Exhibit 2.9 / Exhibit H, PIC Wisconsin's request to the Michigan Office of
Financial and Insurance Services for an exemption
from re-qualification.
March 15, 2006
VIA UPS OVERNIGHT
Sue Housman
Michigan Office of Financial and Insurance Services
611 W. Ottawa
Lansing, MI 48933
RE: Physicians Insurance Company of Wisconsin, Inc.
Dear Sue:
As I mentioned, ProAssurance Corporation and Physicians
Insurance Company of Wisconsin, Inc. ("PIC Wisconsin") have entered into an
Agreement and Plan of Merger under which ProAssurance would acquire control of
PIC Wisconsin. ProAssurance provided your Office with a copy of the Form A it
filed in Wisconsin regarding this change in control. Because PIC Wisconsin
satisfies the conditions under Mich. Comp. Laws ss. 500.405 for an exemption
from requalification due to this change of control, I have enclosed for filing a
Request for Determination of Exemption from Requalification under Section
405(1). Please let me know if you have any questions or comments.
Very truly yours,
QUARLES & BRADY LLP
/s/ William J. Toman
--------------------
William J. Toman
WJT:bxb
Enclosure
740266.00016
cc: David L. Maurer, PIC Wisconsin
Kathryn A. Neville, ProAssurance
================================================================================
Best's Rating of A- (Excellent)
Financial Size Category of VII ($50 million to $100 million)
================================================================================
Rating Category (Excellent): Assigned to companies that have, in our opinion, an
excellent ability to meet their ongoing obligations to policyholders. A.M. Best
assigns each letter rated (A++ through D) insurance company a Financial Size
Category (FSC), which is designed to provide a convenient indicator of the size
of a company based on reported policyholders' surplus and conditional or reserve
funds.
The objective of Best's rating system is to provide an opinion of an insurer's
financial strength and ability to meet ongoing obligations to policyholders. Our
opinions are derived from the evaluation of a company's balance sheet strength,
operating performance and business profile as compared to Best's quantitative
and qualitative standards. View our Best's Rating System and Procedures for more
information.
While Best's Ratings reflect our opinion of a company's financial strength and
ability to meet its ongoing obligations to policyholders, they are not a
warranty, nor are they a recommendation of a specific policy form, contract,
rate or claim practice. View our entire notice for complete details.
Note: The above information reflects the most recent Best's Rating for this
company, which may have been released subsequent to the creation of the
following Best's Company Report.
Best's Company Reports provide detailed business overview, extensive financial
data and analytical commentary, product and geographic information, company
history, as well as the rationale supporting the financial strength rating
assigned by A.M. Best. These reports are updated on a regular basis based on
input and analysis performed throughout the year.
Best Company Report Revision Date - 07/21/2005 *
The Report Revision Date * represents the last significant material change made
to this report. Other non-material changes may have been made to this report
subsequent to this date, but are not reflected in the report revision date. The
Best Company Report below was created based on the following dates.
- -----------------------------------------------------------------------------------------
RATING AND COMMENTARY(1) FINANCIAL(2) GENERAL INFORMATION(3)
- -----------------------------------------------------------------------------------------
BEST' RATING: 07/20/2005 TIME PERIOD: ANNUAL-2005 CORPORATE STRUCTURE: N/A
RATING RATIONALE: 07/20/2005 LAST UPDATED: 03/09/2006 STATES LICENSED: 06/16/2003
REPORT COMMENTARY: STATUS: AS RECEIVED OFFICERS AND DIRECTORS:
07/21/2005 07/21/2005
- ------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
*Note: The Rating and Commentary (1)date outlines the most recent updates to the
Company's Rating, Rationale, and Report Commentary for key rating and business
changes. Report commentary may include significant changes to Business Review,
Financial Performance/Earnings, Capitalization, Investment/Liquidity, or
Reinsurance sections of the report. The Financial 2 date reflects the current
status of the financial tables found within the body of the Company Report,
including whether the data was loaded as received or had been run through our
quality control cross-check process. The General Information (3)date covers key
areas that may have changed such as corporate structure, states licensed or
officers and directors.
Group Affiliation: PIC WISCONSIN Group
1002 Deming Way, Madison, Wisconsin, United States 53717
Mail Address: P.O. Box 45650, Madison, Wisconsin, United States 53744-5650
Web: http://www.picwisconsin.com/
Tel: 608-831-8331 Fax: 608-831-0084
AMB#: 10595 NAIC#: 23400
FEIN#: 39-1567580
Report Revision Date: 07/21/2005
BEST'S RATING
Based on our opinion of the consolidated Financial Strength of the company and
its insurance subsidiaries, the company is assigned a Best's Rating of A-
(Excellent). The company's Financial Size Category is Class VII.
RATING RATIONALE
The following text is derived from the report of PIC WISCONSIN Group.
Rating Rationale: This rating reflects the group's supportive risk-adjusted
capitalization, aggressive defense philosophy and risk management initiatives,
and established presence within its core markets. These positive rating factors
are partially offset by the significant growth in underwriting exposures in
recent years and the difficult interest rate environment. Although the group
experienced favorable calendar year loss reserve development in 2004, recent
accident years have developed adversely due primarily to the rise in claim
severity. The outlook is based on A.M. Best's expectation that supportive
capitalization will be maintained and profitability will improve over the
mid-term as a result of management's actions.
