Delaware
(State
or other jurisdiction of
incorporation
or organization)
|
55112
(Primary
Standard Industrial
Classification
Code Number)
|
04-3106389
(I.R.S.
Employer
Identification
Number)
|
Title
of each class of
securities
to be registered
|
Amount
to be registered
|
Proposed
maximum offering price per share
|
Proposed
maximum
aggregate
offering price
|
Amount
of
registration
fee
|
Common
stock, $0.01 par value per share
|
25,568,000(1)
|
7.50(2)
|
$191,760,000
|
$20,519
|
(1)
|
All
of the shares of common stock offered hereby are for the account
of
selling stockholders. The selling stockholders acquired the shares
of
common stock offered hereby in a private placement in reliance on
exemptions from registration under the Securities
Act.
|
(2)
|
Estimated
solely for the purpose of the registration fee for this offering
in
accordance with Rule 457(o) of the Securities Act. No
exchange or over-the-counter market exits for the registrant’s common
stock; however the registrant’s stockholders have privately sold shares of
common stock using the Portal System. The fee is based on the price
of the
registrant’s common stock on June 9, 2006, which was reported on Portal at
a price of $7.50 per share.
|
1
|
|
15
|
|
35
|
|
36
|
|
36
|
|
37
|
|
41
|
|
68
|
|
117
|
|
126
|
|
127
|
|
129
|
|
131
|
|
144
|
|
147
|
|
148
|
|
150
|
|
153
|
|
153
|
|
153
|
|
154
|
|
F-1
|
|
II-1
|
·
|
Workers’
compensation for small businesses (average premium less than $5,000
per
policy) in the United States;
|
·
|
Specialty
risk and extended warranty coverage for accidental damage, mechanical
breakdown and related risks primarily for selected consumer and commercial
goods in the United Kingdom, certain other European Union countries
and
the United States; and
|
·
|
Specialty
middle-market property and casualty insurance. This segment writes
workers
compensation, commercial automobile and general liability insurance
through general and other wholesale
agents.
|
·
|
personal
computers;
|
·
|
consumer
electronics, such as televisions and home theater
components;
|
·
|
consumer
appliances, such as refrigerators and washing
machines;
|
·
|
automobiles
in the United Kingdom (no liability coverage);
|
·
|
cellular
telephones;
|
·
|
heavy
equipment;
|
·
|
hand
tools; and
|
·
|
credit
payment protection in the European Union.
|
·
|
In
December 2002, we acquired the Princeton Agency, Inc. (“Princeton”) and
the renewal rights to Princeton’s book of workers’ compensation business.
The acquisition increased our agent relationships in the Northeast
and
Midwest and enhanced our marketing efforts in these regions.
|
·
|
In
December 2003, we acquired the renewal rights to the workers’ compensation
business of The Covenant Group, Inc. (“Covenant”) and Covenant’s
proprietary claims handling systems. We also hired several experienced
claims adjusters from Covenant. This transaction increased our presence
in
the Southeast and enabled us to move the adjustment of claims arising
from
our small business workers’ compensation segment from third party
administrators to an experienced internal claims staff.
|
·
|
In
August 2004, we expanded our business to Florida by acquiring the
renewal
rights to a book of workers’ compensation business from Associated
Industries Insurance Company (“Associated”).
|
·
|
On
June 1, 2006, we acquired 100% of the issued and outstanding shares
of WIC
from Household Insurance Group Holding Company (“HIG”), an affiliate of
HSBC North America Holdings, Inc. WIC has $15 million in capital
and
surplus and no net liabilities. WIC is licensed in all 50 states
and the
District of Columbia. WIC has no employees and is managed by the
Company
pursuant to an Intercompany Management Agreement. We will utilize
WIC to
expand into states in which TIC and RIC are not currently licensed,
which
should facilitate the growth of our specialty middle-market property
and
casualty and specialty risk and extended warranty segments.
|
·
|
On
June 1, 2006, we acquired the renewal rights to a book of workers’
compensation business from Muirfield Underwriters, Ltd. (“Muirfield”), an
affiliate of Aon Corporation, which in 2005 generated over $60 million
in
gross premiums written, concentrated in the Midwest. We also acquired
access to Muirfield’s distribution network. We believe that this
transaction will help us accelerate our growth in the Midwest. Since
we
acquired renewal rights, we intend to offer renewals only to policyholders
for risks which meet our underwriting guidelines. Furthermore, agents
and
policyholders will not be obligated to renew with
us.
|
·
|
re-underwriting
the book of business to determine our marketing
priorities;
|
·
|
entering
into agreements with key agents;
|
·
|
acquiring
additional insurance licenses and making rate filings, where
necessary;
|
·
|
acquiring
additional reinsurance, where necessary;
|
·
|
entering
into third party administration agreements; and
|
·
|
migrating
portions of this business onto our existing systems.
|
·
|
Focus
on Specialty Insurance Markets. We
focus on specialty markets in which we have underwriting, risk management
and claims handling expertise. We believe that larger insurance carriers
generally do not aggressively pursue business in these markets. We
target
small business workers’ compensation risks in specific industry classes,
because the loss experience of these risks is historically better
than the
loss experience presented by larger, more competitively priced risks
in
the same industry classes. In our specialty risk and extended warranty
segment, we believe we work with our clients more closely than most
of our
competitors to customize specialty risk and extended warranty coverages
for their products and monitor the performance of their coverages.
In
addition, our specialty risk and extended warranty coverages generally
have provided predictable claims development without substantial
exposure
to catastrophes. The specialty middle-market property and casualty
segment
we recently acquired focuses on niche markets which we believe are
underserved by larger carriers and are also less sensitive to the
pricing
volatility of the general insurance
market.
|
·
|
Proprietary
Technology and Efficient Systems. We
have developed proprietary applications and efficient systems for
underwriting new business, processing claims and monitoring the
performance of our coverages and
agents.
|
—
|
Efficient
Underwriting and Claims Processing Systems. Our
proprietary internet-based applications for underwriting new business
and
processing claims enable us to efficiently underwrite and administer
small
business workers’ compensation insurance. Our paperless processing system
handles most clerical duties so that our underwriters can focus on
making
decisions on risk submissions. Our system enables our underwriters,
who
review approximately 5,000 submissions per month, to provide quotes
on new
business generally within two business days after receiving a request.
Our
claims administrators have an average caseload of approximately 125
active
workers’ compensation indemnity claims. We also believe that our
technology is agent-friendly because it enables agents to efficiently
submit workers’ compensation insurance applications online and allows us
to make underwriting decisions promptly. In our specialty risk and
extended warranty segment, we believe that we generally have a greater
degree of control over profitability than our competitors because
we
access our business partners’ coverage data to monitor performance and can
take corrective action in a timely fashion. We have integrated a
substantial portion of the specialty middle-market property and casualty
segment we recently acquired into our systems and intend to integrate
the
balance of this segment over time.
|
—
|
Use
of Timely and Accurate Data. Our
proprietary processing and data collection systems provide our management
team with accurate and relevant information on what we believe is
a more
timely basis than many of our competitors. This data allows us to
analyze
trends in our business, including results by individual agent or
broker,
underwriter and class of business.
|
·
|
Disciplined
Underwriting. We
believe that earning underwriting profits is best accomplished
through
careful risk selection. Our senior underwriters have an average
of more
than 20 years of experience. In our small business workers’ compensation
segment, each risk is individually underwritten, and we regularly
evaluate
our workers’ compensation underwriting guidelines in relation to actual
results and make tailored revisions, such as the exclusion of
a specific
risk classification in a particular state. In our specialty risk
and
extended warranty segment, we thoroughly review each new opportunity
that
we consider—a process that generally takes three months or more, due to
the data analysis required. We ultimately underwrite approximately
20% of
the specialty risk and extended warranty opportunities submitted
to us. In
addition, we seek to customize the terms, conditions and exclusions
of our
specialty
risk and extended warranty coverages to address product-specific
characteristics and risks.
|
·
|
Actively
Manage Claims. We
currently administer approximately 89% of our small business workers’
compensation claims internally, and the remainder are administered
by
third parties on our claims systems and subject to our oversight.
We
believe that actively managing our workers’ compensation claims is
essential to reduce losses and loss adjustment expenses and to accurately
establish reserves. We promptly investigate workers’ compensation claims
through direct contact with the insureds and other affected parties.
As of
March 31, 2006, approximately 0.8% of the 397 workers’ compensation claims
reported for accident year 2001 were open, 1.3% of the 1,231 claims
reported for accident year 2002 were open, 4.9% of the 2,539 claims
reported for accident year 2003 were open, 7.2% of the 5,334 claims
reported for accident year 2004 were open, 16.7% of the 7,357 claims
reported for accident year 2005 were open, and 78.5% of the 1,442
claims
reported for accident year 2006 through March 31, 2006 were open.
In our
specialty risk and extended warranty segment, we retain control of
claims
by monitoring our administrators’ performance through the analysis of
timely policy and claims data and by taking appropriate remedial
action,
such as adjusting premium or revising coverage plan terms. Claims
for the
specialty middle-market property and casualty segment we recently
acquired
are currently administered by third parties. We intend to closely
monitor
the performance of third party
administrators.
|
·
|
Expand
Existing Operations. We
intend to continue to increase our presence in our chosen markets.
In our
small business workers’ compensation segment, we encourage existing agents
to submit more business to us and seek to establish relationships
with new
quality agents. In our specialty risk and extended warranty segment,
we
plan to expand our portfolio of low average premium, high volume
insurance
by adding new customers and offering coverage for additional products
in
which we can apply our actuarial and quantitative skills, such as
the
homeowner’s latent defects warranty coverage we recently began offering in
Norway. We are continuing to seek to transition accounts in the specialty
middle-market property and casualty segment. In addition, we will
continue
to explore new specialty insurance products we believe we can profitably
write by applying our expertise and
technology.
|
·
|
Expand
Our Proprietary Technology and Efficient Systems. We
plan to continue to develop our proprietary technology to improve
our
relationships with our producers and further
reduce our underwriting expense ratio by increasing automation. We
believe
that we can apply much of the technology and systems we have developed
in
our small business workers’ compensation segment to improve the efficiency
of our specialty risk and extended warranty business. In addition,
we have
integrated a substantial portion of the specialty middle-market property
and casualty segment we recently acquired into our existing systems
and
intend to integrate the balance over
time.
|
·
|
Prudent
and Opportunistic Geographic Expansion. We
are applying for insurance licenses in additional states and on June
1,
2006 we acquired WIC, which has approximately $15 million in capital
and
surplus and licenses in all 50 states and the District of Columbia.
In the
future, we intend to selectively expand our specialty risk and extended
warranty presence to other European countries and additional foreign
markets.
|
·
|
Selective
Acquisitions. We
intend to continue to seek to acquire renewal rights to additional
books
of specialty insurance business that fit our underwriting capabilities
from competitors, insurance agents, warranty administrators and other
producers. We also may consider whole company acquisitions and believe
that we may be able to use our stock as acquisition
consideration.
|
·
|
Capitalize
on Our Multinational Presence. We
have a presence in the United States, Ireland, the United Kingdom
and
Bermuda. We also have employees in Sweden. Our presence enables us
to
provide specialty risk and extended warranty coverage on a multinational
basis and to opportunistically allocate capital and resources where
we
believe profitable business opportunities exist. In addition, our
Bermuda-based insurance operations allow us to access Bermuda’s well
developed network of insurance and reinsurance brokers and agents.
Because
a considerable portion of our business is written outside of the
United
States, our effective tax rate is lower than if we were solely a
U.S.
insurer.
|
·
|
Manage
Capital Actively. We
intend to expand our business and capital base to take advantage
of
profitable growth opportunities. We may raise additional funds to
finance
future acquisitions, but do not intend to raise or retain more capital
than we believe we can profitably deploy in a reasonable time frame.
Our
ratings from A.M. Best are very important to us, and maintaining
them will
be a principal consideration in any decisions regarding
capital.
|
·
|
Maintain
a Strong Balance Sheet. We
continue to establish reserves carefully and monitor reinsurance
recoverables exposure in order to maintain a strong balance sheet.
We
intend to maintain underwriting profitability in various market cycles
and
maximize an appropriate risk adjusted return on our growing investment
portfolio.
|
·
|
Our
business is subject to extensive regulation by applicable federal,
state
and foreign regulators in the jurisdictions in which we
operate.
|
·
|
We
may not be able to successfully manage our growth.
|
·
|
If
we fail to accurately assess the risks associated with the business
we
insure, we may fail to establish appropriate premium rates, and our
reserves for unpaid losses and loss adjustment expenses may be inadequate
to cover our actual losses.
|
·
|
If
we were unable to obtain reinsurance on favorable terms, our ability
to
write new policies and renew existing policies could be adversely
affected.
|
·
|
We
believe that the A.M. Best rating of “A-” (Excellent) of certain of our
insurance subsidiaries has a significant influence on our business
and
that many brokers, agents and customers would not place business
with us
if one or more of these ratings were
downgraded.
|
·
|
The
specialty middle-market property and casualty business we recently
acquired is a new segment for us, and we may not be able to underwrite
it
profitably.
|
·
|
We
cannot control or predict with any certainty the amount or profitability
of the business we will be able to transition in the specialty
middle-market property and casualty segment we recently
acquired.
|
·
|
Our
operating results may fluctuate significantly due to various factors
generally beyond our control.
|
·
|
Because
we are dependent on certain key executives and other personnel, the
loss
of any of these executives or our inability to retain other key personnel
could adversely affect our
business.
|
·
|
Competitive
forces may result in the need to lower premiums thereby reducing
underwriting profits.
|
·
|
A
significant portion of our net income and cash flows are derived
from an
investment portfolio that is affected by interest rates and other
market
conditions.
|
Common
stock offered by the selling stockholders
|
25,568,000
shares
|
Common
stock outstanding
|
59,943,000
shares
|
Use
of proceeds
|
We
will not receive any proceeds from the sale of the shares of common
stock
offered in this prospectus.
|
Dividend
policy
|
Historically,
we have not paid dividends on our common stock. We have not made
a
determination as to whether we will pay dividends in the future.
Any
determination to pay dividends will be at the discretion of our Board
of
Directors and will depend upon our results of operations, financial
condition and capital requirements, general business conditions,
legal,
tax, regulatory and any contractual restrictions on the payment of
dividends and any other factors our Board deems relevant. See “Dividend
Policy.”
|
Risk
factors
|
For
a discussion of certain factors you should consider in making an
investment, see “Risk Factors” on page 15 et. seq.
|
Listing
|
We
intend to apply to list our common stock on either the New York Stock
Exchange or the Nasdaq National Market under the symbol “
”
|
Three
Months Ended
March
31,
|
Year
Ended December 31,
|
|||||||||||||||||||||
2006
|
2005
|
2005
|
2004
|
2003
|
2002
|
2001
|
||||||||||||||||
(unaudited)
($
in thousands,
except
percentages
and
per
share data)
|
($
in thousands, except percentages and per share
data)
|
|||||||||||||||||||||
Selected
Income Statement Data(1)
|
||||||||||||||||||||||
Gross
premiums written
|
$
|
123,278
|
$
|
91,548
|
$
|
286,131
|
$
|
210,851
|
$
|
97,490
|
$
|
27,509
|
$
|
13,353
|
||||||||
Ceded
gross premiums written
|
(12,525
|
)
|
(9,634
|
)
|
(26,918
|
)
|
(23,353
|
)
|
(15,567
|
)
|
(4,005
|
)
|
(1,520
|
)
|
||||||||
Net
premiums written
|
$
|
110,753
|
$
|
81,914
|
$
|
259,213
|
$
|
187,498
|
$
|
81,923
|
$
|
23,504
|
$
|
11,833
|
||||||||
Change
in unearned net premiums written
|
(40,943
|
)
|
(34,559
|
)
|
(43,183
|
)
|
(48,684
|
)
|
(30,256
|
)
|
(6,230
|
)
|
(1,113
|
)
|
||||||||
Net earned
premiums
|
$
|
69,810
|
$
|
47,355
|
$
|
216,030
|
$
|
138,814
|
$
|
51,667
|
$
|
17,274
|
$
|
10,720
|
||||||||
Commission
and fee income
|
$
|
2,855
|
$
|
1,890
|
$
|
8,196
|
$
|
5,202
|
$
|
1,052
|
$
|
341
|
$
|
392
|
||||||||
Net
investment income(2)
|
5,335
|
1,885
|
11,534
|
4,439
|
3,072
|
2,242
|
2,035
|
|||||||||||||||
Net
realized gains (loss)
|
1,576
|
26
|
4,875
|
1,278
|
(1,004
|
)
|
(1
|
)
|
(16
|
)
|
||||||||||||
Other
|
—
|
—
|
—
|
222
|
496
|
—
|
—
|
|||||||||||||||
Total
revenues
|
$
|
79,576
|
$
|
51,156
|
$
|
240,635
|
$
|
149,955
|
$
|
55,283
|
$
|
19,856
|
$
|
13,131
|
||||||||
Loss
and loss adjustment expense
|
$
|
43,774
|
$
|
33,997
|
$
|
142,006
|
$
|
90,178
|
$
|
34,884
|
$
|
9,139
|
$
|
4,459
|
||||||||
Policy
acquisition expenses(3)
|
8,323
|
8,671
|
30,082
|
20,082
|
8,194
|
3,848
|
—
|
|||||||||||||||
Salaries
and benefits(4)
|
5,119
|
3,000
|
13,903
|
10,945
|
4,063
|
3,312
|
—
|
|||||||||||||||
Other
insurance general and administrative expenses(5)
|
6,783
|
3,479
|
19,519
|
10,430
|
3,696
|
1,179
|
9,117
|
|||||||||||||||
Other
operating expenses(6)
|
1,944
|
1,125
|
5,543
|
2,167
|
1,000
|
—
|
—
|
|||||||||||||||
Total expenses |
$
|
65,943
|
$
|
50,272
|
$
|
211,053
|
$
|
133,802
|
$
|
51,837
|
$
|
17,478
|
$
|
13,576
|
||||||||
Operating
income from continuing operations
|
$
|
13,633
|
$
|
884
|
$
|
29,582
|
$
|
16,153
|
$
|
3,446
|
$
|
2,378
|
$
|
(445
|
)
|
|||||||
Other
income (expense) Foreign currency gain(7)
|
$
|
98
|
—
|
$
|
388
|
—
|
—
|
—
|
—
|
|||||||||||||
Miscellaneous
|
—
|
—
|
—
|
(85
|
)
|
(545
|
)
|
(116
|
)
|
2,404
|
Three
Months Ended
March
31,
|
Year
Ended December 31,
|
|||||||||||||||||||||
2006
|
2005
|
2005
|
2004
|
2003
|
2002
|
2001
|
||||||||||||||||
(unaudited)
($
in thousands,
except
percentages
and
per
share data)
|
($
in thousands, except percentages and per share
data)
|
|||||||||||||||||||||
Interest
expense
|
(1,213
|
)
|
—
|
(2,784
|
)
|
(264
|
)
|
(221
|
)
|
(161
|
)
|
(194
|
)
|
|||||||||
Total
other income
(expenses)
|
$
|
(1,115
|
)
|
$
|
—
|
$
|
(2,396
|
)
|
$
|
(349
|
)
|
$
|
(766
|
)
|
$
|
(277
|
)
|
$
|
2,210
|
|||
Income
from continuing operations before provision for income taxes and
change in
accounting principle
|
$
|
12,518
|
$
|
884
|
$
|
27,186
|
$
|
15,804
|
$
|
2,680
|
$
|
2,101
|
$
|
1,765
|
||||||||
Total
provision for income taxes
|
3,259
|
(1,079
|
)
|
6,666
|
3,828
|
1,258
|
510
|
38
|
||||||||||||||
Income
from continuing operations before change in accounting
principle
|
$
|
9,259
|
$
|
1,963
|
$
|
20,520
|
$
|
11,976
|
$
|
1,422
|
$
|
1,591
|
$
|
1,727
|
||||||||
Cumulative
effect of change in accounting principle
|
—
|
—
|
—
|
—
|
—
|
578
|
—
|
|||||||||||||||
Income
from continuing operations
|
9,259
|
1,963
|
20,520
|
11,976
|
1,422
|
2,169
|
1,727
|
|||||||||||||||
Foreign
currency gain from discontinued operations
|
—
|
—
|
21,745
|
—
|
—
|
—
|
—
|
|||||||||||||||
Other
income (loss) from discontinued operations(7)
|
—
|
1,429
|
(4,706
|
)
|
2,134
|
(30
|
)
|
—
|
—
|
|||||||||||||
Net
income
|
$
|
9,259
|
$
|
3,392
|
$
|
37,559
|
$
|
14,110
|
$
|
1,392
|
$
|
2,169
|
$
|
1,727
|
||||||||
Preferred
stock dividend accumulated(8)
|
—
|
1,200
|
1,200
|
4,800
|
4,800
|
—
|
—
|
|||||||||||||||
Net
income (loss) available to common stockholders
|
$
|
9,259
|
$
|
2,192
|
$
|
36,359
|
$
|
9,310
|
$
|
(3,408
|
)
|
$
|
2,169
|
$
|
1,727
|
|||||||
Basic
earnings (loss) per common share:
|
||||||||||||||||||||||
Income
(loss) from continuing operations before change in accounting
principle
|
$
|
0.21
|
$
|
0.03
|
$
|
0.80
|
$
|
0.30
|
$
|
(0.14
|
)
|
$
|
0.07
|
$
|
0.07
|
|||||||
Cumulative
effect of change in accounting principle
|
—
|
—
|
—
|
—
|
—
|
0.02
|
—
|
|||||||||||||||
Income
(loss) from discontinued operations
|
—
|
0.06
|
0.71
|
0.09
|
—
|
—
|
—
|
|||||||||||||||
Net
income (loss) per common share (basic)
|
$
|
0.21
|
$
|
0.09
|
$
|
1.51
|
$
|
0.39
|
$
|
(0.14
|
)
|
$
|
0.09
|
$
|
0.07
|
|||||||
Weighted
average shares outstanding
|
44,462,545
|
24,089,286
|
24,089,286
|
24,089,286
|
24,089,286
|
24,089,286
|
24,089,286
|
Three
Months Ended
March
31,
|
Year
Ended December 31,
|
|||||||||||||||||||||
2006
|
2005
|
2005
|
2004
|
2003
|
2002
|
2001
|
||||||||||||||||
(unaudited)
|
($
in thousands, except percentages and per share
data)
|
|||||||||||||||||||||
($
in thousands,
except
percentages and
per
share data)
|
||||||||||||||||||||||
Selected
Insurance Ratios and Operating Information
|
||||||||||||||||||||||
Net
loss ratio(9)
|
62.7
|
%
|
71.8
|
%
|
65.7
|
%
|
65.0
|
%
|
67.5
|
%
|
52.9
|
%
|
41.6
|
%
|
||||||||
Net
expense ratio(10)
|
29.0
|
%
|
32.0
|
%
|
29.4
|
%
|
29.9
|
%
|
30.9
|
%
|
48.3
|
%
|
85.0
|
%
|
||||||||
Net
combined ratio(11)
|
91.7
|
%
|
103.8
|
%
|
95.1
|
%
|
94.8
|
%
|
98.4
|
%
|
101.2
|
%
|
126.6
|
%
|
||||||||
Annualized
return on average equity(12)
|
17.7
|
%
|
11.3
|
%
|
31.7
|
%
|
13.0
|
%
|
1.6
|
%
|
4.4
|
%
|
9.0
|
%
|
||||||||
Annualized
return on average equity without foreign currency gain and discontinued
operations(12)
|
17.7
|
%
|
6.5
|
%
|
17.3
|
%
|
11.0
|
%
|
1.6
|
%
|
4.4
|
%
|
9.0
|
%
|
March
31,
|
Year
Ended December 31,
|
|||||||||||||||||||||
|
2006
|
2005
|
2005
|
2004
|
2003
|
2002
|
2001
|
|||||||||||||||
(unaudited)
($
in thousands,
except
percentages and
per
share data)
|
($
in thousands, except percentages and per share
data)
|
|||||||||||||||||||||
Selected
Balance Sheet Data
|
||||||||||||||||||||||
Cash
and cash equivalents
|
$
|
164,248
|
$
|
101,264
|
$
|
115,847
|
$
|
28,727
|
$
|
11,202
|
$
|
7,068
|
$
|
4,670
|
||||||||
Investments
|
433,890
|
173,603
|
299,965
|
169,484
|
74,379
|
30,042
|
23,789
|
|||||||||||||||
Real
estate(7)
|
—
|
164,412
|
—
|
161,555
|
185,744
|
168,523
|
—
|
|||||||||||||||
Amounts
recoverable from reinsurers
|
19,711
|
14,682
|
17,667
|
14,445
|
4,046
|
1,533
|
1,047
|
|||||||||||||||
Premiums
receivable, net
|
127,545
|
76,310
|
81,070
|
56,468
|
26,143
|
11,927
|
9,947
|
|||||||||||||||
Deferred
income taxes
|
8,705
|
3,460
|
9,396
|
1,952
|
1,130
|
958
|
416
|
|||||||||||||||
Goodwill
and other intangibles
|
22,058
|
10,013
|
20,781
|
9,309
|
6,100
|
5,500
|
—
|
|||||||||||||||
Total
assets
|
858,159
|
604,711
|
611,342
|
497,530
|
341,394
|
306,225
|
45,165
|
|||||||||||||||
Reserves
for loss and loss adjustment expense
|
190,022
|
117,964
|
168,007
|
99,364
|
37,442
|
14,743
|
11,813
|
|||||||||||||||
Unearned
premiums
|
207,739
|
140,515
|
156,802
|
105,107
|
42,681
|
12,659
|
6,124
|
|||||||||||||||
Mortgage
notes(7)
|
—
|
91,873
|
—
|
92,919
|
107,960
|
93,420
|
—
|
|||||||||||||||
Note
payable
|
—
|
—
|
25,000
|
1,700
|
3,649
|
3,648
|
3,049
|
|||||||||||||||
Junior
subordinated debt
|
50,000
|
25,000
|
50,000
|
—
|
—
|
—
|
—
|
|||||||||||||||
Common
stock and additional paid in capital
|
239,187
|
12,647
|
12,647
|
12,647
|
12,647
|
12,647
|
19,226
|
|||||||||||||||
Preferred
stock(8)
|
—
|
60,000
|
60,000
|
60,000
|
60,000
|
60,000
|
—
|
|||||||||||||||
Total
shareholders’ equity
|
299,509
|
121,134
|
118,411
|
118,828
|
98,467
|
79,048
|
20,039
|
|||||||||||||||
(1)
|
Results
for a number of periods were affected by our acquisition of the stock
and
renewal rights of Princeton in December 2002, and the renewal rights
and
certain other assets of Covenant in December 2003 and Associated
in August
2004.
|
(2)
|
Also
included finance income of AFS Capital Corporation prior to its
disposition in April 2005.
|
(3)
|
Policy
acquisition expenses include commissions paid directly to producers
as
well as premium taxes and
assessments.
|
(4)
|
For
periods subsequent to 2002 salaries and benefits are for employees
who are
directly engaged in insurance activities. Policy acquisition expenses
and
salaries and benefits for 2001 and 2002 were included in other insurance
general and administrative
expenses.
|
(5)
|
Other
insurance general and administrative expenses represent those costs
other
than policy acquisition expenses, as well as salaries and benefits,
directly attributable to insurance activities. In addition, policy
acquisition expenses and salaries and benefits for 2001 and 2002
were
included in other insurance general and administrative
expenses.
|
(6)
|
Other
operating expenses are those expenses that are associated with fee
and
commission generating activities in which the Company
engages.
|
(7)
|
The
foreign currency gain from discontinued operations relates to our
wholly-owned subsidiary, AmTrust Pacific Limited, a New Zealand real
estate operating company (“APL”). Income (loss) from discontinued
operations reflects the results of operations of APL and AFS Capital
Corp., a premium finance company. The real estate in the balance
sheet
reflects the carrying value of real estate held by APL. The mortgage
notes
in the balance sheet reflect mortgage debt on this real estate. All
of
these real estate assets were liquidated by November 2005, and the
net
proceeds were placed in our investment portfolio. For more information
about these transactions, see the consolidated financial statements
and
related notes included elsewhere in this
prospectus.
|
(8)
|
In
January 2006, the holder of our preferred stock agreed to a reduction
of
the dividend in 2005 to $1.2 million. Our preferred stock was exchanged
for an aggregate of 10,285,714 shares of our common stock in February
2006.
|
(9)
|
Net
loss ratio is calculated by dividing the loss and loss adjustment
expense
by net premiums earned.
|
(10)
|
Net
expense ratio is calculated by dividing the total of the acquisition
expenses, salaries and benefits as well as other insurance general
and
administrative expenses by net premiums
earned.
|
(11)
|
Net
combined ratio is calculated by adding net loss ratio and net expense
ratio together.
|
(12)
|
Calculated
by dividing net income or net income without currency gain and
discontinued operations, as the case may be, by the average shareholders’
equity. The calculations for the three months ended March 31, 2006
and
2005 have been annualized.
|
·
|
collect
and properly analyze a substantial volume of data from our
insureds;
|
·
|
develop,
test and apply appropriate rating formulae;
|
·
|
closely
monitor and timely recognize changes in trends; and
|
·
|
project
both frequency and severity of our insureds’ losses with reasonable
accuracy.
|
·
|
insufficient
reliable data;
|
·
|
incorrect
or incomplete analysis of available data;
|
·
|
uncertainties
generally inherent in estimates and assumptions;
|
·
|
our
inability to implement appropriate rating formulae or other pricing
methodologies;
|
·
|
regulatory
constraints on rate increases;
|
·
|
unexpected
escalation in the costs of ongoing medical
treatment;
|
·
|
our
inability to accurately estimate investment yields and the duration
of our
liability for loss and loss adjustment expenses;
and
|
·
|
unanticipated
court decisions, legislation or regulatory
action.
|
·
|
system
disruptions;
|
·
|
inaccessibility
of our network;
|
·
|
long
response times;
|
·
|
loss
of important data;
|
·
|
viruses;
|
·
|
power
outages; and
|
·
|
terrorism.
|
·
|
rising
levels of claims costs, including medical and prescription drug costs,
that we cannot anticipate at the time we establish our premium
rates;
|
·
|
fluctuations
in interest rates, inflationary pressures and other changes in the
investment environment that affect returns on invested
assets;
|
·
|
changes
in the frequency or severity of claims;
|
·
|
the
financial stability of our third party reinsurers, changes in the
level of
reinsurance capacity, termination of reinsurance agreements and changes
in
our capital capacity;
|
·
|
new
types of claims and new or changing judicial interpretations relating
to
the scope of liabilities of insurance
companies;
|
·
|
volatile
and unpredictable developments, including man-made, weather-related
and
other natural catastrophes or terrorist
attacks;
|
·
|
price
competition;
|
·
|
inadequate
reserves;
|
·
|
downgrades
in the A.M. Best rating of one or more of our insurance
subsidiaries;
|
·
|
cyclical
nature of the property and casualty insurance market;
|
·
|
negative
developments in the specialty property and casualty insurance sectors
in
which we operate; and
|
·
|
reduction
in the business activities of our policyholders.
|
· |
identify
profitable new geographic markets for entry;
|
·
|
attract
and retain qualified personnel for expanded
operations;
|
·
|
identify,
recruit and integrate new independent agencies and extended
warranty/service contract
administrators;
|
·
|
identify
potential acquisition targets and successfully acquire
them;
|
·
|
expand
existing agency relationships; and
|
·
|
augment
our internal monitoring and control systems as we expand our
business.
|
·
|
standards
of solvency, including risk-based capital
measurements;
|
·
|
restrictions
on the nature, quality and concentration of
investments;
|
·
|
restrictions
on the terms of the insurance policies they
offer;
|
·
|
restrictions
on the way premium rates are established and the premium rates they
may
charge;
|
·
|
required
reserves for unearned premiums and loss and loss adjustment
expenses;
|
·
|
standards
for appointing general agencies;
|
·
|
limitations
on transactions with affiliates;
|
·
|
restrictions
on mergers and acquisitions;
|
·
|
restrictions
on the ability to pay dividends to
AmTrust;
|
·
|
certain
required methods of accounting; and
|
·
|
potential
assessments for state guaranty funds, second injury funds and other
mandatory pooling arrangements.
|
·
|
the
likelihood that a public trading market for our shares of common
stock
will develop or be sustained;
|
·
|
the
liquidity of any such market;
|
·
|
the
ability of our stockholders to sell their common stock; or
|
·
|
the
price that our stockholders may obtain for their common
stock.
|
·
|
actual
or anticipated variations in our quarterly results of
operations;
|
·
|
changes
on our earnings estimates or publications of research reports about
us or
the industry;
|
·
|
increase
in market interest rates that may lead purchasers of common stock
to
demand a higher yield;
|
·
|
changes
in market valuations of other insurance companies;
|
·
|
adverse
market reaction to any increased indebtedness we incur in the
future;
|
·
|
additions
or departures of key personnel;
|
·
|
actions
by institutional stockholders;
|
·
|
reaction
to the sale or purchase of company stock by our principal stockholders
or
our executive officers;
|
·
|
changes
in the economic environment in the markets in which we
operate;
|
·
|
changes
in tax law;
|
·
|
speculation
in the press or investment community; and
|
·
|
general
market, economic and political conditions.
|
·
|
design,
establish, evaluate and maintain a system of internal controls over
financial reporting in compliance with the requirements of Section
404 of
the Sarbanes-Oxley Act and the related rules and regulations of the
SEC
and the Public Company Accounting Oversight
Board;
|
·
|
prepare
and distribute periodic reports in compliance with our obligations
under
the federal securities laws;
|
·
|
establish
new internal policies, principally those relating to disclosure controls
and procedures and corporate
governance;
|
·
|
institute
a more comprehensive compliance function; and
|
·
|
involve
to a greater degree our outside legal counsel and accountants in
the above
activities.
|
·
|
Our
business is subject to extensive regulation by applicable federal,
state
and foreign regulators in the jurisdictions in which we
operate.
|
·
|
We
may not be able to successfully manage our growth.
|
·
|
If
we fail to accurately assess the risks associated with the business
we
insure, we may fail to establish appropriate premium rates, and our
reserves for unpaid losses and loss adjustment expenses may be inadequate
to cover our actual losses.
|
·
|
If
we are unable to obtain reinsurance on favorable terms, our ability
to
write new policies and renew existing policies could be adversely
affected.
|
·
|
We
believe that the A.M. Best rating of “A-” (Excellent) of certain of our
insurance subsidiaries has a significant influence on our business
and
that many brokers, agents and customers would not place business
with us
if one or more of these ratings were
downgraded.
|
·
|
The
specialty middle-market property and casualty business we recently
acquired is a new segment for us, and we may not be able to underwrite
it
profitably.
|
·
|
We
cannot control or predict with any certainty the amount or profitability
of the business we will be able to transition in the specialty
middle-market property and casualty segment we recently
acquired.
|
·
|
Our
operating results may fluctuate significantly due to various factors
generally beyond our control.
|
·
|
Because
we are dependent on certain key executives and other personnel, the
loss
of any of these executives or our inability to retain other key personnel
could adversely affect our
business.
|
·
|
Changes
in rating agency policies or practices.
|
·
|
Changes
in legal theories of liability under our insurance
policies.
|
·
|
Changes
in accounting policies or
practices.
|
·
|
Changes
in general economic conditions, including inflation and other
factors.
