SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[S]
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
[S]
For the transition period from ___to___
[S]
Commission file number 1-7411
[S]
ALLCITY INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
[S]
New York 13-2530665
(State of incorporation) (I.R.S. Employer Identification Number)
335 Adams Street, Brooklyn, N.Y. 11201-3731
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 718-422-4000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of each class which registered
None
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
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 registrant's 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. [x]
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
The aggregate market value of the voting stock held by nonaffiliates
of the registrant
as of March 17, 2000 was $3,996,981.
The number of shares outstanding of each of the registrant's
classes of common shares, as of March 17, 2000, was 7,078,625.
DOCUMENTS INCORPORATED BY REFERENCE - NONE
Exhibit Index on Page 26. Total number of pages 56
<PAGE>
<TABLE>
TABLE OF CONTENTS
<S>
Part I
Page
<C> <C> <C>
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 Equity and Related
Stockholder Matters............................................. 11
Item 6- Selected Financial Data........................................... 11
Item 7- Management's Discussion and Analysis of Financial
Condition and Results of Operations............................. 13
Item 7A- Quantitative and Qualitative Disclosures about Market Risk........ 16
Item 8- Financial Statements and Supplementary Data....................... 16
Item 9- Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure............................. 16
Part III
Item 10- Directors and Executive Officers of the Registrant................ 17
Item 11- Executive Compensation............................................ 20
Item 12- Security Ownership of Certain Beneficial Owners and
Management..................................................... 22
Item 13- Certain Relationships and Related Transactions.................... 23
Part IV
Item 14- Exhibits, Financial Statement Schedules, and Reports on........... 24
Form 8-K
Signatures.................................................................... 25
</TABLE>
-i-
<PAGE>
PART I
Item 1. Business
General
Allcity Insurance Company (the "Registrant", "Allcity" or the "Company") is
a property and casualty insurer. Empire Insurance Company ("Empire"), a
property and casualty insurer owns approximately 84.6% of the outstanding
common shares of the Company and 100% of the outstanding common shares of
Centurion Insurance Company ("Centurion"). Empire's common shares are 100%
owned and controlled, through subsidiaries, by Leucadia National
Corporation
("Leucadia"). Additionally, Leucadia indirectly owns an additional 6.4% of
the outstanding common shares of the Company. The Company, Empire and
Centurion are sometimes hereinafter collectively referred to as the Group.
The Group specializes in commercial and personal property and casualty
insurance business primarily in the New York metropolitan area. The
Group offers insurance products for vehicles (including medallion and
radio-controlled livery vehicles), general liability coverage, property
coverage (including mercantile and multi-family residential real estate)
and workers' compensation to commercial accounts and private passenger
automobile and homeowners products to individuals. The Group is rated
"B+"
(very good) by A.M. Best Company ("Best"), rated (A) (exceptional) by
Demotech, Inc. ("Demotech") and rated "BBB+" (good) by Standard & Poors
Insurance Rating Services ("S&P"). As with all ratings, Best, Demotech
and S&P ratings are subject to change at any time.
The business of the Group is organized into three divisions: the Small
Business Division, the Personal Lines Division and the Mid-Market
Division. Each of these divisions has separate management teams
responsible for all marketing, sales and underwriting decisions within
their divisions. The Small Business Division focuses on
commercial package products for small businesses; the Personal Lines
Division
concentrates on personal automobile and homeowners insurance; and the Mid-
Market
Division focuses on commercial auto, commercial package and workers'
compensation
insurance for larger accounts. Over the past two years, the Group has
invested
resources to enhance and market its products, to upgrade the quality of
customer service
and to provide its agents with the ability to sell products, process
applications,
receive price quotes and obtain other policy and claim information via the
Internet.
The Group plans to expand its Internet services in the future.
For the years ended December 31, 1999, 1998 and 1997 net earned premiums
for the
Company were $42.4 million, $67.5 million and $80.9 million, respectively.
While
net earned premiums declined in all lines of business, the most significant
reductions
were in assigned risk automobile and voluntary private passenger automobile
lines. As
a result of poor operating results in the assigned risk business, the Group
no longer
participates in this line of business. Effective January 1, 2000, all
policy renewal
obligations have been assigned to another insurance company. However, the
Group remains
liable for the claim settlement costs for assigned risk claims that
occurred during the
policy term. The Group believes it has provided adequate reserves for such
liabilities,
including loss adjustment expenses. With respect to voluntary private
passenger automobile
insurance, poor underwriting results have resulted in a re-underwriting of
the existing
book of business, the termination of certain agency relationships and, for
certain other
agents, a determination not to accept any applications for new private
passenger automobile
business. Additionally, re-underwriting efforts in other commercial lines,
along with
terminated and/or reduced agency relationships referred to above, have
resulted in reduced
commercial lines premiums.
1
<PAGE>
The Group's reduced premium volume does not support its current overhead
structure.
The Group is currently examining its overhead costs and plans to implement
an expense
reduction program this year to more closely align these costs with its
current volume
of business. In order to return to profitability, the Group also will have
to generate
new business, primarily in the Small Business Division and in the radio-
controlled livery
line of the Mid-Market Division, and improve retention of its existing
profitable business.
An important customer service feature, which is designed to enable the
Group to attract
profitable business, is the ability to provide producers faster quoting of
policy prices
and underwriting approval over the Internet. The Group is currently
providing this
service for commercial policies issued by the Small Business Division, and
plans to
continue to invest in technology in order to expand this service to other
lines of
business in the future.
During the year ended December 31, 1999, 13% of net earned premiums of the
Company were
derived from assigned risk business, 12% from commercial automobile lines,
35% from other
commercial lines and 40% from personal lines. Substantially all of the
Group's policies
are written in New York for a one-year period. The Group is licensed in
New York to write
most lines of insurance that may be written by a property and casualty
insurer. Empire is
also licensed to write insurance in Connecticut, Massachusetts, Missouri,
New Hampshire and
New Jersey.
The business of the Group is produced through general agents, local agents
and insurance
brokers, who are compensated for their services by payment of commissions
on the premiums
they generate. There are seven general agents, one of which is owned by
Empire, and 398
local agents and insurance brokers presently acting under agreements with
the Group. These
agents and brokers also represent other competing insurance companies. The
Group's owned
general agent is its largest producer and generated 12% of its total
premium volume for the
year ended December 31, 1999.
On a quarterly basis, the Group reviews and adjusts its estimated loss
reserves for
any changes in trends and actual loss experience. Included in the
Company's results
for 1999 was approximately $5.1 million for reserve increases related to
losses from
prior accident years. The Group will continue to evaluate the adequacy of
its loss
reserves and record future adjustments to its loss reserves as appropriate.
Over the
past few years, the Group has taken steps to improve its operations,
enhance its
information systems, redefine its markets and improve its underwriting and
claims
handling procedures. The Group believes that the results of these efforts
may not be
known for some time, given the nature of the property and casualty
insurance business
and the inherently long period of time involved in settling claims.
Pooling Agreement
All insurance business written by the Company is subject to a pooling
agreement with
Empire under which the Company and Empire effectively operate as one
company. The
pooling agreement and subsequent amendments were approved by the New York
State
Insurance Department. The Company operates under the same general
management as Empire
and has full use of Empire's personnel, information technology systems and
facilities.
As of December 31, 1999, Empire and its subsidiaries had 521 full and part-
time employees.
Currently, and for all periods presented, all premiums, losses, loss
adjustment expenses
and other underwriting expenses are shared on the basis of 70% to Empire
and 30% to
the Company.
Financial Information Relating to Business Segments
For all periods presented, the Company's operations are presented in the
following
business segments:
(1) Small Business - includes commercial package products for small
businesses.
(2) Mid-Market - includes commercial automobile (including medallion and
radio-
controlled livery vehicles), commercial package and workers'
compensation insurance
for larger accounts.
(3) Personal Lines - includes private passenger automobile, homeowners and
fire and
allied insurance coverages.
Prior year business segment data has been reclassified to conform to the
1999
presentation.
2
<PAGE>
<TABLE>
The following table presents business segment data, net of reinsurance, for each of
the three years ended December 31, 1999 (in thousands, except loss ratio information):
<CAPTION>
Premiums Premiums Losses and LAE Loss
Written Earned Incurred Ratio
<S> <C> <C> <C> <C>
1999
Personal Lines (1) $ 15,156 $ 22,404 $ 19,236 85.9%
Mid-Market 11,679 13,771 19,751 143.4%
Small Business 5,977 6,273 3,551 56.6%
Total $ 32,812 $ 42,448 $ 42,538 100.2%
1998
Personal Lines (1) $ 29,357 $ 39,251 $ 35,741 91.1%
Mid-Market 22,162 21,643 27,459 126.9%
Small Business 6,540 6,618 6,389 96.5%
Total $ 58,059 $ 67,512 $ 69,589 103.1%
1997
Personal Lines (1) $ 44,421 $ 47,292 $ 58,656 124.0%
Mid-Market 24,058 27,223 16,934 62.2%
Small Business 6,550 6,376 6,455 101.2%
Total $ 75,029 $ 80,891 $ 82,045 101.4%
<FN>
(1) Includes assigned risk automobile business, which the Company no longer
participates in effective January 1, 2000.
</TABLE>
[S]
For further information concerning Business Segments, see Notes 8 and 12 of
the Notes
to Consolidated Financial Statements, included elsewhere herein.
Combined Ratios
Set forth below is certain statistical information for the Company prepared
in accordance
with generally accepted accounting principles ("GAAP") and statutory
accounting principles
("SAP"), for the three years ended December 31, 1999. The Loss Ratio is
the ratio of net
incurred losses and loss adjustment expenses to net premiums earned. The
Expense Ratio is
the ratio of underwriting expenses (policy acquisition costs, commissions,
and a portion
of administrative, general and other expenses attributable to underwriting
operations, net
of service fee income) to net premiums written, if determined in accordance
with SAP, or
to net premiums earned, if determined in accordance with GAAP. A Combined
Ratio below 100%
indicates an underwriting profit and a Combined Ratio above 100% indicates
an underwriting
loss. The Combined Ratio does not include the effect of investment income.
3
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997
<C> <C> <C>
<S>
Loss Ratio: (a)
GAAP 100.2% 103.1% 101.4%
SAP 100.2% 103.1% 101.4%
Industry (SAP) (b) N/A 76.5% 72.8%
Expense Ratio:
GAAP 39.7% 26.3% 17.9%
SAP 45.0% 31.3% 17.2%
Industry (SAP) (b) N/A 29.5% 28.8%
Combined Ratio: (c)
GAAP 139.9% 129.4% 119.3%
SAP 145.2% 134.4% 118.6%
Industry (SAP) (b) N/A 106.0% 101.6%
<FN>
(a) Includes Loss and Loss Adjustment Expenses.
(b) Source: Best's Aggregates & Averages, Property/Casualty, 1999 Edition. Industry
Combined Ratios may not be fully comparable as a result of, among other things,
differences in geographical concentration and in the mix of property and casualty
insurance products.
(c) For 1998, the difference in the accounting treatment for curtailment gains relating
to defined benefit pension plans was the principal reason for the difference between
the GAAP Combined Ratio and the SAP Combined Ratio. Additionally, for all three years,
the difference relates to the accounting for certain costs which are treated differently
under SAP and GAAP. For further information about the Company's Combined Ratios see
Item 7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations" of this Report.
</TABLE>
[S]
Reinsurance
The Company's maximum retained limit for all lines of business was $300,000
for 1999.
The Company's maximum retained limit for 1998 and 1997 was $500,000 for
workers'
compensation and $300,000 for other property and casualty lines.
Additionally, the
Company has entered into certain excess of loss and catastrophe treaties to
protect
against certain losses. Its retention of lower level losses under such
treaties is
$7.5 million for 2000, and was $7.5 million for 1999 and 1998, and $5.0
million for
1997.
Effective January 1, 1997, Empire entered into a quota share reinsurance
agreement
with its subsidiary, Centurion. Under this agreement, Empire assumes 50%
up to
July 1, 1997 and 75% thereafter of the effective period premiums and losses
of
Centurion and grants Centurion a ceding commission. Under the pooling
agreement,
70% of such business assumed will be retained by Empire and 30% will be
ceded to
the Company.
4
<PAGE>
Although reinsurance does not legally discharge an insurer from its primary
liability
for the full amount of the policy liability, it does make the assuming
reinsurer liable
to the insurer to the extent of the reinsurance ceded. The Company's
reinsurance
generally has been placed with certain of the largest reinsurance
companies, including
(with their respective Best ratings) General Reinsurance Corporation (A++)
(superior),
Zurich Reinsurance (North America), Inc. (A+) (superior), IPCRe Limited
(A+) (superior)
and Partner Reinsurance Company Ltd. (A+) (superior). The Company believes
its reinsurers
to be financially capable of meeting their respective obligations.
However, to the extent
that any reinsuring company is unable to meet its obligations, the Company
would be liable
for the reinsured risks. The Company has established reserves, which the
Company believes
are adequate, for any nonrecoverable reinsurance.
Investments
Investment activities represent a significant part of the Company's total
income.
Investments are managed by the Investment Committee of the Board of
Directors, which
consults with outside investment advisors with respect to a substantial
portion of the
Company's investment portfolio.
The Company has a diversified investment portfolio of securities, a
substantial portion
of which is rated "investment grade" by established bond rating agencies or
issued or
guaranteed by the U.S. Treasury or by governmental agencies. At December
31, 1999, 1998
and 1997, the Company's portfolio of trading securities was not material.
At December 31,
1999, 1998 and 1997, the average yield of the Company's bond portfolio was
approximately
6.5%, 5.8% and 5.9%, respectively, and the average maturity of the
Company's bond
portfolio for 1999, 1998 and 1997 was approximately 2.6 years, 3.2 years
and 3.3 years,
respectively.
Tax Sharing Agreement
The Company has been included in the consolidated federal income tax
returns of
Leucadia since 1993. Under the terms of the tax sharing agreement between
Leucadia
and the Company, the Company computes its tax provision on a separate
return basis and
is either charged its share of federal income tax resulting from its
taxable income or
is credited for tax benefits resulting from its losses.
Government Regulation
Insurance companies are subject to detailed regulation and supervision in
the states in
which they transact business. Such regulation pertains to matters such as
approving of
policy forms and various premium rates, minimum reserves and loss ratio
requirements,
the type and amount of investments, minimum capital and surplus
requirements, granting
and revoking licenses to transact business, levels of operations and
regulating trade
practices. Insurance companies are required to file detailed annual
reports with the
supervising agencies in each of the states in which they do business, and
are subject
to examination by such agencies at any time. Increased regulation of
insurance companies
at the state level and new regulation at the federal level is possible,
although the
Company cannot predict the nature or extent of any such regulation or what
impact it
would have on the Company's operations.
The National Association of Insurance Commissioners ("NAIC") has adopted
model laws
incorporating the concept of a "risk based capital" ("RBC") requirement for
insurance
companies. Generally, the RBC formula is designed to measure the adequacy
of an
insurer's statutory capital in relation to the risks inherent in its
business. The
RBC formula is used by the states as an early warning tool to identify
weakly capitalized
companies for the purpose of initiating regulatory action. As of December
31, 1999,
the Company's RBC ratio exceeded minimum requirements.
The NAIC also has adopted various ratios for insurance companies which, in
addition
to the RBC ratio, are designed to serve as a tool to assist state
regulators in
discovering potential weakly capitalized companies or companies with
unusual trends.
