SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------------------
FORM 11-K
(Mark One)
|X| ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1999
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________ to ________
Commission File Number 000-22761
A. Full title of the plan and the address of the plan, if different from that of
the issuer named below:
PMA Capital Corporation 401(k) Plan
380 Sentry Parkway
Blue Bell, PA 19422
B. Name of issuer of the securities held pursuant to the plan and the address of
its principal executive office:
PMA Capital Corporation
Mellon Bank Center, Suite 2800
1735 Market Street
Philadelphia, PA 19103-7590
REQUIRED INFORMATION
Financial statements and schedules for PMA Capital Corporation's 401(k) Plan,
prepared in accordance with the financial reporting requirements of the Employee
Retirement Income Security Act of 1974, appear on pages 1 through 14 of this
Annual Report on Form 11-K.
<PAGE>
PMA CAPITAL CORPORATION 401(k) PLAN
FINANCIAL STATEMENTS
AND SUPPLEMENTAL SCHEDULES
December 31, 1999 and 1998
<PAGE>
PMA CAPITAL CORPORATION 401(k) PLAN
FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULE
Table of Contents
Pages
-----
Report of Independent Accountants 2
Financial Statements:
Statements of Net Assets Available for Benefits
as of December 31, 1999 and 1998 3
Statements of Changes in Net Assets Available for Benefits
for the years ended December 31, 1999 and 1998 4
Notes to Financial Statements 5-12
Supplemental Schedule:
Assets Held for Investment Purposes as of December 31, 1999 13-14
1
<PAGE>
Report of Independent Accountants
To the Participants and Administrator of the
PMA Capital Corporation 401 (k) Plan:
In our opinion, the accompanying statements of net assets available for benefits
and the related statements of changes in net assets available for benefits
present fairly, in all material respects, the net assets available for benefits
of the PMA Capital Corporation 401(k) Plan (the "Plan") at December 31, 1999 and
1998, and the changes in net assets available for benefits for the years then
ended in conformity with accounting principles generally accepted in the United
States. These financial statements are the responsibility of the Plan's
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States,
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
Our audits were conducted for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedule of Assets Held
for Investment Purposes is presented for the purpose of additional analysis and
is not a required part of the basic financial statements but is supplementary
information required by the Department of Labor's Rules and Regulations for
Reporting and Disclosure under the Employee Retirement Income Security Act of
1974. This supplemental schedule is the responsibility of the Plan's management.
The supplemental schedule has been subjected to the auditing procedures applied
in the audits of the basic financial statements and, in our opinion, is fairly
stated in all material respects in relation to the basic financial statements
taken as a whole.
/s/ PricewaterhouseCoopers
1177 Avenue of the Americas
New York, New York
June 22, 2000
2
<PAGE>
PMA CAPITAL CORPORATION 401(k) PLAN
STATEMENTS OF NET ASSETS AVAILABLE FOR BENEFITS
as of December 31, 1999 and 1998
1999 1998
----------- -----------
Investments, at fair value $73,650,163 $61,104,436
Participant loans receivable 1,751,028 1,714,159
Cash and cash equivalents 173,857 165,203
Employer contributions receivable 66,572 3,967
Participant contributions receivable 179,183 153,450
----------- -----------
Net assets available for benefits $75,820,803 $63,141,215
=========== ===========
The accompanying notes are an integral
part of the financial statements.
3
<PAGE>
PMA CAPITAL CORPORATION 401(k) PLAN
STATEMENTS OF CHANGES IN NET ASSETS
AVAILABLE FOR BENEFITS
for the years ended December 31, 1999 and 1998
1999 1998
----------- -----------
Additions:
Investment income:
Interest and dividends $ 4,911,842 $ 3,714,666
Net appreciation in fair
value of investments 3,575,039 4,628,074
Contributions:
Participants 5,601,241 4,223,898
Employer 2,130,393 1,711,034
----------- -----------
Total additions 16,218,515 14,277,672
----------- -----------
Deductions:
Participant withdrawals 3,533,172 4,569,376
Administrative expenses 5,755 5,195
----------- -----------
Total deductions 3,538,927 4,574,571
----------- -----------
Net additions 12,679,588 9,703,101
Net assets available for benefits:
Beginning of year 63,141,215 53,438,114
----------- -----------
End of year $75,820,803 $63,141,215
=========== ===========
The accompanying notes are an integral
part of the financial statements.
4
<PAGE>
PMA CAPITAL CORPORATION 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
1. Description of Plan
The following brief description of the PMA Capital Corporation 401(k) Plan
(the "Plan") is provided for general informational purposes only.
