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Bermuda | 6331 | N/A | ||
(State or other jurisdiction of incorporation or organization) | (Primary Standard Industrial Classification Code Number) | (IRS Employer Identification Number) |
Peter S. Kolevzon, Esq. Kramer Levin Naftalis & Frankel LLP 1177 Avenue of the Americas New York, New York 10036 (212) 715-9100 | Brian J. Fahrney, Esq. Sean M. Carney, Esq. Sidley Austin LLP One South Dearborn Chicago, Illinois 60603 (312) 853-7000 |
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The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. |
Per Share | Total | |||||||
Price to public | $ | $ | ||||||
Underwriting discounts and commissions | $ | $ | ||||||
Proceeds, before expenses, to selling shareholders | $ | $ |
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EX-1.1: FORM OF UNDERWRITING AGREEMENT | ||||||||
EX-5.1: OPINION OF APPLEBY HUNTER BAILHACHE | ||||||||
EX-23.1: CONSENT OF JOHNSON LAMBERT & CO. | ||||||||
EX-23.2: CONSENT OF DELOITTE & TOUCHE LLP |
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This summary highlights information contained elsewhere in this prospectus. While we have highlighted what we believe is important information about us and this offering in this summary, it does not contain all of the information that you should consider before investing in us. You should read the entire prospectus carefully, including the sections entitled “Risk Factors” and “Cautionary Note Regarding Forward-Looking Statements” and the financial statements and the related notes contained in this prospectus before making an investment decision. |
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• | Continue to Grow our Fee-Based Business. We believe that our underwriting expertise, loss control, claims management and audit services position us to continue the growth we have experienced in the California self-insured market during our three-year history there. In California, this should occur through both an increase in membership in our existing groups and through an increase in the number of groups we manage. In New York, we believe growth will result from an increase in the membership in our groups. | |
• | Use our Expanded Broker Network to Offer a Broader Line of Products. With our acquisition of Majestic, we intend to provide both our existing broker network and Majestic’s broker network with the ability to offer workers’ compensation insurance products for self-insured groups as well as traditional workers’ compensation coverage. | |
• | Expand our Reinsurance Business. By growing our fee-based business and managing a larger premium base paid by the members of the self-insured groups, we will have access to a larger amount of excess coverage premium. Currently, we reinsure a portion of the excess coverage provided to our managed groups by Majestic, our wholly-owned subsidiary, and NY Marine & General. We intend to offer excess coverage policies through Majestic to those groups which currently obtain their excess coverage from NY Marine & General as those groups renew their excess coverage policies during 2007. | |
• | Provide Traditional Workers’ Compensation Insurance through Independent Insurance Brokers and Agents to Insureds. Our recent acquisition of Majestic allows us to offer workers’ compensation coverage to insureds that prefer traditional workers’ compensation coverage or do not meet the criteria of our existing managed groups, but have attractivepremium-to-risk profiles. The recent upgrade of Majestic’s financial strength rating to an “A-” by A.M. Best provides a larger universe of market opportunities. We expect that Majestic will begin to write traditional workers’ compensation coverage in New York during 2007 and we believe that our experience with managing our groups in New York will allow us to successfully penetrate that market. | |
• | Diversify our Business Geographically. Prior to our acquisition of Majestic, our overall business was concentrated in the states of New York and, to a lesser extent, California, and consequently, our financial performance was substantially affected by changes in those workers’ compensation markets. Our acquisition of Majestic provides us with an enhanced presence in California as well as the ability to expand our insurance activities to a number of other states in which Majestic is licensed as an insurer. In addition, we have identified other states that we believe could represent new market opportunities for our self-insured group product. One such state is Texas, where we recently formed a self-insured group for the printing and publishing industry. | |
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• | Expansion of our Medical Bill Review and Case Management Services. We have recently secured new clients for our medical bill review and case management services and have identified and are currently negotiating arrangements with additional prospects with which we have no pre-existing relationship. We also intend to offer our management services on an integrated basis to individual self-insured entities. We believe that offering our management services to self-insured entities requires the same analysis as offering our services to self-insured groups and does not involve any different risks or uncertainties than are applicable to our existing management services business. | |
• | New Business Lines. We intend to explore developing and offering non-workers’ compensation property and casualty insurance products to carefully selected members of the groups we manage and other insureds outside of our groups. If we develop and offer these products, we expect to underwrite this insurance through Majestic provided that Majestic possesses, or successfully obtains, any licenses required to write such business. We believe that our ability to offer these additional insurance products to members of our groups will enable us to compete more effectively with commercial insurers that provide property and casualty insurance products together with workers’ compensation insurance as a comprehensive package. Further, if we ultimately develop and offer these insurance products, Twin Bridges may reinsure a portion of these risks. | |
• | We may experience difficulty in integrating our recent acquisition of Embarcadero into our operations and we may not realize the anticipated benefits of the acquisition. | |
• | Our groups may be unable to continue to obtain excess coverage on favorable terms or we may not be offered the opportunity to reinsure a portion of the excess coverage on favorable terms. | |
• | Our loss reserves may be inadequate to cover actual losses. | |
• | Groups we manage could conclude that our acting as manager of the groups and reinsurance broker for our groups, while also reinsuring a portion of the excess coverage, presents an unacceptable conflict of interest. | |
• | We face intense competition and may lose one or more of our managed groups or key members of a group, or our groups may determine to obtain excess coverage insurance from insurers that do not offer us the opportunity to provide reinsurance of any portion of this excess coverage. | |
• | We are exposed to economic and regulatory risks of conducting business only in New York, California and Texas. | |
• | Our reinsurance business and the groups we manage in California and Texas have limited operating histories, and it is difficult to predict their future performance. | |
• | A downgrade in Majestic’s A.M. Best rating would negatively affect our business. | |
• | Our business is subject to extensive regulation. | |
• | An inability to obtain or collect on our reinsurance protection could negatively affect our business. |
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Common shares offered by the selling shareholders | 2,882,643 shares | |
Common shares to be outstanding immediately after this offering, including 395,000 Class B shares | 16,273,367 shares including 395,000 shares which will be issued in exchange for 395,000 Class B shares held by a selling shareholder immediately prior to this offering. | |
Use of net proceeds | We will not receive any proceeds from this offering. | |
Dividend Policy | We do not presently intend to declare dividends on our common shares. See “Dividend Policy.” | |
Trading | Our common shares are listed for quotation on the Nasdaq Global Select Market under the symbol “CRMH.” | |
Voting limitation | Our bye-laws contain a provision limiting the voting rights of a U.S. person, as defined in the U.S. Internal Revenue Code of 1986, as amended, or “the Code,” who owns (directly, indirectly or constructively under the Code) shares representing more than 9.9% of the total voting power of all shares entitled to vote generally in an election of directors to 9.9% of the total voting power. | |
Risk Factors | Investing in our common shares involves risks. See “Risk Factors.” |
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Nine Months Ended | |||||||||||||||||||||||||||||||
September 30, | Years Ended December 31, | ||||||||||||||||||||||||||||||
Summary | |||||||||||||||||||||||||||||||
Income Statement Information | 2006 | 2005 | 2005 | 2004 | 2003 | 2002 | 2001 | ||||||||||||||||||||||||
(Dollar amounts in thousands except per share amounts) | |||||||||||||||||||||||||||||||
Revenues | |||||||||||||||||||||||||||||||
Fee-based management services | $ | 29,656 | $ | 26,200 | $ | 36,495 | $ | 27,656 | $ | 20,821 | $ | 17,614 | $ | 7,967 | |||||||||||||||||
Net reinsurance premiums earned | 16,200 | 5,295 | 8,362 | 5,110 | 253 | — | — | ||||||||||||||||||||||||
Investment income | 2,584 | 115 | 210 | 54 | 16 | 37 | 13 | ||||||||||||||||||||||||
Total revenues | 48,440 | 31,610 | 45,067 | 32,820 | 21,090 | 17,651 | 7,980 | ||||||||||||||||||||||||
Expenses | |||||||||||||||||||||||||||||||
Losses and loss adjustment expenses | 4,495 | 2,269 | 3,584 | 2,528 | 168 | — | — | ||||||||||||||||||||||||
Fees paid to general agents and brokers | 7,927 | 8,444 | 11,490 | 9,507 | 7,830 | 7,651 | 3,615 | ||||||||||||||||||||||||
Selling, general and administrative expenses | 19,992 | 13,970 | 20,076 | 13,441 | 9,240 | 6,471 | 3,140 | ||||||||||||||||||||||||
Policy acquisition costs and other expenses | 4,870 | 1,608 | 2,579 | 1,538 | 121 | 33 | 21 | ||||||||||||||||||||||||
Total expenses | 37,284 | 26,291 | 37,729 | 27,014 | 17,359 | 14,155 | 6,776 | ||||||||||||||||||||||||
Income before taxes | 11,156 | 5,319 | 7,338 | 5,806 | 3,731 | 3,496 | 1,204 | ||||||||||||||||||||||||
Provision for income taxes | 1,067 | — | 63 | — | — | — | — | ||||||||||||||||||||||||
Net income | 10,089 | 5,319 | 7,275 | 5,806 | 3,731 | 3,496 | 1,204 | ||||||||||||||||||||||||
Pro forma provision for income taxes(1) | — | 1,498 | 2,160 | 1,869 | 1,437 | 1,328 | 458 | ||||||||||||||||||||||||
Pro forma net income | $ | — | $ | 3,821 | $ | 5,115 | $ | 3,937 | $ | 2,294 | $ | 2,168 | $ | 746 | |||||||||||||||||
Pro forma basic and fully diluted earnings per share(2) | $ | 0.62 | $ | 0.37 | $ | 0.49 | $ | 0.38 | $ | 0.22 | $ | 0.21 | $ | 0.07 | |||||||||||||||||
Pro forma adjusted earnings per share(3) | — | $ | 0.37 | $ | 0.49 | ||||||||||||||||||||||||||
Pro forma cash dividends declared per common share | — | $ | 0.65 | $ | 0.76 | $ | 0.37 | $ | 0.66 | $ | 0.34 | $ | 0.03 | ||||||||||||||||||
Weighted average common shares outstanding(2) | 16,247 | 10,247 | 10,428 | 10,247 | 10,247 | 10,247 | 10,247 | ||||||||||||||||||||||||
Weighted average fully diluted shares outstanding(2) | 16,252 | 10,247 | 10,431 | 10,247 | 10,247 | 10,247 | 10,247 |
Nine Months | ||||||||||||||||||||
Ended | Years Ended | |||||||||||||||||||
September 30, | December 31, | |||||||||||||||||||
2006 | 2005 | 2005 | 2004 | 2003 | ||||||||||||||||
Loss and loss adjustment expense ratio(4) | 27.7% | 42.9% | 42.9% | 49.5% | 66.4% | |||||||||||||||
Expense ratio(5) | 32.6% | 32.8% | 34.3% | 33.6% | 54.2% | |||||||||||||||
Combined ratio on net reinsurance premiums(6) | 60.3% | 75.7% | 77.2% | 83.1% | 120.6% |
(1) | Prior to our initial public offering on December 27, 2005, CRM and Eimar were organized as stand alone limited liability companies and were not subject to U.S. federal income tax on their respective earnings. The pro forma results assume that those earnings attributed to our U.S. subsidiaries were fully taxable at a 38% effective tax rate prior to January 1, 2005 and a 40% effective tax rate thereafter. |
(2) | 10,247 shares of our common and Class B shares issued to the former owners of CRM, Eimar and Twin Bridges are assumed to be outstanding for all periods presented prior to our initial public offering. |
(3) | Based on 10,442 and 10,474 common shares outstanding for the nine months ended September 30, 2005 and the year ended December 31, 2005, respectively, after including 195 and 47 common shares representing the excess of distributions over net income for the respective periods. |
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(4) | The loss and loss adjustment expense ratio of our reinsurance segment is the quotient computed by dividing net loss and loss adjustment expense incurred in the period by net reinsurance premiums earned during the period. |
(5) | The expense ratio of our reinsurance segment is the quotient computed by dividing the sum of policy acquisition costs and other operating expenses allocated to our reinsurance segment incurred during the period by net reinsurance premiums earned during the period. |
(6) | The combined ratio on net reinsurance premiums of our reinsurance segment is the sum of the loss and loss adjustment expense ratio and the expense ratio for the period. |
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As of September 30, | As of December 31, | ||||||||||||||||||||||||||||
2006 | 2005 | 2005 | 2004 | 2003 | 2002 | 2001 | |||||||||||||||||||||||
(Dollar amounts in thousands) | |||||||||||||||||||||||||||||
Assets | |||||||||||||||||||||||||||||
Cash and investments | $ | 82,466 | $ | 7,763 | $ | 76,993 | $ | 5,975 | $ | 1,660 | $ | 4,644 | $ | 2,342 | |||||||||||||||
Premiums receivable, net | 13,082 | 3,565 | 2,648 | 3,758 | 2,140 | — | 388 | ||||||||||||||||||||||
Accounts receivable | 5,081 | 2,011 | 2,067 | 41 | — | — | — | ||||||||||||||||||||||
Deferred policy acquisition costs | 2,706 | 919 | 442 | 1,414 | 824 | — | — | ||||||||||||||||||||||
Other assets | 2,350 | 3,368 | 1,766 | 1,537 | 1,260 | 2,160 | 272 | ||||||||||||||||||||||
Total assets | $ | 105,684 | $ | 17,627 | $ | 83,916 | $ | 12,724 | $ | 5,882 | $ | 6,804 | $ | 3,002 | |||||||||||||||
Liabilities and shareholders’ and members’ equity | |||||||||||||||||||||||||||||
Reserve for losses and loss adjustment expenses | $ | 10,774 | $ | 4,965 | $ | 6,280 | $ | 2,696 | $ | 168 | $ | — | $ | — | |||||||||||||||
Unearned reinsurance premiums | 8,969 | 3,106 | 1,494 | 4,780 | 2,785 | — | — | ||||||||||||||||||||||
Unearned fee-based management services | 935 | 3,206 | 1,319 | 3,005 | 2,861 | 3,952 | 1,486 | ||||||||||||||||||||||
Accrued expenses and other liabilities | 5,605 | 6,903 | 5,893 | 1,356 | 1,232 | 1,959 | 620 | ||||||||||||||||||||||
Total liabilities | 26,284 | 18,181 | 14,986 | 11,836 | 7,046 | 5,910 | 2,106 | ||||||||||||||||||||||
Common stock and paid-in capital | 66,605 | 1,000 | 66,220 | 1,000 | 1,000 | — | — | ||||||||||||||||||||||
Retained earnings | 12,795 | 2,212 | 2,711 | 835 | (51 | ) | — | — | |||||||||||||||||||||
LLC members’ (deficit) equity | — | (3,767 | ) | — | (947 | ) | (2,113 | ) | 894 | 897 | |||||||||||||||||||
Total shareholders’ and members’ equity (deficit) | 79,400 | (554 | ) | 68,930 | 888 | (1,164 | ) | 894 | 897 | ||||||||||||||||||||
Total liabilities and shareholders’ and members’ equity | $ | 105,684 | $ | 17,627 | $ | 83,916 | $ | 12,724 | $ | 5,882 | $ | 6,804 | $ | 3,002 | |||||||||||||||
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We may experience difficulty in integrating our recent acquisition of Embarcadero into our operations and we may not realize the anticipated benefits of the acquisition. |
• | the diversion of management’s attention from our core businesses; | |
• | the disruption of our ongoing business; | |
• | entry into markets in which we have limited or no experience; | |
• | the ability to integrate the acquisition without substantial costs, delays or other problems; | |
• | managing a much larger combined business, including implementing adequate internal controls; | |
• | inaccurate assessment of undisclosed liabilities; | |
• | a failure to accurately assess the risks associated with the businesses that Majestic, Embarcadero’s wholly-owned subsidiary, has insured and loss reserves that are inadequate to cover actual losses; | |
• | the incorporation of and development of diversified workers’ compensation insurance products; | |
• | the failure to realize expected synergies and costs savings; | |
• | the loss of key employees or customers of the acquired business; | |
• | increasing demands on our operational systems; and | |
• | possible adverse effects on our reported operating results. |
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We depend on our reinsurance business for a substantial portion of our revenues and profits and we could be adversely affected if we are not able to maintain or increase this business. |
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If we do not effectively price our insurance policies, our financial results will be adversely affected |
Our financial condition and results of operation could be adversely affected by our failure to establish adequate loss and loss adjustment expense reserves. |
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Twin Bridges is a reinsurer of Majestic. Consequently, we may be exposed to a greater share of certain losses. |
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A downgrade in the A.M. Best rating of our insurance subsidiary could reduce the amount of business we are able to write. |
We may pursue opportunities to offer other insurance products to the members of our managed groups and others; any failure to manage the risks involved could have a material adverse effect on our business. |
• | greater loss exposure, especially if we fail to successfully manage or underwrite this new business; | |
• | the diversion of management’s attention; | |
• | an increase in our expenses and working capital requirements; | |
• | the need to hire additional marketing personnel, underwriters, claims personnel and other staff dedicated to the new lines of business; and | |
• | the need to obtain required licenses to issue non-workers’ compensation property and casualty products and additional regulatory approvals, if required by applicable laws. |
If we are unable to obtain or collect on our reinsurance protection, our business, financial condition and results of operations could be materially and adversely affected. |
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As we and our groups offer workers’ compensation insurance and reinsurance only, negative developments in this industry would adversely affect our business. |
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Twin Bridges is subject to extensive regulation in Bermuda that may adversely affect its ability to achieve its business objectives. If Twin Bridges fails to comply with these regulations, it may be subject to penalties, including fines, suspensions and withdrawal of its insurance license. |
• | not to take on any new insurance business; | |
• | not to vary any insurance contract if the effect would be to increase the insurer’s liabilities; | |
• | not to make certain investments; | |
• | to realize certain investments; | |
• | to maintain in, or transfer to the custody of, a specified bank, certain assets; | |
• | not to declare or pay any dividends or other distributions or to restrict the making of such payments; and/or | |
• | to limit its premium income. |
Majestic is subject to minimum capital and surplus requirements. Failure to meet these requirements could subject Majestic to regulatory action. |
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We are dependent upon a number of our larger managed groups, and any failure to retain our management agreements with these groups would adversely impact our business. |
Two of our groups, including HITNY, our largest group, are significantly underfunded. |
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We may be deemed to have a conflict of interest in concurrently managing groups and placing excess coverage for these groups with Majestic or another U.S. admitted insurer that cedes a part of this excess coverage to Twin Bridges. |
Due to the joint and several liability of New York and California self-insured groups, the failure of any self-insured group in the state of New York or California could adversely affect our group management business. |
Our groups are dependent on obtaining excess coverage for the workers’ compensation coverage they provide to their members and the loss of excess coverage would adversely affect our business. |
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If we underestimate the liabilities incurred by the groups we manage, our business could be adversely affected. |
Our groups in California employ third party administrators, or TPAs, to manage claims, and the failure to maintain these services could adversely affect our business. |
We are developing a program to offer fee-based services to third-party entities with which we have nopre-existing relationships. We could fail to successfully market and provide these services to third parties. |
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Our fee-based management services business may expose us to liability in excess of our current insurance coverage. |
Our revenues may decrease if our insured groups obtain reduced rates under their management agreements with us. |
The regulations applicable to workers’ compensation self-insured groups and insurance brokers are undergoing review and are subject to change in New York, California and Texas, and we may be adversely affected by any changes in those regulations. |
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We and our groups are exposed to the credit risk of the reinsurers who provide excess coverage. |
Our geographic concentration ties our performance to the business, economic and regulatory conditions in New York and California and any changes in those conditions could adversely affect our business. |
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Our business is heavily dependent upon independent general agents and brokers with whom we do not have exclusive relationships and the loss of any of these important relationships would adversely affect our business. |
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We and the groups we manage face intense competition from a large number of companies in the workers’ compensation insurance business and in the reinsurance business and we may be unable to compete effectively, which would have a material adverse effect on our businesses. |
• | the state funds in New York, California and Texas; | |
• | specialty, regional and major insurers in New York, California and Texas, such as American International Group, Inc., Chubb Group of Insurance Companies, Zurich Financial Services, Utica National Insurance Group, Greater New York Mutual Insurance Company, Travelers Insurance Group Holdings Inc., Liberty Mutual Insurance Company and Hartford Financial Services Group Inc, Employers Direct Insurance Company, Redwood Fire & Casualty Insurance Co., Republic Companies Group, Inc., Redlands Insurance Co., St. Paul Travelers, Zenith National Insurance Corp, National Liability and Fire Insurance Company, Preferred Employers, SeaBright Insurance Company, CompWest Insurance Company, Employers Compensation Insurance Company of California, Everest Insurance Company, American International Group, Inc., Chubb Group of Insurance Companies, ICW Group and The Hartford Financial Services Group, Inc.; and | |
• | groups managed by other group administrators, such as First Cardinal Corporation in New York and Texas, and New York Compensation Managers, Inc. in New York and Bickmore Risk Services in California. | |
We and the groups we manage are subject to extensive regulation in the United States that may adversely affect our ability to achieve our business objectives. If we and our groups do not comply with these regulations, we and they may be subject to penalties, including fines, suspensions, withdrawals of licenses and restrictions on the growth of our groups. |
• | approval of premium, contribution and funding rates; | |
• | ratios of assets to liabilities, credit and risk reserves, net worth levels and standards of solvency; | |
• | formation of groups and licensing as a third-party claims administrator in New York; |
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• | limits on the size and nature of risks assumed and retained, including requiring the purchase of excess coverage for loss above levels established by the applicable state regulatory agency; | |
• | mandatory guidelines for the investment of funds; | |
• | reserves for unearned premium, losses and other purposes; | |
• | periodic audits and other regulatory reviews of the financial statements of the groups, Majestic and Twin Bridges; | |
• | deposits for the benefit of the Chairman of the New York State Workers’ Compensation Board or Director of Industrial Relations of the State of California; | |
• | annual reporting and disclosure agreements; | |
• | limitations on our ability to transact business with our affiliates; | |
• | regulation of mergers, acquisitions and divestitures involving Majestic; | |
• | compliance by Majestic with various licensing requirements and approvals that affect our ability to do business; | |
• | approval or rejection of Majestic’s policy coverage and endorsements; | |
• | limitations on our investments and dividends; | |
• | assessment requirements for the provision of funds necessary for the settlement of covered claims under certain policies provided by impaired, insolvent or failed insurance companies; and | |
• | compliance with medical privacy laws. |
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Our managed groups in California and Texas and our reinsurance business have limited operating histories, and it may be difficult to predict their future performance. |
We may require additional capital in the future, which may not be available on favorable terms or at all. |
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We depend on our key executives, and may not be able to hire and retain additional key employees or successfully integrate new members of our management team and the loss of a key employee could have a material adverse effect on our business. |
A significant amount of our invested assets will be subject to changes in interest rates and market volatility which could adversely affect our financial condition and results of operations. |
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Our profitability may be adversely impacted by inflation. |
Our holding company structure and certain regulatory, tax and other constraints affect our ability to pay dividends, make other payments and redeploy capital among our subsidiaries. |
