UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For The Quarterly Period Ended March 31, 1999
Commission File Number: 1-12369
SYMONS INTERNATIONAL GROUP, INC.
(Exact name of registrant as specified in its charter)
INDIANA 35-1707115
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4720 Kingsway Drive
Indianapolis, Indiana 46205
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (317) 259-6400 (U.S.)
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 March 31, 1999, there were 10,385,399 shares of Registrant's common stock
issued and outstanding exclusive of shares held by Registrant.
<PAGE>
Form 10-Q Index
For The Quarter Ended March 31, 1999
Page
Number
PART 1 FINANCIAL INFORMATION
Item 1 Financial Statements
Unaudited Consolidated Financial Statements:
Unaudited Consolidated Balance Sheets at
March 31, 1999 and December 31, 1998 . ........................... 3
Unaudited Consolidated Statements of Earnings
for the Three Months Ended March 31, 1999 and 1998................ 4
Unaudited Consolidated Statements of Stockholders'
Equity............................................................ 5
Unaudited Consolidated Statements of Cash Flows
for the Three Months Ended March 31, 1999 and 1998................ 6
Condensed Notes to Unaudited Consolidated Financial
Statements........................................................ 7
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations............................... 10
PART 2 OTHER INFORMATION................................................. 16
SIGNATURES................................................................ 18
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
SYMONS INTERNATIONAL GROUP, INC.
UNAUDITED CONSOLIDATED BALANCE SHEETS (in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1999 1998
<S> <C> <C>
Investments
Available for sale:
Fixed maturities, at market $196,916 $191,002
Equity securities, at market 12,516 13,264
Short-term investments, at amortized cost which approximates market 18,025 15,597
Mortgage loans, at cost 2,059 2,100
Other 1,180 890
------- -------
TOTAL INVESTMENTS 230,696 222,853
Investment in and advances to related parties 3,725 3,545
Cash and cash equivalents 4,373 14,800
Receivables, net of allowance for doubtful accounts 189,038 120,559
Reinsurance recoverable on paid and unpaid losses, net 61,555 71,640
Prepaid reinsurance premiums 81,249 31,172
Federal income taxes recoverable 17,590 12,672
Deferred policy acquisition costs 14,907 16,332
Deferred income taxes 2,197 5,146
Property and equipment, net of accumulated depreciation 19,207 18,863
Intangible assets 45,176 45,781
Other assets 9,981 6,074
------- -------
TOTAL ASSETS $679,694 $569,437
======= =======
LIABILITIES
Losses and loss adjustment expenses $173,138 $200,972
Unearned premiums 176,021 110,664
Reinsurance payables 102,652 25,484
Notes payable 4,520 13,744
Distributions payable on preferred securities 1,559 4,809
Other 24,177 16,769
------- -------
TOTAL LIABILITIES 482,067 372,442
------- -------
Minority interest:
Preferred securities 135,000 135,000
------- -------
STOCKHOLDERS' EQUITY
Common stock 38,136 38,136
Additional paid-in capital 5,851 5,851
Unrealized gain on investments (119) 1,261
Retained earnings 18,759 16,747
------- -------
TOTAL STOCKHOLDERS' EQUITY 62,627 61,995
------- -------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $679,694 $569,437
======= =======
</TABLE>
See notes to consolidated financial statements
-3-
<PAGE>
SYMONS INTERNATIONAL GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
<S> <C> <C>
Gross premiums written $152,022 $178,396
Less ceded premiums (72,055) (78,835)
------ ------
Net premiums written 79,967 99,561
Change in net unearned premiums (10,962) (31,077)
------ ------
Net premiums earned 69,005 68,484
Fee income 4,463 5,120
Net investment income 3,289 2,958
Net realized gain (loss) (1,382) 1,968
------ ------
Total Revenues 75,375 78,530
------ ------
Loss and loss adjustment expenses 51,819 53,205
Policy acquisition and general and administrative expenses 16,560 13,555
Interest expense 74 183
Amortization of intangibles 605 511
------ ------
Total Expenses 69,058 67,454
------ ------
Earnings before income taxes and minority interest 6,317 11,076
Provision for income taxes 2,250 4,022
------ ------
Net earnings before minority interest 4,067 7,054
Minority interest:
Distributions on preferred securities, net of tax 2,055 2,130
------ ------
Net Earnings $ 2,012 $ 4,924
====== ======
Net earnings per share - basic $0.19 $0.47
==== ====
Net earnings per share - fully diluted $0.19 $0.46
==== ====
Weighted average shares outstanding:
Basic 10,385 10,445
====== ======
Fully diluted 10,548 10,726
====== ======
</TABLE>
See notes to consolidated financial statements
-4-
<PAGE>
SYMONS INTERNATIONAL GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands, except number of shares)
<TABLE>
<CAPTION>
Shares Total
Common Stockholders' Retained
Stock Equity Earnings
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1997 10,451,667 $78,363 $31,511
Comprehensive income:
Net earnings 4,924 4,924
Change in unrealized gains (losses) on securities 2,222 --
------ ------
Comprehensive income 7,146 4,924
Exercise of stock options 1,665 20 --
Cost of shares acquired (57,800) (882) (160)
---------- ------ ------
BALANCE AT MARCH 31, 1998 10,395,532 $84,647 $36,275
========== ====== ======
BALANCE AT DECEMBER 31, 1998 10,385,399 $61,995 $16,747
Comprehensive income:
Net earnings 2,012 2,012
Change in unrealized gains (losses) on securities (1,380) --
------ ------
Comprehensive income 632 2,012
---------- ------ ------
BALANCE AT MARCH 31, 1999 10,385,399 $62,627 $18,759
========== ====== ======
</TABLE>
See notes to consolidated financial statements
-5-
<PAGE>
SYMONS INTERNATIONAL GROUP, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
<S> <C> <C>
Cash Flows from Operating Activities:
Net earnings for the period $2,012 $4,924
Adjustments to reconcile net earnings to net cash provided
from operations:
Depreciation and amortization 1,364 1,117
Deferred income tax expense (recovery) 3,730 (1,173)
Net realized loss (gain) 1,380 (1,968)
Net changes in operating assets and liabilities:
Receivables (68,479) (72,542)
Reinsurance recoverable on paid and unpaid losses, net 10,085 26,448
Prepaid reinsurance premiums (50,077) (60,275)
Deferred policy acquisition costs 1,425 (6,527)
Other assets (3,907) (243)
Losses and loss adjustment expenses (27,834) (10,143)
Unearned premiums 65,357 91,352
Reinsurance payables 77,168 60,994
Distributions payable on preferred securities (3,250) (3,242)
Federal income taxes (4,918) 5,485
Other liabilities 7,408 768
------ ------
NET CASH PROVIDED FROM OPERATIONS 11,464 34,975
------ ------
Cash flow used in investing activities:
Purchases sales of short-term investments (2,428) (227)
Purchases of fixed maturities (75,340) (41,319)
Proceeds from sales, calls and maturities of fixed maturities 67,429 34,322
Purchases of equity securities (944) (6,466)
Proceeds from sales of equity securities 22 6,421
Purchase of real estate (7) (2,584)
Purchases of property and equipment (976) (2,869)
Purchases of other investments (243) (320)
------- -------
NET CASH USED IN INVESTING ACTIVITIES (12,487) (13,042)
------ ------
Cash flow provided from/(used in) financing activities:
Cost of shares acquired -- (862)
Payments on notes payable (9,224) (1,613)
Repayments from related parties (180) (4,439)
------ ------
NET CASH USED IN FINANCING ACTIVITIES (9,404) (6,914)
------ ------
Increase (decrease) in cash and cash equivalents (10,427) 15,019
Cash and cash equivalents, beginning of period 14,800 11,276
------ ------
Cash and cash equivalents, end of period $ 4,373 $26,295
====== ======
</TABLE>
See notes to consolidated financial statements
-6-
<PAGE>
SYMONS INTERNATIONAL GROUP, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
For The Three Months Ended March 31, 1999
NOTES TO THE CONDENSED UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(1) The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and footnotes 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 fair presentation have
been included. Operating results for the interim periods are not
necessarily indicative of the results that may be expected for the year
ended December 31, 1999. Interim financial statements should be read in
conjunction with the Company's annual audited financial statements.
(2) Basic and diluted net income per share are computed by dividing net
income as reported by the average number of shares outstanding as
follows:
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1999 1998
<S> <C> <C>
Basic:
Weighted-average common shares outstanding 10,385,000 10,450,000
Diluted:
Weighted-average common shares outstanding 10,385,000 10,450,000
Dilutive effect of stock options 163,000 281,000
---------- ----------
Average common shares outstanding assuming
dilution 10,548,000 10,726,000
========== ==========
</TABLE>
(3) The Company writes nonstandard insurance business through agents in
California where some of the agents charge administration fees on top
of the premium to these customers. The California Department of
Insurance (CDOI) in early 1998 indicated that such broker fees are part
of premium and has requested reimbursement to the policyholders by
Superior Insurance Company. The CDOI has indicated it may assess the
Company to repay fees the agents received from the insured. The Company
did not receive any of these broker fees and has carried on the
insurance practice that is normal for many of the insurance companies
writing automobile insurance in California. The total amount, if CDOI
proceeds and requires all fees returned with no recovery from agents,
is $3 million. As the ultimate outcome of this potential assessment is
not deemed probable, the Company has not accrued any amount in its
consolidated financial statements. Although the assessment has not been
formally made by the CDOI at this time, the Company believes it will
prevail and will vigorously defend any potential assessment.
