þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Ohio (State or other jurisdiction of incorporation or organization) |
31-1718622 (I.R.S. Employer Identification No.) |
|
465 Cleveland Avenue Westerville, Ohio (Address of principal executive offices) |
43082 (Zip Code) |
2
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
Premiums earned |
$ | 43,025 | 35,819 | 84,545 | 67,877 | |||||||||||
Net investment income |
3,495 | 2,410 | 6,654 | 4,375 | ||||||||||||
Net realized investment (losses) gains |
(94 | ) | 21 | (153 | ) | 144 | ||||||||||
Total revenues |
46,426 | 38,250 | 91,046 | 72,396 | ||||||||||||
Losses and loss expenses |
26,587 | 20,986 | 52,314 | 39,888 | ||||||||||||
Amortization of deferred policy acquisition costs |
10,335 | 8,643 | 20,555 | 15,493 | ||||||||||||
Other operating expenses |
3,474 | 3,272 | 6,539 | 6,850 | ||||||||||||
Severance expense |
| | 793 | 250 | ||||||||||||
Interest expense |
459 | 345 | 876 | 760 | ||||||||||||
Interest expense on the redemption of Class B Shares |
| 518 | | 518 | ||||||||||||
Total expenses |
40,855 | 33,764 | 81,077 | 63,759 | ||||||||||||
Income before income tax |
5,571 | 4,486 | 9,969 | 8,637 | ||||||||||||
Income tax expense |
1,572 | 1,500 | 2,891 | 2,763 | ||||||||||||
Net income |
$ | 3,999 | 2,986 | 7,078 | 5,874 | |||||||||||
Basic net income per share |
$ | 0.31 | 0.27 | 0.54 | 0.73 | |||||||||||
Diluted net income per share |
$ | 0.30 | 0.26 | 0.54 | 0.72 | |||||||||||
Weighted average of shares outstanding basic |
13,052,650 | 11,222,340 | 13,049,570 | 8,062,828 | ||||||||||||
Weighted average of shares outstanding diluted |
13,121,314 | 11,328,595 | 13,127,469 | 8,115,125 | ||||||||||||
Cash dividend per share |
$ | 0.02 | | 0.04 | | |||||||||||
3
June 30, 2005 | December 31, 2004 | |||||||
Assets |
||||||||
Investments: |
||||||||
Fixed maturities: |
||||||||
Available-for-sale, at fair value (amortized cost 2005, $276,706; 2004,
$262,470) |
$ | 278,411 | 263,401 | |||||
Held-to-maturity, at amortized cost (fair value 2005, $1,147; 2004, $1,156) |
1,135 | 1,142 | ||||||
Equities (available-for-sale): |
||||||||
Equity securities, at fair value (cost 2005, $25,769; 2004, $17,944) |
25,817 | 18,228 | ||||||
Bond mutual funds, at fair value (cost 2005, $18,598; 2004, $18,943) |
18,308 | 18,921 | ||||||
Short-term investments, at amortized cost |
5,056 | 4,026 | ||||||
Total investments |
328,727 | 305,718 | ||||||
Cash |
12,042 | 6,681 | ||||||
Premiums in course of collection, net |
16,618 | 11,747 | ||||||
Deferred policy acquisition costs |
18,919 | 17,411 | ||||||
Prepaid reinsurance premiums |
9,894 | 9,382 | ||||||
Reinsurance recoverable on paid losses, net |
2,137 | 3,897 | ||||||
Reinsurance recoverable on unpaid losses, net |
38,380 | 29,485 | ||||||
Deferred federal income tax asset |
6,389 | 5,442 | ||||||
Other assets |
6,730 | 5,164 | ||||||
Total assets |
$ | 439,836 | 394,927 | |||||
Liabilities and Shareholders Equity |
||||||||
Loss and loss expense reserves |
$ | 183,312 | 153,236 | |||||
Unearned premiums |
88,745 | 82,135 | ||||||
Long term debt |
25,000 | 25,000 | ||||||
Accrued expenses and other liabilities |
5,770 | 6,703 | ||||||
Reinsurance balances payable |
2,614 | 2,348 | ||||||
Collateral held |
11,622 | 7,008 | ||||||
Federal income taxes payable |
348 | 3,260 | ||||||
Total liabilities |
317,411 | 279,690 | ||||||
Shareholders equity: |
||||||||
Capital stock, without par value |
| | ||||||
Additional paid-in capital |
100,166 | 100,103 | ||||||
Retained earnings |
22,277 | 15,727 | ||||||
Unearned share compensation |
(1,011 | ) | (1,413 | ) | ||||
Accumulated other comprehensive income, net of taxes |
993 | 820 | ||||||
Total shareholders equity |
122,425 | 115,237 | ||||||
Total liabilities and shareholders equity |
$ | 439,836 | 394,927 | |||||
4
For
the Six Months Ended June 30, |
||||||||
2005 | 2004 | |||||||
Shareholders Equity |
||||||||
Capital stock: |
||||||||
Beginning of period |
$ | | | |||||
Stock issued |
| | ||||||
End of period |
| | ||||||
Additional paid-in capital: |
||||||||
Beginning of period |
100,103 | 26,866 | ||||||
Issuance of common shares |
| 77,931 | ||||||
Issuance cost |
| (1,298 | ) | |||||
Redemption of Class B shares |
| (5,000 | ) | |||||
Shares issued under share compensation plans |
63 | 1,063 | ||||||
End of period |
100,166 | 99,562 | ||||||
Retained earnings: |
||||||||
Beginning of period |
15,727 | 8,297 | ||||||
Net income |
7,078 | 5,874 | ||||||
Dividend of subsidiary available for sale |
| (7,024 | ) | |||||
Dividends |
(528 | ) | | |||||
End of period |
22,277 | 7,147 | ||||||
Unearned share compensation: |
||||||||
Beginning of period |
(1,413 | ) | (1,063 | ) | ||||
Vesting of restricted shares |
402 | | ||||||
End of period |
(1,011 | ) | (1,063 | ) | ||||
Accumulated other comprehensive income, net of taxes
|
||||||||
Beginning of period |
820 | 1,234 | ||||||
Unrealized holding (losses) gains arising during period, net of reclassification adjustment |
173 | (3,512 | ) | |||||
Dividend of subsidiary available for sale |
| (564 | ) | |||||
End of period |
993 | (2,842 | ) | |||||
Total shareholders equity |
$ | 122,425 | 102,804 | |||||
Comprehensive Income |
||||||||
Net income |
$ | 7,078 | 5,874 | |||||
Other comprehensive income: |
||||||||
Unrealized gains (losses) on securities: |
||||||||
Unrealized holding gains (losses) arising during the period: |
||||||||
Gross |
118 | (5,233 | ) | |||||
Related federal income tax (expense) benefit |
(44 | ) | 1,815 | |||||
Net unrealized gains (losses) |
74 | (3,418 | ) | |||||
Reclassification adjustment for gains (losses) included in net income: |
||||||||
Gross |
(153 | ) | 144 | |||||
Related federal income tax benefit (expense) |
54 | (50 | ) | |||||
Net reclassification adjustment |
(99 | ) | 94 | |||||
Other comprehensive income (loss) |
173 | (3,512 | ) | |||||
Total comprehensive income |
$ | 7,251 | 2,362 | |||||
5
For the Six Months Ended June 30, | ||||||||
2005 | 2004 | |||||||
Cash flows provided by operating activities: |
||||||||
Net income |
$ | 7,078 | 5,874 | |||||
Adjustments: |
||||||||
Net realized investment losses (gains) |
153 | (144 | ) | |||||
Deferred federal income tax benefit |
(1,188 | ) | (3,070 | ) | ||||
Restricted share compensation |
465 | | ||||||
Changes in assets and liabilities: |
||||||||
Premiums in course of collection, net |
(4,871 | ) | (1,374 | ) | ||||
Deferred policy acquisition costs |
(1,508 | ) | (3,902 | ) | ||||
Prepaid reinsurance premiums |
(512 | ) | (1,935 | ) | ||||
Reinsurance recoverable on paid and unpaid losses, net |
(7,135 | ) | (7,292 | ) | ||||
Federal income taxes payable |
(2,912 | ) | 3,334 | |||||
Losses and loss expense reserves |
30,076 | 24,160 | ||||||
Unearned premiums |
6,610 | 13,623 | ||||||
Reinsurance balances payable |
266 | (1,946 | ) | |||||
