EXHIBIT 99
EXHIBIT 99--FORWARD-LOOKING INFORMATION
The Private Securities Litigation Reform Act of 1995 provides a "safe
harbor" for forward-looking statements. The Company's Form l0-K for the
year ended December 31, 1999, the Company's 1999 Annual Report to
Shareholders, any Form 10-Q or Form 8-K of the Company, or any other oral
or written statements made by or on behalf of the Company, may include
forward-looking statements which reflect the Company's current views with
respect to future events and financial performance. These forward-looking
statements are identified by their use of such terms and phrases as
"intends," "intend," "intended," "goal," "estimate," "estimates,"
"expects," "expect," "expected," "project," "projects," "projected,"
"projections," "plans," "anticipates," "anticipated," "should," "designed
to," "foreseeable future," "believe," "believes," and "scheduled" and
similar expressions. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date the
statement was made. The Company undertakes no obligation to publicly update
or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.
The actual results of the Company may differ significantly from the results
discussed in forward-looking statements. Factors that might cause such a
difference include but are not limited to, (a) the general political,
economic and competitive conditions, including developments in e-commerce,
in the United States, Bermuda and the United Kingdom, and other markets
where the Company operates; (b) changes in capital availability or costs,
such as changes in interest rates; (c) market perceptions of the Company
and the industry in which the Company operates, or security or insurance
ratings; (d) government regulation; (e) authoritative accounting principles
generally accepted in the United States or policy changes from such
standard-setting bodies as the Financial Accounting Standards Board and the
Securities and Exchange Commission, (f) the outcome of legal proceedings,
and the factors set forth below.
COMPETITION; CYCLICALITY OF INSURANCE AND REINSURANCE BUSINESSES
The business of providing risk management services and products to the
workers' compensation and property and casualty insurance markets is highly
competitive. The Company competes with other providers of alternative
market services (including domestic and foreign insurance companies,
reinsurers, insurance brokers, captive insurance companies,
rent-a-captives, self-insurance plans, risk retention groups, state funds,
assigned risk pools and other risk-financing mechanisms) and with providers
of traditional insurance coverage. Many of the Company's competitors have
significantly greater financial resources, longer operating histories, and
better financial or insurance ratings and offer a broader line of insurance
products than the Company.
Factors affecting the traditional insurance and reinsurance industry
influence the environment for alternative risk management services and
products. Insurance market conditions historically have been subject to
cyclicality and volatility due to premium rate competition, judicial
trends, changes in the investment and interest rate environment, regulation
and general economic conditions, causing many insurance buyers to search
for more stable alternatives. The traditional insurance and reinsurance
industry is in a protracted period of significant price competition, due in
part to excess capacity in most lines of business. While some form of
workers' compensation insurance is a statutory requirement in most states,
the choices exercised by employers in response to the underwriting cycle in
traditional insurance and reinsurance markets have had and will continue to
have a material effect on the Company's results of operations. Although
most of the Company's revenues are derived from fees and commissions rather
than underwriting activities, a substantial portion of the Company's fees
are calculated as a percentage of premium volume, and therefore the
Company's fee revenues are directly and adversely affected by highly
competitive market conditions. Additionally, changes in risk retention
patterns by purchasers of insurance and reinsurance products could have an
adverse effect upon the Company.
DEPENDENCE ON RELATIONSHIPS WITH INDEPENDENT PRIMARY INSURANCE CARRIER
The Company's Managing General Agencies market insurance products and
programs developed by the Company on behalf of insurers. The primary
insurer is Clarendon National Insurance Company and its affiliates
("Clarendon"). In addition, the Company's insurance brokering and
reinsurance brokering operations, Managing General Underwriters, and claims
and loss control servicing operations provide additional business and
services to Clarendon in respect of these products and other insurance and
reinsurance policies. In 1999, fees received from Clarendon accounted for
approximately 39% of the Company's total revenues. Historically, the
Company has had a good relationship with Clarendon. There can be no
assurance, however, that Clarendon will not institute changes which affect
its relationships with the Company. Any adverse change or disruption of
Clarendon's business could disrupt the Company's business and could have a
material adverse effect on the Company's results of operations and
financial condition.
REINSURANCE CONSIDERATIONS; AVAILABILITY AND COSTS; CREDIT RISKS
The Company relies upon the use of reinsurance agreements in its various
programs to limit and manage the amount of risk retained by the Company or
its customers, including insurance companies. The availability and cost of
reinsurance may vary over time and is subject to prevailing market
conditions. In particular during 1999, the insurance marketplace in which
the Company primarily operates was subject to considerable disruption,
which led to a number of reinsurers leaving the market. The full effect of
this change in the marketplace for the current and future years is still to
be determined. A lack of available reinsurance coverage could limit the
Company's ability to continue certain of its insurance programs. In respect
of the Company's own insurance operations, the lack of available
reinsurance or increases in the cost of reinsurance could also increase the
amount of risk retained by the Company. In addition, while the Company
seeks to obtain reinsurance with coverage limits intended to be appropriate
for the risk exposures assumed, there can be no assurance that losses
experienced by the Company will be within the coverage limits of the
Company's reinsurance agreements.
