SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996 Commission file number: 0-2047
CAPITOL TRANSAMERICA CORPORATION
A Wisconsin Corporation 39-1052658
4610 University Avenue
Madison, Wisconsin 53705-0900
Registrant's telephone number, including area code (608) 231-4450
Securities registered pursuant to Section 12 (g) of the Act:
COMMON STOCK, $1 PAR VALUE
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 dur-
ing the preceding twelve months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing re-
quirements for the past 90 days.
YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) is not contained herein, and will
not be contained, to the best of the registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this form
10-K. { }
Based on the closing average of the bid (23 1/2) and asked price (24), the
aggregate market value of voting stock held by non-affiliates of the registrant
as of February 21, 1997 was approximately $264,770,486.
Indicate the number of shares of each of the issuer's class of common stock, as
of the latest practicable date:
At February 21, 1997
Common Stock, $1.00 Par Value
Issued: 11,464,678
Outstanding: 11,148,231
DOCUMENTS INCORPORATED BY REFERENCE
Schedule P of the Annual Statements of Capitol Indemnity Corporation and Capitol
Specialty Insurance Corporation are incorporated by reference into Part I. Por-
tions of the proxy statement for the annual shareholders meeting to be held
May 5, 1997 are incorporated by reference into Part III.
Total Pages: 37
Form 10-K (Annual Report)
Capitol Transamerica Corporation
Part I
Item 1. Business
(a) General Development of Business
Capitol Transamerica Corporation (CTC) is a holding company with assets
exceeding $229 million. CTC was formed in 1965 and owns 100% of Capitol
Indemnity Corporation (CIC), Capitol Specialty Insurance Corporation (CSIC)
and Capitol Facilities Corporation (CFC). Both CIC and CSIC are property
and casualty insurance companies. The companies write a complete port-
folio of fidelity and surety bonds and specialty insurance coverages. CIC
operates on an admitted basis in thirty-three states and on an excess/sur-
plus lines basis in three states. CFC provides premium financing for the
insurance companies.
Some of the specialty property and casualty coverages written are: Barber &
Beauty Shops, Bowling Alleys, Contractors/Manufacturers, Day Care Centers,
Deer Hunters Accident, Detective/Guard Agencies, Equipment Breakdown, Golf
Courses, Nurses Professional, Resorts/Campgrounds, Restaurants, Special
Events, Clubs, Sportsman's Accident, Tanning/Toning Salons and Taverns.
The full line of surety and fidelity bonds includes: Contractor's Perfor-
mance and Payment Bonds, License/Permit Bonds, Fiduciary Bonds, Judicial
Bonds and Commercial Fidelity Bonds.
The results of operations have remained most favorable since 1986 with sub-
stantial increases in premium volume, profitability and shareholders'
investment.
(b) Information about Industry Segments
General:
The subsidiaries of the Company, through licensed agents, are involved only
in the business of underwriting property, casualty, fidelity and surety in-
surance on selected risks. The Company conducts business with insurance
agents located throughout the United States. As of December 31, 1996 and
1995, no amount due from agents located in any one state exceeded 15% of
total balances; no industry segment other than insurance amounted to 10% or
more of the Company's gross or net income and no agent had writings in ex-
cess of 10% of the Company's gross premiums in 1996, 1995 or 1994. During
1996, 1995 and 1994, direct premiums written in Wisconsin accounted for
approximately 18%, 21% and 24%, respectively, of the total direct premiums
written by the Company.
(c) Narrative Description of Business
Competitive Conditions:
All business written by the Company is highly competitive in the areas
of price, service and agent relationships. The large number of insurers
transacting business at rates which are independently regulated by their
respective insurance departments compete aggressively for desireable busi-
ness. Because of limitations in capacity and other regulatory restrictions,
companies the size of CIC are sometimes at a disadvantage when competing
with larger insurance companies.
CIC is required by the Insurance Commissioner of the State of Wisconsin to
maintain a minimum compulsory surplus (surplus as regards policyholders) of
25% of net premiums written during the preceding twelve months. As of
December 31, 1996, CIC reported $86.9 million surplus as regards policy-
holders, approximately $64.6 million in excess of the required amount. In
addition, CIC is required to report a minimum 60% loss and loss expense
ratio for the most current three years on certain liability lines as well
as a minimum 65% ratio on the workers compensation line. Based upon actual
historical experience the ratios are substantially less than the require-
ment and had the company not included the excess statutory reserves over
statement reserves in reporting to regulatory authorities, surplus would
have been $94.6 million at December 31, 1996.
Importance and Effect of Licenses:
Generally speaking, insurance companies must be licensed in the states in
which the insurance is written. Forms and rates for each policy offered are
filed with individual state insurance departments.
Number of Persons Employed:
Capitol Transamerica Corporation and subsidiaries employ 160 people.
Information as to Similar Products or Services:
Gross premiums written, reinsurance ceded and net premiums written for the
past five years are as follows:
<TABLE>
<CAPTION>
1996
Gross Ceded Net
<S> <C> <C> <C>
Accident and Health $ 238,615 $ - $ 238,615
Burglary and Glass 32,189 - 32,189
Fidelity 1,317,643 25,958 1,291,685
Fire and Allied Lines 698,783 (271) 699,054
Inland Marine 987,201 2,802 984,399
Liability 13,048,828 130,503 12,918,325
Commercial Multiple Peril 48,790,958 1,027,117 47,763,841
Workers' Compensation 2,470,176 17,104 2,453,072
Surety 23,354,994 492,849 22,862,145
$90,939,387 $1,696,062 $89,243,325
<CAPTION>
1995
Gross Ceded Net
<S> <C> <C> <C>
Accident and Health $ 222,137 $ - $ 222,137
Burglary and Glass 52,045 - 52,045
Fidelity 1,355,259 66,854 1,288,405
Fire and Allied Lines 593,309 10,561 582,748
Inland Marine 76,325 3,208 73,117
Liability 10,575,070 430,641 10,144,429
Commercial Multiple Peril 41,254,997 1,451,561 39,803,436
Workers' Compensation 1,942,861 74,422 1,868,439
Surety 14,806,489 484,277 14,322,212
$70,878,492 $2,521,524 $68,356,968
<CAPTION>
1994
Gross Ceded Net
<S> <C> <C> <C>
Accident and Health $ 223,193 $ - $ 223,193
Burglary and Glass 50,646 - 50,646
Fidelity 1,059,233 90,495 968,738
Fire and Allied Lines 797,229 43,821 753,408
Inland Marine 98,927 3,524 95,403
Liability 9,309,300 307,242 9,002,058
Reinsurance 22,359 - 22,359
Commercial Multiple Peril 37,639,679 994,496 36,645,183
Workers' Compensation 1,623,361 57,099 1,566,262
Surety 7,740,415 415,724 7,324,691
$58,564,342 $1,912,401 $56,651,941
Item 1(c). (continued)
<CAPTION>
1993
Gross Ceded Net
<S> <C> <C> <C>
Accident & Health $ 152,602 $ - $ 152,602
Burglary and Glass 101,171 4,798 96,373
Fidelity 975,077 39,716 935,361
Fire and Allied Line 745,596 52,386 693,210
Inland Marine 132,492 5,481 127,011
Liability 7,429,388 279,170 7,150,218
Reinsurance 3,131 - 3,131
Commercial Multiple Peril 30,932,976 1,710,817 29,222,159
Workers' Compensation 2,381,194 29,596 2,351,598
Surety 7,492,901 318,500 7,174,401
$50,346,528 $2,440,464 $47,906,064
<CAPTION>
1992
Gross Ceded Net
<S> <C> <C> <C>
Accident & Health $ 159,585 $ - $ 159,585
Burglary and Glass 121,820 - 121,820
Fidelity 1,011,367 49,355 962,012
Fire and Allied Line 867,898 42,980 824,918
Inland Marine 117,366 1,883 115,483
Liability 6,765,304 286,189 6,479,115
Commercial Multiple Peril 22,719,435 1,495,220 21,224,215
Workers' Compensation 826,875 6,006 820,869
Surety 6,627,173 337,628 6,289,545
$39,216,823 $2,219,261 $36,997,562
</TABLE>
(d) Copies of "Schedule P" of the Annual Statements filed with State Regulatory
Authorities by CIC and CSIC are incorporated herein by reference and are
available upon request.
(e) Discussion Topics
The following discussion topics, if applicable, have been included in
Management's Discussion and Analysis of Financial Condition and Results of
Operations and/or the Notes to Consolidated Financial Statements and the
accompanying Schedules which appear elsewhere in this Annual Report:
(1) Reinsurance transactions which have a material effect on earn-
ings or reserves.
(2) Significant reserving assumptions including any recent changes.
(3) The nature of recent changes in the terms under which reinsur-
ance is ceded to other insurers.
(4) Changes in the mix of business, including but not limited to
changes in the location of business, geographic mix and types
of risks assumed.
(5) Changes in payment patterns due to portfolio loss transfers,
structured settlements and other transactions or circumstances.
(6) Unusually large losses or gains.