Collateral held |
4,614 | (1,533 | ) | |||||
Receivable from subsidiary available for sale |
| 26,885 | ||||||
Other, net |
(934 | ) | (3,496 | ) | ||||
Net cash provided by operating activities |
30,202 | 49,184 | ||||||
Cash flows used in investing activities: |
||||||||
Purchases of equity securities |
(46,712 | ) | (44,952 | ) | ||||
Purchases of fixed maturity securities available-for-sale |
(62,864 | ) | (131,314 | ) | ||||
Proceeds from sales of equity securities |
39,141 | 27,217 | ||||||
Proceeds from sales and maturities of fixed maturities available-for-sale |
48,154 | 22,504 | ||||||
Proceeds from maturities of fixed maturities held-to-maturity |
| 325 | ||||||
Acquisition, net of cash acquired |
(1,002 | ) | | |||||
Net proceeds from sale of short-term investments |
(1,030 | ) | 13,288 | |||||
Net cash used in investing activities |
(24,313 | ) | (112,932 | ) | ||||
Cash flows (used in) provided by financing activities: |
||||||||
Issuance of common shares |
| 77,931 | ||||||
Issuance cost |
| (1,298 | ) | |||||
Redemption of Class B common shares |
| (5,000 | ) | |||||
Principal payment on long term debt |
| (9,133 | ) | |||||
Dividend paid to shareholders |
(528 | ) | | |||||
Draw on line
of credit |
2,300 | | ||||||
Principal
payment on line of credit |
(2,300 | ) | | |||||
Net cash (used in) provided by financing activities |
(528 | ) | 62,500 | |||||
Increase (decrease) in cash and cash equivalents |
5,361 | (1,248 | ) | |||||
Cash and equivalents at beginning of year |
6,681 | 5,814 | ||||||
Cash and equivalents at end of year |
$ | 12,042 | 4,566 | |||||
Supplemental disclosure of cash flow information: |
||||||||
Interest paid |
$ | 872 | 900 | |||||
Federal income taxes paid |
$ | 6,991 | 2,300 | |||||
6
(1) | Basis of Presentation | |
The accompanying interim unaudited consolidated condensed financial statements and notes include the accounts of ProCentury Corporation , (the Company or ProCentury) and its wholly owned insurance subsidiary, Century Surety Company (Century). The interim unaudited consolidated condensed financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and with the instructions to Article 10 of Regulation S-X. Accordingly, the interim unaudited consolidated condensed financial statements do not include all of the information and notes required by GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation of results for the interim periods have been included. These interim unaudited consolidated condensed financial statements and related notes should be read in conjunction with the consolidated financial statements and related notes in the Companys audited consolidated financial statements, included in the Companys annual report on Form 10-K Filing as of December 31, 2004. The Companys results of operations for interim periods are not necessarily indicative of the results to be expected for the entire year. | ||
On April 20, 2004, the common shares of Evergreen National Indemnity Company (Evergreen) and its wholly owned subsidiary, Continental Heritage Insurance Company (Continental) (formerly controlled subsidiaries of Century) were distributed as dividends from Century to ProCentury and then by ProCentury to ProCenturys existing Class A shareholders. Prior to the dividends, Evergreen was a controlled subsidiary of Century. The operations of Evergreen and Continental consisted of ProCenturys historical surety and assumed workers compensation lines of insurance, which were re-classified (net of minority interest and income taxes) as discontinued operations in the accompanying interim unaudited consolidated condensed financial statements and notes for 2004. | ||
On April 26, 2004, the Company issued 8,000,000 common shares at $10.50 per share in the IPO and received net proceeds (before expenses) of $77.9 million. The following transactions occurred in connection with the IPO: |
| Immediately prior to the completion of the IPO, each outstanding Class A common share was converted into 500 common shares. After the conversion, but prior to the completion of the IPO, the Company had 4,999,995 Class A common shares outstanding. The share conversion is reflected for all periods presented. | ||
| Immediately prior to the completion of the IPO, the common shares of Evergreen National Indemnity Company (Evergreen) and its wholly owned subsidiary, Continental Heritage Insurance Company (Continental) were distributed as dividends from Century to ProCentury and then by ProCentury to ProCenturys existing Class A shareholders. Prior to the dividends, Evergreen was a controlled subsidiary of Century. The operations of Evergreen and Continental consisted of ProCenturys historical surety and assumed workers compensation lines of insurance, which were re-classified (net of minority interest and income taxes) as discontinued operations in the accompanying interim unaudited consolidated condensed financial statements and notes for all periods presented. | ||
| The Company issued 8,000,000 Class A common shares and received net proceeds (before expenses) of $77.9 million. | ||
| The Company granted 101,200 restricted common shares and 364,000 stock options to certain employees of ProCentury. | ||
| The Company repaid $8.7 million of bank indebtedness outstanding at the closing of the IPO. | ||
| The Company redeemed all of its outstanding Class B common shares for an aggregate redemption price of $5.0 million and recorded interest expense of $518,000 in connection with the redemption; and |
7
| The Company amended its articles of incorporation to eliminate the authority to issue Class B and Class C common shares. |
On June 1, 2005, Century acquired 100% of the outstanding shares of the Firemans Fund of Texas (FFTX) for $5.8 million (including direct costs of $100,000). FFTX has statutory surplus of $5.4 million on the date of acquisition. FFTX is a Texas domiciled property and casualty company licensed in Texas, Oklahoma and California. The acquisition is part of the Companys long-term plan to develop business that requires admitted status, as well as its continued focus on growing its excess and surplus lines business. The total purchase price of the acquisition was allocated to the assets and the liabilities acquired based upon the respective fair values as of the date of acquisition. Intangible assets included in the purchase were valued at $375,000. The excess of the fair value of the net identifiable assets acquired over the purchase price was $175,000. In accordance with Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, the amortization of goodwill and indefinite-lived intangible assets is not permitted. Goodwill and indefinite-lived intangible assets remain on the balance sheet and are tested for impairment on an annual basis, or when there is reason to suspect that their values may have been diminished or impaired. Effective August 18, 2005, the Texas Department of Insurance approved the name change from FFTX to Pro Century Insurance Company. | ||
