-----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, DDz2a00f36DR9L7VP4AY6xKPDmks/nzYr5bCfwp3wvQ/+xkrNYSxRkp9oTXPXgyp 1eWgfTQGGS5vSMPhwQnFUQ== 0000950159-99-000313.txt : 20000210 0000950159-99-000313.hdr.sgml : 20000210 ACCESSION NUMBER: 0000950159-99-000313 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991112 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PMA CAPITAL CORP CENTRAL INDEX KEY: 0001041665 STANDARD INDUSTRIAL CLASSIFICATION: 6331 IRS NUMBER: 232217932 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-22761 FILM NUMBER: 99749336 BUSINESS ADDRESS: STREET 1: 1735 MARKET STREET SUITE 2800 STREET 2: 380 SENTRY PKWY CITY: PHILADELPHIA STATE: PA ZIP: 19103-7590 BUSINESS PHONE: 2156655046 MAIL ADDRESS: STREET 1: 1735 MARKET STREET SUITE 2800 STREET 2: 380 SENTRY PARKWAY CITY: PHILADELPHIA STATE: PA ZIP: 19103-7590 FORMER COMPANY: FORMER CONFORMED NAME: PENNSYLVANIA MANUFACTURERS CORP DATE OF NAME CHANGE: 19970702 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q (MARK ONE) /X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999 OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO __________ Commission File Number 000-22761 PMA Capital Corporation ------------------------------------------------------ (Exact name of registrant as specified in its charter) Pennsylvania 23-2217932 ------------------------------- ------------------- (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) Mellon Bank Center, Suite 2800 1735 Market Street Philadelphia, Pennsylvania 19103-7590 - - ---------------------------------------- ---------- (Address of principal executive offices) (Zip Code) (215) 665-5046 ---------------------------------------------------- (Registrant's telephone number, including area code) Not applicable ---------------------------------------------------- (Former name, former address and former fiscal year, if changed since last report) 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 / / There were 12,669,378 shares outstanding of the registrant's Common Stock, $5 par value per share, and 10,081,009 shares outstanding of the registrant's Class A Common Stock, $5 par value per share, as of the close of business on October 31, 1999. INDEX - - -------------------------------------------------------------------------------- Page Part I. Financial Information Item 1. Financial statements Consolidated statements of operations for the three and nine months ended September 30, 1999 and 1998 (unaudited) 1 Consolidated balance sheets as of September 30, 1999 (unaudited) and December 31, 1998 2 Consolidated statements of cash flows for the nine months ended September 30, 1999 and 1998 (unaudited) 3 Consolidated statements of comprehensive income (loss) for the three and nine months ended September 30, 1999 and 1998 (unaudited) 4 Notes to the consolidated financial statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 10 Part II. Other Information Item 6. Exhibits and reports on Form 8-K 24 PMA Capital Corporation Consolidated Statements of Operations (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, (dollar amounts in thousands, except per share data) 1999 1998 1999 1998 - - -------------------------------------------------------------------------------------------------------------- Revenues: Net premiums written $ 124,970 $ 120,653 $ 395,418 $ 369,134 Change in net unearned premiums 3,449 (6,636) (28,536) (33,541) --------- --------- --------- --------- Net premiums earned 128,419 114,017 366,882 335,593 Net investment income 28,029 28,410 82,099 92,260 Net realized investment gains (losses) (3,283) 4,099 (4,161) 15,362 Other revenues 2,869 2,945 8,828 9,385 --------- --------- --------- --------- Total revenues 156,034 149,471 453,648 452,600 --------- --------- --------- --------- Losses and expenses: Losses and loss adjustment expenses 91,491 83,473 268,136 256,230 Acquisition expenses 27,986 25,985 80,487 77,748 Operating expenses 17,354 18,154 50,886 55,654 Dividends to policyholders 5,782 5,507 15,108 13,637 Interest expense 3,052 3,768 9,134 11,231 --------- --------- --------- --------- Total losses and expenses 145,665 136,887 423,751 414,500 --------- --------- --------- --------- Income before income taxes and cumulative effect of accounting change 10,369 12,584 29,897 38,100 Income tax expense (benefit): Current 2,770 (424) 8,555 267 Deferred 1,087 2,456 (384) 5,836 --------- --------- --------- --------- Total 3,857 2,032 8,171 6,103 --------- --------- --------- --------- Income before cumulative effect of accounting change 6,512 10,552 21,726 31,997 Cumulative effect of accounting change (net of income tax benefit of $1,458) -- -- (2,759) -- --------- --------- --------- --------- Net income $ 6,512 $ 10,552 $ 18,967 $ 31,997 ========= ========= ========= ========= Earnings per share: Basic: Income before cumulative effect of accounting change $ 0.28 $ 0.45 $ 0.94 $ 1.35 Cumulative effect of accounting change -- -- (0.12) -- --------- --------- --------- --------- Net income $ 0.28 $ 0.45 $ 0.82 $ 1.35 ========= ========= ========= ========= Diluted: Income before cumulative effect of accounting change $ 0.27 $ 0.43 $ 0.90 $ 1.30 Cumulative effect of accounting change -- -- (0.11) -- --------- --------- --------- --------- Net income $ 0.27 $ 0.43 $ 0.79 $ 1.30 ========= ========= ========= =========
See accompanying notes to the consolidated financial statements. 1 PMA Capital Corporation Consolidated Balance Sheets
(Unaudited) As of As of September 30, December 31, (dollar amounts in thousands, except per share data) 1999 1998 - - --------------------------------------------------------------------------------------------------------------- Assets: Investments: Fixed maturities available for sale, at fair value (amortized cost: 1999 - $1,686,311; 1998 - $1,781,188) $ 1,642,788 $ 1,827,354 Equity securities, at fair value (cost: 1999 - $5; 1998 - $5) 5 17 Short-term investments, at amortized cost which approximates fair value 408,714 498,038 ----------- ----------- Total investments 2,051,507 2,325,409 Cash 15,356 2,562 Accrued investment income 21,703 19,900 Premiums receivable (net of valuation allowance: 1999 - $20,840; 1998 - $19,874) 278,179 279,633 Reinsurance receivables (net of valuation allowance: 1999 - $2,178; 1998 - $2,178) 641,273 610,291 Deferred income taxes, net 97,194 63,929 Deferred acquisition costs 49,772 51,115 Other assets 140,426 107,879 ----------- ----------- Total assets $ 3,295,410 $ 3,460,718 =========== =========== Liabilities: Unpaid losses and loss adjustment expenses $ 1,902,681 $ 1,940,895 Unearned premiums 266,425 227,945 Long-term debt 163,000 163,000 Accounts payable and accrued expenses 121,532 107,952 Funds held under reinsurance treaties 92,077 77,674 Dividends to policyholders 12,800 10,700 Payable under securitites loan agreements 284,986 421,072 ----------- ----------- Total liabilities 2,843,501 2,949,238 ----------- ----------- Commitments and contingencies (Note 4) Shareholders' Equity: Common stock, $5 par value (40,000,000 shares authorized; 1999 - 13,132,795 shares issued and 12,696,788 outstanding; 1998 - 13,956,268 shares issued and 13,520,261 outstanding) 65,664 69,781 Class A common stock, $5 par value (40,000,000 shares authorized; 1999 - 11,310,150 shares issued and 10,077,760 outstanding; 1998 - 10,486,677 shares issued and 9,837,963 outstanding) 56,550 52,433 Additional paid-in capital - Class A common stock 339 339 Retained earnings 387,577 377,601 Accumulated other comprehensive income (loss) (28,289) 30,016 Notes receivable from officers (151) (498) Treasury stock, at cost: Common stock (shares: 1999 - 436,007 and 1998 - 436,007) (5,582) (5,582) Class A common stock (shares: 1999 - 1,232,390 and 1998 - 648,714) (24,199) (12,610) ----------- ----------- Total shareholders' equity 451,909 511,480 ----------- ----------- Total liabilities and shareholders' equity $ 3,295,410 $ 3,460,718 =========== ===========
See accompanying notes to the consolidated financial statements. 2 PMA Capital Corporation Consolidated Statements of Cash Flows (Unaudited)
Nine Months Ended September 30, (dollar amounts in thousands) 1999 1998 - - ----------------------------------------------------------------------------------------------- Cash flows from operating activities: Net income $ 18,967 $ 31,997 Adjustments to reconcile net income to net cash flows used in operating activities: Depreciation and amortization 4,992 3,277 Provision (benefit) for deferred income taxes (384) 5,836 Net realized investment losses (gains) 4,161 (15,362) Cumulative effect of accounting change 2,759 -- Change in: Premiums receivable and unearned premiums, net 39,934 (348) Dividends to policyholders 2,100 (595) Reinsurance receivables (30,982) (54,165) Unpaid losses and loss adjustment expenses (38,214) (51,690) Accrued investment income (1,803) 144 Deferred acquisition costs 1,343 (10,670) Other, net (9,114) 18,341 ----------- ----------- Net cash flows used in operating activities (6,241) (73,235) ----------- ----------- Cash flows from investing activities: Fixed maturity investments available for sale: Purchases (1,021,204) (1,377,422) Maturities or calls 106,397 108,013 Sales 1,003,836 1,175,526 Net sales (purchases) of short-term investments (46,725) 162,296 Proceeds from sale of subsidiary -- 2,902 Other, net (3,036) (2,601) ----------- ----------- Net cash flows provided by investing activities 39,268 68,714 ----------- ----------- Cash flows from financing activities: Dividends paid to shareholders (5,782) (6,086) Proceeds from exercise of stock options 4,894 2,377 Purchase of treasury stock (19,693) (16,323) Net repayments of notes receivable from officers 348 -- ----------- ----------- Net cash flows used in financing activities (20,233) (20,032) ----------- ----------- Net increase (decrease) in cash 12,794 (24,553) Cash - beginning of period 2,562 32,148 ----------- ----------- Cash - end of period $ 15,356 $ 7,595 =========== =========== Supplementary cash flow information: Income taxes paid (refunded) $ 9,852 $ (616) Interest paid $ 7,443 $ 11,150
