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, 2002
OR
( ) 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: 0-29042
SYMONS INTERNATIONAL GROUP, INC.
(Exact name of registrant as specified in its charter)
INDIANA 35-1707115
(State or other jurisdiction of (I.R.S. Employer
incorporation Identification No.)
or organization)
4720 KINGSWAY DRIVE, INDIANAPOLIS, INDIANA 46205
(Address of Principal Executive Offices, Including Zip Code)
Registrant's telephone number, including area code: (317) 259-6300
Securities registered pursuant to Section 12(g) of the Act:
TITLE OF CLASS
--------------
Common Stock
(no par value)
Securities registered pursuant to Section 12(b) of the Act: None
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)
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Exchange Act Rule 12b-2).Yes ( )
No (X)
The aggregate market value of the 1,865,925 shares of the Registrant's common
stock held by non-affiliates as of June 3, 2003 was $55,828.
The number of shares of common stock of the Registrant, without par value,
outstanding as of April 28, 2003 was 10,385,399.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the year ended
December 31, 2002 are incorporated by reference in Parts II and IV hereof.
Table of Contents
ITEM PAGE
- ---- ----
PART I
1. Business 4
2. Properties 21
3. Legal Proceedings 21
4. Submission of Matters to a Vote of Security Holders 23
PART II
5. Market for Registrant's Common Equity and Related
Shareholder Matters 23
6. Selected Consolidated Financial Data 23
7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 24
7A. Quantitative and Qualitative Disclosures about
Market Risk 24
8. Financial Statements and Supplementary Data 24
9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 24
PART III
10. Directors and Executive Officers of the Registrant 24
11. Executive Compensation 25
12. Security Ownership of Certain Beneficial Owners and Management 31
13. Certain Relationships and Related Transactions 32
14. Controls and Procedures 33
PART IV
15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 33
16. Signatures 41
PART I
ITEM 1 - BUSINESS
FORWARD-LOOKING STATEMENTS
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)," "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) the effect on customers, agents,
employees and others due to the Company's receipt of going concern opinions from
its accountants; (ii) general economic conditions, including prevailing interest
rate levels and stock market performance; (iii) factors affecting the Company's
nonstandard automobile operations such as rate increase approval, policy
renewals, new business written, and premium volume; and (iv) the factors
described in this section and elsewhere in this report.
OVERVIEW OF THE BUSINESS
Symons International Group, Inc. (the "Company") owns insurance companies that
underwrite and market nonstandard private passenger automobile insurance. The
Company's principal insurance company subsidiaries are Pafco General Insurance
Company ("Pafco") and Superior Insurance Company ("Superior"). The Company is a
73.8% owned subsidiary of Goran Capital Inc. ("Goran").
NONSTANDARD AUTOMOBILE INSURANCE
Overview
Pafco, 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, poor driving
experience, and type of vehicle. The Company offers several different policies,
which are directed toward different classes of risk within the nonstandard
market. Premium rates for nonstandard risks are higher than for standard risks.
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 standard coverage becomes more restrictive. Nonstandard policies have
relatively short policy periods and low limits of liability. Also, since the
nonstandard automobile insurance business typically experiences a lower rate 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 from three to twelve months. Most
nonstandard automobile insurance policyholders choose the basic limits of
liability coverage which, though varying from state to state, generally is
$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 cars or other property.
Where permitted, Superior offers a tiered product covering the full spectrum of
automobile insurance customers from nonstandard to ultra-preferred.
Marketing
The Company's nonstandard automobile insurance business is concentrated in the
states of Florida, California, Virginia, Georgia, Indiana and Nevada. The
Company also has the ability to write nonstandard automobile insurance in 12
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 by the Company for the periods
indicated sorted in descending order of 2002 volume.
Gross Premiums Written
Years Ended December 31,
(in thousands)
State 2002 2001 2000
- ----------------------- -------- -------- --------
Florida . . . . . . . . $ 45,583 $ 49,162 $ 44,070
California. . . . . . . 20,891 34,287 32,480
Virginia. . . . . . . . 15,661 21,054 20,089
Colorado (1) . . . . . 7,988 10,112 6,938
Georgia . . . . . . . . 6,565 15,481 13,670
Indiana . . . . . . . . 4,861 6,275 12,804
Nevada. . . . . . . . . 1,493 1,980 3,707
Missouri. . . . . . . . 698 839 1,929
Tennessee . . . . . . . 676 1,696 9,794
Iowa. . . . . . . . . . 504 1,066 2,023
Kentucky. . . . . . . . 406 3,135 5,034
Pennsylvania (2) . . . 288 9,683 -
Oklahoma. . . . . . . . 274 635 1,090
Arizona . . . . . . . . 169 1,111 4,484
Other states. . . . . . 204 2,972 15,310
-------- -------- --------
Total nonstandard auto. 106,261 159,488 173,422
Other property. . . . . 1,514 1,604 1,039
-------- -------- --------
Total . . . . . . . . . $107,775 $161,092 $174,461
======== ======== ========
<FN>
(1) During May 2003, the Company ceased writing business in Colorado.
(2) All premiums in Pennsylvania were written by IGF, which has been precluded
from writing other than renewal premium since July 30, 2001.
The Company markets its nonstandard products exclusively through independent
agencies. The Company has several territory 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 aims to foster strong service relationships with its agents 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 provides state of the art point of sale rating
software to its agents, which permits them to rate risks in their offices. All
new business applications are electronically uploaded directly from the agents'
office to the Company through this software. The Company's in-house developed
point of sale product allows agents in most states to order motor vehicle,
credit and other reports on line at the time of sale.
Most of the Company's agents have limited 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
promptly reviews all coverages bound by the agents and generally accepts
coverages that fall within its stated underwriting criteria. 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 its four insurance 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.
Underwriting
The Company utilizes many factors in determining its premium rates. Some of the
characteristics used are type, age and location of the vehicle, number of
vehicles per policyholder, number and type of convictions and 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 states 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%. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" for further
discussion on the combined ratio.
In an effort to maintain and improve underwriting profits, the territory
managers monitor loss ratios of the agencies in their regions and meet
periodically with the agents in order to address any adverse trends in loss
ratios or other profitability indicators.
Claims
The Company's nonstandard automobile insurance claims departments handle claims
on a regional and local basis from claim offices in Indianapolis, Indiana;
Atlanta, Georgia; Tampa and West Palm Beach, Florida; and Anaheim, California.
The Company uses a combination of its own adjusters and independent appraisers
and adjusters for estimating physical damage claims and limited elements of
investigation.
Claims settlement authority levels are established for each adjuster or manager
based on the employee's ability and experience. Upon receipt, each claim is
reviewed and assigned to an adjuster based on the type and severity of the
claim. A home office supervisor or litigation manager monitors all claim-related
litigation. The claims policy of the Company emphasizes prompt and fair
settlement of meritorious claims, appropriate reserving for outstanding claims
and controlling claims adjustment expenses.
Reinsurance
The Company follows the customary industry practice of reinsuring a portion of
its risks. 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
respective reinsurance treaties.
In 2002, Pafco and Superior maintained casualty excess of loss reinsurance on
their nonstandard automobile insurance business covering 35.0% of $700,000 of
losses on an individual occurrence basis in excess of $300,000 up to a maximum
of $3,000,000 at 100.0%.
As of December 31, 2002, amounts recoverable from reinsurers relating to
nonstandard automobile operations is as follows (in thousands):
Reinsurance
Recoverables as of
Reinsurers A.M. Best Rating (2) December 31, 2002(1)
- -------------------------------------------------- -------------------- ---------------------
National Union Fire Insurance Company
Of Pittsburgh, PA. . . . . . . . . . . . . . . . . A++ $ 43,633
Gerling Global Reinsurance Corporation of America. B+ 1,197
Lloyds of London (Various Syndicates). . . . . . . Not Rated 2,271
Transatlantic Reinsurance Company. . . . . . . . . A++ 1,131
<FN>
(1) Only recoverables greater than $200,000 are shown. Total nonstandard
automobile reinsurance recoverables as of December 31, 2002 were
approximately $47,044,000.
(2) An A.M. Best Rating of "A++" is the highest of 15 ratings. An A.M. Best
Rating "B+" is the fourth 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. The
amount of cession for Pafco is variable up to a maximum of 60% or $10 million
and for Superior is variable up to a maximum of 75% or $60 million for all new
and renewal business. In 2002, Pafco and Superior ceded 71% of their
nonstandard automobile gross written premiums under this treaty.
On April 29, 1996, Pafco also entered into a 100% quota share reinsurance
agreement with Granite Reinsurance Company Ltd. ("Granite Re"), a wholly owned
subsidiary of Goran, (no A.M. Best rating), whereby all of Pafco's commercial
business from 1996 and thereafter was ceded effective January 1, 1996. This
agreement was in effect during 2002.
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 that serve the agency market, as well as companies that sell insurance
directly to consumers. 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
primary competitors are Progressive Casualty Insurance Company and specialty
subsidiaries of a number of insurance groups, including AIG, Allstate, American
Financial Group and GMAC. Generally, these competitors are larger and have
greater financial resources than the Company.
RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES
Loss reserves are estimates, established at a given point in time based on facts
then known, of an insurer's prediction of its exposure in connection with
incurred losses. Loss adjustment expense ("LAE") reserves are estimates of the
ultimate liability associated with the expense of settling all claims, including
investigation and litigation costs resulting from such claims. The actual
liability of an insurer for its loss and LAE reserves at any point in time will
be greater or less than these estimates.
The Company maintains reserves for the eventual payment of losses and LAE 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 historically paid loss and LAE for similar claims.
Loss and LAE 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 loss reserve development table below 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.
The Company's insurance subsidiaries filed their annual statutory financial
statements as of December 31, 2002 which included the Company's estimate of loss
and loss reserve expense. In May 2003, pursuant to a reserve analysis completed
by the consulting actuary engaged by BDO Seidman, LLP, the Company's independent
auditor, it was determined that reserves for losses and loss adjustment expenses
for Superior and Pafco should be increased. These reserve adjustments, along
with resulting adjustments to the permitted carrying values of certain assets,
were recorded in the 2002 audited statutory financial statements filed for
Superior and Pafco with the Insurance Department of Florida and the Indiana
Department of Insurance, respectively.
Activity in the liability for unpaid loss and loss adjustment expenses for
nonstandard automobile insurance is summarized below, in thousands:
2002 2001 2000
------- -------- ---------
Balance at January 1,. . . . . . . . $81,142 $108,117 $152,455
Less reinsurance recoverables 30,600 23,252 13,527
------- -------- ---------
Net balance at January 1, . . 50,542 84,865 138,928
Incurred related to:
Current year. . . . . . . . . 35,413 69,667 127,497
Prior years . . . . . . . . . 12,775 774 (14,118)
------- -------- ---------
Total incurred. . . . . . . . 48,188 70,441 113,379
Paid related to:
Current year. . . . . . . . . 19,211 46,973 85,334
Prior years . . . . . . . . . 36,374 57,791 82,108
------- -------- ---------
Total paid. . . . . . . . . . 55,585 104,764 167,442
Net balance at December 31,. . . . . 43,145 50,542 84,865
Plus reinsurance balance . . . . . . 24,059 30,600 23,252
------- -------- ---------
Balance at December 31,. . . . . . . $67,204 $ 81,142 $108,117
======= ======== =========
Reserve estimates are regularly adjusted in subsequent reporting periods as new
facts and circumstances emerge to indicate that a modification of the prior
estimate is necessary. The adjustment, referred to as "reserve development," is
inevitable given the complexities of the reserving process and is recorded in
the statements of operations in the period when the need for the adjustment
becomes known. The foregoing reconciliation indicates unfavorable development
of $12,775,000 on the December 31, 2001 reserves. A portion of the 2001 reserve
development was caused by a larger than normal number of previously closed
claims that reopened in 2002. The remainder of the 2001 reserve development
resulted from a higher than expected frequency and severity on nonstandard
automobile claims.
