-----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, UmdCsRkw6EjfUiPIf4/Ye5He+wBa+sBAffeRLQsbRwum++L+ZdSs9Ca6iAtvKtdr ZmfW9oWli0OPRAQWDhCbtA== 0001015402-01-500613.txt : 20010409 0001015402-01-500613.hdr.sgml : 20010409 ACCESSION NUMBER: 0001015402-01-500613 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010402 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: SEC FILE NUMBER: 000-02047 FILM NUMBER: 1590586 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 capitol_transamerica.txt ________________________________________________________________________________ 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 l934 For the fiscal year ended December 31, 2000 Commission file number: 0-2047 ----------------- ------ CAPITOL TRANSAMERICA CORPORATION ------------------------------------------------------ (Exact name of registrant as specified in its charter) A Wisconsin Corporation 39-1052658 - ------------------------------------ ---------------------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 4610 University Avenue Madison, Wisconsin 53705-0900 ----------------------------------------- -------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (608) 231-4450 ------------------- Securities registered pursuant to Section 12 (g) of the Act: COMMON STOCK, $1.00 PAR VALUE ----------------------------- (Title of Class) 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 l934 during 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 requirements for the past 90 days. YES X NO -- Indicate by a check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Sec. 229.405 of this chapter) is not contained herein, and will not be contained, to the best of 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 (13 1/4) and asked price (14), the aggregate market value of voting stock held by non-affiliates of the registrant as of March 9, 2001 was approximately $149,177,700. Indicate the number of shares of each of the issuer's class of common stock, as of the latest practicable date: At March 9, 2001 Common Stock, $1.00 Par Value; Issued: 11,560,189 Outstanding: 10,948,822 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. Portions of the proxy statement for the annual shareholders meeting to be held May 14, 2001 are incorporated by reference into Part III. Total Pages: 41 - -------------------------------------------------------------------------------- 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 $283 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. CIC writes a complete portfolio of fidelity and surety bonds and specialty insurance coverages, while CSIC has been largely inactive due to market conditions. CIC operates on an admitted basis in thirty-six states and on an excess/surplus lines basis in one state. CFC is a non-insurance entity available for other business opportunities. 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 Performance 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 substantial 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 insurance on selected risks. The Company conducts business with insurance agents located throughout the United States. As of December 31, 2000 and 1999, 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 excess of 10% of the Company's gross premiums in 2000, 1999 or 1998. During 2000, 1999 and 1998, direct premiums written in Wisconsin accounted for approximately 19%, 19% and 17%, respectively, and direct premiums written in Illinois accounted for approximately 14%, 14% and 14%, respectively, of the total direct premiums written by the Company. No other state exceeded 10%. (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 desirable business. 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, 2000, CIC reported $107.9 million in surplus as regards policyholders, approximately $84.6 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 Company's ratios are substantially less than the requirement and had the company not included the excess statutory reserves over statement reserves in reporting to regulatory authorities, surplus would have been $110.6 million at December 31, 2000. Importance and Effect of Licenses: ------------------------------------- Generally speaking, insurance companies must be licensed by 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 approximately 200 people. 2 Item 1(c). (continued) - ----------- Information as to Similar Products or Services: ----------------------------------------------------- Gross premiums written, reinsurance ceded and net premiums written for the past five years are as follows:
2000 ------------------------------------- Gross Ceded Net ------------ ---------- ----------- Accident and Health $ 2,234,341 $1,940,917 $ 293,424 Burglary and Theft 13,838 - 13,838 Fidelity 1,315,459 87,659 1,227,800 Fire and Allied Lines 233,707 4,008 229,699 Inland Marine 1,067,314 802,577 264,737 Liability 10,841,327 265,893 10,575,434 Commercial Multiple Peril 60,080,487 3,926,534 56,153,953 Workers' Compensation 5,607,168 9,339 5,597,829 Surety 20,716,575 1,181,507 19,535,068 ------------ ---------- ----------- $102,110,216 $8,218,434 $93,891,782 ============ ========== ===========
1999 ------------------------------------- Gross Ceded Net ----------- ---------- ----------- Accident and Health $ 1,783,585 $1,493,857 $ 289,728 Burglary and Glass 8,043 - 8,043 Fidelity 1,529,920 77,098 1,452,822 Fire and Allied Lines 219,222 3,986 215,236 Inland Marine 523,766 383,631 140,135 Liability 8,086,932 163,639 7,923,293 Commercial Multiple Peril 50,787,804 2,734,476 48,053,328 Workers' Compensation 4,549,679 - 4,549,679 Surety 18,513,849 952,737 17,561,112 ----------- ---------- ----------- $86,002,800 $5,809,424 $80,193,376 =========== ========== ===========
1998 ------------------------------------- Gross Ceded Net ----------- ---------- ----------- Accident and Health $ 1,884,645 $1,596,313 $ 288,332 Burglary and Glass 4,897 - 4,897 Fidelity 1,172,166 50,915 1,121,251 Fire and Allied Lines 319,109 5,621 313,488 Inland Marine 828,791 714,331 114,460 Liability 9,669,318 136,386 9,532,932 Commercial Multiple Peril 49,502,961 1,914,558 47,588,403 Workers' Compensation 4,059,756 - 4,059,756 Surety 20,487,509 735,055 19,752,454 ----------- ---------- ----------- $87,929,152 $5,153,179 $82,775,973 =========== ========== ===========
3 Item 1(c). (continued) - -----------
1997 ------------------------------------- Gross Ceded Net ----------- ---------- ----------- Accident and Health $ 5,090,314 $4,817,208 $ 273,106 Burglary and Glass 4,189 - 4,189 Fidelity 1,230,700 22,697 1,208,003 Fire and Allied Lines 424,516 4,296 420,220 Inland Marine 1,076,850 953,052 123,798 Liability 10,967,296 143,567 10,823,729 Commercial Multiple Peril 52,132,045 1,599,619 50,532,426 Workers' Compensation 3,381,685 - 3,381,685 Surety 25,200,251 402,612 24,797,639 ----------- ---------- ----------- $99,507,846 $7,943,051 $91,564,795 =========== ========== ===========
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 =========== =========== ===========
(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. 4 (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 earnings or reserves. (2) Significant reserving assumptions including any recent changes. (3) The nature of recent changes in the terms under which reinsurance 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 and circumstances. (6) Unusually large losses or gains. (f) Reconciliation of Loss and Loss Adjustment Expense Reserves: -------------------------------------------------------------------
2000 1999 1998 ------------ ------------ ------------ Balances at January 1, $77,256,192 $78,504,050 $71,472,338 Reinsurance balances 121,478 (1,101,770) (594) ------------ ------------ ------------ Net reserves 77,377,670 77,402,280 71,471,744 Incurred losses and loss adjustment expenses related to: Current year 60,051,007 47,749,455 49,862,090 Prior years: Direct losses (net of recoveries) (1,744,893) (562,627) 4,091,923 Direct loss adjustment expenses (net of recoveries) 520,814 (2,379,899) (1,956,631) Discontinued assumed reinsurance (1,325,553) 493,912 379,732 ------------ ------------ ------------ Total prior years (2,549,632) (2,448,614) 2,515,024 Total incurred 57,501,375 45,300,841 52,377,114 ------------ ------------ ------------ Paid losses and loss adjustment expenses related to: Current year 25,045,636 18,642,962 20,035,517 Prior years 29,411,213 26,682,489 26,370,166 ------------ ------------ ------------ Total paid 54,456,849 45,325,451 46,405,683 ------------ ------------ ------------ Other adjustments, net - - (40,895) ------------ ------------ ------------ Net balance at December 31 80,422,196 77,377,670 77,402,280 Reinsurance balances (2,441,223) (121,478) 1,101,770 ------------ ------------ ------------ Balances at December 31, $77,980,973 $77,256,192 $78,504,050 ============ ============ ============
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(g) Loss Reserve Development Consolidated (in millions of dollars) Year ended: 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 ------- ------- ------- ------- ------- ------- ------ ----- ----- ----- Reserves for losses and loss adjustment expenses $ 14.5 $ 18.1 $ 19.3 $ 27.5 $ 38.5 $ 47.7 $71.5 $78.5 $77.3 $78.0 Re-estimated reserves: One year later 19.5 21.2 25.5 33.8 43.4 65.8 75.1 74.9 73.3 Two years later 21.3 23.8 31.2 37.5 57.7 65.9 72.0 71.0 - Three years later 22.7 28.3 33.5 51.4 56.2 65.6 67.0 - - Four years later 25.9 30.7 43.6 48.2 54.4 60.9 - - - Five years later 27.9 38.6 42.7 45.3 51.7 - - - - Six years later 34.7 38.0 40.0 43.8 - - - - - Seven years later 34.2 37.1 38.3 - - - - - - Eight years later 34.2 35.3 - - - - - - - Nine years later 32.6 - - - - - - - - Cumulative (deficiency) redundancy (18.1) (17.2) (19.0) (16.3) (13.2) (13.2) 4.5 7.5 4.0 ======= ======= ======= ======= ======= ======= ====== ===== ===== Cumulative (deficiency) redundancy from discontinued reinsurance assumed operations (12.2) (11.0) (10.0) (8.9) (8.0) (6.5) (5.2) 0.4 0.8 ------- ------- ------- ------- ------- ------- ------ ----- ----- Cumulative (deficiency) redundancy from continuing operations (5.9) (6.2) (9.0) (7.4) (5.2) (6.7) 9.7 7.1 3.2 ======= ======= ======= ======= ======= ======= ====== ===== ===== Cumulative amount of liability paid through: One year later 7.6 9.4 9.9 12.2 16.2 21.2 26.4 26.7 29.1 Two years later 12.7 14.1 17.2 21.4 26.6 34.6 40.5 43.8 - Three years later 15.4 18.9 23.6 27.5 34.2 44.3 50.0 - - Four years later 18.7 23.0 27.0 31.7 38.4 48.9 - - - Five years later 21.6 25.0 28.7 33.3 41.6 - - - - Six years later 22.8 26.5 29.5 34.9 - - - - - Seven years later 23.9 27.2 30.1 - - - - - - Eight years later 24.5 27.3 - - - - - - - Nine years later 24.6 - - - - - - - -
This table does not present accident or policy year development data, which readers may be more accustomed to analyzing. Conditions and trends that have affected 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 this discontinued assumed business, ultimate losses may, and often do, vary from current estimates. See footnote 4(b) of the notes to the consolidated financial statements. 6 (h) Reconciliation of Statutory to Generally Accepted Accounting Principles (GAAP) reserves:
For the Year Ended December 31, ---------------------------------- 2000 1999 1998 ------------ ------------ ------------ Balance, December 31, as reported to the Insurance Commissioner of the State of Wisconsin: - CIC $80,127,074 $77,044,646 $77,094,939 CSIC - - 367,612 Funds withheld from reinsurers, reclassified to loss reserves on a GAAP basis 417,789 412,481 408,516 Reserve for return of disability premiums, reclassified to loss reserves on a GAAP basis 3,369 19,517 24,064 GAAP adjustment to gross up reserves for the effect of reinsurance (2,494,771) (185,866) 669,190 Other, net (72,488) (34,586) (60,271) ------------ ------------ ------------ Balance, December 31, on a GAAP basis $77,980,973 $77,256,192 $78,504,050 ============ ============ ============
Item 2. Properties - -------- ---------- Capitol Transamerica Corporation leases premises in the Pyare Square building located at 4610 University Avenue, Madison, Wisconsin 53705, as follows: Approximately 45,940 square feet occupying all or a portion of the 1st, 2nd, 3rd, 6th, and 9th through 14th floors. The term of the lease is from June 1, 1999 through August 31, 2002, with two three year options to renew after that date. The Company also leases approximately 2,900 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 3,317 square feet of office space in Las Vegas, Nevada. The term of the lease is from February 1, 1998 to February 28, 2006. 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 ordinary 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, 2000, 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, 2000. 7 Item 5. Market Information, Dividends and Other Information - -------- -------------------------------------------------------- On March 9, 2001, 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 during 2000 was a low of 9 3/8 and a high of 13 1/4 with the equivalent of 1.8 million shares traded. Quarterly high and low quoted prices, which are obtained from the National Association of Securities Dealers, are illustrated below.