See accompanying notes to the consolidated financial statements. 3 PMA Capital Corporation Consolidated Statements of Comprehensive Income (Loss) (Unaudited)
Three Months Ended Nine Months Ended September 30, September 30, (dollar amounts in thousands) 1999 1998 1999 1998 - - --------------------------------------------------------------------------------------------------------------------- Net income $ 6,512 $ 10,552 $ 18,967 $ 31,997 -------- -------- -------- -------- Other comprehensive income (loss), net of tax: Unrealized gains (losses) on securities: Holding gains (losses) arising during the period (9,582) 22,363 (61,010) 38,761 Less: reclassification adjustment for (gains) losses included in net income (net of tax expense (benefit): $(1,149) and $1,435 for three months ended September 30, 1999 and 1998; $(1,456) and $5,377 for nine months ended September 30, 1999 and 1998) 2,134 (2,651) 2,705 (11,558) -------- -------- -------- -------- Other comprehensive income (loss) (7,448) 19,712 (58,305) 27,203 -------- -------- -------- -------- Comprehensive income (loss) $ (936) $ 30,264 $(39,338) $ 59,200 ======== ======== ======== ========
See accompanying notes to the consolidated financial statements. 4 PMA Capital Corporation Notes to the Consolidated Financial Statements 1. BUSINESS DESCRIPTION The accompanying consolidated financial statements include the accounts of PMA Capital Corporation and its wholly and majority owned subsidiaries (collectively referred to as "PMA Capital" or the "Company"). PMA Capital is an insurance holding company that operates three specialty risk management businesses, which are more fully described below. Reinsurance -- PMA Capital's reinsurance operations ("PMA Re") consist mainly of PMA Reinsurance Corporation, a Pennsylvania domiciled insurance company, which emphasizes risk-exposed, excess of loss reinsurance and operates in the brokered market. PMA Re's business is predominantly in casualty lines of reinsurance. Workers' Compensation and Primary Standard Insurance -- PMA Capital's property and casualty insurance subsidiaries ("The PMA Insurance Group") include Pennsylvania domiciled insurance companies as well as certain foreign subsidiaries. The PMA Insurance Group primarily writes managed care workers' compensation, integrated disability and to a lesser extent, other standard lines of commercial insurance, primarily in the Mid-Atlantic and Southern regions of the U.S. Specialty Property and Casualty -- In January 1998, the Company's specialty insurance unit, Caliber One, commenced writing business. Caliber One writes business through surplus lines brokers on a national basis. Caliber One's excess and surplus lines insurance affiliate, Caliber One Indemnity Company, is authorized as a surplus lines carrier in 40 states, the District of Columbia and Puerto Rico, with applications pending in four other states. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES A. Basis of Presentation - The consolidated financial statements have been prepared in accordance with generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. It is management's opinion that all adjustments, including normal recurring accruals, considered necessary for a fair presentation have been included. Certain reclassifications of prior year amounts have been made to conform to the 1999 presentation. The preparation of consolidated financial statements in conformity with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Due to this and certain other factors, such as the seasonal nature of portions of the insurance business as well as competitive and other market conditions, operating results for the three and nine months ended September 30, 1999 are not necessarily indicative of the results to be expected for the full year. The information included in this Form 10-Q should be read in conjunction with the Company's audited consolidated financial statements and footnotes included in its 1998 Annual Report to Shareholders and incorporated by reference in its Form 10-K for the year ended December 31, 1998. B. Recent Accounting Pronouncements - Effective January 1, 1999, the Company adopted Statement of Position ("SOP") 97-3, "Accounting by Insurance and Other Enterprises for Insurance-Related Assessments." SOP 97-3 provides guidance for determining when an insurance company should recognize a liability for guaranty fund and other insurance related assessments and how to measure that liability. As a result of adopting SOP 97-3, the Company recorded a liability of $4.3 million pre-tax and a resulting charge to earnings of $2.8 million, net of income tax benefit of $1.5 million, which has been reported as a cumulative effect of accounting change. This accounting change impacts The PMA Insurance Group segment. 5 In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as "derivatives") and for hedging activities. SFAS No. 133 requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The accounting for changes in the fair value of a derivative (that is, gains and losses) depends on the intended use of the derivative and the resulting designation. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133," which defers the effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000. While the Company is presently evaluating the impact of SFAS No. 133, the adoption of SFAS No. 133 is not expected to have a material impact on the Company's financial condition, results of operations or liquidity. In October 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued SOP 98-7, "Deposit Accounting: Accounting for Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk." This statement identifies several methods of deposit accounting and provides guidance on the application of each method. This statement classifies insurance and reinsurance contracts for which the deposit method is appropriate as contracts that (i) transfer only significant timing risk, (ii) transfer only significant underwriting risk, (iii) transfer neither significant timing nor underwriting risk and (iv) have an indeterminate risk. SOP 98-7 is effective for financial statements for fiscal years beginning after June 15, 1999. While the Company is presently evaluating the impact of SOP 98-7, the adoption of SOP 98-7 is not expected to have a material impact on the Company's financial condition, results of operations or liquidity. 3. REINSURANCE In the ordinary course of business, PMA Capital's reinsurance and insurance subsidiaries assume and cede premiums with other insurance companies and are members of various underwriting pools and associations. The reinsurance and insurance subsidiaries cede business, primarily on an excess of loss basis, in order to limit the maximum net loss from large risks and limit the accumulation of many smaller losses from a catastrophic event. The reinsurance and insurance subsidiaries remain primarily liable to their clients in the event their reinsurers are unable to meet their financial obligations. The components of net premiums earned and losses and loss adjustment expenses ("LAE") are as follows:
Three Months Ended Nine Months Ended September 30, September 30, (dollar amounts in thousands) 1999 1998 1999 1998 - - --------------------------------------------------------------------------------------------------------- Earned Premiums: Direct ......... $ 81,135 $ 68,107 $ 235,262 $ 211,127 Assumed ........ 100,308 67,319 252,832 195,383 Ceded .......... (53,024) (21,409) (121,212) (70,917) --------- --------- --------- --------- Net ............ $ 128,419 $ 114,017 $ 366,882 $ 335,593 ========= ========= ========= ========= Losses and LAE: Direct ......... $ 62,613 $ 61,672 $ 187,642 $ 188,490 Assumed ........ 62,110 45,038 158,291 124,560 Ceded .......... (33,232) (23,237) (77,797) (56,820) --------- --------- --------- --------- Net ............ $ 91,491 $ 83,473 $ 268,136 $ 256,230 ========= ========= ========= =========
6 4. COMMITMENTS AND CONTINGENCIES The Company's businesses are subject to a changing social, economic, legal, legislative and regulatory environment that could affect them. Some of the changes include initiatives to restrict insurance pricing and the application of underwriting standards and reinterpretation of insurance contracts long after the policies were written to provide coverage unanticipated by the Company. The eventual effect on the Company of the changing environment in which it operates remains uncertain. In the event a property and casualty insurer operating in a jurisdiction where the Company's insurance subsidiaries also operate becomes or is declared insolvent, state insurance regulations provide for the assessment of other insurers to fund any capital deficiency of the insolvent insurer. Generally, this assessment is based upon the ratio of an insurer's voluntary premiums written to the total premiums written for all insurers in that particular jurisdiction. The Company is not aware of any material potential assessments at September 30, 1999 (see Note 2-B regarding SOP 97-3). The Company has provided guarantees of approximately $8.5 million, primarily related to loans on properties in which the Company has an interest. The Company is continuously involved in numerous lawsuits arising, for the most part, in the ordinary course of business, either as a liability insurer defending third-party claims brought against its insureds, or as an insurer defending coverage claims brought against it by its policyholders or other insurers. While the outcome of all litigation involving the Company, including insurance-related litigation, cannot be determined, litigation is not expected to result in losses that differ from recorded reserves by amounts that would be material to results of operations, liquidity or financial condition. In addition, reinsurance recoveries related to claims in litigation, net of the allowance for uncollectible reinsurance, are not expected to result in recoveries that differ from recorded recoverables by amounts that would be material to the results of operations, liquidity or financial condition. 5. EARNINGS PER SHARE A reconciliation of the shares used as the denominator of the basic and diluted earnings per share computations is presented below. For all periods presented, there were no differences in the numerator (income before cumulative effect of accounting change) for the basic and diluted earnings per share calculation:
Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 - - ---------------------------------------------------------------------------------------------------------- Denominator: Basic shares - weighted average common and Class A common shares outstanding ............. 22,898,574 23,573,472 23,098,368 23,704,376 Effect of dilutive stock options ..... 809,659 1,043,105 820,388 945,028 ---------- ---------- ---------- ---------- Total diluted shares ................. 23,708,233 24,616,577 23,918,756 24,649,404 ========== ========== ========== ==========
7 6. BUSINESS SEGMENTS The following table indicates the Company's revenues, all of which are generated within the U.S., and pre-tax operating income (loss) by principal business segment:
Three Months Ended Nine Months Ended September 30, September 30, (dollar amounts in thousands) 1999 1998 1999 1998 - - --------------------------------------------------------------------------------------------------------------------- Revenues: PMA Re $ 83,900 $ 70,118 $ 233,867 $ 198,256 The PMA Insurance Group Excluding Run-off Operations 65,254 72,761 203,229 223,807 Run-off Operations 1,110 1,477 3,333 12,780 --------- --------- --------- --------- Total 66,364 74,238 206,562 236,587 Caliber One 8,556 801 16,095 1,706 Corporate and Other 497 215 1,285 689 Net realized investment gains (losses) (3,283) 4,099 (4,161) 15,362 --------- --------- --------- --------- Total revenues $ 156,034 $ 149,471 $ 453,648 $ 452,600 ========= ========= ========= ========= Components of pre-tax operating income(1) and net income: PMA Re $ 14,674 $ 11,930 $ 37,790 $ 34,882 The PMA Insurance Group: Excluding Run-off Operations 4,045 3,389 13,719 8,343 Run-off Operations 174 (387) (320) 41 --------- --------- --------- --------- Total 4,219 3,002 13,399 8,384 Caliber One 462 (247) (839) (1,317) Corporate and Other (5,703) (6,200) (16,292) (19,211) --------- --------- --------- --------- Pre-tax operating income 13,652 8,485 34,058 22,738 Net realized investment gains (losses) (3,283) 4,099 (4,161) 15,362 --------- --------- --------- --------- Income before income taxes and cumulative effect of accounting change 10,369 12,584 29,897 38,100 Income tax expense 3,857 2,032 8,171 6,103 --------- --------- --------- --------- Income before cumulative effect of accounting change 6,512 10,552 21,726 31,997 Cumulative effect of accounting change, net of tax -- -- (2,759) -- --------- --------- --------- --------- Net income $ 6,512 $ 10,552 $ 18,967 $ 31,997 ========= ========= ========= =========
(1) The Company excludes net realized investment gains (losses) from the profit and loss measure it utilizes to assess the performance of its operating segments. 8 7. DISPOSITIONS Effective July 1, 1998, the Company sold PMA Insurance, Cayman Ltd. ("PMA Cayman"), one of the entities included in The PMA Insurance Group's Run-off Operations, which reinsured claims for certain policies written by other members of The PMA Insurance Group, to a third party for a purchase price of $1.8 million and recorded an after-tax loss of $1.6 million. This transaction included the transfer of $231.5 million in cash and invested assets to the buyer. At September 30, 1999, the Company had recorded $240.8 million in reinsurance receivables related to this transaction, all of which are secured by assets in trust or by letters of credit. If the actual claim payments in the aggregate exceed the estimated payments upon which the loss reserves have been established, the Company has agreed to indemnify the buyer, up to a maximum of $15.0 million. If the actual claim payments in the aggregate are less than the estimated payments upon which the loss reserves have been established, the Company will participate in such favorable loss reserve development. 9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations The following is a discussion of PMA Capital's financial condition as of September 30, 1999, compared with December 31, 1998, and its results of operations for the three and nine months ended September 30, 1999, compared with the same periods last year. This discussion should be read in conjunction with Management's Discussion and Analysis included in PMA Capital's 1998 Annual Report to Shareholders (pages 28 through 49), to which the reader is directed for additional information. The term "SAP" refers to the statutory accounting practices prescribed or permitted by applicable state insurance departments and the term "GAAP" refers to generally accepted accounting principles. CONSOLIDATED RESULTS OF OPERATIONS The table below presents the major components of revenues, pre-tax operating income and net income:
Three Months Ended Nine Months Ended September 30, September 30, (dollar amounts in thousands) 1999 1998 1999 1998 - - ------------------------------------------------------------------------------------------------------------------------------ Operating revenues: Net premiums written $ 124,970 $ 120,653 $ 395,418 $ 369,134 ========= ========= ========= ========= Net premiums earned $ 128,419 $ 114,017 $ 366,882 $ 335,593 Net investment income 28,029 28,410 82,099 92,260 Other revenues 2,869 2,945 8,828 9,385 --------- --------- --------- --------- Total operating revenues $ 159,317 $ 145,372 $ 457,809 $ 437,238 ========= ========= ========= ========= Components of pre-tax operating income (1) and net income: PMA Re $ 14,674 $ 11,930 $ 37,790 $ 34,882 The PMA Insurance Group: Excluding Run-off Operations 4,045 3,389 13,719 8,343 Run-off Operations 174 (387) (320) 41 --------- --------- --------- --------- Total 4,219 3,002 13,399 8,384 Caliber One 462 (247) (839) (1,317) Corporate and Other (5,703) (6,200) (16,292) (19,211) --------- --------- --------- --------- Pre-tax operating income 13,652 8,485 34,058 22,738 Net realized investment gains (losses) (3,283) 4,099 (4,161) 15,362 --------- --------- --------- --------- Income before income taxes and cumulative effect of accounting change 10,369 12,584 29,897 38,100 Income tax expense 3,857 2,032 8,171 6,103 --------- --------- --------- --------- Income before cumulative effect of accounting change 6,512 10,552 21,726 31,997 Cumulative effect of accounting change, net of tax -- -- (2,759) -- --------- --------- --------- --------- Net income $ 6,512 $ 10,552 $ 18,967 $ 31,997 ========= ========= ========= =========
(1) Pre-tax operating income is defined as income from continuing operations before income taxes, excluding net realized investment gains (losses). The Company excludes net realized investment gains (losses) from the profit and loss measurement it utilizes to assess the performance of its operating segments because (i) net realized investment gains (losses) are unpredictable and not necessarily indicative of current operating fundamentals or future performance and (ii) in many instances, decisions to buy and sell securities are made at the holding company level, and such decisions result in net realized gains (losses) that do not relate to the operations of the individual segments. 10 Pre-tax operating income for the three and nine months ended September 30, 1999 was $13.7 million and $34.1 million, respectively, compared to pre-tax operating income of $8.5 million and $22.7 million for the same periods in 1998. After-tax operating income was $8.6 million and $24.4 million for the three and nine months ended September 30, 1999, respectively, compared to after-tax operating income of $7.9 million and $22.0 million for the same periods in 1998. These increases were primarily due to improved underwriting results attributable to The PMA Insurance Group and PMA Re and lower interest expense, with after-tax operating income being partially offset by a higher effective tax rate in 1999. The Company currently expects operating income to continue to improve in 1999 reflecting higher operating income from The PMA Insurance Group and PMA Re. This expectation may differ materially from actual results because of the risk factors noted in the "Cautionary Statements" on page 23. Net income was $6.5 million and $19.0 million for the three and nine months ended September 30, 1999, respectively, compared to net income of $10.6 million and $32.0 million for the three and nine months ended September 30, 1998, respectively. Net income for the nine months ended September 30, 1999 includes an after-tax charge of $2.8 million for the effect of adopting Statement of Position 97-3, "Accounting by Insurance and Other Enterprises for Insurance-Related Assessments." See "Recent Accounting Pronouncements" for additional information. Net income also includes gains and losses on the sale of investments. The timing and recognition of such gains and losses are unpredictable and are not indicative of future operating performance. After-tax net realized investment losses were $2.1 million and $2.7 million for the three and nine months ended September 30, 1999, compared to after-tax net realized investment gains of $2.7 million and $10.0 million for the comparable 1998 periods. The realized losses for 1999 reflect sales of investments in order to invest in yield enhancing investment opportunities in an interest rate environment when rates were rising in contrast to the realized gains in 1998 which reflect sales of investments during a period when interest rates were declining. Also, net realized investment gains for the nine months ended September 30, 1998 include a $2.4 million pre-tax loss related to the sale of PMA Insurance, Cayman Ltd. ("PMA Cayman"). See Note 7 to the Company's Consolidated Financial Statements for additional information. 11 PMA RE Summarized financial results of PMA Re are as follows:
