UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2009
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-11238.
NYMAGIC, INC.
(Exact name of registrant as specified in its charter)
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New York
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13-3534162 |
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.) |
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919 Third Avenue, New York, NY
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10022 |
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(Address of principal executive offices)
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(Zip Code) |
The registrants telephone number, including area code: (212) 551-0600
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class:
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Name of each exchange on which registered: |
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Common Stock, $1.00 par value
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New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.: Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act.: Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days.:
Yes
þ No
o
Indicate by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be submitted and
posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best of the
registrants knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See the
definitions of large accelerated filer, accelerated filer and smaller reporting
company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o |
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Accelerated filer þ
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Non-accelerated filer o (Do not check if a smaller reporting
company) |
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Smaller reporting company o |
Indicate by check mark the registrant is a shell company (as defined in Rule 12b-2 of the
Act).: Yes
o No
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MARKET VALUE
The aggregate market value of the outstanding common stock held by non-affiliates of the
registrant, as of June 30, 2009, the last business day of the registrants most recently
completed second fiscal quarter, was approximately $116,981,861, based on the closing
price of the stock on the New York Stock Exchange on that date.
OUTSTANDING STOCK
As of March 2, 2010, there were 8,464,488 outstanding shares of common stock, $1.00 par
value.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates information by reference from the registrants definitive proxy
statement relating to its 2010 Annual Meeting of Shareholders to be filed with the
Commission within 120 days after the close of the registrants fiscal year.
FORWARD LOOKING STATEMENTS
This report contains certain forward-looking statements concerning the Companys
operations, economic performance and financial condition, including, in particular, the
likelihood of the Companys success in developing and expanding its business. Any
forward-looking statements concerning the Companys operations, economic performance and
financial condition contained herein, including statements related to the outlook for the
Companys performance in 2010 and beyond, are made under the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. These statements are based upon a
number of assumptions and estimates which inherently are subject to uncertainties and
contingencies, many of which are beyond the control of the Company. Some of these
assumptions may not materialize and unanticipated events may occur which could cause
actual results to differ materially from such statements. These include, but are not
limited to, the cyclical nature of the insurance and reinsurance industry, premium rates,
investment results, hedge fund results, the estimation of loss reserves and loss reserve
development, uncertainties associated with asbestos and environmental claims, including
difficulties with assessing latent injuries and the impact of litigation settlements,
bankruptcies and potential legislation, the uncertainty surrounding the loss amounts
related to the attacks of September 11, 2001, and hurricanes Katrina, Rita and Ike, the
occurrence and effects of wars and acts of terrorism, net loss retention, the effect of
competition, the ability to collect reinsurance receivables and the timing of such
collections, the availability and cost of reinsurance, the possibility that the outcome
of any litigation or arbitration proceeding is unfavorable, the ability to pay dividends,
regulatory changes, changes in the ratings assigned to the Company by rating agencies,
failure to retain key personnel, the possibility that our relationship with Mariner
Partners, Inc. could terminate or change, and the fact that ownership of our common stock
is concentrated among a few major stockholders and is subject to the voting agreement, as
well as assumptions underlying any of the foregoing and are generally expressed with
words such as intends, intend, intended, believes, estimates, expects,
anticipates, plans, projects, forecasts, goals, could have, may have and
similar expressions. These risks could cause actual results for the 2010 year and beyond
to differ materially from those expressed in any forward-looking statements. The Company
undertakes no obligation to update publicly or revise any forward-looking statements.
ii
Part I
NYMAGIC, INC., a New York corporation (the Company or NYMAGIC), is a holding company
which owns and operates insurance companies, risk bearing entities and insurance
underwriters and managers.
Insurance Companies
New York Marine And General Insurance Company (New York Marine), Gotham Insurance
Company (Gotham) and Southwest Marine And General Insurance Company, which was formerly
known as Arizona Marine And General Insurance Company (Southwest Marine).
Insurance Underwriters and Managers
Mutual Marine Office, Inc. (MMO), Pacific Mutual Marine Office, Inc. (PMMO), which
was closed in 2007 and Mutual Marine Office of the Midwest, Inc. (Midwest).
Investment Interests
Altrion Capital, L.P. (Altrion), formerly known as Tricadia CDO Fund, L.P. (Tricadia)
and Mariner Tiptree (CDO) Fund I, L.P. (Tiptree). See Investment Management
Arrangement for a complete discussion of the Companys investment in Altrion. The
Company redeemed its remaining interest in Altrion effective December 31, 2009, resulting
in the Company receiving approximately a $35 million direct investment in the Tiptree
Financial Partners L.P. (Tiptree Financial), $7.3 million in cash, $1.1 million in
commercial loans and $118,000 in private equity. As of December 31, 2009 the majority of
Tiptree Financials assets were invested in cash, fixed income, equity securities, and
commercial real estate.
Ratings
New York Marine and Gotham each currently holds a financial strength rating of A
(Excellent) and Southwest Marine currently holds a financial strength rating of A-
(Excellent) and an issuer credit rating of a- from A.M. Best Company. These are the
third and fourth highest of fifteen rating levels in A.M. Bests classification system.
Many of the Companys insureds rely on ratings issued by rating agencies. Any adverse
change in the rating assigned to New York Marine, Gotham and Southwest Marine by a rating
agency could adversely impact our ability to write premiums. The Company has specialized
in underwriting ocean marine, inland marine, other liability and aircraft insurance
through insurance pools managed by MMO, PMMO, and Midwest (collectively referred to as
MMO and affiliates) since 1964. However, the Company has not written any new policies
covering commercial aircraft risks since March 31, 2002. The Company decided to exit the
commercial aviation insurance business because it is highly competitive, had generated
underwriting losses for most years during the 1990s, and because it is highly dependent
on the purchase of substantial amounts of reinsurance, which became increasingly
expensive after the events of September 11, 2001. This decision has enabled the Company
to concentrate on its core lines of business, which include ocean marine, inland
marine/fire and other liability. The Company in 2009, however, began underwriting
policies covering single engine non-commercial aircraft. There were no material amounts
written during the year.
In addition to managing the insurance pools as discussed below, the Company participates
in the risks underwritten for the pools through New York Marine and Gotham. All premiums,
losses and expenses are pro-rated among pool members in accordance with their pool
participation percentages.
The Pools
MMO, located in New York, PMMO, located in San Francisco, and Midwest, located in Chicago
(the Manager or the Managers), manage the insurance pools in which the Company
participates. In May 2007, the Company closed the PMMO office and its management
activities were taken over by MMO and Midwest.
The Managers accept, on behalf of the pools, insurance risks brought to the pools by
brokers and others. All premiums, losses and expenses are pro-rated among the pool
members in accordance with their percentage participation in the pools. Originally, the
members of the pools were insurance companies that were not affiliated with the Managers.
New York Marine and Gotham joined the pools in 1972 and 1987, respectively. Subsequent to
their initial entry in the pools, New York Marine and Gotham steadily increased their
participation, while the unaffiliated insurance companies reduced their participation or
withdrew from the pools entirely. Since 1997, the only pool members are New York Marine,
and Gotham who together write 100% of the business produced by the pools. Since 2007,
Southwest Marine has been a member in the pool and retains 100% of its direct writings.
Southwest Marine also reinsures business written by New York Marine and Gotham effective
for policies attaching on or after January 1, 2007 through a 5% quota share treaty.
- 1 -
Assets and liabilities resulting from the insurance pools are allocated to the members of
the insurance pools based upon the pro-rata participation of each member in each pool in
accordance with the terms of the management agreement entered into by and between the
pool participants and the Managers.
Pursuant to the pool management agreements, the pool members have agreed not to accept
ocean marine insurance, other than ocean marine reinsurance, in the United States, its
territories and possessions and the Dominion of Canada unless received through the
Managers or written by the pool member on its own behalf and have authorized the Managers
to accept risks on behalf of the pool members and to effect all transactions in
connection with such risks, including the issuance of policies and endorsements and the
adjustment of claims. As compensation for its services, the Managers receive a fee of
5.5% of gross premiums written by the pools and a contingent commission of 10% on net
underwriting profits, subject to adjustment. Since the 1997 policy year, all management
commissions charged by MMO have been eliminated in consolidation.
As part of its compensation, the Managers also receive profit commissions on pool
business ceded to reinsurers under various reinsurance agreements. Profit commissions on
business ceded to reinsurers are calculated on an earned premium basis, using inception
to date underwriting results for the various reinsurance treaties. Adjustments to
commissions, resulting from revisions in coverage or audit premium adjustments, are
recorded in the period when realized. Subject to review by the reinsurers, the Managers
calculate the profitability of all profit commission agreements placed with various
reinsurance companies.
Two former pool members, Utica Mutual Insurance Company (Utica Mutual) and Arkwright
Mutual Insurance Company (Arkwright), which is currently part of the FM Global Group,
withdrew from the pools in 1994 and 1996, respectively, and retained the liability for
their effective pool participation for all loss reserves, including losses incurred but
not reported (IBNR) and unearned premium reserves attributable to policies effective
prior to their withdrawal from the pools. In December, 2007, MMO, which has been managing
the pools without compensation pursuant to a Restated Management Agreement entered into
with pool members in 1986, served notice on the pool members of its intent to terminate
the Restated Management Agreement, effective December 31, 2009. Two of the pool members,
Utica Mutual and Arkwright, rejected MMOs notice of intent to terminate, and MMO
initiated an arbitration against them, seeking an arbitral award, confirming its right to
terminate the Restated Management Agreement, or in the alternative, seeking a reformation
of the Restated Management Agreement. An arbitration hearing was held in January and
February, 2010, but an award is not expected until May 2010, at the earliest.
The Company is not aware of any facts that could result in any possible defaults by
either Arkwright or Utica Mutual with respect to their pool obligations, which might
impact liquidity or results of operations of the Company, but there can be no assurance
that such events will not occur.
Segments
The Companys domestic insurance companies are New York Marine, Gotham and Southwest
Marine. New York Marine and Gotham underwrite insurance business by accepting risks
generally through insurance brokers. They engage in business in all 50 states and also
accept business risks in such worldwide regions as Europe, Asia, and Latin America.
Southwest Marine, which is currently licensed to engage in the insurance business in
thirty seven states, including Arizona, primarily writes surety business, as well as
excess and surplus lines policies in New York. See Regulation. The Companys domestic
insurance agencies are MMO, PMMO and Midwest. These agencies underwrite all the business
for the domestic insurance companies.
The Company considers the four lines of business underwritten by its domestic
insurance/agency companies as appropriate segments to report its business operations.
They are ocean marine, inland marine/fire, other liability and aircraft. The Companys
overall performance is evaluated through these business segments. For additional segment
disclosure information, see note 16 of Notes to Consolidated Financial Statements.
Ocean marine insurance is written on a direct and assumed reinsurance basis and covers a
broad range of classes as follows:
Hull and Machinery Insurance: Provides coverage for loss of or damage to
commercial watercraft.
Hull and Machinery War Risk Insurance: Provides coverage for loss of or damage
to commercial watercraft as a result of war, strikes, riots, and civil commotions.
Cargo Insurance: Provides coverage for loss of or damage to goods in transit or
temporary storage.
Cargo War Risk Insurance: Provides coverage for loss of or damage to goods in
transit as a result of war, which can be extended to include strikes, riots and civil
commotions.
Protection and Indemnity: Provides primary and excess coverage for liabilities
arising out of the operation of owned watercraft, including liability to crew and cargo.
Charters Legal Liability: Provides coverage for liabilities arising out of the
operation of leased or chartered watercraft.
- 2 -
Shoreline Marine Liability Exposures: Provides coverage for ship builders, ship
repairers, wharf owners, stevedores and terminal operators for liabilities arising out of
their operations.
Marine Contractors Liability: Provides coverage for liabilities arising out of
onshore and offshore services provided to the marine and energy industries.
Maritime Employers Liability (Jones Act): Provides coverage for claims arising
out of injuries to employees associated with maritime trades who may fall under the Jones
Act.
Marine Umbrella (Bumbershoot) Liability: Provides coverage in excess of primary
policy limits for marine insureds.
Onshore and Offshore Oil and Gas Exploration and Production Exposures: Provides
coverage for physical damage to drilling rigs and platforms, associated liabilities and
control of well exposures.
Energy Umbrella (Bumbershoot) Liability: Provides coverage in excess of primary
policy limits for exploration and production facilities as well as commercial general
liability and automobile liability.
Petroleum and Bulk Liquid Cargo: Provides coverage for loss and damage to
petroleum and liquid bulk cargo.
Inland marine/Fire insurance traditionally covers property while being transported, or
property of a movable, or floating, nature and includes the following:
Contractors Equipment: Provides coverage for physical damage to various types
of fixed and mobile equipment used in the contracting and service industries.
Motor Truck Cargo: Provides coverage for cargo carried aboard trucks.
Transit Floaters: Provides coverage for physical damage to property while being
transported on various conveyances and while in storage.
Commercial Property: Provides primary property coverage for owners and operators
of commercial, residential and mercantile properties.
Surety: Provides contract bonds for small construction risks and commercial
bonds for various industries.
Inland marine also includes excess and surplus lines property coverage on unique or hard
to place commercial property risks that do not fit into standard commercial lines
coverages. Excess and surplus lines property risks are written through Gotham and
Southwest Marine.
Non-marine liability insurance is written on a direct and assumed reinsurance basis and
includes:
Professional Liability including:
Accountants Professional Liability: Provides primary liability coverage for the
errors and omissions of small to medium-sized accounting firms.
Lawyers Professional Liability: Provides primary liability coverage for small
law firms, including those with an emphasis on intellectual property and specialty firms.
Miscellaneous Professional Errors & Omissions: Includes primary and excess
liability coverage for non-medical professionals written on a claims-made basis. The book
includes liability for music producers, patent holders, web site designers, information
technology consultants, insurance agents and brokers, real estate agents, title agents,
home inspectors and other design, engineering and consulting firms.
Casualty including:
Contractors Liability: Provides primary liability coverage for commercial and
high-end residential contractors.
Commercial and Habitational Liability: Provides primary liability coverage for
commercial property owners and lessors of habitational properties.
Products Liability: Provides primary liability coverage for manufacturers and
distributors of commercial and consumer products.
Other Lines including:
Excess Workers Compensation: Provides excess liability coverage for
self-insured workers compensation trusts and other qualified self-insurers.
Commercial Automobile: Provides physical damage and liability insurance for
commercial mid-sized trucking fleets located primarily in New York State.
Employment Practices Liability: Provides primary liability insurance to small
and medium-sized businesses for employment-related claims brought by employees
- 3 -
The Company has entered into a number of new specialty lines of business identified
above, including professional liability, commercial real estate, employment practices
liability, surety, excess workers compensation and commercial automobile insurance. The
Company continues to look for appropriate opportunities to diversify its business
portfolio by offering new lines of insurance in which management believes the Company has
sufficient underwriting and claims expertise. However, because of the Companys limited
history in these new lines, it may impact managements ability to successfully develop
these new lines or appropriately price and reserve for the ultimate loss associated with
these new lines. Due to the Companys limited history in these lines, management may have
less experience managing the development and growth of such lines than some of our competitors. Additionally, there is a risk that the lines of business into which the
Company expands will not perform at the level it anticipates.
Aircraft insurance provides insurance primarily for commercial aircraft and includes hull
and engine insurance, liability insurance as well as products liability insurance.
Coverage is written on a direct and assumed reinsurance basis. The Company ceased writing
any new policies covering aircraft insurance as of March 31, 2002. The Company in 2009,
however, began underwriting general aviation insurance policies covering single engine
non-commercial aircraft. There were no material amounts written during the year.
The following tables set forth the Companys gross and net written premiums, after
reinsurance ceded.
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NYMAGIC Gross Premiums |
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Written |
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Year ended December 31, |
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By Segment |
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2009 |
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2008 |
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2007 |
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(Dollars in thousands) |
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Ocean marine |
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$ |
73,269 |
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34 |
% |
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$ |
82,751 |
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38 |
% |
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$ |
98,689 |
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43 |
% |
Inland marine/Fire |
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20,306 |
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10 |
% |
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16,128 |
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7 |
% |
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18,625 |
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8 |
% |
Other liability |
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119,913 |
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56 |
% |
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118,378 |
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55 |
% |
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110,986 |
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49 |
% |
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Subtotal |
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213,488 |
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100 |
% |
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217,257 |
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100 |
% |
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228,300 |
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100 |
% |
Run off lines (Aircraft) |
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92 |
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(3 |
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88 |
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Total |
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$ |
213,580 |
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100 |
% |
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$ |
217,254 |
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100 |
% |
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$ |
228,388 |
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100 |
% |
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NYMAGIC Net Premiums |
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Written |
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Year ended December 31, |
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By Segment |
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2009 |
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2008 |
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2007 |
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(Dollars in thousands) |
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Ocean marine |
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$ |
49,885 |
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31 |
% |
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$ |
59,200 |
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36 |
% |
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$ |
68,192 |
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41 |
% |
Inland marine/Fire |
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7,045 |
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4 |
% |
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4,538 |
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3 |
% |
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6,935 |
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4 |
% |
Other liability |
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105,785 |
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65 |
% |
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101,424 |
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61 |
% |
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92,618 |
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55 |
% |
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Subtotal |
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162,715 |
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100 |
% |
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165,162 |
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100 |
% |
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167,745 |
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100 |
% |
Run off lines (Aircraft) |
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(68 |
) |
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222 |
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108 |
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Total |
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$ |
162,647 |
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100 |
% |
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$ |
165,384 |
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100 |
% |
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$ |
167,853 |
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100 |
% |
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Reinsurance Ceded
Ceded premiums written to reinsurers in 2009, 2008 and 2007 amounted to $50.9 million,
$51.9 million and $60.5 million, respectively.
A reinsurance transaction takes place when an insurance company transfers (cedes) a
portion or all of its liability on insurance written by it to another insurer. The
reinsurer assumes the liability in return for a portion or the entire premium. The ceding
of reinsurance does not legally discharge the insurer from its direct liability to the
insured under the policies including, but not limited to, payment of valid claims under
the policies.
The Company, through the pools, cedes the greater part of its reinsurance through annual
reinsurance agreements (treaties) with other insurance companies. These treaties, which
cover entire lines or classes of insurance, allow the Company to automatically reinsure
risks without having to cede liability on a policy by policy (facultative) basis,
although facultative reinsurance is utilized on occasion.
- 4 -
Generally, the Managers place reinsurance with companies which initially have an A.M.
Best rating of A- (Excellent) or greater or which have sufficient financial strength, in
managements opinion, to warrant being used for reinsurance protection. The Managers also
examine financial statements of reinsurers and review such statements for financial
soundness and historical experience. The Company monitors the financial status of all
reinsurers on a regular basis. In addition, the Company, through the
pools, may withhold funds and/or obtain trust agreements and letters of credit under
reinsurance treaties in order to collateralize the obligations of reinsurers. These
letters of credit are from major banks including Citibank, Bank of America and JP Morgan
Chase. While the banking industry has experienced significant turmoil in recent years,
the Company has not experienced any difficulties in receiving cash from acting upon the
draw downs on such letters of credit.
The Company attempts to limit its exposure from losses on any one occurrence through the
use of various excess of loss, quota share and facultative reinsurance arrangements and
endeavors to minimize the risk of default by any one reinsurer by reinsuring risks with
many reinsurers. The Company utilizes many separate reinsurance treaties each year,
generally with a range of 1 to 15 reinsurers participating on each treaty. Some
reinsurers participate on multiple treaties. The Company utilizes both quota share (i.e.,
proportional) and excess of loss (i.e., non-proportional) reinsurance arrangements. In a
quota share reinsurance contract, the reinsurers participate on a set proportional basis
in both the premiums and losses. Conversely, in an excess of loss reinsurance
arrangement, the reinsurers, in exchange for a pre-determined provisional premium,
subject to upward adjustment based upon premium volume, agree to pay for that part of
each loss in excess of an agreed upon amount. The Companys retention of exposure, net of
these treaties, varies among its different classes of business and from year to year,
depending on several factors, including the pricing environment on both the direct and
ceded books of business and the availability of reinsurance.
The Company has made certain changes in reinsurance strategies over the past few years.
In 2007 and 2008 the Company maintained its net loss retention of $5 million per risk in
the ocean marine line; however, the Company could absorb an additional amount up to $5
million depending upon the gross loss to the Company in excess of $5 million. In 2009,
the additional amount up to $5 million depending upon the gross loss to the Company in
excess of $5 million was ceded to reinsurers. In addition, in 2008 and 2009 the Companys
net retention could be as low as $1 million for certain classes within ocean marine. The
decisions to vary net retention levels in the ocean marine line were based upon the
availability and cost of reinsurance in the ocean marine market.
In the wake of substantial losses arising from hurricanes Katrina and Rita in 2005, the
excess of loss reinsurance market for the marine and energy line of business
significantly contracted in 2006 and 2007, resulting in increases in both reinsurance
costs and net loss retentions ($5 million per risk). This compared to a net loss
retention of $3 million per risk in 2005. As a result of the increasing cost of
reinsurance, the Company excluded energy business with exposures in the Gulf of Mexico
from its ocean marine reinsurance program for 2006 and 2007. However, the Company
purchased quota share reinsurance protection in each of those years for 80% of this
portion of its energy business to reduce the potential impact of future catastrophe
losses to the Company. Commencing in 2008, the Companys energy business net retention
after quota share reinsurance was subject to inclusion in the excess of loss program. The
Company, as a result of monitoring its overall concentration of rig exposures in the
Gulf of Mexico, had a reduction in rig policy count in subsequent years when compared to
2005.
Effective January 1, 2010, the Company maintained its $5 million net retention per risk
in the ocean marine line when compared to 2008, including maintaining the Companys net
retention as low as $1 million for certain classes within ocean marine, but reinstated
the additional loss amount up to $5 million depending upon the gross loss to the Company
in excess of $5 million. In addition, catastrophe losses are limited to $2 million plus
reinstatement reinsurance costs. While the quota share reinsurance protection for energy
business remains in effect for 2010, energy business was also included within the ocean
marine reinsurance program.
Prior to 2006, the Company wrote excess workers compensation insurance on behalf of
certain self-insured workers compensation trusts. Specifically, the Company wrote a
$500,000 layer in excess of each trusts self insured retention of $500,000. The gross
premiums written for years prior to 2006 were reinsured under a 50% quota share
reinsurance treaty. Beginning in 2006, the Company provided gross statutory limits on the
renewals of its existing in force excess workers compensation policies to these trusts.
Accordingly, the reinsurance structure was changed to accommodate the increase in gross
limits. A general excess of loss treaty was secured in order to protect the Company up to
$3 million on any one risk. The resulting net retention was then subject to a 70% quota
share reinsurance treaty. In 2007, the Company increased its net retention to $5 million
per occurrence covering two or more lives and eliminated the 70% quota share treaty. The
net retention of $5 million per occurrence covering two or more lives was maintained in
2008 and 2009 with coverage up to $50 million.
In 2007 the Company completed novation agreements with CRM Holdings, Ltd. and certain of
its affiliates (CRM). In these transactions, CRM assumed the Companys rights and
obligations with respect to all but one of the excess workers compensation policies and
associated reinsurance agreements that the Company had written in conjunction with CRM
during the past several years. As a result of these transactions, the Company remitted a
total of $10.1 million to CRM and reduced its existing net unpaid loss reserves by
$16.6 million. The transactions, in 2007, reduced gross unpaid loss reserves and
reinsurance receivables on unpaid losses by $41.5 million and $24.9 million,
respectively.
With respect to the casualty and professional liability lines, the Companys maximum
retention net of reinsurance is generally limited to $2,000,000 per insured for any one
claim or occurrence. With respect to the property, inland marine and commercial
automobile lines, the Companys maximum retention net of reinsurance is generally limited
to $500,000 per insured for any one occurrence and for general aviation, the net loss
retention is limited to $2.5 million per occurrence. Surety writings are written without
the benefit of any reinsurance and gross policy limits are limited to $1.5 million.
- 5 -
The Company attempts to limit its exposure from catastrophes through the purchase of
general excess of loss reinsurance, which provides coverage in the event that multiple
insureds incur losses arising from the same occurrence. These coverages require the
Company to pay a minimum premium, subject to upward adjustment based upon premium volume.
These reinsurance treaties, which extend, in general, for a twelve-month period, obligate
the reinsurers to pay for the portion of the Companys aggregate losses (net of specific
reinsurance) that fall within each treatys coverage.
In the event of a loss, the Company may be obligated to pay additional reinstatement
premiums under its excess of loss reinsurance treaties. This amount may be in excess of
the original premium paid under such treaties. Every effort is made to purchase
sufficient reinsurance coverage, including adequate reinstatements of the underlying
reinsurance layers, to protect the Company against the cumulative impact of several
losses arising from a single occurrence, but there is no guarantee that such reinsurance
coverage will prove sufficient.
In 2008 the Company incurred gross losses of approximately $23.7 million in connection
with Hurricanes Gustav and Ike, but because of the availability of reinsurance the
Company incurred only $5.0 million in net losses. In addition, the Company incurred
approximately $1.6 million in reinsurance reinstatement premium costs in connection with
these losses. The Company reinsures risks with several domestic and foreign reinsurers as
well as syndicates of Lloyds. The Companys largest unsecured reinsurance receivables as
of December 31, 2009 were from the following reinsurers:
|
|
|
|
|
|
|
|
|
Reinsurer |
|
Amounts |
|
|
A.M. Best Rating |
|
|
|
(In millions) |
|
|
|
|
|
Lloyds Syndicates (1) |
|
$ |
67.8 |
|
|
A (Excellent) |
Swiss Reinsurance America Corporation |
|
|
9.0 |
|
|
A (Excellent) |
Transatlantic Reinsurance Company |
|
|
7.1 |
|
|
A (Excellent) |
General Reinsurance Corporation |
|
|
5.4 |
|
|
A++ (Superior) |
Platinum Underwriters Reinsurance Company |
|
|
5.4 |
|
|
A (Excellent) |
Munich Reinsurance America |
|
|
5.2 |
|
|
A+ (Superior) |
FM Global (Arkwright) |
|
|
3.3 |
|
|
A+ (Superior) |
Everest Reinsurance |
|
|
3.1 |
|
|
A+ (Superior) |
Liberty Mutual Insurance Company |
|
|
2.9 |
|
|
A (Excellent) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
109.2 |
|
|
|
|
|
|
|
|
(1) |
|
Lloyds maintains a trust fund, which was established for the benefit
of all United States ceding companies. Lloyds receivables represent
amounts due from approximately 100 different Lloyds syndicates. |
The reinsurance contracts with the above listed companies are generally entered into
annually and provide coverage for claims occurring while the relevant agreement was in
effect, even if claims are made in later years. The contract with Arkwright was entered
into with respect to their participation in the pools.
At December 31, 2009, the Companys reinsurance receivables from reinsurers other than
those listed above were approximately $115.1 million, including amounts recoverable for
paid losses, case loss reserves, IBNR losses and unearned premiums, and net of ceded
balances payable. This amount is recoverable collectively from approximately 500
reinsurers or syndicates, no single one of whom was liable to the Company for an
unsecured amount in excess of approximately $2 million.
Approximately 92% of the Companys total reinsurance receivables as of December 31, 2009
are fully collateralized by trust agreements, letters of credit or funds withheld, or
reside with entities rated A- or higher by A.M. Best Company, or are subject to
offsetting balances.
In the second quarter of 2008, the Company settled disputed reinsurance receivable
balances with Equitas, a Lloyds of London company established to settle claims for
underwriting years 1992 and prior, that resulted in a write-off of $9.4 million. Certain
other reinsurers to which we previously ceded premiums are contesting coverage issues and
their obligations to reinsure claims we paid on liability policies written during the
period 1978 to 1985. The paid balances due from these companies collectively amount to
approximately $2.7 million as of December 31, 2009. These reinsurers may also contest
coverage on loss reserves ceded to them that will be paid in future periods. We are
vigorously enforcing collection of these reinsurance receivables through arbitration
proceedings and/or commutation, but an unfavorable resolution of these arbitration
proceedings and commutation negotiations could be material to our results of operations.
The Company maintains an estimate for amounts due from financially impaired reinsurers in
our reserves for doubtful accounts on reinsurance receivables of $17.6 million and
$21.4 million as of December 31, 2009 and December 31, 2008, respectively. There can be
no assurance that this reserve will be adequate to provide for the ultimate loss from
such reinsurers.
- 6 -
Ceded reinsurance activities had an impact on the Companys financial position as
follows:
1. |
|
As of December 31, 2009 and 2008, the Company reported total ceded reinsurance payable
of $13.6 million and $23.8 million, respectively. |
|
2. |
|
As of December 31, 2009 and 2008, the Company reported total reinsurance receivables
on paid losses of $13.1 million and $28.4 million, respectively. |
3. |
|
As of December 31, 2009 and 2008, the Company reported total reinsurance receivables
on unpaid losses of $205.1 million and $213.9 million, respectively. |
4. |
|
As of December 31, 2009 and 2008, the Company reported prepaid reinsurance premiums of
$19.6 million and $19.2 million, respectively. |
Reinsurance receivables on paid decreased in 2009 primarily due to the collection of
ceded reinsurance recoverables on gross losses payments on hurricanes Katrina, Rita and
Ike. Reinsurance receivables on unpaid losses also decreased in 2009 as a result of
gross loss payments for these hurricanes that reduced unpaid losses..
Ceded reinsurance payable decreased mainly as a result of the payment of reinsurance
reinstatement premiums on hurricane losses.
Prepaid reinsurance premiums increased mainly as a result of an increase in the reserve
for gross unearned premiums which was partially offset by higher net retention levels in
2009 when compared to 2008.
Ceded reinsurance activities had an impact on the Companys results from operations as
follows:
1. |
|
For the years ended December 31, 2009, 2008 and 2007 the Company reported total ceded
premiums earned of $50.5 million, $54.4 million and $68.4 million, respectively. |
2. |
|
For the years ended December 31, 2009, 2008 and 2007 the Company reported ceded
incurred losses and loss adjustment expenses of $29.7 million, $27.0 million and $31.1 million,
respectively. |
Ceded premiums earned decreased in 2009 when compared to 2008 as well as 2008 when
compared to 2007 primarily as a result of lower excess of loss and quota share
reinsurance in the ocean marine and other liability lines of business.
Ceded reinsurance activities had an impact on the Companys cash flows as follows:
1. |
|
The Company made reinsurance premium payments of $61.2 million, $55.1 million and
$78.3 million for the years ended December 31, 2009, 2008 and 2007, respectively. |
2. |
|
The Company received reinsurance collections on paid losses of $53.9 million,
$65.8 million and $75.9 million for the years ended December 31, 2009, 2008 and 2007,
respectively. |
The increase in reinsurance premium payments in 2007 relative to 2008 and 2009 reflected
reinsurance payments made under the excess workers compensation 70% quota share treaty
and 80% energy quota share treaty as well as larger reinsurance reinstatement premium
payments from hurricanes Katrina, Rita and Ike.
The level of cash collections of reinsurance recoverables decreased in 2009 when compared
to 2008 and 2007 primarily due to lack of catastrophe losses.
Reserves
We maintain reserves for the future payment of losses and loss adjustment expenses with
respect to both case (reported) and IBNR (incurred but not reported) losses under
insurance policies issued by the Company. IBNR losses are those losses, based upon
historical experience, industry loss data and underwriter expectations, that the Company
estimates will be reported under these policies. Case loss reserves are determined by
evaluating reported claims on the basis of the type of loss involved, knowledge of the
circumstances surrounding the claim and the policy provisions relating to the type of
loss. Case reserves can be difficult to estimate depending upon the class of business,
claim complexity, judicial interpretations and legislative changes that affect the
estimation process. Case reserves are reviewed periodically and monitored on a regular
basis, which may result in changes (favorable or unfavorable) to the initial estimate
until the claim is ultimately paid and settled.
The Company considers a variety of factors in its estimate of loss reserves. These
elements include the length of the reporting tail (i.e. occurrence versus claims made
coverage), the nature of the risk insured (i.e. property versus liability), the level of
net retention per loss, large case reserve estimates or shock (large) losses, the
emergence of identifiable trends in the statistical analysis of paid and incurred loss
data, and the level of catastrophe losses incurred during the period.
- 7 -
We evaluate loss reserves in three categories:
1) Classes of business where we have sufficient and adequate historical loss data.
Where we believe we have adequate historical loss data for a sufficient number of years
to enable us to project losses we estimate IBNR using our best estimate after a review
and evaluation of ultimate losses under four methods: the paid loss method, the incurred
loss method and the Bornheutter-Ferguson methods (paid and incurred). This category
includes some classes that have short tail business (hull, cargo, rig, and inland
marine/fire, non marine liability-claims made basis) and other classes with long tail
business (ocean marine liability, other liability, aviation liability). Each method uses
different assumptions and no one method is considered better than the others in all
circumstances. The paid method is based upon the historical development of paid losses to
arrive at the ultimate loss. The incurred method focuses on the historical development of
incurred losses to arrive at the ultimate loss. The Bornheutter-Ferguson methods (paid
and incurred) focus on the historical development of paid and incurred losses, in
addition to the level of premiums earned, to arrive at the ultimate loss.
2) New specialty classes of business where we lack historical data.
In new classes of business in which we believe we lack historical loss data, we estimate
IBNR using our best estimate after considering industry loss ratios, underwriting
expectations, internal and external actuarial evaluations and anticipated loss ratios
based upon known experience. Industry loss ratios are considered from published sources
such as those produced by the A.M. Best Company, a leading supplier of industry data.
Underwriting expectations are considered based upon the specific underwriters review and
assessment of the anticipated loss ratio of the business written. Internal actuarial
evaluations are considered if such evaluations are available. Anticipated loss ratios
based upon known experience are considered if the new business written has similar
characteristics to business currently written. For example, loss estimates used for
general contractors liability (more recently written business) may be based upon those
used for subcontractors liability (historically written business). This category
includes some short tail classes of business (surety) and other classes of long tail
business (excess workers compensation and commercial auto liability).
In recent years, the Company has entered into a number of new specialty classes of
business including excess workers compensation, professional liability, commercial
automobile, non-commercial aviation and employment practices liability insurance as well
as surety. The Company has limited history in these new classes, and accordingly there
may be a higher degree of variability in our ability to estimate the ultimate losses
associated with these new classes. Consequently, we are more likely to recognize
unfavorable development as a trend, and increase estimates of ultimate losses, and less
likely to recognize favorable development as a trend, until we have confirmed the trend
in light of the uncertainty surrounding actual reporting, case reserve estimates and
settlement tails.
3) Asbestos and environmental liabilities.
The Company establishes reserves (case and IBNR) for asbestos and environmental
liabilities after evaluating information on specific claims including plaintiffs,
defendants and policyholders, as well as judicial precedent and legislative
developments. The appropriateness of these estimated reserves is then evaluated through
an analysis of the reserves under the following reserving methodologies: (i) ground up
analysis, which reviews the Companys potential exposures based upon actual policies
issued; (ii) industry survival ratios; and (iii) market share statistics per loss
settlement. The first, a specific ground up analysis, reviews potential exposures based
upon actual policies issued by the Company that are known to have exposure to asbestos
related losses. We may not have received specific reported losses from some of these
assureds due to the high attachment point of the policies issued, but, given the
Companys experience with asbestos claims, and the fact that the evaluation of asbestos
loss exposure is conducted by attorneys and consultants who are experts in the asbestos
arena, we believe our estimate of these reserves is reasonably adequate. However, such
estimates can change materially as a result of the unfolding of actual events on losses
pertaining to the underlying policy. The second methodology evaluates this reserve using
industry survival ratios (loss payments expected over a certain number of years) and the
third methodology utilizes market share statistics per loss settlement (comparing
favorably or unfavorably with the industry on settlements of known assureds).
Asbestos and environmental policies have unique loss development characteristics, and
they add a challenging dimension to establishing loss reserves. We have identified the
following as unique development characteristics of asbestos and environmental
liabilities: the long waiting periods between exposure and manifestation of any bodily
injury or property damage, the difficulty in identifying the source of the asbestos or
environmental contamination, and the long reporting delays and difficulty in allocating
liability for the asbestos or environmental damage. In addition, we believe that judicial
and legislative developments affecting the scope of insurers liability, which can be
difficult to predict, also contribute to uncertainties in estimating reserves for
asbestos and environmental liability as does the increasing trend in the number of
companies seeking bankruptcy protection as a result of asbestos-related liabilities that
impact the Company by significantly accelerating and increasing its loss payments.
Under these methodologies for evaluating loss reserves, an ultimate loss is obtained
which is then reduced by incurred losses (paid losses plus case reserves) to derive an
IBNR amount that is used for the financial statements.
- 8 -
Reserve methodology
Reserves estimated in accordance with the methods above are then summarized in the
appropriate segment classification (ocean marine, inland marine/fire, other liability and
the runoff aircraft business).
Our long tail business is primarily in ocean marine liability, aircraft and non-marine
liability insurance. These classes historically have extended periods of time between the
occurrence of an insurable event, reporting the claim to the Company and final
settlement. In such cases, we estimate reserves, with the possibility of making several
adjustments, because of emerging differences in actual versus expected loss development,
which may result from shock losses (large losses), changes in loss payout patterns and
material adjustments to case reserves due to adverse or favorable judicial or arbitral
results during this time period.
By contrast, other classes of insurance that we write, such as property, which includes
certain ocean marine classes (hull and cargo) and our inland marine/fire segment, and
claims-made non-marine liability, historically have had shorter periods of time between
the occurrence of an insurable event, reporting of the claim to the Company and final
settlement. The reserves for these shorter tail classes are estimated as described above,
but these reserves are less likely to be readjusted, as losses are settled quickly and
result in less variability from expected loss development, shock or large losses, changes
in loss payout patterns and material adjustments to case reserves.
As the Company increases its production in its other liability line of business, its
reported loss reserves from period to period may vary depending upon the long tail, short
tail and product mix within this segment. Our professional liability class, for example,
is written on a claims-made basis, but other sources of new production such as excess
workers compensation are derived from liability classes written on an occurrence basis.
Therefore, the overall level of loss reserves reported by the Company at the end of any
reporting period may vary as a function of the level of writings achieved in each of
these classes.
In estimating loss reserves, we gather statistical information by each class, which has
its own unique loss characteristics, including loss development patterns consistent with
long tail or short tail business. Accordingly, any differences inherent in long tail
versus short tail lines are accounted for in the loss development factors used to
estimate IBNR. We consider the development characteristics of shock losses, changes in
loss payout trends and loss development adjustments and amounts of net retention to be
equally relevant to both our long and short tail businesses.
The procedures we use for determining loss reserves on an interim basis are similar to
the procedures we use on an annual basis. Case reserves are established in a consistent
manner as at year end and IBNR at each interim period is determined after we consider
actual loss development versus expected loss development for each business segment in
evaluating the prior years loss development. Any favorable or adverse trends in loss
development are compared with the prior year-end established loss reserves. Any shock
losses, changes in loss payout patterns or material adjustments to case reserves are
evaluated to ascertain whether the previously established provision for IBNR was adequate
to support the loss development from these additional changes and changes to reserves are
made as appropriate.
In addition, internal actuaries review reserves for several significant classes of
business at year-end, and we develop internally specific loss development factors for our
various classes of business annually at year-end based upon a review of paid and incurred
loss activity during the year. Management collaborates with the Companys internal
actuaries in an effort to determine its best estimate of reserves.
The key assumptions that materially affect the estimate of the reserve for loss and loss
adjustment expenses are, net loss retention, large severity or shock losses, loss
reporting tail, frequency of losses, loss estimates for new classes of business, loss
estimates for asbestos and environmental reserves and catastrophe losses. These
assumptions affect loss estimates as follows:
Net Loss Retention:
Our level of net loss retention was $5 million per risk for each year from 2006 to 2009
in the ocean marine line business, which was subject to an additional amount up to $5
million depending upon the gross loss to the Company in excess of $5 million in 2007 and
2008. This level of loss retention compares to $3 million in 2005, $4 million in 2004 and
$2 million in 2003. The net loss retention in all other segments generally remained the
same in 2009, 2008 and 2007. The Company recognized favorable loss development in the
ocean marine segment in 2009, 2008 and 2007 due in part to the net loss retention
increasing in the ocean marine line over the past several years, and the actual loss
emergence for the estimated higher net loss retention in those prior accident years was
less than we had previously anticipated.
Shock Losses:
A large part of our business is characterized by claims that are of low frequency, but
high severity. Estimates of such reserves are sensitive to a few key assumptions made by
our claims department. All significant losses are subject to review by our Executive Vice
President of Claims and in certain cases the Chief Underwriting Officer, Chief Financial
Officer and/or Chief Executive Officer. As such, the estimates for these claims require
substantial judgment.
- 9 -
Our level of shock losses or large severity losses (excluding catastrophe losses)
increased in 2009 when compared to 2008, but decreased in 2008 when compared to 2007 in
the ocean marine segment. A marine liability loss of $7 million developed in 2009 with respect to the 2007 accident year. A $2.5 million cargo loss occurred in 2007.
Severity losses increased in the inland marine/fire segment in 2009 when compared to
2008.
In 2007 two large claims, occurring in the 2006 accident year contributed $3.0 million of
adverse development in the professional liability class.
Loss Reporting Tail:
Policies written on an occurrence basis have a longer loss reporting tail than policies
written on a claims made basis. Claims may be reported to the Company after the policy
period for those policies written on an occurrence basis, provided that such claims
occurred within the policy term. The time between the occurrence of a claim and the
reporting of the claim to the Company could be significant and makes the estimation of
the ultimate loss more uncertain. Writing new classes of occurrence based policies has
created additional uncertainties in the reserve estimation process.
Our assumptions for the loss reporting tail in the other liability line changed with
respect to contractors liability in recent years. We reached this conclusion after we
re-evaluated its loss development factors based upon paid and incurred loss development.
As a result, we reported favorable development resulting from a lower than expected
emergence of losses attributable to a shorter loss reporting tail than we had originally
estimated. The shorter loss reporting tail was the result of a change in the mix of our
liability business by deemphasizing policies covering elevator contractor liability and
subcontractor liability and focusing more on policies covering general contractors and
owner developers. As a result of this change in product mix, we determined that reserves
previously estimated under loss development patterns established for our older book of
business were not developing in accordance with the loss emergence from the more recent
general contractors book. Consequently, we concluded that the loss reporting tail would
be shorter than we had previously anticipated. We saw favorable loss development in 2009,
2008 and 2007 as a result of the emergence of this shorter loss reporting tail.
Frequency of Losses:
The level of frequency of losses in the inland marine/fire segment increased in 2009 when
compared to 2008 and 2007. The number of losses reported in the most recent accident year
in the inland marine/fire segment was 141 in 2009, 79 in 2008 and 140 in 2007.
Loss Estimates:
Our loss estimates for new classes of business, including excess workers compensation
and professional liability, were derived by employing industry loss ratios, internal
actuarial evaluations, as well as by evaluating each class based upon discussions with
underwriters. The excess workers compensation class recorded $6.2 million in favorable
net loss development in 2007 as a result of the novation of substantially all of our 2006
and prior policy year writings written by one of our former agents.
The initial loss estimate for the casualty business written by MMO Agencies in 2009 and
2008 was lower than our other casualty classes of business primarily due to a review of
industry loss estimates for similar types of business as well as historical results
achieved by the MMO Agencies underwriters.
The assumptions we used in estimating asbestos and environmental liabilities in 2009 and
2008 have remained consistent with 2007. We considered a specific ground up analysis,
which reviewed our potential exposure based upon actual policies issued, industry
survival ratios and market share statistics per loss settlement. While cumulative net
losses incurred were $1.6 million from 2007 to 2009, gross losses and loss adjustment
expenses incurred amounted to $6.2 million and $10.4 million and $5.9 million in 2009,
2008 and 2007, respectively.
Catastrophe Losses:
Catastrophe losses may be difficult to estimate due to the inability of the insured and
claims adjusters to provide an adequate assessment of the overall loss. The difficulties
of establishing reserves include the inability to access insureds premises and certain
legal issues surrounding the estimation of the insured loss.
There were no catastrophe losses reported by the Company in 2009 or 2007. The Company
recorded total losses of $6.6 million from hurricanes Ike and Gustav in 2008. This
resulted in $5.0 million in net losses incurred and $1.6 million in reinsurance
reinstatement costs.
Other than as specifically described above with respect to the change in business
mix in the other liability line, we have not identified any key assumptions as of
December 31, 2009 that are premised on future emergence that are inconsistent with our
historical loss reserve development patterns.
- 10 -
Uncertainty in Reserve Estimates
The Company believes that the uncertainty surrounding asbestos/environmental exposures,
including issues as to insureds liabilities, ascertainment of loss date, definitions of
occurrence, scope of coverage, policy limits and application and interpretation of policy
terms, including exclusions, the ingenuity of the plaintiffs bar, legislative
initiatives and unpredictable judicial results creates significant variability in determining the ultimate loss for
asbestos/environmental related claims. Given the uncertainty in this area, losses from
asbestos/environmental related claims may develop adversely and accordingly, management
is unable to estimate reasonably likely changes in assumptions that could arise from
asbestos/environmental related claims. Accordingly, the Companys net unpaid loss and
loss adjustment expense reserves in the aggregate, as of December 31, 2009, represent
managements best estimate of the losses that arose from asbestos and environmental
claims. See Asbestos and Environmental Reserves.
In our second category of reserves, we estimate losses for excess workers compensation,
surety and commercial automobile liability. Since we do not believe we have either the
historical experience, or sufficient information about these lines, to quantify the
impact of changes in the assumptions we have made in evaluating reserves for losses in
this area, we are unable to estimate what the effect would be of any reasonably likely
changes in assumptions on these lines of business. Therefore, we provide our best
estimate of loss reserves in this category as well.
Our first category of reserves comprises estimates for losses in those classes of
business that the company has historically written in the ocean marine segment, inland
marine/ fire classes, contractors liability class and more recently, the professional
liability classes. Losses occurring in these segments are generally characterized by low
frequency and high severity, and enjoy the benefit of our multi-tiered reinsurance
program. The factors that have caused prior differences in actual versus estimated loss
reserves include: changes in net loss retention, changes in loss reporting tail, the
level of shock losses, changes in frequency of losses and catastrophe loss estimates. We
believe that changes in such factors could occur in future periods as well; however, we
are uncertain as to the magnitude of such changes currently.
Accordingly, even though we have adequate historical loss data to evaluate reserves in
this area, we are unable to quantify changes in the assumptions we make in estimating
these reserves, because they are subject to numerous and interactive variables, and we do
not believe that the resultant product would either reflect all reasonably possible
outcomes or lend itself to a meaningful presentation. Instead, we calculate the Companys
loss reserves on the basis of managements best estimate after a review of all historical
data.
For example, a change in the net loss retention by itself could result in a significant
upward or downward adjustment of our reserve estimate. But, a change in the net loss
retention assumption cannot be considered in isolation; it must be analyzed in light of
its interplay with other assumptions including for instance, changes in the frequency of
losses and changes in the level of shock losses and their effect on our reinsurance
program. While the initial change to the level of net loss retention may result in a
potential reserve adjustment, such change may at the same time be influenced by an
increase in the frequency of losses. This would depend upon our ability to recover from
our reinsurance program, which is a function of whether or not our losses can be
aggregated. The combination of the changes in these assumptions may also trigger the
exhaustion of one layer of reinsurance and the implication of another layer of
reinsurance, with the concomitant result that there would be no change to, or an upward
or downward adjustment to our loss reserve estimate. Similarly, we may vary our estimates
of catastrophe losses or shock losses, but, because of the interplay between these losses
and our reinsurance program, we may not change our estimate of net reserves. While
anticipating larger catastrophe losses may have a significant impact on the gross loss
reserve level, the effect of that change in assumption at the net level may be
negligible, because of the applicability of reinsurance. This was evident in our
experience with losses associated with hurricanes Katrina and Rita in 2005. While our
combined gross and net loss reserve estimates as of December 31, 2005 were approximately
$70.8 million and $6.6 million, respectively, the Company could suffer significant
adverse gross loss development in periods after 2005 without making a material adjustment
to the net loss reserve level as a result of the operation of the Companys reinsurance
program. Approximately $16 million and $20 million of adverse gross loss development
occurred during 2007 and 2006, respectively, for which we determined no adjustment to the
net loss level was necessary. There was no significant gross loss development on
hurricanes Rita and Katrina in 2008 or in 2009.
Unpaid losses and loss adjustment expenses for each segment on a gross and net of
reinsurance basis as of December 31, 2009 were as follows:
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Net |
|
|
|
(In thousands) |
|
Ocean marine |
|
$ |
145,064 |
|
|
$ |
95,334 |
|
Inland marine/Fire |
|
|
19,254 |
|
|
|
6,580 |
|
Other liability |
|
|
272,554 |
|
|
|
225,010 |
|
Aircraft |
|
|
118,614 |
|
|
|
23,484 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
555,486 |
|
|
$ |
350,408 |
|
|
|
|
|
|
|
|
- 11 -
In 2001, the Company recorded losses in its aircraft line of business as a result of the
terrorist attacks of September 11, 2001 on the World Trade Center, the Pentagon and the
hijacked airliner that crashed in Pennsylvania (collectively, the WTC Attack). At the
time, because of the amount of the potential liability to our insureds (United Airlines
and American Airlines) caused by the WTC Attack, we established reserves based upon our
estimate of our insureds policy limits for gross and net liability losses. In 2004 we
determined that a reduction in the loss reserves relating to the terrorist attacks of
September 11, 2001 on the Pentagon and the hijacked airliner that crashed in Pennsylvania
was warranted, because a significant number of claims that could have been made against
our insureds were waived by prospective claimants when they opted to participate in the
September 11th Victim Compensation Fund of 2001 (the Fund), and the statutes of limitations for
wrongful death in New York and for bodily injury and property damage, generally, had
expired, the latter on September 11, 2004. Our analysis of claims against our insureds,
undertaken in conjunction with the industrys lead underwriters in London, indicated
that, because such a significant number of claims potentially emanating from the attack
on the Pentagon and the crash in Shanksville had been filed with the Fund, or were time
barred as a result of the expiration of relevant statutes of limitations, those same
claims would not be made against our insureds. Therefore, we concluded that our insureds
liability and our ultimate insured loss would be substantially reduced. Consequently, we
re-estimated our insureds potential liability for the terrorist attacks of September 11,
2001 on the Pentagon and the hijacked airliner that crashed in Pennsylvania, and we
reduced in 2004 our gross and net loss reserves by $16.3 million and $8.3 million,
respectively.
In light of the magnitude of the potential losses to our insureds resulting from the WTC
Attack, we did not reduce reserves for these losses until we had a high degree of
certainty that a substantial amount of these claims were waived by victims participation
in the Fund, or were time barred by the expiry of statutes of limitations, and we did not
reach that level of certainty until September 2004, when the last of the significant
statute of limitations, that applicable to bodily injury and property damage, expired.
In 2006 the Company recorded adverse loss development of approximately $850,000 in the
aircraft line of business resulting primarily from losses assumed from the WTC attack
which were partially offset by a reduction in reserves relating to the loss sustained at
the Pentagon after re-estimating the reserve based upon lower than expected settlements
of claims paid during the year. There were no material changes in loss estimates for the
WTC Attack in 2007, 2008 or 2009.
Overall, the aviation line of business has experienced adverse development in 2008 and
2007 largely related to the unfavorable settlement of large losses and the impact of
uncollectible reinsurance. In 2009 the Company reported favorable development in the
aviation line of business largely due to recoveries.
In February 2010, the Company paid approximately $33 million in gross claims with respect
to the WTC Attack. The loss payment did not have a substantial impact on results of
operations or financial position.
Asbestos and Environmental Reserves
Our insurance subsidiaries are required to record an adequate level of reserves necessary
to provide for all known and unknown losses on insurance business written. Our insurance
subsidiaries have not had difficulties in maintaining reserves in recent years at
aggregate levels which management believes to be adequate based on managements best
estimates, but the loss reserving process is subject to many uncertainties as further
described herein.
The difficulty in estimating our reserves is increased because the Companys loss
reserves include reserves for potential asbestos and environmental liabilities. Asbestos
and environmental liabilities are difficult to estimate for many reasons, including the
long waiting periods between exposure and manifestation of any bodily injury or property
damage, difficulty in identifying the source of the asbestos or environmental
contamination, long reporting delays and difficulty in properly allocating liability for
the asbestos or environmental damage. Legal tactics and judicial and legislative
developments affecting the scope of insurers liability, which can be difficult to
predict, also contribute to uncertainties in estimating reserves for asbestos and
environmental liabilities.
The Company participated in the issuance of both umbrella casualty insurance for various
Fortune 1000 companies and ocean marine liability insurance for various oil companies
during the period from 1978 to 1985. Depending on the calendar year, the insurance pools
net retained liability per occurrence after applicable reinsurance ranged from $250,000
to $2,000,000. Subsequent to this period, the pools substantially reduced their umbrella
writings and coverage was provided to smaller assureds. The Companys effective pool
participation on such risks varied from 11% in 1978 to 59% in 1985. Ocean marine and
non-marine policies issued during the past three years also provide some coverage for
environmental risks.
At December 31, 2009, the Companys gross, ceded and net loss and loss adjustment expense
reserves for all asbestos/environmental policies amounted to $46.7 million, $36.4 million
and $10.3 million, respectively, as compared to $48.8 million, $37.3 million and
$11.5 million at December 31, 2008, respectively.
The Company believes that the uncertainty surrounding asbestos/environmental exposures,
including issues as to insureds liabilities, ascertainment of loss date, definitions of
occurrence, scope of coverage, policy limits and application and interpretation of policy
terms, including exclusions renders it difficult to determine the ultimate loss for
asbestos/environmental related claims. Given the uncertainty in this area, losses from
asbestos/environmental related claims may develop adversely and accordingly, management
is unable to reasonably predict the range of possible losses that could arise from
asbestos/environmental related claims. Accordingly, the Companys net unpaid loss and
loss adjustment expense reserves in the aggregate, as of December 31, 2009, represent
managements best estimate of the losses that arise from asbestos and environmental
claims.
- 12 -
The Companys gross asbestos and environmental liabilities were reinsured substantially
through the use of quota share, general excess of loss and facultative arrangements. Some
of reinsurers that were originally placed on our reinsurance agreements have become
insolvent, financially impaired or commuted. The Company may also have disputes with some
of the reinsurers, which has led to arbitration procedures against such companies to
recover balances owed to the Company. This may lead to the Company incurring losses as a
result of ceding business to such reinsurers. See Reinsurance Ceded for reserves for
doubtful accounts on reinsurance receivables.
The following table sets forth the Companys net loss and loss adjustment expense
experience for asbestos/environmental policies for each of the past three years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
Asbestos/Environmental |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unpaid losses and loss adjustment expenses (including IBNR) at
the beginning of the period |
|
$ |
11,535 |
|
|
$ |
10,864 |
|
|
$ |
12,222 |
|
Net incurred losses and loss adjustment expenses |
|
|
(1,523 |
) |
|
|
3,200 |
|
|
|
(43 |
) |
Net paid loss settlements |
|
|
358 |
|
|
|
(2,212 |
) |
|
|
(766 |
) |
Net loss adjustment expenses payments (cost of administering claims) |
|
|
(62 |
) |
|
|
(317 |
) |
|
|
(549 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unpaid losses and loss adjustment expenses (including IBNR) at
end of period |
|
$ |
10,308 |
|
|
$ |
11,535 |
|
|
$ |
10,864 |
|
|
|
|
|
|
|
|
|
|
|
The following sets forth a reconciliation of the number of claims relating to
asbestos/environmental policies for each of the past three years:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Number of claims pending at beginning of period |
|
|
367 |
|
|
|
384 |
|
|
|
401 |
|
Number of claims reported |
|
|
85 |
|
|
|
88 |
|
|
|
74 |
|
Number of claims settled/dismissed or otherwise resolved |
|
|
(123 |
) |
|
|
(105 |
) |
|
|
(91 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of claims pending at end of period |
|
|
329 |
|
|
|
367 |
|
|
|
384 |
|
|
|
|
|
|
|
|
|
|
|
Claims reported involve a large number of relatively small individual claims of a similar
type. Additional asbestos claims continue to be reported to the Company by assureds as a
result of claims brought by individuals who do not appear to be impaired by asbestos
exposure. There is also an increasing trend in the number of companies seeking bankruptcy
protection as a result of asbestos-related liabilities. These bankruptcy proceedings may
impact the Company by significantly accelerating and increasing loss payments made by the
Company. As a result of these trends, there is a high degree of uncertainty with respect
to future exposure from asbestos claims, which may be material to the Company.
Other Reserves
The insurance pools have written coverage for products liability as part of other
liability insurance policies issued since 1985. The insurance pools maximum loss per
risk is generally limited to $1,000,000 and the Companys participation percentage ranges
from 59% to 100% based upon policy year. The Company believes that its reserves with
respect to such policies are adequate to cover the ultimate resolution of all such
products liability claims.
Loss Reserve Table
The following table shows changes in the Companys reserves in subsequent years from
prior years reserves. Each year the Companys estimated reserves increase or decrease as
more information becomes known about the frequency and severity of losses for past years.
