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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Philadelphia Consolidated Corp (MM) | NASDAQ:PHLY | NASDAQ | Common Stock |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 61.45 | 0 | 01:00:00 |
þ | Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
PENNSYLVANIA | 23-2202671 | |
(State of Incorporation) | (IRS Employer Identification No.) |
Large accelerated filer þ | Accelerated filer o | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
2
As of | |||||||||
June 30, 2008 | December 31, | ||||||||
(Unaudited) | 2007 | ||||||||
ASSETS
|
|||||||||
INVESTMENTS:
|
|||||||||
FIXED MATURITIES AVAILABLE FOR SALE AT MARKET
(AMORTIZED COST $2,864,732 AND $2,639,471)
|
$ | 2,844,209 | $ | 2,659,197 | |||||
EQUITY SECURITIES AT MARKET (COST $339,169
AND $322,877)
|
348,374 | 356,026 | |||||||
|
|||||||||
TOTAL INVESTMENTS
|
3,192,583 | 3,015,223 | |||||||
|
|||||||||
CASH AND CASH EQUIVALENTS
|
89,657 | 106,342 | |||||||
ACCRUED INVESTMENT INCOME
|
28,300 | 24,964 | |||||||
PREMIUMS RECEIVABLE
|
399,896 | 378,217 | |||||||
PREPAID REINSURANCE PREMIUMS AND REINSURANCE
RECEIVABLES
|
301,012 | 280,110 | |||||||
DEFERRED INCOME TAXES
|
81,717 | 42,855 | |||||||
DEFERRED ACQUISITION COSTS
|
187,389 | 184,446 | |||||||
PROPERTY AND EQUIPMENT, NET
|
21,992 | 26,330 | |||||||
OTHER ASSETS
|
100,964 | 41,451 | |||||||
|
|||||||||
TOTAL ASSETS
|
$ | 4,403,510 | $ | 4,099,938 | |||||
|
|||||||||
|
|||||||||
LIABILITIES AND SHAREHOLDERS EQUITY
|
|||||||||
POLICY LIABILITIES AND ACCRUALS:
|
|||||||||
UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES
|
$ | 1,613,322 | $ | 1,431,933 | |||||
UNEARNED PREMIUMS
|
866,596 | 847,485 | |||||||
|
|||||||||
TOTAL POLICY LIABILITIES AND ACCRUALS
|
2,479,918 | 2,279,418 | |||||||
PREMIUMS PAYABLE
|
77,770 | 97,674 | |||||||
OTHER LIABILITIES
|
251,135 | 175,373 | |||||||
|
|||||||||
TOTAL LIABILITIES
|
2,808,823 | 2,552,465 | |||||||
|
|||||||||
|
|||||||||
COMMITMENTS AND CONTINGENCIES
|
|||||||||
|
|||||||||
SHAREHOLDERS EQUITY:
|
|||||||||
PREFERRED STOCK, $.01 PAR VALUE,
|
|||||||||
10,000,000 SHARES AUTHORIZED,
NONE ISSUED AND OUTSTANDING |
| | |||||||
COMMON STOCK, NO PAR VALUE,
|
|||||||||
125,000,000 SHARES AUTHORIZED, 71,503,346 AND
72,087,287 SHARES ISSUED AND OUTSTANDING |
399,704 | 423,379 | |||||||
NOTES RECEIVABLE FROM SHAREHOLDERS
|
(22,565 | ) | (19,595 | ) | |||||
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
|
(7,356 | ) | 34,369 | ||||||
RETAINED EARNINGS
|
1,224,904 | 1,109,320 | |||||||
|
|||||||||
TOTAL SHAREHOLDERS EQUITY
|
1,594,687 | 1,547,473 | |||||||
|
|||||||||
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
|
$ | 4,403,510 | $ | 4,099,938 | |||||
|
3
For the Three Months | For the Six Months | |||||||||||||||
Ended June 30, | Ended June 30, | |||||||||||||||
2008 | 2007 | 2008 | 2007 | |||||||||||||
REVENUE:
|
||||||||||||||||
NET EARNED PREMIUMS
|
$ | 393,037 | $ | 337,315 | $ | 772,425 | $ | 656,033 | ||||||||
NET INVESTMENT INCOME
|
32,299 | 28,522 | 64,304 | 55,495 | ||||||||||||
NET REALIZED INVESTMENT GAIN (LOSS)
|
(11,513 | ) | 28,064 | (22,907 | ) | 29,821 | ||||||||||
OTHER INCOME
|
3,654 | 850 | 5,007 | 1,680 | ||||||||||||
|
||||||||||||||||
TOTAL REVENUE
|
417,477 | 394,751 | 818,829 | 743,029 | ||||||||||||
|
||||||||||||||||
|
||||||||||||||||
LOSSES AND EXPENSES:
|
||||||||||||||||
LOSS AND LOSS ADJUSTMENT EXPENSES
|
266,106 | 172,234 | 489,492 | 332,753 | ||||||||||||
NET REINSURANCE RECOVERIES
|
(42,836 | ) | (23,645 | ) | (72,803 | ) | (33,659 | ) | ||||||||
|
||||||||||||||||
NET LOSS AND LOSS ADJUSTMENT EXPENSES
|
223,270 | 148,589 | 416,689 | 299,094 | ||||||||||||
ACQUISITION COSTS AND OTHER
UNDERWRITING EXPENSES
|
115,479 | 101,746 | 229,635 | 198,650 | ||||||||||||
OTHER OPERATING EXPENSES
|
4,376 | 2,981 | 7,965 | 6,136 | ||||||||||||
|
||||||||||||||||
TOTAL LOSSES AND EXPENSES
|
343,125 | 253,316 | 654,289 | 503,880 | ||||||||||||
|
||||||||||||||||
|
||||||||||||||||
INCOME BEFORE INCOME TAXES
|
74,352 | 141,435 | 164,540 | 239,149 | ||||||||||||
|
||||||||||||||||
|
||||||||||||||||
INCOME TAX EXPENSE (BENEFIT):
|
||||||||||||||||
CURRENT
|
30,072 | 56,511 | 65,350 | 93,330 | ||||||||||||
DEFERRED
|
(8,628 | ) | (9,477 | ) | (16,394 | ) | (14,562 | ) | ||||||||
|
||||||||||||||||
|
||||||||||||||||
TOTAL INCOME TAX EXPENSE
|
21,444 | 47,034 | 48,956 | 78,768 | ||||||||||||
|
||||||||||||||||
|
||||||||||||||||
NET INCOME
|
$ | 52,908 | $ | 94,401 | $ | 115,584 | $ | 160,381 | ||||||||
|
||||||||||||||||
|
||||||||||||||||
OTHER COMPREHENSIVE LOSS, NET OF TAX:
|
||||||||||||||||
HOLDING LOSS ARISING DURING PERIOD
|
$ | (32,906 | ) | $ | (11,920 | ) | $ | (56,615 | ) | $ | (3,039 | ) | ||||
RECLASSIFICATION ADJUSTMENT
|
7,484 | (18,242 | ) | 14,890 | (19,384 | ) | ||||||||||
|
||||||||||||||||
OTHER COMPREHENSIVE LOSS
|
(25,422 | ) | (30,162 | ) | (41,725 | ) | (22,423 | ) | ||||||||
|
||||||||||||||||
COMPREHENSIVE INCOME
|
$ | 27,486 | $ | 64,239 | $ | 73,859 | $ | 137,958 | ||||||||
|
||||||||||||||||
|
||||||||||||||||
PER AVERAGE SHARE DATA:
|
||||||||||||||||
NET INCOME BASIC
|
$ | 0.76 | $ | 1.34 | $ | 1.65 | $ | 2.28 | ||||||||
|
||||||||||||||||
NET INCOME DILUTED
|
$ | 0.73 | $ | 1.27 | $ | 1.59 | $ | 2.16 | ||||||||
|
||||||||||||||||
|
||||||||||||||||
WEIGHTED-AVERAGE COMMON SHARES
OUTSTANDING
|
69,809,174 | 70,361,554 | 70,128,823 | 70,255,758 | ||||||||||||
WEIGHTED-AVERAGE SHARE EQUIVALENTS
OUTSTANDING
|
2,608,996 | 3,835,617 | 2,597,895 | 3,966,198 | ||||||||||||
|
||||||||||||||||
WEIGHTED-AVERAGE SHARES AND SHARE
EQUIVALENTS OUTSTANDING
|
72,418,170 | 74,197,171 | 72,726,718 | 74,221,956 | ||||||||||||
|
4
For the Six | ||||||||
Months Ended | ||||||||
June 30, 2008 | For the Year Ended | |||||||
(Unaudited) | December 31, 2007 | |||||||
COMMON SHARES:
|
||||||||
BALANCE AT BEGINNING OF YEAR
|
72,087,287 | 70,848,482 | ||||||
ISSUANCE OF SHARES PURSUANT TO STOCK PURCHASE PLANS, NET
|
195,654 | 491,416 | ||||||
ISSUANCE OF SHARES PURSUANT TO STOCK
BASED COMPENSATION PLANS
|
573,605 | 747,389 | ||||||
LESS: TREASURY SHARES ACQUIRED
|
(1,353,200 | ) | | |||||
|
||||||||
BALANCE AT END OF PERIOD
|
71,503,346 | 72,087,287 | ||||||
|
||||||||
|
||||||||
COMMON STOCK:
|
||||||||
BALANCE AT BEGINNING OF YEAR
|
$ | 423,379 | $ | 376,986 | ||||
ISSUANCE OF SHARES PURSUANT TO STOCK
PURCHASE PLANS
|
5,060 | 16,448 | ||||||
EFFECTS OF ISSUANCE OF SHARES PURSUANT TO STOCK
BASED COMPENSATION PLANS
|
14,166 | 29,155 | ||||||
OTHER
|
| 790 | ||||||
LESS: COST OF TREASURY SHARES ACQUIRED
|
(42,901 | ) | | |||||
|
||||||||
BALANCE AT END OF PERIOD
|
399,704 | 423,379 | ||||||
|
||||||||
|
||||||||
NOTES RECEIVABLE FROM SHAREHOLDERS:
|
||||||||
BALANCE AT BEGINNING OF YEAR
|
(19,595 | ) | (17,074 | ) | ||||
NOTES RECEIVABLE ISSUED PURSUANT TO
EMPLOYEE STOCK PURCHASE PLANS
|
(4,934 | ) | (8,466 | ) | ||||
COLLECTION OF NOTES RECEIVABLE
|
1,964 | 5,945 | ||||||
|
||||||||
BALANCE AT END OF PERIOD
|
(22,565 | ) | (19,595 | ) | ||||
|
||||||||
|
||||||||
ACCUMULATED OTHER COMPREHENSIVE INCOME,
NET OF DEFERRED INCOME TAXES:
|
||||||||
BALANCE AT BEGINNING OF YEAR
|
34,369 | 24,848 | ||||||
OTHER COMPREHENSIVE INCOME (LOSS) INCOME,
NET OF TAXES
|
(41,725 | ) | 9,521 | |||||
|
||||||||
BALANCE AT END OF PERIOD
|
(7,356 | ) | 34,369 | |||||
|
||||||||
|
||||||||
RETAINED EARNINGS:
|
||||||||
BALANCE AT BEGINNING OF YEAR
|
1,109,320 | 782,507 | ||||||
NET INCOME
|
115,584 | 326,813 | ||||||
|
||||||||
BALANCE AT END OF PERIOD
|
1,224,904 | 1,109,320 | ||||||
|
||||||||
|
||||||||
TOTAL SHAREHOLDERS EQUITY
|
$ | 1,594,687 | $ | 1,547,473 | ||||
|
5
For the Six Months Ended June 30, | ||||||||
2008 | 2007 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES:
|
||||||||
NET INCOME
|
$ | 115,584 | $ | 160,381 | ||||
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
|
||||||||
NET REALIZED INVESTMENT (GAIN) LOSS
|
22,907 | (29,821 | ) | |||||
GAIN ON SALE OF FIXED ASSETS
|
(1,174 | ) | | |||||
AMORTIZATION OF INVESTMENT PREMIUMS, NET OF DISCOUNT
|
4,916 | 3,044 | ||||||
AMORTIZATION OF INTANGIBLE ASSETS
|
1,946 | 1,434 | ||||||
DEPRECIATION
|
4,374 | 3,821 | ||||||
DEFERRED INCOME TAX BENEFIT
|
(16,394 | ) | (14,562 | ) | ||||
CHANGE IN PREMIUMS RECEIVABLE
|
(21,679 | ) | 9,019 | |||||
CHANGE IN PREPAID REINSURANCE PREMIUMS AND REINSURANCE
RECEIVABLES, NET OF FUNDS HELD PAYABLE TO REINSURER
|
(20,902 | ) | (2,866 | ) | ||||
CHANGE IN ACCRUED INVESTMENT INCOME
|
(3,336 | ) | (2,172 | ) | ||||
CHANGE IN DEFERRED ACQUISITION COSTS
|
(2,943 | ) | (8,547 | ) | ||||
CHANGE IN INCOME TAXES PAYABLE
|
(11,022 | ) | 11,544 | |||||
CHANGE IN OTHER ASSETS
|
(12,006 | ) | 4,542 | |||||
CHANGE IN UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES
|
181,389 | 100,213 | ||||||
CHANGE IN UNEARNED PREMIUMS
|
19,111 | 19,513 | ||||||
CHANGE IN OTHER LIABILITIES
|
(13,009 | ) | 1,854 | |||||
FAIR VALUE OF STOCK BASED COMPENSATION
|
8,393 | 7,649 | ||||||
EXCESS TAX BENEFIT FROM ISSUANCE OF SHARES PURSUANT TO
STOCK BASED COMPENSATION PLANS
|
(1,971 | ) | (2,902 | ) | ||||
|
||||||||
NET CASH PROVIDED BY OPERATING ACTIVITIES
|
254,184 | 262,144 | ||||||
|
||||||||
|
||||||||
CASH FLOWS FROM INVESTING ACTIVITIES:
|
||||||||
PROCEEDS FROM SALES OF INVESTMENTS IN FIXED MATURITIES
|
500 | 114,212 | ||||||
PROCEEDS FROM MATURITY OF INVESTMENTS IN FIXED MATURITIES
|
158,054 | 119,214 | ||||||
PROCEEDS FROM SALES OF INVESTMENTS IN EQUITY SECURITIES
|
40,859 | 199,048 | ||||||
COST OF FIXED MATURITIES ACQUIRED
|
(388,919 | ) | (479,195 | ) | ||||
COST OF EQUITY SECURITIES ACQUIRED
|
(69,926 | ) | (220,459 | ) | ||||
PROCEEDS FROM SALE OF FIXED ASSETS
|
3,825 | | ||||||
PURCHASE OF PROPERTY AND EQUIPMENT, NET
|
(2,687 | ) | (2,704 | ) | ||||
PAYMENT FOR ACQUISITION OF GILLINGHAM & ASSOCIATES INC.,
NET OF CASH ACQUIRED
|
(32,881 | ) | | |||||
PURCHASE OF OTHER INTANGIBLES
|
(1,877 | ) | (8,564 | ) | ||||
|
||||||||
NET CASH USED FOR INVESTING ACTIVITIES
|
(293,052 | ) | (278,448 | ) | ||||
|
||||||||
|
||||||||
CASH FLOWS FROM FINANCING ACTIVITIES:
|
||||||||
REPAYMENTS ON LOANS
|
(45,000 | ) | | |||||
PROCEEDS FROM LOANS
|
102,220 | | ||||||
PROCEEDS FROM EXERCISE OF EMPLOYEE STOCK OPTIONS
|
3,803 | 3,835 | ||||||
PROCEEDS FROM COLLECTION OF SHAREHOLDER NOTES RECEIVABLE
|
1,964 | 2,791 | ||||||
PROCEEDS FROM SHARES ISSUED PURSUANT TO
STOCK PURCHASE PLANS
|
126 | 206 | ||||||
EXCESS TAX BENEFIT FROM ISSUANCE OF SHARES PURSUANT TO
STOCK BASED COMPENSATION PLANS
|
1,971 | 2,902 | ||||||
COST OF COMMON STOCK REPURCHASED
|
(42,901 | ) | | |||||
|
||||||||
|
||||||||
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
22,183 | 9,734 | ||||||
|
||||||||
|
||||||||
NET INCREASE IN CASH AND CASH EQUIVALENTS
|
(16,685 | ) | (6,570 | ) | ||||
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
106,342 | 108,671 | ||||||
|
||||||||
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
$ | 89,657 | $ | 102,101 | ||||
|
||||||||
|
||||||||
NON-CASH TRANSACTIONS:
|
||||||||
ISSUANCE OF SHARES PURSUANT TO EMPLOYEE STOCK
PURCHASE PLANS IN EXCHANGE FOR NOTES RECEIVABLE
|
$ | 4,934 | $ | 3,450 |
6
1. | Basis of Presentation | |
The consolidated financial statements for the quarterly period ended June 30, 2008 are unaudited, but in the opinion of management have been prepared on the same basis as the annual audited consolidated financial statements and reflect all adjustments, consisting of normal recurring adjustments and accruals, necessary for a fair statement of the information set forth therein. The results of operations for the six months ended June 30, 2008 are not necessarily indicative of the operating results to be expected for the full year or any other period. | ||
These consolidated financial statements should be read in conjunction with the financial statements and notes included in the Companys Annual Report on Form 10-K as of and for the year ended December 31, 2007. | ||
