-----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, Uam3eATPUTawohTzBugt/069l5/eAZXdl+sXzq7FrKbiFEadAE+yRBqbH1x3YLEb ITixeL6RUR1ZSWrWmzKocA== 0000017385-97-000002.txt : 19970329 0000017385-97-000002.hdr.sgml : 19970329 ACCESSION NUMBER: 0000017385-97-000002 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970328 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CAPITOL TRANSAMERICA CORP CENTRAL INDEX KEY: 0000017385 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 391052658 STATE OF INCORPORATION: WI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-02047 FILM NUMBER: 97567257 BUSINESS ADDRESS: STREET 1: P O BOX 5900 CITY: MADISON STATE: WI ZIP: 53705 BUSINESS PHONE: 6082314450 MAIL ADDRESS: STREET 1: P O BOX 5900 CITY: MADISON STATE: WI ZIP: 53705 10-K 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1996 Commission file number: 0-2047 CAPITOL TRANSAMERICA CORPORATION A Wisconsin Corporation 39-1052658 4610 University Avenue Madison, Wisconsin 53705-0900 Registrant's telephone number, including area code (608) 231-4450 Securities registered pursuant to Section 12 (g) of the Act: COMMON STOCK, $1 PAR VALUE 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 dur- ing the preceding twelve months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing re- quirements for the past 90 days. YES X NO Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this form 10-K. { } Based on the closing average of the bid (23 1/2) and asked price (24), the aggregate market value of voting stock held by non-affiliates of the registrant as of February 21, 1997 was approximately $264,770,486. Indicate the number of shares of each of the issuer's class of common stock, as of the latest practicable date: At February 21, 1997 Common Stock, $1.00 Par Value Issued: 11,464,678 Outstanding: 11,148,231 DOCUMENTS INCORPORATED BY REFERENCE Schedule P of the Annual Statements of Capitol Indemnity Corporation and Capitol Specialty Insurance Corporation are incorporated by reference into Part I. Por- tions of the proxy statement for the annual shareholders meeting to be held May 5, 1997 are incorporated by reference into Part III. Total Pages: 37 Form 10-K (Annual Report) Capitol Transamerica Corporation Part I Item 1. Business (a) General Development of Business Capitol Transamerica Corporation (CTC) is a holding company with assets exceeding $229 million. CTC was formed in 1965 and owns 100% of Capitol Indemnity Corporation (CIC), Capitol Specialty Insurance Corporation (CSIC) and Capitol Facilities Corporation (CFC). Both CIC and CSIC are property and casualty insurance companies. The companies write a complete port- folio of fidelity and surety bonds and specialty insurance coverages. CIC operates on an admitted basis in thirty-three states and on an excess/sur- plus lines basis in three states. CFC provides premium financing for the insurance companies. Some of the specialty property and casualty coverages written are: Barber & Beauty Shops, Bowling Alleys, Contractors/Manufacturers, Day Care Centers, Deer Hunters Accident, Detective/Guard Agencies, Equipment Breakdown, Golf Courses, Nurses Professional, Resorts/Campgrounds, Restaurants, Special Events, Clubs, Sportsman's Accident, Tanning/Toning Salons and Taverns. The full line of surety and fidelity bonds includes: Contractor's Perfor- mance and Payment Bonds, License/Permit Bonds, Fiduciary Bonds, Judicial Bonds and Commercial Fidelity Bonds. The results of operations have remained most favorable since 1986 with sub- stantial increases in premium volume, profitability and shareholders' investment. (b) Information about Industry Segments General: The subsidiaries of the Company, through licensed agents, are involved only in the business of underwriting property, casualty, fidelity and surety in- surance on selected risks. The Company conducts business with insurance agents located throughout the United States. As of December 31, 1996 and 1995, no amount due from agents located in any one state exceeded 15% of total balances; no industry segment other than insurance amounted to 10% or more of the Company's gross or net income and no agent had writings in ex- cess of 10% of the Company's gross premiums in 1996, 1995 or 1994. During 1996, 1995 and 1994, direct premiums written in Wisconsin accounted for approximately 18%, 21% and 24%, respectively, of the total direct premiums written by the Company. (c) Narrative Description of Business Competitive Conditions: All business written by the Company is highly competitive in the areas of price, service and agent relationships. The large number of insurers transacting business at rates which are independently regulated by their respective insurance departments compete aggressively for desireable busi- ness. Because of limitations in capacity and other regulatory restrictions, companies the size of CIC are sometimes at a disadvantage when competing with larger insurance companies. CIC is required by the Insurance Commissioner of the State of Wisconsin to maintain a minimum compulsory surplus (surplus as regards policyholders) of 25% of net premiums written during the preceding twelve months. As of December 31, 1996, CIC reported $86.9 million surplus as regards policy- holders, approximately $64.6 million in excess of the required amount. In addition, CIC is required to report a minimum 60% loss and loss expense ratio for the most current three years on certain liability lines as well as a minimum 65% ratio on the workers compensation line. Based upon actual historical experience the ratios are substantially less than the require- ment and had the company not included the excess statutory reserves over statement reserves in reporting to regulatory authorities, surplus would have been $94.6 million at December 31, 1996. Importance and Effect of Licenses: Generally speaking, insurance companies must be licensed in the states in which the insurance is written. Forms and rates for each policy offered are filed with individual state insurance departments. Number of Persons Employed: Capitol Transamerica Corporation and subsidiaries employ 160 people. Information as to Similar Products or Services: Gross premiums written, reinsurance ceded and net premiums written for the past five years are as follows:
1996 Gross Ceded Net Accident and Health $ 238,615 $ - $ 238,615 Burglary and Glass 32,189 - 32,189 Fidelity 1,317,643 25,958 1,291,685 Fire and Allied Lines 698,783 (271) 699,054 Inland Marine 987,201 2,802 984,399 Liability 13,048,828 130,503 12,918,325 Commercial Multiple Peril 48,790,958 1,027,117 47,763,841 Workers' Compensation 2,470,176 17,104 2,453,072 Surety 23,354,994 492,849 22,862,145 $90,939,387 $1,696,062 $89,243,325 1995 Gross Ceded Net Accident and Health $ 222,137 $ - $ 222,137 Burglary and Glass 52,045 - 52,045 Fidelity 1,355,259 66,854 1,288,405 Fire and Allied Lines 593,309 10,561 582,748 Inland Marine 76,325 3,208 73,117 Liability 10,575,070 430,641 10,144,429 Commercial Multiple Peril 41,254,997 1,451,561 39,803,436 Workers' Compensation 1,942,861 74,422 1,868,439 Surety 14,806,489 484,277 14,322,212 $70,878,492 $2,521,524 $68,356,968 1994 Gross Ceded Net Accident and Health $ 223,193 $ - $ 223,193 Burglary and Glass 50,646 - 50,646 Fidelity 1,059,233 90,495 968,738 Fire and Allied Lines 797,229 43,821 753,408 Inland Marine 98,927 3,524 95,403 Liability 9,309,300 307,242 9,002,058 Reinsurance 22,359 - 22,359 Commercial Multiple Peril 37,639,679 994,496 36,645,183 Workers' Compensation 1,623,361 57,099 1,566,262 Surety 7,740,415 415,724 7,324,691 $58,564,342 $1,912,401 $56,651,941 Item 1(c). (continued) 1993 Gross Ceded Net Accident & Health $ 152,602 $ - $ 152,602 Burglary and Glass 101,171 4,798 96,373 Fidelity 975,077 39,716 935,361 Fire and Allied Line 745,596 52,386 693,210 Inland Marine 132,492 5,481 127,011 Liability 7,429,388 279,170 7,150,218 Reinsurance 3,131 - 3,131 Commercial Multiple Peril 30,932,976 1,710,817 29,222,159 Workers' Compensation 2,381,194 29,596 2,351,598 Surety 7,492,901 318,500 7,174,401 $50,346,528 $2,440,464 $47,906,064 1992 Gross Ceded Net Accident & Health $ 159,585 $ - $ 159,585 Burglary and Glass 121,820 - 121,820 Fidelity 1,011,367 49,355 962,012 Fire and Allied Line 867,898 42,980 824,918 Inland Marine 117,366 1,883 115,483 Liability 6,765,304 286,189 6,479,115 Commercial Multiple Peril 22,719,435 1,495,220 21,224,215 Workers' Compensation 826,875 6,006 820,869 Surety 6,627,173 337,628 6,289,545 $39,216,823 $2,219,261 $36,997,562