Risk-adjusted capitalization was enhanced in 2004 through the issuance of a $12
million 30-year surplus note, reduced premium writings and operating earnings.
The rapid premium growth that occurred in prior years was primarily attributed
to its regional diversification strategy and rate increases. The rate of premium
growth has slowed and is expected to continue because of increased competition
and focus on account profitability of its existing book of business. Given the
adverse case reserve development on prior year losses that became apparent at
the beginning of 2002, the group quickly responded by tightening its
underwriting guidelines which included a review and adjustment of its rating and
pricing structure. Other measures taken by the group included the exit from
certain jurisdictions, elimination of certain credits, and a general review of
operational procedures. These measures have resulted in improved underwriting
results.
The rating is based on the consolidated operating performance and financial
condition of Physicians Insurance Company of Wisconsin (PIC WISCONSIN) and its
inactive subsidiary, Century American Insurance Co. (CAIC). Management is
considering strategic alternatives for CAIC, including the potential sale of the
company.
Best's Rating: A- g Outlook: Stable
FIVE YEAR RATING HISTORY
Date
----
07/20/05 Best's
06/24/04 Rating
------
06/24/03 A- g A-
06/20/02 g A- g
05/21/01 A- g A- g
KEY FINANCIAL INDICATORS
Statutory Data ($000)
----------------------------------------------------------------------------------
Direct Net Pretax
Period Premiums Premiums Operating
Ending Written Written Income
----------------------------------------------------------------------------------
2001 43,916 32,350 4,961
2002 67,449 49,155 -3,157
2003 81,915 58,627 1,583
2004 79,435 57,166 1,361
2005 77,774 61,609 8,222
Statutory Data ($000)
----------------------------------------------------------------------------------
Total Policy-
Period Net Admitted holders'
Ending Income Assets Surplus
----------------------------------------------------------------------------------
2001 3,827 182,711 69,078
2002 -6,288 203,552 65,362
2003 2,507 244,538 76,300
2004 3,103 274,954 89,300
2005 2,818 283,056 88,467
Profitability Leverage Liquidity
------------------------------ --------------------------- ---------------------
Inv. Pretax Overall Oper.
Period Comb. Yield ROR Na Inv NPW Net Liq Cash-
Ending Ratio (%) (%) Lev to PHS Lev (%) flow(%)
- ------- -------- -------- -------- --------- -------- ------- -------- ----------
2001 111.1 5.8 16.3 39.7 0.5 2.1 160.8 139.5
2002 119.6 4.0 -7.8 49.9 0.8 2.9 148.1 154.4
2003 108.0 3.0 2.6 43.3 0.8 3.0 145.4 182.3
2004 106.6 2.5 2.4 48.3 0.6 2.7 148.1 150.0
2005 101.1 3.4 13.5 87.9 0.7 2.9 145.5 126.6
5-Yr Avg 108.4 3.6 5.2 ... ... ... ... ...
(*) Data reflected within all tables of this report has been compiled from the
company-filed statutory statement. Within several financial tables of this
report, this company is compared against the Medical Malpractice Composite.
(*) The most recent data contained in this Best's Company Report is "As
Received" indicating that this financial data was recorded as it was
received from the company. While the data provided were obtained from
sources believed to be reliable, their accuracy cannot be guaranteed.
BUSINESS REVIEW
Physicians Insurance Company of Wisconsin (PIC WISCONSIN) specializes in writing
professional liability insurance for healthcare professionals. The company
focuses on physician malpractice insurance in its home state, although it has
expanded into eight additional states, primarily Illinois, Nevada and Iowa, and
is offering liability insurance to other healthcare providers. Policies are
primarily issued on a claims-made basis, typically at limits of $1 million per
occurrence and $3 million in the aggregate. The company supports an agency
distribution system to market its products and services. In 1999, PIC WISCONSIN
adopted a renewed strategic plan that resulted in the definition of three
distinct business units. The Classic Insurance Strategic Business Unit provides
professional liability insurance for physicians, dentists, small healthcare
groups and ancillary healthcare providers. The Risk Financing Strategic Business
Unit targets the segment of the healthcare market that is demanding contemporary
approaches to managing professional liability risks; usually large to mid-sized
healthcare delivery systems. Due to consolidations in the healthcare market,
more sophisticated buyers of insurance have emerged, and customized insurance
products are demanded by that group. The Health Care Facilities Strategic
Business Unit provides professional liability, general liability and umbrella
insurance and risk management services to healthcare facilities; primarily small
to mid-sized hospitals, mostly rural, and stand-alone outpatient centers.
Prior to 1997, PIC WISCONSIN owned a subsidiary, Professional Assurance Company
(PAC), which focused on writing professional liability insurance for dentists in
Wisconsin, and also underwrote hospital malpractice insurance in Wisconsin and
dental malpractice insurance in Nevada. Effective December 31, 1996, PAC was
absorbed by merger by its parent. The business previously written by PAC has
been renewed onto PIC WISCONSIN books.
