UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
( X ) Annual Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the year ended December 31, 2000.
( ) Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ____ to _____.
Commission File Number:000-24366
GORAN CAPITAL INC.
(Exact name of registrant as specified in its charter)
CANADA Not Applicable
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or organization)
2 Eva Road, Suite 200
Etobicoke, Ontario Canada M9C 2A8
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code:
(416) 622-0660 (Canada)
(317) 259-6300 (USA)
Securities registered pursuant to Section 12(b) of the Act:
Common Shares
Securities registered pursuant to Section 12(g) of the Act: None
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. (X)
The aggregate market value of the 2,705,554 shares of the Registrant's
common stock held by non-affiliates, as of March 30, 2001 was $2,029,166.
The number of shares of common stock of the Registrant, without par
value, outstanding as of March 30, 2001 was 5,776,398.
Exchange Rate Information
The Company's accounts and financial statements are maintained in U.S.
Dollars. In this Report all dollar amounts are expressed in U.S. Dollars except
where otherwise indicated.
The following table sets forth, for each period indicated, the average
rates for U.S. Dollars expressed in Canadian Dollars on the last day of each
month during such period, the high and the low exchange rate during that period
and the exchange rate at the end of such period, based upon the noon buying rate
in New York City for cable transfers in foreign currencies, as certified for
customs purposes by the Federal Reserve Bank of New York (the "Noon Buying
Rate").
Foreign Exchange Rates
U.S. to Canadian Dollars
For The Years Ended December 31,
1996 1997 1998 1999 2000
Average .7339 .7222 .6745 .6724 .6733
Period End .7301 .6995 .6532 .6929 .6672
High .7472 .7351 .7061 .6929 .6965
Low .7270 .6938 .6376 .6625 .6416
Accounting Principles
The financial information contained in this document is stated in U.S. Dollars
and is expressed in accordance with Canadian Generally Accepted Accounting
Principles unless otherwise stated.
GORAN CAPITAL INC.
ANNUAL REPORT ON FORM 10-K
December 31, 2000
PART I
PAGE
Item 1. Business 4
Item 2. Properties 21
Item 3. Legal Proceedings 22
Item 4. Submission of Matters to a Vote of Security Holders 24
PART II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters 24
Item 6. Selected Consolidated Financial Data 24
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 24
Item 7A. Quantitative and Qualitative Disclosures
About Market Risk 24
Item 8. Financial Statements and Supplementary Data 25
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 25
PART III
Item 10. Directors and Executive Officers of the Registrant 25
Item 11. Executive Compensation 25
Item 12. Security Ownership of Certain Beneficial Owners
and Management 25
Item 13. Certain Relationships and Related Transactions 25
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 25
SIGNATURES 34
PART I
ITEM 1 - BUSINESS
Forward-Looking Statement
All statements, trend analyses, and other information herein contained
relative to markets for the Company's products and/or trends in the Company's
operations or financial results, as well as other statements including words
such as "anticipate," "could," "feel(s)," "believe," "believes," "plan,"
"estimate," "expect," "should," "intend," "will," and other similar expressions,
constitute forward-looking statements under the Private Securities Litigation
Reform Act of 1995. These forward-looking statements are subject to known and
unknown risks; uncertainties and other factors which may cause actual results to
be materially different from those contemplated by the forward-looking
statements. Such factors include, among other things: (i) general economic
conditions, including prevailing interest rate levels and stock market
performance; (ii) factors affecting the Company's nonstandard automobile
operations such as rate increase approval, policy renewals, new business
written, and premium volume; and (iii) the factors described in this section and
elsewhere in this report.
Overview of Business
Goran Capital Inc. ("Goran" or the "Company") is a Canadian federally
incorporated holding company principally engaged in the business of underwriting
property and casualty insurance through its insurance subsidiaries Pafco General
Insurance Company ("Pafco"), Superior Insurance Company ("Superior") and IGF
Insurance Company ("IGF"), which maintain their headquarters in Indianapolis,
Indiana. Goran owns approximately 73.0% of a U.S. holding company, Symons
International Group, Inc. ("SIG"). SIG owns IGF Holdings, Inc. ("IGFH"),
Superior Insurance Group Management, Inc. ("Superior Group Management") and
Superior Insurance Group, Inc. ("Superior Group") which are the holding company
and management company for the insurance subsidiaries. The operations of SIG
accounts for 94% of Goran's consolidated revenues. Goran's other subsidiaries
include Granite Reinsurance Company Ltd. ("Granite Re"), Granite Insurance
Company ("Granite"), a Canadian federally licensed insurance company and Symons
International Group, Inc. - Florida ("SIGF"), a surplus lines underwriter
located in Florida.
Granite Re is a specialized reinsurance company that underwrites niche
products such as nonstandard automobile, crop, property casualty reinsurance and
offers (on a non-risk bearing, fee basis), rent-a-captive facilities for
Bermudian, Canadian and U.S. reinsurance companies.
Through a rent-a-captive program, Granite Re offers the use of its
capital and its underwriting facilities to write specific programs on behalf of
its clients, including certain programs ceded from IGF and Pafco. Granite Re
alleviates the need for its clients to establish their own insurance company and
also offers this facility in an offshore environment.
Granite sold its book of business in January 1990 to an affiliate which
subsequently sold to third parties in June 1990. Granite currently has
approximately 10 outstanding claims and maintains an investment portfolio
sufficient to support those claim liabilities. Goran anticipates that the
outstanding claims will be settled by the end of 2002.
As previously announced, the Company is currently pursuing the sale of
its crop insurance operations. Management expects to complete the sale during
the second quarter of 2001. The financial statements included in this report
reflect the results of the crop insurance segment as "discontinued operations".
Nonstandard Automobile Insurance
Pafco, IGF, Superior and Superior's subsidiaries, Superior
Guaranty Insurance Company ("Superior Guaranty") and Superior American Insurance
Company ("Superior American") are engaged in the writing of insurance coverage
for automobile physical damage and liability policies. Nonstandard insureds are
those individuals who are unable to obtain insurance coverage through standard
market carriers due to factors such as poor premium payment history, driving
experience or violations, particular occupation or type of vehicle. The Company
offers several different policies, which are directed towards different classes
of risk within the nonstandard market. Premium rates for nonstandard risks are
higher than for standard risk. Since it can be viewed as a residual market, the
size of the nonstandard private passenger automobile insurance market changes
with the insurance environment and grows when the standard coverage becomes more
restrictive. Nonstandard policies have relatively short policy periods and low
limits of liability. Due to the low limits of coverage, the period of time that
elapses between the occurrence and settlement of losses under nonstandard
policies is shorter than many other types of insurance. Also, since the
nonstandard automobile insurance business typically experiences lower rates of
retention than standard automobile insurance, the number of new policyholders
underwritten by nonstandard automobile insurance carriers each year is
substantially greater than the number of new policyholders underwritten by
standard carriers.
Products
The Company offers both liability and physical damage coverage in the
insurance marketplace, with policies having terms of three to twelve months.
Most nonstandard automobile insurance policyholders choose the basic limits of
liability coverage which, though varying from state to state, generally are
$25,000 per person and $50,000 per accident for bodily injury to others and in
the range of $10,000 to $20,000 for damage to other parties' cars or property.
The Company offers two policies, each directed toward
different classes of risk within the nonstandard market. The Superior Choice
policy offers insured a lower cost alternative in exchange for restricted
coverage terms. The Superior Standard policy is intended for risks who desire
more traditional auto coverage.
Where permitted, Superior offers a five tier product covering
the full spectrum of automobile insurance customers from nonstandard to
ultra-preferred. The focus of the Company's marketing, however, is the
nonstandard auto insurance agent.
Marketing
The Company's nonstandard automobile insurance business is concentrated
in the states of Florida, California, Virginia, Indiana and Georgia. The Company
also writes nonstandard automobile insurance in fifteen additional states. The
Company selects states for expansion or withdrawal based on a number of
criteria, including the size of the nonstandard automobile insurance market,
state-wide loss results, competition, capitalization of its companies and the
regulatory climate. The following table sets forth the geographic distribution
of gross premiums written for the Company for the periods indicated.
Goran Capital Inc.
Year Ended December 31,
(in thousands)
State 1998 1999 2000
----- ---- ---- ----
Arizona $6,228 $10,912 $4,484
Arkansas 1,383 804 297
California 48,181 29,993 32,480
Colorado 8,115 8,238 6,938
Florida 107,746 67,459 45,104
Georgia 21,575 22,945 13,670
Illinois 2,908 1,795 206
Indiana 18,735 23,599 12,804
Iowa 6,951 4,028 2,023
Kentucky 8,108 5,768 5,034
Mississippi 5,931 3,515 48
Missouri 8,669 4,555 1,929
Nebraska 6,803 3,846 1,436
Nevada 8,849 6,954 3,707
Ohio 2,106 2,096 3,169
Oklahoma 3,803 1,921 1,090
Oregon 6,390 12,394 4,236
Tennessee 1,443 6,840 9,794
Texas 7,520 2,641 5,918
Virginia 22,288 15,470 20,089
Washington 5 -- --
Total nonstandard auto 303,737 235,773 174,456
Other property 8 628 5
Other assumed reinsurance -- -- 7,638
-- -- -----
Total $303,745 $236,401 $182,099
======== ======== ========
The Company markets its nonstandard products exclusively through
approximately 7,000 independent agencies. The Company has several territorial
managers, each of whom resides in a specific marketing region and has access to
the technology and software necessary to provide marketing, rating and
administrative support to the agencies in his or her region.
