UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
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Washington,
D.C. 20549
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FORM
10-K
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(Mark
One)
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x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
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For
the fiscal year
ended DECEMBER 31,
2009
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Or
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¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For
the transition period from _________________________ to
_________________________________
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Commission
file number 001-11252
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Hallmark
Financial Services, Inc.
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(Exact
name of registrant as specified in its charter)
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Nevada
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87-0447375
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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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777
Main Street, Suite 1000, Fort Worth, Texas
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76102
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(Address
of Principal Executive Offices)
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(Zip
Code)
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Registrant's
Telephone Number, Including Area Code: (817)
348-1600
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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 $.18 par value
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Nasdaq
Global Market
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Securities
registered pursuant to Section 12(g) of the Act: None
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Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes ¨
No x
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Indicate
by check mark if the registrant is not required to file reports pursuant
to Section 13 or Section 15(d) of the Act. Yes ¨
No x
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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
(§232.405 of this chapter) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such
files). Yes ¨ No
¨
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Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90
days. Yes
x
No ¨
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Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. ¨
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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 definition of “accelerated filer”, “large
accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one):
Large
accelerated filer ¨
Accelerated filer ¨
Non-accelerated filer ¨
Smaller reporting company x
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Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes ¨
No x
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State
the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common
equity was last sold, or the average bid and asked price of such common
equity, as of the last business day of the registrant’s most recently
completed second fiscal quarter.
$67,409,850
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Indicate
the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date. 20,123,336 shares
of common stock, $.18 par value per share, outstanding as of March 19,
2010.
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Year Ended December 31,
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2009
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2008
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2007
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(dollars in thousands)
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Gross
Premiums Produced (1):
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Standard
Commercial Segment
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$ | 72,512 | $ | 80,193 | $ | 90,985 | ||||||
Specialty
Commercial Segment (2)
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144,230 | 146,054 | 151,003 | |||||||||
Personal
Segment
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71,708 | 60,834 | 55,916 | |||||||||
Total
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$ | 288,450 | $ | 287,081 | $ | 297,904 | ||||||
Gross
Premiums Written:
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Standard
Commercial Segment
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$ | 72,512 | $ | 80,190 | $ | 90,868 | ||||||
Specialty
Commercial Segment (2)
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143,338 | 102,825 | 102,688 | |||||||||
Personal
Segment
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71,708 | 60,834 | 55,916 | |||||||||
Total
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$ | 287,558 | $ | 243,849 | $ | 249,472 | ||||||
Net
Premiums Written:
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Standard
Commercial Segment
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$ | 68,082 | $ | 75,361 | $ | 84,595 | ||||||
Specialty
Commercial Segment (2)
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121,950 | 98,732 | 98,300 | |||||||||
Personal
Segment
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71,708 | 60,834 | 55,916 | |||||||||
Total
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$ | 261,740 | $ | 234,927 | $ | 238,811 |
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(1) Produced
premium is a non-GAAP measurement that management uses to track total
premium produced by our operations. Produced premium excludes
unaffiliated third party premium fronted on our recently acquired HCM
subsidiary. We believe this is a useful tool for users of our
financial statements to measure our premium production whether retained by
our insurance company subsidiaries or assumed by third party insurance
carriers who pay us commission
revenue.
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(2) The Heath
XS Operating Unit included in the Specialty Commercial Segment was
acquired effective August 29, 2008 and, therefore, is not included in the
year ended December 31, 2007.
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l
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Commercial
automobile. Commercial automobile insurance provides
third-party bodily injury and property damage coverage and first-party
property damage coverage against losses resulting from the ownership,
maintenance or use of automobiles and trucks in connection with an
insured’s business.
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l
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General
liability. General liability insurance provides coverage for
third-party bodily injury and property damage claims arising from
accidents occurring on the insured’s premises or from their general
business operations.
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l
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Umbrella.
Umbrella insurance provides coverage for third-party liability
claims where the loss amount exceeds coverage limits provided by the
insured’s underlying general liability and commercial automobile
policies.
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l
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Commercial
property. Commercial property insurance provides first-party
coverage for the insured’s real property, business personal property, and
business interruption losses caused by fire, wind, hail, water damage,
theft, vandalism and other insured
perils.
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l
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Commercial
multi-peril. Commercial multi-peril insurance provides a
combination of property and liability coverage that can include commercial
automobile coverage on a single
policy.
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l
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Business
owner’s. Business owner’s insurance provides
a package of coverage designed for small- to medium-sized businesses with
homogeneous risk profiles. Coverage includes general liability,
commercial property and commercial
automobile.