The anticipated effect of inflation is implicitly considered when estimating
losses and loss adjustment expenses liabilities. While anticipated price
increases due to inflation are considered in estimating the ultimate claims
costs, increases in average claim severities is caused by a number of factors.
Future severities are projected based on historical trends adjusted for
implemented changes in underwriting standards, policy provisions, claims
management practices and procedures and general economic trends. Anticipated
severity trends are monitored relative to actual development and are modified if
necessary.
Liabilities for loss and loss adjustment expenses have been established when
sufficient information has been developed to indicate the involvement of a
specific insurance policy. In addition, reserves have been established to cover
additional exposure on both known and unasserted claims.
Symons International Group, Inc.
Nonstandard Automobile Insurance Only
For The Years Ended December 31, (in thousands)
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
-------- -------- -------- -------- --------- --------- --------- --------- -------- --------- ------
Gross
Reserves for
Unpaid losses
and LAE. . . . $27,403 $25,248 $71,748 $79,551 $101,185 $121,661 $141,260 $103,441 $79,047 $ 65,915
- ---------------------------------------------------------------------------------------------------------------------------------
Deduct
Reinsurance
Recoverable. . 12,581 10,927 9,921 8,124 16,378 6,515 3,167 18,709 28,511 22,990
- ---------------------------------------------------------------------------------------------------------------------------------
Reserve for
Unpaid losses
and LAE, net
of
reinsurance. . $17,055 14,822 14,321 61,827 71,427 84,807 114,829 138,093 84,732 50,536 42,925
- -------------------------------------------------------------------------------------------------------------------------------
Paid
Cumulative as
of:
One Year
Later. . . . . 10,868 8,875 7,455 42,183 59,410 62,962 85,389 81,444 57,696 36,291
- -------------------------------------------------------------------------------------------------------------------------------
Two Years
Later. . . . . 15,121 11,114 10,375 53,350 79,319 89,285 111,042 107,534 79,316
- -------------------------------------------------------------------------------------------------------------------------------
Three Years
Later. . . . . 16,855 13,024 12,040 58,993 86,298 98,469 121,907 118,316 --
- -------------------------------------------------------------------------------------------------------------------------------
Four Years
Later. . . . . 17,744 13,886 12,822 61,650 89,166 102,854 127,390 -- --
- -------------------------------------------------------------------------------------------------------------------------------
Five Years
Later. . . . . 18,195 14,229 13,133 62,621 90,477 105,252 -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Six Years
Later. . . . . 18,408 14,330 13,375 63,031 91,345 -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Seven Years
Later. . . . . 18,405 14,426 13,418 63,534 -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Eight Years
Later. . . . . 18,460 14,386 13,648 -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Nine Years
Later. . . . . 18,411 14,572 -- -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Ten Years
Later. . . . . 18,420 -- -- -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Liabilities re
- -estimated as
of:
One Year
Later. . . . . 17,442 14,788 13,365 59,626 82,011 97,905 131,256 124,012 85,538 63,014
- -------------------------------------------------------------------------------------------------------------------------------
Two Years
Later. . . . . 18,103 13,815 12,696 60,600 91,743 104,821 128,302 121,480 93,483
- -------------------------------------------------------------------------------------------------------------------------------
Three Years
Later. . . . . 18,300 14,051 13,080 63,752 91,641 104,551 127,885 126,321 --
- -------------------------------------------------------------------------------------------------------------------------------
Four Years
Later. . . . . 18,313 14,290 13,485 63,249 91,003 105,012 131,087 -- --
- -------------------------------------------------------------------------------------------------------------------------------
Five Years
Later. . . . . 18,419 14,499 13,441 63,233 91,323 106,813 -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Six Years
Later. . . . . 18,533 14,523 13,592 63,373 91,874 -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Seven Years
Later. . . . . 18,484 14,584 13,652 63,781 -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Eight Years
Later. . . . . 18,508 14,574 13,727 -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Nine Years
Later. . . . . 18,494 14,615 -- -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Ten Years
Later. . . . . 18,457 -- -- -- -- -- -- -- --
- -------------------------------------------------------------------------------------------------------------------------------
Net
Cumulative
(deficiency)
or
redundancy . . (1,402) 207 594 (1,954) (20,447) (22,006) (16,258) 11,772 (8,751) (12,478)
- -------------------------------------------------------------------------------------------------------------------------------
Expressed as
a percentage
of unpaid
losses and
LAE. . . . . . (8.2%) 1.4% 4.1% (3.2%) (28.6%) (25.9%) (14.2%) 8.5% (10.3%) (24.7%)
- -------------------------------------------------------------------------------------------------------------------------------
<FN>
Revaluation of gross losses
And LAE as of year-end
2002
- --------------------------------------------------------------------------------------------------------------------------------
Cumulative gross paid as of
Year-end 2002 28,231 26,013 74,573 100,359 124,345 131,724 120,166 97,310 64,923
- ------------------------------------------------------------------------------------------------------------------------------
Gross liabilities Re
estimated as of
year-end 2002 28,280 26,101 74,857 100,925 126,303 137,704 130,453 115,537 98,478
- -------------------------------------------------------------------------------------------------------------------------------
Gross cumulative
(deficiency) or
redundancy (877) (853) (3,109) (21,374) (25,118) (16,043) 10,807 (12,096) (19,431)
- -------------------------------------------------------------------------------------------------------------------------------
RATINGS
A.M. Best has currently assigned a "B-" rating to Superior and a "C" rating to
Pafco. 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, telephone conferences 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".
A.M. Best has currently assigned an "E" rating (Under Regulatory Supervision) to
IGF reflecting the significant regulatory constraint resulting from the Consent
Order entered into between IGF and the Indiana Department Of Insurance (see
Regulation-" Regulatory Actions").
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 shareholders 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 "Regulatory Actions",
"Risk- Based Capital Requirements", and "RISK FACTORS").
Regulatory Actions
On June 6, 2001, IGF sold substantially all of its crop insurance assets to
Acceptance. On June 24, 2001, following the sale of IGF's crop insurance assets
and as a result of losses experienced by IGF in its crop insurance operations,
the IDOI and IGF entered into a consent order (the "Consent Order") relating to
IGF. IGF has discontinued writing new business and its operations are presently
in run off. The IDOI has continued to monitor the status of IGF. The Consent
Order prohibits IGF from taking any of the following actions without prior
written consent of the IDOI:
- - Sell or encumber any of its assets, property, or business in force;
- - Disburse funds, except to pay direct unaffiliated policyholder claims and
normal operating expenses in the ordinary course of business (which does
not include payments to affiliates except for the reimbursement of costs of
running IGF by the Company, and does not include payments in excess of
$10,000);
- - Lend its funds or make investments, except in specified types of
investments;
- - Incur debts or obligations, except in the ordinary course of business to
unaffiliated parties;
- - Merge or consolidate with another company;
- - Enter into new, or amend existing, reinsurance agreements;
- - Complete, enter into or amend any transaction or arrangement with an
affiliate, and
- - Disburse funds or assets to any affiliate.
The Consent Order also requires IGF to provide the IDOI with monthly written
updates and immediate notice of any material change regarding the status of
litigation with Continental Casualty Company, statutory reserves, number of
non-standard automobile insurance policies in-force by state, and reports of all
non-claims related disbursements. IGF's failure to comply with the Consent
Order could cause the IDOI to begin proceedings to have a rehabilitator or
liquidator appointed for IGF or to extend the provisions of the Consent Order.
Pafco has been subject to an agreed to order of the IDOI since February 17, 2000
that requires Pafco, among other matters, to:
- - 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.
- - 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.
- - Continue to comply with prior IDOI agreements and orders to correct
business practices under which Pafco must provide monthly financial
statements to the IDOI, obtain prior IDOI approval of reinsurance
arrangements and 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 conditions could
result in the IDOI requiring further reductions in Pafco's permitted premium
writings or in the IDOI instituting future proceedings against Pafco.
Restrictions on premium writings result in lower premium volume. Management fees
payable to Superior Group are based on gross written premium; therefore, lower
premium volume results in reduced management fees paid by Pafco to Superior
Group.
In March 2000, Pafco agreed with the Iowa Department of Insurance ("IADOI") that
it would not write any new non-standard business in Iowa, until such time as
Pafco has reduced its overall non-standard automobile policy counts in the state
or has:
- - Increased surplus; or
- - Has achieved a net written premium to surplus ratio of less than three to
one; or
- - Has 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.
Superior and Pafco provide monthly financial information to the departments of
insurance in certain states in which they write business at the states' request.
On July 7, 2000, the FDOI issued a notice of its intent to issue an order (the
"Notice") which principally addressed certain policy and finance fee payments by
Superior to Superior Group. A formal administrative hearing to review the
Notice and a determination that the order contemplated by the Notice not be
issued was held in February 2001. The administrative law judge entered a
recommended order on June 1, 2001 that was acceptable to the Company. On August
30, 2001, the FDOI rejected the recommended order and issued its final order
which the Company believes improperly characterized billing and policy fees paid
by Superior to Superior Group. On September 28, 2001, Superior filed an appeal
of the final order to the Florida District Court of Appeal. On March 4, 2002,
the FDOI filed a petition in the Circuit Court of the Second Judicial Circuit in
and for Leon County, Florida seeking court enforcement of the FDOI's final
order. Superior filed a motion with the FDOI for stay of the FDOI's final order.
Superior also filed a motion for stay with the District Court of Appeal, which
was denied pending a ruling from the FDOI. On April 5, 2002 the FDOI granted a
stay of the final order that was conditional upon the cessation of the payment
of billing fees by Superior to Superior Group and the posting of a $15 million
appeal bond. Superior did not agree to the conditions imposed by the FDOI's
conditional stay. On May 6, 2002 Superior filed a motion with the District
Court of Appeal seeking a stay of the final order pending Superior's appeal or,
in the alternative, a consolidation of the FDOI's enforcement action with the
pending appeal. On June 19, 2002, the District Court of Appeal entered an order
which struck the FDOI's conditional requirement for the stay that Superior post
a $15 million appeal bond. However, the order denied Superior's request to
consolidate the appeal with the enforcement action. On September 26, 2002, the
District Court of Appeal affirmed the final order of the FDOI. On October 31,
2002 the Circuit Court entered a final order which granted the FDOI's petition
for enforcement of the FDOI's final order and which requires Superior to comply
with the FDOI final order.
In accordance with the FDOI's final order, Superior ceased payment of finance
and service fees as of October 1, 2002 and has requested repayment from Superior
Group of $15 million of finance and service fees paid from 1997 through 1999 and
additional finance and service fees paid thereafter in the approximate amount of
$20 million. Without the payment of finance and service fee income to Superior
Group or an amendment to the management agreement or reallocation of operational
responsibilities, Superior Group could not operate profitably. Accordingly, on
October 1, 2002, Superior Group discontinued the provision of certain claims
services to Superior. Superior provided a number of proposals to the FDOI in an
effort to establish an acceptable repayment plan in accordance with the final
order. None of the proposals were acceptable to the FDOI.
On March 21, 2003 the FDOI filed a Motion for Enforcement of Final Order
Granting Petition to Enforce Agency Action (the"Motion for Enforcement") in the
Circuit Court which seeks to hold Superior in contempt for failing to obtain the
immediate repayment of approximately $15 million from Superior Group. Superior
Group presently does not have the ability to make a $15 million repayment, and
Superior believes that this petition seeks to fashion a remedy not intended by
the Circuit Court's Novemeber 1, 2002 order and contravenes the spirit of
numerous discussion between the FDOI and Superior to resolve the issues during
the pendency of Superior's appeal to the District Court of Appeal and the
original enforcement action. Superior intends to vigorously defend the recent
action brought by the FDOI. On May 7, 2003 a hearing was held on the Motion for
Enforcement, and an order has not yet been issued.
On September 10, 2002, the FDOI filed a petition in the Circuit Court of the
Second Judicial Circuit in and for Leon County, Florida for an order to show
cause and notice of automatic stay which sought the appointment of a receiver
for the purpose of rehabilitation of Superior. The court entered an order to
show cause, temporary injunction and notice of automatic stay on September 13,
2002 and a hearing was held on October 24, 2002. On November 1, 2002, the court
entered an order that denied the FDOI's petition for appointment of a receiver.
