-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QpwBTrAZ95zRJ8N192qQfdlIAeVLk7LS6P35sfR9WkyP8ph90bjlgVmTfPIs6HuP SNsNPT+pDFFTXt/NBSfDsg== 0001013698-99-000012.txt : 19990624 0001013698-99-000012.hdr.sgml : 19990624 ACCESSION NUMBER: 0001013698-99-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990528 FILER: COMPANY DATA: COMPANY CONFORMED NAME: SYMONS INTERNATIONAL GROUP INC CENTRAL INDEX KEY: 0001013698 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 351707115 STATE OF INCORPORATION: IN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-29042 FILM NUMBER: 99636970 BUSINESS ADDRESS: STREET 1: 4720 KINGSWAY DRIVE CITY: INDIANAPOLIS STATE: IN ZIP: 46205 BUSINESS PHONE: 3172596400 MAIL ADDRESS: STREET 1: 11 SOUTH MERIDIAN STREET STREET 2: SUITE 1313 CITY: INDIANAPOLIS STATE: IN ZIP: 46204 10-Q 1 FIRST QUARTER 10-Q SYMONS INTERNATIONAL GROUP UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For The Quarterly Period Ended March 31, 1999 Commission File Number: 1-12369 SYMONS INTERNATIONAL GROUP, INC. (Exact name of registrant as specified in its charter) INDIANA 35-1707115 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4720 Kingsway Drive Indianapolis, Indiana 46205 (Address of Principal Executive Offices) Registrant's telephone number, including area code: (317) 259-6400 (U.S.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No As of March 31, 1999, there were 10,385,399 shares of Registrant's common stock issued and outstanding exclusive of shares held by Registrant. Form 10-Q Index For The Quarter Ended March 31, 1999 Page Number PART 1 FINANCIAL INFORMATION Item 1 Financial Statements Unaudited Consolidated Financial Statements: Unaudited Consolidated Balance Sheets at March 31, 1999 and December 31, 1998 . ........................... 3 Unaudited Consolidated Statements of Earnings for the Three Months Ended March 31, 1999 and 1998................ 4 Unaudited Consolidated Statements of Stockholders' Equity............................................................ 5 Unaudited Consolidated Statements of Cash Flows for the Three Months Ended March 31, 1999 and 1998................ 6 Condensed Notes to Unaudited Consolidated Financial Statements........................................................ 7 Item 2 Management's Discussion and Analysis of Financial Condition and Results of Operations............................... 10 PART 2 OTHER INFORMATION................................................. 16 SIGNATURES................................................................ 18 PART I - FINANCIAL INFORMATION ITEM 1 FINANCIAL STATEMENTS SYMONS INTERNATIONAL GROUP, INC. UNAUDITED CONSOLIDATED BALANCE SHEETS (in thousands)
March 31, December 31, ASSETS 1999 1998 Investments Available for sale: Fixed maturities, at market $196,916 $191,002 Equity securities, at market 12,516 13,264 Short-term investments, at amortized cost which approximates market 18,025 15,597 Mortgage loans, at cost 2,059 2,100 Other 1,180 890 ------- ------- TOTAL INVESTMENTS 230,696 222,853 Investment in and advances to related parties 3,725 3,545 Cash and cash equivalents 4,373 14,800 Receivables, net of allowance for doubtful accounts 189,038 120,559 Reinsurance recoverable on paid and unpaid losses, net 61,555 71,640 Prepaid reinsurance premiums 81,249 31,172 Federal income taxes recoverable 17,590 12,672 Deferred policy acquisition costs 14,907 16,332 Deferred income taxes 2,197 5,146 Property and equipment, net of accumulated depreciation 19,207 18,863 Intangible assets 45,176 45,781 Other assets 9,981 6,074 ------- ------- TOTAL ASSETS $679,694 $569,437 ======= ======= LIABILITIES Losses and loss adjustment expenses $173,138 $200,972 Unearned premiums 176,021 110,664 Reinsurance payables 102,652 25,484 Notes payable 4,520 13,744 Distributions payable on preferred securities 1,559 4,809 Other 24,177 16,769 ------- ------- TOTAL LIABILITIES 482,067 372,442 ------- ------- Minority interest: Preferred securities 135,000 135,000 ------- ------- STOCKHOLDERS' EQUITY Common stock 38,136 38,136 Additional paid-in capital 5,851 5,851 Unrealized gain on investments (119) 1,261 Retained earnings 18,759 16,747 ------- ------- TOTAL STOCKHOLDERS' EQUITY 62,627 61,995 ------- ------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $679,694 $569,437 ======= =======
See notes to consolidated financial statements -3- SYMONS INTERNATIONAL GROUP, INC. UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS (in thousands, except per share data)
Three Months Ended March 31, 1999 1998 Gross premiums written $152,022 $178,396 Less ceded premiums (72,055) (78,835) ------ ------ Net premiums written 79,967 99,561 Change in net unearned premiums (10,962) (31,077) ------ ------ Net premiums earned 69,005 68,484 Fee income 4,463 5,120 Net investment income 3,289 2,958 Net realized gain (loss) (1,382) 1,968 ------ ------ Total Revenues 75,375 78,530 ------ ------ Loss and loss adjustment expenses 51,819 53,205 Policy acquisition and general and administrative expenses 16,560 13,555 Interest expense 74 183 Amortization of intangibles 605 511 ------ ------ Total Expenses 69,058 67,454 ------ ------ Earnings before income taxes and minority interest 6,317 11,076 Provision for income taxes 2,250 4,022 ------ ------ Net earnings before minority interest 4,067 7,054 Minority interest: Distributions on preferred securities, net of tax 2,055 2,130 ------ ------ Net Earnings $ 2,012 $ 4,924 ====== ====== Net earnings per share - basic $0.19 $0.47 ==== ==== Net earnings per share - fully diluted $0.19 $0.46 ==== ==== Weighted average shares outstanding: Basic 10,385 10,445 ====== ====== Fully diluted 10,548 10,726 ====== ======
See notes to consolidated financial statements -4- SYMONS INTERNATIONAL GROUP, INC. UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (in thousands, except number of shares)
Shares Total Common Stockholders' Retained Stock Equity Earnings BALANCE AT DECEMBER 31, 1997 10,451,667 $78,363 $31,511 Comprehensive income: Net earnings 4,924 4,924 Change in unrealized gains (losses) on securities 2,222 -- ------ ------ Comprehensive income 7,146 4,924 Exercise of stock options 1,665 20 -- Cost of shares acquired (57,800) (882) (160) ---------- ------ ------ BALANCE AT MARCH 31, 1998 10,395,532 $84,647 $36,275 ========== ====== ====== BALANCE AT DECEMBER 31, 1998 10,385,399 $61,995 $16,747 Comprehensive income: Net earnings 2,012 2,012 Change in unrealized gains (losses) on securities (1,380) -- ------ ------ Comprehensive income 632 2,012 ---------- ------ ------ BALANCE AT MARCH 31, 1999 10,385,399 $62,627 $18,759 ========== ====== ======
See notes to consolidated financial statements -5- SYMONS INTERNATIONAL GROUP, INC. UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Three Months Ended March 31, 1999 1998 Cash Flows from Operating Activities: Net earnings for the period $2,012 $4,924 Adjustments to reconcile net earnings to net cash provided from operations: Depreciation and amortization 1,364 1,117 Deferred income tax expense (recovery) 3,730 (1,173) Net realized loss (gain) 1,380 (1,968) Net changes in operating assets and liabilities: Receivables (68,479) (72,542) Reinsurance recoverable on paid and unpaid losses, net 10,085 26,448 Prepaid reinsurance premiums (50,077) (60,275) Deferred policy acquisition costs 1,425 (6,527) Other assets (3,907) (243) Losses and loss adjustment expenses (27,834) (10,143) Unearned premiums 65,357 91,352 Reinsurance payables 77,168 60,994 Distributions payable on preferred securities (3,250) (3,242) Federal income taxes (4,918) 5,485 Other liabilities 7,408 768 ------ ------ NET CASH PROVIDED FROM OPERATIONS 11,464 34,975 ------ ------ Cash flow used in investing activities: Purchases sales of short-term investments (2,428) (227) Purchases of fixed maturities (75,340) (41,319) Proceeds from sales, calls and maturities of fixed maturities 67,429 34,322 Purchases of equity securities (944) (6,466) Proceeds from sales of equity securities 22 6,421 Purchase of real estate (7) (2,584) Purchases of property and equipment (976) (2,869) Purchases of other investments (243) (320) ------- ------- NET CASH USED IN INVESTING ACTIVITIES (12,487) (13,042) ------ ------ Cash flow provided from/(used in) financing activities: Cost of shares acquired -- (862) Payments on notes payable (9,224) (1,613) Repayments from related parties (180) (4,439) ------ ------ NET CASH USED IN FINANCING ACTIVITIES (9,404) (6,914) ------ ------ Increase (decrease) in cash and cash equivalents (10,427) 15,019 Cash and cash equivalents, beginning of period 14,800 11,276 ------ ------ Cash and cash equivalents, end of period $ 4,373 $26,295 ====== ======
See notes to consolidated financial statements -6- SYMONS INTERNATIONAL GROUP, INC. NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) For The Three Months Ended March 31, 1999 NOTES TO THE CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (1) The accompanying unaudited condensed financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for fair presentation have been included. Operating results for the interim periods are not necessarily indicative of the results that may be expected for the year ended December 31, 1999. Interim financial statements should be read in conjunction with the Company's annual audited financial statements. (2) Basic and diluted net income per share are computed by dividing net income as reported by the average number of shares outstanding as follows:
Three Months Ended March 31, 1999 1998 Basic: Weighted-average common shares outstanding 10,385,000 10,450,000 Diluted: Weighted-average common shares outstanding 10,385,000 10,450,000 Dilutive effect of stock options 163,000 281,000 ---------- ---------- Average common shares outstanding assuming dilution 10,548,000 10,726,000 ========== ==========