As part of an agreement by the Company to assume the multi-peril and
crop operations of CNA during 1998, the Company agreed to reimburse CNA
for certain direct overhead costs incurred by CNA during the first
quarter of 1998 before the Company assumed this book of business. CNA
has requested reimbursement of $1.5 million in expenses which the
Company believes should only be $1.1 million. Negotiations are in
-7-
<PAGE>
process to settle this dispute. The Company fully expects the ultimate
settlement will approximate $1.1 million and has therefore, accrued
this amount in its consolidated financial statements at March 31, 1999.
(4) Year 2000 Compliance
General
The Year 2000 Project ("Project") addresses the inability of computer
software and hardware to distinguish between the year 1900 and the year
2000. In 1996, the Company began a company-wide replacement of hardware
and software systems to address this and other issues. The Company is
utilizing systems from Dell, Hewlett Packard, Sun Systems, Compaq,
Oracle and ZIM as well as certain software conversions using Java. The
new hardware is in place and operational at all subsidiaries. The
software systems are in place in our nonstandard auto operations and
are being implemented on a state-by-state basis. The Company first
began implementing the new nonstandard auto operating system in those
states in which the Company writes annual policies (annual states).
100% of those annual states are currently in production. The remaining
non-annual states are scheduled to be completed by June 30, 1999. The
Y2K issue does not have an effect on the crop operations until October
1, 1999. The Company is converting non-compliant crop operating
systems, through programmatic means, into a Y2K compliant environment.
The crop operation has completed the conversion and the testing phase
of the Project. A number of the Company's other IT projects are being
delayed or completely eliminated due to the implementation of the
Project.
Project
The Company has divided the Project into three sections -
Infrastructure, Applications/Business Systems and Third Party
Suppliers. There are common portions of each of these divisions which
are: (1) identifying Y2K items; (2) assigning a priority for those
items identified; (3) repairing or replacing those items; (4) testing
the fixes; and (5) designing a contingency and business continuation
plan for each subsidiary.
In February 1998, all items had been identified and the plans for
replacement or repair were proposed to management. These plans were
approved and the process began.
The infrastructure section of the Project was quickly implemented and
tested by the Company's IT staff and has been completed since May of
1998. All desktop, mini and midrange systems as well as phone switches,
phones and building security systems have been tested for Y2K
compliance. Any new systems required by the Company are being tested
and certified prior to purchase with completion by June 30, 1999. Two
mainframes being used by the Company are not Y2K certified or
compliant. These machines have been replaced by Sun and HP compliant
systems and are being kept in production until new applications are put
in place on the new machines.
The applications systems section of the Project includes: (1) the
replacement of nonstandard auto companies Policy Administration and
Claims systems; (2) the conversion of crop operations systems in total;
and (3) replacement of non-compliant business systems company-wide
(this includes wordprocessors, network operating systems, spreadsheet
-8-
<PAGE>
programs, presentation systems, etc.).
The Company had already made the decision to transition off all of its
nonstandard auto legacy systems and this process had been in work since
1996. These systems are Y2K compliant and are scheduled for completion
by the end of June 30, 1999. The conversion of crop systems began in
August 1998 and is complete. Business systems are being replaced as
vendors certify their compliance. The Company is at 90% compliance in
this area.
The Company relies on third party vendors for investments, reinsurance
treaties and banking. The Company began inquiring about Y2K compliance
with its third party vendors beginning in July 1998. To date, all
vendors have replied regarding their compliance efforts. Those that are
not in compliance have until the end of second quarter 1999 to do so,
or they will be replaced.
Costs
The Company considers the cost associated with the Project to be
material. The Company has estimated the total cost to be $5.7 million,
the majority of which has been capitalized as hardware or software
costs. The Company has also incurred substantial costs for carrying two
systems including personnel costs and outside service fees. The
component of these costs specifically associated with Y2K cannot be
reasonably estimated. The total amount expended through March 31, 1999
on all infrastructure and software upgrades is approximately $5
million. The Company expects to spend another $800,000 in its efforts
to complete the Project. This does not include additional annual
maintenance costs that will be incurred as we move forward. Funding for
these costs will continue to be provided by funds from operations. The
Company believes that the new nonstandard auto system will
significantly enhance service capability and reduce future operating
costs.
Risks
Failure to correct the Y2K problem through efficient and timely
implementation of the Company's new operating system could cause a
failure or interruption of normal business operations. These failures
could materially affect the Company's operational results, financial
condition and liquidity through reduction of premium volume and an
increase in operating costs as a percentage of premium volume or
deterioration of loss experience. Due to the nature of the Y2K problem,
the Company is uncertain whether it will have a material affect or the
potential magnitude of any financial impact. The Company believes that
the possibility of significant business interruptions should be reduced
by successful implementation of the Project.
-9-
<PAGE>
ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS OF THE COMPANY
The Company underwrites and markets nonstandard private passenger automobile
insurance and crop insurance.
Nonstandard Automobile Insurance Operations
The Company, through its wholly-owned subsidiaries, Pafco and Superior,
is engaged in the writing of insurance coverage on automobile physical damage
and liability policies for "nonstandard risks". Nonstandard insureds are those
individuals who are unable to obtain insurance coverage through standard market
carriers due to factors such as poor premium payment history, driving
experience, record of prior accidents or driving violations, particular
occupation or type of vehicle. The Company offers several different policies
which are directed towards different classes of risk within the nonstandard
market. Premium rates for nonstandard risks are higher than for standard risks.
Since it can be viewed as a residual market, the size of the nonstandard private
passenger automobile insurance market changes with the insurance environment and
grows when the standard coverage becomes more restrictive. Nonstandard policies
have relatively short policy periods and low limits of liability. Due to the low
limits of coverage, the period of time that elapses between the occurrence and
settlement of losses under nonstandard policies is shorter than many other types
of insurance. Also, since the nonstandard automobile insurance business
typically experiences lower rates of retention than standard automobile
insurance, the number of new policyholders underwritten by nonstandard
automobile insurance carriers each year is substantially greater than the number
of new policyholders underwritten by standard carriers.
Crop Insurance Operations
General
The three principal components of the Company's crop insurance business
are Multi-Peril Crop Insurance ("MPCI") and private named peril, crop hail
insurance and fee based services to farmers. Crop insurance is purchased by
farmers to reduce the risk of crop loss from adverse weather and other
uncontrollable events. Farms are subject to drought, floods and other natural
disasters that can cause widespread crop losses and, in severe cases, force
farmers out of business. Historically, one out of every twelve acres planted by
farmers has not been harvested because of adverse weather or other natural
disasters. Because many farmers rely on credit to finance their purchases of
such agricultural inputs as seed, fertilizer, machinery and fuel, the loss of a
crop to a natural disaster can reduce their ability to repay these loans and to
find sources of funding for the following year's operating expenses.
The Company, like other private insurers participating in the MPCI
program, generates revenues from the MPCI program in two ways. First, it
markets, issues and administers policies, for which it receives administrative
fees; and second, it participates in a profit-sharing arrangement in which it
receives from the government a portion of the aggregate profit, or pays a
portion of the aggregate loss, in respect of the business it writes. The Company
writes MPCI and crop hail insurance through 2,007 independent agencies in 43
states.
In addition to MPCI, the Company offers stand alone crop hail
insurance, which insures growing crops against damage resulting from hail storms
-10-
<PAGE>
and which involves no federal participation, as well as its proprietary product
which combines the application and underwriting process for MPCI and hail
coverages. This product tends to produce less volatile loss ratios than the
stand alone product since the combined product generally insures a greater
number of acres, thereby spreading the risk of damage over a larger insured
area. Approximately 60% of the Company's hail policies are written in
combination with MPCI. Although both crop hail and MPCI provide coverage against
hail damage, under crop hail coverages farmers can receive payments for hail
damage which would not be severe enough to require a payment under an MPCI
policy. The Company believes that offering crop hail insurance enables it to
sell more policies than it otherwise would.
In addition to crop hail insurance, the Company also sells insurance
against crop damage from other specific named perils. These products cover
specific crops and are generally written on terms that are specific to the kind
of crop and farming practice involved and the amount of actuarial data
available. The Company plans to seek potential growth opportunities in this
niche market by developing basic policies on a diverse number of named crops
grown in a variety of geographic areas and to offer these policies primarily to
large producers through certain select agents.
The fee income business is primarily services to farmers for global
positioning grid mapping of their farm and soil sampling to enhance the growing
conditions of the crops.
AgPI(R) is business interruption insurance that protects businesses
that depend upon a steady flow of a crop (or crops) to stay in business. This
protection is available to those involved in agribusiness who are a step beyond
the farm gate, such as elevator operators, custom harvesters, cotton gins and
other processing businesses that are dependent upon a single supplier of
products, (i.e., popping corn).
These businesses have been able to buy normal business interruption
insurance to protect against on-site calamities such as a fire, wind storm or
tornado. But until now, they have been totally unprotected by the insurance
industry if they encounter a production shortfall in their trade area which
limited their ability to bring raw materials to their operation. AgPI(R) allows
the agricultural business to protect against a disruption in the flow of the raw
materials these businesses depends on. AgPI(R) was formally introduced at the
beginning of the 1998 crop year.
Geo AgPLUS(TM) provides to the farmer measuring, gridding and soil
sampling services combined with fertility maps and the software that is
necessary to run precision farming programs. Grid soil sampling, when combined
with precision farming technology, allows the farmer to apply just the right
amount of fertilization, thus balancing soil nutrients for a maximum crop yield.