While the Company's operations had certain "other than normal" NAIC ratios
for the year
ended December 31, 1999, the Company believes that it is unlikely that
material adverse
regulatory action will be taken.
5
<PAGE>
In 1998, the NAIC adopted the Codification of Statutory Accounting
Principles guidance,
which will replace the current Accounting Practices and Procedures manual
as the NAIC's
primary guidance on statutory accounting. The NAIC is now considering
amendments to the
Codification guidance that would also be effective upon implementation.
The NAIC has
recommended an effective date of January 1, 2001. The Codification
provides guidance
for areas where statutory accounting has been silent and changes current
statutory
accounting in some areas. It is not known whether the New York State
Insurance Department
(the "Department") will adopt the Codification, and whether the Department
will make any
changes to that guidance. The Company has not estimated the potential
effect of the
Codification guidance if adopted by the Department.
The Group is a member of state insurance funds, which provide certain
protection to
policyholders of insolvent insurers doing business in those states. Due to
insolvencies
of certain insurers, the Group has been assessed certain amounts which have
not been
material and are likely to be assessed additional amounts by state
insurance funds.
The Company believes that it has provided for all anticipated assessments
and that
any additional assessments will not have a material adverse effect on the
Company's
financial condition or results of operations.
Competition
The insurance industry is a highly competitive industry, in which many of
the Company's
competitors have substantially greater financial resources, larger sales
forces, more
widespread agency and broker relationships, and more diversified lines of
insurance
coverage. Additionally, certain competitors market their products with
endorsements
from affinity groups, while the Company's products are unendorsed, which
may give such
other companies a competitive advantage. Federal administrative,
legislative and judicial
activity has resulted in changes to federal banking laws that increase the
ability of
national banks to offer insurance products in direct competition with the
Company. The
Company is unable to determine what effect, if any, such changes may have
on the
Company's operations.
The Company believes that property and casualty insurers generally compete
on the
basis of price, customer service, consumer recognition, product design,
product mix
and financial stability. The industry has historically been cyclical in
nature,
with periods of less intense price competition generating significant
profits, followed
by periods of increased price competition resulting in reduced
profitability or loss.
The current cycle of intense price competition has continued for a longer
period than
in the past, suggesting that the significant infusion of capital into the
industry in
recent years, coupled with larger investment returns has been, and may
continue to be,
a depressing influence on policy rates. In addition, the Company is
experiencing
increased competition from low cost insurance providers that write many
lines of
business on a direct response basis through direct mail, telemarketing and
the
Internet. The profitability of the property and casualty insurance
industry is affected
by many factors, including rate competition, severity and frequency of
claims (including
catastrophe losses), interest rates, state regulation, court decisions and
judicial
climate, all of which are outside of the Company's control.
Loss and Loss Adjustment Expenses
Liabilities for unpaid losses, which are not discounted (except for certain
workers'
compensation liabilities), and loss adjustment expenses ("LAE") are
determined using
case-basis evaluations, statistical analyses and estimates for salvage and
subrogation
recoverable and represent estimates of the ultimate claim costs of all
unpaid losses and
LAE. Liabilities include a provision for losses that have occurred but
have not yet been
reported. These estimates are subject to the effect of trends in future
claim severity
and frequency experience. Adjustments to such estimates are made from time
to time due
to changes in such trends as well as changes in actual loss experience.
These
adjustments are reflected in current earnings.
6
<PAGE>
The Company relies upon standard actuarial ultimate loss projection
techniques to
obtain estimates of liabilities for losses and LAE. These projections
include the
extrapolation of both losses paid and incurred by business line and
accident year
and implicitly consider the impact of inflation and claims settlement
patterns upon
ultimate claim costs based upon historical patterns. In addition, methods
based upon
average loss costs, reported claim counts and pure premiums are reviewed in
order to
obtain a range of estimates for setting the reserve levels. For further
input,
changes in operations in pertinent areas including underwriting standards,
product
mix, claims management and legal climate are periodically reviewed.
<TABLE>
In the following table, the liability for losses and LAE of the Company, are reconciled
for each of the three years ended December 31, 1999. Included therein are current year
data and prior year development.
<CAPTION>
RECONCILIATION OF LIABILITY FOR LOSSES AND LAE
1999 1998 1997
<C> <C> <C>
(In thousands)
<S>
SAP liability for losses and LAE,
net of reinsurance, at beginning
of the year $ 139,771 $ 145,260 $ 143,494
Provision for losses and LAE for
claims occurring in the current year 36,524 56,698 73,741
Increase in estimated losses and LAE
for claims occurring in prior years 6,014 12,891 8,304
42,538 69,589 82,045
Loss and LAE payments for claims
occurring during:
Current year 12,382 19,203 23,804
Prior years 56,325 55,875 56,475
68,707 75,078 80,279
SAP liability for losses and LAE,
net of reinsurance 113,602 139,771 145,260
Reinsurance recoverable 228,334 294,461 272,266
Liability for losses and LAE at
the end of year as reported in
the financial statements (GAAP) $ 341,936 $ 434,232 $ 417,526
</TABLE>
[S]
The table on page 9 presents the development of balance sheet liabilities
for 1989
through 1999. The liability line at the top of the table indicates the
estimated
liability, net of reinsurance, for unpaid losses and LAE recorded at the
balance sheet
date for each of the indicated years. This liability represents the
estimated amount of
losses and LAE for claims that were unpaid at each annual balance sheet
date, including
provision for losses estimated to have been incurred but not reported to
the Company.
The middle portion of the table shows the re-estimated amount of the
previously reported
liability based on experience as of the end of each succeeding year. As
more information
becomes available and claims are settled, the estimated liabilities are
adjusted upward or
downward with the effect of decreasing or increasing net income at the time
of adjustment.
The "cumulative redundancy (deficiency)" represents the aggregate change in
the estimates
over all prior years. For example, the initial 1989 liability estimate has
developed a
$0.5 million redundancy over ten years. The effect on pre-tax income during
the past three
years of changes in estimates of the liabilities for losses and LAE is
shown in the
reconciliation table above.
The lower section of the table on page 9 shows the cumulative amount paid
with respect
to the previously recorded liability as of the end of each succeeding year.
For example,
as of December 31, 1999, the Company had paid $65.8 million of the
currently estimated
$70.1 million of losses and LAE that had been incurred for the 1989
calendar year, thus
an estimated $4.3 million of losses incurred for 1989 remain unpaid as of
the current
balance sheet date.
7
<PAGE>
In evaluating this information it should be noted that each amount shown
for "cumulative
redundancy (deficiency)" results includes the effects of all changes in
amounts for prior
periods. For example, the amount of the deficiency related to losses
settled in 1992,
but incurred in 1989, will be included in the cumulative redundancy or
deficiency amount
for years 1989, 1990 and 1991. This table is not intended to and does not
present
accident or policy year loss and LAE development data. Conditions and
trends that have
affected development of the liability in the past may not necessarily occur
in the future.
Accordingly, it would not be appropriate to extrapolate future redundancies
or
deficiencies based on this table.
For further discussion of the Company's loss development experience, see
Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations"
of this Report.
8
<PAGE>
<TABLE>
<CAPTION>
Analysis of Loss and Loss Adjustment Expenses Development
(In thousands)
Years ended
December 31, 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Liability for Unpaid
Losses and Loss
Adjustment Expenses $70,567 $75,420 $ 84,178 $ 96,712 $106,115 $121,923 $142,718 $143,494 $145,260 $139,771 $113,602
Liability Re-
estimated as of:
One year later $68,347 $74,844 $ 83,987 $96,516 $103,181 $132,189 $150,852 $151,798 $158,152 $145,785 $ -
Two years later 65,227 73,538 83,341 97,208 112,176 140,620 160,686 163,378 163,609
Three years later 63,792 73,151 85,197 103,592 118,127 150,434 172,650 179,200
Four years later 63,556 74,190 88,928 108,430 124,375 160,542 182,318
Five years later 63,584 76,509 92,035 112,988 132,606 167,164
Six years later 64,962 78,392 95,273 118,446 137,669
Seven years later 65,467 80,040 99,467 121,715
Eight years later 66,298 83,670 101,505
Nine years later 68,877 84,981
Ten years later 70,100
Cumulative
Redundancy/
(Deficiency) $ 467 $(9,561) $(17,327) $(25,003) $(31,554) $(45,241) $(39,600) $(35,706) $(18,349) $ (6,014) $ -
Cumulative Amount of
Liability Paid
Through:
One year later $19,744 $23,681 $ 26,852 $ 33,903 $ 35,048 $ 45,789 $ 60,382 $ 56,475 $ 55,875 $ 56,325 $ -
Two years later 32,840 38,067 44,989 54,615 59,701 80,911 95,190 94,062 93,714
Three years later 42,271 50,194 59,336 71,653 81,680 105,977 121,900 122,811
Four years later 49,803 58,830 69,955 85,689 97,917 124,645 141,259
Five years later 54,602 65,025 77,965 95,938 109,083 136,791
Six years later 58,185 69,568 83,886 102,416 116,929
Seven years later 60,953 72,683 88,139 107,246
Eight years later 62,737 75,932 91,364
Nine years later 64,409 78,103
Ten years later 65,815
Gross Liability -
End of year $ 290,833 $ 341,599 $ 399,879 $ 406,087 $417,526 $434,232 $341,936
Reinsurance 184,718 219,676 257,161 262,593 272,266 294,461 228,334
Net Liability -
End of year as
shown above $ 106,115 $ 121,923 $ 142,718 $ 143,494 $145,260 $139,771 $113,602
Gross Re-Estimated
Liability - Latest $ 404,267 $ 483,932 $ 519,667 $ 512,662 $474,405 $431,509
Re-estimated Reinsurance
- - Latest 266,598 316,768 337,349 333,462 310,796 285,724
Net Re-estimated Liability
- - Latest $ 137,669 $ 167,164 $ 182,318 $ 179,200 $163,609 $145,785
Gross Cumulative(Deficiency)
/Redundancy $(113,434) $(142,333) $(119,788) $(106,575) $(56,879) $ 2,723
</TABLE>
9
<PAGE>
Item 2. Properties
[S]
The Group has entered into a twenty year lease agreement which expires in
2018,
consisting of 286,510 square feet, in an office building located at 335
Adams Street
in Brooklyn, New York, in which Leucadia has an equity interest. The Group
received
certain incentives from both the City and State of New York in connection
with this
lease, which will be recognized over the term of the lease.
Empire has subleased 133,140 square feet of the office space to its parent,
Leucadia
at similar terms as in the original lease.
The Group also conducts limited operations from branch offices located in
Rochester,
New York and Boston, Massachusetts. The rental charged to the Company for
these
facilities is prorated in accordance with the pooling agreement described
in "Pooling
Agreement" under Item 1, herein.
Item 3. Legal Proceedings
[S]
The Company is party to legal proceedings that are considered to be either
ordinary,
routine litigation or incidental to its business. Based on discussion with
counsel,
the Company does not believe that such litigation will have a material
effect on its
financial position, results of operations or cash flows.
Item 4. Submission of Matters to a Vote of Security Holders
[S]
The following matters were submitted to a vote of shareholders at the
Company's 1999
Annual Meeting of Shareholders held on October 25, 1999:
Number of Number of
a) Election of directors: Shares in favor Votes
Withheld
[S]
Class III Directors, term expires 2002:
[S]
Francis M. Colalucci 6,405,691 55,276
James E. Jordan 6,405,691 55,276
Joseph A. Orlando 6,405,691 55,276
Harry H. Wise 6,405,691 55,276
[S]
Class I Director, term expires in 2000:
[S]
Carmen M. Rivera 6,405,691 55,276
[S]
Class I Directors continuing in office:
[S]
Ian M. Cumming
Thomas E. Mara
Joseph S. Steinberg
Daniel G. Stewart
[S]
Class II Directors continuing in office:
[S]
Martin B. Bernstein
Louis V. Siracusano
Lucius Theus
Robert V. Toppi
[S]
b) No other matter was voted upon at the meeting.
10
<PAGE>
<TABLE>
PART II
<S>
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
(a) Market Information
The Company's common stock trades on The NASDAQ National Stock Market under
the
symbol "ALCI". The following table sets forth, for the calendar quarters
indicated,
the high and low closing trade price per common share as reported by the
National
Association of Securities Dealers, Inc.
<CAPTION>
High Low
<C> <C>
1st Quarter 2000 $ 6 7/8 $ 5 7/8
(Through March 17, 2000)
1st Quarter 1999 8 7/32 7
2nd " " 8 3/4 7
3rd " " 8 6 3/8
4th " " 7 1/16 6 3/8
1st Quarter 1998 7 1/2 6 3/4
2nd " " 9 1/4 7 10/32
3rd " " 8 7
4th " " 8 7
</TABLE>
[S]
(b) Holders
The number of shareholders of record of common shares at December 31, 1999
was 497.
[S]
(c) Dividends
The Company has paid no dividends on its common shares since 1975. The New
York
Insurance Law prohibits New York domiciled property and casualty companies
from
paying dividends except out of earned surplus. Without the approval of the
New York
State Insurance Department, no New York domestic property/ casualty insurer
may declare
or distribute any dividend to shareholders which, together with any
dividends declared
or distributed by it during the preceding twelve months, exceeds the
lesser of (1)
10% of surplus to policyholders as shown by its last statutory annual
statement or
(2) one hundred percent of adjusted net investment income during such
period. At
December 31, 1999, $6,942,000 was available for distribution of dividends.
The
Company does not presently anticipate paying dividends in the near future.
[S]
<TABLE>
Item 6. Selected Financial Data
<S>
The following selected financial data have been summarized from the Company's
consolidated financial statements and are qualified in their entirety by reference to,
and should be read in conjunction with, such consolidated financial statements and
Item 7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations" of this Report:
<S>
Year ended December 31,
1999 1998 1997 1996 1995
(In thousands, except per share amounts)
<CAPTION>
<C> <C> <C> <C> <C>
Total Revenues $55,662 $92,070 $102,624 $120,790 $117,892
Net (Loss)/Income (a) $(3,731) $ 504 $ (83) $ 2,634 $ 563
Basic and Diluted
(Loss)/Earnings Per share:
(Loss)/Income(a) $ (0.53) $ 0.07 $ (0.01) $ 0.37 $ 0.08
</TABLE>
11
<PAGE>
<TABLE>
Item 6. Selected Financial Data, continued
<S>
a) Net income (loss) includes net securities (losses)/gains net of applicable tax,
as follows (in thousands, except per share amounts):
<S>
<CAPTION>
(Losses)/Gains Per Share
<C> <C>
<S>
1999 $ (1,084) $ (0.15)
1998 3,951 0.56
1997 (125) (0.02)
1996 735 0.10
1995 (133) (0.02)
</TABLE>
[S]
<TABLE>
At December 31,
1999 1998 1997 1996 1995
(In thousands)
<CAPTION>
<C> <C> <C> <C> <C>
Total assets $486,020 $605,704 $640,249 $653,730 $660,820
Invested assets 205,246 234,039 271,736 272,992 273,548
Surplus note:
Face value 7,000 7,000 7,000 7,000 7,000
Accrued Interest 8,851 8,300 7,710 7,115 6,524
Common Shareholders'
Equity(a) 71,716 78,200 78,164 75,658 75,936
</TABLE>
[S]
<TABLE>
For the years ended December 31,
1999 1998 1997 1996 1995
<CAPTION>
<C> <C> <C> <C> <C>
GAAP Combined Ratio(b) 139.9% 129.4% 119.3% 114.1% 115.4%
SAP Combined Ratio (b) 145.2% 134.4% 118.6% 107.5% 107.5%
Industry SAP Combined
Ratio (c) N/A 106.0% 101.6% 105.8% 106.4%
Premium to Surplus
Ratio (d) 0.5X 0.8X 1.1X 1.4X 1.6X
<S>
<FN>
(a) Includes unrealized depreciation of approximately $2.3 million in 1999 and $1.7
million in 1996 and unrealized appreciation of approximately $0.5 million in 1998, $0.9
million in 1997 and $1.2 million in 1995, all net of tax, on investments classified as
available for sale.
