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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
ANNUAL REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1995 Commission File No. 0-14950
ARGONAUT GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4057601
(State or other jurisdiction of (IRS employer identification number)
incorporation of organization)
1800 Avenue of the Stars, Suite 1175, Los Angeles, California 90067-6045
(Address of principal executive offices) (Zip Code)
310.553.0561
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.10 Par Value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes /X/ No / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information statement
incorporated by reference in Part III of this Form 10-K or any amendment of this
Form 10-K. /X/
As of February 27, 1996, registrant had 24,104,891 shares of Common Stock
outstanding, and the aggregate market value of the voting stock held by
nonaffiliates (based on the closing price on February 27, 1996 of such stock on
the National Association of Securities Dealers, Inc. Automated Quotation System)
was approximately $801 million.
DOCUMENTS INCORPORATED BY REFERENCE:
Part II: Excerpts from Annual Report to Shareholders for the Year Ended
December 31, 1995
Part III: Excerpts from Proxy Statement for the 1996 Annual Meeting of
Shareholders
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Argonaut Group, Inc.
Annual Report on Form 10-K
For the Year Ended December 31, 1995
TABLE OF CONTENTS
<TABLE>
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PART I
Item 1. Business 2
Item 2. Properties 9
Item 3. Legal Proceedings 10
Item 4. Submission of Matters to a Vote of Security Holders 10
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 10
Item 6. Selected Financial Data 11
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 8. Financial Statements and Supplementary Data 11
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 11
PART III
Item 10. Directors and Executive Officers of the Registrant 11
Item 11. Executive Compensation 11
Item 12. Security Ownership of Certain Beneficial Owners
and Management 12
Item 13. Certain Relationships and Related Transactions 12
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 12
</TABLE>
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PART I
ITEM 1. BUSINESS
INTRODUCTION
Argonaut Group, Inc. ("Argonaut Group") is a holding company whose subsidiaries
are primarily engaged in the selling, underwriting, and servicing of workers
compensation and other lines of property-casualty insurance. Workers
compensation accounted for 85% of premiums in 1995. See "Item 6. Selected
Financial Data" for certain financial information regarding industry segments in
which the Company operates. Argonaut Group was incorporated in Delaware and was
a wholly-owned subsidiary of Teledyne, Inc. ("Teledyne") until 1986, when
Teledyne distributed to its shareholders all of the outstanding shares of common
stock of Argonaut Group. Argonaut Group's executive offices are located at 1800
Avenue of the Stars, Suite 1175, Los Angeles, California 90067, telephone
310.553.0561. The term "the Company" refers to Argonaut Group and all its
subsidiaries.
Argonaut Insurance Company ("Argonaut Insurance"), Argonaut Group's larger
insurance subsidiary, was established in California in 1948. Workers
compensation is the primary line of insurance written by Argonaut Insurance and
its subsidiaries: Argonaut-Midwest Insurance Company, Argonaut-Northwest
Insurance Company, Argonaut-Southwest Insurance Company, and Georgia Insurance
Company. Argonaut Insurance and these subsidiaries also write complementary
lines of commercial insurance for their clients, primarily consisting of general
and automobile liability.
Argonaut Great Central Insurance Company ("Great Central") is Argonaut Group's
other principal insurance subsidiary. Established in Illinois in 1948, Great
Central specializes in providing package insurance policies including property,
general liability, workers compensation, and umbrella coverage for certain
classes of insureds. Argonaut Insurance is Great Central's immediate parent.
AGI Properties, Inc. ("AGI Properties"), a non-insurance company, owns and
leases certain real properties. AGI Properties was incorporated in California in
1970. Argonaut Insurance is AGI Properties' immediate parent.
PRODUCTS
The Company has two primary product lines: workers compensation insurance and
other property-casualty insurance. Incorporated herein by reference is the
information appearing as "Note 10 - Business Segments" in the Notes to the
Consolidated Financial Statements of the Annual Report. See Exhibit Index.
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WORKERS COMPENSATION
Workers compensation insurance is a statutory system which provides for
compensation of a policyholder's employees and their dependents for injuries
(other than self-inflicted wounds) arising out of or suffered in the course of
the employee's employment, even though the injuries may have resulted from the
negligence or wrongful conduct of the employee himself or any other person.
Workers compensation insurance is sold primarily by Argonaut Insurance. Premiums
for this line of business were $176.7 million, $240.2 million, and $280.0
million, in 1995, 1994, and 1993, respectively.
OTHER PROPERTY-CASUALTY INSURANCE
This product includes general and automobile liability, commercial
multiple-peril, and various other insurance coverages. Premiums for these
product lines were $31.4 million, $39.5 million, and $35.4 million, in 1995,
1994, and 1993, respectively.
Argonaut Insurance offers general and automobile liability and other insurance
to commercial clients in conjunction with workers compensation insurance.
Liability insurance compensates third parties for damages resulting from the
actions of the insured.
Commercial multiple-peril insurance, one of Great Central's primary products, is
a composite product designed for the small-to-medium sized business which needs
basic insurance coverage and simple insurance administration. Commercial
multiple-peril policies generally cover property, plant, inventory, general
liability, and associated coverages.
CEDED REINSURANCE
The Company's policy regarding reinsurance is based upon the capitalization of
the subsidiaries. The goal is to limit the exposure to surplus from losses
resulting from catastrophes and large or unusually hazardous risks.
As is the case with direct premiums written, cessions on reinsurance contracts
is recognized ratably over the period to which the premium relates.
Argonaut Insurance's limit of retention on its primary reinsurance treaty is $2
million. Great Central's limit of retention is $500,000 on the property treaty
and $300,000 on the casualty treaty
Incorporated herein by reference is the information appearing as "Note 3 -
Reinsurance" in the Notes to the Consolidated Financial Statements of the Annual
Report. See Exhibit Index.
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COMPETITION
The property-casualty insurance industry is characterized by a large number of
competing companies and modest market shares by industry participants. According
to A.M. Best, a leading insurance industry rating and analysis firm, there are
about 2,300 property-casualty insurance companies operating in the United
States, with the 200 largest companies writing about 80% of the industry's
premiums.
The Company's principal competitors cannot be easily classified. The Company's
principal lines of business are written by numerous insurance companies.
Competition for any one account may come from a very large national firm or a
smaller regional company selling either directly or through agents and brokers.
For the Company's principal line of business, workers compensation, additional
competition comes from state workers compensation funds.
REGULATION
In January, 1996 the California Department of Insurance notified Argonaut
Insurance Company of it's obligation under the rollback provisions of
Proposition 103 and a hearing on the Company's obligation was commenced before
an administrative law judge. Argonaut Insurance Company contend that it is in
compliance with the rate rollback provisions of Proposition 103 and intends to
vigorously pursue its position in this matter. This is discussed in the Notes to
the Consolidated Financial Statements of the Annual Report incorporated herein
by reference as "Note 11 - Commitments and Contingencies". See Exhibit Index.
Beginning in 1994, the Company's insurance subsidiaries are subject to the
Risk-Based Capital (RBC) for Insurers Model Act. The RBC calculation takes into
account: (1) asset risk, (2) credit risk, (3) underwriting risk, and (4) all
other relevant risks. The RBC for Insurers Model Act provides for four levels of
regulatory authority: (1) Company Action Level Event, (2) Regulatory Action
Level Event, (3) Authorized Control Level Event, and (4) Mandatory Control Level
Event. These four levels of authority provide for increasing regulatory remedies
for companies that fail to comply with the RBC for Insurers Model Act.
As of December 31, 1995, preliminary calculations show that the Company's
insurance subsidiaries RBC coverage far exceeds the minimum required.
The Company's insurance subsidiaries are members of the statutorily created
insolvency guarantee associations in all states where they are authorized to
transact business. These associations were formed for the purpose of paying
claims of insolvent companies. The Company is assessed its pro rata share of
such claims based upon its premium writings, subject to a maximum annual
assessment per line of insurance. Such costs can generally be recovered through
surcharges on future premiums. The Company does not believe that assessments on
current insolvencies will have a material effect on its financial condition or
results of operations.
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The Company has no policyholder dividend restrictions.
Under the provisions of the California Insurance Code, there is a maximum amount
of shareholder dividends which can be paid without prior approval of the
Insurance Commissioner. Under these provisions, as of December 31, 1995,
Argonaut Insurance could pay to Argonaut Group a maximum dividend of $45.4
million without the Insurance Commissioner's approval.
MARKETING
Argonaut Insurance and Great Central Insurance operate in substantially
different markets.
Incorporated herein by reference is the information appearing as "Note 1 -
Business and Significant Accounting Policies" in the Notes to the Consolidated
Financial Statements of the Annual Report. See Exhibit Index.
Argonaut Insurance's primary line of business, workers compensation
insurance, accounts for 93% of its premiums (85% of total consolidated
premiums). These policies are primarily written on a retrospective rating basis
or with large deductible provisions. Argonaut Insurance's risk regarding
inadequate price levels is mitigated to a certain extent as the insured will
have to pay additional premiums (or will be refunded premiums) based upon their
actual loss experience.
Great Central is authorized to operate in 33 states and considers itself to be a
specialty company with a defined target market. Great Central's dominant
products are commercial multiple-peril and workers compensation. Great Central's
policies are marketed through agents.
Neither Argonaut Insurance nor Great Central market any of their policies
through managing general agents.
RUN OFF LINES
Incorporated herein by reference is the information appearing as "Note 12 - Run
Off Lines" in the Notes to the Consolidated Financial Statements of the Annual
Report. See Exhibit Index.
Loss ratios for the run off line of business are not meaningful as there are no
premiums associated with this line of business.
INVESTMENTS
The Company's investment portfolio continues to emphasize high quality fixed
income investments. As a percentage of the total investment portfolio, U.S.
Treasury securities continue to comprise the majority of the Company's holdings.
Obligations of states and political subdivisions have decreased from 1994 as a
result of maturities and sales.
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The proceeds from these maturities and sales were re-invested in high quality
preferred and common stocks. Corporate securities continue to decrease as a
result of maturities.
The Company's investment policy is to invest only in investment-grade
securities. It does not invest in high-yield or so called "junk bonds",
derivatives, speculative real estate, or mortgage obligations.
Incorporated herein by reference is the information appearing as "Note 2 -
Investments" and "Note 7 - Net Investment Income" in the Notes to the
Consolidated Financial Statements of the Annual Report. See Exhibit Index.
Reserves for Losses and Loss Adjustment Expenses
Incorporated herein by reference is the information appearing as "Note 4 -
Reserves for Losses and Loss Adjustment Expenses" in the Notes to the
Consolidated Financial Statements of the Annual Report. See Exhibit Index.
Reserves for environmental claims were $46.2 million and $49.1 million at
December 31, 1995 and 1994, respectively.
The following tables indicate the manner in which reserves for losses and loss
adjustment expenses at the end of a particular year change as time passes. The
first table (Table I) presented is net of the effects of reinsurance. The second
table (Table II) presented includes only amounts related to direct insurance.
Reserves for losses and loss adjustment expenses and cumulative paid amounts on
direct insurance are not available prior to 1989; therefore, the second table
reflects only the past 6 years of development.
The first line shows the reserves as originally reported at the end of the
stated year. The second section shows the cumulative amounts paid as of the end
of successive years related to those reserves. The third section shows the
original recorded reserves as of the end of successive years adjusted to reflect
facts and circumstances later discovered. The last line, cumulative deficiency
or redundancy, compares the adjusted reserves to the reserves as originally
established and shows that the reserves as originally recorded were either
inadequate or excessive to cover the estimated cost of claims as of December 31,
1995.
Conditions and trends that have affected the development of these reserves in
the past will not necessarily recur in the future. It would not be appropriate
to use this cumulative history in the projection of future performance.