In preparing the interim unaudited consolidated condensed financial statements, management was required to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the interim unaudited consolidated condensed financial statements, and the reported amounts of revenue and expenses for the reporting period. Actual results could differ significantly from those estimates. | ||
Material estimates that are particularly susceptible to significant change in the near-term relate to the determination of loss and loss expense reserves, the recoverability of deferred policy acquisition costs, the determination of federal income taxes, the net realizable value of reinsurance recoverables and the determination of other-than-temporary declines in the fair value of investments. Although considerable variability is inherent in these estimates, management believes that the amounts provided are adequate. These estimates are continually reviewed and adjusted as necessary. Such adjustments are generally reflected in current operations. | ||
All significant intercompany balances and transactions have been eliminated. | ||
Share Option Accounting | ||
The Company follows the provisions of Accounting Principles Board Opinion No. 25, Accounting for Stock Issued to Employees (APB 25), the Financial Accounting Standards Board (FASB) Interpretation No. 44, Accounting for Certain Transactions involving Stock Compensation (an interpretation of APB Opinion No. 25), and other related accounting interpretations for the Companys share option and restricted common share plans utilizing the intrinsic value method. The Company also follows the disclosure provisions of SFAS No. 123, Accounting for Stock-Based Compensation, for the Companys share option grants, as amended by SFAS No. 148, Accounting for Stock-Based Compensation Transition and Disclosure; an amendment of FASB Statement No. 123. This disclosure requires pro forma net income and earnings per share information, which is calculated assuming the Company has accounted for its stock option plans under the fair value method described in SFAS No. 123 and SFAS No. 148. | ||
If the Company recorded compensation expense for its share option grants based on the fair value method, the Companys net income (loss) and earnings (loss) per share would have been adjusted to the pro forma amounts as indicated in the following table: |
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
(dollars in thousands, except per share data) | ||||||||||||||||
Net income (loss): |
||||||||||||||||
As reported |
$ | 3,999 | 2,986 | 7,078 | 5,874 | |||||||||||
Add: Share-based employee
compensation expense included in
reported net income, net of related
tax effects |
84 | | 302 | | ||||||||||||
Less: Additional share-based employee
compensation expense determined under
fair value-based method for all
awards, net of related tax effects |
(150 | ) | (48 | ) | (502 | ) | (48 | ) | ||||||||
8
For the Three Months Ended | For the Six Months Ended | |||||||||||||||
June 30, | June, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
(dollars in thousands, except per share data) | ||||||||||||||||
Pro Forma |
$ | 3,933 | 2,938 | 6,878 | 5,826 | |||||||||||
Basic income (loss) per common share: |
||||||||||||||||
As reported |
$ | 0.31 | 0.27 | 0.54 | 0.73 | |||||||||||
Pro Forma |
$ | 0.30 | 0.26 | 0.53 | 0.72 | |||||||||||
Diluted income (loss) per common share: |
||||||||||||||||
As reported |
$ | 0.30 | 0.26 | 0.54 | 0.72 | |||||||||||
Pro Forma |
$ | 0.30 | 0.26 | 0.52 | 0.72 | |||||||||||
No share option or restricted common share-based compensation expense is included in reported net income (loss) for the three and six months ended June 30, 2004. | ||
The fair values of the share options are estimated on the dates of grant using the Black Scholes option pricing model with the following weighted average assumptions: |
For the Six Months | ||||
Ended June 30, 2005 | ||||
Risk free interest rate |
3.97 | % | ||
Dividend yield |
0.76 | % | ||
Volatility factor |
23.14 | % | ||
Weighted average expected option life |
7.00 Years |
In December 2004, the FASB revised Statement No. 123 (SFAS 123R), Share-Based Payment, which requires companies to expense the estimated fair value of employee stock options and similar awards, for all options vesting, granted, or modified after the effective date of this revised statement. The accounting provisions of SFAS 123R were to become effective for interim periods beginning after June 15, 2005. In April 2005, the Securities and Exchange Commission (SEC) adopted a final rule amending Rule 4-01(a) of Regulation S-X regarding the compliance date for SFAS 123R. This ruling delays the effective date of SFAS 123R to the first interim or annual reporting period of the registrants first fiscal year beginning on or after June 15, 2005. As a result, the accounting provisions of SFAS 123R will become effective beginning in 2006 for the Companys financial statements. The Company is evaluating the impact of implementing SFAS 123R and anticipates it will be material to the financial statements. | ||
(2) | Income per Common Share | |
Basic income per share (EPS) excludes dilution and is calculated by dividing income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the dilution that could occur if securities or other contracts to issue common shares (common share equivalents) were exercised. When inclusion of common share equivalents increases the EPS or reduces the loss per share, the effect on earnings is antidilutive. Under these circumstances, diluted net income or net loss per share is computed excluding the common share equivalents. | ||
Based on the above and pursuant to disclosure requirements contained in SFAS No. 128, Earnings Per Share, the following information represents a reconciliation of the numerator and denominator of the basic and diluted EPS computations contained in the Companys interim unaudited consolidated condensed financial statements. |
9
For the Three Months Ended June 30, 2005 | ||||||||||||
(Dollars in thousands, except per share data) | ||||||||||||
Income | Shares | Per Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
Basic Net Income Per Share |
||||||||||||
Net income |
$ | 3,999 | 13,052,650 | $ | 0.31 | |||||||
Effect of Dilutive Securities |
||||||||||||
Restricted common shares and
share options |
| 68,664 | (0.01 | ) | ||||||||
Diluted EPS |
||||||||||||
Net income |
$ | 3,999 | 13,121,314 | $ | 0.30 | |||||||
For the Three Months Ended June 30, 2004 | ||||||||||||
(Dollars in thousands, except per share data) | ||||||||||||
Income | Shares | Per Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
Basic Net Income Per Share |