|
Three
Months
Ended
March 31,
|
Year
Ended December 31,
|
|||||||||||||||||||||
2006
|
2005
|
2005
|
2004
|
2003
|
2002
|
2001
|
||||||||||||||||
(unaudited)
($
in thousands,
except
percentages and
per
share data)
|
($
in thousands, except percentages and per share
data) |
|||||||||||||||||||||
Selected Income Statement Data(1) | ||||||||||||||||||||||
Gross
premiums written
|
$
|
123,278
|
$
|
91,548
|
$
|
286,131
|
$
|
210,851
|
$
|
97,490
|
$
|
27,509
|
$
|
13,353
|
||||||||
Ceded
gross premiums written
|
(12,525
|
)
|
(9,634
|
)
|
(26,918
|
)
|
(23,353
|
)
|
(15,567
|
)
|
(4,005
|
)
|
(1,520
|
)
|
||||||||
Net
premiums written
|
$
|
110,753
|
$
|
81,914
|
$
|
259,213
|
$
|
187,498
|
$
|
81,923
|
$
|
23,504
|
$
|
11,833
|
||||||||
Change
in unearned net premiums written
|
(40,943
|
)
|
(34,559
|
)
|
(43,183
|
)
|
(48,684
|
)
|
(30,256
|
)
|
(6,230
|
)
|
(1,113
|
)
|
||||||||
Net
earned premiums
|
$
|
69,810
|
$
|
47,355
|
$
|
216,030
|
$
|
138,814
|
$
|
51,667
|
$
|
17,274
|
$
|
10,720
|
||||||||
Commission
and fee income
|
$
|
2,855
|
$
|
1,890
|
$
|
8,196
|
$
|
5,202
|
$
|
1,052
|
$
|
341
|
$
|
392
|
||||||||
Net
investment income(2)
|
5,335
|
1,885
|
11,534
|
4,439
|
3,072
|
2,242
|
2,035
|
|||||||||||||||
Net
realized gains (loss)
|
1,576
|
26
|
4,875
|
1,278
|
(1,004
|
)
|
(1
|
)
|
(16
|
)
|
||||||||||||
Other
|
—
|
—
|
—
|
222
|
496
|
—
|
—
|
|||||||||||||||
Total
revenues
|
$
|
79,576
|
$
|
51,156
|
$
|
240,635
|
$
|
149,955
|
$
|
55,283
|
$
|
19,856
|
$
|
13,131
|
||||||||
Loss
and loss adjustment expense
|
$
|
43,774
|
$
|
33,997
|
$
|
142,006
|
$
|
90,178
|
$
|
34,884
|
$
|
9,139
|
$
|
4,459
|
||||||||
Policy
acquisition expenses(3)
|
8,323
|
8,671
|
30,082
|
20,082
|
8,194
|
3,848
|
—
|
|||||||||||||||
Salaries
and benefits(4)
|
5,119
|
3,000
|
13,903
|
10,945
|
4,063
|
3,312
|
—
|
|||||||||||||||
Other
insurance general and administrative expenses(5)
|
6,783
|
3,479
|
19,519
|
10,430
|
3,696
|
1,179
|
9,117
|
|||||||||||||||
Other
operating expenses(6)
|
1,944
|
1,125
|
5,543
|
2,167
|
1,000
|
—
|
—
|
|||||||||||||||
Total expenses |
$
|
65,943
|
$
|
50,272
|
$
|
211,053
|
$
|
133,802
|
$
|
51,837
|
$
|
17,478
|
$
|
13,576
|
||||||||
Operating
income from continuing operations
|
$
|
13,633
|
$
|
884
|
$
|
29,582
|
$
|
16,153
|
$
|
3,446
|
$
|
2,378
|
$
|
(445
|
)
|
|||||||
Other
income (expense) Foreign currency gain(7)
|
$
|
98
|
—
|
$
|
388
|
—
|
—
|
—
|
—
|
|||||||||||||
Miscellaneous
|
—
|
—
|
—
|
(85
|
)
|
(545
|
)
|
(116
|
)
|
2,404
|
||||||||||||
Interest
expense
|
(1,213
|
)
|
—
|
(2,784
|
)
|
(264
|
(221
|
)
|
(161
|
)
|
(194
|
)
|
||||||||||
Total other income (expenses) |
$
|
(1,115
|
)
|
$
|
—
|
$
|
(2,396
|
)
|
$
|
(349
|
)
|
$
|
(766
|
)
|
$
|
(277
|
)
|
$
|
2,210
|
Three
Months
Ended
March 31,
|
Year
Ended December 31,
|
|||||||||||||||||||||
2006
|
2005
|
2005
|
2004
|
2003
|
2002
|
2001
|
||||||||||||||||
(unaudited)
($
in thousands,
except
percentages and
per
share data)
|
($
in thousands, except percentages and per share
data) |
|||||||||||||||||||||
Income
from continuing operations before provision for income taxes and
change in
accounting principle
|
$
|
12,518
|
$
|
884
|
$
|
27,186
|
$
|
15,804
|
$
|
2,680
|
$
|
2,101
|
$
|
1,765
|
||||||||
Total
provision for income taxes
|
3,259
|
(1,079
|
)
|
6,666
|
3,828
|
1,258
|
510
|
38
|
||||||||||||||
Income
from continuing operations before change in accounting
principle
|
$
|
9,259
|
$
|
1,963
|
$
|
20,520
|
$
|
11,976
|
$
|
1,422
|
$
|
1,591
|
$
|
1,727
|
||||||||
Cumulative
effect of change in accounting principle
|
—
|
—
|
—
|
—
|
—
|
578
|
—
|
|||||||||||||||
Income
from continuing operations
|
9,259
|
1,963
|
20,520
|
11,976
|
1,422
|
2,169
|
1,727
|
|||||||||||||||
Foreign
currency gain from discontinued operations
|
—
|
—
|
21,745
|
—
|
—
|
—
|
—
|
|||||||||||||||
Other
income (loss) from discontinued operations(7)
|
—
|
1,429
|
(4,706
|
)
|
2,134
|
(30
|
)
|
—
|
—
|
|||||||||||||
Net
income
|
$
|
9,259
|
$
|
3,392
|
$
|
37,559
|
$
|
14,110
|
$
|
1,392
|
$
|
2,169
|
$
|
1,727
|
||||||||
Preferred
stock dividend accumulated(8)
|
—
|
1,200
|
1,200
|
4,800
|
4,800
|
—
|
—
|
|||||||||||||||
Net
income (loss) available to common stockholders
|
$
|
9,259
|
$
|
2,192
|
$
|
36,359
|
$
|
9,310
|
$
|
(3,408
|
)
|
$
|
2,169
|
$
|
1,727
|
|||||||
Basic
earnings (loss) per common share:
|
||||||||||||||||||||||
Income
(loss) from continuing operations before change in accounting
principle
|
$
|
0.21
|
$
|
0.03
|
$
|
0.80
|
$
|
0.30
|
$
|
(0.14
|
)
|
$
|
0.07
|
$
|
0.07
|
|||||||
Cumulative
effect of change in accounting principle
|
—
|
—
|
—
|
—
|
—
|
0.02
|
—
|
|||||||||||||||
Income
(loss) from discontinued operations
|
—
|
0.06
|
0.71
|
0.09
|
—
|
—
|
—
|
|||||||||||||||
Net
income (loss) per common share (basic)
|
$
|
0.21
|
$
|
0.09
|
$
|
1.51
|
$
|
0.39
|
$
|
(0.14
|
)
|
$
|
0.09
|
$
|
0.07
|
|||||||
Weighted
average shares outstanding
|
44,462,545
|
24,089,286
|
24,089,286
|
24,089,286
|
24,089,286
|
24,089,286
|
24,089,286
|
|
Three
Months
Ended
March 31,
|
Year
Ended December 31,
|
||||||||||||||||||||
|
2006
|
2005
|
2005
|
2004
|
2003
|
2002
|
2001
|
|||||||||||||||
(unaudited)
($
in thousands,
except
percentages and
per
share data)
|
($
in thousands, except percentages and per share
data)
|
|||||||||||||||||||||
Selected
Insurance Ratios and Operating Information
|
||||||||||||||||||||||
Net
loss ratio(9)
|
62.7
|
%
|
71.8
|
%
|
65.7
|
%
|
65.0
|
%
|
67.5
|
%
|
52.9
|
%
|
41.6
|
%
|
||||||||
Net
expense ratio(10)
|
29.0
|
%
|
32.0
|
%
|
29.4
|
%
|
29.9
|
%
|
30.9
|
%
|
48.3
|
%
|
85.0
|
%
|
||||||||
Net
combined ratio(11)
|
91.7
|
%
|
103.8
|
%
|
95.1
|
%
|
94.8
|
%
|
98.4
|
%
|
101.2
|
%
|
126.6
|
%
|
||||||||
Annualized
return on average equity(12)
|
17.7
|
%
|
11.3
|
%
|
31.7
|
%
|
13.0
|
%
|
1.6
|
%
|
4.4
|
%
|
9.0
|
%
|
||||||||
Annualized
return on average equity without foreign currency gain and discontinued
operations(12)
|
17.7
|
%
|
6.5
|
%
|
17.3
|
%
|
11.0
|
%
|
1.6
|
%
|
4.4
|
%
|
9.0
|
%
|
March
31,
|
Year
Ended December 31,
|
|||||||||||||||||||||
2006
|
2005
|
2005
|
2004
|
2003
|
2002
|
2001
|
||||||||||||||||
(unaudited)
($
in thousands, except percentages and per share
data)
|
($
in thousands, except percentages and per share
data)
|
|||||||||||||||||||||
Selected
Balance Sheet Data
|
||||||||||||||||||||||
Cash
and cash equivalents
|
$
|
164,248
|
$
|
101,264
|
$
|
115,847
|
$
|
28,727
|
$
|
11,202
|
$
|
7,068
|
$
|
4,670
|
||||||||
Investments
|
433,890
|
173,603
|
299,965
|
169,484
|
74,379
|
30,042
|
23,789
|
|||||||||||||||
Real
estate(7)
|
—
|
164,412
|
—
|
161,555
|
185,744
|
168,523
|
—
|
|||||||||||||||
Amounts
recoverable from reinsurers
|
19,711
|
14,682
|
17,667
|
14,445
|
4,046
|
1,533
|
1,047
|
|||||||||||||||
Premiums
receivable, net
|
127,545
|
76,310
|
81,070
|
56,468
|
26,143
|
11,927
|
9,947
|
|||||||||||||||
Deferred
income taxes
|
8,705
|
3,460
|
9,396
|
1,952
|
1,130
|
958
|
416
|
|||||||||||||||
Goodwill
and other intangibles
|
22,058
|
10,013
|
20,781
|
9,309
|
6,100
|
5,500
|
—
|
|||||||||||||||
Total
assets
|
858,159
|
604,711
|
611,342
|
497,530
|
341,394
|
306,225
|
45,165
|
|||||||||||||||
Reserves
for loss and loss adjustment expense
|
190,022
|
117,964
|
168,007
|
99,364
|
37,442
|
14,743
|
11,813
|
|||||||||||||||
Unearned
premiums
|
207,739
|
140,515
|
156,802
|
105,107
|
42,681
|
12,659
|
6,124
|
|||||||||||||||
Mortgage
notes(7)
|
—
|
91,873
|
—
|
92,919
|
107,960
|
93,420
|
—
|
|||||||||||||||
Note
payable
|
—
|
—
|
25,000
|
1,700
|
3,649
|
3,648
|
3,049
|
|||||||||||||||
Junior
subordinated debt
|
50,000
|
25,000
|
50,000
|
—
|
—
|
—
|
—
|
|||||||||||||||
Common
stock and additional paid in capital
|
239,187
|
12,647
|
12,647
|
12,647
|
12,647
|
12,647
|
19,226
|
|||||||||||||||
Preferred
stock(8)
|
—
|
60,000
|
60,000
|
60,000
|
60,000
|
60,000
|
—
|
|||||||||||||||
Total
shareholders’ equity
|
299,509
|
121,134
|
118,411
|
118,828
|
98,467
|
79,048
|
20,039
|
|||||||||||||||
(1)
|
Results
for a number of periods were affected by our acquisition of the stock
and
renewal rights of Princeton in December 2002, and the renewal rights
and
certain other assets of Covenant in December 2003 and Associated
in August
2004.
|
(2)
|
Also
included finance income of AFS Capital Corporation prior to its
disposition in April 2005.
|
(3)
|
Policy
acquisition expenses include commissions paid directly to producers
as
well as premium taxes and
assessments.
|
(4)
|
For
periods subsequent to 2002 salaries and benefits are for employees
who are
directly engaged in insurance activities. Policy acquisition expenses
and
salaries and benefits for 2001 and 2002 were included in other insurance
general and administrative
expenses.
|
(5)
|
Other
insurance general and administrative expenses represent those costs
other
than policy acquisition expenses, as well as salaries and benefits,
that
are directly attributable to insurance activities. Policy acquisition
expenses and salaries and benefits for 2001 and 2002 were included
in
other insurance general and administrative
expenses.
|
(6)
|
Other
operating expenses are those expenses that are associated with fee
and
commission generating activities in which the Company
engages.
|
(7)
|
The
foreign currency gain from discontinued operations relates to our
wholly-owned subsidiary, AmTrust Pacific Limited, a New Zealand real
estate operating company (“APL”). Income (loss) from discontinued
operations reflects the results of operations of APL and AFS Capital
Corp., a premium finance company. The real estate in the balance
sheet
reflects the carrying value of real estate held by APL. The mortgage
notes
in the balance sheet reflect mortgage debt on this real estate. All
of
these real estate assets were liquidated as of November 2005. For
more
information about these transactions, see the consolidated financial
statements and related notes included elsewhere in this
prospectus.
|
(8)
|
In
January 2006, the holder of our preferred stock agreed to a reduction
of
the dividend in 2005 to $1.2 million. Our preferred stock was exchanged
for an aggregate of 10,285,714 shares of our common stock in February
2006.
|
(9)
|
Net
loss ratio is calculated by dividing the loss and loss adjustment
expense
by net premiums earned.
|
(10)
|
Net
expense ratio is calculated by dividing the total of the acquisition
expenses, salaries and benefits as well as other insurance general
and
administrative expenses by net premiums
earned.
|
(11)
|
Net
combined ratio is calculated by adding net loss ratio and net expense
ratio together.
|
(12)
|
Calculated
by dividing net income or net income without currency gain and
discontinued operations, as the case may be, by the average shareholders’
equity. The calculations for the three months ended March 31, 2005
and March 31, 2006 have been
annualized.
|
·
|
Workers’
compensation for small businesses (average premium less than $5,000
per
policy) in the United States;
|
·
|
Specialty
risk and extended warranty coverage for accidental damage, mechanical
breakdown and related risks primarily for selected consumer and commercial
goods in the United Kingdom, certain other European Union countries
and
the United States; and
|
·
|
Specialty
middle-market property and casualty insurance. This segment writes
workers’ compensation, commercial automobile and general liability
insurance through general and other wholesale
agents.
|
·
|
Technology
Insurance Company, Inc. (“TIC”) which underwrites workers’ compensation
insurance, specialty risk insurance and extended warranty coverage,
and
specialty middle-market property and casualty coverages in the United
States;
|
·
|
Rochdale
Insurance Company (“RIC”), which underwrites workers’ compensation
insurance, specialty risk and extended warranty coverage, and specialty
middle-market property and casualty coverages in the United
States;
|
·
|
AmTrust
International Underwriters Limited (“AIU”), which underwrites specialty
risk and extended warranty coverage plans in the European
Union;
|
·
|
AmTrust
International Insurance, Ltd. (“AII”), which reinsures the underwriting
activities of TIC, RIC and AIU; and
|
·
|
AmTrust
Pacific Limited, a New Zealand real estate operating company, which
discontinued operations in 2004.
|
·
|
In
December 2002, we acquired the Princeton Agency, Inc. (“Princeton”) and
the renewal rights to Princeton’s book of workers’ compensation business.
The acquisition increased our agent relationships in the Northeast
and
Midwest and enhanced our marketing efforts in these regions.
|
·
|
In
December 2003, we acquired the renewal rights to the workers’ compensation
business of The Covenant Group, Inc. (“Covenant”) and Covenant’s
proprietary claims handling systems. We also hired several experienced
claims adjusters from Covenant. This transaction increased our presence
in
the Southeast and enabled us to move the adjustment of claims arising
from
our small business workers’ compensation segment from third party
administrators to an experienced internal claims staff.
|
·
|
In
August 2004, we expanded our business to Florida by acquiring the
renewal
rights to a book of workers’ compensation business from Associated
Industries Insurance Company (“Associated”).
|
·
|
In
December 2005, we expanded into the specialty middle-market property
and
casualty business through our acquisition of Alea North America Inc.’s
(“Alea”) renewal rights to substantially all of its specialty middle
market property and casualty business. The business in this segment
produced approximately $33.6 million of gross premiums written in
the
first three months of 2006. See “—Business Segments—Specialty
Middle-Market Property and
Casualty.”
|
·
|
On
June 1, 2006, we acquired 100% of the issued and outstanding shares
of
WIC. WIC has approximately $15 million in capital and surplus and
no net
liabilities. WIC is licensed in all 50 states and the District of
Columbia. WIC has no employees and will be managed by the Company
pursuant
to an Intercompany Management Agreement.
|
·
|
On
June 1, 2006, we acquired the renewal rights to Muirfield’s book of
workers’ compensation business, which generated over $60 million in gross
premiums written in 2005, concentrated in the Midwest. We also acquired
access to Muirfield’s distribution network. We believe that this
transaction will help us accelerate our growth in the Midwest. Since
we
acquired renewal rights, we intend to offer renewals only to policyholders
for risks which meet our underwriting guidelines. Furthermore, agents
and
policyholders will not be obligated to renew with us. We anticipate
that
we should renew approximately 50% of Muirfield’s existing book of workers’
compensation business.
|
·
|
how
long and by how much the fair value of the security has been below
its
cost;
|
·
|
the
financial condition and near-term prospects of the issuer of the
security,
including any specific events that may affect its operations or
earnings;
|
·
|
our
intent and ability to keep the security for a sufficient time period
for
it to recover its value;
|
·
|
any
downgrades of the security by a rating agency; and
|
·
|
any
reduction or elimination of dividends, or nonpayment of scheduled
interest
payments.
|
·
|
Reinsurance.
We
intend to cede between 5% and 15% of our gross premiums written to
third
party reinsurers under reinsurance
treaties.
|
·
|
Leverage.
We
plan to target a net leverage ratio, as measured by net premiums
written
to statutory capital and surplus, of approximately 1.2 to 1 to 1.7
to 1
and of debt to total equity under GAAP of less than 30%. The actual
leverage ratios may vary from the target ratios depending upon many
factors that affect our ratings with various organizations and capital
adequacy requirements imposed by insurance regulatory authorities.
These
factors include but are not limited to the amount of our statutory
surplus
and GAAP equity, premium growth, quality and terms of reinsurance
and line
of business mix.
|
·
|
Underwriting.
Our primary underwriting goal will be to achieve profitable results
through targeted net loss ratios complemented by management of net
expense
ratio. We intend to target the pricing of our products to achieve
a ratio
of loss and loss adjustment expenses to net premiums earned of
approximately 62.0% to 66.0% over time. In addition, we are targeting
a
ratio of underwriting expenses to net premiums earned of approximately
26.0% to 31.0%, over time.
|
·
|
Investments.
|
— |
Investment
Grade.
We
expect the majority of our portfolio will consist of high quality
fixed
income securities and short-term investments. We plan to earn competitive
relative returns while investing in a diversified portfolio of securities
of high credit quality issuers and to limit the amount of credit
exposure
to any one issuer.
|
— |
High
Yield and Equity.
In
addition, we plan to invest up to 25% of our investment portfolio
in below
investment grade securities as well as equity securities in order
to
enhance our overall return on invested assets. The equity security
portfolio is managed internally, and the below investment grade fixed
income security portfolio is managed by one or more external
managers.
|
— |
Yield.
Based on current market conditions, we expect our yield on investments
to
be approximately 5.5% to 6.5% in the near
term.
|
— |
Investment
Portfolio Leverage.
We
plan to target an invested assets to equity ratio of approximately
2.0 to
1 to 3.0 to 1.
|
• |
financial
and accounting services, including, but not limited to, tax compliance,
investment management, statutory and GAAP accounting, loss reserving,
regulatory compliance, development of premium and commission rates,
and
premium collection and refunds;
|
• |
maintenance
of fiduciary accounts;
|
• |
retention
and maintenance of all files, books, records and
accounts;
|
• |
submission
of form and rate filings, preparation and submission of applications
for
certificates of authority; and
|
• |
maintenance
of agency relationships and corresponding with
policyholders.
|
Reinsurer
|
A.M.
Best
Rating
|
Amount
Recoverable
as of
March
31, 2006
|
|||||
($
in thousands)
|
|||||||
Midwest
Employers Casualty Company
|
A
|
$
|
8,379
|
||||
Converium
Limited(1)
|
B++
|
4,600
|
|||||
Munich
Reinsurance Company
|
A+
|
3,001
|
|||||
General
Reinsurance Corporation
|
A++
|
2,751
|
|||||
(1) |
As
of March 31, 2006, amounts recoverable from Converium Limited were
fully
collateralized by a combination of a letter of credit and cash withheld
under our reinsurance contracts with Converium
Limited.
|
|
Carrying
Value
|
Percentage
of
Portfolio
|
|||||
($
in thousands)
|
|||||||
Fixed
income securities:
|
|||||||
Mortgage
backed securities
|
$
|
10,134
|
1.7
|
%
|
|||
U.S.
Treasury securities
|
19,606
|
3.3
|
|||||
Obligations
of U.S. government agencies
|
205,130
|
34.4
|
|||||
Corporate
bonds
|
51,229
|
8.6
|
|||||
Time
and short-term deposits
|
107,984
|
18.1
|
|||||
394,083
|
66.1
|
||||||
Equity
securities:
|
|||||||
Common
stock
|
37,556
|
6.3
|
|||||
Nonredeemable
preferred stock
|
62
|
—
|
|||||
Total
equity securities
|
37,618
|
6.3
|
|||||
Total
investments, excluding cash and cash equivalents
|
431,701
|
72.4
|
|||||
Cash
and cash equivalents
|
164,248
|
27.6
|
|||||
$
|
595,949
|
100
|
%
|
||||
S
& P Rating
|
Percentage
of Fixed
Maturity
Portfolio
|
|||
U.S.
Treasury
|
6.8
|
%
|
||
AAA
|
77.2
|
|||
AA
|
1.0
|
|||
A
|
2.5
|
|||
BBB
|
0.3
|
|||
B
|
1.6
|
|||
B-
|
1.7
|
|||
CCC+
|
2.9
|
|||
Other(1)
|
6.0
|
|||
Total
|
100.0
|
|||
(1)
|
Includes
securities rated B+, BB, BB+, BBB-, CC, CCC, CCC-.
|
Remaining
Time to Maturity
|
Amount
(in
thousands)
|
Percentage
of Fixed
Maturity
Portfolio
|
|||||
Less
than one year
|
$
|
47,867
|
16.7
|
%
|
|||
One
to five years
|
210,814
|
73.7
|
|||||
Five
to ten years
|
17,284
|
6.1
|
|||||
Mortgage
backed securities
|
10,134
|
3.5
|
|||||
Total
|
$
|
286,099
|
$
|
100
|
%
|
Fixed
Income Investment Type
|
Average
Yield
|
Average
Duration
in
Years
|
|||||
U.S.
Treasury securities
|
3.3
|
%
|
0.1
|
||||
U.S.
government agencies
|
4.7
|
2.3
|
|||||
Corporate
bonds
|
4.0
|
4.0
|
|||||
Mortgage
backed
|
5.4
|
5.1
|
|||||
Time
and short term deposits
|
4.6
|
1.0
|
· |
how
long and by how much the fair value of the security has been below
its
cost;
|
·
|
the
financial condition and near-term prospects of the issuer of the
security,
including any specific events that may affect its operations or
earnings;
|
·
|
our
intent and ability to keep the security for a sufficient time period
for
it to recover its value;
|
·
|
any
downgrades of the security by a rating agency; and
|
·
|
any
reduction or elimination of dividends, or nonpayment of scheduled
interest
payments.
|
Remaining
Time to Maturity
|
|||||||||||||||||||
Less
than 12 Months
|
12
Months or Longer
|
Total
|
|||||||||||||||||
Type
of Fixed Maturity Investment
|
Fair
Value
|
Unrealized
Loss
|
Fair
Value
|
Unrealized
Loss
|
Fair
Value
|
Unrealized
Loss
|
|||||||||||||
($
in thousands)
|
|||||||||||||||||||
U.S.
Treasury securities
|
$
|
3,406
|
$
|
12
|
$
|
13,575
|
$
|
139
|
$
|
16,981
|
$
|
151
|
|||||||
U.S.
government agencies
|
60,869
|
251
|
76,984
|
1,791
|
137,853
|
2,042
|
|||||||||||||
Corporates
|
84,735
|
1,984
|
5,947
|
148
|
90,682
|
2,132
|
|||||||||||||
Mortgage
backed
|
3,513
|
80
|
5,391
|
367
|
8,904
|
447
|
|||||||||||||
Common
Stock
|
33,187
|
6,739
|
4,369
|
660
|
37,556
|
7,399 | |||||||||||||
Total
|
$
|
185,710
|
$
|
9,066
|
$
|
106,266
|
$
|
3,105
|
$
|
291,976
|
$
|
12,171
|
|
Payment
Due By Period
|
|||||||||||||||
Contractual
Obligations
|
Total
|
Less
Than
1
Year
|
1-3
Years
|
4-5
Years
|
More
Than
5
Years
|
|||||||||||
($
in thousands)
|
||||||||||||||||
Loss
and loss adjustment expenses(1)
|
$
|
190,022
|
$
|
75,860
|
$
|
76,639
|
$
|
13,871
|
$
|
23,652
|
||||||
Loss-based
insurance assessments(2)
|
8,184
|
3,268
|
3,301
|
597
|
1,018
|
|||||||||||
Capital
lease obligations
|
0
|
0
|
0
|
0
|
0
|
|||||||||||
Operating
lease obligations
|
5,341
|
1,723
|
2,916
|
702
|
0
|
|||||||||||
Purchase
obligations(3)
|
6,027
|
2,250
|
3,763
|
14
|
0
|
|||||||||||
Employment
agreement obligations
|
6,663
|
2,559
|
3,654
|
450
|
0
|
|||||||||||
Subordinated
debt and interest
|
87,577
|
4,120
|
8,240
|
8,240
|
66,977
|
|||||||||||
Total
|
$
|
303,814
|
$
|
89,780
|
$
|
98,513
|
$
|
23,874
|
$
|
91,647
|
||||||
(1) |
The
loss and loss adjustment expense payments due by period in the table
above
are based upon the loss and loss adjustment expense estimates as
of March
31, 2006 and actuarial estimates of expected payout patterns and
are not
contractual liabilities as to a time certain. Our contractual liability
is
to provide benefits under the policy. As a result, our calculation
of loss
and loss adjustment expense payments due by period is subject to
the same
uncertainties associated with determining the level of loss and loss
adjustment expenses generally and to the additional uncertainties
arising
from the difficulty of predicting when claims (including claims that
have
not yet been reported to us) will be paid. For a discussion of our
loss
and loss adjustment expense estimate process, see “Business—Loss
Reserves.” Actual payments of loss and loss adjustment expenses by period
will vary, perhaps materially, from the table above to the extent
that
current estimates of loss and loss adjustment expenses vary from
actual
ultimate claims amounts and as a result of variations between expected
and
actual payout patterns. See “Risk Factors—Risks Related to Our
Business—Our loss reserves are based on estimates and may be inadequate to
cover our actual losses” for a discussion of the uncertainties associated
with estimating loss and loss adjustment
expenses.
|
(2) |
We
are subject to various annual assessments imposed by certain of the
states
in which we write insurance policies. These assessments are generally
based upon the amount of premiums written or losses paid during the
applicable year. Assessments based on premiums are generally paid
within
one year after the calendar year in which the policies are written,
while
assessments based on losses are generally paid within one year after
the
loss is paid. When we establish a reserve for loss and loss adjustment
expenses for a reported claim, we accrue our obligation to pay any
applicable assessments. If settlement of the claim is to be paid
out over
more than one year, our obligation to pay any related loss-based
assessments extends for the same period of time. Because our reserves
for
loss and loss adjustment expenses are based on estimates, our accruals
for
loss-based insurance assessments are also based on estimates. Actual
payments of loss and loss adjustment expenses may differ, perhaps
materially, from our reserves. Accordingly, our actual loss-based
insurance assessments may vary, perhaps materially, from our
accruals.
|
(3) |
We
are required by the terms of certain renewal right purchase agreements
to
pay the seller an annual minimum override payment based on a contractually
defined formula. The amount payable to the seller under these renewal
rights acquisitions could be materially higher if the premiums produced
generate a higher payment than the calculated minimum
payment.
|
Hypothetical
Change in Interest Rates
|
Fair
Value
|
Estimated
Change
in
Fair
Value
|
Carrying
Value
|
Estimated
Change
in
Carrying
Value
|
Hypothetical
Percentage
(Increase)
Decrease
in
Shareholders’
Deficit
|
|||||||||||
($
in thousands)
|
||||||||||||||||
200
basis point increase
|
$
|
273,449
|
$
|
(9,501
|
)
|
$
|
—
|
$
|
(2,954
|
)
|
-0.6
|
%
|
||||
100
basis point increase
|
278,220
|
(4,730
|
)
|
—
|
(1,493
|
)
|
-0.3
|
|||||||||
No
change
|
282,950
|
—
|
286,099
|
—
|
—
|
|||||||||||
100
basis point decrease
|
287,133
|
4,183
|
—
|
1,465
|
0.3
|
|||||||||||
200
basis point decrease
|
290,022
|
7,072
|
—
|
2,941
|
0.6
|
·
|
Workers’
compensation for small businesses (average premium less than $5,000
per
policy) in the United States;
|
·
|
Specialty
risk and extended warranty coverage for accidental damage, mechanical
breakdown and related risks primarily for selected consumer and commercial
goods in the United Kingdom, certain other European Union countries
and
the United States; and
|
·
|
Specialty
middle-market property and casualty insurance. This segment writes
workers’ compensation, commercial automobile and general liability
insurance through general and other wholesale
agents.
|
·
|
In
December 2002, we acquired Princeton and the renewal rights to Princeton’s
book of workers’ compensation business. The acquisition increased our
agent relationships in the Northeast and Midwest and enhanced our
marketing efforts in these regions.
|
·
|
In
December 2003, we acquired the renewal rights to the workers’ compensation
business of Covenant and Covenant’s proprietary claims handling systems.
We also hired several experienced claims adjusters from Covenant.
This
transaction increased our presence in the Southeast and enabled us
to move
the adjustment of claims arising from our small business workers’
compensation segment from third party administrators to an experienced
internal claims staff.
|
·
|
In
August 2004, we expanded our business to Florida by acquiring the
renewal
rights to a book of workers’ compensation business from Associated.
|
·
|
In
December 2005, we expanded into the specialty middle-market property
and
casualty business through our acquisition of the renewal rights from
Alea
North America, Inc. (“Alea”) to substantially all of its specialty middle
market property and casualty business. The business in this segment
produced approximately $33.6 million of gross premiums written in
the
first three months of 2006.
|
·
|
On
June 1, 2006, we acquired 100% of the issued and outstanding shares
of WIC
from HIG. WIC has approximately $15 million in capital and surplus
and no
net liabilities. WIC is licensed in all 50 states and the District
of
Columbia. WIC has no employees and will be managed by the Company
pursuant
to an Intercompany Management Agreement.
|
·
|
On
June 1, 2006 we acquired the renewal rights to Muirfield’s book of workers
compensation business, which generated over $60 million in gross
premiums
written in 2005, concentrated in the Midwest. We also acquired access
to
Muirfield’s distribution network. We believe that this transaction will
help us accelerate our growth in the Midwest. Because we acquired
renewal
rights, we intend to offer renewals only to policyholders for risks
which
meet our underwriting guidelines. Furthermore, agents and policyholders
will not be obligated to renew with us. We anticipate that we will
renew
approximately 50% of Muirfield’s existing book of worker’s compensation
business.
|
·
|
restaurants;
|
·
|
retail
stores;
|
·
|
physician
and other professional offices;
|
·
|
building
management-operations by owner or contractor;
|
·
|
private
schools;
|
·
|
hotels;
|
·
|
machine
shops-light metalworking;
|
·
|
small
grocery and specialty food stores;
|
·
|
wholesale
shops; and
|
·
|
beauty
shops.
|
·
|
personal
computers;
|
·
|
consumer
electronics, such as televisions and home theater
components;
|
·
|
consumer
appliances, such as refrigerators and washing
machines;
|
·
|
automobiles
in the United Kingdom (no liability coverage);
|
·
|
cellular
telephones;
|
·
|
heavy
equipment;
|
·
|
homeowner’s
latent defects warranty in Norway;
|
·
|
hand
tools; and
|
·
|
credit
payment protection in the European Union.
|
·
|
retail;
|
·
|
wholesale;
|
·
|
service
operations;
|
·
|
artisan
contracting; and
|
·
|
light
and medium manufacturing.
|
·
|
Focus
on Specialty Insurance Markets. We
focus on specialty markets in which we have underwriting, risk management
and claims handling expertise. We believe that larger insurance carriers
generally do not aggressively pursue business in these markets. We
target
small business workers’ compensation risks in specific industry
classes,
|
·
|
Proprietary
Technology and Efficient Systems. We
have developed proprietary applications and efficient systems for
underwriting new business, processing claims and monitoring the
performance of our coverages and
agents.
|
—
|
Efficient
Underwriting and Claims Processing Systems. Our
proprietary internet-based applications for underwriting new business
and
processing claims enable us to efficiently underwrite and administer
small
business workers’ compensation insurance. Our paperless processing system
handles most clerical duties so that our underwriters can focus on
making
decisions on risk submissions. Our system enables our underwriters,
who
review approximately 4,000 submissions per month, to provide quotes
on new
business generally within two business days after receiving a request.
Our
claims administrators have an average caseload of approximately 125
active
workers’ compensation indemnity claims. We also believe that our
technology is agent-friendly because it enables agents to efficiently
submit workers’ compensation insurance applications online and allows us
to make underwriting decisions promptly. In our specialty risk and
extended warranty segment, we believe that we generally have a greater
degree of control over profitability than our competitors because
we
access our business partners’ coverage data to monitor performance and can
take corrective action in a timely fashion. We have integrated a
substantial portion of the specialty middle-market property and casualty
segment we recently acquired into our systems and intend to integrate
the
balance of this segment over time.
|
—
|
Use
of Timely and Accurate Data. Our
proprietary processing and data collection systems provide our management
team with accurate and relevant information on what we believe is
a more
timely basis than many of our competitors. This data allows us to
analyze
trends in our business, including results by individual agent or
broker,
underwriter and class of business.
|
·
|
Disciplined
Underwriting. We
believe that earning underwriting profits is best accomplished through
careful risk selection. Our senior underwriters have an average of
more
than 20 years of experience. In our small business workers’ compensation
segment, each risk is individually underwritten, and we regularly
evaluate
our workers’ compensation underwriting guidelines in relation to actual
results and make tailored revisions, such as the exclusion of a specific
risk classification in a particular state. In our specialty risk
and
extended warranty segment, we thoroughly review each new opportunity
that
we consider—a process that generally takes three months or more, due to
the data analysis required. We ultimately underwrite approximately
20% of
the specialty risk and extended warranty opportunities submitted
to us. In
addition, we seek to
|
·
|
Actively
Manage Claims. We
currently administer approximately 80% of our small business workers’
compensation claims internally, and the remainder are administered
by
third parties on our claims systems and subject to our oversight.
We
believe that actively managing our workers’ compensation claims is
essential to reduce losses and loss adjustment expenses and to accurately
establish reserves. We promptly investigate workers’ compensation claims
through direct contact with the insureds and other affected parties.
As of
March 31, 2006, approximately 0.8% of the 397 workers’ compensation claims
reported for accident year 2001 were open, 1.3% of the 1,231 claims
reported for accident year 2002 were open, 4.9% of the 2,539 claims
reported for accident year 2003 were open, 7.2% of the 5,334 claims
reported for accident year 2004 were open, 16.7% of the 7,357 claims
for
accident year 2005 were open and 78.5% of the 1,442 claims reported
for
accident year 2006 through March 31, 2006 were open. In our specialty
risk
and extended warranty segment, we retain control of claims by monitoring
our administrators’ performance through the analysis of timely policy and
claims data and by taking appropriate remedial action, such as adjusting
premium or revising coverage plan terms. Claims for the specialty
middle-market property and casualty segment are currently administered
by
third parties. We intend to closely monitor the performance of third
party
administrators.
|
·
|
Expand
Existing Operations. We
intend to continue to increase our presence in our chosen markets.
In our
small business workers’ compensation segment, we encourage existing agents
to submit more business to us and seek to establish relationships
with new
quality agents. In our specialty risk and extended warranty segment,
we
plan to expand our portfolio of low average premium, high volume
insurance
by adding new customers and offering coverage for additional products
in
which we can apply our actuarial and quantitative skills, such as
the
homeowner’s latent defects warranty coverage we recently began offering in
Norway. We are continuing to seek to transition accounts in the specialty
middle-market property and casualty segment. In addition, we will
continue
to explore new specialty insurance products we believe we can profitably
write by applying our expertise and
technology.
|
·
|
Expand
Our Proprietary Technology and Efficient Systems. We
plan to continue to develop our proprietary technology to improve
our
relationships with our producers and further reduce our underwriting
expense ratio by increasing automation. We believe that we can apply
much
of the technology and systems we have developed in our small business
workers’ compensation segment to improve the efficiency of our specialty
risk and extended warranty business. In addition, we have integrated
a
substantial portion of the specialty middle-market property and casualty
segment we recently acquired into our existing systems and intend
to
integrate the balance over time.
|
·
|
Prudent
and Opportunistic Geographic Expansion. We
are applying for insurance licenses in additional states and on June
1,
2006, we acquired WIC, which has approximately $15 million in capital
and
surplus and licenses in all 50 states and the District of Columbia.
In the
future we intend to selectively expand our specialty risk and extended
warranty presence to other European countries and additional foreign
markets.
|
·
|
Selective
Acquisitions. We
intend to continue to seek to acquire renewal rights to additional
books
of specialty insurance business that fit our underwriting capabilities
from competitors, insurance agents, warranty administrators and other
producers. We also may consider whole company acquisitions and believe
that we may be able to use our stock as acquisition
consideration.
|
·
|
Capitalize
on Our Multinational Presence. We
have a presence in the United States, Ireland, the United Kingdom
and
Bermuda. We also have employees in Sweden. Our multinational presence
enables us to provide specialty risk and extended warranty coverage
on a
multinational basis and to opportunistically allocate capital and
resources where we believe profitable business opportunities exist.
In
addition, our Bermuda-based insurance operations allow us to access
Bermuda’s well developed network of insurance and reinsurance brokers and
agents. Because a considerable portion of our business is written
outside
of the United States, our effective tax rate is lower than if we
were
solely a U.S. insurer.
|
·
|
Manage
Capital Actively. We
intend to expand our business and capital base to take advantage
of
profitable growth opportunities. We may raise additional funds to
finance
future acquisitions, but do not intend to raise or retain more capital
than we believe we can profitably deploy in a reasonable time frame.
Our
ratings from A.M. Best are very important to us, and maintaining
them will
be a principal consideration in any decisions regarding
capital.
|
·
|
Maintain
a Strong Balance Sheet. We
continue to establish reserves carefully and monitor reinsurance
recoverables exposure in order to maintain a strong balance sheet.
We
intend to maintain underwriting profitability in various market cycles
and
maximize an appropriate risk adjusted return on our growing investment
portfolio.
|
Three
Months
|
|||||||||||||
Ended
|
Year
Ended
|
||||||||||||
March
31,
|
December
31,
|
||||||||||||
State
|
2006
|
2005
|
2004
|
2003
|
|||||||||
Florida
|
37.7
|
29.1
|
%
|
6.1
|
%
|
0.0
|
%
|
||||||
New
Jersey
|
10.9
|
12.1
|
15.6
|
18.3
|
|||||||||
New
York
|
10.5
|
12.0
|
13.9
|
16.7
|
|||||||||
Georgia
|
7.5
|
9.7
|
16.0
|
11.5
|
|||||||||
Pennsylvania
|
7.3
|
10.5
|
12.9
|
14.7
|
|||||||||
Illinois
|
6.0
|
6.5
|
9.7
|
12.8
|
|||||||||
Texas
|
2.9
|
5.6
|
5.4
|
0.7
|
|||||||||
Tennessee
|
2.9
|
1.6
|
2.6
|
2.1
|
|||||||||
South
Carolina
|
2.1
|
2.2
|
3.2
|
3.6
|
|||||||||
Virginia
|
1.7
|
2.0
|
3.1
|
4.5
|
|||||||||
All
Other States and the District of Columbia
|
10.5
|
8.7
|
11.5
|
15.1
|
|||||||||
(1)
|
Direct
premiums consist of gross premiums written other than those premiums
assumed or written that are attributable to assigned risk
pools.
|
Country
|
Percentage
of
Annualized
Gross
Premiums
Written
|
|||
United
Kingdom
|
42.0
|
%
|
||
Sweden
|
15.0
|
|||
United
States
|
21.0
|
|||
Czech
Republic
|
6.0
|
|||
Norway
|
7.0
|
|||
Slovakia
|
2.0
|
|||
Other
Countries(1)
|
7.0
|
|||
(1)
|
Primarily
attributable to coverage plans outside the United States and European
Union.
|
State
|
Three
Months Ended
March
31, 2006
|
|||
New
York
|
50.7
|
%
|
||
Pennsylvania
|
14.7
|
%
|
||
New
Jersey
|
12.3
|
%
|
||
Missouri
|
9.2
|
%
|
||
Illinois
|
3.8
|
%
|
||
Kansas
|
3.2
|
%
|
||
All
other States and the District of Columbia
|
6.1
|
%
|
Reinsurer
|
A.M.
