<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended September 30, 2000
COMMISSION FILE NUMBER 0-22280
PHILADELPHIA CONSOLIDATED HOLDING CORP.
---------------------------------------
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 23-2202671
(State of Incorporation) (IRS Employer Identification No.)
ONE BALA PLAZA, SUITE 100
BALA CYNWYD, PENNSYLVANIA 19004
(610) 617-7900
-------------------------------------------
(Address, including zip code and telephone number,
including area code, of registrant's principal executive offices)
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 the number of shares outstanding of each of the issuer's classes of
common stock as of November 6, 2000.
Common Stock, no par value, 11,781,545 shares outstanding,
<PAGE> 2
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
INDEX
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2000
<TABLE>
<CAPTION>
Part I - Financial Information
<S> <C>
Consolidated Balance Sheets - September 30, 2000 and
December 31, 1999 3
Consolidated Statements of Operations and Comprehensive
Income - For the three and nine months ended
September 30, 2000 and 1999 4
Consolidated Statements of Changes in Shareholders' Equity - For the
nine months ended September 30, 2000 and year ended
December 31, 1999 5
Consolidated Statements of Cash Flows - For the nine
months ended September 30, 2000 and 1999 6
Notes to Consolidated Financial Statements 7-10
Management's Discussion and Analysis of Results of Operations and
Financial Condition 11-16
Quantitative and Qualitative Disclosures About Market Risk 17
Part II - Other Information 18
Signatures 19
</TABLE>
2
<PAGE> 3
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(Unaudited)
<TABLE>
<CAPTION>
As of
--------------------------------------------
September 30, December 31,
2000 1999
----------------- ------------------
ASSETS
<S> <C> <C>
INVESTMENTS:
FIXED MATURITIES AVAILABLE FOR SALE AT MARKET
(AMORTIZED COST $378,750 AND $331,774)..................... $ 373,858 $ 321,018
EQUITY SECURITIES AT MARKET (COST $35,153
AND $41,231)............................................... 63,947 72,768
------------ -------------
TOTAL INVESTMENTS........................................ 437,805 393,786
CASH AND CASH EQUIVALENTS.................................... 20,172 26,230
ACCRUED INVESTMENT INCOME.................................... 4,870 5,027
PREMIUMS RECEIVABLE.......................................... 67,815 49,176
PREPAID REINSURANCE PREMIUMS AND REINSURANCE
RECEIVABLES................................................ 74,955 54,920
DEFERRED ACQUISITION COSTS................................... 33,161 26,054
PROPERTY AND EQUIPMENT....................................... 10,410 9,277
GOODWILL LESS ACCUMULATED AMORTIZATION OF $3,739 AND
$2,620 .................................................... 27,682 28,801
OTHER ASSETS................................................. 5,317 5,780
------------ -------------
TOTAL ASSETS ............................................ $ 682,187 $ 599,051
============ =============
LIABILITIES AND SHAREHOLDERS' EQUITY
POLICY LIABILITIES AND ACCRUALS:
UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES..................... $ 226,680 $ 188,063
UNEARNED PREMIUMS............................................ 143,785 111,606
------------ -------------
TOTAL POLICY LIABILITIES AND ACCRUALS.................... 370,465 299,669
PREMIUMS PAYABLE............................................. 22,486 22,223
OTHER LIABILITIES............................................ 17,119 14,762
DEFERRED INCOME TAXES........................................ 2,054 2,052
------------ -------------
TOTAL LIABILITIES........................................ 412,124 338,706
------------ -------------
MINORITY INTEREST IN CONSOLIDATED SUBSIDIARIES:
COMPANY OBLIGATED MANDATORILY REDEEMABLE
PREFERRED SECURITIES OF SUBSIDIARY TRUST
HOLDING SOLELY DEBENTURES OF COMPANY......................... 98,905 98,905
------------ -------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
PREFERRED STOCK, $.01 PAR VALUE,
10,000,000 SHARES AUTHORIZED,
NONE ISSUED AND OUTSTANDING................................
COMMON STOCK, NO PAR VALUE,
50,000,000 SHARES AUTHORIZED, 13,381,924 SHARES ISSUED..... 68,661 68,859
NOTES RECEIVABLE FROM SHAREHOLDERS........................... (1,641) (2,506)
ACCUMULATED OTHER COMPREHENSIVE INCOME....................... 15,536 13,507
RETAINED EARNINGS............................................ 113,361 93,766
LESS COST OF COMMON STOCK HELD IN TREASURY,
1,603,375 AND 791,016 SHARES............................... (24,759) (12,186)
------------ -------------
TOTAL SHAREHOLDERS' EQUITY............................... 171,158 161,440
------------ -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............... $ 682,187 $ 599,051
============ =============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
3
<PAGE> 4
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
---------------------------- ---------------------------
2000 1999 2000 1999
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUE:
NET WRITTEN PREMIUMS.............................. $ 73,711 $ 49,180 $ 191,523 $ 137,467
CHANGE IN NET UNEARNED PREMIUMS
(INCREASE)..................................... (14,440) (3,972) (29,334) (16,342)
----------- ---------- ---------- ----------
NET EARNED PREMIUMS............................... 59,271 45,208 162,189 121,125
NET INVESTMENT INCOME............................. 6,030 5,411 18,126 15,261
NET REALIZED INVESTMENT GAIN...................... 3,556 48 4,038 5,241
OTHER INCOME...................................... 2,268 1,999 7,525 1,999
----------- ---------- ---------- ----------
TOTAL REVENUE................................... 71,125 52,666 191,878 143,626
----------- ---------- ---------- ----------
LOSSES AND EXPENSES:
LOSS AND LOSS ADJUSTMENT EXPENSES................. 50,957 40,082 129,098 87,578
NET REINSURANCE RECOVERIES........................ (16,987) (7,430) (34,915) (13,049)