<S>
(b) For 1998, the difference in the accounting treatment for curtailment gains
relating to defined benefit pension plans was the principal reason for the difference
between the GAAP Combined Ratio and the SAP Combined Ratio. For 1996 and 1995, a change
in the statutory accounting treatment for retrospectively rated reinsurance agreements
was the principal reason for the difference between the GAAP Combined Ratios and the SAP
Combined Ratios. Additionally, for 1999, 1998, 1997 and 1996, the difference relates to
the accounting for certain costs, which are treated differently under SAP and GAAP.
<S>
(c) Source: Best's Aggregates & Averages, Property/Casualty, 1999 Edition. Industry
Combined Ratios may not be fully comparable as a result of, among other things,
differences in geographical concentration and in the mix of property and casualty
insurance products.
<S>
(d) Premium to Surplus Ratio was calculated by dividing annual statutory net premiums
written by year-end statutory surplus.
</TABLE>
12
<PAGE>
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
[S]
The purpose of this section is to discuss and analyze the Company's
financial condition,
liquidity and capital resources and results of operations. This analysis
should be read
in conjunction with the financial statements and related notes which appear
elsewhere
in this Report.
[S]
Liquidity and Capital Resources
[S]
In 1999 and 1998, net cash was used for operations as a result of a
decrease in premiums
written and a program to reduce pending claims.
At December 31, 1999 and 1998 the yield of the Company's fixed maturities
portfolio was
6.5% and 5.8%, respectively, with an average maturity of 2.6 and 3.2 years
for 1999 and
1998, respectively. Additionally, the Company maintains a diversified
investment
portfolio of securities, of which at December 31, 1999, approximately 82%
of the fixed
maturities portfolio was invested in issues of the U.S. Treasury and its
governmental
agencies with the remainder primarily invested in investment grade
corporate and
industrial issues.
The Company maintains cash, short-term and readily marketable securities
and anticipates
that the cash flow from investment income, maturities and sales of short-
term investments
and fixed maturities will be sufficient to satisfy its anticipated cash
needs. During
1999, the Company sold certain securities at a net realized capital loss to
meet short-
term cash flow needs. The Company does not presently anticipate paying
dividends in the
near future and believes it has sufficient capital to meet its currently
anticipated
level of operations.
[S]
Results of Operations
[S]
Net earned premium revenues of the Company were $42.4 million, $67.5
million and $80.9
million for the years ended December 31, 1999, 1998 and 1997, respectively.
While
earned premiums declined in all lines of business, the most significant
reductions
during 1999 were in assigned risk automobile ($7.3 million), voluntary
private passenger
automobile ($8.1 million) and commercial package policies ($3.7 million).
As a result
of poor operating results, the Company is no longer entering into new
assigned risk
contracts. Effective January 1, 2000, all policy renewal obligations have
been assigned
to another insurance company. However, the Company remains liable for the
claim settlement
costs for assigned risk claims that occurred during the policy term. The
Company believes
it has provided adequate reserves for such liabilities, including loss
adjustment expenses.
The decline in voluntary private passenger automobile resulted from tighter
underwriting
standards, increased competition and the Company's decision to no longer
accept new
policies from those agents who historically have had poor underwriting
results. The
Company's termination of certain unprofitable agents has also adversely
affected premium
volume in other lines of business.
In 1998, the decrease in earned premium revenues was primarily due to a
decline in the
number of assigned risk automobile pool contracts acquired due to
competition and the
depopulation of the assigned risk automobile pool ($7.4 million) and a
reduction in
certain lines, principally voluntary commercial automobile ($2.6 million),
private passenger
automobile ($1.8 million), commercial package policies ($1.3 million) and
workers'
compensation ($1.1 million), due to tighter underwriting standards, re-
underwriting and
increased competition.
13
<PAGE>
<TABLE>
The Company's combined ratios as determined under GAAP and SAP were as
follows:
<CAPTION>
Years Ended December 31,
1999 1998 1997
<S> <C> <C> <C>
GAAP 139.9% 129.4% 119.3%
SAP 145.2% 134.4% 118.6%
</TABLE>
[S]
The Company's combined ratios increased in 1999 and 1998 primarily due to
the reduction
in premium volume at a rate greater than the reduction in net underwriting
and other
costs. In addition, the reduction in servicing fees negatively affected
the expense
ratios. Expense ratios were also adversely affected by increased
expenditures related to
the installation of new information systems, providing Internet access to
agents and
severance costs. Included in the Company's results for 1999, 1998 and 1997
were $5.1
million, $12.9 million and $8.3 million, respectively, for reserve
strengthening related
to losses from prior accident years.
During 1999, the Company experienced unfavorable development due to an
increase in
severity of 1998 accident year losses in the assigned risk automobile and
voluntary
private passenger automobile lines, and 1996 accident year losses in
certain classes
of the commercial automobile line. As a result, the Company increased its
reserves by
$2.2 million for assigned risk automobile, $1.5 million for voluntary
private passenger
automobile and $1.4 million for commercial automobile lines. As previously
discussed,
the Company no longer accepts new policies from certain agents identified
as having
had poor underwriting results in the voluntary private passenger automobile
line of
business and, effective January 1, 2000, the Company no longer participates
in the
assigned risk business. Additionally, the Company no longer offers
insurance in
those classes of the commercial automobile line that contributed to the
unfavorable
development.
During 1998, the Company reviewed the adequacy of the reserves carried for
its open
claims' files, focusing on workers' compensation, commercial auto and other
commercial
liability lines of business. As part of the review, substantially all open
workers'
compensation claim files were reviewed for every accident year up to and
including 1998.
Additionally, during 1998, the Company reorganized the commercial auto
claims department.
As part of this realignment, more complex claims files were reviewed by the
most
experienced claims examiners and assumptions regarding average claims
severity and
probable ultimate losses were revised. Accordingly, reserves were
strengthened by
$3.9 million for workers' compensation, $4.2 million for commercial
automobile and
$4.2 million for other commercial liability lines of business.
The 1997 reserve strengthening included $3.3 million for commercial package
lines of
business and $2.1 million for voluntary commercial automobile lines of
business.
These increases resulted from a review of open claim files and the
continued unfavorable
development of prior accident years losses, particularly the 1992 through
1994 accident years.
As a consequence of its reserve increases, the Company has reduced premiums
and pre-tax
profits to recognize reinsurance premiums due for 1995 and prior years
under
retrospectively rated reinsurance agreements. Such amounts totaled $1.4
million,
$0.6 million and $1.6 million for the years ended December 31, 1999, 1998
and 1997,
respectively. The Company has not entered into retrospectively rated
reinsurance
agreements after 1995.
For the lines of business discussed above, as well as all other property
and casualty
lines of business, the Company employs a variety of standard actuarial
ultimate loss
projection techniques, statistical analyses and case-basis evaluations to
estimate its
liability for unpaid losses. The actuarial projections include an
extrapolation of both
losses paid and incurred by business line and accident year and implicitly
consider the
impact of inflation and claims settlement patterns upon ultimate claim
costs based upon
historical patterns. These estimates are performed quarterly and consider
any changes
in trends and actual loss experience. Any resulting change in the estimate
of the
liability for unpaid losses, including those discussed above, is reflected
in current
year earnings during the quarter the change in estimate is identified.
The reserving process relies on the basic assumption that past experience
is an
appropriate basis for predicting future events. The probable effects of
current
developments, trends and other relevant matters are also considered. Since
the
establishment of loss reserves is affected by many factors, some of which
are outside
the Company's control or are affected by future conditions, reserving for
property and
casualty claims is a complex and uncertain process, requiring the use of
informed
estimates and judgments. As additional experience and other data become
available and
are reviewed, the Company's estimates and judgments may be revised. While
the effect
of any such changes in estimates could be material to future results of
operations,
the Company does not expect such changes to have a material effect on its
liquidity
or financial condition.
14
<PAGE>
In management's judgment, information currently available has been
appropriately
considered in estimating the Company's loss reserves. The Company will
continue to
evaluate the adequacy of its loss reserves on a quarterly basis,
incorporating any
future changes in trends and actual loss experience, and record adjustments
to its
loss reserves as appropriate.
Investment income has decreased by approximately $2.1 million or 14.2% in
1999 as
compared to a decrease of $1.2 million, or 7.5% in 1998, primarily as a
result of
lower invested assets due to a decrease in premiums written and a program
to reduce
pending claims. During 1999, the Company had realized capital losses of
$1.7 million
principally due to the sale of fixed maturities to satisfy operating cash
needs.
During 1998, the Company had realized capital gains of $6.1 million
principally from
gains recognized on the sale of fixed maturities, primarily U.S. Treasury
Notes.
During 1997, the Company recorded $0.2 million in realized capital losses
in the
normal course of managing its investment strategy.
The combination of other underwriting expenses incurred and the
amortization of
deferred policy acquisition costs reflected a decrease of $2.2 million in
1999 or
10.5% and an increase of approximately $1.0 million or 4.9% in 1998. The
decrease
in 1999 primarily related to the decline in premium revenue coupled with a
reduction
in operating expenses. The increase in 1998 was largely the result of
expenses relating
to the move of the Company's executive and administrative offices to
Brooklyn, New York
and higher underwriting costs relating to surveys and audits of insureds
records in
connection with the Company's re-underwriting efforts offset in part by a
$2.0 million
pension curtailment gain. The decrease in 1997 was primarily the result of
lower
operating costs, primarily relating to pension and severance benefits for
certain
employees, and a decrease in the provision for servicing carriers expenses
in connection
with the NYPAP, offset by higher systems costs.
[S]
Impact of Inflation
[S]
The Company, as well as the property and casualty insurance industry in
general, is
affected by inflation. With respect to losses, the Company's claim
severity is
affected by the impact of inflation on the cost of automobile repair parts,
medical
costs and lost wages. The costs of adjusting claims and other underwriting
expenses
have also been affected by inflationary pressures on salaries and employee
benefits.
The Company receives rate increases based in part upon its experience as
well as the
industry's experience. Accordingly, premium increases generally follow the
rate of
inflation.
[S]
Cautionary Statement for Forward-Looking Information
[S]
Statements included in this Report may contain forward-looking statement
pursuant to
the safe-harbor provisions of the Private Securities Litigation Reform Act
of 1995.
Such statements s. Such forward-looking statements are made may relate,
but are not
limited, to projections of revenues, income or loss, capital expenditures,
fluctuations
in insurance reserves, plans for growth and future operations, competition
and regulation
as well as assumptions relating to the foregoing. Forward-looking
statements are
inherently subject to risks and uncertainties, many of which cannot be
predicted or
quantified. When used in this Report, the words "estimates", "expects",
"anticipates",
"believes", "plans", "intends" and variations of such words and similar
expressions are
intended to identify forward-looking statements that involve risks and
uncertainties.
Future events and actual results could differ materially from those set
forth in,
contemplated by or underlying the forward-looking statements. The factors
that could
cause actual results to differ materially from those suggested by any such
statements
include, but are not limited to, those discussed or identified from time to
time in
the Company's public filings, including general economic and market
conditions, changes
in domestic laws, regulations and taxes, changes in competition and
pricing environments,
regional or general changes in asset valuation, the occurrence of
significant natural
disasters, the inability to reinsure certain risks economically, the
adequacy of loss
reserves, prevailing interest rate levels, weather related conditions that
may affect
the Company's operations and changes in composition of the Company's assets
and
liabilities through acquisitions or divestitures. Undue reliance should
not be placed
on these forward-looking statements, which are applicable only as of the
date hereof.
The Company undertakes no obligation to revise or update these forward-
looking statements
to reflect events or circumstances that arise after the date of this Report
or to
reflect the occurrence of unanticipated events.
15
<PAGE>
[S]
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
[S]
The following includes "forward-looking statements" that involve risks and
uncertainties.
Actual results could differ materially from those projected in the
forward-looking
statements.
The Company's market risk arises principally from interest rate risk
related to its
investment portfolio. The Company does not enter into material derivative
financial
instrument transactions.
The Company's investment portfolio is primarily classified as available for
sale,
and consequently, is recorded on the balance sheet at fair value with
unrealized
gains and losses reflected in shareholders' equity. Included in the
Company's
investment portfolio are fixed income securities, which comprised
approximately 80%
of the Company's total investment portfolio at December 31, 1999. These
fixed income
securities are primarily rated "investment grade" or are U.S. governmental
agency
issued or guaranteed obligations, although limited investments in "non-
rated" or rated
less than investment grade securities have been made from time to time.
The estimated
weighted average remaining life of these fixed income securities was
approximately 2.6
years at December 31, 1999. The Company's fixed income securities, like
all fixed
income instruments, are subject to investment rate risk and will fall in
value if market
interest rates increase. At December 31, 1998, fixed income securities
comprised
approximately 78% of the Company's investment portfolio and had an
estimated weighted
average remaining life of 3.2 years. At December 31, 1999 and 1998, the
Company's
portfolio of trading securities was not material. Expected maturities will
differ from
contractual maturities because the borrowers may have the right to call or
prepay
obligations with or without call or prepayment penalties. The Company
manages the
investment portfolio to preserve principal, maintain a high level of
quality, comply
with applicable insurance industry laws and regulations and achieve an
acceptable rate
of return. In addition, the Company considers the duration of its
insurance reserves in
comparison with that of its investments.
<TABLE>
The following table provides information about the Company's fixed income securities.
The table presents principal cash flows by expected maturity dates.
<S>
Expected Maturity Date
<S>
2000 2001 2002 2003 2004 Thereafter Total Fair Value
(Dollars in thousands)
<CAPTION>
<C> <C> <C> <C> <C> <C> <C> <C>
<S>
Rate Sensitive Assets:
Available for Sale Fixed
Income Securities:
U.S. Government $14,812 $23,416 $77,653 - - $24,788 $140,669 $140,669
Weighted Average Interest Rate 5.08% 5.35% 6.43% - - 5.16% - -
Other Fixed Maturities:
Rated Investment Grade $ 1,925 $ 1,569 $ 4,386 $ 3,298 $10,691 $ 7,256 $ 29,125 $ 29,125
Weighted Average Interest Rate 6.53% 6.91% 6.68% 6.00% 6.95% 6.51% - -
Rated Less Than Investment
Grade/Not Rated - - - $ 830 - - $ 830 $ 830
Weighted Average Interest Rate - - - 7.13% - - - -
Held to Maturity Fixed Income
Securities:
U.S. Government - - $ 492 - - - $ 492 $ 476
Weighted Average Interest Rate - - 6.38% - - - - -
</TABLE>
[S]
Item 8. Financial Statements and Supplementary Data
[S]
See page F1.
