ | (0.42 | ) | ||||||||||
Diluted weighted average of common share equivalents outstanding | 21,581,864 | 12,967,104 | 12,967,104 | 12,967,104 | 18,380,132 | 12,967,104 | 21,581,864 |
Nine Months Ended | Year Ended | |||||||||||||||||||||||||||
September 30, | December 31, | |||||||||||||||||||||||||||
2006 | 2005 | 2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||
(In thousands, except share and per share data) | ||||||||||||||||||||||||||||
Income Statement Data | ||||||||||||||||||||||||||||
Gross premiums written | $ | 255,920 | $ | 231,182 | $ | 290,891 | $ | 264,962 | $ | 223,590 | $ | 185,093 | $ | 204,752 | ||||||||||||||
Ceded premiums written | (14,069 | ) | (14,930 | ) | (21,541 | ) | (21,951 | ) | (27,600 | ) | (26,563 | ) | (49,342 | ) | ||||||||||||||
Net premiums written | $ | 241,851 | $ | 216,252 | $ | 269,350 | $ | 243,011 | $ | 195,990 | $ | 158,530 | $ | 155,410 | ||||||||||||||
Net premiums earned | $ | 214,972 | $ | 189,370 | $ | 256,568 | $ | 234,733 | $ | 179,847 | $ | 163,257 | $ | 170,782 | ||||||||||||||
Net investment income | 18,132 | 11,985 | 16,882 | 12,217 | 10,106 | 9,419 | 9,935 | |||||||||||||||||||||
Net realized gains (losses) on investments | 2,581 | 1,337 | 2,272 | 1,421 | 316 | (895 | ) | 491 | ||||||||||||||||||||
Fee and other income | 550 | 426 | 561 | 589 | 462 | 2,082 | 1,367 | |||||||||||||||||||||
Total revenues | 236,235 | 203,118 | 276,283 | 248,960 | 190,731 | 173,863 | 182,575 | |||||||||||||||||||||
Loss and loss adjustment expenses incurred | 149,989 | 155,625 | 204,056 | (2) | 174,186 | 129,250 | 121,062 | 123,386 | ||||||||||||||||||||
Underwriting and certain other operating costs(1) | 26,524 | 23,578 | 33,008 | 28,987 | 23,062 | 22,674 | 23,364 | |||||||||||||||||||||
Commissions | 13,811 | 11,869 | 16,226 | 14,160 | 11,003 | 9,189 | 14,351 | |||||||||||||||||||||
Salaries and benefits | 12,404 | 10,968 | 14,150 | 15,034 | 15,037 | 16,541 | 17,148 | |||||||||||||||||||||
Interest expense | 2,579 | 2,061 | 2,844 | 1,799 | 203 | 498 | 735 | |||||||||||||||||||||
Policyholder dividends | 563 | 451 | 4 | 1,108 | 736 | 156 | 2,717 | |||||||||||||||||||||
Total expenses | 205,870 | 204,552 | 270,288 | 235,274 | 179,291 | 170,120 | 181,701 | |||||||||||||||||||||
Income (loss) before taxes | 30,365 | (1,434 | ) | 5,995 | 13,686 | 11,440 | 3,743 | 874 | ||||||||||||||||||||
Income tax expense (benefit) | 7,046 | (1,960 | ) | 65 | 3,129 | 2,846 | (1,438 | ) | (395 | ) | ||||||||||||||||||
Net income (loss) | 23,319 | 526 | 5,930 | 10,557 | 8,594 | 5,181 | 1,269 | |||||||||||||||||||||
Payment-in-kind preferred dividends(3) | — | (7,142 | ) | (8,593 | ) | (9,781 | ) | (10,133 | ) | (9,453 | ) | (8,820 | ) | |||||||||||||||
Net income (loss) available to common shareholders | $ | 23,319 | $ | (6,616 | ) | $ | (2,663 | ) | $ | 776 | $ | (1,539 | ) | $ | (4,272 | ) | $ | (7,551 | ) | |||||||||
Portion allocable to common shareholders(4) | 87.8 | % | 100.0 | % | 100.0 | % | 70.2 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||||||
Net income (loss) allocable to common shareholders | $ | 20,474 | $ | (6,616 | ) | $ | (2,663 | ) | $ | 545 | $ | (1,539 | ) | $ | (4,272 | ) | $ | (7,551 | ) | |||||||||
Diluted earnings per common share equivalent | $ | 1.17 | $ | (22.07 | ) | $ | (1.25 | ) | $ | 2.14 | $ | (8.55 | ) | $ | (23.72 | ) | $ | (41.93 | ) | |||||||||
Diluted weighted average of common share equivalents outstanding | 17,422,413 | 299,774 | 2,129,492 | 255,280 | 180,125 | 180,125 | 180,125 | |||||||||||||||||||||
Selected Insurance Ratios | ||||||||||||||||||||||||||||
Current accident year loss ratio(5) | 69.8 | % | 70.6 | % | 71.0 | % | 68.5 | % | 70.6 | % | 71.8 | % | 66.9 | % | ||||||||||||||
Prior accident year loss ratio(6) | 0.0 | % | 11.6 | % | 8.5 | % | 5.7 | % | 1.3 | % | 2.4 | % | 5.3 | % | ||||||||||||||
Net loss ratio | 69.8 | % | 82.2 | % | 79.5 | % | 74.2 | % | 71.9 | % | 74.2 | % | 72.2 | % | ||||||||||||||
Net underwriting expense ratio(7) | 24.5 | % | 24.5 | % | 24.7 | % | 24.8 | % | 27.3 | % | 29.7 | % | 32.1 | % | ||||||||||||||
Net dividend ratio(8) | 0.3 | % | 0.2 | % | 0.0 | % | 0.5 | % | 0.4 | % | 0.1 | % | 1.6 | % | ||||||||||||||
Net combined ratio(9) | 94.6 | % | 106.9 | % | 104.2 | % | 99.5 | % | 99.6 | % | 104.0 | % | 105.9 | % |
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Year Ended | Six Months Ended | |||||||||||||||||||||||||||
December 31, | June 30, | |||||||||||||||||||||||||||
2000 | 2001 | 2002 | 2003 | 2004 | 2004 | 2005 | ||||||||||||||||||||||
Selected Insurance Ratios | ||||||||||||||||||||||||||||
Current accident year loss ratio(3) | 57.1% | 66.9% | 71.8% | 70.6% | 68.5% | 64.8% | 70.8% | |||||||||||||||||||||
Prior accident year loss ratio(4) | 1.4% | 5.3% | 2.4% | 1.3% | 5.7% | 11.6% | 17.5% | |||||||||||||||||||||
Net loss ratio | 58.5% | 72.2% | 74.2% | 71.9% | 74.2% | 76.4% | 88.3% | |||||||||||||||||||||
Net underwriting expense ratio(5) | 31.9% | 32.1% | 29.7% | 27.3% | 24.8% | 24.0% | 23.6% | |||||||||||||||||||||
Net dividend ratio(6) | 3.8% | 1.6% | 0.1% | 0.4% | 0.5% | 0.7% | 0.3% | |||||||||||||||||||||
Net combined ratio(7) | 94.2% | 105.9% | 104.0% | 99.6% | 99.5% | 101.1% | 112.2% |
As of December 31, | As of June 30, | |||||||||||||||||||||||||||
2000 | 2001 | 2002 | 2003 | 2004 | 2004 | 2005 | ||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||
Balance Sheet Data | ||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 44,914 | $ | 44,270 | $ | 44,677 | $ | 49,815 | $ | 25,421 | $ | 51,037 | $ | 27,462 | ||||||||||||||
Investments | 145,439 | 148,305 | 205,315 | 257,729 | 364,868 | 287,299 | 396,733 | |||||||||||||||||||||
Amounts recoverable from reinsurers | 327,172 | 298,451 | 214,342 | 211,774 | 198,977 | 195,564 | 174,556 | (8) | ||||||||||||||||||||
Premiums receivable, net | 122,450 | 104,907 | 95,291 | 108,380 | 114,141 | 142,603 | 144,953 | |||||||||||||||||||||
Deferred income taxes | 11,807 | 14,716 | 11,372 | 12,713 | 15,624 | 16,140 | 23,274 | |||||||||||||||||||||
Deferred policy acquisition costs | 14,038 | 11,077 | 9,505 | 11,820 | 12,044 | 14,399 | 18,496 | |||||||||||||||||||||
Deferred charges | 3,681 | 2,588 | 1,997 | 2,987 | 3,054 | 4,014 | 3,894 | |||||||||||||||||||||
Total assets | 685,308 | 645,474 | 603,801 | 678,608 | 754,187 | 735,189 | 811,530 | |||||||||||||||||||||
Reserves for loss and loss adjustment expenses | 379,824 | 383,032 | 346,542 | 377,559 | 432,880 | 400,405 | 457,827 | |||||||||||||||||||||
Unearned premiums | 107,418 | 92,047 | 87,319 | 103,462 | 111,741 | 131,417 | 137,536 | |||||||||||||||||||||
Insurance-related assessments | 25,522 | 25,964 | 23,743 | 26,133 | 29,876 | 30,531 | 34,487 | |||||||||||||||||||||
Debt | 9,500 | 9,000 | 8,000 | 16,310 | 36,090 | 36,090 | 36,090 | |||||||||||||||||||||
Redeemable preferred stock(9) | 112,061 | 116,520 | 121,300 | 126,424 | 131,916 | 129,122 | 134,808 | |||||||||||||||||||||
Shareholders’ deficit(10) | (26,913 | ) | (10,980 | ) | (25,100 | ) | (20,652 | ) | (42,862 | ) | (47,584 | ) | (50,452 | ) |
September 30, | December 31, | |||||||||||||||||||||||||||
2006 | 2005 | 2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||
Balance Sheet Data | ||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 61,778 | $ | 28,843 | $ | 49,286 | $ | 25,421 | $ | 49,815 | $ | 44,677 | $ | 44,270 | ||||||||||||||
Investments | 577,775 | 469,316 | 533,618 | 364,868 | 257,729 | 205,315 | 148,305 | |||||||||||||||||||||
Amounts recoverable from reinsurers | 122,792 | 122,774 | 122,562 | 198,977 | 211,774 | 214,342 | 298,451 | |||||||||||||||||||||
Premiums receivable, net | 145,621 | 140,061 | 123,934 | 114,141 | 108,380 | 95,291 | 104,907 | |||||||||||||||||||||
Deferred income taxes | 26,689 | 23.232 | 22,413 | 15,624 | 12,713 | 11,372 | 14,716 | |||||||||||||||||||||
Deferred policy acquisition costs | 19,785 | 18,189 | 16,973 | 12,044 | 11,820 | 9,505 | 11,077 | |||||||||||||||||||||
Deferred charges | 4,003 | 3,601 | 3,182 | 3,054 | 2,987 | 1,997 | 2,588 | |||||||||||||||||||||
Total assets | 985,034 | 830,308 | 892,320 | 754,187 | 678,608 | 603,801 | 645,474 | |||||||||||||||||||||
Reserves for loss and loss adjustment expenses | 520,843 | 469,894 | 484,485 | 432,880 | 377,559 | 346,542 | 383,032 | |||||||||||||||||||||
Unearned premiums | 151,403 | 138,623 | 124,524 | 111,741 | 103,462 | 87,319 | 92,047 | |||||||||||||||||||||
Insurance-related assessments | 39,647 | 33,847 | 35,135 | 29,876 | 26,133 | 23,743 | 25,964 | |||||||||||||||||||||
Debt | 36,090 | 36,090 | 36,090 | 36,090 | 16,310 | 8,000 | 9,000 | |||||||||||||||||||||
Redeemable preferred stock(10) | 50,000 | 136,292 | 50,000 | 131,916 | 126,424 | 121,300 | 116,520 | |||||||||||||||||||||
Shareholders’ equity (deficit)(11) | 121,666 | (46,969 | ) | 97,346 | (42,862 | ) | (20,652 | ) | (25,100 | ) | (10,980 | ) |
(1) | Includes policy acquisition expenses, such as assessments, premium taxes and other general and administrative expenses, excluding commissions and salaries and benefits, related to insurance operations and corporate operating expenses. | |
(2) | Includes (a) a pre-tax loss of $13.2 million in connection with a commutation agreement with Converium Reinsurance (North America), one of our reinsurers, pursuant to which Converium paid us $61.3 million in exchange for a termination and release of three of our five reinsurance agreements with Converium and (b) an $8.7 million pre-tax increase in our reserves for loss and loss adjustment expenses related to prior accident years. | |
(3) | Under the terms of our articles of incorporation, holders of our Series C and Series D convertible preferred stock are no longer entitled to receivepay-in-kind dividends as a result of the redemption and exchange of all of our outstanding shares of Series A preferred stock in connection with the initial public offering of our common stock in November 2005. | |
(4) | Reflects the participation rights of the Series C and Series D convertible preferred stock. See Note 15 to our audited financial statements. | |
The current accident year loss ratio is calculated by dividing loss and loss adjustment expenses incurred for the current accident year by the current year’s net premiums earned. | ||
The prior accident year loss ratio is calculated by dividing the change in loss and loss adjustment expenses incurred for prior accident years by the current year’s net premiums earned. | ||
The net underwriting expense ratio is calculated by dividing underwriting and certain other operating costs, commissions and salaries and benefits by the current year’s net premiums earned. | ||
The net dividend ratio is calculated by dividing policyholder dividends by the current year’s net premiums earned. | ||
The net combined ratio is the sum of the net loss ratio, the net underwriting expense ratio and the net dividend ratio. |
Includes our |
(11) | ||
In 1997, we entered into a recapitalization transaction with Welsh, Carson, Anderson & Stowe VII, L.P. and WCAS Healthcare Partners, L.P., our principal shareholders, that resulted in a $164.2 million charge to retained earnings. |
8
9
• | collect and properly analyze a substantial volume of data; | |
• | develop, test and apply appropriate rating formulae; | |
• | closely monitor and timely recognize changes in trends; and | |
• | project both frequency and severity of losses with reasonable accuracy. |
9
• | insufficient reliable data; | |
• | incorrect or incomplete analysis of available data; | |
• | uncertainties generally inherent in estimates and assumptions; | |
• | our inability to implement appropriate rating formulae or other pricing methodologies; | |
• | costs of ongoing medical treatment; | |
• | our inability to accurately estimate retention, investment yields and the duration of our liability for loss and loss adjustment expenses; and | |
• | unanticipated court decisions, legislation or regulatory action. |
10
10
11
11
12
13
12
• | rising levels of claims costs, including medical and prescription drug costs, that we cannot anticipate at the time we establish our premium rates; | |
• | fluctuations in interest rates, inflationary pressures and other changes in the investment environment that affect returns on invested assets; | |
• | changes in the frequency or severity of claims; | |
• | the financial stability of our reinsurers and changes in the level of reinsurance capacity and our capital capacity; | |
• | new types of claims and new or changing judicial interpretations relating to the scope of liabilities of insurance companies; |
14
• | volatile and unpredictable developments, including man-made, weather-related and other natural catastrophes or terrorist attacks; and | |
• | price competition. |
13
• | identify profitable new geographic markets for entry; | |
• | attract and retain qualified personnel for expanded operations; | |
• | identify, recruit and integrate new independent agencies; and | |
• | augment our internal monitoring and control systems as we expand our business. |
15
• | standards of solvency, including risk-based capital measurements; | |
• | restrictions on the nature, quality and concentration of our investments; | |
• | restrictions on the terms of the insurance policies we offer; | |
• | restrictions on the way our premium rates are established and the premium rates we may charge; | |
• | required reserves for unearned premiums and loss and loss adjustment expenses; | |
• | standards for appointing general agencies; | |
• | limitations on transactions with affiliates; | |
• | restrictions on mergers and acquisitions; | |
• | restrictions on the ability of our insurance company subsidiaries to pay dividends to AMERISAFE; | |
• | certain required methods of accounting; and | |
• | potential assessments for state guaranty funds, second injury funds and other mandatory pooling arrangements. |
14
16
15
17
16
18
19
20
21
• | design, establish, evaluate and maintain a system of internal controls over financial reporting in compliance with the requirements of Section 404 of the Sarbanes-Oxley Act and the related rules and regulations of the SEC and the Public Company Accounting Oversight Board; | |
• | prepare and distribute periodic reports in compliance with our obligations under the federal securities laws; | |
• | establish new internal policies, principally those relating to disclosure controls and procedures and corporate governance; | |
• | institute a more comprehensive compliance function; and | |
• | involve to a greater degree our outside legal counsel and accountants in the above activities. |
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22
• | our results of operations; | |
• | changes in expectations as to our future results of operations, including financial estimates and projections by securities analysts and investors; | |
• | results of operations that vary from those expected by securities analysts and investors; | |
• | developments in the healthcare or insurance industries; | |
• | changes in laws and regulations; | |
• | announcements of claims against us by third parties; and | |
• | future issuances or sales of our common stock, including issuances upon conversion of our outstanding convertible preferred stock. |
18
19
• | election of our directors is classified, meaning that the members of only one of three classes of our directors are elected each year; | |
• | shareholders have limited ability to call shareholder meetings and to bring business before a meeting of shareholders; | |
• | shareholders may not act by written consent, unless the consent is unanimous; and | |
• | our board of directors may authorize the issuance of junior preferred stock with such rights, preferences and privileges as the board deems appropriate. |
20
21
23
• | references to the “company,” “we,” “us” or “our” refer to AMERISAFE, Inc. and its subsidiaries, unless the context suggests otherwise; and | |
• | references to “AMERISAFE” refer solely to AMERISAFE, Inc., unless the context suggests otherwise. |
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• | greater frequency or severity of claims and loss activity, including as a result of natural or man-made catastrophic events, than our underwriting, reserving or investment practices anticipate based on historical experience or industry data; | |
• | changes in rating agency policies or practices; | |
• | the cyclical nature of the workers’ compensation insurance industry; | |
• | changes in the availability, cost or quality of reinsurance and the failure of our reinsurers to pay claims in a timely manner or at all; | |
• | negative developments in the workers’ compensation insurance industry; | |
• | decreased level of business activity of our policyholders; | |
• | decreased demand for our insurance; | |
• | increased competition on the basis of coverage availability, claims management, safety services, payment terms, premium rates, policy terms, types of insurance offered, overall financial strength, financial ratings and reputation; | |
• | changes in regulations or laws applicable to us, our policyholders or the agencies that sell our insurance; | |
• | changes in legal theories of liability under our insurance policies; | |
• | developments in capital markets that adversely affect the performance of our investments; | |
• | loss of the services of any of our senior management or other key employees; | |
• | the effects of U.S. involvement in hostilities with other countries and large-scale acts of terrorism, or the threat of hostilities or terrorist acts; and | |
• | changes in general economic conditions, including interest rates, inflation and other factors. |
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25
High | Low | |||||||
2005 | ||||||||
Fourth Quarter (beginning November 18, 2005) | $ | 10.98 | $ | 8.12 | ||||
2006 | ||||||||
First Quarter | $ | 12.50 | $ | 8.36 | ||||
Second Quarter | $ | 14.35 | $ | 10.25 | ||||
Third Quarter | $ | 13.50 | $ | 9.30 | ||||
Fourth Quarter (through October 31, 2006) | $ | 13.30 | $ | 9.43 |
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26
As of September 30, 2006 | ||||||||
Actual | As Adjusted | |||||||
(Unaudited) | ||||||||
(In thousands, except | ||||||||
share data) | ||||||||
Subordinated debt securities | $ | 36,090 | $ | 36,090 | ||||
Redeemable preferred stock: | ||||||||
Series C convertible preferred stock, par value $0.01 per share, $100 per share redemption value, 300,000 shares authorized; 300,000 shares issued and outstanding, actual; 50,000 shares issued and outstanding, as adjusted | 30,000 | 5,000 | ||||||
Series D convertible preferred stock, par value $0.01 per share, $100 per share redemption value, 200,000 shares authorized; 200,000 shares issued and outstanding, actual; 200,000 shares issued and outstanding, as adjusted | 20,000 | 20,000 | ||||||
Total redeemable preferred stock | 50,000 | 25,000 | ||||||
Shareholders’ equity: | ||||||||
Common stock, par value $0.01 per share, 50,000,000 shares authorized; 17,446,110 shares issued and outstanding, actual; 18,660,881 shares issued and outstanding, as adjusted | 174 | 187 | ||||||
Additional paid-in capital | 145,860 | 170,847 | ||||||
Accumulated deficit | (31,027 | ) | (31,575 | )(1) | ||||
Accumulated other comprehensive income | 6,659 | 6,659 | ||||||
Total shareholders’ equity | 121,666 | 146,118 | ||||||
Total capitalization | $ | 207,756 | $ | 207,208 | ||||
(1) | Reflects the | |
As of June 30, 2005 | |||||||||
Actual | As Adjusted | ||||||||
(Unaudited) | |||||||||
(In thousands, except | |||||||||
share data) | |||||||||
Subordinated debt securities | $ | 36,090 | $ | 36,090 | |||||
Redeemable preferred stock: | |||||||||
Series A preferred stock, par value $0.01 per share, $100 per share redemption value, 1,500,000 shares authorized; 848,082 shares issued and outstanding, actual; no shares issued and outstanding, as adjusted | 84,808 | — | |||||||
Series C convertible preferred stock, par value $0.01 per share, $100 per share redemption value, 300,000 shares authorized; 300,000 shares issued and outstanding, actual and as adjusted | 30,000 | 30,000 | |||||||
Series D convertible preferred stock, par value $0.01 per share, $100 per share redemption value, 200,000 shares authorized; 200,000 shares issued and outstanding, actual and as adjusted | 20,000 | 20,000 | |||||||
Total redeemable preferred stock | 134,808 | 50,000 | |||||||
Shareholders’ deficit: | |||||||||
Series E preferred stock, par value $0.01 per share, $100 per share redemption value, 500,000 shares authorized; 35,930 shares issued and outstanding, actual; no shares issued and outstanding, as adjusted | 3,593 | — | |||||||
Common stock, par value $0.01 per share, 100,000,000 shares authorized; 21,581,864 shares issued and outstanding, actual; shares issued and outstanding, as adjusted | 216 | ||||||||
Additional paid-in capital | — | ||||||||
Retained deficit | (60,900 | ) | |||||||
Accumulated other comprehensive income | 6,639 | ||||||||
Total shareholders’ deficit | (50,452 | ) | |||||||
Total capitalization | $ | 120,446 | $ | ||||||
25
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Year Ended December 31, | Six Months Ended June 30, | ||||||||||||||||||||||||||||
2000 | 2001 | 2002 | 2003 | 2004 | 2004 | 2005 | |||||||||||||||||||||||
(In thousands, except share and per share data) | |||||||||||||||||||||||||||||
Income Statement Data | |||||||||||||||||||||||||||||
Gross premiums written | $ | 345,027 | $ | 204,752 | $ | 185,093 | $ | 223,590 | $ | 264,962 | $ | 151,557 | $ | 160,524 | |||||||||||||||
Ceded premiums written | (80,076 | ) | (49,342 | ) | (26,563 | ) | (27,600 | ) | (21,951 | ) | (10,523 | ) | (9,697 | ) | |||||||||||||||
Net premiums written | $ | 264,951 | $ | 155,410 | $ | 158,530 | $ | 195,990 | $ | 243,011 | $ | 141,034 | $ | 150,827 | |||||||||||||||
Net premiums earned | $ | 187,106 | $ | 170,782 | $ | 163,257 | $ | 179,847 | $ | 234,733 | $ | 113,079 | $ | 125,032 | |||||||||||||||
Net investment income | 9,372 | 9,935 | 9,419 | 10,106 | 12,217 | 5,407 | 7,650 | ||||||||||||||||||||||
Net realized gains (losses) on investments | (773 | ) | 491 | (895 | ) | 316 | 1,421 | 619 | 774 | ||||||||||||||||||||
Fee and other income | 2,520 | 1,367 | 2,082 | 462 | 589 | 262 | 306 | ||||||||||||||||||||||
Total revenues | 198,225 | 182,575 | 173,863 | 190,731 | 248,960 | 119,367 | 133,762 | ||||||||||||||||||||||
Loss and loss adjustment expenses incurred | 109,536 | 123,386 | 121,062 | 129,250 | 174,186 | 86,413 | 110,436 | ||||||||||||||||||||||
Underwriting and certain other operating costs(1) | 23,334 | 23,364 | 22,674 | 23,062 | 28,987 | 12,620 | 15,297 | ||||||||||||||||||||||
Commissions | 16,121 | 14,351 | 9,189 | 11,003 | 14,160 | 6,971 | 7,822 | ||||||||||||||||||||||
Salaries and benefits | 20,253 | 17,148 | 16,541 | 15,037 | 15,034 | 7,512 | 6,448 | ||||||||||||||||||||||
Interest expense | 797 | 735 | 498 | 203 | 1,799 | 627 | 1,326 | ||||||||||||||||||||||
Policyholder dividends | 7,156 | 2,717 | 156 | 736 | 1,108 | 754 | 386 | ||||||||||||||||||||||
Total expenses | 177,197 | 181,701 | 170,120 | 179,291 | 235,274 | 114,897 | 141,715 | ||||||||||||||||||||||
Income (loss) before taxes | 21,028 | 874 | 3,743 | 11,440 | 13,686 | 4,470 | (7,953 | ) | |||||||||||||||||||||
Income tax expense (benefit) | 7,001 | (395 | ) | (1,438 | ) | 2,846 | 3,129 | 871 | (3,669 | ) | |||||||||||||||||||
Net income (loss) | 14,027 | 1,269 | 5,181 | 8,594 | 10,557 | 3,599 | (4,284 | ) | |||||||||||||||||||||
Payment-in-kind preferred dividends | (8,229 | ) | (8,820 | ) | (9,453 | ) | (10,133 | ) | (9,781 | ) | (5,221 | ) | (4,720 | ) | |||||||||||||||
Net income (loss) available to common shareholders | $ | 5,798 | $ | (7,551 | ) | $ | (4,272 | ) | $ | (1,539 | ) | $ | 776 | $ | (1,622 | ) | $ | (9,004 | ) | ||||||||||
Portion allocable to common shareholders(2) | 65.3% | 100.0% | 100.0% | 100.0% | 70.2% | 100.0% | 100.0% | ||||||||||||||||||||||
Net income (loss) allocable to common shareholders | $ | 3,784 | $ | (7,551 | ) | $ | (4,272 | ) | $ | (1,539 | ) | $ | 545 | $ | (1,622 | ) | $ | (9,004 | ) | ||||||||||
Diluted earnings per common share equivalent | $ | 0.18 | $ | (0.58 | ) | $ | (0.33 | ) | $ | (0.12 | ) | $ | 0.03 | $ | (0.13 | ) | $ | (0.42 | ) | ||||||||||
Diluted weighted average of common share equivalents outstanding | 21,581,864 | 12,967,104 | 12,967,104 | 12,967,104 | 18,380,132 | 12,967,104 | 21,581,864 |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
(Unaudited) | ||||||||||||||||
(In thousands, except share and per share data) | ||||||||||||||||
Income Statement Data | ||||||||||||||||
Gross premiums written | $ | 82,951 | $ | 70,658 | $ | 255,920 | $ | 231,182 | ||||||||
Ceded premiums written | (4,894 | ) | (5,233 | ) | (14,069 | ) | (14,930 | ) | ||||||||
Net premiums written | $ | 78,057 | $ | 65,425 | $ | 241,851 | $ | 216,252 | ||||||||
Net premiums earned | $ | 74,991 | $ | 64,338 | $ | 214,972 | $ | 189,970 | ||||||||
Net investment income | 6,316 | 4,335 | 18,132 | 11,985 | ||||||||||||
Net realized gains on investments | 346 | 563 | 2,581 | 1,337 | ||||||||||||
Fee and other income | 195 | 120 | 550 | 426 | ||||||||||||
Total revenues | 81,848 | 69,356 | 236,235 | 203,118 | ||||||||||||
Loss and loss adjustment expenses incurred | 51,743 | 45,189 | 149,989 | 155,625 | (2) | |||||||||||
Underwriting and certain other operating costs(1) | 9,089 | 8,881 | 26,524 | 23,578 | ||||||||||||
Commissions | 4,925 | 4,047 | 13,811 | 11,869 | ||||||||||||
Salaries and benefits | 4,195 | 3,920 | 12,404 | 10,968 | ||||||||||||
Interest expense | 923 | 735 | 2,579 | 2,061 | ||||||||||||
Policyholder dividends | 216 | 65 | 563 | 451 | ||||||||||||
Total expenses | 71,091 | 62,837 | 205,870 | 204,552 | ||||||||||||
Income (loss) before taxes | 10,757 | 6,519 | 30,365 | (1,434 | ) | |||||||||||
Income tax expense (benefit) | 2,492 | 1,709 | 7,046 | (1,960 | ) | |||||||||||
Net income | 8,265 | 4,810 | 23,319 | 526 | ||||||||||||
Payment-in-kind preferred dividends(3) | — | (2,422 | ) | — | (7,142 | ) | ||||||||||
Net income (loss) available to common shareholders | $ | 8,265 | $ | 2,388 | $ | 23,319 | $ | (6,616 | ) | |||||||
Portion allocable to common shareholders(4) | 87.8 | % | 75.8 | % | 87.8 | % | 100.0 | % | ||||||||
Net income (loss) allocable to common shareholders | $ | 7,257 | $ | 1,812 | $ | 20,474 | $ | (6,616 | ) | |||||||
Diluted earnings per common share equivalent | $ | 0.42 | $ | 6.05 | $ | 1.17 | $ | (22.07 | ) | |||||||
Diluted weighted average of common share equivalents outstanding | 17,432,597 | 299,774 | 17,431,263 | 299,774 | ||||||||||||
Selected Insurance Ratios | ||||||||||||||||
Current accident year loss ratio(5) | 69.0 | % | 70.2 | % | 69.8 | % | 70.6 | % | ||||||||
Prior accident year loss ratio(6) | 0.0 | % | 0.0 | % | 0.0 | % | 11.6 | % | ||||||||
Net loss ratio | 69.0 | % | 70.2 | % | 69.8 | % | 82.2 | % | ||||||||
Net underwriting expense ratio(7) | 24.3 | % | 26.2 | % | 24.5 | % | 24.5 | % | ||||||||
Net dividend ratio(8) | 0.3 | % | 0.1 | % | 0.3 | % | 0.2 | % | ||||||||
Net combined ratio(9) | 93.6 | % | 96.5 | % | 94.6 | % | 106.9 | % |
26
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Six Months Ended | ||||||||||||||||||||||||||||
Year Ended December 31, | June 30, | |||||||||||||||||||||||||||
2000 | 2001 | 2002 | 2003 | 2004 | 2004 | 2005 | ||||||||||||||||||||||
Selected Insurance Ratios | ||||||||||||||||||||||||||||
Current accident year loss ratio(3) | 57.1% | 66.9% | 71.8% | 70.6% | 68.5% | 64.8% | 70.8% | |||||||||||||||||||||
Prior accident year loss ratio(4) | 1.4% | 5.3% | 2.4% | 1.3% | 5.7% | 11.6% | 17.5% | |||||||||||||||||||||
Net loss ratio | 58.5% | 72.2% | 74.2% | 71.9% | 74.2% | 76.4% | 88.3% | |||||||||||||||||||||
Net underwriting expense ratio(5) | 31.9% | 32.1% | 29.7% | 27.3% | 24.8% | 24.0% | 23.6% | |||||||||||||||||||||
Net dividend ratio(6) | 3.8% | 1.6% | 0.1% | 0.4% | 0.5% | 0.7% | 0.3% | |||||||||||||||||||||
Net combined ratio(7) | 94.2% | 105.9% | 104.0% | 99.6% | 99.5% | 101.1% | 112.2% |
As of December 31, | As of June 30, | |||||||||||||||||||||||||||
2000 | 2001 | 2002 | 2003 | 2004 | 2004 | 2005 | ||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||
Balance Sheet Data | ||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 44,914 | $ | 44,270 | $ | 44,677 | $ | 49,815 | $ | 25,421 | $ | 51,037 | $ | 27,462 | ||||||||||||||
Investments | 145,439 | 148,305 | 205,315 | 257,729 | 364,868 | 287,299 | 396,733 | |||||||||||||||||||||
Amounts recoverable from reinsurers | 327,172 | 298,451 | 214,342 | 211,774 | 198,977 | 195,564 | 174,556 | (8) | ||||||||||||||||||||
Premiums receivable, net | 122,450 | 104,907 | 95,291 | 108,380 | 114,141 | 142,603 | 144,953 | |||||||||||||||||||||
Deferred income taxes | 11,807 | 14,716 | 11,372 | 12,713 | 15,624 | 16,140 | 23,274 | |||||||||||||||||||||
Deferred policy acquisition costs | 14,038 | 11,077 | 9,505 | 11,820 | 12,044 | 14,399 | 18,496 | |||||||||||||||||||||
Deferred charges | 3,681 | 2,588 | 1,997 | 2,987 | 3,054 | 4,014 | 3,894 | |||||||||||||||||||||
Total assets | 685,308 | 645,474 | 603,801 | 678,608 | 754,187 | 735,189 | 811,530 | |||||||||||||||||||||
Reserves for loss and loss adjustment expenses | 379,824 | 383,032 | 346,542 | 377,559 | 432,880 | 400,405 | 457,827 | |||||||||||||||||||||
Unearned premiums | 107,418 | 92,047 | 87,319 | 103,462 | 111,741 | 131,417 | 137,536 | |||||||||||||||||||||
Insurance-related assessments | 25,522 | 25,964 | 23,743 | 26,133 | 29,876 | 30,531 | 34,487 | |||||||||||||||||||||
Debt | 9,500 | 9,000 | 8,000 | 16,310 | 36,090 | 36,090 | 36,090 | |||||||||||||||||||||
Redeemable preferred stock(9) | 112,061 | 116,520 | 121,300 | 126,424 | 131,916 | 129,122 | 134,808 | |||||||||||||||||||||
