Balboa Life & Casualty
1999 Corporate Report
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Message from the CEO & COO
Few things test the character of an organization more than change and
uncertainty. In Balboa's 52-year history, no period has had more of
both than the previous 18 months. During that time, the company
completed two ownership transitions while confronting the dual
challenges of maintaining the confidence of our customers and retaining
the loyalty of our talented staff. Today, we can report success with
both of those challenges. Balboa's success is also evident in our 1999
financial results. Earned premiums of $217 million, combined with a
loss ratio of 46.5%, produced earnings in the amount of $26 million.
Our 1999 results reflect our new singular focus on the U.S. financial
institution marketplace. Figures from prior years had also included
results from domestic and foreign operations of our former parent
company, Avco Financial Services.
Balboa today...
The lengthy transitional period ended and a bright new era began on
November 30, 1999, when Countrywide Credit Industries, Inc. completed
its acquisition of our company. With our ownership transition complete,
Balboa's staff and senior management team are now more dedicated than
ever to achieving ambitious goals and growth targets. Being a part of
this dynamic organization provides us with a variety of exciting
opportunities. For example, like Balboa, Countrywide embraces new
technology. As their investment is significant, there is much we can
learn from them and their successes. Because of this, our customers can
expect to receive the same exceptional service they are accustomed to,
and have access to heightened technological support. Another Balboa
initiative that benefits from our Countrywide affiliation is the
development and introduction of new products. An expanded product
portfolio will provide additional income opportunities for our
customers and help us grow. Some of our new products appear in this
report, while others, particularly our significant expansion into the
homeowners, fire, direct response and other lines will be unveiled
throughout the year and highlighted in our 2000 corporate report.
Celebrating our new beginning...
Coincidental with the change of ownership, Balboa introduced a new
corporate logo as part of our "Future Ready" advertising campaign. The
ad text and bold new look are designed to reflect both our readiness
for, and optimism about, the future of our business. This confidence is
based on a variety of factors, including the excellent results Balboa
achieved during a period of challenge and change. These results reflect
our ongoing commitment to cost control and the economies achieved
through our enhanced service platforms and systems.
We are proud to report that A.M. Best Company has recognized Balboa's
past performance, present strength and plans for future growth by
affirming their "A" (Excellent) rating for all the companies that
comprise Balboa Life & Casualty.
Looking ahead to an exciting future...
Much has changed at Balboa over the past 18 months, but our fundamental
strengths and absolute commitment to our business have not. We are
creating a future in which our customers will have access to new
products and services, additional income opportunities and the ability
to deliver service to their customers that is second-to-none. Our
ongoing development and application of advanced technology will produce
new levels of efficiency, while enabling us to continue delivering
personal, customized attention to every customer. We've been successful
in dealing with the challenges of the recent past and now look forward
to the future with confidence and enthusiasm. This spirit is fostered
by the support of our customers and friends, and the loyalty and hard
work of our employees. With the beginning of a new and exciting chapter
in Balboa's history, we renew our commitment to being the standard of
excellence by which others in our industry are measured--a goal
embodied in our motto: Dedicated People. Exceptional Results.
Neal R. Aton D. David Cissell
President & CEO Executive Vice President & COO
Organization Overview
The companies that comprise Balboa Life & Casualty include Balboa
Insurance Company, Balboa Life Insurance Company, Meritplan Insurance
Company and Newport Insurance Company. A.M. Best Company, the nation's
leading industry analyst, has assigned a rating of "A" (Excellent) to
each of these companies. Balboa is licensed to conduct business in all
50 states.
Balboa Life & Casualty is a wholly-owned subsidiary of Countrywide
Credit Industries, Inc. (NYSE: CCR), a diversified financial services
provider and one of the nation's largest mortgage banking operations,
with more than 10,000 employees and over 550 offices. Balboa became a
member of the Countrywide family of companies on November 30, 1999.
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An Industry Leader
Balboa Life & Casualty is one of the nation's leading providers of
(specialized or credit-related) insurance products and services. Since
its inception in 1948, Balboa has concentrated on developing long-term
relationships with its financial institution customers. Balboa delivers
its products to banks, thrifts, finance companies, mortgage lenders and
servicers, and credit card issuers throughout the country, either on a
direct basis, or through a select group of general agents. Balboa
counts among its 1,300 financial institution customers 10 of the 20
largest banks, and 50 of the 100 largest financial institutions in the
United States. Balboa's product portfolio includes credit life,
involuntary unemployment insurance, collateral protection and
property/hazard insurance and related products. The company also
provides insurance tracking services for automobile and mortgage
lenders. Using a variety of advanced systems and state-of-the-art
hardware, the company's three product divisions manage and service
their business from company headquarters in Irvine, California, and
from a number of branch offices maintained throughout the country.