[S]
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
[S]
NONE
16
<PAGE>
PART III
[S]
Item 10. Directors and Executive Officers of the Registrant
[S]
Pursuant to the Company's Charter and By-Laws, the Board of Directors of
the Company
consists of 13 members divided into three classes: Class I, Class II and
Class III.
Class I consists of five directors and Class II and III each consists of
four directors.
Joel Berlin resigned from the Boards of the Group in January 1999 and was
replaced by
Ms. Carmen M. Rivera in March 1999. One class of directors is elected in
each year for
a three-year term. All of the directors of the Company are also directors
of Empire and
Centurion.
<TABLE>
<C>
<S>
Name, Age and Position Principal Occupation, Office
with Company and Term of Office
Robert V. Toppi, 62, Principal Occupation - President, and Chief Executive
Director, President and Chief Officer of the Company and Empire
Executive Officer since August 1998.
Previously, Resident Vice President of the Greater New York
district with Aetna Casualty and Surety Company.
Class II Director since August 1998; current term expires 2001.
Martin B. Bernstein, 66, Principal Occupation - President and
Director Director of Ponderosa Fibres of America, Inc.
(A pulp manufacturer for paper producers).
Class II Director since February 1988; current term
expires 2001.
Ian M. Cumming, 59, Principal Occupation - Presently and since June 1978,
Director Chairman of the Board and a Director of Leucadia.
Director of Skywest, Inc. (a Utah-based
regional air carrier) since June 1986.
Director of MK Gold Company ("MK Gold")
(an international gold mining company) since June 1995.
Director of HomeFed Corporation ("HomeFed"),
(a California real estate developer) since May 1999.
Class I Director since February 1988; current
term expires 2000.
James E. Jordan, 56, Principal Occupation - Private Investor.
Director Previously, President of The William Penn Corporation
from 1986 until 1997. Director of First Eagle SoGen Mutual
Funds and JZ Equity Partners PLC (a British investment trust
company).
Class III Director since 1997; current term expires 2002.
Thomas E. Mara, 54, Principal Occupation - Presently and
Director since May 1980, Executive Vice President of Leucadia
and Treasurer of Leucadia since January 1993.
Class I Director since October 1994; current term expires 2000.
Louis V. Siracusano, 53, Principal Occupation - Attorney with
Director McKenna, Fehringer, Siracusano &
Chianese (a law firm) for over seven years.
Class II Director since 1985; current term expires 2001.
17
<PAGE>
Name, Age and Position Principal Occupation, Office
with Company and Term of Office
<S>
Joseph A. Orlando, 44, Principal Occupation - Chief Financial Officer of Leucadia
Director since April 1996 and Vice President of Leucadia since January 1994.
Class III Director since 1998; current term expires 2002.
Joseph S. Steinberg, 56, Principal Occupation - President of Leucadia since
Director, Chairman of the Board January 1979 and Director of Leucadia since
December 1978. Director of MK Gold since June 1995. Director since
June 1988 of Jordan Industries, Inc., a holding company principally
engaged in manufacturing. Director of HomeFed since August 1998.
Class I Director since February 1988; current term expires 2000.
Daniel G. Stewart, 81, Principal Occupation - Independent
Director consulting actuary. Previously, Senior Vice
President of Mutual Benefit Life Insurance
Company from 1985 to November 1991.
Class I Director since 1980; current term expires 2000.
Lucius Theus, 77, Principal Occupation - President, The U.S. Associates
Director (consultants in civic affairs, human resources
and business management) since 1989. Principal and
Director of the Wellness Group, Inc.
(a provider of health promotion programs) since 1989
Corporate Director, Civic Affairs of Allied
Corporation (a diversified industrial company) since 1979.
Class II Director since 1980; current term expires 2001.
Carmen M. Rivera, 53, Principal Occupation - Senior Vice President of Small Business
Director, Senior Vice President and Personal Lines Division of the Company and Empire since
November 1998. Previously, Select Manager in the N.Y.C. office
at the Travelers Property Casualty Corporation.
Class I Director since March 1999; current term expires 2000.
Harry H. Wise, 61, Principal Occupation - President and
Director Director, H.W. Associates, Inc. (an investment
advisory firm). President and Director, Madison
Equity Capital Corp. (a sponsor of private investment partnerships).
Class III Director since 1988; current term expires 2002.
Francis M. Colalucci, 55, Principal Occupation - Executive Vice President,
Director, Executive Vice President, Chief Financial Officer and Treasurer of the
Chief Financial Officer & Company and Empire since March 1999.
Treasurer Senior Vice President, Chief Financial Officer and Treasurer
since January 1996. Previously, Vice President & Corporate Treasurer
of Continental Corporation (an insurance holding Company) from
1991 to January 1996.
Class III Director since October 1996; Current term expires in
2002.
18
<PAGE>
Name, Age and Position Principal Occupation, Office
with Company and Term of Office
<S>
Robert F. Boyle, 46, Principal Occupation - Senior Vice President, Mid-Market
Senior Vice President Division of the Company and Empire since March 1998.
Vice President, Underwriting from January 1997 to March
1998. Previously, Northeast Regional Commercial Underwriting
Manager at Allstate Insurance Company from March 1988 to January 1997.
Rocco J. Nittoli, 41, Principal Occupation - Senior Vice President & Chief
Senior Vice President & Information Officer of the Company and Empire since January
Chief Information Officer 2000. Vice President and Controller from September 1997 to January
2000. Previously, Controller of Aegis Insurance Services, Inc. from
October 1995 to September 1997.
Edward A. Hayes, 48, Principal Occupation - Senior Vice President,
Senior Vice President Claims for the Company and Empire since November
1999. Previously, attorney with Hawkins, Feretic,
Daly, Maroney & Hayes ( a law firm) from May 1997 to November 1999.
Vice President at Travelers Property Casualty Corporation from February
1996 to May 1997. Attorney of Record and Managing Attorney of Aetna
Casualty & Surety Company's Staff Counsel Office in New York City from
July 1988 to February 1996.
</TABLE>
19
<PAGE>
<TABLE>
Item 11. Executive Compensation
Summary Compensation Table
The following table sets forth certain compensation information for Robert V. Toppi,
currently the Chief Executive Officer ("CEO") of the Company and Richard G. Petitt
who was previously CEO of the Company, the only executive officers whose compensation
paid, or accrued for, under the pooling arrangement exceeded $100,000 for the years
ended December 31, 1999, 1998 and 1997.
<CAPTION>
Summary Compensation Table
All Other
Annual Compensation Compensation
Name and Principal
Position Salary Bonus
Year $ $ $
<C> <C> <C> <C>
<S>
Robert V. Toppi 1999 (a) (a) (a)
President & CEO 1998 (a) (a) (a)
Richard G. Petitt 1997 105,969 90,000 6,767 (b)
Chairman, President
& CEO.
<S>
<FN>
(a) Mr. Toppi receives no compensation from the Company. He is compensated directly by
Leucadia.
(b) Includes Salary Cap Restoration Plan ($2,303), Pension Plan ($3,264), and Company match
of 401(k) Plan ($1,200).
</TABLE>
The Company does not directly remunerate directors. The directors of the
Company and Empire
who are not officers or employees of Empire and the Company were paid an
annual retainer of
$5,000. In addition, eligible directors receive $1,500 for each joint
board meeting attended.
For attendance at a meeting of a committee of the joint board, such
directors receive $1,500
per meeting. In addition, each Chairperson of a committee is entitled to
$500 per annum.
All fees paid to such directors are shared in accordance with the pooling
agreement.
In 1998, Mr. Richard G. Petitt retired as Director, Chairman of the Board,
President and CEO
of the Company and the Group. He was succeeded by Mr. Toppi who is
President and CEO and a
Director. Mr. Steinberg succeeded Mr. Petitt as Chairman of the Board.
[S]
Pension Plan
[S]
Effective January 1, 1999, Empire adopted a non-contributory defined
contribution plan
(the "Plan"). The contributions, ranging from 2% - 16% of employees'
current pension
eligible compensation, are based on the age and service of the employee
with Empire.
These contributions accumulate for participants on a tax-deferred basis.
Participants
direct the investment of their contributions to their accounts. Empire
contributed
$1,145,000 to the Plan in 1999. In accordance with the pooling agreement,
the Company
is obligated to provide 30% of Empire's contributions to the Plan.
20
<PAGE>
Prior to January 1, 1999, pensions for officers and employees of the
Company were
provided under a non-contributory defined benefit pension plan ("prior
plan"). Any
employee was eligible for membership in the plan on January 1st or July 1st
of any
plan year after which they had completed one full year of service,
consisting of a
minimum of 1,000 credited hours with Empire, provided they had attained the
age of
21 years by or before such date. Members of the prior plan received a
basic pension
if they worked until their normal retirement date, which was the last day
of the
month in which they attained 65 years of age with 5 years of, credited
service. Any
member in the active employ of Empire may have elected early retirement
between 55
and 65. A member electing early retirement must have had at least 10 years
of service.
A monthly average of total compensation received over the highest 5
consecutive plan or
calendar years before retirement was taken to compute benefits as follows:
1.30% of the first $833 per month of average pay, plus
1.75% of average pay over $833 per month.
The sum of these two credits was multiplied by the years of credited
service. The basic
benefit amounts listed in the table below were not subject to any deduction
for Social
Security benefits or other offset amounts. The maximum benefit payable
under the pension
plan was $96,400 per year. Benefits accrued under the Plan were frozen as
of December 31,
1998. The prior plan was merged with the Leucadia plan effective January
1, 1999.
As a result of the curtailment of the pension benefits in 1998, the Group
recognized a
gain of $6,548,000. In accordance with the pooling agreement, the
Company's share of
the curtailment gain was 30%.
<TABLE>
The amounts set forth in the following table show estimated annual benefits upon retirement
to which the Company contributes 30% of such cost through the pooling agreement.
<S>
<CAPTION>
Highest
Five Year Average
Compensation at Years of Service
Retirement 10 15 20 25 30 35
<S> <C> <C> <C> <C> <C> <C>
$ 10,000 $ 1,300 $ 1,950 $ 2,600 $ 3,250 $ 3,900 $ 4,550
25,000 3,925 5,888 7,850 9,813 11,775 13,738
50,000 8,300 12,450 16,600 20,750 24,900 29,050
75,000 12,675 19,013 25,350 31,688 38,025 44,363
100,000 17,050 25,575 34,100 42,625 51,150 59,675
160,000 27,500 41,300 55,100 69,000 82,600 96,400
</TABLE>
[S]
Salary Cap Restoration Plan
[S]
In 1994, Empire established a Salary Cap Restoration Plan ("SCRP") for
certain corporate
officers. Under the SCRP, Empire provided these officers with an
additional benefit, to
be paid in a lump-sum upon retirement, equal to the difference between the
actuarially
determined lump-sum benefits, as computed under the prior pension plan, of
the officer's
highest five year average compensation (not to exceed $320,000, adjusted
for the cost-
of-living) at retirement and the current maximum compensation limit of
$160,000. The SCRP
was an unfunded plan. Along with the prior pension plan, the benefits
under SCRP were
curtailed as of December 31, 1998.
[S]
Employees' Savings Plan
[S]
Empire sponsors an Employees' Savings Plan (the "Savings Plan"), under
which each
eligible employee may defer a portion of his or her annual compensation,
subject to
limitations. Empire contributes a matching amount, subject to certain
limits. Empire
matches contributions equal to 50% of an employee's contributions up to a
maximum of 2.5%
of the employee's salary. Empire's contributions to the Savings Plan were
$452,000,
$420,000, and $438,000 in 1999, 1998 and 1997, respectively. Under the
pooling agreement,
the Company is obligated to provide 30% of Empire's contributions to the
Savings Plan.
21
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
Security Ownership of Certain Beneficial Owners
The following table sets forth information as of March 17, 2000 as to the
Common
Shares of the Company owned of record and beneficially by each person who
owns of
record, or is known by the Company to own beneficially, more than 5% of
such Common
Shares.
<TABLE>
<CAPTION>
Name and Amount and
Address of Nature of
Beneficial Beneficial Percent of
Owner Ownership Class
<C> <C>
<S>
Empire Insurance Company 5,987,401 Common 84.6%
335 Adams Street Shares owned of
Brooklyn, N.Y. 11201 record
Baldwin Enterprises, Inc. 451,707 Common 6.4%
529 East South Temple Shares owned of
Salt Lake City, Utah 84102 record
</TABLE>
[S]
As discussed in Item 1, "Business", Leucadia (and certain of its wholly-
owned subsidiaries)
may be deemed a parent of Empire and therefore of the Company as a result
of its indirect
ownership of 100% of the outstanding common stock of Empire.
Security Ownership of Management
The following table sets forth information concerning beneficial ownership
of the
Company's common stock and the equity securities of Leucadia by all
directors and by
directors and officers of the Company as a group as of December 31, 1999
with respect
to the Company's Common Shares and as of March 13, 2000 with respect to
Leucadia's and
Empire's securities.
22
<PAGE>
Each holder shown exercises sole voting and sole investment power of the
shares
shown opposite his or her name.
Name of Beneficial Amount and Nature of Percent
of
Owner Beneficial Ownership Class
Martin B. Bernstein - -
Robert F. Boyle - -
Francis M. Colalucci - -
Ian M. Cumming (1) - -
Edward A. Hayes - -
James E. Jordan - -
Thomas E. Mara - -
Rocco J. Nittoli -
-
Joseph A. Orlando -
-
Carmen M. Rivera - -
Louis V. Siracusano - -
Joseph S. Steinberg (1) - -
Daniel G. Stewart - -
Lucius Theus - -
Robert V. Toppi - -
Harry H. Wise - -
Directors and Executive
Officers as a group - -
(22 persons) (2)
[S]
(1) Although neither Ian M. Cumming nor Joseph S. Steinberg directly owns
any shares
of common stock of the Company, by virtue of their respective interest of
approximately
17.9% and 16.4% in Leucadia, each may be deemed to be the beneficial owner
of a
proportionate number of the shares of common stock of the Company
beneficially owned
by Leucadia through its 100% ownership of Empire.
[S]
(2) Aside from the beneficial ownership described in Note 1 to this table,
five
directors and one officer beneficially own common shares of Leucadia, which
in the
aggregate, represent less than 1% of Leucadia's common stock.
[S]
Item 13. Certain Relationships and Related Transactions
[S]
See Item 1 of this report and Notes 1, 2, 3, 8, 9, 10 and 11 of Notes to
Consolidated
Financial Statements for information relating to transactions and
relationships
between the Company and its affiliates.
23
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) Financial Statements and Schedule.
1. The following Financial Statements of Allcity Insurance Company are
included
in Item 8:
Report of Independent Accountants
Consolidated Balance Sheets as of December 31, 1999 and 1998
Consolidated Statements of Operations for the years ended December
31, 1999,
1998 and 1997
Consolidated Statements of Changes in Shareholders' Equity for the
years ended
December 31, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended December
31, 1999, 1998 and 1997
Notes to Consolidated Financial Statements
2. The information for Schedules I, IV and V required to be filed
pursuant to
Regulation S-X, Article 7 is contained in the Notes to Consolidated
Financial
Statements and, therefore, these schedules have been omitted. The
information
required by Schedules III and IV of Article 7 is combined in Schedule
VI -
Supplemental Insurance Information Concerning Property/Casualty
Insurance
Operations. All other required schedules are not applicable.
Schedule VI - Supplemental Insurance Information Concerning
Property/Casualty
Insurance Operations
for the years ended December 31, 1999, 1998 and 1997.