----------- ---------- ---------- ----------
NET LOSS AND LOSS ADJUSTMENT EXPENSES............. 33,970 32,652 94,183 74,529
ACQUISITION COSTS AND OTHER
UNDERWRITING EXPENSES........................ 19,532 14,958 53,568 38,822
OTHER OPERATING EXPENSES.......................... 3,721 2,728 9,962 4,024
----------- ---------- ---------- ----------
TOTAL LOSSES AND EXPENSES....................... 57,223 50,338 157,713 117,375
----------- ---------- ---------- ----------
MINORITY INTEREST:
DISTRIBUTIONS ON COMPANY OBLIGATED
MANDATORILY REDEEMABLE PREFERRED SECURITIES
OF SUBSIDIARY TRUST.................................. 1,811 1,811 5,434 5,434
----------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES........................... 12,091 517 28,731 20,817
----------- ---------- ---------- ----------
INCOME TAX EXPENSE (BENEFIT):
CURRENT........................................... 3,129 (476) 10,196 5,987
DEFERRED.......................................... 834 381 (1,060) 41
----------- ---------- ---------- ----------
TOTAL INCOME TAX EXPENSE........................ 3,963 (95) 9,136 6,028
----------- ---------- ---------- ----------
NET INCOME...................................... $ 8,128 $ 612 $ 19,595 $ 14,789
=========== ========== ========== ==========
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
HOLDING GAIN (LOSS) ARISING DURING PERIOD......... 2,090 (4,097) 4,654 (8,708)
RECLASSIFICATION ADJUSTMENT....................... (2,311) (31) (2,625) (3,407)
----------- ---------- ---------- ----------
OTHER COMPREHENSIVE INCOME (LOSS)................. (221) (4,128) 2,029 (12,115)
----------- ---------- ---------- ----------
COMPREHENSIVE INCOME (LOSS).......................... $ 7,907 $ (3,516) $ 21,624 $ 2,674
=========== =========== ========== ==========
PER SHARE DATA:
BASIC EARNINGS PER SHARE.......................... $ 0.69 $ 0.05 $ 1.62 $ 1.19
=========== ========== ========== ==========
DILUTED EARNINGS PER SHARE........................ $ 0.56 $ 0.04 $ 1.34 $ 0.97
=========== ========== ========== ==========
WEIGHTED-AVERAGE COMMON SHARES
OUTSTANDING....................................... 11,825,698 12,964,320 12,090,905 12,472,743
WEIGHTED-AVERAGE SHARE EQUIVALENTS
OUTSTANDING....................................... 2,603,161 2,688,167 2,550,705 2,794,694
----------- ----------- ---------- ----------
WEIGHTED-AVERAGE SHARES AND SHARE
EQUIVALENTS OUTSTANDING........................... 14,428,859 15,652,487 14,641,610 15,267,437
=========== =========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
4
<PAGE> 5
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months For the Year Ended
Ended September 30, December 31,
2000 1999
--------------------- ----------------
<S> <C> <C>
COMMON STOCK:
BALANCE AT BEGINNING OF PERIOD............................... $ 68,859 $ 44,796
ISSUANCE OF SHARES PURSUANT TO ACQUISITION
AGREEMENT.................................................. 25,000
ISSUANCE OF SHARES PURSUANT TO EMPLOYEE
STOCK PURCHASE PLAN........................................ (420)
EXERCISE OF EMPLOYEE STOCK OPTIONS, NET OF
TAX BENEFIT................................................ (141) (517)
ISSUANCE OF SHARES PURSUANT TO PREFERRED
AGENT STOCK PURCHASE PLAN.................................. (52)
SHARES FORFEITED PURSUANT TO EMPLOYEE
STOCK PURCHASE PLAN........................................ (5)
----------------- -----------------
BALANCE AT END OF PERIOD................................. 68,661 68,859
----------------- -----------------
NOTES RECEIVABLE FROM SHAREHOLDERS:
BALANCE AT BEGINNING OF PERIOD............................... (2,506) (1,680)
NOTES RECEIVABLE ISSUED PURSUANT TO
EMPLOYEE STOCK PURCHASE PLAN............................... (1,445)
SHARES FORFEITED PURSUANT TO EMPLOYEE
STOCK PURCHASE PLAN........................................ 385
COLLECTION OF NOTES RECEIVABLE............................... 480 619
----------------- -----------------
BALANCE AT END OF PERIOD................................. (1,641) (2,506)
----------------- -----------------
ACCUMULATED OTHER COMPREHENSIVE INCOME:
BALANCE AT BEGINNING OF PERIOD............................. 13,507 22,417
OTHER COMPREHENSIVE INCOME, NET OF TAXES................... 2,029 (8,910)
----------------- -----------------
BALANCE AT END OF PERIOD................................. 15,536 13,507
----------------- -----------------
RETAINED EARNINGS:
BALANCE AT BEGINNING OF PERIOD............................... 93,766 74,923
NET INCOME................................................... 19,595 18,843
----------------- -----------------
BALANCE AT END OF PERIOD................................. 113,361 93,766
----------------- -----------------
COMMON STOCK HELD IN TREASURY:
BALANCE AT BEGINNING OF PERIOD............................... (12,186) (2,973)
COMMON SHARES REPURCHASED.................................... (12,692) (12,081)
ISSUANCE OF SHARES PURSUANT TO EMPLOYEE
STOCK PURCHASE PLAN........................................ 1,893
ISSUANCE OF SHARES PURSUANT TO DIRECTOR
STOCK PURCHASE PLAN........................................ 25
EXERCISE OF EMPLOYEE STOCK OPTIONS, NET OF
TAX BENEFIT................................................ 265 975
ISSUANCE OF SHARES PURSUANT TO PREFERRED
AGENT STOCK PURCHASE PLAN.................................. 209
SHARES FORFEITED PURSUANT TO EMPLOYEE STOCK
PURCHASE PLAN.............................................. (380)
---------------- ----------------
BALANCE AT END OF PERIOD................................. (24,759) (12,186)
---------------- ----------------
TOTAL SHAREHOLDERS' EQUITY............................... $ 171,158 $ 161,440
================ ================
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
5
<PAGE> 6
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months Ended
September 30,
----------------------------
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME .......................................... $ 19,595 $ 14,789
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