Affiliations: The company is a member of the Physician Insurers Association of
America.
2005 BUSINESS PRODUCTION AND PROFITABILITY ($000)
Premiums Written % of Pure Loss
Product ------------------------ Total Loss & LAE
Line Direct Net NPW Ratio Reserves
- -------------- ------- ------- ------- ------- --------
Med Mal Cl-Made 58,034 47,685 77.4 44.7 101,571
Med Mal Occur 15,460 11,843 19.2 34.3 42,498
Oth Liab Occur 3,295 1,437 2.3 6.8 1,743
All Other 985 644 1.0 23.2 340
------- ------- ------ ------- -------
Totals 77,774 61,609 100.0 41.5 146,152
Major 2005 Direct Premium Writings By State ($000): Wisconsin, $40,931 (52.6%);
Iowa, $15,894 (20.4%); Nevada, $9,153 (11.8%); Illinois, $6,898 (8.9%);
Nebraska, $2,296 (3.0%); 3 other jurisdictions, $2,602 (3.3%).
FINANCIAL PERFORMANCE
The following text is derived from the report of PIC WISCONSIN Group.
Overall Earnings: In recent years, operating earnings have been tempered by
increased loss costs associated with the medical professional liability line of
business which has led to less favorable and adverse loss reserve development on
prior year reserves, as well as the difficult interest rate environment. Despite
the decrease in earned premium during 2004 largely due to the withdrawal from
unpredictable territories in Illinois and the continued reduction in net
investment income, overall earnings were positive due to favorable loss reserve
development resulting from better than expected trial outcomes. Net income was
also bolstered during the year from the low current tax rate as the costs
related to a new underwriting and claims system were tax deductible. In 2002 the
group recorded an elevated underwriting loss which was compounded by a reduction
in investment income, including a realized capital loss relating to the
impairment of individual high yield bonds in the portfolio, and federal income
tax adjustments associated with the recent growth in premium, producing a net
loss for the year. However, the loss was partially tempered by PIC WISCONSIN
receiving a $3.6 million payment, which included $1.1 million of interest,
associated with a favorable decision from the United States Tax court related to
proposed adjustments by the IRS for the years ended December 31, 1993 and 1994.
The group's total return measures have varied as a result of swings in
unrealized capital gains and losses; more recently, total returns have been
enhanced by gains.
PROFITABILITY ANALYSIS
Company Industry Composite
------------------------------------------ -------------------------------------------
Pretax Return Pretax Return
Period ROR on Comb. Oper. ROR on Comb. Oper.
Ending (%) PHS(%) Ratio Ratio (%) PHS(%) Ratio Ratio
-----------------------------------------------------------------------------------------------------
2001 16.3 2.1 111.1 81.6 -11.2 -6.8 134.9 108.4
2002 -7.8 -4.3 119.6 103.2 -18.9 -17.2 137.3 117.7
2003 2.6 9.0 108.0 98.4 -15.0 -4.2 132.5 116.4
2004 2.4 5.6 106.6 96.3 -1.9 2.4 118.0 101.9
2005 13.5 1.7 101.1 87.1 ... ... ... ...
5-Yr Avg 5.2 2.9 108.4 94.0 ... ... ... ...
Underwriting Income: Although the five-year combined ratio continues to
outperform the medical malpractice sector, the group's underwriting results have
been adversely impacted by increased claims severity, reduced amounts of reserve
redundancy releases, increased reinsurance costs, and competition. Recent
unfavorable results were due primarily to adverse development, mostly from
Illinois and Iowa medical professional liability claims made business. Given the
adverse case reserve development on prior year losses that became apparent at
the beginning of 2002, the group quickly responded by tightening its
underwriting guidelines which included a review and adjustment of its rating and
pricing structure. Other measures taken by the group designed to improve
underwriting results included the exit from certain jurisdictions, elimination
of certain credits, and a general review of operational procedures. These
measures have resulted in improved underwriting results, evident in the reduced
combined ratio.
UNDERWRITING EXPERIENCE
Net Undrw Loss Ratios Expense Ratios
------------ ---------------------------- -------------------------------------------------
Income Pure Loss & Net Other Total Div. Comb
Year ($000) Loss LAE LAE Comm Exp. Exp. Pol. Ratio
- -------- -------- ------- ------- -------- ------- -------- ------ ------- ---------
2001 -4,007 39.6 36.7 76.3 6.0 26.1 32.1 2.6 111.1
2002 -9,810 70.2 25.9 96.1 5.3 16.1 21.4 2.2 119.6
2003 -4,401 16.0 74.6 90.5 2.5 15.0 17.5 ... 108.0
2004 -3,882 35.6 47.3 82.9 7.3 14.5 21.8 2.0 106.6
2005 -848 41.5 36.9 78.5 3.3 17.4 20.7 1.9 101.1
5-Yr AVG ... 38.2 46.8 85.0 4.7 17.0 21.8 1.6 108.4
Investment Income: The growth rate in investment income has fluctuated over the
five year period due to several factors including the recognition of additional
income from the inverse floater held in PIC WISCONSIN's portfolio in 2001, the
recent decline due to the low interest rate environment despite the continued
rise in the invested asset base, costs associated with the issuance of the $12.0
million surplus note in 2004, and the invested in a fixed income portfolio,
composed mainly of mortgage-backed securities and U.S. Government bonds. In
addition, the company maintains a diversified equity portfolio. During 2003 and
2004, the company held a large amount of funds in short term investments
available for the potential shareholder value plan, which subsequently have been
reinvested. By maintaining a core portfolio of highly predictable, stable
instruments that will meet expected claim payouts, the company is able to seek
higher risk/reward opportunities with the balance of the portfolio.