3. The exhibits required by Item 601 of Regulation S-K have been filed
herewith,
see attached Exhibit Index.
(b) Reports on Form 8-K.
During the quarter ended December 31, 1999, there were no reports on
Form 8-K filed for the Company.
(c) Exhibits Required by Item 601 of Regulation S-K.
See attached Exhibit Index.
(d) Financial Statements Required by Regulation S-X.
See Item 14(a).
24
<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.
ALLCITY INSURANCE COMPANY
March 29, 2000 By: /s/ Francis M. Colalucci
Francis M. Colalucci
Director, Executive Vice
President,
CFO. & Treasurer
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 indicated and on the date set forth above.
/s/ Robert V. Toppi /s/ Francis M. Colalucci
Robert V. Toppi Francis M. Colalucci
Director, President & C.E.O. Director, Executive Vice
President,
C.F.O. & Treasurer
/s/ Joseph S. Steinberg /s/ Martin B. Bernstein
Joseph S. Steinberg Martin B. Bernstein
Director, Chairman of the Board Director
/s/ Louis V. Siracusano /s/ Harry H. Wise
Louis V. Siracusano Harry H. Wise
Director Director
/s/ Daniel G. Stewart /s/ Thomas E. Mara
Daniel G. Stewart Thomas E. Mara
Director Director
/s/ Ian M. Cumming /s/ James E. Jordan
Ian M. Cumming James E. Jordan
Director Director
/s/ Lucius Theus /s/ Carmen M. Rivera
Lucius Theus Carmen M. Rivera
Director Director, Senior Vice President
/s/ Joseph A. Orlando
Joseph A. Orlando
Director
25
<PAGE>
EXHIBIT INDEX
The following designated exhibits, as indicated below, are either filed
herewith
(if indicated by an asterisk) or have heretofore been filed with the
Securities
and Exchange Commission under the Securities Act of 1933 or the Securities
Exchange
Act of 1934 and are incorporated herein by reference to such filings.
Reference is
made to Item 8 of this Form 10-K for a listing of certain financial
information and
statements incorporated by reference herein.
[S]
Exhibit Number Description of Document
[S]
3 Corporate charter, as amended, and by-laws, as
amended, of the Company (Incorporated by reference
to Exhibit 3 of the Company's Annual Report on Form
10-K for the year ended December 31, 1994).
10(a) Pooling Agreement, as amended through March 31,
1992 between Empire and the Company (Incorporated
by
reference to Exhibit 10(a)-20 of the Company's Form
8 Amendment No. 1 of its annual Report for the year
ended December 31, 1981).
10(c) Centurion Agreement, made effective as of
August 21, 1987 by and between Empire and the
Company, and Centurion. (Incorporated by reference
to Exhibit 10(e) of the Company's Annual Report on
Form 10-K for the year ended December 31, 1987).
10(d) Empire Mutual Executive Deferred Compensation Plan
dated November 17, 1987. (Incorporated by
reference
to Exhibit 10(f) of the Company's Annual Report on
Form 10-K for the year ended December 31, 1987).
10(e) Empire Mutual Insurance Company Supplemental
Retirement Plan dated November 17, 1987.
(Incorporated by reference to Exhibit 10(g) of the
Company's Annual Report on Form 10-K for the year
ended December 31, 1987).
26
<PAGE>
Exhibit Number Description of Document
10(f) Tax Allocation Agreement dated February 28,
1989 among
the Company, PHLCORP, Inc., Empire, Centurion,
Empire
Livery Services, Inc., Executroll Services
Corporation,
and Empall Agency Incorporated. (Incorporated
by reference
to Exhibit 10(m) of the Company's Annual
Report on Form
10-K for the year ended December 31, 1988).
10(g) Employment Agreement made as of January 1,
1993 between
Empire and Andrew W. Attivissimo.
(Incorporated by reference
to Exhibit 10(g) of the 10-K for the year
ended December
31, 1992).
10(h) Empire Insurance Company Salary Cap
Restoration Plan dated
May 26, 1994. (Incorporated by reference to
Exhibit 10(i)
of the Company's Annual Report on Form 10-K
for the December
31, 1994).
10(i) Quota Share Reinsurance Agreement between
Empire Insurance
Company and Centurion Insurance Company
(Incorporated by
reference to Exhibit 10(i) of the Company's
Annual Report
on Form 10-K for the year ended December 31,
1997).
10(j) Lease agreement dated June 27, 1996 between
Empire Insurance
Company and Brooklyn Renaissance Plaza L.L.C.,
as Landlord,
BRPII L.L.C as sub-landlord (Incorporated by
reference to
Exhibit 10(a) of the Company's quarterly
report on Form 10-Q
for the quarter ended March 31, 1997).
27* Financial Data Schedule
27
<PAGE>
ITEM 8. Financial Statements and Financial Statement Schedule
Page
The following financial information is submitted herein:
Report of Independent Accountants F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998 F-3
Consolidated Statements of Operations for the years
ended December 31, 1999, 1998 and 1997 F-4
Consolidated Statements of Changes in Shareholders' Equity
for the years ended December 31, 1999, 1998 and 1997 F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997 F-6
Notes to Consolidated Financial Statements F7-F26
Financial Statement Schedule:
Schedule VI- Supplemental Insurance Information
Concerning Property/Casualty Insurance Operations for the
years ended December 31, 1999, 1998 and 1997 F-27
F1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders
Of Allcity Insurance Company:
In our opinion, the consolidated financial statements listed in the index
appearing under
item 14(a)(1) on page 24 present fairly, in all material respects, the
financial position
of Allcity Insurance Company and its subsidiary at December 31, 1999 and
1998, and the
results of their operations and their cash flows for each of the three
years in the period
ended December 31, 1999 in conformity with accounting principles generally
accepted in the
United States of America. In addition, in our opinion, the financial
statement schedules
listed in the index appearing under Item 14(a)(2) on page 24 present
fairly, in all material
respects, the information set forth therein when read in conjunction with
the related
consolidated financial statements. These financial statements and
financial statement
schedules are the responsibility of the Company's management; our
responsibility is to
express an opinion on these financial statements and financial statement
schedules based
on our audits. We conducted our audits of these statements in accordance
with auditing
standards generally accepted in the United States of America, which 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,
assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis
for the opinion expressed above.
PricewaterhouseCoopers LLP
New York, New York
March 15,2000
F2
<PAGE>
<TABLE>
CONSOLIDATED BALANCE SHEETS
<S>
ALLCITY INSURANCE COMPANY AND SUBSIDIARY
(In thousands, except share and per share amounts)
<CAPTION>
<S>
December 31,_
<C> <C>
ASSETS 1999 1998
Investments:
Fixed maturities
Available for sale (amortized cost of
$167,294 in 1999 and $181,214 in 1998) $163,495 $181,729
Held to maturity (fair value
of $476 in 1999 and $502 in 1998) 492 502
Equity securities available for sale 255 176
Short-term 7,129 20,186
Other invested assets 33,875 31,446
TOTAL INVESTMENTS 205,246 234,039
Cash 644 390
Agents' balances, less allowance for
doubtful accounts ($1,812 in 1999 and
$1,817 in 1998) 6,115 10,015
Accrued investment income 3,041 3,662
Reinsurance balances receivable 230,193 295,994
Prepaid reinsurance premiums 22,282 37,691
Deferred policy acquisition costs 3,415 5,365
Deferred tax benefit 9,938 10,413
Due from affiliates - 3,698
Other assets 5,146 4,437
TOTAL ASSETS $486,020 $605,704
LIABILITIES
Unpaid losses $307,075 $382,109
Unpaid loss adjustment expenses 34,861 52,123
Unearned premiums 38,927 63,972
Drafts payable 1,118 3,912
Due to affiliates 7,476 -
Unearned service fee income 1,099 2,240
Reserve for servicing carrier claim expenses 922 1,730
Reinsurance balances payable 717 885
Other liabilities 6,258 5,233
Surplus note 15,851 15,300
TOTAL LIABILITIES 414,304 527,504
SHAREHOLDERS' EQUITY
Common stock, $1 par value: 7,368,420
shares authorized; 7,078,625 shares issued
and outstanding in 1999 and 1998 7,079 7,079
Additional paid-in capital 9,331 9,331
Accumulated other comprehensive (loss)/income
net of deferred (benefit)/tax of ($1,240) and
$242 in 1999 and 1998, respectively (2,304) 449
Retained earnings 57,610 61,341
TOTAL SHAREHOLDERS' EQUITY 71,716 78,200
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $486,020 $605,704
<S>
See Notes to Consolidated Financial Statements.
<S>
</TABLE>
F3
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<S>
ALLCITY INSURANCE COMPANY AND SUBSIDIARY
(In thousands, except share
and per share amounts)
<CAPTION>
<S>
Years Ended December 31,
REVENUES 1999 1998 1997
<S> <C> <C> <C>
Premiums earned $42,448 $67,512 $80,891
Net investment income 12,466 14,523 15,694
Service fee income 2,032 3,389 5,696
Net securities (losses)/ gains (1,668) 6,079 (192)
Other income 384 567 535
55,662 92,070 102,624
LOSSES AND EXPENSES
Losses 33,597 62,282 68,901
Loss adjustment expenses 8,941 7,307 13,144
Other underwriting expenses, less
deferrals of $7,398 in 1999, $11,697
in 1998 and $14,616 in 1997 9,547 7,705 4,886
Amortization of deferred policy
acquisition costs 9,348 13,411 15,245
Interest on surplus note 551 591 595
61,984 91,296 102,771
(LOSS)/INCOME BEFORE FEDERAL INCOME TAXES (6,322) 774 (147)
FEDERAL INCOME TAXES
Current benefit (4,549) (1,031) (227)
Deferred expense 1,958 1,301 163
(2,591) 270 (64)
NET (LOSS)/INCOME $(3,731) $ 504 $ (83)
Per share data, based on 7,078,625
average shares outstanding in 1999,
1998 and 1997
BASIC AND DILUTED(LOSS)/EARNINGS PER SHARE $(0.53) $ 0.07 $(0.01)
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
F4
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<S>
ALLCITY INSURANCE COMPANY AND SUBSIDIARY
For the years ended December 31, 1999, 1998 and 1997
(In thousands)
<CAPTION>
SHAREHOLDERS' EQUITY
Accumulated Total
Additional Other Share-
Common Stock Paid-In Comprehensive Retained holders'
Shares Amount Capital (Loss)/Income Earnings Equity_
<C> <C> <C> <C> <C> <C>
<S>
Balance at January 1, 1997 7,079 $ 7,079 $9,331 $(1,672) $60,920 $ 75,658
Comprehensive Income:
Net loss for the year (83) (83)
Net change in unrealized gain on
investments (net of deferred tax
of $1,394) 2,589 2,589
Comprehensive Income 2,506
Balance as of December 31, 1997 7,079 7,079 9,331 917 60,837 78,164
Comprehensive Income:
Net income for the year 504 504
Unrealized holding gain arising during
the period (net of deferred tax of $767) 1,425 1,425
Less reclassification of net securities
gains included in net income (net of
deferred benefit of $1,019) (1,893) (1,893)
Comprehensive Income 36
Balance as of December 31, 1998 7,079 7,079 9,331 449 61,341 78,200
Comprehensive Loss:
Net loss for the year (3,731) (3,731)
Unrealized holding loss arising during
the period (net of deferred benefit of
$1,803) (3,349) (3,349)
Less reclassification of net securities
losses included in net loss (net of
deferred tax of $321) 596 596
Comprehensive Loss (6,484)
Balance as of December 31, 1999 7,079 $7,079 $9,331 $(2,304) $57,610 $71,716
<S>
See Notes to Consolidated Financial Statements
</TABLE>
F5
<PAGE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
ALLCITY INSURANCE COMPANY AND SUBSIDIARY
(In thousands)
Years Ended December 31,
<C> <C> <C>
<S> 1999 1998 1997
NET CASH FLOWS FROM OPERATING ACTIVITIE
Net(loss)/income $(3,731) $ 504 $ (83)
Adjustments to reconcile net (loss)/income
to net cash used for operating
activities:
Provision for deferred tax expense 1,958 1,301 163
Amortization of deferred policy
acquisition costs 9,348 13,411 15,245
Provision for doubtful accounts (5) 256 198
Net securities losses/ (gains) 1,668 (6,079) 192
Policy acquisition costs incurred
and deferred (7,398) (11,697) (14,616)
Net change in:
Agents' balances 3,905 2,838 4,507
Reinsurance balances receivable 65,801 (22,714) (9,121)
Prepaid reinsurance premiums 15,409 17,383 14,987
Unpaid losses and loss adjustment
expenses (92,296) 16,706 11,439
Unearned premiums (25,045) (26,835) (20,850)
Drafts payable (2,794) (1,071) (729)
Due to and (from) affiliates 11,174 (18,125) 195
Unearned service fees (1,141) (2,299) (922)
Reserve for servicing carrier claims
expenses (808) (1,971) (4,342)
Reinsurance balances payable (168) (3,940) (62)
Other 2,743 (2,526) (413)
NET CASH USED FOR OPERATING ACTIVITIES (21,380) (44,858) (4,212)
NET CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of fixed maturities (186,831) (246,375) (147,423)
Net change in other invested assets (2,429) ( 31,446) -
Proceeds from sale of fixed maturities 181,863 323,177 120,272
Proceeds from maturities of fixed
maturities 15,974 15,466 13,301
Net change in short-term investments 13,057 (18,437) 18,693
NET CASH PROVIDED BY INVESTING ACTIVITIES 21,634 42,385 4,843
NET INCREASE/(DECREASE) IN CASH 254 (2,473) 631
Cash at beginning of year 390 2,863 2,232
Cash at the end of year $ 644 $ 390 $ 2,863
Cash paid for federal income taxes $ 2,872 $2,242 $ 1,428
<S>
See Notes to Consolidated Financial Statements.
</TABLE>
F6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
[S]
ALLCITY INSURANCE COMPANY AND SUBSIDIARY NOTE 1-ORGANIZATION Allcity
Insurance
[S]
Company ("Allcity" or the "Company") is a property and casualty insurer
and
includes the results of its subsidiary, Empall Agency, Inc. ("Empall").
Empire
Insurance Company ("Empire"), a property and casualty insurer owns
approximately
84.6% of the outstanding common shares of the Company and 100% of the
outstanding common shares of Centurion Insurance Company ("Centurion").
Empire's common shares are 100% owned and controlled, through
subsidiaries, by
Leucadia National Corporation ("Leucadia"). Additionally, Leucadia
indirectly
owns an additional 6.4% of the outstanding common shares of the Company.
The
Company, Empire and Centurion are sometimes hereinafter collectively
referred to
as the Group.
The property and casualty insurance business written by Empire and
Allcity is
subject to a pooling agreement under which premiums, losses, loss
adjustment
expenses and other underwriting expenses, net of reinsurance, are shared
on the
basis of 70% to Empire and 30% to Allcity. The pooling percentages have
been
changed from time to time and may be changed in the future subject to New
York
State Insurance Department approval. Allcity has no employees of its
own.
Empire provides administrative services and 30% of the related expenses
are
allocated to Allcity.