||||||||||||
Net income |
$ | 2,986 | 11,222,340 | $ | 0.27 | |||||||
Effect of Dilutive Securities |
||||||||||||
Restricted common shares and
share options |
| 106,255 | (0.01 | ) | ||||||||
Diluted EPS |
||||||||||||
Net income |
$ | 2,986 | 11,328,595 | $ | 0.26 | |||||||
For the Six Months Ended June 30, 2005 | ||||||||||||
(Dollars in thousands, except per share data) | ||||||||||||
Income | Shares | Per Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
Basic Net Income Per Share |
||||||||||||
Net income |
$ | 7,078 | 13,049,570 | $ | 0.54 | |||||||
Effect of Dilutive Securities |
||||||||||||
Restricted common shares and
share options |
| 77,899 | | |||||||||
Diluted EPS |
||||||||||||
Net income |
$ | 7,078 | 13,127,469 | $ | 0.54 | |||||||
For the Six Months Ended June 30, 2004 | ||||||||||||
(Dollars in thousands, except per share data) | ||||||||||||
Income | Shares | Per Share | ||||||||||
(Numerator) | (Denominator) | Amount | ||||||||||
Basic Net Income Per Share |
||||||||||||
Net income |
$ | 5,874 | 8,062,828 | $ | 0.73 | |||||||
Effect of Dilutive Securities |
||||||||||||
Restricted common shares and
share options |
| 52,297 | (0.01 | ) | ||||||||
Diluted EPS |
||||||||||||
Net income |
$ | 5,874 | 8,115,125 | $ | 0.72 | |||||||
10
(3) | Investments | |
The Company invests primarily in investment-grade fixed-maturity securities. The amortized cost, gross unrealized gains and losses and estimated fair value of fixed-maturity securities classified as held-to-maturity were as follows: |
June 30, 2005 | ||||||||||||||||
(dollars in thousands) | ||||||||||||||||
Gross | Gross | Estimated | ||||||||||||||
Amortized | unrealized | unrealized | fair | |||||||||||||
cost | gains | losses | value | |||||||||||||
U.S. Treasury securities |
$ | 89 | 17 | | 106 | |||||||||||
Agencies not backed by the full faith and credit of
the U.S. Government |
1,046 | | (5 | ) | 1,041 | |||||||||||
Total |
$ | 1,135 | 17 | (5 | ) | 1,147 | ||||||||||
December 31, 2004 | ||||||||||||||||
(dollars in thousands) | ||||||||||||||||
Gross | Gross | Estimated | ||||||||||||||
Amortized | unrealized | unrealized | fair | |||||||||||||
cost | gains | losses | value | |||||||||||||
U.S. Treasury securities |
$ | 89 | 13 | | 102 | |||||||||||
Agencies not backed by the full faith and credit of
the U.S. Government |
1,053 | 1 | | 1,054 | ||||||||||||
Total |
$ | 1,142 | 14 | | 1,156 | |||||||||||
June 30, 2005 | ||||||||||||||||
(dollars in thousands) | ||||||||||||||||
Gross | Gross | Estimated | ||||||||||||||
Amortized | unrealized | unrealized | fair | |||||||||||||
cost | gains | losses | value | |||||||||||||
Fixed maturities: |
||||||||||||||||
U.S. Treasury securities |
$ | 3,652 | 12 | (19 | ) | 3,645 | ||||||||||
Agencies not backed by the full faith and
credit of
the U.S. Government |
14,619 | 128 | (47 | ) | 14,700 | |||||||||||
Obligations of states and political subdivisions |
121,126 | 1,686 | (145 | ) | 122,667 | |||||||||||
Corporate securities |
39,035 | 141 | (321 | ) | 38,855 | |||||||||||
Mortgage-backed securities |
38,578 | 206 | (111 | ) | 38,673 | |||||||||||
Collateralized mortgage obligations |
29,348 | 60 | (145 | ) | 29,263 | |||||||||||
Asset-backed securities |
30,348 | 421 | (161 | ) | 30,608 | |||||||||||
Total fixed maturities |
276,706 | 2,654 | (949 | ) | 278,411 | |||||||||||
Equities: |
||||||||||||||||
Equity securities |
25,769 | 377 | (329 | ) | 25,817 | |||||||||||
Bond mutual funds |
18,598 | | (290 | ) | 18,308 | |||||||||||
Total equities |
44,367 | 377 | (619 | ) | 44,125 | |||||||||||
Total |
$ | 321,073 | 3,031 | (1,568 | ) | 322,536 | ||||||||||
11
December 31, 2004 | ||||||||||||||||
(dollars in thousands) | ||||||||||||||||
Gross | Gross | Estimated | ||||||||||||||
Amortized | unrealized | unrealized | fair | |||||||||||||
cost | gains | losses | value | |||||||||||||
Fixed maturities: |
||||||||||||||||
U.S. Treasury securities |
$ | 4,169 | 35 | (32 | ) | 4,172 | ||||||||||
Agencies not backed by the full faith and credit of
the U.S. Government |
16,805 | 98 | (84 | ) | 16,819 | |||||||||||
Obligations of states and political subdivisions |
119,893 | 1,225 | (399 | ) | 120,717 | |||||||||||
Corporate securities |
46,249 | 200 | (300 | ) | 46,149 | |||||||||||
Mortgage-backed securities |
33,148 | 276 | (48 | ) | 33,376 | |||||||||||
Collateralized mortgage obligations |
23,825 | 72 | (120 | ) | 23,777 | |||||||||||
Asset-backed securities |
18,383 | 135 | (127 | ) | 18,391 | |||||||||||
Total fixed maturities |
262,470 | 2,041 | (1,110 | ) | 263,401 | |||||||||||
Equities: |
||||||||||||||||
Equity securities |
17,944 | 458 | (174 | ) | 18,228 | |||||||||||
Bond mutual funds |
18,943 | 3 | (25 | ) | 18,921 | |||||||||||
Total equities |
36,887 | 461 | (199 | ) | 37,149 | |||||||||||
Total |
$ | 299,358 | 2,501 | (1,309 | ) | 300,550 | ||||||||||
Under the Companys accounting policy for equity securities and fixed-maturity securities that can be contractually prepaid or otherwise settled in a way that may limit the Companys ability to fully recover cost, an impairment is deemed to be other-than-temporary unless the Company has both the ability and intent to hold the investment for a reasonable period until the securitys forecasted recovery and evidence exists indicating that recovery will occur within a reasonable period of time. | ||
For other fixed-maturity and equity securities, an other-than-temporary impairment charge is taken when the Company does not have the ability and intent to hold the security until the forecasted recovery or if it is no longer probable that the Company will recover all amounts due under the contractual terms of the security. Many criteria are considered during this process including, but not limited to, the current fair value as compared to amortized cost or cost, as appropriate, of the security; the amount and length of time a securitys fair value has been below amortized cost or cost; specific credit issues and financial prospects related to the issuer; the Companys ability and intent to hold or dispose of the security; and current economic conditions. | ||
Other-than-temporary impairment losses result in a permanent reduction to the cost basis of the underlying investment. Other-than-temporary losses of $35,000 were included in the investment losses for the three and six months ended June 30, 2005. No other-than-temporary declines were recognized in 2004. | ||
The estimated fair value, related gross unrealized losses, and the length of time that the securities have been impaired for held-to-maturity securities that are considered temporarily impaired are as follows: |
June 30, 2005 | ||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||
Estimated | Gross | Estimated | Gross | Estimated | Gross | |||||||||||||||||||
fair | unrealized | fair | unrealized | fair | unrealized | |||||||||||||||||||