(f) Reconciliation of Loss and Loss Adjustment Expense Reserves:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Balances as of January 1, $ 38,584,084 $ 27,475,323 $ 19,319,449
Less reinsurance balances (45,321) (12,363) (38,049)
Net reserves 38,538,763 27,462,960 19,281,400
Incurred losses and loss adjustment expenses related to:
Current year 36,041,564 27,224,006 21,287,960
Prior years:
Direct losses 1,516,382 2,610,999 1,628,974
Direct loss adjustment expenses 1,901,083 2,810,145 3,704,484
Discontinued assumed reinsurance 1,706,747 1,454,313 914,636
Total prior years 5,124,212 6,875,457 6,248,094
Total incurred 41,165,776 34,099,463 27,536,054
Paid losses and loss adjustment expenses related to:
Current year 15,487,239 10,632,490 9,527,420
Prior years 16,245,614 12,285,492 9,946,822
Total paid 31,732,853 22,917,982 19,474,242
Other adjustments, net (43,956) (105,678) 119,748
Net balance at December 31 47,927,730 38,538,763 27,462,960
(Less) plus reinsurance balances (225,367) 45,321 12,363
Balance at December 31, $ 47,702,363 $ 38,584,084 $ 27,475,323
(g) Loss Reserve Development Consolidated (in millions of dollars)
<CAPTION>
Year ended: 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Reserves for losses and loss
adjustment expense $ 14.8 $ 15.3 $ 14.2 $ 14.1 $ 14.5 $ 18.1 $ 19.3 $ 27.5 $ 38.5 $ 47.7
Re-estimated reserves:
One year later 14.0 14.1 15.3 15.0 19.5 21.2 25.5 33.8 43.4
Two years later 13.3 15.5 16.1 18.3 21.3 23.8 31.2 37.5 -
Three years later 14.6 16.1 18.1 19.9 22.7 28.3 33.5 - -
Four years later 15.1 17.5 19.2 21.3 25.9 30.7 - - -
Five years later 16.2 18.6 20.2 23.8 27.9 - - - -
Six years later 17.4 19.6 21.8 25.6 - - - - -
Seven years later 18.2 21.1 23.6 - - - - - -
Eight years later 19.7 22.8 - - - - - - -
Nine years later 21.4 - - - - - - - -
Cumulative deficiency (4.9) (5.8) (7.6) (9.7) (11.4) (10.2) (11.9) (6.3) (4.9)
Cumulative deficiency from
discontinued reinsurance
assumed operations (9.3) (8.8) (8.2) (7.4) (6.2) (5.2) (4.1) (3.2) (1.7)
Cumulative redundancy
(deficiency) from
continuing operations 4.4 3.0 0.6 (2.3) (5.2) (5.0) (7.8) (3.1) (3.2)
Cumulative amount of liability paid through:
One year later 3.6 4.6 5.9 5.7 7.6 9.4 9.9 12.2 16.2
Two years later 5.9 8.0 8.7 10.1 12.7 14.1 17.2 21.4 -
Three years later 8.3 9.9 12.0 13.4 15.4 18.9 23.6 - -
Four years later 9.4 12.3 13.7 15.2 18.7 23.0 - - -
Five years later 11.4 13.5 14.6 17.5 21.6 - - - -
Six years later 12.3 14.2 15.9 19.7 - - - - -
Seven years later 12.9 15.3 17.9 - - - - - -
Eight years later 14.0 17.3 - - - - - - -
Nine years later 15.9 - - - - - - - -
This table does not present accident or policy year development data, which readers may be more accustomed to
analyzing. Conditions and trends that have effected development of the liability in the past may not necessarily
occur in the future. Accordingly, it may not be appropriate to extrapolate future redundancies or deficiencies
based on this table. There are no specific provisions for the effects of inflation or other factors which may cause a
future change in claim costs.
The company withdrew from the reinsurance assumed business in 1976; however, it remains involved with treaties
that cover certain risks which have had significant development industry-wide over the past several
years. Due to the nature of the assumed business, ultimate losses may, and often do, vary from current estimates.
See footnote 4(b) of the notes to the consolidated financial statements.
</TABLE>
(h) Reconciliation of Statutory to Generally Accepted Accounting Principles
(GAAP) reserves:
<TABLE>
<CAPTION>
Balance, December 31, as reported to For the Year Ended December 31,
Insurance Commissioner of the 1996 1995 1994
State of Wisconsin:
<S> <C> <C> <C>
- CIC $ 47,458,573 $ 37,996,923 $ 26,829,156
- CSIC - - -
Funds withheld from reinsurers, reclassified
to loss reserves on a GAAP basis 489,808 514,583 510,028
Reserve for return of disability premiums,
reclassified to loss reserves on a GAAP basis 14,820 26,625 37,026
GAAP adjustment to gross up reserves
for the effect of reinsurance (225,367) 52,653 119,571
Other, net (35,471) (6,700) (20,458)
Balance, December 31, on a GAAP basis $ 47,702,363 $ 38,584,084 $ 27,475,323
</TABLE>
Item 2. Properties
Capitol Transamerica Corporation leases premises in the Pyare Square
building located at 4610 University Avenue, Madison, Wisconsin, 53705, as
follows:
Approximately 27,406 square feet occupying a portion of the 1st, 2nd,
9th and 10th floors and all of the 11th, 12th, 13th and 14th floors.
The term of the lease is from June 1, 1996 through May 31, 1999.
The Company also leases approximately 2,000 square feet of storage space
from the President of the Company in a personally owned warehouse at
terms as favorable as those available from unaffiliated third parties.
The Company also leases 200 square feet of office space in Las Vegas,
Nevada. the term of the lease is from November 1, 1996 to October 31,
1999.
Item 3. Legal Proceedings
Capitol Indemnity Corporation (CIC) is a defendant in certain lawsuits
involving complaints which demand damages and recoveries for claims and
losses allegedly related to risks insured by CIC. In the opinion of
management, such lawsuits are routine in that they result from the ordi-
nary course of business in the insurance industry. The reserves for losses
and loss adjustment expenses include management's estimates of the
probable ultimate cost of settling all claims involving lawsuits. Such
estimates are continually reviewed and updated. The reserves for losses
and loss adjustment expenses at December 31, 1996, are, in the opinion of
management, adequate to absorb claims arising from those routine legal
proceedings presently in process against the Company.
Item 4. Submission of Matters to a Vote of Shareholders
No matters were submitted to a vote of shareholders during the Company's
fourth fiscal quarter ended December 31, 1996.
Item 5. Market Information, Dividends and Other Information
On February 21, 1997, the approximate number of registered shareholders was
2,500. CTC is publicly owned and traded on the National Over-the-Counter Market,
symbol CATA. The market price of the stock (adjusted) during 1996 was a low of
12 and a high of 20 15/16 with the equivalent of 2,147,465 shares traded.
Quarterly high and low quoted prices are obtained from the National Association
of Securities Dealers. These quotations, adjusted for the December 31, 1996
3 for 2 stock split effected as a 50% dividend and the December 28, 1995 ten
percent stockdividend, are as follows:
<TABLE>
<CAPTION>
1996 1995
Quarter High Low Dividends High Low Dividends
<S> <C> <C> <C> <C> <C> <C>
First 14 13 $.12 10 3/4 9 1/4 $.06
Second 13 11/16 12 .07 11 2/3 9 3/5 .06
Third 15 1/2 12 5/16 .07 11 5/6 10 14/15 .06
Fourth 20 15/16 15 1/16 .07 13 2/3 11 2/3 .06
Year 20 15/16 12 $.33 13 2/3 9 1/4 $.24
For the period January 1 through February 21, 1997, the high ask price was 27 3/8 and the low bid price
was 20 1/16. An extra cash dividend of $.10 per share was paid on February 28, 1997, to shareholders
of record on February 14, 1997 and a regular cash dividend of $.07 per share was paid on March 28, 1997.
Future dividend payments must be authorized by the Board of Directors and will be dependent on operating
results, capital requirements and the financial condition of the Company.
</TABLE>
Subsidiaries S.E.C. Form 10-K
Capitol Indemnity Corporation Copies of the Company's Annual
Capitol Specialty Insurance Corporation report filed with the SEC, in-
Capitol Facilities Corporation cluding exhibits, are available
by written request addressed to:
Independent Public Accountants
Paul J. Breitnauer
Ernst & Young LLP Vice President & Treasurer
111 East Kilbourn Avenue 4610 University Ave.
Milwaukee, Wisconsin 53202 Madison, Wisconsin 53705-0900
Transfer Agent and Registrar Annual Meeting
Firstar Trust Co. The Company's Annual Meeting
Corporate Trust Services will be held Monday, May 5,
615 East Michigan Street 1997, 4:00 PM at the
P.O. Box 2077 Holiday Inn - West
Milwaukee, Wisconsin 53201 1313 John Q. Hammond Drive
Middleton, Wisconsin 53562
Common Stock
Listed: OTC
Quoted: NASD (CATA)
Item 6. FIVE YEAR CONSOLIDATED SUMMARY OF SELECTED FINANCIAL DATA:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Gross Premiums Written $ 90,939,387 $ 70,878,492 $ 58,564,342 $ 50,346,528 $ 39,216,823
Net Premiums Written $ 89,243,325 $ 68,356,968 $ 56,651,941 $ 47,906,064 $ 36,997,562
Premiums Earned $ 77,347,319 $ 63,865,500 $ 52,461,456 $ 43,456,430 $ 33,739,719
Net Investment Income 7,155,382 6,635,123 5,359,606 5,001,715 4,715,339
Realized Investment Gains (Losses) 8,468,911 3,587,323 (106,188) 4,145,701 1,580,431
Other Revenues 382,130 144,866 118,353 38,609 112,488
Total Revenues 93,353,742 74,232,812 57,833,227 52,642,455 40,147,977
Losses and Loss Adjustment Expenses Incurred 41,165,776 34,099,463 27,536,054 20,649,739 16,853,514
Underwriting and Other Expenses 26,680,657 21,497,664 17,883,570 15,963,957 12,204,252
Total Losses Incurred and Expenses 67,846,433 55,597,127 45,419,624 36,613,696 29,057,766
Income from Operations Before Income Taxes 25,507,309 18,635,685 12,413,603 16,028,759 11,090,211
Income Tax Expense 7,158,151 4,705,279 3,166,363 4,344,504 2,687,861
Consolidated Net Income $ 18,349,158 $ 13,930,406 $ 9,247,240 $ 11,684,255 $ 8,402,350
Weighted Average Number of Shares Outstanding 11,077,501 11,049,660 11,012,621 10,937,043 10,829,488
Income Per Share $ 1.66 $ 1.26 $ 0.84 $ 1.07 $ 0.77
Total Cash Dividends Per Share $ 0.33 $ 0.24 $ 0.27 $ 0.23 $ 0.13
Consolidated Net Income and Cash Dividends Stated
as a Ratio to Beginning Shareholders' Equity 22.9% 25.3% 18.6% 25.9% 21.4%
Year End Financial Position:
Assets $228,885,454 $176,730,156 $127,633,195 $117,346,301 $ 98,857,739
Shareholders' Investment 116,581,883 92,653,880 67,979,174 65,648,667 54,637,662
Book Value Per Share $ 10.50 $ 8.37 $ 6.15 $ 5.97 $ 5.03
Shares Outstanding 11,103,297 11,068,161 11,032,433 10,978,988 10,868,952
Insurance Operating Ratios (Statutory Basis):
Losses and Loss Adjustment Expenses to
Net Premiums Earned 53.5% 53.2% 52.3% 47.5% 50.2%
Underwriting Expenses to Net Premiums Written 33.5% 32.8% 32.4% 32.2% 35.0%
Combined Ratio 87.0% 86.0% 84.7% 79.7% 85.2%
A. M. BEST Rating A+ A+ A+ A+ A+
Superior Superior Superior Superior Superior
Prior years' information has been restated to reflect the December 31, 1996 three-for-two stock split effected as a 50%
stock dividend, the December 28, 1995 ten percent stock dividend and the June 15, 1992 three-for-two stock split
effected as a 50% stock dividend.
