Via Facsimile and U.S. Mail
Mail Stop 6010
July 8, 2005
Mr. Brent W. LaGere
Chief Executive Officer
Chandler (U.S.A.), Inc.
1010Manvel Avenue
Chandler, Oklahoma 74834
Re: Chandler (U.S.A.), Inc.
Form 10-K for Fiscal Year Ended December 31, 2004
Filed March 22, 2005
Form 10-Q for Fiscal Quarter Ended March 31, 2005
Filed May 11, 2005
File No. 001-15135
Dear Mr. LaGere:
We have reviewed your filings and have the following
comments.
We have limited our review to only your financial statements and
related disclosures and do not intend to expand our review to
other
portions of your documents. Where indicated, we think you should
revise your documents in response to these comments. If you
disagree, we will consider your explanation as to why our comment
is
inapplicable or a revision unnecessary. In some of our comments,
we
may ask you to provide us with information so we may better
understand your disclosure. After reviewing this information, we
may
raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your
filings.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Form 10-K for the fiscal year ended December 31, 2004
Item 7. Management`s Discussion and Analysis of Financial
Condition
and Results of Operations, page 17
Reserves for Losses and Loss Adjustment Expenses, page 18
1. We note your discussion of the adverse loss development
experienced in each of the periods presented included in the
Business
section on page 8, and under Losses and Loss Adjustment Expense on
pages 24-25. Please include a more robust explanation of the
reasons
for your changes in estimates as the current explanation given "as
a
result of ongoing analysis of loss development trends" does not
seem
to fully explain what were the causes of the changes. Please
revise
your discussion of these reserve adjustments to include a more
robust
discussion for each line of business. At a minimum, include the
following disclosures:
* Identify the years to which the change in estimate relates and
disclose the amount of the related loss reserve as of the
beginning
of the year that was re-estimated. Discuss and quantify
offsetting
changes in estimates that increase and decrease the loss reserve.
* Identify the changes in the key assumptions you made to estimate
the reserve since the last reporting date.
* Identify the nature and timing of the change in estimate,
explicitly identifying and describing in reasonable specificity
the
new events that occurred or additional information acquired since
the
last reporting date that led to the change in estimate.
* Ensure your disclosure clearly explains why recognition occurred
in
the periods that it did and why recognition was not required in
earlier periods.
* Disclose any trends such as, the number of claims incurred,
average
settlement amounts, number of claims outstanding at period ends
along
with average per claim outstanding, and any other trends,
necessary
to understand the change in estimate. Please explain the rationale
for a change in estimate that does not correlate with trends.
2.
We believe your disclosure in Management`s Discussion and Analysis
regarding the reserve for loss and loss adjustment expenses could
be
improved to better explain the judgments and uncertainties
surrounding this estimate and the potential impact on your
financial
statements. We believe that disclosures explaining the likelihood
that materially different amounts would be reported under
different
conditions or using different assumptions is consistent with the
objective of Management`s Discussion and Analysis. Accordingly,
please revise MD&A to include the following information for each
of
your lines of business.
* Please disclose the reserves accrued as of the latest balance
sheet
date presented. The total of theses amounts should agree to the
amount presented on the balance sheet.
* Because IBNR reserve estimates are more imprecise, please
disclose
the amount of IBNR separately from case reserves.
* Please disclose the range of loss reserve estimates as
determined
by your actuaries.
* Discuss the key assumptions used to arrive at management`s best
estimate of loss reserves within that range and what specific
factors
led management to believe this amount rather than any other amount
within the range represented the best estimate of incurred losses.
* If you do not calculate a range around your loss reserve, but
instead use point estimates please include the following
disclosures:
* Disclose the various methods considered and the method that was
selected to calculate the reserves. If multiple point estimates
are
generated, include the range of these point estimates. Include a
discussion of why the method selected was more appropriate over
the
other methods.
* Discuss how management determined the most appropriate point
estimate and why the other point estimates were not chosen. Also
clarify whether the company actually records to the point estimate
or
if not, how that point estimate is used.
* Include quantified and narrative disclosure of the impact that
reasonably likely changes in one or more of the variables (i.e.
actuarially method and/or assumptions used) would have on reported
results, financial position and liquidity.