On November 8, 2002, the FDOI filed a motion for rehearing, which was denied on
December 17, 2002.
On November 20, 2002, the FDOI issued a notice and order to show cause which
seeks to suspend or revoke Superior's certificate of authority principally based
upon allegations that Superior did not comply with the FDOI's August 30, 2001
final order during the pendency of the appeal of the order to the District Court
of Appeal. Superior believes that it has fully and timely complied with the
final order and that the action brought by the FDOI is barred by res judicata.
A formal administrative hearing to review the notice and a determination that
the order or administrative action contemplated by the notice not be issued was
held in May 2003. A recommended order has not been issued, which the FDOI may
accept or reject.
On October 9, 2001, the State Corporation Commission of Virginia ("Virginia
Commission") issued an order to take notice regarding an order suspending
Superior's license to write business in that state. An administrative hearing
for a determination that the suspension order not be issued was held March 5,
2002. On May 3, 2002, the hearing examiner issued his report and recommended
that Superior's license not be suspended and that Superior file its risk based
capital plans and monthly and quarterly financial information with the Virginia
Bureau of Insurance ("Bureau"). On June 19, 2002 the Virginia Commission
entered an order which adopted the findings of the hearing examiner, continued
the matter until such time as the Bureau requests further action and requires
the continued monitoring of the financial condition of Superior by the Bureau.
On October 11, 2002, the Virginia Commission filed an administrative Rule to
Show Cause. A hearing was scheduled for November 18, 2002 to determine whether
Superior's license to transact insurance business in Virginia should be
suspended. Because of Superior's improved financial condition, the Virginia
Commission continued the hearing indefinitely. The nonstandard automobile
insurance policies written in Virginia by Superior accounted for approximately
13.1% and 14.5% of the total gross written premiums of the Company in 2001 and
in 2002, respectively.
Insurance Holding Company Regulation
The Company also is subject to laws governing insurance holding companies in
Florida and Indiana, the domicilary states of its insurance company
subsidiaries. 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. 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. 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
"Regulatory Actions " 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.
Based on the December 31, 2002 statutory financials filed with the NAIC, Pafco
had values outside of the acceptable ranges for five IRIS tests. These included
the two-year overall operating ratio, the investment yield ratio, the change in
surplus ratio, the liabilities and liquid assets ratio, and the estimated
current reserve deficiency to policyholders' surplus ratio.
Based on the December 31, 2002 statutory financials filed with the NAIC,
Superior had values outside of the acceptable ranges for six IRIS tests. These
included the surplus aid to policyholders' surplus ratio, the two-year overall
operating ratio, the change in surplus ratio, the liabilities to liquid assets
ratio, the one-year reserve development to policyholders' surplus ratio, and the
two-year reserve development to policyholders' surplus ratio.
As of December 31, 2002, IGF had values outside of the acceptable ranges for
five IRIS tests. These included the change in net writings ratio, the two-year
overall operating ratio, the change in surplus ratio, the liabilities to liquid
assets ratio, and the agent's balances to policyholders' surplus ratio.
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
decreases. 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 that requires the relevant insurance commissioner
to rehabilitate or liquidate the insurer if surplus falls below 70% of the RBC
amount.
At the time of filing the annual statutory financial statements of the Company's
insurance subsidiaries as of December 31, 2002, the RBC calculations for Pafco
and Superior were in excess of 200% which concluded that no action is required.
The RBC calculation for IGF as of December 31, 2002 was in excess of 100%, which
is above the Authorized Control Level. (See "Regulatory Actions"). In May
2003, pursuant to a reserve analysis completed by the consulting actuary engaged
by BDO Seidman, LLP, the Company's independent auditor, it was determined that
reserves for losses and loss adjustment expenses for Superior and Pafco should
be increased. These reserve adjustments, along with resulting adjustments to the
permitted carrying values of certain assets, were recorded in the 2002 audited
statutory financial statements filed for Superior and Pafco with the Insurance
Department of Florida and the Indiana Department of Insurance, respectively.
Based on the adjusted audited statutory financial statements, the surplus for
Superior fell below 70% of the RBC amount and the surplus level for Pacfo was
above 150% of the RBC amount.
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 coverage that 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.
Employees
At March 1, 2003, the Company and its subsidiaries employed approximately 218
full and part-time employees. None of the Company's employees is represented by
either unions or collective bargaining agreements. 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 Financial Condition of the Company Has Continued to Decline
The Company reported losses from continuing operations of $(35,260,000) for the
year 2002, $(30,736,000) for 2001 and $(71,384,000) for 2002. Results from
continuing operations before the effects of income taxes, minority interest and
amortization expense were losses of $(19,065,000) and $(15,759,000) for 2002 and
2001, respectively. Further, the deficit in shareholder's equity increased from
$(144,012,000) at December 31, 2001 to $(178,879,000) at December 31, 2002.
There can be no assurance that the Company can continue in business if these
operating losses continue
The Company's Accountants Have Issued Going Concern Opinions
The Company's accountants have issued reports on their audits of the
Consolidated Financial Statements of the Company as of December 31, 2001 and
December 31, 2002 which express doubt as to the Company's ability to continue as
a going concern given the recurring operating losses experienced by the Company
over the past few years and the Company's net capital deficiency.
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 action by several regulators including the FDOI's current proceding
seeking to suspend or revoke Superior's Certificate of Authority. (See
"Regulatory Actions" and "Risk-Based Capital Requirements"). The primary
purpose of insurance regulation is the protection of policyholders rather than
shareholders. 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 strategy or cause the Company's
subsidiaries to cease writing insurance or result in future regulatory actions
or proceedings that could 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, in addition to regulatory actions, the
Company is involved in a number of pending civil legal proceedings (see Part I
- - Item 3, "Legal Proceedings"). 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 material adverse effect on the Company's financial position or
results of operations. Furthermore, the existence of these lawsuits diverts the
time and attention of management, and they are expensive to defend.
The Terms of the Trust Preferred Securities May Restrict The Company's Ability
to Act
The Company 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 at 9.5% paid semi-annually. The obligations of the Preferred Securities
were expected to be funded from the Company's nonstandard automobile insurance
management company. The Company elected to defer the semi-annual interest
payments due in February and August 2000, 2001 and 2002 and the payment due in
February 2003 and may continue to defer such payments for up to an aggregate of
five years as permitted by the indenture for the Preferred Securities. All of
the deferred interest (if all payments due in 2003 and 2004 are deferred)
approximating $84 million will become due and payable in February 2005. Although
there is no present default under the indenture that would accelerate the
payment of the Preferred Securities, the indenture contains a number of
covenants that may restrict the Company's ability to act in the future. These
covenants include restrictions on the Company's ability to incur or guarantee
debt, make certain payments to affiliates, repurchase its common stock, pay
dividends on common stock or 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 the Company.
The Company May Not Be Able to Satisfy Its Obligations to the Holders of the
Trust Preferred Securities
The Company may continue to defer semi-annual interest payments for up to an
aggregate of five (5) years as permitted by the indenture for the Preferred
Securities. All of the deferred interest (approximately $84 million, if all
payments due in 2003 and 2004 are deferred) will become due and payable in
February 2005. The Company relies on the payment of finance and service fees by
its subsidiaries to fund its operations, including its payment of interest on
the Preferred Securities. Certain state regulators, including the FDOI, have
issued orders prohibiting the Company's subsidiaries from paying such fees to
the Company. In the event such orders continue, the Company may not have
sufficient revenue to fund its operations or to pay the deferred interest on the
Preferred Securities. Such failure to pay could result in a default under the
indenture and acceleration of the payment of the Preferred Securities.
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 final 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 experience with such products' performance. The level of claims cannot 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 that
require prior approval of rates, it may be more difficult for the Company to
achieve premium rates that 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 as to the amount of losses and LAE that will ultimately be
incurred in the settlement of claims. In May 2003, pursuant to a reserve
analysis completed by the consulting actuary engaged by BDO Seidman, LLP, the
Company's independent auditor, it was determined that reserves for losses and
loss adjustment expenses for Superior and Pafco should be increased. These
reserve adjustments, along with resulting adjustments to the permitted carrying
values of certain assets, were recorded in the 2002 audited statutory financial
statements filed for Superior and Pafco with the Insurance Department of Florida
and the Indiana Department of Insurance, respectively and are included in this
report.
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.
Uncertainty Associated with Estimating Reserves for Unpaid Losses and LAE
The reserve for unpaid losses and LAE reflected in this report is an estimate of
amounts needed to pay reported and unreported claims and related loss adjustment
expenses based on facts and circumstances then known. These reserves are based
on estimates of trends in claims severity, judicial theories of liability and
other factors.
Although the nature of the Company's insurance business is primarily short-tail,
the establishment of adequate reserves is an inherently uncertain process,
provides no assurance that the ultimate liability will not materially exceed the
Company's reserves for losses and LAE and have a material adverse effect on the
Company's results of operations and financial condition. Due to the inherent
uncertainty of estimating these amounts, it has been necessary, and may over
time continue to be necessary, to revise estimates of the Company's reserves for
losses and LAE. The historical development of reserves for losses and LAE may
not necessarily reflect future trends in the development of these amounts.
Accordingly, it may not be appropriate to extrapolate redundancies or
deficiencies based on historical information.
Nature of Nonstandard Automobile Insurance Business
The nonstandard automobile insurance business is affected by many factors that
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.
Highly Competitive Business
Nonstandard automobile insurance is a highly competitive business. Many of the
Company's competitors have substantially greater financial 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 and companies that sell insurance
directly to consumers. Direct writers may have certain competitive advantages
over agency writers, including increased name recognition, loyalty of the
customer base to the insurer, 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, assigned risk plans may provide nonstandard automobile insurance
products at a lower price than private insurers. In addition, because the
Company's insurance products are only marketed through independent insurance
agencies, which represent more than one insurance company, the Company faces
competition within each agency.
Reliance on Independent Insurance Agents
The Company markets and sells its insurance products through independent,
non-exclusive insurance agents and brokers. The agents and brokers also sell
competitors' insurance products. The Company's business depends, in part, on the
marketing efforts of those agents and brokers and the Company must offer
insurance products that meet the requirements of their customers. If those
agents and brokers fail to market the Company's products successfully, the
Company's business may be adversely impacted.
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 that 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 is 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 level of its underwriting commitments.
ITEM 2 - PROPERTIES
Headquarters
The headquarters for the Company is 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 that 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, its subsidiaries and
Goran. Superior Group leases office space in the building. Goran subleases
office space in that building from Superior Group. The remaining space is leased
to third parties at a price of approximately $10 per square foot per annum
Superior
Superior's operations are conducted at leased facilities in Atlanta, Georgia;
Anaheim, California; and Tampa and West Palm Beach, Florida. Under a lease term
that extends through 2003, Superior leases an office at 280 Interstate North
Circle, N.W., Suite 500, Atlanta, Georgia. Superior leases an office located at
5483 West Waters Avenue, Suite 1200, Tampa, Florida for a lease term extending
through December 2007. Superior occupies a leased office located at 1745 West
Orangewood, Anaheim, California for a lease term extending through May 2006.
Superior occupies a leased office at 4500 PGA Blvd., Suite 304A, West Palm
Beach, Florida for a lease term extending through September 2003.
Claims activities are performed in Atlanta, Indianapolis, Tampa, and Anaheim
locations. Underwriting, customer service, and accounting and administration
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 purported to be
brought on behalf of a class consisting of purchasers of insurance from Superior
Guaranty. The plaintiffs alleged that Superior Guaranty charged premium finance
service charges in violation of Florida law. The parties have reached a class
settlement which has been approved by the court which will not have a material
effect on the financial condition of Superior Guaranty.
