SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 11-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES |
For the fiscal year ended December 31, 2003 |
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE |
For the transition period from ________ to ________ |
Commission File Number 000-22761
A. Full title of the plan and the address of the plan, if different from that of the issuer named below:
PMA Capital Corporation 401(k) Plan
B. Name of issuer of the securities held pursuant to the plan and the address of its principal executive office:
PMA Capital Corporation
Mellon Bank Center, Suite 2800
1735 Market Street
Philadelphia, PA 19103--7590
REQUIRED INFORMATION
Financial statements and schedules for PMA Capital Corporation’s 401(k) Plan, prepared in accordance with the financial reporting requirements of the Employee Retirement Income Security Act of 1974, are contained in this Annual Report on Form 11-K.
PMA Capital Corporation 401(k) Plan
Financial Statements as of and for the Years
Ended December 31, 2003 and 2002,
Supplemental Schedule as of December 31, 2003
and Independent Auditors’ Report
PMA CAPITAL CORPORATION 401(k) PLAN
FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE
TABLE OF CONTENTS
[DELOITTE LOGO]
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Participants and Administrator
of the PMA Capital Corporation 401(k) Plan:
We have audited the accompanying statement of net assets available for benefits of the PMA Capital Corporation 401(k) Plan (the “Plan”) as of December 31, 2003, and the related statement of changes in net assets available for benefits for the year then ended. These financial statements are the responsibility of the Plan’s management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material respects, the net assets available for benefits of the Plan as of December 31, 2003, and the changes in net assets available for benefits for the year then ended in conformity with accounting principles generally accepted in the United States of America.
Our audit was conducted for the purpose of forming an opinion on the basic 2003 financial statements taken as a whole. The supplemental schedule listed in the Table of Contents is presented for the purpose of additional analysis and is not a required part of the basic financial statements, but is supplementary information required by the Department of Labor’s Rules and Regulations for Reporting and Disclosure under the Employee Retirement Income Security Act of 1974. This schedule is the responsibility of the Plan’s management. Such schedule has been subjected to the auditing procedures applied in our audit of the basic 2003 financial statements and, in our opinion, is fairly stated in all material respects when considered in relation to the basic financial statements taken as a whole.
/s/ Deloitte & Touche LLP
Philadelphia, PA
June 18, 2004
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PricewaterhouseCoopers [LOGO]
Report of Independent Auditors
To the Participants and Administrator of the
PMA Capital Corporation 401(k) Plan:
In our opinion, the accompanying statements of net assets available for benefits and the related statements of changes in net assets available for benefits present fairly, in all material respects, the net assets available for benefits of the PMA Capital Corporation 401(k) Plan (the “Plan”) at December 31, 2002, and the changes in net assets available for benefits for the year ended December 31, 2002 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Plan’s management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audit of these statements in accordance with auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Philadelphia, PA
June 20, 2003
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PMA CAPITAL CORPORATION 401(k) PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
| December 31, | ||||||||
| 2003 | 2002 | |||||||
| Investments, at fair value | $ | 88,295,527 | $ | 69,894,775 | ||||
| Participant loans receivable | 1,994,327 | 1,825,423 | ||||||
| Employer's contribution receivable | 146,627 | 58,978 | ||||||
| Participants' contributions receivable | 280,908 | 227,080 | ||||||
| Net assets available for benefits | $ | 90,717,389 | $ | 72,006,256 | ||||
See accompanying notes to financial statements.
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PMA CAPITAL CORPORATION 401(k) PLAN
STATEMENTS OF CHANGES IN NET ASSETS
AVAILABLE FOR BENEFITS
| For the years ended December 31, | ||||||||
| 2003 | 2002 | |||||||
| Additions: | ||||||||
| Investment Income (Loss): | ||||||||
| Net appreciation (depreciation) | ||||||||
| in fair value of investments | $ | 11,736,608 | $ | (11,664,864 | ) | |||
| Interest and dividends | 2,052,000 | 2,115,479 | ||||||
| 13,788,608 | (9,549,385 | ) | ||||||
| Contributions: | ||||||||
| Participants | 5,554,770 | 5,379,401 | ||||||
| Participants rollovers | 1,120,410 | 940,609 | ||||||
| Employer | 3,201,230 | 3,097,433 | ||||||
| Total additions (deductions) | 23,665,018 | (131,942 | ) | |||||
| Deductions: | ||||||||
| Participant withdrawals | 4,948,670 | 4,249,688 | ||||||
| Administrative expenses and other | 5,215 | 4,856 | ||||||
| Total deductions | 4,953,885 | 4,254,544 | ||||||
| Net increase (decrease) | 18,711,133 | (4,386,486 | ) | |||||
| Net assets available for benefits: | ||||||||
| Beginning of year | 72,006,256 | 76,392,742 | ||||||
| End of year | $ | 90,717,389 | $ | 72,006,256 | ||||
See accompanying notes to financial statements.