Precision farming technology increases the yield to the farmer, reduces the cost
of unnecessary fertilization and enhances the environment by reducing overflows
of fertilization into the ecosystem. Geo AgPLUS(TM) is an IGF Insurance Company
trademarked precision farming division that is now marketing its fee based
services to the farmer.
Certain Accounting Policies for Crop Insurance Operations
MPCI is a government-sponsored program with accounting treatment which
differs in certain respects from the more traditional property and casualty
insurance lines. For income statement purposes under generally accepted
accounting principles, gross premiums written consist of the aggregate amount of
-11-
<PAGE>
MPCI premiums paid by farmers for buy-up coverage (MPCI coverage in excess of
CAT Coverage - the minimum available level of MPCI Coverage), and any related
federal premium subsidies, but do not include MPCI premium on CAT Coverage. By
contrast, net premiums written do not include any MPCI premiums or subsidies,
all of which are deemed to be ceded to the Federal Crop Insurance Corporation
(FCIC) as a reinsurer. The Company's profit or loss from its MPCI business is
determined after the crop season ends on the basis of a complex profit sharing
formula established by law and the FCIC. For generally accepted accounting
principles income statement purposes, any such profit or loss sharing earned or
payable by the Company is treated as an adjustment to commission expense and is
included in policy acquisition and general and administrative expenses.
The Company also receives from the FCIC (i) an expense reimbursement
payment equal to a percentage of gross premiums written for each Buy-Up Coverage
policy it writes ("Buy-Up Expense Reimbursement Payment") and (ii) an LAE
reimbursement payment equal to 13.0% of MPCI Imputed Premiums for each CAT
Coverage policy it writes (the "CAT LAE Reimbursement Payment"). For 1998 and
1997, the Buy-Up Expense Reimbursement Payment has been set at 27% and 29%,
respectively, of the MPCI Premium. For generally accepted accounting principles
income statement purposes, the Buy-Up Expense Reimbursement Payment is treated
as a contribution to income and reflected as an offset against policy
acquisition and general and administrative expenses. The CAT LAE Reimbursement
Payment is, for income statement purposes, recorded as an offset against LAE, up
to the actual amount of LAE incurred by the Company in respect of such policies,
and the remainder of the payment, if any, is recorded as Other Income.
In June 1998, the United States Congress passed legislation which
provided permanent funding for the crop insurance industry. However, beginning
with the 1999 MPCI crop year, the Buy-Up Expense Reimbursement Payment was
reduced to 24.5%, the CAT LAE Reimbursement Payment was reduced to 11% and the
$60 CAT coverage fee will no longer go to the insurance companies.
The Company expects to more than offset these reductions through growth
in non-federally subsidized programs such as AgPI(R) and Geo AgPLUS(TM)
initiated in 1998. The Company has also been working to reduce its costs. While
the Company fully believes it can more than offset these reductions, there is no
assurance the Company will be successful in its efforts or that further
reductions in federal reimbursements will not continue to occur.
In 1996, the Company instituted a policy of recognizing (i) 35% of its
estimated MPCI gross premiums written for each of the first and second quarters,
20% for the third quarter and 10% for the fourth quarter, (ii) commission
expense at the applicable rate of MPCI gross premiums written recognized and
(iii) Buy-Up Expense Reimbursement at the applicable rate of MPCI gross premiums
written recognized along with normal operating expenses incurred in connection
with premium writings. In the third quarter, if a sufficient volume of
policyholder acreage reports have been received and processed by the Company,
the Company's policy is to recognize MPCI gross premiums written for the first
nine months based on a re-estimate which takes into account actual gross
premiums processed. If an insufficient volume of policies has been processed,
the Company's policy is to recognize in the third quarter 20% of its full year
estimate of MPCI gross premiums written, unless other circumstances require a
different approach. The remaining amount of gross premiums written is recognized
in the fourth quarter, when all amounts are reconciled. The Company also
recognizes the MPCI underwriting gain or loss during each quarter, reflecting
the Company's best estimate of the amount of such gain or loss to be recognized
-12-
<PAGE>
for the full year, based on, among other things, historical results, plus a
provision for adverse developments. In the third and fourth quarters, a
reconciliation amount is recognized for the underwriting gain or loss based on
final premium and latest available loss information.
Results of Operations
<TABLE>
<CAPTION>
For the three months
ended March 31,
1999 1998
<S> <C> <C>
NONSTANDARD AUTOMOBILE INSURANCE OPERATIONS:
Gross premiums written $61,171 $89,976
====== ======
Net premiums written $73,687 $82,267
====== ======
Net premiums earned $65,396 $68,323
Fee income 4,521 4,155
Net investment income 3,164 2,801
Net realized gain (loss) (1,382) 1,968
------ ------
TOTAL REVENUES 71,699 77,247
------ ------
Losses and loss adjustment expenses 51,313 53,146
Policy acquisition and general and administrative expenses 19,595 18,123
------ ------
TOTAL EXPENSES 70,908 71,269
------ ------
Earnings before income taxes $ 791 $5,978
====== =====
GAAP RATIOS (Nonstandard Automobile Only):
Loss and LAE Ratio 78.5% 77.8%
Expense ratio, net of billing fees 23.0 20.4
---- ----
Combined ratio 101.5% 98.2%
===== ====
CROP INSURANCE OPERATIONS:
Gross premiums written(2) $90,723 $86,175
====== ======
Net premiums written $ 6,281 $17,294
====== ======
Net premiums earned $3,608 $161
Fee income (58) 2,332
Net investment income 57 53
------ ------
TOTAL REVENUES 3,607 2,546
------ ------
Losses and loss adjustment expenses 506 59
Policy acquisition and general and administrative expenses(1) (3,340) (3,647)
Amortization of intangibles 95 --
Interest expense 74 183
-- ---
TOTAL EXPENSES (2,665) (3,405)
----- -----
Earnings before income taxes $ 6,272 $5,951
====== =====
</TABLE>
(1) Negative crop expenses are caused by inclusion of MPCI expense
reimbursement and underwriting gain.
(2) Includes premiums assumed from CNA in accordance with the Strategic
Alliance Agreement.
-13-
<PAGE>
Net Earnings
For the three months ended March 31, 1999, the Company recorded net earnings of
$2,012,000 or $.19 per share (basic). This is approximately a 59.1% decrease
from 1998 comparable amounts of $4,924,000 or $0.47 per share (basic).
Consolidated Gross Premiums Written
Gross premiums written for the nonstandard automobile segment decreased 32.0%
for the three months ended March 31, 1999 compared to the three months ended
March 31, 1998. This represents an 8.8% decrease in premiums from the average
premium volume in the last half of 1998. The primary reasons for this decline
in volume has been the downsizing by the Company of its nonstandard automobile
business in certain competitive markets, the loss of some business prior to the
hiring of a new new product development team and the slowing of new business
during the conversion by the Company to a new operating computer system.
Gross premiums written for the crop segment were comparable to those of a year
ago. Crop premiums for the three months ended March 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
CAT imputed $16,312 $16,319
MPCI 62,280 60,743
Crop hail and named perils 28,443 25,431
------- -------
107,035 102,493
Less: CAT imputed (16,312) (16,319)
------ ------
$90,723 $86,174
====== ======
</TABLE>
Remaining gross written premiums represent commercial business which is ceded
100% to an affiliate, Granite Reinsurance Company Ltd.
MPCI premiums are considered to be 100% ceded to the federal government for
accounting purposes. Quota share cession rates for other lines of insurance for
the three months ended March 31 are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Nonstandard automobile 0% 10%
Crop hail 62% 25%
Named peril 50% 50%
AgPI 62% 0%
</TABLE>
Fee income decreased 12.8% for the three months ended March 31, 1999 as compared
to the corresponding period of the prior year. Such decrease was primarily due
to the Federal government retaining the CAT fee policy, partially offset by
increased penetration of policy issuance fees on the automobile book.
Net investment income increased 11.2% for the three months ended March 31, 1999
as compared to the corresponding period of the prior year due to the transfer of
invested assets to interest bearing fixed maturities from equity based
investments since the first quarter of 1998. The realized loss was primarily due
to tax loss related selling of certain securities as well as some selling to
reduce the average duration of the fixed income portfolio.
-14-
<PAGE>
The loss ratio for the nonstandard automobile segment for the three months ended
March 31, 1999 was 78.5% comparable to 77.8% for the three months ended March
31, 1998 . Crop hail loss ratios in the first quarter do not have significant
impact on consolidated earnings.
Policy acquisition and general and administrative expenses have increased to
$16,560,000 or 24.0% of net premium earned for the three months ended March 31,
1999 compared to $13,555,000 or 19.8% of net premium earned in the corresponding
period of 1998. Nonstandard auto general and administrative expenses rose due to
increased use of temporary help to resolve processing backlogs and lower expense
recoveries from reinsurers due to the elimination of quota share reinsurance in
1999.
Crop segment expenses include agent commissions, stop loss reinsurance costs and
operating expenses which are offset by MPCI Expense Reimbursements and MPCI
Underwriting Gain. The negative expense results primarily from the inclusion of
the MPCI Underwriting Gain.
Amortization of intangibles includes goodwill from the acquisition of Superior,
additional goodwill from the acquisition of the minority interest portion of
GGSH and the acquisition of NACU, debt or preferred security issuance costs and
organizational costs.
Income tax expense was 35.6% and 36.3% of pre-tax income for the three months
ended March 31, 1999 and 1998.