U.S. withholding tax payable on dividends paid to CRM Holdings by our U.S. subsidiaries affects our ability to pay dividends and redeploy capital. |
Implementation of our growth strategies is subject to numerous risks and difficulties. |
• | identify, recruit and integrate new independent agents; | |
• | properly design and price new and existing products and programs; | |
• | identify profitable new geographic markets and product lines to enter; | |
• | obtain necessary licenses and regulatory approvals; | |
• | as necessary, consider and identify further acquisition candidates and successfully execute and integrate acquisitions we undertake; and | |
• | identify, hire and train new underwriting and claims handling employees. |
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Our business could be adversely affected by Bermuda employment restrictions. |
CRM Holdings could be considered a U.S. corporation for U.S. federal income tax purposes, and thus subject to U.S. tax on its worldwide income (including current income of Twin Bridges), if the value of Twin Bridges at the time of our restructuring did not exceed 20% of the total value of CRM, CRM CA, Eimar and Twin Bridges at that time. |
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We may be deemed to be engaged in a U.S. trade or business or considered to be a personal holding company subject to U.S. tax. |
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We may become subject to taxes in Bermuda after March 28, 2016. |
We may have difficulty managing our growth, which could limit our ability to increase revenues and cash flow. |
• | hiring, retaining and training of new employees; | |
• | integrating the operations of Majestic; | |
• | managing a large organization; | |
• | implementing appropriate operating and financial procedures and systems; | |
• | adopting and implementing appropriate compliance procedures with respect to state insurance regulations; and | |
• | acquiring or leasing additional facilities. |
The insurance and reinsurance business is historically cyclical, and we expect to experience periods with excess underwriting capacity and unfavorable premium rates which could materially and adversely affect our business. |
• | competition; | |
• | rate increases and decreases; | |
• | volatile and unpredictable developments, including frequency of occurrence or severity of catastrophic and other loss events; | |
• | changes in the availability of reinsurance capacity and capital capacity; | |
• | rising loss costs that we cannot anticipate at the time we or our groups price insurance products; and | |
• | other general economic and social conditions. |
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Our groups and Majestic may have exposure to losses from terrorism for which they are required by law to provide coverage. |
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The effects of emerging claim and coverage issues on our business are uncertain and could have a material adverse effect on our financial condition and results of operation. |
Recent insurance industry investigations and regulatory proposals could result in increased regulation that has a material adverse effect on our business. |
The price of our common shares may be volatile and might decline. |
• | quarterly variations in our results of operations; | |
• | results of operations that vary from those expected by securities analysts and investors; | |
• | changes in expectations regarding our future results of operations, including financial estimates by securities analysts and investors; |
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• | announcements by third parties of claims against us; | |
• | changes in law and regulations; | |
• | future sales of our common shares; | |
• | changes in the overall market for our common shares; and | |
• | the performance or prospects for companies in our industry. |
Future sales of common shares by our affiliates and other shareholders or by us may adversely affect the price, and the future exercise of options may lower the price, of our common shares. |
We do not intend to pay dividends on our shares. |
Our failure to implement and maintain adequate internal controls in our business could have a material adverse effect on our business, financial condition, results of operations and stock price. |
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Provisions in our charter documents may reduce or increase the voting power associated with our common shares and thereby affect your voting rights. |
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Anti-takeover provisions in our bye-laws could impede an attempt to replace or remove our directors, which could diminish the value of our common shares. |
• | election of our directors is staggered, meaning that the members of only one of three classes of our directors are elected each year; | |
• | the total voting power of any shareholder owning more than 9.9% of our common shares will be reduced to 9.9% of the total voting power of our common shares; and | |
• | our directors may, in their discretion, decline to record the transfer of any common shares on our share register if the shares have not been fully paid for, if the directors are not satisfied that all required regulatory approvals for such transfer have been obtained, if as a result of the transfer a shareholder would own more than 9.9% of our common shares, or if the instrument of transfer is in favor of more than five persons jointly. |
Our principal shareholders have the ability to significantly influence our business, which may be disadvantageous to other shareholders and adversely affect the price of our common shares. |
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U.S. persons who own our common shares may have more difficulty protecting their interests than U.S. persons who are shareholders of a U.S. corporation. |
We are a Bermuda company and it may be difficult for you to enforce judgments against us. |
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If you acquire 10% or more of our shares, you may be subject to taxation under the “controlled foreign corporation” rules. |
U.S. persons who hold shares could be subject to adverse tax consequences if we are considered a “passive foreign investment company” for U.S. federal income tax purposes. |
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U.S. persons who hold shares may be subject to U.S. income taxation on their pro rata share of our “related person insurance income.” |
• | Twin Bridges’ gross related person insurance income equals or exceeds 20% of its gross insurance income in any taxable year, | |
• | direct or indirect insureds (and persons related to such insureds) own (or are treated as owning directly or indirectly) 20% or more of the voting power or value of the shares of Twin Bridges, and | |
• | U.S. persons are considered to own in the aggregate 25% or more of the stock of Twin Bridges by vote or value, |
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Changes in U.S. federal income tax law could materially adversely affect an investment in our shares. |
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Period | High | Low | ||||||
Fourth Quarter 2005 (beginning December 21, 2005) | $ | 13.74 | $ | 12.95 | ||||
First Quarter 2006 | $ | 15.35 | $ | 11.15 | ||||
Second Quarter 2006 | $ | 11.97 | $ | 9.81 | ||||
Third Quarter 2006 | $ | 10.79 | $ | 6.57 | ||||
Fourth Quarter 2006 | $ | 10.10 | $ | 6.92 | ||||
First Quarter 2007 (through January 31, 2007) | $ | 9.01 | $ | 8.10 |
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As of September 30, 2006 | |||||
(Unaudited) | |||||
(Dollar amounts in | |||||
thousands except for | |||||
share amounts) | |||||
Debt outstanding: | $ | 45 | |||
Shareholders’ and members’ equity: | |||||
Shares, $0.01 par value per share, 50,000,000,000 shares authorized, 15,457,115 common shares issued and outstanding | $ | 155 | |||
Non-voting Class B shares, $0.01 par value per share, 790,000 shares issued and outstanding | 8 | ||||
Additional paid-in capital | 66,443 | ||||
Retained earnings | 12,806 | ||||
Accumulated other comprehensive income | (11 | ) | |||
Total shareholders’ and members’ equity | 79,400 | ||||
Total capitalization | $ | 79,446 | |||
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Nine Months Ended | ||||||||||||||||||||||||||||||
September 30, | Years Ended December 31, | |||||||||||||||||||||||||||||
Selected | ||||||||||||||||||||||||||||||
Income Statement Information | 2006 | 2005 | 2005 | 2004 | 2003 | 2002 | 2001 | |||||||||||||||||||||||
(Dollar amounts in thousands except per share amounts) | ||||||||||||||||||||||||||||||
Revenues | ||||||||||||||||||||||||||||||
Fee-based management services | $ | 29,656 | $ | 26,200 | $ | 36,495 | $ | 27,656 | $ | 20,821 | $ | 17,614 | $ | 7,967 | ||||||||||||||||
Net reinsurance premiums earned | 16,200 | 5,295 | 8,362 | 5,110 | 253 | — | — | |||||||||||||||||||||||
Investment income | 2,584 | 115 | 210 | 54 | 16 | 37 | 13 | |||||||||||||||||||||||
Total revenues | 48,440 | 31,610 | 45,067 | 32,820 | 21,090 | 17,651 | 7,980 | |||||||||||||||||||||||
Expenses | ||||||||||||||||||||||||||||||
Losses and loss adjustment expenses | 4,495 | 2,269 | 3,584 | 2,528 | 168 | — | — | |||||||||||||||||||||||
Fees paid to general agents and brokers | 7,927 | 8,444 | 11,490 | 9,507 | 7,830 | 7,651 | 3,615 | |||||||||||||||||||||||
Selling, general and administrative expenses | 19,992 | 13,970 | 20,076 | 13,441 | 9,240 | 6,471 | 3,140 | |||||||||||||||||||||||
Policy acquisition costs and other expenses | 4,870 | 1,608 | 2,579 | 1,538 | 121 | 33 | 21 | |||||||||||||||||||||||
Total expenses | 37,284 | 26,291 | 37,729 | 27,014 | 17,359 | 14,155 | 6,776 | |||||||||||||||||||||||
Income before taxes | 11,156 | 5,319 | 7,338 | 5,806 | 3,731 | 3,496 | 1,204 | |||||||||||||||||||||||
Provision for income taxes | 1,067 | — | 63 | — | — | — | — | |||||||||||||||||||||||
Net income | 10,089 | 5,319 | 7,275 | 5,806 | 3,731 | 3,496 | 1,204 | |||||||||||||||||||||||
Pro forma provision for income taxes(1) | — | 1,498 | 2,160 | 1,869 | 1,437 | 1,328 | 458 | |||||||||||||||||||||||
Pro forma net income | $ | — | $ | 3,821 | $ | 5,115 | $ | 3,937 | $ | 2,294 | $ | 2,168 | $ | 746 | ||||||||||||||||
Pro forma basic and fully diluted earnings per share(2) | $ | 0.62 | $ | 0.37 | $ | 0.49 | $ | 0.38 | $ | 0.22 | $ | 0.21 | $ | 0.07 | ||||||||||||||||
Pro forma adjusted earnings per share(3) | — | $ | 0.37 | $ | 0.49 | |||||||||||||||||||||||||
Pro forma cash dividends declared per common share | — | $ | 0.65 | $ | 0.76 | $ | 0.37 | $ | 0.66 | $ | 0.34 | $ | 0.03 | |||||||||||||||||
Weighted average common shares outstanding(2) | 16,247 | 10,247 | 10,428 | 10,247 | 10,247 | 10,247 | 10,247 | |||||||||||||||||||||||
Weighted average fully diluted shares outstanding(2) | 16,252 | 10,247 | 10,431 | 10,247 | 10,247 | 10,247 | 10,247 |
(1) | Prior to our initial public offering on December 27, 2005, CRM and Eimar were organized as stand alone limited liability companies and were not subject to U.S. federal income tax on their respective earnings. The pro forma results assume that those earnings attributed to our U.S. subsidiaries were fully taxable at a 38% effective tax rate prior to January 1, 2005 and a 40% effective tax rate thereafter. |
(2) | 10,247 shares of our common and Class B shares issued to the former owners of CRM, Eimar and Twin Bridges are assumed to be outstanding for all periods presented prior to our initial public offering. |
(3) | Based on 10,442 and 10,474 common shares outstanding for the nine months ended September 30, 2005 and the year ended December 31, 2005, respectively, after including 195 and 47 common shares representing the excess of distributions over net income for the respective periods. |
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As of September 30, | As of December 31, | ||||||||||||||||||||||||||||
2006 | 2005 | 2005 | 2004 | 2003 | 2002 | 2001 | |||||||||||||||||||||||
(Dollar amounts in thousands) | |||||||||||||||||||||||||||||
Assets | |||||||||||||||||||||||||||||
Cash and investments | $ | 82,466 | $ | 7,763 | $ | 76,993 | $ | 5,975 | $ | 1,660 | $ | 4,644 | $ | 2,342 | |||||||||||||||
Premiums receivable, net | 13,082 | 3,565 | 2,648 | 3,758 | 2,140 | — | 388 | ||||||||||||||||||||||
Accounts receivable | 5,081 | 2,011 | 2,067 | 41 | — | — | — | ||||||||||||||||||||||
Deferred policy acquisition costs | 2,706 | 919 | 442 | 1,414 | 824 | — | — | ||||||||||||||||||||||
Other assets | 2,350 | 3,368 | 1,766 | 1,537 | 1,260 | 2,160 | 272 | ||||||||||||||||||||||
Total assets | $ | 105,684 | $ | 17,627 | $ | 83,916 | $ | 12,724 | $ | 5,882 | $ | 6,804 | $ | 3,002 | |||||||||||||||
Liabilities and shareholders’ and members’ equity | |||||||||||||||||||||||||||||
Reserve for losses and loss adjustment expenses | $ | 10,774 | $ | 4,965 | $ | 6,280 | $ | 2,696 | $ | 168 | $ | — | $ | — | |||||||||||||||
Unearned reinsurance premiums | 8,969 | 3,106 | 1,494 | 4,780 | 2,785 | — | — | ||||||||||||||||||||||
Unearned fee-based management services | 935 | 3,206 | 1,319 | 3,005 | 2,861 | 3,952 | 1,486 | ||||||||||||||||||||||
Accrued expenses and other liabilities | 5,605 | 6,903 | 5,893 | 1,356 | 1,232 | 1,959 | 620 | ||||||||||||||||||||||
Total liabilities | 26,284 | 18,181 | 14,986 | 11,836 | 7,046 | 5,910 | 2,106 | ||||||||||||||||||||||
Common stock and paid-in capital | 66,605 | 1,000 | 66,220 | 1,000 | 1,000 | — | — | ||||||||||||||||||||||
Retained earnings | 12,795 | 2,212 | 2,711 | 835 | (51 | ) | — | — | |||||||||||||||||||||
LLC members’ (deficit) equity | — | (3,767 | ) | — | (947 | ) | (2,113 | ) | 894 | 897 | |||||||||||||||||||
Total shareholders’ and members’ equity (deficit) | 79,400 | (554 | ) | 68,930 | 888 | (1,164 | ) | 894 | 897 | ||||||||||||||||||||
Total liabilities and shareholders’ and members’ equity | $ | 105,684 | $ | 17,627 | $ | 83,916 | $ | 12,724 | $ | 5,882 | $ | 6,804 | $ | 3,002 | |||||||||||||||
Columns may not total due to rounding. |
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CRM | Embarcadero | ||||||||||||||||||||
Holdings, | Insurance | ||||||||||||||||||||
Unaudited Pro Forma Condensed Balance Sheet | Ltd. | Holdings, Ltd. | |||||||||||||||||||
as of September 30, 2006 | Historical | Historical | Adjustments | Pro Forma | |||||||||||||||||
(Dollar amounts in thousands) | |||||||||||||||||||||
Assets | |||||||||||||||||||||
Cash and investments | $ | 82,466 | $ | 168,574 | $ | (13,778 | ) | [1] | $ | 238,345 | |||||||||||
1,083 | [5] | ||||||||||||||||||||
Premiums receivable, net | 13,082 | 3,937 | — | 17,019 | |||||||||||||||||
Reinsurance recoverable | — | 37,136 | (6,991 | ) | [3] | 30,145 | |||||||||||||||
Accounts receivable | 5,081 | 3,517 | — | 8,597 | |||||||||||||||||
Deferred policy acquisition costs | 2,706 | 726 | (726 | ) | [6] | 2,706 | |||||||||||||||
Goodwill and other intangibles | — | — | 3,280 | [4] | 3,280 | ||||||||||||||||
Deferred income taxes | 136 | 5,749 | 991 | [6] | 6,876 | ||||||||||||||||
Other assets | 2,214 | 2,517 | (816 | ) | [6] | 5,155 | |||||||||||||||
1,240 | [5] | ||||||||||||||||||||
Total assets | $ | 105,684 | $ | 222,156 | $ | (15,717 | ) | $ | 312,123 | ||||||||||||
Liabilities and shareholders’ and members’ equity | |||||||||||||||||||||
Reserve for losses and loss adjustment expenses | $ | 10,774 | $ | 144,609 | $ | (6,184 | ) | [2] | $ | 149,199 | |||||||||||
Reinsurance premiums payable | — | 2,478 | — | 2,478 | |||||||||||||||||
Unearned premiums and fees | 9,904 | 5,527 | — | 15,431 | |||||||||||||||||
Senior debt facilities | — | 8,083 | 36,083 | [5] | 44,166 | ||||||||||||||||
Accrued expenses and other liabilities | 5,605 | 15,843 | — | 21,449 | |||||||||||||||||
Total liabilities | 26,284 | 176,540 | 29,899 | 232,723 | |||||||||||||||||
Shareholders’ equity | 79,400 | 45,616 | (45,616 | ) | 79,400 | ||||||||||||||||
Total liabilities and shareholders’ equity | $ | 105,684 | $ | 222,156 | $ | (15,717 | ) | $ | 312,123 | ||||||||||||
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For the Nine Months Ended September 30, 2006 | |||||||||||||||||
Embarcadero | |||||||||||||||||
Insurance Holdings, | |||||||||||||||||
CRM Holdings, Ltd. | Ltd. | ||||||||||||||||
Unaudited Pro Forma Statement of Income | Historical | Historical | Adjustments | Pro Forma | |||||||||||||
(Dollar amounts in thousands, except per share data) | |||||||||||||||||
Revenues | |||||||||||||||||
Fee-based management services | $ | 29,656 | $ | — | $ | — | $ | 29,656 | |||||||||
Net premiums earned | 16,200 | 47,937 | — | 64,138 | |||||||||||||
Investment income | 2,584 | 3,803 | — | 6,390 | |||||||||||||
Realized gains on investments | — | 3,464 | 3,464 | ||||||||||||||
Total revenues | 48,440 | 55,204 | — | 103,648 | |||||||||||||
Expenses | |||||||||||||||||
Losses and loss adjustment expenses | 4,495 | 30,919 | 52 | [7] | 35,466 | ||||||||||||
Fees paid to general agents and brokers | 7,927 | — | — | 7,927 | |||||||||||||
Other policy acquisition costs | 4,870 | 8,244 | — | 13,115 | |||||||||||||
Selling, general and administrative expenses | 19,962 | 7,912 | 31 | [8] | 27,905 | ||||||||||||
Interest expense | 32 | 556 | 2,271 | [5] | 2,862 | ||||||||||||
Total expenses | 37,284 | 47,631 | 2,354 | 87,274 | |||||||||||||
Income before taxes | 11,156 | 7,573 | (2,354 | ) | 16,374 | ||||||||||||
Provision for income taxes | 1,067 | 2,067 | (824 | ) | 2,309 | ||||||||||||
Net income | $ | 10,089 | $ | 5,506 | ($ | 1,530 | ) | $ | 14,065 | ||||||||
Basic and fully diluted earnings per share | $ | 0.62 | $ | 0.87 | |||||||||||||
Weighted average shares outstanding: | |||||||||||||||||
Basic | 16,247 | 16,247 | |||||||||||||||
Fully diluted | 16,252 | 16,252 |
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For the Year Ended December 31, 2005 | |||||||||||||||||
Embarcadero | |||||||||||||||||
CRM | Insurance | ||||||||||||||||
Holdings, | Holdings, | ||||||||||||||||
Ltd. | Ltd. | ||||||||||||||||
Unaudited Pro Forma Statement of Income | Historical | Historical | Adjustments | Pro Forma | |||||||||||||
(Dollar amounts in thousands, except per share data) | |||||||||||||||||
Revenues | |||||||||||||||||
Fee-based management services | $ | 36,495 | $ | — | $ | — | $ | 36,495 | |||||||||
Net premiums earned | 8,362 | 71,291 | — | 79,653 | |||||||||||||
Investment income | 210 | 4,012 | — | 4,222 | |||||||||||||
Realized gains on investments | — | 1,709 | — | 1,709 | |||||||||||||
Total revenues | 45,067 | 77,012 | — | 122,079 | |||||||||||||
Expenses | |||||||||||||||||
Losses and loss adjustment expenses | 3,584 | 44,936 | 110 | [7] | 48,630 | ||||||||||||
Fees paid to general agents and brokers | 11,490 | — | — | 11,490 | |||||||||||||
Other policy acquisition costs | 2,579 | 10,434 | — | 13,013 | |||||||||||||
Selling, general and administrative expenses | 20,076 | 13,998 | 41 | [8] | 34,115 | ||||||||||||
Interest expense | — | 612 | 3,028 | [5] | 3,640 | ||||||||||||
Total expenses | 37,729 | 69,980 | 3,179 | 110,888 | |||||||||||||
Income before taxes | 7,338 | 7,032 | (3,179 | ) | 11,191 | ||||||||||||
Provision for income taxes | 63 | 1,859 | (1,113 | ) | 809 | ||||||||||||
Net income | $ | 7,275 | $ | 5,173 | $ | (2,066 | ) | $ | 10,382 | ||||||||
Basic and fully diluted earnings per share | $ | 0.70 | $ | 1.00 | |||||||||||||
Weighted average shares outstanding: | |||||||||||||||||
Basic | 10,428 | 10,428 | |||||||||||||||
Fully diluted | 10,431 | 10,431 |
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(Dollar amounts in thousands)
Determination of Purchase Price | |||||
Total cash consideration paid | $ | 46,292 | |||
Expenses incurred in connection with the acquisition | 1,945 | ||||
Total purchase price and transaction expenses | $ | 48,237 | |||
Allocation of purchase price | |||||
Net book value of Embarcadero at November 13, 2006 | $ | 46,292 | |||
Adjustments to reflect the estimated fair value of assets and liabilities assumed: | |||||
Reserves for losses and loss adjustment expenses | 6,184 | ||||
Reinsurance recoverable | (6,991 | ) | |||
Deferred policy acquisition costs | (726 | ) | |||
Other deferred expenses | (816 | ) | |||
Deferred income tax assets | 991 | ||||
Unrealized gains on invested assets | 23 | ||||
Goodwill | 3,280 | ||||
Total purchase price | $ | 48,237 | |||
1. | Net cash outflow represents the net cash proceeds from the issuance of junior subordinated debentures, less the purchase price detailed above. |
2. | The estimated fair value of Embarcadero’s reserve for losses and loss adjustment expenses was based on the present value of expected cash flows with consideration for the uncertainty inherent in both the timing of, and the ultimate amount of future payments for losses. In estimating its fair value, the loss reserve was discounted to present value assuming a 3% discount rate, which is equivalent to Embarcadero’s after-tax yield on invested assets. The series of future cash flows related to such loss payments were actuarially developed using Embarcadero’s historical loss data. An estimated risk premium of 1.5% was applied to the discounted reserve which management considers reasonable and consistent with expectations in the market place given the long-tail nature and the related high degree of uncertainty of such reserve. The effect of these calculations resulted in a reduction in the reserve for losses and loss adjustment expenses of $6,184 in the September 30, 2006 pro forma balance sheet and will be accreted through an income statement charge over the period that the claims to which such reserve relates are expected to be settled. |
3. | The estimated fair value of Embarcadero’s reinsurance recoverable was based on the present value of expected cash flows calculated in concert with, and using the same actuarial assumptions as, the underlying reserve for losses and loss adjustment expenses. In estimating the risk premium applied to the recoverable, consideration was given to the expected time lag between payment of the losses and receipt of the recoverable, the credit worthiness of the reinsurers and the cost of recovering reasonable loss adjustment expenses from the reinsurers. To account for these uncertainties, an estimated risk premium of 4% was applied to the 3% discount rate discussed above in calculating the present value of reinsurance recoverable. |
4. | Goodwill is calculated as the excess of the purchase price over the net fair value of the assets acquired. |
5. | The acquisition of Embarcadero was partially financed through the issuance of $36,083 junior subordinated debentures to a newly formed Delaware statutory trust subsidiary, in connection with30-year trust preferred securities in the amount of $35,000 issued by CRM USA Holdings Trust I (the Trust), a wholly-owned subsidiary of CRM USA Holdings. These obligations bear a fixed interest rate of 8.65% until December 15, 2011 and LIBOR plus 3.65% thereafter. Interest is payable quarterly and the securities may |
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be called at par plus accrued interest at CRM USA Holdings’ option after five years. Net proceeds to CRM USA Holdings were $33,760 after issuance costs of $1,240 which were capitalized in other assets. These costs will be amortized over 30 years. CRM USA Holdings purchased $1,083 of common securities of the Trust, which are included in cash and investments in the unaudited pro forma condensed balance sheet. | |
6. | Certain of Embarcadero’s non-financial assets, including deferred policy acquisition and other deferred costs along with their corresponding deferred tax asset or liability, were eliminated as their fair value is nil. |
7. | Accretion of loss and loss adjustment expense reserves represents the amortization of net loss and loss adjustment expense reserves, net of reinsurance recoverable, to their nominal value over the respective reporting period. The accretion recorded during the period assumes that approximately 28% of the loss and loss adjustment expense reserves acquired, net of corresponding reinsurance recoverable, are recognized during the first year. |
8. | Included in selling, general and administrative expenses is amortization of debt issuance costs of $1,240 over 30 years. |
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Our Business and Operating Segments |
• | Fee-based Management Services. We provide fee-based management services for workers’ compensation self-insured groups in New York, California and Texas. We began conducting our business of providing management and other services to self-insured workers’ compensation groups in New York through CRM in 1999 and expanded this business to California through CRM CA in October 2003. On December 1, 2006, we formed our newest group in Texas. We form the groups and provide them with a broad range of services, including general management, underwriting, risk assessment, medical bill review and case management, general recordkeeping and regulatory compliance. We also provide safety and loss control services to group members to help reduce workers’ compensation risks and expenses. In New York, we provide claims management services. In addition, we act as a broker and place excess insurance coverage and any required surety bonds for the groups. Each group we manage is composed of participants from the same industry, all of which are located in a single state. We currently manage 14 self-insured groups in 12 industries, with eight groups in New York, five in California, and our newest group, which was formed on December 1, 2006, is in Texas. Investment management services are provided for our larger groups by one or more independent investment management firms. Our fee-based management services accounted for approximately 61% of our total revenues and approximately 34% of our income before taxes for the nine months ended September 30, 2006, approximately 81% of our total revenues and approximately 76% of our income before taxes for the year ended December 31, 2005 and approximately 84% of our total revenues and approximately 85% of our income before taxes for the year ended December 31, 2004. | |
• | Reinsurance. The groups we manage purchase excess workers’ compensation coverage from U.S. admitted insurers to cover claims that exceed a minimum level established by state law or regulation or by administrative determination. We began reinsuring a portion of this coverage through our subsidiary Twin Bridges in December 2003. We write our reinsurance on a quota share basis also known as proportional or pro rata. Under quota share reinsurance, we share the premiums as well as the losses and expenses in an agreed proportion with a U.S. admitted insurer, subject to certain limits. Our reinsurance segment accounted for approximately 37% of our total revenues and approximately 75% of | |
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our income before taxes for the nine months ended September 30, 2006, approximately 19% of our total revenues and approximately 28% of our income before taxes for the year ended December 31, 2005 and approximately 16% of our total revenues and approximately 15% of our net income for the year ended December 31, 2004. | ||
