• | eligible members of Penn Millers Mutual, who were the policyholders of Penn Millers Insurance Company, as of April 22, 2009; | |
• | our employee stock ownership plan, which we refer to as our ESOP; and | |
• | officers, directors and employees of Penn Millers Mutual and its subsidiaries. |
Price: $10.00 per share
Adjusted | ||||||||||||||||
Minimum | Midpoint | Maximum | Maximum | |||||||||||||
Number of shares offered | 4,505,000 | 5,300,000 | 6,095,000 | 6,772,221 | ||||||||||||
Gross offering proceeds | $ | 45,050,000 | $ | 53,000,000 | $ | 60,950,000 | $ | 67,722,210 | ||||||||
Less: Proceeds from ESOP shares(1) | $ | 4,504,990 | $ | 5,299,990 | $ | 6,094,990 | $ | 6,772,210 | ||||||||
Conversion and offering expenses | $ | 2,570,000 | �� | $ | 2,570,000 | $ | 2,570,000 | $ | 2,570,000 | |||||||
Commissions(2)(3) | $ | 675,750 | $ | 795,000 | $ | 914,250 | $ | 1,015,833 | ||||||||
Net proceeds | $ | 37,299,260 | $ | 44,335,010 | $ | 51,370,760 | $ | 57,364,167 | ||||||||
Net proceeds per share | $ | 8.28 | $ | 8.37 | $ | 8.43 | $ | 8.47 |
(1) | The calculation of net proceeds from this offering does not include the shares being purchased by our ESOP because we will loan a portion of the proceeds to the ESOP to fund the purchase of such shares. The ESOP is purchasing such number of shares as will equal 9.99% of the total number of shares sold in the offering. | |
(2) | Represents the amount to be paid to Griffin Financial, which is equal to 1.5% of the shares sold in the subscription offering and the community offering. See “The Conversion and Offering — Marketing and Placement Agent Arrangements.” | |
(3) | Assumes that no shares are sold in a syndicated community offering phase. In the event of a syndicated community offering phase, a commission rate of 5.5% will be paid on all shares sold in that phase. |
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F-1 |
• | “Penn Millers,” “the Company,” “we,” “us” and “our” refer to Penn Millers Mutual Holding Company, which we refer to as Penn Millers Mutual, PMHC Corp., Penn Millers Insurance Company, and any of its subsidiaries prior to the conversion. “Penn Millers,” “the Company,” “we,” “us” and “our” refer to the registrant, Penn Millers Holding Corporation, as well as Penn Millers Mutual, PMHC Corp., Penn Millers Insurance Company and any of its subsidiaries after the conversion; | |
• | the “conversion” refers to a series of transactions by which Penn Millers Mutual will convert from a mutual holding company to a stock holding company and become a subsidiary of Penn Millers Holding Corporation; | |
• | the “offering” and the “conversion offering” refer to the offering of up to 6,772,221 shares of our common stock under the plan of conversion to eligible subscribers in a subscription offering and to the general public in a community offering and syndicated community offering. We expect to conduct the subscription offering and the community offering at the same time. The syndicated community offering may be conducted concurrently with or subsequent to the subscription offering and the community offering; and | |
• | “members” refers to members of Penn Millers Mutual, who are either (i) the named insureds under an individual insurance policy issued by Penn Millers Insurance Company or (ii) the named insureds under a group insurance policy issued by Penn Millers Insurance Company. |
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• | First, in 2009 we introduced an insurance product called PennEdge that will enable us to write customized coverages on mid-size commercial accounts. PennEdge will provide property and liability coverage to accounts that currently do not meet the eligibility requirements for our traditional business owners or agribusiness products. PennEdge is specifically tailored to unique business and industry segments, including wholesalers, light manufacturing, hospitality, commercial laundries and dry cleaners, and printers. These segments were chosen based on the experience of our underwriting staff and the market opportunities available to our existing producers. Currently, the PennEdge product is approved in seven states. | |
• | Second, we have differentiated our products by entering into strategic alliances to offer equipment breakdown, employment practices liability, and miscellaneous professional liability coverage, and we are exploring a strategic alliance to offer environmental impairment liability coverage. Under such strategic alliances, we typically reinsure all of the risk of loss to the strategic partner and earn a ceding commission. | |
• | Third, we are currently represented by a small number of producers in a large geographic area. New producers are an important part of our growth strategy, and we intend to continue to add them in areas where we want to increase our market presence. |
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• | first, to the eligible members of Penn Millers Mutual, who were the policyholders of Penn Millers Insurance Company at April 22, 2009; | |
• | second, to our employee stock ownership plan, or ESOP; and | |
• | third, to the directors, officers and employees of Penn Millers. |
• | licensed insurance agencies and brokers that have been appointed by or otherwise are under contract with Penn Millers Insurance Company to market and distribute our insurance products; | |
• | policyholders under policies of insurance issued by Penn Millers Insurance Company after April 22, 2009 (who are also members of Penn Millers Mutual); and | |
• | natural persons and trusts for natural persons who are residents of Lackawanna or Luzerne Counties in Pennsylvania. |
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Shares Available | ||||
Offering | Eligible Purchasers | for Purchase | ||
Subscription Offering | Eligible members of Penn Millers Mutual, who were the policyholders of Penn Millers Insurance Company at April 22, 2009; and | 6,095,000 shares | ||
Penn Millers’ officers, directors and employees (who may not, as a group, purchase more than 35% of the shares offered). | ||||
Community Offering | All members of the general public, with preference given to: | 6,095,000 shares, less shares subscribed for in the subscription offering | ||
• licensed insurance agencies and brokers appointed by or under contract with Penn Millers Insurance Company; | ||||
• policyholders of Penn Millers Insurance Company issued policies after April 22, 2009, who are also members of Penn Millers Mutual; and | ||||
• residents of Lackawanna or Luzerne Counties in Pennsylvania. | ||||
Syndicated Community Offering | All members of the general public. | 6,095,000 shares, less shares subscribed for in the subscription offering and the community offering |
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Amount | ||||||||
Amount | at the Adjusted | |||||||
at the Minimum | Maximum | |||||||
Use of Net Proceeds | ||||||||
Loan to ESOP | $ | 4,504,990 | $ | 6,772,210 | ||||
Commissions(1)( | $ | 675,750 | $ | 1,015,833 | ||||
General corporate purposes | $ | 37,299,260 | $ | 57,364,167 | ||||
Total | $ | 42,480,000 | $ | 65,152,210 | ||||
(1) Rep res ent s the am oun tt o be pai d to Gri ffi n Fin anci al, w hic hi s equ al to 1. 5% of the s har es sol d in t he sub scr ipt ion of fer ing a nd com mun ity o ffer ing , pre sum ing th at al ls har es ar es old i nt hos e pha ses .I n th e even t of a syn dic ate dc omm uni ty off eri ng ph ase ,a c omm issi on ra te of 5. 5% wil l be pai d on all s har es sol d in t hat ph ase .
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• | such person’s spouse; | |
• | relatives of such person or such person’s spouse living in the same house; | |
• | companies, trusts or other entities in which such person or entity is an officer, director, or partner, or is, directly or indirectly, a beneficial owner of 10% or more of the equity securities; | |
• | a trust or estate in which such person or entity holds a substantial beneficial interest or serves in a fiduciary capacity; or | |
• | any person acting in concert with any of the persons or entities listed above. |
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• | that 6,095,000 shares will be sold in the offering; and | |
• | that the value of the stock in the table is $10.00 per share. |
Percent of | Value of Shares | |||||||||||||
Individuals Eligible to | Shares Issued | Number of | Based on $10.00 | |||||||||||
Plan | Receive Awards | in the Offering | Shares | Share Price | ||||||||||
ESOP | All eligible full-time employees | 9.99 | % | 609,499 | $ | 6,094,990 | ||||||||
Shares available under the stock-based incentive plan for restricted stock and restricted stock unit awards | Directors and selected officers and employees | 4 | % | 243,800 | $ | 2,438,000 | ||||||||
Shares available under the stock-based incentive plan for stock options | Directors and selected officers and employees | 10 | % | 609,500 | (1) |
(1) | Stock options will be awarded with a per share exercise price at least equal to the market price of our common stock on the date of award. The value of a stock option will depend upon increases, if any, in the price of our common stock during the term of the stock option. |
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• | determining whether damages were caused by flooding versus wind; | |
• | evaluating general liability and pollution exposures; | |
• | the impact of increased demand for products and services necessary to repair or rebuild damaged properties; | |
• | infrastructure disruption; | |
• | fraud; | |
• | the effect of mold damage; | |
• | business interruption costs; and | |
• | reinsurance collectability. |
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• | estimates of rising levels of actual costs that are not known by companies at the time they price their products; | |
• | volatile and unpredictable developments, including man-made and natural catastrophes; | |
• | changes in reserves resulting from the general claims and legal environments as different types of claims arise and judicial interpretations relating to the scope of insurers’ liability develop; and | |
• | fluctuations in interest rates, inflationary pressures and other changes in the investment environment, which affect returns on invested capital and may impact the ultimate payout of losses. |
• | trends in claim frequency and severity; | |
• | information regarding each claim for losses; | |
• | legislative enactments, judicial decisions and legal developments regarding damages; and | |
• | trends in general economic conditions, including inflation. |
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• | the availability of alternative products from our competitors; | |
• | the price of our product relative to our competitors; | |
• | the commissions paid to producers for the sale of our products relative to our competitors; | |
• | the timing of our market entry; and | |
• | our ability to market and distribute our products effectively. |
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• | approval of policy forms and premium rates; | |
• | standards of solvency, including establishing requirements for minimum capital and surplus, and for risk-based capital; | |
• | classifying assets as admissible for purposes of determining solvency and compliance with minimum capital and surplus requirements; |
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• | licensing of insurers and their producers; | |
• | advertising and marketing practices; | |
• | restrictions on the nature, quality and concentration of investments; | |
• | assessments by guaranty associations and mandatory pooling arrangements; | |
• | restrictions on the ability to pay dividends; | |
• | restrictions on transactions between affiliated companies; | |
• | restrictions on the size of risks insurable under a single policy; | |
• | requiring deposits for the benefit of policyholders; | |
• | requiring certain methods of accounting; | |
• | periodic examinations of our operations and finances; | |
• | claims practices; | |
• | prescribing the form and content of reports of financial condition required to be filed; and | |
• | requiring reserves for unearned premiums, losses and other purposes. |
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• | quarterly variations in our results of operations; | |
• | changes in expectations as to our future results of operations, including financial estimates by securities analysts and investors; | |
• | announcements by third parties of claims against us; | |
• | changes in law and regulation; | |
• | public perceptions of the insurance industry; | |
• | declines in the stock market in general; | |
• | results of operations that vary from those expected by investors; and | |
• | future sales of shares of our common stock. |
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• | a prohibition on a person, including a group acting in concert, from acquiring voting control of more than 10% of our outstanding stock without prior approval of the board of directors; | |
• | a classified board of directors divided into three classes serving for successive terms of three years each; | |
• | the prohibition of cumulative voting in the election of directors; | |
• | the requirement that nominations for the election of directors made by shareholders and any shareholder proposals for inclusion on the agenda at any annual meeting must be made by notice (in writing) delivered or mailed to us not less than 90 days prior to the meeting; | |
• | the prohibition of shareholders’ action without a meeting and of shareholders’ right to call a special meeting; | |
• | unless otherwise waived by the board of directors, to be elected as a director, a person must be a shareholder of Penn Millers Holding Corporation for the lesser of one year or the time that has elapsed since the completion of the conversion; | |
• | the requirement imposing a mandatory tender offering requirement on a shareholder that has a combined voting power of 25% or more of the votes that our shareholders are entitled to cast; | |
• | the requirement that certain provisions of our articles of incorporation can only be amended by an affirmative vote of shareholders entitled to cast at least 80% of all votes that shareholders are entitled to cast, unless approved by an affirmative vote of at least 80% of the members of the board of directors; and | |
• | the requirement that certain provisions of our bylaws can only be amended by an affirmative vote of shareholders entitled to cast at least 662/3%, or in certain cases 80%, of all votes that shareholders are entitled to cast. |
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• | statements of goals, intentions and expectations; | |
• | statements regarding prospects and business strategy; and | |
• | estimates of future costs, benefits and results. |
• | future economic conditions in the markets in which we compete that are less favorable than expected; | |
• | the effects of weather-related and other catastrophic events; | |
• | the effect of legislative, judicial, economic, demographic and regulatory events in the jurisdictions where we do business; | |
• | our ability to enter new markets successfully and capitalize on growth opportunities either through acquisitions or the expansion of our producer network; | |
• | our ability to introduce and successfully market our new PennEdge commercial multi-peril policy; | |
• | our ability to expand our agribusiness lines into new geographic areas, including the midwestern United States; | |
• | financial market conditions, including, but not limited to, changes in interest rates and the stock markets causing a reduction of investment income or investment gains and a reduction in the value of our investment portfolio; | |
• | heightened competition, including specifically the intensification of price competition, the entry of new competitors and the development of new products by new or existing competitors, resulting in a reduction in the demand for our products; | |
• | the impact of acts of terrorism and acts of war; | |
• | the effects of terrorist related insurance legislation and laws; | |
• | changes in general economic conditions, including inflation, unemployment, interest rates and other factors; | |
• | the cost, availability and collectability of reinsurance; | |
• | estimates and adequacy of loss reserves and trends in loss and loss adjustment expenses; |
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• | changes in the coverage terms selected by insurance customers, including higher deductibles and lower limits; | |
• | our inability to obtain regulatory approval of, or to implement, premium rate increases; | |
• | the potential impact on our reported net income that could result from the adoption of future accounting standards issued by the Public Company Accounting Oversight Board or the Financial Accounting Standards Board or other standard-setting bodies; | |
• | inability to carry out marketing and sales plans, including, among others, development of new products or changes to existing products and acceptance of the new or revised products in the market; | |
• | unanticipated changes in industry trends and ratings assigned by nationally recognized rating organizations; | |
• | adverse litigation or arbitration results; and | |
• | adverse changes in applicable laws, regulations or rules governing insurance holding companies and insurance companies, and environmental, tax or accounting matters including limitations on premium levels, increases in minimum capital and reserves, and other financial viability requirements, and changes that affect the cost of, or demand for our products. |
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At or for the Six Months | ||||||||||||||||||||||||||||
Ended June 30, | At or for the Years Ended December 31, | |||||||||||||||||||||||||||
2009 | 2008 | 2008 | 2007 | 2006 | 2005(5) | 2004 | ||||||||||||||||||||||
(Unaudited) | (Dollars in thousands) | |||||||||||||||||||||||||||
Statement of Operations Data: | ||||||||||||||||||||||||||||
Direct premiums written | $ | 41,976 | $ | 45,996 | $ | 94,985 | $ | 94,073 | $ | 84,544 | $ | 84,084 | $ | 89,041 | ||||||||||||||
Net premiums written | $ | 33,384 | $ | 37,979 | $ | 77,367 | $ | 74,119 | $ | 67,525 | $ | 62,057 | $ | 67,036 | ||||||||||||||
Net premiums earned | $ | 36,926 | $ | 39,369 | $ | 78,737 | $ | 70,970 | $ | 64,645 | $ | 64,723 | $ | 63,090 | ||||||||||||||
Net investment income | 2,769 | 2,723 | 5,335 | 5,324 | 4,677 | 4,444 | 4,278 | |||||||||||||||||||||
Other net realized investment gains (losses) | 64 | 1,876 | (2,897 | ) | (82 | ) | 349 | 565 | 936 | |||||||||||||||||||
Other-than-temporary impairment losses | (197 | ) | — | (2,922 | ) | (620 | ) | — | (141 | ) | — | |||||||||||||||||
Other revenue | 111 | 221 | 411 | 508 | 345 | 277 | 301 | |||||||||||||||||||||
Total revenue | $ | 39,673 | $ | 44,189 | $ | 78,664 | $ | 76,100 | $ | 70,016 | $ | 69,868 | $ | 68,605 | ||||||||||||||
Expenses | ||||||||||||||||||||||||||||
Loss and loss adjustment expense | $ | 25,866 | $ | 28,692 | $ | 57,390 | $ | 49,783 | $ | 43,766 | $ | 40,242 | $ | 42,910 | ||||||||||||||
Amortization of deferred acquisition costs | 10,953 | 11,521 | 23,081 | 21,930 | 20,080 | 21,556 | 20,464 | |||||||||||||||||||||
Underwriting and administrative expense | 1,869 | 1,807 | 3,481 | 2,233 | 3,216 | 7,662 | 3,895 | |||||||||||||||||||||
Interest expense | 156 | 87 | 184 | 125 | 222 | 195 | 84 | |||||||||||||||||||||
Other operating expenses | 90 | 76 | 365 | 184 | 314 | 266 | 82 | |||||||||||||||||||||
Total losses and expenses | $ | 38,934 | $ | 42,183 | $ | 84,501 | $ | 74,255 | $ | 67,598 | $ | 69,921 | $ | 67,435 | ||||||||||||||
Income (loss) from continuing operations, before income taxes | $ | 739 | $ | 2,006 | $ | (5,837 | ) | $ | 1,845 | $ | 2,418 | $ | (53 | ) | $ | 1,170 | ||||||||||||
Income tax expense (benefit) | 107 | 494 | (1,378 | ) | 396 | 506 | (295 | ) | (21 | ) | ||||||||||||||||||
Income (loss) from continuing operations | $ | 632 | $ | 1,512 | $ | (4,459 | ) | $ | 1,449 | $ | 1,912 | $ | 242 | $ | 1,191 | |||||||||||||
Income (loss) on discontinued operations | (816 | ) | (14 | ) | (2,920 | ) | (363 | ) | 168 | 47 | 199 | |||||||||||||||||
Net income (loss) | $ | (184 | ) | $ | 1,498 | $ | (7,379 | ) | $ | 1,086 | $ | 2,080 | $ | 289 | $ | 1,390 | ||||||||||||
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At or for the Six Months | ||||||||||||||||||||||||||||
Ended June 30, | At or for the Years Ended December 31, | |||||||||||||||||||||||||||
2009 | 2008 | 2008 | 2007 | 2006 | 2005(5) | 2004 | ||||||||||||||||||||||
(Unaudited) | (Dollars in thousands) | |||||||||||||||||||||||||||
Balance Sheet Data (at period end): | ||||||||||||||||||||||||||||
Total investments, cash and cash equivalents | $ | 146,878 | $ | 134,484 | $ | 133,873 | $ | 136,312 | $ | 126,655 | $ | 116,898 | $ | 117,002 | ||||||||||||||
Total assets | 228,385 | 221,904 | 220,524 | 219,613 | 207,768 | 197,897 | 192,020 | |||||||||||||||||||||
Unpaid loss and loss adjustment expenses | 118,025 | 104,589 | 108,065 | 95,956 | 89,405 | 83,849 | 73,287 | |||||||||||||||||||||
Unearned premiums | 41,218 | 44,947 | 45,322 | 46,595 | 43,294 | 39,984 | 42,798 | |||||||||||||||||||||
Total liabilities | 176,413 | 162,767 | 169,769 | 158,212 | 147,238 | 140,128 | 132,114 | |||||||||||||||||||||
Equity | 51,972 | 59,137 | 50,755 | 61,401 | 60,530 | 57,769 | 59,906 | |||||||||||||||||||||
U.S. GAAP Ratios: | ||||||||||||||||||||||||||||
Loss and loss adjustment expense ratio(1) | 70.0 | % | 72.9 | % | 72.9 | % | 70.1 | % | 67.7 | % | 62.2 | % | 68.0 | % | ||||||||||||||
Underwriting expense ratio(2) | 34.5 | % | 33.1 | % | 32.8 | % | 33.3 | % | 35.1 | % | 39.2 | % | 38.0 | % | ||||||||||||||
Combined ratio(3) | 104.5 | % | 106.0 | % | 105.7 | % | 103.4 | % | 102.8 | % | 101.4 | % | 106.0 | % | ||||||||||||||
Return on average equity, continuing operations(4) | 2.5 | % | 5.1 | % | (8.0 | )% | 2.4 | % | 3.2 | % | 0.4 | % | 2.0 | % | ||||||||||||||
Return on average equity(4) | (1.0 | )% | 5.0 | % | (13.2 | )% | 1.8 | % | 3.5 | % | 0.5 | % | 2.3 | % | ||||||||||||||
Statutory Data: | ||||||||||||||||||||||||||||
Statutory net income (loss) | $ | 2,111 | $ | 1,510 | $ | (4,718 | ) | $ | 878 | $ | 1,374 | $ | 3,171 | $ | 634 | |||||||||||||
Statutory surplus | 44,188 | 47,458 | 42,569 | 50,795 | 50,524 | 47,216 | 45,445 | |||||||||||||||||||||
Ratio of net premiums written to statutory surplus(4) | 151.1 | % | 160.1 | % | 181.7 | % | 145.9 | % | 133.6 | % | 131.4 | % | 147.5 | % |
(1) | Calculated by dividing loss and loss adjustment expenses by net premiums earned. | |
(2) | Calculated by dividing amortization of deferred policy acquisition costs and net underwriting and administrative expenses (attributable to insurance operations) by net premiums earned. | |
(3) | The sum of the loss and loss adjustment expense ratio and the underwriting expense ratio. A combined ratio of less than 100% means a company is making an underwriting profit. | |