Participants should refer to the Plan document for more complete
information.
General
The plan is a defined contribution plan and is qualified under Section
401(a) of the Internal Revenue Code ("IRC"), allowing contributions to be
made by participants on a before-tax basis under Section 401(k) of the IRC.
The Plan is subject to the Employee Retirement Income Security Act
("ERISA").
Eligibility and Participation
Presently, all active employees of PMA Capital Corporation (the "Company")
and its affiliates are eligible to participate in the Plan upon
commencement of their employment.
Contributions
Contributions to the Plan are made by eligible employees and the Company.
Participants may authorize the Company to withhold up to a maximum of 15%
of their compensation each year for employee pre-tax contributions to the
Plan. In addition, participants may elect to have the Company withhold up
to 10% of their compensation as a voluntary (after-tax) contribution. The
combined maximum of pre-tax and after-tax contributions is 16% of
compensation. The Company, in turn, will make matching contributions on
behalf of participants equal to $1.00 for each $1.00 of employee pre-tax or
after-tax contributions, up to a maximum of 5% of each participant's
compensation.
Investment Options
Contributions are invested, at the election of the participants, in the
following funds which are managed by The Vanguard Group (the "Vanguard
Funds"), an unrelated entity:
Vanguard Retirement Savings Trust: Seeks stability of principal and a high
level of current income consistent with a two- to three-year average
maturity. The trust is a tax-exempt collective trust invested primarily in
investment contracts issued by insurance companies and commercial banks,
and similar types of fixed-principal investments.
5
<PAGE>
PMA CAPITAL CORPORATION 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
Vanguard Morgan Growth Fund: Seeks long-term growth of capital by investing
primarily in stocks of large and medium-size domestic companies whose
revenue and/or earnings are expected to grow faster than those of the
average company in the market.
Vanguard 500 Index Fund: Seeks to match the performance of a benchmark
index that measures the investment return of large-capitalization
companies. The Fund employs a passive management strategy designed to track
the performance of the Standard & Poor's 500 Index, which is dominated by
the stocks of large U.S. companies. The Fund invests in the stocks that
comprise the Index.
Vanguard Treasury Money Market Fund: Seeks to provide current income while
maintaining liquidity and a stable share price of $1. The Fund invests
solely in high-quality, short-term money market securities whose interest
and principal payments are backed by the full faith and credit of the U.S.
government.
Vanguard STAR Fund: Seeks to provide long-term growth of capital and income
by investing in a diversified group of other Vanguard mutual funds: 60%-70%
of its assets in six stock funds; 20%-30% of its assets in two bond funds;
and 10%-20% of its assets in short-term reserves through a short-term bond
fund and a money market fund.
Vanguard Windsor II Fund: Primarily seeks to provide long-term growth of
capital, and as a secondary objective, to provide some dividend income by
investing in stocks of primarily large and medium-size companies considered
undervalued by the Fund's advisers.
Vanguard International Growth Fund: Seeks to provide long-term growth of
capital by investing in stocks of seasoned companies located outside the
U.S., with above average potential for growth.
Vanguard LifeStrategy Growth Fund: Seeks to provide growth of capital and
some current income. The Fund invests in other Vanguard mutual funds
according to a fixed formula that typically results in an allocation of
about 80% to common stocks and 20% to bonds.
6
<PAGE>
PMA CAPITAL CORPORATION 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
Vanguard Total Bond Market Index Fund: Seeks to match the performance of a
broad, market-weighted bond index. The Fund employs a passively-managed
investment approach, by holding a mix of bonds that seeks to match the
performance of the Lehman Brothers Aggregate Bond Index.
Vanguard LifeStrategy Moderate Growth Fund: Seeks to provide growth of
capital and a low to moderate level of current income. The Fund invests in
other Vanguard funds according to a fixed formula that typically results in
an allocation of about 60% of assets to common stocks and 40% to bonds.
PMA Capital Corporation Stock Fund: Seeks to provide the potential for
long-term growth by investing in the Company's Class A Common Stock and
reinvestment of its dividends.
The Self-Directed Fund is only available to participants who had balances
in self-directed funds as of December 31, 1992. The Self-Directed Fund is
no longer available for additional contributions. The Self-Directed Fund is
administered by the Vanguard Group on behalf of the participants.
Vesting
When a participant attains age 65, becomes disabled as defined by the
Company's long-term disability plan, or dies, the full value of the
employer's matching contributions, allocated to the account, plus actual
earnings thereon, becomes vested to the participant (or to the
participant's beneficiary in the event of death) and is nonforfeitable.
