EXHIBIT 99.2
JAMESTOWN INDEMNITY, LTD.
FINANCIAL STATEMENTS AND INDEPENDENT AUDITORS’ REPORT
DECEMBER 31, 2007 AND 2006
JAMESTOWN INDEMNITY, LTD.
CONTENTS
1 2 3 Statements Of Changes In Shareholder’s Equity 4 5 Notes To The Financial Statements 6-8 |
To the Shareholder of Jamestown Indemnity, Ltd.
We have audited the balance sheets of Jamestown Indemnity, Ltd. (the “Company”) as at December 31, 2007 and 2006 and the related statements of earnings, changes in shareholder’s equity and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America as established by the Auditing Standards Board of the American Institute of Certified Public Accountants. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal controls over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also 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, as well as evaluating t he overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Jamestown Indemnity, Ltd. as at December 31, 2007 and 2006 and the results of its operations, changes in shareholder equity’s and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.
This report, including the opinion, has been prepared for and only for the Company’s directors and shareholder as a body and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come except where expressly agreed by our prior consent in writing.
Grand Cayman, Cayman Islands
November 19, 2008
1
BALANCE SHEETS
AS AT DECEMBER 31, 2007 AND 2006
(Expressed in United States dollars) |
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| 2007 |
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| 2006 |
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| Note |
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| US$ |
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| US$ |
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ASSETS |
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Cash and cash equivalents |
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| 4,628,149 |
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| 2,411,988 |
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Restricted cash |
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| 3 |
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| 5,000,000 |
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| 5,000,000 |
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Insurance balance receivable |
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| 819,500 |
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| –– |
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Prepayments |
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| 10,919 |
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| 11,466 |
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Total Assets |
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| US$ | 10,458,568 |
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| US$ | 7,423,454 |
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LIABILITIES AND SHAREHOLDER’S EQUITY |
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LIABILITIES |
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Accounts payable and accruals |
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| 37,138 |
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| 39,750 |
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Unearned premium reserve |
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| 819,500 |
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| 787,000 |
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Losses payable |
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| 62,029 |
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| 78,911 |
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Outstanding loss reserves |
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| 4 |
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| 6,941,365 |
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| 5,085,693 |
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Total liabilities |
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| 7,860,032 |
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| 5,991,354 |
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SHAREHOLDER’S EQUITY |
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Share capital |
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| 5 |
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| 250 |
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| 250 |
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Contributed surplus |
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| 7 |
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| 765,000 |
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| 765,000 |
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Share premium |
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| 6 |
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| 249,750 |
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| 249,750 |
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Retained earnings |
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| 1,583,536 |
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| 417,100 |
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Total shareholder’s equity |
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| 2,598,536 |
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| 1,432,100 |
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Total liabilities and shareholder’s equity |
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| US$ | 10,458,568 |
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| US$ | 7,423,454 |
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See accompanying notes to the financial statements.
2
STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
(Expressed in United States dollars) |
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| 2007 |
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| 2006 |
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| Note |
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| US$ |
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| US$ |
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UNDERWRITING INCOME |
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Premiums written |
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| 3,278,000 |
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| 3,148,000 |
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Movement in unearned premiums |
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| (32,500 | ) |
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| 13,000 |
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Total underwriting income |
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| 3,245,500 |
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| 3,161,000 |
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UNDERWRITING EXPENSES |
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Claims paid and expenses |
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| 4 |
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| 567,489 |
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| 98,776 |
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Change in outstanding loss reserves |
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| 1,855,672 |
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| 2,764,665 |
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| 4 |
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| 2,423,161 |
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| 2,863,441 |
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Net underwriting income |
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| 822,339 |
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| 297,559 |
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ADMINISTRATION EXPENSES |
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Management fees |
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| 35,000 |
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| 35,000 |
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Actuarial fees |
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| 18,934 |
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| 43,765 |
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Letter of credit charges |
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| 17,906 |
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| 9,135 |
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Audit fees |
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| 12,057 |
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| 12,068 |
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Government fees |
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| 9,750 |
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| 9,354 |
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Registered office fees |
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| 1,200 |
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| 800 |
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Bank charges |
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| 620 |
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| 700 |
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Communication expenses |
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| 518 |
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| 661 |
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Legal fees |
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| –– |
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| 3,985 |
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| 95,985 |
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| 115,468 |
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Bank interest income |
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| 440,082 |
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| 198,391 |
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NET PROFIT |
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| 1,166,436 |
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| 380,482 |
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See accompanying notes to the financial statements.