2. | Fair Value Measurements | |
On January 1, 2008, the Company adopted the provisions of Financial Accounting Standards Board (FASB) Statement No. 157 Fair Value Measurements (SFAS 157). SFAS 157 defines fair value and provides a consistent framework for measuring items at fair value as previously permitted by existing accounting pronouncements. SFAS 157 provides a fair value hierarchy which prioritizes the quality of inputs used when measuring items at fair value and requires expanded disclosures for fair value measurements. | ||
On February 12, 2008, SFAS 157 was amended by FASB Staff Position No. FAS 157-2 (FSP FAS 157-2). FSP FAS 157-2 delayed the effective date of SFAS 157 for non-financial assets and non-financial liabilities which are measured at fair value on a nonrecurring basis. Non-financial assets and non-financial liabilities which are measured at fair value on a recurring basis (i.e. at least annually) are not subject to this deferral. This deferral is effective until fiscal years beginning after November 15, 2008 and interim periods within those fiscal years. At that time, provisions of SFAS 157 will apply to non-financial assets and non-financial liabilities which are measured at fair value on a non-recurring basis. | ||
As of June 30, 2008, the Company has no non-financial assets or non-financial liabilities that are measured at fair value on a recurring basis. The Company is currently evaluating the impact of measuring non-financial assets and non-financial liabilities on a non-recurring basis. | ||
The Companys financial assets consist of its investments in fixed maturity and equity securities, and cash equivalents. The Company accounts for its fixed maturity and equity securities assets at fair value under FASB Statement No. 115 Accounting for Certain Investments in Debt and Equity Securities (SFAS 115). Historically, the Companys external fixed maturity investment manager has provided pricing for the Companys financial assets based upon pricing methodologies approved by the investment managers internal pricing committee utilizing pricing information from market vendors on a pre-established provider list. Effective with the Companys adoption of SFAS 157 and as of June 30, 2008, the Companys external fixed maturity investment manager has assisted the Company in measuring the fair value of these financial assets accounted for under SFAS 115, in accordance with the provisions of SFAS 157. No cumulative effect adjustment to the opening balance of retained earnings as of January 1, 2008 was required as the result of the adoption of SFAS 157. As of June 30, 2008, the Company has no liabilities required to be measured at fair value in accordance with the provisions of SFAS 157. | ||
SFAS 157 Valuation Techniques: | ||
SFAS 157 provides three acceptable valuation techniques that should be used to measure fair value. The following is a brief description of these valuation techniques: |
7
8
Fair Value Measurements as of June 30, 2008 Utilizing: | ||||||||||||||||
(In Thousands) | ||||||||||||||||
Quoted Prices | ||||||||||||||||
Active Markets | Significant | |||||||||||||||
Identical Assets | Significant Other | Unobservable | ||||||||||||||
Observable Inputs | Observable Inputs | Inputs | ||||||||||||||
Description | (Level 1) | (Level 2) | (Level 3) | Total | ||||||||||||
US Treasury Securities and
Obligations of US Government
Corporations and Agencies
|
$ | 9,363 | $ | 4,016 | $ | | $ | 13,379 | ||||||||
|
||||||||||||||||
Obligations of States and
Political
Subdivisions
|
| 1,597,298 | | 1,597,298 | ||||||||||||
|
||||||||||||||||
Corporate and Bank Debt
Securities
|
| 154,885 | | 154,885 | ||||||||||||
|
||||||||||||||||
Asset Backed Securities
|
| 200,677 | 19,161 | 219,838 | ||||||||||||
|
||||||||||||||||
Mortgage Pass-Through Securities
|
| 570,405 | | 570,405 | ||||||||||||
|
||||||||||||||||
Collateralized Mortgage
Obligations
|
| 288,404 | | 288,404 | ||||||||||||
|
||||||||||||||||
Total Fixed Maturities
Available
For Sale at Market
|
$ | 9,363 | $ | 2,815,685 | $ | 19,161 | $ | 2,844,209 | ||||||||
|
||||||||||||||||
Equity Securities at Market
|
318,378 | 7,602 | 22,394 | 348,374 | ||||||||||||
|
||||||||||||||||
Cash Equivalents
|
101,594 | | | 101,594 | ||||||||||||
|
||||||||||||||||
Total Fair Value Measurements
|
$ | 429,335 | $ | 2,823,287 | $ | 41,555 | $ | 3,294,177 | ||||||||
|
||||||||||||||||
% of Total Fair Value
Measurements
|
13.0 | % | 85.7 | % | 1.3 | % | 100.0 | % | ||||||||
9
Fair Value Measurements Utilizing Significant Unobservable (Level 3) Inputs: | ||||||||||||||||
(In Thousands) | ||||||||||||||||
Collateralized | ||||||||||||||||
Asset Backed | Mortgage | Equity | ||||||||||||||
Securities | Obligations | Securities | Total | |||||||||||||
For The Three Months Ended
June 30, 2008:
|
||||||||||||||||
Beginning Balance as of April 1, 2008:
|
$ | 9,682 | $ | 142 | $ | 16,399 | $ | 26,223 | ||||||||
Total gains or loss (realized/unrealized)
|
||||||||||||||||
Included in earnings
|
| (7 | ) | (192 | ) | (199 | ) | |||||||||
Included in Other Comprehensive Income
|
(65 | ) | 13 | (614 | ) | (666 | ) | |||||||||
Purchases, issuances, settlements
|
9,882 | (8 | ) | 6,801 | 16,675 | |||||||||||
Transfers in and/or out of Level 3
|
(338 | ) | (140 | ) | | (478 | ) | |||||||||
Ending Balance as of June 30, 2008:
|
$ | 19,161 | $ | | $ | 22,394 | $ | 41,555 | ||||||||
|
||||||||||||||||
For The Six Months Ended June 30, 2008:
|
||||||||||||||||
Beginning Balance as of January 1, 2008:
|
$ | 10,511 | $ | 121 | $ | 11,505 | $ | 22,137 | ||||||||
Total gains or loss (realized/unrealized)
|
||||||||||||||||
Included in earnings
|
1 | (12 | ) | (795 | ) | (806 | ) | |||||||||
Included in Other Comprehensive Income
|
(835 | ) | 47 | (1,862 | ) | (2,650 | ) | |||||||||
Purchases, issuances, settlements
|
9,822 | (16 | ) | 13,546 | 23,352 | |||||||||||
Transfers in and/or out of Level 3
|
(338 | ) | (140 | ) | | (478 | ) | |||||||||
Ending Balance as of June 30, 2008:
|
$ | 19,161 | $ | | $ | 22,394 | $ | 41,555 |
10
3. | Investments | |
Impairment Reviews as of June 30, 2008: | ||
The Company regularly performs impairment reviews with respect to its investments. There are certain risks and uncertainties inherent in the Companys impairment methodology, including, but not limited to, the financial condition of specific industry sectors and the resultant effect on any such underlying security collateral values and changes in accounting, tax, and/or regulatory requirements which may have an effect on either, or both, the investor and/or the issuer. For investments other than interests in securitized assets, these reviews include identifying any security whose fair value is below its cost and an analysis of securities meeting predetermined impairment thresholds to determine whether such decline is other than temporary. If the Company does not intend to hold a security to maturity or determines a decline in value to be other than temporary, the cost basis of the security is written down to its fair value with the amount of the write down included in earnings as a realized investment loss in the period the impairment arose. This evaluation, for investments other than interests in securitized assets, resulted in non-cash realized investment losses of $11.7 million and $0.1 million, respectively, for the three months ended June 30, 2008 and 2007, and $22.4 million and $2.6 million, respectively, for the six months ended June 30, 2008 and 2007. The Companys impairment review also includes an impairment evaluation for interests in securitized assets conducted in accordance with the guidance provided by the Emerging Issues Task Force of the FASB. As a result of the Companys impairment evaluation for investments in securitized assets, there were no non-cash realized investment losses recorded for the three or six months ended June 30, 2008 or 2007 | ||
The following table identifies the period of time securities with an unrealized loss as of June 30, 2008 have continuously been in an unrealized loss position. None of the amounts displayed in the table are due to non-investment grade fixed maturity securities. No issuer of securities or industry represents more than 2.0% and 22.9%, respectively, of the total estimated fair value, or 4.7% and 11.4%, respectively, of the total gross unrealized loss included in the table below. The industry concentration as a percentage of total estimated fair value represents investments in a geographically diversified pool of investment grade Municipal securities issued by states, political subdivisions, and public authorities under general obligation and/or special district/purpose issuing authority. The industry concentration as a percentage of the total gross unrealized loss primarily represents investments in equity securities issued by companies in the Diversified Financial Services industry. |
11
Less Than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | |||||||||||||||||||
June 30, 2008
|
||||||||||||||||||||||||
Fixed Maturities Available for Sale: |
(In Thousands)
|
|||||||||||||||||||||||
|
||||||||||||||||||||||||
U.S. Treasury Securities and
Obligations of U.S. Government
Corporations and Agencies
|
$ | 714 | $ | 22 | $ | | $ | | $ | 714 | $ | 22 | ||||||||||||
|
||||||||||||||||||||||||
Obligations of States and
Political Subdivisions
|
871,007 | 13,875 | 165,804 | 6,176 | 1,036,811 | 20,051 | ||||||||||||||||||
|
||||||||||||||||||||||||
Corporate and Bank Debt Securities
|
83,673 | 1,816 | 5,458 | 315 | 89,131 | 2,131 | ||||||||||||||||||
|
||||||||||||||||||||||||
Asset Backed Securities
|
100,906 | 3,083 | 13,420 | 1,079 | 114,326 | 4,162 | ||||||||||||||||||
|
||||||||||||||||||||||||
Mortgage Pass-Through Securities
|
318,167 | 4,591 | 25,203 | 897 | 343,370 | 5,488 | ||||||||||||||||||
|
||||||||||||||||||||||||
Collateralized Mortgage Obligations
|
82,578 | 2,993 | 20,468 | 1,057 | 103,046 | 4,050 | ||||||||||||||||||
Total Fixed Maturities
Available for Sale
|
$ | 1,457,045 | $ | 26,380 | $ | 230,353 | $ | 9,524 | $ | 1,687,398 | $ | 35,904 | ||||||||||||
Equity Securities
|
155,737 | 30,255 | | | 155,737 | 30,255 | ||||||||||||||||||
Total Investments
|
$ | 1,612,782 | $ | 56,635 | $ | 230,353 | $ | 9,524 | $ | 1,843,135 | $ | 66,159 | ||||||||||||
12
| $569.4 million of U.S. government agency backed Mortgage Pass-Through Securities; | ||
| $207.7 million of U.S. government agency backed Collateralized Mortgage Obligations; | ||
| $68.1 million of non-U.S. government agency Collateralized Mortgage Obligations backed by pools of prime loans (generally consists of loans made to the highest credit quality borrowers with Fair Isaac Corporation (FICO) scores generally greater than 720); | ||
| $16.2 million of structured securities backed by pools of ALT A loans (loans with less than normal documentation and borrowers with FICO scores in the approximate range of 650 to the low 700s); and | ||
| $3.1 million of structured securities backed by pools of subprime loans (loans with low documentation, higher combined loan-to-value ratios and borrowers with FICO scores capped at approximately 650). |
| first to pay or among the first cash flow tranches of their respective transactions; | ||
| weighted average life of 1.9 years; | ||
| spread across multiple vintages (origination year of underlying collateral pool); and | ||
| have not experienced any ratings downgrades as of June 30, 2008. |
13
Market Value of Insured | Weighted Average | |||||||||||
Municipal Bonds | Percentage of Municipal | Underlying Rating of | ||||||||||
Monoline Insurer | (In Thousands) | Bond Portfolio | Insured Municipal Bonds | |||||||||
Financial Security Assurance, Inc.
