þ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 23-2424711 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
1195 River Road, Marietta, Pennsylvania | 17547 | |
(Address of principal executive offices) | (Zip code) |
Title of Each Class | Name of Each Exchange on Which Registered | |
Class A Common Stock, $.01 par value | The NASDAQ Global Select Market | |
Class B Common Stock, $.01 par value | The NASDAQ Global Select Market |
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o (Do not check if a smaller reporting company) |
Smaller reporting company o |
1. | The registrant incorporates by reference portions of the registrants annual report to stockholders for the fiscal year ended December 31, 2010 into Parts I, II and IV of this report. |
2. | The registrant incorporates by reference portions of the registrants proxy statement relating to registrants annual meeting of stockholders to be held April 21, 2011 into Part III of this report. |
Page | ||||||
PART I | ||||||
Item 1. | Business
|
1 | ||||
Item 1A. | Risk Factors
|
34 | ||||
Item 1B. | Unresolved Staff Comments
|
48 | ||||
Item 2. | Properties
|
48 | ||||
Item 3. | Legal Proceedings
|
49 | ||||
Item 4. | Reserved
|
49 | ||||
PART II | ||||||
Item 5. | Market for Registrants Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities
|
50 | ||||
Item 6. | Selected Financial Data
|
51 | ||||
Item 7. | Managements Discussion and Analysis of Financial Condition
and Results of Operations
|
51 | ||||
Item 7A. | Quantitative and Qualitative Disclosures About Market Risk
|
51 | ||||
Item 8. | Financial Statements and Supplementary Data
|
53 | ||||
Item 9. | Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
|
53 | ||||
Item 9A. | Controls and Procedures
|
53 | ||||
Item 9B. | Other Information
|
54 | ||||
PART III | ||||||
Item 10. | Directors, Executive Officers and Corporate Governance
of the Registrant
|
55 | ||||
Item 11. | Executive Compensation
|
55 | ||||
Item 12. | Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
|
55 | ||||
Item 13. | Certain Relationships and Related Transactions and
Director Independence
|
55 | ||||
Item 14. | Principal Accountant Fees and Services
|
55 | ||||
PART IV | ||||||
Item 15. | Exhibits and Financial Statement Schedules
|
56 |
(i)
| a purchase of all of the outstanding stock of a stock insurance company; |
| a purchase of a book of business; |
| a quota-share reinsurance transaction; or |
| a two-step acquisition of a mutual insurance company in which: |
| as the first step, Donegal Mutual purchases a surplus note from the mutual insurance company, Donegal Mutual enters into a services agreement with the mutual insurance company and Donegal Mutuals |
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designees become a majority of the members of the board of directors of the mutual insurance company. |
| as the second step, the mutual insurance company enters into a quota-share reinsurance agreement with Donegal Mutual or demutualizes, or converts, into a stock insurance company. Upon the demutualization or conversion, we purchase the surplus note from Donegal Mutual and exchange it for all of the stock of the stock insurance company resulting from the conversion. |
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| Achieving underwriting profitability. |
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| carefully selecting the product lines they underwrite; |
| carefully selecting the individual risks they underwrite; |
| minimizing their individual exposure to catastrophe-prone areas; and |
| evaluating their claims history on a regular basis to ensure the adequacy of their underwriting guidelines and product pricing. |
2006 | 2007 | 2008 | 2009 | 2010 | ||||||||||||||||
Our GAAP combined ratio |
89.0 | % | 91.3 | % | 97.2 | % | 102.2 | % | 104.7 | % | ||||||||||
Our SAP combined ratio |
87.4 | 90.2 | 95.1 | 101.1 | 102.9 | |||||||||||||||
Industry SAP combined ratio(1) |
92.4 | 95.6 | 104.7 | 101.2 | 103.0 |
(1) | As reported or projected by A.M. Best. |
| Pursuing profitable growth by organic expansion within the traditional operating territories of our insurance subsidiaries through developing and maintaining quality agency representation. |
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| fully automated underwriting and policy issuance systems for both personal, commercial and farm lines of insurance; | ||
| training programs; | ||
| marketing support; | ||
| availability of a service center that provides comprehensive service for our personal lines policyholders; and | ||
| field visitations by marketing and underwriting personnel and senior management of our insurance subsidiaries. |
| Acquiring property and casualty insurance companies to augment the organic growth of our insurance subsidiaries in existing markets and to expand into new geographic regions. |
| Location in regions where our insurance subsidiaries are currently conducting business or that offer an attractive opportunity to conduct profitable business; | ||
| A mix of business similar to the mix of business of our insurance subsidiaries; | ||
| Premium volume up to $100.0 million; and |
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| Fair and reasonable transaction terms. |
| Focusing on expense controls and utilization of technology to increase the operating efficiency of our insurance subsidiaries. |
| Providing responsive and friendly customer and agent service to enable our insurance subsidiaries to attract new policyholders and retain existing policyholders. |
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| Availability of a state-of-the-art customer call center for claims reporting; | ||
| Availability of a secure website for access to policy information and documents, payment processing and other features; | ||
| Quick replies to information requests and policy submissions; and | ||
| Prompt responses to and processing of claims. |
| Maintaining premium rate adequacy to enhance the underwriting results of our insurance subsidiaries, while maintaining their existing book of business and preserving their ability to write new business. |
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(1) | Because of the different relative voting power of our Class A common stock and our Class B common stock, our public stockholders hold approximately 33.6% of the aggregate voting power of our Class A common stock and Class B common stock and Donegal Mutual holds approximately 66.4% of the aggregate voting power of our Class A common stock and Class B common stock. |
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| both of our members on the coordinating committee must determine that the new agreement or the change in an existing agreement is fair and equitable to us and in the best interests of our stockholders; |
| both of Donegal Mutuals members on the coordinating committee must determine that the new agreement or the change in an existing agreement is fair and equitable to Donegal Mutual and its policyholders; |
| the new agreement or the change in an existing agreement must be approved by our board of directors; and |
| the new agreement or the change in an existing agreement must be approved by the Donegal Mutual board of directors. |
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| Facilitating the stable management, consistent underwriting discipline, external growth and long-term profitability of our insurance subsidiaries; |
| Creating operational and expense synergies given the combined resources and operating efficiencies of Donegal Mutual, us and our insurance subsidiaries; |
| Enhancing our opportunities to expand by acquisition because of the ability of Donegal Mutual to acquire control of other mutual insurance companies and thereafter demutualize them and then sell them to us at a price that is based on a fairness opinion; |
| Producing more uniform and stable underwriting results for our insurance subsidiaries that we, over extended periods of time, could achieve without the relationship between Donegal Mutual and our insurance subsidiaries; and |
| Providing Atlantic States with a significantly larger underwriting capacity because of the underwriting pool Donegal Mutual and Atlantic States have maintained since 1986. |
Year | ||||||||
State of | Control | Method of | ||||||
Company Name | Domicile | Acquired(2) | Acquisition/Affiliation | |||||
Southern Mutual Insurance Company and now Southern Insurance Company of Virginia |
Virginia | 1984 | Surplus note investment by Donegal Mutual in 1984; demutualization in 1988; acquisition of stock by us in 1988. | |||||
Pioneer Mutual Insurance Company and then Pioneer Insurance Company (1) |
Ohio | 1992 | Surplus note investment by Donegal Mutual in 1992; demutualization in 1993; acquisition of stock by us in 1997. | |||||
Delaware Mutual Insurance Company and then Delaware Atlantic Insurance Company (1) |
Delaware | 1993 | Surplus note investment by Donegal Mutual in 1993; demutualization in 1994; acquisition of stock by us in |
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Year | ||||||||
State of | Control | Method of | ||||||
Company Name | Domicile | Acquired(2) | Acquisition/Affiliation | |||||
1995. | ||||||||
Pioneer Mutual Insurance Company and then Pioneer Insurance Company (1) |
New York | 1995 | Surplus note investment by Donegal Mutual in 1995; demutualization in 1998; acquisition of stock by us in 2001. | |||||
Southern Heritage Insurance Company (1) |
Georgia | 1998 | Purchase of stock by us in 1998. | |||||
Le Mars Mutual Insurance Company of Iowa and now Le Mars Insurance Company |
Iowa | 2002 | Surplus note investment by Donegal Mutual in 2002; demutualization in 2004; acquisition of stock by us in 2004. | |||||
Peninsula Insurance Group
|
Maryland | 2004 | Purchase of stock by us in 2004. | |||||
Sheboygan Falls Mutual Insurance Company and now Sheboygan Falls Insurance Company |
Wisconsin | 2007 | Contribution note investment by Donegal Mutual in 2007; demutualization in 2008; acquisition of stock by us in 2008. | |||||
Southern Mutual Insurance Company (2) |
Georgia | 2009 | Surplus note investment by Donegal Mutual and quota-share reinsurance in 2009. | |||||
Michigan Insurance Company
|
Michigan | 2010 | Purchase of stock by us and surplus note investment by Donegal Mutual in 2010. |
(1) | To reduce administrative and compliance costs and expenses, these subsidiaries subsequently merged into one of our existing insurance subsidiaries. | |
(2) | Control acquired by Donegal Mutual. |
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Pennsylvania |
45.1 | % | ||
Maryland |
11.4 | |||
Virginia |
10.3 | |||
Georgia |
6.9 | |||
Delaware |
6.3 | |||
Ohio |
3.7 | |||
Iowa |
3.3 | |||
Wisconsin |
2.8 | |||
Michigan |
1.9 | * | ||
Tennessee |
1.7 | |||
Nebraska |
1.7 | |||
South Dakota |
1.4 | |||
Other |
3.5 | |||
Total |
100.0 | % | ||
* | Michigan represents the direct premiums MICO wrote following our acquisition of it on December 1, 2010. |
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| fully automated underwriting and policy issuance systems for both personal and commercial lines; |
| training programs; |
| marketing support; |
| the availability of a service center that provides comprehensive service for our personal lines policyholders; and |
| field visitations from marketing and underwriting personnel and senior management of our insurance subsidiaries. |
| Private passenger automobile policies that provide protection against liability for bodily injury and property damage arising from automobile accidents, and protection against loss from damage to automobiles owned by the insured. |
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| Homeowners policies that provide coverage for damage to residences and their contents from a broad range of perils, including fire, lightning, windstorm and theft. These policies also cover liability of the insured arising from injury to other persons or their property while on the insureds property and under other specified conditions. |
| Commercial automobile policies that provide protection against liability for bodily injury and property damage arising from automobile accidents, and protection against loss from damage to automobiles owned by the insured. |
| Commercial multi-peril policies that provide protection to businesses against many perils, usually combining liability and physical damage coverages. |
| Workers compensation policies employers purchase to provide benefits to employees for injuries sustained during employment. The workers compensation laws of each state determine the extent of the coverage we provide. |
Year Ended December 31, | ||||||||||||||||||||||||
(dollars in thousands) | 2008 | 2009 | 2010 | |||||||||||||||||||||
Amount | % | Amount | % | Amount | % | |||||||||||||||||||
Net Premiums Written: |
||||||||||||||||||||||||
Personal lines: |
||||||||||||||||||||||||
Automobile |
$ | 154,091 | 42.2 | % | $ | 161,932 | 44.6 | % | $ | 171,497 | 43.8 | % | ||||||||||||
Homeowners |
72,195 | 19.8 | 77,420 | 21.3 | 83,415 | 21.3 | ||||||||||||||||||
Other |
13,254 | 3.6 | 13,135 | 3.6 | 13,135 | 3.4 | ||||||||||||||||||
Total personal lines |
$ | 239,540 | 65.6 | $ | 252,487 | 69.5 | $ | 268,047 | 68.5 | |||||||||||||||
Commercial lines: |
||||||||||||||||||||||||
Automobile |
$ | 35,959 | 9.9 | $ | 34,054 | 9.4 | $ | 37,094 | 9.5 | |||||||||||||||
Workers compensation |
36,459 | 10.0 | 28,921 | 8.0 | 34,920 | 8.9 | ||||||||||||||||||
Commercial multi-peril |
49,004 | 13.4 | 44,000 | 12.1 | 47,411 | 12.1 | ||||||||||||||||||
Other |
3,979 | 1.1 | 3,767 | 1.0 | 4,050 | 1.0 | ||||||||||||||||||
Total commercial lines |
$ | 125,401 | 34.4 | $ | 110,742 | 30.5 | 123,475 | 31.5 | ||||||||||||||||
Total business |
$ | 364,941 | 100.0 | % | $ | 363,229 | 100.0 | % | $ | 391,522 | 100.0 | % | ||||||||||||
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| assess and select quality standard and preferred risks; |
| adhere to disciplined underwriting and reunderwriting guidelines; |
| inspect substantially all commercial lines risks and a substantial number of personal lines property risks; and |
| utilize various types of risk management and loss control services. |
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Year Ended December 31, | ||||||||||||
(in thousands) | 2008 | 2009 | 2010 | |||||||||
Gross liability for unpaid losses and loss expenses
at beginning of year |
$ | 226,432 | $ | 239,809 | $ | 263,599 | ||||||
Less reinsurance recoverable |
76,280 | 78,502 | 83,337 | |||||||||
Net liability for unpaid losses and loss expenses
at beginning of year |
150,152 | 161,307 | $ | 180,262 | ||||||||
Acquisition of Sheboygan |
2,173 | | | |||||||||
Acquisition of Michigan |
| | 26,960 | |||||||||
Provision for net losses and loss expenses for
claims incurred in the current year |
221,617 | 241,012 | 277,194 | |||||||||
Change in provision for estimated net losses and
loss expenses for claims incurred in prior years |
2,684 | 9,823 | (2,885 | ) | ||||||||
Total incurred |
224,301 | 250,835 | 274,309 | |||||||||
Net losses and loss payments for claims
incurred during: |
||||||||||||
The current year |
143,369 | 152,293 | 179,069 | |||||||||
Prior years |
71,950 | 79,587 | 84,565 | |||||||||
Total paid |
215,319 | 231,880 | 263,634 | |||||||||
Net liability for unpaid losses and loss expenses
at end of year |
161,307 | 180,262 | 217,897 | |||||||||
Plus reinsurance recoverable |
78,502 | 83,337 | 165,422 | |||||||||
Gross liability for unpaid losses and loss expenses
at end of year |
$ | 239,809 | $ | 263,599 | $ | 383,319 | ||||||
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Year Ended December 31, | ||||||||||||||||||||||||||||||||||||||||||||
(in thousands) | 2000 | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | |||||||||||||||||||||||||||||||||
Net liability at end of
year for unpaid losses
and loss expenses |
$ | 102,709 | $ | 114,544 | $ | 131,108 | $ | 138,896 | $ | 171,431 | $ | 173,009 | $ | 163,312 | $ | 150,152 | $ | 161,307 | $ | 180,262 | $ | 217,896 | ||||||||||||||||||||||
Net liability
reestimated as of: |
||||||||||||||||||||||||||||||||||||||||||||
One year later |
110,744 | 121,378 | 130,658 | 136,434 | 162,049 | 159,393 | 153,299 | 152,836 | 171,130 | 177,377 | ||||||||||||||||||||||||||||||||||
Two years later |
112,140 | 120,548 | 128,562 | 130,030 | 152,292 | 153,894 | 150,934 | 154,435 | 167,446 | |||||||||||||||||||||||||||||||||||
Three years later |
110,673 | 118,263 | 124,707 | 123,399 | 148,612 | 151,792 | 150,078 | 152,315 | ||||||||||||||||||||||||||||||||||||
Four years later |
108,766 | 114,885 | 119,817 | 120,917 | 147,280 | 150,183 | 148,745 | |||||||||||||||||||||||||||||||||||||
Five years later |
107,561 | 113,070 | 118,445 | 119,968 | 145,874 | 150,087 | ||||||||||||||||||||||||||||||||||||||
Six years later |
106,950 | 112,614 | 118,605 | 119,731 | 146,101 | |||||||||||||||||||||||||||||||||||||||
Seven years later |
106,298 | 112,921 | 118,905 | 120,425 | ||||||||||||||||||||||||||||||||||||||||
