<PAGE>
THE CENTRIS GROUP, INC.
EMPLOYEES' SAVINGS PLAN
Financial Statements and Schedules
December 31, 1999 and 1998
(With Independent Auditors' Report Thereon)
10796
<PAGE>
THE CENTRIS GROUP, INC.
EMPLOYEES' SAVINGS PLAN
INDEX TO FINANCIAL STATEMENTS AND SUPPLEMENTAL SCHEDULES
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report 1
Statements of Net Assets Available for Plan Benefits as of December 31, 1999 and 1998 2
Statements of Changes in Net Assets Available for Plan Benefits for the years
ended December 31, 1999 and 1998 3
Notes to Financial Statements 4
SUPPLEMENTAL SCHEDULES
1 - Schedule of Assets Held for Investment Purposes at End of Year 8
2 - Schedule of Nonexempt Transactions 9
</TABLE>
All other schedules are omitted because they are not applicable or not
required based on disclosure requirements of the Employee Retirement Income
Security Act of 1974 and regulations issued by the Department of Labor.
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
The Centris Group, Inc.:
We have audited the accompanying statements of net assets available for Plan
benefits of The Centris Group, Inc. Employees' Savings Plan (the Plan) as of
December 31, 1999 and 1998 and the related statements of changes in net
assets available for Plan benefits for the years then ended. These financial
statements are the responsibility of the Plan's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As further discussed in note 1 to the financial statements, the Board of
Directors of The Centris Group, Inc., the Plan's sponsor, voted on December
3, 1999 to terminate the Plan.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for Plan benefits of the Plan
as of December 31, 1999 and 1998 and the changes in net assets available for
Plan benefits for the years then ended in conformity with generally accepted
accounting principles.
Our audits were performed for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules; SCHEDULE
OF ASSETS HELD FOR INVESTMENT PURPOSES AT END OF YEAR and SCHEDULE OF
NONEXEMPT TRANSACTIONS are presented for the purpose of additional analysis
and are not a required part of the basic financial statements but are
supplementary information required by the Department of Labor's Rules and
Regulations for Reporting and Disclosure under the Employee Retirement Income
Security Act of 1974. These supplemental schedules are the responsibility of
the Plan's management. The supplemental schedules have been subjected to the
auditing procedures applied in the audits of the basic financial statements
and, in our opinion, are fairly stated, in all material respects, in relation
to the basic financial statements taken as a whole.
Los Angeles, California
June 23, 2000
<PAGE>
THE CENTRIS GROUP, INC.
EMPLOYEES' SAVINGS PLAN
Statements of Net Assets Available for Plan Benefits
December 31, 1999 and 1998
<TABLE>
<CAPTION>
ASSETS 1999 1998
-------------- --------------
<S> <C> <C>
Investments:
Putnam Asset Allocation - Growth Portfolio $ 1,016,779 995,694
Putnam International Growth Fund 824,966 652,064
Putnam New Opportunities Fund 1,936,620 1,435,305
Putnam Asset Allocation - Conservative Portfolio 182,693 93,547
Putnam Diversified Income Trust 365,531 517,067
The Centris Group, Inc. Common Stock -- 1,158,204
Putnam Voyager Fund 2,004,490 1,362,404
Participant Loans 297,916 268,396
Putnam Fund for Growth and Income 35,756 --
Putnam Stable Value Fund 1,885,727 1,464,672
Other -- 1,849
-------------- --------------
8,550,478 7,949,202
Receivables:
Receivable from conversion of Centris Common Stock 400,821 --
Accrued interest receivable due from Plan Sponsor resulting
from DOL settlement 23,437 --
-------------- --------------
Net assets available for Plan benefits $ 8,974,736 7,949,202
============== ==============
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
THE CENTRIS GROUP, INC.