Best
Rating
|
Amount
Recoverable
as of
March
31, 2006
|
|||||
($
in thousands)
|
|||||||
Midwest
Employers Casualty Company
|
A
|
$
|
8,379
|
||||
Converium
Limited(1)
|
B++
|
4,600
|
|||||
Munich
Reinsurance Company
|
A+
|
3,001
|
|||||
General
Reinsurance Corporation
|
A++
|
2,751
|
|||||
(1)
|
As
of March 31, 2006, amounts recoverable from Converium Limited were
fully collateralized by a combination of a letter of credit and cash
withheld under our reinsurance contracts with Converium Limited.
|
Subsidiary
Company
|
Retains
|
Cedes
|
Assumes
|
|||||||
TIC*
|
20%
of own risk
|
10%
risk to RIC
|
20%
of RIC risk and
|
|||||||
|
0%
of assigned risk
|
70%
risk to AII*
|
WIC
risk
|
|||||||
RIC*
|
10%
of own risk
|
20%
risk to TIC
|
10%
of TIC risk
|
|||||||
|
0%
of assigned risk
|
70%
risk to AII*
|
N/A
|
|||||||
WIC*
|
10%
of own risk
|
20%
to TIC
|
N/A
|
|||||||
|
0%
of assigned risk
|
70%
to AII
|
N/A
|
|||||||
AII*
|
N/A
|
N/A
|
70%
of RIC risk*
|
|||||||
70%
of TIC risk*
|
||||||||||
70%
of WIC risk*
|
||||||||||
*
|
TIC,
RIC and WIC cede 100% of all assigned risks to AII.
|
·
|
The
first layer of this reinsurance, which will remain in effect until
January
1, 2008, provides $9.0 million of coverage per occurrence in excess
of our
$1.0 million retention. It has an annual aggregate deductible of
$1.25
million and
reinsures losses in excess of $1.0 million up to $10.0 million. Pursuant
to these deductible provisions, we must pay a total amount of $1.25
million in workers’ compensation losses incurred in 2006 in excess of our
$1.0 million retention before we are entitled to any reinsurance
recovery.
|
·
|
The
second layer provides $10.0 million of coverage per occurrence in
excess
of $10.0 million. This layer reinsures losses in excess of $10.0
million
up to $20.0 million.
|
·
|
The
third layer provides $30.0 million of coverage per occurrence for
claims
in excess of $20.0 million. This layer provides coverage for losses
in
excess of $20.0 million up to $50.0 million. It has limits of $10.0
million per individual. This means that if an individual is involved
in a
compensable claim, the maximum coverage provided under this layer
would
not exceed $10.0 million for that individual. It has an aggregate
limit of
$60.0 million for the entire 12-month contract
period.
|
·
|
The
fourth layer provides $30.0 million of coverage per occurrence for
claims
in excess of $50.0 million. It reinsures losses in excess of $50.0
million
up to $80.0 million. It has limits of $10.0 million per individual
and an
aggregate limit of $60.0 million for the entire 12-month contract
period.
|
·
|
The
fifth layer provides $50.0 million of coverage per occurrence for
claims
in excess of $80.0 million. It reinsures losses greater than $80.0
million
up to $130.0 million. It has limits of $10.0 million ($5.0 million
for
losses occurring before May 1, 2005) per individual and an aggregate
limit
of $100.0 million for the entire 12-month contract
period.
|
·
|
The
first layer of this reinsurance provides $4.4 million of coverage
per
occurrence excess of our $0.6 million retention. It has an annual
aggregate deductible of $1.25 million and reinsures losses in excess
of
$0.6 million up to $5.0 million. Pursuant to these deductible provisions,
we must pay a total amount of $1.25 million in workers’ compensation
losses incurred in 2005 in excess of our $0.6 million retention before
we
are entitled to any reinsurance
recovery.
|
·
|
The
second layer provides $5.0 million of coverage per occurrence excess
of
$5.0 million. This layer reinsures losses in excess of $5.0 million
up to
$10.0 million.
|
·
|
The
third layer provides $10.0 million of coverage per occurrence excess
of
$10.0 million. It reinsures losses in excess of $10.0 million up
to $20.0
million. It has an aggregate limit of $20.0 million per 12-month
contract
period. This means that regardless of the number of occurrences in
any
12-month contract period with insured losses in excess of $10.0 million,
the aggregate amount paid under this layer would not exceed $20.0
million.
|
·
|
The
fourth layer provides $30.0 million of coverage per occurrence for
claims
excess of $20.0 million. This layer provides coverage for losses
in excess
of $20.0 million up to $50.0 million. It has limits of $10.0 million
per
individual. This means that if an individual is involved in a compensable
claim, the maximum coverage provided under this layer would not exceed
$10.0 million for that individual. It has an aggregate limit of $60.0
million for the entire 12-month contract
period.
|
·
|
The
fifth layer provides $30.0 million of coverage per occurrence for
claims
excess of $50.0 million. It reinsures losses in excess of $50.0 million
up
to $80.0 million. It has limits of $10.0 million per individual and
an
aggregate limit of $60.0 million for the entire 12-month contract
period.
|
·
|
The
sixth layer provides $50.0 million of coverage per occurrence for
claims
excess of $80.0 million. It reinsures losses greater than $80.0 million
up
to $130.0 million. It has limits of $10.0 million ($5.0 million for
losses
occurring before May 1, 2005) per individual and an aggregate limit
of
$100.0 million for the entire 12-month contract
period.
|
·
|
The
first layer of this reinsurance provides $4.5 million of coverage
per
occurrence excess of our $0.5 million retention. It has an annual
aggregate deductible of $1.0 million and reinsures losses in excess
of
$0.5 million up to $5.0 million.
|
·
|
The
second layer provides $5.0 million of coverage per occurrence excess
of
$5.0 million. This layer reinsures losses in excess of $5.0 million
up to
$10.0 million.
|
·
|
The
third layer provides $10.0 million of coverage per occurrence excess
of
$10.0 million. It reinsures losses in excess of $10.0 million up
to $20.0
million. It has an aggregate limit of $20.0 million per 12-month
contract
period.
|
·
|
The
fourth layer provides $30.0 million of coverage per occurrence for
claims
excess of $20.0 million. This layer provides coverage for losses
in excess
of $20.0 million up to $50.0 million. It has limits of $10.0 million
($5.0
million for losses occurring prior to April 1, 2004) per individual
and an
aggregate limit of $60.0 million for the entire 12-month contract
period.
|
·
|
The
fifth layer provides $30.0 million of coverage per occurrence for
claims
excess of $50.0 million. It reinsures losses in excess of $50.0 million
up
to $80.0 million. It has limits of $10.0 million ($5.0 million for
losses
occurring before May 1, 2004) per individual and an aggregate limit
of
$60.0 million per 12-month contract
period.
|
·
|
The
sixth layer only applies to losses occurring on or after May 1, 2004.
It
provides $50.0 million of coverage per occurrence for claims excess
of
$80.0 million. It reinsures losses greater than $80.0 million up
to $130.0
million. It has limits of $10.0 million per one individual and an
aggregate limit of $100.0 million for the entire 12-month contract
period.
|
·
|
The
first layer of this reinsurance provides $0.5 million coverage per
occurrence excess of our $0.5 million retention. It reinsures losses
in
excess of $0.5 million up to $1.0 million. It has an aggregate limit
of
$4.0 million per 12-month contract
period.
|
·
|
The
second layer provides $4.0 million of coverage per occurrence excess
of
$1.0 million. This layer reinsures losses in excess of $1.0 million
up to
$5.0 million. It has an aggregate limit of $12.0 million per 12-month
contract period.
|
·
|
The
third layer provides $5.0 million of coverage per occurrence excess
of
$5.0 million. It reinsures losses in excess of $5.0 million up to
$10.0
million. It has an aggregate limit of $10.0 million per 12-month
contract
period.
|
·
|
The
fourth layer provides $10.0 million of coverage per occurrence for
claims
excess of $10.0 million. This layer provides coverage for losses
in excess
of $10.0 million up to $20.0 million. It has an aggregate limit of
$10.0
million per 12-month contract
period.
|
·
|
The
fifth layer provides $30.0 million of coverage per occurrence for
claims
excess of $20.0 million. This layer provides coverage for losses
in excess
of $20.0 million up to $50.0 million. This layer has limits of $5.0
million per individual and an aggregate limit of $60 million per
12-month
contract period.
|
·
|
The
sixth layer only applies to losses occurring on or after December
1, 2003.
It provides $30.0 million of coverage per occurrence for claims excess
of
$50.0 million. It reinsures losses greater than $50.0 million up
to $80.0
million. It has limits of $5.0 million per individual and an aggregate
limit of $60.0 million per 12-month contract
period.
|
·
|
The
first layer of this additional reinsurance provides $30.0 million
of
coverage per occurrence for claims in excess of $20.0 million. It
reinsures terrorism losses in excess of $20.0 million up to $50.0
million
and has an aggregate limit of $30.0 million for the entire 12-month
contract period.
|
·
|
The
second layer of this additional reinsurance provides $30.0 million
of
coverage per occurrence for claims in excess of $50.0 million. This
layer
provides coverage for losses in excess of $50.0 million up to $80.0
million and has an aggregate limit of $30.0 million for the entire
12-month contract period.
|
·
|
The
third layer of this additional reinsurance provides $50.0 million
of
coverage per occurrence for claims in excess of $80.0 million. It
reinsures losses in excess of $80.0 million up to $130.0 million
and has
an aggregate limit of $50.0 million for the entire 12-month contract
period.
|
· |
type
of loss;
|
·
|
severity
of the injury or damage;
|
·
|
age
and occupation of the injured employee;
|
·
|
estimated
length of temporary disability;
|
·
|
anticipated
permanent disability;
|
·
|
expected
medical procedures, costs and duration;
|
·
|
our
knowledge of the circumstances surrounding the claim;
|
·
|
insurance
policy provisions, including coverage, related to the
claim;
|
·
|
jurisdiction
of the occurrence; and
|
·
|
other
benefits defined by applicable statute.
|
·
|
Monthly
Incurred Development Method (Use of AmTrust factors).
Monthly
incurred loss development factors are derived from AmTrust’s historical,
cumulative incurred losses by accident month. These factors are then
applied to the latest actual incurred losses and DCC by month to
estimate
ultimate losses and DCC, based on the assumption that each accident
month
will develop to estimated ultimate cost in a similar manner to prior
years. Given the limited historical experience, there is a substantial
amount of judgment involved in this
method.
|
·
|
Yearly
Incurred Development (Use of NCCI Industry Factors By State).
Yearly
incurred loss development factors are derived from either NCCI’s annual
statistical bulletin or state bureaus. These factors are then applied
to
the latest actual incurred losses and DCC by year by state to estimate
ultimate losses and DCC, based on the assumption that each year will
develop to an estimated ultimate cost similar to the industry development
by year by state.
|
Loss
& DCC
Expense
Reserves
|
Mandatory
Pooling
Arrangements
|
Total
|
||||||||
Lower
estimate
|
$
|
113.8
|
$
|
19.3
|
$
|
133.1
|
||||
Net
reserve
|
126.5
|
19.3
|
145.8
|
|||||||
Higher
estimate
|
139.1
|
19.3
|
158.4
|
|
Three
Months Ended
March
31,
|
Year
Ended
December
31,
|
||||||||
|
2006
|
2005
|
2004
|
|||||||
($
in thousands)
|
($
in thousands)
|
|||||||||
Balance
at January 1
|
$
|
168,007
|
$
|
99,364
|
$
|
37,442
|
||||
Less:
reinsurance recoverable
|
17,667
|
14,445
|
4,046
|
|||||||
Net
balance at January 1
|
150,340
|
84,919
|
33,396
|
|||||||
Incurred
related to:
|
||||||||||
current
year
|
44,842
|
142,968
|
86,762
|
|||||||
prior
year
|
(1,068
|
)
|
(962
|
)
|
3,416
|
|||||
Total
incurred
|
43,774
|
142,006
|
90,178
|
|||||||
Paid
related to:
|
||||||||||
current
year
|
(14,184
|
)
|
(53,988
|
)
|
(34,724
|
)
|
||||
prior
year
|
(9,619
|
)
|
(22,597
|
)
|
(3,836
|
)
|
||||
Total
paid
|
(23,803
|
)
|
(76,585
|
)
|
(38,560
|
)
|
||||
Commuted
loss reserves
|
—
|
—
|
(95
|
)
|
||||||
Net
balance
|
170,311
|
150,340
|
84,919
|
|||||||
Plus
reinsurance recoverable
|
19,711
|
17,667
|
14,445
|
|||||||
Balance
|
$
|
190,022
|
$
|
168,007
|
$
|
99,364
|
As
of December 31,
|
||||||||||||||||||||||||||||||||||
1995
|
1996
|
1997
|
1998
|
1999
|
2000
|
2001
|
2002
|
2003
|
2004
|
2005
|
||||||||||||||||||||||||
($
in thousands)
|
||||||||||||||||||||||||||||||||||
Reserve
for loss and loss adjustment expenses, net of reinsurance
recoverables
|
$
|
10,309
|
$
|
10,573
|
$
|
10,679
|
$
|
8,972
|
$
|
10,611
|
$
|
10,396
|
$
|
10,906
|
$
|
13,402
|
$
|
33,396
|
$
|
84,919
|
$
|
150,340
|
||||||||||||
Net
reserve estimated as of:
|
||||||||||||||||||||||||||||||||||
One
year later
|
9,734
|
9,488
|
4,819
|
6,999
|
5,991
|
7,485
|
9,815
|
13,536
|
34,591
|
83,869
|
||||||||||||||||||||||||
Two
years later
|
8,667
|
10,626
|
4,197
|
5,855
|
5,466
|
6,653
|
10,034
|
13,804
|
37,954
|
|||||||||||||||||||||||||
Three
years later
|
9,669
|
8,217
|
5,479
|
4,353
|
4,870
|
5,510
|
10,797
|
10,175
|
||||||||||||||||||||||||||
Four
years later
|
7,262
|
7,179
|
6,129
|
4,609
|
4,245
|
5,510
|
10,797
|
|||||||||||||||||||||||||||
Five
years later
|
6,004
|
6,515
|
6,458
|
3,931
|
4,245
|
5,510
|
||||||||||||||||||||||||||||
Six
years later
|
5,589
|
5,904
|
6,758
|
3,931
|
4,245
|
|||||||||||||||||||||||||||||
Seven
years later
|
4,875
|
5,391
|
6,523
|
3,931
|
||||||||||||||||||||||||||||||
Eight
years later
|
4,459
|
5,391
|
6,523
|
|||||||||||||||||||||||||||||||
Nine
years later
|
4,459
|
5,391
|
||||||||||||||||||||||||||||||||
Ten
years later
|
4,459
|
|||||||||||||||||||||||||||||||||
Net
cumulative redundancy (deficiency)
|
$
|
5,850
|
$
|
5,182
|
$
|
4,156
|
$
|
5,041
|
$
|
6,366
|
$
|
4,886
|
$
|
109
|
$
|
3,227
|
$
|
(4,558
|
)
|
1,050
|
Year
Ended December 31,
|
||||||||||||||||||||||||||||||||||
1995
|
1996
|
1997
|
1998
|
1999
|
2000
|
2001
|
2002
|
2003
|
2004
|
2005
|
||||||||||||||||||||||||
($
in thousands)
|
||||||||||||||||||||||||||||||||||
Cumulative
amount of reserve paid, net of reinsurance recoverables
through
|
||||||||||||||||||||||||||||||||||
One
year later
|
$
|
53
|
$
|
51
|
$
|
44
|
$
|
203
|
$
|
222
|
$
|
542
|
$
|
971
|
$
|
1,904
|
$
|
5,079
|
$
|
51,738
|
||||||||||||||
Two
years later
|
63
|
59
|
57
|
76
|
106
|
1,050
|
1,187
|
2,328
|
10,198
|
|||||||||||||||||||||||||
Three
years later
|
74
|
76
|
38
|
127
|
212
|
1,117
|
1,439
|
2,877
|
||||||||||||||||||||||||||
Four
years later
|
95
|
51
|
76
|
254
|
349
|
677
|
1,439
|
|||||||||||||||||||||||||||
Five
years later
|
63
|
76
|
127
|
419
|
169
|
677
|
||||||||||||||||||||||||||||
Six
years later
|
159
|
169
|
209
|
190
|
169
|
|||||||||||||||||||||||||||||
Seven
years later
|
212
|
220
|
83
|
190
|
||||||||||||||||||||||||||||||
Eight
years later
|
159
|
144
|
83
|
|||||||||||||||||||||||||||||||
Nine
years later
|
180
|
144
|
||||||||||||||||||||||||||||||||
Ten
years later
|
180
|
|||||||||||||||||||||||||||||||||
Net
reserve—December 31,
|
$
|
10,309
|
$
|
10,573
|
$
|
10,679
|
$
|
8,972
|
$
|
10,611
|
$
|
10,396
|
$
|
10,906
|
$
|
13,402
|
$
|
33,396
|
$
|
84,919
|
$
|
150,340
|
||||||||||||
Reinsurance
recoverables
|
2,851
|
2,474
|
2,174
|
391
|
531
|
821
|
1,742
|
4,078
|
3,529
|
13,527
|
17,667
|
|||||||||||||||||||||||
Gross
reserves—December 31,
|
$
|
13,160
|
$
|
13,047
|
$
|
12,853
|
$
|
9,363
|
$
|
11,142
|
$
|
11,217
|
$
|
12,648
|
$
|
17,480
|
$
|
36,925
|
$
|
98,446
|
$
|
168,007
|
||||||||||||
Net
re-estimated reserve
|
4,459
|
5,391
|
6,523
|
3,931
|
4,245
|
5,510
|
10,797
|
10,175
|
37,954
|
83,869
|
||||||||||||||||||||||||
Re-estimated
reinsurance recoverable
|
47
|
—
|
—
|
—
|
—
|
—
|
—
|
2,473
|
3,592
|
14,445
|
||||||||||||||||||||||||
Gross
re-estimated reserve
|
$
|
4,506
|
$
|
5,391
|
$
|
6,523
|
$
|
3,931
|
$
|
4,245
|
$
|
5,510
|
$
|
10,797
|
$
|
12,648
|
$
|
41,546
|
$
|
98,314
|
||||||||||||||
Gross
cumulative redundancy (deficiency)
|
$
|
8,654
|
$
|
7,656
|
$
|
6,330
|
$
|
5,432
|
$
|
6,897
|
$
|
5,707
|
$
|
1,851
|
$
|
4,832
|
$
|
(4,621
|
)
|
$
|
132
|
|
Carrying
Value
|
Percentage
of
Portfolio
|
|||||
($
in thousands)
|
|||||||
Fixed
income securities:
|
|||||||
Mortgage
backed securities
|
$
|
10,134
|
1.7
|
%
|
|||
U.S.
Treasury securities
|
19,606
|
3.3
|
|||||
Obligations
of U.S. government agencies
|
205,130
|
34.4
|
|||||
Corporate
bonds
|
51,229
|
8.6
|
|||||
Time
and short-term deposits
|
107,984
|
18.1
|
|||||
394,083
|
66.1
|
||||||
Equity
securities:
|
|||||||
Common
stock
|
37,556
|
6.3
|
|||||
Nonredeemable
preferred stock
|
62
|
—
|
|||||
Total
equity securities
|
37,618
|
6.3
|
|||||
Total
investments, excluding cash and cash equivalents
|
431,701
|
72.4
|
|||||
Cash
and cash equivalents
|
164,248
|
27.6
|
|||||
$
|
595,949
|
100
|
%
|
||||
S
& P Rating
|
Percentage
of Fixed
Maturity
Portfolio
|
|||
U.S.
Treasury
|
6.8
|
%
|
||
AAA
|
77.2
|
|||
AA
|
1.0
|
|||
A
|
2.5
|
|||
BBB
|
0.3
|
|||
B
|
1.6
|
|||
B-
|
1.7
|
|||
CCC+
|
2.9
|
|||
Other(1)
|
6.0
|
|||
Total
|
100
|
%
|
||
(1)
|
Includes
securities rated B+, BB, BB+, BBB-, CC, CCC, CCC-.
|
Remaining
Time to Maturity
|
Amount
|
Percentage
of Fixed
Maturity
Portfolio
|
|||||
(in
thousands)
|
|||||||
Less
than one year
|
$
|
47,867
|
16.7
|
%
|
|||
One
to five years
|
210,814
|
73.7
|
|||||
Five
to ten years
|
17,284
|
6.1
|
|||||
Mortgage
backed securities
|
10,134
|
3.5
|
|||||
Total
|
$
|
286,099
|
100
|
%
|
Fixed
Income Investment Type
|
Average
Yield
|
Average
Durational
Years
|
|||||
U.S.
Treasury securities
|
3.3
|
%
|
0.1
|
||||
U.S.
government agencies
|
4.7
|
2.3
|
|||||
Corporate
bonds
|
4.0
|
4.0
|
|||||
Mortgage
backed
|
5.4
|
5.1
|
|||||
Time
and short term deposits
|
4.6
|
1.0
|
·
|
how
long and by how much the fair value of the security has been below
its
cost;
|
·
|
the
financial condition and near-term prospects of the issuer of the
security,
including any specific events that may affect its operations or
earnings;
|
·
|
our
intent and ability to keep the security for a sufficient time period
for
it to recover its value;
|
·
|
any
downgrades of the security by a rating agency; and
|
·
|
any
reduction or elimination of dividends, or nonpayment of scheduled
interest
payments.
|
Remaining
Time to Maturity
|
|||||||||||||||||||
Less
than 12 Months
|
12
Months or Longer
|
Total
|
|||||||||||||||||
Type
of Fixed Maturity Investment
|
Fair
Value
|
Unrealized
Loss
|
Fair
Value
|
Unrealized
Loss
|
Fair
Value
|
Unrealized
Loss
|
|||||||||||||
($
in thousands)
|
|||||||||||||||||||
U.S.
Treasury securities
|
$
|
3,406
|
$
|
12
|
$
|
13,575
|
$
|
139
|
$
|
16,981
|
$
|
151
|
|||||||
U.S.
government agencies
|
60,869
|
251
|
76,984
|
1,791
|
137,853
|
2,042
|
|||||||||||||
Corporates
|
84,735
|
1,984
|
5,947
|
148
|
90,682
|
2,132
|
|||||||||||||
Mortgage
backed
|
3,513
|
80
|
5,391
|
367
|
8,904
|
447
|
|||||||||||||
Common
Stock
|
33,187
|
6,739
|
4,369
|
660
|
37,556
|
7,399 | |||||||||||||
Total
|
$
|
185,710
|
$
|
9,066
|
$
|
106,266
|
$
|
3,105
|
$
|
291,976
|
$
|
12,171
|
·
|
Reinsurance;
|
·
|
Life
insurance;
|
·
|
Certain,
maritime, aviation and transit insurance; and
|
·
|
Health
insurance.
|
·
|
In
the case of insurance of buildings together with their contents,
where the
building is in Ireland;
|
·
|
In
the case of insurance of vehicles, where the vehicle is registered
in
Ireland; and
|
·
|
In
the case of insurance of four months or less duration of travel or
holiday
if the policyholder took out the policy in
Ireland.
|
·
|
financial
and accounting services, including, but not limited to, tax compliance,
investment management, statutory and GAAP accounting, loss reserving,
regulatory compliance, development of premium and commission rates,
and
premium collection and refunds;
|
·
|
maintenance
of fiduciary accounts;
|
·
|
retention
and maintenance of all files, books, records and
accounts;
|
·
|
submission
of form and rate filings, preparation and submission of applications
for
certificates of authority; and
|
·
|
maintenance
of agency relationships and corresponding with
policyholders.
|
Ratio
|
Usual
Range
|
Actual
Results
|
Reason
for Unusual Results
|
|||
Change
in net writings
|
33-33
|
48
|
Successful
integration of renewal rights acquisitions
|
|||
Gross
agents balances to policyholders surplus
|
40
|
42
|
Participation
in Intercompany Reinsurance
Agreement
|
Ratio
|
Usual
Range
|
Actual
Results
|
Reason
for Unusual Results
|
|||
Change
in net writings
|
33-33
|
53
|
Successful
integration of renewal rights acquisition
|
|||
Investment
yield
|
6.5
- 3
|
2.8
|
Investment
in RIC constitutes 16% of cash and invested assets
|
|||
Gross
change in policyholders’ surplus
|
50-10
|
60
|
Receipt
of capital contribution of $9.2 million, net income of $6.5 million
and
increases in unrealized gains of $2.1 million and deferred tax amount
of
$1.5 million
|
|||
Net
change in policyholder’s surplus
|
25-10
|
31
|
Receipt
of capital contribution of $9.2 million, net income of $6.5 million
and
increases in unrealized gains of $2.1 million and deferred tax amount
of
$1.5 million
|
·
|
AIU’s
adherence to its revised business plan submitted to the Irish Financial
Regulator;
|
·
|
AIU
may not make any dividend payments or intercompany loans without
the Irish
Financial Regulator’s prior
approval;
|
·
|
AIU
must adhere to the regulatory policy regarding inward
reinsurance;
|
·
|
AIU
must maintain a minimum solvency margin equal to 150% of the solvency
margin laid down by the Insurance Acts and Regulations (and a solvency
ratio of 40%); and
|
·
|
AIU
must file quarterly management accounts with the Irish Financial
Regulator.
|
·
|
All
insurance companies supervised by the Irish Financial Regulator are
obliged to appoint a compliance officer, who must carry out the duties
and
functions set forth in the
guidelines;
|
·
|
All
directors of insurance companies supervised by the Irish Financial
Regulator are required to certify to the Irish Financial Regulator
on an
annual basis that the company has complied with all relevant legal
and
regulatory requirements throughout the
year;
|
·
|
All
insurance companies must adopt an appropriate asset management policy
having regard to its liabilities
profile;
|
·
|
All
companies supervised by the Irish Financial Regulator must formulate
a
clear and prudent policy on the use of derivatives for all purposes
and,
furthermore, have controls in place to ensure that the policy is
implemented;
|
·
|
Non-life
companies supervised by the Irish Financial Regulator, such as AIU,
are
required to provide an annual actuarial opinion to the adequacy of
their
reserves; and
|
·
|
All
insurance companies must have a reinsurance strategy approved by
its board
of directors that is appropriate to their risk profile and disclosed
to
the Irish Financial Regulator.
|
·
|
The
Irish Financial Regulator has power to require an insurer to submit
returns and documents to him in such form as may be prescribed by
regulation and to require that they be attested by directors and
officers
of the insurer. The Irish Financial Regulator may also require that
they
be attested by independent professionals and that they be published.
Additionally, the Irish Financial Regulator has a right to disclose
any
such returns or documents to the supervisory authorities of other
EU
member states;
|
·
|
The
Irish Financial Regulator has power to direct that an investigation
of an
insurer’s affairs be carried out in order to be satisfied that the insurer
is complying or has the ability to continue to comply with its obligations
under the Insurance Acts and Regulations. If necessary, the Irish
Financial Regulator may seek a High Court order prohibiting the free
disposal of an insurer’s assets;
and
|
·
|
The
Irish Financial Regulator may confer certain powers on an “authorized
officer” for the purpose of the Insurance Acts and Regulations. Such
powers relate to, among others, insurers and other prescribed persons
and
may permit an authorized officer to search a premises and remove
documents. An authorized officer may also be empowered to compel
persons
to provide information and to prepare a report on specified aspects
of the
business or activities of the insurer and other prescribed
persons.
|
·
|
Irish
company law applies capital maintenance rules. In particular, AIU
is
restricted to declaring dividends only out of “profits available for
distribution.” Profits available for distribution are a company’s
accumulated realized profits less its accumulated realized losses.
Such
profits may not include profits utilized either by distribution or
capitalization and such losses do not include amounts previously
written
off in a reduction or reorganization of
capital;
|
·
|
Irish
law restricts a company from entering into certain types of transactions
with its directors and officers by either completely prohibiting
such
transactions or permitting them only subject to
conditions;
|
·
|
All
Irish companies are obliged to file prescribed returns in the Companies
Registration Office annually and on the happening of certain events
such
as the creation of new shares, a change in directors or the passing
of
certain stockholder resolutions;
|
·
|
A
statutory body (known as the Office of the Director of Corporate
Enforcement) has power to carry out investigations into the affairs
of
Irish companies in circumstances prescribed in the Companies Acts;
and
|
·
|
Civil
and criminal sanctions exist for breaches of the Companies
Act.
|
Name
|
Age
|
Position(s)
|
||
Barry
D. Zyskind
|
34
|
Chief
Executive Officer, President and Director
|
||
Michael
Karfunkel
|
63
|
Chairman
of the Board of Directors
|
||
George
Karfunkel
|
58
|
Director
|
||
Donald
T. DeCarlo
|
67
|
Director
|
||
Abraham
Gulkowitz
|
57
|
Director
|
||
Isaac
M. Neuberger
|
58
|
Director
|
||
Jay
J. Miller
|
73
|
Director
|
||
Max
G. Caviet
|
52
|
President
of AII and AIU
|
||
Michael
J. Saxon
|
48
|
Chief
Operating Officer
|
||
Ronald
E. Pipoly, Jr.
|
39
|
Chief
Financial Officer
|
||
Christopher
M. Longo
|
33
|
Chief
Information Officer
|
||
Eli
Tisser
|
54
|
Treasurer
|
||
Stephen
B. Ungar
|
43
|
General
Counsel and Secretary
|
·
|
the
integrity of our financial statements;
|
·
|
the
independent auditor’s qualifications and independence; and
|
·
|
the
performance of our independent auditors.
|
·
|
exercising
the authority of the board of directors with respect to matters requiring
action between meetings of the board of directors;
and
|
·
|
deciding
issues from time to time delegated by the board of
directors.
|
·
|
identifies
and nominates members of the board of directors;
|
·
|
develops
and recommends to the board of directors a set of corporate governance
principles applicable to us; and
|
·
|
oversees
the evaluation of the board of directors and
management.
|
Name
and Principal Position
|
Year
|
Salary(1)
|
Bonus
|
Other
Annual
Compensation(1)
|
Total
Compensation
|
|||||||||||
Barry
Zyskind,
|
2005
|
$
|
600,000
|
550,000
|
—
|
$
|
1,150,000
|
|||||||||
Chief
Executive Officer
|
2004
|
$
|
600,000
|
—
|
—
|
$
|
600,000
|
|||||||||
2003
|
$
|
500,000
|
—
|
—
|
$
|
500,000
|
||||||||||
Michael
J. Saxon,
|
2005
|
$
|
250,000
|
205,000
|
—
|
$
|
455,000
|
|||||||||
Chief
Operating Officer
|
2004
|
$
|
233,333
|
$
|
119,765
|
—
|
$
|
353,098
|
||||||||
2003
|
$
|
200,000
|
$
|
50,000
|
—
|
$
|
250,000
|
|||||||||
Ronald
Pipoly,
|
2005
|
$
|
175,000
|
$
|
205,000
|
—
|
$
|
380,000
|
||||||||
Chief
Financial Officer
|
2004
|
$
|
164,583
|
$
|
119,765
|
—
|
$
|
284,348
|
||||||||
2003
|
$
|
126,000
|
$
|
40,000
|
—
|
$
|
166,000
|
Name
and Principal Position
|
Year
|
Salary(1)
|
Bonus
|
Other
Annual
Compensation(1)
|
Total
Compensation
|
|||||||||||
Christopher
Longo,
|
2005
|
$
|
109,000
|
$
|
205,000
|
—
|
$
|
314,000
|
||||||||
Chief
Information Officer
|
2004
|
$
|
87,499
|
$
|
119,765
|
—
|
$
|
207,264
|
||||||||
2003
|
$
|
68,333
|
$
|
35,000
|
—
|
$
|
103,333
|
|||||||||
Max
Caviet
|
2005
|
$
|
331,762(2
|
)
|
$
|
400,000(2)(3
|
)
|
—
|
$
|
731,762
|
||||||
President
of AIU
|
2004
|
$
|
336,672(2
|
)
|
$
|
233,500(2
|
)
|
—
|
$
|
569,839
|
||||||
2003
|
$
|
297,260(2
|
)
|
$
|
55,180(2
|
)
|
—
|
$
|
352,440
|
|||||||
(1)
|
Perquisites
and other personal benefits paid to each named executive officer
in each
instance did not, in the aggregate, equal or exceed the lesser of
either
$50,000 or 10% of the total annual salary and bonus set forth in
the
columns entitled “Salary” and “Bonus” for each officer and, accordingly,
are omitted from the table as permitted by the rules of the Securities
and
Exchange Commission.
|
(2)
|
Salary
paid in British pounds, but converted to U.S. dollars using the spot
market currency exchange rate in effect in New York City on December
31,
2003 which was $1.78 to £1.00 on December 31, 2004, $1.92 to £1.00, and on
December 31, 2005, $1.72 to £1.00.
|
(3)
|
Estimate
of amount to be paid.
|
·
|
New
Gulf Holdings, Inc. (“NGH”), the holder of all the outstanding shares of
our preferred stock (prior to the exchange of common stock for preferred
stock) agreed to be paid a reduced dividend for the year 2005 equal
to
$1.2 million, which represents a reduction of $3.6 million. All the
stock
of NGH is owned indirectly by George Karfunkel and Michael Karfunkel.
In
February 2006, the Company exchanged 10,285,714 shares of common
stock,
par value $0.01 per share, for all of the outstanding shares of preferred
stock.
|
·
|
Our
transfer agent, American Stock Transfer & Trust Company (“AST”), is
controlled by George Karfunkel and Michael Karfunkel. Pursuant to
an
agreement between AmTrust and AST, AST receives a fee equal to $1,000
per
month.
|
·
|
In
2005 Barry Karfunkel, Vice President of Marketing and Sales for AMT
Service Corp., a subsidiary of the Company, earned $125,000 in
salary. Barry Karfunkel is the son of Michael Karfunkel and the
brother-in-law of Barry D. Zyskind.
|
·
|
In
June 2002, we entered into a lease for approximately 9,000 square
feet of
office space at 59 Maiden Lane in downtown Manhattan from 59 Maiden
Lane
Associates, LLC, which is owned by George Karfunkel and Michael Karfunkel.
We pay annual rent of approximately $308,000 for this space. The
lease
expires in August 2008.
|
·
|
In
December 2002, we acquired 100% of the common stock of AmTrust Pacific
Limited, a New Zealand real estate operating company, from NGH in
exchange
for 1,000 shares of our preferred stock. In 2005, all the real estate
holdings for AmTrust Pacific Limited were sold and the net proceeds
(consideration received less repayment of the outstanding mortgage
notes
and transaction costs) were placed in our investment portfolio.
|
·
|
Diversified
Construction Management, LLC (“Diversified”) currently provides
construction management and general contractor services for the renovation
project at Rock Run South, ANA’s new corporate headquarters in the
Cleveland, Ohio area. The work includes demolition of the existing
approximately 35,000 sq. ft. interior space, reworking of electrical
power
and back-up generator, completion of a new data center, including
raised
platform floor and battery back up system with cooling, installation
of
new restrooms on lower floor, new lighting, ceiling, floors, and
wall
finishes and reworking of existing offices. The estimate for this
project
was approximately $750,000. The project started in October 2005 and
is
expected to be completed shortly. As of May 15, 2006, payments totaling
$615,425 have been made to Diversified. Robert A. Saxon, Jr., principal
of
Diversified, is the brother of Michael J. Saxon, our chief operating
officer.
|
·
|
In
June 2002, Michael Karfunkel, George Karfunkel and their wives provided
personal guaranties to JPMorgan Chase in connection with its extension
of
credit to AII in the form of the issuance of letters of credit on
behalf
of AII to RIC and TIC. The highest aggregate amount of indebtedness
covered by these guaranties at any time was $8.5 million. These letters
of
credit were terminated, and the guaranties released, in December
2005.
Neither the Karfunkels nor their spouses received any payment or
other
consideration in connection with the provision of these
guaranties.
|
·
|
In
December 2004, NGH made an interest free loan to AmTrust in the amount
of
$13.0 million. The Company repaid the loan, without interest, in
July
2005.
|
·
|
AST
is in the business of providing transfer agent and registrar services
to
public and private corporations. In the event that a stockholder
of an AST
client requests that AST issue a replacement stock certificate for
a lost
or missing certificate, AST generally requires that the stockholder
represent that he or she is the owner of the shares and to provide
a lost
instrument bond, which protects AST from loss in the event that the
person
requesting the replacement certificate is not in fact the owner.
Between
2001 and 2004 RIC issued lost instrument bonds to AST on behalf of
stockholders seeking replacement certificates. RIC charged the stockholder
a premium in the amount of 2% of the value of the shares. As is typical,
RIC paid AST an administrative fee of 1% for administering the lost
instrument bonds. RIC paid AST pursuant to this arrangement an aggregate
of $0.7 million in 2001, $0.8 million in 2002, $0.9 million in 2003
and
$1.1 million in 2004. In 2004, Travelers Casualty & Surety replaced
RIC as the surety. We receive a 10% commission on the premiums retained
by
Travelers, which commissions aggregated approximately $97,000 in
2004 and
$72,000 in 2005.
|
·
|
From
time to time, the Company made short term advances and paid certain
operating expenses on behalf of AFG, AWIG, Inc. and its subsidiaries,
which, at the time of such advances or payments, were controlled
by
Michael Karfunkel and George Karfunkel. The maximum amount outstanding
at
any time under these arrangements totaled $5.7 million. The advances
and
payments were fully repaid on or before December 31, 2005 with interest
at
rates averaging 9.0% per annum.
|
·
|
In
February 2006, we sold an aggregate of 25,568,000 shares of our common
stock for an aggregate offering price of $178,976,000. The Hod Foundation,
a charitable foundation controlled by Michael Karfunkel, our Chairman
of
the Board, purchased 669,643 shares of our common stock for a purchase
price of $4,687,501 and the Chesed Foundation of America, a charitable
foundation controlled by George Karfunkel, one of our directors,
purchased
401,786 shares of our common stock for a purchase price of $2,812,502.
|
·
|
each
security holder known by us to be the beneficial owner of more than
5% of
the Company’s outstanding
securities;
|
·
|
each
of our directors;
|
·
|
each
of our executive officers; and
|
·
|
all
directors and executive officers as a
group.
|
Name
and Address
of
Beneficial Owner
|
Amount
and
Nature
of
Beneficial
Ownership(1)
|
Percent
of Outstanding Shares
|
|||||
Barry
Zyskind
|
24,089,286
(1
|
)
|
40.2
|
%
|
|||
George
Karfunkel
|
34,375,000
(1)(3)(5
|
)
|
57.0
|
%
|
|||
Michael
Karfunkel
|
34,375,000
(1)(2)(3)(4
|
)
|
57.0
|
%
|
|||
Donald
T. DeCarlo
|
10,000
(6
|
)
|
*
|
||||
Abraham
Gulkowitz
|
(6
|
)
|
—
|
||||
Isaac
M. Neuberger
|
(6
|
)
|
—
|
||||
Jay
J. Miller
|
(6
|
)
|
—
|
||||
Max
G. Caviet
|
(6
|
)
|
—
|
||||
Michael
J. Saxon
|
(6
|
)
|
—
|
||||
Ronald
E. Pipoly, Jr.
|
(6
|
)
|
—
|
||||
Christopher
M. Longo
|
(6
|
)
|
—
|
||||
Eli
Tisser
|
(6
|
)
|
—
|
||||
Stephen
B. Ungar
|
(6
|
)
|
—
|
||||
G/MK
Acquisition Corp
|
24,089,286
|
40.2
|
%
|
||||
New
Gulf Holdings, Inc
|
10,285,714
|
17.2
|
%
|
||||
All
executive officers and directors as a group (13) persons)
|
34,385,000
|
57
|
%
|
||||
* |
less
than one percent.
|
(1) |
Messrs.