The Company attempts to foster strong service relationships with its
agencies and customers. The Company has automated certain marketing,
underwriting and administrative functions and has allowed on-line communication
with its agency force. In addition to delivering prompt service while ensuring
consistent underwriting, the Company offers rating software to its agents in
some states which permits them to rate risks in their offices.
Most of the Company's agents have the authority to sell and bind
insurance coverages in accordance with procedures established by the Company,
which is a common practice in the nonstandard automobile insurance business. The
Company reviews all coverages bound by the agents promptly and generally accepts
coverages which fall within its stated underwriting criteria. In most
jurisdictions, the Company has the right within a specified time period to
cancel any policy even if the risk falls within its underwriting criteria. The
Company compensates its agents by paying a commission based on a percentage of
premiums produced.
The Company believes having five individual companies licensed in
various states allows it the flexibility to engage in multi-tiered marketing
efforts in which specialized automobile insurance products are directed toward
specific segments of the market. Since certain state insurance laws prohibit a
single insurer from offering similar products with different commission
structures or, in some cases premium rates, it is necessary to have multiple
licenses in certain states in order to obtain the benefits of market
segmentation. The Company intends to continue the expansion of the marketing of
its multi-tiered products into other states and to obtain multiple licenses for
its subsidiaries in these states to permit maximum flexibility in designing rate
and commission structures.
Underwriting
The Company utilizes many factors in determining its rates. Some of the
characteristics used are type, age and location of the vehicle, number of
vehicles per policyholder, number and type of convictions or accidents, limits
of liability, deductibles, and, where allowed by law, credit, age, sex and
marital status of the insured. The rate approval process varies from state to
state, some which allow filing and immediate use of rates, while others require
approval by the state's insurance department prior to the use of the rates.
Underwriting results of insurance companies are frequently measured by
their combined ratios. However, investment income, federal income taxes and
other non-underwriting income or expense are not reflected in the combined
ratio. The profitability of property and casualty insurance companies depends on
income from underwriting, investment and service operations. Underwriting
results are generally considered profitable when the combined ratio is under
100% and unprofitable when the combined ratio is over 100%. Refer to
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for a further discussion on the combined ratio.
In an effort to maintain and improve underwriting profits, the
territorial managers monitor loss ratios of the agencies in their regions and
meet periodically with the agencies in order to address any adverse trends in
loss ratios.
Claims
The Company's nonstandard automobile claims department handles claims
on a regional basis from its Indianapolis, Indiana; Atlanta, Georgia; Tampa,
Florida; Orange and Riverside, California; Alexandria, Virginia; and Bala
Cynwyd, Pennsylvania locations.
The Company retains independent appraisers and adjusters for estimating
physical damage claims and limited elements of investigation. In 2000, the
Company began training its own adjusters in California and Virginia to write
automobile damage appraisals.
Claims settlement authority levels are established for each adjuster or
manager based on the employee's ability and level of experience. Upon receipt,
each claim is reviewed and assigned to an adjuster based on the type and
severity of the claim. All claim-related litigation is monitored by a home
office supervisor or litigation manager. The claims policy of the Company
emphasizes prompt and fair settlement of meritorious claims, appropriate
reserving for claims and controlling claims adjustment expenses.
Reinsurance
The Company follows the customary industry practice of reinsuring a
portion of its risks and paying for that protection based upon premiums received
on all policies subject to such reinsurance. Insurance is ceded principally to
reduce the Company's exposure on large individual risks and to provide
protection against large losses, including catastrophic losses. Although
reinsurance does not legally discharge the ceding insurer from its primary
obligation to pay the full amount of losses incurred under policies reinsured,
it does render the reinsurer liable to the insurer to the extent provided by the
terms of the reinsurance treaty. As part of its internal procedures, the Company
evaluates the financial condition of each prospective reinsurer before it cedes
business to that carrier. Based on the Company's review of its reinsurers'
financial health and reputation in the insurance marketplace, the Company
believes its reinsurers are financially sound and that they can meet their
obligations to the Company under the terms of the reinsurance treaties.
In 2000, Pafco and Superior maintained casualty excess of loss
reinsurance on their nonstandard automobile insurance business covering 100% of
losses on an individual occurrence basis in excess of $200,000 up to a maximum
of $5,000,000.
Amounts recoverable from reinsurers relating to nonstandard automobile
operations as of December 31, 2000 follows (in thousands):
Reinsurance
Recoverables as of
Reinsurers A.M. Best Rating December 31, 2000 (1)
National Union Fire Ins Comp of Pittsburg, PA A++ 65,539
Gerling Global Reins Corp of America A 532
Lloyds of London Not Rated 630
(1) Only recoverables greater than $200,000 are shown. Total
nonstandard automobile reinsurance recoverables as of December 31,
2000 were approximately $66,901,000.
(2) An A.M. Best Rating of "A++" is the highest of 15 ratings. An A.M. Best
Rating "A" is the third highest of 15 ratings
Effective January 1, 2000, Pafco and Superior entered into an
automobile quota share agreement with National Union Fire Insurance Company of
Pittsburgh (A.M. Best rated A++). The amount of cession for Pafco is variable up
to a maximum of 75% and $5 million in any one quarter and for Superior is
variable up to a maximum of 75% and $11 million in any one quarter for all new
business, renewal business and in force unearned premium reserves. In 2000,
Pafco and Superior ceded 48% of their nonstandard automobile premiums under this
treaty.
On April 29, 1996, Pafco also entered into a 100% quota share
reinsurance agreement with Granite Re, whereby all of Pafco's commercial
business from 1996 and thereafter was ceded effective January 1, 1996. This
agreement was in effect during 2000.
Neither Pafco nor Superior has any facultative reinsurance with
respect to its nonstandard automobile insurance business.
Competition
The Company competes with both large national and smaller regional
companies in each state in which it operates. The Company's competitors include
other companies, which serve the agency market, as well as companies, which sell
insurance directly to customers. Direct writers may have certain competitive
advantages over agency writers, including increased name recognition, increased
loyalty of their customer base and, potentially, reduced acquisition costs. The
Company's primarily competitors are Progressive Casualty Insurance Company,
Guaranty National Insurance Company, Integon Corporation Group, Deerbrook
Insurance Company (a member of the Allstate Insurance Group) and the companies
of the American Financial Group. Generally, these competitors are larger and
have greater financial resources than the Company. The nonstandard automobile
insurance business is price sensitive and certain competitors of the Company
have from time to time, decreased their prices in an apparent attempt to gain
market share. The year 2000 was preceded by two years of severe price
competition for nonstandard automobile insurance. The market began to see some
rate increases in 2000.
Recent Developments
After experiencing continued operating losses in its nonstandard
automobile operations throughout 1999, the Company decided to, in the latter
part of 1999, implement significant changes in its auto operations to affect
improvement in its operating results. Effective January 10, 2000 the Company
engaged Gene Yerant as the President of its nonstandard automobile operations.
Mr. Yerant's focus in his position with the Company is to return the auto
operations to profitability by improving efficiency and effectiveness in all
aspects of the operation.
Since his engagement, Mr. Yerant has effected a number of management
changes designed to improve operations, including hiring a new Chief Information
Officer, a Vice President of Sales and Product Management for the auto
operations and certain other key claims and operating positions. During 2000,
the Company raised rates, redesigned the auto insurance product, reduced staff
and closed the Tampa processing center.
Reserves for Losses and Loss Adjustment Expenses
Loss reserves are estimates, established at a given point in time based
on facts then known, of what the Company projects its exposure to be in
connection with incurred losses. Loss adjustment expense reserves are estimates
of the ultimate liability associated with the expense of settling all claims,
including investigation and litigation costs. The Company's actual liability for
losses and loss adjustment expense at any point in time will be greater or less
than these estimates.
The Company maintains reserves for the eventual payment of losses and
loss adjustment expenses with respect to both reported and unreported claims.
Nonstandard automobile reserves for reported claims are established on a
case-by-case basis. The reserving process takes into account the type of claim,
policy provisions relating to the type of loss, and historical payments made for
similar claims.
Loss and loss adjustment expense reserves for claims that have been
incurred but not reported are estimated based on many variables including
historical and statistical information, inflation, legal developments, economic
conditions, trends in claim severity and frequency and other factors that could
affect the adequacy of loss reserves.
The Company's recorded reserves for losses and loss adjustment expense
reserves at the end of 2000 are certified by the Company's chief actuary in
compliance with insurance regulatory requirements.
The following loss reserve development table illustrates the change
over time of reserves established for loss and loss expenses as of the end of
the various calendar years for the nonstandard automobile segment of the
Company. The table includes the loss reserves acquired from the acquisition of
Superior in 1996 and the related loss reserve development thereafter. The first
section shows the reserves as originally reported at the end of the stated year.
The second section, reading down, shows the cumulative amounts paid as of the
end of successive years with respect to the reserve liability. The third
section, reading down, shows the re-estimates of the original recorded reserve
as of the end of each successive year which is a result of sound insurance
reserving practices of addressing new emerging facts and circumstances which
indicate that a modification of the prior estimate is necessary. The last
section compares the latest re-estimated reserve to the reserve originally
established, and indicates whether or not the original reserve was adequate or
inadequate to cover the estimated costs of unsettled claims.
The loss reserve development table is cumulative and, therefore, ending
balances should not be added since the amount at the end of each calendar year
includes activity for both the current and prior years.