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Life & Credit Insurance
A Tradition of Success
Credit insurance programs have been a mainstay of Balboa's product
portfolio for nearly 50 years. Although traditional credit insurance
remains important, the market for this venerable product is changing
dramatically. Today, an increasing number of lending institutions are
offering Debt Cancellation Agreements or Debt Deferment Agreements.
Balboa has been quick to seize the opportunity offered by this new form
of protection. By offering a variety of support services and technical
assistance to their financial institution customers, Balboa is able to
help them strengthen client relationships and develop new income
opportunities.
High-tech systems.... hands-on service
The Life & Credit Division's portfolio includes products that appeal to
a wide variety of financial institutions. "Having the products is one
thing, but our customers are looking for a lot more than that,"
declared John Keenan, Senior Vice President and division manager. "The
key is combining high-tech systems with hands-on service. Our systems
deliver incredible efficiency and instant access to information, which
makes our programs easy to administer".
What makes these programs seamless and customer-friendly is the
personal attention given by our account executives and customer service
department. We have an exciting opportunity in this division. Our
product portfolio is growing, the sophistication and reliability of our
systems is second-to-none and, most importantly, "our staff is highly
experienced, dedicated and capable. The future has never looked
brighter," said Keenan.
Interactive training
Another way in which the Life & Credit division excels in supporting
its programs is through training. Prior to implementing any new
program, a detailed analysis of training needs is conducted. Balboa's
new CD ROM and Internet-based training system is perfectly suited for
many lenders. The system is interactive and permits individuals to
proceed at their own pace. Using a combination of voice, text and
video, the new system is the closest thing to face-to-face, one-on-one
training currently available.
"Our staff is highly experienced, dedicated and capable. The future has
never looked brighter."
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Property/Hazard Insurance
Servicing the Servicers
Mortgage servicers want to increase productivity and reduce expenses.
Balboa's Property/Hazard Division has developed a variety of solutions
for its customers, many of which rely on the latest technology and use
of the Internet.
Speed and flexibility
"Speed and flexibility," according to John Meadows, Senior Vice
President and division manager, "are essential to meeting the needs of
today's mortgage servicers. Not so long ago, instituting any
significant change for a customer was a complex, often time-consuming
process. Now, solutions that weren't even dreamed of just a few years
ago can be implemented quickly and efficiently. The key, of course, is
to have the right technology, and a staff that is thoroughly familiar
with it and the customer's operation."
A simple precept
Ultimately, the value of technology lies in its ability to make
information useful and accessible. That simple precept drives the
development of such innovations as workflow technology for claims
handling and new ways of using the Internet. "We're finding more and
more applications for the Internet," said Meadows. "For example, we now
have web sites that provide a mortgage customer with insurance
information to link them back to their lender. This helps the mortgage
lender add real value to the customer relationship."
CustomSourcing(TM)
For lenders wanting to reduce their administrative burden, Balboa has
developed another alternative: CustomSourcing. This unique program
enables the servicer to pick and choose from an array of tasks to be
performed off-site, without giving up control over the process. "Every
lender is different," Meadows explained, "so it's natural to offer each
one a choice of outsourcing services. That's what CustomSourcing does--
gives our customers a choice and control over their business that's not
available with traditional outsourcing programs."
"Every lender is different, so it's natural to offer each one a choice
of outsourcing services."
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Collateral Protection Insurance
Using Technology to Optimize Service
The Collateral Protection Division (CPI) is Balboa's largest, both in
terms of net written premium and number of clients. Balboa became the
industry leader in creditor-placed auto insurance and insurance
tracking services by developing sophisticated systems and stringent
service standards that set them apart from their competition.
The value of partnership
"Balboa enjoys a unique market position by working directly with some
clients and also through a select group of experienced agents," says
Bonnie Hickmann, Senior Vice President and Division Manager. "In doing
so, we are able to act, often alongside our general agent partners, as
a seamless extension of the financial institution's organization."