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TABLE I
ANALYSIS OF LOSSES AND LOSS ADJUSTMENT EXPENSES (LAE) DEVELOPMENT (IN MILLIONS)
(NET OF REINSURANCE)
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1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
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RESERVES FOR LOSSES
AND LAE (a) $1,311.9 $1,303.6 $1,309.6 $1,337.0 $1,348.5 $1,287.8 $1,201.9 $1,107.6 $1,011.4 $892.9
CUMULATIVE AMOUNT
PAID AS OF: (b)
One year later 240.3 227.0 220.7 260.0 313.1 307.3 276.9 259.9 239.7
Two years later 413.1 382.3 384.4 464.9 537.5 525.8 489.2 444.7
Three years later 529.8 505.8 519.1 603.2 698.5 697.6 638.9
Four years later 626.3 605.0 613.0 704.4 835.7 821.4
Five years later 700.9 678.6 680.8 801.7 940.1
Six years later 765.2 734.8 752.2 884.5
Seven years later 811.2 793.1 819.7
Eight years later 859.7 853.4
Nine years later 914.8
RESERVES REESTIMATED
AS OF:
One year later 1,338.0 1,316.0 1,289.1 1,317.2 1,358.3 1,285.2 1,197.1 1,086.8 996.5
Two years later 1,354.7 1,287.9 1,262.5 1,284.7 1,356.9 1,311.9 1,202.0 1,083.0
Three years later 1,317.9 1,277.1 1,195.5 1,261.3 1,381.9 1,315.9 1,203.0
Four years later 1,319.3 1,209.4 1,175.9 1,282.9 1,374.1 1,325.9
Five years later 1,250.6 1,196.8 1,176.4 1,257.5 1,384.9
Six years later 1,249.2 1,191.2 1,153.0 1,265.3
Seven years later 1,232.7 1,163.7 1,157.5
Eight years later 1,206.0 1,168.1
Nine years later 1,209.7
CUMULATIVE (DEFICIENCY)
REDUNDANCY: $102.2 $135.5 $152.1 $71.7 ($36.4) ($38.1) ($1.1) $24.6 $14.9
</TABLE>
(a) Reserves for Losses and LAE, net of reserves for reinsurance
(b) Cumulative amount paid, net of reinsurance payments
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TABLE II
ANALYSIS OF LOSSES AND LOSS ADJUSTMENT EXPENSES (LAE) DEVELOPMENT (IN MILLIONS)
(DIRECT INSURANCE ONLY)
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<CAPTION>
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1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
RESERVES FOR LOSSES
AND LAE (a) NA NA NA $1,587.4 $1,561.8 $1,494.4 $1,390.9 $1,284.1 $1,196.3 $1,060.9
CUMULATIVE AMOUNT
PAID AS OF: (b)
One year later NA NA NA 509.2 384.7 355.7 325.6 288.3 267.5
Two years later NA NA NA 770.5 656.2 621.6 564.4 499.3
Three years later NA NA NA 954.4 862.6 818.2 739.3
Four years later NA NA NA 1,097.1 1,023.5 965.1
Five years later NA NA NA 1,216.7 1,149.2
Six years later NA NA NA 1,318.7
Seven years later NA NA NA
Eight years later NA NA
Nine years later NA
RESERVES REESTIMATED
AS OF:
One year later NA NA NA 1,770.2 1,619.3 1,512.6 1,414.2 1,291.7 1,179.7
Two years later NA NA NA 1,764.0 1,645.8 1,570.2 1,448.8 1,278.8
Three years later NA NA NA 1,772.2 1,702.3 1,603.7 1,440.6
Four years later NA NA NA 1,829.1 1,719.7 1,604.2
Five years later NA NA NA 1,820.3 1,723.6
Six years later NA NA NA 1,823.6
Seven years later NA NA NA
Eight years later NA NA
Nine years later NA
CUMULATIVE (DEFICIENCY)
REDUNDANCY: NA NA NA ($236.2) ($161.8) ($109.8) ($49.7) $5.3 $16.6
</TABLE>
(a) Reserves for Losses and LAE, excluding effects of reinsurance
(b) Cumulative amount paid, excluding effects of reinsurance
NA: Not available
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CAPITAL ADEQUACY
Several measures of capital adequacy are common in the property-casualty
industry. The two most often used are (a) premium-to-surplus (which measures
pressures on capital from inadequate pricing) and, (b) reserves-to-surplus
(which measures pressure on capital from inadequate loss and loss adjustment
expense reserves).
The following table shows the consolidated premium-to-surplus and
reserves-to-surplus ratios of the Company's insurance subsidiaries (on a
statutory basis).
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Year Ended December 31,
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1995 1994 1993
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Ratio of:
Premium-to-surplus 0.3 0.4 0.5
=== === ===
Reserves-to-surplus 1.3 1.6 1.9
=== === ===
</TABLE>
The Company believes that its 1995 capital ratios are satisfactory.
RATINGS
The Company's insurance subsidiaries are rated annually by A.M. Best. A.M. Best
is generally considered to be the leading insurance rating agency, and its
ratings are used by insurance buyers, agents and brokers, and other insurance
companies as an indicator of financial strength and security, and are not
intended to reflect the quality of the rated company for investment purposes.
Argonaut Insurance and its pooled subsidiaries were awarded an "A+" (Superior)
rating in 1995 and 1994. An "A+" rating is the second highest rating A.M. Best
awards. Great Central is rated separately and was awarded an "A-" (Excellent)
rating in both 1995 and 1994. "A-" is the fourth highest of A.M. Best's ratings.
During 1995, Standard & Poor's affirmed its "AA+" rating to the claims-paying
ability of Argonaut Insurance and its pooled subsidiaries.
EMPLOYEES
At December 31, 1995, the Company employed 582 full-time employees. Of this
total, Argonaut Insurance employed 486 people (389 professional/managerial and
97 clerical/operational). Great Central employed 96 people (58
professional/managerial and 38 clerical/operational). Argonaut Group employed 14
people (11 professional/managerial and 3 clerical/operational). The Company is
not a party to any collective bargaining agreements.
ITEM 2. PROPERTIES
Argonaut Insurance's headquarters are located in a facility which consists of an
office building on approximately two acres of land in Menlo Park, California.
Great Central's headquarters are located in a facility in Peoria, Illinois.
Argonaut Insurance and Great
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Central own the buildings in which their headquarters are located. In addition,
the Company has entered into short term leases in conjunction with its
operations at various locations throughout the country. The Company believes
that its properties are adequate for its present needs.
ITEM 3. LEGAL PROCEEDINGS
See "Business - Regulation" for a description of pending claim relating to
California Proposition 103.
The insurance subsidiaries of Argonaut Insurance are parties to various legal
proceedings which are considered routine and incidental to their business and
are not material to the Company's financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of Argonaut Group's security holders during
the last quarter of its fiscal year ended December 31, 1995.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's common stock is traded in the over-the-counter market and is
included in the NASDAQ National Market System. The closing price on February 27,
1996 was $33.25 per share. The information on high and low common stock prices
set forth under the caption "Common Stock Market Prices" in the Annual Report to
Shareholders of Argonaut Group for the fiscal year ended December 31, 1995, is
incorporated herein by reference. See Exhibit Index.
HOLDERS OF COMMON STOCK
The number of holders of record of the Company's Common Stock as of February 27,
1996 was 9,576.
DIVIDENDS
The information set forth under the caption "Management's Discussion and
Analysis of Results of Operations and Financial Condition - Liquidity and
Capital Resources" in the Annual Report to Shareholders of Argonaut Group for
the fiscal year ended December 31, 1995 and in "Note 6 - Shareholders' Equity"
in the Notes to the Consolidated Financial Statements of the Annual Report, is
incorporated herein by reference. See Exhibit Index.
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ITEM 6. SELECTED FINANCIAL DATA
The information set forth under the caption "Selected Financial Data" in the
Annual Report to Shareholders of Argonaut Group for the fiscal year ended
December 31, 1995, is incorporated herein by reference. See Exhibit Index.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The information set forth under the caption "Management's Discussion and
Analysis of Results of Operations and Financial Condition" in the Annual Report
to Shareholders of Argonaut Group for the fiscal year ended December 31, 1995,
is incorporated herein by reference. See Exhibit Index.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Report of Independent Public Accountants and consolidated financial
statements and related notes of Argonaut Group, Inc. and subsidiaries listed on
the index to financial statements set forth in Item 14(a)1 of this Form 10-K
Report are incorporated herein by reference to the Annual Report to Shareholders
of Argonaut Group for the fiscal year ended December 31, 1995.
The Company does not identify each asset with any one line of business and any
such allocation would be arbitrary.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated herein by reference is the information appearing under the captions
"Election of Directors", "Executive Officers", and "Security Ownership of
Principal Shareholders and Management" in the registrant's Proxy Statement to be
filed with the Securities and Exchange Commission relating to the registrant's
Annual Meeting of Shareholders to be held on April 23, 1996.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated herein by reference is the information appearing under the captions
"Compensation of Executive Officers", "Indemnity Agreements", "Pension Plan",
and "Compensation of Directors" in the registrant's Proxy Statement to be filed
with the Securities and Exchange Commission relating to the registrant's Annual
Meeting of Shareholders to be held on April 23, 1996.
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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated herein by reference is the information appearing under the caption
"Security Ownership of Principal Shareholders and Management" in the
registrant's Proxy Statement to be filed with the Securities and Exchange
Commission relating to the registrant's Annual Meeting of Shareholders to be
held on April 23, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated herein by reference is the information appearing under the caption
"Compensation and Stock Option Committee Interlocks and Insider Participation"
in the registrant's Proxy Statement to be filed with the Securities and Exchange
Commission relating to the registrant's Annual Meeting of Shareholders to be
held on April 23, 1996.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)1. Financial Statements
Selected Financial Data
Report of Independent Public Accountants
Consolidated Balance Sheets - December 31, 1995 and 1994
Consolidated Statements of Income
For the Years Ended December 31, 1995, 1994, and 1993
Consolidated Statements of Shareholders' Equity
For the Years Ended December 31, 1995, 1994, and 1993
Consolidated Statements of Cash Flows
For the Years Ended December 31, 1995, 1994, and 1993
Notes to Consolidated Financial Statements
Quarterly Financial Data (Unaudited)
Common Stock Market Prices (Unaudited)
Management's Discussion and Analysis of Results of Operations and
Financial Condition
(a)2. Financial Statement Schedules
Report of Independent Public Accountants on Schedules
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SCHEDULE I - Condensed Financial Information of Registrant
December 31, 1995 and 1994
SCHEDULE V - Supplementary Insurance Information
December 31, 1995, 1994, and 1993
All other schedules and notes specified under Regulation S-X are omitted because
they are either not applicable, not required, or the information called for
therein appears in response to the items of Form 10-K or in the financial
statements or notes thereto.
(a)3. Exhibits
The following exhibits are numbered in accordance with Item 601 of Regulation
S-K and, except as noted, are filed herewith.
2. Information Statement of Registrant (incorporated by reference to the
Exhibit 2 to the Registrant's Form 10 Registration Statement dated
September 3, 1986, filed with the Securities and Exchange Commission on
September 4, 1986).
3.1 Certificate of Incorporation of Registrant (incorporated by reference to
the Exhibit 3.1 to the Registrant's Form 10 Registration Statement dated
September 3, 1986, filed with the Securities and Exchange Commission on
September 4, 1986).
3.2 Bylaws of the Registrant (incorporated by reference to the Exhibit 3.2 to
the Registrant's Form 10 Registration Statement dated September 3, 1986,
filed with the Securities and Exchange Commission on September 4, 1986).
10.1 Argonaut Group, Inc. 1986 Stock Option Plan (incorporated by reference to
the Exhibit 10.1 to the Registrant's Form 10 Registration Statement dated
September 3, 1986, filed with the Securities and Exchange Commission on
September 4, 1986).
10.2 Argonaut Group, Inc. Retirement Plan (incorporated by reference to the
Exhibit 10.2 to the Registrant's Form 10 Registration Statement dated
September 3, 1986, filed with the Securities and Exchange Commission on
September 4, 1986).
10.3 Tax Agreement by and among Registrant and its subsidiaries and Teledyne,
Inc. (incorporated by reference to the Exhibit 10.3 to the Registrant's
Form 10 Registration Statement dated September 3, 1986, filed with the
Securities and Exchange Commission on September 4, 1986).
