UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K405
ANNUAL REPORT
(Mark one)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31,1996
or
() TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________________ to ____________________
Commission file number 0-8804
THE SEIBELS BRUCE GROUP, INC.
(Exact name of registrant as specified in its charter)
South Carolina 57-0672136
(State or other jurisdiction of (IRS employer identification no.)
incorporation or organization)
1501 Lady Street (P.O. Box 1)
Columbia, S.C. 29201(2)
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (803) 748-2000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common stock, par value $1.00 per share
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES _X_ NO
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of the registrant knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. ( )
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 10, 1997: $47,851,214.
The number of shares outstanding of the registrant's common stock as
of March 10, 1997: 24,691,029.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual proxy statement in connection with the annual meeting to
be held April 9, 1997 are incorporated by reference into Part III.
Table of Contents
Table of Contents...........................................i
Acronyms....................................................ii
PART I
Item 1. Business............................................1
Item 2. Properties..........................................7
Item 3. Legal Proceedings...................................8
Item 4. Submission of Matters to a Vote
of Security Holders.................................8
PART II
Item 5. Market for the Registrant's Common
Stock and Related Security Holder Matters..........11
Item 6. Selected Financial Data............................12
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations......13
Item 8. Financial Statements and Supplementary Data........25
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure.....................51
PART III
Item 10. Directors, Executive Officers, Promoters and
Control Persons of the Registrant.................51
Item 11. Executive Compensation............................51
Item 12. Security Ownership of Certain Beneficial Owners
and Management....................................51
Item 13. Certain Relationships and Related Transactions....51
PART IV
Item 14. Exhibits, Financial Statements, Schedules and
Reports on Form 8-K...............................52
Signatures.................................................56
ACRONYMS
The following acronyms used in the text have the meaning set
forth below unless the context requires otherwise:
FASB..................Financial Accounting Standards Board
GAAP..................Generally Accepted Accounting Principles
IBNR..................Incurred-But-Not-Reported
KIC...................Kentucky Insurance Company
LAE...................Loss Adjustment Expenses
MGA...................Managing General Agent
NAIC..................National Association of Insurance Commissioners
NCCI..................National Council on Compensation Insurance
N.C. FACILITY.........North Carolina Reinsurance Facility
RBC...................Risk Based Capital
SAP...................Statutory Accounting Principles
SBIG..................The Seibels Bruce Group, Inc. (and the "Company")
SBC...................Seibels Bruce and Company
SCIC..................South Carolina Insurance Company
S.C. FACILITY.........South Carolina Reinsurance Facility
WYO...................Write-Your-Own
PART I
------
Item 1. Business
Company Profile
- ---------------
The Seibels Bruce Group, Inc. (the "Company") is the parent
company of South Carolina Insurance Company and Seibels
Bruce and Company and their wholly-owned subsidiaries. SCIC
consists of a group of property and casualty insurance
companies and associated companies with headquarters in
South Carolina and Kentucky. Founded in 1869, the Company
performs servicing carrier activities for state and federal
insurance facilities. Managing general agency services are also
performed for a non-affiliated insurance company. Insurance
products are offered through independent agents, primarily in
the southeastern states. During 1993 and 1994, the Company
began to withdraw from selected states and selected risk
retained products, and changed its emphasis to fee income
generating activities. Effective mid-1995, the Company
voluntarily suspended underwriting new and renewal business
for which the risks were not reinsured to an unaffiliated party.
After both the Company and its regulators became satisfied that
the capital level was adequate to undertake such risk,
underwriting on a risk retention basis was resumed at very
modest levels in mid 1996.
The following table sets forth certain information for each of the
Company's sources of revenue for the periods indicated (amounts in thousands):
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Years ended December 31,
--------------------------------------------------------------------------------------------
1996 1995 1994
------------------------------- ----------------------------- ----------------------------
Gross Net Gross Net Gross Net
Premiums Premiums Premiums Premiums Premiums Premiums
Written Earned Revenues Written Earned Revenues Written Earned Revenues
-------- -------- --------- -------- -------- -------- -------- -------- ---------
Current operations:
Fee and service operations:
SCRF premiums-based fees $69,981 $14,556 $64,206 $13,451 $80,073 $21,415
SCRF claims-based fees 0 10,638 0 14,343 0 17,706
Flood premiums-based fees 27,157 8,340 28,576 9,408 29,517 10,250
Flood claims-based fees 0 3,581 0 2,863 0 648
Other state facilities 6,130 1,390 9,757 2,613 12,365 3,188
MGA 18,676 6,170 24,245 6,734 25,388 7,094
Brokerage and other 1,212 910 1,158 160 1,120 368
Risk operations:
Nonstandard automobile 2,948 71 71 2,381 - - - - -
Assumed from pools
and associations 6,235 5,819 5,819 422 1,232 1,232 5,332 2,275 2,275
------------------------------ ----------------------------- ---------------------------
Total current operations 132,339 5,890 51,475 130,745 1,232 50,804 153,795 2,275 62,944
Run-off risk operations 710 1,774 1,774 9,264 10,042 10,042 18,728 14,244 14,244
------------------------------ ----------------------------- ---------------------------
Total $133,049 $7,664 $53,249 $140,009 $11,274 $60,846 $172,523 $16,519 $77,188
</TABLE>
Fee-generating Activities
- -------------------------
As a servicing carrier for the South Carolina Reinsurance Facility
("S.C. Facility"), a state-sponsored plan for insuring South
Carolina drivers outside of the voluntary market and the WYO
federal flood facility of the National Flood Insurance Program
("NFIP"), the Company receives commissions and fees for
handling policy production and administration, as well as claims
adjustment for the policies it writes. From January 1994 until
December, 1996, the Company provided services to the
Kentucky Fair Plan, a homeowners residual market. Effective
in the fourth quarter of 1995, the Company ceased to operate
as a servicing carrier for the North Carolina Reinsurance Facility.
The auto business previously written in that state and ceded to
the Facility continues to be handled in a similar manner but with
a change in the Company's compensation. The impact to the
Company's earnings due to these changes has not been
significant. The servicing carrier contracts currently in place
with the S.C. Facility and NFIP have both operated profitably
in the past three years.
All of the Company's commercial business is underwritten under
an MGA agreement with an unaffiliated insurance company. The
Company services these policies and claims on a commission
basis without any underwriting risk. Commission and service
income generated under this contract was $5.9 million and $6.7
million during 1996 and 1995, respectively, which represents
12.9% and 13.5%, respectively, of the Company's total
commission and service income as stated in the consolidated
financial statements. With the current premium volume and the
corresponding expenses, the Company did not make a profit
under the current contract. The Company has undertaken
significant cost reductions during 1995 and 1996 in an effort to
stem the losses. The Company is currently reviewing plans for
1997 with the intent of making this a profitable business unit.
The Company expects to develop a plan that includes both
modifications to the contract and participating in a percentage
of the risk.
The Company also assists subagents in providing excess and
surplus lines for difficult or unusual risks. This business is
placed with nonaffiliated insurers on a commission basis. Under
these arrangements, the Company has varying degrees of
underwriting and claims authority.
Property and Casualty Insurance Underwriting
- --------------------------------------------
The Company's underwriting activities currently are limited to
the Nonstandard Automobile Physical Damage business
conducted in South Carolina. The Company underwrites this
business with the goal of achieving adequate pricing and seeks
to classify risks into narrowly defined segments by using all
available underwriting criteria and credible historical data. The
Company uses several factors in determining its rates. Some of
the characteristics used are vehicle type, age and location of
the vehicle, driving experience, number of vehicles per
policyholder, number and type of convictions or accidents,
limits of liability, deductibles, and, where allowed by law, sex
and marital status of the insured. The rate approval process
varies from state to state.
The Company believes that its renewal business will follow
industry experience and produce lower loss ratios than new
business. The Company estimates that its rate of retention of
renewal business for the year ended December 31, 1996, was
approximately 65 to 70%. In an effort to maintain and improve
underwriting profits, the Company regularly monitors loss ratios
of its agencies and periodically meets with the agencies in order
to address any adverse trends and loss ratios.
In 1994 and through the first quarter of 1995, the underwriting
risks retained by the Company were limited to Personal Lines
business written in the states of Georgia, Kentucky, North
Carolina, South Carolina, and Tennessee. This business
included four major lines of insurance: Private Passenger
Automobile, Homeowners, Dwelling Fire and Watercraft Inland
Marine. Beginning in the second quarter of 1995, the Company
initiated the year long process of nonrenewing this business
because of the lack of sufficient capital to support the risk.
Beginning in the third quarter of 1996, both the Company and
its regulators became satisfied that its capital level was
sufficient to undertake such risk, and underwriting on a risk
retention basis was resumed on a modest basis.
The Company has elected not to be rated by A. M. Best, and as
a result, currently has a group rating of NR-4 ("Not Assigned -
Company Request"). A. M. Best is an independent company
which rates insurance companies based on its judgment factors
related to the ability to meet policyholder and other contractual
obligations. Such ratings are not directed toward the protection
of investors or shareholders. A low rating would not directly
impact the Company's servicing carrier or MGA operations.
However, at the appropriate time, the Company intends to seek
a new rating from A. M. Best in order to enhance its risk taking
potential.
Claims Operations
- -----------------
The Company services and adjusts claims for its retained
business, servicing carrier functions and MGA services. Starting
in 1994, the Company started reducing its usage of outside
adjusters and increased its usage of employee adjusters for
handling of claims. This shift has resulted in a significant
reduction in allocated LAE, beginning with the 1994 accident
year. Through the earlier involvement of the Company's claims
personnel in the claims process, the Company has recognized
lower overall adjustment expenses. The Company has continued
this trend into 1995 and 1996.
The Company, by virtue of its experience with weather- related
catastrophes of years prior to 1993, has developed a
comprehensive catastrophe plan designed to maximize customer
service in the event of a catastrophe. This plan has been
particularly useful with the widespread incidence of flood claims
over the last several years.
Insurance Network Services, a catastrophe claims handling
operation, was formed and began operating in 1996. This
division handled over 3,000 catastrophe related claims during
the year, generating revenue of $1.5 million, of which $0.8
million was from affiliated companies and eliminated in
consolidation. The division plans to expand in 1997.
Management, in conjunction with the Company's independent
actuaries, reviews the loss reserves to evaluate their adequacy.
Such review is based upon past experience and current
circumstances and includes an analysis of reported claims, an
estimate of losses for IBNR claims, estimates for LAE,
reductions for salvage/subrogation reserves and assumed
reinsurance losses. Management believes the reserves are
sufficient to prevent prior years' losses from adversely affecting
future periods; however, establishing reserves is an estimation
process and adverse developments in future years may occur
and would be recorded in the year so determined.
For information regarding insurance reserves, see Item 7,
Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Reinsurance
- -----------
Prior to suspending underwriting operations in the first quarter
of 1995, the Company followed the customary industry practice
of reinsuring a portion of its risks. Business was ceded
principally to reduce the Company's exposure on large individual
risks. In addition, reinsurance was purchased to provide
protection against large catastrophic occurrences that may
impact numerous individual risks, such as hurricanes or similar
events. Currently, the Company is not purchasing either of
these types of reinsurance, but has outstanding claims
recoverable, primarily on unpaid claims for liability exposures
that take a lengthy period to settle.
Currently, the Company reinsures 50% of its Auto physical
damage business with a group of reinsurers led by Constitution
Reinsurance Company. The Company pays a proportional
amount of its premiums and collects a proportional amount of
its claims from the reinsurers. Proportional reinsurance is
designed to take maximum advantage of its capacity to write
direct policies without excessively exposing the Company to
loss of statutory net worth.
As part of its routine procedures, the Company evaluates the
financial condition of each prospective reinsurer before it cedes
business to that carrier. Based on the Company's review of its
reinsurers' financial health and reputation in the insurance
marketplace, the Company believes its reinsurers are financially
sound and that they can meet their obligations to the Company
under the terms of the reinsurance agreements. Reserves for
uncollectable reinsurance are provided if deemed necessary.
In its capacity as a servicing carrier, the Company issues its
direct policies for auto risks and flood risks, then cedes these
risks 100% to government agencies. While the amounts of
reinsurance recoverables under these arrangements are
significant, the Company believes these balances from the
various government agencies are fully collectible due to their
ability to assess others for deficiencies.
Investment and Investment Results
- ---------------------------------
The Company's cash and investments were distributed as follows at
December 31, 1996 and 1995 (in thousands):
1996 1995
Asset Asset
Values % Values %
-------- ----- -------- -----
U.S. government and government
agencies and authorities $40,102 93.4% $31,416 62.0%
States, municipalities and
political subdivisions 115 0.3 993 2.0
Corporate bonds - - 1,168 2.3
Redeemable preferred stocks - - 4 -
------- ------ ------- -----
Total debt securities 40,217 93.7% 33,581 66.3%
Cash & short term investments 2,664 6.2 16,649 32.9
Equity securities 35 0.1 377 0.7
Other long term investments 28 - 34 0.1
------- ------ ------- -----
Total cash and investments $42,944 100.0% $50,641 100.0%
======= ====== ======= ======
Asset values represent market values at December 31. The
Company reorganized the investment portfolio during 1994 to
reduce the percentage concentration in longer term maturities
and increase the concentration in more liquid securities such as
cash and short-term investments. The Company believes that
this mix more accurately matches with the Company's liabilities
at this time.
The following table sets forth the consolidated investment
results for the three years ended December 31,1996 (in thousands):
1996 1995 1994
---- ---- ----
Total investments (1) $ 47,614 $ 53,841 $ 90,175
Net investment income 3,006 3,176 5,321
Average yield 6.3% 5.9% 5.9%
Net realized investment gains (losses) $ (14) $ 164 $ (6,327)
(1) Average of the aggregate invested amounts (market values)
at the beginning of the year, as of June 30 and as of the end of
the year.
Divestitures
- ------------
In early 1994, the Company sold substantially all of the
receivables of Premium Service Corporation, its premium
financing subsidiary, and has withdrawn from that business.
During the first quarter of 1995, the accounts receivable and
other immaterial assets of Forest Lake Travel Service, Inc. were
sold. The Company has withdrawn from this business as well.
Each of the sales of subsidiaries or their assets were made at
small gains, while the dissolutions resulted in increased liquidity
for their respective parent companies. The sales and
dissolutions took place because of management's emphasis on
restructuring the Company's core operations. In the Company's
continuing focus on its primary business, none of these
companies were considered to be an integral part of operations.
The impact of these divestitures on 1996, 1995 and 1994
results was not material and future years' operations are not
anticipated to be significantly affected.
Regulation
- ----------
State Regulation. Insurance companies are subject to
supervision and regulation in the jurisdictions in which they
transact business, and such supervision and regulation relate to
numerous aspects of an insurance company's business and
financial condition. The primary purpose of such supervision and
regulation is the protection of policyholders. The extent of such
regulation varies but generally derives from state statutes which
delegate regulatory, supervisory and administrative authority to
state insurance departments. Accordingly, the state insurance
departments have the authority to establish standards of
solvency which must be met and maintained by insurers; license
insurers and agents; and to approve policy forms. State
insurance departments also conduct periodic examinations of
the affairs of insurance companies and require the filing of
annual and other reports relating to the financial condition of
insurance companies.
Most states have enacted legislation which regulates insurance
holding company systems, including acquisitions, dividends, the
terms of surplus notes, the terms of affiliate transactions and
other related matters. Three of the Company's insurance
subsidiaries are domiciled in the state of South Carolina and are
principally regulated by the South Carolina Department of
Insurance. KIC is domiciled in Kentucky and is principally
regulated by the Kentucky Department of Insurance.
Insurance companies are required to file detailed annual
statements with the state insurance regulators in each of the
states in which they do business, and their business and
accounts are subject to examination by such regulators at any
time. In addition, these insurance regulators periodically
examine the insurer's financial condition, adherence to statutory
accounting principles, and compliance with insurance
department rules and regulations. South Carolina and Kentucky
insurance laws, rather than federal bankruptcy laws, would
apply to the liquidation or reorganization of any of its South
Carolina insurance companies. Examinations of SCIC,
Consolidated American and Catawba as of December 31, 1992,
and of Kentucky Insurance Company as of June 30, 1995 have
been completed.
The insurance industry has received a considerable amount of
publicity because of rising insurance costs, a number of high
profile insurance company insolvencies and a limited exemption
from the provisions of federal anti-trust prohibitions. Changes
in the law are being proposed which would bring the insurance
industry under the regulation of the Federal government and
eliminate current exemptions from anti-trust prohibitions. It is
not possible to predict whether, in what form or in what
jurisdictions, if any, these proposals might be adopted, or the
effect, if any, on the Company. The NAIC has developed and
recommended for adoption by the state insurance regulatory
authorities various model laws and regulations pertaining to,
among other things, capital requirements for the insurance
industry members.
NAIC Guidelines. The NAIC has adopted Risk-Based Capital
(RBC) requirements for property and casualty insurance
companies to evaluate the adequacy of statutory capital and
surplus in relation to investment and insurance risks such as
asset quality, asset and liability matching, loss reserve
adequacy, and other business factors. The RBC formula is used
by state insurance regulators as an early warning tool to
identify, for the purpose of initiating regulatory action, insurance
companies that are potentially inadequately capitalized.
Compliance is determined by the ratio of the Company's
regulatory total adjusted capital to its authorized control level
RBC (as defined by the NAIC). Companies which fall below the
authorized RBC level may be required to disclose plans to
remedy the situation. As of December 31, 1996, all of the
insurance subsidiaries have ratios of total adjusted capital to
RBC that are in excess of the level which would prompt
regulatory action.
Regulation of Dividends and Other Payments from Insurance Subsidiaries
- ----------------------------------------------------------------------
The Company is a legal entity separate and distinct from its
subsidiaries. As a holding company, the primary sources of cash
needed to meet its obligations, including principal and interest
payments with respect to indebtedness, are dividends and other
permitted payments from its subsidiaries and affiliates.
South Carolina insurance laws and regulations require a
domestic insurer to report any action authorizing distributions to
shareholders and material payments from subsidiaries and
affiliates at least thirty days prior to distribution or payment
except in limited circumstances. Additionally, those laws and
regulations provide the Department of Insurance with the right
to disapprove and prohibit distributions meeting the definition of
an "Extraordinary Dividend" under the statutes and regulations.
The South Carolina Insurance Holding Company Regulatory Act
provides that, without the prior approval of the Director of
Insurance of the State of South Carolina, dividends within any
twelve-month period may not exceed the greater of (i) 10% of
surplus as regarding policyholders as of December 31 of the
prior year and (ii) statutory net income, not including realized
capital gains or losses, for the prior calendar year. Payment of
cash dividends by SCIC is at the discretion of its Board of
Directors, upon approval of the Director of Insurance, and is
based on its earnings, financial condition, capital requirements,
and other relevant factors. If the ability of SCIC and the
Company's other insurance subsidiaries to pay dividends or
make other payments to the Company is materially restricted by
regulatory requirements, it could affect the Company's ability to
pay dividends to its shareholders. In addition, no assurance can
be given that South Carolina will not adopt statutory provisions
more restrictive than those currently in effect.
Required Participation
- ----------------------
State Residual Market Plans. Most states in which the
Company's property and casualty insurance group writes
business have collective pools, underwriting associations,
reinsurance facilities (the largest being the South and North
Carolina Reinsurance Facilities), assigned risks plans or other
types of residual market plans ("plans"), pursuant to which
coverages not normally available in the voluntary market are
shared by all companies writing that type of business in that
state. Participation is usually based on the ratio of the
Company's direct voluntary business to the total industry
business of that type in that state. As the Company's share of
the voluntary market in a given state changes, tentative
participations are assigned for each policy year and are updated
as actual data becomes available.
Insurance Guaranty Funds. Most states have also enacted
insurance guaranty fund laws. Typically, these laws provide that
when an insurance company is declared insolvent, the other
insurance companies writing in that jurisdiction are assessed to
pay covered claims of the insolvent company. The amount a
company is assessed is generally determined by the amount of
premiums written in that state, subject to a maximum annual
assessment ranging from 1% to 2% of direct written premiums.
During 1996 and 1995, the Company paid $29,000 and
$116,000, respectively, in such assessments. During 1996,
the Company received $69,000 in credits.
South Carolina Automobile. The South Carolina Reinsurance
Facility is an unincorporated, non-profit administrative service
association of insurers. The S. C. Facility is supported by the
majority of the automobile insurers doing business in the state
of South Carolina and provides a mechanism for the insurance
companies to cede mandated high-risk coverages under
automobile policies, and to share the cost of those coverages
ceded. Every insurer authorized to write automobile liability
insurance in South Carolina is required to participate in the S. C.
Facility. When policyholders whose premiums have been ceded
through the S. C. Facility incur a loss, the member company
which issued the policy adjusts the loss and subsequently is
reimbursed for the loss and expenses by the Facility. The S. C.
Facility also created a pool of "Designated Agents," which are
agencies usually comprised of a single independent agent who
lost his or her access to the voluntary automobile market.
Designated Agents are assigned to one of the Facility's
servicing carriers. Prior to October 1, 1996, the cession or
retention of physical damage was dictated by whether or not
the risk was "pointed" or "clean." Only clean risk physical
damage could be ceded to the S. C. Facility prior to October 1,
1996. Effective October 1, 1996, however, physical damage
was removed from the mandate, and the S.C. Facility agreed to
accept any physical damage, pointed or clean, provided the
Facility-filed rates were used.
National Flood Insurance Program. FEMA's Federal Insurance
Administration manages the NFIP. The NFIP regulations
established the "Financial Assistance/Subsidy Arrangement"
pursuant to which the NFIP Administrator and the private sector
insurers participate in the WYO Program. Under the WYO
Program, insurers which are parties to a Financial
Assistance/Subsidy Arrangement may issue, in their own
names, a Standard Flood Insurance Policy, the form and
substance of which is approved by the NFIP Administrator.
Insurers are responsible for all aspects of service, including
policy issuance, endorsements and renewals of policies and
adjustments of claims brought under the policies, and the NFIP
Administrator monitors the performance levels of all insurers
participating in the WYO program.
The Company is required to furnish to FEMA such summaries
and analyses of information, including claims information, as
may be necessary to carry out the purposes of the National
Flood Insurance Act of 1968, as amended. Upon request, the
Company's Fire and Casualty Annual Statement and Insurance
Expense Exhibits are filed with the state insurance authority of
the Company's domiciliary state.
Recent Legislative Proposals. A Reform Bill is currently pending
before the South Carolina State Legislature. If signed into law,
the Reform Bill would transform the South Carolina Reinsurance
Facility into a joint underwriting or assigned risk plan over the
course of a three-year transition period. Beginning March 1,
1998, designated carriers and voluntary carriers would no
longer be able to cede new business to the Facility. All renewal
business ceded to the Facility would be required to use the
Facility rate. In an attempt to make the Facility rate a "self-
sustaining" rate, the Facility would increase the rate, up to a
maximum of 10% a year, until such time as the rate is deemed
to be adequate. Voluntary carriers would have to suspend the
cession of renewals effective October 1, 1998, and designated
carriers could no longer cede renewals after October 1, 2001.
On March 1, 1998, the designated agents would be allowed to
contract with voluntary companies to produce private passenger
automobile business. It is not possible to predict whether or in
what form this proposal might be adopted or the effect, if any,
on the Company.
Competition and Other Factors
- -----------------------------
The Company operates in highly competitive industry segments.
Many of its competitors have greater financial resources and
higher ratings from A. M. Best than the Company. In general,
the Company competes with both large national writers and
smaller regional companies in each state in which it operates.
These competitors include other companies that, like the
Company, serve the agency market, as well as companies that
sell insurance directly to policyholders. Direct writers may have
certain competitive advantages over agency writers, including
increased name recognition, increased loyalty of their customer
base, and, potentially, reduced acquisition costs.
Nonstandard Automobile Insurance Business. The Company is
one of three servicing carriers for the South Carolina Facility.
The Company competes with the major carriers for nonstandard
voluntary automobile business. The nonstandard automobile
insurance business is price sensitive and certain competitors of
the Company have, from time to time, decreased their prices in
an apparent attempt to gain market share. Although the
Company's pricing is inevitably influenced to some degree by
that of its competitors, management of the Company believes
that it is generally not in the Company's best interest to match
such price decreases, choosing instead to compete on the basis
of underwriting criteria and superior service to its agents and
insureds.
Flood Program. Factors influencing the choice of a competitor
over the Company include a competitor's ability to offer
homeowners or other property products to agents, a superior
rating from A. M. Best, a competitor's ability to increase
commission rates and on-line policy issuance capability.
Commercial Lines/MGA Operations. While the Company does
not have competitors for its Commercial Lines/MGA
arrangement with Generali, Generali competes with various
companies in the states serviced by the Company.
Employees
- ---------
At December 31, 1996, the Company and its subsidiaries employed a total of
317 employees.
Item 2. Properties
The Columbia, South Carolina home office, containing
approximately 148,000 square feet of occupied space, is
owned by the Company and used primarily by its property and
casualty insurance operations. Some additional premises are
leased by the Company in locations in which they operate.
Management believes that these facilities are adequate for the
current level of operations.
Item 3. Legal Proceedings
The Company and its subsidiaries are parties to various lawsuits
generally arising in the normal course of their insurance and
ancillary businesses. The Company does not believe that the
eventual outcome of such suits will have a material effect on
the financial condition or results of operations of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Shareholders (the "Meeting") of the
Company, was held on December 12, 1996. As of October 10,
1996, and for purposes of the Meeting, there were 24,647,686
shares of common stock of the Company, par value $1.00 per
share (the "Common Stock"), issued and outstanding. At the
Meeting, there were 23,171,195 shares (94%) of the
outstanding shares entitled to vote represented in person or by
proxy.
(b) The Meeting was called for the following purposes and
with the following results:
1) To elect one (1) Director to hold office until the 1997
Annual Meeting of Shareholders and until his successor shall be elected
and shall qualify, two (2) Directors each to hold office until the 1998
Annual Meeting of Shareholders and until his successor shall be elected
and shall qualify and three (3) Directors each to hold office until the
1999 Annual Meeting of Shareholders and until his successor shall be
elected and shall qualify. Each Director was elected with at
least 23,100,288 votes (93.7% of the vote).
Votes Cast Votes
Nominee Votes Cast For % Against Abstained Unvoted
------- -------------- --- ---------- --------- -------
Fred S. Clark 23,100,788 93.7 70,407 None None
Ernst N. Csiszar 23,100,788 93.7 70,407 None None
Claude E. McCain 23,100,288 93.7 70,907 None None
Kenneth W. Pavia 23,100,409 93.7 70,785 None None
John P. Seibels 23,100,544 93.7 70,651 None None
John A. Weitzel 23,100,545 93.7 70,650 None None
2) To consider a proposal to ratify the selection of Arthur
Andersen LLP to audit the Company's books and records for the
fiscal year ending December 31, 1996. Passed with
23,109,966 votes (98.8%) in favor, 17,885 against, 43,343
abstained and 1 unvoted.
3) To consider a proposal to ratify and approve the
issuance of 35,000 shares to Non-Employee Directors as part of
compensation for services rendered pursuant to Rule 4460
(formerly Schedule D to the Bylaws) of the National Association
of Securities Dealers, Inc. Passed with 22,248,051 votes
(90.3%) in favor, 578,752 against, 139,886 abstained and
204,506 unvoted.
Executive Officers
Name Age Position
---- --- ---------
Steven M. Armato 45 Vice President - Administration of certain
subsidiaries since December, 1995. Previously
held the position of Vice President from
April, 1986. Employed by Company since
April, 1981.
Priscilla C. Brooks 45 Corporate Secretary of the Company since June,
1995. Corporate Secretary of certain subsidiaries
since February, 1995. Assistant Corporate
Secretary of the Company and certain subsidiaries
since 1982. Employed with the Company since 1973.
Thomas S. Camp 45 Vice President - Sales of certain subsidiaries
since November, 1996. Previously with First Union
Bank as Commercial Banking Executive for South
Carolina since November, 1995. Employed by First
Union in various positions since February, 1989.
Michael A. Culbertson 48 Group Vice President - Fee Operations of certain
subsidiaries since December, 1995. Previously
held positions of Senior Vice President of
Claims and Vice President of Claims since June,
1995; Officer and Director of certain Company
subsidiaries. Employee of the Company in various
claims capacities since December, 1974.
Ernst N. Csiszar 46 President, Chief Executive Officer, and Director
of the Company and certain subsidiaries since
June, 1995. Visiting professor at the School
of Business, University of South Carolina since
1988.
James P. Donnelly 44 Vice President and Chief Information Officer
of the Company and certain subsidiaries since
February, 1997. Previously a Vice President in
the Information Technology Department of CNA
Insurance Companies. Employed by CNA for more
than the last five years.
Michael D. Faoro 52 Group Vice President - Risk Operations of
certain subsidiaries since July, 1996.
Previously Director of Branch Services for CNA
Insurance Companies from 1976 to December, 1995.
Mary M. Gardner 32 Controller of the Company and certain
subsidiaries since July, 1994. From 1989 to
1994, Assistant Controller of Mercury Insurance
Group, a group of property and casualty
insurance companies.
Robert F. Key 38 Treasurer of the Company and certain
subsidiaries since November, 1996. Previously
employed by First Union Bank from May, 1989 to
July, 1996.
Robert L. Lippert 34 Vice President - Strategic Planning of certain
subsidiaries since May, 1996. Previously a
professor at Rutgers University from July,
1992 to May, 1996 and an independent consultant
in addition.
Matt P. McClure 27 Legal Counsel and Assistant Secretary of the
Company and certain subsidiaries since November,
1996. Previously Manager of Financial Planning
with Air South Airlines, Inc. from July, 1995 to
May, 1996. Employed by the South Carolina Fifth
Judicial Circuit Solicitor from May, 1993 to
July, 1995.
John A. Weitzel 51 Vice President and Chief Financial Officer of
the Company and certain subsidiaries since
September, 1995. Director of the Company since
October, 1995. Previously Chief Financial
Officer of Milwaukee Insurance Group, Inc. from
April, 1985 to November, 1994.
John C. West 75 Chairman of the Board since September, 1994.
Director of the Company since June, 1994.
Currently, of counsel with the law firm of
Bethea, Jordan and Griffin in Hilton Head
Island, SC and professor at the University of
South Carolina. Former Governor of South
Carolina (1971-75) and former Ambassador to the
Kingdom of Saudi Arabia (1977-81).
PART II
Item 5. Market for the Registrant's Common Stock
and Related Security Holder Matters
(a) Market Information
The Company's common stock is quoted and traded on
The NASDAQ National Market, symbol "SBIG." The following
table sets forth the range of high and low closing sales prices
as reported on The Nasdaq Stock Market. On March 10,
1997, the last reported sales price of the Common Stock on
The Nasdaq Stock Market was $1-15/16 per share.