EMPLOYEES' SAVINGS PLAN
Statements of Changes in Net Assets Available for Plan Benefits
Years ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
-------------- --------------
<S> <C> <C>
Additions to net assets attributed to:
Investment income:
Interest and dividends $ 621,062 328,503
Net appreciation of fair value of investments 1,958,981 285,816
Accrued interest resulting from DOL settlement 23,437 --
-------------- --------------
2,603,480 614,319
-------------- --------------
Contributions:
Employer 765,940 1,046,477
Participants 528,914 593,559
-------------- --------------
1,294,854 1,640,036
-------------- --------------
Total additions 3,898,334 2,254,355
Deductions from net assets attributed to benefits
paid to participants (2,872,800) (567,077)
-------------- --------------
Net increase 1,025,534 1,687,278
Net assets available for Plan benefits:
Beginning of year 7,949,202 6,261,924
-------------- --------------
End of year $ 8,974,736 7,949,202
============== ==============
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
(1) DESCRIPTION OF PLAN
(a) GENERAL
The Centris Group, Inc. Employees' Savings Plan (the Plan) is a
defined contribution 401(k) plan sponsored by The Centris Group,
Inc. (the Company), which became effective January 1, 1989 and was
amended on December 31, 1997 and December 16, 1998. Putnam
Fiduciary Trust Company is trustee of the Plan. There is a Plan
administrative committee consisting of three employees of the
Company.
In 1997, all employees were eligible to participate in the Plan on
the first day of the calendar quarter following completion of one
year of service as an employee with the Company and attainment of
age 21. On December 31, 1997, the time of service requirement to
participate in the Plan was changed from one year of service to
three months of service. On December 16, 1998, the eligibility age
was changed to 18. After becoming eligible, employees may
participate until retirement, disability or termination from the
Company. The Plan is subject to certain provisions of the Employee
Retirement Income Security Act of 1974 (ERISA); however, benefits
under the Plan are not eligible for Plan termination insurance
provided by the Pension Benefit Guaranty Corporation under Title
IV of ERISA. Participants should refer to the Plan Document for a
more complete description of the Plan.
(b) PLAN TERMINATION
On December 3, 1999, the Company's Board of Directors passed a
resolution terminating the Plan as of December 18, 1999 as a
requirement of the merger of the Company with HCC Insurance
Holdings, Inc. (HCC). An application for approval of the
termination of the Plan has been filed with the Internal Revenue
Service.
Once Internal Revenue Service approval is received, the net assets
will be distributed to participants. Participants will have a
choice of options regarding these distributions. Participants may
elect either an annuity, lump-sum payment, IRA rollover or direct
transfer into another plan. Each participant's interest in their
employer matching account affected by the termination or
discontinuance is fully vested on December 18, 1999.
(c) TRUST FUND
The Trustee exercises discretionary authority in transactions
involving purchases and sales within the various funds.
(d) CONTRIBUTIONS AND FORFEITURES
Participants in the Plan are permitted to invest contributions in
one or a combination of nine mutual funds, in addition to The
Centris Group, Inc. Common Stock. Participants can contribute up
to 15% of their annual compensation on a pretax basis, subject to
federal limitations, which was $10,000 in both 1999 and 1998. The
Company matches 100% of participant contributions, to a maximum of
6% of annual compensation. Participants select the fund in which
matching contributions are invested.
Forfeitures result from participants who terminated prior to fully
vesting in the employer contributions. Forfeitures were used to
reduce the actual matching contribution of the Company or to pay
expenses of the Plan and amounted to $45,771 and $73,429 in 1999
and 1998, respectively.
6
<PAGE>
(e) PARTICIPANT ACCOUNTS
Each participant's account is credited with the participant's
contribution, an allocation of the Company's matching contribution
and Plan earnings. Earnings are allocated to participants based
upon the proportion of the participant's account balance to the
total account balance for each fund within the Plan. The benefit
to which a participant is entitled is the benefit that can be
provided from the participant's account.
(f) VESTING
Employee contributions to the Plan and earnings thereon are fully
vested when contributed or earned. Employer contributions to the
participants' accounts vested ratably over a five-year period
after two years of service until December 18, 1999, when all
amounts became fully vested.
(g) PAYMENT OF BENEFITS
On termination of service due to death, disability or retirement,
a participant or beneficiary may elect to receive either a
lump-sum amount equal to 100% of the value of the participant's
interest in his or her account, or annual installments over a
period not to exceed the life expectancy of the participant or
designated beneficiary. If the value of the participant's interest
in his or her account at the date of termination is not over
$3,500, and was never over $3,500 at the date of any prior
distribution, a single lump-sum payment is made.