10.4 1986 Stock Option Plan, as amended (incorporated by reference to the
Exhibit 4.3 to the Registrant's Registration Statement on Form S-8 filed
with the Securities and Exchange Commission on February 13, 1987).
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10.5 401(k) Retirement Savings Plan (incorporated by reference to the Exhibit
10.4 to the Registrant's Form 10-K filed with the Securities and Exchange
Commission on February 28, 1989).
10.6 Employee Stock Investment Plan (incorporated by reference to the Exhibit
4.3 to the Registrant's Registration Statement on Form S-8 filed with the
Securities and Exchange Commission on October 10, 1989).
13. The following materials are excerpted from the Annual Report to
Shareholders of Argonaut Group, Inc. for the fiscal year ended December
31, 1994:
a) Selected Financial Data
b) Financial Statements
c) Common Stock Market Prices
d) Management's Discussion and Analysis of Results of Operations and
Financial Condition
21. Subsidiaries of Registrant (incorporated by reference to the Exhibit 21 to
the Registrant's Form 10 Registration Statement dated September 3, 1986,
filed with the Securities and Exchange Commission on September 4, 1986).
23. Consent of Independent Public Accountants
27. Financial Data Schedule for December 31, 1995 Form 10-K.
28P. Combined Statutory Schedule P of Argonaut Insurance Company and Great
Central Insurance Company
(b) Reports on Form 8-K
There were no Reports filed on Form 8-K for the quarter ended December 31, 1995.
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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.
ARGONAUT GROUP, INC.
By /s/ Charles E. Rinsch
----------------------
Charles E. Rinsch
President
Date: March 5, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Charles E. Rinsch President, Chief Executive March 5, 1996
- ---------------------- Officer, and Director
Charles E. Rinsch
/s/ James B Halliday Vice President, Secretary, March 5, 1996
- ---------------------- and Treasurer (principal
James B Halliday financial and accounting
officer)
/s/ George A. Roberts Director March 5, 1996
- ----------------------
George A. Roberts
/s/ Henry E. Singleton Director March 5, 1996
- ----------------------
Henry E. Singleton
</TABLE>
Page 15
<PAGE> 17
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULES
To the Shareholders of Argonaut Group, Inc.
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements included in Argonaut Group, Inc.'s annual
report to shareholders incorporated by reference in this Form 10-K, and have
issued our report thereon dated January 5, 1996. Our audit was made for the
purpose of forming an opinion on the basic consolidated financial statements
taken as a whole. The schedules listed in Part IV, Item 14(a)(2) are presented
for purposes of complying with the Securities and Exchange Commission's rules
and are not part of the basic consolidated financial statements. These schedules
have been subjected to the auditing procedures applied in our audit of the basic
consolidated financial statements and, in our opinion, are fairly stated in all
material respects in relation to the basic consolidated financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
San Francisco, California
January 5, 1996
<PAGE> 18
ARGONAUT GROUP, INC.
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
($ in millions)
BALANCE SHEET
<TABLE>
<CAPTION>
December 31,
---------------
1995 1994
------ ------
<S> <C> <C>
ASSETS
Short-term investments $ 5.8 $ --
Cash & cash equivalents 0.1 0.6
Investment in subsidiary 708.9 609.0
Cost in excess of net assets purchased 43.9 46.6
Deferred Federal income taxes receivable 75.3 87.6
Other assets 6.4 10.5
------ ------
$840.4 $754.3
====== ======
LIABILITIES & SHAREHOLDERS' EQUITY
Income taxes payable (receivable) $ 0.3 $ (1.8)
Other liabilities 0.4 --
Due from/(to) subsidiaries (28.9) (10.5)
Shareholders' equity 810.8 745.6
------ ------
$782.6 $733.3
====== ======
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
REVENUES $12.6 $ 3.2 $ 3.1
EXPENSES:
Amortization of cost in excess of net assets 2.8 2.8 2.8
Other expenses 12.6 4.1 7.7
----- ----- ------
Loss before tax and undistributed earnings (2.8) (3.7) (7.4)
Provision for income taxes 2.1 1.7 3.1
----- ----- ------
Net loss before equity in earnings of subsidiary (4.9) (5.4) (10.5)
Equity in undistributed earnings of subsidiary 61.8 82.1 99.6
----- ----- ------
Income before cumulative effect of change
in accounting for income taxes 56.9 76.7 89.1
Cumulative effect of change in accounting
for income taxes -- -- --
----- ----- ------
NET INCOME $56.9 $76.7 $ 89.1
===== ===== ======
</TABLE>
<PAGE> 19
ARGONAUT GROUP, INC.
SCHEDULE I
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
($ in millions)
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS For The Year Ended December 31,
-------------------------------
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 56.9 $ 76.7 $ 89.1
Adjustments to reconcile net income to
net cash provided by operations:
Cumulative effect of change in accounting
for income taxes -- -- --
Amortization 2.8 2.8 2.8
Undistributed earnings in subsidiary (72.2) (95.2) (95.7)
Dividend from subsidiary 42.8 31.6 31.5
Decrease in deferred Federal income taxes
receivable 12.3 18.0 7.7
Decrease (increase) in due from/to subsidiaries 18.4 14.2 (2.5)
Increase (decrease) in income taxes payable 2.2 1.4 (8.1)
Other, net (1.5) (13.1) 6.9
------ ------ ------
61.7 36.4 31.7
------ ------ ------
Cash flows from investing activities:
Decrease (increase) in short-term investments (5.8) 9.8 (9.8)
------ ------ ------
(5.8) 9.8 (9.8)
------ ------ ------
Cash flows from financing activities:
Repurchase of common stock (25.8) (21.9) --
Payment of cash dividend (31.1) (28.7) (24.6)
Exercise of stock options 0.5 0.3 1.1
------ ------ ------
(56.4) (50.3) (23.5)
------ ------ ------
Increase (decrease) in cash & cash equivalents (0.5) (4.1) (1.6)
Cash & cash equivalents, beginning of period 0.6 4.7 6.3
------ ------ ------
Cash & cash equivalents, end of period $ 0.1 $ 0.6 $ 4.7
====== ====== ======
</TABLE>
<PAGE> 20
ARGONAUT GROUP, INC.
SCHEDULE V
SUPPLEMENTARY INSURANCE INFORMATION
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
($ IN MILLIONS)
<TABLE>
<CAPTION>
Amortization
Future Other Premium Net Invest. Ben, Loss, (Deferral) Other Premiums
DPAC Benefits UPR Payables Revenue Income & LAE DPAC Insur. Exp Written
Segment (a) (b) (c) (d) (e) (f) (1) (g) (h) (i) (2) (j)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Year Ended December 31, 1995
Workers Comp 3.6 737.7 43.0 -- 176.7 50.5 98.6 (0.9) 56.2 148.9
All Other 1.0 323.2 21.0 -- 31.4 22.1 54.2 (0.1) 12.1 31.1
Unallocable -- -- -- -- 29.4 -- -- -- --
--- ------- ---- ----- ----- ----- --- ---- -----
4.6 1,060.9 64.0 -- 208.1 102.0 152.8 (1.0) 68.3 180.0
=== ======= ==== ===== ===== ===== === ==== =====
Year Ended December 31, 1994
Workers Comp 2.6 822.9 54.3 -- 240.2 61.4 167.9 (2.3) 62.4 213.1
All Other 1.0 373.4 19.2 -- 39.5 27.8 39.3 0.5 11.7 35.8
Unallocable -- -- -- -- 21.5 -- -- -- --
--- ------- ---- ----- ----- ----- --- ---- -----
3.6 1,196.3 73.5 -- 279.7 110.7 207.2 (1.8) 74.1 248.9
=== ======= ==== ===== ===== ===== === ==== =====
Year Ended December 31, 1993
Workers Comp 0.3 856.1 57.9 -- 280.0 64.6 212.4 -- 68.4 247.8
All Other 1.5 428.0 19.9 -- 35.4 32.3 16.8 0.1 13.2 36.5
Unallocable -- -- -- -- -- 21.2 -- -- -- --
--- ------- ---- ----- ----- ----- --- ---- -----
1.8 1,284.1 77.8 -- 315.4 118.1 229.2 0.1 81.6 284.3
=== ======= ==== ===== ===== ===== === ==== =====
</TABLE>
(a) Deferred Policy Acquisition Costs
(b) Future Policy Benefits, Claims, and Claim Adjustment Expenses
(c) Unearned Premiums
(d) Other Policy Claims and Benefits Payable
(e) Premium Revenue
(f) Net Investment Income
(g) Benefits, Claims, and Claim Adjustment Expenses
(h) Amortization of Deferred Policy Acquisition Costs
(i) Other Insurance Expenses
(j) Premiums Written
(1) Net investment income allocated based upon each segment's share of
investable funds
(2) Other insurance expenses allocated based on specific identification, where
possible, and related activities.
<PAGE> 1
SELECTED FINANCIAL DATA ARGONAUT GROUP, INC. AND SUBSIDIARIES EXHIBIT 13
<TABLE>
<CAPTION>
In millions For the Years Ended December 31, 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA
Premiums:
Workers compensation $ 176.7 $ 240.2 $ 280.0 $ 289.6 $ 312.7
Other insurance 31.4 39.5 35.4 38.8 54.8
-------- -------- -------- -------- --------
208.1 279.7 315.4 328.4 367.5
Net investment income 102.0 110.7 118.1 123.2 135.1
Gains on sales of investments 3.1 3.8 5.4 18.0 14.7
-------- -------- -------- -------- --------
Total Revenue $ 313.2 $ 394.2 $ 438.9 $ 469.6 $ 517.3
======== ======== ======== ======== ========
Underwriting gain (loss) before
income taxes:
Workers compensation $ (0.2) $ 3.9 $ (10.7) $ (32.4) $ (41.1)
Other continuing lines (35.2) (24.4) (19.8) (15.2) (24.3)
Run off lines -- 12.0 24.9 22.0 23.1
-------- -------- -------- -------- --------
$ (35.4) $ (8.5) $ (5.6) $ (25.6) $ (42.3)
======== ======== ======== ======== ========
Income Before Income Taxes $ 69.7 $ 106.0 $ 117.9 $ 115.6 $ 107.5
Provision for income taxes 12.8 29.3 28.8 29.3 23.1
-------- -------- -------- -------- --------
Income Before Cumulative Effect
of Accounting Change 56.9 76.7 89.1 86.3 84.4
Cumulative effect of change in
accounting for income taxes -- -- -- 61.8 --
-------- -------- -------- -------- --------
Net Income $ 56.9 $ 76.7 $ 89.1 $ 148.1 $ 84.4
======== ======== ======== ======== ========
Income Per Common Share:
Income Before Cumulative
Effect of Accounting Change $ 2.34 $ 3.00 $ 3.48 $ 3.32 $ 3.16
Cumulative effect of change in
accounting for income taxes -- -- -- 2.38 --
-------- -------- -------- -------- --------
Net Income Per Common Share $ 2.34 $ 3.00 $ 3.48 $ 5.70 $ 3.16
======== ======== ======== ======== ========
BALANCE SHEET DATA
Portfolio investments $1,489.2 $1,484.8 $1,564.4 $1,566.0 $1,599.0
======== ======== ======== ======== ========
Total assets $2,012.3 $2,093.6 $2,182.7 $2,178.1 $2,200.5
======== ======== ======== ======== ========
Reserves for losses and loss
adjustment expenses $1,060.9 $1,196.3 $1,284.1 $1,390.9 $1,494.4
======== ======== ======== ======== ========
Shareholders' equity $ 810.8 $ 745.6 $ 729.6 $ 653.6 $ 554.7
======== ======== ======== ======== ========
Cash dividends declared per
common share $ 1.28 $ 1.12 $ 0.96 $ 0.80 $ 0.64
======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
13-1
<PAGE> 2
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS EXHIBIT 13
To the Shareholders of Argonaut Group, Inc.
We have audited the accompanying consolidated balance sheets of Argonaut Group,
Inc. (a Delaware corporation) and subsidiaries as of December 31, 1995 and 1994,
and the related consolidated statements of income, shareholders' equity, and
cash flows for each of the three years in the period ended December 31, 1995.