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l
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Commercial
automobile. Commercial automobile insurance provides third-party
bodily injury and property damage coverage and first-party property damage
coverage against losses resulting from the ownership, maintenance or use
of automobiles and trucks in connection with an insured’s
business.
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l
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General
liability. General liability insurance provides coverage for
third-party bodily injury and property damage claims arising from
accidents occurring on the insured’s premises or from their general
business operations.
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l
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Commercial
property. Commercial property insurance provides
first-party coverage for the insured’s real property, business personal
property, theft and business interruption losses caused by fire, wind,
hail, water damage, vandalism and other insured perils. Windstorm,
hurricane and hail are generally excluded in coastal
areas.
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Aircraft.
Aircraft insurance provides third-party bodily injury and property
damage coverage and first-party hull damage coverage against losses
resulting from the ownership, maintenance or use of
aircraft.
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Airport
liability. Airport liability insurance provides coverage for
third-party bodily injury and property damage claims arising from
accidents occurring on airport premises or from their
operations.
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·
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Commercial
excess liability risks.
Liability
insurance designed to provide an extra layer of protection for bodily
injury, personal and advertising injury, or property damage losses above
the primary layer of automobile, general liability and employers liability
insurance. The excess insurance does not begin until the limits of
liability in the primary layer have been exhausted. The excess layer
provides not only higher limits, but catastrophic protection from large
losses.
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·
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Commercial
umbrella risks.
Liability insurance
protecting businesses for bodily injury, personal and advertising injury,
or property damage claims in excess of the limits of their primary
commercial automobile, general liability and employers liability policies,
and for some claims excluded by their primary policies (subject to a
deductible). Umbrella liability provides not only higher limits, but
catastrophic protection for large
losses.
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l
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Personal
automobile liability. Personal automobile liability insurance
provides coverage primarily at the minimum limits required by law for
automobile liability exposures, including bodily injury and property
damage, arising from accidents involving the
insured.
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l
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Personal
automobile physical damage. Personal automobile physical damage
insurance provides collision and comprehensive coverage for physical
damage exposure to the insured vehicle as a result of an accident or as a
result of causes other than collision such as vandalism, theft, wind, hail
or water.
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Low value
dwelling/homeowners. Low value dwelling/homeowners insurance
provides coverage against insured’s property being destroyed or damaged by
various perils and coverage for liability exposure of the
insured.
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Renters.
Renters insurance provides coverage for the contents of a renter’s
home or apartment and for liability. Renter’s policies are similar
to homeowners insurance, except they do not cover the
structure.
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l
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Motorcycle.
Motorcycle insurance provides coverage similar to the personal
automobile products. A motorcycle policy is generally utilized for
vehicles that do not qualify for a personal automobile policy because they
have fewer than four wheels. Passenger liability may be included or
excluded depending on customer choice or regulatory
requirements.
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·
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Specialized
market knowledge and underwriting expertise. All of our
operating units possess extensive knowledge of the specialty and niche
markets in which they operate, which we believe allows them to effectively
structure and market their property/casualty insurance products. Our
Personal Lines Operating Unit has a thorough understanding of the unique
characteristics of the non-standard personal automobile market. Our AHIS
Operating Unit has significant underwriting experience in its target
markets for standard commercial property/casualty insurance
products. In addition, our TGA Operating Unit, Aerospace Operating
Unit, and Heath XS Operating Unit have developed specialized underwriting
expertise which enhances their ability to profitably underwrite
non-standard property/casualty insurance
coverages.
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·
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Tailored
market strategies. Each of our operating units has developed its
own customized strategy for penetrating the specialty or niche markets in
which it operates. These strategies include distinctive product
structuring, marketing, distribution, underwriting and servicing
approaches by each operating unit. As a result, we are able to
structure our property/casualty insurance products to serve the unique
risk and coverage needs of our insureds. We believe that these
market-specific strategies enable us to provide policies tailored to the
target customer which are appropriately priced and fit our risk
profile.
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·
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Superior
agent and customer service. We believe that performing the
underwriting, billing, customer service and claims management functions at
the operating unit level allows us to provide superior service to both our
independent agents and insured customers. The easy-to-use interfaces
and responsiveness of our operating units enhance their relationships with
the independent agents who sell our policies. We also believe that
our consistency in offering our insurance products through hard and soft
markets helps to build and maintain the loyalty of our independent agents.
Our customized products, flexible payment plans and prompt claims
processing are similarly beneficial to our
insureds.