(h) PARTICIPANT LOANS FUND
Participants may borrow from a minimum of $1,000 up to a maximum
of the lesser of $50,000 reduced by the highest unpaid loan
balance during the preceding 12 months, or 50% of their vested
account balance. Loan terms range from 1 to a maximum of 5 years
and are payable in full in the event of termination. The loans are
secured by the balance in the participant's account and bear
interest at a rate commensurate with local prevailing rates as
determined quarterly by the Plan administrators. Interest rates on
existing loans range from 8.50% to 9.75%. Principal and interest
are paid ratably through payroll deductions.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) BASIS OF PRESENTATION
The financial statements of the Plan are prepared under the
accrual method of accounting. The December 31, 1999 financial
statements are prepared on the liquidation basis of accounting as
a result of the Company's decision to terminate the Plan and to
stop accruing benefits, however, this change in accounting had no
impact on the carrying values of the Plan's investments.
(b) INVESTMENT VALUATION AND INCOME RECOGNITION
The Plan's investments are stated at the estimated fair market
value except for insurance company investment contracts, which are
stated at contract value. Contract value is equal to the
liquidation value for such investment contracts. The estimated
fair value of these investments is determined from quoted market
prices. Participant loans are stated at their outstanding
principal balance, which approximates fair value.
Purchases and sales of securities are recorded on a trade-date
basis. Realized gains and losses from security transactions are
reported under the average-cost method. Interest income is
recorded on the accrual basis. Dividends are recorded on the
ex-dividend date.
(c) PAYMENTS OF BENEFITS
Benefits are recorded when paid.
7
<PAGE>
(d) USE OF ESTIMATES
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 changes in net assets during the reporting
period. Actual results could differ from those estimates.
(e) RECLASSIFICATIONS
Certain reclassifications of the prior year's reported amounts
have been made to conform to the current year's reporting format.
(3) PLAN INVESTMENTS
Descriptions of the investment funds currently available under the Plan,
including The Centris Group, Inc. Common Stock, are as follows:
- PUTNAM ASSET ALLOCATION - GROWTH PORTFOLIO - This fund seeks
capital appreciation, with current income as a secondary goal by
allocating its investments between equity and fixed income class
securities.
- PUTNAM INTERNATIONAL GROWTH FUND - This fund seeks capital
appreciation by investing primarily in equity securities of
companies located in a country other than the United States.
- PUTNAM NEW OPPORTUNITIES FUND - This fund aggressively seeks to
provide long-term capital appreciation by investing principally in
common stock of rapidly growing companies within dynamic economic
sectors, which the fund's investment manager believes possess
above-average, long-term growth potential.
- PUTNAM ASSET ALLOCATION - CONSERVATIVE PORTFOLIO - This portfolio
seeks to preserve principal and have some equity exposure to keep
pace with inflation by allocating its investments between fixed
income and equity class securities.
- PUTNAM DIVERSIFIED INCOME TRUST - This fund seeks to provide high
current income consistent with preservation of capital by
allocating investments among three sectors of the fixed income
securities markets: U.S. Government, High Yield and International.
- THE CENTRIS GROUP, INC. COMMON STOCK - This fund is comprised of
shares of common stock of The Centris Group, Inc. and money market
instruments. The objective of this fund is long-term capital
growth.
- PUTNAM VOYAGER FUND - This fund seeks capital appreciation by
investing primarily in common stocks of companies that the fund's
investment manager believes have potential for capital
appreciation which is significantly greater than that of the
market averages.
- PUTNAM FUND FOR GROWTH AND INCOME - This fund seeks to provide
capital growth and current income by investing primarily in common
stocks of companies that the fund's investment manager believes
offers the potential for capital growth while also providing
current income.
- PUTNAM INTERMEDIATE U.S. GOVERNMENT INCOME - This fund seeks to
provide high current income consistent with preservation of
capital by investing primarily in bonds that are obligations of
the U.S. government and its agencies or instrumentalities, having
short- to intermediate-term maturities (1 - 10 years).
8
<PAGE>
- PUTNAM STABLE VALUE FUND - This fund seeks to preserve principal
and achieve high current income through a diversified portfolio of
high-quality investment contracts.
All interest and dividends received from each investment fund are
automatically reinvested in their respective investment fund.