As previously reported, IGF, which is a wholly owned subsidiary of the Company,
had been a party to a number of pending legal proceedings and claims relating to
agricultural production interruption insurance policies (the "AgPI Program")
which were sold during 1998. All of the policies of insurance which were issued
in the AgPI Program were issued by and under the name of Mutual Service Casualty
Insurance Company ("MSI"), a Minnesota corporation with its principal place of
business located in Arden Hills, Minnesota. Sales of this product resulted in
large underwriting losses by IGF.
Approximately $29 million was paid through December 31, 2002 in settlement of
legal proceedings and policyholder claims related to the AgPI Program. All AgPI
policyholder claims were settled during 2000. However, 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 paid less than
the policy limits they were promised when they purchased the policy and that
each settling policyholder was forced to accept the lesser amount due to their
economic duress - a legal theory recognized in California if certain elements
can be established. The plaintiff's amended their complaint four times during
2002. A demurrer to the fourth amended complaint was filed by MSI and a motion
to strike was filed by IGF, which were denied. IGF filed a motion for summary
judgment to dismiss the claims in the plaintiff's fourth amended complaint on
the basis that releases previously executed by the plaintiffs are binding, which
was granted. The cross claims between the selling brokers and MSI and IGF
remain pending. The trial is scheduled to begin in August 2003.
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 purported to be
brought on behalf of a class consisting of purchasers of insurance from Superior
Guaranty. The Plaintiff alleged that the defendant charged interest in
violation of Florida law. The parties have settled the case in an amount that
was not material to the financial condition of Superior Guaranty.
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 Goran, three individuals who were or are
officers or directors of the Company or of Goran, 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 Goran'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 (the "1934 Act") and SEC
Rule 10b-5 promulgated thereunder. The individual defendants are also alleged to
be liable as "controlling persons" under Sec.20 (a) of the 1934 Act. As
previously reported in the Company's September 30, 2002 Form 10-Q, the Company,
Goran and the individual defendants entered into an agreement with the
plaintiffs for settlement. The settlement is subject to certain terms and
conditions and court approval.
As previously reported, the Company and two of its subsidiaries, IGFH and IGF,
were parties to a "Strategic Alliance Agreement" dated February 28, 1998 (the
"SAA") with Continental Casualty Company ("CNA"), pursuant to which IGF acquired
certain crop insurance operations of CNA. The obligations of the Company, IGFH,
IGF and CNA under the SAA are the subject of an action filed on June 4, 2001 and
pending in United States District Court for the Southern District of Indiana,
Indianapolis Division. Claims have also been asserted in the action against
Goran, Granite Re, Pafco, Superior and certain members of the Symons family.
Discovery is proceeding. Although the Company continues to believe that it has
claims against CNA and defenses to CNA's claims which may offset or reduce
amounts owing by the Company or its affiliates to CNA, there can be no assurance
that the ultimate resolution of the claims asserted by CNA against the Company
and its affiliates will not have a material adverse effect upon the Company's
and its affiliates' financial condition or results of operations.
Superior was a defendant in a case filed on May 8, 2001 in the United States
District Court Southern District of Florida entitled The Chiropractic Centre,
Inc. v. Superior Insurance Company, Case No. 01-6782. The case purported to be
brought on behalf of a class consisting of healthcare providers improperly paid
discounted rates on services to patients based upon a preferred provider
contract with a third party. The plaintiff alleged that Superior breached a
third party beneficiary contract, committed fraud and engaged in racketeering
activity in violation of federal and Florida law by obtaining discounted rates
offered by a third party with whom the plaintiff contracted directly. On
September 30, 2002, the court issued an administrative order which dismissed the
case. The court's order administratively closing the case could be temporary or
permanent. Superior believes that the allegations of wrongdoing as alleged in
the complaint were without merit and in the event the order is temporary,
Superior intends to vigorously defend the claims brought against it.
IGF is a defendant in a case filed on December 31, 2002 in the Circuit Court of
Greene County, Missouri entitled Kevin L. Stevens v. Wilkerson Insurers, et al.,
Case No. 102CC5135. Other parties named as defendants are Goran, Goran's
subsidiaries, Symons International Group (Florida), Inc. and Granite Re,
Superior Group Management, Superior, Superior American, Superior Guaranty, Pafco
and three individuals who were or are officers or directors of the Company.
Goran, Granite Re, Symons International Group (Florida), Inc, Superior Group
Management, Superior, Superior American, Superior Guaranty and certain
individual defendants have filed motions to dismiss for lack of personal
jurisdiction which are pending. The case purports to be brought on behalf of an
IGF insured seeking to recover alleged damages based on allegations of bad
faith, negligent claims handling and breach of fiduciary duties with respect to
a claim which arose from an accident caused by the IGF insured. IGF believes
that the allegations of wrongdoing as alleged in the complaint are without merit
and intends to vigorously defend the claims brought against it.
See footnote 12, "Regulatory Matters", and footnote 13, "Commitment and
Contingencies", to the Company's consolidated financial statements in Part II of
this report, incorporated herein by reference, for additional legal matters.
The Company's insurance subsidiaries are parties to other litigation arising in
the ordinary course of business which the Company does not believe will have a
material adverse effect upon the Company's and its affiliates financial
conditions or results. The Company, through its claims reserves, reserves for
both the amount of estimated damages attributable to these lawsuits and the
estimate costs of litigation.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
Information regarding the trading market for the Company's common stock, the
range of selling prices for each quarterly period since January 1, 2000, and the
approximate number of holders of common stock as of December 31, 2002 and other
matters is included under the caption "Market and Dividend Information" on page
42 of the 2002 Annual Report, included as Exhibit 13, which information is
incorporated herein by reference. No securities were issued in the fourth
quarter of 2002.
DRAFT
The following table sets forth certain information as of December 31, 2002
regarding securities of the Registrant authorized for issuance under the
Company's equity compensation plans. As of December 31, 2002, all of the
Company's equity compensation plans were approved by the Company's shareholders.
NUMBER OF SECURITIES
REMAINING AVAILABLE FOR
FUTURE ISSUANCE UNDER
EQUITY COMPENSATION
NUMBER OF SECURITIES TO WEIGHTED-AVERAGE PLANS (EXCLUDING
BE ISSUED UPON EXERCISE EXERCISE PRICE OF SECURITIES REFLECTED IN
PLAN CATEGORY OF OUTSTANDING OPTIONS OUTSTANDING OPTIONS COLUMN (A))
---------------------- -------------------- -----------------------
Equity compensation plans
approved by shareholders 1,145,000 $ 0.5503 355,000
---------------------- -------------------- -----------
Equity compensation plans
not approved by
shareholders . . . . . . -- -- --
---------------------- -------------------- -----------
Total . . . . . . . . . . 1,145,000 $ 0.5503 355,000
- ------------------------- ---------------------- -------------------- -----------
The Company's Stock Option Plan provides it with the authority to grant
nonqualified stock options and incentive stock options to officers and key
employees of the Company and its subsidiaries and nonqualified stock options to
non-employee directors of the Company and Goran. Options have been granted at
an exercise price equal to the fair market value of the Company's stock at date
of grant. All of the outstanding stock options vest and become exercisable in
three equal installments on the first, second and third anniversaries of the
date of grant.
ITEM 6 - SELECTED FINANCIAL DATA
The data included on page 4 of the 2002 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's Discussion and Analysis of Financial
Condition and Results of Operations" included in the 2002 Annual Report on pages
5 through 14 included as Exhibit 13 is incorporated herein by reference.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The discussion entitled "Quantitative and Qualitative Disclosures About Market
Risk" included in the 2002 Annual Report on pages 12 through 14 included as
Exhibit 13 is incorporated herein by reference.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements in the 2002 Annual Report, included as
Exhibit 13, and listed in Item 15 of this Report are incorporated herein by
reference.
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
DIRECTORS OF THE REGISTRANT
The following table sets forth certain information as of April 30, 2003
regarding current directors of the Company:
Name Age Director Since
G. Gordon Symons 81 1987
Douglas H. Symons 50 1987
Terry W. Anker 37 2001
Michael D. Puckett 50 2002
G. Gordon Symons has been Chairman of the Board of Directors of the Company
since its formation in 1987. Mr. Symons founded the predecessor to Goran, the
73.8% shareholder of the Company, in 1964 and has served as the Chairman of the
Board of Goran since its formation in 1986. Mr. Symons also served as the
President of Goran until 1992 and the Chief Executive Officer of Goran until
1994. Mr. Symons currently serves as a director of Symons International Group
Ltd. ("SIGL"), a Canadian corporation controlled by him, which together with
members of the Symons family, controls Goran. Mr. Symons also serves as
Chairman of the Board of Directors of all of the subsidiaries of Goran. Mr.
Symons is the father of Douglas H. Symons.
Douglas H. Symons served as the Company's Chief Operating Officer from July 1996
until he became its Chief Executive Officer in November 1999. Mr. Symons also
served as Chief Executive Officer of the Company from 1989 until July 1996. Mr.
Symons has been a director of Goran since 1989 and served as Goran's Chief
Operating Officer and Vice President from 1989 until May 31, 2002 when he became
Chief Executive Officer and President. Mr. Symons is the son of G. Gordon
Symons.
Terry W. Anker is the chairman of the board of Anthology Companies, a holding
company consisting of Keystone Lighting and Keystone's Light Lab, retail and
wholesale residential lighting distribution businesses. Mr. Anker previously
led the Marion County, Indiana Regulatory Review Commission, an organization
charged with streamlining city-county government bureaucracy in Indianapolis,
Indiana. Mr. Anker also developed the I.T.S. technology for electronic
submission of court filings for HPS, Inc.
Michael D. Puckett is President and Chief Executive Officer of CFG Wealth
Management Services, Inc., an SEC Registered Investment Advisor authorized to
transact business in all 50 states. Mr. Puckett is a Certified Financial
Planner.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, as well as persons who own more than 10% of the
outstanding common shares of the Company, to file reports of ownership with the
Securities and Exchange Commission. Officers, directors and greater than 10%
shareholders are required to furnish the Company with copies of all Section
16(a) forms they file. Based solely on its review of copies of such forms
received by it, or written representations from certain reporting persons that
no reports were required for those persons, the Company believes that during
2002, all filing requirements applicable to its officers, directors and greater
than 10% shareholders were met.
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
Bruce K. Dwyer 53 Chief Financial Officer
Gregg F. Albacete 41 Vice President and Chief Information Officer
of the Company
David N. Hafling 55 Vice President and Chief Actuary of the Company
Mr. Dwyer has served as interim Chief Financial Officer of the Company since
September 2002. Mr. Dwyer also served as Chief Financial Officer of Goran and
the Company in 1999 and 2000 and in a similar position in Goran from 1981 to
1996. Since 2000 Mr. Dwyer also has had a consulting practice which he also had
from 1996 to 1999.
Mr. Albacete has served as Vice President and Chief Information Officer of the
Company 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 March 1982, Mr. Albacete was a self-employed consultant.
Mr. Hafling has served as Vice President and Chief Actuary of the Company since
December 1998. Prior to joining the Company, Mr. Hafling spent 26 years with
American States Insurance Company, with his last seven years as Senior Vice
President-Actuary. He has been a fellow of the Casualty Actuarial Society since
1979 and is a member of the American Actuarial Society.
ITEM 11 - EXECUTIVE COMPENSATION
The following table shows the cash compensation paid by the Company or any of
its subsidiaries and other compensation paid during the last three calendar
years to the Company's Chief Executive Officer during 2002 and the Company's
four other most highly paid executive officers during 2002 (the "named executive
officers").