• | Primary Insurance. Our wholly owned subsidiary, Majestic, is licensed to write workers’ compensation insurance in 16 states and is currently issuing policies to medium and large businesses in California, Arizona, Alaska, Nevada, Oregon and Washington. Majestic has historically been a provider of workers’ compensation insurance under the U.S. Longshore and Harbor Workers’ Compensation Act, or USL&H Act, and is licensed to underwrite USL&H insurance in all federal districts. On January 1, 2007, Majestic commenced offering excess and frequency workers’ compensation coverage to our groups. Majestic currently provides such coverage to 6 of our 14 groups. The segment did not exist until after our acquisition of Embarcadero in November 2006. | |
• | Corporate and Other. Our corporate and other segment constitutes a reportable segment and includes investment income, general expenses, investments and cash and cash equivalents that relate to general corporate activities and not to one of our principal business operations. Our corporate and other segment accounted for approximately 1% of our total revenues and reduced taxable income by 9% for the nine months ended September 30, 2006. The segment did not exist until after the consummation of our initial public offering. |
Our Restructuring and Initial Public Offering |
Acquisition of Embarcadero Insurance Holdings, Inc. |
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Our Consolidated Financial Information |
Revenue |
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Expenses |
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Consolidation Accounting |
Revenue Recognition |
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Policy Acquisition Costs |
Reserve for Losses and Loss Adjustment Expenses |
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Nine Months Ended | ||||||||||||||||||||||
September 30, | Years Ended December 31, | |||||||||||||||||||||
2006 | 2005 | 2005 | 2004 | 2003 | ||||||||||||||||||
(Dollar amounts in thousands) | ||||||||||||||||||||||
Balance at January 1 | $ | 6,280 | $ | 2,696 | $ | 2,696 | $ | 168 | $ | — | ||||||||||||
Incurred related to: | ||||||||||||||||||||||
Current period | 5,832 | 2,269 | 3,584 | 2,528 | 168 | |||||||||||||||||
Prior periods | (1,338 | ) | — | — | — | — | ||||||||||||||||
Total incurred | 4,494 | 2,236 | 3,584 | 2,528 | 168 | |||||||||||||||||
Paid related to: | ||||||||||||||||||||||
Current period | — | — | — | — | — | |||||||||||||||||
Prior periods | — | — | — | — | — | |||||||||||||||||
Total paid | — | — | — | — | — | |||||||||||||||||
Net increase | 4,494 | 2,269 | 3,584 | 2,528 | 168 | |||||||||||||||||
Balance at end of period | $ | 10,774 | $ | 4,965 | $ | 6,280 | $ | 2,696 | $ | 168 | ||||||||||||
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Years ended December 31, | |||||||||||||
2005 | 2004 | 2003 | |||||||||||
(Dollar amounts in thousands) | |||||||||||||
A. Reserve for unpaid loss and loss adjustment expenses | $ | 3,584 | $ | 2,528 | $ | 168 | |||||||
B. Reserve re-estimated as of: | |||||||||||||
One year later | — | 2,528 | 168 | ||||||||||
Two years later | — | — | 168 | ||||||||||
C. Paid, (cumulative) as of: | |||||||||||||
One year later | — | — | — | ||||||||||
Two years later | — | — | — | ||||||||||
Net Liability — December 31, | 3,584 | 2,528 | 168 | ||||||||||
D. Cumulative Redundancy (Deficiency) | — | — | — | ||||||||||
Loans receivable |
Investments |
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Stock-based compensation |
Recent accounting pronouncements |
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Nine Months Ended September 30, 2006 Compared to Nine Months Ended September 30, 2005 |
Nine Months Ended September 30, | ||||||||||||||||
2006 | 2005 | |||||||||||||||
NY | CA | NY | CA | |||||||||||||
Total revenues from fee-based management services | $ | 20,443,904 | $ | 9,211,948 | $ | 19,992,198 | $ | 6,207,231 | ||||||||
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Nine Months Ended September 30, | ||||||||||||||||
2006 | 2005 | |||||||||||||||
NY | CA | NY | CA | |||||||||||||
Total net reinsurance premiums | $ | 8,327,606 | $ | 7,873,004 | $ | 3,881,875 | $ | 1,413,362 | ||||||||
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Year Ended December 31, 2005 Compared to Year Ended December 31, 2004 |
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Years Ended December 31, | ||||||||||||||||
2005 | 2004 | |||||||||||||||
NY | CA | NY | CA | |||||||||||||
Total revenues from fee-based management services | $ | 27,002,594 | $ | 9,492,513 | $ | 25,662,420 | $ | 1,993,306 | ||||||||
Years Ended December 31, | ||||||||||||||||
2005 | 2004 | |||||||||||||||
NY | CA | NY | CA | |||||||||||||
Total net reinsurance premiums | $ | 5,617,799 | $ | 2,744,273 | $ | 4,458,183 | $ | 651,700 | ||||||||
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Year Ended December 31, 2004 Compared to Year Ended December 31, 2003 |
Years Ended December 31, | ||||||||||||||||
2004 | 2003 | |||||||||||||||
NY | CA | NY | CA | |||||||||||||
Total revenues from fee-based management services | $ | 25,662,420 | $ | 1,993,306 | $ | 20,747,432 | $ | 73,696 | ||||||||
Years Ended December 31, | ||||||||||||||||
2004 | 2003 | |||||||||||||||
NY | CA | NY | CA | |||||||||||||
Total net reinsurance premiums | $ | 4,458,183 | $ | 651,700 | $ | 253,167 | — | |||||||||
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Cash Flows |
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Liquidity and Capital Requirements |
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Sources of Cash |
Adequacy of Capital |
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Posting of Security by Twin Bridges |
Payment due by Period | ||||||||||||||||||||
Less than | More than | |||||||||||||||||||
Total | 1 Year | 1-3 Years | 3-5 Years | 5 Years | ||||||||||||||||
Contractual Obligations | ||||||||||||||||||||
Long-Term Debt Obligations | — | — | — | — | — | |||||||||||||||
Capital Lease Obligations | — | — | — | — | — | |||||||||||||||
Operating Lease Obligations | $ | 15,864,000 | $ | 436,000 | $ | 1,830,000 | $ | 1,848,000 | $ | 11,750,000 | ||||||||||
Purchase Obligations | — | — | — | — | — | |||||||||||||||
Other Long-Term Liabilities | ||||||||||||||||||||
Reflected on our Balance Sheet under GAAP | — | — | — | — | — | |||||||||||||||
Total | $ | 15,864,000 | $ | 436,000 | $ | 1,830,000 | $ | 1,848,000 | $ | 11,750,000 | ||||||||||
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Disclosure About Market and Credit Risk |
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• | Continue to Grow our Fee-Based Business. We believe that our underwriting expertise, loss control, claims management and audit services position us to continue the growth we have experienced in the California self-insured market during our three-year history there. This should occur through both an increase in membership in our existing groups and through an increase in the number of groups we manage. In New York, we believe growth will result from an increase in the membership in our groups. | |
• | Use our Expanded Broker Network to Offer a Broader Line of Products. With our acquisition of Majestic, we intend to provide both our existing broker network and Majestic’s broker network with the ability to offer workers’ compensation insurance products for self-insured groups as well as traditional workers’ compensation coverage. | |
• | Expand our Reinsurance Business. By growing our fee-based business and managing a larger premium base paid by the members of the self-insured groups, we will have access to a larger amount of excess coverage premium. Currently, we reinsure a portion of the excess coverage provided to our managed groups by Majestic, our wholly-owned subsidiary, and NY Marine & General. We intend to offer excess coverage policies through Majestic to those groups which currently obtain their excess coverage from NY Marine & General as those groups renew their excess coverage policies during 2007. | |
• | Provide Traditional Workers’ Compensation Insurance through Independent Insurance Brokers and Agents to Insureds. Our recent acquisition of Majestic allows us to offer workers’ compensation | |
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coverage to insureds that prefer traditional workers’ compensation coverage or do not meet the criteria of our existing managed groups, but have attractivepremium-to-risk profiles. Majestic’s recent upgrade of its financial strength rating to an “A-” by A.M. Best provides a larger universe of market opportunities. We expect that Majestic will begin to write traditional workers’ compensation coverage in New York in 2007 and we believe that our experience with managing our groups in New York will allow as to successfully penetrate that market. | ||
• | Diversify our Business Geographically. Prior to our acquisition of Majestic, our overall business was concentrated in the states of New York and, to a lesser extent, California, consequently, our financial performance was substantially affected by changes in those workers’ compensation markets. Our acquisition of Majestic provides us with an enhanced presence in California as well as the ability to expand our insurance activities to a number of other states in which Majestic is licensed as an insurer. In addition, we have identified other states that we believe could represent new market opportunities for our self-insured group product. One such state is Texas where we recently formed a self-insured group for the printing and publishing industry. | |
• | Expansion of our Medical Bill Review and Case Management Services. We have recently secured new clients for our medical bill review and case management services and have identified and are currently negotiating arrangements with additional prospects with which we have no pre-existing relationship. We also intend to offer our management services on an integrated basis to individual self-insured entities. We believe that offering our management services to self-insured entities requires the same analysis as offering our services to self-insured groups and does not involve any different risks or uncertainties than are applicable to our existing management services business. | |
• | New Business Lines. We intend to explore developing and offering non-workers’ compensation property and casualty insurance products to carefully selected members of the groups we manage and other insureds outside of our groups. If we develop and offer these products, we expect to underwrite this insurance through Majestic. We believe that our ability to offer these additional insurance products to members of our groups will enable us to compete more effectively with commercial insurers that provide property and casualty insurance products together with workers’ compensation insurance as a comprehensive package. Further, if we ultimately develop and offer these insurance products, Twin Bridges may reinsure a portion of these risks. | |
• | CRM is a limited liability company organized under the laws of New York. Since 1999, CRM has provided management and other services to groups in New York and since October 2003 has assisted CRM CA in providing its management services; | |
• | CRM CA is a limited liability company organized under the laws of California. Since October 2003, CRM CA has provided management services to groups in California; | |
• | Twin Bridges is a Bermuda exempted class 3 insurance company, incorporated in 2003, which reinsures a portion of the excess coverage provided to a significant majority of the groups that CRM and CRM CA manage; | |
• | Eimar is a limited liability company organized under the laws of New York. Since 2002, Eimar has provided medical bill review and case management services to our groups in New York and California; and |
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• | Majestic is a corporation organized under the laws of California. We acquired Majestic on November 14, 2006. Since 1991, Majestic has provided workers’ compensation insurance coverage through independent brokers to employers. |
• | Healthcare — We manage groups in New York and California that provide workers’ compensation insurance to nursing homes, hospitals and physician groups. | |
• | Contractors — We manage groups in New York and California that provide workers’ compensation insurance to artisan contractors, including carpenters, masons, plumbers, electricians and those in other skilled trades. | |
• | Transportation — We manage a group in New York that provides workers’ compensation insurance to companies engaged in highway-borne transportation, including local package delivery, bulk hauling of industrial commodities, milk hauling and for-hire limousine services. | |
• | Wholesale/ Retail — We manage a group in New York that provides workers’ compensation insurance to companies engaged in local and regional retail grocery sales and entities involved primarily in the distribution of food products. | |
• | Auto Dealers — We manage a group in California that provides workers’ compensation insurance to new vehicle franchise auto dealerships. | |
• | Banks — We manage a group in California that provides workers’ compensation insurance to banks. | |
• | Wineries — We manage a group in California that provides workers’ compensation insurance to wineries. |
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• | real estate management, including janitorial, building maintenance and management services; | |
• | cemeteries; | |
• | public entities, including cities, towns, villages and school districts; and | |
• | manufacturing companies, which includes machine shops, injection molding and metal fabrication establishments. |
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Production of Business |
Underwriting |
• | the historical modification factor applicable to the member; | |
• | the member’s loss history for the past three years; and | |
• | our loss control and risk assessment of the member. |
Risk Assessment and Loss Control Services |
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Claims Management and Group Reserving |
Medical Bill Review and Case Management |
• | Medical Bill Review. This service reviews medical bills, reconciles them to the appropriate state fee schedule and subsequently reduces them to the allowable amount of payment. We attempt to be competitive by providing superior turn-around time and a quality review process which produces relatively few errors. | |
• | Independent Medical Examinations. This service provides for the scheduling of independent medical examinations for verification of the medical diagnosis and treatment plan for injured workers. We believe that this service is very competitive because we have assembled a high-quality physician network to provide the members of our groups with objective medical opinions. |
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• | Medical Case Management/ Utilization Review. Through this service we supplement our claims management services by hiring registered nurses to coordinate communication among claims adjusters, treating physicians and injured workers. |
Brokerage Services for the Groups |
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Production of Business |
Underwriting and Pricing |
• | Applying the applicable industry rate to the policyholder’s aggregate payroll; | |
• | Adjusting for the historical modification factor applicable to the policyholder; | |
• | Making further adjustments based on the policyholder’s loss history; and | |
• | Adjusting for our premium/discount factors based on considerations such as the insured’s safety record, length of time in business and other underwriting metrics. |
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Risk Assessment and Loss Control Services |
Claims Management |
Reinsurance |
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AM Best | ||||||||||||
September 30, | December 31, | Rating of | ||||||||||
Reinsurer | 2006 | 2005 | Reinsurer | |||||||||
Hannover RK-NS | $ | 22,736 | $ | 24,422 | A | |||||||
Continental Casualty Co. | 1,650 | 1,770 | A | |||||||||
Dorinco Reinsurance Co. | 1,685 | 1,606 | A- | |||||||||
The St. Paul Fire & Marine Insurance Co. | 1,284 | 1,372 | A+ | |||||||||
St. Paul Syndicate Mgmt Ltd. | 873 | 1,001 | N/A | |||||||||
National Union Fire Ins Co. of | 627 | 785 | A+ | |||||||||
Comp RE International/Vilanove Ins Co. | 468 | 549 | N/A | |||||||||
USF Re Insurance Co. | 402 | 505 | A- | |||||||||
General RE | 375 | 498 | A++ | |||||||||
Aspen Insurance UK Ltd. | 412 | 303 | A |
• | Case reserves — Following the receipt and analysis of a notice of claim, Twin Bridges or Majestic, as applicable, establishes a case reserve for the estimated amount of its ultimate settlement and its estimated loss adjustment expenses. Case reserves are established based upon the amount of claims reported and we may subsequently supplement or reduce the case reserves as our claims department deems necessary. |
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• | IBNR reserves — An independent actuary estimates and establishes reserves for loss amounts incurred but not yet reported, including expected development of reported claims. These IBNR reserves include estimated loss adjustment expenses. The actuary calculates IBNR reserves by using generally accepted actuarial techniques, relying on the most recent information available, including pricing information, industry information and our historical losses and expenses and revises these reserves for losses and loss adjustment expenses as additional information becomes available and as claims are reported and paid. |
Twin Bridges |
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Majestic |
• | the number of exposures covered in the current year; | |
• | trends in the frequency and severity of claims; or | |
• | changes in the cost of adjusting claims. |
• | Majestic’s claims experience; | |
• | the industry’s claims experience; | |
• | historical trends in reserving patterns and loss payments; | |
• | the impact of claim inflation; | |
• | the pending level of unpaid claims; | |
• | the legislative reforms affecting workers’ compensation; and | |
• | the environment in which insurance companies operate. |
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• | trends in the frequency and severity of claims; | |
• | changes in the legal environment; | |
• | claim inflation; | |
• | the cost of claim settlements; and | |
• | legislative reforms. |
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As of and for the Year Ended | ||||||||||||
December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
(In thousands) | ||||||||||||
Gross balance at January 1 | $ | 142,250 | $ | 128,370 | $ | 109,426 | ||||||
Loss reinsurance recoverables | (43,931 | ) | (40,757 | ) | (33,037 | ) | ||||||
Net balance at January 1 | 98,319 | 87,613 | 76,389 | |||||||||
Incurred related to: | ||||||||||||
Current year | 44,039 | 43,714 | 38,543 | |||||||||
Prior years | 897 | 6,420 | 13,704 | |||||||||
Total incurred | 44,936 | 50,134 | 52,247 | |||||||||
Paid related to: | ||||||||||||
Current year | (7,533 | ) | (7,550 | ) | (7,255 | ) | ||||||
Prior years | (30,727 | ) | (31,878 | ) | (33,768 | ) | ||||||
Total paid | (38,260 | ) | (39,428 | ) | (41,023 | ) | ||||||
Net balance at December 31 | 104,995 | 98,319 | 87,613 | |||||||||
Plus reinsurance recoverables | 35,588 | 43,931 | 40,757 | |||||||||
Gross balance — December 31 | $ | 140,583 | $ | 142,250 | $ | 128,370 | ||||||
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Years ended December 31 | |||||||||||||||||||||||||||||||||||||||||||||
($ thousands) | 1995 | 1996 | 1997 | 1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | ||||||||||||||||||||||||||||||||||
Section A. Reserve for unpaid loss and loss adjustment expenses, net of reinsurance recoveries | $ | 29,895 | $ | 37,734 | $ | 40,043 | $ | 46,352 | $ | 52,413 | $ | 63,745 | $ | 66,999 | $ | 76,389 | $ | 87,613 | $ | 98,319 | $ | 104,995 | |||||||||||||||||||||||
Section B. Reserve, net of reinsurance recoveries, re-estimated as of: | |||||||||||||||||||||||||||||||||||||||||||||
One year later | 28,607 | 36,222 | 37,143 | 46,439 | 50,554 | 68,509 | 73,153 | 90,093 | 95,137 | 99,216 | |||||||||||||||||||||||||||||||||||
Two years later | 29,907 | 31,692 | 36,464 | 41,212 | 51,608 | 70,883 | 83,038 | 95,533 | 102,636 | ||||||||||||||||||||||||||||||||||||
Three years later | 24,872 | 30,633 | 31,427 | 41,727 | 52,404 | 74,250 | 87,246 | 101,133 | |||||||||||||||||||||||||||||||||||||
Four years later | 25,592 | 27,832 | 32,173 | 42,022 | 53,668 | 77,158 | 89,875 | ||||||||||||||||||||||||||||||||||||||
Five years later | 24,366 | 28,904 | 32,327 | 43,175 | 55,275 | 78,575 | |||||||||||||||||||||||||||||||||||||||
Six years later | 25,158 | 28,586 | 33,332 | 44,383 | 56,093 | ||||||||||||||||||||||||||||||||||||||||
Seven years later | 24,875 | 29,153 | 34,391 | 44,522 | |||||||||||||||||||||||||||||||||||||||||
Eight years later | 25,296 | 29,960 | 34,318 | ||||||||||||||||||||||||||||||||||||||||||
Nine years later | 25,833 | 30,418 | |||||||||||||||||||||||||||||||||||||||||||
Ten years later | 26,640 | ||||||||||||||||||||||||||||||||||||||||||||
Section C. Net Cumulative | |||||||||||||||||||||||||||||||||||||||||||||
Redundancy (Deficiency) | 3,256 | 7,315 | 5,726 | 1,830 | (3,679 | ) | (14,830 | ) | (22,876 | ) | (24,744 | ) | (15,023 | ) | (897 | ) | |||||||||||||||||||||||||||||
Section D. Paid, net (cumulative) as of: | |||||||||||||||||||||||||||||||||||||||||||||
One year later | 10,051 | 9,912 | 8,342 | 15,782 | 17,422 | 27,322 | 31,844 | 33,768 | 31,878 | 30,729 | |||||||||||||||||||||||||||||||||||
Two years later | 15,382 | 13,686 | 17,276 | 24,018 | 31,331 | 46,570 | 52,008 | 55,410 | 53,239 | ||||||||||||||||||||||||||||||||||||
Three years later | 16,030 | 19,575 | 21,713 | 30,684 | 39,983 | 57,249 | 63,543 | 68,588 | |||||||||||||||||||||||||||||||||||||
Four years later | 19,766 | 21,853 | 25,371 | 34,766 | 44,193 | 63,228 | 70,490 | ||||||||||||||||||||||||||||||||||||||
Five years later | 20,783 | 24,013 | 27,612 | 36,497 | 46,737 | 66,383 | |||||||||||||||||||||||||||||||||||||||
Six years later | 22,077 | 25,133 | 28,098 | 38,017 | 48,192 | ||||||||||||||||||||||||||||||||||||||||
Seven years later | 22,623 | 25,045 | 29,007 | 38,664 | |||||||||||||||||||||||||||||||||||||||||
Eight years later | 22,071 | 25,585 | 29,430 | ||||||||||||||||||||||||||||||||||||||||||
Nine years later | 22,493 | 26,071 | |||||||||||||||||||||||||||||||||||||||||||
Ten years later | 23,278 | ||||||||||||||||||||||||||||||||||||||||||||
Net Liability — December 31, | 29,895 | 37,734 | 40,043 | 46,352 | 52,413 | 63,745 | 66,999 | 76,389 | 87,613 | 98,319 | 104,995 | ||||||||||||||||||||||||||||||||||
Receivable from reinsurers for unpaid losses | 13,662 | 18,994 | 23,830 | 18,347 | 19,547 | 27,827 | 31,384 | 33,037 | 40,757 | 43,931 | 35,588 | ||||||||||||||||||||||||||||||||||
Gross Liability — December 31, | 43,557 | 56,728 | 63,873 | 64,699 | 71,960 | 91,572 | 98,383 | 109,426 | 128,370 | 142,250 | 140,583 | ||||||||||||||||||||||||||||||||||
Section E. Re-estimated liability, net | 26,640 | 30,418 | 34,318 | 44,522 | 56,093 | 78,575 | 89,875 | 101,133 | 102,636 | 99,216 | |||||||||||||||||||||||||||||||||||
Re-estimated receivable from reinsurers for unpaid losses | 8,245 | 8,919 | 11,265 | 12,721 | 12,298 | 25,751 | 39,798 | 43,146 | 45,753 | 41,599 | |||||||||||||||||||||||||||||||||||
Section F. Re-estimated liability, gross | 34,884 | 39,337 | 45,582 | 57,243 | 68,390 | 104,327 | 129,673 | 144,279 | 148,389 | 140,815 | |||||||||||||||||||||||||||||||||||
Section G. Gross Cumulative Redundancy (Deficiency) | 8,673 | 17,391 | 18,291 | 7,456 | 3,570 | (12,755 | ) | (31,290 | ) | (34,853 | ) | (20,019 | ) | 1,435 | |||||||||||||||||||||||||||||||
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As of September 30, 2006 | As of December 31, 2005 | |||||||||||||||||||||||
Percent of | Percent of | |||||||||||||||||||||||
Description of Securities | Fair Value | Total | Yield | Fair Value | Total | Yield | ||||||||||||||||||
Obligations of states and political subdivisions | $ | 82,523 | 53.7 | % | 3.82 | % | $ | 63,220 | 42.4 | % | 3.61 | % | ||||||||||||
Corporate bonds | 38,293 | 24.9 | % | 5.27 | % | 36,662 | 24.6 | % | 4.86 | % | ||||||||||||||
U.S. government and agencies | 23,388 | 15.2 | % | 4.94 | % | 21,221 | 14.2 | % | 4.62 | % | ||||||||||||||
Total debt securities | 144,204 | 93.8 | % | 4.39 | % | 121,103 | 81.2 | % | 4.17 | % | ||||||||||||||
Equity securities | 9,522 | 6.2 | % | 28,082 | 18.8 | % | ||||||||||||||||||
Total | $ | 153,726 | 100.0 | % | $ | 149,185 | 100.0 | % | ||||||||||||||||
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As of | As of | |||||||||||||||
Rating | September 30, 2006 | December 31, 2005 | ||||||||||||||
(Unaudited) | ||||||||||||||||
“AAA” | $ | 74,468 | 51.6 | % | $ | 59,980 | 49.5 | % | ||||||||
“AA” | 41,328 | 28.7 | % | 31,373 | 25.9 | % | ||||||||||
“A” | 25,556 | 17.7 | % | 28,399 | 23.5 | % | ||||||||||
“BBB” | 2,562 | 1.8 | % | 1,352 | 1.1 | % | ||||||||||
“BB” | 290 | 0.2 | % | — | 0.0 | % | ||||||||||
“CCC” | — | 0.0 | % | — | 0.0 | % | ||||||||||
Total | $ | 144,204 | 100.0 | % | $ | 121,104 | 100.0 | % | ||||||||
Nine Months Ended | ||||||||||||||||
September 30, 2006 | December 31, 2005 | |||||||||||||||
Amortized | Amortized | |||||||||||||||
Cost | Fair Value | Cost | Fair Value | |||||||||||||
Due in one year or less | $ | 21,984 | $ | 21,835 | $ | 21,613 | $ | 21,432 | ||||||||
Due after one year through five years | 103,648 | 102,813 | 78,711 | 77,514 | ||||||||||||
Due after five years through ten years | 10,624 | 10,742 | 17,404 | 17,447 | ||||||||||||
Due after ten years | 8,855 | 8,814 | 4,748 | 4,710 | ||||||||||||
Total | $ | 145,111 | $ | 144,204 | $ | 122,476 | $ | 121,103 | ||||||||
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• | the state funds in New York, California and Texas; | |
• | specialty, regional and major insurers in New York, California and Texas, such as American International Group, Inc., Chubb Group of Insurance Companies, Zurich Financial Services, Utica National Insurance Group, Greater New York Mutual Insurance Company, Travelers Insurance Group Holdings Inc., Liberty Mutual Insurance Company, Hartford Financial Services Group Inc., Employers Direct Insurance Company, Redwood Fire & Casualty Insurance Co., Republic Companies Group, Inc., Redlands Insurance Co., St. Paul Travelers, Zenith National Insurance Corp, National Liability and Fire Insurance Company, Preferred Employers, SeaBright Insurance Company, CompWest Insurance Company, Employers Compensation Insurance Company of California, Everest Insurance Company, American International Group, Inc., Chubb Group of Insurance Companies, ICW Group and The Hartford Financial Services Group, Inc., and | |
• | groups managed by other group administrators, such as First Cardinal Corporation in New York and Texas, and New York Compensation Managers, Inc. in New York and Bickmore Risk Services in California. | |