2000 1999 -------------------------- ---------------------------- Quarter High Low Dividends High Low Dividends - -------- ------ ------ ---------- ------ -------- ---------- First 13 1/4 9 3/8 $ .07 19 1/2 14 1/8 $ .07 Second 13 10 .07 15 3/8 12 1/2 .07 Third 12 1/4 10 7/8 .07 15 1/4 13 5/16 .07 Fourth 12 7/8 10 3/8 .07 14 9 1/2 .07 ------ ------ ---------- ------ -------- ---------- Year 13 1/4 9 3/8 $ .28 19 1/2 9 1/2 $ .28 ====== ====== ========== ====== ======== ==========
For the period January 1 through March 9, 2001, the high ask price was 14 7/16 and the low bid price was 12 1/8. A regular cash dividend of $.08 per share was paid on March 23, 2001, to shareholders of record on March 9, 2001. 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 Report Capitol Specialty Insurance Corporation filed with the Securities and Exchange Capitol Facilities Corporation Commission, including 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 Department will be held Monday, May 14, 2001 1555 N. River Center Drive 4:00 PM at the Suite 301 Marriott Inn - Madison West Milwaukee, Wisconsin 53212 1313 John Q. Hammond Drive Middleton, Wisconsin 53562 Common stock ------------ Listed: OTC Quoted: NASD (CATA)
8
Item 6. FIVE YEAR CONSOLIDATED SUMMARY OF SELECTED FINANCIAL DATA: - -------- -------------------------------------------------------------- 2000 1999 1998 1997 1996 ------------- ------------- ------------- ------------- ------------- Gross Premiums Written $102,110,215 $ 86,002,801 $ 87,929,152 $ 99,507,846 $ 90,939,387 ============= ============= ============= ============= ============= Net Premiums Written $ 93,891,782 $ 80,193,376 $ 82,775,973 $ 91,564,795 $ 89,243,325 ============= ============= ============= ============= ============= Premiums Earned $ 88,184,842 $ 82,841,104 $ 88,629,476 $ 87,451,620 $ 77,347,319 Net Investment Income 9,163,062 9,136,244 9,119,936 8,580,713 7,155,382 Realized Investment Gains 11,805,350 8,184,101 13,198,139 15,370,384 8,468,911 Other Revenues 355,208 249,672 113,005 36,801 382,130 ------------- ------------- ------------- ------------- ------------- Total Revenues 109,508,462 100,411,121 111,060,556 111,439,518 93,353,742 ------------- ------------- ------------- ------------- ------------- Losses and Loss Adjustment Expenses Incurred 57,501,375 45,300,841 52,377,114 61,128,402 41,165,776 Underwriting and Other Expenses 32,688,826 31,199,583 30,682,454 28,587,186 26,680,657 ------------- ------------- ------------- ------------- ------------- Total Losses Incurred and Expenses 90,190,201 76,500,424 83,059,568 89,715,588 67,846,433 ------------- ------------- ------------- ------------- ------------- Income from Operations Before Income Taxes 19,318,261 23,910,697 28,000,988 21,723,930 25,507,309 Income Tax Expense 4,864,944 7,198,234 8,577,075 6,532,051 7,158,151 ------------- ------------- ------------- ------------- ------------- Consolidated Net Income $ 14,453,317 $ 16,712,463 $ 19,423,913 $ 15,191,879 $ 18,349,158 ============= ============= ============= ============= ============= Weighted Average Number of Shares Outstanding- Basic 11,124,074 11,252,358 11,206,018 11,151,428 11,077,501 ============= ============= ============= ============= ============= Weighted Average Number of Shares Outstanding- Diluted 11,158,462 11,297,289 11,280,442 11,285,751 11,315,758 ============= ============= ============= ============= ============= Income Per Share - Basic $ 1.30 $ 1.49 $ 1.73 $ 1.36 $ 1.66 ============= ============= ============= ============= ============= Income Per Share - Diluted $ 1.30 $ 1.48 $ 1.72 $ 1.35 $ 1.62 ============= ============= ============= ============= ============= Total Cash Dividends Per Share $ 0.28 $ 0.28 $ 0.28 $ 0.38 $ 0.33 Consolidated Net Income and Cash Dividends Stated as a Ratio to Beginning Shareholders' Equity 13.2% 14.1% 16.2% 16.7% 23.8% Year End Financial Position: Assets $283,258,052 $257,622,581 $277,359,597 $286,682,275 $228,885,454 Shareholders' Investment 145,699,869 133,226,210 141,315,973 139,342,141 116,581,883 Book Value Per Share $ 13.23 $ 11.82 $ 12.59 $ 12.46 $ 10.50 ------------- ------------- ------------- ------------- ------------- Shares Outstanding 11,008,900 11,267,899 11,222,180 11,178,882 11,103,297 ------------- ------------- ------------- ------------- ------------- Insurance Operating Ratios (Statutory Basis): Losses and Loss Adjustment Expenses to Net Premiums Earned 65.4% 54.9% 59.4% 70.1% 53.5% Underwriting Expenses to Net Premiums Written 35.1% 37.0% 35.6% 32.1% 33.5% ------------- ------------- ------------- ------------- ------------- Combined Ratio 100.5% 91.9% 95.0% 102.2% 87.0% ============= ============= ============= ============= ============= A. M. BEST Rating A+ A+ A+ A+ A+ Superior Superior Superior Superior Superior ============= ============= ============= ============= =============
9 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 37 states which writes, through its subsidiaries, both property-casualty and fidelity-surety insurance. The property-casualty segment accounts for approximately 77% of the business written while the fidelity-surety segment accounts for approximately 23% 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 inadequate rates, underwriting losses and, as a result, higher combined ratios. The adequacy of premium rates is affected primarily by the severity and frequency 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 industry, the trend of increasing price competition has continued as has the number of significant natural disasters. This combination has resulted in a considerable reduction in underwriting profitability for the industry as a whole. Adequate premium rates continue to be of concern to the Company and the property-casualty insurance industry as a whole. Management feels strongly that rate regulators have been slow to adjust rates in response to increased claim costs from the factors noted above. This, when combined with increased competition in the Companys' niche market, has presented an unprecedented challenge to management. The Company has responded to this challenge with increased marketing efforts as well as the addition of innovative programs and alliances that should position the Company for continued expansion and profitability. OPERATING RESULTS As mentioned in the Overview, management believes that the property-casualty insurance industry is in a downward cycle. Underwriting income decreased to a loss of $2,005,359 this year compared to income of $6,340,680 in 1999 and income of $5,569,908 in 1998. The 2000 decrease in underwriting income is due to larger than expected losses on a few specific claims as well as a $7,000,000 reserve strengthening for the increased premium volume. Had these items not occurred, underwriting income would have been approximately $13,000,000. Management is confident that the increased emphasis on prudent underwriting standards as well as aggressive marketing will assure a continuation of the Company's history of substantial underwriting profits and increasing shareholder value. Gross premiums written during 2000 were $102,110,215, compared with $86,002,801 in 1999 and $87,929,152 in 1998. The premium growth in 2000 is due to the Company's concerted efforts to profitably grow its business as well as from rate increases. Management continually monitors the Company's expansion efforts to ensure that the Company is growing profitably. 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 2000 totaled $88,184,842 compared with $82,841,104 and $88,629,476 in 1999 and 1998, respectively. The net unearned premium reserve was $45,587,586, $39,454,257, and $41,541,432 at each year end. 2000 1999 1998 --------------------------------------------------------------------------- Gross Premiums Written $ 102,110,215 $ 86,002,801 $ 87,929,152 Reinsurance Ceded 8,218,433 5,809,425 5,153,179 --------------------------------------------------------------------------- Net Premiums Written $ 93,891,782 $ 80,193,376 $ 82,775,973 =========================================================================== Net Premiums Earned $ 88,184,842 $ 82,841,104 $ 88,629,476 =========================================================================== Net Unearned Premium Reserve $ 45,587,586 $ 39,454,257 $ 41,541,432 =========================================================================== The Company's underwriting results can be measured by reference to the combined loss and expense ratios. The following table includes the operating results of the Company's 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 stated as a ratio of net premiums written. The combined ratios were as follows:
Insurance Operating Ratios (Statutory Basis): 2000 1999 1998 - ------------------------------------------------------------------- Losses and Loss Adjustment Expenses 65.4% 54.9% 59.4% Underwriting Expenses 35.1% 37.0% 35.6% - ------------------------------------------------------------------- Combined Ratios 100.5% 91.9% 95.0% ===================================================================
10 The Companys' combined ratio continues to compare very favorably to the industry average, as indicated by the following chart: Combined Ratio 2000 1999 1998 - ------------------------------------------------------------------------------ Company 100.5% 91.9% 95.0% Industry Average * 109.3% 110.2% 105.9% - ------------------------------------------------------------------------------ * The industry number for 2000 is the ratio for commercial carriers at September 30, 2000. During the year, the Company continued the program of purchasing treasury stock for contingent commission payments. Under this program, the Company distributes shares of stock as additional compensation to agents based on achievement of premium growth and loss ratio targets for the agent's business in the prior year. REINSURANCE The Company follows the customary practice of reinsuring with other companies, i.e., ceding a portion of its exposure on the policies it has written. This program 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 protection 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 "Accumulated Other Comprehensive Income (Loss)" in the equity portion of the balance sheet. Interest and Dividend Income: Interest on fixed maturities is recorded as income when earned and is adjusted for any amortization of purchase premium or accretion of discount. Dividends on equity securities are recorded as income on ex-dividend dates. Investments: 2000 1999 1998 - -------------------------------------------------------------------------------- Invested Assets 232,367,776 $218,085,184 $238,140,592 Net Investment Income 9,163,062 9,136,244 9,119,936 Percent of Return to Average Carrying Value 4.0% 4.2% 4.5% Realized Gains 11,805,350 8,184,101 13,198,139 Change in Unrealized Gains 4,239,902 $(21,981,943) $(14,657,027) - -------------------------------------------------------------------------------- The net unrealized gain of $4,239,902 for 2000 was comprised of a $1,482,391 unrealized gain on fixed maturities and a $2,757,511 unrealized gain on the Company's equity portfolio. Management has begun to gradually increase its tax-free bond holdings and de-emphasize the equity portfolio, but is optimistic that the recent downturn in the value of its equity investments is temporary and that the current market conditions provide an even greater opportunity to invest and build shareholder value over the long term. This appears to be coming to fruition, as evidenced by the current year's increase in unrealized gains. Net investment income in 2000 amounted to $9,163,062 compared with $9,136,244 and $9,119,936 in 1999 and 1998, respectively. The Company holds a large percentage of equity investments, which results in a comparatively lower rate of return on invested assets. 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 income taxes arise from timing differences between the recognition of income determined 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 of 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 at 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 adjustment expenses were $77,980,973 as of December 31, 2000, compared with $77,256,192 as of December 31, 1999. Management continues to closely monitor the reserves for losses and loss adjustment expenses to assure adequate recognition of the ultimate liability for claims and claim expenses. 11 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 (82.0% in 2000, 84.7% in 1999 and 85.9% in 1998) 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 Company 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 ordinary course of business. The Company has no material capital expenditure commitments. MARKET RISK Market risk is defined as exposure to adverse fluctuations in interest rates, foreign currency exchange rates, and commodity or other price changes. The Company does not invest in derivatives or similar financial instruments, which are highly sensitive to market risk and which are the main focus of the new requirements. However, the requirements are broad enough in scope to encompass the potential impact of interest rate fluctuations on the Company's fixed income portfolio, as well as the potential impact of a severe drop in the stock market on the Company's equity investments. The following table shows the interest rate sensitivity of the Company's fixed income investments (bonds and preferred stock) by presenting the projected impact of a parallel rise or decline in interest rates of 100 and 200 basis points. The interest rate fluctuation is assumed to occur on January 1, 2001 and remain in effect for the life of the fixed income portfolio.
