United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
|X| Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended March 31, 2000
or
|_| Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transaction period from ____________to
___________.
Commission file number 1-11983
--------
FPIC Insurance Group, Inc.
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(Exact name of registrant as specified in its charter)
Florida 59-3359111
- ------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
225 Water Street, Suite 1400, Jacksonville, Florida 32202
--------------------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
(904) 354-2482
----------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes |X| No |_|
As of May 5, 2000, there were 9,442,853 shares of the registrant's common stock
outstanding.
<PAGE>
Table of Contents
Page
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Part I - Financial Information
Item 1. Consolidated Financial Statements (unaudited) of FPIC Insurance
Group, Inc. and Subsidiaries:
o Consolidated Balance Sheets 3
o Consolidated Statements of Income 4
o Consolidated Statements of Comprehensive Income 5
o Consolidated Statements of Changes in Shareholders' Equity 6
o Consolidated Statements of Cash Flows 7
o Notes to the Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
Part II - Other Information
Item 1. Legal Proceedings 14
Item 2. Changes in Securities and Use of Proceeds 14
Item 3. Defaults Upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 14
<PAGE>
FPIC Insurance Group, Inc.
Consolidated Balance Sheets (in thousands, except share data)
As of March 31, 2000 and December 31, 1999
<TABLE>
<CAPTION>
(unaudited)
2000 1999
--------- ---------
<S> <C> <C>
Assets
Cash and cash equivalents $ 9,297 6,830
Bonds and U.S. Government securities, available for sale 376,241 327,076
Equity securities, available for sale 8,786 8,823
Other invested assets 5,543 5,455
Real estate investments 5,265 5,235
--------- ---------
Total cash and investments 405,132 353,419
Premiums receivable, net 42,733 45,012
Accrued investment income 7,385 5,426
Reinsurance recoverable on paid losses 4,732 3,081
Due from reinsurers on unpaid losses and advance premiums 57,826 60,356
Property and equipment, net 3,644 3,774
Deferred policy acquisition costs 5,326 2,789
Deferred income taxes 24,053 21,244
Finance charge receivable 369 379
Prepaid expenses 1,478 1,126
Goodwill, net 72,047 70,441
Intangible assets, net 3,387 3,481
Federal income tax receivable -- 4,128
Other assets 9,871 7,567
--------- ---------
Total assets $ 637,983 582,223
========= =========
Liabilities and Shareholders' Equity
Loss and loss adjustment expenses $ 270,425 273,092
Unearned premiums 107,412 55,759
Paid in advance and unprocessed premiums 1,847 5,459
Revolving credit facility 67,219 62,719
Federal income taxes payable 2,312 --
Accrued expenses and other liabilities 19,688 18,815
--------- ---------
Total liabilities 468,903 415,844
--------- ---------
Commitments and contingencies
Common stock, $.10 par value, 50,000,000 shares authorized;
9,438,853 and 9,621,298 shares issued and outstanding at
March 31, 2000 and December 31, 1999, respectively 944 962
Additional paid-in capital 38,344 41,858
Unearned compensation (199) (231)
Accumulated other comprehensive loss (7,006) (8,495)
Retained earnings 136,997 132,285
--------- ---------
Total shareholders' equity 169,080 166,379
--------- ---------
Total liabilities and shareholders' equity $ 637,983 582,223
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
FPIC INSURANCE GROUP, INC.
Consolidated Statements of Income (in thousands, except per-share data)
<TABLE>
<CAPTION>
(unaudited)
---------------------------
Three months ended March 31
2000 1999
---------- -----------
<S> <C> <C>
Revenues
Net premiums earned $ 29,148 27,584
Net investment income 6,017 4,452
Net realized investment (losses) gains (21) 304
Claims administration and management fees 7,121 6,234
Commission income 656 347
Finance charge and other income 1,366 1,087
-------- --------
Total revenues 44,287 40,008
-------- --------
Expenses
Net losses and loss adjustment expenses 24,162 18,649
Other underwriting expenses 3,905 4,003
Claims administration and management expenses 7,186 5,919
Interest expense 1,242 843
Other expenses 1,136 1,089
-------- --------
Total expenses 37,631 30,503
-------- --------
Income before income taxes 6,656 9,505
Income taxes 1,944 2,271
-------- --------
Net income $ 4,712 7,234
======== ========
Basic earnings per common share $ 0.49 0.74
======== ========
Diluted earnings per common share $ 0.49 0.70
======== ========
Basic weighted average common shares outstanding 9,564 9,751
======== ========
Diluted weighted average common shares outstanding 9,678 10,398
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
FPIC INSURANCE GROUP, INC.
Consolidated Statements of Comprehensive Income (in thousands)
<TABLE>
<CAPTION>
(unaudited)
---------------------------
Three months ended March 31
2000 1999
------- -------
<S> <C> <C>
Net income $ 4,712 7,234
------- -------
Other comprehensive income
Unrealized (losses) gains on securities
Unrealized holding gains (losses) arising during period 2,322 (1,845)
Less reclassification adjustment for (losses) gains included
in net income (20) 304
Income tax (expense) benefit related to unrealized gains and
losses on securities (813) 539
------- -------
Other comprehensive income (loss) 1,489 (1,002)
------- -------
Comprehensive income $ 6,201 6,232
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
5
<PAGE>
FPIC INSURANCE GROUP, INC.
Consolidated Statements of Changes in Shareholders' Equity (in thousands)
Three Months Ended March 31, 2000 and Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
Additional Net Unrealized
Common Paid-in Gain (loss) Retained Unearned
Stock capital on Investments Earnings Compensation Total
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances at December 31, 1997 $ 918 25,790 3,634 89,723 -- 120,065
Net income -- -- -- 20,693 -- 20,693
Unearned compensation -- -- -- -- (357) (357)
Net unrealized gain on debt and equity securities -- -- 1,987 -- -- 1,987
Issuance of shares, net 34 8,509 -- -- -- 8,543
-------------------------------------------------------------------------
Balances at December 31, 1998 952 34,299 5,621 110,416 (357) 150,931
Net income -- -- -- 21,869 -- 21,869
Compensation earned on options -- -- -- -- 126 126
Net unrealized loss on debt and equity securities -- -- (14,116) -- -- (14,116)
Issuance of shares, net 10 7,559 -- -- -- 7,569
-------------------------------------------------------------------------
Balances at December 31, 1999 962 41,858 (8,495) 132,285 (231) 166,379
Net income -- -- -- 4,712 -- 4,712
Compensation earned on options -- -- -- -- 32 32
Net unrealized gain on debt and equity securities -- -- 1,489 -- -- 1,489
Repurchase of shares, net (18) (3,514) -- -- -- (3,532)
-------------------------------------------------------------------------
Balances at March 31, 2000 (unaudited) $ 944 38,344 (7,006) 136,997 (199) 169,080
=========================================================================
</TABLE>
See accompanying notes to consolidated financial statements.