Eight years later |
106,835 | 113,350 | 119,635 | |||||||||||||||||||||||||||||||||||||||||
Nine years later |
107,474 | 113,862 | ||||||||||||||||||||||||||||||||||||||||||
Ten years later |
107,882 | |||||||||||||||||||||||||||||||||||||||||||
Cumulative (excess) deficiency |
5,173 | (682 | ) | (11,473 | ) | (18,471 | ) | (25,330 | ) | (22,922 | ) | (14,567 | ) | 2,163 | 6,139 | (2,885 | ) | |||||||||||||||||||||||||||
Cumulative amount of
liability paid through: |
||||||||||||||||||||||||||||||||||||||||||||
One year later |
$ | 43,053 | $ | 45,048 | $ | 46,268 | $ | 51,965 | $ | 67,229 | $ | 71,718 | 72,499 | 71,950 | 79,592 | 84,565 | ||||||||||||||||||||||||||||
Two years later |
67,689 | 70,077 | 74,693 | 81,183 | 102,658 | 107,599 | 104,890 | 105,576 | 116,035 | |||||||||||||||||||||||||||||||||||
Three years later |
82,268 | 87,198 | 93,288 | 99,910 | 123,236 | 125,926 | 121,711 | 124,659 | ||||||||||||||||||||||||||||||||||||
Four years later |
92,127 | 97,450 | 105,143 | 109,964 | 133,844 | 133,805 | 132,698 | |||||||||||||||||||||||||||||||||||||
Five years later |
98,007 | 104,551 | 111,523 | 113,684 | 136,377 | 139,935 | ||||||||||||||||||||||||||||||||||||||
Six years later |
101,664 | 108,136 | 114,145 | 114,499 | 139,847 | |||||||||||||||||||||||||||||||||||||||
Seven years later |
103,767 | 110,193 | 114,641 | 116,727 | ||||||||||||||||||||||||||||||||||||||||
Eight years later |
105,046 | 110,447 | 116,663 | |||||||||||||||||||||||||||||||||||||||||
Nine years later |
104,990 | 111,797 | ||||||||||||||||||||||||||||||||||||||||||
Ten years later |
105,865 |
Year Ended December 31 | ||||||||||||||||||||||||||||||||||||
2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | ||||||||||||||||||||||||||||
(in thousands) | ||||||||||||||||||||||||||||||||||||
Gross liability at end of year |
$ | 210,692 | $ | 217,914 | $ | 267,190 | $ | 265,730 | $ | 259,022 | $ | 226,432 | $ | 239,809 | $ | 263,599 | $ | 383,317 | ||||||||||||||||||
Reinsurance recoverable |
79,584 | 79,018 | 95,759 | 92,721 | 95,710 | 76,280 | 78,502 | 83,337 | 165,421 | |||||||||||||||||||||||||||
Net liability at end of year |
131,108 | 138,896 | 171,431 | 173,009 | 163,312 | 150,152 | 161,307 | 180,262 | 217,896 | |||||||||||||||||||||||||||
Gross reestimated liability |
209,355 | 210,005 | 239,839 | 240,998 | 239,810 | 232,995 | 253,221 | 264,836 | ||||||||||||||||||||||||||||
Reestimated recoverable |
89,720 | 89,580 | 93,738 | 90,911 | 91,065 | 80,680 | 85,775 | 87,459 | ||||||||||||||||||||||||||||
Net reestimated liability |
119,635 | 120,425 | 146,101 | 150,087 | 148,745 | 152,315 | 167,446 | 177,377 | ||||||||||||||||||||||||||||
Gross cumulative deficiency (excess) |
(1,337 | ) | (7,909 | ) | (27,351 | ) | (24,732 | ) | (19,212 | ) | 6,563 | 13,412 | 1,237 |
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| excess of loss reinsurance, under which their losses are automatically reinsured, through a series of contracts, over a set retention (generally $750,000 for 2010 and 2011); and | ||
| catastrophic reinsurance, under which they recover, through a series of contracts, 100% of an accumulation of many losses resulting from a single event, including natural disasters, over a set retention (generally $3.0 million for 2010 and $5.0 million for 2011). |
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(dollars in thousands) | December 31, 2010 | |||||||
Rating(1) | Amount | Percent | ||||||
U.S. Treasury and U.S. agency securities(2) |
$ | 148,789 | 22.3 | % | ||||
Aaa or AAA |
78,088 | 11.7 | ||||||
Aa or AA |
360,503 | 53.9 | ||||||
A |
74,433 | 11.1 | ||||||
BBB |
6,059 | 1.0 | ||||||
BB |
250 | | ||||||
B |
491 | | ||||||
Total |
$ | 668,613 | 100.0 | % | ||||
(1) | Ratings assigned by Moodys Investors Services, Inc. or Standard & Poors Corporation. | |
(2) | Includes residential mortgage-backed securities of $90.4 million. |
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December 31, | ||||||||||||||||||||||||
2008 | 2009 | 2010 | ||||||||||||||||||||||
Percent | Percent | Percent | ||||||||||||||||||||||
of | of | of | ||||||||||||||||||||||
(dollars in thousands) | Amount | Total | Amount | Total | Amount | Total | ||||||||||||||||||
Fixed maturities(1): |
||||||||||||||||||||||||
Held to maturity: |
||||||||||||||||||||||||
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies |
$ | 8,517 | 1.4 | % | $ | 2,000 | 0.3 | % | $ | 1,000 | 0.1 | % | ||||||||||||
Obligations of states and
political subdivisions |
76,451 | 12.1 | 61,736 | 9.3 | 59,852 | 8.2 | ||||||||||||||||||
Corporate securities |
8,341 | 1.3 | 6,243 | 0.9 | 3,247 | 0.5 | ||||||||||||||||||
Residential mortgage-backed securities |
6,569 | 1.0 | 3,828 | 0.6 | 667 | 0.1 | ||||||||||||||||||
Total held to maturity |
99,878 | 15.8 | 73,807 | 11.1 | 64,766 | 8.9 | ||||||||||||||||||
Available for sale: |
||||||||||||||||||||||||
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies |
6,630 | 1.0 | 40,630 | 6.1 | 57,316 | 7.9 | ||||||||||||||||||
Obligations of states and
political subdivisions |
337,003 | 53.3 | 358,367 | 53.7 | 389,629 | 53.5 | ||||||||||||||||||
Corporate securities |
23,936 | 3.8 | 27,766 | 4.2 | 67,095 | 9.2 | ||||||||||||||||||
Residential mortgage-backed securities |
78,247 | 12.4 | 90,941 | 13.6 | 89,807 | 12.3 | ||||||||||||||||||
Total available for sale |
445,816 | 70.5 | 517,704 | 77.6 | 603,847 | 82.9 | ||||||||||||||||||
Total fixed maturities |
545,694 | 86.3 | 591,511 | 88.7 | 668,613 | 91.8 | ||||||||||||||||||
Equity securities(2) |
5,895 | 0.9 | 9,915 | 1.5 | 10,161 | 1.4 | ||||||||||||||||||
Investments in affiliates(3) |
8,594 | 1.4 | 9,309 | 1.4 | 8,992 | 1.2 | ||||||||||||||||||
Short-term investments(4) |
71,953 | 11.4 | 56,100 | 8.4 | 40,776 | 5.6 | ||||||||||||||||||
Total investments |
$ | 632,136 | 100.0 | % | $ | 666,835 | 100.0 | % | $ | 728,542 | 100.0 | % | ||||||||||||
(1) | See notes 1 and 5 to our consolidated financial statements that we incorporate by reference in this Form 10-K Report. We value fixed maturities classified as held to maturity at amortized cost; we value those fixed maturities classified as available for sale at fair value. Total fair value of fixed maturities classified as held to maturity was $101.5 million at December 31, 2008, $77.0 million at December 31, 2009 and $67.8 million at December 31, 2010. The amortized cost of fixed maturities classified as available for sale was $449.0 million at December 31, 2008, $503.7 million at December 31, 2009 and $601.3 million at December 31, 2010. | |
(2) | We value equity securities at fair value. Total cost of equity securities was $2.9 million at December 31, 2008, $3.8 million at December 31, 2009 and $2.5 million at December 31, 2010. | |
(3) | We value investments in affiliates at cost, adjusted for our share of earnings and losses of our affiliates as well as changes in equity of our affiliates due to unrealized gains and losses. |
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(4) | We value short-term investments at cost, which approximates fair value. |
December 31, | ||||||||||||||||||||||||
2008 | 2009 | 2010 | ||||||||||||||||||||||
Percent | Percent | Percent | ||||||||||||||||||||||
of | of | of | ||||||||||||||||||||||
(dollars in thousands) | Amount | Total | Amount | Total | Amount | Total | ||||||||||||||||||
Due in(1): |
||||||||||||||||||||||||
One year or less |
$ | 14,008 | 2.6 | % | $ | 16,410 | 2.8 | % | $ | 12,968 | 1.9 | % | ||||||||||||
Over one year through three years |
33,772 | 6.2 | 35,007 | 5.9 | 54,028 | 8.1 | ||||||||||||||||||
Over three years through five years |
44,579 | 8.2 | 46,392 | 7.8 | 66,720 | 10.0 | ||||||||||||||||||
Over five years through ten years |
174,130 | 31.9 | 166,352 | 28.1 | 201,523 | 30.1 | ||||||||||||||||||
Over ten years through fifteen years |
89,889 | 16.5 | 121,308 | 20.5 | 147,512 | 22.1 | ||||||||||||||||||
Over fifteen years |
104,500 | 19.1 | 111,273 | 18.9 | 95,389 | 14.3 | ||||||||||||||||||
Residential mortgage-backed securities |
84,816 | 15.5 | 94,769 | 16.0 | 90,473 | 13.5 | ||||||||||||||||||
$ | 545,694 | 100.0 | % | $ | 591,511 | 100.0 | % | $ | 668,613 | 100.0 | % | |||||||||||||
(1) | Based on stated maturity dates with no prepayment assumptions. Actual maturities will differ because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. |
-28-
Year Ended December 31, | ||||||||||||
(dollars in thousands) | 2008 | 2009 | 2010 | |||||||||
Invested assets(1) |
$ | 619,003 | $ | 649,486 | $ | 697,689 | ||||||
Investment income(2) |
22,756 | 20,631 | 19,950 | |||||||||
Average yield |
3.7 | % | 3.2 | % | 2.9 | % | ||||||
Average tax-equivalent yield |
4.9 | 4.4 | 4.0 |
(1) | Average of the aggregate invested amounts at the beginning and end of the period. | |
(2) | Investment income is net of investment expenses and does not include realized investment gains or losses or provision for income taxes. |
-29-
-30-
-31-
Name of Insurance Subsidiary | Ordinary Dividend Amount | |||
Atlantic States |
$ | 19.2 million | ||
Southern |
None | |||
Le Mars |
2.6 million | |||
Peninsula Group |
4.2 million | |||
Sheboygan |
None | |||
MICO |
3.7 million | |||
Total |
$ | 29.7 million | ||
-32-
-33-
| We and Donegal Mutual periodically review the percentage participation of Atlantic States and Donegal Mutual in the underwriting pool that Donegal Mutual and we have maintained since 1986; | ||
| Our insurance subsidiaries and Donegal Mutual annually review and then establish the terms of certain reinsurance agreements between them with the objective over the long-term of having an approximately equal balance between payments and recoveries; | ||
| We and Donegal Mutual periodically allocate certain shared expenses among ourselves and our insurance subsidiaries in accordance with various inter-company expense-sharing agreements; and | ||
| Our insurance subsidiaries may enter into other transactions or contractual relationships with Donegal Mutual, including, for example, our purchases from time to time from Donegal Mutual of the surplus note of a mutual insurance company that will convert into a stock insurance company and ultimately become one of our wholly owned subsidiaries. |
-34-
| elect all of the members of our board of directors, who determine our management and policies; and | ||
| control the outcome of any corporate transaction or other matter submitted to our stockholders for approval, including mergers or other acquisition proposals and the sale of all or substantially all of our assets, in each case regardless of how our other stockholders vote their shares. |
| our board of directors is classified into three classes, so that our stockholders elect only one-third of the members of our board of directors each year; | ||
| our stockholders may remove our directors only for cause; | ||
| our stockholders may not take stockholder action except at an annual or special meeting of our stockholders; | ||
| the request of stockholders holding at least 20% of the aggregate voting power of our Class A common stock and our Class B common stock is required to call a special meeting of our stockholders; | ||
| our bylaws require that stockholders provide us with advance notice to us to nominate candidates for election to our board of directors or to make a stockholder proposal at a stockholders meeting; |
-35-
| we do not permit cumulative voting rights in the election of our directors; | ||
| our certificate of incorporation does not provide for pre-emptive rights in connection with the securities we issue; and | ||
| our board of directors may issue, without stockholder approval unless otherwise required by law, preferred stock with such terms as our board of directors may determine. |
-36-
| the significant competition among insurance companies to attract independent agents; |
-37-
| the intense and time-consuming process of selecting new independent agents; | ||
| the insistence of our insurance subsidiaries that independent agents adhere to consistent underwriting standards; and | ||
| the ability of our insurance subsidiaries to pay competitive and attractive commissions, bonuses and other incentives to independent agents. |
-38-
| the potential inadequacy of reserves for loss and loss expenses; | ||
| the need to supplement management with additional experienced personnel; | ||
| conditions imposed by regulatory agencies that make the realization of cost-savings through integration of operations more difficult; | ||
| a need for additional capital that was not anticipated at the time of the acquisition; and | ||
| the use of more of our managements time than we originally anticipated. |
-39-
| the perceived financial strength of the insurer; | ||
| premium rates; | ||
| policy terms and conditions; | ||
| policyholder service; | ||
| reputation; and | ||
| experience. |
-40-
-41-
-42-
| licensing and examination; | ||
| approval of premium rates; | ||
| market conduct; | ||
| policy forms; | ||
| limitations on the nature and amount of certain investments; | ||
| claims practices; | ||
| mandated participation in involuntary markets and guaranty funds; | ||
| reserve adequacy; | ||
| insurer solvency; | ||
| transactions between affiliates; | ||
| the amount of dividends that insurers may pay; and | ||
| restrictions on underwriting standards. |
-43-
| insurance company investments; | ||
| issues relating to the solvency of insurance companies; | ||
| risk-based capital guidelines; | ||
| restrictions on the terms and conditions included in insurance policies; | ||
| certain methods of accounting; | ||
| reserves for unearned premiums, losses and other purposes; | ||
| the values at which insurance companies may carry investment securities and the definition of other-than-temporary impairment; | ||
| interpretations of existing laws and the development of new laws. Changes in state laws and regulations, as well as changes in the way state regulators view related-party transactions in particular, could change the operating environment of our insurance subsidiaries and have an adverse effect on their business. |
-44-
| trends in claim frequency and severity; | ||
| changes in operations; | ||
| emerging economic and social trends; | ||
| inflation; and | ||
| changes in the regulatory and litigation environments. |
-45-
| the availability of sufficient, reliable data; | ||
| the ability to conduct a complete and accurate analysis of available data; | ||
| the ability to recognize in a timely manner changes in trends and to project both the severity and frequency of losses with reasonable accuracy; | ||
| uncertainties generally inherent in estimates and assumptions; | ||
| the ability to project changes in certain operating expense levels with reasonable certainty; | ||
| the development, selection and application of appropriate rating formulae or other pricing methodologies; | ||
| the use of modeling tools to assist with correctly and consistently achieving the intended results in underwriting and pricing ; | ||
| the ability to innovate with new pricing strategies, and the success of those innovations on implementation; | ||
| the ability to secure regulatory approval of premium rates on an adequate and timely basis; | ||
| the ability to predict policyholder retention accurately; | ||
| unanticipated court decisions, legislation or regulatory action; | ||
| unanticipated changes in our claim settlement practices; |
-46-
| changing driving patterns for auto exposures; changing weather patterns for property exposures; | ||
| changes in the medical sector of the economy; | ||
| unanticipated changes in auto repair costs, auto parts prices and used car prices; | ||
| impact of inflation and other factors on the cost of construction materials and labor; | ||
| the ability to monitor property concentration in catastrophe-prone areas, such as hurricane, earthquake and wind/hail regions; and | ||
| the general state of the economy in the states in which we operate. |
-47-
-48-
Name | Age | Position | ||||
Donald H. Nikolaus
|
68 | President and Chief Executive Officer of Donegal Mutual since 1981; President and Chief Executive Officer of us since 1986. | ||||
Robert G. Shenk
|
57 | Senior Vice President, Claims, of Donegal Mutual and us since 1997; other positions from 1986 to 1997. | ||||
Cyril J. Greenya
|
66 | Senior Vice President and Chief Underwriting Officer, of Donegal Mutual and us since 2005, Senior Vice President, Underwriting of Donegal Mutual from 1997 to 2005; other positions from 1986 to 2005. | ||||
Daniel J. Wagner
|
50 | Senior Vice President and Treasurer of Donegal Mutual and us since 2005; Vice President and Treasurer of Donegal Mutual and us from 2000 to 2005; other positions from 1993 to 2005. | ||||
Jeffrey D. Miller
|
46 | Senior Vice President and Chief Financial Officer of Donegal Mutual and us since 2005; Vice President and Controller of Donegal Mutual and us from 2000 to 2005; other positions from 1995 to 2005. |
-49-
Item 5. | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities. |
(d) Maximum | ||||||||
Number (or | ||||||||
(c) Total Number of | Approximate Dollar | |||||||