The Company's three business segments and principal lines of business are
(1)
Personal Lines (personal auto and homeowners insurance), 2) Mid-Market
(commercial auto, commercial package and workers' compensation insurance
for
larger accounts) and 3) Small Business (commercial package products for
small
businesses). Based on the Company's 1999 net earned premiums,
approximately 53%,
32% and 15% of such premiums were for the personal lines, mid-market and
small
business lines of business, respectively. The Company markets its
products
primarily to individuals, retail establishments, restaurants, livery and
taxicab
owners, and several types of service contractors. A portion of the
Company's and
Empire's automobile business, both private passenger and commercial, is
assigned
risk business acquired through contractual arrangements with other
insurance
companies, some of which are competitors. These contractual arrangements,
which
are negotiated for one or two year periods, provide for fees paid to the
Group
within parameters established by the New York State Insurance Department.
As a
result of poor operating results in the assigned risk business, the Group
no
longer participates in this line of business. Effective January 1, 2000,
the
Group transferred its policy renewal obligations to another carrier and
ceased
writing new contracts. However, the Group remains liable for the claim
settlement costs for assigned risk claims that occurred during the policy
term.
The Group believes it has provided adequate reserves for such
liabilities,
including loss adjustment expenses.
The Company and Empire are licensed to transact insurance in the State of
New
York with Empire being additionally licensed in Connecticut,
Massachusetts,
Missouri, New Hampshire and New Jersey. Based on direct premiums written,
approximately 6%, 4% and 4% of the property and casualty business
written by
the Group were from sources outside New York State for the years ended
December
31, 1999, 1998 and 1997, respectively.
[S]
F7
<PAGE>
[S]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
ALLCITY INSURANCE COMPANY AND SUBSIDIARY NOTE 1--ORGANIZATION--CONTINUED
[S]
The Company and Empire distribute their products through seven general
agents,
one of which is an Empire subsidiary, and independent agents and brokers.
Empire's wholly-owned general agent is its largest producer and generated
approximately 12%, 12% and 11% of its total earned premium volume for the
years
ended December 31, 1999, 1998 and 1997, respectively.
The consolidated financial statements include the accounts of the Company
and
its wholly-owned subsidiary, Empall. 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 disclosure of contingent assets and liabilities at the
date of
the financial statements and the reported amounts of revenues and
expenses
during the reporting period. Actual results could differ from those
estimates.
NOTE 2- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investments: At acquisition, marketable debt and equity securities are
designated as either (i) "held to maturity" and carried at amortized
cost, (ii)
"trading" and carried at estimated market value, which is based on quoted
market
prices, with differences between cost and estimated fair value reflected
in
results of operations or (iii) "available for sale" and carried at
estimated
fair value with differences between cost and estimated fair value being
reflected as accumulated other comprehensive income (loss), net of
deferred
income tax effects. Other invested assets are designated as trading
securities.
Short-term investments are carried at cost which approximates fair value.
At December 31, 1999 and 1998, investments in fixed maturities on deposit
with
the New York State Insurance Department, which the Company has the intent
and
ability to hold to maturity, are classified as "Investments held to
maturity".
Investment income is reported when earned.
Net securities gains or losses on the sales of investments are determined
on a
specific identification basis and are included in revenues. Investments
with an
impairment in value considered to be other than temporary are written
down to
estimated net realizable value.
Unearned Premiums: Unearned premiums have been calculated predominantly
using
the daily pro rata method for new and renewed business recorded in 1998
and
1999.
F8
<PAGE>
[S]
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
ALLCITY INSURANCE COMPANY AND SUBSIDIARY NOTE 2--ACCOUNTING POLICIES-
CONTINUED
Unpaid Losses and Loss Adjustment Expenses: Liabilities for unpaid
losses, which
are not discounted (except for certain workers' compensation
liabilities), and
loss adjustment expenses ("LAE") are determined using case-basis
evaluations,
statistical analyses for losses incurred but not reported and estimates
for
salvage and subrogation recoverable and represent estimates of the
ultimate
claim costs of all unpaid losses and LAE. Liabilities include a
provision for
losses that have occurred but have not yet been reported. These
estimates are
subject to the effect of trends in future claim severity and frequency
experience. Adjustments to such estimates are made from time to time due
to
changes in such trends as well as changes in actual loss experience.
These
adjustments are reflected in current earnings.
Reinsurance: Unpaid losses, unpaid loss adjustment expenses and unearned
premiums are stated gross of reinsurance ceded. Premiums written and
earned,
losses and LAE paid and incurred, and other underwriting expenses are
stated net
of reinsurance ceded.
Pension Cost: Empire funds actuarially determined pension costs as
currently
accrued; 30% of such pension costs are allocated to Allcity.
Policy Acquisition Costs: Policy acquisition costs, which consist of
commissions, premium taxes and certain other underwriting expenses, are
deferred
and amortized ratably over the terms of the related policies. Deferred
policy
acquisition costs are limited to their net realizable value after
consideration
of investment income on the related premium. If recoverability of such
costs
from future premiums and related investment income is not anticipated,
the
amounts not considered recoverable are charged to operations.
Participating Policies: Participating business on workers' compensation
lines
constitutes approximately 7.2% of the Company's policies in force and net
premiums written. Amounts transferred to the participating
policyholders' funds
are determined by means of specific identification based upon premium
volume and
loss experience. The amount of dividends to be paid to participating
policyholders is approved quarterly by the Board of Directors. The amount
of
policyholders' dividends paid on participating policies was $133,000,
$212,000
and $526,000 in 1999, 1998 and 1997, respectively. Unpaid dividends to
participating policyholders are included as a liability in the
consolidated
balance sheets.
Servicing Arrangements: Service fee income from assigned risk business
acquired
through contractual arrangements with other insurance companies is
recognized as
revenue and earned over the life of the covered policies on a monthly
pro-rata
method.
F9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
ALLCITY INSURANCE COMPANY AND SUBSIDIARY NOTE 2--ACCOUNTING POLICIES-
CONTINUED
Service fee income for the administrative services, including
underwriting,
policy issuance, premium collection and claims services, provided to the
New
York Public Auto Pool (the "NYPAP") is recorded as a reduction to other
underwriting and loss adjustment expenses and is earned over the life of
the
policies issued. The premiums and losses processed by the Company on
behalf of
the NYPAP, which are not reflected in the consolidated financial
statements for
the years ended December 31, are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
Premiums Earned $ - $ 4,091 $ 29,076
Losses Incurred (12,972) 23,543 50,745
Unpaid Losses 32,250 70,469 98,150
</TABLE>
[S]
The premiums, losses and expenses of the business for which the Company
provides
administrative services are reflected on the financial statements of
those
insurance companies, including the Company, in New York State which are
required
to participate in the NYPAP. In its role as a servicing carrier, the
Company is
liable only for the loss adjustment expenses which are reflected as a
reserve
for servicing carrier claim expense and are determined using case basis
evaluations and statistical analyses.
Federal Income Taxes: The Company uses the liability method in providing
for
income taxes. Under the liability method, deferred income taxes are
provided at
the enacted tax rates for differences between the financial statement
carrying
amounts and tax bases of assets and liabilities and for net operating
loss
carryforwards. A valuation allowance is provided if deferred tax
benefits are
not considered more likely than not to be realized.
Earnings Per Share: Earnings per share ("EPS") are based on the weighted
average
number of common shares outstanding. There were no outstanding common
stock
equivalents during 1999, 1998 and 1997 and therefore, basic and diluted
EPS are
the same.
New Pronouncements: In June 1999, the Financial Accounting Standards
Board
issued Financial Accounting Standards No. 137, "Accounting for Derivative
Instruments and Hedging Activities - Deferral of the Effective date of
FASB
Statement No. 133 ("SFAS 133")", which will be effective for fiscal years
beginning after June 15, 2000. The Company is reviewing the impact of
the
implementation of SFAS 133 on the Company's financial position and
results of
operations.
Presentation: Certain prior year amounts have been reclassified to
conform with
the 1999 presentation.
F10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
ALLCITY INSURANCE COMPANY AND SUBSIDIARY
NOTE 3--SURPLUS NOTE
The Company issued a surplus note to Empire in 1980. The surplus note
provides,
among other things, for interest to be accrued on the principal of the
note
based on a bank's prime rate at the end of the calendar quarter. Neither
the
principal amount of the surplus note nor the accrued interest may be
paid, in
whole or in part, without the consent of the Superintendent of Insurance
of the
State of New York ("Superintendent") and must be repaid, in whole or in
part,
when so ordered by the Superintendent
NOTE 4-INVESTMENTS
Investment income by source is summarized as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997
(In thousands)
<S> <C> <C> <C>
Investment income:
Fixed maturities $ 9,214 $12,702 $15,627
Other invested assets 2,430 1,445 -
Short-term investments 1,025 715 385
12,669 14,862 16,012
Less: Investment expenses 203 339 318
NET INVESTMENT INCOME $12,466 $14,523 $15,694
</TABLE>
Investments at December 31, 1999 are summarized as follows:
<TABLE>
<CAPTION>
Gross Unrealized Estimated
Amortized Appre- Depre- Fair
Cost ciation ciation Value
(In thousands)
<S> <C> <C> <C> <C>
Available for sale:
U.S. Treasury securities
and obligations of U.S.
government agencies $129,132 $ - $3,145 $125,987
Mortgage-backed
securities 7,622 18 87 7,553
Foreign governments 897 - 3 894
All other corporate bonds 29,643 51 633 29,061
Total fixed maturities 167,294 69 3,868 163,495
Equity securities - 255 - 255
TOTAL INVESTMENTS
AVAILABLE FOR SALE 167,294 324 3,868 163,750
Held to maturity:
U.S. Treasury securities 492 - 16 476
TOTAL INVESTMENTS
HELD TO MATURITY: 492 - 16 476
Short-term 7,129 - - 7,129
Other invested assets 33,875 - - 33,875
TOTAL INVESTMENTS $208,790 $ 324 $3,884 $205,230
</TABLE>
F11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
ALLCITY INSURANCE COMPANY AND SUBSIDIARY
NOTE 4-INVESTMENTS-CONTINUED
Investments at December 31, 1998 are summarized as follows:
<TABLE>
<CAPTION>
Gross Unrealized Estimated
Amortized Appre- Depre- Fair
Cost ciation ciation Value___
(In thousands)
<S> <C> <C> <C> <C>
Available for sale:
U.S. Treasury securities
and obligations of U.S.
government agencies $145,061 $ 365 $284 $145,142
Mortgage-backed
securities 21,302 413 - 21,715
Foreign governments 909 26 - 935
All other corporate bonds 13,942 206 211 13,937
Total fixed maturities 181,214 1,010 495 181,729
Equity securities - 176 - 176
TOTAL INVESTMENTS
AVAILABLE FOR SALE 181,214 1,186 495 181,905
Held to maturity:
U.S. Treasury securities 502 - - 502
TOTAL INVESTMENTS
HELD TO MATURITY 502 - - 502
Short-term 20,186 - - 20,186
Other invested assets 31,446 - - 31,446
TOTAL INVESTMENTS $233,348 $1,186 $495 $234,039
</TABLE>
The amortized cost and estimated fair values of fixed maturities
(including
short-term securities) at December 31, 1999 are shown as follows (in
thousands):
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
<S> <C> <C>
Investments available for sale:
Due in one year or less $ 16,521 $ 16,460
Due after one year through five years 125,840 123,124
Due after five years through ten years 24,440 23,487
Sub total 166,801 163,071
Mortgage-backed securities 7,622 7,553
Sub total 174,423 170,624
Investments held to maturity:
Due after one year through five years 492 476
TOTAL $174,915 $171,100
</TABLE>
Expected maturities will differ from contractual maturities because
borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
The Company sold certain fixed maturities during 1999, 1998 and 1997 and
realized gross gains of $148,000, $6,227,000 and $216,000, respectively,
and
gross losses of $1,820,000, $91,000 and $298,000, respectively, before
income
taxes. In 1997, the Company realized a gross gain $129,000 before taxes,
from
the conversion of a portion of stock received from a trade organization
membership, Insurance Services Offices, into a stock company.
F12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
ALLCITY INSURANCE COMPANY AND SUBSIDIARY
NOTE 4-INVESTMENTS-CONTINUED
The changes in unrealized (depreciation)/appreciation on investments
available
for sale were $(4,235,000) and $(720,000) for the years ended December
31, 1999
and 1998, respectively, before income taxes.
As of December 31, 1999 and 1998, a security with an amortized cost of
approximately $492,000 and $502,000, respectively, was on deposit with
the New
York State Insurance Department.
During 1999 and 1998, the Company sold call options on certain U.S.
Treasury
Notes and recognized investment gains and (losses) of $4,000 and
$(57,000),
respectively.
NOTE 5--STATUTORY INFORMATION
The following is a reconciliation of net (loss)/income and surplus as
reported
on a statutory basis to net (loss)/income and shareholders' equity as
determined
in conformity with generally accepted accounting principles ("GAAP
Basis") (in
thousands):
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997
<S> <C> <C> <C>
Statutory net (loss)/income $(4,174) $ (50) $ 505
Add (deduct):
Change in deferred policy acquisition
costs (1,950) (1,714) (629)
Change in allowances for doubtful
accounts 5 (256) (198)
Policyholders' dividends 234 90 60
Pension plan curtailment gain - 1,964 -
Capitalized systems development costs 582 1,440 600
Other postretirement benefits 253 210 276
Current tax benefit 3,812 688 -
Deferred tax expense (1,958) (1,301) (163)
Interest on surplus note (551) (591) (595)
Other 16 24 61
GAAP Basis $(3,731) $ 504 $ (83)
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, _
1999 1998
<S> <C> <C>
Statutory Shareholders' Equity and Surplus $69,422 $72,701
Add (deduct):
Deferred policy acquisition costs 3,415 5,365
Nonadmitted assets, less allowance
for doubtful accounts 907 1,919
Capitalized systems development costs 2,622 2,040
Provision for unauthorized reinsurance 110 205
Policyholders'dividends (66) (300)
Current tax benefit 4,162 350
Deferred tax benefit 9,938 10,413
Other postretirement benefits (4) (257)
Net unrealized (depreciation)/appreciation
on investments (3,800) 515
Surplus note (15,851) (15,300)
Other 861 549
GAAP Basis $71,716 $78,200
</TABLE>
F13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
ALLCITY INSURANCE COMPANY AND SUBSIDIARY
NOTE 5--STATUTORY INFORMATION-CONTINUED
The Company has paid no dividends on its common shares since 1975. The
New York
Insurance Law prohibits New York domiciled property and casualty
companies from
paying dividends except out of earned surplus. Without the approval of
the New
York State Insurance Department (the "Department") , no New York domestic
property/casualty insurer may declare or distribute any dividend to
shareholders
which, together with any dividends declared or distributed by it during
the
preceeding twelve months exceeds the lesser of (1) 10% of surplus to
policyholders as shown by its last statutory annual statement, or (2) one
hundred percent of adjusted net investment income during such period. At
December 31, 1999, $6,942,000 was available for distribution of
dividends. The
Company does not presently anticipate paying dividends in the near
future.
In 1998, the National Association of Insurance Commissioners ("NAIC")
adopted
the Codification of Statutory Accounting Principles guidance, which
will
replace the current Accounting Practices and Procedures manual as the
NAIC's
primary guidance on statutory accounting. The NAIC is now considering
amendments to the Codification guidance that would also be effective
upon
implementation. The NAIC has recommended an effective date of January
1,
2001. The Codification provides guidance for areas where statutory
accounting
has been silent and changes current statutory accounting in some areas.
It is
not known whether the Department will adopt the Codification, and
whether the
Department will make any changes to that guidance. The Company has not
estimated the potential effect of the Codification guidance if
adopted by
the Department.