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
OVERVIEW
Capitol Transamerica Corporation (the "Company") is an insurance holding company
operating in 36 states which writes, through its subsidiaries, both property-
casualty and fidelity-surety insurance. The property-casualty segment accounts
for approximately 75% of the business written while the fidelity-surety segement
accounts for approximately 25% of the Company's business.
The underwriting cycles of the property-casualty insurance industry have been
characterized by peak periods of adequate rates, underwriting profits and lower
combined ratios, while the downward side of the cycle is characterized by in-
adequate rates, underwriting losses and, as a result, higher combined ratios.
The adequacy of premium rates is affected primarily by the severity and frequen-
cy of claims which in turn are affected by natural disasters, regulatory
measures and court decisions which continue to uphold the "deep pocket" theory
in awarding against insurance companies. Unfortunately for the insurance indus-
try, the trend of increasing price competition has continued as has the number
of significant natural disasters. This combination has resulted in a consider-
able reduction in underwriting profitability for the industry as a whole.
Inflation also has a significant impact on the insurance industry in general, as
well as on the Company. Inflation creates higher claim costs, which are then
matched currently against premiums whose rating statistics were developed from
data of previous years. In recent inflationary periods, this has led to inade-
quate rate structures, since rate regulators are slow to grant rate adjustments
at times when the overall economy is in an inflationary cycle. Studies have
shown that premium rates trail the claim experience by a period of two years or
more. Adequate premium rates continue to be of concern to the Company and the
property-casualty insurance industry.
OPERATING RESULTS
As mentioned in the Overview, the property-casualty insurance industry is in a
downward cycle. However, based on its operating results the Company is in a peak
period as it continues to generate considerable underwriting profits. The
Company's increase in premiums earned has been strictly due to volume increases
resulting from new product lines, expansion of coverages and entry into new
geographic territories. The Company's ability to maintain a steady combined
ratio, typically 15 to 20 points below the industry average, is due to its basic
philosophy of generating underwriting profits. When the industry's cycle
reverses, the Company will be in an excellent position to take advantage of
premium rate increases which will benefit the Company's overall profitability.
Gross premiums written during 1996 were $90,939,387, compared with $70,878,492
in 1995 and $58,564,342 in 1994.
Premiums earned are recognized as net revenues after reduction for reinsurance
ceded and after establishment of the provision for the pro rata unearned portion
of premiums written. Net premiums earned in 1996 totaled $77,347,319, compared
with $63,865,500 and $52,461,456 in 1995 and 1994, respectively. The net unearn-
ed premium reserve was $43,258,833, $31,555,728 and $26,794,249 at each year-
end.
<TABLE>
<CAPTION>
1996 1995 1994
<S>
Gross Premiums Written $90,939,387 $70,878,492 $58,564,342
Reinsurance Ceded 1,696,062 2,521,524 1,912,401
Net Premiums Written $89,243,325 $68,356,968 $56,651,941
Net Premiums Earned $77,347,319 $63,865,500 $52,461,456
Net Unearned Premium Reserve $43,258,833 $31,555,728 $26,794,249
The Company's underwriting results can be measured by reference to the combined loss and expense ratios. This
tabulation includes the operating results of the two subsidiary insurance companies on a statutory basis. Losses and loss
adjustment expenses are stated as a ratio of net premiums earned, while underwriting expenses are state as a ratio of net
premiums written. The combined ratios were as follows:
<CAPTION>
Insurance Operating Ratios (Statutory Basis): 1996 1995 1994
<S> <C> <C> <C>
Losses and Loss Adjustment Expenses 53.5% 53.2% 52.3%
Underwriting Expenses 33.5% 32.8% 32.4%
Combined Ratios 87.0% 86.0% 84.7%
The Company's combined loss and expense ratios compare very favorably with the industry average, which is projected to
be more than 106% for the year 1996.
</TABLE>
REINSURANCE
The Company follows the customary practice of reinsuring with other companies,
e.g., ceding a portion of its exposure on the policies it has written. This pro-
gram of reinsurance permits the Company greater diversification of business and
the ability to write larger policies while limiting the extent of its maximum
net loss. It provides protection for the Company against unusually serious
occurrences in which a number of claims could produce a large aggregate loss.
Management continually monitors the Company's reinsurance program to obtain pro-
tection that should be adequate to ensure the availability of funds for losses
while maintaining future growth.
NET INVESTMENT INCOME AND REALIZED GAINS
The Company's fixed maturities and equity securities are classified as
available-for-sale and are carried at fair value. The unrealized gains and
losses, net of tax, are reported as a separate component of shareholders'
investment.
Interest and Dividend Income: Interest on fixed maturities is recorded as in-
come when earned and is adjusted for any amortization of purchase premium or
discount. Dividends on equity securities are recorded as income on ex-dividend
dates.
<TABLE>
<CAPTION>
Investments: 1996 1995 1994
<S> <C> <C> <C>
Invested Assets $184,801,846 $149,216,723 $104,785,146
Net Investment Income 7,155,382 6,635,123 5,359,606
Percent of Return to
Average Carrying Value 5.1% 5.7% 5.6%
Realized Gains (Losses) 8,468,911 3,587,323 (106,188)
Change in Unrealized Gains(Losses) $ 12,672,783 $ 21,085,956 $ (6,251,923)
The net increase in unrealized gains of $12,672,783 for 1996 was comprised of a $2,416,907 decrease in fixed maturities and an
increase of $15,089,690 in equity securities.
Net investment income in 1996 amounted to $7,155,832, compared with $6,635,123 and $5,359,606 in 1995 and 1994, respectively.
Unrealized gains (losses) were $32,763,674, $20,090,891 and ($995,065) at December 31, 1996, 1995 and 1994, respectively.
</TABLE>
INCOME TAXES
Income tax expense is based on income reported for financial statement purposes
and tax laws and rates in effect for the years presented. Deferred federal in-
come taxes arise from timing differences between the recognition of income de-
termined for financial reporting purposes and income tax purposes. Such timing
differences are related principally to the deferral of policy acquisition costs,
the recognition of unearned premiums, and discounting the claims reserves for
tax purposes. Deferred taxes are also provided on unrealized gains and losses.
LOSS RESERVES
Reserves for losses and loss adjustment expenses reflect the Company's best
estimate of the liability for the ultimate cost of reported claims and incurred
but not reported (IBNR) claims as of the end of each period. The estimates are
based on past claim experience and consider current claim trends as well as
social and economic conditions. The Company's reserves for losses and loss ad-
justment expenses were $47,702,363 at December 31, 1996 compared with
$38,584,084 at December 31, 1995. This increase is a combination of giving con-
sideration for the increase in premium volume, increased retention on all lines
of coverages written and an increase in the IBNR reserves. Management continues
to closely monitor the reserve development trends and projections as it attempts
to stabilize the loss reserve development which has occurred in recent years.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity refers to the Company's ability to meet obligations as they become
due. The obligations and cash outflow of the Company include claim settlements,
acquisition and administrative expenses, investment purchases and dividends to
shareholders. In addition to satisfying obligations and cash outflow through
premium collections, there is cash inflow obtained from interest and dividend
income, maturities and sales of investments. Because cash inflow from premiums
is received in advance of cash outflow required to settle claims, the Company
accumulates funds which it invests pending liquidity requirements. Therefore,
investments represent the majority (80.7% in 1996, 84.4% in 1995 and 82.1% in
1994) of the Company's assets. Cash outflow can be unpredictable for two
reasons: first, a large portion of liabilities representing loss reserves have
uncertainty regarding settlement dates; and second, there is potential for
losses occurring either individually or in the aggregate. As a result, the Com-
pany maintains adequate short-term investment programs necessary to ensure the
availability of funds. The investment program is structured so that a forced
sale liquidation of fixed maturities should not be necessary during the course
of ordinary business involvement and activities. The Company has no material
capital expenditure commitments.
Item 8. Financial Statements and Supplementary Data
Financial Statements
The financial statements filed by CTC in connection with this Annual
Report are consolidated financial statements which present all of the
operations of the parent company and its subsidiaries.
Capitol Transamerica Corporation Consolidated Financial Statements:
Report of independent auditors.
Consolidated balance sheets - December 31, 1996 and 1995.
Consolidated statements of income - for each of the three years
in the period ended December 31, 1996.
Consolidated statements of shareholders' investment - for each of
the three years in the period ended December 31, 1996.
Consolidated statements of cash flows - for each of the three
years in the period ended December 31, 1996.
Notes to consolidated financial statements.
Item 9. Disagreements of Accounting and Financial Disclosures
None.
Item 10. Directors and Executive Officers of CTC
(a) Directors
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Name (Age) Other Directorships, Business Expire at
Date of Original Election Principal Occupation Experience and Miscellaneous Information Annual Mtg. in:
Paul J. Breitnauer (57) Vice President and Treasurer of Mr. Breitnauer has been associated with 1999
1986 the Company; Senior Vice Presi- the insurance industry in various
dent & Treasurer of CIC, CSIC capacities since 1963.
and CFC, wholly-owned subsidi-
aries of the Company.
Sun Prairie, Wisconsin
George A. Fait (70) Chairman of the Board and Mr. Fait is a director of Bank One and 1997
1960 President of the Company and its has been associated with the insur-
wholly-owned subsidiaries; Di- ance industry in various capacities
rector of Bank One. since 1950.