The Company is also subject to credit risk as a result of its reinsurance
arrangements, as the Company is not relieved of its liability to
policyholders by ceding risk to its reinsurers. The Company is selective in
regard to its reinsurers, placing reinsurance with only those reinsurers
that it believes have strong balance sheets. The Company monitors the
financial strength of its reinsurers on an ongoing basis. The insolvency,
inability, or unwillingness of any of the reinsurers used by the Company to
meet its obligations could have a material adverse effect on the results of
operations and financial position of the Company. This issue has become
increasingly significant during recent years as a result of the increase in
the number of reinsurers who are unwilling to meet their contractual
obligations due to unfavorable results. No assurance can be given regarding
the future ability or willingness of the Company's reinsurers to meet their
obligations. Further, the establishment of provisions against reinsurance
balances receivable is an inherently uncertain process and there can be no
assurance that the ultimate provision will not materially increase or
decrease. Although the Company has no reason to believe that its provision
against reinsurance balances receivable is inadequate, the Company may need
to revise the provision significantly depending on future information or
events. In the event of such an increase or decrease, the amount would be
reflected in the Company's income statement in the period in which the
provision was adjusted.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a substantial extent on the ability and
experience of its executive officers and middle management personnel. The
loss of the services of one or more such persons could have a material
adverse effect on the business of the Company and its future operations.
POSSIBLE REVISIONS TO LOSS RESERVES
To the extent its activities involve any retention of risk of loss, the
Company maintains loss reserves to cover its estimated ultimate liability
for losses and loss adjustment expenses with respect to reported and
unreported claims incurred. Reserves are estimates involving actuarial and
statistical projections at a given time of what the Company expects to be
the cost of the ultimate settlement and administration of claims based on
facts and circumstances then known, estimates of future trends in claims
severity, and other variable factors such as inflation. To the extent that
reserves prove to be inadequate in the future, the Company would have to
increase such reserves and incur a charge to earnings in the period such
reserves are increased, which could have a material adverse effect on the
Company's results of operations and financial condition. The establishment
of appropriate reserves is an inherently uncertain process and there can be
no assurance that ultimate losses will not materially exceed the Company's
loss reserves. The Company has limited historical claim loss experience to
serve as a reliable basis for the estimation of ultimate claim losses.
Although the Company has no reason to believe that its loss reserves are
inadequate, it is possible that the Company will need to revise the
estimate of claim losses significantly depending on future information or
events. In the event of such an increase, the amount, net of associated
reinsurance recoveries, would be reflected in the Company's income
statement in the period in which the reserves were increased.
ADVERSE EFFECT OF LEGISLATION AND REGULATORY ACTIONS
The Company conducts business in a number of states and foreign countries.
Certain of the Company's subsidiaries are subject to regulation and
supervision by government agencies in the states and foreign jurisdictions
in which they do business. The primary purpose of such regulation and
supervision is to provide safeguards for policyholders rather than to
protect the interests of shareholders. The laws of the various state
jurisdictions establish supervisory agendas with broad administrative
powers with respect to, among other things, licensing to transact business,
licensing of agents, admittance of assets, regulating premium rates,
approving policy forms, regulating unfair trade and claims practices,
establishing reserve requirements and solvency standards, requiring
participation in guarantee funds and shared market mechanisms, and
restricting payment of dividends. Also, in response to perceived excessive
cost or inadequacy of available insurance, states have from time-to-time
created state insurance funds and assigned risk pools which compete
directly, on a subsidized basis, with private providers such as the
Company. Any such event, in a state in which the Company has substantial
operations, could substantially affect the profitability of the Company's
operations in such state, or cause the Company to change its marketing
focus.
State insurance regulators and the National Association of Insurance
Commissioners continually re-examine existing laws and regulations. It is
impossible to predict the future impact of potential state, federal and
foreign country regulations on the Company's operations, and there can be
no assurance that future insurance-related laws and regulations, or the
interpretation thereof, will not have an adverse effect on the operations
of the Company's business.
In addition, the United States Congress enacted new legislation during 1999
that now allows banks and insurance companies to affiliate with one
another. This legislation, the "Financial Services Modernization Act of
1999" (also known as the "Gramm-Leach-Bliley Act") allows mergers of banks
and insurers that previously had been prohibited by U.S. federal law. The
new legislation is expected to facilitate mergers between banks and
insurers, thereby contributing to consolidation of the insurance industry
and increased competition in the broader financial services industry. There
can be no assurance that such competition will not have an adverse effect
on the operation of the Company's business over time.
TAXATION OF THE COMPANY AND CERTAIN OF ITS SUBSIDIARIES
The Company and certain of its subsidiaries are incorporated outside the
United States and, as foreign corporations, do not file United States tax
returns. These entities believe that they operate in such a manner that
they will not be subject to U.S. tax (other than U.S. excise tax on
reinsurance premiums and withholding tax on certain investment income from
U.S. sources) because they do not engage in business in the United States.
There can be no assurance, however, that these entities will not become
subject to U.S. tax because U.S. law does not provide definitive guidance
as to the circumstances in which they would be considered to be doing
business in the United States. If such entities are deemed to be engaged in
business in the United States (and, if the Company were to qualify for
benefits under the income tax treaty between the United States and Bermuda
or the United States and the United Kingdom, such business would be
attributable to a "permanent" establishment in the United States), the
Company would be subject to U.S. tax at regular corporate rates on its
income that is effectively connected with its U.S. business plus an
additional 30% "branch profits" tax on income remaining after the regular
tax.
INTEREST RATE FLUCTUATIONS
The Company maintains most of its cash in the form of short-term,
fixed-income securities, the value of which is subject to fluctuation
depending on changes in prevailing interest rates. The Company generally
does not hedge its cash investments against interest rate risk.
Accordingly, changes in interest rates may result in fluctuations in the
income derived from the Company's cash investments.