Shareholders’ deficit(10) | (26,913 | ) | (10,980 | ) | (25,100 | ) | (20,652 | ) | (42,862 | ) | (47,584 | ) | (50,452 | ) |
Year Ended December 31, | ||||||||||||||||||||
2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||||||
(In thousands, except share and per share data) | ||||||||||||||||||||
Income Statement Data | ||||||||||||||||||||
Gross premiums written | $ | 290,891 | $ | 264,962 | $ | 223,590 | $ | 185,093 | $ | 204,752 | ||||||||||
Ceded premiums written | (21,541 | ) | (21,951 | ) | (27,600 | ) | (26,563 | ) | (49,342 | ) | ||||||||||
Net premiums written | $ | 269,350 | $ | 243,011 | $ | 195,990 | $ | 158,530 | $ | 155,410 | ||||||||||
Net premiums earned | $ | 256,568 | $ | 234,733 | $ | 179,847 | $ | 163,257 | $ | 170,782 | ||||||||||
Net investment income | 16,882 | 12,217 | 10,106 | 9,419 | 9,935 | |||||||||||||||
Net realized gains (losses) on investments | 2,272 | 1,421 | 316 | (895 | ) | 491 | ||||||||||||||
Fee and other income | 561 | 589 | 462 | 2,082 | 1,367 | |||||||||||||||
Total revenues | 276,283 | 248,960 | 190,731 | 173,863 | 182,575 | |||||||||||||||
Loss and loss adjustment expenses incurred | 204,056 | (2) | 174,186 | 129,250 | 121,062 | 123,386 | ||||||||||||||
Underwriting and certain other operating costs(1) | 33,008 | 28,987 | 23,062 | 22,674 | 23,364 | |||||||||||||||
Commissions | 16,226 | 14,160 | 11,003 | 9,189 | 14,351 | |||||||||||||||
Salaries and benefits | 14,150 | 15,034 | 15,037 | 16,541 | 17,148 | |||||||||||||||
Interest expense | 2,844 | 1,799 | 203 | 498 | 735 | |||||||||||||||
Policyholder dividends | 4 | 1,108 | 736 | 156 | 2,717 | |||||||||||||||
Total expenses | 270,288 | 235,274 | 179,291 | 170,120 | 181,701 | |||||||||||||||
Income before taxes | 5,995 | 13,686 | 11,440 | 3,743 | 874 | |||||||||||||||
Income tax expense (benefit) | 65 | 3,129 | 2,846 | (1,438 | ) | (395 | ) | |||||||||||||
Net income | 5,930 | 10,557 | 8,594 | 5,181 | 1,269 | |||||||||||||||
Payment-in-kind preferred dividends(3) | (8,593 | ) | (9,781 | ) | (10,133 | ) | (9,453 | ) | (8,820 | ) | ||||||||||
Net income (loss) available to common shareholders | $ | (2,663 | ) | $ | 776 | $ | (1,539 | ) | $ | (4,272 | ) | $ | (7,551 | ) | ||||||
Portion allocable to common shareholders(4) | 100.0 | % | 70.2 | % | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||
Net income (loss) allocable to common shareholders | $ | (2,663 | ) | $ | 545 | $ | (1,539 | ) | $ | (4,272 | ) | $ | (7,551 | ) | ||||||
Diluted earnings per common share equivalent | $ | (1.25 | ) | $ | 2.14 | $ | (8.55 | ) | $ | (23.72 | ) | $ | (41.93 | ) | ||||||
Diluted weighted average of common share equivalents outstanding | 2,129,492 | 255,280 | 180,125 | 180,125 | 180,125 | |||||||||||||||
Selected Insurance Ratios | ||||||||||||||||||||
Current accident year loss ratio(5) | 71.0 | % | 68.5 | % | 70.6 | % | 71.8 | % | 66.9 | % | ||||||||||
Prior accident year loss ratio(6) | 8.5 | % | 5.7 | % | 1.3 | % | 2.4 | % | 5.3 | % | ||||||||||
Net loss ratio | 79.5 | % | 74.2 | % | 71.9 | % | 74.2 | % | 72.2 | % | ||||||||||
Net underwriting expense ratio(7) | 24.7 | % | 24.8 | % | 27.3 | % | 29.7 | % | 32.1 | % | ||||||||||
Net dividend ratio(8) | 0.0 | % | 0.5 | % | 0.4 | % | 0.1 | % | 1.6 | % | ||||||||||
Net combined ratio(9) | 104.2 | % | 99.5 | % | 99.6 | % | 104.0 | % | 105.9 | % |
27
September 30, | December 31, | |||||||||||||||||||||||||||
2006 | 2005 | 2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||||||||||||
(Unaudited) | ||||||||||||||||||||||||||||
(In thousands, except share and per share data) | ||||||||||||||||||||||||||||
Balance Sheet Data | ||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 61,778 | $ | 28,843 | $ | 49,286 | $ | 25,421 | $ | 49,815 | $ | 44,677 | $ | 44,270 | ||||||||||||||
Investments | 577,775 | 469,316 | 533,618 | 364,868 | 257,729 | 205,315 | 148,305 | |||||||||||||||||||||
Amounts recoverable from reinsurers | 122,792 | 122,774 | 122,562 | 198,977 | 211,774 | 214,342 | 298,451 | |||||||||||||||||||||
Premiums receivable, net | 145,621 | 140,061 | 123,934 | 114,141 | 108,380 | 95,291 | 104,907 | |||||||||||||||||||||
Deferred income taxes | 26,689 | 23,232 | 22,413 | 15,624 | 12,713 | 11,372 | 14,716 | |||||||||||||||||||||
Deferred policy acquisition costs | 19,785 | 18,189 | 16,973 | 12,044 | 11,820 | 9,505 | 11,077 | |||||||||||||||||||||
Deferred charges | 4,003 | 3,601 | 3,182 | 3,054 | 2,987 | 1,997 | 2,588 | |||||||||||||||||||||
Total assets | 985,034 | 830,308 | 892,320 | 754,187 | 678,608 | 603,801 | 645,474 | |||||||||||||||||||||
Reserves for loss and loss adjustment expenses | 520,843 | 469,894 | 484,485 | 432,880 | 377,559 | 346,542 | 383,032 | |||||||||||||||||||||
Unearned premiums | 151,403 | 138,623 | 124,524 | 111,741 | 103,462 | 87,319 | 92,047 | |||||||||||||||||||||
Insurance-related assessments | 39,647 | 33,847 | 35,135 | 29,876 | 26,133 | 23,743 | 25,964 | |||||||||||||||||||||
Debt | 36,090 | 36,090 | 36,090 | 36,090 | 16,310 | 8,000 | 9,000 | |||||||||||||||||||||
Redeemable preferred stock(10) | 50,000 | 136,292 | 50,000 | 131,916 | 126,424 | 121,300 | 116,520 | |||||||||||||||||||||
Shareholders’ equity (deficit)(11) | 121,666 | (46,969 | ) | 97,346 | (42,862 | ) | (20,652 | ) | (25,100 | ) | (10,980 | ) |
(1) | Includes policy acquisition expenses, such as assessments, premium taxes and other general and administrative expenses, excluding commissions and salaries and benefits, related to insurance operations and corporate operating expenses. | |
(2) | Includes (a) a pre-tax loss of $13.2 million in connection with a commutation agreement with Converium Reinsurance (North America), one of our reinsurers, pursuant to which Converium paid us $61.3 million in exchange for a termination and release of three of our five reinsurance agreements with Converium and (b) an $8.7 million pre-tax increase in our reserves for loss and loss adjustment expenses related to prior accident years. | |
(3) | Under the terms of our articles of incorporation, holders of our Series C and Series D convertible preferred stock are no longer entitled to receivepay-in-kind dividends as a result of the redemption and exchange of all of our outstanding shares of Series A preferred stock in connection with the initial public offering of our common stock in November 2005. | |
(4) | Reflects the participation rights of the Series C and Series D convertible preferred stock. See Note 15 to our audited financial statements. | |
The current accident year loss ratio is calculated by dividing loss and loss adjustment expenses incurred for the current accident year by the current year’s net premiums earned. | ||
The prior accident year loss ratio is calculated by dividing the change in loss and loss adjustment expenses incurred for prior accident years by the current year’s net premiums earned. | ||
The net underwriting expense ratio is calculated by dividing underwriting and certain other operating costs, commissions and salaries and benefits by the current year’s net premiums earned. | ||
The net dividend ratio is calculated by dividing policyholder dividends by the current year’s net premiums earned. | ||
The net combined ratio is the sum of the net loss ratio, the net underwriting expense ratio and the net dividend ratio. |
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Includes our |
(11) | ||
In 1997, we entered into a recapitalization transaction with Welsh Carson, our principal shareholder, that resulted in a $164.2 million charge to retained earnings. |
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• | how long and by how much the fair value of the security has been below its cost; | |
• | the financial condition and near-term prospects of the issuer of the security, including any specific events that may affect its operations or earnings; | |
• | our intent and ability to keep the security for a sufficient time period for it to recover its value; | |
• | any downgrades of the security by a rating agency; and | |
• | any reduction or elimination of dividends, or nonpayment of scheduled interest payments. |
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Six Months Ended | |||||||||||||||||||||
Year Ended December 31, | June 30, | ||||||||||||||||||||
2002 | 2003 | 2004 | 2004 | 2005 | |||||||||||||||||
(Unaudited) | |||||||||||||||||||||
(In thousands) | |||||||||||||||||||||
Income Statement Data | |||||||||||||||||||||
Gross premiums written | $ | 185,093 | $ | 223,590 | $ | 264,962 | $ | 151,557 | $ | 160,524 | |||||||||||
Ceded premiums written | (26,563 | ) | (27,600 | ) | (21,951 | ) | (10,523 | ) | (9,697 | ) | |||||||||||
Net premiums written | $ | 158,530 | $ | 195,990 | $ | 243,011 | $ | 141,034 | $ | 150,827 | |||||||||||
Net premiums earned | $ | 163,257 | $ | 179,847 | $ | 234,733 | $ | 113,079 | $ | 125,032 | |||||||||||
Net investment income | 9,419 | 10,106 | 12,217 | 5,407 | 7,650 | ||||||||||||||||
Net realized gains (losses) on investments | (895 | ) | 316 | 1,421 | 619 | 774 | |||||||||||||||
Fee and other income | 2,082 | 462 | 589 | 262 | 306 | ||||||||||||||||
Total revenues | 173,863 | 190,731 | 248,960 | 119,367 | 133,762 | ||||||||||||||||
Loss and loss adjustment expenses incurred | 121,062 | 129,250 | 174,186 | 86,413 | 110,436 | ||||||||||||||||
Underwriting and certain other operating costs(1) | 22,674 | 23,062 | 28,987 | 12,620 | 15,297 | ||||||||||||||||
Commissions | 9,189 | 11,003 | 14,160 | 6,971 | 7,822 | ||||||||||||||||
Salaries and benefits | 16,541 | 15,037 | 15,034 | 7,512 | 6,448 | ||||||||||||||||
Interest expense | 498 | 203 | 1,799 | 627 | 1,326 | ||||||||||||||||
Policyholder dividends | 156 | 736 | 1,108 | 754 | 386 | ||||||||||||||||
Total expenses | 170,120 | 179,291 | 235,274 | 114,897 | 141,715 | ||||||||||||||||
Income (loss) before taxes | 3,743 | 11,440 | 13,686 | 4,470 | (7,953 | ) | |||||||||||||||
Income tax expense (benefit) | (1,438 | ) | 2,846 | 3,129 | 871 | (3,669 | ) | ||||||||||||||
Net income (loss) | $ | 5,181 | $ | 8,594 | $ | 10,557 | $ | 3,599 | $ | (4,284 | ) | ||||||||||
Selected Insurance Ratios | |||||||||||||||||||||
Current accident year loss ratio(2) | 71.8% | 70.6% | 68.5% | 64.8% | 70.8% | ||||||||||||||||
Prior accident year loss ratio(3) | 2.4% | 1.3% | 5.7% | 11.6% | 17.5% | ||||||||||||||||
Net loss ratio | 74.2% | 71.9% | 74.2% | 76.4% | 88.3% | ||||||||||||||||
Net underwriting expense ratio(4) | 29.7% | 27.3% | 24.8% | 24.0% | 23.6% | ||||||||||||||||
Net dividend ratio(5) | 0.1% | 0.4% | 0.5% | 0.7% | 0.3% | ||||||||||||||||
Net combined ratio(6) | 104.0% | 99.6% | 99.5% | 101.1% | 112.2% |
Three Months Ended | Nine Months Ended | Year Ended | ||||||||||||||||||||||||||
September 30, | September 30, | December 31, | ||||||||||||||||||||||||||
2006 | 2005 | 2006 | 2005 | 2005 | 2004 | 2003 | ||||||||||||||||||||||
(Unaudited) | (Unaudited) | |||||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||
Income Statement Data | ||||||||||||||||||||||||||||
Gross premiums written | $ | 82,951 | $ | 70,658 | $ | 255,920 | $ | 231,182 | $ | 290,891 | $ | 264,962 | $ | 223,590 | ||||||||||||||
Ceded premiums written | (4,894 | ) | (5,233 | ) | (14,069 | ) | (14,930 | ) | (21,541 | ) | (21,951 | ) | (27,600 | ) | ||||||||||||||
Net premiums written | $ | 78,057 | $ | 65,425 | $ | 241,851 | $ | 216,252 | $ | 269,350 | $ | 243,011 | $ | 195,990 | ||||||||||||||
Net premiums earned | $ | 74,991 | $ | 64,338 | $ | 214,972 | $ | 189,370 | $ | 256,568 | $ | 234,733 | $ | 179,847 | ||||||||||||||
Net investment income | 6,316 | 4,335 | 18,132 | 11,985 | 16,882 | 12,217 | 10,106 | |||||||||||||||||||||
Net realized gains on investments | 346 | 563 | 2,581 | 1,337 | 2,272 | 1,421 | 316 | |||||||||||||||||||||
Fee and other income | 195 | 120 | 550 | 426 | 561 | 589 | 462 | |||||||||||||||||||||
Total revenues | 81,848 | 69,356 | 236,235 | 203,118 | 276,283 | 248,960 | 190,731 | |||||||||||||||||||||
Loss and loss adjustment expenses incurred | 51,743 | 45,189 | 149,989 | 155,625 | (2) | 204,056 | (2) | 174,186 | 129,250 | |||||||||||||||||||
Underwriting and certain other operating costs(1) | 9,089 | 8,881 | 26,524 | 23,578 | 33,008 | 28,987 | 23,062 | |||||||||||||||||||||
Commissions | 4,925 | 4,047 | 13,811 | 11,869 | 16,226 | 14,160 | 11,003 | |||||||||||||||||||||
Salaries and benefits | 4,195 | 3,920 | 12,404 | 10,968 | 14,150 | 15,034 | 15,037 | |||||||||||||||||||||
Interest expense | 923 | 735 | 2,579 | 2,061 | 2,844 | 1,799 | 203 | |||||||||||||||||||||
Policyholder dividends | 216 | 65 | 563 | 451 | 4 | 1,108 | 736 | |||||||||||||||||||||
Total expenses | 71,091 | 62,837 | 205,870 | 204,552 | 270,288 | 235,274 | 179,291 | |||||||||||||||||||||
Income (loss) before taxes | 10,757 | 6,519 | 30,365 | (1,434 | ) | 5,995 | 13,686 | 11,440 | ||||||||||||||||||||
Income tax expense (benefit) | 2,492 | 1,709 | 7,046 | (1,960 | ) | 65 | 3,129 | 2,846 | ||||||||||||||||||||
Net income | $ | 8,265 | $ | 4,810 | $ | 23,319 | $ | 526 | $ | 5,930 | $ | 10,557 | $ | 8,594 | ||||||||||||||
Selected Insurance Ratios | ||||||||||||||||||||||||||||
Current accident year loss ratio(3) | 69.0 | % | 70.2 | % | 69.8 | % | 70.6 | % | 71.0 | % | 68.5 | % | 70.6 | % | ||||||||||||||
Prior accident year loss ratio(4) | 0.0 | % | 0.0 | % | 0.0 | % | 11.6 | % | 8.5 | % | 5.7 | % | 1.3 | % | ||||||||||||||
Net loss ratio | 69.0 | % | 70.2 | % | 69.8 | % | 82.2 | % | 79.5 | % | 74.2 | % | 71.9 | % | ||||||||||||||
Net underwriting expense ratio(5) | 24.3 | % | 26.2 | % | 24.5 | % | 24.5 | % | 24.7 | % | 24.8 | % | 27.3 | % | ||||||||||||||
Net dividend ratio(6) | 0.3 | % | 0.1 | % | 0.3 | % | 0.2 | % | 0.0 | % | 0.5 | % | 0.4 | % | ||||||||||||||
Net combined ratio(7) | 93.6 | % | 96.5 | % | 94.6 | % | 106.9 | % | 104.2 | % | 99.5 | % | 99.6 | % |
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As of December 31, | As of June 30, | |||||||||||||||||||
2002 | 2003 | 2004 | 2004 | 2005 | ||||||||||||||||
(In thousands) | (Unaudited) | |||||||||||||||||||
Balance Sheet Data | ||||||||||||||||||||
Cash and cash equivalents | $ | 44,677 | $ | 49,815 | $ | 25,421 | $ | 51,037 | $ | 27,462 | ||||||||||
Investments | 205,315 | 257,729 | 364,868 | 287,299 | 396,733 | |||||||||||||||
Amounts recoverable from reinsurers | 214,342 | 211,774 | 198,977 | 195,564 | 174,556 | (7) | ||||||||||||||
Premiums receivable, net | 95,291 | 108,380 | 114,141 | 142,603 | 144,953 | |||||||||||||||
Deferred income taxes | 11,372 | 12,713 | 15,624 | 16,140 | 23,274 | |||||||||||||||
Deferred policy acquisition costs | 9,505 | 11,820 | 12,044 | 14,399 | 18,496 | |||||||||||||||
Deferred charges | 1,997 | 2,987 | 3,054 | 4,014 | 3,894 | |||||||||||||||
Total assets | 603,801 | 678,608 | 754,187 | 735,189 | 811,530 | |||||||||||||||
Reserves for loss and loss adjustment expenses | 346,542 | 377,559 | 432,880 | 400,405 | 457,827 | |||||||||||||||
Unearned premiums | 87,319 | 103,462 | 111,741 | 131,417 | 137,536 | |||||||||||||||
Insurance-related assessments | 23,743 | 26,133 | 29,876 | 30,531 | 34,487 | |||||||||||||||
Debt | 8,000 | 16,310 | 36,090 | 36,090 | 36,090 | |||||||||||||||
Redeemable preferred stock(8) | 121,300 | 126,424 | 131,916 | 129,122 | 134,808 | |||||||||||||||
Shareholders’ deficit(9) | (25,100 | ) | (20,652 | ) | (42,862 | ) | (47,584 | ) | (50,452 | ) |
September 30, | December 31, | |||||||||||||||||||
2006 | 2005 | 2005 | 2004 | 2003 | ||||||||||||||||
(Unaudited) | ||||||||||||||||||||
(In thousands) | ||||||||||||||||||||
Balance Sheet Data | ||||||||||||||||||||
Cash and cash equivalents | $ | 61,778 | $ | 28,843 | $ | 49,286 | $ | 25,421 | $ | 49,815 | ||||||||||
Investments | 577,775 | 469,316 | 533,618 | 364,868 | 257,729 | |||||||||||||||
Amounts recoverable from reinsurers | 122,792 | 122,774 | 122,562 | 198,977 | 211,774 | |||||||||||||||
Premiums receivable, net | 145,621 | 140,061 | 123,934 | 114,141 | 108,380 | |||||||||||||||
Deferred income taxes | 26,689 | 23,232 | 22,413 | 15,624 | 12,713 | |||||||||||||||
Deferred policy acquisition costs | 19,785 | 18,189 | 16,973 | 12,044 | 11,820 | |||||||||||||||
Deferred charges | 4,003 | 3,601 | 3,182 | 3,054 | 2,987 | |||||||||||||||
Total assets | 985,034 | 830,308 | 892,320 | 754,187 | 678,608 | |||||||||||||||
Reserves for loss and loss adjustment expenses | 520,843 | 469,894 | 484,485 | 432,880 | 377,559 | |||||||||||||||
Unearned premiums | 151,403 | 138,623 | 124,524 | 111,741 | 103,462 | |||||||||||||||
Insurance-related assessments | 39,647 | 33,847 | 35,135 | 29,876 | 26,133 | |||||||||||||||
Debt | 36,090 | 36,090 | 36,090 | 36,090 | 16,310 | |||||||||||||||
Redeemable preferred stock(8) | 50,000 | 136,292 | 50,000 | 131,916 | 126,424 | |||||||||||||||
Shareholders’ equity (deficit)(9) | 121,666 | (46,969 | ) | 97,346 | (42,862 | ) | (20,652 | ) |
(1) | Includes policy acquisition expenses, such as assessments, premium taxes and other general and administrative expenses, excluding commissions and salaries and benefits, related to insurance operations and corporate operating expenses. | |
(2) | Includes (a) a pre-tax loss of $13.2 million in connection with a commutation agreement with Converium Reinsurance (North America), one of our reinsurers, pursuant to which Converium paid us $61.3 million in exchange for a termination and release of three of our five reinsurance agreements with Converium and (b) an $8.7 million pre-tax increase in our reserves for loss and loss adjustment expenses related to prior accident years. | |
(3) | The current accident year loss ratio is calculated by dividing loss and loss adjustment expenses incurred for the current accident year by the current year’s net premiums earned. | |
The prior accident year loss ratio is calculated by dividing the change in loss and loss adjustment expenses incurred for prior accident years by the current year’s net premiums earned. | ||
The net underwriting expense ratio is calculated by dividing underwriting and certain other operating costs, commissions and salaries and benefits by the current year’s net premiums earned. | ||
The net dividend ratio is calculated by dividing policyholder dividends by the current year’s net premiums earned. | ||
The net combined ratio is the sum of the net loss ratio, the net underwriting expense ratio and the net dividend ratio. | ||
Includes our | ||
(9) | In 1997, we entered into a recapitalization transaction with Welsh Carson, our principal shareholder, that resulted in a $164.2 million charge to retained earnings. |
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Percentage | ||||||||||
Carrying Value | of Portfolio | |||||||||
(In thousands) | ||||||||||
Fixed maturity securities: | ||||||||||
State and political subdivisions | $ | 191,321 | 45.1% | |||||||
Mortgage-backed securities | 83,800 | 19.8% | ||||||||
U.S. Treasury securities and obligations of U.S. Government agencies | 47,645 | 11.2% | ||||||||
Corporate bonds | 22,614 | 5.3% | ||||||||
Asset-backed securities | 2,260 | 0.5% | ||||||||
Redeemable preferred stocks | 1,720 | 0.4% | ||||||||
Total fixed maturity securities | 349,360 | 82.4% | ||||||||
Equity securities: | ||||||||||
Common stocks | 43,745 | 10.3% | ||||||||
Nonredeemable preferred stocks | 3,628 | 0.9% | ||||||||
Total equity securities | 47,373 | 11.2% | ||||||||
Total investments, excluding cash and cash equivalents | 396,733 | 93.5% | ||||||||
Cash and cash equivalents | 27,462 | 6.5% | ||||||||
Total investments, including cash and cash equivalents | $ | 424,195 | 100.0% | |||||||
Percentage | ||||||||
Carrying Value | of Portfolio | |||||||
(In thousands) | ||||||||
Fixed maturity securities: | ||||||||
State and political subdivisions | $ | 299,278 | 46.8% | |||||
Mortgage-backed securities | 117,062 | 18.3% | ||||||
U.S. Treasury securities and obligations of U.S. Government agencies | 79,162 | 12.4% | ||||||
Corporate bonds | 22,700 | 3.5% | ||||||
Asset-backed securities | 5,884 | 0.9% | ||||||
Redeemable preferred stocks | 633 | 0.1% | ||||||
Total fixed maturity securities | 524,719 | 82.0% | ||||||
Equity securities: | ||||||||
Common stocks | 49,377 | 7.7% | ||||||
Nonredeemable preferred stocks | 3,679 | 0.6% | ||||||
Total equity securities | 53,056 | 8.3% | ||||||
Cash and cash equivalents | 61,778 | 9.7% | ||||||
Total investments, including cash and cash equivalents | $ | 639,553 | 100.0% | |||||
• | how long and by how much the fair value of the security has been below its cost; | |
• | the financial condition and near-term prospects of the issuer of the security, including any specific events that may affect its operations or earnings; | |
• | our intent and ability to keep the security for a sufficient time period for it to recover its value; | |
• | any downgrades of the security by a rating agency; and | |
• | any reduction or elimination of dividends, or nonpayment of scheduled interest payments. |
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Aggregate | Aggregate | Fair Value as % | ||||||||||||
Fair Value | Unrealized Loss | of Cost Basis | ||||||||||||
(In thousands) | ||||||||||||||
Fixed maturity securities with unrealized losses: | ||||||||||||||
Exceeding $50,000 at June 30, 2005 and for: | ||||||||||||||
Less than one year (three issues) | $ | 12,065 | $ | 227 | 98.1 | % | ||||||||
Longer than one year (two issues) | 5,062 | 167 | 96.7 | % | ||||||||||
Less than $50,000 at June 30, 2005 (84 issues) | 108,114 | 891 | 99.2 | % | ||||||||||
Equity securities with unrealized losses: | ||||||||||||||
Exceeding $50,000 at June 30, 2005 and for: | ||||||||||||||
Less than one year (three issues) | 1,818 | 277 | 84.8 | % | ||||||||||
Longer than one year (two issues) | 1,060 | 241 | 77.3 | % | ||||||||||
Less than $50,000 at June 30, 2005 (91 issues) | 12,844 | 970 | 92.4 | % |
Future Minimum | ||||
Year | Lease Payments | |||
(In thousands) | ||||
2005 | $ | 479 | ||
2006 | 303 | |||
2007 | 185 | |||
2008 | 88 | |||
2009 | 58 | |||
2010 | 50 | |||
$ | 1,163 | |||
Future Minimum | ||||
Year | Lease Payments | |||
(In thousands) | ||||
2006 | $ | 958 | ||
2007 | 677 | |||
2008 | 522 | |||
2009 | 463 | |||
2010 | 8 | |||
$ | 2,628 | |||
47
Payment Due By Period | |||||||||||||||||||||
Less Than | More Than | ||||||||||||||||||||
Contractual Obligations | Total | 1 Year | 1-3 Years | 4-5 Years | 5 Years | ||||||||||||||||
(In thousands) | |||||||||||||||||||||
Subordinated notes(1) | $ | 36,090 | $ | 0 | $ | 0 | $ | 0 | $ | 36,090 | |||||||||||
Loss and loss adjustment expenses(2) | 432,880 | 100,043 | 95,004 | 38,817 | 199,016 | ||||||||||||||||
Loss-based insurance assessments(3) | 16,724 | 3,865 | 3,670 | 1,500 | 7,689 | ||||||||||||||||
Capital lease obligations | 1,530 | 510 | 1,020 | 0 | 0 | ||||||||||||||||
Operating lease obligations | 1,163 | 479 | 576 | 108 | 0 | ||||||||||||||||
Purchase obligations | 135 | 65 | 70 | 0 | 0 | ||||||||||||||||
Total | $ | 488,522 | $ | 104,962 | $ | 100,340 | $ | 40,425 | $ | 242,795 | |||||||||||
Payment Due By Period | ||||||||||||||||||||
Less Than | More Than | |||||||||||||||||||
Contractual Obligations | Total | 1 Year | 1-3 Years | 4-5 Years | 5 Years | |||||||||||||||
(In thousands) | ||||||||||||||||||||
Subordinated notes(1) | $ | 36,090 | $ | 0 | $ | 0 | $ | 0 | $ | 36,090 | ||||||||||
Loss and loss adjustment expenses(2) | 484,485 | 121,121 | 123,059 | 62,983 | 177,322 | |||||||||||||||
Loss-based insurance assessments(3) | 17,684 | 4,421 | 4,492 | 2,299 | 6,472 | |||||||||||||||
Capital lease obligations | 1,162 | 567 | 595 | 0 | 0 | |||||||||||||||
Operating lease obligations | 2,628 | 958 | 1,199 | 471 | 0 | |||||||||||||||
Purchase obligations | 372 | 271 | 101 | 0 | 0 | |||||||||||||||
Total | $ | 542,421 | $ | 127,338 | $ | 129,446 | $ | 65,753 | $ | 219,884 | ||||||||||
(1) | Amounts do not include interest payments associated with these obligations. Interest rates on our subordinated notes are variable and may change on a quarterly basis. See | |
(2) | The loss and loss adjustment expense payments due by period in the table above are based upon the loss and loss adjustment expense estimates as of December 31, |
46
payments due by period is subject to the same uncertainties associated with determining the level of loss and loss adjustment expenses generally and to the additional uncertainties arising from the difficulty of predicting when claims (including claims that have not yet been reported to us) will be paid. For a discussion of our loss and loss adjustment expense process, see “Business—Loss Reserves.” Actual payments of loss and loss adjustment expenses by period will vary, perhaps materially, from the table above to the extent that current estimates of loss and loss adjustment expenses vary from actual ultimate claims amounts and as a result of variations between expected and actual payout patterns. See “Risk Factors—Risks Related to Our Business—Our loss reserves are based on estimates and may be inadequate to cover our actual losses” for a discussion of the uncertainties associated with estimating loss and loss adjustment expenses. | ||
(3) | We are subject to various annual assessments imposed by certain of the states in which we write insurance policies. These assessments are generally based upon the amount of premiums written or losses paid during the applicable year. Assessments based on premiums are generally paid within one year after the calendar year in which the policies are written, while assessments based on losses are generally paid within one year after the loss is paid. When we establish a reserve for loss and loss adjustment expenses for a reported claim, we accrue our obligation to pay any applicable assessments. If settlement of the claim is to be paid out over more than one year, our obligation to pay any related loss-based assessments extends for the same period of time. Because our reserves for loss and loss adjustment expenses are based on estimates, our accruals for |
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Hypothetical | ||||||||||||||||||||
Percentage | ||||||||||||||||||||
Estimated | (Increase) | |||||||||||||||||||
Estimated | Change in | Decrease in | ||||||||||||||||||
Hypothetical Change | Change in | Carrying | Shareholders’ | |||||||||||||||||
in Interest Rates | Fair Value | Fair Value | Carrying Value | Value | Deficit | |||||||||||||||
200 basis point increase | $ | 324,806 | $ | (22,797 | ) | $ | 349,145 | $ | (215 | ) | (0.17 | )% | ||||||||
100 basis point increase | 335,842 | (11,761 | ) | 349,282 | (78 | ) | (0.06 | )% | ||||||||||||
No change | 347,603 | — | 349,360 | — | — | |||||||||||||||
100 basis point decrease | 360,156 | 12,553 | 349,394 | 34 | 0.03 | % | ||||||||||||||
200 basis point decrease | 373,601 | 25,998 | 349,419 | 59 | 0.05 | % |
Hypothetical | ||||||||||||||||||||
Percentage | ||||||||||||||||||||
Estimated | Increase | |||||||||||||||||||
Estimated | Change in | (Decrease) in | ||||||||||||||||||
Hypothetical Change | Change in | Carrying | Carrying | Shareholders’ | ||||||||||||||||
in Interest Rates | Fair Value | Fair Value | Value | Value | Deficit | |||||||||||||||
200 basis point increase | $ | 418,314 | $ | (42,200 | ) | $ | 467,182 | $ | (161 | ) | (0.07 | )% | ||||||||
100 basis point increase | 438,426 | (22,088 | ) | 467,256 | (87 | ) | (0.04 | )% | ||||||||||||
No change | 460,514 | — | 467,343 | — | — | |||||||||||||||
100 basis point decrease | 484,897 | 24,383 | 467,583 | 240 | 0.11 | % | ||||||||||||||
200 basis point decrease | 511,965 | 51,451 | 467,711 | 368 | 0.16 | % |
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• | Renewed focus on core hazardous industries.We undertook action to non-renew policies with higher frequency, non-hazardous industries and refocused our efforts on employers engaged in the hazardous industries that we underwrite today. |
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• | Commenced re-underwriting our book of business.We commenced re-underwriting our core hazardous industry book of business to improve our risk selection and establish rates commensurate with the risks we were underwriting. Since January 1, 2000, we have made |
• | Reduced or ceased underwriting in certain states.We reduced or ceased underwriting in states where we lacked a sufficient level of premium production to effectively deploy our field resources or where we believed the rate environment did not adequately compensate us for the risks we were underwriting. | |
• | Increased pre-quotation safety inspection of employers on new business. As we expanded geographically and began underwriting policies for employers engaged in non-hazardous industries, the ability of our safety services personnel to review new and existing business became constrained. As a result, we had difficulty deploying our safety personnel to inspect employer worksites efficiently and began to outsource safety inspections. In conjunction with our refocus on core hazardous industries, we began mandating, with limited exceptions, a pre-quotation safety inspection of employers for new business that we utilize today. Our pre-quotation inspection rate of new voluntary policyholders increased from approximately 29% in 2000 to approximately |
• | Took action to manage substantially all claims in-house. We made the strategic decision to take substantially all of our claims in-house and limit reliance on third-party administrators. We believe this action has reduced the number of open claims and improved our ability to close claims promptly and therefore reduce costs. At |
• | Implemented incentive program.Effective January 1, 2001, we implemented a new incentive program under which our underwriters and field safety professionals are compensated in part based on the achievement of certain loss ratio targets. We believe this program has contributed to our ability to maintain underwriting discipline. |