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PMA CAPITAL CORPORATION 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
1. Description of Plan
The following brief description of the PMA Capital Corporation 401(k) Plan (the “Plan”) is provided for general informational purposes only. Participants should refer to the Plan document for more complete information.
A. General
The Plan is a defined contribution plan and is qualified under Section 401(a) of the Internal Revenue Code of 1986, as amended (“IRC”), allowing contributions to be made by participants on a pre-tax basis under Section 401(k) of the IRC. The Plan is subject to the Employee Retirement Income Security Act of 1974 (“ERISA”) rules and regulations.
B. Eligibility and Participation
Presently, all active regular full and part time employees of PMA Capital Corporation and its affiliates (the “Company”) are eligible to participate in the Plan upon commencement of their employment.
C. Contributions
Participants and the Company make contributions to the Plan subject to IRC limits. Participants may authorize the Company to withhold up to a maximum of 50% of their compensation each year for employee pre-tax contributions to the Plan. In addition, participants may elect to have the Company withhold up to 10% of their compensation as a voluntary after-tax contribution. The Company, in turn, will make employer matching contributions on behalf of participants equal to $1.00 for each $1.00 of employee pre-tax or after-tax contributions, up to a maximum of 5% of each participant’s compensation. Contributions are subject to certain limitations.
D. Investment Options
At December 31, 2003, contributions were invested, at the election of the participants, in eleven funds (the “Vanguard Funds”) which are managed by The Vanguard Group, an unrelated entity.
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PMA CAPITAL CORPORATION 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
E. Vesting
When a participant attains age 65, becomes disabled as defined by the Company’s long-term disability plan, or dies, the full value of the employer’s matching contributions, allocated to the account, plus actual earnings thereon, become vested to the participant (or to the participant’s beneficiary in the event of death) and are nonforfeitable. Prior to the occurrence of such an event, the value of the employer’s matching contributions will vest to a participant based on their years of service, as indicated in the following table:
| Less than 1 year | 0 | % | |
| 1 year | 10 | % | |
| 2 years | 40 | % | |
| 3 years | 60 | % | |
| 4 years | 80 | % | |
| 5 years | 100 | % | |
An employee’s contributions, plus actual earnings thereon, are always 100% vested and nonforfeitable.
Plan participants who cease to be employees are entitled to withdraw participant contributions, including allocated net realized and unrealized gains and losses. In addition, such former employees are entitled to their vested value of allocated Company contributions and earnings thereon, based on years of service.
Each participant’s account is credited with the participant’s contribution and allocations of the Company’s contribution and Plan earnings, and charged with an allocation of administrative expenses. Allocations are based on participant earnings or account balances, as defined in the Plan. The benefit to which a participant is entitled is the benefit that can be provided from the participant’s vested account.
F. Allocation of Investment Income and Realized Gains and Losses
Invested assets of the Plan are valued at the end of each business day, by adjusting the account of each participant to reflect any appreciation or depreciation in the fair market value or income or losses of the funds. Participant accounts are adjusted in proportion to the balance in each participant’s account as compared to the total account balances of all participants’ accounts. The allocation is also affected by the timing of transfers and loan repayments and distributions.
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PMA CAPITAL CORPORATION 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
G. Withdrawals and Distributions
Withdrawals and distributions of vested account balances are generally made upon retirement, termination, death or disability. A participant’s vested account balance will be distributed in the form of a single lump sum cash payment. However, participants may elect to leave the money in the plan subject to Internal Revenue Service (“IRS”) minimum distribution rules. To the extent amounts are invested in the PMA Capital Corporation Stock Fund (“Company Stock Fund”), a participant may elect to receive such amounts in the Company’s Class A Common Stock or cash.