These financial statements are the responsibility of the Company'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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Argonaut Group,
Inc. and subsidiaries as of December 31, 1995 and 1994, and their results of
operations and cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
As explained in the accompanying notes to the consolidated financial statements,
the Company has adopted a new accounting standard effective January 1, 1994 for
investments in certain debt and equity securities.
/s/ Authur Andersen LLP
- ----------------------------------
ARTHUR ANDERSEN LLP
San Francisco, California
January 5, 1996
13-2
<PAGE> 3
CONSOLIDATED BALANCE SHEETS ARGONAUT GROUP, INC. AND SUBSIDIARIES EXHIBIT 13
<TABLE>
<CAPTION>
In millions except per share amounts December 31, 1995 1994
<S> <C> <C>
ASSETS
Investments:
Fixed maturities, available for sale, at fair value $1,063.8 $1,270.7
(cost: 1995 - $1,032.9; 1994 - $1,289.5)
Equity securities, available for sale, at fair value 393.4 183.9
(cost: 1995 - $252.3; 1994 - $101.5)
Short-term investments, available for sale, at fair value 34.9 35.2
Securities in transit (2.9) (5.0)
-------- --------
1,489.2 1,484.8
Cash and cash equivalents 23.3 29.2
Accrued investment income 23.9 29.6
Receivables, net:
Reinsurance 198.6 235.4
Agents' balances 74.0 75.1
Accrued retrospective premiums 127.3 110.0
Cost in excess of net assets purchased 43.9 46.6
Unearned premiums on ceded reinsurance 2.6 3.4
Deferred Federal income taxes receivable 15.7 66.0
Other assets 13.8 13.5
-------- --------
$2,012.3 $2,093.6
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Reserves for losses and loss adjustment expenses $1,060.9 $1,196.3
Unearned premiums 64.0 73.5
Accrued policyholder dividends payable (receivable) (4.9) 0.3
Other liabilities 81.5 77.9
-------- --------
1,201.5 1,348.0
======== ========
Shareholders' equity:
Common stock - $.10 par, 35,000,000 shares
authorized, 24,103,703 and 24,928,246 shares
issued and outstanding at December 31, 1995
and December 31, 1994, respectively 2.4 2.5
Additional paid-in capital 97.7 100.6
Retained earnings 598.9 595.5
Net unrealized appreciation on securities 111.8 47.0
-------- --------
810.8 745.6
-------- --------
$2,012.3 $2,093.6
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
13-3
<PAGE> 4
CONSOLIDATED STATEMENTS OF INCOME
ARGONAUT GROUP, INC. AND SUBSIDIARIES EXHIBIT 13
<TABLE>
<CAPTION>
In millions except per share amounts For the Years Ended December 31, 1995 1994 1993
<S> <C> <C> <C>
Premiums and other revenue:
Premiums, net $208.1 $279.7 $315.4
Net investment income 102.0 110.7 118.1
Gains on sales of investments 3.1 3.8 5.4
------ ------ ------
Total Revenue 313.2 394.2 438.9
------ ------ ------
Expenses:
Losses and loss adjustment expenses 152.8 207.2 229.2
Underwriting, acquisition, and
insurance expenses 67.3 72.3 81.7
Amortization of cost in excess of
net assets purchased 2.8 2.8 2.8
Policyholder dividends 20.6 5.9 7.3
------ ------ ------
Total Expenses 243.5 288.2 321.0
------ ------ ------
Income before income taxes 69.7 106.0 117.9
Provision for income taxes 12.8 29.3 28.8
------ ------ ------
Net Income $ 56.9 $ 76.7 $ 89.1
====== ====== ======
Net Income Per Common Share $ 2.34 $ 3.00 $ 3.48
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
13-4
<PAGE> 5
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
ARGONAUT GROUP, INC. AND SUBSIDIARIES EXHIBIT 13
<TABLE>
<CAPTION>
In millions except per share amounts Common Additional Retained Net Shareholders'
Stock Paid-In Earnings Unrealized Equity
Capital Appreciation
on Securities
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1992 $ 2.6 $102.2 $501.8 $ 47.0 $653.6
Net income 89.1 89.1
Change in net unrealized
appreciation on equity securities 10.4 10.4
Cash dividends ($0.96 per share) (24.6) (24.6)
Stock options exercised 1.1 1.1
----- ------ ------ ------ ------
Balance, December 31, 1993 2.6 103.3 566.3 57.4 729.6
Cumulative effect of change in
accounting for fixed maturities 60.6 60.6
Net income 76.7 76.7
Change in net unrealized
appreciation on securities (71.0) (71.0)
Retirement of common stock (0.1) (3.0) (18.8) (21.9)
Cash dividends ($1.12 per share) (28.7) (28.7)
Stock options exercised 0.3 0.3
----- ------ ------ ------ ------
Balance, December 31, 1994 2.5 100.6 595.5 47.0 745.6
Net income 56.9 56.9
Change in net unrealized
appreciation on securities 64.7 64.7
Retirement of common stock (0.1) (3.4) (22.3) (25.8)
Cash dividends ($1.28 per share) (31.1) (31.1)
Stock options exercised 0.5 0.5
----- ------ ------ ------ ------
Balance, December 31, 1995 $ 2.4 $ 97.7 $598.9 $111.8 $810.8
===== ====== ====== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
13-5
<PAGE> 6
CONSOLIDATED STATEMENTS OF CASH FLOWS ARGONAUT GROUP, INC. AND SUBSIDIARIES
EXHIBIT 13
<TABLE>
<CAPTION>
In millions For the Years Ended December 31, 1995 1994 1993
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 56.9 $ 76.7 $ 89.1
Adjustments to reconcile net income to
net cash provided by operations:
Amortization and depreciation 11.9 7.0 8.4
Decrease (increase) in accrued investment income 5.7 4.0 (1.1)
Decrease (increase) in reinsurance receivables 36.8 (11.1) 9.9
Decrease in agents' balances 1.1 17.4 21.4
Increase in accrued retrospective premiums (17.3) (26.8) (30.7)
Decrease (increase) in unearned premiums on ceded reinsurance 0.8 (0.2) --
Decrease in deferred federal income taxes 6.7 18.0 7.6
Decrease in reserves for losses and loss adjustment expense (135.4) (87.8) (106.8)
Decrease in unearned premiums (9.5) (4.3) (0.8)
Increase (decrease) in accrued policyholder dividends (5.2) (11.8) 0.5
Other, net -- (3.3) 34.8
------- ------ -------
(47.5) (22.2) 32.3
------- ------ -------
Cash flows from investing activities:
Sales of fixed maturity investments 220.9 102.2 63.7
Maturities and mandatory calls of fixed maturity investments 31.9 123.8 72.3
Sales of equity securities 4.6 -- --
Purchases of fixed maturity investments (2.2) (77.1) (114.5)
Purchases of equity securities (155.4) (72.9) --
Increase in short-term investments 0.3 (20.8) (9.5)
Other, net (2.1) 5.1 0.2
------- ------ -------
98.0 60.3 12.2
------- ------ -------
Cash flows from financing activities:
Repurchase of common stock (25.8) (21.9) --
Payment of cash dividend (31.1) (28.7) (24.6)
Exercise of stock options 0.5 0.3 1.1
------- ------ -------
(56.4) (50.3) (23.5)
------- ------ -------
Increase (decrease) in cash and cash equivalents (5.9) (12.2) 21.0
Cash and cash equivalents, beginning of period 29.2 41.4 20.4
------- ------ -------
Cash and cash equivalents, end of period $ 23.3 $ 29.2 $ 41.4
======= ====== =======
</TABLE>
The accompanying notes are an integral part of these statements.
13-6
<PAGE> 7
EXHIBIT 13
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS ARGONAUT GROUP, INC. AND SUBSIDIARIES
NOTE ONE: BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
BUSINESS
Argonaut Group, Inc. (the Company) is a holding company whose subsidiaries
are primarily engaged in the selling, underwriting, and servicing of
workers compensation and other lines of property-casualty insurance.
Workers compensation is the primary line of insurance written by Argonaut
Insurance Company, the larger insurance subsidiary. The Company also writes
a limited amount of complementary lines of commercial insurance, primarily
general and automobile liability. Argonaut Insurance's target market is
companies whose workers compensation needs will result in significant
annual premiums (generally between $250,000 and $5 million) in classes of
insurance which require specific expertise to underwrite prudently, enhance
the safety of the workplace, and effectively manage losses through
partnership with the insured. These classes include contractors,
wholesalers, retailers, light manufacturers and "high tech" firms, service
firms (such as in the hospitality industry), and clients who use
self-insurance to meet some or all of their insurance needs.
Argonaut Great Central specializes in commercial multiple-peril,
workers compensation, and umbrella coverage specifically for food
merchants, restaurants, churches, and laundry/dry cleaners. They also
provide workers compensation for mid-sized accounts, generally with annual
premiums of $100,000 to $500,000.
BASIS OF PRESENTATION
The consolidated financial statements of Argonaut Group, Inc. and
subsidiaries have been prepared in accordance with generally accepted
accounting principles (GAAP), which differ from statutory insurance
accounting practices. 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. The financial statements include the accounts and
operations of Argonaut Group, Inc. and its subsidiaries. Certain prior year
amounts have been reclassified to conform with the current year's
presentation. All material intercompany accounts and transactions have been
eliminated.
For purposes of reporting cash flows, cash and cash equivalents
include cash on hand.
INVESTMENTS
In May 1993, the Financial Accounting Standards Board ("FASB") issued a new
standard for accounting for certain investments in debt and equity
securities, Financial Accounting Standard No. 115 ("FAS 115"). The Company
adopted FAS 115 as of January 1, 1994 and classified its entire fixed
maturity investment portfolio as "Available For Sale". FAS 115 requires
that securities classified as "Available for Sale" be carried at fair value
with unrealized gains/losses, net of tax, recorded in shareholders' equity.
The adoption of FAS 115 resulted in a cumulative increase of $60.6 million,
net of tax, in shareholders' equity, as of January 1, 1994. The adoption of
FAS 115 had no income statement effect.
Investments in fixed maturities at December 31, 1995 and 1994 include
bonds, notes, and redeemable preferred stocks, valued at fair value and are
classified as "Available For Sale". Equity securities include common and
nonredeemable preferred stocks, valued at fair value. Unrealized
appreciation or depreciation on fixed maturity investments available for
sale and equity securities is included, net of applicable deferred income
taxes, in shareholders' equity. Fair values for fixed maturity investments
and equity securities are based on quoted market prices or dealer quotes.
Short-term investments consists of funds which are in excess of the
Company's near term operating and claims paying needs and are invested in
repurchase agreements, commercial paper, and money market funds. Gains and
losses on sales of investments are computed on the specific identification
method and are reflected in total revenue.
RECEIVABLES
Agents' balances are presented net of a reserve for uncollectible accounts
of $1.9 million and $1.7 million at December 31, 1995 and 1994
respectively.
Accrued retrospective premiums are based upon actuarial estimates of
expected ultimate losses. Management believes that the accrued
retrospective premium receivable is reasonable. While the eventual
receivable may differ from the current estimates, management does not
believe that the difference will have a material effect, either adversely
or favorably, on the Company's financial position and results of
operations.
COST IN EXCESS OF NET ASSETS PURCHASED
Cost in excess of net assets purchased of $43.8 million at December 31,
1995 and $46.6 million at December 31, 1994, related to the purchase price
in excess of net assets associated with Teledyne, Inc.'s acquisition of
Argonaut Insurance
13-7
<PAGE> 8
EXHIBIT 13
Company in 1969 is net of accumulated amortization of $25.8 million and
$23.0 million, respectively. Cost in excess of net assets purchased is
being amortized on a straight-line basis over a 25 year period beginning
October 1, 1986. At each balance sheet date, the Company evaluates the
recoverability of its cost in excess of net assets purchased in relation to
anticipated future cash flows on an undiscounted basis. If the carrying
value of the cost in excess of net assets purchased exceeds anticipated
future cash flows on an undiscounted basis, then they are deemed to be
impaired and are written down to the value of the anticipated future cash
flows. Based on this assessment, the Company expects its cost in excess of
net assets purchased to be fully recovered.