Three Months Ended Nine Months Ended September 30, September 30, (dollar amounts in thousands) 1999 1998 1999 1998 - - ---------------------------------------------------------------------------------------------------------------- Net premiums written $ 45,963 $ 54,687 $182,628 $172,595 ======== ======== ======== ======== Net premiums earned $ 68,941 $ 56,386 $191,289 $157,353 Net investment income 14,959 13,732 42,578 40,903 -------- -------- -------- -------- Operating revenues 83,900 70,118 233,867 198,256 -------- -------- -------- -------- Losses and loss adjustment expenses ("LAE") 48,456 37,633 135,699 107,311 Acquisition and operating expenses 20,770 20,555 60,378 56,063 -------- -------- -------- -------- Total losses and expenses 69,226 58,188 196,077 163,374 -------- -------- -------- -------- Pre-tax operating income $ 14,674 $ 11,930 $ 37,790 $ 34,882 ======== ======== ======== ======== GAAP loss and LAE ratio 70.3% 66.7% 70.9% 68.2% GAAP combined ratio 100.4% 103.2% 102.5% 103.8% - - ----------------------------------------------------------------------------------------------------------------
PMA Re's pre-tax operating income was $14.7 million and $37.8 million for the three and nine months ended September 30, 1999, compared to $11.9 million and $34.9 million for the same periods in 1998. The increase in operating results for the third quarter and first nine months of 1999 reflect an improvement in the combined ratio and higher net investment income. Premiums The following table indicates PMA Re's gross and net premiums written by major category of business:
Three Months Ended Nine Months Ended September 30, September 30, (dollar amounts in thousands) 1999 1998 1999 1998 - - ----------------------------------------------------------------------------------------- Gross premiums written: Casualty lines $ 57,093 $ 49,857 $180,055 $152,465 Property lines 13,514 17,066 59,647 58,379 Other lines 879 308 1,491 809 -------- -------- -------- -------- Total $ 71,486 $ 67,231 $241,193 $211,653 ======== ======== ======== ======== Net premiums written: Casualty lines $ 39,266 $ 40,922 $137,228 $124,457 Property lines 5,871 13,516 43,980 47,365 Other lines 826 249 1,420 773 -------- -------- -------- -------- Total $ 45,963 $ 54,687 $182,628 $172,595 ======== ======== ======== ======== - - -----------------------------------------------------------------------------------------
12 Net premiums written decreased $8.7 million, or 16.0%, and increased $10.0 million, or 5.8%, for the three and nine months ended September 30, 1999, respectively, compared to the same periods in 1998. The decrease in net premiums written for the three months ended September 30, 1999, reflects higher ceded premiums, the cancellation of a finite treaty and the effects of the highly competitive conditions in the U.S. reinsurance market, which more than offset growth from expanded product offerings. The increase in net premiums written for the nine months ended September 30, 1999, primarily reflects the successful expansion of finite and financial product offerings, expansion of relationships with PMA Re's existing clients, and contracts with new clients. Partially offsetting this increase was the effect of highly competitive conditions in the U.S. reinsurance market, which has caused PMA Re to non-renew certain accounts largely due to inadequate rates and/or other underwriting issues. Net premiums earned increased $12.6 million, or 22.3%, and $33.9 million, or 21.6%, for the three and nine months ended September 30, 1999, respectively, compared to the same periods in 1998. Generally, trends in net premiums earned follow patterns similar to net premiums written, with premiums being earned principally on a pro rata basis over the terms of the contracts. PMA Re's earned premiums for the third quarter and first nine months of 1999 include approximately $26 million related to a revision of the methodology used in estimating unearned premiums on in-force contracts. Losses and Expenses The following table reflects the components of PMA Re's GAAP combined ratios:
Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 - - ---------------------------------------------------------------------------------------------------------- Loss and LAE ratio 70.3% 66.7% 70.9% 68.2% ------- ------- ------- ------- Expense ratio: Amortization of deferred acquisition costs 25.1% 30.6% 26.3% 29.2% Operating expenses 5.0% 5.9% 5.3% 6.4% ------- ------- ------- ------- Total expense ratio 30.1% 36.5% 31.6% 35.6% ------- ------- ------- ------- GAAP combined ratio 100.4% 103.2% 102.5% 103.8% ======= ======= ======= ======= - - ----------------------------------------------------------------------------------------------------------
PMA Re's loss and LAE ratio increased 3.6 points and 2.7 points for the three and nine months ended September 30, 1999, respectively, compared to the same periods in 1998. These increases primarily relate to a change in PMA Re's business mix, with finite and financial products representing an increasing percentage of earned premiums. Such products typically carry a higher loss and LAE ratio and a lower acquisition expense ratio than traditional reinsurance products. The acquisition expense ratio decreased 5.5 points and 2.9 points for the three and nine months ended September 30, 1999, respectively, compared to the same periods last year. These decreases are primarily attributable to the change in business mix as described above as well as lower acquisition expenses on traditional business in 1999. In addition, PMA Re made changes to its retrocessional program in 1999, resulting in higher ceding commissions, which reduces the acquisition expense ratio. The operating expense ratio decreased 0.9 points and 1.1 points for the three and nine months ended September 30, 1999, respectively, compared to the same periods last year, reflecting essentially flat operating expenses and growth in earned premium. Net Investment Income Net investment income was $15.0 million and $42.6 million for the three and nine months ended September 30, 1999, compared to $13.7 million and $40.9 million for the same periods in 1998. These increases primarily reflect an increase in investment yield and, to a lesser extent, higher average invested assets. 13 THE PMA INSURANCE GROUP Summarized financial results of The PMA Insurance Group are as follows:
Three Months Ended Nine Months Ended September 30, September 30, (dollar amounts in thousands) 1999 1998 1999 1998 - - ---------------------------------------------------------------------------------------------------------- Net premiums written $ 63,289 $ 64,504 $182,472 $194,331 ======== ======== ======== ======== Net premiums earned $ 51,691 $ 57,389 $161,416 $177,978 Net investment income Excluding Run-off Operations 11,329 13,140 34,839 38,426 Run-off Operations(1) 1,110 1,477 3,333 12,780 -------- -------- -------- -------- Total 12,439 14,617 38,172 51,206 Other revenues 2,234 2,232 6,974 7,403 -------- -------- -------- -------- Operating revenues 66,364 74,238 206,562 236,587 Losses and LAE: Excluding Run-off Operations 36,297 44,326 118,425 138,010 Run-off Operations(1) 710 1,241 2,669 10,642 -------- -------- -------- -------- Total 37,007 45,567 121,094 148,652 Acquisition and operating expenses: Excluding Run-off Operations 19,130 19,539 55,977 63,817 Run-off Operations(1) 226 623 984 2,097 -------- -------- -------- -------- Total 19,356 20,162 56,961 65,914 Dividends to policyholders 5,782 5,507 15,108 13,637 -------- -------- -------- -------- Total losses and expenses 62,145 71,236 193,163 228,203 -------- -------- -------- -------- Pre-tax operating income $ 4,219 $ 3,002 $ 13,399 $ 8,384 ======== ======== ======== ======== GAAP loss and LAE ratio 71.6% 79.4% 75.0% 83.5% GAAP combined ratio(2) 116.7% 120.4% 116.1% 124.4% - - ---------------------------------------------------------------------------------------------------------- (1) Run-off operations ("Run-off Operations") of The PMA Insurance Group were established and segregated from ongoing operations effective December 31, 1996 to reinsure certain obligations primarily associated with workers' compensation claims written by The PMA Insurance Group's Pooled Companies for the years 1991 and prior. (2) The combined ratio for the nine months ended September 30, 1999 excludes the impact of the cumulative effect of accounting change of $4.3 million ($2.8 million after-tax) for insurance-related assessments.