6
<PAGE>
FPIC INSURANCE GROUP, INC.
Consolidated Statements of Cash Flows (in thousands)
<TABLE>
<CAPTION>
(unaudited)
---------------------------
Three months ended March 31
2000 1999
------- -----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 4,712 7,234
Adjustments to reconcile net income to cash provided by
operating activities:
Depreciation and amortization 1,492 1,243
Realized loss (gain) on investments 21 (304)
Realized loss on sale of property and equipment -- 8
Noncash compensation 32 31
Net loss from equity investments 79 79
Deferred income taxes (3,046) (337)
Changes in assets and liabilities:
Premiums receivable, net 2,279 (8,763)
Accrued investment income, net (1,959) (278)
Reinsurance recoverable (1,651) 1,206
Due from reinsurers on unpaid losses and advance premiums 2,530 818
Deposits with reinsurers -- 107
Deferred policy acquisition costs (2,537) (422)
Prepaid expenses and finance charge receivable (342) (1,774)
Other assets (2,304) 401
Loss and loss adjustment expenses (2,667) (371)
Unearned premiums 7,460 3,933
Paid in advance and unprocessed premiums (3,612) (4,113)
Federal income tax receivable 6,441 2,688
Accrued expenses and other liabilities 873 (1,438)
------- -------
Net cash provided by (used in) operating activities 7,801 (52)
------- -------
Cash flows from investing activities:
Proceeds from sale or maturity of bonds and U.S. Government securities 4,108 30,239
Purchase of bonds and U.S. Government securities (7,471) (900)
Purchase of intangible assets (2,523) (49,180)
Purchase of real estate investments (92) (391)
Purchase of other invested assets (161) (313)
Purchase of property and equipment, net (163) (70)
Purchase of subsidiary's net other assets and stock -- (920)
------- -------
Net cash used in investing activities (6,302) (21,535)
------- -------
Cash flows from financing activities:
Net borrowings under revolving credit facility 4,500 31,013
(Repurchase) issuance of common stock, net (3,532) 876
------- -------
Net cash provided by financing activities 968 31,889
------- -------
Net increase in cash and cash equivalents 2,467 10,302
Cash and cash equivalents at beginning of period 6,830 7,063
------- -------
Cash and cash equivalents at end of period $ 9,297 17,365
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
Continued
7
<PAGE>
FPIC INSURANCE GROUP, INC.
Consolidated Statements of Cash Flows (in thousands)
<TABLE>
<CAPTION>
(unaudited)
---------------------------
Three months ended March 31
2000 1999
------ ------
<S> <C> <C>
Supplemental disclosure of noncash financing activities:
Interest paid $ 88 60
======== ========
Supplemental schedule of noncash investing and financing activities:
Effective January 1, 2000, the Company's insurance subsidiaries entered
into a 100% quota share reinsurance agreement to assume the death,
disability, and retirement (DD&R) risks under Physicians' Reciprocal
Insurers' (PRI) claims made insurance policies. The Company received cash
and bonds in exchange for business assumed from PRI.
Assumed unearned premiums $ 46,954 --
Receipt of bonds (44,194) --
-------- --------
Net cash received $ 2,760 --
======== ========
Effective January 1, 1999, The Company purchased all of the capital stock
of Administrators For The Professions, Inc. for $53,830 and a 70% equity
interest in a limited liability company for $2,500. In conjunction with the
acquisitions, common stock was issued as follows:
Goodwill and other tangible assets acquired $ -- 56,330
Cash paid for the capital stock -- (44,700)
-------- --------
Common stock issued and related additional paid-in capital $ -- 11,630
======== ========
</TABLE>
8
<PAGE>
FPIC INSURANCE GROUP, INC.
Unaudited Notes to the Consolidated Financial Statements
(all dollar amounts in thousands, except per-share data)
1. Organization and Basis of Presentation
The accompanying unaudited, consolidated financial statements include the
accounts of FPIC Insurance Group, Inc. and subsidiaries ("the Company"),
and have been prepared in accordance with generally accepted accounting
principles for interim financial information and with instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include
all of the information and notes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments, consisting of normal recurring accruals,
considered necessary for a fair presentation have been included. Operating
results for the three months ended March 31, 2000 are not necessarily
indicative of the results that may be expected for the year ending
December 31, 2000. These unaudited, consolidated financial statements and
notes should be read in conjunction with the consolidated financial
statements and notes included in the audited, consolidated financial
statements of the Company for the year ended December 31, 1999, which were
filed on Form 10-K with the Securities and Exchange Commission on March
30, 2000.
The Company is an insurance holding company. The Company's principal
direct and indirect subsidiaries include: Florida Physicians Insurance
Company, Inc. ("FPIC"), Anesthesiologists' Professional Assurance Company,
Inc. ("APAC"), Administrators For The Professions, Inc. ("AFP"), The
Tenere Group, Inc. ("Tenere") and its two subsidiaries: Intermed Insurance
Company ("Intermed") and Interlex Insurance Company ("Interlex"), and
McCreary Corporation ("MCC") and its subsidiary Employer's Mutual, Inc.
("EMI").
The Company, through FPIC, APAC, Intermed, and Interlex, operates in the
property and casualty insurance industry and is a provider of medical and
legal professional liability insurance, primarily in Florida and Missouri.
The Company is licensed to write insurance in various states and is
subject to regulation by the departments of insurance in these states.
2. Investments
Proceeds from sales of investments available-for-sale were $4,108 and
$30,239 during the three months ended March 31, 2000 and 1999,
respectively. Gross realized gains and (losses) from investments
available-for-sale based were $0 and $(21), and $335 and $(31) for the
three months ended March 31, 2000 and 1999, respectively. The amortized
cost of investments available-for-sale was $385.9 million and $349.0
million as of March 31, 2000 and December 31, 1999, respectively.
3. Reinsurance
The Company's insurance subsidiaries presently have excess of loss
reinsurance contracts that serve to limit the Company's maximum loss to
$250 thousand per occurrence. To the extent that any reinsurer is unable
to meet its obligations, the Company's insurance subsidiaries would be
liable for such defaulted amounts not covered by letters of credit. The
Company's insurance subsidiaries obtain letters of credit from reinsurers
that are not designated as authorized reinsurers by the departments of
insurance in the states where they conduct business.
Effective January 1, 2000, the Company's insurance subsidiaries entered
into a 100% quota share reinsurance agreement with Physicians' Reciprocal
Insurers (PRI), to assume a $47 million unearned premium reserve ("UPR")
covering death, disability and retirement ("DD&R") risks under PRI's
claims made insurance policies in exchange for cash and investments. The
UPR was calculated using elements of life actuarial models (i.e.
mortality, morbidity, interest and inflation rate assumptions). In
connection with the reinsurance agreement, the Company recognized a 5%
ceding commission, which is being deferred and amortized as premiums are
earned under the agreement.