Efficiency, accuracy and service
Known as one of the industry's leading innovators, Balboa continues to
introduce new technology in the pursuit of maximum efficiency, accuracy
and service. Recent plans include adapting property workflow technology
to auto insurance tracking. Originally developed for the
Property/Hazard division's mortgage tracking operations, this unique
system will deliver additional speed and accuracy for Balboa's CPI
customers.
First-rate service
The CPI Division has a goal of providing financial institutions, agents
and their customers with first-rate service twenty-four hours a day,
seven days a week. One of the steps to achieving that goal was the
introduction last year of the ihaveinsurance.com Web site. This enables
people contacted by Balboa about their auto insurance to respond online
and at their convenience. An instant hit with lenders and their
customers, both the concept and its implementation were the work of a
team of Balboa employees intent on achieving the company's 24/7 service
goal.
"We are able to act, often alongside our general agent partners, as a
seamless extension of the financial institution's organization."
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Regional Presence
Sales Organization
No matter how fast and efficient communication and data transmission
becomes, nothing can replace direct, face-to-face contact with
customers. To deliver on this promise of exceptional service, Balboa
maintains a nationwide network of sales and service offices.
Regional service centers across the country provide a local presence,
enabling Balboa to understand each client's unique business and service
culture and become a true extension of their organization.
Additionally, these strategic locations cover all time zones and
provide volume and disaster preparedness redundancies required for the
company's property/hazard and collateral protection tracking business.
Each of these offices boasts highly trained and experienced
professionals and features the latest technologies.
Balboa's local account executives and sales offices further enhance
service throughout the country. Account executives regularly visit
customers and oversee everything from program implementation and
ongoing administration, to reporting and product development. The sales
staff comprises seasoned professionals with a great deal of experience
working with financial institutions. It all adds up to a satisfied
customer base that continues to grow.
Dedicated People...
There is simply no substitute for experience. A significant number of
Balboa's 600+ employees have been with the company for 20 years or
more--a level of commitment almost unheard of today. While this
longevity speaks volumes about the working environment, it also
translates into a wealth of experience and essential knowledge of how
the business works and is a key to sustaining long-term relationships
with our customers. We are proud to acknowledge the contribution of
these tenured employees, whose collective expertise is so valuable.
<PAGE>
...Exceptional Results
How is "Exceptional Results" defined? From our perspective, it means
consistently exceeding expectations by doing whatever it takes to make
every customer feel that they are Balboa's most important. Regardless
of how the term is defined, the strength of the relationships we enjoy
with our customers depends on our ability to deliver it. Here are a few
of the ways our clients have found to define `exceptional results'...
Quotes
"Providing superior service to our customers is Sovereign Bank's primary goal.
Working with Balboa as our insurance partner helps us achieve that goal".
Scott W. Abercrombie, Executive Vice President, Sovereign Bank
"The outsourcing of our hazard insurance processing makes sense both
economically and operationally. Balboa's CustomSourcing(TM)products and services
allow us to focus our efforts on other servicing initiatives. The impact
translates into enhanced service to our customers". Gary Bettin, Senior Vice
President, Bank of America Mortgage
"Balboa has been our CPI provider since 1995. Their service has always
been excellent and they do a great job of anticipating our needs". Tim
King, President, Wells Fargo Insurance, Inc.
<PAGE>
Message from Financial Officers
The accompanying unaudited financial statements present Balboa's 1999
combined pro forma operations and balance sheet, net of the business
lines retained by our former parent companies (Textron Inc., and
Associates First Capital Corporation). Presentation of our 1999 balance
sheet and pro forma income statement reflects Balboa's singular focus
on the U.S. financial institution marketplace and our status as an
independent subsidiary of Countrywide Credit Industries. Balboa has
maintained positive net income and a favorable capital position,
coupled with a conservative investment portfolio of high credit
quality, investment grade securities. It is from these baseline
statements that you will be able to track and compare our results in
the coming years.
Ratings affirmed
In September 1999, A.M. Best Company again assigned each of the
companies that comprise Balboa Life & Casualty an "A" (Excellent)
rating. These ratings affirm Balboa's capital strength, profitability
and high degree of liquidity. Both the Life and P&C companies obtained
a Best's Capital Adequacy Relativity ratio in excess of 100. This means
that both companies maintain higher capitalization than do their peers
in the industry.