(4) COMMITMENTS AND RECONCILIATION TO FORM 5500
Net assets available for Plan benefits include $495,701 and $736,092 at
December 31, 1999 and 1998, respectively, allocated to the accounts of
persons who had requested distribution of their accounts at those
respective dates but for which funding was not accomplished until
subsequent to year end. Such amounts are shown as liabilities of the Plan
in Form 5500, Annual Return/Report of Employee Benefit Plan, filed with
the Department of Labor.
(5) FEDERAL INCOME TAXES
The Plan qualifies under the provisions of Sections 401(a) and 401(k) of
the Internal Revenue Code and is exempt from federal income taxes under
provisions of Section 501(a) of the Internal Revenue Code. The Company
received a favorable determination letter on the Plan on May 22, 1998
from the Internal Revenue Service, and the Company believes that the Plan
continues to qualify and operate as designed.
(6) ADMINISTRATION COSTS
Administration costs of the Plan were approximately $18,792 and $19,315
for the years ended December 31, 1999 and 1998, respectively, and were
paid directly by the Company.
(7) NONEXEMPT TRANSACTIONS
There was an unintentional delay of six days by the Company in submitting
March, 1999 employee deferrals in the amount of $104,527 to the trustee.
The Company reimbursed the Plan for lost interest resulting from the
delay in June of 1999.
(8) REGULATORY MATTERS
On February 28, 2000, the Department of Labor (DOL) issued a letter to
the Plan Administrator with the findings from the DOL's review of the
operations of the Plan during the period 1995 to 1999. The DOL identified
selected situations where they believe that participant contributions
were not deposited in the Plan's trust accounts on a timely basis. The
Company disagrees with the DOL's interpretation of the timing
requirements for the subject deposits, and , except as noted in note 7,
has complied with the Internal Revenue Service guidelines for the timing
of deposits. Nevertheless, in order to resolve its dispute with the DOL,
the Company made an additional contribution of $23,437 to the Plan on
June 29, 2000. The Plan has recorded this as an accrued interest
receivable from the Plan Sponsor as of December 31, 1999.
9
<PAGE>
SCHEDULE 1
THE CENTRIS GROUP, INC.
EMPLOYEES' SAVINGS PLAN
Schedule of Assets Held for Investment Purposes at End of Year
December 31, 1999
<TABLE>
<CAPTION>
IDENTITY OF ISSUER CURRENT
OR BORROWER DESCRIPTION OF INVESTMENTS VALUE
---------------------------- ------------------------------------------------------- ------------------
<S> <C> <C>
Mutual Funds:
Putnam Investments * Putnam Asset Allocation - Growth Portfolio $ 1,016,779
Putnam Investments * Putnam International Growth Fund 824,966
Putnam Investments * Putnam New Opportunities Fund 1,936,620
Putnam Investments * Putnam Asset Allocation - Conservative 182,693
Putnam Investments * Putnam Diversified Income Trust 365,531
Putnam Investments * Putnam Voyager Fund 2,004,490
Putnam Investments * Putnam Fund for Growth and Income 35,756
Putnam Investments * Putnam Stable Value Fund 1,885,726
Participant Loans Loans outstanding at year-end, interest rate
ranging from 8.50% to 9.75% 297,916
</TABLE>
* Party in interest.
See accompanying independent auditors' report
10
<PAGE>
Schedule 2
THE CENTRIS GROUP, INC.
EMPLOYEES' SAVINGS PLAN
Schedule of Nonexempt Transactions
December 31, 1999
<TABLE>
<CAPTION>
(h)
(b) (f) Current
(a) Description of Asset (c) (d) (e) Expense (g) Value of Asset (i)
Identity of Party (Include Interest Rate and Purchase Selling Lease Incurred With Cost of On Transaction Net Gain or
Involved Maturity in Case of a Loan) Price Price Rental Transaction Asset Date (Loss)
--------------------------- --------------------------- -------- ------- ------ ------------- ------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Centris Group, Inc. Plan
Sponsor Employee contributions
withheld from March 1999
payroll $104,527 N/A N/A N/A 104,527 105,223 (695)
======== ======= ====== ============= ======= ============== ===========
</TABLE>
See accompanying independent auditors' report
11