4. Business Acquisitions
The acquisition agreements for MCC and EMI specify additional payments to
be made to the sellers from the acquisition date through 2001. The effect
of these payments is to increase the original purchase price and the
recorded goodwill. Payments of $227 and $250 were made for the three
months ended March 31, 2000 and 1999, respectively. During the quarter
ended March 31, 2000, the remaining payments under these agreements were
fixed and the recorded amounts of goodwill were increased, accordingly.
The remaining payments, which have been recorded as liabilities, and the
year of payment are as follows:
MCC EMI
2000 $ 1,668 2001 $ 538
5. Borrowing Arrangements
The Company maintains a $75 million revolving credit facility, in which
four banks participate, to meet certain non-operating cash needs as they
may arise. The credit facility terminates January 4, 2002, and bears
interest at various rates ranging from LIBOR plus .75% to Prime plus .50%.
The Company is not required to maintain compensating balances in
connection with this credit facility. As of March 31, 2000, the Company
had borrowed approximately $67.2 million against the credit facility for
non-operating purposes.
9
<PAGE>
6. Reconciliation of Basic and Diluted Earnings Per Share
Three Months Three Months
Ended Ended
3/31/00 3/31/99
------------ ------------
Net income and income from continuing operations $4,712 7,234
====== =====
Basic weighted average shares outstanding 9,564 9,751
Common stock equivalents 114 647
------ -----
Diluted weighted average shares outstanding 9,678 10,398
====== =====
Basic earnings per share $ 0.49 0.74
====== =====
Diluted earnings per share $ 0.49 0.70
====== =====
7. Segment Information
Under the provisions of SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information," the Company has three reportable
operating segments as follows: insurance, third party administration
("TPA"), and reciprocal management ("RM"). The insurance segment provides
a variety of insurance products for professionals including medical and
legal professional liability insurance. The TPA segment provides
management and third party administrative services such as the
administration of self-insurance plans for large employers. The RM segment
provides insurance administrative services to a reciprocal insurer.
The Company evaluates a segment's performance based on net income or loss.
Intersegment revenues for transactions between the segments are based on
actual costs incurred and are similar to services that may have been
obtained from an unrelated third party. All segments are managed
separately as each business requires different technology and marketing
strategies. Information by industry segment follows:
Revenues
---------------------- Net Identifiable
External Intersegment Income Assets
-------- ------------ ------ ------------
3/31/00
Insurance $ 35,750 -- 4,789 570,948
TPA 3,742 400 16 14,226
RM 4,795 2,845 (93) 63,503
-------- ----- ----- -------
$ 44,287 3,245 4,712 648,677
======== ===== ===== =======
3/31/99
Insurance $ 32,895 -- 7,236 518,131
TPA 2,543 404 (4) 10,428
RM 4,570 -- 2 57,175
-------- ----- ----- -------
$ 40,008 404 7,234 585,734
======== ===== ===== =======
The following table reconciles net income and assets to the Company's
consolidated totals:
<TABLE>
<CAPTION>
Net Income Total Assets
------------------------------ ----------------------------------------
Total Total Total Intercompany Total
Segments Other Consolidated Segments Receivables Consolidated
-------- ----- ------------ -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
3/31/00 $ 4,712 -- $ 4,712 $648,677 (10,694) $637,983
3/31/99 $ 7,234 -- $ 7,234 $585,734 (1,538) $584,196
</TABLE>
8. Commitments and Contingencies
The Company's insurance subsidiaries are named as defendants in various
legal actions primarily arising from claims made under insurance policies
and contracts. These actions are considered by the Company's insurance
subsidiaries in establishing the liability for loss and loss adjustment
expense. While the outcomes of all legal actions are not presently
determinable, management is of the opinion that the settlement of these
actions will not have a material adverse effect on the Company's financial
position or results of operations.
9. Reclassification
Certain amounts for 1999 have been reclassified to conform to the 2000
presentation.
10. Subsequent Event
On April 14, 2000, the Company's subsidiary, EMI sold Sy.Med Development
for approximately $185 in cash. An after tax loss of approximately $92 was
realized on the sale.
10
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations:
For purposes of this management discussion and analysis, the term "Company"
refers to FPIC Insurance Group, Inc. and its subsidiaries. The following
discussion and analysis of financial condition and results of operations should
be read in conjunction with the audited, consolidated financial statements and
notes included in the Company's Form 10-K for the year ended December 31, 1999,
which was filed with the Securities and Exchange Commission on March 30, 2000.
All amounts in this discussion and analysis have been rounded to the nearest
$100,000.
Forward-Looking Statements
This discussion contains historical information, as well as forward-looking
statements (identified by words such as, but not limited to, "believe,"
"expect," "intend," "anticipate," "estimate," and other analogous expressions)
that are based upon the Company's estimates and anticipation of future events
that are subject to certain risks and uncertainties that could cause actual
results to vary materially from the expected results described in the
forward-looking statements. The Company's expectations regarding earnings,
losses, the retention of current business, expansion of product lines, Year 2000
compliance, and development of business in new geographical areas depend on a
variety of factors, including economic, competitive and market conditions which
may be beyond the Company's control and are thus difficult or impossible to
predict. In view of the many uncertainties inherent in the forward-looking
statements made in this document, the inclusion of such information should not
be taken as a representation by the Company or any other person that the
Company's objectives or plans will be realized.
The assumptions underlying certain forward-looking statements are that the
Company will continue to: (i) profitably price its insurance products; (ii)
maintain its underwriting standards; (iii) market its insurance products
competitively; (iv) maintain its successful handling of claims; (v) retain
existing agents and key management personnel; and (vi) reserve adequately for
losses and loss adjustment expenses ("LAE"). Additionally, the primary risk in
maintaining adequate reserves is unexpected changes in the frequency or severity
of reported claims, particularly adverse development that may occur during the
last three report years.
General
The Company's primary source of revenue is dividends from its subsidiaries. The
primary sources of revenues for these dividends are premiums earned and
investment income derived from the insurance operations of FPIC, APAC, Intermed
and Interlex, and management fees and commission income from McCreary and AFP.
The Company concentrates on liability insurance products for medical and legal
professionals, with medical professional liability insurance for physicians and
dentists as its primary product.
For information concerning the Company's acquisitions during 1999, 1998 and
1997, see the Company's report on Form 10-K for the year ended December 31,
1999.
Selected Balance Sheet Items - March 31, 2000 compared to December 31, 1999
Investments. Investments increased $49.1 million, or 15%, to $385.0 million at
March 31, 2000, from $335.9 million at December 31, 1999. The increase in
investments is primarily related to amounts received in exchange for a
reinsurance agreement whereby the Company's insurance subsidiaries assumed the
death, disability, and retirement ("DD&R") risks under Physicians' Reciprocal
Insurers' ("PRI") claims made insurance policies.