(d) Copies of "Schedule P" of the Annual Statements filed with State Regulatory Authorities by CIC and CSIC are incorporated herein by reference and are available upon request. (e) Discussion Topics The following discussion topics, if applicable, have been included in Management's Discussion and Analysis of Financial Condition and Results of Operations and/or the Notes to Consolidated Financial Statements and the accompanying Schedules which appear elsewhere in this Annual Report: (1) Reinsurance transactions which have a material effect on earn- ings or reserves. (2) Significant reserving assumptions including any recent changes. (3) The nature of recent changes in the terms under which reinsur- ance is ceded to other insurers. (4) Changes in the mix of business, including but not limited to changes in the location of business, geographic mix and types of risks assumed. (5) Changes in payment patterns due to portfolio loss transfers, structured settlements and other transactions or circumstances. (6) Unusually large losses or gains. (f) Reconciliation of Loss and Loss Adjustment Expense Reserves:
1996 1995 1994 Balances as of January 1, $ 38,584,084 $ 27,475,323 $ 19,319,449 Less reinsurance balances (45,321) (12,363) (38,049) Net reserves 38,538,763 27,462,960 19,281,400 Incurred losses and loss adjustment expenses related to: Current year 36,041,564 27,224,006 21,287,960 Prior years: Direct losses 1,516,382 2,610,999 1,628,974 Direct loss adjustment expenses 1,901,083 2,810,145 3,704,484 Discontinued assumed reinsurance 1,706,747 1,454,313 914,636 Total prior years 5,124,212 6,875,457 6,248,094 Total incurred 41,165,776 34,099,463 27,536,054 Paid losses and loss adjustment expenses related to: Current year 15,487,239 10,632,490 9,527,420 Prior years 16,245,614 12,285,492 9,946,822 Total paid 31,732,853 22,917,982 19,474,242 Other adjustments, net (43,956) (105,678) 119,748 Net balance at December 31 47,927,730 38,538,763 27,462,960 (Less) plus reinsurance balances (225,367) 45,321 12,363 Balance at December 31, $ 47,702,363 $ 38,584,084 $ 27,475,323 (g) Loss Reserve Development Consolidated (in millions of dollars) Year ended: 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 Reserves for losses and loss adjustment expense $ 14.8 $ 15.3 $ 14.2 $ 14.1 $ 14.5 $ 18.1 $ 19.3 $ 27.5 $ 38.5 $ 47.7 Re-estimated reserves: One year later 14.0 14.1 15.3 15.0 19.5 21.2 25.5 33.8 43.4 Two years later 13.3 15.5 16.1 18.3 21.3 23.8 31.2 37.5 - Three years later 14.6 16.1 18.1 19.9 22.7 28.3 33.5 - - Four years later 15.1 17.5 19.2 21.3 25.9 30.7 - - - Five years later 16.2 18.6 20.2 23.8 27.9 - - - - Six years later 17.4 19.6 21.8 25.6 - - - - - Seven years later 18.2 21.1 23.6 - - - - - - Eight years later 19.7 22.8 - - - - - - - Nine years later 21.4 - - - - - - - - Cumulative deficiency (4.9) (5.8) (7.6) (9.7) (11.4) (10.2) (11.9) (6.3) (4.9) Cumulative deficiency from discontinued reinsurance assumed operations (9.3) (8.8) (8.2) (7.4) (6.2) (5.2) (4.1) (3.2) (1.7) Cumulative redundancy (deficiency) from continuing operations 4.4 3.0 0.6 (2.3) (5.2) (5.0) (7.8) (3.1) (3.2) Cumulative amount of liability paid through: One year later 3.6 4.6 5.9 5.7 7.6 9.4 9.9 12.2 16.2 Two years later 5.9 8.0 8.7 10.1 12.7 14.1 17.2 21.4 - Three years later 8.3 9.9 12.0 13.4 15.4 18.9 23.6 - - Four years later 9.4 12.3 13.7 15.2 18.7 23.0 - - - Five years later 11.4 13.5 14.6 17.5 21.6 - - - - Six years later 12.3 14.2 15.9 19.7 - - - - - Seven years later 12.9 15.3 17.9 - - - - - - Eight years later 14.0 17.3 - - - - - - - Nine years later 15.9 - - - - - - - - This table does not present accident or policy year development data, which readers may be more accustomed to analyzing. Conditions and trends that have effected development of the liability in the past may not necessarily occur in the future. Accordingly, it may not be appropriate to extrapolate future redundancies or deficiencies based on this table. There are no specific provisions for the effects of inflation or other factors which may cause a future change in claim costs. The company withdrew from the reinsurance assumed business in 1976; however, it remains involved with treaties that cover certain risks which have had significant development industry-wide over the past several years. Due to the nature of the assumed business, ultimate losses may, and often do, vary from current estimates. See footnote 4(b) of the notes to the consolidated financial statements.
(h) Reconciliation of Statutory to Generally Accepted Accounting Principles (GAAP) reserves:
Balance, December 31, as reported to For the Year Ended December 31, Insurance Commissioner of the 1996 1995 1994 State of Wisconsin: - CIC $ 47,458,573 $ 37,996,923 $ 26,829,156 - CSIC - - - Funds withheld from reinsurers, reclassified to loss reserves on a GAAP basis 489,808 514,583 510,028 Reserve for return of disability premiums, reclassified to loss reserves on a GAAP basis 14,820 26,625 37,026 GAAP adjustment to gross up reserves for the effect of reinsurance (225,367) 52,653 119,571 Other, net (35,471) (6,700) (20,458) Balance, December 31, on a GAAP basis $ 47,702,363 $ 38,584,084 $ 27,475,323
Item 2. Properties Capitol Transamerica Corporation leases premises in the Pyare Square building located at 4610 University Avenue, Madison, Wisconsin, 53705, as follows: Approximately 27,406 square feet occupying a portion of the 1st, 2nd, 9th and 10th floors and all of the 11th, 12th, 13th and 14th floors. The term of the lease is from June 1, 1996 through May 31, 1999. The Company also leases approximately 2,000 square feet of storage space from the President of the Company in a personally owned warehouse at terms as favorable as those available from unaffiliated third parties. The Company also leases 200 square feet of office space in Las Vegas, Nevada. the term of the lease is from November 1, 1996 to October 31, 1999. Item 3. Legal Proceedings Capitol Indemnity Corporation (CIC) is a defendant in certain lawsuits involving complaints which demand damages and recoveries for claims and losses allegedly related to risks insured by CIC. In the opinion of management, such lawsuits are routine in that they result from the ordi- nary course of business in the insurance industry. The reserves for losses and loss adjustment expenses include management's estimates of the probable ultimate cost of settling all claims involving lawsuits. Such estimates are continually reviewed and updated. The reserves for losses and loss adjustment expenses at December 31, 1996, are, in the opinion of management, adequate to absorb claims arising from those routine legal proceedings presently in process against the Company. Item 4. Submission of Matters to a Vote of Shareholders No matters were submitted to a vote of shareholders during the Company's fourth fiscal quarter ended December 31, 1996. Item 5. Market Information, Dividends and Other Information On February 21, 1997, the approximate number of registered shareholders was 2,500. CTC is publicly owned and traded on the National Over-the-Counter Market, symbol CATA. The market price of the stock (adjusted) during 1996 was a low of 12 and a high of 20 15/16 with the equivalent of 2,147,465 shares traded. Quarterly high and low quoted prices are obtained from the National Association of Securities Dealers. These quotations, adjusted for the December 31, 1996 3 for 2 stock split effected as a 50% dividend and the December 28, 1995 ten percent stockdividend, are as follows:
1996 1995 Quarter High Low Dividends High Low Dividends First 14 13 $.12 10 3/4 9 1/4 $.06 Second 13 11/16 12 .07 11 2/3 9 3/5 .06 Third 15 1/2 12 5/16 .07 11 5/6 10 14/15 .06 Fourth 20 15/16 15 1/16 .07 13 2/3 11 2/3 .06 Year 20 15/16 12 $.33 13 2/3 9 1/4 $.24 For the period January 1 through February 21, 1997, the high ask price was 27 3/8 and the low bid price was 20 1/16. An extra cash dividend of $.10 per share was paid on February 28, 1997, to shareholders of record on February 14, 1997 and a regular cash dividend of $.07 per share was paid on March 28, 1997. Future dividend payments must be authorized by the Board of Directors and will be dependent on operating results, capital requirements and the financial condition of the Company.