3
STATEMENTS OF CHANGES IN SHAREHOLDER’S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
(Expressed in United States dollars) |
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| Retained |
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| Share |
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| Contributed |
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| Share | |||||
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| Total |
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| earnings |
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| premium |
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| surplus |
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| capital | |||||
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| US$ |
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| US$ |
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| US$ |
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Balance as at |
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| 801,618 |
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| 36,618 |
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| 249,750 |
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| 515,000 |
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| 250 |
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Contributed surplus |
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| 250,000 |
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| –– |
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| –– |
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| 250,000 |
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| –– |
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Net profit for year |
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| 380,482 |
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| 380,482 |
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| –– |
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| –– |
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| –– |
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Balance as at |
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| 1,432,100 |
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| 417,100 |
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| 249,750 |
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| 765,000 |
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| 250 |
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Net profit for year |
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| 1,166,436 |
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| 1,166,436 |
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| –– |
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| –– |
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| –– |
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Balance as at |
| US$ | 2,598,536 |
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| US$ | 1,583,536 |
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| US$ | 249,750 |
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| US$ | 765,000 |
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| US$ | 250 |
See accompanying notes to the financial statements.
4
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
(Expressed in United States dollars) |
| 2007 |
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| 2006 |
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| US$ |
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| US$ |
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Operating activities |
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Net profit |
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| 1,166,436 |
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| 380,482 |
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Adjustments to reconcile net income to net cash |
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Restricted cash |
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| –– |
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| (2,500,000 | ) |
Insurance balance receivable |
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| (819,500 | ) |
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| –– |
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Prepayments |
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| 547 |
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| (2,356 | ) |
Accounts payable and accruals |
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| (2,612 | ) |
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| 29,250 |
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Unearned premium reserve |
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| 32,500 |
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| (13,000 | ) |
Losses payable |
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| (16,882 | ) |
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| 78,655 |
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Outstanding loss reserves |
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| 1,855,672 |
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| 2,764,665 |
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Cash provided by operating activities |
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| 2,216,161 |
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| 737,696 |
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Financing activities |
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Addition to contributed surplus |
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| –– |
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| 250,000 |
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Cash provided by financing activities |
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| –– |
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| 250,000 |
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Net increase in cash and cash equivalents |
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| 2,216,161 |
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| 987,696 |
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Cash and cash equivalents at beginning of year |
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| 2,411,988 |
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| 1,424,292 |
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Cash and cash equivalents at end of year |
| US$ | 4,628,149 |
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| US$ | 2,411,988 |
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See accompanying notes to the financial statements.
5
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
(Expressed in United States dollars)
1.
INCORPORATION AND PRINCIPAL ACTIVITY
Jamestown Indemnity, Ltd (the “Company”) was originally incorporated as Caduceus Ltd on April 29, 2005 under the Companies Law of the Cayman Islands. The Company changed its name and on September 6, 2005 and obtained an Unrestricted Class “B” Insurer’s License, subject to the provisions of the Cayman Islands Insurance Law.
The Company is a wholly owned subsidiary of Medical Doctors Association, Inc (the “Parent”), a national solution provider to hospitals and healthcare organizations, based in the United States of America. The Parent company provides locum tenens and contract staffing for all specialties with an emphasis on pediatrics, primary care, surgical specialties, psychiatry, anesthesiology, radiology, and emergency medicine. The Parent conducts business throughout the United States of America.
The Company provides medical professional liability reinsurance, which follows the fortunes of an underlying insurance policy of its Parent and its Parent’s controlled or associated entities for medical professional liability insurance. In most states of the USA the underlying policy has a deductible of the first US$500,000 of each occurrence, inclusive of defense costs, and it reinsures that risk with the Company. The Company’s reinsurance policy is a deductible buy-back reinsurance policy. The Company’s reinsurance policies cover the periods from April 1, 2006 to April 1, 2007 and for the period from April 1, 2007 to April 1, 2008.
2.
PRINCIPAL ACCOUNTING POLICIES
The financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. While management believes that the amounts included in the financial statements reflect the Company’s best estimates and assumptions, actual results could differ from these estimates. The principal accounting policies are as follows:
Insurance premiums written
Insurance premiums are recognized as income over the period covered by the insurance policy. The portion of insurance premiums that will be carried in the future are deferred and reported as unearned premium reserve.
Outstanding loss reserves
The Company provides medical professional liability insurance, the nature of which produces an inherent difficulty in quantifying the ultimate cost of settlement of losses which may result from claims on the Company.