As indicated in the chart, a redundancy means the original estimate of the Companys
consolidated liability was higher than the current estimate, while a deficiency means
that the original estimate was lower than the current estimate.
- 13 -
The first line of the table presents, for each of the last ten years, the estimated
liability for net unpaid losses and loss adjustment expenses at the end of the year,
including IBNR losses. The estimated liability for net unpaid losses and loss adjustment
expenses is determined quarterly and at the end of each calendar year.
Below this first line, the first triangle shows, by year, the cumulative amounts of net
loss and loss adjustment expenses paid as of the end of each succeeding year, expressed
as a percentage of the original estimated net liability for such amounts.
The second triangle sets forth the re-estimates in later years of net incurred losses,
including net payments, as a percentage of the original estimated net liability for net
unpaid losses and loss adjustment expenses for the years indicated. Percentages less than
100% represent a redundancy, while percentages greater than 100% represent a deficiency.
The net cumulative redundancy (deficiency) represents, as of December 31, 2009, the
aggregate change in the estimates over all prior years. The changes in re-estimates have
been reflected in results from operations over the periods shown.
The gross cumulative redundancy (deficiency) of unpaid losses and loss adjustment
expenses represents the aggregate change in the estimates of such losses over all prior
years starting with the 1999 calendar year.
The Company calculates its loss reserves on the basis of managements best estimate and
does not calculate a range of loss reserve estimates. In six out of the past ten years,
the Company has recorded redundancies in its net loss reserve position. The Companys
considered view, in light of this history, is that management is highly sensitive to the
nuances of the Companys lines of business and that establishing net loss reserves based
upon managements best estimate gives the Company greater assurance that its net loss
reserves are appropriate. It is the Companys position that calculating a range of loss
reserve estimates may not reflect all the volatility between existing loss reserves and
the ultimate settlement amount. The low frequency and high severity of many of the risks
we insure coupled with the protracted settlement period make it difficult to assess the
overall adequacy of our loss reserves. Based upon the foregoing, the Company believes
that its history of establishing adequate net loss reserves using its best estimate
compares favorably with industry experience.
The Company considers a variety of factors in its estimate of loss reserves. These
elements include, but are not necessarily limited to, the level of catastrophe losses
incurred during the period, the length of the reporting tail (i.e. occurrence versus
claims made coverage), the nature of the risk insured (i.e. property versus liability),
the level of net retention per loss and the emergence of identifiable trends in the
statistical analysis of paid and incurred loss data. Case loss reserves are determined by
evaluating reported claims on the basis of the type of loss involved, knowledge of the
circumstances surrounding the claim and the policy provisions relating to the type of
loss. IBNR losses are estimated on the basis of statistical information with respect to
the probable number and nature of losses, which have not yet been reported to the
Company. The Company uses various actuarial methods in calculating IBNR including an
evaluation of IBNR by the use of historical paid loss and incurred data utilizing the
Bornheutter-Ferguson method.
In recent years, the Company has entered into a number of new specialty lines of business
including professional liability, commercial real estate, employment practices liability,
surety, excess workers compensation, non-commercial aviation, commercial automobile
insurance as well as commercial general liability through our MMO Agencies unit. Because
of the Companys limited history in these new lines, it may impact managements ability
to appropriately reserve for the ultimate loss associated with these new lines. As such,
the Company is more likely to react quickly to unfavorable trends, and less likely to
respond quickly to favorable development until subsequent confirmation of the favorable
loss trend. Management considers many factors when estimating the ultimate loss ratios
for these various classes, including industry loss ratios and anticipated loss ratios
based upon known experience.
- 14 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
1999 |
|
|
2000 |
|
|
2001 |
|
|
2002 |
|
|
2003 |
|
|
2004 |
|
|
2005 |
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
|
(Dollars in thousands) |
|
Estimated Liability for Net Unpaid Losses and Loss Adjustment Expenses |
|
|
196,865 |
|
|
|
199,685 |
|
|
|
210,953 |
|
|
|
208,979 |
|
|
|
242,311 |
|
|
|
255,479 |
|
|
|
289,217 |
|
|
|
292,941 |
|
|
|
306,405 |
|
|
|
334,843 |
|
|
|
350,408 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumulative Amount of Net Losses and Loss Adjustment Expenses Paid as a Percentage of Original Estimate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Year Later |
|
|
24 |
% |
|
|
28 |
% |
|
|
30 |
% |
|
|
8 |
% |
|
|
18 |
% |
|
|
17 |
% |
|
|
25 |
% |
|
|
22 |
% |
|
|
23 |
% |
|
|
15 |
% |
|
|
|
|
2 Years Later |
|
|
39 |
% |
|
|
56 |
% |
|
|
30 |
% |
|
|
24 |
% |
|
|
27 |
% |
|
|
33 |
% |
|
|
38 |
% |
|
|
40 |
% |
|
|
34 |
% |
|
|
|
|
|
|
|
|
3 Years Later |
|
|
53 |
% |
|
|
64 |
% |
|
|
41 |
% |
|
|
32 |
% |
|
|
38 |
% |
|
|
45 |
% |
|
|
53 |
% |
|
|
48 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
4 Years Later |
|
|
58 |
% |
|
|
70 |
% |
|
|
47 |
% |
|
|
43 |
% |
|
|
49 |
% |
|
|
57 |
% |
|
|
58 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 Years Later |
|
|
63 |
% |
|
|
72 |
% |
|
|
55 |
% |
|
|
53 |
% |
|
|
61 |
% |
|
|
62 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 Years Later |
|
|
64 |
% |
|
|
79 |
% |
|
|
62 |
% |
|
|
65 |
% |
|
|
65 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 Years Later |
|
|
70 |
% |
|
|
84 |
% |
|
|
73 |
% |
|
|
70 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 Years Later |
|
|
74 |
% |
|
|
93 |
% |
|
|
77 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 Years Later |
|
|
82 |
% |
|
|
96 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 Years Later |
|
|
86 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Liability Re-estimated including Cumulative Net Paid Losses and Loss Adjustment Expenses as a Percentage of Original Estimate: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 Year Later |
|
|
96 |
% |
|
|
105 |
% |
|
|
102 |
% |
|
|
99 |
% |
|
|
94 |
% |
|
|
95 |
% |
|
|
97 |
% |
|
|
95 |
% |
|
|
101 |
% |
|
|
94 |
% |
|
|
|
|
2 Years Later |
|
|
94 |
% |
|
|
108 |
% |
|
|
101 |
% |
|
|
94 |
% |
|
|
89 |
% |
|
|
90 |
% |
|
|
91 |
% |
|
|
96 |
% |
|
|
93 |
% |
|
|
|
|
|
|
|
|
3 Years Later |
|
|
95 |
% |
|
|
104 |
% |
|
|
96 |
% |
|
|
90 |
% |
|
|
86 |
% |
|
|
88 |
% |
|
|
94 |
% |
|
|
89 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
4 Years Later |
|
|
91 |
% |
|
|
103 |
% |
|
|
94 |
% |
|
|
88 |
% |
|
|
86 |
% |
|
|
94 |
% |
|
|
90 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5 Years Later |
|
|
92 |
% |
|
|
102 |
% |
|
|
92 |
% |
|
|
90 |
% |
|
|
94 |
% |
|
|
92 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 Years Later |
|
|
90 |
% |
|
|
102 |
% |
|
|
94 |
% |
|
|
100 |
% |
|
|
93 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7 Years Later |
|
|
90 |
% |
|
|
103 |
% |
|
|
104 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8 Years Later |
|
|
91 |
% |
|
|
114 |
% |
|
|
104 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9 Years Later |
|
|
101 |
% |
|
|
114 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 Years Later |
|
|
102 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Cumulative Redundancy (Deficiency) |
|
|
(4,626 |
) |
|
|
(28,088 |
) |
|
|
(8,219 |
) |
|
|
87 |
|
|
|
16,182 |
|
|
|
20,530 |
|
|
|
28,113 |
|
|
|
31,758 |
|
|
|
21,464 |
|
|
|
19,990 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Unpaid Losses and Loss Adjustment Expenses |
|
|
425,469 |
|
|
|
411,267 |
|
|
|
534,189 |
|
|
|
516,002 |
|
|
|
518,930 |
|
|
|
503,261 |
|
|
|
588,865 |
|
|
|
579,179 |
|
|
|
556,535 |
|
|
|
548,750 |
|
|
|
555,486 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reinsurance Recoverable on Unpaid Losses and Loss Adjustment Expenses |
|
|
228,604 |
|
|
|
211,582 |
|
|
|
323,236 |
|
|
|
307,023 |
|
|
|
276,619 |
|
|
|
247,782 |
|
|
|
299,648 |
|
|
|
286,238 |
|
|
|
250,130 |
|
|
|
213,907 |
|
|
|
205,078 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve Re-estimated Gross |
|
|
490,550 |
|
|
|
501,209 |
|
|
|
600,436 |
|
|
|
533,515 |
|
|
|
509,300 |
|
|
|
485,852 |
|
|
|
595,729 |
|
|
|
542,807 |
|
|
|
529,400 |
|
|
|
534,356 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reserve Re-estimated Reinsurance Recoverable |
|
|
289,059 |
|
|
|
273,437 |
|
|
|
381,263 |
|
|
|
324,622 |
|
|
|
282,172 |
|
|
|
250,902 |
|
|
|
334,625 |
|
|
|
281,624 |
|
|
|
244,458 |
|
|
|
219,504 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Cumulative Redundancy/(Deficiency) |
|
|
(65,080 |
) |
|
|
(89,942 |
) |
|
|
(66,247 |
) |
|
|
(17,512 |
) |
|
|
10,630 |
|
|
|
17,409 |
|
|
|
(6,864 |
) |
|
|
36,372 |
|
|
|
27,136 |
|
|
|
14,393 |
|
|
|
|
|
The net loss reserve deficiency reported for the 1999, 2000 and 2001 calendar years is
primarily attributable to the unfavorable resolution of a dispute in calendar year 2008
concerning reinsurance receivables with a reinsurer as well as a reevaluation of the
provision for doubtful reinsurance receivables that resulted in total losses of
$12.4 million. The net loss reserve deficiency reported for the 2000 calendar year also
reflected adverse development from the Companys operations in Lloyds, that ended in
2001 as a result of higher than expected claim frequencies and the emergence of longer
than anticipated loss development patterns.
Gross loss reserve deficiencies were reported in five out of ten years. Even though gross
loss reserve deficiencies were reported in those years, the Company reported redundancies
in net loss reserves in two of those five years. The gross loss reserve deficiencies were
brought about in 1999-2001 by adverse loss development from operations in London and
adverse gross loss development in our umbrella (other liability) business as a result of
additional development of asbestos losses occurring from policies written in the 1970s
and 1980s. Asbestos and environmental liabilities are difficult to estimate for many
reasons, including the long waiting periods between exposure and manifestation of any
bodily injury or property damage, difficulty in identifying the source of the asbestos or
environmental contamination, long reporting delays and difficulty in properly allocating
liability for the damage. Legal tactics and judicial and legislative developments
affecting the scope of insurers liability, which can be difficult to predict, also
contribute to uncertainties in estimating reserves for asbestos and environmental
liabilities. However, much of this gross loss reserve deficiency in the other liability
line resulted in smaller net deficiencies due to a substantial amount of the gross loss
reserve being reinsured. The smaller net deficiencies were more than offset by
redundancies occurring in the Companys ocean marine line. In addition during 1999 and
2000, a few large severity losses in the Companys core lines also contributed to adverse
gross loss development. These losses were also substantially reinsured and thereby
resulted in an insignificant impact on net loss development. The adverse gross loss
development in 2005 is largely attributable to additional gross loss development on
hurricanes Katrina and Rita as a result of our insureds reassessment of the impact of
these hurricane losses. All of the gross loss development from hurricanes Katrina and
Rita was reinsured and resulted in an insignificant impact on net development.
- 15 -
The following table provides a reconciliation of the Companys consolidated liability for
losses and loss adjustment expenses at the beginning and end of 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
Net liability for losses and loss adjustment expenses at beginning
of year |
|
$ |
334,843 |
|
|
$ |
306,405 |
|
|
$ |
292,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for losses and loss adjustment expenses occurring in
current year |
|
|
95,494 |
|
|
|
107,275 |
|
|
|
103,664 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in estimated losses and loss adjustment
expenses for claims occurring in prior years (1) |
|
|
(19,990 |
) |
|
|
2,683 |
|
|
|
(13,820 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and loss adjustment expenses incurred |
|
|
75,504 |
|
|
|
109,958 |
|
|
|
89,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss adjustment expense payments for claims occurring
during: |
|
|
|
|
|
|
|
|
|
|
|
|
Current year |
|
|
8,245 |
|
|
|
9,887 |
|
|
|
12,136 |
|
Prior years |
|
|
51,694 |
|
|
|
71,633 |
|
|
|
64,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,939 |
|
|
|
81,520 |
|
|
|
76,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net liability for losses and loss adjustment expenses at end of year |
|
|
350,408 |
|
|
|
334,843 |
|
|
|
306,405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ceded unpaid losses and loss adjustment expenses at end of year |
|
|
205,078 |
|
|
|
213,907 |
|
|
|
250,130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross unpaid losses and loss adjustment expenses at end of year |
|
$ |
555,486 |
|
|
$ |
548,750 |
|
|
$ |
556,535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The adjustment to the consolidated liability for losses and loss
adjustment expenses for losses occurring in prior years reflects the
net effect of the resolution of losses for other than full reserve
value and subsequent readjustments of loss values. |
The approximately $20.0 million decrease in 2009 in estimated losses and loss
adjustment expenses for claims occurring in prior years occurred in each of the
Companys major segment of business. The ocean marine line of business recorded the
largest favorable development primarily occurring in the 2004 to 2006 accident years
largely as a result of lower than expected reported loss and paid loss trends. This
was partially offset by adverse development in the 2007 accident year due to the
emergence of a large shock loss. The other liability line of business reported
favorable development in the 2005 to 2008 accident years partly due to revisions in
loss estimates on contractors business and partly due to favorable reporting trends
in the excess workers compensation class in the 2007 accident year and the
professional liability class in the 2006 and 2007 accident years. The favorable
development in the other liability line was partially offset by shock losses occurring
in the professional liability class in the 2008 accident year. The aviation class
reported $2.0 million in favorable loss development relating to accident years prior
to 2002 largely due to recoveries. The inland marine/fire line also reported favorable
development largely attributable to the fire class.
The adverse loss reserve development of $2.7 million in 2008 resulted primarily from
the resolution of a dispute over reinsurance receivables with a reinsurer and the
reevaluation of the reserve for doubtful reinsurance receivables that contributed
$12.4 million of adverse development in 2008 for both the other liability and ocean
marine lines of business for accident years prior to 1999. Further contributing to
adverse loss development was $3.2 million from asbestos and environmental losses in
the other liability line for accident years prior to 1999. Partially offsetting this
adverse development in the other liability line was favorable development in the
contractors class as a result of lower than anticipated incurred loss development of
approximately $3.6 million in the 2004 through 2006 accident years. The ocean marine
line also reported favorable development of approximately $14.0 million in the 2004
through 2006 accident years largely as a result of lower reported and paid loss
trends. The inland marine/fire segment also reported favorable loss development
partially due to larger than expected reinsurance recoveries in accident years 2005
and 2006. Contributing to the adverse development in 2008 was approximately
$3.5 million in adverse development from the runoff aviation class relating to
accident years prior to 2002 as a result of settlements of larger severity losses
including provisions for uncollectible reinsurance.
- 16 -
The $13.8 million decrease in 2007 was largely caused by favorable development in the
2003 through 2005 accident years for the ocean marine line, which generally resulted
from favorable loss trends in the risk class. Another factor contributing to the
decrease was $6.2 million recorded on the novation of excess workers compensation
policies in the other liability line for accident years 2004 through 2006,which was
partially offset by adverse development of $3.0 million in the professional liability
class as a result of two large claims in the 2006 accident year. The inland
marine/fire segment also reported favorable loss development partially due to lower reported severity losses.
The favorable development in 2007 was partially offset by approximately $3.3 million
in adverse development from the runoff aviation class.
The principal differences between the consolidated liability for unpaid losses and loss
adjustment expenses as reported in the Annual Statement filed with state insurance
departments in accordance with statutory accounting principles and the liability based on
generally accepted accounting principles shown in the above tables are due to the
Companys assumption of loss reserves arising from former participants in the insurance
pools, and reserves for uncollectible reinsurance. The loss reserves shown in the above
tables reflect in each year salvage and subrogation accruals of approximately 1% to 6% of
case reserves and IBNR. The estimated accrual for salvage and subrogation is based on the
line of business and historical salvage and subrogation recovery data. Under neither
statutory nor generally accepted accounting principles are loss and loss adjustment
expense reserves discounted to present value.
The following table sets forth the reconciliation of the consolidated net liability for
losses and loss adjustment expenses based on statutory accounting principles for the
domestic insurance companies to the consolidated amounts based on accounting principles
generally accepted in the United States of America (GAAP) as of December 31, 2009, 2008
and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
Net liability for losses and loss adjustment expenses reported based on statutory accounting principles |
|
$ |
326,829 |
|
|
$ |
306,673 |
|
|
$ |
289,912 |
|
Liability for losses and loss adjustment expenses assumed from two former pool members (excludes $0, $0 and $3,370 at December 31, 2009, 2008 and 2007, accounted for in the statutory liability for losses and loss adjustment expenses) |
|
|
11,864 |
|
|
|
13,014 |
|
|
|
7,667 |
|
Other, net |
|
|
11,715 |
|
|
|
15,156 |
|
|
|
8,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net liability for losses and loss adjustment expenses reported based on GAAP |
|
|
350,408 |
|
|
|
334,843 |
|
|
|
306,405 |
|
Ceded liability for unpaid losses and loss adjustment expenses |
|
|
205,078 |
|
|
|
213,907 |
|
|
|
250,130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross liability for unpaid losses and loss adjustment expenses |
|
$ |
555,486 |
|
|
$ |
548,750 |
|
|
$ |
556,535 |
|
|
|
|
|
|
|
|
|
|
|
Regulation
The Companys domestic insurance companies are regulated by the insurance regulatory
agencies of the states in which they are authorized to do business. New York Marine is
licensed to engage in the insurance business in all states. Gotham is permitted to write
excess and surplus lines insurance on a non-admitted basis in all states other than New
York. Gotham is licensed to engage in the insurance business in the State of New York
and, as such, cannot write excess and surplus business in that state. Southwest Marine is
licensed to engage in the insurance business in Arizona as well to engage in surety
business in thirty seven additional states and it is authorized to write excess and
surplus lines insurance in New York.
Many aspects of the Companys insurance business are subject to regulation. For example,
minimum capitalization must be maintained; certain forms of policies must be approved
before they may be offered; reserves must be established in relation to the amounts of
premiums earned and losses incurred; and, in some cases, schedules of premium rates must
be approved. In addition, state legislatures and state insurance regulators continually
re-examine existing laws and regulations and may impose changes that materially adversely
affect the Companys business.
- 17 -
The domestic insurance company subsidiaries also file statutory financial statements with
each state in the format specified by the NAIC. The NAIC provides accounting guidelines
for companies to file statutory financial statements and provides minimum solvency
standards for all companies in the form of risk-based capital requirements. The
authorized control levels of Risk Based Capital for New York Marine, Gotham and Southwest
were $40.4 million, $5.5 million and $2.2 million at December 31, 2009, respectively. The
policyholders surplus (the statutory equivalent of net worth) of each of the domestic
insurance companies is above the minimum amount required by the NAIC.
The NAICs project to codify statutory accounting principles was approved by the NAIC in
1998. The purpose of codification was to provide a comprehensive basis of accounting for
reporting to state insurance departments. The approval of codified accounting rules
included a provision for the state insurance commissioners to modify such accounting
rules by practices prescribed or permitted for insurers in their state. However, there
were no differences reported in the statutory financial statements for the years ended
2009, 2008 and 2007 between the prescribed state accounting practices and those approved
by the NAIC.
New York Marine and Gotham are subject to examination by the Insurance Department of the
State of New York. The examinations of New York insurance companies normally occur every
three to five years. Their most recent report on examinations were for the year ended
December 31, 2005. There were no significant adjustments which resulted from those
examinations. Southwest Marine is subject to examination by the Arizona Department of
Insurance, but because it was only recently authorized to engage in the insurance
business in Arizona it has not yet been examined.
The following table shows, for the periods indicated, the Companys consolidated domestic
insurance companies statutory ratios of net premiums written (gross premiums less
premiums ceded) to policyholders surplus:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
(Dollars in thousands) |
|
Net premiums written |
|
$ |
162,647 |
|
|
$ |
165,384 |
|
|
$ |
167,853 |
|
|
$ |
154,860 |
|
|
$ |
133,892 |
|
Policyholders surplus |
|
|
216,783 |
|
|
|
189,383 |
|
|
|
207,233 |
|
|
|
197,289 |
|
|
|
186,848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio |
|
|
.75 to 1 |
|
|
|
.87 to 1 |
|
|
|
.81 to 1 |
|
|
|
.78 to 1 |
|
|
|
.72 to 1 |
|
While there are no statutory requirements applicable to the Company which establish
permissible premium to surplus ratios, guidelines established by the NAIC provide that
the statutory net premiums written to surplus ratio should be no greater than 3 to 1. The
Company is well within those guidelines.
NYMAGICs principal source of income is dividends from its subsidiaries, which are used
for payment of operating expenses, including interest expense, loan repayments and
payment of dividends to NYMAGICs shareholders. The maximum amount of dividends that may
be paid to NYMAGIC by the domestic insurance company subsidiaries is regulated by the
states in which the Companys insurance subsidiaries are domiciled. Within these
limitations, the maximum amount which could be paid to the Company out of the domestic
insurance companies surplus to the holding company was approximately $10.2 million as of
December 31, 2009. There were no dividends declared by the insurance subsidiaries in
2008; however, $10.9 million was declared in 2009.
The Companys subsidiaries have paid dividends to the Company of $10.9 million,
$6.8 million and $14.5 million for the years ended December 31, 2009, 2008 and 2007,
respectively. There were no extraordinary dividends paid during this period. During 2008,
the Company also made capital contributions of $32.5 million to its insurance subsidiary
New York Marine and, as of December 31, 2009, purchased $2.9 million in overdue
receivables from New York Marine.
As a result of the recent downgrades of such securities and in accordance with applicable
statutory accounting guidance under SSAP 43R, which became effective September 30, 2009,
the Company recorded decreases in the fair value of five of seven of the residential
mortgage-backed securities (RMBS) in its portfolio, resulting in a decline of $21.6
million before applicable taxes, to the Companys consolidated statutory surplus, which
was approximately $217 million as of December 31, 2009.
SSAP
No. 43R amends SSAP No. 43 Loan-Backed and Structured Securities. The new SSAP
requires insurers to separate other-than-temporary impairments between interest and
non-interest related declines in the value of all loan-backed and structured securities.
This statement is effective for quarterly and annual reporting periods ending on or after
September 30, 2009 and supersedes SSAP 98 and paragraph 13 of
SSAP No. 99.
The NAIC
recently adopted revisions to SSAP No. 43R in order to be consistent with changes
to the rating process of RMBS. The new rating process uses modeled losses developed by an
independent third party vendor engaged by the Securities Valuation Office (SVO). As of
December 31, 2009, the Company, by applying the new rating process, reported two of seven
RMBS owned at amortized cost and five at fair value.
- 18 -
Each of New York Marine and Gotham is required to invest an amount equal to the greater
of its minimum capital or its minimum policyholder surplus in obligations of the United
States, obligations of the State of New York or its political subdivisions, obligations
of other states and obligations secured by first mortgage loans. Sixty percent of that
amount is required to be invested in obligations of the United States or obligations of
the State of New York or its political subdivisions. In addition, each of New York Marine
and Gotham is required to invest an amount equal to 50% of the aggregate amount of its
unearned premium, loss and loss adjustment expense reserves in the following categories:
cash, government obligations, obligations of U.S. institutions, preferred or guaranteed
shares of U.S. institutions, loans secured by real property, real property, certain
permitted foreign investments and development bank obligations. Investments in the
foregoing categories are also subject to detailed quantitative and qualitative
limitations applicable to individual categories and to an overall limitation that no more
than 10% of each insurance companys assets may be invested in any one institution. After
each of New York Marine and Gotham invests an amount equal to 50% of its unearned
premium, loss and loss adjustment reserves in the foregoing investments, each of New York
Marine and Gotham may invest in equity and partnership interests, securities issued by
registered investment companies and other otherwise impermissible investments, subject to
applicable laws and regulatory requirements. Southwest Marine is also subject to certain
investment limitations imposed by the state of Arizona, but invests only in U.S. Treasury
securities and high-grade short-term securities.
Several states have established guaranty funds which serve to provide the assured with
payments due under policies issued by insurance companies that have become insolvent.
Insurance companies that are authorized to write in these states are assessed a fee,
normally based on direct writings in a particular state, to cover any payments made or to
be made by guaranty funds. The Companys insurance subsidiaries are subject to such
assessments in the various states. The amounts paid for such assessments were
approximately $47,000, $31,000 and $230,000 for the years ended December 31, 2009, 2008
and 2007, respectively.
The Terrorism Risk Insurance Act of 2002 (TRIA) became effective on November 26, 2002
and has been extended through December 31, 2014. TRIA applies to all licensed and surplus
lines insurers doing business in the United States, including Lloyds and foreign
insurers, who are writing commercial property or casualty insurance. Under TRIA, insurers
are required to offer terrorism insurance for most domestic property, casualty, workers compensation,
inland marine and ocean marine and energy risks, as well as U.S. Flag vessels and
aircraft on a worldwide basis. In return, the federal government will provide the
insurance industry with assistance in the event there is a loss from certain acts of
terrorism.
Each insurer has an insurer deductible under TRIA, which is based upon the prior years
direct commercial earned premiums that are subject to the Act. The professional
liability, commercial automobile, surety and reinsurance lines are not subject to the
act. For 2008, that deductible was 20% of direct commercial earned premiums in 2007. For
the years 2009 through 2014, the insurers deductible is 20% of the prior years direct
earned premium and the federal government will reimburse the insurer for 85% of insured
losses that exceed the deductible. The Companys insurer deductible under TRIA was
approximately $30 million in 2009, $32 million in 2008 and $24 million in 2007.
TRIA will assist the Company to mitigate exposure in the event of loss from an act of
terrorism. In addition, part of the insurer deductible might be satisfied by recoveries
under the Companys existing reinsurance program. The Company could further minimize its
potential loss from an act of terrorism by purchasing reinsurance protection, but elected
not to purchase such reinsurance for 2007, 2008 or 2009.
Investment Policy
The Company follows an investment policy, which is reviewed quarterly and revised
periodically by management and is approved by the Finance Committee of the Board of
Directors. The investments of the Companys subsidiaries conform to the requirements of
the applicable state insurance laws and regulations, as well as the National Association
of Insurance Commissioners (the NAIC) (See Regulations). The Company recognizes that
an important component of its financial results is the return on invested assets. As
such, management establishes the appropriate mix of traditional fixed income securities
and other investments (including equity and alternative investments; e.g. hedge funds) to
maximize rates of return while minimizing undue reliance on low quality securities.
Overall investment objectives are to (i) seek competitive after-tax income and total
return, while being cognizant of the impact certain investment decisions may have on the
Companys shareholders equity, (ii) maintain, in aggregate, medium to high investment
grade fixed income asset quality, (iii) ensure adequate liquidity and marketability to
accommodate operating needs, (iv) maintain fixed income maturity distribution
commensurate with the Companys business needs and (v) provide portfolio flexibility for
changing business and investment climates. The Companys investment strategy incorporates
guidelines (listed below) for asset quality standards, asset allocations among investment
types and issuers, and other relevant criteria for the investment portfolio. In addition,
invested asset cash flows, from both current income and investment maturities, are
structured after considering the amount and timing of projected liabilities for losses
and loss adjustment expenses under the Companys insurance subsidiaries insurance
policies using actuarial models.
The investment policy for NYMAGIC as of December 31, 2009 was as follows:
Liquidity Portfolio: The Company may invest, without limitation, in liquid instruments.
Investments in the Liquidity Portfolio may include, but are not necessarily limited to,
cash, direct obligations of the U.S. Government, repurchase agreements, obligations of
government instrumentalities, obligations of government sponsored agencies, certificates
of deposit, prime bankers acceptances, prime commercial paper, corporate obligations and
tax-exempt obligations rated Aa3/AA- or MIG2 or better. The liquidity portfolio shall
consist of obligations with one years duration or less at the time of purchase and will
be of sufficient size to accommodate the Companys expected cash outlays for the
immediate six-month period.
- 19 -
Fixed Income Portfolio: Obligations of the U.S. Government, its instrumentalities
and government-sponsored agencies will not be restricted as to amount or maturity. Asset
backed securities, corporate obligations, tax-exempt securities and preferred stock
investments with sinking funds will not be restricted as to maturity. At least 50% of the
fixed income and liquidity portfolio, collectively, shall be rated at minimum Baa2 by
Moodys or BBB by S&P.
Equity and Alternative Investments (Hedge Funds): Investments in this category (including
convertible securities) may be made without limitation. With respect to Hedge Fund
investments, no more than 10% of assets allocated to hedge funds shall be invested in any
single fund without the prior approval of the Finance Committee of the Board of
Directors. Similarly, no more than 40% of assets allocated to hedge funds shall be
concentrated in any one strategy without the prior approval of the Finance Committee of
the Board of Directors.
The investment policy for New York Marine as of December 31, 2009 was as follows:
Liquidity Portfolio: An amount will be maintained in liquid funds that is in conformity
with the regulations of the insurance department of New York State. Investments in the
liquidity portfolio shall be limited to cash, direct obligations of the U.S. Government,
repurchase agreements, obligations of government instrumentalities, obligations of
government sponsored agencies, certificates of deposit, prime bankers acceptances, prime
commercial paper, corporate obligations and tax-exempt obligations rated Aa3/AA- or MIG2
or better by Standard & Poors (S&P) or Moodys. No investment in the liquidity
portfolio will exceed a duration of one year from the time of purchase. No investment in
the liquidity portfolio will exceed 5% of policyholders surplus at the time of purchase
as last reported to the New York State Insurance Department except for direct obligations
of the U.S. Government or its instrumentalities or repurchase agreements collateralized
by direct obligations of the U.S. Government or its instrumentalities in which case there
will be no limit.
Fixed Income Portfolio: Obligations of the U.S. Government, its instrumentalities, and
government sponsored agencies will not be restricted as to amount or maturity. At least
75% of the corporate and tax-exempt investments in the fixed income portfolio will be
restricted to those obligations rated, at a minimum, Baa3 by Moodys or BBB- by S&P. For
purposes of this calculation, the liquidity portfolio also will be included.
Concentration will not exceed 5% of policyholders surplus at the time of purchase as
last reported to the New York State Insurance Department. However, individual investments
in floating rate super senior mortgages rated AAA by S&P at acquisition date, will not
exceed 15% of policyholders surplus and collectively will not exceed 50% of total
invested assets. For those securities with fixed interest rates, maturities will not
exceed 30 years from date of purchase. At least 75% of the investments in asset backed
securities shall similarly be rated at acquisition date, at a minimum, Baa3 by Moodys or
BBB- by S&P. At the time of purchase, individual issues will be restricted to 5% of
policyholders surplus as last reported to the New York State Insurance Department. For
those securities with fixed interest rates, maturities will not exceed 30 years from date
of purchase. At least 75% of preferred stock investments with sinking funds will, at a
minimum, be rated Baa3 by Moodys or BBB- by S&P. Individual issues will be limited to 5%
of policyholders surplus. All individual issues of Fannie Mae and Freddie Mac preferred
stocks shall not exceed 10% of policyholders surplus. Prior notice to the Company is
required in the event of a planned sale of a security in a loss position that exceeds 10%
of its cost.
Equity and Alternative Investments (Hedge Funds): Investments in this category (including
convertible securities) will not exceed in aggregate 50% of policyholders surplus or 30%
of total investments whichever is greater. Equity investments in any one issuer will not
exceed 5% of policyholders surplus at the time of purchase as last reported to the New
York State Insurance Department. Investments in any individual hedge fund will not exceed
5% of policyholders surplus subject to the prior approval of the Committee. For the
purposes of this 5% limitation, in the event that an individual hedge fund is comprised
of a pool (basket) of separate and distinct hedge funds, then this 5% limitation will
apply to the individual funds within the pool (or basket).
Subsidiaries
New York Marines investments in subsidiary companies are excluded from the requirements
of New York Marines investment policy.
The investment policy of Gotham is identical to that of New York Marine. The investment
policy for Southwest Marine requires that it invest only in investment grade publicly
traded securities.
- 20 -
The following sets forth the allocation of our investment portfolio as of the dates
indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
December 31, |
|
|
S&P |
|
|
|
|
|
December 31, |
|
|
S&P |
|
|
|
|
|
2009 |
|
|
Rating |
|
Percent |
|
|
2008 |
|
|
Rating |
|
Percent |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities held to maturity (amortized cost): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage-backed securities |
|
$ |
56,589,704 |
|
|
BB |
|
|
8.37 |
% |
|
$ |
61,246,212 |
|
|
AAA |
|
|
11.20 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities held to maturity |
|
$ |
56,589,704 |
|
|
|
|
|
|
|
8.37 |
% |
|
$ |
61,246,212 |
|
|
|
|
|
|
|
11.20 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities available for sale (fair value): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
|
$ |
385,715,035 |
|
|
AAA |
|
|
57.09 |
% |
|
$ |
40,783,969 |
|
|
AAA |
|
|
7.46 |
% |
Municipal obligations |
|
|
804,373 |
|
|
AAA |
|
|
0.12 |
% |
|
|
90,483,461 |
|
|
AA+ |
|
|
16.54 |
% |
Corporate securities |
|
|
|
|
|
|
|
|
|
|
|
|
13,710,996 |
|
|
A+ |
|
|
2.51 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities available for sale |
|
$ |
386,519,408 |
|
|
AAA |
|
|
57.21 |
% |
|
$ |
144,978,426 |
|
|
AAA |
|
|
26.51 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities trading (fair value): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal obligations |
|
$ |
|
|
|
|
|
|
|
|
|
$ |
17,399,090 |
|
|
AA+ |
|
|
3.18 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities trading |
|
$ |
|
|
|
|
|
|
|
|
|
$ |
17,399,090 |
|
|
AA+ |
|
|
3.18 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities |
|
$ |
443,109,112 |
|
|
AA+ |
|
|
65.58 |
% |
|
$ |
223,623,728 |
|
|
AAA |
|
|
40.89 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities trading (fair value): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
117,968 |
|
|
N/A |
|
|
0.02 |
% |
|
|
|
|
|
|
|
|
|
|
Preferred stock |
|
$ |
|
|
|
|
|
|
|
|
|
$ |
11,822,620 |
|
|
A |
|
|
2.16 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities |
|
$ |
117,968 |
|
|
N/A |
|
|
0.02 |
% |
|
$ |
11,822,620 |
|
|
A |
|
|
2.16 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term investments (approximating fair value) |
|
|
8,788,718 |
|
|
AAA |
|
|
1.30 |
% |
|
|
110,249,779 |
|
|
AAA |
|
|
20.16 |
% |
Cash and cash equivalents |
|
|
66,755,909 |
|
|
|
|
|
|
|
9.88 |
% |
|
|
75,672,102 |
|
|
|
|
|
|
|
13.83 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities, equity securities, cash and short-term investments |
|
$ |
518,771,707 |
|
|
|
|
|
|
|
76.78 |
% |
|
$ |
421,368,229 |
|
|
|
|
|
|
|
77.04 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans (fair value) |
|
|
5,001,118 |
|
|
CCC+ |
|
|
0.74 |
% |
|
|
2,690,317 |
|
|
B- |
|
|
0.49 |
% |
Limited partnership hedge funds (equity) |
|
|
151,891,838 |
|
|
|
|
|
|
|
22.48 |
% |
|
|
122,927,697 |
|
|
|
|
|
|
|
22.47 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment portfolio |
|
$ |
675,664,663 |
|
|
|
|
|
|
|
100.00 |
% |
|
$ |
546,986,243 |
|
|
|
|
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 21 -
Details of the RMBS portfolio as of December 31, 2009 are presented below based on
publicly available information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan to |
|
|
FICO |
|
|
D60+ |
|
|
Credit |
|
|
|
|
|
|
|
Security |
|
|
|
|
|
|
|
|
|
|
|
|
|
Value % |
|
|
Credit |
|
|
Delinquency |
|
|
Support |
|
|
S&P |
|
Moodys |
description |
|
Issue date |
|
|
Amortized cost |
|
|
Fair value |
|
|
(1) |
|
|
Score (2) |
|
|
Rate (3) |
|
|
Level (4) |
|
|
Rating (5) |
|
Rating (5) |
AHMA 2006-3 |
|
|
7/2006 |
|
|
$ |
11,263,313 |
|
|
$ |
10,861,225 |
|
|
|
85.4 |
|
|
|
705 |
|
|
|
39.7 |
|
|
|
41.4 |
|
|
AA |
|
Caa1 |
CWALT 2005-69 |
|
|
11/2005 |
|
|
|
7,151,818 |
|
|
|
6,623,185 |
|
|
|
81.8 |
|
|
|
698 |
|
|
|
50.7 |
|
|
|
48.5 |
|
|
CCC |
|
Ba3 |
CWALT 2005-76 |
|
|
12/2005 |
|
|
|
7,059,919 |
|
|
|
6,901,220 |
|
|
|
82.3 |
|
|
|
700 |
|
|
|
53.7 |
|
|
|
49.1 |
|
|
CCC |
|
B2 |
RALI 2005-QO3 |
|
|
10/2005 |
|
|
|
7,521,769 |
|
|
|
6,274,852 |
|
|
|
81.1 |
|
|
|
704 |
|
|
|
42.7 |
|
|
|
43.8 |
|
|
A- |
|
B1 |
WaMu 2005-AR17 |
|
|
12/2005 |
|
|
|
6,196,663 |
|
|
|
6,193,159 |
|
|
|
74.2 |
|
|
|
715 |
|
|
|
30.7 |
|
|
|
50.5 |
|
|
AAA |
|
A1 |
WaMu 2006-AR9 |
|
|
7/2006 |
|
|
|
8,538,522 |
|
|
|
11,130,523 |
|
|
|
74.8 |
|
|
|
730 |
|
|
|
33.1 |
|
|
|
24.8 |
|
|
B |
|
Ba1 |
WaMu 2006-AR13 |
|
|
9/2006 |
|
|
|
8,857,700 |
|
|
|
11,343,649 |
|
|
|
75.8 |
|
|
|
728 |
|
|
|
33.1 |
|
|
|
25.5 |
|
|
CCC |
|
B3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
56,589,704 |
|
|
$ |
59,327,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The dollar-weighted average amortized loan-to-original value of the
underlying loans at January 25, 2010. |
|
(2) |
|
Average FICO of remaining borrowers in the loan pool at January 25, 2010. |
|
(3) |
|
The percentage of the current outstanding principal balance that is more
than 60 days delinquent as of January 25, 2010. This includes loans that
are in foreclosure and real estate owned. |
|
(4) |
|
The current credit support provided by subordinate ranking tranches
within the overall security structure at January 25, 2010. |
|
(5) |
|
Ratings as of March 5, 2010. |
The Company has investments in RMBS amounting to $56.6 million (amortized value) at
December 31, 2009. These securities are classified as held to maturity after the Company
transferred these holdings from the available for sale portfolio effective October 1,
2008. Upon acquisition of the RMBS portfolio and prior to October 1, 2008, the Company
was uncertain as to the duration for which it would hold the RMBS portfolio and
appropriately classified such securities as available for sale. As a result of the
increasing market uncertainty surrounding the projected cash flows on these securities,
as well as the widely disparate estimated prices of such securities among brokers
depending on facts and assumptions utilized, the Company developed a process to perform
an extensive analysis of the underlying structure of each RMBS in order to assure
ourselves of its collectability. Accordingly, the Company constructed cash models to
estimate the potential for impairment to these securities based upon default rates,
severity rates and prepayment speeds consistent with reasonable expectations of their
underlying cash flows. These assumptions were further stressed to provide a range of
potential outcomes allowing us to assess any impairment. After reviewing the results of
the analytical evaluation of the RMBS portfolio, management concluded that the economic
or intrinsic value of these securities was not impaired. Additionally, management
concluded, on the basis of this analysis, that
there were no other-than-temporary impairments to these securities required to be
recorded. Accordingly, the Company transferred such securities to the held to maturity
classification with the intent and the ability to hold such securities to maturity. The
Company had never previously transferred securities to held to maturity, but considered
this an unprecedented situation brought upon by the financial crisis in the markets. The
adjusted cost basis (amortized cost) of these securities is based on a determination of
the fair value of these securities on the date they were transferred.
Prior to
the transfer to the held to maturity classification, the Company
incurred cumulative writedowns from
otherthantemporary (OTTI) declines in the
fair value of these securities, amounting to approximately
$40.7 million. Effective April 1, 2009, as a result of new
accounting guidance the Company reclassified the entire unrealized
loss held on such securities of $40.1 million
($26.1 million net of tax) from retained earnings to other
comprehensive income as write downs on such securities were
considered to be noncredit related which are being amortized as
a yield adjustment over the expected life of the securities. See Note 2 Investments for a discussion of the
impact the adoption of ASC 320 had on the Companys financial condition, results of
operations or liquidity.
- 22 -
The Companys cash flow analysis for each of these securities attempts to estimate the
likelihood of any future impairment. While the Company does not believe there are any
OTTI currently, future estimates may change depending upon the actual performance
statistics reported for each security to the Company. This may result in future charges
based upon revised estimates for delinquency rates, severity rates or prepayment
patterns. These changes in estimates may be material. These securities are collateralized
by pools of Alt-A mortgages, and receive priority payments from these pools. The
Companys securities rank senior to subordinated tranches of debt collateralized by each
respective pool of mortgages. The Company has collected all applicable interest and
principal repayments on such securities to date. As of January 25, 2010, the levels of
subordination ranged from 25% to 51% of the total debt outstanding for each pool.
Delinquencies within the underlying mortgage pools ranged from 31% to 54% of total
amounts outstanding. For comparison purposes, as of January 25, 2009, delinquencies
ranged from 18% to 40%, while subordination levels ranged from 27% to 52%. Delinquency
rates are not the same as severity rates, or actual loss, but are an indication of the
potential for losses of some degree in future periods.
The fair value of each RMBS investment is based on the framework established in ASC 820
(See Note 3). Fair value is determined by estimating the price at which an asset might be
sold on the measurement date. There has been a considerable amount of turmoil in the U.S.
housing market since 2007, which has led to market declines in the Companys RMBS
securities. Because the pricing of these investments is complex and has many variables
affecting price including, projected delinquency rates, projected severity rates,
estimated loan to value ratios, vintage year, subordination levels, projected prepayment
speeds and expected rates of return required by prospective purchasers, the estimated
price of such securities will differ among brokers depending on these facts and
assumptions. While many of the inputs utilized in pricing are observable, many other
inputs are unobservable and will vary depending upon the broker. During periods of market
dislocation, such as current market conditions, it is increasingly difficult to value
such investments because trading becomes less frequent and/or market data becomes less
observable. As a result, valuations may include inputs and assumptions that are less
observable or require greater estimation and judgment as well as valuation methods that
are more complex. For example, assumptions regarding projected delinquency and severity
rates have become very pessimistic due to uncertainties associated with the residential
real estate markets. Additionally, there are only a limited number of prospective
purchasers of such securities and such purchasers generally demand high expected returns
in the current market. This has resulted in lower quotes from securities dealers, who
are, themselves, reluctant to position such securities because of financing
uncertainties. Accordingly, the dealer quotes used to establish fair value may not be
reflective of the expected future cash flows from a security and, therefore, not
reflective of its intrinsic value.
As of December 31, 2009, there was substantial variance in RMBS securities prices from
different pricing sources. Management also determined that the few trades of RMBS were
not consistent with the prices received and analysis performed at year end. This
confirmed managements previously established view that the market is dislocated and
illiquid. Accordingly, the Company determined fair value using a matrix pricing
analysis.
Since September 2009 the Company has used a weighted pricing matrix to determine fair
value. The pricing matrix was based on risk profile and qualitative and quantitative data
for similar vintage RMBS that had recently established prices. The securities were
evaluated in each of the following 10 categories: super senior, sector, collateral,
current S&P rating, current credit support, 3 month CDR, 3 month VPR, 1 month loss
severity, 60+ delinquencies, and FICO score. The price for each RMBS was based upon the
prices of those RMBS securities that had the most similar underlying characteristics to
the Companys RMBS portfolio.
There are government sponsored programs that may affect the performance of the Companys
RMBS. The Company is uncertain as to the impact, if any, these programs will have on the
fair value of the Companys RMBS. The fair value of such securities at December 31, 2009
was approximately $59.3 million.
Relationship with Mariner Partners, Inc.
The Companys investments are monitored by management and the Finance Committee of the
Board of Directors. The Company entered into an investment management agreement with
Mariner Partners, Inc. (Mariner) effective October 1, 2002 that was amended and
restated on December 6, 2002. Mariner is an investment management company founded by
William J. Michaelcheck, a member of our Board of Directors. Mr. Michaelcheck is the
beneficial owner of a substantial amount of the stock of Mariner. One of Mariners
wholly-owned subsidiaries, Mariner Investment Group, Inc., which we refer to as the
Mariner Group, was founded in 1992 and, together with its affiliates, provides investment
management services to investment funds, reinsurance companies and a limited number of
institutional managed accounts. The Mariner Group has been a registered investment
adviser since May 2003. As described in more detail under Mariner Investment Management
Agreement, under the terms of the agreement, Mariner manages the Companys, New York
Marines and Gothams investment portfolios. Fees to be paid to Mariner are based on a
percentage of the investment portfolio as follows: .20% of liquid assets, .30% of fixed
maturity investments and 1.25% of hedge fund (limited partnership) investments. Southwest
Marine entered into an investment management agreement, the substantive terms of which
are identical to those set forth above, with the Mariner Group, effective March 1, 2007.
In addition to Mr. Michaelcheck, George R. Trumbull, a director of the Company, A. George
Kallop, President and Chief Executive Officer and a director of the Company, and William
D. Shaw, Jr., Vice Chairman and a director of the Company, are also associated with
Mariner.
- 23 -
Mariner also entered into a voting agreement with Mark W. Blackman, a director of the
Company, Blackman Investments, LLC (now Lionshead Investments, LLC) and certain trusts
and foundations affiliated with the late Louise B. Tollefson, of which Robert G. Simses,
Chairman, and a director of the Company, is trustee, on February 20, 2002. As described
in more detail under Voting Agreement, Mariner, with the approval of two of the three
voting agreement participating shareholders, is generally authorized to vote all of the
common shares covered by the voting agreement, which constituted approximately 15.90% of
the Companys issued and outstanding shares of common stock as of March 2, 2010.
The voting agreement also gives Mariner the right to purchase up to 1,350,000 shares of
the Companys common stock from the voting agreement participating shareholders. The
option exercise price per share is based on the date the option is exercised. At the time
the voting agreement was signed, the option exercise price was $19.00, with the exercise
price increasing $0.25 per share every three months, subject to deduction for dividends
paid. The exercise price of the option as of March 2, 2010 was $25.14. Generally,
Mariners option will expire 30 days after the termination of the voting agreement, which
is scheduled to terminate on December 31, 2010, if not terminated earlier.
Voting Agreement
On February 20, 2002, shareholders who are affiliated with the Blackman/Tollefson family
entered into a voting agreement with Mariner, which affected approximately 15.90% of the
voting power of NYMAGIC as of March 2, 2010.
The shares subject to the voting agreement were originally held by John N. Blackman, Sr.,
who founded the Company in 1972 and died in 1988. The shareholders who are parties to the
voting agreement are either heirs of Mr. Blackman, whom we refer to as our founder, or
entities established or controlled by them. Three of those shareholders are designated in
the voting agreement as participating shareholders and have the specific rights
described below. The participating shareholders are as follows:
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Mark W. Blackman, a director of the Company and a son of
our founder and Louise B. Tollefson, is a participating
shareholder in his individual capacity. He was also a
member of our Board of Directors from 1979 until May 2004
and served as our President from 1988 to 1998. He was our
Chief Underwriting Officer from June 2002 until August
2009 and our Executive Vice President from September 2005
until August 2009. Mr. Blackman was re-appointed to our
Board of Directors on March 6, 2009, and he resigned as an
employee and officer of the Company, effective August 11,
2009. |
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John N. Blackman, Jr., a son of our founder and Louise B.
Tollefson, acts as a participating shareholder in his dual
capacity as controlling member of Lionshead Investments
LLC and co-trustee of the Blackman Charitable Remainder
Trust dated April 1, 2001. He was a member of our Board of
Directors from 1975 until May 2004 and served as Chairman
of the Board from 1988 to 1998. |
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Robert G. Simses acts as a participating shareholder in
his capacity as sole trustee of the Louise B. Tollefson
2000 Florida Intangible Tax Trust dated December 12, 2000
and the Louise B. Blackman Tollefson Family Foundation
dated March 24, 1998. We refer to these trusts and
foundations as the Tollefson trusts. The settlor of these
trusts, the late Louise B. Tollefson, is the former wife
of our founder and was a member of our Board of Directors
from 1986 to 2001. Mr. Simses has been a member of our
Board of Directors since 2001 and has been Chairman since
2008. He is also Managing Partner of the law firm of
Simses & Associates and President and Chief Operating
Officer of The William H. Pitt Foundation Inc. Mr. Simses
serves on the board of directors of Tiptree Financial, a
limited partnership in which Tricadia Capital, which is
associated with Mariner, is the general partner. |
Amendments to the Voting Agreement
The voting agreement provides that it may be amended or extended by the unanimous written
consent of the participating shareholders and Mariner. The voting agreement was amended
on January 27, 2003 to extend the duration of the agreement from February 15, 2005 to
February 15, 2007 in order to provide Mariner with additional time to improve the
performance of NYMAGIC, and in order to allow for the appointment of an eleventh director
and David W. Young was chosen for this newly created Board position. Mr. Young is
affiliated with Conning Capital Partners VI, L.P., which owns 600,000 shares of our
common stock and options to purchase an additional 300,000 shares of our common stock and
which we refer to as Conning. The voting agreement was further amended on March 12, 2003
to allow for the appointment of a twelfth director and John T. Baily was chosen for this
newly created Board position. In addition, as discussed under Transferability of NYMAGIC
Shares, a limited waiver was agreed with respect to certain transferability
restrictions.
Following the sale of common stock in December 2003 by certain shareholders that are
parties to the voting agreement, the Company was no longer a controlled company as
defined in the New York Stock Exchange Listed Company Manual. Accordingly, the Company
was required to have a majority of independent directors by December 16, 2004. In order
to permit the Company to comply with this requirement certain provisions of the voting
agreement relating to the nomination of directors and the size of the Board of Directors
were amended on February 24, 2004. On October 12, 2005 the voting agreement was amended
and restated to (i) limit the number of shares subject to the voting agreement;
(ii) reduce the number of shares subject to Mariners option from 1,800,000 to 1,350,000,
(iii) extend the termination date of the voting agreement from February 15, 2007 to
December 31, 2010; and, (iv) to adjust the rights of the parties to nominate candidates
to the Board of Directors. The voting agreement was further amended and restated on
October 15, 2008 in order to conform its embedded option with the provisions of
Section 409A of the IRS Code.
- 24 -
Voting Rights of Mariner
The participating shareholders retained significant voting rights over their shares under
the amended and restated voting agreement. Mariner may only vote the shares that are
subject to the amended and restated voting agreement with the written approval of two of
the three participating shareholders. If two of the three participating shareholders fail
to approve any vote by Mariner on any matter, then Mariner is not permitted to vote on
that matter and generally the participating shareholders are also not permitted to vote
on that matter. However, if one of the following types of matters is under consideration
and two of the three participating shareholders fail to approve the vote by Mariner, the
participating shareholders are entitled to vote their shares instead of Mariner:
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the merger or consolidation of NYMAGIC into or with another corporation; |
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the sale by NYMAGIC of all or substantially all of its assets; |
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the dissolution and/or liquidation of NYMAGIC; or |
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any recapitalization or stock offering of NYMAGIC. |
Election of Directors
Provided that the candidates of the participating shareholders would not be legally
disqualified from serving as directors of NYMAGIC, Mariner is required to vote all shares
that are subject to the amended and restated voting agreement in favor of the election of
those candidates, or any successor or replacement candidates, nominated by the
participating shareholders. Mariner is not permitted to vote the shares subject to the
amended and restated voting agreement to remove any director nominated by a participating
shareholder without the consent of that participating shareholder. In accordance with the
general voting provisions discussed above under the heading Voting Rights of Mariner,
Mariner is permitted to vote the shares subject to the amended and restated voting
agreement to elect its own candidates only with the written approval of two of the three
participating shareholders. In connection with the election of directors at the annual
meeting of shareholders in 2009, all three of the participating shareholders approved the
voting of those shares to elect the three candidates nominated by Mariner.
Nomination of Directors
Prior to the amendment and restatement of the voting agreement dated October 12, 2005,
the voting agreement provided for our Board of Directors to consist of nine directors.
Pursuant to an action taken by our Board of Directors on September 14, 2005 without
reference to the voting agreement, the size of the Board was increased in number from
nine to 11, and Messrs. A. George Kallop, our President and Chief Executive Officer, who
served on our Board of Directors from 2002 to May 2004, and Glenn R. Yanoff, who served
on our Board of Directors from 1999 to May 2004, were elected to the Board. Mr. Yanoff,
now an Executive Vice President of the Company, resigned from our Board of Directors in
2008.
On March 6, 2009, John R. Anderson, Glenn Angiolillo, Ronald J. Artinian, John T. Baily,
Mark W. Blackman, Dennis H. Ferro, A. George Kallop, David E. Hoffman, William J.
Michaelcheck, William D. Shaw, Jr., Robert G. Simses, George R. Trumbull, III and David
W. Young were nominated for election to the Board at the next annual meeting of
shareholders.
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Prior to the 2005 amendment and restatement of the voting
agreement, Mariner was entitled to nominate three
candidates to the Board. Following the amendment and
restatement of the voting agreement, Mariner is entitled
to nominate four candidates for election to the Board. The
four current directors who were nominated by Mariner are
William J. Michaelcheck, George R. Trumbull, III, William
D. Shaw, Jr., who serves as our Vice Chairman and A.
George Kallop, the President and Chief Executive Officer
of the Company. |
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Prior to the 2005 amendment and restatement of the voting
agreement, each participating shareholder was entitled to
nominate one candidate to the Board. Following the 2005
amendment and restatement of the voting agreement, each of
Mark W. Blackman and Lionshead Investments, LLC is
entitled to nominate one candidate for election to the
Board and Robert G. Simses is entitled to nominate two
candidates to the Board, provided that the candidates
nominated by Mark W. Blackman and Lionshead Investments,
LLC and one of the candidates nominated by Mr. Simses
shall qualify as independent directors under the rules of
the New York Stock Exchange and all other applicable laws
and regulations. The two current directors nominated by
Mark W. Blackman and Lionshead Investments, LLC are Glenn
Angiolillo and John R. Anderson, and the two current
directors nominated by Robert G. Simses are Robert G.
Simses and Ronald J. Artinian. |
- 25 -
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Prior to the 2005 amendment and restatement of the voting
agreement, our Chief Executive Officer was entitled to
nominate three candidates to the Board. Following the 2005
amendment and restatement of the voting agreement, our
Chief Executive Officer is entitled to nominate three
candidates for election to the Board, all of whom shall
qualify as independent directors under the rules of the
New York Stock Exchange and all other applicable laws and
regulations. The three current directors who were
nominated by Mr. Kallop are David W. Young, John T. Baily
and David E. Hoffman. |
If any participating shareholder does not nominate a candidate for election to the Board,
then, in addition to its other rights, Mariner, instead of that participating
shareholder, may nominate a number of candidates equal to the number not nominated by the
participating shareholders. In addition, the participating shareholders have agreed,
consistent with their fiduciary duties, to cause their nominees to the Board to vote for
one of the Mariner-nominated directors, as designated by Mariner, as Chairman of each
meeting.
Termination Provisions
The amended and restated voting agreement will terminate upon the earliest to occur of
the following dates:
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December 31, 2010; |
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the merger or consolidation of NYMAGIC into another corporation, the sale of all or
substantially all its assets or its dissolution and/or its liquidation; |
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immediately upon the resignation of Mariner as an advisor to NYMAGIC, INC.; or |
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upon written notice of such termination to Mariner from all of the participating shareholders. |
Mariner Stock Option
The amended and restated voting agreement also gives Mariner the right to purchase at any
time and from time to time up to an aggregate of 1,350,000 shares of our common stock
from the participating shareholders in the amounts set forth below opposite each
participating shareholders name:
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Mark W. Blackman |
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225,000 shares |
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Lionshead Investments, LLC |
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225,000 shares |
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Robert G. Simses, as trustee of the Tollefson trusts |
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900,000 shares |
In the event Mariner exercises this option, Mr. Simses will have the sole right to
determine the number of shares to be provided by either one of the Tollefson trusts.
