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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
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 31,1998
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
incorporation or organization) identification no.)
1501 LADY STREET (P.O. BOX 1) 29201(2)
COLUMBIA, S.C. (Zip code)
(Address of principal executive offices)
(803) 748-2000
Registrant's telephone number, including area code
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 and non-voting common equity held by
non-affiliates of the registrant as of March 24, 1999: $22,363,783.
The number of shares outstanding of the registrant's common stock as of March
24, 1999: 7,778,707.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual proxy statement in connection with the annual meeting to
be held May 19, 1999 are incorporated by reference into Part III.
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TABLE OF CONTENTS
<TABLE>
<S> <C>
Table of Contents....................................................................... i
Abbreviations........................................................................... ii
</TABLE>
<TABLE>
<S> <C> <C>
PART I
Item 1. Business...................................................................... 1
Item 2. Properties.................................................................... 10
Item 3. Legal Proceedings............................................................. 10
Item 4. Submission of Matters to a Vote of Security Holders........................... 10
PART II
Item 5. Market for the Registrant's Common Stock and Related Security Holder
Matters....................................................................... 11
Item 6. Selected Financial Data....................................................... 11
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations......................................................... 12
Item 8. Financial Statements and Supplementary Data................................... 28
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.......................................................... 61
PART III
Item 10. Directors, Executive Officers, Promoters and Control Persons of the
Registrant.................................................................... 62
Item 11. Executive Compensation........................................................ 64
Item 12. Security Ownership of Certain Beneficial Owners and Management................ 64
Item 13. Certain Relationships and Related Transactions................................ 64
PART IV
Item 14. Exhibits, Financial Statements, Schedules and Reports on Form 8-K............. 64
Signatures............................................................................... 67
</TABLE>
i
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ABBREVIATIONS
The following abbreviations used in the text have the meaning set forth
below unless the context requires otherwise:
<TABLE>
<S> <C>
AFS..................... America's Flood Services, Inc.
FASB.................... Financial Accounting Standards Board
FEMA.................... Federal Emergency Management Administration
GAAP.................... Generally Accepted Accounting Principles
Graward................. Graward General Companies, Inc.
IBNR.................... Incurred-But-Not-Reported
INS..................... Insurance Network Services
Innovative.............. The Innovative Company
JUA..................... Joint Underwriting Association
KIC..................... Kentucky Insurance Company
LAE..................... Loss Adjustment Expenses
MGA..................... Managing General Agent
NAIC.................... National Association of Insurance Commissioners
NCCI.................... National Council on Compensation Insurance
NC Facility............. North Carolina Reinsurance Facility
NFIP.................... National Flood Insurance Plan
PBP..................... Premium Budget Plan
RBC..................... Risk Based Capital
SAP..................... Statutory Accounting Principles
The Seibels Bruce Group, Inc. (also the "Company" or "Seibels
SBIG.................... Bruce")
SBC..................... Seibels Bruce & Company
SCAAIP.................. South Carolina Associated Auto Insurers Plan
SCIC.................... South Carolina Insurance Company
SC Facility............. South Carolina Reinsurance Facility
Universal............... Universal Insurance Company
WYO..................... Write-Your-Own
</TABLE>
ii
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PART I
ITEM 1. BUSINESS
CORPORATE PROFILE AND DEVELOPMENT OF BUSINESS
(dollars in thousands except per share data)
Tracing its roots to 1869, The Seibels Bruce Group, Inc. ("Seibels Bruce" or
the "Company") is a provider of automobile, flood and other property and
casualty insurance products. The Company is committed to providing quality
customer service, building strong agent relationships, developing and
capitalizing on territorial knowledge and fostering the creativity and
innovation of its people.
One of Seibels Bruce's core businesses, nonstandard automobile insurance,
boasts operations spanning 11 states. In South Carolina, home of the Company's
corporate headquarters, Seibels Bruce is the only insurance provider with a
presence in all three components of the nonstandard automobile market-- the
South Carolina Reinsurance Facility ("SC Facility"), the South Carolina
Associated Auto Insurers Plan ("SCAAIP") and the voluntary market.
Seibels Bruce's other core business, flood operations, now extends well
beyond simply writing flood insurance for the National Flood Insurance Program
("NFIP") in 46 states. The Company also offers flood zone determinations, excess
flood insurance, flood compliance tracking services and claims supervision and
adjusting. Commercial lines and homeowners further complement Seibels Bruce's
product offerings.
Seibels Bruce seeks to balance fee-based operations with selective risk
underwriting to increase the Company's value for its shareholders, agents and
employees by pursuing maximum growth with limited risk exposure.
In the fall, a planning group was formed to address the direction of the
Company; establish its mission; and set strategies and objectives toward its
accomplishment. This process examined the external environment including
competition, as well as political and regulatory issues, on a product and state
basis and, where appropriate, a national level. In each state, management then
looked at the critical success factors of product development and delivery, and
assessed these success factors against corporate strengths and weaknesses. This
process identified where the Company excelled and where improvements were
needed. Given all the above, a mission statement was established as follows:
OUR COMMITMENT
Building on a heritage of providing insurance and related products through
the independent agency system since 1869, Seibels Bruce will increase
shareholder value by:
- focusing on quality customer service;
- enhancing customer relationships and loyalty;
- capitalizing on territorial knowledge;
- fostering creativity and innovation; and
- valuing each other;
- while adhering to the highest standards of integrity.
OUR VISION
We will achieve consistent earnings through consistent performance by
focusing on growth in our core markets and by providing the complementary
products that will enhance our position in the agency plant.
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This vision concentrates on the Company's core competencies of automobile
and flood and then surrounds them with complementary products and services to
enhance the Company's position in the agency plant. Seibels Bruce leverages its
customer and claims service, territorial knowledge and flexibility to retain and
enhance its agency and insured relationships.
Nineteen-hundred and ninety-eight was a transitional year, not only in
regards to the board and senior management, but also in the results of the
organization. For fiscal 1998, Seibels Bruce posted a net loss of $2.9 million
or ($0.39) per share, compared with net income of $4.0 million or $0.57 per
share in 1997.
By business segment, the following are 1998 results before change in
accounting principle (in thousands):
<TABLE>
<CAPTION>
NET (LOSS) INCOME
-----------------
<S> <C>
Automobile................................................................. $ (814)
Flood...................................................................... 24
Commercial................................................................. (2,090)
All other.................................................................. 587
-------
Total...................................................................... $ (2,293)
</TABLE>
The above results include over $3.0 million in charges relating to events or
actions, taken in 1998, that management does not expect to re-occur, which as
detailed later in this document, emphasizes the transitional nature of 1998.
Nineteen-hundred and ninety-eight was a year in which Seibels Bruce made
significant investments in each of its business operations to position itself
for improved future financial performance and to provide for enhanced
infrastructure. In its nonstandard automobile operations, Seibels Bruce
substantially strengthened its South Carolina business and made a major
acquisition to expand the Company's geographic reach. In its flood business,
Seibels Bruce expanded its book of business and acquired a West Coast operation
that enhanced its product and service lines. In its commercial lines operations,
Seibels Bruce completed the transition from acting as a managing general agent
to writing retained risk policies. In addition, Seibels Bruce is preparing for
1999 to network with a strategic partner in commercial lines and other
complementary products to minimize its risk through reinsurance and enhanced
underwriting.
The following table sets forth the sources of the Company's revenue for the
year ended December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
AUTO FLOOD COMMERCIAL ALL OTHER TOTALS
---------- --------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Direct Written Premium................................ $ 132,788 $ 32,754 $ 15,585 $ 447 $ 181,574
Net Written Premium................................... $ 22,554 $ (19) $ 9,251 $ 440 $ 32,226
</TABLE>
Sources of premium result from contractual processing with the SC Facility,
South Carolina voluntary business, Universal Insurance Company ("Universal") in
North Carolina, Graward General Companies, Inc. ("Graward") in Tennessee, flood
business, commercial business and runoff book premiums.
NONSTANDARD AUTOMOBILE
Entering 1998, the Company set several strategic objectives: to win the
contract to be a servicing carrier for the SCAAIP, the joint underwriting
association structure that will survive the SC Facility; to grow its business in
the voluntary market; and to seek out acquisition candidates to expand the
Company's operations into other geographic areas.
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GRAWARD OPERATIONS
In May 1998, Seibels Bruce announced the acquisition of privately held
Graward. The company, located in Nashville, Tennessee, brought access to more
than 2,000 agents throughout Arkansas, Georgia, Indiana, Kentucky, Mississippi,
North Carolina, Ohio, Tennessee and Virginia.
Since the acquisition, Seibels Bruce has been consolidating its operations
and is working to instill the customer and agent service focus that Seibels
Bruce is known for, throughout the new, larger organization. Additionally,
Seibels Bruce is capitalizing on its territorial knowledge and agent
relationships.
UNIVERSAL OPERATIONS
In December 1997, Seibels Bruce purchased Universal, located in
Winston-Salem, North Carolina. South Carolina Insurance Company ("SCIC"), a
wholly owned subsidiary of Seibels Bruce, had written business in North Carolina
for many years. With the purchase of Universal, Seibels Bruce combined its North
Carolina operations. The use of two companies in the state, each rating in two
tiers is a great advantage to the nonstandard automobile operations.
Graward complemented the Company's acquisition of Universal, which
underwrites nonstandard automobile insurance primarily in North Carolina. The
Graward and Universal acquisitions provided Seibels Bruce with a premium base of
approximately $71 million outside of South Carolina.
SOUTH CAROLINA OPERATIONS
The Company's strength in the South Carolina nonstandard automobile market
is based on the Company's history as a servicing carrier for the SC Facility
since its creation in 1974. Seibels Bruce continues to build its voluntary
nonstandard automobile business, a program that was launched in 1997. In
October, Seibels Bruce announced that it had been selected as one of two
insurance servicing carriers that will make up the nonstandard automobile
SCAAIP. As the SC Facility is phased out, SCAAIP will provide insurance to
drivers unable to obtain coverage in the voluntary market. This selection
distinguishes Seibels Bruce as the only insurance company to participate in all
three segments of the South Carolina nonstandard automobile insurance market.
Seibels Bruce's role as a member of all three segments, its knowledge of the
South Carolina market and the strong relationships it has established with
agents over the years gives the Company a strong competitive advantage in the
South Carolina market. Seibels Bruce is actively working to capitalize on that
advantage and has designed programs to assist agents and their driver customers
in making the transition from the SC Facility to the voluntary market. In
addition, the Company is networking with agents to provide them with tools to
enhance risk selection and underwriting of voluntary nonstandard policies.
FLOOD
Seibels Bruce's other core product line, flood operations, experienced
substantial growth in 1998. The Company's written premiums for flood increased
at a rate nearly doubling that of the NFIP. Seibels Bruce added to its
experienced flood sales force and was able to acquire several large books of
flood business from independent agents throughout the nation. This was achieved
by expanding the Company's product lines and services for the independent agent.
The Company's flood product line now includes flood insurance, excess flood
insurance, flood zone determinations, claims processing and compliance tracking.
The Company's basic flood insurance products are underwritten by the NFIP, a
federal government program that sets the policy rates, bears the risks and pays
the claims. Seibels Bruce, working with independent agents throughout the United
States, issues the policies and processes the claims. NFIP policies cover up to
$250,000 in damage per home; however, this level of coverage is inadequate for
many larger homes. Excess flood insurance provides coverage for larger, more
expensive homes. The Company's excess flood products allow it to insure homes up
to the full
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replacement value. For the Company's agents, this product allows them to expand
their customer base to include more affluent individuals. Seibels Bruce receives
additional, non risk-bearing income since it acts as a broker of this product,
and allows the Company to improve its agent relationships by offering a broader
product portfolio.
To further leverage the Company's leadership position, in March 1998, it
acquired America's Flood Services, Inc. ("AFS"). Headquartered in Gold River,
California, AFS provides flood zone determinations, flood insurance and flood
compliance tracking. AFS's existing book of flood business concentrated on the
West Coast is a counterbalance to Seibels Bruce's East Coast business. AFS's
flood operations are primarily fee based, providing an additional balance to the
Company's risk-based operations.
Flood zone determinations and flood zone mapping are services provided
primarily to mortgage originators, for determining whether homes are located in
flood zones and require flood insurance. These capabilities, through AFS, allow
the Company to offer more complete services to agents and institutions, provide
it with an even stronger presence in the flood market and expand the channels of
distribution for the Company's products.
Claims processing has been a major revenue and earnings component for
Seibels Bruce over the past several years and is a weather dependent piece of
the Company's flood operations. Whereas most property and casualty insurance
companies suffer risk-based losses during hurricanes and floods, Seibels Bruce
benefits strongly as a fee-based processor of claims for the NFIP. The addition
of AFS gives the Company a presence for flood claims processing on both coasts,
an important element of diversification and scale for weather dependent
operations.
In 1998, Seibels Bruce launched bundled homeowners' and flood product in
South Carolina. This complementary product boosted flood sales and gave the
Company a competitive edge in the South Carolina coastal market. The Company is
currently examining expanding this program to other states, including North
Carolina in 1999, where Seibels Bruce offers flood insurance. In certain
markets, the Company's flood products are sold together with commercial
insurance, its third major product line. As with the Company's other
complementary products, its underwriting strategy for commercial is conservative
from both a risk selection and a geographic dispersion standpoint, while
providing adequate reinsurance protection from catastrophes to protect
shareholder interest.
COMMERCIAL LINES
In 1998 Seibels Bruce accomplished its major strategic initiative in
commercial lines--converting from a managing general agent ("MGA") role to
retaining risk for commercial policies. The transition was a success, and
Seibels Bruce retained more than 75 percent of the policies it had originally
underwritten. This is largely attributable to the long-standing relationships
Seibels Bruce has with the commercial lines agents who sell its products.
Commercial lines represents an important diversification for Seibels Bruce,
further rounding out its product lines and enabling the agents to bundle Seibels
Bruce's products for a more complete insurance portfolio. This diversification
makes Seibels Bruce more attractive to agents, makes it easier for them to work
with the Company and enables them to better serve their customers.
Even though the transition was successful, Hurricane Bonnie resulted in a
high level of losses and claims activity that significantly affected the
Company's financial results and commercial lines performance. It should be noted
that the methodology of earning premiums associated with a transition to
retaining risk tends to negatively impact results in the short term due to the
matching of earned premium to underwriting expenses. Because Seibels Bruce
understands the importance of a complete product line and the benefits the
Company receives from having commercial operations beyond simply premium volume,
Seibels Bruce remains committed to its commercial lines of business. As
mentioned earlier, for further protection Seibels Bruce is examining ways to
reduce its catastrophe risk exposure through a
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long-term strategic alliance with a quality reinsurance organization. Seibels
Bruce has a letter of commitment with an A++ rated carrier to reinsure its
commercial lines with a 90% quota share agreement affective March 31, 1999. The
Company believes this arrangement should provide approximately $1.9 million in
surplus relief in the first quarter.
CLAIMS OPERATIONS
The Company's premium concentration in the catastrophe heavy Southeast led
it to create, in 1996, a catastrophe adjusting business, Insurance Network
Services ("INS"), to manage the Company's internal claims volume. INS currently
offers three services: catastrophe claims adjusting for hurricanes, tornadoes,
hailstorms, earthquakes and floods; catastrophe claims supervision; and ordinary
claims adjusting. These services expand the Company's business by complementing
its core flood operations and by allowing it to adjust claims for other
insurance companies. INS's capabilities assisted the Company in adjusting claims
from Hurricanes Bonnie and Georges and the 1998 winter storms. The Company's
experience in processing flood claims led to the award of two statewide
windstorm contracts, a strong indication of the Company's growing presence in
the catastrophe claims adjusting market. The Company's flood products are
supported by other lines of insurance in several markets.
REINSURANCE
The Company currently reinsures 50% of its nonstandard automobile business
in South Carolina and 20% of its business in North Carolina and West Virginia
under separate pro-rata reinsurance agreements with groups of reinsurers. The
remaining nonstandard automobile is reinsured under a 75% pro-rata reinsurance
agreement with groups of reinsurers. This type of reinsurance is designed to
increase the capacity of the Company to write new and renewal business. The
Company cedes a portion of the premiums to the reinsurers net of a ceding
commission, and collects the same portion of claims payments from the
reinsurers. The lead reinsurer for the South Carolina business is Hartford
Insurance Company, while the reinsurers in North Carolina and West Virginia are
Gerling Global Reinsurance Corporation and TIG Reinsurance Company and in the
remaining states the lead reinsurer is Kemper Reinsurance Corporation.
Effective February, 1998, the Company reinsured its commercial lines
business on a per risk excess of loss basis. The Company retains $100,000 per
risk, and cedes the excess to American Re Insurance Company. Effective in April
1998, the Company purchased catastrophe coverage for its commercial and personal
lines of business.
Prior to suspending underwriting operations in the first half of 1995, the
Company reinsured a portion of its risks. Business was ceded principally to
reduce the Company's exposure on large individual risks and to provide
protection against large catastrophic occurrences. The Company's principal
reinsurer under the prior agreements, in terms of the amount of reinsurance
recoverable on incurred losses, is Swiss Reinsurance American Corporation.
Reinsurance does not legally discharge an insurer from its primary liability
on the policies it issues, but an assuming reinsurer is liable to the insurer to
the extent of reinsurance ceded. Therefore, the Company is subject to credit
risk with respect to the obligations of its reinsurers. The Company evaluates
the financial condition of each prospective reinsurer before it cedes business
to the carrier. Reserves for uncollectable reinsurance are provided if deemed
necessary.
In its capacity as a servicing carrier, the Company issues policies for
automobile and flood insurance then reinsures 100% of these risks with the SC
Facility and the NFIP. While the amount of reinsurance recoverable under these
arrangements is significant, the Company believes these balances from the SC
Facility and the NFIP are fully collectable.
5
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INVESTMENT AND INVESTMENT RESULTS
The Company's cash and investments were distributed as follows at December
31, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
1998 1997
---------------------- ----------------------
ASSET ASSET
VALUES % VALUES %
----------- --------- ----------- ---------
<S> <C> <C> <C> <C>
U. S. Government and government agencies and authorities.............. $ 34,786 54.1 $ 38,624 74.6
States, municipalities and political subdivisions..................... 635 1.0 2,289 4.4
Corporate bonds....................................................... 4,274 6.7 1,021 2.0
----------- --------- ----------- ---------
Total debt securities............................................... 39,695 61.8 41,934 81.0
Cash & short term investments......................................... 23,141 36.0 8,922 17.2
Equity securities..................................................... 1,306 2.0 915 1.8
Other long term investments........................................... 108 0.2 22 --
----------- --------- ----------- ---------
Total cash and investments.......................................... $ 64,250 100.0% $ 51,793 100.0%
----------- --------- ----------- ---------
----------- --------- ----------- ---------
</TABLE>
Asset values represent market values at December 31, 1998 and 1997,
respectively. During the fourth quarter of 1997, the Company invested $1.4
million into Sunshine State Holding Company. This investment was a combination
of $0.8 million in equity and $0.6 million in loans. The equity investment is
greater than 20% of the equity of Sunshine State Holding Company, therefore the
Company's equity in the undistributed earnings of the affiliate are reported in
earnings.
The following table sets forth the consolidated investment results for the
three years ended December 31 (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Total investments (1)........................................ $ 55,515 $ 53,078 $ 47,614
Net investment income........................................ $ 3,271 $ 3,121 3,006
Average yield................................................ 5.9% 5.9% 6.3%
Net realized investments gains (losses)...................... $ 55 $ 529 $ (14)
</TABLE>
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(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.
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. Four 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.
Universal is domiciled in North Carolina and is principally regulated by the
North Carolina Department of Insurance. Kentucky Insurance
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Company ("KIC"), a subsidiary of Catawba Insurance Company ("CIC"), 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,
North Carolina and Kentucky insurance laws, rather than federal bankruptcy laws,
would apply to the liquidation or reorganization of any of the Company's
insurance companies. An examination of SCIC, and its subsidiary companies,
Consolidated American Insurance Company, Catawba Insurance Company, KIC and
Investors National Life Insurance Company of South Carolina as of December 31,
1998, is in process. An examination of Universal has been completed as of
December 31, 1997, with analysis of certain operations of the Company being
conducted through December 18, 1998.
NAIC GUIDELINES. The National Association of Insurance Commisioners
("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 against, insurance
companies that are potentially inadequately capitalized. Compliance is
determined by the ratio of the Company's regulatory total adjusted capital to
its company action level RBC (as defined by the NAIC). Companies which fall
below the company action level RBC are required to disclose plans to remedy the
situation. As of December 31, 1998, all of the insurance subsidiaries have
ratios 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.
North Carolina and 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 30 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 North Carolina Insurance Holding Company System Regulatory Act provides
that, without prior approval of the Commissioner of Insurance of the State of
North Carolina, dividends within any 12-month period may not exceed the lessor
of (i) 10% of a domestic insurer's surplus as regarding policyholders as of the
preceding December 31 or (ii) the net income, not including realized capital
gains, for the 12-month period ending the preceding December 31.
The South Carolina Insurance Holding Company Regulatory Act provides that,
without prior approval of the Director of Insurance of the State of South
Carolina, dividends within any 12-month period may not exceed the greater of (i)
10% of a domestic insurer's surplus as regarding policyholders as shown in the
insurer's most recent annual statement or (ii) a domestic insurer's net income,
not including realized capital gains or losses as shown in the insurer's most
recent annual statement. Furthermore, dividends may only be paid out of positive
earned surplus unless approved by the Commissioner as of December 31, 1998, SCIC
had negative earned surplus.
Payment of cash dividends by the Company is at the discretion of its Board
of Directors and is based on its earnings, financial condition, capital
requirements, and other relevant factors. If the ability of SCIC
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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.
REQUIRED PARTICIPATION
STATE RESIDUAL MARKET PLAN. Most states in which the Company's property and
casualty insurance group writes business have collective pools, underwriting
associations, reinsurance facilities assigned risk plans and or other types of
residual market plans, the largest being the SC Facility and the North Carolina
Reinsurance Facility ("NC Facility"), 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 share of the voluntary market in a given state.
SOUTH CAROLINA AUTOMOBILE. The SC Facility is an unincorporated, non-profit
administrative state sponsored plan. The SC Facility provides a mechanism for
the insurance companies doing business in the state of South Carolina 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 SC Facility. When
policyholders whose premiums have been ceded through the SC 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 SC Facility. The SC
Facility has 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 SC
Facility's servicing carriers. Prior to October 1, 1996, the cession of
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 SC
Facility prior to October 1, 1996. Effective October 1, 1996, however, physical
damage was removed from the mandate, and the SC Facility agreed to accept any
physical damage, pointed or clean, provided the SC Facility-filed rates were
used.
In 1997, the South Carolina State General Assembly passed legislation which
transforms the SC Facility into the SCAAIP, a Joint Underwriting Association
("JUA"), effective March 1, 1999. As of March 1, 1999, insurance companies may
no longer cede new business to the SC Facility. Non-servicing Carriers may
continue to cede renewals to the SC Facility until October 1, 1999 and Servicing
Carriers may continue to cede renewals to the SC Facility until March 1, 2002.
All renewals ceded after March 1, 1999 must be ceded at the rate level approved
for the SC Facility. The new JUA began accepting business on March 1, 1999. The
initial rate level for the JUA is approximately 150% of the current SC Facility
rate. The legislation allowed the current Designated Agents to receive voluntary
contracts without jeopardizing their Designated Agent Status.
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 the NFIP name, 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.
8
<PAGE>
COMPETITION AND OTHER FACTORS
The Company operates in highly competitive industry markets. 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 SC 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 its 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.
The South Carolina Legislature has instituted reform legislation which will
reorganize the SC Facility over a three-year transition period into a JUA. The
Company believes that one result of the proposed reorganization will be that the
SC Facility rates will increase to a level that will trigger a voluntary exit
from the SC Facility by customers able to obtain more attractive rates in the
voluntary market. In this event, the Company feels there will be an opportunity
to attract those customers to its nonstandard automobile insurance products,
and, eventually, into standard and preferred automobile products. In particular,
the Company believes its Designated Agent relationships, its underwriting data
and experience with the SC Facility and knowledge of the South Carolina
automobile insurance market will allow it to obtain additional business.
Competition in the North Carolina market is driven not only by price, but
also by premium financing. The North Carolina market is sensitive to the down
payment required on a nonstandard automobile policy. The Company, through PBP,
plans to offer down payments which are similar to its competitors.
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, and a competitor's ability to increase commission rates and
on-line policy issuance capability. The Company has been impacted by not having
a homeowners product to compliment its flood insurance especially in Florida;
thus, the Company signed a joint marketing agreement with Sunshine State
Insurance Company, which gives the Company's agents access to a homeowners
product.
COMMERCIAL LINES. As the Company resumed writing risk-bearing commercial
business in 1998, new competitive factors arose. The Company continued to, and
will continue, to focus on small businesses in developing its "Main Street" book
of business, but competition in this market is intense. The Company will be
competing with the large national and regional carriers, many with higher A.M.
Best ratings than the Company's, which influences the decisions of many
commercial insurance customers. In addition, companies offering workers'
compensation coverage may reap some competitive advantage. The Company is
reinsuring its book of business with A+ rated carriers to try to lessen the
effects of not having a rating. The Company is also investigating certain niche
markets in which it believes the competition will be less, and a lack of a
rating will have little impact.
EMPLOYEES
At December 31, 1998, the Company and its subsidiaries employed a total of
544 employees.
9
<PAGE>
ITEM 2. PROPERTIES
The Columbia, South Carolina headquarters, containing approximately 141,000
square feet of occupied space, is owned by the Company, and used primarily by
its property and casualty insurance operations. The Winston-Salem, North
Carolina office houses Universal. That office contains approximately 18,000
square feet and is leased through an arrangement with a term through 2005.
Graward is located in Nashville, Tennessee. That office consists of
approximately 20,000 square feet and is leased through 2002. AFS is located in
Rancho Cordova, California. AFS leases 4,000 square feet on a month to month
basis. Some additional premises are leased by the Company in locations in which
it operates. Management believes that these facilities are adequate for the
current level of operations.
ITEM 3. LEGAL PROCEEDINGS
The Company was served with a complaint dated November 19, 1997 by Norwest
Financial Resources, Inc. ("Norwest") that claimed indemnification against the
Company pursuant to the Asset Purchase Agreement dated as of July 2, 1993 by and
among Premium Service Corporation of Columbia ("Premium"), the Company and
Norwest. The indemnification claim relates to certain loans which were recorded
on the books of Premium but which later were discovered to be incorrectly
recorded as realizable assets. This complaint was filed in the state of South
Carolina in the Richland County, Court of Common Pleas. Management believes the
Company has no liability in the case.
Catawba Insurance Company ("Catawba") was served with a complaint dated
November 7, 1997 by the Municipal Association of South Carolina which claimed it
has potential deficiency of approximately $1.75 million with respect to certain
South Carolina municipality taxes. Management and legal counsel believe Catawba
has basis for non-payment of such amounts. This complaint was filed in the State
of South Carolina in the Richland County, Court of Common Pleas, Fifth Judicial
Circuit.
On May 1, 1998, the Company completed its acquisition of Graward. In
completing the Final Balance Sheet in accordance with the stock purchase
agreement for the Graward acquisition, the Company identified certain purchase
price adjustments which it believes were known to certain of the sellers, but
were not disclosed to the Company during its due diligence process. The stock
purchase agreement with Graward provides methods for resolving the differences
as to the appropriate adjustments to the Final Balance Sheet. On December 7,
1998, the sellers notified the Company that they intended to submit to
arbitration two matters currently in dispute between the parties. Management
believes that the purchase price will be adjusted appropriately under the
purchase agreement.
The Company and its subsidiaries are parties to various other lawsuits
generally arising in the normal course of its 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.
No matter was submitted to a vote of security holders of the Company during
the fourth quarter of the fiscal year covered by this report.
10
<PAGE>
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 Stock Market
under the symbol "SBIG." The following table sets forth the range of high and
low closing sales prices as reported on The NASDAQ Stock Market. The table
reflects a 1-for-4 reverse stock split of the common stock that occurred on
April 10, 1997. On March 24, 1999, the last reported sales price of the common
stock on The NASDAQ Stock Market was $2.875 per share.
<TABLE>
<CAPTION>
1999 HIGH LOW
- -------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
First quarter (through March 24, 1999).......................................... 3.88 2.88
</TABLE>
<TABLE>
<CAPTION>
1998 HIGH LOW
- -------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
First quarter................................................................... 8.38 7.00
Second quarter.................................................................. 8.38 6.88
Third quarter................................................................... 7.31 3.88
Fourth quarter.................................................................. 4.88 3.19
</TABLE>
<TABLE>
<CAPTION>
1997 HIGH LOW
- -------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
First quarter................................................................... 9.50 7.25
Second quarter.................................................................. 8.25 6.13
Third quarter................................................................... 8.75 7.75
Fourth quarter.................................................................. 8.38 7.38
</TABLE>
(b) Holders
There were approximately 2,749 shareholders of record as of March 24, 1999.
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 on its common stock
during the past 5 years, and the Board of Directors does not presently intend to
pay any cash dividends on common stock 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, Graward, AFS and Universal to
declare and pay dividends to the Company; however, the Company does collect
management fees from certain subsidiaries. SCIC and Universal are regulated as
to their payment of dividends by their respective state of domicile's insurance
laws. 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 9 of Notes to Financial
Statements.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data for each of the five years ended
December 31, 1998 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.
11
<PAGE>
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
FINANCIAL CONDITION
Total cash & investments........................... $ 64,250 $ 51,793 $ 42,944 $ 50,641 $ 61,686
Total assets....................................... 295,563 234,618 220,472 224,005 255,935
Total debt......................................... 16,250 3,036 0 2,476 439
Special stock...................................... 2,700 2,200 0 0 0
Shareholders' equity............................... 35,588 37,544 23,791 10,187 650
Per share........................................ 4.58 4.86 3.86 2.44 0.16
RESULTS OF OPERATIONS
Revenues
Insurance:
Commission & service income...................... $ 49,298 $ 44,105 $ 46,419 $ 49,572 $ 60,669
Property & casualty premiums..................... 22,762 6,580 7,186 10,384 14,718
Credit life premiums............................. 13 156 478 890 1,801
Net investment & other interest.................... 4,645 3,887 3,807 4,330 6,226
Realized gains (losses) on investments............. 55 529 (14) 164 (6,327)
Other.............................................. 4,644 112 151 843 2,673
---------- ---------- ---------- ---------- ----------
Total revenues..................................... $ 81,417 $ 55,369 $ 58,027 $ 66,183 $ 79,760
---------- ---------- ---------- ---------- ----------
(Loss) income before effect of change in accounting
principle.......................................... $ (2,293) $ 4,003 $ 5,176 $ 1,152 $ (19,074)
Effect of change in accounting principle............. (601) -- -- -- --
Net (loss) income.................................... $ (2,894) $ 4,003 $ 5,176 $ 1,152 $ (19,074)
Basic earnings per share before change in accounting
principle.......................................... (0.31) 0.57 1.05 0.28 (6.89)
Basic earnings per share effect of change in
accounting principle............................... (0.08) -- -- -- --
Basic earnings per share after change in accounting
principle.......................................... (0.39) 0.57 1.05 0.28 (6.89)
Diluted earnings per share before change in
accounting principle............................... (0.31) 0.55 0.94 0.27 (6.89)
Diluted earnings per share effect of change in
accounting principle............................... (0.08) -- -- -- --
Diluted earnings per share after change in accounting
principle.......................................... (0.39) 0.55 0.94 0.27 (6.89)
</TABLE>
(See Item 7 and Notes to Financial Statements included under Item 8).
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, commercial, homeowners and other
property and casualty insurance services and products. As stated in the
Development of Business segment, the Company maintains core products of
nonstandard automobile and flood. It offers complementary products of commercial
and homeowners in support of the Company's core businesses.
12
<PAGE>
The following table shows the results of the segments of automobile, flood,
commercial and all other for 1998.
Net (loss)/income (before effective change in accounting principle):
<TABLE>
<S> <C>
Automobile......................................................... $ (814)
Flood.............................................................. 24
Commercial......................................................... (2,090)
All other.......................................................... 587
---------
Total.............................................................. $ (2,293)
</TABLE>
NONSTANDARD AUTOMOBILE
Entering 1998, Seibels Bruce set several strategic objectives: to win the
contract to be a servicing carrier for the SCAAIP, a joint underwriting
association structure that will survive the SC Facility; to grow the Company's
business in the voluntary market; and to seek out acquisition candidates to
expand the Company's operations into other geographic areas. Currently, Seibels
Bruce is the only company in South Carolina with servicing contracts in the SC
Facility, the SCAAIP contract awarded in September 1998 and active in the
voluntary auto market.
SOUTH CAROLINA OPERATIONS
Under the Company's contract with the SC Facility premium-based fees under
the contract are 21.0% of gross premiums written. The Company is responsible for
paying all costs of processing the policies, including a mandated 12.0%
commission on gross premiums earned to the agent. The Company also receives
income on the claims it pays for the SC Facility in the amount of 11.0% 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 SC Facility does reimburse the Company in full
for legal expenses associated with processing these claims.
In 1997, the South Carolina Legislature passed Act 154 which went into
effect on March 1, 1999 and limits the facility for renewals only for 36 months
until February 28, 2002. Therefore, the Company will receive processing fees on
renewals during this period and claims fee for runoff of the current business,
renewals until February 28, 2002 and complete runoff thereafter.
Act 154 provides to South Carolina drivers the most significant changes in
automobile insurance in twenty-five (25) years. Act 154 capped recoupment at 10%
of the liability premium, offers greater flexibility to insurance companies to
match the rate they charge to the risk drivers present and, created the South
Carolina Associated Auto Insurers Plan to provide insurance to drivers who find
it difficult to obtain coverage in the private market.
The SC Facility will be replaced with SCAAIP, which is designed to provide
the highest risk insureds at self-sustaining rates. The Company also writes
voluntary nonstandard auto in a number of companies for those drivers who do not
renew in the facility or who are referred to SCAAIP.
NORTH CAROLINA NONSTANDARD AUTOMOBILE OPERATIONS
In December 1997, Seibels Bruce purchased Universal. SCIC had written
business in North Carolina for many years. With the purchase of Universal,
Seibels Bruce combined its North Carolina operations. The use of two companies
in the state, each rating in two tiers is a great advantage to the nonstandard
automobile operations.
Physical damage coverage is retained on voluntary business in North
Carolina, as the NC Facility does not reinsure physical damage coverage. Only
liability coverage is written in the NC Facility. Liability
13
<PAGE>
coverage is reinsured 100% in the NC Facility and companies receive an expense
allowance for processing the business and a claims allowance for adjusting the
claims on that business. Every company that transacts business in North Carolina
is a member of the NC Facility. SCIC is also a member of the Board of Governors
of the NC Facility. Both Universal and SCIC write physical damage coverage and
voluntary liability coverage, in addition to the liability coverage which is
ceded to the NC Facility.
NASHVILLE OPERATIONS
In May, Seibels Bruce announced the acquisition of privately held Graward in
Nashville, Tennessee. The company brought access to more than 2,000 agents
throughout Arkansas, Georgia, Indiana, Kentucky, Mississippi, North Carolina,
Ohio, Tennessee and Virginia. As with any acquisition, Seibels Bruce is
diligently reviewing operations, competition, pricing and market strategies. On
an annualized basis, the Nashville operation provides the Company a premium of
approximately $41 million as it begins in 1999.
OVERALL AUTOMOBILE OPERATIONS
Overall, in the automobile operations, during 1998 Seibels Bruce made
significant investments in each of its business operations to position itself
for improved future financial performance and to provide for enhanced
infrastructure. Seibels Bruce actively works to capitalize on advantages and
strengths it has in all markets and has designed programs to assist agents and
their driver customers. This is especially true in South Carolina where Seibels
Bruce assists agents in the transition from the SC Facility to the voluntary
market. In addition, the Company networks with these same agents to provide them
with tools to enhance risk selection and underwriting of voluntary nonstandard
policies. In 1999, Seibels Bruce is embarking on similar plans with its
Universal agents in North Carolina and agents who write business in all states
associated with the Nashville operations.
FLOOD
The Company's other core product line, flood operations, experienced
substantial growth in 1998. The Company's written premiums for flood increased
at a rate nearly doubling that of the NFIP. Seibels Bruce added to its
experienced flood sales force and was able to acquire several large books of
flood business from independent agents throughout the nation. This was achieved
by expanding the Company's product lines and services for the independent agent.
As a servicing carrier for the NFIP, the Company recognizes income for the
policies it processes in the amount of 31.6% of gross premiums written. 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.
In addition, the Company's flood product line now includes flood insurance,
excess flood insurance, flood zone determinations, claims processing and
compliance tracking as discussed. The Company's basic flood insurance products
are underwritten by the NFIP, a federal government program that sets the policy
rates, bears the risks and pays the claims. Seibels Bruce, working with
independent agents throughout the United States, issues the policies and
processes the claims. NFIP policies cover up to $250,000 in damage per home;
however, this level of coverage is inadequate for many larger homes. Excess
flood insurance provides coverage for larger, more expensive homes. The
Company's excess flood products allow it to insure homes up to the full
replacement value. For the Company's agents, this product allows them to expand
their customer base to include more affluent individuals. Seibels Bruce, for its
part, receives additional, non risk-bearing income since it acts as a broker of
this product. It also improves the Company's agent relationships by offering a
broader product portfolio.
14
<PAGE>
To further leverage the Company's leadership position, in March 1998, it
acquired AFS. Headquartered in Gold River, California, AFS provides flood zone
determinations, flood insurance and flood compliance tracking. AFS's existing
book of flood business concentrated on the West Coast is a counterbalance to
Seibels Bruce's East Coast business. AFS's flood operations are primarily fee
based, providing an additional balance to the Company's risk-based operations.
Flood zone determinations and flood zone mapping are services provided
primarily to mortgage originators, for determining whether homes are located in
flood zones and require flood insurance. These capabilities, through AFS, allow
the Company to offer more complete services to agents and institutions, provide
it with an even stronger presence in the flood market and expand the channels of
distribution for the Company's products.
COMMERCIAL LINES
Prior to February 1998, the Company derived revenues from its role as a
commercial lines MGA for an unaffiliated insurance company. While the Company
performed all services and paid all costs (including the independent agents'
commissions) related to administering and processing policies and claims, the
policies were 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 the premiums written or associated claims
incurred in 1997. Beginning in February 1998, as the commercial policies
renewed, the Company began to retain the risk.
In 1998, Seibels Bruce did accomplish its major strategic initiative in
commercial lines--converting from a MGA role to retaining risk for commercial
policies. The transition was a success, and Seibels Bruce retained more than 75
percent of the policies it had originally underwritten. This is largely
attributable to the long-standing relationships Seibels Bruce has with the
commercial lines agents who sell its products.
Commercial lines represents an important diversification for Seibels Bruce,
further rounding out its product lines and enabling the Company's agents to
bundle products for a more complete insurance portfolio. This makes Seibels
Bruce more attractive to agents, makes it easier for them to work with the
Company and enables them to better serve their customers.
Even though the transition was successful, Hurricane Bonnie resulted in a
high level of losses and claims activity that significantly affected the
Company's financial results and commercial lines performance. It should be noted
that the methodology of earning premiums associated with a transition to
retaining risk tends to negatively impact results in the short term due to the
timing of earned premium versus underwriting expenses. In addition, Seibels
Bruce was heavily reinsured for large catastrophes, which absorbed a great deal
of the Company's premium base. At April 1, 1999 Seibels Bruce is looking to take
advantage of a more efficient reinsurance market to provide similar coverage.
Because Seibels Bruce understands the importance of a complete product line and
the benefits it receives from having commercial operations beyond simply premium
volume, the Company remains committed to its commercial lines of business. As
mentioned earlier, Seibels Bruce is examining ways to reduce its catastrophe
risk exposure more efficiently through a long-term strategic alliance with a
quality reinsurance organization. The Company expects to realize the benefit of
this agreement in first quarter 1999.
INSURANCE ADJUSTING
The Company's premium concentration in the catastrophe heavy Southeast led
it to create, in 1996, a catastrophe adjusting business, INS, to manage the
Company's internal claims volume. INS currently offers three services:
catastrophe claims handling for hurricanes, tornadoes, hailstorms, earthquakes
and floods; catastrophe claims supervision; and ordinary claims adjusting. These
services expand the Company's business by complementing its core flood
operations and by allowing it to adjust claims for other insurance companies.
INS's capabilities assisted the Company in adjusting claims from Hurricanes
Bonnie and Georges and the 1998 winter storms. The Company's experience in
processing flood claims led to the
15
<PAGE>
award of two statewide windstorm contracts, a strong indication of Seibels
Bruce's growing presence in the catastrophe claims adjusting market. The
Company's flood products are supported by other lines of insurance in several
markets.
RUNOFF
The Company continues to maintain reserves and pay significant claims with
respect to its runoff operations. These runoff operations consist primarily of
general liability policies that include contractors' liability and environmental
coverages primarily in California and commercial (including workers'
compensation) and personal lines policies in the Southeast. The runoff of claims
on these policies created substantial losses to the Company during the past 10
years. In addition, the Company's runoff segment contains the management of
runoff reserves from prior business in the 1980's and runoff from a nonstandard
homeowners MGA book in Kentucky and Tennessee entered into in early 1997.
Seibels Bruce discontinued writing new business in this MGA in October of 1998
and will complete this runoff in one year.
1998 RESULTS EFFECT ON BUSINESS SEGMENTS
As discussed, the Company had a net loss before effect of change in
accounting principle of $2,293 for 1998. This included $3,056 million in
one-time unusual items. The following schedule itemizes the one-time unusual
items Seibels Bruce experienced in this transition year:
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------------------------------
AUTOMOBILE FLOOD COMMERCIAL ALL OTHER TOTALS
----------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Income (loss) as reported................................. $ (814) $ 24 $ (2,090) $ 587 $ (2,293)
Restructuring charge...................................... 503 30 11 1 545
Arbitration and legal expenses............................ 549 549
Severance payments........................................ 162 49 32 243
Y2K remediation expense................................... 520 520
Hurricane Bonnie losses................................... 99 412 511
Accounting system reengineering........................... 103 31 182 (165) 151
Operational items......................................... 337 200 537
----------- --------- ----------- ----------- ---------
Total unusual items....................................... $ 1,724 $ 110 $ 637 $ 585 $ 3,056
----------- --------- ----------- ----------- ---------
Income (loss) before unusual items........................ $ 910 $ 134 $ (1,453) $ 1,172 $ 763
----------- --------- ----------- ----------- ---------
----------- --------- ----------- ----------- ---------
</TABLE>
The schedule shows the detail of the unusual items and its effect on
business segments. Nonstandard automobile was effected by
$1,724 in adjustments from severance payouts from certain downsizing; year
2000 remediation expenses for systems acquired in the Graward and Universal
acquisitions; Universal losses from Hurricane Bonnie; and the reengineering of
the Company's accounting systems and new general ledger installation. This
illustrates that the nonstandard automobile segment, without special charges,
would have produced $910 of income.
The flood segment produced income of $24 and experienced some severance and
accounting reengineering costs totaling $108. Without these adjustments, the
flood segment would have had income of $134.
The commercial segment showed a start-up loss in 1998 of $(2,090). Total
special charges of $637 came from severance payments, from Hurricane Bonnie
costs of $412; and accounting reengineering costs of $182. The loss without
unusual items would have been $(1,453) and, as discussed, Seibels Bruce is
addressing the alliance of a reinsurance partner for this book in 1999.
16
<PAGE>
The "All Other" category contains management of runoff reserves from prior
business in the 1980's and runoff from a nonstandard homeowners managing general
agency book in Kentucky and Tennessee entered into in early 1997. Income of $587
was due mainly to investments of reserves. With out the unusual items net income
would have been $1,172. Some of the unusual items include a $200 write-off from
an uncollectable receivable, arbitration and legal expenses of $549 and a
benefit from accounting reengineering of $165. Also impacting this segment, but
not listed, include losses from runoff of the homeowners mentioned above of
$934. The Company discontinued writing new business with this MGA in October
1998 and will complete runoff in one year. The Company also strengthened
workers' compensation reserves on second injury fund by $401 and $336 on loss
adjustment and administrative expenses that support the Company's runoff
liabilities.
17
<PAGE>
RESULTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1998 AND 1997
COMMISSION AND SERVICE INCOME
Commission and service income for the year ended December 31, 1998 increased
$5.2 million or 11.8% to $49.2 million from $44.1 million for the year ended
December 31, 1997. Of this increase, $2.3 million relates to flood premium-based
fees on a $6.9 million increase in flood written premiums while $0.7 million
relates to flood claim-based fees and $1.3 million relates to flood zone
determinations. Fees generated by acting as an MGA for another insurance company
decreased $4.2 million as that contract was terminated in February 1998.
However, this was more than offset by a $5.2 million increase in various state
facility premium and claim-based fees.
PROPERTY AND CASUALTY PREMIUMS EARNED
Property and casualty premiums earned for the year ended December 31, 1998
increased $16.2 million, or 245.9% to $22.8 million from the year ended December
31, 1997. This increase is due to a $14 million increase in nonstandard
automobile premiums and $2.2 in commercial multi-peril premiums. The increase in
nonstandard automobile earned premiums is a result of re-entering the voluntary
market in South Carolina, the purchase of Universal in December 1997 and the
purchase of Graward in May 1998. The increase in Commercial multi-peril earned
premiums is a result of switching from a MGA status to a retained risk status in
February 1998.
CREDIT LIFE PREMIUMS EARNED
Net credit life premiums earned decreased $0.1 million in 1998 compared to
1997 as the Company continues to runoff its life company operations.
NET INVESTMENT AND INTEREST INCOME
Net investment and other interest income for the year ended December 31,
1998 increased 19.5% or $0.8 million to $4.6 million from $3.9 million as of
December 31, 1997. This increase is due to a $12.5 million increase in 1998 in
cash and investments. The average investment yield for the Company remained at
5.9% for the year.
REALIZED GAINS ON INVESTMENTS
Realized gains on investments totaled $55,000 for the year ended December
31, 1998, a $0.5 million decrease from the previous year.
LOSS AND LOSS ADJUSTMENT EXPENSES
Property and casualty loss and loss adjustment expenses for the year ending
December 31, 1998 increased $16.4 million, or 185.8% to $25.2 million from $8.8
million for the year ended December 31, 1997. This increase is due to the
Company's re-entry into the retained risk business. Of this amount, $0.5 million
relates to hurricane related losses.
POLICY ACQUISITION COSTS
Policy acquisition costs increased $9.0 million for the year ended December
31, 1998 compared to 1997, or 748.1%. The Company attributes this increase to
the costs associated with the underwriting activities necessary to generate
earned premium.
18
<PAGE>
OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expense for the year ended December 31, 1998
increased $5.7 million, or 13.8% to $46.8 million from $41.1 million for the
year ended December 31, 1997. This increase is due to the operating costs
associated with the new acquisitions, AFS and Graward. In addition, the Company
has experienced $0.5 million in Year 2000 remediation expenses, $0.5 million in
legal expenses related to an arbitration case and approximately $2.0 million
related to other one-time charges.
YEARS ENDED DECEMBER 31, 1997 AND 1996
COMMISSION & SERVICE INCOME
Commission and service income for the year ended December 31, 1997 decreased
$2.3 million or 5% to $44.1 million from $46.4 million for the year ended
December 31, 1996. This decrease is due to a $1.7 million decrease in
premium-based fee revenue from the Company's MGA relationship in commercial
lines. Also, flood claim-based revenues decreased $2.1 million due to reduced
claims activity during the year ended December 31, 1997. Revenues from SC
Facility premium-based and claim-based fees increased $1.2 million and $0.6
million, respectively, for the year ended December 31, 1997. Flood premium-based
fees also increased $0.6 million for the same period.
PROPERTY AND CASUALTY PREMIUMS EARNED
Property and casualty premiums earned for the year ended December 31, 1997
decreased $0.6 million, or 8.4% to $6.6 million from the year ended December 31,
1996. This decrease is due to a $0.9 million decrease in premiums assumed from
pools and associations.
CREDIT LIFE PREMIUMS EARNED
Net credit life premiums earned for the year ended December 31, 1997
decreased $0.4 million or 65.5% to $0.1 million from $0.5 million for the year
ended December 31, 1996. The Company sold the related subsidiary in September
1993. Under the sale agreement, the Company retained the responsibility and
continues to runoff 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,
1997 increased 2.1% or $80,000 from $3.8 million as of December 31, 1996 to $3.9
million. The Company's cash and investment position increased $8.8 million from
December 31, 1996 to December 31, 1997. Approximately one-half of the increase
is due to the addition of Universal's $4.2 million portfolio on December 1,
1997. Investment income only includes results for one month of the Universal
portfolio. Average yield for the portfolio was down slightly from 6.3% in 1996
to 5.9% in 1997 which is reflective of the lower interest rate environment
experienced in 1997.
REALIZED GAINS ON INVESTMENTS
Realized gains on investments totaled $0.5 million for the year ended
December 31, 1997, a $0.5 million increase over the previous year. Of this
total, $0.2 million was realized on the sale of stock in an industry trade
group, Insurance Services Office. In addition, the Company sold surplus real
estate, which resulted in a gain of $0.3 million.
LOSS AND LOSS ADJUSTMENT EXPENSES
Property and casualty loss and loss adjustment expense for the year ending
December 31, 1997 decreased $3.0 million, or 25.2% to $8.8 million from $11.8
million for the year ended December 31, 1996.
19
<PAGE>
The decrease is due to a reduction in losses and loss adjustment expenses
related to the Company's runoff business.
POLICY ACQUISITION COSTS
Policy acquisition costs for the year ended December 31, 1997 and 1996 were
$1.2 and $1.8 million, respectively. The $0.6 million decrease is due to a
reduction in net premiums written in the property and casualty segments and a
decrease in policy acquisition costs associated with the credit life segment.
OTHER OPERATING COSTS AND EXPENSES
Other operating costs and expenses for the year ended December 31, 1997
increased $2.1 million, or 5.3% to $41.1 million from $39.0 million for the year
ended December 31, 1996. This increase is mainly due to the Company hiring
individuals in 1997 for its voluntary automobile program and associated start up
costs for that program.
LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES
Loss and loss adjustment expense 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 an estimated amount to be received
through salvage and subrogation. The resulting liabilities represent the
Company's estimate of the 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.
20
<PAGE>
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>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Liability for losses and LAE at the beginning of the
year:
Gross liability per balance sheet...................... $ 114,770 $ 132,152 $ 145,523
Ceded reinsurance recoverable, classified as an
asset................................................ (75,616) (84,725) (84,492)
---------- ---------- ----------
Net liability.......................................... 39,154 47,427 61,031
---------- ---------- ----------
Reserves acquired in purchase of Universal............... -- 2,655 --
---------- ---------- ----------
Provision for losses and LAE for claims occurring in the
current year........................................... 24,450 12,202 10,697
Increase (decrease) in estimated losses and LAE for
claims occurring in prior years........................ 819 (3,362) 1,117
---------- ---------- ----------
25,269 8,840 11,814
---------- ---------- ----------
Losses and LAE payments for claims occurring during
Current year........................................... 18,398 8,845 9,151
Prior years............................................ 9,703 10,923 16,267
---------- ---------- ----------
28,101 19,768 25,418
---------- ---------- ----------
Liability for losses and LAE at the end of the year:
Net liability.......................................... 36,322 39,154 47,427
Ceded reinsurance recoverable, classified as an
asset................................................ 83,654 75,616 84,725
---------- ---------- ----------
Gross liability per balance sheet...................... $ 119,976 $ 114,770 $ 132,152
---------- ---------- ----------
</TABLE>
The ceded reinsurance recoverable, classified as an asset, includes $94.4
million at the end of 1998 ($97.6 million at the end of 1997 and $102.2 million
at the end of 1996) of balances recoverable from various facilities (such as the
SC Facility, NC Facility and NFIP). See Note 13 of Notes to Financial
Statements.
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>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Net liability on a SAP basis as filed in annual statement............. $ 36,954 $ 39,540
Established salvage and subrogation recoveries recorded on a cash
basis for SAP and on an accrual basis for GAAP...................... (632) (386)
---------- ----------
Net liability on a GAAP basis, at year end............................ 36,322 39,154
Ceded reinsurance recoverable, classified as an asset................. 83,654 75,616
---------- ----------
Gross liability on a GAAP basis, at year end.......................... $ 119,976 $ 114,770
---------- ----------
---------- ----------
</TABLE>
21
<PAGE>
The following table reflects the loss and LAE development for 1998 and 1997
on a GAAP basis (in thousands):
<TABLE>
<CAPTION>
RE-ESTIMATED AS
UNPAID LOSSES OF ONE YEAR CUMULATIVE
AND LAE LATER DEFICIENCY
------------- --------------- -----------
<S> <C> <C> <C> <C>
1998: Gross liability......................... $ 119,976
Less reinsurance recoverable............ 83,654
-------------
Net liability........................... $ 36,332
-------------
-------------
1997: Gross liability......................... $ 114,770 $ 117,171 $ (2,401)
Less reinsurance recoverable............ 75,616 77,198 $ (1,582)
------------- --------------- -----------
Net liability........................... $ 39,154 $ 39,973 $ (819)
------------- --------------- -----------
------------- --------------- -----------
</TABLE>
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>
<CAPTION>
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Liability for unpaid losses and LAE (SAP).............. 129 122 114 112 118 120 80 62 48 39 37
Cumulative liability paid through:
One year later......................................... 104 78 77 63 30 65 26 16 9 11
Two years later........................................ 141 121 116 50 84 86 42 29 17
Three years later...................................... 166 145 93 91 102 99 52 35
Four years later....................................... 183 115 125 104 112 108 58
Five years later....................................... 151 139 135 111 120 114
Six years later........................................ 170 147 140 117 125
Seven years later...................................... 176 151 146 122
Eight years later...................................... 179 156 151
Nine years later....................................... 183 160
Ten years later........................................ 187
Liability re-estimated as of:
One year later......................................... 174 135 136 119 129 138 85 63 45 40
Two years later........................................ 177 150 147 124 139 144 87 62 46
Three years later...................................... 188 156 151 134 151 143 85 64
Four years later....................................... 185 159 161 145 149 141 87
Five years later....................................... 185 168 172 143 150 143
Six years later........................................ 195 180 171 145 152
Seven years later...................................... 206 178 173 148
Eight years later...................................... 204 181 176
Nine years later....................................... 207 183
Ten years later........................................ 208
Cumulative (deficiency) redundancy..................... (79) (61) (62) (36) (34) (23) (7) (2) 2 (1)
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
</TABLE>
The preceding table presents the development of balance sheet liabilities on
a SAP basis for 1988 through 1998. 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.
22
<PAGE>
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 have 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.
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. As of December 31,
1998, $8.7 million of claims payments have been made since June 7, 1994.
Of the remaining environmental, pollution and toxic tort claims, the
following activity took place during 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
----- -----
<S> <C> <C>
Pending, January 1.............................................................. 47 71
New claims advised.............................................................. 10 11
Claims settled.................................................................. 14 35
-- --
Pending, December 31............................................................ 43 47
-- --
-- --
</TABLE>
The policies corresponding to these claims were written on a direct basis.
The Company has excess of loss reinsurance with company retention through 1980
of $100,000 and $500,000 after that date. The claims are reserved as follows as
of December 31, 1998 and 1997 (in thousands):
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Case reserves.............................................................. $ 2,625 $ 2,960
IBNR....................................................................... 4,310 4,641
LAE reserves............................................................... 1,900 1,820
--------- ---------
Total.................................................................... $ 8,835 $ 9,421
--------- ---------
--------- ---------
</TABLE>
The above claims involve four Superfund sites, seven asbestos or toxic
claims, two underground storage tanks and 30 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 43 claims remain open as of December 31,1998, 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.
23
<PAGE>
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 and maturities of investments. The principal uses of cash are payments of
claims, interest and operating expenses. Cash outflows can be variable because
of the uncertainties regarding settlement dates for liabilities for unpaid
losses and because of the potential for large losses. Accordingly, the Company
maintains investment and reinsurance programs generally intended to avoid the
forced sale of investments to meet claims obligations.
Net cash provided by operations totaled $9.4 million for 1998, a substantial
improvement over the use of cash of $2.6 million in 1997 and $12.9 million in
1996. Individual sources of cash flows from operating activities included
changes of $9,180 in unearned premiums on retained business, a $5,838 decrease
in premium and agents' balances receivable and $1,964 in balances due other
insurance companies, which are related in part to the Company's continued
re-entry into the retained risk business. It should be noted that a large
portion of the changes in balances due other insurance companies and in premium
and agents' balances receivable occurred as a result of the Graward acquisition
and had very little effect on cash flow. Individual uses of cash included a
reduction in reported and estimated losses and claims and loss adjustment
expense on retained business due primarily to the settlement of runoff claims,
reinsurance recoverable on losses and LAE and prepaid reinsurance premiums on
ceded business.
Investing activities in 1998 used cash in the amount of $5.3 million as
premium notes receivable grew from Universal business, the Company purchased
additional software and data processing equipment and paid for its acquisition
of Graward in part with cash. Investments sold or matured totaled $31.5 million
and proceeds were used to purchase new investments totaling $28.5 million. Net
cash flow provided in 1997 by investing activities made up for the deficit in
operating cash flow for the same period, as total funds provided by investing
activities equaled $2.3 million.
In its investment strategy, the Company attempts to match the average
duration of the investment portfolio and the approximate duration of its
liabilities. Total cash and investments at December 31, 1998, 1997 and 1996 were
$64.3 million, $51.8 million and $42.9 million, respectively. All debt
securities are considered available for sale and are carried at market value as
of December 31, 1998 and 1997. The weighted-average maturity of the fixed income
investments as of December 31, 1998 was approximately 2.4 years. Average net
investment yields on the Company's cash and investments were 5.9% in 1998 and
1997.
Financing activities in 1998 provided $10.1 million in cash. These cash
flows were primarily attributed to the purchase and related debt financing of
AFS and Graward. Financing activities since January 1, 1997 are summarized as
follows:
- In June 1997, the Company had a public equity offering. A total of
2,853,089 shares were offered at $7.00 per share. 1,853,089 of the
2,853,089 shares were offered by a former shareholder, and 1,000,000
shares were offered by the Company. Subsequent to the offering, the
Underwriters exercised an over-allotment option to purchase 427,963
additional shares at $7.00 per share. Proceeds from the offering totaled
$9,996,000 and net proceeds to the Company were $9,296,000 after the
underwriters 7% commission and after all related issuance costs.
Approximately half of the proceeds were used in items related to the
Universal acquisition, another $1.8 million was used for the Sunshine
investment and the remainder was used for working capital.
- In the fourth quarter of 1997, subsidiaries of the Company acquired notes
payable to a financial institution in the amounts of $825,000 and
$2,750,000 in connection with the acquisition of Innovative by the
Company. The $825,000 is a long-term loan, the proceeds of which were used
for permanent working capital. The $2,750,000 loan is a short term
revolving line of credit used to finance the accounts of a subsidiary
premium finance company, Premium Budget Plan. As of
24
<PAGE>
December 31, 1997, $1,909,000 was outstanding on this line of credit. At
December 31, 1998 there was an outstanding balance of zero.
- Also in the fourth quarter of 1997, the Company issued 220,000 shares of
Cumulative, Convertible, Redeemable, Nonvoting Special Preferred Stock
("Special Stock") to the previous shareholders of Innovative as
consideration for the purchase of Innovative. The Special Stock pays
quarterly dividends at an annual rate of $0.62 per share. On or after
August 15, 2000, but prior to August 15, 2002, the Company at its option
only, may redeem in whole or in part the Special Stock at a price of
$15.00 per share. On August 15, 2002, the Company must redeem any
remaining shares at a rate of $10.00 per share. On or after August 15,
2000, but prior to August 15, 2002, holders of the shares have the right
to convert each share of the Special Stock into 1.23 shares of Common
Stock.
- In March 1998, the Company closed a $15 million Credit Facility (the
"Facility") with a major lending institution to facilitate the purchase of
AFS and Graward. Proceeds were also used to repay in full the notes
payable acquired in the forth quarter of 1997. Principal payments are due
quarterly beginning March 1999 with a final payment of all remaining
principal and accrued interest due in June 2004. Accrued interest is
payable monthly on the outstanding balance under the Facility. As of
December 31, 1998, the outstanding balance under the Facility was
$13,550,000.
- Also in March 1998, the Company issued 50,000 shares, with a value of
$500,000, of $0.625 Cumulative, Convertible, Redeemable, Nonvoting Special
Preferred Stock ("$0.625 Special Stock") to the former owners of AFS as
partial consideration in conjunction with the acquisition of AFS. The
$0.625 Special Stock pays quarterly dividends at an annual rate of $0.625
per share. On or after August 15, 2000, but prior to August 15, 2002, the
company may redeem, in whole or in part, the $0.625 Special Stock at a
price of $15.00 per share and the holders of the $0.625 Special Stock have
the right to convert each share of $0.625 Special stock into 1.25 shares
of common stock, par value $1.00, of the company. On August 15, 2002, the
Company must redeem any remaining shares of $0.625 Special Stock at a rate
of $10.00 per share.
- In May 1998, the Company acquired Graward in part with $2,700,000 in
Subordinated Convertible Notes. The entire principal amount is due in full
on December 31, 2004. Interest payments, which are due quarterly, are
being withheld pending the outcome of certain proceedings described in
Part II under Item 1.
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, are dividends and other permitted payments from its subsidiaries
and affiliates.
North Carolina and 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 30 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 North Carolina Insurance Holding Company System Regulatory Act provides
that, without prior approval of the Commissioner of Insurance of the State of
North Carolina, dividends within any 12-month period may not exceed the lessor
of (i) 10% of a domestic insurer's surplus as regarding policyholders as of the
preceding December 31 or (ii) the net income, not including realized capital
gains, for the 12-month period ending the preceding December 31. For 1999, no
dividends are available from Universal to the Company.
The South Carolina Insurance Holding Company Regulatory Act provides that,
without prior approval of the Director of Insurance of the State of South
Carolina, dividends within any 12-month period may not exceed the greater of (i)
10% of a domestic insurer's surplus as regarding policyholders as
25
<PAGE>
shown in the insurer's most recent annual statement or (ii) a domestic insurer's
net income, not including realized capital gains or losses as shown in the
insurer's most recent annual statement. Furthermore, dividends may only be paid
out of positive earned surplus unless approved by the Director. As of December
31, 1998, SCIC had negative earned surplus.
Payment of cash dividends by the Company is at the discretion of its Board
of Directors and is based on its earnings, financial condition, capital
requirements, and other relevant factors. If the ability of SCIC or Universal
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 North Carolina or 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. NAIC has adopted
RBC 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 NAIC). All six of the property and casualty insurance
subsidiaries of the Company have December 31, 1998 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 $99.8 million for income tax purposes. However,
due to a "change in ownership" event that occurred in January, 1995, the
Company's use of the carryforwards are subject to limitations in future years of
approximately $2 million per year. Net operating loss carryforwards available
for use in 1999 is approximately $7.2 million, due to tax losses incurred in
1995 subsequent to the change in ownership event and the carryover of previous
years' unused limitations.
Based on its recent earning history, the Company has determined that a
valuation allowance should be maintained against the net deferred tax asset as
December 31, 1998.
YEAR 2000 COMPLIANCE
In 1997, Seibels Bruce initiated a company-wide program (the "Compliance
Program") to identify and address issues associated with the ability of its
date-sensitive information, policy and claims processing systems and other
equipment to properly recognize the Year 2000 in order that the Company will not
suffer any business interruptions as a result of the century change on January
1, 2000. As well as reviewing internal compliance issues, a program is actively
in place to review all arrangements with third party vendors as well as
non-information technology providers with which the Company does business.
THE COMPANY FACES THE FOLLOWING MAJOR RISKS RELATED TO THE YEAR 2000 COMPLIANCE
ISSUE:
The Company's internal transaction systems that process and issue policies
and changes to those policies, verify policyholder's coverage and process and
make claim payments must be Year 2000 compliant. Without compliance, system
recognition for appropriate renewal, expiration, coverage verification and all
other processing would be impaired.
Vendor systems that process policies and claims outside the Company's
internal system present the same exposure as above and an identical impairment.
26
<PAGE>
The Company's telecommunication systems, if not compliant, would impair the
ability to adequately communicate with policyholders and related constituency at
current service levels.
THE STATUS OF THE ABOVE BUSINESS RISKS IS AS FOLLOWS:
In regard to internal systems, the Compliance Program calls for full
conformity to meet all internal policy expiration dates. Work on the Compliance
Program began in 1997 since the Company issues three-year commercial policies.
All other internal systems processing policies with expiration dates of shorter
terms of one year and of six months are currently on target for completion to
process all policy contract obligations. Remediation has been completed on the
Company's Nashville, Tennessee system and it has been issuing policies with
expiration dates beyond the year 2000 since November 30, 1998. The Company
believes that its Columbia, South Carolina processing system has been fully
compliant since mid December 1998 and the Company has been issuing policies with
expiration dates beyond the year 2000 on that system since that time. The
processing system in Winston-Salem, North Carolina is currently being remediated
and is expected to be completed by April 1, 1999. The Company has until May 15,
1999 to complete the process before it would have an impact on its operations.
