(Mark One)
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x
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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For the fiscal year ended December 31, 2010
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or
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the transition period from __________ to __________
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New Jersey
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22-2168890
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(State or Other Jurisdiction of Incorporation or Organization)
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(I.R.S. Employer Identification No.)
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40 Wantage Avenue, Branchville, New Jersey
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07890
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(Address of Principal Executive Offices)
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(Zip Code)
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Registrant’s telephone number, including area code:
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(973) 948-3000
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Large accelerated filer
x
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Accelerated filer
¨
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Non-accelerated filer
¨
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Smaller reporting company
¨
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Page No.
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3
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150
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·
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Insurance Operations, which sells property and casualty insurance policies and products; and
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·
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Investments, which invests the premiums collected by the Insurance Operations.
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·
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Underwriting income from Insurance Operations
. Underwriting income is comprised of revenues, which are the premiums earned on our insurance products and services, less expenses. The gross premiums we bill our insureds are direct premium written (“DPW”) plus premiums assumed from other insurers. Gross premiums billed less premium ceded to reinsurers, is net premium written (“NPW”). NPW is recognized as revenue ratably over the policy’s term as net premiums earned (“NPE”). Insurance Operations expenses fall into three main categories: (i) losses associated with claims and various loss expenses incurred for adjusting claims
(referred to as “loss and loss expenses”); (ii) expenses related to insurance policy issuance, such as agent commissions, premium taxes, reinsurance, and other expenses incurred in issuing and maintaining policies, including employee compensation and benefits (referred to as “underwriting expenses”); and (iii) policyholder dividends.
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·
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Net investment income from Investments
. We generate income from investing insurance premiums from the time they are collected until the time we need to make certain expenditures such as paying loss and loss expenses, underwriting expenses, equity and debt offering obligations, and policyholder dividends. Net investment income consists primarily of interest earned on fixed maturity investments, dividends earned on equity securities, and other income primarily generated from our alternative investment portfolio.
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Net realized gains and losses on investment securities from the Investments segment
. Realized gains and losses from the investment portfolios of our seven insurance subsidiaries (“Insurance Subsidiaries”) and the Parent are typically the result of sales, maturities, calls, and redemptions. They also include write downs from other-than-temporary impairments (“OTTI”).
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·
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Property insurance, which generally covers the financial consequences of accidental loss of an insured’s real and/or personal property. Property claims are generally reported and settled in a relatively short period of time; and
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·
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Casualty insurance, which generally covers the financial consequences of employee injuries in the course of employment and bodily injury and/or property damage to a third party as a result of an insured’s negligent acts, omissions, or legal liabilities. Some casualty claims may take several years to be reported and settled.
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Type of Policy
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Category of Insurance
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Commercial Property
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Property
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Commercial Automobile
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Property/Casualty
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General Liability (including Excess Liability/Umbrella)
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Casualty
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Workers Compensation
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Casualty
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Business Owners Policy
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Property/Casualty
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Bonds (Fidelity and Surety)
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Casualty
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Type of Policy
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Category of Insurance
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Homeowners
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Property/Casualty
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Personal Automobile
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Property/Casualty
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Percent of
Total
Commercial
Lines
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Average
Premium
per Policy
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Description
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Small Business
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20% | $2,717 |
Policies under $25,000, with certain restrictions for hazard grade and exposure, that can be written through our internet-based One & Done
®
and Two & Done automated underwriting templates.
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Middle Market Business
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70% | 8,806 |
Policies that cannot be written through our automated systems and are the focus of our field-based underwriters, known as agency management specialists (“AMSs”).
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Large Account Business
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10% | 121,546 |
Policies that are larger in size or include alternative risk transfer. This business is written by large account specialists. Approximately 21% of these accounts include alternative risk transfer mechanisms.
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Year Ended December 31,
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% of NPW
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2010
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2009
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2008
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New Jersey
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26.2 | % | 26.9 | 28.6 | ||||||||
Pennsylvania
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13.8 | 14.0 | 14.5 | |||||||||
New York
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9.0 | 10.1 | 10.2 | |||||||||
Maryland
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6.9 | 7.1 | 7.4 | |||||||||
Illinois
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5.5 | 5.6 | 4.8 | |||||||||
Virginia
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5.3 | 5.4 | 5.7 | |||||||||
Indiana
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4.8 | 4.1 | 3.7 | |||||||||
North Carolina
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3.3 | 3.5 | 4.0 | |||||||||
Georgia
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3.1 | 3.5 | 3.7 | |||||||||
Michigan
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3.0 | 2.7 | 2.3 | |||||||||
South Carolina
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2.6 | 2.6 | 2.7 | |||||||||
Ohio
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2.5 | 2.3 | 2.0 | |||||||||
Other states
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14.0 | 12.2 | 10.4 | |||||||||
Total
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100.0 | % | 100.0 | 100.0 |
·
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Use a business model that provides them resources within close geographic proximity, including: (i) field underwriters; (ii) safety management specialists; and (iii) field claims personnel. These resources make timely underwriting and claim decisions based on established authority parameters;
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Develop close relationships with each agency and its principals: (i) by soliciting their feedback on products and services; (ii) by advising them concerning company developments; and (iii) through significant interaction with them; and
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Develop with each agency, and then carefully monitor, annual goals regarding: (i) types and mix of risks placed with us; (ii) amounts of premium or numbers of policies placed with us; (iii) customer service levels; and (iv) profitability of business placed with us.
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Region
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Office Location
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Heartland
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Carmel, Indiana
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New Jersey
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Hamilton, New Jersey
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Northeast
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Branchville, New Jersey
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Mid-Atlantic
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Allentown, Pennsylvania and Hunt Valley, Maryland
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Southern
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Charlotte, North Carolina
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Our independent agents, who act as front-line underwriters, our AMSs, and our corporate underwriters;
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Our corporate underwriting department, which includes our strategic business units (“SBUs”), organized by product and customer type, and our lines-of-business unit. These units develop our pricing and underwriting guidelines in conjunction with the Regions;
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Our Regions, which establish: (i) annual premium and pricing goals in consultation with the SBUs; (ii) agency new business targets; and (iii) agency profit improvement plans; and
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Our Actuarial Department, located in our corporate headquarters, which assists in the determination of rate and pricing levels while also monitoring pricing and profitability.
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Our independent agents and customers with access to accurate business information and the ability to process certain transactions from their locations, seamlessly integrating those transactions into our systems; and
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Our underwriters with targeted pricing tools to enhance profitability while growing the business.
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Regional insurers
, such as Cincinnati Financial Corporation, The Hanover Insurance Group, Inc., and Harleysville Group, Inc., which offer commercial lines and personal lines products and services;
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·
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National insurers
, such as Liberty Mutual Group, The Travelers Companies, Inc., The Hartford Financial Services Group, Inc., and Zurich Financial Services Group, which offer commercial lines and personal lines products and services; and
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·
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Alternative risk insurers
, which includes entities that self-insure their risks. Generally, only large entities have the capacity to self-insure. In the public sector, some small and mid-sized public entities have the opportunity to partially self-insure their risks through the use of risk pools or joint insurance funds that are generally created by legislative act.
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Rating Agency
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Financial Strength Rating
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Outlook
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Standard & Poors (“S&P”)
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A
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Stable
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Moody’s Investors Service (“Moody’s”)
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A2
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Stable
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Fitch Ratings (“Fitch”)
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A+
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Stable
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·
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Pool or share proportionately the underwriting profit and loss results of property and casualty underwriting operations through reinsurance;
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Prevent any of our Insurance Subsidiaries from suffering undue loss;
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Reduce administration expenses; and
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Permit all of the Insurance Subsidiaries to obtain a uniform rating from A.M. Best.
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Insurance Subsidiary
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Respective Percentage
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Selective Insurance Company of America (SICA)
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49.5 | % | ||
Selective Way Insurance Company (SWIC)
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21.0 | % | ||
Selective Insurance Company of South Carolina (SICSC)
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9.0 | % | ||
Selective Insurance Company of the Southeast (SICSE)
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7.0 | % | ||
Selective Insurance Company of New York (SICNY)
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7.0 | % | ||
Selective Auto Insurance Company of New Jersey (SAICNJ)
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6.0 | % | ||
Selective Insurance Company of New England (SICNE)
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0.5 | % |
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·
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Treaty reinsurance, under which certain types of policies are automatically reinsured without prior approval by the reinsurer of the underlying individual insured risks;
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·
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Facultative reinsurance, under which an individual insurance policy or a specific risk is reinsured with the prior approval of the reinsurer. We use facultative reinsurance for policies with limits greater than those available under our treaty reinsurance; and
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Protection provided under the Terrorism Risk Insurance Act of 2002 as modified and extended through December 31, 2014 by the Terrorism Risk Insurance Program Reauthorization Act of 2007 (collectively referred to as “TRIA”). TRIA requires private insurers and the United States government to share the risk of loss on future acts of terrorism that are certified by the U.S. Secretary of the Treasury. All insurers with commercial lines DPW in the United States are required to participate in TRIA, and TRIA applies to almost every line of commercial insurance. Under TRIA, terrorism coverage is mandatory for all primary workers compensation policies. Insureds with non-workers compensation commercial policies, however, have the option to accept or
decline our terrorism coverage or negotiate with us for other terms. TRIA rescinded all previously approved coverage exclusions for terrorism. Under TRIA, each participating insurer is responsible for paying a deductible of specified losses before federal assistance is available. This deductible is based on a percentage of the prior year’s applicable commercial lines DPW. In 2010, the deductible would have been approximately $189 million, and will be approximately $180 million for 2011. For losses above the deductible, the federal government will pay 85% and the insurer retains 15%. Although TRIA’s provisions will mitigate our loss exposure to a large-scale terrorist attack, our deductible is substantial. In 2010, approximately 86% of our Commercial Lines non-workers compensation policyholders
purchased terrorism coverage. Also in 2010, 45% or 10 of the 22 primary states in which we underwrite commercial property coverage mandated the coverage of fire following an act of terrorism.
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PROPERTY REINSURANCE
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Treaty Name
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Reinsurance Coverage
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Terrorism Coverage
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Property Excess of Loss
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$28 million above $2 million retention in two layers. Losses other than TRIA certified losses are subject to the following reinstatements and annual aggregate limits:
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$8 million in excess of $2 million layer provides unlimited reinstatements; and
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$20 million in excess of $10 million layer provides three reinstatements, $80 million in aggregate limits.
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All nuclear, biological, chemical, and radioactive (“NBCR”) losses are excluded regardless of whether or not they are certified under TRIA. For non-NBCR losses, the treaty distinguishes between acts certified under TRIA and those that are not. The treaty provides annual aggregate limits for TRIA certified (other than NBCR) acts of $24 million for the first layer and $40 million for the second layer. Non-certified terrorism losses (other than NBCR) are subject to the normal limits under the treaty.
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Property Catastrophe Excess of Loss
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$360 million above $40 million retention in three layers:
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95% of losses in excess of $40 million up to $100 million;
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88% of losses in excess of $100 million up to $200 million; and
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95% of losses in excess of $200 million up to $400 million.
The treaty provides one reinstatement per layer, $670 million annual aggregate limit, net of the Insurance Subsidiaries’ co-participation.
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All nuclear, biological, and chemical (“NBC”) losses are excluded regardless of whether or not they are certified under TRIA. TRIA losses related to foreign acts of terrorism are excluded from the treaty. Domestic terrorism is included regardless of whether it is certified under TRIA or not. Please see Item 1A. “Risk Factors.” of this Form 10-K for further discussion regarding changes in TRIA.
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Flood
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100% reinsurance by the federal government’s write-your-own (“WYO”) Program.
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None
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CASUALTY REINSURANCE
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Treaty Name
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Reinsurance Coverage
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Terrorism Coverage
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Casualty Excess of Loss
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The 1
st
layer of $3 million in excess of $2 million is covered at 85%. The 2
nd
through 6
th
layers are covered at 100%. Losses other than terrorism losses are subject to the following reinstatements and annual aggregate limits:
·
85% of $3 million in excess of $2 million layer provides up to $2.6 million of per occurrence coverage net of co-participation with 23 reinstatements, $61 million net annual aggregate limit;
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$7 million in excess of $5 million layer provides three reinstatements, $28 million annual aggregate limit;
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$9 million in excess of $12 million layer provides two reinstatements, $27 million annual aggregate limit;
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$9 million in excess of $21 million layer provides one reinstatement, $18 million annual aggregate limit;
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$20 million in excess of $30 million layer provides one reinstatement, $40 million annual aggregate limit; and
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$40 million in excess of $50 million layer provides with one reinstatement, $80 million in net annual aggregate limit.
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All NBCR losses are excluded. All other losses stemming from the acts of terrorism are subject to the following reinstatements and annual aggregate limits:
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85% of $3 million in excess of $2 million layer provides up to $2.6 million of per occurrence coverage net of co-participation with four reinstatements for terrorism losses, $13 million net annual aggregate limit;
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$7 million in excess of $5 million layer provides two reinstatements for terrorism losses, $21 million annual aggregate limit;
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$9 million in excess of $12 million layer provides two reinstatements for terrorism losses, $27 million annual aggregate limit;
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$9 million in excess of $21 million layer provides one reinstatement for terrorism losses, $18 million annual aggregate limit;
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$20 million in excess of $30 million layer provides one reinstatement for terrorism losses, $40 million annual aggregate limit; and
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$40 million in excess of $50 million layer provides one reinstatement for terrorism losses, $80 million in net annual aggregate limit.
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National Workers Compensation Reinsurance Pool (“NWCRP”)
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Covers business assumed from involuntary National Council on Compensation Insurance (“NCCI”) pool. 100% quota share up to a maximum ceded combined ratio cap of 140%. Provides up to 5 points in pool participant insolvency assessment protection.
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Provides full terrorism coverage including NBCR.
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·
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Information regarding each claim for losses, including potential extra-contractual liabilities, or amounts paid in excess of the policy limits, which may not be covered by our contracts with reinsurers;
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·
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Our loss history and the industry’s loss history;
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·
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Legislative enactments, judicial decisions and legal developments regarding damages;
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·
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Changes in political attitudes; and
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·
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Trends in general economic conditions, including inflation.
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·
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Section I shows the estimated liability recorded at the end of each indicated year for all current and prior accident year’s unpaid loss and loss expenses. The liability represents the estimated amount of loss and loss expenses for unpaid claims, including incurred but not reported (“IBNR”) reserves. In accordance with GAAP, the liability for unpaid loss and loss expenses is recorded gross of the effects of reinsurance. An estimate of reinsurance recoverables is reported separately as an asset. The net balance represents the estimated amount of unpaid loss and loss expenses outstanding reduced by estimates of amounts recoverable under reinsurance contracts.
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·
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Section II shows the re-estimated amount of the previously recorded net liability as of the end of each succeeding year. Estimates of the liability of unpaid loss and loss expenses are increased or decreased as payments are made and more information regarding individual claims and trends, such as overall frequency and severity patterns, becomes known.
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Section III shows the cumulative amount of net loss and loss expenses paid relating to recorded liabilities as of the end of each succeeding year.
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Section IV shows the re-estimated gross liability and re-estimated reinsurance recoverables through December 31, 2010.
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Section V shows the cumulative net (deficiency)/redundancy representing the aggregate change in the liability from the original balance sheet dates and the re-estimated liability through December 31, 2010.
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($ in millions)
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2000
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2001
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2002
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2003
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2004
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2005
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2006
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2007
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2008
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2009
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2010
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I. Gross reserves for unpaid losses and loss expenses at December 31
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$ | 1,272.7 | 1,298.3 | 1,403.4 | 1,587.8 | 1,835.2 | 2,084.0 | 2,288.8 | 2,542.5 | 2,641.0 | 2,745.8 | 2,830.1 | |||||||||||||||||||||||
Reinsurance recoverables on unpaid losses and loss expenses at December 31
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$ | (160.9 | ) | (166.5 | ) | (160.4 | ) | (184.6 | ) | (218.8 | ) | (218.2 | ) | (199.7 | ) | (227.8 | ) | (224.2 | ) | (271.6 | ) | (313.7 | ) | ||||||||||||
Net reserves for unpaid losses and loss expenses at December 31
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$ | 1,111.8 | 1,131.8 | 1,243.1 | 1,403.2 | 1,616.4 | 1,865.8 | 2,089.0 | 2,314.7 | 2,416.8 | 2,474.2 | 2,516.3 | |||||||||||||||||||||||
II. Net reserves estimate as of:
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One year later
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$ | 1,125.5 | 1,151.7 | 1,258.1 | 1,408.1 | 1,621.5 | 1,858.5 | 2,070.2 | 2,295.4 | 2,387.4 | 2,430.6 | ||||||||||||||||||||||||
Two years later
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1,152.7 | 1,175.8 | 1,276.3 | 1,452.3 | 1,637.3 | 1,845.1 | 2,024.0 | 2,237.8 | 2,324.6 | ||||||||||||||||||||||||||
Three years later
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1,181.9 | 1,210.7 | 1,344.6 | 1,491.1 | 1,643.7 | 1,825.2 | 1,982.4 | 2,169.7 | |||||||||||||||||||||||||||
Four years later
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1,220.2 | 1,290.2 | 1,371.5 | 1,522.9 | 1,649.8 | 1,808.9 | 1,931.1 | ||||||||||||||||||||||||||||
Five years later
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1,278.3 | 1,306.8 | 1,413.8 | 1,529.2 | 1,653.6 | 1,780.7 | |||||||||||||||||||||||||||||
Six years later
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1,287.5 | 1,349.6 | 1,420.8 | 1,538.4 | 1,639.5 | ||||||||||||||||||||||||||||||
Seven years later
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1,325.5 | 1,357.6 | 1,428.7 | 1,535.6 | |||||||||||||||||||||||||||||||
Eight years later
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1,332.8 | 1,363.4 | 1,430.0 | ||||||||||||||||||||||||||||||||
Nine years later
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1,338.6 | 1,362.7 | |||||||||||||||||||||||||||||||||
Ten years later
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1,338.2 | ||||||||||||||||||||||||||||||||||
Cumulative net redundancy (deficiency)
|
$ | (226.4 | ) | (230.8 | ) | (186.9 | ) | (132.4 | ) | (23.1 | ) | 85.1 | 158.0 | 145.1 | 92.2 | 43.6 | |||||||||||||||||||
III. Cumulative amount of net reserves paid through:
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|||||||||||||||||||||||||||||||||||
One year later
|
$ | 399.2 | 377.1 | 384.0 | 414.5 | 422.4 | 468.6 | 469.4 | 579.4 | 584.5 | 561.3 | ||||||||||||||||||||||||
Two years later
|
649.1 | 627.3 | 653.3 | 691.4 | 729.5 | 775.0 | 841.3 | 945.5 | 966.8 | ||||||||||||||||||||||||||
Three years later
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815.3 | 807.2 | 836.3 | 903.7 | 942.4 | 1,026.9 | 1,080.0 | 1,201.6 | |||||||||||||||||||||||||||
Four years later
|
930.9 | 926.9 | 966.2 | 1,033.5 | 1,101.0 | 1,174.2 | 1,235.2 | ||||||||||||||||||||||||||||
Five years later
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1,002.4 | 1,003.3 | 1,044.6 | 1,128.4 | 1,189.2 | 1,267.1 | |||||||||||||||||||||||||||||
Six years later
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1,046.3 | 1,053.8 | 1,110.0 | 1,184.5 | 1,245.4 | ||||||||||||||||||||||||||||||
Seven years later
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1,081.7 | 1,100.3 | 1,151.8 | 1,225.3 | |||||||||||||||||||||||||||||||
Eight years later
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1,115.9 | 1,133.9 | 1,183.0 | ||||||||||||||||||||||||||||||||
Nine years later
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1,143.6 | 1,157.4 | |||||||||||||||||||||||||||||||||
Ten years later
|
1,162.2 | ||||||||||||||||||||||||||||||||||
IV. Re-estimated gross liability
|
$ | 1,613.7 | 1,651.1 | 1,692.0 | 1,819.1 | 1,930.1 | 2,085.6 | 2,194.6 | 2,428.1 | 2,591.7 | 2,714.8 | ||||||||||||||||||||||||
Re-estimated reinsurance recoverables
|
$ | (275.5 | ) | (288.4 | ) | (262.1 | ) | (283.4 | ) | (290.6 | ) | (304.9 | ) | (263.6 | ) | (258.5 | ) | (267.1 | ) | (284.2 | ) | ||||||||||||||
Re-estimated net liability
|
$ | 1,338.2 | 1,362.7 | 1,430.0 | 1,535.6 | 1,639.5 | 1,780.7 | 1,931.1 | 2,169.7 | 2,324.6 | 2,430.6 | ||||||||||||||||||||||||
V.
Cumulative gross redundancy (deficiency)
|
$ | (341.1 | ) | (352.7 | ) | (288.6 | ) | (231.3 | ) | (94.9 | ) | (1.6 | ) | 94.1 | 114.4 | 49.2 | 31.0 | ||||||||||||||||||
Cumulative net redundancy (deficiency)
|
$ | (226.4 | ) | (230.8 | ) | (186.9 | ) | (132.4 | ) | (23.1 | ) | 85.1 | 158.0 | 145.1 | 92.2 | 43.6 |
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·
|
The primary drivers of 2010’s favorable development of $43.6 million were the following:
|
|
o
|
Our commercial automobile line experienced favorable development of approximately $28 million driven by accident years 2004 through 2009. This represents a consistent trend in recent years, as reported loss activity continues to emerge lower than expected.
|
|
o
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Our general liability line had favorable development of approximately $26 million. This is driven by favorable development on the premises and operations coverages for accident years 2006 and prior. Favorable premises development for 2007 through 2009 was essentially offset by increases for the products coverage.
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|
o
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Our workers compensation line experienced unfavorable loss development of approximately $22 million. This was driven by increases in the 2008 and 2009 accident years, which have experienced increases in average severity.
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o
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Our remaining lines of business collectively experienced approximately $11 million of favorable development. While there were some offsetting impacts among these lines, homeowners contributed $6 million of favorable development towards the total. This was due to lower than expected liability losses in accident years 2008 and 2009.
|
|
·
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The primary drivers of 2009’s favorable development of $29.4 million were the following:
|
|
o
|
Our workers compensation line experienced favorable development of approximately $11 million. Accident years 2005 to 2007 had favorable development of approximately $36 million from the impact of a series of underwriting improvement strategies in that period, partially offset by approximately $22 million of adverse development due to higher than expected severity in accident year 2008.
|
|
o
|
Our commercial automobile line experienced favorable development of approximately $10 million from lower than anticipated severity emergence primarily in accident year 2007.
|
|
o
|
Our general liability line had favorable development of approximately $8 million. We had favorable loss emergence in accident years 2004 through 2007 in our premises coverage business that was partially offset by adverse development in our products/completed operations business.
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·
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The primary drivers of 2008’s favorable development of $19.3 million were the following:
|
|
o
|
Our workers compensation line experienced favorable prior year development of approximately $24 million. This was primarily driven by favorable development in accident years 2004 to 2006 of approximately $28 million attributable to underwriting improvements, better than expected medical trends, and the redesign and re-contracting of our managed care process. However, accident year 2007 had adverse prior year development of approximately $6 million from higher severity.
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|
o
|
Our general liability line experienced adverse development of approximately $3 million that reflected normal volatility for this line of business.
|
|
o
|
Our remaining lines of business collectively contributed approximately $2 million of adverse development. Individually, none reflected any significant trends related to prior year development.
|
($ in thousands)
|
2010
|
2009
|
||||||
Statutory losses and loss expense reserves
|
$ | 2,513,065 | 2,471,833 | |||||
Provision for uncollectible reinsurance
|
3,400 | 2,500 | ||||||
Other
|
(146 | ) | (144 | ) | ||||
GAAP losses and loss expense reserves – net
|
2,516,319 | 2,474,189 | ||||||
Reinsurance recoverables on unpaid losses and loss expenses
|
313,739 | 271,610 | ||||||
GAAP losses and loss expense reserves – gross
|
$ | 2,830,058 | 2,745,799 |
|
1.
|
Loss and loss expense ratio, which is calculated by dividing incurred loss and loss expenses by NPE;
|
|
2.
|
Underwriting expense ratio, which is calculated by dividing all expenses related to the issuance of insurance policies by NPW;
|
|
3.
|
Dividend ratio, which is calculated by dividing policyholder dividends by NPE; and
|
|
4.
|
Combined ratio, which is the sum of the loss and loss expense ratio, the underwriting expense ratio, and the dividend ratio.
|
|
·
|
With regard to the underwriting expense ratio
, NPE is the denominator for GAAP; whereas NPW is the denominator for SAP.
|
|
·
|
With regard to income
:
|
|
o
|
Underwriting expenses are deferred and amortized to expense over the life of an insurance policy under GAAP; whereas they are recognized when incurred under SAP.
|
|
o
|
Deferred taxes are recognized in our Consolidated Statements of Income as either a deferred tax expense or a deferred tax benefit under GAAP; whereas they are recorded directly to surplus under SAP.
|
|
o
|
Changes in the value of our alternative investments, which are part of our other investment portfolio on our Consolidated Balance Sheets, are recognized in income under GAAP; whereas they are recorded directly to surplus under SAP.
|
|
·
|
With regard to equity under GAAP and statutory surplus under SAP
:
|
|
o
|
The timing difference in income due to the GAAP/SAP differences in expense recognition creates a difference between GAAP equity and SAP statutory surplus.
|
|
o
|
Regarding unrealized gains and losses on fixed maturity securities:
|
|
§
|
Under GAAP, unrealized gains and losses on available-for-sale (“AFS”) fixed maturity securities are recognized in equity; but they are not recognized in equity on purchased held-to-maturity (“HTM”) securities. Unrealized gains and losses on HTM securities transferred from an AFS designation are amortized from equity as a yield adjustment.
|
|
§
|
Under SAP, unrealized gains and losses on fixed maturity securities assigned certain NAIC Security Valuation Office ratings (specifically designations of one or two which generally equate to investment grade bonds) are not recognized in statutory surplus. However, fixed maturity securities that have a designation of three or higher must recognize changes in unrealized gains and losses as an adjustment to statutory surplus.
|
|
o
|
Certain assets are designated under insurance regulations as “non-admitted,” including, but not limited to, certain deferred tax assets, overdue premium receivables, furniture and equipment, and prepaid expenses. These assets are excluded from statutory surplus under SAP, but are recorded in the Consolidated Balance Sheets net of applicable allowances under GAAP; and
|
|
o
|
Regarding recognition of the liability for our defined benefit plan:
|
|
§
|
Under GAAP, the liability is recognized in an amount equal to the excess of the projected benefit obligation over the fair value of the plan assets, and any changes in this balance not recognized in income are recognized in equity as a component of other comprehensive income (“OCI”).
|
|
§
|
Under SAP, the liability is recognized in an amount equal to the excess of the vested accumulated benefit obligation over the fair value of the plan assets, and any changes in this balance not recognized in income are recognized in statutory surplus.
|
Year Ended December 31,
|
||||||||||||
($ in thousands)
|
2010
|
2009
|
2008
|
|||||||||
Insurance Operations Results
|
||||||||||||
NPW
|
$ | 1,388,556 | 1,422,655 | 1,492,938 | ||||||||
NPE
|
$ | 1,414,612 | 1,431,047 | 1,504,387 | ||||||||
Losses and loss expenses incurred
|
980,534 | 972,040 | 1,011,700 | |||||||||
Net underwriting expenses incurred
|
445,172 | 459,758 | 471,629 | |||||||||
Policyholders’ dividends
|
3,878 | 3,640 | 5,211 | |||||||||
Underwriting (loss) profit
|
$ | (14,972 | ) | (4,391 | ) | 15,847 | ||||||
Ratios:
|
||||||||||||
Loss and loss expense ratio
|
69.3 | % | 67.9 | 67.2 | ||||||||
Underwriting expense ratio
|
32.0 | 32.3 | 31.7 | |||||||||
Policyholders’ dividends ratio
|
0.3 | 0.3 | 0.3 | |||||||||
Combined ratio
|
101.6 | % | 100.5 | 99.2 | ||||||||
GAAP combined ratio
|
101.6 | % | 99.8 | 100.0 |
Simple
Average of
All Periods
Presented
|
2010
|
2009
|
2008
|
2007
|
2006
|
|||||||||||||||||||
Insurance Operations Ratios:
1
|
||||||||||||||||||||||||
Loss and loss expense
|
66.7 | 69.3 | 67.9 | 67.2 | 65.4 | 63.7 | ||||||||||||||||||
Underwriting expense
|
31.8 | 32.0 | 32.3 | 31.7 | 31.6 | 31.3 | ||||||||||||||||||
Policyholders’ dividends
|
0.4 | 0.3 | 0.3 | 0.3 | 0.5 | 0.4 | ||||||||||||||||||
Statutory combined ratio
|
98.8 | 101.6 | 100.5 | 99.2 | 97.5 | 95.4 | ||||||||||||||||||
Growth in NPW
|
(1.0 | ) | (2.4 | ) | (4.7 | ) | (4.5 | ) | 1.4 | 5.3 | ||||||||||||||
Industry Ratios:
1, 2
|
||||||||||||||||||||||||
Loss and loss expense
|
71.5 | 74.5 | 72.7 | 77.1 | 67.7 | 65.6 | ||||||||||||||||||
Underwriting expense
|
27.3 | 28.0 | 27.9 | 27.4 | 27.1 | 26.1 | ||||||||||||||||||
Policyholders’ dividends
|
0.7 | 0.5 | 0.6 | 0.6 | 0.7 | 0.9 | ||||||||||||||||||
Statutory combined ratio
|
99.5 | 103.0 | 101.2 | 105.1 | 95.5 | 92.5 | ||||||||||||||||||
Growth in NPW
|
(0.4 | ) | 0.5 | (4.1 | ) | (2.0 | ) | (0.8 | ) | 4.2 | ||||||||||||||
Favorable (Unfavorable) to Industry:
|
||||||||||||||||||||||||
Statutory combined ratio
|
0.7 | 1.4 | 0.7 | 5.9 | (2.0 | ) | (2.9 | ) | ||||||||||||||||
Growth in NPW
|
(0.6 | ) | (2.9 | ) | (0.6 | ) | (2.5 | ) | 2.2 | 1.1 |
1
|
The ratios and percentages are based on SAP prescribed or permitted by state insurance departments in the states in which the Insurance Subsidiaries are domiciled.
|
2
|
Source: A.M. Best. The industry ratios for 2010 have been estimated by A.M. Best.
|
|
·
|
The Insurance Regulatory Information System (“IRIS”). IRIS identifies 13 industry financial ratios and specifies “usual values” for each ratio. Departure from the usual values on four or more of the financial ratios can lead to inquiries from individual state insurance departments about certain aspects of the insurer’s business. Our Insurance Subsidiaries have consistently met the majority of the IRIS ratio tests.
|
|
·
|
Risk-Based Capital. Risk-based capital is measured by the four major areas of risk to which property and casualty insurers are exposed: (i) asset risk; (ii) credit risk; (iii) underwriting risk; and (iv) off-balance sheet risk. Insurers with total adjusted capital that is less than two times their calculated “Authorized Control Level,” are subject to different levels of regulatory intervention and action. Based upon the unaudited 2010 statutory financial statements, the total adjusted capital for each of our Insurance Subsidiaries substantially exceeded two times their Authorized Control Level.
|
|
·
|
Annual Financial Reporting Regulation (referred to as the “Model Audit Rule”). Effective January 1, 2010, the regulators of our Insurance Subsidiaries adopted this regulation, modeled closely on the Sarbanes-Oxley Act, concerning: (i) auditor independence; (ii) corporate governance; and (iii) internal control over financial reporting. As permitted under the regulation, the Audit Committee of the Board of Directors (the “Board”) of our Parent also serves as the audit committee of each of our Insurance Subsidiaries.
|
|
·
|
The establishment of the Federal Insurance Office (“FIO”);
|
|
·
|
Federal Reserve oversight of financial services firms designated as systemically risky; and
|
|
·
|
Corporate governance reforms of publicly traded companies.
|
Category of Investment
|
||||||||
($ in millions)
|
Carrying Value
|
% of Investment
Portfolio
|
||||||
Fixed maturities
|
$ | 3,557.1 | 91 | % | ||||
Equities
|
$ | 69.6 | 2 | % | ||||
Short-term investments
|
$ | 161.1 | 4 | % | ||||
Other investments, including alternatives
|
$ | 137.9 | 3 | % | ||||
Total
|
$ | 3,925.7 | 100 | % |
Name, Age, Title
|
Occupation and Background
|
|
Gregory E. Murphy,
55
Chairman, President, and Chief Executive Officer
|
·
Present position since May 2000
·
President, Chief Executive Officer, and Director, Selective, 1999 – 2000
·
President, Chief Operating Officer, and Director, Selective, 1997 – 1999
·
Other senior executive, management, and operational positions, Selective, since 1980
·
Certified Public Accountant (New Jersey) (Inactive)
·
Trustee, Newton Memorial Hospital Foundation, since 1999
·
Director, Property Casualty Insurers Association of America, since 2008
·
Director, Insurance Information Institute, since 2000
·
Trustee, the American Institute for CPCU (AICPCU) and the Insurance Institute of America (IIA), since June 2001
·
Graduate of Boston College (B.S. Accounting)
·
Harvard University (Advanced Management Program)
·
M.I.T. Sloan School of Management
|
|
Richard F. Connell
, 65
Senior Executive Vice President and Chief Administrative Officer
|
·
Present position since October 2007
·
Senior Executive Vice President and Chief Information Officer, Selective, 2006 – 2007
·
Executive Vice President and Chief Information Officer, Selective
2000 – 2006
·
Central Connecticut State University (B.S. Marketing)
|
|
Dale A. Thatcher
, 49
Executive Vice President and Chief Financial Officer
|
·
Present position since April 2010
·
Executive Vice President, Chief Financial Officer and Treasurer, 2003 – 2010
·
Senior Vice President, Chief Financial Officer and Treasurer, Selective, 2000 – 2003
·
Certified Public Accountant (Ohio) (Inactive)
·
Chartered Property and Casualty Underwriter (CPCU)
·
Chartered Life Underwriter (CLU)
·
Member, American Institute of Certified Public Accountants
·
Member, Ohio Society of Certified Public Accountants
·
Member, Financial Executives Institute
·
Member, Insurance Accounting and Systems Association
·
University of Cincinnati (B.B.A. Accounting; M.B.A. Finance)
·
Harvard University (Advanced Management Program)
|
|
Ronald J. Zaleski Sr., 56
Executive Vice President and Chief Actuary
|
·
Present position since February 2003
·
Senior Vice President and Chief Actuary, Selective, 2000 – 2003
·
Vice President and Chief Actuary, Selective, 1999 – 2000
·
Fellow of Casualty Actuarial Society
·
Member, American Academy of Actuaries
·
Loyola College (B.A. Mathematics)
|
|
Steven B. Woods, 51
Executive Vice President, Human Resources
|
·
Present position since January 2009
·
Vice President, Human Resources, Corporate Affairs, Administration and Vice President, International for Crayola, LLC, 2000 – 2009
·
Southeastern Massachusetts University (B.S.)