NET REALIZED INVESTMENT GAIN ...................... (4,038) (5,241)
DEPRECIATION AND AMORTIZATION EXPENSE ............. 2,844 2,066
DEFERRED INCOME TAX EXPENSE (BENEFIT) ............. (1,060) 41
CHANGE IN PREMIUMS RECEIVABLE ....................... (18,639) 431
CHANGE IN OTHER RECEIVABLES ....................... (19,878) (23,601)
CHANGE IN DEFERRED ACQUISITION COSTS .............. (7,107) (5,109)
CHANGE IN OTHER ASSETS ............................ 557 (2,218)
CHANGE IN UNPAID LOSS AND LOSS ADJUSTMENT
EXPENSES .......................................... 38,617 31,638
CHANGE IN UNEARNED PREMIUMS ....................... 32,179 28,351
CHANGE IN OTHER LIABILITIES ....................... 2,620 4,655
TAX BENEFIT FROM EXERCISE OF EMPLOYEE STOCK OPTIONS 81 214
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES ..... 45,771 46,016
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
PROCEEDS FROM SALES OF INVESTMENTS IN FIXED
MATURITIES AVAILABLE FOR SALE ................... 94,560 69,644
PROCEEDS FROM MATURITY OF INVESTMENTS IN FIXED
MATURITIES AVAILABLE FOR SALE ................... 22,900 32,799
PROCEEDS FROM SALES OF INVESTMENTS IN EQUITY
SECURITIES ...................................... 34,242 28,162
COST OF FIXED MATURITIES SECURITIES AVAILABLE FOR
SALE ACQUIRED ................................... (166,449) (122,949)
COST OF EQUITY SECURITIES ACQUIRED .................. (22,394) (20,287)
PAYMENT FOR ACQUISITION, NET OF CASH ACQUIRED ....... (7,372)
PURCHASE OF PROPERTY AND EQUIPMENT .................. (2,701) (1,920)
--------- ---------
NET CASH USED BY INVESTING ACTIVITIES ........... (39,842) (21,923)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
EXERCISE OF EMPLOYEE STOCK OPTIONS .................. 43 159
ISSUANCE OF SHARES PURSUANT TO DIRECTOR
STOCK PURCHASE PLAN ............................. 25
ISSUANCE OF SHARES PURSUANT TO PREFERRED
AGENT STOCK PURCHASE PLAN ....................... 157
COLLECTION OF NOTES RECEIVABLE ...................... 480 488
PROCEEDS FROM SHARES PURSUANT TO
EMPLOYEE STOCK PURCHASE PLAN ...................... 24
COST OF COMMON STOCK REPURCHASED .................... (12,692) (10,758)
--------- ---------
NET CASH USED BY FINANCING ACTIVITIES ......... (11,987) (10,087)
--------- ---------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS .................................... (6,058) 14,006
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ....... 26,230 31,573
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ............. $ 20,172 $ 45,579
========= =========
CASH PAID DURING THE PERIOD FOR:
INCOME TAXES ........................................ $ 7,760 $ 7,232
NON-CASH FINANCING TRANSACTIONS:
ISSUANCE OF SHARES (FORFEITURES) PURSUANT TO
EMPLOYEE STOCK PURCHASE PLAN IN EXCHANGE FOR
NOTES RECEIVABLE .................................. $ (380) $ 488
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
6
<PAGE> 7
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The consolidated financial statements as of and for the three and nine months
ended September 30, 2000 and 1999 are unaudited, but in the opinion of
management, have been prepared on the same basis as the annual audited
consolidated financial statements and reflect all adjustments, consisting of
normal recurring accruals, necessary for a fair presentation of the
information set forth therein. The results of operations for the three and
nine months ended September 30, 2000 are not necessarily indicative of the
operating results to be expected for the full year or any other period.
Certain prior year amounts have been reclassified for comparative purposes.
These financial statements should be read in conjunction with the financial
statements and notes as of and for the year ended December 31, 1999 included
in the Company's Annual Report on Form 10-K.
2. Acquisitions
On July 16, 1999, Philadelphia Consolidated Holding Corp. (the "Company")
closed on its acquisition of Liberty American Insurance Group, Inc.
("Liberty") for a purchase price of $45.0 million, and a contingent
additional amount of up to $5.0 million based upon the combined calendar year
1999 and 2000 earnings for the acquired business. Of the purchase price,
$20.0 million was paid in cash and the balance in 1,037,772 shares of common
stock of the Company. Any contingent additional amount will be paid in cash.
The acquisition is being accounted for using the purchase method of
accounting.
3. Goodwill
Goodwill resulting from the acquisition of Liberty amounted to $29.2 million.
This amount represents the excess of acquisition costs over the fair value of
net assets acquired. Goodwill is being amortized on a straight-line basis
over 20 years.
4. Earnings Per Share
Earnings per common share has been calculated by dividing net income for the
period by the weighted average number of common shares and common share
equivalents outstanding during the period. Following is the computation of
earnings per share for the three and nine months ended September 30, 2000 and
1999, respectively:
<TABLE>
<CAPTION>
As of and For the Three As of and For the Nine
Months Ended Months Ended
September 30, September 30
--------------------- ---------------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Weighted-Average Common Shares Outstanding 11,826 12,964 12,091 12,473
Weighted-Average Share Equivalents
Outstanding 2,603 2,688 2,551 2,795
------- ------- ------- -------
Weighted-Average Shares and Share
Equivalents Outstanding 14,429 15,652 14,642 15,268
======= ======= ======= =======
Net Income $ 8,128 $ 612 $19,595 $14,789
======= ======= ======= =======
Basic Earnings per Share $ 0.69 $ 0.05 $ 1.62 $ 1.19
======= ======= ======= =======
Diluted Earnings per Share $ 0.56 $ 0.04 $ 1.34 $ 0.97
======= ======= ======= =======
</TABLE>
7
<PAGE> 8
5. Income Taxes
The effective tax rate differs from the 35% marginal tax rate principally as
a result of interest exempt from tax, the dividend received deduction and
other differences in the recognition of revenues and expenses for tax and
financial reporting purposes.