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·
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Market
diversification. We believe that operating in various
specialty and niche segments of the property/casualty insurance market
diversifies both our revenues and our risks. We also believe our
operating units generally operate on different market cycles, producing
more earnings stability than if we focused entirely on one product. As a
result of the pooling arrangement among our insurance company
subsidiaries, we are able to efficiently allocate our capital among these
various specialty and niche markets in response to market conditions and
expansion opportunities. We believe that this market diversification
reduces our risk profile and enhances our
profitability.
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·
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Experienced
management team. Our senior corporate management has an
average of over 20 years of insurance experience. In addition, our
operating units have strong management teams, with an average of more than
25 years of insurance industry experience for the heads of our operating
units and an average of more than 15 years of underwriting experience for
our underwriters. Our management has significant experience in all
aspects of property/casualty insurance, including underwriting, claims
management, actuarial analysis, reinsurance and regulatory
compliance. In addition, Hallmark’s senior management has a strong
track record of acquiring businesses that expand our product offerings and
improve our profitability profile.
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·
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Focusing on
underwriting discipline and operational efficiency. We seek
to consistently generate an underwriting profit on the business we write
in hard and soft markets. Our operating units have a strong track
record of underwriting discipline and operational efficiency which we seek
to continue. We believe that in soft markets our competitors often
offer policies at a low or negative underwriting profit in order to
maintain or increase their premium volume and market share. In
contrast, we seek to write business based on its profitability rather than
focusing solely on premium production. To that end, we provide
financial incentives to many of our underwriters and independent agents
based on underwriting
profitability.
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·
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Achieving
organic growth in our existing business lines. We believe
that we can achieve organic growth in our existing business lines by
consistently providing our insurance products through market cycles,
expanding geographically, expanding our product offerings, expanding our
agency relationships and further penetrating our existing customer
base. We believe that our extensive market knowledge and strong
agency relationships position us to compete effectively in our various
specialty and niche markets. We also believe there is a significant
opportunity to expand some of our existing business lines into new
geographical areas and through new agency relationships while maintaining
our underwriting discipline and operational efficiency. In addition,
we believe there is an opportunity for some of our operating units to
further penetrate their existing customer bases with additional products
offered by other operating units.
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·
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Pursuing
selected, opportunistic acquisitions. We seek to
opportunistically acquire insurance organizations that operate in
specialty or niche property/casualty insurance markets that are
complementary to our existing operations. We seek to acquire
companies with experienced management teams, stable loss results and
strong track records of underwriting profitability and operational
efficiency. Where appropriate, we intend to ultimately retain
profitable business produced by the acquired companies that would
otherwise be retained by unaffiliated insurers. Our management has
significant experience in evaluating potential acquisition targets,
structuring transactions to ensure continued success and integrating
acquired companies into our operational
structure.
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Standard
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Specialty
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Commercial
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Commercial
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Personal
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Percent of
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State
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Segment
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Segment
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Segment
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Total
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Total
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(dollars in thousands)
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Texas
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$ | 23,991 | $ | 91,490 | $ | 16,229 | $ | 131,710 | 45.8 | % | ||||||||||
Oregon
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18,863 | 676 | 1,393 | 20,932 | 7.3 | % | ||||||||||||||
New
Mexico
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10,598 | 630 | 9,316 | 20,544 | 7.1 | % | ||||||||||||||
Louisiana
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- | 13,773 | 4,759 | 18,532 | 6.4 | % | ||||||||||||||
Arizona