1995 High Low
- ---- ---- ----
First quarter $3-1/16 $7/8
Second quarter 1-7/16 3/4
Third quarter 1-1/32 3/4
Fourth quarter 2-3/16 7/16
1996
- ----
First quarter $4-1/4 $1-9/16
Second quarter 3-1/8 2-3/8
Third quarter 2-5/8 1-31/32
Fourth quarter 2-13/16 1-7/8
1997
- ----
First quarter (through March 10, 1997) $2-1/16 $1-13/16
(b) Holders
There were approximately 2,540 shareholders of record as of
March 10,1997. This number does not include beneficial
owners holding shares through nominee or "street" names.
(c) Dividends
There have been no dividends declared by the Company
during the past 5 years, and the Board of Directors does not
presently intend to pay any cash dividends in the foreseeable
future. The ability of the Company to declare and pay cash
dividends, as well as to pay any debt service, is dependent
upon the ability of SCIC to declare and pay dividends to the
Company. SCIC is regulated as to its payment of dividends by
the South Carolina Insurance Holding Company Regulatory Act.
The Company's payment of cash dividends is at the discretion
of the Board of Directors and is based on its earnings, financial
condition, capital requirements, and other relevant factors. See
Note #8 of Notes to Financial Statements.
Item 6. Selected Financial Data
The following selected financial data for each of the five years
ended December 31, 1996 is derived from the audited
consolidated financial statements of the Company. The selected
data should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of
Operations and the Consolidated Financial Statements and
accompanying notes included elsewhere herein.
<TABLE>
<S> <C> <C> <C> <C> <C>
(in thousands) 1996 1995 1994 1993 1992
-------- -------- -------- --------- ---------
FINANCIAL CONDITION
Total cash & investments $ 42,944 $ 50,641 $ 61,868 $ 120,480 $ 161,768
Total assets 220,472 224,005 255,935 324,695 461,136
Total debt - 2,476 439 11,934 25,153
Shareholders' equity 23,791 10,187 650 13,902 14,219
Per share 0.96 0.61 0.04 1.85 1.90
RESULTS OF OPERATIONS
Revenues
Insurance:
Commission & service income $ 45,585 $ 49,572 $ 60,669 $ 41,625 $ 35,943
Property & casualty premiums 7,186 10,384 14,718 55,331 117,172
Credit life premiums 478 890 1,801 3,207 4,247
Net investment & other
interest income 3,807 4,330 6,226 7,090 12,960
Realized gains (losses)
on investments (14) 164 (6,327) 1,969 7,040
Other 151 843 2,673 4,697 4,019
Total revenues $ 57,193 $ 66,183 $ 79,760 $ 113,919 $ 181,381
Income (loss) before
extraordinary item $ 5,176 $ 1,152 $ (19,074) $ (10,249) $(32,666)
Per share & common equivalent
share 0.22 0.07 (1.72) (1.37) (4.36)
Extraordinary item-gain from
extinguishment of debt,
net of income taxes $ - $ - $ - $ 9,235 $ -
Per share & common equivalent
share - - - 1.23 -
Net income (loss) $ 5,176 $ 1,152 $ (19,074) $ (1,014) $ (32,666)
Per share & common equivalent
share 0.22 0.07 (1.72) (0.14) (4.36)
Pro forma SFAS No. 128 basic
earnings per share (Note 1) 0.26 0.07 (1.72) (1.37) (4.36)
(See Item 7 and Notes to Financial Statements included under Item 8).
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The selected financial data and consolidated financial statements
and related notes thereto should be read in conjunction with the
following discussion as they contain important information for
evaluation of the Company's financial condition and operating
results.
OVERVIEW
--------
The Company provides automobile, flood and other property and
casualty insurance services and products. The largest source of
revenues during 1996, 1995 and 1994 was derived from the
Company's participation in the South Carolina Reinsurance Facility
("S. C. Facility") and the National Flood Insurance Program
("NFIP"). Other revenues are derived from acting as a managing
general agent for an unaffiliated insurance company, excess and
surplus lines brokerage services and catastrophe claims services.
The following table shows revenues by the various lines of
operations during the years ended December 31, 1996, 1995 and
1994, respectively (in thousands):
1996 1995 1994
Current operations:
Fee and service operations:
S. C. Facility premiums-based fees $ 14,556 $ 13,451 $ 21,415
S. C. Facility claims-based fees 10,638 14,343 17,706
Flood premiums-based fees 8,340 9,408 10,250
Flood claims-based fees 3,581 2,863 648
Other state facilities 1,390 2,613 3,188
MGA 6,170 6,734 7,094
Brokerage and other 910 160 368
Risk operations:
Nonstandard automobile 71 - -
Assumed from pools and
associations 5,819 1,232 2,275
Total current operations 51,475 50,804 62,944
Premiums from run-off risk operations 1,774 10,042 14,244
Total $ 53,249 $ 60,846 $ 77,188
As one of three servicing carriers, the Company earns
commission and service income as a percentage of gross
premiums written and also earns a fee on claims paid. Until
October 1, 1994, the Company serviced the largest of three
blocks of business for the S. C. Facility ("Block 1"). As the
result of a competitive bid process in 1994, the Company, as the
second lowest bidder, was awarded a five year contract to
service the second largest block of business ("Block 2") at lower
rates than its old contract. However, the Company continued to
process the remaining run-off claims from Block 1 for losses
incurred prior to October 1, 1994, pursuant to the rates under its
prior contract. Premium-based fees under the new contract are
20.99% of gross premiums written (compared with a rate of
28.0% under its prior contract). The Company is responsible for
paying all costs of processing the policies, including a mandated
12% commission on gross premiums earned to the agent. The
Company also receives income on the claims it pays for the S. C.
Facility in the amount of 10.98% of the gross paid claims
(compared with a 15.0% rate under its prior contract). The
Company is responsible for paying all costs to process these
claims, including adjusting expenses. However, the S. C. Facility
does reimburse the Company in full for legal expenses associated
with processing these claims.
In 1996, the Company expanded its participation in the South
Carolina automobile business to include writing and retaining a
portion of the risk on nonstandard automobile policies. These
revenues were not significant during 1996.
The Company is a servicing carrier for the NFIP. During 1996,
1995 and 1994, the Company recognized income for the policies
it processes in the amount of 30.6% of gross premiums written.
The Company's estimated rate for 1997 is 30.6% and would
increase to 32.6% if the Company is able to increase its
contracts in force, as defined by the NFIP, by 10%. The rate
can increase up to 34.6% for a growth rate in excess of 10%.
The Company is responsible for paying all costs associated with
processing the policies, including a commission to the
independent agent. The Company also receives a fee on the
claims that it pays on these policies in the amount of 3.3% of
incurred claims. The Company is reimbursed for the allocated
loss adjustment expenses associated with these claims according
to a standard fee schedule.
The Company also derives revenues from its role as managing
general agent for an unaffiliated insurance company. While the
Company performs all services and pays all costs (including the
independent agents' commissions) related to administering and
processing policies and processing claims, the policies are
written on behalf of an unaffiliated insurance company. The
Company's financial statements reflect commission income as a
percentage of premiums written but do not reflect these
premiums written or associated claims incurred.
Revenues derived from pools and associations consist of
mandated participation in various state associations due to the
Company's participation in that state. Currently, the only
association that significantly impacts the Company's operating
results is the business assumed from the North Carolina
Reinsurance Facility ("N. C. Facility"). The amount of risk
business assumed by the Company in any given year is based
upon its percentage of premiums ceded to the N. C. Facility for
prior years, which is ultimately adjusted to reflect actual current
year participation. The assumption of this risk business is
reflected in the Company's reported premiums, losses and loss
adjustment expenses incurred and policy acquisition costs.
The Company continues to maintain reserves and pay significant
claims with respect to its run-off operations. These run-off
operations consist primarily of workers' compensation and
general liability policies that include contractors liability and
environmental coverages primarily in California and personal lines
policies in the Southeast. The run-off of claims on these policies
created substantial losses to the Company during the past 10
years. The Company commissioned additional reviews of its run-
off operations by independent actuaries resulting in a large
increase in reserves as of December 31, 1994.
Management Changes and New Strategic Direction
Beginning in early 1995, the Company replaced its Chief
Executive Officer and Chief Financial Officer and began an
intensive and ongoing effort to recruit additional management.
New management has taken a number of actions to stabilize and
improve the Company's financial condition through significant
cost reductions, the raising of new equity capital and a renewed
emphasis on non-risk fee-based businesses. As a result of these
actions and the relative stabilization of reserves, the Company
was profitable in 1995 and 1996 and resumed limited
underwriting activities in 1996.
RESULTS OF OPERATIONS
Years Ended December 31, 1996 and 1995
- --------------------------------------
Commission & Service Income
Commission and service income for the year ended December
31, 1996 decreased $4.0 million, or 8%, to $45.6 million from
$49.6 million for the year ended December 31, 1995. This
decrease is due primarily to a decline of $3.7 million in S. C.
Facility claims-based fees resulting largely from the new contract
effective in October, 1994. The effect of this new contract
caused an immediate reduction in premium-based fees and a
more gradual reduction over an approximately eighteen month
period in claims-based fees for the reasons explained in the
above overview. Flood premium-based revenues for the year
ended December 31, 1996, decreased $1.1 million, compared to
the year ended December 31, 1995, due to a decrease in the
amount of flood premiums serviced by the Company. However,
this decrease was partially offset by a $0.7 million increase to
claims-based revenues due to a larger amount of flood claims
during 1996. The cancellation of the contract with the N.C.
Facility also accounts for decreased revenues in the amount of
$1.1 million.
Property and Casualty Premiums Earned
Net property and casualty premiums earned for the year ended
December 31, 1996 decreased $3.2 million, or 31%, to $7.2
million from $10.4 million for the year ended December 31,
1995. This decline is largely due to the suspension of risk-
bearing business in the first half of 1995 and would have been
significantly greater but for the $5.8 million of premiums the
Company was required to assume from the N. C. Facility
(compared to $1.2 million of such premiums assumed in 1995).
In 1996, the Company continued to earn premiums on personal
lines business written by the Company in the first half of 1995.
Although the Company resumed limited insurance underwriting
activities in July 1996, these activities generated less than
$100,000 of earned premiums in 1996. Beginning in July,
1996, the Company began to write a very limited amount of
non-standard automobile and retained an insignificant amount of
private passenger automobile physical damage business.
Credit Life Premiums Earned
Net credit life premiums earned for the year ended December 31,
1996 decreased $0.4 million, or 44%, to $0.5 million from $0.9
million for the year ended December 31, 1995. The Company
sold this subsidiary in September, 1993. Under the sale
agreement, the Company retained the responsibility and
continues to run-off the policies in existence at the sales date.
Net Investment and Interest Income
Net investment and other interest income for the year ended
December 31, 1996 decreased $0.5 million, or 12%, to $3.8
million from $4.3 million for the year ended December 31,
1995. This decrease is primarily a result of a decrease of $7.7
million, or 15%, in the Company's overall cash and investment
position from $50.6 million at December 31, 1995 to $42.9
million at December 31, 1996. This decrease is due to the
Company's negative cash flow from operations in 1996 and is
described in "Liquidity and Capital Resources. However, average
yield on total cash and investments improved from 5.9% for the
year ended December 31, 1995 to 6.3% for the year ended
December 31, 1996.
Realized Gains (Losses) on Investments
Realized gains (losses) on investments decreased $178,000 from
a gain of $164,000 for the year ended December 31, 1995 to a
loss of $14,000 for the year ended December 31, 1996.
Other Income
Other income for the years ended December 31, 1996 and 1995
was $0.2 million and $0.8 million, respectively. Other income in
1995 includes a gain from the settlement of a litigation.
Loss and Loss Adjustment Expenses
Property and casualty loss and loss adjustment expenses
incurred decreased $6.6 million, or 37.7%, to $11.0 million from
$17.6 million for the year ended December 31, 1995. This
decrease largely corresponds to the decrease in property and
casualty premiums earned and also reflects a smaller provision
for prior year losses of $1.1 million in 1996 as compared to $3.4
million in 1995. See "Loss and Loss Adjustment Expense
Reserves" .
Policy Acquisition Costs
Property and casualty policy acquisition costs incurred decreased
$2.0 million, or 53%, to $1.8 million from $3.8 million for the
year ended December 31, 1996 compared to the year ended
December 31, 1995. This decrease is due to the reduction in net
premiums written. The decline would have been greater but for
the policy acquisition costs associated with the premiums the
Company was required to assume from the N. C. Facility.
Credit Life Benefits
Credit life benefits incurred were $0.2 million and $0.5 million
for the years ended December 31, 1996 and 1995, respectively.
The Company sold this subsidiary in September, 1993. Under
the sale agreement, the Company retained the responsibility and
continues to run-off the policies in existence at the sales date.
Interest Expense
Interest expense was $0.2 million and $0.3 million for the years
ended December 31, 1996, and 1995, respectively. The
majority of the interest expense during both years related to
interest paid on notes payable to one of the Company's principal
shareholders. The Company repaid these notes in full on May 1,
1996.
Other Operating Costs and Expenses
Other operating costs and expenses for the years ended
December 31, 1996 and 1995 were $39.0 million and $42.8
million, respectively. This decrease of $3.8 million, or 9%, is
primarily a result of the Company's continuing efforts to maintain
costs at a level appropriate to the associated revenue levels. A
portion of this decrease is related to the cancellation of the
Company's contract with Policy Management Systems
Corporation ("PMSC") in September, 1996. While most of the
services that PMSC had provided for the Company were
discontinued in 1995 and 1994, the amount paid to PMSC
during 1996 was reduced from $1.8 million for the year ended
December 31, 1995 to $0.9 million for the year ended December
31, 1996.
Income Taxes
Benefit from income taxes was $131,000 and $2,000 for the
years ended December 31, 1996, and 1995, respectively.
During 1996 and 1995, the Company utilized net operating loss
carryforwards to offset current income taxes in the amount of
$1.6 million and $0.3 million, respectively. The 1996 income
tax benefit resulted primarily from reversals of tax overaccruals
in prior year.
Years Ended December 31, 1995 and 1994
- --------------------------------------
Commission & Service Income
Commission and service income for the year ended December
31, 1995 decreased $11.1 million, or 18.3%, to $49.6 million
from $60.7 million for the year ended December 31, 1994. This
decrease is due primarily to a decline of $8.0 million and $3.4
million in S. C. Facility premiums-based fees and claims-based
fees, respectively, resulting largely from the new contract
effective in October, 1994. The effect of this new contract
caused an immediate reduction in premium-based fees and a
more gradual reduction over an approximately eighteen month
period in claims-based fees for the reasons explained in the
above overview. Flood premium-based revenues for the year
ended December 31, 1995, decreased $0.8 million, compared to
the year ended December 31, 1995, due to a decrease in the
amount of flood premiums serviced by the Company. However,
this decrease was offset by a $2.2 million increase to claims-
based revenues due to a larger amount of flood claims during
1995.
Property and Casualty Premiums Earned
Net property and casualty premiums earned for the year ended
December 31, 1995 decreased $4.3 million, or 29%, to $10.4
million from $14.7 million for the year ended December 31,
1994. This decline is largely due to the suspension of risk-
bearing business in the first half of 1995.
Credit Life Premiums Earned
Net credit life premiums earned for the year ended December 31,
1995 decreased $0.9 million, or 51%, to $0.9 million from $1.8
million for the year ended December 31, 1994. The Company
sold this subsidiary in September, 1993. Under the sale
agreement, the Company retained the responsibility and
continues to run-off the policies in existence at the sales date.
Net Investment and Interest Income
Net investment and other interest income for the year ended
December 31, 1995 decreased $1.9 million, or 30%, to $4.3
million from $6.2 million for the year ended December 31, 1994.
This decrease is primarily a result of a decrease of $11.3 million,
or 18%, in the Company's overall cash and investment position
from $61.9 million at December 31, 1994 to $50.6 million at
December 31, 1995. This decrease is due to the Company's
negative cash flow from operations in 1995 described in
"Liquidity and Capital Resources". Average yield on net
investment income remained the same at 5.9% for both years
ended December 31, 1995 and 1994.
Realized Gains (Losses) on Investments
Realized gains (losses) on investments increased $6.4 million
from a loss of $ 6.3 million for the year ended December 31,
1994 to a gain of $164,000 for the year ended December 31,
1995. As a result of negative cash flow from operations during
1994, the Company had to sell bonds in a period of declining
values, resulting in the realized losses for 1994.
Other Income
Other income for the years ended December 31, 1995 and 1994
was $0.8 million and $2.7 million, respectively. Other income in
1995 includes a gain from the settlement of a litigation. Other
income for 1994 includes a $0.6 million gain on the sale
Premium Service Corporation and $1.7 million from operations of
the former premium financing and travel subsidiaries.
Loss and Loss Adjustment Expenses
Property and casualty loss and loss adjustment expenses
incurred for the year ended December 31, 1995 decreased $19.3
million, or 52.3%, to $17.6 million from $37.0 million for the
year ended December 31, 1994. This decrease largely
corresponds to the decrease in property and casualty premiums
earned and also reflects a smaller provision for prior year losses
of $3.4 million in 1995 as compared to $17.0 million in 1994.
See "Loss and Loss Adjustment Expense Reserves" .
Policy Acquisition Costs
Property and casualty policy acquisition costs incurred decreased
$1.7 million, or 32%, from $3.8 million for the year ended
December 31, 1995 compared to the year ended December 31,
1994 ($5.5 million). This decrease is due to the reduction in net
premiums written.
Credit Life Benefits
Credit life benefits incurred was $0.5 million and $0.8 million for
the years ended December 31, 1995 and 1994, respectively.
The Company sold this subsidiary in September, 1993. Under
the sale agreement, the Company retained the responsibility and
continues to run-off the policies in existence at the sales date.
Interest Expense
Interest expense was $0.3 million for both years ended
December 31, 1995 and 1994. The majority of the interest
expense during both years related to interest paid on notes
payable to one of the Company's principal shareholders. The
Company repaid these notes in full on May 1, 1996.
Other Operating Costs and Expenses
Other operating costs and expenses for the years ended
December 31, 1995 and 1994 were $42.8 million and $55.2
million, respectively. This decrease of $12.5 million, or 23%, is
a result of the Company's ongoing efforts to maintain costs at a
level appropriate to the associated revenue levels. The largest
component of the decrease is due to workforce reductions
management of the Company initiated in early 1995. At
December 31, 1995, the Company employed 268 full-time
employees, compared to 407 at December 31, 1994. The
related salaries and fringes for the Company was $10.7 million
for the year ended December 31, 1995, compared to $14.5
million for the year ended December 31, 1994, a decrease of
$3.8 million, or 26%. Additional savings were realized in the
Company's data processing costs. The Company converted its
two largest volumes of business from PMSC to another data
processing system in December, 1994 and June, 1995 reducing
data processing expense from $3.4 million for the year ended
December 31, 1994 to $1.8 million for the year ended December
31, 1995.
Income Taxes
Provision (benefit) from income taxes was $(2,000) and
$29,000 for the years ended December 31, 1995, and 1994,
respectively. During 1995, the Company utilized net operating
loss carryforwards to offset current income taxes in the amount
of $0.3 million. Net operating loss carryforwards were not used
to offset current income taxes during 1994. The 1995 and
1994 provision for income taxes on operations of insignificant
amounts resulted from certain life insurance taxable income and
state income taxes that cannot be offset by tax operating losses.
LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES
Loss reserves are estimates at a given point in time of the
amount of claims that the insurer expects to pay claimants plus
investigation and litigation costs, based on facts and
circumstances then known. It can be expected that the ultimate
liability in each case will differ from such estimates. During the
loss settlement period, additional facts regarding individual
claims may become known and, consequently, it becomes
necessary to refine and adjust the estimates of liability.
The liability for losses on direct business is determined using
case-basis evaluations and statistical projections. The liabilities
determined under these procedures are reduced, for GAAP
purposes, by estimated amounts to be received through salvage
and subrogation. The resulting liabilities represent the Company's
estimate of the ultimate net cost of all unpaid losses and LAE
incurred through December 31 of each year. These estimates
may be affected by the frequency and/or severity of future
claims. These estimates are continually reviewed and as
experience develops and new information becomes known, the
liability is adjusted as necessary.
The anticipated effect of inflation is implicitly considered when
estimating liabilities for losses and LAE. While anticipated price
increases due to inflation are considered, an increase in average
severity of claims may be caused by a number of factors that
vary with the individual type of policy written. Future average
severity is projected based on historical trends adjusting for
changes in underwriting standards, policy provisions, and general
economic trends.
These anticipated trends are monitored based on actual
developments and are modified as necessary. The Company does
not discount its loss and LAE reserves.
The following table presents, on a GAAP basis, a three-year
analysis of losses and LAE, net of ceded reinsurance recoverable,
with the net liability reconciled to the gross liability as reported in
the Company's financial statements (in thousands):
<TABLE>
<S> <C> <C> <C>
1996 1995 1994
------ ------ ------
Liability for losses and LAE at the beginning of the year:
Gross liability per balance sheet $ 145,523 $ 166,698 $ 194,682
Ceded reinsurance recoverable,
classified as an asset (84,492) (88,731) (76,221)
Net liability 61,031 77,967 118,461
Provision for losses and LAE for claims
occurring in the current year 9,863 14,243 19,997
Increase in estimated losses and LAE for
claims occurring in prior years 1,117 3,375 16,957
------- ------- ------
10,980 17,618 36,954
------- ------- ------
Losses and LAE payments for claims occurring during
Current year 8,317 11,711 13,837
Prior years 16,267 22,843 63,611
------- ------- ------
24,584 34,554 77,448
------- ------- ------
Liability for losses and LAE at the end of the year:
Net liability 47,427 61,031 77,967
Ceded reinsurance recoverable,
classified as an asset 84,725 84,492 88,731
-------- ------ ------
Gross liability per balance sheet $132,152 $145,523 $166,698
======== ======== ========
</TABLE>
The ceded reinsurance recoverable, classified as an asset,
includes $74.8 million at the end of 1996 ($76.1 million at the
end of 1995 and $75.7 million at the end of 1994) of balances
recoverable from various facilities (such as the S.C. Facility, N.C.
Facility and NFIP). See Note #12 of Notes to Financial
Statements.
As reflected in the preceding table, each year was affected by
reserves from prior years having been deficient in those earlier
periods. However, this impact of adverse development has
decreased significantly since 1994. The amount of adverse
development related to claims occurring in prior years was $1.1
million in 1996, $3.4 million in 1995, and $17.0 million in 1994.
Adverse development will be fully discussed following the tabular
ten-year period analysis presented later in this section. Reserve
deficiencies are caused primarily by the difficulties inherent in
estimating the liability for claims on the casualty lines of
business, where the full extent of the damages can often be
sizable, but not accurately determinable at the date of
estimation. This situation is further complicated by the fact that
the existence of a claim may not be reported to the Company for
a number of years.
The difference between the year-end net liability for losses and
LAE reported in the accompanying consolidated financial
statements in accordance with GAAP and that in accordance
with SAP was as follows for the years ended December 31, (in
thousands):
<TABLE>
<S> <C> <C>
1996 1995
----- -----
Net liability on a SAP basis as filed in annual statement $ 47,952 $ 61,812
Established salvage and subrogation recoveries recorded on
a cash basis for SAP and on an accrual basis for GAAP (525) (781)
Net liability on a GAAP basis, at year end 47,427 61,031
Ceded reinsurance recoverable, classified as an asset 84,725 84,492
Gross liability on a GAAP basis, at year end $132,152 $ 145,523
</TABLE>
The following table reflects the loss and LAE development for 1996 and 1995 on a
GAAP basis (in thousands):
Unpaid losses Re-estimated as Cumulative
and LAE of one year later Deficiency
------------- ----------------- ----------
1996: Gross liability $ 132,152
Less reinsurance recoverable 84,725
-------
Net liability $ 47,427
=======
1995: Gross liability $ 145,523 $ 148,186 $ (2,663)
Less reinsurance recoverable 84,492 86,038 (1,546)
------- -------- -------
Net liability $ 61,031 $ 62,148 $ (1,117)
======= ====== =======
The following analysis reflects loss and LAE development on a SAP basis, net of
ceded reinsurance recoverable, for a ten-year period for retained business only
for year ended December 31 (in millions):
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended December 31,
1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
Liability for unpaid losses
and LAE (SAP) 162 145 129 122 114 112 118 120 80 62 48
Cumulative liability paid through:
One year later 94 82 104 78 77 63 30 65 26 16
Two years later 142 150 141 121 116 50 84 86 42
Three years later 194 173 166 145 93 91 102 99
Four years later 211 191 183 115 125 104 112
Five years later 224 203 151 139 135 111
Six years later 233 174 170 147 140
Seven years later 208 191 176 151
Eight years later 223 195 179
Nine years later 226 199
Ten years later 229
Liability re-estimated as of:
One year later 181 158 174 135 136 119 129 138 85 63
Two years later 192 197 177 150 147 124 146 144 87
Three years later 229 200 188 156 151 134 151 143
Four years later 233 210 185 159 161 145 149
Five years later 240 204 185 168 172 143
Six years later 235 204 195 180 171
Seven years later 235 213 206 178
Eight years later 243 224 204
Nine years later 253 222
Ten years later 251
Cumulative (deficiency) (89) (77) (75) (56) (57) (31) (31) (23) (7) (1)
</TABLE>
The preceding table presents the development of balance sheet
liabilities on a SAP basis for 1986 thorough 1996. The top line of
the preceding table shows the initial estimated liability on a SAP
basis. This liability represents the estimated amount of losses
and LAE for claims arising in years that are unpaid at the balance
sheet date, including losses that have been incurred but not yet
reported. The next portion of the table reflects the cumulative
payments made for each of the indicated years as they have
developed through time. This table has been adjusted for a
modification made to 1994 paid losses on a GAAP basis, not
recorded for statutory net losses incurred. On a statutory basis,
the modification is a reclassification only and has no effect on
income.
In evaluating this information, it should be noted each amount
includes the effects of all changes in amounts for prior periods.
This table does not present accident or policy year development
data, which readers may be more accustomed to analyzing.
Conditions and trends that behave affected 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.
The positive trend of decreasing adverse development is due to
the Company's proactive approach of engaging additional
actuarial reviews to perform an independent analysis of reserves
as of December 31, 1994. These studies resulted in the
Company recording additional reserve strengthening in the fourth
quarter of 1994. Establishing reserves is an estimation process
and adverse developments in future years may occur and would
be recorded in the year so determined. Since that time, the
Company's operating results have not been significantly
impacted by incurred losses and loss adjustment expenses that
relate to claims occurring in prior years compared to the impact
upon operating results for the year ended December 31, 1994.
The adverse loss reserve development in 1986 through 1993 is
primarily attributable to business other than the Company's core
southeastern business. Run-off on the claims of the previously
mentioned workers' compensation and general liability exposures
in Florida and California created substantial losses for the
Company for the past 10 years. However, as a result of the
previously mentioned reserve strengthening in the fourth quarter
of 1994, the years ended December 31, 1996 and 1995 were
not significantly impacted.
A part of the Company's reserve for losses and LAE is set aside
for environmental, pollution, and toxic tort claims. These claims
relate to business written by the West Coast operation prior to
1986. On June 7,1994, the Company settled a dispute relative
to approximately 400 of these claims. Any future liability on
these claims is limited to 50% of the direct loss and LAE paid.
The Company's obligation does not begin until the other
company pays out subsequent to June 7,1994 a total of $ 20
million in losses and LAE paid, net of reinsurance. As of
December 31, 1996, $4.2 million of claims payments have been
made (gross of reinsurance) since June 7, 1994. A portion of
the reinsurance on this business was placed with a reinsurer
currently operating under the supervision of its state regulator.
Estimates of any obligations of the Company take into account
potential recoverable amounts.
Of the remaining environmental, pollution and toxic tort claims,
the following activity took place during 1996:
Pending, December 31, 1995 85
New claims advised 16
Claims settled 30
Pending, December 31, 1996 71
The policies corresponding to these claims were written on a
direct basis. The Company has excess of loss reinsurance with
company retentions through 1980 of $ 100,000 and $ 500,000
after that date. The claims are reserved as follows as of
December 31, 1996 and 1995 (thousands of dollars):
1996 1995
Case reserves $ 3,170 $ 2,229
IBNR reserves 6,381 8,675
LAE reserves 3,764 3,453
------------ -------
Total $ 13,315 $ 14,357
The above claims involve 8 Superfund sites, 5 asbestos or toxic
claims, 6 underground storage tanks and 52 miscellaneous clean-
up sites. For this direct business there are usually several
different insurers participating in the defense and settlement of
claims made against the insured. Costs and settlements are pro-
rated by either time on the risk or policy limits.
In estimating the liability for reported and estimated losses and
adjustment expenses related to environmental and construction
defect claims, management considers facts currently known
along with current state of the law and coverage litigation.
Liabilities are recognized for known claims (including the cost of
related litigation) when sufficient information has been developed
to indicate the involvement of a specific insurance policy,
management can reasonably estimate its liability. In exposures
on both known and unasserted claims, estimates of the liabilities
are reviewed and updated continually. The potential development
of losses is restricted by policy limits.
Because only 71 claims remain open as of December 31,1996,
the exposure to significant additional development is less than
when the claims were less mature. In addition, the likelihood of
new claims being asserted for construction liability is lessened by
the expiration of statutes of limitations since the last policy
expired over ten years ago.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity relates to the Company's ability to produce sufficient
cash to fulfill contractual obligations, primarily to policyholders.
Sources of liquidity include service fee income, premium
collections, investment income and sales or maturities of
investments.
The Company experienced negative cash flow from operations of
$12.9 million in 1996, an improvement from $21.7 million in
1995 and $44.6 million in 1994. As a result of its decision to
suspend risk-taking activities in 1995, the Company's stream of
direct premium collections was eliminated for the first six months
of 1996. However, the Company continued to pay losses and
loss adjustment expenses totaling $24.6 million in 1996, of
which $16.3 million were loss payments on prior year claims.
Net income for the year ended December 31, 1996, totaled $5.2
million but cash flow from operations was not sufficient to fund
claim payments from run-off operations. A minimal amount of
risk activity was undertaken in the last six months of 1996, but
the premium collections were not significant. During 1994, cash
flows from operations was affected by $26.5 million of
disbursements for the non-recurring commutation of NCCI
liabilities and a dispute settlement regarding a previously sold
subsidiary.