Subsidiaries S.E.C. Form 10-K Capitol Indemnity Corporation Copies of the Company's Annual Capitol Specialty Insurance Corporation report filed with the SEC, in- Capitol Facilities Corporation cluding exhibits, are available by written request addressed to: Independent Public Accountants Paul J. Breitnauer Ernst & Young LLP Vice President & Treasurer 111 East Kilbourn Avenue 4610 University Ave. Milwaukee, Wisconsin 53202 Madison, Wisconsin 53705-0900 Transfer Agent and Registrar Annual Meeting Firstar Trust Co. The Company's Annual Meeting Corporate Trust Services will be held Monday, May 5, 615 East Michigan Street 1997, 4:00 PM at the P.O. Box 2077 Holiday Inn - West Milwaukee, Wisconsin 53201 1313 John Q. Hammond Drive Middleton, Wisconsin 53562 Common Stock Listed: OTC Quoted: NASD (CATA) Item 6. FIVE YEAR CONSOLIDATED SUMMARY OF SELECTED FINANCIAL DATA:
1996 1995 1994 1993 1992 Gross Premiums Written $ 90,939,387 $ 70,878,492 $ 58,564,342 $ 50,346,528 $ 39,216,823 Net Premiums Written $ 89,243,325 $ 68,356,968 $ 56,651,941 $ 47,906,064 $ 36,997,562 Premiums Earned $ 77,347,319 $ 63,865,500 $ 52,461,456 $ 43,456,430 $ 33,739,719 Net Investment Income 7,155,382 6,635,123 5,359,606 5,001,715 4,715,339 Realized Investment Gains (Losses) 8,468,911 3,587,323 (106,188) 4,145,701 1,580,431 Other Revenues 382,130 144,866 118,353 38,609 112,488 Total Revenues 93,353,742 74,232,812 57,833,227 52,642,455 40,147,977 Losses and Loss Adjustment Expenses Incurred 41,165,776 34,099,463 27,536,054 20,649,739 16,853,514 Underwriting and Other Expenses 26,680,657 21,497,664 17,883,570 15,963,957 12,204,252 Total Losses Incurred and Expenses 67,846,433 55,597,127 45,419,624 36,613,696 29,057,766 Income from Operations Before Income Taxes 25,507,309 18,635,685 12,413,603 16,028,759 11,090,211 Income Tax Expense 7,158,151 4,705,279 3,166,363 4,344,504 2,687,861 Consolidated Net Income $ 18,349,158 $ 13,930,406 $ 9,247,240 $ 11,684,255 $ 8,402,350 Weighted Average Number of Shares Outstanding 11,077,501 11,049,660 11,012,621 10,937,043 10,829,488 Income Per Share $ 1.66 $ 1.26 $ 0.84 $ 1.07 $ 0.77 Total Cash Dividends Per Share $ 0.33 $ 0.24 $ 0.27 $ 0.23 $ 0.13 Consolidated Net Income and Cash Dividends Stated as a Ratio to Beginning Shareholders' Equity 22.9% 25.3% 18.6% 25.9% 21.4% Year End Financial Position: Assets $228,885,454 $176,730,156 $127,633,195 $117,346,301 $ 98,857,739 Shareholders' Investment 116,581,883 92,653,880 67,979,174 65,648,667 54,637,662 Book Value Per Share $ 10.50 $ 8.37 $ 6.15 $ 5.97 $ 5.03 Shares Outstanding 11,103,297 11,068,161 11,032,433 10,978,988 10,868,952 Insurance Operating Ratios (Statutory Basis): Losses and Loss Adjustment Expenses to Net Premiums Earned 53.5% 53.2% 52.3% 47.5% 50.2% Underwriting Expenses to Net Premiums Written 33.5% 32.8% 32.4% 32.2% 35.0% Combined Ratio 87.0% 86.0% 84.7% 79.7% 85.2% A. M. BEST Rating A+ A+ A+ A+ A+ Superior Superior Superior Superior Superior Prior years' information has been restated to reflect the December 31, 1996 three-for-two stock split effected as a 50% stock dividend, the December 28, 1995 ten percent stock dividend and the June 15, 1992 three-for-two stock split effected as a 50% stock dividend.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations OVERVIEW Capitol Transamerica Corporation (the "Company") is an insurance holding company operating in 36 states which writes, through its subsidiaries, both property- casualty and fidelity-surety insurance. The property-casualty segment accounts for approximately 75% of the business written while the fidelity-surety segement accounts for approximately 25% of the Company's business. The underwriting cycles of the property-casualty insurance industry have been characterized by peak periods of adequate rates, underwriting profits and lower combined ratios, while the downward side of the cycle is characterized by in- adequate rates, underwriting losses and, as a result, higher combined ratios. The adequacy of premium rates is affected primarily by the severity and frequen- cy of claims which in turn are affected by natural disasters, regulatory measures and court decisions which continue to uphold the "deep pocket" theory in awarding against insurance companies. Unfortunately for the insurance indus- try, the trend of increasing price competition has continued as has the number of significant natural disasters. This combination has resulted in a consider- able reduction in underwriting profitability for the industry as a whole. Inflation also has a significant impact on the insurance industry in general, as well as on the Company. Inflation creates higher claim costs, which are then matched currently against premiums whose rating statistics were developed from data of previous years. In recent inflationary periods, this has led to inade- quate rate structures, since rate regulators are slow to grant rate adjustments at times when the overall economy is in an inflationary cycle. Studies have shown that premium rates trail the claim experience by a period of two years or more. Adequate premium rates continue to be of concern to the Company and the property-casualty insurance industry. OPERATING RESULTS As mentioned in the Overview, the property-casualty insurance industry is in a downward cycle. However, based on its operating results the Company is in a peak period as it continues to generate considerable underwriting profits. The Company's increase in premiums earned has been strictly due to volume increases resulting from new product lines, expansion of coverages and entry into new geographic territories. The Company's ability to maintain a steady combined ratio, typically 15 to 20 points below the industry average, is due to its basic philosophy of generating underwriting profits. When the industry's cycle reverses, the Company will be in an excellent position to take advantage of premium rate increases which will benefit the Company's overall profitability. Gross premiums written during 1996 were $90,939,387, compared with $70,878,492 in 1995 and $58,564,342 in 1994. Premiums earned are recognized as net revenues after reduction for reinsurance ceded and after establishment of the provision for the pro rata unearned portion of premiums written. Net premiums earned in 1996 totaled $77,347,319, compared with $63,865,500 and $52,461,456 in 1995 and 1994, respectively. The net unearn- ed premium reserve was $43,258,833, $31,555,728 and $26,794,249 at each year- end.
1996 1995 1994 Gross Premiums Written $90,939,387 $70,878,492 $58,564,342 Reinsurance Ceded 1,696,062 2,521,524 1,912,401 Net Premiums Written $89,243,325 $68,356,968 $56,651,941 Net Premiums Earned $77,347,319 $63,865,500 $52,461,456 Net Unearned Premium Reserve $43,258,833 $31,555,728 $26,794,249 The Company's underwriting results can be measured by reference to the combined loss and expense ratios. This tabulation includes the operating results of the two subsidiary insurance companies on a statutory basis. Losses and loss adjustment expenses are stated as a ratio of net premiums earned, while underwriting expenses are state as a ratio of net premiums written. The combined ratios were as follows: Insurance Operating Ratios (Statutory Basis): 1996 1995 1994 Losses and Loss Adjustment Expenses 53.5% 53.2% 52.3% Underwriting Expenses 33.5% 32.8% 32.4% Combined Ratios 87.0% 86.0% 84.7% The Company's combined loss and expense ratios compare very favorably with the industry average, which is projected to be more than 106% for the year 1996.
REINSURANCE The Company follows the customary practice of reinsuring with other companies, e.g., ceding a portion of its exposure on the policies it has written. This pro- gram of reinsurance permits the Company greater diversification of business and the ability to write larger policies while limiting the extent of its maximum net loss. It provides protection for the Company against unusually serious occurrences in which a number of claims could produce a large aggregate loss. Management continually monitors the Company's reinsurance program to obtain pro- tection that should be adequate to ensure the availability of funds for losses while maintaining future growth. NET INVESTMENT INCOME AND REALIZED GAINS The Company's fixed maturities and equity securities are classified as available-for-sale and are carried at fair value. The unrealized gains and losses, net of tax, are reported as a separate component of shareholders' investment. Interest and Dividend Income: Interest on fixed maturities is recorded as in- come when earned and is adjusted for any amortization of purchase premium or discount. Dividends on equity securities are recorded as income on ex-dividend dates.
Investments: 1996 1995 1994 Invested Assets $184,801,846 $149,216,723 $104,785,146 Net Investment Income 7,155,382 6,635,123 5,359,606 Percent of Return to Average Carrying Value 5.1% 5.7% 5.6% Realized Gains (Losses) 8,468,911 3,587,323 (106,188) Change in Unrealized Gains(Losses) $ 12,672,783 $ 21,085,956 $ (6,251,923) The net increase in unrealized gains of $12,672,783 for 1996 was comprised of a $2,416,907 decrease in fixed maturities and an increase of $15,089,690 in equity securities. Net investment income in 1996 amounted to $7,155,832, compared with $6,635,123 and $5,359,606 in 1995 and 1994, respectively. Unrealized gains (losses) were $32,763,674, $20,090,891 and ($995,065) at December 31, 1996, 1995 and 1994, respectively.
INCOME TAXES Income tax expense is based on income reported for financial statement purposes and tax laws and rates in effect for the years presented. Deferred federal in- come taxes arise from timing differences between the recognition of income de- termined for financial reporting purposes and income tax purposes. Such timing differences are related principally to the deferral of policy acquisition costs, the recognition of unearned premiums, and discounting the claims reserves for tax purposes. Deferred taxes are also provided on unrealized gains and losses. LOSS RESERVES Reserves for losses and loss adjustment expenses reflect the Company's best estimate of the liability for the ultimate cost of reported claims and incurred but not reported (IBNR) claims as of the end of each period. The estimates are based on past claim experience and consider current claim trends as well as social and economic conditions. The Company's reserves for losses and loss ad- justment expenses were $47,702,363 at December 31, 1996 compared with $38,584,084 at December 31, 1995. This increase is a combination of giving con- sideration for the increase in premium volume, increased retention on all lines of coverages written and an increase in the IBNR reserves. Management continues to closely monitor the reserve development trends and projections as it attempts to stabilize the loss reserve development which has occurred in recent years. LIQUIDITY AND CAPITAL RESOURCES Liquidity refers to the Company's ability to meet obligations as they become due. The obligations and cash outflow of the Company include claim settlements, acquisition and administrative expenses, investment purchases and dividends to shareholders. In addition to satisfying obligations and cash outflow through premium collections, there is cash inflow obtained from interest and dividend income, maturities and sales of investments. Because cash inflow from premiums is received in advance of cash outflow required to settle claims, the Company accumulates funds which it invests pending liquidity requirements. Therefore, investments represent the majority (80.7% in 1996, 84.4% in 1995 and 82.1% in 1994) of the Company's assets. Cash outflow can be unpredictable for two reasons: first, a large portion of liabilities representing loss reserves have uncertainty regarding settlement dates; and second, there is potential for losses occurring either individually or in the aggregate. As a result, the Com- pany maintains adequate short-term investment programs necessary to ensure the availability of funds. The investment program is structured so that a forced sale liquidation of fixed maturities should not be necessary during the course of ordinary business involvement and activities. The Company has no material capital expenditure commitments. Item 8. Financial Statements and Supplementary Data Financial Statements The financial statements filed by CTC in connection with this Annual Report are consolidated financial statements which present all of the operations of the parent company and its subsidiaries. Capitol Transamerica Corporation Consolidated Financial Statements: Report of independent auditors. Consolidated balance sheets - December 31, 1996 and 1995. Consolidated statements of income - for each of the three years in the period ended December 31, 1996. Consolidated statements of shareholders' investment - for each of the three years in the period ended December 31, 1996. Consolidated statements of cash flows - for each of the three years in the period ended December 31, 1996. Notes to consolidated financial statements. Item 9. Disagreements of Accounting and Financial Disclosures None. Item 10. Directors and Executive Officers of CTC (a) Directors
Name (Age) Other Directorships, Business Expire at Date of Original Election Principal Occupation Experience and Miscellaneous Information Annual Mtg. in: Paul J. Breitnauer (57) Vice President and Treasurer of Mr. Breitnauer has been associated with 1999 1986 the Company; Senior Vice Presi- the insurance industry in various dent & Treasurer of CIC, CSIC capacities since 1963. and CFC, wholly-owned subsidi- aries of the Company. Sun Prairie, Wisconsin George A. Fait (70) Chairman of the Board and Mr. Fait is a director of Bank One and 1997 1960 President of the Company and its has been associated with the insur- wholly-owned subsidiaries; Di- ance industry in various capacities rector of Bank One. since 1950. Madison, Wisconsin Robert W. Goodwin (71) Retired, formerly with Dean Mr. Goodwin had been associated with Dean 1997 1982 Witter Reynolds, Inc. Witter Reynolds, Inc. in various capacities Palm Harbor, Florida 1970. Michael J. Larson (55) Retired, formerly with Bank Mr. Larson has been associated with Bank One Madison. One in various capacities since 1965. 1998 1991 Madison, Wisconsin Reinhart H. Postweiler(67)Retired, formerly with Flad Mr. Postweiler is a Director of Bank One. 1999 1977 Affiliated Corporation; Director He is a member of the Wisconsin Society of of Bank One, Madison, Wisconsin. Professional Engineers and the National Society of Professional Engineers. Richard E. Tipple (71) Retired, formerly with the Uni- Mr. Tipple is a member of the Wisconsin 1998 1970 versity of Wisconsin Planning Society of Landscape Architects. Department. Madison, Wisconsin None of the above directors are related and there are no arrangements or understandings between directors since each is acting solely in their described capacity. There have been no events during the past five years which are material to the evaluation of the ability and integrity of any director of CTC.