With regard to the third party vendor, which processes the Company's flood
policies, processing systems; the Company has reviewed the compliance status of
this company. The vendor has been processing three-year policy contracts
beginning in 1997 on a Year 2000 compliant basis and is currently on target to
process policies of shorter terms. This company's compliance plan calls for full
remediation of their system by the end of the first quarter of 1999. The
Company's overall Year 2000 plan includes procedures for assessing all third
party vendors. While not processing policies on their systems, the Company must
submit statistical data to several reporting bureaus, which, if not Year 2000
compliant, could impede the Company's ability to collect funds owed to it by the
agencies for which these bureaus collect data. The largest of these bureaus
believes that it has been compliant since June, 1998 and the other government
agency bureau is not issuing any statements as to its readiness. The Company has
no plans to conduct independent testing of these bureaus. The Company is also in
the process of surveying all of its major reinsurers to evaluate their Year 2000
compliance.
In accordance with the Compliance Program, the Company expects to complete
an upgrade of its phone system by June 1, 1999, and any other equipment that is
not Year 2000 compliant by October 1, 1999. An inventory has been taken of all
software, equipment and facilities related items that may be date sensitive,
such as elevators, alarm systems and heating and cooling systems, and a log is
kept showing the Year 2000 compliance status. The Company anticipates successful
remediation in accordance with the Compliance Plan.
The Company expects to spend between $750,000 and $1,000,000 on Year 2000
compliance covering both external and internal costs through out the remediation
process, of which a significant portion, approximately $650,000, was allocated
as an expense in 1998. Of the 1998 portion of such expenses, approximately
$520,000 was paid to outside providers. The Company also spent approximately
$25,000 in 1997. All charges in 1998 were to modify software; all 1997 charges
were paid to consultants to identify Year 2000 issues.
Even though the Company has had much success with the remediation process to
date, it has developed a contingency plan should the Winston-Salem, North
Carolina processing system not be compliant in time. The Company has the
capability and capacity to use its Columbia processing system, which has already
been remediated, to process those policies currently processed on the
Winston-Salem system. The Company also believes that the completed and planned
modifications of its internal systems and equipment will allow it to be Year
2000 compliant in a timely manner. However, there can be no assurance that the
Company's internal systems or equipment, or those of third parties on which the
Company relies, will be Year 2000 compliant in a timely manner or that
contingency plans of any third parties will mitigate the effects of
noncompliance. The failure of systems or equipment of the Company or
27
<PAGE>
third parties could have a material adverse effect on the Company's business and
consolidated financial statements.
The Audit Committee of the Company's Board of Directors is updated monthly
as to the status of the Company's readiness. In addition, the Company's Vice
President of Audit and Planning monitors the status of all Year 2000 projects
and has direct access to all Information Services personnel and the Audit
Committee of the Board of Directors.
FORWARD-LOOKING STATEMENTS
The preceding Year 2000 compliance statement contains various
forward-looking statements which represent the Company's beliefs or expectations
regarding future events. When used in the Year 2000 compliance discussion the
words "believes" "anticipates" and "expects" and similar expressions are
intended to identify forward-looking statements. Forward-looking statements
include, without limitation, the Company's expectations as to when it will
complete the remediation and testing phases of its Year 2000 program and those
of its third party vendors; its estimated cost of achieving Year 2000
compliance; and the Company's belief that its internal systems and equipment
will be Year 2000 compliant in a timely manner. All forward-looking statements
involve a number of risks and uncertainties that could cause actual results to
differ materially from the projected results. Factors that may cause these
differences include, but are not limited to, the availability of qualified
personnel and other information technology resources; the ability to identify
and remediate all the date sensitive lines of computer code or to replace
embedded computer chips in affected systems of equipment; and the actions of
third parties with respect to Year 2000 compliance.
28
<PAGE>
Item 8. Financial Statements and Supplementary data (continued on following
page).
29
<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, 1998 and 1997, 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, 1998. 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, 1998 and 1997 and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998 in conformity with generally accepted
accounting principles.
As explained in Note 1 to the financial statements, effective January 1,
1998, the Company adopted the provisions of SOP 97-3, "Accounting by Insurance
and Other Enterprises for Insurance Related Assessments", and changed its method
of accounting for the Company's participation in the North Carolina Reinsurance
Facility.
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 Commission's 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 19, 1999
30
<PAGE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
FOR THE YEAR ENDED DECEMBER 31,
(DOLLARS SHOWN IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
Investments:
Debt securities, available-for-sale, at market (cost of $38,788 at 1998 and $41,845 at
1997).................................................................................... $ 39,695 $ 41,934
Equity securities, at market (cost of $1,306 at 1998 and $906 at 1997)..................... 1,306 915
Cash and short-term investments............................................................ 23,141 8,922
Other long-term investments................................................................ 108 22
--------- ---------
Total cash and investments............................................................... 64,250 51,793
Accrued investment income.................................................................... 880 785
Premiums and agents' balances receivable, net................................................ 14,728 5,674
Premium notes receivable..................................................................... 4,606 3,233
Reinsurance recoverable on paid losses and loss adjustment expenses.......................... 29,972 30,244
Reinsurance recoverable on unpaid losses and loss adjustment expenses........................ 83,654 75,616
Property and equipment, net.................................................................. 6,028 5,462
Prepaid reinsurance premiums--ceded business................................................. 59,619 50,602
Deferred policy acquisition costs............................................................ 2,472 1,580
Goodwill..................................................................................... 20,892 2,557
Other assets................................................................................. 8,462 7,072
--------- ---------
Total assets............................................................................. $ 295,563 $ 234,618
--------- ---------
--------- ---------
LIABILITIES
Losses and loss adjustment expenses
Reported and estimated losses and claims--retained business................................ $ 28,950 $ 30,847
--ceded business....................................... 74,746 66,262
Adjustment expenses--retained business..................................................... 7,372 8,307
--ceded business......................................................... 8,908 9,354
Unearned premiums:
Property and casualty--retained business................................................... 12,919 3,739
--ceded business......................................................... 59,619 50,602
Credit life................................................................................ 22 41
Balances due other insurance companies....................................................... 39,024 15,489
Debt......................................................................................... 16,250 3,036
Current income taxes payable................................................................. -- 41
Other liabilities and deferred items......................................................... 9,465 7,156
--------- ---------
Total liabilities........................................................................ 257,275 194,874
--------- ---------
--------- ---------
COMMITMENTS AND CONTINGENCIES
Issued and outstanding 220,000 shares of cumulative $0.62, convertible, redeemable, nonvoting
special preferred stock, redemption value $2,200........................................... 2,200 2,200
Issued and outstanding 50,000 shares of cumulative $0.625, convertible, redeemable, nonvoting
special preferred stock, redemption value $500............................................. 500 --
--------- ---------
Total special stock...................................................................... 2,700 2,200
--------- ---------
--------- ---------
SHAREHOLDERS' EQUITY
Common stock, $1 par value, authorized 17,500,000 shares in 1998 and 12,500,000 shares in
1997, issued and outstanding 7,773,075 and 7,730,725 shares in 1998 and 1997,
respectively............................................................................... 7,773 7,731
Additional paid-in-capital................................................................... 61,861 61,665
Accumulated other comprehensive income....................................................... 907 47
Accumulated deficit.......................................................................... (34,953) (31,899)
--------- ---------
Total shareholders' equity................................................................. 35,588 37,544
--------- ---------
Total liabilities and shareholders' equity................................................. $ 295,563 $ 234,618
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
31
<PAGE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31,
(DOLLARS AND WEIGHTED AVERAGE SHARES OUTSTANDING SHOWN IN THOUSANDS, EXCEPT PER
SHARE AMOUNTS)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Commission & service income...................................................... $ 49,298 $ 44,105 $ 46,419
Premiums earned:
Property & casualty............................................................ 22,762 6,580 7,186
Credit life.................................................................... 13 156 478
Net investment income............................................................ 3,271 3,121 3,006
Other interest income............................................................ 1,374 766 801
Realized gains (losses).......................................................... 55 529 (14)
Other income..................................................................... 4,644 112 151
--------- --------- ---------
Total revenue................................................................ 81,417 55,369 58,027
--------- --------- ---------
Expenses
Property & casualty:
Losses & loss adjustment expenses............................................ 25,269 8,840 11,814
Policy acquisition costs..................................................... 10,237 1,207 1,777
Credit life benefits........................................................... (46) 70 203
Interest expense............................................................... 981 89 174
Other operating costs & expenses............................................... 46,808 41,114 39,014
Restructuring charge........................................................... 546 -- --
--------- --------- ---------
Total expenses............................................................... 83,795 51,320 52,982
--------- --------- ---------
--------- --------- ---------
(Loss) income from operations, before (benefit) provision for income taxes and
effect of change in accounting principle....................................... (2,378) 4,049 5,045
(Benefit) provision for income taxes............................................. (85) 46 (131)
--------- --------- ---------
(Loss) income before effect of change in accounting principle.................... (2,293) 4,003 5,176
Effect of change in accounting principle......................................... (601) -- --
--------- --------- ---------
Net (loss) income................................................................ (2,894) 4,003 5,176
Other Comprehensive Income
Change in value of marketable securities, less reclassification adjustment of
$85, $218 and $(14) for gains (losses) included in net (loss) income in 1998,
1997 and 1996, respectively.................................................. 860 583 (937)
--------- --------- ---------
Comprehensive (loss) income...................................................... $ (2,034) $ 4,586 $ 4,239
--------- --------- ---------
--------- --------- ---------
Basic earnings per share before change in accounting principle:
Net (loss) income.............................................................. $ (0.31) $ 0.57 $ 1.05
--------- --------- ---------
--------- --------- ---------
Weighted average shares outstanding............................................ 7,763 7,002 4,918
--------- --------- ---------
--------- --------- ---------
Diluted earnings per share before change in accounting principle:
Net (loss) income.............................................................. $ (0.31) $ 0.55 $ 0.94
--------- --------- ---------
--------- --------- ---------
Weighted average shares outstanding............................................ 7,763 7,274 5,492
--------- --------- ---------
--------- --------- ---------
Basic earnings per share after change in accounting principle:
Net (loss) income.............................................................. $ (0.39) $ 0.57 $ 1.05
--------- --------- ---------
--------- --------- ---------
Weighted average shares outsanding............................................. 7,763 7,002 4,918
--------- --------- ---------
--------- --------- ---------
Diluted earnings per share after change in accounting principle:
Net (loss) income.............................................................. $ (0.39) $ 0.55 $ 0.94
--------- --------- ---------
--------- --------- ---------
Weighted average shares outstanding............................................ 7,763 7,274 5,492
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
32
<PAGE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31,
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Common stock outstanding:
Beginning of year........................................................... $ 7,731 $ 6,168 $ 4,193
Stock issued in connection with offering.................................... -- 1,428 --
Stock issued under benefit and stock option plans........................... 42 135 4
Stock issued in connection with capital contributions....................... -- -- 1,971
---------- ---------- ----------
End of year................................................................. $ 7,773 $ 7,731 $ 6,168
---------- ---------- ----------
---------- ---------- ----------
Additional paid-in-capital:
Beginning of year........................................................... $ 61,665 $ 54,050 $ 46,660
Stock issued in connection with offering.................................... -- 7,175 --
Stock issued under benefit and stock option plans, net of repurchase........ 196 440 21
Stock issued in connection with capital contributions....................... -- -- 7,369
---------- ---------- ----------
End of year................................................................. $ 61,861 $ 61,665 $ 54,050
---------- ---------- ----------
---------- ---------- ----------
Accumulated other comprehensive income:
Beginning of year........................................................... $ 47 $ (536) $ 401
Change during the year...................................................... 860 583 (937)
---------- ---------- ----------
End of year................................................................. $ 907 $ 47 $ (536)
---------- ---------- ----------
---------- ---------- ----------
Accumulated deficit:
Beginning of year........................................................... $ (31,899) $ (35,891) $ (41,067)
Net (loss) income for the year.............................................. (2,894) 4,003 5,176
Special stock dividend...................................................... (160) (11) --
---------- ---------- ----------
End of year................................................................. $ (34,953) $ (31,899) $ (35,891)
---------- ---------- ----------
---------- ---------- ----------
Total shareholders' equity................................................ $ 35,588 $ 37,544 $ 23,791
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
33
<PAGE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31,
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income................................................................. $ (2,894) $ 4,003 $ 5,176
Adjustments to reconcile net (loss) income to net cash provided by
(used in) operating activities:
Amortization of deferred policy acquisition costs................................. 10,237 1,207 1,777
Equity in earnings of unconsolidated subsidiary................................... (392) -- --
Depreciation and amortization..................................................... 2115 856 979
Realized (gains) losses on investments............................................ (85) (218) 14
Realized loss (gain) on sale of property and equipment............................ 31 (311) --
Stock issued as compensation...................................................... -- 81 16
Change in assets and liabilities:
Accrued investment income....................................................... (95) 72 (75)
Premium and agents' balances receivable, net.................................... 5,838 1,165 528
Reinsurance recoverable on losses and loss adjustment expenses.................. (7,766) 27,972 (1,028)
Prepaid reinsurance premiums--ceded business.................................... (9,017) 964 (2,649)
Deferred policy acquisition costs............................................... (11,129) (1,006) (1,580)
Unpaid losses and loss adjustment expenses...................................... 5,206 (34,899) (13,371)
Unearned premiums............................................................... 18,178 (2,831) 1,565
Balances due other insurance companies.......................................... 1,964 3,383 (3,702)
Current income taxes payable.................................................... (41) 24 (174)
Other, net...................................................................... (2,758) (3,026) (414)
--------- --------- ---------
Net cash provided by (used in) operating activities................................. 9,392 (2,564) (12,938)
--------- --------- ---------
Cash flows from investing activities:
Proceeds from investments sold or matured......................................... 31,542 4,262 7,049
Cost of investments acquired...................................................... (28,495) (1,554) (14,288)
Premium notes receivable.......................................................... (1,373) 194 --
Proceeds from property and equipment sold......................................... 40 665 116
Purchase of property and equipment................................................ (1,392) (1,074) (797)
Cost of purchased subsidiary, net of cash acquired of $4,111...................... (5,598) -- --
--------- --------- ---------
Net cash (used in) provided by investing activities................................. (5,276) 2,493 (7,920)
--------- --------- ---------
Cash flows from financing activities:
Issuance of capital stock......................................................... 238 575 9,349
Issuance of debt, net of repayment................................................ 10,025 (2,849) (2,476)
Dividends paid.................................................................... (160) -- --
Proceeds from stock offerings..................................................... -- 8,603 --
--------- --------- ---------
Net cash provided by financing activities........................................... 10,103 6,329 6,873
--------- --------- ---------
Net increase (decrease) in cash and short term investments.......................... 14,219 6,258 (13,985)
Cash and short term investments, beginning of year.................................. 8,922 2,664 16,649
--------- --------- ---------
Cash and short term investments, end of year........................................ $ 23,141 $ 8,922 $ 2,664
--------- --------- ---------
--------- --------- ---------
Supplemental cash flow information:
Interest paid..................................................................... $ 922 $ 61 $ 350
Income taxes paid................................................................. 39 21 43
--------- --------- ---------
--------- --------- ---------
Noncash investing activities:
Acquisition:
Cash paid, net of cash acquired of $4,111....................................... $ (5,598) $ -- $ --
Issuance of debt................................................................ (2,700) --
Preferred stock issued.......................................................... (500) (2,200) --
Assets acquired................................................................. 17,563 36,831 --
Liabilities assumed............................................................. (27,247) (37,224) --
--------- --------- ---------
Goodwill........................................................................ $ (18,482) $ (2,593) $ --
--------- --------- ---------
Stock issued for consulting services/compensation................................... $ -- $ 81 $ 16
--------- --------- ---------
--------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
34
<PAGE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS EXCEPT PER SHARE)
NOTE 1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION AND PRESENTATION
The Seibels Bruce Group, Inc. ("SBIG", or the "Company") 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 its role as one of three
servicing carriers for the South Carolina Reinsurance Facility (the "SC
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 SC Facility and the NFIP, the Company receives commissions and fees, but
retains no underwriting risk. Prior to February 1, 1998, the Company provided
other fee-based services in its capacity as a managing general agent ("MGA") for
commercial insurance policies underwritten by unaffiliated insurance companies.
The Company also receives fee-based income from its catastrophe claims adjusting
services, excess and surplus lines brokerage services and liability runoff
management services.
In 1997, the Company began marketing and underwriting nonstandard automobile
insurance on a risk-bearing basis. In the fourth quarter of 1997, the Company
purchased The Innovative Company ("Innovative") and its subsidiaries Universal
Insurance Company ("Universal") and Premium Budget Plan, Inc. ("PBP"). Universal
is a nonstandard automobile insurance company domiciled in North Carolina.
Universal receives commission and service income for a large portion of its
business which it cedes to the North Carolina Reinsurance Facility ("NC
Facility"). The NC Facility is a state sponsored plan for insuring North
Carolina drivers outside of the voluntary market. PBP is a premium finance
company incorporated in North Carolina. Only one month's operations of
Innovative is included in the financial statements for 1997. On July 1, 1998,
Innovative (the holding company only) was merged into the Company.
In the first quarter of 1998, the Company purchased America's Flood
Services, Inc. ("AFS") located in California. AFS offers flood zone
determinations and compliance tracking for a fee. In the second quarter of 1998,
the Company acquired Graward General Companies, Inc. ("Graward") located in
Tennessee. Graward acts as an MGA for the Company and offers nonstandard
automobile insurance in the Southeast and Midwest. In the fourth quarter of
1998, the Company was awarded fifty percent of the business, as a servicing
carrier, in the new South Carolina Associated Auto Insurers Plan ("SCAAIP"), a
joint underwriting association which takes effect March 1, 1999. The SCAAIP will
survive the SC Facility and offers the Company access to additional fee-based
revenue with no underwriting risk.
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
35
<PAGE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE)
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 Consolidated 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
In accordance with FASB (Financial Accounting Standards Board) Statement No.
115, investments in debt and equity securities are classified as either
held-to-maturity, available-for-sale or trading. The Company currently holds all
securities as available-for-sale, and reports them at fair value, with
subsequent changes in value reflected as unrealized investment gains and losses
credited or charged directly to other accumulated comprehensive income included
in shareholders' equity. 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 ("NAIC") 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 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. Debt is carried at
the outstanding balance which approximates fair value as a result of the debt at
a market rate.
STOCK SPLIT
In April, 1997, the Company executed a 1-for-4 reverse stock split of its
common stock. All references in the financial statements, notes thereto and
other references to number of shares or earnings per share reflect this
transaction for all periods disclosed.
PROPERTY AND CASUALTY PREMIUMS
Property and casualty premiums are reflected in income when earned as
computed on a monthly pro-rata basis. 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.
PREMIUM NOTES RECEIVABLE
The Company offers premium financing arrangements which require a down
payment and is collected in equal installments over the policy term.
CREDIT LIFE PREMIUMS
Credit life premiums are reflected in income when earned as computed on a
monthly pro-rata basis for level term premiums and on a sum-of-the-digits method
for decreasing term premiums.
36
<PAGE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE)
COMMISSION AND SERVICE INCOME
Commission and service income is predominately derived from servicing
carrier and certain managing general agent activities. The commission income
related to producing and underwriting the business is recognized in the period
in which the business is written. Service income related to claims processing is
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, if any, 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 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, subrogation,
and second injury funds.
(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
Basic per share data is based on the weighted average number of shares
outstanding. Diluted per share data is based on the weighted average number of
shares outstanding including the effects of stock options and/or convertible
preferred stock (See Note 9).
ALLOWANCE FOR UNCOLLECTABLE ACCOUNTS
The Company routinely evaluates the collectibility of receivables and has
established an allowance for uncollectable accounts for agents' balances and
direct bill balances receivable, other receivables, and premium notes receivable
in the amount of approximately $2,935 and $1,321 at December 31, 1998 and
December 31, 1997, respectively.
37
<PAGE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE)
PROPERTY, EQUIPMENT AND SOFTWARE
Property, equipment and software 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. Software development cost as well as
purchased software is capitalized when it is expected to have a useful life of
at least three years and is considered a major enhancement or a new project.
INTANGIBLE ASSETS
Intangible assets consist primarily of goodwill and deferred loan costs.
Goodwill is the excess of the amount paid to acquire a company over the fair
value of its net assets, reduced by amortization and any subsequent valuation
adjustments. The Company amortizes goodwill over a period of 40 years. Deferred
loan costs are the costs associated with issuing long term debt. The costs are
amortized over the life of the debt. Intangible assets are evaluated regularly
for other-than-temporary impairment. If circumstances suggest that their value
may be impaired and the write-down would be material, an assessment of
recoverability is performed and any impairment is recorded through a valuation
allowance with a corresponding charge recorded in the income statement.
OTHER INTEREST INCOME
Other interest income includes interest received on reinsurance balances
withheld, agents' balances receivable, balances due from the SC Facility, and
financing of premium notes receivable.
CHANGE IN ACCOUNTING PRINCIPLE
Effective January 1, 1998, the Company adopted the provisions of SOP 97-3,
"Accounting by Insurance and Other Enterprises for Insurance-Related
Assessments", and recorded it as a cumulative effect of a change in accounting
principle of $601. As a result, the Company's participation in the North
Carolina Reinsurance Facility ("NC Facility") is no longer being treated as
assumed reinsurance and all amounts assumed from the NC Facility have been
eliminated. The NC Facility is now treated as an assessment organization. The
effect of the change in accounting principle was a reduction of $.08 per share
on both a basic and diluted basis. Below are the actual and pro forma EPS for
the twelve months ended December 31, 1998 and 1997, respectively assuming the
change in accounting principle was applied retroactively.
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED
DECEMBER 31
--------------------
1998 1997
--------- ---------
<S> <C> <C>
Net (loss) income
Earnings per common share:................................................ $ (2,293) $ 3,544
Basic................................................................... $ (0.31) $ 0.51
Diluted................................................................. $ (0.31) $ 0.49
</TABLE>
RESTRUCTURING CHARGE
During the second quarter of 1998, the Company recorded a pre-tax
restructuring charge of $546 related to the consolidation of its automobile and
claims operations. The charges relate to employee
38
<PAGE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE)
severance and other termination benefits incurred in connection with moving the
processing of the Company's automobile insurance business from Winston-Salem,
North Carolina to Nashville, Tennessee and from the consolidation of claims
management and staff positions in the Columbia, South Carolina office. All
liabilities associated with the restructuring were paid in 1998.
RECENT ACCOUNTING PRONOUNCEMENTS
During the first quarter of 1998, the American Institute of Certified Public
Accountants issued Statement of Position ("SOP") 98-1, "Accounting for Costs of
Computer Software Developed or Obtained for Internal Use." SOP 98-1 requires
capitalization of computer software costs that meet certain criteria. The
statement is effective for fiscal years beginning after December 15, 1998. The
Company adopted SOP 98-1 effective January 1, 1999. SOP 98-1 is not expected to
have a material impact on the Company's financial position or results of
operations.
Effective January 1, 1998, the Company adopted FASB Statement No. 130
"Reporting Comprehensive Income". This statement establishes standards for
reporting and display of comprehensive income and its components. Comprehensive
income is a measure of all non-owner changes in equity of an entity and includes
net income (loss) plus changes in certain assets and liabilities that are
reported directly in equity.
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities". This statements establishes
accounting and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts and for hedging activities.
It requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
This statement could increase volatility in earnings and other comprehensive
income. This statement is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. The Company will adopt SFAS No. 133 effective
January 1, 2000; it is not expected to have a material impact on the Company's
financial position or results of operations.
NOTE 2 INVESTMENTS
Investments in notes and other debt securities and common stocks are all
considered available-for-sale securities and are carried at market value at
December 31, 1998 and 1997. 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 accumulated other comprehensive income and
included in shareholders' equity. Realized gains and losses on investments
included in the results of operations are determined using the "identified
certificate" cost method.
39
<PAGE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE)
Realized gains (losses) on investments are summarized as follows:
<TABLE>
<CAPTION>
DEBT EQUITY
SECURITIES SECURITIES OTHER TOTAL
----------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
Realized:
1998.............................................. $ 85 $ -- $ -- $ 85
1997.............................................. $ 12 $ 227 $ 290 $ 529
1996.............................................. $ (62) $ 48 $ -- $ (14)
Change in unrealized:
1998.............................................. $ 893 $ (47) $ 14 $ 860
1997.............................................. $ 581 $ 8 $ (6) $ 583
1996.............................................. $ (902) $ (154) $ 119 $ (937)
</TABLE>
Net bond discount accretion and premium amortization charged to income for
the years ended December 31, 1998, 1997 and 1996 was not material.
Unrealized gains and losses reflected in equity are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Gross unrealized gains............................................... $ 907 $ 202 $ 8
Gross unrealized losses.............................................. -- (155) (544)
--------- --------- ---------
Net unrealized gain (loss)......................................... $ 907 $ 47 $ (536)
--------- --------- ---------
--------- --------- ---------
</TABLE>
Proceeds from sales of debt securities and related realized gains and losses
were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Proceeds from sales............................................. $ 31,542 $ 2,145 $ 3,554
Gross realized gains............................................ $ 523 $ 12 $ 30
Gross realized losses........................................... $ 409 $ -- $ (92)
</TABLE>
Proceeds from sales of equity securities and related realized gains and
losses were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Proceeds from sales................................................... $ -- $ 254 $ 400
Gross realized gains.................................................. $ -- $ 227 $ 75
Gross realized losses................................................. $ -- $ -- $ (127)
</TABLE>
Investments which exceed 10% of shareholders' equity, excluding investments
in U. S. Government and government agencies and authorities, at December 31,
1998, are as follows:
<TABLE>
<CAPTION>
SHORT-TERM INVESTMENTS: CARRYING VALUE
- ------------------------------------------------------------------------------ ---------------
<S> <C>
Norwest Money Market.......................................................... $ 5,567
</TABLE>
There were no debt securities which were non-income producing for the 12
months ended December 31, 1998. Debt securities with an amortized cost of $25
million at both December 31, 1998 and 1997, were on deposit with regulatory
authorities.
40
<PAGE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE)
The amortized cost and estimated market values of investments in debt and
equity securities were as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
DECEMBER 31, 1998 COST GAINS LOSSES VALUE
- ------------------------------------------- ----------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
U. S. Government & government agencies and
authorities.............................. $ 33,941 $ 859 $ (14) $ 34,786
States, municipalities & political
subdivisions............................. 594 41 -- 635
Corporate bonds............................ 4,253 25 (4) 4,274
----------- ----- --- ------------
Total debt securities.................... 38,788 925 (18) 39,695
----------- ----- --- ------------
Common stocks.............................. 1,306 -- -- 1,306
----------- ----- --- ------------
Other long-term investments................ 108 -- -- 108
----------- ----- --- ------------
Total.................................... $ 40,202 $ 925 $ (18) $ 41,109
----------- ----- --- ------------
----------- ----- --- ------------
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
DECEMBER 31, 1997 COST GAINS LOSSES MARKET VALUE
- ------------------------------------------- ----------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
U. S. Government & government Agencies and
authorities.............................. $ 38,581 $ 146 $ (103) $ 38,624
States, municipalities & political
Subdivisions............................. 2,246 43 -- 2,289
Corporate bonds............................ 1,018 4 (1) 1,021
----------- ----- ----- ------------
Total debt securities.................... 41,845 193 (104) 41,934
----------- ----- ----- ------------
Common stocks.............................. 906 9 -- 915
----------- ----- ----- ------------
Other long-term investments................ 73 -- (51) 22
----------- ----- ----- ------------
Total.................................... $ 42,824 $ 202 $ (155) $ 42,871
----------- ----- ----- ------------
----------- ----- ----- ------------
</TABLE>
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,
1998 by contractual maturity, are as follows:
<TABLE>
<CAPTION>
MARKET
TOTAL COST VALUE
----------- ---------
<S> <C> <C>
Due in one year or less................................................ $ 5,821 $ 5,884
Due after one year through five years.................................. 29,264 29,981
Due after five years through ten years................................. 3,434 3,539
Due after ten years.................................................... 269 291
----------- ---------
Total.................................................................. $ 38,788 $ 39,695
----------- ---------
----------- ---------
</TABLE>
41
<PAGE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE)
Investment income as of December 31 consists of the following:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Debt securities.................................................. $ 2,474 $ 2,253 $ 2,122
Equity securities................................................ 97 8 9
Short-term investments........................................... 699 855 849
Other............................................................ 56 39 56
--------- --------- ---------
Total investment income........................................ 3,326 3,155 3,036
Investment expenses.............................................. (55) (34) (30)
--------- --------- ---------
Net investment income.......................................... $ 3,271 $ 3,121 $ 3,006
--------- --------- ---------
--------- --------- ---------
</TABLE>
NOTE 3 PROPERTY AND EQUIPMENT
A summary of property and equipment is as follows:
<TABLE>
<CAPTION>
DESCRIPTION LIFE IN YEARS 1998 1997
- -------------------------------------------------------- ------------- ---------- ----------
<S> <C> <C> <C>
Land.................................................... -- $ 1,054 $ 1,054
Buildings............................................... 10-40 4,210 4,210
Data processing equipment and software.................. 3-7 7,845 6,115
Furniture and equipment................................. 3-10 9,161 7,584
---------- ----------
22,270 18,963
Accumulated depreciation................................ (16,242) (13,501)
---------- ----------
$ 6,028 $ 5,462
---------- ----------
---------- ----------
</TABLE>
Depreciation expense charged to operations was $1.5 million in 1998, $.9
million in 1997, and $1 million in 1996.
NOTE 4 DEFERRED POLICY ACQUISITION COSTS
Policy acquisition costs incurred and amortized to income on property and
casualty business were as follows:
<TABLE>
<CAPTION>
1998 1997
---------- ---------
<S> <C> <C>
Deferred at beginning of year........................................... $ 1,565 $ --
---------- ---------
Deferred costs acquired................................................. -- 1,686
---------- ---------
Costs incurred and deferred during year:
Commissions and brokerage............................................. 8,347 1,064
Taxes, licenses and fees.............................................. 1,113 10
Other................................................................. 1,669 12
---------- ---------
Total................................................................... 11,129 1,086
Amortization charges to income during year.............................. (10,222) (1,207)
---------- ---------
Deferred at end of year................................................. $ 2,472 $ 1,565
---------- ---------
---------- ---------
</TABLE>
42
<PAGE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE)
Deferred policy acquisition costs attributable to the credit life operation
were none in 1998 and $15 in 1997. 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 DEBT
Debt consisted of the following as of December 31:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Credit facility with a major lending institution......................... $ 13,550 $ --
Subordinated convertible notes........................................... 2,700
Notes payable with a regional lending institution........................ -- 3,036
--------- ---------
$ 16,250 $ 3,036
--------- ---------
--------- ---------
</TABLE>
On May 1, 1998, the Company issued subordinated convertible notes (the
"Notes") (See Note 8). The Notes bear interest at a rate equal to 5% per annum.
The entire principal amount due under the Notes is payable in full on December
31, 2004, provided however, that if certain outstanding debt is paid in full and
upon 60 days prior written notice, the Notes will become payable six months
after such debt is paid in full provided, however, that in no event will the
Notes become payable earlier than April 1, 2003. At the election of the holder
of the Notes, the Notes may be converted into 300,000 shares of Common Stock on
the maturity date, provided, however, that notice has been given of such
election at any time on or after the 45(th) day prior to the maturity date of
the Notes up to but not including the 15(th) day prior to the maturity date.
Effective March 31, 1998 the Company closed a $15,000,000 Credit Facility
(the "Facility") with a major lending institution for the purpose of financing
its acquisition activity and other general corporate purposes. Principal
payments are due quarterly beginning March 1999 with a final payment of all
remaining principal and accrued interest due in June 2004. Accrued interest is
payable monthly on the outstanding balance under the Facility and is calculated,
at the Company's discretion, using a pre-determined spread over LIBOR or the
prime interest rate of the lending institution. The effective interest rate as
of December 31, 1998 was 8.3125%. The Facility is secured by a lien on the
assets of the Company. As of December 31, 1998, the outstanding balance under
the Facility was $13,550,000.
The Credit Agreement stipulates that the Company demonstrate compliance with
a number of affirmative and negative covenants on a quarterly basis. Significant
financial covenants include minimum statutory surplus levels, ratios of debt to
total capitalization and cash flow coverage. As of December 31, 1998, the
Company was either in compliance or obtained waivers of non-compliance for all
covenants. Management is of the opinion that it will maintain compliance with
the covenants.
43
<PAGE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE)
Scheduled maturities of the debt are as follows:
<TABLE>
<S> <C>
1999............................................................... $ 1,264
2000............................................................... 1,626
2001............................................................... 2,439
2002............................................................... 2,530
2003............................................................... 2,530
Thereafter......................................................... 5,861
---------
$ 16,250
---------
---------
</TABLE>
NOTE 6 INCOME TAXES
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.
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 currently enacted tax laws. A reconciliation of the difference
between income tax provision (benefit) on income from operations computed at the
federal statutory income tax rate is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Federal income tax (benefit) provision at statutory rates....... $ (808) $ 1,376 $ 1,715
Increase (decrease) in taxes due to:
Tax exempt interest........................................... (18) (2) (5)
Dividends received deduction.................................. -- (3) (2)
Overaccrual from prior years.................................. (85) -- (187)
Limitation of net operating loss carryforward due to change in
control..................................................... -- -- 3,617
Changes in valuation allowances:
Utilization of net operating loss........................... -- (1,339) (1,590)
Reduction due to limitation of net operating loss........... 751 -- (3,617)
Other........................................................... 75 14 (62)
--------- --------- ---------
Tax (benefit) provision....................................... $ (85) $ 46 $ (131)
--------- --------- ---------
--------- --------- ---------
</TABLE>
The provision for income taxes on income from operations consists primarily
of current income taxes resulting from alternative minimum tax. The change in
deferred amounts has been offset by the valuation allowance.
44
<PAGE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE)
Deferred tax liabilities and assets at December 31, 1998, 1997 and 1996 are
comprised of the following:
<TABLE>
<CAPTION>
1998 TAX 1997 TAX
EFFECT EFFECT
-------------- --------------
<S> <C> <C>
Deferred tax liabilities:
Deferred acquisition costs.................................. $ 840 $ 559
Property and equipment...................................... 57 57
Net unrealized investment gains............................. 287 16
Other....................................................... 106 221
-------------- --------------
Total deferred liabilities................................ 1,290 853
-------------- --------------
Deferred tax assets:
Net operating loss carryforwards............................ (10,961) (10,203)
Insurance reserves.......................................... (2,957) (2,460)
Bad debts................................................... (998) (475)
Other....................................................... (316) (287)
-------------- --------------
Total deferred tax assets................................. (15,232) (13,425)
-------------- --------------
Valuation allowance........................................... 13,942 12,572
-------------- --------------
Net deferred tax liabilities.................................. $ -- $ --
-------------- --------------
-------------- --------------
</TABLE>
The Company has determined, based on its recent earnings history, that a
valuation allowance should be maintained against the deferred tax asset at
December 31, 1998.
The Company has unused tax operating loss carryforwards and capital loss
carryforwards of $99.8 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 maximum limitations in
future years of approximately $2 million per year. Net operating loss
carryforwards available for use in 1999 are approximately $7.2 million due to
losses incurred in 1995 after the change in ownership event occurred and
carryover of previous years' unused limitations.
The years of expiration of the tax carryforwards are as follows:
<TABLE>
<CAPTION>
NET OPERATING
YEAR OF EXPIRATION LOSS CAPITAL LOSS
- ----------------------------------------------------------------- ------------- -------------
<S> <C> <C>
1999......................................................... $ -- $ 4,025
2000......................................................... -- 824
2001......................................................... -- 13
2004......................................................... 12,825 --
2006......................................................... 20,411 --
2007......................................................... 31,931 --
2009......................................................... 19,342 --
2010......................................................... 3,918 --
2011......................................................... 1,764 --
2012......................................................... 690 --
2013......................................................... 4,030 --
------------- ------
$ 94,911 $ 4,862
------------- ------
------------- ------
</TABLE>
45
<PAGE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE)
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 the 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 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. As of December 31, 1998 and 1997, $8.7 and $7.5 million
respectively of claims payments have been made since June 7, 1994.
Of the remaining environmental, pollution and toxic tort claims, the
following activity took place during 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
----- -----
<S> <C> <C>
Pending, January 1.............................................................. 47 71
New claims advised.............................................................. 10 11
Claims settled.................................................................. 14 35
-- --
Pending, December 31............................................................ 43 47
-- --
-- --
</TABLE>
The policies corresponding to these claims were written on a direct basis.
The Company has excess of loss reinsurance with company retention through 1980
of $ 100 and $ 500 after that date. The claims are reserved as
follows as of December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Case reserves.............................................................. $ 2,625 $ 2,960
IBNR reserves.............................................................. 4,310 4,641
LAE reserves............................................................... 1,900 1,820
--------- ---------
Total.................................................................... $ 8,835 $ 9,421
--------- ---------
--------- ---------
</TABLE>
The claims involve four Superfund sites, seven asbestos or toxic claims, two
underground storage tanks and 30 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 43 claims remain open as of December 31,1998, 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.
46
<PAGE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE)
Losses incurred are reduced by recoveries made and estimated to be made from
reinsurers based on projected ultimate losses. Such amounts also include
substantial amounts related to the business produced as a servicing carrier.
Estimated reinsurance recoveries are as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Losses incurred.......................................... $ 147,316 $ 100,182 $ 158,307
Loss adjustment expenses................................. 7,122 4,380 5,583
---------- ---------- ----------
Total.................................................. $ 154,438 $ 104,562 $ 163,890
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The following table summarizes net property and casualty losses and LAE
incurred:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Estimated losses and LAE incurred........................ $ 179,707 $ 113,402 $ 175,704
Estimated reinsurance loss recoveries on incurred
losses................................................. (154,488) (104,582) (163,890)
---------- ---------- ----------
$ 25,269 $ 8,840 $ 11,814
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
47
<PAGE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE)
Activity in the liability for unpaid losses and LAE is summarized as
follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Liability for losses and LAE at the beginning of the
year:
Gross liability per balance sheet...................... $ 114,770 $ 132,152 $ 145,523
Ceded reinsurance recoverable, classified as an
asset................................................ (75,616) (84,725) (84,492)
---------- ---------- ----------
Net liability.......................................... 39,154 47,427 61,031
---------- ---------- ----------
Reserves acquired in purchase of Universal............... -- 2,655 --
---------- ---------- ----------
Provision for losses and LAE for claims occurring in the
current year........................................... 24,450 12,202 10,697
(Decrease) Increase in estimated losses and LAE for
claims occurring in prior years........................ 819 (3,362) 1,117
---------- ---------- ----------
25,269 8,840 11,814
---------- ---------- ----------
Losses and LAE payments for claims occurring during
Current year........................................... 18,398 8,845 9,151
Prior years............................................ 9,703 10,923 16,267
---------- ---------- ----------
28,101 19,768 25,418
---------- ---------- ----------
Liability for losses and LAE at the end of the year:
Net liability.......................................... 36,322 39,154 47,427
Ceded reinsurance recoverable, classified as an
asset................................................ 83,654 75,616 84,725
---------- ---------- ----------
Gross liability per balance sheet...................... $ 119,976 $ 114,770 $ 132,152
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
NOTE 8 MERGERS AND ACQUISITIONS
Effective May 1, 1998, the Company acquired all of the issued and
outstanding shares of common stock of Graward. Consideration in the transaction
included cash of $7.5 million and Subordinated Convertible Notes ("Notes") with
a principal amount of $2.7 million (See Note 5). The Company accounted for the
transaction as a purchase. The excess purchase price over the fair value of the
assets was $16.2 million The Company has delivered to the seller of Graward, a
final balance sheet as required under the purchase agreement (See Note 14(e)).
The final balance sheet identifies significant purchase price adjustments which
the Company believes are valid reductions in the resolution of the purchase
price and expects an eventual reduction in the purchase price and a resulting
reduction in the goodwill recorded above. Interest accruals and payments on the
notes were suspended after the delivery of the final balance sheet.
Effective March 31, 1998, the Company acquired all of the issued and
outstanding shares of common stock of AFS. Consideration in the transaction
included cash of $2.1 million and 50,000 shares of $0.625 Cumulative,
Convertible, Redeemable, Nonvoting Special Preferred Stock (See Note 9) of The
Seibels
48
<PAGE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE)
Bruce Group, Inc. The Company accounted for the transaction as a purchase. The
excess purchase price over the fair value of the assets was $2.3 million.
Effective December 1, 1997, the Company acquired all of the issued and
outstanding shares of common stock of Innovative, including its subsidiaries,
Universal and PBP. Consideration in the transaction consisted of 220,000 shares
of Cumulative, Convertible, Redeemable, Nonvoting Special Preferred Stock of The
Seibels Bruce Group, Inc. The Company accounted for the transaction as a
purchase and repaid $1.8 million of debt due the shareholders of Innovative out
of cash and liquid investments. The excess purchase price over the fair value of
the assets was $2.6 million.
The results of operations in the consolidated financial statements of the
Company include the following number of months of operations of the Companies
acquired above:
<TABLE>
<CAPTION>
1998 1997
----- -----
<S> <C> <C>
Graward......................................................................... 8 0
AFS............................................................................. 9 0
Universal and PBP............................................................... 12 1
-- --
-- --
</TABLE>
The following pro forma un-audited consolidated results of operation for
1998 and 1997 give affect to the acquisitions as though they had occurred at the
beginning of the year they were acquired. The dividends on the preferred stock
and interest of the notes have been considered.
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Revenues................................................................ $ 89,133 $ 85,945
Net (loss) income....................................................... $ (3,968) $ 1,740
Basic Earnings Per Share................................................ $ (0.51) $ 0.25
Diluted Earnings Per Share.............................................. $ (0.51) $ 0.24
</TABLE>
On July 1, 1998, Innovative was merged into the Company. The Board of
Directors of the Company approved the Plan of Merger (the "Plan") on February
10, 1998. The Plan did not require approval of the shareholders of either
company. The capital stock of Innovative was cancelled and no cash, securities
or other consideration of any kind was issued or paid for the shares.
49
<PAGE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE)
NOTE 9 SPECIAL STOCK, DIVIDEND RESTRICTIONS AND COMPUTATION OF EARNINGS PER
SHARE
SPECIAL STOCK
On March 31, 1998, the Company issued 50,000 shares of $0.625 Cumulative,
Convertible, Redeemable, Nonvoting Special Preferred Stock ("$0.625 Special
Stock") in connection with an acquisition. The Company determined the value of
the $0.625 Special Stock at issuance date to be $500. The $0.625 Special Stock
pays quarterly dividends at an annual rate of $0.625 per share. The Company paid
$24 in special stock dividends in 1998. On or after August 15, 2000, but prior
to August 15, 2002, the Company at its option only, may redeem in whole or in
part the $0.625 Special Stock at a price of $15.00 per share. On August 15,
2002, the Company must redeem any remaining shares at a rate of $10.00 per
share. On or after August 15, 2000, but prior to August 15, 2002, holders of the
shares have the right to convert each share of the $0.625 Special Stock in 1.23
shares or a total of 61,500 shares of Common Stock.
On December 1, 1997, the Company issued 220,000 shares of Cumulative,
Convertible, Redeemable, Nonvoting Special Preferred Stock ("Special Stock") in
connection with an acquisition. The Company determined the value of the Special
Stock at issuance date to be $2,200. The Special Stock pays quarterly dividends
at an annual rate of $0.62 per share. The Company paid $136 in Special Stock
dividends in 1998 and $11 in 1997. On or after August 15, 2000, but prior to
August 15, 2002, the Company at its option only, may redeem in whole or in part
the Special Stock at a price of $15.00 per share. On August 15, 2002, the
Company must redeem any remaining shares at a rate of $10.00 per share. On or
after August 15, 2000, but prior to August 15, 2002, holders of the shares have
the right to convert each share of the Special Stock into 1.23 shares, or a
total of 270,600 shares of Common Stock.
DIVIDEND RESTRICTION
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 SCIC and
Universal to declare and pay dividends to the Company.
The North Carolina Insurance Holding Company System Regulatory Act provides
that, without prior approval of the Commissioner of Insurance of the State of
North Carolina, dividends within any 12-month period may not exceed the lessor
of (i) 10% of a domestic insurer's surplus as regarding policyholders as of the
preceding December 31 or (ii) the net income, not including realized capital
gains, for the 12-month period ending the preceding December 31. For 1999, no
dividends are available from Universal to the Company.
The South Carolina Insurance Holding Company Regulatory Act provides that,
without prior approval of the Director of Insurance of the State of South
Carolina, dividends within any 12-month period may not exceed the greater of (i)
10% of a domestic insurer's surplus as regarding policyholders as shown in the
insurer's most recent annual statement or (ii) a domestic insurer's net income,
not including realized capital gains or losses as shown in the insurer's most
recent annual statement. Furthermore, dividends may only be paid out of positive
earned surplus unless approved by the Director. As of December 31, 1998. SCIC
had negative earned surplus.
50
<PAGE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE)
The following table shows the computation of per share earnings (the
following table is not in thousands).
<TABLE>
<CAPTION>
PER SHARE AMOUNT
AFTER CHANGE IN
INCOME SHARES ACCOUNTING
FOR THE YEAR ENDED 1998 (NUMERATOR) (DENOMINATOR) PRINCIPLE
- ------------------------------------------ ------------- ------------- -------------------
<S> <C> <C> <C>
Net Income................................ $ (2,893,693)
Less: Preferred stock dividends........... (159,839)
-------------
-------------
Basic and diluted EPS
Income available to common
stockholders.......................... $ (3,053,532) 7,763,252 $ (0.39)
------
------
FOR THE YEAR ENDED 1997
Net Income................................ $ 4,002,587
Less: Preferred stock dividends........... (11,367)
-------------
-------------
Basic EPS
Income available to common
stockholders.......................... $ 3,991,220 7,001,552 $ 0.57
------
------
Effect of Dilutive Securities
Convertible preferred stock............. 11,367 23,356
Options................................. -- 249,063
------------- -------------
Diluted EPS
Income available to common stockholders
plus assumed conversions.............. $ 4,002,587 7,273,971 $ 0.55
------------- ------------- ------
------------- ------------- ------
FOR THE YEAR ENDED 1996
Basic EPS
Income available to common
stockholders.......................... $ 5,176,204 4,918,346 $ 1.05
------
------
Effect of Dilutive Securities
Warrants................................ -- 46,278
Options................................. -- 526,929
------------- -------------
Diluted EPS
Income available to common
stockholders.......................... $ 5,176,204 5,491,553 $ 0.94
------------- ------------- ------
------------- ------------- ------
</TABLE>
NOTE 10 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. Prescribed statutory accounting practices are found in a variety of
publications of the National Association of Insurance Commissioners ("NAIC"),
state laws and regulations, as well as through general practices. 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,
51
<PAGE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE)
(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 and (4) 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 (loss) income and statutory net (loss)
income of the property and casualty insurance subsidiaries is as follows for the
year ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
GAAP (loss) income............................................. $ (2,894) $ 4,003 $ 5,176
Increase (decrease) due to:
Deferred policy acquisition costs............................ (892) 201 198
Salvage/subrogation recoverable and reserves................. (246) 139 256
Parent company GAAP-only items and other non-statutory
subsidiaries................................................. (848) 2,469 1,252
Intercompany dividends......................................... -- 32,947 2,400
Gain on sale of subsidiary..................................... -- 450 --
Adjustment to premium and loss reserves........................ -- 28 (278)
Other.......................................................... (876) 52 50
--------- --------- ---------
Statutory net (loss) income.................................... $ (5,756) $ 40,289 $ 9,054
--------- --------- ---------
--------- --------- ---------
</TABLE>
A reconciliation between GAAP shareholders' equity and statutory capital and
surplus, at December 31, is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
GAAP shareholders' equity.................................... $ 35,588 $ 37,544 $ 23,791
Increase (decrease) due to:
Deferred policy acquisition costs.......................... (2,472) (1,580) (96)
Non-statutory companies' shareholders' equity.............. (1,013) (165) (840)
Adjustments to premium and loss reserves................... (1,819) (1,903) (1,128)
Allocation of Seibels Bruce and Company expenses........... -- 192 --
Assets nonadmitted for statutory surplus................... (3,745) -- (95)
--------- --------- ---------
Statutory surplus............................................ $ 26,539 $ 34,088 $ 21,632
--------- --------- ---------
--------- --------- ---------
</TABLE>
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:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net income....................................................... $ 191 $ 203 $ 460
Shareholders' equity
("surplus as regards policyholders")........................... $ 2,708 $ 4,511 $ 4,769
</TABLE>
52
<PAGE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE)
NOTE 11 BENEFIT AND STOCK OPTION PLANS
STOCK OPTIONS AND STOCK OPTION PLANS
During the first quarter of 1996, the Company issued to a group of investors
stock options expiring December 31, 2000 to acquire 408,750 shares of
unregistered Company Common Stock at the greater of the price of $10.00 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 781,250 shares of unregistered Company Common
Stock at the greater of the price of $8.00 or the book value at date of
exercise, expiring December 31, 2000.
During the first quarter of 1998, the Company granted a warrant to purchase
up to 57,971 shares of Common Stock in connection with its Credit Facility (See
Note 5).
The Company currently has three plans under which stock options and
incentive stock may be granted to employees, non-employee directors, consultants
and active independent agents of the Company. Under the plan for employees and
independent agents, stock options expire five (5) years after the date of grant.
Under the plan for non-employee directors, the options expire ten (10) years
from the date of grant. Each plan is administered by a committee appointed by
the Board of Directors.
The 1996 Stock Option Plan (the "1996 Plan") for Employees became effective
on November 1, 1995 and supersedes the 1987 Stock Option Plan (the "1987 Plan").
The 1996 Plan has reserved 2,500,000 share of Company common stock for issuance
under the plan as options and incentive stock to employees and consultants of
the Company. The following table shows the options under the 1987 and 1996 plans
for the past three years.
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ---------
<S> <C> <C> <C>
Shares under options outstanding, beginning of year....... 766,215 582,169 215,294
Granted under 1996 Plan................................... 776,112 332,517 368,450
Exercised during year..................................... (19,446) (9,375) --
Canceled or expire during year............................ (469,401) (139,096) (1,575)
---------- ---------- ---------
Shares under options outstanding, end of year........... 1,053,480 766,215 582,169
---------- ---------- ---------
---------- ---------- ---------
Shares under options exercisable, end of year............. 472,199 324,718 214,531
---------- ---------- ---------
---------- ---------- ---------
</TABLE>
All grants made under the Plan have exercise prices no lower than the market
price at the date of grant. At December 31, 1998, 1,388,435 shares of the
Company's common stock have been reserved for
53
<PAGE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE)
future grants. The following table summarizes options outstanding and
exercisable by price range as of December 31, 1998.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
----------------------------------------------- --------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
RANGE OF EXERCISE REMAINING EXERCISE EXERCISE
PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
- -------------------- ----------- ------------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
$2.20- $4.40.... 32,668 5.9 $ 3.39 29,290 $ 3.34
$4.40- $6.60.... 52,501 2.0 $ 6.42 52,501 $ 6.42
$6.60- $8.80.... 515,113 4.3 $ 7.37 116,203 $ 7.25
$8.80- $11.00... 356,081 3.3 $ 9.51 193,364 $ 9.74
$11.00- $13.20... 1,025 2.3 $ 12.00 1,025 $ 12.00
$15.40- $17.60... 46,099 2.7 $ 16.00 37,961 $ 16.00
$19.80- $22.00... 46,099 2.7 $ 22.00 37,961 $ 22.00
$42.50- $45.00... 3,894 1.0 $ 43.66 3,894 $ 43.66
----------- --- ------ ----------- ------
1,053,480 3.7 $ 9.06 472,199 $ 10.55
----------- --- ------ ----------- ------
----------- --- ------ ----------- ------
</TABLE>
The 1995 Stock Option Plan for Non-Employee Directors became effective June
15, 1995, with 250,000 common shares of stock reserved for grants. Under the
Plan, all non-employee directors holding office on June 15 of each year are
automatically granted 1,250 options to purchase Company common stock. The
exercise price will be the market value on the date of grant. On June 15, 1996,
8,750 shares were granted at an exercise price of $10.50. In addition, on June
15, 1997, and on June 15, 1998, 12,500 shares were granted at an exercise price
of $7.19 and $7.00 respectively.
The 1995 Stock Option Plan for Independent Agents became effective December
21, 1995. The Plan has reserved 125,000 common shares for granting under this
plan. Activity may be summarized as follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Shares under options outstanding, beginning of year............. 36,516 54,125 17,000
Granted during year............................................. 9,400 5,526 40,125
Exercised during year........................................... -- (2,749) (1,500)
Canceled or expired during year................................. (9,711) (20,386) (1,500)
--------- --------- ---------
Shares under options outstanding, end of year................... 36,205 36,516 54,125
--------- --------- ---------
--------- --------- ---------
</TABLE>
In 1998, 9,400 options were granted at an average exercise price of $6.97.
At December 31, 1998, 84,547 shares of the Company's common stock have been
reserved for future grants.
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
1998 and 1997 consistent
54
<PAGE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE)
with the provisions of SFAS No. 123, the Company's net (loss) income and (loss)
earnings per share would have been reduced to the pro forma amounts indicated
below (in thousands except per share amounts):
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Net (loss) income--as reported.................................. $ (2,894) $ 4,003 $ 5,176
Net (loss) income--pro forma.................................... $ (3,432) $ 3,016 $ 4,026
Diluted earnings per share--as reported......................... $ (0.39) $ 0.55 $ 0.94
Diluted earnings per share--pro forma........................... $ (0.46) $ 0.41 $ 0.73
</TABLE>
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:
<TABLE>
<CAPTION>
1998
------------------------------------------
DIRECTORS
EMPLOYEE PLAN PLAN AGENTS PLAN
-------------- ------------- -----------
<S> <C> <C> <C>
Expected Dividend Yield.............................................. 0% 0% 0%
Expected Stock Price Volatility...................................... 52.75% 52.75% 52.75%
Risk-Free Interest Rate.............................................. 5.39% 5.39% 5.39%
Expected Life of Options............................................. 5 years 5 years 5 years
</TABLE>
<TABLE>
<CAPTION>
1997
------------------------------------------
DIRECTORS
EMPLOYEE PLAN PLAN AGENTS PLAN
-------------- ------------- -----------
<S> <C> <C> <C>
Expected Dividend Yield.............................................. 0% 0% 0%
Expected Stock Price Volatility...................................... 52.75% 52.75% 52.75%
Risk-Free Interest Rate.............................................. 6.30% 6.30% 6.30%
Expected Life of Options............................................. 5 years 10 years 4.2 years
</TABLE>
OTHER BENEFIT PLANS
The Company sponsors the South Carolina Insurance Company Employees'
Profit-Sharing and Savings Plan, which is a combined arrangement for the
profit-sharing and 401(k) elements for the employees of the Company and its
subsidiaries. As of December 31, 1998, the amount of assets available for the
plan benefits, based on information currently available, was $10,932.
The profit-sharing element of the plan covers all full-time employees who
have met minimum eligibility requirements. There have been no contributions to
this part of the plan since 1988.
Under the 401(k) element of the plan, employees may elect to have a portion
of their salary withheld from pre-tax wages for investment in the plan, subject
to limitations imposed by IRS regulations. The employee has several options as
to how contributions will be invested. Effective July 1, 1997, the employer
reinstated the 50% match of the employee's contribution up to the first 6%. The
Company match is split evenly with 50% invested in accordance with the
investment options selected by the participant and the remaining 50% invested in
the Seibels Bruce Stock Fund. The employer contribution for the plan on behalf
of the participating employees was $68 in 1998 and $72 in 1997.
In April 1998, The Financial Accounting Standards Board issued Statement No.
132, "Employers' Disclosures about Pension and Other Post Retirement Benefits".
This statement only modifies the disclosures companies make about their pension
and non-pension benefit plans and does not alter the accounting for these plans.
The FASB's intention in modifying the disclosures for post-retirement benefits
55
<PAGE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE)
is to make the disclosures more uniform and to provide better information to
investors about the economics of the benefit plans rather than focusing on
current period costs. The provisions of the statement are effective for years
beginning after December 15, 1997. FASB Statement No. 132 disclosures have been
incorporated in this document.
The Company and its subsidiaries currently provide certain health care and
life insurance benefits for retired employees. The Company and its subsidiaries
recognize the projected future cost of providing post-retirement benefits as an
expense as employees render services instead of when the benefits are paid. The
cumulative effect is being recorded as a charge against income on a prospective
basis as part of the future annual benefit cost. The post-retirement benefit
expense was approximately $90 in 1998, $77 in 1997 and $75 in 1996.
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Change in benefit obligation:
Benefit obligation........................................................... $ 575 $ 548
Service cost................................................................. 6 3
Interest Cost................................................................ 50 43
Acturial loss (gain)......................................................... 91 (19)
--------- ---------
Total benefit obligation..................................................... $ 722 $ 575
--------- ---------
--------- ---------
Fair value of plan assets.................................................... $ -- $ --
--------- ---------
--------- ---------
Funded status of plan........................................................ $ 722 $ 575
Unrecognized actuarial loss.................................................. (106) 14
Unrecognized net transition obligation....................................... (439) (471)
--------- ---------
Net amount recognized........................................................ $ 177 $ 118
--------- ---------
--------- ---------
Weighted-average assumption:
Discount rate................................................................ 6.75% 7.25%
--------- ---------
--------- ---------
</TABLE>
The weighted average annual assumed rate of increase in the per capita cost
of covered benefits (i.e., health care cost trend rate) was 7% for 1998, 8% for
1997 and 9% for 1996 is assumed to decrease to a 5% ultimate trend (5% in 1997
and 5.5% in 1996) with a duration to ultimate trend of three years (four years
in 1997 and six years in 1996). 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 each year would increase the
post-retirement benefit obligation as of December 31, 1998 by $7.
NOTE 12 SEGMENT REPORTING
FASB Statement No.131 "Disclosures about Segments of an Enterprise and
Related Information" requires public enterprises to report financial and
descriptive information about its reportable operating segments, and the
formatting of those segments in a manner that coincides with the way in which
management regularly reviews the business and formulates decisions.
The reportable segments were determined based on management's internal
reporting approach which is based on product line and complementary coverages.
The reportable segments are comprised of Automobile, Flood, Commercial and All
Other. The Automobile segment includes all personal lines components of retained
risk nonstandard automobile, NC Facility and SC Facility operations. The Flood
segment contains all flood operations including NFIP, flood zone determinations,
excess flood and flood
56
<PAGE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE)
compliance tracking, as well as the complementary homeowners product line and
the Company's insurance adjusting business. The Commercial segment includes all
commercial operations, as well as the commercial automobile activity for the NC
Facility and SC Facility. The All Other segment includes the runoff operations
of the Company. The results of the reportable segments are included in the
following tables:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
-----------------------------------------------------------
AUTOMOBILE FLOOD COMMERCIAL ALL OTHER TOTAL
----------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Commission and service income.......................... $ 30,960 $ 16,458 $ 1,893 $ (13) $ 49,298
Property and casualty premiums earned.................. 18,337 (34) 3,976 483 22,762
Policy fees............................................ 3,474 -- -- -- 3,474
Investment and other income............................ 2,517 14 655 2,697 5,883
----------- --------- ----------- ----------- ---------
Total revenue........................................ 55,288 16,438 6,524 3,167 81,417
----------- --------- ----------- ----------- ---------
Expenses:
Losses & loss adjustment expenses...................... 20,759 837 2,249 1,424 25,269
Other.................................................. 35,290 15,552 6,394 1,290 58,526
----------- --------- ----------- ----------- ---------
Total expenses....................................... 56,049 16,389 8,643 2,714 83,795
(Loss) income from operations before (benefit)
provision from income taxes before change in
accounting principle................................. (761) 49 (2,119) 453 (2,378)
(Benefit) provision for income taxes................... 53 25 (29) (134) (85)
Loss (income) from operations, before change in
accounting principle................................. (814) 24 (2,090) 587 (2,293)
Effect of change in accounting principle............... -- -- -- (601) (601)
----------- --------- ----------- ----------- ---------
Net (loss) income...................................... $ (814) $ 24 $ (2,090) $ (14) $ (2,894)
----------- --------- ----------- ----------- ---------
</TABLE>
57
<PAGE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE)
OTHER SIGNIFICANT ITEMS:
<TABLE>
<CAPTION>
YEAR END DECEMBER 31, 1998
------------------------------------------------------------
AUTOMOBILE FLOOD COMMERCIAL ALL OTHER TOTAL
----------- --------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Total Assets......................................... $ 153,074 $ 35,449 $ 16,360 $ 90,680 $ 295,563
----------- --------- ----------- ----------- ----------
----------- --------- ----------- ----------- ----------
Liabilities:
Losses & loss adjustment expenses reserves........... $ 47,008 $ 9,955 $ 3,949 $ 59,064 $ 119,976
Unearned premium..................................... 52,696 13,135 6,707 -- 72,538
Other liabilities.................................... 33,540 7,767 3,585 19,869 64,761
----------- --------- ----------- ----------- ----------
Total liabilities.................................... $ 133,244 $ 30,857 $ 14,241 $ 78,933 $ 257,275
----------- --------- ----------- ----------- ----------
----------- --------- ----------- ----------- ----------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
-----------------------------------------------------------
AUTOMOBILE FLOOD COMMERCIAL ALL OTHER TOTAL
----------- --------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Revenues:
Commission and service income.......................... $ 25,986 $ 12,811 $ 5,317 $ (9) $ 44,105
Property and casualty premiums earned.................. 5,647 -- 41 892 6,580
Investment and other income............................ 994 -- 701 2,989 4,684
----------- --------- ----------- ----------- ---------
Total revenue........................................ 32,627 12,811 6,059 3,872 55,369
----------- --------- ----------- ----------- ---------
Expenses:
Losses & loss adjustment expenses...................... 5,979 658 425 1,778 8,840
Other.................................................. 19,902 10,477 9,618 2,483 42,480
----------- --------- ----------- ----------- ---------
Total expenses....................................... 25,881 11,135 10,043 4,261 51,320
Income (loss) from operations, before (benefit)
provision from income taxes.......................... 6,746 1,676 (3,984) (389) 4,049
(Provision) benefit for income taxes................... 9 9 (11) (53) (46)
----------- --------- ----------- ----------- ---------
Net income (loss)...................................... $ 6,755 $ 1,685 $ (3,995) $ (442) $ 4,003
----------- --------- ----------- ----------- ---------
</TABLE>
OTHER SIGNIFICANT ITEMS:
<TABLE>
<CAPTION>
YEAR END DECEMBER 31, 1997
------------------------------------------------------------
AUTOMOBILE FLOOD COMMERCIAL ALL OTHER TOTAL
----------- --------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Total Assets......................................... $ 121,510 $ 28,139 $ 12,987 $ 71,982 $ 234,618
----------- --------- ----------- ----------- ----------
----------- --------- ----------- ----------- ----------
Losses & LAE reserves................................ $ 59,680 $ 2,918 $ 7,572 $ 44,600 $ 114,770
Unearned premium..................................... 24,936 11,428 3,410 14,567 54,341
Other liabilities.................................... 15,200 -- 1,546 9,017 25,763
----------- --------- ----------- ----------- ----------
Total liabilities.................................... $ 99,816 $ 14,346 $ 12,528 $ 68,184 $ 194,874
----------- --------- ----------- ----------- ----------
----------- --------- ----------- ----------- ----------
</TABLE>
58
<PAGE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE)
For comparison purposes, the table below presents 1997 and 1996 segment
results:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Revenue:
Property and casualty insurance segments.............................. $ 6,580 $ 7,186
Commission and service activities segments............................ 44,105 46,419
Net investment income and other interest income....................... 3,633 3,516
Realized gains (losses) on investments................................ 529 (179)
--------- ---------
Total for property & casualty insurance segments.................... 54,847 56,942
Other business revenue.................................................. 577 1,085
--------- ---------
Total revenue....................................................... $ 55,424 $ 58,027
--------- ---------
--------- ---------
Operating profit (loss):
Property and casualty insurance segments.............................. $ 1,783 $ 25
Commission and service activities segment............................. (2,735) 1,595
Net investment income................................................. 3,633 3,516
Realized gains (losses) on investments................................ 529 (179)
--------- ---------
Subtotal............................................................ 3,210 4,957
Other business segments................................................. 463 441
--------- ---------
Operating income........................................................ 3,673 5,398
General corporate expenses, net of miscellaneous income and expense... 495 (179)
Interest expense...................................................... (119) (174)
--------- ---------
Consolidated income before income taxes................................. $ 4,049 $ 5,045
--------- ---------
--------- ---------
</TABLE>
For comparison purposes, the table below presents 1997 and 1996 segment
identifiable assets
(in thousands):
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Identifiable Assets
Property and casualty insurance underwriting segment, including
related investment activity......................................... $ 92,896 $ 55,427
Commission and service activities segment............................. 133,722 158,237
Other business segments............................................... 4,743 5,187
General corporate assets.............................................. 3,257 1,621
---------- ----------
Total assets...................................................... $ 234,618 $ 220,472
---------- ----------
---------- ----------
</TABLE>
NOTE 13 REINSURANCE
The Company's property and casualty insurance operations include a retained
risk component, and a servicing carrier component. A significant percentage of
the risk business is ceded through several reinsurance programs including
pro-rata and excess of loss. In its servicing carrier operation, premiums are
59
<PAGE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE)
ceded entirely to the applicable state's reinsurance facility. A reconciliation
of direct to net premiums, on both a written and an earned basis is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------------------------ ------------------------ ------------------------
WRITTEN EARNED WRITTEN EARNED WRITTEN EARNED
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Direct...................................... $ 181,574 $ 163,485 $ 108,395 $ 109,277 $ 106,925 $ 105,212
Assumed..................................... 9,831 6,920 5,386 5,529 6,235 5,819
Ceded....................................... (159,179) (147,643) (107,155) (108,226) (106,494) (103,845)
----------- ----------- ----------- ----------- ----------- -----------
Net......................................... $ 32,226 $ 22,762 $ 6,626 $ 6,580 $ 6,666 $ 7,186
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
The amounts of premiums pertaining to catastrophe reinsurance that were
ceded from earned premium during 1998 and 1996 were $0.4 million and $0.2
million respectively. The Company carried no catastrophe reinsurance in 1997.