Net cash outflow from investing activities in 1996 was $7.9
million as $14.3 million in new investments were acquired. The
source of cash for these investments was comprised of $7.0
million of investments that had matured or been sold and $9.3
million in new capital stock issued less $2.5 million to retire
notes payable. During 1996, the Company continued to dispose
of investments that were inconsistent with its current investment
policy, which resulted in realized losses of $14,000. During
1995, the Company realized a $164,000 gain on its portfolio
sales. As a result of negative cash flow from operations during
1994, the Company had to sell bonds, resulting in realized losses
of $6.3 million.
Total cash and investments at December 31, 1996, 1995 and
1994 was $42.9 million, $50.6 million and $61.9 million,
respectively. At December 31, 1996, 6.2% of total investments
were committed to cash and short-term investments, primarily
money market funds and overnight repurchase agreements
compared to 32.9% at the end of 1995. Investments in U.S.
Treasury and U.S. Government notes represented 93.4% of the
portfolio as compared to 62.0% as of December 31, 1995. The
Portfolio does not contain non-investment grade or derivative
securities.
All debt securities are considered available-for-sale and are
carried at market value as of December 31, 1996 and 1995.
The market values of the debt securities were $0.5 million below
book value at the end of 1996, which is included as a reduction
in shareholders' equity, compared to $0.4 million above book
value as of December 31, 1995. The weighted average maturity
of the fixed maturity investments were 3.78 years as of
December 31, 1996. Average net investment yields on the
Company's cash and investments were 6.3% in 1996 and 5.9%
for both 1995 and 1994.
Financing activities since January 1, 1995 included the following:
As of December 31, 1994, the Company had shareholders'
equity of $0.7 million and its principal insurance subsidiary
("SCIC") had negative statutory surplus. In January, 1995, the
Company received proceeds from a rights offering in the amount
of $5.3 million and made a capital contribution of $5 million to
SCIC. During the second quarter of 1995, a principal
shareholder loaned the Company $2 million, which was
contributed to SCIC in order to increase its statutory surplus.
During the fourth quarter of 1995, a group of investors
signed a letter of intent to acquire 6,250,000 shares of
unregistered Company Common Stock at a price of $1.00 per
share. On September 26, 1996, the sale was consummated
when the last regulatory approval was obtained and the funds
released. The proceeds were used to make a $6.3 million
contribution to SCIC. In conjunction with the sale of common
stock, the Company also issued to these investors stock options
to acquire an additional 3,125,000 shares at the greater of
$1.50 per share or the book value per share at the date of
exercise, expiring December 31, 1998 and 3,125,000 shares at
the greater of $2.00 or the book value per share at date of
exercise, expiring December 31, 2000.
During the first quarter of 1996, the Company issued
1,635,000 shares of unregistered Company Common Stock at a
price of $2.00 per share to a different group of investors. The
proceeds of this stock sale were used to repay the $2 million
loan described above which was due May 1, 1996. In addition,
the Company has issued to this group stock options expiring
December 31, 2000 to acquire an additional 1,635,000 shares at
the greater of $2.50 per share or the book value per share at the
date of exercise.
The Company is a legal entity separate and distinct from its
subsidiaries. As a holding company, the primary sources of cash
needed to meet its obligations, including principal and interest
payments with respect to any indebtedness, is dividends and
other permitted payments from its subsidiaries and affiliates.
South Carolina insurance laws and regulations require a domestic
insurer to report any action authorizing distributions to
shareholders and material payments from subsidiaries and
affiliates at least thirty days prior to distribution or payment
except in limited circumstances. Additionally, those laws and
regulations provide the Department of Insurance with the right to
disapprove and prohibit distributions meeting the definition of an
"Extraordinary Dividend" under the statutes and regulations. The
South Carolina Insurance Holding Company Regulatory Act
provides that, without the prior approval of the Director of
Insurance of the State of South Carolina, dividends within any
twelve-month period may not exceed the greater of (i) 10% of
SCIC's surplus as regarding policyholders as of December 31 of
the prior year and (ii) SCIC's statutory net income, not including
realized capital gains or losses, for the prior calendar year.
Payment of cash dividends by SCIC, is at the discretion of its
Board of Directors, upon approval of the Director of Insurance,
and is based on its earnings, financial condition, capital
requirements, and other relevant factors. If the ability of SCIC
and the Company's other insurance subsidiaries to pay dividends
or make other payments to the Company is materially restricted
by regulatory requirements, it could affect the Company's ability
to service its debt and/or pay dividends. In addition, no
assurance can be given that South Carolina will not adopt
statutory provisions more restrictive than those currently in
effect.
The volume of premiums that the property and casualty
insurance subsidiaries may prudently write is based in part on the
amount of statutory net worth as determined in accordance with
applicable insurance regulations. The National Association of
Insurance Commissioners has adopted risk based capital
requirements for property and casualty insurance companies to
evaluate the adequacy of statutory capital and surplus in relation
to investments and insurance risks such as asset quality, asset
and liability matching, loss reserve adequacy, and other business
factors. The RBC formula is used by state insurance regulators
as an early warning tool to identify, for the purpose of initiating
regulatory action, insurance companies that are potentially
inadequately capitalized. Compliance is determined by the ratio
of the companies' regulatory total adjusted capital to its
authorized control level RBC (as defined by the NAIC). All four
of the property and casualty insurance subsidiaries of the
Company have December 31, 1996 ratios of total adjusted
capital to RBC that are in excess of the level which would
prompt regulatory action.
UTILIZATION OF NET OPERATING LOSS CARRYFORWARDS
The Company has unused tax operating loss carryforwards and
capital loss carryforwards of approximately $95.4 million for
income tax purposes. However, due to a "change in ownership"
event that occurred in January, 1995, the Company's use of the
net operating loss carryforwards are subject to limitations in
future years of approximately $2 million per year. Net operating
loss carryforwards available for use in 1997 is approximately
$7.6 million due to the tax losses incurred in 1995 subsequent
to the change in ownership event occurred.
Based on its recent earning history, the Company established a
valuation allowance of $15.0 million against the net deferred tax
asset at December 31, 1996.
Item 8. Financial Statements and Supplementary Data (continued
on following page)
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of
The Seibels Bruce Group, Inc.:
We have audited the accompanying consolidated balance sheets
of The Seibels Bruce Group, Inc. ( a South Carolina corporation)
(the Parent Company) and subsidiaries (collectively the
"Company"), as of December 31, 1996 and 1995, and the
related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the three years
in the period ended December 31, 1996. These financial
statements and the schedules referred to below 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 standards. 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 financial statements referred to above
present fairly, in all material respects, the consolidated financial
position of The Seibels Bruce Group, Inc. and subsidiaries, as of
December 31, 1996 and 1995 and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on
the basic financial statements taken as a whole. The Schedules
I, II, III, IV, V and VI listed in Part IV, Item 14, are presented for
purposes of complying with the Securities and Exchange
Commissions rules and are not part of the basic financial
statements. These schedules have been subjected to the
auditing procedures applied in the audit of the basic financial
statements, and in our opinion, fairly state in all material
respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Columbia, South Carolina
March 14,1997
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
For the year ended December 31,
(Dollars shown in thousands)
ASSETS 1996 1995
Investments:
Debt securities, available-for-sale, at market
(cost of $40,709 at 1996 and $33,171 at 1995) $ 40,217 $ 33,581
Equity securities, at market (cost of $34 at
1996 and $222 at 1995) 35 377
Cash and short-term investments 2,664 16,649
Other long-term investments 28 34
Total cash and investments 42,944 50,641
Accrued investment income 772 697
Premiums and agents'balances receivable, net 6,477 7,005
Reinsurance recoverable on paid losses and
loss adjustment expenses 28,218 27,423
Reinsurance recoverable on unpaid losses and
loss adjustment expenses 84,725 84,492
Property and equipment, net 5,194 5,396
Prepaid reinsurance premiums - ceded business 46,118 43,469
Deferred policy acquisition costs 96 293
Other assets 5,928 4,589
Total assets $ 220,472 $ 224,005
LIABILITIES
Losses and claims:
Reported and estimated losses and claims
- retained business $ 37,019 $ 47,445
- ceded business 74,735 74,918
Adjustment expenses - retained business 10,408 13,586
- ceded business 9,990 9,574
Unearned premiums:
Property and casualty - retained business 1,380 1,900
- ceded business 46,118 43,469
Credit life 194 758
Balances due other insurance companies 8,736 12,438
Notes payable - 2,476
Current income taxes payable 17 191
Other liabilities and deferred items 8,084 7,063
Total liabilities 196,681 213,818
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY
Special stock, no par value, authorized 5,000,000
shares, none issued and outstanding - -
Common stock, $1 par value, authorized 50,000,000 shares,
issued & outstanding 24,672,388 shares (16,772,686
shares at 1995) 24,672 16,773
Additional paid-in-capital 35,546 34,080
Unrealized gain/(loss) on investments (536) 401
Accumulated deficit (35,891) (41,067)
Total shareholders' equity 23,791 10,187
Total liabilities and shareholders' equity $ 220,472 $ 224,005
The accompanying notes are an integral part of these consolidated financial
statements.
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended December 31,
(Dollars shown in thousands, except per share amounts)
1996 1995 1994
Commission & service income $ 45,585 $ 49,572 $ 60,669
Premiums earned:
Property & casualty 7,186 10,384 14,718
Credit life 478 890 1,801
Net investment income 3,006 3,176 5,321
Other interest income 801 1,154 905
Realized gains (losses) on investments (14) 164 (6,327)
Other income 151 843 2,673
------- ------- -------
Total revenue 57,193 66,183 79,760
------- -------- -------
Expenses
Property & casualty:
Losses & loss adjustment expenses 10,980 17,618 36,954
Policy acquisition costs 1,777 3,794 5,538
Credit life benefits 203 545 770
Interest expense 174 308 321
Other operating costs & expenses 39,014 42,768 55,222
------ ------ ------
Total expenses 52,148 65,033 98,805
------ ------ -------
Income (loss) from operations,
before income taxes 5,045 1,150 (19,045)
Provision (benefit) for income taxes (131) (2) 29
------- ------ ---------
Net income (loss) $ 5,176 $ 1,152 $ (19,074)
======= ======= =========
Per share & common equivalent share:
Net income (loss) $ 0.22 $ 0.07 $ (1.72)
======= ======== =========
Pro forma SFAS No. 128 basic earnings
per share (Note 1):
Net income (loss) $ 0.26 $ 0.07 $ (1.72)
======= ======== ========
The accompanying notes are an integral part of these consolidated financial
statements
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
For the Year Ended December 31,
(Dollars shown in thousands)
1996 1995 1994
Common stock outstanding:
Beginning of year $ 16,773 $ 14,501 $ 7,501
Stock issued in connection with
rights offering - 2,217 -
Stock issued to benefit plans,
agents and others 15 55 -
Stock issued in exchange for cancellation
of note payable - - 7,000
Stock issued in connection with capital
contributions 7,884 - -
--------- --------- --------
End of year $ 24,672 $ 16,773 $ 14,501
========= ========= ========
Additional paid-in-capital:
Beginning of year $ 34,080 $ 30,983 $ 27,983
Stock issued in connection with
rights offering - 3,104 -
Stock issued to benefit plans,
agents and others 10 (7) -
Stock issued in exchange for cancellation
of note payable - - 3,000
Stock issued in connection with capital
contributions, net of associated expenses 1,456 - -
--------- ---------- ---------
End of year $ 35,546 $ 34,080 $ 30,983
Unrealized gain (loss) on securities:
Beginning of year $ 401 $ (2,615) $ 2,404
Change during the year (937) 3,016 (5,019)
--------- ---------- ----------
End of year $ (536) $ 401 $ (2,615)
========= =========== ==========
Accumulated deficit:
Beginning of year $ (41,067) $ (42,219) $ (23,145)
Net income (loss) for the year 5,176 1,152 (19,074)
End of year $ (35,891) $ (41,067) $ (42,219)
--------- ---------- ----------
Total shareholders' equity $ 23,791 $ 10,187 $ 650
========= ========== ==========
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended December 31,
(Dollars shown in thousands)
Cash flows from operating activities: 1996 1995 1994
Net income (loss) $ 5,176 $ 1,152 $ (19,074)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation 979 925 739
Realized losses (gains) on investments 14 (164) 6,327
Stock issued as compensation 16 31 -
Change in assets and liabilities:
Accrued investment income (75) 112 278
Premium and agents' balances receivable,
net 528 6,023 690
Premium notes receivable - - 11,120
Reinsurance recoverable on losses and loss
adjustment expenses (1,028) 7,093 (8,943)
Prepaid reinsurance premiums-ceded
business (2,649) 5,014 6,443
Deferred policy acquisition costs 197 606 2,943
Unpaid losses and loss adjustment
expenses (13,371) (21,175) (26,837)
Unearned premiums 1,565 (10,164) (8,719)
Balances due other insurance companies (3,702) (6,681) (8,657)
Current income taxes payable (174) 42 (571)
Outstanding drafts and bank overdraft - (3,891) (3,336)
Other-net (414) (634) 2,989
Net cash used in operating activities (12,938) (21,711) (44,608)
Cash flows from investing activities:
Proceeds from investments sold 3,954 10,804 143,609
Proceeds from investments matured 3,095 2,030 45
Cost of investments acquired (14,288) (4,201) (88,041)
Proceeds from mortgage loan receivable - 1,965 -
Proceeds from property and equipment sold 116 57 655
Purchases from property and equipment (797) (92) (2,418)
Net cash (used in) provided by
investing activities (7,920) 10,563 53,850
Cash flows from financing activities:
Issuance of capital stock 9,340 - -
Proceeds from (repayment of)notes payable(2,476) 2,000 (1,934)
Stock issued under stock option plans 9 18 -
Proceeds from stock rights offering - 5,321 -
Net cash used in financing activities 6,873 7,339 (1,934)
Net increase (decrease) in cash and
short term investments (13,985) (3,809) 7,308
Cash and short term investments,
beginning of year 16,649 20,458 13,150
Cash and short term investments,
end of year $ 2,664 $ 16,649 $ 20,458
Supplemental cash flow information:
Interest paid $ 350 $ 96 $ 210
Income taxes paid (recovered) 43 (44) 600
Noncash investing activities:
Notes payable exchanged for common
stock $ - $ - $ 10,000
Notes payable in lieu of interest payment - 37 439
The accompanying notes are an integral part of these consolidated financial
statements
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Business Operations, Principles of Consolidation and Presentation
-----------------------------------------------------------------
The Seibels Bruce Group, Inc. ("SBIG") provides
automobile, flood, and other property and casualty
insurance services and products to customers located
primarily in the southeastern United States. The
Company's largest source of revenues derives from the
Company's role as one of three servicing carriers for the
South Carolina Reinsurance Facility (the "Facility"), a
state-sponsored plan for insuring South Carolina drivers
outside of the voluntary market. The Company also is a
leading provider, and an original participant, in the
National Flood Insurance Program (the "NFIP"), a flood
insurance program administered by the federal
government. As a servicing carrier for the Facility and
the NFIP, the Company receives commissions and fees,
but reinsures all of the underwriting risk. The Company
provides other fee-based services, including services in
its capacity as a managing general agent ("MGA") for
commercial insurance policies underwritten by
unaffiliated insurance companies, catastrophe claims
services, excess and surplus lines brokerage services
and liability run-off management services. Recently, the
Company began marketing and underwriting
nonstandard automobile insurance on a risk-bearing
basis.
From the mid-1980's through the middle of 1995, the
Company experienced significant operating losses due
primarily to environmental and construction defect
claims on general liability policies written by the
Company prior to 1985, losses from Hurricane Hugo in
1989 and from Hurricane Andrew in 1992, and losses
on workers' compensation insurance policies written by
the Company. Despite a significant recapitalization in
1994, these operating losses reduced the Company's
shareholders' equity to $650,000 by the end of 1994,
and the Company suspended its underwriting operations
in early 1995. Beginning in 1995, new management
took a number of actions to stabilize and improve the
Company's financial condition through significant cost
reductions and the investment of new equity capital as
well as a renewed emphasis on the Company's fee-
based businesses. As a result of these actions, the
Company realized net income in both 1995 and 1996
and was able to resume limited insurance underwriting
activities in 1996.
The accompanying consolidated financial statements
have been prepared in conformity with generally
accepted accounting principles (GAAP) and include the
accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany balances and
transactions have been eliminated in consolidation.
Certain classifications previously presented in the
consolidated financial statements for prior years have
been changed to conform to current classifications.
Use of Estimates in Preparation of Financial Statements
-------------------------------------------------------
The preparation of financial statements in conformity
with generally accepted accounting principles requires
management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the
date of the financial statements and the reported
amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates,
although, in the opinion of the management, such
differences would not be significant.
Cash and Short-term Investments
--------------------------------
For purposes of the Statements of Cash Flows, the
Company considers both cash and short-term
investments within the caption "cash and short-term
investments" to be those highly liquid investments
purchased with an initial maturity of three months or
less.
Fair Value of Financial Instruments
-----------------------------------
The fair value of debt and equity securities, short-term
investments, other long-term investments, cash and
accrued investment income was $43.7 million and
$51.3 million at December 31,1996 and 1995,
respectively. The fair values of cash and short-term
investments approximate carrying value because of the
short maturity of those instruments.
The fair values of debt securities and equity securities
were determined in accordance with methods prescribed
by the National Association of Insurance Commissioners
which do not differ materially from nationally quoted
market prices. The fair market value of certain municipal
bonds is assumed to be equal to amortized cost where
no market quotations exist. Premium and agents'
balances receivable are carried at their historical costs
which approximate fair value as a result of timely
collections and evaluations of recoverability with a
provision for uncollectable amounts.
The fair value of debt was $2.5 million at December
31, 1995. The fair value of debt was estimated to be
its carrying value based on the remaining short-term
maturity. The Company satisfied all notes payable in
May, 1996.
Property and Casualty Premiums
-------------------------------
Property and Casualty premiums are reflected in income
when earned as computed on a monthly pro-rata
method. Written premiums and earned premiums have
been reduced by reinsurance placed with other
companies, including substantial amounts related to
business produced as a servicing carrier. A reconciliation
of direct to net premiums, on both a written and an
earned basis is as follows (in thousands):
1996 1995 1994
Written Earned Written Earned Written Earned
------------------- --------------------- ------------------
Direct $ 106,925 $ 105,212 $ 114,184 $ 122,912 $ 140,683 $ 146,481
Assumed 6,235 5,819 422 1,232 5,332 2,275
Ceded (106,494) (103,845) (108,560) (113,760) (131,478) (134,038)
--------- --------- --------- --------- --------- ---------
Net $ 6,666 $ 7,186 $ 6,046 $ 10,384 $ 14,537 $ 14,718
The amounts of premiums pertaining to catastrophe reinsurance that were ceded
from earned premiums during 1996, 1995 and 1994 were $0.2 million, $0.8
million and $1.7 million, respectively.
Credit Life Premiums
- --------------------
Credit life premiums are reflected in income when
earned as computed on a monthly pro-rata method for
level term premiums and on a sum-of-the-digits method
for decreasing term premiums.
Commission and Service Income
- -----------------------------
Commission and service income is predominately derived
from servicing carrier activities. The commission income
related to producing and underwriting the business is
recognized in the period in which the business is
written. A portion of commission income is also derived
from business produced by the Company as a Managing
General Agent. The Company receives commissions for
producing and underwriting the business as well as
servicing such business. These revenues are recognized
on an accrual basis as earned.
Policy Acquisition Costs
- ------------------------
Policy acquisition costs attributable to property and
casualty operations represent that portion of the cost of
writing business that varies with and is primarily related
to the production of business. Such costs are deferred
and charged against income as the premiums are
earned. The deferral of policy acquisition costs is
subject to the application of recoverability tests to each
primary line or source of business based on past and
anticipated underwriting results. The deferred policy
acquisition costs that are not recoverable from future
policy revenues are expensed. The Company considers
anticipated investment income in determining whether
premium deficiencies exist.
Property and Casualty Unpaid Loss and Loss Adjustment Expense
- -------------------------------------------------------------
The liability for property and casualty unpaid losses and
loss adjustment expenses includes:
(1) An accumulation of formula and case estimates for losses
reported prior to the close of the accounting period.
(2) Estimates of incurred-but-not-reported losses based upon
past experience and current circumstances.
(3) Estimates of allocated, as well as unallocated, loss adjustment
expense liabilities by applying percentage factors to the unpaid
loss reserves, with such factors determined on a by-line basis
from past results of paid loss expenses to paid losses.
(4) The deduction of estimated amounts recoverable from salvage and
subrogation.
(5) Estimated losses for reinsurance ceded and assumed.
Management, in conjunction with the Company's
consulting actuaries, performs a complete review of the
above components of the Company's loss reserves to
evaluate the adequacy of such reserves. Management
believes the reserves, which approximate the amount
determined by independent actuarial reviews, are
sufficient to prevent prior years' losses from adversely
affecting future periods; however, establishing reserves
is an estimation process and adverse developments in
future years may occur and would be recorded in the
year so determined.
Earnings per Share
- ------------------
Per share and common equivalent share is based on the
weighted average number of shares outstanding
(25,529,527 in 1996, 16,722,107 in 1995 and
11,067,565 in 1994). Outstanding stock options and
warrants are common stock equivalents and had a
dilutive effect in 1996, but had no dilutive effects on
income per share in 1995 and 1994.
In February 1997, the Financial Accounting Standards
Board ("FASB") issued Statement No. 128, "Earnings
Per Share," ("SFAS No. 128") which requires the
Company to disclose both basic and diluted earnings per
share. SFAS No. 128 is effective for fiscal years ending
after December 15, 1997. The Company has disclosed
pro forma basic earnings per share as will be required
under SFAS No. 128. Weighted average number of
shares outstanding used in the calculation of basic
earnings per share is 19,673,386 in 1996 (16,722,107
in 1995 and 11,067,565 in 1994).
Allowance for Uncollectable Accounts
- ------------------------------------
Allowance for uncollectable accounts for agents'
balances receivable, other receivables, and premium notes
receivable were $823,000 and $224,000 at December 31,
1996 and December 31, 1995, respectively.
Property and Equipment
- ----------------------
Property and equipment are stated at cost and, for
financial reporting purposes, depreciated on a straight-
line basis over the estimated useful lives of the assets.
For income tax purposes, accelerated depreciation
methods are used for certain equipment.
Other Interest Income and Other Income
- --------------------------------------
Other interest income includes interest received on
reinsurance balances withheld, agents' balances
receivable, and balances due from the South Carolina
Reinsurance Facility. Other income for 1995 includes a
gain from the settlement of a case previously in
litigation. Other income for 1994 includes a $0.6 million
gain on the sale of a subsidiary.
Recent Accounting Pronouncements
- --------------------------------
On January 1, 1996, the Company adopted Statement
No. 123 of the Financial Accounting Standards Board,
"Accounting for Stock-Based Compensation". The
Statement requires that companies with stock-based
compensation plans either recognize compensation
expense based on new fair value accounting methods or
continue to apply the provisions of Accounting
Principles Board Opinion No. 25 ("APB 25") and disclose
pro forma net income and earnings per share assuming
the fair value method had been applied. The Company
has elected to adopt the disclosure alternative in its
annual financial statements and to continue accounting
for its stock-based compensation plans in accordance
with APB 25 (see Note 10).
NOTE 2 INVESTMENTS
Investments in notes and other debt securities, preferred
stocks and common stocks are all considered available-
for-sale securities and are carried at market at December
31, 1996 and 1995. Short-term investments are carried
at cost, which approximates market value.
Unrealized gains and losses on marketable debt and
equity securities are credited or charged directly to
shareholders' equity. Realized gains and losses on
investments included in the results of operations are
determined using the "identified certificate" cost
method.
Realized gains (losses) on investments are summarized as follows (in thousands):
Debt Equity
Securities Securities Other Total
Realized:
1996 $ (62) $ 48 $ - $ (14)
1995 240 (76) - 164
1994 (7,019) 930 (238) (6,327)
Change in unrealized:
1996 $ (902) $ (154) $ 119 $ (937)
1995 2,790 237 (11) 3,016
1994 (3,222) (1,657) (140) (5,019)
Net bond discount accretion and premium amortization charged to income for the
years ended December 31, 1996, 1995 and 1994 was not material.
Unrealized gains and losses reflected in equity are as follows (in thousands):
1996 1995 1994
Gross unrealized gains $ 8 $ 577 $ 136
Gross unrealized losses (544) (176) (2,751)
-------- ------ ----------
Net unrealized gain (loss) $ (536) $ 401 $ (2,615)
Proceeds from sales of debt securities and related realized gains and losses
were as follows (in thousands):
1996 1995 1994
Proceeds from sales $ 3,554 $ 10,556 $ 34,318
Gross realized gains 30 267 98
Gross realized losses $ (92) $ (27) $ 7,517)
Proceeds from sales of equity securities and related realized gains and losses
were as follows (in thousands):
1996 1995 1994
Proceeds from sales $ 400 $ 248 $ 9,291
Gross realized gains 75 - 1,555
Gross realized losses $ (127) $ (76) $ (625)
Investments which exceed 10% of shareholders' equity, excluding investments in
U.S. Government and government agencies and authorities, at December 31,
1996, are as follows (in thousands):
Carrying value
Short-term investments:
Evergreen Money Market Fund $ 3,301
First Union Bank - Repurchase Agreements 4,690
There were no debt securities which were non-income producing for
the twelve months ended December 31, 1996. Debt
securities with an amortized cost of $22.0 million and
$21.9 million at December 31, 1996 and 1995,
respectively, were on deposit with regulatory
authorities.
The amortized cost and estimated market values of
investments in debt and equity securities were as
follows (in thousands):
December 31, 1996
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
U.S. Government & government
agencies and authorities $ 40,601 $ - $ (499) $ 40,102
States, municipalities &
political subdivisions 108 7 - 115
Total debt securities 40,709 7 (499) 40,217
Non-redeemable preferred stock 17 1 - 18
Common stocks 17 - - 17
Total equity securities 34 1 - 35
Other long-term investments 73 - (45) 28
Total $ 40,816 $ 8 $ (544) $ 40,280
December 31, 1995
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
U. S. Government & government
agencies and authorities $ 31,068 $ 348 $ - $ 31,416
States, municipalities &
political subdivisions 931 62 - 993
All other corporate 1,168 - - 1,168
Redeemable preferred stocks 4 - - 4
Total debt securities 33,171 410 - 33,581
Non-redeemable preferred stocks 166 - (7) 159
Common stocks 56 167 (5) 218
Total equity securities 222 167 (12) 377
Other long-term investments 198 - (164) 34
Total $ 33,591 $ 577 $ (176) $ 33,992
Actual maturities may differ from contractual maturities
because borrowers may have the right to call or prepay
obligations with or without penalties. The amortized
cost and estimated market value of debt securities at
December 31, by contractual maturity, are as follows (in
thousands):
December 31,1996
Estimated
Amortized Market
Cost Value
Due in one year or less $ 1,665 $ 1,667
Due after one year through five years 25,388 25,224
Due after five years through ten years 13,481 13,142
Due after ten years 175 184
Total $ 40,709 $ 40,217
Investment income as of December 31 consists of the following (in thousands):
1996 1995 1994
Debt securities $ 2,122 $ 2,023 $ 4,348
Equity securities 9 15 266
Short-term investments 849 1,138 626
Mortgage loan - 23 255
Other 56 42 -
Total investment income 3,036 3,241 5,495
Investment expenses (30) (65) (174)
Net investment income $ 3,006 $ 3,176 $ 5,321
NOTE 3 PROPERTY AND EQUIPMENT
A summary of property and equipment is as follows (in thousands):
Description Life-years 1996 1995
Land - $ 1,153 $ 1,153
Buildings 10-40 4,320 4,323
Data processing equipment 3-7 4,963 4,218
Furniture and equipment 3-10 7,422 7,387
17,858 17,081
Accumulated depreciation (12,664) (11,685)
$ 5,194 $ 5,396
Depreciation expense charged to operations was $1.0 million in 1996,
$0.9 million in 1995 and $0.7 million in 1994.
NOTE 4 DEFERRED POLICY ACQUISITION COSTS
Policy acquisition costs incurred and amortized to income on property and
casualty business were as follows (in thousands):
1996 1995
Deferred at beginning of year $ - $ -
Costs incurred and deferred during year:
Commissions and brokerage 1,552 1,287
Taxes, licenses and fees 13 486
Other 15 1,415
------ ---------
Total 1,580 3,188
Amortization charges to income during year (1,580) (3,188)
--------- ---------
Deferred at end of year $ - $ -
========= =========
Deferred policy acquisition costs attributable to the credit life operation
were $96,000 and $293,000 at December 31, 1996 and 1995, respectively. These
costs represent that portion of the cost of writing business which is deferred
and charged against income, through other operating costs and expenses, as
premiums are earned.
NOTE 5 NOTES PAYABLE
Notes payable at December 31, 1996 and 1995, are summarized as follows
(in thousands):
1996 1995
Note payable (due 5/1/96, interest accrued
at a rate equal to NationsBank's Prime Rate
(8.5%) plus 2%, compounded daily) $ - $ 2,000
Interest note payable, due 5/1/96, interest at 8.5% - 476
Notes payable
$ - $ 2,476
On May 1, 1996 the Company repaid both notes which were payable to a single
investor of the Company. Proceeds for repayment were obtained through the sale
of Company stock.
NOTE 6 INCOME TAXES
The Company uses the liability method in accounting for
income taxes. Deferred taxes are determined based on
the estimated future tax effects of differences between
the financial statement and tax bases of assets and
liabilities given the provisions of the enacted tax laws.
The Company files a consolidated federal income tax
return which includes all companies. A formal tax-
sharing agreement has been established by the
Company with its subsidiaries.
A reconciliation of the differences between income
taxes (benefit) on income (loss) before extraordinary
items computed at the federal statutory income tax rate
is as follows (in thousands):
1996 1995 1994
Federal income tax (benefit),
at statutory rates $ 1,715 $ 391 $ (6,475)
Increase (decrease) in taxes due to:
Tax exempt interest (5) (22) (92)
Dividends received deduction (2) (4) (82)
Overaccrual from prior years (187) - -
Limitation of net operating loss
carryforward due to change in control 3,617 18,007 -
Changes in valuation allowances:
Utilization of net operating loss (1,590) (329) 6,695
Reduction due to limitation of
net operating loss (3,617) (18,007) -
Other (62) (38) (17)
-------- --------- --------
Tax expense (benefit) from
operations $ (131) $ (2) $ 29
The (benefit) provision for income taxes on income from
operations consists entirely of current income taxes
resulting from alternative minimum tax and overaccruals
of prior years' taxes. The change in deferred amounts
has been offset by the valuation allowance.