|
$ | 327,889 | 20.4 | % | AA | |||||||
MBIA, Inc.
|
298,740 | 18.6 | AA | |||||||||
FGIC Corporation.
|
198,943 | 12.4 | AA- | |||||||||
AMBAC Financial Group, Inc.
|
166,058 | 10.3 | AA- | |||||||||
XL Capital, LTD.
|
4,444 | 0.3 | AA- | |||||||||
|
||||||||||||
Total
|
$ | 996,074 | 62.0 | % | AA | |||||||
|
14
Less Than 12 Months | 12 Months or More | Total | ||||||||||||||||||||||
Unrealized | Unrealized | Unrealized | ||||||||||||||||||||||
Fair Value | Losses | Fair Value | Losses | Fair Value | Losses | |||||||||||||||||||
December 31, 2007
|
||||||||||||||||||||||||
Fixed Maturities Available for Sale: |
(In Thousands)
|
|||||||||||||||||||||||
|
||||||||||||||||||||||||
U.S. Treasury Securities and
Obligations of U.S. Government
Corporations and Agencies
|
$ | | $ | | $ | 5,670 | $ | 21 | $ | 5,670 | $ | 21 | ||||||||||||
|
||||||||||||||||||||||||
Obligations of States and
Political Subdivisions
|
294,719 | 2,377 | 203,427 | 1,006 | 498,146 | 3,383 | ||||||||||||||||||
|
||||||||||||||||||||||||
Corporate and Bank Debt Securities
|
7,835 | 33 | 58,709 | 570 | 66,544 | 603 | ||||||||||||||||||
|
||||||||||||||||||||||||
Asset Backed Securities
|
50,574 | 138 | 13,989 | 81 | 64,563 | 219 | ||||||||||||||||||
|
||||||||||||||||||||||||
Mortgage Pass-Through Securities
|
68,691 | 366 | 128,382 | 1,493 | 197,073 | 1,859 | ||||||||||||||||||
|
||||||||||||||||||||||||
Collateralized Mortgage Obligations
|
30,731 | 236 | 65,252 | 725 | 95,983 | 961 | ||||||||||||||||||
Total Fixed Maturities
Available for Sale
|
452,550 | 3,150 | 475,429 | 3,896 | 927,979 | 7,046 | ||||||||||||||||||
Equity Securities
|
118,095 | 22,159 | | | 118,095 | 22,159 | ||||||||||||||||||
Total Investments
|
$ | 570,645 | $ | 25,309 | $ | 475,429 | $ | 3,896 | $ | 1,046,074 | $ | 29,205 | ||||||||||||
15
4. | Restricted Assets | |
The Insurance Subsidiaries have investments, principally U.S. Treasury securities and Obligations of States and Political Subdivisions, on deposit with the various states in which they are licensed insurers. As of June 30, 2008 and December 31, 2007, the carrying value of the securities on deposit totaled $16.7 million and $15.7 million, respectively. | ||
Additionally, as of June 30, 2008 the Insurance Subsidiaries had $57.2 million of borrowings outstanding within the Federal Home Loan Bank of Pittsburgh (FHLB). These borrowings are collateralized by investments, principally asset backed securities, with a carrying value of $82.1 million as of June 30, 2008. As of December 31, 2007, the Insurance Subsidiaries had no borrowings outstanding or investments pledged as collateral to FHLB. | ||
5. | Liability for Unpaid Loss and Loss Adjustment Expenses | |
The liability for unpaid loss and loss adjustment expenses reflects the Companys best estimate for future amounts needed to pay losses and related settlement expenses with respect to insured events. The process of |
16
establishing the liability for property and casualty unpaid loss and loss adjustment expenses is a complex and imprecise process, requiring the use of informed estimates and judgments. The liability includes an amount determined on the basis of claim adjusters evaluations with respect to insured events that have been reported to the Company and an amount for losses incurred that have not yet been reported to the Company. In some cases significant periods of time, up to several years or more, may elapse between the occurrence of an insured loss and the reporting it to the Company. | ||
Estimates for unpaid loss and loss adjustment expenses are based on managements assessment of known facts and circumstances, review of past loss experience and settlement patterns and consideration of other internal and external factors. These factors include, but are not limited to, the Companys growth, changes in the Companys operations, and legal, social, and economic developments. These estimates are reviewed regularly and any resulting adjustments are made in the accounting period in which the adjustment arose. If the Companys ultimate losses, net of reinsurance, prove to differ substantially from the amounts recorded as of June 30, 2008, the related adjustments could have a material adverse impact on the Companys financial condition and results of operations. | ||
During the three months ended June 30, 2008, the Company decreased the estimated net unpaid loss and loss adjustment expenses for accident years 2007 and prior by the following amounts: |
Net | ||||
(In Millions) | Decrease | |||
Accident Year 2007
|
$ | 6.6 | ||
Accident Year 2006
|
4.8 | |||
Accident Year 2005
|
4.1 | |||
Accident Years 2004 and prior
|
3.0 | |||
|
||||
Total
|
$ | 18.5 | ||
|
17
Net | ||||
(In Millions) | Decrease | |||
Accident Year 2007
|
$ | 4.7 | ||
Accident Year 2006
|
8.9 | |||
Accident Year 2005
|
5.3 | |||
Accident Years 2004 and prior
|
5.5 | |||
|
||||
Total
|
$ | 24.4 | ||
|
6. | Shareholders Equity | |
The Philadelphia Consolidated Holding Corp. Amended and Restated Employees Stock Incentive and Performance Based Compensation Plan (the Plan) provides incentives and awards to those employees and members of the Board (participants) largely responsible for the long term success of the Company. Under the Plan, the Company issued 512,760 and 436,607 stock settled appreciation rights (SARS) during the six months ended June 30, 2008 and the year ended December 31, 2007, respectively. The Company also issued 259,695 and 146,884 shares of restricted stock awards during the six months ended June 30, 2008 and the year ended December 31, 2007, respectively. | ||
7. | Stock Repurchase | |
During the six months ended June 30, 2008, the Company repurchased 1,353,200 shares of stock at a cost of $42.9 million under its stock repurchase authorization. As of June 30, 2008, $52.1 million remains available under previous stock purchase authorizations which aggregated $125.3 million. During the six months ended June 30, 2007, the Company did not repurchase any shares of stock under its stock repurchase authorization. | ||
8. | Earnings Per Share | |
Earnings per common share have been calculated by dividing net income for the period by the weighted average number of common shares and common share equivalents outstanding during the period. The computation of earnings per share for the three and six months ended June 30, 2008 and 2007, is as follows: |
18
As of and For the Three | As of and For the Six | |||||||||||||||
Months Ended June 30, | Months Ended June 30, | |||||||||||||||
(In Thousands, Except Per Share Amounts) | 2008 | 2007 | 2008 | 2007 | ||||||||||||
Weighted-Average Common Shares Outstanding
|
69,809 | 70,362 | 70,129 | 70,256 | ||||||||||||
|
||||||||||||||||
Weighted-Average Potential Shares Issuable
|
2,609 | 3,835 | 2,598 | 3,966 | ||||||||||||
|
||||||||||||||||
|
||||||||||||||||
Weighted-Average Shares and Potential
Shares Issuable
|
72,418 | 74,197 | 72,727 | 74,222 | ||||||||||||
|
||||||||||||||||
|
||||||||||||||||
Net Income
|
$ | 52,908 | $ | 94,401 | $ | 115,584 | $ | 160,381 | ||||||||
|
||||||||||||||||
|
||||||||||||||||
Basic Earnings per Share
|
$ | 0.76 | $ | 1.34 | $ | 1.65 | $ | 2.28 | ||||||||
|
||||||||||||||||
|
||||||||||||||||
Diluted Earnings per Share
|
$ | 0.73 | $ | 1.27 | $ | 1.59 | $ | 2.16 | ||||||||
|
As of and For the Three Months Ended June 30, 2008 | As of and For the Three Months Ended June 30, 2007 | |||||||||||||||||
SARS Outstanding | SARS Outstanding | |||||||||||||||||
as of | Hypothetical | Expiration Date | as of | Hypothetical | Expiration Date | |||||||||||||
June 30, 2008 | Option Price | of SAR | June 30, 2007 | Option Price | of SAR | |||||||||||||
30,000
|
$ | 39.95 | September 28, 2016 | 407,446 | $ | 47.52 | February 21, 2017 | |||||||||||
407,446
|
$ | 47.52 | February 21, 2017 | 25,000 | $ | 43.44 | March 19, 2017 | |||||||||||
25,000
|
$ | 43.44 | March 19, 2017 | |||||||||||||||
661
|
$ | 42.41 | May 1, 2017 | |||||||||||||||
3,500
|
$ | 36.85 | August 1, 2017 | |||||||||||||||
65,620
|
$ | 37.12 | April 29, 2018 | |||||||||||||||
As of and For the Six Months Ended June 30, 2008 | As of and For the Six Months Ended June 30, 2007 | |||||||||||||||||
SARS Outstanding | SARS Outstanding | |||||||||||||||||
as of | Hypothetical | Expiration Date | as of | Hypothetical | Expiration Date | |||||||||||||
June 30, 2008 | Option Price | of SAR | June 30, 2007 | Option Price | of SAR | |||||||||||||
22,500
|
$ | 35.35 | March 1, 2016 | 407,446 | $ | 47.52 | February 21, 2017 | |||||||||||
30,000
|
$ | 39.95 | September 28, 2016 | |||||||||||||||
407,446
|
$ | 47.52 | February 21, 2017 | |||||||||||||||
25,000
|
$ | 43.44 | March 19, 2017 | |||||||||||||||
661
|
$ | 42.41 | May 1, 2017 | |||||||||||||||
3,500
|
$ | 36.85 | August 1, 2017 | |||||||||||||||
65,620
|
$ | 37.12 | April 29, 2018 |
9. | Income Taxes | |
The Companys liability for its unrecognized tax benefits was $0.2 million as of June 30, 2008 and December 31, 2007. As of June 30, 2008 and December 31, 2007, the total amount of unrecognized tax benefits that, if recognized, would affect the effective tax rate was $0.2 million. Interest and penalties accrued for the underpayment of taxes are recorded as a component of income tax expense. The liability for interest and penalties amounted to $0.1 million as of June 30, 2008 and December 31, 2007. | ||
The Company and its subsidiaries file Federal and State income tax returns as required. The Company and its subsidiaries are subject to Federal and State examinations for tax years 2003 through 2007, and 2005 through 2007, respectively. | ||
The effective tax rate differs from the 35% marginal tax rate principally as a result of tax-exempt interest income, the dividend received deduction and other differences in the recognition of revenues and expenses for tax and financial reporting purposes. | ||
10. | Reinsurance | |
In the normal course of business, the Company has entered into various reinsurance contracts with unrelated reinsurers. The Company participates in such agreements for the purpose of limiting loss exposure and diversifying business. Reinsurance contracts do not relieve the Company from its obligations to policyholders. The effect of reinsurance on written and earned premiums is as follows: |
For the Three Months Ended | For the Three Months Ended | |||||||||||||||
June 30, 2008 | June 30, 2007 | |||||||||||||||
(In Thousands) | Written | Earned | Written | Earned | ||||||||||||
Direct Business
|
$ | 444,741 | $ | 439,538 | $ | 397,829 | $ | 394,634 | ||||||||
Reinsurance Assumed
|
538 | 808 | 684 | 865 | ||||||||||||
Reinsurance Ceded
|
(46,833 | ) | (47,309 | ) | (59,326 | ) | (58,184 | ) | ||||||||
|
||||||||||||||||
Net Premiums
|
$ | 398,446 | $ | 393,037 | $ | 339,187 | $ | 337,315 | ||||||||
|
For the Six Months Ended | For the Six Months Ended | |||||||||||||||
June 30, 2008 | June 30, 2007 | |||||||||||||||
Written | Earned | Written | Earned | |||||||||||||
Direct Business
|
$ | 887,345 | $ | 867,830 | $ | 791,360 | $ | 771,576 | ||||||||
Reinsurance Assumed
|
1,021 | 1,425 | 1,267 | 1,538 | ||||||||||||
Reinsurance Ceded
|
(83,952 | ) | (96,830 | ) | (116,007 | ) | (117,081 | ) | ||||||||
|
||||||||||||||||
Net Premiums
|
$ | 804,414 | $ | 772,425 | $ | 676,620 | $ | 656,033 | ||||||||
|
19
11. | Commitments and Contingencies | |
Legal Proceedings: | ||
On February 26, 2008, the Company received a complaint filed on February 14, 2008 with the U.S. District Court for the Southern District of Florida by seven individuals. These individuals purported to act on behalf of a class of similarly situated persons who had been issued insurance policies by Liberty American Select Insurance Company, formerly known as Mobile USA Insurance Company (LASIC). The complaint, which is alleged to be a class action complaint, was filed against the Company and its subsidiaries, LASIC, Liberty American Insurance Company and Liberty American Insurance Group, Inc. The complaint requests an unspecified amount of damages in excess of $5,000,000 and equitable relief to prevent the defendants from committing what are alleged to be unfair business practices. The plaintiffs allege that from the period from at least as early as September 1, 2003 through December 31, 2006 they and other policyholders sustained property damage covered under policies issued by LASIC, and that LASIC improperly denied or paid only a portion of the policyholders claims for which they were entitled to be reimbursed. | ||
The Company believes that it has valid defenses to the claims made in the complaint, and that the claims may not be entitled to be brought as a class action. The Company will vigorously defend against such claims. Although there is no assurance as to the outcome of this litigation or as to its effect on the Companys financial position, the Company believes, based on the facts currently known to it, that the outcome of this litigation will not have a material adverse effect on its financial position. | ||
The Company is also subject to routine legal proceedings in connection with its property and casualty insurance business. | ||
Credit Agreement: | ||