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
-------------------
LONG TERM
COMPENSATION
AWARDS
SECURITIES ALL
UNDERLYING OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
- ----------------------------- ------------------- -------- -------- -------- -------------
Douglas H. Symons . . . . . . 2002 $186,218 $ 25,368 0 $ 17,5261
Chief Executive Officer and . 2001 $375,000 $ 0 0 $ 1,6512
President . . . . . . . . . . 2000 $375,000 $ 0 210,000 $ 45,8463
------------------- -------- -------- -------- -------------
2002 $235,105 $ 0 0 $ 262,3715
Gene S. Yerant4 . . . . . . . 2001 $500,000 $ 912 0 $ 11,2236
Executive Vice President. . . 2000 $500,000 $250,000 0 $ 21,6357
------------------- -------- -------- -------- -------------
Bruce Dwyer, Chief Financial
Officer8. . . . . . . . . . . 2002 $ 0 $ 0 0 $ 6,5349
------------------- -------- -------- --------
2002 $152,367 $ 5,000 0 $ 1,9812
David N. Hafling. . . . . . . 2001 $135,230 $ 0 0 $ 1,7432
Vice President, Chief Actuary 2000 $118,846 $ 0 2,000 $ 3002
------------------- -------- -------- -------- -------------
Gregg F. Albacete . . . . . . 2002 $196,226 $ 0 0 $ 1,9812
Vice President, Chief . . . . 2001 $184,875 $ 37,986 0 $ 1,7472
Information Officer. . . . . 2000 $175,000 $ 50,000 10,000 $ 19,32510
- ----------------------------- ------------------- -------- -------- -------- -------------
<FN>
1 Includes $1,981 of health and life insurance premiums and $15,545 for
reimbursement of medical expenses.
2 Health and life insurance premiums.
3 Includes $43,510 of accrued vacation and $2,336 of health and life
insurance premiums.
4 Mr. Yerant's employment terminated May 20, 2002.
5 Includes a severance payment of $250,000 and health, life and property
insurance premiums of $12,371.
6 Includes $1,990 of health and life insurance premiums.
7 Includes $19,067 of relocation expenses and $2,568 of health and life
insurance premiums.
8 Since October 2002, Mr. Dwyer has been serving as the Company's interim
Chief Financial Officer.
9 Consulting fee.
10 Includes $17,362 of relocation expenses and $1,963 of health and life
insurance premiums.
OPTION EXERCISES AND YEAR-END VALUES
The following table shows unexercised stock options held by the Company's named
executive officers at December 31, 2002. In addition, this table includes the
number of shares covered by both exercisable and non-exercisable stock options.
The closing OTC stock price as of December 31, 2002 was $.03, which was lower
than the option exercise prices; therefore, there were no unexercised
in-the-money options. There were no exercises of stock options by the named
executive officers during 2002.
AGGREGATED OPTION EXERCISES IN 2002
AND DECEMBER 31, 2002 OPTION VALUES
NUMBER OF SHARES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
NAME DECEMBER 31, 2002 DECEMBER 31, 2002
-------------------------------------------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
Douglas H. Symons 210,000 0 0 0
----------- ------------- ----------- -------------
Gene S. Yerant. . 0 0 0 0
----------- ------------- ----------- -------------
Alan G. Symons. . 0 0 0 0
----------- ------------- ----------- -------------
David N. Hafling. 6,667 3,333 0 0
----------- ------------- ----------- -------------
Gregg F. Albacete 6,667 3,333 0 0
----------- ------------- ----------- -------------
Bruce Dwyer . . . 0 0 0 0
- ----------------- ----------- ------------- ----------- -------------
<FN>
11 Based on the December 31, 2002 closing OTC stock price which was $.03 per
share.
STOCK OPTION GRANTS
There were no grants of stock options to the Company's named executive officers
in 2002.
LONG TERM INCENTIVE PLAN AWARDS IN 2002
There were no long-term incentive plan awards to the Company's named executive
officers in 2002.
Report of the Compensation Committee
The Committee regularly reviews the Company's executive compensation policies
and practices and approves of the compensation of executive officers. The
Committee's executive compensation policy is designed to attract, retain, and
motivate highly talented individuals at the executive level of the organization.
Executive compensation is based on the level of job responsibility, individual
performance, and Company performance. Compensation also reflects the value of
the job in the marketplace. To attract and retain highly skilled executives,
the Company must remain competitive with the pay of other premier employers who
compete with the Company for talent. The Committee believes that the Company's
executive compensation program reflects these principles and gives executives
strong incentives to maximize Company performance and therefore enhance
shareholder value. The policy consists of both annual and long-term components,
which should be considered together in assessing whether the policy is attaining
its objectives.
To align the interest of employees with those of shareholders, the Company
provides employees the opportunity for equity ownership through the Plan. The
Compensation Committee makes recommendations to the board for the award of stock
options pursuant to the Plan. The objectives of the Plan are to align employee
and shareholder long-term interests by creating a strong and direct link between
employee compensation and shareholder return and to enable employees to develop
and maintain a long-term ownership position in the Company's common stock. A
total of 1,500,000 shares of the Company's common stock have been reserved for
issuance under the Plan. As of April 17, 2003, 615,000 shares were available
for grant of options pursuant to the Plan. There were no grants of options
during 2002.
The Company's total compensation program for officers includes base salaries,
bonuses and the grant of stock options pursuant to the Plan. The Company's
primary objective is to achieve above-average performance by providing the
opportunity to earn above-average total compensation (base salary, bonus and
value derived from stock options) for above-average performance. The program is
designed to attract, motivate, reward and retain the management talent required
to serve shareholder, customer and employee interests. The Company believes
that this program also motivates the Company's officers to acquire and retain
appropriate levels of stock ownership. It is the opinion of the Compensation
Committee that the total compensation earned by Company officers during 2002
achieves these objectives and is fair and reasonable.
The compensation of Douglas H. Symons, Chief Executive Officer of the Company,
was approved by the Compensation Committee in March, 1999. Effective May 31,
2002, Goran Capital Inc. agreed to pay the salary of Douglas H. Symons. The
Committee has reviewed the salary of Douglas H. Symons subsequent to the date he
became Chief Executive Officer. The Compensation Committee has reviewed other
compensation paid to Douglas H. Symons during 2002.
Federal income tax law disallows corporate deductibility for "compensation" paid
in excess of $1 million, unless such compensation is payable solely on account
of achievement of an objective performance goal. As part of its on-going
responsibilities with respect to executive compensation, the Compensation
Committee will monitor this issue to determine what actions, if any, should be
taken as a result of the limitation on deductibility.
The Compensation Committee
Terry W. Anker, Chairman
Michael D. Puckett
Douglas H. Symons
Compensation Committee Interlocks and Insider Participation
Prior to May 31, 2002, the Company's Compensation Committee consisted of Terry
W. Anker, Robert C. Whiting and Douglas H. Symons. Mr. Whiting resigned as a
director of the Company on May 31, 2002. Michael D. Puckett joined the
Company's Compensation Committee on November 13, 2002. Neither Mr. Whiting nor
Mr. Puckett has any interlocks reportable under Item 402(j)(3) of Regulation
S-K. Douglas H. Symons has served as a director and executive officer of the
Company since its formation in 1987 and as a director and executive officer of
Goran, the majority owner of the Company, since 1989. Douglas H. Symons is also
an executive officer of each of the Company's subsidiaries. G. Gordon Symons,
Chairman of the Company, is a director of each of the Company's subsidiaries and
is empowered to determine the compensation of the executive officers of the
Company's subsidiaries. Alan G. Symons was an executive officer and director of
the Company and its subsidiaries until May 31, 2002.
Compensation of Directors
Directors of the Company who are not employees of the Company or its affiliates
receive an annual retainer of $10,000. In addition, the Company reimburses its
directors for reasonable travel expenses incurred in attending board and board
committee meetings. Each director of the Company who is not also an employee of
the Company receives a meeting fee of $1,000 for each committee meeting
attended, with committee chairs receiving an additional $1,500 per quarter.
EMPLOYMENT AGREEMENTS
Certain of the Company's officers have entered into employment contracts with
the Company or one of its subsidiaries.
Douglas H. Symons, Chief Executive Officer of the Company, is subject to an
employment agreement, with such agreement calling for a base salary of not less
than $500,000 per year. This agreement became effective on May 31, 2002 and
continues in effect for an initial period of two years. Upon the expiration of
the initial two-year period, the term of the agreement is automatically extended
from year to year thereafter and is cancelable upon six months' notice. This
agreement contains customary restrictive covenants respecting confidentiality
and non-competition during the term of employment and for a period of two years
after the termination of the agreement. In addition to annual salary, Douglas
H. Symons may earn a bonus in an amount ranging from 0 to 100% of base salary.
At the discretion of the board, bonus awards may be greater than the amounts
indicated if agreed upon financial targets are exceeded. Upon a change of
control of the Company or Goran and in the event of a non-renewal of Douglas H.
Symons' employment agreement, Douglas H. Symons is entitled to a severance
amount equal to two years salary. On May 31, 2002 Douglas H. Symons became the
Chief Executive Officer and President of Goran, and Goran approved the payment
of Goran's and the Company's annual salary obligations under the employment
agreement.
The Company and Goran entered into an employment agreement with David N. Hafling
under which he serves as Vice President and Chief Actuary of the Company. The
agreement became effective on October 15, 2001 and continues until December 31,
2004. The agreement is automatically renewed for one year periods thereafter
unless earlier terminated upon 60 days advance notice. The agreement provides
that Mr. Hafling will receive a base salary of not less than $150,000 annually
and an annual bonus of up to $30,000.
The Company and Goran entered into an employment agreement with Gregg F.
Albacete, Vice President and Chief Information Officer of the Company. The
agreement became effective on January 26, 2000 for an initial term of three
years and was automatically renewable for one-year periods thereafter unless
sooner terminated. The agreement provided for a base salary of not less than
$175,000 annually and an annual bonus of up to $75,000. This agreement
terminated on January 31, 2003.
The Company and Goran entered into an employment agreement with Gene S. Yerant
under which he served as Executive Vice President of the Company and President
of Superior Insurance Group, Inc., a subsidiary of the Company. The agreement
became effective on January 10, 2000 and was terminated on May 20, 2002. The
agreement provided for a base salary of $500,000 annually and a bonus of up to
100% of salary based upon achievement of certain performance objectives.
Following the termination of the employment of Gene S. Yerant on May 20, 2002,
the Company and Goran entered into an agreement with Mr. Yerant which provided
for two separation payments of $250,000 each, both of which were paid as of
January 31, 2003.
The Company, Goran, and Granite Reinsurance Company Ltd. ("Granite Re"), a
wholly-owned subsidiary of Goran, have entered into an employment agreement with
G. Gordon Symons, Chairman of the Board of the Company, pursuant to which G.
Gordon Symons is entitled to receive from Granite Re an annual sum of $150,000.
Upon a change of control of the Company or Goran, G. Gordon Symons is entitled
to a payment in the amount of $1,125,000. In the event Granite Re shall fail to
pay the amounts due under the agreement, the Company and Goran become jointly
and severally liable for such amounts.
The Company, Goran, Granite Re, Goran Management Bermuda Ltd. ("Goran Bermuda")
and G. Gordon Symons have entered into a consulting agreement, pursuant to which
Goran Bermuda is entitled to receive from Granite Re an annual sum of $250,000.
Upon a change of control of the Company or Goran, Goran Bermuda is entitled to a
payment in the amount of $1,875,000. In the event Granite Re shall fail to pay
the amounts due under the agreement, the Company and Goran become jointly and
severally liable for such amounts.
PERFORMANCE GRAPH
The following performance graph compares the cumulative total shareholder return
on the Company's common stock with Standard & Poor's 500 Stock Index and the
Company's peer group for the years 1996 through 2002.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that may incorporate future filings (including
this proxy statement, in whole or in part), the preceding Compensation Committee
and Audit Committee Reports and the stock price performance graph shall not be
incorporated by reference in any such filings.
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Securities
Exchange Act of 1934, as amended, that may incorporate future filings (including
this proxy statement, in whole or in part), the preceding Compensation Committee
and Audit Committee Reports and the stock price performance graph shall not be
incorporated by reference in any such filings.
[GRAPHIC OMITED]
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table shows, as of April 21, 2003, the number and percentage of
shares of common stock of the Company held by each person known to the Company
to own beneficially more than five percent of the issued and outstanding common
stock of the Company, and the ownership interests of each of the Company's
directors and named executive officers, and all directors and executive officers
of the Company as a group, in the common stock of the Company and in the common
stock of the Company's 73.8% shareholder, Goran. Unless otherwise indicated in
a footnote to the following table, each beneficial owner possesses sole voting
and investment power with respect to the shares owned.