Unearned Premiums. Unearned premiums increased $51.6 million, or 92%, to $107.4
million at March 31, 2000, from $55.8 million at December 31, 1999. The increase
in unearned premiums is primarily related to the DD&R reinsurance agreement
between the Company's insurance subsidiaries and PRI.
Results of Operations - Three Months Ended March 31, 2000 Compared to Three
Months Ended March 31, 1999
Premiums. Direct premiums written and assumed increased $50.9 million, or 136%,
to $88.4 million for the three months ended March 31, 2000, from $37.5 million
for the three months ended March 31, 1999. The increase in written and assumed
premiums is primarily related to the DD&R reinsurance agreement between the
Company's insurance subsidiaries and PRI. Net premiums earned increased $1.5
million, or 5.4%, to $29.1 million for the three months ended March 31, 2000
from $27.6 million for the three months ended March 31, 1999. The increase in
net premiums earned is primarily related to the acquisition of Tenere on March
17, 1999. For the three months ended March 31, 2000, the Company received a full
quarter of premiums earned from Tenere. For the three months ended March 31,
1999, the Company received only two weeks of premiums earned from the
acquisition date, March 17,1999, through March 31, 1999.
Net Investment Income. Net investment income increased $1.5 million, or 33%, to
$6.0 million for the three months ended March 31, 2000, from $4.5 million for
the three months ended March 31, 1999. The increase in net investment income is
11
<PAGE>
primarily related to additional interest on investments received in connection
with the DD&R reinsurance agreement and a full three months of interest earned
at Tenere compared to two weeks of interest earned during 1999.
Net Losses and Loss Adjustment Expense. Net losses and LAE increased $5.6
million, or 30%, to $24.2 million for the three months ended March 31, 2000,
from $18.6 million for the three months ended March 31, 1999. The loss and LAE
ratios were 83% and 68% for the three months ended March 31, 2000 and 1999,
respectively. The loss ratio is defined as the ratio of losses and loss
adjustment expenses to net premiums earned. The increase in the Company's loss
ratio is primarily due to a reduction in the amount of prior years' reserves
released on its medical professional liability business, and adverse results
from its group accident and health business. The liability for losses and LAE
represents management's estimate of the ultimate cost of all losses incurred but
unpaid and considers prior loss experience, loss trends, the Company's loss
retention levels and changes in frequency and severity of claims.
Given recent competitive market conditions, which have lessened the Company's
ability to underwrite and price its business at as favorable terms as in prior
years, management anticipates conservative reserve releases to continue
throughout 2000. Furthermore, given the inherent uncertainties in the estimation
of loss and LAE reserves, there can be no assurance concerning future
adjustments, positive or negative, for prior years' claims.
Claims Administration and Management Expenses. Claims administration and
management expenses increased $1.3 million, or 22%, to $7.2 million for the
three months ended March 31, 2000, from $5.9 million for the three months ended
March 31, 1999. The increase in claims administration and management expenses is
primarily related to the acquisition of a third party administrative operation
in August 1999, resulting in expenses for the three months ended March 31, 2000.
No expenses were recorded for the three months ended March 31, 1999.
Liquidity and Capital Resources
The payment of losses, LAE, and operating expenses in the ordinary course of
business is the principal need for the Company's liquid funds. Cash used to pay
these items has been provided by operating activities. Operating cash flows for
the three months ended March 31, 2000 provided cash of approximately $7.8
million. Management believes these sources will be sufficient to meet the
Company's cash needs for operating purposes for at least the next twelve months.
However, a number of factors could cause increases in the dollar amount of
losses and LAE paid and may, therefore, adversely affect future reserve
development and cash flow needs. These factors include, among others, loss
trends, and changes in the frequency and severity of claims in the Company's
book of business. In addition, factors such as inflation, changes in medical
procedures, the influence of managed care and adverse legislative changes could
influence the level of losses and LAE.
The Company maintains a $75 million revolving credit facility with four banks to
meet certain non-operating cash needs as they may arise. The credit facility
terminates January 4, 2002. The Company is not required to maintain compensating
balances in connection with this credit facility but is charged a fee on the
unused portion, which ranges from 20 to 30 basis points. As of March 31, 2000,
the Company had borrowed approximately $67.2 million against the credit facility
for non-operating purposes.
Dividends payable by the Company's insurance subsidiaries are subject to certain
statutory limitations imposed by the laws in the states in which they operate.
In 2000, insurance subsidiaries are permitted, within insurance regulatory
guidelines, to pay dividends to the Company of approximately $19.7 million
without regulatory approval.
Stock Repurchase Plans
On June 29, 1999 and September 11, 1999, the Company's Board of Directors
approved stock repurchase plans pursuant to which the Company is authorized to
repurchase, at management's discretion, up to 1,000,000 of its shares on the
open market. On January 25, 2000, the Company's Board approved a third stock
repurchase plan for an additional 500,000 shares, under which the Company can
repurchase shares upon completion of the first two plans. As of March 31, 2000,
the Company has repurchased 740,500 shares, at a cost of approximately $14.8
million, leaving 759,500 shares available under the Company's stock repurchase
plans.
Accounting Pronouncements
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
was issued in June 1998, and establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives), and for hedging
activities. As issued, SFAS No. 133 is effective for all fiscal quarters of all
fiscal years beginning after June 15, 1999. SFAS No. 137, "Accounting for
Derivative Instruments and Hedging Activities - Deferral of the Effective Date
of FASB Statement No. 133," was issued in June 1999 and defers the effective
date of SFAS No. 133. SFAS No. 133 is now effective for all fiscal quarters of
all fiscal years beginning after June
12
<PAGE>
15, 2000. Management believes that SFAS No. 133 will not have a significant
impact on the Company's consolidated financial position or results of
operations.
In December 1999, the staff of the Securities and Exchange Commission ("SEC")
issued Staff Accounting Bulletin ("SAB") No. 101 "Revenue Recognition in
Financial Statements." SAB No. 101 summarizes the SEC staff's view in applying
generally accepted accounting principles to the recognition of revenues.
Management believes that SAB No. 101 will not have a significant impact on the
Company's consolidated financial position or results of operations.
Guaranty Fund Assessments
The Company is subject to assessment by the Florida Insurance Guaranty
Association, Inc. and the Missouri Property and Casualty Insurance Guaranty
Association, as well as similar associations in other states where it is
licensed, for the provision of funds necessary for the settlement of covered
claims under certain policies of insolvent insurers. In addition to the standard
assessments, the Florida and Missouri Legislatures may levy special assessments
to settle claims caused by certain catastrophic losses. The Company would be
assessed on a basis of premium written. No provision for special assessments was
made in the 2000 financial statements. However, damages caused by future
catastrophes could subject the Company to additional assessments.