(4) | Calculated on an annualized basis. | |
(5) | In conjunction with the offering, 2005 has been adjusted, as of January 1, 2005, to reflect the adoption of Staff Accounting Bulletin (SAB) No. 108,Quantifying Financial Statement Misstatements. |
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Adjusted | ||||||||
Minimum | Maximum | |||||||
Net Proceeds | ||||||||
Gross proceeds | $ | 45,050,000 | $ | 67,722,210 | ||||
Conversion and offering expenses | 2,570,000 | 2,570,000 | ||||||
Net proceeds before loan to ESOP | $ | 42,480,000 | $ | 65,152,210 | ||||
Use of Net Proceeds | ||||||||
Loan to ESOP | $ | 4,504,990 | $ | 6,772,210 | ||||
Commissions | $ | 675,750 | $ | 1,015,833 | ||||
General corporate purposes | 37,299,260 | 57,364,167 | ||||||
Total | $ | 42,480,000 | $ | 65,152,210 | ||||
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Penn Millers | ||||||||||||||||||||
Historical | ||||||||||||||||||||
Consolidated | Adjusted | |||||||||||||||||||
Capitalization | Minimum | Midpoint | Maximum | Maximum | ||||||||||||||||
(Dollars in thousands, except share and per share data) | ||||||||||||||||||||
Long term debt and lines of credit | $ | 2,959 | $ | 1,276 | $ | 1,276 | $ | 1,276 | $ | 1,276 | ||||||||||
Shareholders’ equity: | ||||||||||||||||||||
Common stock, $0.01 par value per share; authorized shares 10,000,000(1) | $ | — | $ | 45 | $ | 53 | $ | 61 | $ | 68 | ||||||||||
Additional paid in capital | — | 41,759 | 49,582 | 57,405 | 64,068 | |||||||||||||||
Retained earnings | 51,730 | 51,730 | 51,730 | 51,730 | 51,730 | |||||||||||||||
Accumulated other comprehensive income (loss), net of tax | 242 | 242 | 242 | 242 | 242 | |||||||||||||||
Less: common stock to be acquired by ESOP(2) | — | (4,505 | ) | (5,300 | ) | (6,095 | ) | (6,772 | ) | |||||||||||
Total shareholders’ equity | $ | 51,972 | $ | 89,271 | $ | 96,307 | $ | 103,343 | $ | 109,336 | ||||||||||
(1) | No effect has been given to the issuance of additional shares of common stock pursuant to the proposed stock-based incentive plan. We intend to adopt a stock-based incentive plan and will submit such plan to shareholders for their approval at a meeting of shareholders to be held at least six months following completion of the offering. If the plan is approved by shareholders, an amount equal to 14% of the shares of common stock sold in the offering will be available for future issuance under such plan. Under such plan, 4% will be available for future awards of restricted stock and restricted stock unit awards settled in our common stock, and 10% will be available for future stock option grants. Your ownership percentage would decrease by approximately 12.3% if shares were issued from our authorized but unissued shares upon the grant of all potential restricted stock awards and the exercise of all potential stock options, and if 5,300,000 shares were sold in the offering. No decrease in your ownership percentage will occur if the shares are purchased for the plan on the open market. See “Unaudited Pro Forma Financial Information — Additional Pro Forma Data” and “Management — Benefit Plans and Employment Agreements — Stock-Based Incentive Plan.” | |
(2) | Assumes that 9.99% of the common stock sold in the offering will be purchased by the ESOP. The common stock acquired by the ESOP is reflected as a reduction in shareholders’ equity. Assumes the funds used to acquire the ESOP shares will be borrowed from Penn Millers. See Note 1 to the table set forth under “Unaudited Pro Forma Financial Information — Additional Pro Forma Data” and “Management — Benefit Plans and Employment Agreements — Employee Stock Ownership Plan.” |
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As of June 30, 2009
Penn Millers | Penn Millers | |||||||||||
Historical | Pro Forma | Pro Forma | ||||||||||
Consolidated | Adjustments | Consolidated(4) | ||||||||||
(Dollars in thousands) | ||||||||||||
Assets | ||||||||||||
Cash and invested assets | $ | 146,878 | $ | 35,616 | (1) | $ | 182,494 | |||||
Premiums and fees receivable | 26,783 | — | 26,783 | |||||||||
Reinsurance receivables and recoverables | 25,950 | — | 25,950 | |||||||||
Deferred policy acquisition costs | 9,862 | — | 9,862 | |||||||||
Prepaid reinsurance premiums | 3,769 | — | 3,769 | |||||||||
Accrued investment income | 1,565 | — | 1,565 | |||||||||
Property and equipment, net of accumulated depreciation | 3,958 | — | 3,958 | |||||||||
Income taxes receivable | 738 | — | 738 | |||||||||
Deferred income taxes | 3,240 | — | 3,240 | |||||||||
Other assets | 4,011 | — | 4,011 | |||||||||
Deferred offering costs | 1,631 | — | 1,631 | |||||||||
Assets held for sale | — | — | — | |||||||||
Total assets | $ | 228,385 | $ | 35,616 | $ | 264,001 | ||||||
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Penn Millers | Penn Millers | |||||||||||
Historical | Pro Forma | Pro Forma | ||||||||||
Consolidated | Adjustments | Consolidated(4) | ||||||||||
(Dollars in thousands) | ||||||||||||
Liabilities | ||||||||||||
Losses and loss adjustment expense reserves | $ | 118,025 | $ | — | $ | 118,025 | ||||||
Unearned premiums | 41,218 | — | 41,218 | |||||||||
Accounts payable and accrued expenses | 14,211 | — | 14,211 | |||||||||
Borrowings under line of credit | 1,683 | (1,683 | )(2) | — | ||||||||
Long-term debt | 1,276 | — | 1,276 | |||||||||
Liabilities held for sale | — | — | — | |||||||||
Total liabilities | $ | 176,413 | $ | (1,683 | ) | $ | 174,730 | |||||
Shareholders’ equity | ||||||||||||
Common stock | $ | — | $ | 45 | (1) | $ | 45 | |||||
Unearned compensation | — | (4,505 | )(3) | (4,505 | ) | |||||||
Additional paid in capital | — | 41,759 | (1) | 41,759 | ||||||||
Retained earnings | 51,730 | — | 51,730 | |||||||||
Accumulated other comprehensive loss, net of deferred taxes | 242 | — | 242 | |||||||||
Total shareholders’ equity | $ | 51,972 | $ | 37,299 | $ | 89,271 | ||||||
Total liabilities and shareholders’ equity | $ | 228,385 | $ | 35,616 | $ | 264,001 | ||||||
(1) | The unaudited pro forma condensed balance sheet, as prepared, gives effect to the sale of common stock at the minimum of the estimated range of our consolidated pro forma market value, as determined by the independent valuation of Curtis Financial. The unaudited pro forma condensed balance sheet is based upon the assumptions set forth under “Use of Proceeds.” | |
(2) | We intend to repay in full the outstanding principal balance under our lines of credit with proceeds from the offering. | |
(3) | Reflects the $4,504,990 loan from us to our ESOP, the proceeds of which will be used to purchase 9.99% of the common stock issued in the offering at a purchase price of $10.00 per share. The amount of this borrowing has been reflected as a reduction from net proceeds to determine the estimated funds available for investment. The amount of the ESOP loan will increase to $5,299,990, $6,094,990, and $6,772,210 if 5,300,000, 6,095,000, and 6,772,221 shares, respectively, are sold in the offering. The ESOP loan will bear interest at an annual rate equal to the current long-term Applicable Federal Rate with semi-annual compounding in effect on the closing date of the offering. | |
(4) | No effect has been given to the issuance of additional shares in connection with the grant of options or awards of restricted stock or restricted stock units settled in our common stock under the stock-based incentive plan that we intend to adopt. Under the stock-based incentive plan, an amount equal to the aggregate of 10% of the common stock sold in the offering, or 450,500, 530,000, 609,500, and 677,221 shares at the minimum, midpoint, maximum, and adjusted maximum of the estimated offering range, respectively, will be available for future issuance upon the exercise of options to be granted under the stock-based incentive plan. Also under the stock-based incentive plan an amount equal to the aggregate of 4% of the shares of common stock sold in the offering, or 180,200, 212,000, 243,800 and 270,889 shares of common stock at the minimum, midpoint, maximum, and adjusted maximum of the estimated offering range, respectively, will be purchased either through open market purchases or issued by Penn Millers for the purposes of making awards of restricted stock or restricted stock units settled in our common stock under the stock-based incentive plan. We expect to seek shareholder approval of the plan at least six months after completion of the offering. The issuance of authorized but unissued shares of our common stock for the purpose of making restricted stock awards under the stock-based incentive plan instead of open market purchases would dilute the voting interests of existing shareholders by approximately 12.3% at the midpoint of the offering range. |
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Adjusted | ||||||||||||||||
Minimum | Midpoint | Maximum | Maximum | |||||||||||||
(Dollars in thousands, except share data) | ||||||||||||||||
Gross proceeds from the offering | $ | 45,050 | $ | 53,000 | $ | 60,950 | $ | 67,722 | ||||||||
Less: common stock acquired by the ESOP | (4,505 | ) | (5,300 | ) | (6,095 | ) | (6,772 | ) | ||||||||
Less: offering expenses | (2,570 | ) | (2,570 | ) | (2,570 | ) | (2,570 | ) | ||||||||
Less: placement agent commissions(1) | (676 | ) | (795 | ) | (914 | ) | (1,016 | ) | ||||||||
Net proceeds from the offering | $ | 37,299 | $ | 44,335 | $ | 51,371 | $ | 57,364 | ||||||||
Total shares issued by Penn Millers in the offering | 4,505,000 | 5,300,000 | 6,095,000 | 6,772,221 |
(1) | Represents the amount to be paid to Griffin Financial, which is equal to 1.5% of the shares sold in the subscription offering and community offering, presuming that all shares are sold in those phases. In the event of a syndicated community offering phase, a commission rate of 5.5% will be paid on all shares sold in that phase. |
34
Year Ended December 31, 2008
Penn Millers | Penn Millers | |||||||||||
Historical | Pro Forma | Pro Forma | ||||||||||
Consolidated | Adjustments | Consolidated | ||||||||||
(Dollars in thousands, | ||||||||||||
except share and per share data) | ||||||||||||
Revenue: | ||||||||||||
Premiums earned | $ | 78,737 | $ | — | $ | 78,737 | ||||||
Investment income, net of investment expense | 5,335 | — | (1) | 5,335 | ||||||||
Other realized investment losses, net | (2,897 | ) | — | (2,897 | ) | |||||||
Totalother-than-temporary impairment losses | (2,922 | ) | — | (2,922 | ) | |||||||
Other income | 411 | — | 411 | |||||||||
Total revenues | 78,664 | — | 78,664 | |||||||||
Expenses: | ||||||||||||
Losses and loss adjustment expenses | $ | 57,390 | $ | — | $ | 57,390 | ||||||
Amortization of deferred policy acquisition costs | 23,081 | — | 23,081 | |||||||||
Underwriting and administrative expenses | 3,481 | — | 3,481 | |||||||||
Interest expense | 184 | — | 184 | |||||||||
Other expense, net | 365 | 451 | (2) | 816 | ||||||||
Total losses and expenses | 84,501 | 451 | 84,952 | |||||||||
Loss from continuing operations before income taxes | $ | (5,837 | ) | $ | (451 | ) | $ | (6,288 | ) | |||
Income tax (benefit) expense | (1,378 | ) | (153 | )(3) | (1,531 | ) | ||||||
Loss from continuing operations | $ | (4,459 | ) | $ | (298 | ) | $ | (4,757 | ) | |||
Earnings per share data: | ||||||||||||
Basic and diluted loss per common share from continuing operations | $ | — | $ | (1.17 | ) | |||||||
Weighted average basic and diluted common shares outstanding | — | 4,077,025 | (4)(5) |
35
Six Months Ended June 30, 2009
�� | ||||||||||||
Penn Millers | Penn Millers | |||||||||||
Historical | Pro Forma | Pro Forma | ||||||||||
Consolidated | Adjustments | Consolidated | ||||||||||
(dollars in thousands, | ||||||||||||
except share and per share data) | ||||||||||||
Revenue: | ||||||||||||
Premiums earned | $ | 36,926 | $ | — | $ | 36,926 | ||||||
Investment income, net of investment expense | 2,769 | — | (1) | 2,769 | ||||||||
Other realized investment gains | 64 | — | 64 | |||||||||
Totalother-than-temporary impairment losses | (197 | ) | — | (197 | ) | |||||||
Other income | 111 | — | 111 | |||||||||
Total revenues | 39,673 | — | 39,673 | |||||||||
Losses and expenses: | ||||||||||||
Losses and loss adjustment expenses | $ | 25,866 | $ | — | $ | 25,866 | ||||||
Amortization of deferred policy acquisition costs | 10,953 | — | 10,953 | |||||||||
Underwriting and administrative expenses | 1,869 | — | 1,869 | |||||||||
Interest expense | 156 | — | 156 | |||||||||
Other expense, net | 90 | 225 | (2) | 315 | ||||||||
Total losses and expenses | 38,934 | 225 | 39,159 | |||||||||
Income from continuing operations before income taxes | $ | 739 | $ | (225 | ) | $ | 514 | |||||
Income tax expense (benefit) | 107 | (77 | )(3) | 30 | ||||||||
Income from continuing operations | $ | 632 | $ | (148 | ) | $ | 484 | |||||
Earnings per share data: | ||||||||||||
Basic and diluted loss per common share from continuing operations | $ | — | $ | 0.12 | ||||||||
Weighted average basic and diluted common shares outstanding | — | 4,065,763 | (4)(5) |
(1) | We anticipate that we would earn approximately $1.3 million of investment income assuming the net proceeds were available for investment and received as of January 1, 2009 and January 1, 2008, respectively, and that they were invested with an average annual pre-tax rate of return of 3.52%. | |
(2) | General operating expenses include a pro forma adjustment to recognize compensation expense under the ESOP for shares of common stock committed to be released to participants as the principal and interest of the $4,504,990 loan from us to the ESOP is repaid. The pro forma adjustment reflects the amounts repaid on the ESOP loan based on ten equal annual installments of principal and interest. | |
(3) | Adjustments to reflect the federal income tax effects of note (2) above assuming an effective federal income tax rate of 34%. | |
(4) | It is assumed that 9.99% of the shares issuable in the offering will be purchased by our ESOP. For purposes of this table, the funds used to acquire such shares are assumed to have been borrowed by the ESOP from Penn Millers Holding Corporation. The amount to be borrowed is reflected as a reduction to shareholders’ equity. Penn Millers Insurance Company expects to make annual contributions to the ESOP in an amount at least equal to the principal and interest requirement of the debt. Annual payment of the ESOP debt is based upon ten equal annual installments of principal and interest. The pro forma net earnings assumes: (i) that the contribution to the ESOP is equivalent to the debt service requirement for the six months ended June 30, 2009 and for the year ended December 31, 2008, respectively; (ii) (A) that 22,525, 26,500, 30,475, and 33,861 shares at the |
36
minimum, the midpoint, the maximum and adjusted maximum of the offering range, respectively, were committed to be released at the end of the six months ended June 30, 2009, at an average fair value of $10.00 per share, in accordance withSOP 93-6, (B) that 45,050, 53,000, 60,950, and 67,722 shares at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively, were committed to be released at the end of the year ended December 31, 2008, at an average fair value of $10.00 per share, in accordance withSOP 93-6; and (iii) for purposes of calculating the net income per share, the weighted average of the ESOP shares which have not been committed for release, equal to 427,975, 503,500, 579,025 and 643,361 at the minimum, midpoint, maximum and adjusted maximum of the offering range during the year ended December 31, 2008, and equal to 439,236, 516,749, 594,262, and 660,291 during the six months ended June 30, 2009, were subtracted from total shares outstanding of 4,505,000, 5,300,000, 6,095,000, and 6,772,221 at the minimum, midpoint, maximum and adjusted maximum of the offering range on such dates. | ||
(5) | No effect has been given to the issuance of additional shares in connection with the grant of options or awards of restricted stock or restricted stock units settled in our common stock under the stock-based incentive plan that we intend to adopt. Under the stock-based incentive plan, an amount equal to the aggregate of 10% of the common stock sold in the offering, or 450,500, 530,000, 609,500, and 677,221 shares at the minimum, midpoint, maximum, and adjusted maximum of the estimated offering range, respectively, will be available for future issuance upon the exercise of options to be granted under the stock-based incentive plan. Also under the stock-based incentive plan an amount equal to the aggregate of 4% of the shares of common stock sold in the offering, or 180,200, 212,000, 243,800 and 270,889 shares of common stock at the minimum, midpoint, maximum, and adjusted maximum of the estimated offering range, respectively, will be purchased either through open market purchases or issued by Penn Millers for the purposes of making awards of restricted stock or restricted stock units settled in our common stock under the stock-based incentive plan. We expect to seek shareholder approval of the plan at least six months after completion of the offering. The issuance of authorized but unissued shares of our common stock for the purpose of making restricted stock awards under the stock-based incentive plan instead of open market purchases would dilute the voting interests of existing shareholders by approximately 12.3% at the midpoint of the offering range. |
• | Our ESOP will purchase an amount equal to 9.99% of the shares of common stock sold in the offering with a loan from us; | |
• | Expenses of the conversion and offering will be $2.57 million; and | |
• | Placement agent commissions will equal 1.5% of the gross proceeds of the offering and that no shares will be sold in the syndicated offering. |
• | Pro forma earnings have been calculated assuming the stock had been sold at the beginning of the period; | |
• | Pro forma per share amounts have been calculated by dividing historical and pro forma amounts by the indicated number of shares of stock, as adjusted to give effect to the purchase of shares by our ESOP; and | |
• | Pro forma shareholders’ equity amounts have been calculated as if our common stock had been sold in the offering on June 30, 2009, and, accordingly, no effect has been given to the assumed earnings effect of the net proceeds from the offering. |
37
At or for the Six Months Ended June 30, 2009 | ||||||||||||||||
6,772,221 Shares | ||||||||||||||||
4,505,000 Shares | 5,300,000 Shares | 6,095,000 Shares | Sold at $10.00 per | |||||||||||||
Sold at $10.00 per | Sold at $10.00 per | Sold at $10.00 per | Share (Adjusted | |||||||||||||
Share (Minimum | Share (Midpoint | Share (Maximum | Maximum | |||||||||||||
of Range) | of Range) | of Range) | of Range) | |||||||||||||
(Dollars in thousands, except for share and per share data) | ||||||||||||||||
Pro forma offering proceeds | ||||||||||||||||
Gross proceeds of public offering | $ | 45,050 | $ | 53,000 | $ | 60,950 | $ | 67,722 | ||||||||
Less offering expenses and commissions | (3,246 | ) | (3,365 | ) | (3,484 | ) | (3,586 | ) | ||||||||
Net proceeds | 41,804 | 49,635 | 57,466 | 64,136 | ||||||||||||
Less ESOP shares(1) | (4,505 | ) | (5,300 | ) | (6,095 | ) | (6,772 | ) | ||||||||
Net proceeds after ESOP shares | $ | 37,299 | $ | 44,335 | $ | 51,371 | $ | 57,364 | ||||||||
Pro forma shareholders’ equity | ||||||||||||||||
Historical equity of Penn Millers | 51,972 | 51,972 | 51,972 | 51,972 | ||||||||||||
Pro forma proceeds after ESOP shares | 37,299 | 44,335 | 51,371 | 57,364 | ||||||||||||
Pro forma shareholders’ equity(2) | $ | 89,271 | $ | 96,307 | $ | 103,343 | $ | 109,336 | ||||||||
Pro forma per share data | ||||||||||||||||
Total shares outstanding after the offering | 4,505,000 | 5,300,000 | 6,095,000 | 6,772,221 | ||||||||||||
Pro forma book value per share | $ | 19.82 | $ | 18.17 | $ | 16.96 | $ | 16.14 | ||||||||
Pro formaprice-to-book value | 50.45 | % | 55.04 | % | 58.96 | % | 61.96 | % | ||||||||
Pro forma net income: | ||||||||||||||||
Historical income from continuing operations | $ | 632 | $ | 632 | $ | 632 | $ | 632 | ||||||||
Loss on discontinued operations | (816 | ) | (816 | ) | (816 | ) | (816 | ) | ||||||||
ESOP expense | (148 | ) | (175 | ) | (201 | ) | (223 | ) | ||||||||
Pro forma income | $ | (332 | ) | $ | (359 | ) | $ | (385 | ) | $ | (407 | ) | ||||
Weighted average shares outstanding(3) | 4,065,763 | 4,783,251 | 5,500,738 | 6,111,931 | ||||||||||||
Pro forma loss per share | $ | (.08 | ) | $ | (.08 | ) | $ | (.07 | ) | $ | (.07 | ) |
(1) | It is assumed that 9.99% of the aggregate shares sold in the offering will be purchased by the ESOP. The funds used to acquire such shares are assumed to have been borrowed by the ESOP from us. The amount to be borrowed is reflected as a reduction to shareholders’ equity. Annual contributions are expected to be made to the ESOP in an amount at least equal to the principal and interest requirement of the debt. The pro forma net income assumes: (i) that the contribution to the ESOP is equivalent to the debt service requirements for the six |
38
months ended June 30, 2009; and (ii) only the ESOP shares committed to be released were considered outstanding for purposes of the net income per share calculations. | ||
(2) | No effect has been given to the issuance of additional shares in connection with the grant of options or awards of restricted stock or restricted stock units settled in our common stock under the stock-based incentive plan that we intend to adopt. Under the stock-based incentive plan, an amount equal to the aggregate of 10% of the common stock sold in the offering, or 450,500, 530,000, 609,500, and 677,221 shares at the minimum, midpoint, maximum, and adjusted maximum of the estimated offering range, respectively, will be available for future issuance upon the exercise of options to be granted under the stock-based incentive plan. Also under the stock-based incentive plan an amount equal to the aggregate of 4% of the shares of common stock sold in the offering, or 180,200, 212,000, 243,800 and 270,889 shares of common stock at the minimum, midpoint, maximum, and adjusted maximum of the estimated offering range, respectively, will be purchased either through open market purchases or issued by Penn Millers for the purposes of making awards of restricted stock or restricted stock units settled in our common stock under the stock-based incentive plan. We expect to seek shareholder approval of the plan at least six months after completion of the offering. The issuance of authorized but unissued shares of our common stock for the purpose of making restricted stock awards under the stock-based incentive plan instead of open market purchases would dilute the voting interests of existing shareholders by approximately 12.3% at the midpoint of the offering range. | |
