Via Facsimile and U.S. Mail
Mail Stop 6010
September 15, 2005
Mr. Stephen M. Tuuk
President and Chief Executive Officer
Professionals Direct, Inc.
161 Ottawa Avenue, N.W., Suite 607
Grand Rapids, Michigan 49503
Re: Professionals Direct, Inc.
Form 10-KSB for fiscal year ended
December 31, 2004
Filed March 16, 2005
Schedule 14A
Filed April 19, 2005
File No. 000-49786
Dear Mr. Tuuk:
We have limited our review of your filing to those issues we
have addressed in our comments. Where indicated, we think you
should
revise your document in response to these comments. If you
disagree,
we will consider your explanation as to why our comment is
inapplicable or a revision is unnecessary. Please be as detailed
as
necessary in your explanation. In some of our comments, we ask
you
to provide us with information so we may better understand your
disclosure.
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 filing.
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-KSB for the fiscal year ended December 31, 2004
Schedule 14A filed on April 19, 2005
Management`s Discussion and Analysis, page A-5
Results of Operations, page A-6
Net Premium Earned, page A-6
1. Your explanation of the increase in net premiums earned seems
unclear as to what actually caused these increases. Please
disclose
how the prior year premiums written impacted the current year
premiums earned. In addition quantify the impact that this factor
and all other factors cited had on your operations. Also include
a
discussion, as applicable, of any metrics such as the actual
number
of policies written to provide more detailed insight into what
really
caused the changes in these premiums.
Losses and Loss Adjustment Expenses, page A-6
2. Your discussion of the significant increase in loss ratio
between
the two periods is very limited. In particular it appears that,
based on the information in note 7, most of this increase is
related
to current year claims. In particular we note that current year
revenues were relatively flat, but that the current year charge
disclosed in that note increased substantially. Please disclose
why
your loss ratio deteriorated so significantly in the current
period.
Also disclose how this current period increase impacted the
significant increase related to prior periods that is disclosed in
your Form 10-QSB for June 30, 2005.
Financial Condition, Liquidity, and Capital Resources, page A-7
3. Your current liquidity discussion does not appear to adequately
address the holding company structure disclosed in note 1. Please
disclose how this structure affects your ability to service debt
held
at the holding company level. Further include a discussion of the
legal limits on dividends that can be paid by the operating
subsidiaries to the holding company. Disclose specifically here
and
in note 12 the actual dollar amount of dividends that may be paid
without prior regulatory approval.
Critical Accounting Estimates and Judgments, page A-8
Loss and Loss Adjustment Expense Reserves, page A-8
4. We note throughout the document that management discusses the
inherent uncertainty in establishing reserves for loss and loss
adjustment expenses. Given this inherent uncertainty, we feel
that a
more robust discussion of this estimate is appropriate. Please
provide disclosure that better explains the judgments and
uncertainties surrounding this estimate and the potential impact
on
your financial statements. We believe that disclosures explaining
the likelihood that any materially different amounts would be
reported under different conditions or using different assumptions
is
consistent with the objective of Management`s Discussion and
Analysis. The disclosure should include the following information
for each of your lines of business:
* 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, the amount
of
IBNR separately from loss reserves for all lines of business;
* The range of loss reserve estimates as determined by your
actuaries.
* If multiple point estimates are generated, include the range of
these point estimates.
* Discuss how management determined the most appropriate point
estimate and why the other point estimates were not chosen.
* Clarify whether the company actually records to the point
estimate
or if not, how that estimate is used.
* The quantified and qualitative 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.
Ten Year development Table, page A-9
5. Revise the ten year development table to present it on a gross
basis, or if you choose to continue to present the information on
a
net basis, revise it to include the following additional data for
each year in the ten-year table:
* A reconciliation of the net end of period liability with the
related gross liability;
* The gross re-estimated liability as of the end of the latest re-
estimation period with separate disclosure of the related re-
estimated reinsurance recoverable; and
* The gross cumulative redundancy or deficiency.
In addition, it does not appear that the amounts disclosed in this
table agree with the amounts presented in note 7 and in the
financial
statements. We also note that the deficiency for the current
period
appears to differ significantly from what is disclosed in other
portions of your document. Please resolve or disclose the reason
for
these differences.
Consolidated Financial Statements - December 31, 2004
Note 8. Reinsurance, page A-23
6. We note in this discussion and in other portions of the
document
such as the MD&A that you appear to have changed your policy
related
to the risks that will be reinsured. Please disclose what caused
this apparent shift in the retentions and what impact such a shift
will have on your operations. Also include a discussion of any
such
changes and the impact that they will have on trends within your
management`s discussion and analysis. Refer to paragraph 27(a) of
SFAS 113.
* * * *
As appropriate, please amend your Form 10-KSB for the year
ended December 31, 2004 and respond to these comments within 10
business days or tell us when you will respond. You may wish to
provide us with marked copies of the amendment to expedite our
review. Please furnish a cover letter with your amendments that
keys
your responses to our comments and provides any requested
information. Detailed cover letters greatly facilitate our
review.
Please file your the letter on EDGAR under the form type label
CORRESP. 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 filing to be certain that the
filing 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 your letter, 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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Stephen M. Tuuk
Professionals Direct, Inc.
September 15, 2005
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