Deferred tax liabilities and assets at December 31, 1996
and 1995, are comprised of the following (in
thousands):
1996 Tax Effect 1995 Tax Effect
Deferred tax liabilities
Deferred acquisition costs $ 29 $ 146
Property and equipment 92 95
Net unrealized investment gains - 136
Other 97 -
Total deferred liabilities 218 377
Deferred tax assets:
Net operating loss carryforwards (11,056) (15,300)
Insurance reserves (3,127) (4,115)
Net unrealized investment losses (182) -
Bad debts (521) (449)
Other (306) (376)
Total deferred tax assets (15,192) (20,240)
Valuation allowance 14,974 19,863
Net deferred tax liabilities $ - $ -
The Company has determined, based on its recent earnings history, that
a valuation allowance of $15.0 million should be maintained against the
deferred tax asset at December 31, 1996. The Company's valuation
allowance decreased by $4.9 million during 1996 due to
utilization of net operating loss and due to unrealized investment losses.
The Company has unused tax operating loss carryforwards and capital loss
carryforwards of $95.4 million for income tax purposes. However, due to a
"change in ownership" event that occurred in January, 1995, the Company's
use of the net operating loss carryforwards are subject to limitations in
future years of approximately $2 million per year. Net operating loss
carryforwards available for use in 1997 is approximately $7.6 million due
to the losses incurred in 1995 after the change in ownership event occurred.
The years of expiration of the tax carryforwards are as follows (in thousands):
Net Operating
Year of Expiration Loss Capital Loss
1999 $ - $ 5,002
2000 - 825
2004 13,986 -
2006 20,411 -
2007 31,931 -
2009 19,342 -
2010 3,918 -
$ 89,588 $ 5,827
NOTE 7 PROPERTY AND CASUALTY UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSE
A part of the Company's reserve for losses and LAE is
set aside for environmental, pollution and toxic tort
claims. These claims relate to business written by a
previously owned West Coast operation prior to 1986.
On June 7,1994, the Company settled a dispute relative
to approximately 400 of these claims. Any future
liability on those claims is limited to 50% of the direct
loss and LAE paid. The Company's obligation does not
begin until the other company pays out subsequent to
June 7,1994 a total of $ 20 million in losses and LAE
paid, net of reinsurance. As of December 31, 1996,
$4.2 million of claims payments have been made (gross
of reinsurance) since June 7, 1994. A portion of the
reinsurance on this business was placed with a reinsurer
currently operating under the supervision of its state
regulator. Estimates of any obligations of the Company
take into account potential recoverable amounts.
Of the remaining environmental and toxic tort claims,
the following activity took place during 1996:
Pending, December 31, 1995 85
New claims advised 16
Claims settled 30
Pending, December 31, 1996 71
The policies corresponding to the pending claims were
written on a direct basis and the Company has excess
of loss reinsurance above Company retentions through
1980 of $100,000 and $ 500,000 after that date. At
December 31, 1996 and 1995, the claims are reserved
as follows (in thousands):
1996 1995
Case reserves $ 3,170 $ 2,229
IBNR 6,381 8,675
LAE reserves 3,764 3,453
Total $ 13,315 $ 14,357
The above claims involve 8 Superfund sites, 5 asbestos
or toxic tort claims, 6 underground storage tanks and 52
miscellaneous clean-up sites.
In estimating the ultimate liability for environmental and
construction defect claims, management considers facts
currently known along with the current state of the law
and coverage litigation. Liabilities are recognized for
known claims (including the cost of related litigation)
when sufficient information has been developed to
indicate the involvement of a specific insurance policy,
and management can reasonably estimate its liability.
Usually there are several different insurers participating
in the defense and settlement with ultimate costs pro-
rated by either time on the risk or policy limits. In
exposures on both known and unasserted claims,
estimates of the liabilities are reviewed and updated
continually. The potential development of losses is
restricted by policy limitations.
Because only 71 claims remain open as of December
31, 1996, the exposure to significant additional
development is less than when the claims were less
mature. In addition, the likelihood of new claims being
asserted for construction liability is lessened by the
expiration of statutes of limitations since the last policy
expired over ten years ago.
Losses incurred are reduced by recoveries made and to
be made from reinsurers, which also includes substantial
amounts related to business produced as a servicing
carrier. Reinsurance recoveries are as follows (in
thousands):
1996 1995 1994
Losses incurred $ 158,307 $ 150,339 $ 145,930
Loss adjustment expenses 5,583 5,379 19,429
---------- ---------- ----------
$ 163,890 $ 155,718 $ 165,359
The following table summarizes net property and casualty losses and LAE
incurred (in thousands):
1996 1995 1994
Estimated losses and LAE incurred $ 174,870 $ 173,336 $ 205,599
Estimated reinsurance loss
recoveries on incurred losses (163,890) (155,718) (165,359)
NCCI commutation (1) - - (6,138)
American Star commutation (2) - - 2,852
$ 10,980 $ 17,618 $ 36,954
(1) Until March 31,1994, the Company participated in the National Workers'
Compensation Reinsurance Pool ("NCCI"), which is a national reinsurance fund
for policies allocated to insurers under various states' workers' compensation
assigned risk laws for companies that cannot otherwise obtain coverage. On
September 30, 1994, the Company satisfied its obligation with respect to all
outstanding and future claims associated with the Company's participation for a
cash payment of $ 16.2 million. The redundancy in the losses and claim reserves
as a result of its settlement of $ 6.1 million, reduced 1994 loss and LAE
incurred.
(2) In June, 1994, the Company made a cash payment in the amount of $ 10.3
million for a settlement of pending arbitration relating to indemnification of
American Star for certain loss and LAE reserves. Recorded reserves amounted to
$ 7.4 million before the settlement. This transaction increased loss and LAE
incurred by $ 2.9 million.
Activity in the liability for unpaid losses and LAE is summarized as follows
(in thousands):
<TABLE>
<S> <C> <C> <C>
1996 1995 1994
Liability for losses and LAE at beginning of year
Gross liability per balance sheet $ 145,523 $ 166,698 $ 94,682
Ceded reinsurance recoverable (84,492) (88,731) (76,221)
--------- -------- --------
Net liability 61,031 77,967 118,461
--------- -------- --------
Provision for losses and LAE for claims
occurring in the current year 9,863 14,243 19,997
Increase in estimated losses and LAE for
claims occurring in prior years 1,117 3,375 16,957
-------- -------- -------
10,980 17,618 36,954
-------- ------- -------
Loss and LAE payments for claims occurring during:
Current year 8,317 11,711 13,837
Prior years 16,267 22,843 63,611
------- ------- -------
24,584 34,554 77,448
------- ------- --------
Liability for losses and LAE at end of year:
Net liability 47,427 61,031 77,967
Ceded reinsurance recoverable 84,725 84,492 88,731
-------- ------- -------
Gross liability per balance sheet $ 132,152 $ 145,523 $ 166,698
========== ======= ========
</TABLE>
NOTE 8 DIVIDEND RESTRICTIONS
The ability of the Company to declare and pay cash
dividends, as well as to service any debt , is dependent
to some degree upon the ability of South Carolina
Insurance Company ("SCIC") to declare and pay
dividends to SBIG. SCIC is regulated as to its payment
of dividends by the South Carolina Insurance Holding
Company Regulatory (the "ACT").
The Act provides that, without prior approval of the
South Carolina Insurance Commissioner, dividends
within any twelve-month period may not exceed the
greater of (1) 10% of SCIC's statutory surplus as
regards policyholders as of December 31 of the prior
year or (2) SCIC's statutory net income, not including
the realized gains, for the prior calendar year.
Notwithstanding the foregoing, SCIC may not pay any
dividend in 1997 without the prior approval of the
Insurance Commissioner of South Carolina.
NOTE 9 STATUTORY REPORTING
The Company's insurance subsidiaries' assets, liabilities
and results of operations have been reported on the
basis of GAAP, which varies from statutory accounting
practices ("SAP") prescribed or permitted by insurance
regulatory authorities. The principal differences between
SAP and GAAP, are that under SAP: (1) certain assets
that are not admitted assets are eliminated from the
balance sheet, (2) acquisition costs for policies are
expensed as incurred, while they may be deferred and
amortized over the estimated life of the policies under
GAAP, (3) no provision is made for deferred income
taxes, (4) the timing of establishing certain reserves is
different than under GAAP, and (5) valuation allowances
are established against investments. Each of the
Company's insurance subsidiaries must file with
applicable state insurance regulatory authorities an "
Annual Statement" which reports, among other items,
net income (loss) and shareholders' equity( called
"surplus as regards policyholders" in property and
casualty reporting).
A reconciliation between GAAP net income (loss) and
statutory net income (loss) of the property and casualty
insurance subsidiaries is as follows for the year ended
December 31 (in thousands):
<TABLE>
<S> <C> <C> <C>
1996 1995 1994
GAAP income (loss) $ 5,176 $ 1,152 $ (19,074)
Increase (decrease) due to:
Deferred policy acquisition costs 198 606 2,943
Salvage/subrogation recoverable and reserves 256 (41) 1,225
Deferred reinsurance benefits (6) - (155)
Parent company GAAP-only items and other
non-statutory subsidiaries 1,252 1,820 181
Mortgage loan loss recognition - (987) -
Intercompany dividends (1995 offset by increase
in statutory surplus) 2,400 (13,202) 2,500
Adjustment to premium and loss reserves (278) (255) (1,833)
Other 56 99 606
Allocation of Seibels Bruce and Company expenses - (1,574) -
--------- -------- ---------
Statutory net income (loss)-(1996 as adjusted;
1995 and 1994 as amended) $ 9,054 $ (12,382) $ (13,607)
=========== =========== ==========
</TABLE>
A reconciliation between GAAP shareholders' equity and statutory capital and
surplus, at December 31, is as follows (in thousands):
1996 1995 1994
GAAP shareholders' equity $ 23,791 $10,187 $ 650
Increase (decrease) due to:
Deferred policy acquisition costs (96) (293) (899)
Parent company debt contributed
to statutory surplus - 2,400 -
Non-statutory companies' shareholders' equity (840) 1,436 -
Adjustments to premium and loss reserves (1,128) (554) (1,874)
Other (95) (2,301) 508
Allocation of Seibels Bruce and Company expenses - (1,574) -
Statutory surplus (1996 as adjusted;
1995 and 1994 as amended) $ 21,632 $ 9,301 $(1,615)
Net income and shareholders' equity of the credit life insurance subsidiary as
determined in accordance with statutory accounting practices are as follows for
the year ended December 31, is as follows (in thousands):
1996 1995 1994
Net income $ 460 $ 276 $ 750
Shareholders' equity
("surplus as regards policyholders") $ 4,769 $ 4,334 $ 4,036
NOTE 10 BENEFIT PLANS AND OPTIONS
The SCIC Employees' Profit Sharing and Saving Plan
contains both profit-sharing and 401(k) plan elements.
The profit-sharing element of the plan covers all full-time
employees. There were no contributions to this element
of the plan during the last four years. The profit-sharing
account held 157,979 and 214,587 shares of Company
stock at December 31, 1996 and 1995, respectively.
Under the 401(k) element of the plan, employees may
elect to have a portion of their salary withheld on a pre-
tax basis for investment in the plan, subject to
limitations imposed by IRS regulations. From January 1,
1993 through June 30, 1994, the employer matched
25% of the employee contributions, limited to a
maximum of 1.5% of the employee's eligible
compensation. From July 1, 1994 through June
30,1995, the employer resumed matching 50% of the
employee contributions, limited to a maximum of 3% of
the employee's eligible compensation. The employer
discontinued matching effective July 1, 1995. The
employer matched portion is invested in accordance
with the investment options selected by the participant.
The employer contribution to the plan on behalf of
participating employees was $87,000 in 1995 and
$270,000 in 1994. There was no contribution in 1996.
The Company currently has three plans under which
stock options, incentive stock and restricted stock may
be granted to employees of the Company, non-employee
directors of the Company, consultants and active
independent agents representing the Company. All three
plans were approved by the shareholders at a special
meeting held on June 14, 1996. Options granted under
all plans except the Directors' plan expire 5 years from
the date of grant. Options granted under the Directors'
plan expire 10 years from the date of grant.
The 1996 Stock Option Plan (the "1996 Plan") for
Employees supersedes the 1987 Stock Option Plan (the
"1987 Plan") and became effective November 1, 1995.
The 1996 Plan reserves 5 million shares of Company
stock which may be issued as stock options, incentive
stock and restricted stock to employees and consultants
of the Company. The following table shows option
activity under the 1987 and 1996 plans for the three
years.
1996 1995 1994
Shares under options outstanding,
beginning of year 861,175 51,150 64,175
Granted under 1987 Plan - 300,000 -
Granted under 1996 Plan 1,473,800 555,000 -
Exercised during year - (20,000) -
Canceled or expired during year (6,300) (24,975) (13,025)
Shares under options outstanding,
end of year 2,328,675 861,175 51,150
Shares under options exercisable,
end of year 858,125 561,175 51,150
All grants made under the Plan have exercise prices no
lower than the market price at the date of grant. At
December 31, 1996, 2,558,209 shares of the
Company's stock have been reserved for future grant.
The following table summarizes options outstanding and
exercisable by price range as of December 31, 1996:
Options outstanding Options exercisable
Weighted average Weighted average
Range of price Outstanding exercise price Exercisable exercise price
$0.00 - $1.50 340,000 $ 0.9163 336,250 $ 0.9098
$1.51 - $2.50 1,433,050 2.2281 502,000 1.9752
$2.51 - $4.00 284,000 3.8713 - -
$4.51 - $5.50 251,750 5.5000 - -
$11.25 9,225 11.2500 9,225 11.2500
$10.625 10,650 10.6250 10,650 10.6250
2,328,675 858,125
Also included in the 1996 Plan are provisions for the
granting of incentive stock and restricted stock. While
there were no grants of incentive stock during 1996 or
1995, 113,116 shares of restricted stock were granted
in 1996. Of that amount, 8,702 shares were issued in
1996 and 104,414 shares are to be issued in 1997
when the restrictions lapse.
The 1995 Stock Option Plan for Non-employee Directors
became effective June 15, 1995. Under the Plan, all
non-employee directors are automatically granted 5,000
options to purchase Company stock on an annual basis
every June. The exercise price will be the market value
on the date of grant. On June 15, 1995 and 1996,
35,000 options were granted at an exercise price of $
0.875 and $2.625, respectively.
The 1995 Stock Option Plan for Independent Agents
became effective December 21, 1995. The Plan
authorizes a total grant of 500,000 options. Activity
may be summarized as follows:
1996 1995 1994
Shares under options outstanding,
beginning of year 68,000 - -
Granted during year 160,500 68,000 -
Exercised during year (6,000) - -
Canceled or expired during year (6,000) - -
Shares under options outstanding,
end of year 216,500 68,000 -
During 1996 and 1995, a total of 228,500 options were
granted at an average exercise price of $2.10 and
$1.50, respectively. At December 31, 1996, 271,500
shares of Company's stock have been reserved for
future grant.
The Company has adopted the disclosure-only provisions
of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation."
Accordingly, no compensation cost has been recognized
for the stock option plans. Had compensation costs for
the Company's three stock option plans been
determined based on the fair value at the grant date for
awards in 1996 and 1995 consistent with the provisions
of SFAS No. 123, the Company's net income and
earnings per share would have been reduced to the pro
forma amounts indicated below (in thousands except per
share amounts).
1996 1995
Net income - as reported 5,176 1,152
Net income - pro forma 4,026 597
Earnings per share - as reported 0.22 0.07
Earnings per share - pro forma 0.18 0.04
The fair value of each option granted is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions:
Employee Plan Directors Plan Agents Plan
Expected Dividend Yield 0 0 0
Expected Stock Price Volatility 84.92% 84.92% 84.92%
Risk-free Interest Rate 5.92% 6.47% 5.61%
Expected Life of Options 5 years 10 years 4.2 years
The Company and its subsidiaries currently provide
certain health care and life insurance benefits for retired
employees. The projected future cost of providing
postretirement benefits, such as health care and life
insurance, is being recognized as an expense as
employees render service. The cumulative affect of
accruing said expenses versus expensing the benefits
when paid is being recorded as a charge against income
on a prospective basis as part of the future annual
benefit cost. The postretirement benefit expense was
approximately $75,000 in 1996, $79,000 in 1995, and
$91,000 in 1994. The following table presents the
reconciliation of the obligation at December 31, 1996
and 1995 (in thousands):
1996 1995
Accumulated postretirement benefit obligation:
Active employees $ (37) $ (71)
Current retirees (511) (522)
Total (548) (593)
Fair value of assets - -
Accumulated postretirement benefit obligation
in excess of fair value of assets (548) (593)
Unrecognized transition obligation 502 593
Unrecognized net gain (53) (102)
Accrued postretirement benefit cost $ 99 $ 102
Net periodic postretirement benefit cost includes the
following components for 1996, 1995, and 1994 (in
thousands):
1996 1995 1994
Service cost $ 3 $ 4 $ 4
Interest cost 41 43 52
Amortization of transition obligation 31 35 35
Amortization of net gains 0 (3) -
Net periodic postretirement benefits $ 75 $ 79 $ 91
The weighted average annual assumed rate of increase
in the per capita cost of covered benefits (i.e., health
care cost trend rate) was 9% for 1996 and 1995, and
12% for 1994 is assumed to decrease to a 5.5%
ultimate trend (5.5% in 1995; 7% in 1994) with a
duration to ultimate trend of 6 years (6 years in 1995
and 9 years in 1994). The health care cost trend rate
assumption has an effect on the amounts reported. For
example, increasing the assumed health care cost trend
rates by one percentage point in each year would
increase the postretirement benefit obligation as of
December 31, 1996 by $9,000.
The weighted-average discount rate used in determining
the accumulated postretirement benefit obligation was
7.75% for 1996, 7.25% for 1995 and 7.5% for
December 31, 1994.
During the first quarter of 1996, the Company issued to
a group of investors stock options expiring December
31, 2000 to acquire 1,635,000 shares of unregistered
Company Common Stock at the greater of the price of
$2.50 per share or book value at the date of exercise.
In the third quarter of 1996, the Company issued to a
different group of investors stock options to acquire
3,125,000 shares of unregistered Company Common
Stock at the greater of the price of $1.50 per share or
the book value at the date of exercise, expiring
December 31, 1998 and 3,125,000 shares at the
greater of the price of $2.00 or the book value at date
of exercise, expiring December 31, 2000.
The Company had 185,858 warrants outstanding at an
exercise price of $0.01 per share at December 31, 1996
and 1995.
NOTE 11 COMPANY'S OPERATIONS IN DIFFERENT BUSINESS SEGMENTS
Founded in 1869, the Company performs servicing
carrier activities for state and federal insurance facilities.
Managing general agency services are also performed
for a non-affiliated insurance company. Insurance
products are offered through independent agents,
primarily in the southeastern states. During 1993 and
1994, the Company began to withdraw from selected
states and selected risk retained products, and changed
its emphasis to fee income generating activities.
Effective in mid-1995, the Company voluntarily
suspended underwriting new and renewal business for
which the risks were not reinsured to an unaffiliated
party. After both the Company and its regulators
became satisfied that the capital level was adequate to
undertake such risk, underwriting on a risk retention
basis was resumed at very modest levels in mid 1996.
In February, 1994, substantially all of the assets of the
former premium financing subsidiary, Premium Service
Corporation, were sold, and a new company, Policy
Finance Company, ("PFC") was formed to handle the
administration of the assets retained. The pre-tax
income (loss) of PFC was $(4,000) in 1996; $74,000 in
1995 and $ 538,000 in 1994. The Company has no
plans to continue its own premium financing activity.
Effective January 1, 1995, Forest Lake Travel Service
(FLT), a subsidiary travel agency, was sold. FLT's pre-
tax income was $95,000 in 1994 and $ 420,000 in
1993.
The following sets forth certain information with respect
to the Company's operations in different business
segments for the year ended December 31, (in thousands):
<TABLE>
<S> <C> <C> <C>
1996 1995 1994
Revenue:
Property and casualty insurance segments $ 7,186 $ 10,384 $14,718
Commission and service activities segment 45,585 49,572 60,669
Net investment income and other interest income 3,516 4,038 5,690
Realized gains (losses) on investments (179) 150 (5,793)
Total for property & casualty insurance segments 56,108 64,144 75,284
Other business revenue 1,085 2,039 4,476
Total revenue $ 57,193 $ 66,183 $ 79,760
Operating profit (loss):
Property and casualty insurance segments $ 25 $ (6,719) $(27,840)
Commission and service activities segment 1,595 5,641 10,109
Net investment income 3,516 4,038 5,690
Realized gains (losses) on investments (179) 150 (5,793)
Subtotal 4,957 3,110 (17,834)
Other business segments 441 (47) 141
Operating income (loss) 5,398 3,063 (17,693)
General corporate expenses, net of miscellaneous
income and expense (179) (1,605) (1,031)
Interest expense (174) (308) (321)
Consolidated income (loss) before income taxes $ 5,045 $ 1,150 $(19,045)
</TABLE>
Operating income (loss) represents revenue less related
operating expenses. Net investment income is that
related to, but not individually identifiable with, the
various property and casualty insurance underwriting
and commission and service activities business
segments.
Identifiable assets by business segments or combined
segments represent assets directly identified with those
operations and an allocable share of jointly used assets.
For the year ended December 31, (in thousands):
1996 1995 1994
Identifiable Assets
Property and casualty insurance underwriting
segment,including related investment activity $ 55,427 $ 82,493 $117,761
Commission and service activities segment 158,237 134,598 127,628
Other business segments 5,187 5,697 8,449
General corporate assets 1,621 1,217 2,097
Total assets $ 220,472 $ 224,005 $ 255,935
In 1996, depreciation and amortization charges for the
various property and casualty insurance underwriting
and commission and service activities segments,
combined, were $1.0 million ($0.9 million in 1995 and $
0.8 million in 1994.) These amounts exclude policy
acquisition costs of $1.6 million in 1996, ($3.2 million
in 1995 and $5.5 million in 1994).
Costs of additions to property and equipment for the
property and casualty insurance underwriting and
commission and service activities segments, combined,
amounted to $0.8 million in 1996, $0.1 million in 1995
and $ 2.4 million in 1994. Additions in 1996 were
primarily for data processing needs and enhancements.
The majority of the additions in 1994 were due to
purchases made to begin the conversion to bring the
Company's data processing in-house.
NOTE 12 REINSURANCE
The Company's property and casualty insurance run-off
operations are involved in several types of reinsurance
arrangements. Ceding reinsurance programs include
quota share, pro-rata surplus and excess of loss. In its
servicing carrier operation, premiums are ceded entirely
to the applicable state's reinsurance facility.
Reinsurance contracts do not relieve the Company of its
obligations to policyholders. Failure of reinsurers to
honor their obligations could result in losses to the
Company; consequently, allowances are established for
amounts deemed uncollectable. The Company evaluates
the financial condition of its reinsurers and monitors
concentrations of credit risk arising from similar
geographic regions, activities, or economic
characteristics of the reinsures to minimize its exposure
to significant losses from reinsurers insolvency.
Reinsuring companies are obligated for the following
amounts for unearned premiums, unpaid losses and LAE,
and paid losses and LAE (in thousands):
1996 1995
Unearned premiums $ 46,118 $ 43,469
Unpaid losses and LAE 84,725 84,492
Paid losses and LAE 28,218 27,423
Five reinsurers comprise a significant portion of the
Company's reinsurance recoverable on paid and unpaid
losses and loss adjustment expense, as well as prepaid
reinsurance at December 31, 1996. The reinsurers and
related balances are as follows (in thousands):
Reinsurance Prepaid
Recoverable Reinsurance
South Carolina Reinsurance Facility $ 70,770 $ 24,195
National Flood Program 26,325 19,005
Swiss Reinsurance Corp 7,027 -
North Carolina Reinsurance Facility 5,104 1,036
Kentucky Insurance Placement Facility 2,209 1,745
All others 1,508 137
Totals $ 112,943 $ 46,118
The Company believes that the balances from the
various Facilities are fully collectable due to the
governmental agency's ability to assess policyholders
and member companies for deficiencies. The remaining
recoverables due from nonaffiliated reinsurance
companies have also been deemed fully collectable by
the Company.
With respect to credit concentrations, most of the
Company's business activity is with agents and
policyholders located within the five operating states.
The primary reinsurance recoverables are from the state
and federal servicing carrier activities. There are
otherwise no material credit concentrations related to
premiums receivable, agents' balances, and premium
notes receivable.
NOTE 13 COMMITMENTS AND CONTINGENCIES
(a) A contingent liability exists with respect to
reinsurance placed with other companies.
(see Note 12)
(b) Due to the nature of their business, certain
subsidiaries are parties to various other legal
proceedings, which are considered routine
litigation incidental to the insurance business.
NOTE 14 RELATED PARTY TRANSACTIONS
A non-employee Director of the Company is also a
member of the Board of Directors of Policy Management
Systems Corporation ("PMSC"), which provided services
to the Company prior to September 30, 1996. The
Company paid data processing charges of $0.9 million in
1996 ($1.8 million in 1995 and $3.4 million in 1994.)
A former non-employee Director of the Company was an
employee of Prudential Securities, Inc. ("PSI") through
mid-1995. From 1994 through mid 1995, PSI acted as
investment manager for the Company and for its
retirement plan. The amount of fees earned by PSI on
trading activity by the Company cannot readily be
determined, but the amount paid directly to PSI during
1995 and 1994 was not material. The former Director is
no longer an employee of PSI, and PSI's services have
since been terminated.
NOTE 15 SUBSEQUENT EVENTS
On February 27, 1997, the Board of Directors voted to
recommend for approval by the shareholders a reverse
stock split. If approved by the shareholders at the
Annual Meeting of Shareholders on April 9, 1997, one
share of common stock will be exchanged for each four
shares of common stock currently outstanding.
SUPPLEMENTARY DATA
QUARTERLY FINANCIAL INFORMATION (unaudited)
(Thousands of dollars, except in share amounts)
The following is a summary of unaudited quarterly information
for the years ended December 31, 1996 and 1995:
<TABLE>
<S> <C> <C> <C> <C>
1996 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Commission & service income $ 10,096 $ 11,254 $ 11,522 $ 12,713
Property & casualty premiums earned 2,999 826 2,280 1,081
Credit life premiums 125 100 80 173
Net investment income & other interest
income 778 657 1,239 1,133
Realized gains (losses) on investments 194 - 2 (210)
Net income $ 632 $ 1,217 $ 1,497 $ 1,830
Per share and common equivalent share $ 0.04 $ 0.06 $ 0.08 $0.05
Pro forma SFAS No. 128 basic earnings
per share (Note 1): $ 0.04 $ 0.07 $ 0.08 $ 0.07
</TABLE>
Commission and service income continued its trend of
decreasing every quarter until the second quarter of 1996.
Since that time, this income has increased due to increased
claims activity on the Flood program related to two storms that
hit the East Coast in the second half of 1996. Premiums earned
continued to be minimal during 1996 due to the Company
having very small amounts of business retained on its books.
Net income for the year ended December 31, 1996 has
increased, when compared to the year ended December 31,
1995, due to the Company's constant monitoring of loss
development on business written in prior years and monitoring
of expenses across all profit centers in which the Company
operates. The figures reported above reflect a $500,000
downward revision from previously reported unaudited revenues
and net income for the year. Each of the four quarters of 1996
were adjusted down by $125,000, aggregating the $500,000
annual adjustment.
<TABLE>
<S> <C> <C> <C>
1995 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter
Commission & service income $ 13,023 $ 12,529 $ 12,484 $ 11,536
Property & casualty premiums earned 3,307 2,206 2,997 1,874
Credit life premiums 194 221 197 278
Net investment income & other interest 1,174 1,177 1,137 842
income
Realized gains (losses) on investments 65 (29) - 128
Net income (loss) $ (2,009) $ 250 $ 1,284 $ 1,627
Per share and common equivalent share $ (0.13) $ 0.01 $ 0.08 $0.11
</TABLE>
Property and casualty premiums earned continue to decrease as
a result of the Company suspending writing of retained "risk"
business. However, losses incurred on this business have
stabilized due to the adequacy of reserves. The net loss in the
first quarter is due to management setting aside additional
reserves for future development. The negative effect on net
income due to this run-off business in the remaining quarters
has been insignificant. Additionally, while the Company's
commission and service income has decreased due to lower
commission rates and volume, ongoing cost reductions have
mitigated the effect to net income.
ITEM 9. Changes In and Disagreements With Accountants On Accounting
And Financial Disclosure
Inapplicable.
PART III
ITEM 10. Directors, Executive Officers, Promoters, and Control Persons
of the Registrant
Information other than the listing of executive officers of the
Company (which is presented in Part I of this document) is
contained under the heading "Election of Directors" in the proxy
statement relating to the annual meeting of shareholders to be
held April 9, 1997 and is incorporated herein by reference since
the Company files such definitive proxy materials pursuant to
Regulation 14A on or prior to April 30, 1997.
ITEM 11. Executive Compensation
The information contained under the headings "Compensation
of Executive officers", Directors' Compensation," and
"Compensation plans and Arrangements in the proxy statement
relating to the annual meeting of shareholders to be held April
9, 1997 is incorporated herein by reference since the Company
files such definitive proxy materials pursuant to Regulation 14A
on or prior to April 30, 1997.
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management
The information contained under the headings "Principal
Shareholders" and "Election of Directors" in the proxy
statement relating to the annual meeting of shareholders to be
held April 9, 1997 is incorporated herein by reference since the
Company files such definitive proxy materials pursuant to
Regulation 14A on or prior to April 30, 1997.
ITEM 13. Certain Relationships and Related Transactions
The information contained under the heading "Certain
Transactions" in the proxy statement relating to the annual
meeting of shareholders to be held April 9, 1997 is incorporated
herein by reference since the Company files such definitive
proxy materials pursuant to Regulation 14A on or prior to April
30, 1997.
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) and (2)- List of Financial Statements and Financial
Statements Schedules
The following consolidated financial statements of The Seibels
Bruce Group, Inc. and subsidiaries are included in Item 8:
Report of Independent Public Accountants- Arthur Andersen LLP
Consolidated balance sheets- December 31, 1996 and December 31, 1995.
Consolidated statements of operations-Years ended December
31, 1996; December 31, 1995; and December 31, 1994; and
Consolidated Statement of Cash flows-Years ended December
31, 1996, December 31, 1995; and December 31, 1994.
The notes to the consolidated financial statements included in
Item 8 pertain both to the consolidated financial statements
listed above and the condensed financial information of the
registrant included in Schedule 3 under Item 14.
The following financial statement schedules are included in Item
14(d):
Schedule I- Summary of Investments Other than Investments in Related Parties
Schedule II- Condensed Financial Information of Registrant
Schedule III- Supplementary Insurance Information
Schedule IV- Reinsurance
Schedule V- Valuation and Qualifying Accounts
Schedule VI- Supplemental Information Concerning Property/ Casualty Insurance
Operations
All other schedules to the consolidated financial statements
required by Article 7 of Regulation S-X are not required under
the related instructions or are inapplicable and therefore have
been omitted.