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. 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 reinsurer to
minimize its exposure to significant losses from reinsurers insolvency. Amounts
due from reinsurance companies are for the following amounts for unearned
premiums, unpaid losses and LAE, and paid losses and LAE:
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Unearned premiums....................................................... $ 59,619 $ 50,602
Unpaid losses and LAE................................................... $ 83,654 $ 75,616
Paid losses and LAE..................................................... $ 29,972 $ 30,244
</TABLE>
Four 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, 1998. The reinsurers and related balances
are as follows:
<TABLE>
<CAPTION>
REINSURANCE PREPAID
RECOVERABLE REINSURANCE
----------- -----------
<S> <C> <C>
South Carolina Reinsurance Facility................................ $ 62,907 $ 21,827
North Carolina Reinsurance Facility................................ 23,413 4,838
National Flood Insurance Program................................... 8,120 22,642
Swiss Reinsurance Corp............................................. 6,625 53
National Reinsurance Corp.......................................... 499 --
Gerling Global Reinsurance Corp.................................... 688 270
TIG Reinsurance Company............................................ 563 254
All others......................................................... 10,811 9,735
----------- -----------
Totals........................................................... $ 113,626 $ 59,619
----------- -----------
----------- -----------
</TABLE>
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.
60
<PAGE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE)
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 14 COMMITMENTS AND CONTINGENCIES
(a) The Company's and its subsidiaries lease office space, computer equipment
and automobiles under several operating leases that expire at various times.
Lease expense amount to $1,543, $425 and $24 in 1998, 1997 and 1996
respectively. Approximate minimum future lease payments under these
operating leases at December 31, 1998 are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
<S> <C>
1999............................................................. $ 1,002
2000............................................................. 592
2001............................................................. 410
2002............................................................. 406
2003............................................................. 219
Thereafter....................................................... 244
---------
Total.......................................................... $ 2,873
---------
---------
</TABLE>
(b) A contingent liability exists with respect to reinsurance placed with other
companies (See Note 13).
(c) The Company was served with a complaint dated November 19, 1997 by Norwest
Financial Resources, Inc. ("Norwest") that claimed indemnification against
the Company pursuant to the Asset Purchase Agreement dated as of July 2,
1993 by and among Premium Service Corporation of Columbia ("Premium"), the
Company and Norwest. The indemnification claim relates to certain loans of
Premium which later were discovered to be incorrectly recorded as realizable
assets. Management believes the Company has no liability in the case.
(d) Catawba was served with a complaint dated November 7, 1997 by the Municipal
Association of South Carolina which claimed it has potential deficiency of
approximately $1.75 million with respect to certain South Carolina
municipality taxes. Management and legal counsel believe Catawba has basis
for non-payment of such amounts.
(e) On May 1, 1998, the Company completed its acquisition of Graward. In
completing the final balance sheet in accordance with the stock purchase
agreement for the Graward acquisition, the Company identified certain
purchase price adjustments which it believes were known to certain of the
sellers, but were not disclosed to the Company during its due diligence
process. The stock purchase agreement with Graward provides methods for
resolving the differences as to the appropriate adjustments to the final
balance sheet. On December 7, 1998, the sellers notified the Company that
they intended to submit to arbitration two matters currently in dispute
between the parties. Management believes that the purchase price will be
adjusted appropriately under the purchase agreement.
(f) The Company and its subsidiaries are parties to various other 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.
61
<PAGE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS EXCEPT PER SHARE)
NOTE 15 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 to PMSC in 1996.
Mr. John C. West, chairman emeritus of the Board of Directors of the
Company, is of counsel to the law firm of Bethea, Jordan & Griffin. Bethea,
Jordan & Griffin has been retained by the Company to perform legal services.
During the fiscal years ended December 31, 1998 and 1997, the Company paid a
total of $40 and $40 to Bethea, Jordan & Griffin respectively.
During the fiscal year ended December 31, 1998 and 1997, the Company paid a
total of $522 and $483 to SADISCO Corporation ("SADISCO") respectively, of which
$54 and $96 respectively was for salvage and disposal services provided to the
Company in the ordinary course of business and $468 and $386 respectively was
for reimbursement of expenses advanced by SADISCO on behalf of the Company in
connection with such services. Charles H. Powers, chairman of the Board of
Directors of the Company, is the owner and operator of SADISCO.
62
<PAGE>
SUPPLEMENTARY DATA
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following is a summary of unaudited quarterly information for the years
ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
1998 QUARTER QUARTER QUARTER QUARTER
- ---------------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Commission & service income........................................... $ 11,139 $ 12,261 $ 13,114 $ 12,784
Property & casualty and credit life premiums earned................... 2,705 4,265 6,901 8,904
Net investment income................................................. 716 829 973 753
Other interest income................................................. 232 574 218 350
Realized gains (losses) on investments................................ (25) 23 41 16
Restructuring charge.................................................. -- (546) -- --
Effect of change in accounting principle.............................. (601) -- -- --
Net loss.............................................................. $ (1,138) $ (297) $ (142) $ (1,317)
Basic loss per share.................................................. $ (0.15) $ (0.04) $ (0.02) $ (0.18)
Diluted loss per share................................................ $ (0.15) $ (0.04) $ (0.02) $ (0.18)
</TABLE>
Commission and service income grew during the first three quarters of 1998
due to an increase in storm related claims. During the fourth quarter of 1998,
commission and service income decreased slightly due to a decrease in written
premiums for the SC Facility. Premiums earned continued to increase throughout
1998 due to the Company's nonstandard automobile program and commercial lines
premium writings. During the second quarter of 1998, the Company booked a $0.5
million restructuring charge related to the consolidation of its automobile and
claims operations. Effective January 1, 1998, the Company adopted SOP 97-3,
"Accounting by Insurance and Other Enterprises for Insurance-Related
Assessments", and recorded it as a cumulative effect of a change in accounting
principle of $0.6 million. As a result, the Company's participation in the NC
Facility is no longer being treated as assumed resinurance and all amounts
assumed from the NC Facility have been eliminated. The NC Facility is now
treated as an assessment organization. Net income fell during 1998 due to
several one time charges, the gradual build up of earned premiums for the
Company's new commercial lines book of business, and losses from the Company's
runoff.
During the first quarter of 1998, the Company purchased AFS for $2.6
million, consisting of $2.1 million in cash and $0.5 million in cumulative,
convertible, redeemable, nonvoting, special preferred stock. During the second
quarter of 1998, the Company acquired Graward for a tenative purchase price of
$10.3 million, consisting of $7.5 million in cash and $2.7 million in
subordinated convertible notes.
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
1997 QUARTER QUARTER QUARTER QUARTER
- ---------------------------------------------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Commission & service income........................................... $ 11,257 $ 11,521 $ 11,082 $ 10,245
Property & casualty and credit life premiums earned................... 2,323 913 1,673 1,827
Net investment income................................................. 708 799 785 829
Other interest income................................................. 297 79 95 295
Realized gains (losses) on investments................................ 219 (1) 326 (15)
Net income............................................................ $ 703 $ 1,075 $ 1,008 $ 1,217
Basic earnings per share.............................................. $ 0.11 $ 0.17 $ 0.13 $ 0.16
Diluted earnings per share............................................ $ 0.11 $ 0.16 $ 0.13 $ 0.15
</TABLE>
Commission and service income fell in the first quarter of 1997 as the
claims related to flood activity subsided from the very active 1996 storm
season. Commission and service income remained fairly constant through the first
three quarters of the year and decreased during the fourth quarter due to a lack
of storm related claims. Premiums earned decreased in the second quarter due to
lower assumed premiums than in the prior two quarters. Premiums earned increased
in both the third and fourth quarters of 1997 as the Company began its voluntary
nonstandard automobile program in the fourth quarter of 1997. Net income for the
year by $1.2 million mainly due to a lack of flood related claims.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Inapplicable.
63
<PAGE>
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS OF THE
REGISTRANT
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- ---------------------------------------------------------------------
<S> <C> <C>
Steven M. Armato.................... 47 Vice President of Human Resources of certain subsidiaries since 1993.
Employed by the Company since April 1981.
Michael A. Culbertson............... 50 Senior Vice President of the Company since June 1995 and Group Vice
President of certain subsidiaries since December 1995. Also holds the
position of Director of certain subsidiaries of the Company.
Previously held position of Vice President of Claims from June 1993
until June 1995. Employed by the Company in various claims capacities
since December 1974.
Wayne A. Fletcher................... 47 Vice President and Director of Business Development for certain
subsidiaries since 1997. From 1994 to 1997, Mr. Fletcher served as
President of Bankers Underwriters, Inc., a subsidiary of Banker's
Insurance Group. Prior to 1994, Mr. Fletcher spent a year as
Assistant to the President of the California-based American Sterling
Corporation. From 1985 to 1993, he created and developed National
Flood Services. Mr. Fletcher has served in various insurance-related
capacities for the U.S. government, including managing the Federal
Crop Insurance Program.
Steven J. Groth..................... 36 Treasurer of the Company and certain subsidiaries since October 1998
after joining the Company in 1997 as a financial analyst. Previously,
Mr. Groth was employed with Wachovia Bank from 1993 to 1997. Mr.
Groth was also a Naval Flight Officer with the U.S. Navy.
Stephen T. Harding.................. 37 Vice President for certain subsidiaries since April 1998 after
joining the Company in 1996 as South Carolina Reinsurance Facility
Underwriting and Customer Service Manager. Mr. Harding was previously
employed by GEICO from 1988 to 1996.
Kenneth W. Marter................... 37 Vice President of Audit and Planning of the Company and certain
subsidiaries since July 1998. Mr. Marter had served as Controller
since December 1997 and Director of Finance since November 1996.
Previously, Mr. Marter was Director of Finance with Air South
Airlines, Inc. from July 1994 to October 1996. He was employed by the
University of South Carolina from August 1992 to June 1994.
Andrew P. Martin.................... 41 Director, President and Chief Operating Officer of Universal
Insurance Company and Graward General Companies, Inc., subsidiaries
of the Company since November 1997 and May 1998, respectively. Also,
services as Vice President of certain subsidiaries. Previously served
as Vice President of Marketing, Administration and Strategic Planning
for Integon Corporation. Prior to Integon's acquisition of Bankers
and Shippers Insurance Company, Mr. Martin spent six years as Chief
Financial Officer, Controller and Treasurer for Bankers and Shippers
Insurance Company. Mr. Martin is a Certified Public Accountant.
</TABLE>
64
<PAGE>
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- ---------------------------------------------------------------------
<S> <C> <C>
Matthew P. McClure.................. 29 General Counsel and Corporate Secretary of the Company and certain
subsidiaries since July 1998. Also serves as a Director for certain
subsidiaries. Previously served as Assistant Secretary and Legal
Counsel since November 1996. Prior to joining the Company, Mr.
McClure was 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.
Elizabeth R. Monts.................. 43 Controller of the Company and certain subsidiaries since July 1998.
Ms. Monts served as Assistant Controller from February 1998 to July
1998 after joining the Company as Statutory Accounting Manager in
January 1997. Previously, Ms. Monts was employed seventeen years with
American Indemnity Group, most recently as Assistant Vice President
of Financial Accounting. Ms. Monts is a Certified Public Accountant.
R. Thomas Savage, Jr................ 52 R. Thomas Savage, Jr., joined Seibels Bruce in July 1998 as Chief
Financial Officer and assumed the position of acting President and
Chief Executive Officer in September 1988. Previously, he served for
six years as Chief Financial Officer of Unisun Insurance Company in
Charleston South Carolina after serving as its Treasurer for seven
years. Before joining Unisun, Savage was with KPMG Peat Marwick,
where as a Certified Public Accountant, served in their tax advisory
service and Integon Property and Casualty Corporation as Controller.
All of the aforementioned insurance companies' core business mirror
those of Seibels Bruce--regional carriers specializing in nonstandard
automobile and flood with agency books of commercial lines and
homeowners property and casualty business. Prior experience also
includes service on the board of directors of the North Carolina
Reinsurance Facility and a variety of roles for the South Carolina
Reinsurance Facility and the National Flood Insurance Program.
Richard A. Shaffer.................. 54 Director of Commercial Lines for certain subsidiaries since 1997.
Previously, Mr. Shaffer was employed with CNA Insurance Company with
emphasis in commercial and personal lines.
</TABLE>
Pursuant to Instruction G(3) to Form 10-K, the information relating to
Directors of the Company required by Item 10 is incorporated by reference from
the Company's definitive proxy statement which is to be filed pursuant to
Regulation 14A within 120 days after the end of the Company's fiscal year ended
December 31, 1998.
For information pertaining to Executive Officers of the Company, as required
by Instruction 3 of Paragraph (b) of Item 401 of Regulation S-K, refer to the
Executive Officers of the Registrant" section of Part I of this document.
Pursuant to Instruction G(3) to Form 10-K, the information relating to
compliance with Section 16(a) required by Item 10 is incorporated to by
reference from the Company's definitive proxy statement which is to be filed
pursuant to Regulation 14A within 120 days after the end of the Company's fiscal
year ended December 31, 1998.
65
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Pursuant to Instruction G(3) to Form 10-K, the information required by Item
11 is incorporated by reference for the Company's definitive proxy statement
which is to be filed pursuant to Regulation 14A within 120 days after the end of
the Company's fiscal year ended December 31, 1998.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Pursuant to Instruction G(3) to Form 10-K, the information required by Item
12 is incorporated by reference from the company's definitive proxy statement
which is to b filed pursuant to Regulation 14A within 120 days after the end of
the Company's fiscal year ended December 31, 1998.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to Instruction G(3) to Form 10-K, the information required by Item
13 is incorporated by reference from the Company's definitive proxy statement
which is to be filed pursuant to Regulation 14A within 120 days after the end of
the Company's fiscal year ended December 31, 1998.
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, 1998 and December 31, 1997.
Consolidated Statements of Operations--Years ended December 31, 1998,
December 31, 1997 and December 31, 1996.
Consolidated Statement of Cash Flows--Years ended December 31, 1998,
December 31, 1997 and December 31, 1996.
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.
66
<PAGE>
(a) (3) List of Exhibits
<TABLE>
<S> <C>
3.1 Articles of Incorporation of the Registrant, as restated, dated February 12, 1999.
3.2 By-laws of the Registrant, as amended and restated, dated February 4, 1999.
4.1 The rights of the Company's equity security holders are defined in the Fifth, Sixth,
Seventh and Eighth Articles of the Company's Articles of Incorporation. See Exhibit
3.1.
4.2 Form of the Certificate of the Company's Common Stock, par value $1.00 per share,
incorporated herein by reference to the Registrant's Registration Statement on From
S-2 (File No. 333-24081).
10.1 South Carolina Insurance Company Employee's Profit Sharing and Savings Plan, dated
June 30, 1992, as amended January 4, 1993, incorporated herein by reference to the
Annual Report on Form 10-K(10)(9)-9, for the year ended December 31, 1992. Amendments
dated June 2, 1993, April 21, 1994, July 1, 1994, July 1, 1995, July 1, 1996 and
September 26, 1997, incorporated herein by reference to the Annual Report on Form
10-K, Exhibit 10.1, for the year ended December 31, 1997. Amendment dated March 16,
1998.
10.2 Stock Purchase Agreement, date 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.
10.3 Stock Option Agreement, dated January 30, 1996, by and between the Registrant and
Charles H. Power, Walker S. Powers and Rex and Jane Huggins, incorporated herein by
reference to submission DEF 14-A, filing date May 10, 1996, file number 000-008804,
accession number 0001005150-96-00127, accepted May 9, 1996.
10.4 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.
10.5 Stock Purchase Agreement, dated March 28, 1996, by and between Registrant and Junius
DeLeon Finklea, Joseph K. Newsom, Sr., Mark J. Ross, Larry M. Brice, J. Howard
Stokes, Winston W. 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.
10.6 Stock Option Purchase Agreement, dated November 20, 1997, by and between the
Registrant; Charles H. Powers, Walker S. Powers and Rex and Jane Huggins; and High
Ridge Capital LLC, incorporated herein by reference to the Annual Report on Form
10-K, Exhibit 10.6, for the year ended December 31, 1997.
10.7 Stock Option Purchase Agreement, dated November 20, 1997, by and between the
Registrant; Charles H. Powers, Walker S. Powers and Rex and Jane Huggins; and High
Ridge Capital Partners Limited Partnership, incorporated herein by reference to the
Annual Report on Form 10-K, Exhibit 10.7, for the year ended December 31, 1997.
10.8 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, as amended by the Amendment thereto, effective October 8, 1998, incorporated
herein by reference to submission Form S-8, filing date October 9, 1998, file number
333-65537, accession number 0001047469-98-036917, accepted October 9, 1998.
10.9 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.
</TABLE>
67
<PAGE>
<TABLE>
<S> <C>
10.10 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.
10.11 Agreement, dated October 1, 1994, by and between Catawba Insurance Company and the SC
Facility, incorporated herein by reference to the Annual Report on Form 10-K, Exhibit
10.12, for the year ended December 31, 1996.
10.12 Managing General Agent Agreement, dated January 1, 1996, by and between Seibels Bruce
& Company and Agency Specialty of Kentucky, Inc. and Generali--US Branch,
incorporated herein by reference to the Annual Report, Exhibit 10.13, for the year
ended December 31, 1996. (Portions of this exhibit have been omitted pursuant to a
request for confidential treatment.)
10.13 Termination Agreement, dated August 27, 1997, by and between Seibels Bruce & Company
and Agency Specialty of Kentucky, Inc. and Generali--US Branch, incorporated herein
by reference to the Annual Report on Form 10-K, Exhibit 10.13, for the year ended
December 31, 1997.
10.14 Arrangement, dated October 1, 1996, by and between Catawba Insurance Company,
Kentucky Insurance Company and South Carolina Insurance Company and The United States
of America Federal Emergency Management Agency, incorporated herein by reference to
the Annual Report, Exhibit 10.14, for the year ended December 31, 1996.
10.15 Joint Underwriting Association contract, dated October 13, 1998, by and between South
Carolina Insurance Company and the South Carolina Associated Auto Insurers Plan.
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,
1998, incorporated herein by reference to Form SE, dated March 30, 1999.
</TABLE>
(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.
68
<PAGE>
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)
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.
<TABLE>
<S> <C> <C>
Date: March 29, 1999 By /s/ CHARLES H. POWERS
- -------------------------- ------------------------------------------
Charles H. Powers
Chairman of the Board and Director
Date: March 29, 1999 By /s/ R. THOMAS SAVAGE, JR.
- -------------------------- ------------------------------------------
R. Thomas Savage, Jr.
Acting President and CEO and CFO
Date: March 29, 1999 By /s/ FRANK H. AVENT
- -------------------------- ------------------------------------------
Frank H. Avent
Director
Date: March 29, 1999 By /s/ A. CRAWFORD CLARKSON, JR.
- -------------------------- ------------------------------------------
A. Crawford Clarkson, Jr.
Director
Date: March 29, 1999 By /s/ SUSIE H. VANHUSS, PH D.
- -------------------------- ------------------------------------------
Susie H. VanHuss, Ph D.
Director
Date: March 29, 1999 By /s/ CLAUDE E. MCCAIN
- -------------------------- ------------------------------------------
Claude E. McCain
Director
Date: March 29, 1999 By /s/ KENNETH A. PAVIA
- -------------------------- ------------------------------------------
Kenneth A. Pavia
Director
Date: March 29, 1999 By: /s/ WALKER S. POWERS
- -------------------------- ------------------------------------------
Walker S. Powers
Director
Date: March 29, 1999 By /s/ JOHN P. SEIBELS
- -------------------------- ------------------------------------------
John P. Seibels
Director
Date: March 29, 1999 By /s/ GEORGE R.P. WALKER, JR.
- -------------------------- ------------------------------------------
George R.P. Walker, Jr.
Director
Date: March 29, 1999 By /s/ JAMES L. ZECH
- -------------------------- ------------------------------------------
James L. Zech
Director
Date: March 29, 1999 By /s/ ELIZABETH R. MONTS
- -------------------------- ------------------------------------------
Elizabeth R. Monts
Controller (Principal Accounting Officer)
</TABLE>
69
<PAGE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
SCHEDULE I- SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES
AS OF DECEMBER 31, 1998
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE SHEET
TYPE OF INVESTMENT COST MARKET VALUE VALUE
- ------------------------------------------------------------------------- --------- ------------ -------------
<S> <C> <C> <C>
DEBT SECURITIES*
Bonds and Notes:
U.S. Government and government agencies and authorities.............. $ 33,941 $ 34,786 $ 34,786
State, municipalities and political subdivisions..................... 594 635 635
Corporate bonds...................................................... 4,253 4,274 4,274
--------- ------------ -------------
Total debt securities.............................................. 38,788 39,695 39,695
--------- ------------ -------------
EQUITY SECURITIES
Common stocks:
Banks, trusts and insurance companies................................ 1,306 1,306 1,306
--------- ------------ -------------
Total equity securities............................................ 906 1,306 1,306
--------- ------------ -------------
Other long-term investments.............................................. 108 108 108
Cash and short-term investments.......................................... 23,141 23,141 23,141
--------- ------------ -------------
Total cash and investments......................................... $ 63,343 $ 64,250 $ 64,250
--------- ------------ -------------
--------- ------------ -------------
</TABLE>
- ------------------------
* These debt securities are classified as debt securities available for sale
and are valued at market.
70
<PAGE>
SCHEDULE II--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
THE SEIBELS BRUCE GROUP, INC. (PARENT COMPANY)
BALANCE SHEET
AS OF DECEMBER 31,
(DOLLARS SHOWN IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
Cash...................................................................................... $ 395 $ 263
Investment in subsidiary companies*....................................................... 44,746 32,887
Other investments......................................................................... 1,260 868
Intercompany recoverables*................................................................ 6,246 4,936
Other assets.............................................................................. 1,868 2,351
--------- ---------
Total assets.......................................................................... $ 54,515 $ 41,305
--------- ---------
LIABILITIES
Notes payable............................................................................. $ 13,550 $ --
Intercompany payable*..................................................................... 2,240 1,550
Other liabilities......................................................................... 437 11
--------- ---------
Total liabilities....................................................................... 16,227 1,561
--------- ---------
COMMITMENTS AND CONTINGENCIES
SPECIAL STOCK, no par value, authorized 5,000,000 shares
Issued and outstanding 220,000 shares of cumulative $0.62, convertible, redeemable,
nonvoting, special preferred stock, redemption value $2,200............................. 2,200 2,200
Issued and outstanding 50,000 shares of cumulative $0.625, convertible, redeemble,
nonvoting, special preferred stock, redemption value $500............................... 500 --
--------- ---------
Total special stock..................................................................... 2,700 2,200
--------- ---------
SHAREHOLDERS' EQUITY
Common stock, $1 par value, authorized 17,500,000 shares in 1998 and 12,500,000 shares in
1997, issued and outstanding 7,773,075 and 7,730,725 shares in 1998 and 1997,
respectively............................................................................ 7,773 7,731
Additional paid-in-capital................................................................ 61,861 61,665
Accumulated other comprehensive income.................................................... 907 47
Accumulated deficit....................................................................... (34,953) (31,899)
--------- ---------
Total shareholders' equity.............................................................. 35,588 37,544
--------- ---------
Total liabilities and shareholders' equity............................................ $ 54,515 $ 41,305
--------- ---------
--------- ---------
</TABLE>
* Eliminated in consolidation.
The accompanying notes are an integral part of these financial statements
71
<PAGE>
SCHEDULE II (CONTINUED)- CONDENSED FINANCIAL INFORMATION OF REGISTRANT
THE SEIBELS BRUCE GROUP, INC. (PARENT COMPANY)
STATEMENTS OF OPERATIONS
AS OF DECEMBER 31,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
Total revenue....................................................................... $ 1,866 $ 177 $ 191
Expenses:
Interest.......................................................................... 831 99 90
Other............................................................................. 1,115 37 17
--------- --------- ---------
Total expenses.................................................................... 1,946 136 107
--------- --------- ---------
Income (loss) before equity in undistributed (loss) income of subsidiaries.......... (80) 41 84
Tax benefit......................................................................... (85) (18) (1)
--------- --------- ---------
Income before equity in undistributed (loss) income of subsidiary................... 5 59 85
Equity in undistributed (loss) income of subsidiary companies*...................... (2,899) 3,944 5,091
--------- --------- ---------
Net (loss) income................................................................. $ (2,894) $ 4,003 $ 5,176
--------- --------- ---------
--------- --------- ---------
Basic earning per share............................................................. $ (0.39) $ 0.57 $ 1.05
--------- --------- ---------
--------- --------- ---------
Diluted earnings per share.......................................................... $ (0.39) $ 0.55 $ 0.94
--------- --------- ---------
--------- --------- ---------
</TABLE>
* Eliminated in consolidation.
The accompanying notes are an integral part of these financial statements.
72
<PAGE>
SCHEDULE II (CONTINUED)--CONDENSED FINANCIAL INFORMATION OF REGISTRANT
THE SEIBELS BRUCE GROUP, INC. (PARENT COMPANY)
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31,
(IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Common stock outstanding:
Beginning of year........................................................... $ 7,731 $ 6,168 $ 4,193
Stock issued in connection with offering.................................... -- 1,428 --
Stock issued under benefit and stock option plans........................... 42 135 4
Stock issued in connection with capital contributions....................... -- -- 1,971
---------- ---------- ----------
End of year................................................................. $ 7,773 $ 7,731 $ 6,168
---------- ---------- ----------
---------- ---------- ----------
Additional paid-in capital:
Beginning of year........................................................... $ 61,665 $ 54,050 $ 46,660
Stock issued in connection with offering.................................... -- 7,175 --
Stock issued under benefit and stock option plans, net of repurchase........ 196 440 21
Stock issued in connection with capital contributions....................... -- -- 7,369
---------- ---------- ----------
End of year................................................................. $ 61,861 $ 61,665 $ 54,050
---------- ---------- ----------
---------- ---------- ----------
Accumulated other comprehensive income
Beginning of year........................................................... $ 47 $ (536) $ 401
Change during the year...................................................... 860 583 (937)
---------- ---------- ----------
End of year................................................................. $ 907 $ 47 $ (536)
---------- ---------- ----------
---------- ---------- ----------
Accumulated deficit:
Beginning of year........................................................... $ (31,899) $ (35,891) $ (41,067)
Net (loss) income for the year.............................................. (2,894) 4,003 5,176
Preferred stock dividend.................................................... (160) (11) --
---------- ---------- ----------
End of year................................................................. $ (34,953) $ (31,899) $ (35,891)
---------- ---------- ----------
---------- ---------- ----------
Total shareholders' equity.............................................. $ 35,588 $ 37,544 $ 23,791
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements.
73
<PAGE>
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)
<TABLE>
<CAPTION>
1998 1997 1996
---------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income.............................................................. $ (2,894) $ 4,003 $ 5,176
---------- --------- ---------
Adjustments to reconcile net (loss) income to net cash used in operating
activities:
Equity in undistributed loss (income) of subsidiaries.......................... 2,507 (3,944) (5,091)
Changes in assets and liabilities:
Other (net).................................................................. (2,507) (3,649) (476)
---------- --------- ---------
Total adjustments.......................................................... -- (7,593) (5,567)
---------- --------- ---------
Net cash used in operating activities.......................................... (2,894) (3,590) (391)
---------- --------- ---------
Cash flows from investing activities:
Contributions of capital to subsidiaries....................................... (9,812) (1,653) (6,288)
Cost of investments acquired................................................... (300) (1,054) --
---------- --------- ---------
Net cash (used in) investing activities........................................ (10,112) (2,707) (6,288)
---------- --------- ---------
Cash flows from financing activities:
Issuance of capital stock...................................................... 238 9,178 9,349
Issuance of debt, net of repayments............................................ 13,060 (2,849) (2,476)
Dividends paid................................................................. (160) -- --
---------- --------- ---------
Net cash provided by financing activities...................................... 13,138 6,329 6,873
---------- --------- ---------
Net increase in cash and short term investments................................ 132 32 194
Cash and short term investments, beginning of year............................. 263 231 37
---------- --------- ---------
Cash and short term investments, end of year................................... $ 395 $ 263 $ 231
---------- --------- ---------
---------- --------- ---------
Supplemental cash flow information:
Income taxes recovered from subsidiaries....................................... $ 1,493 $ 1 $ 77
Interest paid.................................................................. 754 -- 271
Noncash investing activities:
Issuance of debt............................................................... $ (2,700) $ (2,200) $ --
Issuance of preferred stock.................................................... (500) -- --
---------- --------- ---------
---------- --------- ---------
Stock issued for consulting services/compensation.............................. $ -- $ 81 $ 16
---------- --------- ---------
---------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements.
74
<PAGE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
SCHEDULE III--SUPPLEMENTARY INSURANCE INFORMATION
(IN THOUSANDS)
<TABLE>
<CAPTION>
FUTURE
POLICY NET AMORTIZATION
BENEFITS INVESTMENT BENEFITS, OF
DEFERRED LOSSES, INCOME(1) CLAIMS, DEFERRED
POLICY CLAIMS AND OTHER AND POLICY OTHER
ACQUISITION AND LOSS UNEARNED PREMIUM INTEREST SETTLEMENT ACQUISITION OPERATING
SEGMENT COSTS EXPENSES PREMIUMS REVENUE INCOME EXPENSES COSTS EXPENSES(1)
- ------------------------------ ----------- --------- -------- ------- ---------- ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1998
Property and casualty
insurance................... $2,472 $ 119,976 $72,538 $22,762 $ 564 $25,269 $10,222 $(4,584)
Credit life insurance......... -- 20 22 13 296 (46) 15 61
Commission and service
activities.................. -- -- -- -- 3,785 -- -- 51,130
Other......................... -- -- -- -- -- -- -- 201
----------- --------- -------- ------- ---------- ---------- ------------ -----------
Total..................... $2,472 $ 119,996 $72,560 $22,775 $4,645 $25,223 $10,237 $46,808
----------- --------- -------- ------- ---------- ---------- ------------ -----------
----------- --------- -------- ------- ---------- ---------- ------------ -----------
Year ended December 31, 1997
Property and casualty
insurance................... $1,565 $ 114,770 $54,341 $6,580 $ 472 $ 8,840 $ 1,305 $(4,036)
Credit life insurance......... 15 117 41 156 248 70 (98) 55
Commission and service
activities.................. -- -- -- -- 3,167 -- -- 45,005
Other......................... -- -- -- -- -- -- -- 90
----------- --------- -------- ------- ---------- ---------- ------------ -----------
Total..................... $1,580 $ 114,887 $54,382 $6,736 $3,887 $ 8,910 $ 1,207 $41,114
----------- --------- -------- ------- ---------- ---------- ------------ -----------
----------- --------- -------- ------- ---------- ---------- ------------ -----------
Year ended December 31, 1996
Property and casualty
insurance................... $ -- $ 132,152 $47,498 $7,186 $ 482 $11,814 $ 1,580 $ 58
Credit life insurance......... 96 145 194 478 270 203 (207) 74
Commission and service
activities.................. -- -- -- -- 3,055 -- -- 38,882
Other......................... -- -- -- -- -- -- -- --
----------- --------- -------- ------- ---------- ---------- ------------ -----------
Total..................... $ 96 $ 132,297 $47,692 $7,664 $3,807 $12,017 $ 1,373 $39,014
----------- --------- -------- ------- ---------- ---------- ------------ -----------
----------- --------- -------- ------- ---------- ---------- ------------ -----------
<CAPTION>
PREMIUMS
SEGMENT WRITTEN
- ------------------------------ --------
<S> <C>
Year ended December 31, 1998
Property and casualty
insurance................... $32,226
--------
--------
Credit life insurance.........
Commission and service
activities..................
Other.........................
Total.....................
Year ended December 31, 1997
Property and casualty
insurance................... $ 6,626
--------
--------
Credit life insurance.........
Commission and service
activities..................
Other.........................
Total.....................
Year ended December 31, 1996
Property and casualty
insurance................... $ 6,666
--------
--------
Credit life insurance.........
Commission and service
activities..................
Other.........................
Total.....................
</TABLE>
- ------------------------
(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.
75
<PAGE>
THE SEIBELS BRUCE GROUP, INC. AND SUBSIDIARIES
SCHEDULE IV--REINSURANCE
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERCENTAGE OF
ASSUMED FROM AMOUNT
GROSS CEDED TO OTHER OTHER ASSUMED TO
YEAR ENDED DECEMBER 31, 1998 AMOUNT* COMPANIES COMPANIES NET AMOUNT NET AMOUNT
- ------------------------------------------ ---------- -------------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Credit life insurance in force............ $ 489 $ -- $ -- $ 489 0.0%
---------- -------------- ------ ----------- ---
---------- -------------- ------ ----------- ---
Premiums earned:
Property/casualty insurance............. $ 163,485 $ 147,643 $ 6,920 $ 22,762 30.4%
Credit life insurance................... 13 -- -- 13 --
Accident/health insurance............... -- -- -- -- --
---------- -------------- ------ -----------
Total................................. $ 163,498 $ 147,643 $ 6,920 $ 22,775
---------- -------------- ------ -----------
---------- -------------- ------ -----------
YEAR ENDED DECEMBER 31, 1997
- ------------------------------------------
Credit life insurance in force............ $ 1,466 $ -- $ -- $ 1,466 0.0%
---------- -------------- ------ ----------- ---
---------- -------------- ------ ----------- ---
Premiums earned:
Property/casualty insurance............. $ 109,277 $ 108,226 $ 5,529 $ 6,580 84.0%
Credit life insurance................... 51 -- -- 51 --
Accident/health insurance............... 105 -- -- 105 --
---------- -------------- ------ -----------
Total..................................... $ 109,433 $ 108,226 $ 5,529 $ 6,736
---------- -------------- ------ -----------
---------- -------------- ------ -----------
YEAR ENDED DECEMBER 31, 1996
- ------------------------------------------
Credit life insurance in force............ $ 5,908 $ -- $ -- $ 5,908 0.0%
---------- -------------- ------ ----------- ---
---------- -------------- ------ ----------- ---
Premiums earned:
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
---------- -------------- ------ -----------
---------- -------------- ------ -----------
</TABLE>
* Includes amount written as designated carrier for two state sponsored
automobile facilities, a homeowners' residual market and the WYO National
Flood Insurance Program.
76
<PAGE>
THE SEIBELS BRUCE GROUP, INC.
SCHEDULE V--VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT
BEGINNING OF BALANCE AT
DESCRIPTION YEAR ADDITIONS DEDUCTIONS END OF YEAR
- ---------------------------------------------------------------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
- ----------------------------------------------------------------
Allowance for uncollectable:
Agents' balances receivable................................... $ 957 $ 2,885* $ 1,148 $ 2,694
----- ----------- ----------- -----------
----- ----------- ----------- -----------
Other receivable.............................................. $ 63 -- 63 --
----- ----------- ----------- -----------
----- ----------- ----------- -----------
Premium notes receivable...................................... $ 301 $ 15 $ 75 $ 241
----- ----------- ----------- -----------
----- ----------- ----------- -----------
YEAR ENDED DECEMBER 31, 1997
- ----------------------------------------------------------------
Allowance for uncollectable:
Agents' balances receivable................................... $ 669 $ 2,016 $ 1,728 $ 957
----- ----------- ----------- -----------
----- ----------- ----------- -----------
Other receivable.............................................. $ 79 $ 29 $ 45 $ 63
----- ----------- ----------- -----------
----- ----------- ----------- -----------
Premium notes receivable...................................... $ 75 $ 226 $ -- $ 301
----- ----------- ----------- -----------
----- ----------- ----------- -----------
YEAR ENDED DECEMBER 31, 1996
- ----------------------------------------------------------------
Allowance for uncollectable:
Agents' balances receivable................................... $ 70 $ 738 $ 139 $ 669
----- ----------- ----------- -----------
----- ----------- ----------- -----------
Other receivable.............................................. $ 79 $ -- $ -- $ 79
----- ----------- ----------- -----------
----- ----------- ----------- -----------
Premium notes receivable...................................... $ 75 $ -- $ -- $ 75
----- ----------- ----------- -----------
----- ----------- ----------- -----------
</TABLE>
- ------------------------
* Includes $1,889 acquired with the purchase of Graward.
77
<PAGE>
THE SEIBELS BRUCE GROUP, INC.
SCHEDULE VI--SUPPLEMENTAL INFORMATION CONCERNING PROPERTY/CASUALTY INSURANCE
OPERATIONS
(IN THOUSANDS)
<TABLE>
<CAPTION>
CLAIMS AND CLAIM
ADJUSTMENT
RESERVES NET EXPENSES
FOR UNPAID INVESTMENT INCURRED RELATED
DEFERRED CLAIMS DISCOUNT, INCOME AND TO:
POLICY AND CLAIM IF ANY, OTHER ------------------
ACQUISITION ADJUSTMENT DEDUCTED IN UNEARNED EARNED INTEREST CURRENT PRIOR
COSTS EXPENSES COLUMN C* PREMIUMS PREMIUMS INCOME YEAR YEARS
----------- ---------- ----------- -------- -------- ---------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Affiliation with Registrant
Company and consolidated
subsidiaries
Year Ended December 31, 1998.. $2,472 $119,976 $-- $72,538 $22,762 $4,349 $24,450 $ 819
----------- ---------- --- -------- -------- ---------- -------- -------
----------- ---------- --- -------- -------- ---------- -------- -------
Year Ended December 31, 1997.. $1,565 $114,770 $-- $54,341 $ 6,580 $3,639 $12,202 $(3,362)
----------- ---------- --- -------- -------- ---------- -------- -------
----------- ---------- --- -------- -------- ---------- -------- -------
Year Ended December 31, 1996.. $ -- $132,152 $-- $47,498 $ 7,186 $3,537 $10,697 $ 1,117
----------- ---------- --- -------- -------- ---------- -------- -------
----------- ---------- --- -------- -------- ---------- -------- -------
<CAPTION>
AMORTIZATION
OF DEFERRED PAID CLAIMS
POLICY AND CLAIM
ACQUISITION ADJUSTMENT PREMIUMS
COSTS EXPENSES WRITTEN
------------ ----------- --------
<S> <C> <C> <C>
Affiliation with Registrant
Company and consolidated
subsidiaries
Year Ended December 31, 1998.. $10,252 $28,101 $32,226
------------ ----------- --------
------------ ----------- --------
Year Ended December 31, 1997.. $ 1,305 $19,768 $ 6,626
------------ ----------- --------
------------ ----------- --------
Year Ended December 31, 1996.. $ 1,580 $25,418 $ 6,666
------------ ----------- --------
------------ ----------- --------
</TABLE>
- ------------------------
* The Company does not discount loss and LAE reserves.
78
k
<PAGE>
EXHIBIT 3.1
STATE OF SOUTH CAROLINA
SECRETARY OF STATE
RESTATED ARTICLES OF INCORPORATION
Pursuant to ss.33-10-107 of the 1976 South Carolina Code, as amended,
the corporation hereby submitS the following information:
1. The name of the Corporation is THE SEIBELS BRUCE GROUP, INC.
2. If the name of the Corporation has ever been changed, all of its former
names:
a) N/A
-----------------------------------------------------------------
b)
-----------------------------------------------------------------
c)
-----------------------------------------------------------------
3. The original articles of incorporation were filed on JULY 14, 1978.
4. The registered office of the corporation is 1501 LADY STREET in the
city of COLUMBIA, South Carolina 29201.
5. The corporation is authorized to issue shares of stock as follows:
Complete a or b, whichever is applicable:
a) [ ] If the corporation is authorized to issue a single class of
shares, the total shares authorized is __________.
b) [X] The corporation is authorized to issue more than one class of
shares:
<TABLE>
<CAPTION>
Class of Shares Authorized No. of Each Class
<S> <C>
Common 17,500,000
------------------------ --------------------------------
Special 5,000,000
------------------------ --------------------------------
------------------------ --------------------------------
</TABLE>
The relative rights, preferences, and limitations of the shares of each
class, and of each series within a class are as follows:
The Board of Directors has the authority to divide the five million (5,000,000)
authorized shares of special stock into one or more series and to fix
the designations, voting rights, preferences and all other rights or
restrictions of each such series.
See Exhibit 1 to the Addendum attached hereto and incorporated herein by
reference for a single series of Special Stock designated "Cumulative
Convertible Redeemable Nonvoting Special Preferred Stock."
See Exhibit 2 to the Addendum attached hereto and incorporated herein by
reference for a single series of Special Stock designated "$0.625
Cumulative Convertible Redeemable Nonvoting Special Preferred Stock."
6. The optional provisions which the corporation elects to include in the
articles of incorporation are as follows (See ss.33-2-101 and the
applicable comments thereto; and ss.ss.35-2-105 and 35-2-221 of the
SOuth Carolina Code):
See Addendum attached hereto and incorporated herein by
reference.
7. Unless a delayed effective date is specified, this application will be
effective upon acceptance for filing by the Secretary of State (See
ss.ss.33-1-230(b)):____________
Date: February 12, 1999 The Seibels Bruce Group, Inc.
----------------- -------------------------------------
(Name of Corporation)
By: /S/ Matt P. Mcclure
-------------------------------------
(Signature)
Matt P. Mcclure, Corporate Secretary
-------------------------------------
(Type or Print Name and Office)
<PAGE>
ADDENDUM
a. PRE-EMPTIVE RIGHTS. No shareholder or other person shall have
any pre-emptive right whatsoever.
b. BYLAWS. The initial Bylaws shall be adopted by the board of directors.
The board of directors has the power to alter, amend or repeal the Bylaws or
adopt new Bylaws, subject to repeal or change by action of the shareholders.
c. [intentionally omitted]
d. NUMBER, CLASSIFICATION AND ELECTION OF DIRECTORS. The board of
directors shall be limited to a maximum of twenty-one directors, with the
precise number thereof to be fixed as the board shall from time to time resolve.
The members of the board of directors need not be shareholders nor need they be
residents of any particular state. The directors shall be classified with
respect to the time for which they shall severally hold office by dividing them
into three classes, each consisting of an approximately equal number of
directors, and each director of the corporation shall hold office until his
successor shall be elected and shall qualify. At the first annual meeting of the
shareholders, the directors of the first class shall be elected for a term to
expire at the next subsequent annual meeting of shareholders; the directors of
the second class shall be elected for a term expiring at the second subsequent
annual meeting of shareholders; the directors of the third class shall be
elected for a term expiring at the third subsequent annual meeting of
shareholders; and at each annual meeting thereafter the successors to the class
of directors whose term shall expire at that time shall be elected to hold
office for the term of three years, so that the term of office of one class of
directors shall expire in each year.
e. [intentionally omitted]
f. REMOVAL OF DIRECTORS.
(A) Directors may be removed without cause by the affirmative vote
of the holders of a majority of the shares entitled to vote at
an election of directors, such vote being taken at a meeting
of the shareholders called for that purpose at which the
holders of eighty (80%) percent of the shares entitled to vote
are present in person or represented by proxy. No amendment,
alteration, change or repeal of this subparagraph (A) of
Article f. may be effected unless it is first approved by the
affirmative vote of holders of not less than eighty (80%)
percent of each class of shares of the company entitled to
vote thereon.
(B) Directors may be removed for cause by the affirmative vote of
the holders of a majority of the shares entitled to vote at an
election of directors, such vote being taken at a meeting of
the shareholders called for that purpose at which a quorum as
provided in Article h. is present.
g. AMENDMENT BY SHAREHOLDERS. Except as otherwise provided by statute
or by these Articles of Incorporation, these Articles may be altered, amended or
repealed at any meeting of the shareholders by the affirmative vote of the
holders of sixty-six and two-thirds percent (66 2/3%) of each class of shares of
the company entitled to vote thereon.
h. QUORUM. The holders of a majority of the shares issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
be requisite and shall constitute a quorum at meetings of the shareholders for
the transaction of business except as otherwise provided by statute, by these
Articles of Incorporation or by the Bylaws. If a quorum is not present or
represented at a meeting from time to time, without notice other than
announcement at the meeting, until a quorum is present or represented. At an
adjourned meeting at which a quorum is present or represented, any business may
be transacted which might have been transacted at the meeting as originally
notified.
i. MAJORITY VOTE; WITHDRAWAL OF QUORUM. When a quorum is present at a
meeting, the vote of the holders of a majority of the shares having voting
power, present in person or represented by proxy, shall decide any question
brought before the meeting, unless the question is one on which, by express
provision of the statutes, these Articles of Incorporation, or the Bylaws, a
higher vote is required in which case the express provision shall govern. The
shareholders present at a duly constituted meeting may continue to transact
business until adjournment, despite the withdrawal of enough shareholders to
leave less than a quorum.
j. METHOD OF VOTING. Each outstanding share of common stock shall be
entitled to one vote in each matter submitted to a vote at a meeting of
shareholders. Each outstanding share of other classes of stock, if any, shall
have such voting rights as may be prescribed by the board of directors.
k. BUSINESS COMBINATIONS.
<PAGE>
(A) For purposes of this Article k only, the following terms shall
have the following meanings unless the context otherwise
requires:
(1) "Company" shall mean The Seibels Bruce Group, Inc., a
South Carolina corporation.
(2) "equity security" means any stock or similar
security; or any security convertible, with or
without consideration, into such a security, or
carrying any warrant to subscribe to or purchase such
a security; or any such warrant or right.
(3) "group" means and includes persons, firms and
corporations acting in concert, whether or not as a
formal group.
(4) "substantially all of the assets" means assets
representing at least thirty percent (30%) of the
fair market value of the net assets or at least
twenty-five percent (25%) of the fair market value of
the gross assets held by the person, firm or
corporation immediately prior to the proposed sale,
lease or exchange.
(B) If any person, firm or corporation (hereinafter referred to
in this Article k as the "Corporation") or any person, firm or
corporation controlling the Corporation, controlled by the
Corporation or under common control with the Corporation, or
any group of which the Corporation or any of the foregoing
persons, firms or corporations are members, or any other group
controlling the Corporation, controlled by the Corporation, or
under common control with the Corporation, owns of record, or
owns beneficially, directly or indirectly, more than te
percent (10%) of any class of equity security of the Company,
then any merger or consolidation of the Company with the
Corporation, or any sale, lease or exchange of substantially
all of the assets of the Company or the Corporation to the
other (any such merger, consolidation, sale, lease or exchange
being hereinafter referred to in this Article k as a "business
combination") may not be effected unless a meeting of the
shareholders of the Company is held to act thereon and the
propsed business combination is approved by the affirmative
vote of holders of not less than eighty percent (80%) of each
class of equity security of the Company entitled to vote
thereon.
(C) For the purposes of this Article k, any corporation, person or
entity will be deemed to be the beneficial owner of any equity
security of the Company:
(1) which it owns directly, whether or not of record, or
(2) which it has the right to acquire pursuant to any
agreement or arrangement or understanding or upon
exercising of conversion rights, exchange rights,
warrants or options or otherwise, or
(3) which are beneficially owned, directly or indirectly
(including shares deemed to be owned through
application of clause (2) above), by any `affiliate'
or `associate' as those terms are defined in Rule
12b-2 of the General Rules and Regulations under the
Securities Exchange Act of 1934 as in effect July 1,
1978, or
(4) which are beneficially owned, directly or indirectly,
(including shares deemed owned through application of
clause (2) above) by any other corporation, person or
entity which it or any of its `affiliates' or
`associates' has any agreement or arrangement or
understanding for the purpose of acquiring, holding,
voting or disposing of equity security of the
Company.
For purposes only of determining whether a corporation, person or other
entity owns beneficially, directly or indirectly, 10% or more of the
outstanding equity securities of the Company, the outstanding equity
securities of the Company will be deemed to include any equity
securities that may be issuable pursuant to any agreement, arrangement
or understanding or upon exercise of conversion rights, exchange
rights, warrants, options or otherwise which are deemed to be
beneficially owned by such corporation, person or other entity pursuant
to the foregoing provisions of this Paragraph (C).
(D) No amendment, alteration, change or repeal of any provision of
this Article k may be effected unless first approved by the
affirmative vote of holders of not less than eighty percent
(80%) of each class of equity security of the Company entitled
to vote thereon.
(E) Anything herein to the contrary notwithstanding, the
provisions of Paragraphs (B) and (D) of this Article k
requiring an eighty percent (80%) shareholder vote shall not
apply in the event at a meeting duly called and held
three-fourths (3/4) of all of the members of the Board of
Directors shall have voted in favor of the proposed
<PAGE>
business combination or proposed amendment, alteration, change
or repeal of this Article k, and in such event, the requisite
shareholder approval, if any, shall be as otherwise provided
in these Articles, the Bylaws of the Company or by applicable
law.
l. LIABILITY OF DIRECTORS. A Director of the Corporation shall not be
personally liable to the Corporation or its stockholders for monetary
damages for breach of fiduciary duty as a Director, except for
liability (i) for any breach of the Director's duty of loyalty to the
corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve gross negligence, intentional misconduct or a
knowing violation of law, (iii) under ss.33-8-330 of the South CarolinA
Business Corporation Act, or (iv) for any transaction from which the
Director derived an improper personal benefit.
<PAGE>
EXHIBIT 1
CERTIFICATE OF DESIGNATIONS
CUMULATIVE CONVERTIBLE REDEEMABLE NONVOTING SPECIAL PREFERRED STOCK
----------------------------
SUBPART 1
DESIGNATION AND RANK
1.1 DESIGNATION. A single series of Special Stock designated
"Cumulative Convertible Redeemable Nonvoting Special Preferred Stock"
(hereinafter called the "Convertible Stock") is hereby authorized. The number of
authorized shares constituting the Convertible Stock is 220,000. Shares of the
Convertible Stock shall be issued at a stated value of $10.00 per share (the
"Stated Value").
1.2 RANK. With respect to the payment of the dividends and
other distributions with respect to the capital stock of the Corporation,
including the distribution of the assets of the Corporation upon liquidation,
dissolution or winding up, the Convertible Stock shall not be junior to any
other series or class of stock of the Corporation.
SUBPART 2
DIVIDEND RIGHTS
2.1 DIVIDEND RATE. From the date of original issuance,
dividends shall accrue on each share of Convertible Stock at an annual rate
equal to $0.62 per share. The annual rate at which such dividends shall accrue
is hereinafter referred to as the "Dividend Rate."
2.2 ACCRUAL AND PAYMENT. Dividends on each share of
Convertible Stock shall be cumulative and except as otherwise provided herein,
dividends on the Convertible Stock shall be payable, when and as declared by the
Board of Directors or a committee thereof, on December 31, March 31, June 30 and
September 30 (or, if such day is not a Business Day (as hereinafter defined), on
the next Business Day thereafter) of each year, commencing on December 31, 1997
(each such date being hereinafter referred to as a "Dividend Payment Date"), to
holders of record as they appear on the books of the Corporation on such record
date, not preceding the date upon which the resolution fixing the record date is
adopted and not exceeding 60 days preceding the relevant Dividend Payment Date,
as may be determined by the Board of Directors or a duly authorized committee
thereof. If declared, dividends shall be paid in cash on each Dividend Payment
Date with respect to the quarterly period ending on such Dividend Payment Date.
To the extent not declared and paid, dividends shall accumulate. The amount of
dividends payable for the initial dividend period or any period shorter or
longer than a full dividend period shall be calculated on the basis of a 360-day
year of twelve 30-day months. Accrued dividends not paid on a Dividend Payment
Date may be declared and paid at any time, without reference to any regular
Dividend Payment Date, to holders of record on such record date, not preceding
the date upon which the resolution fixing the record date is adopted and not
exceeding 60 days preceding the payment date thereof, as may be fixed by the
Board of Directors or a duly authorized committee thereof. "Business Day" shall
mean any day excluding Saturday, Sunday and any day on which the Fedwire funds
transfer system of the Federal Reserve Banks is not available for the transfer
of funds.
2.3 DIVIDENDS OR DISTRIBUTIONS TO JUNIOR STOCK. So long as any
shares of Convertible Stock are outstanding, no dividend or distribution shall
be declared or paid or set aside for payment on the common stock of the
Corporation or on any other stock of the Corporation ranking junior to the
Convertible Stock as to dividends, unless, full cumulative dividends on all
outstanding shares of the Convertible Stock shall have been declared and paid
through and including the most recent Dividend Payment Date.
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SUBPART 3
LIQUIDATION RIGHTS
3.1 PREFERENCES OF CONVERTIBLE STOCK ON WINDING-UP OF THE
CORPORATION. In the event of any voluntary or involuntary liquidation,
dissolution, winding up of affairs of the Corporation or other similar event,
before any distribution is made upon any class of stock of the Corporation
ranking junior to the Convertible Stock, the holders of shares of Convertible
Stock shall be entitled to be paid, out of the assets of the Corporation
available for distribution to its shareholders, an amount per share equal to the
Stated Value, plus an amount equal to all accrued and unpaid dividends (such
amounts, together, the "Liquidation Value"). Neither the consolidation nor
merger of the Corporation with or into any other corporation or corporations,
nor the sale or lease of all or substantially all of the assets of the
Corporation, shall itself be deemed to be a liquidation, dissolution or
winding-up of the affairs of the Corporation within the meaning of any of the
provisions of this Subpart 3.
3.2 PRO RATA DISTRIBUTION. If, upon distribution of the
Corporation's assets in liquidation, dissolution, winding-up or other similar
event, the net assets of the Corporation to be distributed among the holders of
shares of Convertible Stock and any other class or series of stock of the
Corporation ranking on a parity with the Convertible Stock as to distributions
upon liquidation are insufficient to permit payment in full to such holders of
the preferential amount to which they are entitled, then the entire net assets
of the Corporation shall be distributed among the holders of shares of
Convertible Stock and such other class or series of stock ratably in proportion
to the full amounts to which they would otherwise be respectively entitled and
such distributions may be made in cash or in property taken at its fair value
(as determined in good faith by the Board of Directors), or both, at the
election of the Board of Directors.
3.3 PRIORITY. All of the preferential amounts to be paid to
the holders of the Convertible Stock and the holders of any other class or
series of stock of the Corporation ranking on a parity with the Convertible
Stock as to distributions upon liquidation shall be paid or set apart for
payment before the payment or setting apart for payment of any amount for, or
the distribution of any assets of the Corporation to, the holders of the common
stock of the Corporation and any other class or series of stock of the
Corporation which is junior to the Convertible Stock as to distributions upon
liquidation.
SUBPART 4
VOTING RIGHTS
4.1 GENERAL. The holders of shares of Convertible Stock shall
have no voting rights except as required by law. The holders of Convertible
Stock shall be entitled to notice of any meeting of the stockholders of the
Corporation.
SUBPART 5
REDEMPTION
5.1 OPTIONAL REDEMPTION BY THE COMPANY. Issued and outstanding
shares of the Convertible Stock shall be redeemable, at the option of the
Corporation, as a whole or in part, at any time on or after August 15, 2000 up
to but not including August 15, 2002, at a redemption price per share (the
"Redemption Price") equal to $15.00 per share, plus any accrued and unpaid
dividends through the Redemption Date (as hereinafter defined). On the
Redemption Date, the Corporation shall pay to each holder of Convertible Stock
an amount in cash equal to the aggregate Redemption Price for such holder's
shares, by wire transfer of immediately available funds to such account as is
designated by such holder.
5.2 MANDATORY REDEMPTION BY THE CORPORATION. All of the issued
and outstanding shares of Convertible Stock shall be redeemed by the Corporation
on August 15, 2002 at a Redemption Price per share equal to $10.00 per share,
plus any accrued and unpaid dividends through the Redemption Date. On the
Redemption Date, the Corporation shall pay to each holder of Convertible Stock
an amount in cash equal to the aggregate Redemption Price for such holder's
shares, by wire transfer of immediately available federal funds to such account
as is designated by such holder.
5.3 NOTICE TO HOLDERS. The Corporation shall give notice of
any redemption under this Subpart 5 at least 30 days prior to the date the
Corporation is required to or proposes to redeem all or any portion, as
applicable, of the outstanding shares of Convertible Stock (the "Redemption
Date"), by registered mail (return receipt requested), postage prepaid, to each
of the holders of record of the Convertible Stock; provided, however, that in
the case of a mandatory redemption under Subpart 5.2 hereof, the failure of the
Corporation to give notice as required by this Subpart 5.3 shall not alter or
affect the rights of the holders of the Convertible Stock to have their shares
of Convertible Stock redeemed by the Corporation in accordance with the terms of
this Subpart 5. Such notice shall be addressed to each such holder at the
address as it appears on the stock transfer books of the
<PAGE>
Corporation and shall specify the Redemption Date. Notice having been mailed as
aforesaid, from and after the close of business on the Redemption Date (unless
default shall be made by the Corporation in payment of the Redemption Price),
dividends on the shares of Convertible Stock shall cease to accrue, and said
shares shall no longer be deemed to be outstanding, and all rights of the
holders thereof as stockholders of the Corporation (except the right to receive
from the Corporation the Redemption Price provided for herein) shall cease. Upon
surrender in accordance with said notice of the certificates representing the
shares so redeemed (properly endorsed or assigned for transfer, if required by
the Board of Directors of the Corporation and the notice of redemption so
states), such shares shall be redeemed by the Corporation at the Redemption
Price provided for herein. Any shares of Convertible Stock which shall at any
time have been redeemed shall, upon such redemption, be retired and the
Corporation shall take all such steps as are necessary to cause such shares
thereafter to have the status of authorized but unissued shares of Special Stock
of the Company, without designation as to series, until such shares are once
again designated as shares of a particular series of Special Stock of the
Company.
SUBPART 6
CONVERSION RIGHTS
6.1 CONVERSION. Holders of shares of Convertible Stock shall
have the right to convert all or a portion of such shares (including fractions
of such shares) into shares of common stock, par value $1.00 per share, of the
Corporation (the "Common Stock"), as follows:
(a) Subject to and upon compliance with the provisions of this
Subpart 6, a holder of shares of Convertible Stock shall have the
right, at such holder's option, at any time on or after August 15, 2000
up to but not including August 15, 2002, to convert any of such shares
(or fractions thereof) into the number of fully paid and nonassessable
shares of Common Stock (calculated as to each conversion to the nearest
1/100th of a share) obtained by dividing the Stated Value of the shares
to be converted by the Conversion Price (as hereinafter defined) and by
surrender of such shares, such surrender to be made in the manner
provided in paragraph (b) of this Subpart 6; PROVIDED, HOWEVER, that
the right to convert shares called for redemption pursuant to Subpart
5.1 hereof shall terminate at the close of business on (i) the date
fixed for such redemption, or (ii) if the Corporation shall so elect
and state in the notice of redemption, the date (which date shall be
the date fixed for redemption or an earlier date not less than 30 days
after the date of mailing of the redemption notice) on which the
Corporation irrevocably deposits with a designated bank or trust
company as paying agent, money sufficient to pay, on the redemption
date, the redemption price, unless the Corporation shall default in
making payment of the amount payable upon such redemption. Subject to
the following provisions of this Subpart 6(a), any share of Convertible
Stock may be converted, at the option of its holder, in part into
Common Stock under the procedures set forth above. If a part of a share
of Convertible Stock is converted, then the Corporation will convert
such share into the appropriate number of shares of Common Stock
(subject to paragraph (c) of this Subpart 6) and issue a fractional
share of Convertible Stock evidencing the remaining interest of such
holder. "Conversion Price" shall mean the conversion price per share of
Common Stock into which the Convertible Stock is convertible, as such
Conversion Price may be adjusted pursuant to this Subpart 6. The
initial Conversion Price will be $8.00.
(b) In order to exercise the conversion right, the holder of each share
of Convertible Stock (or fraction thereof) to be converted shall surrender the
certificate representing such share, duly endorsed or assigned to the
Corporation or in blank, at the office of the transfer agent of the Corporation
as may be designated by the Corporation's Board of Directors (the "Transfer
Agent"), accompanied by written notice to the Corporation that the holder
thereof elects to convert its Convertible Stock or a specified portion thereof.
Unless the shares issuable on conversion are to be issued in the same name as
the name in which such share of Convertible Stock is registered, each share
surrendered for conversion shall be accompanied by instruments of transfer, in
form satisfactory to the Corporation, duly executed by the holder or such
holder's duly authorized attorney and an amount sufficient to pay any transfer
or similar tax (or evidence reasonably satisfactory to the Corporation
demonstrating that such taxes have been paid or are not required to be paid).
Holders of shares of Convertible Stock at the close of business on a
dividend payment record date shall be entitled to receive the dividend payable
on such shares on the corresponding Dividend Payment Date (except that holders
of shares called for redemption on a Redemption Date falling between the close
of business on such dividend payment record date and the opening of business on
the corresponding Dividend Payment Date shall, in lieu of receiving such
dividend on the Dividend Payment Date fixed therefor, receive such dividend
payment together with all other accrued and unpaid dividends on the date fixed
for redemption, unless such holder converts such shares called for redemption
pursuant to the provisions of this Subpart 6) notwithstanding the conversion
thereof following such dividend payment record date and prior to such Dividend
Payment Date. However, shares of Convertible Stock surrendered for conversion
during the period between the close of business on any dividend payment record
date and the opening of business on the corresponding Dividend Payment Date
(except shares called for redemption on a Redemption Date during such period)
must be accompanied by payment of an amount equal to the dividend payment with
respect to such shares of Convertible Stock presented for conversion on such
Dividend Payment Date. A holder of shares of Convertible Stock on a
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dividend payment record date who (or whose transferee) tenders any such shares
for conversion into shares of Common Stock on the corresponding Dividend Payment
Date will receive the dividend payable by the Corporation on such shares of
Convertible Stock on such date the converting holder need not include payment in
the amount of such dividend upon surrender of shares of Convertible Stock for
conversion on the Dividend Payment Date. Except as provided above, the
Corporation shall make no payment or allowance for unpaid dividends, whether or
not in arrears, on converted shares or for dividends on the shares of Common
Stock issued upon such conversion.
As promptly as practicable after the surrender of certificates for
shares of Convertible Stock as aforesaid, the Corporation shall issue and shall
deliver at such office to such holder, or on such holder's written order, a
certificate or certificates for the number of shares of Common Stock issuable
upon the conversion of such shares in accordance with the provisions of this
Subpart 6, and any fractional interest in respect of a share of Common Stock
arising upon such conversion shall be settled as provided in paragraph (c) of
this Subpart 6.
Each conversion shall be deemed to have been effected immediately prior
to the close of business on the date on which the certificates for shares of
Convertible Stock shall have been surrendered and such notice received by the
Corporation as aforesaid, and the person or persons in whose name or names any
certificate or certificates for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become the holder or holders of record
of the shares represented thereby at such time on such date and such conversion
shall be at the Conversion Price in effect at such time on such date, unless the
stock transfer books of the Corporation shall be closed on that date, in which
event such person or persons shall be deemed to have become such holder or
holders of record at the close of business on the next succeeding day on which
such stock transfer books are open, but such conversion shall be the Conversion
Price in effect on the date upon which such shares shall have been surrendered
and such notice received by the Corporation. All shares of Common Stock
delivered upon conversion of the Convertible Stock will upon delivery be duly
and validly issued and fully paid and nonassessable.
(c) In connection with the conversion of any shares of Convertible
Stock, fractions of such shares may be converted; however, no fractional shares
or scrip representing fractions of shares of Common Stock shall be issued upon
conversion of the Convertible Stock. Instead of any fractional interest in a
share of Common Stock which would otherwise be deliverable upon the conversion
of a share of Convertible Stock (or fraction thereof), the Corporation shall pay
to the holder of such share an amount in cash (computed to the nearest cent)
equal to the Closing Price (as hereinafter defined) of Common Stock on the
trading date immediately preceding the date of conversion multiplied by the
fraction of a share of Common Stock represented by such fractional interest. If
more than one share (or fraction thereof) shall be surrendered for conversion at
one time by the same holder, the number of full shares of Common Stock issuable
upon conversion thereof shall be computed on the basis of the aggregate number
of shares of Convertible Stock so surrendered. "Closing Price" of the Common
Stock on any day shall mean the reported last sales price, regular way, for the
Common Stock or, in case no sale takes place on such day, the average of the
reported closing bid and asked prices, regular way, for the Common Stock in
either case as reported on the principal national securities exchange on which
the Common Stock is listed or admitted to trading or, if not listed or admitted
to trading on any national securities exchange, on The Nasdaq Stock Market (the
"Nasdaq System") or, if the Common Stock is not quoted on the Nasdaq System, the
average of the closing bind and asked prices for the Common Stock on such day in
the over-the-counter market as reported by the National Association of
Securities Dealers Automated Quotation System.