Basis Point (Decrease) Increase Current Portfolio Characteristics (200) (100) Market Rate 100 200 - ----------------------------------------------------------------------------------- Market Value ($000's) $105,278 $101,203 $ 96,358 $90,834 $85,231 Market/Statement Value (%) 115.9% 111.4% 106.1% 100.0% 93.8% Effective Duration (years) 3.9 4.2 4.5 4.8 5.0
The valuation of the Company's common stock portfolio is subject to equity price risk. If market prices were to decrease 10%, the fair value of the common stock portfolio would decrease by an estimated $9.0 million, from $119.4 million to $110.4 million. The Company's investment portfolio is actively managed to minimize downward price risk. YEAR 2000 In prior years, the Company discussed the nature and progress of its plans to become year 2000 ready. In 1999 the Company completed its remediation and testing of systems. As a result of the planning and implementation efforts, the Company experienced no significant disruptions in mission critical information technology and non-information technology systems and believes those systems successfully responded to the year 2000 date change. The Company expensed approximately $90,000 during 1999 in connection with remediating its systems. The Company is not aware of any material problems resulting from year 2000 issues, either with our products, our internal systems or the products and services of third parties. The Company will continue to monitor its mission critical computer applications and those of its agents and vendors throughout the year 2000 to ensure that any latent year 2000 matters that may arise are addressed promptly. SAFE HARBOR STATEMENT Some of the statements in this report, as well as statements by the Company in periodic press releases and oral statements made by the Company's officials to analysts and shareholders in the course of presentations about the Company, constitute "forward-looking statements" within the meaning fo the Private Securities Litigations Reform act of 1995. Such forward-looking statements involve known and unknown risks, estimates subject to change in circumstances, uncertainties and other factors that may cause the actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. 12 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. (1) Capitol Transamerica Corporation Consolidated Financial Statements. (2) Report of independent auditors. (3) Consolidated balance sheets- December 31, 2000 and 1999. (4) Consolidated statements of income- for each of the three years in the period ended December 31, 2000. (5) Consolidated statements of shareholders' investment and comprehensive income (loss)- for each of the three years in the period ended December 31, 2000. (6) Consolidated statements of cash flows- for each of the three years in the period ended December 31, 2000. (7) Notes to consolidated financial statements. Item 9. Disagreements of Accounting and Financial Disclosures - -------- ---------------------------------------------------------- None. PART III --------- Item 10. Directors and Executive Officers of CTC - --------- --------------------------------------------
(a) Directors: Expire at Annual Name (Age) Other Directorships, Business Meeting Date of Original Election Principal Occupation Experience and Miscellaneous Information In: - --------------------------- --------------------------------------- ---------------------------------------------------- --------- Paul J. Breitnauer (61) Vice President and Treasurer of the Mr. Breitnauer has been associated with the 2002 1986 Company; Senior Vice President and insurance industry in various capacities since 1963. Treasurer of CIC, CSIC and CFC, wholly- owned subsidiaries of the Company. Madison, Wisconsin George A. Fait (74) Chairman of the Board and President of Mr. Fait is has been associated with the insurance 2003 1965 the Company and its wholly-owned industry in various capacities since 1950. subsidiaries; Director of Bank One. Madison, Wisconsin Larry Burcalow (59) Owner & President Mr. Burcalow as been Owner and President of 2001 1997 Yahara Materials, Inc. Yahara Materials, Inc. for over 30 years. Waunakee, Wisconsin 13 Item 10 (continued) - --------------------------- Expire at Annual Name (Age) Other Directorships, Business Meeting Date of Original Election Principal Occupation Experience and Miscellaneous Information In: - --------------------------- --------------------------------------- ---------------------------------------------------- --------- Michael J. Larson (59) Principal Mr. Larson has been associated with the banking 2001 1991 Southwestern Financial Services industry in various capacities since 1965. Madison, Wisconsin Reinhart H. Postweiler (71) Retired, formerly with Flad Affiliated Mr. Postweiler is a member of the Wisconsin 2002 1977 Corporation; Director of Bank One Society of Professional Engineers and the National Madison, Wisconsin Society of Professional Engineers. Kenneth P. Urso (66) Principal Mr. Urso has been in the insurance business for 2003 1997 Urso Ventures; Director of First over 30 years. Business Bank 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.
14 (continued) (b) Executive Officers: --------------------- Chairman of the Board and President - George A. Fait (74 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 (61 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 (72 years of age) --------------------------------- Elected in 1988. Secretary - CIC, CSIC and CFC. (c) Additional Executive Officers - ---------------------------------- CIC & CSIC - Wholly-Owned Subsidiary Insurance Companies: ----------------------------------------------------------------
Vice President - Property & Casualty Claims Vice President - Personnel ------------------------------------------- -------------------------- Robert F. Miller (62 years of age) Virgiline M. Schulte (72 years of age) Elected in 1986. Elected in 1993. Vice President - Agency Vice President - Data Processing ----------------------- ------------------------------------------------ Joel G. Fait (42 years of age) Frank S. Zillner (39 years of age) Elected in 1993. Elected in 1993. Vice President - Rating Corporate Counsel ----------------------- ----------------- Vacant Vacant Vice President - Property & Casualty & Underwriting Vice President - Fidelity & Surety Underwriting ---------------------------------------------------- ------------------------------------------------ Vacant Jess J. Wadle (61 years of age) Elected in 1998
(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 6, 2001 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 6, 2001 are incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management - --------- ------------------------------------------------------------------ The sections captioned "Principal Shareholders", "Option Exercised in Last Fiscal Year" and "Compensation Plans" in the CTC Proxy Statement dated April 6, 2001 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 6, 2001, are incorporated 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. 15 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. Consolidated balance sheets - December 31, 2000 and 1999. Consolidated statements of income - for each of the three years in the period ended December 31, 2000. Consolidated statements of shareholders' investment and comprehensive income- for each of the three years in the period ended December 31, 2000. Consolidated statements of cash flows - for each of the three years in the period ended December 31, 2000. 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, 2000. (c) Exhibits -------- None (d) Financial Statement Schedules ------------------------------- Reference is made to the financial statement schedules above. 16 SIGNATURES ---------- Pursuant to the requirements of Section 13 and 15(d) of the Securities Exchange Act of l934, 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 Chairman of the Board, Vice President, President and Director Treasurer and Director By By ------------------------------- ---------------------------------- Virgiline M. Schulte Larry Burcalow Secretary Director By By ------------------------------- ---------------------------------- Michael J. Larson Reinhart H. Postweiler Director Director By ------------------------------- Kenneth P. Urso Director March 26, 2001 17 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 accounting principles generally accepted in the United States and policies considered appropriate in the circumstances. They reflect, where applicable, management's best estimates and judgments. The financial data also includes disclosures and explanations that 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 assurance 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 the independent auditors, both with and without management present, to review accounting, auditing and financial reporting matters. A policy of business ethics is communicated annually to the Company's directors, officers and responsible employees. The Company monitors compliance with the policy to help assure that operations are conducted in a responsible and professional manner with a commitment to the highest standard of business conduct. Paul J. Breitnauer Vice President and Treasurer - -------------------------------------------------------------------------------- REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS To the Shareholders and Board of Directors of Capitol Transamerica Corporation: We have audited the accompanying consolidated balance sheets of Capitol Transamerica Corporation (the "Company") as of December 31, 2000 and 1999, and the related consolidated statements of operations, shareholders' investment and comprehensive income, and cash flows for the three years in the period ended December 31, 2000. Our audits also included 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 auditing standards generally accepted in the United States. 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, 2000 and 1999, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. 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. Ernst & Young LLP Milwaukee, Wisconsin February 16, 2001 18
CAPITOL TRANSAMERICA CORPORATION CONSOLIDATED BALANCE SHEETS December 31, 2000 and 1999 2000 1999 ------------ ------------ Assets Investments (Notes (1)(b) and (2)): Available-for-sale investment securities, at fair value Fixed maturities (amortized cost $85,369,980 and $80,019,257, respectively) $ 90,841,811 $ 83,210,487 Equity securities: Common stock, (cost $123,504,211 and $125,913,872, respectively) 119,413,538 116,656,582 Nonredeemable preferred stock, (cost $6,470,793 and $5,725,500, respectively) 5,516,567 5,695,567 Investment real estate, at cost, net of depreciation 11,008,554 10,540,426 Short-term investments, at cost which approximates fair value (Note(2)(d)) 5,587,306 1,982,122 ------------ ------------ Total Investments 232,367,776 218,085,184 ------------ ------------ Cash 3,641,628 1,080,435 Accrued investment income 1,953,466 1,927,901 Receivables from agents, insureds and others, less allowance for doubtful accounts of $530,000 each year 18,438,610 14,892,647 Balances due from reinsurers 1,794,851 - Funds held by ceding reinsurers 47,000 40,000 Income taxes recoverable- current 67,463 686,240 Deferred income taxes (Notes (1)(f) and (5)) 2,468,713 4,153,393 Deferred insurance acquisition costs (Note (1)(e)) 13,726,372 12,644,189 Prepaid reinsurance premiums 1,714,017 1,287,627 Due from securities brokers 4,218,650 639,136 Other assets 2,819,506 2,114,074 ------------ ------------ Total Assets $283,258,052 $257,550,826 ============ ============