M. Karfunkel, G. Karfunkel and Zyskind directly or indirectly own
approximately 37.5%, 37.5% and 25.0% of AFG (the ultimate parent
of
AmTrust), respectively, and each is a director of AFG. AFG owns 100%
of
the issued and outstanding stock of G/MK. Each of Messrs. M. Karfunkel,
G.
Karfunkel and Zyskind is a director of G/MK, and G/MK owns 24,089,286
shares of our common stock. Each of Messrs. M. Karfunkel, G. Karfunkel
and
Zyskind share voting and investment power with respect to the shares
owned
by G/MK.
|
(2) |
The
Hod Foundation, a charitable foundation controlled by Mr. M. Karfunkel,
owns 669,643 shares of common stock. Mr. M. Karfunkel does not have
a
beneficial interest in the shares owned by Hod Foundation and, therefore,
Mr. M. Karfunkel disclaims beneficial ownership of these shares of
common
stock.
|
(3) |
Messrs.
M. Karfunkel and G. Karfunkel each own 50.0% of Gulf USA Corporation
(“Gulf”), which owns 100% of NGH. NGH owns 10,285,714 shares of common
stock (after giving effect to the exchange of an aggregate of 10,285,714
shares of common stock for all the issued and outstanding shares
of our
preferred stock). Messrs. Karfunkel and Karfunkel share voting and
investment power with respect to the shares owned by
NGH.
|
(4) |
Substantially
all of the shares beneficially owned by Michael Karfunkel through
G/MK
Acquisition Corp. are owned by the Michael Karfunkel 2005 Grantor
Retained
Annuity Trust, of which Michael Karfunkel and his wife are sole
trustees.
|
(5) |
The
Chesed Foundation of America, a charitable foundation controlled
by Mr. G.
Karfunkel, owns 401,786 shares of common stock. Mr. G. Karfunkel
does not
have a beneficial interest in the shares owned by Chesed Foundation
of
America and, therefore, Mr. G. Karfunkel disclaims beneficial ownership
of
these shares of common stock.
|
(6) |
Granted
options that are not exercisable within 60 days from the date
hereof.
|
Selling
Stockholders
|
Shares
of Common Stock Beneficially Owned Prior to Offering
|
Shares
of Common Stock to be Sold
|
Beneficial
Ownership After Offering if All Shares are Sold
|
Percent
of Class Owned After Offering if All Shares are Sold
|
|||||
Leslie
Lee Alexander
|
343,000
|
343,000
|
—
|
—
|
|||||
Gerald
J. Allen (1)
|
5,500
|
5,500
|
—
|
—
|
|||||
Gerald
Allen Charles Schwab & Co Inc.
Cust
IRA Rollover (1)
|
620
|
620
|
—
|
—
|
|||||
Allied
Funding, Inc. (2)
|
28,600
|
28,600
|
—
|
—
|
|||||
Roland
J. Anderson & Fanny M. Anderson
(1)
|
1,490
|
1,490
|
—
|
—
|
|||||
T. Anderson & J. Anderson TTEE Anderson Family Rev. TR U/A DTD 9/23/02 (1) | 2500 | 2500 |
—
|
—
|
|||||
Apple
Ridge Partners LP (3)
|
35,000
|
35,000
|
—
|
—
|
|||||
Maureen
K. Aukerman Charles Schwab & Co. Inc. Cust IRA Rollover
(1)
|
1,220
|
1,220
|
—
|
—
|
|||||
David
Baker
|
35,000
|
35,000
|
—
|
—
|
|||||
Bamberger
Ceccarelli Dicicco Sanders URSE
TTEE Orthopedic Associates of
Southwestern Ohio~Profit Sharing
Plan (1)
|
4,570
|
4,570
|
—
|
—
|
|||||
John
A Barron(1)
|
570
|
570
|
—
|
—
|
|||||
Baxer-Hazel
Funeral Home (1)
|
610
|
610
|
—
|
—
|
|||||
Michael
Baum
|
2,000
|
2,000
|
—
|
—
|
|||||
Bay
Pond Partners L.P. (Bermuda) (4)
|
180,000
|
180,000
|
—
|
—
|
|||||
Bay
Pond Partners, L.P. (4)
|
550,000
|
550,000
|
—
|
—
|
|||||
Bear
Stearns Securities Corp Cust., Steven
Emerson Roth IRA
|
47,200
|
47,200
|
—
|
—
|
|||||
Bear
Stearns Securities Corp. Cust., Steven
Emerson Roth R/O IRA II
|
300,000
|
300,000
|
—
|
—
|
|||||
Elaine
S Berman SEP-IRA (1)
|
830
|
830
|
—
|
—
|
|||||
Elaine
S. Berman Trust~DTD 6/30/95~Elaine
S. Berman TTEE U/A DTD 6/30/95 (1)
|
860
|
860
|
—
|
—
|
|||||
Elaine
S. Berman Benificiary Inherited IRA (1)
|
870
|
870
|
—
|
—
|
|||||
Bermuda
Partners. L.P. (5)
|
84,500
|
84,500
|
—
|
—
|
|||||
Diana
M Best Charles Schwab & Co Inc. Cust
IRA Rollover (1)
|
3,260
|
3,260
|
—
|
—
|
|||||
Vivan
D. Bischel TTEE Vivan D. Bishel Rev Liv Trust U/A DTD 11/18/1993
(1)
|
1,790
|
1,790
|
—
|
—
|
|||||
Monte
R. Black: Eubel Brady (1)
|
6,370
|
6,370
|
—
|
—
|
|||||
Blueprint
Partners LP (6)
|
20,000
|
20,000
|
—
|
—
|
|||||
Howard
C. Bluver
|
3,500
|
3,500
|
—
|
—
|
|||||
Boston
Partners All Cap Value Fund (7)
|
4,740
|
4,740
|
—
|
—
|
|||||
Bow
River Capital Fund, LP (8)
|
71,428
|
71,428
|
—
|
—
|
|||||
Bow
River Capital Fund II, LP (8)
|
71,429
|
71,429
|
—
|
—
|
|||||
Michael
Glenn Bradshaw Charles Schwab & Co. Inc. Cust. IRA Rollover
(1)
|
2,900
|
2,900
|
—
|
—
|
|||||
Bridgette
Helms IRA
|
1,250
|
1,250
|
—
|
-
|
Selling
Stockholders
|
Shares
of Common Stock Beneficially Owned Prior to Offering
|
Shares
of Common Stock to be Sold
|
Beneficial
Ownership After Offering if All Shares are Sold
|
Percent
of Class Owned After Offering if All Shares are Sold
|
|||||
Brunswick
Master Pension Trust (7)
|
41,800
|
41,800
|
—
|
—
|
|||||
Burlingame
Equity Investors (Offshore), Ltd
(9)
|
65,262
|
65,262
|
—
|
—
|
|||||
Burlingame
Equity Investors, LP (9)
|
157,637
|
157,637
|
—
|
—
|
|||||
Burlingame
Equity Investors II, LP (9)
|
20,001
|
20,001
|
—
|
—
|
|||||
Canyon
Value Realization Fund (Cayman)
Ltd. (10)
|
17,500
|
17,500
|
—
|
—
|
|||||
Canyon
Value Realization Fund, L.P. (11)
|
7,500
|
7,500
|
—
|
—
|
|||||
Pamela
S Carroll (1)
|
490
|
490
|
—
|
—
|
|||||
Caspan
Capital Partners, L.P. (12)
|
23,000
|
23,000
|
—
|
—
|
|||||
Douglas
S. Carson
|
500
|
500
|
—
|
—
|
|||||
CastleRock
Fund Ltd (5)
|
406,400
|
406,400
|
—
|
—
|
|||||
CastleRock
Partners, L.P. (13)
|
618,800
|
618,800
|
—
|
—
|
|||||
CastleRock
Partners II LP (13)
|
51,800
|
51,800
|
—
|
—
|
|||||
Catalyst
Master Fund Ltd (14) #
|
34,711
|
34,711
|
—
|
—
|
|||||
Chamberlain
Investments Ltd. (14)
|
38,152
|
38,152
|
—
|
—
|
|||||
Chesed Foundation of America (15) |
401,786
|
401,786
|
—
|
—
|
|||||
Cindu
International Pension Fund (7)
|
5,800
|
5,800
|
—
|
—
|
|||||
Coleman
Family Revocable Trust (16)
|
6,250
|
6,250
|
—
|
—
|
|||||
Corsair
Capital Investors Ltd (17)
|
80,000
|
80,000
|
—
|
—
|
|||||
Corsair
Capital Partners LP (17)
|
566,857
|
566,857
|
—
|
—
|
|||||
Corsair
Capital Partners 100, L.P. (17)
|
26,286
|
26,286
|
—
|
—
|
|||||
Corsair
Long Short International Ltd (17)
|
12,572
|
12,572
|
—
|
—
|
|||||
Corsair
Select, L.P. (17) #
|
140,000
|
140,000
|
—
|
—
|
|||||
Paul
R. Crnkovi Charles Schwab & Co Inc.
Cust IRA Rollover (1)
|
1,020
|
1,020
|
—
|
—
|
|||||
Cumber
International S.A. (18)
|
280,153
|
280,153
|
—
|
—
|
|||||
Cumberland
Benchmarked Partners L.P. (18)
|
626,459
|
626,459
|
—
|
—
|
|||||
Cumberland
Long Partners LP (18)
|
2,414
|
2,414
|
—
|
—
|
|||||
Cumberland
Partners (18)
|
924,363
|
924,363
|
—
|
—
|
|||||
DB
Alternative Trading (19) #
|
1,200,000
|
1,200,000
|
—
|
—
|
|||||
DCM
Limited (14)
|
4,858
|
4,858
|
—
|
—
|
|||||
Donald T. DeCarlo |
10,000
|
10,000
|
—
|
—
|
|||||
Deephaven
Event Trading Ltd (Cayman Islands)
(20)
|
1,005,000
|
1,005,000
|
—
|
—
|
|||||
Deephaven
Growth Opportunities Trading Ltd. (20)
|
397,500
|
397,500
|
—
|
—
|
|||||
Paul
Thomas Dell'Isola
|
40,000
|
40,000
|
—
|
—
|
|||||
Demetrios
Diavatis #
|
7,500
|
7,500
|
—
|
—
|
|||||
Drake
Associates LP (21)
|
50,000
|
50,000
|
—
|
—
|
|||||
EBS
Partners, LP Primary Account A Partnership
(1)
|
63,710
|
63,710
|
—
|
—
|
|||||
EJF
Crossover Master Fund LP (22)
|
200,000
|
200,000
|
—
|
—
|
|||||
Electrical
Workers Pension Fund Part A (7)
|
3,295
|
3,295
|
—
|
—
|
|||||
Electrical
Workers Pension Fund Part B (7)
|
2,810
|
2,810
|
—
|
—
|
|||||
Electrical
Workers Pension Fund Part C (7)
|
1,250
|
1,250
|
—
|
—
|
|||||
Emerson
Electric Company (23)
|
65,000
|
65,000
|
—
|
—
|
|||||
Endurance
Fund (23)
|
44,700
|
44,700
|
—
|
—
|
|||||
Thomas
L. Falvey & Mary Leslie Falvey (1)
|
2,220
|
2,220
|
—
|
—
|
|||||
Far
West Capital Partners LP (23)
|
638,345
|
638,345
|
—
|
—
|
Selling
Stockholders
|
Shares
of Common Stock Beneficially Owned Prior to Offering
|
Shares
of Common Stock to be Sold
|
Beneficial
Ownership After Offering if All Shares are Sold
|
Percent
of Class Owned After Offering if All Shares are Sold
|
|||||
Thomas
A. Faries #
|
1,100
|
1,110
|
—
|
—
|
|||||
Fabrizio
J. Francis #
|
5,000
|
5,000
|
—
|
—
|
|||||
Farvane
Limited (14)
|
3,156
|
3,156
|
—
|
—
|
|||||
Harold
A. Ferguson Jr. & Lois Maire Ferguson (1)
|
1,490
|
1,490
|
—
|
—
|
|||||
First
Financial Fund, Inc. (4)
|
350,000
|
350,000
|
—
|
—
|
|||||
Fleet
Maritime, Inc (14)
|
77,208
|
30,504
|
—
|
—
|
|||||
Fort
Mason Master, L.P. (24)
|
670,799
|
670,799
|
—
|
—
|
|||||
Fort
Mason Partners, L.P. (24)
|
43,501
|
43,501
|
—
|
—
|
|||||
Found-Mor
LLC(1)
|
7,110
|
7,110
|
—
|
—
|
|||||
Friedman,
Billings, Ramsey Group, Inc. (25) #
|
2,556,002
|
2,556,002
|
—
|
—
|
|||||
Susan
J. Gagnon TTEE Susan J. Gagon Revocable
Lining Trust UA DTD 8/30/95
(1)
|
3,760
|
3,760
|
—
|
—
|
|||||
George
Weiss Associates Inc. Profit Sharing
Plan (26)
|
165,000
|
165,000
|
—
|
—
|
|||||
William
I Gharst TTEE Jonell L. Gharst Rev Liv Trust OTO 3/18/1997
(1)
|
4,250
|
4,250
|
—
|
—
|
|||||
GMI
Master Retirement Trust (7)
|
71,500
|
71,500
|
—
|
—
|
|||||
Carl
William Goeckel Charles Schwab & Co Inc. Cust IRA (1)
|
3,840
|
3,840
|
—
|
—
|
|||||
James
R. Goldstein (1)
|
810
|
810
|
—
|
—
|
|||||
David
Greer
|
40,000
|
40,000
|
—
|
—
|
|||||
Jeffrey
M. Grieco~Revocable Living Trust
DTD 7/19/2001~Jeffrey M.
Grieco,
TTEE (1)
|
1,290
|
1,290
|
—
|
—
|
|||||
Yvonne
A. Grieco TTEE Trust UA
DTD
07/19/2001 (1)
|
1,210
|
1,210
|
—
|
—
|
|||||
Martin
J. Grunder, Jr. Charles Schwab & Co
Inc. Cust IRA Rollover(1)
|
670
|
670
|
—
|
—
|
|||||
Carmine
Guerro Charles Schwab & Co Inc.
Cust IRA Rollover (1)
|
3,010
|
3,010
|
—
|
—
|
|||||
C.
Guerro & W. Guerro TTEE Carmine & Wendy Guerro Living Trust U/A
DTD 7/31/2000
|
1,530
|
1,530
|
—
|
—
|
|||||
Samantha
Gumenick
|
14,200
|
14,200
|
—
|
—
|
|||||
Paul
S. Guthrie & Cynthia J. Guthrie (1)
|
2,180
|
2,180
|
—
|
—
|
|||||
Stephen
L. Harrison IRA
|
1,250
|
1,250
|
—
|
—
|
|||||
Bradley
J. Hausfeld Charles Schwab & Co Inc. IRA
Rollover (1)
|
880
|
880
|
—
|
—
|
|||||
Thomas
L. Hausfeld Charles Schwab & Co Inc. IRA
Rollover (1)
|
560
|
560
|
—
|
—
|
|||||
Thomas L. Hausfeld TTEE Auto Disposal Systems Inc. 401(k) DTD 1/1/95 All Cap Value A/C (1) | 970 | 970 |
—
|
—
|
|||||
Peter
Helms IRA
|
1,250
|
1,250
|
—
|
—
|
|||||
Highbridge
Event Driven/Relative Value Fund, LP
(27)
|
159,525
|
159,525
|
—
|
—
|
|||||
Highbridge
Event Driven/Relative Value Fund, Ltd. (27)
|
1,277,975
|
1,277,975
|
—
|
—
|
|||||
HFR
HE Platinum Master Trust (18)
|
62,784
|
62,784
|
—
|
—
|
|||||
HFR
HE Systematic Master Trust (5)
|
238,500
|
238,500
|
—
|
—
|
|||||
Highbridge
Int'l LLC (27)
|
1,062,500
|
1,062,500
|
—
|
—
|
|||||
George
W. Hicks (1)
|
1,220
|
1,220
|
—
|
—
|
|||||
Nosrat
Makky Hillman (1)
|
660
|
660
|
—
|
—
|
Selling
Stockholders
|
Shares
of Common Stock Beneficially Owned Prior to Offering
|
Shares
of Common Stock to be Sold
|
Beneficial
Ownership After Offering if All Shares are Sold
|
Percent
of Class Owned After Offering if All Shares are Sold
|
|||||
Nosrat
M. Hillman Charles Schwab & Co Inc.
Cust IRA Rollover (1)
|
860
|
860
|
—
|
—
|
|||||
Hod Foundation (28) | 669,643 | 669,643 |
—
|
—
|
|||||
Thomas
Holton TTEE Marjorie G. Kasch
Irrevocable Trust U/A/ DTD
03/21/1980 (1)
|
990
|
990
|
—
|
—
|
|||||
Michael
A. Houser & H. Stephen Wargo (1)
|
390
|
390
|
—
|
—
|
|||||
Stephen
L. Hopf & Cynthia Hopf (1)
|
890
|
890
|
—
|
—
|
|||||
HSBC
Guyerzeller Trust Co., as trustee for The Green Forest Trust
(14)
|
28,020
|
28,020
|
—
|
—
|
|||||
Jane
Hughes TTEE Giacomo Irrevocable Trust
U/A/ DTD 11/30/00 (1)
|
5,710
|
5,710
|
—
|
—
|
|||||
Zachary
Huke
|
5,000
|
5,000
|
—
|
—
|
|||||
Gregory
Hull (1)
|
470
|
470
|
—
|
—
|
|||||
Gregory
Hull Charles Schwab & Co Inc. Cust
IRA Rollover (1)
|
670
|
670
|
—
|
—
|
|||||
Victoria
Peslak Hyman
|
57,000
|
57,000
|
—
|
—
|
|||||
Edward
& Jill Im
|
3,125
|
3,125
|
—
|
—
|
|||||
IOU
Limited Partnership (29)
|
165,000
|
165,000
|
—
|
—
|
|||||
Ironworkers
District Council of New England
Pension (7)
|
6,400
|
6,400
|
—
|
—
|
|||||
Eileen
M. Jackson Designated Beneficiary
Plan (1)
|
1,830
|
1,830
|
—
|
—
|
|||||
Lawrence
K. Jackson Charles Schwab & Co
Inc. Cust IRA Contributory (1)
|
450
|
450
|
—
|
—
|
|||||
Lawrence
K. Jackson Designated Beneficiary
Plan (1)
|
2,310
|
2,310
|
—
|
—
|
|||||
Johnson
Revocable Living Trust (30)
|
10,000
|
10,000
|
—
|
—
|
|||||
Andrew
Frank Jose
|
17,857
|
17,857
|
—
|
—
|
|||||
Ann
C. Karter (1)
|
11,430
|
11,430
|
—
|
—
|
|||||
Sonja
K. Kasch TTEE Sonja K. Kasch Trust
U/A/ DTD 10/26/2004 Kasch TTEE
(1)
|
1,520
|
1,520
|
—
|
—
|
|||||
Stanley
J. Katz Charles Schwab & Co Inc.
Cust IRA Contributory (1)
|
620
|
620
|
—
|
—
|
|||||
Joseph
C. Kavanagh
|
5,000
|
5,000
|
—
|
—
|
|||||
Kings
Road Investments Ltd (31)
|
714,300
|
714,300
|
—
|
—
|
|||||
Anthony
L. Kremer~ Charles Schwab & Co
Inc. Cust IRA Rollover (1)
|
1,460
|
1,460
|
—
|
—
|
|||||
Anthony
L. Kremer TTEE Anthony L. Kremer
Revocable Living Trust
U/A
DTD 1/27/1998 (1)
|
1,250
|
1,250
|
—
|
—
|
|||||
Mary
Ellen Kremer TTEE Mary Ellen Kremer
U/A/ DTD 01/27/1998 (1)
|
1,500
|
1,500
|
—
|
—
|
|||||
John
C. Kunesh & Sarah L. Kunesh (1)
|
1,210
|
1,210
|
—
|
—
|
|||||
Michael
T. Kunesh TTEE Trust Agreement
U/A/ DTD 02/10/1995
(1)
|
2,470
|
2,470
|
—
|
—
|
Selling
Stockholders
|
Shares
of Common Stock Beneficially Owned Prior to Offering
|
Shares
of Common Stock to be Sold
|
Beneficial
Ownership After Offering if All Shares are Sold
|
Percent
of Class Owned After Offering if All Shares are Sold
|
|||||
David
J Kunkel TTEE Bridge Technologies,
LLC DBA FBO Timothy
Jon Beach (1)
|
730
|
730
|
—
|
—
|
|||||
Raymond
W. Lane (1)
|
2,450
|
2,450
|
—
|
—
|
|||||
Kathryn
A. Leeper TTEE Kathryn Ann Leeper
Trust U/A DTD 06/29/95 (1)
|
780
|
780
|
—
|
—
|
|||||
James
T. Lehner Charles Schwab & Co Inc.
Cust IRA Rollover (1)
|
2,670
|
2,670
|
—
|
—
|
|||||
Christine
F. Lindeman Thomas Charles Schwab
& Co Inc. Cust IRA Rollover
(1)
|
1,340
|
1,340
|
—
|
—
|
|||||
Christine
F. Lindeman Thomas
Revocable Trust UA DTD
08/22/1991 (1)
|
3,870
|
3,870
|
—
|
—
|
|||||
Michael
Lipson & Marilyn E. Lipson (1)
|
410
|
410
|
—
|
—
|
|||||
Longview
Partners B LP (18)
|
217,300
|
217,300
|
—
|
—
|
|||||
Robert
Lowry IRA (1)
|
460
|
460
|
—
|
—
|
|||||
Robert
W. Lowry (1)
|
2,630
|
2,630
|
—
|
—
|
|||||
Sharon
A. Lowry~IRA~Robert W.
Lowry,
POA (1)
|
2,210
|
2,210
|
—
|
—
|
|||||
Loyola
University Employee's Retirement Plan
Trust (7)
|
16,000
|
16,000
|
—
|
—
|
|||||
Loyola
University of Chicago Endowment
Fund (7)
|
16,900
|
16,900
|
—
|
—
|
|||||
L.
Peck & D Vockell & S. Brinn & Otilia Fernandez
Pediatrics~PSC 401(k) (1)
|
1,520
|
1,520
|
—
|
—
|
|||||
Samuel
W. Lumby (1)
|
2,050
|
2,050
|
—
|
—
|
|||||
Michael
G. Lunsford Charles Schwab & Co Cust. IRA Rollover
(1)
|
910
|
910
|
—
|
—
|
|||||
David
A. Lyons
|
28,571
|
28,571
|
—
|
—
|
|||||
MA
Deep Event LTD (20)
|
97,500
|
97,500
|
—
|
—
|
|||||
Magnetar
Capital Master Fund, Ltd (29)
|
571,430
|
571,430
|
—
|
—
|
|||||
Raj
Maheshwari & Sarita Singh
|
35,700
|
35,700
|
—
|
—
|
|||||
Mariner
Opportunities Fund, LP (32)
|
23,000
|
23,000
|
—
|
—
|
|||||
Darryl
Marshall-Inman & Jennifer Marshall-Inman
|
3,125
|
3,125
|
—
|
—
|
|||||
Jean
C. Marten (1)
|
410
|
410
|
—
|
—
|
|||||
Jean
C Marten. Charles Schwab & Co Inc.
Cust IRA Rollover (1)
|
970
|
970
|
—
|
—
|
|||||
Michael
J. Mathile~Revocable Living Trust
DTD 10/03/96 (1)
|
3,010
|
3,010
|
—
|
—
|
|||||
Barbara
B. McCarty (1)
|
940
|
940
|
—
|
—
|
|||||
Patrick
L. McGohan & Jackie L.
McGohan (1)
|
1,380
|
1,380
|
—
|
—
|
|||||
John
O. McManus. ROTH IRA
|
27,200
|
27,200
|
—
|
—
|
|||||
John
O. McManus. SEP IRA
|
40,800
|
40,800
|
—
|
—
|
|||||
Michael
J. McQuiston Charles Schwab & Co
Inc. Cust IRA Rollover (1)
|
1,750
|
1,750
|
—
|
—
|
Selling
Stockholders
|
Shares
of Common Stock Beneficially Owned Prior to Offering
|
Shares
of Common Stock to be Sold
|
Beneficial
Ownership After Offering if All Shares are Sold
|
Percent
of Class Owned After Offering if All Shares are Sold
|
|||||
Melchor
Capital (33)
|
50,000
|
50,000
|
—
|
—
|
|||||
Metal
Trades (7)
|
22,400
|
22,400
|
—
|
—
|
|||||
John
E. Meyer
|
64,270
|
64,270
|
—
|
—
|
|||||
Patricia
Meyer-Dorn Charles Schwab & Co
Inc. Cust IRA Contributory (1)
|
5,170
|
5,170
|
—
|
—
|
|||||
Miami
Valley Cardiologists, Inc. Profit Sharing
Plan Trust~EBS Equity 100 (1)
|
13,170
|
13,170
|
—
|
—
|
|||||
Ann
K. Miller (1)
|
9,570
|
9,570
|
—
|
—
|
|||||
Grace
G. Miller (1)
|
960
|
960
|
—
|
—
|
|||||
John
J. Miller (1)
|
940
|
940
|
—
|
—
|
|||||
Minnesota
Mining and Manufacturing Company (7)
|
351,400
|
351,400
|
—
|
—
|
|||||
MJJ,
LLC (34) #
|
140,000
|
140,000
|
—
|
—
|
|||||
Mutual
Finances Services Fund (35)
|
1,600,000
|
1,600,000
|
—
|
—
|
|||||
Neuhauser
Capital LLC (36) #
|
150,000
|
150,000
|
—
|
—
|
|||||
Peter
R. Newman Charles Schwab & Co Inc.
Cust IRA Rollover (1)
|
3,460
|
3,460
|
—
|
—
|
|||||
Sandra
E. Nischwitz (1)
|
1,730
|
1,730
|
—
|
—
|
|||||
Milo
Noble (1)
|
7,260
|
7,260
|
—
|
—
|
|||||
Virginia
R. O’Neil & Edward J. O’Neil (1)
|
2,130
|
2,130
|
—
|
—
|
|||||
Aurelia
Palcher~ Charles Schwab & Co Inc.
Cust Roth Contributory IRA (1)
|
1,790
|
1,790
|
—
|
—
|
|||||
John
E. Palcher Charles Schwab & Co Inc.
Cust IRA Rollover (1)
|
740
|
740
|
—
|
—
|
|||||
Juan
M. Palomar Charles Schwab & Co Inc.
Cust IRA Rollover (1)
|
2,150
|
2,150
|
—
|
—
|
|||||
Park
West Investors LLC (37)
|
539,665
|
539,665
|
—
|
—
|
|||||
Park
West Partners International, Ltd. (37)
|
112,870
|
112,870
|
—
|
—
|
|||||
Nayann
B Pazyniak Charles Schwab & Co Inc. Cust IRA Rollover
(1)
|
460
|
460
|
—
|
—
|
|||||
Timothy
A. Pazyniak & Charles A. Pazyniak Charles Schwab & Co. Inc. IRA
Rollover (1)
|
4,020
|
4,020
|
—
|
—
|
|||||
Peninsula
Catalyst Fund, L.P. (38)
|
408,000
|
408,000
|
—
|
—
|
|||||
Peninsula
Catalyst QP Fund, L.P. (38)
|
192,000
|
192,000
|
—
|
—
|
|||||
Peninsula
Fund, L.P. (38)
|
600,000
|
600,000
|
—
|
—
|
|||||
Jeannine
E. Phlipot (1)
|
1,190
|
1,190
|
—
|
—
|
|||||
Ronald
E. Pipoly, Sr.
|
5,000
|
5,000
|
—
|
—
|
|||||
Michael
Polachek
|
1,250
|
1,250
|
—
|
—
|
|||||
Portside
Growth and Opportunity Fund (39) #
|
230,000
|
230,000
|
—
|
—
|
|||||
Producers-Writers
Guild of America (7)
|
23,400
|
23,400
|
—
|
—
|
|||||
Rajnikant
Ramji Shah and Dilroza Rajnikant
Ramji Shah
|
25,000
|
25,000
|
—
|
—
|
|||||
Anita
L. Rankin TTEE Anita L. Rankin Revocable
Trust~U/A DTD
4/28/1995
(1)
|
540
|
540
|
—
|
—
|
|||||
Daniel
J. Roach Charles Schwab & Co Inc.
Cust IRA Rollover (1)
|
560
|
560
|
—
|
—
|
Selling
Stockholders
|
Shares
of Common Stock Beneficially Owned Prior to Offering
|
Shares
of Common Stock to be Sold
|
Beneficial
Ownership After Offering if All Shares are Sold
|
Percent
of Class Owned After Offering if All Shares are Sold
|
|||||
Robeco
US Premium Equities Fund (EUR)
(7)
|
12,460
|
12,460
|
—
|
—
|
|||||
Robeco
US Premium Equities Fund (USD)
(7)
|
52,800
|
52,800
|
—
|
—
|
|||||
Robert
G. Schiro 2001 Trust (23)
|
213,600
|
213,600
|
—
|
—
|
|||||
Paul
J. Routh Charles Schwab & Co Inc. Cust
IRA Contributory (1)
|
660
|
660
|
—
|
—
|
|||||
Christopher
M. Ruff Charles Schwab & Co
Inc. Cust IRA Rollover (1)
|
290
|
290
|
—
|
—
|
|||||
Melodee
Ruffo
|
980
|
980
|
—
|
—
|
|||||
Dolores
H. Russ TTEE Dolores H. Russ Trust
DTD 4/20/2000 (1)
|
17,770
|
17,770
|
—
|
—
|
|||||
David
L. Roer(1)
|
330
|
330
|
—
|
-
|
|||||
Jennifer A. Roer UTA Charles Schwab & Co. Inc. IRA (1) | 510 | 510 |
—
|
—
|
|||||
David
Ross TTEE The David Russ Trust U/A DTD 11/04/2000 (1)
|
1,730
|
1,730
|
—
|
—
|
|||||
Savannah
International Longshoremen's Assoc
Employers Pension Trust (7)
|
20,500
|
20,500
|
—
|
—
|
|||||
Martha
S. Senkiw TTEE Martha S. Senliw
Revocable Living Trust U/A/
DTD 11/02/1998 (1)
|
690
|
690
|
—
|
—
|
|||||
Peter
D. Senkiw~TTEE Peter D. Senkiw Revocable
Living Trust U/A/ DTD 11/02/1998
(1)
|
700
|
700
|
—
|
—
|
|||||
Elizabeth
Sexworth IRA
|
625
|
625
|
—
|
—
|
|||||
Jack
Scherer & L. Sherer TTEE Jack R. Sherer
Revocable Living Trust
UAD
4/3/1997 (1)
|
2,220
|
2,220
|
—
|
—
|
|||||
Schoenfield
& Schoenfield TTEE Angler
Construction Company~401(k)
Profit Sharing Plan
(1)
|
460
|
460
|
—
|
—
|
|||||
Sisters
of St. Joseph Carondelet (7)
|
8,600
|
8,600
|
—
|
—
|
|||||
David
Slyman Jr.(1)
|
340
|
340
|
—
|
—
|
|||||
Jacqueline
Slyman (1)
|
2,500
|
2,500
|
—
|
—
|
|||||
Sphinx
Long/Short Equity Fund SPC (18)
|
54,952
|
54,952
|
—
|
—
|
|||||
Peter
Nicholas Stathis
|
14,000
|
14,000
|
—
|
—
|
|||||
Steamfitters
(7)
|
6,000
|
6,000
|
—
|
—
|
|||||
Steamfitters
Pension (7)
|
8,200
|
8,200
|
—
|
—
|
|||||
Kevin
Stein
|
3,500
|
3,500
|
—
|
—
|
|||||
Stratford
Partners LP (40)
|
50,000
|
50,000
|
—
|
—
|
|||||
Robert
N. Sturwold Designated Beneficiary
Plan (1)
|
910
|
910
|
—
|
—
|
|||||
Summer
Street Cumberland Investors LLC (18)
|
92,109
|
92,109
|
—
|
—
|
|||||
Susan
Schiro & Peter Manus Foundation (23)
|
10,500
|
10,500
|
—
|
—
|
|||||
Michael
J. Suttman (1)
|
880
|
880
|
—
|
—
|
Selling
Stockholders
|
Shares
of Common Stock Beneficially Owned Prior to Offering
|
Shares
of Common Stock to be Sold
|
Beneficial
Ownership After Offering if All Shares are Sold
|
Percent
of Class Owned After Offering if All Shares are Sold
|
|||||
Steven
K. Suttman Charles Schwab & Co Inc.
Cust IRA Rollover (1)
|
900
|
900
|
—
|
—
|
|||||
N.
Tabrah & A. Altman TTEE Obstetrics &
Gynecology Inc. Profit Sharing Plan
U/A/ DTD 10/1/1980~FBO S. Reddy
(1)
|
710
|
710
|
—
|
—
|
|||||
Michelle
L. Tagliamonte Charles Schwab &
Co Inc. Cust IRA Rollover (1)
|
930
|
930
|
—
|
—
|
|||||
The
Catalyst Strategic Event Master Fund Ltd
(15)
|
13,895
|
13,895
|
—
|
—
|
|||||
Gregory
J. Thomas TTEE Trust U/A DTD 08/22/91 (1)
|
770
|
770
|
—
|
—
|
|||||
William
M. Thorton & Carla D. Thornton (1)
|
2,140
|
2,140
|
—
|
—
|
|||||
Gregory
J. Thomas SEP IRA C/O TK Harris
Commercial (1)
|
550
|
550
|
—
|
—
|
|||||
Tivoli
Partners LP (41)
|
71,430
|
71,430
|
—
|
—
|
|||||
TNM
Investments LTD (1)
|
450
|
450
|
—
|
—
|
|||||
Town
of Darien Employee Pension (7)
|
6,885
|
6,885
|
—
|
—
|
|||||
Town
of Darien Police Pension (7)
|
5,945
|
5,945
|
—
|
—
|
|||||
United
Capital Management (42)
|
35,715
|
35,715
|
—
|
—
|
|||||
University
of Richmond Endowment Fund (7)
|
20,600
|
20,600
|
—
|
—
|
|||||
University
of Southern California Endowment
Fund (7)
|
46,200
|
46,200
|
—
|
—
|
|||||
Upnorth
Investments, Ltd. Trust (1)
|
19,000
|
19,000
|
—
|
—
|
|||||
Verizon
(7)
|
248,215
|
248,215
|
—
|
—
|
|||||
Verizon
VEBA (7)
|
54,200
|
54,200
|
—
|
—
|
|||||
Philip
H. Wagner TTEE Trust U/A Philip H.
Wagner Revocable Trust DTD 11/01/2000
(1)
|
23,250
|
23,250
|
—
|
—
|
|||||
P.
Wagner TTEE Philip H. Wagner Trust by~Eloise
P. Wagner 12/06/1993 FBO
P. Wagner (1)
|
390
|
390
|
—
|
—
|
|||||
Charles
T. Walsh TTEE The Charles T. Walsh
Trust U/A/ DTD 12/06/2000 (1)
|
3,590
|
3,590
|
—
|
—
|
|||||
John
M. Walsh, Jr. Charles Schwab & Co Inc. Cust IRA Rollover
(1)
|
1,390
|
1,390
|
—
|
—
|
|||||
Maureen
D. Weaver Charles Schwab & Co
Inc. Cust IRA Rollover (1)
|
770
|
770
|
—
|
—
|
|||||
Allison
D. Weiss Irrevocable Trust DTD May
12, 1989 (43)
|
70,000
|
70,000
|
—
|
—
|
|||||
Michael
J. Wenzler (1)
|
460
|
460
|
—
|
—
|
|||||
Wilbur
L. Brown & Evilina A. Brown All Cap Value (1)
|
3,820
|
3,820
|
—
|
—
|
Selling
Stockholders
|
Shares
of Common Stock Beneficially Owned Prior to Offering
|
Shares
of Common Stock to be Sold
|
Beneficial
Ownership After Offering if All Shares are Sold
|
Percent
of Class Owned After Offering if All Shares are Sold
|
|||||
Wildlife
Conservation Society (7)
|
11,600
|
11,600
|
—
|
—
|
|||||
Brian
Wilmovsky SEP IRA
|
1,875
|
1,875
|
—
|
—
|
|||||
Leo
K. Wingate & Katherine H. Wingate
|
830
|
830
|
—
|
—
|
|||||
Joseph
Wood & Rosemary Wood (1)
|
1,220
|
1,220
|
—
|
—
|
|||||
Gary
M. Youra Charles Schwab & Co Inc.
Cust IRA Rollover (1)
|
2,960
|
2,960
|
—
|
—
|
|||||
|
* |
Less
than one percent
|
# |
Broker-dealer
Affiliate
|
(1)
|
We
have been advised by the selling stockholder that each of Eubel Brady
and
Suttman Asset Management, Inc. (“EBS”) have voting and investment power
over the shares of common stock. However, the selling stockholder
is not
precluded from directly exercising voting or dispositive authority
over
the shares common stock. EBS’ Investment Policy Committee sets investment
policy and guidelines. The Research Group acts as the portfolio manager,
determining individual security selections for client accounts. The
individuals on these committees are: Mark E. Brady (IPC, RG), Ronald
L.