RECOGNITION OF PREMIUM REVENUE & RELATED EXPENSES
Premium revenue is recognized ratably over the period to which the premium
relates. Policy acquisition costs, included in other assets, consisting
primarily of commissions and premium taxes, are deferred and amortized over
the periods benefited.
PER SHARE DATA
Per share data have been computed based on the weighted average number of
shares outstanding, which were: 24,286,245, 25,541,039, and 25,634,451
shares for the years ending December 31, 1995, 1994, and 1993,
respectively. The potential dilution of common stock equivalents, such as
stock options, is not material; therefore, they are not included in the
calculation of per share data.
NOTE TWO: INVESTMENTS
Gains on sales of investments for the years ended December 31, were as
follows.
<TABLE>
<CAPTION>
In millions 1995 1994 1993
<S> <C> <C> <C>
Fixed maturities $2.9 $3.8 $5.3
Equity securities 0.2 -- 0.1
---- ---- ----
$3.1 $3.8 $5.4
==== ==== ====
---------------------------------------------------------------
</TABLE>
The amortized cost and market values of fixed maturity investments as of
December 31, were as follows.
<TABLE>
<CAPTION>
In millions 1995 1994
Amortized Gross Gross Fair Amortized Gross Gross Fair
Cost Unrealized Unrealized Value Cost Unrealized Unrealized Value
Gains Losses Gains Losses
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities $ 863.8 $27.2 $ -- $ 891.0 $ 897.6 $2.8 $(17.0) $ 883.4
Obligations of states and
political subdivisions 138.4 3.4 (0.6) 141.2 339.4 2.6 (6.1) 335.9
Corporate securities 16.0 0.3 -- 16.3 25.0 -- (0.5) 24.5
Redemptive preferred stock 14.7 0.7 (0.1) 15.3 27.5 0.2 (0.8) 26.9
-------- ----- ----- -------- -------- ---- ------ --------
$1,032.9 $31.6 $(0.7) $1,063.8 $1,289.5 $5.6 $(24.4) $1,270.7
======== ===== ===== ======== ======== ==== ====== ========
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
13-8
<PAGE> 9
EXHIBIT 13
The amortized cost and market value of fixed maturity investments as of
December 31, 1995, by contractual maturity, are shown below.
<TABLE>
<CAPTION>
In millions Amortized Fair
Cost Value
<S> <C> <C>
Due in one year or less $ 156.7 $ 160.2
Due after one year to five years 815.1 841.2
Due after five years to ten years 49.2 50.1
Due after ten years 11.9 12.3
-------- --------
$1,032.9 $1,063.8
======== ========
----------------------------------------------------------------
</TABLE>
The expected maturities may differ from the contractual maturities because
debtors may have the right to call or prepay obligations without call or
prepayment penalties.
Proceeds from sales of fixed maturity investments were $211.5 million,
$102.2 million, and $61.2 million in 1995, 1994, and 1993 respectively.
Gross gains of $4.0 million, $4.1 million, and $5.6 million and gross
losses of $0.7 million, $0.3 million, and $0.3 million were realized on
those sales in 1995, 1994 and 1993, respectively.
Unrealized appreciation of fixed maturity investments increased $49.7
million in 1995, decreased $112.0 million in 1994, and increased $21.8
million in 1993. At December 31, 1995, all unrealized appreciation and
depreciation on fixed maturity investments is included, net of tax, in
shareholders' equity.
The fair value and amortized cost of bonds on deposit with various
insurance regulatory agencies was $461.6 million and $446.5 million,
respectively, at December 31, 1995. Additionally, U.S. Treasury Notes with
an amortized cost of $7.8 million and fair value of $8.0 million were
pledged as collateral for surety bonds which were issued to various states
in lieu of depositing bonds.
At December 31, 1995 and 1994, there were no investments in any one
investee exceeding 10% of shareholders' equity.
NOTE THREE: REINSURANCE
The Company reinsures certain risks with other insurance companies. Such
arrangements serve to limit the Company's maximum loss on catastrophes and
large or unusually hazardous risks. The Company is liable for reinsurance
ceded in the event its reinsurers do not meet their obligations. The
Company's reserves for nonrecoverable reinsurance were $7.4 million and
$7.5 million as of December 31, 1995 and 1994, respectively. Under certain
of the reinsurance agreements, funds are held to secure performance of
reinsurers in meeting their obligations. The amount of such funds was $30.5
million and $39.6 million at December 31, 1995 and 1994, respectively.
Estimated losses recoverable from reinsurers and the ceded portion of
unearned premiums are reported as assets.
Losses and loss adjustment expenses of $152.8 million, $207.2 million,
and $229.2 million as of December 31, 1995, 1994, and 1993, respectively,
are net of cessions of $27.3 million, $21.2 million, and $26.0 million,
respectively.
While the Company is not in the business of assuming reinsurance
risks, it is required to accept certain assigned risks and other legally
mandated reinsurance obligations.
Premiums for the years ended December 31, were as follows.
<TABLE>
<CAPTION>
In millions 1995 1994 1993
<S> <C> <C> <C>
Direct written premiums $196.6 $250.8 $285.7
Reinsurance ceded to
other companies (30.4) (19.7) (17.0)
Reinsurance assumed from
other companies 13.8 17.8 15.6
------ ------ ------
Net written premiums $180.0 $248.9 $284.3
====== ====== ======
Direct earned premiums $223.9 $281.9 $306.8
Reinsurance ceded to
other companies (29.2) (20.1) (17.4)
Reinsurance assumed from
other companies 13.4 17.9 26.0
------ ------ ------
Net earned premiums $208.1 $279.7 $315.4
====== ====== ======
Percentage of reinsurance
assumed to net earned premiums 6.4 % 6.4 % 8.2 %
-----------------------------------------------------------------
</TABLE>
13-9
<PAGE> 10
EXHIBIT 13
NOTE FOUR: RESERVES FOR LOSSES AND LOSS ADJUSTMENT EXPENSES
The following table provides a reconciliation of reserves for losses and
loss adjustment expenses for the years ended December 31, 1995, 1994, and
1993.
<TABLE>
<CAPTION>
In millions 1995 1994 1993
<S> <C> <C> <C>
Reserves for losses and loss
adjustment expenses at
beginning of year $1,196.3 $1,284.1 $1,390.9
Losses and loss adjustment expenses:
Provision for losses and loss
adjustment expenses for claims
occurring in the current year 183.6 235.3 238.5
Increase (decrease) in estimated
losses and loss adjustment expenses
for claims occurring in prior years (15.5) 8.4 16.7
-------- -------- --------
168.1 243.7 255.2
-------- -------- --------
Losses and loss adjustment expense
payments for claims occurring during:
Current year 38.4 43.7 42.9
Prior years 265.1 287.8 319.1
-------- -------- --------
303.5 331.5 362.0
-------- -------- --------
Reserves for losses and loss adjustment
expenses at end of year $1,060.9 $1,196.3 $1,284.1
======== ======== ========
----------------------------------------------------------------------
</TABLE>
The reserves for losses and loss adjustment expenses represent the
estimated indemnity cost and loss adjustment expenses necessary to cover
the ultimate net cost of investigating and settling claims. Such estimates
are based upon individual case estimates for reported claims, estimates
from ceding companies for reinsurance assumed, and actuarial estimates for
losses which have been incurred but not yet reported to the insurer. Any
change in probable ultimate liabilities is reflected in current operating
results.
The ultimate cost of claims, particularly liability claims, is
difficult to predict for several reasons. Claims may not be reported until
many years after a policy expires. Changes in the legal environment have
created further complications. Court decisions and federal and state
legislation may dramatically increase the liability between the time a
policy is written and associated claims are ultimately resolved.
For example, liability for exposure to toxic substances and
environmental impairment, which did not appear likely or even exist when
the policies were written, has been imposed by legislators and judicial
interpretation. Tort liability has been expanded by some jurisdictions to
cover defective workmanship.
Liabilities assumed from other insurance companies under reinsurance
contracts is subject to the same factors, and further exacerbated by
extended lags between the date of occurrence and the date of the Company's
notification of the claim.
Reserves for such difficult-to-estimate liabilities are established by
examining the facts of tendered claims and adjusted in the aggregate for
ultimate loss expectations based upon historical experience patterns and
current socio-economic trends. Due to these factors, among others, the
process cannot provide an exact forecast of future payments. Rather, it
produces a best estimate of liability as of a certain date. Management
believes the reserves for loss and loss adjustment expenses established are
adequate and the associated estimate of reinsurance recoverable is
reasonable. While the eventual ultimate liability and reinsurance
recoverable may differ from the current estimates, management does not
believe that the difference will have a material effect, either adversely
or favorably, on the Company's financial position and results of
operations.
The Company has discounted certain workers compensation-type reserves
using a maximum interest rate of 3.5 percent. The amount of unamortized
discount was $23.3 million at December 31, 1995 and 1994.
13-10
<PAGE> 11
EXHIBIT 13
NOTE FIVE: INCOME TAXES
The Company's income tax provision includes the following components.
<TABLE>
<CAPTION>
In millions 1995 1994 1993
<S> <C> <C> <C>
Current tax provision $ 6.1 $11.6 $20.9
Deferred tax provision related
to future tax deductions 11.0 17.7 7.9
Deferred alternative
minimum tax provision (4.3) -- --
----- ----- -----
Income tax provision $12.8 $29.3 $28.8
===== ===== =====
----------------------------------------------------------
</TABLE>
A reconciliation of the Company's income tax provision to the provision
which would have resulted if the tax had been computed at the statutory
rate is as follows:
<TABLE>
<CAPTION>
In millions 1995 1994 1993
<S> <C> <C> <C>
Income tax provision at statutory
tax rates (35%) $24.0 $36.8 $41.1
Tax effect of:
Tax exempt interest (4.7) (8.0) (9.0)
Dividends received deduction (4.2) (2.5) (2.4)
Other permanent adjustments, net (3.4) 2.0 1.7
Change in the deferred tax receivable
due to rate change -- -- (3.0)
State income tax provision 1.1 1.0 0.4
----- ----- -----
Income tax provision $12.8 $29.3 $28.8
===== ===== =====
--------------------------------------------------------------------------
</TABLE>
The Company records deferred tax assets for expenses reported for financial
reporting purposes before they become deductible for tax purposes. The
deferred tax receivable is equal to the theoretical refund which will be
received when expenses which have been previously reported for financial
purposes become deductible for tax purposes. The Company has recorded a
deferred tax asset of $15.7 million at December 31,1995 and $66 million at
December 31,1994. The deferred tax receivables at December 31, 1995 and
1994 result from the following tax-effected temporary differences.
<TABLE>
<CAPTION>
In millions 1995 1994
<S> <C> <C>
Deferred liability on unrealized gains $(60.2) $(16.6)
Deferred tax assets:
Reserve discounting 68.9 85.4
Alternative minimum tax 4.3 --
Other, net 2.7 (2.8)
------ ------
Deferred tax asset, net $ 15.7 $ 66.0
====== ======
-----------------------------------------------------------------
</TABLE>
The deferred tax asset for 1995 includes a benefit for $4.3 million for
alternative minimum tax which the Company incurred for tax years ended
December 31, 1995 and 1994. Alternative minimum tax paid in one year can be
recovered in subsequent years to the extent that the regular tax liability
for a subsequent year exceeds its alternative minimum tax liability for
that year. Realization of the deferred tax asset is dependent upon the
Company generating sufficient taxable income in the future to the extent
that tax benefits cannot be recovered from taxes paid in the carryback
period, generally three years. Although realization is not assured,
management believes it is more likely than not that all of the deferred tax
asset will be realized. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of
future taxable income during the carryforward period are reduced.
The deferred tax provision represents the change in the deferred tax
receivable or liability, excluding the tax effect of changes in the fair
value of available for sale securities.
The Company paid income tax of $3.1 million, $19.0 million, and $20.8
million in 1995, 1994, and 1993, respectively.