Distributions on Preferred Securities are calculated at a rate of 9.5% net of
federal income taxes.
Financial Condition
The Company's total assets of $679,694,000 at March 31, 1999 increased
$110,257,000 from $569,437,000 as of December 31, 1998. The primary reasons for
this increase were increased premium receivable and reinsurance payable balances
in the crop business due to the normal accumulation of these balances during the
year and settlement in the fall of each year, coincidental with fall harvest.
Netcash provided by operating activities decreased to $11,464,000 in 1999 from
$34,975,000 in 1998 due to reduced gross premium volume in the automobile
business. Financing activities included normal activities on the Company's line
of credit for crop operations.
-15-
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company's insurance subsidiaries are parties to
litigation arising in the ordinary course of business. The
Company believes that the ultimate resolution of these
lawsuits will not have a material adverse effect on its
financial condition or results of operations. The Company,
through its claims reserves, reserves for both the
amount of estimated damages attributable to these
lawsuits and the estimated costs of litigation.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
Within this form 10-Q the Company has incorporated the
financial impact of events which had occurred as of March 31,
1999, but which came to management's attention and / or
became quantifiable after the release to the public of the
first quarter results of operations on May 12, 1999.
The Company writes a portion of its crop hail insurance
based on continuous policies which remain in-force unless
and until cancelled by the policyholder. The Company also
writes a lesser amount of crop hail insurance on an
annual basis. In the first quarter earnings release dated
May 12, 1999, the Company recorded approximately $11.3
million of crop hail gross written premium related to
processed crop hail policies. However, the Company failed to
record all of the continuous policies for which liabilities
had attached as of the March 31, 1999 balance sheet date,
thus understating crop hail gross written premium by
approximately $16.6 million, and net written premium by
approximately $4.0 million. The crop hail gross written
premium should have totalled $27.9 million for the first
quarter, which is comparable with the $24.5 million in crop
hail gross written premium recorded in the first quarter
of 1998.
The increase in the crop hail premiums has an effect on
income through ceding commissions the Company receives on
quota share reinsurance treaties. It also improves earnings
through profits on the net retained portion of the crop hail
business. The total amount of pre-tax earnings related to
the additional $16.6 million in gross written premiums recorded
for the first quarter of 1999 was approximately $2.0 million.
The Company reinsures 100% of a book of crop insurance
business written through a third party insurance company.
As described in the notes to the 1998 audited financial
statements, this product, called "AgPI(R)", insures against
business interruption risk. At year end 1998 the Company had
recorded $7.5 million in gross assumed loss reserves. Based
-16-
<PAGE>
on further recent analysis, coupled with recently released
national data related to the 1998 crop year, the
Company has increased its assumed gross loss reserves from
$7.5 million to $15.0 million as of March 31, 1999.
To date, there has not been a ceding of paid losses to the
Company from the third party reinsurance company related to
the potential AgPI(R) liability. The Company believes the
ultimate development on these gross reserves could range
from $10 million to $20 million, and, as such, believes
that recorded gross loss reserves of $15 million is sufficient.
However, there can be no assurance that the Company's
ultimate liability for AgPI(R) related losses will not be materially
greater or less than the Company's reserve for this liability.
The Company retrocedes the majority of this business to
reinsurers. The retrocession cover on this book of business
is 62% quota share reinsurance of which 7.5% is retroceded to Granite
Reinsurance Company Ltd., an affiliate, and as such the Company has
ceded approximately $4.7 million of premium, and $9.3
million of loss reserves, to retro reinsurers. The company
also incurred approximately $1M in pretax fee expense
related to this treaty in the first quarter.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
Exhibit 1.0 - AgPI, Crop Hail and MPCI Multi-year Quota Share
Reinsurance Agreement
-17-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: May 28, 1999 By:/s/ Alan G. Symons
Alan G. Symons
Chief Executive Officer
Dated: May 28, 1999 By:/s/ Thomas R. Kaehr
Thomas R. Kaehr
Vice President, Treasurer and
Chief Financial Officer
-18-
<PAGE>
Exhibit 1.0
AG PI, CROP HAIL AND MPCI
MULTI-YEAR QUOTA SHARE REINSURANCE AGREEMENT
This Agreement is made and entered into by and between IGF INSURANCE COMPANY,
Indianapolis, Indiana, PAFCO GENERAL INSURANCE COMPANY, Indianapolis, Indiana,
SUPERIOR INSURANCE COMPANY, Atlanta, Georgia, or any other insurance company
acting on behalf of IGF INSURANCE COMPANY, Indianapolis, Indiana (hereinafter
together called the "Company") and the Reinsurer specifically identified on the
signature page of this Agreement (hereinafter called the "Reinsurer").
ARTICLE 1
BUSINESS REINSURED
This Agreement is to share with the Reinsurer the interests and liabilities of
the Company under all Policies covering business written or renewed by or on
behalf of the Company, classified by the Company as:
1. Ag PI, or
2. Crop Hail, or
3. Multi-Peril Crop Insurance (MPCI), as defined and reinsured by
the Federal Crop Insurance Corporation (FCIC) and issued by
the Company under their 1998 through 2000 plans of operations
covering the 1999 through 2001 crop Seasons, subject to the
terms and conditions herein contained.
ARTICLE 2
COVER
Section 1 - As respects Ag PI:
A. 1. The Company will cede, and the Reinsurer will accept as
reinsurance, a 100% share of all business reinsured
hereunder for the period 5/1/98-1/1/99.
2. The Company will cede, and the Reinsurer will accept as
reinsurance, a 100% share of all business reinsured hereunder,
subject to a maximum cession of $25,000,000 per sinlge state,
$12,500,000 single peril limit per crop, and further subject
to an overall maximum limit of $100,000,000 per Season for the
period 1/1/99-1/1/2000.
3. The Company will cede, and the Reinsurer will accept as
reinsurance, a 100% share of all business reinsured hereunder,
subject to a maximum cession of $25,000,000 per sinlge state,
$12,500,000 single peril limit per crop, and further subject
to an overall maximum limit of $100,000,000 per Season for the
period 1/1/2000-1/1/2001.
B. The Reinsurer's limit of liability for all paid Loss amounts
recoverable on Losses ascribed to the 5/1/98-1/1/99 period shall not
exceed 300% of Net Written Premium.
C. The Reinsurer's limit of liability for all paid Loss amounts
recoverable on Losses ascribed to the 1/1/99-1/1/2001 period shall not
exceed the lesser of:
101200-185 1/1/99 Page 1
<PAGE>
1. 200% of Net Written Premium for the period 1/1/99-1/1/2000; or
2. 150% of Net Written Premium for the period 1/1/99-1/1/2001.
Section 2 - As respects Crop Hail:
A. The Company will cede, and the Reinsurer will accept as reinsurance, a
100% share of all business reinsured hereunder, subject to a maximum
cession of $2,000,000 per township.
B. The Reinsurer's limit of liability for all paid Loss amounts shall not
exceed 150% of Net Written Premium.
Section 3 - As respects MPCI:
A. The Company will cede, and the Reinsurer will accept as reinsurance, a
100% quota share of all business reinsured hereunder.
B. The Reinsurer's annual limit of liability shall equal 95% of Retained
Underwriting Losses on business classified by the Company as MPCI,
subject to a maximum limit of liability to the Reinsurer that is equal
to 95% of 25% of Net Retained Premium Income in any one year of this
Agreement, and further subject to a maximum limit of liability to the
Reinsurer that is equal to 200% of the Advanced Margin for MPCI, plus
Underwriting Gain Sharing, if any, received for each respective three
year period, except as outlined in the COMMUTATION ARTICLE and PROFIT
SHARING ARTICLE of this Agreement.
ARTICLE 3
TERM
A. Section 1 - As respects Ag PI:
This Agreement shall become effective at 12:01 a.m., Central
Standard Time, 5/1/98, and shall remain in full force and
effect for 32 months, expiring 12:01 a.m., Central Standard
Time, 1/1/2001.
Section 2 - As respects Crop Hail:
This Agreement shall become effective at 12:01 a.m., Central
Standard Time, 1/1/99, and shall remain in full force and
effect for 12 months, expiring 12:01 a.m., Central Standard
Time, 1/1/2000.
Section 3 - As respects MPCI:
This Agreement shall become effective at the inception of the
FCIC 1999 standard reinsurance agreement and its amendments
which are applicable to the 1999 FCIC reinsurance year between
the Company and the FCIC (which shall be deemed to be the
inception date for purposes of this Agreement), and shall
include the FCIC 2000 and 2001 standard reinsurance agreements
and amendments which are applicable to the 2000 and 2001 FCIC
reinsurance years, and shall remain in full force and effect
until the close of the 2001 FCIC reinsurance year (as defined
by the FCIC, which shall be deemed to be the expiration date
for purposes of this Agreement).
101200-185 1/1/99 Page 2
<PAGE>
The term "1999 FCIC reinsurance year" as used in this
Agreement shall refer to all MPCI Policies on crops whose FCIC
approved sales closing dates occur between 7/1/98 and 6/30/99.
The term "2000 FCIC reinsurance year" as used in this
Agreement shall refer to all MPCI Policies on crops whose FCIC
approved sales closing dates occur between 7/1/99 and
6/30/2000.
The term "2001 FCIC reinsurance year" as used in this
Agreement shall refer to all MPCI Policies on crops whose FCIC
approved sales closing dates occur between 7/1/2000 and
6/30/2001.