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CRM | 112 | |||
CRM CA | 22 | |||
Eimar | 30 | |||
Majestic | 79 |
Employees | |||||
Administrative | 59 | ||||
Managers | 31 | ||||
Claims Management | 71 | ||||
Risk Assessment and Loss Control Services | 15 | ||||
Sales and Marketing | 14 | ||||
Underwriting | 31 | ||||
Medical Bill Review and Case Management | 22 | ||||
Total | 243 |
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Aggregate Annual | ||||||||||||
Location | Square Feet | Lease Termination Date | Lease Payments | |||||||||
San Francisco, California | 4,992 | December 31, 2007 | $ | 100,000 | ||||||||
Long Beach, California | 7,596 | November 30, 2010 | 180,000 | |||||||||
San Diego, California | 3,339 | April 30, 2008 | 80,000 | |||||||||
Seattle, Washington | 1,136 | December 31, 2007 | 22,000 |
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Classification of Insurers |
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Cancellation of Insurer’s Registration |
Principal Representative |
Independent Approved Auditor |
Loss Reserve Specialist |
Statutory Financial Statements |
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Annual Statutory Financial Return |
Solvency Margin and Restrictions on Dividends and Distributions |
(A) | $1,000,000 | |||
(B) | Net Premium Written (“NPW”) | Prescribed Amount | ||
Up to $6,000,000 | 20% of net premium written (“NPW”) | |||
Greater than $6,000,000 | The aggregate of $1,200,000 and 15% of the amount by which NPW exceeds $6,000,000 in that year; and | |||
(C) | 15% of the aggregate of the insurer’s loss expense provisions and other general business insurance reserves. |
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Minimum Liquidity Ratio |
Supervision, Investigation and Intervention |
• | not to take on any new insurance business; | |
• | not to vary any insurance contract if the effect would be to increase the insurer’s liabilities; | |
• | not to make certain investments; | |
• | to realize certain investments; | |
• | to maintain in, or transfer to the custody of, a specified bank, certain assets; | |
• | not to declare or pay any dividends or other distributions or to restrict the making of such payments; and/or | |
• | to limit its premium income. |
Disclosure of Information |
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Bermuda Guidance Notes |
Controller Notification |
Certain other Considerations |
• | the acquisition or holding of land in Bermuda (except land held by way of lease or tenancy agreement which is required for its business and held for a term not exceeding 50 years, or which is used to provide accommodation or recreational facilities for its officers and employees and held with the consent of the Bermuda Minister of Finance, for a term not exceeding 21 years); | |
• | (subject to certain provisos) the taking of mortgages on land in Bermuda to secure an amount in excess of $50,000 (or whereby any such mortgage shall together with any other principal sum or sums received by any other mortgage or mortgages held by such company from the same mortgagor or mortgagors exceed the sum of $50,000); | |
• | to acquire any bonds, or debentures secured on any land in Bermuda, except bonds or debentures issued by the Government of Bermuda or a public authority of Bermuda; or | |
• | the carrying on of business of any kind or type for which it is not licensed in Bermuda, except in certain limited circumstances such as doing business with another exempted undertaking in furtherance of CRM Holdings’ or Twin Bridges’ business carried on outside Bermuda. |
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Credit for Reinsurance |
• | if the reinsurer is licensed in the state in which the primary insurer is domiciled or, in some instances, in certain states in which the primary insurer is licensed; | |
• | if the reinsurer is an “accredited” or otherwise approved reinsurer in the state in which the primary insurer is domiciled or, in some instances, in certain states in which the primary insurer is licensed; | |
• | in some instances, if the reinsurer (a) is domiciled in a state that is deemed to have substantially similar credit for reinsurance standards as the state in which the primary insurer is domiciled and (b) meets financial requirements; or | |
• | if none of the above apply, to the extent that the reinsurance obligations of the reinsurer are secured appropriately, typically through the posting of a letter of credit for the benefit of the primary insurer or the deposit of assets into a trust fund established for the benefit of the primary insurer. |
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Operations of Twin Bridges |
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• | must receive approval from the applicable state regulatory agency prior to admitting a new member; | |
• | is required to purchase excess workers’ compensation coverage to cover loss above levels established by the applicable state regulatory agency; | |
• | must follow mandatory guidelines with respect to the investment of the funds collected by the group and must follow additional guidelines with respect to the use of the funds; | |
• | is subject to periodic audit and review of the group’s financial statements and contribution rates by the applicable regulatory agency; and | |
• | must maintain assets in an amount which exceeds its liabilities. |
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• | a reduction in the reimbursable amount for certain physician fees, outpatient surgeries, pharmaceutical products and certain durable medical equipment; | |
• | a limitation on the number of chiropractor or physical therapy office visits; | |
• | the introduction of medical utilization guidelines; | |
• | a requirement for second opinions on certain spinal surgeries; and | |
• | a repeal of the presumption of correctness afforded to the treating physician, except where the employee has pre-designated a treating physician. | |
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Name | Age | Title | ||||
Daniel G. Hickey, Jr.(3) | 39 | Chief Executive Officer and Chairman of the Board | ||||
Louis J. Viglotti, Esq. | 50 | General Counsel and Secretary | ||||
Chester J. Walczyk | 51 | Chief Operating Officer | ||||
James J. Scardino | 53 | Chief Financial Officer | ||||
John L. Sullivan | 62 | President and Chief Operating Officer of Majestic | ||||
Robert V. Polansky | 41 | Senior Vice President of Sales and Product Development | ||||
David M. Birsner(1) | 39 | Director | ||||
Daniel G. Hickey, Sr.(1) | 62 | Director | ||||
Keith S. Hynes(2) | 54 | Director and Deputy Chairman | ||||
Charles I. Johnston(3) | 52 | Director | ||||
Philip J. Magnarella(1) | 69 | Director | ||||
Salvatore A. Patafio(2) | 62 | Director | ||||
Louis Rosner, Esq.(2) | 58 | Director |
(1) | Denotes Class I Director with term expiring in 2009. |
(2) | Denotes Class II Director with term expiring in 2007. |
(3) | Denotes Class III Director with term expiring in 2008. |
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Audit Committee |
• | review and discuss with appropriate members of our management and the independent auditors our audited financial statements, related accounting and auditing principles, practices and disclosures; | |
• | review and discuss our audited annual and unaudited quarterly financial statements prior to the filing of such statements; | |
• | establish procedures for the receipt, retention and treatment of complaints we receive regarding accounting, internal accounting controls or auditing matters, and the confidential, anonymous submission by employees of concerns regarding our financial statements or accounting policies; | |
• | review reports from the independent auditors on all critical accounting policies and practices to be used for our financial statements and review the results of those audits; and | |
• | monitor the adequacy of our operating and internal controls as reported by management and the independent or internal auditors. |
Compensation Committee |
• | reviewing and approving corporate and individual goals and objectives relevant to the compensation of our executive officers; | |
• | evaluating the performance of our executive officers in light of such corporate and individual goals and objectives and, based on that evaluation, together with the other independent directors if directed by the board of directors, determining the base salary and bonus of the executives officers; | |
• | administering any management incentive plan, stock option plan or other similar plan we may adopt and approving all grants made pursuant to such plan; and | |
• | making recommendations to our board of directors regarding director compensation and any equity-based compensation plans. |
Nominating and Corporate Governance Committee |
• | identifying individuals qualified to become directors for recommendation to our board of directors; | |
• | identifying and recommending for appointment to our board of directors, directors qualified to fill vacancies on any committee of our board of directors; |
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• | having sole authority to retain and terminate any consultant or search firm to identify director candidates and having sole authority to approve the consultant or search firm’s fees and other retention terms; | |
• | developing and recommending to the board a set of corporate governance principles and code of business conduct and ethics applicable to us; and | |
• | exercising oversight of the evaluation of the board and management. |
Compensation Committee Interlocks and Insider Participation |
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Name | Title | |
Daniel G. Hickey, Jr. | Chief Executive Officer/Co-Chief Executive Officer | |
Martin D. Rakoff | Co-Chief Executive Officer | |
James J. Scardino | Chief Financial Officer | |
Louis J. Viglotti | General Counsel and Secretary | |
Chester J. Walczyk | Chief Operating Officer |
• | evaluate each executive’s performance | |
• | establish and provide our Compensation Committee with the business performance-targets and objectives for the upcoming year, and | |
• | recommend salary levels. | |
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• | our compensation practices must be competitive in the marketplace, | |
• | the marketplace information is one of the many factors that we consider in assessing the reasonableness of compensation, and | |
• | the information helps us to establish the targets for our compensation decisions. | |
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• | generating profitable growth of the fee-based self-insurance workers’ compensation products; | |
• | finding and assuming attractively priced risk for our traditional workers’ compensation insurance products; | |
• | expanding our reinsurance business and the management of our overall risk exposure to mitigate losses; | |
• | developing new business lines for non-workers’ compensation property and casualty insurance products; | |
• | working hard and cooperating with colleagues; and | |
• | providing excellent service to clients and colleagues. | |
• | Base salary | |
• | Annual Cash Bonuses | |
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• | Long-Term Incentive Awards | |
• | Additional Benefits and Perquisites | |
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Bonus at Threshold | Bonus at Target | Bonus at Maximum | ||||||||||
Executive Officer | Performance Level | Performance Level | Performance Level | |||||||||
Chief Executive Officer | First dollar of the bonus award | 100% of Base Salary | 200% of Base Salary | |||||||||
General Counsel | First dollar of the bonus award | 50% of Base Salary | 75% of Base Salary |
Bonus at | Bonus at | Bonus at | ||||||||||
$8.5 million | $17 million | $25.5 million | ||||||||||
Chief Executive Officer | First dollar of the bonus award | $650,000 | $1,300,000 |
Bonus at | Bonus at | Bonus at | ||||||||||
$8.5 million | $17 million | $21.25 million | ||||||||||
General Counsel | First dollar of the bonus award | $150,000 | $225,000 |
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• | the vesting feature of the shares provides an incentive to remain employed with us; | |
• | the long-term nature of the vesting period provides the executives with an incentive to improve stock price performance and to increase our shareholder value; and | |
• | using restricted shares allows us to fix our compensation costs at the date of grant, as compared to the expensing of stock options which is subject to the volatility of our stock price. | |
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Non-Equity | ||||||||||||||||||||||||
Incentive | ||||||||||||||||||||||||
Stock | Plan | All Other | ||||||||||||||||||||||
Salary | Awards | Compensation | Compensation | Total | ||||||||||||||||||||
Name and principal position | Year | ($) | ($)(1) | ($) | ($)(4) | ($) | ||||||||||||||||||
Daniel G. Hickey, Jr., Chief Executive Officer | 2006 | 647,222 | (2 | ) | 15,750 | 662,972 | ||||||||||||||||||
Martin D. Rakoff, Co-Chief Executive Officer | 2006 | 647,222 | (3 | ) | 186,601 | 833,823 | ||||||||||||||||||
James J. Scardino, Chief Financial Officer | 2006 | 294,880 | 76,783 | 41,193 | 412,856 | |||||||||||||||||||
Louis J. Viglotti, General Counsel | 2006 | 294,979 | 2,162 | (2 | ) | 22,166 | 319,307 | |||||||||||||||||
Chester J. Walczyk, Chief Operating Officer | 2006 | 177,846 | 38,760 | 23,253 | 239,893 |
(1) | We did not experience any equity award forfeitures for our executive officers during 2006. The assumptions we used to value the stock awards are found in note 8 to our unaudited financial statements for the nine months ended September 30, 2006 contained elsewhere in this prospectus. |
(2) | We have not yet determined the incentive plan compensation amounts that will be paid to Mr. Hickey and Mr. Viglotti for 2006. These amounts are tied to our net income for the fiscal year-ended December 31, 2006, and such amount has not yet been fully determined. We expect to determine these amounts on or before March 16, 2007 and will file a current report on Form 8-K with this information when these amounts are determined. |
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(3) | Pursuant to the terms of his Separation Agreement, Mr. Rakoff waived any and all rights he may have had for a bonus to be paid for fiscal year-ended December 31, 2006. |
(4) | The following table is a breakdown of the of the compensation and benefits included in the All Other Compensation: |
Life Insurance | Personal | |||||||||||||||||||||||||||||||
Tax | Vehicle | Policy | Financial or | 401(k) | ||||||||||||||||||||||||||||
Gross-Ups | Allowances | Premiums | Housing | Tax Advice | Company | Severance | ||||||||||||||||||||||||||
Name | Year | ($) | ($) | ($) | ($) | ($) | Contributions | Payments | ||||||||||||||||||||||||
Daniel G. Hickey, Jr. | 2006 | 11,700 | 750 | 3,300 | ||||||||||||||||||||||||||||
Martin D. Rakoff | 2006 | 11,700 | 750 | 8,851 | 3,300 | 162,000 | ||||||||||||||||||||||||||
James J. Scardino | 2006 | 10,788 | 12,000 | 225 | 14,880 | 3,300 | ||||||||||||||||||||||||||
Louis J. Viglotti | 2006 | 11,400 | 225 | 7,241 | 3,300 | |||||||||||||||||||||||||||
Chester J. Walczyk | 2006 | 5,394 | 9,000 | 225 | 5,966 | 2,668 |
All Other | ||||||||||||||||||||||||
Estimated Future Payouts Under | Stock Awards: | |||||||||||||||||||||||
Non-Equity Incentive Plan Awards | Number of | Grant Date | ||||||||||||||||||||||
Shares of | Fair Value of | |||||||||||||||||||||||
Grant | Threshold | Target | Maximum | Stock or | Stock and | |||||||||||||||||||
Name | Date | ($) | ($) | ($) | Units(#) | Options($) | ||||||||||||||||||
Daniel G. Hickey, Jr. | 1/31/06 | 1 | 650,000 | 1,300,000 | ||||||||||||||||||||
Martin D. Rakoff | ||||||||||||||||||||||||
James J. Scardino | 3/25/06 | 2,308 | 28,850 | |||||||||||||||||||||
12/7/06 | 9,535 | 77,996 | ||||||||||||||||||||||
Louis J. Viglotti | 1/31/06 | 1 | 150,000 | 225,000 | ||||||||||||||||||||
12/7/06 | 9,517 | 77,849 | ||||||||||||||||||||||
Chester J. Walczyk | 3/25/06 | 1,154 | 14,425 | |||||||||||||||||||||
12/7/06 | 6,388 | 52,254 |
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• | $3,300,000 in 16 quarterly cash installments of $206,250, commencing on January 1, 2007 and continuing until October 1, 2010, subject to Mr. Rakoff’s continued compliance with the restrictive covenants described below (such payments are subject to delay to the extent necessary to avoid the imposition of any federal excise taxes); | |
• | a one-time payment of $162,000 in connection with Mr. Rakoff’s registration rights; | |
• | the welfare benefits to which he was entitled under his employment agreement for a period of three years; | |
• | all benefits accrued under any deferred compensation plan in which he participated, payable in accordance with the terms of such plan; and | |
• | reimbursement of professional financial advisory fees of up to $20,000. | |
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Non-Equity | ||||||||||||||||
Incentive Plan | All Other | |||||||||||||||
Name | Salary | Stock Awards | Compensation(1) | Compensation | ||||||||||||
Daniel G. Hickey, Jr. | 49 | % | 0 | % | 50 | % | 1 | % | ||||||||
Martin D. Rakoff | 78 | % | 0 | % | 0 | % | 22 | % | ||||||||
James J. Scardino | 71 | % | 19 | % | 0 | % | 10 | % | ||||||||
Louis J. Viglotti | 63 | % | * | 32 | % | 5 | % | |||||||||
Chester J. Walczyk | 74 | % | 16 | % | 0 | % | 10 | % |
(1) | Since we have not yet determined the incentive plan compensation amounts that will be paid to Mr. Hickey and Mr. Viglotti for 2006, this amount assumes payouts at their respective target levels, which are: (i) $650,000 for Mr. Hickey and (ii) $150,000 for Mr. Viglotti. |
* | Less Than 1%. |
Stock Awards | ||||||||
Number of Shares or | Market Value of Shares | |||||||
Units of Stock That | or Units of Stock That | |||||||
Have Not Vested | Have Not Vested | |||||||
Name | (#) | ($)(4) | ||||||
Daniel G. Hickey, Jr. | ||||||||
Martin D. Rakoff | ||||||||
James J. Scardino | 21,843(1 | ) | 194,403 | |||||
Louis J. Viglotti | 9,517(2 | ) | 84,701 | |||||
Chester J. Walczyk | 12,542(3 | ) | 111,624 |
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(1) | Mr. Scardino received a grant of 15,000 shares on December 29, 2005, of which 5,000 shares vested on December 29, 2006. The remaining shares will vest as follows: 5,000 shares on December 29, 2007 and 5,000 shares on December 29, 2008. Mr. Scardino also received a grant of 2,308 shares on March 29, 2006, which vest as follows: 769 shares on March 29, 2007, 769 shares on March 29, 2008 and 770 shares on March 29, 2009. Mr. Scardino also received a grant of 9,535 shares on December 7, 2006, which vest as follows: 3,178 shares on December 7, 2007, 3,178 shares on December 3,178, 2008 and 3,179 shares on December 7, 2009. |
(2) | Mr. Viglotti received a grant of 9,517 shares on December 7, 2006, which vest as follows: 3,172 shares on December 7, 2007, 3,172 shares on December 7, 2008 and 3,173 shares on December 9, 2009. |
(3) | Mr. Walczyk received a grant of 7,500 shares on December 29, 2005, of which 2,500 shares vested on December 29, 2006. The remaining 5,000 shares will vest as follows: 2,500 shares on December 29, 2007 and 2,500 shares on December 29, 2008. Mr. Walczyk also received a grant of 1,154 shares on March 29, 2006, which vest as follows: 385 shares on March 29, 2007, 384 shares on March 29, 2008 and 384 shares on March 29, 2009. Mr. Walczyk also received a grant of 6,388 shares on December 7, 2006, which vest as follows: 2,129 shares on December 7, 2007, 2,129 shares on December 7, 2008 and 2,130 shares on December 7, 2009. |
(4) | Market value calculated using a share price of $8.90, the last reported sales price for a share of our common shares on December 29, 2006. |
Stock Awards | ||||||||
Number of Shares | Value Realized | |||||||
Name | Acquired on Vesting (#) | on Vesting ($) | ||||||
Daniel G. Hickey, Jr. | ||||||||
Martin D. Rakoff | ||||||||
James J. Scardino | 5,000 | 44,500 | ||||||
Louis J. Viglotti | ||||||||
Chester J. Walczyk | 2,500 | 22,250 |
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Termination without | For Cause or | |||||||||||||||
Executive Benefits and Payments Upon | Cause or for Good | Voluntary | ||||||||||||||
Termination | Reason(1) | Termination(2) | Death(3) | Retirement(4) | ||||||||||||
Pro-Rata Unpaid Annual Incentive Award | 650,000 | 650,000 | 650,000 | |||||||||||||
Pro-Rata Unpaid Producer Incentive Bonus | ||||||||||||||||
Welfare Benefit Programs | 45,441 | 45,441 | 187,950 | |||||||||||||
Vesting of Stock Options and Restricted Stock Awards | ||||||||||||||||
Severance Pay | 3,900,000 | |||||||||||||||
Total Compensation | $ | 4,595,441 | $ | — | $ | 695,441 | $ | 837,950 | ||||||||
(1) | If Mr. Hickey’s employment agreement is terminated without cause or if Mr. Hickey terminates his employment for good reason, he will be entitled to receive: (i) his base salary up to the time of termination and the balance of any unpaid incentive award earned as of December 31 of the prior year; (ii) any pro rata unpaid annual incentive award and producer incentive bonus payable for the year in which termination occurs, assuming target performance would have been achieved; (iii) other and additional benefits then due or earned under our applicable plans and programs; (iv) the continuation of any welfare benefit programs for 36 months; and (v) the immediate vesting of stock options and performance awards and the right to exercise such awards within one year, the removal of all restrictions on restricted stock and deferred stock units and the vesting and settlement of any performance awards at target award levels. Mr. Hickey also will be entitled to receive severance pay equal to three times the sum of (A) such executive’s base salary immediately prior to the termination date and (B) the higher of (x) the annual incentive opportunity for the year in which the termination occurs assuming target performance would have been achieved and (y) the average annual incentive payment received over the prior two years and (C) the greatest producer incentive bonus he received for any of the three operating periods immediately preceding the termination date. All payments would be made in a lump sum payment following the Mr. Hickey’s departure, except for the welfare benefits which would be paid over specified period of time. |
(2) | If we terminate Mr. Hickey’s employment agreement for cause, or if he voluntarily terminates his employment, Mr. Hickey will be entitled to any unpaid base salary up to the time of termination plus the balance of any unpaid incentive award earned as of December 31 of the prior year and other benefits then due or earned under our applicable plans and programs. Upon termination for cause, Mr. Hickey’s equity awards will be settled in accordance with the terms and conditions of the applicable grant agreements. All payments would be made in a lump sum payment following the Mr. Hickey’s departure. |
(3) | Upon Mr. Hickey’s death, his estate or beneficiaries will be entitled to receive: (i) his base salary up to the time of termination and the balance of any unpaid incentive award earned as of December 31 of the prior year; (ii) any pro rata unpaid annual incentive award and producer incentive bonus payable for the year in which termination occurs, assuming target performance would have been achieved; (iii) other and additional benefits then due or earned under our applicable plans and programs; (iv) the continuation of any welfare benefit programs for 36 months; and (v) the immediate vesting of stock options and performance awards and the right to exercise such awards within one year, the removal of all restrictions on restricted stock and deferred stock units and the vesting and settlement of any performance awards at target award levels. All payments would be made in a lump sum payment following the Mr. Hickey’s departure, except for the welfare benefits which would be paid over specified period of time. |
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(4) | Upon Mr. Hickey’s retirement at or after age 62, he will be entitled receive: (i) his base salary up to the time of termination and the balance of any unpaid incentive award earned as of December 31 of the prior year; (ii) any pro rata unpaid annual incentive award and producer incentive bonus payable for the year in which termination occurs, assuming target performance would have been achieved; (iii) the continuation of any welfare benefit programs for balance of his and his spouse’s life; and (iv) the continued vesting of all outstanding stock options and the right to exercise such stock options for a period of one year following the later of the date the options are fully vested or his retirement or for the remainder of the exercise period, if less. All payments would be made in a lump sum payment following the Mr. Hickey’s departure, except for the welfare benefits which would be paid over specified period of time. |
Termination without | For Cause or | |||||||||||||||
Executive Benefits and Payments Upon | Cause or for Good | Voluntary | ||||||||||||||
Termination | Reason(1) | Termination(2) | Death(3) | Retirement(4) | ||||||||||||
Pro-Rata Unpaid Annual Incentive Award | 150,000 | 150,000 | 150,000 | |||||||||||||
Welfare Benefit Programs | 15,190 | 45,441 | 29,508 | |||||||||||||
Vesting of Stock Options and Restricted Stock Awards | 84,701 | 84,701 | ||||||||||||||
Severance Pay | 450,000 | |||||||||||||||
Total Compensation | $ | 699,891 | $ | — | $ | 280,142 | $ | 179,508 | ||||||||
(1) | If we terminate Mr. Viglotti’s employment agreement without cause, or if Mr. Viglotti terminates his employment for good reason, he will be entitled to receive: (i) his base salary up to the time of termination and the balance of any unpaid incentive award earned as of December 31 of the prior year; (ii) any pro rata unpaid annual incentive award payable for the year in which termination occurs, assuming target performance would have been achieved; (iii) other and additional benefits then due or earned under our applicable plans and programs; (iv) the continuation of any welfare benefit programs for 12 months; and (v) the immediate vesting of stock options and performance awards and the right to exercise such awards within one year, the removal of all restrictions on restricted stock and deferred stock units and the vesting and settlement of any performance awards at target award levels. Mr. Viglotti also will be entitled to receive severance pay equal to the sum of (A) his base salary immediately prior to the termination date and (B) the higher of (x) the annual incentive opportunity for the year in which the termination occurs assuming target performance would have been achieved and (y) the average annual incentive payment received over the prior two years. All payments would be made in a lump sum payment following the Mr. Viglotti’s departure, except for the welfare benefits which would be paid over specified period of time. |