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- | 938 | 11,102 | 12,040 | 4.2 | % | ||||||||||||||
All
other states
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19,060 | 35,831 | 28,909 | 83,800 | 29.2 | % | ||||||||||||||
Total
gross premiums written
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$ | 72,512 | $ | 143,338 | $ | 71,708 | $ | 287,558 | ||||||||||||
Percent
of total
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25.2 | % | 49.9 | % | 24.9 | % | 100.0 | % |
Year Ended December 31,
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2009
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2008
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2007
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Gross
premiums written
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$ | 287,558 | $ | 243,849 | $ | 249,472 | ||||||
Statutory
loss & LAE ratio
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63.6 | % | 63.4 | % | 61.5 | % | ||||||
Statutory
expense ratio
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32.2 | % | 30.9 | % | 30.0 | % | ||||||
Statutory
combined ratio
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95.8 | % | 94.3 | % | 91.5 | % |
As of and for Year Ended December 31,
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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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Reserve
for unpaid losses and LAE, net of reinsurance recoverables, January
1
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$ | 150,025 | $ | 120,849 | $ | 72,801 | ||||||
Provision
for losses and LAE for claims occurring in the current
period
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151,999 | 146,059 | 139,332 | |||||||||
Increase
(decrease) in reserve for unpaid losses and LAE for claims occurring in
prior periods
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1,620 | (1,815 | ) | (6,414 | ) | |||||||
Payments
for losses and LAE, net of reinsurance:
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Current
period
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(62,584 | ) | (64,610 | ) | (54,809 | ) | ||||||
Prior
periods
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(64,810 | ) | (50,458 | ) | (30,061 | ) | ||||||
Reserve
for unpaid losses and LAE at December 31, net of reinsurance
recoverable
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$ | 176,250 | $ | 150,025 | $ | 120,849 | ||||||
Reinsurance
recoverable on unpaid losses and LAE at December 31
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8,412 | 6,338 | 4,489 | |||||||||
Reserve
for unpaid losses and LAE at December 31, gross of
reinsurance
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$ | 184,662 | $ | 156,363 | $ | 125,338 |
As
of December 31,
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||||||||
2009
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2008
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|||||||
(in
thousands)
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Reserve
for unpaid losses and LAE on a SAP basis (net of reinsurance recoverables
on unpaid losses)
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$ | 176,250 | $ | 150,024 | ||||
Estimated
future unallocated LAE reserve for claim service
subsidiaries
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- | 1 | ||||||
Reserve
for unpaid losses and LAE on a GAAP basis (net of reinsurance recoverables
on unpaid losses)
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$ | 176,250 | $ | 150,025 |
1999
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2000
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2001
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2002
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2003
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2004
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2005
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2006
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2007
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2008
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2009
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(dollars
in thousands)
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A.
Reserve for Unpaid Losses & LAE, Net of Reinsurance
Recoverables
|
$ | 5,409 | $ | 7,451 | $ | 7,919 | $ | 8,411 | $ | 21,197 | $ | 17,700 | $ | 25,997 | $ | 72,801 | $ | 120,849 | $ | 150,025 | $ | 176,250 | ||||||||||||||||||||||
B.
Net Reserve Re-estimated as of :
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One
year later
|
5,506 | 7,974 | 8,096 | 8,875 | 20,003 | 15,300 | 24,820 | 66,387 | 119,034 | 151,645 | ||||||||||||||||||||||||||||||||||
Two
years later
|
5,277 | 7,863 | 8,620 | 8,881 | 19,065 | 15,473 | 24,903 | 68,490 | 118,646 | |||||||||||||||||||||||||||||||||||
Three
years later
|
5,216 | 7,773 | 8,856 | 8,508 | 19,698 | 13,962 | 23,144 | 68,809 | ||||||||||||||||||||||||||||||||||||
Four
years later
|
5,095 | 7,901 | 8,860 | 8,446 | 18,551 | 14,166 | 23,455 | |||||||||||||||||||||||||||||||||||||
Five
years later
|
5,028 | 7,997 | 8,855 | 8,478 | 18,769 | 13,163 | ||||||||||||||||||||||||||||||||||||||
Six
years later
|
5,153 | 7,999 | 8,884 | 8,461 | 17,784 | |||||||||||||||||||||||||||||||||||||||
Seven
years later
|
5,153 | 8,026 | 8,669 | 7,949 | ||||||||||||||||||||||||||||||||||||||||
Eight
years later
|
5,182 | 8,014 | 8,855 | |||||||||||||||||||||||||||||||||||||||||
Nine
years later
|
5,170 | 8,007 | ||||||||||||||||||||||||||||||||||||||||||
Ten
years later
|
5,163 | |||||||||||||||||||||||||||||||||||||||||||
C.
Net Cumulative Redundancy (Deficiency)
|
246 | (556 | ) | (936 | ) | 462 | 3,413 | 4,537 | 2,542 | 3,992 | 2,203 | (1,620 | ) | |||||||||||||||||||||||||||||||
D.