The option exercise price per share is based on the date the option is exercised. At the
time the voting agreement was signed, the option exercise price was $19.00, with the
exercise price increasing $0.25 per share every three months. The initial exercise price
of $19.00 was approximately equal to the mid-point of the market price of our common
stock and the book value of our common stock during the period in which the voting
agreement was negotiated. The final exercise price, for exercises between November 15,
2010 and December 31, 2010 is $27.75 per share. The exercise price will be adjusted by
deducting the cumulative amount of dividends paid by us in respect of each share of its
common stock from January 31, 2003 through the date Mariner exercises its option. This
option was granted with the intention of aligning Mariners interests with the interests
of all of our shareholders. The exercise price of the option as of March 2, 2010 was
$25.14 per share.
Generally, Mariners option will expire 30 days after the termination of the amended and
restated voting agreement. However, if the amended and restated voting agreement is
terminated prior to December 31, 2010 by unanimous written notice from the participating
shareholders, then the option will continue in full force and effect until the close of
business on December 31, 2010.
- 26 -
Transferability of the Option
The option granted to Mariner is not transferable except in the following instances, with
the assignee agreeing to be bound to the voting agreement:
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Mariner is permitted to assign the option, in whole or in
part, to any one or more of William J. Michaelcheck,
William D. Shaw, Jr., George R. Trumbull and A. George
Kallop or any other individual employed by or acting as a
consultant for Mariner in connection with NYMAGIC. |
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With the written consent of at least two participating
shareholders, Mariner or any assignee as described above
is permitted to assign the option, in whole or in part, to
any one or more other persons. |
On April 4, 2002, Mariner entered into an agreement with each of William D. Shaw, Jr.,
the Companys Vice Chairman, and A. George Kallop, the Companys President and Chief
Executive Officer, whereby Mariner agreed to hold a portion of the option covering
315,000 shares of NYMAGIC as nominee for each of Mr. Shaw and Mr. Kallop. Effective
January 1, 2005, Mr. Shaw waived his interest in the option covering 315,000 shares of
NYMAGIC and became a shareholder of Mariner. On April 12, 2005, Mariner and George R.
Trumbull entered into an agreement pursuant to which Mariner agreed to hold a portion of
the option covering 450,000 shares of NYMAGIC as nominee for Mr. Trumbull, and on
October 12, 2005 they amended the agreement by reducing the number of option shares to
337,500. On October 12, 2005 Mariner and Mr. Kallop amended their agreement by reducing
the number of option shares to 236,250.
Consideration to Mariner
Mariner did not pay any cash consideration to the participating shareholders, nor did the
participating shareholders pay any cash consideration to Mariner, in connection with the
voting agreement or the amended and restated voting agreement. Mariners sole
compensation for entering into the voting agreement, as opposed to the investment
management arrangement discussed below, is the option to purchase NYMAGIC shares from the
participating shareholders. To date, Mariner has not exercised this option, but should it
elect to do so, it would pay the option exercise price to the participating shareholders
at that time.
Transferability of NYMAGIC Shares
The participating shareholders retain the right to transfer any of the shares covered by
the amended and restated voting agreement, provided that the transferred shares remain
subject to the amended and restated voting agreement. Mariner waived the requirement that
assignees be bound by the voting agreement with respect to 2,150,000 shares sold pursuant
to a public offering in December 2003, and 1,092,735 shares purchased by the Company in
January 2005.
Mariner Investment Management Arrangement
In addition to the voting agreement, Mariner entered into an investment management
agreement with NYMAGIC, New York Marine and Gotham effective October 1, 2002, which was
amended and restated on December 6, 2002. Under the terms of the investment management
agreement, Mariner manages the Companys, New York Marines and Gothams investment
portfolios. Mariner may purchase, sell, redeem, invest, reinvest or otherwise trade
securities on behalf of the Company. Mariner may, among other things, exercise conversion
or subscription rights, vote proxies, select broker dealers and value securities and
assets of the Company. Under the terms of the investment management agreement the
Companys investments have been reallocated into the following three categories:
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the liquidity portfolio (cash management); |
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the fixed-income portfolio (fixed-income investments); and, |
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the hedge fund and equity portfolio (alternative investment vehicles and common and preferred equities). |
Southwest Marine entered into an investment management agreement with the Mariner Group
effective March 1, 2007, which is virtually identical to the investment management
agreement between the Company and Mariner.
The investment management agreements do not have a specific duration period and may be
terminated by either party on 30 days prior written notice. Fees to be paid to Mariner
under the investment management agreements are based on a percentage of the investment
portfolio as follows: 0.20% of liquid assets, 0.30% of fixed maturity investments and
1.25% of hedge fund (limited partnership) investments.
The Company incurred Mariner investment expenses of $2.1 million, $2.9 million and
$3.0 million pursuant to the investment management agreements in 2009, 2008 and 2007,
respectively. Assuming these agreements are in effect in 2010, the Company would not
anticipate any significant change in investment expenses. In the event that assets in the
hedge fund and equity portfolio are invested in alternative investment vehicles managed
by Mariner or any of its affiliates, the 1.25% advisory fee is waived with respect to
those investments, although any fees imposed by the investment vehicles themselves are
nonetheless payable.
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In 2003, the Company acquired a 100% interest in a limited partnership hedge fund,
Mariner Tiptree (CDO) Fund I, L.P. (Tiptree), subsequently known as Tricadia CDO Fund,
L.P. (Tricadia) and since June 2008 known as Altrion Capital, L.P. (Altrion). Altrion
was originally established to invest in collateralized debt obligation (CDO)
securities, commercial loan obligation (CLO) securities, credit related structured
(CRS) securities and other structured products, as well as commercial loans, that are
arranged, managed or advised by a Mariner affiliated company. See Relationship with
Mariner Partners, Inc. Under the provisions of the limited partnership agreement (the
Tiptree Agreement), the Mariner affiliated company was entitled to 50% of the net
profit realized upon the sale of certain collateralized debt obligations held by the
Company. The investment in Altrion was previously consolidated in the Companys financial
statements. On August 18, 2006, the Company entered into an Amended and Restated Limited
Partnership Agreement, effective August 1, 2006, with Tricadia Capital, LLC (Tricadia
Capital), the general partner, and the limited partners named therein (the Amended
Agreement), to amend and restate the existing Limited Partnership Agreement of Mariner
Tiptree (CDO) Fund I, L.P. entered into in 2003 (the Original Agreement). The Amended
Agreement changed the name of the partnership, amended and restated in its entirety the
Original Agreement and provides for the continuation of the partnership under applicable
law upon the terms and conditions of the Amended Agreement. The Amended Agreement, among
other items, substantially changed the fee income structure, as well as provides for the
potential conversion of limited partnership interests to equity interests. The fee income
was changed in the Amended Agreement from 50% of the fee received by the investment
manager in connection with the management of CDOs in Altrion to a percentage of fees
equal to the pro-rata portion of the CDO equity interest held by Altrion, but in any
event, no less than 12.5%. The Amended Agreement also provides for an additional CDO fee
to be determined based upon the management fees earned by the investment manager. These
changes resulted in a reduction in the variability of Altrion thereby lowering or
decreasing its expected losses as well as represented a change in the entitys governing
documents or contractual arrangements that changed the characteristics of Altrions
equity investment at risk. As a result of these substantive changes to the Original
Agreement, the Company concluded that it is no longer the party most closely associated
with Altrion and deconsolidated Altrion from its financial statements as of August 1,
2006 and has since included Altrion as a limited partnership investment at equity in the
financial statements.
In 2003, the Company made an investment of $11.0 million in Altrion. Additional
investments of $4.65 million, $2.7 million and $6.25 million were made in 2004, in 2005
and on April 27, 2007, respectively. The Company was previously committed to providing an
additional $15.4 million, or a total of approximately $40 million, in capital to Altrion
by August 1, 2008. Altrion, however, waived its right to require the Company to
contribute its additional capital commitment of $15.4 million and accordingly, the
Companys obligation to make such capital contribution has expired. In addition, the
Company withdrew $10 million of its capital from Altrion during July 2008. The Company
redeemed its remaining interest in Altrion effective December 31, 2009, resulting in the
Company receiving approximately a $35 million direct investment in the Tiptree Financial,
$7.3 million in cash, $1.1 million in commercial loans and $118,000 in private equity. As
of December 31, 2009 the majority of Tiptree Financials assets were invested in cash,
corporate credits, the municipal funding sector, and commercial real estate.
There were no investment expenses incurred and payable under the Tiptree agreement at
December 31, 2009. Investment expenses incurred and payable under the Tiptree agreement
at December 31, 2008 and December 31, 2007 amounted to $844,387 and $(812,646),
respectively, and were based upon the fair value of those securities held and sold during
2008 and 2007, respectively. This agreement also provides for other fees payable to the
manager based upon the operations of the hedge fund. There were no other fees incurred
through December 31, 2009.
William J. Michaelcheck, a director of the Company, is the Chairman of Mariner and is the
beneficial owner of a substantial amount of the stock of Mariner. George R. Trumbull, a
director of the Company, A. George Kallop, President and Chief Executive Officer and a
director of the Company, and William D. Shaw, Jr., Vice Chairman and a director of the
Company, are also associated with Mariner. Currently, Mr. Shaw is a shareholder of
Mariner and Messrs. Trumbull and Kallop have contractual relationships with Mariner
relating to consulting services. The Company had a consulting agreement with William D.
Shaw, Jr. pursuant to which it paid him $100,000 in 2008 for consulting services relating
to the Companys managing its relations with the investment community and other
managerial advice and counsel. As noted above, pursuant to the amended and
restated voting agreement, Mariner controlled the vote of approximately 15.90% of
NYMAGICs outstanding voting securities as of March 2, 2010.
The Company believes that the terms of the investment management agreements are no
less favorable to NYMAGIC and its subsidiaries than the terms that would be obtained from
an unaffiliated investment manager for the services provided. The investment management
fees paid to Mariner were arrived at through negotiations between the Company and
Mariner. All then current directors participated in the discussion of the 2002 investment
management agreement. In accordance with the Companys conflict of interest policy, the
investment management agreement was approved by an independent committee of the Companys
Board of Directors, which consisted of all directors who were neither Mariner affiliates
nor participating shareholders under the voting agreement. Thereafter, the investment
management agreement was approved by the entire Board of Directors. Under the provisions
of the New York insurance holding company statute, because of the control relationship
between Mariner and New York Marine and Gotham, the investment management agreement was
submitted for review by the New York State Insurance Department, which examined, among
other things, whether its terms were fair and equitable and whether the fees for services
were reasonable. Upon completion of that review, the investment management agreement was
found to be non-objectionable by the Department. Similarly, the investment management
agreement between Southwest Marine and the Mariner Group was approved by an Independent
Committee of the Board of Directors and was found by the Arizona Department of Insurance
to be non-objectionable.
- 28 -
Subsidiaries
NYMAGIC was formed in 1989 to serve as a holding company for the subsidiary insurance
companies. NYMAGICs largest insurance company subsidiary is New York Marine, which was
formed in 1972. Gotham was organized in 1986 as a means of expanding into the excess and
surplus lines marketplace in states other than New York and Southwest Marine was
organized in 2005 as a means of expanding into excess and surplus lines in New York. New
York Marine and Gotham entered into a Reinsurance Agreement, effective January 1, 1987,
under the terms of which Gotham cedes 100% of its gross direct business to New York
Marine and assumes 15% of New York Marines total retained business, beginning with the
1987 policy year. Accordingly, for policy year 1987 and subsequent, Gothams underwriting
statistics are similar to New York Marines. As of December 31, 2009, 75% and 25% of
Gothams common stock is owned by New York Marine and NYMAGIC, respectively. Southwest
Marine and New York Marine entered into a reinsurance agreement effective January 1,
2007, under the terms of which, New York Marine cedes 5% of its gross direct business to
Southwest Marine. Southwest Marine retains 100% of its direct writings. New York Marine
owns 100% of Southwest Marines common stock.
Gotham does not assume or cede business to or from other insurance companies. As of
December 31, 2009, New York Marine had aggregate receivables due from Gotham of
approximately $50 million, or 25% of New York Marines policyholders surplus, and
aggregate receivables due from Southwest Marine of approximately $10 million, or 5% of
New York Marines policyholders surplus. Gotham had aggregate reinsurance receivables
due from New York Marine, as of December 31, 2009, of approximately $79 million, or 136%
of Gothams policyholders surplus.
MMO was formed in 1964 to underwrite a book of ocean marine insurance and was
acquired in 1991 by NYMAGIC. MMOs activities expanded over the years and it now
underwrites a book of ocean marine, inland marine and other liability insurance.
Midwest was formed in 1978 to underwrite a varied book of business located in the Midwest
region and was acquired in 1991 by NYMAGIC.
PMMO was formed in 1975 to underwrite a varied book of business located in the West
Coast region and was acquired in 1991 by NYMAGIC; PMMOs principal office was closed in
2007 and its operations have been absorbed by MMO.
The Company was a 100% limited partner in Altrion, a limited partnership that
invests in CDO securities, CRS securities and other structured product securities, but
because the limited partnership agreement was amended and restated in 2006 the Company
ceased consolidating this investment as of August 1, 2006 as a result of an amended
agreement that provides for substantial changes in the source of revenues and the
potential conversion of limited partnership interests to equity interests. The Company
includes this investment in limited partnerships at equity. The Company redeemed its
remaining interest in Altrion effective December 31, 2009, resulting in the Company
receiving approximately a $35 million direct investment in the Tiptree Financial, $7.3
million in cash, $1.1 million in commercial loans and $118,000 in private equity.
As of December 31, 2009 the majority of Tiptree Financials assets were invested in
cash, corporate credits, the municipal funding sector, and commercial real estate.
Competition
The insurance industry is highly competitive and the companies, both domestic and
foreign, against which the Company competes, are often larger and could have greater
capital resources than the Company and the pools. The Companys principal methods of
competition are pricing and responsiveness to the individual insureds coverage
requirements.
We compete in the United States and international markets with domestic and international
insurance companies. In the area of our primary focus, ocean marine liability, there are
approximately 50 insurance companies writing almost $3.1 billion in annual premiums for
ocean, drill rig, hull, war, cargo and other marine liability. The Company and our main
competitors collective share of this market, as published by Highline Data, (which used
2008 data), is 76.2%. The three companies with the largest market shares are: American
International Group, 9.9%; Travelers Insurance Companies, 8.8%; CNA Insurance Group,
6.8%. Our market share is approximately 2.2%.
With regard to the Companys other lines of business, the magnitude of the market is such
that our market share is insignificant. Within the overall property, casualty and
professional liability insurance markets, the Company seeks to take advantage of
attractive niche opportunities. Much of this business is written on a surplus lines
basis, which gives the company considerable flexibility in terms of forms and rates.
While the Company is a significant writer of excess workers compensation business,
overall excess workers compensation writings are a small fraction of overall workers
compensation writings.
The Company believes it can successfully compete against other companies in the insurance
market due to its philosophy of underwriting quality insurance, its reputation as a
conservative well-capitalized insurer and its willingness to forego unprofitable
business.
- 29 -
Employees
The Company currently employs 179 persons. None of our employees is covered by a
collective bargaining agreement and management considers the relationship with our
employees to be good.
Code of Conduct and Corporate Governance Documents
The Company maintains a separate, independent, as defined under the New York Stock
Exchange rules, Audit Committee of five directors who have been appointed by the Board of
Directors: Messrs. Glenn Angiolillo, Ronald J. Artinian, John T. Baily (Chairman and
financial expert), David E. Hoffman and David W. Young.
The Company has adopted a Code of Ethics for Senior Executive and Financial Officers as
well as a code of Business Conduct and Ethics for Directors, Officers and Employees,
copies of which are available free of charge, upon request directed to Corporate
Secretary, NYMAGIC, INC., 919 Third Avenue, New York, NY 10022.
The Companys Corporate Governance Guidelines and the charters of the Audit, Human
Resources and Nominating/Corporate Governance Committees of the Companys Board of
Directors and the Companys Code of Ethics for Senior Executive and Financial Officers as
well as its Code of Business Conduct and Ethics for Directors, Officers and Employees are
available on the Companys Internet web site www.nymagic.com and are available in print
to any shareholder upon request to the Corporate Secretary, NYMAGIC, INC. 919 Third
Avenue, 10th Floor, New York, NY 10022.
Available Information
We maintain an Internet site at www.nymagic.com. Our annual reports on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to such
reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange
Act of 1934, as well as the annual report to stockholders and other information, are
available free of charge on this site. The Internet site and the information contained
therein or connected thereto are not incorporated by reference into this Form 10-K.
The Companys business involves various risks and uncertainties, including, but not
limited to those discussed in this section. This information should be considered
carefully, together with the other information contained in this report including the
consolidated financial statements and the related notes. If any of the following events
actually occur, the Companys business, results of operations and financial condition
could be adversely affected.
Our inability to assess underwriting risk accurately could reduce our net income.
Our underwriting success is dependent on our ability to assess accurately the risks
associated with the businesses on which the risk is retained. We rely on the extensive
experience of our underwriting staff in assessing these risks and the failure to retain
or hire similarly experienced personnel could adversely affect our ability to accurately
make those determinations. If we fail to assess accurately the risks we retain, we may
fail to establish appropriate premium rates and our reserves may be inadequate to cover
our losses, which could reduce our net income. The underwriting process is further
complicated by our exposure to unpredictable developments, including weather-related and
other natural catastrophes, as well as war and acts of terrorism.
Exposure to catastrophe or severity losses in loss reserves.
We are required to maintain reserves to cover our estimated ultimate liability of losses
and loss adjustment expenses for both reported and unreported claims incurred. These
reserves are only estimates of what we think the settlement and administration of claims
will cost based on our assumptions and facts and circumstances known to us. The low
frequency and high severity of many of the risks we insure coupled with the protracted
settlement period make it difficult to assess the overall adequacy of our loss reserves.
Because of the uncertainties that surround estimating loss reserves and loss adjustment
expenses, we cannot be certain that ultimate losses will not exceed these estimates of
losses and loss adjustment reserves. Currently, there is a belief that climate change
increases the frequency and severity of extreme weather events and, in recent years, the
frequency of major catastrophes appears to have increased. Claims for catastrophic events
could expose us to large losses and cause substantial volatility in our results of
operations, which could cause the value of our common shares to fluctuate widely.
The level of catastrophe losses has fluctuated in the past and may fluctuate in the
future. The weather related catastrophes that occurred in 2005 caused significant industry
losses and led to a strengthening of rating agency capital requirements for
catastrophe-exposed business. In 2005 the Company incurred significant catastrophe losses
from hurricanes Katrina and Rita. In 2008 the Company incurred significant catastrophe
losses from hurricanes Gustav and Ike. After tax losses resulting from catastrophes in
2009, 2008 and 2007 amounted to $0, $4.3 million and $0, respectively. If our reserves
were insufficient to cover our actual losses and loss adjustment expenses, we would have
to augment our reserves and incur a charge to our earnings. These charges could be
material.
- 30 -
Decreases in rates or changes in terms for property and casualty insurance could reduce
our net income.
We write property and casualty insurance. The property and casualty industry historically
has been highly cyclical. Rates for property and casualty insurance are influenced
primarily by factors that are outside of our control, including competition and the
amount of available capital and surplus in the industry. For example, the substantial
losses in the insurance industry arising from the events of September 11, 2001 caused
rates in the insurance industry to rise. However, new capital has since flowed into the
insurance industry. To the extent that more capital is available, there may be downward
pressure on premium rates as a result of increased supply. These factors affecting rates
for the industry in general impact the rates we are able to charge. Any significant
decrease in the rates for property and casualty insurance could reduce our net income.
While rates impact our net income, there is not necessarily a direct correlation between
the level of rate increases or decreases and net income because other factors, such as
the amount of catastrophe losses and the amount of expenses, also affect net income. Even
as rates rise, the percentage average rate increases can fluctuate greatly and be
difficult to predict. Prevailing policy terms and conditions in the property and casualty
insurance market are also highly cyclical. Changes in terms and conditions unfavorable to
insurers, which tend to be correlated with declining rates, could further reduce our net
income.
If rating agencies downgrade their ratings of our insurance company subsidiaries, our
future prospects for growth and profitability could be significantly and adversely
affected.
New York Marine and Gotham each currently holds an A (Excellent) and Southwest Marine
holds an A- (Excellent) financial strength rating from A.M. Best Company. These are the
third and fourth highest of fifteen rating levels within A.M. Bests classification
system. Financial strength ratings are used by insureds, insurance brokers and reinsurers
as an important means of assessing the financial strength and quality of insurers. Any
downgrade or withdrawal of our subsidiaries ratings might adversely affect our ability
to market our insurance products or might increase our reinsurance costs and would have a
significant and adverse effect on our future prospects for growth and profitability.
Our reinsurers may not satisfy their obligations to us.
We are subject to credit risk with respect to our reinsurers because the transfer of risk
to a reinsurer does not relieve us of our liability to the insured and the credit risk of
our reinsurers may be negatively impacted by the current volatile investment environment.
In addition, reinsurers may be unwilling to pay us even though they are able to do so.
The failure of one or more of our reinsurers to honor their obligations to us or to delay
payment would impact our cash flow and reduce our net income and could cause us to incur
a significant loss.
If we are unable to purchase reinsurance and transfer risk to reinsurers or if the cost
of reinsurance increases, our net income could be reduced or we could incur a loss.
We attempt to limit our risk of loss by purchasing reinsurance to transfer a significant
portion of the risks we assume. The availability and cost of reinsurance is subject to
market conditions, which are outside of our control. As a result, we may not be able to
successfully purchase reinsurance and transfer risk through reinsurance arrangements. A
lack of available reinsurance might adversely affect the marketing of our programs and/or
force us to retain all or a part of the risk that cannot be reinsured. If we were
required to retain these risks and ultimately pay claims with respect to these risks, our
net income could be reduced or we could incur a loss. Our existing reinsurance program
may prove to have insufficient reinstatement protection to protect the Company from
catastrophes or large severity losses and our net income could be reduced or we could
incur a loss.
Our business is concentrated in ocean marine, excess and surplus lines property, casualty
and professional liability, and excess workers compensation lines of insurance, and if
market conditions change adversely or we experience large losses in these lines, it could
have a material adverse effect on our business.
As a result of our strategy to focus on specialty products in niches where we believe
that we have underwriting and claims expertise and to decline business where pricing does
not afford what we consider to be acceptable returns, our business is concentrated in
ocean marine, excess and surplus lines property, casualty and professional liability, and
excess workers compensation lines of insurance. If our results of operations from any of
these specialty lines are less favorable for any reason, including lower demand for our
products on terms and conditions that we find appropriate, flat or decreased rates for
our products or increased competition, the reduction could have a material adverse effect
on our business.
If we are not successful in developing our new specialty lines, we could experience
losses.
Since January 1, 2001, we have entered into a number of new specialty lines of business
including professional liability, commercial real estate, employment practices liability,
commercial automobile insurance and workers compensation excess liability. We continue
to look for appropriate opportunities to diversify our business portfolio by offering new
lines of insurance in which we believe we have sufficient underwriting and claims
expertise. However, because of our limited history in these new lines, there is limited
operating history and financial information available to help us estimate sufficient
reserve amounts for these lines and to help you evaluate whether we will be able to
successfully develop these new lines or appropriately price and reserve for the likely
ultimate losses and expenses associated with these new lines. Due to our limited history
in these lines, we may have less experience managing their development and growth than
some of our competitors. Additionally, there is a risk that the lines of business into
which we expand will not perform at the level we anticipate.
- 31 -
Our industry is highly competitive and we may not be able to compete successfully in the
future.
Our industry is highly competitive and has experienced severe price competition over the
last several years. The majority of our main competitors have greater financial,
marketing and management resources than we do, have been operating for longer than we
have and have established long-term and continuing business relationships throughout the
industry, which can be a significant competitive advantage. Much of our business is
placed through insurance brokers. If insurance brokers were to decide to place more
insurance business with competitors that have greater capital than we do, our business
could be materially adversely affected. In addition, if we face further competition in
the future, we may not be able to compete successfully.
Competition in the types of insurance in which we are engaged is based on many factors,
including our perceived overall financial strength, pricing and other terms and
conditions of products and services offered, business experience, marketing and
distribution arrangements, agency and broker relationships, levels of customer service
(including speed of claims payments), product differentiation and quality, operating
efficiencies and underwriting. Furthermore, insureds tend to favor large, financially
strong insurers, and we face the risk that we will lose market share to larger and higher
rated insurers.
We may have difficulty in continuing to compete successfully on any of these bases in the
future. If competition limits our ability to write new business at adequate rates, our
ability to transact business would be materially and adversely affected and our results
of operations would be adversely affected.
We are dependent on our key personnel.
Our success has been, and will continue to be, dependent on our ability to retain the
services of our existing key executive officers and to attract and retain additional
qualified personnel in the future. We consider our key officers to be George Kallop, our
President and Chief Executive Officer, George Sutcliffe, our Executive Vice
President-Claims, Paul Hart, our Executive Vice President, General Counsel and Secretary,
Thomas Iacopelli, our Executive Vice President, Chief Financial Officer and Treasurer,
Glenn Yanoff, our Executive Vice President and head of our MMO Agencies unit, and Edwin
Skoch and Timothy McAndrew, the respective Chief Underwriters for our other liabilities
and marine business. In addition, our underwriting staff is critical to our success in
the production of business. While we do not consider any of our key executive officers or
underwriters to be irreplaceable, the loss of the services of any of our key executive
officers or underwriters or the inability to hire and retain other highly qualified
personnel in the future could adversely affect our ability to conduct our business, for
example, by causing disruptions and delays as workload is shifted to existing or new
employees.
If Mariner terminates its relationship with us, our business could be adversely affected.
Mariner is party to a voting agreement and an investment management agreement, each
described in more detail under Voting Agreement and Mariner Investment Management
Arrangement. Four of our directors and one of our executive officers are affiliated with
Mariner. The voting agreement terminates immediately upon Mariners resignation as an
advisor to us. Mariner also has the right to terminate the investment management
agreement upon 30 days prior written notice. If Mariner were to terminate its
relationship with the Company, the disruption to our management could adversely affect
our business.
The value of our investment portfolio and the investment income we receive from that
portfolio could decline as a result of market fluctuations and economic conditions.
Our investment portfolio consists of fixed income securities including mortgage-backed
securities, short-term U.S. government-backed fixed income securities and a diversified
portfolio of hedge funds. Both the fair market value of these assets and the investment
income from these assets fluctuate depending on general economic and market conditions.
For example, the fair market value of our fixed income securities increases or decreases
in an inverse relationship with fluctuations in interest rates. The fair market value of
our fixed income securities can also decrease as a result of any downturn in the business
cycle that causes the credit quality of those securities to deteriorate. Similarly, hedge
fund investments are subject to various economic and market risks. The risks associated
with our hedge fund investments may be substantially greater than the risks associated
with fixed income investments. Consequently, our hedge fund portfolio may be more
volatile and the risk of loss greater than that associated with fixed income investments.
Furthermore, because the hedge funds in which we invest sometimes impose limitations on
the timing of withdrawals from the funds, our inability to withdraw our investment
quickly from a particular hedge fund that is performing poorly could result in losses and
may affect our liquidity. All of our hedge fund investments have timing limitations. Most
hedge funds require a 90-day notice period in order to withdraw funds. Some hedge funds
may require a withdrawal only at the end of their fiscal year. We may also be subject to
withdrawal fees in the event the hedge fund is sold within a minimum holding period,
which may be up to one year. Many hedge funds have invoked gated provisions that allow
the fund to disperse redemption proceeds to investors over an extended period. The
Company is subject to such restrictions which may delay the receipt of hedge fund
proceeds.
- 32 -
The Company has investments in RMBS amounting to $56.6 million (amortized value) at
December 31, 2009. See Item 1 Business General for a complete discussion regarding the
Companys RMBS portfolio.
Our deferred tax asset may require additional valuation allowance.
The Companys deferred tax assets of $29.3 million at December 31, 2009 is net of a
valuation allowance that includes $11.3 million provided for the uncertainty that the
Company can fully utilize all deferred taxes that arose from capital losses incurred. To
the extent that the Company generates future capital gains to offset these losses, it may
recover some or all of this amount. There is no assurance that the Company will be able
to generate capital gains in future periods. Federal capital loss carryforwards can be
carried forward from 2010 to 2014. As a result of such expiration dates, the Company may
not be able to fully utilize all amounts by such dates.
To the extent that unrealized losses increase in future periods, we may be limited
in the ability to provide for any income tax benefit. Accordingly, our valuation
allowance may increase to account for the unrecoverability of capital losses.
Insurance laws and regulations restrict our ability to operate.
We are subject to extensive regulation under U.S. state insurance laws.
Specifically, New York Marine and Gotham are subject to the laws and regulations of the
State of New York and to the regulation and supervision of the New York State Department
of Insurance. Southwest Marine is subject to the laws and regulations of the State of
Arizona and to the regulation and supervision of the Arizona Department of Insurance. In
addition, each of New York Marine, Gotham and Southwest Marine is subject to the
regulation and supervision of the insurance department of each state in which it is
admitted to do business. Insurance laws and regulations typically govern most aspects of
an insurance companys operations.
In addition, state legislatures, the NAIC and state insurance regulators continually
reexamine existing laws and regulations. Any proposed or future legislation may be more
restrictive than current regulatory requirements or may result in higher costs and that
could materially adversely affect our business.
The federal government has shown increasing concern over the adequacy of state
regulation. It is not possible to predict the future impact of any potential federal
regulations or other possible laws or regulations on our insurance subsidiaries capital,
and such laws or regulations could materially adversely affect their business.
Computer system risks.
We rely on our computer equipment, software and technical personnel to accumulate
data in order to quote new and existing business, record loss reserves, pay claims and
maintain historical statistical information. Any disruption of this process would affect
many aspects of our business. Computer risks include hardware failures, software defects,
incompatibility of related systems, improper inputs from technical and operational
personnel, and functional obsolescence due to the rapid advance of technology and the
expanding needs of our business to remain competitive. Risks also include the costs of
testing and implementing new systems to take advantage of new technology and charging off
unamortized expenses related to software and equipment that has no further useful life.
For example, during 2007 we incurred $3.4 million in after tax charges from the write-off
of computer equipment and software after determining that such software did not have the
necessary functionality to effectively conduct our business operations and no longer
possessed any future service potential. We are expected to implement a new computer
system in 2011, but in the event that such system does not operate as intended, we could
suffer from the inability to quote business or pay claims in a timely manner. The Company
has capitalized $8.8 million in computer software expenses as of December 31, 2009. The
Company anticipates additional capital expenses, in the range of $1 to $3 million, to
implement a new computer system in 2011.
The Companys Executive Vice President of Information Technology resigned in January
2010. Subsequently, the Company restructured its information technology department into
three areas which led to a revised approach for computer system
implementation. Accordingly, with respects to our current project to implement a new
information technology system, our efforts have been redirected to tightening oversight
over vendors deliverables as compared with our previous approach of performing extensive
modifications to our vendors deliverables. In the event that such systems are not deemed
to be adequate to conduct the Companys business, the Company may incur substantial write
off charges.
Failure to comply with insurance laws and regulations could have a material adverse
effect on our business.
While we endeavor to comply with all applicable insurance laws and regulations, we cannot
assure you that we have or can maintain all required licenses and approvals or that our
business fully complies with the wide variety of applicable laws and regulations or the
relevant authoritys interpretation of the laws and regulations. Each of New York Marine,
Gotham and Southwest Marine must maintain a license in each state in which it intends to
issue insurance policies or contracts on an admitted basis. Regulatory authorities have
relatively broad discretion to grant, renew or revoke licenses and approvals. If we do
not have the requisite licenses and approvals or do not comply with applicable regulatory
requirements, the insurance regulatory authorities could preclude or temporarily suspend
us from carrying on some or all of our activities or monetarily penalize us. These types
of actions could have a material adverse effect on our business, including preventing New
York Marine, Gotham or Southwest Marine from writing insurance on an admitted basis in a
state that revokes or suspends its license.
- 33 -
Our holding company structure involves significant risks.
NYMAGIC is a holding company whose most significant assets consist of the stock of its
operating subsidiaries and investments in various financial instruments. Thus, our
ability to pay our debts, pay dividends on our common stock, make additional capital
contributions to our insurance subsidiaries, and meet other holding company obligations
may be dependent on the earnings and cash flows of our subsidiaries, the ability of the
subsidiaries to pay dividends or to advance or repay funds to us, and the amount and
liquidity of the investments held in the holding company. This ability is subject to
general economic, financial, competitive, regulatory and other factors beyond our
control. As discussed above, payment of dividends and advances and repayments from our
operating subsidiaries are regulated by the state insurance laws and regulatory
restrictions. Accordingly, our operating subsidiaries may not be able to pay dividends or
advance or repay funds to us in the future, which could impair our ability to pay our
debts, pay dividends on our common stock, make additional capital contributions to our
insurance subsidiaries, and meet other holding company obligations. There were no
dividends declared by the insurance subsidiaries in 2008; however, $10.9 million was
declared in 2009 by the insurance subsidiaries.
Because of the concentration of the ownership of, and the thin trading in, our common
stock, you may have difficulties in selling shares of our common stock.
Currently, the ownership of our stock is highly concentrated. Historically, the trading
market in our common stock has been thin. As reported by Bloomberg, L.P., in 2007, 2008
and 2009 our average monthly trading volumes were 1,377,719, 816,576 and 419,862 shares,
respectively. Our shares traded each day in 2007, 2008 and 2009. We cannot assure you
that the trading market for our common stock will become more active on a sustained
basis. Therefore, you may have difficulties in selling shares of our common stock.
Trading in our common stock has the potential to be volatile.
The stock market has from time to time experienced extreme price and volume fluctuations
that have been unrelated to the operating performance of particular companies. The market
price of our common stock may be significantly affected by quarterly variations in our
results of operations, changes in financial estimates by securities analysts or failures
by us to meet such estimates, litigation involving us, general trends in the insurance
industry, actions by governmental agencies, national economic and stock market
conditions, industry reports and other factors, many of which are beyond our control.
The thin trading in our stock has the potential to contribute to the volatility of our
stock price. When few shares trade on any given day, any one trade, even if it is a
relatively small trade, may have a strong impact on our market price, causing our share
price to rise or fall.
Because part of our outstanding stock is subject to a voting agreement, our other
shareholders have limited ability to impact voting decisions.
Several of our shareholders, together with some of their affiliates, have entered into a
voting agreement with Mariner, which will last until December 31, 2010, unless terminated
earlier. This voting agreement authorizes Mariner, with the approval of any two of three
participating shareholders under the voting agreement, to vote all the shares covered by
the agreement. Among other matters, the voting agreement addresses the composition of our
board of directors. The shares covered by the voting agreement currently represent
approximately 15.90% of our outstanding shares of common stock as of March 2, 2010. As a
result, to the extent that Mariner votes those shares in accordance with the voting
agreement, Mariner and the participating shareholders could significantly influence most
matters on which our shareholders have the right to vote. This means that other
shareholders might be less able to impact voting decisions than they would have if they
made a comparable investment in a company that did not have a concentrated block of
shares subject to a voting agreement.
The voting agreement and the concentration of our stock ownership in the hands of a few
shareholders could impede a change of control and could make it more difficult to effect
a change in our management.
Because approximately 15.90% of our currently outstanding stock is subject to the voting
agreement, it may be difficult for anyone to effect a change of control that is not
approved by the parties to the voting agreement. Even if the participating shareholders
were to terminate the voting agreement, their collective share ownership would still be
substantial, so that they could choose to vote in a similar fashion on a change of
control and have a significant impact on the outcome of the voting. And, even without
taking into account the voting agreement, the participating shareholders and our
directors and executive officers beneficially own approximately 44.36% of our issued and
outstanding common stock as of March 2, 2010. The voting agreement and the concentration
of our stock ownership could impede a change of control of NYMAGIC that is not approved
by the participating shareholders and which may be beneficial to shareholders who are not
parties to the voting agreement. In addition, because the voting agreement, together with
the concentration of ownership, results in the major shareholders determining the
composition of our Board of Directors, it also may be more difficult for other
shareholders to attempt to cause current management to be removed or replaced.
- 34 -
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Item 1B. |
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Unresolved Staff Comments |
None.
The Company does not own, directly or indirectly, any real estate. The Company leases
office space for day-to-day operations in the following cities:
New York metro area 70,751 square feet
Chicago 3,500 square feet
San Francisco 2,000 square feet
The Companys principal executive offices are approximately 69,000 square feet in size
and are located at 919 Third Avenue, New York, New York 10022. The Company entered into a
sublease for approximately 28,000 square feet of this space, which commenced on March 1,
2003 and expires on July 30, 2016. In April 2005, the Company signed an amendment to the
sublease, for approximately 10,000 square feet of additional space. The amended sublease
expires on July 30, 2016. The minimum monthly rental payments of $144,551 under the
amended sublease include the rent paid by the Company for the original sublease. Rent
payments under the amended sublease commenced in 2005 and end in 2016, with payments
amounting to $20.8 million, collectively, over the term of the agreement. In June 2007,
the Company leased an additional 30,615 square feet at the principal executive location
in New York City. The lease provides for minimum monthly rental payments of $197,722
beginning in 2008 and $210,478 beginning in 2013. The lease expires on July 30, 2016. In
2008, the Company entered into a lease for 2,136 square feet for the office space for its
newly formed MMO Agencies, an underwriting division of the Company. The office is located
in Long Island, New York. Rent payments under the lease end in 2013, with payments
amounting to approximately $370,000, collectively, over the term of the agreement. The
lease expires in May 2013.
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Item 3. |
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Legal Proceedings |
None
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Item 4. |
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Submission of Matters to a Vote of Security Holders |
The Company did not submit any matters to a vote of security holders during the fourth
quarter of 2009.
- 35 -
PART II
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Item 5. |
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Market for Registrants Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities |
The Companys common stock trades on the New York Stock Exchange (NYSE Symbol: NYM). The
following table sets forth high and low sales prices of the common stock for the periods
indicated as reported on the New York Stock Exchange composite transaction tape.
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2009 |
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2008 |
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High |
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Low |
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|
High |
|
|
Low |
|
First Quarter |
|
$ |
19.46 |
|
|
$ |
7.87 |
|
|
$ |
28.50 |
|
|
$ |
20.00 |
|
Second Quarter |
|
|
15.25 |
|
|
|
9.38 |
|
|
|
24.49 |
|
|
|
19.15 |
|
Third Quarter |
|
|
18.93 |
|
|
|
13.45 |
|
|
|
29.35 |
|
|
|
15.45 |
|
Fourth Quarter |
|
|
18.89 |
|
|
|
14.12 |
|
|
|
26.95 |
|
|
|
11.04 |
|
As of March 2, 2010, there were 53 shareholders of record. However, management
believes there were approximately 1,500 beneficial owners of NYMAGICs common stock as of
March 2, 2010.
Dividend Policy
The Company declared a dividend of eight cents per share to shareholders of record in
March, June, September and December of 2007 and March, June, September and December of
2008. On March 6, 2009, the Company declared a dividend of four cents to shareholders of
record on March 31, 2009, payable on April 7, 2009. The reduction in dividend amount from
prior quarters reflected the Companys cautious economic outlook. The Company declared a
dividend of four cents per share to shareholders of record on June 30, 2009, and declared
a dividend of six cents per share to shareholders of record on September 30, 2009 and
December 31, 2009, respectively. On March 5, 2010, the Company declared a dividend of
ten cents per share to shareholders of record as of March 31, 2010. The increase in
dividends declared to shareholders are a reflection of the recent financial performance.
For a description of restrictions on the ability of the Companys insurance subsidiaries
to transfer funds to the Company in the form of dividends, see Business Regulation
and Managements Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources.
Stock Repurchase
The Company makes open market repurchases of its common stock, from time to time, when
those purchases are deemed to be advantageous to the Companys financial position. There
were no stock repurchases made during 2009;however, 368,900 shares were purchased during
the year ended December 31, 2008. As of December 31, 2009, the Company held 7,333,977
common shares in its treasury. Under the Companys Common Stock Repurchase Plan, the
Company may repurchase up to $75 million of the Companys issued and outstanding shares
of common stock on the open market. As of December 31, 2009, the Company has repurchased
a total of 3,457,298 shares of common stock under the plan at a total cost of $62,855,338
at market prices ranging from $12.38 to $28.81 per share.
- 36 -
The following table sets forth purchases made under the Companys Common Stock Repurchase
Plan during the year ended December 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of Shares |
|
|
Maximum |
|
|
|
|
|
|
|
|
|
|
|
Purchased as |
|
|
Dollar Value of |
|
|
|
Total |
|
|
Average |
|
|
Part of |
|
|
Shares that may |
|
|
|
Number |
|
|
Price |
|
|
Publicly |
|
|
yet be Purchased |
|
|
|
of Shares |
|
|
Paid Per |
|
|
Announced |
|
|
Under the |
|
Period: |
|
Purchased |
|
|
Share |
|
|
Program |
|
|
Program (1) (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 1 January 31, 2008 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
February 1 February 29, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 1 March 31, 2008 |
|
|
20,300 |
|
|
|
22.97 |
|
|
|
20,300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total first quarter |
|
|
20,300 |
|
|
$ |
22.97 |
|
|
|
20,300 |
|
|
$ |
19,331,884 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 1 April 30, 2008 |
|
|
29,900 |
|
|
$ |
22.73 |
|
|
|
29,900 |
|
|
|
|
|
May 1 May 31, 2008 |
|
|
40,900 |
|
|
|
22.19 |
|
|
|
40,900 |
|
|
|
|
|
June 1 June 30, 2008 |
|
|
137,100 |
|
|
|
21.04 |
|
|
|
137,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total second quarter |
|
|
207,900 |
|
|
$ |
21.51 |
|
|
|
207,900 |
|
|
$ |
14,859,701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
July 1 July 31, 2008 |
|
|
108,700 |
|
|
$ |
18.99 |
|
|
|
108,700 |
|
|
|
|
|
August 1 August 31, 2008 |
|
|
23,400 |
|
|
|
19.71 |
|
|
|
23,400 |
|
|
|
|
|
September 1 September 30, 2008 |
|
|
8,600 |
|
|
|
22.03 |
|
|
|
8,600 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total third quarter |
|
|
140,700 |
|
|
$ |
19.30 |
|
|
|
140,700 |
|
|
$ |
12,144,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
October 1 October 31, 2008 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
November 1 November 30, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 1 December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fourth quarter |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
12,144,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2008 |
|
|
368,900 |
|
|
$ |
20.75 |
|
|
|
368,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Balance as of end of quarter indicated. |
|
(2) |
|
Balance as of end of quarter indicated Amounts are shown gross of treasury stock reissued. |
- 37 -
|
|
|
Item 6. |
|
Selected Financial Data |
The following table sets forth selected consolidated financial data, which was derived
from our historical consolidated financial statements included in our annual reports on
Form 10-K for the years then ended. You should read the following together with Item 7.
Managements Discussion and Analysis of Financial Condition and Results of Operations
and the consolidated financial statements and the notes thereto included in Item 8.
Financial Statements and Supplementary Data.
OPERATING DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
(In thousands, except per share amounts) |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned |
|
$ |
156,971 |
|
|
$ |
167,073 |
|
|
$ |
166,096 |
|
|
$ |
151,834 |
|
|
$ |
134,557 |
|
Net investment income (loss) |
|
|
41,668 |
|
|
|
(63,503 |
) |
|
|
35,489 |
|
|
|
47,897 |
|
|
|
36,060 |
|
Commission income |
|
|
260 |
|
|
|
154 |
|
|
|
414 |
|
|
|
542 |
|
|
|
1,198 |
|
Total other-than-temporary impairments |
|
|
(479 |
) |
|
|
(46,233 |
) |
|
|
(6,682 |
) |
|
|
(371 |
) |
|
|
(678 |
) |
Portion of loss recognized in OCI (before taxes) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impairment loss recognized in earnings |
|
|
(479 |
) |
|
|
(46,233 |
) |
|
|
(6,682 |
) |
|
|
(371 |
) |
|
|
(678 |
) |
Net realized investment gains (losses) |
|
|
15,733 |
|
|
|
(1,432 |
) |
|
|
(221 |
) |
|
|
(32 |
) |
|
|
(127 |
) |
Other income (loss), net |
|
|
3,342 |
|
|
|
122 |
|
|
|
(4,659 |
) |
|
|
597 |
|
|
|
334 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
$ |
217,495 |
|
|
$ |
56,181 |
|
|
$ |
190,437 |
|
|
$ |
200,467 |
|
|
$ |
171,344 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net losses and loss adjustment expenses incurred |
|
$ |
75,504 |
|
|
$ |
109,958 |
|
|
$ |
89,844 |
|
|
$ |
86,136 |
|
|
$ |
92,290 |
|
Policy acquisition expenses |
|
|
36,853 |
|
|
|
38,670 |
|
|
|
37,695 |
|
|
|
31,336 |
|
|
|
30,491 |
|
General and administrative expenses |
|
|
42,552 |
|
|
|
38,612 |
|
|
|
36,018 |
|
|
|
31,402 |
|
|
|
27,183 |
|
Interest expense |
|
|
6,731 |
|
|
|
6,716 |
|
|
|
6,726 |
|
|
|
6,712 |
|
|
|
6,679 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
$ |
161,640 |
|
|
$ |
193,956 |
|
|
$ |
170,283 |
|
|
$ |
155,586 |
|
|
$ |
156,643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
$ |
55,855 |
|
|
$ |
(137,775 |
) |
|
$ |
20,154 |
|
|
$ |
44,881 |
|
|
$ |
14,701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes expense (benefit) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
7,358 |
|
|
|
(14,026 |
) |
|
|
10,509 |
|
|
|
16,777 |
|
|
|
6,152 |
|
Deferred |
|
|
3,034 |
|
|
|
(19,414 |
) |
|
|
(3,727 |
) |
|
|
(1,746 |
) |
|
|
(1,152 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,392 |
|
|
|
(33,440 |
) |
|
|
6,782 |
|
|
|
15,031 |
|
|
|
5,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
45,463 |
|
|
$ |
(104,335 |
) |
|
$ |
13,372 |
|
|
$ |
29,850 |
|
|
$ |
9,701 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC (LOSS) EARNINGS PER SHARE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
8,428 |
|
|
|
8,534 |
|
|
|
8,896 |
|
|
|
8,807 |
|
|
|
8,734 |
|
Basic (loss) earnings per share |
|
$ |
5.39 |
|
|
$ |
(12.23 |
) |
|
$ |
1.50 |
|
|
$ |
3.39 |
|
|
$ |
1.11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DILUTED (LOSS) EARNINGS PER SHARE: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding |
|
|
8,637 |
|
|
|
8,534 |
|
|
|
9,190 |
|
|
|
9,177 |
|
|
|
8,918 |
|
Diluted (loss) earnings per share |
|
$ |
5.26 |
|
|
$ |
(12.23 |
) |
|
$ |
1.46 |
|
|
$ |
3.25 |
|
|
$ |
1.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per share |
|
$ |
.20 |
|
|
$ |
.32 |
|
|
$ |
.32 |
|
|
$ |
.30 |
|
|
$ |
.24 |
|
- 38 -
BALANCE SHEET DATA:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
|
(In thousands) |
|
Total cash and investments |
|
$ |
675,665 |
|
|
$ |
546,986 |
|
|
$ |
701,127 |
|
|
$ |
664,872 |
|
|
$ |
622,404 |
|
Total assets |
|
|
1,010,209 |
|
|
|
946,476 |
|
|
|
1,107,977 |
|
|
|
1,119,296 |
|
|
|
1,090,419 |
|
Unpaid losses and loss adjustment expenses |
|
|
555,486 |
|
|
|
548,750 |
|
|
|
556,535 |
|
|
|
579,179 |
|
|
|
588,865 |
|
Notes payable |
|
|
100,000 |
|
|
|
100,000 |
|
|
|
100,000 |
|
|
|
100,000 |
|
|
|
100,000 |
|
Total shareholders equity |
|
|
216,010 |
|
|
|
164,073 |
|
|
|
279,446 |
|
|
|
270,700 |
|
|
|
239,284 |
|
Book value per share |
|
$ |
24.84 |
|
|
$ |
19.11 |
|
|
$ |
31.56 |
|
|
$ |
29.14 |
|
|
$ |
26.44 |
|
For a description of factors that materially affect the comparability of the
information reflected in the Selected Financial Data, see Managements Discussion and
Analysis of Financial Condition and Results of Operations.
|
|
|
Item 7. |
|
Managements Discussion and Analysis of Financial Condition and Results of
Operations |
Executive Overview and Highlights-2009 year
|
|
Net income of $45.5 million or $5.26 per diluted share |
|
|
|
Total shareholders equity of $216.0 million, or $24.84 per diluted share |
|
|
|
Gross and net premiums written each down 2% from 2008 |
|
|
|
Favorable net loss reserve development reported on prior year loss reserves of $20.0 million |
|
|
|
Combined ratio of 98.7% |
|
|
|
Net investment income of $41.7 million |
|
|
|
Net realized investment gains of $15.3 million |
|
|
|
Total cash and invested assets of $675.7 million at year end 2009 |
|
|
|
A.M. Best Rating of A (excellent) for New York Marine and Gotham |
Results of Operations
The Companys results of operations are derived from participation in pools of insurance
covering ocean marine, inland marine, aircraft and other liability insurance managed by
MMO and affiliates. Since January 1, 1997, the Companys participation in the pools has
been increased to 100%. The Company formerly wrote aircraft business, but has ceased
writing any new policies
covering aircraft insurance for periods subsequent to March 31, 2002. . The Company in
2009, however, began underwriting policies covering single engine non-commercial
aircraft. There were no material amounts written during the year.
The Company records premiums written in the year policies are issued and earns such
premiums on a monthly pro-rata basis over the terms of the respective policies. The
following tables present the Companys gross premiums written, net premiums written and
net premiums earned for each of the past three years.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NYMAGIC Gross Premiums |
|
|
|
Written |
|
Year ended December 31, |
|
By Segment |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(Dollars in thousands) |
|
Ocean Marine |
|
$ |
73,269 |
|
|
|
34 |
% |
|
$ |
82,751 |
|
|
|
38 |
% |
|
$ |
98,689 |
|
|
|
43 |
% |
Inland Marine/Fire |
|
|
20,306 |
|
|
|
10 |
% |
|
|
16,128 |
|
|
|
7 |
% |
|
|
18,625 |
|
|
|
8 |
% |
Other Liability |
|
|
119,913 |
|
|
|
56 |
% |
|
|
118,378 |
|
|
|
55 |
% |
|
|
110,986 |
|
|
|
49 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
213,488 |
|
|
|
100 |
% |
|
|
217,257 |
|
|
|
100 |
% |
|
|
228,300 |
|
|
|
100 |
% |
Run off lines (Aircraft) |
|
|
92 |
|
|
|
|
|
|
|
(3 |
) |
|
|
|
|
|
|
88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
213,580 |
|
|
|
100 |
% |
|
$ |
217,254 |
|
|
|
100 |
% |
|
$ |
228,388 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 39 -
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NYMAGIC Net Premiums |
|
|
|
Written |
|
Year ended December 31, |
|
By Segment |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(Dollars in thousands) |
|
Ocean Marine |
|
$ |
49,885 |
|
|
|
31 |
% |
|
$ |
59,200 |
|
|
|
36 |
% |
|
$ |
68,192 |
|
|
|
41 |
% |
Inland Marine/Fire |
|
|
7,045 |
|
|
|
4 |
% |
|
|
4,538 |
|
|
|
3 |
% |
|
|
6,935 |
|
|
|
4 |
% |
Other Liability |
|
|
105,785 |
|
|
|
65 |
% |
|
|
101,424 |
|
|
|
61 |
% |
|
|
92,618 |
|
|
|
55 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
162,715 |
|
|
|
100 |
% |
|
|
165,162 |
|
|
|
100 |
% |
|
|
167,745 |
|
|
|
100 |
% |
Run off lines (Aircraft) |
|
|
(68 |
) |
|
|
|
|
|
|
222 |
|
|
|
|
|
|
|
108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
162,647 |
|
|
|
100 |
% |
|
$ |
165,384 |
|
|
|
100 |
% |
|
$ |
167,853 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NYMAGIC Net Premiums |
|
|
|
Earned |
|
Year ended December 31, |
|
By Segment |
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(Dollars in thousands) |
|
Ocean Marine |
|
$ |
51,682 |
|
|
|
33 |
% |
|
$ |
64,713 |
|
|
|
39 |
% |
|
$ |
71,637 |
|
|
|
43 |
% |
Inland Marine/Fire |
|
|
5,733 |
|
|
|
4 |
% |
|
|
5,710 |
|
|
|
3 |
% |
|
|
6,978 |
|
|
|
4 |
% |
Other Liability |
|
|
99,624 |
|
|
|
63 |
% |
|
|
96,428 |
|
|
|
58 |
% |
|
|
87,373 |
|
|
|
53 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
157,039 |
|
|
|
100 |
% |
|
|
166,851 |
|
|
|
100 |
% |
|
|
165,988 |
|
|
|
100 |
% |
Run off lines (Aircraft) |
|
|
(68 |
) |
|
|
|
|
|
|
222 |
|
|
|
|
|
|
|
108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
156,971 |
|
|
|
100 |
% |
|
$ |
167,073 |
|
|
|
100 |
% |
|
$ |
166,096 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unlike many types of commercial insurance, ocean marine and inland marine premium
rates and coverage terms are not strictly regulated by governmental authorities. In
addition, much of the Companys property, casualty and professional liability writings
are written on a surplus lines basis or in the New York Free Trade Zone. With respect to
these lines, the Company is able to adjust premium rates and coverage terms quickly in
response to competition, varying degrees of risk and other factors. In addition, the
Company, by virtue of its underwriting flexibility, is able to emphasize specific lines
of business in response to advantageous premium rates and its anticipation of positive
underwriting results. However, the insurance industry is highly competitive and the
companies against which the Company competes may seek to limit any market premium rate.
The property and casualty industry historically has been highly cyclical. Rates for
property and casualty insurance are influenced primarily by factors that are outside of
our control, including competition and the amount of available capital and surplus in the
industry. For example, the substantial losses in the insurance industry arising from the
events of September 11, 2001 caused rates in the insurance industry to rise. However, new
capital has since flowed into the insurance industry. To the extent that more capital is
available, there may be downward pressure on premium rates as a result of increased
supply. These factors affecting rates for the industry in general impact the rates we are
able to charge. Any significant decrease in the rates for property and casualty insurance
could reduce our net income. While rates impact our net income, there is not necessarily
a direct correlation between the level of rate increases or decreases and net income
because other factors, such as the amount of catastrophe losses and the amount of
expenses, also affect net income.
Prevailing policy terms and conditions in the property and casualty insurance market are
also highly cyclical. Changes in coverage terms unfavorable to insurers, which tend to be
correlated with declining rates, could further reduce our net income. Even as rates rise,
the average percentage rate increases can fluctuate greatly and be difficult to predict.
The Companys general and administrative expenses consist primarily of compensation
expense, employee benefits, professional fees and rental expense for office facilities.
The Companys policy acquisition costs include brokerage commissions and premium taxes
both of which are primarily based on a percentage of premiums written. Acquisition costs
have generally changed in proportion to changes in premium volume. Losses and loss
adjustment expenses incurred in connection with insurance claims in any particular year
depend upon a variety of factors including the rate of inflation, accident or claim
frequency, the occurrence of natural catastrophes and the number of policies written.
The Company estimates reserves each year based upon, and in conformity with, the factors
discussed under Business-Reserves. Changes in estimates of reserves are reflected in
operating results in the year in which the change occurs.
- 40 -
Year Ended December 31, 2009 as Compared to Year Ended December 31, 2008
The Company reported net income for the year ended December 31, 2009 of $45.5 million, or
$5.26 per diluted share, as compared to a net loss of $(104.3) million, or $(12.23) per
diluted share, for the year ended December 31, 2008. The increase in results of
operations for the year ended December 31, 2009 when compared to the same period in 2008
was primarily attributable to stronger investment results from trading activities and
limited partnership income, lower other-than-temporary write-downs, a lower combined
ratio derived from lower catastrophe losses and deferred tax valuation allowance
decreases resulting from the utilization of capital loss carryforwards. In 2008, pre-tax
losses arose from other-than-temporary write-downs of $46.0 million resulting
substantially from our RMBS, losses of $42.3 million from the trading portfolio, losses
of $26.3 million from the limited partnership portfolio, hurricane losses from hurricanes
Gustav and Ike of $6.6 million, deferred tax valuation allowance increase of
$17.6 million for capital loss carryforwards and $12.4 million in reevaluations of the
provision for reinsurance receivable balances.
Total revenues for the year ended December 31, 2009 were $217.5 million, an increase of
287%, compared with $56.2 million for the year ended December 31, 2008 primarily
reflecting increases in net investment income and net realized investment gains.
Net realized investment gains, after impairment, for the year ended December 31, 2009
were $15.3 million compared with net realized investment losses, after impairment, of
$47.7 million for 2008. Net realized investment gains in 2009 primarily reflect gains
from the sales of municipal bonds and U.S. Treasury securities. The realized investment
losses in 2008 primarily relate to write-downs in the Companys investments in RMBS.