Bubel (IPC, RG), Robert J. Suttman II (IPC), Bernard J. Hollgreive
(IPC,
RG), William E. Hazel (IPC), Paul D. Crichioo (IPC, RG), Kenneth
E. Leist
(IPC, RG) and Aaron Hillman, Research Analyst
(RG).
|
(2)
|
We
have been advised by the selling stockholder that Ken Perry has
voting and dispositive power over the shares of common
stock.
|
(3)
|
We
have been advised by the selling stockholder that Jay Spellman has
voting
and dispositive power over the shares of common stock.
|
(4)
|
We
have been advised by the selling stockholder that Wellington Management
Company, LLP, as investment advisor to the selling stockholder, has
voting
and dispositive power over the shares of common
stock.
|
(5)
|
We
have been advised by the selling stockholder that CastleRock Asset
Management, Inc., as investment advisor to the selling stockholder,
has
voting and dispositive power over the shares of common stock.
|
(6)
|
We
have been advised by the selling stockholder that Raj Iduani, as
Manager of the selling stockholder, has voting and dispositive power
over the shares of common stock.
|
(7)
|
We
have been advised by the selling stockholder that Boston Partners
Asset
Management, LLC, acting in its capacity as investment adviser, has
voting
and dispositive power over the shares of common
stock.
|
(8)
|
We
have been advised by the selling stockholder that Bernard Darre,
Blair
Richardson and Eric Wolt have voting and dispositive power over the
shares
of common stock.
|
(9)
|
We
have been advised by the selling stockholder that Burlingame Asset
Management, LLC, as general partner and investment manager of the
selling
stockholder, has voting and dispositive power over the shares of
common
stock.
|
(10)
|
We
have been advised by the selling stockholder that Canyon Capital
Advisor
LLC is its investment advisor. The managing partners of the
investment advisor are Joshua S. Friedman, Mitchell R. Julis and
K. Robert
Turner. Joshua S. Friedman, Mitchell R. Julis and K. Robert Turner
own all
of the ordinary shares of selling stockholder and have voting and
dispositive power over the shares of common stock.
|
(11)
|
We
have been advised by the selling stockholders that Canpartners Investments
III, L.P. and Canyon Capital Advisors LLC are the controlling entities
of
the selling stockholder. The general partner of the selling stockholder
is
Canpartners Investments III, L.P. and the general partner of Canpartners
Investments III, L.P. is Canyon Capital Advisors LLC. The managing
partners of Canyon Capital Advisors LLC are Joshua S. Friedman, Mitchell
R. Julis and K. Robert Turner.
|
(12)
|
We
have been advised by the selling stockholder that Mariner Investment
Group
Inc. is the investment manager. Charles Howe, as president of the
investment manager, has voting and dispositive power over the shares
of
common stock.
|
(13)
|
We
have been advised by the selling stockholder that CastleRock Management
LLC, as general partner and investment advisor to the selling stockholder,
has voting and dispositive power over the shares of common
stock.
|
(14)
|
We
have been advised by the selling stockholder that Frank Gallagher
and
Peter Drippe have voting and dispositive power over the shares of
common
stock. Frank Gallagher and Peter Drippe disclaim beneficial ownership
over
the shares of common stock.
|
(15)
|
We
have been advised by the selling stockholder that George Karfunkel
has
voting and dispositive power over the shares of common
stock.
|
(16)
|
We
have been advised by the selling stockholder that Ron Coleman and
Michelle
Coleman, as the trustees of the selling stockholder, have voting
and
dispositive power over the shares of common stock.
|
(17)
|
We
have been advised by the selling stockholder that Jay Petscheck and
Steven
Major have voting and dispositive power over the shares of common
stock.
|
(18)
|
We
have been advised by the selling stockholder that Cumberland Associates
acts as its investment manager. The investment manager has voting
and
dispositive control over the shares of common stock. The principals
of the
investment manager are Bruce Wilcox, Andrew Wallach and Brad Gendell.
The
investment manager, Bruce Wilcox, Andrew Wallach and Brad Gendell
disclaim
beneficial ownership of the shares of common
stock.
|
(19)
|
We
have been advised by the selling stockholder that David Baker has
voting
and dispositive power over the shares of common stock. The selling
stockholder is an affiliate of Deutsche Bank AG London, which has
a
subsidiary Deutsche Bank Securities, Inc. which is an NASD member.
|
(20)
|
We
have been advised by the selling stockholder that Deephaven Capital
Management LLC (“Deephaven) is registered with the Securities and Exchange
Commission as an investment advisor under the provisions of the Investment
Advisors Act of 1940. Deephaven is the investment advisor to the
selling
stockholder. As investment advisor to the selling stockholder, Deephaven
has indirect ownership of the shares of common stock with full voting
and
dispositive power with respect to the shares of common stock. Deephaven
disclaims beneficial ownership of the shares of common stock.
|
(21)
|
We
have been advised by the selling stockholder that Alexander Rutherford
has
voting and dispositive power over the shares of common stock.
|
(22)
|
We
have been advised by the selling stockholder that Emanuel J.
Friedman has voting and dispositive power over the shares of common
stock.
|
(23)
|
We
have been advised by the selling stockholder that Robert G. Schiro
has
voting and dispositive power over the shares of common
stock.
|
(24)
|
We
have been advised by the selling stockholder that Fort Mason Capital,
LLC,
as general partner of the selling stockholder, exercises sole voting
and
investment authority over the shares of common stock. Mr. Daniel
German
serves as the sole managing member of Fort Mason Capital, LLC. Fort
Mason
Capital, LLC and Mr. German each disclaim beneficial ownership of
the
shares of common stock, except to the extent of its or his pecuniary
interest therein, if any.
|
(25)
|
We
have been advised by the selling stockholder that Eric F. Billings,
Chairman and CEO, FBR Group, and Richard J. Hendrix President and
COO, FBR
Group, have voting and dispositive power over the shares of common
stock.
Eric F. Billings and Richard J. Hendrix each disclaim beneficial
ownership
of the shares of common stock.
|
(26)
|
We
have been advised by the selling stockholder that George A. Weiss,
as
trustee of the selling stockholder, has voting and dispositive power
over
the shares of common stock.
|
(27)
|
We
have been advised by the selling stockholder that Highbridge Capital
Management has voting and dispositive power over the shares of common
stock.
|
(28)
|
We have been advised by the selling stockholder that Michael Karfunkel has voting and dispositive power over the shares of common stock. |
(29)
|
We
have been advised by the selling stockholder that George A. Weiss,
as
general partner of the selling stockholder, has voting and dispositive
power over the shares of common stock.
|
(30)
|
We
have been advised by the selling stockholder that Richard J. Johnson
and
Clasiria M. Johnson, as trustees of the selling stockholder, have
voting
and dispositive power over the shares of common
stock..
|
(31)
|
We
have been advised by the selling stockholder that it is a wholly-owned
subsidiary of Polygon Global Opportunities Master Gund (“Master Fund”).
Polygon Investment Partners Ltd. and Polygon Investment Partners
LP (the
“Investment Managers”), Polygon Investments Ltd. (the “Manager”), the
Master Fund, Alexander Jackson, Reade Griffin and Paddy Dear share
voting
and dispositive powers of the common stock held by the selling
stockholder. The Investment Managers, the Manager, Alexander Jackson,
Reade Griffin and Paddy Dear disclaim beneficial ownership of the
shares
of common stock held by the selling stockholder.
|
(32)
|
We
have been advised by the selling stockholder that Charles Howe, as
president of Mariner Investment Group, Inc., has voting and dispositive
power over the shares of common stock.
|
(33)
|
We
have been advised by the selling stockholder that Gregory L. Melchor
has
voting and dispositive power over the shares of common
stock.
|
(34)
|
We
have been advised by the selling stockholder that Jonathan L. Billings
and
Elizabeth G. Billings have voting and dispositive power over the
shares of
common stock.
|
(35)
|
We
have been advised by the selling stockholder the Franklin Mutual
Advisers,
LLC (“FMA”), an investment advisor registered with the Securities and
Exchange Commission under the Investment Advisers Act of 1940, is
the
investment advisor to the selling stockholder. Pursuant to an investment
advisory agreement with the selling stockholder the Fund has sole
voting
and investment power over the shares of common stock. Certain of
FMA’s
executive officers have the power to (i) vote or direct the vote
and (ii)
dispose or direct the disposition of the shares of common stock.
Nome of
FMA’s executive officers, nor FMA itself, has any interest in dividends
or
proceeds from the sale of the shares of common stock and each disclaims
beneficial ownership of any of the shares of common stock.
|
(36)
|
We
have been advised by the selling stockholder that James C.
Newhauser, as managing member of the selling stockholder, has
voting and dispositive power over the shares of common
stock.
|
(37)
|
We
have been advised by the selling stockholder that Peter A. Park.
has
voting and dispositive power over the shares of common
stock.
|
(38)
|
We
have been advised by the selling stockholder that Peninsula Capital
Management, Inc. has voting and dispositive power over the shares
of
common stock.
|
(39)
|
We
have been advised by the selling stockholder that Ramius Capital
Group,
L.L.C. (‘Ramius Capital”) is the investment adviser to the selling
stockholder and consequently has voting control and investment discretion
over the common stock. Ramius Capital disclaims beneficial ownership
of
the shares held by the selling stockholder. Peter A. Cohen, Morgan
B.
Stark, Thomas W. Strauss and Jeffery M. Solomon are the sole managing
members of C4S & Co., L.L.C., the sole managing member of Ramius
Capital. As a result Messrs. Cohen, Stark, Strauss and Solomon may
be
considered beneficial owners of any common stock to be beneficially
owned
by Ramius Capital. Messrs. Cohen. Stark, Strauss and Solomon disclaim
beneficial ownership of these
shares.
|
(40)
|
We
have been advised by the selling stockholder
that Chad Comiteau has voting and dispositive power
over the shares of common stock.
|
(41)
|
We
have been advised by the selling stockholder that Peter
Kenner has voting and dispositive power over the shares of common
stock.
|
(42)
|
We
have been advised by the selling stockholder that James A. Lustig
has
voting and dispositive power over the shares of common
stock.
|
(43)
|
We
have been advised by the selling stockholder the Steven C. Kleinman
and David M. Call, as trustees of the selling stockholder,
have has voting and dispositive power over the shares of common
stock.
|
·
|
prior
to that date, the board approved either the business combination
or the
transaction that resulted in the stockholder becoming an interested
stockholder;
|
·
|
upon
consummation of the transaction that resulted in the stockholder
becoming
an interested stockholder, the interested stockholder owned at least
85%
of the voting stock of the corporation outstanding at the time the
transaction commenced; or
|
·
|
on
or after the date the business combination is approved by the board
and
authorized at a meeting of stockholders by at least two-thirds of
the
outstanding voting stock that is not owned by the interested
stockholder.
|
·
|
any
merger or consolidation involving the corporation and the interested
stockholder;
|
·
|
any
sale, transfer, pledge or other disposition of 10% or more of the
assets
of the corporation involving the interested
stockholder;
|
·
|
subject
to certain exceptions, any transaction that results in the issuance
or
transfer by the corporation of any stock of the corporation to the
interested stockholder;
|
·
|
any
transaction involving the corporation that has the effect of increasing
the proportionate share of the stock of any class or series of the
corporation beneficially owned by the interested stockholder;
or
|
·
|
the
receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided
by or
through the corporation.
|
·
|
any
breach of the director’s duty of loyalty to us or our
stockholders;
|
·
|
any
act or omission not in good faith or that involves intentional misconduct
or a knowing violation of law;
|
·
|
any
act related to unlawful stock repurchases, redemptions or other
distributions or payment of dividends;
or
|
·
|
any
transaction from which the director derived an improper personal
benefit.
|
·
|
Our
amended and restated certificate of incorporation also authorizes
us to
indemnify our officers, directors and other agents to the fullest
extent
permitted under Delaware law and we may advance expenses to our directors,
officers and employees in connection with a legal proceeding, subject
to
limited exceptions. As permitted by the Delaware General Corporation
Law,
our amended and restated certificate of incorporation provides
that:
|
·
|
we
shall indemnify our directors and officers to the fullest extent
permitted
by the Delaware General Corporation Law, subject to limited exceptions;
and
|
·
|
we
may purchase and maintain insurance on behalf of our current or former
directors, officers, employees or agents against any liability asserted
against them and incurred by them in any such capacity, or arising
out of
their status as such.
|
·
|
1%
of the total number of shares of our common stock then outstanding;
or
|
·
|
the
average weekly trading volume of our common stock during the four
calendar
weeks preceding the date on which notice of the sale is filed with
the
SEC.
|
·
|
file
with the SEC (which
occurred pursuant to the filing of the registration statement of
which
this prospectus is a part) no
later than 150 days following the closing date of the private placement
a
registration statement registering for resale the shares of our common
stock covered by this prospectus, and any additional shares of common
stock issued in respect thereof whether by stock dividend, stock
split or
otherwise;
|
·
|
use
all commercially reasonable efforts to cause the registration statement
to
become effective under the Securities Act as soon as practicable
after the
filing; and
|
·
|
continuously
maintain the effectiveness of the registration statement under the
Securities Act until the first to occur
of:
|
·
|
the
sale, transfer or other disposition of all of the shares of common
stock
covered by the registration statement or pursuant to Rule 144 under
the
Securities Act;
|
·
|
the
shares covered by the registration statement are no longer outstanding;
or
|
·
|
the
second anniversary of the initial effective date of the registration
statement.
|
·
|
the
representative of the underwriters of an underwritten offering of
primary
shares by us has advised us that the sale of our common stock under
the
shelf registration statement would have a material adverse effect
on such
primary offering;
|
·
|
a
majority of the independent members of our board of directors, in
good
faith, determines that (i) the offer or sale of any shares of our
common
stock would materially impede, delay or interfere with any proposed
financing, offer or sale of securities, acquisition, merger, tender
offer,
business combination, corporate reorganization or other significant
transaction involving us; or (ii) after the advice of counsel, the
sale of
the shares covered by the shelf registration statement would require
disclosure of non-public material information not otherwise required
to be
disclosed under applicable law and (a) we have a bona fide business
purpose for preserving the confidentiality of the proposed transaction,
(b) disclosure would have a material adverse effect on us or our
ability
to consummate the proposed transaction or (c) the proposed transaction
renders us unable to comply with SEC requirements;
or
|
·
|
a
majority of the independent members of our board of directors, in
good
faith, after advice of counsel, determines that we are required by
law,
rule or regulation to supplement the shelf registration statement
or file
a post-effective amendment to the shelf registration statement in
order to
incorporate information into the shelf registration statement for
the
purpose of (i) including in the shelf registration statement any
prospectus required under Section 10(a)(3) of the Securities Act;
(ii)
reflecting in the prospectus included in the shelf registration statement
any facts or events arising after the effective date of the shelf
registration statement (or of the most recent post-effective amendment)
that, individually or in the aggregate, represents a fundamental
change in
the information set forth therein or the change in the information
set
forth in the prospectus or (iii) including in the prospectus included
in
the shelf registration statement any material information with respect
to
the plan of distribution not disclosed in the shelf registration
statement
or any material change to such
information.
|
·
|
ordinary
brokerage transactions and transactions in which the broker-dealer
solicits purchasers;
|
·
|
block
trades in which the broker-dealer will attempt to sell the shares
as agent
but may position and resell a portion of the block as principal to
facilitate the transaction;
|
·
|
purchases
by a broker-dealer as principal and resale by the broker-dealer for
its
account;
|
·
|
an
exchange distribution in accordance with the rules of the applicable
exchange;
|
·
|
privately
negotiated transactions;
|
·
|
settlement
of short sales entered into after the effective date of the registration
statement of which this prospectus is a part;
|
·
|
broker-dealers
may agree with the selling stockholders to sell a specified number
of such
shares at a stipulated price per
share;
|
·
|
a
combination of any such methods of sale;
|
·
|
through
the writing or settlement of options or other hedging transactions,
whether through an options exchange or otherwise;
|
·
|
any
other method permitted pursuant to applicable law; or
|
·
|
under
Rule 144 under the Securities Act, if available, rather than under
this
prospectus.
|
·
|
offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right
or
warrant for the sale of, lend or otherwise dispose of or transfer,
directly or indirectly, any of our equity securities or any securities
convertible into or exercisable or exchangeable for our equity securities
(other
|
·
|
enter
into any swap or other arrangement that transfers, in whole or in
part,
directly or indirectly, any of the economic consequences of ownership
of
any of our equity securities, whether any such transaction described
above
is to be settled by delivery of shares of our common stock or such
other
securities, in cash or otherwise.
|
·
|
offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right
or
warrant for the sale of, lend or otherwise dispose of or transfer,
directly or indirectly, any of our equity securities or any securities
convertible into or exercisable or exchangeable for our equity securities,
or
|
·
|
enter
into any swap or other arrangement that transfers, in whole or in
part,
directly or indirectly, any of the economic consequences of ownership
of
any of our equity securities, whether any such transaction described
above
is to be settled by delivery of shares of our common stock or such
other
securities, in cash or otherwise.
|
Acquisition
expense:
|
The
aggregate of policy acquisition costs attributable to underwriting
operations, including commissions as well as premium taxes and
assessments.
|
Broker:
|
One
who negotiates contracts of insurance or reinsurance, receiving a
commission for placement and other service rendered, between (1)
a
policyholder and a primary insurer, on behalf of the insured party,
(2) a
primary insurer and reinsurer, on behalf of the primary insurer,
or (3) a
reinsurer and a retrocessionaire, on behalf of the
reinsurer.
|
Casualty
insurance:
|
Insurance
that is primarily concerned with the losses caused by injuries to
third
persons (in other words, persons other than the policyholder) and
the
resulting legal liability imposed on the underlying insured resulting
therefrom.
|
Catastrophe;
Catastrophic:
|
A
severe loss or disaster, typically involving multiple claimants.
Common
perils include earthquakes, hurricanes, hailstorms, severe winter
weather,
floods, fires, tornadoes, explosions and other natural or man-made
disasters. Catastrophe losses may also arise from acts of war, acts
of
terrorism and political instability.
|
Catastrophe
loss:
|
Loss
and directly identified loss adjustment expense from
catastrophes.
|
Cede;
Cedent; Ceding company:
|
When
a party reinsures its liability with another, it transfers or “cedes”
business (premiums or losses) and is referred to as the “cedent” or
“ceding company.”
|
Ceding
commission:
|
A
fee based upon the ceding company’s cost of acquiring the business being
reinsured (including commissions, premium taxes, assessments and
miscellaneous administrative expense), which also may include a profit
factor.
|
Claim:
|
Request
by an insured or reinsured for indemnification by an insurance company
or
a reinsurance company for loss incurred from an insured peril or
event.
|
Commutation
|
The
settlement by a reinsurer and ceding company of all obligations under
a
reinsurance contract through the estimation, payment and complete
discharge of all future obligations for reinsurance losses incurred
regardless of the continuing nature of certain losses.
|
Deductible:
|
With
respect to an insurance policy, the amount of loss that an insured
retains, although the insurer is legally responsible for losses within
the
deductible and looks to the insured for reimbursement for such losses.
Contrast this with a self-insured retention (SIR), where the insurer
is
only responsible for claims in excess of the SIR, regardless of the
financial status of the insured. With respect to a reinsurance agreement,
an amount of loss that a ceding company retains within a layer of
reinsurance and does not cede to the reinsurer.
|
Excess
of loss:
|
A
generic term describing insurance or reinsurance that indemnifies
the
insured or the reinsured against all or a specified portion of losses
on
underlying insurance policies in excess of a specified amount, which
is
called a “retention.” Also known as non-proportional insurance or
reinsurance. Excess of loss insurance or reinsurance is written in
layers.
An insurer or reinsurer or group of insurers or reinsurers accepts
a band
of coverage up to a specified amount. The total coverage purchased
by the
cedent is referred to as a “program” and will typically be placed with
predetermined insurers or reinsurers in pre-negotiated layers. Any
liability exceeding the outer limit of the program reverts to the
ceding
company, which also bears the credit risk of an insurer’s or reinsurer’s
insolvency.
|
Exclusions:
|
Provisions
in an insurance or reinsurance policy excluding certain risks or
otherwise
limiting the scope of coverage.
|
Exposure:
|
The
possibility of loss. A unit of measure of the amount of risk a company
assumes.
|
Frequency:
|
The
number of claims occurring during a given coverage period. This is
sometimes quoted as number of claims per unit of
exposure.
|
Generally
accepted accounting principles (“GAAP”):
|
Generally
accepted accounting principles as defined by the American Institute
of
Certified Public Accountants or statements of the Financial Accounting
Standards Board. GAAP is the method of accounting to be used by AmTrust
for reporting to stockholders.
|
Gross
premiums written:
|
Total
premiums for insurance written during a given period.
|
Incurred
but not reported (“IBNR”):
|
Reserves
for estimated losses that have been incurred by insureds and reinsureds
but not yet reported to the insurer or reinsurer, including unknown
future
developments on losses which are known to the insurer or
reinsurer.
|
Layer:
|
The
interval between the retention or attachment point and the maximum
limit
of indemnity for which an insurer or reinsurer is
responsible.
|
Loss
reserves:
|
Liabilities
established by insurers and reinsurers to reflect the estimated cost
of
claims payments and the related expenses that the insurer or reinsurer
will ultimately be required to pay with respect to insurance or
reinsurance it has written. Reserves are established for losses and
for
loss expenses.
|
Losses
and loss adjustment expense:
|
The
expense of settling claims, including legal and other fees and the
portion
of general expenses allocated to claim settlement costs (also known
as
claim adjustment expenses) plus losses incurred with respect to
claims.
|
Losses
incurred:
|
The
total losses sustained by an insurer or reinsurer under a policy
or
policies, whether paid or unpaid. Incurred losses include a provision
for
IBNR.
|
Loss
portfolio transfer
|
The
transfer of incurred losses from one insurer to another. The transferor
may enter into a loss portfolio transfer to exit from a line or class
of
insurance, among other reasons. The transferee may enter into a loss
portfolio transfer to acquire a line of business, among other reasons,
and
further seeks to profit from the assumed business by investing the
sale
price it has received over the length of time it requires to settle
the
claims it has assumed.
|
Net
combined ratio:
|
The
net combined ratio is the sum of the net loss ratio and the net expense
ratio, determined in accordance with either SAP or GAAP. A net combined
ratio below 100% generally indicates profitable underwriting prior
to the
consideration of investment income. A net combined ratio over 100%
generally indicates unprofitable underwriting prior to the consideration
of investment income.
|
Net
expense ratio:
|
The
ratio of acquisition expenses, salaries and benefits and other insurance
general and administrative expenses to net premiums earned, determined
in
accordance with either SAP or GAAP.
|
Net
loss ratio:
|
The
ratio of losses and loss adjustment expense to net premiums earned,
determined in accordance with either SAP or GAAP.
|
Net
premiums earned:
|
The
portion of net premiums written during or prior to a given period
that was
actually recognized as income during such period.
|
Net
premiums written:
|
Gross
premiums written for a given period less premiums ceded to reinsurers
during such period.
|
Premiums:
|
The
amount charged during the term on policies and contracts issued,
renewed
or reinsured by an insurance company or reinsurance
company.
|
Property
insurance:
|
Insurance
that provides coverage to a person with an insurable interest in
tangible
property for that person’s property loss, damage or loss of
use.
|
Quota
share reinsurance:
|
Reinsurance
under which the insurer cedes a fixed or variable percentage of
liabilities, premiums and losses for each policy covered on a pro
rata
basis.
|
Rates:
|
Amounts
charged per unit of insurance and reinsurance (also sometimes shown
per
unit of exposure).
|
Reinsurance:
|
An
arrangement in which an insurance company, the reinsurer, agrees
to
indemnify another insurance or reinsurance company, the ceding company,
against all or a portion of the insurance or reinsurance risks
underwritten by the ceding company under one or more policies. Reinsurance
can provide a ceding company with several benefits, including a reduction
in net liability on individual risks and catastrophe protection from
large
or multiple losses. Reinsurance also provides a ceding company with
additional underwriting capacity by permitting it to accept larger
risks
and write more business than would be possible without a concomitant
increase in capital and surplus, and facilitates the maintenance
of
acceptable financial ratios by the ceding company. Reinsurance does
not
legally discharge the primary insurer from its liability with respect
to
its obligations to the insured.
|
Reinsurance
agreement:
|
A
contract specifying the terms of a reinsurance transaction (also
known as
a reinsurance certificate).
|
Reserves:
|
Liabilities
established by insurers and reinsurers to reflect the estimated costs
of
claim payments and the related expenses that the insurer or reinsurer
will
ultimately be required to pay with respect to insurance or reinsurance
it
has written. Reserves are established for losses, for loss expenses
and
for unearned premiums. Loss reserves consist of “case reserves,” or
reserves established with respect to individual reported claims,
and “IBNR
reserves.” For reinsurers, loss expense reserves are generally not
significant because substantially all of the loss expenses associated
with
particular claims are incurred by the primary insurer and reported
to
reinsurers as losses. Unearned premium reserves constitute the portion
of
premium paid in advance for insurance or reinsurance that has not
yet been
provided. See also “Loss Reserves.”
|
Retention:
|
The
amount or portion of risk that an insurer retains for its own account.
Losses in excess of the retention level up to the outer limit of
the
policy or program, if any, that do not fall within any applicable
deductible are paid by the reinsurer. In proportional agreements,
the
retention may be a percentage of the original policy’s limit. In excess of
loss business, the retention is a dollar amount of loss, a loss ratio
or a
percentage.
|
Retention
may also mean that portion of the loss retained by the insured or
policyholder. Most insureds do not purchase insurance to cover their
entire exposure. Rather, they elect to take a deductible or self-insured
retention, a portion of the risk that they will cover
themselves.
|
|
Risk-based
capital (“RBC”):
|
A
measure adopted by the NAIC and enacted by states for determining
the
minimum statutory capital and surplus requirements of insurers with
required regulatory and company actions that apply when an insurer’s
capital and surplus is below these minimums.
|
Specialty
lines:
|
Lines
of insurance that provide coverage for risks that are often unusual
or
difficult to place and do not fit the underwriting criteria of standard
commercial products carriers.
|
Statutory
accounting principles (“SAP”):
|
Recording
transactions and preparing financial statements in accordance with
the
rules and procedures prescribed or permitted by United States state
insurance regulatory authorities including the NAIC, which in general
reflect a liquidating, rather than going concern, concept of
accounting.
|
Surplus:
|
As
determined under SAP, the amount remaining after all liabilities,
including loss reserves, are subtracted from all admitted assets.
Admitted
assets are assets of an insurer prescribed or permitted by a state
to be
recognized on the statutory balance sheet. Surplus is often referred
to as
“surplus as regards policyholders” for statutory accounting
purposes.
|
Treaty
reinsurance; Reinsurance treaties:
|
The
reinsurance of a specified type or category of risks defined in a
reinsurance agreement between a primary insurer or other reinsured
and a
reinsurer. Typically, in treaty reinsurance, the primary insurer
or
reinsured is obligated to offer, and the reinsurer is obligated to
accept,
a specified portion of all of that type or category of risks originally
written by the primary insurer or reinsured.
|
Underwriter:
|
An
employee of an insurance or reinsurance company who examines, accepts
or
rejects risks and classifies accepted risks in order to charge an
appropriate premium for each accepted risk. The underwriter is expected
to
select business that will produce an average risk of loss no greater
than
that anticipated for the class of business.
|
Underwriting:
|
The
insurer’s or reinsurer’s process of reviewing applications for coverage,
and the decision whether to accept all or part of the exposure and
determination of the applicable premiums; also refers to the acceptance
of
that coverage.
|
Workers’
compensation:
|
A
system (established under state and federal laws) under which employers
provide insurance for benefit payments to their employees for work-related
injuries, deaths and diseases, regardless of
fault.
|
|
Page
|
Audited
Annual Financial Statements
|
|
F-2
|
|
F-4
|
|
F-5
|
|
F-6
|
|
F-7
|
|
F-8
|
|
Supplementary
Information
|
|
F-39
|
|
F-40
|
|
F-42
|
|
F-43
|
|
F-44
|
|
Unaudited
Interim Financial Statements
|
|
Report
of Independent Registered Public Accounting Firm
|
F-45
|
F-46
|
|
F-47
|
|
F-48
|
|
F-49
|
|
F-50
|
AmTrust
Financial Services, Inc. and Subsidiaries
Consolidated
Balance Sheets
(in thousands, except per share data) |
|||||||
December
31,
|
2005
|
2004
|
|||||
Assets
|
|||||||
Investments:
|
|||||||
Fixed
maturities, held-to-maturity, at amortized cost
|
$
|
151,104
|
$
|
136,692
|
|||
Fixed
maturities, available-for-sale, at market value
|
39,876
|
8,609
|
|||||
Equity
securities, available-for-sale, at market value
|
32,755
|
5,512
|
|||||
Short-term
investments
|
74,732
|
16,820
|
|||||
Other
investments
|
1,498
|
1,851
|
|||||
Total
investments
|
299,965
|
169,484
|
|||||
Cash
and cash equivalents
|
115,847
|
28,727
|
|||||
Real
estate properties held for resale
|
—
|
161,555
|
|||||
Accrued
interest and dividends
|
2,772
|
1,898
|
|||||
Premiums
receivable, net
|
81,070
|
56,468
|
|||||
Receivables
from discontinued operations
|
3,571
|
11,736
|
|||||
Reinsurance
recoverable
|
17,667
|
14,445
|
|||||
Funds
held with reinsured companies
|
—
|
350
|
|||||
Prepaid
reinsurance premiums
|
19,281
|
12,981
|
|||||
Prepaid
expenses and other assets
|
7,590
|
4,685
|
|||||
Deferred
policy acquisition costs
|
23,751
|
17,936
|
|||||
Deferred
tax asset
|
9,396
|
1,952
|
|||||
Property
and equipment, net
|
9,651
|
798
|
|||||
Due
from related parties
|
—
|
5,206
|
|||||
Goodwill
and intangible assets
|
20,781
|
9,309
|
|||||
$
|
611,342
|
$
|
497,530
|
||||
Liabilities
and Stockholders’ Equity
|
|||||||
Liabilities:
|
|||||||
Note
payable, bank
|
$
|
25,000
|
$
|
1,700
|
|||
Mortgage
debt, discontinued operations
|
—
|
92,919
|
|||||
Ceded
reinsurance premiums payable
|
17,782
|
4,572
|
|||||
Loss
and loss expense reserves
|
168,007
|
99,364
|
|||||
Reinsurance
payable on paid losses
|
1,951
|
1,644
|
|||||
Funds
held under reinsurance treaties
|
3,034
|
9,013
|
|||||
Unearned
premiums
|
156,802
|
105,107
|
|||||
Accrued
expenses and other current liabilities
|
61,430
|
43,194
|
|||||
Federal
income tax payable
|
8,925
|
1,807
|
|||||
Other
liabilities
|
—
|
6,409
|
|||||
Junior
subordinate debt
|
50,000
|
—
|
|||||
Loans
from ultimate stockholders
|
—
|
12,973
|
|||||
Total
liabilities
|
492,931
|
378,702
|
|||||
Commitments
and Contingencies
|
|||||||
Stockholders’
Equity:
|
|||||||
Common
stock, $.01 par value; 100,000,000 shares authorized,
24,089,286
issued and outstanding
|
241
|
241
|
|||||
Preferred
stock, $.01 par value; 10,000,000 shares authorized, 1,000 issued
and
outstanding
|
60,000
|
60,000
|
|||||
Additional
paid-in capital
|
12,406
|
12,406
|
|||||
Accumulated
other comprehensive income (loss)
|
(5,014
|
)
|
22,162
|
||||
Retained
earnings
|
50,778
|
24,019
|
|||||
118,411
|
118,828
|
||||||
$
|
611,342
|
$
|
497,530
|
AmTrust
Financial Services, Inc. and Subsidiaries
|
||||||||||
Year
ended December 31,
|
2005
|
2004
|
2003
|
|||||||
Revenues:
|
||||||||||
Premium
income:
|
||||||||||
Premiums
written
|
$
|
259,213
|
$
|
187,498
|
$
|
81,923
|
||||
Change
in unearned premiums
|
(43,183
|
)
|
(48,684
|
)
|
(30,256
|
)
|
||||
Net
earned premium
|
216,030
|
138,814
|
51,667
|
|||||||
Commission
and fee income
|
8,196
|
5,202
|
1,052
|
|||||||
Net
investment income
|
11,534
|
3,929
|
2,305
|
|||||||
Net
realized gain (loss)
|
4,875
|
1,278
|
(1,004
|
)
|
||||||
Finance
company revenues
|
—
|
510
|
767 | |||||||
Other
|
—
|
222
|
496
|
|||||||
Total
revenues
|
240,635
|
149,955
|
55,283
|
|||||||
Expenses:
|
||||||||||
Loss
and loss adjustment expense
|
142,006
|
90,178
|
34,884
|
|||||||
Salaries
and benefits
|
13,903
|
10,945
|
4,063
|
|||||||
Policy
acquisition expenses
|
30,082
|
20,082
|
8,194
|
|||||||
Other
underwriting expenses
|
25,062
|
12,597
|
4,696
|
|||||||
Total
expenses
|
211,053
|
133,802
|
51,837
|
|||||||
Operating
income from continuing operations
|
29,582
|
16,153
|
3,446
|
|||||||
Other
income (expenses):
|
||||||||||
Foreign
currency gain
|
388
|
—
|
—
|
|||||||
Interest
expense
|
(2,784
|
)
|
(264
|
)
|
(221
|
)
|
||||
Miscellaneous
expense
|
—
|
(85
|
)
|
(545
|
)
|
|||||
Total
other expenses
|
(2,396
|
)
|
(349
|
)
|
(766
|
)
|
||||
Income
from continuing operations before provision for income
taxes
|
27,186
|
15,804
|
2,680
|
|||||||
Provision
for income taxes:
|
||||||||||
Current
|
13,088
|
4,355
|
1,840
|
|||||||
Deferred
|
(6,422
|
)
|
(527
|
)
|
(582
|
)
|
||||
Total
provision for income taxes
|
6,666
|
3,828
|
1,258
|
|||||||
Income
from continuing operations
|
20,520
|
11,976
|
1,422
|
|||||||
Discontinued
operations:
|
||||||||||
Foreign
currency gain from discontinued operations
|
21,745
|
—
|
—
|
|||||||
Other
income (loss) from discontinued operations
|
(4,706
|
)
|
2,134
|
(30
|
)
|
|||||
Income
(loss) from discontinued operations
|
17,039
|
2,134
|
(30
|
)
|
||||||
Net
income
|
|
37,559
|
|
14,110
|
1,392
|
|||||
Preferred stock divided accumulated | 1,200 | 4,800 | 4,800 | |||||||
Net income (loss) available to common stockholders |
$
|
36,359 | $ | 9,310 |
$
|
(3,408 | ) | |||
Earnings
(loss) per common share:
|
||||||||||
Income
(loss) from continuing operations
|
$
|
.80
|
$
|
.30
|
(.14
|
)
|
||||
Income
(loss) from discontinued operations
|
.71
|
.09
|
—
|
|||||||
Net
income (loss) per common share
|
$
|
1.51
|
$
|
.39
|
$
|
(.14
|
)
|
AmTrust
Financial Services, Inc. and Subsidiaries
|
|||||||||||||||||||
Years ended December 31, 2005, 2004 and 2003 | |||||||||||||||||||
Common
Stock
|
Preferred
stock
|
Additional
paid-in capital
|
Accumulated
other comprehensive income (loss)
|
Retained
earnings
|
Total
|
||||||||||||||
Balance
December 31, 2002
|
$
|
241
|
$
|
60,000
|
$
|
12,406
|
$
|
(2,116
|
)
|
$
|
8,517
|
$
|
79,048
|
||||||
Comprehensive
income, net of tax:
|
|||||||||||||||||||
Net
income
|
—
|
—
|
—
|
—
|
1,392
|
1,392
|
|||||||||||||
Foreign
currency translation
|
—
|
—
|
—
|
15,655
|
—
|
15,655
|
|||||||||||||
Unrealized
holding gain on available-for sale securities
|
—
|
—
|
—
|
2,606
|
—
|
2,606
|
|||||||||||||
Deferred
tax benefit
|
—
|
—
|
—
|
(410
|
)
|
—
|
(410
|
)
|
|||||||||||
Reclassification
adjustment for securities sold during the year
|
—
|
—
|
—
|
176
|
—
|
176
|
|||||||||||||
Comprehensive
income
|
19,419
|
||||||||||||||||||
Balance,
December 31, 2003
|
241
|
60,000
|
12,406
|
15,911
|
9,909
|
98,467
|
|||||||||||||
Comprehensive
income, net of tax:
|
|||||||||||||||||||
Net
income
|
—
|
—
|
—
|
—
|
14,110
|
14,110
|
|||||||||||||
Foreign
currency translation
|
—
|
—
|
—
|
6,606
|
—
|
6,606
|
|||||||||||||
Unrealized
holding gain on available-for sale securities
|
—
|
—
|
—
|
75
|
—
|
75
|
|||||||||||||
Deferred
tax benefit
|
—
|
—
|
—
|
(55
|
)
|
(55
|
)
|
||||||||||||
Reclassification
adjustment for securities sold during the year
|
—
|
—
|
—
|
(375
|
)
|
—
|
(375
|
)
|
|||||||||||
Comprehensive
income
|
20,361
|
||||||||||||||||||
Balance,
December 31, 2004
|
241
|
60,000
|
12,406
|
22,162
|
24,019
|
118,828
|
|||||||||||||
Comprehensive
income, net of tax:
|
|||||||||||||||||||
Net
income
|
—
|
—
|
—
|
—
|
37,559
|
37,559
|
|||||||||||||
Foreign
currency translation
|
—
|
—
|
—
|
(24,491
|
)
|
—
|
(24,491
|
)
|
|||||||||||
Unrealized
holding gain on available-for sale securities
|
—
|
—
|
—
|
(2,713
|
)
|
—
|
(2,713
|
)
|
|||||||||||
Reclassification
adjustment for securities sold during the year
|
—
|
—
|
—
|
28
|
—
|
28
|
|||||||||||||
Comprehensive income |
10,383
|
||||||||||||||||||
Preferred
stock dividends
|
—
|
—
|
—
|
—
|
(10,800
|
)
|
(10,800
|
)
|
|||||||||||
Balance,
December 31, 2005
|
$
|
241
|
$
|
60,000
|
$
|
12,406
|
$
|
(5,014
|
)
|
$
|
50,778
|
$
|
118,411
|
AmTrust
Financial Services, Inc. and Subsidiaries
|
||||||||||
Years
ended December 31,
|
2005
|
2004
|
2003
|
|||||||
Cash
flows from operating activities:
|
||||||||||
Net
income from continuing operations
|
$
|
20,520
|
$
|
11,976
|
$
|
1,422
|
||||
Adjustments
to reconcile net income from continuing operations to net cash
provided by
operating activities of continuing operations:
|
||||||||||
Depreciation
and amortization
|
979
|
371
|
136
|
|||||||
Realized
(gain) loss on marketable securities
|
(4,875
|
)
|
(1,278
|
)
|
1,004
|
|||||
Bad
debt expense
|
4,725
|
2,093
|
243
|
|||||||
Change
in deferred tax asset
|
(8,890
|
)
|
(822
|
)
|
(172
|
)
|
||||
Foreign
currency gain
|
(388
|
)
|
—
|
—
|
||||||
Income
(loss) from discontinued operations
|
(4,706
|
)
|
2,134
|
(30
|
)
|
|||||
Changes
in assets - (increase) decrease:
|
||||||||||
Premiums
receivable
|
(29,630
|
)
|
(32,419
|
)
|
(14,258
|
)
|
||||
Reinsurance
recoverable
|
(3,222
|
)
|
(10,402
|
)
|
2,655
|
|||||
Deferred
policy acquisition costs
|
(5,815
|
)
|
(8,052
|
)
|
(7,350
|
)
|
||||
Prepaid
reinsurance premiums
|
(6,300
|
)
|
(1,269
|
)
|
(4,453
|
)
|
||||
Prepaid
expenses and other assets
|
1,777
|
(5,701
|
)
|
745
|
||||||
Receivable
from discontinued operations
|
8,165
|
638
|
2,476
|
|||||||
Changes
in liabilities — increase (decrease):
|
||||||||||
Reinsurance
payable
|
13,210
|
461
|
1,924
|
|||||||
Loss
and loss expense reserves
|
68,643
|
61,922
|
17,534
|
|||||||
Unearned
premiums
|
51,695
|
50,715
|
34,474
|
|||||||
Funds
held under reinsurance treaties
|
(5,979
|
)
|
6,069
|
2,842
|
||||||
Accrued
expenses and other current liabilities
|
18,088
|
22,111
|
16,440
|
|||||||
Net
cash provided in operating activities
|
117,997
|
98,547
|
55,632
|
|||||||
Cash
flows from investing activities:
|
||||||||||
Purchases
of securities with fixed maturities
|
(162,002
|
)
|
(135,003
|
)
|
(72,552
|
)
|
||||
Purchases
of equity securities
|
(82,240
|
)
|
(1,911
|
)
|
(997
|
)
|
||||
Proceeds
from sales of fixed maturity securities
|
59,127
|
40,977
|
23,137
|
|||||||
Proceeds
from sales of equity securities
|
55,573
|
1,549
|
2,712
|
|||||||
Sales
(purchases) of other investments
|
353
|
(1,296
|
)
|
(6
|
)
|
|||||
Sale
of real estate - discontinued operations
|
161,555
|
—
|
—
|
|||||||
Acquisition
of assets by subsidiary
|
—
|
—
|
100
|
|||||||
Acquisition
of intangible assets and subsidiaries
|
(10,434
|
)
|
(2,209
|
)
|
(600
|
)
|
||||
Capital
expenditures
|
(9,417
|
)
|
(615
|
)
|
(240
|
)
|
||||
Advances
to/from affiliates
|
—
|
5,291
|
(2,291
|
)
|
||||||
Other
liabilities
|
—
|
1,171
|
(761
|
)
|
||||||
Net
cash provided (used) in investing activities
|
12,515
|
(92,046
|
)
|
(51,498
|
)
|
|||||
Cash
flows from financing activities:
|
||||||||||
Issuance
of junior subordinate debentures
|
50,000
|
—
|
—
|
|||||||
Stockholder
loan
|
(12,973
|
)
|
12,973
|
—
|
||||||
(Repayments)
borrowings on note payable, bank
|
23,300
|
(1,949
|
)
|
—
|
||||||
Repayment
of mortgage - discontinued operations
|
(92,919
|
)
|
—
|
—
|
||||||
Dividends
paid on preferred stock
|
(10,800
|
)
|
—
|
—
|
||||||
Net
cash provided (used) by financing activities
|
(43,392
|
)
|
11,024
|
—
|
||||||
Net
increase in cash and cash equivalents
|
87,120
|
17,525
|
4,134
|
|||||||
Cash
and cash equivalents, beginning year
|
28,727
|
11,202
|
7,068
|
|||||||
Cash
and cash equivalents, end of year
|
$
|
115,847
|
$
|
28,727
|
$
|
11,202
|
1.
|
Nature
of
Operations
|
AmTrust
Financial Services, Inc. (the “Company”) is an insurance holding company
formed under the laws of Delaware. Through its wholly-owned subsidiaries,
the Company provides specialty property and casualty insurance
focusing on
workers’ compensation for small business, specialty risk and extended
warranty coverage, and specialty middle-market property and casualty
coverages
|
|
2.
|
Significant
Accounting
Policies
|
(a)
|
Basis
of Reporting
The
consolidated financial statements of the Company have been prepared
in
conformity with accounting principles generally accepted in the
United
States of America. The consolidated financial statements include
the
accounts of the Company and its domestic and foreign
subsidiaries.
|
All
significant intercompany transactions and accounts have been eliminated
in
the consolidated financial statements.
|
|||
(b) |
Cash
and Cash Equivalents
The
Company maintains its cash accounts in several banks and brokerage
institutions. At various times during the year, the Company’s cash
balances may exceed the amount of $100 insured by the Federal Deposit
Insurance Corporation (“FDIC”).