value | loss | value | loss | value | loss | |||||||||||||||||||
Agencies not backed by the full faith
and credit of the U.S. Government |
$ | | | 1,041 | (5 | ) | 1,041 | (5 | ) | |||||||||||||||
Total |
$ | | | 1,041 | (5 | ) | 1,041 | (5 | ) | |||||||||||||||
The estimated fair value, related gross unrealized losses, and the length of time that the securities have been impaired for available-for-sale securities that are considered temporarily impaired are as follows: |
12
June 30, 2005 | ||||||||||||||||||||||||
(dollars in thousands) | ||||||||||||||||||||||||
Less than 12 months | 12 months or longer | Total | ||||||||||||||||||||||
Estimated | Gross | Estimated | Gross | Estimated | Gross | |||||||||||||||||||
fair | unrealized | fair | unrealized | fair | unrealized | |||||||||||||||||||
value | loss | value | loss | value | loss | |||||||||||||||||||
Fixed maturities: |
||||||||||||||||||||||||
U.S. Treasury securities |
$ | 455 | | 1,548 | (19 | ) | 2,003 | (19 | ) | |||||||||||||||
Agencies not backed by the full faith
and credit of the U.S. Government |
1,292 | (3 | ) | 5,313 | (44 | ) | 6,605 | (47 | ) | |||||||||||||||
Obligations of states and political
subdivisions |
7,380 | (18 | ) | 15,423 | (127 | ) | 22,803 | (145 | ) | |||||||||||||||
Corporate securities |
2,880 | (19 | ) | 23,514 | (302 | ) | 26,394 | (321 | ) | |||||||||||||||
Mortgage-backed securities |
3,748 | (9 | ) | 15,832 | (102 | ) | 19,580 | (111 | ) | |||||||||||||||
Collateralized mortgage obligations |
9,719 | (60 | ) | 10,092 | (85 | ) | 19,811 | (145 | ) | |||||||||||||||
Asset-backed securities |
3,136 | (31 | ) | 8,778 | (130 | ) | 11,914 | (161 | ) | |||||||||||||||
Total fixed maturities |
28,610 | (140 | ) | 80,500 | (809 | ) | 109,110 | (949 | ) | |||||||||||||||
Equities: |
||||||||||||||||||||||||
Equity securities |
7,308 | (154 | ) | 5,190 | (175 | ) | 12,498 | (329 | ) | |||||||||||||||
Bond mutual funds |
7,110 | (203 | ) | 11,117 | (87 | ) | 18,227 | (290 | ) | |||||||||||||||
Total equities |
14,418 | (357 | ) | 16,307 | (262 | ) | 30,725 | (619 | ) | |||||||||||||||
Total |
$ | 43,028 | (497 | ) | 96,807 | (1,071 | ) | 139,835 | (1,568 | ) | ||||||||||||||
At June 30, 2005, the Company had one hundred nine fixed income securities fourteen equity securities that have been in an unrealized loss position for one year or longer. One hundred four of the fixed income securities are investment grade, of which one hundred three of these securities are rated A1/A or better (including sixty-six securities which are rated AAA). The five remaining non-investment grade fixed income securities are rated BB- or better and have a fair value equal to 99.1% of their book value as of June 30, 2005. Two of the equity securities that have been in an unrealized loss position for one year or longer relate to closed end bond or preferred stock funds, each of which continues to pay its regular dividend on a monthly basis and also has an underlying net asset value per share that exceeds its price per share as of June 30, 2005. One of the equity securities relates to an investment in an open end high quality short duration bond fund, of which the underlying assets are all rated AAA. Finally, the eleven remaining equity securities that have been in an unrealized loss position for one year or longer relate to preferred share investments in issuers each of which has shown an improved financial performance during 2005. In addition, these fourteen equity securities have an aggregate fair market value of equal to 98.4% of their book value as of June 30, 2005. All one hundred nine of the fixed income securities are current on interest and principal and all fourteen of the equity securities continue to pay dividends at a level consistent with the prior year. Management believes the declines are temporary and are not indicative of other-than-temporary impairments. | ||
(4) | Loss and Loss Expense Reserves | |
Liability for losses and loss expenses represents the Companys best estimate of the ultimate amounts needed to pay both reported and unreported claims. These estimates are based on quarterly internal actuarial studies and certified on an annual basis by an independent actuary. The Company continually reviews these estimates and, based on new developments and information, the Company includes adjustments of the probable ultimate liability in the operating results for the periods in which the adjustments are made. | ||
Net loss and loss expenses incurred were $26.6 million for the quarter ended June 30, 2005, compared to $21.0 million for the quarter ended June 30, 2004. In the second quarter of 2005, the Company recorded $24.9 million of incurred losses and loss expenses attributable to the 2005 accident year and $1.7 million attributable to events of prior years. In the second quarter of 2004, the Company recorded $18.8 million of incurred losses and loss expenses attributable to the 2004 accident year and $2.2 million attributable to events of prior years. | ||
Net loss and loss expenses incurred were $52.3 million for the six months ended June 30, 2005, compared to $39.9 million for the six months ended June 30, 2004. For the six months ended June 30, 2005, the Company recorded $48.7 million of incurred losses and loss expenses attributable to the 2005 accident year and $3.6 million attributable to events of prior years. For the six months ended June 30, 2004, the Company recorded $35.5 million of incurred losses and loss expenses attributable to the 2004 accident year and $4.4 million attributable to events of prior years. |
13
The prior year increases for the quarter and six months ended June 30, 2005 resulted principally from construction defect claims within the other liability line of the property and casualty segment. During the first and second quarter of 2005, the Company established reserves for several contribution action settlements that are anticipated to be paid within the year. This development was slightly offset by favorable claim count development, while claim severities continued to be within the Companys expectation. Prior year development for construction defect claims was $1.7 million and $3.1 million for the three and six months ended June 30, 2005, respectively. | ||
The prior year increases related to construction defect claims was partially offset by positive development in the Companys property line and supplemented by additional development in the casualty line. In the first quarter of 2005, the Company reported $355,000 of development in the property line. In the second quarter of 2005, the Company reported $891,000 of positive development in the property line that resulted from unexpected decreases in incurred losses. In addition, in the second quarter of 2005, the Company incurred $770,000 of prior year development related to the other than construction defect other liability line as a result of actual incurred losses exceeding expectations. All other lines performed as expected in the second quarter of 2005. | ||