6. Comprehensive Income
Components of comprehensive income, as detailed in the Consolidated
Statements of Operations and Comprehensive Income, are net of tax. The
related tax effect of Holding Gains (Losses) arising during the nine and
three months ended September 30, 2000 and 1999 was $2.5 million and ($4.7)
million respectively, and $1.1 million and ($2.2) million respectively. The
related tax effect of Reclassification Adjustments for the nine and three
months ended September 30, 2000 and 1999 was ($1.4) million and ($1.8)
million respectively, and ($1.2) million and $0 million respectively.
7. Segment Information
The Company has divided its operations into three reportable segments: The
Commercial Lines Underwriting Group which has underwriting responsibility for
the Commercial Automobile, Commercial Property and Commercial multi-peril
package insurance products; The Specialty Lines Underwriting Group which has
underwriting responsibility for the professional liability insurance
products; and The Personal Lines Group which designs, markets and underwrites
personal property and casualty insurance products for the Manufactured
Housing and Homeowners markets. Effective June 30, 2000, due to a change in
market focus, the previously reported Specialty Property Underwriting Group
segment was restructured resulting in the combination of this Underwriting
Group with the Commercial Lines Underwriting Group. Accordingly, prior
information has been reclassified to reflect this change. The reportable
segments operate solely within the United States. The segments follow the
same accounting policies used for the Company's consolidated financial
statements. Management evaluates a segment's performance based upon
underwriting results.
8
<PAGE> 9
Following is a tabulation of business segment information for the nine and
three months ended September 30, 2000 and 1999. Corporate information is
included to reconcile segment data to the consolidated financial statements
(in thousands):
<TABLE>
<CAPTION>
Nine Months Ended,
------------------------------------------------------------------
Commercial Specialty Personal
Lines Lines Lines Corporate Total
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
September 30, 2000:
Gross Written Premiums $ 178,308 $ 51,691 $ 41,111 $ 271,110
------------------------------------------------------------------
Net Written Premiums $ 118,184 $ 51,945 $ 21,394 $ 191,523
------------------------------------------------------------------
Revenue:
Net Earned Premiums $ 101,501 $ 40,603 $ 20,085 $ 162,189
Net Investment Income 18,126 18,126
Net Realized Investment Gain 4,038 4,038
Other Income 14,953 (7,428) 7,525
------------------------------------------------------------------
Total Revenue 101,501 40,603 35,038 14,736 191,878
------------------------------------------------------------------
Losses and Expenses:
Net Loss and Loss Adjustment Expenses 59,242 25,438 9,503 94,183
Acquisition Costs and Other Underwriting
Expenses 6,960 46,608 53,568
Other Operating Expenses 11,863 (1,901) 9,962
------------------------------------------------------------------
Total Losses and Expenses 59,242 25,438 28,326 44,707 157,713
------------------------------------------------------------------
Minority Interest:
Distributions on Company
Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trust 5,434 5,434
------------------------------------------------------------------
Income Before Income Taxes 42,259 15,165 6,712 (35,405) 28,731
Total Income Tax Expense 9,136 9,136
------------------------------------------------------------------
Net Income $ 42,259 $ 15,165 $ 6,712 $ (44,541) $ 19,595
==================================================================
Total Assets $ 145,153 $ 537,034 $ 682,187
==================================================================
September 30, 1999:
Gross Written Premiums $ 153,923 $ 35,523 $ 14,940 $ 204,386
------------------------------------------------------------------
Net Written Premiums $ 97,269 $ 30,009 $ 10,189 $ 137,467
------------------------------------------------------------------
Revenue:
Net Earned Premiums $ 90,162 $ 23,480 $ 7,483 $ 121,125
Net Investment Income 15,261 15,261
Net Realized Investment Gain 5,241 5,241
Other Income 3,513 (1,514) 1,999
------------------------------------------------------------------
Total Revenue 90,162 23,480 10,996 18,988 143,626
------------------------------------------------------------------
Losses and Expenses:
Net Loss and Loss Adjustment Expenses 56,550 13,245 4,734 74,529
Acquisition Costs and Other Underwriting
Expenses 2,323 36,499 38,822
Other Operating Expenses 3,266 758 4,024
------------------------------------------------------------------
Total Losses and Expenses 56,550 13,245 10,323 37,257 117,375
------------------------------------------------------------------
Minority Interest:
Distributions on Company
Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trust 5,434 5,434
------------------------------------------------------------------
Income Before Income Taxes 33,612 10,235 673 (23,703) 20,817
Total Income Tax Expense 6,028 6,028
------------------------------------------------------------------
Net Income $ 33,612 $ 10,235 $ 673 $ (29,731) $ 14,789
==================================================================
Total Assets $ 78,320 $ 494,458 $ 572,778
==================================================================
</TABLE>
9
<PAGE> 10
<TABLE>
<CAPTION>
Three Months Ended,
------------------------------------------------------------------
Commercial Specialty Personal
Lines Lines Lines Corporate Total
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
September 30, 2000:
Gross Written Premiums $ 74,446 $ 18,094 $ 11,582 $ 104,122
------------------------------------------------------------------
Net Written Premiums $ 51,536 $ 17,277 $ 4,898 $ 73,711
------------------------------------------------------------------
Revenue:
Net Earned Premiums $ 37,028 $ 15,255 $ 6,988 $ 59,271
Net Investment Income 6,030 6,030
Net Realized Investment Gain 3,556 3,556
Other Income 4,151 (1,883) 2,268
------------------------------------------------------------------
Total Revenue 37,028 15,255 11,139 7,703 71,125
------------------------------------------------------------------
Losses and Expenses:
Net Loss and Loss Adjustment Expenses 21,666 9,546 2,758 33,970
Acquisition Costs and Other Underwriting
Expenses 2,530 17,002 19,532
Other Operating Expenses 3,875 (154) 3,721
------------------------------------------------------------------
Total Losses and Expenses 21,666 9,546 9,163 16,848 57,223
------------------------------------------------------------------
Minority Interest:
Distributions on Company
Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trust 1,811 1,811
------------------------------------------------------------------
Income Before Income Taxes 15,362 5,709 1,976 (10,956) 12,091
Total Income Tax Expense 3,963 3,963
------------------------------------------------------------------
Net Income $ 15,362 $ 5,709 $ 1,976 $ (14,919) $ 8,128