Shareholders equity increased to $216.0 million as of December 31, 2009 from
$164.1 million as of December 31, 2008. The increase was primarily attributable to net
income for the period and increases in unrealized appreciation of fixed maturities held
for sale.
Accumulated other comprehensive income (loss) included in shareholders equity as of
December 31, 2009 decreased by $(20.1) million to $(23.0) million from $(2.9) million as
of December 31, 2008. This includes $(26.1) million attributable to the reclassification
from retained earnings to accumulated other comprehensive income (loss) of non-credit
investment impairment losses previously recognized in net income on the Companys RMBS
holdings as a result of the adoption of ASC 320 on April 1, 2009. The adoption of ASC 320
had no impact on total shareholders equity. Gross premiums written of $213.6 million and
net premiums written of $162.6 million each decreased by 2% for the year ended
December 31, 2009 when compared to the same period of 2008. Net premiums earned decreased
by 6% for the year ended December 31, 2009 when compared to the same period of 2008.
Premiums for each segment are discussed below:
An analysis of gross premiums written for the ocean marine segment is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
Change |
|
|
|
(Dollars in thousands) |
|
Marine liability |
|
$ |
41,005 |
|
|
$ |
41,421 |
|
|
|
(1 |
%) |
Energy |
|
|
12,249 |
|
|
|
11,396 |
|
|
|
8 |
% |
Hull |
|
|
6,773 |
|
|
|
7,224 |
|
|
|
(6 |
%) |
Cargo |
|
|
5,705 |
|
|
|
15,387 |
|
|
|
(63 |
%) |
War |
|
|
4,221 |
|
|
|
5,130 |
|
|
|
(18 |
%) |
Other marine |
|
|
3,316 |
|
|
|
2,193 |
|
|
|
51 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
73,269 |
|
|
$ |
82,751 |
|
|
|
(11 |
%) |
|
|
|
|
|
|
|
|
|
|
Ocean marine gross premiums written in 2009 decreased by 11%, primarily reflecting
decreases in volume in the cargo and hull classes. There was a decrease in 2009 of
$8.6 million from 2008 resulting from the change in gross cargo and war premiums arising
from one of the Companys program management agreements, which was terminated at the end
of 2007. Decreased
production occurred in most of the other marine classes largely as a result of
competitive markets and declining rates. Increases were recorded in the energy class
largely due to firmer rates.
Ocean marine net premiums written and net premiums earned for the year ended December 31,
2009 decreased by 16% and 20%, respectively, when compared to 2008. Net premiums written
and net premiums earned in 2009 largely reflected the decline in gross cargo premiums
written and mildly lower premium rates over the past year. There were no reinsurance
reinstatement costs arising from catastrophe losses in 2009. This compared to reinsurance
reinstatement costs of $1.6 million resulting from Hurricane Ike in 2008.
- 41 -
Effective January 1, 2009, the Company maintained its $5 million per risk net loss
retention in the ocean marine line that was in existence during 2008. In addition, the
Companys net retention could be as low as $1 million for certain classes within ocean
marine. The 80% quota share reinsurance protection for energy business, which commenced
in 2006, also remains in effect for 2009 and the net retention from energy business is
subject to inclusion within the ocean marine reinsurance program.
An analysis of gross premiums written for the inland marine/fire segment is presented
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
Change |
|
|
|
(Dollars in thousands) |
|
Fire and inland marine |
|
$ |
17,939 |
|
|
$ |
14,706 |
|
|
|
22 |
% |
Surety |
|
|
2,367 |
|
|
|
1,422 |
|
|
|
66 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
20,306 |
|
|
$ |
16,128 |
|
|
|
26 |
% |
|
|
|
|
|
|
|
|
|
|
Inland marine/fire gross premiums written and net premiums written increased by 26%
and 55% for the year ended December 31, 2009 when compared to the same period of 2008.
Gross premiums written in 2009 reflected increases in production largely relating to
property risks written on a nationwide basis. Increases in production relating to surety
risks largely occurred as a result of an additional agent appointment. Gross premiums
written reflected mildly lower market rates when compared to the prior year. The increase
in net premiums written in 2009 resulted from a change in the mix of gross premiums which
resulted in lower premium cessions to reinsurers. Surety premiums are written net of
reinsurance. Net premiums earned was flat in 2009 when compared to 2008 reflecting
declines in premium production from the prior year, which was offset mostly by current
year increases in production largely relating to property risks written on a nationwide
basis.
An analysis of gross premiums written for the other liability segment is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
Change |
|
|
|
(Dollars in thousands) |
|
Automobile liability |
|
$ |
7,627 |
|
|
$ |
7,312 |
|
|
|
4 |
% |
Professional liability |
|
|
52,767 |
|
|
|
50,443 |
|
|
|
5 |
% |
General casualty |
|
|
26,161 |
|
|
|
24,585 |
|
|
|
6 |
% |
Excess Workers Compensation |
|
|
33,358 |
|
|
|
36,038 |
|
|
|
(7 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
119,913 |
|
|
$ |
118,378 |
|
|
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
Other liability gross premiums written increased by 1% for the year ended
December 31, 2009 when compared to 2008. Net premiums written and net premiums earned for
the year ended December 31, 2009 rose by 4% and 3%, respectively, when compared to 2008.
The increase in premiums is primarily due to premiums written from MMO Agencies, which
was formed in 2008 to write premiums through a network of general agents with binding
authority subject to underwriting criteria established and monitored by the Company, and
an increase in production of professional liability writings. Substantially offsetting
this increase were declines in premiums from excess workers compensation and
contractors liability that resulted from lower production largely as a consequence of
reduced construction and commercial activities.
Professional liability writings increased by 5% in 2009 when compared to 2008 primarily
due to production increases that were partially offset by a softening of premium rates.
General casualty premiums from the recently formed MMO Agencies contributed approximately
$12.1 million in gross premiums written during 2009. This compares to a contribution of
$2.7 million in 2008 from MMO agencies.
The Company writes excess workers compensation insurance on behalf of certain
self-insured workers compensation trusts. Gross and net premiums written in the excess
workers compensation class decreased to $33.4 million and $29.5 million,
respectively, in 2009 from $36.0 million and $31.9 million, respectively, in the same
period of 2008. The decrease in gross and net premiums in 2009 largely reflected rate
reductions and reduced commercial activities.
Aircraft premiums were nominal in 2009 and 2008 as a result of the Company having ceased
writing new commercial aircraft policies subsequent to March 31, 2002. In 2009, the
Company entered into an agreement with an agent to write general aviation insurance.
There were no significant amounts written during the year.
- 42 -
Net losses and loss adjustment expenses incurred as a percentage of net premiums earned
(the loss ratio) were 48.1% for the year ended December 31, 2009 as compared to 65.8% for
2008. The lower loss ratio in 2009 was partly attributable to lower current accident year
loss ratios in the ocean marine and other liability lines of business and partly
attributable to larger amounts of favorable loss reserve development. The ocean marine
loss ratio benefited in part from lower catastrophe losses reported in 2009 as well as
the non-renewal of certain unprofitable hull business. The lower other liability loss
ratio was due in part to lower loss estimates used for contractors liability business.
The inland marine/fire segment loss ratio was lower in the current year due to favorable
loss development. The larger loss ratios in 2008 were primarily attributable to losses
incurred from hurricanes Gustav and Ike amounting to $6.6 million (including $1.6 million
of reinstatement costs), which added 4.0% to the 2008 loss ratio and the resolution of a
dispute in 2008 over reinsurance receivables with a reinsurer including a reevaluation of
the provision for doubtful reinsurance receivables that resulted in additional losses of
$12.4 million and added 7.4% to the 2008 loss ratio.
The Company reported approximately $20.0 million of favorable loss reserve development
recorded in 2009. The Company reported adverse loss reserve development of $2.7 million
in 2008.
Each of the Companys major business segments contributed to the approximately $20.0
million decrease in 2009 in estimated losses and loss adjustment expenses for claims
occurring in prior years. The ocean marine line of business recorded the largest
favorable development primarily occurring in the 2004 through 2006 accident years largely
as a result of lower than expected reported loss and paid loss trends. This was partially
offset by adverse development in the 2007 accident year due to the emergence of a large
shock loss. The other liability line of business reported favorable development in the
2005 through 2008 accident years partly due to revisions in loss estimates on
contractors business and partly due to favorable reporting trends in the excess workers
compensation class in the 2007 accident year and the professional liability class in the
2006 and 2007 accident years. The favorable development in the other liability line was
partially offset by shock losses occurring in the professional liability class in the
2008 accident year. The aviation class reported $2.0 million in favorable loss
development relating to accident years prior to 2002 largely due to recoveries. The
inland marine/fire line also reported favorable development largely attributable to the
fire class.
The adverse loss reserve development of $2.7 million in 2008 resulted primarily from the
resolution of the dispute over reinsurance receivables with a reinsurer and the
reevaluation of the reserve for doubtful reinsurance receivables that contributed
$12.4 million of adverse development in 2008 for both the other liability and ocean
marine lines of business for accident years prior to 1999. Further contributing to
adverse loss development in 2008 was $3.2 million from asbestos and environmental losses
in the other liability line for accident years prior to 1999. Partially offsetting this
adverse development in the other liability line was favorable development in the
contractors class as a result of lower than anticipated incurred loss development of
approximately $3.6 million in the 2004 through 2006 accident years. The ocean marine line
also reported favorable development of approximately $14.0 million in the 2004 through
2006 accident years largely as a result of lower reported and paid loss trends. The
inland marine/fire segment also reported favorable loss development partially due to
larger than expected reinsurance recoveries in accident years 2005 through 2006.
Contributing to the overall adverse development in 2008 was approximately $3.5 million in
adverse development from the runoff aviation class relating to accident years prior to
2002.
Policy acquisition costs as a percentage of net premiums earned (the acquisition cost
ratio) for the years ended December 31, 2009 and 2008 were 23.5% and 23.1%, respectively.
A change in premium mix in the other liability segment whose underlying classes of
business have higher acquisition cost ratios than other lines of business was partially
offset by a lower ocean marine ratio which benefited from lower reinstatement premium
charges in 2009 when compared to 2008.
General and administrative expenses increased by 10% for the year ended December 31, 2009
when compared to 2008. Larger expenses were incurred in 2009 to service the expansion of
the Companys business operations, including increased staffing for MMO Agencies as well
as computer system implementation expenditures.
The Companys combined ratio (the loss ratio, the acquisition cost ratio and general and
administrative expenses divided by net premiums earned) was 98.7% for the year ended
December 31, 2009 as compared to 112.1% for the same period in 2008.
Net investment income for the year ended December 31, 2009 was $41.7 million as compared
to net investment loss of $(63.5) million in 2008. Net investment income in 2009
reflected increases in income from trading, limited partnerships and commercial loan
portfolios. Trading portfolio income of $4.5 million resulted primarily from interest
income and the fair value changes in municipal obligations. The net investment loss in
2008 primarily reflected trading portfolio losses and lower income from limited
partnerships. Trading portfolio losses of $(42.3) million were recorded in 2008 and
resulted primarily from the fair value changes in the underlying securities. This
included municipal obligations of $(3.0) million, preferred stocks of $(31.5)
million, economic hedged positions of $(1.1) million and exchange traded funds of $(6.7)
million. Income from commercial loans of $1.9 million resulted primarily from the
tightening of credit spreads in the market for these types of securities during 2009.
This compared to a loss of $(1.5) million from commercial loans in 2008. Limited
partnership income in 2009 increased from 2008 as a result of higher returns amounting to
19.4% as compared to (17.6)% in 2008. Hedge fund returns in fixed income strategies were
mainly derived from G-7 government arbitrage, which reported higher returns in 2009 than
2008. Included in limited partnership income was $9.8 million and $1.2 million for 2009
and 2008, respectively, from our investment in Altrion. The Company redeemed its
remaining interest in Altrion effective December 31, 2009, resulting in the Company
receiving approximately a $35 million direct investment in the Tiptree Financial, $7.3
million in cash, $1.1 million in commercial loans and $118,000 in private equity.
As of December 31, 2009 the majority of Tiptree Financials assets were invested in
cash, corporate credits, the municipal funding sector and commercial real estate.
- 43 -
The increase in investment income in 2009 from fixed maturities available for sale
largely resulted from higher yields on the portfolio. The increase in investment income
in 2009 from fixed maturities held to maturity largely resulted from maintaining the
portfolio for an entire year in 2009 when compared to three months in 2008. Short-term
investment income declined in 2009 when compared to 2008 largely as a result of lower
yields.
Investment (loss) income, net of investment fees, from each major category of investments
is as follows:
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
(In millions) |
|
Fixed maturities held to maturity |
|
$ |
1.9 |
|
|
$ |
0.8 |
|
Fixed maturities available for sale |
|
|
8.7 |
|
|
|
7.4 |
|
Trading securities |
|
|
4.5 |
|
|
|
(42.3 |
) |
Commercial loans |
|
|
1.9 |
|
|
|
(1.5 |
) |
Equity in (loss) earnings of limited partnerships |
|
|
26.7 |
|
|
|
(26.8 |
) |
Short-term investments |
|
|
0.3 |
|
|
|
3.0 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment (loss) income |
|
|
44.0 |
|
|
|
(59.4 |
) |
Investment expenses |
|
|
(2.3 |
) |
|
|
(4.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment (loss) income |
|
$ |
41.7 |
|
|
$ |
(63.5 |
) |
|
|
|
|
|
|
|
As of December 31, 2009 and 2008, investments in limited partnerships amounted to
approximately $151.9 million and $122.9 million, respectively. The equity method of
accounting is used to account for the Companys limited partnership hedge fund
investments. Under the equity method, the Company records all changes in the underlying
value of the limited partnership hedge funds to results of operations. Net investment
(loss) income for 2009 and 2008 reflected approximately $26.7 million and
$(26.8) million, respectively, derived from limited partnership hedge fund investments.
As of December 31, 2009 and 2008 investments included in the trading and commercial loan
portfolios amounted to approximately $5.0 million and $31.9 million, respectively. Net
investment (loss) income for 2009 and 2008 reflected approximately $6.4 million and
$(43.8) million, respectively, derived from trading and commercial loan portfolio
activities. In 2009, these activities include the trading of commercial loans, municipal
bonds and preferred stocks. In 2008, these activities include the trading of commercial
middle market debt, municipal bonds, preferred stocks and exchange traded funds. The
Companys trading portfolio is marked to market with the change recognized in net
investment income during the current period. Any realized gains or losses resulting from
the sales of trading securities are also recognized in net investment income. The ending
balance in the trading portfolio can vary substantially from period to period due to the
level of trading activity.
The Companys investment income results may be volatile depending upon the level of
limited partnerships, commercial loans and trading portfolio investments held. If the
Company continues to increase its percentage of its investment portfolio in limited
partnership hedge funds, and/or if the fair value of trading and/or commercial loan
investments held varies significantly during different periods, there may also be a
greater volatility associated with the Companys investment income.
Commission and other income increased to $3.6 million for the year ended December 31,
2009 from $0.3 million for the same period in the prior year. The increase was
attributable to the Companys receipt of $3.2 million as beneficiary of a life insurance
policy on a former director in the third quarter of 2009.
Net
realized investment gains after impairments were $15.3 million for the year ended December 31, 2009 as
compared to net realized investment losses after impairments of $(47.7) million for the year ended
December 31, 2008. Net realized investment gains in 2009 primarily reflect gains from the
sales of municipal bonds and U.S. Treasury securities. Net realized investment losses in
2008 resulted from the sale of fixed income investments as well as write-downs from
other-than-temporary (OTTI) declines in the fair value of securities, which amounted to
$46.2 million. The OTTI in 2008 was primarily attributable to the decline in the fair
value of the Companys
RMBS portfolio. The decision to write down such securities as of September 30, 2008 was
based upon the possibility then that we might not hold such securities until their fair
value decline was recovered.
- 44 -
Interest expense was $6.7 million for each of the years ended December 31, 2009 and 2008,
and resulted primarily from the Companys $100 million 6.5% senior notes.
Total income tax expense (benefit) amounted to $10.4 million and $(33.4) million,
respectively, for the years ended December 31, 2009 and 2008, respectively. Total income
tax expense or benefit as a percentage of income or (loss) before taxes was 18.6% and
(24.3%) for the years ended December 31, 2009 and 2008, respectively. The lower
percentages in 2009 were largely attributable to tax benefits of $4.6 million for the
year ended December 31, 2009 as a result of the partial reversal of the deferred tax
valuation allowance previously provided for capital losses. Further contributing to the
lower percentage in 2009 was greater investment income from tax-exempt municipal bonds.
For the year ended December 30, 2008, the Company reported deferred tax valuation
allowance increases of $18.5 million primarily for capital loss carryforwards.
Deferred income taxes at December 31, 2009 decreased to $29.3 million from $35.5 million
at December 31, 2008, primarily due to reductions in deferred tax benefits arising from
the increase in the fair value of investments. Management believes the Companys total
deferred tax assets, net of the recorded valuation allowance account, as of December 31,
2009 will more-likely-than-not be fully realized.
Reserves for unearned premiums increased to $89.5 million as of December 31, 2009 from
$83.4 million as of December 31, 2008 primarily as a result of the increase in fourth
quarter 2009 over fourth quarter 2008 gross premiums which was largely attributable to
writings from MMO agencies.
Reinsurance receivables on unpaid balances, net at December 31, 2009, decreased to
$205.1 million from $213.9 million at December 31, 2008, and reinsurance receivables on
paid balances, net at December 31, 2009, decreased to $13.1 million from $28.4 million at
December 31, 2008 largely as a result of the collection of reinsurance balances on gross
losses paid on prior year hurricane claims.
Ceded reinsurance payable decreased to $13.6 million at December 31, 2009 from
$23.8 million at December 31, 2008 mainly as a result of the payment of reinsurance
reinstatement premiums on hurricane losses and the timing of payments of certain
reinsurance balances.
Other liabilities at December 31, 2009 increased to $34.9 million from $25.8 million at
December 31, 2008 primarily due to the amounts owed to the MMO insurance pools.
Other assets decreased to $4.1 million at December 31, 2009 from $23.9 million at
December 31, 2008, primarily due to cash received on federal income taxes recoverable and
the receipt as beneficiary of proceeds of a life insurance policy on a former director.
Property, improvements and equipments, net increased to $14.6 million at December 31,
2009 from $10.0 million at December 31, 2008, primarily due to as a result of capitalized
expenditures relating to information technology infrastructure initiatives.
Year Ended December 31, 2008 as Compared to Year Ended December 31, 2007
The Company reported a net loss for the year ended December 31, 2008 of $(104.3) million,
or $(12.23) per diluted share, as compared to net income of $13.4 million or $1.46 per
diluted share, for the year ended December 31, 2007. The decrease in results of
operations for the year ended December 31, 2008 when compared to the same period in 2007
was primarily attributable to pre-tax losses from other-than-temporary write-downs of
$46.0 million resulting substantially from our RMBS holdings, losses of $42.3 million
from the trading portfolio, losses of $26.3 million from the limited partnership
portfolio, hurricane losses from hurricanes Gustav and Ike of $6.6 million, deferred tax
valuation allowance increase of $17.6 million for capital loss carryforwards and
$12.4 million in reevaluations of the provision for reinsurance receivable balances.
Total revenues for the year ended December 31, 2008 were $56.2 million, down 70%,
compared with $190.4 million for the year ended December 31, 2007 primarily reflecting
decreases in net investment income and increases in realized investment losses.
Net realized investment losses, after impairment, for the year ended December 31, 2008
were $47.7 million compared with $6.9 million for 2007. The realized investment losses in
2008 primarily relate to write-downs in the Companys investments RMBS.
Shareholders equity decreased to $164.1 million as of December 31, 2008 from
$279.4 million as of December 31, 2007. The decrease was primarily attributable to the
net loss for the period.
Gross premiums written of $217.3 million and net premiums written of $165.4 million
decreased by 5% and 1%, respectively for the year ended December 31, 2008 when compared
to the same period of 2007. However, net premiums earned increased by 1% for the year
ended December 31, 2008 over the same period of 2007.
- 45 -
Premiums for each segment are discussed below:
An analysis of gross premiums written for the ocean marine segment is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
|
(Dollars in thousands) |
|
Marine liability |
|
$ |
41,421 |
|
|
$ |
41,826 |
|
|
|
(1 |
%) |
Energy |
|
|
11,396 |
|
|
|
12,959 |
|
|
|
(12 |
%) |
Hull |
|
|
7,224 |
|
|
|
9,154 |
|
|
|
(21 |
%) |
Cargo |
|
|
15,387 |
|
|
|
25,686 |
|
|
|
(40 |
%) |
War |
|
|
5,130 |
|
|
|
6,515 |
|
|
|
(21 |
%) |
Other marine |
|
|
2,193 |
|
|
|
2,549 |
|
|
|
(13 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
82,751 |
|
|
$ |
98,689 |
|
|
|
(16 |
%) |
|
|
|
|
|
|
|
|
|
|
Ocean marine gross premiums written in 2008 decreased by 16% when compared to 2007,
primarily reflecting decreases in volume in the cargo and hull classes. The decrease in
cargo production resulted primarily from the termination of a relationship with Southern
Marine and Aviation, one of the Companys agents writing cargo business. The decrease in
hull premiums reflected the non-renewal of certain unprofitable accounts resulting from a
continued effort to improve profitability in this class. Rates in the various classes of
marine business declined slightly when compared to the prior years comparable period.
Ocean marine net premiums written and net premiums earned for the year ended December 31,
2008 decreased by 13% and 10%, respectively, when compared to 2007. Larger net premium
retention levels in 2008 resulted from lower excess of loss reinsurance costs and lower
reinsurance reinstatement costs. Losses from hurricane Ike resulted in incurring
reinsurance reinstatement costs of $1.6 million in 2008 as compared with $2.3 million of
reinsurance reinstatement costs arising from a cargo loss in 2007. Net earned premiums in
2008 largely reflected the decline in gross premiums written, which was partially offset
by lower reinsurance costs in 2008 when compared to 2007.
Effective January 1, 2009, the Company maintained its $5 million per risk net loss
retention in the ocean marine line that was in existence during 2008. In addition, the
Companys net retention could be as low as $1 million for certain classes within ocean
marine. The 80% quota share reinsurance protection for energy business, which commenced
in 2006, also remains in effect for 2009 and the net retention from energy business is
subject to inclusion within the ocean marine reinsurance program.
An analysis of gross premiums written for the inland marine/fire segment is presented
below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
|
(Dollars in thousands) |
|
Fire and inland
marine |
|
$ |
14,706 |
|
|
$ |
16,581 |
|
|
|
(11 |
%) |
Surety |
|
|
1,422 |
|
|
|
2,044 |
|
|
|
(30 |
%) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
16,128 |
|
|
$ |
18,625 |
|
|
|
(13 |
%) |
|
|
|
|
|
|
|
|
|
|
Inland marine/fire gross premiums written, net premiums written and net premiums
earned for the year ended December 31, 2008 decreased by 13%, 35% and 18%, respectively,
when compared to 2007. Gross premiums written in 2008 reflect declines in production in
certain property risks and surety business and also reflect mildly lower market rates
when compared to the prior year. Net premiums written reflected additional reinsurance
costs as a result of a change in mix of gross property writings as well as lower surety
writings, which are written on a net basis without reinsurance costs. Net premiums earned
reflected the decreases in property earned premiums, which were partially offset by the
earnings in 2008 of larger surety business production in 2007.
- 46 -
An analysis of gross premiums written for the other liability segment is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
Change |
|
|
|
(Dollars in thousands) |
|
Automobile liability |
|
$ |
7,312 |
|
|
$ |
8,349 |
|
|
|
(12 |
%) |
Professional liability |
|
|
50,443 |
|
|
|
49,491 |
|
|
|
2 |
% |
General casualty |
|
|
24,585 |
|
|
|
20,652 |
|
|
|
19 |
% |
Excess Workers
Compensation |
|
|
36,038 |
|
|
|
32,494 |
|
|
|
11 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
118,378 |
|
|
$ |
110,986 |
|
|
|
7 |
% |
|
|
|
|
|
|
|
|
|
|
Other liability gross premiums written increased by 7% for the year ended
December 31, 2008 when compared to 2007. Net premiums written and net premiums earned for
the year ended December 31, 2008 each rose by 10%, respectively, when compared to 2007.
The increase in premiums is primarily due to an increase in production of excess workers
compensation, professional liability and contractors liability writings.
Professional liability writings increased 2% in 2008 when compared to 2007 primarily due
to production increases that were partially offset by a softening of premium rates.
General liability premiums from the recently formed MMO Agencies contributed
approximately $2.7 million in gross premiums written during 2008. Volume increases from
the contractors liability class were also achieved in the first nine months of 2008 when
compared to the same period in 2007 and contributed to the overall growth in general
casualty premiums in 2008.
The Company writes excess workers compensation insurance on behalf of certain
self-insured workers compensation trusts. Gross and net premiums written in the excess
workers compensation class increased to $36.0 million and $31.9 million, respectively,
in 2008 from $32.5 million and $26.4 million, respectively, in the same period of 2007.
The increase in gross premiums in 2008 largely reflected production increases. Increases
in net premiums written and net premiums earned in 2008 reflected the increased gross
premium production. Net premiums written in 2007 reflected larger reinsurance cessions
primarily as a result of quota share reinsurance, which was not renewed at the end of
2006.
Aircraft premiums were nominal in 2008 and 2007 as a result of the Company having ceased
writing new aircraft policies subsequent to March 31, 2002.
Net losses and loss adjustment expenses incurred as a percentage of net premiums earned
(the loss ratio) were 65.8% for the year ended December 31, 2008 as compared to 54.1% for
2007. The larger loss ratio in 2008 was primarily attributable to losses incurred from
hurricanes Gustav and Ike amounting to $6.6 million (including $1.6 million of
reinstatement costs), which added 4.0% to the 2008 loss ratio and the resolution of a
dispute in 2008 over reinsurance receivables with a reinsurer including a reevaluation of
the provision for doubtful reinsurance receivables that resulted in additional losses of
$12.4 million and added 7.4% to the 2008 loss ratio. The decision to resolve the dispute
regarding non-core reinsurance receivables and adjust our allowance for other potentially
uncollectible non-core reinsurance receivables was related to reinsurance cessions made
under a number of reinsurance contracts written from 1978 to 1986. The Companys loss
ratio in 2007 benefited from the novation of substantially all of the excess workers
compensation policies written in conjunction with a prior producer. The novation reduced
the overall loss ratio by 3.7% in 2007. Also contributing to a higher loss ratio in the
other liability segment in 2008 was a change in premium mix in the other liability class.
Excess workers compensation premiums have a higher loss ratio than other classes of
other liability business and resulted in an overall increase in the other liability loss
ratio. The inland marine/fire loss ratio decreased in 2008, reflecting lower severity
losses and lower frequency of losses in the fire and the surety classes.
The Company increased net loss reserves by approximately $2.7 million in 2008 from the
2007 year-end net unpaid loss reserve amount of $306.4 million as a result of adverse
loss reserve development. This is compared to $13.8 million of favorable loss reserve
development recorded in 2007.
The adverse loss reserve development of $2.7 million in 2008 resulted primarily from the
resolution of the dispute over reinsurance receivables with a reinsurer and the
reevaluation of the reserve for doubtful reinsurance receivables that contributed
$12.4 million of adverse development in 2008 for both the other liability and ocean
marine lines of business for accident years prior to 1999. Further contributing to
adverse loss development was $3.2 million from asbestos and environmental losses in the
other liability line for accident years prior to 1999. Partially offsetting this adverse
development in the other liability line was favorable development in the contractors
class as a result of lower than anticipated incurred loss development of approximately
$3.6 million in the 2004 through 2006 accident years. The ocean marine line also reported
favorable development of approximately $14.0 million in the 2004 through 2006 accident
years largely as a result of lower reported and paid loss trends. The inland marine/fire
segment also reported favorable loss development partially due to larger than expected
reinsurance recoveries in accident years 2005 through 2006. Contributing to the overall
adverse development in 2008 was approximately $3.5 million in adverse development from
the runoff aviation class relating to accident years prior to 2002.
- 47 -
The Company reported favorable development of prior year loss reserves of $13.8 million
in 2007. This favorable loss reserve development included $6.2 million recorded on the
novation of excess workers compensation policies in the other liability line for
accident years 2004 through 2006. Partially offsetting this benefit in the other
liability line was adverse development of $3.0 million in the professional liability
class as a result of two large claims in the 2006 accident year. The ocean marine line
reported favorable development in the 2003 through 2005 accident years largely as a
result of favorable loss trends. The inland marine/fire segment also reported favorable
loss development partially due to lower emergence of severity losses. The favorable
development in 2007 was partially offset by approximately $3.3 million in adverse
development from the runoff aviation class.
Policy acquisition costs as a percentage of net premiums earned (the acquisition cost
ratio) for the years ended December 31, 2008 and 2007 were 23.1% and 22.7%, respectively.
The slightly higher 2008 ratio is due in part to a change in premium mix in the other
liability segment whose underlying classes of business have higher acquisition cost
ratios than other lines of business. In addition, slight increases occurred in the other
liability acquisition cost ratios in 2008 when compared to 2007 as the prior years ratio
was lower as a result of override commissions received from the quota share reinsurance
agreement in the excess workers compensation class. Partially offsetting the overall
increase was a decrease in the ocean marine acquisition cost ratio primarily resulting
from lower brokerage costs as a result of the termination of a relationship with one of
the Companys agents writing cargo business in 2007.
General and administrative expenses increased by 7% for the year ended December 31, 2008
when compared to 2007. Larger expenses were incurred in 2008 to service the growth in the
Companys business operations, including increased staffing, consulting costs and
additional office space.
Net investment loss for the year ended December 31, 2008 was $(63.5) million as compared
to net investment income of $35.5 million in 2007. The decrease in 2008 primarily
reflected trading portfolio losses and lower income from limited partnerships. Trading
portfolio losses of $(42.3) million were recorded in 2008 and resulted primarily from the
fair value changes in the underlying securities. This included municipal obligations of
$(3.0) million, preferred stocks of $(31.5) million, economic hedged positions of $(1.1)
million and exchange traded funds of $(6.7) million. Limited partnership income in 2008,
excluding income from Altrion, decreased from the prior years comparable period as a
result of lower returns amounting to (24.6)% as compared to 3.4% for the same period in
2007. Most of our hedge fund investments reported lower returns in 2008 than in 2007.
Income from Altrion was $1.2 million and $7.9 million for the year ended December 31,
2008 and 2007, respectively. Income from Altrion was greater in 2007 as a result of
interest income received from the warehousing of CDO and CLO debt securities. There were
no such activities in 2008. The reduction in investment income from fixed maturities
available for sale and short-term investments resulted from maintaining lower average
balances during 2008 in such investments.
Investment (loss) income, net of investment fees, from each major category of investments
is as follows:
|
|
|
|
|
|
|
|
|
|
|
Years ended December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
(In millions) |
|
Fixed maturities held to maturity |
|
$ |
0.8 |
|
|
$ |
|
|
Fixed maturities available for sale |
|
|
7.4 |
|
|
|
13.9 |
|
Trading securities |
|
|
(42.3 |
) |
|
|
2.3 |
|
Commercial loans |
|
|
(1.5 |
) |
|
|
|
|
Equity in (loss) earnings of
limited partnerships |
|
|
(26.8 |
) |
|
|
13.0 |
|
Short-term investments |
|
|
3.0 |
|
|
|
8.7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment (loss) income |
|
|
(59.4 |
) |
|
|
37.9 |
|
Investment expenses |
|
|
(4.1 |
) |
|
|
(2.4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment (loss) income |
|
$ |
(63.5 |
) |
|
$ |
35.5 |
|
|
|
|
|
|
|
|
As of December 31, 2008 and 2007 investments in limited partnerships amounted to
approximately $122.9 million and $188.3 million, respectively. The equity method of
accounting is used to account for the Companys limited partnership hedge fund
investments. Under the equity method, the Company records all changes in the underlying
value of the limited partnership hedge funds to results of operations. Net investment
(loss) income for 2008 and 2007 reflected approximately $(26.8) million and
$13.0 million, respectively, derived from limited partnership hedge fund investments.
- 48 -
As of December 31, 2008 and 2007 investments included in the trading and commercial loan
portfolios amounted to approximately $31.9 million and $144.9 million, respectively. Net
investment (loss) income for 2008 and 2007 reflected approximately $(43.8) million and
$2.3 million, respectively, derived from trading and commercial loan portfolio
activities. These activities include the trading of collateralized debt obligations
(CDOs), collateralized loan obligations (CLOs), commercial middle market debt, municipal
bonds, preferred stocks and exchange traded funds. The Companys trading portfolio is
marked to market with the change recognized in net investment income during the current
period. Any realized gains or losses resulting from the sales of trading securities are
also recognized in net investment income. The ending balance in the trading portfolio can
vary substantially from period to period due to the level of trading activity. There were
no CDO or CLO securities held in the trading portfolio by the Company at December 31,
2008.
The Companys investment income results may be volatile depending upon the level of
limited partnerships, commercial loans and trading portfolio investments held. If the
Company invests a greater percentage of its investment portfolio in limited partnership
hedge funds, and/or if the fair value of trading and/or commercial loan investments held
varies significantly during different periods, there may also be a greater volatility
associated with the Companys investment income. The Company will account for future
purchases of fixed income and equity securities as part of its held to maturity or
available for sale portfolio and not its trading portfolio. This decision to include such
securities in the held to maturity or available for sale portfolio was based upon our
intent to hold and not trade such securities.
Commission and other income (loss) increased to $0.3 million for the year ended
December 31, 2008 from $(4.2) million in 2007. The Companys write-off of $5.3 million
relating to its computer systems in 2007 accounted for most of the change. Commission
income in 2007 reflected a greater profit commission than in 2008 derived from ceded
reinsurance in the ocean marine class of business.
Net realized investment losses were $(47.7) million for the year ended December 31, 2008
as compared to $(6.9) million for the year ended December 31, 2007. These amounts result
from the sale of fixed income investments as well as write-downs from
other-than-temporary declines in the fair value of securities, which amounted to
$46.2 million and $6.7 million for the years ended December 31, 2008 and 2007,
respectively. The write-downs in 2008 and 2007 primarily relate to the Companys
investments in RMBS. The Company has collected all applicable interest and principal
repayments on such securities to date. The Company collected $8.5 million in principal
repayments on these securities in 2008, which resulted in $1.2 million in realized
investment gains as a result of the recapture of previous write-downs of investment
balances. The decision to write down such securities in 2008 was based upon the
likelihood that the securities may not be held until the fair value decline is recovered.
Contributing to managements decision was the uncertainty of the duration of declines in
the residential mortgage-backed market. However, on October 1, 2008, management
reconsidered the classification of these securities as a result of our desire to hold
such securities for their duration. Accordingly, the Company transferred these holdings
to the held to maturity classification using the fair value of these securities on such
date as its adjusted cost basis. The Company has both the intent and the ability to hold
such securities until maturity.
Interest expense was $6.7 million for each of the years ended December 31, 2008 and 2007,
and resulted primarily from the Companys $100 million 6.5% senior notes.
Total income tax (benefit) expense amounted to $(33.4) million and $6.8 million,
respectively, for the year ended December 31, 2008 and 2007. The Companys effective tax
rate for the year ended December 31, 2008 and 2007 was 24.3% and 33.7%, respectively. The
change in the effective tax rate is largely attributable to the deferred tax valuation
allowance increase of $18.5 million resulting in large part from capital loss
carryforwards.
Deferred income taxes at December 31, 2008 increased to $35.5 million from $14.4 million
at December 31, 2007, primarily due to deferred tax benefits provided on declines in the
fair value of investments.
Reserves for unearned premiums decreased to $83.4 million as of December 31, 2008 from
$87.6 million as of December 31, 2007 primarily as a result of the decline in gross
premiums written.
Unpaid losses and loss adjustment expenses decreased to $548.7 million at December 31,
2008 from $556.5 million at December 31, 2007. The decrease was largely the result of the
payments of gross ocean marine losses and asbestos and environmental losses that were
substantially reinsured.
Reinsurance receivables on unpaid balances, net at December 31, 2008, decreased to
$213.9 million from $250.1 million at December 31, 2007, and reinsurance receivables on
paid balances, net at December 31, 2008, decreased to $28.4 million from $38.8 million at
December 31, 2007 largely as a result of the payment of gross ocean marine losses and
asbestos and environmental losses that were substantially reinsured, the collection of
ceded hurricane loss payments, the write off of disputed receivable balances with a
reinsurer and the subsequent reevaluation of reserves for doubtful accounts.
Ceded reinsurance payable decreased to $23.8 million at December 31, 2008 from
$27.1 million at December 31, 2007 mainly as a result of the payment of reinsurance
reinstatement premiums on hurricane losses.
- 49 -
Other assets increased to $23.9 million at December 31, 2008 from $10.2 million at
December 31, 2007, primarily as a result of federal income taxes recoverable.
Property, improvements and equipments, net increased to $10.0 million at December 31,
2008 from $4.8 million at December 31, 2007, primarily as a result of capitalized
expenditures relating to information technology infrastructure initiatives and capital
improvements on leased office space.
Liquidity and Capital Resources
The Company monitors cash and short-term investments in order to have an adequate level
of funds available to satisfy claims and expenses as they become due. As of December 31,
2009, the Companys assets included approximately $75.5 million in cash and short-term
investments. Fixed maturities held to maturity are comprised of $56.6 million in RMBS.
Cash and total investments increased from $547.0 million at December 31, 2008 to
$675.7 million at December 31, 2009, principally as a result of strong cash flows from
operations as well as the appreciation of the Companys investments. Receivables for
securities sold amounted to $4.2 million and $25.4 million as of December 31, 2009 and
2008, respectively. The level of cash and short-term investments of $75.5 million at
December 31, 2009 reflected the Companys high liquidity position.
The primary sources of the Companys liquidity are funds generated from insurance
premiums, investment income and maturing or liquidating investments.
In 2004, the Company issued $100,000,000 in 6.5% senior notes due March 15, 2014 and
received proceeds of $98,763,000 net of underwriting discount, but before other
transaction expenses. The senior notes provide for semi-annual interest payments and are
to be repaid in full on March 15, 2014. On July 1, 2004 the Company completed the
exchange of registered 6.5% senior notes for the unregistered senior notes issued on
March 11, 2004, as required by the registration rights agreement with the purchasers of
the senior notes. The indenture relating to the senior notes provides that the Company
and its restricted subsidiaries may not incur indebtedness unless the total indebtedness
of the Company and its restricted subsidiaries, calculated on a pro forma basis after
such issuance, would not exceed 50% of our total consolidated capitalization (defined as
the aggregate amount of our shareholders equity as shown on our most recent quarterly or
annual consolidated balance sheet plus the aggregate amount of indebtedness of the
Company and its restricted subsidiaries). The indenture also provides that the Company
and its restricted subsidiaries will not pay dividends or make other payments or
distributions on the Companys stock or the stock of any restricted subsidiary (excluding
payments by any restricted subsidiary to the Company), purchase or redeem the Companys
stock or make certain payments on subordinated indebtedness unless, after making any such
payment, the total indebtedness of the Company and its restricted subsidiaries would not
exceed 50% of our total consolidated capitalization (as defined above). In addition, the
indenture contains certain other covenants that restrict our ability and our restricted
subsidiaries ability to, among other things, incur liens on any shares of capital stock
or evidences of indebtedness issued by any of our restricted subsidiaries or issue or
dispose of voting stock of any of our restricted subsidiaries. The Company used part of
the net proceeds from the sale of the senior notes to purchase from certain of its
shareholders in 2005 a total of 1,092,735 shares of common stock at $24.80 per share. The
Company used the remaining net proceeds for working capital and other general corporate
purposes.
Cash flows provided by operating activities were $89.8 million for the year ended
December 31, 2009. This compared to cash flows provided by operating activities of
$57.6 million for the year ended December 31, 2008 and cash flows used in operating
activities of $106.4 million for the year ended December 31, 2007. Cash flows from
operating activities are significantly impacted by changes in the Companys trading and
commercial loan portfolios. Any securities purchased by the Company in its trading and
commercial loan portfolios would be reflected as a use of cash from operating activities
and any securities sold from these portfolios would be reflected as a source of cash from
operating activities. Trading portfolio activities include the purchase and sale of
preferred stocks, municipal bonds, CDO/CLO securities and exchange traded funds.
Commercial loan activities include the purchase and sale of middle market loans made to
commercial companies. Trading and commercial loan portfolio activities of $26.9 million
and $84.2 million favorably affected cash flows for the years ended December 31, 2009 and
December 31, 2008, respectively, while trading and commercial loan portfolio activities
adversely affected cash flows for the year ended December 31, 2007 by $116.2 million. As
the Companys trading and commercial loan portfolio balances may fluctuate significantly
from period to period, cash flows from operating activities may also be significantly
impacted by such trading activities.
For the years ended December 31, 2009 and 2007, cash flows from operations excluding
adjustments for trading and commercial loan activities were favorable and for the year
ended December 31, 2008, cash flows from operating activities excluding adjustments for
trading and commercial loan activities were unfavorable. Cash flows were favorably
impacted in 2009 by collections of reinsurance recoverables on hurricane losses, net
investment income and lower net paid losses; were adversely impacted in 2008, principally
as a result of lower investment income; and, were favorably impacted in 2007, principally
as a result of collections of reinsurance recoverables on hurricane losses and lower net
paid losses, which were partially offset by payments of quota share reinsurance premiums.
- 50 -
Cash flows used in investing activities were $99.3 million for the year ended
December 31, 2009 and resulted primarily from net purchases of fixed maturities and
partially offset by the net sale of short-term investments. Cash flows used in investing
activities were $176.9 million for the year ended December 31, 2008 and resulted
primarily from net purchases of fixed maturities and short-term investments. Cash flows
provided by investing activities were $295.7 million for the year ended December 31, 2007
and resulted primarily from net sales of fixed maturities and short-term
investments.
Cash flows provided by financing activities were $0.5 million for the year ended
December 31, 2009. Cash flows used in financing activities were $10.0 million and
$2.8 million for the years ended December 31, 2008 and 2007, respectively. The repurchase
of treasury stock accounted for most of the use of cash flows in each of 2008 and 2007.
Under the Common Stock Repurchase Plan, as amended in 2008, the Company may purchase up
to $75 million of the Companys issued and outstanding shares of common stock on the open
market. The Company paid $0, $7.7 million and $7.1 million to repurchase its common stock
during the years ended December 31, 2009, 2008 and 2007, respectively.
On March 22, 2006, the Company entered into an agreement (the Letter Agreement) to
amend the Option Certificate granted under a Securities Purchase Agreement, dated
January 31, 2003, by and between the Company and Conning Capital Partners VI, L.P.
(CCPVI). The Amended and Restated Option Certificate dated as of March 22, 2006 by and
between the Company and CCPVI (Amended and Restated
Option) decreased the number of shares of Company common stock that may be issued upon the exercise of the Amended and
Restated Option from 400,000 to 300,000 and extended the term from January 31, 2008 to
December 31, 2010.
In 2002, the Company signed a sublease at 919 Third Avenue, New York, NY 10022 for
approximately 28,000 square feet for its principal offices in New York. The sublease
commenced on March 1, 2003 and expires on July 30, 2016. In April 2005, the Company
signed an amendment to the sublease, for approximately 10,000 square feet of additional
space. The sublease expires on July 30, 2016. The minimum monthly rental payments of
$144,551 under the amended sublease include the rent paid by the Company for the original
sublease. Such payments began in 2005 and end in 2016. They will amount to $20.8 million
of total rental payments, collectively, over the term of the amended sublease.
In May 2007, the Company signed a lease for additional office space for its
headquarters located on the 11th floor of 919 Third Avenue in New York City. The lease
term provides for lease payments on two sections (Space A and Space B) of the 11th floor.
The lease term for Space A commenced on September 1, 2007 and ends on July 30, 2016.
Minimum monthly payments of $85,818 commenced on January 1, 2008 and will increase to
$91,355 on the commencement of the sixth lease year. Total minimum lease rental payments
over the term for Space A will amount to $9.4 million. The lease term for Space B
commenced on April 30, 2008, and will end on July 30, 2016. Minimum monthly payments of
$111,904 will increase to $119,123 on the commencement of the sixth lease year following
the initial payment under the Space B lease. Total minimum lease rental payments over the
term for Space B will be at least equal to $11.7 million. In connection with the
11th floor lease, the landlord will reimburse the Company up to $765,375 for
qualified renovations.
Effective August 1, 2008, the Company has subleased Space A for a term of 29 months,
with an option to extend for an additional 19 months. The monthly rental income
recognized under the sublease agreement is approximately $82,000 and has reduced overall
general and administrative expenses by $984,000 and $410,000 for the years ended
December 31, 2009 and 2008. The Company did not extend its sublease of Space A.
In 2008, the Company entered into a lease for 2,136 square feet for the office space for
its newly formed MMO Agencies, an underwriting division of the Company. The office is
located in Long Island, New York. Rent payments under the lease end in 2013, with
payments amounting to approximately $370,000, collectively, over the term of the
agreement. The lease expires in May 2013.
Specific related party transactions and their impact on results of operations are
disclosed in Note 18 of the Companys financial statements. The Company adheres to
investment guidelines set by management and approved by the Finance Committee of the
Board of Directors. See Investment Policy.
NYMAGICs principal source of cash flow is dividends from its insurance company
subsidiaries, which are then used to fund various operating expenses, including interest
expense, loan repayments and the payment of any dividends to shareholders. The Companys
domestic insurance company subsidiaries are limited by statute in the amount of dividends
that may be declared or paid during a year.
Within this limitation, the maximum amount which could be paid to the Company out of the
domestic insurance companies surplus was approximately $10.2 million as of December 31,
2009. Dividends declared by the domestic insurance companies in 2009 amounted to $10.9
million. There were no dividends declared by the insurance subsidiaries in 2008.
- 51 -
At December 31, 2009, NYMAGICs investments consist of cash and short-term investments,
RMBSs, limited partnership hedge funds and short-term premium and investment receivables
as follows:
|
|
|
|
|
Description |
|
Amounts in thousands |
|
Cash |
|
$ |
23,576 |
|
Commercial loans |
|
|
1,097 |
|
RMBS |
|
|
1,827 |
|
Common stocks |
|
|
118 |
|
Limited partnership hedge funds: Tiptree Financial |
|
|
35,039 |
|
Mariner Voyager |
|
|
1,877 |
|
|
|
|
|
|
|
|
|
|
Total investments |
|
$ |
63,534 |
|
|
|
|
|
A significant portion of the Companys invested assets are in hedge funds. The
Company is in the process of redeeming its investment in Mariner Voyager. The level of
liquidity of invested assets is impacted by hedge fund investments as one of our hedge
funds (Mariner Voyager) has invoked gated provisions that allow the fund to disperse
redemption proceeds to investors over an extended period. The Company is subject to such
restrictions and they will affect the timing of the receipt of hedge fund proceeds. The
timing of the redemption proceeds is uncertain. The Company also maintains a significant
investment in Tiptree Financial. See Investment Management Arrangement for a complete
discussion of the Companys investment in Tiptree Financial.
The Company has capitalized $8.8 million in computer software expenses as of December 31,
2009. The Company anticipates additional expenses, of up to $3 million, to implement a
new computer system expected to be completed in 2011.
The Company made no capital contributions during 2009 to its insurance subsidiaries.
During 2009, the Company purchased $2.9 million in overdue receivables from New York
Marine.
New York Marine and Gotham collectively paid ordinary dividends of $10,850,000,
$6,795,000 and $14,475,000 in 2009, 2008 and 2007, respectively.
On March 6, 2009, the Company declared a dividend of four cents to shareholders of record
on March 31, 2009, payable on April 7, 2009. On May 21, 2009, the Company declared a
dividend of four cents per share to shareholders of record on June 30, 2009, payable on
July 7, 2009. On September 17, 2009, the Company declared a dividend of six cents per
share to shareholders of record on September 30, 2009, payable on October 6, 2009. On
December 10, 2009, the Company declared a dividend of six cents per share to shareholders
of record on December 31, 2009, payable on January 6, 2010.
On March 7, 2008, the Company declared a dividend of eight cents per share to
shareholders of record on March 31, 2008, payable on April 3, 2008. On May 22, 2008, the
Company declared a dividend of eight cents per share to shareholders of record on
June 30, 2008, payable on July 8, 2008. On September 9, 2008, the Company declared a
dividend of eight cents per share to shareholders of record on September 30, 2008,
payable on October 7, 2008. On December 4, 2008, the Company declared a dividend of eight
cents per share to shareholders of record on December 31, 2008, payable on January 7,
2009.
On March 5, 2007, the Company declared a dividend of eight cents per share to
shareholders of record on March 30, 2007, payable on April 5, 2007. On May 23, 2007, the
Company declared a dividend of eight cents per share to shareholders of record on
June 29, 2007, payable on July 5, 2007. On September 14, 2007, the Company declared a
dividend of eight cents per share to shareholders of record on September 28, 2007,
payable on October 3, 2007. On December 7, 2007, the Company declared a dividend of eight
cents per share to shareholders of record on December 31, 2007, payable on January 4,
2008.
The Company has established three share-based incentive compensation plans (the Plans),
which are described in Note (15) Incentive Compensation of the Notes to Financial
Statements. Management believes that the Plans provide a means whereby the Company may
attract and retain persons of ability to exert their best efforts on behalf of the
Company. The Plans generally allow for the issuance of grants and exercises through newly
issued shares, treasury stock, or any combination thereof to officers, key employees and
directors who are employed by, or provide services to the Company. The compensation cost
that has been charged against income for the Plans was $2,337,233, $2,535,351 and
$2,210,615 for the years ended December 31, 2009, 2008 and 2007, respectively. The
approximate total income tax benefit accrued and recognized in the Companys financial
statements for the years ended December 31, 2009, 2008 and 2007 related to share-based
compensation expenses was approximately $818,000, $887,000 and $774,000, respectively.
- 52 -
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
Contractual Obligations
The following table presents the Companys contractual obligations as of December 31,
2009:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
|
|
|
|
Less Than |
|
|
|
|
|
|
|
|
|
|
More Than |
|
|
|
Total |
|
|
1 Year |
|
|
1-3 Years |
|
|
3-5 Years |
|
|
5 Years |
|
|
|
(in thousands) |
|
Long-term debt obligations |
|
$ |
100,000 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
100,000 |
|
|
$ |
|
|
Interest on debt obligations |
|
|
29,250 |
|
|
|
6,500 |
|
|
|
13,000 |
|
|
|
9,750 |
|
|
|
|
|
Losses and loss expenses (1) |
|
|
555,486 |
|
|
|
119,454 |
|
|
|
146,511 |
|
|
|
82,208 |
|
|
|
207,313 |
|
Operating lease obligations |
|
|
28,049 |
|
|
|
4,209 |
|
|
|
8,407 |
|
|
|
8,625 |
|
|
|
6,808 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
712,785 |
|
|
$ |
130,163 |
|
|
$ |
167,918 |
|
|
$ |
200,583 |
|
|
$ |
214,121 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Represents an estimated payout based upon historical paid loss development patterns. |
Critical accounting policies
The Company discloses significant accounting policies in the notes to its financial
statements. Management considers certain accounting policies to be critical for the
understanding of the Companys financial statements. Such policies require significant
management judgment and the resulting estimates have a material effect on reported
results and will vary to the extent that future events affect such estimates and cause
them to differ from the estimates provided currently. These critical accounting policies
include unpaid losses and loss adjustment expenses, allowance for doubtful accounts,
impairment of investments, investment accounting including limited partnerships and
trading and held to maturity portfolios, reinstatement reinsurance premiums and stock
compensation.
Unpaid losses and loss adjustment expenses are based on individual case estimates for
losses reported. A provision is also included, based on actuarial estimates utilizing
historical trends in the frequency and severity of paid and reported claims, for losses
incurred but not reported, salvage and subrogation recoveries and for loss adjustment
expenses. Unpaid losses with respect to asbestos/environmental risks are difficult for
management to estimate and require considerable judgment due to the uncertainty regarding
the significant issues surrounding such claims. For a further discussion concerning
asbestos/environmental reserves see Reserves. Unpaid losses and loss adjustment
expenses amounted to $555.5 million and $548.7 million at December 31, 2009 and 2008,
respectively. Unpaid losses and loss adjustment expenses, net of reinsurance amounted to
$350.4 million and $334.8 million at December 31, 2009 and 2008, respectively. Management
believes that both the gross and net unpaid loss reserve estimates as of December 31,
2009 have been reasonably estimated. Management continually reviews and updates the
estimates for unpaid losses and any changes resulting therefrom are reflected in
operating results currently. The potential for future adverse or favorable loss
development is highly uncertain and subject to a variety of factors including, but not
limited to, court decisions, legislative actions and inflation.
The allowance for doubtful accounts is based on managements review of amounts due from
insolvent or financially impaired companies. Allowances are estimated for both premium
receivables and reinsurance receivables. Management continually reviews and updates such
estimates for any changes in the financial status of companies. For a further discussion
concerning reinsurance receivables see Reinsurance Ceded. The allowance for doubtful
accounts on reinsurance receivables amounted to $17.6 million and $21.4 million at
December 31, 2009 and 2008, respectively. The allowance for doubtful accounts on premiums
and other receivables amounted to $300,000 on both December 31, 2009 and December 31,
2008.
- 53 -
Impairment of investments, included in realized investment gains or losses, results from
declines in the fair value of investments which are considered by management to be
other-than-temporary. Management reviews investments for impairment based upon specific
criteria that include the duration and extent of declines in fair value of the security
below its cost or amortized cost. The Company performs a qualitative and quantitative
review of all securities in a loss position in order to determine if any impairment is
considered to be other-than-temporary. The Company also reviews all securities with any
rating agency declines during the reporting period. This review includes considering the
effect of rising interest rates, credit losses and the Companys intent to sell impaired
securities in the foreseeable future to recoup any losses. In addition to subjecting its
securities to the objective tests of percent declines in fair value and downgrades by
major rating agencies, when it determines whether declines in the fair value of its
securities are other-than-temporary, the Company also considers the facts and
circumstances that may have caused the declines in the value of such securities. As to
any specific security, it may consider general market conditions, changes in interest
rates, adverse changes in the regulatory environment of the issuer, the duration for
which the Company expects to hold the security and the length of any forecasted recovery.
Effective April 1, 2009, under ASC 320 and ASC 958, Recognition and Presentation of
Other-Than-Temporary Impairments impairment is considered to be other than temporary if
an entity (1) intends to sell the security, (2) more likely than not will be required to
sell the security before recovering its amortized cost basis, or (3) does not expect to
recover the securitys entire amortized cost basis. The OTTI of $478,407 recognized for
the year ended December 31, 2009 resulted from the Companys intention to sell certain
municipal securities under circumstances in which those securities are not expected to
recover their entire amortized cost prior to sale. Credit impairment occurs under ASC 320
if the present value of cash flows expected to be collected from the debt security is
less than the amortized cost basis of the security. There were no credit impairments
recorded during the year ended December 31, 2009.
Approximately $0.5 million and $46.2 million were charged to results from operations for
the year ended December 31, 2009 and 2008, respectively, resulting from fair value
declines considered to be other-than-temporary. Gross unrealized gains and losses on
fixed maturity investments available for sale amounted to approximately $1.4 million and
$0.3 million, respectively, at December 31, 2009. The Company believes the unrealized
losses are temporary and result from changes in market conditions, including interest
rates or sector spreads.
The Company has investments in residential RMBS amounting to $56.6 million (amortized
value) at December 31, 2009. These securities are classified as held to maturity after
the Company transferred these holdings from the available for sale portfolio effective
October 1, 2008. Upon acquisition of the RMBS portfolio and prior to October 1, 2008, the
Company was uncertain as to the duration for which it would hold the RMBS portfolio and
appropriately classified such securities as available for sale. See Item 1 Business
General for a complete discussion regarding the Companys RMBS portfolio.
Reinsurance reinstatement premiums are recorded, as a result of losses incurred by the
Company, in accordance with the provisions of the reinsurance contracts. Upon the
occurrence of a large severity or catastrophe loss, the Company may be obligated to pay
additional reinstatement premiums under its excess of loss reinsurance treaties up to the
amount of the original premium paid under such treaties. Reinsurance reinstatement
premiums incurred for the years ended December 31, 2009, 2008 and 2007 were $0,
$1.8 million and $3.9 million, respectively.
The Companys records compensation costs at the fair value of all share options,
restricted shares units, deferred share units and performance share units over their
related vesting period or service period. Total stock compensation expense recorded in
2009, 2008 and 2007 amounted to $2.3 million, $2.4 million and $2.2 million,
respectively.
Fair value measurements
The Companys estimates of fair value for financial assets and financial liabilities are
based on the framework established in ASC 820. The framework is based on the inputs used
in valuation and gives the highest priority to quoted prices in active markets and
requires that observable inputs be used in the valuations when available. The disclosure
of fair value estimates in the ASC 820 hierarchy is based on whether the significant
inputs into the valuation are observable. In determining the level of the hierarchy in
which the estimate is disclosed, the highest priority is given to unadjusted quoted
prices in active markets and the lowest priority to unobservable inputs that reflect the
Companys significant market assumptions. The standard describes three levels of inputs
that may be used to measure fair value and categorize the assets and liabilities within
the hierarchy:
Level 1 Fair value is based on unadjusted quoted prices in active markets that are
accessible to the Company for identical assets or liabilities. These prices generally
provide the most reliable evidence and are used to measure fair value whenever available.