(3) The Company writes nonstandard insurance business through agents in California where some of the agents charge administration fees on top of the premium to these customers. The California Department of Insurance (CDOI) in early 1998 indicated that such broker fees are part of premium and has requested reimbursement to the policyholders by Superior Insurance Company. The CDOI has indicated it may assess the Company to repay fees the agents received from the insured. The Company did not receive any of these broker fees and has carried on the insurance practice that is normal for many of the insurance companies writing automobile insurance in California. The total amount, if CDOI proceeds and requires all fees returned with no recovery from agents, is $3 million. As the ultimate outcome of this potential assessment is not deemed probable, the Company has not accrued any amount in its consolidated financial statements. Although the assessment has not been formally made by the CDOI at this time, the Company believes it will prevail and will vigorously defend any potential assessment. As part of an agreement by the Company to assume the multi-peril and crop operations of CNA during 1998, the Company agreed to reimburse CNA for certain direct overhead costs incurred by CNA during the first quarter of 1998 before the Company assumed this book of business. CNA has requested reimbursement of $1.5 million in expenses which the Company believes should only be $1.1 million. Negotiations are in -7- process to settle this dispute. The Company fully expects the ultimate settlement will approximate $1.1 million and has therefore, accrued this amount in its consolidated financial statements at March 31, 1999. (4) Year 2000 Compliance General The Year 2000 Project ("Project") addresses the inability of computer software and hardware to distinguish between the year 1900 and the year 2000. In 1996, the Company began a company-wide replacement of hardware and software systems to address this and other issues. The Company is utilizing systems from Dell, Hewlett Packard, Sun Systems, Compaq, Oracle and ZIM as well as certain software conversions using Java. The new hardware is in place and operational at all subsidiaries. The software systems are in place in our nonstandard auto operations and are being implemented on a state-by-state basis. The Company first began implementing the new nonstandard auto operating system in those states in which the Company writes annual policies (annual states). 100% of those annual states are currently in production. The remaining non-annual states are scheduled to be completed by June 30, 1999. The Y2K issue does not have an effect on the crop operations until October 1, 1999. The Company is converting non-compliant crop operating systems, through programmatic means, into a Y2K compliant environment. The crop operation has completed the conversion and the testing phase of the Project. A number of the Company's other IT projects are being delayed or completely eliminated due to the implementation of the Project. Project The Company has divided the Project into three sections - Infrastructure, Applications/Business Systems and Third Party Suppliers. There are common portions of each of these divisions which are: (1) identifying Y2K items; (2) assigning a priority for those items identified; (3) repairing or replacing those items; (4) testing the fixes; and (5) designing a contingency and business continuation plan for each subsidiary. In February 1998, all items had been identified and the plans for replacement or repair were proposed to management. These plans were approved and the process began. The infrastructure section of the Project was quickly implemented and tested by the Company's IT staff and has been completed since May of 1998. All desktop, mini and midrange systems as well as phone switches, phones and building security systems have been tested for Y2K compliance. Any new systems required by the Company are being tested and certified prior to purchase with completion by June 30, 1999. Two mainframes being used by the Company are not Y2K certified or compliant. These machines have been replaced by Sun and HP compliant systems and are being kept in production until new applications are put in place on the new machines. The applications systems section of the Project includes: (1) the replacement of nonstandard auto companies Policy Administration and Claims systems; (2) the conversion of crop operations systems in total; and (3) replacement of non-compliant business systems company-wide (this includes wordprocessors, network operating systems, spreadsheet -8- programs, presentation systems, etc.). The Company had already made the decision to transition off all of its nonstandard auto legacy systems and this process had been in work since 1996. These systems are Y2K compliant and are scheduled for completion by the end of June 30, 1999. The conversion of crop systems began in August 1998 and is complete. Business systems are being replaced as vendors certify their compliance. The Company is at 90% compliance in this area. The Company relies on third party vendors for investments, reinsurance treaties and banking. The Company began inquiring about Y2K compliance with its third party vendors beginning in July 1998. To date, all vendors have replied regarding their compliance efforts. Those that are not in compliance have until the end of second quarter 1999 to do so, or they will be replaced. Costs The Company considers the cost associated with the Project to be material. The Company has estimated the total cost to be $5.7 million, the majority of which has been capitalized as hardware or software costs. The Company has also incurred substantial costs for carrying two systems including personnel costs and outside service fees. The component of these costs specifically associated with Y2K cannot be reasonably estimated. The total amount expended through March 31, 1999 on all infrastructure and software upgrades is approximately $5 million. The Company expects to spend another $800,000 in its efforts to complete the Project. This does not include additional annual maintenance costs that will be incurred as we move forward. Funding for these costs will continue to be provided by funds from operations. The Company believes that the new nonstandard auto system will significantly enhance service capability and reduce future operating costs. Risks Failure to correct the Y2K problem through efficient and timely implementation of the Company's new operating system could cause a failure or interruption of normal business operations. These failures could materially affect the Company's operational results, financial condition and liquidity through reduction of premium volume and an increase in operating costs as a percentage of premium volume or deterioration of loss experience. Due to the nature of the Y2K problem, the Company is uncertain whether it will have a material affect or the potential magnitude of any financial impact. The Company believes that the possibility of significant business interruptions should be reduced by successful implementation of the Project. -9- ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE COMPANY The Company underwrites and markets nonstandard private passenger automobile insurance and crop insurance. Nonstandard Automobile Insurance Operations The Company, through its wholly-owned subsidiaries, Pafco and Superior, is engaged in the writing of insurance coverage on automobile physical damage and liability policies for "nonstandard risks". Nonstandard insureds are those individuals who are unable to obtain insurance coverage through standard market carriers due to factors such as poor premium payment history, driving experience, record of prior accidents or driving violations, particular occupation or type of vehicle. The Company offers several different policies which are directed towards different classes of risk within the nonstandard market. Premium rates for nonstandard risks are higher than for standard risks. Since it can be viewed as a residual market, the size of the nonstandard private passenger automobile insurance market changes with the insurance environment and grows when the standard coverage becomes more restrictive. Nonstandard policies have relatively short policy periods and low limits of liability. Due to the low limits of coverage, the period of time that elapses between the occurrence and settlement of losses under nonstandard policies is shorter than many other types of insurance. Also, since the nonstandard automobile insurance business typically experiences lower rates of retention than standard automobile insurance, the number of new policyholders underwritten by nonstandard automobile insurance carriers each year is substantially greater than the number of new policyholders underwritten by standard carriers. Crop Insurance Operations General The three principal components of the Company's crop insurance business are Multi-Peril Crop Insurance ("MPCI") and private named peril, crop hail insurance and fee based services to farmers. Crop insurance is purchased by farmers to reduce the risk of crop loss from adverse weather and other uncontrollable events. Farms are subject to drought, floods and other natural disasters that can cause widespread crop losses and, in severe cases, force farmers out of business. Historically, one out of every twelve acres planted by farmers has not been harvested because of adverse weather or other natural disasters. Because many farmers rely on credit to finance their purchases of such agricultural inputs as seed, fertilizer, machinery and fuel, the loss of a crop to a natural disaster can reduce their ability to repay these loans and to find sources of funding for the following year's operating expenses. The Company, like other private insurers participating in the MPCI program, generates revenues from the MPCI program in two ways. First, it markets, issues and administers policies, for which it receives administrative fees; and second, it participates in a profit-sharing arrangement in which it receives from the government a portion of the aggregate profit, or pays a portion of the aggregate loss, in respect of the business it writes. The Company writes MPCI and crop hail insurance through 2,007 independent agencies in 43 states. In addition to MPCI, the Company offers stand alone crop hail insurance, which insures growing crops against damage resulting from hail storms -10- and which involves no federal participation, as well as its proprietary product which combines the application and underwriting process for MPCI and hail coverages. This product tends to produce less volatile loss ratios than the stand alone product since the combined product generally insures a greater number of acres, thereby spreading the risk of damage over a larger insured area. Approximately 60% of the Company's hail policies are written in combination with MPCI. Although both crop hail and MPCI provide coverage against hail damage, under crop hail coverages farmers can receive payments for