Madison, Wisconsin
Robert W. Goodwin (71) Retired, formerly with Dean Mr. Goodwin had been associated with Dean 1997
1982 Witter Reynolds, Inc. Witter Reynolds, Inc. in various capacities
Palm Harbor, Florida 1970.
Michael J. Larson (55) Retired, formerly with Bank Mr. Larson has been associated with Bank
One Madison. One in various capacities since 1965. 1998
1991 Madison, Wisconsin
Reinhart H. Postweiler(67)Retired, formerly with Flad Mr. Postweiler is a Director of Bank One. 1999
1977 Affiliated Corporation; Director He is a member of the Wisconsin Society of
of Bank One, Madison, Wisconsin. Professional Engineers and the National
Society of Professional Engineers.
Richard E. Tipple (71) Retired, formerly with the Uni- Mr. Tipple is a member of the Wisconsin 1998
1970 versity of Wisconsin Planning Society of Landscape Architects.
Department.
Madison, Wisconsin
None of the above directors are related and there are no arrangements or understandings
between directors since each is acting solely in their described capacity. There have been
no events during the past five years which are material to the evaluation of the ability
and integrity of any director of CTC.
</TABLE>
Item 10. (continued)
(b) Executive Officers:
Chairman of the Board and President- George A. Fait (70 years of age)
Elected in 1960. Chairman of the Board and President - CIC, CSIC and
CFC, wholly-owned subsidiary companies.
Vice President and Treasurer - Paul J. Breitnauer (57 years of age)
Elected Treasurer in 1970 and Vice President in 1982. Senior Vice
President and Treasurer - CIC, CSIC and CFC.
Secretary - Virgiline M. Schulte (68 years of age)
Elected in 1988. Secretary - CIC, CSIC and CFC.
(c) Additional Executive Officers -
CIC & CSIC - Wholly-Owned Subsidiary Insurance Companies:
Vice President - P & C Claims Vice President - Personnel
Robert F. Miller (58 years of age) Virgiline M. Schulte (68 years
Elected in 1986. old) Elected in 1993.
Vice President - Agency Vice President- Data Processing
Joel G. Fait (38 years of age) Frank S. Zillner (35 years old)
Elected in 1993. Elected in 1993.
Vice President - Rating Corporate Counsel
Gerald A. Olson (52 years of age) Peter E. Hans (42 years of age)
Elected in 1993. Elected in 1991.
Vice President - P & C Underwriting
William B. Hutchison (42 years of age)
Elected in 1993.
(d) Disclosure of Delinquent Filers
The section captioned "Compliance with Section 16(a) of the Securities
Exchange Act of 1934" in the Capitol Transamerica Corporation ("CTC")
Proxy Statement dated April 4, 1997 is incorporated herein by
reference.
Item 11. Executive Compensation and Transactions
The sections captioned "Compensation of Directors", "Report on Executive
Compensation" and "Executive Compensation Committee Report" in the CTC
Proxy Statement dated April 4, 1997 are incorporated herein by
reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The sections captioned "Principal Shareholders", "Option/SAR Exercised in
Last Fiscal Year" and "Compensation Plans" in the CTC Proxy Statement
dated April 4, 1997 are incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The section captioned "Compensation Committee Interlocks and Insider
Participation" and the three sections referenced in Item 11 above,
all included in the CTC Proxy Statement dated April 4, 1997, are in-
corporated herein by reference.
George Fait and Virgiline Schulte are brother and sister; Joel Fait is
George Fait's son and Frank Zillner is his son-in-law; none of the other
officers are related and there are no arrangements or understandings
between officers since each is acting solely in their described capacity.
There have been no events during the past five years which are material
to the evaluation or the ability and integrity of any executive officer
of the Company or its subsidiaries.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1 and 2. Financial statements and financial statement schedules
The following financial statements of Capitol Transamerica Corporation
and Subsidiaries are included in Item 8.
Report of independent auditors.
Consolidated balance sheets - December 31, 1996 and 1995.
Consolidated statements of income - for each of the three years
in the period ended December 31, 1996.
Consolidated statements of shareholders' investment - for each of
the three years in the period ended December 31, 1996.
Consolidated statements of cash flows - for each of the three
years in the period ended December 31, 1996.
Notes to consolidated financial statements.
The following financial statement schedules of Capitol Transamerica
Corporation and Subsidiaries are included in Item 14(d).
Schedule I Summary of Investments Other than Investments in
Related Parties
Schedule II Condensed Financial Information of Registrant - Parent
Company
Schedule III Supplementary Insurance Information
Schedule IV Reinsurance
Schedule VI Supplemental Information Concerning Property-Casualty
Insurance Operations
All other schedules required by Article 7 of Regulation S-K are not
required under the related instructions or are inapplicable, and
therefore have been omitted.
(b) No Reports on Form 8-K were filed during the fourth quarter of the
fiscal year ended December 31, 1996.
(c) Exhibits
None
(d) Financial Statement Schedules
Reference is made to the financial statement schedules above.
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities
Exchange Act of 1934, the company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CAPITOL TRANSAMERICA CORPORATION
By By
George A. Fait Paul J. Breitnauer
Chairmant of the Board, Vice President,
President and Director Treasurer and Director
By By
Virgiline M. Schulte Robert W. Goodwin
Secretary Director
By By
Michael J. Larson Reinhart H. Postweiler
Director Director
By
Richard E. Tipple
Director
March 25, 1997
RESPONSIBILITY FOR FINANCIAL REPORTING
To The Shareholders and Board of Directors of Capitol Transamerica Corporation:
The Company has prepared the consolidated financial statements, related notes,
and other financial data appearing in this Annual Report. The statements were
developed using generally accepted accounting principles and policies considered
appropriate in the circumstances. They reflect, where applicable, management's
best estimates and judgements. The financial data also includes disclusures and
explanations which are relevant to an understanding of the financial affairs of
the Company.
To meet management's responsibility for financial reporting, internal control
systems and procedures are designed to provide reasonable assurances as to the
reliability of the financial records and compliance with corporate policy
throughout the organization.
Ernst & Young LLP, independent auditors, have audited the financial statements.
To express an opinion thereon, they review and evaluate the Company's internal
accounting controls and conduct such tests of the accounting records and other
auditing procedures as they deem necessary. The Board of Directors oversees the
Company's financial reporting through its Audit Committee, which regularly meets
with management representatives and jointly with the independent auditors, to
review accounting, auditing and financial reporting matters. A policy of busines
ethics is communicated annually to the Company's directors, officers and respon-
sible employees. The Company monitors compliance with the policy to help assure
that operations are conducted in a responsible and professional manner with a
committment to the highest standard of business conduct.
Paul J. Breitnauer
Vice President and Treasurer
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors of Capitol Transamerica Corporation:
We have audited the accompanying consolidated balance sheets of Capitol Trans-
america Corporation (the "Company") as of December 31, 1996 and 1995, and the
related consolidated statements of income, shareholders equity, and cash flows
for the three years in the period ended December 31, 1996. Our audits also in-
cluded the financial statement schedules listed in the Index at Item 14(a).
These financial statements and schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Capitol
Transamerica Corporation at December 31, 1996 and 1995, and the consolidated re-
sults of its operations and its cash flows for each of the three years in the
period ended December 31, 1996, in conformity with generally accepted accounting
principles. Also, in our opinion, the related financial statement schedules,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
Milwaukee, Wisconsin Ernst & Young LLP
February 27, 1997
CAPITOL TRANSAMERICA CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Assets
Investments (Notes (1)(b) and (2)):
Available-for-sale investment securities, at fair value
Fixed maturities (amortized cost $77,807,048 and $71,493,255 respectively) $ 82,566,725 $ 78,669,841
Equity securities:
Common stock, (cost $59,099,459 and $50,412,460, respectively) 86,569,214 63,141,401
Nonredeemable preferred stock, (cost $5,346,938 and
$3,868,836, respectively) 5,881,180 4,054,200
Investment real estate, at cost, net of depreciation 6,721,343 1,435,486
Short-term investments, at cost which approximate fair value (Note(2)(d) 3,063,384 1,915,795
Total Investments 184,801,846 149,216,723
Cash 364,994 602,775
Accrued investment income 1,684,940 1,718,254
Receivables from agents, insureds and others, less allowance
for doubtful accounts of $380,000 and $320,000, respectively 18,712,387 11,874,125
Balances due from reinsurers 1,033,058 1,244,148
Funds held by ceding reinsurers 44,791 77,117
Deferred insurance acquisition costs (Note (1)(e)) 12,978,314 9,228,868
Prepaid reinsurance premiums 704,148 897,049
Due from securities brokers 6,347,754 215,165
Income taxes receivable - 110,091
Other assets 2,213,222 1,545,841
Total Assets $228,885,454 $176,730,156
The accompanying notes to the consolidated financial statements are an integral part of these financial statements.
CAPITOL TRANSAMERICA CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
<CAPTION>
1996 1995
Liabilities
<S> <C> <C>
Policy Liabilities and Accruals (Notes (1)(d), (3) and (4)):
Reserve for losses $ 29,811,723 $ 25,679,644
Reserve for loss adjustment expenses 17,890,640 12,904,440
Unearned premiums 43,258,833 31,555,728
Total Policy Liabilities and Accruals 90,961,196 70,139,812
Accounts payable 6,612,383 4,362,308
Dividends payable 4,526 745,009
Due to securities brokers 474,281 370,123
Balances due to reinsurers 1,776,524 2,275,143
Accrued premium taxes 562,573 382,544
Income taxes payable 1,870,252 -
Deferred income taxes 10,041,836 5,801,337
Total Other Liabilities 21,342,375 13,936,464
Total Liabilities 112,303,571 84,076,276
Commitments and contingent liabilities (Notes (4) and (8)) - -
Shareholders' Investment (Notes (6) and (7))
Common stock, $1.00 par value, authorized 15,000,000 shares,
issued 7,612,711 and 6,899,060, respectively 7,612,711 6,899,090
Common stock distributable, $1.00 par value, 3,806,355 and 689,545 shares,
respectively 3,806,355 689,545
Paid-in surplus 21,114,644 20,949,100
Net unrealized appreciation (depreciation) on securities carried at fair value
net of deferred taxes of $11,139,649 & $6,830,903, respectively(Notes(1)(b)&(2) 21,624,025 13,259,988
Retained earnings 62,761,654 51,177,894
Shareholders' investment before treasury stock 116,919,389 92,975,587
Treasury stock, 315,769 and 209,831 shares, respectively, at cost (337,506) (321,707)
Total Shareholders' Investment 116,581,883 92,653,880
Total Liabilities and Shareholders' Investment $228,885,454 $176,730,156
The accompanying notes to the consolidated financial statements are an integral part of these financial statements.