Item 3. Quantitative and Qualitative Disclosures About Market Risk:
Market risk is the risk of loss arising from adverse changes in market
conditions, such as changes in interest rates, spreads among various asset
classes, foreign currency exchange rates, and other relevant market rate or
price changes. Market risk is directly influenced by the volatility and
liquidity in the markets in which the related underlying assets are traded. The
following is a discussion of the Company's primary market risk exposures and how
those exposures are currently managed as of March 31, 2000. The Company's market
risk sensitive instruments are entered into for purposes other than trading.
The fair value of the Company's debt and equity investment portfolio as of March
31, 2000 was approximately $386 million. Approximately 97% of the portfolio was
invested in fixed maturity securities. The primary risks to the investment
portfolio are interest rate risk and credit risk associated with investments in
fixed maturity securities. The Company's exposure to equity risk is not
significant.
The Company obtains reinsurance in London, England and in other European
markets. The Company does not believe it has any foreign currency exposure since
all reinsurance obtained is denominated in U.S. dollars. The Company does not
conduct any operations outside of the United States nor does the Company own any
non-U.S. dollar denominated securities.
Generally, the Company does not invest in derivatives and does not currently use
hedging strategies in its investment portfolio. However, the Company has
invested in one interest rate swap to fix the interest rate in connection with
its revolving credit facility. As of March 31, 2000, the Company's investments
in collateral mortgage obligations and asset backed securities represented less
than 7% of the investment portfolio. The Company's investment portfolio is
predominately fixed-income with approximately 43% allocated to the municipal
sector. The balance is diversified through investments in treasuries, agencies,
corporates and mortgage-backed securities. The three market risks that can most
directly affect the investment portfolio are changes in U.S. interest rates,
credit risks and legislative changes impacting the tax-exempt status of
municipal securities.
Adverse impacts to the Company resulting from changes in interest rates are
primarily controlled through limiting the duration, or average maturity, of the
overall portfolio. The Company manages the duration of its portfolio relative to
the duration of the anticipated liabilities of the Company. Credit risks are
controlled through investing in securities with above average credit ratings.
Approximately 66% of the portfolio is AAA, 13% is AA, 6% is A and 15% is BBB
rated. From time to time discussion arises in the United States Congress
relative to changing or modifying the tax-exempt status of municipal securities.
While the Company is diligent in its efforts to stay current on legislative acts
that could adversely impact the tax exempt status of municipal securities, and
while it is uncertain as to whether these changes would ultimately affect
valuation of municipal securities currently held in the portfolio, at present
there are no hedging or other strategies being specifically used to minimize
this risk. If interest rates were to rise 100 basis points, the fair value of
the Company's fixed maturity securities would decrease approximately $19.8
million.
There have been no significant changes to the Company's exposure to financial
market risks during the year nor does the Company anticipate any significant
changes in future reporting periods.
Year 2000
In order to avoid potential Year 2000 ("Y2K") problems, the Company adopted a
Year 2000 Plan ("the Plan") covering all of the Company's operations. The aim of
the Plan was to take steps to prevent the Company's processes and systems, with
13
<PAGE>
emphasis on mission-critical functions, from being impaired due to Y2K problems.
Y2K problems result from the use in computer hardware and software of two digits
rather than four digits to define the applicable year. The Plan considered the
readiness of software systems written internally and those provided by third
parties to process data and perform date calculations correctly using dates
beginning January 1, 2000 and beyond. Hardware, including network servers, PC
workstations, network routers, and communication equipment, were reviewed to
determine that firmware and operating system software were Y2K compliant.
As of May 1, 2000, the Company has not experienced any significant Y2K problems
prior to or after January 1, 2000. The Company further believes that it will not
experience any material Y2K problems in its mission critical functions,
processes and systems.
The Company anticipated that total costs for Y2K awareness, inventory,
assessment, analysis, conversion, testing and contingency planning would be
approximately $150,000. Approximately $140,000 in costs have been incurred. The
Company does not anticipate any material costs related to Y2K. The costs
incurred to address Y2K problems did not have a material effect on the Company's
consolidated financial position or results of operations.
Part II - Other Information
Item 1. Legal Proceedings - None
Item 2. Changes in Securities and Use of Proceeds - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
a) The following exhibits are included herewith:
Exhibit 10. Material Contract.
Exhibit 27. Financial Data Schedule.
b) Reports on Form 8-K:
On April 28, 2000, the Company filed a Form 8-K notifying the Securities
and Exchange Commission of a change in the Registrant's Certifying
Accountant.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FPIC Insurance Group, Inc.
/s/ Kim D. Thorpe
--------------------------------------------
May 12, 2000 Kim D. Thorpe, Executive Vice President
and Chief Financial Officer
(a duly authorized officer and the principal
financial officer of the registrant)
14
Exhibit 10 Material Contract
REINSURANCE AGREEMENT
to the
DEATH, DISABILITY OR RETIREMENT
QUOTA SHARE REINSURANCE AGREEMENT
(hereinafter referred to as the "Agreement")
entered by and between
PHYSICIANS' RECIPROCAL INSURERS
a New York Reciprocal Exchange
having its principal offices at
Manhasset, New York
(hereinafter referred to as the "Company")
and
FLORIDA PHYSICIANS INSURANCE COMPANY, INC.
Jacksonville, Florida
(hereinafter referred to as the "Reinsurer")
In consideration of the promises set forth in the Agreement, the parties agree
as follows:
ARTICLE 1
SCOPE OF AGREEMENT
As a condition precedent to the Reinsurer's obligations under this Agreement,
the Company shall reinsure with the Reinsurer the business described in the
article entitled BUSINESS REINSURED, and the Reinsurer shall accept such
business as reinsurance from the Company. The terms of this Agreement shall
determine the rights and obligations of the parties.
ARTICLE 2
PARTIES TO THE AGREEMENT
This Agreement is solely between the Company and the Reinsurer. Performance of
the obligations of each party under this Agreement shall be rendered solely to
the other party. However, if the Company becomes insolvent, the liability of the
Reinsurer shall be modified to the extent set forth in the INSOLVENCY OF THE
COMPANY article of this Agreement. In no instance shall any insured or reinsured
of the Company or any claimant against an insured or reinsured of the Company
have any rights under this Agreement.
<PAGE>
ARTICLE 3
BUSINESS REINSURED
By this Agreement the Reinsurer agrees to reinsure liability for Net Loss which
may accrue to the Company under Covered Extended Reporting Endorsement(s)
Coverage issued on or after the effective date of this Agreement in connection
with the Company's Medical Professional Liability "claims-made" policies,
contracts and binders of insurance (hereinafter referred to as "policies")
in-force, issued or renewed while this Agreement remains in effect.