(a) (3) List of Exhibits
3.1 Articles of Incorporation of the Registrant, as amended,
incorporated herein by reference to the Annual Report,
Exhibit (3)(1)-1, for the year ended December 31, 1989.
Articles of Amendments dated June 18, 1994, June 13,
1995 and June 14, 1996.
3.2 By-Laws of the Registrant, as amended February 25,
1992, incorporated herein by reference to the Annual
Report on Form 10-K, Exhibit (3)(1)-1, for the year
ended December 31, 1991. Amendments of By-Laws
dated June 18, 1994, October 14, 1994 and June 13, 1995.
10.1 Stock Purchase Agreement between registrant,
Abdullatif Ali Alissa Est. and Saad A. Alissa, dated
December 22,1993, incorporated herein by reference to
the Annual Report on Form 10-K, Exhibit (2)(1)-1, for
the year ended December 31, 1993.
10.2 Stock Purchase Agreement, dated July 30, 993, by and
between National Teachers Life Insurance Company and
South Carolina Insurance Company, incorporated herein
by reference to the Annual Report on Form 10-K, Exhibit
(10)(10)-5, for the year ended December 31, 1993.
10.3 The Seibels Bruce Group, Inc., Common Stock Warrant,
dated February 4, 1993, incorporated herein by
reference to the Annual Report on Form 10-K, Exhibit
(10)(9)-3, for the year ended December 31, 1992.
10.4 The Seibels, Bruce & Company Employees' Profit
Sharing and Savings Plan, dated June 30, 1992, as
amended January 4, 1993, incorporated herein by
reference to the Annual Report on Form l0-K(10)(9)-9,
for the year ended December 31, 1992.
10.5 Stock Purchase Agreement, dated January 29, 1996, by
and between the Registrant and Charles H. Powers and
Walker S. Powers, and amendment thereto, incorporated
herein by reference to submission DEF 14-A, filing date
May 10, 1996, file number 000-08804, accession
number 0001005150-96-000127, accepted May 9, 1996.
10.6 Stock Option Agreement, dated January 30, 1996, by
and between the Registrant and Charles H. Powers,
Walker S. Powers and Rex and Jane Huggins,
incorporated herein by reference to submission DEF 14-
A, filing date May 10, 1996, file number 000-08804,
accession number 0001005150-96-000127, accepted
May 9, 1996.
10.7 Stock Purchase Agreement, dated March 28, 1996, by
and between the Registrant and Fred C. Avent, Frank H.
Avent and Pepsico of Florence, incorporated herein by
reference to submission Form S-2, filing date October
15, 1996, file number 333-14123, accession number
0000276380-96-00017, accepted October 15, 1996.
10.8 Stock Purchase Agreement, dated March 28, 1996, by
and between the Registrant and Junius DeLeon Finklea,
Joseph K. Newsom, Sr., Mark J. Ross, Larry M. Brice,
J. Howard Stokes, Winston Y. Godwin, IRA and Peter
D. and Vera C. Hyman, incorporated herein by reference
to submission Form S-2, filing date October 15, 1996,
file number 333-14123, accession number
0000276380-96-00017, accepted October 15, 1996.
10.9 The Seibels Bruce Group, Inc. 1996 Stock Option Plan
for Employees, dated November 1, 1995, incorporated
herein by reference to submission DEF 14-A, filing date
May 10, 1996, file number 000-08804, accession
number 0001005150-96-000127, accepted May 9, 1996.
10.10 The Seibels Bruce Group, Inc. 1995 Stock Option Plan
for Independent Agents, dated June 14, 1996,
incorporated herein by reference to submission DEF 14-
A, filing date May 10, 1996, file number 000-08804,
accession number 0001005150-96-000127, accepted
May 9, 1996.
10.11 The Seibels Bruce Group, Inc. 1995 Stock Option Plan
for Non-Employee Directors, dated June 14, 1996,
incorporated herein by reference to submission DEF 14-
A, filing date May 10, 1996, file number 000-08804,
accession number 0001005150-96-000127, accepted
May 9, 1996.
10.12 Agreement, dated October 1, 1994, by and between
Catawba Insurance Company and the South Carolina
Reinsurance Facility.
10.13 Managing General Agent Agreement, dated January 1,
1996, by and between Seibels Bruce & Company and
Agency Specialty of Kentucky, Inc. and Generali - US
Branch. (Portions of this exhibit have been omitted pursuant
to a request for confidential treatment.)
10.14 Arrangement, dated October 1, 1996, by and between
Catawba Insurance Company, Kentucky Insurance
Company and The United States of America Federal
Emergency Management Agency.
11.1 Statement re Computation of Per Share Earnings for
the year ended December 31, 1996.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Arthur Andersen LLP.
27.1 Financial Data Schedule (electronic filing only).
28.1 Schedule P of Annual Report on Form 10-K/405 for the
fiscal year ended December 31, 1996, incorporated
herein by reference to Form SE, dated March 17, 1997.
(b) Reports on Form 8-K
No reports on Form 8-K have been filed during the last quarter
of the period covered by this report.
(c) and (d) Exhibits and Financial Statement Schedules
The applicable exhibits and financial statement schedules are
included immediately after the signature pages.
For the purpose of complying with the amendments to the rules
governing Form S-8 (effective July 13, 1990) under the
Securities Act of 1933, the undersigned registrant hereby
undertakes as follows, which undertaking shall be incorporated
by reference into registrant's Registration Statements on Form
S-8 Numbers 333-14135, 333-15457, 2-70057, 2-83595, 33-
34973, 33-43618, 33-43601, and 2-48782, as amended.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore,
unenforceable.
In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly
authorized.
The Seibels Bruce Group, Inc.
(Registrant)
Date: March 19, 1997 By /s/ John C. West
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed
below by the following persons on behalf of the registrant and in the capacities
and on the dates
indicated.
Date: March 19, 1997 By /s/
John C. West
Chairman of the Board and Director
Date: March 19, 1997 By /s/
Ernst N. Csiszar
President and Director
Date: March 19, 1997 By /s/
John A. Weitzel
Chief Financial Officer and Director
Date: March 19, 1997 By /s/
Fred H. Avent
Director
Date: March 19, 1997 By /s/
William M. Barilka
Director
Date: March 19, 1997 By /s/
Fred S. Clark
Director
Date: March 19, 1997 By /s/
Albert H. Cox, Jr.
Director
Date: March 19, 1997 By /s/
Claude E. McCain
Director
Date: March 19, 1997 By /s/
Kenneth W. Pavia
Director
Date: March 19, 1997 By /s/
Charles H. Powers
Director
Date: March 19, 1997 By /s/
Walker S. Powers
Director
Date: March 19, 1997 By /s/
John P. Seibels
Director
Date: March 19, 1997 By /s/
George R.P. Walker, Jr.
Director
Date: March 19, 1997 By /s/
Mary M. Gardner
Controller (Principal Accounting Officer)
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
SCHEDULE I- SUMMARY OF INVESTMENTS OTHER THAN
INVESTMENTS IN RELATED PARTIES
As of December 31,
(in thousands)
Balance
Market Sheet
Type of Investment Cost Value Value
- ------------------
Debt securities(1)
- ------------------
Bonds and Notes:
U.S. Government and government
agencies and authorities $ 40,601 $ 40,102 $ 40,102
States, municipalities and
political subdivisions 108 115 115
-------- ------- -------
Total debt securities 40,709 40,217 40,217
Equity securities
Common stocks:
Banks, trusts and insurance
companies 17 17 17
Non redeemable preferred stocks:
Public utilities 17 18 18
--------- ------- -------
Total equity securities 34 35 35
---------- -------- -------
Other long-term investments 73 28 28
Cash and short-term investments 2,664 2,664 2,664
Total cash and investments $ 43,480 $ 42,944 $ 42,944
(1) These debt securities are classified as debt securities available for sale
and are valued at market.
SCHEDULE II- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
THE SEIBELS BRUCE GROUP, INC. (PARENT COMPANY)
BALANCE SHEETS
As of December 31
(Dollars shown in thousands)
1996 1995
ASSETS
Cash $ 231 $ 37
Investment in subsidiary companies* 23,409 12,967
Income tax recoverable from subsidiaries 5 82
Intercompany recoverables* 216 -
Total assets $ 23,861 $ 13,086
LIABILITIES
Notes payable $ - $ 2,476
Other liabilities (including $172 payable
to affiliate in 1995)* 70 423
Total liabilities 70 2,899
SHAREHOLDERS' EQUITY
Special stock, no par value authorized
5 million shares none issued and outstanding - -
Common stock, $1 par value, authorized 50
million shares, issued and outstanding
24,672,388 shares (16,772,686 shares in 1995) 24,672 16,773
Additional paid-in-capital 35,546 34,080
Unrealized (loss) gain on investments owned
by subsidiaries (536) 401
Accumulated deficit (35,891) ( 41,067)
Total shareholders' equity 23,791 10,187
Total liabilities and shareholders' equity $ 23,861 $ 13,086
* Eliminated in consolidation.
The accompanying notes are an integral part of these financial statements.
SCHEDULE II (CONTINUED)- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
THE SEIBELS BRUCE GROUP, INC. (PARENT COMPANY)
STATEMENTS OF INCOME /LOSS
As of December 31,
(Dollars shown in thousands, except per share amounts)
1996 1995 1994
Total revenue $ 191 $ 650 $ 8
Expenses:
Interest 90 199 111
Other 17 851 111
Total expenses 107 1,050 222
Income (loss) before income taxes
and equity in undistributed loss
of subsidiary 84 (400) (222)
Tax benefit (1) (18) (41)
Income (loss) before equity in
undistributed loss of subsidiary 85 (382) (181)
Equity in undistributed income (loss)
of subsidiary companies* 5,091 1,534 (18,893)
Net Income (loss) $ 5,176 $ 1,152 $ (19,074)
Per share & common equivalent share:
Net income (loss) $ 0.22 $ 0.07 $(1.72)
Pro forma SFAS No. 128 basic earnings
per share (Note 1):
Net income (loss) $ 0.26 $ 0.07 $(1.72
* Eliminated in consolidation
The accompanying notes are an integral part of these financial statements.
<TABLE>
SCHEDULE II (CONTINUED)- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
THE SEIBELS BRUCE GROUP, INC. (PARENT COMPANY)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
As of December 31,
(Dollars shown in thousands)
<S> <C> <C> <C>
1996 1995 1994
Common stock outstanding:
Beginning of year $ 16,773 $ 14,501 $ 7,501
Stock issued in connection with
rights offering - 2,217 -
Stock issued to benefit plans,
agents and others 15 55 -
Stock issued in exchange for
cancellation of note payable - - 7,000
Stock issued-capital contribution 7,884 - -
End of year $ 24,672 $ 16,773 $ 14,501
Additional paid-in capital:
Beginning of year $ 34,080 $ 30,983 $ 27,983
Stock issued in connection with
rights offering - 3,104 -
Stock issued to benefit plans,
agents and others 10 (7) -
Stock issued in exchange for
cancellation of note payable - - 3,000
Stock issued - capital contribution 1,456 - -
End of year $ 35,546 $ 34,080 $ 30,983
Unrealized gain (loss) on securities:
Beginning of year $ 401 $ (2,615) $ 2,404
Change in unrealized gains
on securities (937) 3,016 (5,019)
End of year $ (536) $ 401 $ (2,615)
Accumulated deficit:
Beginning of year $ (41,067) $ (42,219) $ (23,145)
Net income (loss) 5,176 1,152 (19,074)
End of year $ (35,891) $ (41,067) $ (42,219)
Total shareholders' equity $ 23,791 $ 10,187 $ 650
The accompany notes are an integral part of these consolidated statement
</TABLE>
<TABLE>
SCHEDULE II (CONTINUED)- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
THE SEIBELS BRUCE GROUP, INC. (PARENT COMPANY)
STATEMENTS OF CASH FLOWS
As of December 31,
(Dollars shown in thousands)
<S> <C> <C> <C>
1996 1995 1994
Cash flows from operating activities:
Net income (loss) $ 5,176 $ 1,152 $ (19,074)
Adjustments to reconcile net loss
to net cash provided by (used in)
operating activities:
Equity in undistributed income (loss)
of subsidiary company (5,091) (1,534) 18,893
Changes in assets and liabilities:
Income taxes payable to subsidiaries - (41) (41)
Other (net) (476) 513 223
Total adjustments (5,567) (1,062) 19,075
Net cash provided by (used in) operating
activities (391) 90 1
Cash flows from investing activities:
Contribution of capital to subsidiary (6,288) (7,400) -
Cash flows from financing activities:
Proceeds from stock right offering - 5,321 -
Proceeds from stock issued under employee
benefit plans 9 18 -
Proceeds from repayment of notes payable (2,476) 2,000 -
Issuance of stock 9,340 - -
Net cash used in financing activities 6,873 7,339 -
Net increase (decrease) in cash 194 29 1
Cash January 1 37 8 7
Cash, December 31 $ 231 $ 37 $ 8
Supplemental Cash Flow Information:
Income taxes recovered from a subsidiary $ 77 $ 27 $ -
Interest paid 271 - -
Noncash financing activities:
Notes payable exchanged for common stock $ - $ - $ 10,000
Notes payable exchanged for accrued interest - 37 439
Issuance of common stock as compensation 15 31 -
The accompanying notes are an integral part of these financial statements.
</TABLE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
SCHEDULE III - SUPPLEMENTARY INSURANCE INFORMATION
(in thousands)
<TABLE>
<S> <C> <C> <C> <C> <C>
Column A Column B Column C ColumnD Column E ColumnF
Future policy
Deferred benefits Other policy
policy losses,claims claims and
acquisition and loss Unearned beneits Premium
costs expenses premiums payable revenue
Segment
Year ended December 31, 1996
Property and casualty insurance $ - $ 132,152 $ 47,498 $ - $7,186
Credit life insurance 96 145 194 - 478
Commission and service activities - - - - -
Other - - - - - -
Total $ 96 $ 132,297 $ 47,692 $ - $ 7,664
Year ended December 31, 1995
Property and casualty insurance $ - $ 145,523 $ 45,369 $ - $ 10,384
Credit life insurance 293 199 758 - 890
Commission and service activities - - - - -
Other - - - - -
Total $ 293 $ 145,722 $ 46,127 $ - $ 11,274
Year ended December 31, 1994
Property and casualty insurance $ - $ 166,698 $ 54,721 $ - $ 14,718
Credit life insurance 899 206 1,570 - 1,801
Commission and service activities - - - - -
Other - - - - -
Total $ 899 $ 166,904 $ 56,291 $ - $ 16,519
(1) Allocations of net investment income and other operating expenses are based
on a number of assumptions and estimates. Results would change if different
methods were applied.
Column G Column H Column I Column J Column K
Net
investment Benefits, Amortization
income (1) claims,losses of deferred
and other and policy Other
Interest settlement acquisition operating Premiums
income expenses costs expenses(1) written
Segment
Year ended December 31, 1996
Property and casualty insurance $ 482 $ 10,980 $ 1,580 $ 58 $ 6,666
Credit life insurance 270 203 (207) 74
Commission and service activities 3,055 - - 38,881
Other - - - -
Total 3,807 $ 11,183 $ 1,373 $ 39,014
Year ended December 31, 1995
Property and casualty insurance $ 699 $ 17,618 $ 3,188 $ 1,680 $ 6,046
Credit life insurance 291 545 (655) 92
Commission and service activities 3,340 - - 40,996
Other - - -
Total $4,330 $ 18,163 $ 2,533 $ 42,768
Year ended December 31, 1994
Property and casualty insurance $ 2,027 $ 36,954 $ 5,538 $ 9,385 $ 14,537
Credit life insurance 506 770 (1,855) 3,503
Commission and service activities 3,663 - - 42,334
Other 1,988 - - -
Total $ 6,226 $ 37,724 $ 3,683 $ 55,222
</TABLE>
<TABLE>
SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
SCHEDULE IV - REINSURANCE
(in thousands)
<S> <C> <C> <C> <C> <C>
Column A Column B Column C Column D Column E Column F
Ceded to Assumed Percentage
Gross other from other Net of amount
Amount* companies companies amount assumed to net
Year ended December 31, 1996
Credit life insurance in force $ 5,908 $ - $ - $ 5,908 -%
Premiums:
Property/casualty insurance $ 105,212 $ 103,845 $ 5,819 $ 7,186 81.0%
Credit life insurance 265 (1) - 266 -
Accident/health insurance 211 (1) - 212
- -
Total $ 105,688 $ 103,843 $ 5,819 $ 7,664
Year ended December 31, 1995
Credit life insurance in force $ 16,717 $ - $ - $ 16,717 -%
Premiums:
Property/casualty insurance $ 122,912 $ 113,760 $ 1,232 $10,384 11.9%
Credit life insurance 737 (4) - 741 -
Aaccident/health insurance 147 (2) - 149 -
Total $ 123,796 $ 113,754 $ 1,232 $ 11,274
Year ended December 31, 1994
Credit life insurance in force $ 39,897 $ - $ - $ 39,897 -%
Premiums:
Property/casualty insurance $ 146,481 $ 134,038 $ 2,275 $14,718 15.5%
Credit life insurance 968 - - 968 -
Accident/health insurance 832 (1) - 833 -
Total $ 148,281 $ 134,037 $ 2,275 $ 16,519
* Includes amounts written as designated carrier for two state
sponsored automobile facilities, a homeowners' residual market
and the WYO National Flood Insurance Program
</TABLE>
THE SEIBELS BRUCE GROUP, INC.
SCHEDULE V- VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Balance at
beginning Balance at
Description of year Additions Deductions end of year
Year ended December 31, 1996
Allowance for uncollectable:
Agents' balances receivable $ 70 $ 738 $ 139 $ 669
Other receivable $ 79 $ - $ - $ 79
Premium notes receivable $ 75 $ - $ - $ 75
Year ended December 31, 1995
Allowance for uncollectable:
Agents' balances receivable $ 70 $ - $ - $70
Other receivable $ 151 $ 79 $ 151 $ 79
Premium notes receivable $ 245 $ - $ 170 $ 75
Year ended December 31, 1994
Allowance for uncollectable:
Agents' balances receivable $ 187 $ 48 $ 165 $70
Other receivables $ 151 $ 64 64 $ 151
Premium notes receivable $ 418 $ 211 $ 383 $246
* Includes amounts written as designated carrier for two state-
sponsored automobile facilities, a homeowners, residual
market and the WYO National Flood Insurance Program.
<TABLE>
THE SEIBELS BRUCE GROUP, INC.
SCHEDULE VI - SUPPLEMENTAL INFORMATION CONCERNING PROPERTY/CASUALTY INSURANCE OPERATIONS
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Column A Column B Column C Column D Column E Column F Column G
Reserves for Net
Deferred Unpaid Claims Discount, Investment
Policy and Claim if any. and other
Acquisition Adjustment Deducted in Unearned Earned Interest
Costs Expenses Column C* Premiums Premiums Income
- -------------------------------------------------------------------------------------------------------------------------
Affiliation with Registrant
Company and
consolidated subsidiaries
Year ended
December 31, 1996 $ - $ 132,152 $ - $ 47,498 $ 7,186 $ 3,537
Year ended
December 31, 1995 $ - $ 145,523 $ - $ 45,369 $ 10,384 $ 4,039
Year ended
December 31, 1994 $ - $ 166,698 $ - $ 54 ,721 $ 14,718 $ 5,690
Column H Column I Column J Column K
Claims and Claim
Incurred Related to Amortization Paid Claims
(1) (2) of deferred Policy and Claim
Current Prior Acquisition Adjustment Premiums
Year Years Costs Expenses Written
Affiliation with Registrant
Company and
consolidated subsidiaries
Year ended
December 31, 1996 $ 9,863 $ 1,117 $ 1,580 $ 24,584 $ 6,666
Year ended
December 31, 1995 $ 14,243 $ 3,375 $ 3,188 $ 34,554 $ 6,046
Year ended
December 31, 1994 $ 19,997 $ 16,957 $ 5,538 $ 77,448 $14,537
* The Company does not discount loss and LAE reserves
</TABLE>
Exhibit 3.1
STATE OF SOUTH CAROLINA
SECRETARY OF STATE
ARTICLES OF AMENDMENT
Pursuant to Section 3-10-106 of the 1976 South Carolina Code, as
amended, the undersigned corporation adopts the following Articles of Amendment
to its Articles of Incorporation:
1. The name of the corporation is THE SEIBELS BRUCE GROUP, INC.
2. On June 28, 1994, the corporation adopted the following
Amendment(s) of its Articles of Incorporation (Type or
attach the complete text of each Amendment):
That the Articles of Incorporation of The Seibels
Bruce Group, Inc., be amended by deleting
Section (e) of Article 9 in its entirety.
3. The manner, if not set forth in the Amendment, in which any exchange,
reclassification, or cancellation of issued shares provided for in the
Amendment shall be effected, is as follows (If not applicable, insert
"Not applicable" or "NA"):
Not applicable
4. Complete either a or b, whichever is applicable.
a. x Amendment(s) adopted by shareholder action.
At the date of adoption of the Amendment, the number of outstanding
shares of each voting group entitled to vote separately on the
Amendment, and the vote of such shares was:
<TABLE>
<S> <C> <C> <C> <C>
Number of Undisputed(1)
Number of Number of Votes Number of Votes Shares Voted
Voting Group Outstanding Shares Entitled to be Cast Represented at the Meeting For Against
- --------------- ------------------ ------------------- -------------------------- -----------------------
Common Stock 7,500,534 7,500,534 6,889,435 5,751,094 532,366
(1) Pursuant to Section 33-10-106(6)(i), the corporation can alternatively
state the total number of undisputed shares cast for the amendment by each
voting group together with a statement that the number of cast votes for the
amendment by each voting group was sufficient for approval by that voting
group.
</TABLE>
b. ( ) Amendment(s) adopted by the incorporators or
board of directors without shareholder approval
pursuant to Section 33-6-102(d). 33-10-102 and 33-
10-105 of the 1976 South Carolina Code, as amended,
and shareholder action was not required.
5. Unless a delayed date is specified, the effective date of these Articles
of Amendment shall be the date of acceptance for filing by the Secretary
of State (See Section 33-1-230(b)):
Date: June 28, 1994 The Seibels Bruce Group, Inc.
-----------------------------
(Name of Corporation)
By:/s/ Sterling E. Beale
---------------------------
(Signature)
Sterling E. Beale, Chairman of the
Board of Directors and Chief
Executive Officer
-----------------------------
(Name and Office)
STATE OF SOUTH CAROLINA
SECRETARY OF STATE
ARTICLES OF AMENDMENT
Pursuant to Section 3-10-106 of the 1976 South Carolina
Code, as amended, the undersigned corporation adopts the
following Articles of Amendment to its Articles of Incorporation:
1. The name of the corporation is THE SEIBELS BRUCE GROUP, INC.
2. On June 13, 1995, the corporation adopted the following
Amendment(s) of its Articles of Incorporation (Type or
attach the complete text of each Amendment):
That the Articles of Incorporation be amended by
deleting Section C of the Addendum dated July 14, 1978
pertaining to indemnification and insurance.
3. The manner, if not set forth in the Amendment, in which
any exchange, reclassification, or cancellation of issued
shares provided for in the Amendment shall be effected,
is as follows (If not applicable, insert "Not applicable"
or "NA"):
Not applicable
4. Complete either a or b, whichever is applicable.
a. x Amendment(s) adopted by shareholder action.
At the date of adoption of the Amendment, the number
of outstanding shares of each voting group entitled to
vote separately on the Amendment, and the vote of
such shares was:
<TABLE>
<S> <C> <C> <C> <C> <C>
Number of Undisputed(1)
Number of Number of Votes Number of Votes Shares Voted
Voting Group Outstanding Shares Entitled to be Cast Represented at the Meeting For Against
- -------------- ------------------ -------------------- -------------------------- ------- --------
Common Stock 16,717,686 16,717,686 15,203,204 14,910,995 196,795
(1)Pursuant to Section 33-10-106(6)(i), the corporation can alternatively
statethe total number of undisputed shares cast for the amendment by each
votinggroup together with a statement that the number of cast votes for the
amendment by each voting group was sufficient for approval by that voting
group.
</TABLE>
b. ( ) Amendment(s) adopted by the incorporators or
board of directors without shareholder approval
pursuant to Sections 33-6-102(d). 33-10-102 and 33-
10-105 of the 1976 South Carolina Code, as amended,
and shareholder action was not required.
5. Unless a delayed date is specified, the effective date of
these Articles of Amendment shall be the date of
acceptance for filing by the Secretary of State (See
Section 33-1-230(b)):
Date: June 22, 1995 The Seibels Bruce Group, Inc.
------------------------------
(Name of Corporation)
By: /s/ Priscilla C. Brooks
------------------------------
(Signature)
Priscilla C. Brooks, Corporate Secretary
-----------------------------------
(Name and Office)
STATE OF SOUTH CAROLINA
SECRETARY OF STATE
ARTICLES OF AMENDMENT
Pursuant to Section 3-10-106 of the 1976 South Carolina Code, as
amended, the undersigned corporation adopts the following Articles of Amendment
to its Articles of Incorporation:
1. The name of the corporation is THE SEIBELS BRUCE GROUP, INC.
2. On June 14, 1996, the corporation adopted the following Amendment(s) of
its Articles of Incorporation (Type or attach the complete text of each
Amendment):
The Articles of Incorporation of The Seibels Bruce Group, Inc.,
shall be amended so as to increase the maximum authorized common
stock of the Company from 25,000,000 shares to 50,000,000 shares
at the par value of $1.00 per share.
3. The manner, if not set forth in the Amendment, in which any exchange,
reclassification, or cancellation of issued shares provided for in the
Amendment shall be effected, is as follows (If not applicable, insert
"Not applicable" or "NA"):
Not applicable
4. Complete either a or b, whichever is applicable.
a. x Amendment(s) adopted by shareholder action.
At the date of adoption of the Amendment, the number of outstanding
shares of each voting group entitled to vote separately on the
Amendment, and the vote of such shares was:
<TABLE>
<S> <C> <C> <C> <C>
Number of Undisputed(1)
Number of Number of Votes Number of Votes Shares Voted
Voting Group Outstanding Shares Entitled to be Cast Represented at the Meeting For Against
- -------------- --------------------- -------------------- ---------------------------- ---------- ----------
Common Stock 18,407,686 18,407,686 18,121,847 17,803,657 199,894
(1) Pursuant to Section 33-10-106(6)(i), the corporation can alternatively
state the total number of undisputed shares cast for the amendment by each
voting group together with a statement that the number of cast votes for the
amendment by each voting group was sufficient for approval by that voting
group.
</TABLE>
b. ( ) Amendment(s) adopted by the incorporators or board of
directors without shareholder approval pursuant to Section 33-6-102(d).
33-10-102 and 33-10-105 of the 1976 South Carolina Code, as amended,
and shareholder action was not required.
5. Unless a delayed date is specified, the effective date of these Articles
of Amendment shall be the date of acceptance for filing by the Secretary
of State (See Section 33-1-230(b)):
Date: June 14, 1996 The Seibels Bruce Group, Inc.
------------------------------
(Name of Corporation)
By: /s/ Priscilla C. Brooks
------------------------------
(Signature)
Priscilla C. Brooks
Corporate Secretary
-------------------------------
(Name and Office)
Exhibit 3.2
THE SEIBELS BRUCE GROUP, INC.
AMENDMENT OF BYLAWS
Adopted by the Board of Directors on April 11, 1994
Became effective on June 28, 1994
RESOLVED, that Section 4 of Article 3 be deleted in its entirety.
THE SEIBELS BRUCE GROUP, INC.
AMENDMENT OF BYLAWS
Adopted by the Board of Directors on October 14, 1994
RESOLVED, that Section 1 of Article 4 of the Bylaws be, and hereby is,
amended so that, as so amended, it shall read and provide as follows:
Section 1: Executive Committee. The board
may create an executive committee and appoint
three or more members to serve on it. The
committee as so constituted shall, except as
limited by law or by the board, have and may
exercise all of the authority of the board. The
directors so appointed shall serve at the
pleasure of the board.
FURTHER RESOLVED, that Subsection (d) of Section 4 of Article 6 of the
Bylaws be, and hereby is, amended so that, as so amended, it shall read
and provide as follows:
(d) Any two or more offices may be held by
the same person. The chairman shall be elected
from among the board of directors.
THE SEIBELS BRUCE GROUP, INC.
AMENDMENT OF BYLAWS
Adopted by the Board of Directors on March 7, 1995
Approved by the Shareholders on June 13, 1995
RESOLVED, that Section 6 of Article 8 of the Bylaws of
the Company be amended to read as follows:
Section 6: Indemnification and Insurance. The
Company shall indemnify Officers and Directors
of the Company and its subsidiaries to the extent
permitted by South Carolina law and may insure
such persons against liability arising out of or
relating to their employment by the Company in an
amount and according to such terms as the Board
deems prudent.
Exhibit 11.1
STATEMENT RE COMPUTATION OF PER SHARE EARNINGS
What follows is the calculation of earnings per share as presented in the income
statement for the year ended December 31, 1996:
Earnings per share and common equivalent share:
Basic Primary Fully - diluted
Earnings Earnings Earnings
Per Share Per Share Per Share
Net income $ 5,176 $ 5,176 $ 5,176
Investment income earned of excess
funds after repurchase - 566 696
Adjusted net income $ 5,176 $ 5,742 $ 5,872
Weighted average number of shares
outstanding 19,673 19,673 19,673
Common stock equivalents assumed
exercised - 10,790 10,790
Repurchased shares utilizing APB 15 20%
threshold - (4,934) (4,934)
Adjusted weighted average number of shares
outstanding 19,673 25,529 25,529
Earnings per share and common stock
equivalent $ 0.26 $ 0.22 $ 0.23
The calculation of earnings per share for the years ended December 31, 1995 and
1994 are not presented in this exhibit due to the fact that the computation can
be clearly determined from the material contained in Item 8. Financial
Statements.
Exhibit 21.1
SUBSIDIARIES OF REGISTRANT
The following is a listing of all subsidiaries of The Seibels Bruce Group, Inc.
as of December 31, 1996:
Subsidiary State or Jurisdiction of Incorporation
- -----------
Seibels Bruce & Company South Carolina
South Carolina Insurance Company South Carolina
Consolidated American Insurance Company South Carolina
Catawba Insurance Company South Carolina
Kentucky Insurance Company Kentucky
Agency Specialty of Kentucky, Inc. Kentucky
Seibels Bruce Specialty, Inc. South Carolina
Investors National Life Insurance
Company of S.C. South Carolina
Policy Finance Company South Carolina
FLT Plus, Inc. South Carolina
Seibels Bruce Service Corporation South Carolina
The financial statements of these subsidiaries are included in the Registrant's
consolidated financial statements.