==================================================================
Total Assets $ 145,153 $ 537,034 $ 682,187
==================================================================
September 30, 1999:
Gross Written Premiums $ 60,895 $ 12,961 $ 9,447 $ 83,303
------------------------------------------------------------------
Net Written Premiums $ 32,854 $ 11,075 $ 5,251 $ 49,180
------------------------------------------------------------------
Revenue:
Net Earned Premiums $ 31,354 $ 8,707 $ 5,147 $ 45,208
Net Investment Income 5,411 5,411
Net Realized Investment Gain 48 48
Other Income 3,513 (1,514) 1,999
------------------------------------------------------------------
Total Revenue 31,354 8,707 8,660 3,945 52,666
------------------------------------------------------------------
Losses and Expenses:
Net Loss and Loss Adjustment Expenses 24,215 4,905 3,532 32,652
Acquisition Costs and Other Underwriting
Expenses 2,323 12,635 14,958
Other Operating Expenses 3,266 (538) 2,728
------------------------------------------------------------------
Total Losses and Expenses 24,215 4,905 9,121 12,097 50,338
------------------------------------------------------------------
Minority Interest:
Distributions on Company
Obligated Mandatorily Redeemable Preferred
Securities of Subsidiary Trust 1,811 1,811
------------------------------------------------------------------
Income Before Income Taxes 7,139 3,802 (461) (9,963) 517
Total Income Tax Benefit (95) (95)
------------------------------------------------------------------
Net Income $ 7,139 $ 3,802 $ (461) $ (9,868) $ 612
==================================================================
Total Assets $ 78,320 $ 494,458 $ 572,778
==================================================================
</TABLE>
10
<PAGE> 11
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
Although the Company's financial performance is dependent upon its own specific
business characteristics, certain risk factors can affect the profitability of
the Company. These include:
o Industry factors - Historically the financial performance of the property
and casualty insurance industry has tended to fluctuate in cyclical
patterns of soft markets followed by hard markets. The Company's strategy
is and has been to focus on underwriting profits and accordingly the
Company's marketing organization is being directed into those niche
businesses that exhibit the greatest potential for underwriting profits.
o Competition - The Company competes in the property and casualty business
with other domestic and international insurers having greater financial and
other resources than the Company.
o Regulation - The Company's insurance subsidiaries are subject to a
substantial degree of regulatory oversight, which generally is designed to
protect the interests of policyholders, as opposed to shareholders.
o Inflation - Property and casualty insurance premiums are established before
the amount of losses and loss adjustment expenses, or the extent to which
inflation may effect such amounts is known.
o Investment Risk - Substantial future increases in interest rates could
result in a decline in the market value of the Company's investment
portfolio and resulting losses and/or reduction in shareholders' equity.
o Catastrophe Exposure - The Company's insurance subsidiaries issue insurance
policies which provide coverage for commercial and personal property and
casualty risks. It is possible that a catastrophic event could greatly
increase claims under these insurance policies.
RESULTS OF OPERATIONS (NINE MONTHS ENDED SEPTEMBER 30, 2000 VS SEPTEMBER 30,
1999)
Premiums: Gross written premiums grew $66.7 million (32.6%) to $271.1
million for the nine months ended September 30, 2000 from $204.4 million for the
same period of 1999; gross earned premiums grew $62.3 million (35.2%) to $239.1
million for the nine months ended September 30, 2000 from $176.8 million for the
same period of 1999; net written premiums increased $54.0 million (39.3%) to
$191.5 million for the nine months ended September 30, 2000 from $137.5 million
for the same period of 1999; and net earned premiums grew $41.1 million (33.9%)
to $162.2 million in 2000 from $121.1 million in 1999.
The respective gross written premium increases for commercial lines, specialty
lines and personal lines segments for the nine months ended September 30, 2000
vs. September 30, 1999 amount to $24.4 million (15.9%), $16.2 million (45.6%)
and $26.2 million (175.8%) respectively. The overall growth in gross written
premiums is primarily attributable to the following:
o The acquisition of Liberty, resulting in an increase of $26.2 million in
gross manufactured housing, preferred homeowners and National Flood
Insurance Program written premiums.
o Recent rating downgrades of certain major competitor property and casualty
insurance companies has led to their diminished presence in the Company's
commercial and specialty lines business segments and continues to result in
additional prospects and increased premium writings most notably for the
Company's various commercial package and non-profit D&O product lines.
o The consolidation of certain competitor property and casualty insurance
companies has led to the displacement of certain of its independent agency
relationships which continues to result in new agency relationships for the
Company which have been bringing additional prospects and premium writings
for the Company's commercial and specialty lines segments.
o Continued expansion of marketing efforts relating to commercial lines and
specialty lines products through the Company's field organization and
preferred agents.
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PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
o Modest rate increases on select casualty renewal business.
o Overall premium growth in the commercial lines segment has been offset in
part by the Company's decision not to renew certain policies in the
commercial automobile and specialty property product lines due to
inadequate pricing levels being experienced as a result of market
conditions and/or loss experience emerging at higher than expected levels.
The respective net written premium increases for commercial lines, specialty
lines and personal lines segments for the nine months ended September 30, 2000
vs. September 30, 1999 amount to $20.9 million (21.5%), $21.9 million (73.0%)
and $11.2 million (109.8%) respectively. The higher percentage increase in net
written premiums versus gross written premiums for the period is primarily due
to the following changes in the Company's reinsurance program:
o Effective January 2000 the Company increased its liability retention on
each occurrence from $250,000 to $1.0 million for all specialty lines
segment business thus reducing its reinsurance cost (ceded written
premiums) and increasing its retained premiums (net written premiums).
o The above noted reinsurance savings was offset in part due to a three-year
aggregate stop loss reinsurance agreement which was entered into effective
January 2000 which provides reinsurance coverage for all the Company's
business segments.