The Company maintains an unsecured Credit Agreement (the Credit Agreement) which establishes a revolving credit facility providing for loans to the Company of up to $50.0 million in principal amount outstanding at any one time. The Credit Agreement had a maturity date of June 27, 2008, which was extended to July 11, 2008. The Credit Agreement contains an annual commitment fee of 6.0 basis points per annum on the unused commitments under the Credit Agreement. Each loan under the amended Credit Agreement will bear interest at a per annum rate equal to, at the Companys option, (i) Libor plus 0.35% or (ii) the higher of the administrative agent and lenders prime rate and the Federal Funds rate plus 0.50%. As of June 30, 2008, no borrowings were outstanding under the Credit Agreement. The Credit Agreement contains various representations, covenants and events of default typical for credit facilities of this type. As of June 30, 2008, the Company was in compliance with all covenants contained in the Credit Agreement. | ||
On July 11, 2008, the Company entered into an Amended and Restated Credit Agreement (the Amended Credit Agreement) with Bank of America, N.A. and Wachovia Bank, National Association. The Amended Credit Agreement amended and restated the Companys existing unsecured Credit Agreement among the Company and such Banks. The Amended Credit Agreement changed the terms of the existing Credit Agreement by extending the maturity date to June 26, 2009, including a $10.0 million letter of credit facility as part of the aggregate $50.0 million revolving credit commitments of the Bank lenders, increasing the unused commitment fee from 6.0 basis points to 7.0 basis points per annum and increasing the Companys Libor option per annum interest rate from Libor plus 0.35% to Libor plus 0.40%. | ||
State Insurance Guaranty Funds: | ||
As of June 30, 2008 and December 31, 2007, included in Other Liabilities in the Consolidated Balance Sheets were $17.9 million and $13.2 million, respectively, of liabilities for state insurance guaranty funds. As of June 30, 2008 and December 31, 2007, included in Other Assets in the Consolidated Balance Sheets were $0.2 million of related assets for premium tax offsets or policy surcharges. The related asset is limited to the amount that is determined based upon future premium collections or policy surcharges from policies in force. |
20
State Insurance Facility Assessments: | ||
The Company continually monitors developments with respect to state insurance facilities. The Company is required to participate in various state insurance facilities that provide insurance coverage to individuals or entities that otherwise are unable to purchase such coverage from private insurers. Because of the Companys participation, it may be exposed to losses that surpass the capitalization of these facilities and/or to assessments from these facilities. | ||
Among other state insurance facilities, the Company is subject to assessments from Florida Citizens Property Insurance Corporation (Florida Citizens), which was originally created by the state of Florida to provide insurance to property owners unable to obtain coverage in the private insurance market. Florida Citizens, at the discretion and direction of its Board of Governors (Florida Citizens Board), can levy a regular assessment on participating companies for a deficit in any calendar year up to a maximum of the greater of 6% of the deficit or 6% of Florida property premiums industry-wide for the prior year. The portion of the total assessment attributable to the Company is based on its market share. An insurer may recoup a regular assessment through a surcharge to policyholders. If a deficit remains after the regular assessment, Florida Citizens can also fund any remaining deficit through emergency assessments in the current and subsequent years. Companies are required to collect the emergency assessments directly from residential property policyholders and remit to Florida Citizens as collected. In addition, Florida Citizens may issue bonds to further fund a deficit. | ||
Florida Hurricane Catastrophe Fund: | ||
The Company and other insurance companies writing residential property policies in Florida must participate in the Florida Hurricane Catastrophe Fund (FHCF). If the FHCF does not have sufficient funds to pay its ultimate reimbursement obligations to participating insurance companies, it has the authority to issue bonds, which are funded by assessments on generally all property and casualty premiums in Florida. By law, these assessments are the obligation of insurance policyholders, which insurance companies must collect. The FHCF assessments are limited to 6% of premiums per year beginning the first year in which reimbursements require bonding, and up to a total of 10% of premiums per year for assessments in the second and subsequent years, if required to fund additional bonding. Upon the order of the Florida Office of Insurance Regulation (FLOIR), companies are required to collect the FHCF assessments directly from their policyholders and remit them to the FHCF as they are collected. | ||
12. | Comprehensive Income | |
Components of comprehensive income, as detailed in the Consolidated Statements of Operations and Comprehensive Income, are net of tax. The related tax effect of Holding Losses arising during the three and six months ended June 30, 2008 and 2007 was $17.7 million and $6.4 million, respectively, and $30.5 million and $1.6 million, respectively. The related tax effect of Reclassification Adjustments for the three and six months ended June 30, 2008 and 2007 was $4.0 million and $(9.8) million, respectively, and $8.0 million and $(10.4) million, respectively. | ||
13. | New Accounting Pronouncements | |
In March 2008, the FASB issued Statement No. 161 Disclosures about Derivative Instruments and Hedging Activities (SFAS 161) to enhance disclosures about an entitys derivative and hedging activities. SFAS 161 is effective for all financial statements issued in fiscal years and interim periods beginning after November 15, 2008 and early application is encouraged. SFAS 161 also encourages but does not require comparative disclosures for earlier periods at initial adoption. As the Company does not currently engage in derivative transactions or hedging activities, the Company does not anticipate any significant financial statement disclosure impact resulting from its evaluation of SFAS 161. | ||
In May 2008, the FASB issued Statement No. 162 The Hierarchy of Generally Accepted Accounting Principles (SFAS 162) to identify the sources of accounting principles and provide a framework for selecting the principles to be used in the preparation of financial statements in accordance with generally accepted accounting principles in the United States. SFAS 162 is effective 60 days following the Securities and Exchange Commissions approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. |
21
The Company does not anticipate any significant financial statement impact resulting from its evaluation of SFAS 162. | ||
In May 2008, the FASB issued Statement No. 163 Accounting for Financial Guarantee Insurance Contracts an interpretation of FASB Statement No. 60 (SFAS 163) to eliminate diversity in practice in accounting for financial guarantee insurance contracts by insurance enterprises under FASB Statement No. 60 Accounting and Reporting by Insurance Enterprises. SFAS 163 is effective for all financial statements issued in fiscal years and interim periods beginning after December 15, 2008, with the exception of disclosures about insurance enterprises risk-management activities used to track and monitor deteriorating insured financial obligations, which are effective for the first period, including interim periods, after the issuance of SFAS 163. Except for these risk-management disclosures, early application is not permitted. As the Company does not currently enter into financial guarantee insurance contracts, the Company does not anticipate any significant financial statement or disclosure impact resulting from its evaluation of SFAS 163. | ||
14. | Segment Information | |
The Companys operations are classified into three reportable business segments which are organized around its underwriting divisions: |
| The Commercial Lines Underwriting Group, which has underwriting responsibility for the commercial multi-peril package, commercial automobile, specialty property and inland marine, and antique/collector car insurance products; | ||
| The Specialty Lines Underwriting Group, which has underwriting responsibility for the professional and management liability insurance products; and | ||
| The Run-Off (previously the Personal Lines Group) business segment, which pursuant to approval received in February, 2008 from the Florida Office of Insurance Regulation, is currently in the process of non-renewing all personal lines policies, other than policies issued pursuant to the National Flood Insurance Program (NFIP), beginning with policies expiring on or about July 23, 2008. The Company currently expects the non-renewal process to be completed by July 23, 2009. |
22
As of and For The Three Months Ended June 30, | ||||||||||||||||||||
Commercial | Specialty | |||||||||||||||||||
(In Thousands) | Lines | Lines | Run-Off | Corporate | Total | |||||||||||||||
2008:
|
||||||||||||||||||||
Gross Written Premiums
|
$ | 364,625 | $ | 65,198 | $ | 15,457 | $ | | $ | 445,280 | ||||||||||
Net Written Premiums
|
$ | 335,469 | $ | 60,085 | $ | 2,892 | $ | | $ | 398,446 | ||||||||||
Revenue:
|
||||||||||||||||||||
Net Earned Premiums
|
$ | 332,583 | $ | 58,348 | $ | 2,106 | $ | | $ | 393,037 | ||||||||||
Net Investment Income
|
| | | 32,299 | 32,299 | |||||||||||||||
Net Realized Investment Loss
|
| | | (11,513 | ) | (11,513 | ) | |||||||||||||
Other Income
|
| | 1,381 | 2,273 | 3,654 | |||||||||||||||
Total Revenue
|
332,583 | 58,348 | 3,487 | 23,059 | 417,477 | |||||||||||||||
|
||||||||||||||||||||
Losses and Expenses:
|
||||||||||||||||||||
Net Loss and Loss Adjustment Expenses
|
205,107 | 17,231 | 932 | | 223,270 | |||||||||||||||
Acquisition
Costs and Other Underwriting Expenses
|
| | | 115,479 | 115,479 | |||||||||||||||
Other Operating Expenses
|
| | 121 | 4,255 | 4,376 | |||||||||||||||
Total Losses and Expenses
|
205,107 | 17,231 | 1,053 | 119,734 | 343,125 | |||||||||||||||
|
||||||||||||||||||||
Income Before Income Taxes
|
127,476 | 41,117 | 2,434 | (96,675 | ) | 74,352 | ||||||||||||||
|
||||||||||||||||||||
Total Income Tax Expense
|
| | | 21,444 | 21,444 | |||||||||||||||
|
||||||||||||||||||||
Net Income
|
$ | 127,476 | $ | 41,117 | $ | 2,434 | $ | (118,119 | ) | $ | 52,908 | |||||||||
|
||||||||||||||||||||
Total Assets
|
$ | | $ | | $ | 88,589 | $ | 4,314,921 | $ | 4,403,510 | ||||||||||
|
||||||||||||||||||||
2007:
|
||||||||||||||||||||
Gross Written Premiums
|
$ | 321,908 | $ | 59,963 | $ | 16,642 | $ | | $ | 398,513 | ||||||||||
Net Written Premiums
|
$ | 293,543 | $ | 49,337 | $ | (3,693 | ) | $ | | $ | 339,187 | |||||||||
Revenue:
|
||||||||||||||||||||
Net Earned Premiums
|
$ | 286,642 | $ | 47,811 | $ | 2,862 | $ | | $ | 337,315 | ||||||||||
Net Investment Income
|
| | | 28,522 | 28,522 | |||||||||||||||
Net Realized Investment Gain
|
| | | 28,064 | 28,064 | |||||||||||||||
Other Income
|
| | 630 | 220 | 850 | |||||||||||||||
Total Revenue
|
286,642 | 47,811 | 3,492 | 56,806 | 394,751 | |||||||||||||||
|
||||||||||||||||||||
Losses and Expenses:
|
||||||||||||||||||||
Net Loss and Loss Adjustment Expenses
|
123,238 | 24,024 | 1,327 | | 148,589 | |||||||||||||||
Acquisition Costs and Other Underwriting
Expenses
|
| | | 101,746 | 101,746 | |||||||||||||||
Other Operating Expenses
|
| | 357 | 2,624 | 2,981 | |||||||||||||||
Total Losses and Expenses
|
123,238 | 24,024 | 1,684 | 104,370 | 253,316 | |||||||||||||||
|
||||||||||||||||||||
Income Before Income Taxes
|
163,404 | 23,787 | 1,808 | (47,564 | ) | 141,435 | ||||||||||||||
|
||||||||||||||||||||
Total Income Tax Expense
|
| | | 47,034 | 47,034 | |||||||||||||||
|
||||||||||||||||||||
Net Income
|
$ | 163,404 | $ | 23,787 | $ | 1,808 | $ | (94,598 | ) | $ | 94,901 | |||||||||
|
||||||||||||||||||||
Total Assets
|
$ | | $ | | $ | 107,019 | $ | 3,647,930 | $ | 3,754,949 | ||||||||||
23
As of and For The Six Months Ended June 30, | ||||||||||||||||||||
Commercial | Specialty | |||||||||||||||||||
(In Thousands) | Lines | Lines | Run-Off | Corporate | Total | |||||||||||||||
2008:
|
||||||||||||||||||||
Gross Written Premiums
|
$ | 722,978 | $ | 134,330 | $ | 31,058 | $ | | $ | 888,366 | ||||||||||
Net Written Premiums
|
$ | 662,800 | $ | 133,659 | $ | 7,955 | $ | | $ | 804,414 | ||||||||||
Revenue:
|
||||||||||||||||||||
Net Earned Premiums
|
$ | 653,816 | $ | 113,987 | $ | 4,622 | $ | | $ | 772,425 | ||||||||||
Net Investment Income
|
| | | 64,304 | 64,304 | |||||||||||||||
Net Realized Investment Loss
|
| | | (22,907 | ) | (22,907 | ) | |||||||||||||
Other Income
|
| | 1,807 | 3,200 | 5,007 | |||||||||||||||
Total Revenue
|
653,816 | 113,987 | 6,429 | 44,597 | 818,829 | |||||||||||||||
|
||||||||||||||||||||
Losses and Expenses:
|