(2) | If we terminate Mr. Viglotti’s employment agreement for cause, or if he voluntarily terminates his employment, he will be entitled to any unpaid base salary up to the time of termination plus the balance of any unpaid incentive award earned as of December 31 of the prior year and other benefits then due or earned under our applicable plans and programs. Upon termination for cause, his equity awards will be settled in accordance with the terms and conditions of the applicable grant agreements. All payments would be made in a lump sum payment following the Mr. Viglotti’s departure. |
(3) | Upon Mr. Viglotti’s death, his estate or beneficiaries will be entitled to receive: (i) his base salary up to the time of termination and the balance of any unpaid incentive award earned as of December 31 of the prior year; (ii) any pro rata unpaid annual incentive award payable for the year in which termination occurs, assuming target performance would have been achieved; (iii) other and additional benefits then due or earned under our applicable plans and programs; (iv) the continuation of any welfare benefit |
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programs for 36 months; and (v) the immediate vesting of stock options and performance awards and the right to exercise such awards within one year, the removal of all restrictions on restricted stock and deferred stock units and the vesting and settlement of any performance awards at target award levels. All payments would be made in a lump sum payment following the Mr. Viglotti’s departure, except for the welfare benefits which would be paid over specified period of time. | |
(4) | Upon Mr. Viglotti’s retirement at or after age 62, he will be entitled receive: (i) his base salary up to the time of termination and the balance of any unpaid incentive award earned as of December 31 of the prior year; (ii) any pro rata unpaid annual incentive award payable for the year in which termination occurs, assuming target performance would have been achieved; (iii) the continuation of any welfare benefit programs for him and his spouse for the longer of twelve months or his 65th birthday; and (iv) the continued vesting of all outstanding stock options and the right to exercise such stock options for a period of one year following the later of the date the options are fully vested or his retirement or for the remainder of the exercise period, if less. All payments would be made in a lump sum payment following the Mr. Viglotti’s departure, except for the welfare benefits which would be paid over specified period of time. |
• | willful breach of the confidentiality, litigation cooperation, nondisparagement, non-disclosure, non-competition or non-solicitation provisions of the employment agreement; | |
• | conviction of, or plea of nolo contendere to, any felony that is materially and demonstrably injurious to our financial condition or reputation; | |
• | willful gross neglect or misconduct in the performance of duties under the employment agreement that is demonstrably injurious to our financial condition or reputation; or | |
• | misconduct resulting in a restatement of our financial statements due to material noncompliance with the financial reporting requirements of the Sarbanes-Oxley Act of 2002. | |
• | a material adverse change to the executive in his positions, titles or offices, status, rank, nature of responsibilities, or authority within us and our subsidiaries, or his removal from or failure to re-elect him to or nominate him to any such positions or offices, including as a member of our Board in the case of Mr. Hickey, after his delivery of written notice to (a) our Board, in the case of Mr. Hickey, or (b) our Chief Executive Officer, in the case of Mr. Viglotti, and a ten-day cure period; | |
• | an assignment of duties to the executive which are inconsistent with his status as (a) our Chief Executive Officer, in the case of Mr. Hickey or (b) General Counsel, in the case of Mr. Viglotti; | |
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• | a decrease in either annual base salary or target annual incentive award opportunity below (a) 100% of base salary, in the case of Mr. Hickey or (b) 50% of base salary, in the case of Mr. Viglotti; | |
• | our failure to perform any material obligation under, or our breach of any material provision of, the employment agreement that remains uncured for thirty days; | |
• | any material increase in travel time required of the executive at our demand and without the consent of the executive, in the performance of his duties; | |
• | the relocation of our corporate offices outside a thirty-five-mile radius of our then corporate offices; | |
• | any failure to secure the agreement of any successor corporation or other entity to us to fully assume our obligations under the employment agreement; and | |
• | any material breach by us of this agreement. | |
• | A person or group acquires beneficial ownership, directly or indirectly, of our securities representing 20% or more of the combined voting power in the election of directors of our then-outstanding securities or of any successor to us; | |
• | During any period of two consecutive years, individuals constituting our Board and any new directors (other than directors designated by a person or group who has entered into an agreement with us to effect a change of control) whose election or nomination for election was approved by at least two-thirds of our Board who either were directors at the beginning of the two-year period or whose election or nomination for election was previously so approved (but excluding any directors whose initial assumption of office results from an actual or threatened election contest or solicitation of proxies or consents not made on behalf of our Board) cease for any reason to constitute at least a majority of our Board; | |
• | Our shareholders approve any merger, amalgamation or consolidation or statutory share exchange as a result of which our common shares shall be changed, converted or exchanged (other than a merger or share exchange with one of our wholly-owned subsidiaries) or our liquidation or sale or disposition of 50% or more of our assets or earning power; or | |
• | Approval by our shareholders of any merger, amalgamation consolidation or statutory share exchange to which we are a party as a result of which the persons who were shareholders immediately prior to the effective date of such merger, amalgamation consolidation or statutory share exchange shall have beneficial ownership of less than 50% of the combined voting power in the election of directors of the surviving corporation following the effective date of such merger, amalgamation, consolidation or statutory share exchange. | |
• | A person or group acquires beneficial ownership, directly or indirectly, of our securities representing 40% or more of the combined voting power in the election of directors of our then-outstanding securities or of any successor to us; |
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• | The members of our Board when our 2005 Long-Term Incentive Plan or who were appointed thereafter by at least two-thirds of the Board at the time of the appointment no longer constitute two-thirds of the Board; | |
• | We complete a merger, consolidation or amalgamation wherein our voting securities immediately prior thereto do not constitute at least 60 percent of the combined voting securities after the merger, consolidation or amalgamation; or | |
• | Our shareholders approve a plan of complete liquidation or winding-up or an agreement for the sale or disposition of all or substantially all of our assets. | |
Fees Earned or Paid | ||||||||||||
Name | in Cash ($) | Stock Awards ($)(1) | Total ($) | |||||||||
David M. Birsner | 50,000 | 8,002 | 58,002 | |||||||||
Alan Fulkerson(2) | 26,507 | 26,507 | ||||||||||
Daniel G. Hickey, Sr. | 50,000 | 8,002 | 58,002 | |||||||||
Keith S. Hynes | 100,000 | 6,697 | 106,697 | |||||||||
Charles I. Johnston(3) | 54,959 | 5,354 | 60,313 | |||||||||
Philip J. Magnarella | 75,000 | 8,002 | 83,002 | |||||||||
Salvatore A. Patafio | 100,000 | 8,002 | 108,002 | |||||||||
Louis Rosner, Esq. | 60,000 | 8,002 | 68,002 |
(1) | The grant date fair value of the awards for our directors in 2006 was: |
Grant Date Fair | ||||
Value of | ||||
Name | Stock Awards ($) | |||
David M. Birsner | 25,000 | |||
Daniel G. Hickey, Sr. | 25,000 | |||
Keith S. Hynes | 25,000 | |||
Charles I. Johnston | 25,000 | |||
Philip J. Magnarella | 25,000 | |||
Salvatore A. Patafio | 25,000 | |||
Louis Rosner, Esq. | 25,000 |
(2) | Alan Fulkerson resigned from our Board of Directors effective May 9, 2006. |
(3) | The reduced amount of fees paid to Charles Johnston in 2006 reflects the fact that he did not start service on our Board of Directors until his election at our 2006 Annual General Meeting of Shareholders on May 9, 2006. |
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Mr. Polansky |
Compensation and Severance Arrangement |
Other General Terms |
Mr. Sullivan |
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Compensation and Severance Arrangement |
Other General Terms |
132
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133
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Shares Beneficially | ||||||||
Owned | ||||||||
Beneficial Owner | Number(1) | Percent | ||||||
Daniel G. Hickey, Sr. | 1,803,895 | 11.7 | ||||||
Daniel G. Hickey, Jr.(2) | 1,539,691 | 9.9 | ||||||
Martin D. Rakoff(3) | 1,539,691 | 9.9 | ||||||
Louis J. Viglotti | 195,369 | 1.3 | ||||||
Chester J. Walczyk | 3,069 | * | ||||||
James J. Scardino | 5,366 | * | ||||||
David M. Birsner | 405,559 | 2.6 | ||||||
Keith S. Hynes | 2,103 | * | ||||||
Charles I. Johnston | 0 | * | ||||||
Philip J. Magnarella | 1,704 | * | ||||||
Salvatore A. Patafio | 204 | * | ||||||
Louis Rosner | 1,204 | * | ||||||
Entities affiliated with Wells Fargo(4) | 1,574,350 | 10.2 | ||||||
Executive officers and directors as a group | 3,958,164 | 25.6 |
(1) | Does not include the issuance of 210,593 restricted common shares to certain of our employees and additional restricted common shares to our non-employee directors that will vest in three equal annual installments beginning on the first anniversary of the respective grant dates. Such restricted common shares are not deemed to be outstanding under the laws of Bermuda until they vest. |
(2) | Does not include 395,000 Class B shares, which are non-voting shares convertible into common shares, equal to 50.0% of the outstanding Class B shares. |
(3) | Does not include 395,000 Class B shares, which are non-voting shares convertible into common shares, equal to 50.0% of the outstanding Class B shares. See “Selling Shareholders.” Mr. Rakoff’s address is 7030 Route 9, Rhinebeck, New York 12572. |
(4) | Based upon most recently available Schedule 13G filed with the Securities Exchange Commission on January 10, 2007, includes 1,574,350 shares held by a group, consisting of Wells Fargo & Company and certain of its subsidiaries and Wells Capital Management Incorporated. The address of Wells Fargo & Company and its subsidiaries is 420 Montgomery Street, San Francisco, California 94104 and the address for Wells Capital Management Incorporated is 525 Market Street, San Francisco, California 94105. |
* | Less than 1%. |
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Shares Beneficially | ||||||||||||
Owned | ||||||||||||
Prior to This Offering | ||||||||||||
Shares to be | ||||||||||||
Name of | Common | Percentage | Sold in This | |||||||||
Beneficial Owner | Shares | of Class | Offering | |||||||||
Martin D. Rakoff(1) | 1,934,691 | 12.45 | % | 1,934,691 | ||||||||
Anthony Bottini, Jr. | 236,988 | 1.5 | 236,988 | |||||||||
Mark Bottini | 236,988 | 1.5 | 236,988 | |||||||||
Brian Bottini | 236,988 | 1.5 | 236,988 | |||||||||
Dominick Diaferia | 236,988 | 1.5 | 236,988 |
(1) | Includes 395,000 Class B shares which will be exchanged for 395,000 common shares immediately prior to the consummation of the offering. Mr. Rakoff’s address is 7030 Route 9, Rhinebeck, New York 12572. |
135
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136
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• | $3,300,000 in 16 quarterly cash installments of $206,250, commencing on January 1, 2007 and continuing until October 1, 2010, subject to Mr. Rakoff’s continued compliance with the restrictive covenants described below and such payments are subject to delay to the extent necessary to avoid the imposition of any federal excise taxes; | |
• | a one-time payment of $162,000 in connection with Mr. Rakoff’s registration rights; | |
• | the welfare benefits to which he was entitled under his employment agreement for a period of three years; | |
• | all benefits accrued under any deferred compensation plan in which he participated, payable in accordance with the terms of such plan; and | |
• | reimbursement of professional financial advisory fees of up to $20,000. |
137
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Prospective investors should consult their own tax advisors concerning the U.S. federal, state, local andnon-U.S. tax consequences to them of owning shares. |
138
Table of Contents
U.S. Taxation of CRM Holdings, Twin Bridges and CRM USA Holdings |
139
Table of Contents
140
Table of Contents
U.S. Taxation of Holders of Shares |
Shareholders Who Are U.S. Persons |
141
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• | an individual is treated as owning stock owned by certain members of his or her family; | |
• | a corporation is treated as owning stock owned by a 50% or greater shareholder; | |
• | a partnership is treated as owning stock owned by its partners (regardless of their percentage ownership of the partnership); and | |
• | stock owned by a partnership or a corporation is treated as owned proportionately by the owners of the entity (in the case of corporations, only if the shareholder owns 10% or more of the stock of the corporation). |
Related Person Insurance Income |
142
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143
Table of Contents
Basis Adjustments |
Information Reporting |
144
Table of Contents
Tax-Exempt Shareholders |
Dispositions of Shares |
Passive Foreign Investment Companies |
145
Table of Contents
Other |
Shareholders Who AreNon-U.S. Persons |
All Shareholders |
146
Table of Contents
147
Table of Contents
148
Table of Contents
Our Board of Directors and Corporate Action |
Shareholder Action |
Transfer Restrictions |
Tax Liability Resulting from Acts of Shareholders |
149
Table of Contents
Amendment of Bye-laws |
Anti-Takeover Provisions |
• | election of our directors is staggered, meaning that the members of only one of three classes of our directors are elected each year; | |
• | the total voting power of any shareholder owning more than 9.9% of our common shares will be reduced to 9.9% of the total voting power of our common shares; and | |
• | our directors may, in their discretion, decline to record the transfer of any common shares on our share register if the shares have not been fully paid for, if the directors are not satisfied that all required regulatory approvals for such transfer have been obtained, if as a result of the transfer a shareholder would hold more than 9.9% of our common shares or if the instrument of transfer is in favor of more than five persons jointly. |
• | a duty to act in good faith in the best interests of the company; | |
• | a duty not to make a personal profit from opportunities that arise from the office of director; | |
• | a duty to avoid conflicts of interest; and | |
• | a duty to exercise powers for the purpose for which such powers were intended. |
150
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Interested Directors |
151
Table of Contents
Voting Rights and Quorum Requirements |
Dividends |
152
Table of Contents
Amalgamations, Mergers and Similar Arrangements |
Takeovers |
Shareholders’ Suits |
153
Table of Contents
Approval of Corporate Matters by Written Consent |
Indemnification of Directors and Officers |
Inspection of Corporate Records |
154
Table of Contents
Shareholder Proposals |
Calling of Special Shareholders Meetings |
Staggered Board of Directors |
Amendment of Memorandum of Association |
155
Table of Contents
Amendment of Bye-laws |
Enforcement of Judgments and Other Matters |
156
Table of Contents
157
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Per Share | $ | |||
Total | $ |
158
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159
Table of Contents
160
Table of Contents
161
Page | ||||
CRM Holdings, Ltd. and Subsidiaries | ||||
Interim Unaudited Consolidated Financial Statements: | ||||
F-2 | ||||
F-3 | ||||
F-4 | ||||
F-5 | ||||
Annual Consolidated Financial Statements: | ||||
F-16 | ||||
F-17 | ||||
F-18 | ||||
F-19 | ||||
F-20 | ||||
F-21 | ||||
Embarcadero Insurance Holdings, Inc. and Subsidiaries | ||||
Interim Unaudited Condensed Consolidated Financial Statements | ||||
F-39 | ||||
F-40 | ||||
F-41 | ||||
F-42 | ||||
F-43 | ||||
Annual Consolidated Financial Statements | ||||
Report of Independent Auditors | F-50 | |||
Consolidated Balance Sheets as of December 31, 2005 and 2004 | F-51 | |||
Consolidated Statements of Income and Comprehensive Income for the years ended December 31, 2005, 2004 and 2003 | F-52 | |||
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2005, 2004 and 2003 | F-53 | |||
Consolidated Statements of Cash Flows for the years ended December 31, 2005, 2004 and 2003 | F-54 | |||
Notes to Consolidated Financial Statements | F-55 |
F-1
Table of Contents
September 30, | December 31, | |||||||||
2006 | 2005 | |||||||||
(Unaudited) | ||||||||||
Assets | ||||||||||
Investments: | ||||||||||
Fixed-maturity securities, available-for-sale | $ | 73,249,673 | $ | 8,185,367 | ||||||
Cash and cash equivalents | 9,216,273 | 67,922,802 | ||||||||
Cash and cash equivalents, restricted | — | 884,727 | ||||||||
Premiums receivable | 13,081,659 | 2,648,455 | ||||||||
Accounts receivable | 5,080,882 | 2,057,797 | ||||||||
Deferred policy acquisition costs | 2,705,844 | 441,770 | ||||||||
Property and equipment, at cost (less accumulated depreciation of $820,665 and $650,663) | 1,232,638 | 971,037 | ||||||||
Loans receivable | 36,534 | 412,335 | ||||||||
Deferred income taxes | 136,200 | 5,200 | ||||||||
Prepaid expenses and other assets | 944,422 | 377,350 | ||||||||
Total assets | $ | 105,684,125 | $ | 83,906,840 | ||||||
Liabilities and shareholders’ equity | ||||||||||
Reserve for losses and loss adjustment expenses | $ | 10,774,255 | $ | 6,279,744 | ||||||
Unearned reinsurance premiums | 8,968,832 | 1,493,911 | ||||||||
Unearned management fees | 810,427 | 387,974 | ||||||||
Unearned commission income | 124,987 | 931,331 | ||||||||
Borrowings under credit facilities | 44,930 | 82,512 | ||||||||
Fees payable to general agents and brokers | 846,907 | 759,788 | ||||||||
Accrued IPO costs | — | 2,410,961 | ||||||||
Other accrued expenses | 4,713,574 | 2,630,489 | ||||||||
Total liabilities | 26,283,912 | 14,976,710 | ||||||||
Common Stock | ||||||||||
Authorized 50,000,000,000 shares; $.01 par value; 15,457,115 common shares issued and outstanding; | 154,571 | 154,571 | ||||||||
790,000 Class B shares issued and outstanding | 7,900 | 7,900 | ||||||||
Additional paid-in capital | 66,442,974 | 66,057,076 | ||||||||
Retained earnings | 12,805,727 | 2,716,735 | ||||||||
Accumulated other comprehensive loss | (10,959 | ) | (6,152 | ) | ||||||
Total shareholders’ equity | 79,400,213 | 68,930,130 | ||||||||
Total liabilities and shareholders’ equity | $ | 105,684,125 | $ | 83,906,840 | ||||||
F-2
Table of Contents
Three Months Ended | Nine Months Ended | ||||||||||||||||
2006 | 2005 | 2006 | 2005 | ||||||||||||||
Revenues | |||||||||||||||||
Fee-based management services: | |||||||||||||||||
Management fees | $ | 8,451,759 | $ | 7,739,934 | $ | 24,719,737 | $ | 22,124,085 | |||||||||
Commission income | 1,601,106 | 1,965,052 | 4,936,115 | 4,075,344 | |||||||||||||
10,052,865 | 9,704,986 | 29,655,852 | 26,199,429 | ||||||||||||||
Net reinsurance premiums earned | 6,286,906 | 2,250,091 | 16,200,610 | 5,295,237 | |||||||||||||
Investment income | 944,391 | 62,007 | 2,583,775 | 115,471 | |||||||||||||
Total revenues | 17,284,162 | 12,017,084 | 48,440,237 | 31,610,137 | |||||||||||||
Expenses | |||||||||||||||||
Losses and loss adjustment expenses | 2,263,284 | 964,325 | 4,494,511 | 2,269,387 | |||||||||||||
Fees paid to general agents and brokers | 2,660,087 | 2,815,803 | 7,926,679 | 8,443,514 | |||||||||||||
Policy acquisition costs | 1,896,614 | 665,383 | 4,869,658 | 1,565,879 | |||||||||||||
Selling, general and administrative expenses | 6,557,575 | 5,086,609 | 19,961,690 | 13,970,318 | |||||||||||||
Interest expense | 1,413 | 13,425 | 31,591 | 42,205 | |||||||||||||
Total expenses | 13,378,973 | 9,545,545 | 37,284,129 | 26,291,303 | |||||||||||||
Income before taxes | 3,905,189 | 2,471,539 | 11,156,108 | 5,318,834 | |||||||||||||
Provision for income taxes | 563,326 | — | 1,067,116 | — | |||||||||||||
Net Income | $ | 3,341,863 | $ | 2,471,539 | $ | 10,088,992 | $ | 5,318,834 | |||||||||
Basic and fully diluted earnings per share: | $ | 0.21 | $ | 0.24 | $ | 0.62 | $ | 0.52 | |||||||||
Weighted average shares outstanding: | |||||||||||||||||
Basic | 16,247,115 | 10,247,115 | 16,247,115 | 10,247,115 | |||||||||||||
Fully diluted | 16,247,115 | 10,247,115 | 16,252,418 | 10,247,115 | |||||||||||||
Comprehensive Income | |||||||||||||||||
Net Income | $ | 3,341,863 | $ | 2,471,539 | $ | 10,088,992 | $ | 5,318,834 | |||||||||
Other comprehensive loss: | |||||||||||||||||
Gross unrealized investment holding gains (losses) arising during the period | 25,085 | — | (28,262 | ) | — | ||||||||||||
Less reclassification adjustment for losses included in net income | 1,767 | — | 23,455 | — | |||||||||||||
Total other comprehensive gain (loss) | 26,852 | — | (4,807 | ) | — | ||||||||||||
Total comprehensive income | $ | 3,368,715 | $ | 2,471,539 | $ | 10,084,185 | $ | 5,318,834 | |||||||||
F-3
Table of Contents
2006 | 2005 | |||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||||||
Net income | $ | 10,088,992 | $ | 5,318,834 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 173,188 | 160,393 | ||||||||||
Amortization of unearned compensation, restricted stock | 385,898 | — | ||||||||||
Amortization of discounts on fixed-maturity securities, available-for-sale | (1,520,594 | ) | — | |||||||||
Net realized losses on sale of fixed-maturity securities, available-for-sale | 23,455 | — | ||||||||||
Deferred income tax benefit | (131,000 | ) | — | |||||||||
Changes in: | ||||||||||||
Cash and cash equivalents, restricted | 884,727 | 2,794,972 | ||||||||||
Premiums receivable | (10,433,204 | ) | 810,225 | |||||||||
Accounts receivable | (1,273,085 | ) | (2,587,454 | ) | ||||||||
Deferred policy acquisition costs | (2,264,074 | ) | 494,886 | |||||||||
Deferred IPO costs | — | (1,334,027 | ) | |||||||||
Prepaid expenses and other assets | (567,072 | ) | (457,911 | ) | ||||||||
Reserve for losses and loss adjustment expenses | 4,494,511 | 2,269,387 | ||||||||||
Unearned reinsurance premiums | 7,474,921 | (1,673,525 | ) | |||||||||
Unearned management fees | 422,453 | 466,314 | ||||||||||
Unearned commission income | (806,344 | ) | (265,181 | ) | ||||||||
Fees payable to general agents and brokers | 87,119 | 206,349 | ||||||||||
Other accrued expenses | 333,085 | 1,901,948 | ||||||||||
Net cash provided by operating activities | 7,372,976 | 8,105,210 | ||||||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||||||
Purchases of fixed-maturity securities, available-for-sale | (171,214,497 | ) | (5,533,211 | ) | ||||||||
Proceeds from sales and maturities of fixed-maturity securities, available-for-sale | 107,642,523 | — | ||||||||||
Property and equipment | (434,789 | ) | (218,962 | ) | ||||||||
Loans receivable, net | 375,801 | 18,796 | ||||||||||
Net cash used in investing activities | (63,630,962 | ) | (5,733,377 | ) | ||||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||||||
Decrease in accrued IPO costs | (2,410,961 | ) | — | |||||||||
Net (repayments) borrowings under credit facilities | (37,582 | ) | 3,439,098 | |||||||||
Distributions paid to LLC Members | — | (6,760,927 | ) | |||||||||
Net cash used in financing activities | (2,448,543 | ) | (3,321,829 | ) | ||||||||
Net decrease in cash | (58,706,529 | ) | (949,996 | ) | ||||||||
Cash and cash equivalents | ||||||||||||
Beginning | 67,922,802 | 1,584,083 | ||||||||||
Ending | $ | 9,216,273 | $ | 634,087 | ||||||||
F-4
Table of Contents
Note 1. | Nature of Business and Significant Accounting Policies |
F-5
Table of Contents
F-6
Table of Contents
Note 2. | Earnings per Share |
F-7
Table of Contents
For the Three Months Ended September 30, 2006 | ||||||||||||
Income | Shares | Per Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
Basic and fully diluted earnings per share | $ | 3,341,863 | 16,247,115 | $ | 0.21 |
For the Nine Months Ended September 30, 2006 | |||||||||||||
Income | Shares | Per Share | |||||||||||
(Numerator) | (Denominator) | Amount | |||||||||||
Basic earnings per share | $ | 10,088,992 | 16,247,115 | $ | 0.62 | ||||||||
Effect of dilutive securities: | |||||||||||||
Unvested restricted shares | — | 5,303 | — | ||||||||||
Fully diluted earnings per share | $ | 10,088,992 | 16,252,418 | $ | 0.62 | ||||||||
Note 3. | Investments |
Gross | Gross | |||||||||||
Amortized | Unrealized | Unrealized | Estimated | |||||||||
As of September 30, 2006 | Cost | Gains | Losses | Fair Value | ||||||||
U.S. Government and agencies | $73,260,632 | $ | 6,932 | $ | (17,891 | ) | $73,249,673 | |||||
Total investments | $73,260,632 | $ | 6,932 | $ | (17,891 | ) | $73,249,673 | |||||
F-8
Table of Contents
Note 4. | Deferred Policy Acquisition Costs |
As of September 30, | 2006 | 2005 | |||||||
Balance at beginning of period | $ | 441,770 | $ | 1,413,500 | |||||
Policy acquisition costs deferred: | |||||||||
Ceding commissions | 6,266,113 | 1,034,775 | |||||||
Other | 867,619 | 36,218 | |||||||
7,133,732 | 1,070,993 | ||||||||
Amortization of policy acquisition costs | (4,869,658 | ) | (1,565,879 | ) | |||||
Net change | 2,264,074 | (494,886 | ) | ||||||
Balance at end of period | $ | 2,705,844 | $ | 918,614 | |||||
Note 6. | Income Taxes |
F-9
Table of Contents
Nine Months Ended September 30, | 2006 | 2005 | |||||||
Current income tax provision | |||||||||
Federal | $ | 1,057,116 | $ | — | |||||
State and local | 141,000 | — | |||||||
1,198,116 | — | ||||||||
Deferred tax benefit | |||||||||
Federal | (128,000 | ) | — | ||||||
State and local | (3,000 | ) | — | ||||||
(131,000 | ) | — | |||||||
Total income tax provision | $ | 1,067,116 | $ | — | |||||
Nine Months Ended September 30, | 2006 | 2005 | ||||||
Theoretical Federal income tax at statutory rate of 35% | $ | 3,905,000 | $ | — | ||||
Tax-free Bermuda-domiciled income | (2,574,000 | ) | — | |||||
Income attributable to pre-restructuring LLCs taxed in the hands of its members prior to the IPO date | (347,000 | ) | — | |||||
State income taxes net of federal benefit | 81,000 | |||||||
Other | 2,116 | — | ||||||
Income tax provision | $ | 1,067,116 | $ | — | ||||
As of September 30, | 2006 | 2005 | ||||||||
Deferred income tax assets: | ||||||||||
Property and equipment | $ | 4,000 | $ | — | ||||||
Employee stock compensation | 132,200 | — | ||||||||
Net deferred income tax asset | $ | 136,200 | $ | — | ||||||