1
INVESTMENT INCOME ANALYSIS ($000)
Net Realized Unrealized
Inv Capital Capital
Year Income Gains Gains
---- ------- ------- -------
2001 8,943 1,003 -2,308
2002 6,637
2003 5,986 -3,621 3,403
2004 5,819 2,086 3,884
2005 8,496 1,979 1,500
Company Industry Composite
----------------------------------- -----------------------------
Inv Inc Inv Total Inv Inc Inv
Growth Yield Return Growth Yield
Year (%) (%) (%) (%) (%)
---- ------- --------- ---------- ----------- ----------
2001 40.1 5.8 4.9 -2.8 5.1
2002 -25.8 4.0 3.8 -9.8 4.5
2003 -9.8 3.0 6.2 -8.8 3.8
2004 -2.8 2.5 4.1 5.5 3.7
2005 46.0 3.4 1.4 ... ...
5-Yr Avg 6.3 3.6 3.9 ... ...
INVESTMENT PORTFOLIO ANALYSIS
2005 Inv % of Invested
Asset Assets Assets Annual
Class ($000) 2005 2004 % Chg
- -----------------------------------------------------------------------------
Long-Term bonds 205,929 80.5 83.4 -0.6
Stocks 32,848 12.8 10.5 25.5
Affiliated Investments 8,197 3.2 3.3 -0.7
Other Inv Assets 8,915 3.5 2.7 31.9
Total 255,888 100.0 100.0 3.0
2005 BOND PORTFOLIO ANALYSIS
% of Mkt Val Avg. Class Class Struc. Struc.
Asset Total to Stmt Maturity 1 - 2 3 - 6 Secur. Secur.
Class Bonds Val(%) (Yrs) (%) (%) (%) (% of PHS)
- ----- ----- ------ ----- --- --- --- ----------
Governments 4.7 -4.2 3.9 100.0 - - -
States, terr & poss 52.5 -3.3 3.3 100.0 - 100.0 127.8
Corporates 42.8 -0.8 6.4 51.9 48.1 83.8 87.3
- ---------- ---- ---- --- ---- ---- ---- ----
Total all bonds 100.0 -2.4 4.7 79.4 20.6 88.4 215.0
CAPITALIZATION
The following text is derived from the report of PIC WISCONSIN Group.
Capital Generation: Following three consecutive years of decline, PIC
WISCONSIN's surplus improved in 2003 and 2004 primarily due to improved
underwriting results, capital gains, and the issuance of a $12.0 million 30-year
surplus note in the current year. During the period of decline, surplus was
impacted by unrealized capital losses, a $5.5 million increase in treasury stock
at PIC WISCONSIN and the aforementioned net loss in 2002. The 2001 increase in
treasury stock was a result of receiving notice from the Professionals Group,
Inc. of a change in control pursuant to the Reciprocal Stock Purchase Agreement
and Stock Transfer Restriction Agreement whereby PIC WISCONSIN repurchased 1,583
of its shares of common stock held by Professionals Group, Inc. These
repurchased shares are held as treasury stock. Going forward, internal capital
generation is expected to remain modest as the group continues to focus on
profitability derived from strict underwriting standards and prudent investment
strategies as well as reinstituting policyholder dividends.
CAPITAL GENERATION ANALYSIS ($000)
Source of Surplus Growth
------------------------
Pretax Total Net
Operating Inv. Contrib.
Year Income Gains Capital
---- ------ ----- -------
2001 4,961 -1,305 -5,378
2002 -3,157 -219 143
2003 1,583 5,970 70
2004 1,361 3,479 11,695
2005 8,222 -5,094 279
5-Yr Total 12,970 2,831 6,809
Source of Surplus Growth
------------------------
Other, Change PHS
Net of in Growth
Year Tax PHS (%)
---- --- --- ---
2001 -3,894 -5,616 -7.5
2002 -483 -3,716 -5.4
2003 3,315 10,938 16.7
2004 -3,535 13,000 17.0
2005 -4,239 -833 -0.9
5-Yr Total -8,837 13,773 -
Overall Capitalization: The group's policyholders' surplus adequately supports
its underwriting, investment and credit risks based on Best's Capital Adequacy
Ratio (BCAR) analysis. The level of risk-adjusted capitalization is derived from
its comparatively lower underwriting leverage somewhat offset by recent adverse
loss reserve development.
QUALITY OF SURPLUS ($000)
-------------------------
% of PHS Dividend Requirements
-------- ---------------------
Year- Cap Stk/ Un- Stock- Div to Div to
End Contrib. assigned holder POI Net Inc.