·
Old Dominion University (Ph.D., M.S.)
|
Name, Age, Title
|
Occupation and Background
|
|
Michael H. Lanza
, 49
Executive Vice President, General Counsel, and Chief Compliance Officer
|
·
Present position since October 2007
·
Senior Vice President and General Counsel, Selective, 2004 – 2007
·
Member, Society of Corporate Secretaries and Corporate Governance Professionals
·
Member, National Investor Relations Institute
·
University of Connecticut (B.A.)
·
University of Connecticut School of Law (J.D.)
|
|
John J. Marchioni
, 41
Executive Vice President, Insurance Operations
|
·
Present position since February 2010
·
Executive Vice President, Chief Underwriting and Field Operations Officer, 2008 – February 2010
·
Executive Vice President, Chief Field Operations Officer, Selective 2007 – 2008
·
Senior Vice President, Director of Personal Lines, Selective 2005 – 2007
·
Various insurance operation and government affairs positions, Selective, 1998 – 2005
·
Chartered Property Casualty Underwriter (CPCU)
·
Princeton University (B.A. History)
·
Harvard University (Advanced Management Program)
|
§
|
Being disciplined in our underwriting practices;
|
§
|
Being prudent in our claims management practices and establishing adequate loss and loss expense reserves;
|
§
|
Continuing to develop and implement predictive models to analyze historical statistical data regarding our insureds and their loss experience and to apply that information to risks of current insureds and prospective insureds so we can better predict the likely profitability of the account; and
|
§
|
Purchasing reinsurance.
|
·
|
Our reinsurers, who are obligated to us under our reinsurance agreements. The relatively small size of the reinsurance market and our objective to maintain an average weighted rating of “A” by A.M. Best on our current reinsurance programs constrains our ability to diversify our exposure to “single issuer” credit risk. However, some of our reinsurance credit risk is collateralized.
|
·
|
Some of our independent agents, who collect premiums from insureds and are required to remit the collected premium to us.
|
·
|
Some of our insureds, who are responsible for payment of deductibles and/or premiums directly to us.
|
·
|
The invested assets in our defined benefit plan, which partially serve to fund the Insurance Operations liability associated with this plan. To the extent that credit risk adversely impacts the valuation and performance of the invested assets within our defined benefit plan, the funded status of the defined benefit plan could be adversely impacted and, as result, could increase the cost of the plan to our Insurance Operations.
|
|
·
|
A pure price decline of 1.2% increases the statutory combined ratio by approximately one point;
|
|
·
|
A 3% increase in expected claim costs for the year will cause the loss and loss adjustment expense ratio to increase by approximately two points; and
|
|
·
|
A combination of the two could raise the combined ratio approximately three points.
|
|
·
|
Natural and man-made disasters;
|
|
·
|
Fluctuations in interest rates and other changes in the investment environment that affect investment returns;
|
|
·
|
Inflationary pressures (medical and economic) that affect the size of losses;
|
|
·
|
Judicial, regulatory, legislative, and legal decisions that affect insurers’ liabilities;
|
|
·
|
Changes in the frequency and severity of losses;
|
|
·
|
Pricing and availability of reinsurance in the marketplace; and
|
|
·
|
Weather-related impacts due to the effects of climate changes.
|
NRSRO
|
Financial Strength Rating
|
Outlook
|
||
A.M. Best and Company
|
“A+”
|
Negative
|
||
Standard & Poor’s
|
“A”
|
Stable
|
||
Moody’s Investor Service
|
“A2”
|
Stable
|
||
Fitch
|
|
“A+”
|
|
Stable
|
NRSRO
|
Credit Rating
|
Long Term Credit Outlook
|
||
A.M. Best and Company
|
“a-”
|
Negative
|
||
Standard & Poor’s
|
“BBB”
|
Stable
|
||
Moody’s Investor Services
|
“Baa2”
|
Stable
|
||
Fitch
|
|
“A-”
|
|
Stable
|
|
·
|
Related to our financial condition, review and approval of such matters as minimum capital and surplus requirements, standards of solvency, security deposits, methods of accounting, form and content of statutory financial statements, reserves for unpaid loss and loss adjustment expenses, reinsurance, payment of dividends and other distributions to shareholders, periodic financial examinations, and annual and other report filings.
|
|
·
|
Related to our general business, review and approval of such matters as certificates of authority and other insurance company licenses, licensing and compensation of agents, premium rates (which may not be excessive, inadequate, or unfairly discriminatory), policy forms, policy terminations, reporting of statistical information regarding our premiums and losses, periodic market conduct examinations, unfair trade practices, participation in mandatory shared market mechanisms, such as assigned risk pools and reinsurance pools, participation in mandatory state guaranty funds, and mandated continuing workers compensation coverage post-termination of employment.
|
|
·
|
Related to our ownership of the Insurance Subsidiaries, we are required to register as an insurance holding company system and report information concerning all of our operations that may materially affect the operations, management, or financial condition of the insurers. As an insurance holding company, the appropriate state regulatory authority may: (i) examine us or our Insurance Subsidiaries at any time; (ii) require disclosure or prior approval of material transactions of any of the Insurance Subsidiaries with us or each other; and (iii) require prior approval or notice of certain transactions, such as payment of dividends or distributions to us.
|
|
·
|
Repeal of the McCarran-Ferguson Act
. While proposals for McCarran-Ferguson Act repeal recently have been primarily directed at health insurers, if enacted and applicable to property and casualty insurers, such repeal would significantly reduce our ability to compete and materially affect our results of operations because we rely on the anti-trust exemptions the law provides to obtain loss data from third party aggregators such as ISO to predict future losses.
|
|
·
|
National Catastrophic Funds
. Various legislative proposals have been introduced that would establish a federal reinsurance catastrophic fund as a federal backstop for future natural disasters. These bills generally encourage states to create catastrophe funds by creating a federal backstop for states that create the funds. While homeowners' insurance is primarily handled at the state level, there are important roles for the federal government to play, including the establishment of a national catastrophic fund.
|
|
·
|
Reform of the NFIP
. There have been legislative proposals to reform the NFIP by: (i) expanding coverage to include coverage for losses from wind damage; and (ii) forgiving the nearly $20 billion in debt amassed by the NFIP from the catastrophic storms of 2004 and 2005. We believe that the expansion of coverage to include wind losses would significantly increase the cost and availability of NFIP insurance.
|
|
·
|
Healthcare reform
. The enactment of the Patient Protection and Affordable Care Act of 2010 (the “Healthcare Act”) may have an impact on various aspects of our business including our Insurance Operations. Lines of business that are impacted by costs and quality of medical care, such as workers compensation and personal auto Personal Injury Protection (PIP), are likely to be affected by this legislation. In addition, we will be impacted as a business enterprise by potential tax issues and changes in employee benefits. The Healthcare Act will be implemented over time and we will continue to monitor and assess its impact.
|
|
·
|
Changes in Reinsurance Collateral requirements. The enactment of Dodd-Frank directs the FIO to
negotiate an international reinsurance treaty, which may impact our ability to obtain collateral from reinsurers domiciled outside of the United States. In addition, certain states are considering changes to the current collateral rules for foreign and domestic reinsurers, which may have an impact on us.
|
|
·
|
After-market parts;
|
|
·
|
Urban homeowner insurance underwriting practices;
|
|
·
|
Credit scoring and predictive modeling pricing;
|
|
·
|
Investment disclosure;
|
|
·
|
Managed care practices;
|
|
·
|
Timing and discounting of personal injury protection claims payments;
|
|
·
|
Direct repair shop utilization practices; and
|
|
·
|
Shareholder class action suits.
|
|
·
|
Being prudent in establishing our investment policy and appropriately diversifying our investments;
|
|
·
|
Using complex financial and investment models to analyze historic investment performance and predict future investment performance under a variety of scenarios using asset concentration, asset volatility, asset correlation, and systematic risk; and
|
|
·
|
Closely monitoring investment performance, general economic and financial conditions, and other relevant factors.
|
|
·
|
Supermajority voting requirements and fair price to approve business combinations;
|
|
·
|
Supermajority voting requirements to amend the foregoing provisions; and
|
|
·
|
The ability of the Board to issue “blank check” preferred stock.
|
2010
|
2009
|
|||||||||||||||
High
|
Low
|
High
|
Low
|
|||||||||||||
First quarter
|
$ | 17.04 | 15.01 | 23.28 | 10.06 | |||||||||||
Second quarter
|
17.28 | 14.17 | 15.30 | 11.46 | ||||||||||||
Third quarter
|
16.63 | 14.13 | 17.54 | 12.15 | ||||||||||||
Fourth quarter
|
18.94 | 15.97 | 17.17 | 14.84 |
Dividend Per Share
|
2010
|
2009
|
||||||
First quarter
|
$ | 0.13 | $ | 0.13 | ||||
Second quarter
|
0.13 | 0.13 | ||||||
Third quarter
|
0.13 | 0.13 | ||||||
Fourth quarter
|
0.13 | 0.13 |
(a)
|
(b) |
(c)
|
|||||
Number of
|
|||||||
securities remaining
|
|||||||
Number of
|
available for
|
||||||
securities to be
|
future issuance under
|
||||||
issued upon
|
Weighted-average |
equity compensation
|
|||||
exercise of
|
exercise price of |
plans (excluding
|
|||||
outstanding options,
|
outstanding options, |
securities reflected in
|
|||||
Plan Category
|
warrants and rights
|
warrants and rights |
column (a))
|
||||
Equity compensation plans approved by security holders
|
1,402,256
|
$ |
18.08
|
8,432,356
1
|
1
|
Includes 1,254,667 shares available for issuance under the Employee Stock Purchase Plan, 2,385,558 shares available for issuance under the Stock Purchase Plan for Independent Insurance Agencies, and 4,792,131 shares available for issuance under the Selective Insurance Group, Inc. 2005 Omnibus Stock Plan As Amended and Restated Effective as of May 1, 2010 (“Stock Plan”). Future grants under the Stock Plan can be made, among other things, as stock options, restricted stock units, or restricted stock.
|
Total Number of
|
Maximum Number of
|
|||||||||||||||
Shares Purchased
|
Shares that May Yet
|
|||||||||||||||
Total Number of
|
Average Price
|
as Part of Publicly
|
Be Purchased Under the
|
|||||||||||||
Period
|
Shares Purchased
1
|
Paid Per Share
|
Announced Programs
|
Announced Programs
|
||||||||||||
October 1– 31, 2010
|
- | $ | - | - | - | |||||||||||
November 1 – 30, 2010
|
5,442 | 16.95 | - | - | ||||||||||||
December 1 – 31, 2010
|
3,564 | 18.53 | - | - | ||||||||||||
Total
|
9,006 | $ | 17.58 | - | - |
Selected Financial Data.
|
Five-Year Financial Highlights | ||||||||||||||||||||
(All presentations are in accordance with
|
||||||||||||||||||||
GAAP unless noted otherwise, number of
|
||||||||||||||||||||
weighted average shares and dollars in
|
||||||||||||||||||||
thousands, except per share amounts)
|
2010
|
2009
|
2008
|
2007
|
2006
|
|||||||||||||||
Net premiums written
|
$ | 1,390,541 | 1,422,665 | 1,492,738 | 1,562,450 | 1,540,645 | ||||||||||||||
Net premiums earned
|
1,416,598 | 1,431,047 | 1,504,187 | 1,524,889 | 1,504,348 | |||||||||||||||
Net investment income earned
|
145,708 | 118,471 | 131,032 | 174,144 | 156,802 | |||||||||||||||
Net realized (losses) gains
|
(7,083 | ) | (45,970 | ) | (49,452 | ) | 33,354 | 35,479 | ||||||||||||
Total revenues
|
1,564,621 | 1,514,018 | 1,589,939 | 1,739,315 | 1,703,083 | |||||||||||||||
Catastrophe losses
|
56,465 | 8,519 | 31,740 | 14,899 | 20,697 | |||||||||||||||
Underwriting (loss) profit
|
(22,167 | ) | 2,385 | 132 | 30,966 | 71,077 | ||||||||||||||
Net income from continuing operations
1
|
69,321 | 44,658 | 44,101 | 143,636 | 160,175 | |||||||||||||||
Total discontinued operations, net of tax
1
|
(3,780 | ) | (8,260 | ) | (343 | ) | 2,862 | 3,399 | ||||||||||||
Net income
|
65,541 | 36,398 | 43,758 | 146,498 | 163,574 | |||||||||||||||
Comprehensive income (loss)
|
85,025 | 126,984 | (136,741 | ) | 131,940 | 159,802 | ||||||||||||||
Total assets
|
5,231,772 | 5,114,827 | 4,945,556 | 5,007,158 | 4,772,528 | |||||||||||||||
Notes payable and debentures
|
262,333 | 274,606 | 273,878 | 295,067 | 362,602 | |||||||||||||||
Stockholders’ equity
|
1,071,109 | 1,002,375 | 890,493 | 1,076,043 | 1,077,227 | |||||||||||||||
Statutory premiums to surplus ratio
|
1.3 | 1.5 | 1.7 | 1.5 | 1.5 | |||||||||||||||
Statutory combined ratio
|
101.6 | % | 100.5 | 99.2 | 97.5 | 95.4 | ||||||||||||||
Impact of catastrophe losses on statutory combined ratio
|
4.0 | pts | 0.6 | 2.1 | 1.0 | 1.4 | ||||||||||||||
Combined ratio
|
101.6 | % | 99.8 | 100.0 | 98.0 | 95.3 | ||||||||||||||
Yield on investment, before tax
|
3.8 | 3.2 | 3.6 | 4.8 | 4.6 | |||||||||||||||
Debt to capitalization
|
19.7 | 21.5 | 23.5 | 21.5 | 25.2 | |||||||||||||||
Return on average equity
|
6.3 | 3.8 | 4.5 | 13.6 | 15.9 | |||||||||||||||
Non-GAAP measures
2
:
|
||||||||||||||||||||
Operating income
|
$ | 73,925 | 74,538 | 76,245 | 121,956 | 137,113 | ||||||||||||||
Operating return on average equity
|
7.1 | % | 7.9 | 7.8 | 11.3 | 13.3 | ||||||||||||||
Per share data:
|
||||||||||||||||||||
Net income from continuing operations
1
:
|
||||||||||||||||||||
Basic
|
$ | 1.30 | 0.84 | 0.85 | 2.75 | 2.92 | ||||||||||||||
Diluted
|
1.27 | 0.83 | 0.83 | 2.54 | 2.60 | |||||||||||||||
Net income:
|
||||||||||||||||||||
Basic
|
$ | 1.23 | 0.69 | 0.84 | 2.80 | 2.98 | ||||||||||||||
Diluted
|
1.20 | 0.68 | 0.82 | 2.59 | 2.65 | |||||||||||||||
Dividends to stockholders
|
$ | 0.52 | 0.52 | 0.52 | 0.49 | 0.44 | ||||||||||||||
Stockholders’ equity
|
$ | 19.95 | 18.83 | 16.84 | 19.81 | 18.81 | ||||||||||||||
Price range of common stock:
|
||||||||||||||||||||
High
|
$ | 18.94 | 23.28 | 30.40 | 29.07 | 29.18 | ||||||||||||||
Low
|
14.13 | 10.06 | 16.33 | 19.04 | 24.89 | |||||||||||||||
Close
|
18.15 | 16.45 | 22.93 | 22.99 | 28.65 | |||||||||||||||
Number of weighted average shares:
|
||||||||||||||||||||
Basic
|
53,359 | 52,630 | 52,104 | 52,382 | 54,986 | |||||||||||||||
Diluted
|
54,504 | 53,397 | 53,319 | 57,165 | 62,542 |
1
|
In 2009, we sold our Selective HR Solutions operations. See Note 12. “Discontinued Operations” in Item 8. “Financial Statements and Supplementary Data.” of this Form 10-K for additional information.
|
2
|
Operating income and operating return on average equity are non-GAAP measures. See the Glossary of Terms attached to this Form 10-K as Exhibit 99.1 for definitions of these items and see the “Financial Highlights” section in Item 7. of this Form 10-K for a reconciliation of operating income to net income.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
|
·
|
Critical Accounting Policies and Estimates;
|
·
|
Financial Highlights of Results for Years Ended December 31, 2010, 2009, and 2008;
|
·
|
Results of Operations and Related Information by Segment;
|
·
|
Federal Income Taxes;
|
·
|
Financial Condition, Liquidity, Short-term Borrowings, and Capital Resources;
|
·
|
Off-Balance Sheet Arrangements;
|
·
|
Contractual Obligations, Contingent Liabilities, and Commitments;
|
·
|
Ratings; and
|
·
|
Pending Accounting Pronouncements.
|
As of December 31, 2010
|
Reinsurance
|
|||||||||||||||||||
Recoverable
|
||||||||||||||||||||
on Unpaid
|
||||||||||||||||||||
Loss and Loss Expense Reserves
|
Losses and
|
|||||||||||||||||||
Case
|
IBNR
|
Loss
|
||||||||||||||||||
($ in thousands)
|
Reserves
|
Reserves
|
Total
|
Expenses
|
Net Reserves
|
|||||||||||||||
Commercial automobile
|
$ | 137,707 | 229,603 | 367,310 | 9,703 | 357,607 | ||||||||||||||
Workers compensation
|
516,664 | 476,622 | 993,286 | 128,337 | 864,949 | |||||||||||||||
General liability
|
273,068 | 764,778 | 1,037,846 | 81,326 | 956,520 | |||||||||||||||
Commercial property
|
40,905 | 6,201 | 47,106 | 3,662 | 43,444 | |||||||||||||||
Business owners’ policies
|
33,233 | 62,237 | 95,470 | 6,261 | 89,209 | |||||||||||||||
Bonds
|
1,770 | 9,125 | 10,895 | 308 | 10,587 | |||||||||||||||
Other
|
795 | 1,119 | 1,914 | 739 | 1,175 | |||||||||||||||
Total Commercial Lines
|
1,004,142 | 1,549,685 | 2,553,827 | 230,336 | 2,323,491 | |||||||||||||||
Personal automobile
|
125,931 | 68,976 | 194,907 | 62,589 | 132,318 | |||||||||||||||
Homeowners
|
25,290 | 27,478 | 52,768 | 2,028 | 50,740 | |||||||||||||||
Other
|
8,162 | 20,394 | 28,556 | 18,786 | 9,770 | |||||||||||||||
Total Personal Lines
|
159,383 | 116,848 | 276,231 | 83,403 | 192,828 | |||||||||||||||
Total
|
$ | 1,163,525 | 1,666,533 | 2,830,058 | 313,739 | 2,516,319 |
As of December 31, 2009
|
Reinsurance
|
|||||||||||||||||||
Recoverable
|
||||||||||||||||||||
on Unpaid
|
||||||||||||||||||||
Loss and Loss Expense Reserves
|
Losses and
|
|||||||||||||||||||
Case
|
IBNR
|
Loss
|
||||||||||||||||||
($ in thousands)
|
Reserves
|
Reserves
|
Total
|
Expenses
|
Net Reserves
|
|||||||||||||||
Commercial automobile
|
$ | 142,088 | 237,493 | 379,581 | 9,224 | 370,357 | ||||||||||||||
Workers compensation
|
479,556 | 473,564 | 953,120 | 110,015 | 843,105 | |||||||||||||||
General liability
|
251,859 | 745,886 | 997,745 | 49,336 | 948,409 | |||||||||||||||
Commercial property
|
29,743 | 2,369 | 32,112 | 1,592 | 30,520 | |||||||||||||||
Business owners’ policies
|
34,927 | 51,415 | 86,342 | 7,470 | 78,872 | |||||||||||||||
Bonds
|
2,897 | 7,380 | 10,277 | 390 | 9,887 | |||||||||||||||
Other
|
812 | 1,213 | 2,025 | 617 | 1,408 | |||||||||||||||
Total Commercial Lines
|
941,882 | 1,519,320 | 2,461,202 | 178,644 | 2,282,558 | |||||||||||||||
Personal automobile
|
131,058 | 73,885 | 204,943 | 67,124 | 137,819 | |||||||||||||||
Homeowners
|
19,703 | 27,293 | 46,996 | 942 | 46,054 | |||||||||||||||
Other
|
14,499 | 18,159 | 32,658 | 24,900 | 7,758 | |||||||||||||||
Total Personal Lines
|
165,260 | 119,337 | 284,597 | 92,966 | 191,631 | |||||||||||||||
Total
|
$ | 1,107,142 | 1,638,657 | 2,745,799 | 271,610 | 2,474,189 |
|
·
|
The selection of loss development factors;
|
|
·
|
The weight to be applied to each individual actuarial indication;
|
|
·
|
Projected future loss trends; and
|
|
·
|
Expected ultimate loss ratios for the current accident year.
|
Environmental Claims Activity
|
||||||||||||
($ in thousands)
|
2010
|
2009
|
2008
|
|||||||||
Asbestos Related Claims
1
|
||||||||||||
Claims at beginning of year
|
$ | 1,136 | 2,037 | 2,177 | ||||||||
Claims received during year
|
217 | 129 | 124 | |||||||||
Claims closed during year
2
|
(283 | ) | (1,030 | ) | (264 | ) | ||||||
Claims at end of year
|
$ | 1,070 | 1,136 | 2,037 | ||||||||
Amounts paid to administer claims, gross
|
$ | 656 | 631 | 631 | ||||||||
Net survival ratio
3
|
9 | 9 | 15 | |||||||||
Non-Asbestos Related Claims
1
|
||||||||||||
Claims at beginning of year
|
$ | 230 | 325 | 271 | ||||||||
Claims received during year
|
194 | 186 | 269 | |||||||||
Claims closed during year
2
|
(165 | ) | (281 | ) | (215 | ) | ||||||
Claims at end of year
|
$ | 259 | 230 | 325 | ||||||||
Amounts paid to administer claims, gross
|
$ | 1,179 | 1,216 | 1,184 | ||||||||
Net survival ratio
3
|
5 | 6 | 6 |
|
·
|
Our marketing efforts for all of our product lines within our Insurance Operations revolve around independent agencies and their touch points with our shared customers, the policyholders.
|
|
·
|
We service our agency distribution channel through our field model, which includes AMSs, safety management specialists, CMSs, and our Underwriting and Claims Service Centers, all of which service the entire population of insurance contracts acquired through each agency.
|
|
·
|
We measure the profitability of our business at the Insurance Operations level, which is evident in, among other items, the structure of our incentive compensation programs. We measure the profitability of our agents and calculate their compensation based on overall insurance results and all of our employees, including senior management, are incented based on overall insurance results.
|
·
|
Whether the decline appears to be issuer or industry specific;
|
·
|
The degree to which the issuer is current or in arrears in making principal and interest payments on the fixed maturity security;
|
·
|
The issuer’s current financial condition and ability to make future scheduled principal and interest payments on a timely basis;
|
·
|
Evaluation of projected cash flows;
|
·
|
Buy/hold/sell recommendations published by outside investment advisors and analysts; and
|
·
|
Relevant rating history, analysis and guidance provided by rating agencies and analysts.
|
·
|
Whether the decline appears to be issuer or industry specific;
|
·
|
The relationship of market prices per share to book value per share at the date of acquisition and date of evaluation;
|
·
|
The price-earnings ratio at the time of acquisition and date of evaluation;
|
·
|
The financial condition and near-term prospects of the issuer, including any specific events that may influence the issuer’s operations, coupled with our intention to hold the securities in the near term;
|
·
|
The recent income or loss of the issuer;
|
·
|
The independent auditors’ report on the issuer’s recent financial statements;
|
·
|
The dividend policy of the issuer at the date of acquisition and the date of evaluation;
|
·
|
Buy/hold/sell recommendations or price projections published by outside investment advisors;
|
·
|
Rating agency announcements;
|
·
|
The length of time and the extent to which the fair value has been less than cost; and
|
·
|
Our expectation of when the cost of the security will be recovered.
|
·
|
The current investment strategy;
|
·
|
Changes made or future changes to be made to the investment strategy;
|
·
|
Emerging issues that may affect the success of the strategy; and
|
·
|
The appropriateness of the valuation methodology used regarding the underlying investments.
|
Financial Highlights of Results for Years Ended December 31, 2010, 2009, and 2008 1 | ||||||||||||||||||||
($ in thousands, except per share amounts)
|
2010
|
2009
|
2010 vs.
2009
|
2008
|
2009 vs.
2008
|
|||||||||||||||
GAAP measures:
|
||||||||||||||||||||
Revenues
|
$ | 1,564,621 | 1,514,018 | 3 | % | 1,589,939 | (5 | ) % | ||||||||||||
Pre-tax net investment income
|
145,708 | 118,471 | 23 | 131,032 | (10 | ) | ||||||||||||||
Pre-tax net income
|
76,141 | 26,253 | 190 | 39,386 | (33 | ) | ||||||||||||||
Net income
|
65,541 | 36,398 | 80 | 43,758 | (17 | ) | ||||||||||||||
Diluted net income per share
|
1.20 | 0.68 | 76 | 0.82 | (17 | ) | ||||||||||||||
Diluted weighted-average outstanding shares
|
54,504 | 53,397 | 2 | 53,319 | - | |||||||||||||||
GAAP combined ratio
|
101.6 | % | 99.8 | 1.8 | pts | 100.0 | (0.2 | ) pts | ||||||||||||
Statutory combined ratio
|
101.6 | % | 100.5 | 1.1 | 99.2 | 1.3 | ||||||||||||||
Return on average equity
|
6.3 | % | 3.8 | 2.5 | 4.5 | (0.7 | ) | |||||||||||||
Non-GAAP measures:
|
||||||||||||||||||||
Operating income
|
$ | 73,925 | 74,538 | (1 | ) % | 76,245 | (2 | ) % | ||||||||||||
Diluted operating income per share
|
1.35 | 1.39 | (3 | ) | 1.43 | (3 | ) | |||||||||||||
Operating return on average equity
|
7.1 | % | 7.9 | (0.8 | ) pts | 7.8 | 0.1 | pts |
|
·
|
Pre-tax net investment income increased $27.2 million, to $145.7 million in 2010, and decreased $12.6 million to $118.5 million in 2009. The increase in 2010 from 2009 was driven by income of $20.3 million on the alternative investment portion of our investment portfolio compared to a loss of $21.7 million in the prior year. This increase was partially offset by lower fixed maturity security and short-term investment income of $11.7 million resulting from lower reinvestment yields, coupled with increased investment expenses due to approximately $2.1 million of one-time costs in 2010 related to our decision to outsource our investment portfolio management operations.
|
|
·
|
Net realized losses, pre-tax, were $7.1 million in 2010 compared to $46.0 million in 2009 and $49.5 million in 2008. The improvement of $38.9 million in 2010 compared to 2009 was driven by lower non-cash OTTI charges of $17.7 million compared to $55.4 million in the prior year. While OTTI charges remained relatively consistent between 2009 and 2008 at $55.4 million and $53.1 million, respectively, the slight decrease in net realized losses during the periods was due to sales from our fixed maturity and equity portfolios. For details regarding the OTTI charges, see Note 5. “Investments” in Item 8. “Financial Statements and Supplementary Data.” of this Form 10-K.
|
|
·
|
Pre-tax underwriting losses of $22.2 million in 2010 compared to pre-tax underwriting income of $2.4 million in 2009 and $0.1 million in 2008. The decrease in 2010 was primarily attributable to $56.5 million in catastrophe losses, an increase of $47.9 million compared to 2009. The catastrophe losses were partially offset by favorable prior year casualty development of $39 million compared to $29 million in the prior year.
|
|
·
|
Pre-tax net income also includes the results of our discontinued operation, Selective HR Solutions (“Selective HR”). We sold Selective HR at the end of 2009, and the $12.9 million pre-tax loss in 2009 reflects both the results of Selective HR’s operations in 2009 as well as the estimated loss on the sale. The pre-tax loss of $5.8 million in 2010 represents adjustments to the estimated proceeds on the sale due to changes in assumptions regarding worksite live generation and retention, which are inherent in the determination of the contingent sales proceeds related to this transaction.
|
($ in thousands, except per share amounts)
|
2010
|
2009
|
2008
|
|||||||||
Operating income
|
$ | 73,925 | 74,538 | 76,245 | ||||||||
Net realized losses, net of tax
|
(4,604 | ) | (29,880 | ) | (32,144 | ) | ||||||
Loss on discontinued operations, net of tax
|
(3,780 | ) | (8,260 | ) | (343 | ) | ||||||
Net income
|
$ | 65,541 | 36,398 | 43,758 | ||||||||
Diluted operating income per share
|
$ | 1.35 | 1.39 | 1.43 | ||||||||
Diluted net realized losses per share
|
(0.08 | ) | (0.56 | ) | (0.60 | ) | ||||||
Diluted net loss on discontinued operations per share
|
(0.07 | ) | (0.15 | ) | (0.01 | ) | ||||||
Diluted net income per share
|
$ | 1.20 | 0.68 | 0.82 |
Summary of Insurance Operations | ||||||||||||||||||||
All Lines
|
||||||||||||||||||||
2010
|
2009
|
|||||||||||||||||||
($ in thousands)
|
2010
|
2009
|
vs. 2009
|
2008
|
vs. 2008
|
|||||||||||||||
GAAP Insurance Operations Results:
|
||||||||||||||||||||
NPW
|
$ | 1,390,541 | 1,422,655 | (2 | ) % | 1,492,738 | (5 | ) % | ||||||||||||
NPE
|
1,416,598 | 1,431,047 | (1 | ) | 1,504,187 | (5 | ) | |||||||||||||
Less:
|
||||||||||||||||||||
Losses and loss expenses incurred
|
982,118 | 971,905 | 1 | 1,011,544 | (4 | ) | ||||||||||||||
Net underwriting expenses incurred
|
452,769 | 453,117 | - | 487,300 | (7 | ) | ||||||||||||||
Dividends to policyholders
|
3,878 | 3,640 | 7 | 5,211 | (30 | ) | ||||||||||||||
Underwriting (loss) income
|
$ | (22,167 | ) | 2,385 | (1,029 | ) % | 132 | 1,707 | % | |||||||||||
GAAP Ratios:
|
||||||||||||||||||||
Loss and loss expense ratio
|
69.3 | % | 67.9 | 1.4 | pts | 67.2 | 0.7 | pts | ||||||||||||
Underwriting expense ratio
|
32.0 | 31.6 | 0.4 | 32.5 | (0.9 | ) | ||||||||||||||
Dividends to policyholders ratio
|
0.3 | 0.3 | - | 0.3 | - | |||||||||||||||
Combined ratio
|
101.6 | 99.8 | 1.8 | 100.0 | (0.2 | ) | ||||||||||||||
Statutory Ratios:
|
||||||||||||||||||||
Loss and loss expense ratio
|
69.3 | 67.9 | 1.4 | 67.2 | 0.7 | |||||||||||||||
Underwriting expense ratio
|
32.0 | 32.3 | (0.3 | ) | 31.7 | 0.6 | ||||||||||||||
Dividends to policyholders ratio
|
0.3 | 0.3 | - | 0.3 | - | |||||||||||||||
Combined ratio
|
101.6 | % | 100.5 | 1.1 | pts | 99.2 | 1.3 | pts |
|
·
|
NPW decreased compared to 2009 due to a highly competitive commercial lines marketplace coupled with a slow economic recovery. We have experienced a decrease in exposure given the reduction in payroll and sales consistent with the soft economy and the fact that our contractors business, one of the most affected industries in the economic downturn, accounted for 35% of our Commercial Lines business in 2010 and 39% in 2009. These factors are evidenced by the following:
|
|
o
|
Reductions in new business premiums of $48.2 million, to $272.8 million; and
|
|
o
|
Audit and endorsement return premium of $47.4 million compared to $62.0 million in 2009.
|
|
·
|
Audit and endorsement return premium of $62.0 million in 2009 compared to $12.5 million in 2008; and
|
|
·
|
A reduction in net renewals of $20.3 million, to $1.2 billion.