(d) The Conversion Price shall be adjusted from time to time
as follows:
(i) In case the Corporation shall, after the date of original issuance
of the Convertible Stock, (A) pay an extraordinary dividend or make an
extraordinary distribution on its Common Stock in shares of its Common Stock,
(B) subdivide or split its outstanding Common Stock into a greater number of
shares, (C) combine its outstanding Common Stock into a smaller number of shares
or (D) issue any shares of capital stock by reclassification of its Common
Stock, the Conversion Price in effect immediately prior thereto shall be
adjusted so that the holder of any share of Convertible Stock thereafter
surrendered for conversion shall be entitled to receive the number of shares of
Common Stock of the Corporation which such holder would have owned or have been
entitled to receive after the occurrence of any of the events described above
had such shares been surrendered for conversion immediately prior to the
occurrence of such event or the record date therefor, whichever is earlier. An
adjustment made pursuant to this subparagraph (i) shall become effective
immediately after the close of business on the record date for determination of
stockholders entitled to receive such extraordinary dividend or extraordinary
distribution in the case of an extraordinary dividend or extraordinary
distribution (except as provided in paragraph (h) below) and shall become
effective immediately after the close of business on the effective date in the
case of a subdivision, split, combination or reclassification.
(ii) No adjustment in the Conversion Price shall be
required unless such adjustment would require an increase or
decrease of at least 1% in such price; PROVIDED, HOWEVER, that
any adjustments which by reason of this subparagraph (v) are
not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations
under this Subpart 6 shall be made to the nearest cent (with
$.005 being rounded upward) or to the nearest 1/100th of a
share (with .005 of a share being rounded upward), as the case
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may be. Anything in this paragraph (d) to the contrary
withstanding, the Corporation shall be entitled, to the extent
permitted by law, to make such reductions in the Conversion
Price, in addition to those required by this paragraph (d), as
it in its discretion shall determine to be advisable in order
that any stock dividends, subdivision of shares, distribution
of rights or warrants to purchase stock or securities, or a
distribution of other assets or any other transaction which
could be treated as any of the foregoing transactions pursuant
to Section 305 of the Internal Revenue Code of 1986, as
amended, hereafter made by the Corporation to its stockholders
shall not be taxable for such stockholders.
(e) In case the Corporation shall be a party to any
transaction (including without limitation a merger, consolidation, sale
of all or substantially all of the Corporation's assets or
recapitalization of the Common Stock and excluding any transaction as
to which paragraph (d)(i) of this Subpart 6 applies) (each of the
foregoing being referred to as a "Transaction"), in each case as a
result of which shares of Common Stock shall be converted into the
right to receive stock, securities or other property (including cash or
any combination thereof), then the Convertible Stock will thereafter no
longer be subject to conversion into Common Stock pursuant to Subpart
6, but instead shall be convertible into the kind and amount of shares
of stock and other securities and property receivable (including cash)
upon the consummation of such Transaction by a holder of that number of
shares or fraction thereof of Common Stock into which one share of
Convertible Stock was convertible immediately prior to such
Transaction. If at any time, as a result of an adjustment made pursuant
to this Subpart 6, the Convertible Stock shall become subject to
conversion into any securities other than shares of Common Stock,
thereafter the number of such other securities so issuable upon
conversion of the shares of Convertible Stock shall be subject to
adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the shares
of Convertible Stock contained in this Subpart 6. The provisions of
this paragraph (e) shall similarly apply to successive Transactions.
(f) If:
(i) the Corporation shall declare a dividend (or any other
distribution) on the Common Stock that would cause an adjustment to the
Conversion Price of the Convertible Stock pursuant to the terms of any of the
paragraphs above (including such an adjustment that would occur but for the
terms of the first sentence of subparagraph (d)(ii) above);
(ii) there shall be any reclassification or change of the Common Stock
(other than an event to which paragraph (d)(i) of this Subpart 6 applies) or any
consolidation, merger or statutory share exchange to which the Corporation is a
party and for which approval of any stockholders of the Corporation is required,
or the sale or transfer of all or substantially all of the assets of the
Corporation; or
(iii) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, the Corporation shall cause to be mailed to the holders of shares of the
Convertible Stock at their addresses as shown on the stock records of the
Corporation, as promptly as possible, but at least 30 days prior to the
applicable date hereinafter specified, a notice stating (A) the date on which a
record is to be taken for the purpose of such dividend, distribution or granting
of rights or warrants, or, if a record is not to be taken, the date as of which
the holders of Common Stock of record to be entitled to such dividend,
distribution or rights or warrants are to be determined or (B) the date on which
such reclassification, change, consolidation, merger, statutory share exchange,
sale, transfer, dissolution, liquidation or winding up is expected to become
effective or occur, and the date as of which it is expected that holders of
Common Stock of record shall be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon such reclassification,
change, consolidation, merger, statutory share exchange, sale, transfer,
dissolution, liquidation or winding up. Failure to give such notice or any
defect therein shall not affect the legality or validity of the proceedings
described in this Subpart 6.
(g) In any case in which paragraph (d) of this Subpart 6 provides that
an adjustment shall become effective immediately after a record date for an
event and the date fixed for conversion pursuant to Subpart 6 occurs after such
record date but before the occurrence of such event, the Corporation may defer
until the actual occurrence of such event (i) issuing to the holder of any share
of Convertible Stock, surrendered for conversion the additional shares of Common
Stock issuable upon such conversion by reason of the adjustment required by such
event over and above the Common Stock issuable upon such conversion before
giving effect to such adjustment and (ii) paying to such holder any amount in
cash in lieu of any fraction pursuant to paragraph (c) of this Subpart 6.
(h) For purposes of this Subpart 6, the number of shares of Common
Stock at any time outstanding shall not include any shares of Common Stock then
owned or held by or for the account of the Corporation or any corporation
controlled by the Corporation.
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(i) Notwithstanding any other provision herein to the contrary, the
issuance of any shares of Common Stock pursuant to any plan providing for the
reinvestment of dividends or interest payable on securities of the Corporation
and the investment of additional optional amounts in shares of Common Stock
under any such plan shall not be deemed to constitute an issuance of Common
Stock. There shall be no adjustment of the Conversion Price in case of the
issuance of any stock of the Corporation in a reorganization, acquisition or
other similar transaction except as specifically set forth in this Subpart 6. If
any action or transaction would require adjustment of the Conversion Price
pursuant to more than one paragraph of this Subpart 6, only one adjustment shall
be made and such adjustment shall be the amount of adjustment which has the
highest absolute value.
(j) In case the Corporation shall take any action affecting the Common
Stock, other than action described in this Subpart 6, which in the opinion of
the Board of Directors would materially adversely affect the conversion rights
of the holders of the shares of Convertible Stock, the Conversion Price for the
Convertible Stock may be adjusted, to the extent permitted by law, in such
manner, if any, and at such time, as the Board of Directors may determine to be
equitable in the circumstances.
(k) The Corporation covenants that it will at all times reserve and
keep available, free from preemptive rights, out of the aggregate of its
authorized but unissued shares of Common Stock or its issued shares of Common
Stock held in its treasury, or both, for the purpose of effecting conversion of
the Convertible Stock, the full number of shares of Common Stock deliverable
upon the conversion of all outstanding shares of Convertible Stock not
theretofore converted. For purposes of this paragraph (l), the number of shares
of Common Stock which shall be deliverable upon the conversion of all
outstanding shares of Convertible Stock shall be computed as if at the time of
computation all such outstanding shares were held by a single holder.
Before taking any action which would cause an adjustment
reducing the Conversion Price below the then par value of the shares of
Common Stock deliverable upon conversion of the Convertible Stock, the
Corporation will take any corporate action which may, in the opinion of
its counsel, be necessary in order that the Corporation may validly and
legally issue fully paid and nonassessable shares of Common Stock at
such adjusted Conversion Price.
The Corporation will endeavor to make the shares of Common
Stock required to be delivered upon conversion of the Convertible Stock
eligible for trading upon the Nasdaq System or upon any national
securities exchange upon which the Common Stock shall then be traded,
prior to such delivery.
(l) The Corporation shall not take any action which results in
adjustment of the number of shares of Common Stock issuable upon conversion of a
share of Convertible Stock if the total number of shares of Common Stock
issuable after such action upon conversion of the Convertible Stock then
outstanding, together with the total number of shares of Common Stock then
outstanding, would exceed the total number of shares of Common Stock then
authorized under the Corporation's Articles of Incorporation. Subject to the
foregoing, the Corporation shall take all such actions as it may deem reasonable
under the circumstances to provide for the issuance of such number of shares of
Common Stock as would be necessary to allow for the conversion from time to
time, and taking into account adjustments as herein provided, of outstanding
shares of the Convertible Stock in accordance with the terms and provisions of
the Corporation's Articles of Incorporation.
SUBPART 7
MISCELLANEOUS
The headings of the various Subparts hereof are for
convenience of reference only and shall not affect the interpretation of any of
the provisions hereof.
(3) This Amendment was adopted by the Board of Directors on
October 16, 1997.
(4) This Amendment was duly adopted by the Board of Directors in
accordance with Section 33-6-102 of the Code of Laws of South Carolina.
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EXHIBIT 2
CERTIFICATE OF DESIGNATIONS
$0.625 CUMULATIVE CONVERTIBLE REDEEMABLE NONVOTING SPECIAL PREFERRED STOCK
-----------------------------
SUBPART 1
DESIGNATION AND RANK
1.1 DESIGNATION. A single series of Special Stock designated
"$0.625 Cumulative Convertible Redeemable Nonvoting Special Preferred Stock"
(hereinafter called the "$0.625 Convertible Stock") is hereby authorized. The
number of authorized shares constituting the $0.625 Convertible Stock is 50,000
Shares of the $0.625 Convertible Stock shall be issued at a stated value of
$10.00 per share (the "Stated Value").
1.2 RANK. With respect to the payment of the dividends and
other distributions with respect to the capital stock of the Corporation,
including the distribution of the assets of the Corporation upon liquidation,
dissolution or winding up, the $0.625 Convertible Stock shall not be junior to
any other series or class of stock of the Corporation.
SUBPART 2
DIVIDEND RIGHTS
2.1 DIVIDEND RATE. From the date of original issuance,
dividends shall accrue on each share of $0.625 Convertible Stock at an annual
rate equal to $0.625 per share. The annual rate at which such dividends shall
accrue is hereinafter referred to as the "Dividend Rate."
2.2 ACCRUAL AND PAYMENT. Dividends on each share of $0.625
Convertible Stock shall be cumulative and except as otherwise provided herein,
dividends on the $0.625 Convertible Stock shall be payable, when and as declared
by the Board of Directors or a committee thereof, on March 31, June 30,
September 30 and December 31 (or, if such day is not a Business Day (as
hereinafter defined), on the next Business Day thereafter) of each year,
commencing on June 30, 1998 (each such date being hereinafter referred to as a
"Dividend Payment Date"), to holders of record as they appear on the books of
the Corporation on such record date, not preceding the date upon which the
resolution fixing the record date is adopted and not exceeding 60 days preceding
the relevant Dividend Payment Date, as may be determined by the Board of
Directors or a duly authorized committee thereof. If declared, dividends shall
be paid in cash on each Dividend Payment Date with respect to the quarterly
period ending on such Dividend Payment Date. To the extent not declared and
paid, dividends shall accumulate. The amount of dividends payable for the
initial dividend period or any period shorter or longer than a full dividend
period shall be calculated on the basis of a 360-day year of twelve 30-day
months. Accrued dividends not paid on a Dividend Payment Date may be declared
and paid at any time, without reference to any regular Dividend Payment Date, to
holders of record on such record date, not preceding the date upon which the
resolution fixing the record date is adopted and not exceeding 60 days preceding
the payment date thereof, as may be fixed by the Board of Directors or a duly
authorized committee thereof. "Business Day" shall mean any day excluding
Saturday, Sunday and any day on which the Fedwire funds transfer system of the
Federal Reserve Banks is not available for the transfer of funds.
2.3 DIVIDENDS OR DISTRIBUTIONS TO JUNIOR STOCK. So long as any
shares of $0.625 Convertible Stock are outstanding, no dividend or distribution
shall be declared or paid or set aside for payment on the common stock of the
Corporation or on any other stock of the Corporation ranking junior to the
$0.625 Convertible Stock as to dividends, unless, full cumulative dividends on
all outstanding shares of the $0.625 Convertible Stock shall have been declared
and paid through and including the most recent Dividend Payment Date.
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SUBPART 3
LIQUIDATION RIGHTS
3.1 PREFERENCES OF $0.625 CONVERTIBLE STOCK ON WINDING-UP OF
THE CORPORATION. In the event of any voluntary or involuntary liquidation,
dissolution, winding up of affairs of the Corporation or other similar event,
before any distribution is made upon any class of stock of the Corporation
ranking junior to the $0.625 Convertible Stock, the holders of shares of $0.625
Convertible Stock shall be entitled to be paid, out of the assets of the
Corporation available for distribution to its shareholders, an amount per share
equal to the Stated Value, plus an amount equal to all accrued and unpaid
dividends (such amounts, together, the "Liquidation Value"). Neither the
consolidation nor merger of the Corporation with or into any other corporation
or corporations, nor the sale or lease of all or substantially all of the assets
of the Corporation, shall itself be deemed to be a liquidation, dissolution or
winding-up of the affairs of the Corporation within the meaning of any of the
provisions of this Subpart 3.
3.2 PRO RATA DISTRIBUTION. If, upon distribution of the
Corporation's assets in liquidation, dissolution, winding-up or other similar
event, the net assets of the Corporation to be distributed among the holders of
shares of $0.625 Convertible Stock and any other class or series of stock of the
Corporation ranking on a parity with the $0.625 Convertible Stock as to
distributions upon liquidation are insufficient to permit payment in full to
such holders of the preferential amount to which they are entitled, then the
entire net assets of the Corporation shall be distributed among the holders of
shares of $0.625 Convertible Stock and such other class or series of stock
ratably in proportion to the full amounts to which they would otherwise be
respectively entitled and such distributions may be made in cash or in property
taken at its fair value (as determined in good faith by the Board of Directors),
or both, at the election of the Board of Directors.
3.3 PRIORITY. All of the preferential amounts to be paid to
the holders of the $0.625 Convertible Stock and the holders of any other class
or series of stock of the Corporation ranking on a parity with the $0.625
Convertible Stock as to distributions upon liquidation shall be paid or set
apart for payment before the payment or setting apart for payment of any amount
for, or the distribution of any assets of the Corporation to, the holders of the
common stock of the Corporation and any other class or series of stock of the
Corporation which is junior to the $0.625 Convertible Stock as to distributions
upon liquidation.
SUBPART 4
VOTING RIGHTS
4.1 GENERAL. The holders of shares of $0.625 Convertible Stock
shall have no voting rights except as required by law. The holders of $0.625
Convertible Stock shall be entitled to notice of any meeting of the stockholders
of the Corporation.
SUBPART 5
REDEMPTION
5.1 OPTIONAL REDEMPTION BY THE COMPANY. Issued and outstanding
shares of the $0.625 Convertible Stock shall be redeemable, at the option of the
Corporation, as a whole or in part, at any time on or after August 15, 2000 up
to but not including August 15, 2002, at a redemption price per share (the
"Redemption Price") equal to $15.00 per share, plus any accrued and unpaid
dividends through the Redemption Date (as hereinafter defined). On the
Redemption Date, the Corporation shall pay to each holder of $0.625 Convertible
Stock an amount in cash equal to the aggregate Redemption Price for such
holder's shares, by wire transfer of immediately available funds to such account
as is designated by such holder.
5.2 MANDATORY REDEMPTION BY THE CORPORATION. All of the issued
and outstanding shares of $0.625 Convertible Stock shall be redeemed by the
Corporation on August 15, 2002 at a Redemption Price per share equal to $10.00
per share, plus any accrued and unpaid dividends through the Redemption Date. On
the Redemption Date, the Corporation shall pay to each holder of $0.625
Convertible Stock an amount in cash equal to the aggregate Redemption Price for
such holder's shares, by wire transfer of immediately available federal funds to
such account as is designated by such holder.
5.3 NOTICE TO HOLDERS. The Corporation shall give notice of
any redemption under this Subpart 5 at least 30 days prior to the date the
Corporation is required to or proposes to redeem all or any portion, as
applicable, of the outstanding shares of $0.625 Convertible Stock (the
"Redemption Date"), by registered mail (return receipt requested), postage
prepaid, to each of the holders of record of the $0.625 Convertible Stock;
provided, however, that in the case of a mandatory redemption under Subpart 5.2
hereof, the failure of the Corporation to give notice as required by this
Subpart 5.3 shall not alter or affect the
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rights of the holders of the $0.625 Convertible Stock to have their shares of
$0.625 Convertible Stock redeemed by the Corporation in accordance with the
terms of this Subpart 5. Such notice shall be addressed to each such holder at
the address as it appears on the stock transfer books of the Corporation and
shall specify the Redemption Date. Notice having been mailed as aforesaid, from
and after the close of business on the Redemption Date (unless default shall be
made by the Corporation in payment of the Redemption Price), dividends on the
shares of $0.625 Convertible Stock shall cease to accrue, and said shares shall
no longer be deemed to be outstanding, and all rights of the holders thereof as
stockholders of the Corporation (except the right to receive from the
Corporation the Redemption Price provided for herein) shall cease. Upon
surrender in accordance with said notice of the certificates representing the
shares so redeemed (properly endorsed or assigned for transfer, if required by
the Board of Directors of the Corporation and the notice of redemption so
states), such shares shall be redeemed by the Corporation at the Redemption
Price provided for herein. Any shares of $0.625 Convertible Stock which shall at
any time have been redeemed shall, upon such redemption, be retired and the
Corporation shall take all such steps as are necessary to cause such shares
thereafter to have the status of authorized but unissued shares of Special Stock
of the Company, without designation as to series, until such shares are once
again designated as shares of a particular series of Special Stock of the
Company.
SUBPART 6
CONVERSION RIGHTS
6.1 CONVERSION. Holders of shares of $0.625 Convertible Stock
shall have the right to convert all or a portion of such shares (including
fractions of such shares) into shares of common stock, par value $1.00 per
share, of the Corporation (the "Common Stock"), as follows:
(a) Subject to and upon compliance with the provisions of this
Subpart 6, a holder of shares of $0.625 Convertible Stock shall have
the right, at such holder's option, at any time on or after August 15,
2000 up to but not including August 15, 2002, to convert any of such
shares (or fractions thereof) into the number of fully paid and
nonassessable shares of Common Stock (calculated as to each conversion
to the nearest 1/100th of a share) obtained by dividing the Stated
Value of the shares to be converted by the Conversion Price (as
hereinafter defined) and by surrender of such shares, such surrender to
be made in the manner provided in paragraph (b) of this Subpart 6;
provided, HOWEVER, that the right to convert shares called for
redemption pursuant to Subpart 5.1 hereof shall terminate at the close
of business on (i) the date fixed for such redemption, or (ii) if the
Corporation shall so elect and state in the notice of redemption, the
date (which date shall be the date fixed for redemption or an earlier
date not less than 30 days after the date of mailing of the redemption
notice) on which the Corporation irrevocably deposits with a designated
bank or trust company as paying agent, money sufficient to pay, on the
redemption date, the redemption price, unless the Corporation shall
default in making payment of the amount payable upon such redemption.
Subject to the following provisions of this Subpart 6(a), any share of
$0.625 Convertible Stock may be converted, at the option of its holder,
in part into Common Stock under the procedures set forth above. If a
part of a share of $0.625 Convertible Stock is converted, then the
Corporation will convert such share into the appropriate number of
shares of Common Stock (subject to paragraph (c) of this Subpart 6) and
issue a fractional share of $0.625 Convertible Stock evidencing the
remaining interest of such holder. "Conversion Price" shall mean the
conversion price per share of Common Stock into which the $0.625
Convertible Stock is convertible, as such Conversion Price may be
adjusted pursuant to this Subpart 6. The initial Conversion Price will
be $8.00.
(b) In order to exercise the conversion right, the holder of
each share of $0.625 Convertible Stock (or fraction thereof) to be
converted shall surrender the certificate representing such share, duly
endorsed or assigned to the Corporation or in blank, at the office of
the transfer agent of the Corporation as may be designated by the
Corporation's Board of Directors (the "Transfer Agent"), accompanied by
written notice to the Corporation that the holder thereof elects to
convert its $0.625 Convertible Stock or a specified portion thereof.
Unless the shares issuable on conversion are to be issued in the same
name as the name in which such share of $0.625 Convertible Stock is
registered, each share surrendered for conversion shall be accompanied
by instruments of transfer, in form satisfactory to the Corporation,
duly executed by the holder or such holder's duly authorized attorney
and an amount sufficient to pay any transfer or similar tax (or
evidence reasonably satisfactory to the Corporation demonstrating that
such taxes have been paid or are not required to be paid).
Holders of shares of $0.625 Convertible Stock at the close of
business on a dividend payment record date shall be entitled to receive
the dividend payable on such shares on the corresponding Dividend
Payment Date (except that holders of shares called for redemption on a
Redemption Date falling between the close of business on such dividend
payment record date and the opening of business on the corresponding
Dividend Payment Date shall, in lieu of receiving such dividend on the
Dividend Payment Date fixed therefor, receive such dividend payment
together with all other accrued and unpaid dividends on the date fixed
for redemption, unless such holder converts such shares called for
redemption pursuant to the provisions of this Subpart 6)
notwithstanding the conversion thereof following such dividend
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payment record date and prior to such Dividend Payment Date. However,
shares of $0.625 Convertible Stock surrendered for conversion during
the period between the close of business on any dividend payment record
date and the opening of business on the corresponding Dividend Payment
Date (except shares called for redemption on a Redemption Date during
such period) must be accompanied by payment of an amount equal to the
dividend payment with respect to such shares of $0.625 Convertible
Stock presented for conversion on such Dividend Payment Date. A holder
of shares of $0.625 Convertible Stock on a dividend payment record date
who (or whose transferee) tenders any such shares for conversion into
shares of Common Stock on the corresponding Dividend Payment Date will
receive the dividend payable by the Corporation on such shares of
$0.625 Convertible Stock on such date the converting holder need not
include payment in the amount of such dividend upon surrender of shares
of $0.625 Convertible Stock for conversion on the Dividend Payment
Date. Except as provided above, the Corporation shall make no payment
or allowance for unpaid dividends, whether or not in arrears, on
converted shares or for dividends on the shares of Common Stock issued
upon such conversion.
As promptly as practicable after the surrender of certificates
for shares of $0.625 Convertible Stock as aforesaid, the Corporation
shall issue and shall deliver at such office to such holder, or on such
holder's written order, a certificate or certificates for the number of
shares of Common Stock issuable upon the conversion of such shares in
accordance with the provisions of this Subpart 6, and any fractional
interest in respect of a share of Common Stock arising upon such
conversion shall be settled as provided in paragraph (c) of this
Subpart 6.
Each conversion shall be deemed to have been effected
immediately prior to the close of business on the date on which the
certificates for shares of $0.625 Convertible Stock shall have been
surrendered and such notice received by the Corporation as aforesaid,
and the person or persons in whose name or names any certificate or
certificates for shares of Common Stock shall be issuable upon such
conversion shall be deemed to have become the holder or holders of
record of the shares represented thereby at such time on such date and
such conversion shall be at the Conversion Price in effect at such time
on such date, unless the stock transfer books of the Corporation shall
be closed on that date, in which event such person or persons shall be
deemed to have become such holder or holders of record at the close of
business on the next succeeding day on which such stock transfer books
are open, but such conversion shall be the Conversion Price in effect
on the date upon which such shares shall have been surrendered and such
notice received by the Corporation. All shares of Common Stock
delivered upon conversion of the $0.625 Convertible Stock will upon
delivery be duly and validly issued and fully paid and nonassessable.
(c) In connection with the conversion of any shares of $0.625
Convertible Stock, fractions of such shares may be converted; however,
no fractional shares or scrip representing fractions of shares of
Common Stock shall be issued upon conversion of the $0.625 Convertible
Stock. Instead of any fractional interest in a share of Common Stock
which would otherwise be deliverable upon the conversion of a share of
$0.625 Convertible Stock (or fraction thereof), the Corporation shall
pay to the holder of such share an amount in cash (computed to the
nearest cent) equal to the Closing Price (as hereinafter defined) of
Common Stock on the trading date immediately preceding the date of
conversion multiplied by the fraction of a share of Common Stock
represented by such fractional interest. If more than one share (or
fraction thereof) shall be surrendered for conversion at one time by
the same holder, the number of full shares of Common Stock issuable
upon conversion thereof shall be computed on the basis of the aggregate
number of shares of $0.625 Convertible Stock so surrendered. "Closing
Price" of the Common Stock on any day shall mean the reported last
sales price, regular way, for the Common Stock or, in case no sale
takes place on such day, the average of the reported closing bid and
asked prices, regular way, for the Common Stock in either case as
reported on the principal national securities exchange on which the
Common Stock is listed or admitted to trading or, if not listed or
admitted to trading on any national securities exchange, on The Nasdaq
Stock Market (the "Nasdaq System") or, if the Common Stock is not
quoted on the Nasdaq System, the average of the closing bind and asked
prices for the Common Stock on such day in the over-the-counter market
as reported by the National Association of Securities Dealers Automated
Quotation System.
(d) The Conversion Price shall be adjusted from time to time
as follows:
(i) In case the Corporation shall, after the date of
original issuance of the $0.625 Convertible Stock, (A) pay an
extraordinary dividend or make an extraordinary distribution
on its Common Stock in shares of its Common Stock, (B)
subdivide or split its outstanding Common Stock into a greater
number of shares, (C) combine its outstanding Common Stock
into a smaller number of shares or (D) issue any shares of
capital stock by reclassification of its Common Stock, the
Conversion Price in effect immediately prior thereto shall be
adjusted so that the holder of any share of $0.625 Convertible
Stock thereafter surrendered for conversion shall be entitled
to receive the number of shares of Common Stock of the
Corporation which such holder would have owned or have been
entitled to receive after the occurrence of any of the events
described above had such shares been surrendered for
conversion immediately prior to the occurrence of such event
or the record date therefor,
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whichever is earlier. An adjustment made pursuant to this
subparagraph (i) shall become effective immediately after the
close of business on the record date for determination of
stockholders entitled to receive such extraordinary dividend
or extraordinary distribution in the case of an extraordinary
dividend or extraordinary distribution (except as provided in
paragraph (h) below) and shall become effective immediately
after the close of business on the effective date in the case
of a subdivision, split, combination or reclassification.
(ii) No adjustment in the Conversion Price shall be
required unless such adjustment would require an increase or
decrease of at least 1% in such price; PROVIDED, HOWEVER, that
any adjustments which by reason of this subparagraph (v) are
not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations
under this Subpart 6 shall be made to the nearest cent (with
$.005 being rounded upward) or to the nearest 1/100th of a
share (with .005 of a share being rounded upward), as the case
may be. Anything in this paragraph (d) to the contrary
withstanding, the Corporation shall be entitled, to the extent
permitted by law, to make such reductions in the Conversion
Price, in addition to those required by this paragraph (d), as
it in its discretion shall determine to be advisable in order
that any stock dividends, subdivision of shares, distribution
of rights or warrants to purchase stock or securities, or a
distribution of other assets or any other transaction which
could be treated as any of the foregoing transactions pursuant
to Section 305 of the Internal Revenue Code of 1986, as
amended, hereafter made by the Corporation to its stockholders
shall not be taxable for such stockholders.
(e) In case the Corporation shall be a party to any
transaction (including without limitation a merger, consolidation, sale
of all or substantially all of the Corporation's assets or
recapitalization of the Common Stock and excluding any transaction as
to which paragraph (d)(i) of this Subpart 6 applies) (each of the
foregoing being referred to as a "Transaction"), in each case as a
result of which shares of Common Stock shall be converted into the
right to receive stock, securities or other property (including cash or
any combination thereof), then the $0.625 Convertible Stock will
thereafter no longer be subject to conversion into Common Stock
pursuant to Subpart 6, but instead shall be convertible into the kind
and amount of shares of stock and other securities and property
receivable (including cash) upon the consummation of such Transaction
by a holder of that number of shares or fraction thereof of Common
Stock into which one share of $0.625 Convertible Stock was convertible
immediately prior to such Transaction. If at any time, as a result of
an adjustment made pursuant to this Subpart 6, the $0.625 Convertible
Stock shall become subject to conversion into any securities other than
shares of Common Stock, thereafter the number of such other securities
so issuable upon conversion of the shares of $0.625 Convertible Stock
shall be subject to adjustment from time to time in a manner and on
terms as nearly equivalent as practicable to the provisions with
respect to the shares of $0.625 Convertible Stock contained in this
Subpart 6. The provisions of this paragraph (e) shall similarly apply
to successive Transactions.
(f) If:
(i) the Corporation shall declare a dividend (or any
other distribution) on the Common Stock that would cause an
adjustment to the Conversion Price of the $0.625 Convertible
Stock pursuant to the terms of any of the paragraphs above
(including such an adjustment that would occur but for the
terms of the first sentence of subparagraph (d)(ii) above);
(ii) there shall be any reclassification or change of
the Common Stock (other than an event to which paragraph
(d)(i) of this Subpart 6 applies) or any consolidation, merger
or statutory share exchange to which the Corporation is a
party and for which approval of any stockholders of the
Corporation is required, or the sale or transfer of all or
substantially all of the assets of the Corporation; or
(iii) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Corporation;
then, the Corporation shall cause to be mailed to the holders
of shares of the $0.625 Convertible Stock at their addresses
as shown on the stock records of the Corporation, as promptly
as possible, but at least 30 days prior to the applicable date
hereinafter specified, a notice stating (A) the date on which
a record is to be taken for the purpose of such dividend,
distribution or granting of rights or warrants, or, if a
record is not to be taken, the date as of which the holders of
Common Stock of record to be entitled to such dividend,
distribution or rights or warrants are to be determined or (B)
the date on which such reclassification, change,
consolidation, merger, statutory share exchange, sale,
transfer, dissolution, liquidation or winding up is expected
to become effective or occur, and the date as of which it is
expected that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for
securities or other property deliverable upon such
reclassification, change, consolidation, merger, statutory
share exchange, sale, transfer, dissolution, liquidation or
winding up.
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Failure to give such notice or any defect therein shall not
affect the legality or validity of the proceedings described
in this Subpart 6.
(g) In any case in which paragraph (d) of this Subpart 6
provides that an adjustment shall become effective immediately after a
record date for an event and the date fixed for conversion pursuant to
Subpart 6 occurs after such record date but before the occurrence of
such event, the Corporation may defer until the actual occurrence of
such event (i) issuing to the holder of any share of $0.625 Convertible
Stock, surrendered for conversion the additional shares of Common Stock
issuable upon such conversion by reason of the adjustment required by
such event over and above the Common Stock issuable upon such
conversion before giving effect to such adjustment and (ii) paying to
such holder any amount in cash in lieu of any fraction pursuant to
paragraph (c) of this Subpart 6.
(h) For purposes of this Subpart 6, the number of shares of
Common Stock at any time outstanding shall not include any shares of
Common Stock then owned or held by or for the account of the
Corporation or any corporation controlled by the Corporation.
(i) Notwithstanding any other provision herein to the
contrary, the issuance of any shares of Common Stock pursuant to any
plan providing for the reinvestment of dividends or interest payable on
securities of the Corporation and the investment of additional optional
amounts in shares of Common Stock under any such plan shall not be
deemed to constitute an issuance of Common Stock. There shall be no
adjustment of the Conversion Price in case of the issuance of any stock
of the Corporation in a reorganization, acquisition or other similar
transaction except as specifically set forth in this Subpart 6. If any
action or transaction would require adjustment of the Conversion Price
pursuant to more than one paragraph of this Subpart 6, only one
adjustment shall be made and such adjustment shall be the amount of
adjustment which has the highest absolute value.
(j) In case the Corporation shall take any action affecting
the Common Stock, other than action described in this Subpart 6, which
in the opinion of the Board of Directors would materially adversely
affect the conversion rights of the holders of the shares of $0.625
Convertible Stock, the Conversion Price for the $0.625 Convertible
Stock may be adjusted, to the extent permitted by law, in such manner,
if any, and at such time, as the Board of Directors may determine to be
equitable in the circumstances.
(k) The Corporation covenants that it will at all times
reserve and keep available, free from preemptive rights, out of the
aggregate of its authorized but unissued shares of Common Stock or its
issued shares of Common Stock held in its treasury, or both, for the
purpose of effecting conversion of the $0.625 Convertible Stock, the
full number of shares of Common Stock deliverable upon the conversion
of all outstanding shares of $0.625 Convertible Stock not theretofore
converted. For purposes of this paragraph (l), the number of shares of
Common Stock which shall be deliverable upon the conversion of all
outstanding shares of $0.625 Convertible Stock shall be computed as if
at the time of computation all such outstanding shares were held by a
single holder.
Before taking any action which would cause an adjustment
reducing the Conversion Price below the then par value of the shares of
Common Stock deliverable upon conversion of the $0.625 Convertible
Stock, the Corporation will take any corporate action which may, in the
opinion of its counsel, be necessary in order that the Corporation may
validly and legally issue fully paid and nonassessable shares of Common
Stock at such adjusted Conversion Price.
The Corporation will endeavor to make the shares of Common
Stock required to be delivered upon conversion of the $0.625
Convertible Stock eligible for trading upon the Nasdaq System or upon
any national securities exchange upon which the Common Stock shall then
be traded, prior to such delivery.
(l) The Corporation shall not take any action which results in
adjustment of the number of shares of Common Stock issuable upon
conversion of a share of $0.625 Convertible Stock if the total number
of shares of Common Stock issuable after such action upon conversion of
the $0.625 Convertible Stock then outstanding, together with the total
number of shares of Common Stock then outstanding, would exceed the
total number of shares of Common Stock then authorized under the
Corporation's Articles of Incorporation. Subject to the foregoing, the
Corporation shall take all such actions as it may deem reasonable under
the circumstances to provide for the issuance of such number of shares
of Common Stock as would be necessary to allow for the conversion from
time to time, and taking into account adjustments as herein provided,
of outstanding shares of the $0.625 Convertible Stock in accordance
with the terms and provisions of the Corporation's Articles of
Incorporation.
SUBPART 7
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MISCELLANEOUS
The headings of the various Subparts hereof are for
convenience of reference only and shall not affect the interpretation of any of
the provisions hereof.
(3) This Amendment was adopted by the Board of Directors on March 25,
1998.
(4) This Amendment was duly adopted by the Board of Directors in
accordance with Section 33-6-102 of the Code of Laws of South Carolina.
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EXHIBIT 3.2
AMENDED AND RESTATED BYLAWS
OF
THE SEIBELS BRUCE GROUP, INC.
A SOUTH CAROLINA CORPORATION
FEBRUARY 4, 1999
- ----------------
ARTICLE 1: OFFICES
Section 1: REGISTERED OFFICE AND AGENT. The registered office of
the corporation shall be at 1501 Lady Street, Columbia, South Carolina.
Section 2: OTHER OFFICES. The corporation may also have offices at such
other places both within and without the State of South Carolina as the board of
directors may from time to time determine or the business of the corporation may
require.
ARTICLE 2: SHAREHOLDERS
Section 1: PLACE OF MEETINGS. Meetings of shareholders shall be
held at the time and place, within or without the State of South Carolina,
stated in the notice of the meeting or in a waiver of notice.
Section 2: ANNUAL MEETING. An annual meeting of the shareholders shall
be held each year at 11:00 a.m. on the third Wednesday in May, or such other
date and time as the Board of Directors shall designate and state in the notice
of the meeting. At the meeting, the shareholders shall elect directors and
transact such other business as may property be brought before the meeting.
Section 3: VOTING LIST. At least ten days prior to each meeting of the
shareholders, a complete list of the shareholders entitled to vote at the
meeting, arranged in alphabetical order, with the address of each and the number
of voting shares held by each, shall be prepared by the officer or agent having
charge of the stock transfer books. The list, for a period of ten days prior to
the meeting, shall be kept on file at the registered office of the corporation
and shall be subject to inspection by any shareholder at any time during usual
business hours. The list shall also be produced and kept open at the time and
place of the meeting during the whole time thereof, and shall be subject to the
inspection of any shareholder during the whole time of the meeting.
Section 4: SPECIAL MEETINGS. Special meetings of the shareholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
articles of incorporation, or by these bylaws, may be called by the president,
the chairman of the board of directors, or a majority of the board of directors.
Business transacted at a special meeting shall be confined to the purposes
stated in the notice of the meeting.
Section 5: NOTICE. Written or printed notice stating the place, day,
and hour of the meeting and, in case of a special meeting, the purpose or
purposes for which the meeting is called, shall be delivered not less than ten
working days nor more than fifty days before the date of the meeting, either
personally or by mail, by or at the direction of the chairman, the president,
the secretary, or the officer or persons calling the meeting, to each
shareholder of record entitled to vote at such meeting. If mailed, such notice
shall be deemed delivered when deposited with postage prepaid in the United
States mail, addressed to the shareholder at the address appearing on the stock
transfer books of the corporation. No failure or irregularity of notice of any
regular meeting shall invalidate the same or any proceeding thereat.
Section 6: QUORUM. The holders of a majority of the shares issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall be requisite and shall constitute a quorum at meetings of
shareholders for the transaction of business except as otherwise provided by
statute, by the articles of incorporation or by these bylaws. If a quorum is not
present or represented at a meeting of the shareholders, the shareholders
entitled to vote, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum is present or represented. At an adjourned meeting
at which a quorum is present or represented, any business may be transacted
which might have been transacted at the meeting as originally notified.
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Section 7: MAJORITY VOTE; WITHDRAWAL OF QUORUM. Except in regards to
the election of directors, when a quorum is present at a meeting, the vote of
the holders of a majority of the shares having voting power, present in person
or represented by proxy, shall decide any question brought before the meeting,
unless the question is one which, by express provision of the statutes, the
articles of incorporation, or these by laws, a higher vote is required in which
case the express provision shall govern. Directors shall be elected by plurality
vote of the shareholders. The shareholders present at a duly constituted meeting
may continue to transact business until adjournment, despite the withdrawal of
enough shareholders to leave less than a quorum.
Section 8: METHOD OF VOTING. Each outstanding share, regardless of
class, shall be entitled to one vote on each matter submitted to a vote at a
meeting of shareholders, except to the extent that the articles of incorporation
limit or deny the voting rights of the shares of any class of classes, or to the
extent that the board of directors pursuant to the authority contained in the
articles of incorporation, may designate one or more classes of stock without
voting rights. At any meeting of the shareholders, every shareholder having the
right to vote may vote either in person or by proxy. A shareholder may appoint a
proxy to vote or otherwise act for him by signing any appointment form, either
personally or by his attorney-in-fact, which may be delivered by some form of
electronic transmission appearing to have been transmitted or authorized by the
shareholder or his attorney-in-fact. No proxy shall be valid after the
expiration of eleven months from the date of its execution. Every proxy shall be
filed with the secretary of the corporation or other officer or agent authorized
to tabulate votes prior to or at the time of the meeting. Voting for directors
shall be in accordance with Article 3, Section 3, of these bylaws. Any vote may
be taken by voice or by hands unless someone entitled to vote objects, in which
case written ballots shall be used.
Section 9: RECORD DATE; CLOSING TRANSFER BOOKS. The board of directors
shall fix in advance a record date for the purpose of determining shareholders
entitled to notice of or to vote at a meeting of the shareholders, the record
date to be not less than ten nor more than seventy days prior to the meeting and
the board of directors shall close the stock transfer books for such purpose on
such record date.
ARTICLE 3: DIRECTORS
Section 1: MANAGEMENT. The business and affairs of the corporation
shall be managed by the board of directors who may exercise all such powers of
the corporation and do all such lawful acts and things as are not (by statute or
by the articles of incorporation or by these bylaws) directed or required to be
done or exercised by the shareholders.
Section 2: NUMBER, CLASSIFICATION AND ELECTION OF DIRECTORS. The board
of directors shall be limited to a maximum of twenty-one directors, with the
precise number thereof to be fixed as the board shall from time to time resolve.
The members of the board of directors need not be shareholders nor need they be
residents of any particular state. The directors shall be classified with
respect to the time for which they shall severally hold office by dividing them
into three classes, each consisting of any approximately equal number of
directors, and each director of the corporation shall hold office until his
successor shall be elected and shall qualify. At the first annual meeting of the
shareholders, the directors of the first class shall be elected for a term to
expire at the next subsequent annual meeting of shareholders; the directors of
the second class shall be elected for a term expiring at the second subsequent
annual meeting of shareholders; the directors of the third class shall be
elected for a term expiring at the third subsequent annual meeting of
shareholders; and at each annual meeting thereafter the successor s to the class
of directors whose terms shall expire at that time shall be elected to hold
office for the term of three years, so that the term of office of one class of
directors shall expire in each year.
Section 3: ELECTION OF DIRECTORS. Directors shall be elected by
plurality vote. Cumulative voting shall be permitted if a shareholder entitled
to vote and desiring to cumulate his votes shall make his intention known before
the voting for directors shall commence. This being done, all shareholders
entitled to vote at such meeting shall without further notice be entitled to
cumulate their votes.
Section 4: REMOVAL OF DIRECTORS.
(a) Directors may be removed without cause by the affirmative vote
of the holders of a majority of the shares entitled to vote at
an election of directors, such vote being taken at a meeting
of the shareholders called for that purpose at which the
holders of eighty percent (80%) of the shares entitled to vote
are present in person or represented by proxy. No amendment,
alteration, change or repeal of this subparagraph (a) of
Article 3, Section 4, may be effected unless it is first
approved by the affirmative vote of holders of not less than
eighty percent (80%) of each class of shares of the company
entitled to vote thereon.
(b) Directors may be removed for cause by the affirmative vote of
the holders of a majority of the shares entitled to vote at an
election of directors, such vote being taken at a meeting of
the shareholders called for that purpose at which a quorum as
provided in Article 2, Section 6, is present.
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Section 5: VACANCIES. Any vacancy occurring in the board of directors,
whether by increase in the number of directors or by death, resignation,
removal, or otherwise may be filled by the affirmative vote of a majority of the
remaining directors then in office for a term ending at the next annual meeting
of the shareholders of the corporation.
Section 6: CHAIRMAN OF THE BOARD. The office of the chairman of the
board may be filled by the board at its pleasure by the election of one of its
members to the office. The chairman shall preside at all meetings of the board
and of the stockholders, and shall perform such other duties as may be assigned
to him by the board of directors.
Section 7: PLACE OF MEETINGS. Meetings of the board of directors,
regular or special, may be held either within or without the State of South
Carolina.
Section 8: REGULAR MEETINGS. Regular meetings of the board of
directors may be held without notice at such time and place as shall from time
to time be determined by the board.
Section 9: SPECIAL MEETINGS. Special meetings of the board of
directors may be called without notice by the chairman, the president, or any
executive vice president.
Section 10: TELEPHONE AND SIMILAR MEETINGS. Directors may participate
in and hold a meeting by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other. Participation in such a meeting shall constitute presence in person
at the meeting, except where a person participates in the meeting for the
express purpose of objecting to the transaction of any business on the ground
that the meeting is not lawfully called or convened.
Section 11: QUORUM; MAJORITY VOTE. At meetings of the board of
directors, a majority of the number of directors then in office shall constitute
a quorum for the transaction of business. The acts of a majority of the
directors present at a meeting at which a quorum is present shall be the act of
the board of directors, except as otherwise specifically provided by statute,
the articles of incorporation, or these bylaws. If a quorum is not present at a
meeting of the board of directors, the directors present may adjourn the meeting
from time to time, without notice other than announcement at the meeting, until
a quorum is present.
Section 12: COMPENSATION. By resolution of the board of directors, the
directors may be paid their expenses, if any, of attendance at each meeting of
the board of directors and may be paid a fixed sum for attendance at each
meeting of the board of directors. No such payment shall preclude any director
from serving the corporation in any other capacity and receiving compensation
therefor. Members of the executive committee, audit committee, or of special or
standing committees may, by resolution of the board of directors, be allowed
compensation for attending committee meetings.
Section 13: PROCEDURE. The board of directors shall keep regular
minutes of its proceedings. The minutes shall be placed in the minute book of
the corporation.
Section 14: ACTION WITHOUT MEETING. Any section required or permitted
to be taken at a meeting of the board of directors may be taken without a
meeting if a consent in writing, setting forth the action so taken, is signed
before or after the action by all the members of the board of directors. Such
consent shall have the same force and effect as a unanimous vote at a meeting.
The signed consent, or a signed copy, shall be placed in the minute book.
ARTICLE 4: EXECUTIVE COMMITTEE; AUDIT COMMITTEE;
OTHER COMMITTEES
Section 1: EXECUTIVE COMMITTEE.
(a) The board may create an executive committee and appoint three
or more directors 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.
Section 2: AUDIT COMMITTEE.
(a) NUMBER; QUALIFICATION; TERM. The audit committee shall consist
of three of more directors, none of whom shall be employed by
the company in any capacity other than as a director. The
audit committee shall serve at the pleasure of the board of
directors.
(b) AUTHORITY. The audit committee, to the extent provided in such
resolution, shall select and nominate for consideration of the
board of directors independent auditors of the company, shall
be responsible for the
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arrangements for and scope of the independent examination of
the financial records of the company by such auditors, shall
give appropriate consideration to the controls of such audit,
and shall perform such other duties and assume such additional
responsibility as may from time to time be placed upon it by
the board of directors.
Section 3: OTHER COMMITTEES.
(a) The board may appoint such other committees as it deems
appropriate, each consisting of three or more directors. Any
director may serve on any such other committee. Any committee
created under this section shall serve at the pleasure of the
board.
(b) Any committee appointed under this section shall perform such
duties and assume such responsibility as the board may
delegate to it.
Section 4: MEETINGS. Time, place, and notice of committee meetings
shall be as called and specified by the chief executive officer, the committee
chairman, or any two members of each committee.
Section 5: QUORUM; MAJORITY VOTE. At committee meetings, a majority of
the number of members designated by the board of directors shall constitute a
quorum for the transaction of business. The act of a majority of the members
present at any meeting at which a quorum is present shall be the act of the
committee, except as otherwise specifically provided by statute, the articles of
incorporation, or these bylaws. If a quorum is not present at a meeting, the
members present may adjourn the meeting from time to time, without notice other
than an announcement at the meeting, until a quorum is present.
Section 6: PROCEDURE. The executive and audit committees shall keep
regular minutes of their proceedings and report the same to the board of
directors at its next regular meeting. The minutes of the proceedings of the
executive and audit committees shall be placed in the minute book of the
corporation.
Section 7: ACTION WITHOUT MEETING. Any action required or permitted to
be taken at a meeting of a committee may be taken without a meeting if a consent
in writing, setting forth the action so taken, is signed before or after the
action by all of the members of the committee. Such consent shall have the same
force and effect as a unanimous vote at a meeting. The signed consent, or a
signed copy, shall be placed in the minute book.
Section 8: TELEPHONE AND SIMILAR MEETINGS. Committee members may
participate in and hold a meeting by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other. Participation in such a meeting shall constitute
presence in person at the meeting, except where a person participates in the
meeting for the express purpose of objecting to the transaction of any business
on the ground that the meeting is not lawfully called or convened.
Section 9: RESPONSIBILITY. The designation of a committee and the
delegation of authority to it shall not operate to relieve the board of
directors, or any member thereof, of any responsibility imposed upon it or him
by law.
ARTICLE 5: NOTICE
Section 1: METHOD. Whenever by statute, the articles of incorporation,
these bylaws, or otherwise, notice is required to be given to a director,
committee member, or security holder, and no provision is made as to how the
notice shall be given, it shall not be construed to mean personal notice, but
any such notice may be given: (a) in writing, by first class mail, postage
prepaid, addressed to the director, committee member, or security holder at the
address appearing on the books of the corporation; or (b) in any other method
permitted by law. Any notice required or permitted to be given by mail shall be
deemed given at the time when the same is thus deposited in the United States
mail.
Section 2: WAIVER. Whenever, by statute or the articles of
incorporation or these bylaws, notice is required to be given to a security
holder, committee member, or director, a waiver thereof in writing signed by the
person or persons entitled to such notice, whether before or after the time
stated in such notice, shall be equivalent to the giving of such notice.
Attendance at a meeting shall constitute a waiver of notice of such meeting,
except where a person attends for the express purpose of objecting to the
transaction of any business on the ground that the meeting is now lawfully
called or convened.
ARTICLE 6: OFFICERS
Section 1: NUMBER; QUALIFICATION; ELECTION; TERM.
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(a) The Corporation shall have (1) a president, one or more vice
presidents, a secretary, a treasurer and (2) such other
officers and assistant officers as the board of directors may
think necessary.
(b) Officers named by bylaw Article 6, Section 1(a) (1), shall be
elected by the board of directors on the expiration of an
officer's term or whenever a vacancy exists. Officers named in
bylaw Article 6, Section 1 (a) (2) may be elected by the board
at any meeting.
(c) Unless otherwise specified by the board at the time of
election or appointment, or in an employment contract approved
by the board, each officer's term shall end at the first
meeting of directors after the next annual meting of
shareholders. He shall serve until the end of his term, or if
earlier, his death, resignation, or removal.
(d) Any two or more offices may be held by the same person. The
chairman shall be elected from among the board of directors.
Section 2: REMOVAL. Any officer elected or appointed by the board of
directors may be removed by two-thirds (2/3) vote of the board of directors or
the executive committee whenever in its judgment the best interests of the
corporation will be served thereby. Such removal shall be without prejudice to
the contract rights, if any, of the person so removed. Election or appointment
of an officer shall not of itself create contract rights.
Section 3: VACANCIES. Any vacancy occurring in any office of the
corporation (by death, resignation, removal, or otherwise) may be filled by the
board of directors.
Section 4: AUTHORITY. Officers shall have such authority and perform
such duties in the management of the corporation as are provided in these bylaws
or as may be determined by resolution of the board of directors not inconsistent
with these bylaws.
Section 5: COMPENSATION. The compensation of officers shall be fixed
from time to time by the board of directors or as they may delegate.
Section 6: CHIEF EXECUTIVE OFFICER. The position of chief executive
officer may be filled by the board at its pleasure by the election of one of its
members to the office. The chief executive officer shall be responsible for the
general and active management of the business and affairs of the corporation,
and shall see that all orders and resolutions of the board are carried into
effect. He shall perform such other duties and have such other authority and
powers as the board of directors may from time to time prescribe. The board may
also appoint an acting chief executive officer to assume the duties of the chief
executive officer whenever the chief executive officer is temporarily unable to
perform his duties or when the office of chief executive officer is vacant.
Section 7: PRESIDENT. The president shall president at all meetings of
the shareholders and the board in the absence of the chairman of the board, the
chief executive officer, and the acting chief executive officer. In the event no
other person is designated chief executive officer or acting chief executive
officer, or in the event those offices are vacant either temporarily or
otherwise, during such period the president shall assume the duties and have
such other authority and powers as the board may from time to time prescribe.
Section 8: VICE PRESIDENTS. The executive vice president and vice
presidents, in the order of their seniority, unless otherwise determined by the
board of directors, shall, in the absence or disability of the president,
perform the duties and have the authority and exercise the powers of the
president. They shall perform such other duties and have such other authority
and powers as the board of directors may from time to time prescribe or as the
president may from time to time delegate.
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Section 9: SECRETARY.
(a) The secretary shall attend all meetings of the board of
directors and all meetings of the shareholders and record all
votes, actions, and the minutes of all proceedings in a book
to be kept for that purpose and shall perform like duties for
the executive and other committees when required.
(b) He shall give, or cause to be given, notice of all meetings of
the shareholders and special meetings of the board of
directors.
(c) He shall keep in safe custody the seal of the corporation and,
when authorized by the board of directors or the executive
committee, affix it to any instrument requiring it. When so
affixed, it shall be attested by his signature or by the
signature of the treasurer or an assistant secretary.
(d) He shall perform such other duties and have such other
authority and powers as the board of directors may from time
to time prescribe or as the president may from time to time
delegate.
Section 10: ASSISTANT SECRETARY. The assistant secretaries in the order
of their seniority, unless otherwise determined by the board of directors,
shall, in the absence or disability of the secretary, perform the duties and
have the authority and exercise the powers of the secretary. They shall perform
such other duties and have such other powers as the board of directors may from
time to time prescribe or as the president may from time to time delegate.
Section 11: TREASURER.
(a) The treasurer shall have custody of the corporation funds and
securities and shall keep full and accurate accounts of
receipts and disbursements of the corporation and shall
deposit all monies and other valuables in the name and to the
credit of the corporation in depositories designated by the
board of directors.
(b) He shall disburse the funds of the corporation as ordered by
the board of directors, and prepare financial statements as
they direct.
(c) He shall perform such other duties and have such other
authority and powers as the board of directors may from time
to time prescribe or as the president may from time to time
delegate.
(d) His books and accounts shall be opened at any time during
business hours to the inspection of any director of the
company.
Section 12: ASSISTANT TREASURER. The assistant treasurers in the order
of their seniority, unless otherwise determined by the board of directors,
shall, in the absence or disability of the treasurer, performer. They shall
perform such other duties and have such other powers as the board of directors
may from time to time prescribe or the president may from time to time delegate.
Section 13: GENERAL COUNSEL. The general counsel of the company shall
prepare such contracts and agreements required in the business of the company as
may be referred to him by its officers, and shall inspect and pass upon all such
instruments presented to the company as may be of sufficient importance to
justify such examination; also, he shall advise the officers of the company in
all such legal matters pertaining to the affairs of the company as may require
his consideration.
ARTICLE 7: CERTIFICATES AND SHAREHOLDERS
Section 1: CERTIFICATES. Certificates in the form determined by the
board of directors shall be delivered representing all shares to which
shareholders are entitled. Certificates shall be consecutively numbered and
shall be entered in the books of the corporation as they are issued. Each
certificate shall state on its face the holder's name, the number and class of
shares, the par value, and such other matters as may be required by law. it
shall be signed by the president or a vice president and such other officer or
officers as the board of directors shall designate, and may be sealed with the
seal of the corporation or a facsimile thereof. If a certificate is
countersigned by a transfer agent, or an assistant transfer agent, or registered
by a registrar (either of which is other than the corporation or an employee of
the corporation), the signature of any officer may be facsimile.
Section 2: ISSUANCE. Shares (both treasury and authorized but unissued)
may be issued for such consideration (not less than par value) and to such
persons as the board of directors may determine from time to time. Shares may
not be issued until the full amount of the consideration has been paid as
provided by law.
Section 3: PAYMENT OF SHARES.
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(a) KIND. The consideration for the issuance of shares shall
consist of money paid, labor done (including services actually
performed for the corporation), or property (tangible or
intangible) actually received. Neither promissory notes nor
the promise of future services shall constitute payment of
shares.
(b) VALUATION. In the absence of fraud in the transaction, the
judgment of the board of directors as to the value of
consideration received shall be conclusive.
(c) EFFECT. When consideration, fixed as provided by law, has been
paid, the shares shall be deemed to have been issued and shall
be considered fully paid and non-assessable.
(d) ALLOCATION FOR CONSIDERATION. The consideration received for
shares shall be allocated by the board of directors, in
accordance with law, between stated capital and capital
surplus accounts.
Section 4: SUBSCRIPTIONS. Unless otherwise provided in the subscription
agreement, subscriptions for shares, whether made before or after organization
of the corporation, shall be paid in full at such time or in such installments
and at such times as shall be determined by the board of directors. Any call
made by the board of directors for payment on subscriptions shall be uniform as
to all shares of the same series. In case of default in the payment on any
installment or call when payment is due, the corporation may proceed to collect
the amount due in the same manner as any debt due to the corporation.
Section 5: LIEN. For any indebtedness of a shareholder to the
corporation with respect to his stock, the corporation shall have a first and
prior lien on all shares of its stock owned by him and on all dividends or other
distributions declared thereon.
Section 6: LOST, STOLEN, OR DESTROYED CERTIFICATES. The corporation
shall issue a new certificate in place of any certificate for shares previously
issued if the registered owner of the certificate:
(a) CLAIM. Makes proof in affidavit form that it has been lost,
destroyed, or wrongfully taken; and
(b) TIMELY REQUEST. Requests the issuance of a new certificate
before the corporation has notice that the certificate has
been acquired by a purchaser for value in good faith and
without notice of an adverse claim; and
(c) BOND. Gives a bond in such form, and with such surety or
sureties, with fixed or open penalty, as the corporation may
direct, to indemnify the corporation (and its transfer agent
and registrar, if any) against any claim that may be made on
account of the alleged loss, destruction, or theft of the
certificate; and
(d) OTHER REQUIREMENTS. Satisfies any other reasonable
requirements imposed by the corporation.
When a certificate has been lost, apparently destroyed, or wrongfully
taken, and the holder of record fails to notify the corporation within a
reasonable time after he has notice of it, and the corporation registers a
transfer of the shares represented by the certificate before receiving such
notification, the holder of record is precluded from making any claim against
the corporation for the transfer or for a new certificate.
Section 7: REGISTRATION OF TRANSFER. The corporation shall register
the transfer of a certificate for shares presented to it for transfer if:
(a) ENDORSEMENT. The certificate is properly endorsed by the
registered owner or by his duly authorized attorney; and
(b) GUARANTEE AND EFFECTIVENESS OF SIGNATURE. The signature of
such person has been guaranteed by a commercial bank or
brokerage firm that is a member of the National Association of
Securities Dealers and reasonable assurance is given that such
endorsements are effective; and
(c) ADVERSE CLAIMS. The corporation has no notice of an adverse
claim or has discharged any duty to inquire into such a claim;
and
(d) COLLECTION OF TAXES. Any applicable law relating to the
collection of taxes has been complied with.
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Section 8: REGISTERED OWNER. Prior to due presentment for registration
of transfer of a certificate for shares, the corporation may treat the
registered owners as the person exclusively entitled to vote, to receive
notices, and otherwise to exercise all the rights and powers of a shareholder.
Section 9: PREEMPTIVE RIGHTS. No shareholder or other person shall
have any preemptive right whatsoever.
ARTICLE 8: GENERAL PROVISIONS
Section 1: DIVIDENDS AND RESERVES.
(a) DECLARATION AND PAYMENT. Subject to statute and the articles
of incorporation, dividends may be declared by the board of
directors at any regular or special meeting and may be paid in
cash, in property, or in shares of the corporation. The
declaration and payment shall be at the discretion of the
board of directors.
(b) RECORD DATE. The board of directors shall fix in advance a
record date for the purpose of determining shareholders
entitled to receive payment of any dividend, the record date
to be not more than fifty days prior to the payment date of
such dividend, and shall close the stock transfer books for
such purpose on such record date.
(c) RESERVES. By resolution the board of directors may create such
reserve or reserves out of the earned surplus of the
corporation as the directors from time to time, in their
discretion, think proper to provide for contingencies, or to
equalize dividends, or to repair or maintain any property of
the corporation, or for any other purpose they think
beneficial to the corporation. The directors may modify or
abolish any such reserve in the manner in which it was
created.
Section 2: BOOKS AND RECORDS. The corporation shall keep correct and
complete books and records of account and shall keep minutes of the proceedings
of its shareholders and board of directors, and shall keep at its registered
office or principal place of business, or at the office of its transfer agent or
registrar, a record of its shareholders, giving the names and addressed of all
shareholders and the number and class of the shares held by each.
Section 3: CHECKS AND NOTES. All checks or demands for money and notes
of the corporation shall be signed by such officer or officers of such other
person or persons as the board of directors may from time to time designate.
Section 4: FISCAL YEAR. The fiscal year of the corporation shall be
the same as the calendar year.
Section 5: SEAL. The corporation seal (of which there may be one or
more exemplars) shall contain the name of the corporation and the name of the
state of incorporation. The seal may be used by impressing it or reproducing a
facsimile of it, or otherwise.
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.
Section 7: RESIGNATION. Any director, committee member, or officer may
resign by giving written notice to the president or the secretary. The
resignation shall take effect at the time specified therein, or immediately if
no time is specified. Unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 8: AMENDMENT OF BYLAWS.
(a) These bylaws may be altered, amended, or repealed at any
meeting of the board of directors at which a quorum is
present, by a majority vote of the directors then in office,
provided notice of the proposed alteration, amendment, or
repeal is contained in a notice of the meeting.
(b) These bylaws may also be altered, amended, or repealed at any
meeting of the shareholders at which a quorum is present or
represented, by the affirmative vote of the holders of a
majority of each class of shares entitled to vote thereon,
provided notice of the proposed alteration, amendment, or
repeal is contained in the notice of the meeting.
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Section 9: CONSTRUCTION. Whenever the context so requires, the
masculine shall include the feminine and neuter, and the singular shall include
the plural, and conversely. If any portion of these bylaws shall be invalid or
inoperative, then, so far as is reasonable and possible:
(a) The remainder of these bylaws shall be considered valid and
operative, and
(b) Effect shall be given to the intent manifested by the portion held
invalid or inoperative.
Section 10: HEADING. The heading are for organization,
convenience, and clarity. In interpreting these bylaws, they shall be
subordinated in importance to the other written material.
Section 11: RELATION TO ARTICLES OF INCORPORATION. These bylaws
are subject to, and governed by, the articles of incorporation.
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EXHIBIT 10.1
NINTH AMENDMENT
TO THE
SOUTH CAROLINA INSURANCE COMPANY
EMPLOYEE'S PROFIT-SHARING AND SAVINGS PLAN
THIS NINTH AMENDMENT to the South Carolina Insurance Company Employee's
Profit-Sharing and Savings Plan (the "Plan"), made as of the day and year noted
on the last page hereof, by South Carolina Insurance Company (the "Company"), to
be effective as noted below.
W I T N E S S E T H:
WHEREAS, the Company sponsors and maintains the Plan for the exclusive
benefit of its employees and their beneficiaries, and, pursuant to Section
12.2(a) thereof, the Company has the right to amend the Plan at any time; and
WHEREAS, the Company wishes to amend the Plan at this time for the
purpose of merging the Universal Insurance Company 401(k) Retirement Plan with
and into the Plan effective as of April 1, 1998, for the purpose of modifying
the participant eligibility provisions of the Plan, and for other purposes;
NOW, THEREFORE, the Plan is hereby amended as follows effective as
indicated below:
1.
Section 1.36 of the Plan is amended to read as follows effective as of
April 1, 1998:
1.36 ENTRY DATE shall mean the following:
(a) PRIOR TO JULY 1, 1994. Prior to July 1, 1994,
Entry Date shall mean the first day of each Plan Year and
first day of the seventh month of each Plan Year, except that
for the Plan Year beginning January 1, 1987, there shall be an
additional Entry Date on May 1, 1987.
(b) ON AND AFTER JULY 1, 1994, BUT PRIOR TO APRIL 1,
1998. On and after July 1, 1994, but prior to April 1, 1998,
Entry Date shall mean the first day of each calendar quarter
(I.E., January 1, April 1, July 1 and October 1).
(c) ON AND AFTER APRIL 1, 1998. On and after April 1,
1998, Entry Date shall mean the first day of each month.
2.
Section 1.40 of the Plan is amended to read as follows effective as of
April 1, 1998:
1.40 FORFEITABLE ACCOUNTS shall mean the Discretionary
Contributions Account, PSP Discretionary Contributions Account,
Universal Discretionary Contributions Account, Matching Elective
Contributions Account, Universal Marching Contributions Account and
Matching Voluntary Contributions Account of a Participant.
3.
Section 1.52 of the Plan is amended to read as follows effective as of
April 1, 1998:
1.52 NONFORFEITABLE ACCOUNTS shall mean a Participant's
Elective Contributions Account, Universal Elective Contributions
Account, Voluntary Contributions Account, Qualified Nonelective
Contributions Account, Universal Qualified Nonelective Contributions
Account, Qualified Matching Contributions Account, Rollover
Contributions Account, PSP Rollover Contributions Account, or Universal
Rollover Contributions Account.
4.
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New Sections 1.82A through 1.82H are added after Section 1.82 of
Article I of the Plan to read as follows effective as of April 1, 1998:
1.82A UNIVERSAL ACCOUNTS. See Section 17.2 of this Plan.
1.82B UNIVERSAL DISCRETIONARY CONTRIBUTIONS ACCOUNT. See
Section 17.2(d) of this Plan.
1.82C UNIVERSAL ELECTIVE CONTRIBUTIONS ACCOUNT. See
Section 17.2(a) of this Plan.
1.82D UNIVERSAL MATCHING CONTRIBUTIONS ACCOUNT. See
Section 17.2(b) of this Plan.
1.82E UNIVERSAL PARTICIPANT. See Section 17.1 of this
Plan.
1.82F UNIVERSAL PLAN shall mean the Universal Insurance
Company 401(k) Retirement Plan which is merged with and into this Plan
as of April 1, 1998.
1.82G UNIVERSAL QUALIFIED NONELECTIVE CONTRIBUTIONS
ACCOUNT. See Section 17.2(c) of this Plan.
1.82H UNIVERSAL ROLLOVER CONTRIBUTIONS ACCOUNT. See
Section 17.2(e) of this Plan.
5.
Section 2.1 of the Plan is amended effective as of April 1, 1998, by
adding the following subsection (f) after subsection (e) thereof:
(f) SPECIAL GRANDFATHER RULE FOR PARTICIPANTS IN
UNIVERSAL PLAN. An Eligible Employee who was a Participant in
the Universal Plan as of March 31, 1998, and who was employed
by Universal Insurance Company on such date, shall continue to
participate in this Plan as of April 1, 1998, and thereafter,
so long as the Employee remains employed by an Employer as an
Eligible Employee, even though the Employee may not have
otherwise met the requirements for participation under Section
2.1(b) above.