Shares (or Units) | Value) of Shares | |||||||
Purchased as Part | (or Units) that May | |||||||
(a) Total Number of | (b) Average Price | of Publicly | Yet Be Purchased | |||||
Shares (or Units) | Paid per Share | Announced Plans | Under the Plans | |||||
Period | Purchased | (or Unit) | of Programs | or Programs(1) | ||||
Month #1
|
Class A | Class A $ | Class A | |||||
October 1-31, 2010
|
Class B 5,450 | Class B $20.00 | Class B 5,450 | |||||
Month #2
|
Class A | Class A $ | Class A | |||||
November 1-30, 2010
|
Class B 2,616 | Class B $20.00 | Class B 2,616 | |||||
Month #3
|
Class A | Class A $ | Class A | |||||
December 1-31, 2010
|
Class B 301 | Class B $17.26 | Class B 301 | |||||
Total
|
Class A | Class A $ | Class A | |||||
Class B 8,367 | Class B $19.90 | Class B 8,367 |
(1) | Donegal Mutual purchased these shares pursuant to its announcement on August 17, 2004 that it will, at its discretion, purchase shares of our Class A common stock and Class B common stock at market prices prevailing from time to time in the open market subject to the provisions of SEC Rule 10b-18 and in privately negotiated transactions. Such announcement did not stipulate a maximum number of shares that may be purchased under this stock repurchase program. |
-50-
Item 7. | Managements Discussion and Analysis of Financial Condition and Results of Operations. |
-51-
As of December 31, 2010 | ||||||||
Weighted-average | ||||||||
(amounts in thousands) | Principal cash flows | interest rate | ||||||
Fixed maturities and short-term investments: |
||||||||
2011 |
$ | 53,551 | 1.14 | % | ||||
2012 |
24,891 | 4.10 | ||||||
2013 |
27,004 | 4.02 | ||||||
2014 |
25,261 | 3.94 | ||||||
2015 |
42,080 | 4.08 | ||||||
Thereafter |
523,954 | 4.42 | ||||||
Total |
$ | 696,741 | ||||||
Fair value |
$ | 712,431 | ||||||
Debt: |
||||||||
2011 |
$ | 617 | 0.50 | % | ||||
2013 |
$ | 35,000 | 2.25 | |||||
Thereafter |
$ | 20,465 | 4.35 | |||||
Total |
$ | 56,082 | ||||||
Fair Value |
$ | 56,082 | ||||||
-52-
Item 9. | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. |
-53-
-54-
Item 10. | Directors, Executive Officers and Corporate Governance of the Registrant. |
Item 11. | Executive Compensation. |
Item 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. |
Item 13. | Certain Relationships and Related Transactions and Director Independence. |
Item 14. | Principal Accountant Fees and Services. |
-55-
Item 15. | Exhibits and Financial Statement Schedule. |
Page* | ||
Reports of Independent Registered Public Accounting Firm |
40, 42 | |
Donegal Group Inc. and Subsidiaries: |
||
Consolidated Balance Sheets as of December 31, 2010 and 2009 |
20 | |
Consolidated Statements of Income and Comprehensive Income
for each of the years in the three-year period ended December 31,
2010, 2009 and 2008 |
21 | |
Consolidated Statements of Stockholders Equity for each of the
years in the three-year period ended December 31, 2010, 2009
and 2008 |
22 | |
Consolidated Statements of Cash Flows for each of the years in the
three-year period ended December 31, 2010, 2009 and 2008 |
23 | |
Notes to Consolidated Financial Statements |
24 | |
Report and Consent of Independent Registered Public
Accounting Firm |
Exhibit 23 |
Page | ||
Donegal Group Inc. and Subsidiaries |
||
Schedule III Supplementary Insurance Information |
S-1 |
* | Refers to pages of our 2010 Annual Report to Stockholders. We incorporate by reference to pages 20 through 42 of our 2010 Annual Report, our Consolidated Financial Statements, Notes to Consolidated Financial Statements, Report of Independent Registered Public Accounting Firm on consolidated financial statements, Managements Report on |
-56-
Exhibit No. | Description of Exhibits | Reference | ||||
(3)(i) | Certificate of Incorporation of Donegal Group Inc., as amended. | (a) | ||||
(3)(ii) | Amended and Restated By-laws of Donegal Group Inc. | (r) | ||||
Management Contracts and Compensatory Plans or Arrangements | ||||||
(10)(B) | Donegal Group Inc. 2001 Equity Incentive Plan for Employees. | (c) | ||||
(10)(C) | Donegal Group Inc. 2001 Equity Incentive Plan for Directors. | (c) | ||||
(10)(D) | Donegal Group Inc. 2001 Employee Stock Purchase Plan, as amended. | (d) | ||||
(10)(E) | Donegal Group Inc. Amended and Restated 2001 Agency Stock Purchase Plan. | (e) | ||||
(10)(F) | Donegal Mutual Insurance Company 401(k) Plan. | (f) | ||||
(10)(G) | Amendment No. 1 effective January 1, 2000 to Donegal Mutual Insurance Company 401(k) Plan. | (f) | ||||
(10)(H) | Amendment No. 2 effective January 6, 2000 to Donegal Mutual Insurance Company 401(k) Plan. | (b) | ||||
(10)(I) | Amendment No. 3 effective July 23, 2001 to Donegal Mutual Insurance Company 401(k) Plan. | (b) | ||||
(10)(J) | Amendment No. 4 effective January 1, 2002 to Donegal Mutual Insurance Company 401(k) Plan. | (b) | ||||
(10)(K) | Amendment No. 5 effective December 31, 2001 to Donegal Mutual Insurance Company 401(k) Plan. | (b) |
-57-
Exhibit No. | Description of Exhibits | Reference | ||||
(10)(L) | Amendment No. 6 effective July 1, 2002 to Donegal Mutual Insurance Company 401(k) Plan. | (p) | ||||
(10)(M) | Donegal Group Inc. 2007 Equity Incentive Plan for Employees. | (s) | ||||
(10)(N) | Donegal Group Inc. 2007 Equity Incentive Plan for Directors. | (s) | ||||
(10)(O) | Donegal Group Inc. Incentive Compensation Program. | (u) | ||||
Other Material Contracts | ||||||
(10)(O) | Amended and Restated Tax Sharing Agreement dated as of October 19, 2006 among Donegal Group Inc., Atlantic States Insurance Company, Southern Insurance Company of Virginia, Le Mars Insurance Company, The Peninsula Insurance Company and Peninsula Indemnity Company. | (p) | ||||
(10)(P) | Amended and Restated Services Allocation Agreement dated July 20, 2006 among Donegal Group Inc., Atlantic States Insurance Company, Southern Insurance Company, Le Mars Insurance Company, The Peninsula Insurance Company, Peninsula Indemnity Company and Donegal Mutual Insurance Company. | (b) | ||||
(10)(Q) | Proportional Reinsurance Agreement dated September 29, 1986 between Donegal Mutual Insurance Company and Atlantic States Insurance Company. | (h) | ||||
(10)(R) | Amendment dated October 1, 1988 to Proportional Reinsurance Agreement between Donegal Mutual Insurance Company and Atlantic States Insurance Company. | (i) | ||||
(10)(S) | Amendment dated July 16, 1992 to Proportional Reinsurance Agreement between Donegal Mutual Insurance Company and Atlantic States Insurance Company. | (j) | ||||
(10)(T) | Amendment dated as of December 21, 1995 to Proportional Reinsurance Agreement between Donegal Mutual Insurance Company and Atlantic States Insurance Company. | (k) | ||||
(10)(U) | Reinsurance and Retrocession Agreement dated May 21, 1996 between Donegal Mutual Insurance Company and Southern Insurance Company of Virginia. | (g) | ||||
(10)(V) | Amendment dated as of April 20, 2000 to Proportional | (l) |
-58-
Exhibit No. | Description of Exhibits | Reference | ||||
Reinsurance Agreement between Donegal Mutual Insurance Company and Atlantic States Insurance Company. | ||||||
(10)(W) | Lease Agreement dated as of September 1, 2000 between Donegal Mutual Insurance Company and Province Bank FSB. | (c) | ||||
(10)(X) | Plan of Conversion of Le Mars Mutual Insurance Company of Iowa adopted August 11, 2003. | (n) | ||||
(10)(Y) | Stock Purchase Agreement dated as of October 28, 2003 between Donegal Group Inc. and Folksamerica Holding Company, Inc. | (m) | ||||
(10)(Z) | Credit Agreement dated as of November 25, 2003 between Donegal Group Inc. and Manufacturers and Traders Trust Company. | (n) | ||||
(10)(AA) | First Amendment to Credit Agreement dated as of July 20, 2006 between Donegal Group Inc. and Manufacturers and Traders Trust Company. | (b) | ||||
(10)(BB) | Amended and Restated Services Allocation Agreement dated October 19, 2006 among Donegal Group Inc., Atlantic States Insurance Company, Southern Insurance Company of Virginia, Le Mars Insurance Company, The Peninsula Insurance Company, Peninsula Indemnity Company and Donegal Mutual Insurance Company. | (q) | ||||
(10)(CC) | Amendment dated as of February 11, 2008 to Proportional Reinsurance Agreement between Donegal Mutual Insurance Company and Atlantic States Insurance Company. | (t) | ||||
(10)(DD) | Contribution Note Purchase Agreement dated as of December 27, 2006 between Donegal Mutual Insurance Company and Sheboygan Falls Mutual Insurance Company. | (v) |
-59-
Exhibit No. | Description of Exhibits | Reference | ||||
(10)(EE) | Plan of Conversion of Sheboygan Falls Mutual Insurance Company adopted October 14, 2008. | (v) | ||||
(10)(FF) | Surplus Note Purchase Agreement dated as of September 8, 2009 between Donegal Mutual Insurance Company and Southern Mutual Insurance Company. | (w) | ||||
(10)(GG) | Quota-share Reinsurance Agreement dated as of October 30, 2009 but effective as of 11:59 p.m. on October 31, 2009 between Donegal Mutual Insurance Company and Southern Mutual Insurance Company. | (w) | ||||
(10)(HH) | Services and Affiliation Agreement dated as of October 30, 2009 between Donegal Mutual Insurance Company and Southern Mutual Insurance Company. | (w) | ||||
(10)(II) | Technology License Agreement dated as of October 30, 2009 between Donegal Mutual Insurance Company and Southern Mutual Insurance Company. | (w) | ||||
(10)(JJ) | Amended and Restated Proportional Reinsurance Agreement dated March 1, 2010 between Donegal Mutual Insurance Company and Atlantic States Insurance Company. | (w) | ||||
(10)(KK) | Agreement and Plan of Merger dated as of April 19, 2010, and as amended as of May 20, 2010, among Donegal Acquisition Inc., Donegal Financial Services Corporation, Donegal Group Inc. and Union National Financial Corporation; amended dated as of September 1, 23010; amended dated December 8, 2010. | (x) | ||||
(10)(LL) | Amended and Restated Agreement and Plan of Merger dated as of December 6, 2010 among Michigan Insurance Company, West Bend Mutual Insurance Company, Donegal Group Inc. and DGI Acquisition Corp. | (y) | ||||
(10)(MM) | Surplus Note Purchase Agreement dated as of July 15, 2010 between Donegal Mutual Insurance Company and West Bend Mutual Insurance Company. | Filed herewith | ||||
(10)(NN) | Amended and Restated Tax Sharing Agreement dated December 1, 2010 among Donegal Group, Inc., Atlantic States Insurance Company, Southern Insurance Company of Virginia, Le Mars Insurance Company, The Peninsula | Filed herewith |
-60-
Exhibit No. | Description of Exhibits | Reference | ||||
Insurance Company, Peninsula Indemnity Company and Michigan Insurance Company. | ||||||
(10)(OO) | Amended and Restated Services Allocation Agreement dated as of December 1, 2010 among Donegal Group Inc., Atlantic States Insurance Company, Southern Insurance Company of Virginia, Le Mars Insurance Company, The Peninsula Insurance Company, Peninsula Indemnity Company and Michigan Insurance Company. | Filed herewith | ||||
(10)(PP) | Quota-share Reinsurance Agreement dated as of December 1, 2010 between Donegal Mutual Insurance Company and Michigan Insurance Company. | Filed herewith | ||||
(10)(QQ) | Donegal Group Inc. 2011 Employee Stock Purchase Plan. | Filed herewith | ||||
(10)(RR) | Donegal Group Inc. 2011 Equity Incentive Plan for Employees. | Filed herewith | ||||
(10)(SS) | Donegal Group Inc. 2011 Agency Stock Purchase Plan. | Filed herewith | ||||
(10)(TT) | Donegal Group Inc. 2011 Equity Incentive Plan for Directors. | Filed herewith | ||||
(13) | 2010 Annual Report to Stockholders (electronic filing contains only those portions incorporated by reference into this Form 10-K Report). | Filed herewith |
||||
(14) | Code of Business Conduct and Ethics | (o) | ||||
(21) | Subsidiaries of Registrant. | Filed herewith |
||||
(23) | Report and Consent of Independent Registered Public Accounting Firm | Filed herewith | ||||
(31.1) | Rule 13a-14(a)/15(d)-14(a) Certification of Chief Executive Officer | Filed herewith | ||||
(31.2) | Rule 13a-14(a)/15(d)-14(a) Certification of Chief Financial Officer | Filed herewith | ||||
(32.1) | Section 1350 Certification of Chief Executive Officer | Filed herewith |
-61-
Exhibit No. | Description of Exhibits | Reference | ||||
(32.2) | Section 1350 Certification of Chief Financial Officer | Filed herewith |
(a) | We incorporate such exhibit by reference to the like-described exhibit in Registrants Form S-3 Registration Statement No. 333-59828 filed April 30, 2001. | |
(b) | We incorporate such exhibit by reference to the like-described exhibit in Registrants Form 10-K Report for the year ended December 31, 2001. | |
(c) | We incorporate such exhibit by reference to the like-described exhibit in Registrants Form 10-K Report for the year ended December 31, 2000. | |
(d) | We incorporate such exhibit by reference to the like-described exhibit in Registrants Form S-8 Registration Statement No. 333-62974 filed June 14, 2001. | |
(e) | We incorporate such exhibit by reference to the like-described exhibit in Registrants Form S-2 Registration Statement No. 333-63102 declared effective February 8, 2002. | |
(f) | We incorporate such exhibit by reference to the like-described exhibit in Registrants Form 10-K Report for the year ended December 31, 1999. | |
(g) | We incorporate such exhibit by reference to the like-described exhibit in Registrants Form 10-K Report for the year ended December 31, 1996. | |
(h) | We incorporate such exhibit by reference to the like-described exhibit in Registrants Form S-1 Registration Statement No. 33-8533 declared effective October 29, 1986. | |
(i) | We incorporate such exhibit by reference to the like-described exhibit in Registrants Form 10-K Report for the year ended December 31, 1988. | |
(j) | We incorporate such exhibit by reference to the like-described exhibit in Registrants Form 10-K Report for the year ended December 31, 1992. | |
(k) | We incorporate such exhibit by reference to the like-described exhibit in Registrants Form 8-K Report dated December 21, 1995. | |
(l) | We incorporate such exhibit by reference to the like-described exhibit in Registrants Form 8-K Report dated May 31, 2000. | |
(m) | We incorporate such exhibit by reference to the like-described exhibits in Registrants Form 8-K Report dated November 3, 2003. | |
(n) | We incorporate such exhibit by reference to the like-described exhibit in Registrants Form 8-K Report dated December 1, 2003. | |
(o) | We incorporate such exhibit by reference to the like-described exhibit in Registrants Form 10-K Annual Report for the year ended December 31, 2003. |
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(p) | We incorporate such exhibit by reference to the like-described exhibit in Registrants Form 8-K Report dated October 23, 2006. | |
(q) | We incorporate such exhibit by reference to the like-described exhibit in Registrants Form 10-Q Quarterly Report for the quarter ended September 30, 2006. | |
(r) | We incorporate such exhibit by reference to the like-described exhibit in Registrants Form 8-K Report dated December 22, 2006. | |
(s) | We incorporate such exhibit by reference to the like-numbered exhibit in Registrants Form 8-K Report dated April 20, 2007. | |
(t) | We incorporate such exhibit by reference to the like-numbered exhibit in Registrants Form 8-K Report dated February 13, 2008. | |
(u) | We incorporate such exhibit by reference to the description of such plan in Registrants definitive proxy statement for its Annual Meeting of Stockholders to be held on April 21, 2011. | |
(v) | We incorporate such exhibit by reference to the like-described exhibit in Registrants Form 10-K Annual Report for the year ended December 31, 2009. | |
(w) | We incorporate such exhibit by reference to the like-described exhibit in Registrants Form 10-K Annual Report for the year ended December 31, 2010. | |
(x) | We incorporate such exhibit by reference to the like-described exhibit in Registrants Form S-4 registration statement filed June 25, 2010, Registrants Form 8-K Report dated September 1, 2010 and Registrants Form 8-K Report dated December 8, 2010. | |
(y) | We incorporate such exhibit by reference to the like-described exhibit in Registrants Form 8-K dated December 8, 2010. |
-63-
DONEGAL GROUP INC. |
||||
By: | /s/ Donald H. Nikolaus | |||
Donald H. Nikolaus, President | ||||
Signature | Title | Date | ||
/s/ Donald H. Nikolaus
|
President and a Director (principal executive officer) |
March 14, 2011 | ||
/s/ Jeffrey D. Miller
|
Senior Vice President and Chief Financial Officer (principal financial and accounting officer) | March 14, 2011 | ||
/s/ Robert S. Bolinger
|
Director | March 14, 2011 | ||
/s/ Philip A. Garcia
|
Director | March 14, 2011 |
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Signature | Title | Date | ||
/s/ Patricia A. Gilmartin
|
Director | March 14, 2011 | ||
/s/ Philip H. Glatfelter, II
|
Director | March 14, 2011 | ||
/s/ Kevin M. Kraft, Sr.
|
Director | March 14, 2011 | ||
/s/ John J. Lyons
|
Director | March 14, 2011 | ||
/s/ Jon M. Mahan
|
Director | March 14, 2011 | ||
/s/ S. Trezevant Moore, Jr.