Net Investment Income: Net investment income approximated $18.1 million
for the nine months ended September 30, 2000 and $15.3 million for the same
period of 1999. Total investments grew to $437.8 million at September 30, 2000
from $368.7 million at September 30, 1999. The growth in investment income is
due primarily to investing net cash flows provided from operating activities,
the net investable assets acquired in the Company's acquisition of Liberty and
the increase in the Company's tax equivalent book yield on its fixed income
holdings to 7.54% at September 30, 2000 versus 7.10% at September 30, 1999. The
Company's average duration on its fixed income portfolio approximated 4.0 years
at September 30, 2000 and 4.2 years at September 30, 1999.
Net Realized Investment Gain: Net realized investment gains were $4.0
million for the nine months ended September 30, 2000 and $5.2 million for the
same period in 1999. The Company realized net investment gains of $7.0 million
from the sales of common stock, which are classified as equity securities on the
Company's Balance Sheet, which were offset in part by $3.0 million of realized
net investment losses from sales of certain fixed income securities during the
nine months ended September 2000. The proceeds from these common stock sales are
being reinvested in fixed maturity securities to increase current investment
income, lessen the Company's holdings in certain common stock positions, and
decrease the overall percentage of investments in common stock securities. The
proceeds realized from the fixed income sales are being reinvested in fixed
maturity securities with higher relative book yields than the fixed income
securities sold. The net realized investment gains of $5.2 million for the nine
months ended September 30, 1999 were due to the sales of certain fixed maturity
and equity investments. A portion of the proceeds from these sales were utilized
for the cash purchase price and repayment of certain obligations of the Liberty
acquisition. The remaining proceeds were repositioned within the fixed maturity
portfolio.
Other Income: Other income approximated $7.5 million for the nine
months ended September 30, 2000 and $2.0 for the same period of 1999. Other
income primarily consists of commissions earned by Liberty on brokered personal
lines business, and for the nine month period ended September 30, 1999 only
included such income from the July 1999 acquisition date to September 30, 1999.
Net Loss and Loss Adjustment Expenses: Net loss and loss adjustment
expenses increased $19.7 million (26.4%) to $94.2 million for the nine months
ended September 30, 2000 from $74.5 million for the same period of 1999 and the
loss ratio decreased to 58.1% in 2000 from 61.5% in 1999. The nine months ended
September 30, 1999 included a $5.0 million increase to unpaid loss and loss
adjustment expenses for Nursing Home and Assisted Living commercial multi-peril
package policies which had been issued in prior periods and $3.4 million for
unpaid loss and loss adjustment expenses related to property catastrophe losses.
Excluding these items, net loss and loss adjustment expenses increased by $28.1
million (42.5%) and the loss ratio for the nine month period ending September
30, 1999 was 54.6%. This increase in net loss and loss adjustment expenses was
due principally to the 33.9% growth in net earned premiums and in part to the
relative increase in the loss ratios for the specialty lines
12
<PAGE> 13
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
segment products (professional liability coverages) as a result of the Company's
increased loss retention due to reinsurance changes (see Results of Operations
"Premiums").
Acquisition Costs and Other Underwriting Expenses: Acquisition costs
and other underwriting expenses increased $14.8 million (38.1%) to $53.6 million
for the nine months ended September 30, 2000 from $38.8 million for the same
period of 1999. This increase was due primarily to the 33.9% growth in net
earned premiums and in part to the higher acquisition costs as a result of the
relative changes in the Company's products, most notably the relative increase
in the specialty lines segment business (professional liability products) which
utilizes a distribution channel with a higher commission structure (see Results
of Operations "Premiums").
Other Operating Expenses: Other operating expenses increased $6.0
million to $10.0 million for the nine months ended September 30, 2000 from $4.0
million for the same period of 1999. The increase in other operating expenses
was primarily due to the inclusion of the operating expenses of Liberty's
brokered personal lines business ($4.6 million), and goodwill amortization ($.7
million) arising from the acquisition of Liberty. Such expenses have been
incurred for the entire nine months ended September 30, 2000, while the 1999
expenses include the period from the July 1999 acquisition date to September 30,
1999.
Income Tax Expense: The Company's effective tax rate for the nine
months ended September 30, 2000 and 1999 was 31.8% and 29.0%, respectively. The
effective rates differed from the 35% statutory rate principally due to
investments in tax-exempt securities offset in part by non-deductible goodwill
amortization. The increase in the effective tax rate is principally due to a
greater investment of cash flows in taxable securities relative to tax-exempt
securities.
RESULTS OF OPERATIONS (THREE MONTHS ENDED SEPTEMBER 30, 2000 VS SEPTEMBER 30,
1999)
Premiums: Gross written premiums grew $20.8 million (25.0%) to $104.1
million for the three months ended September 30, 2000 from $83.3 million for the
same period of 1999; gross earned premiums grew $15.4 million (21.4%) to $87.4
million for the three months ended September 30, 2000 from $72.0 million for the
same period of 1999; net written premiums increased $24.5 million (49.8%) to
$73.7 million for the three months ended September 30, 2000 from $49.2 million
for the same period of 1999; and net earned premiums grew $14.1 million (31.2%)
to $59.3 million in 2000 from $45.2 million in 1999.
The respective gross written premium increases for the commercial lines,
specialty lines and personal lines segments for the three months ended September
30, 2000 vs. September 30, 1999 amount to $13.6 million (22.3%), $5.1 million
(39.2%) and $2.1 million (22.3%) respectively. The overall growth in gross
written premiums is primarily attributable to the following:
o The acquisition of Liberty, resulting in an increase of $2.1 million in
gross manufactured housing, preferred homeowners and National Flood
Insurance Program written premiums.
o Recent rating downgrades of certain major competitor property and casualty
insurance companies has led to their diminished presence in the Company's
commercial and specialty lines business segments and continues to result in
additional prospects and increased premium writings most notably for the
Company's various commercial package and non-profit D&O product lines.
o The consolidation of certain competitor property and casualty insurance
companies has led to the displacement of certain of its independent agency
relationships which continues to result in new agency relationships for the
Company which have been bringing additional prospects and premium writings
for the Company's commercial and specialty lines segments.
o Continued expansion of marketing efforts relating to commercial lines and
specialty lines products through the Company's field organization and
preferred agents.
o Modest rate increases on select casualty renewal business.