The reserve for losses and loss expenses is an accumulation of the
estimated amounts necessary to settle all outstanding claims as of the date for
which the reserve is stated. The reserve and payment data shown below have been
reduced for estimated subrogation and salvage recoveries. The Company does not
discount its reserves for unpaid losses and loss expenses. No attempt is made to
isolate explicitly the impact of inflation from the multitude of factors
influencing the reserve estimates though inflation is implicitly included in the
estimates. The Company regularly updates its reserve forecasts by type of claim
as new facts become known and events occur which affect unsettled claims.
Goran Capital Inc.
Nonstandard Automobile Insurance Only
For The Years Ended December 31, (in thousands)
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
------- ------- -------- ------- -------- --------- --------- --------- -------- ------- ------
Gross reserves
for unpaid $27,403 $25,248 $ 71,748 $79,551 $101,185 $ 121,661 $ 141,260 $ 103,441
losses and LAE
Deduct
reinsurance 12,581 10,927 9,921 8,124 16,378 6,515 3,167 18,709
recoverable
Reserve for
unpaid losses
and LAE, net of $15,923 $15,682 $ 17,055 14,822 14,321 61,827 71,427 84,807 115,146 138,093 84,732
reinsurance
Paid cumulative
as of:
One Year Later 7,695 7,519 10,868 8,875 7,455 42,183 59,410 62,962 85,389 81,444 --
Two Years Later 10,479 12,358 15,121 11,114 10,375 53,350 79,319 89,285 111,042 -- --
Three Years 12,389 13,937 16,855 13,024 12,040 58,993 86,298 98,469 -- -- --
Later
Four Years Later 13,094 14,572 17,744 13,886 12,822 61,650 89,166 -- -- -- --
Five Years Later 13,331 14,841 18,195 14,229 13,133 62,621 -- -- -- -- --
Six Years Later 13,507 14,992 18,408 14,330 13,375 -- -- -- -- -- --
Seven Years 13,486 15,099 18,405 14,426 -- -- -- -- -- -- --
Later
Eight Years 13,567 15,095 18,460 -- -- -- -- -- -- -- --
Later
Nine Years Later 13,566 15,135 -- -- -- -- -- -- -- -- --
Ten Years Later 13,586 -- -- -- -- -- -- -- -- -- --
Liabilities
re-estimated as
of:
One Year Later 13,888 14,453 17,442 14,788 13,365 59,626 82,011 97,905 131,256 124,012 --
Two Years Later 13,343 14,949 18,103 13,815 12,696 60,600 91,743 104,821 128,302 -- --
Three Years 13,445 15,139 18,300 14,051 13,080 63,752 91,641 105,011 -- -- --
Later
Four Years Later 13,514 15,218 18,313 14,290 13,485 63,249 91,003 -- -- -- --
Five Years Later 13,589 15,198 18,419 14,499 13,441 63,233 -- -- -- -- --
Six Years Later 13,612 15,114 18,533 14,523 13,592 -- -- -- -- -- --
Seven Years 13,529 15,157 18,484 14,584 -- -- -- -- -- -- --
Later
Eight Years 13,573 15,145 18,508 -- -- -- -- -- -- -- --
Later
Nine Years Later 13,574 15,165 -- -- -- -- -- -- -- -- --
Ten Years Later 13,595 -- -- -- -- -- -- -- -- -- --
Net cumulative
(deficiency) or 2,328 517 (1,453) 238 729 (1,406) (19,576) (20,204) (13,156) 14,081 --
redundancy
Expressed as a
percentage of
unpaid losses 14.8% 3.4% (8.4%) 2.0% 6.1% (2.3%) (28.3%) (23.6%) (14.3%) 10.2% --
and LAE
Revaluation of gross losses and LAE as of
year-end 2000:
Cumulative Gross Paid as of Year-end 2000 26,949 24,390 71,484 94,108 107,074 87,873 81,702
Gross liabilities re-estimated as of 27,287 24,953 73,522 99,890 123,060 136,131 125,968
year-end 2000
Gross cumulative (deficiency) or redundancy 116 295 (1,774) (20,339) (21,875) (14,470) 15,292
Activity in the liability for unpaid loss and loss adjustment expenses for
nonstandard automobile insurance is summarized below:
Reconciliation of Nonstandard Auto Reserves
2000 1999 1998
Balance at January 1 $152,455 $134,024 $118,988
Less Reinsurance Recoverables 13,527 17,844 34,181
------ ------ ------
Net Balance at January 1 138,928 116,180 84,807
Incurred related to
Current Year 127,497 214,606 204,818
Prior Years (14,118) 16,367 13,098
-------- ------ ------
Total Incurred 113,379 230,973 217,916
Paid Related to
Current Year 85,334 122,380 123,581
Prior Years 82,108 85,845 62,962
------ ------ ------
Total Paid 167,442 208,225 186,543
Net Balance at December 31 84,865 138,928 116,180
Plus Reinsurance Balance 23,252 13,527 17,844
------ ------ ------
Balance at December 31 $108,117 $152,455 $134,024
Ratings
A.M. Best has currently assigned a "B-" rating to Superior, a "C"
rating to Pafco and an "NA-3" rating to IGF.
A.M. Best's ratings are based upon a comprehensive review of a
company's financial performance, which is supplemented by certain data,
including responses to A.M. Best's questionnaires, phone calls and other
correspondence between A.M. Best analysts and company management, quarterly NAIC
filings, state insurance department examination reports, loss reserve reports,
annual reports, company business plans and other reports filed with state
insurance departments. A.M. Best undertakes a quantitative evaluation, based
upon profitability, leverage and liquidity, and a qualitative evaluation, based
upon the composition of a company's book of business or spread of risk, the
amount, appropriateness and soundness of reinsurance, the quality,
diversification and estimated market value of its assets, the adequacy of its
loss reserves and policyholders' surplus, the soundness of a company's capital
structure, the extent of a company's market presence and the experience and
competence of its management. A.M. Best's ratings represent an independent
opinion of a company's financial strength and ability to meet its obligations to
policyholders. A.M. Best's ratings are not a measure of protection afforded
investors. "B-" and "C" ratings are A.M. Best's eighth and eleventh highest
rating classifications, respectively, out of fifteen ratings. A "B-" rating is
awarded to insurers which, in A.M. Best's opinion, "have, on balance, fair
financial strength, operating performance and market profile when compared to
the standards established by the A.M. Best Company" and "have an ability to meet
their current obligations to policyholders, but their financial strength is
vulnerable to adverse changes in underwriting and economic conditions". A "C"
rating is awarded to insurers which, in A. M. Best's opinion, "have, on balance,
weak financial strength, operating performance and market profile when compared
to the standards established by the A.M. Best Company" and "have an ability to
meet their current obligations to policyholders, but their financial strength is
very vulnerable to adverse changes in underwriting and economic conditions". An
"NA-3" is a "rating procedure inapplicable" category.
Regulation
General
The Company's insurance businesses are subject to comprehensive,
detailed regulation throughout the United States, under statutes which delegate
regulatory, supervisory and administrative powers to state insurance
commissioners. The primary purpose of such regulations and supervision is the
protection of policyholders and claimants rather than stockholders or other
investors. Depending on whether an insurance company is domiciled in the state
and whether it is an admitted or non-admitted insurer, such authority may extend
to such things as (i) periodic reporting of the insurer's financial condition;
(ii) periodic financial examination; (iii) approval of rates and policy forms;
(iv) loss reserve adequacy; (v) insurer solvency; (vi) the licensing of insurers
and their agents; (vii) restrictions on the payment of dividends and other
distributions; (viii) approval of changes in control; and (ix) the type and
amount of permitted investments.
The losses, adverse trends and uncertainties discussed in this report
have been and continue to be matters of concern to the domiciliary and other
insurance regulators of the Company's operating subsidiaries. See "Recent
Regulatory Developments" and "Risk Based Capital Requirements" below and "RISK
FACTORS."
Recent Regulatory Developments
To address Indiana Department of Insurance ("IDOI") concerns relating
to Pafco, on February 17, 2000, Pafco agreed to an order under which the IDOI
may monitor more closely the ongoing operations of Pafco. Among other matters,
Pafco must:
o Refrain from doing any of the following without the IDOI's prior written
consent: selling assets or business in force or transferring property,
except in the ordinary course of business; disbursing funds, other than for
specified purposes or for normal operating expenses and in the ordinary
course of business (which does not include payments to affiliates, other
than under written contracts previously approved by the IDOI, and does not
include payments in excess of $10,000); lending funds; making investments,
except in specified types of investments; incurring debt, except in the
ordinary course of business and to unaffiliated parties; merging or
consolidating with another company, or entering into new, or modifying
existing, reinsurance contracts.
o Reduce its monthly auto premium writings, or obtain additional statutory
capital or surplus, such that the ratio of gross written premium to surplus
and net written premium to surplus does not exceed 4.0 and 2.4,
respectively; and provide the IDOI with regular reports demonstrating
compliance with these monthly writings limitations. Restrictions on premium
writings would result in lower premium volume and management fees payable
to Superior Insurance Group, Inc. ("Superior Group") are based on gross
written premium; therefore, lower premium volume results in reduced
management fees paid by Pafco.
o Continue to comply with prior IDOI agreements and orders to correct
business practices, under which (as previously disclosed) Pafco must
provide monthly financial statements to the IDOI, obtain prior IDOI
approval of reinsurance arrangements and of affiliated party transactions,
submit business plans to the IDOI that address levels of surplus and net
premiums written, and consult with the IDOI on a monthly basis.