NOTE SIX: SHAREHOLDERS' EQUITY
On May 31, 1991, the Company's Certificate of Incorporation was amended to
increase the number of shares of $0.10 par value common stock authorized
for issuance from 20,000,000 to 35,000,000 shares. Prior to October 1,
1986, the Company was a wholly-owned subsidiary of Teledyne, Inc. In
accordance with a preannounced plan, Teledyne distributed its ownership of
the Company to its shareholders on a share-for-share basis. As a result,
11,709,478 shares (prior to 3 for 1 stock split in June, 1991) were issued
and delivered to the Company's shareholders.
The Company is also authorized to issue 5,000,000 shares of $0.10 par value
preferred stock. No preferred shares were issued or outstanding at December
31, 1995.
During 1995 and 1994, the Company reacquired and retired 845,766 and
761,500 shares of its common stock, respectively, at prevailing market
prices. No shares were reacquired during 1993.
13-11
<PAGE> 12
EXHIBIT 13
The Company's insurance subsidiaries are regulated by the various states and
prepare their financial statements in accordance with statutory accounting
principles. The amount of statutory net income and surplus (shareholders'
equity) for the insurance subsidiaries for the years ended December 31, were as
follows.
<TABLE>
<CAPTION>
In millions 1995 1994 1993
<S> <C> <C> <C>
Net income $ 58.1 $ 79.8 $ 97.8
Surplus $ 709.6 $ 633.6 $ 583.1
- ------------------------------------------------------------------------------
</TABLE>
NOTE SEVEN: NET INVESTMENT INCOME
Investment income and expenses for the years ended December 31, were as follows.
<TABLE>
<CAPTION>
In millions 1995 1994 1993
<S> <C> <C> <C>
Investment income:
Interest and dividends on
fixed maturities $ 82.9 $ 99.7 $104.3
Dividends on equity securities 17.9 9.3 12.1
Interest on short-term investments 1.2 1.2 0.7
Other 1.1 2.2 2.0
------ ------ ------
103.1 112.4 119.1
Investment expenses (1.1) (1.7) (1.0)
------ ------ ------
Net investment income $102.0 $110.7 $118.1
====== ====== ======
- ----------------------------------------------------------------------------
</TABLE>
NOTE EIGHT: UNDERWRITING, ACQUISITION, AND INSURANCE EXPENSES
Underwriting, acquisition, and insurance expenses for the years ended December
31, were as follows.
<TABLE>
<CAPTION>
In millions 1995 1994 1993
<S> <C> <C> <C>
Commissions $12.2 $20.0 $23.9
General expenses 44.8 40.9 44.6
State assessments 6.8 6.2 6.2
Taxes, licenses, and bureau fees 4.5 7.0 6.9
----- ----- -----
68.3 74.1 81.6
Amortization (deferral) of policy
acquisition costs (1.0) (1.8) 0.1
----- ----- -----
$67.3 $72.3 $81.7
===== ===== =====
- --------------------------------------------------------------------------------
</TABLE>
Various state insurance laws restrict the amount that may be transferred to
Argonaut Group, Inc. from its subsidiaries in the form of dividends without
prior approval of regulatory authorities. In addition, that portion of the
Company's net equity which results from the difference between statutory
insurance practices and generally accepted accounting principles would not be
available for dividends. At December 31, 1995, $45.4 million was available for
dividends to Argonaut Group without prior regulatory approval. During 1995,
dividends of $42.8 million were paid to Argonaut Group.
13-12
<PAGE> 13
EXHIBIT 13
NOTE NINE: BENEFIT PLANS
PENSION
The Company participates in a defined benefit plan which covers substantially
all of its employees. The benefits are based on years of service and the
employee's compensation during the last ten years of employment. The Company's
funding policy is to contribute annually the maximum allowable by the Employee
Retirement Income Security Act of 1974, as amended. Contributions are intended
to provide not only for benefits attributed to service to date, but also for
those expected to be earned in the future.
The following table sets forth a reconciliation of the plan's funded status
and amounts recognized in the Company's balance sheet as of December 31.
<TABLE>
<CAPTION>
In millions 1995 1994
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, (vested benefits:
1995 - $(14.1); 1994 - $(12.6) $(14.5) $(13.1)
====== ======
Projected benefit obligation for service
rendered to date $(20.6) $(16.7)
Plan assets at fair value, primarily Treasury bonds 25.2 18.7
------ ------
Plan assets in excess of projected
benefit obligation 4.6 2.0
Unrecognized net gain from past experience
different from that assumed and effects of
changes in assumptions (4.4) (4.9)
Unrecognized prior service cost 1.6 1.6
Unrecognized net asset (0.5) (0.5)
------ ------
Pension asset (liability) recognized in the balance sheet $ 1.3 $ (1.8)
====== ======
- --------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Net pension cost included the following:
In millions 1995 1994 1993
<S> <C> <C> <C>
Service cost-benefits earned
during the period $1.3 $1.8 1.3
Interest cost on projected
benefit obligation 1.4 1.2 1.0
Actual return on plan assets (2.9) (1.0) (0.9)
Net amortization 1.5 -- (0.1)
---- ---- ----
Net periodic pension cost $1.3 $2.0 $1.3
==== ==== ====
- --------------------------------------------------------------------------------
</TABLE>
In determining the actuarial present value of the projected benefit obligation
as of December 31, 1995 and 1994, the weighted average discount rates were 7.50
and 8.00 percent, respectively. The rate of increase in future compensation
levels was 4.5 percent and the long-term rate of return on assets was 6.0
percent in 1995 and 1994.
STOCK OPTIONS
In August 1986, the Board of Directors of Argonaut Group, Inc. adopted the 1986
Stock Option Plan covering an aggregate 1,500,000 shares of Argonaut Group, Inc.
Common Stock. Under the 1986 Stock Option Plan, options to purchase shares of
Argonaut Group, Inc. Common Stock may be granted to certain key employees. The
options may be incentive stock options or nonqualified stock options. If
incentive options are granted, the exercise price of the options will be the
fair market value of the shares on the date that the option is granted. The
exercise price of nonqualified stock options to be granted can be below the fair
market value of the shares on the date of grant. To date all options granted
have been at the fair market value of the shares on the date of grant, and as
such, no compensation expense has been recognized. The options are
nontransferable and are exercisable in installments.
A summary of the stock option activity is as follows:
<TABLE>
<CAPTION>
Number Option
of Shares Price
<S> <C> <C>
Outstanding at December 31, 1993 706,400 $ 8.58 - 31.25
Granted 254,750 $26.25 - 29.25
Exercised (13,620) $13.58 - 27.00
Cancelled (22,740) $13.58 - 31.00
-------
Outstanding at December 31, 1994 924,790
Granted 120,600 $30.00
Exercised (19,380) $ 8.58 - 27.13
Cancelled (55,150) $19.33 - 31.00
-------
Outstanding at December 31, 1995 970,860
=======
- --------------------------------------------------------------------------------
</TABLE>
At December 31, 1995, 247,940 shares were available for future grant and 456,860
of the stock options were exercisable.
In October, 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123 Accounting for Stock-Based
Compensation" (FAS 123). As permitted by FAS 123, the Company will not change
its method of accounting for stock options but will provide the additional
required disclosures beginning in fiscal 1996.
EMPLOYEE SAVINGS PLANS
Substantially all employees of the Company are eligible to participate in
employee savings plans. Under these plans, a percentage of an employee's pay may
be contributed to various savings alternatives including, under one plan,
investment in the Company's common stock. The plans call for the Company to
match the employee's contribution under various formulae. Charges to income
related to such Company matching were $0.6 million, $0.5 million, and $0.4
million, in 1995, 1994, and 1993, respectively.
13-13
<PAGE> 14
EXHIBIT 13
NOTE TEN: BUSINESS SEGMENTS
The Company and its subsidiaries are engaged principally in the
business of selling workers compensation and other insurance. The Company's
insurance subsidiaries are authorized to sell a portfolio of workers
compensation, commercial and homeowners multi-peril, automobile liability and
physical damage, medical malpractice, fire, and other lines in all states and
the District of Columbia. In accordance with insurance accounting practice, all
expenses have been allocated to the two business segments.
Information on the Company's business segments for the years ended December
31, is as follows.
<TABLE>
<CAPTION>
In millions 1995 1994 1993
<S> <C> <C> <C>
Premiums:
Workers compensation $176.7 $240.2 $280.0
Other insurance 31.4 39.5 35.4
------ ------ ------
$208.1 $279.7 $315.4
====== ====== ======
Pre-tax underwriting income (loss):
Workers compensation $ (0.2) $ 3.9 $(10.7)
Other insurance (35.2) (12.4) 5.1
------ ------ ------
(35.4) $ (8.5) $ (5.6)
Net investment income 102.0 110.7 118.1
Gains on sales of investments 3.1 3.8 5.4
------ ------ ------
Income before income taxes $ 69.7 $106.0 $117.9
====== ====== ======
- --------------------------------------------------------------------------------
</TABLE>
NOTE ELEVEN: COMMITMENTS AND CONTINGENCIES
Rental expenses for operating leases, principally for offices, were $3.8
million, $3.5 million, and $3.4 million in 1995, 1994, and 1993, respectively.
As of December 31, 1995, future minimum noncancellable operating lease
commitments are as follows: $3.8 million in 1996, $3.2 million in 1997, $1.7
million in 1998, $0.9 million in 1999, $0.8 million in 2000, and $0.1 million
thereafter for a total of $10.5 million.
The Company's insurance subsidiaries are members of the statutorily created
insolvency guarantee associations in all states where they are authorized to
transact business. These associations were formed for the purpose of paying
claims of insolvent companies. The Company is assessed its pro rata share of
such claims based on its premium writings, subject to a maximum annual
assessment per line of insurance. Such costs can generally be recovered through
surcharges on future premiums. The Company does not believe that assessments on
current insolvencies will have a material effect on its financial condition or
results of operations.
On November 8, 1988, California voters passed an initiative known as
Proposition 103. The Proposition, in part, provides for a rollback of rates for
certain lines of business (excluding workers compensation) to 20% below rate
levels of November 8, 1987. The Insurance Commissioner rejected the rollback
exemption application of the Company's Argonaut Insurance subsidiary, and a
hearing on the matter is scheduled for January 29, 1996. The Insurance
Commissioner claims that the Company and its subsidiaries have an outstanding
Proposition 103 rollback obligation of approximately $13.7 million (before tax),
including interest through December 31, 1995 of $5.5 million. The Company
contends that it is in compliance with the rate rollback requirements of
Proposition 103, and intends to vigorously pursue the defense of this claim.
The insurance subsidiaries of the Company are parties to legal actions
incidental to their business. Based on the advice of counsel, management of the
Company believes that the resolution of these matters will not materially affect
the Company's financial condition or results of operations.
NOTE TWELVE: RUN OFF LINES
Although the Company has discontinued active underwriting of hospital liability,
medical malpractice liability, and assumed casualty reinsurance, these lines are
in run off status, meaning that the Company is still obligated to pay losses
incurred on policies written in past years. Each of these lines is characterized
by long elapsed periods between the occurrence of a claim and ultimate payment
of the settled claim. The Company has a specialized and dedicated staff to
administer and settle hospital liability and medical malpractice claims. The
following tables present the Company's reserves for losses and loss adjustment
expenses and their underwriting income (loss), including detailed information
for the years ended December 31.