|
Director | March 14, 2011 | ||
/s/ R. Richard Sherbahn
|
Director | March 14, 2011 | ||
/s/ Richard D. Wampler, II
|
Director | March 14, 2011 |
-65-
Amortization | ||||||||||||||||||||||||
Net | Net | Net Losses | of Deferred | Other | Net | |||||||||||||||||||
Earned | Investment | And Loss | Policy | Underwriting | Premiums | |||||||||||||||||||
Segment | Premiums | Income | Expenses | Acquisition Costs | Expenses | Written | ||||||||||||||||||
Year Ended
December 31, 2010 |
||||||||||||||||||||||||
Personal lines |
$ | 260,469 | $ | | $ | 196,008 | $ | 45,719 | $ | 37,596 | $ | 268,047 | ||||||||||||
Commercial lines |
117,561 | | 78,301 | 20,635 | 16,969 | 123,475 | ||||||||||||||||||
Investments |
| 19,950 | | | | | ||||||||||||||||||
$ | 378,030 | $ | 19,950 | $ | 274,309 | $ | 66,354 | $ | 54,565 | $ | 391,522 | |||||||||||||
Year Ended
December 31, 2009 |
||||||||||||||||||||||||
Personal lines |
$ | 241,844 | $ | | $ | 178,040 | $ | 41,071 | $ | 34,634 | $ | 252,487 | ||||||||||||
Commercial lines |
113,181 | | 72,795 | 19,221 | 16,209 | 110,742 | ||||||||||||||||||
Investments |
| 20,631 | | | | | ||||||||||||||||||
$ | 355,025 | $ | 20,631 | $ | 250,835 | $ | 60,292 | $ | 50,843 | $ | 363,229 | |||||||||||||
Year Ended
December 31, 2008 |
||||||||||||||||||||||||
Personal lines |
$ | 225,024 | $ | | $ | 155,573 | $ | 37,821 | $ | 34,482 | $ | 239,540 | ||||||||||||
Commercial lines |
121,551 | | 68,728 | 20,429 | 18,626 | 125,401 | ||||||||||||||||||
Investments |
| 22,756 | | | | | ||||||||||||||||||
$ | 346,575 | $ | 22,756 | $ | 224,301 | $ | 58,250 | $ | 53,108 | $ | 364,941 | |||||||||||||
S-1
At December 31, | ||||||||||||||||
Deferred | Liability | Other Policy | ||||||||||||||
Policy | For Losses | Claims and | ||||||||||||||
Acquisition | And Loss | Unearned | Benefits | |||||||||||||
Segment | Costs | Expenses | Premiums | Payable | ||||||||||||
2010 |
||||||||||||||||
Personal lines |
$ | 22,872 | $ | 184,760 | $ | 197,389 | $ | | ||||||||
Commercial lines |
11,574 | 198,559 | 99,883 | | ||||||||||||
Investments |
| | | | ||||||||||||
$ | 34,446 | $ | 383,319 | $ | 297,272 | $ | | |||||||||
2009 |
||||||||||||||||
Personal lines |
$ | 22,925 | $ | 130,745 | $ | 168,791 | $ | | ||||||||
Commercial lines |
9,919 | 132,854 | 73,030 | | ||||||||||||
Investments |
| | | | ||||||||||||
$ | 32,844 | $ | 263,599 | $ | 241,821 | $ | | |||||||||
S-2
Page | ||||
RECITALS |
1 | |||
I. SALE AND PURCHASE OF NOTE |
1 | |||
1.1 Sale and Purchase of Note |
1 | |||
1.2 Payment of Purchase Price and Delivery of Note |
1 | |||
1.3 Closing Date |
2 | |||
II. REPRESENTATIONS AND WARRANTIES OF WBM |
2 | |||
2.1 Organization and Standing |
2 | |||
2.2 Authorization |
2 | |||
2.3 Title to the Note |
3 | |||
2.4 No Omissions |
3 | |||
2.5 Finders |
3 | |||
2.6 Representations and Warranties to Be True on the Closing Date |
3 | |||
III. REPRESENTATIONS AND WARRANTIES OF DMIC |
4 | |||
3.1 Organization and Standing |
4 | |||
3.2 Authorization |
4 | |||
3.3 Consents and Approvals of Government Agencies |
4 | |||
3.4 Transferability |
4 | |||
3.5 No Omissions |
5 | |||
3.6 Finders |
5 | |||
3.7 Representations and Warranties to be True on the Closing Date |
5 | |||
IV. CERTAIN COVENANTS |
5 | |||
4.1 Preserve Accuracy of Representations and Warranties |
5 | |||
4.2 Required Filings |
6 | |||
V. CONDITIONS |
6 | |||
5.1 Conditions to Each Partys Obligations |
6 | |||
5.2 Conditions to Obligations of DMIC |
6 | |||
5.3 Conditions to Obligations of WBM |
7 | |||
VI. TERMINATION |
7 | |||
6.1 Termination |
7 | |||
6.2 Effect of Termination |
8 | |||
VII. AMENDMENT, WAIVER AND INDEMNIFICATION |
8 | |||
7.1 Amendment |
8 | |||
7.2 Extension; Waiver |
8 | |||
7.3 Survival of Obligations |
9 |
(i)
Page | ||||
VIII. MISCELLANEOUS |
9 | |||
8.1 Notices |
9 | |||
8.2 Expenses |
10 | |||
8.3 Governing Law |
10 | |||
8.4 Partial Invalidity |
10 | |||
8.5 Execution in Counterparts |
10 | |||
8.6 Titles and Headings |
10 | |||
8.7 Entire Agreement |
10 | |||
8.8 Specific Performance |
10 | |||
SIGNATURES |
11 | |||
APPENDICES: |
||||
APPENDIX A Form of Surplus Note |
A-1 |
(ii)
-1-
-2-
-3-
-4-
-5-
-6-
-7-
-8-
-9-
-10-
DONEGAL MUTUAL INSURANCE COMPANY |
||||
By: | /s/ Donald H. Nikolaus | |||
Donald H. Nikolaus, President | ||||
WEST BEND MUTUAL INSURANCE COMPANY |
||||
By: | /s/ Kevin A. Steiner | |||
Kevin A. Steiner, President | ||||
-11-
-1
-2
-3
-4
-5
-6
-7
-8
SOUTHERN INSURANCE COMPANY OF VIRGINIA | DONEGAL GROUP INC. | |||||||||
By:
|
/s/ Donald H. Nikolaus | By: | /s/ Donald H. Nikolaus | |||||||
Chief Executive Officer |
Chief Executive Officer |
|||||||||
LE MARS INSURANCE COMPANY | ATLANTIC STATES INSURANCE COMPANY | |||||||||
By:
|
/s/ Daniel J. Wagner | By: | /s/ Jeffrey D. Miller | |||||||
SHEBOYGAN FALLS INSURANCE COMPANY | THE PENINSULA INSURANCE COMPANY | |||||||||
By:
|
/s/ Lee F. Wilcox | By: | /s/ G. Eric Crouchley, III | |||||||
PENINSULA INDEMNITY COMPANY | MICHIGAN INSURANCE COMPANY | |||||||||
By:
|
/s/ G. Eric Crouchley, III | By: | /s/ Ermil L. Adamson | |||||||
-9
-1-
-2-
-3-
-4-
-5-
-6-
-7-
-8-
-9-
-10-
DONEGAL MUTUAL INSURANCE COMPANY | DONEGAL GROUP INC. | |||||||||
By:
|
/s/ Jeffrey D. Miller | By: | /s/ Donald H. Nikolaus | |||||||
and Chief Financial Officer |
and Chief Executive Officer |
|||||||||
ATLANTIC STATES INSURANCE COMPANY | SOUTHERN INSURANCE COMPANY OF VIRGINIA | |||||||||
By:
|
/s/ Donald H. Nikolaus | By: | /s/ Donald H. Nikolaus | |||||||
and Chief Executive Officer |
and Chief Executive Officer |
|||||||||
LE MARS INSURANCE COMPANY | THE PENINSULA INSURANCE COMPANY | |||||||||
By:
|
/s/ Donald H. Nikolaus | By: | /s/ G. Eric Crouchley, III | |||||||
and Chief Executive Officer |
||||||||||
PENINSULA INDEMNITY COMPANY | SHEBOYGAN FALLS INSURANCE COMPANY | |||||||||
By:
|
/s/ G. Eric Crouchley, III | By: | /s/ Lee F. Wilcox | |||||||
MICHIGAN INSURANCE COMPANY | ||||||||||
By:
|
/s/ Ermil L. Adamson | |||||||||
-11-
(i) | Underwriting and general personnel costs shall be allocated in proportion to Donegal Mutuals and Atlantic States respective participation under the Proportional Reinsurance Agreement. | ||
(ii) | Claim personnel costs shall be allocated in proportion to Donegal Mutuals and Atlantic States respective average claim reserves and loss payments | ||
(iii) | Investment personnel costs shall be allocated in proportion to Donegal Mutuals and Atlantic States respective average invested assets, excluding 50% of the average value of Donegal Mutuals investment in subsidiaries and affiliates. Such costs shall include the proportionate amount of personnel costs for individuals who perform duties related to Donegal Mutuals and Atlantic States investment portfolios. |
A-1
(iv) | Information technology and operational services personnel costs shall be allocated proportionately to the allocations calculated in (i) through (iii) above to reflect the provision of information technology and operational services to each of the respective functions. |
A-2
(i) | Underwriting and general expenses allocated to the underwriting function shall be allocated in proportion to the respective participation of Donegal Mutual and Atlantic States under the Proportional Reinsurance Agreement. | ||
(ii) | Claim adjusting expenses and general expenses allocated to the claim function shall be allocated in proportion to the respective average claim reserves and loss payments of Donegal Mutual and Atlantic States. | ||
(iii) | General expenses allocated to the investment function shall be allocated in proportion to the respective average invested assets of Donegal Mutual and Atlantic States, excluding 50% of the average value of Donegal Mutuals investment in subsidiaries and affiliates. |
A-3
DONEGAL MUTUAL INSURANCE COMPANY |
||||
By: | /s/ Donald H. Nikolaus | |||
Donald H. Nikolaus, President | ||||
MICHIGAN INSURANCE COMPANY |
||||
By: | /s/ Ermil L. Adamson | |||
Ermil L. Adamson, President | ||||
1
2
3
4
5
6
7
8
1
| a stock dividend, spinoff, recapitalization, stock split or combination or exchange of shares; | ||
| a merger, reorganization or consolidation; | ||
| a reclassification or change in par value; or | ||
| any other extraordinary or unusual event affecting the outstanding Class A common stock as a class without the Companys receipt of consideration, or if the value of outstanding shares of Class A common stock is substantially reduced as a result of a spinoff or the Companys payment of any extraordinary dividend or distribution, |
2
3
| in cash; | ||
| by delivery of shares of Class A common stock at fair market value, shares of Class B common stock at fair market value, or a combination of those shares, as the committee or the Board may determine from time to time and subject to the terms and conditions as the committee or the Board may prescribe; | ||
| by payment through a brokerage firm of national standing whereby the grantee will simultaneously exercise the stock option and sell the shares acquired upon exercise through the brokerage firm and the brokerage firm shall remit to the Company from the proceeds of the sale of the shares the exercise price as to which the option has been exercised in accordance with the procedures permitted by Regulation T of the Federal Reserve Board; or | ||
| by any other method the committee or the Board authorizes. |
4
| As determined as of the grant date, the aggregate fair market value of shares subject to incentive stock options that first become exercisable by a grantee during any calendar year, under all plans of the Company, shall not exceed $100,000; | ||
| The exercise price of any incentive stock option granted to an individual who owns stock having more than 10% of the total combined voting power of all classes of stock of the Company must be at least 110% of the fair market value of the shares subject to the incentive stock option on the grant date, and the individual may not exercise the incentive stock option after the expiration of five years from the date of grant; and | ||
| The grantee may not exercise the incentive stock option more than three months, or one year in the case of death or disability within the meaning of the applicable Code provisions, after termination of employment. |
5
6
7
| limit the right of the Board to grant awards under this Plan in connection with the acquisition, by purchase, lease, merger, consolidation or otherwise, of the business or assets of any corporation, firm or association, including awards to employees of those entities who become employees, or for other proper corporate purposes; or | ||
| limit the right of the Company to grant stock options or make other stock-based awards outside of this Plan. |
8
9
10
(i) | the agencys premium volume; | ||
(ii) | the potential growth of such premium volume; | ||
(iii) | the profitability of the agencys business; and | ||
(iv) | whether the Company has placed the agency on rehabilitation or revoked the agencys binding authority. |
-2-
(a) | An Eligible Agency that desires to subscribe for the purchase of Class A common stock through withholding from direct bill commissions must return a duly executed and completed Subscription Agreement during the first applicable Enrollment Period. |
-3-
(b) | An Eligible Agency that wishes to make lump-sum purchases during a Subscription Period will remit each lump-sum payment to the Company with a supplemental Subscription Agreement by the last day of the applicable Subscription Period. | ||
(c) | An Eligible Agency that wishes to make a purchase during a Subscription Period through designation of a portion of its contingent commission under the agency contingent plan will file a Subscription Agreement during the Enrollment Period applicable to that Subscription Period. |
-4-
-5-
-6-
-7-
1
| a stock dividend, spinoff, recapitalization, stock split or combination or exchange of shares; | ||
| a merger, reorganization or consolidation; | ||
| a reclassification or change in par value; or | ||
| any other extraordinary or unusual event affecting the outstanding Class A common stock as a class without the Companys receipt of consideration, or if the value of outstanding shares of Class A common stock is substantially reduced as a result of a spinoff or the Companys payment of any extraordinary dividend or distribution, |
2
3
| in cash; | ||
| by delivery of shares of Class A common stock at fair market value, shares of Class B common stock at fair market value, or a combination of those shares, as the Board may determine from time to time and subject to the terms and conditions as the Board may prescribe; | ||
| by payment through a brokerage firm of national standing whereby the grantee will simultaneously exercise the stock option and sell the shares acquired upon exercise through the brokerage firm and the brokerage firm shall remit to the Company from the proceeds of the sale of the shares the exercise price as to which the option has been exercised in accordance with the procedures permitted by Regulation T of the Federal Reserve Board; or | ||
| by any other method the Board authorizes. |
| The grantee may not sell or otherwise transfer the shares of Class A common stock comprising the restricted stock awards until one year after the date of |
4
grant. Although the Company shall register the shares of Class A common stock comprising each restricted stock award in the name of the grantee, the Company reserves the right to place a restrictive legend on the stock certificate. None of such shares of Class A common stock shall be subject to forfeiture. |
| Subject to the restrictions on transfer set forth in this Section 8(b), a grantee shall have all the rights of a stockholder with respect to the shares of Class A common stock the Company issues pursuant to restricted stock awards made under this Plan, including the right to vote the shares and receive all dividends and other distributions paid or made with respect to the shares. | ||
| In the event of changes in the capital stock of the Company by reason of stock dividends, split-ups or combinations of shares, reclassifications, mergers, consolidations, reorganizations or liquidations while the shares comprising a restricted stock award shall be subject to restrictions on transfer, any and all new, substituted or additional securities to which the grantee shall be entitled by reason of the ownership of a restricted stock award shall be subject immediately to the terms, conditions and restrictions of this Plan. | ||