Prior to the occurrence of such an event, the value of the employer's
matching contributions will vest to a participant based on their years of
service, as indicated in the following table:
Less than 1 year 0%
1 year 10%
2 years 40%
3 years 60%
4 years 80%
5 years 100%
An employee's contributions, plus actual earnings thereon, are always 100%
vested and nonforfeitable.
Plan participants who cease to be employees are entitled to withdraw
participant contributions, including allocated net realized and unrealized
gains and losses. In addition, such former employees are entitled to their
vested value of allocated Company contributions and earnings thereon, based
on years of service.
7
<PAGE>
PMA CAPITAL CORPORATION 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
Allocation of Investment Income and Realized Gains & Losses
Invested assets of the Plan are valued at the end of each business day, by
adjusting the account of each member to reflect any appreciation or
depreciation in the fair market value or income or losses of the funds.
Member accounts are adjusted in proportion to the balance in each member's
account as compared to the total account balances of all members' accounts.
The allocation is also affected by the timing of transfers, loans,
repayments and distributions. Member accounts in the self-directed fund are
valued based on the gains or losses of the individual member's account.
Withdrawals and Distributions
Withdrawals and distributions of vested account balances are made in the
following manner upon retirement, termination, death or disability.
Generally, the participant's vested account balance will be distributed in
the form of a single lump sum cash payment. However, participants may elect
to receive payment in the form of an annuity or to leave the money in the
plan subject to Internal Revenue Service ("IRS") minimum distribution
rules. To the extent amounts are invested in the PMA Capital Corporation
Stock Fund, a participant may elect to receive such amounts in the
Company's Class A Common Stock or cash.
Plan participants may elect to borrow up to the lesser of 50% of their
available vested balance or $50,000 minus their highest outstanding loan
balance during the prior twelve month period under the Plan. Participants
may apply for two loans each plan year, however, no more than two loans may
be outstanding at any one time. These interest-bearing loans are secured by
the participant's account balance and are repaid through payroll
deductions. The interest rate for all loans is the prime rate in effect on
the first business day of the month of the loan application. The maximum
loan amounts, repayment terms, and other restrictions are determined in
accordance with the IRC.
Disposition of Forfeiture
Forfeitures of Company contributions, resulting from the termination of
participants with less than fully vested rights under the Plan, shall be
applied to reduce future employer matching contributions. The amounts
applied to reduce future employer matching contributions for the year ended
December 31, 1999 and 1998 were approximately $265,000 and $372,000,
respectively.
8
<PAGE>
PMA CAPITAL CORPORATION 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
Plan Termination
While the Company has not expressed any intent to discontinue the Plan, it
may do so at any time, subject to the provisions of ERISA. In the event of
such discontinuance, Plan participants would receive their contributions,
including allocated realized and unrealized gains and losses, and any other
vested benefits.
2. Summary of Significant Accounting Policies
The following accounting policies conform with generally accepted
accounting principles. The financial statements of the Plan are prepared
using the accrual method of accounting.
Investment Valuation and Income Recognition
Investments in the Vanguard Funds are stated at fair value. Shares of
registered investment companies are valued at quoted market prices which
represent the net asset value of shares held by the Plan at year-end. Units
of the Retirement Savings Trust are valued at net asset value at year-end.
The Company stock fund is valued at its year-end unit closing price
(comprised of year-end market price plus uninvested cash position).
Participant loans are valued at cost which approximates fair value.
Interest income is accrued when earned. Dividend income is recorded on the
ex-dividend date. Capital gain distributions are included in dividend
income.
Investments in the self-directed fund (principally equity securities) are
carried at fair value based on quoted market prices. Purchase and sales of
securities are reflected on a trade-date basis. Gains and losses on the
sale of securities are determined using the average cost of investments.
The Plan presents in the statement of changes in net assets available for
benefits, the net appreciation (depreciation) in fair value of its
investments which consists of the realized gains and losses and the
unrealized appreciation (depreciation) on those investments.
Participant Loans Receivable
Participant loans receivable are recorded at the original loan amount, plus
accrued interest, less subsequent principal and interest repayments.
9
<PAGE>
PMA CAPITAL CORPORATION 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
Payment of Withdrawals
Withdrawals are recorded when paid.
Administrative Expenses
Certain administrative expenses incurred by the Plan are paid by the
Company.
Use of Estimates
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
changes therein, and disclosures of contingent assets and liabilities.