Profitable growth
Balboa's ongoing profitability is supported by a conservative loss
reserve posture, the geographic distribution of revenue and strong
product distribution capabilities. The competitive advantages expected
through the development of new products, implementation of improved
technology and expanded distribution capabilities, will continue to
fuel positive net income. Consistent with historical practice, Balboa
maintains an investment portfolio of short-term investments in an
amount sufficient to meet anticipated obligations to policyholders,
other creditors and needs for cash.
Reinsurance strategy
The use of catastrophe reinsurance coverage, coupled with the strategic
use of other reinsurance contracts with good credit quality reinsurers,
further bolsters this strong financial picture. Through reinsurance
mechanisms, Balboa is able to effectively manage risk associated with
product concentration, while better leveraging its capital. Balboa
currently maintains catastrophe protection against the occurrence of a
100-year windstorm or a 250-year earthquake, with exposure to
individual claims capped at $100,000.
Improved computing
Balboa has also successfully completed its Year 2000 system upgrades
and, to date, is not aware of negative impacts on its own core
processing system, its customers or third party vendors. In most
instances, upgrades to computer hardware and software have been made to
improve the capacity and performance of the systems, as well as to
achieve Year 2000 compliance.
Frederick A. Urschel Kristine F. McKay
Senior Vice President Senior Vice President
& Chief Actuary & Chief Financial Officer
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<TABLE>
COMBINED BALANCE SHEET A
(Unaudited)
<S> <C>
Thousands of dollars, at December 31, 1999
Assets
Cash $ 17,363
Investments 530,286
Premium receivable 14,946
Unamortized insurance policy acquisition costs 59,713
Property and equipment 2,708
Other 116,071
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Total assets $741,087
==========================
Liabilities
Unearned insurance premiums $247,215
Reserves for losses and adjustment expenses 61,788
Income taxes (23,360)
Other 74,722
--------------------------
Total liabilities 360,365
Stockholders' equity
Common stock 6,750
Additional paid-in capital 136,249
Retained earnings 259,629
Securities valuation adjustment (19,140)
Currency translation adjustment (2,766)
--------------------------
Total stockholders' equity 380,722
--------------------------
Total liabilities and stockholders' equity $741,087
==========================
</TABLE>
(A)Unaudited combined Balance Sheet of Balboa Insurance Company, its two
wholly-owned subsidiaries, Meritplan Insurance Company and Newport Insurance
Company, and Balboa Life Insurance Company, prepared in accordance with
generally accepted accounting principles.
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<TABLE>
Combined Pro Forma Income Statement B
(Unaudited)
Thousands of dollars, 12 months ending December 31, 1999
<S> <C>
Premiums written $192,118
==========================
Revenues
Premiums earned $216,971
Investment income 33,038
--------------------------
Total revenues $250,009
--------------------------
Expenses
Losses and loss adjustment expenses, less recoveries 100,803
Amortization of insurance policy acquisition costs 54,380
Other operating expenses 55,977
--------------------------
Total expenses 211,160
--------------------------
Income before income taxes 38,849
Income taxes 12,902
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Net income $ 25,947
==========================
</TABLE>
(B)The Combined Pro Forma Income Statement has been adjusted to exclude business
lines not acquired by Countrywide Insurance Group on November 30,1999, and is
prepared in accordance with generally accepted accounting principles.
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Invested Assets
(Unaudited)
Thousands of dollars at December 31, 1999
<TABLE>
<S> <C>
Composition of investment assets
Equity
Preferred $ 2523
Common 4
Bonds 496,102
Commercial paper 24,800
Real estate, net of debt 73
Other investment assets 347
Cash 17,363
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TotalC $541,212
==========================
Percentage comparison
Equity
Preferred 0.47%
Common 0.00%
Bonds 91.67%
Commercial paper 4.58%
Real estate, net of debt 0.01%
Other investment assets 0.06%
Cash 3.21%
--------------------------
Total 100.00%
==========================
Return on investment assets
Investment income
Interest on commercial paper and bonds $ 32,343
Dividends 151
Real estate income, net 16
Other investment income (loss) 335
Investment expense (834)
Capital gains (loss) 1,027
--------------------------
Total $ 33,038
==========================
Mean invested assets 533,451
Return on mean invested assets 6.19%
</TABLE>
(C) Investment assets are presented gross of market valuation adjustments.
Corporate Directors
Carlos M. Garcia (Chairman)
Managing Director, Finance
Chief Financial Officer and
Chief Accounting Officer
Countrywide Credit Industries, Inc.