B. In the event of termination, the Reinsurer will continue to cover all
Policies coming within the scope of this Agreement, including those
written and renewed during the period of notice, until the natural
expiration or anniversary of such Policies, whichever occurs first, but
in no event longer than 12 months from the date of termination plus odd
time, not to exceed 18 months in total.
C. Should this Agreement expire or terminate while a Loss covered
hereunder is in progress, the Reinsurer shall be responsible for the
Loss in progress in the same manner and to the same extent it would
have been responsible had the Agreement expired or terminated the day
following the conclusion of the Loss in progress.
ARTICLE 4
SEASON
Section 1 - As respects Ag PI:
A. For the period 5/1/98 to 1/1/99, the Season commences on 5/1/98 and
ends on 1/1/99.
B. For the period 1/1/99 to 1/1/2000, the Season commences on 1/1/99 and
ends on 1/1/2000.
C. For the period 1/1/2000 to 1/1/2001, the Season commences on 1/1/2000
and ends on 1/1/2001.
Section 2 - As respects Crop Hail:
A. For the period 1/1/99 to 1/1/2000, the Season commences on 1/1/99 and
ends on 1/1/2000.
Section 3 - As respects MPCI:
A. For the period 1/1/99 to 1/1/2000, the Season commences on inception of
the FCIC 1999 standard reinsurance agreement and its amendments which
are applicable to the 1999 FCIC reinsurance year between the Company
and the FCIC, expiring at the close of the 1999 FCIC reinsurance year.
B. For the period 1/1/2000 to 1/1/2001, the Season commences on inception
of the FCIC 2000 standard reinsurance agreement and its amendments
which are applicable to the 2000 FCIC reinsurance year between the
Company and the FCIC, expiring at the close of the 2000 FCIC
reinsurance year.
C. For the period 1/1/2001 to 1/1/2002, the Season commences on inception
of the FCIC 2001 standard reinsurance agreement and its amendments
which are applicable to the 2001 FCIC reinsurance year between the
Company and the FCIC, expiring at the close of the 2001 FCIC
reinsurance year.
101200-185 1/1/99 Page 3
<PAGE>
ARTICLE 5
TERRITORY
This Agreement applies to Losses arising out of Policies written in the United
States of America, its territories and possessions and Canada, wherever
occurring.
ARTICLE 6
EXCLUSIONS
This Agreement does not cover:
A. War Risks as excluded in the attached North American War Exclusion
Clause (Reinsurance) No. 08-45.
B. Nuclear incidents as per the attached Nuclear Incident Exclusion
Clauses - Physical Damage - Reinsurance - U.S.A. and Canada
Nos. 08-33 and 08-34.2.
C. Business excluded under the Standard Reinsurance Agreementof the FCIC,
except Ag PI.
D. 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
guarantee fund, insolvency fund, plan, pool, association, fund or other
arrangement, howsoever 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
an 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.
ARTICLE 7
ACCOUNTS AND REMITTANCES
Section 1 - As respects Ag PI:
A. For the period 5/1/98 to 1/1/99:
1. At inception of this Agreement, the Company shall report Net
Written Premium. Any balance due the Reinsurer shall be paid
as soon as possible after inception of this Agreement.
2. As soon as possible after the end of the Season, but no later
than 7/31/99, the Company shall provide the Reinsurer with a
complete account, to include the following:
a.) Net Written Premium accounted for during the term of this
Agreement; less,
b.) The ceding commission as provided for in this Agreement;
less,
101200-185 1/1/99 Page 4
<PAGE>
c.) Losses paid and outstanding Losses which may be ascribed
to this Agreement; plus,
d.) Subrogation, salvage, or other recoveries on Losses which
may be ascribed to this Agreement.
3. Within 60 days following the end of the period the debtor
party will remit to the creditor party any balance due, and
each month thereafter the balance shall be adjusted and
settled between the parties, until all Losses have been
settled.
4. If the Losses covered hereunder exceed 200% of the Net Written
Premium, the Company shall pay an additional levy calculated
as follows:
a.) 50% of the difference between the Loss less 200% of the
Net Written Premium shall be paid to the Reinsurer on
7/31/2000.
b.) 100% of the difference between the Loss less 200% of the
Net Written Premium, less any amount paid in a.) above,
shall be paid to the Reinsurer on 7/31/2001.
c.) Adjustments to the levy will continue to be made
annually thereafter, until all Losses have been
settled The calculation shall be 100% of the
difference between the Loss less 200% of the Net
Written Premium, less any amounts previously paid.
B. For the period 1/1/99 to 1/1/2000, and for the period 1/1/2000 to 1/1/2001:
1. Within 30 days after each calendar quarter, the Company shall
report separately Net Written Premium, the ceding commission
thereon, as provided for in this Agreement, Losses paid and
outstanding Losses which may be ascribed to this Agreement.
2. As respects the period 1/1/99 to 1/1/2000, if the amount due
as respects this account, is due to the Reinsurer, the Company
shall remit 50% of the balance due within 60 days after the
end of the calendar quarter under consideration. Any positive
balance deferred shall be paid on 12/31/99.
3. As respects the period 1/1/2000 to 1/1/2001, if the amount due
as respects this account, is due to the Reinsurer, the Company
shall remit the balance due within 60 days after the end of
the calendar quarter under consideration.
4. As respects the period 1/1/99 to 1/1/2000, and for the period
1/1/2000 to 1/1/2001, if the amount due as respects this
account, is due to the Company, the Reinsurer shall remit the
balance due within 60 days following receipt and verification
of the Company's report.
5. As soon as possible after the end of each Season, but no later
than the following 7/31, the Company shall provide the
Reinsurer with a complete account, to include the following:
a.) Net Written Premium accounted for during the term of this
Agreement; less,
b.) The ceding commission as provided for in this Agreement;
less,
c.) Losses paid and outstanding Losses which may be ascribed
to this Agreement; plus,
d.) Subrogation, salvage, or other recoveries on Losses which
may be ascribed to this Agreement.
6. Within 60 days following the end of the period, the debtor
party will remit to the creditor party any balance due, and
each month thereafter the balance shall be adjusted and
settled between the parties, until all Losses have been
settled.
101200-185 1/1/99 Page 5
<PAGE>
7. If the Losses covered hereunder exceed 150% of the cumulative
Net Written Premium for the term 1/1/99 to 1/1/2001, the
Company shall pay the difference between the cumulative Losses
paid and 150% of the cumulative Net Written Premium for the
term 1/1/99 to 1/1/2001, to be paid on 7/31/2001. Cumulative
Losses shall equal all Losses paid by the Reinsurer after
final settlement at 7/31/2001.
As soon as possible following the expiration of this Agreement, the Company will
provide any other information which the Reinsurer may require for its Annual
Convention Statement which may be reasonably available to the Company.
Section 2 - As respects Crop Hail:
A. As soon as possible after the end of the Season, but no later than
12/15 of the annual period, the Company shall provide the Reinsurer
with an account, to include the following:
1. Net Written Premium accounted for during the term of this
Agreement; less,
2. The ceding commission as provided for in this Agreement; less,
3. Losses paid and outstanding Losses which may be ascribed to this
Agreement; plus,
4. Subrogation, salvage, or other recoveries on Losses which may be
ascribed to this Agreement.
B. Within 60 days following the end of the period or the report date, the
debtor party will remit to the creditor party any balance due. Each
month thereafter, the balance shall be adjusted and settled between the
parties, until all Losses have been settled.
C. As soon as possible following the expiration of this Agreement, the
Company will provide any other information which the Reinsurer may
require for its Annual Convention Statement which may be reasonably
available to the Company.
Section 3 - As respects MPCI:
A. For the 1999 reinsurance year as defined by the FCIC:
1. The Company will pay the Reinsurer an Advance Margin of
$8,050,000, to be paid in two installments on 12/31/99 and 60
days thereafter. The first installment shall be equal to 90%
of the Reinsurer's expense allowance of 40%, as defined in the
PROFIT SHARING ARTICLE, with the second installment being the
balance, if any, after application of the PROFIT SHARING
ARTICLE.
B. For the 2000 reinsurance year as defined by the FCIC:
1. The Company will pay the Reinsurer an Advance Margin of
$8,050,000, to be paid in two installments on 7/1/2000 and
12/31/2000. The first installment shall be equal to 90% of the
Reinsurer's expense allowance of 40%, as defined in the PROFIT
SHARING ARTICLE, with the second installment being the
balance, if any, after application of the PROFIT SHARING
ARTICLE.
101200-185 1/1/99 Page 6
<PAGE>
C. For the 2001 reinsurance year as defined by the FCIC:
1. The Company will pay the Reinsurer an Advance Margin of
$8,050,000, to be paid in two installments on 7/1/2001 and
12/31/2001. The first installment shall be equal to 90% of the
Reinsurer's expense allowance of 40%, as defined in the PROFIT
SHARING ARTICLE, with the second installment being the
balance, if any, after application of the PROFIT SHARING
ARTICLE.
D. Advanced Margin:
1. For the 1999 crop Season, the Company will calculate an
Advanced Margin at a rate of 7.00% multiplied by the Company's
Net Retained Premium Income for MPCI. Should the Advanced
Margin so calculated exceed the Advance Margin paid, the
Company will pay the Reinsurer the balance in accordance with
Paragraph E below.
2. For the 2000 crop Season, the Company will calculate an
Advance Margin at a rate of 7.00% multiplied by the Company's
Net Retained Premium Income for MPCI. Should the Advanced
Margin so calculated exceed the Advance Margin paid, the
Company will pay the Reinsurer the balance in accordance with
Paragraph E below. Should however cumulative outgo exceed
cumulative income the rate shall be adjusted to 8.50%
multiplied by the Company's Net Retained Premium Income for
MPCI. Should the Advanced Margin so calculated exceed the
Advance Margin paid, the Company will pay the Reinsurer the
balance in accordance with Paragraph E below.