The accompanying notes to the consolidated financial statements are an integral part of these financial statements. 19
CAPITOL TRANSAMERICA CORPORATION CONSOLIDATED BALANCE SHEETS December 31, 2000 and 1999 2000 1999 ------------- ------------- Liabilities Policy Liabilities and Accruals (Notes (1)(d), (3) and (4)): Reserve for losses $ 52,231,685 $ 53,575,780 Reserve for loss adjustment expenses 25,749,288 23,680,412 Unearned premiums 45,587,586 39,454,257 ------------- ------------- Total Policy Liabilities and Accruals 123,568,559 116,710,449 ------------- ------------- Accounts payable 4,203,407 3,950,898 Claim drafts outstanding 4,927,097 1,854,701 Due to securities brokers 34,125 - Balances due to reinsurers 4,097,368 1,469,705 Accrued premium taxes 727,627 338,863 ------------- ------------- Total Other Liabilities 13,989,624 7,614,167 ------------- ------------- Total Liabilities 137,558,183 124,324,616 ------------- ------------- 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 11,558,767 and 11,538,970, respectively 11,558,767 11,538,970 Paid-in surplus 22,733,088 22,594,538 Accumulated other comprehensive income (loss), net of deferred taxes of $149,428 and ($2,133,595), respectively (Notes (1)(b) and (2)) 277,504 (3,962,398) Retained earnings 114,944,048 103,577,193 ------------- ------------- Shareholders' investment before treasury stock 149,513,407 133,748,303 Treasury stock, 549,867 and 271,071 shares, respectively, at cost (3,813,538) (522,093) ------------- ------------- Total Shareholders' Investment 145,699,869 133,226,210 ------------- ------------- Total Liabilities and Shareholders' Investment $283,258,052 $257,550,826 ============= =============
The accompanying notes to the consolidated financial statements are an integral part of these financial statements. 20
CAPITOL TRANSAMERICA CORPORATION CONSOLIDATED STATEMENTS OF INCOME For The Years Ended December 31, 2000, 1999 and 1998 2000 1999 1998 ------------- ------------ ------------ Revenues: Premiums earned (Note (1)(c)) $ 88,184,842 $ 82,841,104 $ 88,629,476 Net investment income (Note (2)(e)) 9,163,062 9,136,244 9,119,936 Realized investment gains (Notes (1)(b) and (2)) 11,805,350 8,184,101 13,198,139 Other revenues 355,208 249,672 113,005 ------------- ------------ ------------ Total Revenues 109,508,462 100,411,121 111,060,556 ------------- ------------ ------------ Losses and Expenses Incurred (Notes (1)(d), (3) and (4)): Losses incurred 43,728,496 34,407,096 43,994,221 Loss adjustment expenses incurred 13,772,879 10,893,745 8,382,893 Underwriting, acquisition and insurance expenses (Note (10)) 32,299,497 28,920,512 28,558,650 (Increase) decrease in deferred insurance acquisition costs (1,082,183) 880,588 662,164 Other expenses 1,471,512 1,398,483 1,461,640 ------------- ------------ ------------ Total Losses and Expenses Incurred 90,190,201 76,500,424 83,059,568 ------------- ------------ ------------ Income from operations before income taxes 19,318,261 23,910,697 28,000,988 Income tax expense (Note (5)) 4,864,944 7,198,234 8,577,075 ------------- ------------ ------------ Net Income $ 14,453,317 $ 16,712,463 $ 19,423,913 ============= ============ ============ Income Per Share- basic (Note (1)(g)) $ 1.30 $ 1.49 $ 1.73 ============= ============ ============ Weighted average number of shares outstanding- basic (Note (1)(g)) 11,124,074 11,252,358 11,206,018 ============= ============ ============ Income Per Share- diluted (Note (1)(g)) $ 1.30 $ 1.48 $ 1.72 ============= ============ ============ Weighted average number of shares outstanding- diluted (Note (1)(g)) 11,158,462 11,297,289 11,280,442 ============= ============ ============
The accompanying notes to the consolidated financial statements are an integral part of these financial statements. 21
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT AND COMPREHENSIVE INCOME (LOSS) Common Accumulated Stock Other (Par Value Paid-In Comprehensive Comprehensive Retained Treasury $1.00) Surplus Income (Loss) Income (Loss) Earnings Stock ------------ ----------- --------------- --------------- ------------- ------------ Balance, January 1, 1998 $11,502,520 $21,832,206 $ - $ 32,676,572 $ 73,732,118 $ (401,275) Comprehensive income (loss): Net income - - 19,423,913 - 19,423,913 - --------------- Other comprehensive loss: Unrealized depreciation on available-for-sale securities, net of deferred taxes - - (6,078,237) - - - Less: reclassification adjustment, net of tax of $4,619,349, for gain included in net income - - (8,578,790) - - - --------------- Other comprehensive loss - - (14,657,027) (14,657,027) - - --------------- Comprehensive income - - 4,766,886 - - - Stock options exercised 26,856 142,409 - - - (18,952) Purchases and sales of treasury stock, net - 271,751 - - - (75,332) Cash dividends paid - - - - (3,139,786) - ------------ ----------- --------------- --------------- ------------- ------------ Balance, December 31, 1998 11,529,376 22,246,366 - 18,019,545 90,016,245 (495,559) Comprehensive income (loss): Net income - - 16,712,463 - 16,712,463 - --------------- Other comprehensive loss: Unrealized depreciation on available-for-sale securities, net of deferred taxes - - (16,662,277) - - - Less: reclassification adjustment, net of tax of $2,864,435, for gain included in net income - - (5,319,666) - - - --------------- Other comprehensive loss - - (21,981,943) (21,981,943) - - --------------- Comprehensive loss - - (5,269,480) - - - Stock options exercised 9,594 57,748 - - - (26,534) Purchases and sales of treasury stock, net - 290,424 - - - - Cash dividends paid - - - - (3,151,515) - ------------ ----------- --------------- --------------- ------------- ------------ Balance, December 31, 1999 $11,538,970 $22,594,538 $ - $ (3,962,398) $103,577,193 $ (522,093) Comprehensive income Net income - - 14,453,317 - 14,453,317 - --------------- Other comprehensive income: Unrealized appreciation on available-for-sale securities, net of deferred taxes - - 11,913,380 - - - Less: reclassification adjustment, net of tax of $2,546,352, for gain included in net income - - (7,673,478) - - - --------------- Other comprehensive income - - 4,239,902 4,239,902 - - --------------- Comprehensive income - - 18,693,219 - - - Stock options exercised 19,797 138,550 - - - (76,250) Stock-based compensation - - - - 25,476 - Purchases and sales of treasury stock, net - - - - - (3,215,195) Cash dividends paid - - - - (3,111,938) - ------------ ----------- --------------- --------------- ------------- ------------ Balance, December 31, 2000 $11,558,767 $22,733,088 $ - $ 277,504 $114,944,048 $(3,813,538) ============ =========== =============== =============== ============= ============
The accompanying notes to the consolidated financial statements are an integral part of these financial statements. 22
CAPITOL TRANSAMERICA CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years Ended December 31, 2000, 1999 and 1998 2000 1999 1998 ------------- ------------- ------------- Cash flows provided by operating activities: - ---------------------------------------------------------------------- Net Income $ 14,453,317 $ 16,712,463 $ 19,423,913 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 1,215,024 1,161,702 1,195,955 Realized investment gains (11,805,350) (8,184,101) (13,198,139) Change in: Deferred insurance acquisition costs (1,082,183) 880,588 662,164 Unearned premiums 6,133,329 (2,087,175) (5,870,417) Allowance for doubtful accounts receivable from agents - 30,000 60,000 Accrued investment income (25,565) (248,903) 28,694 Receivables from agents, insureds and others (3,545,963) 2,294,999 3,542,835 Balances due to/from reinsurers 149,564 317,498 (191,361) Reinsurance recoverable on paid and unpaid losses 683,248 1,026,426 (897,506) Funds held by ceding reinsurers (7,000) (4,244) (35,756) Income taxes payable/recoverable 618,777 (635,702) 633,804 Deferred income taxes (598,340) (538,796) (304,896) Due to/from securities brokers (3,545,389) 763,512 (6,721,020) Prepaid reinsurance premiums (426,390) (560,553) 16,914 Other assets (707,858) (332,788) (5,305) Reserves for losses and loss adjustment expenses 724,781 (1,247,858) 7,031,712 Accounts payable 3,324,905 (371,947) 371,977 Accrued premium taxes 388,764 101,692 (99,992) ------------- ------------- ------------- Net cash provided by operating activities 5,947,671 9,076,813 5,643,576 ------------- ------------- ------------- Cash flows provided by (used for) investing activities: - ---------------------------------------------------------------------- Proceeds from sales of available-for-sale investments 26,278,568 29,718,246 40,484,195 Purchases of available-for-sale investments (26,716,842) (44,377,254) (49,573,482) Maturities of available-for-sale investments 4,053,867 8,690,009 7,660,719 Purchases of depreciable assets (782,511) (751,534) (1,080,065) ------------- ------------- ------------- Net cash provided by (used for) investing activities 2,833,082 (6,720,533) (2,508,633) ------------- ------------- ------------- Cash flows used for financing activities: - ---------------------------------------------------------------------- Cash dividends paid (3,111,938) (3,151,515) (3,139,786) Stock options exercised 45,273 40,808 441,017 Net (cost of) proceeds from sale (purchase) of treasury stock (3,152,895) 290,424 (94,284) ------------- ------------- ------------- Net cash used for financing activities (6,219,560) (2,820,283) (2,793,053) ------------- ------------- ------------- Net increase (decrease) in cash 2,561,193 (464,003) 341,890 Cash, beginning of year 1,080,435 1,544,438 1,202,548 ------------- ------------- ------------- Cash, end of year $ 3,641,628 $ 1,080,435 $ 1,544,438 ============= ============= ============= Cash paid during the year for: Income taxes $ 4,856,364 $ 8,611,726 $ 8,358,132