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference of our report dated March 14, 1997,
with respect to the consolidated financial statements and
schedules of The Seibels Bruce Group, Inc., included in this
Annual Report (Form 10-K) for the year ended December 31,
1996 into the Company's previously filed Registration
Statements (File S-8 Nos. 333-14135, 333-15457, 2-70057, 2-
83595, 33-34973, 33-43618, 33-43601, and 2-48782).
ARTHUR ANDERSEN LLP
Columbia, South Carolina
March 14, 1997
Exhibit 28.1
(28.1) Information from reports furnished to state insurance
regulatory authorities. The attached exhibit includes the
Company's Schedule P as prepared for its 1996 Consolidated
Annual Statement which will be provided to state regulatory
authorities. The schedules have been prepared on a statutory
basis.
Schedule P as filed with the Securities and Exchange
Commission has been omitted from this copy. (They are
available upon request by writing the address shown on page
1.)
Exhibit 10.14
Federal Emergency Management Agency
Federal Insurance Administration
Financial Assistance/Subsidy Arrangement
(Appendix A - Part 62)
Purpose:
To assist the company in underwriting flood insurance using the
Standard Flood Insurance Policy
Accounting Data:
Pursuant to Section 1310 of the Act, a Letter of Credit shall be
issued
for payment as provided for herein from the National Flood
Insurance Fund
Effective Date:
October 1, 1996
Issued By:
Federal Emergency Management Agency, Federal Insurance
Administration,
Washington, DC 20472
Appendix A of Part 62
Financial Assistance/Subsidy Arrangement
ARTICLE I - FINDINGS, PURPOSE, AND AUTHORITY
Whereas, the Congress in its "Finding and Declaration of
Purpose" in the National Flood Insurance Act of 1968, as
amended, ("the Act") recognized the benefit of having the
National Flood Insurance Program (the Program) "carried out to
the maximum extent practicable by the private insurance
industry"; and
Whereas, the Federal Insurance Administration (FIA)
recognizes this Arrangement as coming under the provisions of
Section 1345 of the Act; and
Whereas, the goal of the FIA is to develop a program
with the insurance industry where, over time, some risk-bearing
role for the industry will evolve as intended by the Congress
(Section 1304 of the Act); and
Whereas, the insurer (hereinafter the "Company") under
this Arrangement shall charge rates established by the FIA; and
Whereas, this Arrangement will subsidize all flood policy
losses by the Company; and
Whereas, this Financial Assistance/Subsidy Arrangement
has been developed to enable any interested qualified insurer to
write flood insurance under its own name; and
Whereas, one of the primary objectives of the Program is
to provide coverage to the maximum number of structures at risk
and because the insurance industry has marketing access through
its existing facilities not directly available to the FIA, it has been
concluded that coverage will be extended to those who would not
otherwise be insured under the Program; and
Whereas, flood insurance policies issued subject to this
Arrangement shall be only that insurance written by the Company
in its own name under prescribed policy conditions and pursuant
to this Arrangement and the Act; and
Whereas, over time, the Program is designed to increase
industry participation, and, accordingly, reduce or eliminate
Government as the principal vehicle for delivering flood
insurance to the public; and
Whereas, the direct beneficiaries of this Arrangement
will be those Company policyholders and applicants for flood
insurance who otherwise would not be covered against the peril
of flood.
Now, therefore, the parties hereto mutually undertake the
following:
ARTICLE II - UNDERTAKINGS OF THE COMPANY
A. In order to be eligible for assistance under this
Arrangement the Company shall be responsible for:
1.0 Policy Administration, including
1.1 Community Eligibility/Rating Criteria
1.2 Policyholder Eligibility Determination
1.3 Policy Issuance
1.4 Policy Endorsements
1.5 Policy Cancellations
1.6 Policy Correspondence
1.7 Payment of Agents' Commissions
The receipt, recording, control, timely deposit and
disbursement of funds in connection with all the foregoing, and
correspondence relating to the above in accordance with the
Financial Control Plan requirements.
2.0 Claims processing in accordance with general
Company standards and the Financial Control Plan. Other
technical and policy material published by FEMA and FIA will
also provide guidance to the Company.
3.0 Reports
3.1 Monthly Financial Reporting and Statistical
Transaction Reporting shall be in accordance with the
requirements of National Flood Insurance Program Transaction
Record Reporting and Processing Plan for the Write Your Own
(WYO) Program and the Financial Control Plan for business
written under the WYO Program. These data shall be
validated/edited/audited in detail and shall be compared and
balanced against Company financial reports.
3.2 Monthly financial reporting shall be prepared in
accordance with the WYO Accounting Procedures.
B. The Company shall use the following time
standards of performance as a guide:
1.0 Application Processing - 15 days (Note: If the
policy cannot be mailed due to insufficient or erroneous
information or insufficient funds, a request for correction or
added monies shall be mailed within 10 days);
1.1 Renewal Processing - 7 days;
1.2 Endorsement Processing - 15 days;
1.3 Cancellation Processing - 15 days;
1.4 Claims Draft Processing - 7 days from completion
of file examination;
1.5 Claims Adjustment - 45 days average from receipt
of Notice of Loss (or equivalent) through completion of
examination.
1.6 For the elements of work enumerated above, the
elapsed time shown is from the date of receipt through the date of
mail out. Days means working days, not calendar days.
In addition to the standards for timely performance set
forth above, all functions performed by the Company shall be in
accordance with the highest reasonably attainable quality
standards generally utilized in the insurance and data processing
industries.
These standards are for guidance. Although no immediate
remedy for failure to meet them is provided under this
Arrangement, nevertheless, performance under these standards
and the marketing guidelines provided for in Section G. below
can be a factor considered by the Federal Insurance
Administrator (the Administrator) in requiring corrective action
by the Company, in determining the continuing participation of the
Company in the Program, or in taking other action, e.g., limiting
the Company's authority to write new business.
C. To ensure maximum responsiveness to the
National Flood Insurance Program's (NFIP) policyholders
following a catastrophic event, e.g., a hurricane, involving
insured wind and flood damage to policyholders, the Company
shall agree to the adjustment of the combined flood and wind
losses utilizing one adjuster under an NFIP-approved Single
Adjuster Program in the following cases and under procedures
issued by the Administrator:
1.0 Where the flood and wind coverage is provided
by the Company;
2.0 Where the flood coverage is provided by the
Company and the wind coverage is provided by a participating
State Property Insurance Plan, Windpool Association, Beach
Plan, Joint Underwriting Association, FAIR Plan, or similar
property insurance mechanism; and
3.0 Where the flood coverage is provided by the
Company and the wind coverage is provided by another property
insurer and the State Insurance Regulator has determined that
such property insurer shall, in the interest of consumers, facilitate
the adjustment of its wind loss by the adjuster engaged to adjust
the flood loss of the Company.
D. Policy Issuance
1.0 The flood insurance subject to this Arrangement
shall be only that insurance written by the Company in its own
name pursuant to the Act.
2.0 The Company shall issue policies under the
regulations prescribed by the Administrator in accordance with
the Act;
3.0 All such policies of insurance shall conform to the
regulations prescribed by the Administrator pursuant to the Act,
and be issued on a form approved by the Administrator;
4.0 All policies shall be issued in consideration of
such premiums and upon such terms and conditions and in such
States or areas or subdivisions thereof as may be designated by
the Administrator and only where the Company is licensed by
State law to engage in the property insurance business;
5.0 The Administrator may require the Company to
discontinue issuing policies subject to this Arrangement
immediately in the event Congressional authorization or
appropriation for the National Flood Insurance Program is
withdrawn.
E. The Company shall separate Federal flood insurance
funds from all other Company accounts, at a bank or banks of its
choosing for the collection, retention and disbursement of Federal
funds relating to its obligation under this Arrangement, less the
Company's expenses as set forth in Article III, and the operation
of the Letter of Credit established pursuant to Article IV All
funds not required to meet current expenditures shall be remitted
to the United States Treasury, in accordance with the provisions
of the WYO Accounting Procedures Manual.
F. The Company shall investigate, adjust, settle and
defend all claims or losses arising from policies issued under
this Arrangement. Payment of flood insurance claims by the
Company shall be binding upon the FIA.
G. The Company shall market flood insurance
policies in a manner consistent with the marketing guidelines
established by the Federal Insurance Administration.
ARTICLE III - LOSS COSTS, EXPENSES, EXPENSE
REIMBURSEMENT, AND PREMIUM REFUNDS
A. The Company shall be liable for operating,
administrative and production expenses, including any State
premium taxes, dividends, agent's commissions or any other
expense of whatever nature incurred by the Company in the
performance of its obligations under this Arrangement but
excluding surcharges on flood insurance premium and guaranty
fund assessments.
B. The Company shall be entitled to withhold, on a
provisional basis, as operating and administrative expenses,
including agents' or brokers' commissions, an amount from the
Company's written premium on the policies covered by this
Arrangement in reimbursement of all of the Company's
marketing, operating and administrative expenses, except for
allocated and unallocated loss adjustment expenses described in
Section C. of this Article, which amount shall be 32.6% of the
Company's written premium on the policies covered by this
Arrangement. The final amount retained by the Company shall be
determined by an increase or decrease depending on the extent to
which the Company meets the marketing goals for the 1996-1997
Arrangement year contained in marketing guidelines established
pursuant to Article II. G.
The adjustment in the amount retained by the Company
shall be made after the end of the 1996-1997 Arrangement year.
Any decrease from 32.6% made as a result of a Company not
meeting its marketing goals shall be directly related to the extent
to which the Company's goal was not achieved, but shall not
exceed two (2) percentage points (providing for a minimum of
30.6%).
The increase, which shall be distributed among the
Companies exceeding their marketing goals, shall be drawn from
a pool composed of the difference between 32.6% of all WYO
Companies' written premium in Arrangement year 1996-1997
and the total amount, prior to the increase, provided to the
Companies on the basis of the extent to which they have met their
marketing goals. A distribution formula will be developed and
distributed to WYO Companies that will consider the extent to
which the Company has exceeded its goal and the size of the
Company's book of business in relation to the total number of
WYO policies. The amount of any increase shall be paid
promptly to the Company after the end of the 1996-1997
Arrangement year.
The Company, with the consent of the Administrator as to
terms and costs, shall be entitled to utilize the services of a
national rating organization, licensed under state law, to assist the
FIA in undertaking and carrying out such studies and
investigations on a community or individual risk basis, and in
determining more equitable and accurate estimates of flood
insurance risk premium rates as authorized under the National
Flood Insurance Act of 1968, as amended. The Company shall
be reimbursed in accordance with the provisions of the WYO
Accounting Procedures Manual for the charges or fees for such
services.
C. Loss Adjustment Expenses shall be reimbursed
as follows:
1. Unallocated loss adjustment shall be an expense
reimbursement of 3.3% of the incurred loss (except that it does
not include "incurred but not reported").
2. Allocated loss adjustment expense shall be
reimbursed to the Company pursuant to a "Fee Schedule"
coordinated with the Company and provided by the
Administrator.
3. Special allocated loss expenses shall be
reimbursed to the Company in accordance with guidelines
issued by the Administrator.
D.l. Loss payments under policies of flood insurance
shall be made by the Company from funds retained in the bank
account(s) established under Article II, Section E and, if such
funds are depleted, from funds derived by drawing against the
Letter of Credit established pursuant to Article IV.
2. Loss payments will include payments as a result
of awards or judgments for damages arising under the scope of
this Arrangement, policies of flood insurance issued pursuant to
this Arrangement, and the claims processing standards and
guides set forth at Article II, Section A, 2.0 of this Arrangement.
Prompt notice of any claim for damages as to claims processing
or other matters arising outside the scope of this section (D)(2)
shall be sent to the Administrator along with a copy of any
material pertinent to the claim for damages arising outside of the
scope of the matters set forth in this section (D)(2).
Following receipt of notice of such claim, the General
Counsel (OGC), FEMA, shall review the cause and make a
recommendation to FIA as to whether the claim is grounded in
actions by the Company that are significantly outside the
provisions of this Section (D)(2). After reviewing the General
Counsel's recommendation, the Administrator will make his/her
decision and the Company will be notified, in writing, within
thirty (30) days of the General Counsel's recommendation, if the
decision is that any award or judgment for damages arising out
of such actions will not be recognized under Article III of this
Arrangement as a reimbursable loss cost, expense or expense
reimbursement. In the event that the Company wishes to petition
for reconsideration of the notification that it will not be
reimbursed for the award or judgment made under the above
circumstances, it may do so by mailing, within thirty days of the
notice declining to recognize any such award or judgment as
reimbursable under Article III, a written petition to the
Chairman of the WYO Standards Committee established under
the Financial Control Plan. The WYO Standards Committee
will, then, consider the petition at its next regularly scheduled
meeting or at a special meeting called for that purpose by the
Chairman and issue a written recommendation to the
Administrator, within thirty days of the meeting. The
Administrator's final determination will be made, in writing, to
the Company within thirty days of the recommendation made by
the WYO Standards Committee.
E. Premium refunds to applicants and policyholders
required pursuant to rules contained in the National Flood
Insurance Program (NFIP) "Flood Insurance Manual" shall be
made by the Company from Federal flood insurance funds
referred to in Article II, Section E. and, if such funds are
depleted, from funds derived by drawing against the Letter of
Credit established pursuant to Article IV.
ARTICLE IV - UNDERTAKINGS OF THE
GOVERNMENT
A. Letter(s) of Credit shall be established by the
Federal Emergency Management Agency (FEMA) against which
the Company may withdraw funds daily, if needed, pursuant to
prescribed procedures implemented by FEMA. The amounts of
the authorizations will be increased as necessary to meet the
obligations of the Company under Article III, Sections C, D, and
E. Request for funds shall be made only when net premium
income has been depleted. The timing and amount of cash
advances shall be as close as is administratively feasible to the
actual disbursements by the recipient organization for allowable
Letter of Credit expenses.
Request for payment on Letters of Credit shall not
ordinarily be drawn more frequently than daily nor in amounts
less than $5,000, and in no case more than $5,000,000 unless so
stated on the Letter of Credit. This Letter of Credit may be
drawn by the Company for any of the following reasons:
1. Payment of claim as described in Article 111,
Section D;
2. Refunds to applicants and policyholders for
insurance premium overpayment, or if the application for
insurance is rejected or when cancellation or endorsement of a
policy results in a premium refund as described in Article III,
Section E; and
3. Allocated and unallocated Loss Adjustment
Expenses as described in Article III, Section C.
B. The FIA shall provide technical assistance to the
Company as follows:
1. The FIA's policy and history concerning
underwriting and claims handling.
2. A mechanism to assist in clarification of
coverage and claims questions.
3. Other assistance as needed.
ARTICLE V - COMMENCEMENT AND TERMINATION
A. Upon signature of authorized officials for both
the Company and the FIA, this Arrangement shall be effective
for the period October 1 through September 30. The FIA shall
provide financial assistance only for policy applications and
endorsements accepted by the Company during this period
pursuant to the Program's effective date, underwriting and
eligibility rules.
B. By June 1, of each year, the FIA shall publish in
the Federal Register and make available to the Company the
terms for the re-subscription of this Financial
Assistance/Subsidy Arrangement. In the event the Company
chooses not to re-subscribe, it shall notify the FIA to that effect
by the following July 1.
C. In the event the Company elects not to participate
in the Program in any subsequent fiscal year, or the FIA chooses
not to renew the Company's participation, the FIA, at its option,
may require (1) the continued performance of this entire
Arrangement for a period not to exceed one (1) year following
the original term of this Arrangement, or any renewal thereof, or
(2) the transfer to the FIA of:
a. All data received, produced, and maintained
through the life of the Company's participation in the Program,
including certain data, as determined by FIA, in a standard
format and medium; and
b. A plan for the orderly transfer to the FIA of any
continuing responsibilities in administering the policies issued
by the Company under the Program including provisions for
coordination assistance; and
c. All claims and policy files, including those
pertaining to receipts and disbursements that have occurred
during the life of each policy In the event of a transfer of the
services provided, the Company shall provide the FIA with a
report showing, on a policy basis, any amounts due from or
payable to insureds, agents, brokers, and others as of the
transition date.
D. Financial assistance under this Arrangement may
be canceled by the FIA in its entirety upon 30 days written
notice to the Company by certified mail stating one of the
following reasons for such cancellation: (1) Fraud or
misrepresentation by the Company subsequent to the inception of
the contract, or (2) nonpayment to the FIA of any amount due the
FIA. Under these very specific conditions, the FIA may require
the transfer of data as shown in Section C., above. If transfer is
required, the unearned expenses retained by the Company shall
be remitted to the FIA. In such event the Government will
assume all obligations and liabilities owed to policyholders
under such policies arising before and after the date of transfer.
E. In the event the Act is amended, or repealed, or
expires, or if the FIA is otherwise without authority to continue
the Program, financial assistance under this Arrangement may be
canceled for any new or renewal business, but the Arrangement
shall continue for policies in force that shall be allowed to run
their term under the Arrangement.
F. In the event that the Company is unable to, or
otherwise fails to, carry out its obligations under this
Arrangement by reason of any order or directive duly issued by
the Department of Insurance of any Jurisdiction to which the
Company is subject, the Company agrees to transfer, and the
Government will accept, any and all WYO policies issued by
the Company and in force as of the date of such inability or
failure to perform. In such event the Government will assume
all obligations and liabilities owed to policyholders under such
policies arising before and after the date of transfer and the
Company will immediately transfer to the Government all funds
in its possession with respect to all such policies transferred
and the unearned portion of the Company expenses for operating,
administrative and loss adjustment on all such policies.
ARTICLE VI - INFORMATION AND ANNUAL
STATEMENTS
The Company shall furnish to FEMA such summaries
and analyses of information including claim file information in
its records as may be necessary to carry out the purposes of the
National Flood Insurance Act of 1968, as amended, in such form
as the FIA, in cooperation with the Company, shall prescribe.
The Company shall be a property/casualty insurer domiciled in
a State or territory of the United States. Upon request, the
Company shall file with the FIA a true and correct copy of the
Company's Fire and Casualty Annual Statement, and Insurance
Expense Exhibit or amendments thereof, as filed with the State
Insurance Authority of the Company's domiciliary State.
ARTICLE VII - CASH MANAGEMENT AND
ACCOUNTING
A. FEMA shall make available to the Company
during the entire term of this Arrangement and any continuation
period required by FIA pursuant to Article V, Section C , the
Letter of Credit provided for in Article IV drawn on a
repository bank within the Federal Reserve System upon which
the Company may draw for reimbursement of its expenses as set
forth in Article IV that exceed net written premiums collected by
the Company from the effective date of this Arrangement or
continuation period to the date of the draw.
B. The Company shall remit all funds, including
interest, not required to meet current expenditures to the United
States Treasury, in accordance with the provisions of the WYO
Accounting Procedures Manual or procedures approved in
writing by the FIA.
C. In the event the Company elects not to participate
in the Program in any subsequent fiscal year, the Company and
FIA shall make a provisional settlement of all amounts due or
owing within three months of the termination of this
Arrangement. This settlement shall include net premiums
collected, funds drawn on the Letter of Credit, and reserves for
outstanding claims. The Company and FIA agree to make a final
settlement of accounts for all obligations arising from this
Arrangement within 18 months of its expiration or termination,
except for contingent liabilities that shall be listed by the
Company. At the time of final settlement, the balance, if any,
due the FIA or the Company shall be remitted by the other
immediately and the operating year under this Arrangement shall
be closed.
ARTICLE VIII - ARBITRATION
If any misunderstanding or dispute arises between the
Company and the FIA with reference to any factual issue under
any provisions of this Arrangement or with respect to the FIA's
nonrenewal of the Company's participation, other than as to
legal liability under or interpretation of the standard flood
insurance policy, such misunderstanding or dispute may be
submitted to arbitration for a determination that shall be binding
upon approval by the FIA. The Company and the FIA may agree
on and appoint an arbitrator who shall investigate the subject of
the misunderstanding or dispute and make a determination. If the
Company and the FIA cannot agree on the appointment of an
arbitrator, then two arbitrators shall be appointed, one to be
chosen by the Company and one by the FIA.
The two arbitrators so chosen, if they are unable to reach
an agreement, shall select a third arbitrator who shall act as
umpire, and such umpire's determination shall become final only
upon approval by the FIA.
The Company and the FIA shall bear in equal shares all
expenses of the arbitration. Findings, proposed awards, and
determinations resulting from arbitration proceedings carried
out under this section, upon objection by FIA or the Company,
shall be inadmissible as evidence in any subsequent proceedings
in any court of competent jurisdiction.
This Article shall indefinitely succeed the term of this
Arrangement.
ARTICLE IX - ERRORS AND OMISSIONS
The parties shall not be liable to each other for damages
caused by ordinary negligence arising out of any transaction or
other performance under this Arrangement, nor for any
inadvertent delay, error, or omission made in connection with
any transaction under this Arrangement, provided that such
delay, error, or omission is rectified by the responsible party as
soon as possible after discovery.
However, in the event that the Company has made a
claim payment to an insured without including a mortgagee (or
trustee) of which the Company had actual notice prior to making
payment, and subsequently determines that the mortgagee (or
trustee) is also entitled to any part of said claim payment, any
additional payment shall not be paid by the Company from any
portion of the premium and any funds derived from any Federal
Letter of Credit deposited in the bank account described in
Article II, section E. In addition, the Company agrees to hold
the Federal Government harmless against any claim asserted
against the Federal Government by any such mortgagee (or
trustee), as described in the preceding sentence, by reason of
any claim payment made to any insured under the circumstances
described above.
ARTICLE X - OFFICIALS NOT TO BENEFIT
No Member or Delegate to Congress, or Resident
Commissioner, shall be admitted to any share or part of this
Arrangement, or to any benefit that may arise therefrom; but this
provision shall not be construed to extend to this Arrangement if
made with a corporation for its general benefit.
ARTICLE XI - OFFSET
At the settlement of accounts the Company and the FIA
shall have, and may exercise, the right to offset any balance or
balances, whether on account of premiums, commissions, losses,
loss adjustment expenses, salvage, or otherwise due one party to
the other, its successors or assigns, hereunder or under any other
Arrangements heretofore or hereafter entered into between the
Company and the FIA. This right of offset shall not be affected
or diminished because of insolvency of the Company.
All debts or credits of the same class, whether
liquidated or unliquidated, in favor of or against either party to
this Arrangement on the date of entry, or any order of
conservation, receivership, or liquidation, shall be deemed to be
mutual debts and credits and shall be offset with the balance
only to be allowed or paid. No offset shall be allowed where a
conservator, receiver, or liquidator has been appointed and
where an obligation was purchased by or transferred to a party
hereunder to be used as an offset.
Although a claim on the part of either party against the
other may be unliquidated or undetermined in amount on the date
of the entry of the order, such claim will be regarded as being in
existence as of the date of such order and any credits or claims
of the same class then in existence and held by the other party
may be offset against it.
ARTICLE XII - EQUAL OPPORTUNITY
The Company shall not discriminate against any
applicant for insurance because of race, color, religion, sex,
age, handicap, marital status, or national origin.
ARTICLE XIII - RESTRICTION ON OTHER FLOOD
INSURANCE
As a condition of entering into this Arrangement, the
Company agrees that in any area in which the Administrator
authorizes the purchase of flood insurance pursuant to the
Program, all flood insurance offered and sold by the Company to
persons eligible to buy pursuant to the Program for coverages
available under the Program shall be written pursuant to this
Arrangement.
However, this restriction applies solely to policies
providing only flood insurance. It does not apply to policies
provided by the Company of which flood is one of the several
perils covered, or where the flood insurance coverage amount is
over and above the limits of liability available to the insured
under the Program.
ARTICLE XIV - ACCESS TO BOOKS AND RECORDS
The FIA and the Comptroller General of The United
States, or their duly authorized representatives, for the purpose
of investigation, audit, and examination shall have access to any
books, documents, papers and records of the Company that are
pertinent to this Arrangement. The Company shall keep records
that fully disclose all matters pertinent to this Arrangement,
including premiums and claims paid or payable under policies
issued pursuant to this Arrangement. Records of accounts and
records relating to financial assistance shall be retained and
available for three (3) years after final settlement of accounts,
and to financial assistance, three (3) years after final adjustment
of such claims. The FIA shall have access to policyholder and
claim records at all times for purposes of the review, defense,
examination, adjustment, or investigation of any claim under a
flood insurance policy subject to this Arrangement.
ARTICLE XV - COMPLIANCE WITH ACT AND
REGULATIONS
This Arrangement and all policies of insurance issued
pursuant thereto shall be subject to the provisions of the
National Flood Insurance Act of 1968, as amended, the Flood
Disaster Protection Act of 1973, as amended, the National
Flood Insurance Reform Act of 1994, and Regulations issued
pursuant thereto and all Regulations affecting the work that are
issued pursuant thereto, during the term hereof.
ARTICLE XVI - RELATIONSHIP BETWEEN THE
PARTIES (FEDERAL GOVERNMENT AND COMPANY)
AND THE INSURED
Inasmuch as the Federal Government is a guarantor
hereunder, the primary relationship between the Company and
the Federal Government is one of a fiduciary nature, i.e., to
assure that any taxpayer funds are accounted for and
appropriately expended.
The Company is not the agent of the Federal
Government. The Company is solely responsible for its
obligations to its insured under any flood policy issued pursuant
hereto.
Notice of Acceptance Form 1996-1997
Federal Emergency Management Agency
Federal Insurance Administration
Financial Assistance/Subsidy Arrangement (Arrangement)
WHEREAS, in 1996, there was published a Notice of
Offer by the Federal Emergency Management Agency to enter
into a Financial Assistance/Subsidy Arrangement (hereinafter
the Arrangement).
WHEREAS, the above cited Arrangement, as published
in an reprinted from the Federal Register, does not provide
sufficient space to type in the name of the Company.
WHEREAS, the Arrangement may include several
individual companies within a Company Group and the
Arrangement as published in and reprinted from the Federal
Register does not provide sufficient space to type in a list of
companies.
THEREFORE, the parties hereby agree that this Notice
of Acceptance form is incorporated into and is an integral part
of the entire Arrangement and is substituted in place of the
signature block contained in the Federal Register under Article
XVI of the Arrangement. The above mentioned Arrangement is
effective in the States in which the insurance company(ies)
listed below is (are) duly licensed to engage in the business of
property insurance. List all companies covered by this
Arrangement:
SOUTH CAROLINA INSURANCE COMPANY
CATAWBA INSURANCE COMPANY
KENTUCKY INSURANCE COMPANY
In witness whereof, the parties hereto have accepted this
Arrangement on this 15th day of August, 1996.
The United States of America
Federal Emergency Management Agency
By: /s/
By: /s/ Ernst N. Csiszar
Print Name: Ernst N. Csiszar Title: Federal
Insurance Administrator
Title: President & Chief Executive Officer
EXHIBIT 10.13
Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment.
MANAGING GENERAL AGENCY AGREEMENT
THIS AGREEMENT is effective January 1, 1996 and
continues in force until terminated per Agreement and is entered
into by and between GENERALI - U.S. BRANCH, hereinafter
referred to as "Company" and SEIBELS BRUCE &
COMPANY and AGENCY SPECIALTY OF KENTUCKY,
INC., managing general agent, hereinafter referred to as
"Agent".
In consideration of the covenants, conditions and agreements
herein contained, the parties hereto agree as follows:
ARTICLE 1
Appointment, Authority and Duties of Agency
1. Company does hereby appoint Agent for the production,
underwriting, servicing, and administration of the types, lines,
and classes of business outlined in Addendum 1 of this
agreement, subject always to the restrictions imposed upon
Company and Agent under the insurance laws and regulations of
each State, and in accordance with the rates, filings, forms,
procedures, and underwriting guidelines governing the
acceptance of such business, all as filed, directed, and
promulgated by the Company from time to time.
2. Agent is authorized by Company to solicit, underwrite,
and bind coverages authorized herein and in accordance with
Addendum 1; to exercise underwriting judgment and accept or
reject insurance applications in accordance with the Company's
underwriting guidelines; to assemble, type and otherwise
prepare policies, to make proper arrangements for the
countersigning of all policies where required; to issue policies
and endorsements on forms approved by the Company; utilizing
rates filed or authorized by the Company; to price and rate
individual risks in accordance with the Company's authorization
and underwriting guidelines and the Company's filed rates; the
Agent will on behalf of the Company, prepare and make all rate
and policy filings with the appropriate regulatory bodies, to
cancel such policies subject to and in compliance with
applicable laws and regulations, and give notice of cancellation
and any required notice of non-renewal to all parties entitled; to
bill for and collect insurance premiums, hold them in a fiduciary
capacity in a bank which is a member of the Federal Reserve
System for the Company; and to report upon and remit premiums
to the Company; to calculate and refund return premium; to
handle claims arising under such insurance; and to otherwise
administer upon and service such business; and Agent agrees to
pay and perform the same faithfully and diligently, to the best of
its knowledge, skill, and judgment, and to comply promptly with
instructions pertaining thereto received from the Company
during the period of this Agreement.
3. Agent shall be responsible for all policies entrusted to it
by Company, whether issued or not, and shall issue policies
only in numerical sequence. Agent shall not release blank
policies without the prior written approval of Company. Agent
shall maintain all voided policies on behalf of the Company.
4. Agent is authorized to conduct its operations on behalf of
the Company only in the states and to bind insurance only of
insureds and risks that are located in states listed in Addendum
1.
5. Agent agrees that all Commercial Lines business written
will be on behalf of Generali-US Branch and Agent will not
write such business for or on behalf of any other company unless
declined by the Company in the territories specified in
Addendum #1 without prior written approval.
6. Company and Agent agree to a mutually exclusive
arrangement for all commercial lines business in the territories
specified in Addendum #1 for a period of five (5) years
commencing with inception of this Agreement. Company has the
right to approve any carrier contracted by the agent for non-
competing commercial business.
7. Agent agrees that if Agent appoints sub-producers on
behalf of the Company, Agent shall do so only under a written
sub-producer agreement, the form of which has been approved
in writing by the Company (refer to Addendum #3). Such
agreement shall contain a warranty that the sub-producer and any
employee authorized to solicit or bind insurance possesses
errors and omission insurance, a valid agent's license in such
jurisdiction in which he is being authorized to write, and that
such licenses are not now and have never been the subject of any
disciplinary action, and that the sub-producer and such
employees are not restricted or prohibited in any manner from
acting under the sub-producer agreement. Agent agrees to notify
the Company of the names of the sub-producers the Agent
appoints promptly upon such appointment by Agent. Any sub-
producer so appointed shall only be authorized to conduct its
operations in the states authorized in Addendum 1 on risks
located in as per Addendum 1. The Agent is solely responsible
for payment of all commissions due to sub-producers and any
countersignature fees as may be due.