During the first six months of 2004, new construction defect claim counts exceeded expectations. Based on the claim count experience that emerged, the Companys actuaries revised the factors used in the estimation of ultimate construction defect claim counts. This re-estimation of claim count projection factors produced an increase in the estimated ultimate cost of construction defect claims. Prior year development for construction defect claims was $1.2 million and $2.6 million for the three and six months ended June 30, 2004, respectively. | ||
Additionally, during the second quarter of 2004, the Company experienced development related to 19 new contractors claims. The 19 new claims were higher than recent experience and the development on pending claims exceeded the Companys expectations. | ||
During the first quarter of 2004, the Company recorded increases in paid and incurred losses and loss expenses on seven commercial auto liability claims. The net incurred increases on these claims totaled $778,000. The increases were related to one significant, unanticipated new claim ($155,000), reserve increases related to coverage disputes on three claims ($297,000), and unfavorable changes in conditions relating to three other claims ($326,000). | ||
(5) | Reinsurance | |
In the ordinary course of business, Century assumes and cedes reinsurance with other insurers and reinsurers. These arrangements provide greater diversification of business and limit the maximum net loss potential on large risks. There have been no significant changes in the Companys reinsurance program. The amounts of ceded loss and loss expense reserves and ceded unearned premiums would represent a liability of the Company in the event that its reinsurers would be unable to meet existing obligations under reinsurance agreements. |
14
The effects of assumed and ceded reinsurance on premiums written, premiums earned and loss and loss expenses incurred were as follows: |
For the Three Months | For the Six Months | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Premiums written: |
||||||||||||||||
Direct |
$ | 54,635 | 48,713 | 101,953 | 91,578 | |||||||||||
Assumed |
638 | 223 | 952 | 194 | ||||||||||||
Ceded |
(6,916 | ) | (6,014 | ) | (12,262 | ) | (12,206 | ) | ||||||||
Net premiums written |
$ | 48,357 | 42,922 | 90,643 | 79,566 | |||||||||||
Premiums earned: |
||||||||||||||||
Direct |
$ | 48,919 | 40,986 | 95,882 | 77,909 | |||||||||||
Assumed |
198 | 230 | 413 | 240 | ||||||||||||
Ceded |
(6,092 | ) | (5,397 | ) | (11,750 | ) | (10,272 | ) | ||||||||
Net premiums earned |
$ | 43,025 | 35,819 | 84,545 | 67,877 | |||||||||||
Losses and loss expenses incurred: |
||||||||||||||||
Direct |
$ | 31,777 | 26,484 | 63,671 | 51,189 | |||||||||||
Assumed |
(142 | ) | 523 | (412 | ) | 932 | ||||||||||
Ceded |
(5,048 | ) | (6,021 | ) | (10,945 | ) | (12,233 | ) | ||||||||
Net losses and loss expenses incurred |
$ | 26,587 | 20,986 | 52,314 | 39,888 | |||||||||||
(6) | Deferred Policy Acquisition Costs | |
The following table reflects the amounts of policy acquisition costs deferred and amortized: |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Balance at beginning of period |
$ | 17,506 | 14,317 | 17,411 | 11,714 | |||||||||||
Policy acquisition costs deferred |
11,748 | 9,942 | 22,063 | 19,395 | ||||||||||||
Amortization of deferred policy acquisition costs |
(10,335 | ) | (8,643 | ) | (20,555 | ) | (15,493 | ) | ||||||||
Balance at end of period |
$ | 18,919 | 15,616 | 18,919 | 15,616 | |||||||||||
Amortization of deferred policy acquisition costs for the six months ended June 30, 2004 included a reduction of amortization expense of $2.5 million relating to the transfer of capitalized acquisition costs from Evergreen and Continental for the property and casualty segment, which was partially offset by $1.9 million of capitalized acquisition costs for the surety segment that was transferred from Century to Evergreen and Continental. These transactions occurred in conjunction with the termination of the intercompany pooling agreement and the implementation of the loss portfolio agreements among Century, Evergreen and Continental, as disclosed in the Companys Form 10-K filing for the year ended December 31, 2004. | ||
(7) | Federal Income Taxes | |
The income tax provision for the six months ended June 30, 2005 and 2004, has been computed based on our estimated annual effective tax rate of 29.0% and 32.0%, respectively, which differ from the federal income tax rate of 35% principally because of tax-exempt investment income. | ||
(8) | Commitments and Contingencies | |
The Company is a defendant in various lawsuits in the ordinary course of its business. In the opinion of management, the effects, if any, of such lawsuits are not expected to be material to the Companys consolidated financial position or results from operations. |
15
(9) | Segment Reporting Disclosures | |
The Company operates in the Property and Casualty Lines (P/C) (including general liability, multi-peril, and commercial property) segment of the specialty insurance market. | ||
All investment activities are included in the Investing segment. Exited programs (including workers compensation and commercial auto) are included in Other (including Exited Lines) for purposes of segment reporting. | ||
The Company considers many factors, including economic similarity, the nature of the underwriting units insurance products, production sources, distribution strategies and regulatory environment in determining how to aggregate operating segments. | ||
Segment profit or loss for each of the Companys segments is measured by underwriting profit or loss. The property and casualty insurance industry commonly defines underwriting profit or loss as earned premium net of loss and loss expenses and underwriting, acquisition and insurance expenses. Underwriting profit or loss does not replace operating income or net income computed in accordance with GAAP as a measure of profitability. Segment profit for the Investing segment is measured by net investment income and net realized gains or losses. | ||
The Company does not allocate assets to the P/C and Other (including exited lines) segments for management reporting purposes. The total investment portfolio and cash are allocated to the Investment operating segment. | ||
The following is a summary of segment disclosures: |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
(Dollars in thousands) | (Dollars in thousands) | |||||||||||||||
Segment revenue: |
||||||||||||||||
P/ C |
$ | 42,927 | 35,824 | 84,440 | 67,877 | |||||||||||
Investing |