hail damage which would not be severe enough to require a payment under an MPCI policy. The Company believes that offering crop hail insurance enables it to sell more policies than it otherwise would. In addition to crop hail insurance, the Company also sells insurance against crop damage from other specific named perils. These products cover specific crops and are generally written on terms that are specific to the kind of crop and farming practice involved and the amount of actuarial data available. The Company plans to seek potential growth opportunities in this niche market by developing basic policies on a diverse number of named crops grown in a variety of geographic areas and to offer these policies primarily to large producers through certain select agents. The fee income business is primarily services to farmers for global positioning grid mapping of their farm and soil sampling to enhance the growing conditions of the crops. AgPI(R) is business interruption insurance that protects businesses that depend upon a steady flow of a crop (or crops) to stay in business. This protection is available to those involved in agribusiness who are a step beyond the farm gate, such as elevator operators, custom harvesters, cotton gins and other processing businesses that are dependent upon a single supplier of products, (i.e., popping corn). These businesses have been able to buy normal business interruption insurance to protect against on-site calamities such as a fire, wind storm or tornado. But until now, they have been totally unprotected by the insurance industry if they encounter a production shortfall in their trade area which limited their ability to bring raw materials to their operation. AgPI(R) allows the agricultural business to protect against a disruption in the flow of the raw materials these businesses depends on. AgPI(R) was formally introduced at the beginning of the 1998 crop year. Geo AgPLUS(TM) provides to the farmer measuring, gridding and soil sampling services combined with fertility maps and the software that is necessary to run precision farming programs. Grid soil sampling, when combined with precision farming technology, allows the farmer to apply just the right amount of fertilization, thus balancing soil nutrients for a maximum crop yield. Precision farming technology increases the yield to the farmer, reduces the cost of unnecessary fertilization and enhances the environment by reducing overflows of fertilization into the ecosystem. Geo AgPLUS(TM) is an IGF Insurance Company trademarked precision farming division that is now marketing its fee based services to the farmer. Certain Accounting Policies for Crop Insurance Operations MPCI is a government-sponsored program with accounting treatment which differs in certain respects from the more traditional property and casualty insurance lines. For income statement purposes under generally accepted accounting principles, gross premiums written consist of the aggregate amount of -11- MPCI premiums paid by farmers for buy-up coverage (MPCI coverage in excess of CAT Coverage - the minimum available level of MPCI Coverage), and any related federal premium subsidies, but do not include MPCI premium on CAT Coverage. By contrast, net premiums written do not include any MPCI premiums or subsidies, all of which are deemed to be ceded to the Federal Crop Insurance Corporation (FCIC) as a reinsurer. The Company's profit or loss from its MPCI business is determined after the crop season ends on the basis of a complex profit sharing formula established by law and the FCIC. For generally accepted accounting principles income statement purposes, any such profit or loss sharing earned or payable by the Company is treated as an adjustment to commission expense and is included in policy acquisition and general and administrative expenses. The Company also receives from the FCIC (i) an expense reimbursement payment equal to a percentage of gross premiums written for each Buy-Up Coverage policy it writes ("Buy-Up Expense Reimbursement Payment") and (ii) an LAE reimbursement payment equal to 13.0% of MPCI Imputed Premiums for each CAT Coverage policy it writes (the "CAT LAE Reimbursement Payment"). For 1998 and 1997, the Buy-Up Expense Reimbursement Payment has been set at 27% and 29%, respectively, of the MPCI Premium. For generally accepted accounting principles income statement purposes, the Buy-Up Expense Reimbursement Payment is treated as a contribution to income and reflected as an offset against policy acquisition and general and administrative expenses. The CAT LAE Reimbursement Payment is, for income statement purposes, recorded as an offset against LAE, up to the actual amount of LAE incurred by the Company in respect of such policies, and the remainder of the payment, if any, is recorded as Other Income. In June 1998, the United States Congress passed legislation which provided permanent funding for the crop insurance industry. However, beginning with the 1999 MPCI crop year, the Buy-Up Expense Reimbursement Payment was reduced to 24.5%, the CAT LAE Reimbursement Payment was reduced to 11% and the $60 CAT coverage fee will no longer go to the insurance companies. The Company expects to more than offset these reductions through growth in non-federally subsidized programs such as AgPI(R) and Geo AgPLUS(TM) initiated in 1998. The Company has also been working to reduce its costs. While the Company fully believes it can more than offset these reductions, there is no assurance the Company will be successful in its efforts or that further reductions in federal reimbursements will not continue to occur. In 1996, the Company instituted a policy of recognizing (i) 35% of its estimated MPCI gross premiums written for each of the first and second quarters, 20% for the third quarter and 10% for the fourth quarter, (ii) commission expense at the applicable rate of MPCI gross premiums written recognized and (iii) Buy-Up Expense Reimbursement at the applicable rate of MPCI gross premiums written recognized along with normal operating expenses incurred in connection with premium writings. In the third quarter, if a sufficient volume of policyholder acreage reports have been received and processed by the Company, the Company's policy is to recognize MPCI gross premiums written for the first nine months based on a re-estimate which takes into account actual gross premiums processed. If an insufficient volume of policies has been processed, the Company's policy is to recognize in the third quarter 20% of its full year estimate of MPCI gross premiums written, unless other circumstances require a different approach. The remaining amount of gross premiums written is recognized in the fourth quarter, when all amounts are reconciled. The Company also recognizes the MPCI underwriting gain or loss during each quarter, reflecting the Company's best estimate of the amount of such gain or loss to be recognized -12- for the full year, based on, among other things, historical results, plus a provision for adverse developments. In the third and fourth quarters, a reconciliation amount is recognized for the underwriting gain or loss based on final premium and latest available loss information. Results of Operations
For the three months ended March 31, 1999 1998 NONSTANDARD AUTOMOBILE INSURANCE OPERATIONS: Gross premiums written $61,171 $89,976 ====== ====== Net premiums written $73,687 $82,267 ====== ====== Net premiums earned $65,396 $68,323 Fee income 4,521 4,155 Net investment income 3,164 2,801 Net realized gain (loss) (1,382) 1,968 ------ ------ TOTAL REVENUES 71,699 77,247 ------ ------ Losses and loss adjustment expenses 51,313 53,146 Policy acquisition and general and administrative expenses 19,595 18,123 ------ ------ TOTAL EXPENSES 70,908 71,269 ------ ------ Earnings before income taxes $ 791 $5,978 ====== ===== GAAP RATIOS (Nonstandard Automobile Only): Loss and LAE Ratio 78.5% 77.8% Expense ratio, net of billing fees 23.0 20.4 ---- ---- Combined ratio 101.5% 98.2% ===== ==== CROP INSURANCE OPERATIONS: Gross premiums written(2) $90,723 $86,175 ====== ====== Net premiums written $ 6,281 $17,294 ====== ====== Net premiums earned $3,608 $161 Fee income (58) 2,332 Net investment income 57 53 ------ ------ TOTAL REVENUES 3,607 2,546 ------ ------ Losses and loss adjustment expenses 506 59 Policy acquisition and general and administrative expenses(1) (3,340) (3,647) Amortization of intangibles 95 -- Interest expense 74 183 -- --- TOTAL EXPENSES (2,665) (3,405) ----- ----- Earnings before income taxes $ 6,272 $5,951 ====== =====
(1) Negative crop expenses are caused by inclusion of MPCI expense reimbursement and underwriting gain. (2) Includes premiums assumed from CNA in accordance with the Strategic Alliance Agreement. -13- Net Earnings For the three months ended March 31, 1999, the Company recorded net earnings of $2,012,000 or $.19 per share (basic). This is approximately a 59.1% decrease from 1998 comparable amounts of $4,924,000 or $0.47 per share (basic). Consolidated Gross Premiums Written Gross premiums written for the nonstandard automobile segment decreased 32.0% for the three months ended March 31, 1999 compared to the three months ended March 31, 1998. This represents an 8.8% decrease in premiums from the average premium volume in the last half of 1998. The primary reasons for this decline in volume has been the downsizing by the Company of its nonstandard automobile business in certain competitive markets, the loss of some business prior to the hiring of a new new product development team and the slowing of new business during the conversion by the Company to a new operating computer system. Gross premiums written for the crop segment were comparable to those of a year ago. Crop premiums for the three months ended March 31 are as follows:
1999 1998 ---- ---- CAT imputed $16,312 $16,319 MPCI 62,280 60,743 Crop hail and named perils 28,443 25,431 ------- ------- 107,035 102,493 Less: CAT imputed (16,312) (16,319) ------ ------ $90,723 $86,174 ====== ======
Remaining gross written premiums represent commercial business which is ceded 100% to an affiliate, Granite Reinsurance Company Ltd. MPCI premiums are considered to be 100% ceded to the federal government for accounting purposes. Quota share cession rates for other lines of insurance for the three months ended March 31 are as follows:
1999 1998 ---- ---- Nonstandard automobile 0% 10% Crop hail 62% 25% Named peril 50% 50% AgPI 62% 0%