SYMONS INTERNATIONAL GROUP, INC. GORAN CAPITAL INC.
-------------------------------- -------------------
AMOUNT AND AMOUNT AND
NATURE OF NATURE OF
BENEFICIAL PERCENT OF BENEFICIAL PERCENT OF
NAME OWNERSHIP CLASS OWNERSHIP CLASS
- ----------------------------------------------------------------------------------------------------------
G. Gordon Symons1 . . . . . . . . . . 520,000 4.8% 2,375,524 42.1%
-------------------------------- ------------------- ----------
Douglas H. Symons3. . . . . . . . . . 245,500 2.3% 311,455 5.7%
-------- ---------------------- ------------------- ----------
Alan G. Symons2 . . . . . . . . . . . 72,691 * 568,065 10.5%
-------------------------------- ------------------- ----------
Gene S. Yerant. . . . . . . . . . . . 0 0 0 0
-------------------------------- ------------------- ----------
David N. Hafling4 . . . . . . . . . . 10,000 * 3,333 *
---------- --------------------- ------------------- ----------
Gregg F. Albacete6. . . . . . . . . . 10,000 * 6,666 *
-------------------------------- ------------------- ----------
Bruce Dwyer . . . . . . . . . . . . . 0 0 21,666 *
------------------------------- ------------------- ---------- -
Terry W. Anker. . . . . . . . . . . . 0 0 0 0
-------------------------------- ------------------- ----------
Michael D. Puckett. . . . . . . . . . 0 0 0 0
-------------------------------- ------------------- ----------
Goran Capital Inc. 5. . . . . . . . . 7,666,283 73.8% 0 0
-------------------------------- ------------------- ----------
All executive officers and directors
as a group (9 persons) . . . . . . . 858,191 7.7% 3,286,709 57.3%
- ------------------------------------- -------------------------------- ------------------- ----------
<FN>
* Less than 1% of class.
1 With respect to the shares of the Company, 10,000 shares are owned directly
and 510,000 shares may be purchased pursuant to stock options that are
exercisable within 60 days. With respect to the shares of Goran, 479,111
shares are held by trusts of which Mr. Symons is the beneficiary, 1,646,413
of the shares indicated are owned by Symons International Group Ltd., of
which Mr. Symons is the controlling shareholder, and 250,000 shares are
subject to options exercisable within 60 days.
2 With respect to the shares of Goran, 387,215 are held by a trust over which
Mr. Symons exercises limited direction, and 180,850 are owned directly.
3 With respect to shares of the Company, 35,500 shares are owned directly and
210,000 shares may be purchased pursuant to stock options that are
exercisable within 60 days. With respect to shares of Goran, 251,455 shares
are owned directly and 60,000 shares are subject to options that are
exercisable within 60 days.
4 With respect to shares of the Company 10,000 shares may be purchased
pursuant to stock options that are exercisable within 60 days. With respect
to shares of Goran, 3,333 shares may be purchased pursuant to stock options
exercisable within 60 days.
5 Goran's office address is 2 Eva Road, Suite 200, Toronto, Ontario Canada
M9C 2A8.
6 With respect to shares of the Company 10,000 shares may be purchased
pursuant to stock options that are exercisable within 60 days. With respect
to shares of Goran, 6,666 shares may be purchased pursuant to stock options
exercisable within 60 days.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company has made the following personal loans to Alan G. Symons, who
resigned as an executive officer and director of the Company on May 31, 2002,
which were outstanding during 2002:
LARGEST LOAN BALANCE BALANCE AS OF
DATE OF LOAN DURING 2002 MARCH 31, 2003 INTEREST RATE
- -------------------- --------------------- --------------- --------------
February 24, 1988(2) $ 27,309 $ 27,309 None
--------------------- --------------- --------------
March 19, 1998(3). . $ 15,293 $ 15,293 5.85%
--------------------- --------------- --------------
October 28, 1999(5). $ 119,500 $ 121,125 6.50%
- -------------------- --------------------- --------------- --------------
The Company has made the following personal loans to Douglas H. Symons, which
were outstanding during 2002:
LARGEST LOAN BALANCE BALANCE AS OF
DATE OF LOAN DURING 2002 MARCH 31, 2003 INTEREST RATE
- --------------------- --------------------- --------------- --------------
February 24, 1988(1). $ 2,219 $ 2,219 None
--------------------- --------------- --------------
Prior to 1997(1). . . $ 66,256 $ 66,256 None
--------------------- --------------- --------------
September 29, 1999(4) $ 119,500 $ 121,125 6.5%
--------------------- --------------- --------------
June 28, 2000(1). . . $ 80,000 $ 80,000 None
--------------------- --------------- --------------
June 4, 2001(1) . . . $ 50,000 $ 50,000 None
- --------------------- --------------------- --------------- --------------
<FN>
(1) The loan by the Company represents an advance and does not bear interest.
(2) The loans by the Company to Alan G. Symons in 1986 and 1988 were made to
facilitate the purchase of common shares of the Company, are collateralized
by a pledge of the common shares of the Company acquired, are payable on
demand and are interest free.
(3) The loan by SIG to Alan G. Symons on March 19, 1998 was made to satisfy
obligations to third parties. Such loan was erroneously referred to in
Goran's 2002 Proxy Statement as a loan by Goran. Such loan was secured by a
pledge of his options to purchase shares in Superior Insurance Group
Management, Inc. (formerly, GGS Management Holdings, Inc.), a subsidiary of
the Corporation, and bore interest at the rate of 5.85% per year. The
principal of the loan was repaid during 1999. The balance remaining
represents interest on the loan.
(4) The loan by the Company to Douglas H. Symons on September 29, 1999 was made
to satisfy indebtedness to third parties. Such loan is unsecured, bears
interest at the rate of 6.5% per year and is payable on demand.
(5) The loan by the Company to Alan G. Symons on October 28, 1999 was made to
satisfy indebtedness to third parities, is unsecured, bears interest at the
rate of 6.5% and is payable on demand.
On December 28, 2001, Superior Insurance Group, Inc., a subsidiary of the
Company, obtained a line of credit from Granite Reinsurance Company Ltd.
("Granite Re"), a wholly-owned subsidiary of Goran, in the amount of $2,500,000.
On October 23, 2002, Superior Insurance Group, Inc. obtained an additional line
of credit of up to $1,000,000 from Granite Re. Both of the loans bear interest
at a rate equal to the prime rate plus 5 %. The total principal balance
outstanding on the loans as of April 17, 2003 was $2,030,000.
In 1997, the Company guaranteed a personal loan by an unrelated third party
lender to Douglas H. Symons in the amount of $250,000. During 2002, the loan
was renewed by the unrelated third party lender, and the Company did not renew
its guarantee.
Pafco General Insurance Company ("Pafco"), an insurance subsidiary of the
Company, engaged in reinsurance transactions with Granite Re during 2002.
Granite Re is a wholly owned subsidiary of Goran.
On an ongoing basis, Pafco also reinsures with Granite Re non-automobile
business written by Pafco and originated through Symons International Group
(Florida), Inc., a subsidiary of Goran. Pafco did not cede premiums to Granite
Re under this reinsurance agreement in 2002. Those reinsurance arrangements
have been continued for 2003.
During 2002, IGF paid $500,000 to Granite Re as consideration for an indemnity
provided to a third party by Granite Re for the benefit of IGF.
The Company paid $12,967 to Stargate Solutions Group, Inc. in 2002 for
consulting and other services relative to the conversion to the Company's
non-standard automobile operating system. Stargate Solutions Group, Inc., is
owned by Kirk Symons, son of G. Gordon Symons and brother of Alan G. Symons and
Douglas H. Symons.
During 2002, the Company paid David G. Symons approximately $7,076 for legal
services. David G. Symons is the son of Alan G. Symons.
Superior Insurance Group, Inc., a wholly owned subsidiary of the Company, owns a
less than 1% limited partnership interest in Monument Capital Partners I. The
amount of the investment was $100,000. Larry S. Wechter, a director of the
Company until August 12, 2002, is Managing Director and Chief Executive Officer
of Monument Advisors, Inc. and Alan G. Symons, a director of the Company until
May 31, 2002, is a director of Monument Advisors, Inc. Monument Advisors, Inc.
is the general partner of Monument Capital Partners I.
PART IV
ITEM 14 - CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. The Company's chief
executive officer and chief financial officer, after evaluating the
effectiveness of the Company's disclosure controls and procedures (as defined in
Sections 13a-14(c) and 15d-14(c) of the Securities Exchange Act of 1934, as
amended), as of a date (the "Evaluation Date") within 90 days before the filing
date of this annual report, have concluded that as of the Evaluation Date, the
Company's disclosure controls and procedures were adequate and are designed to
ensure that material information relating to the Company is timely gathered,
analyzed and disclosed to such officers within the Company, as appropriate, to
allow timely decisions regarding required disclosure in the Company's reports
filed under the Securities Exchange Act of 1934, as amended.
(b) Changes in internal controls. There have been no significant changes in the
Company's internal controls or in other factors that could significantly affect
the Company's internal controls subsequent to the Evaluation Date.
ITEM 15 - 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 2002 Annual Report indicated below are
incorporated into Item 8 of this Report by reference.
Description of Financial Statement Item Location in 2002 Annual Report
- ---------------------------------------- ------------------------------
Report of Independent Accountants Page 45
Consolidated Balance Sheets, December 31,
2002 and 2001 Page 17
Consolidated Statements of Operations, Years
Ended December 31, 2002, 2001 and 2000 Page 18
Consolidated Statements of Changes In
Shareholders' Equity (Deficit), Years Ended
December 31, 2002, 2001 and 2000 Page 19
Consolidated Statements of Cash Flows,
Years Ended December 31, 2002, 2001 and 2000 Page 20
Notes to Consolidated Financial Statements,
Years Ended December 31, 2002,
2001 and 2000 Pages 21 through 44
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 to the Index.
4. Reports on Form 8-K: No reports on Form 8-K were filed during the fourth
quarter of 2002.
BOARD OF DIRECTORS AND SHAREHOLDERS OF
SYMONS INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
The audit referred to in our report dated May 9, 2003, relating to the
consolidated financial statements of Symons International Group, Inc. and
subsidiaries, which is incorporated in Item 8 of this Form 10-K by reference to
the annual report to shareholders for the year ended December 31, 2002 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 audits.
In our opinion, such financial statement schedules present fairly, in all
material respects, the information set forth therein.
/s/ BDO Seidman, LLP
BDO SEIDMAN, LLP
Grand Rapids, Michigan
May 9, 2003
SYMONS INTERNATIONAL GROUP, INC.
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 Statements.