Pafco's inability or failure to comply with any of the above could
result in the IDOI requiring further reductions in Pafco's permitted premium
writings or in the IDOI instituting future proceedings against Pafco. On April
24, 2000 the IDOI concluded its previously disclosed target examination of
Pafco, covering loss reserves, pricing and reinsurance and no action was taken
thereon.
As previously reported Pafco informed the Iowa Department of Insurance
("IADOI") on October 10, 2000 of its decision to stop writing new automobile
business in Iowa while Pafco reviews and revises its program in the state. Pafco
has agreed with the IADOI that it will not write any new nonstandard business
until such time as Pafco has reduced its overall nonstandard automobile policy
counts in the state or has; (i) increased surplus; or (ii) a net written premium
to surplus ratio of less than three to one; and (iii) surplus reasonable to its
risk. Pafco has continued to service existing policyholders and renew policies
in Iowa and provide policy count information on a monthly basis in conformance
with IADOI requirements.
As previously disclosed, with regard to IGF and as a result of the
losses experienced by IGF from the discontinued crop insurance operations, IGF
has agreed with the IDOI to provide monthly financial statements and consult
monthly with the IDOI, and to obtain prior approval for affiliated party
transactions. IGF continues to consult regularly with the IDOI regarding the
status of the impending sale of the crop segment and the nonstandard auto
business written by IGF. On January 24, 2000 the IDOI concluded its target exam
of IGF regarding 1998 loss reserves principally related to AgPI and no further
action by IGF was required as a result of the examination.
The Florida Department of Insurance ("FDOI") has concluded its market
conduct, data processing, year 2000 readiness and financial examinations of June
30, 1999 and no significant action was taken as a result. The financial review
of Superior for the year ended December 31, 1999 by the FDOI has been completed
and no report has yet been issued thereon. Superior is required to submit
monthly financial information to the FDOI, including a demonstration that it has
not exceeded a ratio of net written premiums to surplus of four to one.
As previously reported the FDOI issued a notice of its intent to issue
an order on July 7, 2000 (the "Notice"), which principally addressed certain
policy and finance fee payments by Superior to Superior Insurance Group, Inc.
("Superior Group"), another subsidiary of the Company. A formal administrative
hearing to review the Notice and a determination that the order contemplated by
the Notice not be issued was held February, 2001. A recommended order has not
yet been rendered by the administrative law judge. The FDOI could reject
findings in a recommended order and issue an order which could restrict Superior
from paying certain billing and policy fees to Superior Group and include a
requirement that Superior Group repay to its subsidiary, Superior, billing and
policy fees from prior years in an amount of approximately $35.2 million. A
restriction on the ability of Superior to pay future billing and policy fees to
Superior Group may necessitate that the Company take certain actions, which may
be subject to regulatory approvals, to reallocate operating revenues and
expenses between its subsidiaries. The Company would vigorously contest the
issuance of any such order.
Insurance Holding Company Regulation
The Company also is subject to laws governing insurance holding
companies in Florida and Indiana, where its insurance company subsidiaries are
domiciled. These laws, among other things, (i) require the Company to file
periodic information with state regulatory authorities including information
concerning its capital structure, ownership, financial condition and general
business operations; (ii) regulate certain transactions between the Company, its
affiliates and IGF, Pafco, Superior, Superior American and Superior Guaranty
(the "Insurers"), including the amount of dividends and other distributions and
the terms of surplus notes; and (iii) restrict the ability of any one person to
acquire certain levels of the Company's voting securities without prior
regulatory approval.
Any purchaser of 10% or more of the outstanding shares of common stock
of the Company would be presumed to have acquired control of Pafco and IGF
unless the Indiana Commissioner of Insurance ("Indiana Commissioner") upon
application, has determined otherwise. In addition, any purchaser of 5% or more
of the outstanding shares of common stock of the Company will be presumed to
have acquired control of Superior unless the Florida Commissioner of Insurance
("Florida Commissioner"), upon application, has determined otherwise.
Dividend payments by the Company's insurance subsidiaries are subject
to restrictions and limitations under applicable law, and under those laws an
insurance subsidiary may not pay dividends to the Company without prior notice
to, or approval by, the subsidiary's domiciliary insurance regulator. The 1996
FDOI consent order approving the Company's acquisition of Superior, prohibited
Superior from paying any dividends for four years from the date of acquisition
without prior approval. This restriction expired in April 2000. As a result of
regulatory actions taken by the IDOI with respect to Pafco and IGF, those
subsidiaries may not pay dividends to the Company without prior approval by the
IDOI (see "Recent Regulatory Developments" above). Further, payment of dividends
may be constrained by business and regulatory considerations, and state
insurance laws and regulations require that the statutory surplus of an
insurance company following any dividend or distribution by such company be
reasonable in relation to its outstanding liabilities and adequate for its
financial needs. Accordingly, there can be no assurance that the IDOI or the
FDOI would permit any of the Company's insurance subsidiaries to pay dividends
at this time or in the future (see "RISK FACTORS").
While the non-insurance company subsidiaries are not subject directly
to the dividend and other distribution limitations, insurance holding company
regulations govern the amount which a subsidiary within the holding company
system may charge any of the Insurers for services (e.g., management fees and
commissions). These regulations may affect the amount of management fees which
may be paid by Pafco and Superior to Superior Group (formerly, GGS Management,
Inc.). The management agreement between the Company and Pafco was assigned to
Superior Group and provides for an annual management fee equal to 15% of gross
premiums. A similar management agreement with a management fee of 17% of gross
premiums was entered into between Superior and Superior Group. There can be no
assurance that either the IDOI or the FDOI will not in the future require a
reduction in these management fees.
In addition, neither Pafco nor IGF may engage in any transaction with
an affiliate, including the Company, without the prior approval of the IDOI (see
"Recent Regulatory Developments" above).
Underwriting and Marketing Restrictions
During the past several years, various regulatory and legislative
bodies have adopted or proposed new laws or regulations to deal with the
cyclical nature of the insurance industry, catastrophic events and insurance
capacity and pricing. These regulations include (i) the creation of "market
assistance plans" under which insurers are induced to provide certain coverages;
(ii) restrictions on the ability of insurers to rescind or otherwise cancel
certain policies in mid-term; (iii) advance notice requirements or limitations
imposed for certain policy non-renewals; and (iv) limitations upon or decreases
in rates permitted to be charged.
Insurance Regulatory Information System
The NAIC Insurance Regulatory Information System ("IRIS") was developed
primarily to assist state insurance departments in executing their statutory
mandate to oversee the financial condition of insurance companies. IRIS ratios
consist of twelve ratios with defined acceptable ranges. They are used as an
initial screening process for identifying companies that may be in need of
special attention. Companies that have several ratios that fall outside of the
acceptable range are selected for closer review by the NAIC. If the NAIC
determines that more attention may be warranted, one of five priority
designations is assigned and the insurance department of the state of domicile
is then responsible for follow-up action.
During 2000, Pafco had values outside of the acceptable ranges for four
IRIS tests. These included the change in net writings ratio, the two-year
overall operating ratio, the liabilities to liquid assets ratio and the two-year
reserve development ratio. Pafco failed the first two tests due primarily to a
high loss ratio.
During 2000, Superior had values outside of the acceptable ranges for
six IRIS tests. These included the net premium to surplus ratio, change in net
writings ratio, surplus aid to surplus ratio, two-year overall operating ratios,
change in surplus ratio, and the liabilities to liquid assets ratio.
During 2000, IGF had values outside of the acceptable ranges for eleven
of the twelve IRIS tests.
Risk-Based Capital Requirements
In order to enhance the regulation of insurer solvency, the NAIC has
adopted a formula and model law to implement risk-based capital ("RBC")
requirements for property and casualty insurance companies designed to assess
minimum capital requirements and to raise the level of protection that statutory
surplus provides for policyholder obligations. Indiana and Florida have
substantially adopted the NAIC model law, and Indiana directly, and Florida
indirectly, have adopted the NAIC model formula. The RBC formula for property
and casualty insurance companies measures four major areas of risk facing
property and casualty insurers: (i) underwriting, which encompasses the risk of
adverse loss developments and inadequate pricing; (ii) declines in asset values
arising from credit risk; (iii) declines in asset values arising from investment
risks; and (iv) off-balance sheet risk arising from adverse experience from
non-controlled assets, guarantees for affiliates, contingent liabilities and
reserve and premium growth. Pursuant to the model law, insurers having less
statutory surplus than that required by the RBC calculation will be subject to
varying degrees of regulatory action, depending on the level of capital
inadequacy.
The RBC model law provides for four levels of regulatory action. The
extent of regulatory intervention and action increases as the level of surplus
to RBC falls. The first level, the Company Action Level (as defined by the
NAIC), requires an insurer to submit a plan of corrective actions to the
regulator if surplus falls below 200% of the RBC amount. The Regulatory Action
Level requires an insurer to submit a plan containing corrective actions and
requires the relevant insurance commissioner to perform an examination or other
analysis and issue a corrective order if surplus falls below 150% of the RBC
amount. The Authorized Control Level gives the relevant insurance commissioner
the option either to take the aforementioned actions or to rehabilitate or
liquidate the insurer if surplus falls below 100% of the RBC amount. The fourth
action level is the Mandatory Control Level which requires the relevant
insurance commissioner to rehabilitate or liquidate the insurer if surplus falls
below 70% of the RBC amount. Based on the foregoing formulae, as of December 31,
2000, the RBC calculations for IGF, Superior, and Pafco were in excess of 200%.