| If a grantee receives rights or warrants with respect to any shares comprising a restricted stock award, the grantee may hold, exercise, sell or otherwise dispose of such rights or warrants or any shares or other securities acquired by the exercise of such rights or warrants free and clear of the restrictions and obligations set forth in this Plan. |
5
6
7
8
Year Ended December 31, | 2010 | 2009 | 2008 | 2007 | 2006 | |||||||||||||||
Income Statement Data |
||||||||||||||||||||
Premiums earned |
$ | 378,030,129 | $ | 355,025,477 | $ | 346,575,266 | $ | 310,071,534 | $ | 301,478,162 | ||||||||||
Investment income, net |
19,949,714 | 20,630,583 | 22,755,784 | 22,785,252 | 21,320,081 | |||||||||||||||
Realized investment gains (losses) |
4,395,720 | 4,479,558 | (2,970,716 | ) | 2,051,050 | 1,829,539 | ||||||||||||||
Total revenues |
408,817,787 | 386,262,310 | 372,424,227 | 340,618,294 | 329,967,034 | |||||||||||||||
Income before income tax (benefit) |
9,844,149 | 20,676,689 | 32,092,044 | 52,848,938 | 56,622,263 | |||||||||||||||
Income tax (benefit) |
(1,623,030 | ) | 1,846,611 | 6,550,066 | 14,569,033 | 16,407,541 | ||||||||||||||
Net income |
11,467,179 | 18,830,078 | 25,541,978 | 38,279,905 | 40,214,722 | |||||||||||||||
Basic earnings per share Class A |
.46 | .76 | 1.03 | 1.55 | 1.65 | |||||||||||||||
Diluted earnings per share Class A |
.46 | .76 | 1.02 | 1.53 | 1.60 | |||||||||||||||
Cash dividends per share Class A |
.46 | .45 | .42 | .36 | .33 | |||||||||||||||
Basic earnings per share Class B |
.41 | .68 | .92 | 1.39 | 1.48 | |||||||||||||||
Diluted earnings per share Class B |
.41 | .68 | .92 | 1.39 | 1.48 | |||||||||||||||
Cash dividends per share Class B |
.41 | .40 | .37 | .31 | .28 | |||||||||||||||
Balance Sheet Data at Year End |
||||||||||||||||||||
Total investments |
$ | 728,541,814 | $ | 666,835,186 | $ | 632,135,526 | $ | 605,869,587 | $ | 591,337,674 | ||||||||||
Total assets |
1,174,619,523 | 935,601,927 | 880,109,036 | 834,095,576 | 831,697,811 | |||||||||||||||
Debt obligations |
56,082,371 | 15,465,000 | 15,465,000 | 30,929,000 | 30,929,000 | |||||||||||||||
Stockholders equity |
380,102,810 | 385,505,699 | 363,583,865 | 352,690,191 | 320,802,262 | |||||||||||||||
Book value per share |
14.86 | 15.12 | 14.29 | 13.92 | 12.70 |
Managements Discussion and Analysis of Results of Operations and Financial Condition |
10 | |||
Consolidated Balance Sheets |
20 | |||
Consolidated Statements of Income and Comprehensive Income |
21 | |||
Consolidated Statements of Stockholders Equity |
22 | |||
Consolidated Statements of Cash Flows |
23 | |||
Notes to Consolidated Financial Statements |
24 | |||
Report of Independent Registered Public Accounting Firm Consolidated Financial Statements |
40 | |||
Managements Report on Internal Control Over Financial Reporting |
41 | |||
Report of Independent Registered Public Accounting Firm Internal Control Over Financial
Reporting |
42 | |||
Comparison of Total Return on Our Common Stock with Certain Averages |
43 | |||
Corporate Information |
44 |
10
| catastrophe reinsurance agreements with Atlantic States, Le Mars and Southern; | ||
| an excess of loss reinsurance agreement with Southern; | ||
| a quota-share reinsurance agreement with Le Mars; | ||
| a quota-share reinsurance agreement with Peninsula; | ||
| a quota-share reinsurance agreement with Southern; and | ||
| a quota-share reinsurance agreement with Michigan. |
11
12
(in thousands) | 2010 | 2009 | ||||||
Commercial lines: |
||||||||
Automobile |
$ | 22,790 | $ | 21,465 | ||||
Workers compensation |
54,902 | 38,092 | ||||||
Commercial multi-peril |
32,961 | 30,640 | ||||||
Other |
3,875 | 1,886 | ||||||
Total commercial lines |
114,528 | 92,083 | ||||||
Personal lines: |
||||||||
Automobile |
83,042 | 70,019 | ||||||
Homeowners |
18,695 | 16,312 | ||||||
Other |
1,632 | 1,848 | ||||||
Total personal lines |
103,369 | 88,179 | ||||||
Total commercial and personal lines |
217,897 | 180,262 | ||||||
Plus reinsurance recoverable |
165,422 | 83,337 | ||||||
Total liability for losses and loss expenses |
$ | 383,319 | $ | 263,599 | ||||
Adjusted Loss and | Adjusted Loss and | |||||||||||||||||
Loss Expense | Percentage | Loss Expense | Percentage | |||||||||||||||
Change in Loss | Reserves Net of | Change in | Reserves Net of | Change in | ||||||||||||||
and Loss Expense | Reinsurance as of | Equity as of | Reinsurance as of | Equity as of | ||||||||||||||
Reserves Net of | December 31, | December 31, | December 31, | December 31, | ||||||||||||||
Reinsurance | 2010 | 2010(1) | 2009 | 2009(1) | ||||||||||||||
(dollars in thousands) | ||||||||||||||||||
-10.0 | % | $ | 196,107 | 3.7 | % | $ | 162,236 | 3.0 | % | |||||||||
-7.5 | 201,555 | 2.8 | 166,742 | 2.3 | ||||||||||||||
-5.0 | 207,002 | 1.9 | 171,249 | 1.5 | ||||||||||||||
-2.5 | 212,450 | 0.9 | 175,755 | 0.8 | ||||||||||||||
Base | 217,897 | | 180,262 | | ||||||||||||||
2.5 | 223,344 | -0.9 | 184,769 | -0.8 | ||||||||||||||
5.0 | 228,792 | -1.9 | 189,275 | -1.5 | ||||||||||||||
7.5 | 234,239 | -2.8 | 193,782 | -2.3 | ||||||||||||||
10.0 | 239,687 | -3.7 | 198,288 | -3.0 |
(1) | Net of income tax effect. |
For the Year Ended | ||||||||
December 31, | ||||||||
2010 | 2009 | |||||||
(dollars in thousands) | ||||||||
Number of claims pending, beginning of period |
1,296 | 1,401 | ||||||
Number of claims reported |
2,936 | 2,449 | ||||||
Number of claims settled or dismissed |
2,909 | 2,554 | ||||||
Number of claims pending, end of period |
1,323 | 1,296 | ||||||
Losses paid |
$ | 18,193 | $ | 17,131 | ||||
Loss expenses paid |
3,918 | 3,944 |
13
Less than 12 months | 12 months or longer | |||||||||||||||
Fair | Unrealized | Fair | Unrealized | |||||||||||||
Value | Losses | Value | Losses | |||||||||||||
U.S. Treasury securities
and obligations of
U.S. government
corporations
and agencies |
$ | 23,901,400 | $ | 452,352 | $ | | $ | | ||||||||
Obligations of states
and political
subdivisions |
171,609,617 | 5,208,910 | 1,406,325 | 91,184 | ||||||||||||
Corporate securities |
44,101,089 | 1,061,972 | 490,970 | 11,514 | ||||||||||||
Residential mortgage-backed securities |
35,930,054 | 453,967 | 750 | 18 | ||||||||||||
Equity securities |
313,888 | 35,182 | | | ||||||||||||
Totals |
$ | 275,856,048 | $ | 7,212,383 | $ | 1,898,045 | $ | 102,716 | ||||||||
Less than 12 months | 12 months or longer | |||||||||||||||
Fair | Unrealized | Fair | Unrealized | |||||||||||||
Value | Losses | Value | Losses | |||||||||||||
U.S. Treasury securities
and obligations of
U.S. government
corporations
and agencies |
$ | 26,703,601 | $ | 585,364 | $ | | $ | | ||||||||
Obligations of states
and political
subdivisions |
17,971,018 | 256,527 | 29,582,488 | 786,970 | ||||||||||||
Corporate securities |
1,284,405 | 23,525 | 666,941 | 61,366 | ||||||||||||
Residential mortgage-backed securities |
23,514,855 | 328,969 | 477,421 | 543 | ||||||||||||
Equity securities |
2,139,457 | 227,798 | | | ||||||||||||
Totals |
$ | 71,613,336 | $ | 1,422,183 | $ | 30,726,850 | $ | 848,879 | ||||||||
14
Year Ended December 31, | ||||||||||||
(in thousands) | 2010 | 2009 | 2008 | |||||||||
Net premiums written: |
||||||||||||
Personal lines: |
||||||||||||
Automobile |
$ | 171,497 | $ | 161,932 | $ | 154,091 | ||||||
Homeowners |
83,415 | 77,420 | 72,195 | |||||||||
Other |
13,135 | 13,135 | 13,254 | |||||||||
Total personal lines |
268,047 | 252,487 | 239,540 | |||||||||
Commercial lines: |
||||||||||||
Automobile |
37,094 | 34,054 | 35,959 | |||||||||
Workers compensation |
34,920 | 28,921 | 36,459 | |||||||||
Commercial multi-peril |
47,411 | 44,000 | 49,004 | |||||||||
Other |
4,050 | 3,767 | 3,979 | |||||||||
Total commercial lines |
123,475 | 110,742 | 125,401 | |||||||||
Total net premiums written |
$ | 391,522 | $ | 363,229 | $ | 364,941 | ||||||
Components of GAAP combined ratio: |
||||||||||||
Loss ratio |
72.6 | % | 70.7 | % | 64.7 | % | ||||||
Expense ratio |
32.0 | 31.3 | 32.1 | |||||||||
Dividend ratio |
0.1 | 0.2 | 0.4 | |||||||||
GAAP combined ratio |
104.7 | % | 102.2 | % | 97.2 | % | ||||||
Revenues: |
||||||||||||
Premiums earned: |
||||||||||||
Personal lines |
$ | 260,900 | $ | 242,313 | $ | 225,143 | ||||||
Commercial lines |
117,755 | 113,233 | 121,567 | |||||||||
SAP premiums earned |
378,655 | 355,546 | 346,710 | |||||||||
GAAP adjustments |
(625 | ) | (521 | ) | (135 | ) | ||||||
GAAP premiums earned |
378,030 | 355,025 | 346,575 | |||||||||
Net investment income |
19,950 | 20,631 | 22,756 | |||||||||
Realized investment gains (losses) |
4,396 | 4,480 | (2,971 | ) | ||||||||
Other |
6,442 | 6,597 | 5,952 | |||||||||
Total revenues |
$ | 408,818 | $ | 386,733 | $ | 372,312 | ||||||
Year Ended December 31, | ||||||||||||
(in thousands) | 2010 | 2009 | 2008 | |||||||||
Components of net income: |
||||||||||||
Underwriting (loss) income: |
||||||||||||
Personal lines |
$ | (22,526 | ) | $ | (17,235 | ) | $ | (7,609 | ) | |||
Commercial lines |
2,252 | 5,805 | 13,819 | |||||||||
SAP underwriting
(loss) income |
(20,274 | ) | (11,430 | ) | 6,210 | |||||||
GAAP adjustments |
2,458 | 3,636 | 3,530 | |||||||||
GAAP underwriting
(loss) income |
(17,816 | ) | (7,794 | ) | 9,740 | |||||||
Net investment income |
19,950 | 20,631 | 22,756 | |||||||||
Realized investment gains (losses) |
4,396 | 4,480 | (2,971 | ) | ||||||||
Other |
3,314 | 3,360 | 2,567 | |||||||||
Income before income tax
benefit (expense) |
9,844 | 20,677 | 32,092 | |||||||||
Income tax benefit (expense) |
1,623 | (1,847 | ) | (6,550 | ) | |||||||
Net income |
$ | 11,467 | $ | 18,830 | $ | 25,542 | ||||||
For Year Ended | ||||||||
December 31, | ||||||||
2010 | 2009 | |||||||
Commercial lines: |
||||||||
Automobile |
90.0 | % | 90.5 | % | ||||
Workers compensation |
99.3 | 97.4 | ||||||
Commercial multi-peril |
96.7 | 95.6 | ||||||
Other |
42.8 | 23.4 | ||||||
Total commercial lines |
93.6 | 92.2 | ||||||
Personal lines: |
||||||||
Automobile |
103.8 | 103.8 | ||||||
Homeowners |
115.4 | 111.4 | ||||||
Other |
97.0 | 86.7 | ||||||
Total personal lines |
107.0 | 105.2 | ||||||
Total commercial and personal lines |
102.9 | 101.1 |
15
16
17
Less | ||||||||||||||||||||
than 1 | 1-3 | 4-5 | After 5 | |||||||||||||||||
(in thousands) | Total | year | years | years | years | |||||||||||||||
Net liability for
unpaid losses and
loss expenses of
our insurance
subsidiaries |
$ | 217,897 | $ | 101,217 | $ | 96,668 | $ | 8,787 | $ | 11,225 | ||||||||||
Subordinated
debentures |
20,465 | | | | 20,465 | |||||||||||||||
Borrowings under
line of credit |
35,617 | 617 | 35,000 | | | |||||||||||||||
Payable for purchase
of Michigan |
7,207 | 7,207 | | | | |||||||||||||||
Total contractual
obligations |
$ | 281,186 | $ | 109,041 | $ | 131,668 | $ | 8,787 | $ | 31,690 | ||||||||||
Principal | Weighted-Average | |||||||
(in thousands) | Cash Flows | Interest Rate | ||||||
Fixed maturity
and short-term investments: |
||||||||
2011 |
$ | 53,551 | 1.14 | % | ||||
2012 |
24,891 | 4.10 | ||||||
2013 |
27,004 | 4.02 | ||||||
2014 |
25,261 | 3.94 | ||||||
2015 |
42,080 | 4.08 | ||||||
Thereafter |
523,954 | 4.42 | ||||||
Total |
$ | 696,741 | ||||||
Fair value |
$ | 712,431 | ||||||
Debt: |
||||||||
2011 |
$ | 617 | 0.50 | % | ||||
2013 |
35,000 | 2.25 | ||||||
Thereafter |
20,465 | 4.35 | ||||||
Total |
$ | 56,082 | ||||||
Fair value |
$ | 56,082 | ||||||
18
19
December 31, | 2010 | 2009 | ||||||
Assets |
||||||||
Investments |
||||||||
Fixed maturities |
||||||||
Held to maturity, at amortized cost (fair value $67,808,721 and $77,005,740) |
$ | 64,766,429 | $ | 73,807,126 | ||||
Available for sale, at fair value (amortized cost $601,302,986 and $503,745,585) |
603,846,201 | 517,703,672 | ||||||
Equity securities, available for sale, at fair value (cost $2,503,565 and $3,804,064) |
10,161,614 | 9,914,626 | ||||||
Investments in affiliates |
8,991,577 | 9,309,347 | ||||||
Short-term investments, at cost, which approximates fair value |
40,775,993 | 56,100,415 | ||||||
Total investments |
728,541,814 | 666,835,186 | ||||||
Cash |
16,342,212 | 12,923,898 | ||||||
Accrued investment income |
7,365,171 | 6,202,710 | ||||||
Premiums receivable |
96,467,949 | 61,187,021 | ||||||
Reinsurance receivable |
173,836,746 | 84,670,009 | ||||||
Deferred policy acquisition costs |
34,445,579 | 32,844,179 | ||||||
Deferred tax asset, net |
11,988,169 | 5,086,949 | ||||||
Prepaid reinsurance premiums |
89,365,771 | 56,040,728 | ||||||
Property and equipment, net |
7,069,086 | 6,592,223 | ||||||
Accounts receivable securities |
428,983 | 588,292 | ||||||
Federal income taxes recoverable |
948,325 | 663,047 | ||||||
Goodwill |
5,493,316 | 922,040 | ||||||
Other intangible assets |
958,010 | | ||||||
Other |
1,368,392 | 1,045,645 | ||||||
Total assets |
$ | 1,174,619,523 | $ | 935,601,927 | ||||
Liabilities and Stockholders Equity |
||||||||
Liabilities |
||||||||
Losses and loss expenses |
$ | 383,318,672 | $ | 263,598,844 | ||||
Unearned premiums |
297,272,161 | 241,821,419 | ||||||
Accrued expenses |
21,287,406 | 10,578,695 | ||||||
Reinsurance balances payable |
19,140,322 | 2,561,426 | ||||||
Borrowings under line of credit |
35,617,371 | | ||||||
Cash dividends declared to stockholders |
2,870,955 | 2,798,378 | ||||||
Subordinated debentures |
20,465,000 | 15,465,000 | ||||||
Accounts payable securities |
| 6,828,873 | ||||||
Payable for the purchase of Michigan |
7,207,471 | | ||||||
Due to affiliate |
2,926,104 | 3,813,294 | ||||||
Drafts payable |
1,304,779 | 884,993 | ||||||
Other |
3,106,472 | 1,745,306 | ||||||
Total liabilities |
794,516,713 | 550,096,228 | ||||||
Stockholders Equity |
||||||||
Preferred stock, $1.00 par value, authorized 2,000,000 shares; none issued |
| | ||||||
Class A common stock, $.01 par value, authorized 30,000,000 shares, issued
20,656,527 and 20,569,930 shares and outstanding 19,994,226 and 19,917,331 shares |
206,566 | 205,700 | ||||||
Class B common stock, $.01 par value, authorized 10,000,000 shares, issued 5,649,240
shares and outstanding 5,576,775 shares |
56,492 | 56,492 | ||||||
Additional paid-in capital |
167,093,504 | 164,585,214 | ||||||
Accumulated other comprehensive income |
8,561,086 | 15,007,044 | ||||||