Operating Results Pre-tax operating income for The PMA Insurance Group was $4.2 million and $13.4 million for the three and nine months ended September 30, 1999, compared to $3.0 million and $8.4 million for the same periods in 1998. The increases in operating income were primarily due to improved loss experience and lower operating expenses resulting from ongoing cost reduction initiatives. In addition, the improvement in operating income reflects a reduction in the level of net exposures underwritten due to disciplined and focused underwriting, as well as an increase in the use of reinsurance. 14 The PMA Insurance Group Excluding Run-off Operations Premiums
Three Months Ended Nine Months Ended September 30, September 30, (dollar amounts in thousdands) 1999 1998 1999 1998 - - ------------------------------------------------------------------------------------------------------- Workers' compensation: Direct premiums written $ 55,687 $ 51,472 $ 161,783 $ 152,961 Premiums assumed 661 1,072 1,855 3,532 Premiums ceded (7,095) (3,436) (23,923) (8,991) --------- --------- --------- --------- Net premiums written $ 49,253 $ 49,108 $ 139,715 $ 147,502 ========= ========= ========= ========= Commercial Lines: Direct premiums written $ 22,049 $ 23,254 $ 66,503 $ 74,617 Premiums assumed 249 340 1,277 1,728 Premiums ceded (8,262) (8,198) (25,023) (29,516) --------- --------- --------- --------- Net premiums written $ 14,036 $ 15,396 $ 42,757 $ 46,829 ========= ========= ========= ========= Total: Direct premiums written $ 77,736 $ 74,726 $ 228,286 $ 227,578 Premiums assumed 910 1,412 3,132 5,260 Premiums ceded (15,357) (11,634) (48,946) (38,507) --------- --------- --------- --------- Net premiums written $ 63,289 $ 64,504 $ 182,472 $ 194,331 ========= ========= ========= ========= - - -------------------------------------------------------------------------------------------------------
Direct workers' compensation premiums written increased by $4.2 million and $8.8 million for the three and nine months ended September 30, 1999, respectively, compared to the same periods in 1998, due to an increase in the volume of risks underwritten. Manual rate reductions averaging approximately 2.3% in The PMA Insurance Group's principal marketing territories constrained the growth in direct premiums written. In addition, continued intense price competition and selected non-renewal of non-profitable accounts partially offset the increase in direct premiums written. Direct workers' compensation premiums written were also impacted by lower additional audit premiums of $1.5 million for the nine months ended September 30, 1999, compared to the same period in 1998. Direct writings of commercial lines of business other than workers' compensation, such as commercial auto, general liability, umbrella, multi-peril and commercial property lines (collectively, "Commercial Lines"), decreased by $1.2 million and $8.1 million for the three and nine months ended September 30, 1999, respectively, compared to the same periods in 1998 primarily due to planned reductions in such lines as well as continued competitive conditions. Rather than lower prices to what it believes are unacceptable levels, The PMA Insurance Group has chosen not to renew some of its business in the Commercial Lines. The increases in reinsurance premiums ceded of $3.7 million and $10.4 million for the three and nine months ended September 30, 1999, compared to the same periods in 1998 primarily reflect higher ceded workers' compensation premiums of $3.7 million and $14.9 million for the three and nine months ended September 30, 1999, respectively, compared to the same periods in 1998. In 1999, a new reinsurance treaty reduced the net retention level on workers' compensation exposures from $1.5 million to $150,000 per occurrence. Partially offsetting such increase for the nine months ended September 30, 1999, compared to the same period in 1998 was a decrease of $4.5 million in ceded premiums for Commercial Lines. The decrease in ceded Commercial Lines premiums is primarily due to the reduction in direct Commercial Lines business written and negotiated rate reductions for various treaties reinsuring certain Commercial Lines business. Net premiums earned decreased $5.7 million and $16.6 million for the three and nine months ended September 30, 1999, respectively, compared to the same periods in 1998. Generally, trends in net premiums earned follow patterns similar to net 15 premiums written adjusted for the customary lag related to the timing of premium writings within the year. Direct premiums are earned principally on a pro rata basis over the terms of the policies. Losses and Expenses The following table reflects the components of The PMA Insurance Group's combined ratios:
Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 - - ------------------------------------------------------------------------------------------------------------ Loss and LAE ratio 70.2% 77.2% 73.4% 77.5% ------- ------- ------- ------- Expense ratio: Amortization of deferred acquisition costs 18.5% 13.5% 16.9% 17.3% Operating expenses(1)(2) 15.0% 16.8% 14.2% 14.7% ------- ------- ------- ------- Total expense ratio 33.5% 30.3% 31.1% 32.0% Policyholders' dividends 11.2% 9.6% 9.4% 7.7% ------- ------- ------- ------- GAAP combined ratio(1)(2)(3)(4) 114.9% 117.1% 113.9% 117.2% ======= ======= ======= ======= - - ------------------------------------------------------------------------------------------------------------ (1) The expense ratio and the combined ratio for the nine months ended September 30, 1999 exclude the impact of the cumulative effect of accounting change of $4.3 million ($2.8 million after-tax) for insurance-related assessments. (2) The expense ratio and the combined ratio exclude $1.8 million and $5.8 million for the three and nine months ended September 30, 1999, respectively, and $2.2 million and $6.9 million for the three and nine months ended September 30, 1998, respectively, for expenses related to service revenues, which are not included in premiums earned. (3) The combined ratio computed on a GAAP basis is equal to losses and LAE, plus the sum of acquisition expenses, operating expenses and policyholders' dividends, all divided by net premiums earned. (4) The GAAP combined ratios for The PMA Insurance Group including the Run-off Operations were 116.7% and 116.1% for the three and nine months ended September 30, 1999, and 120.4% and 124.4% for the three and nine months ended September 30, 1998, respectively.
For the three and nine months ended September 30, 1999, the GAAP loss and LAE ratio improved by 7.0 points and 4.1 points, respectively, compared to the same periods in 1998. These improvements were primarily due to favorable prior accident year reserve development and improved loss and LAE ratios in workers' compensation during 1999, partially offset by a decline in the level of reserve discount. The PMA Insurance Group had experienced $6.7 million and $9.2 million of favorable development of prior accident year reserves ("prior year development") for the three and nine months ended September 30, 1999, compared to $897,000 and $2.3 million of favorable prior year development for the same periods in 1998, which improved the overall loss and LAE ratio. The increases in favorable prior year development reflect better than expected loss experience from loss-sensitive and rent-a-captive workers' compensation business. Since most of the favorable development occurred during the third quarter of 1999, it had a substantially greater impact on the loss and LAE ratio for the quarter than the impact on the loss and LAE ratio for the nine months ended September 30, 1999. This favorable development has been substantially offset by policyholders' dividends for rent-a-captive business and premium adjustments for loss-sensitive business. Rent-a-captives are used by customers as an alternative method to manage their loss exposure without establishing and capitalizing their own captive insurance company. In addition, the improvement in the workers' compensation current accident year loss and LAE ratio has favorably impacted the overall loss and LAE ratio for the three and nine months ended September 30, 1999, compared to the same periods in 1998. 16 These improvements reflect the application of stricter underwriting standards and a relatively lower risk profile of business written. The loss and LAE ratio is negatively impacted by accretion of prior year discounted reserves and favorably impacted by setting up discount for current year reserves. The net of these is referred to as net discount accretion. Accretion of prior year discounted reserves exceeded the setting up of discount for the three and nine months ended September 30, 1999, whereas the setting up of discount exceeded the accretion of prior year discounted reserves for the same periods in 1998. This resulted in an increase in the loss and LAE ratio for the three and nine months ended September 30, 1999, compared to the same periods in 1998. This change in net discount accretion reflects a reduction in the amount of discount recorded on current year's reserves as a result of higher ceded loss reserves due to the new reinsurance treaty for workers' compensation. The GAAP expense ratio increased by 3.2 points for the three months ended September 30, 1999, compared to the same period in 1998, due to an increase in the acquisition expense ratio of 5.0 points, partially offset by a decrease in the operating expense ratio of 1.8 points compared to the same period in 1998. The increase in the acquisition expense ratio is a result of an increase in taxes and assessments and other acquisition expenses, primarily due to increases in direct workers' compensation premium, paid losses and the guaranty fund rate in certain states during the third quarter of 1999, compared to the same period in 1998. The decrease in the operating expense ratio was due to continued cost cutting measures in the third quarter of 1999. The GAAP expense ratio decreased by 0.9 points for the nine months ended September 30, 1999, compared to the same period in 1998, due to a decrease in the operating expense ratio of 0.5 points and a decrease in the acquisition expense ratio of 0.4 points compared to the same period in 1998. The decrease in the operating expense ratio was primarily due to continued cost cutting measures in 1999. The decrease in the acquisition expense ratio was primarily due to higher ceded commissions received as a result of the new reinsurance treaty in 1999 and a reduction in certain state assessments. The policyholders' dividend ratio was 11.2% and 9.4% for the three and nine months ended September 30, 1999, respectively, compared to 9.6% and 7.7% for the same periods last year. These increases are primarily due to selling more business under dividend plans and improved loss experience, which resulted in higher dividend payouts to policyholders, including the policyholder dividends related to rent-a-captive customers. Net Investment Income Net investment income was $11.3 million and $34.8 million for the three and nine months ended September 30, 1999, compared to $13.1 million and $38.4 million for the same periods in 1998. The decrease primarily reflects a lower asset base, due to the paydown of loss reserves from prior accident years. Run-off Operations Effective July 1, 1998, the Company sold PMA Cayman, one of the entities included in The PMA Insurance Group's Run-off Operations, which reinsured claims for certain policies written by other members of The PMA Insurance Group, to a third party for a purchase price of $1.8 million and recorded an after-tax loss of $1.6 million. See Note 7 to the Consolidated Financial Statements for additional information. This transaction included the transfer of $231.5 million in cash and invested assets to the buyer. Net investment income for the Run-off Operations decreased by $367,000 and $9.4 million in the three and nine months ended September 30, 1999, respectively, compared to the same periods in 1998. The decrease in investment income was primarily due to the decrease in invested assets resulting from the sale, and to a lesser extent, from the paydown of losses by the remaining run-off entities. The sale of PMA Cayman also resulted in a reduction in losses and LAE, acquisition expenses and operating expenses of the Run-off Operations for the three and nine months ended September 30, 1999, compared to the same periods in 1998. 17 CALIBER ONE Summarized financial results of Caliber One are as follows:
Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 - - ------------------------------------------------------------------------------------------------------ Net premiums written $ 15,828 $ 1,660 $ 30,681 $ 2,577 ======== ======== ======== ======== Net premiums earned $ 7,897 $ 440 $ 14,540 $ 631 Net investment income 659 361 1,555 1,075 -------- -------- -------- -------- Operating revenues 8,556 801 16,095 1,706 -------- -------- -------- -------- Losses and LAE incurred 6,028 352 11,343 505 Acquisition and operating expenses 2,066 696 5,591 2,518 -------- -------- -------- -------- Total losses and expenses 8,094 1,048 16,934 3,023 -------- -------- -------- -------- Pre-tax operating income (loss) $ 462 $ (247) $ (839) $ (1,317) ======== ======== ======== ======== - - ------------------------------------------------------------------------------------------------------
Caliber One recorded pre-tax operating income of $462,000 for the three months ended September 30, 1999, compared to a pre-tax operating loss of $247,000 for the three months ended September 30, 1998, reflecting the establishment of a solid premium base and stabilization of its expenses relative to that premium base. Caliber One recorded pre-tax operating losses of $839,000 and $1.3 million for the nine months ended September 30, 1999 and 1998, respectively. The growth in net premiums written and earned for the three and nine months ended September 30, 1999, compared to the same periods in 1998, reflects Caliber One's rising market acceptance and expanded distribution network combined with increased staffing levels. CORPORATE AND OTHER The Corporate and Other segment includes unallocated investment income, expenses, including debt service, and taxes, as well as the results of certain of the Company's real estate properties. For the three and nine months ended September 30, 1999, Corporate and Other recorded pre-tax operating losses of $5.7 million and $16.3 million, respectively, compared to pre-tax operating losses of $6.2 million and $19.2 million for the same periods in 1998. The decrease in the operating loss is primarily due to lower interest expense of $700,000 and $2.1 million for the third quarter and first nine months of 1999, respectively, reflecting a $40.0 million paydown in outstanding debt in the fourth quarter of 1998. LIQUIDITY AND CAPITAL RESOURCES Liquidity Liquidity is a measure of an entity's ability to secure sufficient cash to meet its contractual obligations and operating needs. At the holding company level, the Company requires cash to pay debt obligations, dividends to shareholders and taxes to the Federal government, as well as to capitalize subsidiaries from time to time. PMA Capital's primary sources of liquidity are dividends from subsidiaries, net tax payments received from subsidiaries and borrowings. At September 30, 1999 and December 31, 1998, the Company had $163.0 million of outstanding debt under its Revolving Credit Facility (the "Credit Facility"). The final expiration of the Credit Facility is December 31, 2002, and the Credit Facility matures in an installment of $38.0 million in 2000 and installments of $62.5 million in 2001 and 2002. In addition to the Credit Facility, the Company maintains a committed facility of $50.0 million for letters of credit (the "Letter of Credit Facility"). The Letter of Credit Facility is utilized primarily for securing reinsurance 18 obligations of the Company's insurance subsidiaries. As of September 30, 1999, the Company had $44.7 million outstanding in letters of credit under the Letter of Credit Facility, compared with $46.9 million as of December 31, 1998. The Company paid interest of $1.4 million and $7.4 million on both credit facilities for the three and nine months ended September 30, 1999, respectively, compared to $3.7 million and $11.2 million for the same periods in 1998. The Company's domestic insurance subsidiaries' ability to pay dividends to the holding company is limited by the insurance laws and regulations of Pennsylvania and Delaware (the laws are substantially similar). Under Pennsylvania laws and regulations, without prior approval of the Pennsylvania Insurance Commissioner (the "Commissioner"), dividends may not be paid in excess of the greater of (i) 10% of policyholders' surplus as of the end of the preceding year or (ii) SAP net income for the preceding year, but in no event to exceed unassigned funds. Under this standard, the Pooled Companies and PMA Reinsurance Corporation can pay an aggregate of $51.8 million of dividends without the prior approval of the Commissioner during 1999. Caliber One Indemnity Company, a Delaware-domiciled company, is directly owned by PMA Reinsurance Corporation and, as such, its dividends may not be paid directly to PMA Capital. As stated above, Delaware's insurance laws as they apply to restricting the payment of dividends are substantially similar to Pennsylvania's insurance laws. Under Delaware insurance laws, Caliber One Indemnity Company can pay $2.5 million in dividends during 1999. Dividends received from subsidiaries were $8.0 million and $26.8 million for the three and nine months ended September 30, 1999, respectively, compared to $8.0 million and $18.0 million for the comparable 1998 periods. Net tax payments received from subsidiaries were $7.4 million and $19.1 million for the three and nine months ended September 30, 1999, respectively, compared to $7.5 million and $22.3 million for the same periods in 1998. PMA Capital's dividends to shareholders are restricted by its debt agreements. Based upon the terms of the Credit Facility and the Letter of Credit Facility, under the most restrictive debt covenant, PMA Capital would be able to pay dividends of approximately $15.6 million in 1999. The Company paid dividends to shareholders of $1.9 million and $5.8 million for the three and nine months ended September 30, 1999, respectively, compared to $2.0 million and $6.1 million for the three and nine months ended September 30, 1998, respectively. PMA Capital also made capital contributions in the form of cash to its subsidiaries totaling $4.1 million for the nine months ended September 30, 1999. No cash capital contributions were made to subsidiaries during the three months ended September 30, 1999 or during 1998. In February 1998, the Company's Board of Directors authorized a plan to repurchase shares of common stock and Class A common stock in an amount not to exceed $25.0 million. In February 1999, an additional $20.0 million of share repurchase authority was approved by the Company's Board of Directors. During the first nine months of 1999, the Company repurchased 999,000 shares at a total cost of $19.7 million (average per share price was $19.71). Since the inception of its share repurchase program in February 1998, PMA Capital has repurchased a total of 2.0 million shares at a total cost of $38.5 million (average per share price was $19.32). On November 3, 1999, the Company's Board of Directors approved an additional $30.0 million of share repurchase authority, which brings PMA Capital's remaining share repurchase authorization to $36.5 million. Decisions regarding share repurchases are subject to the costs and benefits associated with alternative uses of capital and prevailing market conditions. Management believes that the Company's sources of funds will provide sufficient liquidity to meet its short-term and long-term obligations. 19 Capital Resources The Company's total assets decreased to $3,295.4 million at September 30, 1999, compared to $3,460.7 million at December 31, 1998. Total investments decreased $273.9 million to $2,051.5 million at September 30, 1999. The decrease in investments is primarily attributable to declines in market value due to rising interest rates as well as a decrease of $136.1 million in securities on loan under the Company's securities lending program. Presently, management believes that the existing capital structure is appropriate. However, management continually monitors the capital structure in light of developments in the business, and the present assessment could change as management becomes aware of new opportunities and challenges in the Company's business. OTHER MATTERS The Company's businesses are subject to a changing social, economic, legal, legislative and regulatory environment that could affect them. Some of the changes include initiatives to restrict insurance pricing and the application of underwriting standards and reinterpretation of insurance contracts long after the policies were written to provide coverage unanticipated by the Company. The eventual effect on the Company of the changing environment in which it operates remains uncertain. Year 2000 Issue As a consequence of the programming convention which utilized a two-digit field rather than a four-digit field, certain information technology ("IT") systems and non-IT systems, such as equipment with embedded chips or microprocessors, require reprogramming or replacement to enable them to perform correctly date operations involving year 2000 or later ("Year 2000 Issue"). With the assistance of outside consulting groups, the Company began evaluating and reprogramming its IT systems to address the Year 2000 Issue in late 1995. The Company's Year 2000 systems' program consists of four phases: (i) identifying systems requiring remediation; (ii) assessing the requirements to remediate those systems; (iii) remediating those systems to make them Year 2000 ready by either modifying or replacing them; and (iv) testing the systems for Year 2000 readiness, including, where applicable, that they properly interface with third parties. The Company has completed the identification and assessment phases with respect to its IT systems that are critical to maintaining operations