(3) | It is assumed that 9.99% of the shares issuable in the offering will be purchased by our ESOP. For purposes of this table, the funds used to acquire such shares are assumed to have been borrowed by the ESOP from Penn Millers Holding Corporation. The amount to be borrowed is reflected as a reduction to shareholders’ equity of Penn Millers Holding Corporation. Annual contributions are expected to be made to the ESOP in an amount at least equal to the principal and interest requirement of the debt. The annual payment of the ESOP debt is based upon ten equal annual installments of principal and interest. The pro forma net earnings assumes: (i) that the contribution to the ESOP is equivalent to the debt service requirement for the six months ended June 30, 2009; (ii) that 22,525, 26,500, 30,475, and 33,861 shares at the minimum, midpoint, maximum and adjusted maximum of the offering range, respectively, were committed to be released at the end of the six months ended June 30, 2009, at an average fair value of $10.00 per share in accordance withSOP 93-6; and (iii) for purposes of calculating the net income per share, the weighted average of the ESOP shares which have not been committed for release, equal to 439,236, 516,749, 594,262, and 660,291 and at the minimum, midpoint, maximum and adjusted maximum of the offering range during the six months ended June 30, 2009, were subtracted from total shares outstanding of 4,505,000, 5,300,000, 6,095,000, and 6,772,221 at the minimum, midpoint, maximum and adjusted maximum of the offering range on such dates. |
39
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
40
41
42
43
• | 2, 3, 4, and5-Year Averages (straight averages and loss-weighted averages); | |
• | 5-Year Average Excluding Highest and Lowest LDFs; | |
• | All-Year average (straight average and loss-weighted average); and | |
• | Selected LDF Pattern (LDFs are selected for each evaluation based on the actuaries’ review of the historical development). |
44
As of | As of | As of | ||||||||||
June 30, | December 31, | December 31, | ||||||||||
2009 | 2008 | 2007 | ||||||||||
Case reserves | $ | 60,430 | $ | 57,976 | $ | 48,957 | ||||||
IBNR reserves | 28,397 | 27,464 | 28,272 | |||||||||
Net unpaid loss and LAE | 88,827 | 85,440 | 77,229 | |||||||||
Reinsurance recoverables on unpaid loss and LAE | 29,198 | 22,625 | 18,727 | |||||||||
Reserves for unpaid loss and LAE | $ | 118,025 | $ | 108,065 | $ | 95,956 | ||||||
Reserve Range for Unpaid Loss and LAE | ||||||||||
Low End | Recorded | High End | ||||||||
(Dollars in thousands) | ||||||||||
$ | 81,841 | $ | 88,827 | $ | 92,886 |
• | Historical industry development experience in our business lines; | |
• | Historical company development experience; | |
• | Trends in social and economic factors that may affect our loss experience, such as the impact of economic conditions on the speed in which injured workers return to their jobs; |
45
• | The impact of court decisions on insurance coverage issues, which can impact the ultimate cost of settling claims; | |
• | Trends and risks in claim costs, such as risk that medical cost inflation could increase, or that increasing unemployment rates can impact workers compensation claim costs; | |
• | The relatively small base of claims we have increases the risk that a few claims experiencing adverse developments could significantly impact our loss reserve levels; and | |
• | The impact of changes in our net retention (i.e., reduction in reinsurance) over the past few years on the potential magnitude of reserve development. |
• | The rate of increase in labor costs, medical costs, material costs, and commodity prices that underlie insured risks; | |
• | Development of risk associated with our expanding producer relationships, new classes of business, and our growth in states where we currently have small market share; | |
• | Impact of unemployment rates on behavior of injured insured workers; | |
• | Impact of changes in laws or regulations; | |
• | Adequacy of current pricing in relatively soft insurance markets; and | |
• | Variability related to asbestos and environmental claims due to issues as to whether coverage exists, the definition of occurrence, the determination of ultimate damages, and the allocation of such damages to responsible parties. |
46
Actuarially Determined | ||||||||||||||||||||
Case | IBNR | Total | Range of Estimates | |||||||||||||||||
Reserves | Reserves | Reserves | Low | High | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Commercial auto liability | $ | 9,167 | $ | 4,193 | $ | 13,360 | $ | 12,386 | $ | 13,553 | ||||||||||
Workers’ compensation | 11,723 | 5,118 | 16,841 | 16,006 | 17,340 | |||||||||||||||
Commercial multi-peril | 15,660 | 6,271 | 21,931 | 21,029 | 22,809 | |||||||||||||||
Liability | 11,467 | 7,408 | 18,875 | 16,515 | 19,422 | |||||||||||||||
Fire & allied | 6,147 | 767 | 6,914 | 6,734 | 7,093 | |||||||||||||||
Assumed | 4,442 | 4,135 | 8,577 | 7,326 | 9,851 | |||||||||||||||
Other | 1,824 | 505 | 2,329 | 1,845 | 2,818 | |||||||||||||||
Total net reserves | 60,430 | 28,397 | 88,827 | $ | 81,841 | $ | 92,886 | |||||||||||||
Reinsurance recoverables | 13,382 | 15,816 | 29,198 | |||||||||||||||||
Gross reserves | $ | 73,812 | $ | 44,213 | $ | 118,025 | ||||||||||||||
47
Actuarially Determined | ||||||||||||||||||||
Case | IBNR | Total | Range of Estimates | |||||||||||||||||
Reserves | Reserves | Reserves | Low | High | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Commercial auto liability | $ | 7,698 | $ | 4,214 | $ | 11,912 | $ | 11,116 | $ | 12,404 | ||||||||||
Workers’ compensation | 11,108 | 4,489 | 15,597 | 14,870 | 16,395 | |||||||||||||||
Commercial multi-peril | 16,696 | 6,381 | 23,077 | 22,420 | 24,062 | |||||||||||||||
Liability | 9,840 | 7,689 | 17,529 | 15,447 | 18,235 | |||||||||||||||
Fire & allied | 5,857 | 26 | 5,883 | 5,837 | 5,883 | |||||||||||||||
Assumed | 5,027 | 4,517 | 9,544 | 8,207 | 10,810 | |||||||||||||||
Other | 1,750 | 148 | 1,898 | 1,524 | 2,369 | |||||||||||||||
Total net reserves | 57,976 | 27,464 | 85,440 | $ | 79,421 | $ | 90,158 | |||||||||||||
Reinsurance recoverables | 11,634 | 10,991 | 22,625 | |||||||||||||||||
Gross reserves | $ | 69,610 | $ | 38,455 | $ | 108,065 | ||||||||||||||
Case | IBNR | Total | ||||||||||
Reserves | Reserves | Reserves | ||||||||||
(Dollars in thousands) | ||||||||||||
Commercial auto liability | $ | 6,340 | $ | 5,592 | $ | 11,932 | ||||||
Workers’ compensation | 9,449 | 6,027 | 15,476 | |||||||||
Commercial multi-peril | 14,581 | 5,608 | 20,189 | |||||||||
Liability | 6,721 | 5,282 | 12,003 | |||||||||
Fire & allied | 4,507 | 823 | 5,330 | |||||||||
Assumed | 5,198 | 4,573 | 9,771 | |||||||||
Other | 2,161 | 367 | 2,528 | |||||||||
Total net reserves | 48,957 | 28,272 | 77,229 | |||||||||
Reinsurance recoverables | 13,159 | 5,568 | 18,727 | |||||||||
Gross reserves | $ | 62,116 | $ | 33,840 | $ | 95,956 | ||||||
48
2002 | 2003 | 2004 | 2005 | 2006 | 2007 | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
As originally estimated | $ | 42,731 | $ | 48,072 | $ | 55,804 | $ | 61,032 | $ | 69,316 | $ | 77,229 | ||||||||||||
As estimated at December 31, 2008 | 45,744 | 49,284 | 54,411 | 59,884 | 63,847 | 72,004 | ||||||||||||||||||
Net cumulative redundancy (deficiency) | $ | (3,013 | ) | $ | (1,212 | ) | $ | 1,393 | $ | 1,148 | $ | 5,469 | $ | 5,225 | ||||||||||
% redundancy (deficiency) | (7.1 | )% | (2.5 | )% | 2.5 | % | 1.9 | % | 7.9 | % | 6.8 | % |
Percentage | ||||||||
Aggregate Loss and | Change(1) | |||||||
Reserve Range for Unpaid Loss and LAE | LAE Reserve | in Equity | ||||||
Low End | $ | 81,841 | 8.9 | % | ||||
Recorded | $ | 88,827 | — | |||||
High End | $ | 92,886 | (5.2 | )% |
(1) | Net of tax |
49
50
Less than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Description of Securities | Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
(Dollars in thousands) | (Dollars in thousands) | (Dollars in thousands) | ||||||||||||||||||||||
June 30, 2009: | ||||||||||||||||||||||||
U.S. Treasuries | $ | 493 | $ | 16 | $ | — | $ | — | $ | 493 | $ | 16 | ||||||||||||
Agencies not backed by the full faith and credit of the U.S. government | 3,036 | 44 | — | — | 3,036 | 44 | ||||||||||||||||||
State and political subdivisions | 555 | 2 | 2,655 | 65 | 3,210 | 67 | ||||||||||||||||||
Commercial mortgage-backed securities | — | — | 3,523 | 344 | 3,523 | 344 | ||||||||||||||||||
Residential mortgage-backed securities | 2,470 | 44 | — | — | 2,470 | 44 | ||||||||||||||||||
Corporate securities | 3,637 | 89 | 8,444 | 826 | 12,081 | 915 | ||||||||||||||||||
Total fixed maturities | 10,191 | 195 | 14,622 | 1,235 | 24,813 | 1,430 | ||||||||||||||||||
Total temporarily impaired securities | $ | 10,191 | $ | 195 | $ | 14,622 | $ | 1,235 | $ | 24,813 | $ | 1,430 | ||||||||||||
Less than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Description of Securities | Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
(Dollars in thousands) | (Dollars in thousands) | (Dollars in thousands) | ||||||||||||||||||||||
December 31, 2008: | ||||||||||||||||||||||||
State and political subdivisions | $ | 2,934 | $ | 56 | $ | 515 | $ | 54 | $ | 3,449 | $ | 110 | ||||||||||||
Commercial mortgage-backed securities | 2,203 | 297 | 1,645 | 373 | 3,848 | 670 | ||||||||||||||||||
Corporate securities | 10,732 | 1,008 | 9,907 | 1,083 | 20,639 | 2,091 | ||||||||||||||||||
Total fixed maturities | 15,869 | 1,361 | 12,067 | 1,510 | 27,936 | 2,871 | ||||||||||||||||||
Total temporarily impaired securities | $ | 15,869 | $ | 1,361 | $ | 12,067 | $ | 1,510 | $ | 27,936 | $ | 2,871 | ||||||||||||
Less than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Description of Securities | Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
(Dollars in thousands) | (Dollars in thousands) | (Dollars in thousands) | ||||||||||||||||||||||
December 31, 2007: | ||||||||||||||||||||||||
Agencies not backed by the full faith and credit of the U.S. government | $ | — | $ | — | $ | 4,199 | $ | 7 | $ | 4,199 | $ | 7 | ||||||||||||
State and political subdivisions | 516 | 1 | 3,669 | 13 | 4,185 | 14 | ||||||||||||||||||
Commercial mortgage-backed securities | 497 | — | 3,161 | 36 | 3,658 | 36 | ||||||||||||||||||
Residential mortgage-backed securities | — | — | 5,989 | 83 | 5,989 | 83 | ||||||||||||||||||
Corporate securities | 2,665 | 44 | 8,662 | 188 | 11,327 | 232 | ||||||||||||||||||
Total fixed maturities | 3,678 | 45 | 25,680 | 327 | 29,358 | 372 | ||||||||||||||||||
Equity securities | 760 | 43 | 326 | 1 | 1,086 | 44 | ||||||||||||||||||
Total temporarily impaired securities | $ | 4,438 | $ | 88 | $ | 26,006 | $ | 328 | $ | 30,444 | $ | 416 | ||||||||||||
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June 30, | December 31, | |||||||||||||||
2009 | 2008 | 2007 | 2006 | |||||||||||||
Agribusiness segment | ||||||||||||||||
Deferred acquisition costs | $ | 5,533 | $ | 5,981 | $ | 6,429 | $ | 6,252 | ||||||||
Unearned premium reserves | $ | 24,274 | $ | 27,352 | $ | 27,552 | $ | 26,686 | ||||||||
Commercial business segment | ||||||||||||||||
Deferred acquisition costs | $ | 4,308 | $ | 4,616 | $ | 4,579 | $ | 4,120 | ||||||||
Unearned premium reserves | $ | 16,859 | $ | 17,957 | $ | 19,021 | $ | 16,573 | ||||||||
Other | ||||||||||||||||
Deferred acquisition costs | $ | 21 | $ | 4 | $ | 6 | $ | 9 | ||||||||
Unearned premium reserves | $ | 85 | $ | 13 | $ | 22 | $ | 35 | ||||||||
Total | ||||||||||||||||
Deferred acquisition costs | $ | 9,862 | $ | 10,601 | $ | 11,014 | $ | 10,381 | ||||||||
Unearned premium reserves | $ | 41,218 | $ | 45,322 | $ | 46,595 | $ | 43,294 |
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Six Months Ended June 30, | Years Ended December 31, | |||||||||||||||||||
2009 | 2008 | 2008 | 2007 | 2006 | ||||||||||||||||
Revenues: | ||||||||||||||||||||
Premiums earned: | ||||||||||||||||||||
Agribusiness | $ | 21,939 | $ | 22,470 | $ | 45,298 | $ | 40,245 | $ | 35,889 | ||||||||||
Commercial Business | 14,403 | 16,060 | 31,805 | 29,260 | 26,761 | |||||||||||||||
Other | 584 | 839 | 1,634 | 1,465 | 1,995 | |||||||||||||||
Total premiums earned | 36,926 | 39,369 | 78,737 | 70,970 | 64,645 | |||||||||||||||
Investment income, net of investment expense | 2,769 | 2,723 | 5,335 | 5,324 | 4,677 | |||||||||||||||
Realized investment gains (losses), net | (133 | ) | 1,876 | (5,819 | ) | (702 | ) | 349 | ||||||||||||
Other income | 111 | 221 | 411 | 508 | 345 | |||||||||||||||
Total revenues | $ | 39,673 | $ | 44,189 | $ | 78,664 | $ | 76,100 | $ | 70,016 | ||||||||||
Components of net income (loss): | ||||||||||||||||||||
Underwriting (loss) income: | ||||||||||||||||||||
Agribusiness | $ | (1,702 | ) | $ | (961 | ) | $ | 313 | $ | 441 | $ | 2 | ||||||||
Commercial Business | (145 | ) | (1,157 | ) | (5,046 | ) | (1,913 | ) | (678 | ) | ||||||||||
Other | 166 | (238 | ) | 288 | (998 | ) | (1,106 | ) | ||||||||||||
Total underwriting (loss) income | (1,681 | ) | (2,356 | ) | (4,445 | ) | (2,470 | ) | (1,782 | ) | ||||||||||
Investment income, net of investment expense | 2,769 | 2,723 | 5,335 | 5,324 | 4,677 | |||||||||||||||
Realized investment gains (losses), net | (133 | ) | 1,876 | (5,819 | ) | (702 | ) | 349 | ||||||||||||
Other income | 111 | 221 | 411 | 508 | 345 | |||||||||||||||
Corporate expense | (81 | ) | (295 | ) | (770 | ) | (506 | ) | (635 | ) | ||||||||||
Interest expense | (156 | ) | (87 | ) | (184 | ) | (125 | ) | (222 | ) | ||||||||||
Other expense, net | (90 | ) | (76 | ) | (365 | ) | (184 | ) | (314 | ) | ||||||||||
Income (loss) from continuing operations, before income taxes | 739 | 2,006 | (5,837 | ) | 1,845 | 2,418 | ||||||||||||||
Income tax expense (benefit) | 107 | 494 | (1,378 | ) | 396 | 506 | ||||||||||||||
Income (loss) from continuing operations | 632 | 1,512 | (4,459 | ) | 1,449 | 1,912 | ||||||||||||||
Discontinued Operations: | ||||||||||||||||||||
(Loss) income from discontinued operations, before income taxes | (12 | ) | (21 | ) | (3,090 | ) | (489 | ) | 292 | |||||||||||
Income tax expense (benefit) | 804 | (7 | ) | (170 | ) | (126 | ) | 124 | ||||||||||||
(Loss) income on discontinued operations | (816 | ) | (14 | ) | (2,920 | ) | (363 | ) | 168 | |||||||||||
Net (loss) income | $ | (184 | ) | $ | 1,498 | $ | (7,379 | ) | $ | 1,086 | $ | 2,080 | ||||||||
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For the Six Months Ended June 30, | ||||||||||||||||
2009 | 2008 | |||||||||||||||
Written | Earned | Written | Earned | |||||||||||||
Direct | $ | 41,976 | $ | 46,164 | $ | 45,996 | $ | 47,727 | ||||||||
Assumed | 514 | 440 | 781 | 697 | ||||||||||||
Ceded | (9,106 | ) | (9,678 | ) | (8,798 | ) | (9,055 | ) | ||||||||
Net | $ | 33,384 | $ | 36,926 | $ | 37,979 | $ | 39,369 | ||||||||
Six Months Ended June 30, | Year Ended December 31, | |||||||||||||||||||
2009 | 2008 | 2008 | 2007 | 2006 | ||||||||||||||||
Average cash and invested assets | $ | 140,376 | $ | 135,398 | $ | 135,093 | $ | 131,484 | $ | 121,777 | ||||||||||
Net investment income | 2,769 | 2,723 | 5,335 | 5,324 | 4,677 | |||||||||||||||
Return on average cash and invested assets(1) | 4.0 | % | 4.1 | % | 3.9 | % | 4.0 | % | 3.8 | % |
(1) | Return on average cash and invested assets for interim periods is calculated on an annualized basis. |
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Six Months Ended June 30, | Years Ended December 31, | |||||||||||||||||||
2009 | 2008 | 2008 | 2007 | 2006 | ||||||||||||||||
Dollars in thousands | ||||||||||||||||||||
Direct premiums written | $ | 25,688 | $ | 25,190 | $ | 57,281 | $ | 55,965 | $ | 51,874 | ||||||||||
Net premiums written | 19,354 | 19,472 | 45,110 | 41,402 | 38,350 | |||||||||||||||
Revenues: | ||||||||||||||||||||
Net premiums earned | $ | 21,939 | $ | 22,470 | $ | 45,298 | $ | 40,245 | $ | 35,889 | ||||||||||
Other income | 12 | 98 | 182 | 245 | 115 | |||||||||||||||
Total revenues(1) | $ | 21,951 | $ | 22,568 | $ | 45,480 | $ | 40,490 | $ | 36,004 | ||||||||||
Operating income (loss): | ||||||||||||||||||||
Underwriting income (loss) | $ | (1,702 | ) | $ | (961 | ) | $ | 313 | $ | 441 | $ | 2 | ||||||||
Other income | 12 | 98 | 182 | 245 | 115 | |||||||||||||||
Interest & other expenses | (87 | ) | (43 | ) | (202 | ) | (77 | ) | (150 | ) | ||||||||||
Total operating income (loss)(1) | $ | (1,777 | ) | $ | (906 | ) | $ | 293 | $ | 609 | $ | (33 | ) | |||||||
Loss and loss expense ratio | 75.5 | % | 72.7 | % | 68.7 | % | 67.9 | % | 66.3 | % | ||||||||||
Underwriting expense ratio | 32.3 | % | 31.6 | % | 30.6 | % | 31.0 | % | 33.7 | % | ||||||||||
GAAP combined ratio | 107.8 | % | 104.3 | % | 99.3 | % | 98.9 | % | 100.0 | % | ||||||||||
(1) | Revenues exclude net realized investment gains (losses) and net investment income. Operating income (loss) equals pre-tax income from continuing operations excluding the impact of net realized investment gains (losses) and net investment income. |
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Six Months Ended June 30, | Years Ended December 31, | |||||||||||||||||||
2009 | 2008 | 2008 | 2007 | 2006 | ||||||||||||||||
Dollars in thousands | ||||||||||||||||||||
Direct premiums written | $ | 16,144 | $ | 20,664 | $ | 37,458 | $ | 37,860 | $ | 32,365 | ||||||||||
Net premiums written | 13,373 | 17,585 | 30,632 | 31,266 | 27,144 | |||||||||||||||
Revenues: | ||||||||||||||||||||
Net premiums earned | $ | 14,403 | $ | 16,060 | $ | 31,805 | $ | 29,260 | $ | 26,761 | ||||||||||
Other income | 99 | 122 | 229 | 263 | 230 | |||||||||||||||
Total revenues(1) | $ | 14,502 | $ | 16,182 | $ | 32,034 | $ | 29,523 | $ | 26,991 | ||||||||||
Operating income (loss): | ||||||||||||||||||||
Underwriting income (loss) | $ | (145 | ) | $ | (1,157 | ) | $ | (5,046 | ) | $ | (1,913 | ) | $ | (678 | ) | |||||
Other income | 99 | 122 | 229 | 263 | 230 | |||||||||||||||
Interest & other expenses | (103 | ) | (72 | ) | (247 | ) | (113 | ) | (257 | ) | ||||||||||
Operating income (loss)(1) | $ | (149 | ) | $ | (1,107 | ) | $ | (5,064 | ) | $ | (1,763 | ) | $ | (705 | ) | |||||
Loss and loss expense ratio | 63.4 | % | 72.0 | % | 80.1 | % | 70.3 | % | 65.5 | % | ||||||||||
Underwriting expense ratio | 37.6 | % | 35.2 | % | 35.8 | % | 36.2 | % | 37.0 | % | ||||||||||
GAAP Combined ratio | 101.0 | % | 107.2 | % | 115.9 | % | 106.5 | % | 102.5 | % | ||||||||||
(1) | Revenues exclude net realized investment gains (losses) and net investment income. Operating income (loss) equals pre-tax income from continuing operations excluding the impact of net realized investment gains (losses) and net investment income. |
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Six Months Ended June 30, | Years Ended December 31, | |||||||||||||||||||
2009 | 2008 | 2008 | 2007 | 2006 | ||||||||||||||||
Dollars in thousands | ||||||||||||||||||||
Assumed premiums written | $ | 657 | $ | 922 | $ | 1,625 | $ | 1,451 | $ | 2,031 | ||||||||||
Net premiums written | 657 | 922 | 1,625 | 1,451 | 2,031 | |||||||||||||||
Revenues: | ||||||||||||||||||||
Net premiums earned | $ | 584 | $ | 839 | $ | 1,634 | $ | 1,465 | $ | 1,995 | ||||||||||
Total revenues | $ | 584 | $ | 839 | $ | 1,634 | $ | 1,465 | $ | 1,995 | ||||||||||
Underwriting income (loss) | $ | 166 | $ | (238 | ) | $ | 288 | $ | (998 | ) | $ | (1,106 | ) | |||||||
Operating income (loss) | $ | 166 | $ | (238 | ) | $ | 288 | $ | (998 | ) | $ | (1,106 | ) | |||||||
Loss and loss expense ratio | 28.9 | % | 94.0 | % | 47.3 | % | 129.7 | % | 122.3 | % | ||||||||||
Underwriting expense ratio | 42.6 | % | 34.3 | % | 35.1 | % | 38.4 | % | 33.1 | % | ||||||||||
GAAP Combined ratio | 71.5 | % | 128.3 | % | 82.4 | % | 168.1 | % | 155.4 | % | ||||||||||
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Total Reserves | ||||
Including IBNR | ||||
As of December 31, | ||||
2008 | ||||
Munich Re America Brokers, Inc (formerly American Re) | $ | 5,012 | ||
Mutual Reinsurance Bureau | 363 | |||
Association of Mill & Elevator Companies | 288 | |||
Total | $ | 5,663 | ||
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Six Months Ended June 30, | Years Ended December 31, | |||||||||||||||||||
2009 | 2008 | 2008 | 2007 | 2006 | ||||||||||||||||
Dollars in thousands | ||||||||||||||||||||
Mandatory Assumed Reinsurance | $ | 221 | $ | (245 | ) | $ | 239 | $ | 95 | $ | (332 | ) | ||||||||
Personal Lines — runoff | (6 | ) | 126 | 335 | (94 | ) | (98 | ) | ||||||||||||
Voluntary Assumed Reinsurance — runoff | (49 | ) | (119 | ) | (286 | ) | (999 | ) | (676 | ) | ||||||||||
Operating income (loss) | $ | 166 | $ | (238 | ) | $ | 288 | $ | (998 | ) | $ | (1,106 | ) | |||||||
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Six Months Ended June 30, | Year Ended December 31, | |||||||||||||||||||
2009 | 2008 | 2008 | 2007 | 2006 | ||||||||||||||||
Cash flows provided by operating activities | $ | 9,386 | $ | 2,550 | $ | 7,383 | $ | 11,017 | $ | 11,711 | ||||||||||
Cash flows used in investing activities | (8,689 | ) | (6,144 | ) | (5,702 | ) | (13,373 | ) | (6,592 | ) | ||||||||||
Cash flows provided by (used in) financing activities | (561 | ) | (157 | ) | 144 | (562 | ) | (2,087 | ) | |||||||||||
Net increase (decrease) in cash and cash equivalents | $ | 136 | $ | (3,751 | ) | $ | 1,825 | $ | (2,918 | ) | $ | 3,032 | ||||||||
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Payments Due by Period | ||||||||||||||||||||
Less than | More than | |||||||||||||||||||
Contractual Obligations | Total | 1 Year | 1-3 Years | 3-5 Years | 5 Years | |||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Estimated gross loss & loss adjustment expense payments | $ | 108,065 | $ | 36,743 | $ | 38,903 | $ | 17,290 | $ | 15,129 | ||||||||||
Defined benefit plan obligations | 9,773 | 295 | 697 | 1,445 | 7,336 | |||||||||||||||
Long-term debt obligations and lines of credit | 2,667 | 1,047 | 1,320 | 200 | 100 | |||||||||||||||
Operating lease obligations | 246 | 123 | 118 | 5 | — | |||||||||||||||
Accrued severance costs | 831 | 471 | 251 | 30 | 79 | |||||||||||||||
Interest on long-term debt obligations and lines of credit | 94 | 50 | 39 | 4 | 1 | |||||||||||||||
Total | $ | 121,676 | $ | 38,729 | $ | 41,328 | $ | 18,974 | $ | 22,645 | ||||||||||
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Estimated | ||||||||
Change in | ||||||||
Hypothetical Change in Interest Rates | Fair Value | Fair Value | ||||||
(Dollars in thousands) | ||||||||
200 basis point increase | $ | (10,285 | ) | $ | 124,498 | |||
100 basis point increase | (5,071 | ) | 129,712 | |||||
No change | — | 134,783 | ||||||
100 basis point decrease | 4,748 | 139,531 | ||||||
200 basis point decrease | 9,614 | 144,397 |
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• | First, in 2009 we introduced an insurance product called PennEdge that will enable us to write customized coverages on mid-size commercial accounts. PennEdge will provide property and liability coverage to accounts that currently do not meet the eligibility requirements for our traditional business owners or agribusiness products. PennEdge is specifically tailored to unique business and industry segments, including wholesalers, light manufacturing, hospitality, commercial laundries and dry cleaners, and printers. These segments were chosen based on the experience of our underwriting staff and the market opportunities available to our existing producers. | |