Analysis of Insurance Program Results of Operations, page 21
3. We were unable to identify from the financial statements and
disclosures how you calculated the "financial year" and "accident
year" ratios discussed in the table on pages 21 and 22. Please
explain to us how you derived these ratios. Also provide to us
your
analysis of whether these ratios constitute non-GAAP financial
measures. Further related to the similar ratios provided in the
table on page 6, please explain to us why it is appropriate to use
two distinct denominators to calculate your "loss" and
"underwriting
expense" ratios, and then add them together to arrive at a
"combined"
ratio that does not appear to be based on either denominator.
Contractual Obligations, page 28
4. We note that the Company did not include its loss reserve to be
paid in the contractual obligation table, and it would appear that
these liabilities represent future legal obligations of the
Company.
Due to the significant nature of these liabilities to your
business
we believe the inclusion of reserves in the contractual obligation
table will provide investors increased disclosure of your
liquidity.
The purpose of Financial Reporting Release 67 is to obtain
enhanced
disclosure concerning a registrant`s contractual payment
obligations
and the exclusion of ordinary course items would be inconsistent
with
the objective of the Item 303(a)(5) of Regulation S-K. Based on
the
above factors, please revise your contractual obligation table to
include the expected settlement of your loss reserves. Also
explain
why it does not appear that you included the obligations under the
lease for the sale and leaseback transaction described in note 12
of
the financial statements.
Financial Statements
Note 12. Commitments and Contingencies, page F-19
Other, page F-21
5. In the second to the last paragraph of this section on page F-
22
you state that you deferred the recognition of the gain related to
a
sale and leaseback transaction until the last year of the three
year
lease term. Please tell us how the recognition of the $2.0
million
gain realized on the sale and leaseback transaction as other
income
during the period indicated complies with paragraph 33 of SFAS 13.
Form 10-Q - March 31, 2005
Item 2. Management`s Discussion and Analysis of Financial
Condition
and Results of Operations, page 6
Results of Operations, page 7
6. It appears that you failed to provide any discussion and
analysis
related to the "Net Premiums Earned" in this interim period.
Given
the significant impact that your reinsurance contracts had on
these
amounts, it appears such a discussion is merited. Please revise
your
disclosure accordingly. Further related to your discussion of the
other financial statement classifications, please include amore
detailed discussion that better addresses the factors that
actually
drove the changes in addition to identifying what line of business
or
type of expense drove the change. To the extent possible,
quantify
these individual drivers.
Liquidity and Capital Resources, page 9
7. Please explain to us how your disclosure related to the affect
that payment of claims had on cash from operations relates to the
change in reserve balance. We note that you experienced a
significant reduction in the reserve balance, but apparently did
not
experience substantial payments related to this reserve. Explain
how
the difference between the payments and the reserve change
affected
your operations. Further, expand your discussion to address the
holding company aspect of your operations including the potential
impact that failure by NAICO to pay dividends will affect your
ability to service the debt held at the holding company level.
Include a discussion of all such obligations.
* * * *
As appropriate, please amend your filings and respond to
these
comments within 10 business days or tell us when you will provide
us
with a response. You may wish to provide us with marked copies of
the amendment to expedite our review. Please furnish a cover
letter
with your amendment that keys your responses to our comments and
provides any requested information. Detailed cover letters
greatly
facilitate our review. Please understand that we may have
additional
comments after reviewing your amendment and responses to our
comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings to be certain that the
filings include all information required under the Securities
Exchange Act of 1934 and that they have provided all information
investors require for an informed investment decision. Since the
company and its management are in possession of all facts relating
to
a company`s disclosure, they are responsible for the accuracy and
adequacy of the disclosures they have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in the filings;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
You may contact Ibolya Ignat, Staff Accountant at (202) 551-
3656 or Jim Atkinson, Accounting Branch Chief, at (202) 551-3674
if
you have questions regarding the comments. In this regard, do not
hesitate to contact me, at (202) 551-3679.
Sincerely,
Jim B. Rosenberg
Senior Assistant Chief
Accountant
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Brent W. LaGere
Chandler (U.S.A.), Inc.
July 7, 2005
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