|
|
·
|
The increase in the GAAP loss and loss expense ratio of 1.4 points in 2010 compared to 2009 was primarily attributable to an increase in property losses of $50.3 million, which included increased catastrophe losses of $47.9 million, or 3.4 points, to $56.5 million in 2010. Catastrophe losses were unusually high in 2010, more than double the level that we anticipated, as we incurred losses on more than 20 storms and such losses exceeded our historical trend. Partially offsetting this increase for 2010 was: (i) favorable casualty prior year development of approximately $39 million, or 2.8 points, in 2010 compared to approximately $29 million, or 2.0 points, in 2009; and (ii) a reduction of loss costs due to the mix of our casualty lines of
business. For more information on the favorable prior year development on our casualty lines of business, please refer to the “Review of Underwriting Results by Lines of Business” below.
|
|
·
|
The modest increase in the GAAP underwriting expense ratio of 0.4 points in 2010 was primarily due to declines in earned premium coupled with benefits recognized in 2009 related to the elimination of retiree life insurance benefits for current employees amounting to a total benefit of $4.2 million, pre-tax.
|
($ in thousands)
|
||||||||
For the Year Ended
December 31,
|
Catastrophe
Losses
Incurred
|
Impact on
Loss Ratio
|
||||||
2010
|
$ | 56,465 | 4.0 | pts | ||||
2009
|
8,519 | 0.6 | ||||||
2008
|
31,740 | 2.1 | ||||||
2007
|
14,899 | 1.0 | ||||||
2006
|
20,697 | 1.4 |
2010
|
2009
|
|||||||||||||||||||
($ in thousands)
|
2010
|
2009
|
vs. 2009
|
2008
|
vs. 2008
|
|||||||||||||||
GAAP Insurance Operations Results:
|
||||||||||||||||||||
NPW
|
$ | 1,133,876 | 1,194,796 | (5 | ) % | 1,279,553 | (7 | ) % | ||||||||||||
NPE
|
1,174,282 | 1,214,952 | (3 | ) | 1,294,244 | (6 | ) | |||||||||||||
Less:
|
||||||||||||||||||||
Losses and loss expenses incurred
|
790,369 | 809,430 | (2 | ) | 852,697 | (5 | ) | |||||||||||||
Net underwriting expenses incurred
|
381,703 | 387,494 | (1 | ) | 425,521 | (9 | ) | |||||||||||||
Dividends to policyholders
|
3,878 | 3,640 | 7 | 5,211 | (30 | ) | ||||||||||||||
Underwriting (loss) income
|
$ | (1,668 | ) | 14,388 | (112 | ) % | 10,815 | 33 | % | |||||||||||
GAAP Ratios:
|
||||||||||||||||||||
Loss and loss expense ratio
|
67.3 | % | 66.6 | 0.7 | pts | 65.9 | 0.7 | pts | ||||||||||||
Underwriting expense ratio
|
32.5 | 31.9 | 0.6 | 32.9 | (1.0 | ) | ||||||||||||||
Dividends to policyholders ratio
|
0.3 | 0.3 | - | 0.4 | (0.1 | ) | ||||||||||||||
Combined ratio
|
100.1 | 98.8 | 1.3 | 99.2 | (0.4 | ) | ||||||||||||||
Statutory Ratios:
|
||||||||||||||||||||
Loss and loss expense ratio
|
67.3 | 66.6 | 0.7 | 65.9 | 0.7 | |||||||||||||||
Underwriting expense ratio
|
33.2 | 32.9 | 0.3 | 32.2 | 0.7 | |||||||||||||||
Dividends to policyholders ratio
|
0.3 | 0.3 | - | 0.4 | (0.1 | ) | ||||||||||||||
Combined ratio
|
100.8 | % | 99.8 | 1.0 | pts | 98.5 | 1.3 | pts |
|
·
|
NPW decreased in 2010 compared to 2009, and in 2009 compared to 2008, due to economic conditions and a very competitive insurance marketplace despite renewal pure price increases of 3.1%. We have experienced reduced levels of exposure consistent with the soft economy coupled with our concentration of business within the contractor class, which accounted for 35% of our business in 2010 and 39% in 2009. These factors are evidenced by the following:
|
|
o
|
Audit and endorsement return premium of $47.9 million in 2010 compared to $61.9 million in 2009;
|
|
o
|
Reductions in new business premiums of $55.0 million, to $210.8 million, in 2010; and
|
|
o
|
Reductions in net renewals of $24.2 million, to $1.0 billion, in 2010.
|
|
·
|
NPE decreased in 2010 compared to 2009, and in 2009 compared to 2008 consistent with the fluctuation in NPW over the same periods.
|
|
·
|
The increase in the GAAP loss and loss expense ratio in both periods was reflective of increased property losses partially offset by favorable prior year casualty development. In 2010 compared to 2009, property losses were driven by catastrophe losses, which were as follows for the past three years:
|
($ in thousands)
|
||||||||
For the Year Ended
December 31,
|
Catastrophe
Losses
Incurred
|
Impact on
Loss Ratio
|
||||||
2010
|
$ | 38,593 | 3.3 | pts | ||||
2009
|
5,791 | 0.5 | ||||||
2008
|
26,992 | 2.1 |
($ in thousands)
|
||||||||
For the Year Ended
December 31,
|
Prior
Year
Development
|
Impact on
Loss Ratio
|
||||||
2010
|
$ | 37,000 | 3.2 | pts | ||||
2009
|
27,000 | 2.2 | ||||||
2008
|
18,000 | 1.4 |
|
·
|
The GAAP underwriting expense ratio increased in 2010 compared to 2009, which was primarily attributable to declines in premiums earned coupled with the one-time benefit recognized in 2009 for the elimination of retiree life insurance benefits for current employees. Improvements in the GAAP underwriting expense ratio in 2009 compared to 2008 were primarily attributed to various expense initiatives that we have implemented over the last couple of years.
|
General Liability | ||||||||||||||||||||
2010
|
2009
|
|||||||||||||||||||
($ in thousands)
|
2010
|
2009
|
vs. 2009
|
2008
|
vs. 2008
|
|||||||||||||||
Statutory NPW
|
$ | 323,276 | 352,336 | (8 | ) % | 393,012 | (10 | ) % | ||||||||||||
Statutory NPE
|
336,475 | 362,479 | (7 | ) | 396,066 | (8 | ) | |||||||||||||
Statutory combined ratio
|
96.4 | % | 102.9 | (6.5 | ) pts | 102.0 | 0.9 | pts | ||||||||||||
% of total statutory commercial NPW
|
29 | % | 29 | 31 |
|
·
|
2010 as compared to 2009:
|
|
o
|
Net renewals down 5%, or $15.2 million, to $302.9 million;
|
|
o
|
New business down 21%, or $14.8 million, to $56.7 million; and
|
|
o
|
Endorsement and audit return premium of $24.6 million in 2010, compared to $27.2 million in 2009.
|
|
·
|
2009 as compared to 2008:
|
|
o
|
Net renewals down 4%, or $14.9 million, to $318.0 million;
|
|
o
|
New business down 5%, or $3.6 million, to $71.5 million; and
|
|
o
|
Endorsement and audit return premium of $27.2 million in 2009, compared to $7.8 million in 2008.
|
2010
|
2009
|
|||||||||||||||||||
($ in thousands)
|
2010
|
2009
|
vs. 2009
|
2008
|
vs. 2008
|
|||||||||||||||
Statutory NPW
|
$ | 237,409 | 251,121 | (5 | ) % | 303,783 | (17 | ) % | ||||||||||||
Statutory NPE
|
250,456 | 263,490 | (5 | ) | 308,618 | (15 | ) | |||||||||||||
Statutory combined ratio
|
124.2 | % | 107.6 | 16.6 | pts | 96.1 | 11.5 | pts | ||||||||||||
% of total statutory commercial NPW
|
21 | % | 21 | 24 |
|
·
|
2010 as compared to 2009:
|
|
o
|
New business down 28%, or $17.8 million, to $46.8 million;
|
|
o
|
Net renewals down 3%, or $7.7 million, to $219.7 million; and
|
|
o
|
Endorsement and audit return premium of $20.5 million in 2010, compared to $29.2 million in 2009.
|
|
·
|
2009 as compared to 2008:
|
|
o
|
Net renewals down 8%, or $18.9 million, to $227.4 million; and
|
|
o
|
Endorsement and audit return premium of $29.2 million in 2009, compared to $3.7 million in 2008.
|
|
·
|
2010: unfavorable by $21 million, or 8.3 points, driven by increased severity in the 2008 and 2009 accident years;
|
|
·
|
2009: favorable by $10 million, or 3.9 points, primarily driven by accident years 2005 to 2007, partially offset by adverse severity in accident year 2008; and
|
|
·
|
2008: favorable by $23 million, or 7.6 points, related to accident years 2004 to 2006, partially offset by adverse development in the 2007 accident year driven by higher than expected severity.
|
2010
|
2009
|
|||||||||||||||||||
($ in thousands)
|
2010
|
2009
|
vs. 2009
|
2008
|
vs. 2008
|
|||||||||||||||
Statutory NPW
|
$ | 281,365 | 298,036 | (6 | ) % | 300,391 | (1 | ) % | ||||||||||||
Statutory NPE
|
291,495 | 300,562 | (3 | ) | 307,388 | (2 | ) | |||||||||||||
Statutory combined ratio
|
90.2 | % | 98.2 | (8.0 | ) pts | 99.7 | (1.5 | ) pts | ||||||||||||
% of total statutory commercial NPW
|
25 | % | 25 | 23 |
|
·
|
New business that decreased 19% to $43.7 million; and
|
|
·
|
A reduction in net renewal premiums of $10.6 million or 4%.
|
|
·
|
In 2010, favorable casualty prior year development of approximately $28 million, or 9.6 points, driven by lower than anticipated severity primarily in accident years 2004 through 2009; and
|
|
·
|
In 2009, favorable prior year development of approximately $10 million, or 3.2 points, driven by lower than anticipated severity primarily in accident year 2007.
|
|
·
|
The 3.2 points of favorable casualty prior year development in 2009 mentioned above, compared to insignificant development in 2008; and
|
|
·
|
Physical damage losses that were $4.5 million, or approximately 1.2 points, lower in 2009 compared to 2008.
|
Commercial Property | ||||||||||||||||||||
2010
|
2009
|
|||||||||||||||||||
($ in thousands)
|
2010
|
2009
|
vs. 2009
|
2008
|
vs. 2008
|
|||||||||||||||
Statutory NPW
|
$ | 194,382 | 199,707 | (3 | ) % | 194,550 | 3 | % | ||||||||||||
Statutory NPE
|
199,252 | 197,665 | 1 | 196,189 | 1 | |||||||||||||||
Statutory combined ratio
|
93.7 | % | 83.9 | 9.8 | pts | 92.9 | (9.0 | ) pts | ||||||||||||
% of total statutory commercial NPW
|
17 | % | 17 | 15 |
|
·
|
New business that decreased $9.8 million, or 22%, to $35.5 million; and
|
|
·
|
Partially offset by an increase in net renewals of $3.7 million, or 2%, to $175.0 million, which included renewal pure price increases of 2.1%.
|
|
·
|
Net renewal premium increases of 4%, to $171.3 million;
|
|
·
|
Total policy count increases of 3% in 2009; and
|
|
·
|
Renewal pure price increases of 0.3% in 2009 compared to decreases of 4.1% in 2008.
|
2010
|
2009
|
|||||||||||||||||||
($ in thousands)
|
2010
|
2009
|
vs. 2009
|
2008
|
vs. 2008
|
|||||||||||||||
GAAP Insurance Operations Results:
|
||||||||||||||||||||
NPW
|
$ | 256,665 | 227,859 | 13 | % | 213,185 | 7 | % | ||||||||||||
NPE
|
242,316 | 216,095 | 12 | 209,943 | 3 | |||||||||||||||
Less:
|
||||||||||||||||||||
Losses and loss expenses incurred
|
191,749 | 162,475 | 18 | 158,847 | 2 | |||||||||||||||
Net underwriting expenses incurred
|
71,066 | 65,623 | 8 | 61,779 | 6 | |||||||||||||||
Underwriting loss
|
$ | (20,499 | ) | (12,003 | ) | (71 | ) % | (10,683 | ) | (12 | ) % | |||||||||
GAAP Ratios:
|
||||||||||||||||||||
Loss and loss expense ratio
|
79.1 | % | 75.2 | 3.9 | pts | 75.7 | (0.5 | ) pts | ||||||||||||
Underwriting expense ratio
|
29.4 | 30.4 | (1.0 | ) | 29.4 | 1.0 | ||||||||||||||
Combined ratio
|
108.5 | 105.6 | 2.9 | 105.1 | 0.5 | |||||||||||||||
Statutory Ratios:
|
||||||||||||||||||||
Loss and loss expense ratio
|
79.2 | 75.2 | 4 | 75.7 | (0.5 | ) | ||||||||||||||
Underwriting expense ratio
|
27.2 | 29.2 | (2 | ) | 28.0 | 1.2 | ||||||||||||||
Combined ratio
|
106.4 | % | 104.4 | 2 | pts | 103.7 | 0.7 | pts |
|
·
|
The increase in NPW in 2010 compared to 2009 is primarily due to:
|
|
o
|
43 rate increases, 34 of which were 5% or more, that went into effect across our Personal Lines footprint during 2010;
|
|
o
|
Net renewal direct premium written increases of $21.6 million, or 12%, to $200.1 million for 2010, which includes an improvement in point of renewal retention of approximately two points, to 92% in 2010; and
|
|
o
|
New business direct premium written increases of $6.8 million, or 12%, to $62.0 million in 2010.
|
|
·
|
NPE increases in 2010 compared to 2009 and 2008 are consistent with the NPW increases in 2010 compared to 2009 and 2008 as discussed above.
|
|
·
|
The 3.9-point increase in the GAAP loss and loss expense ratio in 2010 compared to 2009 was primarily attributable to an increase in property losses of $27.0 million, or 7.7 points. This includes an increase in catastrophe losses of $15.1 million, or 6.1 points. Catastrophe losses were unusually high in 2010 as we incurred losses on more than 20 storms and such losses exceeded our historical trend. The increase in losses was partially offset by increased rate on this book of business that is favorably impacting NPE and outpacing loss costs.
|
|
·
|
The decrease in the GAAP underwriting expense ratio in 2010 compared to 2009 was attributable to an increase in premiums that has outpaced increases in underwriting expense.
|
Implemented Rate Filings
|
Direct Premium
Written Increase
|
Additional Premium
Generated on In-Force Policies
|
|||
2009
|
3.1% |
$7 million
|
|||
2010
|
6.3% |
$15 million
|
|||
2011
1
|
5.8% |
$15 million
|
|
·
|
Property Reinsurance –
includes our Property Excess of Loss treaty purchased for protection against large individual property losses and our Property Catastrophe treaty purchased to provide protection for the overall property portfolio against severe catastrophic events. Facultative reinsurance is also used for property risks that are in excess of our treaty capacity.
|
|
·
|
Casualty Reinsurance
– purchased to provide protection for both individual large casualty losses and catastrophic casualty losses involving multiple claimants or insureds. Facultative reinsurance is also used for casualty risks that are in excess of our treaty capacity.
|
|
·
|
Terrorism Reinsurance
– available as a federal backstop related to terrorism losses as provided under the TRIA. For further information regarding this legislation, see Item 1A. “Risk Factors.” of this Form 10-K.
|
|
·
|
Flood Reinsurance
– as a servicing carrier in the WYO Program, we receive a fee for writing flood business, for which the related premiums and losses are ceded to the federal government.
|
|
·
|
Other Reinsurance
– includes smaller treaties, such as our Surety and Fidelity Excess of Loss, NWCRP and our Equipment Breakdown Coverage treaties, which do not fall within the categories above.
|
($ in thousands)
|
Historical Basis
|
Near Term Basis
|
|||||||||||||||||||||||
Occurrence Exceedence
Probability
|
Gross Losses
RMS v.9.0
|
Net
Losses
1
|
Net Losses
as a
Percent of
Equity
2
|
Gross
Losses RMS
v.9.0
|
Net
Losses
1
|
Net Losses
as a
Percent of
Equity
2
|
|||||||||||||||||||
4.0% (1 in 25 year event)
|
$ | 45,200 | 26,479 | 2% | $ | 58,201 | 27,675 | 3% | |||||||||||||||||
2.0% (1 in 50 year event)
|
99,644 | 31,489 | 3 | 121,799 | 33,883 | 3 | |||||||||||||||||||
1.0% (1 in 100 year event)
|
196,710 | 41,997 | 4 | 228,213 | 43,820 | 4 | |||||||||||||||||||
0.4% (1 in 250 year event)
|
412,728 | 61,024 | 6 | 457,873 | 90,368 | 8 |
|
·
|
The per occurrence cap on the total program is $64.0 million.
|
|
·
|
The first layer continues to have unlimited reinstatements. The annual aggregate limit for the second, $20.0 million in excess of $10.0 million, layer remains at $80.0 million.
|
|
·
|
Consistent with the prior year treaty, the Property Treaty excludes nuclear, biological, chemical, and radiological terrorism losses.
|
|
·
|
The renewal treaty rate decreased by 2%.
|
·
|
The first layer provides coverage for 85% of up to $3.0 million in excess of a $2.0 million retention.
|
|
·
|
The next five layers provide coverage for 100% of up to $85.0 million in excess of $5.0 million.
|
·
|
Consistent with the prior year, the Casualty Treaty excludes nuclear, biological, chemical, and radiological terrorism losses. Annual aggregate terrorism limits, net of co-participation, remained the same at $198.8 million.
|
|
·
|
The first layer provides coverage for 90% of up to $3.0 million in excess of a $1.0 million retention for both contract surety and fidelity, as well as commercial surety.
|
|
·
|
The second layer provides coverage for 90% of up to $5.0 million in excess of $4.0 million for contract surety and 90% of up to $2.0 million in excess of $4.0 million for fidelity and commercial surety.
|
|
·
|
The third layer provides coverage of up to $3.0 million in excess of $9.0 million for contract surety only.
|
2010
|
2009
|
|||||||||||||||||||
($ in thousands)
|
2010
|
2009
|
vs. 2009
|
2008
|
vs. 2008
|
|||||||||||||||
Total invested assets
|
$ | 3,925,722 | 3,781,051 | 4 | % | $ | 3,540,309 | 7 | % | |||||||||||
Net investment income – before tax
|
145,708 | 118,471 | 23 | 131,032 | (10 | ) | ||||||||||||||
Net investment income – after tax
|
111,059 | 95,725 | 16 | 105,039 | (9 | ) | ||||||||||||||
Unrealized gain (loss) during the period – before tax
|
37,737 | 133,160 | (72 | ) | (219,515 | ) | 161 | |||||||||||||
Unrealized gain (loss) during the period – after tax
|
24,529 | 86,554 | (72 | ) | (142,685 | ) | 161 | |||||||||||||
Net realized losses– before tax
|
(7,083 | ) | (45,970 | ) | 85 | (49,452 | ) | 7 | ||||||||||||
Net realized losses– after tax
|
(4,604 | ) | (29,880 | ) | 85 | (32,144 | ) | 7 | ||||||||||||
Effective tax rate
|
23.8 | % | 19.2 | 4.6 | pts | 19.8 | % | (0.6 | ) pts | |||||||||||
Annual after-tax yield on fixed maturity securities
|
2.8 | 3.3 | (0.5 | ) | 3.6 | (0.3 | ) | |||||||||||||
Annual after-tax yield on investment portfolio
|
2.9 | 2.6 | 0.3 | 2.9 | (0.3 | ) |
As of December 31,
|
2010
|
2009
|
||||||
U.S. government obligations
|
11 | % | 16 | % | ||||
Foreign government obligations
|
1 | - | ||||||
State and municipal obligations
|
36 | 42 | ||||||
Corporate securities
|
27 | 13 | ||||||
Mortgage-backed securities (“MBS”)
|
14 | 16 | ||||||
ABS
|
2 | 1 | ||||||
Total fixed maturity securities
|
91 | 88 | ||||||
Equity securities
|
2 | 2 | ||||||
Short-term investments
|
4 | 6 | ||||||
Other investments
|
3 | 4 | ||||||
Total
|
100 | % | 100 | % |
Fixed Maturity
|
December 31,
|
December 31,
|
||||||
Rating
|
2010
|
2009
|
||||||
Aaa/AAA
|
42 | % | 57 | % | ||||
Aa/AA
|
28 | % | 25 | % | ||||
A/A
|
21 | % | 14 | % | ||||
Baa/BBB
|
8 | % | 3 | % | ||||
Ba/BB or below
|
1 | % | 1 | % | ||||
Total
|
100 | % | 100 | % |
Other Investments
|
2010
|
|||||||||||
Carrying Value
|
Remaining
|
|||||||||||
($ in thousands)
|
December 31, 2010
|
December 31, 2009
|
Commitment
|
|||||||||
Alternative Investments:
|
||||||||||||
Energy/power generation
|
$ | 35,560 | 32,996 | 11,214 | ||||||||
Secondary private equity
|
26,709 | 20,936 | 12,029 | |||||||||
Private equity
|
21,601 | 21,525 | 8,323 | |||||||||
Distressed debt
|
20,432 | 19,201 | 4,611 | |||||||||
Real estate
|
14,192 | 16,856 | 10,784 | |||||||||
Mezzanine financing
|
10,230 | 20,323 | 15,252 | |||||||||
Venture capital
|
6,386 | 5,752 | 1,400 | |||||||||
Total alternative investments
|
135,110 | 137,589 | 63,613 | |||||||||
Other securities
|
2,755 | 3,078 | - | |||||||||
Total other investments
|
$ | 137,865 | 140,667 | 63,613 |
($ in thousands)
|
Carry
Value
|
Proceeds
|
Pre-tax
Realized
Loss
|
Unfunded
Commitment
|
||||||||||||
Mezzanine financing
|
$ | 12,620 | 10,060 | 2,560 | 10,866 | |||||||||||
Secondary private equity
|
3,822 | 2,587 | 1,235 | 6,202 | ||||||||||||
Private equity
|
2,348 | 1,177 | 1,171 | 4,428 | ||||||||||||
Real estate
|
2,751 | 2,533 | 218 | 750 | ||||||||||||
Total
|
$ | 21,541 | 16,357 | 5,184 | 22,246 |
($ in thousands)
|
2010
|
2009
|
2008
|
|||||||||
Fixed maturity securities
|
$ | 130,990 | 141,882 | 146,555 | ||||||||
Equity securities, dividend income
|
2,238 | 2,348 | 5,603 | |||||||||
Trading securities, change in fair value
|
- | 262 | (8,129 | ) | ||||||||
Short-term investments
|
437 | 1,273 | 4,252 | |||||||||
Other investments
|
20,452 | (21,383 | ) | (12,336 | ) | |||||||
Investment expenses
|
(8,409 | ) | (5,911 | ) | (4,913 | ) | ||||||
Net investment income earned
|
$ | 145,708 | 118,471 | 131,032 |
Realized Gains (Losses) Excluding OTTI
|
||||||||||||
($ in thousands)
|
2010
|
2009
|
2008
|
|||||||||
HTM fixed maturity securities
|
||||||||||||
Gains
|
$ | 569 | 225 | 27 | ||||||||
Losses
|
(894 | ) | (1,049 | ) | (2 | ) | ||||||
AFS fixed maturity securities
|
||||||||||||
Gains
|
8,161 | 20,899 | 1,777 | |||||||||
Losses
|
(7,619 | ) | (13,889 | ) | (14,259 | ) | ||||||
AFS equity securities
|
||||||||||||
Gains
|
16,698 | 33,355 | 34,582 | |||||||||
Losses
|
(1,156 | ) | (28,056 | ) | (14,677 | ) | ||||||
Other investments
|
||||||||||||
Gains
|
- | - | 1,356 | |||||||||
Losses
|
(5,184 | ) | (2,039 | ) | (5,156 | ) | ||||||
Total other net realized investment gains
|
10,575 | 9,446 | 3,648 | |||||||||
Total OTTI charges recognized in earnings
|
(17,658 | ) | (55,416 | ) | (53,100 | ) | ||||||
Total net realized losses
|
$ | (7,083 | ) | (45,970 | ) | (49,452 | ) |
Period of Time in an
|
2010
|
2009
|
2008
|
|||||||||||||||||||||
Unrealized Loss Position
|
Fair
|
Fair
|
Fair
|
|||||||||||||||||||||
Value on
|
Realized
|
Value on
|
Realized
|
Value on
|
Realized
|
|||||||||||||||||||
($ in thousands)
|
Sale Date
|
Loss
|
Sale Date
|
Loss
|
Sale Date
|
Loss
|
||||||||||||||||||
Fixed maturities:
|
||||||||||||||||||||||||
0 – 6 months
|
$ | 11,462 | 463 | 54,287 | 6,951 | 40,467 | 8,259 | |||||||||||||||||
7 – 12 months
|
- | - | 38,292 | 3,424 | 11,415 | 567 | ||||||||||||||||||
Greater than 12 months
|
10,257 | 7,098 | 39,241 | 3,420 | 9,359 | 3,627 | ||||||||||||||||||
Total fixed maturities
|
21,719 | 7,561 | 131,820 | 13,795 | 61,241 | 12,453 | ||||||||||||||||||
Equities:
|
||||||||||||||||||||||||
0 – 6 months
|
13,914 | 739 | 29,567 | 20,620 | 30,062 | 13,383 | ||||||||||||||||||
7 – 12 months
|
3,173 | 417 | 8,230 | 7,436 | 3,838 | 618 | ||||||||||||||||||
Greater than 12 months
|
- | - | - | - | 1,628 | 675 | ||||||||||||||||||
Total equity securities
|
17,087 | 1,156 | 37,797 | 28,056 | 35,528 | 14,676 | ||||||||||||||||||
Other Investments:
|
||||||||||||||||||||||||
0 – 6 months
|
16,357 | 5,184 | - | - | 8,996 | 4,306 | ||||||||||||||||||
7 – 12 months
|
- | - | 4,816 | 1,189 | - | - | ||||||||||||||||||
Total other investments
|
16,357 | 5,184 | 4,816 | 1,189 | 8,996 | 4,306 | ||||||||||||||||||
Total
|
$ | 55,163 | 13,901 | 174,433 | 43,040 | 105,765 | 31,435 |
($ in thousands)
|
2010
|
2009
|
2008
|
|||||||||
HTM securities
|
||||||||||||
ABS
|
$ | 31 | 2,482 | - | ||||||||
CMBS
|
4,215 | 11,777 | - | |||||||||
RMBS
|
419 | - | - | |||||||||
Total HTM securities
|
4,665 | 14,259 | - | |||||||||
AFS securities
|
||||||||||||
Corporate securities
|
- | 1,271 | 10,200 | |||||||||
Obligations of state and political subdivisions
|
197 | - | - | |||||||||
ABS
|
128 | - | 16,420 | |||||||||
CMBS
|
2,200 | - | 9,725 | |||||||||
RMBS
|
7,925 | 37,779 | 5,357 | |||||||||
Total fixed maturity AFS securities
|
10,450 | 39,050 | 41,702 | |||||||||
Equity securities
|
2,543 | 2,107 | 6,613 | |||||||||
Total AFS securities
|
12,993 | 41,157 | 48,315 | |||||||||
Other securities
|
||||||||||||
Other securities
|
- | - | 4,785 | |||||||||
Total other securities
|
- | - | 4,785 | |||||||||
Total OTTI charges recognized in earnings
|
$ | 17,658 | 55,416 | 53,100 |
December 31, 2010
|
Less than 12 months
|
12 months or longer
|
||||||||||||||
($ in thousands)
|
Fair
Value
|
Unrealized
Losses
1
|
Fair
Value
|
Unrealized
Losses
1
|
||||||||||||
AFS securities:
|
||||||||||||||||
U.S. government and government agencies
2
|
$ | 3,956 | (147 | ) | - | - | ||||||||||
Foreign government
|
10,776 | (349 | ) | - | - | |||||||||||
Obligations of states and political subdivisions
|
40,410 | (650 | ) | - | - | |||||||||||
Corporate securities
|
362,502 | (8,784 | ) | - | - | |||||||||||
ABS
|
30,297 | (273 | ) | 880 | (66 | ) | ||||||||||
CMBS
|
5,453 | (271 | ) | 11,115 | (2,652 | ) | ||||||||||
RMBS
|
70,934 | (1,098 | ) | 20,910 | (1,145 | ) | ||||||||||
Total fixed maturity securities
|
524,328 | (11,572 | ) | 32,905 | (3,863 | ) | ||||||||||
Equity securities
|
- | - | - | - | ||||||||||||
Subtotal
|
$ | 524,328 | (11,572 | ) | 32,905 | (3,863 | ) |
Less than 12 months
|
12 months or longer
|
|||||||||||||||||||||||
Unrealized
|
Unrecognized
|
|||||||||||||||||||||||
($ in thousands)
|
Fair
Value
|
(Losses)
Gains
1
|
Gains
(Losses)
3
|
Fair
Value
|
Unrealized
Losses
1
|
Unrecognized
Gains
3
|
||||||||||||||||||
HTM securities:
|
$ | |||||||||||||||||||||||
Obligations of states and political
subdivisions
|
21,036 | (381 | ) | 45 | 27,855 | (1,969 | ) | 670 | ||||||||||||||||
Corporate securities
|
1,985 | (434 | ) | 420 | - | - | - | |||||||||||||||||
ABS
|
507 | (546 | ) | (440 | ) | 2,931 | (1,095 | ) | 747 | |||||||||||||||
CMBS
|
3,621 | 15 | (17 | ) | 5,745 | (3,933 | ) | 833 | ||||||||||||||||
RMBS
|
- | - | - | 95 | (38 | ) | 1 | |||||||||||||||||
Subtotal
|
$ | 27,149 | (1,346 | ) | 8 | 36,626 | (7,035 | ) | 2,251 | |||||||||||||||
Total AFS and HTM
|
$ | 551,477 | (12,918 | ) | 8 | 69,531 | (10,898 | ) | 2,251 |
December 31, 2009
|
Less than 12 months
|
12 months or longer
|
||||||||||||||
($ in thousands)
|
Fair
Value
|
Unrealized
Losses
1
|
Fair
Value
|
Unrealized
Losses
1
|
||||||||||||
AFS securities:
|
||||||||||||||||
U.S. government and government agencies
2
|
$ | 187,283 | (1,210 | ) | - | - | ||||||||||
Obligations of states and political subdivisions
|
8,553 | (120 | ) | 3,059 | (17 | ) | ||||||||||
Corporate securities
|
74,895 | (829 | ) | 10,550 | (417 | ) | ||||||||||
ABS
|
2,983 | (17 | ) | - | - | |||||||||||
CMBS
|
36,447 | (637 | ) | 3,960 | (40 | ) | ||||||||||
RMBS
|
78,328 | (514 | ) | 53,607 | (20,198 | ) | ||||||||||
Total fixed maturity securities
|
388,489 | (3,327 | ) | 71,176 | (20,672 | ) | ||||||||||
Equity securities
|
3,828 | (214 | ) | 5,932 | (396 | ) | ||||||||||
Subtotal
|
$ | 392,317 | (3,541 | ) | 77,108 | (21,068 | ) |
Less than 12 months
4
|
12 months or longer
4
|
|||||||||||||||||||||||
Unrecognized
|
Unrecognized
|
|||||||||||||||||||||||
($ in thousands)
|
Fair
Value
|
Unrealized
Losses
1
|
(Losses)
Gains
3
|
Fair
Value
|
Unrealized
Losses
1
|
Gains
(Losses)
3
|
||||||||||||||||||
HTM securities:
|
||||||||||||||||||||||||
U.S. government and government agencies
2
|
$ | 29,459 | - | (317 | ) | - | - | - | ||||||||||||||||
Obligations of states and political subdivisions
|
46,671 | (598 | ) | 85 | 74,360 | (4,315 | ) | 1,631 | ||||||||||||||||
Corporate securities
|
6,124 | (1,170 | ) | 1,068 | 19,233 | (4,751 | ) | 3,441 | ||||||||||||||||
ABS
|
- | - | - | 10,403 | (4,633 | ) | 2,197 | |||||||||||||||||
CMBS
|
316 | (538 | ) | (190 | ) | 24,984 | (15,650 | ) | (604 | ) | ||||||||||||||
RMBS
|
5,068 | - | (146 | ) | 5,892 | (1,062 | ) | 127 | ||||||||||||||||
Subtotal
|
$ | 87,638 | (2,306 | ) | 500 | 134,872 | (30,411 | ) | 6,792 | |||||||||||||||
Total AFS and HTM
|
$ | 479,955 | (5,847 | ) | 500 | 211,980 | (51,479 | ) | 6,792 |
1
|
Gross unrealized losses include non-OTTI unrealized amounts and OTTI losses recognized in AOCI. In addition, this column includes remaining unrealized gain or loss amounts on securities that were transferred to a HTM designation in the first quarter of 2009 for those securities that are in a net unrealized/unrecognized loss position.
|
2
|
U.S. government includes corporate securities fully guaranteed by the FDIC.
|
3
|
Unrecognized holding gains/(losses) represent market value fluctuations from the later of: (i) the date a security is designated as HTM; or (ii) the date that an OTTI charge is recognized on an HTM security.
|
4
|
The month count for aging of unrealized losses was reset back to historical unrealized loss month counts for securities impacted by the adoption of OTTI accounting guidance issued in 2009.