• | Second, we have differentiated our product offerings by entering into strategic alliances to offer equipment breakdown, employment practices liability, and miscellaneous professional liability coverage, and we are exploring a strategic alliance to offer environmental impairment liability coverage. Under such strategic alliances, we typically reinsure all of the risk of loss to the strategic partner and earn a ceding commission. | |
• | Third, we are currently represented by a small number of producers in a large geographic area. New producers are an important part of our growth strategy, and we intend to continue to add them in areas where we want to increase our market presence. |
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For the Six Months Ended June 30, | For the Years Ended December 31, | |||||||||||||||||||
2009 | 2008 | 2008 | 2007 | 2006 | ||||||||||||||||
Direct Premiums Written: | ||||||||||||||||||||
Property | $ | 9,492 | $ | 9,203 | $ | 20,831 | $ | 20,263 | $ | 18,961 | ||||||||||
Commercial Auto | 5,481 | 5,710 | 12,919 | 14,055 | 13,334 | |||||||||||||||
Liability | 4,955 | 4,438 | 9,615 | 8,635 | 8,029 | |||||||||||||||
Workers’ Compensation | 3,443 | 3,380 | 8,064 | 7,394 | 6,610 | |||||||||||||||
Other | 2,317 | 2,459 | 5,852 | 5,618 | 4,940 | |||||||||||||||
Total | $ | 25,688 | $ | 25,190 | $ | 57,281 | $ | 55,965 | $ | 51,874 | ||||||||||
Net Premiums Earned: | ||||||||||||||||||||
Property | $ | 7,933 | $ | 8,055 | $ | 16,412 | $ | 13,772 | $ | 12,620 | ||||||||||
Commercial Auto | 5,543 | 6,078 | 12,119 | 11,859 | 11,189 | |||||||||||||||
Liability | 4,593 | 4,341 | 8,795 | 7,540 | 6,768 | |||||||||||||||
Workers’ Compensation | 3,536 | 3,667 | 7,310 | 6,394 | 5,166 | |||||||||||||||
Other | 334 | 329 | 662 | 680 | 146 | |||||||||||||||
Total | $ | 21,939 | $ | 22,470 | $ | 45,298 | $ | 40,245 | $ | 35,889 | ||||||||||
Net Loss Ratios: | ||||||||||||||||||||
Property | 100.6 | % | 108.8 | % | 86.1 | % | 84.9 | % | 60.4 | % | ||||||||||
Commercial Auto | 71.6 | % | 41.7 | % | 41.9 | % | 48.5 | % | 62.7 | % | ||||||||||
Liability | 52.8 | % | 61.3 | % | 90.1 | % | 102.6 | % | 46.4 | % | ||||||||||
Workers’ Compensation | 59.6 | % | 65.0 | % | 51.4 | % | 54.2 | % | 113.8 | % | ||||||||||
Other | 23.4 | % | 0.0 | % | 37.7 | % | (196.2 | )% | 92.0 | % | ||||||||||
Total | 75.5 | % | 72.7 | % | 68.7 | % | 67.9 | % | 66.3 | % |
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For the Six Months Ended June 30, | For the Years Ended December 31, | |||||||||||||||||||
2009 | 2008 | 2008 | 2007 | 2006 | ||||||||||||||||
Direct Premiums Written: | ||||||||||||||||||||
Property & Liability | $ | 8,771 | $ | 11,625 | $ | 21,056 | $ | 22,474 | $ | 20,567 | ||||||||||
Workers’ Compensation | 3,156 | 4,382 | 8,031 | 7,716 | 5,825 | |||||||||||||||
Commercial Auto | 2,578 | 2,875 | 5,068 | 4,914 | 3,983 | |||||||||||||||
Other | 1,639 | 1,782 | 3,303 | 2,756 | 1,990 | |||||||||||||||
Total | $ | 16,144 | $ | 20,664 | $ | 37,458 | $ | 37,860 | $ | 32,365 | ||||||||||
Net Premiums Earned: | ||||||||||||||||||||
Property & Liability | $ | 8,878 | $ | 9,934 | $ | 19,428 | $ | 18,301 | $ | 18,076 | ||||||||||
Workers’ Compensation | 3,105 | 3,694 | 7,451 | 6,524 | 5,077 | |||||||||||||||
Commercial Auto | 2,271 | 2,303 | 4,659 | 4,194 | 3,564 | |||||||||||||||
Other | 149 | 129 | 267 | 241 | 44 | |||||||||||||||
Total | $ | 14,403 | $ | 16,060 | $ | 31,805 | $ | 29,260 | $ | 26,761 | ||||||||||
Net Loss Ratios: | ||||||||||||||||||||
Property & Liability | 56.0 | % | 81.7 | % | 99.0 | % | 87.0 | % | 59.9 | % | ||||||||||
Workers’ Compensation | 91.4 | % | 39.7 | % | 54.5 | % | 37.1 | % | 74.0 | % | ||||||||||
Commercial Auto | 63.9 | % | 83.6 | % | 45.9 | % | 54.9 | % | 78.2 | % | ||||||||||
Other | (88.8 | )% | 41.1 | % | 17.2 | % | (35.3 | )% | 359.3 | % | ||||||||||
Total | 63.4 | % | 72.0 | % | 80.1 | % | 70.3 | % | 65.5 | % |
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• | reduce net liability on individual risks; | |
• | mitigate the effect of individual loss occurrences (including catastrophic losses); | |
• | stabilize underwriting results; | |
• | decrease leverage; and | |
• | increase our underwriting capacity. |
Ceded Under | ||||||||
Retained by | Reinsurance | |||||||
Losses Incurred | Company | Treaties | ||||||
Up to $500,000 | 100 | % | 0 | % | ||||
$500,000 in excess of $500,000 | 52.5 | % | 47.5 | % | ||||
$4 million in excess of $1 million | 0 | % | 100 | % | ||||
$15 million in excess of $5 million | 0 | % | 100 | % |
88
Ceded Under | ||||||||
Retained by | Reinsurance | |||||||
Losses Incurred | Company | Treaties | ||||||
Up to $500,000 | 100 | % | 0 | % | ||||
$500,000 in excess of $500,000 | 52.5 | % | 47.5 | % | ||||
$4 million in excess of $1 million | 0 | % | 100 | % | ||||
$5 million in excess of $5 million | 0 | % | 100 | % |
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Loss & Loss | ||||||||||
Expense | ||||||||||
Recoverable | Percentage of | |||||||||
on Unpaid | Total | A.M. Best | ||||||||
Claims | Recoverable | Rating | ||||||||
Hannover Ruckericherungs | $ | 5,381 | 24 | % | A | |||||
Swiss Reinsurance America Corp | 4,311 | 19 | % | A | ||||||
XL Reinsurance America | 2,575 | 11 | % | A | ||||||
Transatlantic Reinsurance Company | 2,095 | 9 | % | A | ||||||
Partner Reinsurance Co. of the U.S. | 1,948 | 9 | % | A+ | ||||||
Hannover Reinsurance (Ireland) | 1,717 | 8 | % | A | ||||||
Employers Mutual Casualty Co. | 1,100 | 5 | % | A− | ||||||
Platinum Underwriters Reinsurance | 848 | 4 | % | A | ||||||
Aspen Insurance UK | 676 | 3 | % | A | ||||||
General Reinsurance | 541 | 2 | % | A++ | ||||||
All Other | 1,433 | 6 | % | A− or better | ||||||
Total | $ | 22,625 | 100 | % | ||||||
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Six Months Ended June 30, | Years Ended December 31, | |||||||||||||||||||
2009 | 2008 | 2008 | 2007 | 2006 | ||||||||||||||||
(Dollars in thousands) | (Dollars in thousands) | |||||||||||||||||||
Balance at January 1 | $ | 108,065 | $ | 95,956 | $ | 95,956 | $ | 89,405 | $ | 83,849 | ||||||||||
Reinsurance recoverable on unpaid loss and LAE | 22,625 | 18,727 | 18,727 | 20,089 | 22,817 | |||||||||||||||
Net liability at January 1 | 85,440 | 77,229 | 77,229 | 69,316 | 61,032 | |||||||||||||||
Loss and LAE incurred, net: | ||||||||||||||||||||
Current year | $ | 27,193 | $ | 30,997 | $ | 62,612 | $ | 54,421 | $ | 43,785 | ||||||||||
Prior years | (1,327 | ) | (2,305 | ) | (5,222 | ) | (4,638 | ) | (19 | ) | ||||||||||
Total incurred loss and LAE | 25,866 | 28,692 | 57,390 | 49,783 | 43,766 | |||||||||||||||
Less loss and LAE paid, net: | ||||||||||||||||||||
Current year | $ | 7,769 | $ | 8,673 | $ | 26,578 | $ | 22,191 | $ | 14,222 | ||||||||||
Prior years | 14,710 | 14,555 | 22,601 | 19,679 | 21,260 | |||||||||||||||
Total loss and LAE expenses paid | 22,479 | 23,228 | 49,179 | 41,870 | 35,482 | |||||||||||||||
Net liability for unpaid loss and LAE, at end of period | $ | 88,827 | $ | 82,693 | $ | 85,440 | $ | 77,229 | $ | 69,316 | ||||||||||
Reinsurance recoverable on unpaid losses and LAE | 29,198 | 21,896 | 22,625 | 18,727 | 20,089 | |||||||||||||||
Reserve for unpaid losses and LAE at end of period | $ | 118,025 | $ | 104,589 | $ | 108,065 | $ | 95,956 | $ | 89,405 | ||||||||||
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Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||
1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | ||||||||||||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||
Liability for unpaid loss and LAE, net of reinsurance recoverables | $ | 31,185 | $ | 30,165 | $ | 29,476 | $ | 35,656 | $ | 42,731 | $ | 48,072 | $ | 55,804 | $ | 61,032 | $ | 69,316 | $ | 77,229 | $ | 85,440 | ||||||||||||||||||||||
Cumulative amount of liability paid through | ||||||||||||||||||||||||||||||||||||||||||||
One year later | 8,925 | 10,393 | 12,523 | 15,441 | 15,279 | 18,849 | 19,288 | 21,262 | 19,681 | 22,591 | — | |||||||||||||||||||||||||||||||||
Two years later | 13,312 | 15,977 | 20,032 | 23,640 | 25,731 | 27,719 | 28,977 | 32,372 | 31,974 | — | — | |||||||||||||||||||||||||||||||||
Three years later | 16,712 | 20,104 | 25,184 | 28,897 | 31,372 | 34,125 | 35,481 | 40,950 | — | — | — | |||||||||||||||||||||||||||||||||
Four years later | 19,542 | 23,386 | 28,118 | 32,311 | 35,104 | 37,135 | 41,365 | — | — | — | — | |||||||||||||||||||||||||||||||||
Five years later | 21,496 | 24,935 | 30,318 | 33,755 | 36,561 | 39,446 | — | — | — | — | — | |||||||||||||||||||||||||||||||||
Six years later | 22,790 | 26,699 | 31,333 | 34,786 | 37,978 | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
Seven years later | 24,430 | 27,451 | 32,039 | 35,847 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
Eight years later | 25,117 | 28,000 | 33,002 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
Nine years later | 25,641 | 28,755 | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
Ten years later | 26,387 | — | — | — | — | — | — | — | — | — | — |
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Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||
1998 | 1999 | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | ||||||||||||||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||||||||||||||||||||
Liability estimated as of | ||||||||||||||||||||||||||||||||||||||||||||
One year later | 28,581 | 28,506 | 34,545 | 38,657 | 44,764 | 49,658 | 54,729 | 61,017 | 64,679 | 72,004 | — | |||||||||||||||||||||||||||||||||
Two years later | 25,883 | 31,763 | 34,864 | 40,138 | 44,591 | 48,718 | 54,948 | 61,081 | 63,847 | — | — | |||||||||||||||||||||||||||||||||
Three years later | 28,647 | 30,869 | 35,865 | 40,527 | 44,424 | 49,954 | 54,510 | 59,884 | — | — | — | |||||||||||||||||||||||||||||||||
Four years later | 27,906 | 30,885 | 36,594 | 40,416 | 45,405 | 49,617 | 54,411 | — | — | — | — | |||||||||||||||||||||||||||||||||
Five years later | 28,295 | 31,910 | 37,108 | 40,696 | 45,603 | 49,284 | — | — | — | — | — | |||||||||||||||||||||||||||||||||
Six years later | 29,438 | 32,448 | 37,402 | 41,157 | 45,744 | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
Seven years later | 30,168 | 33,127 | 38,193 | 41,513 | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
Eight years later | 30,811 | 33,820 | 38,590 | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
Nine years later | 31,425 | 34,273 | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
Ten years later | 31,942 | — | — | — | — | — | — | — | — | — | — | |||||||||||||||||||||||||||||||||
Cumulative total redundancy (deficiency) | $ | (757 | ) | $ | (4,108 | ) | $ | (9,114 | ) | $ | (5,857 | ) | $ | (3,013 | ) | $ | (1,212 | ) | $ | 1,393 | $ | 1,148 | $ | 5,469 | $ | 5,225 | — | |||||||||||||||||
Gross liability — end of year | $ | 37,574 | $ | 39,188 | $ | 37,056 | $ | 47,084 | $ | 53,462 | $ | 69,463 | $ | 73,287 | $ | 83,849 | $ | 89,405 | $ | 95,956 | $ | 108,065 | ||||||||||||||||||||||
Reinsurance recoverables | 6,389 | 9,023 | 7,580 | 11,428 | 10,731 | 21,391 | 17,483 | 22,817 | 20,089 | 18,727 | 22,625 | |||||||||||||||||||||||||||||||||
Net liability — end of year | $ | 31,185 | $ | 30,165 | $ | 29,476 | $ | 35,656 | $ | 42,731 | $ | 48,072 | $ | 55,804 | $ | 61,032 | $ | 69,316 | $ | 77,229 | $ | 85,440 | ||||||||||||||||||||||
Gross reestimated liability — latest | $ | 47,068 | $ | 55,110 | $ | 58,413 | $ | 62,206 | $ | 65,091 | $ | 67,034 | $ | 71,114 | $ | 84,443 | $ | 80,647 | $ | 91,772 | ||||||||||||||||||||||||
Reestimated reinsurance recoverables — latest | 15,126 | 20,837 | 19,823 | 20,693 | 19,347 | 17,750 | 16,703 | 24,559 | 16,800 | 19,768 | ||||||||||||||||||||||||||||||||||
Net reestimated liability — latest | $ | 31,942 | $ | 34,273 | $ | 38,590 | $ | 41,513 | $ | 45,744 | $ | 49,284 | $ | 54,411 | $ | 59,884 | $ | 63,847 | $ | 72,004 | ||||||||||||||||||||||||
Gross cumulative redundancy (deficiency) | $ | (9,494 | ) | $ | (15,922 | ) | $ | (21,357 | ) | $ | (15,122 | ) | $ | (11,629 | ) | $ | 2,429 | $ | 2,173 | $ | (594 | ) | $ | 8,758 | $ | 4,184 | ||||||||||||||||||
• | Commodities and futures contracts | |
• | Options (except covered call options) |
93
• | Non-investment grade debt obligations at time of purchase | |
• | Preferred stocks (except “trust preferred” securities) | |
• | Interest-only, principal-only, and residual tranche collateralized mortgage obligations | |
• | Private placements | |
• | International debt obligations | |
• | Foreign currency trading | |
• | Limited partnerships | |
• | Convertible securities | |
• | Venture-capital investments | |
• | Real estate properties (except real estate investment trusts) | |
• | Securities lending | |
• | Portfolio leveraging,i.e., margin transactions | |
• | Short selling |
At December 31, | ||||||||||||||||||||||||
At June 30, 2009 | 2008 | 2007 | ||||||||||||||||||||||
Cost or | Estimated | Cost or | Estimated | Cost or | Estimated | |||||||||||||||||||
Amortized | Fair | Amortized | Fair | Amortized | Fair | |||||||||||||||||||
Cost | Value | Cost | Value | Cost | Value | |||||||||||||||||||
Agencies not backed by the full faith and credit of the U.S. government | $ | 16,995 | $ | 17,703 | $ | 14,929 | $ | 16,089 | $ | 18,523 | $ | 18,888 | ||||||||||||
U.S. treasury securities | 7,801 | 8,041 | 8,530 | 9,310 | 7,837 | 8,096 | ||||||||||||||||||
States, Territories and possessions | 15,182 | 16,017 | 15,753 | 16,475 | 15,310 | 15,771 | ||||||||||||||||||
Special Revenue | 16,472 | 17,146 | 16,022 | 16,482 | 15,011 | 15,363 | ||||||||||||||||||
Public Utilities | 5,037 | 5,226 | 5,419 | 5,396 | 2,516 | 2,580 | ||||||||||||||||||
Industrial and Miscellaneous | 43,487 | 43,905 | 34,511 | 32,857 | 31,337 | 31,545 | ||||||||||||||||||
Commercial Mortgage-Backed | 4,428 | 4,090 | 4,600 | 3,932 | 4,816 | 4,838 | ||||||||||||||||||
Residential Mortgage-Backed | 21,995 | 22,655 | 20,774 | 21,373 | 15,623 | 15,688 | ||||||||||||||||||
Total Debt Securities | 131,397 | 134,783 | 120,538 | 121,914 | 110,973 | 112,769 | ||||||||||||||||||
Equity Securities | — | — | — | — | 10,525 | 13,409 | ||||||||||||||||||
Total | $ | 131,397 | $ | 134,783 | $ | 120,538 | $ | 121,914 | $ | 121,498 | $ | 126,178 | ||||||||||||
94
June 30, 2009 | December 31, 2008 | |||||||||||||||
Estimated | Percent of | Estimated | Percent of | |||||||||||||
Rating(1) | Fair Value | Total(2) | Fair Value | Total(2) | ||||||||||||
Agencies not backed by the full faith and credit of the U.S. government | $ | 17,703 | 13.1 | % | $ | 16,089 | 13.2 | % | ||||||||
U.S. treasury securities | 8,041 | 6.0 | % | 9,310 | 7.6 | % | ||||||||||
AAA | 45,426 | 33.7 | % | 44,452 | 36.5 | % | ||||||||||
AA | 22,777 | 16.9 | % | 17,866 | 14.7 | % | ||||||||||
A | 33,498 | 24.9 | % | 29,409 | 24.1 | % | ||||||||||
BBB | 6,582 | 4.9 | % | 4,788 | 3.9 | % | ||||||||||
BB | 756 | 0.5 | % | — | 0.0 | % | ||||||||||
Total | $ | 134,783 | 100.0 | % | $ | 121,914 | 100.0 | % | ||||||||
(1) | The ratings set forth in this table are based on the ratings assigned by S&P. If S&P’s ratings were unavailable, the equivalent ratings supplied by Moody’s Investor Service, Fitch Investors Service, Inc. or the National Association of Insurance Commissioners (NAIC) were used where available. | |
(2) | Represents percent of fair value for classification as a percent of the total portfolio. |
June 30, 2009 | December 31, 2008 | |||||||||||||||
Amortized | Estimated Fair | Amortized | Estimated Fair | |||||||||||||
Cost | Value(1) | Cost | Value(1) | |||||||||||||
Less than one year | $ | 8,431 | $ | 8,570 | $ | 8,321 | $ | 8,439 | ||||||||
One though five years | 49,238 | 51,078 | 42,747 | 43,356 | ||||||||||||
Five through ten years | 40,362 | 41,262 | 39,299 | 39,824 | ||||||||||||
Greater than ten years | 6,943 | 7,128 | 4,797 | 4,990 | ||||||||||||
Commercial Mortgage-Backed(2) | 4,428 | 4,090 | 4,600 | 3,932 | ||||||||||||
Residential Mortgaged-Backed(2) | 21,995 | 22,655 | 20,774 | 21,373 | ||||||||||||
Total debt securities | $ | 131,397 | $ | 134,783 | $ | 120,538 | $ | 121,914 | ||||||||
(1) | Debt securities are carried at fair value in our financial statements beginning onpage F-2. | |
(2) | Mortgage-backed securities consist of residential and commercial mortgage-backed securities and securities collateralized by home equity loans. These securities are presented separately in the maturity schedule due to the inherent risk associated with prepayment or early amortization. Prepayment rates are influenced by a number of factors that cannot be predicted with certainty, including: the relative sensitivity of the underlying mortgages or other collateral to changes in interest rates; a variety of economic, geographic and other factors; and the repayment priority of the securities in the overall securitization structures. |
95
June 30, 2009 | December 31, 2008 | December 31, 2007 | ||||||||||||||||||||||
Average | Average | Average | ||||||||||||||||||||||
Credit | Credit | Credit | ||||||||||||||||||||||
Fair Value | Rating | Fair Value | Rating | Fair Value | Rating | |||||||||||||||||||
U.S. Agency RMBS | $ | 22,655 | AAA | $ | 21,373 | AAA | $ | 15,688 | AAA | |||||||||||||||
Non-Agency RMBS | — | — | — | — | — | — | ||||||||||||||||||
Prime First Lien | — | — | — | — | — | — | ||||||||||||||||||
Prime Second Lien | — | — | — | — | — | — | ||||||||||||||||||
Alt-A Loans | — | — | — | — | — | — | ||||||||||||||||||
Subprime Loans | — | — | — | — | — | — | ||||||||||||||||||
Total | $ | 22,655 | — | $ | 21,373 | — | $ | 15,688 | — | |||||||||||||||
June 30, 2009 | December 31, 2008 | December 31, 2007 | ||||||||||||||||||||||
Average | Average | Average | ||||||||||||||||||||||
Credit | Credit | Credit | ||||||||||||||||||||||
Fair Value | Rating | Fair Value | Rating | Fair Value | Rating | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Auto loan backed securities | $ | — | — | $ | — | — | $ | — | — | |||||||||||||||
Home equity loan backed securities | — | — | — | — | — | — | ||||||||||||||||||
Municipal bonds | $ | 22,438 | AA+ | $ | 22,864 | AA+ | $ | 23,258 | AAA |
Fair Value at | Fair Value at | Fair Value at | ||||||||||
Insurer | June 30, 2009 | December 31, 2008 | December 31, 2007 | |||||||||
AMBAC | $ | 3,286 | $ | 3,259 | $ | 3,274 | ||||||
FGIC | 5,483 | 2,772 | 2,735 | |||||||||
FSA | 8,827 | 8,829 | 8,730 | |||||||||
MBIA | 4,842 | 8,004 | 8,519 | |||||||||
Total | $ | 22,438 | $ | 22,864 | $ | 23,258 | ||||||
96
At June 30, 2009 | At December 31, 2008 | At December 2007 | ||||||||||||||
With | Without | With | With | |||||||||||||
Guarantee | Guarantee | Guarantee | Guarantee | |||||||||||||
Rating | Fair Value | Fair Value | Fair Value | Fair Value | ||||||||||||
AAA | $ | 8,840 | $ | 1,100 | $ | 8,832 | $ | 23,258 | ||||||||
AA | 11,423 | 15,964 | 11,868 | — | ||||||||||||
A | 2,175 | 5,374 | 2,164 | — | ||||||||||||
Total | $ | 22,438 | $ | 22,438 | $ | 22,864 | $ | 23,258 | ||||||||
Six Months Ended June 30, | Year Ended December 31, | |||||||||||||||||||
2009 | 2008 | 2008 | 2007 | 2006 | ||||||||||||||||
Average cash and invested assets | $ | 140,376 | $ | 135,398 | $ | 135,093 | $ | 131,484 | $ | 121,777 | ||||||||||
Net investment income | 2,769 | 2,723 | 5,335 | 5,324 | 4,677 | |||||||||||||||
Return on average cash and invested assets(1) | 4.0 | % | 4.1 | % | 3.9 | % | 4.0 | % | 3.8 | % |
(1) | Return on average cash and invested assets for interim periods is calculated on an annualized basis. |
• | the company’s profitability, leverage and liquidity; | |
• | its book of business; | |
• | the adequacy and soundness of its reinsurance; | |
• | the quality and estimated fair value of its assets; | |
• | the adequacy of its reserves and surplus; | |
• | its capital structure; | |
• | the experience and competence of its management; and | |
• | its marketing presence. |
97
• | approval of policy forms and premium rates; | |
• | standards of solvency, including establishing statutory and risk-based capital requirements for statutory surplus; | |
• | classifying assets as admissible for purposes of determining statutory surplus; | |
• | licensing of insurers and their producers; | |
• | advertising and marketing practices; | |
• | restrictions on the nature, quality and concentration of investments; | |
• | assessments by guaranty associations; | |
• | restrictions on the ability of Penn Millers Insurance Company to pay dividends to us; | |
• | restrictions on transactions between Penn Millers Insurance Company and its affiliates; | |
• | restrictions on the size of risks insurable under a single policy; | |
• | requiring deposits for the benefit of policyholders; | |
• | requiring certain methods of accounting; | |
• | periodic examinations of our operations and finances; | |
• | claims practices; | |
• | prescribing the form and content of reports of financial condition required to be filed; and | |
• | requiring reserves for unearned premiums, losses and other purposes. |
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99
100
101
102
103
104
• | eligible members of Penn Millers Mutual, who are defined in the plan of conversion as the policyholders of Penn Millers Insurance Company under policies of insurance in place as of April 22, 2009; | |
• | our ESOP; and | |
• | the directors, officers and employees of Penn Millers who are not eligible policyholders under the category above. |
• | licensed insurance agencies and brokers that have been appointed by or are under contract with Penn Millers Insurance Company to market and distribute policies of insurance; | |
• | policyholders under policies of insurance issued by Penn Millers Insurance Company after April 22, 2009; and | |
• | natural persons and trusts of natural persons (including individual retirement and Keogh retirement accounts and personal trusts in which such natural persons have substantial interests) who are residents of Lackawanna or Luzerne Counties in Pennsylvania. |
105
• | “eligible members” (as they are referred to in the plan of conversion), which means a person or entity who is the named insured under an insurance policy issued by Penn Millers Insurance Company that is issued and in force as of the close of business on April 22, 2009; | |
• | our ESOP; and | |
• | the directors, officers and employees of Penn Millers as of the closing date of the offering. |
106
• | licensed insurance agencies and brokers that have been appointed by or otherwise are under contract with Penn Millers Insurance Company to market and distribute policies of insurance; | |
• | named insureds under policies of insurance issued by Penn Millers Insurance Company after April 22, 2009; and | |
• | natural persons and trusts of natural persons (including individual retirement and Keogh retirement accounts and personal trusts in which such natural persons have substantial interests) who are residents of Lackawanna or Luzerne Counties, Pennsylvania. |
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108