The accompanying notes to the consolidated financial statements are an integral part of these financial statements. 23 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 37 states. The property-casualty insurance coverages represent approximately 77% of the Company's premiums written while fidelity-surety coverages represent approximately 23% of the Company's premiums written. The Company's products are marketed through independent agents located throughout the United States. The consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States ("GAAP"). 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 Corporation ("CIC"), Capitol Specialty Insurance Corporation ("CSIC") and Capitol Facilities Corporation ("CFC"). All significant inter-company accounts and transactions have been eliminated in consolidation. (b) Investments ----------- The Company classifies all of its fixed maturities and equity securities as available-for-sale. Accordingly, investments in fixed maturities 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 adjusted for amortization of premiums and accretion of 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 income to carrying values equal to their estimated fair values. Investment real estate is carried at cost net of accumulated depreciation of $1,595,693 and $1,173,643 as of December 31, 2000 and December 31, 1999, respectively. The real estate is depreciated over the estimated useful life of the asset. Cost of investments sold is determined under the specific identification method. (c) Premiums -------- Premiums are recognized as revenue on a pro-rata basis over the term of the contracts. Approximately 18.5% and 13.9% of the total premiums written are on risks located in Wisconsin and Illinois, respectively. No other state exceeds 10%. (d) Loss and Loss Adjustment Expenses ------------------------------------- Losses and loss adjustment expenses less related reinsurance and subrogation recoverable, 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 experience modified for current trends; and (4) estimates of expenses for investigating and settling claims based on past experience. The liabilities recorded are based on estimates resulting from the continuing review process, and differences between estimates and ultimate payments are reflected in expense for the period in which the estimates are changed. 24 (e) Deferred Insurance Acquisition Costs --------------------------------------- Deferred 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 differences between the carrying amounts of assets and liabilities for financial statement purposes and the amounts used for income tax reporting. (g) Income Per Share ------------------ Basic income per share is computed by dividing net income by the weighted-average number of shares of stock outstanding during the year. Diluted income per share is computed by dividing net income by the weighted- average number of shares of common stock and common stock equivalents from options outstanding. The following table sets forth the computation of basic and diluted EPS:
December 31, 2000 1999 1998 ----------- ----------- ----------- Numerator: Consolidated net income $14,453,317 $16,712,463 $19,423,913 Denominator: Denominator for basic EPS - weighted average shares 11,124,074 11,252,358 11,206,018 Effect of dilutive securities - unexercised stock options 34,388 44,931 74,424 ----------- ----------- ----------- Denominator for diluted EPS 11,158,462 11,297,289 11,280,442 Basic EPS $ 1.30 $ 1.49 $ 1.73 Diluted EPS $ 1.30 $ 1.48 $ 1.72
(h) Comprehensive Income (Loss) ----------------------------- Comprehensive income (loss) is defined as net income plus or minus other comprehensive income (loss), which for the Company, under existing accounting standards, consists of unrealized gains and losses, net of income tax effects, on certain investments in debt and equity securities. Comprehensive income (loss) is reported by the Company in the consolidated statements of changes in shareholders' investment and comprehensive income (loss). (i) Reclassifications ----------------- Certain reclassifications have been made to the 1999 financial statements to conform with the 2000 presentation. 25 (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, 2000 Fixed maturities: U.S. Government bonds $ 33,930 $ 1,690 - $ 35,620 State, municipal and political subdivision bonds 84,236,162 5,559,420 (63,528) 89,732,054 Corporate bonds and notes 1,099,888 - (25,751) 1,074,137 - ------------------------------------------------------------------------------------------- Total fixed maturities $ 85,369,980 $ 5,561,110 ($89,279) $ 90,841,811 =========================================================================================== Equity securities: Common stock $123,504,211 $26,442,675 ($30,533,348) $119,413,538 Non-redeemable preferred stock 6,470,793 185,332 (1,139,558) 5,516,567 - ------------------------------------------------------------------------------------------- Total equity securities $129,975,004 $26,628,007 ($31,672,906) $124,930,105 =========================================================================================== DECEMBER 31, 1999 Fixed maturities: U.S. Government bonds $ 39,428 $ 2,196 - $ 41,624 State, municipal and political subdivision bonds 78,855,846 4,423,576 (1,204,274) 82,075,148 Corporate bonds and notes 1,123,983 - (30,268) 1,093,715 - ------------------------------------------------------------------------------------------- Total fixed maturities $ 80,019,257 $ 4,425,772 ($1,234,542) $ 83,210,487 =========================================================================================== Equity securities: Common stock $125,913,872 $16,310,888 ($25,568,178) $116,656,582 Non-redeemable preferred stock 5,725,500 552,975 (582,908) 5,695,567 - ------------------------------------------------------------------------------------------- Total equity securities $131,639,372 $16,863,863 ($26,151,086) $122,352,149 ===========================================================================================
(b) The amortized cost and estimated fair value of fixed maturities at December 31, 2000, 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 $ - $ - Due after one year through five years 3,014,408 3,125,891 Due after five years through ten years 10,295,355 10,745,902 Due after ten years 72,060,217 76,970,018 ---------------------------------------------------------------- Total $85,369,980 $90,841,811 ================================================================ 26 (c) Realized gains (losses) and change in unrealized gains (losses) for the three years ended December 31, 2000, 1999 and 1998 are as follows:
2000 1999 1998 - ----------------------------------------------------------------------------------------- Realized gains (losses): Fixed maturities Gross gains $ 45,234 $ 66,054 $ 64,575 Gross losses (4,235) (6,386) (5,040) Equity securities Gross gains 12,398,816 8,174,659 13,138,613 Gross losses (634,465) (50,226) (9) Other - - - - ----------------------------------------------------------------------------------------- Net realized gains $11,805,350 $ 8,184,101 $ 13,198,139 ========================================================================================= Change in unrealized gains (losses): Fixed maturities $ 2,280,601 ($3,659,687) $ 2,214,372 Equity securities 4,242,324 (30,158,682) (24,001,959) - ----------------------------------------------------------------------------------------- Net change in unrealized gains (losses) 6,522,926 (33,818,369) (21,787,587) Less effect of applicable deferred taxes 2,283,024 (11,836,426) (7,130,560) - ----------------------------------------------------------------------------------------- Net increase (decrease) in unrealized gains $ 4,239,902 ($21,981,943) ($14,657,027) =========================================================================================
Following is a summary of total unrealized gains (losses) as of December 31, 2000, 1999 and 1998:
2000 1999 1998 - --------------------------------------------------------------------------------------- Unrealized gains (losses): Fixed maturities Gross unrealized gains $ 5,561,110 $ 4,425,772 $ 6,860,733 Gross unrealized losses (89,279) (1,234,542) (9,819) Equity securities Gross unrealized gains 26,628,007 16,863,863 32,173,006 Gross unrealized losses (31,672,906) (26,151,086) (11,301,546) - --------------------------------------------------------------------------------------- Gross unrealized gains (losses) 426,932 (6,095,993) 27,722,374 Less effect of applicable deferred taxes 149,428 (2,133,595) 9,702,829 - --------------------------------------------------------------------------------------- Net unrealized gains (losses) $ 277,504 ($3,962,398) $ 18,019,545 =======================================================================================
(d) The fair value of securities on deposit with insurance regulators in accordance with statutory requirements was $3,936,264 at December 31, 2000 and $3,927,732 at December 31, 1999. In connection with the reinsurance assumed operations, CIC has established security trust fund agreements with a bank, consisting of cash and securities in the amount of $835,000 at December 31, 2000 and $865,000 at December 31, 1999. 27 (e) Following is a summary of investment income from each category of investments:
2000 1999 1998 - ------------------------------------------------------------------------ Fixed maturities $ 4,927,452 $ 4,732,097 $ 4,619,471 Equity securities 3,792,573 3,917,943 3,907,213 Investment real estate 2,343,288 2,458,961 2,383,255 Short-term 350,688 252,387 186,341 - ------------------------------------------------------------------------ Total investment income 11,414,001 11,361,388 11,096,280 Investment expenses - real estate 1,484,161 1,434,580 1,310,113 Other investment expenses 344,742 406,518 321,016 Depreciation on real estate 422,036 384,046 345,215 - ------------------------------------------------------------------------ Net investment income $ 9,163,062 $ 9,136,244 $ 9,119,936 ========================================================================
(f) The Company had investments in state, municipal and political subdivision bonds with amortized costs of $84,236,162 and $78,855,846 at December 31, 2000 and 1999 respectively. Approximately 93% of these bonds were special assessment revenue bonds and approximately 7% of these bonds were state and political subdivision obligations at December 31, 2000 and 1999. The Company monitors its exposure by investing its funds in accordance with guidelines set by the Company's investment committee. At December 31, 2000, approximately 40% of the municipal bond portfolio consisted of securities of Wisconsin and Minnesota. No other state total exceeded 10%. (g) Fair values for fixed maturities and equity securities are determined from quoted market prices where available, or are estimated using values obtained from independent pricing services. Thinly traded fixed maturities are individually priced based upon year-end market conditions, type of security, interest rate and maturity of the issue. (3) Reserves for Losses and Loss Adjustment Expenses ------------------------------------------------------ The table below provides a reconciliation of the beginning and ending reserves for losses and loss adjustment expenses, net of reinsurance:
2000 1999 1998 - --------------------------------------------------------------------------------------------------- Balance as of January 1, $77,256,192 $78,504,050 $71,472,338 Reinsurance balances 121,478 (1,101,770) (594) - --------------------------------------------------------------------------------------------------- Net reserves 77,377,670 77,402,280 71,471,744 Incurred losses and loss adjustment expenses related to: Current year 60,051,007 47,749,455 49,862,090 Prior years Direct losses (net of ceded) (1,744,893) (562,627) 4,091,923 Direct loss adjustment expenses (net of ceded) 520,814 (2,379,899) (1,956,631) Discontinued assumed reinsurance (1,325,553) 493,912 379,732 - --------------------------------------------------------------------------------------------------- Total prior years (2,549,632) (2,448,614) 2,515,024 Total incurred 57,501,375 45,300,841 52,377,114 - --------------------------------------------------------------------------------------------------- Paid losses and loss adjustment expenses related to: Current year 25,045,636 18,642,962 20,035,517 Prior years 29,411,213 26,682,489 26,370,166 - --------------------------------------------------------------------------------------------------- Total paid 54,456,849 45,325,451 46,405,683 - --------------------------------------------------------------------------------------------------- Other adjustments, net - - (40,895) - --------------------------------------------------------------------------------------------------- Net balance at December 31 80,422,196 77,377,670 77,402,280 Reinsurance balances (2,441,223) (121,478) 1,101,770 - --------------------------------------------------------------------------------------------------- Balance at December 31 $77,980,973 $77,256,192 $78,504,050 ===================================================================================================