Item 10. (continued) (b) Executive Officers: Chairman of the Board and President- George A. Fait (70 years of age) Elected in 1960. Chairman of the Board and President - CIC, CSIC and CFC, wholly-owned subsidiary companies. Vice President and Treasurer - Paul J. Breitnauer (57 years of age) Elected Treasurer in 1970 and Vice President in 1982. Senior Vice President and Treasurer - CIC, CSIC and CFC. Secretary - Virgiline M. Schulte (68 years of age) Elected in 1988. Secretary - CIC, CSIC and CFC. (c) Additional Executive Officers - CIC & CSIC - Wholly-Owned Subsidiary Insurance Companies: Vice President - P & C Claims Vice President - Personnel Robert F. Miller (58 years of age) Virgiline M. Schulte (68 years Elected in 1986. old) Elected in 1993. Vice President - Agency Vice President- Data Processing Joel G. Fait (38 years of age) Frank S. Zillner (35 years old) Elected in 1993. Elected in 1993. Vice President - Rating Corporate Counsel Gerald A. Olson (52 years of age) Peter E. Hans (42 years of age) Elected in 1993. Elected in 1991. Vice President - P & C Underwriting William B. Hutchison (42 years of age) Elected in 1993. (d) Disclosure of Delinquent Filers The section captioned "Compliance with Section 16(a) of the Securities Exchange Act of 1934" in the Capitol Transamerica Corporation ("CTC") Proxy Statement dated April 4, 1997 is incorporated herein by reference. Item 11. Executive Compensation and Transactions The sections captioned "Compensation of Directors", "Report on Executive Compensation" and "Executive Compensation Committee Report" in the CTC Proxy Statement dated April 4, 1997 are incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management The sections captioned "Principal Shareholders", "Option/SAR Exercised in Last Fiscal Year" and "Compensation Plans" in the CTC Proxy Statement dated April 4, 1997 are incorporated herein by reference. Item 13. Certain Relationships and Related Transactions The section captioned "Compensation Committee Interlocks and Insider Participation" and the three sections referenced in Item 11 above, all included in the CTC Proxy Statement dated April 4, 1997, are in- corporated herein by reference. George Fait and Virgiline Schulte are brother and sister; Joel Fait is George Fait's son and Frank Zillner is his son-in-law; none of the other officers are related and there are no arrangements or understandings between officers since each is acting solely in their described capacity. There have been no events during the past five years which are material to the evaluation or the ability and integrity of any executive officer of the Company or its subsidiaries. Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) 1 and 2. Financial statements and financial statement schedules The following financial statements of Capitol Transamerica Corporation and Subsidiaries are included in Item 8. Report of independent auditors. Consolidated balance sheets - December 31, 1996 and 1995. Consolidated statements of income - for each of the three years in the period ended December 31, 1996. Consolidated statements of shareholders' investment - for each of the three years in the period ended December 31, 1996. Consolidated statements of cash flows - for each of the three years in the period ended December 31, 1996. Notes to consolidated financial statements. The following financial statement schedules of Capitol Transamerica Corporation and Subsidiaries are included in Item 14(d). Schedule I Summary of Investments Other than Investments in Related Parties Schedule II Condensed Financial Information of Registrant - Parent Company Schedule III Supplementary Insurance Information Schedule IV Reinsurance Schedule VI Supplemental Information Concerning Property-Casualty Insurance Operations All other schedules required by Article 7 of Regulation S-K are not required under the related instructions or are inapplicable, and therefore have been omitted. (b) No Reports on Form 8-K were filed during the fourth quarter of the fiscal year ended December 31, 1996. (c) Exhibits None (d) Financial Statement Schedules Reference is made to the financial statement schedules above. SIGNATURES Pursuant to the requirements of Section 13 and 15(d) 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. CAPITOL TRANSAMERICA CORPORATION By By George A. Fait Paul J. Breitnauer Chairmant of the Board, Vice President, President and Director Treasurer and Director By By Virgiline M. Schulte Robert W. Goodwin Secretary Director By By Michael J. Larson Reinhart H. Postweiler Director Director By Richard E. Tipple Director March 25, 1997 RESPONSIBILITY FOR FINANCIAL REPORTING To The Shareholders and Board of Directors of Capitol Transamerica Corporation: The Company has prepared the consolidated financial statements, related notes, and other financial data appearing in this Annual Report. The statements were developed using generally accepted accounting principles and policies considered appropriate in the circumstances. They reflect, where applicable, management's best estimates and judgements. The financial data also includes disclusures and explanations which are relevant to an understanding of the financial affairs of the Company. To meet management's responsibility for financial reporting, internal control systems and procedures are designed to provide reasonable assurances as to the reliability of the financial records and compliance with corporate policy throughout the organization. Ernst & Young LLP, independent auditors, have audited the financial statements. To express an opinion thereon, they review and evaluate the Company's internal accounting controls and conduct such tests of the accounting records and other auditing procedures as they deem necessary. The Board of Directors oversees the Company's financial reporting through its Audit Committee, which regularly meets with management representatives and jointly with the independent auditors, to review accounting, auditing and financial reporting matters. A policy of busines ethics is communicated annually to the Company's directors, officers and respon- sible employees. The Company monitors compliance with the policy to help assure that operations are conducted in a responsible and professional manner with a committment to the highest standard of business conduct. Paul J. Breitnauer Vice President and Treasurer REPORT OF INDEPENDENT AUDITORS To the Shareholders and Board of Directors of Capitol Transamerica Corporation: We have audited the accompanying consolidated balance sheets of Capitol Trans- america Corporation (the "Company") as of December 31, 1996 and 1995, and the related consolidated statements of income, shareholders equity, and cash flows for the three years in the period ended December 31, 1996. Our audits also in- cluded the financial statement schedules listed in the Index at Item 14(a). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits. We conducted our audits in accordance with generally accepted auditing stan- dards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Capitol Transamerica Corporation at December 31, 1996 and 1995, and the consolidated re- sults of its operations and its cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. Milwaukee, Wisconsin Ernst & Young LLP February 27, 1997 CAPITOL TRANSAMERICA CORPORATION CONSOLIDATED BALANCE SHEETS
1996 1995 Assets Investments (Notes (1)(b) and (2)): Available-for-sale investment securities, at fair value Fixed maturities (amortized cost $77,807,048 and $71,493,255 respectively) $ 82,566,725 $ 78,669,841 Equity securities: Common stock, (cost $59,099,459 and $50,412,460, respectively) 86,569,214 63,141,401 Nonredeemable preferred stock, (cost $5,346,938 and $3,868,836, respectively) 5,881,180 4,054,200 Investment real estate, at cost, net of depreciation 6,721,343 1,435,486 Short-term investments, at cost which approximate fair value (Note(2)(d) 3,063,384 1,915,795 Total Investments 184,801,846 149,216,723 Cash 364,994 602,775 Accrued investment income 1,684,940 1,718,254 Receivables from agents, insureds and others, less allowance for doubtful accounts of $380,000 and $320,000, respectively 18,712,387 11,874,125 Balances due from reinsurers 1,033,058 1,244,148 Funds held by ceding reinsurers 44,791 77,117 Deferred insurance acquisition costs (Note (1)(e)) 12,978,314 9,228,868 Prepaid reinsurance premiums 704,148 897,049 Due from securities brokers 6,347,754 215,165 Income taxes receivable - 110,091 Other assets 2,213,222 1,545,841 Total Assets $228,885,454 $176,730,156 The accompanying notes to the consolidated financial statements are an integral part of these financial statements. CAPITOL TRANSAMERICA CORPORATION CONSOLIDATED BALANCE SHEETS December 31, 1996 and 1995 1996 1995 