|
($ in thousands)
|
||||||||||||||||
December 31, 2010
|
December 31, 2009
|
|||||||||||||||
Number of
Issues
|
% of
Market/Book
|
Unrealized
Unrecognized
Loss
|
Number of
Issues
|
% of
Market/Book
|
Unrealized
Unrecognized
Loss
|
|||||||||||
193 |
80% - 99%
|
$ | 16,310 | 150 |
80% - 99%
|
$ | 16,344 | |||||||||
2 |
60% - 79%
|
1,125 | 11 |
60% - 79%
|
10,353 | |||||||||||
2 |
40% - 59%
|
2,160 | 10 |
40% - 59%
|
15,143 | |||||||||||
1 |
20% - 39%
|
986 | 5 |
20% - 39%
|
4,607 | |||||||||||
1 |
0% - 19%
|
976 | 3 |
0% - 19%
|
3,587 | |||||||||||
$ | 21,557 | $ | 50,034 |
Contractual Maturities
|
Amortized
|
Fair
|
||||||
($ in thousands)
|
Cost
|
Value
|
||||||
One year or less
|
$ | 7,488 | 6,349 | |||||
Due after one year through five years
|
281,772 | 275,716 | ||||||
Due after five years through ten years
|
211,471 | 205,397 | ||||||
Due after ten years
|
71,937 | 69,771 | ||||||
Total
|
$ | 572,668 | 557,233 |
Contractual Maturities
|
Amortized
|
Fair
|
||||||
($ in thousands)
|
Cost
|
Value
|
||||||
One year or less
|
$ | 6,003 | 5,008 | |||||
Due after one year through five years
|
43,620 | 39,070 | ||||||
Due after five years through ten years
|
19,507 | 18,979 | ||||||
Due after ten years
|
765 | 718 | ||||||
Total
|
$ | 69,895 | 63,775 |
($ in millions)
|
2010
|
2009
|
2008
|
|||||||||
Current taxable income from continuing operations
|
$ | 19.2 | 11.9 | 69.6 | ||||||||
Pre-tax income from continuing operations
|
82.0 | 39.2 | 40.2 | |||||||||
Net deferred tax asset
|
93.2 | 111.0 | 150.8 | |||||||||
Federal income tax (expense) benefit from continuing operations
|
(12.6 | ) | 5.5 | 3.9 | ||||||||
Effective tax rate
|
15.4 | % | (14.0 | ) | (9.8 | ) |
Required as of
December 31, 2010
|
Actual as of
December 31, 2010
|
|||
Consolidated net worth
|
$812 million
|
$1,071 million
|
||
Statutory surplus
|
Not less than $750 million
|
$1,073 million
|
||
Debt-to-capitalization ratio
|
Not to exceed 30%
|
19.7%
|
||
A.M. Best financial strength rating
|
Minimum of A-
|
A+
|
Contractual Obligations
|
Payment Due by Period
|
|||||||||||||||||||
Less than
|
1-3
|
3-5
|
More than
|
|||||||||||||||||
($ in millions)
|
Total
|
1 year
|
Years
|
years
|
5 years
|
|||||||||||||||
Operating leases
|
$ | 24.6 | 8.9 | 10.7 | 3.8 | 1.2 | ||||||||||||||
Notes payable
|
263.0 | - | - | 13.0 | 250.0 | |||||||||||||||
Interest on debt obligations
|
674.2 | 18.2 | 36.4 | 36.0 | 583.6 | |||||||||||||||
Subtotal
|
961.8 | 27.1 | 47.1 | 52.8 | 834.8 | |||||||||||||||
Gross loss and loss expense payments
|
2,830.1 | 717.8 | 883.4 | 438.2 | 790.7 | |||||||||||||||
Ceded loss and loss expense payments
|
313.8 | 60.3 | 76.4 | 42.0 | 135.1 | |||||||||||||||
Net loss and loss expense payments
|
2,516.3 | 657.5 | 807.0 | 396.2 | 655.6 | |||||||||||||||
Total
|
$ | 3,478.1 | 684.6 | 854.1 | 449.0 | 1,490.4 |
|
·
|
S&P Insurance Rating Services - Our “A” financial strength rating was reaffirmed in the third quarter of 2010. S&P cited our strong competitive position in Mid-Atlantic markets, effective use of well-developed predictive modeling, strong financial flexibility, conservative financial leverage, and strong agency relationships. At the same time, S&P revised our outlook to “stable” from “negative,” citing strong cycle management, careful risk selection, improved capital adequacy, and continuing price increases across most commercial and personal lines along with strong retention.
|
|
·
|
Moody’s - We have a financial strength rating of “A2” from Moody’s with an outlook of stable, which reflects our strong regional franchise with good independent agency support, along with our conservative balance sheet and moderate financial leverage. Our outlook reflects continued competition in both commercial lines and personal lines, geographic concentration, despite some expansion in the Midwest and New England, and exposure to catastrophe risk.
|
|
·
|
Fitch Ratings - Our “A+” rating was reaffirmed in the third quarter of 2010, citing our disciplined underwriting culture, conservative balance sheet, good capitalization, strong independent agency relationships, strong loss reserve position, and improved diversification through our continued efforts to reduce our concentration in New Jersey. At the same time, Fitch revised our outlook to “stable” from “negative.”
|
2010
|
||||||||||||||||||||
Interest Rate Shift in Basis Points
|
||||||||||||||||||||
($ in thousands)
|
-200 | -100 | 0 | 100 | 200 | |||||||||||||||
HTM fixed maturity securities
|
||||||||||||||||||||
Fair value of HTM fixed maturity securities portfolio
|
$ | 1,336,120 | 1,300,449 | 1,256,294 | 1,211,379 | 1,168,072 | ||||||||||||||
Fair value change
|
79,826 | 44,155 | (44,915 | ) | (88,222 | ) | ||||||||||||||
Fair value change from base (%)
|
6.35 | % | 3.51 | % | (3.58 | )% | (7.02 | ) % | ||||||||||||
AFS fixed maturity securities
|
||||||||||||||||||||
Fair value of AFS fixed maturity securities portfolio
|
$ | 2,456,576 | 2,428,117 | 2,342,742 | 2,253,479 | 2,167,711 | ||||||||||||||
Fair value change
|
113,834 | 85,375 | (89,263 | ) | (175,031 | ) | ||||||||||||||
Fair value change from base (%)
|
4.86 | % | 3.64 | % | (3.81 | )% | (7.47 | ) % |
December 31, 2010
|
December 31, 2009
|
|||||||||||||||||||||
Fair
|
Unrealized
|
Average
Credit
|
Fair
|
Unrealized
|
Average
Credit
|
|||||||||||||||||
($ in millions)
|
Value
|
Gain (Loss)
|
Quality
|
Value
|
Gain (Loss)
|
Quality
|
||||||||||||||||
AFS Fixed Maturity Portfolio:
|
||||||||||||||||||||||
U.S. government obligations
1
|
$ | 320.5 | 8.1 |
AAA
|
$ | 475.6 | 1.8 |
AAA
|
||||||||||||||
Foreign government obligations
|
19.0 | - |
AA
|
- | - | - | ||||||||||||||||
State and municipal obligations
|
533.9 | 21.9 |
AA+
|
379.8 | 20.3 |
AA+
|
||||||||||||||||
Corporate securities
|
993.7 | 19.9 | A | 379.6 | 14.1 | A+ | ||||||||||||||||
MBS
|
426.9 | 6.7 |
AA+
|
382.9 | (17.1 | ) |
AA+
|
|||||||||||||||
Asset-backed securities (“ABS”)
|
48.7 | 0.2 |
AAA
|
18.0 | 0.3 |
AA+
|
||||||||||||||||
Total AFS fixed maturity portfolio
|
$ | 2,342.7 | 56.8 |
AA
|
$ | 1,635.9 | 19.4 |
AA+
|
||||||||||||||
State and Municipal Obligations:
|
||||||||||||||||||||||
General obligations
|
$ | 289.6 | 11.1 |
AA+
|
$ | 222.6 | 11.0 |
AA+
|
||||||||||||||
Special revenue obligations
|
244.3 | 10.8 |
AA
|
157.2 | 9.3 |
AA+
|
||||||||||||||||
Total state and municipal obligations
|
$ | 533.9 | 21.9 |
AA+
|
$ | 379.8 | 20.3 |
AA+
|
||||||||||||||
Corporate Securities:
|
||||||||||||||||||||||
Financial
|
$ | 289.9 | 4.5 | A+ | $ | 67.4 | 3.0 |
AA-
|
||||||||||||||
Industrials
|
77.0 | 3.6 | A- | 46.6 | 2.2 | A | ||||||||||||||||
Utilities
|
56.5 | 0.2 |
BBB+
|
18.9 | 0.9 | A- | ||||||||||||||||
Consumer discretion
|
98.9 | 1.1 | A- | 26.3 | 1.3 | A- | ||||||||||||||||
Consumer staples
|
101.6 | 2.1 | A- | 51.6 | 1.4 | A | ||||||||||||||||
Healthcare
|
138.0 | 4.1 |
AA-
|
52.8 | 1.7 |
AA-
|
||||||||||||||||
Materials
|
57.0 | 0.8 | A- | 20.7 | 0.8 | A- | ||||||||||||||||
Energy
|
49.5 | 1.2 | A | 42.4 | 1.3 |
AA-
|
||||||||||||||||
Information technology
|
51.5 | 0.4 | A+ | 10.8 | 0.1 |
AA
|
||||||||||||||||
Telecommunications services
|
50.5 | 0.2 | A- | 14.6 | 0.5 | A | ||||||||||||||||
Other
|
23.3 | 1.7 |
AA+
|
27.5 | 0.9 | A | ||||||||||||||||
Total corporate securities
|
$ | 993.7 | 19.9 | A | $ | 379.6 | 14.1 | A+ | ||||||||||||||
MBS:
|
||||||||||||||||||||||
Government guaranteed agency CMBS
|
$ | 71.9 | 3.3 |
AAA
|
$ | 94.6 | 1.1 |
AAA
|
||||||||||||||
Non-agency CMBS
|
32.6 | (2.1 | ) | A- | 9.0 | 0.1 |
AA-
|
|||||||||||||||
Government guaranteed agency RMBS
|
91.1 | 3.0 |
AAA
|
105.2 | 0.1 |
AAA
|
||||||||||||||||
Other agency RMBS
|
183.6 | 3.8 |
AAA
|
119.8 | 1.9 |
AAA
|
||||||||||||||||
Non-agency RMBS
|
38.3 | (1.0 | ) |
BBB
|
30.2 | (12.8 | ) | A- | ||||||||||||||
Alternative-A (“Alt-A”) RMBS
|
9.4 | (0.3 | ) |
AAA
|
24.1 | (7.5 | ) | A- | ||||||||||||||
Total MBS
|
$ | 426.9 | 6.7 |
AA+
|
$ | 382.9 | (17.1 | ) |
AA+
|
|||||||||||||
ABS:
|
||||||||||||||||||||||
ABS
|
$ | 47.8 | 0.2 |
AAA
|
$ | 18.0 | 0.3 |
AA+
|
||||||||||||||
Sub-prime ABS
2, 3
|
0.9 | - | D | - | - | - | ||||||||||||||||
Total ABS
|
$ | 48.7 | 0.2 |
AAA
|
$ | 18.0 | 0.3 |
AA+
|
1
|
U.S. government includes corporate securities fully guaranteed by the Federal Depository Insurance Corporation (“FDIC”).
|
2
|
We define sub-prime exposure as exposure to direct and indirect investments in non-agency residential mortgages with average FICO
®
scores below 650.
|
3
|
Subprime ABS includes one security that is currently expected by rating agencies to default on its obligations.
|
December 31, 2010
($ in millions)
|
Fair
Value
|
Carry
Value
|
Unrecognized
Holding Gain
|
Unrealized
Gain (Loss) in
AOCI
|
Total
Unrealized/
Unrecognized
Gain (Loss)
|
Average
Credit
Quality
|
|||||||||||||||||
HTM Portfolio:
|
|||||||||||||||||||||||
U.S. government obligations
1
|
$ | 103.1 | 98.1 | 5.0 | 4.7 | 9.7 |
AAA
|
||||||||||||||||
Foreign government obligations
|
5.6 | 5.6 | - | 0.3 | 0.3 |
AA+
|
|||||||||||||||||
State and municipal obligations
|
912.3 | 896.6 | 15.7 | 22.2 | 37.9 |
AA
|
|||||||||||||||||
Corporate securities
|
82.1 | 72.7 | 9.4 | (4.0 | ) | 5.4 | A- | ||||||||||||||||
MBS
|
141.3 | 130.8 | 10.5 | (6.3 | ) | 4.2 |
AAA
|
||||||||||||||||
ABS
|
11.9 | 10.5 | 1.4 | (2.4 | ) | (1.0 | ) | A | |||||||||||||||
Total HTM portfolio
|
$ | 1,256.3 | 1,214.3 | 42.0 | 14.5 | 56.5 |
AA
|
||||||||||||||||
State and Municipal Obligations:
|
|||||||||||||||||||||||
General obligations
|
$ | 240.3 | 236.8 | 3.5 | 9.7 | 13.2 |
AA
|
||||||||||||||||
Special revenue obligations
|
672.0 | 659.8 | 12.2 | 12.5 | 24.7 |
AA
|
|||||||||||||||||
Total state and municipal obligations
|
$ | 912.3 | 896.6 | 15.7 | 22.2 | 37.9 |
AA
|
||||||||||||||||
Corporate Securities:
|
|||||||||||||||||||||||
Financial
|
$ | 23.5 | 20.0 | 3.5 | (2.5 | ) | 1.0 | A- | |||||||||||||||
Industrials
|
22.8 | 19.4 | 3.4 | (1.2 | ) | 2.2 | A | ||||||||||||||||
Utilities
|
16.9 | 16.1 | 0.8 | (0.1 | ) | 0.7 |
BBB
|
||||||||||||||||
Consumer discretion
|
7.7 | 7.1 | 0.6 | 0.2 | 0.8 |
AA-
|
|||||||||||||||||
Consumer staples
|
5.4 | 4.9 | 0.5 | (0.1 | ) | 0.4 | A | ||||||||||||||||
Materials
|
2.1 | 1.9 | 0.2 | (0.1 | ) | 0.1 |
BBB-
|
||||||||||||||||
Energy
|
3.7 | 3.3 | 0.4 | (0.2 | ) | 0.2 |
BB+
|
||||||||||||||||
Total corporate securities
|
$ | 82.1 | 72.7 | 9.4 | (4.0 | ) | 5.4 | A- | |||||||||||||||
MBS:
|
|||||||||||||||||||||||
Government guaranteed agency CMBS
|
$ | 9.2 | 8.9 | 0.3 | - | 0.3 |
AAA
|
||||||||||||||||
Other agency CMBS
|
3.6 | 3.6 | - | - | - |
AAA
|
|||||||||||||||||
Non-agency CMBS
|
42.1 | 35.0 | 7.1 | (7.4 | ) | (0.3 | ) |
AA+
|
|||||||||||||||
Government guaranteed agency RMBS
|
4.5 | 4.0 | 0.5 | (0.1 | ) | 0.4 |
AAA
|
||||||||||||||||
Other agency RMBS
|
81.8 | 79.2 | 2.6 | 1.2 | 3.8 |
AAA
|
|||||||||||||||||
Non-agency RMBS
|
0.1 | 0.1 | - | - | - |
BBB
|
|||||||||||||||||
Total MBS
|
$ | 141.3 | 130.8 | 10.5 | (6.3 | ) | 4.2 |
AAA
|
|||||||||||||||
ABS:
|
|||||||||||||||||||||||
ABS
|
$ | 9.1 | 8.0 | 1.1 | (0.9 | ) | 0.2 | A- | |||||||||||||||
Alt-A ABS
|
2.8 | 2.5 | 0.3 | (1.5 | ) | (1.2 | ) |
AA-
|
|||||||||||||||
Total ABS
|
$ | 11.9 | 10.5 | 1.4 | (2.4 | ) | (1.0 | ) | A |
December 31, 2009
($ in millions)
|
Fair
Value
|
Carry
Value
|
Unrecognized
Holding Gain
(Loss)
|
Unrealized Gain
(Loss) in AOCI
|
Total
Unrealized/
Unrecognized
Gain (Loss)
|
Average
Credit
Quality
|
|||||||||||||||||
HTM Portfolio:
|
|||||||||||||||||||||||
U.S. government obligations
1
|
$ | 146.0 | 144.8 | 1.2 | 5.6 | 6.8 |
AAA
|
||||||||||||||||
Foreign government obligations
|
5.5 | 5.7 | (0.2 | ) | 0.4 | 0.2 |
AA-
|
||||||||||||||||
State and municipal obligations
|
1,210.8 | 1,201.4 | 9.4 | 33.9 | 43.3 |
AA
|
|||||||||||||||||
Corporate securities
|
102.0 | 93.1 | 8.9 | (6.4 | ) | 2.5 | A- | ||||||||||||||||
MBS
|
245.7 | 239.1 | 6.6 | (17.9 | ) | (11.3 | ) |
AA+
|
|||||||||||||||
ABS
|
30.2 | 26.3 | 3.9 | (5.7 | ) | (1.8 | ) |
AA-
|
|||||||||||||||
Total HTM portfolio
|
$ | 1,740.2 | 1,710.4 | 29.8 | 9.9 | 39.7 |
AA+
|
||||||||||||||||
State and Municipal Obligations:
|
|||||||||||||||||||||||
General obligations
|
$ | 301.5 | 300.8 | 0.7 | 14.7 | 15.4 |
AA+
|
||||||||||||||||
Special revenue obligations
|
909.3 | 900.6 | 8.7 | 19.2 | 27.9 |
AA
|
|||||||||||||||||
Total state and municipal obligations
|
$ | 1,210.8 | 1,201.4 | 9.4 | 33.9 | 43.3 |
AA
|
||||||||||||||||
Corporate Securities:
|
|||||||||||||||||||||||
Financial
|
$ | 29.9 | 26.1 | 3.8 | (4.4 | ) | (0.6 | ) | A- | ||||||||||||||
Industrials
|
29.1 | 25.7 | 3.4 | (2.0 | ) | 1.4 | A- | ||||||||||||||||
Utilities
|
16.5 | 16.3 | 0.2 | (0.1 | ) | 0.1 | A- | ||||||||||||||||
Consumer discretion
|
6.3 | 6.0 | 0.3 | - | 0.3 |
BBB+
|
|||||||||||||||||
Consumer staples
|
14.6 | 13.9 | 0.7 | 0.5 | 1.2 |
AA-
|
|||||||||||||||||
Materials
|
2.1 | 1.9 | 0.2 | (0.1 | ) | 0.1 |
BBB-
|
||||||||||||||||
Energy
|
3.5 | 3.2 | 0.3 | (0.3 | ) | - |
BB+
|
||||||||||||||||
Total corporate securities
|
$ | 102.0 | 93.1 | 8.9 | (6.4 | ) | 2.5 | A- | |||||||||||||||
MBS:
|
|||||||||||||||||||||||
Government guaranteed agency CMBS
|
$ | 11.1 | 10.8 | 0.3 | - | 0.3 |
AAA
|
||||||||||||||||
Other agency CMBS
|
3.8 | 3.8 | - | 0.1 | 0.1 |
AAA
|
|||||||||||||||||
Non-agency CMBS
|
80.5 | 77.1 | 3.4 | (19.2 | ) | (15.8 | ) |
AA+
|
|||||||||||||||
Government guaranteed agency RMBS
|
4.2 | 3.9 | 0.3 | (0.2 | ) | 0.1 |
AAA
|
||||||||||||||||
Other agency RMBS
|
140.2 | 137.7 | 2.5 | 2.5 | 5.0 |
AAA
|
|||||||||||||||||
Non-agency RMBS
|
5.9 | 5.8 | 0.1 | (1.1 | ) | (1.0 | ) |
AAA
|
|||||||||||||||
Total MBS
|
$ | 245.7 | 239.1 | 6.6 | (17.9 | ) | (11.3 | ) |
AA+
|
||||||||||||||
ABS:
|
|||||||||||||||||||||||
ABS
|
$ | 27.3 | 24.3 | 3.0 | (4.8 | ) | (1.8 | ) |
AA
|
||||||||||||||
Alt-A ABS
|
1.8 | 1.0 | 0.8 | (0.5 | ) | 0.3 |
CC
|
||||||||||||||||
Sub-prime ABS
2
|
1.1 | 1.0 | 0.1 | (0.4 | ) | (0.3 | ) | A | |||||||||||||||
Total ABS
|
$ | 30.2 | 26.3 | 3.9 | (5.7 | ) | (1.8 | ) |
AA-
|
1
|
U.S. government includes corporate securities fully guaranteed by the FDIC.
|
2
|
We define sub-prime exposure as exposure to direct and indirect investments in non-agency residential mortgages with average FICO
®
scores
|
|
below 650.
|
Insurers of Municipal Bond Securities
|
Ratings
|
Ratings
|
|||||
with
|
without
|
||||||
($ in thousands)
|
Fair Value
|
Insurance
|
Insurance
|
||||
National Public Finance Guarantee Corporation, a subsidiary of MBIA, Inc.
|
$ | 380,294 |
AA-
|
AA-
|
|||
Assured Guaranty
|
237,887 |
AA+
|
AA-
|
||||
Ambac Financial Group, Inc.
|
100,949 |
AA-
|
AA-
|
||||
Other
|
21,069 |
AA
|
AA-
|
||||
Total
|
$ | 740,199 |
AA
|
AA-
|
State Exposures of Municipal Bonds
|
General Obligation
|
Special
|
Fair
|
Average
Credit
|
|||||||||||||||
($ in thousands)
|
Local
|
State
|
Revenue
|
Value
|
Quality
|
||||||||||||||
Texas
|
$ | 91,697 | 10,497 | 63,934 | 166,128 |
AA
|
|||||||||||||
Washington
|
45,417 | - | 45,792 | 91,209 | A+ | ||||||||||||||
Arizona
|
6,778 | - | 68,206 | 74,984 |
AA
|
||||||||||||||
Florida
|
- | 509 | 69,463 | 69,972 | A+ | ||||||||||||||
North Carolina
|
40,324 | - | 27,624 | 67,948 |
AA+
|
||||||||||||||
New York
|
- | - | 66,826 | 66,826 |
AA+
|
||||||||||||||
Ohio
|
13,764 | 7,367 | 37,547 | 58,678 |
AA
|
||||||||||||||
Illinois
|
20,003 | - | 38,529 | 58,532 |
AA-
|
||||||||||||||
Minnesota
|
5,255 | 35,480 | 12,555 | 53,290 |
AAA
|
||||||||||||||
Colorado
|
26,375 | 1,591 | 22,755 | 50,721 | A+ | ||||||||||||||
Other
|
116,516 | 66,970 | 410,264 | 593,750 |
AA-
|
||||||||||||||
366,129 | 122,414 | 863,495 | 1,352,038 |
AA
|
|||||||||||||||
Advanced refunded/escrowed to maturity bonds
|
28,779 | 12,525 | 52,839 | 94,143 |
AA
|
||||||||||||||
Total
|
$ | 394,908 | 134,939 | 916,334 | 1,446,181 |
AA
|
December 31, 2010
($ in thousands)
|
Market
Value
|
% of Special
Revenue
Bonds
|
Average
Rating
|
||||||
Essential Services:
|
|||||||||
Transportation
|
$ | 189,770 | 22 |
AA
|
|||||
Water and sewer
|
165,074 | 19 |
AA+
|
||||||
Electric
|
101,796 | 12 |
AA-
|
||||||
Total essential services
|
456,640 | 53 |
AA
|
||||||
Education
|
135,095 | 15 |
AA
|
||||||
Special tax
|
104,614 | 12 |
AA-
|
||||||
Housing
|
75,685 | 9 |
AA+
|
||||||
Other:
|
|||||||||
Leasing
|
36,735 | 4 |
AA-
|
||||||
Hospital
|
15,436 | 2 |
AA-
|
||||||
Other
|
39,290 | 5 |
A+
|
||||||
Total other
|
91,461 | 11 |
AA-
|
||||||
Total special revenue bonds
|
$ | 863,495 | 100 |
AA
|
Change in Equity Values in Percent
|
||||||||||||||||||||||||||||
($ in thousands)
|
-30% | -20% | -10% | 0% | 10% | 20% | 30% | |||||||||||||||||||||
Fair value of AFS equity portfolio
|
$ | 48,745 | 55,709 | 62,672 | 69,636 | 76,600 | 83,563 | 90,527 | ||||||||||||||||||||
Fair value change
|
(20,891 | ) | (13,927 | ) | (6,964 | ) | 6,964 | 13,927 | 20,891 |
($ in thousands)
|
Reduction in
Unfunded
Commitment
|
|||
Mezzanine financing
|
$ | 10,866 | ||
Secondary private equity
|
6,202 | |||
Private equity
|
4,428 | |||
Real estate
|
750 | |||
Total
|
$ | 22,246 |
2010
|
||||||||||
Year of
|
Carrying
|
Fair
|
||||||||
($ in thousands)
|
Maturity
|
Amount
|
Value
|
|||||||
Financial liabilities
|
||||||||||
Notes payable
|
||||||||||
7.25% Senior Notes
|
2034
|
$ | 49,904 | $ | 55,190 | |||||
6.70% Senior Notes
|
2035
|
99,429 | 90,097 | |||||||
7.50% Junior Notes
|
2066
|
100,000 | 99,840 | |||||||
2.90% borrowings from FHLBI
|
2014
|
13,000 | 13,389 | |||||||
Total notes payable
|
$ | 262,333 | $ | 258,516 |
December 31,
|
||||||||
($ in thousands, except share amounts)
|
2010
|
2009
|
||||||
ASSETS
|
||||||||
Investments:
|
||||||||
Fixed maturity securities, held-to-maturity – at carrying value (fair value: $1,256,294 – 2010; $1,740,211 – 2009)
|
$ | 1,214,324 | 1,710,403 | |||||
Fixed maturity securities, available-for-sale – at fair value (amortized cost: $2,285,988 – 2010; $1,616,456 – 2009)
|
2,342,742 | 1,635,869 | ||||||
Equity securities, available-for-sale – at fair value (cost of: $58,039 – 2010; $64,390 – 2009)
|
69,636 | 80,264 | ||||||
Short-term investments (at cost which approximates fair value)
|
161,155 | 213,848 | ||||||
Other investments
|
137,865 | 140,667 | ||||||
Total investments (Note 5)
|
3,925,722 | 3,781,051 | ||||||
Cash
|
645 | 811 | ||||||
Interest and dividends due or accrued
|
37,007 | 34,651 | ||||||
Premiums receivable, net of allowance for uncollectible accounts of: $4,691 – 2010; $5,880 – 2009
|
414,105 | 446,577 | ||||||
Reinsurance recoverable, net
|
318,752 | 276,018 | ||||||
Prepaid reinsurance premiums (Note 8)
|
110,327 | 105,522 | ||||||
Current federal income tax (Note 14)
|
11,200 | 17,662 | ||||||
Deferred federal income tax (Note 14)
|
93,234 | 111,038 | ||||||
Property and equipment – at cost, net of accumulated depreciation and amortization of: $151,704 – 2010; $141,251 – 2009
|
41,775 | 46,287 | ||||||
Deferred policy acquisition costs (Note 2j)
|
209,627 | 218,601 | ||||||
Goodwill (Notes 2k, 11)
|
7,849 | 7,849 | ||||||
Other assets
|
61,529 | 68,760 | ||||||
Total assets
|
$ | 5,231,772 | 5,114,827 | |||||
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
||||||||
Liabilities:
|
||||||||
Reserve for losses and loss expenses (Note 9)
|
$ | 2,830,058 | 2,745,799 | |||||
Unearned premiums
|
823,596 | 844,847 | ||||||
Notes payable (Note 10)
|
262,333 | 274,606 | ||||||
Accrued salaries and benefits
|
100,933 | 103,802 | ||||||
Other liabilities
|
143,743 | 143,398 | ||||||
Total liabilities
|
$ | 4,160,663 | 4,112,452 | |||||
Stockholders’ Equity:
|
||||||||
Preferred stock of $0 par value per share:
|
||||||||
Authorized shares 5,000,000; no shares issued or outstanding
|
$ | - | - | |||||
Common stock of $2 par value per share
|
||||||||
Authorized shares: 360,000,000 (Note 6)
|
||||||||
Issued: 96,362,667 – 2010; 95,822,959 – 2009
|
192,725 | 191,646 | ||||||
Additional paid-in capital
|
244,613 | 231,933 | ||||||
Retained earnings
|
1,176,155 | 1,138,978 | ||||||
Accumulated other comprehensive income (loss) (Note 6)
|
7,024 | (12,460 | ) | |||||
Treasury stock – at cost (shares: 42,686,204 – 2010; 42,578,779 – 2009)
|
(549,408 | ) | (547,722 | ) | ||||
Total stockholders’ equity (Note 6)
|
1,071,109 | 1,002,375 | ||||||
Commitments and contingencies (Notes 18 and 19)
|
||||||||
Total liabilities and stockholders’ equity
|
$ | 5,231,772 | 5,114,827 |
December 31,
|
||||||||||||
($ in thousands, except share amounts)
|
2010
|
2009
|
2008
|
|||||||||
Revenues:
|
||||||||||||
Net premiums earned
|
$ | 1,416,598 | 1,431,047 | 1,504,187 | ||||||||
Net investment income earned
|
145,708 | 118,471 | 131,032 | |||||||||
Net realized losses:
|
||||||||||||
Net realized investment gains
|
10,575 | 9,446 | 3,648 | |||||||||
Other-than-temporary impairments
|
(16,225 | ) | (64,184 | ) | (53,100 | ) | ||||||
Other-than-temporary impairments on fixed maturity securities recognized in other comprehensive income
|
(1,433 | ) | 8,768 | - | ||||||||
Total net realized losses
|
(7,083 | ) | (45,970 | ) | (49,452 | ) | ||||||
Other income
|
9,398 | 10,470 | 4,172 | |||||||||
Total revenues
|
1,564,621 | 1,514,018 | 1,589,939 | |||||||||
Expenses:
|
||||||||||||
Losses and loss expenses incurred
|
982,118 | 971,905 | 1,011,544 | |||||||||
Policy acquisition costs
|
458,045 | 457,424 | 485,702 | |||||||||
Interest expense
|
18,616 | 19,386 | 20,508 | |||||||||
Other expenses
|
23,886 | 26,117 | 32,018 | |||||||||
Total expenses
|
1,482,665 | 1,474,832 | 1,549,772 | |||||||||
Income from continuing operations, before federal income tax
|
81,956 | 39,186 | 40,167 | |||||||||
Federal income tax expense (benefit):
|
||||||||||||
Current
|
5,323 | 3,585 | 21,995 | |||||||||
Deferred
|
7,312 | (9,057 | ) | (25,929 | ) | |||||||
Total federal income tax expense (benefit)
|
12,635 | (5,472 | ) | (3,934 | ) | |||||||
Net income from continuing operations
|
69,321 | 44,658 | 44,101 | |||||||||
Loss from discontinued operations, net of tax of $(4,042) – 2009; $(438) – 2008
|
- | (7,086 | ) | (343 | ) | |||||||
Loss on disposal of discontinued operations, net of tax of $(2,035) – 2010; $(631) – 2009
|
(3,780 | ) | (1,174 | ) | - | |||||||
Total discontinued operations, net of tax
|
(3,780 | ) | (8,260 | ) | (343 | ) | ||||||
Net income
|
65,541 | 36,398 | 43,758 | |||||||||
Earnings per share:
|
||||||||||||
Basic net income from continuing operations
|
1.30 | 0.84 | 0.85 | |||||||||
Basic net loss from discontinued operations
|
(0.07 | ) | (0.15 | ) | (0.01 | ) | ||||||
Basic net income
|
$ | 1.23 | 0.69 | 0.84 | ||||||||
Diluted net income from continuing operations
|
$ | 1.27 | 0.83 | 0.83 | ||||||||
Diluted net loss from discontinued operations
|
(0.07 | ) | (0.15 | ) | (0.01 | ) | ||||||
Diluted net income
|
1.20 | 0.68 | 0.82 | |||||||||
Dividends to stockholders
|
$ | 0.52 | 0.52 | 0.52 |
December 31,
|
||||||||||||||||||||||||
($ in thousands, except share amounts)
|
2010
|
2009
|
2008
|
|||||||||||||||||||||
Common stock:
|
||||||||||||||||||||||||
Beginning of year
|
$ | 191,646 | 190,527 | 189,306 | ||||||||||||||||||||
Dividend reinvestment plan
(shares: 106,437 – 2010; 123,880 – 2009; 81,200 – 2008)
|
213 | 248 | 162 | |||||||||||||||||||||
Convertible debentures
(shares: 45,759 – 2008)
|
- | - | 92 | |||||||||||||||||||||
Stock purchase and compensation plans
(shares: 433,271 – 2010; 435,571 – 2009; 483,619 – 2008)
|
866 | 871 | 967 | |||||||||||||||||||||
End of year
|
192,725 | 191,646 | 190,527 | |||||||||||||||||||||
Additional paid-in capital:
|
||||||||||||||||||||||||
Beginning of year
|
231,933 | 217,195 | 192,627 | |||||||||||||||||||||
Dividend reinvestment plan
|
1,465 | 1,514 | 1,677 | |||||||||||||||||||||
Convertible debentures
|
- | - | 645 | |||||||||||||||||||||
Stock purchase and compensation plans
|
11,215 | 13,224 | 22,246 | |||||||||||||||||||||
End of year
|
244,613 | 231,933 | 217,195 | |||||||||||||||||||||
Retained earnings:
|
||||||||||||||||||||||||
Beginning of year
|
1,138,978 | 1,128,149 | 1,105,946 | |||||||||||||||||||||
Cumulative-effect adjustment due to fair value election under ASC 825, net of deferred income tax
|
- | - | 6,210 | |||||||||||||||||||||
Cumulative-effect adjustment due to adoption of other- than-temporary impairment guidance under ASC 320, net of deferred income tax
|
- | 2,380 | - | |||||||||||||||||||||
Net income
|
65,541 | 65,541 | 36,398 | 36,398 | 43,758 | 43,758 | ||||||||||||||||||
Cash dividends to stockholders ($0.52 per share – 2010, 2009, and 2008)
|
(28,364 | ) | (27,949 | ) | (27,765 | ) | ||||||||||||||||||
End of year
|
1,176,155 | 1,138,978 | 1,128,149 | |||||||||||||||||||||
Accumulated other comprehensive income (loss):
|
||||||||||||||||||||||||
Beginning of year
|
(12,460 | ) | (100,666 | ) | 86,043 | |||||||||||||||||||
Cumulative-effect adjustment due to fair value election under ASC 825, net of deferred income tax
|
- | - | (6,210 | ) | ||||||||||||||||||||
Cumulative-effect adjustment due to adoption of other- than-temporary impairment guidance under ASC 320, net of deferred income tax
|
- | (2,380 | ) | - | ||||||||||||||||||||
Other comprehensive income (loss), increase (decrease) in:
|
||||||||||||||||||||||||
Unrealized gains (losses) on investment securities:
|
||||||||||||||||||||||||
Non-credit portion of other-than-temporary impairment losses recognized in other comprehensive income, net of deferred income tax
|
3,416 | (5,629 | ) | - | ||||||||||||||||||||
Other net unrealized gains (losses) on investment securities, net of deferred income tax
|
21,113 | 92,183 | (142,685 | ) | ||||||||||||||||||||
Total unrealized gains (losses) on investment securities
|
24,529 | 24,529 | 86,554 | 86,554 | (142,685 | ) | (142,685 | ) | ||||||||||||||||
Defined benefit pension plans, net of deferred income tax
|
(5,045 | ) | (5,045 | ) | 4,032 | 4,032 | (37,814 | ) | (37,814 | ) | ||||||||||||||
End of year
|
7,024 | (12,460 | ) | (100,666 | ) | |||||||||||||||||||
Comprehensive income (loss)
|
85,025 | 126,984 | (136,741 | ) | ||||||||||||||||||||
Treasury stock:
|
||||||||||||||||||||||||
Beginning of year
|
(547,722 | ) | (544,712 | ) | (497,879 | ) | ||||||||||||||||||
Acquisition of treasury stock (shares: 107,425 – 2010; 191,858 – 2009; 2,039,027 – 2008)
|
(1,686 | ) | (3,010 | ) | (46,833 | ) | ||||||||||||||||||
End of year
|
(549,408 | ) | (547,722 | ) | (544,712 | ) | ||||||||||||||||||
Total stockholders’ equity
|
$ | 1,071,109 | 1,002,375 | 890,493 |
December 31,
|
||||||||||||
($ in thousands, except share amounts)
|
2010
|
2009
|
2008
|
|||||||||
Operating Activities
|
||||||||||||
Net Income
|
$ | 65,541 | 36,398 | 43,758 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||||||
Depreciation and amortization
|
31,770 | 28,593 | 28,552 | |||||||||
Loss on disposal of discontinued operations
|
3,780 | 1,174 | - | |||||||||
Stock-based compensation expense
|
12,355 | 11,036 | 17,215 | |||||||||
Undistributed (income) loss of equity method investments
|
(8,712 | ) | 21,726 | 13,753 | ||||||||
Net realized losses
|
7,083 | 45,970 | 49,452 | |||||||||
Postretirement life curtailment benefit
|
- | (4,217 | ) | - | ||||||||
Deferred tax expense (benefit)
|
7,312 | (9,057 | ) | (26,665 | ) | |||||||
Unrealized (gain) loss on trading securities
|
- | (262 | ) | 8,129 | ||||||||
Goodwill impairment on discontinued operations
|
- | 12,214 | 4,000 | |||||||||
Changes in assets and liabilities:
|
||||||||||||
Increase in reserves for losses and loss expenses, net of reinsurance recoverables
|
41,526 | 60,619 | 103,016 | |||||||||
Decrease in unearned premiums, net of prepaid reinsurance and advance premiums
|
(26,661 | ) | (8,028 | ) | (10,766 | ) | ||||||
Decrease (increase) in net federal income tax recoverable
|
8,497 | 5,339 | (22,092 | ) | ||||||||
Decrease in premiums receivable
|
32,472 | 34,317 | 15,469 | |||||||||
Decrease (increase) in deferred policy acquisition costs
|
8,974 | (6,282 | ) | 14,115 | ||||||||
(Increase) decrease in interest and dividends due or accrued
|
(2,361 | ) | 1,918 | (431 | ) | |||||||
Decrease in accrued salaries and benefits
|
(19,251 | ) | (15,020 | ) | (3,100 | ) | ||||||
(Decrease) increase in accrued insurance expenses
|
(4,470 | ) | 2,240 | (15,880 | ) | |||||||
Purchase of trading securities
|
- | - | (6,587 | ) | ||||||||
Sale of trading securities
|
- | 2,831 | 21,002 | |||||||||
Other-net
|
1,330 | 6,050 | 8,233 | |||||||||
Net adjustments
|
93,644 | 191,161 | 197,415 | |||||||||
Net cash provided by operating activities
|
159,185 | 227,559 | 241,173 | |||||||||
Investing Activities
|
||||||||||||
Purchase of fixed maturity securities, held-to-maturity
|
- | (158,827 | ) | - | ||||||||
Purchase of fixed maturity securities, available-for-sale
|
(1,007,679 | ) | (1,041,277 | ) | (587,430 | ) | ||||||
Purchase of equity securities, available-for-sale
|
(71,192 | ) | (79,455 | ) | (70,651 | ) | ||||||
Purchase of other investments
|
(20,673 | ) | (16,298 | ) | (53,089 | ) | ||||||
Purchase of short-term investments
|
(1,741,738 | ) | (1,956,164 | ) | (2,204,107 | ) | ||||||
Sale of subsidiary
|
978 | (12,538 | ) | - | ||||||||
Sale of fixed maturity securities, held-to-maturity
|
- | 5,820 | - | |||||||||
Sale of fixed maturity securities, available-for-sale
|
190,438 | 538,769 | 152,655 | |||||||||
Sale of short-term investments
|
1,794,434 | 1,940,427 | 2,196,162 | |||||||||
Redemption and maturities of fixed maturity securities, held-to-maturity
|
319,835 | 282,310 | 4,652 | |||||||||
Redemption and maturities of fixed maturity securities, available-for-sale
|
298,171 | 122,403 | 294,342 | |||||||||
Sale of equity securities, available-for-sale
|
98,015 | 137,244 | 102,313 | |||||||||
Distributions from other investments
|
22,406 | 25,596 | 26,164 | |||||||||
Purchase of property and equipment
|
(6,522 | ) | (8,207 | ) | (8,083 | ) | ||||||
Net cash used in investing activities
|
(123,527 | ) | (220,197 | ) | (147,072 | ) | ||||||
Financing Activities
|
||||||||||||
Dividends to stockholders
|
(26,056 | ) | (26,296 | ) | (25,804 | ) | ||||||
Acquisition of treasury stock
|
(1,686 | ) | (3,010 | ) | (46,833 | ) | ||||||
Principal payment of notes payable
|
(12,300 | ) | (12,300 | ) | (12,300 | ) | ||||||
Proceeds from borrowings
|
- | 13,000 | - | |||||||||
Net proceeds from stock purchase and compensation plans
|
4,962 | 4,612 | 8,222 | |||||||||
Excess tax benefits from share-based payment arrangements
|
(744 | ) | (1,200 | ) | 1,628 | |||||||
Principal payments of convertible bonds
|
- | - | (8,754 | ) | ||||||||
Net cash used in financing activities
|
(35,824 | ) | (25,194 | ) | (83,841 | ) | ||||||
Net (decrease) increase in cash and cash equivalents
|
(166 | ) | (17,832 | ) | 10,260 | |||||||
Net (decrease) increase in cash and cash equivalents from discontinued operations
|
- | (15,037 | ) | 8,619 | ||||||||
Net (decrease) increase in cash from continuing operations
|
(166 | ) | (2,795 | ) | 1,641 | |||||||
Cash from continuing operations, beginning of year
|
811 | 3,606 | 1,965 | |||||||||
Cash from continuing operations, end of year
|
$ | 645 | 811 | 3,606 |
|
·
|
Insurance Operations, which sells property and casualty insurance products and services primarily in 22 states in the Eastern and Midwestern U.S.; and
|
|
·
|
Investments.