28 The Company continually reviews its reserves for losses and loss adjustment expenses and the related reinsurance recoverables. 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. As a result of the variability in these estimates, reserves have differed from actual experience during 2000, 1999 and 1998. The actuarial estimates are based on past claim experience and consider current claim trends and premium volume as well as social and economic conditions. While the Company has recorded its best estimate of its reserves for losses and loss adjustment expenses, it is reasonably possible these estimates, net of estimated reinsurance recoverables, may change in the future. See Note 4(b) for a discussion of discontinued assumed reinsurance. (4) Reinsurance ----------- (a) Ceded ----- From 1996 through 2000, the Company reinsured losses in excess of $1,000,000 with various other companies through reinsurance ceded contracts. 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. Amounts recoverable fromreinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policies. Reinsurance ceded contracts do not relieve the Company from its obligations to policyholders. 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 losses from reinsurer insolvencies, the Company continually evaluates the financial condition of its reinsurers. (b) Assumed - Discontinued ------------------------ CIC was involved in providing reinsurance coverage by assuming a portion of risks underwritten by other insurance companies and risk pools. Although CIC withdrew from this reinsurance business in 1976, liability remains for losses on policies written during the period in which it participated as a reinsurer. The Company is involved with treaties that cover certain risks which have had significant development industry-wide over the past several years. The discontinued reinsurance assumed loss reserves are based on current information available from the ceding companies and are continually reviewed for accuracy and reasonableness. Management believes that the reserves of $7,344,795 at December 31, 2000 are adequate, but recognizes the uncertainty industry-wide concerning these exposures. The Company has provided a letter of credit relating to reinsurance assumed of $130,000 at both December 31, 2000 and 1999. (c) Assumed - Active ------------------ CIC participates in reinsurance programs in the accident and health and commercial multiple peril lines of business. The exposure on this business is minimal. Net written and earned premiums and losses and loss adjustment expenses included in this reinsurance activity are as follows:
Written Premiums ----------------------------------------- 2000 1999 1998 - --------------------------------------------------------------- Direct $100,103,877 $84,460,081 $86,329,672 Assumed 2,006,338 1,542,719 1,599,480 Ceded (8,218,433) (5,809,424) (5,153,179) - -------------------------------------------------------------- Net premiums written $ 93,891,782 $80,193,376 $82,775,973 ===============================================================
Earned Premiums ---------------------------------------- 2000 1999 1998 - ------------------------------------------------------------- Direct $93,981,038 $86,565,885 $92,203,082 Assumed 1,995,850 1,524,090 1,596,487 Ceded (7,792,046) (5,248,871) (5,170,093) - ------------------------------------------------------------- Net premiums earned $88,184,842 $82,841,104 $88,629,476 =============================================================
29
Losses and Loss Adjustment Expenses Incurred 2000 1999 1998 - ---------------------------------------------------------------------------------------- Direct $66,443,778 $47,738,063 $53,447,519 Assumed - Losses (408,609) 1,253,237 280,900 Assumed - Legal and audit 30,571 17,084 98,832 Ceded (8,564,365) (3,707,543) (1,450,137) - ---------------------------------------------------------------------------------------- Net loss and loss adjustment expenses incurred $57,501,375 $45,300,841 $52,377,114 ========================================================================================
(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 2000, 1999 and 1998 are as follows:
2000 1999 1998 - ---------------------------------------------------------------------------------------------- Current expense: Federal $4,827,862 $7,115,401 $8,096,181 State 635,425 621,630 785,787 - ---------------------------------------------------------------------------------------------- Total current expense 5,463,287 7,737,031 8,881,968 Deferred expense(benefit): Deferred insurance acquisition costs 378,764 (308,206) (231,757) Unearned premiums (399,486) 185,341 409,745 Discount on loss and loss adjustment expense reserves (555,695) (69,897) (322,034) Unpaid commissions (18,931) (333,362) (140,748) Other, net (2,995) (12,673) (20,099) - ---------------------------------------------------------------------------------------------- Total deferred benefit (598,343) (538,797) (304,893) - ---------------------------------------------------------------------------------------------- Income tax expense $4,864,944 $7,198,234 $8,577,075 ==============================================================================================
(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:
2000 1999 1998 - ---------------------------------------------------------------------------- Statutory tax rate 35.0% 35.0% 35.0% Municipal bond income, net of proration (7.7%) (5.9%) (4.9%) Dividend received exemption, net of proration (2.1%) (1.8%) (1.7%) State income tax expense, net of federal tax benefit 2.1% 1.7% 1.7% Other, net (2.1%) 1.1% 0.5% - ---------------------------------------------------------------------------- Effective income tax rate 25.2% 30.1% 30.6% ============================================================================
(d) Significant components of the deferred tax liabilities and assets are as follows:
December 31, December 31, 2000 1999 - ------------------------------------------------------------------------------------- Deferred tax liabilities: Deferred insurance acquisition costs $ 4,804,230 $ 4,425,466 Net unrealized gains on investment securities 149,425 - Other, net 110,934 79,339 - ------------------------------------------------------------------------------------- Total deferred tax liabilities 5,064,589 4,504,805 - ------------------------------------------------------------------------------------- Deferred tax assets: Unearned premium reserve discounting 3,071,150 2,671,664 Loss and loss adjustment expense reserve discounting 3,197,269 2,641,574 Net unrealized losses on investment securities - 2,133,595 Unpaid commissions 858,601 839,670 Other, net 406,283 371,695 - ------------------------------------------------------------------------------------- Total deferred tax assets 7,533,302 8,658,198 - ------------------------------------------------------------------------------------- Net deferred tax asset $ 2,468,713 $ 4,153,393 =====================================================================================
30 (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 Interpretations in accounting for its stock options. Under APB 25, since the exercise price of the Company's stock options equals the market price of the underlying stock at the date of the grant, no compensation expense is recognized. The Company did recognize $25,476 in compensation expense during 2000 under FASB Interpretation 44 effective July 1, 2000 for APB 25 related to options which were repriced to the stockmarket value in 1999. Had the Company elected to follow the fair value method under SFAS 123 "Accounting for Stock-Based Compensation", net income and earnings per share would not be materially different for the years 2000, 1999, and 1998. Pro forma disclosure is required and has been determined as if the Company had accounted for its stock options under this method. The fair value for these options was estimated at the date of grant using a Black-Scholes option pricing model with the following weighted-average assumptions for 2000, 1999, and 1998, respectively: risk-free interest rates of 6.4%, 6.1%, and 4.4%; dividend yields of 2.4%, 2.0%, and 1.4%; volatility factors of the expected market price of the Company's common stock of .394, .394 and .345; and a weighted-average expected life of the options of two and one-half years. The weighted-average fair value of options granted for the years 2000, 1999, and 1998 was $3.03, $2.29, and $3.92, respectively. The estimated fair value is amortized to expense over the options' vesting period. The Company's pro forma information follows:
2000 1999 1998 ----------- ----------- ----------- Pro forma net income $14,333,943 $16,538,296 $19,156,540 Pro forma earnings per share: Basic $ 1.30 $ 1.47 $ 1.71 Diluted $ 1.30 $ 1.46 $ 1.70
The Company's 1993 Stock Option Plan has authorized the grant of options for up to 1,072,500 shares of the Company's common stock. All options granted have a five year term and become fully vested at the end of four years. Stock options available to be granted in the future equal 721,011 shares at December 31, 2000. A summary of the Company's stock option activity, and related information for the years ended December 31 follows:
2000 1999 1998 - ------------------------------------------------------------------------------------- Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Options Price Options Price Options Price - ------------------------------------------------------------------------------------- Outstanding, beginning of year 280,545 $ 9.93 280,924 $ 13.38 237,111 $ 11.81 Granted 6,400 11.28 236,704 10.19 97,900 15.75 Exercised (19,797) 7.99 (9,594) 7.02 (26,856) 6.30 Expired (30,296) 9.40 (227,489) 14.58 (27,231) 15.15 -------- --------- -------- ---------- Outstanding, end of year 236,852 $ 10.20 280,545 $ 9.93 280,924 $ 13.38 - -------------------------------------------------------------------------------------