Guaranty Funds; Residual Markets
The insurance company subsidiaries also may be required under the
solvency or guaranty laws of most states in which they do business to pay
assessments (up to certain prescribed limits) to fund policyholder losses or
liabilities of insolvent or rehabilitated insurance companies. These assessments
may be deferred or forgiven under most guaranty laws if they would threaten an
insurer's financial strength and, in certain instances, may be offset against
future premium taxes. Some state laws and regulations further require
participation by the insurance company subsidiaries in pools or funds to provide
some types of insurance coverages which they would not ordinarily accept. The
Company recognizes its obligations for guaranty fund assessments when it
receives notice that an amount is payable to the fund. The ultimate amount of
these assessments may differ from that which has already been assessed.
It is not possible to predict the future impact of changing state and
federal regulation on the Company's operations and there can be no assurance
that laws and regulations enacted in the future will not be more restrictive
than existing laws.
Canadian Federal Income Tax Considerations
This summary is based upon the current provisions of the Income Tax
Act (Canada) (the "Canadian Tax Act"), the regulations thereunder, proposed
amendments thereto publicly announced by the Department of Finance, Canada prior
to the date hereof and the provisions of the Canada-U.S. Income Tax Convention
(1980) (the "Convention") as amended by the Third Protocol (1995).
Amounts in respect of common shares paid or credited or deemed to be
paid or credited as, on account or in lieu of payment of, or in satisfaction of,
dividends to a shareholder who is not a resident in Canada within the meaning of
the Canadian Tax Act will generally be subject to Canadian non-resident
withholding tax. Such withholding tax is levied at a basic rate of 25% which may
be reduced pursuant to the terms of an applicable tax treaty between Canada and
the country of resident of the non-resident.
Currently, under the Convention, the rate of Canadian non-resident
withholding tax on the gross amount of dividends beneficially owned by a person
who is a resident of the United States for the purpose of the Convention and who
does not have a "permanent establishment" or "fixed base" in Canada is 15%.
However, where such beneficial owner is a company which owns at least 10% of the
voting stock of the company, the rate of such withholding is 5%.
A purchase for cancellation of common shares by the Company (other
than a purchase of common shares by the Company on the open market) will give
rise to a deemed dividend under the Canadian Tax Act equal to the amount paid by
the Company on the purchase in excess of the paid-up capital of such shares
determined in accordance with the Canadian Tax Act. Any such dividend deemed to
have been received by a person not resident in Canada will be subject to
nonresident withholding tax as described above. The amount of any such deemed
dividend will reduce the proceeds of disposition to a holder of common shares
for purposes of computing the amount of his capital gain or loss under the
Canadian Tax Act.
A holder of common shares who is not a resident of Canada within the
meaning of the Canadian Tax Act will not be subject to tax under the Canadian
Tax Act in respect of any capital gain on a disposition of common shares
(including on a purchase by the Company) unless such shares constitute taxable
Canadian property of the shareholder for purposes of the Canadian Tax Act and
such shareholder is not entitled to relief under an applicable tax treaty.
Common shares will generally not constitute taxable Canadian property of a
shareholder who is not a resident of Canada for purposes of the Canadian Tax Act
in any taxation year in which such shareholder owned common shares unless such
shareholder uses or holds or is deemed to use or hold such shares in or in the
course of carrying on business in Canada or, a share of the capital stock of a
corporation resident in Canada, that is not listed on a prescribed stock
exchange or a share that is listed on prescribed stock exchange, if at any time
during the five year period immediately preceding the disposition of the common
shares owned, either alone or together with persons with whom he does not deal
at arm's length, not less than 25% of the issued shares of any class of the
capital stock of the Company. In any event, under the Convention, gains derived
by a resident of the United States from the disposition of common shares will
generally not be taxable in Canada unless 50% or more of the value of the common
shares is derived principally from real property situated in Canada.
U.S. Federal Income Tax Considerations
The following is a general summary of certain U.S. federal
income tax consequence to U.S. Holders of the purchase, ownership and
disposition of common shares. This summary is based on the U.S. Internal Revenue
Code of 1986, as amended (the "Code"), Treasury Regulations promulgated
thereunder, and judicial and administrative interpretations thereof, all as in
effect on the date hereof and all of which are subject to change. This summary
does not address all aspects of U.S. federal income taxation that may be
relevant to a particular U.S. Holder based on such U.S. Holder's particular
circumstances. In particular, the following summary does not address the tax
treatment of U.S. Holders who are broker dealers or who own, actually or
constructively, 10% or more of the Company's outstanding voting stock, and
certain U.S. Holders (including, but not limited to, insurance companies,
tax-exempt organizations, financial institutions and persons subject to the
alternative minimum tax) may be subject to special rules not discussed below.
For U.S. federal income tax purposes, a U.S. Holder of common
shares generally will realize, to the extent of the Company's current and
accumulated earnings and profits, ordinary income on the receipt of cash
dividends on the common shares equal to the U.S. dollar value of such dividends
on the date of receipt (based on the exchange rate on such date) without
reduction for any Canadian withholding tax. Dividends paid on the common shares
will not be eligible for the dividends received deduction available in certain
cases to U.S. corporations. In the case of foreign currency received as a
dividend that is not converted by the recipient into U.S. dollars on the date of
receipt, a U.S. Holder will have a tax basis in the foreign currency equal to
its U.S. dollars value on the date of receipt. Any gain or loss recognized upon
a subsequent sale or other disposition of the foreign currency, including an
exchange for U.S. dollars, will be ordinary income or loss. Subject to certain
requirements and limitations imposed by the Code, a U.S. Holder may elect to
claim the Canadian tax withheld or paid with respect to dividends on the common
shares either as a deduction or as a foreign tax credit against the U.S. federal
income tax liability of such U.S. Holder. The requirements and limitations
imposed by the Code with respect to the foreign tax credit are complex and
beyond the scope of this summary, and consequently, prospective purchasers of
common shares should consult with their own tax advisors to determine whether
and to what extent they would be entitled to such credit.
For U.S. federal income tax purposes, upon a sale or exchange of a
common share, a U.S. Holder will recognize gain or loss equal to the difference
between the amount realized on such sale or exchange and the tax basis of such
common share. If a common share is held as a capital asset, any such gain or
loss will be capital gain or loss, and will be long-term capital gain or loss if
the U.S. Holder has held such common share for more than one year.
Under current Treasury regulations, dividends paid on the common share
to U.S. Holders will not be subject to the 31% U.S. backup withholding tax.
Proposed Treasury regulations which are not yet in effect and which will only
apply prospectively, however, would subject dividends paid on the common shares
through a U.S. or U.S. related broker to the 31% U.S. backup withholding tax
unless certain information reporting requirements are satisfied. Whether and
when such proposed Treasury regulations will become effective cannot be
determined at this time. The payment of proceeds of a sale or other disposition
of common shares in the U.S. through a U.S. or U.S. related broker generally
will be subject to U.S. information reporting requirements and may also be
subject to the 31% U.S. backup withholding tax, unless the U.S. Holder furnishes
the broker with a duly completed and signed Form W-9. Any amounts withheld under
the U.S. backup withholding tax rules may be refunded or credited against the
U.S. Holder's U.S. federal income tax liability, if any, provided that the
required information is furnished to the U.S. Internal Revenue Service.
Employees
At March 1, 2001 the Company and its subsidiaries employed
approximately 385 full and part-time employees. The Company believes that
relations with its employees are excellent.
RISK FACTORS
The following factors, in addition to the other information contained
in this report should be considered in evaluating the Company and its prospects.
The Terms of the Strategic Alliance Agreement May Adversely Affect the
Company's Financial Condition and Results of Operations
As previously reported, SIG and two of its subsidiaries, IGF Holdings,
Inc. ("IGFH") and IGF, are parties to a Strategic Alliance Agreement ("SAA")
dated February 28, 1998 with Continental Casualty Company (referred to in the
SAA as "CNA"). By letter dated January 3, 2001, CNA gave notice pursuant to the
SAA of its exercise of the "Put Mechanism" under the SAA effective February 19,
2001. According to the SAA, upon exercise of the Put Mechanism, IGFH is
obligated to pay CNA an amount equal to 5.85 times an amount equal to "Average
Pre Tax Income" as defined by the SAA. The SAA further provides that within 30
days after exercise of the put, IGF will execute a promissory note payable six
months after the exercise of the put in the principal amount equal to the amount
owed, as specified by the SAA. In a letter dated March 20, 2001, CNA advised SIG
that it calculated the principal amount due CNA to be $26,265,403. CNA also has
asserted a claim for amounts allegedly due under certain reinsurance agreements
with IGF for the 2000 crop year.
SIG believes it has claims against CNA and defenses to CNA's exercise
of the Put Mechanism that may offset or reduce amounts owed to CNA. Moreover,
the Company believes that the impending sale of IGF's crop insurance business
may provide an opportunity for the parities to resolve their claims. However,
there can be no assurance that the ultimate resolution of the claims asserted by
CNA will not have material adverse effects on the Company's, IGFH's and IGF's
financial condition or results of operations.
Significant Losses Have Been Reported and May Continue
The Company reported losses from continuing operations of
$(63,224,000) for the year 2000 compared to losses from continuing operations of
$(47,000,000) for 1999. Results from continuing operations before the effects of
income tax, minority interest and amortization expense were losses of
$(18,387,000) and $(49,839,000) for 2000 and 1999, respectively. Losses from
continuing operations had decreased from 1999 largely due to favorable
developments in loss ratios and actions taken to reduce operating expenses. The
Company is continuing to seek and implement rate increases and other
underwriting actions to further improve profitability. A number of systems have
been automated and service problems have been eliminated or significantly
reduced. Although the Company has taken a number of actions to address factors
contributing to these past losses, there can be no assurance that operating
losses will not continue.