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Weighted | ||||||||||||||||||||||||||||||||||||||||||||
Accident Year Loss Ratio | 1995 | 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | Average | |||||||||||||||||||||||||||||||||
Gross Basis: | ||||||||||||||||||||||||||||||||||||||||||||
AMERISAFE(1) | 61.8 | % | 61.1 | % | 84.5 | % | 108.3 | % | 144.5 | % | 121.2 | % | 94.9 | % | 79.5 | % | 71.3 | % | 67.8 | % | 94.4 | % | ||||||||||||||||||||||
Workers’ Compensation Industry(2) | 70.0 | % | 74.2 | % | 87.0 | % | 99.3 | % | 110.0 | % | 107.1 | % | 97.7 | % | 79.5 | % | 72.2 | % | 73.9 | % | 85.2 | % | ||||||||||||||||||||||
Net Basis: | ||||||||||||||||||||||||||||||||||||||||||||
AMERISAFE(1) | 52.0 | % | 56.6 | % | 76.6 | % | 63.0 | % | 65.2 | % | 54.2 | % | 68.5 | % | 83.4 | % | 71.4 | % | 68.5 | % | 67.4 | % | ||||||||||||||||||||||
Workers’ Compensation Industry(2) | 71.1 | % | 75.0 | % | 86.6 | % | 96.1 | % | 101.9 | % | 100.3 | % | 90.0 | % | 79.4 | % | 75.2 | % | 75.8 | % | 83.6 | % |
Weighted | ||||||||||||||||||||||||||||||||||||||||||||
Accident Year Loss Ratio | 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | Average | |||||||||||||||||||||||||||||||||
Gross Basis: | ||||||||||||||||||||||||||||||||||||||||||||
AMERISAFE(1) | 61.5% | 84.0% | 108.0% | 146.2% | 123.2% | 96.3% | 83.3% | 69.5% | 65.8% | 72.6% | 92.9% | |||||||||||||||||||||||||||||||||
Workers’ Compensation Industry(2) | 76.9% | 89.6% | 101.9% | 113.3% | 109.5% | 101.2% | 81.2% | 70.5% | 69.6% | 73.7% | 85.6% | |||||||||||||||||||||||||||||||||
Net Basis: | ||||||||||||||||||||||||||||||||||||||||||||
AMERISAFE(1) | 56.7% | 76.1% | 63.3% | 67.1% | 56.6% | 70.5% | 87.0% | 72.3% | 68.8% | 71.3% | 69.7% | |||||||||||||||||||||||||||||||||
Workers’ Compensation Industry(2) | 78.1% | 89.5% | 99.2% | 106.3% | 102.9% | 93.9% | 81.4% | 72.7% | 71.0% | 75.9% | 84.4% |
(1) | Cumulative development through December 31, | |
(2) | Source: A.M. Best, statutory basis. |
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• | Direct Premiums. Includes premiums from workers’ compensation and general liability insurance policies that we issue to: |
• | employers who seek to purchase insurance directly from us and who we voluntarily agree to insure, which we refer to as our voluntary business; and | |
• | employers assigned to us under residual market programs implemented by some of the states in which we operate, which we refer to as our assigned risk business. |
• | Assumed Premiums. Includes premiums from our participation in mandatory pooling arrangements under residual market programs implemented by some of the states in which we operate. |
Percentage | ||||||||||||||||||||||||||
Gross Premiums Written | of Gross Premiums Written | |||||||||||||||||||||||||
2002 | 2003 | 2004 | 2002 | 2003 | 2004 | |||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||
Voluntary business: | ||||||||||||||||||||||||||
Construction | $ | 61,558 | $ | 80,693 | $ | 101,298 | 33.2% | 36.1% | 38.3% | |||||||||||||||||
Trucking | 36,392 | 47,104 | 57,822 | 19.7% | 21.1% | 21.8% | ||||||||||||||||||||
Logging | 32,156 | 32,008 | 30,340 | 17.4% | 14.3% | 11.5% | ||||||||||||||||||||
Agriculture | 6,574 | 8,502 | 11,203 | 3.6% | 3.8% | 4.2% | ||||||||||||||||||||
Oil and Gas | 7,157 | 7,221 | 7,226 | 3.9% | 3.2% | 2.7% | ||||||||||||||||||||
Maritime | 5,326 | 6,076 | 5,909 | 2.9% | 2.7% | 2.2% | ||||||||||||||||||||
Sawmills | 3,760 | 4,009 | 5,566 | 2.0% | 1.8% | 2.1% | ||||||||||||||||||||
Other | 21,164 | 24,239 | 28,117 | 11.4% | 10.8% | 10.6% | ||||||||||||||||||||
Total voluntary business | 174,087 | 209,852 | 247,481 | 94.1% | 93.9% | 93.4% | ||||||||||||||||||||
Assigned risk business | 7,414 | 9,216 | 9,431 | 4.0% | 4.1% | 3.6% | ||||||||||||||||||||
Assumed premiums | 3,592 | 4,522 | 8,050 | 1.9% | 2.0% | 3.0% | ||||||||||||||||||||
Total | $ | 185,093 | $ | 223,590 | $ | 264,962 | 100.0% | 100.0% | 100.0% | |||||||||||||||||
Percentage of | ||||||||||||||||||||||||
Gross Premiums Written | Gross Premiums Written | |||||||||||||||||||||||
2005 | 2004 | 2003 | 2005 | 2004 | 2003 | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Voluntary business: | ||||||||||||||||||||||||
Construction | $ | 117,134 | $ | 101,298 | $ | 80,693 | 40.3% | 38.3% | 36.1% | |||||||||||||||
Trucking | 59,348 | 57,822 | 47,104 | 20.4% | 21.8% | 21.1% | ||||||||||||||||||
Logging | 26,324 | 30,340 | 32,008 | 9.0% | 11.5% | 14.3% | ||||||||||||||||||
Agriculture | 13,119 | 11,203 | 8,502 | 4.5% | 4.2% | 3.8% | ||||||||||||||||||
Oil and Gas | 8,035 | 7,226 | 7,221 | 2.8% | 2.7% | 3.2% | ||||||||||||||||||
Maritime | 7,262 | 5,909 | 6,076 | 2.5% | 2.2% | 2.7% | ||||||||||||||||||
Sawmills | 4,441 | 5,566 | 4,009 | 1.5% | 2.1% | 1.8% | ||||||||||||||||||
Other | 34,382 | 28,117 | 24,239 | 11.8% | 10.6% | 10.8% | ||||||||||||||||||
Total voluntary business | 270,045 | 247,481 | 209,852 | 92.8% | 93.4% | 93.9% | ||||||||||||||||||
Assigned risk business | 13,924 | 9,431 | 9,216 | 4.8% | 3.6% | 4.1% | ||||||||||||||||||
Assumed premiums | 6,922 | 8,050 | 4,522 | 2.4% | 3.0% | 2.0% | ||||||||||||||||||
Total | $ | 290,891 | $ | 264,962 | $ | 223,590 | 100.0% | 100.0% | 100.0% | |||||||||||||||
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Percentage of Gross Premiums Written | |||||||||||||
Year Ended | |||||||||||||
December 31, | Six Months | ||||||||||||
Ended | |||||||||||||
State | 2003 | 2004 | June 30, 2005 | ||||||||||
Georgia | 9.4% | 9.5% | 10.8% | ||||||||||
Louisiana | 11.8% | 10.6% | 8.6% | ||||||||||
Florida | 4.6% | 4.9% | 6.9% | ||||||||||
Pennsylvania | 3.9% | 4.5% | 6.2% | ||||||||||
North Carolina | 5.9% | 6.3% | 5.8% | ||||||||||
Illinois | 5.7% | 6.4% | 5.2% | ||||||||||
Alaska | 3.3% | 4.4% | 5.0% | ||||||||||
Minnesota | 3.9% | 3.6% | 4.7% | ||||||||||
Virginia | 5.2% | 5.2% | 4.7% | ||||||||||
Tennessee | 3.5% | 3.9% | 4.6% | ||||||||||
Oklahoma | 3.9% | 3.3% | 4.5% | ||||||||||
Texas | 7.9% | 6.5% | 4.3% | ||||||||||
South Carolina | 3.9% | 4.6% | 4.1% | ||||||||||
Wisconsin | 2.3% | 3.3% | 3.7% | ||||||||||
Missouri | 1.4% | 1.9% | 3.2% | ||||||||||
Arkansas | 5.2% | 4.7% | 3.1% | ||||||||||
Mississippi | 3.6% | 3.9% | 2.9% | ||||||||||
Alabama | 3.2% | 2.7% | 2.6% |
Percentage of Gross Premiums Written | ||||||||||||||||
Nine Months | ||||||||||||||||
Ended | Year Ended December 31, | |||||||||||||||
State | September 30, 2006 | 2005 | 2004 | 2003 | ||||||||||||
Georgia | 9.4% | 10.5% | 9.5% | 9.4% | ||||||||||||
Louisiana | 8.4% | 8.3% | 10.6% | 11.8% | ||||||||||||
North Carolina | 6.8% | 6.7% | 6.3% | 5.9% | ||||||||||||
Florida | 6.8% | 5.9% | 4.9% | 4.6% | ||||||||||||
Virginia | 6.2% | 5.3% | 5.2% | 5.2% | ||||||||||||
Pennsylvania | 5.3% | 5.3% | 4.5% | 3.9% | ||||||||||||
Texas | 5.0% | 5.0% | 6.5% | 7.9% | ||||||||||||
Alaska | 4.6% | 5.3% | 4.4% | 3.3% | ||||||||||||
South Carolina | 4.6% | 4.9% | 4.6% | 3.9% | ||||||||||||
Minnesota | 4.6% | 4.2% | 3.6% | 3.9% | ||||||||||||
Illinois | 4.4% | 5.4% | 6.4% | 5.7% | ||||||||||||
Oklahoma | 4.4% | 4.1% | 3.3% | 3.9% | ||||||||||||
Tennessee | 4.3% | 4.2% | 3.9% | 3.5% | ||||||||||||
Mississippi | 4.3% | 3.5% | 3.9% | 3.6% | ||||||||||||
Arkansas | 3.7% | 3.9% | 4.7% | 5.2% | ||||||||||||
Wisconsin | 2.8% | 3.5% | 3.3% | 2.3% | ||||||||||||
Alabama | 2.6% | 2.7% | 2.7% | 3.2% |
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• | type of loss; | |
• | severity of the injury or damage; | |
• | age and occupation of the injured employee; | |
• | estimated length of temporary disability; | |
• | anticipated permanent disability; | |
• | expected medical procedures, costs and duration; | |
• | our knowledge of the circumstances surrounding the claim; | |
• | insurance policy provisions, including coverage, related to the claim; | |
• | jurisdiction of the occurrence; and | |
• | other benefits defined by applicable statute. |
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• | Paid Development | |
• | Paid Cape Cod | |
• | Paid Bornhuetter-Ferguson (“BF”) | |
• | Incurred Development |
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each accident year will develop to estimated ultimate cost in a manner that is analogous to prior years. | ||
• | Incurred Cape Cod |
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• | Incurred Bornhuetter-Ferguson |
• | open and closed claim counts; | |
• | statistics related to open and closed claim count percentages; | |
• | claim closure rates; | |
• | changes in average case reserves and average loss and loss adjustment expenses incurred on open claims; | |
• | reported and ultimate average case incurred changes; | |
• | reported and projected ultimate loss ratios; and | |
• | loss payment patterns. |
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As of June 30, 2005 | ||||||||||||||||
Mandatory | ||||||||||||||||
Loss and | Pooling | |||||||||||||||
DCC Expenses | AO | Arrangements | Total | |||||||||||||
(In thousands) | ||||||||||||||||
Low end of range | $ | 295,461 | $ | 15,773 | $ | 9,449 | $ | 320,683 | ||||||||
Net reserve | 320,802 | 15,773 | 9,449 | 346,024 | ||||||||||||
High end of range | 338,585 | 15,773 | 9,449 | 363,807 |
As of December 31, 2005 | ||||||||||||||||
Mandatory | ||||||||||||||||
Loss and | Pooling | |||||||||||||||
DCC Expenses | AO | Arrangements | Total | |||||||||||||
(In thousands) | ||||||||||||||||
Low end of range | $ | 310,400 | $ | 16,533 | $ | 9,513 | $ | 336,446 | ||||||||
Net reserve | 338,207 | 16,533 | 9,513 | 364,253 | ||||||||||||
High end of range | 350,191 | 16,533 | 9,513 | 376,237 |
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Year Ended December 31, | Six Months Ended | |||||||||||||
2003 | 2004 | June 30, 2005 | ||||||||||||
(In thousands) | ||||||||||||||
Balance, beginning of period | $ | 346,542 | $ | 377,559 | $ | 432,880 | ||||||||
Less amounts recoverable from reinsurers on unpaid loss and loss adjustment expenses | 193,634 | 194,558 | 189,624 | |||||||||||
Net balance, beginning of period | 152,908 | 183,001 | 243,256 | |||||||||||
Add incurred related to: | ||||||||||||||
Current year | 126,977 | 160,773 | 88,554 | |||||||||||
Prior years | 2,273 | 13,413 | 8,682 | |||||||||||
Loss on Converium commutation | — | — | 13,200 | |||||||||||
Total incurred | 129,250 | 174,186 | 110,436 | |||||||||||
Less paid related to: | ||||||||||||||
Current year | 32,649 | 40,312 | 11,301 | |||||||||||
Prior years | 66,508 | 73,619 | 52,467 | |||||||||||
Total paid | 99,157 | 113,931 | 63,768 | |||||||||||
Add effect of Converium commutation | — | — | 56,100 | |||||||||||
Net balance, end of period | 183,001 | 243,256 | 346,024 | |||||||||||
Add amounts recoverable from reinsurers on unpaid loss and loss adjustment expenses | 194,558 | 189,624 | 111,803 | |||||||||||
Balance, end of period | $ | 377,559 | $ | 432,880 | $ | 457,827 | ||||||||
Nine Months | Year Ended December 31, | |||||||||||||||
Ended | | | | |||||||||||||
September 30, 2006 | 2005 | 2004 | 2003 | |||||||||||||
(In thousands) | ||||||||||||||||
Balance, beginning of period | $ | 484,485 | $ | 432,880 | $ | 377,559 | $ | 346,542 | ||||||||
Less amounts recoverable from reinsurers on unpaid loss and loss adjustment expenses | 120,232 | 189,624 | 194,558 | 193,634 | ||||||||||||
Net balance, beginning of period | 364,253 | 243,256 | 183,001 | 152,908 | ||||||||||||
Add incurred related to: | ||||||||||||||||
Current year | 149,989 | 182,174 | 160,773 | 126,977 | ||||||||||||
Prior years | — | 8,673 | 13,413 | 2,273 | ||||||||||||
Loss on Converium commutation | — | 13,209 | — | — | ||||||||||||
Total incurred | 149,989 | 204,056 | 174,186 | 129,250 | ||||||||||||
Less paid related to: | ||||||||||||||||
Current year | 23,701 | 42,545 | 40,312 | 32,649 | ||||||||||||
Prior years | 89,720 | 96,620 | 73,619 | 66,508 | ||||||||||||
Total paid | 113,421 | 139,165 | 113,931 | 99,157 | ||||||||||||
Add effect of Converium commutation(1) | — | 56,106 | — | — | ||||||||||||
Net balance, end of period | 400,821 | 364,253 | 243,256 | 183,001 | ||||||||||||
Add amounts recoverable from reinsurers on unpaid loss and loss adjustment expenses | 120,022 | 120,232 | 189,624 | 194,558 | ||||||||||||
Balance, end of period | $ | 520,843 | $ | 484,485 | $ | 432,880 | $ | 377,559 | ||||||||
(1) | The total payment from Converium was $61.3 million, of which $56.1 million was for ceded reserves and $5.2 million was for paid recoverables as of June 30, 2005. |
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Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||
1994 | 1995 | 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | ||||||||||||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||||||||||||||
Reserve for loss and loss adjustment expenses, net of reinsurance recoverables | $ | 31,243 | $ | 43,299 | $ | 43,952 | $ | 55,096 | $ | 43,625 | $ | 72,599 | $ | 86,192 | $ | 119,020 | $ | 152,908 | $ | 183,001 | $ | 243,256 | ||||||||||||||||||||||
Net reserve estimated as of: | ||||||||||||||||||||||||||||||||||||||||||||
One year later | 28,101 | 36,613 | 35,447 | 54,036 | 49,098 | 75,588 | 96,801 | 123,413 | 155,683 | 196,955 | ||||||||||||||||||||||||||||||||||
Two years later | 23,757 | 39,332 | 34,082 | 60,800 | 50,764 | 82,633 | 98,871 | 116,291 | 168,410 | |||||||||||||||||||||||||||||||||||
Three years later | 21,026 | 28,439 | 34,252 | 63,583 | 57,750 | 86,336 | 92,740 | 119,814 | ||||||||||||||||||||||||||||||||||||
Four years later | 20,510 | 28,700 | 35,193 | 68,754 | 59,800 | 86,829 | 93,328 | |||||||||||||||||||||||||||||||||||||
Five years later | 20,992 | 29,647 | 38,318 | 69,610 | 60,074 | 87,088 | ||||||||||||||||||||||||||||||||||||||
Six years later | 21,808 | 31,524 | 38,339 | 70,865 | 61,297 | |||||||||||||||||||||||||||||||||||||||
Seven years later | 22,518 | 31,185 | 39,459 | 70,684 | ||||||||||||||||||||||||||||||||||||||||
Eight years later | 22,277 | 32,161 | 38,888 | |||||||||||||||||||||||||||||||||||||||||
Nine years later | 23,020 | 31,627 | ||||||||||||||||||||||||||||||||||||||||||
Ten years later | 22,413 | |||||||||||||||||||||||||||||||||||||||||||
Net cumulative redundancy (deficiency) | $ | 8,830 | $ | 11,672 | $ | 5,064 | $ | (15,588 | ) | $ | (17,672 | ) | $ | (14,489 | ) | $ | (7,136 | ) | $ | (794 | ) | $ | (15,502 | ) | $ | (13,954 | ) |
Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||
1995 | 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | ||||||||||||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||||||||||||||
Reserve for loss and loss adjustment expenses, net of reinsurance recoverables | $ | 43,299 | $ | 43,952 | $ | 55,096 | $ | 43,625 | $ | 72,599 | $ | 86,192 | $ | 119,020 | $ | 152,908 | $ | 183,001 | $ | 243,256 | $ | 364,253 | ||||||||||||||||||||||
Net reserve estimated as of: | ||||||||||||||||||||||||||||||||||||||||||||
One year later | 36,613 | 35,447 | 54,036 | 49,098 | 75,588 | 96,801 | 123,413 | 155,683 | 196,955 | 265,138 | ||||||||||||||||||||||||||||||||||
Two years later | 29,332 | 34,082 | 60,800 | 50,764 | 82,633 | 98,871 | 116,291 | 168,410 | 217,836 | |||||||||||||||||||||||||||||||||||
Three years later | 28,439 | 34,252 | 63,583 | 57,750 | 86,336 | 92,740 | 119,814 | 187,225 | ||||||||||||||||||||||||||||||||||||
Four years later | 28,700 | 35,193 | 68,754 | 59,800 | 86,829 | 93,328 | 132,332 | |||||||||||||||||||||||||||||||||||||
Five years later | 29,647 | 38,318 | 69,610 | 60,074 | 87,088 | 101,417 | ||||||||||||||||||||||||||||||||||||||
Six years later | 31,524 | 38,339 | 70,865 | 61,297 | 90,156 | |||||||||||||||||||||||||||||||||||||||
Seven years later | 31,185 | 39,459 | 70,684 | 61,578 | ||||||||||||||||||||||||||||||||||||||||
Eight years later | 32,161 | 38,888 | 70,577 | |||||||||||||||||||||||||||||||||||||||||
Nine years later | 31,627 | 39,249 | ||||||||||||||||||||||||||||||||||||||||||
Ten years later | 31,957 | |||||||||||||||||||||||||||||||||||||||||||
Net cumulative redundancy (deficiency) | $ | 11,342 | $ | 4,703 | $ | (15,481 | ) | $ | (17,953 | ) | $ | (17,557 | ) | $ | (15,225 | ) | $ | (13,312 | ) | $ | (34,317 | ) | $ | (34,835 | ) | $ | (21,882 | ) |
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Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||
1994 | 1995 | 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | ||||||||||||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||||||||||||||
Cumulative amount of reserve paid, net of reserve recoveries, through: | ||||||||||||||||||||||||||||||||||||||||||||
One year later | 10,646 | 17,716 | 19,143 | 35,005 | 26,140 | 45,095 | 51,470 | 51,114 | 66,545 | 73,783 | ||||||||||||||||||||||||||||||||||
Two years later | 16,911 | 23,158 | 27,843 | 46,735 | 37,835 | 62,141 | 62,969 | 71,582 | 101,907 | |||||||||||||||||||||||||||||||||||
Three years later | 18,567 | 26,058 | 30,766 | 54,969 | 45,404 | 67,267 | 70,036 | 84,341 | ||||||||||||||||||||||||||||||||||||
Four years later | 19,674 | 27,039 | 32,576 | 60,249 | 48,184 | 70,894 | 73,680 | |||||||||||||||||||||||||||||||||||||
Five years later | 20,008 | 28,007 | 34,765 | 62,361 | 50,045 | 72,744 | ||||||||||||||||||||||||||||||||||||||
Six years later | 20,626 | 29,394 | 35,313 | 64,296 | �� | 50,831 | ||||||||||||||||||||||||||||||||||||||
Seven years later | 21,526 | 29,603 | 36,367 | 64,659 | ||||||||||||||||||||||||||||||||||||||||
Eight years later | 21,555 | 30,331 | 36,379 | |||||||||||||||||||||||||||||||||||||||||
Nine years later | 22,162 | 30,242 | ||||||||||||||||||||||||||||||||||||||||||
Ten years later | 21,774 | |||||||||||||||||||||||||||||||||||||||||||
Net reserve— December 31 | $ | 31,243 | $ | 43,299 | $ | 43,952 | $ | 55,096 | $ | 43,625 | $ | 72,599 | $ | 86,192 | $ | 119,020 | $ | 152,908 | $ | 183,001 | $ | 243,256 | ||||||||||||||||||||||
Reinsurance recoverables | 9,699 | 12,127 | 9,525 | 12,463 | 37,086 | 183,818 | 293,632 | 264,013 | 193,634 | 194,558 | 189,624 | |||||||||||||||||||||||||||||||||
Gross reserve— December 31 | $ | 40,942 | $ | 55,426 | $ | 53,477 | $ | 67,559 | $ | 80,711 | $ | 256,417 | $ | 379,824 | $ | 383,033 | $ | 346,542 | $ | 377,559 | $ | 432,880 | ||||||||||||||||||||||
Net re-estimated reserve | $ | 22,413 | $ | 31,627 | $ | 38,888 | $ | 70,684 | $ | 61,297 | $ | 87,088 | $ | 93,328 | $ | 119,814 | $ | 168,410 | $ | 196,955 | ||||||||||||||||||||||||
Re-estimated reinsurance recoverables | 9,641 | 17,679 | 27,504 | 35,763 | 124,943 | 282,006 | 384,482 | 347,107 | 270,576 | 221,959 | ||||||||||||||||||||||||||||||||||
Gross re-estimated reserve | $ | 32,054 | $ | 49,306 | $ | 66,392 | $ | 106,447 | $ | 186,240 | $ | 369,094 | $ | 477,810 | $ | 466,921 | $ | 438,986 | $ | 418,914 | ||||||||||||||||||||||||
Gross cumulative redundancy (deficiency) | $ | 8,888 | $ | 6,120 | $ | (12,915 | ) | $ | (38,888 | ) | $ | (105,529 | ) | $ | (112,677 | ) | $ | (97,986 | ) | $ | (83,888 | ) | $ | (92,444 | ) | $ | (41,355 | ) | ||||||||||||||||
Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||
1995 | 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | ||||||||||||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||||||||||||||
Cumulative amount of reserve paid, net of reserve recoveries, through: | ||||||||||||||||||||||||||||||||||||||||||||
One year later | 17,716 | 19,143 | 35,005 | 26,140 | 45,095 | 51,470 | 51,114 | 66,545 | 73,783 | 40,514 | ||||||||||||||||||||||||||||||||||
Two years later | 23,158 | 27,843 | 46,735 | 37,835 | 62,141 | 62,969 | 71,582 | 101,907 | 65,752 | |||||||||||||||||||||||||||||||||||
Three years later | 26,058 | 30,766 | 54,969 | 45,404 | 67,267 | 70,036 | 84,341 | 73,391 | ||||||||||||||||||||||||||||||||||||
Four years later | 27,039 | 32,576 | 60,249 | 48,184 | 70,894 | 73,680 | 42,919 | |||||||||||||||||||||||||||||||||||||
Five years later | 28,007 | 34,765 | 62,361 | 50,045 | 72,744 | 38,939 | ||||||||||||||||||||||||||||||||||||||
Six years later | 29,394 | 35,313 | 64,296 | 50,831 | 58,809 | |||||||||||||||||||||||||||||||||||||||
Seven years later | 29,603 | 36,367 | 64,659 | 51,863 | ||||||||||||||||||||||||||||||||||||||||
Eight years later | 30,331 | 36,379 | 64,289 | |||||||||||||||||||||||||||||||||||||||||
Nine years later | 30,242 | 35,870 | ||||||||||||||||||||||||||||||||||||||||||
Ten years later | 29,745 | |||||||||||||||||||||||||||||||||||||||||||
Net reserve—December 31 | $ | 43,299 | $ | 43,952 | $ | 55,096 | $ | 43,625 | $ | 72,599 | $ | 86,192 | $ | 119,020 | $ | 152,908 | $ | 183,001 | $ | 243,256 | $ | 364,253 | ||||||||||||||||||||||
Reinsurance recoverables | 12,127 | 9,525 | 12,463 | 37,086 | 183,818 | 293,632 | 264,013 | 193,634 | 194,558 | 189,624 | 120,232 | |||||||||||||||||||||||||||||||||
Gross reserve—December 31 | $ | 55,426 | $ | 53,477 | $ | 67,559 | $ | 80,711 | $ | 256,417 | $ | 379,824 | $ | 383,033 | $ | 346,542 | $ | 377,559 | $ | 432,880 | $ | 484,485 | ||||||||||||||||||||||
Net re-estimated reserve | $ | 31,957 | $ | 39,249 | $ | 70,577 | $ | 61,578 | $ | 90,156 | $ | 101,417 | $ | 132,332 | $ | 187,225 | $ | 217,836 | $ | 265,138 | ||||||||||||||||||||||||
Re-estimated reinsurance recoverables | 18,641 | 26,966 | 35,219 | 123,604 | 281,481 | 384,447 | 346,555 | 271,446 | 217,593 | 179,585 | ||||||||||||||||||||||||||||||||||
Gross re-estimated reserve | $ | 50,598 | $ | 66,215 | $ | 105,796 | $ | 185,182 | $ | 371,637 | $ | 485,864 | $ | 478,887 | $ | 458,671 | $ | 435,429 | $ | 444,723 | ||||||||||||||||||||||||
Gross cumulative redundancy (deficiency) | $ | 4,828 | $ | (12,738 | ) | $ | (38,237 | ) | $ | (104,471 | ) | $ | (115,220 | ) | $ | (106,040 | ) | $ | (95,854 | ) | $ | (112,129 | ) | $ | (57,870 | ) | $ | (11,843 | ) | |||||||||||||||
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Annualized | ||||||||||||||
Percentage | Tax-Equivalent | |||||||||||||
Carrying Value | of Portfolio | Yield | ||||||||||||
(In thousands) | ||||||||||||||
Fixed maturity securities: | ||||||||||||||
State and political subdivisions | 191,321 | 45.1% | 4.9 | % | ||||||||||
Mortgage-backed securities | 83,800 | 19.8% | 4.7 | % | ||||||||||
U.S. Treasury securities and obligations of U.S. Government agencies | 47,645 | 11.2% | 3.8 | % | ||||||||||
Corporate bonds | 22,614 | 5.3% | 4.7 | % | ||||||||||
Asset-backed securities | 2,260 | 0.5% | 4.2 | % | ||||||||||
Redeemable preferred stocks | 1,720 | 0.4% | 5.9 | % | ||||||||||
Total fixed maturity securities | 349,360 | 82.4% | ||||||||||||
Equity securities: | ||||||||||||||
Common stocks | 43,745 | 10.3% | 2.3 | % | ||||||||||
Nonredeemable preferred stocks | 3,628 | 0.9% | 7.0 | % | ||||||||||
Total equity securities | 47,373 | 11.2% | ||||||||||||
Total investments, excluding cash and cash equivalents | 396,733 | 93.5% | ||||||||||||
Cash and cash equivalents | 27,462 | 6.5% | 2.7 | % | ||||||||||
Total investments, including cash and cash equivalents | $ | 424,195 | 100.0% | |||||||||||
Annualized | ||||||||||||
Percentage | Tax-Equivalent | |||||||||||
Carrying Value | of Portfolio | Yield | ||||||||||
(In thousands) | ||||||||||||
Fixed maturity securities: | ||||||||||||
State and political subdivisions | $ | 299,278 | 46.8% | 5.8% | ||||||||
Mortgage-backed securities | 117,062 | 18.3% | 5.7% | |||||||||
U.S. Treasury securities and obligations of U.S. Government agencies | 79,162 | 12.4% | 5.2% | |||||||||
Corporate bonds | 22,700 | 3.5% | 5.6% | |||||||||
Asset-backed securities | 5,884 | 0.9% | 5.4% | |||||||||
Redeemable preferred stocks | 633 | 0.1% | 6.3% | |||||||||
; | ||||||||||||
Total fixed maturity securities | 524,719 | 82.0% | ||||||||||
Equity securities: | ||||||||||||
Common stocks | 49,377 | 7.7% | 2.5% | |||||||||
Nonredeemable preferred stocks | 3,679 | 0.6% | 6.3% | |||||||||
Total equity securities | 53,056 | 8.3% | ||||||||||
Cash and cash equivalents | 61,778 | 9.7% | 5.0% | |||||||||
Total investments, including cash and cash equivalents | $ | 639,553 | 100.0% | |||||||||
Cost or | Gross | Gross | ||||||||||||||
Amortized | Unrealized | Unrealized | ||||||||||||||
Cost | Gains | Losses | Fair Value | |||||||||||||
(In thousands) | ||||||||||||||||
Fixed maturity securities,held-to-maturity | $ | 524,086 | $ | 3,952 | $ | (9,810 | ) | $ | 518,228 | |||||||
Fixed maturity securities,available-for-sale | 633 | — | — | 633 | ||||||||||||
Equity securities,available-for-sale | 47,874 | 5,182 | — | 53,056 | ||||||||||||
Totals | $ | 572,593 | $ | 9,134 | $ | (9,810 | ) | $ | 571,917 | |||||||
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Percentage | |||||
of Total | |||||
Credit Rating | Carrying Value | ||||
“AAA” | |||||
“AA” | |||||
“A” | |||||
“BBB” | |||||
Total | |||||
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As of June 30, 2005 | |||||||||
Remaining Time to Maturity | Carrying Value | Percentage | |||||||
(In thousands) | |||||||||
Less than one year | $ | 7,783 | 2.2% | ||||||
One to five years | 151,282 | 43.3% | |||||||
Five to ten years | 86,079 | 24.6% | |||||||
More than ten years | 16,436 | 4.7% | |||||||
Mortgage-backed securities | 83,800 | 24.0% | |||||||
Asset-backed securities | 2,260 | 0.6% | |||||||
Redeemable preferred stocks | 1,720 | 0.5% | |||||||
Total | $ | 349,360 | 100.0% | ||||||
As of September 30, 2006 | ||||||||
Remaining Time to Maturity | Carrying Value | Percentage | ||||||
(In thousands) | ||||||||
Less than one year | $ | 22,031 | 4.2% | |||||
One to five years | 221,744 | 42.3% | ||||||
Five to ten years | 101,498 | 19.3% | ||||||
More than ten years | 55,882 | 10.7% | ||||||
Mortgage-backed securities | 116,975 | 22.3% | ||||||
Asset-backed securities | 5,956 | 1.1% | ||||||
Redeemable preferred stocks | 633 | 0.1% | ||||||
Total | $ | 524,719 | 100.0% | |||||
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• | First Layer. Affords coverage for the first | |
• | Second Layer. Affords coverage up to $3.0 million for each loss occurrence in excess of $2.0 million. We are subject to an annual aggregate deductible of approximately $7.3 million for losses between $2.0 million and $5.0 million before our reinsurers are obligated to reimburse us. The annual aggregate deductible is calculated as a percentage of | |
• | ||
• | Third Layer B. Affords coverage up to $5.0 million for any one person for each loss occurrence in excess of $5.0 million. We retain 20.0% of each loss between $5.0 million and $10.0 million. The aggregate limit for all claims under this layer is $10.0 million. | |
• | ||
• |
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A.M. Best | ||||
Reinsurer | Rating | |||
Amlin Underwriting | A | |||
Aspen Insurance UK | A | |||
AXA Re | A | |||
Brit Syndicates | A | |||
Chubb Re/Federal Insurance Company | A++ | |||
Hannover Re | A | |||
IOA Re/Catlin Insurance Company | A | |||
Liberty Syndicate | A | |||
M.J. Harrington | A | |||
Partner Reinsurance Company | A+ | |||
Platinum Underwriters Reinsurance | A |
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A.M. Best | Amount Recoverable | ||||||||
Reinsurer | Rating | as of June 30, 2005 | |||||||
(In thousands) | |||||||||
Converium Reinsurance (North America) | B- | $ | 66,261 | ||||||
American Reinsurance Company | A | 24,568 | |||||||
Odyssey America Reinsurance Company | A | 22,533 | |||||||
St. Paul Fire and Marine Insurance Company | A+ | 13,043 | |||||||
Clearwater Insurance Company | A | 11,212 | |||||||
SCOR Reinsurance Company | B++ | 8,457 | |||||||
Hannover Re(1) | A | 3,792 | |||||||
Aspen Insurance UK | A | 2,675 | |||||||
American National Insurance Company | A+ | 2,662 | |||||||
Connecticut General Life Insurance Company | A- | 2,441 | |||||||
Other (26 reinsurers) | — | 16,912 | |||||||
Total | $ | 174,556 | |||||||
A.M. Best | Amount Recoverable as | |||||||
Reinsurer | Rating | of September 30, 2006 | ||||||
(In thousands) | ||||||||
Munich Reinsurance America, Inc. | A | $ | 27,909 | |||||
Odyssey America Reinsurance Company | A | 22,139 | ||||||
St. Paul Fire and Marine Insurance Company | A+ | 12,265 | ||||||
Clearwater Insurance Company | A | 11,611 | ||||||
SCOR Reinsurance Company | A− | 8,217 | ||||||
Converium Reinsurance (North America) | B− | 7,070 | ||||||
Hannover Re(1) | A | 6,083 | ||||||
Aspen Insurance UK(1) | A | 5,427 | ||||||
Partner Reinsurance Company(1) | A+ | 3,689 | ||||||
American National Insurance Company | A+ | 2,945 | ||||||
Connecticut General Life Insurance Company | A− | 2,030 | ||||||
Other (21 reinsurers) | — | 13,407 | ||||||
Total | $ | 122,792 | ||||||
(1) | Current participant in our |
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Second Injury Funds |
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Name | Age | ||||||
Position | |||||||
Directors | |||||||
Chairman, President and | |||||||
Geoffrey R. Banta | Executive Vice President and Chief Financial Officer | ||||||
Arthur L. Hunt | Executive Vice President | ||||||
Craig P. Leach | 56 | Executive Vice President, Sales and Marketing | |||||
David O. Narigon | 54 | Executive Vice President | |||||
Todd Walker | 50 | Executive Vice President, General Counsel and Secretary | |||||
Jared A. Morris(1) | 31 | Director | |||||
Paul B. | Director | ||||||
Sean M. | |||||||
Director | |||||||
Austin P. Young | Director | ||||||
Key Employees | |||||||
Allan E. Farr | Senior Vice President, Enterprise Risk Management | ||||||
Kelly R. Goins | Senior Vice President, Underwriting Operations | ||||||
Cynthia P. Harris | Senior Vice President, Human Resources/Client Services | ||||||
Leon J. Lagneaux | Senior Vice President, Safety Operations | ||||||
Henry O. Lestage, IV | Senior Vice President, Claims Operations | ||||||
Edwin R. Longanacre | Senior Vice President, Information Technology | ||||||