Liabilities Policy Liabilities and Accruals (Notes (1)(d), (3) and (4)): Reserve for losses $ 29,811,723 $ 25,679,644 Reserve for loss adjustment expenses 17,890,640 12,904,440 Unearned premiums 43,258,833 31,555,728 Total Policy Liabilities and Accruals 90,961,196 70,139,812 Accounts payable 6,612,383 4,362,308 Dividends payable 4,526 745,009 Due to securities brokers 474,281 370,123 Balances due to reinsurers 1,776,524 2,275,143 Accrued premium taxes 562,573 382,544 Income taxes payable 1,870,252 - Deferred income taxes 10,041,836 5,801,337 Total Other Liabilities 21,342,375 13,936,464 Total Liabilities 112,303,571 84,076,276 Commitments and contingent liabilities (Notes (4) and (8)) - - Shareholders' Investment (Notes (6) and (7)) Common stock, $1.00 par value, authorized 15,000,000 shares, issued 7,612,711 and 6,899,060, respectively 7,612,711 6,899,090 Common stock distributable, $1.00 par value, 3,806,355 and 689,545 shares, respectively 3,806,355 689,545 Paid-in surplus 21,114,644 20,949,100 Net unrealized appreciation (depreciation) on securities carried at fair value net of deferred taxes of $11,139,649 & $6,830,903, respectively(Notes(1)(b)&(2) 21,624,025 13,259,988 Retained earnings 62,761,654 51,177,894 Shareholders' investment before treasury stock 116,919,389 92,975,587 Treasury stock, 315,769 and 209,831 shares, respectively, at cost (337,506) (321,707) Total Shareholders' Investment 116,581,883 92,653,880 Total Liabilities and Shareholders' Investment $228,885,454 $176,730,156 The accompanying notes to the consolidated financial statements are an integral part of these financial statements. CAPITOL TRANSAMERICA CORPORATION CONSOLIDATED STATEMENTS OF INCOME For The Years Ended December 31, 1996, 1995 and 1994 1996 1995 1994 Revenues: Premiums earned (Note (1)(c)) $ 77,347,319 $ 63,865,500 $ 52,461,456 Net investment income (Note (2)(e)) 7,155,382 6,635,123 5,359,606 Realized investment gains (losses) (Notes (1)(b) and (2)) 8,468,911 3,587,323 (106,188) Other revenues 382,130 144,866 118,353 Total Revenues 93,353,742 74,232,812 57,833,227 Losses and Expenses Incurred (Notes (1)(d), (3) and (4)): Losses incurred 29,694,168 24,620,433 18,985,162 Loss adjustment expenses incurred 11,471,608 9,479,030 8,550,892 Underwriting, acquisition and insurance expenses (Note(10)) 29,136,689 22,218,510 17,917,741 Increase in deferred insurance acquisition costs (3,749,446) (1,513,479) (784,373) Other expenses 1,293,414 792,633 750,202 Total Losses and Expenses Incurred 67,846,433 55,597,127 45,419,624 Income from operations before income taxes 25,507,309 18,635,685 12,413,603 Income tax expense (Note (5)) 7,158,151 4,705,279 3,166,363 Net Income $ 18,349,158 $ 13,930,406 $ 9,247,240 Income Per Share (Note (1)(g)) $ 1.66 $ 1.26 $ 0.84 Weighted average number of shares outstanding (Note (1)(g)) 11,077,501 11,049,660 11,012,621 The accompanying notes to the consolidated financial statements are an integral part of these financial statements. CAPITOL TRANSAMERICA CORPORATION CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT For the Years Ended December 31, 1994, 1995 and 1996 Unrealized Common Appreciation Common Stock (Depreciation) Stock Distributable on Securities (Par Value) (Par Value Paid-In Carried at Retained Treasury $1.00) $1.00) Surplus Fair Value Earnings Stock Balance, January 1, 1994 $ 6,846,410 $ - $ 7,823,147 $ 3,469,526 $47,848,653 $(339,069) Net income - - - - 9,247,240 - Unrealized appreciation on available-for-sale securities, net of deferred taxes - - - (4,126,269) - - Stock options exercised 31,186 - 108,524 - - 8,444 Cash dividends - - - - (2,938,618) - Balance, December 31, 1994 6,877,596 - 7,931,671 (656,743) 54,157,275 (330,625) Net income - - - - 13,930,406 - Unrealized depreciation on available-for-sale securities, net of deferred taxes - - - 13,916,731 - - Stock options exercised 21,464 - 88,460 - - 8,918 Stock dividends - 689,545 12,928,969 - (13,618,514) - Cash dividends - - - - (3,291,273) - Balance, December 31, 1995 6,899,060 689,545 20,949,100 13,259,988 51,177,894 (321,707) Net income - - - - 18,349,158 - Unrealized appreciation on available-for-sale securities, net of deferred taxes - - - 8,364,037 - - Stock options exercised 24,106 - 165,544 - - (15,799) Stock dividend 689,545 3,116,810 - - (3,806,355) - Cash dividends - - - - (2,959,043) - Balance, December 31, 1996 $ 7,612,711 $ 3,806,355 $21,114,644 $21,624,025 $62,761,654 $ (337,506) The accompanying notes to the consolidated financial statements are an integral part of these financial statements. CAPITOL TRANSAMERICA CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS For the Years Ended December 31, 1996, 1995 and 1994 1996 1995 1994 Cash flows provided by operating activities: Net Income $ 18,349,158 $ 13,930,406 $ 9,247,240 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 805,784 423,119 344,328 Realized investment (gains) losses (8,468,911) (3,587,323) 106,188 Change in: Deferred insurance acquisition costs (3,749,446) (1,513,479) (784,373) Unearned premiums 11,703,105 4,761,479 3,466,567 Allowance for doubtful accounts receivable from agents 60,000 65,785 60,000 Accrued investment income 33,314) (352,131) (26,674) Receivables from agents, insureds and others (6,898,262) (2,595,686) (415,046) Balances due to/from reinsurers (136,449) (154,893) 55,481 Reinsurance recoverable on paid and unpaid losses (151,080) (547,078) 117,133 Funds held by ceding reinsurers 32,326 60,305 (2,829) Income taxes payable/receivable 1,980,343 371,620 (2,000,010) Deferred income taxes (68,247) (156,647) (262,036) Due to/from securities brokers (6,028,431) (145,042) 2,651,078 Prepaid reinsurance premiums 192,901 (270,011) 601,845 Other assets (123,731) 294,732 504,974 Reserves for losses and loss adjustment expenses 9,118,279 11,108,761 8,155,874 Accounts payable 2,250,075 448,636 (239,443) Accrued premium taxes 180,029 112,822 6,432 Net cash provided by operating activities 19,080,757 22,255,375 21,586,729 Cash flows provided by (used for) investing activities: Proceeds from sales of available-for-sale investments 27,579,131 21,046,919 1,895,147 Purchases of available-for-sale investments (49,010,584) (47,289,410) (26,596,166) Maturities of available-for-sale investments 6,917,920 6,447,108 6,074,710 Purchases of depreciable assets (1,279,331) (683,115) (320,920) Net cash used for investing activities (15,792,864) (20,478,498) (18,947,229) Cash flows provided by (used for) financing activities: Cash dividends paid (3,699,525) (2,546,264) (2,938,618) Stock options exercised 189,650 109,924 139,710 Net proceeds from sale (purchase) of treasury stock (15,799) 8,918 8,444 Net cash used for financing activities (3,525,674) (2,427,422) (2,790,464) Net (decrease) increase in cash (237,781) (650,545) (150,964) Cash, beginning of year 602,775 1,253,320 1,404,284 Cash, end of year $ 364,994 $ 602,775 $ 1,253,320 Cash paid during the year for: Income taxes $ 5,292,665 $ 4,497,508 $ 5,427,361 The accompanying notes to the consolidated financial statements are an integral part of these financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Summary of Significant Accounting Policies Capitol Transamerica Corporation (the "Company") is an insurance holding company which writes, through its subsidiaries, commercial insurance coverages in 36 states. The property-casualty insurance coverages represent approximately 75% of the Company's premiums written while fidelity-surety coverages represent approximately 25% of the Company's premiums written. The Company's products are marketed through independent agents located through- out the United States. The consolidated financial statements are presented in accordance with generally accepted accounting principles. The preparation of financial statements of insurance companies requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results could differ significantly from those estimates. (a) Principles of Consolidation The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Capitol Indemnity Corpora- tion ("CIC"), Capitol Specialty Insurance Corporation ("CSIC") and Capitol Facilities Corporation ("CFC"). All significant intercompany accounts and transactions have been eliminated in consolidation. Cer- tain reclassifications have been made to the consolidated financial statements for 1995 to conform with the 1996 presentation. (b) Investments The Company classifies all of its fixed maturities and equity securi- ties as available-for-sale. Accordingly, investments in fixed maturi- ties and equity securities are reported at fair value, with unrealized gains and losses reported in a separate component of shareholders' investment, net of tax effect. The cost of fixed maturities is adjust- ed for amortization of