8. Agent shall not make any representation to any agent,
broker, producer, applicant or insured regarding coverage under
policies issued or to be issued hereunder which is inconsistent
with the actual terms and conditions of such policies.
9. Agent shall maintain a staff of professional, competent
and trained personnel, supplies and equipment for the purpose of
performing its duties hereunder and shall use its best efforts to
serve the Company faithfully, to promote and safeguard the best
interests of the Company and to perform all acts necessary to
ensure the efficient, profitable, and proper conduct of the subject
business on behalf of the Company.
10. Agent agrees that as a result of a transfer of ownership to
an unaffiliated Company representing more than 50% of the
outstanding shares of Seibels Bruce & Company, Company has
the right to purchase the book of business or cancel this
Agreement in compliance with state insurance regulations.
Should the right to purchase the existing book of business be
invoked, Company shall submit a proposed purchase price. In
the event agreement between Company and Agent cannot be
reached, within 30 days from the Company invoking the right of
purchase, a mutually agreed upon independent party shall be
appointed to determine the purchase price. In the event that the
parties do not agree with the purchase price established by the
independent party, then agreement may be canceled in
compliance with Article IX - Termination.
11. If Agent is declared financially insolvent, impaired or
placed in rehabilitation by any Insurance Department or
regulatory authority, ownership of the commercial book of
business described in Addendum #1 shall immediately transfer
to the Company at no cost.
ARTICLE II
Premium Liability and Accounting
1. Agent shall account for and be liable to Company for all
written premiums owed to Company by insureds on business
produced under this Agreement.
2. All premiums collected by Agent on business produced
hereunder, net of commissions allowed in accordance with
Addendum 2 to this Agreement, are the property of the Company
and shall be immediately deposited and held by Agent as trustee
for the Company in a fiduciary account until remitted to the
Company as set forth in Provision 3 of this Article II. Interest
bearing accounts are permitted; and all interest earned as result
of Agent holding funds as trustee for the Company shall be
property of Agent.
3. Within thirty (30) days after the close of each month the
Agent shall render the monthly account current specified in
Article IV, and the balance due thereunder whether or not
collected by Agent shall be payable by Agent within sixty (60)
days after the close of the month reported.
4. If an insured under a policy written by Agent shall be
entitled to the return of premium because of policy cancellation
or for any other reason, the Agent shall in the next account return
to Company the pro rata portion of the commissions applicable
to such return premium at the same rate originally retained by or
paid to Agent; provided, however, that if the premium return
becomes due before the Agent has remitted the premium to
Company, Agent shall return the premium, including the pro rata
portion of the commissions, to the policyholder.
5. Premium taxes due on premium written under this
Contract shall be the responsibility of the Company, however,
Agent will likewise be responsible for any premium tax liability
incurred arising from fees, etc., which are retained by Agent.
ARTICLE III
Claims Handling
1. The Agent shall be designated the Company's claims
representative for the business written under this Agreement.
Subject to criteria established by the Company and revised on
an on-going basis, the Agent shall report to Company all claims
which arise from business written hereunder. The Agent will
promptly upon receipt of such notice or information however
obtained or received, forward to the Company immediately all
letters, legal documents, or other written information received
pertaining thereto and, upon the request of the Company, shall
give to the Company further details of any claim.
2. Subject to Paragraph 3 of this Article, Agent will act as
the Company's designated claims representative for the
monitoring, supervision, reporting and handling of all claims
arising out of policies issued by Agent hereunder.
3. Agent shall handle claims on behalf of the Company
pursuant to the following general terms and conditions:
a. Subject to subparts (b) (c) (d) (e) and (f) of this
provision 3, Agent will diligently pursue and supervise
investigation, appraisal, adjustment and secure all rights of
salvage and subrogation or other recovery arising under such
claims. All salvage and subrogation funds received by Agent
shall be remitted to Company in the very next premium
remittance to the Company. All adjusters will be licensed
where so required by law.
b. In the course of such duties, Agent will (1) conduct an
investigation of each reported claim; (2) record and report each
claim promptly to the Company with a recommended reserve;
(3) maintain a file for each reported claim, which shall be
available for inspection, review and/or copying by the Company
or its duly authorized representatives; (4) perform reasonable
and necessary administrative and clerical work in connection
with reported claims which, subject to subparts (c) and (e) of
this provision 3, shall include preparation of drafts and
vouchers, compromises, releases, agreements and any other
documents reasonably necessary to finalize a claim; (5) provide
to the Company ongoing review and updating of recommended
reserves to include any changes; (6) coordinate investigated or
litigated claims with counsel on the negotiation of claims
settlement; (7) record and report promptly to the Company each
loss and allocated loss expense payment, utilizing Company
claims drafts and coding procedures; (8) consult with the
Company on sensitive claims; (9) periodically review the
development of its claims handling procedures with the
Company or its duly authorized representatives to identify
problems and recommended corrective action; and (10) exercise
reasonable care at all times in the performance of its duties
hereunder.
c. Agent will comply with limitations described in
Addendum 1 of this Agreement on the amount of Agent's draft
authority, and obtain prior Company written approval for
payments exceeding such authority.
d. Agent will report as soon as practical to Company: (1)
All reports of serious injury, including but not limited to
fatalities, burns, amputations, paraplegia, quadriplegia , brain
stem injury, etc. (2) all claims in which suit has been or is
expected to be filed, (3) all Insurance Department complaints,
(4) matters involving questions of policy coverage, and (5)
matters involving Reservation of Rights.
e. Company shall have the unqualified right to specify,
approve or disapprove counsel and independent adjusters that
Agent is or is not allowed to use for business written on behalf
of Company and to place limitations on the amount of work
assigned to each. The Company shall be the sole and final judge
of the acceptability of any denial of, or any compromise or
settlement involving, or coverage issue, or outstanding reserve
with respect to any claim.
f. Legal Counsel for the Company involving matters arising
out of the policies of insurance written pursuant to this
Agreement will be selected by the Agent subject to approval by
the Company. The expense related to litigation and legal
representation shall be borne by the Company.
4. Company may conduct claim audits from time to time,
with the full cooperation of Agent.
5. Company will promptly provide Agent with drafts with
which Agent shall pay claims on its behalf consistent with
authority extended in Addendum I.
6. Any claim file open after six (6) months shall have
pertinent portions sufficient to evaluate exposure copied and
sent to the Company.
ARTICLE IV
Records and Reporting
1. The agent shall maintain a complete record of all
transactions involving the interests of the Company and its
policyholders, including, but not limited to, copies of policies
and endorsements, billing and accounting transactions, and
notices of all claims or occurrences representing potential
claims. Upon request Agent shall provide copy of any and all
records requested by Company.
2. Agent will report to Company, in accordance with
Company's instructions, as expeditiously as practicable, all
risks bound and policies issued with Company, and all
endorsements, cancellations, renewals and similar actions that
affect or change a risk previously bound with Company.
3. Agent shall assist Company in monitoring, recording,
and reporting the business underwritten for Company by Agent.
Within thirty (30) days after the end of each month, Agent will
furnish the company with the following reports:
A. MONTHLY:
1) Accounts current consisting of:
A) Total written premiums, being: gross premiums
less return premium.
B) Total commissions paid to Agent.
C) Facultative premiums.
D) Facultative commissions.
E) Non-premium fees collected by Agent; such as
policy fees (Kentucky Surcharge Tax, Kentucky
Municipal Licenses Taxes, etc.)
F) The paid amount of surveys and underwriting
reports exceeding $10,000 per month.
G) Balance due being: (A) - (B) - (C) + (D) + (E) -
(F).
H) Losses (claims) and Allocated Loss Adjustment
expenses paid during month.
2) Reserve for losses outstanding and allocated loss
adjustment expense reserve at the end of the month.
3) Reserve for unearned premium at end of month.
B) IN ADDITION TO THE MONTHLY REPORTS AS
DESCRIBED:
1. The Agent in a timely manner will provide the Company
with data of the policies and claims which will provide the
necessary information for the Company to record the data
correctly on its books as required by the National Association of
Insurance Commissioners and/or state insurance departments
(NAIC Annual Statement). The Company may request the Agent
to provide a report of premiums in force by policy number,
effective date, and policy term.
2. Upon request by the Company, Agent will provide the
Company with (1) additional analysis, reports and services, and
(2) narrative and analytical reports of major and litigated
claims. Agent shall, in addition, provide the Company with an
annual loss analysis by underwriting year and claims register
providing date of loss, individual claim paid loss and LAE and
change in outstanding loss and LAE information on a claim-by-
claim basis as well as open and closed claim count data as
required for Schedule P filings. Such information shall be made
available to the Company on diskette.
3. The monthly premium and loss reports referred to in
Article IV(A) shall be reported in underwriting year format.
4. The Agent, at the Company's request, will provide
premium and loss data in a format that will allow the Company
to report premium and loss data to its reinsurers.
ARTICLE V
Indemnity
1. Agent hereby agrees to fully indemnify, defend, and save
harmless the Company and its directors, officers and employees
of and from any and all claims, demands, suits, fines and
penalties, expenses, costs and attorney's fees, made or assessed
against or incurred by the Company or the officers, directors, or
affiliates of the Company, that may arise by reason of any act,
error, or omission of or any misrepresentation by Agent, its
officers or employees.
2. Company hereby agrees to fully indemnify, defend, and
save harmless the Agent and its Directors, officers and
employees of and from any and all claims, demands, suits, fines
and penalties, expenses, costs and attorney's fees, made or
assessed against or incurred by the Agent or the officers,
directors or affiliates of the Agent, that may arise by reason of
any act, error, or omission of or any misrepresentation by
Company, its officers or employees.
3. Promptly after receipt by a party (the "indemnified
party") of notice of any claim or other matter (the "Claim") in
respect of which the indemnified party may seek indemnification
from the other party hereto (the "indemnifying party") pursuant
to this Article V, the indemnified party shall notify the
indemnifying party of the Claim, and shall thereafter promptly
convey all further communications and information in respect
thereof to the indemnifying party. The indemnifying party shall,
if it so elects, have sole control at its own expense over the
contest, settlement, adjustment or compromise (the
"Resolution") of the Claim in respect of which this Article V
requires it to indemnify the indemnified party, and the
indemnified party shall cooperate with the reasonable requests
of the indemnifying party in connection with the Resolution;
provided, however, that (i) the indemnified party may, if it so
elects, employ counsel at its own expense to assist in the
handling of such claim, action, suit or proceeding, and (ii) the
indemnified party's consent must be obtained before entering
into any settlement, adjustment or compromise of the claim, if
pursuant thereto or as a result thereof injunctive relief or
criminal sanctions would be imposed upon the indemnified
party.
ARTICLE VI
Auditing
1 As respects business subject to this Agreement,
Company or its duly authorized representatives shall have the
continuing right to conduct audits of any and every aspect of
Agent's operations and accounts which pertain to this
Agreement, at any time and from time to time, during normal
business hours. Agent shall in all things cooperate and render
assistance in such examination. Agent shall make copies of any
such books, accounts, and records and shall furnish them to
Company, as may be reasonably requested by Company. Agent
will provide suitable office space for a representatives of the
Company in carrying out inspections and audits.
ARTICLE VII
Observance of Insurance Laws and Licensing
1. Agent warrants and agrees that it shall have or obtain,
prior to solicitation or acceptance of any business on behalf of
the Company, a license as agent, where required, in such
jurisdictions Agent has been authorized to write on behalf of the
Company. Agent represents that such licenses are not now and
have never been the subject of any disciplinary action, and that it
is not restricted or prohibited in any manner from acting
hereunder.
2. Agent undertakes to observe and comply with all
applicable state laws regarding licensing of Agent and sub-
producers and the performance of all duties hereunder, and to
pay all costs relating thereto. Agent also agrees to be solely
responsible for compliance by all its sub-producers with all
applicable laws and regulations.
3. In the event Agent is notified that its license or
authorization to engage in the insurance business has been or is
threatened to be revoked or suspended by any State Insurance
Department or other public authority, Agent shall thereupon
immediately notify Company and cease and desist from binding
or issuing any further insurance coverage under this Agreement
in the affected State or jurisdiction, but shall continue to provide
all other services aforesaid on business produced prior thereto.
Agent shall then take all necessary action required to fully
restore its license or authorization. Agent should also notify the
Company whenever it receives notice of any regulatory action or
sanction charged against the Company or becomes apprised of
any claims asserted by any third party against either party to this
Agreement.
4. Company reserves the right to prior approval of all rates
and forms. Company may, at its discretion, authorize Agent to
make filings of rates and forms on its behalf.
5. Upon request of Company, Agent shall make filings and
secure approval of all rates, rules and forms that are required by
and are in conformity with applicable laws and regulations and
shall promptly reimburse the Company upon demand for any
fines, penalties, charges or assessments levied against the
Company for not using approved filings, forms or rates. In the
event fines and penalties are assessed as a result of market
conduct examinations, Agent shall indemnify Company for 50%
of such fines or penalties within thirty (30) days after
notification of such fines and penalties.
ARTICLE VIII
Ownership of Records and Supplies
1. In the event of termination of this Agreement, the use and
control of policy expirations and renewals shall remain the
property of the Agent and be left in its possession; provided,
however, that if Agent has not accounted for and paid to
Company all monies owed Company, in accordance with the
terms of this agreement, then the records of the Agent and the use
and control of policy expirations and renewals shall vest in the
Company and shall be forwarded to the Company immediately
upon written request therefor.
2. All policy forms, records, and other like supplies
furnished by the Company to Agent shall remain the property of
the Company and shall be returned immediately upon request.
Upon termination of this Agreement or the Agent's authority
hereunder, the Agent, shall immediately return all such property
to the Company or to its designated representative.
3. Ownership of all claim files, notices, etc. shall be vested
in the Company. Agent shall be custodian of such records and
shall send to Company all such records as directed. The Agent
shall have access to all claim files sent to the Company.
ARTICLE IX
Termination
1. Irrespective of Article I, Paragraph 6, either party has
the privilege to terminate this agreement at will, with or without
cause, at any time upon the expiration of at least ONE
HUNDRED EIGHTY (180) days from the date of mailing of
written notice sent by prepaid registered or certified mail to the
other party.
2. In the event of a breach of any duty or obligation under
this Agreement by either party, the other party may, at its sole
election, terminate this Agreement by written notice sent at least
fourteen (14) days prior to the termination date stated in the
notice. Said notice shall be conveyed by prepaid certified or
registered mail to the other party. Upon such termination,
notwithstanding clause 4 of Article II, Agent shall immediately
remit to Company all premiums collected by Agent on behalf of
Company, and all other premiums owed to Company by insureds
on business produced under this Agreement.
3. In the event that the license or authorization of either
party is revoked or suspended as described in clause 3 of
Article VII, and, for any reason, that party fails to restore its
license or authorization within thirty (30) days from the date of
notification to such party of the revocation or suspension, this
Agreement shall be automatically terminated, without notice.
4. This Agreement shall be automatically terminated,
without notice in the event either party files a petition in
bankruptcy or becomes insolvent, or makes an assignment for the
benefit of creditors, or in the event either party is placed into
bankruptcy involuntarily.
5a. Upon any termination of this Agreement, the Agent shall
cease and desist from binding or issuing any further insurance
coverage under this Agreement, but shall continue to provide all
other services described in this Agreement on business
produced prior to termination of this Agreement, until all such
obligations on the part of Agent shall have been fully satisfied.
5b. Any termination of this Agreement shall not affect the
rights and obligations of the parties hereto as to transactions or
acts done by either party prior to the effective date of
termination.
5c. The Agent will handle, to conclusion, the run-off of:
(1) Any administrative duties and
(2) Final resolution of any open or subsequently
reported claims on policies issued during the
term of this Agreement relating thereto.
6. In the event that Agent refuses to provide such services
as set forth in paragraph 5c or in the opinion of the Company, is
unable to provide such services, the Company may provide such
services itself or arrange to have such services provided by
others and the expense thereof shall be borne by Agent. Agent
shall, in such event, promptly return to the Company all records
pertaining to claims then being handled by it, and shall assist the
Company in all ways possible to ensure a smooth transfer of
files in its possession relating to such claims, it being expressly
understood that on termination of this Agreement, or upon
suspension of Agent's duties hereunder, any and all claims files
shall be and remain the property of the Company.
ARTICLE X
Confidentiality
1. Any reports, information and data obtained by, given to,
or prepared or assembled by the parties under this Agreement,
or by reason of or relating to the transactions contemplated by
this Agreement, shall not be made available at any time by either
party, to or for the benefit of any corporation, individual or
entity whatsoever, without the express prior written consent and
approval of the other party, except as required by applicable
law or in connection with any inquiry or examination by any
proper governmental authority. Such approval will not be
unreasonably withheld by the Company.
2. Each party to this Agreement shall take all reasonable
steps to maintain the confidentiality of information and reports
regarding the business written under this Agreement or any of
the transactions contemplated hereunder.
3. At the request of either party, the other party shall cause
its officers and employees to enter into confidentiality
agreements to protect the confidentiality of the undertakings
hereunder.
ARTICLE XI
E & 0 Insurance
Agent shall be required to maintain at all times Errors and
omissions Insurance with a Minimum Limit of $5,000,000. A
copy of the policy evidencing that Errors and Omissions
insurance is in force shall be provided to the Company at each
renewal. The insurance shall continue to be maintained until
Agent has fully satisfied all of its obligations under this
Agreement.
ARTICLE XII
Cancellation of Insurance
1. Nothing in the Agreement shall be construed as limiting
or restricting the right of the Company to reject, cancel or non-
renew or cause agent to reject, cancel or non-renew any risk or
any binder, policy or other contract of insurance issued under
this Agreement in accordance with the cancellation provision of
such binder, policy or contract and any applicable law.
2 Agent agrees to promptly non-renew or cancel, at the
direction of Company, such insurance. Agent agrees not to
initiate arbitrary cancellations or non-renewals of policies of
insurance. In the event of non-payment of premium, Agent is
authorized and agrees to cancel or non-renew without awaiting
direction from the Company.
ARTICLE XIII
Independent Contractors
Agent is an independent contractor and not an employee of the
Company. The Company, therefore, shall not be responsible for
expenses of Agent such as rent, transportation, postage,
countersignature fees, or any other expenses, except as
otherwise agreed herein. In addition, Agent shall be responsible
for all salaries and other related labor costs and Social Security
obligations of its personnel whether or not related to the
Company's business. Furthermore, it is expressly understood by
the parties hereto that the relationship existing between the
Company and Agent under this Agreement constitutes Agent as
the Company's proxy or representative only in connection with
the services or transactions set forth in this Agreement and
directly related to the Agent's functions under this Agreement.
Therefore, Agent is not authorized to undertake or create any
obligation, responsibility or commitment with or to third parties
on behalf of the Company except in connection with the services
stated in this Agreement, and the Agent undertakes not to
perform any action which might lead to a misinterpretation by
third parties of the scope of the relationships created hereunder.
ARTICLE XIV
Addresses
1. All notices, requests, demands and other
communications under this Agreement or in connection therewith
shall be given or made as follows:
a. If to the Company:
PRESIDENT
GENERALI - U.S. BRANCH
ONE LIBERTY PLAZA
NEW YORK, NEW YORK 10006
b. If to Agent:
PRESIDENT
SEIBELS, BRUCE & COMPANY
P.O. BOX ONE
COLUMBIA, SOUTH CAROLINA 29202
2. Any notice or communication required or permitted to be
given in terms of this Agreement shall be valid and effective
only if in writing.
3. Either party may by written notice to the other sent by
prepaid registered mail change its address to another physical
address provided that change of address shall only become
effective on the seventh day after dispatch of the notice.
4. Any notice or communication sent pursuant to this
Agreement shall be deemed to have been received within ten
(10) days of the date of posting.
ARTICLE XV
Arbitration
1. In the event of any dispute or difference of opinion
hereafter arising with respect to the rights and obligations of the
parties under this Agreement, it is hereby mutually agreed that
such dispute or difference of opinion shall be submitted to
arbitration and that arbitration shall be the exclusive remedy for
resolution of such dispute.
2. The arbitration process shall begin upon written demand
being served by one party upon the other to choose an arbitrator.
Within thirty (30) days after service of said demand, one arbiter
shall be chosen by the Company, the other by Agent, and an
umpire shall be chosen by the arbiters before they enter upon
arbitration, all of whom shall be active or retired disinterested
insurance executive officers. In the event that either party
should fail to choose an arbiter within thirty (30) days following
receipt of written demand from the other party requesting it to do
so, the requesting party may nominate two arbiters. In the event
the arbiters do not agree on selection of the umpire within 30
days after both are named, the Company or Agent shall petition
the American Arbitration Association to select the umpire.
3. The petitioning party shall present its case to the arbiters
within thirty (30) days following the date of appointment of the
umpire. The arbiters shall consider this agreement as an
honorable engagement rather than merely as a legal obligation
and they are relieved of all judicial formalities and may abstain
from following the strict rules of the law. The arbiters shall
prepare a written decision which shall be final and binding on
both parties, but failing to agree, they shall call in the umpire
and a written decision of the majority shall be final and binding
upon both parties. Judgment upon the final written decision of
the arbiters may be entered in any court of competent
jurisdiction.
4. Each party shall bear the expense of its own arbiter, and
shall jointly and equally bear with the other the expense of the
umpire and of the arbitration. In the event that the two arbiters
are chosen by one party, as above provided, the expense of the
arbiters, the umpire and arbitration shall be equally divided
between the two parties.
5. Any arbitration proceedings shall take place at a
location mutually agreed upon by the parties to this Agreement.
If the parties to this Agreement fail to agree upon a location,
such arbitration proceedings shall take place in New York, New
York.
ARTICLE XVI
Reinsurance
The Agent is prohibited from purchasing reinsurance of any kind
for or on behalf of the Company except as provided for and
approved by the Company as discussed in the Underwriting
Guide.
ARTICLE XVII
Miscellaneous Provision
1. This Agreement shall be governed by and interpreted
according to the laws of the State of New York and parties
agree to submit themselves to the jurisdiction of any competent
New York Court, both State and Federal. The concession of
jurisdiction shall not affect the obligation to arbitrate pursuant to
Article XV.
2. This instrument embodies the final, complete and entire
agreement between the parties. No other representation,
understandings or agreements have been made or relied upon in
the making of this Agreement other than those specifically set
forth or referred to herein.
3. Any alterations, modifications, amendments, variations
or additions to this Agreement shall only be valid if in writing
and executed with the same formalities as this instrument.
4. The failure of either party to enforce at any time any of
the provisions of the Agreement shall in no way be construed to
be a waiver of such provisions, nor in any way to affect the
validity of this Agreement, or any part thereof, or the rights of
either party to thereafter enforce each and every such provision.
5. This Agreement shall not be assigned, delegated, sub-
delegated, charged or otherwise disposed of by either party
hereto without the express written consent of the other.
6. The captions of the various sections of this Agreement
shall not be deemed to be a part of this Agreement and shall not
be construed in any way to limit the content thereof, but are
inserted herein only for reference and the convenience of the
parties.
7. Agent shall not use any advertising or promotional
material referring to Company, or identifying any insurance that
could be written by Agent pursuant to the terms of this
Agreement, without the prior written approval of Company.
Such approval shall not in any event be construed as charging or
binding Company to bear any part of the cost or expenses
thereof. Agent shall not issue or circulate any illustration,
circular, statement or memorandum of any sort misrepresenting
the terms, conditions, benefits, or advantages of any policy
issued by Company, or make any misleading statement as to the
financial security or condition of Company. Notwithstanding
any other provision in this Agreement, Company may, at its sole
option, at any time, and from time to time, apply any sums due
Agent hereunder against any Payment due whatsoever of Agent
to Company under this Agreement.
8. Agent has no authority to, nor shall it represent itself as
having authority to, nor shall it do any of the following:
a. Waive a forfeiture.
b. Waive premium payment.
c. Extend the time for the payment of premiums or other
monies due Company, except for premium payment plans
offered in the normal course of business.
d. Institute, prosecute, or maintain any legal proceedings in
connection with any matter pertaining to Company's
business, other than, and with prior written approval of
Company, the institution, prosecution, and maintenance
of legal proceedings for the collection of premiums due
on policies issued hereunder or recoveries on claims.
e. Hold itself out as an agent of Company in any other
manner, or for any other purpose, than is specifically
prescribed in this Agreement; or
f. Make any representation, pledge the credit of or create
any obligation on behalf of the Company other than as
specifically prescribed in this Agreement.
9. Agent shall immediately:
a. Forward to Company any legal process or notice served
on Agent in a suit or proceeding against Company;
b. Notify Company of any change in the ownership of
shares of stock of Agent or if the disposition of any
substantial portion of the assets of Agent.
10. If any provision of this Agreement shall contravene or be
invalid under the laws of the United States or the state in which
enforcement is sought, it is agreed that such provision shall not
invalidate the whole Agreement but the Agreement shall be
construed as if not containing the particular provision or
provisions held to be invalid.
11. Except as specified in Addendum #2, referring to
termination and withholding of additional contingent
commission due agent, the Company and/or Agent may exercise
the right of offset to settle balances due the other.
Integration Clause
This Agreement embodies the entire Agreement and
understanding between the parties hereto and supersedes all
prior agreements and understandings relating to the subject
matter hereof and no party hereto has made any representation,
warranty or covenant in connection with the matters set forth
herein except as expressly stated herein. All the terms of this
Agreement shall be binding upon the successors and assigns of
the parties hereto and shall inure to the benefit of and be
enforceable by the parties hereto, their successors and assigns;
provided however, that this Agreement may not be assigned by
any party hereto without the prior written consent of the other;
and that this Agreement may not be amended orally, but only in
writing signed by both parties.
IN WITNESS WHEREOF, the Company and the Agent have
executed this Agreement.
GENERALI - U.S. BRANCH SEIBELS, BRUCE AND
COMPANY/
AGENCY
SPECIALTY OF KENTUCKY,
INC.
BY: /s/ John DeGregoria BY: /s/ Ernst N.
Csiszar
DATE: February 2 1996 DATE: March 20
1996
WITNESS: WITNESS:
BY: /s/ BY: /s/ Priscilla
C. Brooks
DATE: February 2, 1996 DATE: March 20, 1996
ADDENDUM NO. 1
This addendum is attached to and made a part of the Agency
Agreement by and between the GENERALI - U.S. BRANCH,
hereinafter referred to as "Company" and SEIBELS BRUCE &
COMPANY and AGENCY SPECIALTY OF KENTUCKY,
INC., managing general agent, hereinafter referred to as "Agent"
being effective January 1, 1996.
The purpose of this addendum is to summarize the marketing and
underwriting authorization granted by the Company to the Agent.
The Company's underwriting guidelines are incorporated by
reference herein. THIS AUTHORIZATION SO GIVEN IS
SUBJECT TO AND LIMITED BY THE COMPANY'S
LATEST UNDERWRITING GUIDELINES AND ANY
AMENDMENTS THERETO, THESE GUIDELINES AND
AMENDMENTS, IF ANY, HAVING BEEN RECEIVED AND
ACKNOWLEDGED BY AN OFFICER OF THE AGENT.
A) Territory
The Agent is authorized to market and underwrite
commercial insurance products on behalf of the
Company in the states of (CONFIDENTIAL TREATMENT REQUESTED)
B) Products
The Agent is authorized to market and underwrite on
behalf of the Company the following commercial
insurance policies:
Businessowners
Commercial Automobile
Commercial Fire
Commercial Package
Commercial Umbrella
Crime
Fidelity
Garage
General Liability
Glass
Inland Marine
Mine Subsidence
C) Maximum Policy Limits
The Agent is authorized to market and underwrite on
behalf of the Company up to a maximum policy limit of
(CONFIDENTIAL TREATMENT REQUESTED) for commercial property coverage and
(CONFIDENTIAL TREATMENT REQUESTED) for commercial casualty coverage.
D) Catastrophe Caps
The Agent is authorized to market and underwrite on
behalf of the Company the following maximum
aggregate exposure for loss due to windstorm.
In no event shall the Company's Total Insured Value
property exposure in any one three-digit coastal zip
code, in the states of (CONFIDENTIAL TREATMENT REQUESTED)
, exceed a (CONFIDENTIAL TREATMENT REQUESTED) maximum aggregate.
Coastal zip codes as used herein shall mean the
following three-digit zip codes:
(CONFIDENTIAL TREATMENT REQUESTED)
It is further understood and agreed that in no event shall
the Company's Total Insured Value property exposure in
any one three-digit inland zip code, in the states of
(CONFIDENTIAL TREATMENT REQUESTED), exceed a
(CONFIDENTIAL TREATMENT REQUESTED) maximum aggregate.
E) Draft Authority
The Agent is authorized to settle up to a maximum of
(CONFIDENTIAL TREATMENT REQUESTED) per claim, to issue drafts payable on the
Company's draft account, provided that such authority
shall be solely for the payment of losses, and loss
adjustment expenses. Authorization to issue drafts in
excess of (CONFIDENTIAL TREATMENT REQUESTED) may be increased as of a date
agreed upon between the Company and the General Agent.
F) Production
The Agent is authorized to produce through its marketing
and underwriting of commercial insurance products a
total annual premium volume of (CONFIDENTIAL TREATMENT REQUESTED) for the
calendar year 1996. The production in subsequent
calendar years will be agreed upon between the
Company and the General Agent and so endorsed.
G) Agent's Provisional Commission
Agent's provisional commission shall be (CONFIDENTIAL TREATMENT
REQUESTED)(percent) of written premiums except as respects all
business accepted and ceded to the (CONFIDENTIAL TREATMENT REQUESTED)
for which the allowance will be
(CONFIDENTIAL TREATMENT REQUESTED) and the (CONFIDENTIAL TREATMENT REQUESTED)
for which the allowance will be (CONFIDENTIAL TREATMENT REQUESTED)
H) Guarantee of Premium Due
Agent, as surety and principle debtor, hereby
unconditionally guarantees timely payment of premiums
to the Company, whether or not such premiums have
been collected.
GENERALI U.S. BRANCH SEIBELS BRUCE & COMPANY
BY: /s/ John DeGregoria BY: /s/ Ernst N. Csiszar
DATE: February 2, 1996 DATE: March 20, 1996
WITNESS: WITNESS:
BY: /s/ BY: /s/ Priscilla C. Brooks
DATE: February 2, 1996 DATE: March 20, 1996
AGENCY SPECIALTY OF KENTUCKY, INC.
BY: /s/ Ernst N. Csiszar
DATE: March 20, 1996
WITNESS:
BY: /s/ Priscilla C. Brooks
DATE: March 20, 1996
ADDENDUM NO. 2
This addendum is attached to and made a part of the Agency
Agreement by and between the GENERALI - U.S. BRANCH,
hereinafter referred to as "Company" and SEIBELS BRUCE &
COMPANY and AGENCY SPECIALTY OF KENTUCKY,
INC., managing general agent, hereinafter referred to as "Agent"
being effective January 1, 1996.