Fee income decreased 12.8% for the three months ended March 31, 1999 as compared to the corresponding period of the prior year. Such decrease was primarily due to the Federal government retaining the CAT fee policy, partially offset by increased penetration of policy issuance fees on the automobile book. Net investment income increased 11.2% for the three months ended March 31, 1999 as compared to the corresponding period of the prior year due to the transfer of invested assets to interest bearing fixed maturities from equity based investments since the first quarter of 1998. The realized loss was primarily due to tax loss related selling of certain securities as well as some selling to reduce the average duration of the fixed income portfolio. -14- The loss ratio for the nonstandard automobile segment for the three months ended March 31, 1999 was 78.5% comparable to 77.8% for the three months ended March 31, 1998 . Crop hail loss ratios in the first quarter do not have significant impact on consolidated earnings. Policy acquisition and general and administrative expenses have increased to $16,560,000 or 24.0% of net premium earned for the three months ended March 31, 1999 compared to $13,555,000 or 19.8% of net premium earned in the corresponding period of 1998. Nonstandard auto general and administrative expenses rose due to increased use of temporary help to resolve processing backlogs and lower expense recoveries from reinsurers due to the elimination of quota share reinsurance in 1999. Crop segment expenses include agent commissions, stop loss reinsurance costs and operating expenses which are offset by MPCI Expense Reimbursements and MPCI Underwriting Gain. The negative expense results primarily from the inclusion of the MPCI Underwriting Gain. Amortization of intangibles includes goodwill from the acquisition of Superior, additional goodwill from the acquisition of the minority interest portion of GGSH and the acquisition of NACU, debt or preferred security issuance costs and organizational costs. Income tax expense was 35.6% and 36.3% of pre-tax income for the three months ended March 31, 1999 and 1998. Distributions on Preferred Securities are calculated at a rate of 9.5% net of federal income taxes. Financial Condition The Company's total assets of $679,694,000 at March 31, 1999 increased $110,257,000 from $569,437,000 as of December 31, 1998. The primary reasons for this increase were increased premium receivable and reinsurance payable balances in the crop business due to the normal accumulation of these balances during the year and settlement in the fall of each year, coincidental with fall harvest. Netcash provided by operating activities decreased to $11,464,000 in 1999 from $34,975,000 in 1998 due to reduced gross premium volume in the automobile business. Financing activities included normal activities on the Company's line of credit for crop operations. -15- PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Company's insurance subsidiaries are parties to litigation arising in the ordinary course of business. The Company believes that the ultimate resolution of these lawsuits will not have a material adverse effect on its financial condition or results of operations. The Company, through its claims reserves, reserves for both the amount of estimated damages attributable to these lawsuits and the estimated costs of litigation. ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION Within this form 10-Q the Company has incorporated the financial impact of events which had occurred as of March 31, 1999, but which came to management's attention and / or became quantifiable after the release to the public of the first quarter results of operations on May 12, 1999. The Company writes a portion of its crop hail insurance based on continuous policies which remain in-force unless and until cancelled by the policyholder. The Company also writes a lesser amount of crop hail insurance on an annual basis. In the first quarter earnings release dated May 12, 1999, the Company recorded approximately $11.3 million of crop hail gross written premium related to processed crop hail policies. However, the Company failed to record all of the continuous policies for which liabilities had attached as of the March 31, 1999 balance sheet date, thus understating crop hail gross written premium by approximately $16.6 million, and net written premium by approximately $4.0 million. The crop hail gross written premium should have totalled $27.9 million for the first quarter, which is comparable with the $24.5 million in crop hail gross written premium recorded in the first quarter of 1998. The increase in the crop hail premiums has an effect on income through ceding commissions the Company receives on quota share reinsurance treaties. It also improves earnings through profits on the net retained portion of the crop hail business. The total amount of pre-tax earnings related to the additional $16.6 million in gross written premiums recorded for the first quarter of 1999 was approximately $2.0 million. The Company reinsures 100% of a book of crop insurance business written through a third party insurance company. As described in the notes to the 1998 audited financial statements, this product, called "AgPI(R)", insures against business interruption risk. At year end 1998 the Company had recorded $7.5 million in gross assumed loss reserves. Based -16- on further recent analysis, coupled with recently released national data related to the 1998 crop year, the Company has increased its assumed gross loss reserves from $7.5 million to $15.0 million as of March 31, 1999. To date, there has not been a ceding of paid losses to the Company from the third party reinsurance company related to the potential AgPI(R) liability. The Company believes the ultimate development on these gross reserves could range from $10 million to $20 million, and, as such, believes that recorded gross loss reserves of $15 million is sufficient. However, there can be no assurance that the Company's ultimate liability for AgPI(R) related losses will not be materially greater or less than the Company's reserve for this liability. The Company retrocedes the majority of this business to reinsurers. The retrocession cover on this book of business is 62% quota share reinsurance of which 7.5% is retroceded to Granite Reinsurance Company Ltd., an affiliate, and as such the Company has ceded approximately $4.7 million of premium, and $9.3 million of loss reserves, to retro reinsurers. The company also incurred approximately $1M in pretax fee expense related to this treaty in the first quarter. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Exhibit 1.0 - AgPI, Crop Hail and MPCI Multi-year Quota Share Reinsurance Agreement -17- SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Dated: May 28, 1999 By:/s/ Alan G. Symons Alan G. Symons Chief Executive Officer Dated: May 28, 1999 By:/s/ Thomas R. Kaehr Thomas R. Kaehr Vice President, Treasurer and Chief Financial Officer -18- EX-1 2 AGPI, CROP HAIL AND MPCI REINSURANCE AGREEMENT Exhibit 1.0 AG PI, CROP HAIL AND MPCI MULTI-YEAR QUOTA SHARE REINSURANCE AGREEMENT This Agreement is made and entered into by and between IGF INSURANCE COMPANY, Indianapolis, Indiana, PAFCO GENERAL INSURANCE COMPANY, Indianapolis, Indiana, SUPERIOR INSURANCE COMPANY, Atlanta, Georgia, or any other insurance company acting on behalf of IGF INSURANCE COMPANY, Indianapolis, Indiana (hereinafter together called the "Company") and the Reinsurer specifically identified on the signature page of this Agreement (hereinafter called the "Reinsurer"). ARTICLE 1 BUSINESS REINSURED This Agreement is to share with the Reinsurer the interests and liabilities of the Company under all Policies covering business written or renewed by or on behalf of the Company, classified by the Company as: 1. Ag PI, or 2. Crop Hail, or 3. Multi-Peril Crop Insurance (MPCI), as defined and reinsured by the Federal Crop Insurance Corporation (FCIC) and issued by the Company under their 1998 through 2000 plans of operations covering the 1999 through 2001 crop Seasons, subject to the terms and conditions herein contained. ARTICLE 2 COVER Section 1 - As respects Ag PI: A. 1. The Company will cede, and the Reinsurer will accept as reinsurance, a 100% share of all business reinsured hereunder for the period 5/1/98-1/1/99. 2. The Company will cede, and the Reinsurer will accept as reinsurance, a 100% share of all business reinsured hereunder, subject to a maximum cession of $25,000,000 per sinlge state, $12,500,000 single peril limit per crop, and further subject to an overall maximum limit of $100,000,000 per Season for the period 1/1/99-1/1/2000. 3. The Company will cede, and the Reinsurer will accept as reinsurance, a 100% share of all business reinsured hereunder, subject to a maximum cession of $25,000,000 per sinlge state, $12,500,000 single peril limit per crop, and further subject to an overall maximum limit of $100,000,000 per Season for the period 1/1/2000-1/1/2001. B. The Reinsurer's limit of liability for all paid Loss amounts recoverable on Losses ascribed to the 5/1/98-1/1/99 period shall not exceed 300% of Net Written Premium. C. The Reinsurer's limit of liability for all paid Loss amounts recoverable on Losses ascribed to the 1/1/99-1/1/2001 period shall not exceed the lesser of: 101200-185 1/1/99 Page 1 1. 200% of Net Written Premium for the period 1/1/99-1/1/2000; or 2. 