||||||||||||||||||||
Net Loss and Loss Adjustment Expenses
|
366,086 | 47,969 | 2,634 | | 416,689 | |||||||||||||||
Acquisition Costs and Other Underwriting
Expenses
|
| | | 229,635 | 229,635 | |||||||||||||||
Other Operating Expenses
|
| | 586 | 7,379 | 7,965 | |||||||||||||||
Total Losses and Expenses
|
366,086 | 47,969 | 3,220 | 237,014 | 654,289 | |||||||||||||||
|
||||||||||||||||||||
Income Before Income Taxes
|
287,730 | 66,018 | 3,209 | (192,417 | ) | 164,540 | ||||||||||||||
|
||||||||||||||||||||
Total Income Tax Expense
|
| | | 48,956 | 48,956 | |||||||||||||||
|
||||||||||||||||||||
Net Income
|
$ | 287,730 | $ | 66,018 | $ | 3,209 | $ | (241,373 | ) | $ | 115,584 | |||||||||
|
||||||||||||||||||||
Total Assets
|
$ | | $ | | $ | 88,589 | $ | 4,314,921 | $ | 4,403,510 | ||||||||||
|
||||||||||||||||||||
2007:
|
||||||||||||||||||||
Gross Written Premiums
|
$ | 633,277 | $ | 120,705 | $ | 38,645 | $ | | $ | 792,627 | ||||||||||
Net Written Premiums
|
$ | 578,965 | $ | 99,897 | $ | (2,242 | ) | $ | | $ | 676,620 | |||||||||
Revenue:
|
||||||||||||||||||||
Net Earned Premiums
|
$ | 558,547 | $ | 93,293 | $ | 4,193 | $ | | $ | 656,033 | ||||||||||
Net Investment Income
|
| | | 55,495 | 55,495 | |||||||||||||||
Net Realized Investment Gain
|
| | | 29,821 | 29,821 | |||||||||||||||
Other Income
|
| | 1,448 | 232 | 1,680 | |||||||||||||||
Total Revenue
|
558,547 | 93,293 | 5,641 | 85,548 | 743,029 | |||||||||||||||
|
||||||||||||||||||||
Losses and Expenses:
|
||||||||||||||||||||
Net Loss and Loss Adjustment Expenses
|
238,706 | 54,800 | 5,588 | | 299,094 | |||||||||||||||
Acquisition Costs and Other Underwriting
Expenses
|
| | | 198,650 | 198,650 | |||||||||||||||
Other Operating Expenses
|
| | 796 | 5,340 | 6,136 | |||||||||||||||
Total Losses and Expenses
|
238,706 | 54,800 | 6,384 | 203,990 | 503,880 | |||||||||||||||
|
||||||||||||||||||||
Income Before Income Taxes
|
319,841 | 38,493 | (743 | ) | (118,442 | ) | 239,149 | |||||||||||||
|
||||||||||||||||||||
Total Income Tax Expense
|
| | | 78,768 | 78,768 | |||||||||||||||
|
||||||||||||||||||||
Net Income
|
$ | 319,841 | $ | 38,493 | $ | (743 | ) | $ | (197,210 | ) | $ | 160,381 | ||||||||
|
||||||||||||||||||||
Total Assets
|
$ | | $ | | $ | 107,019 | $ | 3,647,930 | $ | 3,754,949 | ||||||||||
24
For The Three Months Ended | For The Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
(In Thousands) | 2008 | 2007 | 2008 | 2007 | ||||||||||||
Commercial Lines Net Earned Premiums
|
||||||||||||||||
Commercial Package
|
$ | 303,282 | $ | 261,611 | $ | 595,084 | $ | 513,053 | ||||||||
Specialty Property
|
14,498 | 14,508 | 30,042 | 27,757 | ||||||||||||
Commercial Auto
|
6,073 | 6,104 | 11,750 | 11,238 | ||||||||||||
Antique/Collector Auto
|
7,967 | 3,566 | 15,552 | 5,136 | ||||||||||||
All Other
|
763 | 853 | 1,388 | 1,363 | ||||||||||||
|
||||||||||||||||
Total Commercial Lines
|
332,583 | 286,642 | 653,816 | 558,547 | ||||||||||||
|
||||||||||||||||
|
||||||||||||||||
Specialty Lines Net Earned Premiums
|
||||||||||||||||
Management Liability
|
35,176 | 25,940 | 67,555 | 49,658 | ||||||||||||
Professional Liability
|
23,172 | 21,871 | 46,432 | 43,635 | ||||||||||||
|
||||||||||||||||
Total Specialty Lines
|
58,348 | 47,811 | 113,987 | 93,293 | ||||||||||||
|
||||||||||||||||
|
||||||||||||||||
Run-Off Net Earned Premiums
|
||||||||||||||||
Homeowners and Manufactured Housing
|
2,106 | 2,862 | 4,622 | 4,193 | ||||||||||||
National Flood Insurance Program
|
| | | | ||||||||||||
|
||||||||||||||||
Total Run-Off Net Earned Premiums
|
2,106 | 2,862 | 4,622 | 4,193 | ||||||||||||
|
||||||||||||||||
Other Income
|
1,381 | 630 | 1,807 | 1,448 | ||||||||||||
|
||||||||||||||||
Total Run-Off
|
3,487 | 3,492 | 6,429 | 5,641 | ||||||||||||
|
||||||||||||||||
|
||||||||||||||||
Corporate
|
||||||||||||||||
Net Investment Income
|
32,299 | 28,522 | 64,304 | 55,495 | ||||||||||||
Net Realized Investment Gain (Loss)
|
(11,513 | ) | 28,064 | (22,907 | ) | 29,821 | ||||||||||
Other Income
|
2,273 | 220 | 3,200 | 232 | ||||||||||||
|
||||||||||||||||
Total Corporate
|
23,059 | 56,806 | 44,597 | 85,548 | ||||||||||||
|
||||||||||||||||
Total Revenue
|
$ | 417,477 | $ | 394,751 | $ | 818,829 | $ | 743,029 | ||||||||
|
15. | Subsequent Event | |
On July 23, 2008, the Company and Tokio Marine Holdings, Inc. (TMHD) entered into an Agreement and Plan of Merger under which, at the closing of the merger, TMHD would acquire all outstanding shares of the Company for $61.50 per share, in cash, through TMHDs wholly owned subsidiary, Tokio Marine & Nichido Fire Insurance Co., Ltd. The total value of this transaction is approximately $4,700.0 million, and the transaction is expected to close in the fourth quarter of 2008. The closing of the merger is subject to regulatory and shareholder approval, as well as other customary closing conditions. |
25
| Investments fair value; |
| Investments other than temporary impairments; |
| Liability for unpaid loss and loss adjustment expenses; |
| Reinsurance receivables; |
| Liability for preferred agent profit sharing; and |
| Share-based compensation expense. |
26
(Dollars In Millions) | Commercial Lines | Specialty Lines | Run-off | Total | ||||||||||||
2008 Gross Written Premiums
|
$ | 723.0 | $ | 134.3 | $ | 31.1 | $ | 888.4 | ||||||||
2007 Gross Written Premiums
|
$ | 633.3 | $ | 120.7 | $ | 38.6 | $ | 792.6 | ||||||||
Percentage Increase (Decrease)
|
14.2 | % | 11.3 | % | (19.4 | )% | 12.1 | % | ||||||||
|
||||||||||||||||
2008 Gross Earned Premiums
|
$ | 716.3 | $ | 124.6 | $ | 28.4 | $ | 869.3 | ||||||||
2007 Gross Earned Premiums
|
$ | 613.2 | $ | 115.2 | $ | 44.7 | $ | 773.1 | ||||||||
Percentage Increase (Decrease)
|
16.8 | % | 8.2 | % | (36.5 | )% | 12.4 | % |
| Prospecting efforts by marketing personnel in conjunction with long term relationships formed by our marketing Regional Vice Presidents continue to result in additional prospects and increased premium writings in existing product offerings, most notably for the following: |
§ | Our condominium and homeowners associations, religious organizations, non-profit, antique/collector vehicle, golf and country clubs, day care centers, and specialty schools products in the commercial package product grouping. These product offerings accounted for approximately $49.2 million of the $89.7 million total commercial lines segment gross written premiums increase. | ||
§ | Our consultant liability product in the professional liability product grouping, as well as our private company protection, directors and officers, and business owners products in the management liability product grouping. These product offerings accounted for all of the $13.6 million total specialty lines segment gross written premiums increase. |
| The introduction of several new niche product offerings, such as the affordable housing, special events, and museum commercial package products, as well as the difference in conditions inland marine specialty property product. These new product offerings accounted for approximately $26.1 million of the $89.7 million total commercial lines segment gross written premiums increase. | ||
| The acquisition of Gillingham & Associates, Inc. on March 10, 2008, which accounted for approximately $8.9 million of commercial lines segment gross written premium growth for the six months ended June 30, 2008. |
27
| An increase in our marketing personnel, as well as an increase in the number of our preferred agents. |
| Our Firemark Producer program, which promotes our product offerings and underwriting philosophy in selected producers offices. | ||
| As a result of the factors noted above, the commercial lines and specialty lines segments in-force policy counts increased by 12.6% and 49.3%, respectively, for the six months ended June 30, 2008. |
| Realized average rate decreases on renewal business approximating 4.6% and 2.2% for the commercial lines and specialty lines segments, respectively. | ||
| Continued price competition during the six months ended June 30, 2008, particularly with respect to the following: |
§ | Large commercial property-driven accounts located in the non-coastal areas of the country; | ||
§ | Commercial package business with annual premiums in excess of $100,000; and | ||
§ | Professional liability accounts at all premium levels. |
| A reduction in personal lines (run-off segment) production for our homeowners and rental dwelling policies. This reduction was imposed to reduce our exposure to catastrophe wind losses. On February 29, 2008, we received approval from the Florida Office of Insurance Regulation (FOIR) to non-renew all of our Florida personal lines policies, other than policies issued pursuant to the National Flood Insurance Program, beginning with policies expiring on or about July 23, 2008. We currently expect the non-renewal process to be completed by July 23, 2009. As of June 30, 2008, there were approximately 3,677 in-force policies with an aggregate in-force premium of approximately $2.9 million which expire between July 23, 2008 and December 31, 2008, which we will not renew during 2008. | ||
| A decrease in bowling centers commercial package product gross written premium of $3.2 million as a result of non-renewing policies due to unacceptable underwriting results. For the six months ended June 30, 2008, gross written premium for the bowling centers commercial package product was $0.6 million. The Company anticipates that it will continue to non-renew its remaining bowling centers commercial package business throughout 2008, which approximated $0.6 million of gross written premium for the six months ended December 31, 2007. |
(Dollars In Millions) | Commercial Lines | Specialty Lines | Run-off | Total | ||||||||||||
2008 Net Written Premiums
|
$ | 662.8 | $ | 133.7 | $ | 7.9 | $ | 804.4 | ||||||||
2007 Net Written Premiums
|
$ | 578.9 | $ | 99.9 | $ | (2.2 | ) | $ | 676.6 | |||||||
Percentage Increase
|
14.5 | % | 33.8 | % | 459.1 | % | 18.9 | % | ||||||||
|
||||||||||||||||
2008 Net Earned Premiums
|
$ | 653.8 | $ | 114.0 | $ | 4.6 | $ | 772.4 | ||||||||
2007 Net Earned Premiums
|
$ | 558.5 | $ | 93.3 | $ | 4.2 | $ | 656.0 | ||||||||
Percentage Increase
|
17.1 | % | 22.2 | % | 9.5 | % | 17.7 | % |
28
| We experienced higher property catastrophe reinsurance rates, maintained the same catastrophe loss retention, and increased catastrophe coverage limits for our annual June 1, 2007 reinsurance renewal compared to the June 1, 2006 renewal. This resulted in increased property catastrophe costs for the six month period ended June 30, 2008, compared to the six month period ended June 30, 2007. | ||
| For our June 1, 2008 commercial lines segment property catastrophe reinsurance renewal, we experienced higher reinsurance rates, purchased increased catastrophe limits due to higher exposures primarily in the northeastern portion of the country, and increased our catastrophe loss retention compared to the June 1, 2007 renewal. Our commercial lines segment property catastrophe reinsurance coverage which is effective June 1, 2008 through May 31, 2009 is as follows: |
§ | Our open-market catastrophe reinsurance coverage is $480.0 million in excess of a $20.0 million per occurrence retention. The open-market catastrophe program (coverage principally provided by large reinsurers that are rated at least A- (Excellent) by A.M. Best Company) includes one mandatory reinstatement. | ||
§ | We also purchased a reinstatement premium protection contract for the First and Second Excess Layers of our commercial lines segment open-market catastrophe reinsurance coverage, effective June 1, 2008. This reinstatement premium protection contract provides coverage for reinstatement premiums which we may become liable to pay as a result of a loss occurrence between $20.0 million and $100.0 million (the First and Second Excess Layers of the commercial lines segment open-market catastrophe reinsurance program). |
| For our run-off segment, our property catastrophe costs were significantly lower for the six months ended June 30, 2008 compared to June 30, 2007. For our June 1, 2007 run-off segment property catastrophe reinsurance renewal, we experienced reduced reinsurance rates, lower catastrophe loss retention and purchased decreased catastrophe coverage limits due to lower exposures, compared to the June 1, 2006 renewal. | ||
| For our June 1, 2008 run-off segment property catastrophe reinsurance renewal, we experienced lower reinsurance rates, maintained the same catastrophe loss retention, and purchased decreased catastrophe coverage limits due to lower exposures, compared to our June 1, 2007 renewal. Our run-off segment property catastrophe reinsurance coverage, which is effective June 1, 2008 through May 31, 2009 is as follows: |