premiums and discounts to maturity. Fixed maturities and equity securities deemed to have declines in value that are other than temporary are written down through the statement of in- come to carrying values equal to their estimated fair values. Investment real estate is carried at cost net of accumulated deprecia- tion of $203,830 and $126,983 as of December 31, 1996 and December 31, 1995, respectively. Cost of investments sold is determined under the specific identifica- tion method. (c) Premiums Premiums are recognized as revenue on a pro rata basis over the term of the contracts. (d) Losses and Loss Adjustment Expenses Losses and loss adjustment expenses, less related reinsurance and sub- rogation recoverables, are provided for as claims are incurred. The reserves for losses and loss adjustment expenses include: (1) the accumulation of individual estimates for claims reported on direct business prior to the close of the accounting period; (2) estimates received from other insurers with respect to reinsurance assumed; (3) estimates for incurred but not reported claims based on past experi- ence modified for current trends; and (4) estimates of expenses for investigating and settling claims based on past experience. The lia- bilities recorded are based on estimates resulting from the continu- ing review process. Differences between estimates and ultimate pay- ments are reflected in expense for the period in which the estimates are changed. Management believes that the reserves for losses and loss adjustment expenses are adequate to meet obligations. (e) Deferred Insurance Acquisition Costs Insurance acquisition costs that vary with, and are directly related to, the production of premiums(principally commissions, premium taxes compensation and certain underwriting expenses) are deferred. Deferred insurance acquisition costs are amortized to expense as the related premiums are earned. (f) Income Taxes Deferred income taxes reflect the net tax effects of temporary dif- ferences between the carrying amounts of assets and liabilities for financial statement purposes and the amounts used for income tax reporting. (g) Income Per Share Net income per share is computed by dividing net income by the weight- ed average number of shares of stock outstanding during the year. Wherever applicable, prior years' information has been restated to reflect the December 31, 1996 three-for-two stock split effected as a fifty percent stock dividend. (2)Investments (a) The amortized cost and estimated fair value of fixed maturities and equity securities are as follows:
Gross Gross Amortized Unrealized Unrealized Fair Type of investment Cost Gains Losses Value December 31, 1996 Fixed maturities: U.S. Government bonds $ 578,852 $ 4,543 $ - $ 583,395 State, municipal and political subdivision bonds 75,906,193 4,709,412 (24,724) 80,590,881 Corporate bonds and notes 1,322,003 71,962 (1,516) 1,392,449 Total fixed maturities $77,807,048 $ 4,785,917 (26,240) $82,566,725 Equity securities: Common stock $59,099,459 $29,169,673 $(1,699,918) $86,569,214 Non-redeemable preferred stock 5,346,938 605,522 (71,280) 5,881,180 Total equity securities $64,446,397 $29,775,195 $(1,771,198) $92,450,394 December 31, 1995 Fixed maturities: U.S. Government bonds $ 591,928 $ 9,643 $ - $ 601,571 State, municipal and political subdivision bonds 70,020,468 7,172,261 (70,652) 77,122,077 Corporate bonds and notes 880,859 91,144 (25,810) 946,193 Total fixed maturities $71,493,255 $ 7,273,048 $ (96,462) $78,669,841 Equity securities: Common stock $50,412,460 $15,320,343 $(2,591,402) $63,141,401 Non-redeemable preferred stock 3,868,836 246,779 (61,415) 4,054,200 Total equity securities $54,281,296 $15,567,122 $(2,652,817) $67,195,601 (b) The amortized cost and estimated fair value of fixed maturities at December 31, 1996, by contractual maturity, is shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Amortized Fair Cost Value Due in one year or less $ 764,275 $ 767,336 Due after one year through five years 3,861,398 4,007,079 Due after five years through 8,115,945 8,419,767 Due after ten years 65,065,430 69,372,543 Total $77,807,048 $82,566,725 (c) Realized gains (losses) and change in unrealized gains (losses) for the three years ended December 31, 1996, 1995 and 1994, are as follows: 1996 1995 1994 Realized gains (losses): Fixed maturities Gross gains $ 88,664 $ 33,742 $ 60,214 Gross losses (36,388) (5,288) (8,395) Equity securities Gross gains 8,454,726 3,558,869 147,621 Gross losses (22,041) - (305,628) Investment real estate (1) (16,050) - - Net realized gains (losses) $8,468,911 3,587,323 $ (106,188) 1996 1995 1994 Change in unrealized gains (losses): Fixed maturities $(2,416,907) $ 6,492,201) $(4,397,979 Equity securities 15,089,690 14,593,755 (1,853,944) Net change in unrealized gains (losses) 12,672,783 21,085,956 (6,251,923) Effect of applicable deferred taxes (4,308,746) (7,169,225) 2,125,654 Net increase (decrease) in unrealized gains $ 8,364,037 $13,916,731 (4,126,269) Following is a summary of total unrealized gains (losses) as of December 31, 1996, 1995 and 1994: 1996 1995 1994 Unrealized gains (losses): Fixed maturities Gross unrealized gains $ 4,785,917 $ 7,273,048 $ 1,925,724 Gross unrealized losses (26,240) (96,462) (1,241,339) Equity securities Gross unrealized gains 29,775,195 15,567,122 2,140,557 Gross unrealized losses (1,771,198) (2,652,817) (3,820,007) Gross unrealized gains (losses) 32,763,674 20,090,891 (995,065) Effect of applicable deferred taxes (11,139,649) (6,830,903) 338,322 Net unrealized gains (losses) $21,624,025 $13,259,988) $ (656,743)
(d) The amortized cost of securities on deposit with insurance regulators in accordance with statutory requirements was $4,101,301 on December 31, 1996 and $3,381,612 on December 31, 1995. In connection with the runoff of the reinsurance assumed operations, CIC has established a security trust fund agreement with a bank, consisting of cash and securities in the amount of $831,095 at December 31, 1996 and $1,043,691 at December 31, 1995. Additionally, CIC has deposited $42,000 at December 31, 1995 in an account for the benefit of reinsurers and has included these funds in short-term investments in the accompanying balance sheets. (e) Following is a summary of investment income from each category of investments:
1996 1995 1994 Fixed maturities $ 4,936,902 $ 4,539,757 $ 4,062,030 Equity securities 2,260,094 1,851,937 1,085,584 Investment real estate 1,280,669 751,162 786,152 Short-term 119,542 224,813 112,455 Total investment income 8,597,207 7,367,669 6,046,221 Investment expenses - real estate 945,777 549,674 542,618 Other investment expenses 419,201 138,016 104,117 Depreciation on real estate 76,847 44,856 39,880 Net investment income $ 7,155,382 $ 6,635,123 $ 5,359,606
1996 1995 1994 Balance as of January 1, $38,584,084 $27,475,323 $19,319,449 Less reinsurance recoverables (45,321) (12,363) (38,049) Net reserves 38,538,763 27,462,960 19,281,400 Incurred losses and loss adjustment expenses related to: Current year 36,041,564 27,224,006 21,287,960 Prior years: Direct losses 1,516,382 2,610,999 1,628,974 Direct loss adjustment expenses 1,901,083 2,810,145 3,704,484 Discontinued assumed reinsurance 1,706,747 1,454,313 914,636 Total prior years 5,124,212 6,875,457 6,248,094 Total incurred 41,165,776 34,099,463 27,536,054 Paid losses and loss adjustment expenses related to: Current year 15,487,239 10,632,490 9,527,420 Prior years 16,245,614 12,285,492 9,946,822 Total paid 31,732,853 22,917,982 19,474,242 Other adjustments, net (43,956) (105,678) 119,748 Net balance at December 31, 47,927,730 38,538,763 27,462,960 Plus reinsurance recoverables (225,367) 45,321 12,363 Balance at December 31, $47,702,363 $38,584,084 $27,475,323 As explained in Note (1)(d), differences between estimates and ultimate payments are reflected in expense for the period in which the estimates are changed. The Company continually reviews its reserves for losses and loss adjustment expenses and the related reinsurance recoverables. As a result of the variability in these estimates, reserves have differed from actual experience during 1996, 1995 and 1994. The estimates are based on past claim experience and consider current claim trends as well as social and economic conditions. Policies and procedures have been implemented which management believes will stabilize the reserve development. The Company continues to monitor factors that could affect future claim development. While the Company has recorded its current best estimate of its reserves for losses and loss adjustment expenses, it is reasonably possible these estimates, net of estimated reinsurance recoverables, may increase in the future. See Note 4(b) for discussion of assumed reinsurance.