150% of Net Written Premium for the period 1/1/99-1/1/2001. Section 2 - As respects Crop Hail: A. The Company will cede, and the Reinsurer will accept as reinsurance, a 100% share of all business reinsured hereunder, subject to a maximum cession of $2,000,000 per township. B. The Reinsurer's limit of liability for all paid Loss amounts shall not exceed 150% of Net Written Premium. Section 3 - As respects MPCI: A. The Company will cede, and the Reinsurer will accept as reinsurance, a 100% quota share of all business reinsured hereunder. B. The Reinsurer's annual limit of liability shall equal 95% of Retained Underwriting Losses on business classified by the Company as MPCI, subject to a maximum limit of liability to the Reinsurer that is equal to 95% of 25% of Net Retained Premium Income in any one year of this Agreement, and further subject to a maximum limit of liability to the Reinsurer that is equal to 200% of the Advanced Margin for MPCI, plus Underwriting Gain Sharing, if any, received for each respective three year period, except as outlined in the COMMUTATION ARTICLE and PROFIT SHARING ARTICLE of this Agreement. ARTICLE 3 TERM A. Section 1 - As respects Ag PI: This Agreement shall become effective at 12:01 a.m., Central Standard Time, 5/1/98, and shall remain in full force and effect for 32 months, expiring 12:01 a.m., Central Standard Time, 1/1/2001. Section 2 - As respects Crop Hail: This Agreement shall become effective at 12:01 a.m., Central Standard Time, 1/1/99, and shall remain in full force and effect for 12 months, expiring 12:01 a.m., Central Standard Time, 1/1/2000. Section 3 - As respects MPCI: This Agreement shall become effective at the inception of the FCIC 1999 standard reinsurance agreement and its amendments which are applicable to the 1999 FCIC reinsurance year between the Company and the FCIC (which shall be deemed to be the inception date for purposes of this Agreement), and shall include the FCIC 2000 and 2001 standard reinsurance agreements and amendments which are applicable to the 2000 and 2001 FCIC reinsurance years, and shall remain in full force and effect until the close of the 2001 FCIC reinsurance year (as defined by the FCIC, which shall be deemed to be the expiration date for purposes of this Agreement). 101200-185 1/1/99 Page 2 The term "1999 FCIC reinsurance year" as used in this Agreement shall refer to all MPCI Policies on crops whose FCIC approved sales closing dates occur between 7/1/98 and 6/30/99. The term "2000 FCIC reinsurance year" as used in this Agreement shall refer to all MPCI Policies on crops whose FCIC approved sales closing dates occur between 7/1/99 and 6/30/2000. The term "2001 FCIC reinsurance year" as used in this Agreement shall refer to all MPCI Policies on crops whose FCIC approved sales closing dates occur between 7/1/2000 and 6/30/2001. B. In the event of termination, the Reinsurer will continue to cover all Policies coming within the scope of this Agreement, including those written and renewed during the period of notice, until the natural expiration or anniversary of such Policies, whichever occurs first, but in no event longer than 12 months from the date of termination plus odd time, not to exceed 18 months in total. C. Should this Agreement expire or terminate while a Loss covered hereunder is in progress, the Reinsurer shall be responsible for the Loss in progress in the same manner and to the same extent it would have been responsible had the Agreement expired or terminated the day following the conclusion of the Loss in progress. ARTICLE 4 SEASON Section 1 - As respects Ag PI: A. For the period 5/1/98 to 1/1/99, the Season commences on 5/1/98 and ends on 1/1/99. B. For the period 1/1/99 to 1/1/2000, the Season commences on 1/1/99 and ends on 1/1/2000. C. For the period 1/1/2000 to 1/1/2001, the Season commences on 1/1/2000 and ends on 1/1/2001. Section 2 - As respects Crop Hail: A. For the period 1/1/99 to 1/1/2000, the Season commences on 1/1/99 and ends on 1/1/2000. Section 3 - As respects MPCI: A. For the period 1/1/99 to 1/1/2000, the Season commences on inception of the FCIC 1999 standard reinsurance agreement and its amendments which are applicable to the 1999 FCIC reinsurance year between the Company and the FCIC, expiring at the close of the 1999 FCIC reinsurance year. B. For the period 1/1/2000 to 1/1/2001, the Season commences on inception of the FCIC 2000 standard reinsurance agreement and its amendments which are applicable to the 2000 FCIC reinsurance year between the Company and the FCIC, expiring at the close of the 2000 FCIC reinsurance year. C. For the period 1/1/2001 to 1/1/2002, the Season commences on inception of the FCIC 2001 standard reinsurance agreement and its amendments which are applicable to the 2001 FCIC reinsurance year between the Company and the FCIC, expiring at the close of the 2001 FCIC reinsurance year. 101200-185 1/1/99 Page 3 ARTICLE 5 TERRITORY This Agreement applies to Losses arising out of Policies written in the United States of America, its territories and possessions and Canada, wherever occurring. ARTICLE 6 EXCLUSIONS This Agreement does not cover: A. War Risks as excluded in the attached North American War Exclusion Clause (Reinsurance) No. 08-45. B. Nuclear incidents as per the attached Nuclear Incident Exclusion Clauses - Physical Damage - Reinsurance - U.S.A. and Canada Nos. 08-33 and 08-34.2. C. Business excluded under the Standard Reinsurance Agreementof the FCIC, except Ag PI. D. Liability of the Company arising by contract, operation of law or otherwise from its participation or membership, whether voluntary or involuntary, in any insolvency fund. "Insolvency fund" includes any guarantee fund, insolvency fund, plan, pool, association, fund or other arrangement, howsoever denominated, established or governed, which provides for any assessment of or payment or assumption by the Company of part or all of any claim, debt, charge, fee or other obligation of an insurer or its successors or assigns which has been declared by any competent authority to be insolvent or which is otherwise deemed unable to meet any claim, debt, charge, fee or other obligation in whole or in part. ARTICLE 7 ACCOUNTS AND REMITTANCES Section 1 - As respects Ag PI: A. For the period 5/1/98 to 1/1/99: 1. At inception of this Agreement, the Company shall report Net Written Premium. Any balance due the Reinsurer shall be paid as soon as possible after inception of this Agreement. 2. As soon as possible after the end of the Season, but no later than 7/31/99, the Company shall provide the Reinsurer with a complete account, to include the following: a.) Net Written Premium accounted for during the term of this Agreement; less, b.) The ceding commission as provided for in this Agreement; less, 101200-185 1/1/99 Page 4 c.) Losses paid and outstanding Losses which may be ascribed to this Agreement; plus, d.) Subrogation, salvage, or other recoveries on Losses which may be ascribed to this Agreement. 3. Within 60 days following the end of the period the debtor party will remit to the creditor party any balance due, and each month thereafter the balance shall be adjusted and settled between the parties, until all Losses have been settled. 4. If the Losses covered hereunder exceed 200% of the Net Written Premium, the Company shall pay an additional levy calculated as follows: a.) 50% of the difference between the Loss less 200% of the Net Written Premium shall be paid to the Reinsurer on 7/31/2000. b.) 100% of the difference between the Loss less 200% of the Net Written Premium, less any amount paid in a.) above, shall be paid to the Reinsurer on 7/31/2001. c.) Adjustments to the levy will continue to be made annually thereafter, until all Losses have been settled The calculation shall be 100% of the difference between the Loss less 200% of the Net Written Premium, less any amounts previously paid. B. For the period 1/1/99 to 1/1/2000, and for the period 1/1/2000 to 1/1/2001: 1. Within 30 days after each calendar quarter, the Company shall report separately Net Written Premium, the ceding commission thereon, as provided for in this Agreement, Losses paid and outstanding Losses which may be ascribed to this Agreement. 2. As respects the period 1/1/99 to 1/1/2000, if the amount due as respects this account, is due to the Reinsurer, the Company shall remit 50% of the balance due within 60 days after the end of the calendar quarter under consideration. Any positive balance deferred shall be paid on 12/31/99. 3. As respects the period 1/1/2000 to 1/1/2001, if the amount due as respects this account, is due to the Reinsurer, the Company shall remit the balance due within 60 days after the end of the calendar quarter under consideration. 4. As respects the period 1/1/99 to 1/1/2000, and for the period 1/1/2000 to 1/1/2001, if the amount due as respects this account, is due to the Company, the Reinsurer shall remit the balance due within 60 days following receipt and verification of the Company's report. 5. As soon as possible after the end of each Season, but no later than the following 7/31, the Company shall provide the Reinsurer with a complete account, to include the following: a.) Net Written Premium accounted for during the term of this Agreement; less, b.) The ceding commission as provided for in this Agreement; less, c.) Losses paid and outstanding Losses which may be ascribed to this Agreement; plus, d.) Subrogation, salvage, or other recoveries on Losses which may be ascribed to this Agreement. 6. Within 60 days following the end of the period, the debtor party will remit to the creditor party any balance due, and each month thereafter the balance shall be adjusted and settled between the parties, until all Losses have been settled. 101200-185 1/1/99 Page 5 7. If the Losses covered hereunder exceed 150% of the cumulative Net Written Premium for the term 1/1/99 to 1/1/2001, the Company shall pay the difference between the cumulative Losses paid and 150% of the cumulative Net Written Premium for the term 1/1/99 to 1/1/2001, to be paid on 7/31/2001. Cumulative Losses shall equal all Losses paid by the Reinsurer after final settlement at 7/31/2001. As soon as possible following the expiration of this Agreement, the Company will provide any other information which the Reinsurer may require for its Annual Convention Statement which may be reasonably available to the Company. Section 2 - As respects Crop Hail: A. As soon as possible after the end of the Season, but no later than 12/15 of the annual period, the Company shall provide the Reinsurer with an account, to include the following: 1. Net Written Premium accounted for during the term of this Agreement; less, 2. The ceding commission as provided for in this Agreement; less, 3. Losses paid and outstanding Losses which may be ascribed to this Agreement; plus, 4. Subrogation, salvage, or other recoveries on Losses which may be ascribed to this Agreement. B. Within 60 days following the end of the period or the report date, the debtor party will remit to the creditor party any balance due. Each month thereafter, the balance shall be adjusted and settled between the parties, until all Losses have been settled. C. As soon as possible following the expiration of this Agreement, the Company will provide any other information which the Reinsurer may require for its Annual Convention Statement which may be reasonably available to the Company. Section 3 - As respects MPCI: A. For the 1999 reinsurance year as defined by the FCIC: 1. The Company will pay the Reinsurer an Advance Margin of $8,050,000, to be paid in two installments on 12/31/99 and 60 days thereafter. The first installment shall be equal to 90% of the Reinsurer's expense allowance of 40%, as defined in the PROFIT SHARING ARTICLE, with the second installment being the balance, if any, after application of the PROFIT SHARING ARTICLE. B. For the 2000 reinsurance year as defined by the FCIC: 1. The Company will pay the Reinsurer an Advance Margin of $8,050,000, to be paid in two installments on 7/1/2000 and 12/31/2000. The first installment shall be equal to 90% of the Reinsurer's expense allowance of 40%, as defined in the PROFIT SHARING ARTICLE, with the second installment being the balance, if any, after application of the PROFIT SHARING ARTICLE. 