Recent and Further Regulatory Actions May Affect the Company's Future Operations
The Company's insurance company subsidiaries, their business
operations, and their transactions with affiliates, including the Company, are
subject to extensive regulation and oversight by the IDOI, the FDOI and the
insurance regulators of other states in which the insurance company subsidiaries
write business. Moreover, the insurance company subsidiaries' losses, adverse
trends and uncertainties discussed in this report have been and continue to be
matters of concern to the domiciliary and other insurance regulators of the
Company's insurance company subsidiaries and have resulted in enhanced scrutiny
and regulatory actions by several regulators. See "Regulation - Recent
Regulatory Developments" and "Risk-Based Capital Requirements" . The primary
purpose of insurance regulation is the protection of policyholders rather than
stockholders. Failure to resolve issues with the IDOI and the FDOI, and with
other regulators, in a manner satisfactory to the Company could impair the
Company's ability to execute its business strategies or result in future
regulatory actions or proceedings that otherwise materially and adversely affect
the Company's operations.
The Company is Subject to a Number of Pending Legal Proceedings
As discussed elsewhere in this report, the Company is involved in a
number of pending legal proceedings (see Part I - Item 3). Most of these
proceedings remain in the early stages. Although the Company believes that many
of the allegations of wrongdoing are without merit and intends to vigorously
defend the claims brought against it, there can be no assurance that such
proceedings will not have a materially adverse effect on the Company's
operations.
The Terms of the Trust Preferred Securities May Restrict The Company's Ability
to Act
SIG has issued through a wholly owned trust subsidiary $135 million
aggregate principal amount in trust originated preferred securities ("Preferred
Securities"). The Preferred Securities have a term of 30 years with annual
interest payments of 9.5% paid semi-annually. The obligations of the Preferred
Securities are funded from the Company's nonstandard automobile management
company. SIG has elected to defer the semi-annual interest payment, beginning
February 2000 and may continue to defer such payment for up to an aggregate of
five years as permitted by the indenture for the Preferred Securities. Although
there is no present default under the indenture which would accelerate the
payment of the Preferred Securities, the indenture contains a number of
convenants which may restrict SIG's ability to act in the future. These
covenants include restrictions on SIG's ability to: incur or guarantee debt;
make payment to affiliates; repurchase its common stock; pay dividends on common
stock; and increase its level of certain investments other than investment grade
fixed income securities. There can be no assurance that compliance with these
restrictions and other provisions of the indenture for the Preferred Securities
will not adversely affect the cash flow of SIG and therefore, the Company.
Uncertain Pricing and Profitability
One of the distinguishing features of the property and casualty
industry is that its products are priced before losses are reported and its
costs are known. Premium rate levels are related in part to the availability of
insurance coverage, which varies according to the level of surplus in the
industry.
Increases in surplus have generally been accompanied by increased price
competition among property and casualty insurers. The nonstandard automobile
insurance business in recent years has experienced very competitive pricing
conditions and there can be no assurance as to the Company's ability to achieve
adequate pricing. Changes in case law, the passage of new statutes or the
adoption of new regulations relating to the interpretation of insurance
contracts can retroactively and dramatically affect the liabilities associated
with known risks after an insurance contract is in place. New products also
present special issues in establishing appropriate premium levels in the absence
of a base of experience with such products' performance. The level of claims can
not be accurately determined for periods after the sale of policies, therefore
reserves are estimated and these estimates are used to set price, if they are
low then resulting rates could be inadequate.
The number of competitors and the similarity of products offered, as
well as regulatory constraints, limit the ability of property and casualty
insurers to increase prices in response to declines in profitability. In states
which require prior approval of rates, it may be more difficult for the Company
to achieve premium rates which are commensurate with the Company's underwriting
experience with respect to risks located in those states. Accordingly, there can
be no assurance that these rates will be sufficient to produce an underwriting
profit.
The reported profits and losses of a property and casualty insurance
company are also determined, in part, by the establishment of, and adjustments
to, reserves reflecting estimates made by management as to the amount of losses
and loss adjustment expenses ("LAE") that will ultimately be incurred in the
settlement of claims. The ultimate liability of the insurer for all losses and
LAE reserved at any given time will likely be greater or less than these
estimates, and material differences in the estimates may have a material adverse
effect on the insurer's financial position or results of operations in future
periods.
Nature of Nonstandard Automobile Insurance Business
The nonstandard automobile insurance business is affected by many
factors which can cause fluctuation in the results of operations of this
business. Many of these factors are not subject to the control of the Company.
The size of the nonstandard market can be significantly affected by,
among other factors, the underwriting capacity and underwriting criteria of
standard automobile insurance carriers. In addition, an economic downturn in the
states in which the Company writes business could result in fewer new car sales
and less demand for automobile insurance. These factors, together with
competitive pricing and other considerations, could result in fluctuations in
the Company's underwriting results and net income.
Highly Competitive Business
Nonstandard automobile insurance is a highly competitive business. Many
of the Company's competitors have substantially greater financial and other
resources than the Company, and there can be no assurance that the Company will
be able to compete effectively against such competitors in the future.
The Company competes with both large national writers and smaller
regional companies. The Company's competitors include other companies which,
like the Company, serve the independent agency market, as well as companies
which sell insurance directly to customers. Direct writers may have certain
competitive advantages over agency writers, including increased name
recognition, loyalty of the customer base to the insurer rather than an
independent agency and, potentially, reduced acquisition costs. In addition,
certain competitors of the Company have from time to time decreased their prices
in an apparent attempt to gain market share. Also, in certain states, state
assigned risk plans may provide nonstandard automobile insurance products at a
lower price than private insurers.
Reliance Upon Reinsurance
In order to reduce risk and to increase its underwriting capacity, the
Company purchases reinsurance. Reinsurance does not relieve the Company of
liability to its insureds for the risks ceded to reinsurers. As such, the
Company is subject to credit risk with respect to the risks ceded to reinsurers.
Although the Company places its reinsurance with reinsurers, which the Company
generally believes to be financially stable, a significant reinsurer's
insolvency or inability to make payments under the terms of a reinsurance treaty
could have a material adverse effect on the Company's financial condition or
results of operations.
The amount and cost of reinsurance available to companies specializing
in property and casualty insurance are subject, in large part, to prevailing
market conditions beyond the control of such companies. The Company's ability to
provide insurance at competitive premium rates and coverage limits on a
continuing basis depends upon its ability to obtain adequate reinsurance in
amounts and at rates that will not adversely affect its competitive position.
Due to continuing market uncertainties regarding reinsurance capacity,
no assurances can be given as to the Company's ability to maintain its current
reinsurance facilities, which generally are subject to annual renewal. If the
Company is unable to renew such facilities upon their expiration and is
unwilling to bear the associated increase in net exposures, the Company may need
to reduce the levels of its underwriting commitments.
ITEM 2 - PROPERTIES
Headquarters
The headquarters for the company is located at 2 Eva Road, Suite 200,
Tobicoke, Ontario, Canada in leased space.
The Company's U.S. headquarters and SIG are located at 4720 Kingsway
Drive, Indianapolis Indiana. All corporate administration, accounting and
management functions are contained at this location. Pafco is also located at
4720 Kingsway Drive, Indianapolis, Indiana in a building which is owned 100% by
Pafco with no encumbrances. The building is an 80,000 square foot multilevel
structure; approximately 50% of which is utilized by the Company. The remaining
space is leased to third parties at a price of approximately $10 per square
foot.
Superior
Superior's operations are conducted at leased facilities in Atlanta,
Georgia; Marietta, Georgia; Tampa, Florida; Orange, California; Glendale,
California; Bala Cynwyd, Pennsylvania and Alexandria, Virginia. Under a lease
term that extends through February 2003, Superior leases office space at 280
Interstate North Circle, N.W., Suite 500, Atlanta, Georgia. Superior occupies
43,338 square feet at this location. Superior occupies office space at 1400
South Marietta Parkway, Suite 105, Marietta, Georgia and consists of
approximately 2,500 square feet of space leased for a term extending through
August 2003. Superior occupies an office located at 5483 West Waters Avenue,
Suite 1200, Tampa, Florida and consists of approximately 33,861 square feet of
space leased for a term extending through December 2007. Superior occupies an
office at 1745 West Orangewood, Orange, California consisting of approximately
3,264 square feet leased for a term extending through May 2001. Superior
occupies an office at 700 North Central Avenue, Glendale, California consisting
of approximately 2,015 square feet leased for a term extending through November
2005. Superior occupies an office at 150 Monument Road, Bala Cynwyd,
Pennsylvania consisting of approximately 3,031 square feet for a term extending
through April, 2003. Superior occupies an office at 6303 Little River Turnpike,
Suite 220, Alexandria, Virginia consisting of approximately 3,300 square feet
for a term extending through October 2003. Underwriting, customer service, and
administration activities are housed at the Atlanta location. Claims activities
are split between Atlanta, Tampa, Orange, Glendale, Bala Cynwyd and Alexandria
locations. The Tampa location processes all PIP claims. Claims property damage
training is performed at the Marietta location. Accounting activities are
performed at the headquarters location in Indianapolis, Indiana.
The Company considers all of its properties suitable and adequate for
its current operations.