Neal R. Aton
President & Chief Executive Officer
Balboa Life & Casualty
Kevin W. Bartlett
Managing Director, Secondary Markets
Countrywide Credit Industries, Inc.
Charles W. Bennington
Senior Vice President &
Chief Administrative Officer
Balboa Life & Casualty
Andrew S. Bielanski
Managing Director, Marketing
Countrywide Credit Industries, Inc.
Thomas H. Boone, Jr.
Managing Director,
Global Mortgage Services
Countrywide Credit Industries, Inc.
D. David Cissell
Executive Vice President &
Chief Operating Officer
Balboa Life & Casualty
Steven D. Phillips
President
Countrywide Insurance Services, Inc.
David Sambol
Managing Director, Capital Markets
Countrywide Credit Industries, Inc.
Jeffery K. Speakes
Managing Director, Risk Management
and Strategic Planning
Countrywide Credit Industries, Inc.
<PAGE>
Corporate Officers
Carlos M. Garcia
Chairman of the Board of Directors
Neal R. Aton
President & Chief Executive Officer
Robert P. Barbarowicz
Executive Vice President & Secretary
D. David Cissell
Executive Vice President &
Chief Operating Officer
Charles W. Bennington
Senior Vice President
David M. Bridges
Senior Vice President
Mark E. Elbaum
Senior Vice President
Bonnie J. Hickmann
Senior Vice President
John P. Keenan
Senior Vice President
Craig D. Korotko
Senior Vice President
Kristine F. McKay
Senior Vice President, Treasurer &
Chief Financial Officer
Thomas K. McLaughlin
Senior Vice President
John F. Meadows
Senior Vice President
Sharon A. Paolino
Senior Vice President
Jennifer S. Sandefur
Senior Vice President
Jeffery K. Speakes
Senior Vice President
Frederick A. Urschel
Senior Vice President &
Chief Actuary
Robert L. Thompson
First Vice President
Cynthia T. Berger
Vice President
Denise M. Cahen
Vice President
James W. F. Clark
Vice President
Frank J. Garbinski
Vice President
Bobby R. King
Vice President
Janet L. Lawrence
Vice President
Melvin D. Martinez
Vice President
Wendy A. Scholl
Vice President
Michael J. Smith
Vice President
John B. Tullius
Vice President
Elizabeth R. White
Vice President
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Corporate Headquarters
Balboa Life & Casualty 18581 Teller Avenue Irvine, California
92612-1627 (800) 854-6115 (949) 553-0700 www.balboainsurance.com
Regional Service Offices
Northeast
Frank Garbinski
Vice President
1120 Stevenson Mill Road, Suite 200
Moon Township, Pennsylvania 15108
(800) 442-7488
Southwest
Denise Cahen
Vice President
1515 Walnut Grove Avenue
Rosemead, California 91770
(626) 927-4000
Northwest
Frederick N. Johnson
Vice President
445 S.W. 41st Street
Renton, Washington 98055
(800) 432-3460
Regional Sales Offices
Irvine California Home Office
David M. Bridges
Senior Vice President
(800) 854-6115
Alfred S. Banner
Resident Vice President
(800) 854-6115
Trisha A. Heileson
Resident Vice President
(800) 854-6115
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Atlanta, Georgia
Bobby R. King
Senior Resident Vice President
(800) 780-2260
James Grimsley
Resident Vice President
(800) 957-6676
Debbie Wortman
Resident Vice President
(800) 801-5782
Tampa, Florida
Carl Wirt
Resident Vice President
(877) 386-0411
Seattle, Washington
Terrence K. Ball
Resident Vice President
(877) 248-1653
Minneapolis, Minnesota
Denise Dunham
Resident Vice President
(651) 681-1629
Account Executives
Collateral Protection Division
Pittsburgh, Pennsylvania
Michele Anolik
(800) 442-7488
Pensacola, Florida
Pat Godsey
(850) 994-3934
Los Angeles, California
Joanie Herzon
(626) 927-4000
Seattle, Washington
Pam Jones
(800) 432-3460
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Life & Credit Division
Irvine, California
Alexa Davis
Marybeth Gallagher
Tracy McGrade
Gina Trofa
Linda Wentzel
(800) 854-6115
Property/Hazard Division
Irvine, California
Kathleen Keenan
Lucky Navarro
Pam Smith
(800) 854-6115
Norfolk, Virginia
Ginna Bennett
(757) 588-1952
Paso Robles, California
Steve Allen
(805) 237-0l08