or the failure of which would result in significant costs or disruption of operations ("mission critical systems"). The Company has remediated and tested all of its mission critical systems. In addition, the Company will continue testing its mission critical systems under varying testing scenarios throughout the remainder of 1999. The Company has identified all of its non-IT systems that may require Year 2000 remediation, including office equipment and physical facilities, which contain microprocessors or other embedded technology over which it has control. Substantially all of these non-IT systems are believed to be Year 2000 ready to the extent reasonably necessary to conduct the Company's day-to-day operations. Because the Company is not materially dependent upon non-IT systems, the effect of a failure of these systems is not expected to be material to the Company's financial condition or results of operations. The cost of the Company's Year 2000 readiness work through September 30, 1999 has been approximately $5.4 million. No material costs were incurred in the third quarter of 1999. The Company does not expect to incur material costs through the rest of 1999 in connection with the Year 2000 Issue. The Company also is continuing to evaluate its relationships with certain third parties with which the Company has a direct and material relationship to determine whether they are Year 2000 ready, such as banks, brokers, reinsurers, third party service providers, software and other service vendors, and agents and other intermediaries. As of October 31, 1999, the responses received from such third parties to inquiries made by the Company indicate that these third parties either are or expect to be Year 2000 ready by December 31, 1999. 20 Even assuming that all material third parties provide a timely representation concerning their Year 2000 readiness, it is not possible to state with certainty that such representations will turn out to have been accurate, or that the operations of such third parties will not be materially impacted in turn by other parties with whom they themselves have a material relationship, and who fail to timely become Year 2000 ready. Consequently, the effect, if any, on the Company's results of operations from the failure of such third parties to be Year 2000 ready is not reasonably estimable. However, the failure of one or more third parties with whom the Company has a material relationship to be Year 2000 ready could cause significant disruptions in the Company's ability to pay claims, receive and deposit funds and make investments, which could have a material adverse effect on the Company's financial condition and results of operations. The Company's contingency plans in the event of failure of such third parties to be Year 2000 ready include replacing the third party, performing directly the services performed by the third party such as direct billing of any customers whose agent's or broker's accounts current system fails, and maintaining liquidity under the Company's Credit Facility. Although the Company believes that Year 2000 Issues related to its hardware and internal software programs are not likely to result in any material adverse disruptions in the Company's computer systems or its other business operations, it has analyzed the operational problems that the Company believes would be reasonably likely to result from the failure by the Company and certain third parties to successfully complete efforts necessary to achieve Year 2000 readiness on a timely basis. Based on this analysis, the Company has developed contingency plans to provide for the resumption of its computer systems and its other business operations in the event such Year 2000 problems occur. The contingency plans include reallocation of existing resources and employees, use of alternate processes and procedures, such as manual workarounds, and use of outside service providers to supplement internal resources. The Company intends throughout the remainder of 1999 to review and refine such plans on an ongoing basis, as needed, when new information becomes available or circumstances materially change. The costs of the Company's Year 2000 efforts and the dates on which the Company believes it will complete such efforts are based on management's best estimates, which were derived using numerous assumptions regarding future events, including the continued availability of certain resources, third-party remediation plans, and other factors. There can be no assurance that these estimates will prove to be accurate, and actual results could differ materially from those currently anticipated. Specific factors that could cause such material differences include, but are not limited to, the availability and costs of personnel trained in Year 2000 Issues; the Company's ability to identify, assess, remediate and test all relevant computer codes and embedded technology; the risk that reasonable testing will not uncover all Year 2000 problems; and similar uncertainties. In addition to the costs and risks associated with internal systems and third parties, the Company may have underwriting exposure related to the Year 2000 Issue. Businesses materially damaged as a result of the Year 2000 Issue may attempt to recoup their losses by claiming coverage under various types of insurance policies underwritten by the Company and by ceding companies to whom the Company provides reinsurance. The Company is attempting, whenever possible, to avoid or otherwise limit its potential Year 2000 exposure through its underwriting process. In the event that claims for Year 2000 Issues are asserted against the Company, it is not possible to predict whether or to what extent coverage could ultimately be found to exist by courts in various jurisdictions, or, if found, the effect thereof on the Company. In addition, even if such coverage were found not to exist, which cannot be predicted, the costs of litigation could be material. In the absence of any claims experience at this time, such losses and costs are not currently reasonably estimable. Comparison of SAP and GAAP Results Results presented in accordance with GAAP vary in certain respects from statutory accounting practices prescribed or permitted by the Pennsylvania Insurance Department and the Delaware Insurance Department (collectively, "SAP"). Prescribed SAP includes state laws, regulations and general administrative rules, as well as a variety of National Association of Insurance Commissioners ("NAIC") publications. Permitted SAP encompasses all accounting practices that are not prescribed. In 1998, the NAIC adopted the Codification of Statutory Accounting Principles ("Codification") guidance, which will replace the current Accounting Practices and Procedures manual as the NAIC's primary guidance on statutory accounting. Codification provides guidance for areas where statutory accounting has been silent and changes current statutory accounting in some areas, such as deferred income taxes. The Pennsylvania Insurance Department has adopted Codification, effective January 1, 2001. The Company is in the process of estimating the impact that Codification will have on its statutory surplus. 21 Recent Accounting Pronouncements Effective January 1, 1999, the Company adopted Statement of Position ("SOP") 97-3, "Accounting by Insurance and Other Enterprises for Insurance-Related Assessments." SOP 97-3 provides guidance for determining when an insurance company should recognize a liability for guaranty fund and other insurance related assessments and how to measure that liability. As a result of adopting SOP 97-3, the Company recorded a liability of $4.3 million pre-tax and a resulting charge to earnings of $2.8 million, net of income tax benefit of $1.5 million, which has been reported as a cumulative effect of accounting change. This accounting change impacts The PMA Insurance Group segment. In June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as "derivatives") and for hedging activities. SFAS No. 133 requires an entity to recognize all derivatives as either assets or liabilities in the statement of financial position and measure those instruments at fair value. The accounting for changes in the fair value of a derivative (that is, gains and losses) depends on the intended use of the derivative and the resulting designation. In June 1999, the FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133," which defers the effective date of SFAS No. 133 to fiscal years beginning after June 15, 2000. While the Company is presently evaluating the impact of SFAS No. 133, the adoption of SFAS No. 133 is not expected to have a material impact on the Company's financial condition, results of operations or liquidity. In October 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued SOP 98-7, "Deposit Accounting: Accounting for Insurance and Reinsurance Contracts That Do Not Transfer Insurance Risk." This statement identifies several methods of deposit accounting and provides guidance on the application of each method. This statement classifies insurance and reinsurance contracts for which the deposit method is appropriate as contracts that (i) transfer only significant timing risk, (ii) transfer only significant underwriting risk, (iii) transfer neither significant timing nor underwriting risk and (iv) have an indeterminate risk. SOP 98-7 is effective for financial statements for fiscal years beginning after June 15, 1999. While the Company is presently evaluating the impact of SOP 98-7, the adoption of SOP 98-7 is not expected to have a material impact on the Company's financial condition, results of operations or liquidity. 22 CAUTIONARY STATEMENTS Except for historical information provided in this Management's Discussion and Analysis and otherwise in this report, statements made throughout this report are forward-looking and contain information about financial results, economic conditions, trends and known uncertainties. These forward-looking statements are based on currently available financial, competitive and economic data and the Company's current operating plans based on assumptions regarding future events. The Company's actual results could differ materially from those expected by the Company's management. The factors that could cause actual results to vary materially, some of which are described with the forward-looking statements, include, but are not limited to, changes in general economic conditions, including the performance of financial markets and interest rates; regulatory or tax changes, including changes in risk-based capital or other regulatory standards that affect the ability of the Company to conduct its business; competitive or regulatory changes that affect the cost of or demand for the Company's products; the Company's ability to meet its marketing objectives; the effect of changes in workers' compensation statutes and their administration; the Company's ability to predict and effectively manage claims related to insurance and reinsurance policies; reliance on key management; adequacy of reserves for claim liabilities; adverse property and casualty loss development for events the Company insured in prior years; adequacy and collectibility of reinsurance purchased by the Company; severity of natural disasters and other catastrophes; and other factors disclosed from time to time in reports filed by the Company with the Securities and Exchange Commission. Investors should not place undue reliance on any such forward-looking statements. 