Angela S. Lannen | Vice President, Treasurer | ||||||
(1) | ||
Term expires at the annual meeting of shareholders in 2007. | ||
Term expires at the annual meeting of shareholders in 2008. | ||
(3) | Term expires at the annual meeting of shareholders in 2009. |
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• | establishing, monitoring and assessing our policies and procedures with respect to business practices, including the adequacy of our internal controls over accounting and financial reporting; | |
• | engaging our independent auditors and conducting an annual review of the independence of our independent auditors; | |
• | pre-approving any non-audit services to be performed by our independent auditors; | |
• | reviewing the annual audited financial statements and quarterly financial information with management and the independent auditors; | |
• | reviewing with the independent auditors the scope and the planning of the annual audit; | |
• | reviewing the findings and recommendations of the independent auditors and management’s response to the recommendations of the independent auditors; | |
• | overseeing compliance with applicable legal and regulatory requirements, including ethical business standards; | |
• | preparing the audit committee report to be included in our annual proxy statement; | |
• | establishing procedures for the receipt, retention and treatment of complaints received by us regarding accounting, internal accounting controls or auditing matters; | |
• | establishing procedures for the confidential, anonymous submission by our employees of concerns regarding questionable accounting or auditing matters; and | |
• | reviewing the adequacy of the audit committee charter on an annual basis. |
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• | evaluating the performance of and determining the compensation for our executive officers, including our chief executive officer; | |
• | administering and making recommendations to our board with respect to our equity incentive plans; | |
• | overseeing regulatory compliance with respect to compensation matters; | |
• | reviewing and approving employment or severance arrangements with senior management; | |
• | reviewing our director compensation policies and making recommendations to our board; | |
• | preparing the compensation committee report to be included in our annual proxy statement; and | |
• | reviewing the adequacy of the compensation committee charter. |
• | developing and recommending corporate governance principles and procedures applicable to our board and employees; | |
• | recommending committee composition and assignments; | |
• | identifying individuals qualified to become directors; | |
• | recommending director nominees; | |
• | recommending whether incumbent directors should be nominated for re-election to our board; and | |
• | reviewing the adequacy of the nominating and corporate governance committee charter. |
• | establishing a written investment policy for the company consistent with our strategies, goals and objectives, which investment policy and any amendments must be reviewed and approved by our board of directors; | |
• | reviewing regulatory requirements and compliance with our written investment policy at least annually; | |
• | reviewing our investment policy and the investment strategy relative to our investment policy; | |
• | reviewing the performance of our external investment managers; and | |
• | reviewing our investment activities and performance at least quarterly. |
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Annual Compensation | |||||||||||||||||||
Other Annual | All Other | ||||||||||||||||||
Name and Principal Position | Year | Salary | Bonus(1) | Compensation(2) | Compensation(3) | ||||||||||||||
Mark R. Anderson | 2004 | $ | 352,000 | $ | 40,000 | $ | — | $ | 4,132 | ||||||||||
Chairman and Director | |||||||||||||||||||
C. Allen Bradley, Jr. | 2004 | 275,000 | 125,000 | — | 4,132 | ||||||||||||||
President, Chief Executive Officer and Director | |||||||||||||||||||
Geoffrey R. Banta | 2004 | 200,000 | 80,000 | — | 2,412 | ||||||||||||||
Executive Vice President and Chief Financial Officer | |||||||||||||||||||
Arthur L. Hunt | 2004 | 215,000 | 80,000 | — | 4,132 | ||||||||||||||
Executive Vice President, General Counsel and Secretary | |||||||||||||||||||
Craig P. Leach | 2004 | 215,000 | 70,000 | — | 4,132 | ||||||||||||||
Executive Vice President, Sales and Marketing |
Long Term | ||||||||||||||||||||||||||||
Compensation Awards | ||||||||||||||||||||||||||||
Annual Compensation | Restricted | Securities | ||||||||||||||||||||||||||
Other Annual | Stock | Underlying | All Other | |||||||||||||||||||||||||
Name and Principal Position | Year | Salary | Bonus | Compensation(1) | Awards(2) | Options | Compensation(3) | |||||||||||||||||||||
C. Allen Bradley, Jr. | 2005 | $ | 294,292 | $ | 225,000 | $— | $ | 75,000 | 475,000 | $ | 4,132 | |||||||||||||||||
Chairman, President and | 2004 | 275,000 | 125,000 | — | — | 0 | 4,132 | |||||||||||||||||||||
Chief Executive Officer | ||||||||||||||||||||||||||||
Geoffrey R. Banta | 2005 | 215,833 | 105,000 | — | 35,000 | 237,500 | 4,132 | |||||||||||||||||||||
Executive Vice President and | 2004 | 200,000 | 80,000 | — | — | 0 | 2,412 | |||||||||||||||||||||
Chief Financial Officer | ||||||||||||||||||||||||||||
Arthur L. Hunt | 2005 | 218,958 | 105,000 | — | 35,000 | 237,500 | 4,132 | |||||||||||||||||||||
Executive Vice President, | 2004 | 215,000 | 80,000 | — | — | 0 | 4,132 | |||||||||||||||||||||
General Counsel and Secretary | ||||||||||||||||||||||||||||
Craig P. Leach | 2005 | 218,958 | 75,000 | — | 25,000 | 237,500 | 4,132 | |||||||||||||||||||||
Executive Vice President, | 2004 | 215,000 | 70,000 | — | — | 0 | 4,132 | |||||||||||||||||||||
Sales and Marketing | ||||||||||||||||||||||||||||
Mark R. Anderson(4) | 2005 | 200,000 | — | — | — | 95,000 | 4,132 | |||||||||||||||||||||
Former Chairman | 2004 | 352,000 | 40,000 | — | — | 0 | 4,132 |
(1) | ||
Perquisites and other personal benefits received by our named executive officers in 2005 and 2004 are not included in the Summary Compensation Table because the aggregate amount of this compensation did not meet disclosure thresholds established under the SEC’s regulations. | ||
None of our named executive officers held shares of restricted stock on December 31, 2005. As a portion of the incentive compensation awards for 2005, in March 2006 the following named executive officers were granted shares of restricted stock: Mr. Bradley (7,035 shares), Mr. Banta (3,283 shares), Mr. Hunt (3,283 shares) and Mr. Leach (2,345 shares). These shares of restricted stock will vest on March 10, 2007. Our executive officers will be entitled to receive dividends, if any, on these shares of restricted stock. | ||
(3) | For each of our named executive officers in 2005, these amounts consist of (a) 401(k) plan matching contributions of $4,100 | |
(4) | Mr. Anderson retired on December 31, 2005. He currently is a consultant to the Company. See “Employment and Consulting Agreements—Consulting Agreement” below. |
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Individual Grants | ||||||||||||||||||||||||
Number of | % of Total | Potential Realizable Value | ||||||||||||||||||||||
Securities | Options | at Assumed Annual Rates of | ||||||||||||||||||||||
Underlying | Granted to | Exercise | Stock Price Appreciation | |||||||||||||||||||||
Options | Employees in | Price per | Expiration | for Option Term(1) | ||||||||||||||||||||
Name | Granted(2) | 2005(3) | Share | Date | 5% | 10% | ||||||||||||||||||
C. Allen Bradley, Jr. | 475,000 | 30.7 | $ | 9.00 | 11/17/2015 | $ | 2,688,525 | $ | 6,813,249 | |||||||||||||||
Geoffrey R. Banta | 237,500 | 15.4 | 9.00 | 11/17/2015 | 1,344,262 | 3,406,625 | ||||||||||||||||||
Arthur L. Hunt | 237,500 | 15.4 | 9.00 | 11/17/2015 | 1,344,262 | 3,406,625 | ||||||||||||||||||
Craig P. Leach | 237,500 | 15.4 | 9.00 | 11/17/2015 | 1,344,262 | 3,406,625 | ||||||||||||||||||
Mark. R. Anderson | 95,000 | 6.1 | 9.00 | 11/17/2015 | 537,705 | 1,362,650 |
(1) | The 5% and 10% assumed annual rates of compounded stock price appreciation are mandated by rules of the SEC. Potential realizable value is determined by multiplying the per share market value of the Company common stock as of the date of the grant, which is equal to the per share exercise price of the option, and the sum of one plus the adjusted stock price appreciation rate (the assumed rate of appreciation compounded annually over the term of the option), subtracting the exercise price per share from the product, and multiplying the remainder by the number of securities underlying the grant at fiscal year end. | |
(2) | The options vest with respect to 20% of the option shares on each of the first five anniversaries of the grant date. | |
(3) | Options to purchase a total of 1,545,168 shares of common stock were granted to employees in 2005. |
Number of Securities Underlying | Value of Unexercised | |||||||||||||||
Unexercised Options | In-the-Money Options | |||||||||||||||
at December 31, 2005 | at December 31, 2005(1) | |||||||||||||||
Name | Exercisable | Unexercisable | Exercisable | Unexercisable | ||||||||||||
C. Allen Bradley, Jr. | 0 | 475,000 | $ | 0 | $ | 508,520 | ||||||||||
Geoffrey R. Banta | 0 | 237,500 | 0 | 254,125 | ||||||||||||
Arthur L. Hunt | 0 | 237,500 | 0 | 254,125 | ||||||||||||
Craig P. Leach | 0 | 237,500 | 0 | 254,125 | ||||||||||||
Mark. R. Anderson | 0 | 95,000 | 0 | 101,650 |
(1) | The value of the options at December 31, 2005 is based upon a market value per share of $10.07, the closing price of the Company’s common stock on December 30, 2005. |
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Number of Securities | Value of Unexercised | |||||||||||||||
Underlying Unexercised | In-the-Money Options at | |||||||||||||||
Options at Fiscal Year-End | Fiscal Year-End | |||||||||||||||
Name | Exercisable | Unexercisable | Exercisable | Unexercisable | ||||||||||||
Mark R. Anderson | 742,275 | 0 | — | — | ||||||||||||
C. Allen Bradley, Jr. | 137,444 | 0 | — | — | ||||||||||||
Geoffrey R. Banta | 0 | 0 | — | — | ||||||||||||
Arthur L. Hunt | 204,924 | 0 | — | — | ||||||||||||
Craig P. Leach | 174,925 | 0 | — | — |
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Equity Incentive Plan |
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Non-Employee Director Restricted Stock Plan |
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• | each of our directors and | |
• | all directors and executive officers as a group; | |
• | each beneficial owner of more than five percent of our common stock or Series C convertible preferred stock; and | |
• | each of the selling shareholders. |
Beneficial Ownership | Beneficial Ownership | |||||||||||||||||||||||
Prior to the Offering | After the Offering | |||||||||||||||||||||||
Percentage of | Percentage | Percentage of | Percentage | |||||||||||||||||||||
Number of | Outstanding | of Total | Number of | Outstanding | of Total | |||||||||||||||||||
Name of Beneficial Owner | Shares(1) | Shares | Vote(2) | Shares | Shares | Vote(2) | ||||||||||||||||||
Common Stock: | ||||||||||||||||||||||||
C. Allen Bradley, Jr. | 117,429 | * | * | 117,429 | * | * | ||||||||||||||||||
Thomas W. Hallagan(3) | 1,222 | * | * | 1,222 | * | * | ||||||||||||||||||
Jared A. Morris(3)(4) | 49,872 | * | * | 49,872 | * | * | ||||||||||||||||||
Paul B. Queally(3)(5) | 7,210 | * | * | 2,797 | * | * | ||||||||||||||||||
Sean M. Traynor(3)(5) | 2,057 | * | * | 2,057 | * | * | ||||||||||||||||||
Austin P. Young III(3) | 2,555 | * | * | 2,555 | * | * | ||||||||||||||||||
Geoffrey R. Banta | 50,783 | * | * | 50,783 | * | * | ||||||||||||||||||
Arthur L. Hunt | 51,604 | * | * | 51,604 | * | * | ||||||||||||||||||
Craig P. Leach | 50,632 | * | * | 50,632 | * | * | ||||||||||||||||||
David O. Narigon | 0 | — | — | 0 | — | — | ||||||||||||||||||
Todd Walker | 0 | — | — | 0 | — | — | ||||||||||||||||||
All directors and executive officers as a group (11 persons) | 333,364 | 1.9% | 1.7% | 328,951 | 1.7% | 1.7% |
Beneficial Ownership | Beneficial Ownership | |||||||||||||||||||||||
Prior to the Offering | After the Offering | |||||||||||||||||||||||
Percentage of | Percentage | Percentage of | Percentage | |||||||||||||||||||||
Number of | Outstanding | of Total | Number of | Outstanding | of Total | |||||||||||||||||||
Name of Beneficial Owner | Shares | Shares | Vote(1) | Shares | Shares(2) | Vote(1) | ||||||||||||||||||
Common Stock: | ||||||||||||||||||||||||
Mark R. Anderson | 536,548 | 2.5 | % | 2.1 | % | |||||||||||||||||||
C. Allen Bradley, Jr. | 28,302 | * | * | |||||||||||||||||||||
Jared A. Morris(3) | 3,442,823 | 16.0 | % | 13.4 | % | |||||||||||||||||||
Paul B. Queally(4)(5) | 9,135 | * | * | |||||||||||||||||||||
Sean M. Traynor(5) | 100 | * | * | |||||||||||||||||||||
Austin P. Young III | 0 | — | — | |||||||||||||||||||||
0 | — | — | ||||||||||||||||||||||
Geoffrey R. Banta | 0 | — | — | |||||||||||||||||||||
Arthur L. Hunt | 51,887 | * | * | |||||||||||||||||||||
Craig P. Leach | 56,604 | * | * | |||||||||||||||||||||
All directors and executive officers as a group (10 persons) | 4,125,399 | 19.1 | % | 16.0 | % |
* | Less than 1%. |
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(1) | Includes shares of our common stock issuable upon the exercise of options exercisable within 60 days as follows: Mr. Bradley (95,000 shares), Mr. Banta (47,500 shares), Mr. Hunt (47,500 shares) and Mr. Leach (47,500 shares). Also includes shares of restricted stock for which the executive officer has sole voting power, but no dispositive power, as follows: Mr. Bradley (7,035 shares), Mr. Banta (3,283 shares), Mr. Hunt (3,283 shares) and Mr. Leach (2,345 shares). These shares of restricted stock will vest on March 10, 2007. | |
(2) | Combined voting power of common stock and Series C convertible preferred stock. Each share of common stock is entitled to one vote and each share of Series C convertible preferred stock is entitled to one vote for each share of common stock into which it is convertible. |
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Includes 1,222 shares of restricted stock granted at the 2006 annual meeting of shareholders pursuant to our | ||
Includes 47,817 shares | ||
(5) | Mr. Queally |
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Beneficial Ownership | Beneficial Ownership | |||||||||||||||||||||||
Prior to the Offering | After the Offering(1) | |||||||||||||||||||||||
Percentage of | Percentage | Percentage of | Percentage | |||||||||||||||||||||
Number of | Outstanding | of Total | Number of | Outstanding | of Total | |||||||||||||||||||
Name of Beneficial Owner | Shares | Shares | Vote(2) | Shares | Shares(3) | Vote(2) | ||||||||||||||||||
Common Stock: | ||||||||||||||||||||||||
Welsh Carson(4) | 14,568,060 | 67.5 | % | 56.6 | % | |||||||||||||||||||
Abbott Capital 1330 Investors I, L.P.(5) | 2,761,256 | 11.3 | % | 10.7 | % | |||||||||||||||||||
Teachers Insurance and Annuity Association of America(6) | 2,761,256 | 11.3 | % | 9.7 | % | |||||||||||||||||||
Sprout Group(7) | 1,673,830 | 7.8 | % | 6.5 | % | |||||||||||||||||||
Series C Convertible Preferred Stock: | ||||||||||||||||||||||||
Abbott Capital 1330 Investors I, L.P.(5) | 200,000 | 66.7 | % | 10.7 | % | 200,000 | 66.7 | % | ||||||||||||||||
Northwestern Mutual Life Insurance Company(8) | 50,000 | 16.7 | % | 2.7 | % | 50,000 | 16.7 | % | ||||||||||||||||
Jackson National Life Insurance Company(9) | 49,251 | 16.4 | % | 2.6 | % | 49,251 | 16.4 | % |
Beneficial Ownership | Beneficial Ownership | |||||||||||||||||||||||
Prior to the Offering | After the Offering(1) | |||||||||||||||||||||||
Percentage of | Percentage | Percentage of | Percentage | |||||||||||||||||||||
Number of | Outstanding | of Total | Number of | Outstanding | of Total | |||||||||||||||||||
Name of Beneficial Owner | Shares | Shares | Vote(2) | Shares | Shares | Vote(2) | ||||||||||||||||||
Common Stock: | ||||||||||||||||||||||||
Welsh Carson(3) | 7,697,495 | 44.1% | 40.7% | 1,161,022 | 6.2% | 6.1% | ||||||||||||||||||
RS Investment(4) | 1,504,793 | 8.6% | 8.0% | 1,504,793 | 8.1% | 8.0% | ||||||||||||||||||
Abbott Capital 1330 Investors I(5) | 971,817 | 5.3% | 5.1% | 0 | — | — | ||||||||||||||||||
Teachers Insurance and Annuity Association of America(6) | 971,817 | 5.3% | 4.9% | 971,817 | 5.2% | 4.9% | ||||||||||||||||||
Wells Fargo & Company(7) | 900,100 | 5.2% | 4.8% | 900,100 | 4.8% | 4.8% | ||||||||||||||||||
Neuberger Berman(8) | 893,041 | 5.1% | 4.7% | 893,041 | 4.8% | 4.7% | ||||||||||||||||||
SuNOVA(9) | 890,000 | 5.1% | 4.7% | 890,000 | 4.8% | 4.7% | ||||||||||||||||||
Credit Suisse(10) | 885,517 | 5.1% | 4.7% | 885,517 | 4.7% | 4.7% | ||||||||||||||||||
Series C Convertible Preferred Stock: | ||||||||||||||||||||||||
Abbott Capital 1330 Investors I(5) | 200,000 | 66.7% | 5.1% | 0 | — | — | ||||||||||||||||||
Northwestern Mutual Life Insurance Company(11) | 50,000 | 16.7% | 1.3% | 0 | — | — | ||||||||||||||||||
Jackson National Life Insurance Company(12) | 49,251 | 16.4% | 1.3% | 49,251 | 98.5% | 1.3% |
(1) | Assumes over-allotment option is not | |
(2) | Combined voting power of common stock and Series C convertible preferred stock. Each share of common stock is entitled to one vote and each share of Series C convertible preferred stock is entitled to one vote for each share of common stock into which it is convertible. |
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According to a Schedule 13G filed by Welsh, Carson, Anderson & Stowe VII, L.P. | ||
According to a Schedule 13G filed by RS Investment Management Co. LLC, RS Investment Management, L.P. and George R. Hecht, these persons and entities have shared voting and dispositive power with respect to 1,504,793 shares of common stock. The Schedule 13G provides that RS Investment Management Co. LLC is the |
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shares of common stock | ||
(5) | According to a Schedule 13G filed by Abbott Capital 1330 Investors I, LP, Abbott Capital 1330 GenPar I, LLC, Abbott Capital Management, LLC, Raymond L. Held, Thaddeus I. Gray, Jonathan D. Roth, Kathryn J. Stokel, Lauren M. Massey and Charles H. van Horne, the | |
(6) | According to | |
(7) | According to a Schedule 13G filed by Wells Fargo & Company (“Wells Fargo”) and Wells Capital Management Incorporated (“Wells Capital”), Wells Fargo has sole voting power with respect to 817,900 shares of common stock | |
(8) | According to a Schedule 13G filed by | |
(9) | According to a Schedule 13G filed by SuNOVA Partners, L.P. (“SuNOVA Partners”), SuNOVA Long-Term Opportunity Fund, L.P. (“SuNOVA Long-Term”), SuNOVA Holdings, LLC (“SuNOVA Holdings”), SuNOVA Capital, LP (“SuNOVA Capital”), SuNOVA, LLC (“SuNOVA LLC”), Mr. Matthew Byrnes and Ms. Felice Gelman, SuNOVA Partners has shared voting and dispositive power with respect to 292,900 shares of common stock, |
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10017. | ||
According to a Schedule 13G filed by Credit Suisse, Credit Suisse shares voting and dispositive power with respect to | ||
(11) | The number of shares of common stock to be issued upon conversion of the shares of Series C convertible preferred stock will represent less than five percent of both the outstanding shares of common stock and the percentage of total vote. The address for Northwestern Mutual Life Insurance Company is 720 East Wisconsin Avenue, Milwaukee, Wisconsin 53202. | |
(12) | ||
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Beneficial Ownership | ||||||||||||||||||||
Number of | After the Offering | |||||||||||||||||||
Common Shares | Number of | Percentage of | ||||||||||||||||||
Beneficially Owned | Common Shares | Number of | Outstanding | Percentage of | ||||||||||||||||
Selling Shareholder | Prior to the Offering | to be Sold(1) | Shares | Shares | Total Vote(2) | |||||||||||||||
Welsh Carson | 7,697,495 | 6,536,473 | 1,161,022 | 6.2 | % | 6.1 | % | |||||||||||||
Abbott Capital 1330 Investors I(3) | 971,817 | 971,817 | 0 | — | — | |||||||||||||||
Northwestern Mutual Life Insurance Company(4) | 242,954 | 242,954 | 0 | — | — | |||||||||||||||
Russell L. Carson(5) | 64,506 | 55,224 | 9,282 | * | * | |||||||||||||||
The Bruce K. Anderson 2004 Irrevocable Trust(5) | 64,506 | 55,224 | 9,282 | * | * | |||||||||||||||
Thomas E. McInerney(5) | 12,892 | 11,037 | 1,855 | * | * | |||||||||||||||
Paul B. Queally(5) | 7,210 | 4,413 | 2,797 | * | * | |||||||||||||||
Jill Hanau | 4,836 | 4,836 | 0 | — | — | |||||||||||||||
Robert A. Minicucci(5) | 4,836 | 4,140 | 696 | * | * | |||||||||||||||
Anthony de Nicola(5) | 2,579 | 2,208 | 371 | * | * |
* | Less than 1%. |
(1) | Assumes over-allotment option is not exercised. | |
(2) | Combined voting power of common stock and Series C convertible preferred stock. Each share of common stock is entitled to one vote and each share of Series C convertible preferred stock is entitled to one vote for each share of common stock into which it is convertible. | |
(3) | Represents shares of common stock to be issued upon conversion of 200,000 shares of convertible preferred stock immediately prior to the completion of this offering. Abbott Capital acquired its shares of convertible preferred stock in 1998. | |
Represents shares of common stock to be issued upon conversion of 50,000 shares of convertible preferred stock immediately prior to the completion of this offering. Northwestern Mutual acquired its shares of convertible preferred stock in 1998. | ||
(5) | Selling shareholder is an affiliate of | |
Welsh, Carson, Anderson & Stowe. |
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• | the holders of a majority of certain shares of our common stock, including shares held by | |
• | the holders of 33% of the shares of our common stock previously issued upon exercise of certain warrants issued by | |
• |
• | register shares of their common stock (including shares of common stock issuable upon conversion of our outstanding convertible preferred stock) with an anticipated aggregate sale price of at least $1.0 million under the Securities Act on aForm S-3 registration statement; and | |
• | include shares of their common stock in any registration statement whenever we propose to register our common stock under the Securities Act. |
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98
• | 3,000,000 shares of preferred stock, par value $0.01 per share, of which: |
• | 1,500,000 shares are designated as Series A preferred | |
• | 1,500,000 shares are designated as Series B preferred stock; |
• | 500,000 shares of convertible preferred stock, par value $0.01 per share, of which: |
• | 300,000 shares are designated as Series C convertible deferred pay preferred stock; and | |
• | 200,000 shares are designated as Series D non-voting convertible deferred pay preferred stock; | |
• | 500,000 shares of Series E preferred stock, par value $0.01 per share, of which 317,744 shares have been canceled and retired and cannot be reissued; | |
• | 10,000,000 shares of junior preferred stock, par value $0.01 per share; | |
• | 50,000,000 shares of common stock, par value $0.01 per share; and | |
• | 5,000,000 shares of convertible non-voting common stock, par value $0.01 per share. |
• | ||
300,000 shares of Series C convertible preferred stock; | ||
• | 200,000 shares of Series D convertible | |
• |
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• | $100 for each share of convertible preferred stock outstanding, plus the cash value, calculated at $100 per share, of all accrued and unpaid dividends; and | |
• | the amount distributable to the holders of our convertible preferred stock upon liquidation, dissolution or winding up had the holders converted their shares into common stock or non-voting common stock, as the case may be, in accordance with the terms of the convertible preferred stock immediately prior to liquidation, dissolution or winding up. |
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• | at any time at the option of the holder; |
99
• | at our option at any time following the consummation of any public offering of our equity securities or a change of control of our company if the closing price for our common stock for the prior 20 trading days is, or the proceeds from the change of control results in a value for our outstanding common stock of, at least | |
• | automatically upon consummation of a public offering of our common stock with gross proceeds to us of at least $40.0 million at a price to the public of at least |
• | an amount equal to the sum of: |
• | the number of shares of common stock and non-voting common stock outstanding immediately prior to the issuance or sale (including as outstanding all shares of common stock and non-voting common stock issuable upon conversion of outstanding convertible preferred stock) multiplied by the then-existing market price of our common stock; plus | |
• | the consideration, if any, received by us upon the issuance or sale; by |
• | the total number of shares of common stock and non-voting common stock outstanding immediately after such issuance or sale (including as outstanding all shares of common stock and non-voting common stock issuable upon conversion of outstanding convertible preferred stock, without giving effect to any adjustment in the number of shares issuable by reason of such issue and sale). |
• | the sale, lease or transfer of all or substantially all of our assets in one or a series of related transactions to any person; or | |
• | the acquisition of beneficial ownership by any person, other than Welsh Carson, in one or a series of related transactions, of our voting stock representing more than 50% of the voting power of all outstanding shares of our voting stock, whether by merger, consolidation or otherwise, other than by way of a public offering of our equity securities. |
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• | prior to that date, the corporation’s board of directors approved either the business combination or the transaction that resulted in the shareholder becoming an affiliated shareholder; or | |
• | not less than six months after that date, the business combination is approved at a meeting of shareholders duly called for that purpose, and not by written consent, by the affirmative vote of at least two-thirds of the outstanding voting shares that are not beneficially owned by the affiliated shareholder. |
• | any merger, share exchange or conversion involving the corporation and the affiliated shareholder; | |
• | any sale, lease, exchange, mortgage, pledge, transfer or other disposition of 10% or more of the assets of the corporation involving the affiliated shareholder; | |
• | subject to exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the affiliated shareholder; | |
• | the adoption of a plan or proposal for our liquidation or dissolution proposed by or pursuant to an agreement with the affiliated shareholder; | |
• | a reclassification, recapitalization or merger proposed by or pursuant to an agreement with the affiliated shareholder that has the effect of increasing the proportionate ownership percentage of the affiliated shareholder; or | |
• | the receipt by the affiliated shareholder of the benefit of any loan, advance, guarantee, pledge or other financial benefit provided by or through the corporation. |
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102
• | ||
prohibit the use of cumulative voting in the election of directors; and | ||
• | authorize our board to issue blank check junior preferred stock to increase the amount of outstanding shares. |
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• | one percent of the number of shares of common stock then outstanding | |
• | the average weekly trading volume of the common stock on the |
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Underwriter | Number of Shares | ||||
Friedman, Billings, Ramsey & Co., | |||||
William Blair & Company, L.L.C. | |||||
SunTrust Capital Markets, Inc. | |||||
Cochran Caronia Waller Securities LLC | |||||
Total | |||||
No Exercise of | Full Exercise of | ||||||||
Over-Allotment Option | Over-Allotment Option | ||||||||
Per Share | $ | $ | |||||||
Total | $ | $ |
No Exercise of | Full Exercise of | |||||||
Paid by Selling Shareholders | Over-Allotment Option | Over-Allotment Option | ||||||
Per Share | $ | 0 | $ | |||||
Total | $ | 0 | $ |
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• | offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of our common stock, or any securities convertible into or exercisable or exchangeable for any shares of our common stock or any right to acquire shares of our common stock; or | |
• | enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the common stock, whether any such transaction described above is to be settled by delivery of common stock or such other securities, in cash or otherwise. |
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Page | ||||
Unaudited Interim Financial Statements as of September 30, 2006 and for the three- and nine-month periods ended September 30, 2006 and 2005: | ||||
F-2 | ||||
F-3 | ||||
F-4 | ||||
F-5 | ||||
F-6 | ||||
Audited Financial Statements as of December 31, | ||||
F-1
September 30, | December 31, | |||||||
2006 | 2005 | |||||||
(Unaudited) | ||||||||
Assets | ||||||||
Investments: | ||||||||
Fixed maturitysecurities—held-to-maturity, at amortized cost | $ | 524,086 | $ | 465,648 | ||||
Fixed maturitysecurities—available-for-sale, at fair value | 633 | 1,695 | ||||||
Equitysecurities—available-for-sale, at fair value | 53,056 | 66,275 | ||||||