Retained earnings |
213,435,095 | 214,755,495 | ||||||
Treasury stock, at cost |
(9,249,933 | ) | (9,104,246 | ) | ||||
Total stockholders equity |
380,102,810 | 385,505,699 | ||||||
Total liabilities and stockholders equity |
$ | 1,174,619,523 | $ | 935,601,927 | ||||
20
Year Ended December 31, | 2010 | 2009 | 2008 | |||||||||
Statements of Income |
||||||||||||
Revenues |
||||||||||||
Net premiums earned (includes affiliated
reinsurance of $134,823,098, $128,747,699 and
$130,067,404 see footnote 3) |
$ | 378,030,129 | $ | 355,025,477 | $ | 346,575,266 | ||||||
Investment income, net of investment expenses |
19,949,714 | 20,630,583 | 22,755,784 | |||||||||
Installment payment fees |
5,519,287 | 5,205,109 | 5,025,138 | |||||||||
Lease income |
922,937 | 921,583 | 926,690 | |||||||||
Net realized investment gains (losses) |
4,395,720 | 4,479,558 | (2,970,716 | ) | ||||||||
Total revenues |
408,817,787 | 386,262,310 | 372,312,162 | |||||||||
Expenses |
||||||||||||
Net losses and loss expenses (includes
affiliated reinsurance of $81,539,930,
$68,712,989 and $85,598,098 see footnote 3) |
274,308,858 | 250,835,396 | 224,300,964 | |||||||||
Amortization of deferred policy acquisition costs |
66,354,000 | 60,292,000 | 58,250,000 | |||||||||
Other underwriting expenses |
54,564,500 | 50,843,464 | 53,108,436 | |||||||||
Policyholder dividends |
619,158 | 848,882 | 1,175,809 | |||||||||
Interest |
799,578 | 1,746,509 | 1,821,229 | |||||||||
Other |
2,327,544 | 1,019,370 | 1,563,680 | |||||||||
Total expenses |
398,973,638 | 365,585,621 | 340,220,118 | |||||||||
Income before income tax (benefit) expense |
9,844,149 | 20,676,689 | 32,092,044 | |||||||||
Income tax (benefit) expense |
(1,623,030 | ) | 1,846,611 | 6,550,066 | ||||||||
Net income |
$ | 11,467,179 | $ | 18,830,078 | $ | 25,541,978 | ||||||
Basic earnings per common share: |
||||||||||||
Class A common stock |
$ | .46 | $ | .76 | $ | 1.03 | ||||||
Class B common stock |
$ | .41 | $ | .68 | $ | .76 | ||||||
Diluted earnings per common share: |
||||||||||||
Class A common stock |
$ | .46 | $ | .76 | $ | 1.02 | ||||||
Class B common stock |
$ | .41 | $ | .68 | $ | .92 | ||||||
Statements of Comprehensive Income |
||||||||||||
Net income |
$ | 11,467,179 | $ | 18,830,078 | $ | 25,541,978 | ||||||
Other comprehensive (loss) income, net of tax |
||||||||||||
Unrealized (losses) gains on securities: |
||||||||||||
Unrealized holding (loss) gain arising during
the period, net of income tax (benefit) of
($1,976,358), $8,680,941 and ($3,872,368) |
(3,544,783 | ) | 16,249,716 | (7,191,540 | ) | |||||||
Reclassification adjustment for (gains) losses
included in net income, net of income tax
(benefit) of $1,494,545, $1,523,050 and
($1,039,751) |
(2,901,175 | ) | (2,956,508 | ) | 1,930,965 | |||||||
Other comprehensive (loss) income |
(6,445,958 | ) | 13,293,208 | (5,260,575 | ) | |||||||
Comprehensive income |
$ | 5,021,221 | $ | 32,123,286 | $ | 20,281,403 | ||||||
21
Accumulated | ||||||||||||||||||||||||||||||||||||
Common Stock | Additional | Other | Total | |||||||||||||||||||||||||||||||||
Class A | Class B | Class A | Class B | Paid-In | Comprehensive | Retained | Treasury | Stockholders' | ||||||||||||||||||||||||||||
Shares | Shares | Amount | Amount | Capital | Income | Earnings | Stock | Equity | ||||||||||||||||||||||||||||
Balance, January 1, 2008 |
20,167,999 | 5,649,240 | $ | 201,680 | $ | 56,492 | $ | 156,850,666 | $ | 6,974,411 | $ | 193,806,855 | $ | (5,199,913 | ) | $ | 352,690,191 | |||||||||||||||||||
Issuance of common stock (stock compensation plans) |
326,765 | 3,268 | 3,853,328 | 3,856,596 | ||||||||||||||||||||||||||||||||
Net income |
25,541,978 | 25,541,978 | ||||||||||||||||||||||||||||||||||
Cash dividends |
(10,417,517 | ) | (10,417,517 | ) | ||||||||||||||||||||||||||||||||
Grant of stock options |
1,749,063 | (1,749,063 | ) | | ||||||||||||||||||||||||||||||||
Tax benefit on exercise of stock options |
683,881 | 683,881 | ||||||||||||||||||||||||||||||||||
Purchase of treasury stock |
(3,510,689 | ) | (3,510,689 | ) | ||||||||||||||||||||||||||||||||
Other comprehensive loss |
(5,260,575 | ) | (5,260,575 | ) | ||||||||||||||||||||||||||||||||
Balance, December 31, 2008 |
20,494,764 | 5,649,240 | $ | 204,948 | $ | 56,492 | $ | 163,136,938 | $ | 1,713,836 | $ | 207,182,253 | $ | (8,710,602 | ) | $ | 363,583,865 | |||||||||||||||||||
Issuance of common stock (stock compensation plans) |
75,166 | 752 | 1,385,285 | 1,386,037 | ||||||||||||||||||||||||||||||||
Net income |
18,830,078 | 18,830,078 | ||||||||||||||||||||||||||||||||||
Cash dividends |
(11,193,845 | ) | (11,193,845 | ) | ||||||||||||||||||||||||||||||||
Grant of stock options |
62,991 | (62,991 | ) | | ||||||||||||||||||||||||||||||||
Purchase of treasury stock |
(393,644 | ) | (393,644 | ) | ||||||||||||||||||||||||||||||||
Other comprehensive income |
13,293,208 | 13,293,208 | ||||||||||||||||||||||||||||||||||
Balance, December 31, 2009 |
20,569,930 | 5,649,240 | $ | 205,700 | $ | 56,492 | $ | 164,585,214 | $ | 15,007,044 | $ | 214,755,495 | $ | (9,104,246 | ) | $ | 385,505,699 | |||||||||||||||||||
Issuance of common stock (stock compensation plans) |
86,597 | 866 | 1,198,556 | 1,199,422 | ||||||||||||||||||||||||||||||||
Net income |
11,467,179 | 11,467,179 | ||||||||||||||||||||||||||||||||||
Cash dividends |
(11,477,845 | ) | (11,477,845 | ) | ||||||||||||||||||||||||||||||||
Grant of stock options |
1,309,734 | (1,309,734 | ) | | ||||||||||||||||||||||||||||||||
Purchase of treasury stock |
(145,687 | ) | (145,687 | ) | ||||||||||||||||||||||||||||||||
Other comprehensive loss |
(6,445,958 | ) | (6,445,958 | ) | ||||||||||||||||||||||||||||||||
Balance, December 31, 2010 |
20,656,527 | 5,649,240 | $ | 206,566 | $ | 56,492 | $ | 167,093,504 | $ | 8,561,086 | $ | 213,435,095 | $ | (9,249,933 | ) | $ | 380,102,810 | |||||||||||||||||||
22
Year Ended December 31, | 2010 | 2009 | 2008 | |||||||||
Cash Flows from Operating Activities: |
||||||||||||
Net income |
$ | 11,467,179 | $ | 18,830,078 | $ | 25,541,978 | ||||||
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||
Depreciation and amortization |
3,143,767 | 2,552,186 | 2,401,345 | |||||||||
Net realized investment (gains) losses |
(4,395,720 | ) | (4,479,558 | ) | 2,970,716 | |||||||
Equity loss (income) |
268,341 | (471,097 | ) | (112,065 | ) | |||||||
Changes in Assets and Liabilities: |
||||||||||||
Losses and loss expenses |
14,904,770 | 23,789,568 | 9,952,760 | |||||||||
Unearned premiums |
21,762,781 | 12,807,490 | 22,477,395 | |||||||||
Accrued expenses |
718,956 | (3,571,059 | ) | 966,958 | ||||||||
Premiums receivable |
(7,478,337 | ) | (5,849,751 | ) | (3,173,057 | ) | ||||||
Deferred policy acquisition costs |
(1,601,400 | ) | (3,302,898 | ) | (3,306,209 | ) | ||||||
Deferred income taxes |
(2,380,430 | ) | (1,250,187 | ) | (832,628 | ) | ||||||
Reinsurance receivable |
(5,348,447 | ) | (4,717,038 | ) | 204,249 | |||||||
Accrued investment income |
(489,244 | ) | 452,796 | (668,682 | ) | |||||||
Amounts due to/from affiliate |
(887,190 | ) | 665,237 | 2,906,139 | ||||||||
Reinsurance balances payable |
(320,278 | ) | 994,610 | (636,074 | ) | |||||||
Prepaid reinsurance premiums |
(8,270,621 | ) | (4,604,241 | ) | (4,111,609 | ) | ||||||
Current income taxes |
(368,145 | ) | 1,927,881 | (2,618,163 | ) | |||||||
Other, net |
1,278,821 | 323,491 | 898,872 | |||||||||
Net adjustments |
10,537,624 | 15,267,430 | 27,319,947 | |||||||||
Net cash provided by operating activities |
22,004,803 | 34,097,508 | 52,861,925 | |||||||||
Cash Flows from Investing Activities: |
||||||||||||
Purchase of fixed maturities |
||||||||||||
Available for sale |
(195,198,227 | ) | (158,409,231 | ) | (204,882,809 | ) | ||||||
Purchase of equity securities |
(59,191,998 | ) | (39,163,607 | ) | (45,091,418 | ) | ||||||
Sale of fixed maturities |
||||||||||||
Available for sale |
72,092,788 | 62,668,210 | 28,971,515 | |||||||||
Maturity of fixed maturities |
||||||||||||
Held to maturity |
8,649,275 | 25,617,925 | 53,830,674 | |||||||||
Available for sale |
80,116,222 | 48,363,915 | 69,699,141 | |||||||||
Sale of equity securities |
70,029,195 | 39,638,895 | 71,177,458 | |||||||||
Payments to Sheboygan policyholders |
| (6,526,527 | ) | (3,352,938 | ) | |||||||
Purchase of Michigan |
(35,088,228 | ) | | | ||||||||
Net (increase) decrease in investment in affiliates |
| (100,000 | ) | 464,000 | ||||||||
Net purchase of property and equipment |
(651,160 | ) | (941,020 | ) | (1,222,246 | ) | ||||||
Net sales (purchases) of short-term investments |
16,052,089 | 15,852,054 | (453,790 | ) | ||||||||
Net cash used in investing activities |
(43,190,044 | ) | (12,999,386 | ) | (30,860,413 | ) | ||||||
Cash Flows from Financing Activities: |
||||||||||||
Issuance of common stock |
1,199,422 | 1,386,037 | 3,856,596 | |||||||||
Redemption of subordinated debentures |
| | (15,464,000 | ) | ||||||||
Cash dividends paid |
(11,405,268 | ) | (10,997,571 | ) | (10,025,711 | ) | ||||||
Purchase of treasury stock |
(145,687 | ) | (393,644 | ) | (3,510,689 | ) | ||||||
Borrowings under line of credit, net |
34,955,088 | | | |||||||||
Tax benefit on exercise of stock options |
| | 683,881 | |||||||||
Net cash provided by (used in) financing activities |
24,603,555 | (10,005,178 | ) | (24,459,923 | ) | |||||||
Net increase (decrease) in cash |
3,418,314 | 11,092,944 | (2,458,411 | ) | ||||||||
Cash at beginning of year |
12,923,898 | 1,830,954 | 4,289,365 | |||||||||
Cash at end of year |
$ | 16,342,212 | $ | 12,923,898 | $ | 1,830,954 | ||||||
23
24
25
26
2010 | 2009 | 2008 | ||||||||||
Premiums earned |
$ | 105,376,068 | $ | 96,502,445 | $ | 93,336,444 | ||||||
Losses and loss expenses |
$ | 81,203,625 | $ | 68,248,082 | $ | 54,407,168 | ||||||
Prepaid reinsurance
premiums |
$ | 57,783,435 | $ | 52,199,831 | $ | 48,448,624 | ||||||
Liability for losses and
loss expenses |
$ | 65,028,781 | $ | 55,396,390 | $ | 45,777,168 | ||||||
27
2010 | 2009 | 2008 | ||||||||||
Premiums earned |
$ | 238,308,846 | $ | 223,223,583 | $ | 220,641,805 | ||||||
Losses and loss expenses |
$ | 160,256,348 | $ | 138,058,878 | $ | 140,969,892 | ||||||
Unearned premiums |
$ | 125,322,884 | $ | 117,044,000 | $ | 110,064,380 | ||||||
Liability for losses and
loss expenses |
$ | 134,580,026 | $ | 131,247,578 | $ | 121,366,321 |
2010 | 2009 | 2008 | ||||||||||
Premiums earned |
$ | 14,516,901 | $ | 12,856,983 | $ | 9,690,726 | ||||||
Losses and loss expenses |
$ | 12,600,094 | $ | 10,987,391 | $ | 7,612,090 | ||||||
Unearned premiums |
$ | 8,124,069 | $ | 6,998,285 | $ | 6,064,734 | ||||||
Liability for losses and
loss expenses |
$ | 7,316,879 | $ | 4,868,486 | $ | 2,672,698 |
2010 | 2009 | 2008 | ||||||||||
Premiums earned |
$ | 4,516,313 | $ | 2,515,075 | $ | 880,017 | ||||||
Losses and loss expenses |
$ | 3,463,112 | $ | 2,342,895 | $ | 697,929 | ||||||
Prepaid reinsurance
premiums |
$ | 4,590,424 | $ | 1,855,076 | $ | 889,993 | ||||||
Liability for losses and
loss expenses |
$ | 4,006,231 | $ | 1,980,626 | $ | 679,718 |
2010 | 2009 | 2008 | ||||||||||
Premiums earned |
$ | 8,110,268 | $ | 8,315,347 | $ | 5,508,666 | ||||||
Losses and loss expenses |
$ | 6,649,775 | $ | 9,742,303 | $ | 7,878,787 | ||||||
Liability for losses and
loss expenses |
$ | 3,441,447 | $ | 3,268,129 | $ | 5,456,611 |
2010 | 2009 | 2008 | ||||||||||
Assumed |
$ | 252,825,747 | $ | 236,080,566 | $ | 230,332,531 | ||||||
Ceded |
(118,002,649 | ) | (107,332,867 | ) | (99,725,127 | ) | ||||||
Net |
$ | 134,823,098 | $ | 128,747,699 | $ | 130,607,404 | ||||||
2010 | 2009 | 2008 | ||||||||||
Assumed |
$ | 172,856,442 | $ | 149,046,269 | $ | 148,581,982 | ||||||
Ceded |
(91,316,512 | ) | (80,333,280 | ) | (62,983,884 | ) | ||||||
Net |
$ | 81,539,930 | $ | 68,712,989 | $ | 85,598,098 | ||||||
28
(in thousands) | ||||
Assets acquired: |
||||
Investments |
$ | 68,693 | ||
Premiums receivable |
27,803 | |||
Prepaid reinsurance premiums |
25,054 | |||
Reinsurance receivable |
83,818 | |||
Goodwill |
4,571 | |||
Other intangible assets |
958 | |||
Other |
3,004 | |||
Total assets acquired |
213,901 | |||
Liabilities assumed: |
||||
Losses and loss expenses |
104,815 | |||
Unearned premiums |
33,688 | |||
Reinsurance balances payable |
16,899 | |||
Accrued expenses |
9,990 | |||
Other |
6,213 | |||
Total liabilities assumed |
171,605 | |||
Net assets acquired |
$ | 42,296 | ||
Year Ended December 31, | ||||||||
2010 | 2009 | |||||||
(in thousands, except per share data) | ||||||||
Total revenues |
$ | 458,231 | $ | 423,184 | ||||
Income before income tax benefit |
13,619 | 15,232 | ||||||
Income tax benefit |
(741 | ) | (146 | ) | ||||
Net Income |
14,360 | 15,378 | ||||||
Class A earnings per share
basic and diluted |
0.58 | 0.62 | ||||||
Class B earnings per share
basic and diluted |
0.52 | 0.55 |
29
2010 | ||||||||||||||||
Gross | Gross | Estimated | ||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Held to Maturity | Cost | Gains | Losses | Value | ||||||||||||
U.S. Treasury securities
and obligations of
U.S. government
corporations
and agencies |
$ | 1,000,000 | $ | 84,320 | $ | | $ | 1,084,320 | ||||||||
Obligations of states
and political
subdivisions |
59,852,427 | 2,893,921 | | 62,746,348 | ||||||||||||
Corporate securities |
3,246,980 | 25,027 | | 3,272,007 | ||||||||||||
Residential mortgage-backed securities |
667,022 | 39,042 | 18 | 706,046 | ||||||||||||
Totals |
$ | 64,766,429 | $ | 3,042,310 | $ | 18 | $ | 67,808,721 | ||||||||
2010 | ||||||||||||||||
Gross | Gross | Estimated | ||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Available for Sale | Cost | Gains | Losses | Value | ||||||||||||
U.S. Treasury securities
and obligations of
U.S. government
corporations
and agencies |
$ | 57,283,889 | $ | 484,282 | $ | 452,352 | $ | 57,315,819 | ||||||||
Obligations of states
and political
subdivisions |
388,091,036 | 6,838,193 | 5,300,094 | 389,629,135 | ||||||||||||
Corporate securities |
67,518,441 | 649,969 | 1,073,486 | 67,094,924 | ||||||||||||
Residential mortgage-backed securities |
88,409,620 | 1,850,670 | 453,967 | 89,806,323 | ||||||||||||
Fixed maturities |
601,302,986 | 9,823,114 | 7,279,899 | 603,846,201 | ||||||||||||
Equity securities |
2,503,565 | 7,693,231 | 35,182 | 10,161,614 | ||||||||||||
Totals |
$ | 603,806,551 | $ | 17,516,345 | $ | 7,315,081 | $ | 614,007,815 | ||||||||