6.
Section 4.1 of the Plan is amended effective as of April 1, 1998, to
read as follows:
4.1 VESTING OF NONFORFEITABLE ACCOUNTS. All amounts allocated
to a Participant's Elective Contributions Account, Universal Elective
Contributions Account, Voluntary Contributions Account, Qualified
Nonelective Contributions Account, Universal Qualified Nonelective
Contributions Account, Qualified Matching Contributions Account,
Rollover Contributions Account, PSP Rollover Contributions Account, or
Universal Rollover Contributions Account (a Participant's
"Nonforfeitable Accounts") shall at all times be and remain 100% vested
and nonforfeitable.
7.
Section 4.2 of the Plan is amended effective as of April 1, 1997, to
read as follows:
4.2 VESTING OF FORFEITABLE ACCOUNTS. All amounts allocated to
a Participant's Discretionary Contributions Account, PSP Discretionary
Contributions Account, Universal Discretionary Contributions Account,
Matching Elective Contributions Account, Universal Matching
Contributions Account and Matching Voluntary Contributions Account (a
Participant's "Forfeitable Accounts") shall vest in accordance with the
following rules, except as provided in Sections 3.5(f)(i), 3.10(b),
3.10(c)(v), 7.1(d) and 13.10:
(a) FULL VESTING EVENTS. A Participant's
Forfeitable Accounts shall be 100% vested and nonforfeitable
as of the following dates:
(i) The date on which the Participant
attains age 65 while still employed by the Employer;
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<PAGE>
(ii) The date on which the Participant
attains his Early Retirement Age while still employed
by the Employer;
(iii) The date the Participant dies while
still employed by the Employer; or
(iv) The date the Participant becomes
Disabled while still employed by the Employer.
See Section 17.5(a) of this Plan for a special rule applicable
to Universal Participants in determining vesting under clause
(iv) of this subsection (a).
(b) GRANDFATHERED VESTING SCHEDULE. A Participant
whose Forfeitable Accounts are not 100% vested under the
provisions of subsection (a) above shall nonetheless be 100%
vested in such Accounts if such Participant (1) has at least
one Hour of Service (as defined in Section 1.43(a)) on or
after July 1, 1992, (2) was an Eligible Employee in this Plan
prior to September 26, 1997, and (3) is not a Universal
Participant.
(c) GENERAL VESTING SCHEDULE. A Participant whose
Forfeitable Accounts are not 100% vested under the provisions
of subsections (a) and/or (b) above shall be vested in such
Accounts in accordance with the following schedule if such
Participant has at least one Hour of Service (as defined in
Section 1.43(a)) on or after September 26, 1997:
<TABLE>
<CAPTION>
----------------------------------------- ---------------------------------------------
YEARS OF VESTING SERVICE VESTED PERCENTAGE
EARNED BY THE PARTICIPANT OF THE PARTICIPANT
IN FORFEITABLE ACCOUNTS
----------------------------------------- ---------------------------------------------
<S> <C>
Less than 1 Year 0% vested
----------------------------------------- ---------------------------------------------
1 Year 33% vested
----------------------------------------- ---------------------------------------------
2 Years 66% vested
----------------------------------------- ---------------------------------------------
3 or more Years 100% vested
----------------------------------------- ---------------------------------------------
</TABLE>
This subsection (c) shall apply to Universal Participants
whose Forfeitable Accounts are not 100% vested under the
provisions of subsection (a) above and who have at least one
Hour of Service (as defined in Section 1.43(a)) on or after
April 1, 1998. See Section 17.5(c) for a special rule
applicable to Universal Participants whose Forfeitable
Accounts are not 100% vested under the provisions of
subsection (a) above and who do not have at least one Hour of
Service (as defined in Section 1.43(a)) on or after April 1,
1998.
(d) PRE-9/27/97 VESTING SCHEDULE. A Participant whose
Forfeitable Accounts are not 100% vested under the provisions
of subsections (a) and/or (b) above and who does not have at
least one Hour of Service (as defined in Section 1.43(a)) on
or after September 26, 1997, shall be vested in such Accounts
in accordance with the following schedule if such Participant
has at least one Hour of Service (as defined in Section
1.43(a)) in a Plan Year beginning after December 31, 1988:
102
<PAGE>
<TABLE>
<CAPTION>
----------------------------------------- ---------------------------------------------
YEARS OF VESTING SERVICE VESTED PERCENTAGE
EARNED BY THE PARTICIPANT OF THE PARTICIPANT
IN FORFEITABLE ACCOUNTS
----------------------------------------- ---------------------------------------------
<S> <C>
Less than 3 Years 0% vested
----------------------------------------- ---------------------------------------------
3 Years 20% vested
----------------------------------------- ---------------------------------------------
4 Years 40% vested
----------------------------------------- ---------------------------------------------
5 Years 60% vested
----------------------------------------- ---------------------------------------------
6 Years 80% vested
----------------------------------------- ---------------------------------------------
7 or more Years 100% vested
----------------------------------------- ---------------------------------------------
</TABLE>
This subsection (d) shall not apply to any Universal
Participant.
(e) PRE-1989 VESTING SCHEDULE. Subject to the
provisions of Section 15.5(a) (a special rule for PSP
Participants), a Participant whose Forfeitable Accounts are
not 100% vested under the provisions of subsections (a) and/or
(b) above and who has not performed at least one Hour of
Service (as defined in Section 1.43(a)) for the Employer in a
Plan Year beginning after December 31, 1988 shall be vested in
such Accounts depending upon the Plan Year in which amounts in
such Accounts were contributed. Amounts in Forfeitable
Accounts contributed during a particular Plan Year shall be
fully vested as of the first day of the third Plan Year
following such Plan Year, provided the Participant was
performing services for the Employer as of such date. This
subsection (e) shall not apply to any Universal Participant.
(f) LIMITATIONS AND RESTRICTIONS REGARDING
VESTING.
(i) NONFORFEITABILITY BY PARTICIPANT
CONDUCT. No vested portion of a Participant's
Account shall be forfeited as a result of conduct of
the Participant.
(ii) AMENDMENTS TO VESTING SCHEDULE. If the
vesting schedule of this Plan is amended, the vested
percentage of a Participant's Forfeitable Accounts,
determined as of the later of the date on which the
amendment to the Plan's vesting schedule is adopted
or becomes effective, shall not be reduced by such
amendment. Furthermore, any Participant who has at
least 3 Years of Vesting Service (5 Years of Vesting
service for Participants who do not have at least one
Hour of Service in a Plan Year beginning after
December 31, 1988) shall either:
(A) automatically have his or her
vesting percentage computed without regard
to the change in the vesting schedule unless
computing his or her vested percentage under
the new vesting schedule is more favorable;
or
(B) have the right to elect, within
60 days of (1) the day the amendment is
adopted, (2) the day the amendment becomes
effective, or (3) the day the Participant is
issued written notice of the amendment,
whichever is latest, to have the vesting
schedule in effect prior to the amendment
apply in computing his vested percentage;
whichever is selected by the Plan Administrator
applicable to all affected Participants. For purposes
of this paragraph (ii), an amendment to the Plan's
vesting schedule is any amendment which directly or
indirectly affects the computation of the vested
percentage of a Participant's Accounts as described
in Treas. Reg. ss.1.411(a)-8(c), and Years of Vesting
Service shall be determined without regard to Section
4.4.
(iii) AUTOMATIC AMENDMENTS TO VESTING
SCHEDULE. The rules of paragraph (ii) above shall
apply to the automatic change in the vesting schedule
after the end of the Plan
103
<PAGE>
Year beginning in 1988. Furthermore, the rules of
paragraph (ii) above shall apply to any automatic
change in the vesting schedule caused by operation of
Article XIV of this Plan.
(g) YEARS OF VESTING SERVICE. In determining the
Years of Vesting Service completed by an Employee for purposes
of this Article IV, Years of Vesting Service shall be
determined pursuant to Sections 1.88 and 4.4 of this Plan.
8.
Section 4.4 of the Plan is amended effective as of April 1, 1998, by
adding the following subsection (c) at the end of subsection (b) thereof:
(c) SPECIAL RULE FOR UNIVERSAL PARTICIPANTS.
This Section 4.4 shall not apply to a Universal Participant.
9.
Section 5.1 of the Plan is amended effective as of April 1, 1998, by
striking the sentence:
See also Section 4.4(c) and Section 15.2.
and inserting in lieu thereof the sentence:
See also Sections 4.4(b), 15.2 and 17.2.
10.
Paragraph (iv) of subsection (a) of Section 8.1 of the Plan is amended
effective as of April 1, 1998, by adding the following sentence to the end
thereof:
See Section 17.6(b) of this Plan for a special rule applicable to
Universal Participants.
11.
Paragraph (iii) of subsection (b) of Section 8.1 of the Plan is amended
effective as of April 1, 1998, by adding the following sentence to the end
thereof:
See Section 17.6(b) of this Plan for a special rule applicable to
Universal Participants.
12.
Section 8.3 of the Plan is amended effective as of April 1, 1998, by
striking the sentence:
See Section 15.7 for a special rule for PSP Accounts.
and inserting in lieu thereof the sentence:
See Sections 15.7 and 17.6 for special rules for PSP Accounts and
Universal Accounts, respectively.
13.
A new Article XVII is added after Article XVI of the Plan to read as
follows:
ARTICLE XVII
MERGER OF UNIVERSAL PLAN WITH AND INTO PLAN
17.1 GENERAL PROVISIONS. Effective as of April 1, 1998, the
Universal Plan is merged with and into the Plan. The Plan shall, as of
such date, assume all obligations of the Universal Plan under the terms
and provisions of the Universal Plan for (a) participants participating
in the Universal Plan immediately prior to
104
<PAGE>
April 1, 1998, and (b) former participants with vested benefits under
the Universal Plan immediately prior to April 1, 1998. Such
participants shall, as of April 1, 1998, automatically become
Participants or former Participants, as appropriate, in the Plan with
respect to such benefits and shall be referred to as "Universal
Participants" herein. The Plan shall provide for payment of said
accrued benefits, as they are or shall become vested, with the assets
transferred to the Trust as set forth in Section 17.3 below pursuant to
the provisions of this Plan subsequent to April 1, 1998.
17.2 SEPARATE ACCOUNTING. The account balances of each
Universal Participant who becomes a Participant in the Plan shall be
maintained in separate Accounts as follows:
(a) Amounts transferred from the Universal Plan
attributable to deferral contributions of a Universal
Participant, if any, shall be maintained in a special
segregated "Universal Elective Contributions Account" for such
Participant.
(b) Amounts transferred from the Universal Plan
attributable to matching contributions of a Universal
Participant, if any, shall be maintained in a special
segregated "Universal Matching Contributions Account" for such
Participant.
(c) Amounts transferred from the Universal Plan
attributable to designated qualified nonelective contributions
of a Universal Participant, if any, shall be maintained in a
special segregated "Universal Qualified Nonelective
Contributions Account" for such Participant.
(d) Amounts transferred from the Universal Plan
attributable to nonelective contributions of a Universal
Participant, if any, shall be maintained in a special
segregated "Universal Discretionary Contributions Account" for
such Participant.
(e) Amounts transferred from the Universal Plan
attributable to rollover contributions of a Universal
Participant, if any, shall be maintained in a special
segregated "Universal Rollovers Contributions Account" for
such Participant.
Such Accounts shall be collectively referred to as the Universal
Participant's "Universal Accounts."
17.3 TRANSFER OF PLAN ASSETS. Effective as of April 1, 1998,
the assets of the Universal plan which are held by the trustee of the
trust accompanying the Universal Plan shall become assets of the Plan,
and shall be held by the Trustee under the provisions of the Plan and
its accompanying Trust Agreement for the exclusive benefit of
Participants and Beneficiaries under the Plan.
17.4 CONDITIONS FOR MERGER AND TRANSFER. The merger of plans
and transfer of assets as provided for in this Article are subject to
the provisions of Section 12.4(a).
17.5 SPECIAL CODE SS.411(A)(10) PROVISIOns. In accordance
with Section 12.2 and Treas. Reg. ss.1.411(d)-4(Q&A-2)(a)(3), the
following special provisions shall apply to the Universal Accounts of
Universal Participants:
(a) EXPANSION OF "DISABILITY." With respect to
Universal Participants, for purposes of the term "Disabled" in
Section 4.2(a)(iv) shall also include, with respect to a
Participant, the inability, because of a physical or mental
disability, to perform the duties of his customary position of
employment (or inability to engage in any substantial gainful
activity) for an indefinite period which the Plan
Administrator considers to be of long continued duration, and
also, if resulting in a termination of employment, the
permanent loss or loss of use of a member or function of the
body or permanent disfigurement.
(b) REEMPLOYED FORMER EMPLOYEES. With respect to
Universal Participants, the provisions of Section 4.4 of this
Plan shall not apply to determine a Universal Participant's
Years of Vesting Service.
(c) SPECIAL VESTING SCHEDULE FOR CERTAIN UNIVERSAL
PARTICIPANTS. A Universal Participant whose Forfeitable
Accounts are not 100% vested under the provisions of Section
4.2 of this Plan and who does not have at least one Hour of
Service (as defined in Section 1.43(a)) on or after April 1,
1998, shall be vested in such Accounts in accordance with the
following schedule:
105
<PAGE>
<TABLE>
<CAPTION>
---------------------------------------------- -----------------------------------------
YEARS OF VESTING SERVICE VESTED PERCENTAGE
EARNED BY THE PARTICIPANT OF THE PARTICIPANT
IN FORFEITABLE ACCOUNTS
---------------------------------------------- -----------------------------------------
<S> <C>
Less than 1 Year 0% vested
---------------------------------------------- -----------------------------------------
1 Year 20% vested
---------------------------------------------- -----------------------------------------
2 Years 40% vested
---------------------------------------------- -----------------------------------------
3 Years 60% vested
---------------------------------------------- -----------------------------------------
4 Years 80% vested
---------------------------------------------- -----------------------------------------
5 or more Years 100% vested
---------------------------------------------- -----------------------------------------
</TABLE>
17.6 SPECIAL CODE SS.411(D)(6) PROVISIOns. In accordance
with Section 12.2 and Treas. Reg. ss.1.411(d)-4(Q&A-2)(a)(3), the
following special provisions shall apply to the Universal Accounts of
Universal Participants:
(a) ADDITIONAL OPTIONAL FORMS OF BENEFIT. With
respect to the Universal Accounts of Participants, in addition
to the optional forms available under Section 8.3 of this
Plan, a Participant may also elect to receive such Accounts
(but not earnings thereon after April 1, 1998) in the form of
monthly, quarterly or annual installments over a fixed
reasonable period of time, not to exceed the life expectancy
of the Participant or the joint life and last survivor
expectancy of the Participant and his Beneficiary.
(b) DEEMED CASH OUT OF NON-VESTED PARTICIPANTS. With
respect to those Universal Participants who are 0% vested in
their Universal Accounts, and who have not yet incurred 5
consecutive one year breaks in service, such Participants
shall be deemed to be paid from the Plan as of April 1, 1998,
in the form of a single lump sum payment on such date.
17.7 INVESTMENTS. The assets transferred from the Universal
Plan to this Plan shall be liquidated as soon as administratively
practicable prior to April 1, 1998, and the cash proceeds thereof shall
then be transferred in cash to the Trustee, and such assets shall be
held by the Trustee subject to the provisions of Section 5.2. In
accomplishing the asset transfers, the trustee of the Universal Plan
and the Trustee may temporarily suspend all investment modifications of
Universal Participants or Participants, as applicable, until the
investment provisions and rules of Section 5.2 may be administratively
accomplished. The Trustee may also, upon receiving the assets of the
Universal Plan, invest such assets among the then currently available
investment funds under the Plan, as the Trustee may deem appropriate in
its sole discretion (or as directed by the Plan Administrator in its
sole discretion), until investment selections are made by Participants
and are effectuated.
17.8 SPECIAL GRANDFATHER ELIGIBILITY RULE FOR UNIVERSAL
PARTICIPANTS. See Section 2.1(f) for a special eligibility rule for
Universal Participants.
17.9 NONDISCRIMINATION TESTING. For purposes of applying the
nondiscrimination testing requirements of Code ss.401(k) and (m) set
forth in Article III for the calendar year and Plan Year beginning
January 1, 1998, amounts contributed from January 1, 1998 through March
31, 1998 to the Universal Accounts of a Participant shall be taken into
account, as appropriate.
14.
All other provisions of the Plan not inconsistent herewith are hereby
confirmed and ratified.
106
<PAGE>
IN WITNESS WHEREOF, this Ninth Amendment to the Plan has been executed
by the Company and its corporate seal attached hereto this 16TH day of March,
1998.
COMPANY:
[CORPORATE SEAL] SOUTH CAROLINA INSURANCE COMPANY
By: /s/ Don a Drozd
-------------------------------------
Title: Compensation and Benefits Manager
-------------------------------------
ATTEST:
By: /s/ Priscilla C. Brooks
-----------------------
Title: Corporate Secretary
-----------------------
S3-513447-2
107
<PAGE>
SOUTH CAROLINA ASSOCIATED AUTO INSURERS PLAN
PROPOSAL NAME: South Carolina Associated Auto Insurers Plan
Joint Underwriting Association--Servicing
Carrier Solicitation
COVERAGE TYPE: Private Passenger Property and Casualty
Automobile Insurance
PROPOSAL NOTICE NUMBER: 98-002/PPAI
PROPOSAL OPENING DATE: August 14, 1998 at 4:30 p.m.
[LOGO]
Issued By:
Lee P. Jedziniak
Director
South Carolina Department of Insurance
1612 Marion Street
Columbia, South Carolina 29201
<PAGE>
TABLE OF CONTENTS
PROPOSAL NOTICE NO....................................................... 1
PROPOSAL NOTICE NUMBER................................................... 1
SECTION 1: GENERAL OVERVIEW.............................................. 1
1.1. Purpose......................................................... 1
1.2. Authority for Competitive Sealed Solicitation of Proposals...... 1
1.3. Date for Submission of Proposals................................ 1,2
1.4. Incorrectly Marked Envelopes.................................... 2
1.5. Solicitation Does Not Bind Director or Advisory Board........... 2
1.6. Mandatory Pre-proposal Conference............................... 2
1.7. Questions Concerning the RFP at Mandatory Pre-proposal
Conference.................................................... 2
1.8. Submission of Written Inquiries................................. 3
1.9. Disqualification of Proposals................................... 3
1.10. Disqualification of Proposals................................... 3
1.10.1. Proof of Collusion.................................... 3
1.10.2. Lack of Responsibility................................ 3
1.10.3. Noncompliance with Applicable Law..................... 3
1.10.4. Conditional or Incomplete Proposals................... 3,4
1.10.5. Reservations by Respondent to Accept or Reject Award.. 4
1.10.6. Late Submission of Proposals.......................... 4
SECTION 2: GENERAL INSTRUCTIONS
2.1. No Liability for Proposal Preparations Costs or Nonaward
of Contract................................................... 4
2.2. Proposal Must Comply with RFP................................... 4
2.3. Proposal Must Be In Official Name of Company/Individual......... 4
i
<PAGE>
2.4. All Requested Information Must Be Included...................... 4
2.5. Proposal Submission Requirements................................ 4,5
2.6. Official Positions or Communications Re RFP..................... 5
2.7. Certification of Qualifications to Act as Servicing Carrier..... 5
2.8. One Proposal per Organization................................... 5
2.9. Solicitation is Intended to Promote Competition................. 5
2.10. Proposals Must Be Complete and Clear............................ 6
2.11. Single Bound Volume(s) Required................................. 6
2.12. Separate Appendices............................................. 6
2.13. No Communication with Director or Advisory Board After
Proposal Submission........................................... 6
2.14. RFP Amendments.................................................. 6,7
2.14.1. Verbal Comments Cannot Modify Written Provisions....... 6
2.14.2. Amendments Must Be Written............................. 7
2.15. Oral Presentations.............................................. 7
2.16. Possible Contract Awards........................................ 7
2.17. Confidential and Proprietary Information........................ 7
2.18. Notice of Intent to Award....................................... 7
2.19. Mail Pick-Up.................................................... 7
2.20. Information for Envelope or Wrapping Material................... 7,8
2.21. Statement of Award.............................................. 8
2.22. FEIN or Social Security Number.................................. 8
2.23. Proposed Time Table............................................. 8
ii
<PAGE>
SECTION 3: BACKGROUND
3.1. About the South Carolina Associated Auto Insurers Plan.......... 8,9
3.2. Director Authorized to Solicit Proposals........................ 9
3.2.1. Competitive Solicitation................................ 10
3.2.2. Solicitation Not Governed by Procurement Code........... 9
3.3. No Right to Award or Disposition of Appeal......................
SECTION 4: SCOPE OF PROPOSAL............................................. 9
4.1. Overview of Responsibilities of Servicing Carrier............... 9
4.2. Informational References to the Plan of Operation............... 10
4.3. Proposals Become Property of the Plan........................... 10
4.4. Confidentiality of Evaluations and Score Sheets................. 10
4.5. Disqualification for Failure to Comply with RFP................. 10
4.6. Documents Comprising Contract................................... 11
4.7. Conflict(s)..................................................... 11
SECTION 5: DEFINITIONS
5.1. Advisory Board.................................................. 11
5.2. Producer........................................................ 11
5.3. Association..................................................... 11
5.4. Committee....................................................... 11
5.5. Days............................................................ 11
5.6. Department...................................................... 11
5.7. Director........................................................ 11
iii
<PAGE>
5.8. Member.......................................................... 11
5.9. Plan............................................................ 11
5.10. Plan Administrator.............................................. 12
5.11. Plan of Operation............................................... 12
5.12. Proposal........................................................ 12
5.13. Request for Proposals........................................... 12
5.14. Servicing Carrier............................................... 12
5.15. You, Your, Offeror, Applicant, or Respondent.................... 12
5.16. Voluntary Market................................................ 12
SECTION 6: QUALIFICATIONS FOR SERVICING CARRIER(S)....................... 12
6.1. Surplus, Performance Bond and Statutory Deposit Requirements.... 13
6.2. Experience Required............................................. 13
6.3. Service Facility Requirements................................... 13
6.4. Insurance Writing Requirements.................................. 13
6.5. Net Worth Requirements for Affiliated Entity.................... 13
6.6. Execution of Contract Award Document............................ 13
6.7. Discrimination in Service Prohibited............................ 13
6.8. Service Required for Entire Term of Contract.................... 14
6.9. Financial Stability Requirement................................. 14
6.10. Cooperation with Winding Up of Association Required............. 14
6.11. Affidavit of Non-Collusion Required............................. 14
iv
<PAGE>
6.12. Year 2000 Compliant Systems Required............................ 14
6.13. Proposal Submission Requirements................................ 14
6.14. Continuing Responsibilities of the Respondent................... 15
6.15. Possible Number of Servicing Carriers........................... 15
6.16. Acceptable Quota Shares......................................... 16
6.17. Cost Proposals for More than One Quota Permitted................ 16
6.18. Bond and Proposal Fee Requirements.............................. 16
6.18.1. Proposal Bond Amount
6.18.2. Performance Bond Requirements
6.18.3. Proposal Fee
SECTION 7: SERVICES REQUIRED............................................. 18
7.1. Service Effective Date.......................................... 18
7.2. Scope of Work................................................... 18-28
7.3. Respondent Is Bound by Enhancements............................. 29
7.4. Contract Term................................................... 30
7.4.1. Contract Period
7.4.2. Contract Term Includes Run-off Obligations
SECTION 8: COMPENSATION.................................................. 30
8.1. Servicing Carrier Fee(s)........................................ 30
8.2. Fee Adjustments for Incentives/Disincentives Program............ 31
8.3. Total Compensation/Payment Schedule............................. 31
8.4. Incentives/Disincentives Program Summary........................ 31
8.4.1. Audits
v
<PAGE>
8.4.2. Rating Tables
8.4.3. Incentives
8.4.4. Disincentives
SECTION 9: PROPOSAL INFORMATION.......................................... 32
9.1. Proposal Contents............................................... 32
9.1.1. Cover Letter............................................ 32
9.1.1.1. Terms and Conditions.......................... 33
9.1.1.2. Legal Status.................................. 33
9.1.1.3. Federal Tax Identification Number............. 33
9.1.1.4. Prime Contractor.............................. 33
9.1.1.5. Nondiscrimination............................. 33
9.1.1.6. Identify Subcontractors....................... 33
9.1.1.7. Subcontractors/Affiliated Entities
Legally Bound............................... 33
9.1.1.8. Ownership of Material......................... 34
9.1.1.9. Evidence of Qualifications.................... 34
9.1.2. Proposal Letter......................................... 34
9.2. Company Business Plan--Qualitative Questionnaires............... 34
9.1.1. Executive Summary....................................... 35
9.2.2. Background and Experience............................... 35
9.2.2.1. Name of Company............................... 35
9.2.2.2. Date Established.............................. 35
9.2.2.3. Ownership/Legal Status........................ 35
9.2.2.4. Primary Line of Business for Entity........... 35
9.3. Past Performance and Commitment................................. 35
9.4. Financial Information........................................... 35
9.5. Cost/Price...................................................... 35
9.6. Effect of Alterations/Erasures.................................. 36
9.7. Duration of Offer............................................... 36
9.8. Director Reserves Right to Waive Minor Deficiencies............. 36
vi
<PAGE>
9.9. Other Data...................................................... 36
9.10. Video Tapes..................................................... 37
SECTION 10: METHODOLOGY, EVALUATION AND AWARD............................ 37
10.1. Introduction.................................................... 37
10.2. Overall Proposal................................................ 37
10.2.1. Technical Compliance................................... 37
10.2.2. Nonresponsive Proposals................................ 37
10.2.2. Business Plan.......................................... 38
10.2.3.1. Business Plan Questionnaire--Quantitative... 38
10.2.3.2. Business Plan Questionnaire--Qualitative.... 38
10.2.3.3. Business Plan Questionnaire--Qualitative-
Enhancements.............................. 39
10.3. Comparative Assessment.......................................... 39
10.4. Scoring Methodology............................................. 40
SECTION 11: CONTRACTUAL REQUIREMENTS..................................... 41
11.1. Contract Must Be in Name of Respondent/Offeror.................. 41
11.2. S. C. Law Clause................................................ 41
11.3. Respondent's Qualifications..................................... 41
11.4. Equal Opportunity............................................... 42
11.5. Termination for Default......................................... 42
11.6. Immediate Termination........................................... 42
11.7. Prime Contractor Responsibilities............................... 42
11.8. Subcontracting.................................................. 44
11.9. Ownership of Material........................................... 44
11.10. Accurate Information............................................ 45
vii
<PAGE>
11.12. Compliance with State and Federal Requirements.................. 46
11.13. Conflicts of Interest........................................... 46
11.14. Assignment...................................................... 47
11.15. Entire Contract................................................. 47
11.16. Severability Clause............................................. 47
11.17. Amendments...................................................... 47
11.18. Communications and Notices...................................... 47
11.19. Insurance....................................................... 48
11.20. Titles/Paragraph Headings....................................... 48
11.21. Independent Contractor Status................................... 48
11.22. Fiduciary....................................................... 48
11.23. Access to Records............................................... 49
11.24. Annual Examinations............................................. 49
11.25. Conflicts....................................................... 49
11.26. Other Parties................................................... 49
11.27. Counterparts.................................................... 50
SECTION 12: PROTEST PROCEDURES........................................... 50
12.1. Protests Must Be in Writing..................................... 50
12.2. Protest Information............................................. 50
12.3. Notification of Protest......................................... 50
12.4. Administrative Review........................................... 50
viii
<PAGE>
12.5. Notice of the Decision.......................................... 51
12.6. Finality of Decision/Appeal..................................... 51
12.7. Protests Shall Not Operate As Stay of Award..................... 51
SECTION 13: EXHIBITS................................................... Attached
EXHIBIT 1: Affidavit of Non-Collusion
EXHIBIT 2: South Carolina Reinsurance Facility Exhibit
EXHIBIT 3: Business Plan--Quantitative Questionnaire
EXHIBIT 4: Business Plan--Qualitative Questionnaire
South Carolina Associated Auto Insurers Sample Servicing
Carrier Reports and Documents
EXHIBIT 6: Second Draft--Private Passenger Auto Policy Forms,
Endorsements, and Application Forms
EXHIBIT 7: Sample Servicing Carrier Producer Correspondence and Reports
EXHIBIT 8: Calculation of Proposal Bond Amount
EXHIBIT 9: Pricing Sheet
EXHIBIT 10: Articles of the Association
EXHIBIT 11: Rules of Practice
EXHIBIT 12: Rating and Statistical Manual
EXHIBIT 13: Manual of Rules and Rates
EXHIBIT 14: Proposal Letter
ix
<PAGE>
July 17, 1998
PROPOSAL NOTICE NO.: 98-002/PPAI
Release Date: July 17, 1998 after 5:00 p.m.
South Carolina Associated Auto Insurers Plan Joint
Underwriting Association----Servicing Carrier
Solicitation
Private Passenger Property and Casualty Automobile
Insurance Coverage
PROPOSAL OPENING DATE: August 14, 1998 at 4:30 p.m.
PROPOSALS MUST BE SUBMITTED SHOWING THE ABOVE PROPOSAL NUMBER
SECTION 1: GENERAL OVERVIEW
1.1. PURPOSE
The purpose of this solicitation is to select Servicing Carriers to
service the private passenger automobile insurance business of the
South Carolina Associated Auto Insurers Plan.
1.2. AUTHORITY FOR COMPETITIVE SEALED SOLICITATION OF PROPOSALS
S. C. Code Ann. Section 38-91-340 provides that the Servicing Carriers
for the Association may be competitively bid as provided for in that
section. Separate bidding processes may be done for Private Passenger
Automobile and Commercial Automobile insurance. If the carriers are
competitively bid, then the director or his designee must appoint the
committee or committees of individuals as he considers qualified to
establish standards and procedures for the consideration and evaluation
of bids. The committee or committees must evaluate and award contracts
pursuant to the final approval of the director or his designee.
Accordingly, the Director of the South Carolina Department of
Insurance (director) invites you to submit a proposal in accordance
with the requirements of this solicitation for insurers to act as
Servicing Carriers for private passenger automobile property and
casualty insurance.
1.3. DATE FOR SUBMISSION OF PROPOSALS
Proposals are to be submitted to the director not later than 4:30
p.m., August 14, 1998, at which time Respondents to this request will
be publicly identified. Due to the possibility of negotiation with any
Respondent submitting a proposal which appears to be eligible for a
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contract award pursuant to the selection criteria set forth in this
Request for Proposal (RFP), prices will not be divulged at the time of
opening.
1.4. INCORRECTLY MARKED ENVELOPES
Neither the director, nor the South Carolina Department of Insurance,
nor any committee appointed by him to perform in accordance with
S. C. Code Ann. Section 38-91-340 assume any responsibility for unmarked
or incorrectly marked envelopes being considered for an award.
1.5. SOLICITATION DOES NOT BIND DIRECTOR OR ADVISORY BOARD
THIS SOLICITATION DOES NOT COMMIT THE ADVISORY BOARD, THE DIRECTOR,
ANY COMMITTEE APPOINTED BY HIM, THE DEPARTMENT OR THE STATE OF SOUTH
CAROLINA TO AWARD A CONTRACT, TO PAY COSTS INCURRED IN PREPARATION OF
A PROPOSAL, OR TO PROCURE OR CONTRACT FOR THE ARTICLES OF GOODS OR
SERVICES REFERENCED IN THIS RFP. THE DIRECTOR RESERVES THE RIGHT TO
REJECT THE RECOMMENDATION OF THE COMMITTEE, ANY OR ALL OF THE
PROPOSALS RECEIVED AS A RESULT OF THIS REQUEST, OR TO CANCEL IN PART,
OR IN ITS ENTIRETY, THIS REQUEST IF HE DEEMS, WITHIN HIS SOLE
DISCRETION, IT IS IN THE BEST INTERESTS OF THE ASSOCIATION AND/OR
CONSUMERS OF THIS STATE TO DO SO.
1.6. MANDATORY PRE-PROPOSAL CONFERENCE
The director or his designee will hold a mandatory pre-proposal
conference at 10:00 a.m. on July 29, 1998 at the offices of the South
Carolina Department of Insurance, 1612 Marion Street, Room #401,
Columbia, South Carolina. Questions concerning the content and scope
of the RFP and the procedural steps of the RFP will be answered at
that time. ALL POTENTIAL RESPONDENTS ARE REQUIRED TO ATTEND THIS
CONFERENCE. Proposals submitted by Respondents who do not attend the
mandatory pre-proposal conference will NOT be considered. Each
Respondent may send no more than two representatives to the conference.
1.7. QUESTIONS CONCERNING THE RFP AT THE MANDATORY PRE-PROPOSAL CONFERENCE
Please forward any questions you may have to Lee P. Jedziniak,
Director, South Carolina Department of Insurance in writing, by
July 27, 1998 at 4:30 p.m. EST. Any additional questions or requests
for information must be asked, or submitted, prior to the adjournment
of the pre-proposal conference. Once the conference is adjourned, no
further questions will be addressed. Any questions not answered during
the conference will be responded to, in writing, and mailed to all
potential Respondents in attendance at the mandatory pre-proposal
conference.
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1.8. SUBMISSION OF WRITTEN INQUIRIES
All inquiries regarding this RFP must be submitted, in writing, to the
director of the South Carolina Department of Insurance at the address
listed below. NO PHONE CALLS WILL BE ACCEPTED.
1.9. ADDRESS FOR INQUIRIES
Mark envelopes: PPAI SERVICING CARRIER RFP QUESTIONS.
Mail Questions to:
Lee P. Jedziniak
Director of Insurance
South Carolina Department of Insurance
Post Office Box 100105
Columbia, South Carolina 29202-3105
1.10. DISQUALIFICATION OF PROPOSALS
The director reserves the right to consider as acceptable only those
proposals submitted in accordance with all requirements set forth in
this RFP. Any proposal offering another set of terms and conditions
contradictory to those included in the RFP may be disqualified without
further notice. A respondent will be disqualified and the proposal
automatically rejected for any one or more of the following reasons:
1.10.1. COLLUSION
Proof of collusion among offerors, in which case all
proposals involved in the collusive action will be rejected;
1.10.2. LACK OF RESPONSIBILITY
Respondent's lack of responsibility and cooperation as shown
by past work or services.
1.10.3. NONCOMPLIANCE WITH APPLICABLE LAW
The proposal shows any noncompliance with any applicable law.
1.10.4. CONDITIONAL OR INCOMPLETE PROPOSALS
The proposal is conditional, incomplete, or irregular in such
a way as to make the
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proposal incomplete, indefinite, or ambiguous as to its
meaning.
1.10.5. RESERVATIONS LANGUAGE
The proposal has any provision reserving the right to accept
or reject award, or to enter into a contract pursuant to an
award, or provisions contrary to those required in the
solicitation.
1.10.6. LATE SUBMISSION
The delivery of the proposal after the deadline specified in
the timetable.
SECTION 2: GENERAL INSTRUCTIONS
2.1. NO LIABILITY FOR PROPOSAL PREPARATION COSTS OR NONAWARD OF CONTRACT
This RFP does not commit the director or any committee appointed by
him to award a contract to any Respondent, or to pay any costs
incurred in the preparation and mailing of the Respondent's proposal
or in participating in this process.
2.2. PROPOSAL MUST COMPLY WITH RFP
Proposals will be considered as specified under the terms and
conditions of this RFP.
2.3. PROPOSAL MUST BE IN OFFICIAL NAME OF COMPANY/INDIVIDUAL
Proposals must be made in the official name of the firm(s) or
individual(s) under which the business is conducted (showing an
official business address), and must be signed in ink by a person duly
authorized to legally bind the person, partnership, company or
corporation submitting the proposal. If an entity affiliates with an
insurer in accordance with S. C. Code Ann. Section 38-91-340, the
affiliated insurer must also provide the same information.
2.4. ALL REQUESTED INFORMATION MUST BE INCLUDED
Respondents must include all requested information and any additional
information they wish to be considered.
2.5. PROPOSAL SUBMISSION REQUIREMENTS
A Respondent to this RFP must make a sealed submission of one (1)
original and nine (9)
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copies of your proposal, including all attachments. Your proposals
must be received by 4:30 p.m., EST, on August 14, 1998. The proposals
may be mailed to or hand delivered to the address listed below:
MAILING ADDRESS: ADDRESS FOR HAND DELIVERY:
Lee P. Jedziniak Lee P. Jedziniak
Director Director
South Carolina Department of Insurance S. C. Department of Insurance
Post Office Box 100105 1612 Marion Street
Columbia, South Carolina 29202-3105 Columbia, South Carolina 29201
IT IS THE RESPONSIBILITY OF EACH RESPONDENT TO ENSURE THE TIMELY
DELIVERY OF ITS PROPOSAL. PROPOSALS DELIVERED AFTER THE TIME STATED
ABOVE WILL NOT BE CONSIDERED.
2.6. OFFICIAL POSITIONS OR COMMUNICATIONS REGARDING RFP
The only official position relating to this RFP is that position which
is expressed by the director, in writing, signed by the director, and
issued by the director or his designee. No other means of
communication, whether written or oral, will be construed as a formal
or official response or statement.
2.7. CERTIFICATION OF QUALIFICATIONS TO ACT AS SERVICING CARRIER
By submission of your signed proposal you are certifying that, if
awarded this contract, you are qualified to perform in accordance with
its terms and conditions and that you will comply with all applicable
state and federal laws.
2.8. ONE PROPOSAL PER ORGANIZATION
No more than one proposal may be submitted by a single organization or
person. If multiple proposals are submitted by that person or
organization, the director or committee appointed by him will
disqualify all such proposals as nonconforming. This prohibition does
not apply to the copies requested in Section 2.5.
2.9. SOLICITATION IS INTENDED TO PROMOTE COMPETITION
This RFP is intended to promote competition. It will be the
Respondent's duty to advise the director during the mandatory
pre-proposal conference if any language, requirements, etc., or any
combination thereof, inadvertently restrict or limit the requirements
stated in this RFP to a single source. Such notification must be
submitted in writing.
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2.10. PROPOSALS MUST BE COMPLETE AND CLEAR
Proposals should be prepared simply and economically providing a
straightforward, concise description of your ability to satisfy the
requirements of the RFP. Emphasis must be placed on completeness and
clarity of content of the proposal submitted.
2.11. SINGLE BOUND VOLUME(S) REQUIRED
Each copy of the proposal must be bound in a single volume. All
documentation submitted with the proposal must be bound in that single
volume, if possible. If it is not practical or possible to bind all
materials, attachments, supplementals, etc., in this single volume,
then written reference must be made in the bound volume to any such
materials, attachments, supplementals, etc., not appearing in the
bound volume.
2.12. SEPARATE APPENDICES
If your proposal includes any comment over and above the specific
information requested in this RFP, you are to include this information
as a separate appendix, attachment, or addition to your proposal.
2.13. NO COMMUNICATION WITH DIRECTOR OR ADVISORY BOARD AFTER PROPOSAL
SUBMISSION
By submitting a proposal, a Respondent agrees that during the period
following issuance of the proposal, and prior to the final award of a
contract, the Respondent will not discuss this solicitation with the
director, any member of the Department or Advisory Board except as
specifically designated in this RFP. Respondents must not attempt to
discuss with, or attempt to negotiate with, any member of the
Department or Advisory Board any aspect of this RFP. Such contact will
result in the automatic disqualification of any proposal submitted.
2.14. RFP AMENDMENTS
2.14.1. VERBAL COMMENTS CANNOT MODIFY WRITTEN PROVISION(S)
Verbal comments or discussion by the director or his
designee, the Department, or any of its employees relative to
this solicitation cannot add, delete, or modify any written
provision. any change must be in the form of a written
amendment signed by the director and distributed to all
Respondents by the director or his designee.
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2.14.2. AMENDMENTS MUST BE WRITTEN
If it becomes necessary to revise any part of the RFP, a
written amendment will be provided to all Respondents who
received the original RFP. Amendments to the contract will be
governed by the appropriate paragraph in the Contractual
Requirements section of this RFP.
2.15. ORAL PRESENTATIONS
Oral presentations may be required under this solicitation.
2.16. POSSIBLE CONTRACT AWARD
A contract award resulting from the RFP will be awarded to the most
responsive and responsible offeror whose proposal is determined to be
the most advantageous for South Carolina citizens, taking into
consideration the price and the evaluation factors set forth herein.
However, the director reserves the right to reject any and all
proposals received. In all cases, the director will be the sole judge
as to whether a Respondent's proposal has, or has not, satisfactorily
met the requirements of this RFP.
2.17. CONFIDENTIAL AND PROPRIETARY INFORMATION
No documents relating to this solicitation will be presented or
otherwise made available to any other person, agency, or organization
until after an award. Information obtained in response to this RFP
which may be "proprietary" or "confidential" will not be disclosed
except as required by law. Such "proprietary" or "confidential"
information includes information which, if disclosed, might cause harm
to the competitive position of the Respondent supplying the
information. All Respondents must therefore conspicuously mark as
"PROPRIETARY" or "CONFIDENTIAL" each part of their proposal which they
consider to contain "proprietary" or "confidential" information.
2.18. NOTICE OF INTENT TO AWARD
The Notice of Intent to Award the contract is tentatively scheduled to
be mailed on August 31, 1998.
2.19. MAIL PICK-UP
All Department mail is picked up once daily at 8:00 a.m.
2.20. INFORMATION FOR ENVELOPE OR WRAPPING MATERIAL
The submitting Respondent is required to have printed on the envelope
or wrapping
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containing the proposal the Proposal Notice Number specified in the
RFP and the Proposal Opening Date.
2.21. STATEMENT OF AWARD
Respondents who desire to have a Statement of Award must include a
self-addressed, stamped envelope.
2.22. FEIN OR SOCIAL SECURITY NUMBER
Note: Failure to furnish your FEIN or Social Security Number will
result in a delay in awarding the contract.
2.23. PROPOSED TIME TABLE
Listed below is the proposed time frame for the RFP process:
Request for Proposals Issued July 17, 1998
Date Questions are Due July 27, 1998
Mandatory Conference for Potential Respondents July 29, 1998
Proposals Due August 14, 1998
Notification of Award of Contract August 31, 1998
Appeals Deadline September 10, 1998
Contract Effective Date October 1, 1998
The director reserves the right to adjust this schedule as he deems
necessary.
SECTION 3: BACKGROUND
3.1. ABOUT THE SCAAIP
The South Carolina Associated Auto Insurers Plan is a joint
underwriting association. It was created on July 3, 1997 by the State
of South Carolina General Assembly with the passage of the South
Carolina Automobile Insurance Reform Act, Act No. 154. See S.C. Code
Ann. Section 38-91-10 ET SEQ. (Supp. 1997). Every insurer authorized
to write, and writing, automobile insurance within the State of South
Carolina is required to be a member, and remains a member as a
condition of its authority to transact automobile insurance business
within this
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state. The Advisory Board is authorized pursuant to S. C. Code Ann.
Section 38-91-310 (Supp. 1997) to direct the operation of the
Association.
3.2. DIRECTOR AUTHORIZED TO SOLICIT PROPOSALS
3.2.1. COMPETITIVE SOLICITATION
The director has decided to solicit competitive, sealed
proposals for an insurer(s) to act as Servicing Carrier(s)
for the Association. The successful Respondent(s) must meet
the requirements set forth herein and provide services in
compliance with the Plan of Operation.
3.2.2. RFP NOT GOVERNED BY PROCUREMENT CODE
S. C. Code Ann. Section 38-91-340 provides that the director
or his designee may competitively bid for Servicing Carriers
to service the insurance business of the Association.
Accordingly, this RFP is not governed by the State of South
Carolina Procurement Code, including its protest or appeal
procedures, or any other state requirements which govern the
procurement of goods and services for state agencies set
forth in South Carolina law. This competitive process is
being conducted by the director or his designee in accordance
with South Carolina law.
3.3. NO RIGHT TO AN AWARD
A RESPONDENT SUBMITTING A PROPOSAL IN RESPONSE TO THIS RFP UNDERSTANDS
AND AGREES BY THAT SUBMISSION THAT IT HAS NO VESTED RIGHT TO AN AWARD
OR OTHER DISPOSITION OF ITS RESPONSE OR ANY APPEAL OR PROTEST FILED.
THE RESPONDENT FURTHER AGREES THAT ITS RESPONSE IS MERELY AN OFFER BY
THE RESPONDENT THAT THE DIRECTOR MAY REJECT WITHIN HIS SOLE DISCRETION.
SECTION 4: SCOPE OF PROPOSAL
4.1. OVERVIEW OF RESPONSIBILITIES OF SERVICING CARRIER
The director is soliciting proposals in order to select insurer(s) to
function as Servicing Carrier(s) on behalf of the Association. The
Servicing Carrier(s) will be expected to perform any and all duties
required for the effective and efficient operation of the Plan for the
State of South Carolina. Those specific services are outlined and
further defined in the SCOPE OF SERVICES section of this RFP.
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4.2. INFORMATIONAL REFERENCES TO THE PLAN OF OPERATION
The SCOPE OF SERVICES section of this RFP which follows may contain
specific references to provisions in the Plan of Operation. These
references are for informational purposes only, and are not intended
to represent the total scope of the Servicing Carrier(s)' functions
and responsibilities. A complete understanding of the duties to be
performed by the Servicing Carrier can only be gained after reading
this RFP and all of the provisions of the Plan of Operation, the
performance standards, financial reporting requirements, and all
pertinent South Carolina insurance statutes and regulations.
4.3. PROPOSALS BECOME PROPERTY OF THE PLAN
Proposals will become the property of the Plan. They may be used only
for the limited purpose of administering and servicing the business of
the Association for the State of South Carolina. The individual or
entity submitting the proposal has no ownership rights thereto. By
submitting a proposal in response to this RFP, the Respondent
effectively assigns any interest in the data or materials developed of
whatever nature in response to this RFP to the Association. Any
portion of a Respondent's proposal that is considered to be a trade
secret and is marked "PROPRIETARY" and "CONFIDENTIAL" will be held as
confidential, and will not be disclosed or shared with any third party
except as required by South Carolina law, a validly issued subpoena,
or other court order.
4.4. CONFIDENTIALITY OF EVALUATIONS AND SCORE SHEETS
Except as otherwise provided in this paragraph, evaluations, score
sheets, and any other documents or information utilized by the
director in the evaluation and selection process are confidential and
will not be disclosed to, or shared with, any Respondent or any
external party except as required by law or other valid court process.
Each Respondent may review copies of its final score sheets. It is
understood that each Respondent relies on this confidentiality
provision in preparing and submitting its own confidential proposal.
Notwithstanding any of the above, any information or document may be
subject to disclosure pursuant to a validly issued subpoena, request
from the South Carolina Department of Insurance, or court order
requiring disclosure by the Advisory Board under applicable statutes,
regulations, or state or federal case law.
4.5. DISQUALIFICATION FOR FAILURE TO COMPLY WITH RFP
All proposals must be complete and carefully worded and must convey
ALL of the information requested in order to be considered responsive.
If the proposal fails to conform to the essential requirements of the
RFP, the director, his designee and/or the appropriate committee
thereof will be the sole judge as to whether that variance is
significant enough to consider the RFP nonresponsive and, therefore,
not eligible for an award.
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4.6. DOCUMENTS COMPRISING CONTRACT
Unless stated otherwise herein, the basic and governing language of
the contract resulting from this solicitation will consist of the
award document, the RFP documents, including any exhibits, attachments
and amendments, and the successful Respondent's proposal. In the event
of a conflict between the RFP and the proposal submitted, the terms
and conditions of the RFP will govern.
4.7. CONFLICT
In the event of a conflict between the terms and conditions of this
RFP and the Plan of Operation, the terms and conditions of the Plan of
Operation will control.
SECTION 5: DEFINITIONS
For the purposes of this RFP, the following definitions will apply:
5.1. "Advisory Board" means the Advisory Board of the South Carolina
Associated Auto Insurers Plan.
5.2. "Producer" means an agent duly licensed by the South Carolina
Department of Insurance to transact automobile insurance business.
5.3. "Association" means the joint underwriting association established
pursuant to South Carolina Act No. 154, i.e., the South Carolina
Associated Auto Insurers Plan.
5.4. "Committee or committees" means the committee(s) appointed by the
director or his designee of the South Carolina Department of Insurance
to perform in accordance with S.C. Code Ann. Section 38-91-340 (Supp.
1997).
5.5. "Days" means calendar days unless otherwise noted.
5.6. "Department" means the South Carolina Department of Insurance.
5.7. "Director" means the director of the South Carolina Department of
Insurance or his designee.
5.8. "Member" means an insurer authorized to write automobile insurance in
the State of South Carolina.
5.9. "Plan" means the South Carolina Associated Auto Insurers Plan (also
referred to as SCAAIP or Association).
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5.10. "Plan Administrator" means the individual or entity hired by the
Advisory Board to manage the operation of the Association.
5.11. "Plan of Operation" means the Plan of Operation developed by the
Advisory Board and approved by the director pursuant to the provisions
of the Automobile Insurance Reform Act, Act No. 154.
5.12. "Proposal" means your response to this RFP, including the services you
propose to provide, your offered price, and any attachment or
enclosures submitted with your response.
5.13. "Request for Proposals" means this document including all exhibits,
attachments, amendments and any subsequent distribution made to
prospective Respondents affecting the terms and conditions of the
proposals.
5.14. "Servicing Carrier" means the successful Respondent or the carrier(s)
selected to provide automobile insurance coverage to qualified
applicants of the Association with said carrier being afforded
reinsurance by the participating companies of the reinsurance pooling
mechanism.
5.15. "You," "Your," "Offeror," "Applicant" or "Respondent" means an
individual or organization, and any affiliated entity submitting a
proposal in response to this RFP.
5.16. "Voluntary Market" refers to the Servicing Carrier's non-SCAAIP motor
vehicle insurance operations and customers, as the context requires.
SECTION 6: QUALIFICATION FOR SERVICING CARRIER
6.1. SURPLUS, PERFORMANCE BOND AND STATUTORY DEPOSIT REQUIREMENTS
The applicant must have a policyholder surplus of $10 million dollars
as of the end of the fiscal year immediately preceding the submission
of the appointment application (Proposal), as evidenced by an audited
financial statement, and an A. M. Best rating of not less than the
lowest A rating, and provide a performance bond in the amount of $1.5
million dollars. An applicant with any B rating, must provide a bond
one and one half times that required of an A rated applicant and an
applicant that is not rated or rated below the lowest B rating must
provide a performance bond two times that required of an A rated
applicant. In addition, an applicant that is not rated or is rated
below the lowest A rating must provide a statutory deposit of $1 for
each $10 of premium written through the Association.
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6.2. EXPERIENCE REQUIRED
The applicant must be licensed and writing in South Carolina by
March 2, 1999, automobile physical damage and liability insurance on
private passenger and/or commercial motor vehicles. The applicant must
have a minimum of five years experience writing automobile property
and casualty insurance, or prove to the satisfaction of the Director
of Insurance that it has the experience and capability to perform the
duties of the Servicing Carrier. Groups of companies under the same
ownership and management must be treated as a single member under this
paragraph. Groups of companies under either the same ownership or
management, but not both, may elect to be treated either separately or
as a single member.
6.3. SERVICE FACILITY REQUIREMENTS
The applicant must be an insurer, or be affiliated with an insurer
that has a service facility capable of affording policy issuance;
premium collections services for all classes of risks, statewide;
service insurance claims in every state, Washington, D. C., and Canada
and all other usual and customary policyholder services.
6.4. INSURANCE WRITING REQUIREMENTS
The applicant must be an insurer licensed, or be affiliated with an
insurer licensed, to write and writing automobile liability and
physical damage insurance without restriction for the most recent five
years or prove to the satisfaction of the director that it has the
capability to perform as Servicing Carrier.
6.5. NET WORTH REQUIREMENTS FOR AFFILIATED ENTITY
The applicant must be an entity with a net worth of 10 million dollars
and be affiliated with an insurer that has policyholder surplus of 10
million dollars at the end of the fiscal year immediately preceding
the submission of the appointment proposal.
6.6. EXECUTION OF CONTRACT AWARD DOCUMENT
The applicant must execute the Award Document as required and comply
with the provisions of the Agreement.
6.7. DISCRIMINATION IN SERVICE BETWEEN VOLUNTARY INSURED AND ASSOCIATION
INSURED PROHIBITED
The applicant must have the necessary facilities, or be affiliated
with an insurer with the necessary facilities, to provide Association
risks with the same level of service rendered to its voluntary market
insureds, including both policy and claims services. If a Servicing
Carrier services its South Carolina voluntary market from a policy
service facility not
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physically located in South Carolina, it is acceptable to service its
Association business from this same policy service facility provided
that the same level of service is maintained. If Servicing Carriers do
not have claims facilities in South Carolina, it will be necessary to
designate another insurer, an independent claims adjusting firm or
some other means subject to the approval of the director for the
purpose of claims settlement and service.
6.8. SERVICE REQUIRED FOR ENTIRE TERM OF CONTRACT
The applicant must be able to administer the contract for the entire
term of the contract based upon the specifications outlined in the
RFP. The term of the contract includes the run-off period.
6.9. FINANCIAL STABILITY REQUIREMENT
The applicant must demonstrate its financial stability, and the
financial stability of any other entity with which it is affiliated,
in accordance with the criteria established within this RFP (SEE ALSO
Section 9.1) by complying with the requirements of the Plan of
Operation and this RFP.
6.10. COOPERATE WITH WINDING UP OF ASSOCIATION
The applicant must agree and certify that it will cooperate with the
winding up of the affairs of the Association and the conversion to an
assigned risk plan, if any.
6.11. AFFIDAVIT OF NON-COLLUSION REQUIRED
The applicant must submit an "Affidavit of Non-Collusion" which is
attached to this RFP as Exhibit 1.(1)
6.12. YEAR 2000 COMPLIANT SYSTEMS REQUIRED
Certify delivery of computer and data processing systems that will be
year 2000 compliant by January 1, 1999; and
6.13. PROPOSAL SUBMISSION REQUIREMENTS
Submit a proposal that meets the requirements of this RFP, a proposal
bond, a performance bond, and bid fee in the amounts specified in this
RFP.
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(1) If the Respondent subcontracts any or a part of the services
required under this RFP, all subcontractors must also submit an Affidavit of
Non-Collusion.
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6.14. CONTINUING RESPONSIBILITIES OF THE RESPONDENT
Each Respondent must demonstrate initially, and on a continuing basis,
that it meets the eligibility criteria established in this RFP. Once a
Respondent is selected to be a Servicing Carrier, it shall:
6.14.1. Maintain the qualifications and eligibility requirements
outlined herein and in the South Carolina Associated Auto
Insurers Plan of Operation, Rules of Practice and other
pertinent rules and regulations of the Association.
6.14.2 Comply with any and all performance standards promulgated
and/or amended by the Advisory Board for Servicing Carriers
and any enhanced performance as set forth in the Respondent's
proposal.
6.14.3. Execute the Award documents and comply with all provisions of
it and the RFP.
6.14.4. If at any time a Servicing Carrier evidences in any manner to
the Plan Administrator a substantial disregard for, or
inability to comply with the performance standards,
procedures, Plan requirements, or no longer meets the
eligibility criteria, the Servicing Carrier shall be subject
to the terms of the Servicing Carrier agreement, including
the provision on termination.
6.15.5. In the event a Servicing Carrier fails to maintain the
required financial rating during the term of the contract,
the Advisory Board has the option of terminating the
Servicing Carrier's quota share and requesting that the
director or his designee assign it to the remaining carriers
or utilizing any other option it deems appropriate including,
but not limited, to e.g., requiring collateralization of
obligations for the balance of the Servicing Carrier
contract, requesting that the director or his designee select
the next qualified bidder, or initiate another RFP process to
replace the nonqualifying carrier for the remainder of the
term.
6.15. POSSIBLE NUMBER OF SERVICING CARRIERS
The Advisory Board has determined that no more than five (5) Servicing
Carriers will be selected to service the Private Passenger Automobile
insurance business for the State of South Carolina. Respondents must
indicate the quota of the market share of Association business it is
proposing to service in the state.
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6.16. ACCEPTABLE QUOTA SHARES
The acceptable quota shares are as follows: 20%, 30%, 25%, 33 1/3%,
50%, 75%, and 100%. Respondent must state both the minimum and maximum
share that it will to service within the following parameters:
- The minimum share a carrier will bid on shall not be less
than 20%; and
- The maximum share a carrier will bid on shall not exceed
100%.
6.17. COST PROPOSALS FOR MORE THAN ONE QUOTA PERMITTED
Respondents are encouraged to submit cost proposals for more than one
quota to allow the director the maximum flexibility in the final
selection and quota determination. Different Servicing Carrier
allowances may be submitted for different quotas.
6.18. BOND(S) AND PROPOSAL FEE REQUIREMENTS
Each Respondent must submit the proposal and performance bonds in
accordance with the requirements of this RFP.
6.18.1. PROPOSAL BOND:
Respondents shall calculate the proposal bond amount using
this format.
6.18.1.1. Estimate the amount of the SCAAIP annual
premium.
6.18.1.2. Estimate the total amount of the SCAAIP
premium for the entire life of the program,
i.e., for policies effective March 1, 1999
through February 28, 2003.
6.18.1.3. Calculate the Respondent's share of total
SCAAIP premium for the life of the program by
multiplying the premium from step 2 by the
quota of the market share of Association
business the Respondent is proposing to service
in the State.
6.18.1.4. Calculate Respondents total compensation by
multiplying the share of premium from step 3
by the Respondents proposed compensation
percentages.
6.18.1.5. The proposal bond amount is determined by
multiplying the Respondent's total estimated
compensation by 5%.
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The suggested formula for determining the proposal bond
amount is reflected in Exhibit 8.
6.18.2. PERFORMANCE BOND
6.18.2.1. The successful Respondent must furnish to the
Advisory Board within ten days of the
acceptance of his proposal, a Performance
Bond, Certificate of Deposit, or Cashier's
Check for the amounts specified in Section 6.1
above. The performance bond will not be
triggered where termination of the contract is
for reasons beyond the control of the
Respondent in accordance with the Contractual
Requirements Section of this RFP.
6.18.2.2. Bonds must be issued by a surety company
licensed to do business in South Carolina,
with an "A" minimum rating of performance as
stated in the most current publication of
"Best Key Rating." Each bond must be
accompanied by a "Power of Attorney"
authorizing the attorney-in-fact to bind the
surety, and certified to include the date of
the bond. Bonds must be fully executed.
6.18.2.3. Certificates of Deposit or Cashier's Checks
must be issued by a financial institution
located in South Carolina which is insured by
the FDIC or FSLIC, and will be retained by the
State for the duration of the contract period.
6.18.3. PROPOSAL FEE
Each Respondent shall submit with the proposal responding to
this solicitation a fee in the amount of $500. This fee shall
be submitted via check made payable to the South Carolina
Associated Auto Insurers Plan.
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<PAGE>
SECTION 7: SERVICES REQUIRED
7.1. SERVICE EFFECTIVE DATE
Selected Servicing Carriers must be prepared to begin receiving new
business assignments with March 1 effective dates as of January 15,
1999. Servicing Carriers will not be able to change its quota
assignment during the contract period. Servicing Carriers will not be
able to restrict the producer assignments that it receives.
7.2. SCOPE OF WORK
7.2.1. The Servicing Carrier must provide all services outlined in the
Servicing Carrier Performance Standards of the Rules of
Practice (Exhibit 11) including, but not limited to,
underwriting, policy issuance, auditing, billing, premium
collection, loss control and claims administration services as
required by, and in accordance with established procedures,
standards and requirements of the Plan Administrator and the
Advisory Board. The performance standards listed below and the
Rules of Practice set forth the minimum standards which the
Servicing Carrier must perform in accordance with the rules of
the Association. Additional or enhanced performance standards
that a Servicing Carrier commits to providing in its proposal
to become a Servicing Carrier, serve to raise the minimum
standards for that specific Servicing Carrier.
7.2.2. The responsibilities hereby delegated to and assumed by the
Servicing Carrier are those of an independent contractor.
Nothing contained in this RFP, or any subsequent contractual
document, will be construed to create or constitute an
employment, agency, partnership or joint venture, or any other
relationship between the Advisory Board and the Servicing
Carrier(s). Accordingly, the Servicing Carrier has no authority
to make any agreement on behalf of the Advisory Board or to
otherwise contractually bind the Advisory Board without its
express written consent. The Servicing Carrier will be
responsible for any and all costs associated with providing the
services described in this RFP.
7.2.3. Servicing Carriers must write each of the following lines of
business on behalf of the Association:
7.2.3.1. Private Passenger Automobile Insurance Coverage
"Private Passenger Automobile Insurance" means the
following types of motor vehicles owned or leased under
a long term contract by an
18
<PAGE>
individual or individuals:
(1) motor vehicles of the private passenger automobile
insurance type or station wagon type;
(2) panel trucks, delivery sedans, vehicles with a
pick up body, vans or similar motor vehicles
designed for use on streets and highways and so
licensed;
(3) motor homes, so long as the motor vehicles
described in (a) and (b) are not used in the
occupation, profession or business of the
insured other than farming or ranching; and
(4) motorcycles.
7.2.3.2. Individual private passenger does not include:
(1) motor vehicles that are used for public or livery
conveyance or rented to others without a driver;
(2) fire department vehicles, police vehicles,
ambulances, and rescue squad vehicles which are
publicly owned; (3) motor driven cycles, motor scooters,
mopeds; (4) dune buggies, all-terrain vehicles, go-carts
and snowmobiles; (5) golf carts; and (6) small
commercial risks.
7.2.4. The Servicing Carrier must comply with all requirements
established by the Advisory board, the SCAAIP Plan of
Operation, the SCAAIP Accounting and Statistical Manual, the
Manual of Rules and Rates, the SCAAIP Rules of Practice as now
constituted and hereafter amended, and any other rule
established by the SCAAIP Advisory Board for the effective and
efficient operation of the Association. The Servicing Carrier
must provide all services necessary for the effective and
efficient administration and servicing of the insurance
business of the SCAAIP including, but not limited to:
7.2.4.1. GENERAL RESPONSIBILITIES:
In addition to any other responsibilities noted in
this RFP, the Servicing Carrier must perform the
following general responsibilities:
a. At initial policy issuance and each renewal
thereafter, Servicing Carriers must accomplish
confirmation of driving record of each insured
driver by obtaining copies of the insured's
motor vehicle records issued by the State of
South Carolina Department of Public Safety or on
the basis of motor vehicle records issued by the
appropriate agency of another
19
<PAGE>
state Servicing Carriers must properly price all
policies and when appropriate, check
classification and territory through inspection
reports and other techniques.
b. Servicing Carriers must issue insurance policies
to applicants by the expiration date of the
binder issued in accordance with the Rules of
Practice.
c. Servicing Carriers must carry out all subsequent
policy transactions on a timely basis in
accordance with the Rules of Practice.
d. Servicing Carriers must carry out all necessary
accounting procedures as outlined in the rules and
regulations of the Association. These accounting
procedures may include, but not be limited, to:
1. Billing and collection; and
2. Commission payments and statements to
producers.
e. Servicing Carriers must properly identify
producers certified by the Association for
placement of Association coverage and make annual
reports by producer to the Association for
analysis.
f. Servicing Carriers must collect the necessary
data to disburse commission payments monthly to
producers and store this data and deliver the
same to the Internal Revenue Service annually.
g. Servicing Carriers must generate the statistical
and accounting information in report formats
required by the Association. The content and
format of these reports will be in accordance
with the results and specifications as may be
established by the Association.
h. Servicing Carriers must properly and effectively
operate the take-out plan in an effort to
depopulate the Association market.
i. Servicing Carriers must generate on a policy
level and overall level a report reflecting the
amounts of claim reserves necessary for
Association policies in order that the
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<PAGE>
Association will be in a position to evaluate the
proper reserving practices and detect possible
under/over reserving. The content and format of
the reserving reports furnished to the
Association by the Servicing Carrier shall be in
accordance with the specifications established by
the Association.
7.2.4.2. UNDERWRITING/RATING SERVICES. The Servicing Carrier
will, in conjunction with the other services required
herein, provide the underwriting services necessary
for the effective and efficient operation of the
Association. The Servicing Carrier must use its best
efforts to underwrite the risk. This contract will be
entered into by the Advisory Board with the Servicing
Carrier in reliance upon the skills of its management
and staff as represented in its response to this RFP.
Those underwriting services include, but are not
limited, to the following:
a. General Underwriting/Rating
The Servicing Carrier shall properly price all
policies in accordance with the approved rating
plans and approved forms contained in the
Association's Manual of Rules and Rates and
establish procedures for appropriate and timely
verification of policyholders' and operators'
driving records and/or obtain other information as
necessary to assist in the proper classification
and rating of an applicant. SEE ALSO Rules of
Practice.
b. Servicing Carrier Must Perform All Services
Outlined in Performance Standards for Servicing
Carriers and Rules of Practice.
IN ADDITION TO THE SERVICES OUTLINED WITHIN THIS
RFP, THE SERVICING CARRIER IS RESPONSIBLE FOR
PERFORMING ANY AND ALL SERVICES OUTLINED IN THE
RULES OF PRACTICE FOR SERVICING CARRIERS WHICH IS
ATTACHED TO THIS RFP AS EXHIBIT 11 AND
INCORPORATED INTO THIS DOCUMENT BY REFERENCE.