<CAPTION>
CAPITOL TRANSAMERICA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
For The Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
<S> <C> <C>
Revenues:
Premiums earned (Note (1)(c)) $ 77,347,319 $ 63,865,500 $ 52,461,456
Net investment income (Note (2)(e)) 7,155,382 6,635,123 5,359,606
Realized investment gains (losses) (Notes (1)(b) and (2)) 8,468,911 3,587,323 (106,188)
Other revenues 382,130 144,866 118,353
Total Revenues 93,353,742 74,232,812 57,833,227
Losses and Expenses Incurred (Notes (1)(d), (3) and (4)):
Losses incurred 29,694,168 24,620,433 18,985,162
Loss adjustment expenses incurred 11,471,608 9,479,030 8,550,892
Underwriting, acquisition and insurance expenses (Note(10)) 29,136,689 22,218,510 17,917,741
Increase in deferred insurance acquisition costs (3,749,446) (1,513,479) (784,373)
Other expenses 1,293,414 792,633 750,202
Total Losses and Expenses Incurred 67,846,433 55,597,127 45,419,624
Income from operations before income taxes 25,507,309 18,635,685 12,413,603
Income tax expense (Note (5)) 7,158,151 4,705,279 3,166,363
Net Income $ 18,349,158 $ 13,930,406 $ 9,247,240
Income Per Share (Note (1)(g)) $ 1.66 $ 1.26 $ 0.84
Weighted average number of shares outstanding (Note (1)(g)) 11,077,501 11,049,660 11,012,621
The accompanying notes to the consolidated financial statements are an integral part of these financial statements.
CAPITOL TRANSAMERICA CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
For the Years Ended December 31, 1994, 1995 and 1996
Unrealized
Common Appreciation
Common Stock (Depreciation)
Stock Distributable on Securities
(Par Value) (Par Value Paid-In Carried at Retained Treasury
$1.00) $1.00) Surplus Fair Value Earnings Stock
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 $ 6,846,410 $ - $ 7,823,147 $ 3,469,526 $47,848,653 $(339,069)
Net income - - - - 9,247,240 -
Unrealized appreciation on available-for-sale
securities, net of deferred taxes - - - (4,126,269) - -
Stock options exercised 31,186 - 108,524 - - 8,444
Cash dividends - - - - (2,938,618) -
Balance, December 31, 1994 6,877,596 - 7,931,671 (656,743) 54,157,275 (330,625)
Net income - - - - 13,930,406 -
Unrealized depreciation on available-for-sale
securities, net of deferred taxes - - - 13,916,731 - -
Stock options exercised 21,464 - 88,460 - - 8,918
Stock dividends - 689,545 12,928,969 - (13,618,514) -
Cash dividends - - - - (3,291,273) -
Balance, December 31, 1995 6,899,060 689,545 20,949,100 13,259,988 51,177,894 (321,707)
Net income - - - - 18,349,158 -
Unrealized appreciation on available-for-sale
securities, net of deferred taxes - - - 8,364,037 - -
Stock options exercised 24,106 - 165,544 - - (15,799)
Stock dividend 689,545 3,116,810 - - (3,806,355) -
Cash dividends - - - - (2,959,043) -
Balance, December 31, 1996 $ 7,612,711 $ 3,806,355 $21,114,644 $21,624,025 $62,761,654 $ (337,506)
The accompanying notes to the consolidated financial statements are an integral part of these financial statements.
<CAPTION>
CAPITOL TRANSAMERICA CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
<S> <C> <C> <C>
Cash flows provided by operating activities:
Net Income $ 18,349,158 $ 13,930,406 $ 9,247,240
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 805,784 423,119 344,328
Realized investment (gains) losses (8,468,911) (3,587,323) 106,188
Change in:
Deferred insurance acquisition costs (3,749,446) (1,513,479) (784,373)
Unearned premiums 11,703,105 4,761,479 3,466,567
Allowance for doubtful accounts receivable from agents 60,000 65,785 60,000
Accrued investment income 33,314) (352,131) (26,674)
Receivables from agents, insureds and others (6,898,262) (2,595,686) (415,046)
Balances due to/from reinsurers (136,449) (154,893) 55,481
Reinsurance recoverable on paid and unpaid losses (151,080) (547,078) 117,133
Funds held by ceding reinsurers 32,326 60,305 (2,829)
Income taxes payable/receivable 1,980,343 371,620 (2,000,010)
Deferred income taxes (68,247) (156,647) (262,036)
Due to/from securities brokers (6,028,431) (145,042) 2,651,078
Prepaid reinsurance premiums 192,901 (270,011) 601,845
Other assets (123,731) 294,732 504,974
Reserves for losses and loss adjustment expenses 9,118,279 11,108,761 8,155,874
Accounts payable 2,250,075 448,636 (239,443)
Accrued premium taxes 180,029 112,822 6,432
Net cash provided by operating activities 19,080,757 22,255,375 21,586,729
Cash flows provided by (used for) investing activities:
Proceeds from sales of available-for-sale investments 27,579,131 21,046,919 1,895,147
Purchases of available-for-sale investments (49,010,584) (47,289,410) (26,596,166)
Maturities of available-for-sale investments 6,917,920 6,447,108 6,074,710
Purchases of depreciable assets (1,279,331) (683,115) (320,920)
Net cash used for investing activities (15,792,864) (20,478,498) (18,947,229)
Cash flows provided by (used for) financing activities:
Cash dividends paid (3,699,525) (2,546,264) (2,938,618)
Stock options exercised 189,650 109,924 139,710
Net proceeds from sale (purchase) of treasury stock (15,799) 8,918 8,444
Net cash used for financing activities (3,525,674) (2,427,422) (2,790,464)
Net (decrease) increase in cash (237,781) (650,545) (150,964)
Cash, beginning of year 602,775 1,253,320 1,404,284
Cash, end of year $ 364,994 $ 602,775 $ 1,253,320
Cash paid during the year for:
Income taxes $ 5,292,665 $ 4,497,508 $ 5,427,361
The accompanying notes to the consolidated financial statements are an integral part of these financial statements.
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Capitol Transamerica Corporation (the "Company") is an insurance holding
company which writes, through its subsidiaries, commercial insurance
coverages in 36 states. The property-casualty insurance coverages represent
approximately 75% of the Company's premiums written while fidelity-surety
coverages represent approximately 25% of the Company's premiums written. The
Company's products are marketed through independent agents located through-
out the United States.
The consolidated financial statements are presented in accordance with
generally accepted accounting principles. The preparation of financial
statements of insurance companies requires management to make estimates and
assumptions that affect amounts reported in the financial statements and
accompanying notes. Actual results could differ significantly from those
estimates.
(a) Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, Capitol Indemnity Corpora-
tion ("CIC"), Capitol Specialty Insurance Corporation ("CSIC") and
Capitol Facilities Corporation ("CFC"). All significant intercompany
accounts and transactions have been eliminated in consolidation. Cer-
tain reclassifications have been made to the consolidated financial
statements for 1995 to conform with the 1996 presentation.
(b) Investments
The Company classifies all of its fixed maturities and equity securi-
ties as available-for-sale. Accordingly, investments in fixed maturi-
ties and equity securities are reported at fair value, with unrealized
gains and losses reported in a separate component of shareholders'
investment, net of tax effect. The cost of fixed maturities is adjust-
ed for amortization of premiums and discounts to maturity. Fixed
maturities and equity securities deemed to have declines in value that
are other than temporary are written down through the statement of in-
come to carrying values equal to their estimated fair values.
Investment real estate is carried at cost net of accumulated deprecia-
tion of $203,830 and $126,983 as of December 31, 1996 and December
31, 1995, respectively.
Cost of investments sold is determined under the specific identifica-
tion method.
(c) Premiums
Premiums are recognized as revenue on a pro rata basis over the term
of the contracts.
(d) Losses and Loss Adjustment Expenses
Losses and loss adjustment expenses, less related reinsurance and sub-
rogation recoverables, are provided for as claims are incurred. The
reserves for losses and loss adjustment expenses include: (1) the
accumulation of individual estimates for claims reported on direct
business prior to the close of the accounting period; (2) estimates
received from other insurers with respect to reinsurance assumed; (3)
estimates for incurred but not reported claims based on past experi-
ence modified for current trends; and (4) estimates of expenses for
investigating and settling claims based on past experience. The lia-
bilities recorded are based on estimates resulting from the continu-
ing review process. Differences between estimates and ultimate pay-
ments are reflected in expense for the period in which the estimates
are changed. Management believes that the reserves for losses and loss
adjustment expenses are adequate to meet obligations.
(e) Deferred Insurance Acquisition Costs
Insurance acquisition costs that vary with, and are directly related
to, the production of premiums(principally commissions, premium taxes
compensation and certain underwriting expenses) are deferred. Deferred
insurance acquisition costs are amortized to expense as the related
premiums are earned.
(f) Income Taxes
Deferred income taxes reflect the net tax effects of temporary dif-
ferences between the carrying amounts of assets and liabilities for
financial statement purposes and the amounts used for income tax
reporting.
(g) Income Per Share
Net income per share is computed by dividing net income by the weight-
ed average number of shares of stock outstanding during the year.
Wherever applicable, prior years' information has been restated to
reflect the December 31, 1996 three-for-two stock split effected as
a fifty percent stock dividend.