§ | Our reinsurance coverage is approximately $43.3 million in excess of a $3.5 million per occurrence retention. Of this total amount, the Florida Hurricane Catastrophe Fund (FHCF) provides, on an aggregate basis for Liberty American Select Insurance Company and Liberty American Insurance Company, 90% coverage for approximately $26.8 million in excess of $6.4 million per occurrence. The FHCF coverage inures to the benefit of our open-market catastrophe program. The coverage provided by our open-market catastrophe program (large reinsurers that are rated at least A- (Excellent) by A.M. Best Company) includes one mandatory reinstatement, but the FHCF coverage does not reinstate. Since the FHCF reimbursement coverage cannot be reinstated, our open-market program is structured such that catastrophe reinsurance coverage in excess of the FHCF coverage will drop down and fill in any portion of the FHCF which has been utilized. |
| For our commercial and specialty lines segments, we experienced rate reductions on our annual January 1, 2008 renewal of our casualty excess of loss reinsurance coverage compared to the rate on our January 1, 2007 renewal of this coverage. |
29
| For our commercial lines segment, we experienced a rate increase on our annual January 1, 2008 renewal of our property excess of loss reinsurance coverage compared to the rate on our January 1, 2007 renewal of this coverage. | ||
| For our specialty lines segment, the higher percentage increase in our net written premiums compared to the percentage increase in our gross written premiums for the six months ended June 30, 2008 is primarily due to the January 1, 2008 renewal of our casualty excess of loss reinsurance coverage. We experienced rate reductions on our January 1, 2008 renewal of this coverage compared to our January 1, 2007 renewal of this coverage. This reduced rate was applied to our January 1, 2008 gross unearned premiums, which resulted in a reduction to ceded written premium as of January 1, 2008. | ||
| Certain of our reinsurance contracts have reinstatement or additional premium provisions under which we must pay reinstatement or additional reinsurance premiums to reinstate coverage provisions upon utilization of initial reinsurance coverage. During the six months ended June 30, 2008 and 2007, we accrued $0.9 million ($1.0 million for the commercial lines segment and $(0.1) million for the specialty lines segment) and $1.9 million ($0.8 million for the commercial lines segment and $1.1 million for the specialty lines segment) respectively, of reinstatement or additional reinsurance premium under our excess of loss reinsurance treaties, as a result of changes in our ultimate loss estimates. These reinstatement and additional premiums increase ceded written and earned premiums and decrease net written and earned premiums. |
30
| The growth in net earned premiums. | ||
| Net reserve actions taken during the six months ended June 30, 2008 which decreased net estimated unpaid loss and loss adjustment expenses for accident years 2007 and prior by $24.4 million, as compared to net reserve actions taken during the six months ended June 30, 2007 which decreased estimated net unpaid loss and loss adjustment expenses for accident years 2006 and prior by $33.7 million. Decreases in the estimated net unpaid loss and loss adjustment expenses for prior accident years during the six months ended June 30, 2008 were as follows: |
Net Basis | ||||
(Dollars In Millions) | Decrease | |||
Accident Year 2007
|
$ | 4.7 | ||
Accident Year 2006
|
8.9 | |||
Accident Year 2005
|
5.3 | |||
Accident Years 2004 and prior
|
5.5 | |||
|
||||
Total
|
$ | 24.4 | ||
|
For accident year 2007, the decrease in estimated net unpaid loss and loss adjustment expenses was principally due to lower loss estimates for commercial general liability and management liability coverages due to better than expected case incurred loss development, primarily as a result of claim frequency being less than anticipated for commercial general liability coverage and claim severity being less than anticipated for management liability coverage These lower loss estimates were partially offset by higher |
31
loss estimates for commercial automobile coverages due to higher than expected case incurred loss development, primarily as a result of both claim frequency and severity being greater than anticipated. | |||
For accident year 2006, the decrease in estimated net unpaid loss and loss adjustment expenses was principally due to lower loss estimates for commercial general liability, commercial property, and professional liability coverages due to better than expected case incurred loss development, primarily as a result of claim severity being less than anticipated. These lower loss estimates were partially offset by higher loss estimates for commercial automobile coverages due to higher than expected case incurred loss development, primarily as a result of claim severity being greater than anticipated. | |||
For accident year 2005, the decrease in estimated net unpaid loss and loss adjustment expenses was principally due to lower loss estimates for commercial general liability and management liability and professional liability coverages due to better than expected case incurred loss development, primarily as a result of claim severity being less than anticipated. | |||
For accident years 2004 and prior, the decrease in estimated net unpaid loss and loss adjustment expenses was principally due to lower loss estimates across most coverages due to better than expected case incurred loss development, primarily as a result of claim severity being less than anticipated. |
| An increase in the current accident year net ultimate loss and loss adjustment expense ratio for the six months ended June 30, 2008 compared to 2007. During the six months ended June 30, 2008, a net ultimate loss and loss adjustment expense ratio of 57.1% was estimated for the 2008 accident year. During the six months ended June 30, 2007, a net ultimate loss and loss adjustment expense ratio of 50.7% was estimated for the 2007 accident year. The increase in the 2008 accident year loss and loss adjustment expense ratio is principally attributable to: |
§ | Realized average rate decreases on renewal business approximating 4.6% and 2.2% for the commercial and specialty lines segments, respectively, for the six months ended June 30, 2008 compared to the same period in 2007. | ||
§ | $20.6 million of loss and loss adjustment expenses during the six months ended June 30, 2008 resulting from hail, tornado, and wind losses which occurred in Minnesota, Nebraska, Kansas, and Oklahoma during the period of May 22, 2008 through May 26, 2008, and which occurred in Illinois, Indiana, Kansas, Minnesota, Nebraska, and Oklahoma during the period of May 29, 2008 through June 1, 2008. We did not have similar losses during the six months ended June 30, 2007. |
32
(Dollars In Millions) | Commercial Lines | Specialty Lines | Run-off | Total | ||||||||||||
2008 Gross Written Premiums
|
$ | 364.6 | $ | 65.2 | $ | 15.5 | $ | 445.3 | ||||||||
2007 Gross Written Premiums
|
$ | 321.9 | $ | 60.0 | $ | 16.6 | $ | 398.5 | ||||||||
Percentage Increase (Decrease)
|
13.3 | % | 8.7 | % | (6.6 | )% | 11.7 | % | ||||||||
|
||||||||||||||||
2008 Gross Earned Premiums
|
$ | 363.4 | $ | 63.3 | $ | 13.6 | $ | 440.3 | ||||||||
2007 Gross Earned Premiums
|
$ | 315.5 | $ | 58.4 | $ | 21.6 | $ | 395.5 | ||||||||
Percentage Increase (Decrease)
|
15.2 | % | 8.4 | % | (37.0 | )% | 11.3 | % |
| Prospecting efforts by marketing personnel in conjunction with long term relationships formed by our marketing Regional Vice Presidents continue to result in additional prospects and increased premium writings in existing product offerings, most notably for the following: |
§ | Our condominium and homeowners associations, religious organizations, non-profit, antique/collector vehicle, specialty schools, and golf and country clubs products in the commercial package product grouping; These product offerings accounted for approximately $21.6 million of the $42.7 million total commercial lines segment gross written premiums increase. | ||
§ | Our consultant liability product in the professional liability product grouping, as well as our private company protection, directors and officers, and business owners products in the management liability product grouping. These product offerings accounted for all of the $5.2 million total specialty lines segment gross written premiums increase. |
| The introduction of several new niche product offerings, such as the affordable housing, vehicle parks, special events, and museums commercial package products, as well as the difference in conditions inland marine specialty property product. These new product offerings accounted for approximately $14.8 million of the $42.7 million total commercial lines segment gross written premiums increase. | ||
| The acquisition of Gillingham & Associates, Inc. on March 10, 2008, which accounted for approximately $8.9 million of commercial lines segment gross written premium growth for the three months ended June 30, 2008. | ||
| An increase in our marketing personnel, as well as an increase in the number of our preferred agents. | ||
| Our Firemark Producer program, which promotes our product offerings and underwriting philosophy in selected producers offices. | ||
| As a result of the factors noted above the commercial and specialty lines segments in-force policy counts increased by 5.6% and 17.8%, respectively, for the three months ended June 30, 2008. |
| Realized average rate decreases on renewal business approximating 4.4% and 2.4% for the commercial lines and specialty lines segments, respectively. |
33
| Continued price competition during the three months ended June 30, 2008, particularly with respect to the following: |
§ | Large commercial property-driven accounts located in the non-coastal areas of the country; | ||
§ | Commercial package business with annual premiums in excess of $100,000; and | ||
§ | Professional liability accounts at all premium levels. |
| A reduction in personal lines (run-off segment) production for our homeowners and rental dwelling policies. This reduction was imposed to reduce our exposure to catastrophe wind losses. | ||
On February 29, 2008, we received approval from the Florida Office of Insurance Regulation (FOIR) to non-renew all of our Florida personal lines policies, other than policies issued pursuant to the National Flood Insurance Program, beginning with policies expiring on or about July 23, 2008. We currently expect the non-renewal process to be completed by July 23, 2009. As of June 30, 2008, there were approximately 3,677 in-force policies with an aggregate in-force premium of approximately $2.9 million which expire between July 23, 2008 and December 31, 2008, which we will not renew during 2008. | |||
| A decrease in bowling centers commercial package product gross written premium of $0.8 million as a result of non-renewing policies due to unacceptable underwriting results. For the three months ended June 30, 2008, gross written premium for the bowling centers commercial package product was $0.3 million. The Company anticipates that it will continue to non-renew its remaining bowling centers commercial package business throughout 2008, which approximated $0.6 million of gross written premium for the six months ended December 31, 2007. |
(Dollars In Millions) | Commercial Lines | Specialty Lines | Run-off | Total | ||||||||||||
2008 Net Written Premiums
|
$ | 335.4 | $ | 60.1 | $ | 2.9 | $ | 398.4 | ||||||||
2007 Net Written Premiums
|
$ | 293.6 | $ | 49.3 | $ | (3.7 | ) | $ | 339.2 | |||||||
Percentage Increase
|
14.2 | % | 21.9 | % | 178.4 | % | 17.5 | % | ||||||||
|
||||||||||||||||
2008 Net Earned Premiums
|
$ | 332.6 | $ | 58.3 | $ | 2.1 | $ | 393.0 | ||||||||
2007 Net Earned Premiums
|
$ | 286.6 | $ | 47.8 | $ | 2.9 | $ | 337.3 | ||||||||
Percentage Increase (Decrease)
|
16.1 | % | 22.0 | % | (27.6 | )% | 16.5 | % |
| We experienced higher property catastrophe reinsurance rates, maintained the same catastrophe loss retention, and increased catastrophe coverage limits for our annual June 1, 2007 reinsurance renewal compared to the June 1, 2006 renewal. This resulted in increased property catastrophe costs for the three month period ended June 30, 2008, compared to the three month period ended June 30, 2007. For the June 1, 2008 commercial lines segment property catastrophe reinsurance renewal, we experienced higher reinsurance rates, purchased increased catastrophe limits due to higher exposures primarily in the northeastern portion of the country, and increased our catastrophe loss retention compared to the June 1, 2007 renewal. |
34
| For our run-off segment, our property catastrophe costs were significantly lower for the three months ended June 30, 2008 compared to June 30, 2007. For our June 1, 2007 run-off segment property catastrophe reinsurance renewal, we experienced reduced reinsurance rates, lower catastrophe loss retention and purchased decreased catastrophe coverage limits due to lower exposures, compared to the June 1, 2006 renewal. For our June 1, 2008 run-off segment property catastrophe reinsurance renewal, we experienced lower reinsurance rates, maintained the same catastrophe loss retention, and purchased decreased catastrophe coverage limits due to lower exposures, compared to our June 1, 2007 renewal. | ||