Options exercisable at December 31, 2000 were 64,890. The weighted average remaining exercise period for all outstanding options as of December 31, 2000 was 4.0 years. Exercise prices for options outstanding as of December 31, 2000 ranged from $4.37 to $12.50 with 44%, and 52% having exercise prices of $9.69 and $10.66, respectively. 31 (7) Statutory Reporting -------------------- (a) The financial statements of the insurance subsidiaries have been prepared in accordance with accounting principles generally accepted in the United States, 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, ------------------------------------------------------------------------------- 2000 1999 1998 - ------------------------------------------------------------------------------- Capitol Indemnity Corporation $107,917,384 $91,570,236 $102,902,836 Capitol Specialty Insurance Corporation 4,667,963 4,865,494 5,865,245 - ------------------------------------------------------------------------------- Total $112,585,347 $96,435,730 $108,768,081 ================================================================================
Net Income For The Year Ended December 31, - ------------------------------------------------------------------------------- 2000 1999 1998 - ------------------------------------------------------------------------------- Capitol Indemnity Corporation $13,003,336 $16,306,022 $19,051,239 Capitol Specialty Insurance Corporation 232,388 689,133 479,019 - ------------------------------------------------------------------------------- Total $13,235,724 $16,995,155 $19,530,258 ================================================================================
(b) 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, 2000, the amount of compulsory surplus required to be maintained by CIC was $23,350,674. (c) In accordance with state insurance regulations, the insurance subsidiaries can distribute dividends to the Company of the lesser of their net income or 10% of their surplus without regulatory approval. (d) The National Association of Insurance Commissioners (NAIC) revised the Accounting and Procedures Manual in a process referred to as Codification, with the revised manual becoming effective January 1, 2001. The revised manual has changed, to some extent, prescribed statutory accounting practices and will resultin changes to the accounting practices CIC and CSIC use to prepare their statutory-basis financial statements. Management believes the impact of these changes to CIC's and CSIC's statutory-basis capital and surplus as of January 1, 2001 will be insignificant. (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 insured by CIC. In the opinion of management, such lawsuits are routine in that they result from the ordinary course of business in the insurance industry. The reserve for losses and loss adjustment expenses include management's estimates of the probable ultimate cost of settling all losses involving 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 contributions during the plan year. The Company made contributions of $250,637, $242,511 and $214,839 in 2000, 1999 and 1998, respectively. The Company also has an Employee Stock Ownership Plan in which all qualified employees are eligible to participate. The plan provides for discretionary employer contributions of shares of Company stock or cash to purchase shares of Company stock. The Company made contributions of $301,000, $179,000 and $100,000 in 2000, 1999 and 1998, respectively. (10) Underwriting, Acquisition and Insurance Expenses ---------------------------------------------------- A summary of underwriting, insurance acquisition costs and insurance expenses incurred during the years ended December 31, 2000, 1999 and 1998 is as follows:
2000 1999 1998 - --------------------------------------------------------------------------------------------------- Net commissions $19,869,276 $18,001,338 $18,459,299 Salaries and other compensation 5,647,661 4,944,476 4,710,297 Other 6,782,560 5,974,697 5,389,054 - --------------------------------------------------------------------------------------------------- Total costs 32,299,497 28,920,511 28,558,650 (Increase) decrease in deferred insurance acquisition costs (1,082,183) 880,588 662,164 - --------------------------------------------------------------------------------------------------- Total underwriting, acquisition and insurance expenses $31,217,314 $29,801,099 $29,220,814 ===================================================================================================
32 Included in net commissions is the fair value of CTC stock purchased by CIC and issued to agents as part of a contingent commission agreement. The amounts expensed were $201,212, $478,880 and $468,858 for the years 2000, 1999 and 1998, respectively. Deferred insurance acquisition costs are amortized over the term of CIC insurance contracts. The amount of deferred insurance costs amortized was $28,431,941, $28,325,677 and $27,833,262 in 2000, 1999 and 1998, respectively. (11) Credit Lines ------------- The Company has credit lines of $11,200,000. There were no significant borrowings during 2000, and none outstanding as of December 31, 2000. (12) Quarterly Results of Operations (Unaudited) -----------------------------------------------
- ------------------------------------------------------------------------------------------------------ For the year ended December 31, 2000 First Second Third Fourth Total - ------------------------------------------------------------------------------------------------------ Revenues $24,043,062 $26,676,380 $28,442,325 $30,346,695 $109,508,462 Losses and expenses incurred 15,768,779 22,009,105 23,921,438 28,490,879 90,190,201 Net income 5,680,879 3,391,751 3,323,751 2,056,936 14,453,317 Net income per share - basic $ 0.50 $ 0.30 $ 0.30 $ 0.20 $ 1.30 Net income per share - diluted $ 0.50 $ 0.30 $ 0.30 $ 0.20 $ 1.30 Dividends per share $ 0.07 $ 0.07 $ 0.07 $ 0.07 $ 0.28
- ------------------------------------------------------------------------------------------------------ For the year ended December 31, 1999 First Second Third Fourth Total - ------------------------------------------------------------------------------------------------------ Revenues $25,089,802 $26,254,623 $25,857,210 $23,209,486 $100,411,121 Losses and expenses incurred 18,550,741 16,380,003 21,460,886 20,108,794 76,500,424 Net income 4,525,052 6,732,395 3,107,433 2,347,583 16,712,463 Net income per share - basic $ 0.40 $ 0.60 $ 0.28 $ 0.21 $ 1.49 Net income per share - diluted $ 0.39 $ 0.60 $ 0.28 $ 0.21 $ 1.48 Dividends per share $ 0.07 $ 0.07 $ 0.07 $ 0.07 $ 0.28
- ------------------------------------------------------------------------------------------------------ For the year ended December 31, 1998 First Second Third Fourth Total - ------------------------------------------------------------------------------------------------------ Revenues $25,467,589 $31,516,526 $25,107,417 $28,969,024 $111,060,556 Losses and expenses incurred 20,787,325 21,504,889 21,144,534 19,622,820 83,059,568 Net income 3,460,541 7,032,357 2,806,682 6,124,333 19,423,913 Net income per share - basic $ 0.31 $ 0.62 $ 0.25 $ 0.55 $ 1.73 Net income per share - diluted $ 0.31 $ 0.62 $ 0.25 $ 0.54 $ 1.72 Dividends per share $ 0.07 $ 0.07 $ 0.07 $ 0.07 $ 0.28
(13) Industry Segment Disclosures ------------------------------ The Company has three business segments, which are segregated based on the types of products and services provided. The segments are 1) property and casualty, 2) fidelity and surety, and 3) discontinued reinsurance assumed operations. These segments constitute 100% of the operations of the Company. The property and casualty segment provides specialty commercial coverages for beauty and barber shops, bowling alleys, contractors/manufacturers, day care centers, restaurants, detective/guard agencies, golf courses and taverns. This segment also provides nurses professional, deerhunters and sportsmen's accident, and special event coverages. The fidelity and surety segment offers a full range of surety and fidelity bonds, including contractor's payment and performance bonds, license/permit bonds, fiduciary and judicial bonds, as well as commercial fidelity bonds. The reinsurance assumed segment was discontinued in 1976, but, due to the nature of the coverages, the Company continues to experience loss activity related to this business. The Company maintains and monitors its segment information on a statutory basis. Financial data by segment, including a reconciliation to consolidated GAAP basis, for 1998 through 2000 is as follows:
2000 1999 1998 ------------- ------------- ------------- Revenue, excluding net investment income and realized investment gains: Property and Casualty $ 67,773,588 $ 63,918,736 $ 65,678,284 Fidelity and Surety 20,369,689 18,908,835 22,948,025 Reinsurance Assumed 41,565 13,533 3,167 ------------- ------------- ------------- Totals: $ 88,184,842 $ 82,841,104 $ 88,629,476 ============= ============= ============= 33 Losses and loss adjustment expenses: Property and Casualty $ 47,246,293 $ 31,734,367 $ 40,400,269 Fidelity and Surety 11,719,015 13,233,814 11,818,682 Reinsurance Assumed (1,315,504) 493,912 379,732 ------------- ------------- ------------- Totals: $ 57,649,804 $ 45,462,093 $ 52,598,683 Reconciliation to Consolidated GAAP: Inter-company adjustments (148,429) (161,252) (221,569) ------------- ------------- ------------- Consolidated GAAP $ 57,501,375 $ 45,300,841 $ 52,377,114 ============= ============= ============= Other underwriting expenses: Property and Casualty $ 22,867,032 $ 20,509,441 $ 20,226,965 Fidelity and Surety 10,143,105 9,194,086 9,239,049 Reinsurance Assumed (56,283) (58,626) 34,509 ------------- ------------- ------------- Totals: $ 32,953,854 $ 29,644,901 $ 29,500,523 Reconciliation to Consolidated GAAP: (Increase) decrease in deferred insurance acquisition costs (1,082,183) 880,588 662,164 Inter-company adjustments 817,155 674,094 519,767 ------------- ------------- ------------- Consolidated GAAP $ 32,688,826 $ 31,199,583 $ 30,682,454 ============= ============= ============= Net investment gain and other income: Property and Casualty $ 7,288,011 $ 5,264,383 $ 6,742,389 Fidelity and Surety 1,082,299 678,678 692,572 Reinsurance Assumed 949,300 714,362 821,247 ------------- ------------- ------------- Totals: $ 9,319,610 $ 6,657,423 $ 8,256,208 Reconciliation to Consolidated GAAP: Capital and surplus 12,064,331 10,417,802 13,419,217 Inter-company adjustments (60,321) 494,792 755,655 ------------- ------------- ------------- Consolidated GAAP $ 21,323,620 $ 17,570,017 $ 22,431,080 ============= ============= ============= Income tax expense (benefit): Property and Casualty $ 1,187,442 $ 5,356,364 $ 3,652,050 Fidelity and Surety (202,775) (1,151,955) 803,964 Reinsurance Assumed 739,605 70,582 128,293 ------------- ------------- ------------- Totals: $ 1,724,271 $ 4,274,991 $ 4,584,307 Reconciliation to Consolidated GAAP: Capital and surplus 3,140,673 2,923,243 4,091,130 GAAP & inter-company adjustments - - (98,362) ------------- ------------- ------------- Consolidated GAAP $ 4,864,944 $ 7,198,234 $ 8,577,075 ============= ============= ============= Net income (loss): Property and Casualty $ 3,760,832 $ 11,582,947 $ 8,141,389 Fidelity and Surety (207,357) (1,688,432) 1,778,902 Reinsurance Assumed 1,623,047 222,027 281,880 ------------- ------------- ------------- Totals: $ 5,176,523 $ 10,116,542 $ 10,202,171 Reconciliation to Consolidated GAAP: 9,276,794 6,595,921 9,221,742 ------------- ------------- ------------- Consolidated GAAP $ 14,453,317 $ 16,712,463 $ 19,423,913 ============= ============= ============= 34 Assets: Property and Casualty $ 84,545,028 $ 90,756,970 $105,614,860 Fidelity and Surety 40,146,831 24,936,678 20,432,187 Reinsurance Assumed 12,866,324 8,702,723 9,996,577 ------------- ------------- ------------- Totals: $137,558,183 $124,396,371 $136,043,624 Reconciliation to Consolidated GAAP: Capital and surplus 145,699,869 133,226,210 141,315,973 ------------- ------------- ------------- Consolidated GAAP $283,258,052 $257,622,581 $277,359,597 ============= ============= =============