Cumulative Amount of Claims Paid, Net of Reinsurance Recoveries,
through:
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||||||||||||||||||||||||||||||||||||||||||||
One
year later
|
3.229 | 5,377 | 5,691 | 5,845 | 12,217 | 8,073 | 16,721 | 30,061 | 50,458 | 64,810 | ||||||||||||||||||||||||||||||||||
Two
years later
|
4,436 | 7,070 | 7,905 | 7,663 | 15,814 | 12,004 | 22,990 | 46,860 | 78,314 | |||||||||||||||||||||||||||||||||||
Three
years later
|
4,909 | 7,584 | 8,603 | 8,228 | 18,162 | 13,113 | 24,562 | 58,322 | ||||||||||||||||||||||||||||||||||||
Four
years later
|
5,014 | 7,810 | 8,798 | 8,374 | 17,997 | 13,750 | 9,014 | |||||||||||||||||||||||||||||||||||||
Five
years later
|
4,966 | 7,960 | 8,821 | 8,417 | 18,415 | 13,102 | ||||||||||||||||||||||||||||||||||||||
Six
years later
|
5,116 | 7,970 | 8,853 | 8,439 | 17,735 | |||||||||||||||||||||||||||||||||||||||
Seven
years later
|
5,124 | 7,995 | 8,869 | 7,949 | ||||||||||||||||||||||||||||||||||||||||
Eight
years later
|
5,151 | 8,014 | 8,855 | |||||||||||||||||||||||||||||||||||||||||
Nine
years later
|
5,170 | 8,007 | ||||||||||||||||||||||||||||||||||||||||||
Ten
years later
|
5,163 |
2009
|
2008
|
|||||||
Net
Reserve, December 31
|
$ | 176,250 | $ | 150,025 | ||||
Reinsurance
Recoverables
|
8,412 | 6,338 | ||||||
Gross
Reserve, December 31
|
$ | 184,662 | $ | 156,363 | ||||
Net
Re-estimated Reserve
|
$ | 151,645 | ||||||
Re-estimated
Reinsurance Recoverable
|
8,703 | |||||||
Gross
Re-estimated Reserve
|
$ | 160,348 | ||||||
Gross
Cumulative Deficiency
|
$ | (3,985 | ) |
Year
Ended December 31,
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
Gross
premiums written
|
$ | 287,558 | $ | 243,849 | $ | 249,472 | ||||||
Ceded
premiums written
|
(25,818 | ) | (8,922 | ) | (10,661 | ) | ||||||
Net
premiums written
|
$ | 261,740 | $ | 234,927 | $ | 238,811 | ||||||
Gross
premiums earned
|
$ | 269,474 | $ | 244,656 | $ | 238,080 | ||||||
Ceded
premiums earned
|
(18,402 | ) | (8,336 | ) | (12,109 | ) | ||||||
Net
premiums earned
|
$ | 251,072 | $ | 236,320 | $ | 225,971 | ||||||
Reinsurance
recoveries
|
$ | 8,975 | $ | 11,994 | $ | 3,862 |
|
·
|
Property
catastrophe. Our property catastrophe reinsurance reduces the
financial impact a catastrophe could have on our commercial and personal
property insurance lines. Catastrophes might include multiple claims
and policyholders. Catastrophes include hurricanes, windstorms,
earthquakes, hailstorms, explosions, severe winter weather and
fires. Our property catastrophe reinsurance is excess-of-loss
reinsurance, which provides us reinsurance coverage for losses in excess
of an agreed-upon amount. We utilize catastrophe models to assist in
determining appropriate retention and limits to purchase. The terms
of our property catastrophe reinsurance
are:
|
|
o
|
We
retain the first $3.0 million of property catastrophe losses;
and
|
|
o
|
Our
reinsurers reimburse us 100% for any loss in excess of our $3.0 million
retention up to $35.0 million for each catastrophic occurrence, subject to
an aggregate limit of $64.0
million.
|
|
·
|
Commercial
property. Our commercial property reinsurance is
excess-of-loss coverage intended to reduce the financial impact a
single-event or catastrophic loss may have on our results. The terms
of our commercial property reinsurance
are:
|
|
o
|
We
retain the first $1.0 million of loss for each commercial property
risk;
|
|
o
|
Our
reinsurers reimburse us for the next $5.0 million for each commercial
property risk, and $10.0 million for all commercial property risk involved
in any one occurrence, in all cases subject to an aggregate limit of $30.0
million for all commercial property losses occurring during the treaty
period; and
|
|
o
|
Individual
risk facultative reinsurance is purchased on any commercial property with
limits above $6.0 million.
|
|
·
|
Commercial
casualty. Our commercial casualty reinsurance is
excess-of-loss coverage intended to reduce the financial impact a
single-event loss may have on our results. The terms of our
commercial casualty reinsurance
are:
|
|
o
|
We
retain the first $1.0 million of any commercial liability risk:
and
|
|
o
|
Our
reinsurers reimburse us for the next $5.0 million for each commercial
liability risk.
|
|
·
|
Aviation.