| For our commercial and specialty lines segments, we experienced rate reductions on our annual January 1, 2008 renewal of our casualty excess of loss reinsurance coverage compared to the rate on our January 1, 2007 renewal of this coverage. | ||
| For our commercial lines segment, we experienced a rate increase on our annual January 1, 2008 renewal of our property excess of loss reinsurance coverage compared to the rate on our January 1, 2007 renewal of this coverage. |
35
| The growth in net earned premiums. | ||
| Net reserve actions taken during the three months ended June 30, 2008 which decreased net estimated unpaid loss and loss adjustment expenses for accident years 2007 and prior by $18.5 million, as compared to net reserve actions taken during the three months ended June 30, 2007 which decreased estimated net unpaid loss and loss adjustment expenses for accident years 2006 and prior by $20.8 million. Decreases in the estimated net unpaid loss and loss adjustment expenses for prior accident years during the three months ended June 30, 2008 were as follows: |
(Dollars In Millions) | Net Basis Decrease | |||
Accident Year 2007
|
$ | 6.6 | ||
Accident Year 2006
|
4.8 | |||
Accident Year 2005
|
4.1 | |||
Accident Years 2004 and prior
|
3.0 | |||
|
||||
Total
|
$ | 18.5 | ||
|
For accident year 2007, the decrease in estimated net unpaid loss and loss adjustment expenses was principally due to lower loss estimates for commercial general liability, commercial property, and management liability coverages due to better than expected case incurred loss development, primarily as a result of claim frequency being less than anticipated for commercial general liability and commercial property coverages, and claim severity being less than anticipated for management liability coverage. These lower loss estimates were partially offset by higher loss estimates for commercial automobile coverages due to higher than expected case incurred loss development, primarily as a result of both claim frequency and severity being greater than anticipated. | |||
For accident year 2006, the decrease in estimated net unpaid loss and loss adjustment expenses was principally due to lower loss estimates for commercial property and professional liability coverages due to better than expected case incurred loss development, primarily as a result of claim severity being less than anticipated. These lower loss estimates were partially offset by higher loss estimates for commercial |
36
automobile coverages due to higher than expected case incurred loss development, primarily as a result of claim severity being greater than anticipated. | |||
For accident year 2005, the decrease in estimated net unpaid loss and loss adjustment expenses was principally due to lower loss estimates for management liability and professional liability coverages due to better than expected case incurred loss development, primarily as a result of claim severity being less than anticipated. | |||
For accident years 2004 and prior, the decrease in estimated net unpaid loss and loss adjustment expenses was principally due to lower loss estimates for commercial general liability, management liability, and professional liability coverages due to better than expected case incurred loss development, primarily as a result of claim severity being less than anticipated. | |||
| An increase in the current accident year net ultimate loss and loss adjustment expense ratio for the three months ended June 30, 2008 compared to 2007. During the three months ended June 30, 2008, a net ultimate loss and loss adjustment expense ratio of 61.5% was estimated for the 2008 accident year. During the three months ended June 30, 2007, a net ultimate loss and loss adjustment expense ratio of 50.2% was estimated for the 2007 accident year. The increase in the 2008 accident year loss and loss adjustment expense ratio is principally attributable to: |
§ | Realized average rate decreases on renewal business approximating 4.4% and 2.4% for the commercial and specialty lines segments, respectively, for the three months ended June 30, 2008 compared to the same period in 2007. | ||
§ | $20.6 million of loss and loss adjustment expenses during the three months ended June 30, 2008 resulting from hail, tornado, and wind losses which occurred in Minnesota, Nebraska, Kansas, and Oklahoma during the period of May 22, 2008 through May 26, 2008, and which occurred in Illinois, Indiana, Kansas, Minnesota, Nebraska, and Oklahoma during the period of May 29, 2008 through June 1, 2008. We did not have similar losses during the three months ended June 30, 2007. |
37
§ | The fair value of our total invested assets is primarily measured utilizing a market based valuation methodology (Market Approach). A Market Approach utilizes prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities to measure fair value. We have consistently applied the Market Approach as of and for the three and six months ended June 30, 2008. |
§ | Approximately 98.7% of our total invested assets is measured utilizing significant observable inputs (Level 1 or Level 2 per SFAS 157). Approximately 1.3% of our total invested assets is measured utilizing significant unobservable inputs (Level 3 per SFAS 157). |
§ | Approximately 99.3% of our fixed maturity investments is measured utilizing significant observable inputs (Level 1 or Level 2 per SFAS 157). Approximately 93.6% of our equity investments is measured utilizing significant observable inputs (Level 1 or Level 2 per SFAS 157). We do not consider our use of unobservable inputs (Level 3 per SFAS 157) in our fair value measurements to be significant to our financial position, results of operations, or liquidity. |
§ | Significant observable inputs utilized to measure fair value include matrix pricing for fixed maturity investments (Level 2 per SFAS 157) and quoted market prices for equity investments (Level 1 per SFAS 157). Matrix pricing relies on observable inputs from active markets other than quoted market prices including, but not limited to, benchmark securities and yields, latest reported trades, quotes from brokers or dealers, issuer spreads, bids, offers, and other relevant reference data to determine fair value. Matrix pricing is used to measure the fair value of fixed maturity securities where obtaining individual quoted market prices is impractical. |
§ | The significant unobservable inputs utilized to measure fair value include broker pricing and net asset value calculations. |
§ | We made no material adjustments to the fair value of our invested assets as of and for the three and six months ended June 30, 2008. |
38
| The industry concentration as a percentage of total estimated fair value represents investments in a geographically diversified pool of investment grade municipal securities issued by states, political subdivisions, and public authorities under general obligation and/or special district/purpose issuing authority. The unrealized losses on these securities are generally attributable to changes both in market spreads and in the level of Treasury yields. The primary factor underlying the spread widening is the increasing market risk aversion to issues surrounding the monoline financial guarantors, given such guarantors significant participation in the municipal sector through their financial guarantee insurance. | ||
| The industry concentration as a percentage of the total gross unrealized loss primarily represents investments in equity securities issued by companies in the diversified financial services industry. The unrealized losses on these securities are generally attributable to the recent correction in the financial services industry primarily caused by the deterioration of credit conditions and increased risk aversion in the marketplace during the second half of 2007 and the first half of 2008. As of June 30, 2008, these securities were evaluated for other than temporary impairment in accordance with the Companys impairment policy, and the Company concluded that these securities were not other than temporarily impaired. |
39
(In Millions) | Gross Unrealized Losses as of June 30, 2008 | |||||||||||||||||||
Fixed Maturities | ||||||||||||||||||||
Available for Sale | ||||||||||||||||||||
Excluding Interests | ||||||||||||||||||||
Continuous time in | in Securitized | Interests in | Fixed Maturities | Total | ||||||||||||||||
Unrealized loss position | Assets | Securitized Assets | Available for Sale | Equity Securities | Investments | |||||||||||||||
0 3 months
|
$ | 5.0 | $ | 6.0 | $ | 11.0 | $ | 10.7 | $ | 21.7 | ||||||||||
4 6 months
|
9.3 | 4.4 | 13.7 | 9.3 | 23.0 | |||||||||||||||
7 9 months
|
1.3 | 0.2 | 1.5 | 10.3 | 11.8 | |||||||||||||||
10 12 months
|
0.1 | 0.1 | 0.2 | | 0.2 | |||||||||||||||
13 18 months
|
5.6 | 0.9 | 6.5 | | 6.5 | |||||||||||||||
19 24 months
|
0.1 | | 0.1 | | 0.1 | |||||||||||||||
> 24 months
|
0.8 | 2.1 | 2.9 | | 2.9 | |||||||||||||||
|
||||||||||||||||||||
Total Gross
Unrealized Losses
|
$ | 22.2 | $ | 13.7 | $ | 35.9 | $ | 30.3 | $ | 66.2 | ||||||||||
|
||||||||||||||||||||
Estimated fair
value of
securities with a
gross
unrealized loss
|
$ | 1,126.7 | $ | 560.7 | $ | 1,687.4 | $ | 155.7 | $ | 1,843.1 | ||||||||||
|
US Treasury Securities and Obligations of U.S. Government Agencies: | ||
The unrealized losses on our investments in U.S. Treasury Securities and Obligations of U.S. Government Agencies which have ratings of Aaa/AAA are attributable to the general level of interest rates. Of the 29 investment positions held, approximately 10.3% were in an unrealized loss position as of June 30, 2008. | ||
Obligations of States and Political Subdivisions: | ||
The unrealized losses on our investments in long term tax exempt securities, which have ratings of Baa3/BBB- to Aaa/AAA are attributable to changes both in market spreads and in the level of Treasury yields. Of the 968 investment positions held, approximately 57.9% were in an unrealized loss position. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investments. | ||
Corporate Debt Securities: | ||
The unrealized losses on our long term investments in corporate bonds, which have ratings from Baa3/BBB to Aaa/AAA are attributable primarily to changes in market spreads. Of the 62 investment positions held, approximately 59.7% were in an unrealized loss position. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investments. |
Asset Backed Securities: | ||
The unrealized losses on our investments in Asset Backed Securities which have ratings of Baa2/BBB to Aaa/AAA, are attributable primarily to changes in market spreads. Of the 113 investment positions held, approximately 53.1% were in an unrealized loss position. The contractual terms of the investments do not permit the issuer to settle the security at a price less than the amortized cost of the investments. | ||
Mortgage Pass-Through Securities: | ||
The unrealized losses on our investments in Mortgage Pass-Through Securities which have ratings of Aaa/AAA, are attributable primarily to changes in market spreads. Of the 150 investment positions held, |
40
approximately 57.3% were in an unrealized loss position. The contractual terms of the investments do not permit the issuer to settle the security at a price less than the amortized cost of the investments. | ||
Collateralized Mortgage Obligations: | ||
The unrealized losses on our investments in Collateralized Mortgage Obligations which have ratings of A2/A to Aaa/AAA, are attributable primarily to changes in market spreads. Of the 167 investment positions held, approximately 33.5% were in an unrealized loss position. The contractual terms of the investments do not permit the issuer to settle the security at a price less than the amortized cost of the investments. |
| $569.4 million of U.S. government agency backed Mortgage Pass-Through Securities; |
| $207.7 million of U.S. government agency backed Collateralized Mortgage Obligations; |
| $68.1 million of non-U.S. government agency Collateralized Mortgage Obligations backed by pools of prime loans (generally consists of loans made to the highest credit quality borrowers with Fair Isaac Corporation (FICO) scores generally greater than 720); |
| $16.2 million of structured securities backed by pools of ALT A loans (loans with less than normal documentation and borrowers with FICO scores in the approximated range of 650 to the low 700s); and |
| $3.1 million of structured securities backed by pools of subprime loans (loans with less than normal documentation, higher combined loan-to-value ratios and borrowers with FICO scores capped at approximately 650). |
| first to pay or among the first cash flow tranches of their respective transactions; | |
| weighted average life of 1.9 years; | |
| spread across multiple vintages (origination year of underlying collateral pool), and | |
| have not experienced any ratings downgrades as of June 30, 2008. |
41
Weighted Average | ||||||||||||
Market Value of Insured | Percentage of | Underlying Rating of | ||||||||||
Municipal Bonds | Municipal Bond | Insured Municipal | ||||||||||
Monoline Insurer | (In Millions) | Portfolio | Bonds | |||||||||
Financial Security
Assurance, Inc.