3. For the 2001 crop Season, the Company will calculate an
Advanced Margin at a rate of 7.00% multiplied by the Company's
Net Retained Premium Income for MPCI. Should the Advanced
Margin so calculated exceed the Advance Margin paid, the
Company will pay the Reinsurer the balance in accordance with
Paragraph E below. Should however cumulative outgo exceed
cumulative income the rate shall be adjusted to 8.50%
multiplied by the Company's Net Retained Premium Income for
MPCI. Should the Advanced Margin so calculated exceed the
Advance Margin paid, the Company will pay the Reinsurer the
balance in accordance with Paragraph E below.
E. As soon as possible after the end of each Season, but no later than
5/31, or once settlement is made with the FCIC following the end of
each annual period, the Company shall provide the Reinsurer with a
complete account, to include the following:
1. Retained Underwriting Gain accounted for during the term of
this Agreement, plus the Advanced Margin; less,
2. The Reinsurer's expense allowance of 40% of the Advanced
Margin as provided for in this Agreement for the applicable
Reinsurance Year as defined by the FCIC; less,
3. Retained Underwriting Loss ascribed during the term of this
Agreement.
F. Within 60 days following the end of each annual period commencing 1/1,
the debtor party will remit to the creditor party any balance due.
G. As soon as possible following the expiration of this Agreement, the
Company will provide any other information which the Reinsurer may
require for its Annual Convention Statement which may be reasonably
available to the Company.
H. Underwriting Gain Sharing:
101200-185 1/1/99 Page 7
<PAGE>
1. The Reinsurer shall receive 33% of any Net Retained
Underwriting Gain between 10 - 16% of Net Retained Premium
Income, if any, for each respective period defined above. Any
Reinsurer's underwriting profit under Section 1 (Ag PI) shall
be set against this specific MPCI Underwriting Gain Sharing.
Reinsurer's underwriting profit shall be calculated as
follows:
a.) Cumulative Net Written Premium; less,
b.) Cumulative ceding commission; less,
c.) Cumulative profit commission; less,
d.) Cumulative paid Losses.
The payment to the Reinsurer shall be reduced accordingly,
provided the Reinsurer's Margin for the three year period is
above 2.8% of the cumulative Net Retained Premium Income.
An appropriate adjustment shall be prepared following the
expiration of this Agreement, wherein MPCI Underwriting Gain
Sharing paid for each respective period, prior to any
reduction from underwriting profit from Section 1 (Ag PI),
less the cumulative Reinsurer's underwriting profit under
Section 1 (Ag PI), shall determine the final adjustment, and
the debtor party will remit to the creditor party any balance
due.
ARTICLE 8
CEDING COMMISSION
Section 1 - As respects Ag PI:
A. For the period 5/1/98 to 1/1/99
1. The final ceding commission shall be determined by the Losses
paid under this Agreement. The Company will calculate a ceding
commission for the period within 45 days following the
expiration of the period, based on premiums written and Losses
paid. Adjustments for the period will continue to be made
annually until all Losses which may be ascribed to this
period, have been paid or closed, at which time the ceding
commission will become final.
2. Premium written for the Agreement shall mean all Net Written
Premium ceded to this Agreement.
3. Losses paid by the Reinsurer are as defined in ARTICLE 13,
item A., which may be ascribed to this Agreement, and plus or
minus any credit or debit carry forward as provided for in
this Article.
4. Should the ratio of Losses paid to premium written be 100% or
higher, then the ceding commission shall be 0%.
5. Should the ratio of Losses paid to premium written be less
than 100%, then the adjusted commission shall be determined by
adding one percent (1%) to the ceding commission for each one
percent reduction of loss ratio, subject to a maximum ceding
commission of 25%, at a loss ratio of 75% or less.
101200-185 1/1/99 Page 8
<PAGE>
6. Should the ratio of Losses paid to premium written be greater
than 100% or less than 75%, the difference between the actual
loss ratio and 100% or 75%, as the case may be, will be
multiplied by the premium written for the Agreement and
carried forward as a debit or credit to the ensuing Profit
Sharing Agreement calculation. No debit carryforward shall
affect results of Profit Sharing adjustments beyond the third
Agreement year following the Agreement giving rise to the
debit carryforward.
7. No debit or credit carryforward resulting from the calculation
for the period 5/1/98 to 1/1/99, shall affect the Ceding
Commission adjustment for the period 1/1/99 to 1/1/2000 and
for the period 1/1/2000 to 1/1/2001.
B. For the period 1/1/99 to 1/1/2000:
1. The Reinsurer will allow the Company a ceding commission of
28% on the premium due hereunder. Return commission shall be
allowed on return premiums, if any, at the same rate. Should
the ratio of Losses paid to premium written exceed 100%, then
the adjusted commission shall be determined by reducing the
ceding commission one percent (1%) for each one percent
addition of loss ratio, subject to a minimum ceding commission
of 26%, at a loss ratio of 102% or greater. An appropriate
adjustment of any ceding commission previously paid at the
rate of 28% will be made between the parties.
C. For the period 1/1/2000 to 1/1/2001:
1. The Reinsurer will allow the Company a ceding commission of
28% on the premium due hereunder. Return commission shall be
allowed on return premiums, if any, at the same rate. Should
the ratio of Losses paid to premium written from the prior
period exceed 100%, then the adjusted commission shall be
determined by reducing the ceding commission one percent (1%)
for each one percent addition of loss ratio, subject to a
minimum ceding commission of 26%, at a loss ratio of 102% or
greater. An appropriate adjustment of any ceding commission
previously paid at the rate of 28% will be made between the
parties.
Section 2 - As respects Crop Hail:
A. The Reinsurer will allow the Company a ceding commission of 31.75% on
the premium due hereunder. Return commission shall be allowed on return
premiums, if any, at the same rate.
B. Should the ratio of Losses paid to premium written be greater than 100%
for Section 1 (Ag PI) for the period 1/1/99 to 1/1/2000, the difference
between the actual loss ratio and 100% will be multiplied by the
premium written for Section 1 (Ag PI) for the period 1/1/99 to
1/1/2000. The Losses in excess of 100% for Section 1 (Ag PI) for the
period 1/1/99 to 1/1/2000 shall be added to the Losses from Section 2
(Crop Hail) for the period 1/1/99 to 1/1/2000, and the adjusted
commission shall be determined by reducing the ceding commission for
Section 2 (Crop Hail) 1% for each 1% of additional loss ratio from the
addition of Ag PI Losses to Crop Hail Losses, subject to a minimum
ceding commission of 29.75% at a loss ratio of 102% or greater.
C. An appropriate adjustment of any ceding commission previously paid at
the rate of 31.75% will be made between the parties.
101200-185 1/1/99 Page 9
<PAGE>
ARTICLE 9
PROFIT SHARING
Section 1 - As respects Ag PI:
The Reinsurer will pay the Company a contingent of 20% on the net profits, if
any, accruing under this Agreement for each period comprising three consecutive
Agreement years in accordance with the following formula.
A. Premiums written to be:
1. Net Written Premium ceded to the Agreement (less cancellations and
returns), during the period.
B. Losses incurred to be:
1. Losses paid by the Reinsurer as defined in ARTICLE 13, item A.,
which may be ascribed to the period; plus,
2. Outstanding Loss reserves on Losses ascribed to the period.
C. Expenses incurred to be:
1. Ceding commission paid by the Reinsurer on the Net Written Premium
ceded as in A. above; plus,
2. Reinsurer's expense margin of 10% on Net Written Premium ceded as
in A. above.
3. Deficit, if any, from prior periods.
D. Net profit to be:
1. Premiums written, as in A. above; less,
2. Losses incurred, as in B. above; less,
3. Expenses incurred, as in C. above.
E. As soon as possible following each Agreement year within each three
Agreement year period, the Company will compute and the Reinsurer will
pay a contingent on the net profit for the portion of the three
Agreement year period then expired. Any profit commission paid to that
date shall be adjusted between the parties as appropriate. Adjustments
for each three Agreement year period will continue to be made annually
until all Losses ascribed to the period have been paid or closed, at
which time the contingent profit computation will become final.
F. Should the Reinsurer's participation in this Agreement increase or
decrease within a multi-year adjustment period, the incremental
participation percentage increase or decrease shall be treated as a
separate new or terminated participation, respectively, for purposes of
calculating amounts due hereunder.
Section 2 - As respects Crop Hail:
The Reinsurer will pay the Company a contingent of 20% on the net profits, if
any, accruing under this Agreement for the period in accordance with the
following formula.
101200-185 1/1/99 Page 10
<PAGE>
A. Premiums written to be:
1. Net Written Premium ceded to the Agreement (less cancellations
and returns), during the period.
B. Losses incurred to be:
1. Losses paid by the Reinsurer as defined in ARTICLE 13, item A.,
which may be ascribed to the period; plus,
2. Outstanding Loss reserves on Losses ascribed to the period.
C. Expenses incurred to be:
1. Ceding commission paid by the Reinsurer on the Net Written Premium
ceded as in A. above; plus,
2. Reinsurer's expense margin of 10% on Net Written Premium ceded as
in A. above.