|
|
·
|
In the process of periodically reviewing our operating segments, we reclassified our Flood operations in the first quarter of 2009 to be included within our Insurance Operations segment, reflecting the way we are now managing this business. We believe this change better enables investors to view us the way our management views our operations.
|
|
·
|
During the fourth quarter of 2009 we disposed of Selective HR Solutions, Inc. (“Selective HR”), which comprised our HR Outsourcing segment, causing the elimination of this operating segment. See Note 12. “Discontinued Operations” for additional information.
|
|
·
|
Whether the decline appears to be issuer or industry specific;
|
|
·
|
The degree to which the issuer is current or in arrears in making principal and interest payments on the fixed maturity security;
|
|
·
|
The issuer’s current financial condition and ability to make future scheduled principal and interest payments on a timely basis;
|
|
·
|
Evaluations of projected cash flows;
|
|
·
|
Buy/hold/sell recommendations published by outside investment advisors and analysts; and
|
|
·
|
Relevant rating history, analysis and guidance provided by rating agencies and analysts.
|
|
·
|
Whether the decline appears to be issuer or industry specific;
|
|
·
|
The relationship of market prices per share to book value per share at the date of acquisition and date of evaluation;
|
|
·
|
The price-earnings ratio at the time of acquisition and date of evaluation;
|
|
·
|
The financial condition and near-term prospects of the issuer, including any specific events that may influence the issuer's operations, coupled with our intention to hold the securities in the near-term;
|
|
·
|
The recent income or loss of the issuer;
|
|
·
|
The independent auditors' report on the issuer's recent financial statements;
|
|
·
|
The dividend policy of the issuer at the date of acquisition and the date of evaluation;
|
|
·
|
Buy/hold/sell recommendations or price projections published by outside investment advisors;
|
|
·
|
Rating agency announcements;
|
|
·
|
The length of time and the extent to which the fair value has been less than its cost; and
|
|
·
|
Our expectation of when the cost of the security will be recovered.
|
|
·
|
The current investment strategy;
|
|
·
|
Changes made or future changes to be made to the investment strategy;
|
|
·
|
Emerging issues that may affect the success of the strategy; and
|
|
·
|
The appropriateness of the valuation methodology used regarding the underlying investments.
|
|
·
|
For valuations of securities in our equity portfolio and U.S. Treasury notes held in our fixed maturity portfolio, we receive prices from an independent pricing service that are based on observable market transactions. We validate these prices against a second external pricing service and significant variances between the prices are challenged to determine the price used. These securities are classified as Level 1 in the fair value hierarchy.
|
|
·
|
For approximately 95% of our fixed maturity portfolio, we utilize a market approach, using primarily matrix pricing models prepared by external pricing services. Matrix pricing models use mathematical techniques to value debt securities by relying on the securities relationship to other benchmark quoted securities, and not relying exclusively on quoted prices for specific securities, as the specific securities are not always frequently traded. As a matter of policy, we consistently use one pricing service as our primary source and we use secondary pricing services if prices were not available from the primary pricing service. We validate the prices used for reasonableness in one of two ways: (i) randomly sampling the population and verifying the
price to a separate third -party source; or (ii) analytically validating the entire portfolio against a third pricing service. Historically, we have not experienced significant variances in prices and therefore we have consistently used either our primary or secondary pricing service. These prices are typically Level 2 in the fair value hierarchy.
|
|
·
|
For the small portion of our fixed maturity portfolio that we cannot price using our primary or secondary services, we receive non-binding broker quotes. These prices, which we review for reasonableness, are generally classified as Level 3 in the fair value hierarchy as the inputs cannot be corroborated by observable market data.
|
|
·
|
Short-term investments are carried at cost, which approximates fair value. Given the liquid nature of our short-term investments, we generally validate their fair value by way of active trades within approximately a week of the financial statement close. These securities are classified as Level 1 in the fair value hierarchy.
|
|
·
|
Our investments in other miscellaneous securities are generally accounted for at fair value based on net asset value and included in Level 2 in the fair value hierarchy. Investments in tax credits are carried under the effective interest method of accounting.
|
|
·
|
The fair values of the 7.25% Senior Notes due November 15, 2034, the 6.70% Senior Notes due November 1, 2035, and the 7.50% Junior Subordinated Notes due September 27, 2066, are based on quoted market prices.
|
|
·
|
The fair value of the 2.90% borrowings from the Federal Home Loan Bank of Indianapolis (“FHLBI”) is estimated using a DCF based on a current borrowing rate provided by the FHLBI consistent with the remaining term of the borrowing.
|
|
·
|
The 8.87% Senior Notes are not presented as of December 31, 2010 because they matured on May 4, 2010. The fair value of these notes as of December 31, 2009 was estimated to be its carrying value due to the close proximity of this note’s maturity date to the balance sheet date.
|
Asset category
|
Years
|
||
Computer software and hardware
|
3 | ||
Internally developed software
|
5 | ||
Furniture and fixtures
|
10 | ||
Buildings and improvements
|
5 to 40
|
|
·
|
Our marketing efforts for all of our product lines within our Insurance Operations revolve around independent agencies and their touch points with our shared customers, the policyholders.
|
|
·
|
We service our agency distribution channel through our field model, which includes agency management specialists, safety management specialists, claim management specialists and our Underwriting and Claims Service Centers, all of which service the entire population of insurance contracts acquired through each agency.
|
|
·
|
We measure the profitability of our business at the Insurance Operations level, which is evident in, among other items, the structure of our incentive compensation programs. We measure the profitability of our agents and calculate their compensation based on overall insurance results and all of our employees, including senior management, are incented based on overall insurance results.
|
($ in thousands)
|
2010
|
2009
|
2008
|
|||||||||
Cash paid (received) during the period for:
|
||||||||||||
Interest
|
$ | 18,753 | 19,462 | 20,647 | ||||||||
Federal income tax
|
(2,781 | ) | (1,000 | ) | 42,750 | |||||||
Supplemental schedule of non-cash financing transactions:
|
||||||||||||
Conversion of convertible debentures
|
- | - | 169 |
($ in thousands)
|
2010
|
2009
|
2008
|
|||||||||
AFS securities:
|
||||||||||||
Fixed maturity securities
|
$ | 56,754 | 19,413 | (89,068 | ) | |||||||
Equity securities
|
11,597 | 15,874 | 6,184 | |||||||||
Other investments
|
- | - | (1,478 | ) | ||||||||
Total AFS securities
|
68,351 | 35,287 | (84,362 | ) | ||||||||
HTM securities:
|
||||||||||||
Fixed maturity securities
|
14,523 | 9,849 | - | |||||||||
Total HTM securities
|
14,523 | 9,849 | - | |||||||||
Total net unrealized gains (losses)
|
82,874 | 45,136 | (84,362 | ) | ||||||||
Deferred income tax (expense) benefit
|
(29,006 | ) | (15,797 | ) | 29,527 | |||||||
Net unrealized gains (losses), net of deferred income tax
|
$ | 53,868 | 29,339 | (54,835 | ) | |||||||
Unrealized adjustments not in OCI:
|
||||||||||||
Cumulative effect adjustment due to adoption of OTTI accounting guidance, net of deferred income tax
|
- | 2,380 | - | |||||||||
Cumulative effect adjustment due to adoption of fair value option, net of tax
|
- | - | 6,210 | |||||||||
Net unrealized gains (losses), in OCI, net of deferred income tax
|
$ | 53,868 | 31,719 | (48,625 | ) | |||||||
Increase (decrease) in net unrealized gains (losses) in OCI, net of deferred income tax
|
$ | 24,529 | 86,554 | (142,685 | ) | |||||||
2010
|
Net
|
|||||||||||||||||||||||
Unrealized
|
Unrecognized
|
Unrecognized
|
||||||||||||||||||||||
Amortized
|
Gains
|
Carrying
|
Holding
|
Holding
|
Fair
|
|||||||||||||||||||
($ in thousands)
|
Cost
|
(Losses)
|
Value
|
Gains
|
Losses
|
Value
|
||||||||||||||||||
U.S. government and government agencies
|
$ | 93,411 | 4,695 | 98,106 | 5,023 | - | 103,129 | |||||||||||||||||
Foreign government obligations
|
5,292 | 368 | 5,660 | - | (30 | ) | 5,630 | |||||||||||||||||
Obligations of state and political subdivisions
|
874,388 | 22,183 | 896,571 | 16,845 | (1,132 | ) | 912,284 | |||||||||||||||||
Corporate securities
|
76,663 | (3,990 | ) | 72,673 | 9,705 | (313 | ) | 82,065 | ||||||||||||||||
ABS
|
12,947 | (2,422 | ) | 10,525 | 1,847 | (444 | ) | 11,928 | ||||||||||||||||
CMBS
1
|
54,909 | (7,354 | ) | 47,555 | 7,483 | (109 | ) | 54,929 | ||||||||||||||||
RMBS
2
|
82,191 | 1,043 | 83,234 | 3,095 | - | 86,329 | ||||||||||||||||||
Total HTM fixed maturity securities
|
$ | 1,199,801 | 14,523 | 1,214,324 | 43,998 | (2,028 | ) | 1,256,294 |
2009
|
Net
|
|||||||||||||||||||||||
Unrealized
|
Unrecognized
|
Unrecognized
|
||||||||||||||||||||||
Amortized
|
Gains
|
Carrying
|
Holding
|
Holding
|
Fair
|
|||||||||||||||||||
($ in thousands)
|
Cost
|
(Losses)
|
Value
|
Gains
|
Losses
|
Value
|
||||||||||||||||||
U.S. government and government agencies
|
$ | 139,278 | 5,555 | 144,833 | 1,694 | (549 | ) | 145,978 | ||||||||||||||||
Foreign government obligations
|
5,292 | 443 | 5,735 | - | (215 | ) | 5,520 | |||||||||||||||||
Obligations of state and political subdivisions
|
1,167,461 | 33,951 | 1,201,412 | 14,833 | (5,450 | ) | 1,210,795 | |||||||||||||||||
Corporate securities
|
99,562 | (6,471 | ) | 93,091 | 9,665 | (698 | ) | 102,058 | ||||||||||||||||
ABS
|
32,025 | (5,707 | ) | 26,318 | 3,920 | (82 | ) | 30,156 | ||||||||||||||||
CMBS
1
|
110,812 | (19,171 | ) | 91,641 | 7,407 | (3,658 | ) | 95,390 | ||||||||||||||||
RMBS
2
|
146,124 | 1,249 | 147,373 | 3,153 | (212 | ) | 150,314 | |||||||||||||||||
Total HTM fixed maturity securities
|
$ | 1,700,554 | 9,849 | 1,710,403 | 40,672 | (10,864 | ) | 1,740,211 |
1
|
CMBS includes government guaranteed agency securities with a carrying value of $8.9 million at December 31, 2010 and $10.8 million at December 31, 2009.
|
2
|
RMBS includes government guaranteed agency securities with a carrying value of $4.0 million at December 31, 2010 and $3.9 million at December 31, 2009.
|
2010
|
||||||||||||||||
Cost/
|
||||||||||||||||
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
|||||||||||||
($ in thousands)
|
Cost
|
Gains
|
Losses
|
Value
|
||||||||||||
U.S. government and government agencies
1
|
$ | 312,384 | 8,292 | (147 | ) | 320,529 | ||||||||||
Foreign government
|
19,035 | 280 | (349 | ) | 18,966 | |||||||||||
Obligations of states and political subdivisions
|
512,013 | 22,534 | (650 | ) | 533,897 | |||||||||||
Corporate securities
|
973,835 | 28,674 | (8,784 | ) | 993,725 | |||||||||||
ABS
|
48,558 | 514 | (339 | ) | 48,733 | |||||||||||
CMBS
2
|
103,374 | 4,024 | (2,923 | ) | 104,475 | |||||||||||
RMBS
3
|
316,789 | 7,871 | (2,243 | ) | 322,417 | |||||||||||
AFS fixed maturity securities
|
2,285,988 | 72,189 | (15,435 | ) | 2,342,742 | |||||||||||
AFS equity securities
|
58,039 | 11,597 | - | 69,636 | ||||||||||||
Total AFS securities
|
$ | 2,344,027 | 83,786 | (15,435 | ) | 2,412,378 |
2009
|
||||||||||||||||
Cost/
|
||||||||||||||||
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
|||||||||||||
($ in thousands)
|
Cost
|
Gains
|
Losses
|
Value
|
||||||||||||
U.S. government and government agencies
1
|
$ | 473,750 | 2,994 | (1,210 | ) | 475,534 | ||||||||||
Obligations of states and political subdivisions
|
359,517 | 20,419 | (137 | ) | 379,799 | |||||||||||
Corporate securities
|
365,500 | 15,330 | (1,246 | ) | 379,584 | |||||||||||
ABS
|
17,638 | 358 | (17 | ) | 17,979 | |||||||||||
CMBS
2
|
102,514 | 1,854 | (677 | ) | 103,691 | |||||||||||
RMBS
3
|
297,537 | 2,457 | (20,712 | ) | 279,282 | |||||||||||
AFS fixed maturity securities
|
1,616,456 | 43,412 | (23,999 | ) | 1,635,869 | |||||||||||
AFS equity securities
|
64,390 | 16,484 | (610 | ) | 80,264 | |||||||||||
Total AFS securities
|
$ | 1,680,846 | 59,896 | (24,609 | ) | 1,716,133 |
1
|
U.S. government includes corporate securities fully guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) with a fair value of $121.0 million at December 31, 2010 and $136.2 million at December 31, 2009.
|
2
|
CMBS includes government guaranteed agency securities with a fair value of $71.9 million at December 31, 2010 and $94.6 million at December 31, 2009.
|
3
|
RMBS includes government guaranteed agency securities with a fair value of $91.1 million at December 31, 2010 and $105.2 million at December 31, 2009.
|
December 31, 2010
|
Less than 12 months
|
12 months or longer
|
||||||||||||||
($ in thousands)
|
Fair
Value
|
Unrealized
Losses
1
|
Fair
Value
|
Unrealized
Losses
1
|
||||||||||||
AFS securities:
|
||||||||||||||||
U.S. government and government agencies
2
|
$ | 3,956 | (147 | ) | - | - | ||||||||||
Foreign government
|
10,776 | (349 | ) | - | - | |||||||||||
Obligations of states and political subdivisions
|
40,410 | (650 | ) | - | - | |||||||||||
Corporate securities
|
362,502 | (8,784 | ) | - | - | |||||||||||
ABS
|
30,297 | (273 | ) | 880 | (66 | ) | ||||||||||
CMBS
|
5,453 | (271 | ) | 11,115 | (2,652 | ) | ||||||||||
RMBS
|
70,934 | (1,098 | ) | 20,910 | (1,145 | ) | ||||||||||
Total fixed maturity securities
|
524,328 | (11,572 | ) | 32,905 | (3,863 | ) | ||||||||||
Equity securities
|
- | - | - | - | ||||||||||||
Subtotal
|
$ | 524,328 | (11,572 | ) | 32,905 | (3,863 | ) |
Less than 12 months
|
12 months or longer
|
|||||||||||||||||||||||
Unrealized
|
Unrecognized
|
|||||||||||||||||||||||
($ in thousands)
|
Fair
Value
|
(Loses)
Gains
1
|
Gains
(Losses)
3
|
Fair
Value
|
Unrealized
Losses
1
|
Unrecognized
Gains
3
|
||||||||||||||||||
HTM securities:
|
||||||||||||||||||||||||
Obligations of states and political subdivisions
|
21,036 | (381 | ) | 45 | 27,855 | (1,969 | ) | 670 | ||||||||||||||||
Corporate securities
|
1,985 | (434 | ) | 420 | - | - | - | |||||||||||||||||
ABS
|
507 | (546 | ) | (440 | ) | 2,931 | (1,095 | ) | 747 | |||||||||||||||
CMBS
|
3,621 | 15 | (17 | ) | 5,745 | (3,933 | ) | 833 | ||||||||||||||||
RMBS
|
- | - | - | 95 | (38 | ) | 1 | |||||||||||||||||
Subtotal
|
$ | 27,149 | (1,346 | ) | 8 | 36,626 | (7,035 | ) | 2,251 | |||||||||||||||
Total AFS and HTM
|
$ | 551,477 | (12,918 | ) | 8 | 69,531 | (10,898 | ) | 2,251 |
December 31, 2009
|
Less than 12 months
|
12 months or longer
|
||||||||||||||
($ in thousands)
|
Fair
Value
|
Unrealized
Losses
1
|
Fair
Value
|
Unrealized
Losses
1
|
||||||||||||
AFS securities:
|
||||||||||||||||
U.S. government and government agencies
2
|
$ | 187,283 | (1,210 | ) | - | - | ||||||||||
Obligations of states and political subdivisions
|
8,553 | (120 | ) | 3,059 | (17 | ) | ||||||||||
Corporate securities
|
74,895 | (829 | ) | 10,550 | (417 | ) | ||||||||||
ABS
|
2,983 | (17 | ) | - | - | |||||||||||
CMBS
|
36,447 | (637 | ) | 3,960 | (40 | ) | ||||||||||
RMBS
|
78,328 | (514 | ) | 53,607 | (20,198 | ) | ||||||||||
Total fixed maturity securities
|
388,489 | (3,327 | ) | 71,176 | (20,672 | ) | ||||||||||
Equity securities
|
3,828 | (214 | ) | 5,932 | (396 | ) | ||||||||||
Subtotal
|
$ | 392,317 | (3,541 | ) | 77,108 | (21,068 | ) |
Less than 12 months
4
|
12 months or longer
4
|
|||||||||||||||||||||||
Unrecognized
|
Unrecognized
|
|||||||||||||||||||||||
($ in thousands)
|
Fair
Value
|
Unrealized
Losses
1
|
(Losses)
Gains
3
|
Fair
Value
|
Unrealized
Losses
1
|
Gains
(Losses)
3
|
||||||||||||||||||
HTM securities:
|
||||||||||||||||||||||||
U.S. government and government agencies
2
|
$ | 29,459 | - | (317 | ) | - | - | - | ||||||||||||||||
Obligations of states and political subdivisions
|
46,671 | (598 | ) | 85 | 74,360 | (4,315 | ) | 1,631 | ||||||||||||||||
Corporate securities
|
6,124 | (1,170 | ) | 1,068 | 19,233 | (4,751 | ) | 3,441 | ||||||||||||||||
ABS
|
- | - | - | 10,403 | (4,633 | ) | 2,197 | |||||||||||||||||
CMBS
|
316 | (538 | ) | (190 | ) | 24,984 | (15,650 | ) | (604 | ) | ||||||||||||||
RMBS
|
5,068 | - | (146 | ) | 5,892 | (1,062 | ) | 127 | ||||||||||||||||
Subtotal
|
$ | 87,638 | (2,306 | ) | 500 | 134,872 | (30,411 | ) | 6,792 | |||||||||||||||
Total AFS and HTM
|
$ | 479,955 | (5,847 | ) | 500 | 211,980 | (51,479 | ) | 6,792 |
1
|
Gross unrealized losses include non-OTTI unrealized amounts and OTTI losses recognized in AOCI. In addition, this column includes remaining unrealized gain or loss amounts on securities that were transferred to a HTM designation in the first quarter of 2009 for those securities that are in a net unrealized/unrecognized loss position.
|
2
|
U.S. government includes corporate securities fully guaranteed by the FDIC.
|
3
|
Unrecognized holding gains/(losses) represent market value fluctuations from the later of: (i) the date a security is designated as HTM; or (ii) the date that an OTTI charge is recognized on an HTM security.
|
4
|
The month count for aging of unrealized losses was reset back to historical unrealized loss month counts for securities impacted by the adoption of OTTI guidance in the second quarter of 2009 and for securities that were transferred from an AFS to HTM category.
|
($ in thousands)
December 31, 2010
|
December 31, 2009
|
||||||||||||||||||
Number
of Issues
|
% of
Market/Book
|
Unrealized
Unrecognized
Loss
|
Number of
Issues
|
% of
Market/Book
|
Unrealized
Unrecognized
Loss
|
||||||||||||||
193 | 80% - 99% | $ | 16,310 | 150 | 80% - 99 | % | $ | 16,344 | |||||||||||
2 | 60% - 79% | 1,125 | 11 | 60% - 79 | % | 10,353 | |||||||||||||
2 | 40% - 59% | 2,160 | 10 | 40% - 59 | % | 15,143 | |||||||||||||
1 | 20% - 39% | 986 | 5 | 20% - 39 | % | 4,607 | |||||||||||||
1 | 0% - 19% | 976 | 3 | 0% - 19 | % | 3,587 | |||||||||||||
$ | 21,557 | $ | 50,034 |
($ in thousands)
|
Carrying Value
|
Fair Value
|
||||||
Due in one year or less
|
$ | 140,119 | 141,565 | |||||
Due after one year through five years
|
693,804 | 720,227 | ||||||
Due after five years through 10 years
|
361,490 | 373,494 | ||||||
Due after 10 years
|
18,911 | 21,008 | ||||||
Total HTM fixed maturity securities
|
$ | 1,214,324 | 1,256,294 |
($ in thousands)
|
Fair Value
|
|||
Due in one year or less
|
$ | 97,653 | ||
Due after one year through five years
|
1,484,272 | |||
Due after five years through 10 years
|
716,023 | |||
Due after 10 years
|
44,794 | |||
Total AFS fixed maturity securities
|
$ | 2,342,742 |
Other Investments
|
Carrying Value
|
2010
|
||||||||||
December 31,
|
December 31,
|
Remaining
|
||||||||||
($ in thousands)
|
2010
|
2009
|
Commitment
|
|||||||||
Alternative Investments
|
||||||||||||
Energy/power generation
|
$ | 35,560 | 32,996 | 11,214 | ||||||||
Secondary private equity
|
26,709 | 20,936 | 12,029 | |||||||||
Private equity
|
21,601 | 21,525 | 8,323 | |||||||||
Distressed debt
|
20,432 | 19,201 | 4,611 | |||||||||
Real estate
|
14,192 | 16,856 | 10,784 | |||||||||
Mezzanine financing
|
10,230 | 20,323 | 15,252 | |||||||||
Venture capital
|
6,386 | 5,752 | 1,400 | |||||||||
Total alternative investments
|
135,110 | 137,589 | 63,613 | |||||||||
Other securities
|
2,755 | 3,078 | - | |||||||||
Total other investments
|
$ | 137,865 | 140,667 | 63,613 |
($ in thousands)
|
Reduction in Unfunded
Commitment
|
|||
Mezzanine financing
|
$ | 10,866 | ||
Secondary private equity
|
6,202 | |||
Private equity
|
4,428 | |||
Real estate
|
750 | |||
Total
|
$ | 22,246 |
Income Statement Information
|
||||||||||||
12 months ended September 30,
|
||||||||||||
($ in millions)
|
2010
|
2009
|
2008
|
|||||||||
Net investment income
|
$ | 563 | 472 | 365 | ||||||||
Realized (losses) gains
|
(358 | ) | (499 | ) | 1,015 | |||||||
Net change in unrealized appreciation (depreciation)
|
2,250 | (3,063 | ) | (3,609 | ) | |||||||
Net income (loss)
|
$ | 2,455 | (3,090 | ) | (2,229 | ) | ||||||
Selective’s Insurance Subsidiaries net income (loss)
|
$ | 20 | (22 | ) | (13 | ) |
($ in thousands)
|
2010
|
2009
|
2008
|
|||||||||
Fixed maturity securities
|
$ | 130,990 | 141,882 | 146,555 | ||||||||
Equity securities, dividend income
|
2,238 | 2,348 | 5,603 | |||||||||
Trading securities, change in fair value
|
- | 262 | (8,129 | ) | ||||||||
Short-term investments
|
437 | 1,273 | 4,252 | |||||||||
Other investments
|
20,452 | (21,383 | ) | (12,336 | ) | |||||||
Investment expenses
|
(8,409 | ) | (5,911 | ) | (4,913 | ) | ||||||
Net investment income earned
|
$ | 145,708 | 118,471 | 131,032 |
2010
|
Recognized in
|
|||||||||||
($ in thousands)
|
Gross
|
Included in OCI
|
Earnings
|
|||||||||
Fixed maturity securities
|
||||||||||||
Obligations of state and political subdivisions
|
$ | 197 | - | 197 | ||||||||
ABS
|
(20 | ) | (179 | ) | 159 | |||||||
CMBS
|
5,552 | (863 | ) | 6,415 | ||||||||
RMBS
|
7,953 | (391 | ) | 8,344 | ||||||||
Total fixed maturity securities
|
13,682 | (1,433 | ) | 15,115 | ||||||||
Equity securities
|
2,543 | - | 2,543 | |||||||||
OTTI losses
|
$ | 16,225 | (1,433 | ) | 17,658 |
2009
|
Recognized in
|
|||||||||||
($ in thousands)
|
Gross
|
Included in OCI
|
Earnings
|
|||||||||
Fixed maturity securities
|
||||||||||||
Corporate securities
|
$ | 1,271 | - | 1,271 | ||||||||
ABS
|
1,190 | (1,292 | ) | 2,482 | ||||||||
CMBS
|
18,865 | 7,088 | 11,777 | |||||||||
RMBS
|
40,751 | 2,972 | 37,779 | |||||||||
Total fixed maturity securities
|
62,077 | 8,768 | 53,309 | |||||||||
Equity securities
|
2,107 | - | 2,107 | |||||||||
OTTI losses
|
$ | 64,184 | 8,768 | 55,416 |
2008
|
Recognized in
|
|||||||||||
($ in thousands)
|
Gross
|
Included in OCI
|
Earnings
|
|||||||||
Fixed maturity securities
|
||||||||||||
Corporate securities
|
$ | 10,200 | - | 10,200 | ||||||||
ABS
|
16,420 | - | 16,420 | |||||||||
CMBS
|
9,725 | - | 9,725 | |||||||||
RMBS
|
5,357 | - | 5,357 | |||||||||
Total fixed maturity securities
|
41,702 | - | 41,702 | |||||||||
Equity securities
|
6,613 | - | 6,613 | |||||||||
Other
|
4,785 | - | 4,785 | |||||||||
OTTI losses
|
$ | 53,100 | - | 53,100 |
|
·
|
$8.3 million of RMBS credit OTTI charges during 2010 largely driven by impairments on two securities in the first quarter of 2010 that we intended to sell. We sold these securities in the second quarter of 2010. The remaining charges related to securities that experienced declines in the related cash flows of their underlying collateral. Based on our analysis, we do not believe it is probable that we will receive all contractual cash flows for these securities.