3,401 | 2,431 | 6,501 | 4,519 | ||||||||||||
Other (including exited lines) |
98 | (5 | ) | 105 | | |||||||||||
Segment revenue |
$ | 46,426 | 38,250 | 91,046 | 72,396 | |||||||||||
Segment profit (loss): |
||||||||||||||||
P/ C |
$ | 2,275 | 2,888 | 5,213 | 5,574 | |||||||||||
Investing |
3,401 | 2,431 | 6,501 | 4,519 | ||||||||||||
Other (including exited lines) |
481 | (372 | ) | (80 | ) | (1,115 | ) | |||||||||
Segment profit |
$ | 6,157 | 4,947 | 11,634 | 8,978 | |||||||||||
Segment assets: |
||||||||||||||||
Investing |
$ | 328,727 | 272,569 | 328,727 | 272,569 | |||||||||||
Assets not allocated |
111,109 | 101,800 | 111,109 | 101,800 | ||||||||||||
Total consolidated assets |
$ | 439,836 | 374,369 | 439,836 | 374,369 | |||||||||||
The following summary reconciles significant segment items to the Companys interim unaudited consolidated condensed financial statements: |
16
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Income before income taxes: |
||||||||||||||||
Segment profit |
$ | 6,157 | 4,947 | 11,634 | 8,978 | |||||||||||
Unallocated amounts: |
||||||||||||||||
Corporate expenses |
(127 | ) | 402 | (789 | ) | 937 | ||||||||||
Interest expense |
(459 | ) | (345 | ) | (876 | ) | (760 | ) | ||||||||
Interest expense on redemption of Class B shares |
| (518 | ) | | (518 | ) | ||||||||||
Income before income tax |
$ | 5,571 | 4,486 | 9,969 | 8,637 | |||||||||||
The following is a summary of segment earned premium by group of products: |
Property | Casualty | Other | Consolidated | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Three Months Ended June 30, 2005
|
||||||||||||||||
P/ C |
$ | 13,930 | 28,997 | | 42,927 | |||||||||||
Other (including exited lines) |
| | 98 | 98 | ||||||||||||
Earned premiums |
$ | 13,930 | 28,997 | 98 | 43,025 | |||||||||||
Three Months Ended June 30, 2004
|
||||||||||||||||
P/ C |
$ | 14,039 | 21,785 | | 35,824 | |||||||||||
Other (including exited lines) |
| | (5 | ) | (5 | ) | ||||||||||
Earned premiums |
$ | 14,039 | 21,785 | (5 | ) | 35,819 | ||||||||||
Six Months Ended June 30, 2005
|
||||||||||||||||
P/ C |
$ | 28,346 | 56,094 | | 84,440 | |||||||||||
Other (including exited lines) |
| | 105 | 105 | ||||||||||||
Earned premiums |
$ | 28,346 | 56,094 | 105 | 84,545 | |||||||||||
Six Months Ended June 30, 2004
|
||||||||||||||||
P/ C |
$ | 27,294 | 40,583 | | 67,877 | |||||||||||
Other (including exited lines) |
| | | | ||||||||||||
Earned premiums |
$ | 27,294 | 40,583 | | 67,877 | |||||||||||
The Company does not manage property and casualty products at this level of detail. | ||
(10) | Dividend to Common Shareholders | |
On March 24, 2005, the Board of Directors declared a dividend of $0.02 per common share that was paid on April 28, 2005 to shareholders of record as of April 7, 2005. On May 19, 2005, the Board of Directors declared a dividend of $0.02 per common share that was paid on June 22, 2005 to shareholders of record as of June 1, 2005. | ||
(11) | Line of Credit | |
The Company has a $5.0 million line of credit with a maturity date of September 8, 2006, and interest only payments due quarterly based on LIBOR plus 2.5% of the outstanding balance. All of the outstanding shares of Century are pledged as collateral. In April 2005, the Company made a $2.3 million draw on the line of credit for general corporate purposes. The $2.3 million draw was paid off on May 17, 2005. Interest paid on the line of credit was $5,000. Due to the late filing of the Companys Quarterly Report on Form 10-Q for the quarter ended June 30, 2005, the Company is not in compliance with the debt covenants in its line of credit. As such, the Company does not have the ability to draw on the line of credit until a waiver is received from the bank. The Company does not have any borrowings outstanding under the line of credit at June 30, 2005. | ||
(12) | Subsequent Event | |
On August 17, 2005, the Board of Directors declared a dividend of $0.02 per common share to be paid on September 21, 2005 to shareholders of record as of August 31, 2005. |
17
| our actual incurred losses and loss expenses may be greater than our loss and loss expense reserves, which could have a material adverse effect on our financial condition and results of operations; | ||
| a decline in our financial rating may result in a reduction of new or renewal business; | ||
| we are subject to extensive regulation, which may adversely affect our ability to achieve our business objectives, and if we fail to comply with these regulations, we may be subject to penalties, including fines and suspensions, which may adversely affect our financial condition and results of operations; | ||
| changes in our operating environment may adversely affect our performance; | ||
| our general agents may exceed their authority and could bind us to business outside our underwriting guidelines; | ||
| if we lose key personnel or are unable to recruit qualified personnel, our ability to implement our business strategies could be delayed or hindered; | ||
| our investment results and, therefore, our financial condition may be impacted by changes in the business, financial condition or operating results of the entities in which we invest, as well as changes in interest rates, government monetary policies, general economic conditions and overall market conditions; | ||
| we distribute our products through a select group of general agents, and there can be no assurance that such relationships will continue, or if they do continue, that they will remain profitable for us; | ||
| we rely on our information technology and telecommunication systems, and the failure of these systems could materially and adversely affect our business; | ||
| our reinsurers may not pay claims made by us on losses in a timely fashion; | ||
| if we are not able to renew our existing reinsurance or obtain new reinsurance, either our net exposure would increase or we would have to reduce the level of our underwriting commitment; | ||
| our business is cyclical in nature, which may affect our financial performance; | ||
| we compete with a large number of companies in the insurance industry for underwriting revenues; | ||
| severe weather conditions and other catastrophes may result in an increase in the number and amount of claims filed against us; and | ||
| as a holding company, we are dependent on the results of operations of our insurance subsidiaries and the regulatory and contractual capacity of our subsidiaries to pay dividends to us. Some states limit the aggregate amount of dividends our subsidiaries may pay to us in any twelve-month period, thereby limiting our funds to pay expenses and dividends. |
18
19
20
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
(Dollars in thousands) | (Dollars in thousands) | |||||||||||||||
Selected Financial Data: |
||||||||||||||||
Gross written premiums |