NOTE 6--AGENTS' BALANCES
Activity affecting the allowance for uncollectible agents' balances for
the
years ended December 31, 1999, 1998 and 1997 is summarized as follows (in
thousands):
<TABLE>
<CAPTION>
<S> <C>
Balance at January 1, 1997 $1,363
Provision 1,470
Charge-offs, net of recoveries (1,272)
Balance at December 31, 1997 1,561
Provision 1,362
Charge-offs, net of recoveries (1,106)
Balance at December 31, 1998 1,817
Provision 1,130
Charge-offs, net of recoveries (1,135)
Balance at December 31, 1999 $1,812
</TABLE>
F14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
ALLCITY INSURANCE COMPANY AND SUBSIDIARY
NOTE 7-UNPAID LOSSES AND LAE
The Company has relied upon standard actuarial ultimate loss projection
techniques to obtain estimates of liabilities for losses and LAE. These
projections include the extrapolation of both losses paid and incurred by
business line and accident year and implicitly consider the impact of
inflation
and claims settlement patterns upon ultimate claim costs based upon
historical
patterns. In addition, methods based upon average loss costs, reported
claim
counts and pure premiums are reviewed in order to obtain a range of
estimates
for setting the reserve levels. For further input, changes in operations
in
pertinent areas including underwriting standards, product mix, claims
management
and legal climate are periodically reviewed.
In the following table, the liability for losses and LAE are reconciled
for the
three years ended December 31, 1999, 1998 and 1997. Included therein are
current
year data and prior year development.
<TABLE>
<CAPTION>
RECONCILIATION OF LIABILITY FOR LOSSES AND LAE
1999 1998 1997
(In thousands)
<S> <C> <C> <C>
SAP liability for losses and LAE, net
of reinsurance, at beginning of year $139,771 $145,260 $143,494
Provision for losses and LAE for claims
occurring in the current year 36,524 56,698 73,741
Increase in estimated losses and LAE
for claims occurring in prior years 6,014 12,891 8,304
42,538 69,589 82,045
Loss and LAE payments for claims
occurring during:
Current year 12,382 19,203 23,804
Prior years 56,325 55,875 56,475
68,707 75,078 80,279
SAP liability for losses and LAE, net
of reinsurance 113,602 139,771 145,260
Reinsurance recoverable 228,334 294,461 272,266
Liability for losses and LAE
at end of year as reported in
financial statements (GAAP) $341,936 $434,232 $417,526
</TABLE>
Based upon actuarial studies conducted during 1999, 1998 and 1997 the
Company
strengthened reserves for losses from prior accident years by
approximately $5.1
million in 1999, primarily related to assigned risk automobile, voluntary
private passenger automobile and commercial auto lines, by approximately
$12.9
million in 1998, primarily related to commercial liability, commercial
auto and
workers' compensation lines, and by approximately $8.3 million in 1997,
primarily related to commercial package and voluntary commercial
automobile
lines of business.
The Company has purchased annuities with various life insurance companies
for a
number of settled claims. The claimants have been designated as payees;
however, the Company has a contingent liability of approximately $4.0
million
which represents the aggregate amount of settlements with the claimants,
in the
event of the failure of the various life insurance companies to perform.
F15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
ALLCITY INSURANCE COMPANY AND SUBSIDIARY
NOTE 8-REINSURANCE
The Company has obtained reinsurance coverage to reduce its risk of and
exposure
to large insurance claims and catastrophes. The Company retained $0.3
million
for property and casualty lines for 1999. For 1998 and 1997, the Company
retained $0.5 million on workers' compensation and $0.3 million for other
property and casualty lines of business. Empire and the Company also
use
reinsurance to protect against certain catastrophic losses. Its retention
of
lower level losses under such treaties is $7.5 million for 2000, and was
$7.5
million for 1999 and 1998 and $5.0 million for 1997. Due to the
geographic
concentration of its business, the Company believes hurricanes,
windstorms and
civil disturbances are its most significant exposure to catastrophic
losses.
Computer modeling programs provided by independent consultants are used
to
estimate exposure to such losses.
Although reinsurance does not legally discharge an insurer from its
primary
liability for the full amount of the policy liability, it does make the
assuming
reinsurer liable to the insurer to the extent of the reinsurance ceded.
The
Company's reinsurance generally has been placed with certain of the
largest
reinsurance companies, including (with their respective A.M Best & Co.
ratings)
General Reinsurance Corporation (A++) (superior), IPC Re Limited (A+)
(superior) and Partner Reinsurance Company Ltd. (A+)(superior), and
Zurich
Reinsurance (North America), Inc. (A+)(superior). The Company believes
its
reinsurers to be financially capable of meeting their respective
obligations.
However, to the extent that any reinsuring company is unable to meet its
obligations, the Company would be liable for the reinsured risks. The
Company
has established reserves, which the Company believes are adequate, for
any non-
recoverable reinsurance.
Effective January 1, 1997, Empire entered into a quota share reinsurance
agreement with its subsidiary, Centurion. Under this agreement, Empire
will
assume 50% up to July 1, 1998 and 75% thereafter of the effective period
premiums and losses of Centurion and grant Centurion a ceding commission.
Under
the pooling agreement, 70% of such business assumed will be retained by
Empire
and 30% will be ceded to the Company.
Assets and insurance reserves at December 31, 1999 and 1998 (including
$252.5
million and $333.7 million, respectively, of reinsured amounts
principally
arising from the intercompany pooling agreement with Empire) are as
follows (in
thousands):
<TABLE>
<CAPTION>
Ceded to __
Empire Others Total
<S> <C> <C> <C>
As of December 31, 1999
Prepaid reinsurance premiums $ 22,071 $ 211 $ 22,282
Reinsurance balances receivable on:
Paid losses - 1,859 1,859
Unpaid losses 170,060 34,936 204,996
Unpaid loss adjustment expenses 19,009 4,329 23,338
</TABLE>
F16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
ALLCITY INSURANCE COMPANY AND SUBSIDIARY
NOTE 8-REINSURANCE--CONTINUED
<TABLE>
<CAPTION>
Ceded to ________
Empire Others Total
As of December 31, 1998
<S> <C> <C> <C>
Prepaid reinsurance premiums $ 37,477 $ 214 $ 37,691
Reinsurance balances receivable on:
Paid losses - 1,534 1,534
Unpaid losses 217,958 39,633 257,591
Unpaid loss adjustment expenses 32,235 4,634 36,869
</TABLE>
<TABLE>
<CAPTION>
An analysis of reinsurance premiums, losses, LAE and commissions for the
years
ended December 31, 1999, 1998 and 1997 are summarized as follows (in
thousands):
Direct Assumed Ceded Net
Empire Others Empire Others
<S> <C> <C> <C> <C> <C> <C>
1999
Premiums earned $ 87,793 $ 42,448 $485 $ 81,528 $ 6,750 $42,448
Losses incurred 58,022 33,597 659 56,088 2,593 33,597
LAE incurred (6,302) 8,941 223 (6,316) 237 8,941
Commissions incurred 10,111 5,051 34 9,300 845 5,051
Premiums written 65,794 32,812 473 59,520 6,747 32,812
Losses paid 130,845 56,034 958 124,513 7,290 56,034
LAE Paid 13,289 12,673 107 12,853 543 12,673
Unearned premiums(a) 31,722 16,645 20 31,531 211 16,645
Unpaid losses (a) 276,875 102,080 1,003 242,942 34,936 102,080
Unpaid LAE (a) 31,369 11,522 116 27,156 4,329 11,522
1998
Premiums earned $142,065 $ 67,512 $100 $135,419 $ 6,746 $67,512
Losses incurred 173,235 62,282 409 155,446 18,198 62,282
LAE incurred 17,202 7,307 74 15,963 1,313 7,307
Commissions incurred 15,886 8,438 10 14,795 1,101 8,438
Premiums written 117,449 58,059 48 111,135 6,362 58,059
Losses paid 146,208 62,323 655 135,539 11,324 62,323
LAE Paid 15,576 12,755 74 15,157 493 12,755
Unearned premiums(a) 53,720 26,281 33 53,539 214 26,281
Unpaid losses(a) 349,699 124,518 1,303 311,369 39,633 124,518
Unpaid LAE(a) 50,685 15,253 - 46,051 4,634 15,253
1997
Premiums earned $191,175 $ 80,891 $ 142 $178,488 $12,829 $80,891
Losses incurred 170,395 68,901 195 155,122 15,468 68,901
LAE incurred 16,345 13,144 62 15,489 918 13,144
Commissions incurred 22,121 10,666 4 20,271 1,854 10,666
Premiums written 169,911 75,029 81 157,359 12,633 75,029
Losses paid 161,192 68,512 634 150,628 11,198 68,512
LAE Paid 13,368 11,767 62 13,090 340 11,767
</TABLE>
F17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
ALLCITY INSURANCE COMPANY AND SUBSIDIARY
NOTE 8-REINSURANCE--CONTINUED
(a) Amounts as reflected in the consolidated balance sheets can be
derived by
adding together amounts for direct and assumed and subtracting from this
sum 30%
of the amount ceded to Empire. The Company remains primarily liable for
amounts
ceded to reinsurers for unpaid losses, LAE and unearned premiums to the
extent
that the assuming reinsuring companies are unable to meet their
obligations.
An analysis of the effect of reinsurance on premiums by business segment
for the
years ended December 31, 1999, 1998 and 1997 are summarized as follows
(in
thousands):
<TABLE>
<CAPTION>
Percentage
Assumed Ceded of
Amount
Direct from to Net
Assumed
Amount Empire(a) Empire(b) Amount to
Net
<S> <C> <C> <C> <C> <C>
1999
Premiums written:
Personal Lines $22,738 $15,629 $ 23,211 $15,156
103.0%
Mid-Market 22,706 11,679 22,706 11,679
100.0%
Small Business 20,350 5,977 20,350 5,977
100.0%
Total $65,794 $33,285 $ 66,267 $32,812
1998
Premiums written:
Personal Lines $ 56,222 $29,405 $ 56,270 $29,357
100.2%
Mid-Market 38,485 22,162 38,485 22,162
100.0%
Small Business 22,742 6,540 22,742 6,540
100.0%
Total $117,449 $58,107 $117,497 $58,059
1997
Premiums written:
Personal Lines $ 85,132 $44,502 $ 85,213 $44,421
100.2%
Mid-Market 61,973 24,058 61,973 24,058
100.0%
Small Business 22,806 6,550 22,806 6,550
100.0%
Total $169,911 $75,110 $169,992 $75,029
</TABLE>
(a)Includes $473, $48 and $81 assumed from non-affiliates in 1999, 1998
and 1997, respectively, before the effects of the pooling agreement
described in Note 1.
(b)Includes $6,750, $6,362 and $12,633 ceded to non-affiliates
in 1999, 1998 and 1997, respectively, before the effects of the
pooling agreement described in Note 1.
F18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
ALLCITY INSURANCE COMPANY AND SUBSIDIARY
NOTE 9--FEDERAL INCOME TAXES
The Company has been included in the consolidated federal income tax
returns of
Leucadia since 1993. Under the terms of the tax sharing agreement,
members
compute their tax provision on a separate return basis and are either
charged
their share of federal income tax resulting from their taxable income or
are
credited for the tax benefits resulting from losses. As of December 31,
1999 and
1998, the Company's receivable/(liability) from/to affiliates for income
taxes
was $1,891,000 and $(4,845,000), respectively.
The principal components of the deferred tax benefit at December 31, 1999
and
<TABLE>
<CAPTION>
1998 were as follows (in thousands):
1999 1998
<S> <C> <C>
Unpaid loss and loss adjustment
expense reserves $5,192 $7,365
Unearned premiums 1,162 1,840
Employee benefits and compensation 566 791
Interest accrued on surplus note 3,098 2,905
Allowance for doubtful accounts 636 636
Deferred policy acquisition costs (1,195) (1,878)
Pension plan curtailment gain (688) (688)
Unrealized appreciation/(depreciation)
on investments 1,240 (242)
Investment in Ramius LLP 297 459
Unamortized deferred income 708 -
Capitalized systems development costs (918) (714)
Other, net _ (160) (61)
Total $ 9,938 $10,413
</TABLE>
The Company believes that it is more likely than not that the deferred
tax
benefit at December 31, 1999 will be fully realized based on the
availability of
taxable income.
For the years 1999, 1998 and 1997, the difference between the "expected"
statutory federal income tax applicable to continuing operations and the
actual
income tax expense are as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
1997
<S> <C> <C>
<C>
Expected federal income tax (benefit)/expense $(2,213) $ 271
$ (51)
Other (378) (1)
(13)
Actual federal income tax (benefit)/expense $(2,591) $ 270
$ (64)
</TABLE>
F19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
ALLCITY INSURANCE COMPANY AND SUBSIDIARY
NOTE 10--PENSION PLAN AND POSTRETIREMENT BENEFITS
Effective January 1, 1999, Empire has a defined contribution plan. The
contributions, ranging from 2% - 16% of employee's current pension
eligible
compensation, are based on age and service life of the employees of
Empire.
These contributions accumulate for participants on a tax-deferred basis.
Participants direct the investment of the contributions to their
accounts. In
accordance with the pooling agreement, the Company shared 30% of
$1,145,000, the
amount contributed by the Group to the Plan.
Empire had a trusteed non-contributory defined benefit pension plan
covering
substantially all employees for the period ending December 31, 1998. The
benefits were based on years of credited service and the employees'
highest
compensation during any five consecutive plan or calendar years before
retirement. Empire's policy was to fund pension costs on a current basis
using
an aggregate method.
Benefits accrued under the defined benefit plan were frozen as of
December 31,
1998. The plan was merged with the Leucadia plan effective January
1,
1999. As a result of the curtailment of the pension benefits in 1998, the
Group
recognized a gain of $6,548,000. In accordance with the pooling
agreement, the
Company's share of prepaid pension and net periodic pension cost is 30%
of the
amounts reflected above.
F20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
ALLCITY INSURANCE COMPANY AND SUBSIDIARY
NOTE 10--PENSION PLAN AND POSTRETIREMENT BENEFITS
<TABLE>
<CAPTION>
The following tables set forth certain information relating to Empire's
non-
contributory defined benefit pension plan (in thousands):
December 31,
1998
<S> <C>
Reconciliation of the benefit obligation
Projected Benefit Obligation at beginning of year $27,765
Service cost 1,794
Interest cost 1,906
Actuarial loss 323
Benefits paid (2,521)
Curtailment gain (7,231)
Projected Benefit Obligation at end of year $22,036
Reconciliation of the fair value of plan assets
Fair value of plan assets at beginning of year $25,152
Actual return on plan assets 1,637
Employer contributions 925
Benefits paid (2,521)
Fair value of plan assets at end of year $25,193
Funded Status
Actuarial present value of benefit obligation:
Accumulated benefit obligation, including vested
benefits of $21,188 in 1998 $22,036
Projected benefit obligation for services rendered
to December 31, 1998 (22,036)
Plan assets at fair value (primarily bonds and
stocks) 25,193
PROJECTED BENEFIT OBLIGATION
LESS THAN PLAN ASSETS 3,157
Unrecognized prior service cost 82
Unrecognized net gain from past experience
different from that assumed and effects of
Changes in assumptions (340)
Unrecognized net obligation at transition date 258
PREPAID PENSION $3,157
</TABLE>
<TABLE>
<CAPTION>
Components of net pension cost:
Years Ended December
31,
1998 1997
<S> <C> <C>
Service cost-benefits earned during the period $1,794 $1,628
Interest cost on projected benefit obligation 1,906 1,985
Actual return on plan assets (1,637) (2,838)
Deferred (loss) gain on plan assets (124) 1,039
Net amortization and deferral 145 145
NET PERIODIC PENSION COST $2,084 $1,959
Discount rate 6.75% 7.0%
Rate of Increase in future compensation N/A 5.0%
Long-term rate of return on plan assets 7.50% 7.0%
</TABLE>
F21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
ALLCITY INSURANCE COMPANY AND SUBSIDIARY
NOTE 10--PENSION PLAN AND POSTRETIREMENT BENEFITS--CONTINUED
Empire provides certain health care and life insurance benefits for
retired
employees. During 1996, Empire amended the eligibility requirement to
only
those employees who had at least ten years of service and were at least
50 years
of age as of October 1, 1996. Prior to this amendment, substantially all
of
Empire's employees were eligible for such benefits if they reached normal
or
early retirement age while still working for Empire. As a result of this
amendment, the accumulated postretirement benefit obligation was reduced
by
approximately $7,602,000 which has been amortized over three years. Those
benefits are provided through an insurance company whose premiums are
based on
the cost of benefits paid during the year.