|
|
·
|
$6.4 million of CMBS credit OTTI charges. These charges were due to reductions in the related cash flows of the underlying collateral of these securities. These charges were primarily associated with securities that had been previously impaired but, over time, have shown little, if any, improvement in valuations, poor net operating income performance of the underlying properties, and, in some cases, an increase in over 60-day delinquency rates. These securities had, on average, unrealized/unrecognized loss positions of more than 60% of their amortized cost. Based on our DCF analysis, we do not believe it is probable that we will receive all contractual cash flows for these securities.
|
|
·
|
$2.5 million of equity OTTI charges during 2010. These charges were driven primarily by a change in our intent to hold these securities to recovery as we lower our exposure to equities and pursue a more index-neutral position for this asset class in the near term, providing greater sector and sponsor diversification.
|
|
·
|
$37.8 million of RMBS credit OTTI charges during 2009. These charges taken during 2009 related to securities that experienced reductions in the cash flows of their underlying collateral. These securities, on average, showed signs of loss at conditional default rates of 0.33 and had declines in fair value of 65% as compared to their amortized cost. As a result, we did not believe it was probable that we would receive all contractual cash flows for these securities.
|
|
·
|
$11.8 million of CMBS credit OTTI charges during 2009. These charges taken during 2009 related to reductions in the related cash flows of the underlying collateral of these securities. These securities, on average, showed signs of loss at conditional default rates between 2.5 to 3.0 and had declines in fair value of 77% as compared to their amortized cost. As a result, we did not believe it was probable that we would receive all contractual cash flows for these securities.
|
|
·
|
$2.5 million of ABS credit OTTI charges during 2009. These charges related primarily to two bonds from the same issuer, who was in technical default, that were previously written down.
|
|
·
|
$1.3 million of corporate debt credit OTTI charges during 2009. In assessing corporate debt securities for OTTI, we evaluate, among other things, the issuer’s ability to meet its debt obligations, the value of the company, and, if applicable, the value of specific collateral securing the position. The charge taken in 2009 was related to a financial institution issuer that was on the verge of bankruptcy at the end of the second quarter of 2009. This security was sold subsequent to the charge at an additional loss of $1.1 million in the third quarter of 2009.
|
|
·
|
$2.1 million of equity charges during 2009 related to seven equity securities. These seven securities were comprised of two banks, one bank exchange traded fund, one energy company, a membership warehouse chain of stores, and two healthcare companies. We believed the share price weakness of these securities was more reflective of general overall financial market conditions, as we were not aware of any significant deterioration in the fundamentals of these six companies as well as the underyling portfolio investments of the exchange traded fund. However, the length of time these securities had been in an unrealized loss position, and the overall distressed trading levels of these stocks made a recovery to our cost
basis unlikely in the near term.
|
|
·
|
$15.1 million of RMBS and CMBS charges. These charges related to declines in the related cash flows of the collateral, based on our assumptions of the expected default rates and the value of the collateral, and accordingly, we did not believe it was probable that we would receive all contractual cash flows.
|
|
·
|
$16.4 million of ABS charges. These charges related to issuer-specific credit events that revolved around the performance of the underlying collateral, which had materially deteriorated; however, none of which were bankruptcy related. In general, these securities were experiencing increased conditional default rates and expected loss severities, and as a result, our stress test scenarios were indicating less of a margin to absorb losses going forward. Although some of these securities were insured or guaranteed by monoline bond guarantors, downgrades reduced our confidence in their ability to perform in the event of default. In addition, credit support for these securities began to erode, thereby further increasing the potential for eventual
loss.
|
|
·
|
$10.2 million associated with corporate bond charges. These charges were due to issuer-specific events, primarily related to two Icelandic bank debt securities, for which the banks were placed in receivership.
|
|
·
|
$6.6 million from six equity securities, including $1.5 million related to an externally managed trading portfolio. These securities were written down because we no longer had the intent to hold these securities through their anticipated recovery period as we did not control day-to-day trading decisions for this portfolio. These charges related to the sharp selloff in the global equity markets stemming from the mortgage and credit crisis, which led to concerns that both U.S. and global economic growth would slow in the near future.
|
|
·
|
$4.8 million from two alternative investments. These charges were directly related to a security held in their portfolio that had considerable unrealized losses because of the severe volatility in the current financial markets and the dramatic market selloff, specifically in commodity prices.
|
2010
($ in thousands)
|
Gross
|
|||
Balance, December 31, 2009
|
$ | 22,189 | ||
Addition for the amount related to credit loss for which an OTTI was not previously recognized
|
2,326 | |||
Reductions for securities sold during the period
|
(2,990 | ) | ||
Reductions for securities for which the amount previously recognized in OCI was recognized in earnings because of intention or potential requirement to sell before recovery of amortized cost
|
- | |||
Reductions for securities for which the entire amount previously recognized in OCI was recognized in earnings due to a decrease in cash flows expected
|
(8,143 | ) | ||
Additional increases to the amount related to credit loss for which an OTTI was previously recognized
|
4,341 | |||
Accretion of credit loss impairments previously recognized due to an increase in cash flows expected to be collected
|
- | |||
Balance, December 31, 2010
|
$ | 17,723 |
2009
($ in thousands)
|
Gross
|
|||
Balance, March 31, 2009
|
$ | - | ||
Credit losses remaining in retained earnings after adoption of OTTI accounting guidance
|
9,719 | |||
Addition for the amount related to credit loss for which an OTTI was not previously recognized
|
10,579 | |||
Reductions for securities sold during the period
|
- | |||
Reductions for securities for which the amount previously recognized in OCI was recognized in earnings because of intention or potential requirement to sell before recovery of amortized cost
|
(693 | ) | ||
Additional increases to the amount related to credit loss for which an OTTI was previously recognized
|
2,584 | |||
Accretion of credit loss impairments previously recognized due to an increase in cash flows expected to be collected
|
- | |||
Balance, December 31, 2009
|
$ | 22,189 |
($ in thousands)
|
2010
|
2009
|
2008
|
|||||||||
HTM fixed maturity securities
|
||||||||||||
Gains
|
$ | 569 | 225 | 27 | ||||||||
Losses
|
(894 | ) | (1,049 | ) | (2 | ) | ||||||
AFS fixed maturity securities
|
||||||||||||
Gains
|
8,161 | 20,899 | 1,777 | |||||||||
Losses
|
(7,619 | ) | (13,889 | ) | (14,259 | ) | ||||||
AFS equity securities
|
||||||||||||
Gains
|
16,698 | 33,355 | 34,582 | |||||||||
Losses
|
(1,156 | ) | (28,056 | ) | (14,677 | ) | ||||||
Other investments
|
||||||||||||
Gains
|
- | - | 1,356 | |||||||||
Losses
|
(5,184 | ) | (2,039 | ) | (5,156 | ) | ||||||
Total other net realized investment gains
|
10,575 | 9,446 | 3,648 | |||||||||
Total OTTI charges recognized in earnings
|
(17,658 | ) | (55,416 | ) | (53,100 | ) | ||||||
Total net realized losses
|
$ | (7,083 | ) | (45,970 | ) | (49,452 | ) |
|
·
|
The sale of certain equity securities in the first quarter of 2009, resulting in a net realized loss of approximately $0.6 million, comprised of $19.7 million in realized gains and $19.1 million in realized losses, in an effort to reduce overall portfolio risk. The decision to sell these equity positions was in response to an overall year-to-date market decline of approximately 24% by the end of the first week of March. In addition, the Parent's market capitalization at that time had decreased more than 50% since the latter part of January 2009, which we believed to be partially due to investment community views of our equity and equity-like investments. Our equity-like investments include alternative investments,
many of which report results to us on a one quarter lag. Consequently, we believed the investment community would wait to evaluate our results based on the knowledge they had of the previous quarter's general market conditions. As a result, we determined it was prudent to mitigate a portion of our overall equity exposure. In determining which securities were to be sold, we contemplated, among other things, security-specific considerations with respect to downward earnings trends corroborated by recent analyst reports, primarily in the energy, commodity, and pharmaceutical sectors.
|
|
|
|
·
|
The sale of certain equity securities in the second quarter of 2009. A.M. Best changed our ratings outlook from "Stable" to "Negative" due, in part, to concerns over the risk in our investment portfolio. To reduce this risk, we sold $31.1 million of equity securities for a net loss of $0.6 million, which included gross gains of $7.7 million and gross losses of $8.3 million.
|
($ in thousands)
|
||||||||||||||||
Cost of Shares Purchased
|
||||||||||||||||
Shares Purchased
|
in Connection with
|
|||||||||||||||
in Connection with
|
Restricted Stock
|
Shares Purchased
|
Cost of Shares Purchased
|
|||||||||||||
Period
|
Restricted Stock Vestings
and Stock Option
Exercises
|
Vestings
and Stock Option
Exercises
|
as Part of Publicly
Announced Plans
or Programs
|
as Part of Publicly
Announced Plans
or Programs
|
||||||||||||
2010
|
107,425 | $ | 1,686 | - | $ | - | ||||||||||
2009
|
191,858 | 3,010 | - | - | ||||||||||||
2008
|
268,493 | 6,290 | 1,770,534 | 40,543 |
($ in millions)
|
||||
Selective Insurance Company of America
|
$ | 55.4 | ||
Selective Way Insurance Company
|
22.6 | |||
Selective Insurance Company of South Carolina
|
9.4 | |||
Selective Insurance Company of the Southeast
|
7.2 | |||
Selective Insurance Company of New York
|
7.6 | |||
Selective Insurance Company of New England
|
1.4 | |||
Selective Auto Insurance Company of New Jersey
|
6.4 | |||
Total
|
$ | 110.0 |
2010
|
||||||||||||
($ in thousands)
|
Gross
|
Tax
|
Net
|
|||||||||
Net income
|
$ | 76,141 | 10,600 | 65,541 | ||||||||
Components of OCI:
|
||||||||||||
Unrealized gains on securities:
|
||||||||||||
Unrealized holding gains during the period
|
44,643 | 15,625 | 29,018 | |||||||||
Portion of OTTI recognized in OCI
|
5,256 | 1,840 | 3,416 | |||||||||
Amortization of net unrealized gains on HTM securities
|
(11,708 | ) | (4,098 | ) | (7,610 | ) | ||||||
Reclassification adjustment for gains included in net income
|
(454 | ) | (159 | ) | (295 | ) | ||||||
Net unrealized gains
|
37,737 | 13,208 | 24,529 | |||||||||
Defined benefit pension and post-retirement plans:
|
||||||||||||
Net actuarial loss
|
(12,045 | ) | (4,216 | ) | (7,829 | ) | ||||||
Reversal of amortization items:
|
||||||||||||
Net actuarial loss
|
4,134 | 1,447 | 2,687 | |||||||||
Prior service cost
|
150 | 53 | 97 | |||||||||
Defined benefit pension and post-retirement plans
|
(7,761 | ) | (2,716 | ) | (5,045 | ) | ||||||
Comprehensive income
|
$ | 106,117 | 21,092 | 85,025 |
2009
|
||||||||||||
($ in thousands)
|
Gross
|
Tax
|
Net
|
|||||||||
Net income
|
$ | 26,253 | (10,145 | ) | 36,398 | |||||||
Components of OCI:
|
||||||||||||
Unrealized gains on securities:
|
||||||||||||
Unrealized holding gains during the period
|
102,514 | 35,880 | 66,634 | |||||||||
Portion of OTTI recognized in OCI
|
(8,659 | ) | (3,030 | ) | (5,629 | ) | ||||||
Amortization of net unrealized gains on HTM securities
|
914 | 320 | 594 | |||||||||
Reclassification adjustment for losses included in net income
|
38,392 | 13,437 | 24,955 | |||||||||
Net unrealized gains
|
133,161 | 46,607 | 86,554 | |||||||||
Defined benefit pension and post-retirement plans:
|
||||||||||||
Net actuarial gain
|
2,824 | 988 | 1,836 | |||||||||
Reversal of amortization items:
|
||||||||||||
Net actuarial loss
|
5,274 | 1,846 | 3,428 | |||||||||
Curtailment gain
|
(1,387 | ) | (485 | ) | (902 | ) | ||||||
Prior service credit
|
(508 | ) | (178 | ) | (330 | ) | ||||||
Defined benefit pension and post-retirement plans
|
6,203 | 2,171 | 4,032 | |||||||||
Comprehensive income
|
$ | 165,617 | 38,633 | 126,984 |
2008
|
||||||||||||
($ in thousands)
|
Gross
|
Tax
|
Net
|
|||||||||
Net income
|
$ | 39,386 | (4,372 | ) | 43,758 | |||||||
Components of OCI:
|
||||||||||||
Unrealized gains on securities:
|
||||||||||||
Unrealized holding losses during the period
|
(268,993 | ) | (94,148 | ) | (174,845 | ) | ||||||
Reclassification adjustment for losses included in net income
|
49,477 | 17,317 | 32,160 | |||||||||
Net unrealized losses
|
(219,516 | ) | (76,831 | ) | (142,685 | ) | ||||||
Defined benefit pension and post-retirement plans:
|
||||||||||||
Net actuarial loss
|
(60,272 | ) | (21,095 | ) | (39,177 | ) | ||||||
Prior service credit
|
1,985 | 695 | 1,290 | |||||||||
Reversal of amortization items:
|
||||||||||||
Net actuarial loss
|
136 | 47 | 89 | |||||||||
Prior service credit
|
(25 | ) | (9 | ) | (16 | ) | ||||||
Defined benefit pension and post-retirement plans
|
(58,176 | ) | (20,362 | ) | (37,814 | ) | ||||||
Comprehensive loss
|
$ | (238,306 | ) | (101,565 | ) | (136,741 | ) |
2010
|
Defined
|
|||||||||||||||||||
Benefit
|
||||||||||||||||||||
Pension
|
||||||||||||||||||||
Net Unrealized Gain (Loss)
|
and Post-
|
|||||||||||||||||||
OTTI
|
HTM
|
All
|
retirement
|
Total
|
||||||||||||||||
($ in thousands)
|
Related
|
Related
|
Other
|
Plans
|
AOCI
|
|||||||||||||||
Balance, December 31, 2009
|
$ | (8,009 | ) | 11,937 | 25,410 | (41,798 | ) | (12,460 | ) | |||||||||||
Changes in component during period
|
3,416 | (793 | ) | 21,906 | (5,045 | ) | 19,484 | |||||||||||||
Balance, December 31, 2010
|
$ | (4,593 | ) | 11,144 | 47,316 | (46,843 | ) | 7,024 |
December 31, 2010
|
December 31, 2009
|
|||||||||||||||
Carrying
|
Fair
|
Carrying
|
Fair
|
|||||||||||||
($ in thousands)
|
Amount
|
Value
|
Amount
|
Value
|
||||||||||||
Financial Assets
|
||||||||||||||||
Fixed maturity securities:
|
||||||||||||||||
HTM
|
$ | 1,214,324 | 1,256,294 | 1,710,403 | 1,740,211 | |||||||||||
AFS
|
2,342,742 | 2,342,742 | 1,635,869 | 1,635,869 | ||||||||||||
Equity securities, AFS
|
69,636 | 69,636 | 80,264 | 80,264 | ||||||||||||
Short-term investments
|
161,155 | 161,155 | 213,848 | 213,848 | ||||||||||||
Receivable for proceeds related to sale of Selective HR
|
5,002 | 5,002 | 12,300 | 12,300 | ||||||||||||
Financial Liabilities
|
||||||||||||||||
Notes payable:
1
|
||||||||||||||||
7.25% Senior Notes
|
49,904 | 55,190 | 49,900 | 49,505 | ||||||||||||
6.70% Senior Notes
|
99,429 | 90,097 | 99,406 | 90,525 | ||||||||||||
7.50% Junior Notes
|
100,000 | 99,840 | 100,000 | 83,680 | ||||||||||||
2.90% borrowings from FHLBI
|
13,000 | 13,389 | 13,000 | 13,000 | ||||||||||||
8.87% Senior Notes Series B
|
- | - | 12,300 | 12,300 | ||||||||||||
Total notes payable
|
$ | 262,333 | 258,516 | 274,606 | 249,010 |
1
|
Our notes payable are subject to certain debt covenants that were met in their entirety in 2010 and 2009. For further discussion regarding the debt covenants, refer to Note 10, “Indebtedness” in this Form 10-K.
|
December 31, 2009
|
Fair Value Measurements Using
|
|||||||||||||||
Quoted Prices in
|
||||||||||||||||
Assets
|
Active Markets for
|
Significant Other
|
Significant
|
|||||||||||||
Measured at
|
Identical Assets/
|
Observable
|
Unobservable
|
|||||||||||||
Fair Value
|
Liabilities
|
Inputs
|
Inputs
|
|||||||||||||
($ in thousands)
|
At 12/31/09
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
||||||||||||
Description
|
||||||||||||||||
Measured on a recurring basis:
|
||||||||||||||||
U.S. government and government agencies
1
|
$ | 475,534 | 52,361 | 423,173 | - | |||||||||||
Obligations of states and political subdivisions
|
379,799 | - | 379,799 | - | ||||||||||||
Corporate securities
|
379,584 | - | 379,584 | - | ||||||||||||
ABS
|
17,979 | - | 17,979 | - | ||||||||||||
CMBS
|
103,691 | - | 103,691 | - | ||||||||||||
RMBS
|
279,282 | - | 279,282 | - | ||||||||||||
Total AFS fixed maturity securities
|
1,635,869 | 52,361 | 1,583,508 | - | ||||||||||||
Equity securities
|
80,264 | 80,264 | - | - | ||||||||||||
Short-term investments
|
213,848 | 213,848 | - | - | ||||||||||||
Receivable for proceeds related to sale of Selective HR
|
12,300 | - | - | 12,300 | ||||||||||||
Measured on a non-recurring basis:
|
||||||||||||||||
ABS, HTM
|
2,412 | - | 2,412 | - | ||||||||||||
CMBS, HTM
|
5,400 | - | 5,400 | - | ||||||||||||
Total assets
|
$ | 1,950,093 | 346,473 | 1,591,320 | 12,300 |
2010
($ in thousands)
|
ABS, AFS
|
CMBS, AFS
|
Receivable for
Proceeds
Related to Sale
of Selective HR
|
Total
|
||||||||||||
Fair value, December 31, 2009
|
$ | - | - | 12,300 | 12,300 | |||||||||||
Total net (losses) gains for the period included in:
|
||||||||||||||||
Other comprehensive income
1
|
(22 | ) | 1,862 | - | 1,840 | |||||||||||
Net income
2
|
- | 41 | (5,460 | ) | (5,419 | ) | ||||||||||
Purchases, sales, issuances, and settlements (net)
|
2,737 | (148 | ) | (1,838 | ) | 751 | ||||||||||
Net transfers in and/or out of Level 3
|
(2,715 | ) | (1,570 | ) | (4,285 | ) | ||||||||||
Fair value, December 31, 2010
|
$ | - | 185 | 5,002 | 5,187 |
|
1
|
Amounts are reported in “Other net unrealized gains (losses) on investment securities, net of deferred income tax” on the Consolidated Statements of Stockholders’ Equity.
|
|
2
|
Amounts are reported in “Net realized investment gains” for ABS, AFS and CMBS, AFS and in “Loss on disposal of discontinued operations, net of tax” for the receivable for proceeds related to sale of Selective HR on the Consolidated Statements of Income.
|
As of December 31, 2010
|
As of December 31, 2009
|
|||||||||||||||
% of Net
|
% of Net
|
|||||||||||||||
Reinsurance
|
Unsecured
|
Reinsurance
|
Unsecured
|
|||||||||||||
($ in thousands)
|
Balances
|
Reinsurance
|
Balances
|
Reinsurance
|
||||||||||||
Total reinsurance recoverables
|
$ | 318,752 | $ | 276,018 | ||||||||||||
Total prepaid reinsurance premiums
|
110,327 | 105,522 | ||||||||||||||
Less: collateral
1
|
(81,707 | ) | (59,885 | ) | ||||||||||||
Net unsecured reinsurance balances
|
347,372 | 321,655 | ||||||||||||||
Federal and state pools
2
:
|
||||||||||||||||
NJ Unsatisfied Claim Judgment Fund
|
62,098 | 18 | % | 65,347 | 20 | % | ||||||||||
National Flood Insurance Program (“NFIP”)
|
119,241 | 34 | 119,245 | 37 | ||||||||||||
Other
|
5,157 | 2 | 5,695 | 2 | ||||||||||||
Total federal and state pools
|
186,496 | 54 | 190,287 | 59 | ||||||||||||
Remaining unsecured reinsurance
|
160,876 | 46 | 131,368 | 41 | ||||||||||||
Hannover Ruckversicherungs AG (A.M. Best rated “A”)
|
33,203 | 10 | 28,273 | 9 | ||||||||||||
Munich Re Group (A.M. Best rated “A+”)
|
29,312 | 8 | 28,659 | 9 | ||||||||||||
Swiss Re Group (A.M. Best rated “A”)
|
24,552 | 7 | 21,915 | 7 | ||||||||||||
All other reinsurers
|
73,809 | 21 | 52,521 | 16 | ||||||||||||
Total
|
$ | 160,876 | 46 | % | $ | 131,368 | 41 | % |
1
|
Includes letters of credit, trust funds, and funds withheld.
|
2
|
Considered to have minimal risk of default.
|
($ in thousands)
|
2010
|
2009
|
2008
|
|||||||||
Premiums written:
|
||||||||||||
Direct
|
$ | 1,634,415 | 1,657,142 | 1,702,147 | ||||||||
Assumed
|
25,254 | 22,784 | 22,463 | |||||||||
Ceded
|
(269,128 | ) | (257,271 | ) | (231,872 | ) | ||||||
Net
|
$ | 1,390,541 | 1,422,655 | 1,492,738 | ||||||||
Premiums earned:
|
||||||||||||
Direct
|
$ | 1,654,301 | 1,657,911 | 1,694,510 | ||||||||
Assumed
|
26,619 | 21,501 | 27,115 | |||||||||
Ceded
|
(264,322 | ) | (248,365 | ) | (217,438 | ) | ||||||
Net
|
$ | 1,416,598 | 1,431,047 | 1,504,187 | ||||||||
Losses and loss expenses incurred:
|
||||||||||||
Direct
|
$ | 1,102,326 | 1,065,594 | 1,113,416 | ||||||||
Assumed
|
14,994 | 14,794 | 17,852 | |||||||||
Ceded
|
(135,202 | ) | (108,483 | ) | (119,724 | ) | ||||||
Net
|
$ | 982,118 | 971,905 | 1,011,544 |
($ in thousands)
|
2010
|
2009
|
2008
|
|||||||||
Ceded premiums written
|
$ | (190,964 | ) | (178,934 | ) | (166,649 | ) | |||||
Ceded premiums earned
|
(184,833 | ) | (171,941 | ) | (153,883 | ) | ||||||
Ceded losses and loss expenses incurred
|
(60,479 | ) | (35,597 | ) | (91,257 | ) |
($ in thousands)
|
2010
|
2009
|
2008
|
|||||||||
Gross reserves for losses and loss expenses, at beginning of year
|
$ | 2,745,799 | 2,640,973 | 2,542,547 | ||||||||
Less: reinsurance recoverable on unpaid loss and loss expenses, at beginning of year
|
271,610 | 224,192 | 227,801 | |||||||||
Net reserves for losses and loss expenses, at beginning of year
|
2,474,189 | 2,416,781 | 2,314,746 | |||||||||
Incurred losses and loss expenses for claims occurring in the:
|
||||||||||||
Current year
|
1,025,707 | 1,001,333 | 1,030,852 | |||||||||
Prior years
|
(43,589 | ) | (29,428 | ) | (19,308 | ) | ||||||
Total incurred losses and loss expenses
|
982,118 | 971,905 | 1,011,544 | |||||||||
Paid losses and loss expenses for claims occurring in the:
|
||||||||||||
Current year
|
378,650 | 330,006 | 330,158 | |||||||||
Prior years
|
561,338 | 584,491 | 579,351 | |||||||||
Total paid losses and loss expenses
|
939,988 | 914,497 | 909,509 | |||||||||
Net reserves for losses and loss expenses, at end of year
|
2,516,319 | 2,474,189 | 2,416,781 | |||||||||
Add: Reinsurance recoverable on unpaid loss and loss expenses, at end of year
|
313,739 | 271,610 | 224,192 | |||||||||
Gross reserves for losses and loss expenses at end of year
|
$ | 2,830,058 | 2,745,799 | 2,640,973 |
2010
|
||||||||
($ in millions)
|
Gross
|
Net
|
||||||
Asbestos
|
$ | 10.0 | 8.2 | |||||
Landfill sites
|
19.9 | 15.0 | ||||||
Other
1
|
17.4 | 16.2 | ||||||
Total
|
$ | 47.3 | 39.4 |
2010
|
2009
|
2008
|
||||||||||||||||||||||
($ in thousands)
|
Gross
|
Net
|
Gross
|
Net
|
Gross
|
Net
|
||||||||||||||||||
Asbestos
|
||||||||||||||||||||||||
Reserves for losses and loss expenses at beginning of year
|
$ | 11,056 | 9,244 | 14,269 | 12,969 | 14,955 | 13,655 | |||||||||||||||||
Incurred losses and loss expenses
|
(338 | ) | (338 | ) | (2,418 | ) | (2,930 | ) | 672 | 579 | ||||||||||||||
Less: losses and loss expenses paid
|
(739 | ) | (739 | ) | (795 | ) | (795 | ) | (1,358 | ) | (1,265 | ) | ||||||||||||
Reserves for losses and loss expenses at the end of year
|
$ | 9,979 | 8,167 | 11,056 | 9,244 | 14,269 | 12,969 | |||||||||||||||||
Non-Asbestos
|
||||||||||||||||||||||||
Reserves for losses and loss expenses at beginning of year
|
$ | 39,418 | 32,358 | 37,246 | 31,124 | 43,741 | 37,716 | |||||||||||||||||
Incurred losses and loss expenses
|
1,999 | 2,776 | 8,115 | 6,405 | 3,222 | 2,754 | ||||||||||||||||||
Less: losses and loss expenses paid
|
(4,105 | ) | (3,852 | ) | (5,943 | ) | (5,171 | ) | (9,717 | ) | (9,346 | ) | ||||||||||||
Reserves for losses and loss expenses at the end of year
|
$ | 37,312 | 31,282 | 39,418 | 32,358 | 37,246 | 31,124 | |||||||||||||||||
Total Environmental Claims
|
||||||||||||||||||||||||
Reserves for losses and loss expenses at beginning of year
|
$ | 50,474 | 41,602 | 51,515 | 44,093 | 58,696 | 51,371 | |||||||||||||||||
Incurred losses and loss expenses
|
1,661 | 2,438 | 5,697 | 3,475 | 3,894 | 3,333 | ||||||||||||||||||
Less: losses and loss expenses paid
|
(4,844 | ) | (4,591 | ) | (6,738 | ) | (5,966 | ) | (11,075 | ) | (10,611 | ) | ||||||||||||
Reserves for losses and loss expenses at the end of year
|
$ | 47,291 | 39,449 | 50,474 | 41,602 | 51,515 | 44,093 |
Required as of
December 31, 2010
|
Actual as of
December 31, 2010
|
|||||
Consolidated net worth
|
$812 million
|
$ | 1,071 million | |||
Statutory surplus
|
Not less than $750 million
|
$ | 1,073 million | |||
Debt-to-capitalization ratio
|
Not to exceed 30%
|
19.7% | ||||
A.M. Best financial strength rating
|
Minimum of A-
|
A+ |
|
·
|
Insurance Operations, which is evaluated based on statutory underwriting results (net premiums earned, incurred losses and loss expenses, policyholders dividends, policy acquisition costs, and other underwriting expenses), and statutory combined ratios; and
|
|
·
|
Investments, which is evaluated based on net investment income and net realized gains and losses.
|
|
·
|
During the first quarter of 2009, we realigned our Flood operations to be part of our Insurance Operations segment, which reflects how senior management evaluates our results.
|
|
·
|
During the fourth quarter of 2009, we disposed of Selective HR, which comprised our HR Outsourcing segment. The results of Selective HR operations are included in “Loss from discontinued operations, net of tax” in our Consolidated Statements of Income. See Note 12. “Discontinued Operations” for additional information on the disposal.
|
Revenue from Continuing Operations by Segment
|
||||||||||||
Years ended December 31,
|
||||||||||||
($ in thousands)
|
2010
|
2009
|
2008
|
|||||||||
Insurance Operations:
|
||||||||||||
Net premiums earned:
|
||||||||||||
Commercial automobile
|
$ | 291,495 | 300,562 | 307,388 | ||||||||
Workers compensation
|
252,441 | 263,490 | 308,618 | |||||||||
General liability
|
336,475 | 362,479 | 396,066 | |||||||||
Commercial property
|
199,252 | 197,665 | 196,189 | |||||||||
Business owners’ policies
|
65,260 | 62,638 | 57,858 | |||||||||
Bonds
|
19,243 | 18,455 | 18,831 | |||||||||
Other
|
10,116 | 9,663 | 9,294 | |||||||||
Total Commercial Lines
|
1,174,282 | 1,214,952 | 1,294,244 | |||||||||
Personal automobile
|
141,962 | 133,320 | 132,845 | |||||||||
Homeowners
|
87,862 | 73,076 | 68,088 | |||||||||
Other
|
12,492 | 9,699 | 9,010 | |||||||||
Total Personal Lines
|
242,316 | 216,095 | 209,943 | |||||||||
Total net premiums earned
|
1,416,598 | 1,431,047 | 1,504,187 | |||||||||
Miscellaneous income
|
9,230 | 10,440 | 2,610 | |||||||||
Total Insurance Operations revenues
|
1,425,828 | 1,441,487 | 1,506,797 | |||||||||
Investments:
|
||||||||||||
Net investment income
1
|
145,708 | 118,471 | 131,032 | |||||||||
Net realized losses on investments
|
(7,083 | ) | (45,970 | ) | (49,452 | ) | ||||||
Total investment revenues
|
138,625 | 72,501 | 81,580 | |||||||||
Total all segments
|
1,564,453 | 1,513,988 | 1,588,377 | |||||||||
Other income
|
168 | 30 | 1,562 | |||||||||
Total revenues from continuing operations
|
$ | 1,564,621 | 1,514,018 | 1,589,939 |
Income from Continuing Operations, Before Federal Income Tax
|
||||||||||||
Years ended December 31,
|
||||||||||||
($ in thousands)
|
2010
|
2009
|
2008
|
|||||||||
Insurance Operations:
|
||||||||||||
Commercial Lines underwriting
|
$ | (1,668 | ) | 14,388 | 10,815 | |||||||
Personal Lines underwriting
|
(20,499 | ) | (12,003 | ) | (10,683 | ) | ||||||
Underwriting (loss) income, before federal income tax
|
(22,167 | ) | 2,385 | 132 | ||||||||
GAAP combined ratio
|
101.6 | % | 99.8 | 100.0 | ||||||||
Statutory combined ratio
|
101.6 | % | 100.5 | 99.2 | ||||||||
Investments:
|
||||||||||||
Net investment income
1
|
$ | 145,708 | 118,471 | 131,032 | ||||||||
Net realized losses on investments
|
(7,083 | ) | (45,970 | ) | (49,452 | ) | ||||||
Total investment income, before federal income tax
|
138,625 | 72,501 | 81,580 | |||||||||
Total all segments
|
116,458 | 74,886 | 81,712 | |||||||||
Interest expense
|
(18,616 | ) | (19,386 | ) | (20,508 | ) | ||||||
General corporate and other expenses
|
(15,886 | ) | (16,314 | ) | (21,037 | ) | ||||||
Income from continuing operations, before federal income tax
|
$ | 81,956 | 39,186 | 40,167 |
1
|
Net investment income includes income (loss) from our alternative investments, which are accounted for by the equity method, of $20.3 million at December 31, 2010, $(21.7) million at December 31, 2009, and $(12.7) million at December 31, 2008.