2009 | ||||||||||||||||
Gross | Gross | Estimated | ||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Held to Maturity | Cost | Gains | Losses | Value | ||||||||||||
U.S. Treasury securities
and obligations of
U.S. government
corporations
and agencies |
$ | 2,000,000 | $ | 80,260 | $ | | $ | 2,080,260 | ||||||||
Obligations of states
and political
subdivisions |
61,736,351 | 3,011,092 | 24,034 | 64,723,409 | ||||||||||||
Corporate securities |
6,243,138 | 72,300 | 13,034 | 6,302,404 | ||||||||||||
Residential mortgage-backed securities |
3,827,637 | 72,059 | 29 | 3,899,667 | ||||||||||||
Totals |
$ | 73,807,126 | $ | 3,235,711 | $ | 37,097 | $ | 77,005,740 | ||||||||
2009 | ||||||||||||||||
Gross | Gross | Estimated | ||||||||||||||
Amortized | Unrealized | Unrealized | Fair | |||||||||||||
Available for Sale | Cost | Gains | Losses | Value | ||||||||||||
U.S. Treasury securities
and obligations of
U.S. government
corporations
and agencies |
$ | 41,061,366 | $ | 154,076 | $ | 585,363 | $ | 40,630,079 | ||||||||
Obligations of states
and political
subdivisions |
346,798,545 | 12,587,395 | 1,019,462 | 358,366,478 | ||||||||||||
Corporate securities |
26,971,526 | 866,136 | 71,859 | 27,765,803 | ||||||||||||
Residential mortgage-backed securities |
88,914,148 | 2,356,647 | 329,483 | 90,941,312 | ||||||||||||
Fixed maturities |
503,745,585 | 15,964,254 | 2,006,167 | 517,703,672 | ||||||||||||
Equity securities |
3,804,064 | 6,338,360 | 227,798 | 9,914,626 | ||||||||||||
Totals |
$ | 507,549,649 | $ | 22,302,614 | $ | 2,233,965 | $ | 527,618,298 | ||||||||
Estimated | ||||||||
Amortized | Fair | |||||||
Cost | Value | |||||||
Held to maturity |
||||||||
Due in one year or less |
$ | 2,997,301 | $ | 3,022,079 | ||||
Due after one year through five years |
13,810,698 | 14,522,647 | ||||||
Due after five years through ten years |
45,524,127 | 47,723,927 | ||||||
Due after ten years |
1,767,281 | 1,834,021 | ||||||
Residential mortgage-backed
securities |
667,022 | 706,047 | ||||||
Total held to maturity |
$ | 64,766,429 | $ | 67,808,721 | ||||
Available for sale |
||||||||
Due in one year or less |
$ | 9,898,080 | $ | 9,970,843 | ||||
Due after one year through five years |
105,006,683 | 106,936,765 | ||||||
Due after five years through ten years |
154,749,181 | 155,998,372 | ||||||
Due after ten years |
243,239,422 | 241,133,898 | ||||||
Residential mortgage-backed
securities |
88,409,620 | 89,806,323 | ||||||
Total available for sale |
$ | 601,302,986 | $ | 603,846,201 | ||||
2010 | 2009 | |||||||
DFSC |
$ | 8,526,577 | $ | 8,844,347 | ||||
Other |
465,000 | 465,000 | ||||||
Total |
$ | 8,991,577 | $ | 9,309,347 | ||||
30
2010 | 2009 | 2008 | ||||||||||
Fixed maturities |
$ | 23,995,220 | $ | 24,458,118 | $ | 23,379,999 | ||||||
Equity securities |
42,869 | 69,287 | 552,575 | |||||||||
Short-term investments |
91,665 | 199,735 | 1,079,325 | |||||||||
Other |
46,095 | 47,514 | 36,008 | |||||||||
Investment income |
24,175,849 | 24,774,654 | 25,047,907 | |||||||||
Investment expenses |
(4,226,135 | ) | (4,144,071 | ) | (2,292,123 | ) | ||||||
Net investment income |
$ | 19,949,714 | $ | 20,630,583 | $ | 22,755,784 | ||||||
2010 | 2009 | 2008 | ||||||||||
Gross realized gains: |
||||||||||||
Fixed maturities |
$ | 4,136,455 | $ | 2,654,648 | $ | 1,641,249 | ||||||
Equity securities |
1,791,585 | 2,179,331 | 2,397,716 | |||||||||
5,928,040 | 4,833,979 | 4,038,965 | ||||||||||
Gross realized losses: |
||||||||||||
Fixed maturities |
533,918 | 102,143 | 311,900 | |||||||||
Equity securities |
998,402 | 252,278 | 6,697,781 | |||||||||
1,532,320 | 354,421 | 7,009,681 | ||||||||||
Net realized gains (losses) |
$ | 4,395,720 | $ | 4,479,558 | $ | (2,970,716 | ) | |||||
Change in difference between
fair value and cost of
investments: |
||||||||||||
Fixed maturities |
$ | (11,571,194 | ) | $ | 18,779,926 | $ | (7,235,434 | ) | ||||
Equity securities |
1,547,487 | 3,154,823 | (3,440,944 | ) | ||||||||
Totals |
$ | (10,023,707 | ) | $ | 21,934,749 | $ | (10,676,378 | ) | ||||
Less than 12 months | 12 months or longer | |||||||||||||||
Fair | Unrealized | Fair | Unrealized | |||||||||||||
Value | Losses | Value | Losses | |||||||||||||
U.S. Treasury securities
and obligations of
U.S. government
corporations
and agencies |
$ | 23,901,400 | $ | 452,352 | $ | | $ | | ||||||||
Obligations of states
and political
subdivisions |
171,609,617 | 5,208,910 | 1,406,325 | 91,184 | ||||||||||||
Corporate securities |
44,101,089 | 1,061,972 | 490,970 | 11,514 | ||||||||||||
Residential mortgage-backed securities |
35,930,054 | 453,967 | 750 | 18 | ||||||||||||
Equity securities |
313,888 | 35,182 | | | ||||||||||||
Totals |
$ | 275,856,048 | $ | 7,212,383 | $ | 1,898,045 | $ | 102,716 | ||||||||
Less than 12 months | 12 months or longer | |||||||||||||||
Fair | Unrealized | Fair | Unrealized | |||||||||||||
Value | Losses | Value | Losses | |||||||||||||
U.S. Treasury securities
and obligations of
U.S. government
corporations
and agencies |
$ | 26,703,601 | $ | 585,364 | $ | | $ | | ||||||||
Obligations of states
and political
subdivisions |
17,971,018 | 256,527 | 29,582,488 | 786,970 | ||||||||||||
Corporate securities |
1,284,405 | 23,525 | 666,941 | 61,366 | ||||||||||||
Residential mortgage-backed securities |
23,514,855 | 328,969 | 477,421 | 543 | ||||||||||||
Equity securities |
2,139,457 | 227,798 | | | ||||||||||||
Totals |
$ | 71,613,336 | $ | 1,422,183 | $ | 30,726,850 | $ | 848,879 | ||||||||
31
Fair Value Measurements Using | ||||||||||||||||
Quoted Prices in | Significant | |||||||||||||||
Active Markets | Other | Significant | ||||||||||||||
for Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
Fair Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
U.S. Treasury
securities and
obligations of
U.S. government
corporations and
agencies |
$ | 57,315,820 | $ | | $ | 57,315,820 | $ | | ||||||||
Obligations of
states and political
subdivisions |
389,629,135 | | 389,629,135 | | ||||||||||||
Corporate securities |
67,094,923 | | 67,094,923 | | ||||||||||||
Residential mortgage-backed securities |
89,806,323 | | 89,806,323 | | ||||||||||||
Equity securities |
10,161,614 | 1,152,250 | 1,436,476 | 7,572,888 | ||||||||||||
Totals |
$ | 614,007,815 | $ | 1,152,250 | $ | 605,282,677 | $ | 7,572,888 | ||||||||
Fair Value Measurements Using | ||||||||||||||||
Quoted Prices in | Significant | |||||||||||||||
Active Markets | Other | Significant | ||||||||||||||
for Identical | Observable | Unobservable | ||||||||||||||
Assets | Inputs | Inputs | ||||||||||||||
Fair Value | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
U.S. Treasury
securities and
obligations of
U.S. government
corporations and
agencies |
$ | 40,630,079 | $ | | $ | 40,630,079 | $ | | ||||||||
Obligations of
states and political
subdivisions |
358,366,478 | | 358,366,478 | | ||||||||||||
Corporate securities |
27,765,803 | | 27,765,803 | | ||||||||||||
Residential mortgage-backed securities |
90,941,312 | | 90,941,312 | | ||||||||||||
Equity securities |
9,914,626 | 2,426,567 | 1,256,405 | 6,231,654 | ||||||||||||
Totals |
$ | 527,618,298 | $ | 2,426,567 | $ | 518,960,077 | $ | 6,231,654 | ||||||||
2010 | 2009 | |||||||
Balance, January 1 |
$ | 6,231,654 | $ | | ||||
Reclassification to Level 3 |
| 4,958,531 | ||||||
Sales of securities |
| (1,293,600 | ) | |||||
Change in net unrealized gains |
1,341,234 | 2,566,723 | ||||||
Balance, December 31 |
$ | 7,572,888 | $ | 6,231,654 | ||||
32
2010 | 2009 | 2008 | ||||||||||
Balance, January 1 |
$ | 32,844,179 | $ | 29,541,281 | $ | 26,235,072 | ||||||
Acquisition costs deferred |
67,955,400 | 63,594,898 | 61,556,209 | |||||||||
Amortization charged
to earnings |
(66,354,000 | ) | (60,292,000 | ) | (58,250,000 | ) | ||||||
Balance, December 31 |
$ | 34,445,579 | $ | 32,844,179 | $ | 29,541,281 | ||||||
Estimated | ||||||||||||
Useful | ||||||||||||
2010 | 2009 | Life | ||||||||||
Office equipment |
$ | 8,324,930 | $ | 8,177,197 | 5-15 years | |||||||
Automobiles |
1,966,152 | 1,591,133 | 3 years | |||||||||
Real estate |
5,016,722 | 5,016,722 | 15-50 years | |||||||||
Software |
2,518,826 | 1,631,763 | 5 years | |||||||||
17,826,630 | 16,416,815 | |||||||||||
Accumulated depreciation |
(10,757,544 | ) | (9,824,592 | ) | ||||||||
$ | 7,069,086 | $ | 6,592,223 | |||||||||
2010 | 2009 | 2008 | ||||||||||
Balance at January 1 |
$ | 263,598,844 | $ | 239,809,276 | $ | 226,432,402 | ||||||
Less reinsurance
recoverable |
(83,336,726 | ) | (78,502,518 | ) | (76,280,437 | ) | ||||||
Net balance at January 1 |
180,262,118 | 161,306,758 | 150,151,965 | |||||||||
Acquisition of Sheboygan |
| | 2,173,374 | |||||||||
Acquisition of Michigan |
26,960,063 | | | |||||||||
Incurred related to: |
||||||||||||
Current year |
277,193,930 | 241,012,436 | 221,617,127 | |||||||||
Prior years |
(2,885,072 | ) | 9,822,960 | 2,683,837 | ||||||||
Total incurred |
274,308,858 | 250,835,396 | 224,300,964 | |||||||||
Paid related to: |
||||||||||||
Current year |
179,069,304 | 152,292,967 | 143,369,098 | |||||||||
Prior years |
84,565,436 | 79,587,069 | 71,950,447 | |||||||||
Total paid |
263,634,740 | 231,880,036 | 215,319,545 | |||||||||
Net balance at
December 31 |
217,896,299 | 180,262,118 | 161,306,758 | |||||||||
Plus reinsurance
recoverable |
165,422,373 | 83,336,726 | 78,502,518 | |||||||||
Balance at December 31 |
$ | 383,318,672 | $ | 263,598,844 | $ | 239,809,276 | ||||||
FHLB stock purchased and owned
as part of the agreement |
$ | 125,000 | ||
Collateral pledged, at par
(carrying value $3,139,987) |
3,450,000 | |||
Borrowing capacity currently available |
2,962,700 |
33
2010 | 2009 | 2008 | ||||||||||
Premiums written |
$ | 24,357,938 | $ | 19,758,224 | $ | 19,458,572 | ||||||
Premiums earned |
$ | 26,551,687 | $ | 19,870,265 | $ | 19,348,674 | ||||||
Losses and loss expenses |
$ | 19,764,441 | $ | 6,796,388 | $ | 11,129,036 | ||||||
Prepaid reinsurance premiums |
$ | 26,991,912 | $ | 1,985,821 | $ | 2,097,870 | ||||||
Liability for losses and
loss expenses |
$ | 92,945,915 | $ | 22,692,993 | $ | 27,258,815 |
2010 | 2009 | 2008 | ||||||||||
Premiums earned |
$ | 144,554,336 | $ | 127,203,132 | $ | 119,073,801 | ||||||
Losses and loss expenses |
$ | 111,080,953 | $ | 87,129,668 | $ | 74,112,920 | ||||||
Prepaid reinsurance premiums |
$ | 89,365,771 | $ | 56,040,728 | $ | 51,436,487 | ||||||
Liability for losses and
loss expenses |
$ | 165,442,373 | $ | 83,336,726 | $ | 78,502,518 |
2010 | 2009 | 2008 | ||||||||||
Direct |
$ | 279,627,255 | $ | 250,989,795 | $ | 241,371,353 | ||||||
Assumed |
262,574,572 | 244,046,312 | 246,755,110 | |||||||||
Ceded |
(150,679,539 | ) | (131,807,381 | ) | (123,185,408 | ) | ||||||
Net premiums written |
$ | 391,522,288 | $ | 363,228,726 | $ | 364,941,055 | ||||||
2010 | 2009 | 2008 | ||||||||||
Direct |
$ | 269,394,549 | $ | 246,074,766 | $ | 235,212,229 | ||||||
Assumed |
253,189,916 | 236,153,843 | 230,436,838 | |||||||||
Ceded |
(144,554,336 | ) | (127,203,132 | ) | (119,073,801 | ) | ||||||
Net premiums earned |
$ | 378,030,129 | $ | 355,025,477 | $ | 346,575,266 | ||||||
2010 | 2009 | 2008 | ||||||||||
Current |
$ | 757,400 | $ | 3,096,798 | $ | 7,382,694 | ||||||
Deferred |
(2,380,430 | ) | (1,250,187 | ) | (832,628 | ) | ||||||
Federal tax (benefit) provision |
$ | (1,623,030 | ) | $ | 1,846,611 | $ | 6,550,066 | |||||
2010 | 2009 | 2008 | ||||||||||
Income before income taxes |
$ | 9,844,149 | $ | 20,676,689 | $ | 32,092,044 | ||||||
Computed expected taxes |
3,445,452 | 7,236,841 | 11,232,215 | |||||||||
Tax-exempt interest |
(6,183,795 | ) | (6,237,961 | ) | (5,668,566 | ) | ||||||
Dividends received deduction |
(996 | ) | (17,574 | ) | (62,470 | ) | ||||||
Other, net |
1,116,309 | 865,305 | 1,048,887 | |||||||||
Federal income tax (benefit)
provision |
$ | (1,623,030 | ) | $ | 1,846,611 | $ | 6,550,066 | |||||
34
2010 | 2009 | |||||||
Deferred tax assets: |
||||||||
Unearned premium |
$ | 14,826,320 | $ | 13,043,976 | ||||
Loss reserves |
6,954,685 | 5,715,157 | ||||||
Net operating loss carryforward - acquired companies |
2,497,122 | 2,497,122 | ||||||
Other |
5,518,681 | 4,000,325 | ||||||
Total gross deferred assets |
29,796,808 | 25,256,580 | ||||||
Less valuation allowance |
(746,368 | ) | (746,368 | ) | ||||
Net deferred tax assets |
29,050,440 | 24,510,212 | ||||||
Deferred tax liabilities: |
||||||||
Deferred policy acquisition costs |
13,204,370 | 11,505,045 | ||||||
Net unrealized gains |
3,649,494 | 7,120,393 | ||||||
Other |
208,407 | 797,825 | ||||||
Total gross deferred tax liabilities |
17,062,271 | 19,423,263 | ||||||
Net deferred tax asset |
$ | 11,988,169 | $ | 5,086,949 | ||||
35
Weighted-Average | ||||||||
Number of | Exercise Price | |||||||
Options | Per Share | |||||||
Outstanding at December 31, 2007 |
2,384,722 | $ | 17.36 | |||||
Granted 2008 |
1,368,500 | 17.52 | ||||||
Exercised 2008 |
(247,955 | ) | 9.51 | |||||
Forfeited 2008 |
(82,835 | ) | 17.80 | |||||
Outstanding at December 31, 2008 |
3,422,432 | 17.98 | ||||||
Granted 2009 |
5,000 | 17.50 | ||||||
Forfeited 2009 |
(137,333 | ) | 17.97 | |||||
Outstanding at December 31, 2009 |
3,290,099 | 17.98 | ||||||
Granted 2010 |
1,787,500 | 14.00 | ||||||
Forfeited 2010 |
(15,500 | ) | 15.69 | |||||
Expired 2010 |
(1,063,432 | ) | 15.76 | |||||
Outstanding at December 31, 2010 |
3,998,667 | $ | 16.80 | |||||
Exercisable at: |
||||||||
December 31, 2008 |
1,767,810 | $ | 17.74 | |||||
December 31, 2009 |
2,451,556 | $ | 18.13 | |||||
December 31, 2010 |
1,805,751 | $ | 19.40 |
Number of | Weighted-Average | Number of | ||||||||||
Exercise | Options | Remaining | Options | |||||||||
Price | Outstanding | Contractual Life | Exercisable | |||||||||
$ | 14.00 | 1,779,500 | 5.0 years |
| ||||||||
17.50 | 1,237,000 | 2.5 years |
824,584 | |||||||||
18.70 | 3,000 | 2.5 years |
2,000 | |||||||||
21.00 | 958,667 | 1.0 years |
958,667 | |||||||||
21.00 | 20,500 | 2.0 years |
20,500 | |||||||||
Total | 3,998,667 | 1,805,751 | ||||||||||
Shares Issued | ||||||||
Price | Shares | |||||||
January 1, 2008 |
$ | 12.98 | 14,593 | |||||
July 1, 2008 |
13.49 | 11,498 | ||||||
January 1, 2009 |
14.25 | 10,770 | ||||||
July 1, 2009 |
12.93 | 11,304 | ||||||
January 1, 2010 |
12.85 | 11,717 | ||||||
July 1, 2010 |
10.45 | 12,403 |
36
2010 | 2009 | 2008 | ||||||||||
Atlantic States |