Note 7. | Reinsurance Activity |
Nine Months Ended September 30, | 2006 | 2005 | ||||||
Premiums assumed | $ | 23,675,531 | $ | 3,634,312 | ||||
Change in unearned reinsurance premiums | (7,474,921 | ) | 1,660,925 | |||||
Net reinsurance premiums earned | $ | 16,200,610 | $ | 5,295,237 | ||||
F-10
Table of Contents
As of September 30, | 2006 | 2005 | ||||||||
Liability at beginning of period | $ | 6,279,744 | $ | 2,696,000 | ||||||
Incurred losses and LAE relating to: | ||||||||||
Current year | 5,832,217 | 2,269,387 | ||||||||
Prior years | (1,337,706 | ) | — | |||||||
Total incurred losses and LAE | 4,494,511 | 2,269,387 | ||||||||
Paid losses and LAE relating to: | ||||||||||
Current year | — | — | ||||||||
Prior years | — | — | ||||||||
Total paid losses and LAE | — | — | ||||||||
Liability at end of period | $ | 10,774,255 | $ | 4,965,387 | ||||||
Note 8. | Share-Based Compensation |
Weighted | ||||||||
Average | ||||||||
Grant Date | ||||||||
Shares | Fair Value | |||||||
Balance, December 31, 2005 | 89,579 | $ | 13.00 | |||||
Granted during the year | 59,096 | $ | 11.55 | |||||
Forfeited during the year | (6,491 | ) | $ | 11.17 | ||||
Balance, September 30, 2006 | 142,184 | $ | 12.48 | |||||
F-11
Table of Contents
Note 9. | Related Parties |
For the Nine Months Ended September 30, | 2006 | 2005 | ||||||
Fees paid to general agents and brokers | $ | 190,158 | $ | 116,685 | ||||
Other operating expenses | 75,301 | 27,948 | ||||||
$ | 265,459 | $ | 144,633 | |||||
Note 10. | Contingencies |
F-12
Table of Contents
Note 11. | Segment Information |
For the Three Months Ended September 30, 2006 | |||||||||||||||||
Fee-Based | |||||||||||||||||
Management | Corporate and | ||||||||||||||||
Services | Reinsurance | Other | Total | ||||||||||||||
Revenues: | |||||||||||||||||
Management fees | $ | 8,451,759 | $ | — | $ | — | $ | 8,451,759 | |||||||||
Commissions | 1,601,106 | — | — | 1,601,106 | |||||||||||||
Net reinsurance premiums | — | 6,286,906 | — | 6,286,906 | |||||||||||||
Investment income | 35,424 | 710,013 | 198,954 | 944,391 | |||||||||||||
Total revenues | 10,088,289 | 6,996,919 | 198,954 | 17,284,162 | |||||||||||||
Expenses: | |||||||||||||||||
Underwriting expenses | — | 4,159,898 | — | 4,159,898 | |||||||||||||
Interest expense | 1,413 | — | — | 1,413 | |||||||||||||
Depreciation and amortization | 69,337 | — | — | 69,337 | |||||||||||||
Operating expenses | 8,517,524 | 85,588 | 545,213 | 9,148,325 | |||||||||||||
Total expenses | 8,588,274 | 4,245,486 | 545,213 | 13,378,973 | |||||||||||||
Income before taxes | $ | 1,500,015 | $ | 2,751,433 | $ | (346,259 | ) | $ | 3,905,189 | ||||||||
Total Assets | $ | 8,835,647 | $ | 79,871,966 | $ | 16,976,512 | $ | 105,684,125 | |||||||||
F-13
Table of Contents
For the Three Months Ended September 30, 2005 | |||||||||||||||||
Fee-Based | |||||||||||||||||
Management | Corporate | ||||||||||||||||
Services | Reinsurance | and Other | Total | ||||||||||||||
Revenues: | |||||||||||||||||
Management fees | $ | 7,739,934 | $ | — | $ | — | $ | 7,739,934 | |||||||||
Commissions | 1,965,052 | — | — | 1,965,052 | |||||||||||||
Net reinsurance premiums | — | 2,250,091 | — | 2,250,091 | |||||||||||||
Investment income | 11,507 | 50,500 | — | 62,007 | |||||||||||||
Total revenues | 9,716,493 | 2,300,591 | — | 12,017,084 | |||||||||||||
Expenses: | |||||||||||||||||
Underwriting expenses | — | 1,629,708 | — | 1,629,708 | |||||||||||||
Interest expense | 13,425 | — | — | 13,425 | |||||||||||||
Depreciation and amortization | 58,113 | — | — | 58,113 | |||||||||||||
Operating expenses | 7,809,734 | 34,565 | — | 7,844,299 | |||||||||||||
Total expenses | 7,881,272 | 1,664,273 | — | 9,545,545 | |||||||||||||
Income before taxes | $ | 1,835,221 | $ | 636,318 | $ | — | $ | 2,471,539 | |||||||||
Total Assets | $ | 5,861,591 | $ | 11,765,017 | $ | — | $ | 17,626,608 | |||||||||
For the Nine Months Ended September 30, 2006 | |||||||||||||||||
Fee-Based | |||||||||||||||||
Management | Corporate and | ||||||||||||||||
Services | Reinsurance | Other | Total | ||||||||||||||
Revenues: | |||||||||||||||||
Management fees | $ | 24,719,737 | $ | — | $ | — | $ | 24,719,737 | |||||||||
Commissions | 4,936,115 | — | — | 4,936,115 | |||||||||||||
Net reinsurance premiums | — | 16,200,610 | — | 16,200,610 | |||||||||||||
Investment income | 75,776 | 1,932,225 | 575,774 | 2,583,775 | |||||||||||||
Total revenues | 29,731,628 | 18,132,835 | 575,774 | 48,440,237 | |||||||||||||
Expenses: | |||||||||||||||||
Underwriting expenses | — | 9,364,169 | — | 9,364,169 | |||||||||||||
Interest expense | 31,591 | — | — | 31,591 | |||||||||||||
Depreciation and amortization | 173,188 | — | — | 173,188 | |||||||||||||
Operating expenses | 25,720,749 | 413,517 | 1,580,915 | 27,715,181 | |||||||||||||
Total expenses | 25,925,528 | 9,777,686 | 1,580,915 | 37,284,129 | |||||||||||||
Income before taxes | $ | 3,806,100 | $ | 8,355,149 | $ | (1,005,141 | ) | $ | 11,156,108 | ||||||||
Total Assets | $ | 8,835,647 | $ | 79,871,966 | $ | 16,976,512 | $ | 105,684,125 | |||||||||
F-14
Table of Contents
For the Nine Months Ended September 30, 2005 | |||||||||||||||||
Fee-Based | |||||||||||||||||
Management | Corporate and | ||||||||||||||||
Services | Reinsurance | Other | Total | ||||||||||||||
Revenues: | |||||||||||||||||
Management fees | $ | 22,124,085 | $ | — | $ | — | $ | 22,124,085 | |||||||||
Commissions | 4,075,344 | — | — | 4,075,344 | |||||||||||||
Net reinsurance premiums | — | 5,295,237 | — | 5,295,237 | |||||||||||||
Investment income | 24,898 | 90,573 | — | 115,471 | |||||||||||||
Total revenues | 26,224,327 | 5,385,810 | — | 31,610,137 | |||||||||||||
Expenses: | |||||||||||||||||
Underwriting expenses | — | 3,835,266 | — | 3,835,266 | |||||||||||||
Interest expense | 42,205 | — | — | 42,205 | |||||||||||||
Depreciation and amortization | 160,393 | — | — | 160,393 | |||||||||||||
Operating expenses | 22,080,461 | 172,978 | — | 22,253,439 | |||||||||||||
Total expenses | 22,283,059 | 4,008,244 | — | 26,291,303 | |||||||||||||
Income before taxes | $ | 3,941,268 | $ | 1,377,566 | $ | — | $ | 5,318,834 | |||||||||
Total Assets | $ | 5,861,591 | $ | 11,765,017 | $ | — | $ | 17,626,608 | |||||||||
F-15
Table of Contents
/s/ JOHNSON LAMBERT & CO. LLP |
F-16
Table of Contents
December 31 | |||||||||
2005 | 2004 | ||||||||
Assets | |||||||||
Cash and cash equivalents | $ | 67,922,802 | $ | 1,584,083 | |||||
Cash and cash equivalents, restricted | 884,727 | 4,390,738 | |||||||
Investments: | |||||||||
Fixed-maturity securities, available-for-sale | 8,185,367 | — | |||||||
Premiums receivable | 2,648,455 | 3,758,139 | |||||||
Accounts receivable | 2,066,897 | 41,170 | |||||||
Deferred policy acquisition costs | 441,770 | 1,413,500 | |||||||
Property and equipment, net | 971,037 | 912,956 | |||||||
Loans receivable | 412,335 | 431,606 | |||||||
Deferred income taxes | 5,200 | — | |||||||
Prepaid expenses and other assets | 377,350 | 192,119 | |||||||
Total assets | $ | 83,915,940 | $ | 12,724,311 | |||||
Liabilities and shareholders’ and members’ equity | |||||||||
Reserve for losses and loss adjustment expenses | $ | 6,279,744 | $ | 2,696,000 | |||||
Unearned reinsurance premiums | 1,493,911 | 4,779,950 | |||||||
Unearned management fees | 387,974 | 670,631 | |||||||
Unearned commission income | 931,331 | 2,333,940 | |||||||
Borrowings under credit facilities | 82,512 | 158,307 | |||||||
Fees payable to general agents and brokers | 585,788 | 565,571 | |||||||
Accrued IPO costs | 2,410,961 | — | |||||||
Other accrued expenses | 2,813,589 | 631,885 | |||||||
Total liabilities | 14,985,810 | 11,836,284 | |||||||
Members’ deficit in pre-restructuring LLCs | — | (946,864 | ) | ||||||
Common stock and paid-in capital of Twin Bridges | — | 1,000,000 | |||||||
Common Stock | |||||||||
Authorized 50,000,000,000 shares; $.01 par value; 15,457,115 common shares issued and outstanding; | 154,571 | — | |||||||
790,000 Class B shares issued and outstanding | 7,900 | — | |||||||
Additional paid-in capital | 67,208,603 | — | |||||||
Retained earnings | 2,716,735 | 834,891 | |||||||
Unearned compensation, restricted stock | (1,151,527 | ) | — | ||||||
Accumulated other comprehensive loss | (6,152 | ) | — | ||||||
Total shareholders’ and members’ equity | 68,930,130 | 888,027 | |||||||
Total liabilities and shareholders’ and members’ equity | $ | 83,915,940 | $ | 12,724,311 | |||||
F-17
Table of Contents
Year Ended December 31 | |||||||||||||
2005 | 2004 | 2003 | |||||||||||
Revenues | |||||||||||||
Fee-based management services: | |||||||||||||
Management fees | $ | 30,540,308 | $ | 23,510,174 | $ | 17,889,315 | |||||||
Commission income | 5,954,799 | 4,145,552 | 2,931,813 | ||||||||||
36,495,107 | 27,655,726 | 20,821,128 | |||||||||||
Net reinsurance premiums earned | 8,362,072 | 5,109,883 | 253,167 | ||||||||||
Investment income | 209,921 | 54,477 | 15,789 | ||||||||||
Total revenues | 45,067,100 | 32,820,086 | 21,090,084 | ||||||||||
Expenses | |||||||||||||
Losses and loss adjustment expenses | 3,583,744 | 2,528,083 | 167,917 | ||||||||||
Fees paid to general agents and brokers | 11,490,224 | 9,507,546 | 7,829,685 | ||||||||||
Policy acquisition costs | 2,472,786 | 1,511,065 | 74,865 | ||||||||||
Selling, general and administrative expenses | 20,076,235 | 13,440,809 | 9,240,562 | ||||||||||
Interest expense | 106,722 | 26,753 | 45,989 | ||||||||||
Total expenses | 37,729,711 | 27,014,256 | 17,359,018 | ||||||||||
Income before taxes | 7,337,389 | 5,805,830 | 3,731,066 | ||||||||||
Provision for income taxes | 62,800 | — | — | ||||||||||
Net Income | $ | 7,274,589 | $ | 5,805,830 | $ | 3,731,066 | |||||||
Basic and fully diluted earnings per share | $ | 0.70 | $ | 0.57 | $ | 0.36 | |||||||
Weighted average shares outstanding: | |||||||||||||
Basic | 10,427,937 | 10,247,115 | 10,247,115 | ||||||||||
Fully diluted | 10,430,637 | 10,247,115 | 10,247,115 | ||||||||||
Comprehensive Income | |||||||||||||
Net Income | $ | 7,274,589 | $ | 5,805,830 | $ | 3,731,066 | |||||||
Other comprehensive income (loss): | |||||||||||||
Gross unrealized investment holding gains arising during the period | 19,859 | — | — | ||||||||||
Less reclassification adjustment for gains included in net income | 26,011 | — | — | ||||||||||
Total other comprehensive loss | (6,152 | ) | — | — | |||||||||
Total comprehensive income | $ | 7,268,437 | $ | 5,805,830 | $ | 3,731,066 | |||||||
F-18
Table of Contents
Years Ended December 31 | ||||||||||||||||||||||||||||||||||||
Members’ | Common | |||||||||||||||||||||||||||||||||||
Equity | Stock and | |||||||||||||||||||||||||||||||||||
(Deficit) in | Paid-in | Unearned | Accumulated- | |||||||||||||||||||||||||||||||||
Pre- | Capital of | Additional | Compensation, | Other | ||||||||||||||||||||||||||||||||
Restructuring | Twin | Common | Class B | Paid-In | Retained | Restricted | Comprehensive- | |||||||||||||||||||||||||||||
LLCs | Bridges | Stock | Shares | Capital | Earnings | Stock | Loss | Total | ||||||||||||||||||||||||||||
Balances at December 31, 2002 | $ | 894,103 | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | — | $ | 894,103 | ||||||||||||||||||
Issuance of common stock | — | 1,000,000 | — | — | — | — | — | 1,000,000 | ||||||||||||||||||||||||||||
Net income (loss) | 3,782,342 | — | — | — | — | (51,276 | ) | — | — | 3,731,066 | ||||||||||||||||||||||||||
Distributions to members of pre- restructuring LLCs | (6,789,106 | ) | — | — | — | — | — | — | — | (6,789,106 | ) | |||||||||||||||||||||||||
Balances at December 31, 2003 | (2,112,661 | ) | 1,000,000 | — | — | — | (51,276 | ) | — | — | (1,163,937 | ) | ||||||||||||||||||||||||
Net income | 4,919,663 | — | — | — | — | 886,167 | — | — | 5,805,830 | |||||||||||||||||||||||||||
Distributions to members of pre- restructuring LLCs | (3,753,866 | ) | — | — | — | — | — | — | — | (3,753,866 | ) | |||||||||||||||||||||||||
Balances at December 31, 2004 | (946,864 | ) | 1,000,000 | — | — | — | 834,891 | — | — | 888,027 | ||||||||||||||||||||||||||
Net income | 5,392,745 | — | — | — | — | 1,881,844 | — | — | 7,274,589 | |||||||||||||||||||||||||||
Unrealized holding losses arising during the period | — | — | — | — | — | — | — | (6,152 | ) | (6,152 | ) | |||||||||||||||||||||||||
Distributions to members of pre- restructuring LLCs | (7,943,103 | ) | — | — | — | — | — | — | — | (7,943,103 | ) | |||||||||||||||||||||||||
Stock based compensation | — | — | — | — | 1,164,527 | — | (1,164,527 | ) | — | — | ||||||||||||||||||||||||||
Amortization of unearned compensation | — | — | — | — | — | — | 13,000 | — | 13,000 | |||||||||||||||||||||||||||
Reclassification of members’ deficit and common stock and paid-in capital of pre-restructuring entities | 3,497,222 | (1,000,000 | ) | — | — | (2,497,222 | ) | — | — | — | — | |||||||||||||||||||||||||
Issuance of common stock in connection with formation of the Company | — | — | 12,000 | — | — | — | — | — | 12,000 | |||||||||||||||||||||||||||
Repurchase and retirement of common shares | — | — | (12,000 | ) | — | — | — | — | — | (12,000 | ) | |||||||||||||||||||||||||
Issuance of common stock in initial public offering, net of offering costs | — | — | 154,571 | 7,900 | 68,541,298 | — | — | — | 68,703,769 | |||||||||||||||||||||||||||
Balances at December 31, 2005 | $ | — | $ | — | $ | 154,571 | $ | 7,900 | $ | 67,208,603 | $ | 2,716,735 | $ | (1,151,527 | ) | $ | (6,152 | ) | $ | 68,930,130 | ||||||||||||||||
F-19
Table of Contents
Years Ended December 31 | ||||||||||||||||
2005 | 2004 | 2003 | ||||||||||||||
Cash Flows From Operating Activities | ||||||||||||||||
Net income | $ | 7,274,589 | $ | 5,805,830 | $ | 3,731,066 | ||||||||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||||
Depreciation and amortization | 226,468 | 189,474 | 179,336 | |||||||||||||
Amortization of unearned compensation, restricted stock | 13,000 | — | — | |||||||||||||
Amortization of discounts on fixed maturities | (48,735 | ) | — | — | ||||||||||||
Net realized gains on sale of investments | (26,011 | ) | — | — | ||||||||||||
Deferred income tax benefit | (5,200 | ) | — | — | ||||||||||||
Changes in: | ||||||||||||||||
Cash and cash equivalents, restricted | 3,506,011 | (3,390,738 | ) | (1,000,000 | ) | |||||||||||
Premiums receivable | 1,109,684 | (1,618,519 | ) | (2,139,620 | ) | |||||||||||
Accounts receivable | (2,025,727 | ) | 48,824 | (89,994 | ) | |||||||||||
Deferred policy acquisition costs | 971,730 | (589,985 | ) | (823,515 | ) | |||||||||||
Prepaid expenses and other assets | (185,231 | ) | (94,458 | ) | 1,193,649 | |||||||||||
Reserve for losses and loss adjustment expenses | 3,583,744 | 2,528,083 | 167,917 | |||||||||||||
Unearned reinsurance premiums | (3,286,039 | ) | 1,995,116 | 2,784,834 | ||||||||||||
Unearned management fees | (282,657 | ) | 56,332 | (1,174,676 | ) | |||||||||||
Unearned commission income | (1,402,609 | ) | 87,112 | 84,211 | ||||||||||||
Fees payable to general agents and brokers | 20,217 | (12,778 | ) | 41,093 | ||||||||||||
Other accrued expenses | 2,181,704 | 262,860 | 52,322 | |||||||||||||
Net cash provided by operating activities | 11,624,938 | 5,267,153 | 3,006,623 | |||||||||||||
Cash Flows From Investing Activities | ||||||||||||||||
Purchases of fixed maturity securities available-for-sale | (10,610,522 | ) | — | — | ||||||||||||
Proceeds from sales and maturities of fixed maturities available-for-sale | 2,493,749 | — | — | |||||||||||||
Property and equipment, net | (284,549 | ) | (310,238 | ) | (175,442 | ) | ||||||||||
Loans receivable, net | 19,271 | (258,939 | ) | (99,667 | ) | |||||||||||
Net cash used in investing activities | (8,382,051 | ) | (569,177 | ) | (275,109 | ) | ||||||||||
Cash Flows From Financing Activities | ||||||||||||||||
Net proceeds from issuance of common stock | 68,703,769 | — | — | |||||||||||||
Net proceeds from issuance of pre-restructuring entity’s common stock | — | — | 1,000,000 | |||||||||||||
Increase in accrued IPO costs | 2,410,961 | — | — | |||||||||||||
Net borrowings under credit facilities | (75,795 | ) | (126,724 | ) | (819,786 | ) | ||||||||||
Distributions paid to LLC Members | (7,943,103 | ) | (3,753,866 | ) | (6,789,106 | ) | ||||||||||
Net cash provided (used) in financing activities | 63,095,832 | (3,880,590 | ) | (6,608,892 | ) | |||||||||||
Net increase (decrease) in cash | 66,338,719 | 817,386 | (3,877,378 | ) | ||||||||||||
Cash and cash equivalents Beginning | 1,584,083 | 766,697 | 4,644,075 | |||||||||||||
Ending | $ | 67,922,802 | $ | 1,584,083 | $ | 766,697 | ||||||||||
Supplemental Cash Flow Disclosures | ||||||||||||||||
Income taxes paid | $ | — | $ | — | $ | — | ||||||||||
Interest paid | $ | 106,722 | $ | 26,351 | $ | 45,438 |
F-20
Table of Contents
Note 1. | Nature of Business and Significant Accounting Policies |
F-21
Table of Contents
F-22
Table of Contents
F-23
Table of Contents
F-24
Table of Contents
For the Year Ended December 31, 2005 | ||||||||||||
Income | Shares | Per Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
Basic net income per share | $ | 7,274,589 | 10,427,937 | $ | 0.70 | |||||||
Effect of dilutive securities: | ||||||||||||
Unvested restricted shares | — | 2,700 | — | |||||||||
Fully diluted earnings per share | $ | 7,274,589 | 10,430,637 | $ | 0.70 | |||||||
F-25
Table of Contents
Reclassification |
Note 2. | Investments and Related Income |
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Estimated | |||||||||||||
Year Ended December 31, 2005 | Cost | Gains | Losses | Fair Value | ||||||||||||
U.S. Treasury Bills | $ | 8,191,519 | $ | — | $ | 6,152 | $ | 8,185,367 | ||||||||
Total investments | $ | 8,191,519 | $ | — | $ | 6,152 | $ | 8,185,367 | ||||||||
2005 | 2004 | 2003 | ||||||||||
Interest income on cash and cash equivalents | $ | 122,105 | $ | 54,477 | $ | 15,789 | ||||||
Realized gains on fixed maturities: | 26,011 | — | — | |||||||||
Interest income on fixed maturities | 61,805 | — | — | |||||||||
Total investment income | $ | 209,921 | $ | 54,477 | $ | 15,789 | ||||||
F-26
Table of Contents
Note 3. | Deferred Policy Acquisition Costs |
As of December 31, | 2005 | 2004 | 2003 | |||||||||
Balance at beginning of period | $ | 1,413,500 | $ | 823,515 | $ | — | ||||||
Policy acquisition costs deferred: | ||||||||||||
Ceding commissions | 1,450,295 | 2,030,000 | 868,000 | |||||||||
Other | 50,761 | 71,050 | 30,380 | |||||||||
1,501,056 | 2,101,050 | 898,380 | ||||||||||
Amortization of policy acquisition costs | (2,472,786 | ) | (1,511,065 | ) | (74,865 | ) | ||||||
Net change | (971,730 | ) | 589,985 | 823,515 | ||||||||
Balance at end of period | $ | 441,770 | $ | 1,413,500 | $ | 823,515 | ||||||
Note 4. | Property and Equipment |
As of December 31, | 2005 | 2004 | ||||||
Furniture & fixtures | $ | 599,411 | $ | 504,158 | ||||
Computer equipment | 621,883 | 481,716 | ||||||
Automobiles | 101,338 | 84,924 | ||||||
Leasehold improvements | 299,038 | 281,593 | ||||||
1,621,670 | 1,352,391 | |||||||
Less accumulated depreciation and amortization | (650,633 | ) | (439,435 | ) | ||||
$ | 971,037 | $ | 912,956 | |||||
Note 5. | Loans Receivable |
As at December 31, | 2005 | 2004 | ||||||
Working capital loan to a general agent and its principals in connection with a self-insured group managed by CRM CA, which consisted of monthly advances from November, 2003 through June, 2004 totaling $468,783, at which time monthly payments of $14,261, including principal and interest at 6% over 36 months, commenced | $ | 371,759 | $ | 396,379 | ||||
Employee loans for non-officers of varying amounts, with repayment terms extending to 2008 and bearing interest up to 6% | 40,576 | 35,227 | ||||||
$ | 412,335 | $ | 431,606 | |||||
F-27
Table of Contents
Note 6. | Credit Facilities |
F-28
Table of Contents
As of December 31, | 2005 | 2004 | ||||||
Revolving credit facility | $ | — | $ | — | ||||
Other secured borrowings | 82,512 | 158,307 | ||||||
$ | 82,512 | $ | 158,307 | |||||
Note 7. | Income Taxes |
Years Ended December 31, | 2005 | 2004 | 2003 | |||||||||
Current income tax provision | ||||||||||||
Federal | $ | 59,500 | $ | — | $ | — | ||||||
State and local | 8,500 | — | — | |||||||||
68,000 | — | — | ||||||||||
Deferred tax benefit | ||||||||||||
Federal | (4,550 | ) | — | — | ||||||||
State and local | (650 | ) | — | — | ||||||||
(5,200 | ) | — | — | |||||||||
Total income tax provision | $ | 62,800 | $ | — | $ | — | ||||||
Years Ended December 31, | 2005 | 2004 | 2003 | |||||||||
Theoretical Federal income tax at statutory rate of 35% | $ | 2,568,100 | $ | 2,032,000 | $ | 1,306,000 | ||||||
Tax-free Bermuda-domiciled income | (622,000 | ) | (310,000 | ) | 18,000 | |||||||
Income attributable to pre-restructuring LLCs taxed in the hands of its members prior to the IPO date | (1,887,500 | ) | (1,722,000 | ) | (1,324,000 | ) | ||||||
State income taxes net of federal benefit | 8,000 | — | — | |||||||||
Other | (3,800 | ) | — | — | ||||||||
Provision for income taxes | $ | 62,800 | $ | — | $ | — | ||||||
Note 8. | Shareholders’ and Members’ Equity |
F-29
Table of Contents
Note 9. | Reinsurance Activity |
F-30
Table of Contents
• | Twin Bridges consummates a workers’ compensation insurance or reinsurance agreement with any other insurer or reinsurer without NY Marine & General’s prior written consent unless NY Marine & General had previously declined such business; or | |
• | Twin Bridges suffers a reduction of net worth greater than fifty percent; or | |
• | Twin Bridges distributes more than ten percent of its retained earnings by way of dividends, inter-company transfers or related party loans since the date of its last audited financial statements. |
F-31
Table of Contents
Year Ended December 31, | 2005 | 2004 | 2003 | |||||||||
Premiums assumed | $ | 5,076,033 | $ | 7,105,000 | $ | 3,038,000 | ||||||
Change in unearned reinsurance premiums | 3,286,039 | (1,995,117 | ) | (2,784,833 | ) | |||||||
Net reinsurance premiums earned | $ | 8,362,072 | $ | 5,109,883 | $ | 253,167 | ||||||
As of December 31, | 2005 | 2004 | 2003 | |||||||||
Liability at beginning of period | $ | 2,696,000 | $ | 167,917 | $ | — | ||||||
Incurred losses and LAE relating to: | ||||||||||||
Current year | 3,583,744 | 2,528,083 | 167,917 | |||||||||
Prior years | — | — | — | |||||||||
Total incurred losses and LAE | 3,583,744 | 2,528,083 | 167,917 | |||||||||
Paid losses and LAE relating to: | ||||||||||||
Current year | — | — | — | |||||||||
Prior years | — | — | — | |||||||||
Total paid losses and LAE | — | — | — | |||||||||
Liability at end of period | $ | 6,279,744 | $ | 2,696,000 | $ | 167,917 | ||||||
Note 10. | Lease Commitments |
As of December 31, | ||||
2006 | $ | 435,579 | ||
2007 | 895,560 | |||
2008 | 934,231 | |||
2009 | 924,000 | |||
2010 | 924,000 | |||
Thereafter | 11,750,200 | |||
Total | $ | 15,863,570 | ||
F-32
Table of Contents
Note 11. | Retirement Plan |
Note 12. | Long-Term Incentive Plan |
Note 13. | Related Parties |
For the Year Ended December 31, | 2005 | 2004 | 2003 | |||||||||
Fees paid to general agents and brokers | $ | 234,334 | $ | 229,124 | $ | 257,355 | ||||||
Other operating expenses | 48,448 | 39,969 | 44,986 | |||||||||
$ | 282,782 | $ | 269,093 | $ | 302,341 | |||||||
F-33
Table of Contents
Note 14. | Contingencies |
F-34
Table of Contents
Note 15. | Fair Value of Financial Instruments |
Note 16. | Statutory Requirements |
As of December 31, | 2005 | 2004 | ||||||
Shareholders’ equity, per GAAP | $ | 50,904,005 | $ | 1,834,891 | ||||
Reconciling items: | ||||||||
Prepaid expenses | — | (4,885 | ) | |||||
Deferred policy acquisition costs | (441,770 | ) | — | |||||
Statutory capital and surplus, per the Act | $ | 50,462,235 | $ | 1,830,006 | ||||
Required minimum statutory capital and surplus, per the Act | $ | 1,015,207 | $ | 1,821,450 | ||||
F-35
Table of Contents
Note 17. | Segment Information |
Year Ended December 31, | 2005 | 2004 | 2003 | |||||||||
Fee-Based Management Services Segment | ||||||||||||
Revenues: | ||||||||||||
Management fees | $ | 30,540,308 | $ | 23,510,174 | $ | 17,889,315 | ||||||
Commissions | 5,954,799 | 4,145,552 | 2,931,813 | |||||||||
Investment income | 31,650 | 32,807 | 15,701 | |||||||||
Total revenues | 36,526,757 | 27,688,533 | 20,836,829 | |||||||||
Expenses | ||||||||||||
Interest expense | 106,722 | 26,753 | 45,989 | |||||||||
Depreciation and amortization | 226,468 | 189,474 | 179,336 | |||||||||
Operating expenses | 30,633,251 | 22,552,643 | 16,829,162 | |||||||||
Total expenses | 30,966,441 | 22,768,870 | 17,054,487 | |||||||||
Income before taxes | $ | 5,560,316 | $ | 4,919,663 | $ | 3,782,342 | ||||||
Total Assets | $ | 5,113,557 | $ | 3,126,938 | $ | 1,919,123 | ||||||
Reinsurance Segment | ||||||||||||
Revenues: | ||||||||||||
Net reinsurance premiums | $ | 8,362,072 | $ | 5,109,883 | $ | 253,167 | ||||||
Investment income | 165,575 | 21,670 | 88 | |||||||||
Total revenues | 8,527,647 | 5,131,553 | 253,255 | |||||||||
Expenses | ||||||||||||
Underwriting expenses | 6,452,381 | 4,245,386 | 304,531 | |||||||||
Income before taxes | $ | 2,075,266 | $ | 886,167 | $ | (51,276 | ) | |||||
Total Assets | $ | 59,359,687 | $ | 9,597,373 | $ | 3,963,223 | ||||||
Corporate and Other Segment | ||||||||||||
Revenues: | ||||||||||||
Investment income | $ | 12,696 | $ | — | $ | — | ||||||
Expenses | ||||||||||||
Operating expenses | 310,889 | — | — | |||||||||
Income before taxes | $ | (298,193 | ) | $ | — | $ | — | |||||
Total Assets | $ | 19,442,696 | $ | — | $ | — | ||||||
Combined | ||||||||||||
Total Revenues | $ | 45,067,100 | $ | 32,820,086 | $ | 21,090,084 | ||||||
Total expenses | 37,729,711 | 27,014,256 | 17,359,018 | |||||||||
Income before taxes | $ | 7,337,389 | $ | 5,805,830 | $ | 3,731,066 | ||||||
Total Assets | $ | 83,915,940 | $ | 12,724,311 | $ | 5,882,346 | ||||||
F-36
Table of Contents
Note 18. | Quarterly Financial Data (unaudited) |
Quarter Ended | ||||||||||||||||
2005 | March 31 | June 30 | September 30 | December 31 | ||||||||||||
Revenues | ||||||||||||||||
Fee-based management services | $ | 7,659,690 | $ | 8,834,753 | $ | 9,704,986 | $ | 10,295,678 | ||||||||
Net reinsurance premiums | 1,617,000 | 1,428,146 | 2,250,091 | 3,066,835 | ||||||||||||
Investment income | 20,719 | 32,744 | 62,008 | 94,450 | ||||||||||||
Total revenues | 9,297,409 | 10,295,643 | 12,017,085 | 13,456,963 | ||||||||||||
Expenses | ||||||||||||||||
Losses and loss adjustment expenses | 653,168 | 651,894 | 964,325 | 1,314,357 | ||||||||||||
Fees paid to general agents and brokers | 3,079,136 | 2,548,575 | 2,815,803 | 3,046,710 | ||||||||||||
Policy acquisition costs | 478,171 | 422,325 | 665,383 | 906,907 | ||||||||||||
Selling, general and administrative expenses | 4,132,662 | 4,751,047 | 5,086,609 | 6,105,917 | ||||||||||||
Interest expense | 3,136 | 25,644 | 13,425 | 64,517 | ||||||||||||
Total expenses | 8,346,273 | 8,399,485 | 9,545,545 | 11,438,408 | ||||||||||||
Income before taxes | 951,137 | 1,896,157 | 2,471,540 | 2,018,555 | ||||||||||||
Provision for income taxes | — | — | — | 62,800 | ||||||||||||
Net income | $ | 951,137 | $ | 1,896,157 | $ | 2,471,540 | $ | 1,955,755 | ||||||||
Basic and fully diluted earnings per share | $ | 0.09 | $ | 0.19 | $ | 0.24 | $ | 0.18 | ||||||||
Weighted average shares outstanding: | ||||||||||||||||
Basic | 10,247,115 | 10,247,115 | 10,247,115 | 10,964,506 | ||||||||||||
Fully diluted | 10,247,115 | 10,247,115 | 10,247,115 | 10,975,217 |