13-14
<PAGE> 15
RESERVES FOR LOSSES AND LOSS ADJUSTMENT EXPENSES EXHIBIT 13
<TABLE>
<CAPTION>
In millions 1995 1994 1993
<S> <C> <C> <C>
Run off lines:
Medical liability $ 12.6 $ 15.9 $ 34.6
Hospital liability 49.3 65.4 78.9
Other * 134.7 151.5 141.7
-------- -------- --------
196.6 232.8 255.2
Continuing lines 864.3 963.5 1,028.9
-------- -------- --------
Total reserves $1,060.9 $1,196.3 $1,284.1
======== ======== ========
- --------------------------------------------------------------------------------
</TABLE>
* Primarily casualty reinsurance assumed
UNDERWRITING INCOME (LOSS)
<TABLE>
<CAPTION>
In millions 1995 1994 1993
<S> <C> <C> <C>
Run off lines:
Medical liability $ 2.4 $ 5.0 $ 8.5
Hospital liability 9.9 16.0 26.5
Other * (12.3) (9.0) (10.1)
------ ----- -----
-- 12.0 24.9
Continuing lines (35.4) (20.5) (30.5)
------ ----- -----
Total underwriting
income (loss) $(35.4) $(8.5) $ 5.6
====== ===== =====
- --------------------------------------------------------------------------------
</TABLE>
* Primarily casualty reinsurance assumed
NOTE THIRTEEN: PERMITTED STATUTORY ACCOUNTING PRACTICES
The Company's insurance subsidiaries prepare their statutory financial
statements in accordance with accounting practices prescribed or permitted by
the insurance departments of the state of domicile. Prescribed statutory
accounting practices include a variety of publications of the National
Association of Insurance Commissioners ("NAIC"), as well as state laws,
regulations, and general administrative rules. Permitted statutory accounting
practices encompass all accounting practices not so prescribed.
The Company's insurance subsidiaries do not apply any permitted statutory
accounting practices, which individually or in the aggregate materially affect
statutory surplus or risk-based capital.
QUARTERLY FINANCIAL DATA -UNAUDITED ARGONAUT GROUP, INC. AND SUBSIDIARIES
The following table represents unaudited quarterly financial data for the years
ended December 31, 1995 and 1994. In the opinion of management, all adjustments
necessary to present fairly the results of operations for such periods have been
made. Total revenues and net income include gains on the sale of investments.
The Company cannot anticipate when or if similar gains may occur in the future.
Since quarterly financial results rely heavily on estimates, caution should be
used in drawing specific conclusions from quarterly consolidated results.
In millions except per share amounts Three Months Ended
<TABLE>
<CAPTION>
March 31 June 30 Sept.30 Dec. 31
<S> <C> <C> <C> <C>
1995
Total revenues $81.0 $81.2 $77.3 $ 73.7
Underwriting income (loss) (9.0) (7.1) (14.1) (5.2)
Net income 13.8 15.7 10.3 17.1
Net income per share * 0.56 0.65 0.43 0.71
1994
Total revenues $96.1 $98.6 $99.0 $100.5
Underwriting income (loss) (5.0) 1.5 0.4 (5.4)
Net income 17.4 21.5 20.8 17.0
Net income per share * 0.68 0.84 0.81 0.68
- --------------------------------------------------------------------------------
</TABLE>
*Net income per share is computed independently for each quarter and the full
year based on the respective average number of common shares outstanding;
therefore, the sum of the quarterly net income per share data may not equal the
net income per share for the year.
13-15
<PAGE> 16
EXHIBIT 13
COMMON STOCK MARKET PRICES -UNAUDITED ARGONAUT GROUP, INC. AND SUBSIDIARIES
The following table shows the high, low, and closing prices during each quarter
in the past two years.
<TABLE>
<CAPTION>
Quarter Ended March 31 June 30 Sept.30 Dec. 31
<S> <C> <C> <C> <C>
1995
High 31 1/4 32 1/2 31 3/4 34 1/2
Low 27 3/4 29 1/4 29 1/2 28 7/8
Close 30 31 3/4 30 1/2 32 1/2
1994
High 31 3/4 30 31 30
Low 29 26 1/4 27 1/4 27 3/4
Close 29 1/4 27 3/4 29 3/4 28 1/4
- --------------------------------------------------------------------------------
</TABLE>
13-16
<PAGE> 17
EXHIBIT 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
RESULTS OF OPERATIONS
Earned premium income was $208.1 million, $279.7 million, and $315.4 million in
1995, 1994, and 1993 respectively. This decline is primarily due to the
following factors:
- - In California, Workers Compensation premiums were subjected to significant
rate decreases during 1994, and have experienced further price declines in
1995 under open rating.
- - Loss experience on recent policy years for Workers Compensation continues to
develop more favorably than anticipated, increasing the amount of premium
returned to policyholders under retrospectively rated policies.
- - An increasing number of Workers Compensation policies are being written with
large deductible provisions, reducing premium, but also reducing exposure to
losses. The impact of large deductible programs on inforce premiums is
approximately $100 million at December 31, 1995, compared with a $60 million
impact at the same point in 1994.
Net investment income was $102.0 million, $110.7 million, and $118.1 million for
1995, 1994, and 1993, respectively. The decreases in 1995 and 1994 are the
result of continued lower interest rates and some restructuring of the
investment portfolio.
Pre-tax gains on sales of investments were $3.1 million, $3.8 million, and
$5.4 million for 1995, 1994, and 1993, respectively. Gains in all three years
resulted primarily from redistribution of assets or bonds called by issuers. We
cannot anticipate when or if other gains or losses may occur in the future.
Losses and loss adjustment expenses were $152.8 million, $207.2 million and
$229.2 million in 1995, 1994, and 1993, respectively. The Company's loss ratio,
including our run off lines of business, was 81% in 1995, 76% in 1994, and 73%
in 1993. The loss ratio in our workers compensation line of business was 63% in
1995, 72% in 1994, and 78% in 1993, reflecting improved loss trends throughout
the industry. The loss ratio in other continuing lines of business was 173%,
130%, and 117% in 1995, 1994, and 1993, respectively. The steadily increasing
loss ratios were due to higher than anticipated loss development related to
business written in 1991 and prior. The amount of future favorable or
unfavorable development, if any, cannot be anticipated.
Underwriting expenses totalled $67.3 million in 1995, $72.3 million in 1994,
and $81.7 million in 1993. Underwriting expenses are comprised of three
components: commissions and premium taxes, state fees and assessments, and
general expenses. The decrease from 1993 was due to a combination of lower
commissions and premium taxes, and $4.5 million in interest expense recorded in
1993 related to an ongoing IRS audit for tax years beginning after September 30,
1986. The steady decrease in commissions and premium taxes is primarily due to a
decrease in premium volume.
Policyholder dividend expense was $20.6 million in 1995, $5.9 million in
1994, and $7.3 million in 1993. These charges reflect the loss experience of
participating policyholders, the basis for dividend payments.
Income from operations after tax was $54.9 million in 1995, $74.2 million in
1994, and $85.6 million in 1993. The decreases are primarily due to decreased
favorable development in our run off lines of business, and increased reserve
strengthening in our other continuing lines of business.
13-17
<PAGE> 18
ARGONAUT GROUP, INC. AND SUBSIDIARIES EXHIBIT 13
LIQUIDITY AND CAPITAL RESOURCES
The Company's insurance subsidiaries require a significant degree of liquidity
and adequate capital to meet ongoing obligations to policyholders and claimants
and to cover ordinary operating expenses. During the three years ended December
31, 1995, the Company generated sufficient capital from operations and
investment income to meet all of its obligations. The Company maintains adequate
levels of liquidity and surplus capacity to manage the risks inherent with any
differences between the duration of its liabilities and invested assets.
Management believes that the Company continues to maintain sufficient liquidity
to pay claims and expenses, as well as to cover unforeseen events such as
reinsurer insolvencies, inadequate premium rates, or reserve deficiencies.
Under provisions of the California Insurance Code, there is a maximum amount
of dividends which may be paid without prior approval of the Insurance
Commissioner. Under these provisions, as of December 31, 1995, Argonaut
Insurance could pay a maximum dividend of $45.4 million to Argonaut Group, Inc.
without the Insurance Commissioner's approval. During 1995, Argonaut Insurance
paid the Company dividends of $42.8 million.
On April 25, 1995, the Company's Board of Directors increased the quarterly
dividend from $0.29 per common share to $0.33 per common share. During 1995,
total cash dividends paid by the Company to its shareholders were $1.28 per
share.
On July 27, 1989, the Argonaut Group Board of Directors authorized the
repurchase of up to six million shares of its outstanding common stock. It is
presently expected that dividends received from the Company's subsidiaries will
be the primary source of funds for the stock repurchase program and to meet any
other capital requirements the Company may develop.
LEGISLATION
Historically, over 30% of Argonaut's premiums have been generated in California.
As part of workers compensation reform legislation, California became an "open
rating" state on January 1, 1995. This means that, as was already the case in
many other states, workers compensation policies are no longer priced on the
basis of uniform rates and rating plans adhered to by all insurance companies.
Instead, each company files its own rate schedules and rating plans.
Also, Argonaut Insurance Company is engaged in continuing discussions with
the California Department of Insurance to resolve any potential obligation
under Proposition 103. This is discussed in Note 11 to the financial statements.
13-18
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Form 10-K and into the Company's previously filed Registration
Statement File No. 33-12034 and 33-31547, of our report dated January 5, 1996,
included in Argonaut Group, Inc.'s 1995 Annual Report to Shareholders. It should
be noted that we have not audited any consolidated financial statements of the
Company subsequent to December 31, 1995 or performed any audit procedures
subsequent to the date of our report.