Total investments | 577,775 | 533,618 | ||||||
Cash and cash equivalents | 61,778 | 49,286 | ||||||
Amounts recoverable from reinsurers | 122,792 | 122,562 | ||||||
Premiums receivable, net | 145,621 | 123,934 | ||||||
Deferred income taxes | 26,689 | 22,413 | ||||||
Accrued interest receivable | 6,200 | 4,597 | ||||||
Property and equipment, net | 6,022 | 6,321 | ||||||
Deferred policy acquisition costs | 19,785 | 16,973 | ||||||
Deferred charges | 4,003 | 3,182 | ||||||
Other assets | 14,369 | 9,434 | ||||||
$ | 985,034 | $ | 892,320 | |||||
Liabilities, redeemable preferred stock and shareholders’ equity | ||||||||
Liabilities: | ||||||||
Reserves for loss and loss adjustment expenses | $ | 520,843 | $ | 484,485 | ||||
Unearned premiums | 151,403 | 124,524 | ||||||
Reinsurance premiums payable | — | 694 | ||||||
Amounts held for others | 1,706 | 1,484 | ||||||
Policyholder deposits | 38,189 | 38,033 | ||||||
Insurance-related assessments | 39,647 | 35,135 | ||||||
Federal income tax payable | — | 1,677 | ||||||
Accounts payable and other liabilities | 25,490 | 22,852 | ||||||
Subordinated debt securities | 36,090 | 36,090 | ||||||
Total liabilities | 813,368 | 744,974 | ||||||
Redeemable preferred stock | 50,000 | 50,000 | ||||||
Shareholders’ equity: | ||||||||
Common stock: | ||||||||
Voting—$0.01 par value; issued and outstanding shares—17,446,110 in 2006 and 17,424,054 in 2005 | 174 | 174 | ||||||
Additional paid-in capital | 145,860 | 145,206 | ||||||
Accumulated deficit | (31,027 | ) | (54,346 | ) | ||||
Accumulated other comprehensive income | 6,659 | 6,312 | ||||||
121,666 | 97,346 | |||||||
$ | 985,034 | $ | 892,320 | |||||
F-2
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
(Unaudited) | ||||||||||||||||
Revenues | ||||||||||||||||
Gross premiums written | $ | 82,951 | $ | 70,658 | $ | 255,920 | $ | 231,182 | ||||||||
Ceded premiums written | (4,894 | ) | (5,233 | ) | (14,069 | ) | (14,930 | ) | ||||||||
Net premiums written | $ | 78,057 | $ | 65,425 | $ | 241,851 | $ | 216,252 | ||||||||
Net premiums earned | $ | 74,991 | $ | 64,338 | $ | 214,972 | $ | 189,370 | ||||||||
Net investment income | 6,316 | 4,335 | 18,132 | 11,985 | ||||||||||||
Net realized gains on investments | 346 | 563 | 2,581 | 1,337 | ||||||||||||
Fee and other income | 195 | 120 | 550 | 426 | ||||||||||||
Total revenues | 81,848 | 69,356 | 236,235 | 203,118 | ||||||||||||
Expenses | ||||||||||||||||
Loss and loss adjustment expenses incurred | 51,743 | 45,189 | 149,989 | 155,625 | ||||||||||||
Underwriting and certain other operating costs | 9,089 | 8,881 | 26,524 | 23,578 | ||||||||||||
Commissions | 4,925 | 4,047 | 13,811 | 11,869 | ||||||||||||
Salaries and benefits | 4,195 | 3,920 | 12,404 | 10,968 | ||||||||||||
Interest expense | 923 | 735 | 2,579 | 2,061 | ||||||||||||
Policyholder dividends | 216 | 65 | 563 | 451 | ||||||||||||
Total expenses | 71,091 | 62,837 | 205,870 | 204,552 | ||||||||||||
Income (loss) before income taxes | 10,757 | 6,519 | 30,365 | (1,434 | ) | |||||||||||
Income tax expense (benefit) | 2,492 | 1,709 | 7,046 | (1,960 | ) | |||||||||||
Net income | 8,265 | 4,810 | 23,319 | 526 | ||||||||||||
Preferred stock dividends | — | (2,422 | ) | — | (7,142 | ) | ||||||||||
Net income (loss) available to common shareholders | $ | 8,265 | $ | 2,388 | $ | 23,319 | $ | (6,616 | ) | |||||||
Earnings per share | ||||||||||||||||
Basic | $ | 0.42 | $ | 6.05 | $ | 1.17 | $ | (22.07 | ) | |||||||
Diluted | $ | 0.42 | $ | 6.05 | $ | 1.17 | $ | (22.07 | ) | |||||||
Shares used in computing earnings per share | ||||||||||||||||
Basic | 17,424,054 | 299,774 | 17,422,413 | 299,774 | ||||||||||||
Diluted | 17,432,597 | 299,774 | 17,431,263 | 299,774 | ||||||||||||
F-3
Accumulated | ||||||||||||||||||||||||||||||||
Series E | Additional | Other | ||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Paid-In | Accumulated | Comprehensive | ||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Income | Total | |||||||||||||||||||||||||
Balance at January 1, 2005 | 17,653 | 1,765 | 299,774 | 3 | — | (51,683 | ) | 7,053 | (42,862 | ) | ||||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | 5,930 | — | 5,930 | ||||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||||||||||
Change in unrealized gains, net of tax | — | — | — | — | — | — | (741 | ) | (741 | ) | ||||||||||||||||||||||
Comprehensive income: | 5,189 | |||||||||||||||||||||||||||||||
Dividends paid in Series A preferred stock | — | — | — | — | — | (4,376 | ) | — | (4,376 | ) | ||||||||||||||||||||||
Dividends paid in Series E preferred stock | 27,655 | 2,766 | — | — | — | (2,766 | ) | — | — | |||||||||||||||||||||||
IPO—Common stock issued | — | — | 8,000,000 | 80 | 71,920 | — | — | 72,000 | ||||||||||||||||||||||||
IPO—Common stock issued in exchange for Series A preferred stock | — | — | 9,120,948 | 91 | 81,997 | (837 | ) | — | 81,251 | |||||||||||||||||||||||
IPO—Restricted common stock issued | — | — | 3,332 | — | — | — | — | — | ||||||||||||||||||||||||
Deferred stock options granted | — | — | — | — | 53 | — | — | 53 | ||||||||||||||||||||||||
IPO—Series A preferred stock redeemed | — | — | — | — | — | (52 | ) | — | (52 | ) | ||||||||||||||||||||||
IPO—Series E preferred stock redeemed | (45,308 | ) | (4,531 | ) | — | — | — | (562 | ) | — | (5,093 | ) | ||||||||||||||||||||
IPO—Offering costs: | ||||||||||||||||||||||||||||||||
Underwriting discount | — | — | — | — | (5,040 | ) | — | — | (5,040 | ) | ||||||||||||||||||||||
Other IPO expenses | — | — | — | — | (3,724 | ) | — | — | (3,724 | ) | ||||||||||||||||||||||
Balance at December 31, 2005 | — | — | 17,424,054 | 174 | 145,206 | (54,346 | ) | $ | 6,312 | 97,346 | ||||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | 23,319 | — | 23,319 | ||||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||||||||||
Change in unrealized gains, net of tax | — | — | — | — | — | — | 347 | 347 | ||||||||||||||||||||||||
Comprehensive income: | 23,666 | |||||||||||||||||||||||||||||||
Share-based compensation | — | — | — | — | 513 | — | — | 513 | ||||||||||||||||||||||||
Restricted common stock issued | — | — | — | — | 138 | — | — | 138 | ||||||||||||||||||||||||
Tax benefit of share-based compensation | — | — | — | — | 3 | — | — | 3 | ||||||||||||||||||||||||
Balance at September 30, 2006 | — | $ | — | 17,424,054 | $ | 174 | $ | 145,860 | $ | (31,027 | ) | $ | 6,659 | $ | 121,666 | |||||||||||||||||
F-4
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
(Unaudited) | ||||||||||||||||
Operating Activities | ||||||||||||||||
Net income | $ | 8,265 | $ | 4,810 | $ | 23,319 | $ | 526 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Depreciation | 514 | 551 | 1,443 | 1,705 | ||||||||||||
Net amortization of investments | 600 | 542 | 1,910 | 1,541 | ||||||||||||
Deferred income taxes | (1,547 | ) | (43 | ) | (4,463 | ) | (7,470 | ) | ||||||||
Net realized gains on investments | (346 | ) | (563 | ) | (2,581 | ) | (1,337 | ) | ||||||||
Gain on sale of asset | (39 | ) | — | (82 | ) | — | ||||||||||
Share-based compensation | 193 | — | 651 | — | ||||||||||||
Changes in operating assets and liabilities: | ||||||||||||||||
Premiums receivable | (1,782 | ) | 4,892 | (21,687 | ) | (25,920 | ) | |||||||||
Accrued interest receivable | (768 | ) | (1,264 | ) | (1,603 | ) | (1,568 | ) | ||||||||
Deferred policy acquisition costs and deferred charges | (57 | ) | 600 | (3,633 | ) | (6,692 | ) | |||||||||
Other assets | 1,574 | (42 | ) | (4,935 | ) | (1,398 | ) | |||||||||
Reserves for loss and loss adjustment expenses | 15,783 | 12,067 | 36,358 | 37,014 | ||||||||||||
Unearned premiums | 3,066 | 1,087 | 26,879 | 26,882 | ||||||||||||
Reinsurance balances | (3,199 | ) | 52,643 | (230 | ) | 76,203 | ||||||||||
Amounts held for others and policyholder deposits | (63 | ) | (278 | ) | 378 | 2,333 | ||||||||||
Accounts payable and other liabilities | 253 | 943 | 4,779 | 9,622 | ||||||||||||
Net cash provided by operating activities | 22,447 | 75,945 | 56,503 | 111,441 | ||||||||||||
Investing Activities | ||||||||||||||||
Purchases of investmentsheld-to-maturity | (15,320 | ) | (94,577 | ) | (113,312 | ) | (133,799 | ) | ||||||||
Purchases of investmentsavailable-for-sale | (1,782 | ) | (9,306 | ) | (20,905 | ) | (34,353 | ) | ||||||||
Proceeds from maturities of investmentsheld-to-maturity | 6,008 | 24,275 | 51,717 | 43,477 | ||||||||||||
Proceeds from sales and maturities of investmentsavailable-for-sale | 19,706 | 7,288 | 39,547 | 19,624 | ||||||||||||
Purchases of property and equipment | (509 | ) | (250 | ) | (1,147 | ) | (977 | ) | ||||||||
Proceeds from sales of property and equipment | 41 | — | 86 | 3 | ||||||||||||
Net cash provided by (used in) investing activities | 8,144 | (72,570 | ) | (44,014 | ) | (106,025 | ) | |||||||||
Financing Activities | ||||||||||||||||
Initial public offering costs incurred | — | (1,994 | ) | — | (1,994 | ) | ||||||||||
Tax benefit from share-based payments | — | — | 3 | — | ||||||||||||
Net cash provided by (used in) financing activities | — | (1,994 | ) | 3 | (1,994 | ) | ||||||||||
Change in cash and cash equivalents | 30,591 | 1,381 | 12,492 | 3,422 | ||||||||||||
Cash and cash equivalents at beginning of period | 31,187 | 27,462 | 49,286 | 25,421 | ||||||||||||
Cash and cash equivalents at end of period | $ | 61,778 | $ | 28,843 | $ | 61,778 | $ | 28,843 | ||||||||
F-5
Note 1. | Basis of Presentation |
Stock Options and |
F-6
Note 3. | Earnings Per Share |
F-7
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
(Unaudited) | ||||||||||||||||
(In thousands, except share and per share data) | ||||||||||||||||
Basic EPS: | ||||||||||||||||
Net income (loss) available to common shareholders | $ | 8,265 | $ | 2,388 | $ | 23,319 | $ | (6,616 | ) | |||||||
Portion allocable to common shareholders | 87.8 | % | 75.8 | % | 87.8 | % | 100.0 | % | ||||||||
Net income (loss) allocable to common shareholders | $ | 7,257 | $ | 1,812 | $ | 20,474 | $ | (6,616 | ) | |||||||
Basic weighted average common shares | 17,424,054 | 299,774 | 17,422,413 | 299,774 | ||||||||||||
Basic earnings per common share | $ | 0.42 | $ | 6.05 | $ | 1.17 | $ | (22.07 | ) | |||||||
Diluted EPS: | ||||||||||||||||
Net income (loss) allocable to common shareholders | $ | 7,257 | $ | 1,812 | $ | 20,474 | $ | (6,616 | ) | |||||||
Diluted weighted average common shares: | ||||||||||||||||
Weighted average common shares | 17,424,054 | 299,774 | 17,422,413 | 299,774 | ||||||||||||
Stock options | — | — | — | — | ||||||||||||
Restricted stock | 8,543 | — | 8,850 | — | ||||||||||||
Diluted weighted average common shares | 17,432,597 | 299,774 | 17,431,263 | 299,774 | ||||||||||||
Diluted earnings per common share | $ | 0.42 | $ | 6.05 | $ | 1.17 | $ | (22.07 | ) |
F-8
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
(Unaudited) | ||||||||||||||||
Numerator: | ||||||||||||||||
Basic weighted average common shares | 17,424,054 | 299,774 | 17,422,413 | 299,774 | ||||||||||||
Add: Other common shares eligible for common dividends: | ||||||||||||||||
Weighted average restricted shares (including tax benefit component) | 8,543 | — | 8,850 | — | ||||||||||||
Weighted average participating common shares | 17,432,597 | 299,774 | 17,431,263 | 299,774 | ||||||||||||
Denominator: | ||||||||||||||||
Weighted average participating common shares | 17,432,597 | 299,774 | 17,431,263 | 299,774 | ||||||||||||
Add: Other classes of securities, including contingently issuable common shares and convertible preferred shares: | ||||||||||||||||
Weighted average common shares issuable upon conversion of Series C preferred shares | 1,457,724 | 57,524 | 1,457,724 | — | (1) | |||||||||||
Weighted average common shares issuable upon conversion of Series D preferred shares | 971,817 | 38,350 | 971,817 | — | (1) | |||||||||||
Weighted average participating shares | 19,862,138 | 395,648 | 19,860,804 | 299,774 | ||||||||||||
(1) | Not applicable as impact is antidilutive. |
Note 4. | Registered Public Offering |
Note 5. | ||||
Recent Accounting Pronouncements |
F-1
F-9
F-10
F-11
F-2
December 31, | ||||||||||
2004 | 2003 | |||||||||
(In thousands, except | ||||||||||
share data) | ||||||||||
Assets | ||||||||||
Investments: | ||||||||||
Fixed maturity securities— held-to-maturity, at amortized cost (fair value $328,948) | $ | 329,653 | $ | — | ||||||
Fixed maturity securities— available-for-sale, at fair value (cost $1,729 and $233,111 in 2004 and 2003, respectively) | 1,755 | 243,863 | ||||||||
Equity securities— available-for-sale, at fair value (cost $30,926 and $11,215 in 2004 and 2003, respectively) | 33,460 | 11,496 | ||||||||
Mortgage loan | — | 2,370 | ||||||||
Total invested assets | 364,868 | 257,729 | ||||||||
Cash and cash equivalents | 25,421 | 49,815 | ||||||||
Receivable for investments sold | — | 1,380 | ||||||||
Amounts recoverable from reinsurers | 198,977 | 211,774 | ||||||||
Premiums receivable, net | 114,141 | 108,380 | ||||||||
Deferred income taxes | 15,624 | 12,713 | ||||||||
Federal income tax recoverable | 1,292 | 6,426 | ||||||||
Accrued interest receivable | 3,123 | 2,659 | ||||||||
Property and equipment, net | 7,077 | 6,000 | ||||||||
Deferred policy acquisition costs | 12,044 | 11,820 | ||||||||
Deferred charges | 3,054 | 2,987 | ||||||||
Other assets | 8,566 | 6,925 | ||||||||
$ | 754,187 | $ | 678,608 | |||||||
Liabilities, redeemable preferred stock and shareholders’ deficit | ||||||||||
Liabilities: | ||||||||||
Reserves for loss and loss adjustment expenses | $ | 432,880 | $ | 377,559 | ||||||
Unearned premiums | 111,741 | 103,462 | ||||||||
Reinsurance premiums payable | 861 | 485 | ||||||||
Amounts held for others | 1,214 | 1,376 | ||||||||
Policyholder deposits | 33,746 | 28,609 | ||||||||
Insurance-related assessments | 29,876 | 26,133 | ||||||||
Accounts payable and other liabilities | 18,725 | 18,902 | ||||||||
Note payable | — | 6,000 | ||||||||
Subordinated debt securities | 36,090 | 10,310 | ||||||||
Total liabilities | 665,133 | 572,836 | ||||||||
Redeemable preferred stock: | ||||||||||
Series A nonconvertible— $0.01 par value, $100 per share redemption value: Authorized shares— 1,500,000; issued and outstanding shares— 819,161 in 2004 and 764,243 in 2003 | 81,916 | 76,424 | ||||||||
Series B nonconvertible— $0.01 par value, $100 per share redemption value: Authorized shares— 1,500,000; no shares issued or outstanding in 2004 or 2003 | — | — | ||||||||
Series C convertible— $0.01 par value, $100 per share redemption value: Authorized shares— 300,000; issued and outstanding shares— 300,000 in 2004 and 2003 | 30,000 | 30,000 | ||||||||
Series D convertible— $0.01 par value, $100 per share redemption value: Authorized shares— 200,000; issued and outstanding shares— 200,000 in 2004 and 2003 | 20,000 | 20,000 | ||||||||
131,916 | 126,424 | |||||||||
Shareholders’ deficit: | ||||||||||
Preferred stock: Series E nonconvertible— $0.01 par value, $100 per share redemption value: Authorized— 500,000; issued and outstanding shares— 17,653 in 2004 and 247,209 in 2003 | 1,765 | 24,720 | ||||||||
Common stock: | ||||||||||
Voting— $0.01 par value, authorized shares— 100,000,000; issued and outstanding shares— 21,581,864 in 2004 and 12,967,104 in 2003 | 216 | 130 | ||||||||
Convertible nonvoting— $0.01 par value, authorized shares— 5,000,000; no shares issued or outstanding in 2004 or 2003 | — | — | ||||||||
Additional paid-in capital | — | — | ||||||||
Accumulated deficit | (51,896 | ) | (52,672 | ) | ||||||
Accumulated other comprehensive income | 7,053 | 7,170 | ||||||||
(42,862 | ) | (20,652 | ) | |||||||
$ | 754,187 | $ | 678,608 | |||||||
December 31, | ||||||||
2005 | 2004 | |||||||
Assets | ||||||||
Investments: | ||||||||
Fixed maturitysecurities—held-to-maturity, at amortized cost (fair value $458,819 and $328,948 in 2005 and 2004, respectively) | $ | 465,648 | $ | 329,653 | ||||
Fixed maturitysecurities—available-for-sale, at fair value (cost $1,729 in 2005 and 2004, respectively) | 1,695 | 1,755 | ||||||
Equitysecurities—available-for-sale, at fair value (cost $62,855 and $30,926 in 2005 and 2004, respectively) | 66,275 | 33,460 | ||||||
Total investments | 533,618 | 364,868 | ||||||
Cash and cash equivalents | 49,286 | 25,421 | ||||||
Amounts recoverable from reinsurers | 122,562 | 198,977 | ||||||
Premiums receivable, net | 123,934 | 114,141 | ||||||
Deferred income taxes | 22,413 | 15,624 | ||||||
Federal income tax recoverable | — | 1,292 | ||||||
Accrued interest receivable | 4,597 | 3,123 | ||||||
Property and equipment, net | 6,321 | 7,077 | ||||||
Deferred policy acquisition costs | 16,973 | 12,044 | ||||||
Deferred charges | 3,182 | 3,054 | ||||||
Other assets | 9,434 | 8,566 | ||||||
$ | 892,320 | $ | 754,187 | |||||
Liabilities, redeemable preferred stock and shareholders’ equity | ||||||||
Liabilities: | ||||||||
Reserves for loss and loss adjustment expenses | $ | 484,485 | $ | 432,880 | ||||
Unearned premiums | 124,524 | 111,741 | ||||||
Reinsurance premiums payable | 694 | 861 | ||||||
Amounts held for others | 1,484 | 1,214 | ||||||
Policyholder deposits | 38,033 | 33,746 | ||||||
Insurance-related assessments | 35,135 | 29,876 | ||||||
Federal income tax payable | 1,677 | — | ||||||
Accounts payable and other liabilities | 22,852 | 18,725 | ||||||
Subordinated debt securities | 36,090 | 36,090 | ||||||
Total liabilities | 744,974 | 665,133 | ||||||
Redeemable preferred stock: | ||||||||
Series A nonconvertible—$0.01 par value, $100 per share redemption value: | ||||||||
Authorized shares—1,500,000; issued and outstanding shares—None in 2005 and 819,161 in 2004 | — | 81,916 | ||||||
Series C convertible—$0.01 par value, $100 per share redemption value: | ||||||||
Authorized shares—300,000; issued and outstanding shares—300,000 in 2005 and 2004 | 30,000 | 30,000 | ||||||
Series D convertible—$0.01 par value, $100 per share redemption value: | ||||||||
Authorized shares—200,000; issued and outstanding shares—200,000 in 2005 and 2004 | 20,000 | 20,000 | ||||||
50,000 | 131,916 | |||||||
Shareholders’ equity: | ||||||||
Preferred stock: Series E nonconvertible—$0.01 par value, $100 per share redemption value: | ||||||||
Authorized—500,000; issued and outstanding shares—None in 2005 and 17,653 in 2004 | — | 1,765 | ||||||
Common stock: | ||||||||
Voting—$0.01 par value authorized shares—50,000,000 in 2005 and 100,000,000 in 2004; issued and outstanding shares—17,424,054 in 2005 and 299,774 in 2004 | 174 | 3 | ||||||
Additional paid-in capital | 145,236 | — | ||||||
Deferred stock-based compensation | (30 | ) | — | |||||
Accumulated deficit | (54,346 | ) | (51,683 | ) | ||||
Accumulated other comprehensive income | 6,312 | 7,053 | ||||||
97,346 | (42,862 | ) | ||||||
$ | 892,320 | $ | 754,187 | |||||
F-12
F-3
Year Ended December 31, | |||||||||||||
2004 | 2003 | 2002 | |||||||||||
(In thousands, except share and per share data) | |||||||||||||
Revenues: | |||||||||||||
Premiums earned | $ | 234,733 | $ | 179,847 | $ | 163,257 | |||||||
Net investment income | 12,217 | 10,106 | 9,419 | ||||||||||
Net realized gains (losses) on investments | 1,421 | 316 | (895 | ) | |||||||||
Gain on sale of asset | — | — | 194 | ||||||||||
Fee and other income | 589 | 462 | 1,888 | ||||||||||
Total revenues | 248,960 | 190,731 | 173,863 | ||||||||||
Expenses: | |||||||||||||
Loss and loss adjustment expenses incurred | 174,186 | 129,250 | 121,062 | ||||||||||
Underwriting and certain other operating costs | 28,987 | 23,062 | 22,674 | ||||||||||
Commissions | 14,160 | 11,003 | 9,189 | ||||||||||
Salaries and benefits | 15,034 | 15,037 | 16,541 | ||||||||||
Interest expense | 1,799 | 203 | 498 | ||||||||||
Policyholder dividends | 1,108 | 736 | 156 | ||||||||||
Total expenses | 235,274 | 179,291 | 170,120 | ||||||||||
Income before income taxes | 13,686 | 11,440 | 3,743 | ||||||||||
Income tax expense (benefit) | 3,129 | 2,846 | (1,438 | ) | |||||||||
Net income | 10,557 | 8,594 | 5,181 | ||||||||||
Preferred stock dividends | (9,781 | ) | (10,133 | ) | (9,453 | ) | |||||||
Net income (loss) available to common shareholders | $ | 776 | $ | (1,539 | ) | $ | (4,272 | ) | |||||
Earnings (loss) per share: | |||||||||||||
Basic | $ | 0.03 | $ | (0.12 | ) | $ | (0.33 | ) | |||||
Diluted | $ | 0.03 | $ | (0.12 | ) | $ | (0.33 | ) | |||||
Shares used in computing earnings (loss) per share: | |||||||||||||
Basic | 16,226,442 | 12,967,104 | 12,967,104 | ||||||||||
Diluted | 18,380,132 | 12,967,104 | 12,967,104 | ||||||||||
Year Ended December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
Revenues | ||||||||||||
Premiums earned | $ | 256,568 | $ | 234,733 | $ | 179,847 | ||||||
Net investment income | 16,882 | 12,217 | 10,106 | |||||||||
Net realized gains on investments | 2,272 | 1,421 | 316 | |||||||||
Fee and other income | 561 | 589 | 462 | |||||||||
Total revenues | 276,283 | 248,960 | 190,731 | |||||||||
Expenses | ||||||||||||
Loss and loss adjustment expenses incurred | 204,056 | 174,186 | 129,250 | |||||||||
Underwriting and certain other operating costs | 33,008 | 28,987 | 23,062 | |||||||||
Commissions | 16,226 | 14,160 | 11,003 | |||||||||
Salaries and benefits | 14,150 | 15,034 | 15,037 | |||||||||
Interest expense | 2,844 | 1,799 | 203 | |||||||||
Policyholder dividends | 4 | 1,108 | 736 | |||||||||
Total expenses | 270,288 | 235,274 | 179,291 | |||||||||
Income before income taxes | 5,995 | 13,686 | 11,440 | |||||||||
Income tax expense | 65 | 3,129 | 2,846 | |||||||||
Net income | 5,930 | 10,557 | 8,594 | |||||||||
Preferred stock dividends | (8,593 | ) | (9,781 | ) | (10,133 | ) | ||||||
Net income (loss) available to common shareholders | $ | (2,663 | ) | $ | 776 | $ | (1,539 | ) | ||||
Earnings (loss) per share | ||||||||||||
Basic | $ | (1.25 | ) | $ | 2.42 | $ | (8.55 | ) | ||||
Diluted | $ | (1.25 | ) | $ | 2.14 | $ | (8.55 | ) | ||||
Shares used in computing earnings (loss) per share | ||||||||||||
Basic | 2,129,492 | 225,367 | 180,125 | |||||||||
Diluted | 2,129,492 | 255,280 | 180,125 | |||||||||
F-13
F-4
Accumulated | |||||||||||||||||||||||||||||||||||
Series E | Additional | Other | |||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Paid-In | Accumulated | Comprehensive | |||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Income | Total | ||||||||||||||||||||||||||||
(In thousands, except share data) | |||||||||||||||||||||||||||||||||||
Balance at January 1, 2002 | 150,379 | $ | 15,038 | 12,967,104 | $ | 130 | $ | 14,877 | $ | (61,738 | ) | $ | 1,693 | $ | (30,000 | ) | |||||||||||||||||||
Comprehensive income: | |||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | 5,181 | — | 5,181 | |||||||||||||||||||||||||||
Other comprehensive income, net of tax: | |||||||||||||||||||||||||||||||||||
Unrealized gain on securities | — | — | — | — | — | — | 4,499 | 4,499 | |||||||||||||||||||||||||||
Comprehensive income | 9,680 | ||||||||||||||||||||||||||||||||||
Series A preferred stock dividends | — | — | — | — | (4,780 | ) | — | — | (4,780 | ) | |||||||||||||||||||||||||
Series E preferred stock dividends | 46,736 | 4,673 | — | — | (4,673 | ) | — | — | — | ||||||||||||||||||||||||||
Balance at December 31, 2002 | 197,115 | 19,711 | 12,967,104 | 130 | 5,424 | (56,557 | ) | 6,192 | (25,100 | ) | |||||||||||||||||||||||||
Comprehensive income: | |||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | 8,594 | — | 8,594 | |||||||||||||||||||||||||||
Other comprehensive income, net of tax: | |||||||||||||||||||||||||||||||||||
Unrealized gain on securities | — | — | — | — | — | — | 978 | 978 | |||||||||||||||||||||||||||
Comprehensive income | 9,572 | ||||||||||||||||||||||||||||||||||
Series A preferred stock dividends | — | — | — | — | (5,124 | ) | — | — | (5,124 | ) | |||||||||||||||||||||||||
Series E preferred stock dividends | 50,094 | 5,009 | — | — | (300 | ) | (4,709 | ) | — | — | |||||||||||||||||||||||||
Balance at December 31, 2003 | 247,209 | 24,720 | 12,967,104 | 130 | — | (52,672 | ) | 7,170 | (20,652 | ) | |||||||||||||||||||||||||
Comprehensive income: | |||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | 10,557 | — | 10,557 | |||||||||||||||||||||||||||
Other comprehensive income, net of tax: | |||||||||||||||||||||||||||||||||||
Unrealized loss on securities | — | — | — | — | — | — | (117 | ) | (117 | ) | |||||||||||||||||||||||||
Comprehensive income | 10,440 | ||||||||||||||||||||||||||||||||||
Conversion of warrants | — | — | 8,614,760 | 86 | — | — | — | 86 | |||||||||||||||||||||||||||
Series A preferred stock dividends | — | — | — | — | — | (5,492 | ) | — | (5,492 | ) | |||||||||||||||||||||||||
Series E preferred stock dividends | 42,880 | 4,289 | — | — | — | (4,289 | ) | — | — | ||||||||||||||||||||||||||
Redemption of Series E preferred stock | (272,436 | ) | (27,244 | ) | — | — | — | — | — | (27,244 | ) | ||||||||||||||||||||||||
Balance at December 31, 2004 | 17,653 | $ | 1,765 | 21,581,864 | $ | 216 | $ | — | $ | (51,896 | ) | $ | 7,053 | $ | (42,862 | ) | |||||||||||||||||||
Series E | Additional | Deferred | Accumulated Other | |||||||||||||||||||||||||||||||||
Preferred Stock | Common Stock | Paid-In | Stock-Based | Accumulated | Comprehensive | |||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Compensation | Deficit | Income | Total | ||||||||||||||||||||||||||||
Balance at January 1, 2003 | 197,115 | $ | 19,711 | 180,125 | $ | 2 | $ | 5,424 | $ | — | $ | (56,429 | ) | $ | 6,192 | $ | (25,100 | ) | ||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | 8,594 | — | 8,594 | |||||||||||||||||||||||||||
Other comprehensive income, net of tax: | ||||||||||||||||||||||||||||||||||||
Unrealized gain on securities | — | — | — | — | — | — | — | 978 | 978 | |||||||||||||||||||||||||||
Comprehensive income | 9,572 | |||||||||||||||||||||||||||||||||||
Dividends paid in Series A preferred stock | — | — | — | — | (5,124 | ) | — | — | — | (5,124 | ) | |||||||||||||||||||||||||
Dividends paid in Series E preferred stock dividends | 50,094 | 5,009 | — | — | (300 | ) | — | (4,709 | ) | — | — | |||||||||||||||||||||||||
Balance at December 31, 2003 | 247,209 | 24,720 | 180,125 | 2 | — | — | (52,544 | ) | 7,170 | (20,652 | ) | |||||||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | 10,557 | — | 10,557 | ||||||||||||||||||||||||||||
Other comprehensive income, net of tax: | ||||||||||||||||||||||||||||||||||||
Unrealized loss on securities | — | — | — | — | — | — | — | (117 | ) | (117 | ) | |||||||||||||||||||||||||
Comprehensive income | 10,440 | |||||||||||||||||||||||||||||||||||
Conversion of warrants | — | — | 119,649 | 1 | — | — | 85 | — | 86 | |||||||||||||||||||||||||||
Dividends paid in Series A preferred stock | — | — | — | — | — | — | (5,492 | ) | — | (5,492 | ) | |||||||||||||||||||||||||
Dividends paid in Series E preferred stock | 42,880 | 4,289 | — | — | — | — | (4,289 | ) | — | — | ||||||||||||||||||||||||||
Redemption of Series E preferred stock | (272,436 | ) | (27,244 | ) | — | — | — | — | — | — | (27,244 | ) | ||||||||||||||||||||||||
Balance at December 31, 2004 | 17,653 | 1,765 | 299,774 | 3 | — | — | (51,683 | ) | 7,053 | (42,862 | ) | |||||||||||||||||||||||||
Comprehensive income: | ||||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | — | 5,930 | — | 5,930 | |||||||||||||||||||||||||||
Other comprehensive income: | ||||||||||||||||||||||||||||||||||||
Change in unrealized gains, net of tax | — | — | — | — | — | — | — | (741 | ) | (741 | ) | |||||||||||||||||||||||||
Comprehensive income: | 5,189 | |||||||||||||||||||||||||||||||||||
Dividends paid in Series A preferred stock | — | — | — | — | — | — | (4,376 | ) | — | (4,376 | ) | |||||||||||||||||||||||||
Dividends paid in Series E preferred stock | 27,655 | 2,766 | — | — | — | — | (2,766 | ) | — | — | ||||||||||||||||||||||||||
IPO—Common stock issued | — | — | 8,000,000 | 80 | 71,920 | — | — | — | 72,000 | |||||||||||||||||||||||||||
IPO—Common stock issued in exchange for Series A preferred stock | — | — | 9,120,948 | 91 | 81,997 | — | (837 | ) | — | 81,251 | ||||||||||||||||||||||||||
IPO—Restricted common stock issued | — | — | 3,332 | — | 30 | (30 | ) | — | — | — | ||||||||||||||||||||||||||
Deferred stock options granted | — | — | — | — | 53 | — | — | — | 53 | |||||||||||||||||||||||||||
IPO—Series A preferred stock redeemed | — | — | — | — | — | — | (52 | ) | — | (52 | ) | |||||||||||||||||||||||||
IPO—Series E preferred stock redeemed | (45,308 | ) | (4,531 | ) | — | — | — | — | (562 | ) | — | (5,093 | ) | |||||||||||||||||||||||
IPO—Offering costs: | ||||||||||||||||||||||||||||||||||||
Underwriting discount | — | — | — | — | (5,040 | ) | — | — | — | (5,040 | ) | |||||||||||||||||||||||||
Other IPO expenses | — | — | — | — | (3,724 | ) | — | — | — | (3,724 | ) | |||||||||||||||||||||||||
Balance at December 31, 2005 | — | $ | — | 17,424,054 | $ | 174 | $ | 145,236 | $ | (30 | ) | $ | (54,346 | ) | $ | 6,312 | $ | 97,346 | ||||||||||||||||||
F-14
F-5
Year Ended December 31, | ||||||||||||||
2004 | 2003 | 2002 | ||||||||||||
(In thousands) | ||||||||||||||
Operating activities | ||||||||||||||
Net income | $ | 10,557 | $ | 8,594 | $ | 5,181 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||
Depreciation | 1,695 | 2,019 | 1,966 | |||||||||||
Provision for doubtful accounts | 1,262 | 19 | (902 | ) | ||||||||||
Net amortization/accretion of investments | 1,673 | 1,015 | 234 | |||||||||||
Deferred income taxes | (2,849 | ) | (1,868 | ) | 915 | |||||||||
Net realized (gains) losses on investments | (1,421 | ) | (316 | ) | 895 | |||||||||
Gain on sale of asset | — | — | (194 | ) | ||||||||||
Changes in operating assets and liabilities: | ||||||||||||||
Premiums receivable | (7,023 | ) | (13,108 | ) | 10,518 | |||||||||
Accrued interest receivable | (464 | ) | (544 | ) | (225 | ) | ||||||||