SYMONS INTERNATIONAL GROUP, INC. - CONSOLIDATED
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Parent Company)
Balance Sheets
As of December 31, 2002 and 2001
(In thousands, except share data)
2002 2001
---------- ----------
ASSETS
Investments in and advances to related parties . . . . . $ 7,921 $ 25,509
Cash and cash equivalents. . . . . . . . . . . . . . . . - 267
Property and equipment . . . . . . . . . . . . . . . . . 26 40
Investments. . . . . . . . . . . . . . . . . . . . . . . 249 77
Other. . . . . . . . . . . . . . . . . . . . . . . . . . 85 -
Intangible assets. . . . . . . . . . . . . . . . . . . . 4,205 4,376
---------- ----------
Total Assets . . . . . . . . . . . . . . . . . . . . . . $ 12,486 $ 30,269
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued distributions on preferred securities. . . . . . $ 49,227 $ 33,203
Federal income tax payable . . . . . . . . . . . . . . . 4,326 1,639
Other. . . . . . . . . . . . . . . . . . . . . . . . . . 2,812 4,439
---------- ----------
Total Liabilities. . . . . . . . . . . . . . . . . . . . 56,365 39,281
---------- ----------
Mandatorily redeemable
Preferred securities . . . . . . . . . . . . . . . . . . 135,000 135,000
---------- ----------
Shareholders' Equity:
Common stock, no par value, 100,000,000 shares
Authorized, 10,385,399 and 10,385,399 issued and
outstanding. . . . . . . . . . . . . . . . . . . . . . . 38,136 38,136
Additional paid-in capital . . . . . . . . . . . . . . . 5,851 5,851
Unrealized loss on investments (net of deferred taxes of
$nil in 2002 and 2001 . . . . . . . . . . . . . . . . . (2,220) (2,613)
Retained earnings. . . . . . . . . . . . . . . . . . . . (220,646) (185,386)
---------- ----------
Total Shareholders' Deficit. . . . . . . . . . . . . . . (178,879) (144,012)
---------- ----------
Total Liabilities and Shareholders' Equity . . . . . . . $ 12,486 $ 30,269
========== ==========
SYMONS INTERNATIONAL GROUP, INC. - CONSOLIDATED
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Statements of Operations
For The Years Ended December 31, 2002, 2001 and 2000
(In thousands)
2002 2001 2000
---------- ---------- ----------
Fee income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,675 $ 1,175 $ 600
Net investment income. . . . . . . . . . . . . . . . . . . . . 6,329 6,335 6,456
---------- ---------- ----------
Total revenue. . . . . . . . . . . . . . . . . . . . . . . . . 8,004 7,510 7,056
---------- ---------- ----------
Expenses:
Policy acquisition and general and administrative expenses 156 3,104 39,032
Interest expense . . . . . . . . . . . . . . . . . . . . . 171 - -
---------- ---------- ----------
Total expenses . . . . . . . . . . . . . . . . . . . . . . . . 327 3,104 39,032
---------- ---------- ----------
Income before taxes and minority interest. . . . . . . . . . . 7,677 4,406 (31,976)
Provisions for income taxes. . . . . . . . . . . . . . . . . . 2,687 1,542 1,393
---------- ---------- ----------
Net income (loss) before minority interest . . . . . . . . . . 4,990 2,864 (33,369)
Minority interest:
Equity in consolidated subsidiaries. . . . . . . . . . . . (24,225) (20,950) (41,469)
Distributions on preferred securities, net of tax. . . . . (16,025) (14,806) (13,587)
---------- ---------- ----------
Net loss for the period. . . . . . . . . . . . . . . . . . . . (35,260) (32,892) (88,425)
Change in unrealized gains (losses) on securities. . . . . . . 393 1,325 960
Equity (deficit), beginning of year. . . . . . . . . . . . . . (144,012) (112,445) (24,980)
---------- ---------- ----------
Equity (deficit), end of year. . . . . . . . . . . . . . . . . $(178,879) $(144,012) $(112,445)
========== ========== ==========
SYMONS INTERNATIONAL GROUP, INC.
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Statements of Cash Flow
For The Years Ended December 31, 2002, 2001 and 2000
(In thousands)
2002 2001 2000
--------- --------- ---------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . $(35,260) $(32,892) $(88,425)
Cash flows from operating activities:
Adjustments to reconcile net cash provided by (used in)
Operations:
Equity in net loss of subsidiaries. . . . . . . . . 24,225 20,950 41,469
Accrued Distributions on Preferred Securities. . . . . . 16,025 14,806 13,587
Depreciation of property and equipment . . . . . . . 15 15 17
Amortization of intangible assets. . . . . . . . . . 171 171 34,977
Stock issuance from Demutualization. . . . . . . . . . . (175) - -
Net changes in operating assets and liabilities:
Other assets . . . . . . . . . . . . . . . . . . . . (85) - (210)
Federal income taxes . . . . . . . . . . . . . . . . 2,687 (277) (1,853)
Other liabilities. . . . . . . . . . . . . . . . . . (1,628) 3,582 622
--------- --------- ---------
Net cash provided by (used in) operations. . . . . . . . 5,975 6,355 184
--------- --------- ---------
Cash flows used in investing activities:
Purchase of property and equipment . . . . . . . . . - (90) -
--------- --------- ---------
Net cash (used in) investing activities: . . . . . . . . - (90) -
--------- --------- ---------
Cash flows provided by financing activities:
Contributions of capital or dividends received from
Subsidiaries. . . . . . . . . . . . . . . . . . . (6,242) (6,033) (5,037)
Loans (to)/from related parties. . . . . . . . . . . - (50) -
--------- --------- ---------
Net cash provided by (used in) financing activities. . . (6,242) (6,083) (5,037)
--------- --------- ---------
Increase (decrease) in cash and cash equivalents . . . . (267) 182 (4,853)
Cash and cash equivalents - beginning of year. . . . . . 267 85 4,938
--------- --------- ---------
Cash and cash equivalents - end of year. . . . . . . . . $ - $ 267 $ 85
========= ========= =========
SYMONS INTERNATIONAL GROUP, INC. - CONSOLIDATED
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
For The Years Ended December 31, 2002, 2001 and 2000
BASIS OF PRESENTATION
The condensed financial information should be read in conjunction with the
consolidated financial statements of Symons International Group, Inc. The
condensed financial information includes the accounts and activities of the
parent company which acts as the holding company for the insurance subsidiaries.
SYMONS INTERNATIONAL GROUP, INC. - CONSOLIDATED
SCHEDULE IV - REINSURANCE
For The Years Ended December 31, 2002, 2001 and 2000
(In thousands)
PROPERTY AND LIABILITY INSURANCE 2002 2001 2000
--------- ---------- ---------
Direct amount . . . . . . . . . . . $107,708 $ 159,821 $168,626
Assumed from other companies. . . . 67 1,271 5,835
Ceded to other companies. . . . . . (77,291) (105,158) (78,621)
--------- ---------- ---------
Net amounts . . . . . . . . . . . . $ 30,484 $ 55,934 $ 95,840
========= ========== =========
Percentage of amount assumed to net 0.2% 2.3% 6.1%
SYMONS INTERNATIONAL GROUP, INC. - CONSOLIDATED
SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS
For The Years Ended December 31, 2002, 2001 and 2000
(In Thousands)
2002 2001 2000
Allowance for Allowance for Allowance for
Doubtful Accounts Doubtful Accounts Doubtful Accounts
------------------ ------------------ ------------------
Additions:
Balance at beginning of period. . $ 1,526 $ 1,940 $ 1,479
Charged to costs and expenses (1) 1,448 6,122 9,623
Charged to other accounts . . . . - - -
Deductions from reserves. . . . . 2,730 6,536 9,162
------------------ ------------------ ------------------
Balance at end of period. . . . . $ 244 $ 1,526 $ 1,940
================== ================== ==================
<FN>
(1) The Company monitors the adequacy of its allowance for doubtful accounts
monthly and believes the balance of such allowance at December 31, 2002,
2001 and 2000 was adequate.
SYMONS INTERNATIONAL GROUP, INC. - CONSOLIDATED
SCHEDULE VI - SUPPLEMENTAL INFORMATION CONCERNING
PROPERTY - CASUALTY INSURANCE OPERATIONS
For The Years Ended December 31, 2002, 2001 and 2000
(In thousands)
CONSOLIDATED PROPERTY - CASUALTY ENTITIES
Reserves
For
Unpaid Amorti-
Claims zation of
Deferred And Deferred Paid Claims
Policy Claim Net Claims and Policy and Claim
Acquisi- Adjust- Invest Adjustment Expenses Acqui- Adjust-
tion ment Unearned Earned ment Incurred sition Ment Premium
Year Costs Expense Premiums Premiums Income Related to: Costs Expense Written
- ---- ---------------------------------------------------------------------------------------------------------------
Current Prior
Years Years
------- ------
2000 6,454 108,117 62,386 137,706 10,074 127,497 (14,118) 37,453 167,442 174,461
2001 763 81,142 59,216 76,947 6,286 69,667 774 33,747 104,764 161,092
2002 - 67,204 35,797 37,662 4,139 35,413 12,775 19,624 55,585 107,775
<FN>
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 liabilities for losses and loss adjustment
expenses, 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, thereunto duly authorized.
Symons International Group, Inc.
/s/ Douglas H. Symons
------------------------
June 3, 2003 By: Douglas H. Symons
President and 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 June 3 2003, on behalf of the
Registrant in the capacities indicated:
(1) Principal Executive Officer:
/s/ Douglas H. Symons
- ------------------------
Douglas H. Symons
President and Chief Executive Officer
(Principal Executive Officer)
(2) Principal Financial Officer:
/s/ Bruce K. Dwyer
- ---------------------
Bruce K. Dwyer
Chief Financial Officer
(3) The Board of Directors:
/s/ G. Gordon Symons
- -----------------------
G. Gordon Symons
Chairman of the Board
/s/ Douglas H. Symons
- ------------------------
Douglas H. Symons
Director
/s/ Terry W. Anker
- ---------------------
Terry W. Anker
Director
/s/ Michael D. Puckett
- -------------------------
Michael D. Puckett
Director
CERTIFICATE OF THE
PRINCIPAL EXECUTIVE OFFICER OF
SYMONS INTERNATIONAL GROUP, INC.
I, Douglas H. Symons, certify that:
1. I have reviewed this annual report on Form 10-K of Symons International
Group, Inc.
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report.
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Company as of, and for, the periods presented in this annual report.
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
Company, and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the Company's
auditors and the audit committee of the Company's board of directors (or
persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for
the Company's auditors any material weaknesses in internal controls;
and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal
controls; and
6. I have indicated in this annual report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our most
recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Dated: June 3, 2003 By: /s/ Douglas H. Symons
------------------------
Douglas H. Symons
Chief Executive Officer
CERTIFICATE OF THE
CHIEF FINANCIAL OFFICER OF
SYMONS INTERNATIONAL GROUP, INC.
I, Bruce K. Dwyer, certify that:
1. I have reviewed this annual report on Form 10-K of Symons International
Group, Inc.
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report.
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the Company as of, and for, the periods presented in this annual report.
4. I am responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the
Company, and we have:
a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
b) evaluated the effectiveness of the Company's disclosure controls and
procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and
c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. I have disclosed, based on my most recent evaluation, to the Company's
auditors and the audit committee of the Company's board of directors (or
persons performing the equivalent functions):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the Company's ability to record,
process, summarize and report financial data and have identified for
the Company's auditors any material weaknesses in internal controls;
and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the Company's internal
controls; and
6. I have indicated in this annual report whether or not there were
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date of our most
recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Dated: June 3, 2003 By: /s/Bruce K. Dwyer
-------------------
Bruce K. Dwyer
Chief Financial Officer
EXHIBIT INDEX
REFERENCE TO SEQUENTIAL
Regulation S-K Page
--------------- ----
Exhibit No. Document Number
-------------------- ------
2.1 The Strategic Alliance Agreement by and between Continental Casualty
Company and IGF Insurance Company, IGF Holdings, Inc. and Symons
International Group, Inc. dated February 28, 1998 is incorporated by
reference to Exhibit 2.1 of the Registrant's 1997 Form 10-K.
2.2 The MPCI Quota Share Reinsurance Contract by and between Continental
Casualty Company and IGF Insurance Company, IGF Holdings, Inc. and Symons
International Group, Inc. dated February 28, 1998 is incorporated by
reference to Exhibit 2.2 of the Registrant's 1997 Form 10-K.
2.3 The MPCI Quota Share Reinsurance Agreement by and between Continental
Casualty Company and IGF Insurance Company, IGF Holdings, Inc. and Symons
International Group, Inc. dated February 28, 1998 is incorporated by
reference to Exhibit 2.3 of the Registrant's 1997 Form 10-K.
2.4 The Crop Hail Insurance Quota Share Contract by and between Continental
Casualty Company and IGF Insurance Company, IGF Holdings, Inc. and Symons
International Group, Inc. dated February 28, 1998 is incorporated by
reference to Exhibit 2.4 of the Registrant's 1997 Form 10-K.
2.5 The Crop Hail Insurance Quota Share Agreement by and between Continental
Casualty Company and IGF Insurance Company, IGF Holdings, Inc. and Symons
International Group, Inc. dated February 28, 1998 is incorporated by
reference to Exhibit 2.5 of the Registrant's 1997 Form 10-K.