7.2.4.3. ACCOUNTING SERVICES. The Servicing Carrier will, in
conjunction
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<PAGE>
with the other services required herein, the Accounting
and Statistical Requirements Manual or other Plan
documents, or rules established by the Advisory Board,
prepare and maintain separate financial records to
account for the business of the Association in
accordance with statutory accounting principles.
Accounting responsibilities include, but are not
limited, to the following:
a. Performing an annual audit of the producers'
records conducted by an independent, certified
public accounting firm;
b. Entering properly all entries reflecting the
business transacted on behalf of the Association
into books and ledgers maintained on behalf of the
Plan;
c. Complying with the Accounting and Statistical
Requirements Manual;
d. Handling disbursements from, and monthly
reconciliations of, all accounts maintained on
behalf of the Plan;
e. Establishing a separate bank account for business
transacted on behalf of the South Carolina
Associated Auto Insurers Plan;
f. Preventing the commingling of funds collected from
business transacted on behalf of SCAAIP with funds
collected in the voluntary market;
g. Billing for and collecting premiums due the South
Carolina Associated Auto Insurers' Plan;
h. Complying with statutory accounting principles and
maintaining internal controls;
i. Handling claim transactions, salvage and
subrogation recoveries and agent compensation;
j. Performing any other accounting service requested
by the Advisory Board not specifically enumerated
within this RFP;
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<PAGE>
k. Prepare filings and pay all applicable municipal,
fire and premium taxes using the funds of the
Plan; and
l. Collect and report South Carolina recoupment
surcharges.
The Accounting Services must be performed in accordance
with the requirements of the Plan documents as they
currently exist or are hereafter amended.
7.2.4.4. AUDITING SERVICES. The Servicing Carrier, in
conjunction with the other services required by this
RFP, will conduct in accordance with the requirements
of the Plan Documents, at least annually, audits of
the producers affiliated with the Servicing Carrier to
ensure:
a. Compliance with the Plan of Operation, Operating
Principles, and Manual of Rules and Rates;
b. Applications received are complete and contain
accurate information as required by the Producer
Performance Standards of the Rules of Practice of
the Plan of Operation;
c. Private passenger automobile insurance risk
applications submitted to the Plan contain
accurate information;
d. Premium and loss data submitted is accurate;
e. Producer is performing in accordance with the
applicable performance standards; and
f. Producers are properly placing risks in the SCAAIP.
The foregoing is not an exhaustive list. The Servicing
Carrier will be required to perform any other
reasonable auditing services deemed necessary by the
Advisory Board.
7.2.4.5. CUSTOMER SERVICE. The Servicing Carrier will, in
conjunction with the other services required by this
RFP, establish measurable customer service standards,
procedures for monitoring compliance therewith and
time frames for achieving resolution of the issues
that are designed to ensure that customers, including,
but not limited to, producers, policyholders,
prospective applicants, industry and the Plan
Administrator receive quality customer service. Those
services
23
<PAGE>
the Servicing Carrier is required to provide include,
but are not limited, to the following:
a. Employing courteous and properly trained staff
members to respond to the needs of, and issues
raised by producers, consumers, and industry
regarding coverages available through the SCAAIP;
b. Establishing procedures which ensure that insureds
in the SCAAIP receive the same quality service as
members in the producers' voluntary market;
c. Ensuring that SCAAIP policyholders receive the
same level and quality of service as policyholders
insured in the voluntary market;
d. Assisting producers assigned to them with
underwriting and claims ratings issues;
e. Issuing timely notification of cancellation,
renewal and nonrenewal of the policy;
f. Responding to complaints and disputes fairly and
promptly;
g. Notifying customers of key contract names,
addresses, a toll free number and other telephone
and facsimile numbers for underwriting, claims,
loss control, and billing at the customer's
request;
h. Handling claims including the investigation,
resolution, and communications regarding the claim
in a prompt, professional and timely manner;
i. Providing copies of underwriting and claims
handling guidelines or procedures used in the
carrier's voluntary business to the Plan
Administrator upon request;
j. The Plan Administrator has the authority to review
Servicing Carrier Procedures for its Association
and voluntary book of business; and
24
<PAGE>
k. Performing any other reasonable customer services
required by the Advisory Board.
7.2.4.6. DATA PROCESSING SERVICES. The Servicing Carrier will
perform all data processing requirements necessary for
the effective and efficient operation of the Plan
including, but not limited to, the following:
a. Providing policy level detail, as required by the
Plan Administrator, for eligibility determination
and/or a take-out and fraud prevention program
databases in a format prescribed by the Plan
Administrator. This information must be submitted
to the Plan Administrator or the Advisory Board in
accordance with the schedule established in the
Plan of Operation or other pertinent manuals or
instructions to the Servicing Carrier;
b. Establishing a computer system with E-mail
capability and have ability to use a telephonic
binding system provided by the Plan Administrator
if required by the Advisory Board. If the
Servicing Carrier is providing its own independent
electronic binding system, then the Servicing
Carrier must attach a detailed description of its
electronic binding system and the applicable
procedures to its response to this RFP;
c. Consolidating and accounting for premium loss and
reserve reporting in accordance with the
requirements of the Accounting and Statistical
Requirements Manual (See Exhibit 12);
d. Monitoring the effective date of all policies
received from all producers and maintaining a
historical record which will enable the Servicing
Carrier to verify the effective dates of coverage,
if necessary;
e. Creating or preparing reports as necessary that
reflect the activity of the entire book of
business transacted by the carrier on behalf of
the Association including, but not limited to,
premium, loss, salvage and subrogation,
litigation, producer deficiencies for
25
<PAGE>
underwriting, claims audit or administration, and
other performance reviews and requested by the
Advisory Board or the Plan Administrator;
f. Tracking applications submitted by producers on a
periodic basis to ensure that applications are not
being improperly placed in the Association. The
system must be capable of comparing the number of
applications submitted monthly to the annual
volume provided on the Association Producer
Certification Application form. Servicing Carrier
must notify the producer and the Plan
Administrator when the number of applications
submitted appear to be exceeding the 10% threshold.
g. Tracking the physical damage claims submitted
and/or filed with the Association in relationship
to the date and time the policy is issued;
h. Accessing the motor vehicle records of the South
Carolina Department of Public Safety;
i. Establishing the necessary computer,
telecommunication, data transmission systems or
purchasing the necessary software to accomplish
the work of the Association. The computer or
telecommunications system shall include an
Internet Website page so that producers can have
access to information and forms concerning the
Association and communicate with the Servicing
Carrier electronically;
j. Certifying that all computer and data processing
systems that it uses and utilized by its
subcontractors will be year 2000 compliant by
January 1, 1999; and
k. Performing any other reasonable data processing
services required by the Advisory Board for the
efficient operation of the Association.
7.2.4.7. FRAUD DETECTION AND PREVENTION SERVICES. In conjunction
with other services required under this RFP, the
Servicing Carrier will
26
<PAGE>
provide fraud detection and prevention services which
include, but are not limited to:
a. Complying with fraud detection and prevention
measures, guidelines, rules, standards established
by the SCAAIP Advisory Board;
b. Conducting seminars and other educational
initiatives designed to prevent fraud in the
SCAAIP;
c. Complying with the fraud reporting requirements of
Title 38, Chapter 55 of the South Carolina Code
Annotated; and
d. Establishing a Special Investigative Unit capable
of responding and timely investigating complaints
within the State of South Carolina;
e. Performing periodic audits and reviews of the
producers assigned to the carrier to ensure that
the producers are complying with the rules and
regulations of the SCAAIP;
f. Cooperate with the Plan Administrator in the
development and implementation of new fraud
prevention initiatives; and
g. Performing any other reasonable fraud prevention
services required by the Advisory Board.
7.2.4.8. REPORTING SERVICES. The Servicing Carrier, in
conjunction with the other services required by this
RFP, and in addition to all reports required by the
Plan of Operation, Portfolio of Forms and Endorsements
and/or other Plan documents, will prepare and make
periodic reports to the Plan Administrator and/or
Advisory Board in accordance with the deadlines
established in this RFP or, its exhibits, if any, and
the Advisory Board. Those reports may include, but are
not limited, to the sample documents contained in
Exhibit 6:
a. Producer Certification letters;
b. Producer Compliance letters;
27
<PAGE>
c. Producer Complaint letters; and
d. Deficiency Letters.
This is not an exhaustive list. The Advisory Board
shall designate annually the reports that must be
filed. Notwithstanding, the Servicing Carrier is
required to report violations of the South Carolina
insurance laws to the South Carolina Department of
Insurance and other appropriate authorities within
thirty (30) days of discovery of the violation.
Violation reports must be in writing. SEE Exhibit 11:
Rules of Practice for more information about the
reports required.
7.2.4.9. RECORDS MANAGEMENT AND RETENTION SERVICES. The
Servicing Carrier, in conjunction with the other
services required by this RFP, shall provide records
management and retention services for the Plan
including, but not limited to:
a. Servicing as the official repository of all
documents compiled, filed with, or issued by the
Plan involving the producers assigned to it;
b. Maintaining and managing accurate and complete
records of all business transacted by or with the
Plan;
c. Maintaining accurate record of producer
performance and deficiencies;
d. Complying with provisions of South Carolina
Freedom of Information Act regarding the release
of information in accordance with Advisory Board
policy; and
e. Performing any other reasonable records retention
and records management services required for the
effective and efficient operation of the Advisory
Board.
7.2.4.10. PRODUCER SERVICES. In conjunction with the other
services to be provided under this RFP, the Servicing
Carrier shall provide the following producer services:
a. Ensure that producers are complying with the
Performance Standards for Producers, the Plan of
Operation and any other applicable Association
rules or regulations;
28
<PAGE>
b. Monitor and track producer licensing and
certification to ensure that only certified
producers are placing risks with the Association;
c. Complying with the procedures set forth in the
Plan of Operation for handling producer
deficiencies (SEE Exhibit 11:Rules of
Practice-Producer);
d. Monitor the immediate binding of coverage to
ensure that producers are complying with the
electronic binding procedures of the Association;
e. Supply forms and endorsements to producers
assigned to that carrier in accordance with the
specifications of the Association;
f. Performing any other reasonable producer services
in accordance with the specifications of the
Association.
7.2.4.11. ACTUARIAL SERVICES. The Servicing Carrier will, in
conjunction with other services required herein or
in the Plan documents, assist the Plan Administrator
with the actuarial services necessary for the effective
and efficient operation of the Association including,
but not limited to;
a. Summarizing and maintaining earned and unearned
premiums, traditionally incurred but not reported
losses (IBNR), or any other data of an actuarial
nature required for reports generated by or for
the Association;
b. Responding to requests from the Plan Administrator
for information necessary to conduct reserve
analyses. Servicing Carrier shall supply the
information by the deadline established by the
Plan Administrator; and
c. Submitting annual actuarial statement of opinion
on reserves by the deadline established by the
Plan Administrator.
7.3. RESPONDENT IS BOUND BY ENHANCEMENTS
By Submitting a proposal to this RFP, you are agreeing to meet all of
the performance standards, procedures and Plan requirements. If you
state in your response to the proposal that you will exceed a
particular standard or procedural expectation, you will
29
<PAGE>
be expected to comply with that higher standard or procedure. You will
be audited against your own enhancement standards where the promised
performance exceeds the minimum performance standards.
7.4. CONTRACT TERM
7.4.1. INITIAL CONTRACT PERIOD
The term of the contract awarded in accordance with this RFP
shall begin on the effective date through February 28, 2003 and
shall contribute until all claims are closed for policies
effective through February 28, 2003 or February 28, 2014
whichever occurs last.
7.4.2. CONTRACT TERM INCLUDES RUN OFF OBLIGATIONS
The original contract period shall be as stated above. The
contract shall not bind, nor propose to bind, the Advisory
Board or the director for any contractual commitment in excess
of the original contract period. The director shall have the
right within his sole discretion to renew the contract for one
additional year, or any portion thereof. In the event the
director exercises the right to extend the agreement, all
terms, conditions, and provisions of the contract shall remain
the same and apply during the renewal period. The Servicing
Carrier agrees to be responsible for the run off associated
with business placed in the Association, and agrees that
responsibility for administering run off obligations shall
survive the expiration or earlier termination of this contract.
SECTION 8: COMPENSATION
8.1. SERVICING CARRIER FEE(S)
Respondents shall state an operating Servicing Carrier fee as a
percentage of written premium and a claim service fee as a percentage
of earned premium. Carriers will be paid both fees for Association
business. However, Servicing Carriers will receive no fees on
ineligible premiums charged off and only 50% of the fees for eligible
premiums charged off. SEE Exhibit 12. Your allowance will be valid for
the entire term of the contract plus the entire term of the run-off
period. The allowance includes all costs of servicing the business of
the Association including, but not limited to, general expense, other
acquisition expense and claims loss expense. Servicing Carrier fees
will not be based upon recoupment.
8.2. FEE ADJUSTMENTS FOR INCENTIVES/DISINCENTIVES PROGRAM
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<PAGE>
Compensation will be adjusted through the Incentives/Program which
provides monetary incentives and disincentives based upon a carrier's
paid loss performance and performance on a graded audit.
8.3. TOTAL COMPENSATION/PAYMENT SCHEDULE
The payments made pursuant to this contract shall constitute the total
compensation due the successful Servicing Carrier or contractor for the
services described herein, the administering of all run off business,
and any other obligations required hereunder, regardless of the
difficulty, hours worked, or material or equipment required. Payment
for services as Servicing Carrier shall be paid from the premiums
collected. Payments shall be made on a monthly basis in accordance with
the Accounting and Statistical Requirements. Servicing Carriers will
not be paid any fees on recoupment.
8.4. INCENTIVES/DISINCENTIVES
8.4.1. AUDITS
8.4.1.1. The incentives and disincentives depend upon a
compliance audit process which consists of two major
components: (1) operations (underwriting, producer
deficiency program); and (2) claims.
8.4.1.2. Transactions are chosen approximately 30 to 60 days
prior to audit, utilizing the most current transaction
detail. The files are audited to determine compliance
with the Association manuals and the Servicing Carrier
contract.
8.4.2. RATING TABLES
8.4.2.1. COMPLIANCE RATIOS
The compliance ratio for audit attributes tested is
based upon ranges indicating Commendable,
Satisfactory, Marginal and Unsatisfactory. The
percentages are based upon a sample size of 100.
<TABLE>
<CAPTION>
Commendable Satisfactory Marginal Unsatisfactory
<S> <C> <C> <C>
greater than 90%-94% 85%-89% less than 84%
=95%
</TABLE>
8.4.2.2. WEIGHTED AUDITS
31
<PAGE>
AUDIT PROCEDURES
INCENTIVES/DISINCENTIVES
AUDIT SCHEDULE
<TABLE>
<CAPTION>
Activity Date
<S> <C>
Preliminary Audit June Through September 1999
Full Scale Audit of FY98-99 June Through September 2000
Full Scale Audit of FY99-00 June Through September 2001
Full Scale Audit of FY00-01 June Through September 2002
Full Scale Audit of FY01-02 June Through September 2003
Full Scale Audit of FY02-03 June Through September 2004
</TABLE>
LOSS RATIO EVALUATION
The paid loss ratio will be evaluated at the close of the fiscal year one
year after the fiscal year closes. The paid loss ratio will be paid losses
divided by earned premiums where the premiums have not been charged off.
<TABLE>
<CAPTION>
Activity Evaluation Date
<S> <C>
Loss Ratio of FY98-99 September 30, 2000
Loss Ratio of FY99-00 September 30, 2001
Loss Ratio of FY00-01 September 30, 2002
Loss Ratio of FY01-02 September 30, 2003
Loss Ratio of FY02-03 September 30, 2004
</TABLE>
<PAGE>
Each audit attribute is assigned a weighted factor.
Plan Administrator staff will conduct the audit and
determine the aggregate score.
8.4.3. INCENTIVES
Based upon the evaluation schedule, an insurer with a paid
loss ratio less than or equal to the average loss ratio for
all the Servicing Carriers combined is eligible for
incentives based upon the audits. Audit scores will not be
rounded up to the next number. If the overall audit score for
the fiscal year in question is Commendable, the incentive is
5% of the total compensation paid the Servicing Carrier.
8.4.4. DISINCENTIVES
Based upon the evaluation schedule, an insurer with a paid
loss ratio greater than or equal to the average loss ratio
for all the Servicing Carriers combined is eligible for
disincentives based upon the audits. If the overall audit
score for the fiscal year in question is Unsatisfactory, the
disincentive is 5% of the total compensation paid the
Servicing Carrier.
SECTION 9: PROPOSAL INFORMATION
9.1 PROPOSAL CONTENTS
So that the director or his designee may consider your proposal, submit
as a minimum the following information in the listed format:
9.1.1. COVER LETTER
Submit a cover letter from an officer of the company with
the proposal which provides the name, title, address,
telephone number, and facsimile number of the individual
authorized to enter into the contract on behalf of your
organization and receive any subsequent notices regarding the
contract or proposal. The cover letter must be included as a
part of the Respondent's proposal. It must also contain the
following information:
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<PAGE>
9.1.1.1. TERMS AND CONDITIONS
A statement that the Respondent understands and
will comply with all terms and conditions of the
RFP
9.1.1.2. LEGAL STATUS
A statement which indicates the legal status of
the Respondent
9.1.1.3. FEDERAL TAX IDENTIFICATION NUMBER
Statement identifying the tax identification
number of the respondent.
9.1.1.4. PRIME CONTRACTOR
Statement that the prime contractor is registered
and authorized to do business in South Carolina
and provide assurance that any subcontractor
proposed is also properly licensed, registered
and/or authorized to do business in South Carolina.
9.1.1.5. NONDISCRIMINATION
A statement of affirmative action that the
respondent does not discriminate in its employment
on the basis of race, sex, age, color, religion,
sex, marital status, political affiliation,
national origin, handicap or disability.
9.1.1.6. IDENTIFY SUBCONTRACTORS
A statement identifying all subcontractors, if
proposed, including names, addresses and phone
numbers of the subcontractors and principal
officers' names and titles.
9.1.1.7. SUBCONTRACTORS/AFFILIATED ENTITIES LEGALLY BOUND
If use of a subcontractor is proposed, or if the
respondent plans to affiliate with another entity,
a statement from the subcontractor or entity must
be appended to the transmittal letter and signed
by an individual authorized to legally bind the
subcontractor. The statement shall indicate
-- the signatory is authorized to legally bind
the entity;
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<PAGE>
-- the general scope of the work to be performed
by the subcontractor or affiliated entity;
-- the subcontractor's agreement to perform the
work described; and
-- the subcontractor's assertion that it does not
discriminate in its employment practices with
regard to race, sex, age, color, religion,
marital status, political affiliation, national
origin, disability, or handicap.
9.1.1.8. OWNERSHIP OF MATERIAL
A statement that the respondent acknowledges that
all materials developed, prepared, assembled or
conceived by the respondent pursuant to this RFP
are "works made for hire" and are owned by the
Association. The Association shall own all
documents and materials produced by the Respondent
and no duplications shall be made of this material
unless authorized by the Association.
9.1.1.9. EVIDENCE OF QUALIFICATIONS
A statement that the Respondent meets the
qualifications as stated in this RFP. Respondent
must attach documentation to show that the
Respondent meets all of the qualifications listed.
The documentation required must include proof of
the items listed in Section 6.
9.1.2. PROPOSAL LETTER
The Respondent shall submit a proposal letter with its
corporate seal affixed and signed by someone authorized to
bind the company. If the individual signing the proposal
letter is not the corporate president, then the individual
must also submit evidence which shows that the individual is
authorized to bind the corporation. The fully executed
proposal letter must be submitted along with the Respondent's
complete proposal. Upon signing by the chair of the Advisory
Board, the proposal letter will become the cover page of the
contract with the successful Respondent.
9.2. COMPANY BUSINESS PLAN. Proposals submitted must outline how you
propose to perform each of the responsibilities listed in the SCOPE OF
WORK section of this RFP. Each eligible Respondent must submit a
comprehensive company business plan which demonstrates that it has, or
is willing, to establish prior to the commencement of its term,
sufficient servicing capacity, facilities, and resources to provide the
best levels of performance and service in meeting its obligations to
the Association, the insureds, regulatory authorities, and member
companies. Interviews may be conducted to clarify statements contained
in the proposal. The Respondent must include information in the
proposal submitted which specifically indicates the amount of physical
damage and liability premiums the Respondent has written
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in the State of South Carolina for the past five years. The Business
Plan should provide the following information:
9.2.1. EXECUTIVE SUMMARY
The executive summary shall clearly and concisely summarize and
highlight the contents of the proposals so as to give the
director a broad and thorough understanding of the proposal.
9.2.2. BACKGROUND AND EXPERIENCE
This section shall include for the Respondent, subcontractors
and any affiliated entities details on the background of the
company or business, its size and resources, and explicit
details of experience relevant to the work outlined in this
RFP, including a list of recent projects similar to this
project. The background on the company shall cover the
following:
9.2.2.1. Name of Company
9.2.2.2. Date Established
9.2.2.3. Ownership (public company, partnership,
subsidiary, sole proprietorship)
9.2.2.4. Primary line of business for the entity
9.3 PAST PERFORMANCE AND COMMITMENT
The Respondent must also provide documents supporting past performance,
such as a report from a Plan Manager of a pooling mechanism in which
the Respondent is currently or formerly was a Servicing Carrier,
complaint/appeal records, current Plan residual market compliance
audits, market conduct exams conducted on involuntary operations
(including direct assigned business). Other relevant and pertinent
information shall be provided such as length of service as a Servicing
Carrier, explanation of resignations and terminations from pooling
mechanisms and participation within the involuntary market (assisting
committees and regulators by attending meetings, contributing and
formulating solutions to market issues).
9.4. FINANCIAL INFORMATION.
Respondent shall submit the following financial information:
9.4.1. Copies of your audited financial statements for the past
three (3) years;
9.4.2. A copy of your credit rating from an accredited national
credit rating bureau;
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9.4.3. Copies of your annual reports for the past three years; and
9.4.4. Certification that your company has not declared bankruptcy
within the last three years, signed by an officer of your
company.
9.5. COST/PRICE. Respondent must submit its cost as a percentage of
premium. Servicing Carriers will only receive 50% of the ineligible
allowance for eligible premiums charged off and will not receive any
allowance for charged off premiums. Respondents must submit separate
cost for each market share quota it proposes to service. Respondents
must use Exhibit 9: Pricing Sheet to submit the cost/price for services.
9.6. EFFECT OF ALTERATIONS/ERASURES.
A proposal containing alterations or erasures will not be
considered,unless the alteration or erasure is crossed out and the
correction thereof printed in ink or typewritten adjacent thereto and
initialed in ink by the person signing the proposal. This prohibition
includes correction fluid. HAND WRITTEN PROPOSALS OR PROPOSALS WRITTEN
IN INK SHALL NOT BE CONSIDERED.
9.7. DURATION OF OFFER.
All proposals must indicate that they are valid until notification of
an award has been issued. This period may be extended by mutual
agreement between the Servicing Carrier and the Advisory Board. The
costs submitted with the proposal shall be firm from the date of
submission.
9.8. DIRECTOR RESERVES RIGHT TO WAIVE MINOR DEFICIENCIES.
The director or his designee reserves the right to waive minor
deficiencies and the informalities if, in his judgment, the best
interest of the State of Carolina shall be served. In addition, the
director or his designee reserves the right to accept or reject any or
all proposals received as a result of this solicitation, to obtain
information concerning any or all Respondents from all sources and to
request an oral presentation from any or all Respondents.
9.9. OTHER DATA.
The director or his designee reserves the right to request additional
financial statements and any other data from the Respondent. Respondent
must submit any additional information by the date established by the
director or his designee. Failure to submit the requested information
may result in the disqualification of the proposal. The director or his
designee may request a Dunn and Bradstreet Report on all Respondents.
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9.10. VIDEO TAPES
You may supplement your proposal with video or cassette tapes, if
desired; however, no personal visits shall be scheduled other than the
Mandatory Pre-proposal Conference or possible presentation. If a video
or cassette is submitted, you must submit at least six copies.
SECTION 10: METHODOLOGY, EVALUATION AND AWARD
10.1. INTRODUCTION
Responses to the RFP will be reviewed, evaluated and scored first by a
committee appointed by the director or his designee in the manner
outlined below to determine the ability of the Respondent to meet the
requirements of the Plan. The review will be based upon the following:
10.2. OVERALL PROPOSAL. Proposals shall be evaluated in two stages:
Technical Compliance and Comparative Assessment.
10.2.1. TECHNICAL COMPLIANCE.
In the technical compliance phase, the proposal shall be
evaluated for compliance with all of the requirements of this
RFP. The proposal shall be reviewed to determine if it meets
the minimum qualifications. If it is determined not to meet
the minimum qualifications, the proposal shall be
automatically disqualified and shall not be considered by the
Evaluation Committee. Additionally, if the proposal is
determined to be non-conforming, it shall be automatically
disqualified and shall not be considered. Submitting multiple
proposals is an example of a proposal that would be
considered non-conforming.
10.2.2. NONRESPONSIVE PROPOSALS
IT IS THE RESPONDENT'S SOLE RESPONSIBILITY TO SUBMIT ALL
REQUIRED INFORMATION. THE ADVISORY BOARD IS UNDER NO
OBLIGATION TO SOLICIT SUCH INFORMATION IF IT IS NOT INCLUDED
IN THE PROPOSAL. FAILURE TO SUBMIT SUCH INFORMATION MAY CAUSE
THE COMMITTEE TO CONSIDER THE PROPOSAL NONRESPONSIVE AND
INELIGIBLE FOR AN AWARD.
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10.2.3. BUSINESS PLAN.
10.2.3.1. BUSINESS PLAN QUESTIONNAIRE--QUANTITATIVE
Stage two of the evaluation process shall be a
comparative assessment of the substantive
contents or the Business Plan component of the
proposal. The Business Plan consists of two
sets of questions on which the Respondents will
be evaluated and scored. The first addresses
quantitative, time-driven standards. The
Quantitative Questionnaire shall be used in
responding to this portion of the Plan of
Operation. Respondents should note that the
Quantitative Questionnaire may not contain all
of the Performance Standards, Procedures, and
Plan requirements which could be enhanced.
Rather, it allows a Respondent to quantify in
consistent terms a carrier's intended level of
service and any enhancements to be made, to
certain specific performance standards,
procedures, and Plan requirements considered
to be important for evaluation purposes. While
other quantifiable standards may be enhanced
by the Respondent, only those addressed in
Exhibit 4 will be considered for evaluation
and scoring purposes.
10.2.3.2. BUSINESS PLAN QUESTIONNAIRE--QUALITATIVE
The second area contains specific qualitative
questions related to some major areas of
operation. The Business Plan--Qualitative
(Exhibit 3) shall be used to respond to this
portion of the Plan of Operation. These
responses will be evaluated and scored based
upon your operational capabilities as
described in your responses, any qualitative
enhancements to the processes or procedures
described, and how clearly and concisely and
completely each question is answered. In
responding to these questions, you should use
the pages provided and indicate your response
below the questions. While other qualitative
standards or procedures may be enhanced by the
Respondent, only those in
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response to the questions posed in Exhibit 4
will be considered for evaluation and scoring
purposes. Additional sheets may be attached if
necessary.
10.2.3.3. BUSINESS PLAN--QUALITATIVE QUESTIONNAIRE
If you indicate in your responses to the
Business Plan Qualitative Questionnaire
(Exhibit 3) that you, your subcontractors,
and/or affiliated insurers will provide
services which exceed those required by the
Performance Standards, you must restate the
enhancements in summary format at the end of
the Qualitative Questionnaire using the sample
format shown in Exhibit 4. Enhancements not
summarized and restated will not be considered
in evaluating your proposal. Please state your
enhancements clearly and concisely as there
will be no negotiations after a contract has
been awarded as to "what was intended" when
the proposal was submitted, and the
enhancement will be scored and tested as
stated in the proposal, and will be
incorporated into any contract that may be
awarded.
The responses to the Business Plan
Questionnaires must describe in detail how the
Respondent proposes to transact business with
the association. Proposals shall be compared
with one another to determine which offers the
best services for the best price.
10.3. COMPARATIVE ASSESSMENT. The Business Plan shall be reviewed
in the following manner;
10.3.1. A committee of five members shall be appointed
to review, verify information submitted, and
evaluate the proposals;
10.3.2. Each evaluator shall review the proposals
independently;
10.3.3. For each section noted in the scoring section,
the lowest and highest scores assigned by the
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members of the committee in each category
shall be discarded. The remaining three scores
shall be averaged;
10.3.4. The score for each section shall be totaled
for the final score; and
10.3.5. The maximum score for the entire proposal
shall be a total of two hundred (200) points
per evaluator.
10.4. SCORING METHODOLOGY. Responses to the RFP will then be
reviewed by the selection committee established by the
director to evaluate and recommend Respondents to the
director for final selection of the Servicing Carriers. The
committee will review the overall proposal. The director,
assisted by the Evaluation Committee, will make the final
selection of the Servicing Carriers.
Weights given each component scored are as follows;
10.4.1. BUSINESS PLAN--QUANTITATIVE--Your responses to
the Business Plan Quantitative Enhancements
Questionnaire will be reviewed for level of
responsiveness and service to the residual
automobile market insured, as they relate to
the objectives and scope of the RFP.
Your response to each activity outline will
be assigned a point value. The total available
points for the Quantitative Enhancements
Questionnaire is 50. Twenty points will be
assigned to the Claims Processing component
and 30 points for the Underwriting/Processing
component of the Quantitative Questionnaire.
10.4.2. BUSINESS PLAN--QUALITATIVE--Your responses to
the Business Plan Qualitative Questionnaire
will be reviewed for the level of qualitative
services, processes, and procedures, and how
clearly the responses describe each to "Meet,"
"Exceed," or "Well Exceed" standards,
procedures and requirements.
Each of the two major areas addressed in the
Qualitative Questionnaire will be scored on
the basis of whether, in the sole judgment of
the director and the committee, that carrier's
responses "meets," "exceeds" or "well exceeds"
the performance standards, procedures and
requirements. It is important to note that the
result achieved by the carrier, e.g.,
"exceeds" for a particular area, such as
underwriting, does not necessarily mean that
the response exceeds on every possible
standard, procedure or requirement. Rather,
the response of
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the carrier reflected the attributes of the
"exceeds" category and would receive the score
corresponding to the "exceeds" result. While
all areas addressed will be evaluated by the
director or the committee appointed by him,
specific scores will be applied to each
question.
The maximum number of points available for the
Plan of Operation-Qualitative is 50, which
represents 25% of the maximum number of points
for the total Plan of Operation. A Respondent
can be awarded anywhere from one to fifty
points for this category. For scoring
purposes, the maximum number of points for the
qualitative portion of the Plan of Operation
is subdivided 30% for Claims Administration
and 70% for Underwriting and Processing.
The total number of raw score points available
for the Plan of Operation encompassing both
the Qualitative and Quantitative Questionnaire
is 100.
10.4.3. PRICE/COMPENSATION
A Respondent may receive up to one hundred
(100) points for this section. The
Respondent's Compensation will not be the sole
factor in determining whether a proposal
should be selected. The director is looking
for the proposal which provides the best
services to the insurance-buying public of the
residual market at the best possible cost, but
it is expressly understood that neither the
director nor the committee is under any
obligation to award any contract to any
Respondent submitting a proposal under the
terms and conditions of this RFP.
CHAPTER 11. CONTRACTUAL REQUIREMENTS
11.1 CONTRACT MUST BE IN NAME OF RESPONDENT/OFFEROR. Contracts shall be
executed in the name of the organization or individual shown in the
proposal. You must commit to a contract for the entire term plus
administer any run off obligations. Accordingly, the term shall be
from the effective date of this agreement through the entire term.
Run-off obligations shall survive the expiration or termination of
this contract.
11.2. S. C. LAW CLAUSE.
11.2.1. Upon award of a contract under this RFP, the person,
partnership, association, or corporation to whom the award
is made, must comply with the laws of South Carolina which
require such persons or entities to be authorized and/or
licensed to do business in this State. Notwithstanding the
fact that applicable statutes may
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exempt or exclude the successful Respondent from
requirements that it be authorized and/or licensed to do
business in this State, by submission of this signed
proposal, the Respondent agrees to be subjected to the
jurisdiction and process of the courts of the State of South
Carolina, Richland County, City of Columbia, as to all
matters and disputes arising out of, or to arise under the
contract and the performance thereof, including any
questions as to liability for taxes, licenses, or fees levied
by the State of South Carolina.
11.2.2. This RFP and any subsequent contractual agreement shall be
construed in accordance with the laws of the State of South
Carolina. The Servicing Carrier shall fully comply with all
local, state, and federal laws and regulations related to the
performance of the contract to the extent that such laws may
be applicable. The Servicing Carrier must be registered and
maintain good standing with the Secretary of State for the
State of South Carolina and other regulatory agencies as may
be required by law or regulation.
11.3. RESPONDENT'S QUALIFICATIONS. Contractor must, upon the request of the
director of the Advisory Board, furnish satisfactory evidence of its
ability to furnish the services required by the terms and conditions
of this RFP. The Advisory Board reserves the right to make the final
determination as to the Contractor's ability to provide the services
requested herein.
11.4. EQUAL OPPORTUNITY. The Servicing Carrier shall comply with all
federal and state requirements concerning fair employment and
treatment of all employees, without regard or discrimination on the
basis of race, sex, age, color, religion, national origin, physical
handicap, or disability.
11.5. TERMINATION. The Advisory Board may terminate this agreement at any
time upon an event of default. Events of Default include, but are not
limited, to:
11.5.1. Willful misconduct by the Servicing Carrier
with respect to a matter that is the subject
of this contract;
11.5.2. Gross negligence or recklessness in the
performance of its responsibilities under this
agreement;
11.5.3. Any act, error, omission, whether intentional
or unintentional, by the Servicing Carrier,
its officers, directors, employees, agents,
subagent, or subcontractors that places the
Plan in violation of any applicable law, rule,
regulation, or lawful and binding order of the
South Carolina Department of Insurance, or
other regulatory agency or authority, or court
of competent jurisdiction;
11.5.4. Failure to fully and adequately perform, or
default in the performance of, as
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determined in the sole discretion of the
Advisory Board, any provision, term or
condition hereof or any obligation or
liability imposed under this agreement, the
Plan of Operation, any applicable law, or any
rule or order of the Department;
11.5.5. Disclosure in an audit or examination by the
Department that the Servicing Carrier has
failed to perform its services in compliance
with the Plan of Operation, the laws of the
State of South Carolina or any applicable
rules or orders of the Department;
11.5.6. Refusal of the Servicing Carrier, its
officers, directors, legal representatives,
agents, employees, or subcontractors to give
the Advisory Board or the Department access to
its books, records, and operations, so that
the books of the Servicing Carrier and its
subcontractors, if any, may be audited or
examined;
11.5.7. Failure by the Servicing Carrier to maintain
the necessary insurance coverages and to fully
and adequately perform the services in the RFP
and its proposal; or
11.5.8. Failure of the Servicing Carrier to follow any
lawful directive of the Advisory Board that is
called for by, or not inconsistent with this
contract, the Plan, any applicable law, or any
rule or order of the Department.
11.6. IMMEDIATE TERMINATION. In addition to the Advisory Board's right to
terminate this contract as provided above, the Advisory Board may
terminate this agreement immediately upon the occurrence of any of
the following events:
11.6.1. The expiration of the term as set forth herein;
11.6.2. The commencement of bankruptcy,
rehabilitation, or receivership proceedings
under the laws of any jurisdiction by the
Servicing Carrier or any affiliated entity;
11.6.3. The filing of a financial statement which
discloses that the financial condition of the
Servicing Carrier is impaired;
11.6.4. A determination by the Advisory Board that the
Servicing Carrier no longer meets the
qualifications set forth in this RFP or the
Plan documents;
11.6.5. The Servicing Carrier's loss of ability to
transact business within the State of South
Carolina including, but not limited, to an
agreement
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not to write any additional business,
suspension or revocation of the Servicing
Carrier's or insurer's certificate of
authority;
11.6.6. The enactment of legislation into law by the
South Carolina General Assembly, or the
promulgation of regulations, rules, or orders
by the Department, which effectively
deactivates the Plan or transfers the
coverages of the Plan to another entity, or
materially enlarges, abridges, or otherwise
significantly affects the obligations or
duties of the Servicing Carrier, or
materially limits the Plan's ability to
receive or use substantially all services
contemplated under this Agreement;
11.6.7. Failure of any two consecutive audits by the
Servicing Carrier. Each audit may consist of
multiple parts and failure of any one part is
considered as a failure of the entire audit.
The test audit done in the first several
months of the startup will be the first audit
considered under this process; and
11.6.8. The Advisory Board may enforce the performance
bond if the contract is terminated for any
event of default enumerated above or any of
the provisions listed in subsection 9:
IMMEDIATE TERMINATION except provisions 9(a),
(f) and (g). The Servicing Carrier or surety
understands that it has ten (10) days after
notice of default to deliver the face value of
the performance bond to the Advisory Board and
agrees to deliver said amount within the time
frame established.
11.7. PRIME CONTRACTOR RESPONSIBILITIES.
11.7.1 The successful Respondent shall be considered
the prime contractor and be required to assume
sole responsibility for all services required
by this RFP. The Advisory Board shall consider
the Respondent the sole point of contact for
purposes of this RFP and any subsequent
contractual documents.
11.7.2 The Servicing Carrier shall comply with,
implement, execute, carry out, and perform all
of the obligations and assume all liabilities
imposed upon it under the Plan of Operation,
including the prompt payment of all
obligations of the Association.
11.8. SUBCONTRACTING.
If any part of the work covered by this RFP is to be
subcontracted, the Respondent shall identify the
subcontracting organization or other person and the
contractual arrangements made therewith. All subcontractors
must be approved by the director
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or his designee. The services required under this RFP shall
not be subcontracted without the express written approval of
the director or his designee. The successful Respondent
shall also furnish the corporate and company name, and the
names of the officers of any subcontractors, it engages or
proposes to engage, to perform the work required under this
RFP. Subcontractors must also meet the qualifications
outlined in this RFP and comply with the terms and
conditions outlined herein.
11.9. OWNERSHIP OF MATERIAL.
All books, records, electronic or hard copy files, policies,
contracts, agreements, endorsements, supplies, and related
materials used by the Servicing Carrier in the performance
of its duties under the terms of this RFP are the property
of the Plan. The Servicing Carrier shall deliver to the
Advisory Board at its request, and at the Servicing
Carrier's expense, all such books, records, files, policies,
contracts, agreements, endorsements, supplies and related
material.
11.10. ACCURATE INFORMATION.
All reports, data, information, and other material set forth
in the RFP, furnished, or to be furnished, by the Servicing
Carrier with respect to its appointment as Servicing Carrier
or with respect to its performance of its duties under this
contract and the Plan of Operation, and all reports,
statements, or other documents containing financial,
accounting, statistical, or related information furnished,
or to be furnished, by the Servicing Carrier to the Advisory
Board or to the Advisory Board's statistical agent or
agency, if any, during the term of this contract are, or
shall be, true and correct to the best of the Servicing
Carrier's knowledge and belief and, with respect to
financial, accounting, and statistical information, have
been, or shall be prepared, consistently and in accordance
with financial, accounting, and statistical principles
required or permitted to be used by the Advisory Board.
11.12. INDEMNIFICATION.
11.12.1. The Servicing Carrier, its agents, employees,
and/or representatives shall not do or
perform, and shall refrain from doing or
performing, any act or thing in violation of
this contract, the Plan of Operation, South
Carolina law, or the laws of the United States
of America which the Servicing Carrier knows
or has reason to know would subject the Plan,
any member of the Board, or any officer,
employee, representative, or agent of the Plan
to any administrative, civil or criminal
fines, forfeitures or penalties. The Servicing
Carrier agrees to indemnify and hold harmless
the Department, Plan, Advisory Board, Plan
Administrator, their officers, employees,
representatives,
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and agents, individually and collectively, and
agrees to indemnify the same from any act,
omission, agreement, debt, fines, forfeitures,
or penalties and all costs and expenses
including, without limitation attorneys' fees
and expenses, imposed against or incurred by
the Association as a result of the acts or
omissions of the Servicing Carrier upon which
such penalties are based. The Servicing
Carrier agrees that if the Advisory Board is
subject to any claim, demand, or penalty or
becomes a party to any suit or judicial
proceeding by reason of any claim against, or
act or omission by the Servicing Carrier, its
employees, agents, or representatives, on the
Administrator's premises, the Servicing
Carrier shall defend the Advisory Board and
shall indemnify it against all judgments,
settlements, penalties, and expenses,
including attorney's fees and court costs and
any other expenses of litigation or
administrative proceeding incurred or imposed
upon the Plan or the Advisory Board.
11.12.2. The Servicing Carrier also agrees to hold
harmless and indemnify the Department, Plan,
Advisory Board, Plan Administrator, their
members, officers, employees, representatives,
and agents, individually, and collectively, in
their personal and official capacities from
any and all liabilities resulting from the
employment of any individuals, persons,
consultants, actuaries, or agents to perform
the services under the terms of this contract
including, but not limited to, compensation
due and owing, applicable taxes, insurance, or
other prerequisites, etc.
11.13. COMPLIANCE WITH STATE AND FEDERAL REQUIREMENTS.
The Servicing Carrier warrants that it, its employees,
agents, representatives, officers, directors and
subcontractors, if any, shall comply with all relevant
state and federal requirements which govern its
performance under this RFP.
11.14. CONFLICT OF INTEREST.
The Servicing Carrier, agrees on behalf of itself, its
employees, agents, directors, officers, representatives,
successors, and subcontractors that it shall comply with the
conflict of interest provision set forth in the Plan of
Operation. Additionally, the Servicing Carrier understands
and agrees it represents the interests of the Plan, it is
directly accountable to the Plan and the Advisory Board, and
that it shall not engage in any act or form any
relationships outside the performance of its
responsibilities of this contract which may constitute a
conflict of interest or hinder the services the Servicing
Carrier is required to render pursuant to the terms of this
contract. The Servicing Carrier shall disclose any and all
contractual relationships it may have with
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members transacting the business of insurance within the
State of South Carolina and representatives that may also be
sitting on the Advisory Board.
11.15. ASSIGNMENT.
Servicing Carrier understands and agrees that this agreement
has been entered into in reliance upon the trust and skills
of the Servicing Carrier, its management and principal
executive officers. Accordingly, this agreement is not
assignable without the prior written consent of the Advisory
Board which it may withhold for any reason. Any attempt at
such assignment shall be void.
11.16. ENTIRE CONTRACT.
The contract between the South Carolina Associated Auto
Insurers Advisory Board and the Respondent shall consist of:
(1) RFP, any amendments, exhibits or attachments; and (2)
the Respondent's proposal submitted in response to the RFP.
The Advisory Board reserves the right to clarify any
contractual provision in writing, and such written
clarification shall govern in case of conflict with the
applicable requirements stated in the RFP or the
Respondent's response to the RFP. In all other matters not
affected by the written clarification, the RFP shall govern.
11.17. SEVERABILITY CLAUSE.
To the extent that a provision of the contract is contrary
to the Constitution or laws of this State or the United
States, the provision shall be void and unenforceable.
However, the balance of the contract shall remain in full
force and effect between the parties unless terminated by
the written consent of both the Servicing Carrier and the
Advisory Board.
11.18. AMENDMENTS.
No modification of any provision in the contract shall be
made or construed to have been made unless such modification
is mutually agreed to in writing by authorized
representatives of the successful Respondent and Advisory
Board and incorporated in a written amendment to the
agreement executed by the authorized representatives of both
parties.
11.19. COMMUNICATIONS AND NOTICES.
All notices to be furnished hereunder shall be, in writing,
and shall be delivered either by hand or first class mail to
the following addresses:
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FOR THE ASSOCIATION:
Lee P. Jedziniak
Chair
South Carolina Associated Auto Insurers' Plan
Post Office Box 11099
Columbia, South Carolina 29211
FOR THE SERVICING CARRIER:
---------------------------------------------
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11.20. INSURANCE.
The Servicing Carrier must acquire and maintain adequate liability
insurance sufficient to protect the Plan, its Advisory Board
members, directors, if any, officers, employees, and legal
representatives against loss or liability resulting from any
activity of the Servicing Carrier, its employees, officers,
directors, agents, or subcontractors related to its performance.
The insurance shall cover general liability and professional
liability. The Plan, and the Advisory Board members shall be named
as additional co-insureds and be entitled to all notices issued
under the policy to cover claims that may arise out of or result
from the Servicing Carrier's performance. Written evidence of
insurance shall be provided by the Servicing Carrier to the
Advisory Board and to the South Carolina Department of Insurance.
The evidence of insurance coverage shall include, but not be
limited, to effective dates of coverage, limits of liability,
insurer's name, policy number(s), and endorsement by
representatives of the the insurance company. The evidence of
insurance must be submitted upon award of the contract. In the
event the insurance coverage is canceled, all parties entitled to
notice must receive thirty (30) days notice prior to the
cancellation of any coverage provided under the policy. The
Servicing Carrier shall maintain workers' compensation insurance
for all of its employees.
11.21. TITLES/PARAGRAPH HEADINGS.
Paragraph headings and subtitles used herein have been inserted
for convenience of reference only and shall not be construed to
affect the meaning of this agreement.
11.22. INDEPENDENT CONTRACTOR STATUS.
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The Servicing Carrier shall be an independent contractor
performing its services for the Plan free from any supervision or
control of the Plan, except such supervision and control as may be
exercised by the Advisory Board in connection with enforcing
compliance with this Agreement, the South Carolina Code of Laws,
and the Plan of Operation.
11.23. FIDUCIARY.
The Servicing Carrier shall be deemed a fiduciary in the handling
of Plan funds and assets that come into the control or possession
of the Servicing Carrier. The Servicing Carrier shall account for
all funds and shall not convert such premiums or other funds
received to its use or benefit without the express written consent
of the Advisory Board.
11.24. ACCESS TO RECORDS.
The Servicing Carrier shall make available all records relating to
the performance of the work of this contract available to the
Advisory Board and the Department for audit, inspection, and/or
examination at any time upon request.
11.25. ANNUAL EXAMINATION.
The Servicing Carrier shall submit at least annually to an
examination conducted by an independent auditor contracted by the
Advisory Board or the Department. The Servicing Carrier shall
cooperate fully with any examinations required by the Advisory
Board or the Department. The Plan Administrator shall conduct
annually an audit or examination of any Servicing Carriers
providing services to the Plan.
11.26. CONFLICT.
In the event of a conflict between the RFP, the contract, and the
terms of the Plan of Operation, the Plan of Operation shall
govern. In the event of a conflict between this RFP, the
Agreement, and applicable South Carolina law, federal law, or
administrative rule, the law shall govern.
11.27. OTHER PARTIES.
This Agreement is between the Servicing Carrier and the Advisory
Board, and no insurer, producer/agent, claimant, insured, or
other person not a party to this agreement shall have or acquire
any rights by reason of the execution and delivery of this
Agreement or the performance of any of the obligations hereunder.
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11.28. COUNTERPARTS.
This Agreement may be executed in several counterparts, each of
which shall be deemed an original, but all of which together
shall constitute one and the same instrument.
SECTION 12: PROTEST PROCEDURES
12.1. PROTESTS MUST BE IN WRITING
Protests must be received in writing within ten (10) calendar days
from the date of the notice of award announcement. Protests must
be addressed and mailed to:
Lee P. Jedziniak
Chair
South Carolina Associated Auto Insurers' Plan
Post Office Box 11099
Columbia, South Carolina 29211
All parties submitting a proposal pursuant to the terms and
conditions of this RFP understand and agree that a protest of the
award shall NOT operate as a stay of the award or implementation
of the contract.
12.2. PROTEST INFORMATION.
Protests shall include your name, address, and telephone number,
and shall set forth in detail the grounds for the protest and the
relief requested as to give notice of the issues to be decided.
12.3. NOTIFICATION OF PROTEST.
The director or his designee shall, within five calendar days
after the close of the protest period, notify all Respondents and
the Advisory Board that a protest of the award has been made.
12.4. ADMINISTRATIVE REVIEW.
Within ten calendar days' receipt of the written protest, the
director or his designee shall conduct an administrative review of
the matter and issue a decision stating the reasons for the action
taken.
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12.5. NOTICE OF DECISION.
A copy of the decision along with a statement of the appeal rights
stated in paragraph 6 shall be mailed and otherwise furnished to
the protestor. Within five days of the decision, a copy of the
decision shall be forwarded to all Respondents.
12.6. FINALITY OF DECISION/APPEAL.
This decision shall be final and conclusive in all respects.
12.7. PROTESTS SHALL NOT OPERATE AS A STAY OF THIS AWARD.
The South Carolina Associated Auto Insurers Plan must be fully
operational by January 15, 1999. Therefore, time is of the
essence. It has been determined that the contract shall not be
stayed by any written protest. Neither the director nor the
Advisory Board shall be responsible for any costs incurred by the
successful Respondent or the protestor in preparing for, or
submitting a proposal pursuant to the terms and conditions of this
contract.
SECTION 13: EXHIBITS
Exhibit 1.: Affidavit of Non-Collusion
Exhibit 2.: South Carolina Reinsurance Facility Experience
Exhibit 3.: Business Plan--Qualitative Questionnaire
Exhibit 4.: Business Plan--Quantitative Questionnaire
Exhibit 5.: South Carolina Associate Auto Insurers Sample Servicing Carrier
Reports and Documents
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Exhibit 6.: Second Draft-Private Passenger Auto Policy Forms,
Endorsements, and Applications Forms
Exhibit 7.: Sample Servicing Carrier Producer Correspondence and Reports
Exhibit 8.: Calculation of Proposal Bond Amount
Exhibit 9.: Pricing Sheet
Exhibit 10.: Articles of the Association
Exhibit 11.: Rules of Practice
Exhibit 12.: Rating and Statistical Manual
Exhibit 13.: Manual of Rules and Rates
Exhibit 14.: Proposal Letter
Exhibit 15.: Disaster Recovery Plan Requirements
52
<PAGE>
[LETTERHEAD]
MEMORANDUM
TO: All Potential Respondents
FROM: Lee P. Jedziniak
Director
RE: Amendment No. 1
Request for Proposal #98-002-Solicitation for Servicing Carriers to
Service Private Passenger Automobile Insurance
DATE: July 4, 1998
The following is a list of clarifications, changes or amendments to RFP
#98-002 which was forwarded to you on, or about, July 17, 1998.
First, attached you will find the Manual of Rules and Rates-Private
Passenger Section. This document was attached to the information you received
as Exhibit 13. It is possible that the even-numbered pages may have been
inadvertently omitted from several of the exhibits previously mailed. The
attached Manual of Rules and Rates supersedes and replaces the copies you
were previously mailed and is incorporated into the above-referenced RFP by
reference.
Second, we have received one written inquiry about the omission of pages
5 and 6 from the Rules of Practice. Attached are copies of these pages. The
Rules of Practice manual that you previously received is amended to include
these pages.
Third, we have received one written inquiry about Exhibit 4. Attached is
a complete copy of this exhibit. It supersedes and replaces the exhibit you
previously received.
Fourth, there is no exhibit 5. This exhibit number was supposed to be
reserved for future use. However, this change was inadvertently omitted from
the copies you received.
Fifth, this RFP involves private passenger automobile insurance only. We
anticipate that the RFP for commercial automobile property and casualty
insurance will be issued by August 10, 1998 once the manuals and forms for
commercial automobile insurance have been approved by the South Carolina
Associated Auto Insurers Plan Advisory Board.
<PAGE>
Finally, any additional questions or concerns you may have regarding the
RFP should be in writing, directed to my attention, and mailed or transmitted
via facsimile transmission to the address and number indicated in the RFP.
Telephone calls with questions about the RFP will not be accepted. Your
questions will be answered at the Mandatory Preproposal Conference which is
scheduled for Wednesday, July 29, 1998 at 10:00 a.m. in Room 401 of the South
Carolina Department of Insurance.
c.c. Tom Assad
AIPSO
Plan Administrator
<PAGE>
[LETTERHEAD]
MEMORANDUM
TO: All Potential Respondents
FROM: Lee P. Jedziniak
Director, South Carolina Department of Insurance
and Chair, SCAAIP Advisory Board
RE: Amendment #2 to RFP 98-002/PPAI
DATE: August 7, 1998
The request for Proposal issued on July 17, 1998 is hereby amended to
reflect the following changes:
1. DEADLINE FOR SUBMITTING PROPOSALS EXTENDED
The deadline for submitting proposals has been extended until
August 28, 1998. All potential respondents must submit proposals in
response to this solicitation by that deadline. Proposals received
after that date shall not be considered. This amends Paragraph 1.2
on Page 1 of the RFP.
2. DEADLINE FOR SUBMITTING QUESTIONS EXTENDED
The deadline for questions has been extended. The deadline for
respondents to submit any additional questions about
RFP-98-002/PPAI is August 12, 1998. No additional questions will be
considered after that date. This amends Paragraph 1.7 on Page 2 of
the RFP.
3. THE PROPOSED SCHEDULE FOUND IN PARAGRAPH 2.23 HAS BEEN AMENDED AS
FOLLOWS:
PROPOSED TIME TABLE
Listed below is the proposed time frame for the RFP process:
<PAGE>
<TABLE>
<S> <C>
Request for Proposals Issued July 17, 1998
Date Questions are Due August 12, 1998
Mandatory Conference for Potential Respondents July 29, 1998
Proposals Due August 28, 1998
Notification of Award of Contract September 10, 1998
Appeals Deadline September 20, 1998
Contract Effective Date October 15, 1998
</TABLE>
The Director reserves the right to adjust this schedule as he deems
necessary.
4. EXHIBIT 13: MANUAL OF RULES AND RATE HAS BEEN AMENDED AS FOLLOWS:
a. RULE 21 CHANGED
Rules 21 in the Manual of Rules and Rates has been changed. A
copy of the amended rule is attached as Exhibit A and B.
PRIVATE PASSENGER CHAPTER (PAGES P-4 AND P-5)
Pages P-4 and P-5 of the Private Passenger Chapter have been
amended. These pages were amended to eliminate the exception
under Section 5(c).
b. TERRITORY CONVERSION CHART ADDED
The Territory Conversion Chart attached to this response as
Exhibit C has been added to the Manual of Rules and Rates.
c. RATES FOR PRIVATE PASSENGER AUTOMOBILE APPROVED
The rates for private passenger automobile insurance were
approved by the Advisory Board on August 5, 1998. Attached as
Exhibit D to this Memorandum are the proposed rates for the
South Carolina Associated Auto Insurances Plan.
<PAGE>
5. AMENDMENT TO EXHIBIT 11: RULES OF PRACTICE
The SCAAIP Advisory Board approved a producer commission rate of
10%. The 10% commission rate applies to both new business and
renewals and both commercial and private passenger automobile
property and casualty insurance.
6. SPECIFICATIONS FOR CONSTRUCTING DATABASE
The RFP has been amended to add specifications for constructing a
database. The attached specifications for constructing a database
has been added to the terms and conditions of the RFP. These are
the minimum specifications for constructing this database. See
Exhibit E.
7. POLICY FORMS AND ENDORSEMENT PORTFOLIO AMENDED
a. Pages 18 of 18 has been amended to reverse the order of
sections F and G. A copy of this revised page is attached to
this Memorandum as Exhibit F.
b. The Personal Auto Application and the Personal Auto Policy
Change Request have been amended. Attached as Exhibits G and H
are samples of the form. One amendment was omitted during the
printing of the form. Therefore, in addition to the amendments
reflected, Ques #10 is amended to read as follow: "Please
provide the name of insurance company or agent and reason(s)
and approximate date coverage was refused."
8. SERVICING CARRIER REQUIRED TO ISSUE PROOF OF INSURANCE COVERAGE
THROUGH THE SCAAIP
Section 7.2, Scope of Work, section is amended to add the following
language:
7.2.4.12. PROOF OF INSURANCE SERVICES. The Servicing Carrier will,
in conjunction with all other services required herein or in the
Plan Documents, issue proof of insurance coverage to insureds of
the Association in accordance with Bulletin 97-2. This service
includes, but is not limited, to the following:
<PAGE>
a. Issuing an insurance card or endorsement form in accordance
with the specifications provided by the Plan Administrator
which includes the insurer's name, the policy number, the
policy term, the vehicle identification number, insured
identification, and coverage information or a statement that
coverage meets this State's minimum financial responsibility
requirements;
b. Ensuring that all insureds receive a sufficient number of
document to evidence proof of insurance;
c. Notifying all insureds of the requirement that proof be
maintained and displayed pursuant to the law; and
d. Performing any other reasonable proof of insurance services in
accordance with the rules, regulations, policies and
procedures of the Association or as required by the Plan
Administrator.
Attached as Exhibit 1 is Bulletin 97-2.
9. MINIMUM LIMITS FOR INSURANCE COVERAGE
Section 11.20 requires the successful respondent to obtain and
maintain adequate liability insurance sufficient to protect the
Plan, its Advisory Board members, director, if any, officers,
employees, and legal representatives against any loss or liability
resulting from any activity of the Plan Administrator, its
employees, directors, agents, officers, subcontractors, etc.,
related to its performance under the contract. The minimum limits
of coverage for such a policy shall be:
$1,000,000 per occurrence for general liability insurance coverage
$1,000,000 per occurrence for professional liability insurance coverage
$1,000,000 per occurrence for property damage insurance coverage
10. AUDIT PROCEDURES/INCENTIVES AND DISINCENTIVES
Section 8.4 of the RFP is hereby amended to include the schedule
attached as Exhibit J. This schedule is subject to change as
determined by the Advisory Board.
These amendments are incorporated into RFP #98-002/PAI as if specificially
repeated verbatim therein. They supersede and replace, where applicable, the
present language of the corresponding sections of the RFP. Any questions
about the RFP or the written responses to the questions submitted concerning
the RFP must be set forth, in writing, and submitted by 5:00 p.m., August 12,
1998.
<PAGE>
[Letterhead]
MEMORANDUM
TO: All Potential Respondents
FROM: Lee P. Jedziniak
Director
RE: Responses to Questions Submitted August 12, 1998
DATE: August 18, 1998
What follows are the questions submitted on August 12, 1998 and the
responses to each. Please read each question carefully as the response may
change or clarify a previous response.
1. Underwriting/Rating Services, renewal policies or certificates. (Page 8
of the 8/7/98 responses, number 36.) & (Exhibit 3, Page 3 c.)
Please clarify which process will be required of all servicing carriers?
Quote and issue renewal when paid or issue renewal and self-destruct if
not paid?
A: Issue renewal and self-destruct if not paid.
2. Policy or endorsement forms.
Recent response regarding these forms made it clear that the wording on
the forms cannot be changed. Is there any flexibility regarding the
design of the forms since computer programming sometimes requires the
need to rearrange some data? If the appearance (not content) of the form
is changed, does it have to be submitted to the Association
Administrator for approval or filing?
A: The design, not content, of the JUA forms may be changed. Since the
forms are filed with the Department for approval, the Administrator
should receive a copy of your change in order to refile with the
Department.
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3. Cancellations by Insured.
Rules of Practice, Section 11 A - return premium shall be calculated at
90 of the pro rata unearned premium for the period of coverage, subject
to a minimum period of 60 days, or the minimum premium whichever is
greater. However, in the Manual of Rules and Rates, Rule 8, A does not
contain the wording "subject to a minimum period of 60 days, or the
minimum premium, whichever is greater." Please advise which rule
applies. If the rule in the Rules of Practice is the one that applies,
does this mean that the policy cannot be canceled before 60 days has
elapsed or does the 60 day earned premium become the minimum in the
event the policy is in force for less than 60 days?
A: The policy form reflects the 60 day cancellation limitation. The
60 day cancellation requirement is found in Section 56-10-280.
4. Cancellation by Servicing Carrier.
Rules of Practice Section 11 B.2. and manual of Rules and Rates,
Rule 8, B - Each such cancellation shall be on a pro rata basis ... with
the balance returned to the insured. Should this rule be modified as
follows: If the policy is premium financed, the return premium will be
returned to the premium finance company.
A: The premium finance company must show Power of Attorney in order to
receive return premium. A wording change in the rule is not
necessary.
5. Response #81 - 6.12 Qualification For Servicing Carrier, Year 2000
Compliant Systems Required.
Exhibit A Certification Statement - was not attached to the August 7
package. Exhibit A was Page P-4 for Plan Manual.
A: A Certification Statement is attached.
6. David Amaral's July 1, 1998 Memo entitled SCRF Experience By Policy Year
- Quarter Ending March 31, 1998 - Reports 1998 total policy year premium
of $135.6M and 1997 policy year premium of $425M. Written premium for
the Facility has been relatively flat. The $136M PY premium implies a
20% growth. Are these figures accurate? Are you expecting this type of
growth?
A: The figures in the Memo are accurate for the Facility. However, the
Department, the Plan Administrator, and the Advisory Board have not
made any premium projections for the SCAAIP.
7. Section 10.2.3.3 of the RFP states that a sample format of the
qualitative questionnaire enhancement summary can be found in exhibit 4.
However, exhibit 4 does not contain a sample enhancement summary format,
only the qualitative questionnaire itself and a scoring
2
<PAGE>
methodology. Would you please provide a sample format for the
qualitative questionnaire enhancement summary?
A: The format is as shown which includes the section (underwriting/
processing or administration), responsibilities and questions, with
space left for your answer. This is the format sample mentioned in
Section 10.2.3.3 of the REP.
8. Will the DOI provide Proposal and Performance Bid forms that the DOI has
created or will standard AIA Bid and Performance Bond Forms suffice?
A: The standard form will suffice.
9. What is the number of licensed property and casualty agents in South
Carolina?
A: Fifteen Thousand One Hundred and Fourteen (15,114) agents are
licensed for property. Fifteen Thousand Four Hundred Forty-six
(15,446) agents are licensed for casualty. Both licenses are
necessary to write automobile business.
10. Please clarify further the intent of your answer to question 20 in your
August 7, 1998 memo. If your intent is that MVRs be requested at each
six-month term, insureds with six-month policies will be subject to
up-rating due to MVR surcharges twice a year, while insured with
twelve-month policies will be subject only once. Will six month policies
require MVR orders on EACH six month term?
A: Yes.
11. Question 21 of your August 7th response involved inspection reports. In
order to respond to this area in the Qualitative Questionnaire, it is
necessary for us to understand exactly what is required of the servicing
carrier in relation to inspection reports. Will inspection reports be
required for all policies? What is the Plan's definition of an
inspection report?
A: Inspection reports will be required for all policies. For purposes
of this RFP, an inspection report includes, but is not limited, to
CLUE reports, driver classification checks, youthful driver
questionnaires, etc.
12. Question 1.a. is unclear. Are premium taxes paid by the JUA or by the
servicing carrier (and therefore expected to be included in the
reimbursement rate)? If the latter, what is the expected tax rate? The
manual makes reference to the "Association's funds," and the "servicing
carrier bank accounts," but it is still not clear if that refers to a
pass-through item or one that is covered by the servicing carrier's bid.
A: Premium tax is paid by the servicing carrier using JUA funds (check
stock).
3
<PAGE>
Therefore, it is an expense of the JUA which should not be included in
your proposal price.
13. Recoupment premium taxes are a "pass through" for the S.C. Reinsurance
Facility at the present time. Will they be handled the same for the JUA?
A: Servicing carrier collects recoupment, remits funds to the JUA and
is responsible for paying premium taxes. Again, the tax will be paid
using JUA funds and should not impact the servicing carrier's
proposal price.
14. There appears to be a discrepancy with the answer to question 1.d. and
question 1 itself. Although the answer indicates that all LAE, allocated
or unallocated, "are a part of the claims service fee received by the
carrier," the original question indicates that legal allocated loss
adjustment expenses are reimbursed by the JUA. Which is correct?
A: All ALAE, including legal ALAE, are part of the claims service fee
received by the servicing carrier and are not reimbursable by the
JUA.
15. Your previous response to question 100 indicated that producers would be
reimbursed for MVR costs using JUA funds. Is this correct?
A: Yes, producers will be reimbursed using JUA funds.
16. Question 1.4.B of the qualitative questionnaire asks about the
anticipated frequency of independent auditor using during the contract
period. Is this question referring to the use of independent auditors
for the auditing of servicing carriers or producers?
A: This question relates to commercial. It is inapplicable to this
solicitation.
17. Your response to question #58 of your August 7, 1998, memo stated that
policy file records may be maintained on electronic image systems "as
long as a hard copy can be produced upon request." Will a reproduction
of the original suffice or must the original document itself be produced?
A: A reproduction of the original will suffice.
18. With respect to ownership of material outlined in paragraphs 9.1.1.8 and
11.9 of the REP and further referenced as question #61 in the August 7,
1998 memo, there is an additional issue as relates to proprietary
software being used by a servicing carrier. In most cases the servicing
carriers do not own the proprietary software: In fact, they have a
license to use the software and are contractually restricted from
transferring ownership. Examples of proprietary vendor software are:
4
<PAGE>
-Microsoft Products
-Word Processing Software
-Database Software (IBM, Oracle, etc.)
-Operating System Software (AS400, MVS, UNIX, etc.)
-Insurance Vendor Software (Companion using PMSC Software, Seibels
using Inspire Software, etc.)
This issue could potentially prevent any company from responding to the
RFP. No company can operate its business without some level of
proprietary software which they do not own and therefore cannot be
transferred to the plan.