Deferred policy acquisition costs and deferred charges | (291 | ) | (3,305 | ) | 2,164 | |||||||||
Other assets | 3,497 | (1,549 | ) | (31 | ) | |||||||||
Reserve for loss and loss adjustment expenses | 55,321 | 31,017 | (36,490 | ) | ||||||||||
Unearned premiums | 8,279 | 16,143 | (4,727 | ) | ||||||||||
Reinsurance balances | 13,173 | 1,742 | 82,157 | |||||||||||
Amounts held for others and policyholder deposits | 4,975 | 6,230 | (1,839 | ) | ||||||||||
Accounts payable and other liabilities | 3,565 | 4,360 | (5,310 | ) | ||||||||||
Net cash provided by operating activities | 91,949 | 50,449 | 54,312 | |||||||||||
Investing activities | ||||||||||||||
Purchases of investments held-to-maturity | (113,461 | ) | (81,988 | ) | (73,344 | ) | ||||||||
Purchases of investments available-for-sale | (31,795 | ) | (8,675 | ) | (4,861 | ) | ||||||||
Proceeds from maturities of investments held-to-maturity | 21,789 | — | — | |||||||||||
Proceeds from sales and maturities of investments available-for-sale | 14,908 | 37,548 | 26,870 | |||||||||||
Repayments on mortgage loan | 2,370 | 127 | 118 | |||||||||||
Purchases of property and equipment | (2,778 | ) | (640 | ) | (2,562 | ) | ||||||||
Proceeds from sales of property and equipment | 2 | 7 | 874 | |||||||||||
Net cash used in investing activities | (108,965 | ) | (53,621 | ) | (52,905 | ) | ||||||||
Financing activities | ||||||||||||||
Proceeds from issuance of subordinated debt securities | 25,780 | 10,310 | — | |||||||||||
Principal payments on note payable | (6,000 | ) | (2,000 | ) | (1,000 | ) | ||||||||
Warrants exercised | 86 | — | — | |||||||||||
Redemption of outstanding Series E preferred stock | (27,244 | ) | — | — | ||||||||||
Net cash provided by (used in) financing activities | (7,378 | ) | 8,310 | (1,000 | ) | |||||||||
Change in cash and cash equivalents | (24,394 | ) | 5,138 | 407 | ||||||||||
Cash and cash equivalents at beginning of year | 49,815 | 44,677 | 44,270 | |||||||||||
Cash and cash equivalents at end of year | $ | 25,421 | $ | 49,815 | $ | 44,677 | ||||||||
Supplemental disclosure of cash flow information | ||||||||||||||
Interest paid | $ | 1,260 | $ | 297 | $ | 335 | ||||||||
Income taxes paid | $ | 8,434 | $ | 8,574 | $ | 4,899 | ||||||||
Payment-in-kind dividends | $ | 9,781 | $ | 10,133 | $ | 9,453 | ||||||||
Year Ended December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
Operating activities | ||||||||||||
Net income | $ | 5,930 | $ | 10,557 | $ | 8,594 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation | 2,159 | 1,695 | 2,019 | |||||||||
Provision for doubtful accounts | 446 | 1,262 | 19 | |||||||||
Net amortization/accretion of investments | 2,256 | 1,673 | 1,015 | |||||||||
Deferred income taxes | (6,389 | ) | (2,849 | ) | (1,868 | ) | ||||||
Net realized gains on investments | (2,272 | ) | (1,421 | ) | (316 | ) | ||||||
Gain on sale of asset | 2 | — | — | |||||||||
Changes in operating assets and liabilities: | ||||||||||||
Premiums receivable | (10,239 | ) | (7,023 | ) | (13,108 | ) | ||||||
Accrued interest receivable | (1,474 | ) | (464 | ) | (544 | ) | ||||||
Deferred policy acquisition costs and deferred charges | (5,057 | ) | (291 | ) | (3,305 | ) | ||||||
Other assets | 424 | 3,497 | (1,549 | ) | ||||||||
Reserve for loss and loss adjustment expenses | 51,605 | 55,321 | 31,017 | |||||||||
Unearned premiums | 12,783 | 8,279 | 16,143 | |||||||||
Reinsurance balances | 76,248 | 13,173 | 1,742 | |||||||||
Amounts held for others and policyholder deposits | 4,557 | 4,975 | 6,230 | |||||||||
Accounts payable and other liabilities | 11,063 | 3,565 | 4,360 | |||||||||
Net cash provided by operating activities | 142,042 | 91,949 | 50,449 | |||||||||
Investing activities | ||||||||||||
Purchases of investmentsheld-to-maturity | (240,054 | ) | (113,461 | ) | (81,988 | ) | ||||||
Purchases of investmentsavailable-for-sale | (56,115 | ) | (31,795 | ) | (8,675 | ) | ||||||
Proceeds from maturities of investmentsheld-to-maturity | 99,953 | 21,789 | — | |||||||||
Proceeds from sales and maturities of investmentsavailable-for-sale | 26,342 | 14,908 | 37,548 | |||||||||
Repayments on mortgage loan | — | 2,370 | 127 | |||||||||
Purchases of property and equipment | (1,409 | ) | (2,778 | ) | (640 | ) | ||||||
Proceeds from sales of property and equipment | 3 | 2 | 7 | |||||||||
Net cash used in investing activities | (171,280 | ) | (108,965 | ) | (53,621 | ) | ||||||
Financing activities | ||||||||||||
Net proceeds from initial public offering | 63,236 | — | — | |||||||||
Series A preferred stock redemption | (5,093 | ) | — | — | ||||||||
Series E preferred stock redemption | (5,093 | ) | — | — | ||||||||
Stock-based compensation | 53 | — | — | |||||||||
Principal payments on note payable | — | (6,000 | ) | (2,000 | ) | |||||||
Warrants exercised | — | 86 | — | |||||||||
Proceeds from issuance of subordinated debt securities | — | 25,780 | 10,310 | |||||||||
Series E preferred stock redemptions | — | (27,244 | ) | — | ||||||||
Net cash provided by (used in) financing activities | 53,103 | (7,378 | ) | 8,310 | ||||||||
Change in cash and cash equivalents | 23,865 | (24,394 | ) | 5,138 | ||||||||
Cash and cash equivalents at beginning of year | 25,421 | 49,815 | 44,677 | |||||||||
Cash and cash equivalents at end of year | $ | 49,286 | $ | 25,421 | $ | 49,815 | ||||||
Supplemental disclosure of cash flow information | ||||||||||||
Interest paid | $ | 2,556 | $ | 1,260 | $ | 297 | ||||||
Income taxes paid | $ | 3,650 | $ | 8,434 | $ | 8,574 | ||||||
Pay-in-kind dividends | $ | 8,593 | $ | 9,781 | $ | 10,133 | ||||||
F-15
F-6
1. | Summary of Significant Accounting Policies |
F-16
F-7
F-17
F-8
F-18
F-9
F-19
F-10
F-20
F-11
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | ||||||||||||||
Cost | Gains | Losses | Fair Value | |||||||||||||
(In thousands) | ||||||||||||||||
U.S. Treasury securities and obligations of U.S. Government agencies | $ | 39,255 | $ | 37 | $ | (80 | ) | $ | 39,212 | |||||||
States and political subdivisions | 173,103 | — | (553 | ) | 172,550 | |||||||||||
Mortgage-backed and asset-backed securities | 91,836 | 165 | (284 | ) | 91,717 | |||||||||||
Long-term certificates of deposit | 100 | — | — | 100 | ||||||||||||
Corporate bonds | 25,359 | 30 | (20 | ) | 25,369 | |||||||||||
Totals | $ | 329,653 | $ | 232 | $ | (937 | ) | $ | 328,948 | |||||||
F-12
Cost or | Gross | Gross | ||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Cost | Gains | Losses | Value | |||||||||||||
(In thousands) | ||||||||||||||||
Common stocks | $ | 24,879 | $ | 2,907 | $ | (269 | ) | $ | 27,517 | |||||||
Preferred stocks | 7,776 | 149 | (227 | ) | 7,698 | |||||||||||
Totals | $ | 32,655 | $ | 3,056 | $ | (496 | ) | $ | 35,215 | |||||||
Cost or | Gross | Gross | ||||||||||||||
Amortized | Unrealized | Unrealized | ||||||||||||||
Cost | Gains | Losses | Fair Value | |||||||||||||
(In thousands) | ||||||||||||||||
U.S. Treasury securities and obligations of U.S. Government agencies | $ | 28,507 | $ | 1,066 | $ | (22 | ) | $ | 29,551 | |||||||
States and political subdivisions | 147,798 | 5,946 | (80 | ) | 153,664 | |||||||||||
Mortgage-backed and asset-backed securities | 31,246 | 1,118 | (4 | ) | 32,360 | |||||||||||
Long-term certificates of deposit | 100 | — | — | 100 | ||||||||||||
Corporate bonds | 23,478 | 2,684 | — | 26,162 | ||||||||||||
231,129 | 10,814 | (106 | ) | 241,837 | ||||||||||||
Common stocks | 6,066 | 442 | (124 | ) | 6,384 | |||||||||||
Preferred stocks | 7,131 | 177 | (170 | ) | 7,138 | |||||||||||
13,197 | 619 | (294 | ) | 13,522 | ||||||||||||
Totals | $ | 244,326 | $ | 11,433 | $ | (400 | ) | $ | 255,359 | |||||||
Cost or | |||||||||
Amortized | |||||||||
Cost | Fair Value | ||||||||
(In thousands) | |||||||||
Maturity: | |||||||||
Due in 2005 | $ | 11,851 | $ | 11,809 | |||||
In 2006 through 2009 | 117,701 | 117,328 | |||||||
In 2010 through 2014 | 90,405 | 90,279 | |||||||
After 2014 | 19,589 | 19,570 | |||||||
Mortgage-backed and asset-backed securities | 91,836 | 91,717 | |||||||
Totals | $ | 331,382 | $ | 330,703 | |||||
F-13
Fixed | ||||||||||||||||
Maturity | ||||||||||||||||
Securities | ||||||||||||||||
Available | Equity | |||||||||||||||
for Sale | Securities | Other | Total | |||||||||||||
(In thousands) | ||||||||||||||||
Year ended December 31, 2004 | ||||||||||||||||
Proceeds from sales | $ | — | $ | 13,529 | $ | — | $ | 13,529 | ||||||||
Gross realized investment gains | $ | — | $ | 1,784 | $ | — | $ | 1,784 | ||||||||
Gross realized investment losses | — | (537 | ) | — | (537 | ) | ||||||||||
Net realized investment gain | — | 1,247 | — | 1,247 | ||||||||||||
Impairments | — | — | — | — | ||||||||||||
Other, including gains on calls and redemptions | — | — | 174 | 174 | ||||||||||||
Net realized investment gains | $ | — | $ | 1,247 | $ | 174 | $ | 1,421 | ||||||||
Year ended December 31, 2003 | ||||||||||||||||
Proceeds from sales | $ | 27,469 | $ | 4,923 | $ | — | $ | 32,392 | ||||||||
Gross realized investment gains | $ | 2 | $ | 357 | $ | — | $ | 359 | ||||||||
Gross realized investment losses | (5 | ) | (56 | ) | — | (61 | ) | |||||||||
Net realized investment gain | (3 | ) | 301 | — | 298 | |||||||||||
Impairments | — | — | — | — | ||||||||||||
Other, including gains on calls and redemptions | 18 | — | — | 18 | ||||||||||||
Net realized investment gains | $ | 15 | $ | 301 | $ | — | $ | 316 | ||||||||
Year ended December 31, 2002 | ||||||||||||||||
Proceeds from sales | $ | 18,447 | $ | 4,503 | $ | — | $ | 22,950 | ||||||||
Gross realized investment gains | $ | 22 | $ | — | $ | — | $ | 22 | ||||||||
Gross realized investment losses | (63 | ) | (857 | ) | — | (920 | ) | |||||||||
Net realized investment loss | (41 | ) | (857 | ) | — | (898 | ) | |||||||||
Impairments | — | — | — | — | ||||||||||||
Other, including gains on calls and redemptions | 3 | — | — | 3 | ||||||||||||
Net realized investment losses | $ | (38 | ) | $ | (857 | ) | $ | — | $ | (895 | ) | |||||
F-14
Year Ended December 31, | |||||||||||||
2004 | 2003 | 2002 | |||||||||||
(In thousands) | |||||||||||||
Gross investment income: | |||||||||||||
Fixed maturity securities | $ | 11,294 | $ | 9,358 | $ | 8,430 | |||||||
Equity securities | 811 | 611 | 428 | ||||||||||
Cash and cash equivalents | 693 | 742 | 1,159 | ||||||||||
Total gross investment income | 12,798 | 10,711 | 10,017 | ||||||||||
Investment expenses | (581 | ) | (605 | ) | (598 | ) | |||||||
Net investment income | $ | 12,217 | $ | 10,106 | $ | 9,419 | |||||||
Less Than | Twelve Months | |||||||||||||||
Twelve Months | or Longer | |||||||||||||||
Fair | Unrealized | Fair | Unrealized | |||||||||||||
Value | Losses | Value | Losses | |||||||||||||
(In thousands) | ||||||||||||||||
December 31, 2004 | $ | 94,003 | $ | 963 | $ | 16,284 | $ | 470 | ||||||||
December 31, 2003 | 17,362 | 330 | 589 | 70 |
December 31, | ||||||||
2004 | 2003 | |||||||
(In thousands) | ||||||||
Premiums receivable | $ | 117,057 | $ | 111,609 | ||||
Allowance for doubtful accounts | (2,916 | ) | (3,229 | ) | ||||
Premiums receivable, net | $ | 114,141 | $ | 108,380 | ||||
F-15
December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
(In thousands) | ||||||||||||
Balance, beginning of year | $ | 3,229 | $ | 4,339 | $ | 5,714 | ||||||
Provision for bad debts | 1,262 | 19 | (902 | ) | ||||||||
Write-offs | (1,575 | ) | (1,129 | ) | (473 | ) | ||||||
Balance, end of year | $ | 2,916 | $ | 3,229 | $ | 4,339 | ||||||
December 31, | ||||||||
2004 | 2003 | |||||||
(In thousands) | ||||||||
Agents’ commissions | $ | 7,737 | $ | 6,876 | ||||
Premium taxes | 2,957 | 2,695 | ||||||
Deferred underwriting expenses | 1,350 | 2,249 | ||||||
Total deferred policy acquisition costs | $ | 12,044 | $ | 11,820 | ||||
Year Ended December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
(In thousands) | ||||||||||||
Balance, beginning of year | $ | 11,820 | $ | 9,505 | $ | 11,077 | ||||||
Policy acquisition costs deferred | 26,193 | 22,391 | 18,893 | |||||||||
Amortization expense during the year | (25,969 | ) | (20,076 | ) | (20,465 | ) | ||||||
Balance, end of year | $ | 12,044 | $ | 11,820 | $ | 9,505 | ||||||
F-16
December 31, | ||||||||
2004 | 2003 | |||||||
(In thousands) | ||||||||
Land and office building | $ | 4,334 | $ | 4,313 | ||||
Furniture and equipment | 6,914 | 6,719 | ||||||
Software | 6,022 | 3,630 | ||||||
Automobiles | 110 | 110 | ||||||
17,380 | 14,772 | |||||||
Accumulated depreciation | (10,303 | ) | (8,772 | ) | ||||
Real estate, furniture, and equipment, net | $ | 7,077 | $ | 6,000 | ||||
2005 | $ | 510 | ||
2006 | 510 | |||
2007 | 510 | |||
Total minimum lease payments | 1,530 | |||
Less amount representing interest | (69 | ) | ||
Present value of net minimum lease payments | $ | 1,461 | ||
F-17
2004 Premiums | 2003 Premiums | 2002 Premiums | ||||||||||||||||||||||
Written | Earned | Written | Earned | Written | Earned | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Direct | $ | 264,962 | $ | 256,684 | $ | 223,590 | $ | 207,447 | $ | 185,093 | $ | 189,820 | ||||||||||||
Ceded | (21,951 | ) | (21,951 | ) | (27,600 | ) | (27,600 | ) | (26,563 | ) | (26,563 | ) | ||||||||||||
Net premiums | $ | 243,011 | $ | 234,733 | $ | 195,990 | $ | 179,847 | $ | 158,530 | $ | 163,257 | ||||||||||||
December 31, | |||||||||
2004 | 2003 | ||||||||
(In thousands) | |||||||||
Unpaid losses recoverable: | |||||||||
Case basis | $ | 164,942 | $ | 181,870 | |||||
Incurred but not reported | 24,682 | 12,688 | |||||||
Paid losses recoverable | 9,353 | 17,216 | |||||||
Total | $ | 198,977 | $ | 211,774 | |||||
Converium Reinsurance North America (B-) | $ | 83,403 | ||
American Re-Insurance Company (A+) | 38,616 | |||
Odyssey America Reinsurance Corporation(A) | 21,064 | |||
St. Paul Fire & Marine Insurance Company(A) | 12,592 | |||
Clearwater Insurance Company(A) | 10,571 | |||
Scor Reinsurance Company (B++) | 7,962 | |||
Other reinsurers | 24,769 | |||
Total | $ | 198,977 | ||
F-18
December 31, | |||||||||
2004 | 2003 | ||||||||
(In thousands) | |||||||||
Deferred income tax assets: | |||||||||
Discounting of net unpaid loss and loss adjustment expenses | $ | 8,836 | $ | 6,819 | |||||
Unearned premiums | 9,510 | 8,340 | |||||||
Accrued expenses and other | 1,702 | 1,601 | |||||||
Accrued policyholder dividends | 445 | 448 | |||||||
Accrued insurance-related assessments | 5,578 | 5,071 | |||||||
Total deferred tax assets | 26,071 | 22,279 | |||||||
Deferred income tax liabilities: | |||||||||
Deferred policy acquisition costs | (5,386 | ) | (4,603 | ) | |||||
Deferred charges | (877 | ) | (828 | ) | |||||
Unrealized gain on securities available-for-sale | (3,799 | ) | (3,861 | ) | |||||
Property and equipment, primarily a result of differences in depreciation | (376 | ) | (273 | ) | |||||
Other | (9 | ) | (1 | ) | |||||
Total deferred tax liabilities | (10,447 | ) | (9,566 | ) | |||||
Net deferred income tax asset | $ | 15,624 | $ | 12,713 | |||||
Year Ended December 31, | |||||||||||||
2004 | 2003 | 2002 | |||||||||||
(In thousands) | |||||||||||||
Current: | |||||||||||||
Federal | $ | 5,444 | $ | 4,299 | $ | (2,678 | ) | ||||||
State | 534 | 415 | 325 | ||||||||||
5,978 | 4,714 | (2,353 | ) | ||||||||||
Deferred: | |||||||||||||
Federal | (2,849 | ) | (1,868 | ) | 915 | ||||||||
Total | $ | 3,129 | $ | 2,846 | $ | (1,438 | ) | ||||||
F-19
Year Ended December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
(In thousands) | ||||||||||||
Income tax computed at federal statutory tax rate | $ | 4,790 | $ | 4,004 | $ | 1,310 | ||||||
Tax-exempt interest, net | (1,737 | ) | (1,392 | ) | (1,055 | ) | ||||||
State income tax | 534 | 415 | 325 | |||||||||
Dividends received deduction | (135 | ) | (127 | ) | (90 | ) | ||||||
Tax method changes for prior year | — | — | (1,125 | ) | ||||||||
Other | (323 | ) | (54 | ) | (803 | ) | ||||||
$ | 3,129 | $ | 2,846 | $ | (1,438 | ) | ||||||
F-20
Year Ended December 31, | ||||||||||||||
2004 | 2003 | 2002 | ||||||||||||
(In thousands) | ||||||||||||||
Reserves for loss and loss adjustment expenses (“LAE”), net of related amounts recoverable from reinsurers, at beginning of year | $ | 183,001 | $ | 152,908 | $ | 119,020 | ||||||||
Add: | ||||||||||||||
Provision for loss and LAE for claims occurring in the current year, net of reinsurance | 160,773 | 126,977 | 117,212 | |||||||||||
Change in estimated loss and LAE for claims occurring in prior years, net of reinsurance | 13,139 | 973 | 1,850 | |||||||||||
173,912 | 127,950 | 119,062 | ||||||||||||
Uncollectible reinsurance adjustment, for loss and LAE occurring in prior years | 274 | 1,300 | 2,000 | |||||||||||
Incurred losses during the current year, net of reinsurance | 174,186 | 129,250 | 121,062 | |||||||||||
Less loss and LAE payments for claims, net of reinsurance, occurring during: | ||||||||||||||
Current year | 40,312 | 32,649 | 36,060 | |||||||||||
Prior years | 73,619 | 66,508 | 51,114 | |||||||||||
113,931 | 99,157 | 87,174 | ||||||||||||
Reserves for loss and LAE, net of related amounts recoverable from reinsurers, at end of year | 243,256 | 183,001 | 152,908 | |||||||||||
Add amounts recoverable from reinsurers on unpaid loss and LAE | 189,624 | 194,558 | 193,634 | |||||||||||
Reserves for loss and LAE | $ | 432,880 | $ | 377,559 | $ | 346,542 | ||||||||
F-21
2004 | 2003 | 2002 | ||||||||||
Capital and surplus | $ | 112,334 | $ | 96,905 | $ | 86,378 | ||||||
Net income | 7,828 | 2,598 | 4,976 |
F-22
Redemption | |||||||||
Shares | Amount | ||||||||
Balance at January 1, 2002 | 665,206 | $ | 66,520 | ||||||
Series A preferred stock dividends | 47,801 | 4,780 | |||||||
Balance at December 31, 2002 | 713,007 | 71,300 | |||||||
Series A preferred stock dividends | 51,236 | 5,124 | |||||||
Balance at December 31, 2003 | 764,243 | 76,424 | |||||||
Series A preferred stock dividends | 54,918 | 5,492 | |||||||
Balance at December 31, 2004 | 819,161 | $ | 81,916 | ||||||
F-23
F-24
F-25
2004 | 2003 | 2002 | ||||||||||||||||||||||
Weighted- | Weighted- | Weighted- | ||||||||||||||||||||||
Average | Average | Average | ||||||||||||||||||||||
Exercise | Exercise | Exercise | ||||||||||||||||||||||
Shares | Price | Shares | Price | Shares | Price | |||||||||||||||||||
Outstanding at the beginning of the year | 1,450,049 | $ | 3.01 | 1,511,049 | $ | 3.02 | 1,533,530 | $ | 3.00 | |||||||||||||||
Granted | 12,000 | 5.00 | 27,000 | 4.15 | 20,000 | 3.27 | ||||||||||||||||||
Exercised | — | — | — | — | — | — | ||||||||||||||||||
Canceled, forfeited, or expired | (15,000 | ) | 5.00 | (88,000 | ) | 3.49 | (42,481 | ) | 2.46 | |||||||||||||||
Outstanding at the end of the year | 1,447,049 | 2.99 | 1,450,049 | 3.01 | 1,511,049 | 3.02 | ||||||||||||||||||
Exercisable at the end of the year | 1,447,049 | 2.99 | 1,435,049 | 2.99 | 1,161,138 | 2.87 | ||||||||||||||||||
Weighted- | ||||||||||
Average | ||||||||||
Remaining | Weighted- | |||||||||
Number | Contractual Life | Average Exercise | ||||||||
Outstanding | (In Years) | Price | ||||||||
1,007,549 | 2.73 | $ | 2.12 | |||||||
439,500 | 4.19 | $ | 5.00 |
F-26
F-21
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | ||||||||||||||
Cost | Gains | Losses | Fair Value | |||||||||||||
(In thousands) | ||||||||||||||||
U.S. Treasury securities and obligations of U.S. Government agencies | $ | 71,548 | $ | 75 | $ | (934 | ) | $ | 70,689 | |||||||
States and political subdivisions | 255,598 | 585 | (4,345 | ) | 251,838 | |||||||||||
Mortgage-backed and asset-backed securities | 115,510 | 217 | (1,950 | ) | 113,777 | |||||||||||
Long-term certificates of deposit | 100 | — | — | 100 | ||||||||||||
Corporate bonds | 22,892 | 17 | (494 | ) | 22,415 | |||||||||||
Totals | $ | 465,648 | $ | 894 | $ | (7,723 | ) | $ | 458,819 | |||||||
Exercise | Shares | ||||||||||||
Number | Price | Purchased | |||||||||||
Warrants outstanding at December 31, 2001 | 8,629,197 | $ | 0.01 | — | |||||||||
Issued | — | — | — | ||||||||||
Exercised | — | — | — | ||||||||||
Expired | — | — | — | ||||||||||
Warrants outstanding at December 31, 2002 | 8,629,197 | $ | 0.01 | — | |||||||||
Issued | — | — | — | ||||||||||
Exercised | — | — | — | ||||||||||
Expired | — | — | — | ||||||||||
Warrants outstanding at December 31, 2003 | 8,629,197 | 0.01 | |||||||||||
Issued | — | — | — | ||||||||||
Exercised | 8,614,760 | 0.01 | 8,614,760 | ||||||||||
Expired | 14,437 | 0.01 | — | ||||||||||
Warrants outstanding at December 31, 2004 | — | ||||||||||||
Cost or | Gross | Gross | ||||||||||||||
Amortized | Unrealized | Unrealized | ||||||||||||||
Cost | Gains | Losses | Fair Value | |||||||||||||
(In thousands) | ||||||||||||||||
Equity securities | $ | 62,875 | $ | 5,355 | $ | (1,955 | ) | $ | 66,275 | |||||||
Fixed maturity securities | 1,709 | 7 | (21 | ) | 1,695 | |||||||||||
Totals | $ | 64,584 | $ | 5,362 | $ | (1,976 | ) | $ | 67,970 | |||||||
F-27
F-22
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | ||||||||||||||
Cost | Gains | Losses | Fair Value | |||||||||||||
(In thousands) | ||||||||||||||||
U.S. Treasury securities and obligations of U.S. Government agencies | $ | 39,255 | $ | 37 | $ | (80 | ) | $ | 39,212 | |||||||
States and political subdivisions | 173,103 | — | (553 | ) | 172,550 | |||||||||||
Mortgage-backed and asset-backed securities | 91,836 | 165 | (284 | ) | 91,717 | |||||||||||
Long-term certificates of deposit | 100 | — | — | 100 | ||||||||||||
Corporate bonds | 25,359 | 30 | (20 | ) | 25,369 | |||||||||||
Totals | $ | 329,653 | $ | 232 | $ | (937 | ) | $ | 328,948 | |||||||
Cost or | Gross | Gross | ||||||||||||||
Amortized | Unrealized | Unrealized | ||||||||||||||
Cost | Gains | Losses | Fair Value | |||||||||||||
(In thousands) | ||||||||||||||||
Equity securities | $ | 30,940 | $ | 3,016 | $ | (496 | ) | $ | 33,460 | |||||||
Fixed maturity securities | 1,715 | 40 | — | 1,755 | ||||||||||||
Totals | $ | 32,655 | $ | 3,056 | $ | (496 | ) | $ | 35,215 | |||||||
Cost or | ||||||||
Amortized | ||||||||
Cost | Fair Value | |||||||
(In thousands) | ||||||||
Maturity: | ||||||||
Due in 2006 | $ | 7,240 | $ | 7,157 | ||||
In 2007 through 2010 | 178,489 | 175,280 | ||||||
In 2011 through 2015 | 102,771 | 100,902 | ||||||
After 2015 | 63,367 | 63,398 | ||||||
Mortgage-backed and asset-backed securities | 115,510 | 113,777 | ||||||
Totals | $ | 467,377 | $ | 460,514 | ||||
F-23
Fixed | ||||||||||||||||
Maturity | ||||||||||||||||
Securities | ||||||||||||||||
Available | Equity | |||||||||||||||
for Sale | Securities | Other | Total | |||||||||||||
(In thousands) | ||||||||||||||||
Year ended December 31, 2005 | ||||||||||||||||
Proceeds from sales | $ | — | $ | 26,342 | $ | — | $ | 26,342 | ||||||||
Gross realized investment gains | $ | — | $ | 3,338 | $ | — | $ | 3,338 | ||||||||
Gross realized investment losses | — | (1,179 | ) | — | (1,179 | ) | ||||||||||
Net realized investment gain | — | 2,159 | — | 2,159 | ||||||||||||
Impairments | — | — | — | — | ||||||||||||
Other, including gains on calls and redemptions | — | — | 113 | 113 | ||||||||||||
Net realized investment gains | $ | — | $ | 2,159 | $ | 113 | $ | 2,272 | ||||||||
Year ended December 31, 2004 | ||||||||||||||||
Proceeds from sales | $ | — | $ | 13,529 | $ | — | $ | 13,529 | ||||||||
Gross realized investment gains | $ | — | $ | 1,784 | $ | — | $ | 1,784 | ||||||||
Gross realized investment losses | — | (537 | ) | — | (537 | ) | ||||||||||
Net realized investment gain | — | 1,247 | — | 1,247 | ||||||||||||
Impairments | — | — | — | — | ||||||||||||
Other, including gains on calls and redemptions | — | — | 174 | 174 | ||||||||||||
Net realized investment gains | $ | — | $ | 1,247 | $ | 174 | $ | 1,421 | ||||||||
Year ended December 31, 2003 | ||||||||||||||||
Proceeds from sales | $ | 27,469 | $ | 4,923 | $ | — | $ | 32,392 | ||||||||
Gross realized investment gains | $ | 2 | $ | 357 | $ | — | $ | 359 | ||||||||
Gross realized investment losses | (5 | ) | (56 | ) | — | (61 | ) | |||||||||
Net realized investment loss | (3 | ) | 301 | — | 298 | |||||||||||
Impairments | — | — | — | — | ||||||||||||
Other, including gains on calls and redemptions | 18 | — | — | 18 | ||||||||||||
Net realized investment losses | $ | 15 | $ | 301 | $ | — | $ | 316 | ||||||||
F-24
Year Ended December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
(In thousands) | ||||||||||||
Gross investment income: | ||||||||||||
Fixed maturity securities | $ | 15,515 | $ | 11,294 | $ | 9,358 | ||||||
Equity securities | 1,333 | 811 | 611 | |||||||||
Cash and cash equivalents | 1,031 | 693 | 742 | |||||||||
Total gross investment income | 17,879 | 12,798 | 10,711 | |||||||||
Investment expenses | (997 | ) | (581 | ) | (605 | ) | ||||||
Net investment income | $ | 16,882 | $ | 12,217 | $ | 10,106 | ||||||
Less Than | Twelve Months | |||||||||||||||
Twelve Months | or Longer | |||||||||||||||
Fair | Unrealized | Fair | Unrealized | |||||||||||||
Value | Losses | Value | Losses | |||||||||||||
(In thousands) | ||||||||||||||||
December 31, 2005 | $ | 74,556 | $ | 3,949 | $ | 275,178 | $ | 5,750 | ||||||||
December 31, 2004 | 94,003 | 963 | 16,284 | 470 |
December 31, | ||||||||
2005 | 2004 | |||||||
(In thousands) | ||||||||
Premiums receivable | $ | 126,148 | $ | 117,057 | ||||
Allowance for doubtful accounts | (2,214 | ) | (2,916 | ) | ||||
Premiums receivable, net | $ | 123,934 | $ | 114,141 | ||||
F-25
For the Year Ended December 31, | ||||||||||||||
2004 | 2003 | 2002 | ||||||||||||
(In thousands, except | ||||||||||||||
per share amounts) | ||||||||||||||
Basic EPS: | ||||||||||||||
Net income | $ | 10,557 | $ | 8,594 | $ | 5,181 | ||||||||
Preferred stock dividends | (9,781 | ) | (10,133 | ) | (9,453 | ) | ||||||||
Income (loss) available to common shareholders | $ | 776 | $ | (1,539 | ) | $ | (4,272 | ) | ||||||
Amount allocable to common shareholders(1) | 70% | 100% | 100% | |||||||||||
Income (loss) allocable to common shareholders | $ | 545 | $ | (1,539 | ) | $ | (4,272 | ) | ||||||
Weighted-average common shares outstanding | 16,226 | 12,967 | 12,967 | |||||||||||
Basic earnings (loss) per share | $ | 0.03 | $ | (0.12 | ) | $ | (0.33 | ) | ||||||
Diluted EPS: | ||||||||||||||
Income (loss) allocable to common shareholders | $ | 545 | $ | (1,539 | ) | $ | (4,272 | ) | ||||||
Dividends on participating securities | — | (2) | — | (2) | — | (2) | ||||||||
Income (loss) allocable to common shareholders after assumed conversions | $ | 545 | $ | (1,539 | ) | $ | (4,272 | ) | ||||||
Weighted average common shares outstanding | 16,226 | 12,967 | 12,967 | |||||||||||
Diluted effect: | ||||||||||||||
Stock options | — | (2) | — | (2) | — | (2) | ||||||||
Warrants | 2,154 | — | (2) | — | (2) | |||||||||
Conversion of participating securities | — | (2) | — | (2) | — | (2) | ||||||||
Weighted average diluted shares outstanding | 18,380 | 12,967 | 12,967 | |||||||||||
Diluted earnings (loss) per share | $ | 0.03 | $ | (0.12 | ) | $ | (0.33 | ) | ||||||
December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
(In thousands) | ||||||||||||
Balance, beginning of year | $ | 2,916 | $ | 3,229 | $ | 4,339 | ||||||
Provision for bad debts | 446 | 1,262 | 19 | |||||||||
Write-offs | (1,148 | ) | (1,575 | ) | (1,129 | ) | ||||||
Balance, end of year | $ | 2,214 | $ | 2,916 | $ | 3,229 | ||||||
December 31, | ||||||||
2005 | 2004 | |||||||
(In thousands) | ||||||||
Agents’ commissions | $ | 11,033 | $ | 7,737 | ||||
Premium taxes | 3,088 | 2,957 | ||||||
Deferred underwriting expenses | 2,852 | 1,350 | ||||||
Total deferred policy acquisition costs | $ | 16,973 | $ | 12,044 | ||||
Year Ended December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
(In thousands) | ||||||||||||
Balance, beginning of year | $ | 12,044 | $ | 11,820 | $ | 9,505 | ||||||
Policy acquisition costs deferred | 36,714 | 26,193 | 22,391 | |||||||||
Amortization expense during the year | (31,785 | ) | (25,969 | ) | (20,076 | ) | ||||||
Balance, end of year | $ | 16,973 | $ | 12,044 | $ | 11,820 | ||||||
F-26
5. | Property and Equipment |
December 31, | ||||||||
2005 | 2004 | |||||||
(In thousands) | ||||||||
Land and office building | $ | 4,383 | $ | 4,334 | ||||
Furniture and equipment | 6,445 | 6,914 | ||||||
Software | 6,902 | 6,022 | ||||||
Automobiles | 79 | 110 | ||||||
17,809 | 17,380 | |||||||
Accumulated depreciation | (11,488 | ) | (10,303 | ) | ||||
Real estate, furniture and equipment, net | $ | 6,321 | $ | 7,077 | ||||
2006 | $ | 567 | ||
2007 | 554 | |||
2008 | 41 | |||
Total minimum lease payments | 1,162 | |||
Less amount representing interest | (35 | ) | ||
Present value of net minimum lease payments | $ | 1,127 | ||
F-28
Pre Tax | Net-of-Tax | ||||||||||||
Amount | Tax Expense | Amount | |||||||||||
(In thousands) | |||||||||||||
December 31, 2004 | |||||||||||||
Unrealized gain on securities: | |||||||||||||
Unrealized gain on available-for-sale securities | $ | 1,993 | $ | 698 | $ | 1,295 | |||||||
Less amortization of differences between fair value and amortized cost for fixed maturity security transfer | (2,413 | ) | (845 | ) | (1,568 | ) | |||||||
Less reclassification adjustment for losses realized in net income | 242 | 86 | 156 | ||||||||||
Net unrealized loss | (178 | ) | (61 | ) | (117 | ) | |||||||
Other comprehensive income | $ | (178 | ) | $ | (61 | ) | $ | (117 | ) | ||||
December 31, 2003 | |||||||||||||
Unrealized gain on securities: | |||||||||||||
Unrealized gain on available-for-sale securities | $ | 1,484 | $ | 519 | $ | 965 | |||||||
Less reclassification adjustment for losses realized in net income | 20 | 7 | 13 | ||||||||||
Net unrealized gain | 1,504 | 526 | 978 | ||||||||||
Other comprehensive income | $ | 1,504 | $ | 526 | $ | 978 | |||||||
December 31, 2002 | |||||||||||||
Unrealized gain on securities: | |||||||||||||
Unrealized gain on available-for-sale securities | $ | 6,455 | $ | 2,260 | $ | 4,195 | |||||||