13
<PAGE> 14
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
o Overall premium growth in the commercial lines segment has been offset in
part by the Company's decision not to renew certain policies in the
commercial automobile and specialty property product lines due to
inadequate pricing levels being experienced as a result of market
conditions and/or loss experience emerging at higher than expected levels.
The respective net written premium increases for commercial lines, specialty
lines and personal lines segments for the three months ended September 30, 2000
vs. September 30, 1999 amount to $18.7 million (56.8%), $6.2 million (55.9%) and
($0.4) million (-7.5%) respectively. The differing percentage changes in net
written premiums versus gross written premiums for the period for each segment
is primarily due to the following:
o Commercial Lines Segment - Certain reinsurance changes were made with
respect to specific products to increase or reduce the Company's liability
retention or participation on quota share arrangements as follows: the
Company reduced its liability retention on its specialty property business
during the third quarter 1999 from $0.5 million to $0.1 million on in-force
business as well as future business; effective January 1, 2000 the Company
increased its liability retention on its commercial automobile supplemental
liability product from $0.5 million to $0.9 million and increased its
participation on its workers' compensation business quota share arrangement
from 25% to 50%. The net effect of these reinsurance changes for the
commercial lines segment business resulted in a higher percentage increase
in net written premiums then gross written premiums.
o Specialty Lines Segment - Effective January 2000 the Company increased its
liability retention on each occurrence from $250,000 to $1.0 million for
all specialty lines segment business thus reducing its reinsurance cost
(ceded written premiums) and increasing its retained premiums (net written
premiums).
o Personal Lines Segment - The Company assumed a $1.5 million manufactured
home book of business from an unrelated insurer on July 1, 1999. This book
of business consisted of policies with renewal dates from July 1, 1999
through June 30, 2000. Excluding this one-time assumption on July 1, 1999,
net written premiums increased $1.1 million or 28.9%.
Net Investment Income: Net investment income approximated $6.0 million
for the three months ended September 30, 2000 and $5.4 million for the same
period of 1999. Total investments grew to $437.8 million at September 30, 2000
from $368.7 million at September 30, 1999. The growth in investment income is
primarily due to investing net cash flows provided from operating activities.
Net Realized Investment Gain: Net realized investment gains were $3.6
million for the three months ended September 30, 2000 and $0 million for the
same period in 1999. The Company realized net investment gains of $5.5 million
from sales of common stock which were offset in part by $1.9 million of realized
net investment losses from sales of certain fixed income securities during the
three months ended September 30, 2000. The proceeds from these common stock
sales are being reinvested in fixed maturity securities to increase current
investment income, lessen the Company's holdings in certain common stock
positions, and decrease the overall percentage of investments in common stock
securities. The proceeds realized from the fixed income sales are being
reinvested in fixed maturity securities with higher relative book yields than
the fixed income securities sold.
Other Income: Other income approximated $2.3 million for the three
months ended September 30, 2000 and $2.0 million for the same period of 1999.
This increase is primarily attributed to increased commissions earned on
personal lines brokered business.
Net Loss and Loss Adjustment Expenses: Net loss and loss adjustment
expenses increased $1.3 million (4.0%) to $34.0 million for the three months
ended September 30, 2000 from $32.7 million for the same period of 1999 and the
loss ratio decreased to 57.3% in 2000 from 72.2% in 1999. The three months ended
September 30, 1999 included a $5.0 million increase to unpaid loss and loss
adjustment expenses for Nursing Home and Assisted Living commercial multi-peril
package policies which had been issued in prior periods and $3.4 million for
unpaid loss and loss adjustment expenses related to property catastrophe losses.
Excluding these items, net loss and loss adjustment expenses increased by $9.7
million (39.9%) and the loss ratio for the three month period ending September
30, 1999 was 53.8%. This increase in net loss and loss adjustment expenses was
due principally to the 31.2% growth in net earned premiums and in part to the
relative increase in the loss ratios for the specialty lines
14
<PAGE> 15
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
segment products (professional liability coverages) as a result of the Company's
increased loss retention due to reinsurance changes (see Results of Operations
"Premiums").
Acquisition Costs and Other Underwriting Expenses: Acquisition costs
and other underwriting expenses increased $4.5 million (30.0%) to $19.5 million
for the three months ended September 30, 2000 from $15.0 million for the same
period of 1999. This increase was due primarily to the 31.2% growth in net
earned premiums.
Other Operating Expenses: Other operating expenses increased $1.0
million to $3.7 million for the three months ended September 30, 2000 from $2.7
million for the same period of 1999. The increase in other operating expenses
was primarily due to increases in the operating expenses of the Company's
brokered personal lines business ($.6 million).
Income Tax Expense: The Company's effective tax rate for the three
months ended September 30, 2000 was 32.8% versus an 18.4% tax benefit for the
three months ended September 30, 1999. The effective rates differed from the 35%
statutory rate principally due to investments in tax-exempt securities and for
the 1999 period the tax benefit as a result of the $8.4 million increase in
unpaid loss and loss adjustment expenses (see Results of Operations "Net Loss
and Loss Adjustment Expenses"), offset in part by non-deductible goodwill
amortization.
LIQUIDITY AND CAPITAL RESOURCES
For the nine months ended September 30, 2000 the Company's investments
experienced unrealized investment appreciation of $2.0 million, net of the
related deferred tax expense of $1.1 million. At September 30, 2000, the Company
had total investments with a carrying value of $437.8 million, of which 85.4%
consisted of investments in investment grade fixed maturity securities,
including U.S. treasury securities and obligations of U.S. government
corporations and agencies, obligations of states and political subdivisions,
corporate debt securities, collateralized mortgage securities and asset backed
securities. The collateralized mortgage securities and asset backed securities
consist of short tranche securities possessing favorable pre-payment risk
profiles. The remaining 14.6% of the Company's total investments consisted
primarily of publicly traded common stock securities.