Active markets are defined as having the following for the measured asset/liability: i)
many transactions, ii) current prices, iii) price quotes not varying substantially among
market makers, iv) narrow bid/ask spreads and v) most information publicly available.
The Companys Level 1 assets are comprised of U.S. Treasury securities and preferred
stock, which are highly liquid and traded in active exchange markets.
The Company uses the quoted market prices as fair value for assets classified as Level 1.
The Company receives quoted market prices from a third party, a nationally recognized
pricing service. Prices are obtained from available sources for market transactions
involving identical assets. For the majority of Level 1 investments, the Company receives
quoted market prices from an independent pricing service. The Company validates primary
source prices by back testing to trade data to confirm that the pricing services
significant inputs are observable. The Company also compares the prices received from the
third party service to alternate third party sources to validate the consistency of the
prices received on securities.
Level 2 Fair value is based on significant inputs, other than Level 1 inputs, that are
observable for the asset or liability, either directly or indirectly, for substantially
the full term of the asset through corroboration with observable market data. Level 2
inputs include quoted market prices in active markets for similar assets, non-binding
quotes in markets that are not active for identical or similar assets and other market
observable inputs (e.g., interest rates, yield curves, prepayment speeds, default rates,
loss severities, etc.).
- 54 -
The Companys Level 2 assets include municipal debt obligations and corporate debt
securities.
The Company generally obtains valuations from third party pricing services and/or
security dealers for identical or comparable assets or liabilities by obtaining
non-binding broker quotes (when pricing service information is not available) in order to
determine an estimate of fair value. The Company bases all of its estimates of fair value
for assets on the bid price as it represents what a third party market participant would
be willing to pay in an arms length transaction. Prices from pricing services are
validated by the Company through comparison to prices from corroborating sources and are
validated by back testing to trade data to confirm that the pricing services significant
inputs are observable. Under certain conditions, the Company may conclude the prices
received from independent third party pricing services or brokers are not reasonable or
reflective of market activity or that significant inputs are not observable, in which
case it may choose to over-ride the third-party pricing information or quotes received
and apply internally developed values to the related assets or liabilities. In such
cases, those valuations would be
generally classified as Level 3. Generally, the Company utilizes an independent pricing
service to price its municipal debt obligations and corporate debt securities. Currently,
these securities are exhibiting low trade volume. The Company considers such investments
to be in the Level 2 category.
Level 3 Fair value is based on at least one or more significant unobservable inputs that
are supported by little or no market activity for the asset. These inputs reflect the
Companys understanding about the assumptions market participants would use in pricing
the asset or liability.
The Companys Level 3 assets include its residential RMBS, commercial loans and private
equity as they are illiquid and trade in inactive markets. These markets are considered
inactive as a result of the low level of trades of such investments. The RMBS investments
are not considered within the Level 3 tabular disclosure because they have been
transferred to held to maturity category effective October 1, 2008. Held to maturity
investments are not measured at fair value on a recurring basis and, as such, do not fall
within the scope of ASC 820. See Note 2, Investments for a complete discussion
regarding the Companys RMBS portfolio.
The primary pricing sources for the Companys commercial loan and private equity
portfolios are reviewed for reasonableness, based on the Companys understanding of the
respective market. Prices may then be determined using valuation methodologies such as
discounted cash flow models, as well as matrix pricing analyses performed on non-binding
quotes from brokers or other market-makers. As of December 31, 2009, the Company did not
utilize an alternate valuation methodology for its commercial loan or private equity
portfolios..
Effect of recent accounting pronouncements
Adoption of new accounting pronouncements:
The FASB issued The FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles (ASC 105). ASC 105 identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements that are presented in conformity with U.S. GAAP. ASC
105 establishes the FASB Accounting Standards Codification (the Codification) as the
single source of authoritative accounting principles recognized by the FASB in the
preparation of financial statements in conformity with U.S. GAAP. The Codification does
not create new accounting and reporting guidance; rather, it reorganizes U.S. GAAP
pronouncements into approximately 90 topics within a consistent structure. All guidance
contained in the Codification carries an equal level of authority. Relevant portions of
authoritative content, issued by the SEC, for SEC registrants, have been included in the
Codification. After the effective date of ASC 105, all nongrandfathered, literature not
included in the Codification is superseded and deemed nonauthoritative (other than
Securities and Exchange guidance for publicly-traded companies). ASC 105 is effective for
financial statements issued for interim and annual periods ending after September 15,
2009. The adoption of ASC 105 did not have an impact on the Companys financial
condition, results of operations or liquidity.
In February 2008, the FASB issued FSP FAS 157-2 (ASC 820), Effective Date of FASB
Statement No. 157, which permits a one-year deferral of the application of SFAS 157, Fair
Value Measurements, for all non-financial assets and non-financial liabilities, except
those that are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually). The Company adopted SFAS 157 for non-financial
assets and non-financial liabilities on January 1, 2009 and its adoption did not have an
impact on the Companys financial condition, results of operations or liquidity.
In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161 (ASC
815), Disclosures about Derivative Instruments and Hedging Activities, an Amendment of
FASB Statement No. 133 (SFAS 161). SFAS 161 changes the disclosure requirements for
derivative instruments and hedging activities and specifically requires qualitative
disclosures about objectives and strategies for using derivatives, quantitative
disclosures about fair value amounts of, and gains and losses on, derivative instruments,
and disclosures about credit-risk-related contingent features in derivative agreements.
The adoption of SFAS 161 did not have an impact on the Companys financial condition,
results of operations or liquidity.
- 55 -
In May 2008, the FASB issued Statement of Financial Accounting Standards No. 163 (ASC
944), Accounting for Financial Guarantee Insurance Contracts (SFAS 163). SFAS 163
clarifies how FASB Statement No. 60, Accounting and Reporting by Insurance Enterprise,
applies to financial guarantee insurance contracts issued by insurance enterprises,
including the recognition and measurement of premium revenue and claim liabilities. It
also requires expanded disclosures about financial guarantee insurance contracts. The
provisions of SFAS 163 are effective for financial statements issued for fiscal years
beginning after December 15, 2008 and all interim periods within those fiscal years,
except for disclosures about the insurance enterprises risk-management activities, which
are effective the first period (including interim periods) beginning after May 23, 2008.
The adoption of SFAS 163 did not have an impact on the Companys financial condition,
results of operations or liquidity.
In June 2008, the FASB issued FSP Emerging Issues Task Force Issues No. 03-6-1,
Determining Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities (EITF 03-6-1) (ASC 260). EITF 03-6-1 provides that unvested
share-based payment awards that contain nonforfeitable rights to dividends or dividend
equivalents (whether paid or
unpaid) are participating securities and shall be included in the computation of earnings
per share pursuant to the two-class method. EITF 03-6-1 is effective for financial
statements issued for fiscal years beginning after December 15, 2008, and interim periods
within those years. The adoption of EITF 03-6-1 did not have a material impact on the
Companys financial condition, results of operations or liquidity.
In December 2008, the FASB issued Statement of Financial Accounting No. 160,
Non-controlling Interests in Consolidated Financial Statements (SFAS 160) (ASC 810),
which requires non-controlling interests (previously referred to as minority interests)
to be treated as a separate component of equity, not as a liability or other item outside
of permanent equity. SFAS 160 is effective for fiscal years beginning on or after
December 15, 2008. The adoption of SFAS 160 did not have an impact on the Companys
financial condition, results of operations or liquidity.
In December 2008, the FASB issued Statement of Financial Accounting No. 141(R) (ASC 810),
Business Combinations ( SFAS 141(R)), which requires most identifiable assets,
liabilities, non-controlling interests, and goodwill acquired in a business combination
to be recorded at full fair value. Under SFAS 141(R), all business combinations will be
accounted for by applying the acquisition method (referred to as the purchase method in
SFAS 141, Business Combinations). SFAS 141(R) is effective for fiscal years beginning on
or after December 15, 2008 and is to be applied to business combinations occurring after
the effective date. The adoption of SFAS 141(R) will not have an impact on the Companys
financial condition, results of operations or liquidity unless an acquisition occurs
after the effective date of SFAS 141(R).
In December 2008, the FASB issued (ASC 715), Employers Disclosures about
Postretirement Benefit Plan Assets. ASC 715 requires an employer to provide certain
disclosures about plan assets of its defined benefit pension or other postretirement
plans. The disclosures required include the investment policies and strategies of the
plans, the fair value of the major categories of plan assets, the inputs and valuation
techniques used to develop fair value measurements and a description of significant
concentrations of risk in plan assets. ASC 715 is effective for fiscal years ending after
December 15, 2009. The adoption of ASC 715 did not have an impact on the Companys
financial condition, results of operations or liquidity.
In April 2009, the FASB issued FSP FAS 157-4 (ASC 820), Determining the Fair Value When
the Volume and Level of Activity for the Asset and Liability Have Significantly Decreased
and Identifying Transactions That Are Not Orderly (SFAS 157-4). SFAS 157-4 provides
additional guidance for estimating fair value in accordance with FASB 157, Fair Value
Measurements, when prices in markets have become less active and require adjustments to
fair value. SFAS 157-4 is effective for interim and annual reporting periods ending after
June 15, 2009. The adoption of SFAS 157-4 did not have a material impact on the Companys
financial condition, results of operations or liquidity.
In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2 (ASC 320), Recognition and
Presentation of Other-Than-Temporary Impairments. (FSP 115-2) which is effective for
interim and annual reporting periods ending after June 15, 2009, with early adoption
permitted for periods ending after March 15, 2009. FSP FAS 115-2 modifies the
requirements for recognizing other-than-temporarily impaired debt securities, the
presentation of other-than-temporary impairment losses and increases the frequency of and
expands the required disclosures about other-than-temporary impairment for debt and
equity securities. The Company adopted FSP FAS 115-2 and FAS 124-2 effective April 1,
2009. The adoption of FSP 115-2 resulted in a cumulative effect adjustment as of April 1,
2009, which increased retained earnings by $26.1 million, net of
taxes of $14.1 million, with an offsetting decrease to
accumulated other comprehensive income (loss). The adoption of FSP 115-2 did not have a
material impact on the Companys financial condition, results of operations or liquidity.
In April 2009, the FASB issued FSP FAS 107-1 (ASC 825) and ABP 28-1, Interim
Disclosures about Fair Value of Financial Instruments. The FSP is effective for interim
reporting periods ending after June 15, 2009, with early adoption permitted for periods
ending after March 15, 2009. FSP FAS 107-1 and APB 28-1 requires disclosures about fair
value of financial instruments for interim reporting periods of publicly traded companies
as well as in annual financial statements. The adoption of FSP FAS 107-1 and ABP 28-1 did
not have a material impact on the Companys financial condition, results of operations or
liquidity.
- 56 -
In May 2009, the FASB issued SFAS No. 165, Subsequent Events (SFAS 165). SFAS 165
establishes principles and disclosure requirements for events that occur after the
balance sheet date but before financial statements are issued or are available to be
issued. In particular, the Statement sets forth (a) the period after the balance sheet
date during which management of a reporting entity shall evaluate events or transactions
that may occur for potential recognition or disclosure in the financial statements, (b)
the circumstances under which an entity shall recognize events or transactions occurring
after the balance sheet date in its financial statements, and (c) the disclosures that an
entity shall make about events or transactions that occurred after the balance sheet
date. An entity shall disclose the date through which subsequent events have been
evaluated, as well as whether that date is the date the financial statements were issued
or the date the financial statements were available to be issued. SFAS 165 is effective
for interim or annual financial periods ending after June 15, 2009. The Company adopted
SFAS 165 for its interim reporting period ending on June 30, 2009. The adoption of SFAS
No. 165 had no material impact on the Companys financial condition, results of
operations or liquidity.
In August 2009, the FASB issued Accounting Standard Update (ASU 2009-05), Measuring
Liabilities at Fair Value. ASU 2009-05 is an amendment of ASC 820, Fair Value
Measurements and Disclosures. ASU 2009-05 applies to all entities that
measure liabilities at fair value within the scope of ASC 820, Fair Value Measurements
and Disclosures. ASU 2009-05 provides guidance on measuring the fair value of liabilities
under circumstances in which a quoted price in an active market for the identical
liability is not available. ASU 2009-05 is effective for the first interim or annual
reporting period beginning after August 28, 2009. The adoption of ASU 2009-05 did not
have a material impact on the Companys financial condition, results of operations or
liquidity.
In September 2009, the FASB issued (ASU 2009-12), Investments in Certain Entities That
Calculate Net Asset Value per Share (or Its Equivalent). ASU 2009-12 provides guidance on
estimating the fair value of alternative investments when using the net asset value per
share provided by the investment entity. The effective date of ASU 2009-12 is for interim
and annual periods ending after December 15, 2009, with early adoption permitted. The
adoption of ASU 2009-12 did not have a material impact on the Companys financial
condition, results of operations or liquidity.
In February 2010, the FASB issued (ASU 2010-09) to address potential practice issues
associated with FASB ASC Topic 855, Subsequent Events (Statement 165). The amendments in
the update would no longer require entities that file or furnish financial statements
with the SEC to disclose the date through which subsequent events have been evaluated in
originally issued and reissued financial statements. Other entities would continue to be
required to disclose the date through which subsequent events have been evaluated;
however, disclosures about the date through which subsequent events have been evaluated
in reissued financial statements would be required only in financial statements revised
because of an error correction or retrospective application of U.S. GAAP. The ASU is
effective immediately except for the use of the issued date for conduit bond obligors.
That amendment is effective for interim or annual periods ending after June 15, 2010. The
adoption of ASU 2010-09 did not have a material impact on the Companys financial
condition, results of operations or liquidity.
Future adoption of new accounting pronouncements:
In
June 2009, the FASB issued ASC 860, Transfers and Servicing
(ASC 860). ASC 860 amends
the derecognition guidance in Statement 140 and eliminates the concept of qualifying
special-purpose entities (QSPEs). ACS 860 is effective for fiscal years and interim
periods beginning after November 15, 2009. Early adoption of ASC 860 is prohibited. The
Company will adopt ASC 860 during the first quarter of 2010 and does not expect the
adoption to have an effect on its results of operations, financial position or liquidity.
In June 2009, the FASB issued ASC 810, Amendments to FASB Interpretation No. 46 (ASC
810), which amends the consolidation guidance applicable to variable interest entities
(VIE). An entity would consolidate a VIE, as the primary beneficiary, when the entity
has both of the following characteristics: (a) The power to direct the activities of a
VIE that most significantly impact the entitys economic performance and (b) The
obligation to absorb losses of the entity that could potentially be significant to the
VIE or the right to receive benefits from the entity that could potentially be
significant to the VIE. Ongoing reassessment of whether an enterprise is the primary
beneficiary of a VIE is required. ASC 810 amends interpretation 46(R) to eliminate the
quantitative approach previously required for determining the primary beneficiary of a
VIE. This Statement is effective for fiscal years and interim periods beginning after
November 15, 2009. The Company will adopt ASC 810 during the first quarter of 2010 and
has not yet determined the impact adoption will have on its results of operations,
financial position or liquidity.
In January 2010, the FASB issued ASU 2010-06, Improving Disclosures about Fair Value
Measurements. ASU 2010-06 is an amendment of ASC 820, Fair Value Measurements and
Disclosures ASU 2010-06 provides additional disclosures for transfers in and out of the
Levels I and II and for activity in Level III as well as clarifying certain existing
disclosure requirements including level of desegregation and disclosures around inputs
and valuation techniques. The final amendments to ASU 2010-06 will be effective for
annual and interim reporting periods beginning after December 15, 2009, except for the
requirement to provide the Level 3 activity for purchases, sales, issuances, and
settlements on a gross basis. That requirement will be effective for fiscal years
beginning after December 15, 2010, and for interim periods within those fiscal years. The
Company will adopt ASU 2010-06 during the first quarter of 2010 and the adoption will not
have an effect on its results of operations, financial position or liquidity.
- 57 -
Impact of Inflation
Periods of inflation have prompted the pools, and consequently the Company, to react
quickly to actual or potential imbalances between costs, including claim expenses and
premium rates. These imbalances have been corrected mainly through improved underwriting
controls, responsive management information systems and frequent review of premium rates
and loss experience.
Inflation also affects the final settlement costs of claims, which may not be paid for
several years. The longer a claim takes to settle, the more significant the impact of
inflation on final settlement costs. The Company periodically reviews outstanding claims
and adjusts reserves for the pools based on a number of factors, including inflation.
|
|
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Item 7A. |
|
Quantitative and Qualitative Disclosures About Market Risk |
Market risk includes the potential for future losses due to changes in the fair value of
financial instruments, which relates mainly to the Companys investment portfolio. Those
risks associated with the investment portfolio include the effects of exposure to adverse
changes in interest rates, credit quality, hedge fund and illiquid securities including
commercial middle market loans and residential mortgage-backed securities.
Interest rate risk includes the changes in the fair value of fixed maturities based upon
changes in interest rates. The Company considers interest rate risk and the overall
duration of the Companys loss reserves in evaluating the Companys investment portfolio.
The duration of the investment portfolio, excluding short-term, equity securities and
limited partnership investments, was 6.7 years as of December 31, 2009. The Company
maintains $75.5 million of cash and short term investments as of December 31, 2009.
The following tabular presentation outlines the expected cash flows of fixed maturities
available for sale for each of the next five years and the aggregate cash flows expected
for the remaining years thereafter based upon maturity dates. Fixed maturities include
tax-exempts and taxable securities with applicable weighted average interest rates.
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|
|
|
|
|
|
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Future cash flows of expected principal amounts |
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(Dollars in millions) |
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|
|
|
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|
|
|
|
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|
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|
|
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Total |
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|
|
|
|
|
|
|
|
|
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|
|
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|
|
|
|
|
|
There- |
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|
|
|
Fair |
|
|
|
2010 |
|
|
2011 |
|
|
2012 |
|
|
2013 |
|
|
2014 |
|
|
after |
|
|
Total |
|
|
Value |
|
Tax-exempts |
|
$ |
|
|
|
$ |
|
|
|
$ |
0.5 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
0.2 |
|
|
$ |
0.7 |
|
|
$ |
0.8 |
|
Average interest rate |
|
|
|
|
|
|
|
|
|
|
5.25 |
% |
|
|
|
|
|
|
|
|
|
|
5.00 |
% |
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Taxables |
|
$ |
0.2 |
|
|
$ |
210.7 |
|
|
$ |
0.1 |
|
|
$ |
2.3 |
|
|
$ |
|
|
|
$ |
171.4 |
|
|
$ |
384.7 |
|
|
$ |
385.7 |
|
Average interest rate |
|
|
1.50 |
% |
|
|
1.10 |
% |
|
|
4.63 |
% |
|
|
3.13 |
% |
|
|
|
|
|
|
4.50 |
% |
|
|
|
|
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|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
0.2 |
|
|
$ |
210.7 |
|
|
$ |
0.6 |
|
|
$ |
2.3 |
|
|
$ |
|
|
|
$ |
171.6 |
|
|
$ |
385.4 |
|
|
$ |
386.5 |
|
Fixed maturities held to maturity consist exclusively of floating rate RMBS that
have prepayment features. These prepayment features may cause actual cash flows to differ
from those based upon maturity date. Future expected cash flows related to such
securities are expected to be $93.1 million. The average interest rate on these
securities is 1.3% and the interest is taxable. The Company has investments in RMBS
amounting to $56.6 million (amortized value) at December 31, 2009. See Item 1 Business
General for a complete discussion regarding the Companys RMBS portfolio.
Credit quality risk includes the risk of default by issuers of debt securities. As of
December 31, 2009, 94.1% of the fair value of the Companys fixed income and short-term
investment portfolios were considered investment grade. As of December 31, 2009, the
Company invested approximately $29.7 million in fixed maturities that are below
investment grade, with a concentration in investments rated CCC+ by S&P. The Company
seeks to mitigate market risk associated with such investments by maintaining a
diversified portfolio of such securities that limits the concentration of investment in
any one issuer.
Hedge fund risk includes the potential loss from the diminution in the value of the
underlying investment of the hedge fund. Hedge fund investments are subject to various
economic and market risks. The risks associated with hedge fund investments may be
substantially greater than the risks associated with fixed income investments.
Consequently, our hedge fund portfolio may be more volatile, and the risk of loss
greater, than that associated with fixed income investments. In accordance with the
investment policy for each of the Companys New York insurance company subsidiaries,
hedge fund investments are limited to the greater of 30% of invested assets or 50% of
policyholders surplus. The Companys Arizona insurance subsidiary does not invest in
hedge funds.
- 58 -
The Company also seeks to mitigate market risk associated with its investments in hedge
funds by maintaining a diversified portfolio of hedge fund investments. Diversification
is achieved through the use of many investment managers employing a variety of different
investment strategies in determining the underlying characteristics of their hedge funds.
The Company is dependent upon these managers to obtain market prices for the underlying
investments of the hedge funds. Some of these investments may be difficult to value and
actual values may differ from reported amounts. The hedge funds in which we invest
usually impose limitations on the timing of withdrawals from the hedge funds (most are
within 90 days), and may affect our liquidity. Some of our hedge funds have invoked gated
provisions that allow the fund to disperse redemption proceeds to investors over an
extended period. The Company is subject to such restrictions and they will affect the
timing of the receipt of hedge fund proceeds. The Company invests in illiquid securities
such as commercial loans, which are private placements. The fair value of each security
is provided by securities dealers. The markets for these types of securities can be
illiquid and, therefore, the price obtained from dealers on these securities is subject
to change, depending upon the underlying market conditions of these securities, including
the potential for downgrades or defaults on the underlying collateral of the security.
The fair value of the commercial loan portfolio at December 31, 2009 was $5.0 million.
The Company maintains an investment in Tiptree Financial, which was formed in 2008. As of
December 31, 2009 the majority of Tiptree Financials assets were invested in cash, fixed
income, equity securities, and commercial real estate.
The Company monitors market risks on a regular basis through meetings with Mariner,
examining the existing portfolio and reviewing potential changes in investment
guidelines, the overall effect of which is to allow management to make informed decisions
concerning the impact that market risks have on the Companys investments.
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Item 8. |
|
Financial Statements and Supplementary Data |
The consolidated financial statements required by this item and the reports of the
independent accountants therein required by Item 15(a) of this report commence on page
F-3. See accompanying Index to the Consolidated Financial Statements on page F-1.
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Item 9. |
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Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure |
None.
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Item 9A. |
|
Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
An evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-14(c) under the Securities Exchange Act
of 1934, as amended, as of the end of the period covered by this annual report on Form
10-K was made under the supervision and with the participation of our management,
including our President and Chief Executive Officer and Chief Financial Officer. Based
upon this evaluation, our President and Chief Executive Officer and Chief Financial
Officer have concluded that our disclosure controls and procedures (a) are effective to
ensure that information required to be disclosed by us in reports filed or submitted
under the Securities Exchange Act is timely recorded, processed, summarized and reported
and (b) include, without limitation, controls and procedures designed to ensure that
information required to be disclosed by us in reports filed or submitted under the
Securities Exchange Act is accumulated and communicated to our management, including our
President and Chief Executive Officer and Chief Financial Officer, as appropriate to
allow timely decisions regarding required disclosure.
Managements Report on Internal Control over Financial Reporting
Managements Report on Internal Control over Financial Reporting, which appears on page
F-2, is incorporated herein by reference.
Changes in Internal Controls
There have been no significant changes in our internal control over financial reporting
(as defined in rule 13a-15(f)) that occurred during the period covered by this report
that has materially affected or is reasonably likely to materially affect our internal
control over financial reporting.
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Item 9B. |
|
Other Information |
None.
- 59 -
PART III
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Item 10. |
|
Directors and Executive Officers of the Registrant |
The information required by this Item is incorporated herein by reference from the
sections captioned Election of Directors, Nominees for Directors, Committees of the
Board, Executive Officers of the Company and Section 16(a) Beneficial Ownership
Reporting Compliance in NYMAGICs definitive proxy statement for the 2009 Annual Meeting
of Shareholders to be filed within 120 days after December 31, 2009.
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Item 11. |
|
Executive Compensation |
The information required by this Item is incorporated herein by reference from the
sections captioned Compensation of Directors and Compensation of Executive Officers
in NYMAGICs definitive proxy statement for the 2009 Annual Meeting of Shareholders to be
filed within 120 days after December 31, 2009.
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|
Item 12. |
|
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters |
The information required by this Item is incorporated herein by reference to the
Companys definitive proxy statement for the 2009 Annual Meeting of Shareholders to be
filed within 120 days after December 31, 2009 with the Securities and Exchange Commission
pursuant to Regulation 14A of the Exchange Act.
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|
Item 13. |
|
Certain Relationships and Related Transactions and Director Independence |
The information required by this Item is incorporated herein by reference from the
section captioned Certain Relationships and Related Transactions in NYMAGICs Proxy
Statement for the 2010 Annual Meeting of Shareholders to be filed within 120 days after
December 31, 2009.
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|
|
Item 14. |
|
Principal Accounting Fees and Services |
The information required by Item 9(e) of Schedule 14A is incorporated herein by reference
to the Companys definitive proxy statement for the 2009 Annual Meeting of Shareholders
to be filed within 120 days after December 31, 2009 with the Securities and Exchange
Commission pursuant to Regulation 14A of the Exchange Act.
- 60 -
PART IV
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Item 15. |
|
Exhibits, Financial Statement Schedules |
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|
(a) 1. |
|
|
Financial Statements |
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|
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|
The list of financial statements appears in the accompanying index on page F-1. |
|
2. |
|
|
Financial Statement Schedules |
|
|
|
|
The list of financial statement schedules appears in the accompanying index on page F-1. |
|
3. |
|
|
Exhibits |
|
3.1 |
|
|
Charter of NYMAGIC, INC. (Filed as Exhibit 99.1 to the Registrants Current Report on Form 8-K filed on December 16, 2003 (Commission File No. 1-11238) and
incorporated herein by reference). |
|
3.2 |
|
|
Amended and Restated By-Laws. (Filed as Exhibit 3.3 of the Registrants Annual Report on Form 10-K for the fiscal year ended December 31, 1999 (Commission File
No. 1-11238) and incorporated herein by reference). |
|
4.0 |
|
|
Specimen Certificate of common stock (Filed as Exhibit 4.0 of Amendment No. 2 to the Registrants Registration Statement No. 33-27665) and incorporated herein by
reference). |
|
10.1 |
|
|
Restated Management Agreement dated as of January 1, 1986, by and among Mutual Marine Office, Inc. and Arkwright-Boston Manufacturers Mutual Insurance Company,
Utica Mutual Insurance Company, Lumber Mutual Insurance Company, the Registrant and Pennsylvania National Mutual Casualty Insurance Company (Filed as Exhibit 10.2
of the Registrants Annual Report on Form 10-K for the fiscal year ended December 31, 1986 (Commission File No. 2-88552) and incorporated herein by reference). |
|
10.2 |
|
|
Amendment No. 2 to the Restated Management Agreement, dated as of December 30, 1988, by and among Mutual Marine Office, Inc. and Arkwright Mutual Insurance
Company, Utica Mutual Insurance Company, Lumber Mutual Insurance Company, the Registrant and Pennsylvania National Mutual Casualty Insurance Company (Filed as
Exhibit 10.2.2. of the Registrants Current Report on Form 8-K dated January 6, 1989 (Commission File No. 2-88552) and incorporated herein by reference). |
|
10.3 |
|
|
Amendment No. 3 to the Restated Management Agreement, dated as of December 31, 1990 by and among Mutual Marine Office, Inc. and Arkwright Mutual Insurance
Company, Utica Mutual Insurance Company, the Registrant and Pennsylvania National Mutual Casualty Insurance Company (Filed as Exhibit 10.2.3. of the Registrants
Annual Report on Form 10-K for the fiscal year ended December 31, 1990 (Commission File No. 3-27665) and incorporated herein by reference). |
|
10.4 |
|
|
Restated Management Agreement dated as of January 1, 1986, by and among Mutual Inland Marine Office, Inc. and Arkwright-Boston Manufacturers Mutual Insurance
Company, Utica Mutual Insurance Company, Lumber Mutual Insurance Company, the Registrant and Pennsylvania National Mutual Casualty Insurance Company (Filed as
Exhibit 10.4 of the Registrants Annual Report on Form 10-K for the fiscal year ended December 31, 1986 (Commission File No. 2-88552) and incorporated herein by
reference). |
|
10.5 |
|
|
Amendment No. 2 to the Restated Management Agreement, dated as of December 30, 1988, by and among Mutual Inland Marine Office, Inc. and Arkwright Mutual Insurance
Company, Utica Mutual Insurance Company, Lumber Mutual Insurance Company, the Registrant and Pennsylvania National Mutual Casualty Insurance Company (Filed as
Exhibit 10.4.2 of the Registrants Current Report on Form 8-K, dated January 6, 1989 (Commission File No. 2-88552) and incorporated herein by reference). |
|
10.6 |
|
|
Amendment No. 3 to the Restated Management Agreement, dated as of December 31, 1990, by and among Mutual Inland Marine Office, Inc. and Arkwright Mutual Insurance
Company, Utica Mutual Insurance Company, the Registrant and Pennsylvania National Mutual Casualty Insurance Company (Filed as Exhibit 10.4.3. of the Registrants
Annual Report on Form 10-K for the fiscal year ended December 31, 1990 (Commission File No. 3-27665) and incorporated herein by reference). |
|
10.7 |
|
|
Restated Management Agreement dated as of January 1, 1986, by and among Mutual Marine Office of the Midwest, Inc. and Arkwright-Boston Manufacturers Mutual
Insurance Company, Utica Mutual Insurance Company, Lumber Mutual Insurance Company, the Registrant and Pennsylvania National Mutual Casualty Insurance Company
(Filed as Exhibit 10.6 of the Registrants Annual Report on Form 10-K for the fiscal year ended December 31, 1986 (Commission File No. 2-88552) and incorporated
herein by reference). |
|
10.8 |
|
|
Amendment No. 2 to the Restated Management Agreement dated as of December 30, 1988, by and among Mutual Marine Office of the Midwest, Inc. and Arkwright Mutual
Insurance Company, Utica Mutual Insurance Company, Lumber Mutual Insurance Company, the Registrant and Pennsylvania National Mutual Casualty Insurance Company
(Filed as Exhibit 10.6.2 of the Registrants Current Report on Form 8-K, dated January 6, 1989 (Commission File No. 2-88552) and incorporated herein by
reference). |
|
10.9 |
|
|
Amendment No. 3 to the Restated Management Agreement dated as of December 31, 1990, by and among Mutual Marine Office of the Midwest, Inc. and Arkwright Mutual
Insurance Company, Utica Mutual Insurance Company, the Registrant and Pennsylvania National Mutual Casualty Insurance Company (Filed as Exhibit 10.6.3. of the
Registrants Annual Report on Form 10-K for the fiscal year ended December 31, 1990 (Commission File No. 3-27665) and incorporated herein by reference). |
|
10.10 |
|
|
Restated Management Agreement dated as of January 1, 1986, by and among Pacific Mutual Marine Office, Inc. and Arkwright-Boston Manufacturers Mutual Insurance
Company, Lumber Mutual Insurance Company, Utica Mutual Insurance Company, the Registrant and Pennsylvania National Mutual Casualty Insurance Company (Filed as
Exhibit 10.8 of the Registrants Annual Report on Form 10-K for the fiscal year ended December 31, 1986 (Commission File No. 2-88552) and incorporated herein by
reference). |
|
10.11 |
|
|
Amendment No. 2 to the Restated Management Agreement dated as of December 30, 1988, by and among Pacific Mutual
Marine Office, Inc. and Arkwright Mutual Insurance Company, Lumber Mutual Insurance Company, Utica Mutual
Insurance Company, the Registrant and Pennsylvania National Mutual Casualty Insurance Company (Filed as
Exhibit 10.8.2 of the Registrants Current Report on Form 8-K, dated January 6, 1989 (Commission File
No. 2-88552) and incorporated herein by reference). |
|
10.12 |
|
|
Amendment to Restated Management Agreement dated as of December 31, 1990, by and among Pacific Mutual Marine
Office, Inc. and Arkwright Mutual Insurance Company, Utica Mutual Insurance Company, the Registrant and
Pennsylvania National Mutual Casualty Insurance Company (Filed as Exhibit 10.8.3. of the Registrants Annual
Report on Form 10-K for the fiscal year ended December 31, 1992 (Commission File No. 1-11238) and incorporated
herein by reference). |
- 61 -
|
|
|
|
|
|
+10.13 |
|
|
1991 Stock Option Plan (Filed as Exhibit A to the Registrants Proxy Statement for its 1991 Annual Meeting of
Shareholders (Commission File No. 1-11238) and incorporated herein by reference). |
|
10.14 |
|
|
Form of Indemnification Agreement (Filed as Exhibit 10.10 of the Registrants Annual Report on Form 10-K for the
fiscal year ended December 31, 1999 (Commission File No. 1-11238) and incorporated herein by reference). |
|
+10.15 |
|
|
1999 NYMAGIC, INC. Phantom Stock Plan (Filed as Exhibit 10.11 of the Registrants Annual Report on Form 10-K for
the fiscal year ended December 31, 1999 (Commission File No. 1-11238) and incorporated herein by reference). |
|
+10.16 |
|
|
Severance Agreement dated as of December 31, 2001 by and between NYMAGIC, INC. and Thomas J. Iacopelli (Filed as
Exhibit 10.2 of the Registrants Quarterly Report on Form 10-Q for the quarter ended June 30, 2002 (Commission
File No. 1-11238) and incorporated herein by reference). |
|
+10.17 |
|
|
Severance Agreement dated as of July 9, 2002 by and between NYMAGIC, INC. and Paul Hart. Filed as Exhibit 10.17
of the Registrants Annual Report on Form 10-K for the year ended December 31, 2003 (Commission File
No. 1-11238) and incorporated herein by reference. |
|
+10.18 |
|
|
NYMAGIC, INC. 2002 Nonqualified Stock Option Plan (Filed as Exhibit 10.2 of the Registrants Quarterly Report on
Form 10-Q for the quarter ended September 30, 2002 (Commission File No. 1-11238) and incorporated herein by
reference). |
|
+10.19 |
|
|
NYMAGIC, INC. Amended and Restated 2004 Long-Term Incentive Plan (Filed as Exhibit 10.19 to the Registrants
Annual Report on Form 10-K for the year ended December 31, 2004 (Commission File No. 1-11238) and incorporated
herein by reference). |
|
+10.20 |
|
|
NYMAGIC, INC. Employee Stock Purchase Plan (Filed as Appendix C to the Registrants Proxy Statement for its 2004
Annual Meeting of Stockholders (Commission File No. 1-11238) and incorporated herein by reference). |
|
+10.21 |
|
|
Forms of Election for Deferred Compensation Program (Filed as Exhibit 10.21 to the Registrants Annual Report on
Form 10-K for the year ended December 31, 2004 (Commission File No. 1-11238) and incorporated herein by
reference). |
|
10.22 |
|
|
Voting Agreement among Mariner Partners, Inc. and certain stockholders of the Company dated as of February 20,
2002, as amended March 1, 2002 (Filed as Exhibit 99.1 to the Schedule 13D filed by Mariner Partners, Inc. and
the other reporting persons named therein on March 4, 2002 (Commission File No. 5-40907) and incorporated herein
by reference). |
|
10.23 |
|
|
Amendment No. 2 dated as of January 27, 2003 to Voting Agreement among Mariner Partners, Inc. and certain
stockholders of the Company (Filed as Exhibit 99.2 to the Schedule 13D/A filed by Mariner Partners, Inc. and the
other reporting persons named therein on April 10, 2003 (Commission File No. 5-40907) and incorporated herein by
reference). |
|
10.24 |
|
|
Amendment No. 3 dated as of March 12, 2003 to Voting Agreement among Mariner Partners, Inc. and certain
stockholders of the Company (Filed as Exhibit 99.3 to the Schedule 13D/A filed by Mariner Partners, Inc. and the
other reporting person named therein on April 10, 2003 (Commission File No. 5-40907) and incorporated herein by
reference). |
|
10.25 |
|
|
Amendment No. 4 dated as of February 24, 2004 to Voting Agreement among Mariner Partners, Inc. and certain
stockholders of the Company. (Filed as Exhibit 10.22 of the Registrants Annual Report on Form 10-K for the year
ended December 31, 2003 (Commission File No. 1-11238) and incorporated herein by reference). |
|
10.26 |
|
|
Resolutions of the Board of Directors of the Companys subsidiary, New York Marine And General Insurance
Company, adopted July 18, 2002, committing not to pay dividends to the Company without the consent of the New
York State Department of Insurance prior to July 31, 2004 (Filed as Exhibit 10.1 to the Registrants original
Form 10-Q for the quarter ended June 30, 2003 (Commission File No. 1-11238) and incorporated herein by
reference). |
|
10.27 |
|
|
Resolutions of the Board of Directors of the Companys subsidiary, Gotham Insurance Company, adopted July 18,
2002, committing not to pay dividends to the Company without the consent of the New York State Department of
Insurance prior to July 31, 2004 (Filed as Exhibit 10.2 to the Registrants original Form 10-Q for the quarter
ended June 30, 2003 (Commission File No. 1-11238) and incorporated herein by reference). |
|
10.28 |
|
|
Amended and Restated Investment Management Agreement between Mariner Partners, Inc. and NYMAGIC, Inc. and New
York Marine And General Insurance Company and Gotham Insurance Company, dated as of December 6, 2002 (Filed as
Exhibit 10.6 of the Registrants amended Quarterly Report on Form 10-Q for the quarter ended June 30, 2003
(Commission File No. 1-11238) and incorporated herein by reference). |
|
10.29 |
|
|
Limited Partnership Agreement of Mariner Tiptree (CDO) Fund I, L.P. dated as of May 1, 2003 (Filed as
Exhibit 10.1 of the Registrants Quarterly Report on Form 10-Q for the quarter ended June 20, 2004 (Commission
File No. 1-11238) and incorporated herein by reference). |
|
10.30 |
|
|
Securities Purchase Agreement dated as of January 31, 2003 by and between NYMAGIC, Inc. and Conning Capital
Partners VI, L.P. (Filed as Exhibit 99.1 of the Registrants Current Report on Form 8-K dated January 31, 2003
(Commission File No. 1-11238) and incorporated herein by reference). |
|
10.31 |
|
|
Registration Rights Agreement dated as of January 31, 2003 by and between NYMAGIC, Inc. and Conning Capital
Partners VI, L.P. (Filed as Exhibit 99.2 of the Registrants Current Report on Form 8-K dated January 31, 2003
(Commission File No. 1-11238) and incorporated herein by reference). |
|
10.32 |
|
|
Option Certificate dated as of January 31, 2003 by and between NYMAGIC, INC. and Conning Capital Partners VI,
L.P. (Filed as Exhibit 99.3 of the Registrants Current Report on Form 8-K dated January 31, 2003 (Commission
File No. 1-11238) and incorporated herein by reference). |
|
10.33 |
|
|
Registration Rights Agreement dated as of March 11, 2004 by and among NYMAGIC, INC. and Keefe, Bruyette and
Woods, Inc. and the other initial purchasers referred to therein. (Filed as Exhibit 10.31 of the Registrants
Annual Report on Form 10-K for the year ended December 31, 2003 (Commission File No. 1-11238) and incorporated
herein by reference). |
|
10.34 |
|
|
Indenture dated as of March 11, 2004 by and between NYMAGIC, INC. and Wilmington Trust Company, as trustee
related to the Companys 6.50% Senior Notes due 2014. (Filed as Exhibit 10.32 of the Registrants Annual Report
on Form 10-K for the year ended December 31, 2003 (Commission File No. 1-11238) and incorporated herein by
reference). |
|
10.35 |
|
|
First Supplemental Indenture dated as of March 11, 2004 by and between NYMAGIC, INC. and Wilmington Trust
Company, as trustee. (Filed as Exhibit 10.33 of the Registrants Annual Report on Form 10-K for the year ended
December 31, 2003 (Commission File No. 1-11238) and incorporated herein by reference). |
- 62 -
|
|
|
|
|
|
10.36 |
|
|
Sublease dated as of December 12, 2002 by and between BNP Paribas and New York Marine And General Insurance
Company (Filed as Exhibit 10.20 of the Registrants Annual Report on Form 10-K for the fiscal year ended
December 31, 2002 (Commission File No. 1-11238) and incorporated herein by reference). |
|
10.37 |
|
|
Stock Purchase Agreement, dated as of January 7, 2005, by and among the Company and the sellers named therein
(Filed as Exhibit 10.1 of the Registrants Current Report on Form 8-K dated January 10, 2005 (Commission File
No. 1-11238) and incorporated herein by reference). |
|
+10.38 |
|
|
Consulting Agreement, dated as of April 6, 2005, by and between the Company and William D. Shaw, Jr. (Filed as
Exhibit 10.1 to the Registrants Current Report on Form 8-K (File No. 1-11238) filed on April 6, 2005 and
incorporated herein by reference). |
|
+10.39 |
|
|
Form of Unrestricted Share Award Agreement. (Filed as Exhibit 10.1 to the Registrants Quarterly Report on
Form 10-Q for the quarter ended March 31, 2005 (Commission File No. 1-11238) and incorporated herein by
reference). |
|
10.40 |
|
|
Amended and Restated Voting Agreement dated as of October 12, 2005, by and among Mark W. Blackman, Lionshead
Investments, LLC, Robert G. Simses, and Mariner Partners, Inc. (Filed as Exhibit 10.1 to the Registrants
Current Report on Form 8-K (File No. 1-11238) filed on October 14, 2005, and incorporated herein by reference). |
|
10.41 |
|
|
Sale and Purchase Agreement dated August 31, 2005 by and among the Robertson Group Limited and the Edinburgh
Woollen Mill (Group) Limited and MMO EU Limited. (Filed as Exhibit 10.1 to the Registrants Quarterly Report on
Form 10-Q for the quarter ended September 30, 2005 (Commission File No. 1-11238) and incorporated herein by
reference). |
|
10.42 |
|
|
Taxation Deed. (Filed as Exhibit 10.2 to the Registrants Quarterly Report on Form 10-Q for the quarter ended
September 30, 2005 (Commission File No. 1-11238) and incorporated herein by reference). |
|
+10.43 |
|
|
Form of Restricted Share Award Agreement. (Filed as Exhibit 10.3 to the Registrants Quarterly Report on
Form 10-Q for the quarter ended September 30, 2005 (Commission File No. 1-11238) and incorporated herein by
reference). |
|
10.44 |
|
|
Letter Agreement dated as of March 22, 2006 by and between NYMAGIC, INC. and Conning Capital Partners VI, L.P.
(Filed as Exhibit 99.1 to the Registrants Current Report on Form 8-K (File No. 1-11238) filed on March 28, 2006
and incorporated herein by reference). |
|
10.45 |
|
|
Amended and Restated Option Certificate dated as of March 22, 2006 by and between NYMAGIC, INC. and Conning
Capital Partners VI, L.P (Filed as Exhibit 99.1 to the Registrants Current Report on Form 8-K (File
No. 1-11238) filed on March 28, 2006 and incorporated herein by reference). |
|
+10.46 |
|
|
Consulting Agreement, dated as of March 30, 2006, by and between William D. Shaw, Jr. and NYMAGIC, INC.( (Filed
as Exhibit 10.1 to the Registrants Current Report on Form 8-K (File No. 1-11238) filed on March 31, 2006 and
incorporated herein by reference). |
|
+10.47 |
|
|
Employment Agreement, dated as of April 17, 2006, by and between A. George Kallop and NYMAGIC, INC. (Filed as
Exhibit 10.1 to the Registrants Current Report on Form 8-K (File No. 1-11238) filed on April 20, 2006 and
incorporated herein by reference). |
|
+10.48 |
|
|
Performance Share Award Agreement, dated as of April 17, 2006, by and between A. George Kallop and NYMAGIC, INC.
(Exhibits omitted. Will be provided to the SEC upon request.) (Filed as Exhibit 10.2 to the Registrants Current
Report on Form 8-K (File No. 1-11238) filed on April 20, 2006 and incorporated herein by reference). |
|
+10.49 |
|
|
Employment Agreement, dated as of April 18, 2006, by and between George R. Trumbull, III and NYMAGIC, INC.
(Filed as Exhibit 10.3 to the Registrants Current Report on Form 8-K (File No. 1-11238) filed on April 20, 2006
and incorporated herein by reference). |
|
+10.50 |
|
|
Performance Share Award Agreement, dated as of April 18, 2006, by and between George R. Trumbull, III and
NYMAGIC, INC. (Filed as Exhibit 10.4 to the Registrants Current Report on Form 8-K (File No. 1-11238) filed on
April 20, 2006 and incorporated herein by reference). |
|
10.51 |
|
|
Amended and Restated Limited Partnership Agreement by and between NYMAGIC, INC., Tricadia CDO Fund, L.P., as
general partner, and the limited partners named therein, dated as of August 1, 2006. (Filed as Exhibit 99.1 to
the Registrants Current Report on Form 8-K (File No. 1-11238) filed on August 23, 2006 and incorporated herein
by reference). |
|
+10.52 |
|
|
Employment Agreement, dated January 9, 2007, by and between George R. Trumbull, III and NYMAGIC, INC. (Filed as
Exhibit 10.52 of the Registrants Annual Report on Form 10-K for the year ended December 31, 2006, (Commission
File no. 1-11238) and incorporated herein by reference). |
|
+10.53 |
|
|
2004 Amended and Restated Long-Term Incentive Plan Award Agreement, dated January 9, 2007, by and between
NYMAGIC, INC. and George R. Trumbull, III. (Filed as Exhibit 10.53 of the Registrants Annual Report on
Form 10-K for the year ended December 31, 2006, (Commission File no. 1-11238) and incorporated herein by
reference). |
|
+10.54 |
|
|
Amendment to Employment Agreement, dated January 9, 2007, by and between A. George Kallop and NYMAGIC, INC.
(Filed as Exhibit 10.54 of the Registrants Annual Report on Form 10-K for the year ended December 31, 2006,
(Commission File no. 1-11238) and incorporated herein by reference). |
|
+10.55 |
|
|
2004 Amended and Restated Long-Term Incentive Plan Award Agreement, dated January 9, 2007, by and between
NYMAGIC, INC. and A. George Kallop. (Filed as Exhibit 10.55 of the Registrants Annual Report on Form 10-K for
the year ended December 31, 2006, (Commission File no. 1-11238) and incorporated herein by reference. |
|
+10.56 |
|
|
Consulting Agreement, dated as of March 22, 2007 by and between William D. Shaw, Jr. and NYMAGIC, INC. (Filed as
Exhibit 10.5 to the Registrants Quarterly Report on Form 10-Q for the quarter ended March 31, 2007 (Commission
File no. 1-11238) and incorporated herein by reference). |
|
+10.57 |
|
|
2004 Amended and Restated Long-term Incentive Plan Award Agreement, dated January 9, 2008, between A. George
Kallop and NYMAGIC, INC. (Filed as Exhibit 10.57 of the Registrants Annual Report on Form 10-K for the year
ended December 31, 2007, (Commission File no. 1-11238) and incorporated herein by reference). |
|
+10.58 |
|
|
2004 Amended and Restated Long-term Incentive Plan Award Agreement, dated January 10, 2008, between George R.
Trumbull, III and NYMAGIC, INC. (Filed as Exhibit 10.58 of the Registrants Annual Report on Form 10-K for the
year ended December 31, 2007, (Commission File no. 1-11238) and incorporated herein by reference). |
- 63 -
|
|
|
|
|
|
+10.59 |
|
|
Employment Agreement, dated January 10, 2008, between NYMAGIC, INC. and George R. Trumbull, III. (Filed as
Exhibit 10.53 of the Registrants Annual Report on Form 10-K for the year ended December 31, 2006, (Commission
File no. 1-11238) and incorporated herein by reference. (Filed as Exhibit 10.59 of the Registrants Annual
Report on Form 10-K for the year ended December 31, 2007, (Commission File no. 1-11238) and incorporated herein
by reference). |
|
+10.60 |
|
|
Severance Agreement, dated February 15, 2007, between Mutual Marine Office, Inc and Craig Lowenthal. (Filed as
Exhibit 10.60 of the Registrants Annual Report on Form 10-K for the year ended December 31, 2007, (Commission
File no. 1-11238) and incorporated herein by reference). |
|
10.61 |
|
|
Lease, dated June 5, 2007 by and between Metropolitan 919 Third Avenue LLC and New York Marine And General
Insurance Company. (Filed as Exhibit 10.61 of the Registrants Annual Report on Form 10-K for the year ended
December 31, 2007, (Commission File no. 1-11238) and incorporated herein by reference). |
|
+10.62 |
|
|
Consulting Agreement, effective January 1, 2008 and entered into April 4, 2008 between William D. Shaw, Jr. and
NYMAGIC, INC. (Filed as Exhibit 10.1 to the Registrants Quarterly Report on Form 10-Q for the quarter ended
March 31, 2008 (Commission File no. 1-11238) and incorporated herein by reference. |
|
+10.63 |
|
|
Consulting Agreement, effective May 21, 2008 and entered into June 16, 2008 between George R. Trumbull, III and
NYMAGIC, INC. (Filed as Exhibit 10.1 to the Registrants Quarterly Report on Form 10-Q for the quarter ended
June 30, 2008 (Commission File no. 1-11238) and incorporated herein by reference. |
|
+10.64 |
|
|
Engagement Agreement, effective May 21, 2008 and entered into July 8, 2008 between Robert G. Simses and NYMAGIC,
INC. (Filed as Exhibit 10.2 to the Registrants Quarterly Report on Form 10-Q for the quarter ended June 30,
2008 (Commission File no. 1-11238) and incorporated herein by reference. |
|
+10.65 |
|
|
NYMAGIC, INC. 2004 Amended and Restated Long-Term Incentive Plan, as amended May 21, 2008. (Filed as
Exhibit 10.1 to the Registrants Current Report on Form 8-K File No. 1-11238) filed on May 28, 2008 and
incorporated herein by reference). |
|
+10.66 |
|
|
Employment Agreement, dated as of January 1, 2009, by and between A. George Kallop and NYMAGIC, INC. (Filed as
Exhibit 10.1 to the Registrants Current Report on Form 8-K (File No. 1-11238) filed on February 4, 2009 and
incorporated herein by reference). |
|
+10.67 |
|
|
Performance Share Award Agreement, dated as of January 1, 2009, by and between A. George Kallop and NYMAGIC, INC.
(Exhibit omitted. Will be provided to the SEC upon request.) |
|
+10.68 |
|
|
Form of Indemnification Agreement by and between NYMAGIC, INC. and members of its Board of Directors, approved
as of December 3, 2008. (Filed as Exhibit 10.68 of the Registrants Annual Report on
Form 10-K for the year ended December 31, 2008, (Commission File no. 1-11238) and
incorporated herein by reference). |
|
+10.69 |
|
|
Amended and Restated Voting Agreement by and among Mark W. Blackman, Lionshead Investments, LLC and Robert G.
Simses, Trustee, and Mariner Partners, Inc. dated October 15, 2008.
(Filed as Exhibit 10.69 of the Registrants Annual Report on Form 10-K for the year
ended December 31, 2008, (Commission File no. 1-11238) and incorporated herein
by reference). |
|
+10.70 |
|
|
Letter Agreement by and among Mariner Partners, Inc. and Mark W. Blackman, Lionshead Investments, LLC and Robert
G. Simses, Trustee, and Mariner Partners, Inc. dated October 15, 2008.
(Filed as Exhibit 10.70 of the Registrants Annual Report on Form 10-K for the
year ended December 31, 2008, (Commission File no. 1-11238) and incorporated
herein by reference). |
|
10.71 |
|
|
2007 financial statements
of Tricadia CDO Fund, L.P.
(Filed as Exhibit 10.71 of the Registrants Annual Report on Form 10-K for the year
ended December 31, 2008, (Commission File no. 1-11238) and incorporated herein
by reference). |
|
+10.72 |
|
|
Employment Agreement, dated as of April 7, 2008, by and between Glenn R. Yanoff and NYMAGIC, INC.
(Filed as Exhibit 10.72 of the Registrants Annual Report on Form 10-K for the
year ended December 31, 2008, (Commission File no. 1-11238) and incorporated herein
by reference). |
|
+10.73 |
|
|
Performance Share Award Agreement, dated as of April 7, 2008, by and between
Glenn R. Yanoff and NYMAGIC INC. (Exhibit omitted. Will be provided to the SEC upon request.) |
|
+10.74 |
|
|
Separation Release and Consulting Agreement by and between Mark W. Blackman and NYMAGIC, INC. dated September
10, 2009 (files as Exhibit 10.1 to the Registrants Current Report on Form 8-K File No. 1-11238) filed on
September 23, 2009 and incorporated herein by reference. |
|
*21.1 |
|
|
Subsidiaries of the Registrant. |
|
*23.1 |
|
|
Consent of KPMG LLP. |
|
*31.1 |
|
|
Certification of A. George Kallop, President and Chief Executive Officer, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
*31.2 |
|
|
Certification of Thomas J. Iacopelli, Chief Financial Officer, as adopted pursuant to section 302 of the Sarbanes-Oxley Act of 2002. |
|
*32.1 |
|
|
Certification of A. George Kallop, President and Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. |
|
*32.2 |
|
|
Certification of Thomas J. Iacopelli, Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. |
|
|
|
* |
|
Filed herewith. |
|
+ |
|
Represents a management contract or compensatory plan or arrangement. |
- 64 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
|
|
|
|
|
NYMAGIC, INC.
(Registrant)
|
|
|
By: |
/s/ A. George Kallop
|
|
|
|
A. George Kallop |
|
|
|
President and Chief Executive Officer |
|
|
Date: March 10, 2010
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been
signed below by the following persons on behalf of the Registrant and in the capacities
and on the date indicated.
|
|
|
|
|
Name |
|
Title |
|
Date |
/s/ John R. Anderson
John R. Anderson
|
|
Director
|
|
March 10, 2010 |
|
|
|
|
|
/s/ Glenn J. Angiolillo
Glenn J. Angiolillo
|
|
Director
|
|
March 10, 2010 |
|
|
|
|
|
/s/ Ronald J. Artinian
Ronald J. Artinian
|
|
Director
|
|
March 10, 2010 |
|
|
|
|
|
/s/ John T. Baily
John T. Baily
|
|
Director
|
|
March 10, 2010 |
|
|
|
|
|
/s/ Mark W. Blackman
Mark W. Blackman
|
|
Director
|
|
March 10, 2010 |
|
|
|
|
|
/s/ Dennis Ferro
Dennis Ferro
|
|
Director
|
|
March 10, 2010 |
|
|
|
|
|
/s/ David E. Hoffman
David E. Hoffman
|
|
Director
|
|
March 10, 2010 |
|
|
|
|
|
/s/ A. George Kallop
A. George Kallop
|
|
Director and President and
Chief Executive Officer
|
|
March 10, 2010 |
|
|
|
|
|
/s/ William J. Michaelcheck
William J. Michaelcheck
|
|
Director
|
|
March 10, 2010 |
|
|
|
|
|
/s/ William D. Shaw, Jr.
William D. Shaw, Jr.
|
|
Director
|
|
March 10, 2010 |
|
|
|
|
|
/s/ Robert G. Simses
Robert G. Simses
|
|
Director and Chairman
|
|
March 10, 2010 |
|
|
|
|
|
/s/ George R. Trumbull, III
George R. Trumbull, III
|
|
Director and Senior Executive
Vice President
|
|
March 12, 2010 |
|
|
|
|
|
/s/ David W. Young
David W. Young
|
|
Director
|
|
March 10, 2010 |
|
|
|
|
|
/s/ Thomas J. Iacopelli
Thomas J. Iacopelli
|
|
Principal Accounting Officer and
Chief
Financial Officer
|
|
March 10, 2010 |
- 65 -
NYMAGIC, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
|
|
|
|
|
|
|
|
F-2 |
|
|
|
|
|
|
|
|
|
F-3 |
|
|
|
|
|
|
|
|
|
F-4 |
|
|
|
|
|
|
|
|
|
F-5 |
|
|
|
|
|
|
|
|
|
F-6 |
|
|
|
|
|
|
|
|
|
F-7 |
|
|
|
|
|
|
|
|
|
F-8 |
|
|
|
|
|
|
|
|
|
F-9 |
|
|
|
|
|
|
|
|
|
F-42 |
|
|
|
|
|
|
|
|
|
F-45 |
|
|
|
|
|
|
|
|
|
F-46 |
|
|
|
|
|
|
|
|
|
F-47 |
|
F-1
MANAGEMENTS REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over
financial reporting, and for performing an assessment of the effectiveness of internal
control over financial reporting as of December 31, 2009. Internal control over financial
reporting is a process designed to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes
in accordance with generally accepted accounting principles. The Companys system of
internal control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the company;
(ii) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and,
(iii) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the Companys assets that could have a
material effect on the financial statements.
All internal control systems, no matter how well designed, have inherent limitations.
Therefore, even those systems determined to be effective can provide only reasonable
assurance with respect to financial statement preparation and presentation.