Less reclassification adjustment for losses realized in net income | 467 | 163 | 304 | ||||||||||
Net unrealized gain | 6,922 | 2,423 | 4,499 | ||||||||||
Other comprehensive income | $ | 6,922 | $ | 2,423 | $ | 4,499 | |||||||
F-29
American General Life Insurance Company (A++u) | $ | 18,220 | ||
First Colony Life Insurance Company (A+) | 3,658 | |||
Monumental Life Insurance Company (A+) | 3,632 | |||
John Hancock Life Insurance Company (A++) | 3,312 | |||
Transamerica Life Companies (A+) | 2,726 | |||
New York Life Insurance Company (A++) | 2,548 | |||
Liberty Life Assurance Company of Boston (A-) | 2,417 | |||
GE Capital Assurance Company (A+) | 1,718 | |||
Pacific Life and Annuity Company (A++) | 1,375 | |||
Other | 7,794 | |||
$ | 47,400 | |||
2005 | $ | 479 | ||
2006 | 303 | |||
2007 | 185 | |||
2008 | 88 | |||
2009 | 58 | |||
2010 | 50 | |||
$ | 1,163 | |||
F-30
2004 | 2003 | 2002 | ||||||||||||||||||||||
Dollars | Percent | Dollars | Percent | Dollars | Percent | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Workers’ compensation | $ | 232,291 | 99.0% | $ | 177,565 | 98.7% | $ | 161,060 | 98.7% | |||||||||||||||
General liability | 2,442 | 1.0% | 2,282 | 1.3% | 2,197 | 1.3% | ||||||||||||||||||
Total net premiums earned | $ | 234,733 | 100.0% | $ | 179,847 | 100.0% | $ | 163,257 | 100.0% | |||||||||||||||
2004 | 2003 | 2002 | ||||||||||||||||||||||
Dollars | Percent | Dollars | Percent | Dollars | Percent | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Louisiana | $ | 26,422 | 11.3 | % | $ | 20,809 | 11.6 | % | $ | 20,421 | 12.5 | % | ||||||||||||
Georgia | 22,313 | 9.5 | 17,233 | 9.6 | 15,731 | 9.6 | ||||||||||||||||||
Texas | 17,150 | 7.3 | 14,407 | 8.0 | 13,826 | 8.5 | ||||||||||||||||||
North Carolina | 14,705 | 6.3 | 10,812 | 6.0 | 8,647 | 5.3 | ||||||||||||||||||
Illinois | 14,186 | 6.0 | 8,423 | 4.7 | 5,046 | 3.1 | ||||||||||||||||||
Virginia | 12,395 | 5.3 | 9,984 | 5.6 | 12,165 | 7.5 | ||||||||||||||||||
Arkansas | 11,327 | 4.8 | 9,708 | 5.4 | 9,690 | 5.9 | ||||||||||||||||||
Florida | 10,959 | 4.7 | 7,726 | 4.3 | 4,764 | 2.9 | ||||||||||||||||||
South Carolina | 10,067 | 4.3 | 6,301 | 3.5 | 5,313 | 3.3 | ||||||||||||||||||
Pennsylvania | 9,812 | 4.2 | 7,338 | 4.1 | 6,413 | 3.9 | ||||||||||||||||||
149,336 | 63.6 | 112,741 | 62.7 | 102,016 | 62.5 | |||||||||||||||||||
All others | 85,397 | 36.4 | 67,105 | 37.3 | 61,241 | 37.5 | ||||||||||||||||||
Total net premiums earned | $ | 234,733 | 100.0 | % | $ | 179,847 | 100.0 | % | $ | 163,257 | 100.0 | % | ||||||||||||
F-31
December 31, | ||||||||||||||||||
2004 | 2003 | |||||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||||
Amount | Value | Amount | Value | |||||||||||||||
(In thousands) | ||||||||||||||||||
Assets: | ||||||||||||||||||
Fixed maturity securities | $ | 331,408 | $ | 330,703 | $ | 243,863 | $ | 243,863 | ||||||||||
Equity securities | 33,460 | 33,460 | 11,496 | 11,496 | ||||||||||||||
Mortgage loan | — | — | 2,370 | 2,370 | ||||||||||||||
Cash and cash equivalents | 25,421 | 25,421 | 49,815 | 49,815 | ||||||||||||||
Liabilities: | ||||||||||||||||||
Note payable | — | — | 6,000 | 6,000 | ||||||||||||||
Subordinated debt securities: | ||||||||||||||||||
ACT I | 10,310 | 10,310 | 10,310 | 10,310 | ||||||||||||||
ACT II | 25,780 | 25,780 | — | — |
F-32
Three Months Ended | |||||||||||||||||
March 31 | June 30 | September 30 | December 31 | ||||||||||||||
(In thousands, except per share amounts) | |||||||||||||||||
2004 | |||||||||||||||||
Premiums earned | $ | 52,312 | $ | 60,767 | $ | 59,338 | $ | 62,316 | |||||||||
Net investment income | 2,641 | 2,765 | 3,253 | 3,558 | |||||||||||||
Net realized gain (losses) on investments | 310 | 308 | (75 | ) | 878 | ||||||||||||
Total revenues | 55,406 | 63,961 | 62,643 | 66,950 | |||||||||||||
Income before income taxes | 3,888 | 582 | 4,040 | 5,176 | |||||||||||||
Net income | 2,891 | 708 | 3,147 | 3,811 | |||||||||||||
Net income (loss) allocable to common shareholder | 246 | (1,868 | ) | 685 | 1,714 | ||||||||||||
Earnings (loss) per share: | |||||||||||||||||
Basic | 0.01 | (0.14 | ) | 0.03 | 0.06 | ||||||||||||
Diluted | 0.01 | (0.14 | ) | 0.03 | 0.06 | ||||||||||||
Comprehensive income | 2,664 | 121 | 2,769 | 4,886 | |||||||||||||
2003 | |||||||||||||||||
Premiums earned | $ | 42,987 | $ | 43,652 | $ | 44,827 | $ | 48,381 | |||||||||
Net investment income | 2,555 | 2,538 | 2,460 | 2,553 | |||||||||||||
Net realized gain (losses) on investments | 2 | 2 | (46 | ) | 358 | ||||||||||||
Total revenues | 45,681 | 46,287 | 47,380 | 51,383 | |||||||||||||
Income (loss) before income taxes | 4,535 | 5,163 | 3,836 | (2,094 | ) | ||||||||||||
Net income (loss) | 3,183 | 3,648 | 2,805 | (1,042 | ) | ||||||||||||
Net income (loss) allocable to common shareholders | 715 | 1,137 | 251 | (3,642 | ) | ||||||||||||
Earnings (loss) per share: | |||||||||||||||||
Basic | 0.04 | 0.06 | 0.01 | (0.28 | ) | ||||||||||||
Diluted | 0.02 | 0.03 | 0.01 | (0.28 | ) | ||||||||||||
Comprehensive income (loss) | 3,288 | 5,691 | 1,828 | (1,236 | ) |
F-33
F-34
June 30, | December 31, | |||||||||
2005 | 2004 | |||||||||
(Unaudited) | ||||||||||
(In thousands, except | ||||||||||
share data) | ||||||||||
Assets | ||||||||||
Investments: | ||||||||||
Fixed maturity securities — held-to-maturity, at amortized cost (fair value $345,883 and $328,948 in 2005 and 2004, respectively) | $ | 347,640 | $ | 329,653 | ||||||
Fixed maturity securities — available-for-sale, at fair value (cost $1,729 in 2005 and 2004) | 1,720 | 1,755 | ||||||||
Equity securities — available-for-sale, at fair value (cost $44,344 and $30,926 in 2005 and 2004, respectively) | 47,373 | 33,460 | ||||||||
Total invested assets | 396,733 | 364,868 | ||||||||
Cash and cash equivalents | 27,462 | 25,421 | ||||||||
Receivable for investments sold | 4 | — | ||||||||
Amounts recoverable from reinsurers | 174,556 | 198,977 | ||||||||
Premiums receivable, net | 144,953 | 114,141 | ||||||||
Deferred income taxes | 23,274 | 15,624 | ||||||||
Federal income tax recoverable | 1,420 | 1,292 | ||||||||
Accrued interest receivable | 3,427 | 3,123 | ||||||||
Property and equipment, net | 6,647 | 7,077 | ||||||||
Deferred policy acquisition costs | 18,496 | 12,044 | ||||||||
Deferred charges | 3,894 | 3,054 | ||||||||
Other assets | 10,664 | 8,566 | ||||||||
$ | 811,530 | $ | 754,187 | |||||||
Liabilities, redeemable preferred stock and shareholders’ deficit | ||||||||||
Liabilities: | ||||||||||
Reserves for loss and loss adjustment expenses | $ | 457,827 | $ | 432,880 | ||||||
Unearned premiums | 137,536 | 111,741 | ||||||||
Reinsurance premiums payable | — | 861 | ||||||||
Amounts held for others | 1,688 | 1,214 | ||||||||
Policyholder deposits | 35,880 | 33,746 | ||||||||
Insurance-related assessments | 34,487 | 29,876 | ||||||||
Accounts payable and other liabilities | 23,666 | 18,725 | ||||||||
Subordinated debt securities | 36,090 | 36,090 | ||||||||
Total liabilities | 727,174 | 665,133 | ||||||||
Redeemable preferred stock: | ||||||||||
Series A nonconvertible — $0.01 par value, $100 per share redemption value: Authorized shares — 1,500,000; issued and outstanding shares — 848,082 in 2005 and 819,161 in 2004 | 84,808 | 81,916 | ||||||||
Series B nonconvertible — $0.01 par value, $100 per share redemption value: Authorized shares — 1,500,000; no shares issued or outstanding in 2005 or 2004 | — | — | ||||||||
Series C convertible — $0.01 par value, $100 per share redemption value: Authorized shares — 300,000; issued and outstanding shares — 300,000 in 2005 and 2004 | 30,000 | 30,000 | ||||||||
Series D convertible — $0.01 par value, $100 per share redemption value: Authorized shares — 200,000; issued and outstanding shares — 200,000 in 2005 and 2004 | 20,000 | 20,000 | ||||||||
134,808 | 131,916 | |||||||||
Shareholders’ deficit: | ||||||||||
Preferred stock: Series E nonconvertible — $0.01 par value, $100 per share redemption value: Authorized — 500,000; issued and outstanding shares — 35,930 in 2005 and 17,653 in 2004 | 3,593 | 1,765 | ||||||||
Common stock: | ||||||||||
Voting — $0.01 par value, authorized shares — 100,000,000; issued and outstanding shares — 21,581,864 in 2005 and 2004 | 216 | 216 | ||||||||
Convertible nonvoting — $0.01 par value, authorized shares — 5,000,000; no shares issued or outstanding in 2005 or 2004 | — | — | ||||||||
Additional paid-in capital | — | — | ||||||||
Accumulated deficit | (60,900 | ) | (51,896 | ) | ||||||
Accumulated other comprehensive income | 6,639 | 7,053 | ||||||||
(50,452 | ) | (42,862 | ) | |||||||
$ | 811,530 | $ | 754,187 | |||||||
F-35
Six Months Ended | |||||||||
June 30, | |||||||||
2005 | 2004 | ||||||||
(Unaudited) | |||||||||
(In thousands, except | |||||||||
share and per share data) | |||||||||
Revenues: | |||||||||
Premiums earned | $ | 125,032 | $ | 113,079 | |||||
Net investment income | 7,650 | 5,407 | |||||||
Net realized gains on investments | 774 | 619 | |||||||
Fee and other income | 306 | 262 | |||||||
Total revenues | 133,762 | 119,367 | |||||||
Expenses: | |||||||||
Loss and loss adjustment expenses incurred | 110,436 | 86,413 | |||||||
Underwriting and certain other operating costs | 15,297 | 12,620 | |||||||
Commissions | 7,822 | 6,971 | |||||||
Salaries and benefits | 6,448 | 7,512 | |||||||
Interest expense | 1,326 | 627 | |||||||
Policyholder dividends | 386 | 754 | |||||||
Total expenses | 141,715 | 114,897 | |||||||
Income (loss) before income taxes | (7,953 | ) | 4,470 | ||||||
Income tax expense (benefit) | (3,669 | ) | 871 | ||||||
Net income (loss) | (4,284 | ) | 3,599 | ||||||
Preferred stock dividends | (4,720 | ) | (5,221 | ) | |||||
Net income available to common shareholders | $ | (9,004 | ) | $ | (1,622 | ) | |||
Earnings per share: | |||||||||
Basic | $ | (0.42 | ) | $ | (0.13 | ) | |||
Diluted | $ | (0.42 | ) | $ | (0.13 | ) | |||
Shares used in computing earnings per share: | |||||||||
Basic | 21,581,864 | 12,967,104 | |||||||
Diluted | 21,581,864 | 12,967,104 | |||||||
F-36
Accumulated | |||||||||||||||||||||||||||||||||||
Series E Preferred | Additional | Other | |||||||||||||||||||||||||||||||||
Stock | Common Stock | Paid-In | Accumulated | Comprehensive | |||||||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Income | Total | ||||||||||||||||||||||||||||
(In thousands) | |||||||||||||||||||||||||||||||||||
Balance at January 1, 2004 | 247,209 | $ | 24,720 | 12,967,104 | $ | 130 | $ | — | $ | (52,672 | ) | $ | 7,170 | $ | (20,652 | ) | |||||||||||||||||||
Comprehensive income: | |||||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | 10,557 | — | 10,557 | |||||||||||||||||||||||||||
Other comprehensive income, net of tax: | |||||||||||||||||||||||||||||||||||
Unrealized loss on securities | — | — | — | — | — | — | (117 | ) | (117 | ) | |||||||||||||||||||||||||
Comprehensive income | 10,440 | ||||||||||||||||||||||||||||||||||
Conversion of warrants | — | — | 8,614,760 | 86 | — | — | — | 86 | |||||||||||||||||||||||||||
Series A preferred stock dividends | — | — | — | — | — | (5,492 | ) | — | (5,492 | ) | |||||||||||||||||||||||||
Series E preferred stock dividends | 42,880 | 4,289 | — | — | — | (4,289 | ) | — | — | ||||||||||||||||||||||||||
Redemption of Series E preferred stock | (272,436 | ) | (27,244 | ) | — | — | — | — | — | (27,244 | ) | ||||||||||||||||||||||||
Balance at December 31, 2004 | 17,653 | 1,765 | 21,581,864 | 216 | — | (51,896 | ) | 7,053 | (42,862 | ) | |||||||||||||||||||||||||
Comprehensive income: | |||||||||||||||||||||||||||||||||||
Net income (unaudited) | — | — | — | — | — | (4,284 | ) | — | (4,284 | ) | |||||||||||||||||||||||||
Other comprehensive income, net of tax: | |||||||||||||||||||||||||||||||||||
Unrealized loss on securities (unaudited) | — | — | — | — | — | — | (414 | ) | (414 | ) | |||||||||||||||||||||||||
Comprehensive income (unaudited) | (4,698 | ) | |||||||||||||||||||||||||||||||||
Series A preferred stock dividends (unaudited) | — | — | — | — | — | (2,892 | ) | — | (2,892 | ) | |||||||||||||||||||||||||
Series E preferred stock dividends (unaudited) | 18,277 | 1,828 | — | — | — | (1,828 | ) | — | — | ||||||||||||||||||||||||||
Balance at June 30, 2005 (unaudited) | 35,930 | $ | 3,593 | 21,581,864 | $ | 216 | $ | — | $ | (60,900 | ) | $ | 6,639 | $ | (50,452 | ) | |||||||||||||||||||
F-37
Six Months Ended | ||||||||
June 30, | ||||||||
2005 | 2004 | |||||||
(Unaudited) | ||||||||
(In thousands) | ||||||||
Operating activities | ||||||||
Net cash provided by operating activities | $ | 35,500 | $ | 40,501 | ||||
Investing activities | ||||||||
Purchases of investments held-to-maturity | (39,222 | ) | (36,773 | ) | ||||
Purchases of investments available-for-sale | (25,047 | ) | (11,857 | ) | ||||
Proceeds from maturities of investments held-to-maturity | 19,198 | 12,792 | ||||||
Proceeds from sales and maturities of investments available-for-sale | 12,336 | 2,466 | ||||||
Repayments on mortgage loan | — | 2,370 | ||||||
Purchases of property and equipment | (727 | ) | (1,039 | ) | ||||
Proceeds from sales of property and equipment | 3 | 1 | ||||||
Net cash used in investing activities | (33,459 | ) | (32,040 | ) | ||||
Financing activities | ||||||||
Proceeds from issuance of subordinated debt securities | — | 25,780 | ||||||
Principal payments on notes payable | — | (6,000 | ) | |||||
Redemption of outstanding Series E preferred stock | — | (27,019 | ) | |||||
Net cash provided by (used in) financing activities | — | (7,239 | ) | |||||
Change in cash and cash equivalents | 2,041 | 1,222 | ||||||
Cash and cash equivalents at beginning of period | 25,421 | 49,815 | ||||||
Cash and cash equivalents at end of period | $ | 27,462 | $ | 51,037 | ||||
F-38
F-39
F-40
F-41
F-27
Six Months Ended | Six Months Ended | |||||||||||||||
June 30, 2005 | June 30, 2004 | |||||||||||||||
Written | Earned | Written | Earned | |||||||||||||
(In thousands) | ||||||||||||||||
Direct | $ | 160,524 | $ | 134,729 | $ | 151,557 | $ | 123,602 | ||||||||
Ceded | (9,697 | ) | (9,697 | ) | (10,523 | ) | (10,523 | ) | ||||||||
Net premiums | $ | 150,827 | $ | 125,032 | $ | 141,034 | $ | 113,079 | ||||||||
2005 Premiums | 2004 Premiums | 2003 Premiums | ||||||||||||||||||||||
Written | Earned | Written | Earned | Written | Earned | |||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||
Gross | $ | 290,891 | $ | 278,109 | $ | 264,962 | $ | 256,684 | $ | 223,590 | $ | 207,447 | ||||||||||||
Ceded | (21,541 | ) | (21,541 | ) | (21,951 | ) | (21,951 | ) | (27,600 | ) | (27,600 | ) | ||||||||||||
Net premiums | $ | 269,350 | $ | 256,568 | $ | 243,011 | $ | 234,733 | $ | 195,990 | $ | 179,847 | ||||||||||||
June 30, | December 31, | ||||||||
2005 | 2004 | ||||||||
(In thousands) | |||||||||
Unpaid losses recoverable: | |||||||||
Case basis | $ | 106,043 | $ | 164,942 | |||||
Incurred but not reported | 5,760 | 24,682 | |||||||
Paid losses recoverable | 62,753 | 9,353 | |||||||
Total | $ | 174,556 | $ | 198,977 | |||||
December 31, | ||||||||
2005 | 2004 | |||||||
(In thousands) | ||||||||
Unpaid losses recoverable: | ||||||||
Case basis | $ | 106,626 | $ | 164,942 | ||||
Incurred but not reported | 13,606 | 24,682 | ||||||
Paid losses recoverable | 2,330 | 9,353 | ||||||
Total | $ | 122,562 | $ | 198,977 | ||||
F-42
Converium Reinsurance North America (B-) | $ | 66,261 | ||
American Re-Insurance Company(A) | 24,568 | |||
Odyssey America Reinsurance Corporation(A) | 22,533 | |||
St. Paul Fire & Marine Insurance Company(A) | 13,043 | |||
Clearwater Insurance Company(A) | 11,212 | |||
Scor Reinsurance Company (B++) | 8,457 | |||
Hannover Re (A) | 3,792 | |||
Other reinsurers | 24,690 | |||
Total | $ | 174,556 | ||
American Re-Insurance Company (A) | $ | 27,024 | ||
Odyssey America Reinsurance Corporation (A) | 21,571 | |||
St. Paul Fire & Marine Insurance Company (A+) | 11,973 | |||
Clearwater Insurance Company (A) | 11,205 | |||
Scor Reinsurance Company (B++) | 8,145 | |||
Converium Reinsurance North America (B−) | 6,629 | |||
Other reinsurers | 36,015 | |||
Total | $ | 122,562 | ||
F-28
7. | Income Taxes |
December 31, | ||||||||
2005 | 2004 | |||||||
(In thousands) | ||||||||
Deferred income tax assets: | ||||||||
Discounting of net unpaid loss and loss adjustment expenses | $ | 16,047 | $ | 8,836 | ||||
Unearned premiums | 10,738 | 9,510 | ||||||
Accrued expenses and other | 1,703 | 1,702 | ||||||
Accrued policyholder dividends | 271 | 445 | ||||||
Accrued insurance-related assessments | 6,189 | 5,578 | ||||||
Total deferred tax assets | 34,948 | 26,071 | ||||||
Deferred income tax liabilities: | ||||||||
Deferred policy acquisition costs | (7,749 | ) | (5,386 | ) | ||||
Deferred charges | (998 | ) | (877 | ) | ||||
Unrealized gain on securitiesavailable-for-sale | (3,399 | ) | (3,799 | ) | ||||
Property and equipment, primarily a result of differences in depreciation | (372 | ) | (376 | ) | ||||
Other | (17 | ) | (9 | ) | ||||
Total deferred tax liabilities | (12,535 | ) | (10,447 | ) | ||||
Net deferred income tax asset | $ | 22,413 | $ | 15,624 | ||||
Year Ended December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
(In thousands) | ||||||||||||
Current: | ||||||||||||
Federal | $ | 5,928 | $ | 5,444 | $ | 4,299 | ||||||
State | 526 | 534 | 415 | |||||||||
6,454 | 5,978 | 4,714 | ||||||||||
Deferred: | ||||||||||||
Federal | (6,389 | ) | (2,849 | ) | (1,868 | ) | ||||||
Total | $ | 65 | $ | 3,129 | $ | 2,846 | ||||||
F-29
Year Ended December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
(In thousands) | ||||||||||||
Income tax computed at federal statutory tax rate | $ | 2,098 | $ | 4,790 | $ | 4,004 | ||||||
Tax-exempt interest, net | (2,187 | ) | (1,737 | ) | (1,392 | ) | ||||||
State income tax | 526 | 534 | 415 | |||||||||
Dividends received deduction | (224 | ) | (135 | ) | (127 | ) | ||||||
Tax method changes for prior year | — | — | — | |||||||||
Other | (148 | ) | (323 | ) | (54 | ) | ||||||
$ | 65 | $ | 3,129 | $ | 2,846 | |||||||
8. | Note Payable |
9. | Subordinated Debt Securities |
F-30
10. | Loss and Loss Adjustment Expenses |
Year Ended December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
(In thousands) | ||||||||||||
Reserves for loss and loss adjustment expenses (“LAE”) | $ | 432,880 | $ | 377,559 | $ | 346,542 | ||||||
Less amounts recoverable from reinsurers on unpaid loss and LAE | 189,624 | 194,558 | 193,634 | |||||||||
Reserves for loss and LAE, net of related amounts recoverable from reinsurers, at beginning of year | 243,256 | 183,001 | 152,908 | |||||||||
Add: | ||||||||||||
Provision for loss and LAE for claims occurring in the current year, net of reinsurance | 182,174 | 160,773 | 126,977 | |||||||||
Change in estimated loss and LAE for claims occurring in prior years, net of reinsurance | 7,899 | 13,139 | 973 | |||||||||
Loss on Converium commutation | 13,209 | — | — | |||||||||
203,282 | 173,912 | 127,950 | ||||||||||
Uncollectible reinsurance adjustment for loss and LAE occurring in prior years | 774 | 274 | 1,300 | |||||||||
Incurred losses during the current year, net of reinsurance | 204,056 | 174,186 | 129,250 | |||||||||
Less loss and LAE payments for claims, net of reinsurance, occurring during: | ||||||||||||
Current year | 42,545 | 40,312 | 32,649 | |||||||||
Prior years | 96,620 | 73,619 | 66,508 | |||||||||
139,165 | 113,931 | 99,157 | ||||||||||
Add effect of Converium commutation(1) | 56,106 | — | — | |||||||||
Reserves for loss and LAE, net of related amounts recoverable from reinsurers, at end of year | 364,253 | 243,256 | 183,001 | |||||||||
Add amounts recoverable from reinsurers on unpaid loss and LAE | 120,232 | 189,624 | 194,558 | |||||||||
Reserves for loss and LAE | $ | 484,485 | $ | 432,880 | $ | 377,559 | ||||||
(1) | The total payment from Converium was $61.3 million, of which $56.1 million was for ceded reserves and $5.2 million was for paid recoverables as of June 30, 2005. |
F-31
F-43
2005 | 2004 | 2003 | ||||||||||
Capital and surplus | $ | 157,740 | $ | 112,334 | $ | 96,905 | ||||||
Net income (loss) | (4,208 | ) | 7,828 | 2,598 | ||||||||
Realized investment gains | 2,272 | 1,421 | 316 |
F-32
Six Months Ended | ||||||||
June 30, | ||||||||
2005 | 2004 | |||||||
(In thousands) | ||||||||
Income tax computed at federal statutory tax rate | $ | (2,784 | ) | $ | 1,565 | |||
Tax-exempt interest, net | (956 | ) | (855 | ) | ||||
State income tax | 153 | 180 | ||||||
Dividends received deduction | (119 | ) | (66 | ) | ||||
Other | 37 | 47 | ||||||
$ | (3,669 | ) | $ | 871 | ||||
Six Months Ended | |||||||||
June 30, | |||||||||
2005 | 2004 | ||||||||
(In thousands) | |||||||||
Reserves for loss and loss adjustment expenses (“LAE”), net of related amounts recoverable from reinsurers, at beginning of period | $ | 243,256 | $ | 183,001 | |||||
Add: | |||||||||
Provision for loss and LAE for claims occurring in the current year, net of reinsurance | 88,554 | 73,325 | |||||||
Change in estimated loss and LAE for claims occurring in prior years, net of reinsurance | 8,682 | 13,088 | |||||||
Loss on Converium commutation | 13,200 | — | |||||||
110,436 | 86,413 | ||||||||
Less loss and LAE payments for claims, net of reinsurance, occurring during: | |||||||||
Current year | 11,301 | 10,638 | |||||||
Prior years | 52,467 | 44,431 | |||||||
63,768 | 55,069 | ||||||||
Add effect of Converium commutation | 56,100 | — | |||||||
Reserves for loss and LAE, net of related amounts recoverable from reinsurers, at end of period | 346,024 | 214,345 | |||||||
Add amounts recoverable from reinsurers on unpaid loss and LAE | 111,803 | 186,060 | |||||||
Reserves for loss and LAE | $ | 457,827 | $ | 400,405 | |||||
Redemption | ||||||||
Shares | Amount | |||||||
Balance at January 1, 2003 | 713,007 | $ | 71,300 | |||||
Series A preferred stock dividends | 51,236 | 5,124 | ||||||
Balance at December 31, 2003 | 764,243 | 76,424 | ||||||
Series A preferred stock dividends | 54,918 | 5,492 | ||||||
Balance at December 31, 2004 | 819,161 | 81,916 | ||||||
Series A preferred stock dividends accrued | 43,763 | 4,376 | ||||||
Series A preferred stock dividends redeemed | (50,410 | ) | (5,041 | ) | ||||
Series A preferred stock exchanged for common stock | (812,514 | ) | (81,251 | ) | ||||
Balance at December 31, 2005 | — | $ | — | |||||
F-44
F-33
F-34
F-35
13. | Stock Options and Restricted Stock |
2005 Incentive Plan |
F-36
Weighted-Average | ||||
Remaining | ||||
Number | Contractual Life | Weighted-Average | ||
Outstanding | (In Years) | Exercise Price | ||
1,548,500 | 10 | $9.00 |
F-37
F-38
Six Months Ended | Year Ended December 31, | |||||||||||||||
June 30, 2005 | 2004 | |||||||||||||||
Weighted- | Weighted- | |||||||||||||||
Average | Average | |||||||||||||||
Exercise | Exercise | |||||||||||||||
Shares | Price | Shares | Price | |||||||||||||
Outstanding at the beginning of the period | 1,447,049 | $ | 2.99 | 1,450,049 | $ | 3.01 | ||||||||||
Granted | 12,000 | 5.00 | 12,000 | 5.00 | ||||||||||||
Exercised | — | — | — | — | ||||||||||||
Canceled, forfeited, or expired | (1,459,049 | ) | 3.01 | (15,000 | ) | 5.00 | ||||||||||
Outstanding at the end of the period | — | — | 1,447,049 | 2.99 | ||||||||||||
Exercisable at the end of the period | — | — | 1,447,049 | 2.99 | ||||||||||||
2005 | 2004 | 2003 | ||||||||||||||||||||||
Weighted- | Weighted- | Weighted- | ||||||||||||||||||||||
Average | Average | Average | ||||||||||||||||||||||
Exercise | Exercise | Exercise | ||||||||||||||||||||||
Shares | Price | Shares | Price | Shares | Price | |||||||||||||||||||
Outstanding at the beginning of the year | 20,098 | $ | 215.28 | 20,140 | $ | 216.72 | 20,987 | $ | 217.44 | |||||||||||||||
Granted | 167 | 360.00 | 167 | 360.00 | 375 | 298.80 | ||||||||||||||||||
Exercised | — | — | — | — | — | — | ||||||||||||||||||
Canceled, forfeited, or expired | (20,265 | ) | 216.72 | (209 | ) | 360.00 | (1,222 | ) | 251.28 | |||||||||||||||
Outstanding at the end of the year | — | — | 20,098 | 215.28 | 20,140 | 216.72 | ||||||||||||||||||
Exercisable at the end of the year | — | — | 20,098 | 215.28 | 19,931 | 215.28 | ||||||||||||||||||
F-45
Warrants |
Exercise | Shares | |||||||||||
Number | Price | Purchased | ||||||||||
Warrants outstanding at December 31, 2002 | 119,849 | $ | 0.72 | — | ||||||||
Issued | — | — | — | |||||||||
Exercised | — | — | — | |||||||||
Expired | — | — | — | |||||||||
Warrants outstanding at December 31, 2003 | 119,849 | 0.72 | ||||||||||
Issued | — | — | — | |||||||||
Exercised | 119,649 | 0.72 | 119,649 | |||||||||
Expired | 200 | 0.72 | — | |||||||||
Warrants outstanding at December 31, 2004 | — | |||||||||||
F-39
15. | Earnings Per Share |
Six Months Ended | ||||||||||
June 30, | ||||||||||
2005 | 2004 | |||||||||
(In thousands, except | ||||||||||
per share amounts) | ||||||||||
Basic EPS: | ||||||||||
Net income (loss) | $ | (4,284 | ) | $ | 3,599 | |||||
Preferred stock dividends | (4,720 | ) | (5,221 | ) | ||||||
Loss available to common shareholders | $ | (9,004 | ) | $ | (1,622 | ) | ||||
Amount allocable to common shareholders(1) | 100.0% | 100.0% | ||||||||
Loss allocable to common shareholders | $ | (9,004 | ) | $ | (1,622 | ) | ||||
Weighted-average common shares outstanding | 21,582 | 12,967 | ||||||||
Basic earnings (loss) per share | $ | (0.42 | ) | $ | (0.13 | ) | ||||
Diluted EPS: | ||||||||||
Loss allocable to common shareholders | $ | (9,004 | ) | $ | (1,622 | ) | ||||
Dividends on participating securities | — | (2) | — | (2) | ||||||
Loss allocable to common shareholders after assumed conversions | $ | (9,004 | ) | $ | (1,622 | ) | ||||
Weighted average common shares outstanding | 21,582 | 12,967 | ||||||||
Diluted effect: | ||||||||||
Stock options | — | — | ||||||||
Warrants | — | — | ||||||||
Conversion of participating securities | — | (2) | — | (2) | ||||||
Weighted average diluted shares outstanding | 21,582 | 12,967 | ||||||||
Diluted earnings (loss) per share | $ | (0.42 | ) | $ | (0.13 | ) | ||||
For the Year Ended December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
(In thousands, except | ||||||||||||
per share amounts) | ||||||||||||
Basic EPS: | ||||||||||||
Net income | $ | 5,930 | $ | 10,557 | $ | 8,594 | ||||||
Preferred stock dividends | (8,593 | ) | (9,781 | ) | (10,133 | ) | ||||||
Income (loss) available to common shareholders | $ | (2,663 | ) | $ | 776 | $ | (1,539 | ) | ||||
Amount allocable to common shareholders(1) | 100% | 70% | 100% | |||||||||
Income (loss) allocable to common shareholders | $ | (2,663 | ) | $ | 545 | $ | (1,539 | ) | ||||
Weighted-average common shares outstanding | 2,129 | 225 | 180 | |||||||||
Basic earnings (loss) per share | $ | (1.25 | ) | $ | 2.42 | $ | (8.55 | ) | ||||
Diluted EPS: | ||||||||||||
Income (loss) allocable to common shareholders | $ | (2,663 | ) | $ | 545 | $ | (1,539 | ) | ||||
Dividends on participating securities | — | (2) | — | (2) | — | (2) | ||||||
Income (loss) allocable to common shareholders | ||||||||||||
after assumed conversions | $ | (2,663 | ) | $ | 545 | $ | (1,539 | ) | ||||
Weighted average common shares outstanding | 2,129 | 225 | 180 | |||||||||
Diluted effect: | ||||||||||||
Stock options | — | (2) | — | (2) | — | (2) | ||||||
Warrants | 30 | — | (2) | |||||||||
Conversion of participating securities | — | (2) | — | (2) | — | (2) | ||||||
Weighted average diluted shares outstanding | 2,129 | 255 | 180 | |||||||||
Diluted earnings (loss) per share | $ | (1.25 | ) | $ | 2.14 | $ | (8.55 | ) | ||||
(1) | Computed under the two-class method by dividing the weighted-average common shares outstanding | |
(2) | Not applicable as impact is antidilutive. |
F-46
F-40
Pre Tax | Net-of-Tax | ||||||||||||
Amount | Tax Expense | Amount | |||||||||||
(In thousands) | |||||||||||||
June 30, 2005 | |||||||||||||
Unrealized gain on securities: | |||||||||||||
Unrealized gain on available-for-sale securities | $ | 1,750 | $ | 613 | $ | 1,138 | |||||||
Less amortization of differences between fair value and amortized cost for fixed maturity security transfer | (1,100 | ) | (385 | ) | (715 | ) | |||||||
Less reclassification adjustment for gains realized in net income | (1,287 | ) | (451 | ) | (837 | ) | |||||||
Net unrealized loss | (637 | ) | (223 | ) | (414 | ) | |||||||
Other comprehensive income | $ | (637 | ) | $ | (223 | ) | $ | (414 | ) | ||||
June 30, 2004 | |||||||||||||
Unrealized gain on securities: | |||||||||||||
Unrealized gain on available-for-sale securities | $ | 611 | $ | 214 | $ | 397 | |||||||
Less amortization of differences between fair value and amortized cost for fixed maturity security transfer | (1,346 | ) | (471 | ) | (875 | ) | |||||||
Less reclassification adjustment for gains realized in net income | (516 | ) | (181 | ) | (335 | ) | |||||||
Net unrealized loss | (1,251 | ) | (438 | ) | (813 | ) | |||||||
Other comprehensive income | $ | (1,251 | ) | $ | (438 | ) | $ | (813 | ) | ||||
F-47
16. | Other Comprehensive Income |
Pre Tax | Net-of-Tax | |||||||||||
Amount | Tax Expense | Amount | ||||||||||
(In thousands) | ||||||||||||
December 31, 2005 | ||||||||||||
Unrealized gain on securities: | ||||||||||||
Unrealized gain onavailable-for-sale securities | $ | 3,057 | $ | 1,070 | $ | 1,987 | ||||||
Less amortization of differences between fair value and amortized cost for fixed maturity security transfer | (1,969 | ) | (689 | ) | (1,280 | ) | ||||||
Less reclassification adjustment for losses realized in net income | (2,228 | ) | (780 | ) | (1,448 | ) | ||||||
Net unrealized loss | (1,140 | ) | (399 | ) | (741 | ) | ||||||
Other comprehensive income | $ | (1,140 | ) | $ | (399 | ) | $ | (741 | ) | |||
December 31, 2004 | ||||||||||||
Unrealized gain on securities: | ||||||||||||
Unrealized gain onavailable-for-sale securities | $ | 1,993 | $ | 698 | $ | 1,295 | ||||||