Cash
equivalents consist of investments in money market funds and short-term
investments with an original maturity of 90 days or less and are
stated at
cost, which approximates market.
|
||
(c) |
Property
and Equipment
Property
and equipment are recorded at cost. Maintenance and repairs are
charged to
operations as incurred. Depreciation is computed on a straight-line
basis
over the estimated useful lives of the assets, as
follows:
|
Building
|
40
years
|
Furniture
and fixtures
|
5
years
|
Computer
equipment and software
|
3
to 5 years
|
Leasehold
improvements
|
Lesser
of lease
|
term
or 15 years
|
The
Company accounts for its internal use software under Statement
of Position
(“SOP”) No. 98-1, “Accounting for the Costs of Computer Software Developed
or Obtained for Internal Use”. Accordingly, the Company capitalizes costs
of computer software developed or obtained for internal use that
are
specifically identifiable, have determinable lives and relate to
future
use.
|
(d) |
Income
Taxes
|
||
The
Company joins its domestic subsidiaries in the filing of a consolidated
Federal income tax return and is party to a Federal income tax
allocation
agreement. Under the tax sharing agreement, the Company pays to
or
receives from its subsidiaries the amount, if any, by which the
group’s
Federal income tax liability was affected by virtue of inclusion
of the
subsidiary in the consolidated Federal return
|
|||
Effective
for the year ended December 31, 2004, AmTrust International Insurance
Ltd.
(“AII”), which operates in Bermuda, joined the Company’s other eligible
domestic subsidiaries in the filing of the consolidated tax return.
This
was due to the nature of the foreign subsidiary’s activities in the United
States. Other foreign subsidiaries file in their respective country
of
domicile, as required.
|
|||
Deferred
income taxes reflect the impact of “temporary differences” between the
amount of assets and liabilities for financial reporting purposes
and such
amounts as measured by tax laws and regulations. The deferred tax
asset
primarily consists of the book versus tax differences for premiums
earned,
loss and loss adjustment expense reserve discounting, policy acquisition
costs, earned but unbilled premiums, and unrealized holding losses
on
marketable equity securities. Changes in deferred income tax assets
and
liabilities that are associated with components of other comprehensive
income, primarily unrealized investment gains and losses, are recorded
directly to other comprehensive income. Otherwise, changes in deferred
income tax assets and liabilities are included as a component of
income
tax expense. The
Company evaluates the recoverability of deferred tax assets. A
valuation
allowance is recorded to reduce any portion of the deferred tax
asset that
is expected to more likely not be realized. Adjustments to the
valuation
allowance will be made if there is a change in management’s assessment of
the amount of the deferred tax asset that’s
realizable.
|
|||
(e) |
Estimates
|
||
The
preparation of financial statements in conformity with generally
accepted
accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and
disclosure of contingent assets and liabilities at the date of
the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Such estimates and assumptions, which
include
the reserves for losses and LAE, are subject to considerable estimation
error due to the inherent uncertainty in projecting ultimate claim
amounts
that will be reported and settled over a period of many years.
In
addition, estimates and assumptions associated with the amortization
of
deferred charges, the determination of fair value of invested assets
and
related impairments, and the determination of goodwill impairments
require
considerable judgment by management. On an on-going basis, management
reevaluates its assumptions and the methods of calculating its
estimates.
Actual results may differ from the estimates and assumptions used
in
preparing the consolidated financial statements.
|
|||
(f)
|
Premiums
|
||
Insurance
premiums are recognized as earned primarily on the straight-line
basis
over the contract period. Unearned premiums represent the portion
of
premiums written which is applicable to the unexpired term of policies
in
force. Premium adjustments on contracts and audit premiums are
based on
estimates made over the contract period. Premiums earned but not
yet
billed to insureds are estimated and accrued, net of related costs.
These
estimates are subject to the effects of trends in payroll audit
adjustments. Although considerable variability is inherent in such
estimates, management believes that the accrual for earned but
unbilled
premiums is reasonable. The estimates are continually reviewed
and
adjusted as necessary as experience develops or new information
becomes
known; such adjustments are included in current operations. The
Company
also estimates an allowance for doubtful accounts which amounted
to $5,821
and $2,336 at December 31, 2005 and 2004, respectively.
|
|||
(g)
|
Loss
and LAE
|
||
Loss
and loss adjustment expenses (“LAE”) represent the estimated ultimate net
costs of all reported and unreported losses incurred through December
31.
The reserves for unpaid losses and LAE are estimated using individual
case-basis valuations and statistical analyses and are not discounted.
Although considerable variability is inherent in the estimates
of reserves
for losses and LAE, management believes that the reserves for losses
and
LAE are adequate. The estimates are continually reviewed and adjusted
as
necessary as experience develops or new information becomes known.
Such
adjustments are included in current operations
|
|||
(h)
|
Investments
|
||
The
Company follows Financial Accounting Standards Board (“FASB”) Statement of
Financial Accounting Standards (“SFAS”) No. 115, “Accounting for Certain
Investments in Debt and Equity Securities,” which requires categorization
of fixed maturities as held-to-maturity, available-for-sale or
trading and
equity securities as available-for-sale or trading.
|
|||
Fixed
maturities (bonds and certificates of deposit) that the Company
has the
specific intent and ability to hold until maturity are carried
at
amortized cost. Fixed maturities that the Company does not have
the
positive intent and ability to hold to maturity and all equity
securities
(common stocks, mutual funds and non-redeemable preferred stock)
are
classified as available-for-sale and carried at fair value. Unrealized
gains or losses on available-for-sale securities are reported as
a
component of accumulated other comprehensive income. The Company
does not
have any trading securities. In addition, the Company evaluates
its
investment securities for other-than-temporary declines based on
quantitative and qualitative factors.
|
|||
The
Company uses the equity method of accounting for investments in
limited
partnerships in which its ownership interest of the limited partnership
enables the Company to influence the operating or financial decisions
of
the investee company, but the Company’s interest in the limited
partnership does not require consolidation. The Company’s proportionate
share of equity in net income of these unconsolidated affiliates
is
reported in net investment income.
|
|||
Short-term
investments are carried at cost, which approximates fair value,
and
include investments with maturities of less than one year at date
of
acquisition.
|
|||
Net
investment income consists primarily of interest and dividends
less
expenses. Interest on fixed maturities, adjusted for any amortization
of
premium or discount, is recorded as income when earned. Investment
expenses are accrued as incurred. Realized investment gains or
losses are
computed using the specific costs of securities sold, and, if applicable,
include write-downs on investments having other-than-temporary
decline in
value.
|
|||
Management
evaluates whether temporary or other than temporary impairments
(“OTTI”)
have occurred on a case by case basis. Management considers a wide
range
of factors about the security issuer and uses its best judgment
in
evaluating the cause and decline in the estimated fair value of
the
security and in assessing the prospects for near-term recovery.
Inherent
in management’s evaluation of the security are assumptions and estimates
about the operations of the issuer and its future earnings potential.
Considerations used by the Company in the other than temporary
impairment
evaluation process include, but are not limited to: (i) the length
of time
and the extent to which the market value has been below amortized
cost;
(ii) whether the issuer is experiencing significant financial
difficulties; (iii) financial difficulties being experienced by
an entire
industry sector or sub-sector; (iv) economically depressed geographic
locations; (v) situations where the issuer, series of issuers or
industry
has a catastrophic type of loss or has exhausted natural resources;
(vi)
situations where it is determined that an impairment is attributable
to
changes in market interest rates, the Company’s ability and intent to hold
impaired securities until recovery of fair value at or above cost;
and
(vii) other subjective factors, including concentrations and information
obtained from regulators and rating
agencies.
|
(i)
|
Goodwill
and Intangible Assets
|
||
Identifiable
intangible assets with finite lives are amortized on a straight-line
basis
over their estimated useful lives. The Company evaluates the
recoverability of its intangible assets whenever changes in circumstances
warrant it. If it is determined that an impairment exists, the
excess of
the unamortized balance over the fair value of the intangible asset
will
be charged to income at that time.
|
|||
Intangible
assets with an indefinite life and goodwill are not amortized.
The Company
continues to review the carrying value of goodwill related to all
of its
investments for any impairment at least annually. If it is determined
that
an impairment exists, the Company adjusts the carrying value of
goodwill
to fair value. The impairment charge is recorded in income in the
period
in which it is determined.
|
|||
(j)
|
Policy
Acquisition Costs
|
||
Costs
of acquiring new business, principally commissions, premium taxes
and
assessments relating to new and renewal insurance business are
deferred
and amortized over the terms of the underlying policies. The Company
considers anticipated investment income in determining whether
a premium
deficiency relating to short duration contracts exists. Amortization
of
deferred acquisition costs was $5,815, $8,052 and $7,350 for the
years
ended December 31, 2005, 2004 and 2003, respectively.
|
|||
(k)
|
Concentration
and Credit Risk
|
||
Financial
instruments that potentially subject the Company to concentration
of
credit risk are primarily cash and cash equivalents, investments
and
accounts receivable. Investments are diversified through many industries
and geographic regions through the use of money managers who employ
different investment strategies. The Company limits the amount
of credit
exposure with any one financial institution and believes that no
significant concentration of credit risk exists with respect to
cash and
investments. At December 31, 2005 and 2004, the outstanding premiums
and
notes receivable balance is generally diversified due to the number
of
entities composing the Company’s customer base. To reduce credit risk, the
Company performs ongoing evaluations of its customers’ financial
condition. The Company also has receivables from its reinsurers.
Reinsurance contracts do not relieve the Company from its obligations
to
policyholders. Failure of reinsurers to honor their obligations
could
result in losses to the Company. The Company periodically evaluates
the
financial condition of its reinsurers to minimize its exposure
to
significant losses from reinsurer insolvencies. It is the policy
of
management to review all outstanding receivables at year end as
well as
the bad debt write-offs experienced in the past and establish an
allowance
for doubtful accounts, if deemed
necessary.
|
(l)
|
Assessments
|
||
Assessments
represent a funding mechanism employed by states to provide funds
to cover
policyholder obligations of insolvent entities. Estimated liabilities
for
assessments, required under State Workers’ Compensation laws, are included
in accrued expenses and other liabilities. Assessment expense for
the
years ended December 31, 2005, 2004 and 2003 was approximately
$7,351,
$4,048, and $2,104, respectively.
|
|||
(m)
|
Earnings
Per Share
|
||
Basic
earnings per share are computed based on the weighted-average number
of
common shares outstanding. Net income has been adjusted for the
effect of
the dividends accumulated on the cumulative preferred
stock.
|
2005
|
2004
|
2003
|
||||||||
Net
income
|
$
|
37,559
|
$
|
14,110
|
$
|
1,392
|
||||
Less:
Preferred stock
|
||||||||||
Dividend(1)
|
(1,200
|
)
|
(4,800
|
)
|
(4,800
|
)
|
||||
Net
income (loss) available to common stockholders
|
$
|
36,359
|
$
|
9,310
|
$
|
(3,408
|
)
|
|||
Weighted-average
number of shares outstanding
|
24,089
|
24,089
|
24,089
|
|||||||
Basic
earnings per common share available to common
stockholders:
|
||||||||||
Income
(loss) from continuing operations
|
$
|
.80
|
$
|
.30
|
(.14
|
)
|
||||
Discontinued
operations
|
.71
|
.09
|
—
|
|||||||
Net
income (loss) per common share
|
$
|
1.51
|
$
|
.39
|
$
|
(.14
|
)
|
|||
(1) |
Dividends
were declared in 2005 (See Note 18)
|
Giving
pro forma effect to the subsequent issuance of an aggregate of
10,285,714
shares of common stock in exchange for all the issued and outstanding
shares of preferred stock as described in Note 18(a), diluted earnings
per
share would be:
|
2005
|
2004
|
2003
|
||||||||
Diluted
earnings per common share equivalent:
|
||||||||||
Income
from continuing operations
|
$
|
.60
|
$
|
.35
|
$
|
.04
|
||||
Discontinued
operations
|
.49
|
.06
|
—
|
|||||||
Diluted
net income per common share
|
$
|
1.09
|
$
|
.41
|
$
|
.04
|
(n)
|
Reinsurance
|
||
Reinsurance
premiums, losses and LAE are accounted for on a basis consistent
with
those used in accounting for the original policies issued and the
terms of
the reinsurance contracts. Premiums earned and losses incurred
ceded to
other companies have been recorded as a reduction of premium revenue
and
losses and LAE. Commissions allowed by reinsurers on business ceded
have
been accounted for as a reduction of the related policy acquisition
costs.
Reinsurance recoverables are reported relating to the portion of
reserves
and paid losses and LAE that are ceded to other companies. The Company
remains contingently liable for all loss payments, in the event
of failure
to collect from the reinsurer.
|
|||
(o)
|
Fair
Value of Financial Instruments
|
||
Fair
value for fixed maturity and equity securities is based on quoted
market
prices or, if they are not actively traded, on estimated values
obtained
from independent pricing services. Fair values of other financial
instruments approximate their carrying values.
|
|||
(p)
|
Foreign
Currency
|
||
The
assets and liabilities of the Ireland subsidiary are translated
from its
functional currency (Euro) to the U.S. dollar using the exchange
rate at
the balance sheet date. Results of operations are translated from
the
designated functional currency to the U.S. dollar using average
exchange
rates during the period. Foreign currency translation gains or
losses are
included in stockholders’ equity as a component of accumulated other
comprehensive income.
|
|||
(q) |
Reclassifications
|
||
Certain
accounts in the prior years’ consolidated financial statements have been
reclassified for comparative purposes to conform to the current
year’s
presentation.
|
(r)
|
Recent
Accounting Pronouncements
|
||
In
November 2005, the FASB issued FASB Staff Position (“FSP”) FAS 115-1 and
FAS 124-1, “The Meaning of Other-Than-Temporary Impairment and its
Application to Certain Investments” (“FSP 115-1”), which provides guidance
on determining when investments in certain debt and equity securities
are
considered impaired, whether that impairment is other-than-temporary,
and
how to measure such impairment loss. FSP 115-1 also includes accounting
considerations subsequent to the recognition of an other-than-temporary
impairment and requires certain disclosures about unrealized losses
that
have not been recognized as other-than-temporary impairments. FSP
115-1
supersedes Emerging Issues Task Force (“EITF”) Issue No. 03-1. The Meaning
of Other-Than-Temporary Impairment and Its Application to Certain
Investments (“EITF 03-1”) and EITF Topic D-44, Recognition of
Other-Than-Temporary Impairment on the Planned Sale of a Security
Whose
Cost Exceeds Fair Value (“Topic D-44”) and nullifies the accounting
guidance on the determination of whether an investment is
other-than-temporarily impaired as set forth in EITF 03-1. FSP
115-1 is
required to be applied to reporting periods beginning after December
15,
2005. It is not expected to have a material impact on the Company’s
consolidated financial statements in the coming year.
|
|||
In
December 2004, the FASB issued FASB Statement No. 123 (revised
2004),
“Share-Based Payment”, which is a revision of FASB Statement No. 123,
“Accounting for Stock-Based Compensation”. Statement 123(R) supersedes APB
Opinion No. 25, “Accounting for Stock Issued to Employees”, and amends
FASB Statement No. 95, “Statement of Cash Flows”. Generally, the approach
in Statement 123(R) is similar to the approach described in Statement
123.
However, Statement 123(R) requires all share-based payments to
employees,
including grants of employee stock options, to be recognized in
the income
statement based on their fair values. In April 2005, the SEC amended
the
compliance dates for Statement 123(R) from fiscal periods beginning
after
June 15, 2005 to fiscal years beginning after December 15, 2005.
The
Company expects to adopt Statement 123(R) in its fiscal year commencing
January 1, 2006, after the approval of Stock option plan in February
2006
by the Company's stockholders.
|
|||
In
June 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error
Corrections, a replacement of APB No. 20 and SFAS No. 3” (“SFAS No. 154”).
SFAS No. 154 replaces APB No. 20, “Accounting Changes”, and SFAS No. 3,
“Reporting Accounting Changes in Interim Financial Statements” and changes
the requirements for the accounting for and reporting of a change
in
accounting principle. It also applies to changes required by an
accounting
pronouncement in the unusual instance that the pronouncement does
not
include specific transition provisions. When a pronouncement includes
specific transition provisions, those provisions should be followed.
The
Company is required to adopt SFAS No. 154 as of January 1, 2006,
and does
not expect that such adoption will have a significant impact on
its
financial position or results of operations.
|
|||
In
March 2005, the FASB issued FAS Staff Position (“FSP”) FIN 46(R)-5,
“Implicit Variable Interests Under FASB Interpretation No. 46(R)” (“FSP
FIN 46(R)-5”), which requires an enterprise to consider whether it holds
an implicit variable interest in a Variable Interest Entity (“VIE”) and
what effect this may have on the calculation of expected losses
and
residual returns of the VIE and the determination of which party,
if any,
is considered the primary beneficiary of the VIE. FSP FIN 46(R)-5
was
effective for the first reporting period beginning after March
3, 2005 and
did not have a material impact on the Company’s financial condition or
results of operations.
|
3.
|
Investments
|
The
original cost, estimated market value and gross unrealized appreciation
and depreciation of equity securities are presented in the tables
below:
|
|
(a)
|
Available-for-Sale
Securities
|
Year
ended December 31, 2005
|
Original
or
amortized
cost
|
Gross
unrealized
gains
|
Gross
unrealized
losses
|
Market
value
|
|||||||||
Preferred
stock
|
$
|
60
|
$
|
—
|
$
|
—
|
$
|
60
|
|||||
Common
stock
|
37,290
|
3,063
|
(7,658
|
)
|
32,695
|
||||||||
Fixed
maturities
|
40,007
|
660
|
(791
|
)
|
39,876
|
||||||||
$
|
77,357
|
$
|
3,723
|
$
|
(8,449
|
)
|
$
|
72,631
|
Year
ended December 31, 2004
|
Original
or
amortized
cost
|
Gross
unrealized
gains
|
Gross
unrealized
losses
|
Market
value
|
|||||||||
Preferred
stock
|
$
|
50
|
—
|
$
|
(4
|
)
|
$
|
46
|
|||||
Common
stock
|
5,844
|
204
|
(582
|
)
|
5,466
|
||||||||
Fixed
maturities
|
8,691
|
—
|
(82
|
)
|
8,609
|
||||||||
$
|
14,585
|
$
|
204
|
$
|
(668
|
)
|
$
|
14,121
|
Stockholders’
equity for the years ended December 31, 2005 and 2004 includes
a net
unrealized holding loss on equity securities and available-for-sale
fixed
maturities of $4,726 and $464, respectively (net of a deferred
tax benefit
of $1,678 and $101, respectively).
|
|||
Proceeds
from the sale of investments in available-for-sale securities during
the
years ended December 31, 2005, 2004 and 2003 were approximately
$59,206,
$2,622 and $371, respectively.
|
|||
(b)
|
Held-to-Maturity
Securities
|
||
The
amortized cost, estimated market value and gross unrealized appreciation
and depreciation of fixed maturity investments are presented in
the tables
below:
|
Year
ended
December
31, 2005
|
Amortized
cost
|
Unrealized
gains
|
Unrealized
losses
|
Fair
value
|
|||||||||
Obligations
of U.S. Treasury, Government corporations and agencies
|
$
|
140,467
|
$
|
4
|
$
|
(1,843
|
)
|
$
|
138,628
|
||||
Mortgage-backed
securities
|
10,637
|
1
|
(362
|
)
|
10,276
|
||||||||
$
|
151,104
|
$
|
5
|
$
|
(2,205
|
)
|
$
|
148,904
|
Year
ended
December
31, 2004
|
Amortized
cost
|
Unrealized
gains
|
Unrealized
losses
|
Fair
value
|
|||||||||
Obligations
of U.S. Treasury, Government corporations and agencies
|
$
|
126,619
|
$
|
124
|
$
|
(428
|
)
|
$
|
126,315
|
||||
Obligations
of foreign governments
|
250
|
—
|
—
|
250
|
|||||||||
Mortgage-backed
securities
|
9,823
|
28
|
(154
|
)
|
9,697
|
||||||||
$
|
136,692
|
$
|
152
|
$
|
(582
|
)
|
$
|
136,262
|
Proceeds
from sale of investments in held-to-maturity securities during
the years
ended December 31, 2005, 2004 and 2003 were $55,494, $39,904 and
$25,478,
respectively.
|
|||
A
summary of the Company’s held-to-maturity and available-for-sale fixed
maturity securities at December 31, 2005, by contractual maturity,
is
shown below. Expected maturities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations
with or
without call or prepayment
penalties.
|
Amortized
cost
|
Fair
Value
|
||||||
Due
in one year or less
|
$
|
33,909
|
$
|
33,728
|
|||
Due
after one through five years
|
126,793
|
124,520
|
|||||
Due
after five through ten years
|
19,758
|
19,933
|
|||||
Due
after ten years
|
10,651
|
10,599
|
|||||
Total
fixed maturities
|
$
|
191,111
|
$
|
188,780
|
At
December 31, 2005 and 2004, bonds with an asset value of $5,799
and
$4,999, respectively, were on deposit with state insurance departments
to
satisfy regulatory requirements.
|
(c)
|
Investment
Income
|
||
Net
investment income for the years ended December 31, 2005, 2004 and
2003 was
derived from the following sources:
|
2005
|
2004
|
2003
|
||||||||
Fixed
maturities
|
$
|
6,302
|
$
|
2,442
|
$
|
1,433
|
||||
Equity
securities
|
926
|
345
|
298
|
|||||||
Cash
and cash equivalents
|
4,255
|
1,049
|
155
|
|||||||
Loans
to affiliates
|
136
|
132
|
479
|
|||||||
11,619
|
3,968
|
2,365
|
||||||||
Less:
Investment expenses
|
(85
|
)
|
(39
|
)
|
(60
|
)
|
||||
$
|
11,534
|
$
|
3,929
|
$
|
2,305
|
(d)
|
Realized
Gains and Losses
|
||
The
table below indicates the gross realized gains and losses for the
years
ended December 31, 2005, 2004 and
2003.
|
Year
ended
December
31, 2005
|
Gross
gains on sales
|
Gross
losses on sales
|
Net
gains on sales
|
|||||||
Debt
securities
|
$
|
703
|
$
|
(624
|
)
|
$
|
79
|
|||
Equity
Securities
|
4,974
|
(178
|
)
|
4,796
|
||||||
$
|
5,677
|
$
|
(802
|
)
|
$
|
4,875
|
Year
ended
December
31, 2004
|
Gross
gains on sales
|
Gross
losses on sales
|
Net
gains
on
sales
|
|||||||
Debt
securities
|
$
|
522
|
$
|
—
|
$
|
522
|
||||
Equity
Securities
|
827
|
71
|
756
|
|||||||
$
|
1,349
|
$
|
71
|
$
|
1,278
|
Year
ended
December
31, 2003
|
Gross
gains on sales
|
Gross
losses on sales
|
Net
gains
on
sales
|
|||||||
Debt
securities
|
$
|
255
|
$
|
(6
|
)
|
$
|
249
|
|||
Equity
Securities
|
169
|
(1,352
|
)
|
(1,183
|
)
|
|||||
Other
invested assets
|
—
|
(70
|
)
|
(70
|
)
|
|||||
$
|
424
|
$
|
(1,428
|
)
|
$
|
(1,004
|
)
|
(e)
|
Unrealized
Gains and Losses
|
||
Net
unrealized gains on held-to-maturity fixed maturity securities
were as
follows:
|
Year
ended December 31,
|
2005
|
2004
|
2003
|
|||||||
Net
unrealized (losses) gains
|
$
|
(2,200
|
)
|
$
|
(430
|
)
|
$
|
124
|
||
Increase
in net unrealized losses
|
(1,770
|
)
|
(554
|
)
|
269
|
Net
unrealized losses on available-for-sale securities were as
follows:
|
Year
ended December 31,
|
2005
|
2004
|
2003
|
|||||||
Fixed
maturities
|
$
|
(131
|
)
|
$
|
(82
|
)
|
$
|
233
|
||
Equity
securities
|
(4,595
|
)
|
(382
|
)
|
(397
|
)
|
||||
Total
net unrealized
|
(4,726
|
)
|
(464
|
)
|
(164
|
)
|
||||
Deferred
income tax benefit
|
1,678
|
101
|
156
|
|||||||
Net
unrealized losses, net of deferred income tax
|
(3,048
|
)
|
(363
|
)
|
(8
|
)
|
||||
Increase
in net unrealized losses, net of deferred income tax
|
$
|
(2,685
|
)
|
$
|
(355
|
)
|
$
|
2,372
|
(f)
|
Other
Than Temporary Impairment
|
||
The
following table represents the amortized cost and gross unrealized
losses
for securities where the estimated fair value had declined and
remained
below amortized cost by less than 12 months, or 12 months or more
as of
December 31, 2005:
|
Less
than 12 months
|
12
months or more
|
Total
|
|||||||||||||||||
Fair
market
|
Unrealized
|
Fair
market
|
Unrealized
|
Fair
market
|
Unrealized
|
||||||||||||||
value
|
losses
|
Value
|
losses
|
value
|
losses
|
||||||||||||||
Available-for-sale
securities:
|
|||||||||||||||||||
Common
stock
|
$
|
7,700
|
$
|
(6,960
|
)
|
$
|
4,050
|
$
|
(698
|
)
|
$
|
11,750
|
$
|
(7,658
|
)
|
||||
Fixed
maturities
|
19,293
|
(645
|
)
|
7,962
|
(146
|
)
|
27,255
|
(791
|
)
|
||||||||||
Total
temporarily impaired securities available-for-sale
securities
|
$
|
26,993
|
$
|
(7,605
|
)
|
$
|
12,012
|
$
|
(844
|
)
|
$
|
39,005
|
$
|
(8,449
|
)
|
Less
than 12 months
|
12
months or more
|
Total
|
|||||||||||||||||
Fair
market
|
Unrealized
|
Fair
market
|
Unrealized
|
Fair
market
|
Unrealized
|
||||||||||||||
value
|
losses
|
Value
|
losses
|
value
|
losses
|
Held-to-maturity
securities:
|
|||||||||||||||||||
Common
stock
|
$
|
83,194
|
$
|
(826
|
)
|
$
|
51,754
|
$
|
(1,017
|
)
|
$
|
134,948
|
$
|
(1,843
|
)
|
||||
Fixed
maturities
|
4,457
|
(47
|
)
|
5,527
|
(315
|
)
|
9,984
|
(362
|
)
|
||||||||||
Total
temporarily impaired securities — held-to- maturity
securities
|
$
|
87,651
|
$
|
(873
|
)
|
$
|
57,281
|
$
|
(1,332
|
)
|
$
|
144,932
|
$
|
(2,205
|
)
|
4.
|
Intangible
Assets
|
(a)
|
On
December 30, 2002, the Company purchased all the issued and outstanding
stock of The Princeton Agency Inc. The purchase price was comprised
of
$500 paid at closing, plus a specified percent of the gross premium
relating to new and renewal business written during the period
from the
closing date through the fifth anniversary of the closing date.
The
minimum guaranteed purchase price is $5,500. Any additional amounts
will
be recorded as an intangible asset as these amounts become known.
No such
additional amount has been recorded as of December 31, 2005 and
2004.
Goodwill recorded as a result of this transaction was $5,500. The
Company
recorded a liability for the unpaid portion of the purchase price
of
$5,000. The balance outstanding at December 31, 2005 and 2004 was
$2,411
and $3,500, respectively, and is included in other liabilities
on the
accompanying consolidated balance sheets.
|
|||||||||||||
(b)
|
On
December 14, 2003, the Company acquired certain assets (primarily
contract
renewal rights and agent relationships) from The Covenant Group,
Inc.
(“CGI”). The purchase price consisted of $600 ($100 paid at closing and
$500 payable over sixty months). The minimum purchase price is
$1,309. An
intangible asset was recorded as a result of this transaction for
$1,309.
Additional purchase price will be based upon a specified percentage
of new
and renewal premium written for the three years commencing on the
closing
date, plus a percentage of CGI’s profit for the same three-year period.
This additional purchase price is being recorded as an intangible
asset as
these amounts become known. An additional amount of $1,153 was
recorded
for 2005. The balance outstanding at December 31, 2005 and 2004
was $1,515
and $659, respectively, and is included in other liabilities in
the
accompanying consolidated balance sheets.
|
|||||||||||||||
(c)
|
On
August 31, 2004, the Company purchased insurance contract renewal
rights
from Associated Industries Insurance Company and Associated Industries
Insurance Services. The purchase price is comprised of $250 paid
at
closing, plus a specified percent of all gross premiums written
for each
policy that is written or renewed prior to December 31, 2007. The
minimum
guaranteed purchase price is $2,500. An intangible asset was recorded
as a
result of this transaction for $2,500. The Company has recorded
a
liability for the unpaid portion of the purchase price. Any additional
amounts will be recorded as an intangible asset as these amounts
become
known. An additional amount of $432 was recorded for 2005. The
balance
outstanding at December 31, 2005 and 2004 was $2,467 and $2,250,
respectively, and is included in other liabilities on the accompanying
consolidated balance sheets.
|
(d)
|
On
December 13, 2005, the Company acquired the renewal rights to Alea
North
America’s (“Alea”), a specialty property and casualty business whose
primary lines of business are workers’ compensation, general liability,
auto liability and property. The purchase price is equal to a percentage
of gross premiums written through the fifth anniversary of the
closing of
this transaction. The Company paid a nonrefundable $12,000 advance
at
closing. $10,000 represent intangible assets and $2,000 represent
the cost
of fixed assets acquired. The ultimate purchase price cannot exceed
$75,000 and will be recorded as an intangible asset as these amounts
become known.
|
|||||||||||||||
Goodwill
and intangible assets consists of the
following:
|
December
31,
|
2005
|
2004
|
|||||
Goodwill
|
$
|
5,500
|
$
|
5,500
|
|||
Renewal
rights and agent relationships, net of accumulated amortization
(2005 -
$112; 2004- $-0-)
|
15,281
|
3,809
|
|||||
$
|
20,781
|
$
|
9,309
|
The
intangible assets for renewal rights and agent relationships are
being
amortized on a straight-line basis over their estimated useful
life of
forty years. Amortization expense for the years ended December
31, 2005,
2004 and 2003 was $112, $-0-, and $0-, respectively.
|
|||
5.
|
Property
and
Equipment,
Net
|
Property and equipment, net consist of the following: |
December
31,
|
2005
|
2004
|
|||||
Land
|
$
|
881
|
$
|
—
|
|||
Building
|
4,992
|
—
|
|||||
Internal
use software
|
3,199
|
281
|
|||||
Computer
equipment
|
1,462
|
911
|
|||||
Furniture
and fixtures
|
132
|
187
|
|||||
Leasehold
improvement
|
74
|
—
|
|||||
10,740
|
1,379
|
||||||
Less:
Accumulated depreciation
and amortization
|
(1,089
|
)
|
(581
|
)
|
|||
$
|
9,651
|
$
|
798
|
6.
|
Accrued
Expenses and Other Current Liabilities
|
As of December 31, 2005 and 2004, accrued expenses and other current liabilities consisted of the following: |
2005
|
2004
|
||||||
Premium
taxes, assessments and surcharges payable
|
$
|
21,558
|
$
|
19,231
|
|||
Accrued
expenses
|
33,163
|
18,702
|
|||||
Premiums
collected in advance
|
4,727
|
2,965
|
|||||
Premium
audits, cancellations and
overpayments
|
1,982
|
2,296
|
|||||
$
|
61,430
|
$
|
43,194
|
7.
|
Liability
for Unpaid Loss
and
LAE
|
|
|
The
following table provides a reconciliation of the beginning and
ending
balances for unpaid losses and LAE, reported in the accompanying
consolidated balance sheets as of December 31, 2005 and
2004:
|
December
31
|
2005
|
2004
|
|||||
Unpaid
losses and LAE, gross of related reinsurance recoverables at beginning
of
year
|
$
|
99,364
|
$
|
37,442
|
|||
Less:
Reinsurance recoverables at beginning of year
|
14,445
|
4,046
|
|||||
Net
balance, beginning of year
|
84,919
|
33,396
|
|||||
Incurred
related to:
|
|||||||
Current
year
|
142,968
|
86,762
|
|||||
Prior
year
|
(962
|
)
|
3,416
|
||||
Total
incurred losses during the current year
|
142,006
|
90,178
|
|||||
Paid
losses and LAE related to:
|
|||||||
Current
year
|
(53,988
|
)
|
(34,724
|
)
|
|||
Prior
year
|
(22,597
|
)
|
(3,836
|
)
|
|||
Total
payments for losses and LAE
|
(76,585
|
)
|
(38,560
|
)
|
|||
Commuted
loss reserves
|
—
|
(95
|
)
|
||||
Net
balance, December 31
|
150,340
|
84,919
|
|||||
Plus
reinsurance recoverables at end of year
|
17,667
|
14,445
|
|||||
Unpaid
losses and LAE, gross of related reinsurance recoverables at end
of
year
|
$
|
168,007
|
$
|
99,364
|
In
2005 the Company’s liabilities for unpaid losses and LAE attributable to
prior years decreased by $962 as a result of favorable loss development.