D. Net profit to be:
1. Premiums written, as in A. above; less,
2. Losses incurred, as in B. above; less,
3. Expenses incurred, as in C. above.
Section 3 - As respects MPCI:
In the event cumulative Income exceeds cumulative Outgo at the end of any FCIC
reinsurance year, a Profit Sharing calculation will be prepared by the Company
in accordance with the following, and a profit, if any, paid to the Company by
the Reinsurer:
A. Income
1. Retained Underwriting Gain; plus,
2. The Advanced Margin.
B. Outgo
1. Retained Underwriting Loss during the applicable reinsurance
period; plus,
2. The Reinsurer's expense allowance of 40% of the Advanced Margin
for the applicable Reinsurance Year as defined by the FCIC.
The Profit to the Company shall be 100% of the amount by which Income exceeds
Outgo.
Article 10
EXPERIENCE ACCOUNT
In the event incurred Losses from Section 1 (Ag PI) exceed 200% of Net Written
Premium for the period 5/1/98 to 1/1/99, an experience calculation will be
prepared and the Company will pay the Reinsurer interest at the rate of 12
Months LIBOR Rate as published in the Midwest Edition of "The Wall Street
Journal" on the first day of the calendar month in which the amount becomes due,
plus 1.2% multiplied by the cumulative balance which exceeds 200% of the
cumulative Net Written Premium Section 1 (Ag PI for the period 5/1/98 to 1/1/99)
101200-185 1/1/99 Page 11
<PAGE>
during the period. The product will then be multiplied by 1/365 for each day
after the due date that the amount due remains unpaid. Any interest that occurs
pursuant to this Article will be calculated by the party to which it is owed.
ARTICLE 11
COMMUTATION
With 60 days prior written notice at 1/1/2000, or 1/1/2001, a Commutation
Agreement releasing the Reinsurer from liability may be executed by the parties
to this Agreement, providing the Reinsurer has earned a positive cumulative paid
margin balance. The paid margin balance shall be calculated as follows:
A. Section 1 - As respects Ag PI:
Reinsurer's expense Margin of 10% of Net Written Premium for Ag PI;
plus,
B. Section 2 - As respects Crop Hail:
Reinsurer's expense margin of 10% of Net Written Premium for Crop Hail;
plus,
C. Section 3 - As respects MPCI:
Reinsurer's expense margin of 40% multiplied by the Advanced Margin
for MPCI as outlined in ARTICLE 7 - ACCOUNTS AND REMITTANCES; plus,
D. Any net profit to the Reinsurer under Section 1 (Ag PI), Section 2
(Crop Hail), and Section 3 (MPCI). Net profit shall be
determined for each section of coverage as follows:
1. Section 1 (Ag PI), in accordance with ARTICLE 9 -
PROFIT SHARING , after all profit sharing.
2. Section 2 (Crop Hail), in accordance with ARTICLE 9 -
PROFIT SHARING , after all profit sharing.
3. Section 3 (MPCI), in accordance with ARTICLE 9 - PROFIT
SHARING , after all profit sharing, plus Underwriting Gain
Sharing as outlined in ARTICLE 7 - ACCOUNTS AND REMITTANCES,
section H.
Any resulting negative balance shall be included in the Commutation
calculations.
ARTICLE 12
BUYOUT CLAUSE
Should the Company be sold or acquired, the Company has the right to cancel this
Agreement by giving 90 days written notice at any time. If the acquiring Company
fails to meet minimum solvency requirements of its State of domicile, the
Company will cancel this Agreement. In the event this Agreement is cancelled,
the Company shall pay the Reinsurer 100% of any negative cash balance and the
Reinsurer shall retain any positive balance.
101200-185 1/1/99 Page 12
<PAGE>
ARTICLE 13
DEFINITIONS
A. The terms "Loss" and "Losses" as used in this Agreement shall mean the
sum or sums paid or payable by the Company in settlement of claims and
in satisfaction of judgments rendered on account of such claims
covered under this Agreement, and will include 90% of any Extra
Contractual Obligations (and expense) as defined in the EXTRA
CONTRACTUAL OBLIGATIONS ARTICLE and 90% of any Excess of Policy Limits
amount as defined in the EXCESS OF POLICY LIMITS ARTICLE, expenses of
litigation and interest, monitoring counsel expense, claim-specific
declaratory judgment expenses, and all other loss adjustment expenses
incurred by the Company in the investigation, adjustment, appraisal or
defense of all claims under Policies reinsured hereunder, including
subrogation, salvage, and recovery expenses (office expenses and
salaries of officials and employees not classified as loss adjusters
are not chargeable as loss adjustment expenses for purposes of this
paragraph), but salvages and all recoveries, including recoveries
under all reinsurances which inure to the benefit of this Agreement
(whether recovered or not), shall be first deducted from such loss to
arrive at the amount of liability attaching hereunder. The sum of
loss, loss adjustment expense, any Extra Contractual Obligations, and
any Excess of Policy Limits is subject to the limit as stated in the
COVER ARTICLE. Nothing herein shall be construed to mean that losses
under this Agreement are not recoverable until the Company's loss has
been ascertained. Salvage recovered or recoveries received by the
Company after a loss settlement hereunder shall be applied as if
recovered or received before the said settlement, and all necessary
adjustments shall be made by the parties hereto.
The phrase "claim-specific declaratory judgment expenses," as used in
this Agreement will mean all expenses incurred by the Company in
connection with declaratory judgment actions brought to determine the
Company's defense and/or indemnification obligations that are allocable
to specific Policies and claims subject to this Agreement. Declaratory
judgment expenses will be deemed to have been incurred by the Company
on the date of the original loss (if any) giving rise to the
declaratory judgment action.
B. The term "Net Retained Premium Income" as used in this Agreement shall
mean gross premium income on business the subject of this Agreement,
classified by the Company as MPCI, less cessions to the FCIC's Assigned
Risk, Developmental and Commercial Funds, less gross premium income
paid for reinsurances, recoveries under which would inure to the
benefit of this Agreement, and net of intermediary fees from assumed
MPCI reinsurance subject to this Agreement.
C. The term "Retained Underwriting Loss" as used in this Agreement shall
mean the Net Retained Premium Income, plus underwriting losses on
business the subject of this Agreement, classified by the Company as
MPCI, after all cessions to the FCIC's Assigned Risk, Developmental and
Commercial Funds, and costs and recoveries of FCIC Stop Loss
reinsurance.
D. The term "Retained Underwriting Gain" as used in this Agreement shall
mean the Net Retained Premium Income, plus underwriting gains on
business the subject of this Agreement, classified by the Company as
MPCI, after all cessions to the FCIC's Assigned Risk, Developmental and
Commercial Funds, and costs and recoveries of FCIC Stop Loss
reinsurance.
E. The term "Net Retained Underwriting Gain" as used in this Agreement
shall mean the sum of Retained Underwriting Loss and Retained
Underwriting Gain, as defined in items C. and D. in ARTICLE 13, which
yields a positive balance.
101200-185 1/1/99 Page 13
<PAGE>
F. The term "Net Retained Underwriting Loss" as used in this Agreement
shall mean the sum of Retained Underwriting Loss and Retained
Underwriting Gain, as defined in items C. and D. in ARTICLE 13, which
yields a negative balance.
G. As respects Section 1 (Ag PI), the term "Net Written Premium" as used
in this Agreement shall mean the written premium income on business the
subject of this Agreement, less written premium income paid for
reinsurances, recoveries under which would inure to the benefit of this
Agreement,
As respects Section 2 (Crop Hail), the term "Net Written Premium" as
used in this Agreement shall mean the written premium income on
business the subject of this Agreement, less written premium income
paid for reinsurances, recoveries under which would inure to the
benefit of this Agreement, less a deduction for intermediary fees for
assumed Crop Hail reinsurance subject to this Agreement.
H. The term "Policy" as used in this Agreement shall mean any binder,
policy, or contract of insurance or reinsurance issued, accepted or
held covered provisionally or otherwise, by or on behalf of the
Company.
ARTICLE 14
CASH CALL
In the event incurred Losses from Section 2 (Crop Hail) exceed 68.75% of Net
Written Premium after 8/31/99, the Reinsurer will remit to the Company any
balance due within 30 days of the Company's request for payment.
ARTICLE 15
NET RETAINED LIABILITY
This Agreement applies only to that portion of any insurances or reinsurances
covered by this Agreement which the Company retains net for its own account, and
in calculating the amount of any Loss hereunder, only Loss or Losses in respect
of that portion of any insurances or reinsurances which the Company retains net
for its own account shall be included, it being understood and agreed that the
amount of the Reinsurer's liability hereunder in respect of any Loss or Losses
shall not be increased by reason of the inability of the Company to collect from
any other reinsurers, whether specific or general, any amounts which may have
become due from them, whether such inability arises from the insolvency of such
other reinsurers or otherwise.
ARTICLE 16
CURRENCY
The currency to be used for all purposes of this Agreement shall be United
States of America currency.
101200-185 1/1/99 Page 14
<PAGE>
ARTICLE 17
ORIGINAL CONDITIONS
All insurances and reinsurances falling under this Agreement shall be subject to
the same terms, rates, conditions and waivers, and to the same modifications,
alterations and cancellations as the respective Policies of the Company (except
that in the event of the insolvency of the Company the provisions of the
INSOLVENCY ARTICLE of this Agreement shall apply).
ARTICLE 18
LOSS FUNDING
With respect to Losses, funding will be in accordance with the attached Loss
Funding Clause No. 13-01.2.
ARTICLE 19
TAXES
The Company will be liable for taxes (except Federal Excise Tax) on premiums
reported to the Reinsurer hereunder.