(4) Reinsurance (a)Ceded In 1996, the Company generally reinsures losses in excess of $1,000,000 with various other companies through reinsurance ceded contracts. In 1995, the Company reinsured losses in excess of $300,000 and $500,000. These arrangements provide for greater diversification of business, allow the Company to control exposure to potential losses arising from large risks, and provide additional capacity for growth. Reinsurance ceded contracts do not relieve the Company from its obligations to policyhold- ers. The Company remains liable to its policyholders for the portion reinsured to the extent that any reinsurer does not meet the obligations assumed under the reinsurance agreements. To minimize its exposure to significant losses from reinsurer insolvencies, the Company evaluates the financial condition of its reinsurers. Amounts recoverable from reinsur- ers are estimated in a manner consistent with the claim liability associ- ated with the reinsured policies. Net written and earned premiums and losses and loss adjustment expenses include reinsurance activity as follows:
Written Premiums 1996 1995 1994 Direct $90,939,387 $70,878,492 $58,541,983 Assumed - - 22,359 Ceded (1,696,062) (2,521,524) (1,912,401) Net premiums written $89,243,325 $68,356,968 $56,651,941 Earned Premiums 1996 1995 1994 Direct $79,236,282 $66,117,013 $55,075,416 Assumed - - 22,359 Ceded (1,888,963) (2,251,513) (2,636,319) Net premiums earned $77,347,319 $63,865,500 $52,461,456 Losses and Loss Adjustment Expenses 1996 1995 1994 Direct $40,476,441 $33,320,640 $27,179,449 Assumed - losses 1,606,731 1,355,570 828,195 Assumed - legal and audit 100,016 98,743 79,967 Ceded (1,017,412) (675,490) (551,557) Net losses and loss adjustment expenses $41,165,776 $34,099,463 $27,536,054
(b)Assumed CIC was involved in providing reinsurance coverage by assuming a portion of risks underwritten by other insurance companies and pools. Although CIC withdrew from the reinsurance business in 1976, its liability remains for losses on policies written during the period in which it participated as a reinsurer. The Company is involved with treaties which cover certain risks which have had significant development industry-wide over the past several years. The reinsurance assumed loss reserves are based on current information available from the ceding companies and are continually re- viewed for accuracy and reasonableness. The Company believes the assumed reserves of $4,962,169 and $5,562,269 at December 31, 1996 and 1995, re- spectively, which are included in the reserve for losses, are reasonable. However, due to the nature of the assumed business, ultimate losses may vary from current estimates. The Company has issued outstanding letters of credit relating to reinsurance assumed of $503,585 at December 31, 1996 and 1995. (5) Income Taxes (a)The Company and its subsidiaries file a consolidated federal income tax return and separate state franchise and premium tax returns as applicable. (b)The components of income tax expense for the years 1996, 1995 and 1994 are as follows:
1996 1995 1994 Current expense: Federal $ 6,683,429 $ 4,393,537 $ 3,040,153 State 559,972 468,388 388,246 Total current expense 7,243,401 4,861,925 3,428,399 Deferred expense(benefit): Deferred insurance acquisition costs 1,274,812 514,583 266,687 Unearned premiums (808,929) (305,420) (305,565) Discount on loss and loss adjustment expense reserves (315,137) (285,995) (162,179) Unpaid commissions (211,404) 23,551 (41,228) Other (24,592) (103,365) (19,751) Total deferred benefit (85,250) (156,646) (262,036) Income tax expense $ 7,158,151 $ 4,705,279 $ 3,166,363 (c)A reconciliation of the effective income tax rate, as reflected in the consolidated statements of income, to the statutory federal income tax rate, is as follows: 1996 1995 1994 Statutory tax rate 35.0% 34.0% 34.0% Municipal bond income, net of proration -5.7% -6.9% -9.1% Dividend received exemption, net of proration -1.9% -2.1% -1.8% State income tax expense, net of federal tax benefit 1.5% 1.6% 2.1% Other, net -0.8% -1.4% 0.3% Effective income tax rate 28.1% 25.2% 25.5% (d)Significant components of the deferred tax liabilities and assets are as follows: December 31, December 31, 1996 1995 Deferred tax liabilities: Deferred insurance acquisition costs $ 4,412,627 $ 3,137,815 Net unrealized gains on investment securities 11,139,649 6,830,903 Other 101,742 74,055 Total deferred tax liabilities 15,654,018 10,042,773 Deferred tax assets: Unearned premium reserve discounting 2,893,719 2,084,790 Loss and loss adjustment expense reserve discounting 1,618,970 1,303,833 Unpaid commissions 755,815 544,411 Salvage and subrogation reserve discounting 214,478 182,602 Other 129,200 125,800 Total deferred tax assets 5,612,182 4,241,436 Net deferred tax (liability) asset $(10,041,836) $(5,801,337)
(6) Common Stock Options The company has elected to follow Accounting Principles Board Opinion No. 25 "Accounting for Stock Issued to Employees' (APB 25) and related Interpreta- tions in accounting for its stock options because, as discussed below, the alternative fair value accounting provided for under FASB 123 "Accounting for Stock Based Compensation" (Statement 123) requires use of option val- uation models that were not developed for use in valuing stock options. Under APB 25, since the exercise price of the Company's stock options equals the market price of the underlying stock on the date of grant, no compensation expense is recognized. Had the company used the fair value approach required under Statement 123, net income and earnings per share would not be materially different for the years 1996 and 1995. The Company's 1993 Stock Option Plan has authorized the grant of options for up to 1,072,500 shares of the Company's stock. All options granted have a five year term and become fully vested at the end of four years. A summary of the Company's stock activity, and related information for the years ended December 31 follows:
1996 1995 Weighted Average Weighted Average Options Excercise-Price Options Excercise-Price Outstanding, beginning of year 238,910 $ 7.30 175,552 $ 5.30 Granted 106,523 14.40 118,140 9.20 Exercised (14,106) 5.40 (35,416) 3.10 Forfeited (10,000) 9.50 (19,366) 8.60 Outstanding, end of year 321,327 $ 10.30 238,910 $ 7.30 Excercise prices for options outstanding as of December 31, 1996 ranged from $2.00 to $14.00.
(7) Statutory Reporting (a)The financial statements of the insurance subsidiaries have been prepared in accordance with generally accepted accounting principles, which differ in certain respects from accounting practices prescribed or permitted by insurance regulatory authorities (statutory basis). The statutory capital and surplus and net income of the insurance subsidiaries as reported to state regulatory authorities, were as follows:
Policyholders' Surplus As Of December 31, 1996 1995 1994 Capitol Indemnity Corporation $86,880,871 $62,618,547 $40,651,963 Capitol Specialty Insurance Corporation 6,561,248 5,907,094 5,348,768 Total $93,442,119 $68,525,641 $46,000,731 Net Income for the Year Ended December 31, 1996 1995 1994 Capitol Indemnity Corporation $13,566,036 $11,762,554 $ 7,415,763 Capitol Specialty Insurance Corporation 285,640 238,538 432,832 Total $13,851,676 $12,001,092 $ 7,848,595
(b)CIC is required by the Insurance Commissioner of the State of Wisconsin to maintain a minimum compulsory surplus (surplus as regards policyhold- ers) of 25% of net premiums written during the preceeding twelve months. As of December 31, 1996, the amount of compulsory surplus required to be maintained by CIC was approximately $22,310,805. (c)State insurance regulations limit the transfer of assets, including divi- dends, from insurance subsidiaries to the Company without regulatory approval. (8) Contingent Liabilities CIC is a defendant in certain lawsuits involving complaints which demand damages and recoveries for claims and losses allegedly related to risks in- sured by CIC. In the opinion of management, such lawsuits are routine in that they result from the ordinary course of business in the insurance in- dustry. The reserves for losses and loss adjustment expenses include manage- ment's estimates of the probable ultimate cost of settling all losses in- volving lawsuits. See Notes (1)(d), (3) and (4). (9) Employee Benefit Plans The Company has a defined contribution benefit plan (the Plan) in which all qualified employees are eligible to participate. The Plan incorporates a contributory feature under Section 401(k) of the Internal Revenue Code allowing employees to defer portions of their income through contributions to the Plan. The Company's annual contribution to the Plan is 150% of the first $1,500 of each participant's contribution during the plan year. The Company made contributions of $165,397, $147,872 and $130,708 in 1996, 1995 and 1994, respectively. The Company also has an Employee Stock Ownership Plan in which all quali- fied employees are eligible to participate. The plan provides for discre- tionary employer contributions of shares of Company stock or cash to pur- chase shares of Company stock. The Company made contributions of $120,500, $89,000 and $56,000 in 1996, 1995 and 1994, respectively. (10)Underwriting, Acquisition and Insurance Expenses A summary of underwriting, acquisition and insurance expenses incurred during the years ended December 31, 1996, 1995 and 1994 is as follows:
1996 1995 1994 Net commissions $20,629,905 $14,791,800 $11,834,298 Salaries and other compensation 3,714,706 3,423,152 2,653,693 Other expenses 4,792,078 4,003,558 3,429,750 Total costs 29,136,689 22,218,510 17,917,741 Increase in deferred insurance acquisition costs (3,749,446) (1,513,479) (784,373) Total underwriting, acquisition and insurance expenses $25,387,243 $20,705,031 $17,133,368 Substantially all insurance contracts written by CIC are for a term of one year or less and deferred insurance acquisition costs are amortized over the same term. The amount of deferred insurance costs amortized was $22,801,709, $18,611,260 and $15,262,076 in 1996, 1995 and 1994, respectively.