(2)Investments
(a) The amortized cost and estimated fair value of fixed maturities and
equity securities are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Type of investment Cost Gains Losses Value
<S> <C> <C> <C> <C>
December 31, 1996
Fixed maturities:
U.S. Government bonds $ 578,852 $ 4,543 $ - $ 583,395
State, municipal and political
subdivision bonds 75,906,193 4,709,412 (24,724) 80,590,881
Corporate bonds and notes 1,322,003 71,962 (1,516) 1,392,449
Total fixed maturities $77,807,048 $ 4,785,917 (26,240) $82,566,725
Equity securities:
Common stock $59,099,459 $29,169,673 $(1,699,918) $86,569,214
Non-redeemable preferred stock 5,346,938 605,522 (71,280) 5,881,180
Total equity securities $64,446,397 $29,775,195 $(1,771,198) $92,450,394
December 31, 1995
Fixed maturities:
U.S. Government bonds $ 591,928 $ 9,643 $ - $ 601,571
State, municipal and political
subdivision bonds 70,020,468 7,172,261 (70,652) 77,122,077
Corporate bonds and notes 880,859 91,144 (25,810) 946,193
Total fixed maturities $71,493,255 $ 7,273,048 $ (96,462) $78,669,841
Equity securities:
Common stock $50,412,460 $15,320,343 $(2,591,402) $63,141,401
Non-redeemable preferred stock 3,868,836 246,779 (61,415) 4,054,200
Total equity securities $54,281,296 $15,567,122 $(2,652,817) $67,195,601
(b) The amortized cost and estimated fair value of fixed maturities at December 31, 1996, by contractual maturity, is
shown below. Expected maturities will differ from contractual maturities because borrowers may have the right
to call or prepay obligations with or without call or prepayment penalties.
<CAPTION>
Amortized Fair
Cost Value
<S> <C> <C>
Due in one year or less $ 764,275 $ 767,336
Due after one year through five years 3,861,398 4,007,079
Due after five years through 8,115,945 8,419,767
Due after ten years 65,065,430 69,372,543
Total $77,807,048 $82,566,725
(c) Realized gains (losses) and change in unrealized gains (losses) for the three years ended December 31, 1996,
1995 and 1994, are as follows:
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Realized gains (losses):
Fixed maturities
Gross gains $ 88,664 $ 33,742 $ 60,214
Gross losses (36,388) (5,288) (8,395)
Equity securities
Gross gains 8,454,726 3,558,869 147,621
Gross losses (22,041) - (305,628)
Investment real estate (1) (16,050) - -
Net realized gains (losses) $8,468,911 3,587,323 $ (106,188)
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Change in unrealized gains (losses):
Fixed maturities $(2,416,907) $ 6,492,201) $(4,397,979
Equity securities 15,089,690 14,593,755 (1,853,944)
Net change in unrealized gains (losses) 12,672,783 21,085,956 (6,251,923)
Effect of applicable deferred taxes (4,308,746) (7,169,225) 2,125,654
Net increase (decrease) in unrealized gains $ 8,364,037 $13,916,731 (4,126,269)
Following is a summary of total unrealized gains (losses) as of December 31, 1996, 1995 and 1994:
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Unrealized gains (losses):
Fixed maturities
Gross unrealized gains $ 4,785,917 $ 7,273,048 $ 1,925,724
Gross unrealized losses (26,240) (96,462) (1,241,339)
Equity securities
Gross unrealized gains 29,775,195 15,567,122 2,140,557
Gross unrealized losses (1,771,198) (2,652,817) (3,820,007)
Gross unrealized gains (losses) 32,763,674 20,090,891 (995,065)
Effect of applicable deferred taxes (11,139,649) (6,830,903) 338,322
Net unrealized gains (losses) $21,624,025 $13,259,988) $ (656,743)
</TABLE>
(d) The amortized cost of securities on deposit with insurance regulators
in accordance with statutory requirements was $4,101,301 on December
31, 1996 and $3,381,612 on December 31, 1995.
In connection with the runoff of the reinsurance assumed operations, CIC
has established a security trust fund agreement with a bank, consisting
of cash and securities in the amount of $831,095 at December 31, 1996
and $1,043,691 at December 31, 1995. Additionally, CIC has deposited
$42,000 at December 31, 1995 in an account for the benefit of reinsurers
and has included these funds in short-term investments in the
accompanying balance sheets.
(e) Following is a summary of investment income from each category of
investments:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Fixed maturities $ 4,936,902 $ 4,539,757 $ 4,062,030
Equity securities 2,260,094 1,851,937 1,085,584
Investment real estate 1,280,669 751,162 786,152
Short-term 119,542 224,813 112,455
Total investment income 8,597,207 7,367,669 6,046,221
Investment expenses - real estate 945,777 549,674 542,618
Other investment expenses 419,201 138,016 104,117
Depreciation on real estate 76,847 44,856 39,880
Net investment income $ 7,155,382 $ 6,635,123 $ 5,359,606
</TABLE)
(f) The Company had investments in state, municipal and political subdivi-
sion bonds of $75,906,193 and $70,020,468 at December 31, 1996 and 1995,
respectively. Approximately 91% and 88% of these bonds were special
assessment revenue bonds and approximately 9% and 12% of these bonds
were state and political subdivision obligations at December 31, 1996
and 1995, respectively. The Company monitors its exposure by investing
its funds in accordance with guidelines set by the Company's investment
committee. At December 31, 1996, approximately 38% of the municipal
bond portfolio consisted of securities of Wisconsin and Minnesota
municipalities. No other state total exceeded 10%.
(g) Fair values for fixed maturities and equity securities are determined
from quoted market prices where available, or are estimated using values
obtained from independent pricing services. Thinly traded fixed maturi-
ties are individually priced based upon year-end market conditions, type
of security, interest rate and maturity of the issue.
(3) Reserves for Losses and Loss Adjustment Expenses
The table below provides a reconciliation of the beginning and ending re-
serves for losses and loss adjustment expenses, net of reinsurance:
</TABLE>
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Balance as of January 1, $38,584,084 $27,475,323 $19,319,449
Less reinsurance recoverables (45,321) (12,363) (38,049)
Net reserves 38,538,763 27,462,960 19,281,400
Incurred losses and loss adjustment expenses related to:
Current year 36,041,564 27,224,006 21,287,960
Prior years:
Direct losses 1,516,382 2,610,999 1,628,974
Direct loss adjustment expenses 1,901,083 2,810,145 3,704,484
Discontinued assumed reinsurance 1,706,747 1,454,313 914,636
Total prior years 5,124,212 6,875,457 6,248,094
Total incurred 41,165,776 34,099,463 27,536,054
Paid losses and loss adjustment expenses related to:
Current year 15,487,239 10,632,490 9,527,420
Prior years 16,245,614 12,285,492 9,946,822
Total paid 31,732,853 22,917,982 19,474,242
Other adjustments, net (43,956) (105,678) 119,748
Net balance at December 31, 47,927,730 38,538,763 27,462,960
Plus reinsurance recoverables (225,367) 45,321 12,363
Balance at December 31, $47,702,363 $38,584,084 $27,475,323
As explained in Note (1)(d), differences between estimates and ultimate payments are reflected in expense for the period
in which the estimates are changed. The Company continually reviews its reserves for losses and loss adjustment expenses
and the related reinsurance recoverables. As a result of the variability in these estimates, reserves have differed from
actual experience during 1996, 1995 and 1994. The estimates are based on past claim experience and consider current
claim trends as well as social and economic conditions. Policies and procedures have been implemented which
management believes will stabilize the reserve development. The Company continues to monitor factors that could affect
future claim development. While the Company has recorded its current best estimate of its reserves for losses and loss
adjustment expenses, it is reasonably possible these estimates, net of estimated reinsurance recoverables, may increase in
the future. See Note 4(b) for discussion of assumed reinsurance.
</TABLE>
(4) Reinsurance
(a)Ceded
In 1996, the Company generally reinsures losses in excess of $1,000,000
with various other companies through reinsurance ceded contracts. In
1995, the Company reinsured losses in excess of $300,000 and $500,000.
These arrangements provide for greater diversification of business, allow
the Company to control exposure to potential losses arising from large
risks, and provide additional capacity for growth. Reinsurance ceded
contracts do not relieve the Company from its obligations to policyhold-
ers. The Company remains liable to its policyholders for the portion
reinsured to the extent that any reinsurer does not meet the obligations
assumed under the reinsurance agreements. To minimize its exposure to
significant losses from reinsurer insolvencies, the Company evaluates the
financial condition of its reinsurers. Amounts recoverable from reinsur-
ers are estimated in a manner consistent with the claim liability associ-
ated with the reinsured policies.
Net written and earned premiums and losses and loss adjustment expenses
include reinsurance activity as follows:
<TABLE>
<CAPTION>
Written Premiums
1996 1995 1994
<S> <C> <C> <C>
Direct $90,939,387 $70,878,492 $58,541,983
Assumed - - 22,359
Ceded (1,696,062) (2,521,524) (1,912,401)
Net premiums written $89,243,325 $68,356,968 $56,651,941
Earned Premiums
1996 1995 1994
Direct $79,236,282 $66,117,013 $55,075,416
Assumed - - 22,359
Ceded (1,888,963) (2,251,513) (2,636,319)
Net premiums earned $77,347,319 $63,865,500 $52,461,456
Losses and Loss Adjustment Expenses
1996 1995 1994
Direct $40,476,441 $33,320,640 $27,179,449
Assumed - losses 1,606,731 1,355,570 828,195
Assumed - legal and audit 100,016 98,743 79,967
Ceded (1,017,412) (675,490) (551,557)
Net losses and loss adjustment expenses $41,165,776 $34,099,463 $27,536,054
</TABLE>
(b)Assumed
CIC was involved in providing reinsurance coverage by assuming a portion
of risks underwritten by other insurance companies and pools. Although
CIC withdrew from the reinsurance business in 1976, its liability remains
for losses on policies written during the period in which it participated
as a reinsurer. The Company is involved with treaties which cover certain
risks which have had significant development industry-wide over the past
several years. The reinsurance assumed loss reserves are based on current
information available from the ceding companies and are continually re-
viewed for accuracy and reasonableness. The Company believes the assumed
reserves of $4,962,169 and $5,562,269 at December 31, 1996 and 1995, re-
spectively, which are included in the reserve for losses, are reasonable.
However, due to the nature of the assumed business, ultimate losses may
vary from current estimates. The Company has issued outstanding letters
of credit relating to reinsurance assumed of $503,585 at December 31,
1996 and 1995.