We purchase reinsurance specific to the aviation risks underwritten by our
Aerospace Operating Unit. This reinsurance provides aircraft hull
and liability coverage and airport liability coverage on a per occurrence
basis on the following terms:
|
|
o
|
We
retain the first $350,000 of each aircraft hull or liability loss or
airport liability loss;
|
|
o
|
Our
reinsurers reimburse us for the next $3.3 million of each combined
aircraft hull and liability loss and for the next $650,000 of each airport
liability loss; and
|
|
o
|
Other
risks with liability limits greater than $1.0 million are placed in a
quota share treaty where we retain 20% of incurred
losses.
|
|
·
|
Heath XS.
Effective July 1, 2009, in states where we are admitted, we directly
insure policies written by our Heath XS Operating Unit and reinsure a
portion of the risk with third party carriers. In states where we
are not admitted, our Heath XS Operating Unit writes policies under
fronting arrangements pursuant to which we assume all of the risk and then
retrocede a portion of the risk to third party reinsurers. We
reinsure or retrocede 79% of the risk on policies written by our Heath XS
Operating Unit. Through June 30, 2009, our Heath XS Operating Unit
wrote policies under a fronting arrangement pursuant to which we assumed
35% of the risk.
|
|
·
|
Hallmark County
Mutual. HCM is used to front certain lines of business in our
Specialty Commercial and Personal Segments in Texas where we previously
produced policies for third party county mutual insurance companies and
reinsured 100% for a fronting fee. In addition HCM is used to front
business produced by unaffiliated third parties. HCM does not retain any
business.
|
As of December 31, 2009
|
As of December 31, 2008
|
|||||||||||||||||||||||
Fair
|
Percent of
|
Fair
|
Percent of
|
|||||||||||||||||||||
Value
|
Total
|
Yield
|
Value
|
Total
|
Yield
|
|||||||||||||||||||
(in thousands)
|
(in thousands)
|
|||||||||||||||||||||||
Category
|
||||||||||||||||||||||||
Corporate
bonds
|
$ | 99,549 | 34.1 | % | 6.2 | % | $ | 60,547 | 22.5 | % | 7.4 | % | ||||||||||||
Municipal
bonds
|
184,793 | 63.3 | % | 8.2 | % | 203,791 | 75.9 | % | 8.6 | % | ||||||||||||||
US
Treasury bonds
|
6,836 | 2.4 | % | 2.5 | % | 4,175 | 1.6 | % | 3.8 | % | ||||||||||||||
Mortgage
backed securities
|
698 | 0.2 | % | 5.6 | % | - | 0.0 | % | 0.0 | % | ||||||||||||||
Total
|
$ | 291,876 | 100.0 | % | 7.4 | % | $ | 268,513 | 100.0 | % | 8.3 | % |
As of
|
As of
|
|||||||
December 31, 2009
|
December 31, 2008
|
|||||||
Rating:
|
||||||||
"AAA"
|
15.8 | % | 16.5 | % | ||||
"AA"
|
15.5 | % | 42.5 | % | ||||
"A"
|
34.0 | % | 20.7 | % | ||||
"BBB"
|
22.6 | % | 9.1 | % | ||||
"BB"
|
9.0 | % | 8.7 | % | ||||
"B"
|
1.2 | % | 1.2 | % | ||||
"CCC"
|
1.9 | % | 1.3 | % | ||||
Total
|
100.0 | % | 100.0 | % |
As of December 31, 2009
|
As of December 31, 2008
|
|||||||||||||||
Percentage of
|
Percentage of
|
|||||||||||||||
Total
|
Total
|
|||||||||||||||
Fair Value
|
Fair Value
|
Fair Value
|
Fair Value
|
|||||||||||||
(in
thousands)
|
(in
thousands)
|
|||||||||||||||
Remaining
time to maturity:
|
||||||||||||||||
Less
than one year
|
$ | 36,563 | 12.5 | % | $ | 59,964 | 22.3 | % | ||||||||
One
to five years
|
138,179 | 47.4 | % | 87,142 | 32.4 | % | ||||||||||
Five
to ten years
|
46,335 | 15.9 | % | 55,206 | 20.6 | % | ||||||||||
More
than ten years
|
70,101 | 24.0 | % | 66,201 | 24.7 | % | ||||||||||
Mortgage-backed
securities
|
698 | 0.2 | % | - | 0.0 | % | ||||||||||
Total
|
$ | 291,876 | 100.0 | % | $ | 268,513 | 100.0 | % |
Net Unrealized
|
||||
Category
|
Gain (Loss) Balance
|
|||
(in thousands)
|
||||
Corporate
debt securities
|
$ | 4,989 | ||
Municipal
bonds
|
(243 | ) | ||
Equity
securities
|
8,550 | |||
U.S.