Covered Extended Reporting Endorsement(s) shall be those issued to original
policyholders of the Company who have been granted a waiver of premium due to
Death, Disability or Retirement in accordance with the terms of the Company's
policies.
ARTICLE 4
RETENTION AND LIMIT
While this Agreement is in effect, as respects each and every original insured
to which the Company provides a premium waiver feature within its' original
policy, such premium waiver feature being activated solely as a result of the
Death, Disability or Retirement of such original insured, the Reinsurer shall be
liable to pay the Company's Net Loss under the Covered Extended Reporting
Endorsement(s).
ARTICLE 5
DEFINITIONS
A. Net Loss
"Net Loss" means the sum actually paid by the Company on or after 12:01
a.m., Eastern Standard Time, January 1, 2000, on its net retained
liability, including adjustment expenses, in the settlement of covered
losses or liabilities after making deduction for all salvages and
recoveries and amounts recovered under other contracts of reinsurance, if
any, whether or not such other reinsurance is or may become uncollectible.
All salvages, recoveries and payments recovered or received subsequent to
a loss settlement under this Agreement shall be applied as if recovered or
received prior to the settlement and all necessary adjustments shall be
made by the parties. If the Company becomes insolvent this definition
shall be modified to the extent set forth in the INSOLVENCY OF THE COMPANY
article of this Agreement.
B. Adjustment Expenses
"Adjustment Expenses" means all expenditures made by the Company (other
than office expenses and salaries of officials and employees not
classified as claims representatives, investigators or in-house attorneys
employed by Administrators for the Professions, Inc.) in connection with
the investigation, settlement, adjustment or defense of claims and suits
covered by this Agreement.
C. Net Retained Liability
<PAGE>
"Net Retained Liability" means only loss or adjustment expenses with
respect to that portion of any policy which the Company retains net for
its own account.
D. Cumulative Reinsurance Premium
"Cumulative Reinsurance Premium" is defined as Initial Premiums plus
Additional Premiums less Ceding Commission less Return Premiums.
ARTICLE 6
EXCLUSIONS
This Agreement shall not apply to:
A. Any loss or damage which is occasioned by war, invasion, hostilities, acts
of foreign enemies, civil war, rebellion, insurrection, military or
usurped power, or martial law or confiscation by order of any government
or public authority, except that such exclusion shall be waived as regards
coverage with respect to workers' compensation and employers' liability.
This war exclusion clause shall not, however, apply to interests which at
the time of loss or damage are within the territorial limits of the United
States of America (comprising the 50 States of the Union, the District of
Columbia and including bridges between the U.S.A. and Mexico provided they
are under United States ownership), Canada, St. Pierre and Miquelon,
provided such interests are insured under contracts containing a standard
War or Hostilities or Warlike Operations Exclusion Clause.
B. Nuclear incident per the following clauses attached hereto:
(1) Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance -
U.S.A. NMA 119;
(2) Nuclear Incident Exclusion Clause - Physical Damage - Reinsurance -
Canada NMA 1980;
(3) Nuclear Incident Exclusion Clause - Liability - Reinsurance - U.S.A.
NMA 1590;
(4) Nuclear Incident Exclusion Clause - Liability - Reinsurance - Canada
NMA 1979;
(5) Nuclear Incident Exclusion Clause - Physical Damage and Liability
(Boiler and Machinery Policies) - Reinsurance - U.S.A. NMA 1166;
(6) Nuclear Incident Exclusion Clause - Physical Damage and Liability
(Boiler and Machinery Policies) Reinsurance - Canada NMA 1251;
(7) Nuclear Energy Risks Exclusion Clause - (Reinsurance) (1984)
Worldwide excluding U.S.A. and Canada NMA 1975.
C. Financial Guarantee and Insolvency.
D. Extra Contractual Obligations. "Extra Contractual Obligations" means those
liabilities not covered under any provision of this Agreement which arise
from the handling of any claim on
<PAGE>
policies reinsured hereunder.
E. Loss in Excess of Policy Limits. "Loss in Excess of Policy Limits" means
that amount of Net Loss in excess of the limit(s) of the Company's
original policy which the Company becomes liable to pay in respect of a
loss or losses otherwise covered by such original policy.
F. Reinsurance of any kind assumed by the Company.
G. All liability of the Company arising by contract, operation of law, or
otherwise from its participation or membership, whether voluntary or
involuntary, in any insolvency fund. "Insolvency fund" includes any
guaranty fund, insolvency fund, plan, pool, association, fund or other
arrangement, however denominated, established or governed, which provides
for any assessment of or payment or assumption by the Company of part or
all of any claim, debt, charge, fee or other obligation of any insurer, or
its successors or assigns, which has been declared by any competent
authority to be insolvent, or which is otherwise deemed unable to meet any
claim, debt, charge, fee or other obligation in whole or in part.
H. Pools, syndicates and associations, of any kind or description.
I. Pollution claims or losses of any type or form whatsoever.
J. Unallocated loss adjustment expenses.
ARTICLE 7
LOSS SETTLEMENTS
All loss settlements made by the Company within the conditions of the policies
and within the terms of this Agreement shall be unconditionally binding upon the
Reinsurer.
ARTICLE 8
REINSURANCE PREMIUM AND CEDING COMMISSION
A. On or before June 1, 2000, the Company shall pay to the Reinsurer 100% of
its unearned premium reserve, the Initial Premium, in respect of the
Company's liabilities set forth in the BUSINESS REINSURED article of this
Agreement as at 12:01 a.m., Eastern Standard Time, January 1, 2000, less
5% retained as ceding commission in accordance with Article 8.C.
B. On a quarterly basis, the Company shall pay to the Reinsurer net of ceding
commission, the actual rate (Additional Premium) as set forth in the
Company's then effective rate filing for each 12 month period that this
Agreement remains in effect. Any changes to the rate shall be at any July
1, as agreed by the parties to this Agreement.
C. The Reinsurer agrees to allow a 5% ceding commission on all premiums ceded
to the Reinsurer under this Agreement. It is expressly agreed that the
ceding commission allowed the Company includes provision for all
dividends, commissions, taxes, assessments and all other expenses of
<PAGE>
whatever nature except Adjustment Expenses as defined in this Agreement.
D. If, as directed by the New York Insurance Department, the Company is
required to pay any amount to another insurer as a result of the transfer
to such other insurer of the Company's liability in respect of the
Business Reinsured under this Agreement due to the change of its original
Policyholder(s) to such other insurer on or after January 1, 2000, but
before the termination date of this Agreement, howsoever such payment is
styled, it is agreed that the Reinsurer hereunder shall return such amount
to the Company as a Return Premium item. In no event shall the reinsurer
be required to return more premium to the Company than it has received
from the Company in the form of the Initial Premium and Additional
Premium. Conversely, if the Company acquires any amount from another
insurer as a result of the transfer to the Company of such other insurer's
liability in respect of the Business Reinsured under this Agreement, it is
agreed that the Company shall credit such amount to the Reinsurer as an
Additional Premium item.