2.6 The Crop Hail Insurance Services and Indemnity Agreement by and between
Continental Casualty Company and IGF Insurance Company, IGF Holdings, Inc.
and Symons International Group, Inc. dated February 28, 1998 is
incorporated by reference to Exhibit 2.6 of the Registrant's 1997 Form
10-K.
2.7 The Multiple Peril Crop Insurance Services and Indemnity Agreement by and
between Continental Casualty Company and IGF Insurance Company, IGF
Holdings, Inc. and Symons International Group, Inc. dated February 28, 1998
is incorporated by reference to Exhibit 2.7 of the Registrant's 1997 Form
10-K.
2.8 The Stock Purchase Agreement between IGF Holdings, Inc. and 1911 CORP,
dated July 7, 1998 is incorporated by reference to Exhibit 2.9 of the
Registrant's 1998 Form 10-K.
3.1 The Registrant's Restated Articles of Incorporation are incorporated by
reference to Exhibit 3.1 of the Registrant's Registration Statement on Form
S-1, Reg. No. 333-9129.
3.2 Registrant's Restated Code of Bylaws, as amended, is incorporated by
reference to Exhibit 1 of the Registrant's 1996 Form 10-K.
4.1(1) The Senior Subordinated Indenture between Symons International Group,
Inc. as issuer and Wilmington Trust Company as trustee for SIG Capital
Trust I dated August 12, 1997 is incorporated by reference to Exhibit 4 of
the Registrant's Registration Statement on Form S-4, Reg. No. 333-35713.
4.1(2) First Supplemental Senior Subordinated Indenture between Symons
International Group, Inc. and Wilmington Trust Company Related to SIG
Capital Trust I dated January 15, 1998 is incorporated by reference to
Exhibit 4.3(2) of the Registrant's 1997 Form 10-K.
10.1 The Management Agreement among Superior Insurance Company, Superior
American Insurance Company, Superior Guaranty Insurance Company and GGS
Management, Inc. dated April 30, 1996 is incorporated by reference to
Exhibit 10.5 of the Registrant's Registration Statement on Form S-1, Reg.
No. 333-9129.
10.2 The Management Agreement between Pafco General Insurance Company and
Registrant dated May 1, 1987, as assigned to GGS Management, Inc. effective
April 30, 1996, is incorporated by reference to Exhibit 10.6 of the
Registrant's Registration Statement on Form S-1, Reg. No. 333-9129.
10.3 The Administration Agreement between IGF Insurance Company and Registrant
dated February 26, 1990, as amended, is incorporated by reference to
Exhibit 10.7 of the Registrant's Registration Statement on Form S-1, Reg.
No. 333-9129.
10.4 The Agreement between IGF Insurance Company and Registrant dated November
1, 1990 is incorporated by reference to Exhibit 10.8 of the Registrant's
Registration Statement on Form S-1, Reg. No. 333-9129.
10.5 The Registration Rights Agreement between Goran Capital Inc. and Registrant
dated May 29, 1996 is incorporated by reference to Exhibit 10.13 of the
Registrant's Registration Statement on Form S-1, Reg. No. 333-9129.
10.6* The Employment Agreement between Goran Capital Inc., Symons International
Group, Inc. and Douglas H. Symons effective March 8, 1999 is incorporated
by reference to Exhibit 10.5 of the Registrant's 2000 Form 10-K.
10.7* The Employment Agreement between Goran Capital Inc., Symons International
Group, Inc. and David N. Hafling dated October 15, 2002 is incorporated by
reference to Exhibit 10.7 to Registrant's 2001 Form 10-K.
10.8* The Employment Agreement between Symons International Group, Inc. and Mark
A. Paul dated July 30, 2001is incorporated by reference to Exhibit 10.8 to
Registrant's 2001 Form 10-K.
10.9 The GGS Management Holdings, Inc. 1996 Stock Option Plan is incorporated by
reference to Exhibit 10.21 of the Registrant's Registration Statement on
Form S-1, Reg. No. 333-9129.
10.10 The Registrant's 1996 Stock Option Plan is incorporated by reference to
Exhibit 10.22 of the Registrant's Registration Statement on Form S-1, Reg.
No. 333-9129.
10.11 The Registrant's Retirement Savings Plan is incorporated by reference to
Exhibit 10.24 of the Registrant's Registration Statement on Form S-1, Reg.
No. 333-9129.
10.12 The Insurance Service Agreement between Mutual Service Casualty Company
and IGF Insurance Company dated May 20, 1996 is incorporated by reference
to Exhibit 10.25 of the Registrant's Registration Statement on Form S-1,
Reg. No. 333-9129.
10.13(2) The Crop Hail Quota Share Reinsurance Contract and Crop Insurance
Service Agreement between Pafco General Insurance Company and IGF Insurance
Company is incorporated by reference to Exhibit 10.27(2) of the
Registrant's Registration Statement on Form S-1, Reg. No. 333-9129.
10.13(3) The Automobile Third Party Liability and Physical Damage Quota Share
Reinsurance Contract between IGF Insurance Company and Pafco General
Insurance Company is incorporated by reference to Exhibit 10.27(3) of the
Registrant's Registration Statement on Form S-1, Reg. No. 333-9129.
10.13(5) The Standard Reinsurance Agreement between Federal Crop Insurance
Corporation and IGF Insurance Company dated July 1, 1997 is incorporated by
reference to Exhibit 10.13(6) to the Registrant's 1999 Form 10-K.
10.13(9) Amendment No. 1 to the 1998 Standard Reinsurance Agreement dated July
29, 1998 is incorporated by reference to Exhibit 10.18(8) to the
Registrant's 1999 Form 10-K.
10.13(11) Quota Share Reinsurance Agreement between Superior Insurance Company
and its Wholly -Owned Insurance Subsidiaries and National Union Fire
Insurance Company of Pittsburgh, PA effective January 1, 2000 is
incorporated by reference to Exhibit 10.13(11) to the Registrant's 2001
Form 10-K.
10.13(12) Quota Share Reinsurance Agreement between Pafco General Insurance
Company and National Union Fire Insurance Company of Pittsburgh, PA
effective January 1, 2000 is incorporated by reference to Exhibit 10.13(12)
to the Registrant's 2001 Form 10-K.
10.13(14) Addendum No. 2 to Quota Share Reinsurance Agreement effective January
1, 2000 between Superior Insurance Company and its Wholly-Owned Insurance
Subsidiaries and National Union Fire Insurance Company of Pittsburgh, PA
effective December 30, 2000 is incorporated by reference to Exhibit
10.13(14) to Registrant's 2001 Form 10-K.
10.13(15) Addendum No. 2 to Quota Share Reinsurance Agreement effective January
1, 2000 between Pafco General Insurance Company and National Union Fire
Insurance Company of Pittsburgh, PA effective December 30, 2000 is
incorporated by reference to Exhibit 10.13(15) to Registrant's 2001 Form
10-K.
10.13(16) Addendum No. 3 to Quota Share Reinsurance Agreement effective January
1, 2000 between Superior Insurance Company and its Wholly-Owned Insurance
Subsidiaries and National Union Fire Insurance Company of Pittsburgh, PA
effective January 1, 2002.
10.13(17) Addendum No. 3 to Quota Share Reinsurance Agreement effective January
1, 2000 between Pafco General Insurance Company and National Union Fire
Insurance Company of Pittsburgh, PA effective January 1, 2002.
10.13(18) Addendum No. 4 to Quota Share Reinsurance Agreement effective January
1, 2000 between Superior Insurance Company and its Wholly-Owned insurance
subsidiaries and National Union Fire Insurance Company of Pittsburgh, PA
dated January 1, 2002.
10.13(19) Addendum No. 4 to Quota Share Reinsurance Agreement effective January
1, 2000 between Pafco General Insurance Company and National Union Fire
Insurance Company of Pittsburgh, PA effective January 1, 2002.
10.13(20) Addendum No. 5 to Quota Share Reinsurance Agreement effective January
1, 2000 between Superior Insurance Company and its Wholly-Owned insurance
subsidiaries and National Union Fire Insurance Company of Pittsburgh, PA
dated September 26, 2002.
10.14(1) The SIG Capital Trust I 9 % Trust Preferred Securities Purchase
Agreement dated August 7, 1997 is incorporated by reference in the
Registrant's Registration Statement on Form S-4, Reg. No. 333-35713.
10.14(2) The Registration Rights Agreement among Symons International Group,
Inc., SIG Capital Trust I and Donaldson, Lufkin & Jenrette Securities
Corporation, Goldman, Sachs & Co., CIBC Wood Gundy Securities Corp. and
Mesirow Financial, Inc. dated August 12, 1997 is incorporated by reference
in the Registrant's Registration Statement on Form S-4, Reg. No. 333-35713.
10.14(3) The Declaration of Trust of SIG Capital Trust 1 dated August 4, 1997 is
incorporated by reference in the Registrant's Registration Statement on
Form S-4, Reg. No. 333-35713.
10.14(4) The Amended and Restated Declaration of Trust of SIG Capital Trust I
dated August 12, 1997 is incorporated by reference in the Registrant's
Registration Statement on Form S-4, Reg. No. 333-35713.
10.15* The Employment Agreement between Goran Capital Inc., Symons International
Group, Inc. and Gene S. Yerant effective January 10, 2000 is incorporated
by reference to Exhibit 10.15 of the Registrant's March 31, 2000 Form 10-Q.
10.16* The Employment Agreement between Symons International Group, Inc., Goran
Capital Inc. and Gregg F. Albacete effective January 26, 2000 is
incorporated by reference to Exhibit 10.16 of the Registrant's March 31,
2000 Form 10-Q.
10.17 The Asset Purchase Agreement by and among Acceptance Insurance Companies
Inc., American Growers Insurance Company, American Agrisurance, Inc., Goran
Capital Inc., Symons International Group, Inc., IGF Holdings, Inc. and IGF
Insurance Company dated Mary 23, 2001 incorporated by reference to Exhibit
10.9 of the Registrant's June 30, 2001 Form 10-Q.
10.18 First Amendment to Asset Purchase Agreement by and among Acceptance
Insurance Companies Inc. American Growers Insurance Company, American
Agrisurance, Inc., Goran Capital Inc., Symons International Group, Inc.,
IGF Holdings, Inc. and IGF Insurance Company dated June 5, 2001
incorporated by reference to Exhibit 10.10 of the Registrant's June 30,
2001 Form 10-Q.
10.19 Assignment and Assumption Agreement by IGF Holdings, Inc. and IGF
Insurance Company and Acceptance Insurance Companies Inc. dated May 23,
2001 incorporated by reference to Exhibit 10.11 of the Registrant's June
30, 2001 Form 10-Q.
10.20 IGF/Acceptance Retrocession Agreement by and between Acceptance Insurance
Company and IGF Insurance Company dated May 23, 2001 incorporated by
reference to Exhibit 10.13 of the Registrant's June 30, 2001 Form 10-Q.
10.21 Consulting and Non-competition Agreement by and between Symons
International Group, Inc. and Acceptance Insurance Companies Inc. dated May
23, 2001 incorporated by reference to Exhibit 10.15 of the Registrant's
June 30, 2001 Form 10-Q.
10.22* Addendum to Employment Agreement between Goran Capital Inc., Symons
International Group, Inc. and G. Gordon Symons effective January 1, 1998 is
incorporated by reference to Exhibit 10.23 of the Registrant's 2001 Form
10-K.
10.23* The Employment Agreement dated May 31, 2002 between Goran Capital Inc.,
Symons International Group, Inc. and Douglas H. Symons.
10.24* Addendum to Consulting Agreement dated January 1, 1998 by and between
Goran Capital Inc., the Company, Granite Reinsurance Company Ltd., Goan
Management Bermuda Ltd. and G. Gordon Symons.
13 2002 Annual Report of Symons International Group, Inc.
99.1 Certifcation pursuant to section 906 of the Sarbanes -Oxley Act of 2002
99.2 Certifcation pursuant to section 906 of the Sarbanes -Oxley Act of 2002
* Compensation Related Agreement