Management performed an assessment of the effectiveness of the Companys internal control
over financial reporting as of December 31, 2009 based upon criteria in Internal Control
Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). Based on our assessment, management determined that the
Companys internal control over financial reporting was effective as of December 31, 2009
based on the criteria in Internal Control-Integrated Framework issued by COSO.
The Companys independent registered public accounting firm, KPMG LLP, has audited the
effectiveness of the Companys internal control over financial reporting as of December
31, 2009.
Dated: March 12, 2010
|
|
|
|
|
|
|
A. George Kallop, |
|
|
|
|
President and
|
|
Thomas J. Iacopelli, |
|
|
Chief Executive Officer
|
|
Chief Financial Officer |
F-2
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
NYMAGIC, INC.:
We have audited NYMAGIC, INC. and subsidiaries internal control over financial reporting
as of December 31, 2009, based on criteria established in Internal Control Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO). NYMAGIC, INC.s management is responsible for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of internal
control over financial reporting, included in the accompanying Managements Report on
Internal Control over Financial Reporting. Our responsibility is to express an opinion on
the Companys internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over
financial reporting was maintained in all material respects. Our audit included obtaining
an understanding of internal control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit also included
performing such other procedures as we considered necessary in the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted
accounting principles. A companys internal control over financial reporting includes
those policies and procedures that (1) pertain to the maintenance of records that, in
reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the company; (2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the companys assets that could have a
material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not
prevent or detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.
In our opinion, NYMAGIC, INC. maintained, in all material respects, effective internal
control over financial reporting as of December 31, 2009 based on criteria established in
Internal Control Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO).
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of NYMAGIC, INC. and
subsidiaries as of December 31, 2009 and 2008 and the related consolidated statements of
operation, shareholders equity and cash flow for each of the years in the three-year
period ended December 31, 2009, and our report dated March 12, 2010 expressed an
unqualified opinion on those consolidated financial statements, and
which refers to a change in the
Companys changed method of accounting for other-than-temporary impairments of debt
securities as of April 1, 2009 due to the adoption of new
Financial Accounting Standards Board guidance.
/s/ KPMG
LLP
New York, New York
March 12, 2010
F-3
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
NYMAGIC, INC.:
We have audited the accompanying consolidated balance sheet of NYMAGIC, INC. and
subsidiaries as of December 31, 2009 and 2008, and the related consolidated statements of
operation, shareholders equity and cash flow for each of the years in the three-year
period ended December 31, 2009. In connection with our audits of the consolidated
financial statements, we also have audited financial statement schedules as listed in the
accompanying index. These consolidated financial statements and financial statement
schedules are the responsibility of the Companys management. Our responsibility is to
express an opinion on these consolidated financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of NYMAGIC, INC. and subsidiaries as of
December 31, 2009 and 2008, and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 2009, in conformity with
U.S. generally accepted accounting principles. Also in our opinion, the related
financial statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
As discussed in Note 1 to the consolidated financial statements, the Company changed its
method of accounting for other-than-temporary impairments of debt securities as of April
1, 2009 due to the adoption of new Financial Accounting Standards
Board guidance.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), NYMAGIC, INC. and subsidiaries internal control over
financial reporting as of December 31, 2009, based on criteria established in Internal
Control Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO), and our report dated March 12, 2010, expressed an unqualified
opinion on the effectiveness of the Companys internal control over financial reporting.
/s/ KPMG
LLP
New York, New York
March 12, 2010
F-4
NYMAGIC, INC.
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
ASSETS |
|
|
|
|
|
|
|
|
Investments: |
|
|
|
|
|
|
|
|
Fixed maturities: |
|
|
|
|
|
|
|
|
Held to maturity at amortized cost (fair value $59,327,813 and
$42,329,432) |
|
$ |
56,589,704 |
|
|
$ |
61,246,212 |
|
Available for sale at fair value (amortized cost $385,378,334 and
$149,402,001) |
|
|
386,519,408 |
|
|
|
144,978,426 |
|
Trading at fair value (amortized cost $0 and $22,203,883) |
|
|
|
|
|
|
17,399,090 |
|
Equity securities available for sale at fair value (cost $117,968 and $0) |
|
|
117,968 |
|
|
|
|
|
Equity securities trading at fair value (cost $0 and $15,159,200) |
|
|
|
|
|
|
11,822,620 |
|
Commercial loans at fair value (amortized cost $7,738,677 and $6,907,368) |
|
|
5,001,118 |
|
|
|
2,690,317 |
|
Limited partnerships at equity (cost $127,379,526 and $98,101,553) |
|
|
151,891,838 |
|
|
|
122,927,697 |
|
Short-term investments |
|
|
8,788,718 |
|
|
|
110,249,779 |
|
Cash and cash equivalents |
|
|
66,755,909 |
|
|
|
75,672,102 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and investments |
|
|
675,664,663 |
|
|
|
546,986,243 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued investment income |
|
|
3,365,535 |
|
|
|
4,978,920 |
|
Premiums and other receivables, net |
|
|
24,753,976 |
|
|
|
23,426,525 |
|
Receivable for investments disposed |
|
|
4,221,356 |
|
|
|
25,415,261 |
|
Reinsurance receivables on unpaid losses, net |
|
|
205,077,080 |
|
|
|
213,906,569 |
|
Reinsurance receivables on paid losses, net |
|
|
13,116,607 |
|
|
|
28,429,945 |
|
Deferred policy acquisition costs |
|
|
16,438,088 |
|
|
|
14,663,710 |
|
Prepaid reinsurance premiums |
|
|
19,643,170 |
|
|
|
19,225,185 |
|
Deferred income taxes |
|
|
29,251,550 |
|
|
|
35,514,597 |
|
Property, improvements and equipment, net |
|
|
14,602,141 |
|
|
|
10,033,489 |
|
Other assets |
|
|
4,074,424 |
|
|
|
23,895,902 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,010,208,590 |
|
|
$ |
946,476,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
Unpaid losses and loss adjustment expenses |
|
$ |
555,485,502 |
|
|
$ |
548,749,589 |
|
Reserve for unearned premiums |
|
|
89,458,244 |
|
|
|
83,364,396 |
|
Ceded reinsurance payable |
|
|
13,580,535 |
|
|
|
23,809,871 |
|
Notes payable |
|
|
100,000,000 |
|
|
|
100,000,000 |
|
Dividends payable |
|
|
737,308 |
|
|
|
671,059 |
|
Other liabilities |
|
|
34,937,369 |
|
|
|
25,808,669 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
794,198,958 |
|
|
|
782,403,584 |
|
|
|
|
|
|
|
|
|
|
SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
Common stock |
|
|
15,796,465 |
|
|
|
15,742,215 |
|
Paid-in capital |
|
|
51,699,572 |
|
|
|
49,539,886 |
|
Accumulated other comprehensive (loss) |
|
|
(22,977,781 |
) |
|
|
(2,875,317 |
) |
Retained earnings |
|
|
259,527,967 |
|
|
|
189,702,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
304,046,223 |
|
|
|
252,109,353 |
|
Treasury stock, at cost, 7,333,977 and 7,333,977 shares |
|
|
(88,036,591 |
) |
|
|
(88,036,591 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
216,009,632 |
|
|
|
164,072,762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
1,010,208,590 |
|
|
$ |
946,476,346 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-5
NYMAGIC, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Net premiums earned |
|
$ |
156,971,059 |
|
|
$ |
167,072,696 |
|
|
$ |
166,095,871 |
|
Net investment income (loss) |
|
|
41,667,912 |
|
|
|
(63,502,847 |
) |
|
|
35,489,369 |
|
Total other-than-temporary impairments |
|
|
(478,407 |
) |
|
|
(46,233,319 |
) |
|
|
(6,681,566 |
) |
Portion of loss recognized in OCI (before taxes) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impairment loss recognized in earnings |
|
|
(478,407 |
) |
|
|
(46,233,319 |
) |
|
|
(6,681,566 |
) |
Net realized investment gains (losses) |
|
|
15,733,104 |
|
|
|
(1,431,447 |
) |
|
|
(221,286 |
) |
Commission and other income (loss), net |
|
|
3,601,823 |
|
|
|
275,836 |
|
|
|
(4,245,541 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenues |
|
|
217,495,491 |
|
|
|
56,180,919 |
|
|
|
190,436,847 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Net losses and loss adjustment expenses incurred |
|
|
75,504,427 |
|
|
|
109,958,363 |
|
|
|
89,844,108 |
|
Policy acquisition expenses |
|
|
36,852,771 |
|
|
|
38,669,739 |
|
|
|
37,694,535 |
|
General and administrative expenses |
|
|
42,552,353 |
|
|
|
38,611,754 |
|
|
|
36,018,289 |
|
Interest expense |
|
|
6,730,562 |
|
|
|
6,716,208 |
|
|
|
6,725,542 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total expenses |
|
|
161,640,113 |
|
|
|
193,956,064 |
|
|
|
170,282,474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes |
|
|
55,855,378 |
|
|
|
(137,775,145 |
) |
|
|
20,154,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provision: |
|
|
|
|
|
|
|
|
|
|
|
|
Current |
|
|
7,357,794 |
|
|
|
(14,026,280 |
) |
|
|
10,508,537 |
|
Deferred |
|
|
3,034,301 |
|
|
|
(19,413,786 |
) |
|
|
(3,726,514 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total income tax expense (benefit) |
|
|
10,392,095 |
|
|
|
(33,440,066 |
) |
|
|
6,782,023 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
45,463,283 |
|
|
$ |
(104,335,079 |
) |
|
$ |
13,372,350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares of common stock outstanding-basic |
|
|
8,427,554 |
|
|
|
8,533,924 |
|
|
|
8,895,729 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic (loss) earnings per share |
|
$ |
5.39 |
|
|
$ |
(12.23 |
) |
|
$ |
1.50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares of common stock outstanding-diluted |
|
|
8,636,673 |
|
|
|
8,533,924 |
|
|
|
9,190,228 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted (loss) earnings per share |
|
$ |
5.26 |
|
|
$ |
(12.23 |
) |
|
$ |
1.46 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-6
NYMAGIC, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Common stock: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
|
$ |
15,742,215 |
|
|
$ |
15,672,090 |
|
|
$ |
15,505,815 |
|
Shares issued |
|
|
54,250 |
|
|
|
70,125 |
|
|
|
166,275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year |
|
|
15,796,465 |
|
|
|
15,742,215 |
|
|
|
15,672,090 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paid-in capital: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
|
$ |
49,539,886 |
|
|
$ |
47,313,015 |
|
|
$ |
42,219,900 |
|
Shares issued and other |
|
|
2,159,686 |
|
|
|
2,226,871 |
|
|
|
5,093,115 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year |
|
|
51,699,572 |
|
|
|
49,539,886 |
|
|
|
47,313,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated other comprehensive (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
|
$ |
(2,875,317 |
) |
|
$ |
202,196 |
|
|
$ |
87,432 |
|
Cumulative effect of adjustment due to
adoption of other-than-temporary
impairment guidance under ASC 320, net of
deferred tax effect of $14,053,147, $0
and $0 |
|
|
(26,098,701 |
) |
|
|
|
|
|
|
|
|
Non-credit portion of
other-than-temporary impairment losses
recognized in other comprehensive income,
net of deferred tax effect of $0, $0 and
$0 |
|
|
478,407 |
|
|
|
|
|
|
|
|
|
Other net unrealized gains (losses) on
investment securities, net of deferred
tax of $3,228,743, $(1,657,136) and $61,799 |
|
|
5,517,830 |
|
|
|
(3,077,513 |
) |
|
|
114,764 |
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year |
|
|
(22,977,781 |
) |
|
|
(2,875,317 |
) |
|
|
202,196 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retained earnings: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
|
$ |
189,702,569 |
|
|
$ |
296,641,235 |
|
|
$ |
286,147,400 |
|
Net income (loss) |
|
|
45,463,283 |
|
|
|
(104,335,079 |
) |
|
|
13,372,350 |
|
Cumulative
effect of adjustment due to adoption of other-than-temporary
impairment guidance under ASC 320, net of deferred tax effect of
$14,053,147, $0 and $0 |
|
|
26,098,701 |
|
|
|
|
|
|
|
|
|
Dividends declared |
|
|
(1,736,586 |
) |
|
|
(2,603,587 |
) |
|
|
(2,878,515 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year |
|
|
259,527,967 |
|
|
|
189,702,569 |
|
|
|
296,641,235 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury stock, at cost: |
|
|
|
|
|
|
|
|
|
|
|
|
Balance, beginning of year |
|
$ |
(88,036,591 |
) |
|
$ |
(80,382,989 |
) |
|
$ |
(73,261,001 |
) |
Net purchase of treasury shares |
|
|
|
|
|
|
(7,653,602 |
) |
|
|
(7,121,988 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of year |
|
|
(88,036,591 |
) |
|
|
(88,036,591 |
) |
|
|
(80,382,989 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Shareholders Equity |
|
|
216,009,632 |
|
|
|
164,072,762 |
|
|
|
279,445,547 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
45,463,283 |
|
|
$ |
(104,335,079 |
) |
|
$ |
13,372,350 |
|
Other comprehensive (loss) income |
|
|
5,996,237 |
|
|
|
(3,077,513 |
) |
|
|
114,764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive (loss) income |
|
|
51,459,520 |
|
|
|
(107,412,592 |
) |
|
|
13,487,114 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
|
Common stock, par value $1 each: |
|
|
|
|
|
|
|
|
|
|
|
|
Issued, beginning of year |
|
|
15,742,215 |
|
|
|
15,672,090 |
|
|
|
15,505,815 |
|
Shares issued |
|
|
54,250 |
|
|
|
70,125 |
|
|
|
166,275 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued, end of year |
|
|
15,796,465 |
|
|
|
15,742,215 |
|
|
|
15,672,090 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, authorized shares, par value $1 each |
|
|
30,000,000 |
|
|
|
30,000,000 |
|
|
|
30,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock, shares outstanding, end of year |
|
|
8,462,488 |
|
|
|
8,408,238 |
|
|
|
8,707,013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per share |
|
$ |
.20 |
|
|
$ |
.32 |
|
|
$ |
.32 |
|
The accompanying notes are an integral part of these consolidated financial statements.
F-7
NYMAGIC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income(loss) |
|
$ |
45,463,283 |
|
|
$ |
(104,335,079 |
) |
|
$ |
13,372,350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income to net cash provided by
(used in) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Provision for deferred taxes |
|
|
3,034,301 |
|
|
|
(19,413,786 |
) |
|
|
(3,726,514 |
) |
Net realized investment (gain) loss |
|
|
(15,733,104 |
) |
|
|
1,431,447 |
|
|
|
221,286 |
|
Net impairment loss recognized in earnings |
|
|
478,407 |
|
|
|
46,233,319 |
|
|
|
6,681,566 |
|
Equity in (earnings) loss of limited partnerships |
|
|
(26,662,449 |
) |
|
|
26,805,322 |
|
|
|
(12,985,185 |
) |
Net amortization from bonds and commercial loans |
|
|
1,045,888 |
|
|
|
487,334 |
|
|
|
141,774 |
|
Depreciation and other, net |
|
|
1,493,929 |
|
|
|
1,414,538 |
|
|
|
1,295,852 |
|
Trading portfolio activities |
|
|
29,217,974 |
|
|
|
78,614,981 |
|
|
|
(116,177,935 |
) |
Commercial loan activities |
|
|
(2,315,763 |
) |
|
|
5,609,915 |
|
|
|
|
|
Loss on abandonment of computer equipment and software |
|
|
|
|
|
|
|
|
|
|
5,315,965 |
|
Changes in: |
|
|
|
|
|
|
|
|
|
|
|
|
Premiums and other receivables |
|
|
(1,327,451 |
) |
|
|
2,848,552 |
|
|
|
2,991,276 |
|
Reinsurance receivables paid and unpaid, net |
|
|
24,142,827 |
|
|
|
46,597,048 |
|
|
|
44,852,353 |
|
Ceded reinsurance payable |
|
|
(10,229,336 |
) |
|
|
(3,261,307 |
) |
|
|
(17,721,643 |
) |
Accrued investment income |
|
|
1,613,385 |
|
|
|
(2,388,256 |
) |
|
|
(556,719 |
) |
Deferred policy acquisition costs |
|
|
(1,774,378 |
) |
|
|
325,875 |
|
|
|
(1,617,953 |
) |
Prepaid reinsurance premiums |
|
|
(417,985 |
) |
|
|
2,524,478 |
|
|
|
7,829,765 |
|
Other assets |
|
|
19,821,478 |
|
|
|
(13,731,345 |
) |
|
|
(3,311,785 |
) |
Unpaid losses and loss adjustment expenses |
|
|
6,735,913 |
|
|
|
(7,785,755 |
) |
|
|
(22,643,290 |
) |
Reserve for unearned premiums |
|
|
6,093,848 |
|
|
|
(4,213,101 |
) |
|
|
(6,072,330 |
) |
Other liabilities |
|
|
9,128,700 |
|
|
|
(133,227 |
) |
|
|
(4,244,598 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total adjustments |
|
|
44,346,184 |
|
|
|
161,966,032 |
|
|
|
(119,728,115 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
89,809,467 |
|
|
|
57,630,953 |
|
|
|
(106,355,765 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Held to maturity fixed maturities matured, repaid and redeemed |
|
|
8,908,629 |
|
|
|
1,713,687 |
|
|
|
|
|
Available for sale fixed maturities acquired |
|
|
(1,128,121,330 |
) |
|
|
(172,844,616 |
) |
|
|
(23,946,795 |
) |
Available for sale fixed maturities sold |
|
|
905,906,646 |
|
|
|
58,699,634 |
|
|
|
179,432,179 |
|
Available for sale fixed maturities matured, repaid and redeemed |
|
|
|
|
|
|
17,651,152 |
|
|
|
2,081,000 |
|
Available for sale common stocks acquired |
|
|
(117,968 |
) |
|
|
|
|
|
|
|
|
Capital contributed to limited partnerships |
|
|
(62,891,682 |
) |
|
|
(46,459,990 |
) |
|
|
(43,750,000 |
) |
Distributions and redemptions from limited partnerships |
|
|
60,589,990 |
|
|
|
85,022,517 |
|
|
|
50,763,951 |
|
Net sale (purchase) of short-term investments |
|
|
101,325,133 |
|
|
|
(111,478,461 |
) |
|
|
136,671,984 |
|
Receivable for investments disposed and not yet settled |
|
|
21,193,905 |
|
|
|
(2,529,338 |
) |
|
|
(4,080,290 |
) |
Acquisition of property & equipment, net |
|
|
(6,062,581 |
) |
|
|
(6,631,191 |
) |
|
|
(1,478,683 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities |
|
|
(99,269,258 |
) |
|
|
(176,856,606 |
) |
|
|
295,693,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from stock issuance and other |
|
|
2,213,936 |
|
|
|
2,296,996 |
|
|
|
5,259,390 |
|
Cash dividends paid to stockholders |
|
|
(1,670,338 |
) |
|
|
(2,747,795 |
) |
|
|
(2,852,228 |
) |
Net purchase of treasury stock |
|
|
|
|
|
|
(7,653,602 |
) |
|
|
(7,121,988 |
) |
Payable for treasury stock purchased and not yet settled |
|
|
|
|
|
|
(1,911,187 |
) |
|
|
1,911,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
543,598 |
|
|
|
(10,015,588 |
) |
|
|
(2,803,639 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (decrease) increase in cash and cash equivalents |
|
|
(8,916,193 |
) |
|
|
(129,241,241 |
) |
|
|
186,533,942 |
|
Cash and cash equivalents at beginning of year |
|
|
75,672,102 |
|
|
|
204,913,343 |
|
|
|
18,379,401 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
66,755,909 |
|
|
$ |
75,672,102 |
|
|
$ |
204,913,343 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-8
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary Of Significant Accounting Policies:
Nature of operations
NYMAGIC, INC. (the Company or NYMAGIC), through its subsidiaries, specialize in
underwriting ocean marine, inland marine/fire, other liability and aircraft insurance
through insurance pools managed by Mutual Marine Office, Inc. (MMO), Pacific Mutual
Marine Office, Inc. (PMMO), and Mutual Marine Office of the Midwest, Inc. (Midwest).
MMO, located in New York, PMMO located in San Francisco, and Midwest, located in Chicago,
manage the insurance pools in which the Companys insurance subsidiaries, New York Marine
And General Insurance Company (New York Marine) and Gotham Insurance Company
(Gotham), participate. All premiums, losses and expenses are prorated among pool
members in accordance with their pool participation percentages. Effective January 1,
1997 and subsequent, the Company increased to 100% its participation in the business
produced by the pools. In 2007, the Company closed PMMOs San Francisco office and its
operations were absorbed by MMO. In 2005, the Company formed Arizona Marine And General
Insurance Company, which was renamed Southwest Marine And General Insurance Company
(Southwest Marine) in July 2006, as a wholly owned subsidiary in the State of Arizona.
Southwest Marine writes, among other lines of insurance, excess and surplus lines in New
York.
Basis of reporting
The consolidated financial statements have been prepared on the basis of accounting
principles generally accepted in the United States of America (GAAP), which differ in
certain material respects from the accounting principles prescribed or permitted by state
insurance regulatory authorities for the Companys domestic insurance subsidiaries. The
principal differences recorded under GAAP are limited partnership changes in fair value
recognized through operations, deferred policy acquisition costs, an allowance for
doubtful accounts, limitations on deferred income taxes, and fixed maturities held for
sale and held for trading are carried at fair value.
The preparation of the consolidated financial statements in conformity with GAAP 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
consolidated financial statements and the reported amounts of revenues and claims and
expenses during the reporting period. Actual results could differ from those estimates.
Consolidation
The consolidated financial statements include the accounts of the Company, three
insurance subsidiaries, New York Marine, Gotham and Southwest Marine, and three agency
subsidiaries. Gotham is owned 25% by the Company and 75% by New York Marine. New York
Marine owns 100% of Southwest Marine. Southwest Marine and Gotham are consolidated in the
financial statements, as they are 100% indirect subsidiaries of NYMAGIC, INC. All other
subsidiaries are wholly owned by NYMAGIC.
Investments
Fixed maturities categorized as held to maturity are reported at amortized cost and
include those fixed income investments where the Company has the ability and the positive
intent to hold such investments to maturity. The Company has transferred its residential
mortgage-backed securities (RMBS) to the held to maturity classification effective
October 1, 2008 and has used the fair value of these securities on such date as its
adjusted cost basis. The Company has both the ability and the intent to hold such
securities to their respective maturities. Fixed maturities categorized as available for
sale are reported at estimated fair value and include those fixed income investments
where the Companys intent to carry such investments to maturity may be affected in
future periods by changes in market interest rates, tax position or credit quality.
Unrealized gains and losses, net of related deferred income taxes, on available for sale
securities are reflected in accumulated other comprehensive (loss) income in
shareholders equity. All other fixed maturities are categorized as trading and are also
reported at estimated fair value. Trading securities are marked to fair value with the
change recognized in net investment income during the current period. Any realized gains
and losses resulting from the sales of such securities are also recognized in net
investment income. The cost of fixed maturities is adjusted for the amortization of any
purchase premiums and the accretion of purchase discounts from the time of purchase of
the security to its sale or maturity. This amortization of premium and accretion of
discount is recorded in net investment income.
For residential mortgage-backed securities, interest income is recognized using an
effective yield based upon anticipated prepayments and the estimated economic life of the
securities. The effective yield reflects actual payments-to-date plus anticipated future
payments. Quarterly, prepayments received are compared to scheduled prepayments to
recalculate the effective yield. Any resulting difference from this comparison is
included as an adjustment to net investment income and future income is recognized using
the effective yield arising from the revised changes in assumptions of cash flows.
F-9
Equity securities, categorized as trading or available for sale, are comprised of
non-redeemable preferred stock and/or common stock and are reported at estimated fair
value. Trading securities are marked to fair value with the change recognized in net
investment income during the current period. Any realized gains and losses resulting from
the sales of such securities are also recognized in net investment income. Unrealized
gains and losses, net of related deferred income taxes, on available for sale securities
are reflected in accumulated other comprehensive (loss) income in shareholders equity.
Investments in limited partnerships are reported under the equity method, which includes
the cost of the investment and the subsequent proportional share of any partnership
earnings or losses. Under the equity method, the partnership earnings or losses are
recorded as investment income. The Companys investments in limited partnership hedge
funds include interests in limited partnerships and limited liability companies.
Investment transactions are recorded on their trade date with balances pending settlement
reflected in the consolidated balance sheets as a receivable for investments disposed or
payable for investments securities acquired. Short-term investments, which have maturity
of one year or less from the date of purchase, are carried at amortized cost, which
approximates fair value. The Company considers all highly liquid debt instruments
purchased with an original maturity of three months or less to be cash equivalents.
The carrying value of our hedge fund investments is based upon our equity interest in the
financial statements of the limited partnership, whose general partners use various
methods to estimate the net asset value of the hedge fund. Most funds generally utilize
the market approach whereby prices are used from market-generated transactions involving
identical or comparable assets or liabilities.
Net realized investment gains and losses (determined on the basis of first in first out)
also include any declines in value which are considered to be other-than-temporary.
Management reviews investments for other-than-temporary impairments based upon
quantitative and qualitative criteria that include, but not limited to, downgrades in
rating agency levels for securities, the duration and extent of declines in fair value of
the security below its cost or amortized cost, interest rate trends, the Companys intent
to hold the security, market conditions, and the regulatory environment for the
securitys issuer. The Company may also consider cash flow models and matrix analyses in
connection with its other-than-temporary impairment evaluation. Effective April 1, 2009,
under ASC 320 and ASC 958, Recognition and Presentation of Other-Than-Temporary
Impairments impairment is considered to be other than temporary if an entity (1) intends
to sell the security, (2) more likely than not will be required to sell the security
before recovering its amortized cost basis, or (3) does not expect to recover the
securitys entire amortized cost basis.. Credit impairment occurs under ASC 320 if the
present value of cash flows expected to be collected from the debt security is less than
the amortized cost basis of the security.
Derivatives
The Company enters into derivatives in the course of its operations. Changes in the fair
value of any derivatives are recorded to results of operations. The Company did not hold
any derivatives at December 31, 2009 or 2008.
Premium and policy acquisition cost recognition
Premiums and policy acquisition costs are reflected in income and expense on a monthly
pro-rata basis over the terms of the respective policies. Accordingly, unearned premium
reserves are established for the portion of premiums written applicable to unexpired
policies in force, and acquisition costs, consisting mainly of net brokerage commissions
and premium taxes relating to these unearned premiums, are deferred to the extent
recoverable. The determination of acquisition costs to be deferred considers historical
and current loss and loss adjustment expense experience. In measuring the carrying value
of deferred policy acquisition costs, consideration is also given to anticipated
investment income using an interest rate of up to 4% for 2009 and 5% for 2008 and 2007.
The Company has provided an allowance for uncollectible premiums receivables of $300,000
as of December 31, 2009 and 2008.
Revenue recognition
Profit commission revenue derived from the reinsurance transactions of the insurance
pools is recognized when such amount becomes earned as provided in the treaties to the
respective reinsurers. The profit commission becomes due shortly after the treaty
expires.
Reinsurance
The Companys insurance subsidiaries participate in various reinsurance agreements on
both an assumed and ceded basis. The Company uses various types of reinsurance, including
quota share, excess of loss and facultative agreements, to spread the risk of loss among
several reinsurers and to limit its exposure from losses on any one occurrence. Any
recoverable due from reinsurers is recorded in the period in which the related gross
liability is established.
Reinsurance reinstatement premiums are incurred by the Company based upon the provisions
of the reinsurance contracts. In the event of a loss, the Company may be obligated to pay
additional reinstatement premiums under its excess of loss reinsurance treaties.
F-10
The Company generally accounts for reinsurance receivables and prepaid reinsurance
premiums as assets.
The Company maintains an allowance for doubtful accounts, which is based on managements
review of amounts due from insolvent or financially impaired companies. Management
continually reviews and updates such estimates for any changes in the financial status of
these companies.
Depreciation
Property, equipment and leasehold improvements are depreciated over their estimated
useful lives, which are approximately 3 to 12 years. Costs incurred in developing or
obtaining software are capitalized and depreciated over their estimated useful lives.
Income taxes
The Company and its subsidiaries file a consolidated federal income tax return. The
Company provides deferred income taxes on temporary differences between the financial
reporting basis and the tax basis of the Companys assets and liabilities based upon
enacted tax rates. The effect of a change in tax rates is recognized in income in the
period of change. The Company provides for a valuation allowance on certain deferred tax
assets primarily as a result of the uncertainty that the Company can fully utilize all
deferred taxes that arose from capital losses incurred. This uncertainty stems from
issues relating to the current economic conditions, limitations on the period that such
losses can be carried forward prior to expiring, and the limitation or nature of gains
that can be used to offset the capital losses. To the extent that the Company generates
future capital gains to offset these losses, it may recover some or all of this entire
amount.
Fair values of financial instruments
For fixed maturities and equity securities, quoted prices in active markets are used to
determine the fair value. When such information is not available, as in the case of
securities that are not publicly traded, other valuation techniques are employed. These
valuation techniques may include, but are not limited to, using independent pricing
sources (dealer marks), identifying comparable securities with quoted market prices and
using internally prepared valuations based on certain modeling and pricing methods.
The fair value of the Companys investments, including commercial loans, is disclosed in
Note 3. See Note 10 for the fair value of the Companys 6.5% senior notes.
Incurred losses
Unpaid losses are based on individual case estimates for losses reported. A provision is
also included, based on past experience, for incurred but not reported (IBNR) claims,
salvage and subrogation recoveries and for loss adjustment expenses. The method of making
such estimates and for establishing the resulting reserves is continually reviewed and
updated and any changes resulting there from are reflected in operating results
currently. See Note 5 for further discussion.
Debt issuance costs
Debt issuance costs associated with the $100 million 6.5% senior notes due March 15, 2014
are being amortized over the term of the senior debt using the interest method.
Share-based compensation
The Company records compensation costs using the fair value of all share awards.
Compensation expense is recorded pro-rata over the vesting period of the award.
Basic and diluted earnings per share
Basic earnings per share is calculated by dividing net income by the weighted average
number of common shares outstanding during the year. Diluted earnings per share is
calculated by dividing net income by the weighted average number of common shares
outstanding during the year and the dilutive effect of vested and non-vested equity
awards and stock options that would be assumed to be exercised as of the balance sheet
date, as determined using the treasury stock method. See Note 14 for a reconciliation of
the shares outstanding in determining basic and diluted earnings per share.
Reclassification
Certain accounts in the prior years financial statements have been reclassified to
conform to the 2009 presentation.
F-11
Effects of recent accounting pronouncements
Adoption of new accounting pronouncements:
The FASB issued The FASB Accounting Standards Codification and the Hierarchy of
Generally Accepted Accounting Principles (ASC 105). ASC 105 identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements that are presented in conformity with U.S. GAAP. ASC
105 establishes the FASB Accounting Standards Codification (the Codification) as the
single source of authoritative accounting principles recognized by the FASB in the
preparation of financial statements in conformity with U.S. GAAP. The Codification does
not create new accounting and reporting guidance; rather, it reorganizes U.S. GAAP
pronouncements into approximately 90 topics within a consistent structure. All guidance
contained in the Codification carries an equal level of authority. Relevant portions of
authoritative content, issued by the SEC, for SEC registrants, have been included in the
Codification. After the effective date of ASC 105, all nongrandfathered, literature not
included in the Codification is superseded and deemed nonauthoritative (other than
Securities and Exchange guidance for publicly-traded companies). ASC 105 is effective for
financial statements issued for interim and annual periods ending after September 15,
2009. The adoption of ASC 105 did not have an impact on the Companys financial
condition, results of operations or liquidity.
In February 2008, the FASB issued FSP FAS 157-2 (ASC 820), Effective Date of FASB
Statement No. 157, which permits a one-year deferral of the application of SFAS 157, Fair
Value Measurements, for all non-financial assets and non-financial liabilities, except
those that are recognized or disclosed at fair value in the financial statements on a
recurring basis (at least annually). The Company adopted SFAS 157 for non-financial
assets and non-financial liabilities on January 1, 2009 and its adoption did not have an
impact on the Companys financial condition, results of operations or liquidity.
In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161 (ASC
815), Disclosures about Derivative Instruments and Hedging Activities, an Amendment of
FASB Statement No. 133 (SFAS 161). SFAS 161 changes the disclosure requirements for
derivative instruments and hedging activities and specifically requires qualitative
disclosures about objectives and strategies for using derivatives, quantitative
disclosures about fair value amounts of, and gains and losses on, derivative instruments,
and disclosures about credit-risk-related contingent features in derivative agreements.
The adoption of SFAS 161 did not have an impact on the Companys financial condition,
results of operations or liquidity.
In May 2008, the FASB issued Statement of Financial Accounting Standards No. 163 (ASC
944), Accounting for Financial Guarantee Insurance Contracts (SFAS 163). SFAS 163
clarifies how FASB Statement No. 60, Accounting and Reporting by Insurance Enterprise,
applies to financial guarantee insurance contracts issued by insurance enterprises,
including the recognition and measurement of premium revenue and claim liabilities. It
also requires expanded disclosures about financial guarantee insurance contracts. The
provisions of SFAS 163 are effective for financial statements issued for fiscal years
beginning after December 15, 2008 and all interim periods within those fiscal years,
except for disclosures about the insurance enterprises risk-management activities, which
are effective the first period (including interim periods) beginning after May 23, 2008.
The adoption of SFAS 163 did not have an impact on the Companys financial condition,
results of operations or liquidity.
In June 2008, the FASB issued FSP Emerging Issues Task Force Issues No. 03-6-1,
Determining Whether Instruments Granted in Share-Based Payment Transactions Are
Participating Securities (EITF 03-6-1) (ASC 260). EITF 03-6-1 provides that unvested
share-based payment awards that contain nonforfeitable rights to dividends or dividend
equivalents (whether paid or unpaid) are participating securities and shall be included
in the computation of earnings per share pursuant to the two-class method. EITF 03-6-1 is
effective for financial statements issued for fiscal years beginning after December 15,
2008, and interim periods within those years. The adoption of EITF 03-6-1 did not have a
material impact on the Companys financial condition, results of operations or liquidity.
In December 2008, the FASB issued Statement of Financial Accounting No. 160,
Non-controlling Interests in Consolidated Financial Statements (SFAS 160) (ASC 810),
which requires non-controlling interests (previously referred to as minority interests)
to be treated as a separate component of equity, not as a liability or other item outside
of permanent equity. SFAS 160 is effective for fiscal years beginning on or after
December 15, 2008. The adoption of SFAS 160 did not have an impact on the Companys
financial condition, results of operations or liquidity.
In December 2008, the FASB issued Statement of Financial Accounting No. 141(R) (ASC 810),
Business Combinations ( SFAS 141(R)), which requires most identifiable assets,
liabilities, non-controlling interests, and goodwill acquired in a business combination
to be recorded at full fair value. Under SFAS 141(R), all business combinations will be
accounted for by applying the acquisition method (referred to as the purchase method in
SFAS 141, Business Combinations). SFAS 141(R) is effective for fiscal years beginning on
or after December 15, 2008 and is to be applied to business combinations occurring after
the effective date. The adoption of SFAS 141(R) will not have an impact on the Companys
financial condition, results of operations or liquidity unless an acquisition occurs
after the effective date of SFAS 141(R).
F-12
In December 2008, the FASB issued (ASC 715), Employers Disclosures about
Postretirement Benefit Plan Assets. ASC 715 requires an employer to provide certain
disclosures about plan assets of its defined benefit pension or other postretirement
plans. The disclosures required include the investment policies and strategies of the
plans, the fair value of the major categories of plan assets, the inputs and valuation
techniques used to develop fair value measurements and a description of significant
concentrations of risk in plan assets. ASC 715 is effective for fiscal years ending after
December 15, 2009. The adoption of ASC 715 did not have an impact on the Companys
financial condition, results of operations or liquidity.
In April 2009, the FASB issued FSP FAS 157-4 (ASC 820), Determining the Fair Value When
the Volume and Level of Activity for the Asset and Liability Have Significantly Decreased
and Identifying Transactions That Are Not Orderly (SFAS 157-4). SFAS 157-4 provides
additional guidance for estimating fair value in accordance with FASB 157, Fair Value
Measurements, when prices in markets have become less active and require adjustments to
fair value. SFAS 157-4 is effective for interim and annual reporting periods ending after
June 15, 2009. The adoption of SFAS 157-4 did not have a material impact on the Companys
financial condition, results of operations or liquidity.
In April 2009, the FASB issued FSP FAS 115-2 and FAS 124-2 (ASC 320), Recognition and
Presentation of Other-Than-Temporary Impairments. (FSP 115-2) which is effective for
interim and annual reporting periods ending after June 15, 2009, with early adoption
permitted for periods ending after March 15, 2009. FSP FAS 115-2 modifies the
requirements for recognizing other-than-temporarily impaired debt securities, the
presentation of other-than-temporary impairment losses and increases the frequency of and
expands the required disclosures about other-than-temporary impairment for debt and
equity securities. The Company adopted FSP FAS 115-2 and FAS 124-2 effective April 1,
2009. The adoption of FSP 115-2 resulted in a cumulative effect adjustment as of April 1,
2009, which increased retained earnings by $26.1 million, net of
taxes of $14.1 million, with an offsetting decrease to
accumulated other comprehensive income (loss). The adoption of FSP 115-2 did not have a
material impact on the Companys financial condition, results of operations or liquidity.
In April 2009, the FASB issued FSP FAS 107-1 (ASC 825) and ABP 28-1, Interim
Disclosures about Fair Value of Financial Instruments. The FSP is effective for interim
reporting periods ending after June 15, 2009, with early adoption permitted for periods
ending after March 15, 2009. FSP FAS 107-1 and APB 28-1 requires disclosures about fair
value of financial instruments for interim reporting periods of publicly traded companies
as well as in annual financial statements. The adoption of FSP FAS 107-1 and ABP 28-1 did
not have a material impact on the Companys financial condition, results of operations or
liquidity.
In May 2009, the FASB issued SFAS No. 165, Subsequent Events (SFAS 165). SFAS 165
establishes principles and disclosure requirements for events that occur after the
balance sheet date but before financial statements are issued or are available to be
issued. In particular, the Statement sets forth (a) the period after the balance sheet
date during which management of a reporting entity shall evaluate events or transactions
that may occur for potential recognition or disclosure in the financial statements, (b)
the circumstances under which an entity shall recognize events or transactions occurring
after the balance sheet date in its financial statements, and (c) the disclosures that an
entity shall make about events or transactions that occurred after the balance sheet
date. An entity shall disclose the date through which subsequent events have been
evaluated, as well as whether that date is the date the financial statements were issued
or the date the financial statements were available to be issued. SFAS 165 is effective
for interim or annual financial periods ending after June 15, 2009. The Company adopted
SFAS 165 for its interim reporting period ending on June 30, 2009. The adoption of SFAS
No. 165 had no material impact on the Companys financial condition, results of
operations or liquidity.
In August 2009, the FASB issued Accounting Standard Update (ASU 2009-05), Measuring
Liabilities at Fair Value. ASU 2009-05 is an amendment of ASC 820, Fair Value
Measurements and Disclosures. ASU 2009-05 applies to all entities that measure
liabilities at fair value within the scope of ASC 820, Fair Value Measurements and
Disclosures. ASU 2009-05 provides guidance on measuring the fair value of liabilities
under circumstances in which a quoted price in an active market for the identical
liability is not available. ASU 2009-05 is effective for the first interim or annual
reporting period beginning after August 28, 2009. The adoption of ASU 2009-05 did not
have a material impact on the Companys financial condition, results of operations or
liquidity.
In September 2009, the FASB issued (ASU 2009-12), Investments in Certain Entities That
Calculate Net Asset Value per Share (or Its Equivalent). ASU 2009-12 provides guidance on
estimating the fair value of alternative investments when using the net asset value per
share provided by the investment entity. The effective date of ASU 2009-12 is for interim
and annual periods ending after December 15, 2009, with early adoption permitted. The
adoption of ASU 2009-12 did not have a material impact on the Companys financial
condition, results of operations or liquidity.
In February 2010, the FASB issued (ASU 2010-09) to address potential practice issues
associated with FASB ASC Topic 855, Subsequent Events (Statement 165). The amendments in
the update would no longer require entities that file or furnish financial statements
with the SEC to disclose the date through which subsequent events have been evaluated in
originally issued and reissued financial statements. Other entities would continue to be
required to disclose the date through which subsequent events have been evaluated;
however, disclosures about the date through which subsequent events have been evaluated
in reissued financial statements would be required only in financial statements revised
because of an error correction or retrospective application of U.S. GAAP. The ASU is
effective immediately except for the use of the issued date for conduit bond obligors.
That amendment is effective for interim or annual periods ending after June 15, 2010. The
adoption of ASU 2010-09 did not have a material impact on the Companys financial
condition, results of operations or liquidity.
F-13
Future adoption of new accounting pronouncements:
In
June 2009, the FASB issued ASC 860, Transfers and Servicing (ASC 860). ASC 860 amends
the derecognition guidance in Statement 140 and eliminates the concept of qualifying
special-purpose entities (QSPEs). ACS 860 is effective for fiscal years and interim
periods beginning after November 15, 2009. Early adoption of ASC 860 is prohibited. The
Company will adopt ASC 860 during the first quarter of 2010 and does not expect the
adoption to have an effect on its results of operations, financial position or liquidity.
In June 2009, the FASB issued ASC 810, Amendments to FASB Interpretation No. 46 (ASC
810), which amends the consolidation guidance applicable to variable interest entities
(VIE). An entity would consolidate a VIE, as the primary beneficiary, when the entity
has both of the following characteristics: (a) The power to direct the activities of a
VIE that most significantly impact the entitys economic performance and (b) The
obligation to absorb losses of the entity that could potentially be significant to the
VIE or the right to receive benefits from the entity that could potentially be
significant to the VIE. Ongoing reassessment of whether an enterprise is the primary
beneficiary of a VIE is required. ASC 810 amends interpretation 46(R) to eliminate the
quantitative approach previously required for determining the primary beneficiary of a
VIE. This Statement is effective for fiscal years and interim periods beginning after
November 15, 2009. The Company will adopt ASC 810 during the first quarter of 2010 and
has not yet determined the impact adoption will have on its results of operations,
financial position or liquidity.
In January 2010, the FASB issued ASU 2010-06, Improving Disclosures about Fair Value
Measurements. ASU 2010-06 is an amendment of ASC 820, Fair Value Measurements and
Disclosures ASU 2010-06 provides additional disclosures for transfers in and out of the
Levels I and II and for activity in Level III as well as clarifying certain existing
disclosure requirements including level of desegregation and disclosures around inputs
and valuation techniques. The final amendments to ASU 2010-06 will be effective for
annual and interim reporting periods beginning after December 15, 2009, except for the
requirement to provide the Level 3 activity for purchases, sales, issuances, and
settlements on a gross basis. That requirement will be effective for fiscal years
beginning after December 15, 2010, and for interim periods within those fiscal years. The
Company will adopt ASU 2010-06 during the first quarter of 2010 and the adoption will not
have an effect on its results of operations, financial position or liquidity.
F-14
(2) Investments:
A summary of the Companys investment components at December 31, 2009 and December 31,
2008 is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
|
|
|
|
December 31, |
|
|
|
|
|
|
2009 |
|
|
Percent |
|
|
2008 |
|
|
Percent |
|
Fixed maturities held to maturity (amortized cost): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RMBS |
|
$ |
56,589,704 |
|
|
|
8.37 |
% |
|
$ |
61,246,212 |
|
|
|
11.20 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities held to maturity |
|
$ |
56,589,704 |
|
|
|
8.37 |
% |
|
$ |
61,246,212 |
|
|
|
11.20 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities available for sale (fair value): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities |
|
$ |
385,715,035 |
|
|
|
57.09 |
% |
|
$ |
40,783,969 |
|
|
|
7.46 |
% |
Municipal obligations |
|
|
804,373 |
|
|
|
0.12 |
% |
|
|
90,483,461 |
|
|
|
16.54 |
% |
Corporate securities |
|
|
|
|
|
|
|
|
|
|
13,710,996 |
|
|
|
2.51 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities available for sale |
|
$ |
386,519,408 |
|
|
|
57.21 |
% |
|
$ |
144,978,426 |
|
|
|
26.51 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities trading (fair value): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Municipal obligations |
|
$ |
|
|
|
|
|
|
|
$ |
17,399,090 |
|
|
|
3.18 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities trading |
|
$ |
|
|
|
|
|
|
|
$ |
17,399,090 |
|
|
|
3.18 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities |
|
$ |
443,109,112 |
|
|
|
65.58 |
% |
|
$ |
223,623,728 |
|
|
|
40.89 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity securities trading (fair value): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
$ |
117,968 |
|
|
|
0.02 |
% |
|
$ |
|
|
|
|
|
|
Preferred stock |
|
|
|
|
|
|
|
|
|
|
11,822,620 |
|
|
|
2.16 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total equity securities |
|
$ |
117,968 |
|
|
|
0.02 |
% |
|
$ |
11,822,620 |
|
|
|
2.16 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, cash equivalents and short-term investments |
|
|
75,544,627 |
|
|
|
11.18 |
% |
|
|
185,921,881 |
|
|
|
33.99 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total fixed maturities, equity securities, cash,
cash equivalents and short-term investments |
|
$ |
518,771,707 |
|
|
|
76.78 |
% |
|
$ |
421,368,229 |
|
|
|
77.04 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial loans (fair value) |
|
|
5,001,118 |
|
|
|
0.74 |
% |
|
|
2,690,317 |
|
|
|
0.49 |
% |
Limited partnership hedge funds (equity) |
|
|
151,891,838 |
|
|
|
22.48 |
% |
|
|
122,927,697 |
|
|
|
22.47 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment portfolio |
|
$ |
675,664,663 |
|
|
|
100.00 |
% |
|
$ |
546,986,243 |
|
|
|
100.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009, 94% of the fair value of the Companys fixed income and
short-term investment portfolios were considered investment grade. As of December 31,
2009, the Company invested approximately $29.7 million in fixed maturities that were
below investment grade.
F-15
Details of the RMBS portfolio as of December 31, 2009 are presented below based on
publicly available information:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Average |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loan to |
|
|
FICO |
|
|
D60+ |
|
|
Credit |
|
|
|
|
|
|
|
Security |
|
|
|
|
|
|
|
|
|
|
|
|
|
Value % |
|
|
Credit |
|
|
Delinquency |
|
|
Support |
|
|
S&P |
|
Moodys |
description |
|
Issue date |
|
|
Amortized cost |
|
|
Fair value |
|
|
(1) |
|
|
Score (2) |
|
|
Rate (3) |
|
|
Level (4) |
|
|
Rating |
|
Rating |
AHMA 2006-3 |
|
|
7/2006 |
|
|
$ |
11,263,313 |
|
|
$ |
10,861,225 |
|
|
|
85.4 |
|
|
|
705 |
|
|
|
39.7 |
|
|
|
41.4 |
|
|
AA |
|
Caa1 |
CWALT 2005-69 |
|
|
11/2005 |
|
|
|
7,151,818 |
|
|
|
6,623,185 |
|
|
|
81.8 |
|
|
|
698 |
|
|
|
50.7 |
|
|
|
48.5 |
|
|
CCC |
|
Ba3 |
CWALT 2005-76 |
|
|
12/2005 |
|
|
|
7,059,919 |
|
|
|
6,901,220 |
|
|
|
82.3 |
|
|
|
700 |
|
|
|
53.7 |
|
|
|
49.1 |
|
|
CCC |
|
B2 |
RALI 2005-QO3 |
|
|
10/2005 |
|
|
|
7,521,769 |
|
|
|
6,274,852 |
|
|
|
81.1 |
|
|
|
704 |
|
|
|
42.7 |
|
|
|
43.8 |
|
|
A- |
|
B1 |
WaMu 2005-AR17 |
|
|
12/2005 |
|
|
|
6,196,663 |
|
|
|
6,193,159 |
|
|
|
74.2 |
|
|
|
715 |
|
|
|
30.7 |
|
|
|
50.5 |
|
|
AAA |
|
A1 |
WaMu 2006-AR9 |
|
|
7/2006 |
|
|
|
8,538,522 |
|
|
|
11,130,523 |
|
|
|
74.8 |
|
|
|
730 |
|
|
|
33.1 |
|
|
|
24.8 |
|
|
B |
|
Ba1 |
WaMu 2006-AR13 |
|
|
9/2006 |
|
|
|
8,857,700 |
|
|
|
11,343,649 |
|
|
|
75.8 |
|
|
|
728 |
|
|
|
33.1 |
|
|
|
25.5 |
|
|
CCC |
|
B3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
56,589,704 |
|
|
$ |
59,327,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The dollar-weighted average amortized loan-to-original value of the
underlying loans at January 25, 2010. |
|
(2) |
|
Average FICO of remaining borrowers in the loan pool at January 25, 2010. |
|
(3) |
|
The percentage of the current outstanding principal balance that is more
than 60 days delinquent as of January 25, 2010. This includes loans that
are in foreclosure and real estate owned. |
|
(4) |
|
The current credit support provided by subordinate ranking tranches
within the overall security structure at January 25, 2010. |
The Company has investments in RMBS amounting to $56.6 million (amortized value) at
December 31, 2009. These securities are classified as held to maturity after the Company
transferred these holdings from the available for sale portfolio effective October 1,
2008. Upon acquisition of the RMBS portfolio and prior to October 1, 2008, the Company
was uncertain as to the duration for which it would hold the RMBS portfolio and
appropriately classified such securities as available for sale. As a result of the
increasing market uncertainty surrounding the projected cash flows on these securities,
as well as the widely disparate estimated prices of such securities among brokers
depending on facts and assumptions utilized, the Company developed a process to perform
an extensive analysis of the underlying structure of each RMBS in order to assure
ourselves of its collectability. Accordingly, the Company constructed cash models to
estimate the potential for impairment to these securities based upon default rates,
severity rates and prepayment speeds consistent with reasonable expectations of their
underlying cash flows. These assumptions were further stressed to provide a range of
potential outcomes allowing us to assess any impairment. After reviewing the results of
the analytical evaluation of the RMBS portfolio, management concluded that the economic
or intrinsic value of these securities was not impaired. Additionally, management
concluded, on the basis of this analysis, that there were no other-than-temporary
impairments to these securities required to be recorded. Accordingly, the Company
transferred such securities to the held to maturity classification with the intent and
the ability to hold such securities to maturity. The Company had never previously
transferred securities to held to maturity, but considered this an unprecedented
situation brought upon by the financial crisis in the markets. The adjusted cost basis
(amortized cost) of these securities is based on a determination of the fair value of
these securities on the date they were transferred.
Prior to the transfer to the held to maturity classification, the Company incurred
cumulative write-downs from other-than-temporary impairments (OTTI) declines in the fair
value of these securities, amounting to approximately $40.7 million. Effective April 1, 2009,
as a result of new accounting guidance the Company reclassified the entire unrealized loss
held on such securities of $40.1 million ($26.1 million net of tax) from retained earnings to
other comprehensive income as write downs on such securities were considered to be non-credit
related, which are being amortized as a yield adjustment over the expected life of the securities.
The Companys cash flow analysis for each of these securities attempts to estimate the
likelihood of any future impairment. While the Company does not believe there are any
OTTI currently, future estimates may change depending upon the actual performance
statistics reported for each security to the Company. This may result in future charges
based upon revised estimates for delinquency rates, severity rates or prepayment
patterns. These changes in estimates may be material. These securities are collateralized
by pools of Alt-A mortgages and receive priority payments from these pools. The
Companys securities rank senior to subordinated tranches of debt collateralized by each
respective pool of mortgages. The Company has collected all applicable interest and
principal repayments on such securities to date. As of January 25, 2010, the levels of
subordination
ranged from 25% to 51% of the total debt outstanding for each pool. Delinquencies within
the underlying mortgage pools ranged from 31% to 54% of total amounts outstanding. For
comparison purposes, as of January 25, 2009, delinquencies ranged from 18% to 40%, while
subordination levels ranged from 27% to 52%. Delinquency rates are not the same as
severity rates, or actual loss, but are an indication of the potential for losses of some
degree in future periods.
F-16
The fair value of each RMBS investment is based on the framework established in ASC 820
(See Note 3). Fair value is determined by estimating the price at which an asset might be
sold on the measurement date. There has been a considerable amount of turmoil in the U.S.
housing market since 2007, which has led to market declines in the Companys RMBS
securities. Because the pricing of these investments is complex and has many variables
affecting price including, projected delinquency rates, projected severity rates,
estimated loan to value ratios, vintage year, subordination levels, projected prepayment
speeds and expected rates of return required by prospective purchasers, the estimated
price of such securities will differ among brokers depending on these facts and
assumptions. While many of the inputs utilized in pricing are observable, many other
inputs are unobservable and will vary depending upon the broker. During periods of market
dislocation, such as current market conditions, it is increasingly difficult to value
such investments because trading becomes less frequent and/or market data becomes less
observable. As a result, valuations may include inputs and assumptions that are less
observable or require greater estimation and judgment as well as valuation methods that
are more complex. For example, assumptions regarding projected delinquency and severity
rates have become very pessimistic due to uncertainties associated with the residential
real estate markets. Additionally, there are only a limited number of prospective
purchasers of such securities and such purchasers generally demand high expected returns
in the current market. This has resulted in lower quotes from securities dealers, who
are, themselves, reluctant to position such securities because of financing
uncertainties. Accordingly, the dealer quotes used to establish fair value may not be
reflective of the expected future cash flows from a security and, therefore, not
reflective of its intrinsic value.
As of December 31, 2009, there was substantial variance in RMBS securities prices from
different pricing sources. Management also determined that the few trades of RMBS were
not consistent with the prices received and analysis performed at year end. This
confirmed managements previously established view that the market is dislocated and
illiquid. Accordingly, the Company determined fair value using a matrix pricing
analysis.
The Company used a weighted pricing matrix to determine fair value. The pricing matrix
was based on risk profile, qualitative and quantitative data for similar vintage RMBS
that had recent prices. The securities were evaluated in each of the following 10
categories: super senior, sector, collateral, current S&P rating, current credit support,
3 month CDR, 3 month VPR, 1 month loss severity, 60+ delinquencies and FICO score. The
price for each RMBS was based upon the prices of those RMBS securities that had the most
similar underlying characteristics to the Companys RMBS portfolio.
There are government sponsored programs that may affect the performance of the Companys
RMBS. The Company is uncertain as to the impact, if any, these programs will have on the
fair value of the Companys RMBS. The fair value of such securities at December 31, 2009
was approximately $59.3 million.