The following table sets forth certain information relating to Empire's
unfunded
substantive plan for postretirement benefits (in thousands):
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
Reconciliation of the benefit obligation
Accumulated postretirement obligation
at beginning of year $5,574 $4,729
Service cost 32 29
Interest cost 363 370
Actuarial (gain)/loss (1,065) 770
Benefits paid (298) (324)
Accumulated postretirement obligation at
end of year $ 4,606 $5,574
Funded Status
Actuarial present value of accumulated
postretirement benefit obligation:
Retirees $(3,220) $(4,022)
Fully eligible active plan participants (938) (1,074)
Other active plan participants (448) (478)
$(4,606) (5,574)
Unrecognized net gain from past
experience different from that assumed
and effects of changes in assumptions (799) (1,634)
ACCRUED POSTRETIREMENT BENEFITS COST $(5,405) $(7,208)
</TABLE>
<TABLE>
<CAPTION>
Components of net postretirement benefits
1999 1998 1997
<S> <C> <C> <C>
Service cost--benefits earned during the period $ 32 $ 29 $ 23
Interest cost on projected benefit obligation 363 370 330
Amortization of curtailment gain (1,900) (2,533) (3,168)
Net amortization and deferral __ _- - (19)
PERIODIC POSTRETIREMENT BENEFITS INCOME $(1,505) $(2,134) $(2,834)
</TABLE>
F22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
ALLCITY INSURANCE COMPANY AND SUBSIDIARY
NOTE 10--PENSION PLAN AND POSTRETIREMENT BENEFITS--CONTINUED
In accordance with the pooling agreement, the Company's share of accrued
postretirement benefit cost and net periodic postretirement benefit
income is
30% of the amounts reflected above and is included in other liabilities.
In
determining the accumulated postretirement benefit obligation at December
31,
1999 and 1998, Empire utilized discount rates of 8% and 6.75%,
respectively. The
assumed health care cost trend rates used in measuring the accumulated
postretirement benefit obligation were 7% for 1999 declining to an
ultimate rate
of 6% by 2000. If the health care cost trend rates were increased by 1%,
the
accumulated postretirement benefit obligation as of December 31, 1999
would have
increased by approximately $290,000, before the effects of the pooling
agreement. If the health care cost trend rates were decreased by 1%, the
accumulated postretirement benefit obligation as of December 31, 1999
would have
decreased by approximately $246,000 before the effects of the pooling
agreement.
The effect of a 1% increase or decrease in the estimated aggregate of
service
and interest cost for 1999, 1998 and 1997 would be immaterial.
In 1994, Empire established a Salary Cap Restoration Plan ("SCRP") for
certain
corporate officers. Under the SCRP, Empire will provide these officers
with an
additional benefit, to be paid in a lump-sum upon retirement, equal to
the
difference between the actuarially determined lump-sum benefits, as
computed
under the Pension Plan, of the officer's highest five year average
compensation
(not to exceed $320,000) at retirement and the current Internal Revenue
Service
maximum compensation limit of $160,000. The SCRP is an unfunded plan. In
1999,
1998, and 1997 Empire expensed $98,000, $74,000 and $17,000,
respectively.
Along with the defined benefit plan, the benefits under SCRP were
curtailed as
of December 31, 1998. Under the pooling arrangement, the Company is
obligated
to pay 30% of the cost of the SCRP.
Empire sponsors an Employees' Savings Plan (the "Savings Plan"), under
which
each eligible employee may defer a portion of their annual compensation,
subject
to limitations. Empire matches contributions equal to 50% of an
employee's
contributions up to a maximum of 2.5% of the employee's salary. A
participant
may also contribute, from after-tax dollars, an amount, not to exceed 10%
of
annual compensation. Empire's contributions to the Savings Plan were
$452,000,
$420,000 and $438,000 in 1999, 1998 and 1997, respectively. Under the
pooling
agreement, the Company is obligated to provide 30% of Empire's
contributions to
the Savings Plan.
NOTE 11--LEASES
The Group has entered into a twenty year lease agreement expiring in
2018,
consisting of 286,510 square feet, in an office building located at 335
Adams
Street in Brooklyn, New York, in which Leucadia has an equity interest.
The
Group received certain incentives from both the City and State of New
York in
connection with this lease, which will be recognized over the term of the
lease.
Empire has subleased 133,140 square feet of the office space to its
parent,
Leucadia at the similar terms as are in the original lease.
F23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
ALLCITY INSURANCE COMPANY AND SUBSIDIARY
NOTE 11-LEASES-CONTINUED
Empire has guaranteed the payment of lease rentals by its wholly-owned
subsidiary Gould Dente Agency ("Gould"). Gould relocated its offices to
the new
office building with Empire. In accordance with the guarantee, in 1998,
$2.0
million of a $2.3 million liability for lease abandonment costs
established by
Empire in 1997 was reversed upon release by the landlord from its
obligation.
The remainder was paid in 1999. Under the pooling agreement, the Company
is
obligated for 30% of this transaction.
Future minimum rentals, which exclude escalation amounts, on non-
cancelable
leases in the aggregate for each of the next five years and thereafter
are as
follows (in thousands):
<TABLE>
<CAPTION>
Lease Sublease Net
<S> <C> <C> <C>
2000 $ 4,906 $ 2,280 $ 2,626
2001 4,906 2,280 2,626
2002 4,906 2,280 2,626
2003 5,029 2,337 2,692
2004 5,642 2,622 3,020
Thereafter 91,393 42,470 48,923
Total $116,782 $54,269 $62,513
</TABLE>
Rental expense for the Group for each of the years 1999, 1998 and 1997
was $3.3
million. The Company is obligated to pay 30% of these rental charges in
accordance with the pooling agreement.
NOTE 12--BUSINESS SEGMENTS
Allcity operates in three business segments-Personal Lines, Mid-Market
and
Small Business. Results by business segment for each year ended December
31,
1999, 1998 and 1997 are summarized as follows (in thousands):
<TABLE>
<CAPTION>
Premiums Underwriting
1999 Earned Gain(Loss)
<S> <C> <C>
Personal Lines $22,404 $ (3,974)
Mid-Market 13,771 (12,647)
Small Business 6,273 (332)
TOTAL FROM UNDERWRITING $42,448 $(16,953)
Net investment income, net securities losses,
other income and interest on surplus note 10,631
LOSS BEFORE FEDERAL INCOME TAXES $ (6,322)
1998
Personal Lines $39,251 $ (4,418)
Mid-Market 21,643 (14,598)
Small Business 6,618 (788)
TOTAL FROM UNDERWRITING $67,512 (19,804)
Net investment income, net securities gains,
other income and interest on surplus note 20,578
INCOME BEFORE FEDERAL INCOME TAXES $ 774
</TABLE>
F24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
ALLCITY INSURANCE COMPANY AND SUBSIDIARY
NOTE 12--BUSINESS SEGMENTS-CONTINUED
<TABLE>
<CAPTION>
Premiums Underwriting
Earned Gain(Loss
<S> <C> <C>
1997
Personal Lines $47,292 $ (3,802)
Mid-Market 27,223 (10,133)
Small Business 6,376 (1,654)
TOTAL FROM UNDERWRITING $80,891 (15,589)
Net investment income, net securities losses,
other income and interest on surplus note 15,442
LOSS BEFORE FEDERAL INCOME TAXES $ (147)
</TABLE>
Direct investment portfolios are not maintained for each segment
and
accordingly, allocation of assets to each segment is not
performed.
Seven general agents, one of which is an Empire subsidiary,
produced
approximately 33%, 32%, and 28% of Allcity's premiums for the years
ended
December 31, 1999, 1998 and 1997, respectively. All of Allcity's
business
is conducted in the State of New York.
NOTE 13--FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's only material financial instruments are investments for
which the
fair values are disclosed in Note 4, and the surplus note and short-
term
investments, for which the carrying amounts approximates fair value.
NOTE 14--LITIGATION
The Company is party to legal proceedings that are considered to be
either
ordinary, routine litigation or incidental to its business. Based
on
discussion with counsel, the Company does not believe that such
litigation will
have a material effect on its financial position, results of
operations
or cash flows.
NOTE 15--RELATED PARTIES
See Notes 1, 2, 3, 8, 9, 10 and 11 regarding Allcity's relationships
with
the Group and Leucadia.
F25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
ALLCITY INSURANCE COMPANY AND SUBSIDIARY
NOTE 16--SUMMARY OF UNAUDITED QUARTERLY RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
The following is a summary of unaudited quarterly results of
operations for 1999, 1998 and 1997 (in thousands, except
per share amounts):
1999
1st 2nd 3rd 4th
<S> <C> <C> <C> <C>
Total Revenues $17,390 $14,682 $12,353 $11,237
Net Income/(Loss) 87 (426) (314) (3,078)
Basic and Diluted Earnings/
(Loss) Per Share 0.01 (0.06) (0.04) (0.44)
</TABLE>
<TABLE>
<CAPTION>
1998
1st 2nd 3rd 4th
<S> <C> <C> <C> <C>
Total Revenues $24,168 $22,029 $21,998 $23,875
Net Income/(Loss) 110 (851) (10) 1,255
Basic and Diluted Earnings/
(Loss) Per Share 0.02 (0.12) (0.01) 0.18
</TABLE>
<TABLE>
<CAPTION>
1997
1st 2nd 3rd 4th
<S> <C> <C> <C> <C>
Total Revenues $28,108 $26,560 $25,826 $22,130
Net Income/(Loss) 856 (162) 49 (826)
Basic and Diluted Earnings/
(Loss) Per Share 0.12 (0.02) 0.01 (0.12)
</TABLE>
F26
<PAGE>
<TABLE>
<CAPTION>
ALLCITY INSURANCE COMPANY
SCHEDULE VI - SUPPLEMENTAL INSURANCE INFORMATION
CONCERNING PROPERTY/ CASUALTY INSURANCE OPERATIONS
(Thousands of dollars)
Col. A Col. B Col. C Col. D Col. E Col. F Col. G Col. H Col. I Col. J Col. K Col. L
Reserves Claims and Claim
For Unpaid Adjustment Expenses Amortization Paid
Deferred Claims Discount Incurred related to of Deferred Claims
Policy and Claim if any Net (1) (2) Policy Other and Claim
Acquisition Adjustment Deducted Unearned Earned Investment Current Prior Acquisition Operating Premiums Adjustment
Segment Costs Expenses in Col. C Premiums Premiums Income (b) Year Years Costs Expenses (b) Written Expenses
Year Ended
12/31/99:
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Personal Lines $1,670 $105,219 $15,794 $22,404 $ 4,114 $21,000 $(1,764) $ 4,372 $2,769 $15,156 $32,634
Mid-market 1,118 200,278 $ 250 13,047 13,771 6,856 12,008 7,743 3,222 3,445 11,679 32,096
Small Business 627 36,439 10,086 6,273 1,496 3,516 35 1,754 1,301 5,977 3,977
$3,415 $341,936 $ 250 $38,927 $42,448 $12,466 $36,524 6,014 $ 9,348 $7,515 $32,812 $68,707
Year Ended
12/31/98:
Personal Lines $2,920 $182,447 $33,097 $39,251 $ 5,869 $35,142 $ 599 $ 7,340 $1,144 $29,357 $43,866
Mid-market 1,609 215,363 $ 307 19,797 21,643 7,500 17,081 10,378 4,441 3,292 22,162 26,692
Small Business 836 36,422 11,078 6,618 1,154 4,475 1,914 1,630 (120) 6,540 4,520
$5,365 $434,232 $ 307 $63,972 $67,512 $14,523 $56,698 $12,891 $13,411 $4,316 $58,059 $75,078
Year Ended
12/31/97:
Personal Lines $4,050 $159,022 $49,575 $47,292 $ 6,389 $57,834 $ 822 $ 8,481 $(4,306) $44,421 $57,375
Mid-market 2,220 228,772 $ 123 29,958 27,223 8,246 10,831 6,103 5,263 3,063 24,058 17,342
Small Business 809 29,732 11,274 6,376 1,059 5,076 1,379 1,501 433 6,550 5,562
$7,079 $417,526 $ 123 $90,807 $80,891 $15,694 $73,741 $ 8,304 $15,245 $ (810) $75,029 $80,279
</TABLE>
[FN]
(a) Liabilities for losses for certain long - term disability payments
under workers' compensation insurance are discounted at a maximum
of 6%. The liabilities discounted are deemed insignificant and do not have
a material effect on reported income.
(b) Allocations of Net Investment Income and Other Operating Expenses are
based on a number of assumptions and estimates and results would
change if different methods were applied. Other Operating Expenses are
reflected net of service fee income excluding other income and interest
on surplus note.
* Information required by Schedule III - Supplementary Insurance
Information has been incorporated within this schedule.
F27
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<DEBT-HELD-FOR-SALE> 163,495
<DEBT-CARRYING-VALUE> 492
<DEBT-MARKET-VALUE> 476
<EQUITIES> 255
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 205,246
<CASH> 644
<RECOVER-REINSURE> 230,193
<DEFERRED-ACQUISITION> 3,415
<TOTAL-ASSETS> 486,020
<POLICY-LOSSES> 341,936
<UNEARNED-PREMIUMS> 38,927
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 7,079
<OTHER-SE> 64,637
<TOTAL-LIABILITY-AND-EQUITY> 486,020
42,448
<INVESTMENT-INCOME> 12,466
<INVESTMENT-GAINS> (1,668)
<OTHER-INCOME> 2,416
<BENEFITS> 42,538
<UNDERWRITING-AMORTIZATION> 9,348
<UNDERWRITING-OTHER> 9,547
<INCOME-PRETAX> (6,322)
<INCOME-TAX> (2,591)
<INCOME-CONTINUING> (3,731)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,731)
<EPS-BASIC> $ (0.53)
<EPS-DILUTED> $ (0.53)
<RESERVE-OPEN> 434,232
<PROVISION-CURRENT> 36,524
<PROVISION-PRIOR> 6,014
<PAYMENTS-CURRENT> 19,203
<PAYMENTS-PRIOR> 56,325
<RESERVE-CLOSE> 341,936
<CUMULATIVE-DEFICIENCY> 6,014
</TABLE>