Federal Excise Tax applies only to those Reinsurers, excepting Underwriters at
Lloyd's, London and other Reinsurers exempt from the Federal Excise Tax, who are
domiciled outside the United States of America.
The Reinsurer has agreed to allow for the purpose of paying the Federal Excise
Tax 1% of the premium payable hereon to the extent such premium is subject to
Federal Excise Tax.
In the event of any return of premium becoming due hereunder, the Reinsurer will
deduct 1% from the amount of the return, and the Company or its agent should
take steps to recover the Tax from the U.S. Government.
ARTICLE 20
NOTICE OF LOSS AND LOSS SETTLEMENTS
The Company will advise the Reinsurer promptly in the event Losses are likely to
result in claim being made upon the Reinsurer, based upon a reasonable estimate
of the Net Written Premium as respects Section 1 (Ag PI) and Section 2 (Crop
Hail) and the Company's Net Retained Premium Income as respects Section 3
(MPCI), and will continue to keep the Reinsurer informed of subsequent
developments in incurred Losses.
The Reinsurer agrees to abide by the Loss settlements of the Company. Any Loss
settlement made by the Company, whether under strict Policy conditions or by way
of compromise, shall be unconditionally binding upon the Reinsurer in proportion
to its participation, and the Reinsurer shall benefit proportionally in all
salvages and recoveries.
Should the Loss of the Company exceed the Company's estimated retention prior to
the time that the Net Written Premium as respects Section 1 (Ag PI) and Section
2 (Crop Hail) and Net Retained Premium Income as respects Section 3 (MPCI) of
the Company is known, the Reinsurer will make provisional settlement based on a
reasonable estimate of the Net Written Premium as respects Section 1 (Ag PI) and
101200-185 1/1/99 Page 15
<PAGE>
Section 2 (Crop Hail) and Net Retained Premium Income as respects Section 3
(MPCI). Any provisional settlement will be adjusted when the Company's actual
Net Written Premium as respects Ag PI and Crop Hail and Net Retained Premium
Income as respects MPCI and are known.
In addition, the Company shall provide information regarding potential Loss
developments on each 7/15, 8/30, and 10/15, or as soon as information is
available.
ARTICLE 21
EXCESS OF POLICY LIMITS
In the event the Loss includes an amount in excess of the Company's Policy
limit, such amount, as provided for in the definition of Loss, in excess of the
Company's Policy limit shall be added to the amount of the Company's Policy
limit, and the sum thereof shall be covered hereunder, subject to the
Reinsurer's limit of liability appearing in the COVER ARTICLE of this Agreement.
However, this Article shall not apply where the Loss has been incurred due to
the fraud of a member of the Board of Directors or a corporate officer of the
Company acting individually or collectively or in collusion with any individual
or corporation or any other organization or party involved in the presentation,
defense or settlement of any claim covered hereunder.
For the purpose of this Article, the word "Loss" shall mean any amounts for
which the Company would have been contractually liable to pay had it not been
for the limit of the original Policy.
ARTICLE 22
EXTRA CONTRACTUAL OBLIGATIONS
This Agreement shall protect the Company, subject to the Reinsurer's limit of
liability appearing in the COVER ARTICLE of this Agreement, where the Loss
includes any Extra Contractual Obligations as provided for in the definition of
Loss. "Extra Contractual Obligations" are defined as those liabilities not
covered under any other provision of this Agreement and which arise from
handling of any claim on business covered hereunder, such liabilities arising
because of, but not limited to, the following: failure by the Company to settle
within the Policy limit, or by reason of alleged or actual negligence, fraud or
bad faith in rejecting an offer of settlement or in the preparation of the
defense or in the trial of any action against its insured or in the preparation
or prosecution of an appeal consequent upon such action.
The date on which any Extra Contractual Obligation is incurred by the Company
shall be deemed, in all circumstances, to be the date of the original Loss.
However, this Article shall not apply where the Loss has been incurred due to
the fraud of a member of the Board of Directors or a corporate officer of the
Company acting individually or collectively or in collusion with any individual
or corporation or any other organization or party involved in the presentation,
defense or settlement of any claim covered hereunder.
ARTICLE 23
OFFSET
The Company or the Reinsurer shall have and may exercise, at any time and from
time to time, the right to offset any balance or balances whether on account of
premiums or on account of Losses or otherwise, due from one party to the other
101200-185 1/1/99 Page 16
<PAGE>
party hereto under the terms of this Agreement. The party asserting the right of
offset shall have and may exercise such right whether acting in the capacity of
assuming reinsurer or as ceding insurer.
ARTICLE 24
DELAY, OMISSION OR ERROR
Any inadvertent delay, omission or error shall not be held to relieve either
party hereto from any liability which would attach to it hereunder if such
delay, omission or error had not been made, providing such delay, omission or
error is rectified upon discovery.
ARTICLE 25
INSPECTION
The Company shall place at the disposal of the Reinsurer at all reasonable
times, and the Reinsurer shall have the right to inspect, through its authorized
representatives, all books, records and papers of the Company in connection with
any reinsurance hereunder or claims in connection herewith.
ARTICLE 26
ARBITRATION
Any irreconcilable dispute between the parties to this Agreement will be
arbitrated in Indianapolis, Indiana in accordance with the attached Arbitration
Clause No. 22-01.1.
ARTICLE 27
SERVICE OF SUIT
The attached Service of Suit Clause No. 20-01.5 - U.S.A. will apply to this
Agreement.
ARTICLE 28
INSOLVENCY
In the event of the insolvency of the Company, the attached Insolvency Clause
No. 21-01 - 1/1/86 will apply.
In the event of the insolvency of any company or companies included in the
designation of "Company," this clause will apply only to the insolvent company
or companies.
101200-185 1/1/99 Page 17
<PAGE>
ARTICLE 29
INTERMEDIARY
Sedgwick Re, 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 Sedgwick Re, Inc., 6600 France Avenue South,
Suite 510, Edina, MN 55435. Payments by the Company to the Intermediary shall be
deemed to constitute payment to the Reinsurer. Payments by the Reinsurer to the
Intermediary shall be deemed only to constitute payment to the Company to the
extent that such payments are actually received by the Company.
101200-185 1/1/99 Page 18
<PAGE>
ARTICLE 30
PARTICIPATION: AG PI, CROP HAIL AND MPCI MULTI-YEAR QUOTA SHARE REINSURANCE
AGREEMENT
EFFECTIVE: January 1, 1999
This Agreement obligates the Reinsurer for _______% 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 following dates:
PARTICIPATING REINSURERS
- ------------------------------------------------------------------------------
Insurance Corporation of Hannover 12.50%
Munchener Ruckversicherungs 35.00%
R&V Verischerung 1.00%
Sedgwick Re Australia
Monde Re 3.00%
Reinsurance Australia Corporation Limited 3.00%
-----
TOTAL Sedgwick Re Placement: 54.50%
Direct Placement: Granite Re 7.50%
-----
GRAND TOTAL 62.00%
Upon completion of Reinsurers' signing, fully executed signature pages will be
forwarded to you for the completion of your file.
101200-185 1/1/99 Page 19
<PAGE>
and in Indianapolis, Indiana, this 19th day of January, 1999.
IGF INSURANCE COMPANY
PAFCO GENERAL INSURANCE COMPANY
SUPERIOR INSURANCE COMPANY
By: /s/ Alan G. Symons
Alan G. Symons
---------------------------------------
(name)
Director
---------------------------------------
(title)
AG PI, CROP HAIL AND MPCI MULTI-YEAR QUOTA SHARE REINSURANCE AGREEMENT
issued to
IGF INSURANCE COMPANY
PAFCO GENERAL INSURANCE COMPANY
SUPERIOR INSURANCE COMPANY
101200-185 1/1/99 Page 20
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
(Replace this text with the legend)
</LEGEND>
<CIK> 0001013698
<NAME> Symons International Group
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 196,916,000
<DEBT-MARKET-VALUE> 196,916,000
<EQUITIES> 12,516,000
<MORTGAGE> 2,059,000
<REAL-ESTATE> 0
<TOTAL-INVEST> 230,696,000
<CASH> 4,373,000
<RECOVER-REINSURE> 61,555,000
<DEFERRED-ACQUISITION> 14,907,000
<TOTAL-ASSETS> 679,694,000
<POLICY-LOSSES> 173,138,000
<UNEARNED-PREMIUMS> 176,021,000
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 4,520,000
0
135,000,000
<COMMON> 38,136,000
<OTHER-SE> 46,351,000
<TOTAL-LIABILITY-AND-EQUITY> 679,694,000
68,485,000
<INVESTMENT-INCOME> 3,289,000
<INVESTMENT-GAINS> (1,382,000)
<OTHER-INCOME> 4,463,000
<BENEFITS> 51,819,000
<UNDERWRITING-AMORTIZATION> 605,000
<UNDERWRITING-OTHER> 16,560,000
<INCOME-PRETAX> 6,317,000
<INCOME-TAX> 2,250,000
<INCOME-CONTINUING> 4,067,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,012,000
<EPS-BASIC> .19
<EPS-DILUTED> .19
<RESERVE-OPEN> 173,138,000
<PROVISION-CURRENT> 41,732,000
<PROVISION-PRIOR> 131,406,000
<PAYMENTS-CURRENT> 19,880,000
<PAYMENTS-PRIOR> 59,773,000
<RESERVE-CLOSE> 68,566,000
<CUMULATIVE-DEFICIENCY> 7,793,000
</TABLE>