$ | 55,273 | 48,936 | 102,905 | 91,772 | |||||||||||
Premiums earned |
43,025 | 35,819 | 84,545 | 67,877 | ||||||||||||
Net investment income |
3,495 | 2,410 | 6,654 | 4,375 | ||||||||||||
Net realized investment (losses) gains |
(94 | ) | 21 | (153 | ) | 144 | ||||||||||
Total revenues |
46,426 | 38,250 | 91,046 | 72,396 | ||||||||||||
Total expenses |
40,855 | 33,764 | 81,077 | 63,759 | ||||||||||||
Net income |
3,999 | 2,986 | 7,078 | 5,874 | ||||||||||||
Key Financial Ratios: |
||||||||||||||||
Loss and loss expense ratio |
61.8 | % | 58.6 | % | 61.9 | % | 58.8 | % | ||||||||
Expense ratio |
32.1 | % | 33.3 | % | 33.0 | % | 33.3 | % | ||||||||
Combined ratio |
93.9 | % | 91.9 | % | 94.9 | % | 92.1 | % | ||||||||
21
| property/casualty; and | ||
| other (including exited lines). |
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Gross written premiums: |
||||||||||||||||
Property/casualty |
$ | 54,564 | 48,936 | 102,139 | 91,772 | |||||||||||
Other (including exited lines) |
709 | | 766 | | ||||||||||||
Total gross written premiums |
55,273 | 48,936 | 102,905 | 91,772 | ||||||||||||
Ceded written premiums |
6,916 | 6,014 | 12,262 | 12,206 | ||||||||||||
Net written premiums |
$ | 48,357 | 42,922 | 90,643 | 79,566 | |||||||||||
Premiums earned |
$ | 43,025 | 35,819 | 84,545 | 67,877 | |||||||||||
Net written premiums to gross
written premiums |
87.5 | % | 87.7 | % | 88.1 | % | 86.7 | % | ||||||||
Premiums earned to net
written premiums |
89.0 | % | 83.5 | % | 93.3 | % | 85.3 | % | ||||||||
Net writings ratio (1) |
1.6 | 1.6 | 1.5 | 1.5 |
(1) | The ratio of net written premiums to our insurance subsidiaries combined statutory surplus. This ratio is not restated to exclude discontinued operations as the insurance subsidiaries combined statutory surplus is not allocated by line of business. Therefore, in computing the ratio of net written premiums to our insurance subsidiaries combined statutory surplus we do not restate the net written premium for discontinued operations to be consistent with that of the subsidiaries combined statutory surplus. Management believes this measure is useful in gauging our exposure to pricing errors in the current book of business. It may not be comparable to the definition of net writings ratio used by other companies. |
22
23
| the number of exposures covered in the current year; | ||
| trends in claim frequency and claim severity; | ||
| changes in the cost of adjusting claims; | ||
| changes in the legal environment relating to coverage interpretation, theories of liability and jury determinations; and | ||
| the re-estimation of prior years reserves in the current year. |
June 30, 2005 | December 31, 2004 | |||||||
(Dollars in thousands) | ||||||||
Property/casualty: |
||||||||
Casualty |
$ | 122,152 | 102,430 | |||||
Property |
18,470 | 16,115 | ||||||
Other (including exited lines): |
||||||||
Commercial auto |
1,436 | 1,780 | ||||||
Workers compensation |
2,865 | 3,426 | ||||||
Other |
9 | 0 | ||||||
Net reserves for losses and loss expenses |
144,932 | 123,751 | ||||||
Plus reinsurance recoverables on unpaid losses at end
of period |
38,380 | 29,485 | ||||||
Gross reserves for losses and loss expenses |
$ | 183,312 | 153,236 | |||||
24
25
Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
2005 | 2004 | 2005 | 2004 | |||||||||||||
(Dollars in thousands) | ||||||||||||||||
Amortization of deferred policy acquisition costs
(ADAC) |
$ | 10,335 | 8,643 | 20,555 | 15,493 | |||||||||||
Other operating expenses |
3,474 | 3,272 | 6,539 | 6,850 | ||||||||||||
ADAC and other operating expenses |
13,809 | 11,915 | 27,094 | 22,343 | ||||||||||||
Severance expense |
| | 793 | 250 | ||||||||||||
Interest expense |
459 | 345 | 876 | 760 | ||||||||||||
Interest expense on the redemption of the Class B shares |
| 518 | | 518 | ||||||||||||
Total operating expenses |
$ | 14,268 | 12,778 | 28,763 | 23,871 | |||||||||||
Expense ratio: |
||||||||||||||||
ADAC |
24.0 | % | 24.1 | % | 24.3 | % | 22.8 | % | ||||||||
Other operating expenses |
8.1 | % | 9.1 | % | 7.7 | % | 10.1 | % | ||||||||
Severence |
0.0 | % | 0.0 | % | 0.9 | % | 0.4 | % | ||||||||
Total expense ratio (1) |
32.1 | % | 33.3 | % | 33.0 | % | 33.3 | % | ||||||||
(1) | Interest expense is not included in the calculation of the expense ratio. |
26
27
28
29
For | Against/Withheld | |||||||
Michael J. Endres
|
12,654,295 | 120,635 | ||||||
Alan R. Weiler
|
12,684,475 | 90,455 |
3.1 | Amended and Restated Articles of Incorporation of ProCentury (Incorporated by reference from the Companys Quarterly Report on Form 10-Q for the period ended March 31, 2004, filed with the Securities and Exchange Commission SEC on September 4, 2004.) | ||
3.2 | Amended and Restated Code of Regulations of ProCentury (Incorporated by reference from the Companys Quarterly Report on Form 10-Q for the period ended March 31, 2004, filed with the SEC on September 4, 2004.) | ||
31.1 | Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act | ||
31.2 | Certification of Principal Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act | ||
32.1 | Certification of Principal Executive Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (1) | ||
32.2 | Certification of Principal Financial Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (1) |
(1) | These certifications are not deemed to be filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section. These certifications will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates them by reference. |
30
PROCENTURY CORPORATION |
||||
Date: September 1, 2005 | By: | /s/ Charles D. Hamm, Jr. | ||
Charles D. Hamm, Jr. | ||||
Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) |
31
3.1 | Amended and Restated Articles of Incorporation of ProCentury (Incorporated by reference from the Companys Quarterly Report on Form 10-Q for the period ended March 31, 2004, filed with the Securities and Exchange Commission (SEC) on September 4, 2004.) | |
3.2 | Amended and Restated Code of Regulations of ProCentury (Incorporated by reference from the Companys Quarterly Report on Form 10-Q for the period ended March 31, 2004, filed with the SEC on September 4, 2004.) | |
31.1 | Certification of Principal Executive Officer pursuant to Rule 13a-14(a) of the Exchange Act | |
31.2 | Certification of Principal Financial Officer pursuant to Rule 13a-14(a) of the Exchange Act | |
32.1 | Certification of Principal Executive Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (1) | |
32.2 | Certification of Principal Financial Officer pursuant to Rule 13a-14(b) of the Exchange Act and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (1) |
(1) | These certifications are not deemed to be filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section. These certifications will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates them by reference. |