Actual results could differ from those estimates.
Risks and Uncertainties
The Plan provides various investment options in funds that invest in
stocks, bonds, fixed income instruments and other mutual funds. Investment
securities are exposed to various risks, such as interest rate risk, market
risk and credit risk. Due to the level of risk associated with certain
investment securities and the level of uncertainty related to changes in
the value of the investment securities, it is at least reasonably possible
that changes in risks in the near term would materially affect
participants' account balances and the amounts reported in the statements
of net assets available for benefits and the statements of changes in net
assets available for benefits.
Reclassifications
Certain prior year amounts have been reclassified to conform to the current
year presentation.
3. Investments
During 1999 and 1998, the Plan's investments, (including gains and losses
on investments bought and sold as well as held during the year) appreciated
(depreciated) in value as follows:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Vanguard Mutual Funds $ 3,585,029 $ 4,460,325
PMA Capital Corporation Stock Fund 22,517 --
Self-directed funds (32,507) 167,749
----------- -----------
Total $ 3,575,039 $ 4,628,074
=========== ===========
</TABLE>
10
<PAGE>
PMA CAPITAL CORPORATION 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
Investments at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999
-------------------------------------------------
UNIT/ FAIR
SHARES VALUE COST
------------ ------------ -----------
<S> <C> <C> <C>
Vanguard Morgan Growth Fund 662,116 $15,175,695* $11,381,717
Vanguard 500 Index Fund 123,161 16,667,325* 10,410,680
Vanguard Treasury Money Market Fund 1,431,859 1,431,859 1,431,859
Vanguard STAR Fund 361,110 6,575,805* 5,978,921
Vanguard Windsor II Fund 331,971 8,289,323* 8,727,529
Vanguard International Growth Fund 131,779 2,963,717 2,270,732
Vanguard LifeStrategy Growth Fund 77,891 1,667,643 1,390,701
Vanguard Total Bond Market Index Fund 179,063 1,711,840 1,771,418
Vanguard LifeStrategy Moderate Growth Fund 62,829 1,142,237 980,767
Vanguard Retirement Savings Trust 16,045,662 16,045,662* 16,045,662
PMA Capital Corporation Stock Fund 60,449 1,201,428 1,186,913
Self-Directed Fund - Equity Securities 777,629 676,623
----------- -----------
Total $73,650,163 $62,253,522
=========== ===========
<CAPTION>
1998
-------------------------------------------------
UNIT/ FAIR
SHARES VALUE COST
------------ ------------ -----------
<S> <C> <C> <C>
Vanguard Morgan Growth Fund 564,795 $11,137,756* $ 8,755,111
Vanguard 500 Index Fund 104,263 11,880,820* 7,594,381
Vanguard Treasury Money Market Fund 925,995 925,995 925,995
Vanguard STAR Fund 327,834 5,887,907* 5,294,355
Vanguard Windsor II Fund 285,238 8,514,357* 7,251,066
Vanguard International Growth Fund 120,084 2,253,970 1,965,710
Vanguard LifeStrategy Growth Fund 55,067 1,034,712 902,830
Vanguard Total Bond Market Index Fund 132,281 1,358,524 1,315,273
Vanguard LifeStrategy Moderate Growth Fund 42,597 718,184 617,636
Vanguard Retirement Savings Trust 15,651,967 15,651,967* 15,651,967
PMA Capital Corporation Stock Fund 835,954 835,954 835,954
Self-Directed Fund - Equity Securities 904,290 570,101
----------- -----------
Total $61,104,436 $51,680,379
=========== ===========
<FN>
*Investment in excess of 5% of net assets available for Plan benefits as of
December 31, 1999 and 1998 as applicable.
</FN>
</TABLE>
11
<PAGE>
PMA CAPITAL CORPORATION 401(k) PLAN
NOTES TO FINANCIAL STATEMENTS
4. Related Party Transactions
The Plan invests in shares of mutual funds managed by an affiliate of
Vanguard Fiduciary Trust Company ("VFTC"). VFTC acts as trustee for only
those investments as defined by the Plan. Transactions in such investments
qualify as party-in-interest transactions which are exempt for the
prohibited transactions rules.
5. Tax Status
The IRS has determined and informed the Company by a letter dated December
13, 1995 that the Plan is qualified and the trust established under the
Plan is tax-exempt under the appropriate sections of the IRC. The Plan has
been amended since receiving the determination letter. However, the Plan
Administrator and the Plan's tax counsel believe that the Plan is currently
designed and being operated in compliance with the applicable requirements
of the IRC. Therefore, they believe that the Plan was qualified and the
related trust was tax-exempt as of the financial statement date.