E. All premiums (net of ceding commission) paid to the Reinsurer hereunder
shall be fully earned by the Reinsurer upon receipt.
ARTICLE 9
UNAUTHORIZED REINSURANCE
(Applies only to a Reinsurer who does not qualify for full credit with any
insurance regulatory authority having jurisdiction over the Company's reserves).
As regards policies or bonds issued by the Company coming within the scope of
this Contract, the Company agrees that when it shall file with the insurance
regulatory authority or set up on its books reserves for losses covered
hereunder which it shall be required by law to set up, it will forward to the
Reinsurer a statement showing the proportion of such reserves which is
applicable to the Reinsurer. The Reinsurer hereby agrees to fund such reserves
in respect of known outstanding losses that have been reported to the Reinsurer,
and allocated loss adjustment expense paid by the Company but not recovered from
the Reinsurer, plus reserves for losses incurred but not reported, as shown in
the statement prepared by the Company (hereinafter referred to as "Reinsurer's
Obligations") by funds withheld, cash advances or a letter of Credit. The
Reinsurer shall have the option of determining the method of funding provided it
is acceptable to the insurance regulatory authorities having jurisdiction over
the Company's reserves.
When funding by a Letter of Credit, the Reinsurer agrees to apply for and secure
timely delivery to the Company of a clean, irrevocable and unconditional Letter
of Credit issued by a bank and containing provisions acceptable to the insurance
regulatory authorities having jurisdiction over the Company's reserves in an
amount equal to the Reinsurer's proportions of said reserves. Such Letter of
Credit shall be issued for a period of not less than one year, and shall be
automatically extended for one year from its date of expiration or any future
expiration date unless thirty (30) days (sixty (60) where required by insurance
regulatory authorities) prior to any expiration date the issuing bank shall
notify the Company by certified or registered mail that the issuing bank elects
not to consider the Letter of Credit extended for any additional period.
<PAGE>
The Reinsurer and Company agree that the Letters of Credit provided by the
Reinsurer pursuant to the provisions of this Contract may be drawn upon at any
time, notwithstanding any other provision of this Contract, and be utilized by
the Company or any successor, by operation of law, of the Company including,
without limitation, any liquidator, rehabilitator, receiver or conservator of
the Company for the following purposes, unless otherwise provided for in a
separate Trust Agreement:
a. to reimburse the Company for the Reinsurer's obligations, the
payment of which is due under the terms of this Contract and which
has not been otherwise paid;
b. to make refund of any sum which is in excess of the actual amount
required to pay the Reinsurer's Obligations under this Contract;
c. to fund an account with the Company for the Reinsurer's Obligations;
d. to pay the Reinsurer's share of any other amounts the Company claims
are due under this Contract.
In the event the amount drawn by the Company on any Letter of Credit is in
excess of the actual amount required for (a) or (c), or in the case of (d), the
actual amount determined to be due, the Company shall promptly return to the
Reinsurer the excess amount so drawn. All of the foregoing shall be applied
without diminution because of insolvency on the part of the Company or the
Reinsurer.
The issuing bank shall have no responsibility whatsoever in connection with the
propriety of withdrawals made by the Company or the disposition of funds
withdrawn, except to ensure that withdrawals are made only upon the order of
properly authorized representatives of the Company.
At annual intervals, or more frequently as agreed but never more frequently than
quarterly, the Company shall prepare a specific statement of the Reinsurer's
Obligations, for the sole purpose of amending the letter of Credit, in the
following manner:
a. if the statement shows that the Reinsurer's Obligations exceed the
balance of credit as of the statement date, the Reinsurer shall,
within thirty (30) days after receipt of notice of such excess,
secure delivery to the Company of an amendment to the Letter of
Credit increasing the amount of credit by the amount of such
difference;
b. if, however, the statement shows that the Reinsurer's Obligations
are less than the balance of credit as of the statement date, the
Company shall, within thirty (30) days after receipt of written
request from the Reinsurer, release such excess credit by agreeing
to secure an amendment to the Letter of Credit reducing the amount
of credit available by the amount of such excess credit.
ARTICLE 10
REPORTS AND REMITTANCES
A. Claims
Claims are to be paid quarterly within 60 days on a bordereau basis. All
claims with reserves in excess of $250,000 shall be individually reported
to Reinsurer.
<PAGE>
B. Premium
Within 45 days after the close of each calendar quarter that this
Agreement remains in effect, the Company shall render to the Reinsurer a
report of:
1. The company's subject written premium during such calendar quarter
and the Reinsurer's share (net of allowed ceding commission)
thereof;
2. The Net Loss paid by the Company on Extended Reporting Endorsements;
3. The Company's reserves at the close of the quarter and the
Reinsurer's portion thereof.
Within 60 days after the close of the quarter the Company shall pay directly to
the Reinsurer any amount due for premiums.
ARTICLE 11
RECOVERIES
A. The Company will credit the Reinsurer with its proportionate share of any
recoveries, salvages or reimbursements on account of claims and
settlements involving reinsurance under this Agreement.
B. In the event there are any recoveries, salvages or reimbursements
recovered subsequent to a loss settlement, it is agreed that if the
expenses incurred in obtaining salvage or other recoveries are less than
the amount recovered, such expenses shall be borne by each party in the
proportion that each party benefits from the recoveries; otherwise, the
amount recovered shall first be applied to the reimbursements of the
expense of recovery and the remaining expense shall be borne by the
Company and the Reinsurer in proportion to the liability of each party for
the loss before such recovery had been obtained. Expenses hereunder shall
exclude all office expenses and salaries of officials and employees of the
Company.
ARTICLE 12
CURRENCY
All payments under this Agreement, whether in respect of premiums or losses,
shall be made in cash in U.S. dollars. All currencies other than U.S. dollars
shall be converted to U.S. dollars at the rate of exchange used by the Company
in its own accounts.
ARTICLE 13
ERRORS AND OMISSIONS
Any inadvertent error or omission on the part of either the Company or the
Reinsurer shall not relieve the other party from any liability which would have
attached under this Agreement, provided that the
<PAGE>
error or omission is rectified immediately upon discovery, and shall not impose
any greater liability on the reinsurer than would have attached if the error or
omission had not occurred.
ARTICLE 14
OFFSET
The Company or the Reinsurer may offset any balance(s) whether on account of
premiums, commissions, claims or losses, adjustment expenses, salvages or any
amount(s) due from one party to the other under this Agreement or under any
other agreement heretofore or hereafter entered into between the Company and the
Reinsurer, whether acting as assuming reinsurer or as ceding company. All
offsets will comply with the requirements of Section 7427 of the New York
Insurance Law.