F-37
Table of Contents
Quarter Ended | ||||||||||||||||
2004 | March 31 | June 30 | September 30 | December 31 | ||||||||||||
Revenues | ||||||||||||||||
Fee-based management services | $ | 5,959,485 | $ | 7,960,697 | $ | 6,599,435 | $ | 7,136,109 | ||||||||
Net reinsurance premiums | 921,200 | 1,201,725 | 1,442,642 | 1,544,316 | ||||||||||||
Investment income | 9,086 | 12,084 | 8,845 | 24,462 | ||||||||||||
Total revenues | 6,889,771 | 9,174,506 | 8,050,922 | 8,704,887 | ||||||||||||
Expenses | ||||||||||||||||
Losses and loss adjustment expenses | 551,083 | 614,521 | 809,646 | 552,833 | ||||||||||||
Fees paid to general agents and brokers | 1,837,811 | 3,288,025 | 2,253,791 | 2,127,919 | ||||||||||||
Policy acquisition costs | 272,412 | 355,367 | 426,609 | 456,677 | ||||||||||||
Selling, general and administrative expenses | 2,680,324 | 3,594,323 | 3,528,324 | 3,637,838 | ||||||||||||
Interest expense | 12,500 | 12,500 | 12,500 | (10,747 | ) | |||||||||||
Total expenses | 5,354,130 | 7,864,736 | 7,030,870 | 6,764,520 | ||||||||||||
Income before taxes | 1,535,640 | 1,309,771 | 1,020,052 | 1,940,367 | ||||||||||||
Provision for income taxes | — | — | — | — | ||||||||||||
Net income | $ | 1,535,640 | $ | 1,309,771 | $ | 1,020,052 | $ | 1,940,367 | ||||||||
Basic and fully diluted earnings per share | $ | 0.15 | $ | 0.13 | $ | 0.10 | $ | 0.19 | ||||||||
Weighted average shares outstanding: | ||||||||||||||||
Basic | 10,247,115 | 10,247,115 | 10,247,115 | 10,247,115 | ||||||||||||
Fully diluted | 10,247,115 | 10,247,115 | 10,247,115 | 10,247,115 |
F-38
Table of Contents
September 30, | ||||||
2006 | ||||||
(Dollars in | ||||||
thousands) | ||||||
Assets | ||||||
Investments: | ||||||
Debt securities, at fair value (amortized cost: $145,111 in 2006 and $122,476 in 2005) | $ | 144,204 | ||||
Equity securities, at fair value (cost: $8,580 in 2006 and $25,859 in 2005) | 9,522 | |||||
Cash and cash equivalents | 14,848 | |||||
Premiums receivables, net | 3,937 | |||||
Reinsurance recoverables | 37,136 | |||||
Income tax receivables | 1,170 | |||||
Other receivables | 4,664 | |||||
Deferred policy acquisition costs | 726 | |||||
Deferred taxes | 5,749 | |||||
Fixed assets, net | 200 | |||||
Total assets | $ | 222,156 | ||||
Liabilities And Stockholders’ Equity | ||||||
Liabilities: | ||||||
Reserves for losses and loss adjustment expenses | $ | 144,609 | ||||
Reinsurance payable | 2,478 | |||||
Unearned premiums | 5,527 | |||||
Senior debt equity | 8,083 | |||||
Other accrued liabilities | 15,843 | |||||
Total liabilities | $ | 176,540 | ||||
Stockholders’ Equity | ||||||
Common stock — no par value, 100,000 shares authorized, 16,000 shares issued and outstanding | $ | 1,600 | ||||
Accumulated other comprehensive income, net of income tax | 23 | |||||
Retained earnings | 43,993 | |||||
Total stockholders’ equity | $ | 45,616 | ||||
Total Liabilities And Stockholders’ Equity | $ | 222,156 | ||||
F-39
Table of Contents
Three Months Ended | Nine Months Ended | |||||||||||||||||
September 30, | September 30, | |||||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||||
(Dollars in thousands) | ||||||||||||||||||
Revenues | ||||||||||||||||||
Net premiums earned | $ | 15,689 | $ | 17,772 | $ | 47,937 | $ | 54,962 | ||||||||||
Net investment income | 1,429 | 1,023 | 3,803 | 2,923 | ||||||||||||||
Net realized gain (loss) on investments | (7 | ) | 728 | 3,464 | 859 | |||||||||||||
Total revenues | 17,111 | 19,523 | 55,204 | 58,744 | ||||||||||||||
Expenses | ||||||||||||||||||
Losses and loss adjustment expenses | 10,215 | 10,653 | 30,919 | 34,575 | ||||||||||||||
Other underwriting expenses | 5,057 | 5,762 | 15,693 | 16,619 | ||||||||||||||
Interest expense | 194 | 158 | 556 | 442 | ||||||||||||||
Other | 409 | 225 | 463 | 1,750 | ||||||||||||||
Total expenses | 15,875 | 16,798 | 47,631 | 53,386 | ||||||||||||||
Income before income tax | 1,236 | 2,725 | 7,573 | 5,358 | ||||||||||||||
Income tax expense | 47 | 817 | 2,067 | 1,591 | ||||||||||||||
Net income | $ | 1,189 | $ | 1,908 | $ | 5,506 | $ | 3,767 | ||||||||||
Other comprehensive income (loss), net of income tax: | ||||||||||||||||||
Unrealized holding gains (losses) arising during period, net of income tax expenses (benefits) | $ | 899 | $ | (932 | ) | $ | 1,749 | $ | (1,113 | ) | ||||||||
Less: Reclassification adjustment for realized (gains) losses included in net income, net of income tax (expenses) benefits | 4 | 653 | (2,288 | ) | 567 | |||||||||||||
Net gain (loss) recognized in other comprehensive income | 903 | (279 | ) | (539 | ) | (546 | ) | |||||||||||
Comprehensive Income | $ | 2,092 | $ | 1,629 | $ | 4,967 | $ | 3,221 | ||||||||||
F-40
Table of Contents
Accumulated | |||||||||||||||||
Other | Total | ||||||||||||||||
Common | Retained | Comprehensive | Stockholders’ | ||||||||||||||
Stock | Earnings | Income | Equity | ||||||||||||||
(Dollars in thousands) | |||||||||||||||||
Balance, January 1, 2006 | $ | 1,600 | $ | 38,487 | $ | 562 | $ | 40,649 | |||||||||
Net income | 5,506 | 5,506 | |||||||||||||||
Net unrealized losses on investments, net of income taxes | (539 | ) | (539 | ) | |||||||||||||
Balance, September 30, 2006 | $ | 1,600 | $ | 43,993 | $ | 23 | $ | 45,616 | |||||||||
Accumulated | |||||||||||||||||
Other | Total | ||||||||||||||||
Common | Retained | Comprehensive | Stockholders’ | ||||||||||||||
Stock | Earnings | Income | Equity | ||||||||||||||
(Dollars in thousands) | |||||||||||||||||
Balance, January 1, 2005 | $ | 1,600 | $ | 33,314 | $ | 1,736 | $ | 36,650 | |||||||||
Net income | 3,767 | 3,767 | |||||||||||||||
Net unrealized losses on investments, net of income taxes | (546 | ) | (546 | ) | |||||||||||||
Balance, September 30, 2005 | $ | 1,600 | $ | 37,081 | $ | 1,190 | $ | 39,871 | |||||||||
F-41
Table of Contents
Nine Months Ended | ||||||||||||
September 30, | ||||||||||||
2006 | 2005 | |||||||||||
(Dollars in thousands) | ||||||||||||
Cash flows from operating activities: | ||||||||||||
Net income | $ | 5,506 | 3,767 | |||||||||
Adjustment to reconcile net income to cash provided by operating activities: | ||||||||||||
Net gain on sale of investments | (3,464 | ) | (859 | ) | ||||||||
Depreciation and amortization | 1,195 | 1,282 | ||||||||||
Provision for deferred tax | 783 | — | ||||||||||
Changes in assets and liabilities: | ||||||||||||
Premium receivables | (1,517 | ) | 6,271 | |||||||||
Reinsurance recoverables | 3,229 | 5,444 | ||||||||||
Other receivables | (970 | ) | (123 | ) | ||||||||
Deferred policy acquisition costs | (70 | ) | 38 | |||||||||
Reserves for losses and loss adjustment expenses | 4,026 | 499 | ||||||||||
Reinsurance payable | (617 | ) | 3,528 | |||||||||
Unearned premiums | (424 | ) | (1,039 | ) | ||||||||
Other accrued liabilities | (1,351 | ) | 251 | |||||||||
Net cash provided by operating activities | 6,326 | 19,059 | ||||||||||
Cash flows from investing activities: | ||||||||||||
Acquisitions of investments | (47,677 | ) | (42,836 | ) | ||||||||
Proceeds from maturity of investments | 16,263 | 10,357 | ||||||||||
Proceeds from sales of investments | 32,685 | 11,594 | ||||||||||
Purchase of fixed assets | (175 | ) | — | |||||||||
Net cash provided by (used in) investing activities | 1,096 | (20,885 | ) | |||||||||
Changes in cash and cash equivalents | 7,423 | (1,826 | ) | |||||||||
Cash and cash equivalents — Beginning of year | 7,426 | 12,104 | ||||||||||
Cash and cash equivalents — End of year | $ | 14,848 | 10,278 | |||||||||
Supplemental disclosures | ||||||||||||
Cash paid for interest | $ | 547 | $ | 430 | ||||||||
Cash paid for income taxes | 2,200 | 1,420 |
F-42
Table of Contents
Note 1. | Basis of Presentation |
F-43
Table of Contents
Note 2. | Investments |
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | ||||||||||||||
Cost | Gains | Losses | Fair Value | |||||||||||||
September 30, 2006 | ||||||||||||||||
Obligations of states and political subdivisions | $ | 82,753 | $ | 257 | $ | (487 | ) | $ | 82,523 | |||||||
Corporate bonds | 38,797 | 121 | (625 | ) | 38,293 | |||||||||||
U.S. government and agencies | 23,561 | 77 | (250 | ) | 23,388 | |||||||||||
Total debt securities | 145,111 | 455 | (1,362 | ) | 144,204 | |||||||||||
Equity securities | 8,580 | 1,237 | (295 | ) | 9,522 | |||||||||||
Total | $ | 153,691 | $ | 1,692 | $ | (1,657 | ) | $ | 153,726 | |||||||
As of September 30, 2006 | ||||||||
Amortized | ||||||||
Cost | Fair Value | |||||||
Due in one year or less | $ | 21,984 | $ | 21,835 | ||||
Due after one year through five years | 103,648 | 102,813 | ||||||
Due after five years through ten years | 10,624 | 10,742 | ||||||
Due after ten years | 8,855 | 8,814 | ||||||
Total | $ | 145,111 | $ | 144,204 | ||||
F-44
Table of Contents
Less than 12 months | 12 months or more | Total | ||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
September 30, 2006: | Fair Value | Loss | Fair Value | Loss | Fair Value | Loss | ||||||||||||||||||
Description of Securities | ||||||||||||||||||||||||
Obligations of states and political subdivisions | $ | 12,931 | $ | (58 | ) | $ | 33,935 | $ | (429 | ) | $ | 46,866 | $ | (487 | ) | |||||||||
Corporate bonds | 2,748 | (7 | ) | 26,492 | (618 | ) | 29,240 | (625 | ) | |||||||||||||||
U.S. government and Agencies | 4,151 | (17 | ) | 13,600 | (233 | ) | 17,751 | (250 | ) | |||||||||||||||
Total debt securities | 19,830 | (82 | ) | 74,027 | (1,280 | ) | 93,857 | (1,362 | ) | |||||||||||||||
Equity securities | 1,805 | (172 | ) | 1,002 | (123 | ) | 2,807 | (295 | ) | |||||||||||||||
Total | $ | 21,635 | $ | (254 | ) | $ | 75,029 | $ | (1,403 | ) | $ | 96,664 | $ | (1,657 | ) | |||||||||
Three Months | Nine Months | ||||||||||||||||
Ended | Ended | ||||||||||||||||
September 30, | September 30, | ||||||||||||||||
2006 | 2005 | 2006 | 2005 | ||||||||||||||
Interest | $ | 1,548 | $ | 1,050 | $ | 3,999 | $ | 3,007 | |||||||||
Dividends | 29 | 206 | 308 | 539 | |||||||||||||
Investment income before | |||||||||||||||||
Investment expenses | 1,577 | 1,256 | 4,307 | 3,546 | |||||||||||||
Investment expenses | (148 | ) | (233 | ) | (504 | ) | (623 | ) | |||||||||
Net investment income | $ | 1,429 | $ | 1,023 | $ | 3,803 | $ | 2,923 | |||||||||
F-45
Table of Contents
Note 3. | Losses And Loss Adjustment Expenses |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Gross beginning balance | $ | 140,169 | $ | 139,715 | $ | 140,583 | $ | 142,250 | ||||||||
Loss reinsurance recoverables | (31,675 | ) | (38,268 | ) | (35,588 | ) | (43,931 | ) | ||||||||
Net beginning balance | 108,494 | 101,447 | 104,995 | 98,319 | ||||||||||||
Incurred related to: | ||||||||||||||||
Current year | 12,608 | 10,653 | 35,830 | 34,575 | ||||||||||||
Prior years | (2,393 | ) | — | (4,911 | ) | — | ||||||||||
Total incurred | 10,215 | 10,653 | 30,919 | 34,575 | ||||||||||||
Paid related to: | ||||||||||||||||
Current year | (2,366 | ) | (1,816 | ) | (5,267 | ) | (3,319 | ) | ||||||||
Prior years | (6,118 | ) | (7,261 | ) | (20,422 | ) | (26,552 | ) | ||||||||
Total paid | (8,484 | ) | (9,077 | ) | (25,689 | ) | (29,871 | ) | ||||||||
Net ending balance | 110,225 | 103,023 | 110,225 | 103,023 | ||||||||||||
Plus reinsurance recoverables | 34,384 | 39,726 | 34,384 | 39,726 | ||||||||||||
Gross ending balance | $ | 144,609 | $ | 142,749 | $ | 144,609 | $ | 142,749 | ||||||||
Note 4. | Reinsurance |
F-46
Table of Contents
Three Months Ended September 30, | ||||||||||||||||
2006 | 2005 | |||||||||||||||
Written | Earned | Written | Earned | |||||||||||||
Direct Premiums | $ | 18,014 | $ | 17,734 | $ | 22,208 | $ | 21,224 | ||||||||
Ceded premiums — quota share | (102 | ) | (284 | ) | (1,421 | ) | (1,373 | ) | ||||||||
Ceded premiums — other | (1,937 | ) | (1,860 | ) | (2,028 | ) | (2,156 | ) | ||||||||
Assumed | 99 | 99 | 77 | 77 | ||||||||||||
Net Premiums | $ | 16,074 | $ | 15,689 | $ | 18,836 | $ | 17,772 | ||||||||
Nine Months Ended September 30, | ||||||||||||||||
2006 | 2005 | |||||||||||||||
Written | Earned | Written | Earned | |||||||||||||
Direct Premiums | $ | 50,349 | $ | 53,914 | $ | 72,743 | $ | 67,823 | ||||||||
Ceded premiums — quota share | (1,138 | ) | (1,529 | ) | (4,565 | ) | (5,074 | ) | ||||||||
Ceded premiums — other | (4,714 | ) | (4,816 | ) | (7,745 | ) | (8,025 | ) | ||||||||
Assumed | 368 | 368 | 238 | 238 | ||||||||||||
Net Premiums | $ | 44,865 | $ | 47,937 | $ | 60,671 | $ | 54,962 | ||||||||
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2006 | 2005 | 2006 | 2005 | |||||||||||||
Direct losses and loss expenses incurred | $ | 14,741 | $ | 14,291 | $ | 35,531 | $ | 38,016 | ||||||||
Ceded losses and loss expenses incurred — quota share | (1,703 | ) | (721 | ) | (580 | ) | (76 | ) | ||||||||
Ceded losses and loss expenses incurred — other | (2,876 | ) | (2,950 | ) | (4,204 | ) | (3,484 | ) | ||||||||
Assumed losses and losses expenses incurred | 53 | 33 | 172 | 119 | ||||||||||||
Net Losses and loss expenses | $ | 10,215 | $ | 10,653 | $ | 30,919 | $ | 34,575 | ||||||||
F-47
Table of Contents
September 30, | ||||
2006 | ||||
Reserve losses and loss adjustment expenses | $ | 143,219 | ||
Ceded reserves for losses and loss adjustment expenses incurred — quota share | (14,894 | ) | ||
Ceded reserves losses and loss expenses incurred — other | (19,490 | ) | ||
Assumed reserve losses and loss adjustment expenses | 1,390 | |||
Net Reserves for losses and loss expenses | $ | 110,225 | ||
Note 5. | Regulatory Matters |
Note 6. | Commitments and Contingencies |
F-48
Table of Contents
Note 7. | Subsequent Event |
F-49
Table of Contents
F-50
Table of Contents
2005 | 2004 | |||||||||
(Dollars in thousands) | ||||||||||
Assets | ||||||||||
Investments: | ||||||||||
Debt securities, at fair value (amortized cost: $122,476 in 2005 and $103,118 in 2004) | $ | 121,103 | $ | 103,583 | ||||||
Equity securities, at fair value (cost: $25,859 in 2005 and $21,717 in 2004) | 28,082 | 23,882 | ||||||||
Cash and cash equivalents | 7,426 | 12,104 | ||||||||
Premiums receivables, net | 2,420 | 8,290 | ||||||||
Reinsurance recoverables | 40,365 | 48,673 | ||||||||
Income tax receivables | 1,253 | — | ||||||||
Other receivables | 3,343 | 3,347 | ||||||||
Deferred policy acquisition costs | 656 | 743 | ||||||||
Deferred taxes | 6,255 | 7,103 | ||||||||
Fixed assets, net | 92 | 125 | ||||||||
Total assets | $ | 210,995 | $ | 207,850 | ||||||
Liabilities and Stockholders’ Equity | ||||||||||
Liabilities: | ||||||||||
Reserves for losses and loss adjustment expenses | $ | 140,583 | $ | 142,250 | ||||||
Reinsurance payable | 3,095 | 1,304 | ||||||||
Unearned premiums | 5,950 | 7,347 | ||||||||
Senior debt equity and related accrued interest | 8,075 | 8,057 | ||||||||
Other accrued liabilities | 12,643 | 12,242 | ||||||||
Total liabilities | $ | 170,346 | $ | 171,200 | ||||||
Commitments and Contingencies | ||||||||||
Stockholders’ Equity | ||||||||||
Common stock — no par value, 100,000 shares authorized, 16,000 shares issued and outstanding | $ | 1,600 | $ | 1,600 | ||||||
Accumulated other comprehensive income, net of income tax | 562 | 1,736 | ||||||||
Retained earnings | 38,487 | 33,314 | ||||||||
Total stockholders’ equity | $ | 40,649 | $ | 36,650 | ||||||
Total Liabilities and Stockholders’ Equity | $ | 210,995 | $ | 207,850 | ||||||
F-51
Table of Contents
2005 | 2004 | 2003 | ||||||||||||
(Dollars in thousands) | ||||||||||||||
Revenues | ||||||||||||||
Net Premiums earned | $ | 71,291 | $ | 70,641 | $ | 60,029 | ||||||||
Net investment income | 4,012 | 3,109 | 2,888 | |||||||||||
Net realized gain on investments | 1,709 | 2,090 | 2,103 | |||||||||||
Total Revenues | 77,012 | 75,840 | 65,020 | |||||||||||
Expenses | ||||||||||||||
Losses and loss adjustment expenses | 44,936 | 50,134 | 52,247 | |||||||||||
General and administrative expenses | 22,487 | 19,086 | 8,430 | |||||||||||
Interest expense | 612 | 462 | 269 | |||||||||||
Other | 1,945 | 316 | 269 | |||||||||||
Total Expenses | 69,980 | 69,998 | 61,215 | |||||||||||
Income before income taxes | 7,032 | 5,842 | 3,805 | |||||||||||
Income tax expense | 1,859 | 1,458 | 836 | |||||||||||
Net income | $ | 5,173 | $ | 4,384 | $ | 2,969 | ||||||||
Other comprehensive income (loss), net of income tax (benefit): | ||||||||||||||
Unrealized holding (losses) gains arising during the period, net of income tax (benefits) of $(24) in 2005 and income tax expenses of $524 and $1,084 in 2004 and 2003, respectively | $ | (46 | ) | $ | 1,018 | $ | 2,105 | |||||||
Less: Reclassification adjustment for realized gains included in net income, net of income tax expenses of $581, $711 and $715 in 2005, 2004 and 2003, respectively | (1,128 | ) | (1,379 | ) | (1,388 | ) | ||||||||
Net (loss) gain recognized in other comprehensive income | (1,174 | ) | (361 | ) | 717 | |||||||||
Comprehensive Income | $ | 3,999 | $ | 4,023 | $ | 3,686 | ||||||||
F-52
Table of Contents
Accumulated | ||||||||||||||||
Other | Total | |||||||||||||||
Common | Retained | Comprehensive | Stockholders’ | |||||||||||||
Stock | Earnings | Income | Equity | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Balance, January 1, 2003 | $ | 1,600 | $ | 25,961 | $ | 1,380 | $ | 28,941 | ||||||||
Net income | 2,969 | 2,969 | ||||||||||||||
Net unrealized gain on investments, net of income taxes | 717 | 717 | ||||||||||||||
Balance, December 31, 2003 | 1,600 | 28,930 | 2,097 | 32,627 | ||||||||||||
Net income | 4,384 | 4,384 | ||||||||||||||
Net unrealized losses on investments, net of income taxes | (361 | ) | (361 | ) | ||||||||||||
Balance, December 31, 2004 | 1,600 | 33,314 | 1,736 | 36,650 | ||||||||||||
Net income | 5,173 | 5,173 | ||||||||||||||
Net unrealized losses on investments, net of income taxes | (1,174 | ) | (1,174 | ) | ||||||||||||
Balance, December 31, 2005 | $ | 1,600 | $ | 38,487 | $ | 562 | $ | 40,649 | ||||||||
F-53
Table of Contents
Years Ended December 31, | ||||||||||||||||
2005 | 2004 | 2003 | ||||||||||||||
(Dollars in thousands) | ||||||||||||||||
Cash flows from operating activities: | ||||||||||||||||
Net income | $ | 5,173 | $ | 4,384 | $ | 2,969 | ||||||||||
Adjustment to reconcile net income to cash provided by operating activities: | ||||||||||||||||
Net gain on sale of investments | (1,709 | ) | (2,090 | ) | (2,103 | ) | ||||||||||
Depreciation and amortization | 1,704 | 1,572 | 1,313 | |||||||||||||
Provision for deferred tax | 1,452 | (354 | ) | (889 | ) | |||||||||||
Changes in assets and liabilities: | ||||||||||||||||
Premium receivables | 5,870 | 5,428 | 4,876 | |||||||||||||
Reinsurance recoverables | 8,308 | (2,228 | ) | (7,769 | ) | |||||||||||
Other receivables | (1,249 | ) | (337 | ) | (838 | ) | ||||||||||
Deferred policy acquisition costs | 87 | (51 | ) | (244 | ) | |||||||||||
Reserves for losses and loss adjustment expenses | (1,667 | ) | 13,880 | 18,944 | ||||||||||||
Reinsurance payable | 1,791 | 358 | 1,362 | |||||||||||||
Unearned premiums | (1,397 | ) | 742 | 2,141 | ||||||||||||
Other accrued liabilities | 1,366 | 544 | 2,494 | |||||||||||||
Net cash provided by operating activities | 19,729 | 21,848 | 22,256 | |||||||||||||
Cash flows from investing activities: | ||||||||||||||||
Acquisitions of investments | (59,978 | ) | (65,686 | ) | (49,703 | ) | ||||||||||
Proceeds from maturity of investments | 16,264 | 16,161 | 8,203 | |||||||||||||
Proceeds from sales of investments | 19,319 | 29,393 | 15,258 | |||||||||||||
Purchase of fixed assets | (12 | ) | (15 | ) | — | |||||||||||
Net cash used in investing activities | (24,407 | ) | (20,147 | ) | (26,242 | ) | ||||||||||
Changes in cash and cash equivalents | (4,678 | ) | 1,701 | 4,014 | ||||||||||||
Cash and cash equivalents — Beginning of year | 12,104 | 10,403 | 6,389 | |||||||||||||
Cash and cash equivalents — End of year | $ | 7,426 | $ | 12,104 | $ | 10,403 | ||||||||||
Supplemental disclosures | ||||||||||||||||
Cash paid for interest | $ | 594 | $ | 405 | $ | 222 | ||||||||||
Cash paid for income taxes | 1,820 | 2,247 | 1,775 |
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Note 1. | Basis of Presentation |
Note 2. | Summary of Significant Accounting Policies |
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Note 3. | Investments |
Gross | Gross | ||||||||||||||||
Amortized | Unrealized | Unrealized | |||||||||||||||
Cost | Gains | Losses | Fair Value | ||||||||||||||
2004 | |||||||||||||||||
Obligations of states and political subdivisions | $ | 54,561 | $ | 607 | $ | (82 | ) | $ | 55,086 | ||||||||
Corporate bonds | 30,179 | 170 | (261 | ) | 30,088 | ||||||||||||
U.S. government and agencies | 18,378 | 145 | (114 | ) | 18,409 | ||||||||||||
Total debt securities | 103,118 | 922 | (457 | ) | 103,583 | ||||||||||||
Equity securities | 21,717 | 2,508 | (343 | ) | 23,882 | ||||||||||||
Total | $ | 124,835 | $ | 3,430 | $ | (800 | ) | $ | 127,465 | ||||||||
Gross | Gross | ||||||||||||||||
Amortized | Unrealized | Unrealized | |||||||||||||||
Cost | Gains | Losses | Fair Value | ||||||||||||||
2005 | |||||||||||||||||
Obligations of states and political subdivisions | $ | 63,614 | $ | 152 | $ | (546 | ) | $ | 63,220 | ||||||||
Corporate bonds | 37,372 | 44 | (754 | ) | 36,662 | ||||||||||||
U.S. government and agencies | 21,490 | 47 | (316 | ) | 21,221 | ||||||||||||
Total debt securities | 122,476 | 243 | (1,616 | ) | 121,103 | ||||||||||||
Equity securities | 25,859 | 2,890 | (667 | ) | 28,082 | ||||||||||||
Total | $ | 148,335 | $ | 3,133 | $ | (2,283 | ) | $ | 149,185 | ||||||||
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2005 | 2004 | |||||||||||||||
Amortized | Amortized | |||||||||||||||
Cost | Fair Value | Cost | Fair Value | |||||||||||||
Due in one year or less | $ | 21,613 | $ | 21,432 | $ | 11,314 | $ | 11,340 | ||||||||
Due after one year through five years | 78,711 | 77,514 | 67,444 | 67,422 | ||||||||||||
Due after five years through ten years | 17,404 | 17,447 | 20,550 | 20,975 | ||||||||||||
Due after ten years | 4,748 | 4,710 | 3,810 | 3,846 | ||||||||||||
Total | $ | 122,476 | $ | 121,103 | $ | 103,118 | $ | 103,583 | ||||||||
Less than 12 months | 12 months or more | Total | |||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | |||||||||||||||||||||||
Description of Securities | Fair Value | Loss | Fair Value | Loss | Fair Value | Loss | |||||||||||||||||||
2005 | |||||||||||||||||||||||||
Obligations of states and political subdivisions | $ | 34,724 | $ | (321 | ) | $ | 13,258 | $ | (225 | ) | $ | 47,982 | $ | (546 | ) | ||||||||||
Corporate bonds | 14,577 | (302 | ) | 19,553 | (452 | ) | 34,130 | (754 | ) | ||||||||||||||||
U.S. government and Agencies | 8,301 | (96 | ) | 9,149 | (220 | ) | 17,450 | (316 | ) | ||||||||||||||||
Total debt securities | 57,602 | (719 | ) | 41,960 | (897 | ) | 99,562 | (1,616 | ) | ||||||||||||||||
Equity securities | 11,793 | (572 | ) | 609 | (95 | ) | 12,402 | (667 | ) | ||||||||||||||||
Total | $ | 69,395 | $ | (1,291 | ) | $ | 42,569 | $ | (992 | ) | $ | 111,964 | $ | (2,283 | ) | ||||||||||
Less than 12 months | 12 months or more | Total | |||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | |||||||||||||||||||||||
Description of Securities | Fair Value | Loss | Fair Value | Loss | Fair Value | Loss | |||||||||||||||||||
2004 | |||||||||||||||||||||||||
Obligations of states and political subdivisions | $ | 17,826 | $ | (66 | ) | $ | 1,875 | $ | (16 | ) | $ | 19,701 | $ | (82 | ) | ||||||||||
Corporate bonds | 22,257 | (206 | ) | 5,991 | (55 | ) | 28,248 | (261 | ) | ||||||||||||||||
U.S. government and Agencies | 12,125 | (71 | ) | 3,856 | (43 | ) | 15,981 | (114 | ) | ||||||||||||||||
Total debt securities | 52,208 | (343 | ) | 11,722 | (114 | ) | 63,930 | (457 | ) | ||||||||||||||||
Equity securities | 3,814 | (325 | ) | 257 | (18 | ) | 4,071 | (343 | ) | ||||||||||||||||
Total | $ | 56,022 | $ | (668 | ) | $ | 11,979 | $ | (132 | ) | $ | 68,001 | $ | (800 | ) | ||||||||||
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2005 | 2004 | 2003 | |||||||||||
Interest | $ | 4,119 | $ | 3,337 | $ | 3,113 | |||||||
Dividends | 726 | 499 | 382 | ||||||||||
Investment income before | |||||||||||||
Investment expenses | 4,845 | 3,836 | 3,495 | ||||||||||
Investment expenses | (833 | ) | (727 | ) | (607 | ) | |||||||
Net investment income | $ | 4,012 | $ | 3,109 | $ | 2,888 | |||||||
Note 4. | Fixed Assets |
2005 | 2004 | 2003 | ||||||||||
Property and equipment | $ | 383 | $ | 377 | $ | 362 | ||||||
Leasehold improvements | 327 | 320 | 320 | |||||||||
Software | 2,390 | 2,390 | 2,390 | |||||||||
Total | 3,100 | 3,087 | 3,072 | |||||||||
Accumulated depareciation and amortization | (3,008 | ) | (2,962 | ) | (2,825 | ) | ||||||
Total fixed assets — net | $ | 92 | $ | 125 | $ | 247 | ||||||
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Note 5. | Losses and Loss Adjustment Expenses |
2005 | 2004 | 2003 | ||||||||||
Gross beginning balance | $ | 142,250 | $ | 128,370 | $ | 109,426 | ||||||
Loss reinsurance recoverables | (43,931 | ) | (40,757 | ) | (33,037 | ) | ||||||
Net beginning balance | 98,319 | 87,613 | 76,389 | |||||||||
Incurred related to: | ||||||||||||
Current year | 44,039 | 43,714 | 38,543 | |||||||||
Prior years | 897 | 6,420 | 13,704 | |||||||||
Total incurred | 44,936 | 50,134 | 52,247 | |||||||||
Paid related to: | ||||||||||||
Current year | (7,533 | ) | (7,550 | ) | (7,255 | ) | ||||||
Prior years | (30,727 | ) | (31,878 | ) | (33,768 | ) | ||||||
Total paid | (38,260 | ) | (39,428 | ) | (41,023 | ) | ||||||
Net ending balance | 104,995 | 98,319 | 87,613 | |||||||||
Plus reinsurance recoverables | 35,588 | 43,931 | 40,757 | |||||||||
Gross ending balance | $ | 140,583 | $ | 142,250 | $ | 128,370 | ||||||
Note 6. | Reinsurance |
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2005 | 2004 | 2003 | ||||||||||||||||||||||
Written | Earned | Written | Earned | Written | Earned | |||||||||||||||||||
Direct Premiums | $ | 91,157 | $ | 87,099 | $ | 97,485 | $ | 91,361 | $ | 101,520 | $ | 95,903 | ||||||||||||
Ceded premiums — quota share | (5,831 | ) | (6,379 | ) | (11,894 | ) | (12,312 | ) | (28,380 | ) | (27,782 | ) | ||||||||||||
Ceded premiums — other | (9,427 | ) | (9,760 | ) | (9,201 | ) | (8,819 | ) | (8,574 | ) | (8,410 | ) | ||||||||||||
Assumed | 331 | 331 | 411 | 411 | 318 | 318 | ||||||||||||||||||
Net Premiums | $ | 76,230 | $ | 71,291 | $ | 76,801 | $ | 70,641 | $ | 64,884 | $ | 60,029 | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
Direct losses and loss expenses incurred | $ | 48,573 | $ | 65,842 | $ | 76,585 | ||||||
Ceded losses and loss expenses incurred — quota share | (207 | ) | (10,462 | ) | (22,940 | ) | ||||||
Ceded losses and loss expenses incurred — other | (3,553 | ) | (5,726 | ) | (1,557 | ) | ||||||
Assumed losses and losses expenses incurred | 123 | 480 | 159 | |||||||||
Net Losses and loss expenses | $ | 44,936 | $ | 50,134 | $ | 52,247 | ||||||
2005 | 2004 | 2003 | ||||||||||
Reserve for losses and loss adjustment expenses | $ | 139,228 | $ | 140,865 | $ | 127,262 | ||||||
Ceded reserves for losses and loss adjustment expenses incurred — quota share | (18,695 | ) | (26,276 | ) | (27,860 | ) | ||||||
Ceded reserves losses and loss expenses incurred — other | (16,893 | ) | (17,655 | ) | (12,897 | ) | ||||||
Assumed reserve losses and loss adjustment expenses | 1,355 | 1,385 | 1,108 | |||||||||
Net Reserves for losses and loss expenses | $ | 104,995 | $ | 98,319 | $ | 87,613 | ||||||