Year PHS Cap. Other Surplus Divs (%) (%)
- ---- --- ---- ----- ------- ---- --- ---
2001 69,078 10.7 - 89.3 - - -
2002 65,362 11.5 - 88.5 - - -
2003 76,300 9.9 - 90.1 - - -
2004 89,300 8.1 13.4 78.4 - - -
2005 88,467 8.5 13.6 77.9 - - -
Underwriting Leverage: Significant premium growth was generated in prior years
driven by the increase in new business, due to its regional diversification
strategy and the departure of insurance providers in various medical
professional liability markets, and the implementation of rate increases and
credit reductions on renewal business. However, the rate of premium growth has
slowed and is expected to continue because of increased competition and focus on
account profitability of its existing book of business. The premium decline in
2004 was mainly due to a decrease in hospital business. As a result of the
recent reduction in premiums combined with the issuance of the surplus note,
leverage measures declined slightly and remain at levels well below composite
averages.
LEVERAGE ANALYSIS
Company Industry Composite
------- ------------------
NPW to Reserves Net Gross NPW to Reserves Net Gross
Year PHS to PHS Lev Lev PHS to PHS Lev Lev
2001 0.5 1.1 2.1 2.4 0.7 2.2 3.4 4.1
2002 0.8 1.4 2.9 3.5 1.0 2.9 4.7 5.8
2003 0.8 1.6 3.0 3.7 1.0 3.2 5.1 6.3
2004 0.6 1.6 2.7 3.4 1.0 2.9 4.7 5.7
2005 0.7 1.7 2.9 3.5 - - - -
Current BCAR: 165.9
PREMIUM COMPOSITION & GROWTH ANALYSIS
-------------------------------------
Period DPW GPW
Ending ($000) (% Chg) ($000) (% Chg)
------ ------ ------- ------ -------
2001 43,916 42.7 43,916 42.6
2002 67,449 53.6 67,449 53.6
2003 81,915 21.4 81,915 21.4
2004 79,435 -3.0 79,438 -3.0
2005 77,774 -2.1 77,821 -2.0
5-Yr CAGR - 20.4 - 20.4
5-Yr Change - 152.6 - 152.7
Period NPW PE
Ending ($000) (% Chg) ($000) (% Chg)
2001 32,350 24.3 30,353 34.0
2002 49,155 51.9 40,287 32.7
2003 58,627 19.3 61,879 53.6
2004 57,166 -2.5 56,489 -8.7
2005 61,609 7.8 60,741 7.5
5-Yr CAGR - 18.8 - 21.8
5-Yr Change - 136.8 - 168.2
Reserve Quality: PIC WISCONSIN does not discount its loss reserves and
development has been favorable in 2000 and prior years on a calendar and
accident year basis reflective of management's conservative reserving philosophy
and aggressive defense strategies. However, recent accident year loss reserve
development has been adverse due to increased claim severity, particularly on
Illinois medical professional liability claims made business primarily for
accident year 2001. A.M. Best will continue to closely monitor the reserve
development going forward, particularly in the more recent accident years when
PIC WISCONSIN experienced substantial exposure growth.
LOSS & ALAE RESERVE DEVELOPMENT: CALENDAR YEAR ($000)
-----------------------------------------------------
Original Developed Develop. Develop. Develop. Unpaid Unpaid
Calendar Loss Reserves to to to Reserves Resrv. to
Year Reserves Thru 2005 Orig.(%) PHS (%) NPE (%) @ 12/2005 Dev.(%)
- ---- -------- --------- -------- ------- ------- --------- -------
2000 64,096 49,125 -23.4 -20.0 216.9 4,364 8.9
2001 68,781 71,722 4.3 4.3 236.3 15,263 21.3
2002 82,470 89,956 9.1 11.5 223.3 31,315 34.8
2003 111,827 117,366 5.0 7.3 189.7 61,450 52.4
2004 126,635 133,677 5.6 7.9 236.6 96,309 72.0
2005 134,748 134,748 - - 221.8 134,748 100.0
LOSS & ALAE RESERVE DEVELOPMENT: ACCIDENT YEAR ($000)
-----------------------------------------------------
Original Developed Develop. Unpaid Acc Yr. Acc Yr.
Accident Loss Reserves to Reserves Loss Comb
Year Reserves Thru 2005 Orig.(%) @12/2005 Ratio Ratio
- ---- -------- --------- -------- -------- ----- -----
2000 21,059 16,490 -21.7 2,667 86.6 127.0
2001 24,809 35,975 45.0 10,899 132.7 167.4
2002 35,552 37,711 6.1 16,052 107.2 130.8
2003 36,539 46,752 28.0 30,135 89.1 106.6
2004 42,251 39,937 -5.5 34,859 81.4 105.1
2005 38,439 38,439 - 38,439 71.2 93.8
Reinsurance Utilization: Effective July 1, 1997, the primary insurance limits
for healthcare providers subject to the Wisconsin Patients Compensation Fund
were increased to $1 million per occurrence and $3 million in the aggregate.