In 2004 and 2003, the Company’s liabilities for unpaid losses and LAE
attributable to prior years increased by $3,416 and $368, respectively,
as
a result of unfavorable loss development. Management believes the
historical experience of the Company is a reasonable basis for
estimating
future losses. However, future events beyond the control of management,
such as changes in law, judicial interpretations of law, and inflation
may
favorably or unfavorably impact the ultimate settlement of the
Company’s
loss and LAE.
|
|||
The
anticipated effect of inflation is implicitly considered when estimating
liabilities for losses and LAE. While anticipated changes in claim
costs
due to inflation are considered in estimating the ultimate claim
costs,
the increase in average severity of claims is caused by a number
of
factors that vary with the individual type of policy written. Future
average severities are projected based on historical trends adjusted
for
implemented changes in underwriting standards, policy provisions,
and
general economic trends. Those anticipated trends are monitored
based on
actual development and are modified if necessary.
|
|||
8.
|
Reinsurance
|
|
|
The
Company utilizes reinsurance agreements to reduce its exposure
to large
claims and catastrophic loss occurrences. These agreements provide
for
recovery from reinsurers of a portion of losses and LAE under certain
circumstances without relieving the insurer of its obligation to
the
policyholder. Losses and LAE incurred and premiums earned are after
deduction for reinsurance. In the event reinsurers are unable to
meet
their obligations under reinsurance agreements, the Company would
not be
able to realize the full value of the reinsurance recoverable balances.
The Company periodically evaluates the financial condition of its
reinsurers in order to minimize its exposure to significant losses
from
reinsurer insolvencies. Reinsurance does not discharge or diminish
the
primary liability of the Company; however, it does permit recovery
of
losses on such risks from the reinsurers.
|
|||
The
Company has coverage for its workers’ compensation line of business under
these excess of loss reinsurance agreements. The agreements cover
losses
in excess of $500 through December 31, 2004 and $600 effective
January 1,
2005, per occurrence up to a maximum $130,000 ($80,000 prior to
2004) in
losses per occurrence. The Company also has an excess of loss reinsurance
agreement for war and terror related losses covering losses in
excess of
$1,000 per occurrence up to a maximum of $10,000 per occurrence.
Beginning
with policies effective January 1, 2006, the Company retains the
first
$1,000 per occurrence.
|
The Company also cedes and assumes reinsurance under quota share reinsurance agreements. | |||
Included
in the Company’s loss reserves as of December 31, 2005 and 2004 is
approximately $4,511 and $4,236, respectively, relating to assumed
lines
of business (written primarily by Rochdale Insurance Company (“Rochdale”)
prior to its acquisition by the Company) that are in a run-off
position.
The Company continuously updates the reserves on these lines of
business
based on information available from the ceding insurers. During
2005, the
Company did not commute any reinsurance contracts. During 2004,
the
Company commuted two reinsurance contracts resulting in a loss
of
approximately $95. The loss reserves transferred, as they relate
to this
commutation, were insignificant.
|
|||
Technology
Insurance Company (“Technology”), Rochdale and AII became participants in
an intercompany reinsurance facility. Under this reinsurance agreement,
all premiums written by the lead underwriting company for certain
lines of
business are ceded in accordance with the percentage share outlined
in the
reinsurance agreement. The premiums ceded are computed after giving
effect
to all other quota share and excess of loss agreements.
|
|||
The agreement was amended effective March 1, 2003 to change the net retention for each entity as follows: |
Through
|
Beginning
|
||||||
February
28,
|
March
1,
|
||||||
2003
|
2003
|
||||||
Technology
|
42.50
|
%
|
20.00
|
%
|
|||
AII
|
42.50
|
70.00
|
|||||
Rochdale
|
15.00
|
10.00
|
In
addition, AmTrust International Underwriters, Ltd. (“AIU”), an Ireland
subsidiary, cedes 60% of its net retained premium to AII. AII intercompany
reinsurance transactions and balances due between these entities
have been
eliminated in the consolidated financial statements.
|
|||
The
effect of reinsurance with unrelated companies on premiums and
losses for
2005, 2004 and 2003 are as follows:
|
Year
ended December 31, 2005
|
Written
|
Earned
|
|||||
Premiums:
|
|||||||
Direct
|
$
|
252,598
|
$
|
218,109
|
|||
Assumed
|
33,533
|
27,977
|
|||||
Ceded
|
(26,918
|
)
|
(30,056
|
)
|
|||
$
|
259,213
|
$
|
216,030
|
Year
ended December 31, 2004
|
Written
|
Earned
|
|||||
Premiums:
|
|||||||
Direct
|
$
|
197,522
|
$
|
148,160
|
|||
Assumed
|
13,329
|
8,149
|
|||||
Ceded
|
(23,353
|
)
|
(17,495
|
)
|
|||
$
|
187,498
|
$
|
138,814
|
Year ended December 31, 2003 |
Written
|
Earned
|
|||||
Premiums:
|
|||||||
Direct
|
$
|
93,611
|
$
|
58,916
|
|||
Assumed
|
3,879
|
3,222
|
|||||
Ceded
|
(15,567
|
)
|
(10,471
|
)
|
|||
$
|
81,923
|
$
|
51,667
|
December31,
2005
|
Assumed
|
Ceded
|
|||||
Loss
and LAE reserves
|
$
|
21,910
|
$
|
(17,058
|
)
|
||
Unearned
premiums
|
10,086
|
(19,281
|
)
|
||||
Loss
and LAE expense incurred
|
15,460
|
(11,674
|
)
|
December
31, 2004
|
Assumed
|
Ceded
|
|||||
Losses
and LAE reserves
|
$
|
12,396
|
$
|
10,352
|
|||
Unearned
premiums
|
4,208
|
(12,832
|
)
|
||||
Loss
and LAE expense incurred
|
8,561
|
(19,716
|
)
|
December 31, 2003 |
Assumed
|
Ceded
|
|||||
Losses
and LAE reserves
|
$
|
6,607
|
$
|
2,222
|
|||
Unearned
premiums
|
1,138
|
(8,202
|
)
|
||||
Loss
and LAE expense incurred
|
2,717
|
(4,099
|
)
|
9.
|
Bank
Financing
|
On
December 27, 2005, the Company obtained a $25,000 line of credit
from its
bank. This advance was in the form of a master grid note which
expired on
April 14, 2006. Interest was charged at 5.97% per annum. The line
was
collateralized by certain assets of the Company. This line of credit
was
paid off in February 2006. AFS
Capital Corp., a subsidiary of the Company, entered into a line
of credit
agreement with a bank for borrowings of up to $5,000. The credit
agreement
bore interest at the bank’s prime rate and was to expire in August 2007.
The credit agreement was collateralized by all of AFS Capital Corp.’s
assets. The balance outstanding on this line of credit agreement
as of
December 31, 2005 and 2004 was $0 and $1,700, respectively. This
line of
credit was fully repaid in conjunction with the sale of the assets
of AFS
Capital Corp. in 2005.
|
|
10.
|
Mortgage
Debt
|
At
December 31, 2004, the Company’s real estate properties held for resale
were encumbered by mortgages with interest rates ranging from 7.54%
-
7.94%. These loans were repaid in their entirety in
2005.
|
|
11.
|
Junior
Subordinated Debt
|
|
|
On
March 17, 2005 and June 15, 2005, the Company participated in two
separate
private placements of $25,000 each (Trust Preferred I and II) of
fixed/floating rate capital securities issued by wholly-owned trusts
of
the Company. The securities require interest-only payments to be
made on a
quarterly basis, with principal due at maturity date. The Company
incurred
$1,140 of placement fees in connection with this financing which
will be
amortized over thirty years. This amount is reflected in prepaid
expenses
and other assets in the accompanying consolidated balance
sheets.
|
Trust
|
|||||||
Trust
Preferred I
|
Preferred
II
|
||||||
Amount
outstanding at year end
|
$
|
25,000
|
$
|
25,000
|
|||
Interest
rate first 10 years
|
8.275
|
%
|
7.71
|
%
|
|||
Interest
rate after 10 years
|
LIBOR
+ 3.4
|
%
|
LIBOR
+ 3.4
|
%
|
|||
Maturity
date
|
March
17, 2035
|
June
15, 2035
|
12.
|
Income
Taxes
|
The provision for income taxes consists of the following: |
Year
ended December 31,
|
2005
|
2004
|
2003
|
|||||||
Total
current provision
|
$
|
13,088
|
$
|
4,355
|
$
|
1,840
|
||||
Total
deferred benefit
|
(6,422
|
)
|
(527
|
)
|
(582
|
)
|
||||
Total
provision
|
$
|
6,666
|
$
|
3,828
|
$
|
1,258
|
The effective income tax rate differs from the statutory income tax rate as follows: |
December
31,
|
2005
|
2004
|
2003
|
|||||||
Income
before income taxes
|
$
|
44,225
|
$
|
17,938
|
$
|
2,650
|
||||
Tax
at Federal statutory rate of 35%
|
$
|
15,479
|
$
|
6,278
|
$
|
928
|
||||
Tax
effects resulting from:
|
||||||||||
Net
income of non-includible foreign subsidiaries
|
(2,496
|
)
|
(1,670
|
)
|
(691
|
)
|
||||
Foreign
currency gain
|
(7,747
|
)
|
—
|
—
|
||||||
Other,
net
|
1,430
|
$
|
(780
|
)
|
1,021
|
|||||
$
|
6,666
|
3,828
|
$
|
1,258
|
The
tax effects of temporary differences that give rise to significant
portions of deferred tax assets and liabilities at December 31,
2005 and
2004 are shown below.
|
December
31,
|
2005
|
2004
|
|||||
Deferred
tax assets:
|
|||||||
Unrealized
depreciation of investments
|
$
|
1,678
|
$
|
101
|
|||
Losses
and LAE reserves
|
7,611
|
3,627
|
|||||
Unearned
premiums
|
9,626
|
5,120
|
|||||
Other
|
331
|
—
|
|||||
19,246
|
8,848
|
||||||
Deferred
tax liabilities:
|
|||||||
Earned
but unbilled premiums
|
(1,537
|
)
|
(1,120
|
)
|
|||
Deferred
acquisition costs
|
(8,313
|
)
|
(5,412
|
)
|
|||
Other
|
—
|
(364
|
)
|
||||
(9,850
|
)
|
(6,896
|
)
|
||||
Deferred
tax asset, net
|
$
|
9,396
|
$
|
1,952
|
The Company’s management believes that it will realize the benefits of its net deferred tax asset and, accordingly, no valuation allowance has been recorded for the periods presented. | |||
The Company does not provide for income taxes on the unremitted earnings of foreign subsidiaries where, in management’s opinion such earnings have been indefinitely reinvested. It is not practical to determine the amount of unrecognized deferred tax liabilities for temporary differences related to these investments. |
13.
|
Discontinued
Operations
|
|
|
In
2005, the Company discontinued the operations of its subsidiary,
AFS
Capital, Inc., and the loss of $1,010 associated with the elimination
of
the investment was treated as discontinued operations.
|
|||
In
December 2002, the Company acquired 100% of the common stock of
AmTrust
Pacific Limited, a New Zealand real estate operating company, from
New
Gulf Holdings, Inc., a Delaware corporation, in exchange for 1,000
shares
of preferred stock of the Company. The purpose of this transaction
was to
increase the surplus of the Company. During 2005, all the real
estate
holdings for AmTrust Pacific Limited were sold and the net proceeds
(consideration received less repayment of the outstanding mortgage
notes
and transaction costs) were placed in the Company’s investment portfolio.
The proceeds of the distribution were invested in accordance with
investment guidelines. The Company recognized a $21,745 net gain
from
these transactions, all of which was attributable to gain from
foreign
currency.
|
|||
The
following results have been presented as other income (loss) from
discontinued operations for the years ended December 31, 2005,
2004 and
2003.
|
Year
ended December 31,
|
2005
|
2004
|
2003
|
|||||||
Rental
income
|
$
|
7,519
|
$
|
19,565
|
$
|
18,306
|
||||
Gain
(loss) on sale of property
|
(2,316
|
)
|
(730
|
)
|
463
|
|||||
Interest
and other income
|
(252
|
)
|
1,669
|
912
|
||||||
Rental
expenses
|
(5,795
|
)
|
(9,870
|
)
|
(10,585
|
)
|
||||
Interest
expense
|
(2,852
|
)
|
(8,500
|
)
|
(9,126
|
)
|
||||
Write-off
of investment in AFS Capital, Inc.
|
(1,010
|
)
|
—
|
—
|
||||||
$
|
(4,706
|
)
|
$
|
2,134
|
$
|
(30
|
)
|
14.
|
Supplemental
Cash Flow
Information
|
|
December 31, |
2005
|
2004
|
2003
|
|||||||
Supplemental
disclosures of cash flow information:
|
||||||||||
Cash
paid during the year for:
|
||||||||||
Interest
|
$
|
2,593
|
$
|
264
|
$
|
221
|
||||
Income
taxes
|
4,000
|
2,936
|
79
|
Supplemental schedule of noncash investing and financing activities: | |||
(a)
|
On
December 1, 2003, the Company acquired certain assets from CGI
for $600,
plus potential future payments. The seller was issued a $500 note
in
addition to the $100 paid in cash. Accruals were made for 2005
totaling
$933, which represent additional purchase price based on renewal
premiums
(see Note 4(b)).
|
||
(b)
|
On
August 31, 2004, the Company acquired insurance contract renewal
rights
for $2,500, plus potential future payments. The seller was issued
a $2,250
note in addition to the $250 paid in cash. Accruals were made for
2005
totaling $217, which represent additional purchase price based
on renewal
premiums (see Note 4(c)).
|
||
15.
|
Commitments
and
Contingencies
|
|
|
(a)
|
Litigation
|
||
|
The
Company’s insurance subsidiaries are named as defendants in various legal
actions arising principally from claims made under insurance policies
and
contracts. Those actions are considered by the Company in estimating
the
loss and LAE reserves. The Company’s management believes the resolution of
those actions will not have a material adverse effect on the Company’s
financial position or results of operations.
|
||
(b) |
Lease
Commitments
|
||
The
Company is obligated under several leases for office space expiring
at
various dates through March 2009.
|
|||
Future
minimum lease payments as of December 31, 2005 under noncancellable
operating leases for each of the next five years are approximately
as
follows:
|
Year
ended December 31
|
||||
2006
|
$
|
1,594
|
||
2007
|
1,504
|
|||
2008
|
1,322
|
|||
2009
|
588
|
|||
2010
|
331
|
|||
$
|
5,339
|
The
Company has subleased one of its leases to an unrelated entity
expiring
March 29, 2006. The Company is still the primary obligor on this
lease.
The minimum annual rentals to be received under this noncancellable
sublease are approximately $320 per annum.
|
|||
Rent
expense, net of sublease rent, for the years ended December 31,
2005, 2004
and 2003 was $1,230, $637 and $541, respectively.
|
|||
(c)
|
Employment
Agreements
|
||
The
Company has entered into employment agreements with eight employees,
including five of its key executives. The agreements terminate
on varying
dates through December 31, 2009, contain annual minimum levels
of
compensation, and contain bonuses based on the Company’s achieving certain
financial targets. The annual minimums in the aggregate are as
follows:
|
Year
ended December 31
|
||||
2006
|
$
|
2,672
|
||
2007
|
2,239
|
|||
2008
|
1,803
|
|||
2009
|
600
|
|||
$
|
7,314
|
16.
|
Concentration
of Lines of Business
|
||
For the years ended December 31, 2005, 2004 and 2003, 71%, 64% and 79%, respectively, of net premiums written were for the workers’ compensation line of business | |||
17.
|
Related
Party Transactions
|
|
|
(a)
|
Premiums
|
||
For
the years ended December 31, 2005, 2004 and 2003, approximately
$-0-, $790
and $1,289, respectively, of premiums written were for a company
related
under common ownership. Included in operating expenses for the
years ended
December 31, 2005, 2004 and 2003, are service fees for these policies
paid
to the related entity of approximately $-0-, $387 and $673,
respectively.
|
|||
(b)
|
Due
to Stockholders
|
||
In
December 2004, the Company’s ultimate stockholders loaned the Company
$12,973. This loan was repaid in 2005.
|
|||
(c)
|
Lease
Agreement
|
||
|
In
June 2002, we entered into a lease for approximately 9,000 square
feet of
office space at 59 Maiden Lane in downtown Manhattan from 59 Maiden
Lane
Associates, LLC, which is owned by stockholders. We pay annual
rent of
approximately $308 for this space. The lease expires in August
2008.
|
18.
|
Stockholders’
Equity
|
|
|
(a)
|
Preferred
Stock
|
||
On
December 9, 2002, the Board of Directors authorized the issuance
of 1,000
shares of preferred stock, no par value, (the “preferred shares”). The
preferred shares were issued in exchange for all the issued and
outstanding stock of AmTrust Pacific Limited.
|
|||
Holders
of the preferred shares were entitled to receive cumulative dividends
out
of any assets legally available at a rate of 8% of the liquidation
value
of $60,000 per share, per annum, commencing with the year ending
December
31, 2003. As of December 31, 2005, there were no undeclared dividends
on
the preferred stock. Total dividends declared and paid in 2005
were
$10,800, which represented cumulative payments for 2003 $(4,800),
2004
$(4,800) and 2005 $(l,200).
|
|||
In
February 2006 the Board of Directors approved that all outstanding
and
issued shares of preferred stock is to be converted into
10,285,714 shares of common stock. Also, as a result of this conversion,
the preferred stockholders waived the rights to receive any further
undeclared or accrued dividends.
|
|||
(b)
|
Minimum
Statutory Requirements
|
||
The
Company’s domestic and foreign insurance subsidiaries have minimum
statutory capital and surplus requirements set by the state or
nation of
domicile. At December 31, 2005 and 2004, the insurance subsidiaries
capital and surplus exceeded these requirements.
|
|||
(c)
|
Accumulated
Other Comprehensive Income
(Loss)
|
Unrealized
|
Accumulated
|
|||||||||
Foreign
|
gains
|
other
|
||||||||
currency
|
(losses)
on
|
comprehensive
|
||||||||
items
|
securities
|
income
(loss)
|
||||||||
Balance,
January 1, 2003
|
$
|
264
|
$
|
(2,380
|
)
|
$
|
(2,116
|
)
|
||
Current
period changes
|
15,655
|
2,372
|
18,027
|
|||||||
Balance,
December 31, 2003
|
15,919
|
(8
|
)
|
15,911
|
||||||
Current
period changes
|
6,606
|
(355
|
)
|
6,251
|
||||||
Balance,
December 31, 2004
|
22,525
|
(363
|
)
|
22,162
|
||||||
Current
period changes
|
(24,491
|
)
|
(2,685
|
)
|
(27,176
|
)
|
||||
Balance,
December 31, 2005
|
$
|
(1,966
|
)
|
$
|
(3,048
|
)
|
$
|
(5,014
|
)
|
The
amounts transferred from cumulative translation adjustments and
included
in the determination of net income for the period as a result of
the sale
of its investment in APL was $21,745 for the year ended December
31,
2005.
|
|||
19.
|
Dividend
Restriction
and
Risk-Based
Capital
|
The
Company’s insurance subsidiaries are subject to statutory and regulatory
restrictions, applicable to insurance companies, imposed by the
states of
domicile, which limit the amount of cash dividends or distributions
that
they may pay. The Company’s insurance subsidiaries did not pay any
dividends in 2005, 2004 and 2003.
|
|
Property
and casualty insurance companies in the United States are subject
to
certain Risk-Based Capital (“RBC”) requirements as specified by the
National Association of Insurance Commissioners. Under such requirements,
the amount of capital and surplus maintained by a property and
casualty
insurance company is to be determined on various risk factors.
As of
December 31, 2005 and 2004, the capital and surplus of the Company’s two
insurance subsidiaries domiciled in the United States exceeded
the RBC
requirements.
|
|||
20.
|
Geographic
Information
|
|
|
Two
of the Company’s insurance subsidiaries (AII and AIU) operate outside the
United States. Their assets and liabilities are located principally
in the
countries where the insurance risks are written or assumed. Approximately
57% and 54% as of December 31, 2005 and 2004, respectively, of
the
consolidated assets, and 81%, 68% and 66%, respectively, of the
consolidated revenues for the years ended December 31, 2005, 2004
and 2003
were located in or derived from foreign countries.
|
|||
The
Foreign and Domestic components of operating income from continuing
operations before provision for income taxes are as
follows:
|
December
31,
|
2005
|
2004
|
2003
|
|||||||
Domestic
|
$
|
16,012
|
$
|
11,049
|
$
|
841
|
||||
Foreign
|
13,570
|
5,104
|
2,605
|
The following table summarizes the Company’s operations by major geographic segment: | |||
December
31, 2005
|
Domestic
|
Bermuda
|
Other
foreign
|
|||||||
Revenue
|
$
|
45,670
|
$
|
173,804
|
$
|
21,161
|
||||
Property
and equipment
|
9,651
|
—
|
—
|
December
31, 2004
|
Domestic
|
Bermuda
|
Other
foreign
|
|||||||
Revenue
|
$
|
45,071
|
$
|
91,591
|
$
|
13,293
|
||||
Property
and equipment
|
798
|
—
|
—
|
Other
|
||||||||||
December
31, 2003
|
Domestic
|
Bermuda
|
foreign
|
|||||||
Revenue
|
$
|
18,825
|
$
|
33,945
|
$
|
2,513
|
||||
Property
and equipment
|
568
|
—
|
—
|
In
addition, as of December 31, 2005 and 2004, the Company’s discontinued
real estate segment included investment properties of approximately
$-0-
and $161,555, respectively, located in New Zealand.
|
|||
21.
|
Segment
Reporting
|
The
Company currently operates two business segments, Workers’ Compensation
Insurance and Specialty Risk and Extended Warranty Insurance. Its
Commercial Real Estate segment has been discontinued, and is reflected
as
income (loss) from discontinued operations. These operating segments
are
segments of the Company for which separate financial information
is
available and for which operating results are evaluated regularly
by
executive management in deciding how to allocate resources and
in
assessing performance.
|
Specialty
|
|||||||||||||
risk
and
|
|||||||||||||
December31,
2005
|
Workers’
compensation segment
|
extended
warranty
segment
|
Other
|
Total
|
|||||||||
Earned
premium
|
$
|
165,974
|
$
|
50,056
|
$
|
—
|
$
|
216,030
|
|||||
Investment
income and other revenues
|
15,420
|
5,545
|
3,640
|
24,605
|
|||||||||
Operating
income from continuing operations
|
18,510
|
7,434
|
3,638
|
29,582
|
|||||||||
Net
income
|
25,375
|
10,556
|
1,628
|
37,559
|
|||||||||
Total
assets
|
366,946
|
113,963
|
130,433
|
611,342
|
Specialty
|
|||||||||||||
risk
and
|
|||||||||||||
December31,
2004
|
Workers’
compensation segment
|
extended
warranty
segment
|
Other
|
Total
|
|||||||||
Earned
premium
|
$
|
113,982
|
$
|
24,832
|
$
|
—
|
$
|
138,814
|
|||||
Investment
income and other revenues
|
3,067
|
668
|
7,406
|
11,141
|
|||||||||
Operating
income from continuing operations
|
8,138
|
1,773
|
6,242
|
16,153
|
|||||||||
Net
income
|
7,390
|
1,990
|
4,730
|
14,110
|
|||||||||
Total
assets
|
255,812
|
50,875
|
190,843
|
497,530
|
Specialty
|
|||||||||||||
risk
and
|
|||||||||||||
December31,
2003
|
Workers’
compensation segment
|
extended
warranty
segment
|
Other
|
Total
|
|||||||||
Earned
premium
|
$
|
42,774
|
$
|
8,893
|
$
|
—
|
$
|
51,667
|
|||||
Investment
income and other revenues
|
1,861
|
387
|
1,368
|
3,616
|
|||||||||
Operating
income from continuing operations
|
1,858
|
386
|
1,202
|
3,446
|
|||||||||
Net
income
|
644
|
111
|
637
|
1,392
|
|||||||||
Total
assets
|
109,054
|
21,405
|
210,935
|
341,394
|
22.
|
Statutory
Financial Data
|
The
Company’s insurance subsidiaries file financial statements in accordance
with statutory accounting practices (“SAP”) prescribed or permitted by
domestic or foreign insurance regulatory authorities. The differences
between statutory financial statements and financial statements
prepared
in accordance with GAAP vary between domestic and foreign jurisdictions.
The principal differences relate to (1) acquisition costs incurred
in
connection with acquiring new business which are charged to expense
under
SAP but under GAAP are deferred and amortized as the related premiums
are
earned; (2) limitation on net deferred tax assets created by the
tax
effects of temporary differences; (3) unpaid losses and loss expense,
and
unearned premium reserves are presented gross of reinsurance with
a
corresponding asset recorded; and (4) fixed maturity portfolios
that
qualify as available-for-sale are carried at fair value and changes
in
fair value are reflected directly in unassigned surplus, net of
related
deferred taxes. Statutory surplus and net income for insurance
operations
as reported to regulatory authorities were approximately as
follows:
|
December
31, 2005
|
Statutory
surplus
|
GAAP
Equity
|
Statutory
net
income
|
GAAP
net
income
|
|||||||||
Technology
(domestic)
|
$
|
51,155
|
$
|
53,062
|
$
|
7,041
|
$
|
9,714
|
|||||
Rochdale
(domestic)
|
17,220
|
18,790
|
1,930
|
3,415
|
|||||||||
AIU
(Ireland)
|
16,880
|
18,749
|
4,285
|
6,146
|
|||||||||
AII
(Bermuda)
|
129,243
|
150,539
|
35,207
|
35,207
|
December 31, 2004 |
Statutory
surplus
|
GAAP
Equity
|
Statutory
net
income
|
GAAP
net
income
|
|||||||||
Technology
(domestic)
|
$
|
31,692
|
$
|
34,318
|
$
|
3,295
|
$
|
7,093
|
|||||
Rochdale
(domestic)
|
12,038
|
12,639
|
1,637
|
2,172
|
|||||||||
AIU
(Ireland)
|
11,279
|
11,007
|
3,685
|
2,103
|
|||||||||
AII
(Bermuda)
|
86,914
|
101,317
|
11,165
|
11,165
|
December 31, 2003 |
Statutory
surplus
|
GAAP
Equity
|
Statutory
net
income
|
GAAP
net
income
|
|||||||||
Technology
(domestic)
|
$
|
15,080
|
$
|
17,117
|
$
|
524
|
$
|
2,158
|
|||||
Rochdale
(domestic)
|
5,880
|
6,444
|
869
|
1,003
|
|||||||||
AIU
(Ireland)
|
6,360
|
6,360
|
316
|
316
|
|||||||||
AII
(Bermuda)
|
77,626
|
85,959
|
5,513
|
5,513
|
23.
|
Fair
Value Information
|
The
following estimated fair value disclosures of financial instruments
have
been determined using available market information, current pricing
information and appropriate valuation methodologies. If quoted
market
prices were not readily available for a financial instrument, management
determined an estimated fair value. Accordingly, the estimates
may not be
indicative of the amounts the Company could have realized in a
market
transaction.
|
|
For
fixed maturities and common stocks, estimated fair values were
based
primarily upon independent pricing services. The market value of
short-term investments is estimated to approximate the carrying
value.
|
December
31, 2005
|
Carrying
value
|
Estimated
fair
value
|
|||||
Assets:
|
|||||||
Fixed
maturities:
|
|||||||
Held-to-maturity
|
$
|
151,104
|
$
|
148,904
|
|||
Available-for-sale
|
39,876
|
39,876
|
|||||
Common
stock
|
32,695
|
32,695
|
|||||
Preferred
stock
|
60
|
60
|
|||||
Other
investments
|
1,498
|
1,498
|
|||||
Cash
and short-term investments
|
190,579
|
190,579
|
|||||
Liabilities:
|
|||||||
Note
payable, bank
|
$
|
25,000
|
$
|
25,000
|
|||
Junior
subordinated debt
|
50,000
|
50,000
|
December
31, 2004
|
Carrying
value
|
Estimated
fair
value
|
|||||
Assets:
|
|||||||
Fixed
maturities:
|
|||||||
Held-to-maturity
|
$
|
136,692
|
$
|
136,262
|
|||
Available-for-sale
|
8,609
|
8,609
|
|||||
Common
stock
|
5,466
|
5,466
|
|||||
Preferred
stock
|
46
|
46
|
|||||
Other
investments
|
1,851
|
1,851
|
|||||
Cash
and short-term investments
|
45,547
|
45,547
|
|||||
Liabilities:
|
|||||||
Note
payable, bank
|
$
|
1,700
|
$
|
1,700
|
|||
Mortgage
debt
|
92,919
|
92,919
|
|||||
Loans
from ultimate stockholders
|
12,973
|
12,973
|
24.
|
Subsequent
Events
|
(a)
|
Stock
Option Plan
|
During
February 2006, the Company’s 2005 Incentive Stock Plan became effective.
The aggregate number of shares of common stock for which awards
may be
issued under this plan may not exceed 5,994,300 shares. Included
in this
amount is an aggregate number of shares of common stock for which
restricted stock awards may be issued under this plan, not to exceed
1,998,100 shares.
|
|||
The
exercise price of non-qualified stock options issued shall be 85%
or more
of the fair market value of the Company’s common stock on the day the
option is granted. Incentive stock options granted to a stockholder
holding more than 10% of the voting stock of the Company will have
an
exercise price of not less than 110% of the fair value of the common
stock
on the day the option is granted. All options are exercisable for
up to
ten years, subject to vesting requirements.
|
|||
Restricted
stock awards under this plan may be made to any participant without
additional consideration. These restricted stock awards are also
subject
to vesting requirements.
|
|||
The
Board of Directors approved grants of options to certain officers,
directors and employees equal to 1,175,000 shares of common stock.
These
options have an exercise price of $7.00 and are subject to pro-rata
vesting over a four- year period.
|
|||
(b)
|
Sale
Split and Change in Authorized Capital
|
||
The
Company increased its authorized capital stock to 100,000,000 shares
of
common stock, par value $0.01 per share, and 10,000,000 shares
of
preferred stock, par value $0.01 per share, and declared a 24,088-for-one
stock split in the form of a stock dividend on its common stock.
This
resulted in the issuance of 24,088,286 shares of common stock.
This split
is reflected retroactively in these financial
statements.
|
(c)
|
Private
Placement
|
||
On
February 2, 2006, the Company issued 25,568,000 common shares as
part of a
private placement. In conjunction with the closing of the placement,
1,000
shares of preferred stock were converted into 10,285,714 of $.01
par value
common stock. As of result of the offering, the Company has 59,943,000
of
$.01 par value common stock outstanding. The net proceeds from
the
offering were approximately $166,000. Of the total proceeds, $100,000
was
used to make surplus contributions to the Company’s insurance
subsidiaries. $25,000 of the proceeds were used to pay off the
Company’s
short-term borrowing facility (see Note 9). The remaining proceeds
will be
used for general corporate purposes.
|
|||
(d)
|
Business
Acquisition
|
||
On
March 9, 2006, the Company entered into a purchase agreement to
acquire
Wesco Insurance Company (“Wesco”). The Company agreed to pay the
seller $7,500 plus the statutory surplus of Wesco of $15,000. All
the
existing liabilities of Wesco will be guaranteed by the seller.
Wesco is a
Delaware domiciled property and casualty insurance company licensed
in all
50 states and the District of Columbia. According to the terms
of the
agreement, Wesco will continue to write business for seller subject
to
contractual maximums as prescribed by the agreement. This business
will be
completely reinsured by an insurance subsidiary of the seller.
Wesco will
also receive a fronting fee under this arrangement.
|
25.
|
Quarterly
Financial Data (Unaudited)
|
A
summary of financial data by quarter for each of the last three
years is
presented in the following table. This information is
unaudited.
|
Quarter
ended
|
March
31,
2005
|
June
30,
2005
|
September
30,
2005
|
December
31,
2005
|
|||||||||
Earned
premium
|
$
|
47,355
|
$
|
50,385
|
$
|
60,406
|
$
|
57,885
|
|||||
Investment
Income
|
1,885
|
2,254
|
4,067
|
3,328
|
|||||||||
Net
income
|
3,392
|
16,832
|
7,995
|
9,340
|
|||||||||
Earnings
per share
|
.09
|
.70
|
.33
|
.39
|
Quarter
ended
|
March
31,
2004
|
June
30,
2004
|
September
30,
2004
|
December
31,
2004
|
|||||||||
Earned
premium
|
$
|
25,157
|
$
|
35,026
|
$
|
36,476
|
$
|
42,155
|
|||||
Investment
Income
|
932
|
716
|
1,065
|
1,216
|
|||||||||
Net
income
|
2,519
|
423
|
1,878
|
9,290
|
|||||||||
Earnings
(loss) per share from continuing operations
|
.05
|
(.03
|
)
|
.03
|
.34
|
At
December 31, 2005
(in
thousands)
|
Cost*
|
Value
|
Amount
at
Which
Shown
in
the Balance Sheet
|
|||||||
Fixed
Maturities:
|
||||||||||
Bonds:
|
||||||||||
United
States government and government agencies &
authorities
|
$
|
151,104
|
$
|
148,904
|
$
|
151,104
|
||||
States,
municipalities and political subdivisions
|
||||||||||
Foreign
governments
|
500
|
500
|
500
|
|||||||
Public
utilities
|
304
|
298
|
298
|
|||||||
Banks,
trust and insurance companies
|
9,981
|
9,797
|
9,797
|
|||||||
All
other corporate
|
29,222
|
29,281
|
29,281
|
|||||||
Total
bonds
|
191,111
|
188,780
|
190,980
|
|||||||
Total
fixed maturities
|
191,111
|
188,780
|
190,980
|
|||||||
Equity
securities:
|
||||||||||
Common
stock:
|
||||||||||
Public
utilities
|
||||||||||
Banks,
trust and insurance companies
|
||||||||||
Mutual
funds
|
4,617
|
4,178
|
4,178
|
|||||||
Industrial,
miscellaneous and all other
|
32,673
|
28,517
|
28,517
|
|||||||
Total
common stock
|
37,290
|
32,695
|
32,695
|
|||||||
Preferred
stock
|
60
|
60
|
60
|
|||||||
Total
equity securities
|
37,350
|
32,755
|
32,755
|
|||||||
Short-term
investments, at cost (approximates market value)
|
74,732
|
74,732
|
74,732
|
|||||||
Other
invested assets (approximates market value)
|
1,498
|
1,498
|
1,498
|
|||||||
Total
investments
|
$
|
304,691
|
$
|
297,765
|
$
|
299,965
|
||||
* |
Original
cost of equity securities and, as to fixed maturities, original
cost
reduced by repayments and adjusted for amortization of premiums
or accrual
of discounts.