|
($ in thousands)
|
2009
|
2008
|
||||||
Net revenue
|
$ | 44,508 | 53,147 | |||||
Pre-tax loss
|
(11,128 | ) | (781 | ) | ||||
After-tax loss
|
(7,086 | ) | (343 | ) |
($ in thousands)
|
2009
|
2008
|
||||||
Net revenue
|
$ | 9,016 | 12,793 |
2010
|
Income
|
Shares
|
Per Share
|
|||||||||
($ in thousands, except per share amounts)
|
(Numerator)
|
(Denominator)
|
Amount
|
|||||||||
Basic EPS:
|
||||||||||||
Net income from continuing operations
|
$ | 69,321 | 53,359 | 1.30 | ||||||||
Net loss on disposal of discontinued operations
|
(3,780 | ) | 53,359 | (0.07 | ) | |||||||
Net income available to common stockholders
|
$ | 65,541 | 53,359 | 1.23 | ||||||||
Effect of dilutive securities:
|
||||||||||||
Restricted stock
|
- | 25 | ||||||||||
Restricted stock units
|
- | 820 | ||||||||||
Stock options
|
- | 116 | ||||||||||
Deferred shares
|
- | 184 | ||||||||||
Diluted EPS:
|
||||||||||||
Net income from continuing operations
|
$ | 69,321 | 54,504 | 1.27 | ||||||||
Net loss on disposal of discontinued operations
|
(3,780 | ) | 54,504 | (0.07 | ) | |||||||
Net income available to common stockholders
|
$ | 65,541 | 54,504 | 1.20 |
2009
|
Income
|
Shares
|
Per Share
|
|||||||||
($ in thousands, except per share amounts)
|
(Numerator)
|
(Denominator)
|
Amount
|
|||||||||
Basic EPS:
|
||||||||||||
Net income from continuing operations
|
$ | 44,658 | 52,630 | $ | 0.84 | |||||||
Net loss from discontinued operations
|
(7,086 | ) | 52,630 | (0.13 | ) | |||||||
Net loss on disposal of discontinued operations
|
(1,174 | ) | 52,630 | (0.02 | ) | |||||||
Net income available to common stockholders
|
$ | 36,398 | 52,630 | $ | 0.69 | |||||||
Effect of dilutive securities:
|
||||||||||||
Restricted stock
|
- | 302 | ||||||||||
Restricted stock units
|
- | 171 | ||||||||||
Stock options
|
- | 114 | ||||||||||
Deferred shares
|
- | 180 | ||||||||||
Diluted EPS:
|
||||||||||||
Net income from continuing operations
|
$ | 44,658 | 53,397 | $ | 0.83 | |||||||
Net loss from discontinued operations
|
(7,086 | ) | 53,397 | (0.13 | ) | |||||||
Net loss on disposal of discontinued operations
|
(1,174 | ) | 53,397 | (0.02 | ) | |||||||
Net income available to common stockholders
|
$ | 36,398 | 53,397 | $ | 0.68 |
2008
|
Income
|
Shares
|
Per Share
|
|||||||||
($ in thousands, except per share amounts)
|
(Numerator)
|
(Denominator)
|
Amount
|
|||||||||
Basic EPS:
|
||||||||||||
Net income from continuing operations
|
$ | 44,101 | 52,104 | $ | 0.85 | |||||||
Net loss from discontinued operations
|
(343 | ) | 52,104 | (0.01 | ) | |||||||
Net income available to common stockholders
|
$ | 43,758 | 52,104 | $ | 0.84 | |||||||
Effect of dilutive securities:
|
||||||||||||
Restricted stock
|
- | 727 | ||||||||||
Restricted stock units
|
- | 53 | ||||||||||
Stock options
|
- | 247 | ||||||||||
Deferred shares
|
- | 188 | ||||||||||
Diluted EPS:
|
||||||||||||
Net income from continuing operations
|
$ | 44,101 | 53,319 | $ | 0.83 | |||||||
Net loss from discontinued operations
|
(343 | ) | 53,319 | (0.01 | ) | |||||||
Net income available to common stockholders
|
$ | 43,758 | 53,319 | $ | 0.82 |
($ in thousands)
|
2010
|
2009
|
2008
|
|||||||||
Tax at statutory rate of 35%
|
$ | 28,685 | 13,715 | 14,058 | ||||||||
Tax-advantaged interest
|
(15,992 | ) | (18,205 | ) | (18,947 | ) | ||||||
Dividends received deduction
|
(357 | ) | (513 | ) | (922 | ) | ||||||
Nonqualified deferred compensation
|
(273 | ) | (721 | ) | 1,563 | |||||||
Other
|
572 | 252 | 314 | |||||||||
Federal income tax expense (benefit) from continuing operations
|
$ | 12,635 | (5,472 | ) | (3,934 | ) |
($ in thousands)
|
2010
|
2009
|
||||||
Deferred tax assets:
|
||||||||
Net loss reserve discounting
|
$ | 98,014 | 97,655 | |||||
Net unearned premiums
|
49,955 | 51,751 | ||||||
Employee benefits
|
27,079 | 27,639 | ||||||
Long-term incentive compensation plans
|
9,209 | 8,601 | ||||||
Temporary investment write-downs
|
9,340 | 10,595 | ||||||
Other investment-related items, net
|
- | 6,075 | ||||||
Tax credits
|
5,138 | - | ||||||
Other
|
6,109 | 5,093 | ||||||
Total deferred tax assets
|
204,844 | 207,409 | ||||||
Deferred tax liabilities:
|
||||||||
Deferred policy acquisition costs
|
72,840 | 76,227 | ||||||
Unrealized gains on available-for-sale securities
|
30,522 | 13,044 | ||||||
Other investment-related items, net
|
2,080 | - | ||||||
Accelerated depreciation and amortization
|
6,168 | 7,100 | ||||||
Total deferred tax liabilities
|
111,610 | 96,371 | ||||||
Net deferred federal income tax asset
|
$ | 93,234 | 111,038 |
As of December 31, 2010
|
Effective January 1, 2011
|
||
SICA match
|
65% of participant contributions up to 7% of defined compensation
|
100% of participant contributions up to the first 3% of defined compensation and 50% up to the next 3%
|
|
Enhanced match/non-elective contribution
1
|
100% match up to 2% of defined compensation and non-elective contributions equal to 2% of defined compensation
|
Enhanced match eliminated and non-elective contributions increased to 4%
|
|
Vesting of match/non-elective contribution
|
Vesting period of six years for SICA match and three years for SICA non-elective contribution
|
Immediately vested
|
|
HCE contributions
|
Limited
|
No longer subject to previous limitation
|
December 31,
|
Retirement Income Plan
|
Retirement Life Plan
|
||||||||||||||
($ in thousands)
|
2010
|
2009
|
2010
|
2009
|
||||||||||||
Change in Benefit Obligation:
|
||||||||||||||||
Benefit obligation, beginning of year
|
$ | 200,041 | 180,341 | 5,503 | 7,644 | |||||||||||
Service cost
|
7,626 | 7,078 | - | 32 | ||||||||||||
Interest cost
|
11,914 | 10,944 | 316 | 361 | ||||||||||||
Actuarial losses
|
16,339 | 6,539 | 201 | 646 | ||||||||||||
Benefits paid
|
(5,278 | ) | (4,861 | ) | (320 | ) | (350 | ) | ||||||||
Liability gain due to curtailment
|
- | - | - | (2,830 | ) | |||||||||||
Benefit obligation, end of year
|
$ | 230,642 | 200,041 | 5,700 | 5,503 | |||||||||||
Change in Fair Value of Assets:
|
||||||||||||||||
Fair value of assets, beginning of year
|
$ | 139,749 | 117,258 | - | - | |||||||||||
Actual return on plan assets, net of expenses
|
15,743 | 19,223 | - | - | ||||||||||||
Contributions by the employer to funded plans
|
23,000 | 8,000 | - | - | ||||||||||||
Contributions by the employer to unfunded plans
|
97 | 129 | - | - | ||||||||||||
Benefits paid
|
(5,278 | ) | (4,861 | ) | - | - | ||||||||||
Fair value of assets, end of year
|
$ | 173,311 | 139,749 | - | - | |||||||||||
Funded status
|
(57,331 | ) | (60,292 | ) | (5,700 | ) | (5,503 | ) | ||||||||
Amounts Recognized in the Consolidated Balance Sheet:
|
||||||||||||||||
Liabilities
|
(57,331 | ) | (60,292 | ) | (5,700 | ) | (5,503 | ) | ||||||||
Net pension liability, end of year
|
$ | (57,331 | ) | (60,292 | ) | (5,700 | ) | (5,503 | ) | |||||||
Amounts Recognized in AOCI
|
||||||||||||||||
Prior service cost
|
$ | 326 | 476 | - | - | |||||||||||
Net actuarial loss
|
70,901 | 63,185 | 841 | 646 | ||||||||||||
Total
|
$ | 71,227 | 63,661 | 841 | 646 | |||||||||||
Other Information as of December 31:
|
||||||||||||||||
Accumulated benefit obligation
|
$ | 199,028 | 171,552 | - | - | |||||||||||
Weighted-Average Liability Assumptions as of
|
||||||||||||||||
December 31:
|
||||||||||||||||
Discount rate
|
5.55 | 5.93 | % | 5.55 | 5.93 | |||||||||||
Rate of compensation increase
|
4.00 | 4.00 | % | - | - |
Retirement Income Plan
|
Retirement Life Plan
|
|||||||||||||||||||||||
($ in thousands)
|
2010
|
2009
|
2008
|
2010
|
2009
|
2008
|
||||||||||||||||||
Components of Net Periodic Benefit Cost and Other Amounts Recognized in Other Comprehensive (Income) Loss:
|
||||||||||||||||||||||||
Net Periodic Benefit Cost:
|
||||||||||||||||||||||||
Service cost
|
$ | 7,626 | 7,078 | 6,966 | - | 32 | 122 | |||||||||||||||||
Interest cost
|
11,914 | 10,944 | 10,039 | 316 | 361 | 473 | ||||||||||||||||||
Expected return on plan assets
|
(11,247 | ) | (9,214 | ) | (11,867 | ) | - | - | - | |||||||||||||||
Amortization of unrecognized prior service cost (credit)
|
150 | 150 | 150 | - | (44 | ) | (175 | ) | ||||||||||||||||
Amortization of unrecognized actuarial loss
|
4,128 | 4,660 | 136 | 6 | - | - | ||||||||||||||||||
Curtailment income
|
- | - | - | - | (4,217 | ) | - | |||||||||||||||||
Total net periodic cost/(income)
|
12,571 | 13,618 | 5,424 | 322 | (3,868 | ) | 420 | |||||||||||||||||
Other Changes in Plan Assets and Benefit Obligations Recognized in Other Comprehensive (Income) Loss:
|
||||||||||||||||||||||||
Net actuarial loss (gain)
|
$ | 11,844 | (3,470 | ) | 59,908 | 201 | 646 | 364 | ||||||||||||||||
Prior service credit
|
- | - | - | - | - | (1,985 | ) | |||||||||||||||||
Reversal of amortization of net actuarial loss
|
(4,128 | ) | (4,660 | ) | (136 | ) | (6 | ) | (614 | ) | - | |||||||||||||
Reversal of amortization of prior service (cost) credit
|
(150 | ) | (150 | ) | (150 | ) | - | 2,045 | 175 | |||||||||||||||
Total recognized in other comprehensive (income) loss
|
7,566 | (8,280 | ) | 59,622 | 195 | 2,077 | (1,446 | ) | ||||||||||||||||
Total recognized in net periodic benefit cost and other comprehensive (income) loss
|
$ | 20,137 | 5,338 | 65,046 | 517 | (1,791 | ) | (1,026 | ) |
Retirement Income Plan
|
Retirement Life Plan
|
|||||||||||||||||||||||
($ in thousands)
|
2010
|
2009
|
2008
|
2010
|
2009
|
2008
|
||||||||||||||||||
Weighted-Average Expense Assumptions for the years ended December 31:
|
||||||||||||||||||||||||
Discount rate
|
5.93 | % | 6.24 | 6.50 | 5.93 | 6.24 | 6.50 | |||||||||||||||||
Expected return on plan assets
|
8.00 | % | 8.00 | 8.00 | - | - | - | |||||||||||||||||
Rate of compensation increase
|
4.00 | % | 4.00 | 4.00 | - | 4.00 | 4.00 |
2010
|
2009
|
|||||||
Equity
|
||||||||
Large capitalization
|
19 | % | 20 | |||||
Small and mid capitalization
|
9 | 9 | ||||||
International
|
8 | 9 | ||||||
Alternative investments
|
11 | 15 | ||||||
Fixed income
|
||||||||
Domestic core
|
15 | 19 | ||||||
Global emerging markets
|
12 | 15 | ||||||
Liability driven investments
|
16 | 8 | ||||||
Cash and short-term investments
|
10 | 5 | ||||||
Total
|
100 | % | 100 |
Investment Category
|
Target
|
Range
|
||||||
Equity
|
||||||||
Large capitalization
|
24 | % | 17% - 31 | % | ||||
Small and mid capitalization
|
10 | % | 6% - 14 | % | ||||
International
|
10 | % | 6% - 14 | % | ||||
Alternative investments
|
15 | % | 20% - 34 | % | ||||
Fixed income
|
||||||||
Domestic core
|
16 | % | 0% - 21 | % | ||||
Global emerging markets
|
13 | % | 0% - 18 | % | ||||
Liability driven investments
|
12 | % | 0% - 45 | % | ||||
Cash and short-term investments
|
0 | % | 0% - 5 | % |
|
·
|
For valuations of the mutual funds, we utilize a market approach wherein the quoted prices in the active market for identical assets are used. All of the mutual funds are traded in active markets at their net asset value per share. There are no restrictions as to the redemption of these investments nor do we have any contractual obligations to further invest in any of the individual mutual funds. These investments are classified as Level 1 in the fair value hierarchy;
|
|
·
|
The deposit administration contract is carried at cost, which approximates fair value. Given the liquid nature of the underlying investments in overnight cash deposits and other short term duration products, we have determined that a correlation exists between the deposit administration contract and other short-term investments such as money market funds. As such, this investment is classified as Level 2 in the fair value hierarchy;
|
|
·
|
For the valuation of the investment in the limited liability company (“LLC”), fair value is based on the Retirement Income Plan’s ownership interest in the reported net asset value, which is reported to us on a one quarter lag, as a practical expedient. The LLC did not have any imposed redemption restrictions nor did we have any contractual obligations to further invest in this investment. We determined that we had the ability to redeem this investment in the near term and the time between the redemption date and the valuation date is not significant enough to allow for a significant change in fair value. This investment is classified as Level 2 in the fair value hierarchy as of December 31, 2009; and
|
|
·
|
For valuations of the investments in limited partnerships, fair value is based on the Retirement Income Plan’s ownership interest in the reported net asset values as a practical expedient. The majority of the net asset values are reported to us on a one quarter lag. We assess whether these reported net asset values are indicative of market activity that has occurred since the date of their valuation by the investees: (i) by reviewing the overall market fluctuation and whether a material impact to our investments' valuation could have occurred; and (ii) through routine conversations with the underlying funds' general partners/managers discussing, among other things, conditions or events having significant impacts to their portfolio assets that have
occurred subsequent to the reported date, if any. The majority of the limited partnership investments cannot be redeemed with the investees as our partnership agreements require our commitment for the duration of the underlying funds’ lives. In the fourth quarter of 2010, we sold three of our limited partnership interest in the secondary market. As of December 31, 2010, there is no active plan to sell any of our remaining interest in the limited partnership investments, however given the volatility in these investments over the recent past, we may continue to entertain potential opportunities to limit our exposure to these investments through the use of the secondary market. These limited partnerships have been fair valued using Level 3 inputs. The Retirement Income Plan has one limited partnership investment in a hedge fund
that can be redeemed semi-annually subject to a 30 day notification of intent to redeem. Therefore, we are unable to redeem this investment at the net asset value reported to the plan at December 31, 2010 and 2009. However, we have determined that we have the ability to redeem this investment in the near term and the time between the redemption date and the valuation date is not significant enough to allow for a significant change in fair value. As a result of this determination, this fund has been fair valued using Level 2 inputs as of December 31, 2010 and 2009 using the net asset value of our ownership interest in partners' capital.
|
December 31, 2010
|
Fair Value Measurements at 12/31/10 Using
|
|||||||||||||||
Quoted Prices in
|
||||||||||||||||
Assets
|
Active Markets for
|
Significant Other
|
Significant
|
|||||||||||||
Measured at
|
Identical Assets/
|
Observable
|
Unobservable
|
|||||||||||||
Fair Value
|
Liabilities
|
Inputs
|
Inputs
|
|||||||||||||
($ in thousands)
|
At 12/31/10
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
||||||||||||
Description
|
||||||||||||||||
Mutual funds:
|
||||||||||||||||
International equity
|
$ | 14,277 | 14,277 | - | - | |||||||||||
Domestic large capitalization
|
20,580 | 20,580 | - | - | ||||||||||||
Small and mid capitalization
|
6,785 | 6,785 | - | - | ||||||||||||
Global long-term investment grade fixed income
|
27,726 | 27,726 | - | - | ||||||||||||
Domestic core fixed income
|
26,991 | 26,991 | - | - | ||||||||||||
Global emerging markets fixed income
|
20,077 | 20,077 | - | - | ||||||||||||
Total mutual funds
|
116,436 | 116,436 | - | - | ||||||||||||
Limited partnership investments:
|
||||||||||||||||
Equity long/short hedge
|
1,779 | - | 1,779 | - | ||||||||||||
Private equity
|
14,492 | - | - | 14,492 | ||||||||||||
Real estate
|
2,687 | - | - | 2,687 | ||||||||||||
Total limited partnerships
|
18,958 | - | 1,779 | 17,179 | ||||||||||||
Common stocks:
|
||||||||||||||||
Domestic large capitalization
|
11,509 | 11,509 | - | - | ||||||||||||
Small and mid capitalization
|
8,631 | 8,631 | - | - | ||||||||||||
Total common stocks
|
20,140 | 20,140 | - | - | ||||||||||||
Short-term investments
|
15,692 | 15,692 | - | - | ||||||||||||
Deposit administration contracts
|
754 | - | 754 | - | ||||||||||||
Total assets
|
$ | 171,980 | 152,268 | 2,533 | 17,179 | |||||||||||
December 31, 2009
|
Fair Value Measurements at 12/31/09 Using
|
|||||||||||||||
Quoted Prices in
|
||||||||||||||||
Assets
|
Active Markets for
|
Significant Other
|
Significant
|
|||||||||||||
Measured at
|
Identical Assets/
|
Observable
|
Unobservable
|
|||||||||||||
Fair Value
|
Liabilities
|
Inputs
|
Inputs
|
|||||||||||||
($ in thousands)
|
At 12/31/09
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
||||||||||||
Description
|
||||||||||||||||
Mutual funds:
|
||||||||||||||||
International equity
|
$ | 12,666 | 12,666 | - | - | |||||||||||
Domestic large capitalization
|
8,581 | 8,581 | - | - | ||||||||||||
Small and mid capitalization
|
5,819 | 5,819 | - | - | ||||||||||||
Global long-term investment grade fixed income
|
10,383 | 10,383 | - | - | ||||||||||||
Domestic core fixed income
|
26,883 | 26,883 | - | - | ||||||||||||
Global emerging markets fixed income
|
21,490 | 21,490 | - | - | ||||||||||||
Total mutual funds
|
85,822 | 85,822 | - | - | ||||||||||||
Limited partnership investments:
|
||||||||||||||||
Equity long/short hedge
|
1,680 | - | 1,680 | - | ||||||||||||
Private equity
|
15,691 | - | - | 15,691 | ||||||||||||
Real estate
|
3,073 | - | - | 3,073 | ||||||||||||
Total limited partnerships
|
20,444 | - | 1,680 | 18,764 | ||||||||||||
Common stocks:
|
||||||||||||||||
Domestic large capitalization
|
9,373 | 9,373 | - | - | ||||||||||||
Small and mid capitalization
|
7,188 | 7,188 | - | - | ||||||||||||
Total common stocks
|
16,561 | 16,561 | - | - | ||||||||||||
LLC-large capitalization
|
9,597 | - | 9,597 | - | ||||||||||||
Short-term investments
|
6,630 | 6,630 | - | - | ||||||||||||
Deposit administration contracts
|
695 | - | 695 | - | ||||||||||||
Total assets
|
$ | 139,749 | 109,013 | 11,972 | 18,764 |
December 31, 2010
|
Investments in
|
|||
($ in thousands)
|
Limited
Partnerships
|
|||
Fair value, December 31, 2009
|
$ | 18,764 | ||
Total gains (realized and unrealized) included in changes in net assets
|
969 | |||
Purchases, sales, issuances, and settlements (net)
|
(2,554 | ) | ||
Transfers in and/or out of Level 3
|
- | |||
Fair value, December 31, 2010
|
$ | 17,179 |
December 31, 2009
|
||||||||||||
($ in thousands)
|
Mutual Funds
|
Investments in
Limited
Partnerships
|
Total
Level 3 Assets
|
|||||||||
Fair value, December 31, 2008
|
$ | 4,368 | 21,120 | 25,488 | ||||||||
Total gains (realized and unrealized) included in changes in net assets
|
76 | (3,308 | ) | (3,232 | ) | |||||||
Purchases, sales, issuances, and settlements (net)
|
(4,444 | ) | 952 | (3,492 | ) | |||||||
Transfers in and/or out of Level 3
|
- | - | - | |||||||||
Fair value, December 31, 2009
|
$ | - | 18,764 | 18,764 | ||||||||
Alternative Investments
|
Carrying Value
|
2010
|
||||||||||
December 31,
|
December 31,
|
Remaining
|
||||||||||
($ in millions)
|
2010
|
2009
|
Amount
|
|||||||||
Equity long/short hedge
|
$ | 1.8 | 1.7 | - | ||||||||
Private equity
|
14.5 | 15.7 | 5.1 | |||||||||
Real estate
|
2.7 | 3.0 | 0.6 | |||||||||
Total alternative investments
|
$ | 19.0 | 20.4 | 5.7 |
($ in thousands)
|
Retirement
Income Plan |
Retirement
Life Plan |
||||||
Benefits Expected to be Paid in Future
|
||||||||
Fiscal Years:
|
||||||||
2011
|
$ | 6,609 | 341 | |||||
2012
|
7,269 | 349 | ||||||
2013
|
8,034 | 358 | ||||||
2014
|
8,772 | 365 | ||||||
2015
|
9,571 | 373 | ||||||
2016-2020
|
64,068 | 1,955 |
Weighted
|
||||||||||||||||
Weighted
|
Average
|
|||||||||||||||
Average
|
Remaining
|
Aggregate
|
||||||||||||||
Number
|
Exercise
|
Contractual
|
Intrinsic Value
|
|||||||||||||
of Shares
|
Price
|
Life in Years
|
($ in thousands)
|
|||||||||||||
Outstanding at December 31, 2009
|
1,381,350 | $ | 17.90 | |||||||||||||
Granted 2010
|
238,790 | 15.96 | ||||||||||||||
Exercised 2010
|
139,379 | 10.88 | ||||||||||||||
Forfeited or expired 2010
|
78,505 | 21.23 | ||||||||||||||
Outstanding at December 31, 2010
|
1,402,256 | $ | 18.08 | 5.74 | $ | 3,617 | ||||||||||
Exercisable at December 31, 2010
|
1,089,307 | $ | 18.55 | 4.87 | $ | 2,947 |
Weighted
|
||||||||
Average
|
||||||||
Number
|
Grant Date
|
|||||||
of Shares
|
Fair Value
|
|||||||
Unvested restricted stock and RSU awards at January 1, 2010
|
1,122,476 | $ | 19.83 | |||||
Granted 2010
|
479,971 | 14.69 | ||||||
Vested 2010
|
253,909 | 26.32 | ||||||
Forfeited 2010
|
106,638 | 16.01 | ||||||
Unvested restricted stock and RSU awards at December 31, 2010
|
1,241,900 | $ | 16.85 |
ESPP
|
All Other Option Plans
|
|||||||||||||||||||||||
2010
|
2009
|
2008
|
2010
|
2009
|
2008
|
|||||||||||||||||||
Risk-free interest rate
|
0.20 | % | 0.31 | 2.77 | 2.30 | 1.85 | 2.97 | |||||||||||||||||
Expected term
|
6 months
|
6 months
|
6 months
|
5 years
|
5 years
|
6 years
|
||||||||||||||||||
Dividend yield
|
3.3 | % | 3.4 | 2.5 | 3.3 | 3.9 | 2.2 | |||||||||||||||||
Expected volatility
|
28 | % | 64 | 38 | 34 | 32 | 25 |
2010
|
2009
|
2008
|
||||||||||
Stock options
|
$ | 3.83 | 2.68 | 5.43 | ||||||||
Restricted stock and RSUs
|
14.69 | 14.22 | 23.11 | |||||||||
Directors’ stock compensation plan
|
16.09 | 15.11 | 22.70 | |||||||||
ESPP:
|
||||||||||||
Six month option
|
1.03 | 2.51 | 2.02 | |||||||||
15% of grant date market value
|
2.35 | 2.49 | 2.83 | |||||||||
Total ESPP
|
3.38 | 5.00 | 4.85 | |||||||||
Agent Plan:
|
||||||||||||
Discount of grant date market value
|
1.59 | 1.39 | 2.24 |
|
·
|
Rue Insurance placed insurance policies with the Insurance Subsidiaries. Direct premiums written associated with these policies were $7.2 million in 2010, $7.6 million in 2009, and $8.3 million in 2008. In return, the Insurance Subsidiaries paid commissions to Rue Insurance of $1.3 million in 2010, $1.4 million in 2009, and $1.7 million in 2008.
|
|
·
|
Rue Insurance placed insurance coverage for us with other insurance companies for which Rue Insurance was paid commission pursuant to its agreements with those carriers. We paid premiums for such insurance coverage of $0.3 million in 2010 and $0.5 million in both 2009 and 2008.
|
|
·
|
Rue Insurance placed human resource outsourcing contracts with Selective HR resulting in revenues to Selective HR of approximately $77,000 in 2009 and $79,000 in 2008. In return, Selective HR paid commissions to Rue Insurance of approximately $10,000 in 2009 and $12,000 in 2008. These revenues are reflected in “Loss from discontinued operations, net of tax” in the Consolidated Statements of Income.
|
|
·
|
We paid reinsurance commissions of $0.2 million in 2008 to PL, LLC. There were no reinsurance commissions paid to PL, LLC during 2010 or 2009. PL, LLC is an insurance fund administrator that places reinsurance through an Insurance Subsidiary. As of December 31, 2008, Rue Insurance owned 33.33% of PL, LLC.
|
($ in millions)
|
||||
2011
|
$ | 8.9 | ||
2012
|
6.5 | |||
2013
|
4.2 | |||
2014
|
2.4 | |||
2015
|
1.4 | |||
After 2015
|
1.2 | |||
Total minimum payment required
|
$ | 24.6 |
(unaudited, $ in thousands,
|
First Quarter
|
Second Quarter
|
Third Quarter
|
Fourth Quarter
|
||||||||||||||||||||||||||||
except per share data)
|
2010
|
2009
|
2010
|
2009
|
2010
|
2009
|
2010
|
2009
|
||||||||||||||||||||||||
Net premiums earned
|
356,202 | 363,873 | 352,190 | 358,311 | 354,709 | 355,906 | 353,497 | 352,957 | ||||||||||||||||||||||||
Net investment income earned
|
34,706 | 15,717 | 36,545 | 26,368 | 32,986 | 36,585 | 41,471 | 39,801 | ||||||||||||||||||||||||
Net realized (losses) gains
|
(64 | ) | (24,025 | ) | (3,264 | ) | (11,294 | ) | 57 | (4,983 | ) | (3,812 | ) | (5,668 | ) | |||||||||||||||||
Underwriting (loss) profit
|
(14,605 | ) | (2,963 | ) | (3,161 | ) | 6,032 | (3,933 | ) | (142 | ) | (468 | ) | (542 | ) | |||||||||||||||||
Net income (loss) from continuing operations
1
|
6,593 | (12,950 | ) | 20,091 | 15,358 | 18,831 | 20,606 | 23,806 | 21,644 | |||||||||||||||||||||||
(Loss) income from discontinued operations, net of tax
1
|
(790 | ) | 73 | (1,325 | ) | 330 | (1,634 | ) | (7,599 | ) | (31 | ) | (1,064 | ) | ||||||||||||||||||
Net income (loss)
|
5,803 | (12,877 | ) | 18,766 | 15,688 | 17,197 | 13,007 | 23,775 | 20,580 | |||||||||||||||||||||||
Other comprehensive income (loss)
|
6,687 | 37,246 | 23,599 | 23,613 | 30,394 | 31,049 | (41,196 | ) | (1,322 | ) | ||||||||||||||||||||||
Comprehensive income (loss)
|
12,490 | 24,369 | 42,365 | 39,301 | 47,591 | 44,056 | (17,421 | ) | 19,258 | |||||||||||||||||||||||
Net income (loss) per share:
|
||||||||||||||||||||||||||||||||
Basic
|
0.11 | (0.25 | ) | 0.35 | 0.30 | 0.32 | 0.25 | 0.44 | 0.39 | |||||||||||||||||||||||
Diluted
|
0.11 | (0.25 | ) | 0.35 | 0.29 | 0.32 | 0.24 | 0.43 | 0.38 | |||||||||||||||||||||||
Dividends to stockholders
2
|
0.13 | 0.13 | 0.13 | 0.13 | 0.13 | 0.13 | 0.13 | 0.13 | ||||||||||||||||||||||||
Price range of common stock:
3
|
||||||||||||||||||||||||||||||||
High
|
17.04 | 23.28 | 17.28 | 15.30 | 16.63 | 17.54 | 18.94 | 17.17 | ||||||||||||||||||||||||
Low
|
15.01 | 10.06 | 14.17 | 11.46 | 14.13 | 12.15 | 15.97 | 14.84 |
1
|
See Note 12. “Discontinued Operations” for a discussion of discontinued operations.
|
2
|
See Note 10. “Indebtedness” for a discussion of dividend restrictions.
|
3
|
These ranges of high and low prices of the Parent’s common stock, as reported by the NASDAQ Global Select Market, represent actual transactions. Price quotations do not include retail markups, markdowns, and commissions. The range of high and low prices for common stock for the period beginning January 3, 2011 and ending February 18, 2011 was $18.97 to $17.35.