The gross unrealized gains and losses on fixed maturities held to maturity and available
for sale at December 31, 2009 and December 31, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
|
|
|
|
|
OTTI |
|
|
Amortized |
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
Amortized |
|
|
Recognized |
|
|
Cost after |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
|
Cost |
|
|
In OCI (a) |
|
|
OTTI |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
RMBS |
|
$ |
93,081,210 |
|
|
$ |
(36,491,506 |
) |
|
$ |
56,589,704 |
|
|
$ |
5,077,950 |
|
|
$ |
(2,339,841 |
) |
|
$ |
59,327,813 |
|
U.S. Treasury
securities
available for sale |
|
|
384,638,048 |
|
|
|
|
|
|
|
384,638,048 |
|
|
|
1,317,809 |
|
|
|
(240,822 |
) |
|
|
385,715,035 |
|
Municipal
obligations
available for sale |
|
|
740,286 |
|
|
|
|
|
|
|
740,286 |
|
|
|
64,087 |
|
|
|
|
|
|
|
804,373 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
478,459,544 |
|
|
$ |
(36,491,506 |
) |
|
$ |
441,968,038 |
|
|
$ |
6,459,846 |
|
|
$ |
(2,580,663 |
) |
|
$ |
445,847,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2008 |
|
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
|
|
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
|
Carrying |
|
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
|
Value |
|
RMBS |
|
$ |
61,246,212 |
|
|
$ |
|
|
|
$ |
(18,916,780 |
) |
|
$ |
42,329,432 |
|
|
$ |
61,246,212 |
|
U.S. Treasury
securities
available for sale |
|
|
38,917,878 |
|
|
|
1,866,091 |
|
|
|
|
|
|
|
40,783,969 |
|
|
|
40,783,969 |
|
Municipal
obligations
available for sale |
|
|
97,166,677 |
|
|
|
220,718 |
|
|
|
(6,903,934 |
) |
|
|
90,483,461 |
|
|
|
90,483,461 |
|
Corporate
securities
available for sale |
|
|
13,317,446 |
|
|
|
395,344 |
|
|
|
(1,794 |
) |
|
|
13,710,996 |
|
|
|
13,710,996 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
210,648,213 |
|
|
$ |
2,482,153 |
|
|
$ |
(25,822,508 |
) |
|
$ |
187,307,858 |
|
|
$ |
206,224,638 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
As discussed in Note(1), effective April 1, 2009, the Company adopted a new accounting standard
resulting in a reclassification in the amount of $40.1 million of non-credit
investment impairment losses previously recognized on the Companys RMBS holdings that
are currently being held to maturity. These securities are categorized as non-credit
based on the Companys impairment analysis. The Company will accrete from OCI to the
amortized cost of the RMBS over their remaining life in a prospective manner on the basis
of the amount and timing of future cash flows. The amount of the accretion since April 1,
2009 was $3.7 million. |
The following tables summarize all securities in an unrealized loss position at December
31, 2009 and December 31, 2008, disclosing the aggregate fair value and gross unrealized
loss for less than as well as more than 12 months:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
|
Less than 12 months |
|
|
12 months or longer |
|
|
Total |
|
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
|
Value |
|
|
Loss |
|
|
Value |
|
|
Loss (1) |
|
|
Value |
|
|
Loss (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgage-backed
securities held to
maturity |
|
$ |
|
|
|
$ |
|
|
|
$ |
59,327,813 |
|
|
$ |
(33,753,397 |
) |
|
$ |
59,327,813 |
|
|
$ |
(33,753,397 |
) |
U.S. Treasury Securities |
|
|
198,588,058 |
|
|
|
(240,822 |
) |
|
|
|
|
|
|
|
|
|
|
198,588,058 |
|
|
|
(240,822 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily
impaired securities |
|
$ |
198,588,058 |
|
|
|
(240,822 |
) |
|
$ |
59,327,813 |
|
|
$ |
(33,753,397 |
) |
|
$ |
257,915,871 |
|
|
$ |
(33,994,219 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
|
|
Less than 12 months |
|
|
12 months or longer |
|
|
Total |
|
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
|
Value |
|
|
Loss |
|
|
Value |
|
|
Loss |
|
|
Value |
|
|
Loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential
mortgage-backed
securities held to
maturity |
|
$ |
42,329,432 |
|
|
$ |
(18,916,780 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
42,329,432 |
|
|
$ |
(18,916,780 |
) |
Municipal
obligations
available for sale |
|
|
79,343,141 |
|
|
|
(6,903,934 |
) |
|
|
|
|
|
|
|
|
|
|
79,343,141 |
|
|
|
(6,903,934 |
) |
Corporate
securities
available for sale |
|
|
100,068 |
|
|
|
(1,794 |
) |
|
|
|
|
|
|
|
|
|
|
100,068 |
|
|
|
(1,794 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily
impaired securities |
|
$ |
121,772,641 |
|
|
$ |
(25,822,508 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
121,772,641 |
|
|
$ |
(25,822,508 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-18
|
|
|
(1) |
|
Includes gross unrecognized losses of approximately $33.8 million resulting from
non-credit investment impairment losses on the Companys RMBS
holdings currently held to maturity for the 12 months or greater category. |
At December 31, 2009, the Company was holding eight fixed maturity securities that were
in an unrealized loss position. The Company believes these unrealized losses are
temporary, as they resulted from changes in market conditions, including interest rates
or sector spreads, and are not considered to be credit risk related. Further, the Company
has the intent and the ability to hold the securities prior to full recovery.
The amortized cost and fair value of debt securities that are not included in the
Companys Commercial Loans portfolio at December 31, 2009 by contractual maturity are
shown below. Expected maturities will differ from contractual maturities, because
borrowers may have the right to call or prepay obligations with or without call or
prepayment penalties.
|
|
|
|
|
|
|
|
|
|
|
Amortized |
|
|
Fair |
|
|
|
Cost |
|
|
Value |
|
|
|
|
|
|
|
|
|
|
Due in one year or less |
|
$ |
199,909 |
|
|
$ |
201,781 |
|
Due after one year through five years |
|
|
213,015,517 |
|
|
|
213,028,879 |
|
Due after five years through ten years |
|
|
481,193 |
|
|
|
513,655 |
|
Due after ten years |
|
|
171,681,715 |
|
|
|
172,775,093 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
385,378,334 |
|
|
|
386,519,408 |
|
RMBS |
|
|
56,589,704 |
|
|
|
59,327,813 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
441,968,038 |
|
|
$ |
445,847,221 |
|
|
|
|
|
|
|
|
There were no non-income producing fixed maturity investments for any of the years
presented herein.
A summary of all of the Companys investments in limited partnership and limited
liability company hedge funds at December 31, 2009, accounted for under the equity
method, is set forth below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ownership |
|
|
|
Amount |
|
|
% |
|
Alydar QP Fund |
|
|
3,230,181 |
|
|
|
0.62 |
|
Caspian Capital Partners, L.P. (1) |
|
|
3,903,562 |
|
|
|
3.06 |
|
Caspian Select Credit Fund, L.P. (1) |
|
|
5,780,599 |
|
|
|
1.51 |
|
Dolphin Limited Partnership A |
|
|
405,308 |
|
|
|
3.68 |
|
Element Capital US Feeder Fund LLC |
|
|
23,489,567 |
|
|
|
34.34 |
|
Horizon Portfolio, L.P. |
|
|
3,060,689 |
|
|
|
3.03 |
|
Ivory Flagship Fund L.P. |
|
|
2,760,140 |
|
|
|
0.50 |
|
Latigo SPV II, LTD. |
|
|
56,617 |
|
|
|
1.32 |
|
Loeb Arbitrage Fund |
|
|
4,603,130 |
|
|
|
1.33 |
|
Lubben Fund, L.P. |
|
|
1,764,444 |
|
|
|
5.88 |
|
Mariner CRA Relative Fund (1) |
|
|
2,622 |
|
|
|
0.37 |
|
Mariner Dolphin Special Opportunities Fund (1) |
|
|
2,120,361 |
|
|
|
8.48 |
|
Mariner Opportunities Fund (1) |
|
|
4,068,191 |
|
|
|
2.96 |
|
Mariner Silvermine (1) |
|
|
31,680,214 |
|
|
|
60.00 |
|
Mariner Voyager LP (1) |
|
|
1,877,279 |
|
|
|
8.90 |
|
MKP Credit II, L.P. |
|
|
4,470,769 |
|
|
|
1.37 |
|
MV Credit, L.P. |
|
|
428,300 |
|
|
|
1.73 |
|
Riva Ridge Capital Partners, L.P. |
|
|
8,640,395 |
|
|
|
7.85 |
|
Rockwood Partners, L.P. |
|
|
5,530,848 |
|
|
|
4.22 |
|
Silver Point C & I Opportunity Fund, L.P. |
|
|
1,817,337 |
|
|
|
4.54 |
|
SLS Investors, L.P. |
|
|
6,837 |
|
|
|
0.01 |
|
Taconic Opportunity Fund, L.P. |
|
|
1,899,012 |
|
|
|
0.08 |
|
TAMI Macro Fund, L.P. |
|
|
1,347,407 |
|
|
|
4.35 |
|
Triage Management B, L.P. |
|
|
94,145 |
|
|
|
9.41 |
|
Tiptree Financial Partners, L.P. |
|
|
35,038,682 |
|
|
|
21.28 |
|
Wexford Spectrum Fund I, LP |
|
|
3,815,202 |
|
|
|
0.35 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total limited partnership and limited liability company hedge funds |
|
$ |
151,891,838 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Indicates limited partnership or limited liability company hedge
fund directly managed by Mariner Partners, Inc. (Mariner). As
of December 31, 2009, the aggregate net asset value of these
investments was $84,471,510. |
F-19
The carrying values used for hedge fund investments and other privately held equity
securities generally are established on the basis of the valuations provided monthly by
the managers of such investments. These valuations generally are determined based upon
the valuation criteria established by the governing documents of such investments or
utilized in the normal course of such managers business, which are generally reflective
of fair value. Such valuations may differ significantly from the values that would have
been used had available markets for these investments existed and the differences could
be material.
The hedge funds in which the Company invests usually impose limitations on the timing of
withdrawals from the hedge funds (most are within 90 days), and may affect our liquidity.
Some of our hedge funds have invoked gated provisions that allow the fund to disperse
redemption proceeds to investors over an extended period. The Company is subject to such
restrictions and they will affect the timing of the receipt of hedge fund proceeds.
Up until December 31, 2009, the Company was the only limited partner in Altrion (formerly
Tricadia) and reported its investment using the equity method of accounting. The amounts
reported in the balance sheet caption Limited partnerships related to Altrion at
December 31, 2008 and 2007 were $33.8 million and $42.6 million, respectively. The
Company redeemed its remaining interest in Altrion effective
December 31, 2009, resulting
in the Company receiving approximately a $35 million direct investment in the Tiptree
Financial, $7.3 million in cash, $1.1 million in commercial loans and $118,000 in private
equity. As of December 31, 2009 the majority of Tiptree Financials assets were
invested in cash, corporate credits, the municipal funding sector and commercial real
estate.
The Company has a significant investment in the Element Capital US Feeder Fund LLC
(Element), which was acquired on September 1, 2008. The investment in Element at
December 31, 2009 and 2008 was $23.5 million and $12.2 million, respectively. Limited
partnership income of $9 million and $2.1 million from Element was recorded for the years
ended December 31, 2009 and 2008, respectively.
A summary of the GAAP basis information pertaining to Element Capital US Feeder Fund LLC
(Element) financial position and results of operations, for the year ended December 31,
respectively, for each of the years reported on herein, is presented below.
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
(unaudited) |
|
|
(audited) |
|
Total assets |
|
$ |
71,301,259 |
|
|
$ |
91,441,051 |
|
Total liabilities |
|
$ |
2,500,072 |
|
|
$ |
9,188,794 |
|
Total partners capital |
|
$ |
68,801,187 |
|
|
$ |
82,252,257 |
|
Total revenue |
|
$ |
46,714,094 |
|
|
$ |
26,899,676 |
|
Net income |
|
$ |
30,812,850 |
|
|
$ |
25,103,685 |
|
The components for net realized gains (losses) and for the years ended December 31, 2009,
2008 and 2007 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains (losses) on investments before impairments: |
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities gains |
|
$ |
18,453,525 |
|
|
$ |
11,872,358 |
|
|
$ |
252,149 |
|
Fixed maturities losses |
|
|
(2,584,494 |
) |
|
|
(12,170,429 |
) |
|
|
(708,964 |
) |
Short-term investments |
|
|
(135,927 |
) |
|
|
(1,133,376 |
) |
|
|
235,529 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized investment gains (losses) before impairments |
|
|
15,733,104 |
|
|
|
(1,431,447 |
) |
|
|
(221,286 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities impairments |
|
|
(478,407 |
) |
|
|
(46,233,319 |
) |
|
|
(6,681,566 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized investment gains (losses) after impairments |
|
$ |
15,254,697 |
|
|
$ |
(47,664,766 |
) |
|
$ |
(6,902,852 |
) |
|
|
|
|
|
|
|
|
|
|
Proceeds from redemptions in investments held to maturity or disposals of fixed
income investments available for sale for the years ended December 31, 2009, 2008 and
2007 were $914,815,280, $78,064,473 and $181,513,179, respectively.
Effective April 1, 2009, under ASC 320 and ASC 958, Recognition and Presentation of
Other-Than-Temporary Impairments impairment is considered to be other than temporary if
an entity (1) intends to sell the security, (2) more likely than not will be required to
sell the security before recovering its amortized cost basis, or (3) does not expect to
recover the securitys entire amortized cost basis. The OTTI of $478,407 recognized for
the year ended December 31, 2009 resulted from the Companys intention to sell certain
municipal securities under circumstances in which those securities are not expected to
recover their entire amortized cost prior to sale. Credit impairment occurs under ASC 320
if the present value of cash flows expected to be collected from the debt security is
less than the amortized cost basis of the security. There were no credit impairments
recorded during the year ended December 31, 2009.
F-20
Net investment (loss) income from each major category of investments for the years
indicated is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities held to maturity |
|
$ |
1,861,352 |
|
|
$ |
819,596 |
|
|
$ |
|
|
Fixed maturities available for sale |
|
|
8,737,267 |
|
|
|
7,390,001 |
|
|
|
13,944,630 |
|
Trading securities |
|
|
4,538,603 |
|
|
|
(42,265,670 |
) |
|
|
2,302,469 |
|
Commercial loans |
|
|
1,856,615 |
|
|
|
(1,556,937 |
) |
|
|
|
|
Equity in (loss) earnings of limited partnerships |
|
|
26,662,450 |
|
|
|
(26,805,322 |
) |
|
|
12,985,185 |
|
Short-term investments |
|
|
359,183 |
|
|
|
2,990,597 |
|
|
|
8,687,536 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment (loss) income |
|
|
44,015,471 |
|
|
|
(59,427,735 |
) |
|
|
37,919,820 |
|
Investment expenses (see note 18) |
|
|
(2,347,558 |
) |
|
|
(4,075,112 |
) |
|
|
(2,430,451 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment (loss) income |
|
$ |
41,667,912 |
|
|
$ |
(63,502,847 |
) |
|
$ |
35,489,369 |
|
|
|
|
|
|
|
|
|
|
|
Details related to investment (loss) income from commercial loans and trading
activities presented in the preceding table are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and dividends earned |
|
$ |
1,095,879 |
|
|
$ |
9,245,387 |
|
|
$ |
2,932,998 |
|
Net realized (losses) gains |
|
|
(984,947 |
) |
|
|
(41,519,563 |
) |
|
|
179,463 |
|
Net unrealized appreciation (depreciation) |
|
|
6,284,286 |
|
|
|
(11,548,431 |
) |
|
|
(809,992 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment income (loss) |
|
$ |
6,395,218 |
|
|
$ |
(43,822,607 |
) |
|
$ |
2,302,469 |
|
|
|
|
|
|
|
|
|
|
|
Securities Lending
The Company terminated its securities lending agreement with a bank in 2008. There were
no loaned securities at December 31, 2009 and December 31, 2008.
General
The Company invests in commercial loans, which are private placements. An estimate of
price for each security is provided by securities dealers, which management evaluates for
relevant other observable market inputs. The markets for these types of securities can be
illiquid and, therefore, the price obtained from dealers in these securities is subject
to change depending upon the underlying market conditions of these securities, including
the potential for downgrades or defaults on the underlying collateral of the security.
The investment portfolio has exposure to market risks, which include the effect of
adverse changes in interest rates, credit quality, hedge fund value and illiquid
securities including commercial loans and residential mortgage-backed securities values
on the portfolio. Interest rate risk includes the changes in the fair value of fixed
maturities based upon changes in interest rates. Credit quality risk includes the risk of
default by issuers of debt securities. Hedge fund and illiquid securities risks include
the potential loss from the diminution in the value of the underlying investment of the
hedge fund and the potential loss from changes in the fair value of commercial loans and
RMBS.
Included in investments at December 31, 2009 are securities required to be held by the
Company or those that are on deposit with various regulatory authorities as required by
law with a fair value of $23,407,125.
F-21
(3) Fair Value Measurements:
The Companys estimates of fair value for financial assets and financial liabilities are
based on the framework established in ASC 820. The framework is based on the inputs used
in valuation and gives the highest priority to quoted prices in active markets and
requires that observable inputs be used in the valuations when available. The disclosure
of fair value estimates in the ASC 820 hierarchy is based on whether the significant
inputs into the valuation are observable. In determining the level of the
hierarchy in which the estimate is disclosed, the highest priority is given to unadjusted
quoted prices in active markets and the lowest priority to unobservable inputs that
reflect the Companys significant market assumptions. The standard describes three levels
of inputs that may be used to measure fair value and categorize the assets and
liabilities within the hierarchy:
Level 1 Fair value is based on unadjusted quoted prices in active markets that are
accessible to the Company for identical assets or liabilities. These prices generally
provide the most reliable evidence and are used to measure fair value whenever available.
Active markets are defined as having the following for the measured asset/liability: i)
many transactions, ii) current prices, iii) price quotes not varying substantially among
market makers, iv) narrow bid/ask spreads and v) most information publicly available.
The Companys Level 1 assets are comprised of U.S. Treasury securities and preferred
stock, which are highly liquid and traded in active exchange markets.
The Company uses the quoted market prices as fair value for assets classified as Level 1.
The Company receives quoted market prices from a third party, a nationally recognized
pricing service. Prices are obtained from available sources for market transactions
involving identical assets. For the majority of Level 1 investments, the Company receives
quoted market prices from an independent pricing service. The Company validates primary
source prices by back testing to trade data to confirm that the pricing services
significant inputs are observable. The Company also compares the prices received from the
third party service to alternate third party sources to validate the consistency of the
prices received on securities.
Level 2 Fair value is based on significant inputs, other than Level 1 inputs, that are
observable for the asset or liability, either directly or indirectly, for substantially
the full term of the asset through corroboration with observable market data. Level 2
inputs include quoted market prices in active markets for similar assets, non-binding
quotes in markets that are not active for identical or similar assets and other market
observable inputs (e.g., interest rates, yield curves, prepayment speeds, default rates,
loss severities, etc.).
The Companys Level 2 assets include municipal debt obligations and corporate debt
securities.
The Company generally obtains valuations from third party pricing services and/or
security dealers for identical or comparable assets or liabilities by obtaining
non-binding broker quotes (when pricing service information is not available) in order to
determine an estimate of fair value. The Company bases all of its estimates of fair value
for assets on the bid price as it represents what a third party market participant would
be willing to pay in an arms length transaction. Prices from pricing services are
validated by the Company through comparison to prices from corroborating sources and are
validated by back testing to trade data to confirm that the pricing services significant
inputs are observable. Under certain conditions, the Company may conclude the prices
received from independent third party pricing services or brokers are not reasonable or
reflective of market activity or that significant inputs are not observable, in which
case it may choose to over-ride the third-party pricing information or quotes received
and apply internally developed values to the related assets or liabilities. In such
cases, those valuations would be generally classified as Level 3. Generally, the Company
utilizes an independent pricing service to price its municipal debt obligations and
corporate debt securities. Currently, these securities are exhibiting low trade volume.
The Company considers such investments to be in the Level 2 category.
Level 3 Fair value is based on at least one or more significant unobservable inputs that
are supported by little or no market activity for the asset. These inputs reflect the
Companys understanding about the assumptions market participants would use in pricing
the asset or liability.
The Companys Level 3 assets include its RMBS, commercial loans and private equity as
they are illiquid and trade in inactive markets. These markets are considered inactive as
a result of the low level of trades of such investments. The RMBS investments are not
considered within the Level 3 tabular disclosure, because they have been transferred to
held to maturity category effective October 1, 2008. Held to maturity investments are
not measured at fair value on a recurring basis and as such do not fall within the scope
of ASC 820. See Note 2, Investments for a complete discussion regarding the Companys
RMBS portfolio.
The primary pricing sources for the Companys commercial loan and private equity
portfolios are reviewed for reasonableness, based on the Companys understanding of the
respective market. Prices may then be determined using valuation methodologies such as
discounted cash flow models, as well as matrix pricing analyses performed on non-binding
quotes from brokers or other market-makers. As of December 31, 2009, the Company did not
utilize an alternate valuation methodology for its commercial loan or private equity
portfolios.
F-22
The following are the major categories of assets measured at fair value on a recurring
basis during the years ended December 31, 2009 and 2008, using quoted prices in active
markets for identical assets (Level 1); significant other observable inputs (Level 2);
and significant unobservable inputs (Level 3):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2009 |
|
|
|
Level 1: |
|
|
|
|
|
|
|
|
|
|
|
|
Quoted |
|
|
|
|
|
|
|
|
|
|
|
|
Prices in |
|
|
Level 2: |
|
|
|
|
|
|
|
|
|
Active |
|
|
Significant |
|
|
Level 3: |
|
|
|
|
|
|
Markets for |
|
|
Other |
|
|
Significant |
|
|
Total at |
|
|
|
Identical |
|
|
Observable |
|
|
Unobservable |
|
|
December 31, |
|
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
|
2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities available for sale |
|
$ |
385,715,035 |
|
|
$ |
804,373 |
|
|
$ |
|
|
|
$ |
386,519,408 |
|
Commercial loans |
|
|
|
|
|
|
|
|
|
|
5,001,118 |
|
|
|
5,001,118 |
|
Common stock |
|
|
|
|
|
|
|
|
|
|
117,968 |
|
|
|
117,968 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
385,715,035 |
|
|
$ |
804,373 |
|
|
$ |
5,119,086 |
|
|
$ |
391,638,494 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008 |
|
|
|
Level 1: |
|
|
|
|
|
|
|
|
|
|
|
|
Quoted |
|
|
|
|
|
|
|
|
|
|
|
|
Prices in |
|
|
Level 2: |
|
|
|
|
|
|
|
|
|
Active |
|
|
Significant |
|
|
Level 3: |
|
|
|
|
|
|
Markets for |
|
|
Other |
|
|
Significant |
|
|
Total at |
|
|
|
Identical |
|
|
Observable |
|
|
Unobservable |
|
|
December 31, |
|
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed maturities available for sale |
|
$ |
40,783,969 |
|
|
$ |
104,194,457 |
|
|
$ |
|
|
|
$ |
144,978,426 |
|
Fixed maturities trading |
|
|
|
|
|
|
17,399,090 |
|
|
|
|
|
|
|
17,399,090 |
|
Equity securities trading |
|
|
11,822,620 |
|
|
|
|
|
|
|
|
|
|
|
11,822,620 |
|
Commercial loans |
|
|
|
|
|
|
|
|
|
|
2,690,317 |
|
|
|
2,690,317 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
52,606,589 |
|
|
$ |
121,593,547 |
|
|
$ |
2,690,317 |
|
|
$ |
176,890,453 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The investments classified as Level 3 in the above table consist of commercial loans
and private equity, for which the Company has determined that quoted market prices of
similar investments are not determinative of fair value. The following tables presents a
reconciliation of the beginning and ending balances for all investments measured at fair
value using Level 3 inputs during the years ended December 31, 2009 and 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2009 |
|
|
|
Commercial |
|
|
Common |
|
|
|
|
|
|
Loans |
|
|
Stocks |
|
|
Total |
|
Beginning balance |
|
$ |
2,690,317 |
|
|
$ |
|
|
|
$ |
2,690,317 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total gains or losses (realized/unrealized): |
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings (or changes in net assets) |
|
|
1,479,492 |
|
|
|
|
|
|
|
1,479,492 |
|
Included in other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases, sales, maturities, repayments,
redemptions and amortization |
|
|
831,309 |
|
|
|
117,968 |
|
|
|
949,277 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers from Level 3 |
|
|
|
|
|
|
|
|
|
|
|
|
Transfers to Level 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
5,001,118 |
|
|
$ |
117,968 |
|
|
$ |
5,119,086 |
|
|
|
|
|
|
|
|
|
|
|
F-23
The Company elected the ASC 825 fair value option for approximately $1.1 million for
two commercial loans owned at the end of 2009. Management believes that the use of the
fair value option to record commercial loan purchases is consistent with its objective
for such investments. As such, the entire commercial loan portfolio of $5 million at
December 31, 2009 was recorded at fair value. All loans are current with respect to
interest payments. The Company also has two small private equity positions at the end of
2009 which were recorded at cost as management deems it an approximate of fair value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2008 |
|
|
|
|
|
|
|
Commercial |
|
|
|
|
|
|
RMBS |
|
|
Loans |
|
|
Total |
|
Beginning balance |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
Total gains or losses (realized/unrealized): |
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings (or changes in net assets) |
|
|
|
|
|
|
|
|
|
|
|
|
Included in other comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases, sales, maturities, repayments,
redemptions and amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Transfers from Level 3 |
|
|
(62,285,058 |
) |
|
|
|
|
|
|
(62,285,058 |
) |
Transfers to Level 3 |
|
|
62,285,058 |
|
|
|
2,690,317 |
|
|
|
64,975,375 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance |
|
$ |
|
|
|
$ |
2,690,317 |
|
|
$ |
2,690,317 |
|
|
|
|
|
|
|
|
|
|
|
The $65 million transfer to Level 3 during 2008 consisted of RMBS and commercial
loan investments. The RMBS investments were transferred effective September 30, 2008 in
the amount of $62,285,058. The effective date of transfer of the commercial loan
investments was December 31, 2008 in the amount of $2,690,317. Both of these classes of
investments had previously been included in Level 2 using observable inputs.
The $62 million transfer into Level 3 was effective September 30, 2008 and resulted from
seven RMBS securities being priced with both observable and unobservable inputs that in
prior periods were included in Level 2 using observable inputs. The price as of
September 30, 2008 reflected an increased weighting towards unobservable inputs. There
were no unrealized gains or losses on the transferred securities as of September 30,
2008. Net realized investment losses on such securities as of the date of transfer to the
held to maturity classification were $45.9 million.
The RMBS investments have been transferred out of Level 3 for the purposes of tabular
disclosure, because they have been transferred to held to maturity category effective
October 1, 2008. Held to maturity investments are not measured at fair value on a
recurring basis and as such do not fall within the scope of ASC 820 See Note 2,
Investments for a complete discussion regarding the Companys RMBS portfolio.
The Company utilized the fair value election under ASC 825 for all of its $10.3 million
of commercial loan purchases during 2008. Management believes that the use of the fair
value option to record commercial loan purchases is consistent with its objective for
such investments. As such, the entire commercial loan portfolio of $2.7 million at
December 31, 2008 was recorded at fair value. The amortized cost of the commercial loan
portfolio at December 31, 2008 was $6.9 million. The changes in the fair value of the
commercial loans were recorded in investment income. Investment income for the year ended
December 31, 2008 reflected net realized losses from sales and repayments of $46,775,
unrealized losses from fair value changes of $2,528,276 and interest income earned of
$1,018,114.
The fair value of the senior debt at December 31, 2009 approximated a price equal to 91%
of the par value.
(4) Fiduciary Funds:
The Companys insurance agency subsidiaries maintain separate underwriting accounts,
which record all of the underlying insurance transactions of the insurance pools, which
they manage. These transactions primarily include collecting premiums from the insureds,
collecting paid receivables from reinsurers, paying claims as losses become payable,
paying reinsurance premiums to reinsurers and remitting net account balances to member
insurance companies in the pools which MMO manages. Unremitted amounts to members of the
insurance pools are held in a fiduciary capacity and interest income earned on such funds
inures to the benefit of the members of the insurance pools based on their pro-rata
participation in the pools.
F-24
A summary of the pools underwriting accounts as of December 31, 2009 and December 31,
2008 is as follows:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
(unaudited) |
|
Cash and short-term investments |
|
$ |
610,272 |
|
|
$ |
38,242 |
|
Premiums receivable |
|
|
21,329,979 |
|
|
|
20,584,595 |
|
Reinsurance and other receivables |
|
|
51,962,112 |
|
|
|
92,473,524 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
73,902,363 |
|
|
$ |
113,096,361 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to insurance pool members |
|
|
28,900,345 |
|
|
|
54,053,792 |
|
Reinsurance payable |
|
|
13,480,165 |
|
|
|
23,667,084 |
|
Funds withheld from reinsurers |
|
|
28,136,456 |
|
|
|
29,205,424 |
|
Other liabilities |
|
|
3,385,397 |
|
|
|
6,170,061 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
$ |
73,902,363 |
|
|
$ |
113,096,361 |
|
|
|
|
|
|
|
|
A portion of the pools underwriting accounts above have been included in the
Companys insurance subsidiaries operations based upon their pro-rata participation in
the MMO insurance pools.
(5) Insurance Operations:
Reinsurance transactions
Approximately 24%, 24% and 27% of the Companys insurance subsidiaries direct and
assumed gross premiums written for the years ended December 31, 2009, 2008 and 2007,
respectively, have been ceded to reinsurance companies. Two former pool members, Utica
Mutual and Arkwright, which is currently part of the FM Global Group, withdrew from the
pools in 1994 and 1996, respectively, and retained liability for their effective pool
participation for all loss reserves, including IBNR and unearned premium reserves
attributable to policies effective prior to their withdrawal from the pools.
In the event that all or any of the pool companies might be unable to meet their
obligations to the pools, the remaining companies would be liable for such defaulted
amounts on a pro-rata pool participation basis.
The Company is not aware of any uncertainties that could result in any possible defaults
by either Arkwright or Utica Mutual with respect to their pool obligations, which might
impact liquidity or results of operations of the Company, but there can be no assurance
that such events will not occur in the future.
Reinsurance ceded transactions generally do not relieve the Company of its primary
obligation to the policyholder, so that such reinsurance recoverable would become a
liability of the Companys insurance subsidiaries in the event that any reinsurer might
be unable to meet the obligations assumed under the reinsurance agreements. As
established by the pools, all reinsurers must meet certain minimum standards of financial
condition.
The Companys largest unsecured reinsurance receivables at December 31, 2009 were from
the following reinsurers:
|
|
|
|
|
|
|
Reinsurer |
|
Amounts |
|
|
A.M. Best Rating |
|
|
(In millions) |
|
|
|
Lloyds Syndicates (1) |
|
$ |
67.8 |
|
|
A (Excellent) |
Swiss Reinsurance America Corporation |
|
|
9.0 |
|
|
A (Excellent) |
Transatlantic Reinsurance Company |
|
|
7.1 |
|
|
A (Excellent) |
General Reinsurance Corporation |
|
|
5.4 |
|
|
A++ (Superior) |
Platinum Underwriters Reinsurance Company |
|
|
5.4 |
|
|
A (Excellent) |
Munich Reinsurance America |
|
|
5.2 |
|
|
A+ (Superior) |
FM Global (Arkwright) |
|
|
3.3 |
|
|
A+ (Superior) |
Everest Reinsurance |
|
|
3.1 |
|
|
A+ (Superior) |
Liberty Mutual Insurance Company |
|
|
2.9 |
|
|
A (Excellent) |
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
109.2 |
|
|
|
|
|
|
(1) |
|
Lloyds maintains a trust fund, which was established for the
benefit of all United States ceding companies. Lloyds receivables
represent amounts due from approximately 100 different Lloyds
syndicates. |
F-25
The reinsurance contracts with the above listed companies are generally entered into
annually and provide coverage for claims occurring while the relevant agreement was in
effect, even if claims are made in later years. The contract with Arkwright was entered
into with respect to its participation in the pools.
The Companys exposure to reinsurers, other than those indicated above, includes
reinsurance receivables from approximately 500 reinsurers or syndicates, and as of
December 31, 2009, no single one was liable to the Company for an unsecured amount in
excess of approximately $2 million.
As of December 31, 2009, funds withheld of approximately $13.5 million and trust
agreements and letters of credit of approximately $112.6 million were obtained as
collateral for reinsurance receivables as provided under various reinsurance treaties.
Reinsurance receivables as of December 31, 2009 and 2008 included an allowance for
uncollectible reinsurance receivables of $17.6 million and $21.4 million, respectively.
Uncollectible reinsurance resulted in charges to operations of approximately $1.5
million, $15.8 million and $3.6 million in 2009, 2008 and 2007, respectively.
In 2008, the Company resolved disputed reinsurance receivables with Equitas, a Lloyds of
London company established to settle claims for underwriting years 1992 and prior, and
reevaluated the reserve for reinsurance receivables amounting in total to $12.4 million.
Reinsurance ceded and assumed relating to premiums written were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Ceded |
|
|
Assumed |
|
|
|
|
|
|
Percentage |
|
|
|
(direct) |
|
|
to other |
|
|
from other |
|
|
|
|
|
|
of Assumed |
|
Year ended |
|
Amount |
|
|
Companies |
|
|
Companies |
|
|
Net amount |
|
|
to Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
$ |
209,227,202 |
|
|
$ |
50,932,803 |
|
|
$ |
4,352,521 |
|
|
$ |
162,646,920 |
|
|
|
3 |
% |
December 31, 2008 |
|
|
209,078,072 |
|
|
|
51,869,681 |
|
|
|
8,175,680 |
|
|
|
165,384,071 |
|
|
|
5 |
% |
December 31, 2007 |
|
|
219,599,494 |
|
|
|
60,534,715 |
|
|
|
8,788,527 |
|
|
|
167,853,306 |
|
|
|
5 |
% |
Reinsurance ceded and assumed relating to premiums earned were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
Ceded |
|
|
Assumed |
|
|
|
|
|
|
Percentage |
|
|
|
(direct) |
|
|
to other |
|
|
from other |
|
|
|
|
|
|
of Assumed |
|
Year ended |
|
Amount |
|
|
Companies |
|
|
Companies |
|
|
Net amount |
|
|
to Net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
$ |
201,263,767 |
|
|
$ |
50,504,582 |
|
|
$ |
6,211,874 |
|
|
$ |
156,971,059 |
|
|
|
4 |
% |
December 31, 2008 |
|
|
215,121,723 |
|
|
|
54,404,393 |
|
|
|
6,355,366 |
|
|
|
167,072,696 |
|
|
|
4 |
% |
December 31, 2007 |
|
|
225,002,917 |
|
|
|
68,364,479 |
|
|
|
9,457,433 |
|
|
|
166,095,871 |
|
|
|
6 |
% |
Losses and loss adjustment expenses incurred are net of ceded reinsurance recoveries of
$29,740,019, $27,040,650 and $31,062,222 for the years ended December 31, 2009, 2008 and
2007, respectively.
F-26
Unpaid losses
Unpaid losses are based on individual case estimates for losses reported and include a
provision for losses incurred but not reported and for loss adjustment expenses. The
following table provides a reconciliation of the Companys consolidated liability for
losses and loss adjustment expenses for the years ended December 31, 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(In thousands) |
|
Net liability for losses and loss adjustment expenses at beginning
of year |
|
$ |
334,843 |
|
|
$ |
306,405 |
|
|
$ |
292,941 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for losses and loss adjustment expenses occurring in
current year |
|
|
95,494 |
|
|
|
107,275 |
|
|
|
103,664 |
|
Increase (decrease) in estimated losses and loss adjustment
expenses for claims occurring in prior years (1) |
|
|
(19,990 |
) |
|
|
2,683 |
|
|
|
(13,820 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss and loss adjustment expenses incurred |
|
|
75,504 |
|
|
|
109,958 |
|
|
|
89,844 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: |
|
|
|
|
|
|
|
|
|
|
|
|
Losses and loss adjustment expense payments for claims occurring
during: |
|
|
|
|
|
|
|
|
|
|
|
|
Current year |
|
|
8,245 |
|
|
|
9,887 |
|
|
|
12,136 |
|
Prior years |
|
|
51,694 |
|
|
|
71,633 |
|
|
|
64,244 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
59,939 |
|
|
|
81,520 |
|
|
|
76,380 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net liability for losses and loss adjustment expenses at end of year |
|
|
350,408 |
|
|
|
334,843 |
|
|
|
306,405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ceded unpaid losses and loss adjustment expenses at end of year |
|
|
205,078 |
|
|
|
213,907 |
|
|
|
250,130 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross unpaid losses and loss adjustment expenses at end of year |
|
$ |
555,486 |
|
|
$ |
548,750 |
|
|
$ |
556,535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The adjustment to the consolidated liability for losses and loss
adjustment expenses for losses occurring in prior years reflects
the net effect of the resolution of losses for other than full
reserve value and subsequent readjustments of loss values. |
The approximately $20.0 decrease in 2009 in estimated losses and loss adjustment
expenses for claims occurring in prior years occurred in each of the Companys major
segment of business. The ocean marine line of business recorded the largest favorable
development primarily occurring in the 2004 through 2006 accident years largely as a
result of lower than expected reported loss and paid loss trends. This was partially
offset by adverse development in the 2007 accident year due to the emergence of a
large shock loss. The other liability line of business reported favorable development
in the 2005 to 2008 accident years partly due to revisions in loss estimates on
contractors business and partly due to favorable reporting trends in the excess
workers compensation class in the 2007 accident year and the professional liability
class in 2006 and 2007 accident years. The favorable development in the other
liability line was partially offset by shock losses occurring in the professional
liability class in the 2008 accident year. The aviation class reported $2.0 million in
favorable loss development relating to accident years prior to 2002 largely due to
recoveries. The inland marine/fire line also reported favorable development largely
attributable to the fire class.
The adverse loss reserve development of $2.7 million in 2008 resulted primarily from
the resolution of a dispute over reinsurance receivables with a reinsurer and the
reevaluation of the reserve for doubtful reinsurance receivables that contributed
$12.4 million of adverse development in 2008 for both the other liability and ocean
marine lines of business for accident years prior to 1999. Further contributing to
adverse loss development was $3.2 million from asbestos and environmental losses in
the other liability line for accident years prior to 1999. Partially offsetting this
adverse development in the other liability line was favorable development in the
contractors class as a result of lower than anticipated incurred loss development of
approximately $3.6 million in the 2004 through 2006 accident years. The ocean marine
line also reported favorable development of approximately $14.0 million in the 2004
through 2006 accident years largely as a result of lower reported and paid loss
trends. The inland marine/fire segment also reported favorable loss development
partially due to larger than expected reinsurance recoveries in accident years 2005
and 2006. Contributing to the adverse development in 2008 was approximately
$3.5 million in adverse development from the runoff aviation class relating to
accident years prior to 2002 as a result of settlements of larger severity losses
including provisions for uncollectible reinsurance.
F-27
The $13.8 million decrease in 2007 was largely caused by favorable development in the
2003 through 2005 accident years for the ocean marine line, which generally resulted
from favorable loss trends in the risk class. Another factor contributing to the
decrease was $6.2 million recorded on the novation of excess workers compensation
policies in the other liability line for accident years 2004 through 2006,which was
partially offset by adverse development of $3.0 million in the professional liability
class as a result of two large claims in the 2006 accident year. The inland
marine/fire segment also reported favorable loss development partially due to lower
reported severity losses. The favorable development in 2007 was partially offset by
approximately $3.3 million in adverse development from the runoff aviation class.
The insurance pools participated in both the issuance of umbrella casualty insurance for
various Fortune 1000 companies and the issuance of ocean marine liability insurance for
various oil companies during the period from 1978 to 1985. Depending on the accident
year, the insurance pools net retention per occurrence after applicable reinsurance
ranged from $250,000 to $2,000,000. The Companys effective pool participation on such
risks varied from 11% in 1978 to 59% in 1985, which exposed the Company to asbestos
losses. Subsequent to this period, the pools substantially reduced their umbrella
writings and coverage was provided to smaller insureds. In addition, ocean marine and
non-marine policies issued during the past three years provide coverage for certain
environmental risks.
At December 31, 2009 and December 31, 2008, the Companys gross, ceded and net loss and
loss adjustment expense reserves for all asbestos/environmental policies amounted to
$46.7 million, $36.4 million and $10.3 million and $48.8 million, $37.3 million and
$11.5 million , respectively. The Company believes that the uncertainty surrounding
asbestos/environmental exposures, including issues as to insureds liabilities,
ascertainment of loss date, definitions of occurrence, scope of coverage, policy limits
and application and interpretation of policy terms, including exclusions, all affect the
estimation of ultimate losses. Under such circumstances, it is difficult to determine the
ultimate loss for asbestos/environmental related claims. Given the uncertainty in this
area, losses from asbestos/environmental related claims may develop adversely and,
accordingly, management is unable to estimate the range of possible loss that could arise
from asbestos/environmental related claims. However, the Companys net unpaid loss and
loss adjustment expense reserves, in the aggregate, as of December 31, 2009, represent
managements best estimate.
In 2001, the Company recorded losses in its aircraft line of business as a result of the
terrorist attacks of September 11, 2001 on the World Trade Center, the Pentagon and the
hijacked airliner that crashed in Pennsylvania (collectively, the WTC Attack). At the
time, because of the amount of the potential liability to our insureds (United Airlines
and American Airlines) occasioned by the WTC Attack, we established reserves based upon
our estimate of our insureds policy limits for gross and net liability losses. In 2004
we determined that a reduction in the loss reserves relating to the terrorist attacks of
September 11, 2001 on the Pentagon and the hijacked airliner that crashed in Pennsylvania
was warranted, because a significant number of claims that could have been made against
our insureds were waived by prospective claimants when they opted to participate in the
September 11th Victim Compensation Fund of 2001 (the Fund), and the statutes of
limitations for wrongful death in New York and for bodily injury and property damage,
generally, had expired, the latter on September 11, 2004. Our analysis of claims against
our insureds, undertaken in conjunction with the industrys lead underwriters in London,
indicated that, because such a significant number of claims potentially emanating from
the attack on the Pentagon and the crash in Shanksville had been filed with the Fund, or
were time barred as a result of the expiration of relevant statutes of limitations, those
same claims would not be made against our insureds. Therefore, we concluded that our
insureds liability and our ultimate insured loss would be substantially reduced.
Consequently, we re-estimated our insureds potential liability for the terrorist attacks
of September 11, 2001 on the Pentagon and the hijacked airliner that crashed in
Pennsylvania, and in 2004 we reduced our gross and net loss reserves by $16.3 million and
$8.3 million, respectively.
In light of the magnitude of the potential losses to our insureds resulting from the WTC
Attack, we did not reduce reserves for these losses until we had a high degree of
certainty that a substantial amount of these claims were waived by victims participation
in the Fund, or were time barred by the expiry of statutes of limitations, and we did not
reach that level of certainty until September 2004, when the last of the significant
statutes of limitations, that applicable to bodily injury and property damage, expired.
In 2006 the Company recorded adverse loss development of approximately $850,000 in the
aircraft line of business resulting primarily from losses assumed from the World Trade
Center attack which were partially offset by a reduction in reserves relating to the loss
sustained at the Pentagon after re-estimating the reserve based upon lower than expected
settlements of claims paid during the year. There were no material changes in loss
estimates for the WTC Attack in 2007, 2008 or 2009.
Overall, the aviation line of business has experienced adverse development in 2008 and
2007 largely related to the unfavorable settlement of large losses and the impact of
uncollectible reinsurance. In 2009 the Company reported favorable development in the
aviation line of business largely due to recoveries.
F-28
In February 2010, the Company paid approximately $33.5 million in gross claims with
respect to the WTC Attack. The ceded recovery with respect to this claim is approximately
$22.4 million. While the loss payment adversely impacted cash flows from operations, it
did not have a substantial impact on results of operations or financial position.
Salvage and subrogation
Estimates of salvage and subrogation recoveries on paid and unpaid losses have been
recorded as a reduction of unpaid losses amounting to $6,304,953 and $6,545,226 at
December 31, 2009 and December 31, 2008, respectively.
Deferred policy acquisition costs
Deferrable policy acquisition costs amortized to expense amounted to $36,852,771,
$38,669,739 and $37,694,535 for the years ended December 31, 2009, 2008 and 2007,
respectively.
(6) |
|
Property, Improvements and Equipment, Net: |
Property, improvements and equipment, net at December 31, 2009 and December 31, 2008
include the following:
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Office furniture and equipment |
|
$ |
2,185,778 |
|
|
$ |
2,401,612 |
|
Computer equipment |
|
|
2,068,345 |
|
|
|
2,105,196 |
|
Computer software |
|
|
9,828,644 |
|
|
|
4,440,945 |
|
Leasehold improvements |
|
|
5,667,596 |
|
|
|
5,795,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19,750,363 |
|
|
|
14,743,135 |
|
Less: accumulated depreciation and amortization |
|
|
(5,148,222 |
) |
|
|
(4,709,646 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, improvements and equipment, net |
|
$ |
14,602,141 |
|
|
$ |
10,033,489 |
|
|
|
|
|
|
|
|
Depreciation and amortization and other expenses for the years ended December 31,
2009, 2008 and 2007 amounted to $1,493,929, $1,414,538 and $1,295,929, respectively.
During 2007, the Companys management determined that certain computer equipment and
software was inefficient and no longer possessed any future service potential and
accounted for it as an abandoned asset under the guidance of Statement of Financial
Accounting Standard No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets. The cost basis and accumulated depreciation of the computer equipment and
software treated as if abandoned were $5,547,094 and $231,129, respectively, resulting in
a charge against income before income taxes of $5,315,965 during the year ended
December 31, 2007.
F-29
(7) Income Taxes:
The components of deferred tax assets and liabilities as of December 31, 2009 and
December 31, 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Deferred Tax Assets: |
|
|
|
|
|
|
|
|
Loss reserves |
|
$ |
13,813,095 |
|
|
$ |
13,557,347 |
|
Unearned premiums |
|
|
4,887,055 |
|
|
|
4,489,745 |
|
Net operating loss carryforwards |
|
|
7,375,687 |
|
|
|
5,880,130 |
|
Capital loss carryforwards |
|
|
6,514,608 |
|
|
|
12,530,316 |
|
Bad debt reserve |
|
|
2,050,720 |
|
|
|
1,986,752 |
|
Unrealized depreciation of investments |
|
|
13,343,882 |
|
|
|
20,418,996 |
|
Hedge fund loss |
|
|
3,384,488 |
|
|
|
3,862,875 |
|
Deferred compensation |
|
|
3,227,595 |
|
|
|
2,187,622 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax assets |
|
|
54,597,130 |
|
|
|
64,913,783 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less: Valuation allowance |
|
|
18,968,457 |
|
|
|
23,527,654 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets |
|
|
35,628,673 |
|
|
|
41,386,129 |
|
|
|
|
|
|
|
|
|
|
Deferred Tax Liabilities: |
|
|
|
|
|
|
|
|
Deferred policy acquisition costs |
|
|
5,753,331 |
|
|
|
5,132,299 |
|
Accrued salvage and subrogation |
|
|
193,263 |
|
|
|
208,408 |
|
Other |
|
|
430,529 |
|
|
|
530,825 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities |
|
|
6,377,123 |
|
|
|
5,871,532 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets |
|
$ |
29,251,550 |
|
|
$ |
35,514,597 |
|
|
|
|
|
|
|
|
At December 31, 2009, state net operating losses that can be carried forward are
$11,347,212 and realized capital losses that can be carried forward are $18,613,166. The
range of years in which the state NOL carryforwards, which are primarily in the State of
New York, can be carried forward against future tax liabilities is from 2010 to 2029. The
range of years in which the federal capital loss carryforwards can be carried forward is
from 2010 to 2014. The estimate for capital losses may differ from the actual amount
ultimately filed in the Companys tax return.
The Companys valuation allowance account with respect to the deferred tax asset and the
change in the account is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Balance, beginning of year |
|
$ |
23,527,654 |
|
|
$ |
4,998,520 |
|
|
$ |
4,193,440 |
|
Change in valuation allowance |
|
|
(4,559,197 |
) |
|
|
18,529,134 |
|
|
|
805,080 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period |
|
$ |
18,968,457 |
|
|
$ |
23,527,654 |
|
|
$ |
4,998,520 |
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009, the Company has recorded a valuation allowance of
$11,319,310 with respect to the uncertainty in the realization of capital loss
carryforwards. The Company considered various tax planning strategies to support the
recoverability of existing deferred income taxes for capital loss carryforwards. This
included an analysis of the timing and availability of unrealized positions in the fixed
income maturity portfolio. The Company recorded tax benefits of $6,241,686 million for
the year ended December 31, 2009 as a result of the partial reversal of the deferred tax
valuation allowance previously provided for capital losses. This resulted from realized
and unrealized capital gains in the investment portfolio during 2009. Management believes
the deferred tax asset, net of the recorded valuation allowance account, as of December
31, 2009 will more-likely-than-not be fully realized.
F-30
Income tax provisions differ from the amounts computed by applying the federal statutory
rate to income before income taxes as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Income taxes at the federal statutory rate |
|
|
35.0 |
% |
|
|
35.0 |
% |
|
|
35.0 |
% |
Tax exempt interest |
|
|
(3.7 |
) |
|
|
1.4 |
|
|
|
(1.1 |
) |
Valuation allowance |
|
|
(8.2 |
) |
|
|
(13.5 |
) |
|
|
4.0 |
|
State taxes |
|
|
(2.9 |
) |
|
|
0.7 |
|
|
|
(4.1 |
) |
Life insurance income |
|
|
(2.0 |
) |
|
|
|
|
|
|
|
|
Other, net |
|
|
0.4 |
|
|
|
0.7 |
|
|
|
(0.1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax provisions |
|
|
18.6 |
% |
|
|
24.3 |
% |
|
|
33.7 |
% |
|
|
|
|
|
|
|
|
|
|
The Company received $13,679,495 from the Internal Revenue Service, relating to
capital and net operating loss carrybacks in 2009. Federal income tax paid amounted to
$5,637,504 for the year ended December 31, 2009. There was no federal income tax paid in
2008. Federal income tax paid amounted to $14,028,238 for the year ended December 31,
2007.
At December 31, 2009 and December 31, 2008, the federal income tax recoverable included
in other assets amounted to $878,482 and $16,242,026, respectively.
Reduction of income taxes as a result of the deduction triggered by employee exercise of
stock options for the years ended December 31, 2009, 2008 and 2007 amounted to $262,201,
$398,188 and $1,128,108, respectively. The benefit received was recorded in paid-in
capital.
The Company files tax returns subject to the tax regulations of federal, state and local
tax authorities. A tax benefit taken in the tax return but not in the financial
statements is known as an unrecognized tax benefit. The Company had no unrecognized tax
benefits at either December 31, 2009 or December 31, 2008. The Companys policy is to
record interest and penalties related to unrecognized tax benefits to income tax expense.
The Company did not incur any interest or penalties related to unrecognized tax benefits
for the years ended December 31, 2009 and 2008.
The Company is subject to federal, state and local examinations by tax authorities for
tax year 2006 and subsequent.
(8) Statutory Income and Surplus:
NYMAGICs principal source of income is dividends from its subsidiaries, which are used
for payment of operating expenses, including interest expense, loan repayments and
payment of dividends to NYMAGICs shareholders. The Companys domestic insurance
subsidiaries are limited under state insurance laws, in the amount of ordinary dividends
they may pay without regulatory approval. Within this limitation, the maximum amount
which could be paid to the Company out of the domestic insurance companies surplus was
approximately $10.2 million as of December 31, 2009.
Combined statutory net income, surplus and dividends declared by the Companys domestic
insurance subsidiaries were as follows for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Combined |
|
|
Combined |
|
|
Dividends |
|
|
|
Statutory |
|
|
Statutory |
|
|
Declared |
|
Year ended |
|
Net (Loss) Income |
|
|
Surplus |
|
|
To Parent |
|
December 31, 2009 (unaudited) |
|
$ |
26,985,000 |
|
|
$ |
216,783,000 |
|
|
$ |
10,850,000 |
|
December 31, 2008 |
|
$ |
(38,487,000 |
) |
|
$ |
189,383,000 |
|
|
$ |
|
|
December 31, 2007 |
|
$ |
25,654,000 |
|
|
$ |
207,233,000 |
|
|
$ |
15,745,000 |
|
The Company did not make any capital contributions to its insurance subsidiaries in 2009.
The Company made capital contributions of $32.5 million to New York Marine in 2008. The
Company also purchased certain receivables from New York Marine in the amount of $2.9
million and $6.1 million as of December 31, 2009 and 2008, respectively.
The National Association of Insurance Commissioners (the NAIC) provided a comprehensive
basis of accounting for reporting to state insurance departments. Included in the
codified accounting rules was a provision for the state insurance commissioners to modify
such accounting rules by practices prescribed or permitted for insurers in their state.
However, there were no differences reported in the statutory financial statements for the
years ended December 31, 2009, 2008 and 2007 between prescribed state accounting
practices and those approved by the NAIC.
The domestic insurance company subsidiaries also file statutory financial statements with
each state in the format specified by the NAIC. The NAIC provides accounting guidelines
for companies to file statutory financial statements and provides minimum
solvency standards for all companies in the form of risk-based capital requirements. The
policyholders surplus (the statutory equivalent of net worth) of each of the domestic
insurance companies is above the minimum amount required by the NAIC.
F-31
As a result of the recent downgrades of such securities and in accordance with applicable
statutory accounting guidance under SSAP 43R, which became effective September 30, 2009,
the Company recorded decreases in the fair value of five of seven of the RMBS securities
in its portfolio, resulting in a decline of $21.6 million before applicable taxes, to the
Companys consolidated statutory surplus, which was approximately $217 million as of
December 31, 2009.
SSAP No.
43R amends SSAP No. 43 Loan-Backed and Structured Securities. The new SSAP
requires insurers to separate other-than-temporary impairments between interest and
non-interest related declines in the value of all loan-backed and structured securities.
This statement is effective for quarterly and annual reporting periods ending on or after
September 30, 2009 and supersedes SSAP 98 and paragraph 13 of
SSAP No. 99.
The NAIC
recently adopted revisions to SSAP No. 43R in order to be consistent with changes
to the rating process of RMBS. The new rating process uses modeled losses developed by an
independent third party vendor engaged by the Securities Valuation Office (SVO). As of
December 31, 2009, the Company, by applying the new rating process, reported two of seven
RMBS owned at amortized cost and five at fair value.
(9) Employee Retirement Plans:
The Company maintains a retirement plan for the benefit of our employees in the form of a
Profit Sharing Plan and Trust. The Profit Sharing Plan and Trust provides for an annual
mandatory contribution of 7.5% of compensation for each year of service during which the
employee has completed 11 months of service and is employed on the last day of the plan
year. The Company may also make an additional discretionary annual contribution of up to
7.5% of compensation. The plan provides for 100% vesting upon completion of one year of
service. Employee retirement plan expenses for the years ended December 31, 2009, 2008
and 2007 amounted to $1,291,645, $971,507 and $1,161,441, respectively.
(10) Debt:
On March 11, 2004, the Company issued $100,000,000 in 6.5% senior notes due March 15,
2014. The notes provide for semi-annual interest payments and are to be repaid in full on
March 15, 2014. The indenture contains certain covenants that restrict our and our
restricted subsidiaries ability to, among other things, incur indebtedness, make
restricted payments, incur liens on any shares of capital stock or evidences of
indebtedness issued by any of our restricted subsidiaries or issue or dispose of voting
stock of any of our restricted subsidiaries. The Company remains in compliance with these
covenants.
The fair value of the senior debt at December 31, 2009 approximated a price equal to 91%
of the par value.
Interest paid amounted to $6,501,443, $6,500,055 and $6,523,830 for the years ended
December 31, 2009, 2008 and 2007, respectively.
(11) Commitments:
The Company maintains various operating leases to occupy office space. The lease terms
expire on various dates through July 2016.
The aggregate minimum annual rental payments under various operating leases for office
facilities as of December 31, 2009 are as follows:
|
|
|
|
|
|
|
Amount |
|
2010 |
|
|
4,209,129 |
|
2011 |
|
|
4,182,923 |
|
2012 |
|
|
4,224,471 |
|
2013 |
|
|
4,325,742 |
|
2014 |
|
|
4,299,644 |
|
Thereafter |
|
|
6,807,769 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
28,049,678 |
|
The operating leases also include provisions for additional payments based on certain
annual cost increases. Rent expenses for the years ended December 31, 2009, 2008 and 2007
amounted to $3,807,565, $3,921,632 and $2,216,707, respectively.
In 2003, the Company entered into a sublease for approximately 28,000 square feet for its
principal offices in New York City. The sublease commenced on March 1, 2003 and expires
on July 30, 2016. In April 2005, the Company signed an amendment to the sublease pursuant
to which it added approximately 10,000 square feet of additional space. The amended
sublease expires on July 30, 2016. The minimum monthly rental payments of $144,551 under
the amended sublease include the rent paid by the
Company for the original sublease. Rent payments under the amended sublease commenced in
2005 and end in 2016, with payments amounting to $20.8 million, collectively, over the
term of the agreement.
F-32
In June 2007, the Company leased an additional 30,615 square feet at the New York City
location. The lease provides for a minimum monthly rental payment of $197,722 beginning
in 2008 and $210,478 beginning in 2013. The lease expires on July 30, 2016.
Effective August 1, 2008, the Company has subleased a portion of its office space in New
York City for a term of 29 months, with an option to extend for an additional 19 months.
The monthly rental income recognized under the sublease agreement is approximately
$82,000 and has reduced overall general and administrative expenses by $984,000 and
$410,000 for the years ended December 31, 2009 and 2008. The Company did not exercise its
option to extend the term of its lease to its subtenant at December 31, 2009.
The Company made a first amendment to a lease dated May 4, 2004 for its office in
Chicago. The minimum monthly rental payments of $4,159 commenced in 2005 and will end in
2010.
In 2008, the Company entered into a lease for 2,136 square feet for the office space for
its newly formed MMO Agencies, an underwriting division of the Company. The office is
located in Long Island, New York. Rent payments under the lease end in 2013, with
payments amounting to approximately $370,000, collectively, over the term of the
agreement. The lease expires in May 2013.
(12) Comprehensive Income:
The Companys comparative comprehensive income is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
45,463,283 |
|
|
$ |
(104,335,079 |
) |
|
$ |
13,372,350 |
|
Other comprehensive (loss) income, net of deferred taxes: |
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) on securities, net of
deferred tax expense (benefit) of 1,271,059,
$(5,809,488) and $(2,354,199) |
|
|
19,548,276 |
|
|
|
(46,589,927 |
) |
|
|
(4,372,090 |
) |
Accretion of noncredit portion of impairment on
held-to-maturity, net of deferred tax expense of
$1,281,119, $0 and $0 |
|
|
2,379,222 |
|
|
|
|
|
|
|
|
|
Less : reclassification adjustment for gains
(losses) realized in net income, net of tax (benefit) of
$(676,564), $(501,006) and $(77,450) |
|
|
16,409,668 |
|
|
|
(930,441 |
) |
|
|
(143,836 |
) |
Less : reclassification adjustment for impairment
(losses) recognized in net income, net of tax
(benefit) of 0, $(3,651,346) and $(2,338,548) |
|
|
(478,407 |
) |
|
|
(42,581,973 |
) |
|
|
(4,343,018 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive (loss) income |
|
|
5,996,237 |
|
|
|
(3,077,513 |
) |
|
|
114,764 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
$ |
51,459,520 |
|
|
$ |
(107,412,592 |
) |
|
$ |
13,487,114 |
|
|
|
|
|
|
|
|
|
|
|
F-33
The Company reported unrealized holding gains (losses) on available for sale securities,
net of deferred taxes, of $741,698 and $(2,875,317) at December 31, 2009 and December 31,
2008, respectively. The Company recorded unrealized holding (losses) on held to maturity
securities, net of deferred taxes, of ($23,719,479) at December 31, 2009.