109
110
• | the present and projected operating results and financial condition of Penn Millers and current economic conditions; | |
• | certain historical, financial and other information relating to Penn Millers; | |
• | a comparative evaluation of the operating and financial statistics of Penn Millers with those of other similarly situated publicly traded insurance companies located in Pennsylvania and other regions of the United States; | |
• | the aggregate size of the offering of the common stock of Penn Millers Holding Corporation as determined by Curtis Financial; | |
• | the impact of the conversion offering on our net worth and earnings potential as determined by Curtis Financial; | |
• | the trading market for securities of comparable institutions and general conditions in the market for such securities; and | |
• | the value which Curtis Financial estimates to be necessary to attract a full subscription of our common stock. |
111
LTM(1) | Total | |||||||||||||||||||||||
Total | Total | Total | Equity/ | LTM | LTM | |||||||||||||||||||
Assets | Equity | Revenue | Assets | ROAA(1) | ROAE(1) | |||||||||||||||||||
($000s) | ($000s) | ($000s) | (%) | (%) | (%) | |||||||||||||||||||
Comparative Group | ||||||||||||||||||||||||
21st Century Holding Company | 204,676 | 76,288 | 62,937 | 37.2 | (3.2 | ) | (8.1 | ) | ||||||||||||||||
Baldwin & Lyons, Inc. | 765,742 | 345,853 | 176,997 | 45.2 | 1.3 | 3.0 | ||||||||||||||||||
CRM Holdings, Ltd. | 452,951 | 101,677 | 134,533 | 22.4 | (3.5 | ) | (13.5 | ) | ||||||||||||||||
Donegal Group Inc. | 893,824 | 371,328 | 378,831 | 41.5 | 1.9 | 4.7 | ||||||||||||||||||
Eastern Insurance Holdings, Inc. | 385,487 | 137,234 | 129,820 | 35.6 | (5.4 | ) | (13.5 | ) | ||||||||||||||||
EMC Insurance Group Inc. | 1,142,746 | 307,348 | 405,255 | 26.9 | 0.3 | 1.3 | ||||||||||||||||||
First Mercury Financial Corporation | 1,045,694 | 286,838 | 251,615 | 27.4 | 2.4 | 8.5 | ||||||||||||||||||
Hallmark Financial Services, Inc. | 551,279 | 190,555 | 267,758 | 34.6 | 2.3 | 6.5 | ||||||||||||||||||
Mercer Insurance Group, Inc. | 580,809 | 148,430 | 155,403 | 25.6 | 1.6 | 6.5 | ||||||||||||||||||
National Interstate Corporation | 969,243 | 243,547 | 295,525 | 25.1 | 2.2 | 9.8 | ||||||||||||||||||
National Security Group, Inc. | 125,054 | 35,045 | 59,538 | 28.0 | (3.4 | ) | (11.5 | ) | ||||||||||||||||
NYMAGIC, INC. | 977,190 | 187,572 | 107,837 | 19.2 | (7.1 | ) | (28.4 | ) | ||||||||||||||||
SeaBright Insurance Holdings, Inc. | 911,125 | 341,811 | 275,243 | 37.5 | 2.4 | 6.3 | ||||||||||||||||||
Unico American Corporation | 182,340 | 76,226 | 45,089 | 41.8 | 2.9 | 7.3 | ||||||||||||||||||
Comparative Group Mean | 656,297 | 203,549 | 196,170 | 32.0 | (0.4 | ) | (1.5 | ) | ||||||||||||||||
Comparative Group Median | 673,276 | 189,064 | 166,200 | 31.3 | 1.4 | 3.9 | ||||||||||||||||||
Penn Millers | 228,385 | 51,972 | 74,148 | 22.8 | (2.4 | ) | (9.6 | ) |
(1) | LTM corresponds to last twelve months ended June 30, 2009. Return on average assets (ROAA), which is the ratio of net income to total average assets, and the return on average equity (ROAE), which is the ratio of net income to total average equity, utilize net income for the LTM period and asset book values at June 30, 2009 and 2008 to derive such ratios. |
112
Total | Price/ | Price/ | Price/ | Price/ | Price/ | |||||||||||||||||||
Market | Book | Tang. | LTM | LTM | Total | |||||||||||||||||||
Value | Value | Book | EPS(1) | Rev.(1) | Assets | |||||||||||||||||||
($000s) | (%) | (%) | (x) | (x) | (%) | |||||||||||||||||||
Comparative Group | ||||||||||||||||||||||||
21st Century Holding Company | 37,345 | 49.0 | 49.0 | Neg | 0.59 | 18.2 | ||||||||||||||||||
Baldwin & Lyons, Inc. | 311,288 | 89.8 | 89.8 | 29.69 | 1.75 | 40.6 | ||||||||||||||||||
CRM Holdings, Ltd. | 18,280 | 18.1 | 18.7 | Neg | 0.14 | 4.1 | ||||||||||||||||||
Donegal Group Inc. | 401,238 | 108.1 | 108.1 | 23.16 | 1.06 | 44.9 | ||||||||||||||||||
Eastern Insurance Holdings, Inc. | 89,946 | 65.0 | 75.8 | Neg | 0.69 | 23.1 | ||||||||||||||||||
EMC Insurance Group Inc. | 305,750 | 99.5 | 99.8 | 74.52 | 0.75 | 26.8 | ||||||||||||||||||
First Mercury Financial Corporation | 223,907 | 78.1 | 100.3 | 9.85 | 0.89 | 21.4 | ||||||||||||||||||
Hallmark Financial Services, Inc. | 139,640 | 73.3 | 115.2 | 11.53 | 0.52 | 25.3 | ||||||||||||||||||
Mercer Insurance Group, Inc. | 116,521 | 78.5 | 81.5 | 12.85 | 0.75 | 20.1 | ||||||||||||||||||
National Interstate Corporation | 359,109 | 147.4 | 147.4 | 16.71 | 1.22 | 37.1 | ||||||||||||||||||
National Security Group, Inc. | 20,966 | 59.8 | 59.8 | Neg | 0.35 | 16.8 | ||||||||||||||||||
NYMAGIC, INC. | 158,873 | 84.7 | 84.7 | Neg | 1.47 | 16.3 | ||||||||||||||||||
SeaBright Insurance Holdings, Inc. | 210,058 | 61.5 | 62.4 | 10.33 | 0.76 | 23.1 | ||||||||||||||||||
Unico American Corporation | 45,137 | 59.2 | 59.2 | 8.47 | 1.00 | 24.8 | ||||||||||||||||||
Comparative Group Mean | 174,147 | 76.6 | 82.3 | 21.90 | 0.85 | 24.5 | ||||||||||||||||||
Comparative Group Median | 149,256 | 75.7 | 83.1 | 12.85 | 0.76 | 23.1 | ||||||||||||||||||
Penn Millers (Fully Converted) | ||||||||||||||||||||||||
Pro Forma Minimum | 45,050 | 50.5 | 50.5 | Neg | 0.60 | 17.0 | ||||||||||||||||||
Pro Forma Midpoint | 53,000 | 55.0 | 55.0 | Neg | 0.70 | 19.4 | ||||||||||||||||||
Pro Forma Maximum | 60,950 | 59.0 | 59.0 | Neg | 0.80 | 21.8 |
(1) | LTM EPS corresponds to earnings per share for the last twelve months ended June 30, 2009. LTM revenue corresponds to total revenue for the last twelve months ended June 30, 2009. |
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114
• | not timely received; | |
• | improperly completed or executed; | |
• | is not accompanied by payment in full for the shares of common stock subscribed for in the form; or | |
• | submitted by a person who we believe is making false representations or who we believe may be violating, evading or circumventing the terms and conditions of the plan of conversion. |
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Minimum | Maximum | |||||||
(4,505,000 Shares) | (6,095,000 Shares) | |||||||
Commissions | $ | 675,750 | (1) | $ | 914,250 | (1) |
(1) | Includes the $100,000 in fees already paid to Griffin Financial, which will be credited against any commissions payable to Griffin Financial. |
• | No person or entity may purchase fewer than 25 shares of common stock in the offering; | |
• | No purchaser may purchase more than 5% of the total shares of common stock sold in the offering; and | |
• | No purchaser, together with such purchaser’s affiliates and associates or a group acting in concert, may purchase more than 5% of the total shares of common stock sold in the offering. |
• | any corporation or organization (other than an affiliate of Penn Millers) of which you are an officer or partner or the beneficial owner of 10% or more of any class of equity securities; |
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• | any trust or other estate in which you have a substantial beneficial interest or as to which you serve as trustee or in a similar fiduciary capacity; | |
• | any of your relatives or your spouse, or any relative of your spouse, who lives at home with you; | |
• | any person or entity who you control, who controls you, or who together with you is controlled by the same third party; | |
• | any person or entity who is knowingly participating with you in a joint activity or interdependent conscious parallel action toward a common goal; or | |
• | any person or entity with whom you are combining or pooling voting or other interests in the securities of an issuer for a common purpose pursuant to any agreement or relationship. |
• | any corporation or organization (other than an affiliate of Penn Millers) of which the officer or director is an officer or partner or the beneficial owner of 10% or more of any class of equity securities; | |
• | any trust or other estate in which the officer or director has a substantial beneficial interest or as to which he or she serves as trustee or in a similar fiduciary capacity; or | |
• | any of the officer’s or director’s relatives or his or her spouse, or any relative of the spouse, who lives at home with the officer or director. |
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Number of | ||||||||||||
Name | Amount ($) | Shares(1)(2) | Percent(3) | |||||||||
Directors: | ||||||||||||
Heather M. Acker | $ | 50,000 | 5,000 | * | ||||||||
F. Kenneth Ackerman, Jr. | 100,000 | 10,000 | * | |||||||||
Dorrance R. Belin | 50,000 | 5,000 | * | |||||||||
John L. Churnetski | 75,000 | 7,500 | * | |||||||||
John M. Coleman | 200,000 | 20,000 | * | |||||||||
Douglas A. Gaudet | 300,000 | 30,000 | * | |||||||||
Kim E. Michelstein | 50,000 | 5,000 | * | |||||||||
Robert A. Nearing, Jr. | 75,000 | 7,500 | * | |||||||||
Donald A. Pizer | 50,000 | 5,000 | * | |||||||||
James M. Revie | 50,000 | 5,000 | * | |||||||||
J. Harvey Sproul, Jr. | 100,000 | 10,000 | * | |||||||||
Executive Officers: | ||||||||||||
Michael O. Banks | 100,000 | 10,000 | * | |||||||||
Jonathan C. Couch | 20,000 | 2,000 | * | |||||||||
Harold Roberts | 20,000 | 2,000 | * | |||||||||
Kevin Higgins | 25,000 | 2,500 | * | |||||||||
Joseph Survilla | 10,000 | 1,000 | * | |||||||||
All Directors and Executive Officers as a Group (16 persons) | $ | 1,275,000 | 127,500 | 2.83 | % | |||||||
* | Less than one percent. |
(1) | Does not include shares that will be allocated to employees under the ESOP. Under the ESOP, our employees will be allocated over time, in the aggregate, shares in an amount equal to 9.99% of the common stock issued in the offering (which equals between 450,499 shares if 4,505,000 shares are sold in the offering and 677,222 shares if 6,772,221 shares are sold in the offering). | |
(2) | Does not include shares that would be issuable upon the exercise of options or the vesting of restricted stock awards granted under our proposed stock-based incentive plan. Under the stock-based incentive plan, we expect to grant to directors, executive officers and other employees options to purchase common stock and restricted |
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stock awards in an aggregate amount equal to 14% of the shares issued in the offering (which equals between 630,700 shares if 4,505,000 shares are sold in the offering, and 948,111 shares if 6,772,221 shares are sold in the offering). | ||
(3) | Assumes that 4,505,000 shares are issued in the offering, including the shares purchased by the ESOP. |
• | Penn Millers Mutual upon the conversion of Penn Millers Mutual from a mutual holding company to a stock holding company; | |
• | eligible members that are U.S. Persons that hold their membership interests in Penn Millers Mutual as a capital asset within the meaning of Section 1221 of the Internal Revenue Code of 1986, as amended (which we refer to as the Code), of the receipt, exercise and lapse of subscription rights to purchase shares of the common stock of Penn Millers Holding Corporation (which we refer to as our common stock) in the subscription offering; | |
• | eligible members that are U.S. Persons that purchase shares of our common stock in the subscription offering upon the exercise of subscription rights and hold their shares of our common stock as a capital asset within the meaning of Section 1221 of the Code, of the acquisition, ownership and disposition of shares of our common stock purchased in the subscription offering; and | |
• | other investors that are U.S. Persons that purchase shares of our common stock in the community offering and hold their shares of our common stock as a capital asset within the meaning of Section 1221 of the Code, of the acquisition, ownership and disposition of shares of our common stock purchased in the community offering. |
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• | the conversion of Penn Millers Mutual from a mutual holding company to a stock holding company will be a reorganization within the meaning of Section 368(a)(1)(E) of the Code; | |
• | Penn Millers Mutual in its post-conversion stock form will constitute one and the same taxable entity as Penn Millers Mutual in its pre-conversion mutual form; | |
• | neither Penn Millers Mutual in its pre-conversion mutual form nor Penn Millers Mutual in its post-conversion stock form will recognize gain or loss as a result of the conversion; and | |
• | the tax attributes of Penn Millers Mutual in its pre-conversion mutual form will remain unchanged as tax attributes of Penn Millers Mutual in its post-conversion stock form. Thus, Penn Millers Mutual’s basis in its assets, holding period for its assets, net operating loss carryovers, if any, capital loss carryovers, if any, earnings and profits and accounting methods will not be changed by reason of the conversion. |
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• | eligible members will be treated as transferring their membership interests in Penn Millers Mutual to Penn Millers Holding Corporation in exchange for subscription rights to purchase Penn Millers Holding Corporation common stock; | |
• | any gain realized by an eligible member as a result of the receipt of a subscription right with a fair market value must be recognized, whether or not such right is exercised; | |
• | the amount of gain that must be recognized by an eligible member as a result of the receipt of a subscription right will equal the fair market value of such subscription right; | |
• | any gain recognized by an eligible member as a result of the receipt of a subscription right with a fair market value should constitute a capital gain, which will be long term capital gain if the eligible member has held its membership interests for more than one year; and | |
• | if an eligible member is required to recognize gain on the receipt of a subscription right and does not exercise such subscription right, (i) the eligible member should recognize a corresponding loss upon the expiration or lapse of such member’s unexercised subscription right, (ii) the amount of that loss should equal the gain previously recognized upon receipt of the unexercised subscription right, and (iii) if the common stock that an eligible member would have received upon exercise of the lapsed subscription right would have constituted a capital asset in the hands of that eligible member, the resulting loss upon expiration of the subscription right should constitute a capital loss. |
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Age at | ||||||||||
September 9, | Director | Position with | ||||||||
2009 | Since(1) | Penn Millers | ||||||||
Heather M. Acker | 57 | 2004 | Director | |||||||
F. Kenneth Ackerman, Jr. | 70 | 1979 | Vice Chairman | |||||||
Dorrance R. Belin | 71 | 1998 | Director | |||||||
John L. Churnetski | 68 | 1997 | Director | |||||||
John M. Coleman | 59 | 2007 | Director | |||||||
Douglas A. Gaudet | 54 | 2005 | President and CEO | |||||||
Kim E. Michelstein | 56 | 1998 | Director | |||||||
Robert A. Nearing, Jr. | 66 | 1997 | Director | |||||||
Donald A. Pizer | 65 | 2009 | Director | |||||||
James M. Revie | 72 | 1990 | Director | |||||||
J. Harvey Sproul, Jr. | 75 | 1990 | Chairman | |||||||
(1) | Indicates year first elected as a director of Penn Millers Insurance Company. |
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• | a director who is, or at any time during the past three years was, employed by us; | |
• | a director who accepted or who has a spouse, parent, child or sibling, whether by blood, marriage or adoption, or any other person who resides in his home, hereinafter referred to as a “Family Member”, who accepted any compensation from us in excess of $120,000 during any period of twelve consecutive months within the three years preceding the determination of independence (other than compensation for board or board committee service; compensation paid to a Family Member who is an employee (other than an executive officer) of Penn Millers; or benefits under a tax-qualified retirement plan, or non-discretionary compensation). | |
• | a director who is a Family Member of an individual who is, or at any time during the past three years was, employed by us as an executive officer; | |
• | a director who is, or has a Family Member who is, a partner in, or a controlling shareholder or an executive officer of, any organization to which we made, or from which we received, payments for property or services in the current or any of the past three fiscal years that exceed 5% of the recipient’s consolidated gross revenues for that year, or $200,000, whichever is more (excluding payments arising solely from investments in our securities; or payments under non-discretionary charitable contribution matching programs). | |
• | a director of Penn Millers who is, or has a Family Member who is, employed as an executive officer of another entity where at any time during the past three (3) years any of our executive officers served on the compensation committee of such other entity; or | |
• | a director who is, or has a Family Member who is, a current partner of our outside auditor, or was a partner or employee of the company’s outside auditor who worked on our audit at any time during any of the past three (3) years. |
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Change in | ||||||||||||||||||||||||||||
Pension | ||||||||||||||||||||||||||||
Value and | ||||||||||||||||||||||||||||
Nonqualified | ||||||||||||||||||||||||||||
Fees Earned | Non-Equity | Deferred | ||||||||||||||||||||||||||
or Paid | Stock | Option | Incentive Plan | Compensation | All Other | |||||||||||||||||||||||
in Cash | Awards | Awards | Compensation | Earnings | Compensation | Total | ||||||||||||||||||||||
($) | ($) | ($) | ($) | ($) | ($) | ($) | ||||||||||||||||||||||
J. Harvey Sproul, Jr. | $ | 47,500 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 47,500 | ||||||||||||||
F. Kenneth Ackerman, Jr. | $ | 39,193 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 906 | $ | 40,099 | ||||||||||||||
Heather M. Acker | $ | 35,000 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 35,000 | ||||||||||||||
Dorrance R. Belin | $ | 36,000 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 36,000 | ||||||||||||||
John L. Churnetski | $ | 32,500 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 32,500 | ||||||||||||||
John M. Coleman | $ | 34,000 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 34,000 | ||||||||||||||
Kim E. Michelstein | $ | 36,750 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 36,750 | ||||||||||||||
Robert A. Nearing, Jr. | $ | 29,000 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 29,000 | ||||||||||||||
William A. Ray(1) | $ | 29,619 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 7,551 | $ | 37,170 | ||||||||||||||
James M. Revie | $ | 33,000 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 33,000 |
(1) | William A. Ray, age 66, had served as a Director since 2001 and resigned from the Board of Directors effective December 10, 2008. Mr. Ray retired from Towers Perrin Reinsurance in Philadelphia, Pennsylvania in 1999, where he was a Senior Vice President and Principal. |
• | review, evaluate and approve the compensation and benefit plans and policies of Penn Millers employees, including its officers; | |
• | review, evaluate and approve the compensation and benefit plans and policies for our officers and directors; | |
• | grant stock options and restricted stock and restricted stock unit awards to employees, management and directors under our proposed stock-based incentive plan; | |
• | be responsible for producing an annual report on executive compensation for inclusion in our proxy statement and for ensuring compliance of compensation and benefit programs with all other legal, tax and regulatory requirements; and | |
• | make recommendations to our board of directors regarding these matters. |
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• | be responsible for the selection, retention, oversight and termination of our independent registered public accounting firm; | |
• | approve the non-audit services provided by the independent registered public accounting firm; | |
• | review the results and scope of the audit and other services provided by our independent registered public accounting firm; | |
• | approve the estimated cost of the annual audit; | |
• | establish procedures to facilitate the receipt, retention and treatment of complaints received from third parties regarding accounting, internal accounting controls, or auditing matters; | |
• | establish procedures to facilitate the receipt, retention, and treatment of confidential, anonymous submissions of concerns regarding questionable accounting or auditing matters by Penn Millers employees; | |
• | review and approve all related party transactions and transactions raising potential conflicts of interest; | |
• | review the annual financial statements and the results of the audit with management and the independent registered public accounting firm; | |
• | review with management and the independent registered public accounting firm the adequacy of our system of internal control over financial reporting, including their effectiveness at achieving compliance with any applicable laws or regulations; | |
• | review with management and the independent registered public accounting firm the significant recommendations made by the independent registered public accounting firm with respect to changes in accounting procedures and internal control over financial reporting; and | |
• | report to the board of directors on the results of its review and make such recommendations as it may deem appropriate. |
• | make independent recommendations to the board of directors as to best practices for board governance and evaluation of board performance; | |
• | produce a Code of Ethics and submit it for board approval, and periodically review the Code of Ethics for necessary revisions; | |
• | identify suitable candidates for board membership, and in such capacity will consider any nominees recommended by shareholders; | |
• | propose to the board a slate of directors for election by the shareholders at each annual meeting; and | |
• | propose candidates to fill vacancies on the board based on qualifications it determines to be appropriate. |
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• | review investment policies, strategies, transactions and performance; | |
• | review Penn Millers’ capital structure and provide recommendations regarding financial planning; | |
• | conduct an annual financial review and assessment of proposed strategic plans and initiatives; | |
• | conduct a financial review and assessment of proposed business transactions; and | |
• | administer Penn Millers’ Pension Plan and 401(k) plans. |
• | oversee budget review; | |
• | provide capital spending approval; | |
• | propose capital structure policy; | |
• | oversee merger, acquisition and divestiture review; | |
• | provide debt issuance approval; and | |