|
|
·
|
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;
|
|
·
|
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
|
|
·
|
Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
|
Form 10-K
|
|
Page
|
|
91
|
|
92
|
|
93
|
|
94
|
|
95
|
Form 10-K
|
||
Page
|
||
153
|
||
156
|
||
157
|
||
158
|
||
160
|
By: /s/ Gregory E. Murphy
|
February 25, 2011
|
|
Gregory E. Murphy
|
||
Chairman of the Board, President and Chief Executive Officer
|
||
By: /s/ Dale A. Thatcher
|
February 25, 2011
|
|
Dale A. Thatcher
|
||
Executive Vice President and Chief Financial Officer
|
||
(principal accounting officer and principal financial officer)
|
By: /s/ Gregory E. Murphy
|
February 25, 2011
|
|
Gregory E. Murphy
|
||
Chairman of the Board, President and Chief Executive Officer
|
||
*
|
February 25, 2011
|
|
Paul D. Bauer
|
||
Director
|
||
*
|
February 25, 2011
|
|
W. Marston Becker
|
||
Director
|
||
*
|
February 25, 2011
|
|
A. David Brown
|
||
Director
|
||
*
|
February 25, 2011
|
|
John C. Burville
|
||
Director
|
||
*
|
February 25, 2011
|
|
Joan M. Lamm-Tennant
|
||
Director
|
||
*
|
February 25, 2011
|
|
S. Griffin McClellan III
|
||
Director
|
||
*
|
February 25, 2011
|
|
Michael J. Morrissey
|
||
Director
|
||
*
|
February 25, 2011
|
|
Cynthia S. Nicholson
|
||
Director
|
*
|
February 25, 2011
|
||
Ronald L. O’Kelley | |||
Director | |||
*
|
February 25, 2011
|
||
William M. Rue | |||
Director | |||
*
|
February 25, 2011
|
||
J. Brian Thebault | |||
Director | |||
* |
By: /s/ Michael H. Lanza
|
February 25, 2011
|
|
Michael H. Lanza | |||
Attorney-in-fact |
December 31,
|
||||||||
($ in thousands, except share amounts)
|
2010
|
2009
|
||||||
Assets
|
||||||||
Fixed maturity securities, held-to-maturity – at carry value
(fair value: $811 – 2010; $1,339 – 2009) |
$ | 796 | 1,313 | |||||
Short-term investments
|
50,109 | 47,867 | ||||||
Cash
|
605 | 77 | ||||||
Investment in subsidiaries
|
1,320,886 | 1,256,163 | ||||||
Current federal income tax
|
12,932 | 16,006 | ||||||
Deferred federal income tax
|
11,158 | 10,309 | ||||||
Other assets
|
11,961 | 18,787 | ||||||
Total assets
|
$ | 1,408,447 | 1,350,522 | |||||
Liabilities and Stockholders’ Equity
|
||||||||
Liabilities:
|
||||||||
Notes payable
|
$ | 249,333 | 261,606 | |||||
Intercompany notes payable
|
74,785 | 75,408 | ||||||
Other liabilities
|
13,220 | 11,133 | ||||||
Total liabilities
|
337,338 | 348,147 | ||||||
Stockholders’ Equity:
|
||||||||
Preferred stock at $0 par value per share:
|
||||||||
Authorized shares 5,000,000; no shares issued or outstanding
|
- | - | ||||||
Common stock of $2 par value per share
|
||||||||
Authorized shares: 360,000,000
|
||||||||
Issued: 96,362,667 – 2010; 95,822,959 – 2009
|
192,725 | 191,646 | ||||||
Additional paid-in capital
|
244,613 | 231,933 | ||||||
Retained earnings
|
1,176,155 | 1,138,978 | ||||||
Accumulated other comprehensive income (loss)
|
7,024 | (12,460 | ) | |||||
Treasury stock – at cost (shares: 42,686,204 – 2010; 42,578,779 – 2009)
|
(549,408 | ) | (547,722 | ) | ||||
Total stockholders’ equity
|
1,071,109 | 1,002,375 | ||||||
Total liabilities and stockholders’ equity
|
$ | 1,408,447 | 1,350,522 |
Year ended December 31,
|
||||||||||||
($ in thousands)
|
2010
|
2009
|
2008
|
|||||||||
Revenues:
|
||||||||||||
Dividends from subsidiaries
|
$ | 48,010 | 24,518 | 77,045 | ||||||||
Net investment income earned
|
130 | 315 | 1,206 | |||||||||
Other income
|
107 | - | 3 | |||||||||
Total revenues
|
48,247 | 24,833 | 78,254 | |||||||||
Expenses:
|
||||||||||||
Interest expense
|
20,615 | 21,377 | 20,508 | |||||||||
Other expenses
|
16,039 | 16,410 | 20,990 | |||||||||
Total expenses
|
36,654 | 37,787 | 41,498 | |||||||||
Income (loss) from continuing operations, before federal income tax
|
11,593 | (12,954 | ) | 36,756 | ||||||||
Federal income tax benefit:
|
||||||||||||
Current
|
(11,645 | ) | (16,381 | ) | (12,611 | ) | ||||||
Deferred
|
(848 | ) | 3,701 | (1,106 | ) | |||||||
Total federal income tax benefit
|
(12,493 | ) | (12,680 | ) | (13,717 | ) | ||||||
Net income (loss) from continuing operations before equity in undistributed income of subsidiaries
|
24,086 | (274 | ) | 50,473 | ||||||||
Equity in undistributed income of continuing subsidiaries, net of tax
|
45,235 | 44,932 | 2 | |||||||||
Dividends in excess of continuing subsidiaries’ current year earnings
|
- | - | (6,374 | ) | ||||||||
Net income from continuing operations
|
69,321 | 44,658 | 44,101 | |||||||||
Dividends from discontinued operations, net of tax
|
- | - | 2,079 | |||||||||
Dividends in excess of discontinued operations current year earnings
|
- | - | (2,079 | ) | ||||||||
Equity in loss of subsidiaries, net of tax
|
- | (7,086 | ) | (343 | ) | |||||||
Loss on disposal of discontinued operations, net of tax
|
(3,780 | ) | (1,174 | ) | - | |||||||
Total discontinued operations, net of tax
|
(3,780 | ) | (8,260 | ) | (343 | ) | ||||||
Net income
|
$ | 65,541 | 36,398 | 43,758 |
Year ended December 31,
|
||||||||||||
($ in thousands)
|
2010
|
2009
|
2008
|
|||||||||
Operating Activities:
|
||||||||||||
Net income
|
$ | 65,541 | 36,398 | 43,758 | ||||||||
Adjustments to reconcile net income to net cash provided by operating activities:
|
||||||||||||
Equity in undistributed (income) loss of subsidiaries, net of tax
|
(45,235 | ) | (37,846 | ) | 341 | |||||||
Dividends in excess of subsidiaries’ current year income
|
- | - | 8,453 | |||||||||
Stock-based compensation expense
|
12,355 | 11,036 | 17,215 | |||||||||
Loss on disposal of discontinued operations
|
3,780 | 1,174 | - | |||||||||
Deferred income tax (benefit) expense
|
(848 | ) | 3,701 | (1,106 | ) | |||||||
Amortization – other
|
149 | 208 | 269 | |||||||||
Changes in assets and liabilities:
|
||||||||||||
Decrease in accrued salaries and benefits
|
(1,838 | ) | (7,007 | ) | - | |||||||
Decrease (increase) in net federal income tax recoverable
|
5,109 | (956 | ) | 4,228 | ||||||||
Other, net
|
(1,287 | ) | 3,478 | (7,105 | ) | |||||||
Net adjustments
|
(27,815 | ) | (26,212 | ) | 22,295 | |||||||
Net cash provided by operating activities
|
37,726 | 10,186 | 66,053 | |||||||||
Investing Activities:
|
||||||||||||
Redemption and maturities of fixed maturity securities, held-to-maturity
|
513 | 236 | - | |||||||||
Redemption and maturities of fixed maturity securities, available-for-sale
|
- | - | 12,463 | |||||||||
Purchase of short-term investments
|
(110,807 | ) | (232,823 | ) | (363,827 | ) | ||||||
Sale of short-term investments
|
108,565 | 245,165 | 368,111 | |||||||||
Capital contribution to subsidiaries
|
- | (20,000 | ) | - | ||||||||
Sale of subsidiary
|
978 | (581 | ) | - | ||||||||
Distributions of capital by subsidiaries
|
- | 680 | 960 | |||||||||
Net cash (used in) provided by investing activities
|
(751 | ) | (7,323 | ) | 17,707 | |||||||
Financing Activities:
|
||||||||||||
Dividends to stockholders
|
(26,056 | ) | (26,296 | ) | (25,804 | ) | ||||||
Acquisition of treasury stock
|
(1,686 | ) | (3,010 | ) | (46,833 | ) | ||||||
Principal payment on notes payable
|
(12,300 | ) | (12,300 | ) | (12,300 | ) | ||||||
Net proceeds from stock purchase and compensation plans
|
4,962 | 4,612 | 8,222 | |||||||||
Excess tax benefits from share-based payment arrangements
|
(744 | ) | (1,200 | ) | 1,628 | |||||||
Borrowings from subsidiaries
|
- | 36,000 | - | |||||||||
Principal payment of borrowings from subsidiaries
|
(623 | ) | (592 | ) | - | |||||||
Principal payments of convertible bonds
|
- | - | (8,754 | ) | ||||||||
Net cash used in financing activities
|
(36,447 | ) | (2,786 | ) | (83,841 | ) | ||||||
Net increase (decrease) in cash
|
528 | 77 | (81 | ) | ||||||||
Cash, beginning of year
|
77 | - | 81 | |||||||||
Cash, end of year
|
$ | 605 | 77 | - |
($ in thousands)
|
2010
|
2009
|
2008
|
|||||||||
Balance, January 1
|
$ | 8,380 | 7,006 | 6,899 | ||||||||
Additions
|
5,003 | 6,535 | 4,283 | |||||||||
Deductions
|
(5,292 | ) | (5,161 | ) | (4,176 | ) | ||||||
Balance, December 31
|
$ | 8,091 | 8,380 | 7,006 |
Types of investment
|
Amortized Cost
|
Fair
|
Carrying
|
|||||||||
($ in thousands)
|
or Cost
|
Value
|
Amount
|
|||||||||
Fixed maturity securities:
|
||||||||||||
Held-to-maturity
|
||||||||||||
U.S. government and government agencies
|
$ | 93,411 | 103,129 | 98,106 | ||||||||
Foreign government obligations
|
5,292 | 5,630 | 5,660 | |||||||||
Obligations of states and political subdivisions
|
874,388 | 912,284 | 896,571 | |||||||||
Corporate securities
|
76,663 | 82,065 | 72,673 | |||||||||
Asset-backed securities
|
12,947 | 11,928 | 10,525 | |||||||||
Commercial mortgage-backed securities
|
54,909 | 54,929 | 47,555 | |||||||||
Residential mortgage-backed securities
|
82,191 | 86,329 | 83,234 | |||||||||
Total fixed maturity securities, held-to-maturity
|
1,199,801 | 1,256,294 | 1,214,324 | |||||||||
Available-for-sale:
|
||||||||||||
U.S. government and government agencies
|
312,384 | 320,529 | 320,529 | |||||||||
Foreign government obligations
|
19,035 | 18,966 | 18,966 | |||||||||
Obligations of states and political subdivisions
|
512,013 | 533,897 | 533,897 | |||||||||
Corporate securities
|
973,835 | 993,725 | 993,725 | |||||||||
Asset-backed securities
|
48,558 | 48,733 | 48,733 | |||||||||
Commercial mortgage-backed securities
|
103,374 | 104,475 | 104,475 | |||||||||
Residential mortgage-backed securities
|
316,789 | 322,417 | 322,417 | |||||||||
Total fixed maturity securities, available-for-sale
|
2,285,988 | 2,342,742 | 2,342,742 | |||||||||
Equity securities:
|
||||||||||||
Common stock:
|
||||||||||||
Banks, trust and insurance companies
|
5,599 | 6,290 | 6,290 | |||||||||
Industrial, miscellaneous and all other
|
52,440 | 63,346 | 63,346 | |||||||||
Total equity securities, available-for-sale
|
58,039 | 69,636 | 69,636 | |||||||||
Short-term investments
|
161,155 | 161,155 | ||||||||||
Other investments
|
137,865 | 137,865 | ||||||||||
Total investments
|
$ | 3,842,848 | 3,925,722 |
Amortization
|
||||||||||||||||||||||||||||||||||||
Deferred
|
Reserve
|
Losses
|
of deferred
|
|||||||||||||||||||||||||||||||||
policy
|
for losses
|
Net
|
Net
|
and loss
|
policy
|
Other
|
Net
|
|||||||||||||||||||||||||||||
acquisition
|
and loss
|
Unearned
|
premiums
|
investment
|
expenses
|
acquisition
|
operating
|
premiums
|
||||||||||||||||||||||||||||
($ in thousands)
|
costs
|
expenses
|
premiums
|
earned
|
income
1
|
incurred
|
costs
2
|
expenses
2
|
written
|
|||||||||||||||||||||||||||
Insurance Operations Segment
|
$ | 209,627 | 2,830,058 | 823,596 | 1,416,598 | - | 982,118 | 429,524 | 27,123 | 1,390,541 | ||||||||||||||||||||||||||
Investments Segment
|
- | - | - | - | 138,625 | - | - | - | - | |||||||||||||||||||||||||||
Total
|
$ | 209,627 | 2,830,058 | 823,596 | 1,416,598 | 138,625 | 982,118 | 429,524 | 27,123 | 1,390,541 |
|
1
|
Includes “Net investment income earned” and “Net realized investment gains” on the Consolidated Statements of Income.
|
|
2
|
The total of “Amortization of deferred policy acquisition costs” of $429,524 and “Other operating expenses” of $27,123 reconciles to the Consolidated Statements of Income as follows:
|
Policy acquisition costs
|
$ | 458,045 | ||
Other income
3
|
(9,230 | ) | ||
Other expenses
3
|
7,832 | |||
Total
|
$ | 456,647 |
|
3
|
In addition to amounts related to the Insurance Operations segment, “Other income” and “Other expenses” on the Consolidated Statements of Income includes holding company income and expense amounts of $168 and $16,054, respectively.
|
Amortization
|
||||||||||||||||||||||||||||||||||||
Deferred
|
Reserve
|
Losses
|
of deferred
|
|||||||||||||||||||||||||||||||||
policy
|
for losses
|
Net
|
Net
|
and loss
|
policy
|
Other
|
Net
|
|||||||||||||||||||||||||||||
acquisition
|
and loss
|
Unearned
|
premiums
|
investment
|
expenses
|
acquisition
|
operating
|
premiums
|
||||||||||||||||||||||||||||
($ in thousands)
|
costs
|
expenses
|
premiums
|
earned
|
income
1
|
incurred
|
costs
2
|
expenses
2
|
written
|
|||||||||||||||||||||||||||
Insurance Operations Segment
|
$ | 218,601 | 2,745,799 | 844,847 | 1,431,047 | - | 971,905 | 428,554 | 28,202 | 1,422,655 | ||||||||||||||||||||||||||
Investments Segment
|
- | - | - | - | 72,501 | - | - | - | - | |||||||||||||||||||||||||||
Total
|
$ | 218,601 | 2,745,799 | 844,847 | 1,431,047 | 72,501 | 971,905 | 428,554 | 28,202 | 1,422,655 |
|
1
|
Includes “Net investment income earned” and “Net realized investment gains” on the Consolidated Statements of Income.
|
|
2
|
The total of “Amortization of deferred policy acquisition costs” of $428,554 and “Other operating expenses” of $28,202 reconciles to the Consolidated Statements of Income as follows:
|
Policy acquisition costs
|
$ | 457,424 | ||
Other income
3
|
(10,440 | ) | ||
Other expenses
3
|
9,772 | |||
Total
|
$ | 456,756 |
|
3
|
In addition to amounts related to the Insurance Operations segment, “Other income” and “Other expenses” on the Consolidated Statements of Income includes holding company income and expense amounts of $30 and $16,345, respectively.
|
Amortization
|
||||||||||||||||||||||||||||||||||||
Deferred
|
Reserve
|
Losses
|
of deferred
|
|||||||||||||||||||||||||||||||||
policy
|
for losses
|
Net
|
Net
|
and loss
|
policy
|
Other
|
Net
|
|||||||||||||||||||||||||||||
acquisition
|
and loss
|
Unearned
|
premiums
|
investment
|
expenses
|
acquisition
|
operating
|
premiums
|
||||||||||||||||||||||||||||
($ in thousands)
|
costs
|
expenses
|
premiums
|
earned
|
income
1
|
incurred
|
costs
2
|
expenses
2
|
written
|
|||||||||||||||||||||||||||
Insurance Operations Segment
|
$ | 212,319 | 2,640,973 | 844,334 | 1,504,187 | - | 1,011,544 | 454,826 | 37,686 | 1,492,738 | ||||||||||||||||||||||||||
Investments Segment
|
- | - | - | - | 81,580 | - | - | - | - | |||||||||||||||||||||||||||
Total
|
$ | 212,319 | 2,640,973 | 844,334 | 1,504,187 | 81,580 | 1,011,544 | 454,826 | 37,686 | 1,492,738 |
|
1
|
Includes “Net investment income earned” and “Net realized gains” on the Consolidated Statements of Income.
|
|
2
|
The total of “Amortization of deferred policy acquisition costs” of $454,826 and “Other operating expenses” of $37,686 reconciles to the Consolidated Statements of Income as follows:
|
Policy acquisition costs
|
$ | 485,702 | ||
Other income
3
|
(2,610 | ) | ||
Other expenses
3
|
9,420 | |||
Total
|
$ | 492,512 |
|
3
|
In addition to amounts related to the Insurance Operations segment, “Other income” and “Other expenses” on the Consolidated Statements of Income includes holding company income and expense amounts of $1,562 and $22,598, respectively.
|
% of
|
||||||||||||||||||||
Assumed
|
Ceded
|
Amount
|
||||||||||||||||||
Direct
|
From Other
|
To Other
|
Net
|
Assumed
|
||||||||||||||||
($ thousands)
|
Amount
|
Companies
|
Companies
|
Amount
|
To Net
|
|||||||||||||||
2010
|
||||||||||||||||||||
Premiums earned:
|
||||||||||||||||||||
Accident and health insurance
|
$ | 67 | - | 67 | - | - | ||||||||||||||
Property and liability insurance
|
1,654,234 | 26,619 | 264,255 | 1,416,598 | 2 | % | ||||||||||||||
Total premiums earned
|
1,654,301 | 26,619 | 264,322 | 1,416,598 | 2 | % | ||||||||||||||
2009
|
||||||||||||||||||||
Premiums earned:
|
||||||||||||||||||||
Accident and health insurance
|
$ | 70 | - | 70 | - | - | ||||||||||||||
Property and liability insurance
|
1,657,841 | 21,501 | 248,295 | 1,431,047 | 2 | % | ||||||||||||||
Total premiums earned
|
1,657,911 | 21,501 | 248,365 | 1,431,047 | 2 | % | ||||||||||||||
2008
|
||||||||||||||||||||
Premiums earned:
|
||||||||||||||||||||
Accident and health insurance
|
$ | 80 | - | 80 | - | - | ||||||||||||||
Property and liability insurance
|
1,694,430 | 27,115 | 217,358 | 1,504,187 | 2 | % | ||||||||||||||
Total premiums earned
|
1,694,510 | 27,115 | 217,438 | 1,504,187 | 2 | % |
Exhibit
Number
|
|
3.1
|
Amended and Restated Certificate of Incorporation of Selective Insurance Group, Inc., dated May 3, 2010 (incorporated by reference herein to Exhibit 3.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, File No. 001-33067).
|
3.2
|
By-Laws of Selective Insurance Group, Inc., effective December 3, 2010 (incorporated by reference herein to Exhibit 3.2 of the Company’s Current Report on Form 8-K filed December 3, 2010, File No. 001-33067).
|
4.1
|
Indenture dated as of September 24, 2002, between Selective Insurance Group, Inc. and National City Bank, as Trustee, relating to the Company's 1.6155% Senior Convertible Notes due September 24, 2032 (incorporated by reference herein to Exhibit 4.1 of the Company's Registration Statement on Form S-3 No. 333-101489).
|
4.2
|
Indenture, dated as of November 16, 2004, between Selective Insurance Group, Inc. and Wachovia Bank, National Association, as Trustee, relating to the Company's 7.25% Senior Notes due 2034 (incorporated by reference herein to Exhibit 4.1 of the Company's Current Report on Form 8-K filed November 18, 2004, File No. 0-8641).
|
4.3
|
Indenture, dated as of November 3, 2005, between Selective Insurance Group, Inc. and Wachovia Bank, National Association, as Trustee, relating to the Company’s 6.70% Senior Notes due 2035 (incorporated by reference herein to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed November 9, 2005, File No. 0-8641).
|
4.4
|
Registration Rights Agreement, dated as of November 16, 2004, between Selective Insurance Group, Inc. and Keefe, Bruyette & Woods, Inc. (incorporated by reference herein to Exhibit 4.2 of the Company’s Current Report on Form 8-K filed November 18, 2004, File No. 001-33067).
|
4.5
|
Registration Rights Agreement, dated as of November 3, 2005, between Selective Insurance Group, Inc. and Keefe, Bruyette & Woods, Inc. (incorporated by reference herein to Exhibit 4.2 of the Company’s Current Report on Form 8-K filed November 9, 2005, File No. 001-33067).
|
4.6
|
Form of Junior Subordinated Debt Indenture between Selective Insurance Group, Inc. and U.S. Bank National Association (incorporated by reference herein to Exhibit 4.3 of the Company’s Registration Statement on Form S-3 No. 333-137395).
|
4.7
|
First Supplemental Indenture, dated as of September 25, 2006, between Selective Insurance Group, Inc. and U.S. Bank National Association, as Trustee, relating to the Company’s 7.5% Junior Subordinated Notes due 2066 (incorporated by reference herein to Exhibit 4.1 of the Company’s Current Report on Form 8-K filed September 27, 2006, File No. 0-8641).
|
10.1
|
Selective Insurance Supplemental Pension Plan, As Amended and Restated Effective January 1, 2005 (incorporated by reference herein to Exhibit 10.1 of the Company’s Quarterly Report on 10-Q for the quarter ended September 30, 2008, File No. 001-33067).
|
*10.2
|
Selective Insurance Company of America Deferred Compensation Plan (2005) As Amended and Restated Effective as of January 1, 2010.
|
10.3
|
Selective Insurance Stock Option Plan II, as amended (incorporated by reference herein to Exhibit 10.13b to the Company’s Annual Report on Form 10-K for the year ended December 31, 1999, File No. 0-8641).
|
Exhibit
Number
|
|
10.3a
|
Amendment to the Selective Insurance Stock Option Plan II, as amended, effective as of July 26, 2006 (incorporated by reference herein to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006, File No. 0-8641).
|
10.4
|
Selective Insurance Stock Option Plan III (incorporated by reference herein to Exhibit A to the Company’s Definitive Proxy Statement for its 2002 Annual Meeting of Stockholders filed April 1, 2002, File No. 0-8641).
|
10.4a
|
Amendment to the Selective Insurance Stock Option Plan III, effective as of July 26, 2006 (incorporated by reference herein to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006, File No. 0-8641).
|
10.5
|
Selective Insurance Group, Inc. 2005 Omnibus Stock Plan As Amended and Restated Effective as of May 1, 2010 (incorporated by reference herein to Appendix C of the Company’s Definitive Proxy Statement for its 2010 Annual Meeting of Stockholders filed March 25, 2010, File No. 001-33067).
|
10.6
|
Selective Insurance Group, Inc. 2005 Omnibus Stock Plan Stock Option Agreement (incorporated by reference herein to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006, File No. 0-8641).
|
10.7
|
Selective Insurance Group, Inc. 2005 Omnibus Stock Plan Director Restricted Stock Agreement (incorporated by reference herein to Exhibit 10.8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2005, File No. 0-8641).
|
10.8
|
Selective Insurance Group, Inc. 2005 Omnibus Stock Plan Director Restricted Stock Unit Agreement (incorporated by reference herein to Exhibit 10.8 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, File No. 001-33067).
|
10.9
|
Selective Insurance Group, Inc. 2005 Omnibus Stock Plan Director Stock Option Agreement (incorporated by reference herein to Exhibit 10.9 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2005, File No. 0-8641).
|
10.10
|
Selective Insurance Group, Inc. 2005 Omnibus Stock Plan Restricted Stock Agreement (incorporated by reference herein to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006, File No. 0-8641).
|
10.11
|
Selective Insurance Group, Inc. 2005 Omnibus Stock Plan Restricted Stock Agreement (incorporated by reference herein to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2006, File No. 0-8641).
|
10.12
|
Selective Insurance Group, Inc. 2005 Omnibus Stock Plan Restricted Stock Unit Agreement (incorporated by reference herein to Exhibit 10.12 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, File No. 001-33067).
|
10.13
|
Selective Insurance Group, Inc. 2005 Omnibus Stock Plan Restricted Stock Unit Agreement (incorporated by reference herein to Exhibit 10.13 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, File No. 001-33067).
|
10.14
|
Selective Insurance Group, Inc. 2005 Omnibus Stock Plan Automatic Director Stock Option Agreement (incorporated by reference herein to Exhibit 2 of the Company’s Definitive Proxy Statement for its 2005 Annual Meeting of Stockholders filed April 6, 2005, File No. 0-8641).
|
Exhibit
Number
|
|
10.15
|
Deferred Compensation Plan for Directors (incorporated by reference herein to Exhibit 10.5 to the Company’s Annual Report on Form 10-K for the year ended December 31, 1993, File No. 0-8641).
|
10.16
|
Selective Insurance Group, Inc. Employee Stock Purchase Plan (2009) (incorporated by reference herein to Appendix A to the Company’s Definitive Proxy Statement for its 2009 Annual Meeting of Stockholders filed March 26, 2009, File No. 001-33067).
|
10.17
|
Selective Insurance Group, Inc. Cash Incentive Plan As Amended and Restated as of May 1, 2010 (incorporated by reference herein to Appendix D to the Company’s Definitive Proxy Statement for its 2010 Annual Meeting of Stockholders filed March 25, 2010, File No. 001-33067).
|
10.18
|
Selective Insurance Group, Inc. Cash Incentive Plan Cash Incentive Unit Award Agreement (incorporated by reference herein to Exhibit 10.14c of the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, File No. 001-33067).
|
10.19
|
Selective Insurance Group, Inc. Cash Incentive Plan Cash Incentive Unit Award Agreement (incorporated by reference herein to Exhibit 10.14d of the Company’s Annual Report on Form 10-K for the year ended December 31, 2007, File No. 001-33067).
|
10.20
|
Amended and Restated Selective Insurance Group, Inc. Stock Purchase Plan for Independent Insurance Agencies (2010) (incorporated by reference to Exhibit 10.1 of the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2010, File No. 001-33067).
|
10.21
|
Selective Insurance Group, Inc. Stock Option Plan for Directors (incorporated by reference herein to Exhibit B of the Company’s Definitive Proxy Statement for its 2000 Annual Meeting of Stockholders filed March 31, 2000, File No. 0-8641).
|
10.21a
|
Amendment to the Selective Insurance Group, Inc. Stock Option Plan for Directors, as amended, effective as of July 26, 2006, (incorporated by reference herein to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2006, File No. 0-8641).
|
10.22
|
Selective Insurance Group, Inc. Stock Compensation Plan for Nonemployee Directors, as amended (incorporated by reference herein to Exhibit A to the Company’s Definitive Proxy Statement for its 2000 Annual Meeting of Stockholders filed March 31, 2000, File No. 0-8641).
|
10.22a
|
Amendment to Selective Insurance Group, Inc. Stock Compensation Plan for Nonemployee Directors, as amended (incorporated by reference to Exhibit 10.22a of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, File No. 001-33067).
|
10.23
|
Employment, Termination and Severance Agreements.
|
10.23a
|
Employment Agreement between Selective Insurance Company of America and Gregory E. Murphy, dated as of December 23, 2008 (incorporated by reference herein to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed December 30, 2008, File No. 001-33067).
|
10.23b
|
Employment Agreement between Selective Insurance Company of America and Dale A. Thatcher, dated as of December 23, 2008 (incorporated by reference herein to Exhibit 10.2 to the Company’s Current Report on Form 8-K filed December 30, 2008, File No. 001-33067).
|
Exhibit
Number
|
|
10.23c
|
Employment Agreement between Selective Insurance Company of America and Richard F. Connell, dated as of December 23, 2008 (incorporated by reference herein to Exhibit 10.3 to the Company’s Current Report on Form 8-K filed December 30, 2008, File No. 001-33067).
|
10.23d
|
Employment Agreement between Selective Insurance Company of America and Michael H. Lanza, dated as of December 23, 2008 (incorporated by reference to Exhibit 10.23e of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, File No. 001-33067).
|
10.23e
|
Employment Agreement between Selective Insurance Company of America and John J. Marchioni, dated as of December 23, 2008 (incorporated by reference to Exhibit 10.23f of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, File No. 001-33067).
|
10.23f
|
Employment Agreement between Selective Insurance Company of America and Steven B. Woods, dated as of February 20, 2009 (incorporated by reference to Exhibit 10.23h of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, File No. 001-33067).
|
10.23g
|
Employment Agreement between Selective Insurance Company of America and Ronald J. Zaleski, dated as of December 23, 2008 (incorporated by reference to Exhibit 10.23i of the Company’s Annual Report on Form 10-K for the year ended December 31, 2008, File No. 001-33067).
|
10.24
|
Credit Agreement among Selective Insurance Group, Inc., the Lenders Named Therein and Wachovia Bank, National Association, as Administrative Agent, dated as of August 25, 2009 (incorporated by reference herein to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed August 26, 2009, File No. 001-33067).
|
10.25
|
Form of Indemnification Agreement between Selective Insurance Group, Inc. and each of its directors and executive officers, as adopted on May 19, 2005 (incorporated by reference herein to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed May 20, 2005, File No. 000-08641)
|
10.26
|
Stock and Asset Purchase Agreement, dated as of October 27, 2009, by and among Selective Insurance Group, Inc., Selective HR Solutions, Inc. and its subsidiaries, and AlphaStaff Group, Inc. and certain of its subsidiaries (incorporated by reference herein to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed October 30, 2009, File No. 001-33067).
|
10.26a
|
Amendment No. 1 to the Stock Purchase Agreement, dated December 23, 2009 (incorporated by reference herein to Exhibit 10.26a of the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, File No. 001-33067).
|
*10.26b
|
Amendment No. 2 to the Stock and Asset Purchase Agreement, dated December 14, 2010.
|
10.27
|
Selective Insurance Group, Inc. Non-Employee Directors’ Deferred Compensation Plan (incorporated by reference herein to Exhibit 10.27 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, File No. 001-33067).
|
*10.27a
|
Amendment No. 1 to the Selective Insurance Group, Inc. Non-Employee Directors’ Deferred Compensation Plan.
|
*21
|
Subsidiaries of Selective Insurance Group, Inc.
|
1.
|
1
|
|
2.
|
1
|
|
3.
|
1
|
|
4.
|
1
|
|
5.
|
6
|
|
6.
|
8
|
|
7.
|
10
|
|
8.
|
11
|
|
9.
|
11
|
|
10.
|
12
|
|
11.
|
12
|
|
12.
|
13
|
|
13.
|
14
|
|
14.
|
15
|
|
15.
|
15
|
|
16.
|
17
|
|
17.
|
17
|
|
18.
|
19
|
|
19.
|
20
|
|
20.
|
21
|
|
21.
|
22
|
|
22.
|
22
|
|
26
|
|
A
|
is the sum of the Participant’s total Savings Contributions to the Plan during the Plan Year and the Participant’s total elective deferrals, including Roth elective deferrals, to the RSP for the Plan Year, such total not to exceed three percent (3%) of the Participant’s Compensation for the Plan Year;
|
|
B
|
is fifty percent (50%) of the sum of (i) the Participant’s total Savings Contributions to the Plan, plus (ii) the Participant’s total elective deferrals, including Roth elective deferrals, to the RSP for the Plan Year, but only to the extent that such total amount exceeds three percent (3%) of the Participant’s Compensation for the Plan Year but does not exceed six percent (6%) of the Participant’s Compensation for the Plan Year; and
|
|
C
|
is any matching contribution made on behalf of the Participant to the RSP for the Plan Year.
|
Years of Service
|
Vested Percentage
|
||||
1 | 0 | % | |||
2 | 20 | % | |||
3 | 40 | % | |||
4 | 60 | % | |||
5 | 80 | % | |||
6 | 100 | % |
SELECTIVE INSURANCE COMPANY
|
|||
OF AMERICA
|
|||
By:
|
/s/ Michael H. Lanza
|
||
Name:
|
Michael H. Lanza
|
||
Title:
|
Executive Vice President and
|
||
General Counsel
|
SELLER
|
|||
SELECTIVE INSURANCE GROUP, INC.
|
|||
By:
|
Dale A. Thatcher
|
||
Name: Dale A. Thatcher
|
|||
Title: Executive Vice President and
|
|||
Chief Financial Officer
|
|||
PURCHASER, on behalf of itself and each of its
Affiliates who were party to the Purchase
Agreement
|
|||
ALPHASTAFF GROUP, INC.
|
|||
By:
|
Alex Pisani
|
||
Name: Alex F. Pisani
|
|||
Title: General Counsel
|
SELECTIVE INSURANCE GROUP, INC.
|
|||
By:
|
/s/ Michael H. Lanza
|
||
Name: Michael H. Lanza
|
|||
Title: Executive Vice President and General Counsel
|
Percentage
|
||||||||
Jurisdiction
|
voting
|
|||||||
in which
|
securities
|
|||||||
Name
|
organized
|
Parent
|
owned
|
|||||
SelecTech, LLC
|
New Jersey
|
Selective Way Insurance Company
|
75 | % | ||||
Selective Insurance Company of the Southeast
|
25 | % | ||||||
Selective Auto Insurance Company of New Jersey
|
New Jersey
|
Selective Insurance Group, Inc
|
100 | % | ||||
Selective Insurance Company of America
|
New Jersey
|
Selective Insurance Group, Inc.
|
100 | % | ||||
Selective Insurance Company of New England
|
Maine
|
Selective Insurance Group, Inc.
|
100 | % | ||||
Selective Insurance Company of New York
|
New York
|
Selective Insurance Group, Inc.
|
100 | % | ||||
Selective Insurance Company of South Carolina
|
Indiana
|
Selective Insurance Group, Inc.
|
100 | % | ||||
Selective Insurance Company of the Southeast
|
Indiana
|
Selective Insurance Group, Inc.
|
100 | % | ||||
Selective Technical Administrative Resources, Inc.
|
New Jersey
|
Selective Insurance Group, Inc.
|
100 | % | ||||
Selective Way Insurance Company
|
New Jersey
|
Selective Insurance Group, Inc.
|
100 | % | ||||
SRM Insurance Brokerage, LLC
|
New Jersey
|
Selective Way Insurance Company
|
75 | % | ||||
Selective Insurance Company of the Southeast
|
25 | % | ||||||
Wantage Avenue Holding Company, Inc.
|
New Jersey
|
Selective Insurance Group, Inc.
|
100 | % |
Date: February 25, 2011
|
/s/ Paul D. Bauer
|
Date: February 25, 2011
|
/s/ W. Marston Becker
|
Date: February 25, 2011
|
/s/ A. David Brown
|
Date: February 25, 2011
|
/s/ John C. Burville
|
Date: February 25, 2011
|
/s/ Joan M. Lamm-Tennant
|
Date: February 25, 2011
|
/s/ S. Griffin McClellan III
|
Date: February 25, 2011
|
/s/ Michael J. Morrissey
|
Date: February 25, 2011
|
/s/ Cynthia S. Nicholson
|
Date: February 25, 2011
|
s/ Ronald L. O’Kelley
|
Date: February 25, 2011
|
/s/ William M. Rue
|
Date: February 25, 2011
|
/s/ J. Brian Thebault
|
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
(d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
Date: February 25, 2011
|
By:
|
/s/ Gregory E. Murphy
|
|
Gregory E. Murphy
|
|||
Chairman of the Board, President and Chief Executive Officer
|
|
(a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
|
(b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
|
(c)
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
|
(d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
(a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
(b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
Date: February 25, 2011
|
By:
|
/s/ Dale A. Thatcher
|
|
Dale A. Thatcher
|
|||
Executive Vice President and Chief Financial Officer
|
Date: February 25, 2011
|
By:
|
/s/ Gregory E. Murphy
|
|
Gregory E. Murphy
|
|||
Chairman of the Board, President and Chief Executive Officer
|
Date: February 25, 2011
|
By:
|
/s/ Dale A. Thatcher
|
|
Dale A. Thatcher
|
|||
Executive Vice President and Chief Financial Officer
|
Glossary of Terms
|
Exhibit 99.1
|