ARTHUR ANDERSEN LLP
San Francisco, California
February 27, 1996
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<DEBT-HELD-FOR-SALE> 1,063,800
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 393,400
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 1,489,200
<CASH> 23,300
<RECOVER-REINSURE> 198,600
<DEFERRED-ACQUISITION> 4,600
<TOTAL-ASSETS> 2,012,300
<POLICY-LOSSES> 1,060,900
<UNEARNED-PREMIUMS> 64,000
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 2,400
<OTHER-SE> 808,400
<TOTAL-LIABILITY-AND-EQUITY> 2,012,300
208,100
<INVESTMENT-INCOME> 102,000
<INVESTMENT-GAINS> 3,100
<OTHER-INCOME> 0
<BENEFITS> 152,800
<UNDERWRITING-AMORTIZATION> (1,000)
<UNDERWRITING-OTHER> 68,300
<INCOME-PRETAX> 69,700
<INCOME-TAX> 12,800
<INCOME-CONTINUING> 56,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 56,900
<EPS-PRIMARY> 2.34
<EPS-DILUTED> 2.34
<RESERVE-OPEN> 1,196,300
<PROVISION-CURRENT> 183,600
<PROVISION-PRIOR> (15,500)
<PAYMENTS-CURRENT> 38,400
<PAYMENTS-PRIOR> 265,100
<RESERVE-CLOSE> 1,060,900
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
<PAGE> 1
EXHIBIT 28
COMBINED ANNUAL STATEMENT FOR THE YEAR 1995 OF THE ARGONAUT INSURANCE COMPANY
SCHEDULE P -- PART 2 -- SUMMARY
<TABLE>
<CAPTION>
1 Incurred Losses and Allocated Expenses Reported At Year End ($000 omitted)
Years in Which -----------------------------------------------------------------------------------------------------------
Losses Were 2 3 4 5 6 7 8 9 10 11
Incurred 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
- -------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. Prior........ 1,087,166 1,146,054 1,152,047 1,101,714 1,101,134 1,032,622 1,031,673 1,015,391 981,872 997,839
2. 1986......... 224,059 203,277 215,245 213,138 214,815 217,302 205,715 206,165 205,662 208,976
3. 1987......... XXX 228,194 236,175 244,151 233,047 234,116 223,883 234,451 233,113 235,038
4. 1988......... XXX XXX 236,390 256,675 242,668 243,593 237,226 243,415 246,651 249,334
5. 1989......... XXX XXX XXX 317,599 325,043 359,205 356,420 375,676 374,092 378,651
6. 1990......... XXX XXX XXX XXX 356,129 396,815 419,688 421,619 440,026 443,966
7. 1991......... XXX XXX XXX XXX XXX 258,677 288,348 288,844 302,094 300,467
8. 1992......... XXX XXX XXX XXX XXX XXX 260,021 227,446 230,739 221,250
9. 1993......... XXX XXX XXX XXX XXX XXX XXX 217,975 194,822 189,416
10. 1994......... XXX XXX XXX XXX XXX XXX XXX XXX 214,927 201,575
11. 1995......... XXX XXX XXX XXX XXX XXX XXX XXX XXX 157,768
Development
---------------------
12 13
One Year Two Year
-------- --------
<S> <C> <C>
1. Prior........ 15,967 (17,551)
2. 1986......... 3,313 2,811
3. 1987......... 1,925 587
4. 1988......... 2,683 5,919
5. 1989......... 4,559 2,975
6. 1990......... 3,940 22,347
7. 1991......... (1,627) 11,623
8. 1992......... (9,489) (6,196)
9. 1993......... (5,406) (28,559)
10. 1994......... (13,352) XXX
11. 1995......... XXX XXX
------- -------
12. Totals....... 2,514 (6,045)
</TABLE>
SCHEDULE P -- PART 3 -- SUMMARY
<TABLE>
<CAPTION>
1 Cumulative Paid Losses and Allocated Expenses At Year End ($000 omitted)
Years in Which -----------------------------------------------------------------------------------------------------------
Losses Were 2 3 4 5 6 7 8 9 10 11
Incurred 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
- -------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. Prior........ 000 184,804 313,974 402,224 478,114 536,166 585,903 629,815 671,261 719,694
2. 1986......... 39,530 87,284 121,674 146,774 164,817 178,514 181,458 180,871 186,449 191,071
3. 1987......... XXX 42,292 94,180 131,479 157,714 181,665 190,598 200,347 209,857 214,610
4. 1988......... XXX XXX 39,172 100,698 139,628 174,158 193,938 204,932 217,663 224,727
5. 1989......... XXX XXX XXX 60,080 152,592 220,885 263,996 295,415 320,659 335,294
6. 1990......... XXX XXX XXX XXX 75,916 179,963 263,564 320,125 358,815 379,562
7. 1991......... XXX XXX XXX XXX XXX 55,681 135,352 189,659 223,039 241,703
8. 1992......... XXX XXX XXX XXX XXX XXX 44,137 98,219 137,356 162,343
9. 1993......... XXX XXX XXX XXX XXX XXX XXX 37,638 82,577 116,237
10. 1994......... XXX XXX XXX XXX XXX XXX XXX XXX 33,635 85,639
11. 1995......... XXX XXX XXX XXX XXX XXX XXX XXX XXX 26,075
Development
---------------------
12 13
Number of Number of
Claims Closed Claims Closed
With Loss Without Loss
Payment Payment
-------- --------
<S> <C> <C>
1. Prior........ XXX XXX
2. 1986......... XXX XXX
3. 1987......... XXX XXX
4. 1988......... XXX XXX
5. 1989......... XXX XXX
6. 1990......... XXX XXX
7. 1991......... XXX XXX
8. 1992......... XXX XXX
9. 1993......... XXX XXX
10. 1994......... XXX XXX
11. 1995......... XXX XXX
</TABLE>
SCHEDULE P -- PART 4 -- SUMMARY
<TABLE>
<CAPTION>
1 Bulk and Incurred But NOt Reported Reserves on Losses and Allocated Expenses at Year End ($000 omitted)
Years in Which -----------------------------------------------------------------------------------------------------------
Losses Were 2 3 4 5 6 7 8 9 10 11
Incurred 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995
- -------------- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. Prior........ 465,311 464,847 448,693 402,587 362,712 267,661 239,411 180,328 121,840 88,442
2. 1986......... 84,560 39,565 33,807 25,630 21,165 15,308 9,790 14,753 7,793 6,819
3. 1987......... XXX 89,958 58,731 49,281 28,102 17,404 9,748 14,566 10,460 7,692
4. 1988......... XXX XXX 96,929 63,461 37,465 22,210 10,206 13,160 11,505 7,940
5. 1989......... XXX XXX XXX 127,236 52,593 33,142 16,522 26,670 18,519 17,345
6. 1990......... XXX XXX XXX XXX 145,466 69,241 43,089 20,075 32,916 28,722
7. 1991......... XXX XXX XXX XXX XXX 128,839 46,286 27,168 32,741 24,777
8. 1992......... XXX XXX XXX XXX XXX XXX 132,452 57,808 40,376 20,782
9. 1993......... XXX XXX XXX XXX XXX XXX XXX 113,812 56,723 33,974
10. 1994......... XXX XXX XXX XXX XXX XXX XXX XXX 110,020 60,828
11. 1995......... XXX XXX XXX XXX XXX XXX XXX XXX XXX 79,759
</TABLE>
<PAGE> 2
EXHIBIT 28
COMBINED ANNUAL STATEMENT FOR THE YEAR 1995 OF THE
ARGONAUT INSURANCE COMPANY
SCHEDULE P - ANALYSIS OF LOSSES AND LOSS EXPENSES
NOTES TO SCHEDULE P
(1) Parts of Schedule P:
Part 1 - detailed information on losses and loss expenses.
Part 2 - history of incurred losses and allocated expenses.
Part 3 - history of loss and allocated expense payments.
Part 4 - history of bulk and incurred-but-not reported reserves.
Part 5 - history of claims.
Part 6 - history of premiums earned.
Part 7 - history of loss sensitive contracts.
Schedule P Interrogatories
(2) Lines of business A through M, R, and S are groupings of the lines of
business used on the state page.
(3) Reinsurance A, B, C, and D (lines N to Q) are:
Reinsurance A = nonproportional property (1988 and subsequent)
Reinsurance B = nonproportional liability (1988 and subsequent)
Reinsurance C = financial lines (1988 and subsequent)
Reinsurance D = old Schedule O line 30 (1987 and prior)
SCHEDULE P - PART 1 - SUMMARY
($000 OMITTED)
<TABLE>
<CAPTION>
PREMIUMS EARNED LOSS AND LOSS EXPENSE PAYMENTS
-------------------------- -------------------------------------------------------------------------
LOSS PAYMENTS ALLOCATED LOSS
EXPENSE PAYMENTS
------------------------------------------------------------------------------------------------------
1 2 3 4 5 6 7 8 9 10 11 12
YEAR
IN WHICH TOTAL NUMBER OF
PREMIUMS WERE SALVAGE UNALLOCATED NET CLAIMS
EARNED AND DIRECT DIRECT DIRECT AND LOSS PAID REPORTED -
LOSSES WERE AND NET AND AND SUBROGATION EXPENSE (5 - 6 + 7 DIRECT AND
INCURRED ASSUMED CEDED (2 - 3) ASSUMED CEDED ASSUMED CEDED RECEIVED PAYMENTS - 8 + 10) ASSUMED
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. Prior XXX XXX XXX 55,811 9,875 7,513 5,016 183 1,892 50,325 XXX
2. 1986 346,831 60,205 286,626 204,782 40,738 39,749 12,722 1,269 13,811 204,882 XXX
3. 1987 374,906 63,558 311,348 218,476 32,908 37,442 8,400 1,584 15,192 229,802 XXX
4. 1988 382,710 40,174 342,536 232,720 35,714 32,761 5,040 1,532 15,605 240,332 XXX
5. 1989 489,774 74,132 415,642 353,397 51,804 41,372 7,671 1,251 20,815 356,109 XXX
6. 1990 494,733 36,020 458,713 367,006 26,488 41,758 2,714 3,039 23,022 402,585 XXX
7. 1991 430,996 63,530 367,466 229,535 9,860 23,170 1,142 1,748 18,806 260,509 XXX
8. 1992 319,956 (8,365) 328,321 151,269 6,504 18,553 975 1,132 16,363 178,706 XXX
9. 1993 332,846 17,379 315,467 111,580 5,014 10,140 469 1,643 6,785 123,022 XXX
10. 1994 299,786 20,059 279,726 82,200 2,739 6,212 34 1,348 12,753 98,392 XXX
11. 1995 237,299 29,166 208,133 25,984 1,331 1,427 5 246 8,583 34,658 XXX
12. Totals XXX XXX XXX 2,032,762 222,976 260,095 44,188 14,975 153,628 2,179,322 XXX
<CAPTION>
LOSSES UNPAID ALLOCATED LOSS EXPENSES UNPAID
-------------------------------------------- ----------------------------------------
CASE BASIS BULK + IBNR CASE BASIS BULK + IBNR
--------------------- --------------------- -------------------- ------------------
13 14 15 16 17 18 19 20
DIRECT DIRECT DIRECT DIRECT AND
AND ASSUMED CEDED AND ASSUMED CEDED AND ASSUMED CEDED ASSUMED CEDED
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. Prior 203,648 40,047 113,999 43,205 18,327 3,815 24,230 6,582
2. 1986 10,809 1,613 7,028 818 2,100 835 1,104 496
3. 1987 12,299 2,106 8,677 1,910 1,891 661 1,845 920
4. 1988 17,926 5,197 9,382 2,205 1,925 363 1,569 806
5. 1989 26,709 5,225 20,982 6,018 3,444 458 3,302 921
6. 1990 31,836 2,139 27,502 2,386 3,945 212 4,339 734
7. 1991 32,475 3,251 23,076 1,142 4,032 147 3,396 553
8. 1992 35,024 1,704 18,540 616 3,498 74 2,990 132
9. 1993 36,211 1,657 31,664 2,235 3,571 13 4,719 175
10. 1994 55,809 6,816 57,731 4,292 8,030 2,304 8,127 737
11. 1995 49,948 2,385 77,808 9,095 4,401 30 12,131 1,065
12. Totals 512,693 72,140 396,390 73,922 55,164 8,812 67,751 13,139
<CAPTION>
21 22 23 24
TOTAL NUMBER OF
SALVAGE UNALLOCATED NET LOSSES CLAIMS
AND LOSS AND OUTSTANDING-
SUBROGATION EXPENSES EXPENSES DIRECT
ANTICIPATED UNPAID UNPAID AND ASSUMED
- -----------------------------------------------------------------
<S> <C> <C> <C> <C>
1. Prior 294 10,521 277,076 XXX
2. 1986 3 519 17,798 XXX
3. 1987 7 646 19,861 XXX
4. 1988 70 794 23,025 XXX
5. 1989 445 1,259 43,074 XXX
6. 1990 1,130 1,800 63,951 XXX
7. 1991 1,564 1,811 59,698 XXX
8. 1992 1,690 2,111 59,636 XXX
9. 1993 1,417 2,052 74,140 XXX
10. 1994 1,324 2,946 118,493 XXX
11. 1995 376 4,460 136,152 XXX
12. Totals 8,320 28,919 892,904 XXX
<CAPTION>
LOSS AND LOSS DISCOUNT NET BALANCE
TOTAL LOSSES AND EXPENSE PERCENTAGE FOR TIME SHEET RESERVES
LOSS EXPENSES INCURRED (INCURRED/PREMIUMS EARNED) VALUE OF MONEY AFTER DISCOUNT
--------------------------- -------------------------- ---------------- --------------------
25 26 27 28 29 30 31 32 33 34 35
INTER-COMPANY
DIRECT DIRECT POOLING LOSS
AND AND LOSS PARTICIPATION LOSSES EXPENSES
ASSUMED CEDED NET ASSUMED CEDED NET LOSS EXPENSE PERCENTAGE UNPAID UNPAID
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1. Prior XXX XXX XXX XXX XXX XXX XXX 234,395 42,682
2. 1986 279,903 57,222 222,680 80.7 95.0 77.7 15,406 2,392
3. 1987 296,467 46,804 249,663 79.1 73.6 80.2 16,960 2,900
4. 1988 312,683 49,326 263,358 81.7 122.8 76.9 19,906 3,119
5. 1989 471,279 72,097 399,182 96.2 97.3 96.0 36,447 6,626
6. 1990 501,208 34,672 466,536 101.3 96.3 101.7 54,813 9,138
7. 1991 336,302 16,095 320,207 78.0 25.3 87.1 51,159 8,540
8, 1992 248,347 10,006 238,341 77.6 (119.6) 72.6 51,243 8,392
9. 1993 206,724 9,562 197,162 62.1 55.0 62.5 63,984 10,155
10. 1994 233,807 16,922 216,885 78.0 84.4 77.5 102,431 16,062
11. 1995 184,741 13,931 170,810 77.9 47.8 82.1 116,276 19,876
12. Totals XXX XXX XXX XXX XXX XXX XXX 763.021 129,883
</TABLE>