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Note 7. | Senior Debt Security Agreement |
Note 8. | Federal Income Taxes |
2005 | 2004 | 2003 | |||||||||||
Current federal income tax provision | $ | 407 | $ | 1,812 | $ | 1,725 | |||||||
Deferred federal income tax provision | 1,452 | (354 | ) | (889 | ) | ||||||||
Tax expense | $ | 1,859 | $ | 1,458 | $ | 836 | |||||||
2005 | 2004 | |||||||
Deferred tax assets: | ||||||||
Unpaid losses and loss adjustment expenses | $ | 4,906 | $ | 4,792 | ||||
Unearned Premium reserve | 1,813 | 2,392 | ||||||
Section 481 premium adjustments | — | 1,349 | ||||||
Other | 1,585 | 717 | ||||||
Valuation allowance | — | — | ||||||
Gross deferred tax assets | 8,304 | 9,250 | ||||||
Deferred tax liabilities: | ||||||||
Unearned premium adjustments | 699 | 682 | ||||||
Unrealized capital gain | 1,065 | 1,166 | ||||||
Deferred acquisition costs | 223 | 252 | ||||||
Other | 62 | 47 | ||||||
Gross Deferred tax liabilities | 2,049 | 2,147 | ||||||
Net deferred tax assets | $ | 6,255 | $ | 7,103 | ||||
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2005 | 2004 | 2003 | |||||||||||
Federal income tax provision at statutory rates | 34.0 | % | 34.0 | % | 34.0 | % | |||||||
Tax (benefit) provision for: | |||||||||||||
Tax-exempt interest and dividends | (9.4 | )% | (9.2 | )% | (11.5 | )% | |||||||
Non-deductible expenses | 1.8 | % | 0.1 | % | (0.6 | )% | |||||||
Effective tax rate | 26.4 | % | 24.9 | % | 21.9 | % | |||||||
Note 9. | Related Party Transactions |
Note 10. | Commitments and Contingencies |
2006 | $ | 1,276 | ||
2007 | 1,029 | |||
2008 | 293 | |||
2009 | 183 | |||
2010 | 171 | |||
and thereafter | — | |||
Total | $ | 2,952 | ||
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Note 11. | Financial Instruments |
Note 12. | Employee Benefit Plans |
Note 13. | Regulatory Matters |
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Years Ended December 31, | ||||||||||||
2005 | 2004 | 2003 | ||||||||||
Capital stock and surplus | $ | 43,368 | $ | 36,922 | $ | 38,420 | ||||||
Net Income | 8,383 | 4,508 | 2,935 | |||||||||
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Table of Contents
Item 13. | Other Expenses of Issuance and Distribution. |
Securities and Exchange Commission registration fee | $ | 2,615.59 | |||
NASD filing fee | 2,944.48 | ||||
Printing and engraving expenses | 200,000 | ||||
Accounting fees and expenses | 200,000 | ||||
Legal fees and expenses | 350,000 | ||||
Registrar and transfer agent fees | 25,000 | ||||
Miscellaneous | 4,439.93 | ||||
Total | $ | 785,000 | |||
Item 14. | Indemnification of Directors and Officers. |
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Item 15. | Recent Sales of Unregistered Securities. |
Item 16. | Exhibits and Financial Statement Schedules. |
Exhibit | ||||
Number | Description | |||
1 | .1 | Form of Underwriting Agreement to be entered into by and between the Company, each of the selling shareholders and Cochran Caronia Waller Securities LLC. | ||
1 | .2 | Placement Agent Agreement, dated November 14, 2006, among the Trust, CRM USA Holdings, CRM Holdings, and Cohen & Company, as placement agent. Incorporated by reference to Exhibit 1.1 to the Current Report on Form 8-K filed on November 14, 2006. |
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Table of Contents
Exhibit | ||||
Number | Description | |||
2 | .1 | Reorganization Agreement, by and among the Company, Compensation Risk Managers, LLC, Compensation Risk Managers of California, LLC, EIMAR, L.L.C., Twin Bridges, the individuals named therein and Village Holdings, LLC, dated December 7, 2005. Incorporated by reference to Exhibit 2.1 to the Annual Report on Form 10-K filed on March 29, 2006. | ||
2 | .2 | Stock Purchase Agreement, dated September 8, 2006, by and among Embarcadero, the shareholders of Embarcadero, the Company, and CRM USA Holdings Inc. Incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed on September 11, 2006. | ||
2 | .3 | Amendment No. 1, dated November 14, 2006, to the Stock Purchase Agreement dated September 8, 2006, by and among Embarcadero, the shareholders of Embarcadero, the Company, and CRM USA Holdings Inc. Incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed on November 14, 2006. | ||
3 | .1 | Memorandum of Association of the Company. Incorporated by reference to Exhibit 3.1 to the Annual Report on Form 10-K filed on March 29, 2006. | ||
3 | .2 | Bye-Laws of the Company. Incorporated by reference to Exhibit 3.2 to the Annual Report on Form 10-K filed on March 29, 2006. | ||
3 | .3 | Amended and Restated Bye-Laws of the Company. Incorporated by reference to Exhibit 3.3 to the Annual Report on Form 10-K filed on March 29, 2006. | ||
4 | .1 | Specimen Common Share Certificate. Incorporated by reference to Exhibit 4.1 to the Annual Report on Form 10-K filed on March 29, 2006. | ||
4 | .2 | Amended and Restated Declaration of Trust, dated as of November 14, 2006, among CRM USA Holdings, CRM Holdings, the Trust, The Bank of New York Delaware, as Delaware trustee, The Bank of New York Trust Company, National Association, as institutional trustee, and the administrators named therein, including the form of trust preferred securities which is an exhibit thereto. Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed on November 14, 2006. | ||
4 | .3 | Indenture, dated as of November 14, 2006, between CRM USA Holdings and The Bank of New York Trust Company, National Association, as trustee, including the form of debenture which is an exhibit thereto. Incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K filed on November 14, 2006. | ||
4 | .4 | Guarantee Agreement, dated as of November 14, 2006, between CRM Holdings and The Bank of New York Trust Company, National Association, as trustee. Incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K filed on November 14, 2006. | ||
4 | .5 | Guarantee Agreement, dated as of November 14, 2006, between CRM USA Holdings and The Bank of New York Trust Company, National Association, as trustee. Incorporated by reference to Exhibit 4.4 to the Current Report on Form 8-K filed on November 14, 2006. | ||
5 | .1 | Opinion of Appleby Hunter Bailhache. | ||
10 | .1 | Employment Agreement, between the Company and Daniel G. Hickey, Jr., dated November 3, 2005. Incorporated by reference to Exhibit 10.1 to the Annual Report on Form 10-K filed on March 29, 2006. | ||
10 | .2* | Senior Debt Security Agreement of Embarcadero Insurance Holdings, Inc., dated May 22, 2003. | ||
10 | .3 | Interest and Liabilities Contract to Workers’ Compensation and Employer’s Liability Proportional Reinsurance Agreement, between New York Marine & General Insurance Company and Twin Bridges (Bermuda) Limited, effective December 1, 2003. Incorporated by reference to Exhibit 10.3 to the Annual Report on Form 10-K filed on March 29, 2006. | ||
10 | .4 | Lease Agreement between Oakwood Partners L.L.C. and Compensation Risk Managers, LLC, dated August 5, 2005. Incorporated by reference to Exhibit 10.4 to the Annual Report on Form 10-K filed on March 29, 2006. |
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Table of Contents
Exhibit | ||||
Number | Description | |||
10 | .5 | Loan Agreement, dated October 28, 2004, between Compensation Risk Managers, LLC and KeyBank National Association. Incorporated by reference to Exhibit 10.5 to the Annual Report on Form 10-K filed on March 29, 2006. | ||
10 | .6 | Amended and Restated Loan Agreement, dated May 5, 2005, between Compensation Risk Managers, LLC and KeyBank National Association (amending and restating the Loan Agreement, between Compensation Risk Managers, LLC and KeyBank National Association, dated October 28, 2004). Incorporated by reference to Exhibit 10.6 to the Annual Report on Form 10-K filed on March 29, 2006. | ||
10 | .7 | Loan Agreement, between Twin Bridges (Bermuda) Ltd. and KeyBank National Association dated October 28, 2004 ($3 million loan). Incorporated by reference to Exhibit 10.7 to the Annual Report on Form 10-K filed on March 29, 2006. | ||
10 | .8 | Loan Agreement, between Twin Bridges (Bermuda) Ltd. and KeyBank National Association dated October 28, 2004 ($7.5 million loan). Incorporated by reference to Exhibit 10.8 to the Annual Report on Form 10-K filed on March 29, 2006. | ||
10 | .9 | Amendment to Loan Agreement, dated June 30, 2005, between Twin Bridges (Bermuda) Ltd. and KeyBank National Association (amending the Loan Agreement between Twin Bridges (Bermuda) Ltd. and KeyBank National Association, dated October 28, 2004). Incorporated by reference to Exhibit 10.9 to the Annual Report on Form 10-K filed on March 29, 2006. | ||
10 | .10 | Amended and Restated Loan Agreement, dated October 3, 2005, between Twin Bridges (Bermuda) Ltd. and KeyBank National Association (amending and restating the Loan Agreement, dated October 28 and subsequently amended June 30, 2005). Incorporated by reference to Exhibit 1010 to the Annual Report on Form 10-K filed on March 29, 2006. | ||
10 | .11 | Amended and Restated Loan Agreement, dated October 3, 2005, between Twin Bridges (Bermuda) Ltd. and KeyBank National Association (amending and restating the Loan Agreement dated October 28, 2004). Incorporated by reference to Exhibit 10.11 to the Annual Report on Form 10-K filed on March 29, 2006. | ||
10 | .12 | Amended and Restated Loan Agreement dated October 3, 2005, between Compensation Risk Managers, LLC and KeyBank National Association (amending and restating the Loan Agreement between Compensation Risk Managers, LLC and KeyBank National Association, dated October 28, 2004 and subsequently amended and restated May 5, 2005). Incorporated by reference to Exhibit 10.12 to the Annual Report on Form 10-K filed on March 29, 2006. | ||
10 | .13 | 2005 Long-Term Incentive Plan. Incorporated by reference to Exhibit 10.13 to the Annual Report on Form 10-K filed on March 29, 2006. | ||
10 | .14 | Tax Indemnification Agreement by and among Compensation Risk Managers, LLC, Compensation Risk Managers of California, LLC, EIMAR, L.L.C., Twin Bridges (Bermuda) Ltd., the individuals named therein and Village Holdings, LLC, dated December 7, 2005. Incorporated by reference to Exhibit 10.14 to the Annual Report on Form 10-K filed on March 29, 2006. | ||
10 | .15 | Employment Agreement between the Company and Louis J. Viglotti, dated November 22, 2005. Incorporated by reference to Exhibit 10.15 to the Annual Report on Form 10-K filed on March 29, 2006. | ||
10 | .16 | Amendment to Loan Agreement by and between Twin Bridges (Bermuda) Ltd. and KeyBank National Association dated December 14, 2005 (amending the Amended and Restated Loan Agreement dated October 3, 2005). Incorporated by reference to Exhibit 10.16 to the Annual Report on Form 10-K filed on March 29, 2006. | ||
10 | .17 | Separation Agreement, dated December 19, 2006 between the Company and Martin D. Rakoff. Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on December 28, 2006. |
II-4
Table of Contents
Exhibit | ||||
Number | Description | |||
10 | .18* | Employment Agreement between Embarcadero and John L. Sullivan, dated as of September 8, 2006. | ||
10 | .19* | Employment Agreement, dated December 8, 2006 between the Company and Robert Polansky. | ||
21 | .1* | List of subsidiaries of the Company. | ||
23 | .1 | Consent of Johnson Lambert & Co. | ||
23 | .2 | Consent of Deloitte & Touche LLP. | ||
23 | .3 | Consent of Appleby Hunter Bailhache (included in Exhibit 5.1). | ||
24 | .1* | Power of Attorney. |
* | Previously filed. |
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II-6
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/s/ JOHNSON LAMBERT & CO. LLP |
II-7
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Amount | ||||||||||||||
Shown on | ||||||||||||||
Amortized | Balance | |||||||||||||
Type of Investment | Cost | Fair Value | Sheet | |||||||||||
Fixed Maturities: | ||||||||||||||
Bonds: | ||||||||||||||
United States Government and government agencies and authorities | ||||||||||||||
Total Bonds | $ | 8,191,519 | $ | 8,185,367 | $ | 8,185,367 | ||||||||
Total Fixed Maturities | $ | 8,191,519 | $ | 8,185,367 | $ | 8,185,367 | ||||||||
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Table of Contents
Assets | |||||
Cash and cash equivalents | $ | 19,442,696 | |||
Investments in wholly-owned subsidiaries | 47,350,393 | ||||
Amounts due from subsidiaries | 4,695,675 | ||||
Total assets | $ | 71,488,764 | |||
Liabilities and Shareholders’ Equity | |||||
Accrued IPO costs | $ | 2,410,962 | |||
Other accrued expenses | 308,834 | ||||
Total liabilities | 2,719,796 | ||||
Common Stock | |||||
Authorized 50,000,000,000 shares; $.01 par value; 15,457,115 common shares issued and outstanding; | 154,571 | ||||
790,000 Class B shares issued and outstanding | 7,900 | ||||
Additional paid-in capital | 70,056,217 | ||||
Retained earnings | (298,193 | ) | |||
Unearned compensation, restricted stock | (1,151,527 | ) | |||
Total shareholders’ equity | 68,768,968 | ||||
Total liabilities and shareholders’ equity | $ | 71,488,764 | |||
II-9
Table of Contents
Revenues | |||||
Investment income | $ | 12,696 | |||
Total revenues | 12,696 | ||||
Expenses | |||||
Selling, general and administrative expenses | 310,889 | ||||
Total expenses | 310,889 | ||||
Loss before taxes and equity earnings in subsidiaries | (298,193 | ) | |||
Provision for income taxes | — | ||||
Loss before equity earnings in subsidiaries | (298,193 | ) | |||
Equity in earnings of subsidiaries | 167,313 | ||||
Net loss | $ | (130,880 | ) | ||
II-10
Table of Contents
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net loss | $ | (130,880 | ) | |||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Equity in earnings of subsidiaries | (167,313 | ) | ||||||
Amortization of unearned compensation, restricted stock | 13,000 | |||||||
Changes in: | ||||||||
Other accrued expenses | 308,834 | |||||||
Net cash provided by operating activities | 23,641 | |||||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Investments in wholly-owned subsidiaries | (47,350,393 | ) | ||||||
Net cash used in investing activities | (47,350,393 | ) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Net proceeds from issuance of common stock | 68,703,768 | |||||||
Reclassification of net assets of pre-restructuring entities | 350,393 | |||||||
Increase in accrued IPO costs | 2,410,962 | |||||||
Increase in amounts due from subsidiaries | (4,695,675 | ) | ||||||
Net cash provided in financing activities | 66,769,448 | |||||||
Net increase in cash | 19,442,696 | |||||||
Cash and cash equivalents | ||||||||
Beginning | — | |||||||
Ending | $ | 19,442,696 | ||||||
II-11
Table of Contents
1. | Condensed Financial Statements |
2. | Significant Accounting Policies |
3. | Dividends from Subsidiaries |
II-12
Table of Contents
Other | ||||||||||||||||||||||||||||||||||||||||
Deferred | Future policy | policy | Losses and | Amortization | ||||||||||||||||||||||||||||||||||||
policy | benefits, | Unearned | claims and | Net | Investment | loss | of policy | Other | Gross | |||||||||||||||||||||||||||||||
acquisition | losses and | reinsurance | benefits | reinsurance | income, | adjustment | acquisition | underwriting | premiums | |||||||||||||||||||||||||||||||
costs | loss expenses | premiums | payable | premiums | fees | expenses | costs | expenses | assumed | |||||||||||||||||||||||||||||||
2005 | $ | 441,770 | $ | 6,279,744 | $ | 1,493,911 | $ | — | — | $ | 165,575 | $ | 3,583,744 | $ | 2,472,786 | $ | 395,851 | $ | 5,076,033 | |||||||||||||||||||||
2004 | $ | 1,413,500 | $ | 2,696,000 | $ | 4,779,950 | $ | — | $ | 5,109,883 | $ | 21,670 | $ | 2,528,083 | $ | 1,511,065 | $ | 206,238 | $ | 7,105,000 | ||||||||||||||||||||
2003 | $ | 823,515 | $ | 167,917 | $ | 2,784,834 | $ | — | $ | 253,167 | $ | 88 | $ | 167,917 | $ | 74,865 | $ | 61,749 | $ | 3,038,000 |
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Percentage | |||||||||||||||||||||
Ceded to | Assumed | of amount | |||||||||||||||||||
Direct | other | from other | assumed | ||||||||||||||||||
amount | companies | companies | Net amount | to net | |||||||||||||||||
Workers’ Compensation Insurance: | |||||||||||||||||||||
2005 | $ | — | $ | — | $ | 8,362,072 | $ | 8,362,072 | 100 | % | |||||||||||
2004 | $ | — | $ | — | $ | 5,109,883 | $ | 5,109,883 | 100 | % | |||||||||||
2003 | $ | — | $ | — | $ | 253,167 | $ | 253,167 | 100 | % |
II-14
Table of Contents
Incurred Losses | ||||||||||||||||||||||||||||||||||||||||||||
and loss | ||||||||||||||||||||||||||||||||||||||||||||
adjustment | ||||||||||||||||||||||||||||||||||||||||||||
Reserve for | expenses related | |||||||||||||||||||||||||||||||||||||||||||
Deferred | losses and | to: | Amortization | Paid claims | ||||||||||||||||||||||||||||||||||||||||
policy | loss | Unearned | Net | of policy | and claim | Gross | ||||||||||||||||||||||||||||||||||||||
acquisition | adjustment | Discount | reinsurance | reinsurance | Investment | Current | Prior | acquisition | adjustment | premiums | ||||||||||||||||||||||||||||||||||
costs | expenses | reserves | premiums | premiums | income | year | year | costs | expenses | assumed | ||||||||||||||||||||||||||||||||||
2005 | $ | 441,770 | $ | 6,279,744 | $ | — | $ | 1,493,911 | $ | 8,362,072 | $ | 165,575 | $ | 3,583,744 | $ | — | $ | 2,472,789 | $ | — | $ | 5,076,033 | ||||||||||||||||||||||
2004 | $ | 1,413,500 | $ | 2,696,000 | $ | — | $ | 4,779,950 | $ | 5,109,883 | $ | 21,670 | $ | 2,528,083 | $ | — | $ | 1,511,065 | $ | — | $ | 7,105,000 | ||||||||||||||||||||||
2003 | $ | 823,515 | $ | 167,917 | $ | — | $ | 2,784,834 | $ | 253,167 | $ | 88 | $ | 167,917 | $ | — | $ | 74,865 | $ | — | $ | 3,038,000 |
II-15
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Item 17. | Undertakings. |
(1) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of the Registration Statement as of the time it was declared effective. | |
(2) For purposes of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. |
II-16
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CRM Holdings, Ltd. | |
/s/Daniel G. Hickey, Jr. | |
Daniel G. Hickey, Jr. | |
Chief Executive Officer |
Signature | Title | Date | ||||
/s/Daniel G. Hickey, Jr. | Chief Executive Officer and Chairman of the Board | January 31, 2007 | ||||
* | Chief Financial Officer | January 31, 2007 | ||||
* | Director | January 31, 2007 | ||||
* | Director | January 31, 2007 | ||||
* | Director | January 31, 2007 | ||||
* | Director | January 31, 2007 | ||||
* | Director | January 31, 2007 | ||||
* | Director | January 31, 2007 | ||||
* | Director | January 31, 2007 | ||||
/s/Daniel G. Hickey, Jr. | Authorized Representative in the United States | January 31, 2007 |
*By: | /s/Daniel G. Hickey, Jr. |
Daniel G. Hickey, Jr. | |
Attorney-in-fact |
II-17
Table of Contents
Exhibit | ||||
Number | Description | |||
1 | .1 | Form of Underwriting Agreement to be entered into by and between the Company, each of the selling shareholders and Cochran Caronia Waller Securities LLC. | ||
1 | .2 | Placement Agent Agreement, dated November 14, 2006, among the Trust, CRM USA Holdings, CRM Holdings, and Cohen & Company, as placement agent. Incorporated by reference to Exhibit 1.1 to the Current Report on Form 8-K filed on November 14, 2006. | ||
2 | .1 | Reorganization Agreement, by and among the Company, Compensation Risk Managers, LLC, Compensation Risk Managers of California, LLC, EIMAR, L.L.C., Twin Bridges, the individuals named therein and Village Holdings, LLC, dated December 7, 2005. Incorporated by reference to Exhibit 2.1 to the Annual Report on Form 10-K filed on March 29, 2006. | ||
2 | .2 | Stock Purchase Agreement, dated September 8, 2006, by and among Embarcadero, the shareholders of Embarcadero, the Company, and CRM USA Holdings Inc. Incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed on September 11, 2006. | ||
2 | .3 | Amendment No. 1, dated November 14, 2006, to the Stock Purchase Agreement dated September 8, 2006, by and among Embarcadero, the shareholders of Embarcadero, the Company, and CRM USA Holdings Inc. Incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed on November 14, 2006. | ||
3 | .1 | Memorandum of Association of the Company. Incorporated by reference to Exhibit 3.1 to the Annual Report on Form 10-K filed on March 29, 2006. | ||
3 | .2 | Bye-Laws of the Company. Incorporated by reference to Exhibit 3.2 to the Annual Report on Form 10-K filed on March 29, 2006. | ||
3 | .3 | Amended and Restated Bye-Laws of the Company. Incorporated by reference to Exhibit 3.3 to the Annual Report on Form 10-K filed on March 29, 2006. | ||
4 | .1 | Specimen Common Share Certificate. Incorporated by reference to Exhibit 4.1 to the Annual Report on Form 10-K filed on March 29, 2006. | ||
4 | .2 | Amended and Restated Declaration of Trust, dated as of November 14, 2006, among CRM USA Holdings, CRM Holdings, the Trust, The Bank of New York Delaware, as Delaware trustee, The Bank of New York Trust Company, National Association, as institutional trustee, and the administrators named therein, including the form of trust preferred securities which is an exhibit thereto. Incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed on November 14, 2006. | ||
4 | .3 | Indenture, dated as of November 14, 2006, between CRM USA Holdings and The Bank of New York Trust Company, National Association, as trustee, including the form of debenture which is an exhibit thereto. Incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K filed on November 14, 2006. | ||
4 | .4 | Guarantee Agreement, dated as of November 14, 2006, between CRM Holdings and The Bank of New York Trust Company, National Association, as trustee. Incorporated by reference to Exhibit 4.3 to the Current Report on Form 8-K filed on November 14, 2006. | ||
4 | .5 | Guarantee Agreement, dated as of November 14, 2006, between CRM USA Holdings and The Bank of New York Trust Company, National Association, as trustee. Incorporated by reference to Exhibit 4.4 to the Current Report on Form 8-K filed on November 14, 2006. | ||
5 | .1 | Opinion of Appleby Hunter Bailhache. | ||
10 | .1 | Employment Agreement, between the Company and Daniel G. Hickey, Jr., dated November 3, 2005. Incorporated by reference to Exhibit 10.1 to the Annual Report on Form 10-K filed on March 29, 2006. | ||
10 | .2* | Senior Debt Security Agreement of Embarcadero Insurance Holdings, Inc., dated May 22, 2003. |
Table of Contents
Exhibit | ||||
Number | Description | |||
10 | .3 | Interest and Liabilities Contract to Workers’ Compensation and Employer’s Liability Proportional Reinsurance Agreement, between New York Marine & General Insurance Company and Twin Bridges (Bermuda) Limited, effective December 1, 2003. Incorporated by reference to Exhibit 10.3 to the Annual Report on Form 10-K filed on March 29, 2006. | ||
10 | .4 | Lease Agreement between Oakwood Partners L.L.C. and Compensation Risk Managers, LLC, dated August 5, 2005. Incorporated by reference to Exhibit 10.4 to the Annual Report on Form 10-K filed on March 29, 2006. | ||
10 | .5 | Loan Agreement, dated October 28, 2004, between Compensation Risk Managers, LLC and KeyBank National Association. Incorporated by reference to Exhibit 10.5 to the Annual Report on Form 10-K filed on March 29, 2006. | ||
10 | .6 | Amended and Restated Loan Agreement, dated May 5, 2005, between Compensation Risk Managers, LLC and KeyBank National Association (amending and restating the Loan Agreement, between Compensation Risk Managers, LLC and KeyBank National Association, dated October 28, 2004). Incorporated by reference to Exhibit 10.6 to the Annual Report on Form 10-K filed on March 29, 2006. | ||
10 | .7 | Loan Agreement, between Twin Bridges (Bermuda) Ltd. and KeyBank National Association dated October 28, 2004 ($3 million loan). Incorporated by reference to Exhibit 10.7 to the Annual Report on Form 10-K filed on March 29, 2006. | ||
10 | .8 | Loan Agreement, between Twin Bridges (Bermuda) Ltd. and KeyBank National Association dated October 28, 2004 ($7.5 million loan). Incorporated by reference to Exhibit 10.8 to the Annual Report on Form 10-K filed on March 29, 2006. | ||
10 | .9 | Amendment to Loan Agreement, dated June 30, 2005, between Twin Bridges (Bermuda) Ltd. and KeyBank National Association (amending the Loan Agreement between Twin Bridges (Bermuda) Ltd. and KeyBank National Association, dated October 28, 2004). Incorporated by reference to Exhibit 10.9 to the Annual Report on Form 10-K filed on March 29, 2006. | ||
10 | .10 | Amended and Restated Loan Agreement, dated October 3, 2005, between Twin Bridges (Bermuda) Ltd. and KeyBank National Association (amending and restating the Loan Agreement, dated October 28 and subsequently amended June 30, 2005). Incorporated by reference to Exhibit 1010 to the Annual Report on Form 10-K filed on March 29, 2006. | ||
10 | .11 | Amended and Restated Loan Agreement, dated October 3, 2005, between Twin Bridges (Bermuda) Ltd. and KeyBank National Association (amending and restating the Loan Agreement dated October 28, 2004). Incorporated by reference to Exhibit 10.11 to the Annual Report on Form 10-K filed on March 29, 2006. | ||
10 | .12 | Amended and Restated Loan Agreement dated October 3, 2005, between Compensation Risk Managers, LLC and KeyBank National Association (amending and restating the Loan Agreement between Compensation Risk Managers, LLC and KeyBank National Association, dated October 28, 2004 and subsequently amended and restated May 5, 2005). Incorporated by reference to Exhibit 10.12 to the Annual Report on Form 10-K filed on March 29, 2006. | ||
10 | .13 | 2005 Long-Term Incentive Plan. Incorporated by reference to Exhibit 10.13 to the Annual Report on Form 10-K filed on March 29, 2006. | ||
10 | .14 | Tax Indemnification Agreement by and among Compensation Risk Managers, LLC, Compensation Risk Managers of California, LLC, EIMAR, L.L.C., Twin Bridges (Bermuda) Ltd., the individuals named therein and Village Holdings, LLC, dated December 7, 2005. Incorporated by reference to Exhibit 10.14 to the Annual Report on Form 10-K filed on March 29, 2006. | ||
10 | .15 | Employment Agreement between the Company and Louis J. Viglotti, dated November 22, 2005. Incorporated by reference to Exhibit 10.15 to the Annual Report on Form 10-K filed on March 29, 2006. |
Table of Contents
Exhibit | ||||
Number | Description | |||
10 | .16 | Amendment to Loan Agreement by and between Twin Bridges (Bermuda) Ltd. and KeyBank National Association dated December 14, 2005 (amending the Amended and Restated Loan Agreement dated October 3, 2005). Incorporated by reference to Exhibit 10.16 to the Annual Report on Form 10-K filed on March 29, 2006. | ||
10 | .17 | Separation Agreement, dated December 19, 2006 between the Company and Martin D. Rakoff. Incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on December 28, 2006. | ||
10 | .18* | Employment Agreement between Embarcadero and John L. Sullivan, dated as of September 8, 2006. | ||
10 | .19* | Employment Agreement, dated December 8, 2006 between the Company and Robert Polansky. | ||
21 | .1* | List of subsidiaries of the Company. | ||
23 | .1 | Consent of Johnson Lambert & Co. | ||
23 | .2 | Consent of Deloitte & Touche LLP. | ||
23 | .3 | Consent of Appleby Hunter Bailhache (included in Exhibit 5.1). | ||
24 | .1* | Power of Attorney. |
* | Previously filed. |