Plan participants may elect to borrow up to the lesser of 50% of their available vested balance or $50,000 minus their highest outstanding loan balance during the prior twelve month period under the Plan. Participants may apply for multiple loans each plan year, however, no more than two loans may be outstanding at any one time. These interest-bearing loans are secured by the participant’s account balance and are repaid through payroll deductions. The interest rate for all loans is the prime rate in effect on the first business day of the month of the loan application. The maximum loan amounts, repayment terms, and other restrictions are determined in accordance with the IRC.
H. Disposition of Forfeiture
Forfeitures of Company contributions, resulting from the termination of participants with less than fully vested rights under the Plan, are applied to reduce future employer matching contributions. For the years ended December 31, 2003 and 2002, $240,000 and $98,000, respectively, were used to offset employer matching contributions. The amount of forfeited nonvested accounts available to reduce future employer contributions totaled $50,867 and $79,099 at December 31, 2003 and 2002, respectively.
2. Summary of Significant Accounting Policies
A. Use of Estimates
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and changes therein and disclosures of contingent assets and liabilities. Actual results could differ from those estimates.
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PMA CAPITAL CORPORATION 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
B. Investment Valuation and Income Recognition
Investments in the Vanguard Funds are stated at fair value. Shares of registered investment companies are valued at quoted market prices which represent the net asset value of shares held by the Plan at year-end. Units of the Retirement Savings Trust are valued at net asset value at year-end. The Company Stock Fund is valued at its year-end unit closing price (comprised of year-end market price plus uninvested cash position). Participant loans are valued at cost which approximates fair value.
Interest income is accrued when earned. Dividend income is recorded on the ex-dividend date. Capital gain distributions are included in dividend income.
Net appreciation and depreciation in fair value of investments, as presented in the statement of changes in net assets available for benefits, consists of the realized gains and losses and the net unrealized appreciation and depreciation on those investments.
C. Participant Withdrawals
Participant withdrawals are recorded when paid.
D. Participant Loans Receivable
Participant loans receivable are recorded at the original loan amount, plus accrued interest, less subsequent principal and interest repayments.
E. Administrative Expenses
The Company pays certain administrative expenses incurred by the Plan.
F. Risk and Uncertainties
The Plan provides various investment options in funds that invest in stocks, bonds, fixed income instruments and other mutual funds. Investment securities are exposed to various risks, such as interest rate, market and credit risk. Due to the level of risk associated with certain investment securities and the level of uncertainty related to changes in the value of the investment securities, it is at least reasonably possible that changes in risks in the near term would materially affect participants’ account balances and the amounts reported in the statements of net assets available for benefits and the statements of changes in net assets available for benefits.
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3. Investments
During 2003 and 2002, the Plan’s investments, (including gains and losses on investments bought and sold as well as investments held during the year) appreciated (depreciated) in value as follows:
| 2003 | 2002 | ||||
| Vanguard Mutual Funds | $12,768,334 | $(11,205,954 | ) | ||
| PMA Capital Corporation Stock Fund | (1,031,726 | ) | (458,910 | ) | |
| Total | $11,736,608 | $(11,664,864 | ) | ||
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PMA CAPITAL CORPORATION 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
Investments at December 31 are as follows:
| 2003 | ||||||||
| UNITS/ SHARES | FAIR VALUE | |||||||
| Vanguard Retirement Savings Trust | 20,739,289 | $ | 20,739,290 | * | ||||
| Vanguard 500 Index Fund | 168,400 | 17,289,577 | * | |||||