101200-185 1/1/99 Page 6 C. For the 2001 reinsurance year as defined by the FCIC: 1. The Company will pay the Reinsurer an Advance Margin of $8,050,000, to be paid in two installments on 7/1/2001 and 12/31/2001. The first installment shall be equal to 90% of the Reinsurer's expense allowance of 40%, as defined in the PROFIT SHARING ARTICLE, with the second installment being the balance, if any, after application of the PROFIT SHARING ARTICLE. D. Advanced Margin: 1. For the 1999 crop Season, the Company will calculate an Advanced Margin at a rate of 7.00% multiplied by the Company's Net Retained Premium Income for MPCI. Should the Advanced Margin so calculated exceed the Advance Margin paid, the Company will pay the Reinsurer the balance in accordance with Paragraph E below. 2. For the 2000 crop Season, the Company will calculate an Advance Margin at a rate of 7.00% multiplied by the Company's Net Retained Premium Income for MPCI. Should the Advanced Margin so calculated exceed the Advance Margin paid, the Company will pay the Reinsurer the balance in accordance with Paragraph E below. Should however cumulative outgo exceed cumulative income the rate shall be adjusted to 8.50% multiplied by the Company's Net Retained Premium Income for MPCI. Should the Advanced Margin so calculated exceed the Advance Margin paid, the Company will pay the Reinsurer the balance in accordance with Paragraph E below. 3. For the 2001 crop Season, the Company will calculate an Advanced Margin at a rate of 7.00% multiplied by the Company's Net Retained Premium Income for MPCI. Should the Advanced Margin so calculated exceed the Advance Margin paid, the Company will pay the Reinsurer the balance in accordance with Paragraph E below. Should however cumulative outgo exceed cumulative income the rate shall be adjusted to 8.50% multiplied by the Company's Net Retained Premium Income for MPCI. Should the Advanced Margin so calculated exceed the Advance Margin paid, the Company will pay the Reinsurer the balance in accordance with Paragraph E below. E. As soon as possible after the end of each Season, but no later than 5/31, or once settlement is made with the FCIC following the end of each annual period, the Company shall provide the Reinsurer with a complete account, to include the following: 1. Retained Underwriting Gain accounted for during the term of this Agreement, plus the Advanced Margin; less, 2. The Reinsurer's expense allowance of 40% of the Advanced Margin as provided for in this Agreement for the applicable Reinsurance Year as defined by the FCIC; less, 3. Retained Underwriting Loss ascribed during the term of this Agreement. F. Within 60 days following the end of each annual period commencing 1/1, the debtor party will remit to the creditor party any balance due. G. As soon as possible following the expiration of this Agreement, the Company will provide any other information which the Reinsurer may require for its Annual Convention Statement which may be reasonably available to the Company. H. Underwriting Gain Sharing: 101200-185 1/1/99 Page 7 1. The Reinsurer shall receive 33% of any Net Retained Underwriting Gain between 10 - 16% of Net Retained Premium Income, if any, for each respective period defined above. Any Reinsurer's underwriting profit under Section 1 (Ag PI) shall be set against this specific MPCI Underwriting Gain Sharing. Reinsurer's underwriting profit shall be calculated as follows: a.) Cumulative Net Written Premium; less, b.) Cumulative ceding commission; less, c.) Cumulative profit commission; less, d.) Cumulative paid Losses. The payment to the Reinsurer shall be reduced accordingly, provided the Reinsurer's Margin for the three year period is above 2.8% of the cumulative Net Retained Premium Income. An appropriate adjustment shall be prepared following the expiration of this Agreement, wherein MPCI Underwriting Gain Sharing paid for each respective period, prior to any reduction from underwriting profit from Section 1 (Ag PI), less the cumulative Reinsurer's underwriting profit under Section 1 (Ag PI), shall determine the final adjustment, and the debtor party will remit to the creditor party any balance due. ARTICLE 8 CEDING COMMISSION Section 1 - As respects Ag PI: A. For the period 5/1/98 to 1/1/99 1. The final ceding commission shall be determined by the Losses paid under this Agreement. The Company will calculate a ceding commission for the period within 45 days following the expiration of the period, based on premiums written and Losses paid. Adjustments for the period will continue to be made annually until all Losses which may be ascribed to this period, have been paid or closed, at which time the ceding commission will become final. 2. Premium written for the Agreement shall mean all Net Written Premium ceded to this Agreement. 3. Losses paid by the Reinsurer are as defined in ARTICLE 13, item A., which may be ascribed to this Agreement, and plus or minus any credit or debit carry forward as provided for in this Article. 4. Should the ratio of Losses paid to premium written be 100% or higher, then the ceding commission shall be 0%. 5. Should the ratio of Losses paid to premium written be less than 100%, then the adjusted commission shall be determined by adding one percent (1%) to the ceding commission for each one percent reduction of loss ratio, subject to a maximum ceding commission of 25%, at a loss ratio of 75% or less. 101200-185 1/1/99 Page 8 6. Should the ratio of Losses paid to premium written be greater than 100% or less than 75%, the difference between the actual loss ratio and 100% or 75%, as the case may be, will be multiplied by the premium written for the Agreement and carried forward as a debit or credit to the ensuing Profit Sharing Agreement calculation. No debit carryforward shall affect results of Profit Sharing adjustments beyond the third Agreement year following the Agreement giving rise to the debit carryforward. 7. No debit or credit carryforward resulting from the calculation for the period 5/1/98 to 1/1/99, shall affect the Ceding Commission adjustment for the period 1/1/99 to 1/1/2000 and for the period 1/1/2000 to 1/1/2001. B. For the period 1/1/99 to 1/1/2000: 1. The Reinsurer will allow the Company a ceding commission of 28% on the premium due hereunder. Return commission shall be allowed on return premiums, if any, at the same rate. Should the ratio of Losses paid to premium written exceed 100%, then the adjusted commission shall be determined by reducing the ceding commission one percent (1%) for each one percent addition of loss ratio, subject to a minimum ceding commission of 26%, at a loss ratio of 102% or greater. An appropriate adjustment of any ceding commission previously paid at the rate of 28% will be made between the parties. C. For the period 1/1/2000 to 1/1/2001: 1. The Reinsurer will allow the Company a ceding commission of 28% on the premium due hereunder. Return commission shall be allowed on return premiums, if any, at the same rate. Should the ratio of Losses paid to premium written from the prior period exceed 100%, then the adjusted commission shall be determined by reducing the ceding commission one percent (1%) for each one percent addition of loss ratio, subject to a minimum ceding commission of 26%, at a loss ratio of 102% or greater. An appropriate adjustment of any ceding commission previously paid at the rate of 28% will be made between the parties. Section 2 - As respects Crop Hail: A. The Reinsurer will allow the Company a ceding commission of 31.75% on the premium due hereunder. Return commission shall be allowed on return premiums, if any, at the same rate. B. Should the ratio of Losses paid to premium written be greater than 100% for Section 1 (Ag PI) for the period 1/1/99 to 1/1/2000, the difference between the actual loss ratio and 100% will be multiplied by the premium written for Section 1 (Ag PI) for the period 1/1/99 to 1/1/2000. The Losses in excess of 100% for Section 1 (Ag PI) for the period 1/1/99 to 1/1/2000 shall be added to the Losses from Section 2 (Crop Hail) for the period 1/1/99 to 1/1/2000, and the adjusted commission shall be determined by reducing the ceding commission for Section 2 (Crop Hail) 1% for each 1% of additional loss ratio from the addition of Ag PI Losses to Crop Hail Losses, subject to a minimum ceding commission of 29.75% at a loss ratio of 102% or greater. C. An appropriate adjustment of any ceding commission previously paid at the rate of 31.75% will be made between the parties. 101200-185 1/1/99 Page 9 ARTICLE 9 PROFIT SHARING Section 1 - As respects Ag PI: The Reinsurer will pay the Company a contingent of 20% on the net profits, if any, accruing under this Agreement for each period comprising three consecutive Agreement years in accordance with the following formula. A. Premiums written to be: 1. Net Written Premium ceded to the Agreement (less cancellations and returns), during the period. B. Losses incurred to be: 1. Losses paid by the Reinsurer as defined in ARTICLE 13, item A., which may be ascribed to the period; plus, 2. Outstanding Loss reserves on Losses ascribed to the period. C. Expenses incurred to be: 1. Ceding commission paid by the Reinsurer on the Net Written Premium ceded as in A. above; plus, 2. Reinsurer's expense margin of 10% on Net Written Premium ceded as in A. above. 