Previously, the Fund provided coverage above limits of $400,000. In response to
this change, which management supported since it provides the company with more
control over claims, the reinsurance program was restructured to increase PIC
WISCONSIN's net retention to $500,000 from $250,000. Best believes that this
level of retention continues to be conservative relative to the company's total
surplus position.
CEDED REINSURANCE ANALYSIS ($000)
---------------------------------
Company Industry Composite
------- ------------------
Ceded Business Rein Rec Ceded Business Rein Rec Ceded
Reins Retention to PHS Reins to Retention to PHS Reins to
Year Total (%) (%) PHS (%) (%) (%) PHS(%)
- ---- ----- --- --- ------- --- --- ------
2001 20,530 73.7 13.0 29.7 81.8 54.3 69.4
2002 40,277 72.9 33.6 61.6 78.0 80.9 110.1
2003 51,632 71.6 37.1 67.7 76.4 89.5 122.2
2004 59,713 72.0 41.9 66.9 75.8 77.6 108.2
2005 55,834 79.2 44.8 63.1 - - -
2005 REINSURANCE RECOVERABLES ($000)
------------------------------------
Paid & Total
Unpaid Unearned Other Reins
Losses IBNR Premiums Recov* Recov
------ ---- -------- ------ -----
US Insurers 5,768 10,613 9,698 -3,957 22,122
Other Non-US 13,756 11,987 1,964 -10,206 17,501
Total (ex US Affils)
19,524 22,600 11,662 -14,163 39,623
Grand Total 19,524 22,600 11,662 -14,163 39,623
* Includes Commissions less Funds Withheld
Investment Leverage: The group remains more aggressive than its peers on its
fixed income portfolio, with collateralized mortgage obligations (CMOs)
representing nearly 200 percent of surplus. This portfolio is actively managed,
and strict guidelines are in place limiting an investment in any one CMO class
and only a small portion of surplus is invested in the higher risk tranches.
INVESTMENT LEVERAGE ANALYSIS (% OF PHS)
---------------------------------------
Company Industry Composite
------- ------------------
Class Real Other Non-Affl Class
3-6 Estate/ Invested Common Inv. Affil 3-6 Common
Year Bonds Mtg. Assets Stocks Lev. Inv. Bonds Stocks
- ---- ----- ---- ------ ------ ---- ---- ----- ------
2001 5.7 0.8 0.3 32.9 39.7 18.2 3.5 34.2
2002 20.1 0.8 2.8 26.1 49.9 22.3 7.1 33.9
2003 11.7 0.7 0.7 30.2 43.3 19.5 8.4 43.7
2004 18.4 0.6 - 29.3 48.3 9.2 4.7 43.3
2005 50.1 0.6 - 37.1 87.9 9.3 - -
LIQUIDITY
The following text is derived from the report of PIC WISCONSIN Group.
Overall Liquidity: PIC WISCONSIN continues to maintain an excellent liquidity
position as invested assets exceeded net liabilities by over 30 percent.
Operating and underwriting cash flow has improved as a result of the growth in
writings and recent decline in loss payments. The group continues to maintain
quick and current liquidity measures that compare favorably to the medical
malpractice sector. Management consistently reviews the duration of its
investment portfolio to ensure that it adequately correlates with the expected
payout of loss reserves.
LIQUIDITY ANALYSIS
------------------
Company Industry Composite
------- ------------------
Gross Gross
Quick Current Overall Agents Bal Quick Current Overall Agents Bal
Year Liq (%) Liq (%) Liq (%) to PHS(%) Liq (%) Liq (%) Liq (%) to PHS(%)
- ---- ------- ------- ------- --------- ------- ------- ------- ---------
2001 46.6 131.1 160.8 - 30.7 124.6 137.1 5.9
2002 39.0 120.4 148.1 7.7 30.3 112.2 127.5 14.9
2003 49.4 120.7 145.4 4.8 32.6 112.2 125.6 11.2
2004 40.7 129.1 148.1 5.2 32.8 114.3 126.8 8.5
2005 39.3 127.0 145.5 4.2 - - - -
CASH FLOW ANALYSIS ($000)
-------------------------
Company Industry Composite
------- ------------------
Underw Oper Net Underw Oper Underw Oper
Cash Cash Cash Cash Cash Cash Cash
Year Flow Flow Flow Flow(%) Flow(%) Flow(%) Flow(%)
- ---- ---- ---- ---- ------- ------- ------- -------
2001 1,673 12,753 7,839 106.3 139.5 88.8 110.7
2002 8,502 19,533 1,870 124.3 154.4 92.6 118.6
2003 25,570 30,197 8,293 176.4 182.3 106.1 129.5
2004 14,323 20,480 -18,869 135.0 150.0 108.4 126.7
2005 7,202 15,093 2,125 113.1 126.6 - -
HISTORY
The company was incorporated under the laws of Wisconsin on October 3, 1986 and
began business on November 1, 1986. On December 31, 2004, 26,327.43 shares of
$250 par value common stock were issued of which 19,555.06 shares were
outstanding. The remaining 6,772.37 shares are held in treasury. There are
1,000,000 authorized common shares.