• | review qualification of commercial and investment bankers. |
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• | annual base salary; | |
• | annual cash and deferred compensation bonuses which are discretionary; | |
• | retirement benefits; and | |
• | other perquisites and personal benefits. |
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Business Unit Level | Threshold ($) | Target ($) | Maximum ($) | |||||||||
Insurance Company | $ | 4,731,000 | $ | 6,121,000 | $ | 8,349,000 | ||||||
Commercial Business | $ | 1,812,000 | $ | 2,344,000 | $ | 3,198,000 | ||||||
Agribusiness | $ | 3,590,000 | $ | 4,645,000 | $ | 6,336,000 | ||||||
Holding Company(1) | $ | 4,313,000 | $ | 5,580,000 | $ | 7,611,000 | ||||||
Eastern Insurance Group, Inc. | $ | 351,000 | $ | 454,000 | $ | 620,000 |
(1) | Excludes operating income objectives for Eastern Insurance Group and Penn Software. |
Eastern | ||||||||||||||||||||
Insurance | Commercial | Holding | Insurance | |||||||||||||||||
Name | Company | Business | Agribusiness | Company | Group, Inc | |||||||||||||||
Douglas A. Gaudet | — | — | — | 100 | % | — | ||||||||||||||
Michael O. Banks | — | 25 | % | — | 75 | % | — | |||||||||||||
Frank Joanlanne | — | — | — | 75 | % | 25 | % | |||||||||||||
Harold W. Roberts | — | — | 25 | % | 75 | % | — | |||||||||||||
Kevin D. Higgins | 100 | % | — | — | — | — | ||||||||||||||
Jonathan C. Couch | — | — | — | 100 | % | — |
% of Base Salary as | % of Base Salary as | % of Base Salary as | ||||||||||
Bonus Opportunity | Bonus Opportunity | Bonus Opportunity | ||||||||||
Employee Title or Position | at Threshold | at Target | at Maximum | |||||||||
Chief Executive Officer and President | 22.5 | % | 45.0 | % | 67.5 | % | ||||||
Executive Vice President & Senior Vice Presidents | 20.0 | % | 40.0 | % | 60.0 | % | ||||||
Vice Presidents | 17.5 | % | 35.0 | % | 52.5 | % | ||||||
Assistant Vice Presidents | 10.0 | % | 20.0 | % | 30.0 | % | ||||||
Managers, Assistant Managers, and Supervisors | 6.0 | % | 12.0 | % | 18.0 | % | ||||||
All Other Employees | 2.5 | % | 5.0 | % | 7.5 | % |
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Performance Measure | Threshold | Target | Maximum | Weight | ||||||||||||
ROAE | 3.00 | % | 5.25 | % | 7.87 | % | 60 | % | ||||||||
Gross Premium Growth Rate | 1.50 | % | 2.60 | % | 3.80 | % | 20 | % | ||||||||
Operating Expense | $ | 16,000,000 | $ | 15,700,000 | $ | 15,000,000 | 20 | % |
Title | Threshold | Target | Maximum | |||||||||
Chief Executive Officer | 11.25 | % | 45.0 | % | 67.5 | % | ||||||
Executive Vice President & Senior Vice Presidents | 10.00 | % | 40.0 | % | 60.0 | % | ||||||
Vice Presidents | 8.75 | % | 35.0 | % | 52.5 | % | ||||||
Assistant Vice Presidents | 5.00 | % | 20.0 | % | 30.0 | % | ||||||
Manager, Assistant Manager and Supervisors | 3.00 | % | 12.0 | % | 18.0 | % | ||||||
All Other Employees | 1.25 | % | 5.0 | % | 7.5 | % |
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Title | Threshold | Target | Maximum | |||||||||
Douglas A. Gaudet | $ | 38,528 | $ | 154,114 | $ | 231,171 | ||||||
Michael O. Banks | $ | 23,571 | $ | 94,282 | $ | 141,424 | ||||||
Harold W. Roberts | $ | 18,659 | $ | 74,636 | $ | 111,953 | ||||||
Kevin D. Higgins | $ | 14,261 | $ | 57,044 | $ | 85,566 | ||||||
Jonathan C. Couch | $ | 11,683 | $ | 46,733 | $ | 70,100 |
• | Was calculated based on the achievement of financial results that were subsequently restated; | |
• | The restatement was caused in whole or in part by the intentional misconduct of the executive officer; and | |
• | Had the financial results been properly reported, the amount awarded under the plan would have been lower than the amount actually rewarded. |
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Change in | ||||||||||||||||||||||||||||||||||||
Pension | ||||||||||||||||||||||||||||||||||||
Value and | ||||||||||||||||||||||||||||||||||||
Nonqualified | ||||||||||||||||||||||||||||||||||||
Non-Equity | Deferred | All Other | ||||||||||||||||||||||||||||||||||
Name and | Stock | Option | Incentive Plan | Compensation | Compensation | |||||||||||||||||||||||||||||||
Principal Position | Year | Salary ($) | Bonus ($) | Awards ($) | Awards ($) | Compensation ($) | Earnings ($) | ($)(1) | Total ($) | |||||||||||||||||||||||||||
Douglas A. Gaudet | 2008 | $ | 342,476 | — | — | — | — | $ | 75,996 | $ | 23,207 | $ | 441,679 | |||||||||||||||||||||||
President and Chief Executive Officer | ||||||||||||||||||||||||||||||||||||
Michael O. Banks, | 2008 | 235,706 | — | — | — | — | 20,691 | 26,536 | 282,933 | |||||||||||||||||||||||||||
Executive Vice President and Chief Financial Officer | ||||||||||||||||||||||||||||||||||||
Frank Joanlanne, | 2008 | 198,633 | — | — | — | — | 8,320 | 232,501 | 439,454 | |||||||||||||||||||||||||||
Sr. Vice President(2) | ||||||||||||||||||||||||||||||||||||
Harold W. Roberts, | 2008 | 186,589 | — | — | — | — | 111,702 | 16,456 | 314,747 | |||||||||||||||||||||||||||
Chief Underwriting Officer | ||||||||||||||||||||||||||||||||||||
Kevin D. Higgins, | 2008 | 162,983 | — | — | — | — | 25,346 | 15,425 | 203,754 | |||||||||||||||||||||||||||
Sr. Vice President of Claims | ||||||||||||||||||||||||||||||||||||
Jonathan C. Couch | 2008 | 133,524 | — | — | — | — | 6,205 | 4,162 | 143,891 | |||||||||||||||||||||||||||
Vice President of Finance and Controller |
(1) | Consists of matching contributions to 401(k) plan, life insurance premiums, country club and car allowances on behalf of Messrs. Gaudet, Banks, Joanlanne, Roberts, Higgins and Couch. For Mr. Joanlanne, this amount |
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includes $213,148 in severance payments accrued in 2008 and payable through December 31, 2009 and $3,000 of outplacement assistance accrued in 2008 pursuant to his Separation Agreement. | ||
(2) | Mr. Joanlanne’s employment with Penn Millers was terminated on December 1, 2008. |
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AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2008
Number of | ||||||||||||||
Years of | Present Value of | Payments | ||||||||||||
Credited | Accumulated | During Last | ||||||||||||
Name | Plan Name | Service (#) | Benefit ($)(1) | Fiscal Year ($) | ||||||||||
Douglas A. Gaudet | Defined Benefit Pension Plan | 3 | $ | 25,000 | $ | 0 | ||||||||
Supplemental Executive Retirement Plan | 3 | $ | 185,000 | $ | 0 | |||||||||
Michael O. Banks | Defined Benefit Pension Plan | 6 | $ | 66,000 | $ | 0 | ||||||||
Supplemental Executive Retirement Plan | 6 | $ | 26,000 | $ | 0 | |||||||||
Frank Joanlanne(2) | Defined Benefit Pension Plan | 5 | $ | 31,000 | $ | 0 | ||||||||
Supplemental Executive Retirement Plan | 5 | $ | 0 | $ | 0 | |||||||||
Harold W. Roberts | Defined Benefit Pension Plan | 33 | $ | 409,000 | $ | 0 | ||||||||
Supplemental Executive Retirement Plan | 33 | $ | 223,000 | $ | 0 | |||||||||
Kevin D. Higgins | Defined Benefit Pension Plan | 6 | $ | 50,000 | $ | 0 | ||||||||
Supplemental Executive Retirement Plan | 6 | $ | 25,000 | $ | 0 | |||||||||
Jonathan C. Couch | Defined Benefit Pension Plan | 6 | $ | 22,000 | $ | 0 |
(1) | The present value of accumulated benefits were calculated with the following assumptions: | |
• Retirement occurs at age 65; | ||
• At retirement, the participants take a lump sum based on the accrued benefit as of December 31, 2008; | ||
• The lump sum is calculated using an interest rate of 6.16% for the pension and 6.56% for the SERP; and | ||
• The lump sum is discounted to December 31, 2008 at a rate of 6.16% and 6.56% per year, for the pension and SERP, respectively. | ||
(2) | Although Mr. Joanlanne was eligible to participate in the SERP, his accumulated benefits were forfeited as a result of the termination of his employment on December 1, 2008. |
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AS OF AND FOR THE YEAR ENDED DECEMBER 31, 2008
Executive | Registrant | Aggregate | Aggregate | |||||||||||||||||
Contributions | Contributions | Earnings | Aggregate | Balance at | ||||||||||||||||
in Last | in Last | in Last | Withdrawals/ | Last Fiscal | ||||||||||||||||
Name | Fiscal Year | Fiscal Year(1) | Fiscal Year(1) | Distributions | Year End | |||||||||||||||
Douglas A. Gaudet | $ | 0 | $ | 0 | $ | (8,437 | ) | $ | 0 | $ | 15,066 | |||||||||
Michael O. Banks | $ | 0 | $ | 0 | $ | (5,483 | ) | $ | 0 | $ | 8,966 | |||||||||
Frank Joanlanne(2) | $ | 0 | $ | 0 | $ | (6,455 | ) | $ | 0 | $ | 1,447 | |||||||||
Harold W. Roberts | $ | 12,033 | $ | 0 | $ | (11,370 | ) | $ | 0 | $ | 23,645 | |||||||||
Kevin D. Higgins | $ | 0 | $ | 0 | $ | (2,660 | ) | $ | 0 | $ | 5,462 | |||||||||
Jonathan C. Couch | $ | 0 | $ | 0 | $ | 0 | $ | 0 | $ | 0 |
(1) | The participants in the plan had aggregate losses as of December 31, 2008. These losses were not reported in the Summary Compensation Table. | |
(2) | Mr. Joanlanne’s employment with Penn Millers was terminated on December 1, 2008. |
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• | the nature and responsibility of the position; | |
• | the impact, contribution, expertise and experience of the executive; | |
• | to the extent available and relevant, competitive market information; and | |
• | the importance of retaining the executive along with the competitiveness of the market for the executive’s talent and services. |
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Reason for Termination | Mr. Gaudet | Mr. Banks | Mr. Roberts | Mr. Higgins | Mr. Couch | |||||
Involuntary termination for Cause | 24-month period following termination | 12-month period following termination | 12-month period following termination | 12-month period following termination | 6-month period following termination | |||||
Voluntary termination without Good Reason | 24-month period following termination | 12-month period following termination | 12-month period following termination | 12-month period following termination | 6-month period following termination | |||||
Voluntary termination prior to Change in Control that would amount to Good Reason* | Up to 24-month period following termination | Up to 12-month period following termination | Up to 12-month period following termination | Up to 12-month period following termination | Up to 6-month period following termination | |||||
Termination for Disability | Date of termination | Date of termination | Date of termination | Date of termination | Date of termination | |||||
Involuntary Termination without Cause prior to a Change in Control | 24-month period following termination | 12-month period following termination | 12-month period following termination | 12-month period following termination | 6-month period following termination | |||||
Involuntary termination without Cause or voluntary termination for Good Reason on or within 24 months after a Change in Control | 24-month period following termination | 24-month period following termination | 24-month period following termination | 24-month period following termination | 12-month period following termination |
* | In the event of a voluntary termination of employment that would amount to Good Reason but for the fact that it occurred prior to a Change in Control, we have the option to pay for a restrictive covenant. |
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• | whether the transaction is fair and reasonable to us; | |
• | the business reasons for the transaction; | |
• | whether the transaction would impair the independence of a director; | |
• | whether the transaction presents a conflict of interest, taking into account the size of the transaction, the financial position of the director, officer or employee, the nature of their interest in the transaction and the ongoing nature of the transaction; and | |
• | whether the transaction is material, taking into account the significance of the transaction in light of all the circumstances. |
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Interim Financial Statements (Unaudited) | ||||
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F-6 | ||||
F-25 | ||||
Financial Statements | ||||
F-26 | ||||
F-27 | ||||
F-28 | ||||
F-29 | ||||
F-30 | ||||
F-61 |
F-1
June 30, | December 31, | |||||||
2009 | 2008 | |||||||
(Unaudited) | ||||||||
(Dollars in thousands) | ||||||||
ASSETS | ||||||||
Investments: | ||||||||
Fixed maturities investments: | ||||||||
Available for sale, at fair value (amortized cost $131,397 in 2009 (unaudited) and $120,538 in 2008) | $ | 134,783 | 121,914 | |||||
Cash and cash equivalents | 12,095 | 11,959 | ||||||
Premiums and fees receivable | 26,783 | 31,080 | ||||||
Reinsurance receivables and recoverables | 25,950 | 20,637 | ||||||
Deferred policy acquisition costs | 9,862 | 10,601 | ||||||
Prepaid reinsurance premiums | 3,769 | 4,342 | ||||||
Accrued investment income | 1,565 | 1,431 | ||||||
Property and equipment, net of accumulated depreciation | 3,958 | 4,231 | ||||||
Income taxes receivable | 738 | 1,508 | ||||||
Deferred income taxes | 3,240 | 4,728 | ||||||
Other | 4,011 | 3,864 | ||||||
Deferred offering costs | 1,631 | 1,015 | ||||||
Assets held for sale | — | 3,214 | ||||||
Total assets | $ | 228,385 | 220,524 | |||||
LIABILITIES AND EQUITY | ||||||||
Liabilities: | ||||||||
Losses and loss adjustment expense reserves | $ | 118,025 | 108,065 | |||||
Unearned premiums | 41,218 | 45,322 | ||||||
Accounts payable and accrued expenses | 14,211 | 13,353 | ||||||
Borrowings under line of credit | 1,683 | 950 | ||||||
Long-term debt | 1,276 | 1,432 | ||||||
Liabilities held for sale | — | 647 | ||||||
Total liabilities | 176,413 | 169,769 | ||||||
Equity: | ||||||||
Retained earnings | 51,730 | 51,914 | ||||||
Accumulated other comprehensive income (loss) | 242 | (1,159 | ) | |||||
Total equity | 51,972 | 50,755 | ||||||
Total liabilities and equity | $ | 228,385 | 220,524 | |||||
F-2
2009 | 2008 | |||||||
(Unaudited) | ||||||||
(Dollars in thousands) | ||||||||
Revenues: | ||||||||
Premiums earned | $ | 36,926 | 39,369 | |||||
Investment income, net of investment expense | 2,769 | 2,723 | ||||||
Realized investment gains (losses), net: | ||||||||
Other realized investment gains | 64 | 1,876 | ||||||
Other-than-temporary impairment losses | (197 | ) | — | |||||
Portion of loss recognized in other comprehensive income | — | — | ||||||
Net impairment losses recognized in earnings | (197 | ) | — | |||||
Other income | 111 | 221 | ||||||
Total revenues | 39,673 | 44,189 | ||||||
Losses and expenses: | ||||||||
Losses and loss adjustment expenses | 25,866 | 28,692 | ||||||
Amortization of deferred policy acquisition costs | 10,953 | 11,521 | ||||||
Underwriting and administrative expenses | 1,869 | 1,807 | ||||||
Interest expense | 156 | 87 | ||||||
Other expense, net | 90 | 76 | ||||||
Total losses and expenses | 38,934 | 42,183 | ||||||
Income from continuing operations, before income taxes | 739 | 2,006 | ||||||
Income tax expense | 107 | 494 | ||||||
Income from continuing operations | 632 | 1,512 | ||||||
Discontinued Operations: | ||||||||
Loss on discontinued operations, before income taxes | (12 | ) | (21 | ) | ||||
Income tax expense (benefit) | 804 | (7 | ) | |||||
Loss on discontinued operations | (816 | ) | (14 | ) | ||||
Net (loss) income | $ | (184 | ) | 1,498 | ||||
F-3
Accumulated | ||||||||||||
Other | ||||||||||||
Retained | Comprehensive | |||||||||||
Earnings | Income (Loss) | Total | ||||||||||
(Unaudited) | ||||||||||||
(Dollars in thousands) | ||||||||||||
Balance at December 31, 2007 | $ | 59,293 | 2,108 | 61,401 | ||||||||
Net income | 1,498 | — | 1,498 | |||||||||
Other comprehensive loss, net of taxes: | ||||||||||||
Unrealized investment holding loss arising during period, net of related income tax benefit of $1,310 | — | (2,543 | ) | (2,543 | ) | |||||||
Reclassification adjustment for realized gains included in net income, net of related income tax expense of $640 | — | (1,243 | ) | (1,243 | ) | |||||||
Net unrealized investment loss | (3,786 | ) | ||||||||||
Defined benefit pension plan, net of related income tax expense of $12 | — | 24 | 24 | |||||||||
Comprehensive loss | (2,264 | ) | ||||||||||
Balance at June 30, 2008 | 60,791 | (1,654 | ) | 59,137 | ||||||||
Balance at December 31, 2008 | $ | 51,914 | (1,159 | ) | 50,755 | |||||||
Net loss | (184 | ) | — | (184 | ) | |||||||
Other comprehensive income, net of taxes: | ||||||||||||
Unrealized investment holding gain arising during period, net of related income tax expense of $636 | — | 1,235 | 1,235 | |||||||||
Reclassification adjustment for realized losses included in net income, net of related income tax benefit of $50 | — | 96 | 96 | |||||||||
Net unrealized investment gain | 1,331 | |||||||||||
Defined benefit pension plan, net of related income tax expense of $36 | — | 70 | 70 | |||||||||
Comprehensive income | 1,217 | |||||||||||
Balance at June 30, 2009 | $ | 51,730 | 242 | 51,972 | ||||||||
F-4
2009 | 2008 | |||||||
(Unaudited) | ||||||||
(Dollars in thousands) | ||||||||
Cash flows from operating activities: | ||||||||
Net (loss) income | $ | (184 | ) | 1,498 | ||||
Loss on discontinued operations | 816 | 14 | ||||||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | ||||||||
Change in receivables, unearned premiums, and prepaid reinsurance | (4,127 | ) | (5,159 | ) | ||||
Increase in losses and loss adjustment expense reserves | 9,960 | 8,633 | ||||||
Change in accounts payable and accrued expenses | 964 | (1,942 | ) | |||||
Deferred income taxes | 766 | (79 | ) | |||||
Change in deferred acquisition costs | 739 | 355 | ||||||
Amortization and depreciation | 342 | 346 | ||||||
Realized investment gains, net | 133 | (1,876 | ) | |||||
Other, net | (23 | ) | 760 | |||||
Cash provided by operating activities — continuing operations | 9,386 | 2,550 | ||||||
Cash provided by operating activities — discontinued operations | — | 270 | ||||||
Net cash provided by operating activities | 9,386 | 2,820 | ||||||
Cash flows from investing activities: | ||||||||
Available-for-sale investments: | ||||||||
Purchases | (19,132 | ) | (32,673 | ) | ||||
Sales | 4,136 | 17,651 | ||||||
Maturities | 3,800 | 9,105 | ||||||
Proceeds on sale of net assets of Eastern Insurance Group (see note 16) | 2,576 | — | ||||||
Purchases of property and equipment, net | (69 | ) | (227 | ) | ||||
Cash used in investing activities — continuing operations | (8,689 | ) | (6,144 | ) | ||||
Cash provided by (used in) investing activities — discontinued operations | 285 | (30 | ) | |||||
Net cash used in investing activities | (8,404 | ) | (6,174 | ) | ||||
Cash flows from financing activities: | ||||||||
Initial public offering costs paid | (1,138 | ) | — | |||||
Net borrowings on line of credit | 733 | — | ||||||
Repayment of long-term debt | (156 | ) | (157 | ) | ||||
Net cash used in financing activities — continuing operations | (561 | ) | (157 | ) | ||||
Net cash used in financing activities — discontinued operations | (285 | ) | (260 | ) | ||||
Net cash used in financing activities | (846 | ) | (417 | ) | ||||
Net increase (decrease) in cash | 136 | (3,771 | ) | |||||
Cash and cash equivalents at beginning of period | 11,959 | 10,462 | ||||||
Cash and cash equivalents at end of period | 12,095 | 6,691 | ||||||
Less cash of discontinued operations at end of period | — | 269 | ||||||
Cash and cash equivalents of continuing operations at end of period | $ | 12,095 | 6,422 | |||||
F-5
(Unaudited)
Notes to Consolidated Financial Statements
(Dollars in thousands)
(1) | Basis of Presentation |
(2) | Use of Estimates |
(3) | Concentration of Risk |
F-6
(4) | Deferred Offering Costs |
(5) | Recent Accounting Pronouncements |
F-7
(6) | Fair Value Measurements |
F-8
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Fixed maturities, available for sale | ||||||||||||||||
U.S. treasuries | $ | 8,041 | — | — | 8,041 | |||||||||||
Agencies not backed by the full faith and credit of the U.S. government | — | 17,703 | — | 17,703 | ||||||||||||
State and political subdivisions | — | 33,163 | — | 33,163 | ||||||||||||
Commercial mortgage-backed securities | — | 4,090 | — | 4,090 | ||||||||||||
Residential mortgage-backed securities | — | 22,655 | — | 22,655 | ||||||||||||
Corporate securities | — | 49,131 | — | 49,131 | ||||||||||||
Total assets | $ | 8,041 | 126,742 | — | 134,783 | |||||||||||
Accounts payable and accrued expenses | $ | — | 53 | — | 53 | |||||||||||
Total liabilities | $ | — | 53 | — | 53 | |||||||||||
F-9
F-10
(7) | Investments |
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Estimated | |||||||||||||
Cost | Gains | Losses | Fair Value | |||||||||||||
June 30, 2009: | ||||||||||||||||
U.S. treasuries | $ | 7,801 | 256 | 16 | 8,041 | |||||||||||
Agencies not backed by the full faith and credit of the U.S. government | 16,995 | 752 | 44 | 17,703 | ||||||||||||
State and political subdivisions | 31,654 | 1,576 | 67 | 33,163 | ||||||||||||
Commercial mortgage-backed securities | 4,428 | 6 | 344 | 4,090 | ||||||||||||
Residential mortgage-backed securities | 21,995 | 704 | 44 | 22,655 | ||||||||||||
Corporate securities | 48,524 | 1,522 | 915 | 49,131 | ||||||||||||
Total fixed maturities | $ | 131,397 | 4,816 | 1,430 | 134,783 | |||||||||||
December 31, 2008: | ||||||||||||||||
U.S. treasuries | $ | 8,530 | 780 | — | 9,310 | |||||||||||
Agencies not backed by the full faith and credit of the U.S. government | 14,929 | 1,160 | — | 16,089 | ||||||||||||
State and political subdivisions | 31,775 | 1,292 | 110 | 32,957 | ||||||||||||
Commercial mortgage-backed securities | 4,600 | 3 | 670 | 3,933 | ||||||||||||
Residential mortgage-backed securities | 20,774 | 598 | — | 21,372 | ||||||||||||
Corporate securities | 39,930 | 414 | 2,091 | 38,253 | ||||||||||||
Total fixed maturities | $ | 120,538 | 4,247 | 2,871 | 121,914 | |||||||||||
Amortized | Estimated | |||||||
Cost | Fair Value | |||||||
Due in one year or less | $ | 8,431 | 8,570 | |||||
Due after one year through five years | 49,238 | 51,078 | ||||||
Due after five years through ten years | 40,362 | 41,262 | ||||||
Due after ten years | 6,943 | 7,128 | ||||||
104,974 | 108,038 | |||||||
Commercial mortgage-backed securities | 4,428 | 4,090 | ||||||
Residential mortgage-backed securities | 21,995 | 22,655 | ||||||
$ | 131,397 | 134,783 | ||||||
F-11
For the Six Months | ||||||||
Ended June 30, | ||||||||
2009 | 2008 | |||||||
Interest on fixed maturities | $ | 3,024 | 2,706 | |||||
Dividends on equity securities | 9 | 141 | ||||||
Interest on cash and cash equivalents | — | 141 | ||||||
Total investment income | 3,033 | 2,988 | ||||||
Investment expense | (264 | ) | (265 | ) | ||||
Investment income, net of investment expense | $ | 2,769 | 2,723 | |||||
For the Six Months | ||||||||
Ended June 30, | ||||||||
2009 | 2008 | |||||||
Fixed maturity securities: | ||||||||
Available for sale: | ||||||||
Gross gains | $ | 51 | 76 | |||||
Gross losses on sales | — | — | ||||||
Other-than-temporary impairment losses | (197 | ) | — | |||||
Equity securities: | ||||||||
Gross gains | — | 1,807 | ||||||
Gross losses on sales | — | — | ||||||
Realized investment (losses) gains, net | (146 | ) | 1,883 | |||||