12
<PAGE>
<TABLE>
<CAPTION>
Form 5500
Schedule H, Part IV, Item 4i
PMA CAPITAL CORPORATION 401(k) PLAN
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
as of December 31, 1999
------------------------
Number
of Shares/
Face Amount Description of Investment Cost Fair Value
----------- ------------------------- ---- ----------
<C> <S> <C> <C>
Registered Investment Companies
-------------------------------
662,116 Vanguard Morgan Growth Fund* $11,381,717 $15,175,695
----------- -----------
123,161 Vanguard 500 Index Fund* 10,410,680 16,667,325
----------- -----------
1,431,859 Vanguard Treasury Money Market Fund* 1,431,859 1,431,859
----------- -----------
361,110 Vanguard STAR Fund* 5,978,921 6,575,805
----------- -----------
331,971 Vanguard Windsor II Fund* 8,727,529 8,289,323
----------- -----------
131,779 Vanguard International Growth Fund* 2,270,732 2,963,717
----------- -----------
77,891 Vanguard LifeStrategy Growth Fund* 1,390,701 1,667,643
----------- -----------
179,063 Vanguard Total Bond Market Index Fund* 1,771,418 1,711,840
----------- -----------
62,829 Vanguard LifeStrategy Moderate Growth Fund* 980,767 1,142,237
----------- -----------
Tax-Exempt Collective Trust
---------------------------
16,045,662 Vanguard Retirement Savings Trust* 16,045,662 16,045,662
----------- -----------
Company Stock Fund
------------------
60,449 PMA Capital Corporation Stock Fund* 1,186,913 1,201,428
----------- -----------
<FN>
*Indicates a party-in-interest.
</FN>
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Form 5500
Schedule H, Part IV, Item 4i
PMA CAPITAL CORPORATION 401(k) PLAN
SCHEDULE OF ASSETS HELD FOR INVESTMENT PURPOSES
as of December 31, 1999, continued
--------------------
Number of
Shares/
Face Amount Description of Investment Cost Fair Value
----------- ------------------------- ---- ----------
<C> <S> <C> <C>
Self-Directed Fund - Equity Securities
--------------------------------------
400 Caterpillar Inc. $ 22,687 $ 18,825
2,127 Clayton Homes Inc. 23,840 19,542
500 Conseco Inc. 13,846 8,907
5,482 Dollar General Corp. 95,904 124,709
200 Dell Computer Corp. 8,313 10,188
1,500 Furniture Brands International Inc. Common 27,364 33,000
400 Gentex Corp. 6,532 11,100
2,000 Helen of Troy Ltd. Ordinary New 26,335 14,500
900 Hon Industries Inc. 22,878 19,744
693 MBNA Corp. 7,877 18,884
300 Merrill Lynch & Co. Inc. 28,279 24,994
7,250 PMA Capital Corp. Class A 145,480 144,090
700 T. Rowe Price Associates Inc. 22,912 25,769
600 Raymond James Financial Inc. 18,627 11,175
400 Reynolds & Reynolds Co. Class A 6,612 9,000
702 Roper Industries Inc. 19,710 26,532
4,000 Safeway Inc. Common New 95,739 143,000
7,500 Seattle Film Works Inc. 41,438 20,857
4,500 Staples Inc. 42,250 92,813
----------- -----------
Total Equity Securities 676,623 777,629
----------- -----------
Participant Loans
-----------------
1,751,028 (interest rates ranging from 6.0% to 11.8%) -- 1,751,028
----------- -----------
Total Investments $62,253,522 $75,401,191
=========== ===========
</TABLE>
14
<PAGE>
Exhibits
--------
Exhibits are listed in the Index to Exhibits appearing on page E-1.
Signatures
----------
The Plan. Pursuant to the requirements of the Securities Exchange Act of 1934,
the trustees have duly caused this annual report to be signed on their behalf by
the undersigned thereunto duly authorized.
PMA Capital Corporation 401(k) Plan
Date: June 28, 2000 By: /s/ Francis W. McDonnell
-------------------------------
Francis W. McDonnell,
Senior Vice President, Chief
Financial Officer and Treasurer of
PMA Capital Corporation, and a
Plan Trustee
<PAGE>
Index to Exhibits
-----------------
Method of
Number Description Filing
------ ----------- ------
23 Consent of Filed herewith
Independent
Accountants
-E-1-