Treasury securities and obligations of
|
||||
U.S.
government corporations and agencies
|
6 | |||
Mortgage-backed
securities
|
16 | |||
$ | 13,318 |
|
·
|
misrepresenting
pertinent facts or insurance policy provisions relating to coverages at
issue;
|
|
·
|
failing
to acknowledge and act reasonably promptly upon communications with
respect to claims arising under insurance
policies;
|
|
·
|
failing
to adopt and implement reasonable standards for the prompt investigation
and settlement of claims arising under insurance
policies;
|
|
·
|
failing
to affirm or deny coverage of claims within a reasonable time after proof
of loss statements have been
completed;
|
|
·
|
attempting
to settle a claim for less than the amount to which a reasonable person
would have believed such person was
entitled;
|
|
·
|
attempting
to settle claims on the basis of an application that was altered without
notice to, or knowledge and consent of, the
insured;
|
|
·
|
compelling
insureds to institute suits to recover amounts due under policies by
offering substantially less than the amounts ultimately recovered in suits
brought by them;
|
|
·
|
refusing
to pay claims without conducting a reasonable
investigation;
|
|
·
|
making
claim payments to an insured without indicating the coverage under which
each payment is being made;
|
|
·
|
delaying
the investigation or payment of claims by requiring an insured, claimant
or the physician of either to submit a preliminary claim report and then
requiring the subsequent submission of formal proof of loss forms, both of
which submissions contain substantially the same
information;
|
|
·
|
failing,
in the case of claim denials or offers of compromise or settlement, to
promptly provide a reasonable and accurate explanation of the basis for
such actions; and
|
|
·
|
not
attempting in good faith to effectuate prompt, fair and equitable
settlements of claims in which liability has become reasonably
clear.
|
Period
|
High Sale
|
Low Sale
|
||||||
Year
Ended December 31, 2009:
|
||||||||
First
quarter
|
$ | 9.51 | $ | 5.98 | ||||
Second
quarter
|
7.49 | 6.45 | ||||||
Third
quarter
|
8.45 | 6.55 | ||||||
Fourth
quarter
|
8.75 | 6.93 | ||||||
Year
Ended December 31, 2008:
|
||||||||
First
quarter
|
$ | 16.76 | $ | 10.35 | ||||
Second
quarter
|
12.88 | 8.55 | ||||||
Third
quarter
|
10.71 | 8.40 | ||||||
Fourth
quarter
|
9.91 | 5.05 |
Number of securities
|
||||||||||||
Number of securities
|
remaining available
|
|||||||||||
to be issued upon
|
Weighted-average
|
for future issuance
|
||||||||||
exercise of outstanding
|
exercise price of
|
under equity compensation
|
||||||||||
options, warrants and
|
outstanding options,
|
plans [excluding securities
|
||||||||||
Plan Category
|
rights
|
warrants and rights
|
reflected in column (a)]
|
|||||||||
(a)
|
(b)
|
(c)
|
||||||||||
Equity
compensation plans approved by security holders1
|
1,605,833 | $ | 9.65 | 417,501 | ||||||||
Equity
compensation plans not approved by security holders2
|
8,333 | $ | 2.25 | - 0 - | ||||||||
Total
|
1,614,166 | $ | 9.62 | 417,501 |
1
|
Includes
shares of our common stock authorized for issuance under our 2005 Long
Term Incentive Plan, as well as shares of our common stock issuable upon
exercise of options outstanding under our 1994 Key Employee Long Term
Incentive Plan and our 1994 Non-Employee Director Stock Option Plan, both
of which terminated in accordance with their terms in
2004.
|
2
|
Represents
shares of our common stock issuable upon exercise of non-qualified stock
options granted to our non-employee directors in lieu of cash compensation
for their service on the board of directors during fiscal
1999. The options became fully exercisable on August 16, 2000,
and terminate on March 15, 2010, to the extent not previously
exercised.
|
|
·
|
Standard
Commercial Segment. The Standard Commercial Segment
includes the standard lines commercial property/casualty insurance
products and services handled by our AHIS Operating Unit which is
comprised of our American Hallmark Insurance Services and ECM
subsidiaries.
|
|
·
|
Specialty
Commercial Segment. The Specialty Commercial Segment
primarily includes the excess and surplus lines commercial
property/casualty insurance products and services handled by our TGA
Operating Unit, the general aviation insurance products and services
handled by our Aerospace Operating Unit and the commercial excess
liability and umbrella products handled by our Heath XS Operating
Unit. Our TGA Operating Unit is comprised of our TGA,
PAAC and TGARSI subsidiaries. Our Aerospace Operating Unit is
comprised of our Aerospace Insurance Managers, ASRI and ACMG
subsidiaries. Our Heath XS Operating Unit is compromised of our
HXS and HDS subsidiaries. The Heath XS Operating Unit was acquired August
29, 2008.