The provision for outstanding loss reserves includes an amount for outstanding claims determined from reports and individual cases and an amount based upon estimates by the directors and management for losses incurred but not reported. Such liabilities are necessarily based on estimates and the ultimate cost may be in excess of, or less than, the amounts provided. The methods of making such estimates and for establishing the resulting provision are continually reviewed and any resulting adjustments are reflected in earnings at the time the adjustments are known.
The Company’s liability for losses is ultimately based on management’s expectations of future events, supported by an actuarial review. It is reasonably possible that the expectations associated with these amounts could change in the near term (i.e., within one year) and that the effect of such changes could be material to the financial statements.
6
JAMESTOWN INDEMNITY, LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
(Expressed in United States dollars)
2.
PRINCIPAL ACCOUNTING POLICIES (continued)
Cashand cash equivalents
The Company considers all highly liquid investments with a maturity of three months or less when purchased, to be cash equivalents.
3.
RESTRICTED CASH
Under the terms of the Company’s reinsurance policy it is required to guarantee the payment of claims to its insured parties via a letter of credit. At December 31, 2007 the value of this letter of credit amounted to US$5,000,000 (2006: US$5,000,000) which is secured against the cash held in a restricted account.
4.
OUTSTANDING LOSS RESERVES
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| 2007 |
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| 2006 |
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| US$ |
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| US$ |
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Provision for losses incurred |
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Outstanding case reserves |
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| 558,970 |
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| 77,528 |
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Incurred but not reported reserve |
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| 6,382,395 |
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| 5,008,165 |
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| 6,941,365 |
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| 5,085,693 |
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Activity for the outstanding loss provision is summarized as follows: |
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Balance at beginning of year |
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| 5,085,693 |
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| 2,321,028 |
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Incurred related to: |
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Current period |
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| 1,766,134 |
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| 2,412,593 |
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Prior period |
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| 657,027 |
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| 450,848 |
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| 2,423,161 |
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| 2,863,441 |
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Paid related to: |
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Current period |
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| (58,321 | ) |
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| –– |
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Prior period |
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| (509,168 | ) |
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| (98,776 | ) |
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| (567,489 | ) |
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| (98,776 | ) |
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| US$ | 6,941,365 |
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| US$ | 5,085,693 |
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5.
SHARE CAPITAL
| 2007 |
| 2006 | ||
| US$ |
| US$ | ||
Authorized |
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50,000 shares of US$1.00 each | US$ | 50,000 |
| US$ | 50,000 |
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Issued and fully paid |
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250 shares of US$1.00 each | US$ | 250 |
| US$ | 250 |
7
JAMESTOWN INDEMNITY, LTD.
NOTES TO THE FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
(Expressed in United States dollars)
6.
SHARE PREMIUM
This balance represents the excess of the proceeds of issuing shares acquired over and above the par value of the shares.
7.
CONTRIBUTED SURPLUS
This balance represents additional funds paid into the Company by its Parent, in order to increase the Company’s capitalization, and therefore enable it to write a larger policy premium.
8.
FAIR VALUE DISCLOSURE OF FINANCIAL INSTRUMENTS
United States accounting standards require all entities to disclose the fair value of financial instruments, both assets and liabilities that are recognized and not recognized in the balance sheet for which it is practicable to estimate fair value.
Fair value estimates are made at a specific point in time, based on market conditions and information about the financial instruments. These estimates are subjective in nature and involve uncertainties and matters of significant judgement and therefore, cannot be determined with precision. Changes in assumptions could significantly affect the estimates.
Financial instruments which potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents, restricted cash, insurance balances receivable, accounts payable, accruals, losses payable and outstanding loss reserves. Management does not anticipate any material losses from any concentrations of credit risk and has mitigated its risk by choosing two major international banks located in the United States of America and the Cayman Islands.
9.
TAXATION
Presently no taxation is imposed on income or capital gains the Cayman Islands. Accordingly, no taxation has been recorded in the financial statements.
10.
RELATED PARTIES
The Company’s directors hold positions with the Company’s Parent in the roles of executive vice president, chief financial officer, and as a board member.
11.
CONCENTRATION OF RISK AND ECONOMIC DEPENDENCE
As described in Note 1, the premium written is in respect of related parties. The Company is considered to be economically dependent on its Parent.
12.
SUBSEQUENT EVENTS
On September 9, 2008, 100% of the share capital of the Company was transferred from MDA Holdings, Inc. (formerly known as Medical Doctor Associates, Inc.) to StoneCo H, Inc. StoneCo H, Inc. was subsequently renamed as MDA Holdings, Inc. MDA Holdings, Inc. (formerly known as StoneCo H, Inc.) is 100% owned by the new ultimate parent, Cross Country Healthcare, Inc.
8