Change in value of interest rate swap | 13 | (7 | ) | |||||
Realized investment (losses) gains after change in value of interest rate swap, net | $ | (133 | ) | 1,876 | ||||
Change in difference between fair value and cost of investments: | ||||||||
Fixed maturity securities for continuing operations | $ | 2,010 | (1,463 | ) | ||||
Equity securities for continuing operations | — | (4,272 | ) | |||||
Total for continuing operations | 2,010 | (5,735 | ) | |||||
Equity securities for discontinued operations | 7 | (1 | ) | |||||
Total including discontinued operations | $ | 2,017 | (5,736 | ) | ||||
F-12
Less Than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
Description of Securities | Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | ||||||||||||||||||
2009: | ||||||||||||||||||||||||
U.S. Treasuries | $ | 493 | 16 | — | — | 493 | 16 | |||||||||||||||||
Agencies not backed by the full faith and credit of the U.S. government | 3,036 | 44 | — | — | 3,036 | 44 | ||||||||||||||||||
State and political subdivisions | 555 | 2 | 2,655 | 65 | 3,210 | 67 | ||||||||||||||||||
Commercial mortgage-backed securities | — | — | 3,523 | 344 | 3,523 | 344 | ||||||||||||||||||
Residential mortgage-backed securities | 2,470 | 44 | — | — | 2,470 | 44 | ||||||||||||||||||
Corporate securities | 3,637 | 89 | 8,444 | 826 | 12,081 | 915 | ||||||||||||||||||
Total fixed maturities | $ | 10,191 | 195 | 14,622 | 1,235 | 24,813 | 1,430 | |||||||||||||||||
2008: | ||||||||||||||||||||||||
State and political subdivisions | $ | 2,934 | 56 | 515 | 54 | 3,449 | 110 | |||||||||||||||||
Commercial mortgage-backed securities | 2,203 | 297 | 1,645 | 373 | 3,848 | 670 | ||||||||||||||||||
Corporate securities | 10,732 | 1,008 | 9,907 | 1,083 | 20,639 | 2,091 | ||||||||||||||||||
Total fixed maturities | $ | 15,869 | 1,361 | 12,067 | 1,510 | 27,936 | 2,871 | |||||||||||||||||
F-13
(8) | Comprehensive Income (Loss) |
For the Six Months | ||||||||
Ended June 30, | ||||||||
2009 | 2008 | |||||||
Net (loss) income | $ | (184 | ) | 1,498 | ||||
Other comprehensive income (loss): | ||||||||
Unrealized gains (losses) on securities: | ||||||||
Unrealized investment holding gains (losses) arising during period | 1,235 | (2,543 | ) | |||||
Less: | ||||||||
Reclassification adjustment for losses (gains) included in net income | 96 | (1,243 | ) | |||||
Net unrealized investment gains (losses) | 1,331 | (3,786 | ) | |||||
Defined benefit pension plans: | ||||||||
Amortization | 70 | 24 | ||||||
Other comprehensive income (loss) | 1,401 | (3,762 | ) | |||||
Comprehensive income (loss) | $ | 1,217 | (2,264 | ) | ||||
June 30, | December 31, | |||||||
2009 | 2008 | |||||||
Unrealized investment gains for continuing operations, net of tax | $ | 2,234 | 908 | |||||
Unrealized investment losses for discontinued operations, net of tax | — | (5 | ) | |||||
Defined benefit pension plan — net actuarial loss, net of tax | (1,992 | ) | (2,062 | ) | ||||
Accumulated other comprehensive gain (loss) | $ | 242 | (1,159 | ) | ||||
(9) | Employee Benefit Plans |
F-14
For the Six Months | ||||||||
Ended June 30, | ||||||||
2009 | 2008 | |||||||
Components of net periodic pension cost: | ||||||||
Service cost | $ | 340 | 358 | |||||
Interest cost | 295 | 309 | ||||||
Expected return on plan assets | (185 | ) | (259 | ) | ||||
Amortization of prior service costs | 20 | 31 | ||||||
Amortization of net loss | 85 | 5 | ||||||
Net periodic pension expense | $ | 555 | 444 | |||||
(10) | Income Tax |
(11) | Reinsurance |
F-15
(a) | Premiums |
For the Six Months Ended June 30, | ||||||||||||||||
2009 | 2008 | |||||||||||||||
Written | Earned | Written | Earned | |||||||||||||
Direct | $ | 41,976 | 46,164 | 45,996 | 47,727 | |||||||||||
Assumed | 514 | 440 | 781 | 697 | ||||||||||||
Ceded | (9,106 | ) | (9,678 | ) | (8,798 | ) | (9,055 | ) | ||||||||
Net | $ | 33,384 | 36,926 | 37,979 | 39,369 | |||||||||||
(b) | Losses and Loss Adjustment Expenses |
For the Six Months Ended June 30, | ||||||||
2009 | 2008 | |||||||
Direct | $ | 36,361 | 34,399 | |||||
Assumed | 82 | 847 | ||||||
Ceded | (10,577 | ) | (6,554 | ) | ||||
Net | $ | 25,866 | 28,692 | |||||
(c) | Unearned Premiums |
June 30, | December 31, | |||||||
2009 | 2008 | |||||||
Direct | $ | 41,134 | 45,310 | |||||
Assumed | 84 | 12 | ||||||
Prepaid reinsurance (ceded) | (3,769 | ) | (4,342 | ) | ||||
$ | 37,449 | 40,980 | ||||||
(d) | Loss and Loss Adjustment Expense Reserves |
June 30, | December 31, | |||||||
2009 | 2008 | |||||||
Direct | $ | 108,888 | 98,366 | |||||
Assumed | 9,137 | 9,699 | ||||||
Gross | $ | 118,025 | 108,065 | |||||
F-16
(12) | Borrowings |
(13) | Interest Rate Swap Agreement |
F-17
June 30, 2009 | December 31, 2008 | |||||||||||
Balance Sheet | Fair Value | Balance Sheet | Fair Value | |||||||||
Location | Liability | Location | Liability | |||||||||
Interest rate swaps: | ||||||||||||
Wachovia Bank, N.A. | Accounts payable and accrued expenses | $ | 53 | Accounts payable and accrued expenses | $ | 66 | ||||||
Total derivatives | $ | 53 | $ | 66 | ||||||||
For the Six Months Ended June 30, | ||||||||||||||||
2009 | 2008 | |||||||||||||||
Amount of Gain | Amount of (Loss) | |||||||||||||||
Location of Gain | Recognized in | Location of (Loss) | Recognized in | |||||||||||||
Recognized in Income | Income | Recognized in Income | Income | |||||||||||||
Interest rate swaps: | ||||||||||||||||
Wachovia Bank, N.A. | Realized investment gains | $ | 13 | Realized investment losses | $ | (7 | ) | |||||||||
Total derivatives | $ | 13 | $ | (7 | ) | |||||||||||
(14) | Segment Information |
F-18
For the Six Months | ||||||||
Ended June 30, | ||||||||
2009 | 2008 | |||||||
Revenues: | ||||||||
Premiums earned: | ||||||||
Agribusiness | $ | 21,939 | 22,470 | |||||
Commercial business | 14,403 | 16,060 | ||||||
Other | 584 | 839 | ||||||
Total premiums earned | 36,926 | 39,369 | ||||||
Investment income, net of investment expense | 2,769 | 2,723 | ||||||
Realized investment (losses) gains, net | (133 | ) | 1,876 | |||||
Other income | 111 | 221 | ||||||
Total revenues | $ | 39,673 | 44,189 | |||||
Components of net (loss) income: | ||||||||
Underwriting (loss) income: | ||||||||
Agribusiness | $ | (1,702 | ) | (961 | ) | |||
Commercial business | (145 | ) | (1,157 | ) | ||||
Other | 166 | (238 | ) | |||||
Total underwriting losses | (1,681 | ) | (2,356 | ) | ||||
Investment income, net of investment expense | 2,769 | 2,723 | ||||||
Realized investment (losses) gains, net | (133 | ) | 1,876 | |||||
Other income | 111 | 221 | ||||||
Corporate expense | (81 | ) | (295 | ) | ||||
Interest expense | (156 | ) | (87 | ) | ||||
Other expense, net | (90 | ) | (76 | ) | ||||
Income from continuing operations, before income taxes | 739 | 2,006 | ||||||
Income tax expense | 107 | 494 | ||||||
Income from continuing operations | $ | 632 | 1,512 | |||||
Discontinued operations: | ||||||||
Loss on discontinued operations, before income taxes | $ | (12 | ) | (21 | ) | |||
Income tax expense (benefit) | 804 | (7 | ) | |||||
Loss on discontinued operations | (816 | ) | (14 | ) | ||||
Net (loss) income | $ | (184 | ) | 1,498 | ||||
F-19
For the Six Months | ||||||||
Ended June 30, | ||||||||
2009 | 2008 | |||||||
Net premiums earned: | ||||||||
Agribusiness | ||||||||
Property | $ | 7,933 | 8,055 | |||||
Commercial auto | 5,543 | 6,078 | ||||||
Liability | 4,593 | 4,341 | ||||||
Workers’ compensation | 3,536 | 3,667 | ||||||
Other | 334 | 329 | ||||||
Agribusiness subtotal | 21,939 | 22,470 | ||||||
Commercial lines | ||||||||
Property & liability | 8,878 | 9,934 | ||||||
Workers’ compensation | 3,105 | 3,694 | ||||||
Commercial auto | 2,271 | 2,303 | ||||||
Other | 149 | 129 | ||||||
Commercial lines subtotal | 14,403 | 16,060 | ||||||
Other | 584 | 839 | ||||||
Total net premiums earned | $ | 36,926 | 39,369 | |||||
(15) | Equity |
(16) | Discontinued Operations |
F-20
For the | ||||||||
Six Months | ||||||||
Ended June 30, | ||||||||
2009 | 2008 | |||||||
Net revenue | $ | — | 523 | |||||
Loss on discontinued operations, before income taxes | $ | — | (51 | ) | ||||
Income tax benefit | — | (18 | ) | |||||
Loss from discontinued operations | $ | — | (33 | ) | ||||
For the | ||||||||
Six Months | ||||||||
Ended June 30, | ||||||||
2009 | 2008 | |||||||
Net revenue | $ | — | 1,751 | |||||
(Loss) income on discontinued operations, before income taxes | $ | (12 | ) | 30 | ||||
Income tax expense | 804 | 11 | ||||||
(Loss) income from discontinued operations | $ | (816 | ) | 19 | ||||
F-21
2008 | ||||
Assets: | ||||
Cash | $ | — | ||
Receivables | 420 | |||
Goodwill | 2,147 | |||
Intangible assets | 464 | |||
Other assets | 183 | |||
Total assets | $ | 3,214 | ||
Liabilities: | ||||
Accounts payable and accrued expenses | $ | 362 | ||
Acquisition payables | 285 | |||
Total liabilities | $ | 647 | ||
For the | ||||||||
Six Months | ||||||||
Ended June 30, | ||||||||
2009 | 2008 | |||||||
Net revenue | $ | — | 2,274 | |||||
Loss on discontinued operations, before income taxes | $ | (12 | ) | (21 | ) | |||
Income tax expense (benefit) | 804 | (7 | ) | |||||
Loss from discontinued operations | $ | (816 | ) | (14 | ) | |||
2008 | ||||
Assets: | ||||
Cash | $ | — | ||
Receivables | 420 | |||
Goodwill | 2,147 | |||
Intangible assets | 464 | |||
Other assets | 183 | |||
Total assets | $ | 3,214 | ||
Liabilities: | ||||
Accounts payable and accrued expenses | $ | 362 | ||
Other liabilities | 285 | |||
Total liabilities | $ | 647 | ||
F-22
(17) | Plan of Conversion |
(18) | Correction of Immaterial Error |
As Previously | ||||||||||||
Reported | Adjustment | As Revised | ||||||||||
Premiums earned | $ | 18,457 | $ | (400 | ) | $ | 18,057 | |||||
Total revenues | 19,865 | (400 | ) | 19,465 | ||||||||
Underwriting and administrative expenses | 1,126 | (150 | ) | 976 | ||||||||
Total losses and expenses | 18,725 | (150 | ) | 18,575 | ||||||||
Income from continuing operations, before income taxes | 1,140 | (250 | ) | 890 | ||||||||
Income tax expense | 289 | (84 | ) | 205 | ||||||||
Income from continuing operations | 851 | (166 | ) | 685 | ||||||||
Net income (loss) | 31 | (166 | ) | (135 | ) |
F-23
As Previously | ||||||||||||
Reported | Adjustment | As Revised | ||||||||||
Reinsurance receivables and recoverables | $ | 25,064 | $ | (400 | ) | $ | 24,664 | |||||
Income taxes receivable | 1,294 | 84 | 1,378 | |||||||||
Total assets | 228,415 | (316 | ) | 228,099 | ||||||||
Accounts payable and accrued expenses | 12,631 | (150 | ) | 12,481 | ||||||||
Total liabilities | 177,254 | (150 | ) | 177,104 | ||||||||
Retained earnings | 51,945 | (166 | ) | 51,779 | ||||||||
Total equity | 51,161 | (166 | ) | 50,995 |
F-24
F-25
2008 | 2007 | |||||||
(Dollars in thousands) | ||||||||
ASSETS | ||||||||
Investments: | ||||||||
Fixed maturities: | ||||||||
Available for sale, at fair value (amortized cost $120,538 in 2008 and $110,973 in 2007) | $ | 121,914 | 112,769 | |||||
Equity securities, at fair value (cost $0 in 2008 and $10,525 in 2007) | — | 13,409 | ||||||
Total investments | 121,914 | 126,178 | ||||||
Cash and cash equivalents | 11,959 | 10,134 | ||||||
Premiums and fees receivable | 31,080 | 32,489 | ||||||
Reinsurance receivables and recoverables | 20,637 | 15,640 | ||||||
Deferred policy acquisition costs | 10,601 | 11,014 | ||||||
Prepaid reinsurance premiums | 4,342 | 4,234 | ||||||
Accrued investment income | 1,431 | 1,499 | ||||||
Property and equipment, net of accumulated depreciation | 4,231 | 4,401 | ||||||
Income taxes receivable | 1,508 | 1,056 | ||||||
Deferred income taxes | 4,728 | 1,872 | ||||||
Other | 3,864 | 3,972 | ||||||
Deferred offering costs | 1,015 | — | ||||||
Assets held for sale | 3,214 | 7,124 | ||||||
Total assets | $ | 220,524 | 219,613 | |||||
LIABILITIES AND EQUITY | ||||||||
Liabilities: | ||||||||
Losses and loss adjustment expense reserves | $ | 108,065 | 95,956 | |||||
Unearned premiums | 45,322 | 46,595 | ||||||
Accounts payable and accrued expenses | 13,353 | 12,874 | ||||||
Borrowings under line of credit | 950 | — | ||||||
Long-term debt | 1,432 | 1,745 | ||||||
Liabilities held for sale | 647 | 1,042 | ||||||
Total liabilities | 169,769 | 158,212 | ||||||
Equity: | ||||||||
Retained earnings | 51,914 | 59,293 | ||||||
Accumulated other comprehensive (loss) income | (1,159 | ) | 2,108 | |||||
Total equity | 50,755 | 61,401 | ||||||
Total liabilities and equity | $ | 220,524 | 219,613 | |||||
F-26
2008 | 2007 | 2006 | ||||||||||
(Dollars in thousands) | ||||||||||||
Revenues: | ||||||||||||
Premiums earned | $ | 78,737 | 70,970 | 64,645 | ||||||||
Investment income, net of investment expense | 5,335 | 5,324 | 4,677 | |||||||||
Realized investment (losses) gains, net | (5,819 | ) | (702 | ) | 349 | |||||||
Other income | 411 | 508 | 345 | |||||||||
Total revenues | 78,664 | 76,100 | 70,016 | |||||||||
Losses and expenses: | ||||||||||||
Losses and loss adjustment expenses | 57,390 | 49,783 | 43,766 | |||||||||
Amortization of deferred policy acquisition costs | 23,081 | 21,930 | 20,080 | |||||||||
Underwriting and administrative expenses | 3,481 | 2,233 | 3,216 | |||||||||
Interest expense | 184 | 125 | 222 | |||||||||
Other expense, net | 365 | 184 | 314 | |||||||||
Total losses and expenses | 84,501 | 74,255 | 67,598 | |||||||||
(Loss) income from continuing operations, before income taxes | (5,837 | ) | 1,845 | 2,418 | ||||||||
Income tax (benefit) expense | (1,378 | ) | 396 | 506 | ||||||||
(Loss) income from continuing operations | (4,459 | ) | 1,449 | 1,912 | ||||||||
Discontinued operations: | ||||||||||||
(Loss) income on discontinued operations, before income taxes | (3,090 | ) | (489 | ) | 292 | |||||||
Income tax (benefit) expense | (170 | ) | (126 | ) | 124 | |||||||
(Loss) income on discontinued operations | (2,920 | ) | (363 | ) | 168 | |||||||
Net (loss) income | $ | (7,379 | ) | 1,086 | 2,080 | |||||||
F-27
Accumulated | ||||||||||||
Other | ||||||||||||
Retained | Comprehensive | |||||||||||
Earnings | Income (Loss) | Total | ||||||||||
(Dollars in thousands) | ||||||||||||
Balance at December 31, 2005, as restated for the adoption of SAB No. 108 (note 2 (s)) | $ | 56,127 | 1,642 | 57,769 | ||||||||
Net income | 2,080 | — | 2,080 | |||||||||
Other comprehensive income, net of taxes: | ||||||||||||
Unrealized investment holding gain arising during period, net of related income tax expense of $470 | — | 913 | 913 | |||||||||
Reclassification adjustment for realized gains included in net income, net of related income tax expense of $119 | — | (232 | ) | (232 | ) | |||||||
Net unrealized investment gain | 681 | |||||||||||
Comprehensive income | 2,761 | |||||||||||
Balance at December 31, 2006 | 58,207 | 2,323 | 60,530 | |||||||||
Net income | 1,086 | — | 1,086 | |||||||||
Other comprehensive income, net of taxes: | ||||||||||||
Unrealized investment holding gain arising during period, net of related income tax expense of $179 | — | 348 | 348 | |||||||||
Reclassification adjustment for realized losses included in net income, net of related income tax benefit of $222 | — | 431 | 431 | |||||||||
Net unrealized investment gain | 779 | |||||||||||
Comprehensive income | 1,865 | |||||||||||
Adjustment to initially adopt SFAS No. 158, net of related income taxes of $512 | — | (994 | ) | (994 | ) | |||||||
Balance at December 31, 2007 | 59,293 | 2,108 | 61,401 | |||||||||
Net loss | (7,379 | ) | — | (7,379 | ) | |||||||
Other comprehensive loss, net of taxes: | ||||||||||||
Unrealized investment holding loss arising during period, net of related income tax benefit of $3,097 | — | (6,012 | ) | (6,012 | ) | |||||||
Reclassification adjustment for realized losses included in net income, net of related income tax benefit of $1,965 | — | 3,813 | 3,813 | |||||||||
Net unrealized investment loss | (2,199 | ) | ||||||||||
Defined benefit pension plan, net of related income tax benefit of $551 | — | (1,068 | ) | (1,068 | ) | |||||||
Comprehensive loss | (10,646 | ) | ||||||||||
Balance at December 31, 2008 | $ | 51,914 | (1,159 | ) | 50,755 | |||||||
F-28
2008 | 2007 | 2006 | ||||||||||
(Dollars in thousands) | ||||||||||||
Cash flows from operating activities: | ||||||||||||
Net (loss) income | $ | (7,379 | ) | 1,086 | 2,080 | |||||||
Loss (income) on discontinued operations | 2,920 | 363 | (168 | ) | ||||||||
Adjustments to reconcile net (loss) income to net cash provided by operating activities: | ||||||||||||
Change in receivables, unearned premiums, and prepaid reinsurance | (4,787 | ) | 4,470 | 3,318 | ||||||||
Increase in loss and loss adjustment expense reserves | 12,109 | 6,551 | 5,556 | |||||||||
Change in accounts payable and accrued expenses | (1,737 | ) | 56 | 598 | ||||||||
Deferred income taxes | (1,068 | ) | (208 | ) | (512 | ) | ||||||
Change in deferred acquisition costs | 413 | (633 | ) | (735 | ) | |||||||
Amortization and depreciation | 710 | 783 | 766 | |||||||||
Realized investment losses (gains), net | 5,819 | 702 | (349 | ) | ||||||||
Other, net | 383 | (2,153 | ) | 1,157 | ||||||||
Cash provided by operating activities — continuing operations | 7,383 | 11,017 | 11,711 | |||||||||
Cash (used in) provided by operating activities — discontinued operations | (20 | ) | 515 | 104 | ||||||||
Net cash provided by operating activities | 7,363 | 11,532 | 11,815 | |||||||||
Cash flows from investing activities: | ||||||||||||
Available-for-sale investments: | ||||||||||||
Purchases | (50,075 | ) | (27,852 | ) | (27,777 | ) | ||||||
Sales | 32,927 | 7,048 | 14,125 | |||||||||
Maturities | 11,970 | 8,350 | 7,800 | |||||||||
Purchases of property and equipment, net | (524 | ) | (919 | ) | (740 | ) | ||||||
Cash used in investing activities — continuing operations | (5,702 | ) | (13,373 | ) | (6,592 | ) | ||||||
Cash used in investing activities — discontinued operations | (48 | ) | (261 | ) | — | |||||||
Net cash used in investing activities | (5,750 | ) | (13,634 | ) | (6,592 | ) | ||||||
Cash flows from financing activities: | ||||||||||||
Initial public offering costs paid | (493 | ) | — | — | ||||||||
Net borrowings (repayments) on line of credit | 950 | (250 | ) | 64 | ||||||||
Repayment of long-term debt | (313 | ) | (312 | ) | (2,151 | ) | ||||||
Net cash provided by (used in) financing activities — continuing operations | 144 | (562 | ) | (2,087 | ) | |||||||
Net cash used in financing activities — discontinued operations | $ | (260 | ) | (290 | ) | (221 | ) | |||||
Net cash used in financing activities | (116 | ) | (852 | ) | (2,308 | ) | ||||||
Net increase (decrease) in cash | 1,497 | (2,954 | ) | 2,915 | ||||||||
Cash and cash equivalents at beginning of year | 10,462 | 13,416 | 10,501 | |||||||||
Cash and cash equivalents at end of year | 11,959 | 10,462 | 13,416 | |||||||||
Less cash of discontinued operations at end of year | — | 328 | 364 | |||||||||
Cash and cash equivalents of continuing operations at end of year | $ | 11,959 | 10,134 | 13,052 | ||||||||
F-29
(1) | Description of Business |
F-30
(2) | Summary of Significant Accounting Policies |
(a) | Basis of Presentation |
(b) | Use of Estimates |
(c) | Discontinued Operations and Assets Held for Sale |
(d) | Concentration of Risk |
F-31
(e) | Investments |
• | identification and evaluation of investments that have possible indications ofother-than-temporary impairment, which includes an analysis of investments with gross unrealized investment losses that have fair values less than 80% of cost for six consecutive months or more; |
F-32
• | review of portfolio manager recommendations forother-than-temporary impairments based on the investee’s current financial condition, liquidity, near-term recovery prospects and other factors; | |
• | consideration of evidential matter, including an evaluation of factors or triggers that may cause individual investments to qualify as havingother-than-temporary impairments, regardless of the duration in unrealized loss position; and | |
• | determination of the status of each analyzed investment asother-than-temporarily impaired or not, with documentation of the rationale for the decision. |
(f) | Derivative Instruments |
(g) | Premium Revenue |
F-33
(h) | Fee Income |
(i) | Commission Income |
(j) | Policy Acquisition Costs |
(k) | Losses and Loss Adjustment Expenses |
F-34
(l) | Property and Equipment |
(m) | Income Taxes |
(n) | Reinsurance Accounting and Reporting |
(o) | Goodwill |
F-35
(p) | Cash and Cash Equivalents |
(q) | Employee Benefit Plans |
(r) | Deferred Offering Costs |
F-36
(s) | Recent Accounting Pronouncements |
F-37
F-38
F-39
(3) | Fair Value Measurements |
December 31, 2008 | ||||||||||||||||
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Fixed maturities, available for sale | $ | 9,310 | 112,604 | — | 121,914 | |||||||||||
Equity securities | — | — | — | — | ||||||||||||
Total assets | $ | 9,310 | 112,604 | — | 121,914 | |||||||||||
Accounts payable and accrued expenses | $ | — | 66 | — | 66 | |||||||||||
Total liabilities | $ | — | 66 | — | 66 | |||||||||||
F-40
(4) | Investments |
Gross | Gross | |||||||||||||||
Amortized | Unrealized | Unrealized | Estimated | |||||||||||||
Cost | Gains | Losses | Fair Value | |||||||||||||
December 31, 2008: | ||||||||||||||||
U.S. treasuries | $ | 8,530 | 780 | — | 9,310 | |||||||||||
Agencies not backed by the full faith and credit of the U.S. government | 14,929 | 1,160 | — | 16,089 | ||||||||||||
State and political subdivisions | 31,775 | 1,292 | 110 | 32,957 | ||||||||||||
Mortgage-backed securities | 25,374 | 601 | 670 | 25,305 | ||||||||||||
Corporate securities | 39,930 | 414 | 2,091 | 38,253 | ||||||||||||
Total fixed maturities | $ | 120,538 | 4,247 | 2,871 | 121,914 | |||||||||||
Total equity securities | $ | — | — | — | — | |||||||||||
December 31, 2007: | ||||||||||||||||
U.S. treasuries | $ | 7,837 | 259 | — | 8,096 | |||||||||||
Agencies not backed by the full faith and credit of the U.S. government | 18,523 | 372 | 7 | 18,888 | ||||||||||||
State and political subdivisions | 30,321 | 827 | 14 | 31,134 | ||||||||||||
Mortgage-backed securities | 20,636 | 207 | 119 | 20,724 | ||||||||||||
Corporate securities | 33,656 | 503 | 232 | 33,927 | ||||||||||||
Total fixed maturities | $ | 110,973 | 2,168 | 372 | 112,769 | |||||||||||
Total equity securities | $ | 10,525 | 2,928 | 44 | 13,409 | |||||||||||
F-41
Amortized | Estimated | |||||||
Cost | Fair Value | |||||||
Due in 1 year or less | $ | 8,321 | 8,439 | |||||
Due after 1 year through 5 years | 42,747 | 43,356 | ||||||
Due after 5 years through 10 years | 39,299 | 39,824 | ||||||
Due after 10 years | 4,797 | 4,990 | ||||||
95,164 | 96,609 | |||||||
Mortgage-backed securities | 25,374 | 25,305 | ||||||
$ | 120,538 | 121,914 | ||||||
2008 | 2007 | 2006 | ||||||||||
Interest on fixed maturities | $ | 5,425 | 5,157 | 4,519 | ||||||||
Dividends on equity securities | 215 | 251 | 247 | |||||||||
Interest on cash and cash equivalents | 209 | 456 | 413 | |||||||||
Total investments income | 5,849 | 5,864 | 5,179 | |||||||||
Investment expense | (514 | ) | (540 | ) | (502 | ) | ||||||
Investment income, net of investment expense | $ | 5,335 | 5,324 | 4,677 | ||||||||