3. Deficit, if any, from prior periods. D. Net profit to be: 1. Premiums written, as in A. above; less, 2. Losses incurred, as in B. above; less, 3. Expenses incurred, as in C. above. E. As soon as possible following each Agreement year within each three Agreement year period, the Company will compute and the Reinsurer will pay a contingent on the net profit for the portion of the three Agreement year period then expired. Any profit commission paid to that date shall be adjusted between the parties as appropriate. Adjustments for each three Agreement year period will continue to be made annually until all Losses ascribed to the period have been paid or closed, at which time the contingent profit computation will become final. F. Should the Reinsurer's participation in this Agreement increase or decrease within a multi-year adjustment period, the incremental participation percentage increase or decrease shall be treated as a separate new or terminated participation, respectively, for purposes of calculating amounts due hereunder. Section 2 - As respects Crop Hail: The Reinsurer will pay the Company a contingent of 20% on the net profits, if any, accruing under this Agreement for the period in accordance with the following formula. 101200-185 1/1/99 Page 10 A. Premiums written to be: 1. Net Written Premium ceded to the Agreement (less cancellations and returns), during the period. B. Losses incurred to be: 1. Losses paid by the Reinsurer as defined in ARTICLE 13, item A., which may be ascribed to the period; plus, 2. Outstanding Loss reserves on Losses ascribed to the period. C. Expenses incurred to be: 1. Ceding commission paid by the Reinsurer on the Net Written Premium ceded as in A. above; plus, 2. Reinsurer's expense margin of 10% on Net Written Premium ceded as in A. above. D. Net profit to be: 1. Premiums written, as in A. above; less, 2. Losses incurred, as in B. above; less, 3. Expenses incurred, as in C. above. Section 3 - As respects MPCI: In the event cumulative Income exceeds cumulative Outgo at the end of any FCIC reinsurance year, a Profit Sharing calculation will be prepared by the Company in accordance with the following, and a profit, if any, paid to the Company by the Reinsurer: A. Income 1. Retained Underwriting Gain; plus, 2. The Advanced Margin. B. Outgo 1. Retained Underwriting Loss during the applicable reinsurance period; plus, 2. The Reinsurer's expense allowance of 40% of the Advanced Margin for the applicable Reinsurance Year as defined by the FCIC. The Profit to the Company shall be 100% of the amount by which Income exceeds Outgo. Article 10 EXPERIENCE ACCOUNT In the event incurred Losses from Section 1 (Ag PI) exceed 200% of Net Written Premium for the period 5/1/98 to 1/1/99, an experience calculation will be prepared and the Company will pay the Reinsurer interest at the rate of 12 Months LIBOR Rate as published in the Midwest Edition of "The Wall Street Journal" on the first day of the calendar month in which the amount becomes due, plus 1.2% multiplied by the cumulative balance which exceeds 200% of the cumulative Net Written Premium Section 1 (Ag PI for the period 5/1/98 to 1/1/99) 101200-185 1/1/99 Page 11 during the period. The product will then be multiplied by 1/365 for each day after the due date that the amount due remains unpaid. Any interest that occurs pursuant to this Article will be calculated by the party to which it is owed. ARTICLE 11 COMMUTATION With 60 days prior written notice at 1/1/2000, or 1/1/2001, a Commutation Agreement releasing the Reinsurer from liability may be executed by the parties to this Agreement, providing the Reinsurer has earned a positive cumulative paid margin balance. The paid margin balance shall be calculated as follows: A. Section 1 - As respects Ag PI: Reinsurer's expense Margin of 10% of Net Written Premium for Ag PI; plus, B. Section 2 - As respects Crop Hail: Reinsurer's expense margin of 10% of Net Written Premium for Crop Hail; plus, C. Section 3 - As respects MPCI: Reinsurer's expense margin of 40% multiplied by the Advanced Margin for MPCI as outlined in ARTICLE 7 - ACCOUNTS AND REMITTANCES; plus, D. Any net profit to the Reinsurer under Section 1 (Ag PI), Section 2 (Crop Hail), and Section 3 (MPCI). Net profit shall be determined for each section of coverage as follows: 1. Section 1 (Ag PI), in accordance with ARTICLE 9 - PROFIT SHARING , after all profit sharing. 2. Section 2 (Crop Hail), in accordance with ARTICLE 9 - PROFIT SHARING , after all profit sharing. 3. Section 3 (MPCI), in accordance with ARTICLE 9 - PROFIT SHARING , after all profit sharing, plus Underwriting Gain Sharing as outlined in ARTICLE 7 - ACCOUNTS AND REMITTANCES, section H. Any resulting negative balance shall be included in the Commutation calculations. ARTICLE 12 BUYOUT CLAUSE Should the Company be sold or acquired, the Company has the right to cancel this Agreement by giving 90 days written notice at any time. If the acquiring Company fails to meet minimum solvency requirements of its State of domicile, the Company will cancel this Agreement. In the event this Agreement is cancelled, the Company shall pay the Reinsurer 100% of any negative cash balance and the Reinsurer shall retain any positive balance. 101200-185 1/1/99 Page 12 ARTICLE 13 DEFINITIONS A. The terms "Loss" and "Losses" as used in this Agreement shall mean the sum or sums paid or payable by the Company in settlement of claims and in satisfaction of judgments rendered on account of such claims covered under this Agreement, and will include 90% of any Extra Contractual Obligations (and expense) as defined in the EXTRA CONTRACTUAL OBLIGATIONS ARTICLE and 90% of any Excess of Policy Limits amount as defined in the EXCESS OF POLICY LIMITS ARTICLE, expenses of litigation and interest, monitoring counsel expense, claim-specific declaratory judgment expenses, and all other loss adjustment expenses incurred by the Company in the investigation, adjustment, appraisal or defense of all claims under Policies reinsured hereunder, including subrogation, salvage, and recovery expenses (office expenses and salaries of officials and employees not classified as loss adjusters are not chargeable as loss adjustment expenses for purposes of this paragraph), but salvages and all recoveries, including recoveries under all reinsurances which inure to the benefit of this Agreement (whether recovered or not), shall be first deducted from such loss to arrive at the amount of liability attaching hereunder. The sum of loss, loss adjustment expense, any Extra Contractual Obligations, and any Excess of Policy Limits is subject to the limit as stated in the COVER ARTICLE. Nothing herein shall be construed to mean that losses under this Agreement are not recoverable until the Company's loss has been ascertained. Salvage recovered or recoveries received by the Company after a loss settlement hereunder shall be applied as if recovered or received before the said settlement, and all necessary adjustments shall be made by the parties hereto. The phrase "claim-specific declaratory judgment expenses," as used in this Agreement will mean all expenses incurred by the Company in connection with declaratory judgment actions brought to determine the Company's defense and/or indemnification obligations that are allocable to specific Policies and claims subject to this Agreement. Declaratory judgment expenses will be deemed to have been incurred by the Company on the date of the original loss (if any) giving rise to the declaratory judgment action. B. The term "Net Retained Premium Income" as used in this Agreement shall mean gross premium income on business the subject of this Agreement, classified by the Company as MPCI, less cessions to the FCIC's Assigned Risk, Developmental and Commercial Funds, less gross premium income paid for reinsurances, recoveries under which would inure to the benefit of this Agreement, and net of intermediary fees from assumed MPCI reinsurance subject to this Agreement. C. The term "Retained Underwriting Loss" as used in this Agreement shall mean the Net Retained Premium Income, plus underwriting losses on business the subject of this Agreement, classified by the Company as MPCI, after all cessions to the FCIC's Assigned Risk, Developmental and Commercial Funds, and costs and recoveries of FCIC Stop Loss reinsurance. D. The term "Retained Underwriting Gain" as used in this Agreement shall mean the Net Retained Premium Income, plus underwriting gains on business the subject of this Agreement, classified by the Company as MPCI, after all cessions to the FCIC's Assigned Risk, Developmental and Commercial Funds, and costs and recoveries of FCIC Stop Loss reinsurance. E. The term "Net Retained Underwriting Gain" as used in this Agreement shall mean the sum of Retained Underwriting Loss and Retained Underwriting Gain, as defined in items C. and D. in ARTICLE 13, which yields a positive balance. 101200-185 1/1/99 Page 13 F. The term "Net Retained Underwriting Loss" as used in this Agreement shall mean the sum of Retained Underwriting Loss and Retained Underwriting Gain, as defined in items C. and D. in ARTICLE 13, which yields a negative balance. G. As respects Section 1 (Ag PI), the term "Net Written Premium" as used in this Agreement shall mean the written premium income on business the subject of this Agreement, less written premium income paid for reinsurances, recoveries under which would inure to the benefit of this Agreement, As respects Section 2 (Crop Hail), the term "Net Written Premium" as used in this Agreement shall mean the written premium income on business the subject of this Agreement, less written premium income paid for reinsurances, recoveries under which would inure to the benefit of this Agreement, less a deduction for intermediary fees for assumed Crop Hail reinsurance subject to this Agreement. H. The term "Policy" as used in this Agreement shall mean any binder, policy, or contract of insurance or reinsurance issued, accepted or held covered provisionally or otherwise, by or on behalf of the Company. ARTICLE 14 CASH CALL In the event incurred Losses from Section 2 (Crop Hail) exceed 68.75% of Net Written Premium after 8/31/99, the Reinsurer will remit to the Company any balance due within 30 days of the Company's request for payment. ARTICLE 15 NET RETAINED LIABILITY This Agreement applies only to that portion of any insurances or reinsurances covered by this Agreement which the Company retains net for its own account, and in calculating the amount of any Loss hereunder, only Loss or Losses in respect of that portion of any insurances or reinsurances which the Company retains net for its own account shall be included, it being understood and agreed that the amount of the Reinsurer's liability hereunder in respect of any Loss or Losses shall not be increased by reason of the inability of the Company to collect from any other reinsurers, whether specific or general, any amounts which may have become due from them, whether such inability arises from the insolvency of such other reinsurers or otherwise. ARTICLE 16 CURRENCY The currency to be used for all purposes of this Agreement shall be United States of America currency. 