On May 26, 2004, the company issued a $12.0 million surplus note to ICONS, Ltd.
The surplus note has a 30 year maturity and is callable by the company at par
beginning May 26, 2009. The interest rate is fixed at 7.707% for five years and
is variable thereafter at 3 month LIBOR + 3.85%. Each payment of interest and
principal may be made only with prior approval of the Office of the Commissioner
of Insurance of the State of Wisconsin and only to the extent the company has
sufficient surplus to make such payment.
MANAGEMENT
Class A shares of the company are primarily owned by healthcare providers and
related corporations. The Wisconsin Medical Society owns 415 Class A shares of
the company, giving it a 2.1% ownership. The Wisconsin Medical Society is a
non-profit association
chartered by the state of Wisconsin with a membership of approximately 10,000
Wisconsin physicians.
Administration of the company's affairs is under the direction of William T.
Montei, president and chief executive officer and David L. Maurer, chief
financial officer and treasurer. Mr. Montei, has been with the company since
inception and had previously been associated with The Professionals Insurance
Company. Mr. Maurer, a CPA, has been with the company since 1989.
Officers: President and Chief Executive Officer, William T. Montei; Senior Vice
President and Secretary, Christopher J. Brady; Senior Vice President, Treasurer
and Chief Financial Officer, David L. Maurer; Vice Presidents, William S. Heck
(Underwriting), Penelope R. O'Hara (Claims), Andrew F. Ravenscroft (Operations),
Kerry M. Kravik (Risk Financing), Helen E. Woodfall (Risk Management).
Directors: Steven C. Bergin, M.D., Ronald H. Dix, Kevin T. Flaherty, M.D.,
Timothy Flaherty, M.D. (Chairman), William J. Listwan, M.D., Karen B. Maclay,
Carol M. Meils, M.D., William T. Montei, Andrew J. Policano, Ph.D, Thomas A.
Reminga, M.D., Richard G. Roberts, M.D., Ayaz M. Samadani, M.D., Michael A.
Wilson.
REGULATORY
An examination of the financial condition was made as of December 31, 2000 by
the Insurance Department of Wisconsin. An audit of the 2001 annual statement was
conducted by PricewaterhouseCoopers, LLP. An annual evaluation of reserves for
unpaid losses and loss adjustment expenses is made by Tillinghast - Towers
Perrin.
TERRITORY
The company is licensed in IL, IN, IA, KS, MI, MN, MO, NE, NV, ND, OH, SD and
WI.
REINSURANCE PROGRAMS
The company maintains excess of loss agreements for $1.5 million excess of
$500,000 on medical and hospital professional liability, general liability and
casualty losses on its professional office package policies. The company retains
an outer aggregate deductible of 5.5% of subject written premium for the $2.5
million excess of $500,000 layer. Quota share treaties recover 75% of commercial
multiple peril property losses, 90% of policies with limits greater than $1
million up to limits of $3 million and 100% of policies with limits greater than
$3 million up to limits of $6 million. Facultative reinsurance is used on
selected liability risks. The principal reinsurers are Transatlantic Reinsurance
Company, Hannover Ruckversicherungs - A.G., General Reinsurance Corporation and
Underwriters at Lloyd's, London. The company has a contract with
General Reinsurance Corporation which covers all claims made under death,
disability and retirement endorsements issued after December 31, 2003 up to a
total of $6.5 million. The contract provides for stop loss coverage of $3.5
million and coverage for excess of policy limits and/or extra contractual
obligations in the amount of $2.0 million. Losses for this contract cannot
exceed $9.5 million in the aggregate.
BALANCE SHEET ($000)
--------------------
ADMITTED ASSETS 12/31/2005 12/31/2004 2005 % 2004 %
- --------------- ---------- ---------- ------ ------
Bonds 205,929 207,266 72.8 75.4
Common stock 32,848 26,168 11.6 9.5
Cash & short-term invest 7,213 5,088 2.5 1.9
Real estate, investment 540 540 0.2 0.2
Investments in affiliates 5,622 5,566 2.0 2.0
Real estate, offices 2,575 2,692 0.9 1.0
---------- ---------- ---------- ----------
Total invested assets 254,726 247,320 90.0 89.9
Premium balances 18,551 17,076 6.6 6.2
Accrued interest 1,162 1,129 0.4 0.4
All other assets 8,617 9,430 3.0 3.4
---------- ---------- ---------- ----------
Total assets 283,056 274,954 100.0 100.0
LIABILITIES & SURPLUS 12/31/2005 12/31/2004 2005 % 2004 %
- --------------------- ---------- ---------- ------ ------
Loss & LAE reserves 146,152 140,804 51.6 51.2
Unearned premiums 20,061 19,193 7.1 7.0
All other liabilities 28,377 25,657 10.0 9.3
---------- ---------- ---------- ----------
Total liabilities 194,589 185,654 68.7 67.5
Surplus notes 12,000 12,000 4.2 4.4
Capital & assigned surplus 7,547 7,268 2.7 2.6
Unassigned surplus 68,920 70,032 24.3 25.5
---------- ---------- ---------- ----------
Total policyholders' surplus 88,467 89,300 31.3 32.5
---------- ---------- ---------- ----------
Total liabilities & surplus 283,056 274,954 100.0 100.0
SUMMARY OF 2005 OPERATIONS ($000)
---------------------------------
FUNDS PROVIDED
STATEMENT OF INCOME 12/31/2005 FROM OPERATIONS 12/31/2005
- ------------------- ---------- --------------- ----------
Premiums earned 60,741 Premiums collected 62,253
Losses incurred 25,229 Benefit & loss related pmts 17,904
LAE incurred 22,442
Undrw expenses incurred 12,779 LAE & undrw expenses paid 36,008
Div to policyholders 1,139 Div to policyholders 1,139
------ ------
Net underwriting income -848 Undrw cash flow 7,202
Net investment income 8,496 Investment income 9,036
Other income/expense 574 Other income/expense 574