| Vanguard Morgan Growth Fund | 920,551 | 13,688,589 | * | |||||
| Vanguard STAR Fund | 730,773 | 12,569,288 | * | |||||
| Vanguard Windsor II Fund | 398,577 | 10,558,299 | * | |||||
| Vanguard Total Bond Market Index Fund | 531,802 | 5,482,877 | * | |||||
| Vanguard International Growth Fund | 183,188 | 2,954,818 | ||||||
| Vanguard Explorer Fund | 34,926 | 2,291,812 | ||||||
| Vanguard Extended Market Index Fund | 54,150 | 1,443,633 | ||||||
| Vanguard Total International Stock Index Fund | 24,014 | 255,507 | ||||||
| PMA Capital Corporation Stock Fund | 199,578 | 1,021,837 | ||||||
| Total | $ | 88,295,527 | ||||||
| 2002 | ||||||||
| UNITS/ SHARES | FAIR VALUE | |||||||
| Vanguard Retirement Savings Trust | 18,879,828 | $ | 18,879,828 | * | ||||
| Vanguard 500 Index Fund | 155,946 | 12,654,980 | * | |||||
| Vanguard Morgan Growth Fund | 882,256 | 9,837,151 | * | |||||
| Vanguard STAR Fund | 689,020 | 9,887,434 | * | |||||
| Vanguard Windsor II Fund | 383,973 | 7,986,642 | * | |||||
| Vanguard Total Bond Market Index Fund | 482,178 | 5,005,009 | * | |||||
| Vanguard International Growth Fund | 167,154 | 2,032,589 | ||||||
| Vanguard Explorer Fund | 26,131 | 1,188,683 | ||||||
| Vanguard Extended Market Index Fund | 36,078 | 676,095 | ||||||
| Vanguard Total International Stock Index Fund | 15,942 | 123,073 | ||||||
| PMA Capital Corporation Stock Fund | 113,279 | 1,623,291 | ||||||
| Total | $ | 69,894,775 | ||||||
*Indicates that investment is in excess of 5% of net assets available for the plan benefits as of December 31, 2003 and 2002, as applicable.
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PMA CAPITAL CORPORATION 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
4. Related Party Transactions
The Plan invests in shares of mutual funds managed by an affiliate of Vanguard Fiduciary Trust Company (“VFTC”). VFTC acts as trustee for only those investments as defined by the Plan. Transactions in such investments qualify as party-in-interest transactions which are exempt from the prohibited transactions rules.
5. Plan Termination
Although it has not expressed any intent to do so, the Company has the right under the Plan to discontinue its contributions at any time and to terminate the Plan subject to the provisions of ERISA. In the event of Plan termination, participants would become 100 percent vested in their employer contributions.
6. Tax Status
The IRS has determined and informed the Company by a letter dated April 10, 2002 that the Plan is qualified as to form under the appropriate sections of the IRC. Accordingly, the trust established under the Plan is tax-exempt.
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PMA CAPITAL CORPORATION 401(k) PLAN
Schedule H, Line 4i — Schedule of Assets (Held at End of Year)
as of December 31, 2003
| Description of Investment | Current Value | ||
| Tax-Exempt Collective Trust | |||
| Vanguard Retirement Savings Trust* | $20,739,290 | ||
| Registered Investment Companies | |||
| Vanguard 500 Index Fund* | 17,289,577 | ||
| Vanguard Morgan Growth Fund* | 13,688,589 | ||
| Vanguard STAR Fund* | 12,569,288 | ||
| Vanguard Windsor II Fund* | 10,558,299 | ||
| Vanguard Total Bond Market Index Fund* | 5,482,877 | ||
| Vanguard International Growth Fund* | 2,954,818 | ||
| Vanguard Explorer Fund* | 2,291,812 | ||
| Vanguard Extended Market Index Fund* | 1,443,633 | ||
| Vanguard Total International Stock Index Fund* | 255,507 | ||
| Company Stock Fund | |||
| PMA Capital Corporation Stock Fund* | 1,021,837 | ||
| Participant Loans | |||
| (interest rates range from 4.0% to 10.9%)* | 1,994,327 | ||
| Total Investments | $90,289,854 | ||
*Indicates a party-in-interest.
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Exhibits
Exhibits are listed in the Index to Exhibits appearing on page E-1.
Signatures
The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934, the Plan Administrator has duly caused this annual report to be signed on its behalf by the undersigned thereunto duly authorized.
| PMA Capital Corporation 401(k) Plan | ||
| Date: June 28, 2004 | By: /s/ John M. Cochrane | |
| John M. Cochrane | ||
| Plan Administrator |
Index to Exhibits
| Number | Description | Method of Filing |
| 23 | Consent of Independent Accountants | |
| 23.1 | Pricewaterhouse Coopers | Filed herewith |
| 23.2 | Deloitte & Touche | Filed herewith |
E-1