(11)Line of Credit The Company has a line of credit of $10,000,000. There were no borrowings under the line of credit in 1996. (12)Quarterly Results of Operations (Unaudited)
For the Year Ended December 31, 1996 (Reported) First Second Third Fourth Total Revenues $19,021,237 $21,670,439 $23,340,606 $29,321,460 $93,353,742 Losses incurred and expenses 14,535,158 13,346,535 15,003,741 24,960,999 67,846,433 Net income 3,279,962 5,802,417 5,958,133 3,308,646 18,349,158 Net income per share $ 0.30 $ 0.52 $ 0.54 $ 0.30 $ 1.66 Dividends per share $ 0.07 $ 0.07 $ 0.07 $ 0.07 $ 0.28 In connection with the analysis of an internal loss and expense reserve study, the Company posted fourth quarter adjustments to increase reserves for losses and loss adjustment expenses. As a result of the adjustments, the Company has restated 1996 quarterly losses incurred and expenses as follows: For the Year Ended December 31, 1996 (Restated) First Second Third Fourth Total Revenues $19,021,237 $21,670,439 $23,340,606 $29,321,460 $93,353,742 Losses incurred and expenses 14,535,158 15,846,535 17,503,741 19,960,999 67,846,433 Net income 3,279,962 4,152,417 4,308,133 6,608,646 18,349,158 Net income per share $ 0.30 $ 0.38 $ 0.39 $ 0.59 $ 1.66 Dividends per share $ 0.07 $ 0.07 $ 0.07 $ 0.07 $ 0.28 For the Year Ended December 31, 1995 First Second Third Fourth Total Revenues $15,476,378 $18,763,854 $18,131,047 $21,861,533 $74,232,812 Losses incurred and expenses 11,387,365 13,368,380 14,324,134 16,517,248 55,597,127 Net income 3,033,089 3,872,854 2,856,847 4,167,616 13,930,406 Net income per share $ 0.28 $ 0.35 $ 0.26 $ 0.38 $ 1.26 Dividends per share $ 0.05 $ 0.06 $ 0.06 $ 0.12 $ 0.29 SCHEDULE I CAPITOL TRANSAMERICA CORPORATION SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES As of December 31, 1996 (Consolidated)
Amount at Which Shown Fair in Balanc Type of Investment Cost Value Sheet Fixed maturity securities, available-for-sale: Bonds: United Stated Government and government agencies and authorities $ 578,852 $ 583,395 $ 583,395 State, municipalities, and political subdivisions 75,906,193 80,590,881 80,590,881 All other corporate bonds 1,322,003 1,392,449 1,392,449 Total 77,807,048 82,566,725 82,566,725 Equity securities, available-for-sale: Common stocks: Public utilities 2,065,856 1,765,637 1,765,637 Banks, trusts, and insurance companies 39,904,060 64,470,351 64,470,351 Industrial, miscellaneous, and all other 17,129,543 20,333,226 20,333,226 Nonredeemable preferred stocks 5,346,938 5,881,180 5,881,180 Total 64,446,397 92,450,394 92,450,394 Real estate, net of depreciation 6,721,343 6,721,343 Short-term investments 3,063,384 3,063,384 Total Investments $152,038,172 92,450,394 $184,801,846 SCHEDULE II CONDENSED FINANCIAL INFORMATION OF REGISTRANT CAPITOL TRANSAMERICA CORPORATION (Parent Company) CONDENSED BALANCE SHEETS December 31, Assets 1996 1995 Investments $ 7,588,787 $ 7,070,097 Cash 31,690 22,369 Accrued investment income 54,197 55,125 Investment in subsidiaries 107,873,422 86,053,978 Income taxes receivable - 48,762 Other assets 2,368,988 1,280,161 Total assets $117,917,084 $94,530,492 Liabilities and shareholders' equity Liabilities: Accounts payable $ 336,381 $ 646,286 Dividends payable 4,526 751,376 Income taxes payable 120,287 - Deferred income taxes 874,007 478,950 Total liabilities 1,335,201 1,876,612 Shareholders' equity: Common stock 11,419,066 7,588,605 Additional paid-in-capital 21,114,644 20,949,100 Unrealized appreciation (depreciation) on available-for- sale securities, net of deferred taxes 1,696,601 929,729 Retained earnings (including undistributed earnings of subsidiaries of $102,271,184 and $81,151,740, respectively) 82,689,078 63,508,153 116,919,389 92,975,587 Less treasury stock, at cost (337,506) (321,707) Total shareholders' equity 116,581,883 92,653,880 Total liabilities and shareholders' equity $117,917,084 $94,530,492 December 31, STATEMENTS OF INCOME 1996 1995 1994 Dividends received from subsidiaries $ 4,200,000 $ 3,000,000 $ 3,000,000 Management fees received from subsidiaries 1,515,478 1,466,553 1,286,871 Investment income 272,035 253,103 272,250 Realized investment gains 448,156 18,255 7 Other income 646 24,138 15,300 Total Income 6,436,315 4,762,049 4,574,428 Administrative expenses 1,363,770 1,449,273 1,068,378 Net income before tax and equity in undistributed net income of subsidiaries 5,072,545 3,312,776 3,506,050 Income tax expense 220,197 26,324 105,228 Net income of before equity in undistributed net income of subsidiaries 4,852,348 3,286,452 3,400,822 Equity in undistributed net income of subsidiaries, net of dividends paid 13,496,810 10,643,954 5,846,418 Net Income $18,349,158 $13,930,406 $ 9,247,240 The accompanying condensed financial information should be read in conjunction with the consolidated financial statements and notes thereto of Capitol Transamerica Corporation. SCHEDULE II (continued) CAPITOL TRANSAMERICA CORPORATION (Parent Company) December 31, STATEMENTS OF CASH FLOWS 1996 1995 1994 Cash flows provided by operating activities: Net income $18,349,158 $13,930,406 $ 9,247,240 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 728,940 378,263 344,328 Realized investment gains (448,156) (18,255) (7) Change in: Equity in net income of subsidiaries (13,496,810) (10,643,954) (5,846,418) Other assets (488,710) (74,752) 45,920 Other liabilities (189,618) 273,391 (536,691) Net cash provided by operating activitities 4,454,804 3,845,099 3,254,372 Cash flows provided by (used for) investing activities: Proceeds from investments sold/matured 1,091,372 1,070,493 524,254 Purchases of investments - (1,740,750) (225,103) Purchase of depreciable assets (1,279,331) (683,115) (320,920) Net cash used for investing activitities (187,959) (1,353,372) (21,769) Cash flows provided by (used for) financing activities: Cash dividends paid (3,731,375) (2,568,259) (2,964,085) Capital contribution to subsidiaries (700,000) (20,000) (625,000) Stock options exercised 189,650 109,924 139,710 Net proceeds from sale (purchase) of treasury stock (15,799) 8,918 8,444 Net cash used for financing activitities (4,257,524) (2,469,417) (3,440,931) Net increase (decrease) in cash 9,321 22,310 (208,328) Cash, beginning of year 22,369 59 208,387 Cash, end of year $ 31,690 $ 22,369 $ 59 Cash paid during the year for: Income taxes $ 48,761 $ 88,077 $ 39,181 Interest 51,417 - - The accompanying condensed financial information should be read in conjunction with the consolidated financial statements and notes thereto of Capitol Transamerica Corporation. SCHEDULE III CAPITOL TRANSAMERICA CORPORATION SUPPLEMENTARY INSURANCE INFORMATION December 31, Deferred Future Policy Policy Benefits, Losses, Other Acquisition Claims, and Unearned Policyholde Segment Costs Loss Expense Premiums Funds 1996: Property-casualty insurance $12,978,314 $47,702,363 $43,258,833 $ - 1995: Property-casualty insurance $ 9,228,868 $38,584,084 $31,555,728 $ - 1994: Property-casualty insurance $ 7,715,389 $27,475,323 $26,794,249 $ - Year ended December 31 Benefits, Amortization of Net Claims, Losses, Deferred Policy Other Premium Investment and Settlement Acquisition Operating Premiums Sement Revenue Income Expenses Costs Expenses Written 1996: Property-casualty insurance $77,347,319 $ 7,155,382 $41,165,776 $22,801,709 $ 1,293,414 $90,939,387 1995: Property-casualty insurance $63,865,500 $ 6,635,123 $34,099,463 $18,611,260 $ 792,633 $70,878,492 1994: Property-casualty insurance $52,461,456 $ 5,359,606 $27,536,054 $15,262,076 $ 750,202 $58,564,342 SCHEDULE IV CAPITOL TRANSAMERICA CORPORATION REINSURANCE For The Years Ended December 31, l996, l995 and l994 Assumed Percentage Gross Ceded to From of Amount Premiums Other Other Net Assumed Written Companies Companies Amount To Net December 31, 1996 Premiums Written: Accident and Health insurance $ 238,615 $ - $ - $ 238,615 - Property & casualty and fidelity & surety insurance 90,700,772 $ 1,696,062 $ - $89,004,710 - Total premiums written $90,939,387 $ 1,696,062 $ - $89,243,325 - December 31, 1995 Premiums Written: Accident and Health insurance $ 222,137 $ - $ - $ 222,137 - Property & casualty and fidelity & surety insurance 70,656,355 $ 2,521,524 $ - $68,134,831 - Total premiums written $70,878,492 $ 2,521,524 $ - $68,356,968 - December 31, 1994 Premiums Written: Accident and Health insurance $ 223,193 $ - $ - $ 223,193 - Property & casualty and fidelity & surety insurance 58,318,790 1,912,401 22,359 56,428,748 0.040% Total premiums written $58,541,983 $ 1,912,401 $ 22,359 $56,651,941 0.040% SCHEDULE VI CAPITOL TRANSAMERICA CORPORATION SUPPLEMENTAL INFORMATION CONCERNING PROPERTY-CASUALTY INSURANCE OPERATIONS December 31, l996 As of December 31, BALANCE SHEET DATA: 1996 1995 Deferred insurance acquisition costs $12,978,314 $ 9,228,868 Outstanding loss and loss adjustment expense reserves 47,702,363 38,584,084 Discount deducted from reserves - - Unearned premiums $43,258,833 $31,555,728 INCOME STATEMENT DATA: Year Ended 1996 1995 1994 Earned premiums $77,347,319 $63,865,500 $52,461,456 Net investment income 7,155,382 6,635,123 5,359,606 Incurred losses and loss adjustment expenses related to: Current year 36,041,564 27,244,006 21,287,960 Prior years 5,124,212 6,875,457 6,248,094 Amortization of deferred policy acquisition costs 22,801,709 18,611,260 15,262,076 Paid claims and claim adjustment expenses 31,732,853 22,917,982 19,474,242 Gross premiums written $90,939,387 $70,878,492 $58,564,342
EX-27 2
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