------ ------
Pre-tax oper income 8,222 Pre-tax cash operations 16,811
Realized capital gains -3,797
Income taxes incurred 1,606 Income taxes pd (recov) 1,718
------ ------
Net income 2,818 Net oper cash flow 15,093
- --------------------------------------------------------------------------------
Copyright (C) 2005 by A.M. Best Company, Inc. ALL RIGHTS RESERVED. No part of
this report may be reproduced or distributed in any form or by any means, or
stored in a database or retrieval system, without the prior written permission
of the A.M. Best Company. BCR09012005
FIS 0144 (5/00) Michigan Office of Fiancial & Insurance Services
Division of Insurance
Request for Determination of Exemption from
Requalification under Section 405(1)
Enter complete information for each item requested. Attach additional sheet(s)
if needed.
- --------------------------------------------------------------------------------------------------------------------
Name of issuer subject to change in control NAIC number Tax ID number
Physicians Insurance Company of Wisconsin, Inc. 23400 391567580
- --------------------------------------------------------------------------------------------------------------------
Insurer home office address (also list mailing address if State of Domicile Date of change in control
different)
1002 Deming Way Wisconsin TBD Possible 2nd Quarter of 2006
Madison, Wisconsin 53717
- --------------------------------------------------------------------------------------------------------------------
Name of entity(ies) acquiring control of this insurer
ProAssurance Corporation
- --------------------------------------------------------------------------------------------------------------------
Name of ultimate controlling person(s) of this issuer
Physcians Insurance Company of Wisconsin, Inc.
- --------------------------------------------------------------------------------------------------------------------
[] Attach a chart that accurately depicts the organization structure after the change in control.
- --------------------------------------------------------------------------------------------------------------------
Complete chart below by listing last rating given this insurer by all nationally
recognized independent rating organizations such as A.M. Best, S&P, Moody's, Duff & Phelps, etc.
Name of Rating Organization Rating Rating "as of" date Date rating was issued
- --------------------------------------------------------------------------------------------------------------------
A.M. Best A- 12/31/04 01/29/96
- --------------------------------------------------------------------------------------------------------------------
S&P N/A
- --------------------------------------------------------------------------------------------------------------------
[] Attach a copy of the complete narrative for each rating listed.
- --------------------------------------------------------------------------------------------------------------------
What is the total ammount of capital and surplus of the insurer? Did the insurer receive any NAIC insurance
regulatory information system priority
Amount in whole dollars: $83,252,639 As of this date: 9/30/05 designation for the year preceding the change
in control?
What is the total adjusted capital of the insurer as a percentage of authorized
control level risk based capital as of the insurer's last annual filing? [X] No [] Yes If Yes, please attach a copy
of the examiner team synopsis
Enter percentage: 728% As of this date: 12/31/04
Was Insurer's Michigan certificate of authority
suspended, revoked or limited pursuant to Section
436 of the Michigan Insurance Code in the five
year period preceding the change in control?
[X] No [] Yes If Yes, please attach an
explanation of the action
- --------------------------------------------------------------------------------------------------------------------
Certification
I am making this request for determination of exemption from requalification under Section 405(1) of the Michigan Insurance Code
on behalf of the insurer named above. The insurer is applying for the lines of insurance granted in insurer's current Michigan
Certificate of Authority. The information given in this document and any attachments is true, complete and correct to the best
of my knowledge and belief.
- --------------------------------------------------------------------------------------------------------------------
Signature of the office of insurer Officer name and title typed or printed Date signed
/s/ David L. Maurer David L. Maurer 2/15/06
CFO/Treasurer
- --------------------------------------------------------------------------------------------------------------------
Person to contact about this document (please type or print) Contact person title Phone number
William J. Toman Counsel 608/283-2434
- --------------------------------------------------------------------------------------------------------------------
Our web address is: http://cis.state.mi.us./ins PA218 of 1956 as amended requires submission of this form by persons
Our toll free phone number is 1-877-999-6442 requesting a determination of exemption from requalification under
Section 405(1) prior to or following a change in control. Failure
to file this form after a change in control may result in revocation
of insurer's Michigan Certificate of Authority.
- --------------------------------------------------------------------------------------------------------------------
Michigan Department of Consumer & Industry Services Serving Michigan...Serving You