||||||||||||
Statutory capital
and surplus |
$ | 191,775,057 | $ | 189,679,919 | $ | 182,403,593 | ||||||
Statutory unassigned
surplus |
$ | 131,817,978 | $ | 133,732,099 | $ | 128,742,729 | ||||||
Statutory net income |
$ | 11,002,447 | $ | 12,445,231 | $ | 18,412,955 | ||||||
Southern |
||||||||||||
Statutory capital
and surplus |
$ | 63,609,630 | $ | 64,519,825 | $ | 64,272,437 | ||||||
Statutory unassigned
surplus |
$ | 12,612,044 | $ | 15,402,239 | $ | 15,154,851 | ||||||
Statutory net (loss) income |
$ | (2,083,206 | ) | $ | (1,017,998 | ) | $ | 1,608,947 | ||||
Le Mars |
||||||||||||
Statutory capital
and surplus |
$ | 25,539,580 | $ | 28,288,730 | $ | 27,914,815 | ||||||
Statutory unassigned
surplus |
$ | 12,485,531 | $ | 15,277,563 | $ | 15,322,075 | ||||||
Statutory net (loss) income |
$ | (3,166,242 | ) | $ | 716,138 | $ | 1,886,785 | |||||
Peninsula |
||||||||||||
Statutory capital
and surplus |
$ | 41,932,367 | $ | 38,986,329 | $ | 39,137,131 | ||||||
Statutory unassigned
surplus |
$ | 23,580,784 | $ | 20,832,470 | $ | 21,337,717 | ||||||
Statutory net income |
$ | 2,336,947 | $ | 1,023,349 | $ | 4,082,064 | ||||||
Sheboygan |
||||||||||||
Statutory capital
and surplus |
$ | 11,671,405 | $ | 11,857,971 | $ | 11,176,704 | ||||||
Statutory unassigned
(deficit) surplus |
$ | (479,140 | ) | $ | (243,626 | ) | $ | (855,467 | ) | |||
Statutory net (loss) income |
$ | (286,613 | ) | $ | 588,098 | $ | (1,110,861 | ) | ||||
Michigan |
||||||||||||
Statutory capital
and surplus |
$ | 37,343,663 | $ | 33,942,137 | $ | 29,801,758 | ||||||
Statutory unassigned
surplus |
$ | 10,240,870 | $ | 6,689,663 | $ | 4,047,086 | ||||||
Statutory net income |
$ | 3,026,178 | $ | 2,589,784 | $ | 4,502 |
Year Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Statutory net income of
insurance subsidiaries |
$ | 9,163,680 | $ | 13,754,818 | $ | 25,946,589 | ||||||
Increases (decreases): |
||||||||||||
Deferred policy
acquisition costs |
1,601,400 | 3,302,898 | 3,306,209 | |||||||||
Deferred federal
income taxes |
2,380,430 | 1,250,187 | 811,722 | |||||||||
Salvage and subrogation
recoverable |
748,000 | 542,000 | 270,000 | |||||||||
Consolidating eliminations
and adjustments |
(12,776,620 | ) | (13,521,106 | ) | (23,708,578 | ) | ||||||
Parent-only net income |
10,350,289 | 13,501,281 | 18,916,036 | |||||||||
Net income as
reported herein |
$ | 11,467,179 | $ | 18,830,078 | $ | 25,541,978 | ||||||
Year Ended December 31, | ||||||||||||
2010 | 2009 | 2008 | ||||||||||
Statutory capital and surplus
of insurance subsidiaries |
$ | 371,871,702 | $ | 333,332,774 | $ | 324,904,680 | ||||||
Increases (decreases): |
||||||||||||
Deferred policy
acquisition costs |
34,445,579 | 32,844,179 | 29,541,281 | |||||||||
Deferred federal
income taxes |
(14,834,855 | ) | (15,676,995 | ) | (5,914,123 | ) | ||||||
Salvage and subrogation
recoverable |
9,955,000 | 9,207,000 | 8,665,000 | |||||||||
Non-admitted assets and
other adjustments, net |
4,889,231 | 2,913,878 | 2,795,785 | |||||||||
Fixed maturities |
4,430,879 | 13,135,848 | (3,419,625 | ) | ||||||||
Parent-only equity and
other adjustments |
(30,654,726 | ) | 9,749,015 | 7,010,867 | ||||||||
Stockholders equity as
reported herein |
$ | 380,102,810 | $ | 385,505,699 | $ | 363,583,865 | ||||||
2010 | 2009 | 2008 | ||||||||||
Income taxes |
$ | 1,100,000 | $ | 1,307,418 | $ | 9,325,000 | ||||||
Interest |
$ | 705,210 | $ | 1,828,278 | $ | 2,040,017 |
37
(dollars in thousands, except per share data) | ||||||||||||
Year Ended December 31, | 2010 | 2009 | 2008 | |||||||||
Basic earnings per share: |
||||||||||||
Numerator: |
||||||||||||
Allocation of net income |
$ | 9,183 | $ | 15,049 | $ | 20,404 | ||||||
Denominator: |
||||||||||||
Weighted-average
shares outstanding |
19,961,274 | 19,903,069 | 19,866,099 | |||||||||
Basic earnings per share |
$ | 0.46 | $ | 0.76 | $ | 1.03 | ||||||
Diluted earnings per share: |
||||||||||||
Numerator: |
||||||||||||
Allocation of net income |
$ | 9,183 | $ | 15,049 | $ | 20,404 | ||||||
Denominator: |
||||||||||||
Number of shares used in
basic computation |
19,961,274 | 19,903,069 | 19,866,099 | |||||||||
Weighted-average effect of
dilutive securities |
||||||||||||
Add: Director and
employee stock options |
17,794 | | 89,419 | |||||||||
Number of shares used in
per share computations |
19,979,068 | 19,903,069 | 19,955,518 | |||||||||
Diluted earnings per share |
$ | .46 | $ | .76 | $ | 1.02 | ||||||
(dollars in thousands, except per share data) | ||||||||||||
Year Ended December 31, | 2010 | 2009 | 2008 | |||||||||
Basic and diluted
earnings per share: |
||||||||||||
Numerator: |
||||||||||||
Allocation of net income |
$ | 2,284 | $ | 3,781 | $ | 5,138 | ||||||
Denominator: |
||||||||||||
Weighted-average
shares outstanding |
5,576,775 | 5,576,775 | 5,576,775 | |||||||||
Basic and diluted
earnings per share |
$ | 0.41 | $ | 0.68 | $ | 0.92 |
2010 | 2009 | 2008 | ||||||||||
Options excluded from diluted
earnings per share |
2,219,167 | 3,290,099 | 1,018,167 |
December 31, | 2010 | 2009 | ||||||
Assets |
||||||||
Investment in subsidiaries/affiliates
(equity method) |
$ | 422,144 | $ | 385,445 | ||||
Short-term investments |
15,695 | 15,445 | ||||||
Cash |
841 | 1,105 | ||||||
Property and equipment |
1,309 | 1,262 | ||||||
Other |
1,078 | 875 | ||||||
Total assets |
$ | 441,067 | $ | 404,132 | ||||
Liabilities and Stockholders Equity |
||||||||
Liabilities |
||||||||
Cash dividends declared to stockholders |
$ | 2,871 | $ | 2,798 | ||||
Borrowings under line of credit |
35,000 | | ||||||
Subordinated debentures |
15,465 | 15,465 | ||||||
Payable for the purchase of Michigan |
7,207 | | ||||||
Other |
421 | 364 | ||||||
Total liabilities |
60,964 | 18,627 | ||||||
Stockholders equity |
380,103 | 385,505 | ||||||
Total liabilities and stockholders equity |
$ | 441,067 | $ | 404,132 | ||||
Year Ended December 31, | 2010 | 2009 | 2008 | |||||||||
Statements of Income |
||||||||||||
Revenues |
||||||||||||
Dividends from subsidiaries |
$ | 12,000 | $ | 14,000 | $ | 20,000 | ||||||
Other |
969 | 1,005 | 1,785 | |||||||||
Total revenues |
12,969 | 15,005 | 21,785 | |||||||||
Expenses |
||||||||||||
Operating expenses |
2,328 | 1,019 | 1,558 | |||||||||
Interest |
778 | 773 | 1,822 | |||||||||
Total expenses |
3,106 | 1,792 | 3,380 | |||||||||
Income before income tax benefit and equity
in undistributed net
income of subsidiaries |
9,863 | 13,213 | 18,405 | |||||||||
Income tax benefit |
(487 | ) | (288 | ) | (511 | ) | ||||||
Income before equity in undistributed
net income of subsidiaries |
10,350 | 13,501 | 18,916 | |||||||||
Equity in undistributed
net income of subsidiaries |
1,117 | 5,329 | 6,626 | |||||||||
Net income |
$ | 11,467 | $ | 18,830 | $ | 25,542 | ||||||
Statements of Comprehensive Income |
||||||||||||
Net income |
$ | 11,467 | $ | 18,830 | $ | 25,542 | ||||||
Other comprehensive (loss) income,
net of tax |
||||||||||||
Unrealized (loss) gain parent |
| | (60 | ) | ||||||||
Unrealized (loss) gain subsidiaries |
(6,446 | ) | 13,293 | (5,201 | ) | |||||||
Other comprehensive (loss) income,
net of tax |
(6,446 | ) | 13,293 | (5,261 | ) | |||||||
Comprehensive income |
$ | 5,021 | $ | 32,123 | $ | 20,281 | ||||||
38
Year Ended December 31, | 2010 | 2009 | 2008 | |||||||||
Cash flows from operating activities: |
||||||||||||
Net income |
$ | 11,467 | $ | 18,830 | $ | 25,542 | ||||||
Adjustments: |
||||||||||||
Equity in undistributed net
income of subsidiaries |
(1,117 | ) | (5,329 | ) | (6,626 | |||||||
Other |
547 | (669 | ) | 924 | ||||||||
Net adjustments |
(570 | ) | (5,998 | ) | (5,702 | ) | ||||||
Net cash provided |
10,897 | 12,832 | 19,840 | |||||||||
Cash flows from investing activities: |
||||||||||||
Net sale of fixed maturities |
| | 5,214 | |||||||||
Net (purchase) sale of short-term
investments |
(249 | ) | (2,609 | ) | 11,367 | |||||||
Net purchase of property and
equipment |
(492 | ) | (644 | ) | (408 | ) | ||||||
Investment in subsidiaries |
(35,088 | ) | (100 | ) | (11,568 | ) | ||||||
Other |
20 | 19 | 110 | |||||||||
Net cash (used) provided |
(35,809 | ) | (3,334 | ) | 4,715 | |||||||
Cash flows from financing activities: |
||||||||||||
Cash dividends paid |
(11,405 | ) | (10,998 | ) | (10,026 | ) | ||||||
Issuance of common stock |
1,199 | 1,386 | 3,857 | |||||||||
Tax benefit on exercise of stock options |
| | 684 | |||||||||
Redemption of subordinated debentures |
| | (15,464 | ) | ||||||||
Borrowings under line of credit |
35,000 | | | |||||||||
Repurchase of treasury stock |
(146 | ) | (393 | ) | (3,511 | ) | ||||||
Net cash provided (used) |
24,648 | (10,005 | ) | (24,460 | ) | |||||||
Net change in cash |
(264 | ) | (507 | ) | 95 | |||||||
Cash at beginning of year |
1,105 | 1,612 | 1,517 | |||||||||
Cash at end of year |
$ | 841 | $ | 1,105 | $ | 1,612 | ||||||
2010 | 2009 | 2008 | ||||||||||
(in thousands) | ||||||||||||
Revenues: |
||||||||||||
Premiums earned: |
||||||||||||
Commercial lines |
$ | 117,755 | $ | 113,233 | $ | 121,567 | ||||||
Personal lines |
260,900 | 242,313 | 225,143 | |||||||||
SAP premiums earned |
378,655 | 355,546 | 346,710 | |||||||||
GAAP adjustments |
(625 | ) | (521 | ) | (135 | ) | ||||||
GAAP premiums earned |
378,030 | 355,025 | 346,575 | |||||||||
Net investment income |
19,950 | 20,631 | 22,756 | |||||||||
Realized investment gains (losses) |
4,396 | 4,480 | (2,971 | ) | ||||||||
Other |
6,442 | 6,597 | 6,064 | |||||||||
Total revenues |
$ | 408,818 | $ | 386,733 | $ | 372,424 | ||||||
2010 | 2009 | 2008 | ||||||||||
(in thousands) | ||||||||||||
Income before income taxes: |
||||||||||||
Underwriting (loss) income: |
||||||||||||
Commercial lines |
$ | 2,252 | $ | 5,805 | $ | 13,819 | ||||||
Personal lines |
(22,526 | ) | (17,235 | ) | (7,609 | ) | ||||||
SAP underwriting (loss) income |
(20,274 | ) | (11,430 | ) | 6,210 | |||||||
GAAP adjustments |
2,458 | 3,636 | 3,530 | |||||||||
GAAP underwriting (loss) income |
(17,816 | ) | (7,794 | ) | 9,740 | |||||||
Net investment income |
19,950 | 20,631 | 22,756 | |||||||||
Realized investment gains (losses) |
4,396 | 4,480 | (2,971 | ) | ||||||||
Other |
3,314 | 3,360 | 2,567 | |||||||||
Income before income taxes |
$ | 9,844 | $ | 20,677 | $ | 32,092 | ||||||
2010 | ||||||||||||||||
First | Second | Third | Fourth | |||||||||||||
Quarter | Quarter | Quarter | Quarter | |||||||||||||
Net premiums
earned |
$ | 91,372,096 | $ | 93,002,409 | $ | 94,948,843 | $ | 98,706,781 | ||||||||
Total revenues |
97,914,750 | 101,525,354 | 103,750,318 | 105,715,668 | ||||||||||||
Net losses and loss
expenses |
67,981,486 | 68,509,616 | 67,401,697 | 70,416,059 | ||||||||||||
Net income |
234,758 | 1,739,728 | 4,909,879 | 4,582,814 | ||||||||||||
Net earnings per
common share: |
||||||||||||||||
Class A common
stock basic
and diluted |
0.01 | 0.07 | 0.20 | 0.18 | ||||||||||||
Class B common
stock basic
and diluted |
0.01 | 0.06 | 0.18 | 0.16 | ||||||||||||
2009 | ||||||||||||||||
First | Second | Third | Fourth | |||||||||||||
Quarter | Quarter | Quarter | Quarter | |||||||||||||
Net premiums
earned |
$ | 88,349,543 | $ | 87,540,345 | $ | 87,997,723 | $ | 91,137,866 | ||||||||
Total revenues |
95,501,614 | 94,823,420 | 94,882,167 | 101,526,206 | ||||||||||||
Net losses and loss
expenses |
65,949,165 | 61,903,131 | 58,609,247 | 64,373,853 | ||||||||||||
Net income |
169,804 | 4,387,624 | 6,744,851 | 7,527,799 | ||||||||||||
Net earnings per
common share: |
||||||||||||||||
Class A common
stock basic
and diluted |
0.01 | 0.18 | 0.27 | 0.30 | ||||||||||||
Class B common
stock basic
and diluted |
0.01 | 0.16 | 0.24 | 0.27 | ||||||||||||
39
40
Donald H. Nikolaus | ||||
President and Chief Executive Officer | ||||
Jeffrey D. Miller | ||||
Senior Vice President and Chief Financial Officer | ||||
41
42
2005 | 2006 | 2007 | 2008 | 2009 | 2010 | |||||||||||||||||||
Donegal Group Inc. Class A |
$ | 100.00 | $ | 114.52 | $ | 102.53 | $ | 102.59 | $ | 97.88 | $ | 94.31 | ||||||||||||
Donegal Group Inc. Class B |
100.00 | 114.02 | 117.59 | 112.26 | 113.21 | 121.50 | ||||||||||||||||||
Russell 2000 Index |
100.00 | 117.00 | 113.79 | 74.19 | 92.90 | 116.40 | ||||||||||||||||||
Insurance (Property/Casualty) |
100.00 | 114.47 | 139.39 | 99.35 | 122.34 | 147.70 |
* | Cumulative total return assumes reinvestment of dividends. |
43
Cash | ||||||||||||
Dividend | ||||||||||||
Declared | ||||||||||||
Quarter | High | Low | Per Share | |||||||||
2009 - Class A |
||||||||||||
1st |
$ | 17.00 | $ | 12.25 | $ | | ||||||
2nd |
17.47 | 13.61 | .1125 | |||||||||
3rd |
16.60 | 14.31 | .1125 | |||||||||
4th |
16.02 | 14.22 | .225 | |||||||||
2009 - Class B |
||||||||||||
1st |
$ | 17.50 | $ | 13.06 | $ | | ||||||
2nd |
16.68 | 13.41 | .10 | |||||||||
3rd |
17.68 | 12.75 | .10 | |||||||||
4th |
22.00 | 15.43 | .20 | |||||||||
2010 - Class A |
||||||||||||
1st |
$ | 15.95 | $ | 13.94 | $ | | ||||||
2nd |
15.00 | 12.12 | .115 | |||||||||
3rd |
13.53 | 10.78 | .115 | |||||||||
4th |
16.12 | 12.57 | .23 | |||||||||
2010 - Class B |
||||||||||||
1st |
$ | 19.19 | $ | 16.03 | $ | | ||||||
2nd |
19.16 | 15.84 | .1025 | |||||||||
3rd |
18.30 | 14.59 | .1025 | |||||||||
4th |
18.75 | 15.89 | .2050 |
Class A common stock |
1,243 | |||
Class B common stock |
392 |
44
Name | State of Formation | |
Atlantic States Insurance Company
|
Pennsylvania | |
Southern Insurance Company of Virginia
|
Virginia | |
Le Mars Insurance Company
|
Iowa | |
The Peninsula Insurance Company
|
Maryland | |
Peninsula Indemnity Company*
|
Maryland | |
Donegal Financial Services Corporation**
|
Delaware | |
Province BankFSB***
|
U.S. | |
Sheboygan Falls Insurance Company
|
Wisconsin | |
Michigan Insurance Company
|
Michigan |
* | Wholly owned by The Peninsula Insurance Company. | |
** | Registrant owns 48.2%. Donegal Mutual Insurance Company owns 51.8%. | |
*** | Wholly owned by Donegal Financial Services Corporation. |
/s/ KPMG LLP | ||||
Philadelphia, Pennsylvania | ||||
/s/ Donald H. Nikolaus | ||||
Donald H. Nikolaus, President | ||||
-2-
/s/ Jeffrey D. Miller | ||||
Jeffrey D. Miller, Senior Vice President | ||||
and Chief Financial Officer | ||||
-2-
/s/ Donald H. Nikolaus | ||||
Donald H. Nikolaus, President | ||||
/s/ Jeffrey D. Miller | ||||
Jeffrey D. Miller, Vice President | ||||
and Chief Financial Officer | ||||
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