The Company's Board of Directors has authorized the Company, pursuant
to the exercise of previously granted stock options to its Chief Executive
Officer ("CEO"), to withhold a portion of the shares otherwise issuable in
satisfaction of the minimum required withholding tax liability attributable to
the exercise of such options. The Board also authorized the Company to enter
into an unsecured revolving credit facility for aggregate borrowings of up to
$20.0 million at any one time outstanding, with a maturity date of 364 days
after closing. It is anticipated that substantially all of the proceeds of such
credit facility will be used by the Company to pay such withholding tax
liability in the event that the CEO elects to have shares otherwise issuable
withheld in satisfaction of the minimum required withholding tax attributable
to the exercise of the options.
Upon the exercise of the stock options, as described above by Mr.
Maguire, the Company will realize a substantial tax deduction which will
potentially result in a recoupment of federal income taxes paid in prior years,
a refund of current year federal income taxes and/or a reduction in future
federal income taxes.
At its July 20, 2000 meeting, the Company's Board of Directors
authorized the repurchase of an additional $10.0 million of the Company's common
stock. This authorization is in addition to the previously announced $30.0
million common stock buyback authorization. The purchases are made from time to
time in the open market or through privately negotiated transactions. The
Company purchased 823,100 shares of its common stock during the nine months
ended September 30, 2000 for $12.7 million under its stock buyback
authorization.
The Company produced net cash from operations of $45.8 million and
$46.0 million, respectively, for the nine months ended September 30, 2000 and
1999. Management believes that the Company has adequate ability to pay all
claims and meet all other cash needs.
Risk-based capital is designed to measure the acceptable amount of
capital an insurer should have based on the inherent specific risks of each
insurer. Insurers failing to meet this benchmark capital level may be subject to
15
<PAGE> 16
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
scrutiny by the insurer's domiciliary insurance department and ultimately
rehabilitation or liquidation. Based on the standards currently adopted, the
Company's insurance subsidiaries' capital and surplus is in excess of the
prescribed risk-based capital requirements.
YEAR 2000 ISSUES
Many existing computer programs use only two digits, instead of four,
to identify a year in the date field. These programs were designed and developed
without considering the impact of the change in the century. If not corrected,
many computer applications could fail or create incorrect results on or after
the Year 2000. The "Year 2000" issue affects computer and information technology
systems, as well as non-information technology systems which include embedded
technology such as micro-processors and micro-controllers (or micro-chips) that
have date sensitive programs that may not properly recognize the year 2000 or
beyond.
The Company issues professional liability coverage, including directors
and officers liability, and commercial multi-peril insurance policies. Coverage
under certain of these policies may cover losses suffered by insureds as a
result of the Year 2000 issues. Professional liability policies are written on a
"claim made and reported" basis. Since early 1997 approximately 50% of these
policies have included a Year 2000 exclusion endorsement. The Company includes a
Year 2000 exclusion endorsement on virtually all new or renewing professional
liability policies providing coverage effective January 1, 1999 and thereafter.
On occasion, for qualifying accounts, the Company's underwriters may remove the
exclusion after receipt and review of a satisfactory supplemental application
(which includes a warranty statement) and other underwriting information. With
respect to commercial multi-peril policies, the Company believes that it should
not be held liable for claims arising from the Year 2000 issue under
comprehensive general liability policies. However, the Company cannot determine
whether or to what extent courts may find liability for such claims.
Additionally, expenses could be incurred to contest Year 2000 issue coverage
claims, even if the Company prevails in its position. As a result, it cannot
presently be determined what, if any, insurance exposure ultimately exists for
Year 2000 issue claims. Therefore, there can be no assurance that any future
year 2000 issue claims will not materially adversely affect the Company. However
no Year 2000 issue claims have been reported to the Company as of November 6,
2000.
FORWARD-LOOKING INFORMATION
Certain information included in this report and other statements or
materials published or to be published by the Company are not historical facts
but are forward-looking statements relating to such matters as anticipated
financial performance, business prospects, technological developments, new and
existing products, expectations for market segment and growth, the impact of
Year 2000 issues, and similar matters. In connection with the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995, the Company
provides the following cautionary remarks regarding important factors which,
among others, could cause the Company's actual results and experience to differ
materially from the anticipated results or other expectations expressed in the
Company's forward-looking statements. The risks and uncertainties that may
affect the operations, performance, development, results of the Company's
business, and the other matters referred to above include, but are not limited
to: (i) changes in the business environment in which the Company operates,
including inflation and interest rates; (ii) changes in taxes, governmental
laws, and regulations; (iii) competitive product and pricing activity; (iv)
difficulties of managing growth profitably; (v) catastrophe losses; and (vi) the
impact of Year 2000 issues, including the matters referred to above.
16
<PAGE> 17
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There is no material change to the Quantitative and Qualitative market
risk disclosure from the Company's Form 10-K for the fiscal year ended December
31, 1999.
17
<PAGE> 18
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable.
Item 2. Changes in Securities and Use of Proceeds
Not applicable.
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5. Other information
Not applicable.
Item 6. Exhibits and Reports on Form 8-K
a. Not Applicable.
b. The Company has not filed any reports on Form 8-K during the quarter
for which this report is filed.
18
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SIGNATURES
Pursuant to the requirements 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.
PHILADELPHIA CONSOLIDATED HOLDING CORP.
Registrant
Date November 8, 2000 /s/ James J. Maguire
------------------------ -------------------------------------------
James J. Maguire
Chairman of the Board of Directors,
and Chief Executive Officer
(Principal Executive Officer)
Date November 8, 2000 /s/ Craig P. Keller
------------------------ -------------------------------------------
Craig P. Keller
Senior Vice President, Secretary,
Treasurer and Chief Financial Officer
(Principal Financial and Accounting Officer)
19