(5) Income Taxes
(a)The Company and its subsidiaries file a consolidated federal income tax
return and separate state franchise and premium tax returns as applicable.
(b)The components of income tax expense for the years 1996, 1995 and 1994
are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Current expense:
Federal $ 6,683,429 $ 4,393,537 $ 3,040,153
State 559,972 468,388 388,246
Total current expense 7,243,401 4,861,925 3,428,399
Deferred expense(benefit):
Deferred insurance acquisition costs 1,274,812 514,583 266,687
Unearned premiums (808,929) (305,420) (305,565)
Discount on loss and loss adjustment
expense reserves (315,137) (285,995) (162,179)
Unpaid commissions (211,404) 23,551 (41,228)
Other (24,592) (103,365) (19,751)
Total deferred benefit (85,250) (156,646) (262,036)
Income tax expense $ 7,158,151 $ 4,705,279 $ 3,166,363
(c)A reconciliation of the effective income tax rate, as reflected in the consolidated statements of income, to the
statutory federal income tax rate, is as follows:
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Statutory tax rate 35.0% 34.0% 34.0%
Municipal bond income, net of proration -5.7% -6.9% -9.1%
Dividend received exemption, net of proration -1.9% -2.1% -1.8%
State income tax expense, net of federal tax benefit 1.5% 1.6% 2.1%
Other, net -0.8% -1.4% 0.3%
Effective income tax rate 28.1% 25.2% 25.5%
(d)Significant components of the deferred tax liabilities and assets are as follows:
<CAPTION>
December 31, December 31,
1996 1995
<S> <C> <C>
Deferred tax liabilities:
Deferred insurance acquisition costs $ 4,412,627 $ 3,137,815
Net unrealized gains on investment securities 11,139,649 6,830,903
Other 101,742 74,055
Total deferred tax liabilities 15,654,018 10,042,773
Deferred tax assets:
Unearned premium reserve discounting 2,893,719 2,084,790
Loss and loss adjustment expense reserve discounting 1,618,970 1,303,833
Unpaid commissions 755,815 544,411
Salvage and subrogation reserve discounting 214,478 182,602
Other 129,200 125,800
Total deferred tax assets 5,612,182 4,241,436
Net deferred tax (liability) asset $(10,041,836) $(5,801,337)
</TABLE>
(6) Common Stock Options
The company has elected to follow Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees' (APB 25) and related Interpreta-
tions in accounting for its stock options because, as discussed below, the
alternative fair value accounting provided for under FASB 123 "Accounting
for Stock Based Compensation" (Statement 123) requires use of option val-
uation models that were not developed for use in valuing stock options.
Under APB 25, since the exercise price of the Company's stock options
equals the market price of the underlying stock on the date of grant, no
compensation expense is recognized. Had the company used the fair value
approach required under Statement 123, net income and earnings per share
would not be materially different for the years 1996 and 1995.
The Company's 1993 Stock Option Plan has authorized the grant of options
for up to 1,072,500 shares of the Company's stock. All options granted
have a five year term and become fully vested at the end of four years. A
summary of the Company's stock activity, and related information for the
years ended December 31 follows:
<TABLE>
<CAPTION> 1996 1995
Weighted Average Weighted Average
Options Excercise-Price Options Excercise-Price
<S> <C> <C> <C> <C>
Outstanding, beginning of year 238,910 $ 7.30 175,552 $ 5.30
Granted 106,523 14.40 118,140 9.20
Exercised (14,106) 5.40 (35,416) 3.10
Forfeited (10,000) 9.50 (19,366) 8.60
Outstanding, end of year 321,327 $ 10.30 238,910 $ 7.30
Excercise prices for options outstanding as of December 31, 1996 ranged from $2.00 to $14.00.
</TABLE>
(7) Statutory Reporting
(a)The financial statements of the insurance subsidiaries have been prepared
in accordance with generally accepted accounting principles, which differ
in certain respects from accounting practices prescribed or permitted by
insurance regulatory authorities (statutory basis). The statutory capital
and surplus and net income of the insurance subsidiaries as reported to
state regulatory authorities, were as follows:
<TABLE>
<CAPTION>
Policyholders' Surplus As Of December 31,
1996 1995 1994
<S> <C> <C> <C>
Capitol Indemnity Corporation $86,880,871 $62,618,547 $40,651,963
Capitol Specialty Insurance Corporation 6,561,248 5,907,094 5,348,768
Total $93,442,119 $68,525,641 $46,000,731
<CAPTION>
Net Income for the Year Ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Capitol Indemnity Corporation $13,566,036 $11,762,554 $ 7,415,763
Capitol Specialty Insurance Corporation 285,640 238,538 432,832
Total $13,851,676 $12,001,092 $ 7,848,595
</TABLE>
(b)CIC is required by the Insurance Commissioner of the State of Wisconsin
to maintain a minimum compulsory surplus (surplus as regards policyhold-
ers) of 25% of net premiums written during the preceeding twelve months.
As of December 31, 1996, the amount of compulsory surplus required to be
maintained by CIC was approximately $22,310,805.
(c)State insurance regulations limit the transfer of assets, including divi-
dends, from insurance subsidiaries to the Company without regulatory
approval.
(8) Contingent Liabilities
CIC is a defendant in certain lawsuits involving complaints which demand
damages and recoveries for claims and losses allegedly related to risks in-
sured by CIC. In the opinion of management, such lawsuits are routine in
that they result from the ordinary course of business in the insurance in-
dustry. The reserves for losses and loss adjustment expenses include manage-
ment's estimates of the probable ultimate cost of settling all losses in-
volving lawsuits. See Notes (1)(d), (3) and (4).
(9) Employee Benefit Plans
The Company has a defined contribution benefit plan (the Plan) in which all
qualified employees are eligible to participate. The Plan incorporates a
contributory feature under Section 401(k) of the Internal Revenue Code
allowing employees to defer portions of their income through contributions
to the Plan. The Company's annual contribution to the Plan is 150% of the
first $1,500 of each participant's contribution during the plan year. The
Company made contributions of $165,397, $147,872 and $130,708 in 1996,
1995 and 1994, respectively.
The Company also has an Employee Stock Ownership Plan in which all quali-
fied employees are eligible to participate. The plan provides for discre-
tionary employer contributions of shares of Company stock or cash to pur-
chase shares of Company stock. The Company made contributions of $120,500,
$89,000 and $56,000 in 1996, 1995 and 1994, respectively.
(10)Underwriting, Acquisition and Insurance Expenses
A summary of underwriting, acquisition and insurance expenses incurred
during the years ended December 31, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Net commissions $20,629,905 $14,791,800 $11,834,298
Salaries and other compensation 3,714,706 3,423,152 2,653,693
Other expenses 4,792,078 4,003,558 3,429,750
Total costs 29,136,689 22,218,510 17,917,741
Increase in deferred insurance acquisition costs (3,749,446) (1,513,479) (784,373)
Total underwriting, acquisition and insurance expenses $25,387,243 $20,705,031 $17,133,368
Substantially all insurance contracts written by CIC are for a term of one year or less and deferred insurance acquisition
costs are amortized over the same term. The amount of deferred insurance costs amortized was $22,801,709, $18,611,260
and $15,262,076 in 1996, 1995 and 1994, respectively.
</TABLE>
(11)Line of Credit
The Company has a line of credit of $10,000,000. There were no borrowings
under the line of credit in 1996.