The data that is processed by these systems is not normally an issue and
can be owned by the servicing carrier or the plan. The data would be the
policy, claims, billing, financial, statistical information related to
the policies being serviced by the particular servicing carriers.
Would it be sufficient for the plan to own the data processed by the
various systems, but not the actual proprietary software itself?
A: No. The RFP specifically provides that the Plan owns all data and
systems DEVELOPED to process the work of the JUA. This requirement
does not apply to software which the respondent does not own or have
proprietary rights to and was not created to transact the business
of the JUA.
19. Will an audit be required for every producer regardless of the number of
policies issued or number of records retained by the servicing carrier
in the producer's file? Will there be minimum standards or thresholds
that apply for these audits?
A: Yes, an audit will be required of all producers actively placing
business with the JUA. Each audit must review producer compliance
with all Plan documents, rules and regulations.
20. Section 7. Renewal Policies and Certificates, of the Rules of Practice,
General, states that insureds non-renewed due to reaching the maximum 24
month term may reapply as a new applicant. If there is no lapse in
coverage, will a new "CLUE" report be required, even though all claims
activity will be reflected in the Servicing Carrier's records?
A: No.
5
<PAGE>
21. The question "Will the Servicing Carrier be required to file financial
responsibility in all 50 states?" was answered with a yes to question #33
in the 7/29/98 exhibit and was answered with a no to question #99 in the
8/7/98 exhibit. In most states a carrier must be authorized and licensed
as a property and casualty insurance carrier in order to file an SR22.
(Please see attached documents) Could you please clarify your response?
A: The response "No" in Question #99 of the August 7, 1998 response
clarified that the filing of financial responsibility was not
limited to 50 states, but also included ALL United States
territories.
22. The servicing carrier reimburses the agent for MVR's, is the agent then
responsible for giving the insured credit for an MVR which the insured
obtained from the Department of Public Safety?
A: Yes, the agent should reimburse the insured.
23. Regarding 8.4.3 and 8.4.4, please be specific in the definition of paid
loss ratio as to the numerator and denominator?
A: The numerator means paid losses, and the denominator is earned
premium.
24. Will the agent be responsible for the counter-signature or can the
countersignature be done at the Company level?
A: This can be done on the company or producer level as long as the
producer is a licensed State of South Carolina agent and is
certified by the JUA.
25. Regarding court approved settlements on minors. State statute indicates
when a minor nets $2500.00 the case is to be court approved. Are we to
understand that court approval is required on all settlements involving
minors regardless of the injury if the settlement gross is $2500.00?
A: This question does not appear to be related to the requirements of
the RFP. We recommend that you consult your attorney regarding this
issue.
26. Need clarification where credit applies for the Accident Prevention
Course. The rating example states that it applies only to Collision
coverage, but the Manual of Rules and Rates states that it applies to BI,
PD and Collision.
A: The Manual of Rules and Rates states the application of credit
correctly.
27. In the Affidavit of Non-Collusion (3) the date of March 3, 1998 appears.
What date
6
<PAGE>
should be put in its place? Also, the wording of (3) is confusing --
should the "or agents" in the third sentence be there? "That the
contents of the proposal have not been communicated by the Respondent or
its employees or agents to any person not an employee or agent of the
Respondent or agents to any person not an employee or agent of the
Respondent or its surety on any bond furnished with the proposal and
will not be communicated to any such person prior to March 3, 1998."
A: The word "or agents" should be deleted. The date should be August 28,
1998 which is the date that the proposals are due to be submitted to
the Director.
28. If the servicing carrier receives an application which after a review of
the payment history file is deemed to be ineligible, is the servicing
carrier expected to void application, cancel with notice, cancel flat or
void the policy [sic] AD INITIO? If no coverage is provided at all, who
provides notice to the prospective insured that he/she has no coverage?
What are the notice requirements to the applicant?
A: The Plan Requirements for cancellation of policies and notices of
cancellation are provided in the Rules of Practice. The purpose of
the Qualitative Questionnaire is for you to state your exact
procedures in your responses. Please explain how you plan to handle
the notice to the prospective insured.
29. Are all entries on the application required to be captured to a data
base, or just those listed in the August 7, 1998, "Servicing Carrier
List of Fields"?
A: All entries must be captured.
30. Does the statement "status of account" mean a detailed listing of
payments and balances, or just the remaining balance?
A: It means a detailed listing of payments and balances.
31. If an agent is decertified and commissions are withheld, what is the
status of the unpaid commissions if the agent is reinstated?
A: Commission for a policy submitted by a decertified or suspended
producer is retained by the servicing carrier (Rules of Practice,
Section 1.M, sixth paragraph). Once another certified producer is
identified, the commission from that point forward goes to the new
producer of record.
32. Is the minimum policy premium of $25.00 per vehicle not refunded on flat
cancellations?
7
<PAGE>
A: If the policy is canceled flat, no charge. Flat cancellation means
cancellation as of the inception date.
33. Will the payment history data base of ineligible applicants/insureds
include individuals owing money to a premium finance company?
A: No, not a database requirement.
34. The RFP states that the servicing carrier must report individuals with a
"past due" balance owed to the Company. Would "past due" include
individuals who have not paid their last installment, or would "past
due" refer only to individuals who have an outstanding balance on an
automobile policy that has terminated, expired or canceled?
A: Both.
35. When is the statutory deposit actually due?
A: The statutory deposit must be increased by the successful
respondent(s) on, or before, December 31, 1998.
36. Can the statutory deposit be posted incrementally as premium volume
grows?
A: Yes. The Plan Administrator will notify the servicing carrier when,
and if, its statutory deposit must be increased. Failure to increase
the deposit by the deadline stated will result in termination of the
servicing carrier agreement.
37. Could you provide an example of an ineligible write-off?
A: Yes. An example of an ineligible write-off would include the earned
premium on a renewal policy that was not requested and the renewal
premium/deposit was not paid.
38. In the Accounting and Statistical manual there is no requirement to
report either policy number or claim number. Is this correct?
A: The accounting and statistical data reported to the Plan
Administrator is summary level only and does not require reporting
of a policy number or claim number. However, chapter 6, Part II, F.
of the Accounting and Statistical Manual indicates that policy level
detail reporting will be required to establish a centralized
database. The specifications of this database have yet to be
defined; however, it is likely that policy numbers will be required.
8
<PAGE>
39. Who will establish the three position "town code" and how will the
servicing carrier receive the code?
A: The requirement of reporting premium by municipality to the Central
Processor has been eliminated; therefore, the "town code" should be
disregarded. All municipal taxers will be paid directly by the
servicing carrier using JUA funds.
40. Is the $20.00 minimum per installation requirement waived on amounts due
of less than $20.00?
A: Yes, this is a performance standard for establishing premium
installments. This should not be confused with minimum premium. The
minimum installment does not increase the insured's total policy
premium as a minimum premium could. When establishing an installment
payment plan, an installment falling below $20 should be included in
the previous installment and billed subject to the $4 installment
fee. If a policy change or other activity causes an installment to
be adjusted and fall below $20, the actual premium due is billed
subject to the installment charge. The installment minimum has no
effect on the total policy premium.
41. Could you clarify what is considered as a "new business CERTIFICATE"?
A: Use of "certificate" regarding the issuance of original policy,
refers certificates of insurance as may be requested by the insured,
not a "new business certificate."
42. Will the Servicing Carrier be required to issue a policy with both a
motorcycle and an automobile on it?
A: Motorcycles are defined as individual private passenger automobile and
should be given the same consideration as private passenger
automobiles.
43. Is the $100.00 minimum deposit for liability coverages and the $75.00
minimum for physical damage coverage per policy or per vehicle?
A: The $100.00 minimum deposit for liability coverage and the $75
minimum for physical damage coverage is per vehicle.
44. Has the file layout for the transfer of information to and from the Plan
Administrator been established? If so, could a copy be provided upon
request?
A: For the accounting and statistical reporting of SCAAIP premium and
loss data, the tape specifications are included in the Accounting
and Statistical Requirements
9
<PAGE>
Manual; a record layout will be provided upon request. Please be
aware that an alternative to tape reporting of this data exists by
utilizing a pre-formatted Lotus spreadsheet provided by the Plan
Administrator (see A&S Requirements Manual, Chapter 6, Part II, B).
Take-out and anti-fraud data base file reporting formats have not
been developed; however, the information that would be required was
provided in the August 7 responses to RFP questions.
45. Will the servicing carrier be required to mail all new business to the
agent or to the insured?
A: The intent is that the servicing carrier mails the policy to the
insured with a copy to the producer. This is done to eliminate that
the producer is an agent of the servicing carrier or the JUA.
46. Will it be acceptable to mail refund checks to the agent for disbursement
to the insureds?
A: This is not addressed in the South Carolina Plan of Operation.
Again, to eliminate any implication that the producer is an agent of
the servicing carrier or the JUA, refunds should be sent to the
insured.
47. "Work for hire" is included in section 9.1.1.8. The "works for hire"
doctrine states that the compensating party retains all rights in the
copyrightable product created within the employment/agent relationship.
Does the scope of 9.1.1.8 include modifications to systems implemented
to provide Plan services? If so, does 9.1.1.8 include all works created
while engaged in operations considered by the JUA to be within the
normal scope of the Plan relationship?
A: The scope of 9.1.1.8 includes modifications to systems implemented
to provide Plan services. Yes, it includes all works created while
engaged in operation considered by the JUA to be within the normal
scope of the Plan relationship.
48. When the JUA becomes the copyright owner of creations by virtue of the
41 work made for hire" provision of the agreement, does it then have the
exclusive right to license the use of a product created by a member
servicing carrier?
A: Yes.
49. Must the servicing carrier "grant back" any improvements made to a
system created for
10
<PAGE>
the JUA? Meaning that if a carrier improves a system, must it grant the
rights to those improvements back to the JUA?
A: Yes.
50. If a servicing carrier develops software for the JUA, must it disclose
whether there are any conflicting intellectual property rights? Thus,
must the servicing carrier warrant and hold harmless that any rights
that pass to the JUA by virtue of section 9.1.1.8 do not infringe upon
third party's rights?
A: Yes.
The proposals are due August 28, 1998. No additional questions concerning
RFP #98-001 will be addressed by the Advisory Board or me. No telephone calls
regarding this RFP will be accepted.
11
<PAGE>
Exhibit 99
TABLE OF CONTENTS
<TABLE>
<S> <C>
Cover Letter Page 1
Section 11.14 Disclosure Page 4
Proposal Letter Page 5
Company Business Plan
Executive Summary Page 6
Background and Experience Page 11
Past Performance and Commitment Page 13
Financial Information
Solvency Certification Page 14
Credit Rating Statement Page 15
Cost/Price
Pricing Enhancement Page 16
100% Quota Share Page 17
75% Quota Share Page 18
50% Quota Share Page 19
33 1/3 % Quota Share Page 19-A
30% Quota Share Page 19-B
25% Quota Share Page 19-C
20% Quota Share Page 19-D
Duration of Offer Page 20
Qualitative Business Plan Page 21
Quantitative Business Plan Page 44
Qualitative Summary of Enhancements Page 54
Disaster Recovery Plan Page 56
Affidavit of Non-Collusion Page 58
Proposal and Performance Bonds
Year 2000 Certification Page 59
</TABLE>
<PAGE>
[THE SEIBELS BRUCE GROUP, INC. LETTERHEAD]
September 9, 1998
Mr. Lee P. Jedziniak
Director
South Carolina Department of Insurance
1612 Marion Street
Columbia, South Carolina, 29201
Dear Mr. Jedziniak:
Please find attached the response by South Carolina Insurance Company ("SCIC")
to the South Carolina Associated Auto Insurers Plan Joint Underwriting
Association Servicing Carrier Solicitation, proposal notice number 98-001/PPAI.
It is with great pleasure that South Carolina Insurance Company responds to this
Request for Proposal as we believe that South Carolina Insurance Company is
uniquely qualified to be a servicing carrier for the South Carolina Associated
Auto Insurers Plan.
I call your attention to the following items:
o South Carolina Insurance Company understands and will comply with all terms
of the Proposal.
o South Carolina Insurance Company is a South Carolina corporation in good
standing.
o The Federal Tax ID number of South Carolina Insurance Company is
57-0248730.
o South Carolina Insurance Company will be the prime contractor and is
registered and authorized to do business in South Carolina. No
subcontractors will be used.
o South Carolina Insurance Company does not discriminate on the basis of
race, sex, age, color, religion, marital status, political affiliation,
national origin, handicap or disability.
o SCIC warrants that it, its employees, agents, directors, officers,
representatives, successors and subcontractors shall comply with all
relevant state and federal requirements governing its performance under the
RFP.
o All materials developed, prepared, assembled or conceived by the Respondent
pursuant to this RFP are "works for hire" and are owned by the South
Carolina Associated Auto Insurers Plan Joint Underwriting Association.
o The Respondent currently meets or will meet prior to the start of the
contract, all of the qualifications as described in this RFP. All required
documentation to that effect is contained in this Proposal.
<PAGE>
Mr. Lee P. Jedziniak
September 9, 1998
Page 2
South Carolina Insurance Company, together with its affiliated company, Catawba
Insurance Company, is the most experienced writer among all bidders in the
nonstandard, South Carolina automobile insurance market. As a servicing carrier
for the South Carolina Reinsurance Facility since inception, it has been dealing
with the proposed population of the JUA for 24 years. During this time, it has
operated under claims and underwriting guidelines which are the same as those
proposed for use in this RFP. It also has 24 years experience in auditing
producers for compliance with rules and written guidelines for residual market
mechanisms.
Because of its past experience and current compliance with most, if not all, of
the servicing guidelines proposed for the JUA, South Carolina Insurance
Company's staff and systems are uniquely positioned to perform to the JUA's
highest expectations. Both our claims staff and policy processing teams are
knowledgeable of the intricacies of the South Carolina market and are committed
to providing quality services to the JUA. For each of the past 24 years, our
company has been judged by independent Facility auditors to be in compliance
with all claims and underwriting guidelines which are proposed for use by the
JUA.
Lastly, and most significantly, South Carolina Insurance Company, as a domestic
insurer standing the test of time, is a major stakeholder in both South Carolina
and the success of its residual market operations. We are, therefore, imbued
with an extra incentive to ensure the orderly and efficient transition of the
automobile residual market mechanism.
In the Cost/Price section of this proposal, we have included a "price
enhancement" which is neither a modification of the RFP nor a condition of our
proposal. We have indicated on the Cost/Price sheets our bid for servicing the
JUA book of business in accordance with the RFP specifications. This "price
enhancement", however, represents an even better price for furnishing exactly
the same services should the Director/Advisory Board accept our Demotech rating,
performance history and other submitted information, as sufficient proof of
financial stability. By recognizing South Carolina Insurance Company's primary
role as a servicing carrier and reflecting same in a waiver of additional
statutory deposits and performance bond requirements consistent with other
bidders, we would be willing to further reduce costs associated with servicing
carrier operations through additional negotiated methods permitted under Section
2.16 of the RFP. We seriously question the efficacy of the additional deposit
and bonding requirements, since the costs of default are the same despite the
A.M.Best of the defaulting carrier. By this enhancement, we are simply
suggesting that the price proposed can be further reduced by modification of
certain requirements of the RFP without risk to the Plan constituents.
<PAGE>
Mr. Lee P. Jedziniak
September 9, 1998
Page 3
We look forward to your response. If I can be of any assistance or answer
questions regarding the proposal, please feel free to call me at 803-748-2006.
Sincerely,
/s/ R. Thomas Savage, Jr.
- -------------------------
R. Thomas Savage, Jr.
Chief Financial Officer
<PAGE>
SECTION 11.14 DISCLOSURE
South Carolina Insurance Company makes the following disclosure pursuant to
Section 11.14: David E. Rowell, Sr. is a designated agent assigned to Catawba
Insurance Company and, since passage of Act 154, has a voluntary market contract
with both Catawba and SCIC.
4
<PAGE>
PROPOSAL LETTER
We propose to furnish and deliver any and all of the services named in the
Request for Proposals, Proposal Notice No. 98-002/PPAI. The prices proposed
herein shall apply for the period of time stated in the RFP.
It is understood that this proposal constitutes an offer and when signed by the
authorized party will, with RFP, exhibits, and any amendments thereto,
constitute a valid and legal contract between the undersigned respondent and the
South Carolina Associated Auto Insurers Plan.
We acknowledge that we have read and understand the requirements of the RFP and
represent that this proposal is made in accordance with the terms and conditions
of the RFP. By signing this proposal, we guarantee and certify that all items
included in this proposal meet or exceed any and all such terms and conditions.
We also affirm, by signing this proposal, that we have reviewed all exhibits
attached and that we have used this documentation as a basis for submitting our
proposal. We understand and agree that this solicitation does not guarantee an
award of a contract.
We agree, if awarded the contract, to deliver goods or services which meet or
exceed the requirements of this RFP.
/s/ R. Thomas Savage, Jr. 9/9/98
- ----------------------------------------------------- -----------------
Signature of Authorized Representative/Corporate Seal Date
NOTICE OF AWARD
Proposal Accepted By:
- ----------------------------------------------------- -----------------
Director Date
5
<PAGE>
BUSINESS PLAN TO ACT AS SERVICING CARRIER FOR THE
SOUTH CAROLINA ASSOCIATED AUTO INSURERS PLAN
BY
SOUTH CAROLINA INSURANCE COMPANY
EXECUTIVE SUMMARY
South Carolina Insurance Company (SCIC) proposes to act as Servicing
Carrier for the South Carolina Associated Auto Insurers Plan (the Plan) as
outlined in Request for Proposal number 98-002/PPAI (the RFP). SCIC either
has or is willing to establish prior to the commencement of the term of the
contract, sufficient servicing capacity, facilities, and resources to
provide the best levels of performance and service in meeting its
obligations to the Plan, the insureds, regulatory authorities, and member
companies.
SCIC is uniquely qualified as a Servicing Carrier for the Plan by virtue of
its extensive experience as a voluntary automobile insurance market as well
as its long-standing role as a Servicing Carrier for the South Carolina
Reinsurance Facility through its Catawba Insurance Company subsidiary. We
have a proven track record for compliance with claims and underwriting
guidelines to be used by the JUA. As a domestic carrier, SCIC is intimately
familiar with the South Carolina market, which, when combined with its
experience with the Facility, offers a level of stability to policyholders
that no other respondent to the RFP can match. SCIC is a participant in the
voluntary nonstandard auto market in South Carolina and will treat the Plan
business with the same care and attention as it will its retained business
which will result in better service to all constituents of the Plan.
Furthermore, SCIC and its employees are stakeholders in the overall
economic progress of the State of South Carolina giving them a vested
interest in an orderly auto insurance market.
Seibels Bruce has over 70 years experience serving the independent agency
system. Unlike other potential respondents, SCIC has not abandoned the
South Carolina auto market in past years. This company's continued
experience with South Carolina agents has built strong relationships which
will benefit the JUA operations.
Because of the foregoing attributes, SCIC is best positioned of all
respondents to the RFP to provide the various components required in the
RFP, including Underwriting, Policy Issuance, Auditing, Billing, Premium
Collection, Loss Control, Claims Administration and Information Systems.
Summaries of SCIC's responses on these areas follow.
6
<PAGE>
UNDERWRITING
SCIC will follow essentially the same procedures that are currently being
followed by Catawba Insurance Company in its underwriting of risks for the
South Carolina Reinsurance Facility. The system and procedures, however,
are flexible, and can be tailored for any attributes of the Plan. The
underwriting process basically has four components--new business,
renewals, endorsements and cancellations. The activity flow has been laid
out in detail as seen in the attached essay on underwriting. SCIC has three
customers under the Plan; the Plan itself, the Agents and the Insureds.
Quality service to our customers is a prime mission of our organization and
a consistent theme throughout our processes.
Applications for new business are easily transmitted by agents and are
carefully handled with a view to compliance for guidelines, statutory
requirements, rating, option form compliance, proper classification and
completeness. Several steps, all transparent to the insured, have been
included in order to verify information so that the policy can be rated and
underwritten correctly. Our renewal process is streamlined and focuses on
accurate pricing. This is accomplished through an automated comparison of
the applicants with the SC motor vehicle records. Nonrenewals are issued
when appropriate. As with the new application process, information is
verified through several steps to identify any rating changes. Midterm
endorsements, cancellations and account monitoring are all handled with the
same commitment to quality.
Additionally, our Facility underwriting audits demonstrate proven and
accurate pricing and underwriting of risks in the South Carolina market. No
other respondent has our track record or market experience. Most have no
experience in this market.
Because SCIC has been a participant in the South Carolina auto insurance
market for so long, it supports its effort with an exceptionally talented
and seasoned team. Underwriting supervisors average 18 years of experience
in the field. All members of the team have experience in the South Carolina
market and 18% hold a professional designation. Because it is headquartered
in South Carolina, SCIC will service the Plan out of its Columbia office.
All of these characteristics set SCIC apart from the competition in its
ability to service the needs of the Plan.
POLICY ISSUANCE
All policy documents and forms are issued in accordance with South Carolina
statutes. These documents have been in use for several years and comply
with regulatory provisions and have been approved by the Department of
Insurance (DOI). SCIC has proven its ability to issue policies in
accordance with not only statutory requirements, but also in accordance
with external directions of outside bodies such as the South Carolina
Reinsurance Facility and FEMA's flood program.
7
<PAGE>
New business and endorsements are monitored for accuracy. Likewise, time in
processing is measured to ensure timely issuance to the policyholder.
AUDITING SERVICES
As a servicing carrier for the SCRF, Catawba is already required to audit
the trust accounts of the designated agencies to ensure compliance with
accounting standards. When the contract is awarded, this process will be
expanded to include "all encompassing" audits of the agencies to ensure
compliance with all standards of the SCAAIP. This will include monitoring
the amount of business placed into the JUA to determine if the Plan is
being over utilized. The audits will be conducted on an annual basis.
In addition, our underwriting department will be staffed with an auditor to
track the certifications and performance of all agents assigned.
Deficiencies will be monitored and tracked in accordance with the Rules of
Practice outlined by the SCAAIP.
BILLING
SCIC has a fully automated billing system that provides direct bill
capability and is compatible with most premium finance companies. The
direct bill program, which is utilized for the Catawba Facility contract,
will be used for the Plan and is an extremely effective and efficient tool
that generates customer bills as policies and endorsements are processed.
Premium collections for the Plan will be processed in compliance with Plan
guidelines governing application of payments and policy cancellations. Cash
is collected and applied to policies daily with several reconciliation
routines to ensure accurate processing. All errors are thoroughly
researched and completely resolved. The personnel are highly experienced as
evidenced by an average tenure of over 10 years. Management of the function
has an average tenure of 20 years.
COLLECTIONS
SCIC will bring to bear its excellent collection practices to the
collection of uncollectable earned premiums. Nonstandard books of business
are characterized by credit exposure to insureds for whom premiums are
earned in advance of payment by the insured. The most typical example of
this situation is a midterm endorsement to a policy which creates earned
premium in excess of the equity in the policy. When the insureds fail to
pay the new earned premium, SCIC cancels the policy at the earliest
opportunity and immediately enacts collection measures. Industry experience
with regard to uncollectable earned premium (bad debt ratio) is between
1.5% to 2% of gross written premium. Catawba Insurance Company has been
able to surpass the industry standard by limiting its bad debt ratio to
under 1% of gross written premium. Improving the bad debt ratio by 1/2% on
a $40,000,000 book of business, for example, reduces the cost to the Plan.
It has been the experience with Catawba's
8
<PAGE>
Facility book of business that approximately 22% of unearned premiums that
are charged off are ultimately collected. Collection of these premiums
ultimately results in lower costs for insureds under the Plan.
Although payment in full is required up front for new business, the JUA
will experience past due premiums relating to underwriting of CLUE reports
and endorsement activity. Our ability to out-perform the industry in
collecting these past due premiums sets us apart from the other
respondents.
Collection efforts will be courteous and aimed at educating the customer to
the reasons behind a past due payment and resolving any misunderstandings
that the insured has. This educational approach has a secondary benefit of
reducing coverage lapses, which has a stabilizing effect on the market. If
collection efforts by SCIC fail, the account receivable will be referred
either to a collection agency or an attorney, depending on the size and
complexity of the case. Collection efforts will comply fully with the Rules
of Practice--Servicing Carriers.
LOSS CONTROL
Loss control on a personal auto book of business is essentially part of the
underwriting process. By virtue of SCIC's emphasis on quality, loss control
is a natural extension of the every day activities of the team. Adverse
trends will be noted and reported to the Plan. SCIC's experience with a
voluntary book of non-standard South Carolina auto business will also add
great value to this process. Because the claims and underwriting personnel
for the Plan will be working closely with the team handling the voluntary
book, the Plan will benefit from the additional experience that other team
members have to offer.
CLAIMS ADMINISTRATION
SCIC is extremely well positioned to administer claims arising out of the
Plan due to our current physical presence in Columbia, S.C., our previous
experience with the SCRF and emphasis on quality. Overall, the focus of the
Claims department is customer satisfaction, customer retention and severity
control. As a consequence, Plan claims will be handled with the same
attention and focus as claims against SCIC retained policies, i.e. with a
focus on rapid settlement and severity control. Special units have been set
up to handle certain types of losses such as total losses or losses where
subrogation appears likely. Best practice guidelines are in place to ensure
proper case review and effective overall management.
We have consistently been "In Compliance" with our Facility claim audits.
This track record sets us apart from most other respondents. These audits
indicate our ability to properly administrate claims in a servicing carrier
environment.
Inspire's Policy and Claims Administration (PCA) system, the software which
will be used to process Plan policies and Claims produces a full array of
reports which are
9
<PAGE>
used to monitor claims administration and employee performance. The
Internal Audit Department at Seibels Bruce will audit all claims functions
periodically for adherence to the Plan guidelines.
Our SIU consists of a fully licensed adjuster with a law enforcement
background and reports directly to the AVP of Claims. Our AVP of Claims has
five years of law enforcement experience plus thirteen years property and
casualty SIU experience. The AVP created and oversaw the SIU operation at
Integon for five years.
We are committed to customer service as evidenced by our toll free number
which allows claims to be reported directly to the Company to ensure timely
contact and quality claim handling. The claims reporting capability will be
expanded to 24 hours a day to comply with the SCAAIP standards. Performance
will be monitored by a claims satisfaction survey and will be measured
against benchmarks. Customer complaints are dealt with through a formal
procedure to ensure satisfaction of those complaints and proper notice to
Regulators.
INFORMATION SYSTEMS
Plan policies will be processed out of SCIC's data center which is located
in Columbia and which currently handles the South Carolina Reinsurance
Facility business, SCIC's Voluntary Auto program, as well as SCIC's
Homeowners, Dwelling Fire, Motorcycle and Commercial Lines programs.
Columbia is located in the heart of South Carolina where there is limited
exposure to the destructive forces of nature such as hurricanes. All
operational and development support is located on-site at the Columbia
location. This includes programmers, business analysts, data center
personnel, network support and IS Management.
The Data Center was established in 1994 on an IBM AS/400 platform. This
machine is rated as one of the most reliable on the market with a rating of
99.95% up time. Operational processes are established that ensure system
security, backup and recovery, change management, capacity planning, and
performance tuning. Nightly batch processes have been automated to the
extent of no longer needing a second or third shift operator. Interfaces
are in place through the IBM network to the SC DMV, NICB, and Enterprise
Rental Car. A number of agents have direct access to the system via Frame
Relay or dial-in, which allows them to inquiry on their policies. We also
have approximately thirty agents with which we interface using a third
party finance company. The finance company compiles the new business
policies from each of the thirty agents and transmits it once a day. These
policies are then added to our daily data collection files and run through
batch processing. Data Center printing is done on-site. All printed
material for SC Auto is systematically bar-coded to allow for the automatic
assembly process.
Currently our software of choice is Inspire's Policy and Claims
Administration (PCA) system. The PCA application was initially chosen,
customized and implemented to process SC Reinsurance Facility business. The
system is structured around tables to
10
<PAGE>
allow for easier development, maintenance and modifications. A variety of
features enhance our ability to process both policies and claims. Some of
these automated features include CLUE and MVR ordering and reporting,
violation assignment, VIN/Symbol assignment to allow for accurate on-line
rating and Bureau and statistical reporting. In addition, the system
affords easy data entry, extensive editing, convenient cross-referencing
for various database files and complete history files that include
pertinent transactional and financial information. Statistical reporting is
in place to report detail, summary and recoupment premium and claims data
on a monthly basis to AIPSO. Balancing routines ensure accurate reporting.
Reporting to the Department of Insurance is also in place and is handled on
a monthly basis. These procedures are established, efficient and flexible
to expand at any time.
In summary, the computer facility, wide area network, processes,
procedures, and experienced staff are in place to maintain, support and
grow the current business. Additional features, interfaces and enhancements
are continuously analyzed to improve the system and its associated
processes. Collectively these elements provide for the stability of today's
processes as well as ensuring successful implementation of new processes.
BACKGROUND AND EXPERIENCE
South Carolina Insurance Company (SCIC) will be the sole respondent on the
Request for Proposal and will not utilize any subcontractors or affiliated
companies. SCIC was established on June 10, 1910. In 1972 SCIC had its initial
public offering and later became a subsidiary of The Seibels Bruce Group, Inc.
The stock today is traded on the NASDAQ national market under the symbol SBIG.
The Seibels Bruce Group is a multi line property and casualty insurer which will
comply fully with the requirements of the RFP with regard to licenses. The
primary line of business of SBIG is non-standard auto, which it offers through
its three subsidiaries, SCIC, Catawba Insurance Company (Catawba), and Universal
Insurance Company. SCIC offers a voluntary market for non-standard auto in nine
states while Catawba serves as one of the Servicing Carriers for the South
Carolina Reinsurance Facility (the Facility).
As can be seen in the table below, Catawba's Servicing Carrier experience is
extensive.
<TABLE>
<CAPTION>
Year Written Premium Earned Premium
---- --------------- --------------
<S> <C> <C>
1993 $82,131,309 $80,816,988
1994 $80,547,925 $83,970,212
1995 $64,206,362 $66,863,968
1996 $69,342,208 $65,754,202
1997 $75,216,072 $75,387,286
</TABLE>
As you will see in the "Past performance and Commitment" section of this
proposal, we have been in compliance with all claim and underwriting audits
completed by the South Carolina Reinsurance Facility in the past 5 years. Our
commitment to this Plan is
11
<PAGE>
demonstrated by the fact that we have been a servicing carrier for the Facility
since its inception in 1974. No other respondent can demonstrate more experience
in the residual markets of South Carolina than SCIC. It is by virtue of the
experience with the Facility that SCIC is best positioned to serve the South
Carolina Associated Auto Insurers Plan. In that many of the same personnel work
for both Catawba and SCIC, SCIC is completely prepared to handle all aspects of
the Plan business. Catawba was one of the original Servicing Carriers for the
Facility and has consistently provided a high level of service for the Facility,
the insureds and for the Designated Agents which wrote for the Facility. This
experience, combined with the overall knowledge of the South Carolina auto
insurance market and its commitment to the State of South Carolina makes SCIC
the logical choice to be named a servicing Carrier for the South Carolina
Associated Auto Insurers Plan.
12
<PAGE>
PAST PERFORMANCE AND COMMITMENT
Seibels Bruce has served the State of South Carolina as a servicing carrier for
the Reinsurance Facility since its inception in 1974. For almost 25 years,
Seibels Bruce has demonstrated their commitment to the consumers of South
Carolina by assisting them in obtaining insurance coverage through the residual
market. Our service to the agents and consumers has always been considered
exceptional.
Since 1974, Seibels Bruce has served on the Governing Board of the South
Carolina Reinsurance Facility. We have always been an active member of this
board.
Our performance audits for the past five years resulted as follows:
<TABLE>
<CAPTION>
Year Claims Result Underwriting Result
---- ------------- -------------------
<S> <C> <C>
1993 Passed In Compliance
1994 Passed In Compliance
1995 Passed In Compliance
1996 Passed In Compliance
1997 Passed In Compliance
</TABLE>
We feel these results demonstrate our ability to follow the guidelines and rules
of practice for the South Carolina Reinsurance Facility.
Our most recent target market conduct exam was completed on August 5, 1996. A
copy of the summary page is attached. This targeted market conduct exam was
completed on the records of the South Carolina Reinsurance Facility business we
wrote as a servicing carrier. The purpose was to review the procedures used in
determination of surcharge and points for rating purposes. The scope of the exam
encompassed review of underwriting procedures, rating manuals, insurer
guidelines, and recalculation of points for rating. We were determined to be in
compliance.
The South Carolina Insurance Company served the North Carolina Reinsurance
Facility from its inception in 1973 until 1995. In this role, the South Carolina
Insurance Company demonstrated its ability to provide accurate policy rating and
efficient claims administration for 22 years.
We also serve FEMA as a WYO Flood provider. South Carolina Insurance Company has
served FEMA since its inception in 1983. Through the years, we have been subject
to the most stringent of audits. In fact, several WYO companies are under
investigation for improper handling of FEMA funds. We have recently undergone a
targeted audit regarding our accounting practices by Deloitte and Touche. Our
practices have been determined to be in compliance with Federal law.
13
<PAGE>
SOUTH CAROLINA INSURANCE COMPANY SOLVENCY CERTIFICATION
This document serves as certification that South Carolina Insurance Company nor
its parent, The Seibels Bruce Group, Inc., nor any of its affiliated companies
has declared bankruptcy within the last three- (3) years.
14
<PAGE>
CREDIT RATING
Section 9.4.2 of the Request for Proposal indicates that the Respondent shall
submit a copy of the Respondent's credit rating from an accredited national
credit rating bureau. Neither the Respondent nor its parent, The Seibels Bruce
Group, Inc. have publicly traded debt securities that would require a rating
from an accredited national credit rating bureau such as Standard and Poors or
Moody's. Dun and Bradstreet does not rate Insurance Companies because the Dun
and Bradstreet rating model cannot accommodate these type companies.
In response, we submit a copy of our Financial Stability Rating from Demotech
which represents that company's analysis of the ability of South Carolina
Insurance Company to "meet its financial obligations." We also offer audited
statutory financial statements for the last three years for the Respondent as
well as its parent.
South Carolina Insurance Company is not rated by A.M. Best Company, Inc. because
its rating procedures are inapplicable to our operations. Under the "NR-3"
assigned designation, the absence of a rating is due to the fact that Best's
normal rating procedures do not apply due to [SCIC's] unique or unusual business
features. The unique or unusual business feature associated with our operations
is its primary non-risk bearing, servicing carrier operation.
15
<PAGE>
PRICING ENHANCEMENTS
As stated in our cover letter, we are prepared to offer pricing enhancements
should the Director choose to exercise its prerogative under Section 2.16.
Included in this section are our pricing sheets with the proposed pricing based
on the current RFP requirements. It is not our intention to modify the original
RFP.
Our proposed enhancements are offered in an attempt to provide the best pricing
available to SCAAIP and the consumers of South Carolina. We are confident that
our pricing and processes are competitive. However, the current requirements for
the non-rated company require us to incur and pass on unnecessary expenses.
If the requirement to post a statutory deposit is waived, and the performance
bond amount is capped at $1.5 million, we would reduce our prices to the
following amounts by market shares:
50% QUOTA SHARE
Operating Service Fee - Liability 5.027% of written liability premium
Operations Service Fee - Physical Damage 5.027% of written physical damage
premium
Claims Service Fee - Liability 13.367% of earned liability premium
Claims Service Fee - Physical Damage 9.723% of earned physical damage premium
75% QUOTA SHARE
Operating Service Fee - Liability 4.482% of written liability premium
Operations Service Fee - Physical Damage 4.482% of written physical damage
premium
Claims Service Fee - Liability 11.397% of earned liability premium
Claims Service Fee - Physical Damage 8.209% of earned physical damage premium
100% QUOTA SHARE
Operating Service Fee - Liability 3.763% of written liability premium
Operations Service Fee - Physical Damage 3.763% of written physical damage
premium
Claims Service Fee - Liability 9.56% of earned liability premium
Claims Service Fee - Physical Damage 6.515% of earned physical damage premium
16
<PAGE>
PRICING SHEET
We hereby submit the following compensation percentages to serve as a
Servicing Carrier for the South Carolina Associated Auto Insurers Plan
in accordance with the terms and conditions of this proposal.
Company: South Carolina Insurance Company
By: /s/ R. Thomas Savage, Jr. / CFO 9/9/98
-------------------------------------------------------------------
Authorized Signature/Title Date
Percentage share of Association business we are proposing to service
in the state (use separate sheets if bidding on more than one
percentage share):
100%
In computing monthly fees for services rendered as a servicing carrier
of the Association, the below percentages of premium will be used upon
which monthly payments will be made. It is understood that these
percentages will be adjusted in accordance with the
incentive/disincentive program, and for eligible charge-offs. No
compensation will be issued for ineligible charge offs.
Operating Service Fee - Liability 4.013% of written liability premium
Operating Service Fee - Physical Damage 4.013% of written physical
damage premium
Claims Service Fee - Liability 9.810% of earned liability premium
Claims Service Fee - Physical Damage 6.765% of earned physical damage
premium
17
<PAGE>
PRICING SHEET
We hereby submit the following compensation percentages to serve as a
Servicing Carrier for the South Carolina Associated Auto Insurers Plan
in accordance with the terms and conditions of this proposal.
Company: South Carolina Insurance Company
By: /s/ R. Thomas Savage, Jr. / CFO 9/9/98
-------------------------------------------------------------------
Authorized Signature/Title Date
Percentage share of Association business we are proposing to service
in the state (use separate sheets if bidding on more than one
percentage share):
75%
In computing monthly fees for services rendered as a servicing carrier
of the Association, the below percentages of premium will be used upon
which monthly payments will be made. It is understood that these
percentages will be adjusted in accordance with the
incentive/disincentive program, and for eligible charge-offs. No
compensation will be issued for ineligible charge offs.
Operating Service Fee - Liability 4.732% of written liability premium
Operating Service Fee - Physical Damage 4.732% of written physical
damage premium
Claims Service Fee - Liability 11.647% of earned liability premium
Claims Service Fee - Physical Damage 8.459% of earned physical damage
premium
18
<PAGE>
PRICING SHEET
We hereby submit the following compensation percentages to serve as a
Servicing Carrier for the South Carolina Associated Auto Insurers Plan
in accordance with the terms and conditions of this proposal.
Company: South Carolina Insurance Company
By: /s/ R. Thomas Savage, Jr. / CFO 9/9/98
-------------------------------------------------------------------
Authorized Signature/Title Date
Percentage share of Association business we are proposing to service
in the state (use separate sheets if bidding on more than one
percentage share):
50%
In computing monthly fees for services rendered as a servicing carrier
of the Association, the below percentages of premium will be used upon
which monthly payments will be made. It is understood that these
percentages will be adjusted in accordance with the
incentive/disincentive program, and for eligible charge-offs. No
compensation will be issued for ineligible charge offs.
Operating Service Fee - Liability 5.527% of written liability premium
Operating Service Fee - Physical Damage 5.527% of written physical
damage premium
Claims Service Fee - Liability 13.867% of earned liability premium
Claims Service Fee - Physical Damage 10.223% of earned physical damage
premium
19
<PAGE>
PRICING SHEET
We hereby submit the following compensation percentages to serve as a
Servicing Carrier for the South Carolina Associated Auto Insurers Plan
in accordance with the terms and conditions of this proposal.
Company: South Carolina Insurance Company
By: /s/ R. Thomas Savage, Jr. / CFO 9/9/98
-------------------------------------------------------------------
Authorized Signature/Title Date
Percentage share of Association business we are proposing to service
in the state (use separate sheets if bidding on more than one
percentage share):
33 1/3%
In computing monthly fees for services rendered as a servicing carrier
of the Association, the below percentages of premium will be used upon
which monthly payments will be made. It is understood that these
percentages will be adjusted in accordance with the
incentive/disincentive program, and for eligible charge-offs. No
compensation will be issued for ineligible charge offs.
Operating Service Fee - Liability 7.435% of written liability premium
Operating Service Fee - Physical Damage 7.435% of written physical
damage premium
Claims Service Fee - Liability 18.528% of earned liability premium
Claims Service Fee - Physical Damage 14.238% of earned physical damage
premium
19-A
<PAGE>
PRICING SHEET
We hereby submit the following compensation percentages to serve as a
Servicing Carrier for the South Carolina Associated Auto Insurers Plan
in accordance with the terms and conditions of this proposal.
Company: South Carolina Insurance Company
By: /s/ R. Thomas Savage, Jr. / CFO 9/9/98
-------------------------------------------------------------------
Authorized Signature/Title Date
Percentage share of Association business we are proposing to service
in the state (use separate sheets if bidding on more than one
percentage share):
30%
In computing monthly fees for services rendered as a servicing carrier
of the Association, the below percentages of premium will be used upon
which monthly payments will be made. It is understood that these
percentages will be adjusted in accordance with the
incentive/disincentive program, and for eligible charge-offs. No
compensation will be issued for ineligible charge offs.
Operating Service Fee - Liability 7.796% of written liability premium
Operating Service Fee - Physical Damage 7.796% of written physical
damage premium
Claims Service Fee - Liability 19.394% of earned liability premium
Claims Service Fee - Physical Damage 15.062% of earned physical damage
premium
19-B
<PAGE>
PRICING SHEET
We hereby submit the following compensation percentages to serve as a
Servicing Carrier for the South Carolina Associated Auto Insurers Plan
in accordance with the terms and conditions of this proposal.
Company: South Carolina Insurance Company
By: /s/ R. Thomas Savage, Jr. / CFO 9/9/98
-------------------------------------------------------------------
Authorized Signature/Title Date
Percentage share of Association business we are proposing to service
in the state (use separate sheets if bidding on more than one
percentage share):
25%
In computing monthly fees for services rendered as a servicing carrier
of the Association, the below percentages of premium will be used upon
which monthly payments will be made. It is understood that these
percentages will be adjusted in accordance with the
incentive/disincentive program, and for eligible charge-offs. No
compensation will be issued for ineligible charge offs.
Operating Service Fee - Liability 8.688% of written liability premium
Operating Service Fee - Physical Damage 8.688% of written physical
damage premium
Claims Service Fee - Liability 21.497% of earned liability premium
Claims Service Fee - Physical Damage 16.994% of earned physical damage
premium
19-C
<PAGE>
PRICING SHEET
We hereby submit the following compensation percentages to serve as a
Servicing Carrier for the South Carolina Associated Auto Insurers Plan
in accordance with the terms and conditions of this proposal.
Company: South Carolina Insurance Company
By: /s/ R. Thomas Savage, Jr. / CFO 9/9/98
-------------------------------------------------------------------
Authorized Signature/Title Date
Percentage share of Association business we are proposing to service
in the state (use separate sheets if bidding on more than one
percentage share):
20%
In computing monthly fees for services rendered as a servicing carrier
of the Association, the below percentages of premium will be used upon
which monthly payments will be made. It is understood that these
percentages will be adjusted in accordance with the
incentive/disincentive program, and for eligible charge-offs. No
compensation will be issued for ineligible charge offs.
Operating Service Fee - Liability 9.975% of written liability premium
Operating Service Fee - Physical Damage 9.975% of written physical
damage premium
Claims Service Fee - Liability 24.652% of earned liability premium
Claims Service Fee - Physical Damage 19.893% of earned physical damage
premium
19-D
<PAGE>
DURATION OF OFFER
The Respondent, South Carolina Insurance Company, certifies that its proposal is
valid until notification of an award has been issued. The Respondent, South
Carolina Insurance Company, understands that this period may be extended by
mutual agreement between the Servicing Carrier and the Advisory Board. The
Respondent, South Carolina Insurance Company, certifies that the costs submitted
with the proposal shall be firm from the date of submission.
20
<PAGE>
EXHIBIT 4: BUSINESS PLAN --- QUALITATIVE QUESTIONNAIRE
The qualitative questionnaire will be scored with a total number of 50
points possible. Of the 50 total points, 30 points involve
Underwriting/Processing and 20 points involve Claims Administration.
Please insert additional answer sheets for responses, if required.
Underwriting/Processing
General Responsibilities 5 essays
Resources 5 essays
Account/Selection Criteria 1 essay
Sub-Contractors Vendors 4 essays
Total 15 essays
Please score the above section on the basis of 0 to 30 points.
Score __________ (Scorer Use Only)
Claims Administration
Claims Investigation 4 essays
Resources 5 essays
Case Review 2 essays
Sub-Contractors Vendors 3 essays
Total 14 essays
Please score the above section on the basis of 0 to 20 points.
Score _________ (Scorer Use Only)
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I. UNDERWRITING/PROCESSING (30pts.)
1. General Responsibilities
A. Describe your new business underwriting procedures, including
qualitative enhancements, relative to application review,
information gathering and verification of risk eligibility,
and accurate policy issuance.
Catawba Insurance Company, a subsidiary of SCIC is currently a
Servicing Carrier for the South Carolina Reinsurance Facility. We have
performed this role since the Facility's inception in 1974. In 1997, we
processed approximately 52,000 new policies, 63,000 endorsement
requests, 38,000 cancellations, 10,000 reinstatements, and 59,000
renewals for the South Carolina Reinsurance Facility. In the fourth
quarter of 1997, we started writing voluntary auto business in South
Carolina. As such, we are familiar with the market nuances and
statutory requirements associated with processing new business in this
state.
Currently, our procedures are as follows for both South Carolina
Reinsurance Facility and voluntary auto business:
All applications are received and stamped the day they are received in
the mailroom. The premium amount remitted is reviewed by our processing
staff to verify the proper payment amount was received. The premium
amount remitted is written on the application for future reference by
our underwriting staff. Checks are then detached and submitted to our
billing department for entry onto our policy system and deposited into
our facility bank account. These deposits are made daily by 11:00am.
At this point, applications are reviewed by processing staff to verify
MVR's were provided on all drivers. In instances where an MVR is not
provided for a driver, one is ordered "real-time" from the South
Carolina Department of Public Safety. We have a direct link with this
department and receive these MVR's instantly to avoid processing
delays. Out of state MVR's are ordered through ChoicePoint and usually
received within one to two days. When available, we have the capability
of ordering MVR's real-time.
Applications are then sent to data entry. All relevant data is entered
into our policy system. This includes, but is not limited to, names,
addresses, agency codes, effective dates, policy term, dates of birth,
vehicle information, and territory. The new business underwriter enters
data relating to MVR's, CLUE, objective standard rating, or information
requiring review and judgement to process.
22
<PAGE>
CLUE reports are ordered on all new business by the processing staff.
These reports are received the following business day and attached to
the application.
Currently, many of our agents utilize an agency management system
provided to them by Prime Rate Premium Finance Company. We have a new
business upload arrangement with Prime Rate that allows us to
systematically prefill the initial data entry, apply payments, and
order CLUE reports. This process enhances the processing time when
used.
Once these procedures have been completed, the applications and all
documents provided by the agents and obtained by our staff are
delivered to the new business underwriting unit. New business
underwriters receive the applications for review on a "first in/first
out" basis. Applications are underwritten for compliance with
guidelines, statutory requirements, rating, option form compliance,
proper classification, and missing information.
The following is an example of the underwriters' responsibilities:
o Verify the application is received from the agent in a timely
manner. If not, a deficiency letter goes to the agency and the
SCRF.
o Verify eligibility and proper information was obtained to bind
coverage. This would include MVR's, proof of ownership,
insurability, and necessary rating information. Deficiency
letters are mailed when appropriate.
o Verify territory assignment.
o Call and/or write the agency for any missing information.
o When a properly executed UM/UIM option form is not provided,
agents are notified in writing and the coverages are issued
with UM/UIM equal to the liability limits.
o MVR's are underwritten with regards to date ordered,
eligibility of risk, and the application of surcharges.
Underwriters have access to the South Carolina Department of
Public Safety MVR link from their terminals. When necessary,
they will order MVR's for instant access.
When necessary, underwriters have access to MVR Decoder
reference manuals to evaluate out of state MVR's and surcharge
assignment.
o CLUE reports are underwritten for surcharge application, and
additional drivers. When additional drivers are suspected,
underwriters will attempt to contact the insured by phone or
in writing. When this is not successful, they call or send a
letter to the agent asking them to help identify and explain
the existence of additional drivers. If the facts warrant, the
underwriter may use their discretion and add the drivers
immediately.
o ADD reports are ordered in many cases when the number of
vehicles in relation to the number of drivers does not appear
reasonable.
o A letter is sent to the insured notifying them of any
additional surcharge points added as a result of a CLUE
report.
23
<PAGE>
o Underwriters use the information provided on the applications,
MVR's, and CLUE reports to ensure proper classification of
risks.
o Given the current "mandate to write", very few applications
are determined to be ineligible. However, when this occurs the
underwriter processes the cancellation in accordance with
statutory provisions. Certification of delivery is obtained.
o When requested, financial responsibility filings (SR22) are
made. In many instances, insureds require immediate filings.
We have a "Same Day SR22" procedure where an agent may fax an
application and MVR's by 12:00pm for immediate filing. We have
a courier who delivers SR22's to the highway department daily
at 2:30pm. This proves to be very convenient to insureds that
are in dire straits.
o Our processing system provides underwriters with a diary
mechanism for following up on a future status of a policy when
required. This may be used to obtain missing information.
o Underwriters also have access to an on-line policy log.
Comments, decisions, and conversations with agents and
insureds can be documented for future reference.
From a qualitative view, our system provides the following
enhancements:
o VIN Verification- ISO tapes are routinely loaded onto our
database to verify VIN and symbol assignment. Edits assist the
underwriting and processing staff in ensuring proper VIN
entry.
o Premium Summary- Our system provides a premium summary review.
An underwriter can view the completed policy entry and match
the calculated premium to the premium submitted on the
application. When the premium matches, the policy is released.
If the premium doesn't match, the underwriter can evaluate the
difference by reviewing the entry and the application. If a
significant refund is due, the agent is notified to try and
ascertain the difference prior to generating the refund. All
refunds and additional premium due notices are generated
systematically when the policies are released.
o Our system provides automated rating capabilities for antique
autos, classic autos, customization and motorhomes.
o Our policy system provides on-line edits to assist processing
specialists and underwriters in entering and obtaining
accurate information. These edits focus on rating and
classification of risks.
o Error reports generate daily to alert us of entry and
processing errors.
o Policy documentation is made and retained on-line.
o Policy diaries are maintained via our policy system.
o Our underwriting auditor reviews samples of new business
applications daily for quality and adherence to guidelines and
procedures.
o A daily sample of the previous day's processed new business is
reviewed to determine the length of time in processing.
24
<PAGE>
Once these efforts are completed, the application documents are sent to
records for microfilming. Records are retained for seven years beyond
the life of the policy.
New business policy documents include a declarations page, ID cards,
policy jacket, and additional premium due notices. Insured and agent
copies are sent to the agency. Insured copies are countersigned by the
agent and delivered or mailed to the insured. Special interest copies
are generated and mailed directly to the special interest. ID cards
comply with current statutory requirements and one card per vehicle is
produced.
In the current statutory environment, we are not permitted to cancel,
or refuse a policy due to incomplete applications. Effective March 1,
1999 the statute changes permitting us to take action. Our procedures
will be to contact the agent and/or insured to obtain the information.
The policy will be placed on diary for a 14 day follow up. If the
necessary information is not obtained, the policy will not be issued
and proper notification sent to the insured and agent.
All procedures have undergone the scrutiny of the SCRF. We are audited
yearly for underwriting compliance and have always passed our reviews.
B. Describe your renewal business underwriting procedures,
including qualitative enhancements, relative to criteria used
to determine adequacy of money submitted by the insured,
verification of risk continuing eligibility, and accurate
policy issuance.
Our renewal underwriting procedures operate within the current legal
environment in South Carolina. This environment minimizes the instances
you may nonrenew a policy. These most frequent reasons are as follows:
1. The named insured has moved out of state.
2. The named insured is deceased.
3. The named insured does not have a valid S.C. drivers license
or has a suspended or revoked license.
Therefore, renewal underwriting in the current environment focuses on
accurate pricing. This does not imply risk qualification does not
occur. We do recognize the legal environment is changing with the
implementation of the JUA and we will change our procedures
accordingly. Our current procedures are as follows:
Sixty (60) days prior to the renewal effective date, we receive a tape
of all of our policies whose driver's (and license numbers) are coming
up for renewal to the South Carolina Department of Public Safety
(SCDPS). They in turn match this tape against their MVR database. This
tape identifies the licenses that have had activity since the last
renewal review. In other words, they identify those drivers
25
<PAGE>
whose MVR's have changed since the last renewal. The SCDPS then
transmits these MVR's back to our policy system via tape.
The new MVR data is evaluated by our Automated Violation Assignment
(AVA) system. This system automatically assigns most surcharges
discovered on the violation/accident tape provided. AVA generates a
daily list of policies with the remaining MVR activity that must be
evaluated by our renewal underwriters. Consideration must be given to
violations associated with accidents so as not to add surcharge points
for both the accident and violation. This is in accordance with S.C.
law. The renewal underwriters flag suspensions and expired licenses for
review. When appropriate, nonrenewals are issued. Our underwriting
review is as follows:
o If a suspended license is identified, we set the policy up for
nonrenewal and mail the insured and agent a letter advising
the insured that their license is suspended and ask them to
have it reinstated to avoid nonrenewal.
o The same procedure is followed for expired licenses. The
insured and agent are afforded the opportunity to reinstate
the insured's license prior to the nonrenewal is issued.
o AVA also alerts us to discrepancies in the date of births. If
the dates on the MVR don't match what is on our system, the
underwriter has the opportunity to re-rate the policy.
o Multiple violations are referred for proper point assignment.
The renewal underwriters receive a daily listing of all new paid losses
in excess of the BI and PD thresholds. This allows us to add accident
surcharges immediately to become effective at the next renewal. This
enhancement allows us to more effectively rate the policy by not
waiting until a claim feature is closed before adding the surcharge.
Waiting until the feature or file is closed can delay application of
the surcharge by one or more renewal cycles.
In the new business essay, we referred to our future status (diary)
feature. Whether underwriting at the new business or the endorsement
stage, our underwriters will diary policies for the next renewal cycle
if any pertinent renewal underwriting criteria should be reviewed. Our
renewal underwriters receive these diaries 60 days prior to renewal for
review and underwriting action. This feature is used when:
o An excluded driver needs to have a FR-9 and exclusion form
reapplied. The insured and agent is asked to reapply for the
exclusion prior to the renewal offer. If it is not received,
the driver is rated back onto the policy for the renewal
offer.
o Cross referenced files are reviewed. In some instances spouses
have separate policies and we verify the point assignment if
one of the policies cancels. For example, the policy with the
points may cancel.
26
<PAGE>
Without proof of other coverage, the spouse and points are
added to the remaining policy.
o When points are not being applied because they are applied to
a motorcycle policy, we diary for verification the motorcycle
policy is still in force. If not, surcharge points are
applied.
o In some instances, points are not applied for a driver because
they are applied on another auto policy. We request an updated
certificate of coverage. If not received, the points are
applied.
Our policy system generates a listing of all policies with out of state
drivers licenses and drivers with permits. These MVR's are ordered,
underwritten, and points applied when applicable by the renewal
underwriting staff. When a driver's "permit" restriction is removed,
the drivers and vehicles are reclassified to reflect the proper rate.
If the named insured is not a member of the military, or a student, the
policy is nonrenewed. Permitted driver's MVR's are reviewed to
determine if the license is still under a "permit". When the license
becomes unrestricted, the policy is reclassified to consider rating for
the youthful or inexperienced operator.
Our claims staff routinely complete and refer claim referral reports to
the underwriting department. These reports may provide information
concerning unlisted drivers, or other appropriate underwriting
information. This information is reviewed and applied to the policies
as appropriate.
All renewal offers are mailed to the insured, agent and special
interests forty-five (45) days in advance of the renewal effective
date. The renewal offer includes a renewal declarations page, renewal
questionnaire, updated ID cards, and a billing notice (including past
due balances). When the renewal questionnaire is returned, the policy
is updated accordingly.
Fourteen (14) days prior to the renewal, a reminder notice is mailed to
the insured and agent if payment has not been received. If payment is
not received by the renewal effective date, a lapse notice is generated
to all interested parties. In accordance with SCRF guidelines, a
fourteen-day (14) grace period is considered for late payments.
Financial responsibility filings (SR22 & SR26) are made as appropriate
and delivered to the SCDPS daily.
The SCRF does not currently offer payment plans. They require payment
in full. As a result, most policies are premium financed and the full
premium submitted. If, and when payment deficiencies exist, we credit
the money and bill for the remaining balance due. When necessary, our
policy system generates cancellations according to S.C. law. Currently,
any unpaid balances and bad debt are the servicing carrier's
responsibility.
27
<PAGE>
Looking forward to the JUA, we believe the procedures will accurately
and efficiently provide for proper rating and risk review of JUA
renewals. As the residual market mechanism, it is unlikely that much of
the underwriting criteria will change. Without seeing the renewal
underwriting guidelines, it is difficult to describe how our procedures
may change. However, our procedures are flexible and will easily adjust
to the prescribed guidelines.
In addition to the system features mentioned previously, we have an
underwriting expert system (UES) feature. This is an automated risk
review feature designed for voluntary risks in an accept/reject
underwriting environment. This feature reviews underwriting criteria
and can make underwriting decisions or flag policies for review by an
underwriter. If the JUA guidelines can be utilized in this manner, we
expect to use UES.
Once again, these procedures have undergone stringent audits with the
SCRF. These processes have always been acceptable.
C. Describe your mid-term underwriting review/evaluation process,
including qualitative enhancements, with respect to
interaction with other disciplines, account monitoring,
criteria for issuance of endorsements, cancellations, etc.
Mid-term underwriting occurs by receipt of policy changes (endorsement
requests) and by handling service calls from agents and insureds. Our
processes are as follows:
Our Customer Service unit is staffed with CSR's who focus solely on
handling our service calls. This unit is staffed with experienced
underwriters who are familiar with all stages of our underwriting
process. In the process of servicing customers, issues arise that
require underwriting expertise. These situations may result in
immediate action being taken on a file. When this happens, these CSR's
can and will re-evaluate the risk for eligibility and proper rating.
They will immediately enter policy changes as required. If the
situation doesn't call for immediate action, or when information needs
to be clarified prior to renewal, they will enter a future status
(diary) comment for review at renewal.
As mentioned in previous essays, our policy system has a policy log
that can be reviewed by the CSR. Comments by other underwriting staff
can be reviewed prior to making decisions that effect the policy.
Likewise, the CSR's routinely document their conversations and actions
for future reference. In fact, all conversations and decisions are
documented on this policy log by all underwriting staff. This provides
a chronological account of the policy history.
Policy change (endorsement) requests are submitted by agents and date
stamped when received in the mailroom. These change requests are sorted
and delivered to underwriting. All changes submitted with money are
prioritized for immediate application of money and processing. This
ensures all monies are applied and deposited in a timely fashion.
28
<PAGE>
When drivers are added, MVR's are ordered to ensure proper
classification and rating. A MVR decoder reference manual is utilized
on out of state MVR's to ensure proper interpretation of that states
MVR. S.C. MVR's are ordered "real-time" to speed processing as
previously described.
Underwriters re-evaluate all risks with the submission of an
endorsement to ensure qualification, classification, and rating of the
risk occurs. When necessary, a future status comment is used to flag
the policy for follow-up or renewal review. Generally, the following
mid-term underwriting occurs:
o The underwriter orders ADD reports from ChoicePoint when they
suspect additional drivers may exist. Many times this occurs
simply because the number of cars to drivers seems
unreasonable for the risk.
o When missing, or additional information is needed, the
endorsement underwriter will call or write the agent and/or
insured.
o The effective date of the endorsement is verified with the
date the endorsement is signed. Backdated endorsements are
referred to a supervisor for review and contact with the
agent.
o Verification of proper documentation such as UM/UIM option
forms, FR9 and exclusion forms, and proof of ownership are
verified. If the option form is not submitted or not executed
properly, the change is not made and the form returned to the
agent. The same procedure applies to driver exclusions. No
change is made if the proper documentation is not provided.
o Policy logs are updated to document conversations and
decisions.
o Insured signatures are encouraged on all endorsements,
however, we will process an endorsement without a signature as
long as it is not deleting or reducing coverage. These cases
are sent back to the agent for the insured's signature.
o Verify the request is coming from the named insured or
appropriate representative (POA or executor).
o Discounts are applied when qualifications are met.
o Our system is programmed to automatically update and rerate a
policy mid-term when a driver turns age 25. This is in
accordance with SCID regulations.
o After changes are completed, the policy is rerated and viewed
by the underwriter for accuracy.
Claims coverage questions arise and are referred to underwriting. Most of
these coverage disputes arise from endorsements, although some result from
new business or renewals. Whatever the reason, all coverage questions are
referred to underwriting from claims. The coverage issues are identified
and resolved by underwriting staff. 95% of coverage issues can be resolved
within 24 hours.
Insured/finance cancellation requests are separated in the mailroom and
date stamped the day of receipt. All cancellations are entered the day of
receipt. These cancellations are underwritten as follows:
29
<PAGE>
o Backdated cancellations are referred to a supervisor for
review and contact with the agent prior to processing.
o Cancellations resulting from a total loss are reviewed to
determine the date the rental coverage expired. This requires
review of the claim file. The date of cancellation is the day
after the rental car was turned in.
o Verification of proper signature.
o Agents are contacted on questionable cases.
o A cancellation declaration is mailed to all interested parties
to confirm the cancellation. This also serves as notice to the
special interest that the policy has cancelled.
o SR26 forms allowing the required 15-day notice is mailed when
applicable.
o We verify the cancellation date is not within the first 60
days of a new policy term or 90 days on SR22 policies in
accordance with S.C. law.
o Verify proper documentation is submitted to pro-rate
cancellation.
o Refunds are generated systematically and provided to the
finance company if applicable.
Our policy system provides edits to prevent us from canceling policies
within the 61st or 91st day of the policy term.
Our mid-term processing has always been acceptable to the SCRF. Our
past audits all reflect compliance.
D. Describe your procedures as respects processing of
cancellations for the reasons of non-compliance, non-payment
of premiums, not allowing reasonable access for
audit/inspections, or disclosure of exposure.
Current statutory requirements only allow for cancellation in the
following instances:
o Revoked or suspended license
o Non-payment of premium
o Material misrepresentation
When an MVR is obtained by our underwriting staff and the insured's
license is determined to be suspended, revoked, or otherwise invalid,
we take the action permissible for the circumstances. If it is a new
business application, we cancel effective the 61st day of the policy
period in accordance with statute. If it is determined mid-term, the
notice of nonrenewal is processed immediately.
When an additional premium is due, the insured receives a billing
notice immediately. If this additional premium is not received within
20 days, a cancellation notice is generated on an equity basis. This
means we calculate the "paid to date" and generate the cancellation
notice 20 days prior to this date. In cases where there is no equity,
the cancellation date will always calculate a minimum 20 days notice
and an outstanding balance will be due. All billing notices and
cancellations are generated systematically. Cancellation notices
indicate the reason for cancellation and the
30
<PAGE>
balance due. If the payment is received prior to the cancellation date,
the policy is reinstated. We do require the agent to submit a copy of
the payment receipt when requesting reinstatement.
When past due balances remain, the system generates earned premium due
notices upon the cancellation date. If no funds are received, the
policy is referred to our collections department for policyholder
contact. The system then automatically generates a series of collection
letters to the insured. If no contact or cooperation is obtained, we
refer the account to a collection agency.
The mandate to write currently limits our opportunity to cancel a
policy for failure to allow audit, inspection or disclosure of
exposure. When the JUA goes into effect, the mandate to write will no
longer exist. Our underwriting processes will allow us to cancel within
the guidelines set forth by the JUA. We will be prepared to cancel
immediately, or utilize our future status diary mechanism to allow the
insured a reasonable time to comply. Essentially, when an underwriter
deems the insured or agent to be uncooperative, they can process a
cancellation immediately, or maintain the policy on diary for
compliance. This decision will be determined at the underwriter's
discretion based upon JUA guidelines.
Cancellation and nonrenewal notices are mailed and a "certificate of
mailing" received by the U.S.P.S.
E. Describe the procedures utilized to monitor and manage the
above activities as respects compliance with performance
standards and enhancements portion.
All performance standards are monitored with the idea of "what gets
measured gets done". We have several ways in which we objectively
monitor performance.
We have an auditor on staff who reviews our work product for accuracy,
completeness, procedural compliance, proper rating, and underwriting
judgement. This process encompasses new business and policy changes.
When the underwriter completes their processing of an application or
endorsement, the source documents are released to the auditor prior to
going to microfilming. We review a random sampling of 100 applications
and 100 endorsements per week. The auditor reviews the work product
from the eyes of an underwriter and determines any deficiencies on the
file. All MVR, CLUE reports, option forms, etc. are available for
review.
Deficiencies are noted and given to the supervisor for review and
feedback with the underwriter or processing specialist. The auditor
tracks the deficiencies by type and individual. This results in
identification of individual and departmental weaknesses, and allows us
to focus coaching and training where needed. Essentially, we know who
is making errors, and the category of errors they are making. A quality
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percentage rating is determined for each individual and tracked
monthly. Each employee has a "Quality" goal that is part of his or her
yearly performance and salary evaluation.