101200-185 1/1/99 Page 14 ARTICLE 17 ORIGINAL CONDITIONS All insurances and reinsurances falling under this Agreement shall be subject to the same terms, rates, conditions and waivers, and to the same modifications, alterations and cancellations as the respective Policies of the Company (except that in the event of the insolvency of the Company the provisions of the INSOLVENCY ARTICLE of this Agreement shall apply). ARTICLE 18 LOSS FUNDING With respect to Losses, funding will be in accordance with the attached Loss Funding Clause No. 13-01.2. ARTICLE 19 TAXES The Company will be liable for taxes (except Federal Excise Tax) on premiums reported to the Reinsurer hereunder. Federal Excise Tax applies only to those Reinsurers, excepting Underwriters at Lloyd's, London and other Reinsurers exempt from the Federal Excise Tax, who are domiciled outside the United States of America. The Reinsurer has agreed to allow for the purpose of paying the Federal Excise Tax 1% of the premium payable hereon to the extent such premium is subject to Federal Excise Tax. In the event of any return of premium becoming due hereunder, the Reinsurer will deduct 1% from the amount of the return, and the Company or its agent should take steps to recover the Tax from the U.S. Government. ARTICLE 20 NOTICE OF LOSS AND LOSS SETTLEMENTS The Company will advise the Reinsurer promptly in the event Losses are likely to result in claim being made upon the Reinsurer, based upon a reasonable estimate of the Net Written Premium as respects Section 1 (Ag PI) and Section 2 (Crop Hail) and the Company's Net Retained Premium Income as respects Section 3 (MPCI), and will continue to keep the Reinsurer informed of subsequent developments in incurred Losses. The Reinsurer agrees to abide by the Loss settlements of the Company. Any Loss settlement made by the Company, whether under strict Policy conditions or by way of compromise, shall be unconditionally binding upon the Reinsurer in proportion to its participation, and the Reinsurer shall benefit proportionally in all salvages and recoveries. Should the Loss of the Company exceed the Company's estimated retention prior to the time that the Net Written Premium as respects Section 1 (Ag PI) and Section 2 (Crop Hail) and Net Retained Premium Income as respects Section 3 (MPCI) of the Company is known, the Reinsurer will make provisional settlement based on a reasonable estimate of the Net Written Premium as respects Section 1 (Ag PI) and 101200-185 1/1/99 Page 15 Section 2 (Crop Hail) and Net Retained Premium Income as respects Section 3 (MPCI). Any provisional settlement will be adjusted when the Company's actual Net Written Premium as respects Ag PI and Crop Hail and Net Retained Premium Income as respects MPCI and are known. In addition, the Company shall provide information regarding potential Loss developments on each 7/15, 8/30, and 10/15, or as soon as information is available. ARTICLE 21 EXCESS OF POLICY LIMITS In the event the Loss includes an amount in excess of the Company's Policy limit, such amount, as provided for in the definition of Loss, in excess of the Company's Policy limit shall be added to the amount of the Company's Policy limit, and the sum thereof shall be covered hereunder, subject to the Reinsurer's limit of liability appearing in the COVER ARTICLE of this Agreement. However, this Article shall not apply where the Loss has been incurred due to the fraud of a member of the Board of Directors or a corporate officer of the Company acting individually or collectively or in collusion with any individual or corporation or any other organization or party involved in the presentation, defense or settlement of any claim covered hereunder. For the purpose of this Article, the word "Loss" shall mean any amounts for which the Company would have been contractually liable to pay had it not been for the limit of the original Policy. ARTICLE 22 EXTRA CONTRACTUAL OBLIGATIONS This Agreement shall protect the Company, subject to the Reinsurer's limit of liability appearing in the COVER ARTICLE of this Agreement, where the Loss includes any Extra Contractual Obligations as provided for in the definition of Loss. "Extra Contractual Obligations" are defined as those liabilities not covered under any other provision of this Agreement and which arise from handling of any claim on business covered hereunder, such liabilities arising because of, but not limited to, the following: failure by the Company to settle within the Policy limit, or by reason of alleged or actual negligence, fraud or bad faith in rejecting an offer of settlement or in the preparation of the defense or in the trial of any action against its insured or in the preparation or prosecution of an appeal consequent upon such action. The date on which any Extra Contractual Obligation is incurred by the Company shall be deemed, in all circumstances, to be the date of the original Loss. However, this Article shall not apply where the Loss has been incurred due to the fraud of a member of the Board of Directors or a corporate officer of the Company acting individually or collectively or in collusion with any individual or corporation or any other organization or party involved in the presentation, defense or settlement of any claim covered hereunder. ARTICLE 23 OFFSET The Company or the Reinsurer shall have and may exercise, at any time and from time to time, the right to offset any balance or balances whether on account of premiums or on account of Losses or otherwise, due from one party to the other 101200-185 1/1/99 Page 16 party hereto under the terms of this Agreement. The party asserting the right of offset shall have and may exercise such right whether acting in the capacity of assuming reinsurer or as ceding insurer. ARTICLE 24 DELAY, OMISSION OR ERROR Any inadvertent delay, omission or error shall not be held to relieve either party hereto from any liability which would attach to it hereunder if such delay, omission or error had not been made, providing such delay, omission or error is rectified upon discovery. ARTICLE 25 INSPECTION The Company shall place at the disposal of the Reinsurer at all reasonable times, and the Reinsurer shall have the right to inspect, through its authorized representatives, all books, records and papers of the Company in connection with any reinsurance hereunder or claims in connection herewith. ARTICLE 26 ARBITRATION Any irreconcilable dispute between the parties to this Agreement will be arbitrated in Indianapolis, Indiana in accordance with the attached Arbitration Clause No. 22-01.1. ARTICLE 27 SERVICE OF SUIT The attached Service of Suit Clause No. 20-01.5 - U.S.A. will apply to this Agreement. ARTICLE 28 INSOLVENCY In the event of the insolvency of the Company, the attached Insolvency Clause No. 21-01 - 1/1/86 will apply. In the event of the insolvency of any company or companies included in the designation of "Company," this clause will apply only to the insolvent company or companies. 101200-185 1/1/99 Page 17 ARTICLE 29 INTERMEDIARY Sedgwick Re, Inc. is hereby recognized as the Intermediary negotiating this Agreement for all business hereunder. All communications, including notices, premiums, return premiums, commissions, taxes, Losses, Loss adjustment expenses, salvages and Loss settlements relating thereto shall be transmitted to the Reinsurer or the Company through Sedgwick Re, Inc., 6600 France Avenue South, Suite 510, Edina, MN 55435. Payments by the Company to the Intermediary shall be deemed to constitute payment to the Reinsurer. Payments by the Reinsurer to the Intermediary shall be deemed only to constitute payment to the Company to the extent that such payments are actually received by the Company. 101200-185 1/1/99 Page 18 ARTICLE 30 PARTICIPATION: AG PI, CROP HAIL AND MPCI MULTI-YEAR QUOTA SHARE REINSURANCE AGREEMENT EFFECTIVE: January 1, 1999 This Agreement obligates the Reinsurer for _______% of the interests and liabilities set forth under this Agreement. The participation of the Reinsurer in the interests and liabilities of this Agreement shall be separate and apart from the participations of other reinsurers and shall not be joint with those of other reinsurers, and the Reinsurer shall in no event participate in the interests and liabilities of other reinsurers. IN WITNESS WHEREOF, the parties hereto, by their authorized representatives, have executed this Agreement as of the following dates: PARTICIPATING REINSURERS - ------------------------------------------------------------------------------ Insurance Corporation of Hannover 12.50% Munchener Ruckversicherungs 35.00% R&V Verischerung 1.00% Sedgwick Re Australia Monde Re 3.00% Reinsurance Australia Corporation Limited 3.00% ----- TOTAL Sedgwick Re Placement: 54.50% Direct Placement: Granite Re 7.50% ----- GRAND TOTAL 62.00% Upon completion of Reinsurers' signing, fully executed signature pages will be forwarded to you for the completion of your file. 101200-185 1/1/99 Page 19 and in Indianapolis, Indiana, this 19th day of January, 1999. IGF INSURANCE COMPANY PAFCO GENERAL INSURANCE COMPANY SUPERIOR INSURANCE COMPANY By: /s/ Alan G. Symons Alan G. Symons --------------------------------------- (name) Director --------------------------------------- (title) AG PI, CROP HAIL AND MPCI MULTI-YEAR QUOTA SHARE REINSURANCE AGREEMENT issued to IGF INSURANCE COMPANY PAFCO GENERAL INSURANCE COMPANY SUPERIOR INSURANCE COMPANY 101200-185 1/1/99 Page 20 EX-27 3 FDS --
7 (Replace this text with the legend) 0001013698 Symons International Group 1 U.S. Dollars 3-mos DEC-31-1999 JAN-01-1999 MAR-31-1999 1 0 196,916,000 196,916,000 12,516,000 2,059,000 0 230,696,000 4,373,000 61,555,000 14,907,000 679,694,000 173,138,000 176,021,000 0 0 4,520,000 0 135,000,000 38,136,000 46,351,000 679,694,000 68,485,000 3,289,000 (1,382,000) 4,463,000 51,819,000 605,000 16,560,000 6,317,000 2,250,000 4,067,000 0 0 0 2,012,000 .19 .19 173,138,000 41,732,000 131,406,000 19,880,000 59,773,000 68,566,000 7,793,000
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