(12)Quarterly Results of Operations (Unaudited)
<TABLE>
<CAPTION>
For the Year Ended December 31, 1996 (Reported)
First Second Third Fourth Total
<S> <C> <C> <C> <C> <C>
Revenues $19,021,237 $21,670,439 $23,340,606 $29,321,460 $93,353,742
Losses incurred and expenses 14,535,158 13,346,535 15,003,741 24,960,999 67,846,433
Net income 3,279,962 5,802,417 5,958,133 3,308,646 18,349,158
Net income per share $ 0.30 $ 0.52 $ 0.54 $ 0.30 $ 1.66
Dividends per share $ 0.07 $ 0.07 $ 0.07 $ 0.07 $ 0.28
In connection with the analysis of an internal loss and expense reserve study, the Company posted
fourth quarter adjustments to increase reserves for losses and loss adjustment expenses. As a
result of the adjustments, the Company has restated 1996 quarterly losses incurred and expenses
as follows:
For the Year Ended December 31, 1996 (Restated)
First Second Third Fourth Total
<S> <C> <C> <C> <C> <C>
Revenues $19,021,237 $21,670,439 $23,340,606 $29,321,460 $93,353,742
Losses incurred and expenses 14,535,158 15,846,535 17,503,741 19,960,999 67,846,433
Net income 3,279,962 4,152,417 4,308,133 6,608,646 18,349,158
Net income per share $ 0.30 $ 0.38 $ 0.39 $ 0.59 $ 1.66
Dividends per share $ 0.07 $ 0.07 $ 0.07 $ 0.07 $ 0.28
For the Year Ended December 31, 1995
First Second Third Fourth Total
Revenues $15,476,378 $18,763,854 $18,131,047 $21,861,533 $74,232,812
Losses incurred and expenses 11,387,365 13,368,380 14,324,134 16,517,248 55,597,127
Net income 3,033,089 3,872,854 2,856,847 4,167,616 13,930,406
Net income per share $ 0.28 $ 0.35 $ 0.26 $ 0.38 $ 1.26
Dividends per share $ 0.05 $ 0.06 $ 0.06 $ 0.12 $ 0.29
SCHEDULE I
CAPITOL TRANSAMERICA CORPORATION
SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
As of December 31, 1996
(Consolidated)
</TABLE>
<TABLE>
<CAPTION>
Amount at
Which Shown
Fair in Balanc
Type of Investment Cost Value Sheet
<S> <C> <C> <C>
Fixed maturity securities, available-for-sale:
Bonds:
United Stated Government and government
agencies and authorities $ 578,852 $ 583,395 $ 583,395
State, municipalities, and political subdivisions 75,906,193 80,590,881 80,590,881
All other corporate bonds 1,322,003 1,392,449 1,392,449
Total 77,807,048 82,566,725 82,566,725
Equity securities, available-for-sale:
Common stocks:
Public utilities 2,065,856 1,765,637 1,765,637
Banks, trusts, and insurance companies 39,904,060 64,470,351 64,470,351
Industrial, miscellaneous, and all other 17,129,543 20,333,226 20,333,226
Nonredeemable preferred stocks 5,346,938 5,881,180 5,881,180
Total 64,446,397 92,450,394 92,450,394
Real estate, net of depreciation 6,721,343 6,721,343
Short-term investments 3,063,384 3,063,384
Total Investments $152,038,172 92,450,394 $184,801,846
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CAPITOL TRANSAMERICA CORPORATION
(Parent Company)
<CAPTION>
CONDENSED BALANCE SHEETS December 31,
Assets 1996 1995
<S> <C> <C>
Investments $ 7,588,787 $ 7,070,097
Cash 31,690 22,369
Accrued investment income 54,197 55,125
Investment in subsidiaries 107,873,422 86,053,978
Income taxes receivable - 48,762
Other assets 2,368,988 1,280,161
Total assets $117,917,084 $94,530,492
Liabilities and shareholders' equity
Liabilities:
Accounts payable $ 336,381 $ 646,286
Dividends payable 4,526 751,376
Income taxes payable 120,287 -
Deferred income taxes 874,007 478,950
Total liabilities 1,335,201 1,876,612
Shareholders' equity:
Common stock 11,419,066 7,588,605
Additional paid-in-capital 21,114,644 20,949,100
Unrealized appreciation (depreciation) on available-for-
sale securities, net of deferred taxes 1,696,601 929,729
Retained earnings (including undistributed earnings of
subsidiaries of $102,271,184 and $81,151,740, respectively) 82,689,078 63,508,153
116,919,389 92,975,587
Less treasury stock, at cost (337,506) (321,707)
Total shareholders' equity 116,581,883 92,653,880
Total liabilities and shareholders' equity $117,917,084 $94,530,492
December 31,
STATEMENTS OF INCOME 1996 1995 1994
<S> <C> <C> <C>
Dividends received from subsidiaries $ 4,200,000 $ 3,000,000 $ 3,000,000
Management fees received from subsidiaries 1,515,478 1,466,553 1,286,871
Investment income 272,035 253,103 272,250
Realized investment gains 448,156 18,255 7
Other income 646 24,138 15,300
Total Income 6,436,315 4,762,049 4,574,428
Administrative expenses 1,363,770 1,449,273 1,068,378
Net income before tax and equity in undistributed
net income of subsidiaries 5,072,545 3,312,776 3,506,050
Income tax expense 220,197 26,324 105,228
Net income of before equity in undistributed
net income of subsidiaries 4,852,348 3,286,452 3,400,822
Equity in undistributed net income of
subsidiaries, net of dividends paid 13,496,810 10,643,954 5,846,418
Net Income $18,349,158 $13,930,406 $ 9,247,240
The accompanying condensed financial information should be read in conjunction with the
consolidated financial statements and notes thereto of Capitol Transamerica Corporation.
SCHEDULE II
(continued)
<CAPTION>
CAPITOL TRANSAMERICA CORPORATION
(Parent Company)
December 31,
STATEMENTS OF CASH FLOWS 1996 1995 1994
<S> <C> <C> <C>
Cash flows provided by operating activities:
Net income $18,349,158 $13,930,406 $ 9,247,240
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 728,940 378,263 344,328
Realized investment gains (448,156) (18,255) (7)
Change in:
Equity in net income of subsidiaries (13,496,810) (10,643,954) (5,846,418)
Other assets (488,710) (74,752) 45,920
Other liabilities (189,618) 273,391 (536,691)
Net cash provided by operating activitities 4,454,804 3,845,099 3,254,372
Cash flows provided by (used for) investing activities:
Proceeds from investments sold/matured 1,091,372 1,070,493 524,254
Purchases of investments - (1,740,750) (225,103)
Purchase of depreciable assets (1,279,331) (683,115) (320,920)
Net cash used for investing activitities (187,959) (1,353,372) (21,769)
Cash flows provided by (used for) financing activities:
Cash dividends paid (3,731,375) (2,568,259) (2,964,085)
Capital contribution to subsidiaries (700,000) (20,000) (625,000)
Stock options exercised 189,650 109,924 139,710
Net proceeds from sale (purchase) of treasury stock (15,799) 8,918 8,444
Net cash used for financing activitities (4,257,524) (2,469,417) (3,440,931)
Net increase (decrease) in cash 9,321 22,310 (208,328)
Cash, beginning of year 22,369 59 208,387
Cash, end of year $ 31,690 $ 22,369 $ 59
Cash paid during the year for:
Income taxes $ 48,761 $ 88,077 $ 39,181
Interest 51,417 - -
The accompanying condensed financial information should be read in conjunction with the
consolidated financial statements and notes thereto of Capitol Transamerica Corporation.
SCHEDULE III
CAPITOL TRANSAMERICA CORPORATION
SUPPLEMENTARY INSURANCE INFORMATION
<CAPTION>
December 31,
Deferred Future Policy
Policy Benefits, Losses, Other
Acquisition Claims, and Unearned Policyholde
Segment Costs Loss Expense Premiums Funds
<S> <C> <C> <C> <C>
1996:
Property-casualty
insurance $12,978,314 $47,702,363 $43,258,833 $ -
1995:
Property-casualty
insurance $ 9,228,868 $38,584,084 $31,555,728 $ -
1994:
Property-casualty
insurance $ 7,715,389 $27,475,323 $26,794,249 $ -
<CAPTION>
Year ended December 31
Benefits, Amortization of
Net Claims, Losses, Deferred Policy Other
Premium Investment and Settlement Acquisition Operating Premiums
Sement Revenue Income Expenses Costs Expenses Written
<S> <C> <C> <C> <C> <C> <C>
1996:
Property-casualty
insurance $77,347,319 $ 7,155,382 $41,165,776 $22,801,709 $ 1,293,414 $90,939,387
1995:
Property-casualty
insurance $63,865,500 $ 6,635,123 $34,099,463 $18,611,260 $ 792,633 $70,878,492
1994:
Property-casualty
insurance $52,461,456 $ 5,359,606 $27,536,054 $15,262,076 $ 750,202 $58,564,342
SCHEDULE IV
CAPITOL TRANSAMERICA CORPORATION
REINSURANCE
For The Years Ended December 31, l996, l995 and l994
<CAPTION>
Assumed Percentage
Gross Ceded to From of Amount
Premiums Other Other Net Assumed
Written Companies Companies Amount To Net
<S> <C> <C> <C> <C> <C>
December 31, 1996
Premiums Written:
Accident and Health insurance $ 238,615 $ - $ - $ 238,615 -
Property & casualty and
fidelity & surety insurance 90,700,772 $ 1,696,062 $ - $89,004,710 -
Total premiums written $90,939,387 $ 1,696,062 $ - $89,243,325 -
December 31, 1995
Premiums Written:
Accident and Health insurance $ 222,137 $ - $ - $ 222,137 -
Property & casualty and
fidelity & surety insurance 70,656,355 $ 2,521,524 $ - $68,134,831 -
Total premiums written $70,878,492 $ 2,521,524 $ - $68,356,968 -
December 31, 1994
Premiums Written:
Accident and Health insurance $ 223,193 $ - $ - $ 223,193 -
Property & casualty and
fidelity & surety insurance 58,318,790 1,912,401 22,359 56,428,748 0.040%
Total premiums written $58,541,983 $ 1,912,401 $ 22,359 $56,651,941 0.040%
SCHEDULE VI
CAPITOL TRANSAMERICA CORPORATION
SUPPLEMENTAL INFORMATION
CONCERNING PROPERTY-CASUALTY INSURANCE OPERATIONS
December 31, l996
<CAPTION>
As of December 31,
BALANCE SHEET DATA: 1996 1995
<S> <C> <C>
Deferred insurance acquisition costs $12,978,314 $ 9,228,868
Outstanding loss and loss adjustment expense reserves 47,702,363 38,584,084
Discount deducted from reserves - -
Unearned premiums $43,258,833 $31,555,728
<CAPTION>
INCOME STATEMENT DATA: Year Ended
1996 1995 1994
<S> <C> <C> <C>
Earned premiums $77,347,319 $63,865,500 $52,461,456
Net investment income 7,155,382 6,635,123 5,359,606
Incurred losses and loss adjustment
expenses related to:
Current year 36,041,564 27,244,006 21,287,960
Prior years 5,124,212 6,875,457 6,248,094
Amortization of deferred policy
acquisition costs 22,801,709 18,611,260 15,262,076
Paid claims and claim adjustment
expenses 31,732,853 22,917,982 19,474,242
Gross premiums written $90,939,387 $70,878,492 $58,564,342
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<DEBT-HELD-FOR-SALE> 82566725
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 86569214
<MORTGAGE> 0
<REAL-ESTATE> 6721343
<TOTAL-INVEST> 184801846
<CASH> 364994
<RECOVER-REINSURE> 990147
<DEFERRED-ACQUISITION> 12978314
<TOTAL-ASSETS> 228885454
<POLICY-LOSSES> 29811723
<UNEARNED-PREMIUMS> 43258833
<POLICY-OTHER> 17890640
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 11419066
<OTHER-SE> 105500323
<TOTAL-LIABILITY-AND-EQUITY> 228885454
77347319
<INVESTMENT-INCOME> 7155382
<INVESTMENT-GAINS> 8468911
<OTHER-INCOME> 382130
<BENEFITS> 41165776
<UNDERWRITING-AMORTIZATION> 25387243
<UNDERWRITING-OTHER> 1293414
<INCOME-PRETAX> 25507309
<INCOME-TAX> 7158151
<INCOME-CONTINUING> 18349158
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18349158
<EPS-PRIMARY> 1.66
<EPS-DILUTED> 1.66
<RESERVE-OPEN> 38584084
<PROVISION-CURRENT> 36041564
<PROVISION-PRIOR> 5124212
<PAYMENTS-CURRENT> 15487239
<PAYMENTS-PRIOR> 16560258
<RESERVE-CLOSE> 47702363
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