The Company operates in 37 states, with all business conducted within the United States. No customer represents greater than 10% of the Company's revenue. There have been no material intersegment transactions. 35 SCHEDULE I CAPITOL TRANSAMERICA CORPORATION SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES As of December 31, 2000
SCHEDULE I CAPITOL TRANSAMERICA CORPORATION SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES As of December 31, 2000 Amount at Which Shown Fair in Balance Type of Investment Cost Value Sheet - ------------------------------------------------------ ------------------- ------------ ------------ Fixed maturity securities, available-for-sale: Bonds: 0 United States Government and government 0 agencies and authorities $ 33,930 $ 35,620 $ 35,620 State, municipalities, and political subdivisions 84,236,162 89,732,054 89,732,054 All other corporate bonds 1,099,888 1,074,137 1,074,137 ------------------- ------------ ------------ Total 85,369,980 90,841,811 90,841,811 ------------------- ------------ ------------ Equity securities, available-for-sale: Common stocks: Public utilities 2,065,853 2,129,269 2,129,269 Banks, trusts, and insurance companies 66,009,901 66,983,698 66,983,698 Industrial, miscellaneous, and all other 55,428,457 50,300,571 50,300,571 Nonredeemable preferred stocks 6,470,793 5,516,567 5,516,567 ------------------- ------------ ------------ Total 129,975,004 124,930,105 124,930,105 ------------------- ------------ ------------ Real estate, net of depreciation 11,008,554 11,008,554 11,008,554 Short-term investments 5,587,306 5,587,306 5,587,306 ------------------- ------------ ------------ Total Investments $ 231,940,844 $232,367,776 $232,367,776 =================== ============ ============
36 SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT CAPITOL TRANSAMERICA CORPORATION (Parent Company) CONDENSED BALANCE SHEETS December 31, - ------------------------ ------------------------------------------ Assets 2000 1999 ------ -------------------------- -------------- Investments $ 9,067,200 $ 7,046,418 Cash 553,169 13,908 Accrued investment income 45,164 47,730 Investment in subsidiaries 134,350,154 124,363,795 Income taxes recoverable 189,696 169,680 Other assets 1,728,997 1,619,474 -------------------------- -------------- Total assets $ 145,934,380 $ 133,261,005 ========================== ============== Liabilities and shareholders' investment ----------------------------------------- Liabilities: ------------ Accounts payable $ 11,170 $ 30,795 Payable to affiliates - 4,000 Deferred income taxes 223,340 - -------------------------- -------------- Total liabilities 234,510 34,795 -------------------------- -------------- Shareholders' investment: Common stock 11,558,767 11,538,970 Additional paid-in-capital 21,995,693 21,857,143 Accumulated other comprehensive (loss) income, net of deferred taxes 414,771 (37,235) Retained earnings (including undistributed earnings of subsidiaries of $132,038,443 and $123,866,985, respectively) 115,544,177 100,389,425 -------------------------- -------------- 149,513,408 133,748,303 Less treasury stock, at cost (3,813,538) (522,093) -------------------------- -------------- Total shareholders' investment 145,699,870 133,226,210 -------------------------- -------------- Total liabilities and shareholders' investment $ 145,934,380 $ 133,261,005 ========================== ==============
For the years ended December 31, ------------------------------------- STATEMENTS OF INCOME 2000 1999 1998 -------------------- ------------ ----------- ----------- Dividends received from subsidiaries $ 5,500,000 $ 500,000 $ 5,000,000 Management fees received from subsidiaries 913,404 906,737 2,031,293 Investment income 253,257 306,874 350,901 Realized investment (losses) gains (107,273) 966,943 13 Other income 4,752 4,052 7,100 ------------ ----------- ----------- Total Income 6,564,140 2,684,606 7,389,307 Administrative expenses 1,698,363 1,504,083 1,495,240 ------------ ----------- ----------- Net income before tax and equity in undistributed net income of subsidiaries 4,865,777 1,180,523 5,894,067 Income tax (benefit) expense (258,439) 166,487 346,794 ------------ ----------- ----------- Income before equity in undistributed net income of subsidiaries 5,124,216 1,014,036 5,547,273 Equity in undistributed net income of subsidiaries, net of dividends paid 9,329,101 15,698,427 13,876,640 ------------ ----------- ----------- Net Income $14,453,317 $16,712,463 $19,423,913 ============ =========== ===========
The accompanying condensed financial information should be read in conjunction with the consolidated financial statements and notes thereto of Capitol Transamerica Corporation. 37 SCHEDULE II (continued)
CAPITOL TRANSAMERICA CORPORATION (Parent Company) December 31, ------------------------------------------- STATEMENTS OF CASH FLOWS 2000 1999 1998 - ---------------------------------------------------------- ------------ ------------- -------------- Cash flows provided by operating activities: Net income $14,453,317 $ 16,712,463 $ 19,423,913 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 792,989 777,657 850,739 Realized investment losses (gains) 107,273 (966,943) (13) Change in: Equity in net income of subsidiaries (9,329,101) (15,698,427) (13,876,640) Other assets (157,451) (131,113) (21,410) Other liabilities (23,625) (17,476) 6,093 ------------ ------------- -------------- Net cash provided by operating activities 5,843,402 676,161 6,382,682 Cash flows provided by (used for) investing activities: Proceeds from investments sold/matured 94,575 3,559,461 70,022 Purchases of investments (1,527,553) (347,971) (2,367,149) Purchase of depreciable assets (782,511) (751,534) (1,079,278) ------------ ------------- -------------- Net cash (used for) provided by investing activities (2,215,489) 2,459,956 (3,376,405) ------------ ------------- -------------- Cash flows provided by (used for) financing activities: Cash dividends paid (3,170,749) (3,166,188) (3,163,880) Stock options exercised 158,347 67,342 169,265 Net proceeds from (purchase) sale of treasury stock (76,250) (26,534) (18,952) ------------ ------------- -------------- Net cash used for financing activities (3,088,652) (3,125,380) (3,013,567) Net increase (decrease) in cash 539,261 10,737 (7,290) Cash, beginning of year 13,908 3,171 10,461 ------------ ------------- -------------- Cash, end of year $ 553,169 $ 13,908 $ 3,171 ============ ============= ============== Cash paid during the year for: Income taxes $ 262,100 $ 337,110 $ 333,917 Interest - - 4,190
The accompanying condensed financial information should be read in conjunction with the consolidated financial statements and notes thereto of Capitol Transamerica Corporation. 38 SCHEDULE III
CAPITOL TRANSAMERICA CORPORATION SUPPLEMENTARY INSURANCE INFORMATION December 31, Year ended December 31, ---------------------------------------------------------- -------------------------------------- Deferred Future Policy Benefits, Policy Benefits, Losses, Other Net Claims, Losses Acquisition Claims, and Unearned Policyholder Premium Investment and Settlement Segment Costs Loss Expenses Premiums Funds Revenue Income Expenses - ----------------- ---------------------------------------------------------- -------------------------------------- 2000 - ---- Property-casualty insurance $ 13,726,372 $ 77,980,973 $45,587,586 $ - $ 88,184,842 $ 9,163,062 $ 57,501,375 1999 - ---- Property-casualty insurance $ 12,644,189 $ 77,256,192 $39,454,257 $ - $ 82,841,104 $ 9,136,244 $ 45,300,841 1998 - ---- Property-casualty insurance $ 13,524,777 $ 78,504,050 $41,541,432 $ - $ 88,629,476 $ 9,119,936 $ 52,377,114 Year ended December 31, (continued) ------------------------------------------- Amortization of Deferred Policy Other Acquisition Operating Premiums Segment Costs Expenses Written - ----------------- --------------- ----------- ------------- 2000 - ---- Property-casualty insurance $ 28,431,941 $ 1,471,512 $ 102,110,215 1999 - ---- Property-casualty insurance $ 28,325,677 $ 1,398,483 $ 86,002,801 1998 - ---- Property-casualty insurance $ 27,833,262 $ 1,461,640 $ 87,929,152
39 SCHEDULE IV
CAPITOL TRANSAMERICA CORPORATION REINSURANCE For The Years Ended December 31, 2000, l999 and l998 Assumed Percentage Direct Ceded to From Assumed of Amount Premiums Other Other From Net Assumed Written Companies Companies Affiliates Amount To Net ------------ ----------- ---------- ----------- ----------- ---------- December 31, 2000 Premiums Written: Accident and Health insurance $ 293,424 $ 1,940,917 $1,940,917 $ - $ 293,424 661.5% Property & casualty and fidelity & surety insurance 99,810,454 6,277,517 65,421 - 93,598,358 0.1% ------------ ----------- ---------- ----------- ----------- ---------- Total premiums written $100,103,878 $ 8,218,434 $2,006,338 $ 0 $93,891,782 2.1% ============ =========== ========== =========== =========== ========== December 31, 1999 Premiums Written: Accident and Health insurance $ 289,728 $ 1,493,857 $1,493,857 $ - $ 289,728 515.6% Property & casualty and fidelity & surety insurance 84,170,353 4,315,567 48,862 - 79,903,648 0.1% ------------ ----------- ---------- ----------- ----------- ---------- Total premiums written $ 84,460,081 $ 5,809,424 $1,542,719 $ 0 $80,193,376 1.9% ============ =========== ========== =========== =========== ========== December 31, 1998 Premiums Written: Accident and Health insurance $ 288,332 $ 1,596,313 $ 270,803 $ 1,325,510 $ 288,332 553.6% Property & casualty and fidelity & surety insurance 86,041,340 3,556,866 3,167 - 82,487,641 0.0% ------------ ----------- ---------- ----------- ----------- ---------- Total premiums written $ 86,329,672 $ 5,153,179 $ 273,970 $ 1,325,510 $82,775,973 1.9% ============ =========== ========== =========== =========== ==========
40 SCHEDULE VI
CAPITOL TRANSAMERICA CORPORATION SUPPLEMENTAL INFORMATION CONCERNING PROPERTY-CASUALTY INSURANCE OPERATIONS December 31, 2000 As of December 31, -------------------------- BALANCE SHEET DATA: 2000 1999 - ------------------ ------------- ----------- Deferred insurance acquisition costs $ 13,726,372 $12,644,189 Outstanding loss and loss adjustment expense reserves 77,980,973 77,256,192 Discount deducted from reserves - - Unearned premiums $ 45,587,586 $39,454,257
INCOME STATEMENT DATA: Year Ended December 31, - ---------------------- ---------------------------------------- 2000 1999 1998 ------------- ------------ ----------- Earned premiums $ 88,184,842 $82,841,104 $88,629,476 Net investment income 9,163,062 9,136,244 9,119,936 Incurred losses and loss adjustment expenses related to: Current year 60,051,007 47,749,455 49,862,090 Prior years (2,549,632) (2,448,614) 2,515,024 Amortization of deferred policy acquisition costs 28,431,941 28,325,677 27,833,262 Paid claims and claim adjustment expenses 54,456,849 45,325,451 46,405,683 Gross premiums written $102,110,215 $86,002,801 $87,929,152
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