ITEM 3 - LEGAL PROCEEDINGS
Superior Guaranty is a defendant in a case filed on November 26, 1996,
in the Circuit Court for Lee County, Florida entitled Raed Awad v. Superior
Guaranty Insurance Company, et al., Case No. 96-9151 CA LG. The case purports to
be brought on behalf of a class consisting of purchasers of insurance from
Superior Guaranty. Plaintiffs allege that the defendant charged premium finance
service charges in violation of Florida law. Superior Guaranty believes that the
allegations of wrongdoing as alleged in the complaint are without merit and
intends to vigorously defend the claims brought against it.
IGF is a party to a number of pending legal proceedings relating to a
policy ("AgPI") offered in the now discontinued crop insurance operations. See
Note 14 "Commitments and Contingencies" in the consolidated financial
statements. During 2000 all remaining claims by policyholders in the AgPI
lawsuits were settled. On January 12, 2001 a case was filed in the Superior
Court of California, County of Fresno, entitled S&W Seed Company, Dudley
Silveira, Ric Blanchard and Darrell Silveira v. Mutual Service Casualty
Insurance Company, IGF Insurance Company, and Dibuduo & Defendis Insurance
Agency, Inc.; Case No. OICE CG 00137. The case was brought by four AgPI
policyholders who had previously settled their AgPI claims pursuant to binding
settlement agreements who now seek additional compensation by asserting through
litigation that IGF and the third party carrier directly and/or through their
agents made false representations, among other things, regarding AgPI. Discovery
is proceeding. IGF remains a defendant/cross-claimant in six lawsuits pending in
California state court (King and Fresno counties) only relating to cross claims
and discovery is proceeding. Over the objections of IGF, the third party carrier
settled in 2000 some of policyholder claims in the AgPI cases for amounts in
excess of the policy limits. IGF and Mutual Service Casualty Insurance Company,
the third party carrier of the AgPI policies, have submitted their claims
against each other related to these settlements to binding arbitration. As of
December 31, 2000, IGF had paid an aggregate of approximately $28.9 million to
the policyholders involved in these legal proceedings of which approximately
$5.2 million was incurred during 2000. The unpaid reserves as of December 31,
2000 were $10,912,000. The Company believes that it has meritorious defenses to
any claims in excess of the amounts it has already paid and that the loss
payments made and LAE reserves established with respect to the claims from AgPI
as of December 31, 2000, are adequate with regard to all of the policies sold.
However, there can be no assurance that the Company's ultimate liability with
respect to these and any future legal proceedings involving such policies will
not have a material adverse effect on the Company's results of operations or
financial position.
Superior Guaranty is a defendant in a case filed on October 8, 1999,
in the Circuit Court for Manatee County, Florida entitled Patricia Simmons v.
Superior Guaranty Insurance Company, Case No. 1999 CA-4635. The case purports to
be brought on behalf of a class consisting of purchasers of insurance from
Superior Guaranty. The Plaintiff alleges that the defendant charged interest in
violation of Florida law. Superior Guaranty believes that the allegations of
wrongdoing as alleged in the complaint are without merit and intends to
vigorously defend the claims brought against it.
Superior is a defendant in a case filed February 4, 2000 in the Circuit
Court for Dade County, Florida entitled Medical Re-Hab Center v. Superior
Insurance Company. The case purports to be brought on behalf of a class
consisting of (i) healthcare providers that rendered treatment to Superior
insureds and claimants of Superior insureds and (ii) such insureds and
claimants. The plaintiff alleges that Superior reduced medical benefits payable
and improperly calculated interest in violation of Florida law. The Company
believes the claim is without merit and intends to vigorously defend the charges
brought against it.
The Company is a defendant in a case filed on February 23, 2000, in the
United States District Court for the Southern District of Indiana entitled
Robert Winn, et al. v. Symons International Group, Inc., et al., Cause No. IP
00-0310-C-B/S. Other parties named as defendants are SIG, three individuals who
were or are officers or directors of the Company or of SIG,
PricewaterhouseCoopers LLP and Schwartz Levitsky Feldman, LLP. The case purports
to be brought on behalf of a class consisting of purchasers of the Company's
stock or SIG's stock during the period February 27, 1998, through and including
November 18, 1999. Plaintiffs allege, among other things, that defendants
misrepresented the reliability of the Company's reported financial statements,
data processing and financial reporting systems, internal controls and loss
reserves in violation of Section 10(b) of the Securities Exchange Act of 1934
("1934 Act") and SEC Rule 10b-5 promulgated thereunder. The individual
defendants are also alleged to be liable as "controlling persons" under ss.20(a)
of the 1934 Act. The Company and the individual defendants filed a motion to
dismiss the amended consolidated complaint for failure to state a claim and for
failure to plead with particularity as required by Fed. R. Civ. P.9(b) and the
Private Securities Litigation Reform Act of 1995. The accounting firms also
filed motions to dismiss. Briefing on the motions was completed on December 18,
2000, and the motions presently are pending before the court.
On July 7, 2000, the FDOI issued a notice of its intent to issue an
order (the "Notice") which principally addresses certain policy and finance fee
payments by Superior to Superior Group, and financial reporting issues,
including disclosure of intercompany transactions. An administrative hearing to
review the Notice and a determination that the order contemplated by the Notice
not be issued was held in February 2001. A recommended order has not yet been
rendered by the administrative law judge. The FDOI could reject findings in a
recommended order and issue an order which could restrict Superior from paying
certain billing and policy fees to Superior Group and include a requirement that
Superior Group repay to its subsidiary, Superior, billing and policy fees from
prior years in an amount of approximately $35.2 million. A restriction on the
ability of Superior to pay future billing and policy fees to Superior Group may
necessitate that the Company take certain actions, which may be subject to
regulatory approvals, to reallocate operating revenues and expenses between its
subsidiaries. The Company intends to vigorously contest the issuance of any such
order; however, there can be no assurance that an order, if issued, will not
have a material adverse effect on the Company's results of operations or
financial position.
Superior is a defendant in a case filed September 15, 2000 in the
Circuit Court for Lee County, Florida entitled Charles L. Fulton, D.C. v.
Superior Insurance Company, Case No. 00-7546 CA LG. The case purported to be
brought on behalf of a class consisting of healthcare providers that rendered
treatment to and obtained a valid assignment of benefits from Superior. The
court granted Superior Insurance Company's motion to dismiss the amended
complaint and indicated that the allegations of the plaintiff's amended
complaint were inappropriate for class certification. The plaintiff alleges that
Superior reduced or denied claims for medical expenses payable to the plaintiff
without first obtaining a written report in violation of Florida law. The
plaintiff also alleges that Superior inappropriately reduced the amount of
benefits payable to the plaintiff in breach of Superior's contractual
obligations to the plaintiff. Superior believes the allegations of wrongdoing in
violation of law are without merit and intends to vigorously defend the claims
brought against it.
The California Department of Insurance ("CDOI") advised the Company in
1998 that it was reviewing a possible assessment which could total $3 million.
The Company does not believe it will owe anything for this possible assessment.
This possible assessment relates to brokers fees charged to policyholders by
independent agents who placed business with Superior. The CDOI has indicated
that such broker fees charged by the independent agent to the policyholder were
improper and has requested reimbursement to the policyholders from Superior. The
Company did not receive any of such brokers fees. Although the assessment has
not been formally made by the CDOI, the Company will vigorously defend any
potential assessment and believes it will prevail.
The Company's insurance subsidiaries are parties to other litigation
arising in the ordinary course of business. The Company believes that the
ultimate resolution of these lawsuits will not have a material adverse effect on
its financial condition or results of operations. The Company, through its
claims reserves, reserves for both the amount of estimated damages attributable
to these lawsuits and the estimated costs of litigation.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Presented below is certain information regarding the executive officers
of the Company who are not also directors. Their respective ages and their
respective positions with the Company are listed as follows:
Name Age Position
Gregg Albacete 38 Vice President and Chief Information
Officer of SIG
Earl R. Fonville 37 Vice President, Chief Financial
Officer and Treasurer of the
Company and SIG
Mr. Albacete has served as Vice President and Chief Information
Officer of SIG since January, 2000. Mr. Albacete served as Vice President and
Chief Information Officer of Leader Insurance from December, 1987 to January,
2000. From March 1982 to February 1985 Mr. Albacete worked for Transport
Insurance. Prior to that time, Mr. Albacete was a self-employed consultant.
Mr. Fonville, has served as Vice President, Chief Financial Officer
and Treasurer of the Company since September 2000. Mr. Fonville served from
October 1999 to August 2000 various insurance organizations providing consulting
services in the areas of accounting and finance. During the period from November
1993 to September 1999, Mr. Fonville served as Vice President, Corporate Auditor
with Acordia, Inc. and Vice President, Chief Financial Officer of Acordia of
Lexington.
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Information regarding the trading market for the Company's common
stock, the range of selling prices for each quarterly period since January 1,
1999, and the approximate number of holders of common stock as of December 31,
2000 and other matters is included under the caption "Market and Dividend
Information" on pages 46 and 47 of the 2000 Annual Report, included as Exhibit
13, which information is incorporated herein by reference.
ITEM 6 - SELECTED FINANCIAL DATA
The data included on page 6 of the 2000 Annual Report, included as
Exhibit 13, under "Selected Financial Data" is incorporated herein by reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The discussion entitled "Management Discussion and Analysis of
Financial Condition and Results of Operations" included in the 2000 Annual
Report on pages 7 through 16 included as Exhibit 13 is incorporated herein by
reference.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The discussion entitled "Quantitative and Qualitative Disclosures About Market
Risk" is included in the 2000 Annual report on pages 14 through 16 included as
Exhibit 13 is incorporated herein by reference.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements in the 2000 Annual Report,
included as Exhibit 13, and listed in Item 14 of this Report are incorporated
herein by reference from the 2000 Annual Report.