ARTICLE 15
INSPECTION OF RECORDS
The Company shall allow the Reinsurer or its authorized representatives to
inspect, at reasonable times, the records of the Company relevant to the
Business reinsured under this Agreement, including Company files concerning
claims, losses or legal proceedings which involve or are likely to involve the
Reinsurer.
ARTICLE 16
ARBITRATION
Any unresolved difference of opinion between the Reinsurer and the Company,
whether such difference of opinion rises before or after the termination of this
Agreement, shall be submitted to arbitration by three arbitrators. One
arbitrator shall be chosen by the Reinsurer, and one shall be chosen by the
Company. The third arbitrator shall be chosen by the other two arbitrators
within 10 days after they have been appointed. If the two arbitrators cannot
agree upon a third arbitrator, each arbitrator shall nominate three persons of
whom the other shall reject two. The third arbitrator shall then be chosen by
drawing lots. If either party fails to choose an arbitrator within 30 days after
receiving the written request of the other party to do so, the latter shall
choose both arbitrators, who shall chose the third arbitrator. The arbitrators
shall be impartial and shall be active or retired persons whose principal
occupation is or was an officer of property and casualty insurance or
reinsurance companies.
The party requesting the arbitration (the "Petitioner") shall submit its brief
to the arbitrators within 30 days after notice of the selection of the third
arbitrator. Upon receipt of the Petitioner's brief, the other party (the
"Respondent") shall have 30 days to file a reply brief. On receipt of the
Respondent's brief, the Petitioner shall have 20 days to file a rebuttal brief.
Respondent shall have 20 days from the receipt of Petitioner's rebuttal brief to
file its rebuttal brief. The arbitrators may extend the time for filing of
briefs at the request of either party.
The arbitrators are relieved from judicial formalities and, in addition to
considering the rules of law and the customs and practices of the insurance and
reinsurance business, shall make their award with a view to effecting the intent
of this Agreement. The decision of the majority shall be final and binding upon
the parties. The costs of arbitration, including the fees of the arbitrators,
shall be shared equally unless
<PAGE>
the arbitrators decide otherwise. The arbitration shall be held within the State
of New York at the times and places agreed upon by the arbitrators.
ARTICLE 17
INSOLVENCY OF THE COMPANY
In the event of the insolvency of the Company the liability provided by this
Agreement shall be payable by the Reinsurer on the basis of the amount of claim
allowed in the insolvency proceeding, without diminution by reason of the
inability of the Company to pay all or any part of the claim, directly to the
Company or its liquidator, receiver, or statutory successor. The Reinsurer shall
be given written notice of the pendency of each loss or claim which may involve
the liability provided by this Agreement within a reasonable time after such
loss or claim is filed in the insolvency proceeding.
ARTICLE 18
COMMENCEMENT AND TERMINATION
A. This Agreement shall become effective at 12:01 a.m., Eastern Standard
Time, January 1, 2000, with respect to covered liabilities accruing to the
Company under the BUSINESS REINSURED article of this Agreement on or after
that date, and shall continue in-force thereafter until terminated.
B. The Company may terminate this Agreement at Midnight, Eastern Standard
Time, any December 31st, by giving the Reinsurer not less than 90 days'
prior written notice by Certified Mail.
C. This Agreement may be terminated by the Reinsurer any time after Midnight,
Eastern Standard Time, December 31, 2020, by giving the Company not less
than 90 days' prior written notice by Certified Mail.
D. Failure by the Company for any reason to pay any amount owed to the
Reinsurer within 60 days of the date such payment is due the Reinsurer
shall automatically terminate this Agreement, or so deemed, as of the date
such payment was due the Reinsurer.
E. Upon termination of this Agreement, the Reinsurer shall not be liable for
any liabilities accruing to the Company in respect of Covered Extended
Reporting Endorsement(s) otherwise covered under this Agreement which are
issued on or after the effective date of termination.
ARTICLE 19
INTERMEDIARY
FPIC Intermediaries, Inc. is hereby recognized as the Intermediary negotiating
this Agreement for all business hereunder. All communications including notices,
premiums, return premiums, commissions, taxes, losses, loss adjustment expenses,
salvages and loss settlements relating thereto shall be transmitted to the
Reinsurer or the Company through FPIC Intermediaries, Inc., 111 East Shore Road,
Manhasset, New York 11030. Payments by the Company to the Intermediary shall be
deemed only to constitute payment to the Reinsurer. Payments by the Reinsurer to
the Intermediary shall be deemed only to
<PAGE>
constitute payment to the Company to the extent that such payments are actually
received by the Company.
ARTICLE 20
PARTICIPATION: PHYSICIANS' RECIPROCAL INSURERS
QUOTA SHARE REINSURANCE AGREEMENT
EFFECTIVE: January 1, 2000
This Agreement obligates the Reinsurer for its participation, as stated below,
of the interests and liabilities set forth under this Agreement.
The participation of the Reinsurer in the interests and liabilities of this
Agreement shall be separate and apart from the participations of other
reinsurers and shall not be joint with those of other reinsurers, and the
Reinsurer shall in no event participate in the interests and liabilities of
other reinsurers.
IN WITNESS WHEREOF, the parties hereto, by their authorized representatives,
have executed this Agreement as of the dates recorded below.
FEDERAL I.D. REINSURER
Florida Physicians Insurance Company - 100%
<PAGE>
In Jacksonville, Florida this 3rd day of May, 2000.
/s/ Kim D. Thorpe
-------------------------------------
Kim D. Thorpe
Florida Physicians Insurance Company
Jacksonville, Florida
ATTEST: /s/ Peggy A. Parks
------------------------
Peggy A. Parks
and in Manhasset, New York this 28th day of April, 2000.
/s/ Anthony J. Bonomo
-------------------------------------
Anthony J. Bonomo
Physicians' Reciprocal Insurers
Manhasset, New York
ATTEST: /s/ Gerald Dolman
------------------------
Gerald Dolman
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements of FPIC Insurance Group, Inc. for the three
months ended March 31, 2000 and is qualified in its entirety by reference to
such consolidated financial statement.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<DEBT-HELD-FOR-SALE> 376,241
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 8,786
<MORTGAGE> 0
<REAL-ESTATE> 5,265
<TOTAL-INVEST> 395,835
<CASH> 9,297
<RECOVER-REINSURE> 4,732
<DEFERRED-ACQUISITION> 5,326
<TOTAL-ASSETS> 637,983
<POLICY-LOSSES> 270,425
<UNEARNED-PREMIUMS> 107,412
<POLICY-OTHER> 1,847
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 67,219
0
0
<COMMON> 944
<OTHER-SE> 168,136
<TOTAL-LIABILITY-AND-EQUITY> 637,983
29,148
<INVESTMENT-INCOME> 6,017
<INVESTMENT-GAINS> (21)
<OTHER-INCOME> 9,142
<BENEFITS> 24,162
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 3,905
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</TABLE>