F-42
2008 | 2007 | 2006 | ||||||||||
Fixed maturity securities: | ||||||||||||
Available for sale: | ||||||||||||
Gross gains | $ | 80 | — | 2 | ||||||||
Gross losses | (109 | ) | (77 | ) | (16 | ) | ||||||
Equity securities: | ||||||||||||
Gross gains | 2,211 | 524 | 453 | |||||||||
Gross losses | 7,960 | ) | (1,100 | ) | (87 | ) | ||||||
Realized investment (losses) gains, net | (5,778 | ) | (653 | ) | 352 | |||||||
Change in value of interest rate swap | (41 | ) | (49 | ) | (3 | ) | ||||||
Realized investment (losses) gains after change in value of interest rate swap, net | $ | (5,819 | ) | (702 | ) | 349 | ||||||
Change in difference between fair value and cost of investments: | ||||||||||||
Fixed maturity securities for continuing operations | $ | (420 | ) | 1,519 | (392 | ) | ||||||
Equity securities for continuing operations | (2,884 | ) | (337 | ) | 1,403 | |||||||
Total for continuing operations | $ | (3,304 | ) | 1,182 | 1,011 | |||||||
Equity securities for discontinued operations | (28 | ) | (2 | ) | 20 | |||||||
Total including discontinued operations | $ | (3,332 | ) | 1,180 | 1,031 | |||||||
F-43
Less Than 12 Months | 12 Months or Longer | Total | ||||||||||||||||||||||
Fair | Unrealized | Fair | Unrealized | Fair | Unrealized | |||||||||||||||||||
Description of Securities | Value | Losses | Value | Losses | Value | Losses | ||||||||||||||||||
2008: | ||||||||||||||||||||||||
State and political subdivisions | $ | 2,934 | 56 | 515 | 54 | 3,449 | 110 | |||||||||||||||||
Mortgage-backed securities | 2,203 | 297 | 1,645 | 373 | 3,848 | 670 | ||||||||||||||||||
Corporate securities | 10,732 | 1,008 | 9,907 | 1,083 | 20,639 | 2,091 | ||||||||||||||||||
Total fixed maturities | 15,869 | 1,361 | 12,067 | 1,510 | 27,936 | 2,871 | ||||||||||||||||||
Total temporarily impaired securities | $ | 15,869 | 1,361 | 12,067 | 1,510 | 27,936 | 2,871 | |||||||||||||||||
2007: | ||||||||||||||||||||||||
Agencies not backed by the full faith and credit of the U.S. government | $ | — | — | 4,199 | 7 | 4,199 | 7 | |||||||||||||||||
State and political subdivisions | 516 | 1 | 3,669 | 13 | 4,185 | 14 | ||||||||||||||||||
Mortgage-backed securities | 497 | — | 9,150 | 119 | 9,647 | 119 | ||||||||||||||||||
Corporate securities | 2,665 | 44 | 8,662 | 188 | 11,327 | 232 | ||||||||||||||||||
Total fixed maturities | 3,678 | 45 | 25,680 | 327 | 29,358 | 372 | ||||||||||||||||||
Equity securities | 760 | 43 | 326 | 1 | 1,086 | 44 | ||||||||||||||||||
Total temporarily impaired securities | $ | 4,438 | 88 | 26,006 | 328 | 30,444 | 416 | |||||||||||||||||
F-44
(5) | Comprehensive Income (Loss) |
2008 | 2007 | 2006 | ||||||||||
Net (loss) income | $ | (7,379 | ) | 1,086 | 2,080 | |||||||
Other comprehensive (loss) income: | ||||||||||||
Unrealized (losses) gains on securities: | ||||||||||||
Unrealized investment holding (losses) gains arising during period | (6,012 | ) | 348 | 913 | ||||||||
Less: | ||||||||||||
Reclassification adjustment for losses (gains) included in net income (loss) | 3,813 | 431 | (232 | ) | ||||||||
Net unrealized investment (losses) gains | (2,199 | ) | 779 | 681 | ||||||||
Defined benefit pension plans: | ||||||||||||
Recognized net actuarial loss | (1,068 | ) | — | — | ||||||||
Other comprehensive (loss) income | (3,267 | ) | 779 | 681 | ||||||||
Comprehensive (loss) income | $ | (10,646 | ) | 1,865 | 2,761 | |||||||
2008 | 2007 | |||||||
Unrealized investment gains for continuing operations, net of tax | $ | 908 | 3,088 | |||||
Unrealized investment (losses) gains for discontinued operations, net of tax | (5 | ) | 14 | |||||
Defined benefit pension plan — net actuarial loss, net of tax | (2,062 | ) | (994 | ) | ||||
Accumulated other comprehensive (loss) income | $ | (1,159 | ) | 2,108 | ||||
(6) | Deferred Policy Acquisition Costs |
2008 | 2007 | 2006 | ||||||||||
Balance, January 1 | $ | 11,014 | 10,381 | 9,646 | ||||||||
Acquisition costs deferred | 22,668 | 22,563 | 20,815 | |||||||||
Amortization charged to operations | (23,081 | ) | (21,930 | ) | (20,080 | ) | ||||||
Balance, December 31 | $ | 10,601 | 11,014 | 10,381 | ||||||||
(7) | Property and Equipment |
F-45
2009 | $ | 123 | ||
2010 | 81 | |||
2011 | 37 | |||
2012 | 5 | |||
Total | $ | 246 | ||
(8) | Long-Term Debt |
2008 | 2007 | |||||||
Term loan agreement — due 2010 | $ | 1,432 | 1,745 | |||||
Long-term debt | $ | 1,432 | 1,745 | |||||
2009 | $ | 312 | ||
2010 | 1,120 | |||
Total | $ | 1,432 | ||
2008 | 2007 | |||||||
Acquisition payables | $ | 285 | 545 | |||||
Long-term debt | $ | 285 | 545 | |||||
F-46
(9) | Employee Benefit Plans |
(a) | Obligations and Funded Status at December 31 |
2008 | 2007 | |||||||
Change in benefit obligation: | ||||||||
Benefit obligation at beginning of year | $ | 9,768 | 9,552 | |||||
Service cost | 664 | 656 | ||||||
Interest cost | 573 | 582 | ||||||
Benefit payments | (1,408 | ) | (699 | ) | ||||
Administrative expenses | (41 | ) | (26 | ) | ||||
Actuarial loss (gain) | 340 | (297 | ) | |||||
Curtailment | (123 | ) | — | |||||
Benefit obligation at end of year | $ | 9,773 | 9,768 | |||||
Change in plan assets: | ||||||||
Fair value of plan assets at beginning of year | $ | 6,239 | 6,476 | |||||
Employer contributions | 1,402 | 455 | ||||||
Benefit payments | (1,408 | ) | (699 | ) | ||||
Administrative expenses | (41 | ) | (26 | ) | ||||
Actual return on plan assets | (1,251 | ) | 33 | |||||
Fair value of plan assets at end of year | $ | 4,941 | 6,239 | |||||
Funded status (net liability recognized) | $ | (4,832 | ) | (3,529 | ) | |||
2008 | 2007 | |||||||
Unrecognized prior service cost | $ | (527 | ) | (811 | ) | |||
Unrecognized net loss | (2,598 | ) | (695 | ) | ||||
Accumulated other comprehensive loss | $ | (3,125 | ) | (1,506 | ) | |||
F-47
(b) | Components of Net Periodic Benefit Cost |
2008 | 2007 | 2006 | ||||||||||
Service cost | $ | 664 | 656 | 618 | ||||||||
Interest cost | 573 | 582 | 512 | |||||||||
Expected return on plan assets | (462 | ) | (489 | ) | (440 | ) | ||||||
Amortization of prior service costs | 62 | 62 | 62 | |||||||||
Amortization of net loss | 27 | 7 | 36 | |||||||||
Net periodic pension expense | 864 | 818 | 788 | |||||||||
Curtailment loss | 222 | — | — | |||||||||
Net periodic pension expense and additional amounts recognized | $ | 1,086 | 818 | 788 | ||||||||
(c) | Assumptions |
Pension Plan | SERP | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
Discount rate | 6.16 | % | 6.40 | % | 6.56 | % | 6.40 | % | ||||||||
Rate of compensation increase | 4.00 | 4.00 | 5.00 | 5.00 |
Pension Plan | SERP | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
Discount rate | 6.40 | % | 6.00 | % | 6.40 | % | 6.00 | % | ||||||||
Expected long-term return on plan assets | 7.50 | 7.50 | N/A | N/A | ||||||||||||
Rate of compensation increase | 4.00 | 4.00 | 5.00 | 5.00 |
F-48
(d) | Plan Assets |
Percentage of Plan Assets | ||||||||
2008 | 2007 | |||||||
Asset: | ||||||||
Equity securities | 52.8 | % | 57.3 | % | ||||
Fixed maturity securities | 47.0 | 41.0 | ||||||
Cash and cash equivalents | 0.2 | 1.7 | ||||||
Total | 100.0 | % | 100.0 | % | ||||
(e) | Cash Flows |
2009 | $ | 295 | ||
2010 | 233 | |||
2011 | 464 | |||
2012 | 1,048 | |||
2013 | 397 | |||
2014 — 2018 | 3,885 |
F-49
(10) | Federal Income Tax |
2008 | 2007 | 2006 | ||||||||||
Current expense: | ||||||||||||
Federal | $ | (310 | ) | 604 | 1,018 | |||||||
Deferred benefit: | ||||||||||||
Federal | (1,068 | ) | (208 | ) | (512 | ) | ||||||
Total tax (benefit) expense | $ | (1,378 | ) | 396 | 506 | |||||||
2008 | 2007 | 2006 | ||||||||||
Expected tax at 34% | $ | (1,985 | ) | 627 | 822 | |||||||
Nontaxable investment income | (397 | ) | (378 | ) | (355 | ) | ||||||
Accrual adjustment | (58 | ) | 96 | 8 | ||||||||
Increase in valuation reserve | 1,026 | — | — | |||||||||
Other items, net | 36 | 51 | 31 | |||||||||
Total tax (benefit) expense | $ | (1,378 | ) | 396 | 506 | |||||||
F-50
2008 | 2007 | |||||||
Deferred tax assets: | ||||||||
Discounting of unpaid losses | $ | 3,261 | 2,881 | |||||
Unearned premium reserve | 2,787 | 2,961 | ||||||
Capital losses carried forward | 1,936 | — | ||||||
SFAS No. 158 pension benefit | 1,063 | 512 | ||||||
Guaranty fund liability | 456 | 442 | ||||||
Accrued retirement benefit | 399 | 406 | ||||||
Accrued severance costs | 245 | 271 | ||||||
Bad debt reserve | 124 | 100 | ||||||
Accrued vacation expense | 92 | 92 | ||||||
Disallowed contributions deductible in future periods | 62 | — | ||||||
Alternative minimum tax recoverable in future periods | 39 | — | ||||||
Investment impairments | — | 258 | ||||||
Other items | 75 | 50 | ||||||
Gross deferred tax assets | 10,539 | 7,973 | ||||||
Valuation reserve | (1,026 | ) | — | |||||
Net deferred tax assets after valuation reserve | 9,513 | 7,973 | ||||||
Deferred tax liabilities: | ||||||||
Deferred policy acquisition costs | 3,604 | 3,745 | ||||||
Unrealized investment gains, net | 466 | 1,598 | ||||||
Depreciation and amortization | 195 | 88 | ||||||
Accrued premium tax credits | 191 | 189 | ||||||
Prepaid expenses | 115 | 109 | ||||||
Company-owned life insurance | 79 | 88 | ||||||
Other items | 135 | 284 | ||||||
Gross deferred tax liabilities | 4,785 | 6,101 | ||||||
Net deferred tax asset | $ | 4,728 | 1,872 | |||||
F-51
(11) | Reinsurance |
(a) | Premiums |
2008 | 2007 | 2006 | ||||||||||||||||||||||
Written | Earned | Written | Earned | Written | Earned | |||||||||||||||||||
Direct | $ | 94,985 | 96,239 | 94,073 | 90,796 | 84,544 | 81,223 | |||||||||||||||||
Assumed | 1,379 | 1,387 | 1,203 | 1,215 | 1,725 | 1,693 | ||||||||||||||||||
Ceded | (18,997 | ) | (18,889 | ) | (21,157 | ) | (21,041 | ) | (18,744 | ) | (18,271 | ) | ||||||||||||
Net | $ | 77,367 | 78,737 | 74,119 | 70,970 | 67,525 | 64,645 | |||||||||||||||||
(b) | Losses and Loss Adjustment Expenses |
2008 | 2007 | 2006 | ||||||||||
Direct | $ | 70,442 | 59,245 | 49,629 | ||||||||
Assumed | 1,003 | 1,845 | 3,085 | |||||||||
Ceded | (14,055 | ) | (11,307 | ) | (8,948 | ) | ||||||
Net | $ | 57,390 | 49,783 | 43,766 | ||||||||
(c) | Unearned Premiums |
2008 | 2007 | 2006 | ||||||||||
Direct | $ | 45,310 | 46,576 | 43,262 | ||||||||
Assumed | 12 | 19 | 32 | |||||||||
Prepaid reinsurance (ceded) | (4,342 | ) | (4,234 | ) | (4,119 | ) | ||||||
Net | $ | 40,980 | 42,361 | 39,175 | ||||||||
F-52
(d) | Loss and Loss Adjustment Expense Reserves |
2008 | 2007 | 2006 | ||||||||||
Direct | $ | 98,366 | 85,614 | 79,338 | ||||||||
Assumed | 9,699 | 10,342 | 10,067 | |||||||||
Gross | $ | 108,065 | 95,956 | 89,405 | ||||||||
(12) | Liability for Losses and Loss Adjustment Expenses |
2008 | 2007 | 2006 | ||||||||||
Balance at January 1 | $ | 95,956 | 89,405 | 83,849 | ||||||||
Less reinsurance recoverables | 18,727 | 20,089 | 22,817 | |||||||||
Net liability at January 1 | 77,229 | 69,316 | 61,032 | |||||||||
Incurred related to: | ||||||||||||
Current year | 62,612 | 54,421 | 43,785 | |||||||||
Prior years | (5,222 | ) | (4,638 | ) | (19 | ) | ||||||
Total incurred | 57,390 | 49,783 | 43,766 | |||||||||
Paid related to: | ||||||||||||
Current year | 26,578 | 22,191 | 14,222 | |||||||||
Prior years | 22,601 | 19,679 | 21,260 | |||||||||
Total paid | 49,179 | 41,870 | 35,482 | |||||||||
Net liability at period-end | 85,440 | 77,229 | 69,316 | |||||||||
Add reinsurance recoverables | 22,625 | 18,727 | 20,089 | |||||||||
Balance at period-end | $ | 108,065 | 95,956 | 89,405 | ||||||||
F-53
(13) | Lines of Credit |
(14) | Interest Rate Swap Agreement |
F-54
(15) | Commitments and Contingencies |
(16) | Guaranty Fund and Other Insurance Related Assessments |
(17) | Acquisition of Business |
F-55
(18) | Segment Information |
2008 | 2007 | 2006 | ||||||||||
Revenues: | ||||||||||||
Premiums earned: | ||||||||||||
Agribusiness | $ | 45,298 | 40,245 | 35,889 | ||||||||
Commercial Business | 31,805 | 29,260 | 26,761 | |||||||||
Other | 1,634 | 1,465 | 1,995 | |||||||||
Total premiums earned | 78,737 | 70,970 | 64,645 | |||||||||
Investment income, net of investment expense | 5,335 | 5,324 | 4,677 | |||||||||
Realized investment (losses) gains, net | (5,819 | ) | (702 | ) | 349 | |||||||
Other income | 411 | 508 | 345 | |||||||||
Total revenues | $ | 78,664 | 76,100 | 70,016 | ||||||||
Components of net (loss) income: | ||||||||||||
Underwriting (loss) income: | ||||||||||||
Agribusiness | $ | 313 | 441 | 2 | ||||||||
Commercial Business | (5,046 | ) | (1,913 | ) | (678 | ) | ||||||
Other | 288 | (998 | ) | (1,106 | ) | |||||||
Total underwriting losses | (4,445 | ) | (2,470 | ) | (1,782 | ) | ||||||
Investment income, net of investment expense | 5,335 | 5,324 | 4,677 | |||||||||
Realized investment (losses) gains, net | (5,819 | ) | (702 | ) | 349 | |||||||
Other income | 411 | 508 | 345 | |||||||||
Corporate expense | (770 | ) | (506 | ) | (635 | ) | ||||||
Interest expense | (184 | ) | (125 | ) | (222 | ) | ||||||
Other expense, net | (365 | ) | (184 | ) | (314 | ) | ||||||
Income (loss) from continuing operations, before income taxes | (5,837 | ) | 1,845 | 2,418 | ||||||||
Income tax (benefit) expense | (1,378 | ) | 396 | 506 | ||||||||
(Loss) income from continuing operations | (4,459 | ) | 1,449 | 1,912 | ||||||||
Discontinued operations: | ||||||||||||
(Loss) income on discontinued operations, before income taxes | $ | (3,090 | ) | (489 | ) | 292 | ||||||
Income tax (benefit) expense | (170 | ) | (126 | ) | 124 | |||||||
(Loss) income on discontinued operations | (2,920 | ) | (363 | ) | 168 | |||||||
Net (loss) income | $ | (7,379 | ) | 1,086 | 2,080 | |||||||
F-56
2008 | 2007 | 2006 | ||||||||||
Net premiums earned: | ||||||||||||
Agribusiness | ||||||||||||
Property | $ | 16,412 | 13,772 | 12,620 | ||||||||
Commercial Auto | 12,119 | 11,859 | 11,189 | |||||||||
Liability | 8,795 | 7,540 | 6,768 | |||||||||
Workers’ Compensation | 7,310 | 6,394 | 5,166 | |||||||||
Other | 662 | 680 | 146 | |||||||||
Agribusiness subtotal | 45,298 | 40,245 | 35,889 | |||||||||
Commercial lines | ||||||||||||
Property & liability | 19,428 | 18,301 | 18,076 | |||||||||
Workers’ Compensation | 7,451 | 6,524 | 5,077 | |||||||||
Commercial Auto | 4,659 | 4,194 | 3,564 | |||||||||
Other | 267 | 241 | 44 | |||||||||
Commercial lines subtotal | 31,805 | 29,260 | 26,761 | |||||||||
Other | 1,634 | 1,465 | 1,995 | |||||||||
Total net premiums earned | $ | 78,737 | 70,970 | 64,645 | ||||||||
(19) | Reconciliation of Statutory Filings to Amounts Reported Herein |
2008 | 2007 | 2006 | ||||||||||
Net (loss) income: | ||||||||||||
Statutory net (loss) income | $ | (4,718 | ) | 878 | 1,374 | |||||||
Deferred policy acquisition costs | (413 | ) | 633 | 735 | ||||||||
Deferred federal income taxes | 1,068 | 208 | 512 | |||||||||
Other, including noninsurance amounts | (396 | ) | (270 | ) | (709 | ) | ||||||
Discontinued operations | (2,920 | ) | (363 | ) | 168 | |||||||
GAAP net (loss) income | $ | (7,379 | ) | 1,086 | 2,080 | |||||||
Surplus: | ||||||||||||
Statutory capital and surplus | $ | 42,569 | 50,795 | 50,524 | ||||||||
Equity of noninsurance entities | (2,827 | ) | 379 | 1,721 | ||||||||
Deferred policy acquisition costs | 10,601 | 11,014 | 10,381 | |||||||||
Deferred federal income taxes | (4,111 | ) | (3,700 | ) | (4,023 | ) | ||||||
Nonadmitted assets | 3,342 | 1,598 | 1,533 | |||||||||
Unrealized gains on fixed maturities, net of tax | 908 | 1,185 | 183 | |||||||||
Other items, net | 273 | 130 | 211 | |||||||||
GAAP equity | $ | 50,755 | 61,401 | 60,530 | ||||||||
F-57
(20) | Discontinued Operations |
2008 | 2007 | 2006 | ||||||||||
Net revenue | $ | 720 | 1,458 | 1,825 | ||||||||
(Loss) income on discontinued operations, before income taxes | $ | (53 | ) | (196 | ) | 125 | ||||||
Income tax (benefit) expense | (18 | ) | (59 | ) | 50 | |||||||
(Loss) income from discontinued operations | $ | (35 | ) | (137 | ) | 75 | ||||||
2007 | ||||
Assets: | ||||
Cash | $ | 191 | ||
Receivables | 140 | |||
Other assets | 229 | |||
Total assets | $ | 560 | ||
Liabilities: | ||||
Accounts payable and accrued expenses | $ | 196 | ||
Other liabilities | 32 | |||
Total liabilities | $ | 228 | ||
F-58
2008 | 2007 | 2006 | ||||||||||
Net revenue | $ | 3,437 | 4,130 | 4,282 | ||||||||
(Loss) income on discontinued operations, before income taxes | $ | (3,037 | ) | (293 | ) | 167 | ||||||
Income tax (benefit) expense | (152 | ) | (67 | ) | 74 | |||||||
(Loss) income from discontinued operations | $ | (2,885 | ) | (226 | ) | 93 | ||||||
2008 | 2007 | |||||||
Assets: | ||||||||
Cash | $ | — | 137 | |||||
Receivables | 420 | 951 | ||||||
Goodwill | 2,147 | 4,747 | ||||||
Intangible assets | 464 | 513 | ||||||
Other assets | 183 | 216 | ||||||
Total assets | $ | 3,214 | 6,564 | |||||
Liabilities: | ||||||||
Accounts payable and accrued expenses | $ | 362 | 269 | |||||
Acquisition payables | 285 | 545 | ||||||
Total liabilities | $ | 647 | 814 | |||||
F-59
2008 | 2007 | 2006 | ||||||||||
Net revenue | $ | 4,157 | 5,588 | 6,107 | ||||||||
(Loss) income on discontinued operations, before income taxes | $ | (3,090 | ) | (489 | ) | 292 | ||||||
Income tax (benefit) expense | (170 | ) | (126 | ) | 124 | |||||||
(Loss) income from discontinued operations | $ | (2,920 | ) | (363 | ) | 168 | ||||||
2008 | 2007 | |||||||
Assets: | ||||||||
Cash | $ | — | 328 | |||||
Receivables | 420 | 1,091 | ||||||
Goodwill | 2,147 | 4,747 | ||||||
Intangible assets | 464 | 513 | ||||||
Other assets | 183 | 445 | ||||||
Total assets | $ | 3,214 | 7,124 | |||||
Liabilities: | ||||||||
Accounts payable and accrued expenses | $ | 362 | 465 | |||||
Other liabilities | 285 | 577 | ||||||
Total liabilities | $ | 647 | 1,042 | |||||
(21) | Plan of Conversion |
F-60
2008 | 2007 | |||||||
(Dollars in thousands) | ||||||||
ASSETS | ||||||||
Cash and cash equivalents | $ | 16 | 16 | |||||
Investments in common stock of subsidiary (equity method) | 50,739 | 61,385 | ||||||
Total assets | $ | 50,755 | 61,401 | |||||
LIABILITIES AND EQUITY | ||||||||
Total liabilities | $ | — | — | |||||
Retained earnings | 51,914 | 59,293 | ||||||
Accumulated other comprehensive (loss) income | (1,159 | ) | 2,108 | |||||
Total equity | 50,755 | 61,401 | ||||||
Total liabilities and equity | $ | 50,755 | 61,401 | |||||
F-61
2008 | 2007 | 2006 | ||||||||||
(Dollars in thousands) | ||||||||||||
Equity in (loss) income of subsidiary | $ | (7,379 | ) | 1,086 | 2,080 | |||||||
Net (loss) income | $ | (7,379 | ) | 1,086 | 2,080 | |||||||
F-62
2008 | 2007 | 2006 | ||||||||||
(Dollars in thousands) | ||||||||||||
Cash flows from operating activities: | ||||||||||||
Net (loss) income | $ | (7,379 | ) | 1,086 | 2,080 | |||||||
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: | ||||||||||||
Equity in net loss (income) of subsidiary | 7,379 | (1,086 | ) | (2,080 | ) | |||||||
Net cash (used in) provided by operating activities | — | — | — | |||||||||
Net change in cash | — | — | — | |||||||||
Cash, beginning balance | 16 | 16 | 16 | |||||||||
Cash, ending balance | $ | 16 | 16 | 16 | ||||||||
F-63
Future Policy | ||||||||||||||||||||
Benefits, | ||||||||||||||||||||
Deferred | Losses, | Other Policy | ||||||||||||||||||
Policy | Claims and | Claims and | Net | |||||||||||||||||
Acquisition | Loss | Unearned | Benefits | Premium | ||||||||||||||||
Costs | Expenses | Premiums | Payable | Earned | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
December 31, 2008 | ||||||||||||||||||||
Agribusiness | $ | 5,981 | 47,212 | 27,352 | — | 45,298 | ||||||||||||||
Commercial Business | 4,616 | 50,680 | 17,957 | — | 31,805 | |||||||||||||||
Other | 4 | 10,173 | 13 | — | 1,634 | |||||||||||||||
Total | $ | 10,601 | 108,065 | 45,322 | — | 78,737 | ||||||||||||||
December 31, 2007 | ||||||||||||||||||||
Agribusiness | $ | 6,429 | 42,881 | 27,552 | — | 40,245 | ||||||||||||||
Commercial Business | 4,579 | 41,805 | 19,021 | — | 29,260 | |||||||||||||||
Other | 6 | 11,270 | 22 | — | 1,465 | |||||||||||||||
Total | $ | 11,014 | 95,956 | 46,595 | — | 70,970 | ||||||||||||||
December 31, 2006 | ||||||||||||||||||||
Agribusiness | $ | 6,252 | 40,391 | 26,686 | — | 35,889 | ||||||||||||||
Commercial Business | 4,120 | 37,771 | 16,573 | — | 26,761 | |||||||||||||||
Other | 9 | 11,243 | 35 | — | 1,995 | |||||||||||||||
Total | $ | 10,381 | 89,405 | 43,294 | — | 64,645 | ||||||||||||||
F-64
Benefits, | ||||||||||||||||||||
Claims, | ||||||||||||||||||||
Net | Losses and | Other | ||||||||||||||||||
Investment | Settlement | Amortization | Operating | Premiums | ||||||||||||||||
Income | Expenses | of DPAC | Expenses | Written | ||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
December 31, 2008 | ||||||||||||||||||||
Agribusiness | $ | 31,137 | 13,024 | 45,110 | ||||||||||||||||
Commercial Business | 25,480 | 9,628 | 30,632 | |||||||||||||||||
Other | 773 | 429 | 1,625 | |||||||||||||||||
Total | $ | 5,335 | 57,390 | 23,081 | 3,481 | 77,367 | ||||||||||||||
December 31, 2007 | ||||||||||||||||||||
Agribusiness | $ | 27,313 | 12,436 | 41,402 | ||||||||||||||||
Commercial Business | 20,570 | 9,042 | 31,266 | |||||||||||||||||
Other | 1,900 | 452 | 1,451 | |||||||||||||||||
Total | $ | 5,324 | 49,783 | 21,930 | 2,233 | 74,119 | ||||||||||||||
December 31, 2006 | ||||||||||||||||||||
Agribusiness | $ | 23,795 | 11,148 | 38,350 | ||||||||||||||||
Commercial Business | 17,531 | 8,313 | 27,144 | |||||||||||||||||
Other | 2,440 | 619 | 2,031 | |||||||||||||||||
Total | $ | 4,677 | 43,766 | 20,080 | 3,216 | 67,525 | ||||||||||||||
F-65
Percentage of | ||||||||||||||||||||
Ceded to | Assumed from | Amount | ||||||||||||||||||
Gross | Other | Other | Assumed to | |||||||||||||||||
Premiums Earned | Amount | Companies | Companies | Net Amount | Net | |||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
2008 | $ | 96,239 | 18,889 | 1,387 | 78,737 | 1.76 | % | |||||||||||||
2007 | 90,796 | 21,041 | 1,215 | 70,970 | 1.71 | |||||||||||||||
2006 | 81,223 | 18,271 | 1,693 | 64,645 | 2.62 |
F-66
2008 | 2007 | 2006 | ||||||||||
(Dollars in thousands) | ||||||||||||
Beginning balance | $ | 295 | 250 | 147 | ||||||||
Additions | 335 | 202 | 173 | |||||||||
Deletions | (266 | ) | (157 | ) | (70 | ) | ||||||
Ending balance | $ | 364 | 295 | 250 | ||||||||
F-67
Deferred | Reserve for | |||||||||||||||||||||||
Policy | Losses and | Discount if | Net | Net | ||||||||||||||||||||
Acquisition | Loss Adj. | Any Deducted | Unearned | Earned | Investment | |||||||||||||||||||
Costs | Expenses | in Column C | Premium | Premiums | Income | |||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
2008 | $ | 10,601 | 108,065 | — | 45,322 | 78,737 | 5,335 | |||||||||||||||||
2007 | 11,014 | 95,956 | — | 46,595 | 70,970 | 5,324 | ||||||||||||||||||
2006 | 10,381 | 89,405 | — | 43,294 | 64,645 | 4,677 |
Paid Losses | ||||||||||||||||||||
and | Net | |||||||||||||||||||
Losses and LAE Incurred | Amortization | Adjustment | Written | |||||||||||||||||
Current Year | Prior Year | of DPAC | Expenses | Premiums | ||||||||||||||||
2008 | $ | 62,612 | (5,222 | ) | 23,081 | 49,179 | 77,367 | |||||||||||||
2007 | 54,421 | (4,638 | ) | 21,930 | 41,870 | 74,119 | ||||||||||||||
2006 | 43,785 | (19 | ) | 20,080 | 35,482 | 67,525 |
F-68