Less amortization of differences between fair value and amortized cost for fixed maturity security transfer | (2,413 | ) | (845 | ) | (1,568 | ) | ||||||
Less reclassification adjustment for losses realized in net income | 242 | 86 | 156 | |||||||||
Net unrealized loss | (178 | ) | (61 | ) | (117 | ) | ||||||
Other comprehensive income | $ | (178 | ) | $ | (61 | ) | $ | (117 | ) | |||
December 31, 2003 | ||||||||||||
Unrealized gain on securities: | ||||||||||||
Unrealized gain onavailable-for-sale securities | $ | 1,484 | $ | 519 | $ | 965 | ||||||
Less reclassification adjustment for losses realized in net income | 20 | 7 | 13 | |||||||||
Net unrealized gain | 1,504 | 526 | 978 | |||||||||
Other comprehensive income | $ | 1,504 | $ | 526 | $ | 978 | ||||||
17. |
18. | Commitments and Contingencies |
F-41
Statement Value | ||||
of Annuities exceeding | ||||
Life Insurance Company | 1% of Surplus | |||
American General Life Insurance (A+) | $ | 23,390 | ||
New York Life Insurance Company (A++) | 3,808 | |||
First Colony Life Insurance Company (A+) | 3,659 | |||
Monumental Life Insurance Company (A+) | 3,500 | |||
John Hancock Life Insurance Company (A++) | 2,963 | |||
Transamerica Life Insurance and Annuity (A+) | 2,635 | |||
Liberty Life Assurance Company of Boston (A) | 2,573 | |||
Pacific Life and Annuity Company (A++) | 2,396 | |||
Genworth Life (A+) | 1,853 | |||
Other | 7,962 | |||
$ | 54,739 | |||
2006 | $ | 958 | ||
2007 | 677 | |||
2008 | 522 | |||
2009 | 463 | |||
2010 | 8 | |||
$ | 2,628 | |||
19. | Concentration of Operations |
2005 | 2004 | 2003 | ||||||||||||||||||||||
Dollars | Percent | Dollars | Percent | Dollars | Percent | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Workers’ compensation | $ | 254,117 | 99.0% | $ | 232,291 | 99.0% | $ | 177,565 | 98.7% | |||||||||||||||
General liability | 2,451 | 1.0% | 2,442 | 1.0% | 2,282 | 1.3% | ||||||||||||||||||
Total net premiums earned | $ | 256,568 | 100.0% | $ | 234,733 | 100.0% | $ | 179,847 | 100.0% | |||||||||||||||
F-42
2005 | 2004 | 2003 | |||||||||||||||||||||||||
Dollars | Percent | Dollars | Percent | Dollars | Percent | ||||||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||||||||
Georgia | $ | 26,198 | 10 | .2 | % | $ | 22,313 | 9 | .5 | % | $ | 17,233 | 9 | .6 | % | ||||||||||||
Louisiana | 23,441 | 9 | .1 | 26,422 | 11 | .3 | 20,809 | 11 | .6 | ||||||||||||||||||
North Carolina | 16,861 | 6 | .6 | 14,705 | 6 | .3 | 10,812 | 6 | .0 | ||||||||||||||||||
Texas | 15,159 | 5 | .9 | 17,150 | 7 | .3 | 14,407 | 8 | .0 | ||||||||||||||||||
Illinois | 14,198 | 5 | .5 | 14,186 | 6 | .0 | 8,423 | 4 | .7 | ||||||||||||||||||
Florida | 13,671 | 5 | .3 | 10,959 | 4 | .7 | 7,726 | 4 | .3 | ||||||||||||||||||
Pennsylvania | 13,066 | 5 | .1 | 9,812 | 4 | .2 | 7,338 | 4 | .1 | ||||||||||||||||||
Virginia | 12,935 | 5 | .0 | 12,395 | 5 | .3 | 9,984 | 5 | .6 | ||||||||||||||||||
Alaska | 12,841 | 5 | .0 | 9,366 | 4 | .0 | 4,841 | 2 | .7 | ||||||||||||||||||
South Carolina | 12,440 | 4 | .8 | 10,067 | 4 | .3 | 6,301 | 3 | .5 | ||||||||||||||||||
160,810 | 62 | .5 | 147,374 | 62 | .9 | 107,874 | 60 | .1 | |||||||||||||||||||
All others | 95,758 | 37 | .5 | 87,359 | 37 | .1 | 71,973 | 39 | .9 | ||||||||||||||||||
Total net premiums earned | $ | 256,568 | 100 | .0 | % | $ | 234,733 | 100 | .0 | % | $ | 179,847 | 100 | .0 | % | ||||||||||||
20. | Fair Values of Financial Instruments |
F-43
December 31, | ||||||||||||||||
2005 | 2004 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Amount | Value | Amount | Value | |||||||||||||
(In thousands) | ||||||||||||||||
Assets: | ||||||||||||||||
Fixed maturity securities | $ | 467,343 | $ | 460,514 | $ | 331,408 | $ | 330,703 | ||||||||
Equity securities | 66,275 | 66,275 | 33,460 | 33,460 | ||||||||||||
Cash and cash equivalents | 49,286 | 49,286 | 25,421 | 25,421 | ||||||||||||
Liabilities: | ||||||||||||||||
Subordinated debt securities: | ||||||||||||||||
ACT I | 10,310 | 10,310 | 10,310 | 10,310 | ||||||||||||
ACT II | 25,780 | 25,780 | 25,780 | 25,780 |
F-44
21. | Quarterly Financial Data (Unaudited) |
Three Months Ended | ||||||||||||||||
March 31 | June 30 | September 30 | December 31 | |||||||||||||
(In thousands, except per share amounts) | ||||||||||||||||
2005 | ||||||||||||||||
Premiums earned | $ | 61,917 | $ | 63,115 | $ | 64,338 | $ | 67,198 | ||||||||
Net investment income | 3,718 | 3,932 | 4,335 | 4,897 | ||||||||||||
Net realized gains on investments | 227 | 547 | 563 | 935 | ||||||||||||
Total revenues | 66,024 | 67,738 | 69,356 | 73,165 | ||||||||||||
Income before income taxes | 4,345 | (12,298 | ) | 6,518 | 7,430 | |||||||||||
Net income | 3,237 | (7,521 | ) | 4,809 | 5,405 | |||||||||||
Net income (loss) allocable to common shareholders | 681 | (9,902 | ) | 1,812 | 2,992 | |||||||||||
Earnings (loss) per share: | ||||||||||||||||
Basic | 2.27 | (33.03 | ) | 6.05 | 0.40 | |||||||||||
Diluted | 2.27 | (33.03 | ) | 6.05 | 0.39 | |||||||||||
Comprehensive income | 2,892 | (7,592 | ) | 4,966 | 4,921 | |||||||||||
2004 | ||||||||||||||||
Premiums earned | $ | 52,312 | $ | 60,767 | $ | 59,338 | $ | 62,316 | ||||||||
Net investment income | 2,641 | 2,765 | 3,253 | 3,558 | ||||||||||||
Net realized gains (losses) on investments | 310 | 308 | (75 | ) | 878 | |||||||||||
Total revenues | 55,406 | 63,961 | 62,643 | 66,950 | ||||||||||||
Income before income taxes | 3,888 | 582 | 4,040 | 5,176 | ||||||||||||
Net income | 2,891 | 708 | 3,147 | 3,811 | ||||||||||||
Net income (loss) allocable to common shareholders | 161 | (1,868 | ) | 636 | 1,147 | |||||||||||
Earnings (loss) per share: | ||||||||||||||||
Basic | 0.89 | (10.37 | ) | 2.65 | 3.83 | |||||||||||
Diluted | 0.54 | (10.37 | ) | 2.65 | 3.83 | |||||||||||
Comprehensive income | 2,664 | 121 | 2,769 | 4,886 |
F-45
Friedman Billings Ramsey |
William Blair & Company |
SunTrust Robinson Humphrey |
Cochran Caronia Waller |
Item 13. | Other Expenses of Issuance and Distribution. |
SEC Registration Fee | $ | 10,829 | |||
NASD Filing Fees | 9,700 | ||||
Nasdaq Listing Fee | * | ||||
Legal Fees and Expenses | * | ||||
Accounting Fees and Expenses | * | ||||
Transfer Agent and Registrar Fees | * | ||||
Printing and Engraving Expenses | * | ||||
Blue Sky Fees and Expenses | * | ||||
Miscellaneous Expenses | * | ||||
Total | $ | * | |||
SEC registration fee | $ | 9,600 | ||
NASD filing fee | 8,215 | |||
Legal fees and expenses | 500,000 | |||
Accounting fees and expenses | 200,000 | |||
Printing expenses | 140,000 | |||
Miscellaneous expenses | 192,185 | |||
Total | $ | 1,050,000 | ||
Item 14. | Indemnification of Directors and Officers. |
• | acted in good faith; | |
• | reasonably believed that his or her conduct was in or at least not opposed to our best interests; and | |
• | in the case of a criminal proceeding, had no reasonable cause to believe his or her conduct was unlawful. |
II-1
II-1
Item 15. | Recent Sales of Unregistered Securities. |
II-2
Item 16. | Exhibits and Financial Statement Schedules. |
Exhibit | ||||
No. | Description of Exhibit | |||
1 | .1 | Form of Underwriting Agreement | ||
3 | .1* | Form of Restated Articles of Incorporation of the Registrant | ||
3 | .2** | Form of Restated Bylaws of the Registrant | ||
5 | .1* | Opinion of Jones Day | ||
10 | .1** | Executive Agreement, dated January 1, 2004, by and between the Registrant and Mark R. Anderson | ||
10 | .2** | Employment Agreement, dated January 1, 2004, by and between the Registrant and C. Allen Bradley, Jr., as amended by Amendment No. 1 to Employment Agreement, dated June 17, 2005 | ||
10 | .3** | Employment Agreement, dated January 1, 2004, by and between the Registrant and Geoffrey R. Banta, as amended by Amendment No. 1 to Employment Agreement, dated June 17, 2005 | ||
10 | .4** | Employment Agreement, dated January 1, 2004, by and between the Registrant and Arthur L. Hunt, as amended by Amendment No. 1 to Employment Agreement, dated June 17, 2005 | ||
10 | .5** | Employment Agreement, dated January 1, 2004, by and between the Registrant and Craig P. Leach, as amended by Amendment No. 1 to Employment Agreement, dated June 17, 2005 | ||
10 | .6** | Form of AMERISAFE, Inc. 2005 Equity Incentive Plan | ||
10 | .7** | Form of Incentive Stock Option Award Agreement for the AMERISAFE, Inc. 2005 Equity Incentive Plan | ||
10 | .8** | Form of Non-Qualified Stock Option Award Agreement for the AMERISAFE, Inc. 2005 Equity Incentive Plan | ||
10 | .9** | Form of AMERISAFE, Inc. 2005 Non-Employee Director Restricted Stock Plan | ||
10 | .10** | Form of Restricted Stock Award Agreement for the AMERISAFE, Inc. 2005 Non-Employee Director Restricted Stock Plan | ||
10 | .11** | Form of Director and Officer Indemnification Agreement | ||
10 | .12** | First Casualty Excess of Loss Reinsurance Contract, effective as of January 1, 2005, issued to the Registrant by the reinsurers named therein | ||
10 | .13** | Second Casualty Excess of Loss Reinsurance Contract, effective as of January 1, 2005, issued to the Registrant by the reinsurers named therein | ||
10 | .14** | Workers’ Compensation Catastrophe Excess of Loss Reinsurance Contract, effective as of January 1, 2005, issued to the Registrant by the reinsurers named therein | ||
10 | .15** | Commutation and Release Agreement, effective as of June 30, 2005, between the Registrant and Converium Reinsurance (North America) Inc. | ||
10 | .16** | Services Agreement, effective as of March 31, 2005, by and between Concentra Integrated Services, Inc. and Amerisafe Risk Services, Inc. | ||
10 | .17** | Agreement, effective as of March 31, 2005, by and between Amerisafe Risk Services, Inc. and MedRisk, Inc. and its affiliates and subsidiaries | ||
10 | .18** | Lease Agreement, effective as of January 1, 2005, by and between The Phoenix Hat Company, LLC and the Registrant | ||
10 | .19** | Amended and Restated Registration Rights Agreement, dated March 18, 1998, by and among the Registrant and the shareholders of the Registrant named therein | ||
21 | .1** | Subsidiaries of the Registrant | ||
23 | .1* | Consent of Jones Day (included as part of its opinion filed as Exhibit 5.1 hereto) | ||
23 | .2 | Consent of Ernst & Young LLP | ||
24 | .1** | Power of Attorney for Mark R. Anderson, C. Allen Bradley, Jr., Geoffrey R. Banta, Sean M. Traynor and Paul B. Queally | ||
24 | .2 | Power of Attorney for Jared A. Morris | ||
99 | .1 | Consent of Austin P. Young III to be named as a director | ||
99 | .2* | Consent of to be named as a director |
Exhibit | ||||
No. | Description of Exhibit | |||
1 | .1 | Form of Underwriting Agreement | ||
3 | .1 | Amended and Restated Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 to the Registrant’s Registration Statement onForm S-1, Amendment No. 3 (FileNo. 333-127133), filed October 31, 2005) | ||
3 | .2 | Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to the Registrant’s Registration Statement onForm S-1 (FileNo. 333-127133), filed August 3, 2005) | ||
5 | .1 | Opinion of Jones Day |
II-2
Exhibit | ||||
No. | Description of Exhibit | |||
10 | .1 | Employment Agreement, dated January 1, 2004, by and between the Registrant and C. Allen Bradley, Jr., as amended by Amendment No. 1 to Employment Agreement, dated June 17, 2005 (incorporated by reference to Exhibit 10.2 to the Registrant’s Registration Statement onForm S-1 (FileNo. 333-127133), filed August 3, 2005) | ||
10 | .2 | Employment Agreement, dated January 1, 2004, by and between the Registrant and Geoffrey R. Banta, as amended by Amendment No. 1 to Employment Agreement, dated June 17, 2005 (incorporated by reference to Exhibit 10.3 to the Registrant’s Registration Statement onForm S-1 (FileNo. 333-127133), filed August 3, 2005) | ||
10 | .3 | Employment Agreement, dated January 1, 2004, by and between the Registrant and Arthur L. Hunt, as amended by Amendment No. 1 to Employment Agreement, dated June 17, 2005 (incorporated by reference to Exhibit 10.4 to the Registrant’s Registration Statement onForm S-1 (FileNo. 333-127133), filed August 3, 2005) | ||
10 | .4 | Employment Agreement, dated January 1, 2004, by and between the Registrant and Craig P. Leach, as amended by Amendment No. 1 to Employment Agreement, dated June 17, 2005 (incorporated by reference to Exhibit 10.5 to the Registrant’s Registration Statement onForm S-1 (FileNo. 333-127133), filed August 3, 2005) | ||
10 | .5 | Employment Agreement, dated September 1, 2006, by and between the Registrant and David O. Narigon (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report onForm 8-K, filed September 6, 2006) | ||
10 | .6 | Employment Agreement, effective September 25, 2006, by and between the Registrant and Todd Walker (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report onForm 8-K, filed September 6, 2006) | ||
10 | .7 | Consulting Agreement, dated October 27, 2005, by and between the Registrant and Mark R. Anderson (incorporated by reference to Exhibit 10.1 to the Registrant’s Registration Statement onForm S-1, Amendment No. 3 (FileNo. 333-127133), filed October 31, 2005) | ||
10 | .8 | AMERISAFE, Inc. 2005 Equity Incentive Plan (incorporated by reference to Exhibit 10.6 to the Registrant’s Registration Statement onForm S-1, Amendment No. 3 (FileNo. 333-127133), filed October 31, 2005) | ||
10 | .9 | Form of Incentive Stock Option Award Agreement for the AMERISAFE, Inc. 2005 Equity Incentive Plan (incorporated by reference to Exhibit 10.7 to the Registrant’s Registration Statement onForm S-1, Amendment No. 3 (FileNo. 333-127133), filed October 31, 2005) | ||
10 | .10 | Form of Non-Qualified Stock Award Option Agreement for the AMERISAFE, Inc. 2005 Equity Incentive Plan (incorporated by reference to Exhibit 10.8 to the Registrant’s Registration Statement onForm S-1, Amendment No. 3 (FileNo. 333-127133), filed October 31, 2005) | ||
10 | .11 | Form of Non-Qualified Stock Option Award Agreement for Mark R. Anderson under the AMERISAFE, Inc. 2005 Equity Incentive Plan (incorporated by reference to Exhibit 10.20 to the Registrant’s Registration Statement onForm S-1, Amendment No. 3 (FileNo. 333-127133), filed October 31, 2005) | ||
10 | .12 | Form of Restricted Stock Award Agreement for the AMERISAFE, Inc. 2005 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report onForm 8-K, filed March 15, 2006) | ||
10 | .13 | AMERISAFE, Inc. 2005 Non-Employee Director Restricted Stock Plan (incorporated by reference to Exhibit 10.9 to the Registrant’s Registration Statement onForm S-1, Amendment No. 3 (FileNo. 333-127133), filed October 31, 2005) | ||
10 | .14 | Form of Restricted Stock Award Agreement for the AMERISAFE, Inc. 2005 Non-Employee Director Restricted Stock Plan (incorporated by reference to Exhibit 10.10 to the Registrant’s Registration Statement onForm S-1 (FileNo. 333-127133), filed August 3, 2005) | ||
10 | .15 | Form of Director and Officer Indemnification Agreement (incorporated by reference to Exhibit 10.11 to the Registrant’s Registration Statement onForm S-1 (FileNo. 333-127133), filed August 3, 2005) |
II-3
Exhibit | ||||
No. | Description of Exhibit | |||
10 | .16 | First Casualty Excess of Loss Reinsurance Contract, effective as of January 1, 2006, issued to the Registrant by the reinsurers named therein (incorporated by reference to Exhibit 10.1 to the Registrant’s Quarterly Report onForm 10-Q, filed August 14, 2006) | ||
10 | .17 | Second Casualty Excess of Loss Reinsurance Contract, effective as of January 1, 2006, issued to the Registrant by the reinsurers named therein (incorporated by reference to Exhibit 10.2 to the Registrant’s Quarterly Report onForm 10-Q, filed August 14, 2006) | ||
10 | .18 | Third Casualty Excess of Loss Reinsurance Contract, effective as of January 1, 2006, issued to the Registrant by the reinsurers named therein (incorporated by reference to Exhibit 10.3 to the Registrant’s Quarterly Report onForm 10-Q, filed August 14, 2006) | ||
10 | .19 | Workers’ Compensation Catastrophe Excess of Loss Reinsurance Contract, effective as of January 1, 2006, issued to the Registrant by the reinsurers named therein (incorporated by reference to Exhibit 10.4 to the Registrant’s Quarterly Report onForm 10-Q, filed August 14, 2006) | ||
10 | .20 | Casualty Catastrophe Excess of Loss Reinsurance Contract, effective as of January 1, 2006, issued to the Registrant by the reinsurers named therein (incorporated by reference to Exhibit 10.5 to the Registrant’s Quarterly Report onForm 10-Q, filed August 14, 2006) | ||
10 | .21 | First Casualty Excess of Loss Reinsurance Contract, effective as of January 1, 2005, issued to the Registrant by the reinsurers named therein (incorporated by reference to Exhibit 10.12 to the Registrant’s Registration Statement onForm S-1 (FileNo. 333-127133), filed August 3, 2005) | ||
10 | .22 | Second Casualty Excess of Loss Reinsurance Contract, effective as of January 1, 2005, issued to the Registrant by the reinsurers named therein (incorporated by reference to Exhibit 10.13 to the Registrant’s Registration Statement onForm S-1 (FileNo. 333-127133), filed August 3, 2005) | ||
10 | .23 | Workers’ Compensation Catastrophe Excess of Loss Reinsurance Contract, effective as of January 1, 2005, issued to the Registrant by the reinsurers named therein (incorporated by reference to Exhibit 10.14 to the Registrant’s Registration Statement onForm S-1 (FileNo. 333-127133), filed August 3, 2005) | ||
10 | .24 | Services Agreement, effective as of March 31, 2005, by and between Concentra Integrated Services, Inc. and Amerisafe Risk Services, Inc. (incorporated by reference to Exhibit 10.16 to the Registrant’s Registration Statement onForm S-1, Amendment No. 1 (FileNo. 333-127133), filed September 9, 2005) | ||
10 | .25 | Agreement, effective as of March 31, 2005, by and between Amerisafe Risk Services, Inc. and MedRisk, Inc. and its affiliates and subsidiaries (incorporated by reference to Exhibit 10.17 to the Registrant’s Registration Statement onForm S-1, Amendment No. 1 (FileNo. 333-127133), filed September 9, 2005) | ||
10 | .26 | Lease Agreement, effective as of January 1, 2005, by and between The Phoenix Hat Company, LLC and the Registrant (incorporated by reference to Exhibit 10.18 to the Registrant’s Registration Statement onForm S-1, Amendment No. 1 (FileNo. 333-127133), filed September 9, 2005) | ||
10 | .27 | Amended and Restated Registration Rights Agreement, dated March 18, 1998, by and among the Registrant and the shareholders of the Registrant named therein (incorporated by reference to Exhibit 4.1 to the Registrant’s Registration Statement onForm S-1 (FileNo. 333-127133), filed August 3, 2005) | ||
21 | .1 | Subsidiaries of the Registrant (incorporated by reference to Exhibit 21.1 to the Registrant’s Registration Statement onForm S-1 (FileNo. 333-127133), filed August 3, 2005) | ||
23 | .1 | Consent of Jones Day (included as part of its opinion filed as Exhibit 5.1 hereto) | ||
23 | .2 | Consent of Ernst & Young LLP | ||
24 | .1* | Powers of Attorney |
* |
Previously filed |
II-3
II-4
Item 17. | Undertakings. |
II-5
II-4
By: | /s/C. Allen Bradley, Jr. |
Signature | Title | ||||
/s/ | |||||
C. Allen Bradley, Jr. | Chairman, President, Chief Executive Officer and Director (Principal Executive Officer) | ||||
/s/Geoffrey R. Banta Geoffrey R. Banta | Executive Vice President and Chief Financial Officer (Principal Financial | ||||
* Thomas W. Hallagan | Director | ||||
* Jared A. Morris | Director | ||||
* Paul B. Queally | Director | ||||
* Sean M. Traynor | Director | ||||
* | Director |
*By: | /s/ Todd Walker |
II-6
II-5
December 31, | ||||||||||
2004 | 2003 | |||||||||
(In thousands, except | ||||||||||
share data) | ||||||||||
Assets | ||||||||||
Investments: | ||||||||||
Equity securities — available-for-sale, at fair value | $ | 1,090 | $ | 310 | ||||||
Investment in subsidiaries | 128,014 | 114,925 | ||||||||
Total invested assets | 129,104 | 115,235 | ||||||||
Cash and cash equivalents | 4,066 | 10,172 | ||||||||
Deferred income taxes | 359 | 63 | ||||||||
Property and equipment, net | 3,275 | 15 | ||||||||
Other assets | 1,216 | 2,555 | ||||||||
$ | 138,020 | $ | 128,040 | |||||||
Liabilities, redeemable preferred stock and shareholders’ deficit | ||||||||||
Liabilities: | ||||||||||
Accounts payable and other liabilities | $ | 1,946 | $ | 278 | ||||||
Note payable to subsidiaries | 10,930 | 5,680 | ||||||||
Subordinated debt securities and note payable | 36,090 | 16,310 | ||||||||
Total liabilities | 48,966 | 22,268 | ||||||||
Redeemable preferred stock: | ||||||||||
Series A nonconvertible — $0.01 par value, $100 per share redemption value: | ||||||||||
Authorized shares — 1,500,000; issued and outstanding shares — 819,161 in 2004 and 764,243 in 2003 | 81,916 | 76,424 | ||||||||
Series C convertible — $0.01 par value, $100 per share redemption value: | ||||||||||
Authorized shares — 300,000; issued and outstanding shares — 300,000 in 2004 and 2003 | 30,000 | 30,000 | ||||||||
Series D convertible — $0.01 par value, $100 per share redemption value: | ||||||||||
Authorized shares — 200,000; issued and outstanding shares — 200,000 in 2004 and 2003 | 20,000 | 20,000 | ||||||||
131,916 | 126,424 | |||||||||
Shareholders’ deficit: | (42,862 | ) | (20,652 | ) | ||||||
$ | 138,020 | $ | 128,040 | |||||||
December 31, | ||||||||
2005 | 2004 | |||||||
(In thousands) | ||||||||
Assets | ||||||||
Investments: | ||||||||
Equitysecurities—available-for-sale, at fair value | $ | 1,090 | $ | 1,090 | ||||
Investment in subsidiaries | 178,429 | 128,014 | ||||||
Total investments | 179,519 | 129,104 | ||||||
Cash and cash equivalents | 11,149 | 4,066 | ||||||
Deferred income taxes | 29 | 359 | ||||||
Property and equipment, net | 2,923 | 3,275 | ||||||
Other assets | 1,442 | 1,216 | ||||||
$ | 195,062 | $ | 138,020 | |||||
Liabilities, redeemable preferred stock and shareholders’ equity | ||||||||
Liabilities: | ||||||||
Accounts payable and other liabilities | $ | 1,826 | $ | 1,946 | ||||
Note payable to subsidiaries | 9,800 | 10,930 | ||||||
Subordinated debt securities | 36,090 | 36,090 | ||||||
Total liabilities | 47,716 | 48,966 | ||||||
Redeemable preferred stock: | ||||||||
Series A nonconvertible—$0.01 par value, $100 per share redemption value: | ||||||||
Authorized shares—1,500,000; issued and outstanding shares—None in 2005 and 819,161 in 2004 | — | 81,916 | ||||||
Series C convertible—$0.01 par value, $100 per share redemption value: | ||||||||
Authorized shares—300,000; issued and outstanding shares—300,000 in 2005 and 2004 | 30,000 | 30,000 | ||||||
Series D convertible—$0.01 par value, $100 per share redemption value: | ||||||||
Authorized shares—200,000; issued and outstanding shares—200,000 in 2005 and 2004 | 20,000 | 20,000 | ||||||
50,000 | 131,916 | |||||||
Shareholders’ equity | 97,346 | (42,862 | ) | |||||
$ | 195,062 | $ | 138,020 | |||||
S-1
S-1
Year Ended December 31, | |||||||||||||
2004 | 2003 | 2002 | |||||||||||
(In thousands) | |||||||||||||
Revenues: | |||||||||||||
Net investment income | $ | 281 | $ | 4 | $ | 721 | |||||||
Loss on sale of asset | — | — | (80 | ) | |||||||||
Fee income from affiliates and subsidiaries | 3,661 | 1,791 | 2,746 | ||||||||||
Total revenues | 3,942 | 1,795 | 3,387 | ||||||||||
Expenses: | |||||||||||||
Underwriting and other operating costs | 1,831 | 1,276 | 2,035 | ||||||||||
Interest expense | 1,757 | 264 | 377 | ||||||||||
Total expenses | 3,588 | 1,540 | 2,412 | ||||||||||
Income before income taxes and equity in earnings of subsidiaries | 354 | 255 | 975 | ||||||||||
Income tax expense | 293 | 246 | 285 | ||||||||||
Income before equity in net income of subsidiaries | 61 | 9 | 690 | ||||||||||
Equity in net income of subsidiaries | 10,496 | 8,585 | 4,491 | ||||||||||
Net income | $ | 10,557 | $ | 8,594 | $ | 5,181 | |||||||
Year Ended December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
(In thousands) | ||||||||||||
Revenues | ||||||||||||
Net investment income | $ | 990 | $ | 281 | $ | 4 | ||||||
Fee and other income | 5,813 | 3,661 | 1,791 | |||||||||
Total revenues | 6,803 | 3,942 | 1,795 | |||||||||
Expenses | ||||||||||||
Other operating costs | 3,567 | 1,831 | 1,276 | |||||||||
Interest expense | 3,160 | 1,757 | 264 | |||||||||
Total expenses | 6,727 | 3,588 | 1,540 | |||||||||
Income before income taxes and equity in earnings of subsidiaries | 76 | 354 | 255 | |||||||||
Income tax expense | 302 | 293 | 246 | |||||||||
Income (loss) before equity in earnings of subsidiaries | (226 | ) | 61 | 9 | ||||||||
Equity in net income of subsidiaries | 6,156 | 10,496 | 8,585 | |||||||||
Net income | $ | 5,930 | $ | 10,557 | $ | 8,594 | ||||||
Year Ended December 31, | ||||||||||||
2004 | 2003 | 2002 | ||||||||||
(In thousands) | ||||||||||||
Operating Activities | ||||||||||||
Net cash provided by operating activities | $ | 8,351 | $ | 1,066 | $ | 454 | ||||||
Investing Activities | ||||||||||||
Purchases of investments | (780 | ) | (310 | ) | — | |||||||
Purchases of property and equipment | (3,589 | ) | — | — | ||||||||
Capital contribution to subsidiary | (2,710 | ) | — | — | ||||||||
Net cash used in investing activities | (7,079 | ) | (310 | ) | — | |||||||
Financing Activities | ||||||||||||
Proceeds from issuance of subordinated debt securities | 25,780 | 10,310 | — | |||||||||
Principal payments on note payable | (6,000 | ) | (2,000 | ) | (1,000 | ) | ||||||
Warrants exercised | 86 | — | — | |||||||||
Redemption of outstanding Series E preferred stock | (27,244 | ) | — | — | ||||||||
Net cash used in financing activities | (7,378 | ) | 8,310 | (1,000 | ) | |||||||
Change in cash and cash equivalents | (6,106 | ) | 9,066 | (546 | ) | |||||||
Cash and cash equivalents at beginning of year | 10,172 | 1,106 | 1,652 | |||||||||
Cash and cash equivalents at end of year | $ | 4,066 | $ | 10,172 | $ | 1,106 | ||||||
Year Ended December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
(In thousands) | ||||||||||||
Operating activities | ||||||||||||
Net cash provided by operating activities | $ | 359 | $ | 8,351 | $ | 1,066 | ||||||
Investing activities | ||||||||||||
Purchases of investments | — | (780 | ) | (310 | ) | |||||||
Purchases of property and equipment | (1,379 | ) | (3,589 | ) | — | |||||||
Capital contributions to subsidiary | (45,000 | ) | (2,710 | ) | — | |||||||
Net cash used in investing activities | (46,379 | ) | (7,079 | ) | (310 | ) | ||||||
Financing activities | ||||||||||||
Net proceeds from initial public offering | 63,236 | — | — | |||||||||
Series A preferred stock redemption | (5,093 | ) | — | — | ||||||||
Series E preferred stock redemption | (5,093 | ) | — | — | ||||||||
Stock-based compensation | 53 | — | — | |||||||||
Principal payments on note payable | — | (6,000 | ) | (2,000 | ) | |||||||
Warrants exercised | — | 86 | — | |||||||||
Proceeds from issuance of subordinated debt securities | — | 25,780 | 10,310 | |||||||||
Series E preferred stock redemptions | — | (27,244 | ) | — | ||||||||
Net cash provided by (used in) financing activities | 53,103 | (7,378 | ) | 8,310 | ||||||||
Change in cash and cash equivalents | 7,083 | (6,106 | ) | 9,066 | ||||||||
Cash and cash equivalents at beginning of year | 4,066 | 10,172 | 1,106 | |||||||||
Cash and cash equivalents at end of year | $ | 11,149 | $ | 4,066 | $ | 10,172 | ||||||
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S-2
Reserves for | Loss | |||||||||||||||||||||||||||||||||||||||
Unpaid | Loss and | and | Amortization | |||||||||||||||||||||||||||||||||||||
Deferred | Loss and | LAE | LAE | of Deferred | Paid Claims | |||||||||||||||||||||||||||||||||||
Policy | Loss | Net | related to | related | Policy | and Claim | Net | |||||||||||||||||||||||||||||||||
Acquisition | Adjustment | Unearned | Earned | Investment | Current | to Prior | Acquisition | Adjustment | Premiums | |||||||||||||||||||||||||||||||
Costs | Expenses | Premiums | Premiums | Income | Period | Periods | Costs | Expenses | Written | |||||||||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||||||||||
2004 | $ | 12,044 | $ | 432,880 | $ | 111,741 | $ | 234,733 | $ | 12,217 | $ | 160,773 | $ | 13,413 | $ | (25,969 | ) | $ | 113,931 | $ | 243,011 | |||||||||||||||||||
2003 | 11,820 | 377,559 | 103,462 | 179,847 | 10,106 | 126,977 | 2,273 | (20,076 | ) | 99,157 | 195,990 | |||||||||||||||||||||||||||||
2002 | 9,505 | 346,542 | 87,319 | 163,257 | 9,419 | 117,212 | 3,850 | (20,465 | ) | 87,174 | 158,530 |
Reserves for | ||||||||||||||||||||||||||||||||||||||||
Unpaid | Loss and | Loss and | Amortization | |||||||||||||||||||||||||||||||||||||
Deferred | Loss and | LAE | LAE | of Deferred | Paid Claims | |||||||||||||||||||||||||||||||||||
Policy | Loss | Net | related to | related | Policy | and Claim | Net | |||||||||||||||||||||||||||||||||
Acquisition | Adjustment | Unearned | Earned | Investment | Current | to Prior | Acquisition | Adjustment | Premiums | |||||||||||||||||||||||||||||||
Cost | Expense | Premium | Premium | Income | Period | Periods | Costs | Expenses | Written | |||||||||||||||||||||||||||||||
(In thousands) | ||||||||||||||||||||||||||||||||||||||||
2005 | $ | 16,973 | $ | 484,485 | $ | 124,524 | $ | 256,568 | $ | 16,882 | $ | 182,174 | $ | 8,673 | (1) | $ | (31,785 | ) | $ | 139,165 | (1) | $ | 269,350 | |||||||||||||||||
2004 | 12,044 | 432,880 | 111,741 | 234,733 | 12,217 | 160,773 | 13,413 | (25,969 | ) | 113,931 | 243,011 | |||||||||||||||||||||||||||||
2003 | 11,820 | 377,559 | 103,462 | 179,847 | 10,106 | 126,977 | 2,273 | (20,076 | ) | 99,157 | 195,990 |
(1) | In June 2005, we commuted three reinsurance agreements with Converium Reinsurance North America (“Converium”). The incurred loss of $13.2 million and cash received from Converium for ceded reserves of $56.1 million are not reflected in these amounts. |
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