|
December
31,
(in
thousands)
|
2005
|
2004
|
|||||
Assets:
|
|||||||
Cash
|
$
|
551
|
$
|
(91
|
)
|
||
Invested
Assets
|
100
|
100
|
|||||
Carrying
Value of subsidiaries, at equity
|
207,895
|
135,768
|
|||||
Other
Assets
|
13,367
|
2,070
|
|||||
Total
Assets
|
221,913
|
137,847
|
|||||
Liabilities:
|
|||||||
Due
to affiliates - net
|
23,390
|
5,184
|
|||||
Due
to ultimate shareholders
|
—
|
12,973
|
|||||
Junior
Subordinated Debt
|
50,000
|
—
|
|||||
Bank
Note
|
25,000
|
—
|
|||||
Other
Liabilities
|
5,112
|
862
|
|||||
Total
Liabilities
|
103,502
|
19,019
|
|||||
Stockholders’
equity
|
|||||||
Common
stock
|
241
|
241
|
|||||
Preferred
stock
|
60,000
|
60,000
|
|||||
Paid-in
and contributed capital
|
12,406
|
12,406
|
|||||
Accumulated
other comprehensive income
|
(5,014
|
)
|
22,162
|
||||
Retained
earnings
|
50,778
|
24,019
|
|||||
Total
Shareholders’ equity
|
118,411
|
118,828
|
|||||
Total
Liabilities and shareholders’ equity
|
$
|
221,913
|
$
|
137,847
|
Year
Ended December 31,
(In
thousands)
|
2005
|
2004
|
2003
|
|||||||
Income:
|
||||||||||
Investment
income
|
$
|
612
|
$
|
9
|
$
|
—
|
||||
Equity
in undistributed net income of consolidated subsidiaries and
partially-owned companies
|
45,464
|
15,842
|
4,010
|
|||||||
Total
Income
|
46,076
|
15,851
|
4,010
|
|||||||
Expenses:
|
|
|||||||||
Interest
expense
|
4,189
|
431
|
—
|
|||||||
Federal
tax benefit
|
—
|
(650
|
)
|
(725)
|
||||||
Other
expenses from operations
|
4,328
|
1,960
|
3,343
|
|||||||
Total
Expenses
|
8,517
|
1,741
|
2,618
|
|||||||
Net
Income
|
$
|
37,559
|
$
|
14,110
|
$
|
1,392
|
December
31,
(in
thousands)
|
2005
|
2004
|
2003
|
|||||||
Cash
flows from operating activities:
|
||||||||||
Net
income from continuing operations
|
$
|
37,559
|
$
|
14,110
|
$
|
1,392
|
||||
Adjustments
to reconcile net income to net cash provided by
Changes
in assets (increase) decrease:
|
||||||||||
Carrying
Value of Equity Interest in Subsidiaries
|
(99,339
|
)
|
(25,890
|
)
|
(2,917
|
)
|
||||
Other
Assets
|
(11,297
|
)
|
(1,995
|
)
|
79
|
|||||
Changes
in liabilities increase (decrease):
|
||||||||||
Due
to affiliates
|
18,206
|
1,935
|
(546
|
)
|
||||||
Other
liabilities
|
4,286
|
(1,085
|
)
|
1,911
|
||||||
Net
cash used in operating activities
|
(59,585
|
)
|
(12,925
|
)
|
(81
|
)
|
||||
Cash
flows from investing activities
|
||||||||||
Capital
expenditures
|
—
|
(100
|
)
|
—
|
||||||
Net
cash used in investing activities
|
—
|
(100
|
)
|
—
|
||||||
Cash
flows from financing activities:
|
||||||||||
Issuance
of junior subordinated debentures
|
50,000
|
—
|
||||||||
Stockholder
loan
|
(12,973
|
)
|
12,973
|
|||||||
Borrowing
under short term bank credit facility
|
25,000
|
—
|
||||||||
Dividends
paid on preferred stock
|
(10,800
|
)
|
—
|
|||||||
Net
cash provided by financing activities
|
51,227
|
12,973
|
—
|
|||||||
Net
increase (decrease) in cash and cash equivalents
|
642
|
(52
|
)
|
(81
|
)
|
|||||
Cash
and cash equivalents, beginning of the year
|
(91
|
)
|
(39
|
)
|
42
|
|
||||
Cash
and cash equivalents, end of period
|
$
|
551
|
$
|
(91
|
)
|
$
|
(39
|
)
|
Segment
(in thousands)
|
Deferred
Policy Acquisition Costs
|
Reserves
for Losses and Loss Expenses, Future Policy Benefits
|
Reserves
for Unearned Premiums
|
Premium
Revenue
|
Net
Investment Income
|
Losses
and Loss Expenses Incurred, Benefits
|
Amortization
of Deferred Policy Acquisition Costs
|
Other
Operating Expenses
|
Net
Premiums Written
|
|||||||||||||||||||
2005
General
Insurance
|
$
|
23,751
|
$
|
168,007
|
$
|
156,802
|
$
|
216,030
|
$
|
11,534
|
$
|
142,006
|
$
|
17,936
|
$
|
51,111
|
$
|
259,213
|
||||||||||
2004
General
Insurance
|
$
|
17,936
|
$
|
99,364
|
$
|
105,107
|
$
|
138,814
|
$
|
3,929
|
$
|
90,178
|
$
|
9,855
|
$
|
33,739
|
$
|
187,498
|
||||||||||
2003
General
Insurance
|
$
|
9,885
|
$
|
37,442
|
$
|
42,681
|
$
|
51,667
|
$
|
2,305
|
$
|
34,884
|
$
|
2,535
|
$
|
14,418
|
$
|
81,923
|
(dollars
in thousands)
|
Gross
Amount
|
Ceded
to Other Companies
|
Amount
from Other Companies
|
Net
Amount
|
Percent
of Amount
Assumed
to Net
|
|||||||||||
2005
|
||||||||||||||||
Premiums:
General
Insurance
|
$
|
252,598
|
$
|
26,918
|
$
|
33,533
|
$
|
259,213
|
12.9
|
%
|
||||||
2004
|
||||||||||||||||
Premiums:
General
Insurance
|
$
|
197,522
|
$
|
23,353
|
$
|
13,329
|
$
|
187,498
|
7.1
|
%
|
||||||
2003
|
||||||||||||||||
Premiums:
General
Insurance
|
$
|
93,611
|
$
|
15,567
|
$
|
3,879
|
$
|
81,923
|
4.7
|
%
|
Years
Ended December 31
|
||||||||||
Losses
and Loss
Adjustment
Expenses
Incurred
Related
to
|
||||||||||
Current
Year
|
Prior
Years
|
Paid
Losses and
Loss
Adjustment
Expenses
|
||||||||
2005
|
$
|
142,968
|
$
|
(962
|
)
|
$
|
76,585
|
|||
2004
|
$
|
86,762
|
$
|
3,416
|
$
|
38,560
|
||||
2003
|
$
|
34,516
|
$
|
368
|
$
|
14,273
|
March
31, 2006
|
December
31, 2005
|
||||||
Assets
|
(Unaudited)
|
||||||
Investments:
|
|||||||
Fixed
maturities, held-to-maturity, at amortized cost
|
$
|
234,870
|
$
|
151,104
|
|||
Fixed
maturities, available-for-sale, at market value
|
51,229
|
39,876
|
|||||
Equity
securities, available-for-sale, at market value
|
37,618
|
32,755
|
|||||
Short-term
investments
|
107,984
|
74,732
|
|||||
Other
investments
|
2,189
|
1,498
|
|||||
Total
investments
|
433,890
|
299,965
|
|||||
Cash
and cash equivalents
|
164,248
|
115,847
|
|||||
Accrued
interest and dividends
|
3,174
|
2,772
|
|||||
Premiums
receivable, net
|
127,545
|
81,070
|
|||||
Receivables
from discontinued operations
|
3,571
|
3,571
|
|||||
Reinsurance
recoverable
|
19,711
|
17,667
|
|||||
Funds
held with reinsured companies
|
890
|
-
|
|||||
Prepaid
reinsurance premiums
|
24,457
|
19,281
|
|||||
Prepaid
expenses and other assets
|
5,968
|
7,590
|
|||||
Deferred
policy acquisition costs
|
33,925
|
23,751
|
|||||
Deferred
tax asset
|
8,705
|
9,396
|
|||||
Property
and equipment, net
|
10,017
|
9,651
|
|||||
Goodwill
and intangible assets
|
22,058
|
20,781
|
|||||
$
|
858,159
|
$
|
611,342
|
||||
Liabilities
and Stockholders’ Equity
|
|||||||
Liabilities:
|
|||||||
Note
payable, bank
|
$
|
—
|
$
|
25,000
|
|||
Ceded
reinsurance premiums payable
|
21,912
|
17,782
|
|||||
Loss
and loss expense reserves
|
190,022
|
168,007
|
|||||
Reinsurance
payable on paid losses
|
1,953
|
1,951
|
|||||
Funds
held under reinsurance treaties
|
2,339
|
3,034
|
|||||
Unearned
premiums
|
207,739
|
156,802
|
|||||
Accrued
expenses and other current liabilities
|
78,658
|
61,430
|
|||||
Federal
income tax payable
|
6,027
|
8,925
|
|||||
Junior
subordinate debt
|
50,000
|
50,000
|
|||||
Total
liabilities
|
558,650
|
492,931
|
|||||
Commitments
and Contingencies
|
|||||||
Stockholders’
Equity:
|
|||||||
Common
stock, $.01 par value; 100,000,000 shares authorized, 59,943,000
and
24,089,286 issued and outstanding in 2006 and 2005
respectively
|
599
|
241
|
|||||
Preferred
stock, $.01 par value; 10,000,000 shares authorized, 1,000 issued
and
outstanding
|
—
|
60,000
|
|||||
Additional
paid-in capital
|
238,588
|
12,406
|
|||||
Accumulated
other comprehensive income (loss)
|
285
|
(5,014
|
)
|
||||
Retained
earnings
|
60,037
|
50,778
|
|||||
299,509
|
118,411
|
||||||
$
|
858,159
|
$
|
611,342
|
Three
Months Ended March 31,
|
2006
|
2005
|
|||||
(Unaudited)
|
(Unaudited)
|
||||||
Revenues:
|
|||||||
Premium
income:
|
|||||||
Premiums
written
|
$
|
110,753
|
$
|
81,914
|
|||
Change
in unearned premiums
|
(40,943
|
)
|
(34,559
|
)
|
|||
Net
earned premium
|
69,810
|
47,355
|
|||||
Commission
and fee income
|
2,855
|
1,890
|
|||||
Net
investment income
|
5,335
|
1,885
|
|||||
Net
realized gain
|
1,576
|
26
|
|||||
Total
revenues
|
79,576
|
51,156
|
|||||
Expenses:
|
|||||||
Loss
and loss adjustment expense
|
43,774
|
33,997
|
|||||
Salaries
and benefits
|
5,119
|
3,000
|
|||||
Policy
acquisition expenses
|
8,323
|
8,671
|
|||||
Other
underwriting expenses
|
8,727
|
4,604
|
|||||
Total
expenses
|
65,943
|
50,272
|
|||||
Operating
income from continuing operations
|
13,633
|
884
|
|||||
Other
income (expenses):
|
|||||||
Foreign
currency gain
|
98
|
—
|
|||||
Interest
expense
|
(1,213
|
)
|
—
|
||||
Total
other expenses
|
(1,115
|
)
|
—
|
||||
Income
from continuing operations before provision for income taxes
|
12,518
|
884
|
|||||
Provision
(benefit) for income taxes:
|
|||||||
Current
|
4,179
|
(1,079
|
)
|
||||
Deferred
|
(920
|
)
|
—
|
||||
Total
provision for income taxes
|
3,259
|
(1,079
|
)
|
||||
Income
from continuing operations
|
|
9,259
|
|
1,963
|
|||
Discontinued
operations:
|
|||||||
Other
income from discontinued operations
|
—
|
1,429
|
|||||
Income
from discontinued operations
|
—
|
1,429
|
|||||
Net
income
|
$
|
9,259
|
$
|
3,392
|
|||
Earnings
per common share:
|
|||||||
Income
from continuing operations
|
$
|
0.21
|
$
|
0.03
|
|||
Income
from discontinued operations
|
—
|
0.06
|
|||||
Net
income per common share
|
$
|
0.21
|
$
|
0.09
|
Three
Months Ended March 31, 2006 and 2005
(unaudited)
|
Common
stock
|
Preferred
stock
|
Additional
paid-in
capital
|
Accumulated
other comprehensive income (loss)
|
Retained
earnings
|
Total
|
||||||||||||||
Balance,
December 31, 2004
|
$
|
241
|
$
|
60,000
|
$
|
12,406
|
$
|
22,162
|
$
|
24,019
|
$
|
118,828
|
|||||||
Comprehensive
income, net of tax:
|
|||||||||||||||||||
Net
income
|
—
|
—
|
—
|
—
|
3,392
|
3,392
|
|||||||||||||
Conversion
of Preferred Stock
|
—
|
—
|
—
|
||||||||||||||||
Unrealized
holding loss on available-for-sale securities
|
—
|
—
|
—
|
(1,086
|
)
|
—
|
(1,086
|
)
|
|||||||||||
Reclassification
adjustment for securities sold during the year
|
—
|
—
|
—
|
—
|
—
|
—
|
|||||||||||||
Issuance
of Common Stock
|
—
|
—
|
—
|
||||||||||||||||
Comprehensive
income
|
2,306
|
||||||||||||||||||
Balance,
March 31, 2005
|
$
|
241
|
$
|
60,000
|
$
|
12,406
|
$
|
21,076
|
$
|
27,411
|
$
|
121,134
|
|||||||
Balance,
December 31, 2005
|
$
|
241
|
$
|
60,000
|
$
|
12,406
|
$
|
(5,014
|
)
|
$
|
50,778
|
$
|
118,411
|
||||||
Comprehensive
income, net of tax:
|
|||||||||||||||||||
Net
income
|
—
|
—
|
—
|
—
|
9,259
|
9,259
|
|||||||||||||
Conversion
of Preferred Stock
|
103
|
(60,000
|
)
|
59,897
|
—
|
—
|
—
|
||||||||||||
Foreign currency translation | — | — | — | 485 | — | — | |||||||||||||
Unrealized
holding gain on available-for-sale securities
|
—
|
—
|
—
|
4,686
|
—
|
5,299
|
|||||||||||||
Reclassification
adjustments for the securities sold during the year
|
— | — | — | 128 | — | — | |||||||||||||
Comprehensive
income
|
14,558
|
||||||||||||||||||
Stock
Options Compensation
|
—
|
—
|
88
|
—
|
—
|
88
|
|||||||||||||
Issuance
of Common Stock
|
255
|
—
|
166,197
|
—
|
—
|
166,452
|
|||||||||||||
Balance,
March 31, 2006
|
$
|
599
|
$
|
—
|
$
|
238,588
|
$
|
285
|
$
|
60,037
|
$
|
299,509
|
Three months ended March 31, |
2006
|
2005
|
|||||
(Unaudited)
|
(Unaudited)
|
||||||
Cash flows from operating activities: | |||||||
Net
income from continuing operations
|
$
|
9,259
|
$
|
3,392
|
|||
Adjustments
to reconcile net income from continuing operations to net cash
provided by
operating activities of continuing operations:
|
|||||||
Depreciation
and amortization
|
328
|
34
|
|||||
Realized
(gain) loss on marketable securities
|
(1,576
|
)
|
—
|
||||
Bad
debt expense
|
424
|
—
|
|||||
Change
in deferred tax asset
|
691
|
(1,508
|
)
|
||||
Foreign
currency gain
|
(98
|
)
|
—
|
||||
Changes
in assets - (increase) decrease:
|
|||||||
Premiums
receivable
|
(46,899
|
)
|
(19,843
|
)
|
|||
Reinsurance
recoverable
|
(2,044
|
)
|
(237
|
)
|
|||
Deferred
policy acquisition costs
|
(10,174
|
)
|
(1,207
|
)
|
|||
Prepaid
reinsurance premiums
|
(5,176
|
)
|
(1,304
|
)
|
|||
Prepaid
expenses and other assets
|
330
|
(1,698
|
)
|
||||
Receivables
from discontinued operations
|
—
|
(5,103
|
)
|
||||
Changes
in liabilities - increase (decrease):
|
|||||||
Reinsurance
payable
|
4,130
|
13,072
|
|||||
Loss
and loss expense reserves
|
22,015
|
18,600
|
|||||
Unearned
premiums
|
50,937
|
35,408
|
|||||
Funds
held under reinsurance treaties
|
(695
|
)
|
(7,671
|
)
|
|||
Accrued
expenses and other current liabilities
|
14,330
|
23,211
|
|||||
Net
cash provided by operating activities
|
35,782
|
55,146
|
|||||
Cash
flows from investing activities:
|
|||||||
Purchases
of securities with fixed maturities
|
(122,973
|
)
|
(5,205
|
)
|
|||
Purchases
of equity securities
|
(3,287
|
)
|
—
|
||||
Purchases
of other investments
|
(691
|
)
|
—
|
||||
Acquisition
of intangible assets and subsidiaries
|
(1,277
|
)
|
(704
|
)
|
|||
Purchase
of property and equipment
|
(693
|
)
|
—
|
||||
Net
cash used in investing activities
|
(128,921
|
)
|
(5,909
|
)
|
|||
Cash
flows from financing activities:
|
|||||||
Issuance
of common stock
|
255
|
—
|
|||||
Issuance
of common stock additional paid in capital
|
166,197
|
—
|
|||||
Issuance
of junior subordinated debt
|
25,000
|
||||||
Repayments
on note payable, bank
|
(25,000
|
)
|
(1,700
|
)
|
|||
Stock
option compensation
|
88
|
—
|
|||||
Net
cash provided by financing activities
|
141,540
|
23,300
|
|||||
Net
increase in cash and cash equivalents
|
48,401
|
72,537
|
|||||
Cash
and cash equivalents, beginning of year
|
115,847
|
28,727
|
|||||
Cash
and cash equivalents, end of year
|
$
|
164,248
|
$
|
101,264
|
1.
|
Basis
of Reporting
|
The
consolidated financial statements are unaudited and should be read
in
conjunction with AmTrust Financial Services, Inc.’s (the “Company”)
audited financial statements for the year ended December 31, 2005.
A
summary of more significant accounting policies are set forth in
the notes
to the audited consolidated financial statements of the Company
for the
year ended December 31, 2005. These financial statements have been
prepared in conformity with accounting principles generally accepted
in
the United States of America. The consolidated financial statements
include the accounts of the Company and its wholly-owned and
majority-owned domestic and foreign
subsidiaries.
|
All
significant intercompany transactions and accounts have been eliminated
in
the consolidated financial statements.
|
|||
2.
|
Earnings
per Share
|
Basic
earnings per share are computed based on the weighted-average number
of
common shares outstanding. Net income has been adjusted for the
effect of
the dividends accumulated on the cumulative preferred
stock.
|
Three
Months ended March 31,
|
2006
|
2005
|
|||||
Net
income
|
$
|
9,259
|
$
|
3,392
|
|||
Less: Preferred
stock dividend(1)
|
—
|
(1,200
|
)
|
||||
Net
income (loss) available to common stockholders
|
$
|
9,259
|
$
|
2,192
|
|||
Weighted-average
number of shares outstanding
|
44,463,000
|
24,089,000
|
|||||
Basic
earnings per common share available to common
stockholders:
|
|||||||
Income
(loss) from continuing operations
|
$
|
0.21
|
$
|
0.03
|
|||
Discontinued
operations
|
—
|
0.06
|
|||||
Net
income (loss) per common share
|
$
|
0.21
|
$
|
0.09
|
|||
|
(1) |
Dividends
were declared in 2005 (see
Note 8).
|
3.
|
Investments
|
|
|
The
original cost, estimated market value and gross unrealized appreciation
and depreciation of equity securities are presented in the tables
below:
|
|||
(a)
|
Available-for-Sale
Securities
|
March
31, 2006
|
|||||||||||||
Original
or
amortized
cost
|
Gross
unrealized
gains
|
Gross
unrealized
losses
|
Market
value
|
||||||||||
Preferred
stock
|
$
|
60
|
$
|
2
|
$
|
—
|
$
|
62
|
|||||
Common
stock
|
35,318
|
9,637
|
(7,399
|
)
|
37,556
|
||||||||
Fixed
maturities
|
50,753
|
1,965
|
(1,489
|
)
|
51,229
|
||||||||
$
|
86,131
|
$
|
11,604
|
$
|
(8,888
|
)
|
$
|
88,847
|
December 31, 2005 | |||||||||||||
Original
or
amortized
cost
|
Gross
unrealized
gains
|
Gross
unrealized
losses
|
Market
value
|
||||||||||
Preferred
stock
|
$
|
60
|
$
|
—
|
$
|
—
|
$
|
60
|
|||||
Common
stock
|
37,290
|
3,063
|
(7,658
|
)
|
32,695
|
||||||||
Fixed
maturities
|
40,007
|
660
|
(791
|
)
|
39,876
|
||||||||
$
|
77,357
|
$
|
3,723
|
$
|
(8,449
|
)
|
$
|
72,631
|
Stockholders’
equity for the three months ended March 31, 2006 and the year ended
December 31, 2005 includes a net unrealized holding gain or (loss)
on
equity securities and available-for-sale fixed maturities of $2,716
and
$(4,726), respectively (net of a deferred tax (cost) or benefit
of $(950)
and $1,678, respectively).
|
|||
(b) |
Held-to-Maturity
Securities
|
||
The
amortized cost, estimated market value and gross unrealized appreciation
and depreciation of fixed maturity investments are presented in
the tables
below:
|
March
31, 2006
|
|||||||||||||
Amortized
cost
|
Unrealized
gains
|
Unrealized
losses
|
Fair
value
|
||||||||||
Obligations
of U.S. Treasury, Government corporations and agencies
|
$
|
224,736
|
$
|
76
|
$
|
(2,815
|
)
|
$
|
221,997
|
||||
Mortgage-backed
securities
|
10,134
|
—
|
(468
|
)
|
9,666
|
||||||||
$
|
234,870
|
$
|
76
|
$
|
(3,283
|
)
|
$
|
231,663
|
December 31,
2005
|
|||||||||||||
Amortized
cost
|
Unrealized
gains
|
Unrealized
losses
|
Fair
value
|
||||||||||
Obligations
of U.S. Treasury, Government corporations and agencies
|
$
|
140,467
|
$
|
4
|
$
|
(1,843
|
)
|
$
|
138,628
|
||||
Mortgage-backed
securities
|
10,637
|
1
|
(362
|
)
|
10,276
|
||||||||
$
|
151,104
|
$
|
5
|
$
|
(2,205
|
)
|
$
|
148,904
|
Remaining
Time to Maturity
|
|||||||||||||||||||
Less
than 12 Months
|
12
Months or Longer
|
Total
|
|||||||||||||||||
Type
of Fixed Maturity Investment
|
Fair
Value
|
Unrealized
Loss
|
Fair
Value
|
Unrealized
Loss
|
Fair
Value
|
Unrealized
Loss
|
|||||||||||||
($
in thousands)
|
|||||||||||||||||||
U.S.
Treasury securities
|
$
|
3,406
|
$
|
12
|
$
|
13,575
|
$
|
139
|
$
|
16,981
|
$
|
151
|
|||||||
U.S.
government agencies
|
60,869
|
251
|
76,984
|
1,791
|
137,853
|
2,042
|
|||||||||||||
Corporates
|
84,735
|
1,984
|
5,947
|
148
|
90,682
|
2,132
|
|||||||||||||
Mortgage
backed
|
3,513
|
80
|
5,391
|
367
|
8,904
|
447
|
|||||||||||||
Common
Stock
|
33,187
|
6,739
|
4,369
|
660
|
37,556
|
7,399 | |||||||||||||
Total
|
$
|
185,710
|
$
|
9,066
|
$
|
106,266
|
$
|
3,105
|
$
|
291,976
|
$
|
12,171
|
4.
|
Liability
for Unpaid Loss
and
LAE
|
|
|
The
following table provides a reconciliation of the beginning and
ending
balances for unpaid losses and LAE, reported in the accompanying
consolidated balance sheets as of March 31, 2006 and December 31,
2005.
|
March
31,
2006
|
December
31,
2005
|
||||||
Unpaid
losses and LAE, gross of related reinsurance recoverables at beginning
of
year
|
$
|
168,007
|
$
|
99,364
|
|||
Less: Reinsurance
recoverables at beginning of year
|
17,667
|
14,445
|
|||||
Net
balance, beginning of year
|
150,340
|
84,919
|
|||||
Incurred
related to:
|
|||||||
Current
period
|
44,842
|
142,968
|
|||||
Prior
year
|
(1,068
|
)
|
(962
|
)
|
|||
Total
incurred losses during the current period
|
43,774
|
142,006
|
|||||
Paid
losses and LAE related to:
|
|||||||
Current
period
|
(14,184
|
)
|
(53,988
|
)
|
|||
Prior
year
|
(9,619
|
)
|
(22,597
|
)
|
|||
Total
payments for losses and LAE
|
(23,801
|
)
|
(76,585
|
)
|
|||
Net
balance, end of period
|
170,311
|
150,340
|
|||||
Plus
reinsurance recoverables at end of year
|
19,711
|
17,667
|
|||||
Unpaid
losses and LAE, gross of related reinsurance recoverables at end
of
period
|
$
|
190,022
|
$
|
168,007
|
5.
|
Junior
Subordinate Debt
|
||
On
March 17, 2005 and June 15, 2005, the Company participated in
two separate private placements of $25,000 each (Trust Preferred
I and II)
of fixed/floating rate capital securities issued by wholly-owned
trusts of
the Company. The securities require interest-only payments to
be made on a
quarterly basis, with principal due at maturity date. The Company
incurred
$1,140 of placement fees in connection with this financing which
will be
amortized over thirty years. This amount is reflected in prepaid
expenses
and other assets in the accompanying consolidated balance
sheets.
|
Trust
Preferred I
|
Trust
Preferred II
|
||||||
Amount
outstanding at year end
|
$
|
25,000
|
$
|
25,000
|
|||
Interest
rate first 10 years
|
8.275
|
%
|
7.71
|
%
|
|||
Interest
rate after 10 years
|
LIBOR
+ 3.4
|
%
|
LIBOR
+ 3.4
|
%
|
|||
Maturity
date
|
March
17, 2035
|
June
15, 2035
|
6.
|
Share
Based Compensation
|
|
|
Effective
January 1, 2006, the Company adopted Statement of Financial Accounting
Standards (“SFAS”) No. 123(R) “Share-Based Payment” and began recognizing
compensation expense for its share-based payments based on the
fair value
of the awards. Share-based payments include stock option grants
under the
Company’s stock plans. SFAS 123(R) requires share-based compensation
expense recognized since January 1, 2006, to be based on the following:
a)
grant date fair value estimated in accordance with the original
provisions
of SFAS 123 for unvested options granted prior to the adoption
date; and
b) grant date fair value estimated in accordance with the provisions
of
SFAS 123(R) for unvested options granted subsequent to the adoption
date.
|
Three
Months Ended
|
|||||||
|
March
31,
2006
|
March
31,
2005
|
|||||
Net
income, as reported
|
$
|
9,259
|
$
|
3,392
|
|||
Add:
Share-based payments included in reported net income, net of related
tax
effects per SFAS 123(R)
|
88
|
—
|
|||||
Pro
forma net income
|
$
|
9,347
|
$
|
3,392
|
|||
Earnings
per share
|
|||||||
Basic
- as reported
|
$
|
0.21
|
$
|
0.09
|
|||
Basic
- pro forma
|
$
|
0.21
|
$
|
0.09
|
|||
|
|||||||
Diluted
- as reported
|
$
|
0.21
|
$
|
0.10
|
|||
Diluted
- pro forma
|
$
|
0.21
|
$
|
0.10
|
Under
SFAS 123(R) forfeitures are estimated at the time of calculation
and
reduce expense ratably over the vesting period. This estimate is
adjusted
periodically based on the extent to which actual forfeitures differ,
or
are expected to differ, from the previous estimate.
|
|||
The
adoption of SFAS 123(R)’s fair value method has resulted in additional
share-based expense (a component of salaries and benefits) in the
amount
of $88 related to stock options for the quarter ended March 31,
2006. For
the three months ended March 31, 2006, this additional share-based
compensation lowered pre-tax earnings by $88.
|
|||
The
proposal to adopt the 2006 Stock Option Plan will be submitted
to the
shareholders of the Company for approval at the 2006 Annual Meeting
of
Shareholders, scheduled to be held in June 2006.
|
|||
The
Company generally issues new shares when options are exercised.
The
following schedule shows all options granted, exercised, expired
and
exchanged under the Company’s Incentive Stock Option Plan for the three
month period ending March 31, 2006.
|
|||
Number
of Shares
|
Amount
Per Share
|
Total
Price
|
||||||||
Outstanding,
December 31, 2005
|
—
|
—
|
$
|
0
|
||||||
Granted
|
1,175,000
|
$
|
7.00
|
$
|
8,225
|
|||||
Exercised
|
—
|
—
|
—
|
|||||||
Cancelled
|
—
|
—
|
—
|
|||||||
Outstanding,
March 31, 2006
|
1,175,000
|
$
|
7.00
|
$
|
8,225
|
The
Company grants options to purchase common stock to its employees
at prices
equal to the market value of the stock on the dates the options
were
granted. The options have a term of ten years from grant date and
vest in
equal annual installments over the four-year period following the
grant
date for employee options. Employees have three months after the
employment relationship ends to exercise all vested options. The
fair
value of each option grant is separately estimated for each vesting
date.
The fair value of each option is amortized into compensation expense
on a
straight-line basis between the grant date for the award and each
vesting
date. The Company has estimated the fair value of all stock option
awards
as of the date of the grant by applying the Black-Scholes-Merton
multiple-option pricing valuation model. The application of this
valuation
model involves assumptions that are judgmental and highly sensitive
in the
determination of compensation expense. The Company did not award
any
options during the first quarter of 2006. The key assumptions used
in
determining the fair value of options granted in 2005 and a summary
of the
methodology applied to develop each assumption are as
follows:
|
Expected
price volatility
|
27.76
|
%
|
||
Weighted
average expected lives in years
|
5.75
|
|||
Risk-free
interest rate
|
4.5
|
%
|
||
Forfeiture
rate
|
3
|
%
|
Expected
Price Volatility
-
This is a measure of the amount by which a price has fluctuated
or is
expected to fluctuate. We use actual historical changes in market
value of
our stock to calculate the volatility assumption, as it is management’s
belief that this is the best indicator of future volatility. We
calculate
weekly market value changes from the date of grant over a past
period
representative of the expected life of the options to determine
volatility. An increase in the expected volatility will increase
compensation expense.
|
||||
Risk-Free
Interest Rate
-
This is the U.S. Treasury rate for the week of the grant having
a term
equal to the expected life of the option. An increase in the risk-free
interest rate will increase compensation
expense.
|
Expected
Lives
-
This is the period of time over which the options granted are expected
to
remain outstanding giving consideration to vesting schedules, historical
exercise and forfeiture patterns. The Company uses the simplified
method
outlines in SEC Staff Accounting Bulletin No. 107 to estimate expected
lives for option granted during the period. Options granted have
a maximum
term of five years. An increase in the expected life will increase
compensation expense.
|
|||
Forfeiture
Rate
-
This is the estimated percentage of options granted that are expected
to
be forfeited or cancelled before becoming fully vested. This estimate
is
based on historical experience. An increase in the forfeiture rate
will
decrease compensation expense.
|
|||
Dividend
Yield
-
The expected dividend yield is based on the Company’s current dividend
yield and the best estimate of projected dividend yields for future
periods within the expected life of the option. An increase in
the
dividend yield will decrease the compensation expense.
|
|||
There
was no impact on cash provided by operating and/or financing activities
related to increased tax benefits from stock based payment arrangements.
During the quarter ended March 31, 2006, no options were
exercised.
|
|||
At
March 31, 2006, the aggregate intrinsic value of all outstanding
options
was $8.5 million with a weighted average remaining contractual
term of 5.7
years. The total compensation cost related to non-vested awards
not yet
recognized was $2.5 million with an expense recognition period
of 4 years.
During the three months ended March 31, 2006, no options
vested.
|
|||
7.
|
Litigation
|
The Company’s insurance subsidiaries are named as defendants in various legal actions arising principally from claims made under insurance policies and contracts. Those actions are considered by the Company in estimating the loss and LAE reserves. The Company’s management believes the resolution of those actions will not have a material adverse effect on the Company’s financial position or results of operations. |
8.
|
Stockholders’
Equity
|
Preferred Stock |
On
December 9, 2002, the Board of Directors authorized the issuance of
1,000 shares of preferred stock, no par value, (the “preferred shares”).
The preferred shares were issued in exchange for all the issued
and
outstanding stock of AmTrust Pacific
Limited.
|
Holders
of the preferred shares were entitled to receive cumulative dividends
out
of any assets legally available at a rate of 8% of the liquidation
value
of $60,000 per share, per annum, commencing with the year ending
December 31, 2003. As of December 31, 2005, there were no
undeclared dividends on the preferred stock. Total dividends declared
and
paid in 2005 were $10,800, which represented cumulative payments
for 2003
$(4,800), 2004 $(4,800) and 2005
$(1,200).
|
In
February 2006 all issued and outstanding and issued shares of preferred
stock were converted into 10,285,714 shares of common stock. Also,
as a
result of this conversion, the preferred stockholders waived the
rights to
receive any further undeclared or accrued
dividends.
|
9.
|
Effective
Tax Rate
|
Income
tax expense for the three months ended March 31, 2006 was $3,259
compared
to a tax benefit of $(1,079) for the same period of 2005. The following
table reconciles the Company’s statutory federal income tax rate to its
effective tax rate.
|
|
For
the three months
Ended
March 31,
|
|||||||
2006
|
2005
|
||||||
Earnings
before income taxes
|
$
|
12,578
|
$
|
2,313
|
|||
Income
taxes at statutory rates
|
4,381
|
810
|
|||||
Effect
of Income generated by companies not subject to U.S.
taxation
|
(1,122
|
)
|
(1,889
|
)
|
|||
Provision
(benefit) for income taxes
|
$
|
3,259
|
$
|
(1,079
|
)
|
||
GAAP
effective tax rate
|
26.0
|
%
|
(46.6
|
)%
|
10.
|
Supplemental
Cash Flow Information
|
For
the three months
Ended
March 31,
|
2006
|
2005
|
|||||
Income
tax payments
|
$
|
7,611
|
$
|
2,495
|
|||
Interest
payments on debt
|
1,229
|
—
|
11.
|
Subsequent
Events
|
|
|
Business
Acquisition
|
|||
On
June 1, 2006, the Company acquired Wesco Insurance Company (“Wesco”). The
Company paid the seller $7,500 plus the statutory surplus of Wesco
of
$15,000. All the existing liabilities of Wesco have been guaranteed
by the
seller. Wesco is a Delaware domiciled property and casualty insurance
company licensed in all 50 states and the District of Columbia.
According
to the terms of the agreement, Wesco will continue to write business
for
seller subject to contractual maximums as prescribed by the agreement.
This business will be completely reinsured by an insurance subsidiary
of
the seller. Wesco will also receive a fronting fee under this arrangement.
|
|||
On
June 1, 2006, the Company acquired the renewal rights to certain
workers’
compensation business from Muirfield Underwriters, Ltd., a subsidiary
of
Aon Corporation. The business generated approximately $64 million
in gross
premiums written for Muirfield in 2005. Pursuant to the Renewal
Rights and
Asset Purchase Agreement entered into by the parties, the Company
will not
acquire any in-force business or historical liabilities associated
with
the acquired policies. The Company paid Muirfield $2.0 million
at closing
and is obligated to pay a specified percentage of gross premiums
written
on new policies and renewal policies through the three year period
ending
May 31, 2009. Of the $2.0 million paid, $500 is an advance against
the quarterly payments
|
|||
SEC
Registration Fee
|
$
|
20,519
|
||
Printing
Costs
|
*
|
|||
Legal
Fees and Expenses
|
100,000 | |||
Accounting
Fees and Expenses
|
*
|
|||
Miscellaneous
|
$
|
*
|
||
Total
|
$
|
*
|
||
_____________________ | ||||
*
to be supplied by amendment
|
Exhibit
No.
|
Description
|
|
3.1
|
Amended
and Restated Certificate of Incorporation of the
Company.
|
|
3.2
|
Amended
and Restated By-Laws of the Company
|
|
4.1
|
Form
of Common Stock Certificate
|
|
4.2
|
Indenture,
dated as of March 17, 2005, between the Company and Wilmington Trust
Company.
|
|
4.3
|
Indenture,
dated as of June 15, 2005, between the Company and Wilmington Trust
Company.
|
|
4.4
|
Registration
Rights Agreement, dated as of February 9, 2006, by and between the
Company
and Friedman, Billings, Ramsey & Co. Inc.
|
|
5.1
|
Opinion
of Troutman Sanders LLP
|
|
10.1
|
2005
Equity Incentive Plan
|
|
10.2
|
Intercompany
Management Agreement, dated as of June 1, 2006, by and among the
Company,
Technology Insurance Company, Inc., Rochdale Insurance Company, Inc.
and
Wesco Insurance Company.
|
|
10.3
|
Tax
Allocation Agreement, dated as of June 1, 2006, between the Company
and
Wesco Insurance Company
|
|
10.4
|
Tax
Allocation Agreement for 1998 and for future calendar years, between
the
Company and Technology Insurance Company
|
|
10.5
|
Tax
Allocation Agreement, dated July 1, 2002, is made for 2002 and future
calendar years, between the Company and Rochdale Insurance Company,
Inc
|
|
10.6
|
Intercompany
Reinsurance Agreement, dated June 1, 2006, among the Company, Technology
Insurance Company, Rochdale Insurance Company, AmTrust International
Insurance Limited and Wesco Insurance Company.
|
|
10.7
|
Employment
Agreement, dated as of January 1, 2005, by and between the Company
and
Barry D. Zyskind
|
|
10.8
|
Employment
Agreement, dated as of January 1, 2005, by and between the Company
and Max
G. Caviet
|
|
10.9
|
Employment
Agreement, dated as of January 1, 2005, by and between the Company
and
Christopher M. Longo
|
|
10.10
|
Employment
Agreement, dated as of January 1, 2005, by and between the Company
and
Ronald E. Pipoly, Jr.
|
|
10.11
|
Employment
Agreement, dated as of January 1, 2005, by and between the Company
and
Michael J. Saxon
|
|
10.12
|
Form of Indemnification Agreement between the Company and its officers and directors | |
16.1
|
Letter
from Berenson LLP
|
|
21.1
|
List
of subsidiaries of the Company.
|
|
23.1
|
Consent
of BDO Seidman LLP, Independent Registered Public Accounting Firm
relating
to the Financial Statements of the Company
|
|
23.2
|
Consent
of Berenson LLP Independent Registered Public Accounting Firm relating
to
the Financial Statements of the Company
|
|
23.3
|
Consent
of Troutman Sanders LLP (included in Exhibit 5.1)
|
|
24.1
|
Power
of Attorney (set forth on the signature page to this registration
statement)
|
AMTRUST FINANCIAL SERVICES, INC. | ||
|
|
|
By: | /s/ Barry D. Zyskind | |
|
||
Name:
Barry D. Zyskind
Title:
Chief Executive Officer and
President
|
Signature
|
Title
|
Date
|
||
/s/ Barry D. Zyskind |
Chief
Executive Officer, President and Directors
|
June
12, 2006
|
||
Barry D. Zyskind | (Principal Executive Officer) | |||
/s/ Ronald E. Pipoly, Jr. |
Chief
Financial Officer
|
June
12, 2006
|
||
Ronald E. Pipoly, Jr. | (Principal Financial and Accounting Officer) | |||
/s/ Michael Karfunkel |
Chairman
of the Board
|
June
12, 2006
|
||
Michael Karfunkel | ||||
/s/ George Karfunkel |
Director
|
June
12, 2006
|
||
George Karfunkel | ||||
Director
|
June
12, 2006
|
|||
Donald T. DeCarlo | ||||
/s/ Abraham Gulkowitz |
Director
|
June
12, 2006
|
||
Abraham Gulkowitz | ||||
/s/ Isaac M. Neuberger |
Director
|
June
12, 2006
|
||
Isaac M. Neuberger | ||||
/s/ Jay J. Miller |
Director
|
June
12, 2006
|
||
Jay J. Miller |
Exhibit
No.
|
Description
|
|
3.1
|
Amended
and Restated Certificate of Incorporation of the
Company.
|
|
3.2
|
Amended
and Restated By-Laws of the Company
|
|
4.1
|
Form
of Common Stock Certificate
|
|
4.2
|
Indenture,
dated as of March 17, 2005, between the Company and Wilmington Trust
Company.
|
|
4.3
|
Indenture,
dated as of June 15, 2005, between the Company and Wilmington Trust
Company.
|
|
4.4
|
Registration
Rights Agreement, dated as of February 9, 2006, by and between the
Company
and Friedman, Billings, Ramsey & Co. Inc.
|
|
5.1
|
Opinion
of Troutman Sanders LLP
|
|
10.1
|
2005
Equity Incentive Plan
|
|
10.2
|
Intercompany
Management Agreement, dated as of June 1, 2006, by and among the
Company,
Technology Insurance Company, Inc., Rochdale Insurance Company, Inc.
and
Wesco Insurance Company.
|
|
10.3
|
Tax
Allocation Agreement, dated as of June 1, 2006, between the Company
and
Wesco Insurance Company
|
|
10.4
|
Tax
Allocation Agreement for 1998 and for future calendar years, between
the
Company and Technology Insurance Company
|
|
10.5
|
Tax
Allocation Agreement, dated July 1, 2002, is made for 2002 and future
calendar years, between the Company and Rochdale Insurance Company,
Inc
|
|
10.6
|
Intercompany
Reinsurance Agreement, dated June 1, 2006, among the Company, Technology
Insurance Company, Rochdale Insurance Company, AmTrust International
Insurance Limited and Wesco Insurance Company.
|
|
10.7
|
Employment
Agreement, dated as of January 1, 2005, by and between the Company
and
Barry D. Zyskind
|
|
10.8
|
Employment
Agreement, dated as of January 1, 2005, by and between the Company
and Max
G. Caviet
|
|
10.9
|
Employment
Agreement, dated as of January 1, 2005, by and between the Company
and
Christopher M. Longo
|
|
10.10
|
Employment
Agreement, dated as of January 1, 2005, by and between the Company
and
Ronald E. Pipoly, Jr.
|
|
10.11
|
Employment
Agreement, dated as of January 1, 2005, by and between the Company
and
Michael J. Saxon
|
|
10.12
|
Form of Indemnification Agreement between the Company and its officers and directors | |
16.1
|
Letter
from Berenson LLP
|
|
21.1
|
List
of subsidiaries of the Company
|
|
23.1
|
Consent
of BDO Seidman LLP, Independent Registered Public Accounting Firm
relating
to the Financial Statements of the Company
|
|
23.2
|
Consent
of Berenson LLP Independent Registered Public Accounting Firm relating
to
the Financial Statements of the Company
|
|
23.3
|
Consent
of Troutman Sanders LLP (included in Exhibit 5.1)
|
|
24.1
|
Power
of Attorney (set forth on the signature page to this registration
statement)
|