(13) Common Stock Repurchase Plan and Shareholders Equity:
The Company has a Common Stock Repurchase Plan, as amended in 2008, which authorizes the
repurchase of up to $75 million, at prevailing market prices, of the Companys issued and
outstanding shares of common stock on the open market. There were no repurchases made
under the Plan during 2009. As of December 31, 2008, the Company has repurchased a total
of 3,457,298 shares of common stock under this plan at a total cost of $62,855,338 at
market prices ranging from $12.38 to $28.81 per share. The Company repurchased 368,900
shares of common stock under the Plan in 2008 at a total cost of $7,653,602. In 2007, the
Company repurchased 317,700 shares of common stock under the Plan at a total cost of
$7,121,988.
In connection with the acquisition of MMO in 1991, the Company also acquired 3,215,958
shares of its own common stock held by MMO and recorded such shares as treasury stock at
MMOs original cost of $3,919,129.
The Company entered into a Securities Purchase Agreement with Conning Capital Partners
VI, L.P. (CCPVI) on January 31, 2003. Under the terms of the agreement, the Company
sold 400,000 investment units to CCPVI, which consisted of one share of the Companys
common stock and an option to purchase an additional share of common stock from the
Company. Conning paid $21.00 per unit resulting in $8.4 million in proceeds to the
Company. In accordance with the Option Certificate, the options would have expired on
January 31, 2008. The exercise price is based on a variable formula (which was attached
as an exhibit to the Companys Form 8-K filed on February 4, 2003).
On March 22, 2006, the Company entered into an agreement (the Letter Agreement) to
amend and restate the original Option Certificate granted under a Securities Purchase
Agreement, dated January 31, 2003. The Amended and Restated Option Certificate, dated
March 22, 2006, decreased the number of shares of Company common stock that are to be
issued upon the exercise of the option from 400,000 to 300,000 and extended the term from
January 31, 2008 to December 31, 2010. There were no options exercised by CCPVI during
any of the years presented herein. The option exercise price calculated at December 31,
2008 was $24.09 per share.
(14) Earnings per share:
A reconciliation of the numerators and denominators of the basic and diluted earnings per
share (EPS) computations for each of the years ended December 31, 2009, 2008 and 2007
is as follows:
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
December 31, 2008 |
|
|
December 31, 2007 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Net |
|
|
Shares |
|
|
|
|
|
|
Net |
|
|
Shares |
|
|
|
|
|
|
Net |
|
|
Shares |
|
|
|
|
|
|
Loss |
|
|
Outstanding |
|
|
Per |
|
|
Income |
|
|
Outstanding |
|
|
Per |
|
|
Income |
|
|
Outstanding |
|
|
Per |
|
|
|
(Numerator) |
|
|
(Denominator) |
|
|
Share |
|
|
(Numerator) |
|
|
(Denominator) |
|
|
Share |
|
|
(Numerator) |
|
|
(Denominator) |
|
|
Share |
|
|
|
(In thousands, except for per share data) |
|
Basic EPS |
|
$ |
45,463 |
|
|
|
8,428 |
|
|
$ |
5.39 |
|
|
$ |
(104,335 |
) |
|
|
8,534 |
|
|
$ |
(12.23 |
) |
|
$ |
13,372 |
|
|
|
8,896 |
|
|
$ |
1.50 |
|
Effect of dilutive
securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity awards and
purchased options |
|
|
|
|
|
|
209 |
|
|
$ |
(.13 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
294 |
|
|
$ |
(.04 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted EPS |
|
$ |
45,463 |
|
|
|
8,637 |
|
|
$ |
5.26 |
|
|
$ |
(104,335 |
) |
|
|
8,534 |
|
|
$ |
(12.23 |
) |
|
$ |
13,372 |
|
|
|
9,190 |
|
|
$ |
1.46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15) Incentive Compensation:
Share-based Plans:
The Company records compensation costs using the fair value of all share awards.
Compensation expense is recorded pro-rata over the vesting period of the award.
The Company has established three share-based incentive compensation plans (the Plans),
which are described below. Management believes that the Plans provide a means whereby the
Company may attract and retain persons of ability to exert their best efforts on behalf
of the Company. The Plans generally allow for the issuance of grants and exercises
through newly issued shares, treasury stock, or any combination thereof to officers, key
employees and directors who are employed by, or provide services to the Company. The
compensation cost that has been charged against income for the Plans was $2,337,233,
$2,535,351 and $2,210,615 for the years ended December 31, 2009, 2008 and 2007,
respectively. The approximate total income tax benefit accrued and recognized in the
Companys financial statements for the years ended December 31, 2009, 2008 and 2007
related to share-based compensation expenses was approximately $818,000, $887,000 and
$774,000, respectively.
F-34
1991 and 2002 Stock Option Plans
The 1991 and 2002 Stock Option Plans (the Option Plans) were adopted by the Companys
Board of Directors and approved by its shareholders in each of their respective years.
The plans provide for the grant of non-qualified options to purchase shares
of the Companys common stock. Both of the plans authorize the issuance of options to
purchase up to 500,000 shares of the Companys common stock at not less than 95 percent
of the fair market value at the date of grant. Option awards are exercisable over the
period specified in each contract and expire at a maximum term of ten years.
The fair value of each option award has been estimated as of the respective grant-date
using the Black-Scholes option-pricing model assuming the following inputs.
|
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|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
December 31, 2008 |
|
|
December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected volatility |
|
|
42.0%-67.0 |
% |
|
|
31.0 |
% |
|
|
N/A |
|
Expected dividends |
|
|
1.21%-1.62 |
% |
|
|
1.35%-1.46 |
% |
|
|
N/A |
|
Expected term (in years) |
|
|
3-7 |
|
|
|
4 |
|
|
|
N/A |
|
Risk-free rate |
|
|
1.34%-2.84 |
% |
|
|
2.32%-2.89 |
% |
|
|
N/A |
|
The weighted-average grant-date fair value of options granted during 2009 was $3.37
per share. The weighted-average grant-date fair value of options granted during 2008 was
$5.31 per share. The Company did not grant any stock option awards through the Option
Plans during the year ended December 31, 2007. There was $358,280 of unrecognized
compensation cost related to unvested options awarded pursuant to the Option Plans as of
December 31, 2009, which will be recognized over the remaining weighted-average vesting
period of approximately two years. The total intrinsic value of options exercised during
the years ended December 31, 2009, 2008 and 2007 was approximately $19,013, $306,000 and
$2,347,000, respectively. As of December 31, 2009, the aggregate intrinsic value was
$521,694 for both options outstanding and vested and exercisable.
The following table sets forth stock option activity for the Option Plans for the years
ended December 31, 2009, 2008 and 2007:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
December 31, 2008 |
|
|
December 31, 2007 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Exercise |
|
|
|
|
|
|
Exercise |
|
|
|
|
|
|
Exercise |
|
|
|
Number of |
|
|
Price |
|
|
Number of |
|
|
Price |
|
|
Number of |
|
|
Price |
|
Shares Under Option |
|
Shares |
|
|
Per Share |
|
|
Shares |
|
|
Per Share |
|
|
Shares |
|
|
Per Share |
|
Outstanding, beginning of year |
|
|
185,950 |
|
|
$ |
16.48 |
|
|
|
195,825 |
|
|
$ |
15.69 |
|
|
|
333,200 |
|
|
$ |
15.43 |
|
Granted |
|
|
140,000 |
|
|
$ |
14.70 |
|
|
|
20,000 |
|
|
$ |
22.82 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(5,000 |
) |
|
$ |
12.59 |
|
|
|
(29,875 |
) |
|
$ |
15.58 |
|
|
|
(136,725 |
) |
|
$ |
15.07 |
|
Forfeited |
|
|
(6,000 |
) |
|
$ |
14.47 |
|
|
|
|
|
|
|
|
|
|
|
(650 |
) |
|
$ |
14.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of year |
|
|
314,950 |
|
|
$ |
15.76 |
|
|
|
185,950 |
|
|
$ |
16.48 |
|
|
|
195,825 |
|
|
$ |
15.69 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, end of year |
|
|
159,950 |
|
|
$ |
16.03 |
|
|
|
165,950 |
|
|
$ |
15.71 |
|
|
|
193,325 |
|
|
$ |
15.56 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted-average remaining contractual term as of December 31, 2009 for options
outstanding and options vested and exercisable was 3.4 and 3.1 years, respectively. For
the years ended December 31, 2009, 2008 and 2007, the Company received approximately
$62,950, $466,000 and $2,060,000, respectively, in cash for the exercise of stock options
granted under the Option Plans.
2004 Long-Term Incentive Plan
The NYMAGIC, INC. Amended and Restated 2004 Long-Term Incentive Plan (the LTIP) was
adopted by the Companys Board of Directors and approved by its shareholders in 2004. The
LTIP authorizes the Board of Directors to grant non-qualified options to purchase shares
of Companys common stock, share appreciation rights, restricted shares, restricted share
units, unrestricted share awards, deferred share units and performance awards. The LTIP
allows for the issuance of share-based awards up to the equivalent of 450,000 shares of
the Companys common stock at not less than 95 percent of the fair market value at the
date of grant. Share grants awarded under the LTIP are exercisable over the period
specified in each contract and expire at a maximum term of ten years. The LTIP was
amended and restated in 2008 to change the amount of share equivalents that may be issued
under it from 450,000 to 900,000.
F-35
Under the LTIP, the Company has granted restricted share units (RSUs), deferred share
units (DSUs) and performance share awards (performance shares), as well as
unrestricted common stock awards (i.e., vested and unencumbered shares). Grantees
generally have the option to defer the receipt of shares of common stock that would
otherwise be acquired upon vesting of restricted share units, which allows for
preferential tax treatment by the recipient of the award.
RSUs, as well as restricted shares, become vested and convertible into shares of
common stock when the restrictions applicable to them lapse. In accordance with ASC 715,
the fair value of nonvested shares is estimated on the date of grant based on the market
price of the Companys stock and is amortized to compensation expense on a straight-line
basis over the related vesting periods. As of December 31, 2009, there was $2,041,123 of
unrecognized compensation cost related to RSUs, which is expected to be recognized over a
remaining weighted-average vesting period of two years. The total fair value of RSUs
vested and converted to shares of common stock during the years ended December 31, 2009,
2008 and 2007 was $531,054, $603,076 and $492,092, respectively. As of December 31, 2009,
the aggregate fair value was $4,317,336 for RSUs outstanding (vested and unvested) and
$2,774,091 for nonvested RSUs.
The Company has settled annual Board of Directors fees, in part, through the
issuance of DSUs. DSUs are vested immediately and are converted into shares of the
Companys common stock upon the departure of the grantee director. For the years ended
December 31, 2009, 2008 and 2007, fees of $398,700, $262,500 and $227,500, respectively,
have been settled by the grant of 26,192, 11,559 and 5,366 DSUs, respectively. The
deferred share units outstanding at December 31, 2009 carried a total fair value of
$1,119,409.
The following table sets forth activity for the LTIP as it relates to RSUs and DSUs for
the years ended December 31, 2009, 2008 and 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
December 31, 2008 |
|
|
December 31, 2007 |
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
Grant |
|
|
|
|
|
|
Grant |
|
|
|
|
|
|
Grant |
|
|
|
|
|
|
|
Date Fair |
|
|
|
|
|
|
Date Fair |
|
|
|
|
|
|
Date Fair |
|
|
|
Number of |
|
|
Value |
|
|
Number of |
|
|
Value |
|
|
Number of |
|
|
Value |
|
RSUs and DSUs |
|
Shares |
|
|
Per Share |
|
|
Shares |
|
|
Per Share |
|
|
Shares |
|
|
Per Share |
|
Nonvested, beginning of year |
|
|
136,900 |
|
|
$ |
27.14 |
|
|
|
133,200 |
|
|
$ |
29.84 |
|
|
|
136,600 |
|
|
$ |
26.10 |
|
Granted |
|
|
68,692 |
|
|
$ |
16.50 |
|
|
|
73,059 |
|
|
$ |
22.42 |
|
|
|
51,365 |
|
|
$ |
39.47 |
|
Vested |
|
|
(92,300 |
) |
|
$ |
22.48 |
|
|
|
(69,359 |
) |
|
$ |
27.63 |
|
|
|
(54,765 |
) |
|
$ |
29.52 |
|
Forfeited |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonvested, end of year |
|
|
113,292 |
|
|
$ |
24.49 |
|
|
|
136,900 |
|
|
$ |
27.14 |
|
|
|
133,200 |
|
|
$ |
29.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Performance share units have been awarded under the LTIP to the Companys President
and Chief Executive Officer. As discussed further under the caption Executive
Compensation Agreements, the award is contingent upon the satisfaction of certain market
conditions relating to the fair market value of the Companys stock. Depending on the
performance of the Companys common stock for each of the years ended December 31, 2009,
2008 and 2007, an award may be issued up to 12,000 performance share units per year upon
the achievement of certain predetermined share closing price requirements. The grant-date
fair value for the years ended December 31, 2009, 2008 and 2007 was $166,857, $144,180
and $155,992, respectively. The fair value of the performance share award has been
estimated as of the original grant-date using a Monte Carlo simulation assuming the
following inputs.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009 |
|
|
December 31, 2008 |
|
|
December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expected volatility |
|
|
79.6 |
% |
|
|
25.3 |
% |
|
|
25.3 |
% |
Expected dividends |
|
|
1.67 |
% |
|
|
0.84 |
% |
|
|
0.84 |
% |
Expected term (in years) |
|
|
3 |
|
|
|
2.7 |
|
|
|
2.7 |
|
Risk-free rate |
|
|
0.37 |
% |
|
|
4.85 |
% |
|
|
4.85 |
% |
Pursuant to the completion of the 2007 and 2006 annual performance periods, the
Company awarded 12,000 performance shares for each year, which vested on the second
anniversary of the last day of the applicable performance period. The 2006 award was
settled in the Companys common stock on December 31, 2008 and the 2007 award was settled
in the Companys common stock on December 31, 2009. Since market conditions relating to
the 2009 and 2008 performance period were not satisfied, the executive will not receive
any performance shares for these periods.
F-36
On April 7, 2008, the Company entered into an award agreement, which became effective
May 1, 2008 with members of the senior management team of MMO Agencies, an underwriting
division of the Company. Included in the agreement are provisions pertaining to
performance unit awards. In 2009, the Company and the MMO Agencies management team agreed
to cancel the awards agreement. The Company did not record any expense in connection
with those awards.
Unrestricted shares of the Companys common stock have been granted pursuant to the LTIP.
9,750 shares were granted to certain directors and officers during 2007. The unrestricted
stock awards settled compensation costs of $384,248 for the year ended December 31, 2007.
There were no unrestricted stock awards granted during 2009 and 2008.
Other Plans:
Employee Stock Purchase Plan
The Company established the Employee Stock Purchase Plan (the ESPP) in 2004. The ESPP
allows eligible employees of the Company and its designated affiliates to purchase,
through payroll deductions, shares of common stock of the Company. The ESPP is designed
to retain and motivate the employees of the Company and its designated affiliates by
encouraging them to acquire ownership in the Company on a tax-favored basis. The price
per common share sold under the ESPP is 85% (or more if the Board of Directors or the
committee administering the plan so provides) of the closing price of the Companys
shares on the New York Stock Exchange on the day the Common Stock is offered. The Company
has reserved 50,000 shares for issuance under the ESPP. There were no shares issued under
the ESPP during any of the years ended December 31, 2009, 2008 and 2007.
Phantom Stock Plan
The Company established the NYMAGIC, INC. Phantom Stock Plan (the PSP) in 1999. The
purpose of the PSP is to build and retain a capable and experienced long-term management
team and to incentivize key personnel to promote the success of the Company. Each share
of phantom stock granted under the PSP constitutes a right to receive the appreciation in
the fair market value of one share of the Companys stock in the equivalent cash value,
as determined on the date of exercise of such share of phantom stock over the measurement
value of such phantom shares. In 1999, 100,000 shares of phantom stock were granted to
employees with a five-year vesting schedule. There have been no grants of phantom stock
by the Company since 1999. There were 0, 4,000 and 3,500 shares exercised for the years
ended December 31, 2009, 2008 and 2007, respectively. The Company recorded an expense
(benefit) of $0, $7,800 and $(40,755) for the years ended December 31, 2009, 2008 and
2007, respectively. As of December 31, 2009, there are no shares of phantom stock
outstanding.
Executive Compensation Agreements:
The Company entered into a new employment agreement with A. George Kallop, the Companys
President and Chief Executive Officer, effective January 1, 2009 through December 31,
2010 (the Kallop Employment Agreement). Under his new employment agreement, Mr. Kallop
is entitled to an annual base salary of $525,000 and a target annual incentive award of
$393,750. Mr. Kallop also received two grants of 8,000 restricted share units, which vest
on December 31, 2009 and December 31, 2010, respectively, provided that he continues to
be employed by the Company on those dates; a long-term incentive award with maximum,
target and threshold awards of 12,000, 6,000 and 3,000 performance units, respectively,
in each of two one-year performance periods beginning on January 1, 2009 and January 1,
2010; and, a supplemental performance compensation award in the amount of 25,000
performance units. Under the long term incentive award, the number of performance units
eligible to be earned for each of these two one-year performance periods is based on
target increases in the market price of the Companys common stock in the applicable
performance period. The supplemental performance compensation award of 25,000 units is
earned if there is a change in control of the Company as defined in the employment
agreement. Mr. Kallops new employment agreement also includes provisions governing
termination for death, disability, cause, without cause and change of control, which
include a severance benefit of one year salary, pro rata annual incentive awards at
target, and accelerated vesting of stock and performance unit grants in the event of his
termination without cause prior to a change of control.
In connection with the Kallop Employment Agreement, the Company entered into a
Performance Share Award Agreement (the Kallop Award Agreement) with Mr. Kallop on the
same date. Under the terms of the Kallop Award Agreement, the aforementioned performance
share units will be earned for each of the two one-year performance periods based on
predetermined market price targets of the daily closing price of the Companys common
stock in each of the requisite performance periods. The performance share units award is
contingent upon the satisfaction of certain market conditions relating to the fair market
value of the Companys common stock. Depending on the performance of the Companys common
stock for each of the years ended December 31, 2009 and 2010 an award may be issued up to
12,000 performance share units per year upon the achievement of certain predetermined
share closing price requirements. The fair value of the performance share award has been
estimated as of the initial grant-date using a Monte Carlo Simulation. Pursuant to the
completion of the 2009 and 2010 annual performance periods, performance shares for each
year, will vest on the second anniversary of the last day of the applicable performance
period, provided that the executive is employed by the Company on that date.
F-37
(16) Segment Information:
The Companys subsidiaries include three domestic insurance companies and three domestic
agencies. These subsidiaries underwrite commercial insurance in four major lines of
business. The Company considers ocean marine, inland marine/fire, other liability and
aircraft as appropriate segments for purposes of evaluating the Companys overall
performance; however, the
Company has ceased writing any new policies covering aircraft risks subsequent to
March 31, 2002. The Company in 2009, however, began underwriting general aviation
insurance policies covering single engine non-commercial aircraft. There were no
significant amounts written during the year.
The Company evaluates revenues and income or loss by the aforementioned segments.
Revenues include premiums earned and commission income. Income or loss includes premiums
earned and commission income less the sum of losses incurred and policy acquisition
costs.
Investment income represents a material component of the Companys revenues and income.
The Company does not maintain its investment portfolio by segment because management does
not consider revenues and income by segment as being derived from the investment
portfolio. Accordingly, an allocation of identifiable assets, investment income and
realized investment gains is not considered practicable. As such, other income, general
and administrative expenses, interest expense and income taxes are also not considered by
management for purposes of providing segment information. The financial information by
segment is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(in thousands) |
|
|
|
|
|
|
|
Income |
|
|
|
|
|
|
Income |
|
|
|
|
|
|
Income |
|
Segments |
|
Revenues |
|
|
(Loss) |
|
|
Revenues |
|
|
(Loss) |
|
|
Revenues |
|
|
(Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ocean marine |
|
$ |
51,866 |
|
|
$ |
26,440 |
|
|
$ |
64,861 |
|
|
$ |
29,712 |
|
|
$ |
71,998 |
|
|
$ |
29,141 |
|
Inland marine/Fire |
|
|
5,733 |
|
|
|
2,522 |
|
|
|
5,714 |
|
|
|
(381 |
) |
|
|
7,016 |
|
|
|
1,084 |
|
Other liability |
|
|
99,700 |
|
|
|
13,957 |
|
|
|
96,430 |
|
|
|
(7,493 |
) |
|
|
87,388 |
|
|
|
11,971 |
|
Aircraft |
|
|
(68 |
) |
|
|
1,955 |
|
|
|
222 |
|
|
|
(3,239 |
) |
|
|
108 |
|
|
|
(3,225 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
157,231 |
|
|
|
44,874 |
|
|
|
167,227 |
|
|
|
18,599 |
|
|
|
166,510 |
|
|
|
38,971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment (loss) income |
|
|
41,668 |
|
|
|
41,668 |
|
|
|
(63,503 |
) |
|
|
(63,503 |
) |
|
|
35,489 |
|
|
|
35,489 |
|
Total
other-than-temporary
impairments |
|
|
(479 |
) |
|
|
(479 |
) |
|
|
(46,233 |
) |
|
|
(46,233 |
) |
|
|
(6,682 |
) |
|
|
(6,682 |
) |
Portion of
loss recognized in
OCI (before taxes) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net impairment loss recognized in
earnings |
|
|
(479 |
) |
|
|
(479 |
) |
|
|
(46,233 |
) |
|
|
(46,233 |
) |
|
|
(6,682 |
) |
|
|
(6,682 |
) |
Net realized investment gains
(losses) |
|
|
15,733 |
|
|
|
15,733 |
|
|
|
(1,432 |
) |
|
|
(1,432 |
) |
|
|
(221 |
) |
|
|
(221 |
) |
Other income (loss), net |
|
|
3,342 |
|
|
|
3,342 |
|
|
|
122 |
|
|
|
122 |
|
|
|
(4,659 |
) |
|
|
(4,659 |
) |
General and administrative expenses |
|
|
|
|
|
|
(42,552 |
) |
|
|
|
|
|
|
(38,612 |
) |
|
|
|
|
|
|
(36,018 |
) |
Interest expense |
|
|
|
|
|
|
(6,731 |
) |
|
|
|
|
|
|
(6,716 |
) |
|
|
|
|
|
|
(6,726 |
) |
Income tax benefit (expense) |
|
|
|
|
|
|
(10,392 |
) |
|
|
|
|
|
|
33,440 |
|
|
|
|
|
|
|
(6,782 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
217,495 |
|
|
$ |
45,463 |
|
|
$ |
56,181 |
|
|
$ |
(104,335 |
) |
|
$ |
190,437 |
|
|
$ |
13,372 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-38
The Companys gross written premiums cover risks in the following geographic
locations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
|
|
(in thousands) |
|
United States |
|
$ |
201,060 |
|
|
$ |
204,769 |
|
|
$ |
216,417 |
|
Europe |
|
|
7,341 |
|
|
|
3,096 |
|
|
|
5,659 |
|
Asia |
|
|
2,575 |
|
|
|
1,161 |
|
|
|
1,751 |
|
Latin America |
|
|
495 |
|
|
|
388 |
|
|
|
313 |
|
Other |
|
|
2,109 |
|
|
|
7,840 |
|
|
|
4,248 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gross Written Premiums |
|
$ |
213,580 |
|
|
$ |
217,254 |
|
|
$ |
228,388 |
|
|
|
|
|
|
|
|
|
|
|
(17) Quarterly Financial Data (unaudited):
The quarterly financial data for 2009 and 2008 are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
June 30, |
|
|
Sept. 30, |
|
|
Dec. 31, |
|
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
2009 |
|
|
|
(in thousands, except per share data) |
|
Total revenues |
|
$ |
46,270 |
|
|
$ |
54,067 |
|
|
$ |
56,942 |
|
|
$ |
60,217 |
|
Income before income taxes |
|
$ |
4,567 |
|
|
$ |
16,090 |
|
|
$ |
15,955 |
|
|
$ |
19,243 |
|
Net income |
|
$ |
3,478 |
|
|
$ |
14,204 |
|
|
$ |
14,575 |
|
|
$ |
13,206 |
|
|
|
|
|
Basic earnings per share |
|
$ |
0.41 |
|
|
$ |
1.69 |
|
|
$ |
1.73 |
|
|
$ |
1.57 |
|
Diluted earnings per share |
|
$ |
0.40 |
|
|
$ |
1.65 |
|
|
$ |
1.68 |
|
|
$ |
1.53 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended |
|
|
|
March 31, |
|
|
June 30, |
|
|
Sept. 30, |
|
|
Dec. 31, |
|
|
|
2008 |
|
|
2008 |
|
|
2008 |
|
|
2008 |
|
|
|
(in thousands, except per share data) |
|
Total revenues |
|
$ |
(300 |
) |
|
$ |
48,981 |
|
|
$ |
(13,953 |
) |
|
$ |
21,453 |
|
Loss before income taxes |
|
$ |
(46,599 |
) |
|
$ |
(8,750 |
) |
|
$ |
(63,470 |
) |
|
$ |
(18,955 |
) |
Net loss |
|
$ |
(29,748 |
) |
|
$ |
(4,746 |
) |
|
$ |
(50,074 |
) |
|
$ |
(19,767 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic loss per share |
|
$ |
(3.42 |
) |
|
$ |
(.55 |
) |
|
$ |
(5.96 |
) |
|
$ |
(2.36 |
) |
Diluted loss per share |
|
$ |
(3.42 |
) |
|
$ |
(.55 |
) |
|
$ |
(5.96 |
) |
|
$ |
(2.36 |
) |
(18) Related Party Transactions:
The following information is unaudited: Effective December 31, 2004, Mr. Trumbull, who
had previously been a shareholder of Mariner, ceased to be a shareholder of Mariner.
Currently, he has a consulting agreement with Mariner pursuant to which Mariner holds on
his behalf an option to purchase 337,500 shares of NYMAGIC. Effective January 1, 2005,
Mr. Shaw, who previously had a contractual relationship with Mariner relating to
investing services, and on whose behalf Mariner agreed to hold as nominee a portion of
the option covering 315,000 shares of NYMAGIC, terminated his contractual relationship
with Mariner, waived his interest in the option covering 315,000 shares of NYMAGIC and
became a shareholder of Mariner. Mr. Kallop has a consulting agreement with Mariner and
Mariner holds on his behalf as nominee a portion of the option covering 236,250 shares of
NYMAGIC.
The Company entered into an investment management agreement with Mariner effective
October 1, 2002, which was amended and restated on December 6, 2002. Under the terms of
this agreement, Mariner manages the Companys and its subsidiaries, New York Marine And
General Insurance Companys and Gotham Insurance Companys investment portfolios. Fees to
be paid to Mariner are based on a percentage of the investment
portfolios as follows: .20% of liquid assets, .30% of fixed maturity investments and 1.25% of limited
partnership (hedge fund) and equity security investments. Another of the Companys
subsidiaries, Southwest Marine and General Insurance Company, entered into an investment
management agreement, the substantive terms of which are identical to those set forth
above, with a subsidiary of Mariner, Mariner Investment Group, Inc. (Mariner Group)
effective March 1, 2007. William J. Michaelcheck, a director of the Company, is the
Chairman and the beneficial owner of a substantial number of shares of Mariner. A. George
Kallop, President and Chief Executive Officer and a director of the Company, William D.
Shaw, Jr., Vice Chairman and a director of the Company and George R. Trumbull, a director
of the Company, are also associated with Mariner. Investment fees incurred under the
agreements with Mariner and
Mariner Group were $2,076,281, $2,894,022 and $2,951,404 for the years ended December 31,
2009, 2008 and 2007, respectively.
F-39
The Company entered into a consulting agreement on April 6, 2005 with William D. Shaw,
Jr., Vice Chairman and a director of the Company (the Shaw Consulting Agreement), which
was renewed through December 31, 2008, pursuant to which he provided certain consulting
services to the Company relating to the Companys asset management strategy including
(i) participation in meetings with rating agencies; (ii) participation in meetings with
research analysts; and (iii) participation in certain other investor relations services.
For the year ended December 31, 2008, Mr. Shaw was paid $125,000 under this agreement, of
which $25,000 relates to services performed in 2007. This compares to $75,000 paid under
his consulting agreements during the year ended December 31, 2007. The Company may also
pay Mr. Shaw a bonus up to a maximum of $100,000 at the discretion of the Human Resources
Committee of the Companys Board of Directors upon the recommendation of the Companys
Chairman. Mr. Shaw was not awarded a bonus in 2008 for services he provided in 2007. In
April 2007, the Company awarded Mr. Shaw a $25,000 cash bonus and 1,000 shares of common
stock with a fair value of $39,410 for services performed in 2006. The Company was also
obligated to reimburse Mr. Shaw for all reasonable and necessary expenses incurred in
connection with the services he provides under the Consulting Agreement. The Shaw
Consulting Agreement terminated on December 31, 2008 and was not renewed for 2009.
On May 21, 2008, George R. Trumbull stepped down as Chairman of the Board of Directors.
Effective as of that date, the Company entered into a consulting agreement with
Mr. Trumbull, pursuant to which the Trumbull Employment Agreement, which was previously
filed as Exhibit 10.59 to the Companys Annual Report on Form 10-K for the year ended
December 31, 2007, was novated and the vesting of 5,000 restricted share units granted to
Mr. Trumbull on January 1, 2008, was accelerated to May 21, 2008.
On June 16, 2008, the Company entered into a consulting agreement with Mr. Trumbull, a
member of the Companys Board of Directors, (the Trumbull Consulting Agreement), which
was made effective as of May 21, 2008. Pursuant to the terms of this agreement,
Mr. Trumbull performs consulting services in the form of providing assistance to the
Companys Chairman of the Board of Directors as requested in connection with Board
matters and to the President and Chief Executive Officer of the Company as he requested
in connection with various issues arising in the Companys operating and risk bearing
subsidiaries. Mr. Trumbulls compensation under the Trumbull Consulting Agreement was
$100,000 per year, payable in four equal quarterly payments of $25,000 each, the first of
which was paid on August 21, 2008. During 2009 and 2008, he was paid $50,000 for each
year under the Trumbull Consulting Agreement. The Company is also obligated to reimburse
Mr. Trumbull for all reasonable and necessary expenses incurred in connection with the
services he provides under the Trumbull Consulting Agreement. The Trumbull Consulting
Agreement is also subject to termination by Mr. Trumbull or the Company on 30 days prior
notice. The Company may terminate the Trumbull Consulting Agreement at any time in the
event Mr. Trumbull ceases to be a member of the Companys Board of Directors. The
agreement automatically terminates immediately upon the merger or consolidation of the
Company into another corporation; the sale of all or substantially all of its assets; its
dissolution and/or liquidation; or, the death of Mr. Trumbull. On June 9, 2009 the
Company renewed the Trumbull Consulting Agreement for one year, with an effective date of
May 21, 2009, but in lieu of cash compensation for his consulting services, the Company
awarded Mr. Trumbull an option to purchase 10,000 shares of the Companys common stock.
The exercise price of the shares subject to the option is $15; the option vests on
May 21, 2010 and expires on May 21, 2012.
On July 8, 2008, the Company entered into a three-year engagement agreement with Robert
G. Simses, the Companys Chairman of the Board of Directors (the Simses Engagement
Agreement), effective May 21, 2008 through May 21, 2011. Under the terms of the Simses
Engagement Agreement, Mr. Simses is entitled to an annual retainer, payable quarterly,
beginning on August 21, 2008, of not less than $150,000, subject to review for increase
at the discretion of the Human Resources Committee of the Board of Directors. During
2009, Mr. Simses was paid $150,000 under the Simses Engagement Agreement. Mr. Simses is
also entitled to receive a grant of 30,000 restricted share units as of the effective
date of the agreement. These shares vest ratably over the term of the agreement,
beginning on May 21, 2009. The Simses Engagement Agreement also provides for
reimbursement of reasonable expenses incurred in the performance of Mr. Simses duties,
and includes provisions governing termination for death, disability, cause, without cause
and change of control, which includes payment through the end of the term of the
agreement and accelerated vesting of stock unit grants in the event of his termination
without cause, for good cause or upon a change of control. At the conclusion of the first
year of the Simses Engagement Agreement the Human Resources Committee of the Board of
Directors of the Company reviewed its compensation component and determined not to modify
its cash compensation component, but recommend to the Board of Directors that it award
Mr. Simses an option to purchase 10,000 shares of the Companys common stock, which it
did effective May 21, 2009. The exercise price of the shares subject to the option is
$15; the option vests on May 21, 2010 and expires on May 21, 2012.
On September 17, 2009, the Company entered into a Separation, Release and Consultancy
Agreement with Mark W. Blackman, a director and former named executive officer of the
Company who resigned from the Company on August 11, 2009 (the Blackman Consulting
Agreement) pursuant to which Mr. Blackman will provide continuing services to the
Company. The Blackman Consulting Agreement provides that Mr. Blackmans resignation is
effective as of August 11, 2009. Mr. Blackman received compensation of $50,000 in 2009.
Mr. Blackman will receive $100,000 in 2010, with such fees to be paid bi-monthly.
F-40
The Company will pay Mr. Blackman an amount (expected to be approximately $18,375),
equivalent to the contribution the Company would have made on his behalf to the Companys
Profit Sharing Plan & Trust had Mr. Blackman been employed with the Company on December
31, 2009, pro rated on the basis of his 2009 salary up to the time of his resignation and
Mr. Blackman will not forfeit a then pending award of 16,000 Restricted Share Units under
the Companys Amended and Restated Long-Term Incentive Plan.
In 2003, the Company acquired a 100% interest in a limited partnership hedge fund,
Mariner Tiptree (CDO) Fund I, L.P. (Tiptree), subsequently known as Tricadia CDO Fund,
L.P. (Tricadia) and since June 2008 known as Altrion Capital, L.P. (Altrion). Altrion
was originally established to invest in collateralized debt obligation (CDO)
securities, commercial loan obligation (CLO) securities, credit related structured
(CRS) securities and other structured products, as well as commercial loans, that are
arranged, managed or advised by a Mariner affiliated company. See Relationship with
Mariner Partners, Inc. Under the provisions of the limited partnership agreement, the
Mariner affiliated company was entitled to 50% of the net profit realized upon the sale
of certain collateralized debt obligations held by the Company. The investment in Altrion
was previously consolidated in the Companys financial statements. On August 18, 2006,
the Company entered into an Amended and Restated Limited Partnership Agreement, effective
August 1, 2006, with Tricadia Capital, LLC (Tricadia Capital), the general partner, and
the limited partners named therein (the Amended Agreement), to amend and restate the
existing Limited Partnership Agreement of Mariner Tiptree (CDO) Fund I, L.P. entered into
in 2003 (the Original Agreement). The Amended Agreement changed the name of the
partnership, amended and restated in its entirety the Original Agreement and provides for
the continuation of the partnership under applicable law upon the terms and conditions of
the Amended Agreement. The Amended Agreement, among other items, substantially changed
the fee income structure, as well as provides for the potential conversion of limited
partnership interests to equity interests. The fee income was changed in the Amended
Agreement from 50% of the fee received by the investment manager in connection with the
management of CDOs in Altrion to a percentage of fees equal to the pro-rata portion of
the CDO equity interest held by Altrion, but in any event, no less than 12.5%. The
Amended Agreement also provides for an additional CDO fee to be determined based upon the
management fees earned by the investment manager. These changes resulted in a reduction
in the variability of Altrion thereby lowering or decreasing its expected losses as well
as represented a change in the entitys governing documents or contractual arrangements
that changed the characteristics of Altrions equity investment at risk. As a result of
these substantive changes to the Original Agreement, the Company concluded that it is no
longer the party most closely associated with Altrion and deconsolidated Altrion from its
financial statements as of August 1, 2006 and has since included Altrion as a limited
partnership investment at equity in the financial statements. In 2003, the Company made
an investment of $11.0 million in Altrion. Additional investments of $4.65 million,
$2.7 million and $6.25 million were made in 2004, in 2005 and on April 27, 2007,
respectively. The Company was previously committed to providing an additional
$15.4 million, or a total of approximately $40 million, in capital to Altrion by
August 1, 2008. Altrion, however, waived its right to require the Company to contribute
its additional capital commitment of $15.4 million and accordingly, the Companys
obligation to make such capital contribution has expired. The Company redeemed its
remaining interest in Altrion effective December 31, 2009, resulting in the Company
receiving approximately a $35 million direct investment in the Tiptree Financial L.P.
(Tiptree Financial), $7.3 million in cash, $1.1 million in commercial loans and
$118,000 in private equity. As of December 31, 2009 the majority of Tiptree
Financials assets were invested in cash, fixed income, equity securities and commercial
real estate.
Investment expenses incurred under this agreement at December 31, 2009, 2008 and 2007
amounted to $0, $844,387 and $(812,646), respectively, and were based upon the fair value
of those securities held and sold for the years ended December 31, 2009, 2008 and 2007,
respectively. The limited partnership agreement also provides for other fees payable to
the manager based upon the operations of the hedge fund. There were no other fees
incurred during the years ended December 31, 2009, 2008 and 2007.
Robert G. Simses, the Chairman of our Board of Directors, serves on the board of
directors of Tiptree Financial, a limited partnership in which Tricadia Capital, which is
associated with Mariner, is the general partner. Mr. Simses is not compensated for his
service as a director of Tiptree Financial.
(19) Legal Proceedings:
In the
context of ASC 450, the Company does not have any legal disclosure
requirement.
The
Companys insurance subsidiaries, however, are subject to
disputes, including litigation and arbitration, arising out of the
ordinary course of business. The Companys estimates of the
costs of settling such matters are reflected in its reserves for
losses and loss expenses, and the Company does not believe that the
ultimate outcome of such matters will have a material adverse effect
on its financial condition or results of operations.
(20) Subsequent Event:
The Company has evaluated events subsequent to December 31, 2009.
On March 12, 2010, A. George Kallop, the Companys President and Chief Executive Officer,
announced that he will resign as an employee, officer and director of the Company,
effective April 2, 2010. Also on March 12, 2010, the Board of Directors appointed George
R. Trumbull as Senior Executive Vice President of the Company. In addition, the Board of
Directors resolved that Mr. Trumbull will become the President and Chief Executive
Officer of the Company upon the effective time of Mr.
Kallops resignation on April 2, 2010. Mr. Trumbull is a director of the Company and a
former Chairman of the Board of Directors as well as a former Chief Executive Officer of
the Company.
F-41
FINANCIAL STATEMENT SCHEDULES
SCHEDULE II CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NYMAGIC, INC.
Balance Sheets
(Parent Company)
|
|
|
|
|
|
|
|
|
|
|
December 31, |
|
|
December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
Assets: |
|
|
|
|
|
|
|
|
Cash |
|
$ |
23,576,250 |
|
|
$ |
10,851,532 |
|
Investments |
|
|
39,957,950 |
|
|
|
43,380,057 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cash and investments |
|
|
63,534,200 |
|
|
|
54,231,589 |
|
Investment in subsidiaries |
|
|
218,859,622 |
|
|
|
179,150,176 |
|
Due from subsidiaries |
|
|
21,808,685 |
|
|
|
13,531,308 |
|
Premiums receivable |
|
|
2,866,428 |
|
|
|
6,099,930 |
|
Receivable for investments disposed |
|
|
|
|
|
|
2,620,394 |
|
Computer software |
|
|
8,829,133 |
|
|
|
3,133,069 |
|
Other assets |
|
|
3,527,786 |
|
|
|
7,753,800 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
319,425,854 |
|
|
$ |
266,520,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
Notes payable |
|
$ |
100,000,000 |
|
|
$ |
100,000,000 |
|
Dividend payable |
|
|
737,308 |
|
|
|
671,059 |
|
Other liabilities |
|
|
2,678,914 |
|
|
|
1,776,445 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities |
|
|
103,416,222 |
|
|
|
102,447,504 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders equity: |
|
|
|
|
|
|
|
|
Common stock |
|
|
15,796,465 |
|
|
|
15,742,215 |
|
Paid-in capital |
|
|
51,699,572 |
|
|
|
49,539,886 |
|
Accumulated other comprehensive (loss) income |
|
|
(22,977,781 |
) |
|
|
(2,875,317 |
) |
Retained earnings |
|
|
259,527,967 |
|
|
|
189,702,569 |
|
Treasury stock |
|
|
(88,036,591 |
) |
|
|
(88,036,591 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total shareholders equity |
|
|
216,009,632 |
|
|
|
164,072,762 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and shareholders equity |
|
$ |
319,425,854 |
|
|
$ |
266,520,266 |
|
|
|
|
|
|
|
|
F-42
FINANCIAL STATEMENT SCHEDULES
SCHEDULE II CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NYMAGIC, INC.
Statements of Operations
(Parent Company)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends from subsidiaries |
|
$ |
10,850,000 |
|
|
$ |
|
|
|
$ |
15,745,000 |
|
Net investment and other (loss) income |
|
|
12,996,620 |
|
|
|
(9,086,940 |
) |
|
|
12,241,488 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenues |
|
|
23,846,620 |
|
|
|
(9,086,940 |
) |
|
|
27,986,488 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses |
|
|
4,103,745 |
|
|
|
5,206,095 |
|
|
|
6,023,143 |
|
Interest expense |
|
|
6,729,918 |
|
|
|
6,715,354 |
|
|
|
6,701,711 |
|
Income tax (benefit) expense |
|
|
1,332,101 |
|
|
|
(4,434,736 |
) |
|
|
453,140 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Expenses |
|
|
12,165,764 |
|
|
|
7,486,713 |
|
|
|
13,177,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before equity income |
|
|
11,680,856 |
|
|
|
(16,573,653 |
) |
|
|
14,808,494 |
|
Equity in undistributed (loss) earning of subsidiaries |
|
|
33,782,427 |
|
|
|
(87,761,426 |
) |
|
|
(1,436,144 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income |
|
$ |
45,463,283 |
|
|
$ |
(104,335,079 |
) |
|
$ |
13,372,350 |
|
|
|
|
|
|
|
|
|
|
|
F-43
FINANCIAL STATEMENT SCHEDULES
SCHEDULE II CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NYMAGIC, INC.
Statements of Cash Flows
(Parent Company)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, |
|
|
|
2009 |
|
|
2008 |
|
|
2007 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
45,463,283 |
|
|
$ |
(104,335,079 |
) |
|
$ |
13,372,350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjustments to net income to cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Equity in undistributed (earnings) loss of subsidiaries |
|
|
(33,782,427 |
) |
|
|
87,761,426 |
|
|
|
1,436,144 |
|
Equity in loss (earnings) of limited partnerships |
|
|
18,857,522 |
|
|
|
226,352 |
|
|
|
(9,032,711 |
) |
(Increase) decrease in due from subsidiaries |
|
|
(8,277,377 |
) |
|
|
5,169,598 |
|
|
|
2,282,876 |
|
Decrease (increase) in premiums receivable |
|
|
3,233,502 |
|
|
|
(6,099,930 |
) |
|
|
|
|
Decrease (increase) in other assets |
|
|
4,226,014 |
|
|
|
(1,330,281 |
) |
|
|
634,200 |
|
Increase (decrease) in other liabilities |
|
|
971,688 |
|
|
|
971,618 |
|
|
|
(863,124 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
30,692,205 |
|
|
|
(17,636,296 |
) |
|
|
7,829,735 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net sale (purchase) of other investments |
|
|
2,919,789 |
|
|
|
(1,811,776 |
) |
|
|
65,941,989 |
|
Limited partnerships (acquired) sold |
|
|
(18,355,204 |
) |
|
|
12,971,623 |
|
|
|
(6,250,000 |
) |
Decrease (increase) in receivable for investments disposed |
|
|
2,620,394 |
|
|
|
(2,620,394 |
) |
|
|
|
|
Acquisition of computer software |
|
|
(5,696,064 |
) |
|
|
(3,133,069 |
) |
|
|
|
|
Investment in subsidiary |
|
|
|
|
|
|
(32,500,000 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities |
|
|
(18,511,085 |
) |
|
|
(27,093,616 |
) |
|
|
59,691,989 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows in financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from stock issuance and other |
|
|
2,213,936 |
|
|
|
2,296,996 |
|
|
|
5,259,390 |
|
Cash dividends paid to stockholders |
|
|
(1,670,338 |
) |
|
|
(2,747,795 |
) |
|
|
(2,852,228 |
) |
Net purchase of treasury stock |
|
|
|
|
|
|
(7,653,602 |
) |
|
|
(7,121,988 |
) |
(Decrease) increase in payable for treasury stock purchased |
|
|
|
|
|
|
(1,911,187 |
) |
|
|
1,911,187 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
543,598 |
|
|
|
(10,015,588 |
) |
|
|
(2,803,639 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash |
|
|
12,724,718 |
|
|
|
(54,745,500 |
) |
|
|
64,718,085 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at beginning of period |
|
|
10,851,532 |
|
|
|
65,597,032 |
|
|
|
878,947 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash at end of period |
|
$ |
23,576,250 |
|
|
$ |
10,851,532 |
|
|
$ |
65,597,032 |
|
|
|
|
|
|
|
|
|
|
|
The condensed financial information of NYMAGIC, INC. for the years ended December
31, 2009, 2008 and 2007 should be read in conjunction with the consolidated financial
statements of NYMAGIC, INC. and subsidiaries and notes thereto.
F-44
NYMAGIC, INC.
SCHEDULE III SUPPLEMENTARY INSURANCE INFORMATION
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Column A |
|
Column B |
|
|
Column C |
|
|
Column D |
|
|
Column E |
|
|
Column F |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OTHER |
|
|
|
|
|
|
|
|
|
|
|
|
FUTURE POLICY |
|
|
|
|
|
|
POLICY |
|
|
|
|
|
|
|
|
DEFERRED |
|
|
BENEFITS, |
|
|
|
|
|
|
CLAIMS |
|
|
|
|
|
|
|
|
POLICY |
|
|
LOSSES |
|
|
|
|
|
|
AND |
|
|
|
|
|
|
|
|
ACQUISITION |
|
|
CLAIMS AND |
|
|
UNEARNED |
|
|
BENEFITS |
|
|
PREMIUM |
|
|
|
SEGMENTS |
|
COST |
|
|
LOSS EXPENSES |
|
|
PREMIUMS |
|
|
PAYABLE |
|
|
REVENUE |
|
|
|
|
|
(caption 7) |
|
|
(caption 13-a-1) |
|
|
(caption 13-a-2) |
|
|
(caption 13-a-3) |
|
|
(caption 1) |
|
2009 |
|
Ocean marine |
|
$ |
3,733 |
|
|
$ |
145,064 |
|
|
$ |
26,652 |
|
|
|
|
|
|
$ |
51,682 |
|
|
|
Inland marine/Fire |
|
|
528 |
|
|
|
19,254 |
|
|
|
8,492 |
|
|
|
|
|
|
|
5,733 |
|
|
|
Other liability |
|
|
12,177 |
|
|
|
272,554 |
|
|
|
54,314 |
|
|
|
|
|
|
|
99,624 |
|
|
|
Aircraft |
|
|
|
|
|
|
118,614 |
|
|
|
|
|
|
|
|
|
|
|
(68 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
16,438 |
|
|
$ |
555,486 |
|
|
$ |
89,458 |
|
|
$ |
|
|
|
$ |
156,971 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
Ocean marine |
|
$ |
3,948 |
|
|
$ |
169,478 |
|
|
$ |
27,966 |
|
|
|
|
|
|
$ |
64,713 |
|
|
|
Inland marine/Fire |
|
|
227 |
|
|
|
21,057 |
|
|
|
6,396 |
|
|
|
|
|
|
|
5,710 |
|
|
|
Other liability |
|
|
10,489 |
|
|
|
239,026 |
|
|
|
49,002 |
|
|
|
|
|
|
|
96,428 |
|
|
|
Aircraft |
|
|
|
|
|
|
119,189 |
|
|
|
|
|
|
|
|
|
|
|
222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
14,664 |
|
|
$ |
548,750 |
|
|
$ |
83,364 |
|
|
$ |
|
|
|
$ |
167,073 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
Ocean marine |
|
$ |
5,370 |
|
|
$ |
197,511 |
|
|
$ |
34,985 |
|
|
|
|
|
|
$ |
71,637 |
|
|
|
Inland marine/Fire |
|
|
521 |
|
|
|
22,693 |
|
|
|
8,512 |
|
|
|
|
|
|
|
6,978 |
|
|
|
Other liability |
|
|
9,099 |
|
|
|
211,182 |
|
|
|
44,080 |
|
|
|
|
|
|
|
87,373 |
|
|
|
Aircraft |
|
|
|
|
|
|
125,149 |
|
|
|
|
|
|
|
|
|
|
|
108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
14,990 |
|
|
$ |
556,535 |
|
|
$ |
87,577 |
|
|
$ |
|
|
|
$ |
166,096 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Column A |
|
Column G |
|
|
Column H |
|
|
Column I |
|
|
Column J |
|
|
Column K |
|
|
|
|
|
|
|
|
|
BENEFITS, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLAIMS, |
|
|
AMORTIZATION |
|
|
|
|
|
|
|
|
|
|
|
NET |
|
|
LOSSES |
|
|
OF DEFERRED |
|
|
|
|
|
|
|
|
|
|
|
INVESTMENT |
|
|
AND |
|
|
POLICY |
|
|
OTHER |
|
|
|
|
|
|
|
|
(LOSS) |
|
|
SETTLEMENT |
|
|
ACQUISITION |
|
|
OPERATING |
|
|
PREMIUMS |
|
|
|
SEGMENTS |
|
INCOME |
|
|
EXPENSES |
|
|
COSTS |
|
|
EXPENSES |
|
|
WRITTEN |
|
|
|
|
|
(caption 2) |
|
|
(caption 4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
2009 |
|
Ocean marine |
|
|
|
|
|
$ |
14,738 |
|
|
$ |
10,688 |
|
|
|
|
|
|
$ |
49,885 |
|
|
|
Inland marine/Fire |
|
|
|
|
|
|
2,381 |
|
|
|
830 |
|
|
|
|
|
|
|
7,045 |
|
|
|
Other liability |
|
|
|
|
|
|
60,421 |
|
|
|
25,322 |
|
|
|
|
|
|
|
105,785 |
|
|
|
Aircraft |
|
|
|
|
|
|
(2,036 |
) |
|
|
13 |
|
|
|
|
|
|
|
(68 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
41,668 |
|
|
$ |
75,504 |
|
|
$ |
36,853 |
|
|
$ |
42,552 |
|
|
$ |
162,647 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 |
|
Ocean marine |
|
|
|
|
|
$ |
21,823 |
|
|
$ |
13,326 |
|
|
|
|
|
|
$ |
59,200 |
|
|
|
Inland marine/Fire |
|
|
|
|
|
|
5,096 |
|
|
|
999 |
|
|
|
|
|
|
|
4,538 |
|
|
|
Other liability |
|
|
|
|
|
|
79,583 |
|
|
|
24,340 |
|
|
|
|
|
|
|
101,424 |
|
|
|
Aircraft |
|
|
|
|
|
|
3,456 |
|
|
|
5 |
|
|
|
|
|
|
|
222 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
(63,503 |
) |
|
$ |
109,958 |
|
|
$ |
38,670 |
|
|
$ |
38,612 |
|
|
$ |
165,384 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007 |
|
Ocean marine |
|
|
|
|
|
$ |
27,723 |
|
|
$ |
15,134 |
|
|
|
|
|
|
$ |
68,192 |
|
|
|
Inland marine/Fire |
|
|
|
|
|
|
4,810 |
|
|
|
1,122 |
|
|
|
|
|
|
|
6,935 |
|
|
|
Other liability |
|
|
|
|
|
|
53,988 |
|
|
|
21,429 |
|
|
|
|
|
|
|
92,618 |
|
|
|
Aircraft |
|
|
|
|
|
|
3,323 |
|
|
|
10 |
|
|
|
|
|
|
|
108 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
35,489 |
|
|
$ |
89,844 |
|
|
$ |
37,695 |
|
|
$ |
36,018 |
|
|
$ |
167,853 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-45
NYMAGIC, INC.
SCHEDULE V VALUATION AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COLUMN A |
|
COLUMN B |
|
|
COLUMN C |
|
|
COLUMN D |
|
|
COLUMN E |
|
|
|
Balance at |
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
|
Beginning |
|
|
|
|
|
|
|
|
|
|
Close of |
|
DESCRIPTION |
|
of period |
|
|
Additions |
|
|
Deductions |
|
|
Period |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
Allowance for doubtful accounts |
|
$ |
21,683,114 |
|
|
$ |
1,366,479 |
|
|
$ |
(5,173,502 |
) |
|
$ |
17,876,091 |
|
December 31, 2008
Allowance for doubtful accounts |
|
$ |
14,366,923 |
|
|
$ |
15,647,193 |
|
|
$ |
(8,331,002 |
) |
|
$ |
21,683,114 |
|
December 31, 2007
Allowance for doubtful accounts |
|
$ |
14,151,028 |
|
|
$ |
3,679,854 |
|
|
$ |
(3,463,959 |
) |
|
$ |
14,366,923 |
|
The allowance for doubtful accounts on reinsurance receivables amounted to $17,576,091,
$21,383,114 and $14,066,923 at December 31, 2009, December 31, 2008 and December 31,
2007, respectively. The allowance for doubtful accounts on premiums and other receivables
amounted to $300,000 for each of the years ended December 31, 2009, December 31, 2008 and
December 31, 2007.
F-46
NYMAGIC, INC.
SCHEDULE VI SUPPLEMENTARY INFORMATION CONCERNING PROPERTY/CASUALTY INSURANCE OPERATIONS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
|
|
|
|
|
|
RESERVE FOR |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DEFERRED |
|
|
UNPAID |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
AFFILIATION |
|
POLICY |
|
|
CLAIMS |
|
|
|
|
|
|
UNEARNED |
|
|
NET |
|
|
NET |
|
WITH |
|
ACQUISITION |
|
|
AND CLAIMS |
|
|
|
|
|
|
PREMIUM |
|
|
EARNED |
|
|
INVESTMENT |
|
REGISTRANT |
|
COSTS |
|
|
EXPENSES |
|
|
DISCOUNT |
|
|
RESERVE |
|
|
PREMIUMS |
|
|
(LOSS) INCOME |
|
DECEMBER 31, 2009
CONSOLIDATED
SUBSIDIARIES |
|
$ |
16,438 |
|
|
$ |
555,486 |
|
|
$ |
|
|
|
$ |
89,458 |
|
|
$ |
156,971 |
|
|
$ |
32,025 |
|
DECEMBER 31, 2008
CONSOLIDATED
SUBSIDIARIES |
|
$ |
14,664 |
|
|
$ |
548,750 |
|
|
$ |
|
|
|
$ |
83,364 |
|
|
$ |
167,073 |
|
|
$ |
(56,106 |
) |
DECEMBER 31, 2007
CONSOLIDATED
SUBSIDIARIES |
|
$ |
14,990 |
|
|
$ |
556,535 |
|
|
$ |
|
|
|
$ |
87,577 |
|
|
$ |
166,096 |
|
|
$ |
22,852 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CLAIMS AND CLAIMS |
|
|
AMORTIZATION |
|
|
|
|
|
|
|
|
|
EXPENSES INCURRED |
|
|
OF DEFERRED |
|
|
|
|
|
|
|
AFFILIATION |
|
RELATED TO |
|
|
POLICY |
|
|
PAID CLAIMS |
|
|
NET |
|
WITH |
|
CURRENT |
|
|
PRIOR |
|
|
ACQUISITION |
|
|
AND CLAIMS |
|
|
PREMIUMS |
|
REGISTRANT |
|
YEAR |
|
|
YEARS |
|
|
COSTS |
|
|
EXPENSES |
|
|
WRITTEN |
|
DECEMBER 31, 2009
CONSOLIDATED
SUBSIDIARIES |
|
$ |
95,494 |
|
|
$ |
(19,990 |
) |
|
$ |
36,853 |
|
|
$ |
59,939 |
|
|
$ |
162,647 |
|
DECEMBER 31, 2008
CONSOLIDATED
SUBSIDIARIES |
|
$ |
107,276 |
|
|
$ |
2,683 |
|
|
$ |
38,670 |
|
|
$ |
81,521 |
|
|
$ |
165,384 |
|
DECEMBER 31, 2007
CONSOLIDATED
SUBSIDIARIES |
|
$ |
103,664 |
|
|
$ |
(13,820 |
) |
|
$ |
37,695 |
|
|
$ |
76,380 |
|
|
$ |
167,853 |
|
F-47