We also audit our time in processing of source documents. We randomly
sample 50 applications and 50 endorsements per day to determine the
"time in process". This measure is calculated from the day we receive
the source document in our mailroom, until the day our policy documents
are actually mailed. We include weekends and holidays in the
calculation. We then measure the percentage of source documents
processed within a number of days. For example, we would know that we
processed 95% of our applications within 8 days, and it takes 12 days
to process 100%. This result is tracked on a monthly and year to date
basis for both applications and endorsements.
As mentioned in previous essays, we have "real-time" access to MVR's
(in most states) and to CLUE. This aids us in meeting our time in
process standards.
Our underwriting unit is divided into specialized units. We separate
the new business, endorsement and customer service functions. We feel
this allows our underwriters to focus and become experts on a
specialty; thus, improving quality and efficiencies. However, all
underwriters and CSR's are cross-trained and proficient in all
functions. This allows us maximum flexibility in managing workloads and
call volumes. For example, when application volume is lower than
planned, we can shift some of that staff to endorsements where the
volume may be higher. This allows us to manage our backlog and levels
of inventory.
We track inventory daily. We know how many applications, policy
changes, and cancellations we have on hand to be processed on a daily
basis.
Our phone system utilizes automatic call distribution and management
reporting enhancements. Calls are received and distributed to the first
available CSR. This minimizes wait times and doesn't force the customer
to rely on the availability of one underwriter. As we mentioned in a
previous essay, our CSR's are trained underwriters and are empowered to
handle any need of a customer.
Our customer service unit has a dedicated supervisor. The supervisor
has access to phone service measures in a "real time" environment. Call
handling statistics are tracked hourly, daily, weekly, monthly and
yearly. This data tracks individual and departmental performance
against standards. Among other things, we know:
o Percentage of calls answered within the first 20 seconds
(approx. 5-6 rings)
o Percentage of abandoned calls
o Number of calls offered
o Number of calls abandoned
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This data allows us to manage our phone service to the customer and the
performance of our staff. Each CSR has specific performance goals aimed
at reaching our objectives. These goals are part of their yearly
performance and salary evaluations.
Our customer service unit has a "wallboard" that displays the current
number of calls being offered, the number on hold, and the longest hold
time. This information is displayed "real time" for the benefit of the
entire department. Each CSR phone has a red light that illuminates when
calls are on hold as well.
Voice mail is not utilized in our department below the supervisory and
management ranks. We intend for the customer to speak to a person at
all times.
Lastly, we have mentioned our performance and salary evaluations. Each
employee has objective and subjective goals by which they are
evaluated. The majority of the weight is placed on the objective goals.
These goals are measured monthly and sometimes weekly. Feedback and
coaching is provided on an ongoing basis. Each employee knows their
performance appraisal and merit review will be evaluated against his or
her goals.
2. Resources
A. What is the average years South Carolina insurance
underwriting experience for underwriters assigned South
Carolina accounts?
Given that Columbia, South Carolina is the home office of The Seibels
Bruce Group, Inc. and its affiliated companies, we have long been
involved in underwriting South Carolina policies. As a result, all of
our staff has been trained and actively involved in the South Carolina
marketplace. The average years of experience for our underwriting
positions are as follows:
o Processing Specialists 7 years.
o Underwriters 6 years.
o Customer Service Representatives 8 years.
o Auditor 18 years.
o Underwriting Supervisors 19 years.
o Underwriting Manager 7 years.
B. What is the percentage of underwriters assigned to South
Carolina who are experienced in underwriting South Carolina
Private Passenger Automobile Business?
All underwriting and customer service is handled by our South Carolina
Auto Operations Center. As a result, 100% of our staff has, and is
continually gaining, experience in the South Carolina marketplace.
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C. What is the percentage of underwriting employees assigned to
South Carolina holding professional designations?
To date, 18% hold professional designations.
D. List the locations of offices underwriting automobile business
for South Carolina.
All underwriting for South Carolina automobile business and customer
service takes place in Columbia, South Carolina.
E. What is the percentage of underwriting/processing
representatives assigned to South Carolina who are employed by
the company and located or workplace domiciled within South
Carolina?
100% of the underwriting/processing staff is located or workplace
domiciled in Columbia, South Carolina.
3. Account Selection/Criteria
A. Describe how accounts are monitored during the policy period
to determine need for additional services or corrective action
including fraud prevention and fraud investigation.
There are three ways in which we monitor and review accounts during the
policy term. These activities help us to ensure proper rating and
classification of risks.
All endorsements are reviewed by underwriters to determine how the
risks should be reclassified as a result of the change request. Driver
assignment and surcharge assignments are reevaluated with each change
When CSR's receive phone calls from agents and insured's, conversations
are documented for future reference. Likewise, when underwriting rating
factors appear to be changing the CSR will re-evaluate the risk and
make any necessary changes to ensure the proper rate is charged.
Our claims department routinely sends underwriting referrals notices to
our underwriters. The claim adjuster will make these referrals to
notify us of address changes, additional drivers, suspected fraud, and
situations where rating jumping is suspected.
Whenever we uncover situations where the insured has not been charged
the proper rate (such as additional drivers), the policy is re-rated
using the effective date that would have applied. This usually results
in us backdating the change. For example, if a driver was not disclosed
at the point of sale or uncovered in the new business
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underwriting process, we will order and MVR and add the driver and any
applicable surcharges effective the inception date of the policy.
4. Sub-Contractors/Vendors
A. Will you subcontract any of the work contemplated under this
bid? And under what circumstances?
No subcontracting is anticipated.
B. Describe the anticipated frequency of independent auditor use
during the contract period?
Not applicable.
C. If the answer to A above is yes, how will the performance
standards and any enhancements be communicated and monitored?
Not applicable.
D. Describe the qualifications of your sub-contractors/vendors.
Not applicable.
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II. CLAIMS ADMINISTRATION (20 PTS.)
1. CLAIMS INVESTIGATION
A. Describe your claim investigation procedures, including
qualitative enhancements, relative to timeliness of first
notice of injury, coverage and classification verification,
determination of compensability/liability, subrogation etc.
We understand the importance of timely first report of injury. National
studies have shown most people who get attorneys to represent them for
their injury wait an average of three days before obtaining an
attorney. Thus, the sooner a claim is reported, the greater the
opportunity to control severity and improve customer service. We have
worked with our agents through our marketing and claim departments to
increase their awareness and their customers awareness of the
importance of timely first notice of injury. Our Direct Reporting Unit
is a separate and distinct unit designed to receive new losses, obtain
coverage and to verify classification.
The Direct Reporting Unit has the authority and responsibility of
transferring calls involving serious injury to the adjuster while the
insured or claimant is reporting the loss. This unit can also transfer
other calls. This is helpful in starting the investigation process the
moment the claim is reported. Contacts of the involved parties are
started immediately. Explaining the claim process and what they should
expect throughout the claim is begun right away. Recorded statements
and important information regarding injury, excess liability policies
and a plan of action are started at the onset of the claim. This
procedure insures prompt contact with the insured or claimant at a
critical time of the loss. In addition our investigation procedures
require 24-hour contact and 72-hour follow up on any parties outside of
those who reported the loss initially. We are using the SCRF guidelines
in both our voluntary and facility claim setting. The SCRF claim
guidelines are specific in regard to when recorded statements are
obtained, when scene investigations are needed and when police reports
are secured. These guidelines mirror the SCAAIP guidelines introduced
recently to us.
Our qualitative enhancements for first notice of claim include managing
our service levels. This includes the volume or number of calls
received, the total time of the telephone call, the average hold time
and the abandon rate. These management reports are available through
our ACD telephone system, which also assists in monitoring calls for
quality control as well as training issues. In addition all losses are
reviewed by the supervisor and specific instructions given to the
representative prior to assignment and placed on supervisor diary.
As our claim representatives handle the claims, each file is to include
a specific plan of action, which is documented at the onset of the
claim. The documentation in our file supports our liability decision as
well as cover any applicable case law, policy interpretation and
practices of the insurance industry. The initial supervisor review
provides a plan of action and up front instruction for the adjuster and
is further discussed
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and documented by the claim adjuster throughout the file to insure
reserving is adequate and all potential exposures are addressed. The
adjuster looks to see what potentially could happen in a file and work
towards the timely conclusion of the claim. This pro-active claim
handling approach reduces the severity of the claim both in the expense
and the exposure of the claim.
It is at this initial point of investigation where we address any
subrogation or recovery issues. It is important at the onset of the
claim to recognize a potential comparative case, uninsured motorist
case or a case involving vandalism, etc. which may initiate a
subrogation claim. We notify our subrogation unit at the initial point
where subrogation is recognized and immediately establish a reserve and
action plan to include proper investigation to protect our subrogation
rights as well as prepare a plan of recovery. Our subrogation
procedures and requirements follow those set by SCRF. Our log tracks
the recovery and ongoing activity of the file. We play an active roll
in arbitration of cases through filing claims with Arbitration Forums,
as well as appearing for arbitration hearings for review of files
presented by other members. In this area of specialization, the
adjuster takes active notice of our costs of recovery and insures
reserves for both recovery and expenses to recovery are recognized and
documented.
In order to enhance customer service and control loss of use we have
electronically linked to the Enterprise Rent-a-Car ARMS system. This
allows us to go on line and establish rental reservations for our
customers. The rental company places a diary entry on the system, which
allows the adjuster to follow up with body shops to ensure the rental
is not over extended.
We have a separate Total Loss Unit that handles the negotiation and
settlement of total losses for both first and third party claims. The
adjuster works with our Auto Material Damage unit which reviews all
potential total losses and all shop estimates for reasonability and
accuracy. This unit insures that LKQ parts or aftermarket parts are
considered and any betterment is considered. As we currently handle our
claims in accordance with the SCRF Guidelines, our claims, which
involve total losses, are entered into the salvage log upon entry into
the total loss area. This allows us to track salvage disposition,
charges against salvage and to insure the optimum recovery is reached.
As a Designated Carrier for the South Carolina Reinsurance Facility,
any claims in which suit is filed against our insured or against the
Company, are handled per the Litigation Management and Suit Handling
Procedures. Our Litigation unit is supervised by our Litigation
Supervisor who instructs our staff and agents regarding the proper
handling of all Summons and Complaints. This unit keeps a log which
indicates the style of the complaint, the named insured, date answer
due, Plaintiff and Defense Counsel, the date of service and the
adjuster who is handling the loss. Our diary system is in place to
follow with the assignment of counsel to include extensions or answers
to complaints. In addition, guidelines are specific in regards to
letters of acknowledgement, excess letters and specific duties for
Defense counsel to complete. To assist in controlling legal expenses,
defense counsel does not complete any investigative tasks or negotiate
settlements unless the adjuster gives specific instructions. Legal fees
for services are negotiated and it is the adjuster's responsibility to
properly reserve for these expenses and review all legal bills. Our
suit files require Defense Attorneys to provide a 14-day
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acknowledgement of our request for representation of our insured, and
correspondence with our insured to advise them of the said
representation. We require an initial case analysis in which we ask for
counsel's opinion in regard to liability, applicable law, venue,
verdict trends and other pertinent factors which will establish our
course of action. This initial case analysis will also assist us to
ensure proper reserves are established for both our exposure and our
expenses, and is due within 30 days.
Coverage issues are addressed at the inception of the loss. Our
Underwriting Department will assist with coverage issues and work with
the agent, when needed, to assist in documenting payment receipts,
endorsements, etc. We can address most coverage issues the same day the
loss is reported and usually resolve any coverage issues pertaining to
new policies, new autos and policies pending payments quickly to insure
quality customer service. Currently, we resolve most coverage issues
within 24 hours.
We utilize glass management companies to control costs and severity.
The glass management company takes loss notices directly from our
insureds. This gives them the opportunity to mitigate the loss.
Although the insured has the option of choosing their glass vendor,
most do not have a preference. The glass management company is able to
direct the insured to a glass shop that is capable of providing
excellent service, quality repairs, and who will cooperate in
controlling costs. The glass management company attempts to "sell" the
insured on repairs when appropriate.
By working with a glass management company, we receive the expert
knowledge necessary to properly evaluate the glass loss. They have
knowledge of the market rates for glass and are able to command the
best discount of NAGS parts. In situations where the insured chooses
the glass shop, they review the charges and negotiate the settlement
directly with the glass shop.
We receive monthly reports showing the amounts and types of losses
paid. This includes the percentage of repairs. We feel their services
are critical in controlling losses in a market where there is no
deductible for glass.
Independent appraisers are used for writing repair estimates on insured
and claimant vehicles. This gives us access countrywide for handling
claims. All appraisers are licensed and familiar with current repair
techniques. We will utilize staff appraisers as the volumes permit. We
also have access to our staff appraisers in North Carolina through our
subsidiary company in Winston-Salem. This gives us a strong presence in
the Carolinas.
When any outside investigation or contact is needed, we use independent
adjusters. All adjusters used are licensed and qualified for the type
of investigation needed.
B. Describe your case review, suspense and follow-up procedures
on open claim files.
An effective claims review process emphasizes proper customer service,
severity control and expense management. It provides for continual
development of claim skills and insures reserves are adequate and
documented. It is also used to address the specific
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disposition of the claim file. In addition file reviews are utilized in
performance management.
The file review schedule includes reviews of all files during the first
15 days, 30 days, 90 days.
1. FIFTEEN-DAY REVIEW: A clear report of coverage applicable to
the loss will be addressed. Loss facts and a clear liability
analysis will be addressed at this point. Reserves and
proposed handling to bring the loss to a conclusion to include
the plan of action will be included in this report. First
reports are reviewed by supervisor for reserves, coverage
questions and to insure the adjuster has a plan of action in
place for the handling of the file.
2. 30 DAY REVIEW: Comment in regard to specific work completed
within the last 15 days will be documented at this point to
include what areas of the file need to be completed to
conclude handling of the claim. Comments regarding reserves to
include, in all injury claims, a projected bodily injury
settlement range.
3. 90-DAY REVIEW: The exposures for the file should be known and
reserves in place at this point of the handling of the file.
There should be no initial reserves in place at this time
unless adequate to cover the exposure. File review and
captioned reports are needed at this point in any serious
bodily injury claims carrying a reserve greater than $10,000
and any cases with contested liability or coverage issues. Any
cases in which suit has been filed should also contain a
detailed captioned report. These reports will include comments
in regard to the following
(a) Coverage: limits, effective date of policy, type of
property insured and coverage issues.
(b) The insured, to include address, phone number,
employment, and ,if the driver of the insured auto is
different than the named insured this information
should also be documented to include the relationship
with the insured and any other applicable insurance
if appropriate. (Our underwriting department is
notified upon any change in address, or any resident
driver not listed on the policy both at this point as
well as upon receipt of the claim if different than
records indicate)
(c) The date, time and place of the loss including a
description of the scene and weather conditions if
significant to the loss.
(d) Detailed description of the loss and any witnesses.
(e) Witnesses - when significant to the investigation.
(f) Summary of the investigating officers report.
(g) Photographs as documented in the file.
(h) Injuries - description of the injury to include
specials to date and any other insurance applicable
or available. Diagnosis and prognosis and future
treatment should be included in this caption.
(i) Damages - both autos should be included, even if no
coverage available to the insured auto.
(j) Venue, Jurisdiction and any attorneys involved.
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(k) Evaluation - include any offers/demands made.
(l) Plan of Action: outline of work to be completed to
bring the file to conclusion.
The designated supervisor will review all 90-day reports. The
supervisor comments on the file in respect to injury damage reserves
and disposition. Specific comments should be made in regard to the
reserves and specific documentation in regard to why the reserve is
adequate for the loss or what reserve should be carried. In addition,
specifics should be documented in what is needed to bring the file to
conclusion. The claim representative is to address any instruction
within 15 days and outline the needed activity on instruction given by
the supervisor in the claim file review.
C. Describe the guidelines, criteria, and procedures used to
identify and investigate claim fraud.
NICB provides our claims staff with in-house training on how to
recognize fraud indicators Our adjusters will periodically attend
various fraud-related seminars sponsored by NICB, Defense Counsel and
other insurance industry personnel, when available. Our guidelines are
specific with regard to statements and file documentation for the
investigation of suspicious claims. The results of a claim
investigation are weighted against the fraud indicators promulgated by
NICB in our efforts to identify insurance fraud. As a fraud indicator
is recognized, additional investigation is required to either validate
the indicator or rule it out. Specialized staff has been hired to aid
adjusters in identifying fraud and conducting fraud investigations as
needed. If there is suspected fraud the file will be transferred to the
special investigator in the Columbia, South Carolina claim office. We
have additional SIU staff in our Tennessee and North Carolina claim
offices that are available for training and assistance when needed.
Our adjusters are required to notify NICB on all total theft and fire
claims as well as any other claim involving suspected fraud activity.
Databases, such as NICB, the Index Bureau and our own claims database,
are routinely checked for claims history in an effort to identify
repeat offenders. Outside vendors may be utilized on a case-by-case
basis when the need for an expert becomes apparent during the course of
an investigation, i.e. a cause and origin expert on a vehicle fire,
accident reconstruction or independent medical exam on a questionable
injury claim. Proofs of Loss and/or Releases are always obtained if
settling a suspicious claim.
We have specific guidelines regarding investigation on bodily injury
cases involving minor impact claims. Clear photographs of both the
insured's auto as well as the claimant's auto are recommended along
with full medical reports.
D. Describe the use of the 1-800 toll free claims reporting
number and how these calls are translated into open claim
files.
As described in B above our Direct Reporting Unit and the 800# play a
critical role in the handling of a claim file. Our claim service begins
with our Direct Reporting Unit receiving all loss notices, either
through the service of our 800#, mail or by facsimile.
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This service allows our customers, agents and claimants to report all
loss information in a single call. Once the loss information is
received the coverage is confirmed, the file established and the claim
directed to the appropriate supervisor. Certain injury claims are
immediately transferred to an adjuster. It is the supervisor's
responsibility to ensure proper assignment of the claim and appropriate
instruction to the claim representative as inappropriate claim
assignments result in higher severity and poor customer service.
As this area is the "first impression" given of our claim service we
have specific standards set forth within this unit. Our telephone
system allows us to monitor our service levels, monitor telephone
conversations and provide specific goals to the customer service
representatives of the requirements of their position. In addition, we
are able to monitor the amount of calls received within specific time
periods, which allows for scheduling during peak hours. This insures
our customer service standards are met. We have the capability of
forwarding our 800# to one of our other claim office in the event of an
internal or external catastrophe.
The 800# will be available to receive loss reports via facsimile or
voice mail 24 hours a day. Our goal is to establish a relationship with
a call center that will allow our customers direct access 24-hours a
day to report any type of loss to a "live" person.
2. RESOURCES
A. What is the average years South Carolina claims
experience for claim representatives to be assigned
South Carolina accounts?
As previously indicated, given that Columbia, South Carolina is the
home office of The Seibels Bruce Group, Inc. and its affiliated
companies, we have long been involved in handling claims for South
Carolina agencies. As a result our staff is trained and experienced in
South Carolina regulations, case law and requirements. The average
years of experience for our claims positions are as follows:
o Litigation Specialists 13.3 years
o Claim Representatives 8.5 years
o Management/Supervisor 12.7 years
B. What is the percentage of claim representatives
assigned to South Carolina who are employed by the
company and located or workplace domiciled within
South Carolina?
100% of our claim staff is located or workplace domiciled in Columbia,
South Carolina.
C. What percentage of claims employees assigned to South
Carolina hold professional designations?
Currently, 4 % have completed the necessary requirements for a
professional designation. Also, an additional 6% have completed some
portion of the necessary requirements for a professional designation.
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D. What is the caseload per claim representative for
those assigned to South Carolina automobile business?
Currently, our average caseload is as follows:
Front Line Adjusters 131
Bodily Injury Adjusters 205
Litigation Specialists 207
E. List the locations of offices performing claim
activities for South Carolina business.
All activities are currently performed in Columbia, South Carolina. It
is expected that the majority of the claims functions will be handled
in Columbia for the life of the contract. However, some specialized
functions (such as SIU) may be handled in our Winston-Salem or
Nashville offices where other specialized staff exists. Regardless of
location, all such activities for our South Carolina Reinsurance
Facility, JUA, and voluntary claims will be handled in the same manner.
3. Case Review
A. Describe your review and documentation
procedures for reserve adequacy on open
cases.
Claim Representatives are responsible for establishing all initial
reserves. These initial reserves are based on established averages by
coverage. Initial reserves are opened within 24 hours of coverage
confirmation. As new developments occur on a claim, reserves are
adjusted immediately and the file documented. Stair stepping of
reserves by waiting for verification of one piece of information is
viewed as a deficiency.
At all diaries an entry regarding the reserve and the analysis thereof
is documented. The analysis is based upon the information gathered by
the claim representative relating to the coverage exposed.
To insure reserve adequacy, all supervisor reviews require a reserve
analysis. Instruction regarding automobile values, and specific
questions regarding injuries sustained, to include employment, lost
time from work and to insure the adjuster is actively pursuing
information to determine the full scope of the exposure is part of the
supervisory process.
Management reports are generated monthly that detail all open loss
reserves and amount paid on closed claims for the month. This report is
sorted by adjuster, policy number and claim number.
B. Describe your reserving methodology and the
procedures used in reserving.
Reserves, reserve changes and requests for authority are all documented
and supported in our file materials. It is procedure to have reserves
established by the adjuster and reviewed at not only each diary dates,
but as the company receives additional
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information. The file is to clearly document the adjuster's position
regarding each reserve that is carried.
Each adjuster has his or her individual reserve/settlement authority.
All requests for authority above this amount is documented and
submitted to the supervisor for authority. Authority is granted on a
case by case basis and all accompanying documentation in file to
support such reserve. The service of the loss reporting unit, along
with timely coverage confirmation and contact requirements, tied in
with the adequate investigation and file reporting ties into the
control and adequate reserving of each individual file. Adjusters are
trained to always look to the avenue in which the claim is progressing
and to adequately plan for loss and expense as these two items effect
the bottom line of our companies profitably.
4. Sub-Contractors Vendors
A. Identify the subcontractor(s) you propose to use on
this contract and describe in detail the work each
subcontractor will perform.
No subcontracting is anticipated.
B. Describe how the servicing carrier performance
standards and any enhancements will be communicated
and monitored to the subcontractors(s).
C. List and describe in detail the background,
qualifications, and experience of the
sub-contractors/vendors you propose to use during the
contract period.
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EXHIBIT 3: BUSINESS PLAN-QUANTITATIVE QUESTIONNAIRE
The quantitative questionnaire will be scored with a total number of 50 points
possible.
I. UNDERWRITING/PROCESSING
General Responsibilities 3 items
Underwriting/Rating Services 2 items
Issuance of Original Policy 2 items
Renewal Policies 1 item
Incomplete Applications/Endorsements 3 items
Endorsements 1 items
Producer Certification 6 items
Return Premiums 1 item
Premium Billing 3 items
Producer Commissions 1 item
Total 22 items
Please score the above section on the basis of 0 to 30 points.
Score ____________ (Scorer Use Only)
II. CLAIMS ADMINISTRATION
Loss Reporting 4 items
Coverage Confirmation 2 items
Contract Requirements 3 items
Adequate Investigation 1 item
File Reporting 1 item
Subrogation 2 items
Litigation Management and Suit Handling 1 item
Total 14 items
Please score the above section on the basis of 0 to 20 points.
Score ____________ (Scorer Use Only)
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1. UNDERWRITING/PROCESSING (30 PTS.)
I. GENERAL RESPONSIBILITIES:
In addition to any other responsibilities noted in this RFP,
the Servicing Carrier will perform the following general
responsibilities:
a. At initial issue and each renewal thereafter,
servicing carriers must accomplish confirmation of
driving record of each insured driver by obtaining
copies of the insured's motor vehicle records from
the State of South Carolina Department of Public
Safety or on the basis of motor vehicle records
issued by the appropriate agency of another state.
Servicing carriers must properly price all policies
and when appropriate, check classification and
territory through inspection reports and other
techniques.
MINIMUM STANDARD: 30 DAYS
ENHANCEMENT - Driving records will be verified within 15 working days of receipt
of a new business application. On renewals, driver records will be verified at
least 30 working days prior to renewal.
b. Servicing carriers must issue insurance policies to
applicants by the expiration date of the binder
issued.
MINIMUM STANDARDS: 30 DAYS
ENHANCEMENT- New policies will be issued prior to the binder expiration date,
and, within 15 working days of receipt when all necessary information is
provided.
c. Servicing carriers must carry out all subsequent
policy transactions on a timely basis.
MINIMUM STANDARDS: 30 DAYS
ENHANCEMENT- Subsequent policy transaction will be completed within 15 working
days when all necessary information is provided.
2. UNDERWRITING/RATING SERVICES:
a. General Underwriting/Rating
The Servicing Carrier shall:
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(1) Properly price all policies in accordance
with the approved rating plans contained in
the Association's Manual of Rules and Rates
and establish procedures for appropriate and
timely verification of policyholders' and
operators' driving records and/or obtain
other information as necessary to assist in
the proper classification and rating of an
applicant including CLUE reports.
MINIMUM STANDARDS: 30 DAYS
ENHANCEMENT- Policies will be properly priced within 15 working days of receipt
when all necessary information is provided.
(2) Attempt to secure and verify account loss
history from the previous company or
companies to insure proper application of
any applicable premium surcharge or rating
plans.
MINIMUM STANDARDS: 30 DAYS
ENHANCEMENT- Loss histories will be verified and proper surcharges applied
within 15 working days of receipt when all necessary information is provided,
and, when the prior carriers cooperate.
b. Issuance Of Original Policy
(1). Within two working days following the
receipt of application make SR-22 filings of
policy and certificates provided all
information necessary is contained in the
application form and such application is
accompanied by the deposit premium
prescribed in Section 5 of the Servicing
Carrier Rules of Practice. Such filings will
indicate the effective date which must be
the same as the policy effective date.
MINIMUM STANDARD 2 DAYS
ENHANCEMENT- SR-22's will be filed properly within 2 working days of receipt
when all necessary information is provided. "Same day" SR-22 service will be
provided when all procedures are followed and submitted by 12:00 p.m.
(2). within 30 calendar days issue a policy and
certificates if all information necessary
for the Servicing Carrier to fix the proper
rate is contained on the application form,
such policy to become effective in
accordance with the
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provisions of Section 6 of the Servicing
Carrier Rules of Practice.
MINIMUM STANDARDS: 30 DAYS
ENHANCEMENT- New policies will be issued within 20 calendar days when all
necessary information is provided.
c. Renewal Policies Or Certificates
Servicing Carrier shall perform the following responsibilities
regarding the issuance of Association renewal policies. Upon receipt of
the application the Servicing Carrier shall:
(1) Renewal policies and certificates must be
mailed within 30 calendar days of the
Servicing Carrier's receipt of the renewal
premium specified under a. or b. above.
MINIMUM STANDARDS: 30 DAYS
ENHANCEMENT- Our renewal policies and certificates are mailed as part of our
renewal offer at least 30 days in advance of the renewal effective
date.__________________
Private passenger automobile insurance may renew for three, six month
terms, and small commercial risks may renew for one, 12 month term, if
otherwise eligible.
d. Incomplete Applications/Endorsements
(1) Applications shall be accepted by the
Servicing Carrier and shall be processed if
the requirements shown in Sections 5 and 6
of the Servicing Carrier Rules of Practice
are complied with, and it shall be the
responsibility of the Servicing Carrier to
communicate to the insured and producer of
record in what respect an application is
incomplete and requires correction.
MINIMUM STANDARDS: 30 DAYS
ENHANCEMENT- Incomplete applications and endorsements will be identified and
communicated to the agent and insured within 15 working days.
(2) Servicing carriers shall not return any
insurance application or change request
without definite action. The application or
change request must ultimately, (after
additional or missing information is
requested and received), be accepted and a
policy or endorsement issued, rejected or
canceled with proper legal notice, or in
limited instances involving fraud, material
misrepresentation, submission of invalid
funds or prior debt to the SCAAIP, voided if
deemed appropriate under the circumstances.
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Servicing carriers may return applications
for missing information if a copy of the
application is retained.
MINIMUM STANDARD 15 DAYS
ENHANCEMENT- Once needed or additional information is obtained, definite action
will be taken within 10 working days of receipt.
(3) The Servicing Carrier shall give at least 15
days to the insured and to the producer of
record to respond to underwriting
information requests and no part of the
deposit premium shall be returned to the
insured or to the producer of record except
upon proper cancellation in accordance with
the provisions of Section 11 of the
Servicing Carrier Rules of Practice, as
applicable.
MINIMUM STANDARD 15 DAYS
ENHANCEMENT- We will provide a minimum of 15 days for the insured and agent to
respond to a request for additional information.
e. Endorsements
(1) Any endorsement requested of the Servicing
Carrier shall be issued and mailed within 30
days after all information necessary to
properly underwrite and rate the policy has
been received.
MINIMUM STANDARDS: 30 DAYS
ENHANCEMENT- Endorsements will be issued and mailed within 15 working days of
receipt when all necessary information is provided.
f. Producer Certification (Producer Certification Program is in Section
of the Producer Rules of Practice)
The Servicing Carrier shall:
(1) establish and maintain a file for each
certified producer to monitor performance.
Such file shall include application
deficiencies, complaints and other
correspondence. The Servicing Carrier should
review the files at least monthly to
identify producers who should be referred to
SCAAIP for consideration by Application
Committee.
(2) track application deficiencies from the
application/policy underwriting system to
identify producers who should be referred to
SCAAIP.
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(3) investigate performance complaints, and if
possible, resolve them.
MINIMUM STANDARD 30 DAYS
ENHANCEMENT- Certified producers performance will be monitored and review
monthly. Once a producer has been placed on warning, the producer will be
monitored and reviewed bi-weekly. All performance complaints will be resolved
within 10 working days when possible.
(4) notify insured of toll free number for the
insured to call for service on an SCAAIP
policy in the event his producer is
decertified and the insured is seeking a new
certified producer.
MINIMUM STANDARD 5 DAYS
ENHANCEMENT- The insured's notification will be mailed within 3 working days.
(5) generate a list of all applications and
policies written on behalf of a producer
over a period of three years. This data will
be used to distribute letters advising
insureds of assigned certified producers in
the event of decertification or suspension.
MINIMUM STANDARD 5 DAYS
ENHANCEMENT- The list will be generated within 3 working days.
(6) block payment of commissions on either
applications only or both applications and
renewals in the event the producer is
decertified or suspended.
MINIMUM STANDARD 2 DAYS
ENHANCEMENT- No enhancement to the minimum standard is being proposed.
g. Return Premiums
(1) Within 30 days of the receipt of a request
for either cancellation or an endorsement
resulting in a return premium, the Servicing
Carrier must mail the return premium check.
MINIMUM STANDARDS: 30 DAYS
ENHANCEMENT- Return premiums will be processed and mailed within 30 calendar
days of their request being processed. The only exceptions will be when statutes
govern cancellation time frames.
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h. Premium Billing
All billing and payment guidelines are to be consistent with
the premium deposit and installment provisions outlined in
Section 5 of the Servicing Carrier Rules of Practice.
(1) Policies which develop an additional premium as a
result of an inadequate deposit submitted with the
application or policy change request, or shortage in
premium resulting from a policy change request,
preliminary premium audit or other determination of a
premium shortage, the total additional premium must
be billed within 30 days from determination of the
additional premium due, or the next premium
installment billing date, whichever occurs first. The
premium payment due date must not exceed 30 days from
the premium billing date.
MINIMUM STANDARDS: 30 DAYS
ENHANCEMENT- Additional premiums will be billed within 5 working days of being
processed, and the due date will be 14 days unless instructed otherwise by
SCAAIP.
(2) For policies subject to a final premium audit that
result in an additional earned premium due the
SCAAIP, the premium must be billed within 30 days of
the completion of the final premium audit and the
premium payment due date must not exceed 30 days from
the premium billing date.
(3) If the final premium audit develops a return premium,
the Servicing Carrier will remit gross return premium
to the insured within 30 days from the completion
date of the audit. The producer will be billed for
the return commission in accordance with the Rules of
Practice for Producers Writing South Carolina
Associated Auto Insurers Plan Risks.
MINIMUM STANDARDS: 30 DAYS
ENHANCEMENT- It appears this requirement applies to commercial policies and does
not apply to this RFP.
i. Producer Commissions
Servicing carriers must collect the necessary data to
disburse commission payments to agents and store this data
and report it to the Internal Revenue Service annually, if
required.
(1) Commission shall be paid no less frequently than
monthly and shall be paid within 15 days after the
close of the month in which the commission was
credited to the producer's account. The Servicing
Carrier must issue a statement and if applicable, the
proper compensation check unless the
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producer fails to provide his/her proper tax
identification number.
MINIMUM STANDARD 15 DAYS
ENHANCEMENT- Commissions will be paid within 10 calendar days of the close of
month.
The Servicing Carrier must take steps to collect unearned producer
commission from the producer.
II. CLAIMS ADMINISTRATION (20 PTS.)
1. Loss Reporting
a. Agents shall phone carrier on ALL claims involving serious
bodily injury and/or death the same day the agent received the
loss. All other claims should be reported by the next working
day.
b. Servicing Carrier will confirm coverage day of receipt of
loss. Coverage confirmation will clearly be reflected in claim
file together with the name of the person so confirming the
coverage.
c. Losses will be referred to an adjuster within 24 hours of
receipt of claim by the Claims Department and the file so
documented. All file material received from an outside source,
including loss notices, will be dated and stamped.
d. Servicing Carrier must have a 1-800 toll free number for the
reporting of claims directly to the claims area of the
Servicing Carrier such that claims reported through the toll
free number are entered into the claims system the same day.
MINIMUM STANDARD SAME DAY
ENHANCEMENT- No enhancement to the minimum standard is being proposed.
2. Coverage Confirmation
a. Coverage confirmation shall consist of policyholder's name,
policy number, policy period, date of loss, coverage limits,
including deductibles, insured vehicle, VIN number and lien
bolder, premium status, and any applicable endorsements. File
will be clearly documented as to above including date of such
coverage confirmation and the name of the person confirming
coverage.
b. Full form reports are required on all questionable coverage
cases that
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remain unresolved for more than 14 days after receipt of
claim.
MINIMUM STANDARD 14 DAYS
ENHANCEMENT- We will confirm coverage within 7 working days and provide full
form reports on questionable cases unresolved after 7 days.
3. Contract Requirements
c. All claims involving death or serious. bodily injury shall be
telephoned to adjuster the same day received by the carrier.
File will be clearly documented. All others will be assigned
to an adjuster within 24 hours after received by company and
the file so documented.
MINIMUM STANDARD 1 DAYS
ENHANCEMENT- No enhancement to the minimum standard is proposed.
b. Contact letter will be sent or phone conversation made with
insured, insured driver, and claimants within 24 hours of
assignment and will be clearly documented. In cases of death
or serious bodily injury, contact must be in person.
c. A letter must be followed up by a contact in person or by
phone within 72 hours.
MINIMUM STANDARD 3 DAYS
ENHANCEMENT- No enhancement to the minimum standard is proposed.
4. Adequate Investigation
a. Adequate investigation is that investigation necessary to
support a carrier liability decision for an accident or a
decision involving a claim for loss or damage under an
applicable insurance policy. The investigation must be
sufficient to resolve questions of applicable laws, case
decisions, Insurance Department Regulations, policy
interpretation and insurance industry practices. Please refer
to the South Carolina Associated Auto Insurers Plan Claim
Handling Guidelines.
MINIMUM STANDARDS: 30 DAYS
ENHANCEMENT- No enhancement to the minimum standards is proposed.
5. File Reporting
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a. Carrier will have a first report within 15 days of assignment.
The report shall include a clear report on coverage, contract
requirements, facts of accident, liability analysis
considering existing laws and facts, reserves, and proposed
handling to bring to a conclusion including work to be done.
MINIMUM STANDARD 15 DAYS
ENHANCEMENT- no enhancement to the minimum standard is proposed.
6. Subrogation
a. Subrogation files shall be reviewed and documented by company
supervisory personnel. Said review to include necessary
investigation including the ability to pay on the part of the
responsible party, will reflect whether arbitration
considered/attempted, reasonable efforts to recover, including
procuring a promissory note and confession of judgement from
the uninsured motorist, or a clear, concise reason why such
was not done, as to whether to refer to counsel, all abandoned
subrogation must be approved by Supervisor in writing.
b. In subrogation log, entries must be made in said Log
regardless of disposition and the subrogation log must reflect
timely and ongoing documentation that is in chronological
order.
MINIMUM STANDARDS: 30 DAYS
ENHANCEMENT- No enhancement to the minimum standards is proposed.
7. Litigation Management and Suit Handling
a. Letter of acknowledgment and excess should be sent to the
insured within 14 days of receipt of the Summons and Complaint
by the carrier.
MINIMUM STANDARD 14 DAYS
ENHANCEMENT- Excess letters to the insured will be sent within 7 calendar days
of receipt of summons.
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BUSINESS PLAN- QUALITATIVE SUMMARY OF ENHANCEMENTS
1. UNDERWRITING/PROCESSING
Driving records will be verified within 15 working days of receipt of a new
business application. On renewals, driver records will be verified at least 30
working days prior to renewal.
New policies will be issued prior to the binder expiration date, and, within 15
working days of receipt when all necessary information is provided.
Subsequent policy transactions will be completed within 15 working days when all
necessary information is provided.
Policies will be properly priced within 15 working days of receipt when all
necessary information is provided.
Loss histories will be verified and proper surcharges applied within 15 working
days of receipt when all necessary information is provided, and, when the prior
carriers cooperate.
SR-22's will be filed properly within 2 working days of receipt when all
necessary information is provided. Additionally, we will offer "same day" SR-22
filings if requested by the agent and all necessary information is submitted by
12:00 p.m.
New policies will be issued within 20 calendar days when all necessary
information is provided.
Our renewal policies and certificates will be mailed as part of our renewal
offer at least 30 days in advance of the renewal effective date.
Incomplete applications and endorsements will be identified and the needed
information communicated to the agent and insured within 15 working days.
Once needed or additional information is obtained, definite action will be taken
within 10 working days of receipt.
We will provide a minimum of 15 days for the insured and agent to respond to a
request for additional information. When appropriate, we may give a longer
period of time.
Endorsements will be issued and mailed within 15 working days of receipt when
all necessary information is provided.
Certified producers performance will be monitored and reviewed monthly. Once a
producer has been placed on warning, they will be monitored and reviewed
bi-weekly. All performance complaints will be resolved within 10 working days
when possible.
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When an agent is decertified, the following will result:
o The insured's notification will be mailed within 3 working days.
o A list will be generated within 3 working days identifying all
applications and policies written over a period of three years.
o Commissions will be blocked within 2 working days.
Return premiums will be processed and mailed within 30 calendar days of their
request being processed. The only exceptions will be when statutes govern
cancellation time frames.
Agent's commissions will be paid within 10 calendar days of the close of the
month.
Our Customer Service Unit will adhere to an 85% service standard. This means 85%
of the calls answered will occur within 20 seconds. The abandoned call rate will
not exceed 10%.
II. CLAIMS ADMINISTRATION
We will confirm coverage within 7 working days of notification of loss and
provide full form reports on questionable cases unresolved after 7 days.
Excess letters to the insured will be sent within 7 calendar days of receipt of
summons.
Our Direct Reporting Unit will adhere to an 85% service standard. This means 85%
of the calls answered will occur within 20 seconds. The abandoned call rate will
not exceed 10%.
55
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DISASTER RECOVERY PLAN SUMMARY
LEVEL 1
Seibels Bruce disaster recovery Level 1 preparation protects the
Company in the event of short-term or temporary equipment outages.
Backups, uninterrupted power supplies (UPS) and redundant hardware will
cover basic short-term disruptions in computer operations, including
short-term power outages, commonly failing parts and corrupted data. In
a Level 1 disaster, computer systems remain operational with little to
no loss of functionality. The following outlines the Company's Level 1
program:
BACKUPS:
o Backups are performed each day of the week. On Friday nights, full
system backups are performed on all platforms. On Saturday through
Thursday nights, backups of all objects changed since the last full
backup are performed on all platforms.
o The backups are rotated off-site at 9:00am on the following business
day.
o Daily backup tapes are sent off-site for 5 weeks before being rotated
for reuse.
o Weekly full backup tapes are sent off-site for 15 weeks before being
rotated for reuse.
o Monthly full backup tapes are sent off-site to be kept indefinitely.
o Retrieval from off-site storage can take place within 30 minutes.
UNINTERRUPTED POWER SUPPLIES:
o The AS/400 is on a UPS that has a sustain time of 30 minutes at full
load.
REDUNDANT HARDWARE:
o All disk drives are protected by either RAID5 or Mirroring.
o A spare 3590-tape drive is housed on the AS/400, essential to nightly
processing.
LEVEL 2
Seibels Bruce disaster recovery Level 2 preparation protects the
Company from uncommon equipment failure, long-term power outages or
damaged equipment. Some downtime or loss of functionality may be
experienced in a Level 2 disaster. In addition to Level 1 preparations,
the Level 2 plan includes maintenance contracts and vendor agreements
that will cover long-term disruptions in computer system operations.
The following outlines the Company's Level 2 program:
AT&T TELECOM SWITCHING:
o AT&T data and voice lines will be rerouted to the Seibels Bruce
facility in Winston-Salem, NC.
VENDOR AGREEMENTS:
o As the preferred customer, Seibels Bruce will receive priority
treatment from primary hardware vendor MicroPrice
o MicroPrice will provide service within 24 hours.
SUNGUARD DISASTER RECOVERY SERVICES CONTRACT:
o A binding contractual agreement with Sunguard Disaster Recovery
Services calls for the deployment of mobile comparable hardware,
technical staff and power to the site of our choice.
o Delivery time is guaranteed within 48 hours.
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o Given the proximity of Seibels Bruce to Sunguard Deployment Center in
Atlanta, the actual delivery time is expected to be within 12 hours.
MAINTENANCE AND SUPPORT CONTRACTS:
o A hardware maintenance contract with IBM ensures on-site technical
support, maintenance and delivery of any needed parts during equipment
failure or damage. Support will be provided 24 hours a day, seven days
a week.
o A support contract with IBM ensures technical support for software
running on the AS/400. This support is provided on a 24 hour a day,
seven days a week basis.
LEVEL 3
Seibels Bruce disaster recovery Level 3 preparation protects the Company from
partial or complete data center destruction. A Level 3 disaster is a long-term
outage where the data center has been destroyed or is no longer usable. In
addition to Level 1 and 2 preparations, the Level 3 plan includes rapid
replacement and relocation, if necessary, of essential equipment so that data
processing can continue. The following outlines the Company's Level 3 program:
ALTERNATE SITES:
o In the event of site destruction local to the data center, mobile
replacement equipment provided by Sunguard will be deployed on Seibels
Bruce's Columbia, SC facility to resume near normal data processing.
o In the event of total site destruction, mobile replacement equipment
provided by Sunguard will be deployed to the Seibels Bruce
Winston-Salem, NC facility.
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AFFIDAVIT OF NON-COLLUSION
I hereby swear under penalty of perjury:
(1) That I am an officer, director and employee of the Respondent, South
Carolina Insurance Company, and am duly authorized to execute this
affidavit on behalf of the Respondent, South Carolina Insurance
Company;
(2) That the attached proposal has been arrived at by the bidder
independently and has been submitted without collusion with, and
without any agreement, understanding, or planned common course of
action with, any other vendor of materials, supplies, equipment or
services described in the RFP, designed to limit independent bidding or
competition;
(3) That the contents of the proposal have not been communicated by the
Respondent, South Carolina Insurance Company, or its employees or
agents to any person not an employee or agent of the Respondent, South
Carolina Insurance Company to any person not an employee or agent of
the Respondent, South Carolina Insurance Company, or its surety on any
bond furnished with the proposal and will not be communicated to any
such person prior to September 9, 1998.
(4) That I have read and fully understand the contents of this Affidavit of
Non-Collusion and make it of my own free will and accord.
John A. Weitzel
President and Chief Executive Officer
South Carolina Insurance Company
September 9, 1998 Signature: /s/ John A. Weitzel
-----------------------------
State of South Carolina
County of Richland
The foregoing Affidavit of Non-Collusion was subscribed before
me this 9th day of September, 1998 by John A. Weitzel as President and Chief
Executive Officer of South Carolina Insurance Company, who is personally known
to me and who did take an oath.
/s/ Janet H. Langley
- ---------------------------
Notary Public
My Commission expires: 07-12-03
-----------
58
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YEAR 2000 COMPLIANCE CERTIFICATION
South Carolina Insurance Company represents and warrants that all products and
services supplied and to be supplied pursuant to this agreement (and all
products supplied or developed by Contractor pursuant to such services) are and
shall be Year 2000 compliant (to the extent that concept is applicable), as
defined by the British Standards Institution in DISC PD2000-1: "Year 2000
c[ompliant] shall mean that neither performance nor functionality is affected by
dates prior to, during and after the year 2000. In particular:
Rule 1. No value for current date will cause any interruption in
operation.
Rule 2. Date-based functionality must behave consistently for dates prior
to, during and after year 2000.
Rule 3. In all interfaces and data storage, the century in any date must be
specified either explicitly or by unambiguous algorithms or
interfacing rules.
Rule 4. Year 2000 must be recognized as a leap year.
By signature of its authorized representative, South Carolina Insurance
Company represents and warrants that the products and services supplied and/or
developed comply with the aforementioned requirements.
Dated this 9th day of September, 1998.
/s/ R. Thomas Savage, Jr.
----------------------------------
Authorized Representative
South Carolina Insurance Company
Sworn to before me this 9th day of September, 1998.
[illegible]
- ----------------------------------------
My commission expires: November 23, 2007
- ----------------------------------------
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[Letterhead]
September 15, 1998
CONFIDENTIAL
TRANSMITTED BY FACSIMILE AND
HAND DELIVERY
Steve Harding
The Seibels Bruce Group, Inc.
Post Office Box 1
Columbia, South Carolina 29202
RE: Proposal Submitted in Response to RFP #98-002/PPAI
Dear Mr. Harding:
Section 9.8 of RFP #98-002/PPAI gives the "director or his designee the
right to waive minor deficiencies and the informalities if, in his judgment,
the best interests of the State of South Carolina shall be served."
Additionally, RFP #98-002/PPAI, Section 9.9, page 36 provides that "the
director or his designee reserves the right to request additional financial
statements and any other data from the Respondent."
This letter written to request additional copies of data which may have
been submitted with the original proposal, but not attached to the copies
submitted; or clarification of statements or references made in your
proposal; or other data in accordance with the requirements of the Request
for Proposal. Please submit the following information to the Department by
5:00 p.m., Friday, September 18, 1998.
First, we are unable to locate a statement that you will be able to
service claims in accordance with the requirements of the RFP. Section 6.3
provides that the applicant must be an insurer, or affiliated with an
insurer, that has a service facility capable of providing policy issuance;
premium collection services for all classes of risks, statewide; service
insurance claims in every state, Washington, D.C. and Canada. . . This is a
qualification. Section 2.7 provides that submitting a proposal in response to
this RFP you are certifying that you meet the qualifications set forth in the
RFP. Although it may implied in your proposal that you meet this
qualification, a more specific statement is needed to address this issue. If
this information is included with your proposal, please direct me to the
sections of your proposal which address this issue.
Second, there is no reference to the ability of your company to
administer the run-off business of the JUA. Section 6.8 of the RFP provides
that the applicant must be able to contract for the entire term of the
contract based upon the specifications outlined in the RFP. The term of the
contract includes the run-off period. If this information is included within
your proposal, please direct my attention to the sections of your proposal
which address this issue.
<PAGE>
Third, we are unable to find any certification that your company will
cooperate with the wind-up of the affairs of the JUA, that you are able to
service claims in accordance with the requirements of the RFP and you ability
to administer the run-off business of the JUA. Section 6.10 establishes this
as a qualification for the servicing carrier. Inasmuch as Section 9.1.1.1
provides that you will comply with the requirements of the RFP, and Section 2.7
provides that by submitting a proposal you are certifying that you meet
the qualifications set forth in the RFP, it is implied that you agree to so
comply. Please confirm this in your response or direct my attention to the
section of your proposal which addresses this issue.
Fourth, section 9.3 of RFP #98-002/PPAI requires that you attach
documentation establishing your previous experience with residual market
mechanisms. We are unable to locate a report from a Plan Manager of a pooling
mechanism. The omission of this item implies that you have no much report.
Please confirm this in your September 18 response. If this information is
included in your proposal, please direct my attention to the section of the
proposal which addresses this issue.
Finally, we are unable to locate any statement in your proposal which
states that the proposal is valid until the notification of award is issued.
Please direct my attention to the section of your proposal which addesses
this issue or forward the certification statement to me by the established
deadline.
Please do not call the Department regarding this matter. Please do not
write requesting additional time. Please submit your responses to the
Department, in writing, by the established deadline. If requested information
is not received by the September 18 deadline, then your proposal, IF it meets
all other requirements to be considered responsive, will be scored
accordingly.
Your response to this letter must be signed by an officer with the
authority to contractually bind your company. It must state that it
supplements and amends the proposal submitted to me as if originally
incorporated within that document. Your letter must indicate that you agree
to be bound by its terms as well as the proposal submitted.
This letter shall not be construed to mean that there are no additional
issues regarding the proposal you submitted. There may, or may not, be
additional issues which may affect a contract award. This letter also shall
not be construed to mean that your proposal is, or is not, responsive to this
solicitation. The information requested in this letter is requested so that
the committee may evaluate the proposal submitted. Please note that the
submission of this information does not entitle your company to an award of
the contract. As the RFP indicates, I may reject any or all proposals, and I
am not under any obligation to award a contract to any of the Respondents
submitting a proposal in response to this solicitation.
Sincerely,,
/s/ Lee P. Jedziniak
Lee P. Jedziniak
Director
<PAGE>
[LETTERHEAD]
R. THOMAS SAVAGE, JR.
CHIEF FINANCIAL OFFICER
September 17, 1998
Lee P. Jedziniak
Director
SC Department of Insurance
1612 Marion Street
Columbia, SC 29201
Dear Director Jedziniak:
This will acknowledge receipt of your letter dated September 15, 1998,
requesting additional copies of data, clarification of statements or other
information related to the above referenced Request for Proposal. For your
convenience in identifying the supplemental information and the point to
which it is directed, the specific request made in your letter is set out,
followed by a summary response and referencing attached materials when
appropriate.
"FIRST, WE ARE UNABLE TO LOCATE A STATEMENT THAT YOU WILL BE
ABLE TO SERVICE CLAIMS IN ACCORDANCE WITH THE REQUIREMENTS OF
THE RFP. SECTION 6.3 PROVIDES THAT THE APPLICANT MUST BE AN
INSURER, OR AFFILIATED WITH AN INSURER, THAT HAS A SERVICE
FACILITY CAPABLE OF PROVIDING POLICY ISSUANCE; PREMIUM
COLLECTION SERVICES FOR ALL CLASSES OF RISKS, STATEWIDE;
SERVICE INSURANCE CLAIMS IN EVERY STATE, WASHINGTON, D.C. AND
CANADA... THIS IS A QUALIFICATION. SECTION 2.7 PROVIDES THAT
SUBMITTING A PROPOSAL IN RESPONSE TO THIS RFP YOU ARE
CERTIFYING THAT YOU MEET THE QUALIFICATIONS SET FORTH IN THE
RFP. ALTHOUGH IT MAY BE IMPLIED IN YOUR PROPOSAL THAT YOU MEET
THIS QUALIFICATION, A MORE SPECIFIC STATEMENT IS NEEDED TO
ADDRESS THIS ISSUE. IF THIS INFORMATION IS INCLUDED WITHIN
YOUR PROPOSAL, PLEASE DIRECT ME TO THE SECTIONS OF YOUR
PROPOSAL WHICH ADDRESS THIS ISSUE."
- On page 1 of the Cover Letter, we stated that "South Carolina
Insurance Company understands and will comply with all terms of the
Proposal." Further, we stated that we currently meet or, at the time
of the commencement of any contract period, will meet "all of the
qualifications as described in this RFP." These statements were
intended to convey our understanding and compliance with this
qualification.
- On page 5 of our Proposal (Proposal Letter), we have also represented
that our proposal is made in accordance with all the terms and
conditions of the RFP and have certified that we "guarantee and
certify that all items included in this proposal meet or exceed any
such
<PAGE>
terms or conditions [of the RFP]." Again, it was our intention that such
representations and certifications satisfy the provisions of Section 6.3
and Section 2.7.
- - To the extent a more specific statement is or may be required for the
qualification described in Section 6.3, this will certify that South
Carolina Insurance Company is an insurer with service facilities capable
of affording policy issuance; premium collection services for all classes
of risks, statewide; service insurance claims in every state, Washington,
D.C., and Canada and all other usual and customary policyholder services
and, if awarded the contract, is qualified to perform in accordance with
the terms and conditions of the contract and RFP and that it will comply
with all applicable state and federal laws.
- - South Carolina Insurance Company has the ability or capability to satisfy
the service requirements embodied in Sections 6.3 or 2.7 in every way, we
are prepared at your convenience to further expand on our business plan to
address specifically any further questions or concerns.
"SECOND, THERE IS NO REFERENCE TO THE ABILITY OF YOUR COMPANY TO ADMINISTER
THE RUN-OFF BUSINESS OF THE JUA. SECTION 6.8 OF THE RFP PROVIDES THAT THE
APPLICANT MUST BE ABLE TO CONTRACT FOR THE ENTIRE TERM OF THE CONTRACT BASED
UPON THE SPECIFICATIONS OUTLINED IN THE RFP. THE TERM OF THE CONTRACT
INCLUDES THE RUN-OFF PERIOD. IF THIS INFORMATION IS INCLUDED WITHIN YOUR
PROPOSAL, PLEASE DIRECT MY ATTENTION TO THE SECTIONS OF YOUR PROPOSAL WHICH
ADDRESS THIS ISSUE.
- - As indicated above, it was our intention in submitting a proposal and
expressly stating in the Cover Page and Proposal Letter of our compliance
with all of the terms and conditions of the RFP if not otherwise
specifically addressed, including Section 6.8.
- - To the extent a more specific statement is, or may be, required to address
the requirements of Section 6.8, South Carolina Insurance Company hereby
certifies that it is prepared and able to administer the contract for the
entire term of the contract based upon the specifications outlined in the
RFP. The term of the contract includes the run-off period.
"THIRD, WE ARE UNABLE TO FIND ANY CERTIFICATION THAT YOUR COMPANY WILL
COOPERATE WITH THE WIND UP OF THE AFFAIRS OF THE JUA, THAT YOU ARE ABLE TO
SERVICE CLAIMS IN ACCORDANCE WITH THE REQUIREMENTS OF THE RFP AND YOUR
ABILITY TO ADMINISTER THE RUN-OFF BUSINESS OF THE JUA. INASMUCH AS SECTION
9.1.1.1 PROVIDES THAT YOU WILL COMPLY WITH THE REQUIREMENTS OF THE RFP, AND
SECTION 2.7 PROVIDES THAT BY SUBMITTING A PROPOSAL YOU ARE CERTIFYING THAT
YOU MEET THE QUALIFICATIONS SET FORTH IN THE RFP, IT IS IMPLIED THAT YOU
AGREE TO SO COMPLY. PLEASE CONFIRM THIS IN YOUR RESPONSE OR DIRECT MY
ATTENTION TO THE SECTION OF YOUR PROPOSAL WHICH ADDRESSES THIS ISSUE."
- - Again, as indicated above, it was our intention in submiting a proposal
and expressly stating in the Cover Page and Proposal Letter of our
compliance with all terms and conditions of the RFP if not otherwise
specifically addressed, including Section 6.10.
<PAGE>
- - To the extent that a more specific statement is, or may be, required to
address the Section 6.10 qualification, South Carolina Insurance Company
hereby certifies that it will cooperate with the winding up of the affairs
of the association and the conversion to an assigned risk plan, if any.
- - With respect to the Section 9.1.1.1 requirement, we call your attention to
the Proposal Letter, page 5, which contains, INTER ALIA, our certification
that South Carolina Insurance Company understands and will comply with all
terms and conditions of the RFP. We again reiterate this certification
that we understand and will comply with all terms and conditions of the
RFP.
"FOURTH, SECTION 9.3 OF RFP #98-002/PPAI REQUIRES THAT YOU ATTACH
DOCUMENTATION ESTABLISHING YOUR PREVIOUS EXPERIENCE WITH RESIDUAL MARKET
MECHANISMS. WE ARE UNABLE TO LOCATE A REPORT FROM A PLAN MANAGER OF A POOLING
MECHANISM. THE OMISSION OF THIS ITEM IMPLIES THAT YOU HAVE NO SUCH REPORT.
PLEASE CONFIRM THIS IN YOUR SEPTEMBER 18 RESPONSE. IF THIS INFORMATION IS
INCLUDED IN YOUR PROPOSAL, PLEASE DIRECT MY ATTENTION TO THE SECTION OF THE
PROPOSAL WHICH ADDRESSES THIS ISSUE."
- - South Carolina Insurance Company's previous experience with residual
market mechanisms is documented by the Past Performance and Commitment
Memorandum found at page 13 of our proposal. As you know, South Carolina
Insurance Company, or its Seibels Bruce affiliate, Catawba Insurance
Company, has continuously served as a servicing carrier for the South
Carolina Reinsurance Facility since inception in 1974 to date. Since this
residual market mechanism is under the aegis of the South Carolina
Department of Insurance; the Director of Insurance is the Chairman of the
Governing Board of the Facility; and the bid and contract process for our
role as servicing carrier were conducted by you under legislative
directive we relied too heavily on these facts and did not believe that
additional independent verification was required. We apologize for this
oversight and attach the following additional documentation:
1. Letter from the current Manager, S.C. Reinsurance Facility,
certifying our service as a servicing carrier;
2. Copies of Annual Underwriting and Claims Audits by the South
Carolina Reinsurance Facility from 1993 through 1997 referenced
in our Memorandum at page 13 of the proposal; (1)
- ---------------
1 Our original proposal memorandum referenced an "in compliance" result for
the 1994 underwriting audit. This is in error because no underwriting audits
were performed in 1994 due to the bid awards and resulting changes in books
of business.
<PAGE>
3. Copies of our contracts with the South Carolina Reinsurance
Facility dated August 25, 1983 (first written contract);
October 1, 1991 (shifting to Catawba); and October 1, 1994
(result of bid award);
4. Copy of the North Carolina Reinsurance Facility Joint Report
of the Claims and Audit Managers for 1995, the last year we
acted as a servicing carrier for that residual market
pooling mechanism;
5. Copy of letter from the Federal Emergency Management
agency ("FEMA") certifying our role as a servicing carrier
("WYO Company") in the National Flood Insurance Program;
6. Copy of our current contract to act as a WYO Company
signed by the Federal Insurance Administrator.
- If any additional documentation is required to validate the
representations as to our Past Performance and Commitment as a
servicing carrier for residual market pooling mechanisms, please
advise and we will be happy to supply whatever materials or
documentation you require.
"FINALLY, WE ARE UNABLE TO LOCATE ANY STATEMENT IN YOUR PROPOSAL
WHICH STATES THAT THE PROPOSAL IS VALID UNTIL THE NOTIFICATION OF
AWARD IS ISSUED. PLEASE DIRECT MY ATTENTION TO THE SECTION OF THE
PROPOSAL WHICH ADDRESSES THIS ISSUE OR FORWARD THE CERTIFICATION
STATEMENT TO ME BY THE ESTABLISHED DEADLINE."
- - We respectfully direct your attention to the "Duration of Offer" at page
20 of the proposal which specifically addresses this requirement. For
your convenience, a duplicate copy of page 20 is attached hereto. Please
let us know if this statement is not sufficient to satisfy you as an
appropriate response.
This letter and the information submitted herewith supplements and amends
the proposal submitted as if originally incorporated within that document.
South Carolina Insurance Company expressly agrees to be bound by the terms
of this letter, its proposal dated September 9, 1998, as well as all of the
terms and conditions of the RFP. The writer also expressly represents that he
is an officer (Chief Financial Officer) of South Carolina Insurance Company
and authorized to contractually bind it by the terms and conditions as stated
herein.
Sincerely,
/s/ R. Thomas Savage, Jr.
- -------------------------
R. Thomas Savage, Jr.
Chief Financial Officer
<PAGE>
[Letterhead]
September 23, 1998
NOTIFICATION OF CONTRACT AWARD
DESCRIPTION: Request for Proposals for a person to act as the servicing
carrier for the private passenger automobile insurance coverages
offered by the South Carolina Associated Auto Insurers Plan.
RFP NUMBER: 98-002 PPAI
ORGANIZATION SOLICITING THE PROPOSAL(S): South Carolina Associated Auto
Insurers Plan
Post Office Box 11099
Columbia, South Carolina 29211
CONTRACTS AWARDED TO: The Seibels Bruce Group, Inc.
c/o South Carolina Insurance Company
Post Office Box One
Columbia, South Carolina 29202
(800) 525-8835/(803) 748-2000
Amount Awarded: 50%
Bankers Insurance Company
360 Central Avenue
St. Petersburg, Florida 33701
(727) 823-4000 extension 4200
Fax: (727) 823-6518
Amount Awarded: 50%
THIS IS A STATEMENT OF INTENT TO AWARD A CONTRACT AND BECOMES THE OFFICIAL
STATEMENT OF AWARD EFFECTIVE, OCTOBER 5, 1998, AT 5:00 P.M., UNLESS OTHERWISE
MODIFIED, SUSPENDED OR CANCELED.
/s/ Lee P. Jedziniak
---------------------------------------
Lee P. Jedziniak
Director
South Carolina Department of Insurance
<PAGE>
PROPOSAL LETTER
We propose to furnish and deliver any and all of the services named in the
Request for Proposals, Proposal Notice No. 98-002/PPAJ. The prices proposed
herein shall apply for the period of time stated in the RFP.
It is understood that this proposal constitutes an offer and when signed by
the authorized party will, with RFP, exhibits, and any amendments thereto,
constitute a valid and legal contract between the undersigned respondent and
the South Carolina Associated Auto Insurers Plan.
We acknowledge that we have read and understand the requirements of the RFP
and represent that this proposal is made in accordance with the terms and
conditions of the RFP. By signing this proposal, we guarantee and certify
that all items included in this proposal meet or exceed any and all such
terms and conditions. We also affirm, by signing this proposal, that we have
reviewed all exhibits attached and that we have used this documentation as a
basis for submitting our proposal. We understand and agree that this
solicitation does not guarantee an award of a contract.
We agree, if awarded the contract, to deliver goods or services which meet or
exceed the requirements of this RFP.
/s/ R. Thomas Savage, Jr. 9/9/98
- ----------------------------------------------------- ------
Signature of Authorized Representative/Corporate Seal Date
NOTICE OF AWARD
Proposal Accepted By:
/s/ Lee P. Jedziniak October 13, 1998
- ----------------------------------------------------- ----------------
Director Date
<PAGE>
Exhibit 21.1
SUBSIDIARIES OF REGISTRANT
The following is a listing of all subsidiaries of The Seibels Bruce Group, Inc.
as of December 31, 1998:
<TABLE>
<CAPTION>
SUBSIDIARY
STATE OR JURISDICTION OF INCORPORATION
<S> <C>
Agency Specialty of Kentucky, Inc. Kentucky
America's Flood Services, Inc. California
Catawba Insurance Company South Carolina
Consolidated American Insurance Company South Carolina
FLT Plus, Inc. South Carolina
Graward General Companies, Inc. Tennessee
Investors National Life Insurance Company of South Carolina South Carolina
Kentucky Insurance Company Kentucky
Policy Finance Company South Carolina
Premium Budget Plan, Inc. North Carolina
Seibels Bruce & Company South Carolina
Seibels Bruce Service Corporation South Carolina
Seibels Bruce Specialty, Inc. South Carolina
South Carolina Insurance Company South Carolina
Universal Insurance Company North Carolina
</TABLE>
The financial statements of these subsidiaries are included in the
Registrant's consolidated financial statements.
71
<PAGE>
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 19, 1999, 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, 1998 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 19, 1999
72
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<DEBT-HELD-FOR-SALE> 39,695
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 1,306
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 41,109
<CASH> 23,141
<RECOVER-REINSURE> 29,972
<DEFERRED-ACQUISITION> 2,472
<TOTAL-ASSETS> 295,563
<POLICY-LOSSES> 119,976
<UNEARNED-PREMIUMS> 72,538
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 16,250
2,700
0
<COMMON> 7,773
<OTHER-SE> 27,815
<TOTAL-LIABILITY-AND-EQUITY> 295,563
22,775
<INVESTMENT-INCOME> 3,271
<INVESTMENT-GAINS> 55
<OTHER-INCOME> 55,316
<BENEFITS> 25,223
<UNDERWRITING-AMORTIZATION> 10,237
<UNDERWRITING-OTHER> 48,335
<INCOME-PRETAX> (2,378)
<INCOME-TAX> (85)
<INCOME-CONTINUING> (2,293)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (601)
<NET-INCOME> (2,894)
<EPS-PRIMARY> (.31)
<EPS-DILUTED> (.39)
<RESERVE-OPEN> 39,154
<PROVISION-CURRENT> 24,450
<PROVISION-PRIOR> 819
<PAYMENTS-CURRENT> 18,398
<PAYMENTS-PRIOR> 9,703
<RESERVE-CLOSE> 36,322
<CUMULATIVE-DEFICIENCY> 819
</TABLE>
<PAGE>
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 1998 Annual Statements which have been 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 the cover of this document.)
73