23 Part II. Other Information Item 6. Exhibits and Reports on Form 8-K (a) Exhibits The Exhibits are listed in the Index to Exhibits on page 26. (b) Reports on Form 8-K filed during the quarter ended September 30, 1999: During the quarterly period ended September 30, 1999, the Company filed the following Report on Form 8-K: - dated August 4, 1999, Item 5 - containing a news release regarding its second quarter 1999 results. 24 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PMA CAPITAL CORPORATION Date: 11/12/99 By: /s/ Francis W. McDonnell -------- ------------------------------ Francis W. McDonnell, Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) 25 Exhibit Index Exhibit No. Description of Exhibit Method of Filing - - ----------- ---------------------- ---------------- (10) Amendment No. 4, dated as of September 27, Filed herewith 1999, to First Amended and Restated Letter of Credit Agreement, dated March 14, 1997 (12) Computation of Ratio of Earnings to Fixed Charges Filed herewith (27) Financial Data Schedule Filed herewith (EDGAR version only) 26 EX-10 2 AMENDMENT NO. 4 TO FIRST AMENDED AND RESTATED LETTER OF CREDIT AGREEMENT AMENDMENT NO. 4 (this "Amendment"), dated as of September 27, 1999, under the First Amended and Restated Letter of Credit Agreement dated as of March 14, 1997, among PMA CAPITAL CORPORATION (formerly Pennsylvania Manufacturers Corporation), a Pennsylvania corporation (the "Applicant"), the Banks party thereto, FIRST UNION NATIONAL BANK, as successor to CoreStates Bank N.A., as Co-Agent, and THE BANK OF NEW YORK, as Issuing Bank and as agent for the Banks (in such capacity, the "Agent"), as amended by (i) Amendment No. 1 and Restatement dated as of September 29, 1997, (ii) Amendment No. 2 to Letter of Credit Agreement dated as of September 28, 1998, and (iii) Amendment No. 3 to Letter of Credit Agreement dated as of October 2, 1998 (as so amended, the "Agreement"). RECITALS A. Capitalized terms used herein which are not defined herein shall have the respective meanings ascribed thereto in the Agreement. B. The Applicant desires that the Banks agree to extend the Commitment and Termination Date by 364 days and make certain other changes to the Agreement as set forth herein. C. The Banks signing below agree to such extension subject to the terms and conditions set forth below. Accordingly, in consideration of the terms and conditions hereinafter set forth, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereto agree as follows: 1. The definition of Applicable Fee Percentage contained in Section 1.1 of the Agreement is amended in its entirety to read as follows: "Applicable Fee Percentage" means with respect to the Letter of Credit Commissions and Commitment Fees (i) with respect to Letter of Credit Commissions, (x) in the case of each Secured Letter of Credit, 0.375% and (y) in the case of each Unsecured Letter of Credit, the applicable percentage based on the Capitalization Ratio calculated as provided below set forth in the following table under the heading "Applicable Fee Percentage for Unsecured Letters of Credit" and (ii) with respect to Commitment Fees, the applicable percentage based on the Capitalization Ratio calculated as provided below set forth in the following table under the heading "Commitment Fee Percentage": Capitalization Ratio Applicable Fee Percentage for Commitment Fee Unsecured Letters of Credit Percentage [less than] 0.20:1.00 0.500% 0.150% [greater than or equal to] 0.20:1.00 and 0.600% 0.175% [less than] 0.25:1.00 [greater than or equal to] 0.25:1.00 and 0.700% 0.200% [less than] 0.30:1.00 [greater than or equal to] 0.30:1.00 0.800% 0.250% From the Amendment Effective Date (as defined in Amendment No. 4 to this Agreement) until reset as set forth below, the Applicable Fee Percentage shall be based on the Capitalization Ratio as of the last day of the fiscal quarter ended June 30, 1999. The Applicable Fee Percentage shall be reset from time to time in accordance with the above table on the day of the delivery by the Applicant in accordance with Sections 5.1(a) and 5.1(b) of financial statements together with a Compliance Certificate attaching a Covenant Compliance Worksheet (reflecting the computation of the Capitalization Ratio as of the last day of the preceding fiscal quarter, beginning with the fiscal quarter ending September 30, 1999) that provides for a change in the Applicable Fee Percentage from that then in effect. If the Applicant shall fail to deliver a Compliance Certificate attaching a Covenant Compliance Worksheet within sixty (60) days after the end of each of the first three fiscal quarters (or one hundred twenty (120) days after the end of the last fiscal quarter), the Applicable Fee Percentage for Letter of Credit Commissions and Commitment Fees shall be 0.800% and 0.250%, respectively, for the period from and including the 61st day (the 121st day in the case of the last quarter) after the end of such fiscal quarter to the date of the delivery by the Applicant to the Administrative Agent of a Compliance Certificate attaching a Covenant Compliance Worksheet demonstrating that a different Applicable Fee Percentage is applicable. 2. Notwithstanding provisions of Section 2.6 to the contrary, each Bank consents to the extension of the Commitment and Termination Date for 364 days from the date hereof. 3. Paragraphs 1 and 2 of this Amendment shall not be effective until the prior or simultaneous fulfillment of the following conditions: (the "Amendment Effective Date"): (a) the Agent shall have received this Amendment, duly executed by a duly authorized officer or officers of the Applicant, the Agent and each Bank; (b) the Agent shall have received a certificate of the Secretary or Assistant Secretary of the Applicant (i) attaching a true and complete -2- copy of the resolutions of the Executive and Finance Committees of its Board of Directors authorizing this Amendment, in form and substance satisfactory to the Agent, (ii) certifying that its certificate of incorporation has not been amended since March 14, 1997, and its by-laws have not been amended since November 5, 1997, or, if so amended, setting forth the same, and (iii) setting forth the incumbency of its officer or officers who may sign this Amendment, including therein a signature specimen of such officer or officers; (c) a favorable opinion of counsel for the Applicant, addressed to the Agent and the Banks, in form and substance satisfactory to the Agent; and (d) the Agent shall have received such other documents as it shall reasonably request. 4. The Applicant hereby (i) reaffirms and admits the validity and enforceability of the Agreement and the other Credit Documents and all of its obligations thereunder, (ii) represents and warrants that there exists no Default or Event of Default immediately after giving effect to this Amendment, and (iii) represents and warrants that the representations and warranties contained in the Credit Documents, including the Agreement as amended by this Amendment (other than the representations and warranties made as of a specific date), are true and correct in all material respects on and as of the date hereof. 5. In all other respects, the Agreement and the other Credit Documents shall remain in full force and effect. 6. This Amendment may be executed in any number of counterparts, each of which shall be an original and all of which shall constitute one agreement. It shall not be necessary in making proof of this Amendment to produce or account for more than one counterpart signed by the party against which enforcement is sought. 7. This Amendment is being delivered in and is intended to be performed in the State of New York and shall be construed and enforceable and be governed by, the internal laws of the State of New York without regard to principles of conflict of laws. [signature pages follow] -3- AS EVIDENCE of the agreement by the parties hereto to the terms and conditions herein contained, each such party has caused this Amendment No. 4 to the First Amended and Restated Letter of Credit Agreement to be executed on its behalf. PMA CAPITAL CORPORATION (formerly Pennsylvania Manufacturers Corporation) By: /s/ Albert D. Ciavardelli ---------------------------- Name: Albert D. Ciavardelli Title: Vice President - Finance PMA CAPITAL CORPORATION AMENDMENT NO. 4 TO FIRST AMENDED AND RESTATED LETTER OF CREDIT AGREEMENT THE BANK OF NEW YORK, Individually and as Agent and as Issuing Bank By: /s/ David Trick ---------------------------- Name: David Trick Title: Assistant Vice President PMA CAPITAL CORPORATION AMENDMENT NO. 4 TO FIRST AMENDED AND RESTATED LETTER OF CREDIT AGREEMENT FIRST UNION NATIONAL BANK, Individually and as Co-Agent By: /s/ Thomas L. Stitchberry ---------------------------- Name: Thomas L. Stitchberry Title: Senior Vice President PMA CAPITAL CORPORATION AMENDMENT NO. 4 TO FIRST AMENDED AND RESTATED LETTER OF CREDIT AGREEMENT FLEET NATIONAL BANK By: /s/Anson T. Harris ---------------------------- Name: Anson T. Harris Title: Vice President PMA CAPITAL CORPORATION AMENDMENT NO. 4 TO FIRST AMENDED AND RESTATED LETTER OF CREDIT AGREEMENT PNC BANK, NATIONAL ASSOCIATION By: /s/Paul Devine ---------------------------- Name: Paul Devine Title: Vice President PMA CAPITAL CORPORATION AMENDMENT NO. 4 TO FIRST AMENDED AND RESTATED LETTER OF CREDIT AGREEMENT CREDIT LYONNAIS By: /s/ Sebastian Rocco ---------------------------- Name: Sebastian Rocco Title: Senior Vice President EX-12 3 EXHIBIT 12 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES ($ in Thousands)
For the nine months ended September 30, 1999 1998 - - ---------------------------------------------------------------------------------- EARNINGS Pre-tax income $29,897 $38,100 Fixed charges 9,738 11,871 ------- ------- Total(a) $39,635 $49,971 ======= ======= FIXED CHARGES Interest expense and amortization of debt discount and premium on all indebtedness $ 9,134 $11,231 Interest portion of rental expenses 604 640 ------- ------- Total fixed charges(b) $ 9,738 $11,871 ======= ======= ------- ------- Ratio of earnings to fixed charges(a)/(b) 4.1x 4.2x ======= ======= - - ----------------------------------------------------------------------------------
EX-27 4
7 This schedule contains summary financial information extracted from the financial statements contained in Form 10-Q for the quarter ended September 30, 1999 for PMA Capital Corporation and is qualified in its entirety by reference to such statements. 1,000 9-MOS DEC-31-1999 JAN-01-1999 SEP-30-1999 1,642,788 0 0 5 0 0 2,051,507 15,356 641,273 49,772 3,295,410 1,902,681 266,425 0 12,800 163,000 0 0 122,214 329,695 3,295,410 366,882 82,099 (4,161) 8,828 268,136 80,487 65,994 29,897 8,171 21,726 0 0 (2,759) 18,967 0.82 0.79 0 0 0 0 0 0 0 Represents reinsurance recoverable on paid and unpaid losses.
-----END PRIVACY-ENHANCED MESSAGE-----