|
$ | 327.9 | 20.4 | % | AA | |||||||
MBIA, Inc.
|
298.7 | 18.6 | AA | |||||||||
FGIC Corporation.
|
198.9 | 12.4 | AA- | |||||||||
AMBAC Financial Group, Inc.
|
166.1 | 10.3 | AA- | |||||||||
XL Capital, LTD.
|
4.4 | 0.3 | AA- | |||||||||
|
||||||||||||
Total
|
$ | 996.0 | 62.0 | % | AA | |||||||
|
| The industry concentration as a percentage of total estimated fair value represents investments in a geographically diversified pool of investment grade municipal securities issued by states, political subdivisions, and public authorities under general obligation and/or special district/purpose issuing authority. The unrealized losses on these securities are generally attributable to spread widening. The primary factor underlying the spread widening is the increasing market risk aversion to issues surrounding the monoline financial guarantors, given the monolines significant participation in the municipal sector through their financial guarantee insurance. |
| The industry concentration as a percentage of the total gross unrealized loss primarily represents investments in equity securities issued by companies in the Diversified Financial Services industry. The unrealized losses on these securities are generally attributable to the recent correction in the Financial Services industry primarily caused by the deterioration of credit conditions in the marketplace during the third and fourth quarters of 2007. As of December 31, 2007, these equity securities were evaluated for other than temporary impairment in accordance with the Companys impairment policy and the Company concluded that these securities were not other than temporarily impaired. |
42
(In Millions) | Gross Unrealized Losses as of December 31, 2007 | |||||||||||||||||||
Fixed Maturities | ||||||||||||||||||||
Available for Sale | ||||||||||||||||||||
Excluding Interests | Interests in | Fixed Maturities | ||||||||||||||||||
Continuous time in | in Securitized | Securitized | Available | Equity | Total | |||||||||||||||
Unrealized loss position | Assets | Assets | for Sale | Securities | Investments | |||||||||||||||
0 3 months
|
$ | 0.2 | $ | 0.7 | $ | 0.9 | $ | 8.1 | $ | 9.0 | ||||||||||
>3 6 months
|
| 0.1 | 0.1 | 6.5 | 6.6 | |||||||||||||||
>6 9 months
|
0.8 | | 0.8 | 7.6 | 8.4 | |||||||||||||||
>9 12 months
|
1.3 | | 1.3 | | 1.3 | |||||||||||||||
>12 18 months
|
0.2 | | 0.2 | | 0.2 | |||||||||||||||
>18 24 months
|
0.1 | | 0.1 | | 0.1 | |||||||||||||||
> 24 months
|
1.4 | 2.2 | 3.6 | | 3.6 | |||||||||||||||
|
||||||||||||||||||||
Total Gross Unrealized Losses
|
$ | 4.0 | $ | 3.0 | $ | 7.0 | $ | 22.2 | $ | 29.2 | ||||||||||
|
||||||||||||||||||||
Estimated fair value of
securities with a gross
unrealized loss
|
$ | 570.4 | $ | 357.6 | $ | 928.0 | $ | 118.1 | $ | 1,046.1 | ||||||||||
|
US Treasury Securities and Obligations of U.S. Government Agencies:
|
||
Obligations of States and Political Subdivisions: | ||
The unrealized losses on our investments in long term tax exempt securities, which have ratings of A1/A+ to AAA/Aaa, are generally caused by spread widening. Of the 873 investment positions held, approximately 32.8% were in an unrealized loss position. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investments. | ||
Corporate Debt Securities: | ||
The unrealized losses on our long term investments in Corporate bonds, which have ratings from Baa3/BBB to Aaa/AAA, are generally caused by spread widening. Of the 73 investment positions held, approximately 79.5% were in an unrealized loss position. The contractual terms of the investments do not permit the issuer to settle the securities at a price less than the amortized cost of the investments. |
Asset Backed Securities: | ||
The unrealized losses on our investments in Asset Backed Securities, which have ratings from A2/A to Aaa/AAA are generally caused by spread widening. Of the 116 investment positions held, approximately 40.5% were in an unrealized loss position. The contractual terms of the investments do not permit the issuer to settle the security at a price less than the amortized cost of the investments. |
43
Mortgage Pass-Through Securities: | ||
The unrealized losses on our investments in Mortgage Pass-Through Securities which have ratings of Aaa/AAA are generally caused by spread widening. Of the 150 investment positions held, approximately 38.7% were in an unrealized loss position. The contractual terms of the investments do not permit the issuer to settle the security at a price less than the amortized cost of the investments. |
Collateralized Mortgage Obligations: | ||
The unrealized losses on our investments in Collateralized Mortgage Obligations which have ratings of Aa2/AA+ to Aaa/AAA are generally caused by spread widening. Of the 172 investment positions held, approximately 41.3% were in an unrealized loss position. The contractual terms of the investments do not permit the issuer to settle the security at a price less than the amortized cost of the investments. |
44
| $57.2 million of cash provided from borrowings from the Federal Home Loan Bank of Pittsburgh (FHLB), | ||
| $45.0 million of cash provided from borrowings from our unsecured $50.0 million credit agreement, | ||
| $3.9 million of cash provided from proceeds from the issuance of shares pursuant to our stock based compensation plans and stock purchase plans, | ||
| $2.0 million of cash provided from excess tax benefit from the issuance of shares pursuant to stock based compensation plans, and | ||
| $2.0 million of cash provided from the collection of notes receivable associated with our employee stock purchase plans. |
| $42.9 million of cash used to repurchase common stock under our stock purchase authorization; | ||
| $45.0 million of cash used for repayments on our unsecured $50.0 million credit agreement. |
45
46
Estimated | Hypothetical Percentage | |||||||||||||||||||
Hypothetical Change | Fair Value after | Increase (Decrease) in | ||||||||||||||||||
Estimated | in Interest Rates | Hypothetical Changes | Shareholders | |||||||||||||||||
Fair Value | (bp=basis points) | in Interest Rates | Fair Value | Equity | ||||||||||||||||
(Dollars in Thousands) | ||||||||||||||||||||
June 30, 2008:
|
||||||||||||||||||||
Investments
|
||||||||||||||||||||
Total Fixed Maturities Available For Sale
|
$ | 2,844,209 | 200 bp decrease | $ | 3,133,908 | 10.2 | % | 11.8 | % | |||||||||||
|
100 bp decrease | $ | 2,990,793 | 5.2 | % | 6.0 | % | |||||||||||||
|
50 bp decrease | $ | 2,917,768 | 2.6 | % | 3.0 | % | |||||||||||||
|
50 bp increase | $ | 2,770,855 | (2.6 | )% | (3.0 | )% | |||||||||||||
|
100 bp increase | $ | 2,698,571 | (5.1 | )% | (5.9 | )% | |||||||||||||
|
200 bp increase | $ | 2,558,889 | (10.0 | )% | (11.6 | )% | |||||||||||||
|
||||||||||||||||||||
June 30, 2007:
|
||||||||||||||||||||
Investments
|
||||||||||||||||||||
Total Fixed Maturities Available For Sale
|
$ | 2,367,228 | 200 bp decrease | $ | 2,590,289 | 9.4 | % | 11.0 | % | |||||||||||
|
100 bp decrease | $ | 2,479,171 | 4.7 | % | 5.5 | % | |||||||||||||
|
50 bp decrease | $ | 2,423,438 | 2.4 | % | 2.8 | % | |||||||||||||
|
50 bp increase | $ | 2,310,641 | (2.4 | )% | (2.8 | )% | |||||||||||||
|
100 bp increase | $ | 2,254,153 | (4.8 | )% | (5.6 | )% | |||||||||||||
|
200 bp increase | $ | 2,142,740 | (9.5 | )% | (11.0 | )% |
47
48
49
(c) Total | (d) | |||||||||||||||
Number of | Approximate | |||||||||||||||
Shares | Dollar Value of | |||||||||||||||
Purchased as | Shares That | |||||||||||||||
Part of | May Yet Be | |||||||||||||||
Publicly | Purchased | |||||||||||||||
(a) Total Number | (b) Average | Announced | Under the | |||||||||||||
of Shares | Price Paid per | Plans or | Plans or | |||||||||||||
Period | Purchased | Share | Programs | Programs | ||||||||||||
April 1 April 30
|
6,170 | (1) | $ | 34.68 | | | ||||||||||
|
| | | $ | 52,100,000 | (2) | ||||||||||
|
||||||||||||||||
May 1 May 31
|
500 | (1) | $ | 30.64 | | | ||||||||||
|
| | | $ | 52,100,000 | (2) | ||||||||||
|
||||||||||||||||
June 1 June 30
|
6,025 | (1) | $ | 34.36 | | | ||||||||||
|
| | $ | 52,100,000 | (2) |
(1) | Such shares were issued under the Companys Employee Stock Purchase Plan and Amended and Restated Employees Stock Incentive and Performance Based Compensation Plan and were repurchased by the Company upon the employees termination. | |
(2) | The Companys total stock purchase authorization, which was publicly announced in August 1998 and subsequently increased, was $125.3 million as of June 30, 2008. As of June 30, 2008, $73.2 million has been utilized. |
Name | Votes For | Votes Withheld | ||||||
James J. Maguire
|
63,796,244 | 3,647,074 | ||||||
James J. Maguire, Jr.
|
67,067,553 | 375,765 | ||||||
Sean S. Sweeney
|
67,068,388 | 374,930 | ||||||
Aminta Hawkins Breaux
|
67,071,030 | 372,288 | ||||||
Michael J. Cascio
|
67,071,162 | 372,156 | ||||||
Elizabeth H. Gemmill
|
67,071,757 | 371,561 | ||||||
Paul R. Hertel, Jr.
|
67,069,780 | 373,538 | ||||||
Michael J. Morris
|
64,618,801 | 2,824,517 | ||||||
Shaun F. OMalley
|
67,069,063 | 374,255 | ||||||
Donald A. Pizer
|
67,072,563 | 370,755 | ||||||
Ronald R. Rock
|
67,072,403 | 370,915 |
50
Broker | ||||||||||||||||
Votes For | Votes Against | Abstentions | Non-Votes | |||||||||||||
Approval of the
appointment of
PricewaterhouseCoopers,
LLP as independent
registered public
accounting firm for the
year 2008
|
67,339,986 | 85,982 | 17,352 | | ||||||||||||
Approval of an
amendment to the
Companys Articles of
Incorporation to adopt
a majority vote
standard for
uncontested elections
of Directors and
eliminate cumulative
voting in elections of
Directors
|
62,007,356 | 1,124,776 | 118,362 | 4,192,827 | ||||||||||||
Approval of an
amendment to the
Companys Articles of
Incorporation to
increase the number of
authorized shares of
common stock from
100,000,000 to 125,000,000
|
62,264,100 | 3,164,956 | 14,256 | |
51
Exhibit No. | Description | |
|
||
10.1*
|
Casualty Excess of Loss Reinsurance Contract effective January 1, 2008. | |
|
||
10.2*
|
Casualty (Clash) Excess of Loss Contract effective January 1, 2008. | |
|
||
10.3*
|
Property Per Risk Excess of Loss Agreement of Reinsurance with General Reinsurance Corporation effective January 1, 2008. | |
|
||
10.4*
|
Property Fourth Per Risk Excess of Loss Reinsurance Agreement effective January 1, 2008 25% Placement via Willis Re Inc. | |
|
||
10.5*
|
Property Fifth Per Risk Excess of Loss Reinsurance Agreement effective January 1, 2008 50% Share with Arch Reinsurance Company. | |
|
||
10.6*
|
Terrorism Catastrophe Excess of Loss Reinsurance Contract 20% Share with Validus Reinsurance, LTD. effective March 1, 2008 | |
|
||
31.1*
|
Certification of the Companys chief executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
|
||
31.2*
|
Certification of the Companys chief financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
|
||
32.1*
|
Certification of the Companys chief executive officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 | |
|
||
32.2*
|
Certification of the Companys chief financial officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
* | Filed herewith. |
52
|
PHILADELPHIA CONSOLIDATED HOLDING CORP. | |||
|
Registrant | |||
|
||||
Date August 5, 2008
|
James J. Maguire, Jr. | |||
|
|
|||
|
James J. Maguire, Jr. | |||
|
President and Chief Executive Officer | |||
|
(Principal Executive Officer) | |||
|
||||
Date August 5, 2008
|
Craig P. Keller | |||
|
|
|||
|
Craig P. Keller | |||
|
Executive Vice President, Secretary, | |||
|
Treasurer and Chief Financial Officer | |||
|
(Principal Financial and Accounting Officer) |
53
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