The Company shall allow the Agent a further allowance, being a
contingent commission of (CONFIDENTIAL TREATMENT REQUESTED), of the Net Profit
for the contingent period (defined below).
As soon as possible, but no later than one hundred twenty (120)
days following each December 31, the Company will prepare a
Contingent Commission Statement. The initial Contingent
Commission Statement shall be prepared within one hundred
twenty (120) days following December 31, 1996. The
Contingent Commission Statement(s) shall be prepared on an
inception-to-date basis and will be determined on the Net Profit
of the total of all agreement periods.
The Contingent Commission Statement(s) will segregate each
agreement (underwriting) period and also will total all
agreement periods. The initial agreement period shall be for
policies effective during the period beginning with the inception
date of the agreement through and including December 31, 1996.
The subsequent agreement periods shall be annual for new and
renewal policies with effective dates during the period
beginning with January 1st, and ending December 31st.
In the event of termination the contingent commission shall
continue to be recalculated annually and shall be paid out to
agent as follows: end of first year following termination, 0%
increasing in increments of 10% per year until the full contingent
commission has been paid to agent. However if subsequent
events have proven that the contingent commission calculation
has been overestimated, the Agent shall return to the Company
such amounts as will give effect to the revision(s).
Upon verification of the Contingent Commission Statement,
settlement shall be paid immediately by the debtor party. The
settlement balance shall be calculated in the following manner:
A. Contingent Commission Due
B. Contingent Commission Previously Paid
C. Balance: (A) - (B)
If balance is positive number, the balance will be additional
Contingent Commission due Agent. If balance is a negative
number, the balance will be Return Contingent Commission due
Company to the extent of prior positive additional Contingent
Commissions paid to the Agent. To the extent additional
Contingent Commissions have not been paid, a deficit carry-
forward shall be created and carried forward.
The Contingent Commission calculation shall be calculated in
accordance with the following formula:
Agreement Agreement
Period Period Total
(A) Earned Premium:
1) Total Premiums Written
2) Less Unearned
Premium as at
12/31/XX
3) Premium Earned:
(l) - (2)
(B) Cost of Reinsurance
(C) Losses Incurred
1) Losses and
Loss Expenses paid.
2) Reserve for Outstanding Loss
and Loss Adj. Expenses
3) Reserve for Incurred but Not
Reported (IBNR) losses
The value of IBNR reserve shall be twenty seven
and seven-tenths percent (27.7%) of the earned
premium of the most current agreement period,
thirteen and seven-tenths (13.7%) of the earned
premium of the second most current agreement,
six and six-tenths percent (6.6%) of the earned
premium of the third most current agreement
period. Three and one-half percent (3.5%) of the
earned premium of the fourth most current
agreement period.
4) Losses and LAE Incurred:
(1) + (2) + (3)
(D) Loss and Loss Expenses
Recoverable under
Reinsurance Programs:
1) Loss and Loss Adjustment
Expenses recovered
2) Reserve for Loss and
Loss Adjustment Expenses
3) Total Recoverable:
(1) + (2)
(E) Expenses Incurred:
1) Commission as described in Addendum #1,
paragraph (G).
2) Company Management Expenses shall be five
percent (5%) of net premium written during
each period.
3) Market conduct examination costs and fines,
penalties and expenses which are incurred by the
Company in accordance with any state
regulatory authority and not previously
reimbursed by Agent.
4) Costs associated with direct production
such as premium taxes, inspection costs
and survey costs, ISO, AMS and NISS costs
and fees.
5) Total Expenses Incurred:
(1) + (2) + (3) + (4)
(F) Net Profit (Deficit)
Balance: (A) + (D) - (B) - (C) - (E)
(G) Profit:
1) Contingent Commission Due (CONFIDENTIAL TREATMENT REQUESTED)
of Net Profit.
2) Less Contingent Commission
previously paid to Agent
3) Balance Now Due Agency/
Return Contingent Now Due
Company:
(l) - (2)
GENERALI U.S. BRANCH SEIBELS BRUCE
& COMPANY
BY: /s/ John DeGregoria BY: /s/ Ernst N. Csiszar
DATE: February 2, 1996 DATE: March 20, 1996
WITNESS: WITNESS:
BY: /s/ BY: /s/ Priscilla C. Brooks
DATE: February 2, 1996 DATE: March 20, 1996
AGENCY SPECIALTY OF KENTUCKY, INC.
BY: /s/ Ernst N. Csiszar
DATE: March 20, 1996
WITNESS:
BY: /s/ Priscilla C. Brooks
DATE: March 20, 1996
ADDENDUM NO. 3
Sub-Producer Agreement Approval
This addendum is attached to and made a part of the Managing
General Agency Agreement by and between GENERALI - U.S.
BRANCH, hereinafter referred to as "Company" and SEIBELS,
BRUCE &: COMPANY and AGENCY SPECIALTY OF
KENTUCKY, INC., managing general agent, hereinafter
referred to as "Agent".
In accordance with ARTICLE 1, Appointment, Authority and
Duties of Agency, provision No. 6 of the AGENCY
AGREEMENT, we have received The Seibels Bruce Insurance
Companies Agency Agreement form PR 128 (4/93), hereinafter
referred to as the Sub-Producer Agreement, and approve the
form for use in entering into sub-producer agreements on behalf
of Generali - U.S. Branch.
Generali - U.S. Branch agrees that Seibels, Bruce & Company
shall be and act as the duly authorized manager of Generali -
U.S. Branch under the terms provided by the Sub-Producer
Agreement.
Generali - U.S. Branch further agrees that, if, upon the
termination of a Sub-Producer Agreement entered into with a
producing agency by Generali - U.S. Branch through the agency
of Seibels, Bruce & Company, the producing agency has failed
to account for and pay over to Generali - U.S. Branch all
premiums and other money for which it is liable to Generali -
U.S. Branch, Generali - U.S. Branch will assign, for the duration
of the Agreement to which this addendum is attached, to Seibels,
Bruce & Company all of the rights to and interests in the
producing agency's records and rights to the use and control of
expirations to which Generali - U.S. Branch is entitled under the
Sub-Producer Agreement and will cooperate with Seibels,
Bruce & Company in the enforcement of those rights, or, at the
option of Seibels, Bruce & Company, Generali - U.S. Branch
will enforce such rights and interests and, to the extent a
recovery is effected, assign and turn over to Seibels, Bruce &
Company all of the records and rights to the use and control of
expirations, or, if some or all of such property is sold as
provided in the Sub-Producer Agreement, it will assign and pay
over to Seibels, Bruce & Company its part of the proceeds of
such sale.
GENERALI - U.S. BRANCH SEIBELS, BRUCE AND COMPANY/
AGENCY SPECIALTY OF KENTUCKY, INC.
BY: /s/ John DeGregoria BY: /s/ Ernst N. Csiszar
DATE: February 2 1996 DATE: March 20 1996
WITNESS: WITNESS:
BY: /s/ BY: /s/ Priscilla C. Brooks
DATE: February 2 1996 DATE: March 20 1996
EXHIBIT 10.12
SOUTH CAROLINA REINSURANCE FACILITY
CONTRACT WITH DESIGNATED CARRIER FOR
SERVICING
OF DESIGNATED AGENT BUSINESS
This agreement made and entered into this 1st day of
October, 1994, by and between the South Carolina Reinsurance
Facility, a nonprofit, unincorporated legal entity created
pursuant to the South Carolina Automobile Reparation Reform
Act of 1975 [hereinafter referred to as "Facility"], and Catawba
Insurance Company, an insurance company licensed to write and
to engage in writing automobile insurance within the State of
South Carolina [hereinafter referred to as "Designated
Carrier"];
WHEREAS, the Facility wishes to contract with the
Designated Carrier to service one or more of such licensed
agents meeting the standards and criteria as determined by the
Facility in accordance with Section 38-77-590 of the South
Carolina Code of Laws (1976), as amended; and
WHEREAS, the Designated Carrier has, upon its bid
submission, been found to be the lowest responsive and
responsible bidder for a certain block of business produced by
certain specified designated agents and is Drilling to service
and to contract with one or more of such specified designated
licensed agents upon the terms and conditions as set forth in the
bid documents and/or as hereinafter specified;
NOW, THEREFORE, the Facility hereby agrees to
appoint the Designated Carrier as a servicing carrier for the
Facility and the Designated Carrier hereby accepts such
appointment as a servicing carrier for the Facility subject to the
following terms and conditions:
1. Duties of the Designated Carrier
(a) The Designated carrier shall administer the
activities of all designated agents assigned to it in accordance
with this Agreement, the terms of the bid specifications upon
which this contract has been awarded and the laws of South
Carolina and shall perform under any contract entered into
between Designated Agents and Designated Carriers which the
Facility has agreed, on behalf of the Designated Agent, to cause
the Designated Carrier to perform and shall notify the Facility of
the failure or refusal of any Designated Agent to comply with
any provision of this agreement, the contract between the
Designated Agent and Designated Carrier and the laws of South
Carolina.
(b) The Designated Carrier shall comply with all of
the terms and conditions of this Agreement, with all written
bulletins or directives issued by the Facility, and with the laws
of South Carolina.
(c) The Designated Carrier shall carry out and
perform all Facility services in compliance with the Servicing
Standards, in accordance with the Rules of Operation and Claim
Guidelines contained in the South Carolina Reinsurance Facility
Manual, as reasonably applied, and shall exercise ordinary care
and diligence in the performance of such Facility services.
(d) The Designated Carrier shall make internal
audits of its Facility business, at such times and in such detail as
the Facility shall reasonably require, but not less than annually.
Such audits shall include at a minimum compliance as -set out in
this agreement and compliance with the provisions of the South
Carolina Reinsurance Facility Manual, Claim Guidelines and
any other written bulletin or directive of the Facility.
(e) The Designated Carrier shall cooperate fully
with all officers, employees, agents and other representatives of
the Facility during audits, investigations or examinations made
and conducted by them and shall permit such persons to have
full access, during normal business hours, to all books and
records of the Designated Carrier pertaining to its Facility
insureds and its Facility business.
(f) The Designated Carrier shall submit to the
Facility, at such intervals as shall be requested by the Facility,
but not less than annually, the operating expenses incurred by it
in the performance of the Facility Services, such report to
contain the information called for by any uniform operating
expense form adopted by the Facility.
(g) The Designated Carrier shall implement all
reasonable changes, revisions, amendments and modifications in
rates, endorsements, renewals and policy forms on the effective
date of their approval by the Commissioner.
(h) The Designated Carrier shall designate, in
writing, the person or persons within its organization to whom
all correspondence, bulletins, circulars and related materials
shall be sent by the Facility and such person shall be directed to
acknowledge receipt of any of the foregoing when so requested
by the Facility and such acknowledgment shall be binding on the
Designated carrier.
(i) The Designated Carrier agrees to appoint such
licensed agent or agents, as determined eligible and assigned to
it by-the Facility, as the agent or agents of the Designated
Carrier for the purpose of writing mandatory automobile
insurance coverages for eligible risks; provided, however, that
the Designated Carrier shall be obligated to accept agents only
in such numbers and in such geographical areas as the
Designated Carrier is able to adequately serve consistent with
the capacity of the Designated Carrier and consistent with sound
business practices; provided, further, that in any event the
Designated Carrier shall be obligated to appoint such licensed
agents as were identified or profiled in the bid documents upon
which this contract is based and was awarded.
(j) The Designated Carrier must cede to the Facility
all mandated automobile insurance coverages for risks
submitted by the designated agents assigned to it and written by
the Designated Carrier, provided such risks are "eligible risks"
as defined in Sections 38-77-510, 38-77-30 (5.5) and (11), 38-
77-110 and 38-77-280 of the South Carolina Code of Laws
(1976), as amended, and in Article II of the Plan of Operation
and further provided that the coverage and coverage limits
written are eligible for cession to the Facility.
(k) [Reserved for future use].
(l) The Designated Carrier must develop reasonable
procedures to assure that all business submitted by its
designated agents and written by the Designated Carrier shall be
in compliance with the Performance Standards specified in the
bid documents upon which this contract is based, in the South
Carolina Reinsurance Facility Manual, in the South Carolina
Reinsurance Facility claim Handling Guidelines and/or as listed
below:
(1) Issuance of Policy
The Designated Carrier must mail an appropriate
policy to the insured within 30 calendar days of
receipt of the completed application.
(2) Acknowledgment
The Designated Carrier will act on all requests
within 30 days or acknowledge the receipt of
such a request.
(3) Renewal Policies or Certification
Renewal policies or certification will be issued
and mailed within 30 days of the Designated
carrier receipt of renewal premium.
(4) Endorsement
Within 30 days of receipt of request for
endorsement, the Designated Carrier will issue
such endorsement or acknowledge receipt of the
request.
(5) Cancellation
Any request for cancellation of the policy shall
be processed and notice mailed within 30
calendar days of the Designated carrier's receipt
of such request.
(6) Return Premium
The Designated Carrier must mail the return
premium check within 30 days of a request for
cancellation or endorsement resulting in return
premium.
(7) Minimum Underwriting Standards
The Designated Carrier is responsible to meet
the following minimum underwriting standards
for all Designated Agent business ceded to the
Facility. The Designated Carrier is responsible
to determine that all business ceded to the
Facility is correctly classified and rated to
develop the correct and proper premium and:
(a) Obtain the identification, age, and driver
license number of the applicant, of all operators
resident in the applicant's household, and of any
non-residents who are regular operators.
(b) Determine the use of each vehicle by all
operators to determine the correct rates and
classifications.
(c) Obtain within 60 days of the effective
date, for each initial cession, a current MVR for
each insured and operator whose record would
affect the sub-class for any vehicle subject to the
South Carolina Uniform Merit Rating Plan.
(d) Develop sufficient classification
information for all types -identified in the
commercial, Public, Garage, Non-Owned,
Miscellaneous and Fleet sections of the
Designated carrier manual.
(e) Make all underwriting records of
business ceded to the Facility available for audit
by the Audit Committee.
(8) For the Servicing of "All Other" risks, as
appropriate:
(a) Provide engineering and loss control
service equivalent to voluntary market practice
including follow-up for compliance with all
reasonable safety requirements.
(b) Attempt to secure and verify account loss
history from the previous carrier/carriers to
insure proper application of any applicable
premium surcharge or rating plans.
(c) Audit following account expiration or
cancellation.
(d) Make, maintain and cancel all certificates
and filings in accordance with any municipal,
state or federal requirements.
(9) The Designated Carrier must commit itself to all
performance standards set out for Designated
Carriers and demonstrate on a continuing basis
that it is complying with those performance
standards.
(10) Designated Carrier must comply with all
reporting requirements in accordance with
Section 3, Part C - Accounting and Statistical
Requirements of the South Carolina Reinsurance
Facility.
(11) A Designated Carrier will not be provided an
interim settlement unless the reports indicated in
number 10 are received on an accurate and
timely basis.
(m) With regard to designated agents assigned to it,
the Designated Carrier must maintain records and reports as
required by the Facility. Such records and reports shall be
furnished by the Designated Carrier either periodically as
specified by the Facility or upon request. The Designated
Carrier further agrees that the books, records, accounts and files
of the Designated Carrier with regard to said designated agents
and the business produced by said agents may be audited as
directed by the Facility. Copies of any such books, records,
accounts and files shall be furnished to the Facility upon request.
(n) The commission paid on insurance coverages
produced by the designated agents of the Designated Carrier and
ceded to the Facility shall be that commission provided for by
the terms of Rule 12 of Rules of Operation of the South Carolina
Reinsurance Facility, but shall increase or decrease if said Rule
12 is amended to provide an increase or decrease during the
term of this Agreement. The same commission shall apply
uniformly statewide. In the event the commission paid on
insurance coverages produced by the designated agents of the
Designated Carrier is increased or decreased during the term of
this Agreement, the percentage of written premium the
Designated Carrier is allowed to retain to cover expenses
involved in the appointment and maintenance of designated
agents and the issuance -and servicing of automobile insurance
policies will be adjusted proportionately to reflect the net
increase or decrease in the commission paid to designated
agents by the Designated Carrier.
(o) The Designated Carrier agrees to give the same
type of service to business produced by its designated agents
that it provides for its voluntary market, including but, not
limited to premium billings, collections, submission of
applications, reporting of losses, and claims adjustment. If the
service or performance requirements imposed by the Facility
are more stringent than the service or performance requirements
provided by the Designated Carrier to its voluntary market, the
Facility's minimum service and performance standards shall
apply to business produced by its designated agents.
(p) The Designated Carrier agrees to establish and to
enforce reporting standards requiring designated agents to report
all business bound to the Designated Carrier within two working
days after binding.
(q) The Designated Carrier agrees to comply in all
respects with Chapter 77 of Title 38 of the South Carolina Code
of Laws, (1976), as amended, the Plan of Operation of the
Facility and any rules or regulations promulgated thereto by the
Board of Governors of the Facility and all written directives or
bulletins of the Facility.
(r) The Designated Carrier shall require that no
automobile insurance risks applying for coverage at limits
which may be ceded to the Facility be accepted under any form
of brokerage arrangement for submission to the Designated
Carrier by a designated agent, nor shall the designated agent
accept any application referred by any other agent or agency, for
monetary or other considerations.
(s) The Designated Carrier agrees that it will
require each of its designated agents to enter into a written
contract or agreement which shall:
(1) include a provision providing for
termination of the contract or agreement between
the Designated Carrier and the designated agent
should the designated agent acquire an
automobile insurance insurer voluntarily;
(2) include a personal undertaking by
the designated agent and any persons exercising
control over operations of the designated agency
to reimburse the Designated Carrier the full
amount of any financial loss caused by
unremitted premiums or contributed to by bad
faith, fraud, dishonesty, or misfeasance on the
part of the designated agent or any persons
exercising control over the operations of the
designated agency.
(3) The undertakings provided for in
subsection (2) shall be in terms sufficient to
enable the Designated Carrier to recover
judgment against the obligators without first
having to exhaust remedies against the designated
agent.
(4) include a provision whereby the
Designated Carrier, on behalf of the Facility,
shall, if it incurs financial loss caused by
unremitted premiums, or other breach of duty,
bad faith, fraud, dishonesty or misfeasance on the
part of the designated agent, be vested with
ownership of the designated agent's records
relating to business placed by the designated
agent with the Designated Carrier and shall be
vested with use and control of expirations with
respect to such business. The contract shall
further entitle the Designated Carrier, on behalf
of the Facility and with due consideration for
mitigation of any loss, to make such use or
disposition as it deems fit of the designated
agent's records, the expirations and the
Designated Carrier's own records.
(5) include a provision whereby
neither the Facility nor the Designated Carrier
shall be responsible for any expenses of the
designated agent, including, without limitation,
rent, transportation, salaries, license fees,
collection fees, solicitors fees, postage and
advertising.
(6) include a provision that during the
term of this Contract and after termination, the
designated agent will not hold himself out or
represent himself as a producer, agent or
representative of the Designated Carrier in
voluntary market, unless the producer represents
the Designated Carrier in the voluntary market.
(7) The designated agent will not
intentionally or willfully provide any
misinformation on applications or with respects
to claims or other material matters submitted to
the Facility or to the Designated Carrier.
(t) Upon learning of any default by a designated
agent under the terms of the contract with the Designated
Carrier, the Designated Carrier agrees to:
(1) immediately report the default to
the Facility and to the Chief Insurance
Commissioner or such person as either may
direct;
(2) act to suspend the binding
authority of the designated agent if, in the
discretion of the Designated Carrier, such action
is warranted to protect the Facility from loss and,
if otherwise directed by the Facility, to terminate
the designated agent's contract and the contract
of any other agent associated with the designated
agent and licensed by the Designated Carrier
incidental to the operations of the designated
agent;
(3) immediately remove from any
terminated designated agent's control all
application, policy and binder forms and other
materials and supplies furnished by the
Designated Carrier;
(4) provide the Facility with (i) a
chronological background statement of events
leading up to and encompassing the default; (ii)
copies of all contracts and agreements between
the Designated Carrier and any other person or
organization relating to the designated agent
covering the period or periods during which the
loss was incurred; and (iii) copies of all
pertinent correspondence between the
Designated Carrier and the designated agent' s
bonding company, if any;
(5) provide the Facility with
complete information on collection efforts after
default, including but not limited to contacts with
the agent, his attorney, his bonding company and
all other persons who may be liable to the
Designated Carrier on account of the designated
agent's default. Such information shall include a
description of legal action taken, copies of all
legal documents and pleadings and the results of
such legal actions;
(6) provide the Facility with a final
accounting pertaining to the agent's unpaid
account and all documentation relevant thereto.,
including but not limited to a listing in policy
number order showing separately the amount of
premium and surcharge generated for each policy
and the amount of premium and surcharge
received, the accounting month in which each
premium and surcharge amount was reported to
the Facility, and the commission or other
compensation paid or withheld to offset
indebtedness.
(7) provide, upon request, proof of
premium and surcharges paid to the agent and not
forwarded to the Designated Carrier and any
other information deemed pertinent by the
Facility.
2. Duties of Facility
(a) After the designated agent assignment has been
made, the Facility shall furnish all information at the disposal of
the Facility with regard to the name, location, premium volume,
previous number of risks insured and any other past business
history of each agent assigned to that Designated Carrier.
(b) In recognition of the expenses involved in the
appointment and maintenance of a designated agent or agents and
the issuance and servicing of automobile insurance policies, the
Facility agrees to allow the Designated Carrier for designated
agent business to retain that percentage of written premiums set
forth in the bid documents upon which this contract has been
awarded (i.e., 8.99% of written premium). In recognition of the
expenses involved in adjusting and settling claims under -
automobile insurance policies, the Facility agrees to reimburse
the Designated Carrier's unallocated claim adjustment expense
based upon that percentage of paid claim losses set forth in the
bid documents upon which this contract has been awarded
(i.e., 10.98% of paid losses). Allocated expenses (defined by
the Rules of operation as outside legal expense) will be
reimbursed to the Designated Carrier as a separate item. All
reimbursements shall be calculated and paid to the Designated
Carrier at such times and in such manner as prescribed in the
Facility Manual.
(c) For purposes of determining Facility
participation ratios by the Designated Carrier, private passenger
net direct written car years, and all other automobile premiums
as required to be reported to the appropriate statistical agent, on
any business ceded to the Facility as designated agent business
shall not be included in the Designated Carrier's share of total
market for purposes of Paragraph 2 of Article IX of the Plan of
Operation of the Facility.
(d) In the event the Designated Carrier shall incur
financial loss arising from the appointment of any agent pursuant
to this agreement and such loss is caused by the unremitted
premiums or any other breach of duty, bad faith, fraud,
dishonesty or misfeasance on the part of such agent, the Facility
shall, upon written request by the Designated Carrier and
compliance with the substantial and procedural requirements as
may be established by the Facility with respect to
indemnification, indemnify the Designated Carrier for such f4-
nancial loss. Provided, however, that any such indemnification
shall be made only after a showing by the Designated Carrier
satisfactory to the Facility that:
(1) neither any negligent act or
omission by the Designated Carrier nor any
failure to abide by the terms of this Agreement,
the Facility Act, The Plan of operations or the
rules of the Facility in any way contributed to
such loss; and
(2) the Designated Carrier at all
times properly supervised and audited said agent
and otherwise conducted its dealings with said
agent in accordance with good business
practices; and
(3) the Designated Carrier has
exhausted all reasonable and appropriate efforts
to recover its loss from sources other than the
Facility.
If the Designated carrier incurs any extraordinary out-of-
pocket expense in attempting to recover its loss from sources
other than the Facility, the Facility at its election may reimburse
the Designated Carrier for all or any portion of such out-of-
pocket expenses; provided, however, that no reimbursement
shall be made on account of out-of-pocket expense which has
not been approved in writing in advance by the Facility. out-of-
pocket expenses which are eligible for reimbursement do not
include collection agency fees or charges, court costs or
attorneys' fees and expenses; provided, however, that the
Facility at its election may, in a special case, consider
reimbursement of such out-of-pocket expenses if it determines
such reimbursement to be necessary or warranted.
As a condition to indemnification under this Agreement,
the Designated Carrier shall execute an assignment (to the extent
of the indemnity), in form and content satisfactory to the Facility,
of its rights, claims and causes of action against the designated
agent and all other persons, firms, corporations or other entities
which may be liable to the Designated Carrier on account of the
designated agent's default. Said assignment shall include an
assignment of the Designated Carrier's rights, claims, and
causes of action against the assets of such persons. Following
execution and delivery of the aforesaid assignment, the
Designated Carrier shall promptly notify the Facility in the event
it learns of assets or sources of funds available for satisfaction
of the assigned claim, and any monies collected by the
Designated Carrier from the designated agent or from other
persons who may be liable to the Designated Carrier or from the
designated agent's bonding company or which are in any way
related to or connected with the indemnified loss shall be paid
over by the Designated Carrier to the Facility until the Facility
shall have recovered its indemnity payments in full.
3. Duration and Conditions
(a) This Agreement shall be for a period of five (5)
years and shall extend from October 1, 1994, up to and including
September 30, 1999, unless earlier terminated as provided for
herein. Upon termination of this Agreement, the Designated
Carrier will continue to service all designated agent business
written by it prior to the effective date of termination, shall
continue to make such reports to the Facility as may be required,
and shall fulfill all obligations theretofore undertaken by it to the
Facility, designated agents, insureds, claimants under policies
and to all other persons with respect to such business.
(b) If either party to this Agreement shall be in
default of this Agreement, and such default shall continue for
thirty days after written notice of such default is given to the
party in default, then at the election of the party not in default
and upon written notice to the party in default, this Agreement
may be terminated not less than ten days after the mailing of said
written notice. In addition, the party not in default shall be
entitled to claim and prove actual damages against the defaulting
party and may resort to any other legal or equitable remedy.
(c) Upon termination of this Agreement by the
expiration of the contract period, all rights and obligations of the
parties under this Agreement shall cease except as is otherwise
provided in 3(a) above for the servicing of run-off business and
claims.
(d) Upon termination of this Agreement as a result of
a default by the Designated Carrier, the Facility shall endeavor
to contract with another company for the remainder of this
contract's term. Such other company shall appoint any
designated agent previously assigned to the Designated Carrier
as its own agent and undertake to fulfill the Designated Carrier's
duties and obligations with respect to new business as set forth
in this Agreement. The Designated Carrier shall remain
responsible for servicing all existing business written by it prior
to the date of termination. The Designated Carrier shall deliver
to the Facility copies of such records, reports, claim files and
other documents relating to any agents appointed by the
Designated Carrier pursuant to this Agreement as the Facility
shall request. Nothing herein shall be construed as a limitation
on the Facility's right to seek damages against the Designated
Carrier after default in an amount at least equal to the increase in
cost or expenses incurred by the Facility to obtain a replacement
carrier for the remainder of the contract term.
(e) The Designated Carrier's failing two (2) claims
audits, including a re-audit, within any three (3) year period
shall be a default by the Designated Carrier and sufficient basis
for termination of this Agreement by the Facility as provided for
in paragraph 3(d) above.
(f) In the event any statute creating the Facility is
repealed by the legislature during the term of this Agreement or
amended in such a way as to prohibit Designated Carriers from
writing new business produced by its Designated Agents, such
statutory repeal or amendment shall, upon its effective date,
constitute a termination of this Agreement by expiration of the
contract period and treated as if occurring under paragraph 3(c)
and 3(a) above.
(g) In the event any statute, regulation or other
practice or procedure governing or pertaining to the transactions
contemplated by this Agreement shall be judicially determined
to be unconstitutional, illegal or otherwise unenforceable, and
the Facility and Designated Carrier agree in writing that further
performance of this Agreement has thereby been rendered
impossible, then either party hereto shall have the option to
terminate this Agreement upon the giving of written notice to the
other party. Any such termination shall be construed as a
termination of this Agreement by expiration of the contract
period effective on the date written notice of termination is
received by the other party, unless the notice specifies a later
date in which event termination shall be effective on the date
specified in the notice.
(h) In the event the Facility for any reason
whatsoever is unable to reimburse the Designated Carrier for
losses arising under automobile insurance policies issued
through designated agents in the manner provided in the
Facility's Plan of operation and Rules of Operation and such
inability shall continue for a period of 90 days after the due date
of such reimbursement, then such losses shall be apportioned
among and reimbursed by the Facility's member companies on
the basis of the applicable participation ratios determined under
the Plan of Operation and Rules of Operation in effect at the
time such policies were last issued or renewed. Provided,
further, that in the event the Designated Carrier is precluded by
law from canceling or refusing to renew any such policies, the
foregoing provisions for reimbursement shall continue to apply
to any losses resulting therefrom.
IN WITNESS WHEREOF the parties have caused this
Agreement to be executed by their duly authorized
representative.
WITNESSES:
CATAWBA INSURANCE COMPANY
(Name of Designated Carrier)
/s/ BY: /s/
W. Thomas Reichard
/s/ TITLE:
President
DATE:
8/29/94
SOUTH CAROLINA REINSURANCE FACILITY
BY: /s/ D. A. Gay
TITLE: General Manager
DATE: 8-30-94
<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> 40,217,000
<DEBT-CARRYING-VALUE> 40,217,000
<DEBT-MARKET-VALUE> 40,217,000
<EQUITIES> 35,000
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 49,020,000
<CASH> (6,076,000)
<RECOVER-REINSURE> 28,218,000
<DEFERRED-ACQUISITION> 96,000
<TOTAL-ASSETS> 220,472,000
<POLICY-LOSSES> 53,266,000
<UNEARNED-PREMIUMS> 1,574,000
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
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0
0
<COMMON> 24,672,000
<OTHER-SE> (881,000)
<TOTAL-LIABILITY-AND-EQUITY> 220,472,000
7,664,000
<INVESTMENT-INCOME> 3,807,000
<INVESTMENT-GAINS> (14,000)
<OTHER-INCOME> 45,736,000
<BENEFITS> 11,183,000
<UNDERWRITING-AMORTIZATION> 1,777,000
<UNDERWRITING-OTHER> 39,188,000
<INCOME-PRETAX> 5,045,000
<INCOME-TAX> (131,000)
<INCOME-CONTINUING> 5,176,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,176,000
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.00
<RESERVE-OPEN> 61,031,000
<PROVISION-CURRENT> 9,863,000
<PROVISION-PRIOR> 1,117,000
<PAYMENTS-CURRENT> 8,317,000
<PAYMENTS-PRIOR> 16,267,000
<RESERVE-CLOSE> 47,427,000
<CUMULATIVE-DEFICIENCY> 1,117,000
</TABLE>