ITEM 9- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item regarding Directors of the
Company is incorporated herein by reference to the Company's definitive proxy
statement for its 2000 annual meeting of common stockholders filed with the
Commission pursuant to Regulation 14A (the "2000 Proxy Statement").
ITEM 11 - EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by
reference to the Company's 2000 Proxy Statement.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by
reference to the Company's 2000 Proxy Statement.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by
reference to the Company's 2000 Proxy Statement.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The documents listed below are filed as a part of this Report except as
otherwise indicated:
1. Financial Statements. The following described consolidated financial statements found on the pages of the 2000 Annual
Report indicated below are incorporated into Item 8 of this Report by reference.
Description of Financial Statement Item Location in 2000 Annual Report
Report of Independent Accountants Page 45
Consolidated Balance Sheets, December 31,
2000 and 1999 Page 17
Consolidated Statements of Earnings, Years
Ended December 31, 2000, 1999 and 1998 Page 18
Consolidated Statements of Changes In
Stockholders' Equity, Years Ended
December 31, 2000, 1999 and 1998 Page 19
Consolidated Statements of Cash Flows,
Years Ended December 31, 2000, 1999 and 1998 Page 20
Notes to Consolidated Financial Statements,
Years Ended December 31, 2000, 1999 and 1998 Page 21 through 43
2. Financial Statement Schedules. The following financial statement schedules are included beginning on Page 27.
Report of Independent Accountants
Schedule II - Condensed Financial Information of Registrant
Schedule IV - Reinsurance
Schedule V - Valuation and Qualifying Accounts
Schedule VI - Supplemental Information Concerning Property - Casualty Insurance Operations
3. Exhibits. The Exhibits set forth on the Index to Exhibits are incorporated herein by reference.
Reports on Form 8-K. None.
Board of Directors and Stockholders of
Goran Capital Inc. and Subsidiaries
The audit referred to in our report dated March 13, 2001, relating to the
consolidated financial statements of Goran Capital Inc. and subsidiaries, which
is incorporated in Item 8 of this Form 10-K by reference to the annual report to
stockholders for the year ended December 31, 2000 included the audit of the
financial statement schedules listed in the accompanying index. These financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statement schedules
based upon our audit.
In our opinion such financial statement schedules present fairly, in all
material respects, the information set forth therein.
BDO SEIDMAN, LLP
Grand Rapids, Michigan
March 13, 2001
GORAN CAPITAL INC.- CONSOLIDATED
SCHEDULE I - SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES.
The information required by this schedule is included in note 3 of Notes to
Consolidated Financial Statement.
GORAN CAPITAL INC.
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT As Of December 31,
1999 and 2000 (In Thousands)
ASSETS 1999 2000
-------- --------
Assets:
Cash and Short-term Investments $ 213 $ 197
Loans to Related Parties 2,723 3,698
Capital and Other Assets 26 68
Investment in Subsidiaries, at Cost 10,295 10,738
-------- --------
Total Assets $ 13,257 $ 14,701
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Loans from Related Parties and Other Liabilities $ 2,735 $ 5,705
-------- --------
Total Liabilities 2,735 5,705
-------- --------
Stockholders' Equity:
Common Shares 19,017 18,165
Cumulative Translation Adjustment 931 1,509
Deficit (9,426) (10,678)
-------- --------
Total Stockholders' Equity 10,522 8,996
-------- --------
Total Liabilities and Stockholders' Equity $ 13,257 $ 14,701
======== ========
GORAN CAPITAL INC.
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENT OF
EARNINGS (LOSS) AND ACCUMULATED DEFICIT For The Years Ended December 31, 1998,
1999 and 2000 (In Thousands)
1998 1999 2000
-------- -------- --------
Revenues
Management Fees $ 108 $ 75 $--
Net Investment Income 40 46 5
-------- -------- --------
Total Revenues 148 121 5
-------- -------- --------
Expenses:
General, Administrative, Acquisition Expenses and Taxes 1,380 1,233 1,257
-------- -------- --------
Total Expenses 1,380 1,233 1,257
-------- -------- --------
Net Loss (1,232) (1,112) (1,252)
Other-Purchase of Common Shares (522) -- --
Deficit, Beginning of Year (6,560) (8,314) (9,426)
-------- -------- --------
Deficit End of Year $ (8,314) $ (9,426) $(10,678)
======== ======== ========
GORAN CAPITAL INC.
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT For The Years Ended
December 31, 1998, 1999 and 2000 (In Thousands)
1998 1999 2000
------- ------- -------
Cash Flows from Operations
Net Loss $(1,232) $(1,112) $(1,252)
Items Not Involving Cash:
Decrease (Increase) in Accounts Receivable 560 (2,118) (975)
Decrease (Increase) in Other Assets 779 (166) (485)
Increase (Decrease) in Accounts Payable 613 2,735 2,970
Translation Adjustment (230) (436) (89)
------- ------- -------
Net Cash Provided (Used) by Operations 490 (1,097) 169
------- ------- -------
Cash Flows From Financing Activities:
Purchase of Common Shares (748) -- (185)
Issue of Common (675) 1,077 --
------- ------- -------
Net Cash Provided by Financing Activities (1,423) 1,077 (185)
------- ------- -------
Net Increase (Decrease) in Cash (933) (20) (16)
Cash at Beginning of Year 1,166 233 213
------- ------- -------
Cash at End of Year $ 233 $ 213 $ 197
======= ======= =======
Cash Resources are Comprised of:
Cash $ 104 $ 73 $ 56
Short-Term Investments 129 140 141
------- ------- -------
$ 233 $ 213 $ 197
======= ======= =======
GORAN CAPITAL INC.
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT For The Years Ended
December 31, 1998, 1999 and 2000
Basis of Presentation
The condensed financial information should be read in conjunction with the
consolidated financial statements of Goran Capital Inc. The condensed financial
information includes the accounts and activities of the parent company which
acts as the holding company for the insurance subsidiaries.
GORAN CAPITAL INC.- CONSOLIDATED
SCHEDULE IV - REINSURANCE
For The Years Ended December 31, 1998, 1999 and 2000
(In Thousands)
Property and Liability Insurance 1998 1999 2000
Direct Amount $ 284,426 $ 227,774 $ 168,626
--------- --------- ---------
Assumed From Other Companies 19,319 8,627 13,473
--------- --------- ---------
Ceded to Other Companies (4,106) 7,361 (78,637)
--------- --------- ---------
Net Amounts $ 299,639 $ 243,762 $ 103,462
========= ========= =========
Percentage of Amount Assumed to Net 6.4% 3.5% 13.0%
--------- --------- ---------
GORAN CAPITAL INC.- CONSOLIDATED SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS
For The Years Ended December 31, 1998, 1999 and 2000 (In Thousands)
1998 1999 2000
Allowance for Allowance for Allowance for
Doubtful Accounts Doubtful Accounts Doubtful Accounts
Additions:
Balance at Beginning of Period $1,297 $4,953 $1,479
Charged to Costs and Expenses(1) 6,259 6,134 9,623
Charged to Other Accounts --- --- ---
Deductions from Reserves 2,603 9,608 9,162
----- ----- -----
Balance at End of Period $4,953 $1,479 $1,940
====== ====== ======
(1) The Company continually monitors the adequacy of its allowance for
doubtful accounts and believes the balance of such allowance at
December 31, 1998, 1999 and 2000 was adequate.
GORAN CAPITAL INC.- CONSOLIDATED SCHEDULE VI - SUPPLEMENTAL INFORMATION
CONCERNING PROPERTY - CASUALTY INSURANCE OPERATIONS For The Years Ended December
31, 1998, 1999 and 2000 (In Thousands)
Deferred Reserves Discount, Unearned Earned Net Claims and Amorti-zatiPaid Premiums
Policy for if any, Premiums Premiums Invest-menAdjustment Expenses of Claims Written
AcquisitionUnpaid deducted Income Incurred Deferred and
Costs Claims Related to: Policy Claim
and Acqui-sitioAdjust-
Claim Costs ment
Adjust- Expense
ment
Expense
Consolidated property - casualty entities Current Prior
Years Years
1998 16,332 140,484 --- 97,930 281,276 13,126 214,743 13,599 51,558 215,615 303,745
1999 13,908 157,425 --- 80,561 261,800 13,125 217,686 24,722 42,665 227,577 236,401
2000 6,454 113,149 --- 62,386 145,532 12,171 132,781 (19,013) 37,453 174,412 182,099
Note: All amounts in the above table are net of the effects of reinsurance and
related commission income, except for net investment income regarding which
reinsurance is not applicable, premiums written, reserves for unpaid claims and
claim adjustment expense and unearned premiums which are stated on a gross
basis.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereto duly authorized.
GORAN CAPITAL INC.
April 17, 2001 By: /s/ Alan G. Symons
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on April 17, 2001, on behalf of
the Registrant in the capacities indicated:
(1) Principal Executive Officer:
/s/ Alan G. Symons
Chief Executive Officer
(2) Principal Financial Officer:
/s/ Earl R. Fonville
Vice President and Chief Financial Officer,
Principal Accounting Officer
(3) The Board of Directors:
/s/ G. Gordon Symons /s/ J. Ross Schofield
Chairman of the Board Director
/s/ John K. McKeating /s/ Douglas H. Symons
Director Director
/s/ David B. Shapira /s/ Alan G. Symons
Director Director