|
|
·
|
Personal
Segment. The Personal Segment includes the non-standard
personal automobile, low value dwelling/homeowners, renters and motorcycle
insurance products and services handled by our Personal Lines Operating
Unit which is comprised of American Hallmark General Agency, Inc. and
Hallmark Claims Services, Inc., both of which do business as Hallmark
Insurance Company.
|
|
·
|
American
Hallmark Insurance Company of Texas presently retains all of the
risks on the commercial property/casualty policies marketed within the
Standard Commercial Segment, retains a portion of the risks on personal
policies marketed within the Personal Lines Operating Unit and assumes a
portion of the risks on the commercial and aviation property/casualty
policies marketed within the Specialty Commercial
Segment.
|
|
·
|
Hallmark
Specialty Insurance Company presently retains a portion of the
risks on the commercial property/casualty policies marketed within the
Specialty Commercial Segment.
|
|
·
|
Hallmark
Insurance Company presently retains a portion of the risks on both
the personal policies marketed within the Personal Lines Operating Unit
and the aviation property/casualty products marketed within the Specialty
Commercial Segment.
|
|
·
|
Hallmark
County Mutual Insurance Company control and management was acquired
effective June 5, 2009 through the acquisition of all of the issued and
outstanding shares of CYR Insurance Management Company
(“CYR”). CYR has as its primary asset a management agreement
with HCM which provides for CYR to have management and control of
HCM. HCM is used to front certain lines of business in our
Specialty Commercial and Personal Segments in Texas where we previously
produced policies for third party county mutual insurance companies and
reinsured 100% for a fronting fee. HCM does not retain any
business.
|
Treaty Effective Dates
|
||||||||||||||||
7/1/01
|
7/1/02
|
7/1/03
|
7/1/04
|
|||||||||||||
Provisional
loss ratio
|
60.0 | % | 59.0 | % | 59.0 | % | 64.2 | % | ||||||||
Estimated
ultimate loss ratio booked to at December 31, 2009
|
63.5 | % | 64.5 | % | 67.0 | % | 57.8 | % | ||||||||
Effect
of actual 5.0% above estimated loss ratio at December 31,
2009
|
- | - | - | $ | (2,793 | ) | ||||||||||
Effect
of actual 5.0% below estimated loss ratio at December 31,
2009
|
$ | 1,850 | $ | 3,055 | $ | 3,360 | $ | 2,793 |
Treaty Effective Dates
|
||||||||||||
1/1/06
|
1/1/07
|
1/1/08
|
||||||||||
Provisional
loss ratio
|
65.0 | % | 65.0 | % | 65.0 | % | ||||||
Estimated
ultimate loss ratio booked to at December 31, 2009
|
57.1 | % | 60.7 | % | 58.0 | % | ||||||
Effect
of actual 5.0% above estimated loss ratio at December 31,
2009
|
$ | (3,096 | ) | $ | (2,022 | ) | $ | (1,619 | ) | |||
Effect
of actual 5.0% below estimated loss ratio at December 31,
2009
|
$ | 1,920 | $ | 2,352 | $ | 1,295 |
Year Ended December 31, 2009
|
||||||||||||||||||||
Standard
|
Specialty
|
|||||||||||||||||||
Commercial
|
Commercial
|
Personal
|
||||||||||||||||||
Segment
|
Segment
|
Segment
|
Corporate
|
Consolidated
|
||||||||||||||||
Produced
premium (1)
|
$ | 72,512 | $ | 144,230 | $ | 71,708 | $ | - | $ | 288,450 | ||||||||||
Gross
premiums written
|
72,512 | 143,338 | 71,708 | - | 287,558 | |||||||||||||||
Ceded
premiums written
|
(4,430 | ) | (21,388 | ) | - | - | (25,818 | ) | ||||||||||||
Net
premiums written
|
68,082 | 121,950 | 71,708 | - | 261,740 | |||||||||||||||
Change
in unearned premiums
|
3,208 | (9,680 | ) | (4,196 | ) | - | (10,668 | ) | ||||||||||||
Net
premiums earned
|
71,290 | 112,270 | 67,512 | - | 251,072 | |||||||||||||||
Total
revenues
|
76,496 | 131,504 | 73,785 | 5,254 | 287,039 | |||||||||||||||
Losses
and loss adjustment expenses
|
44,372 | 65,453 | 43,794 | - | 153,619 | |||||||||||||||
Pre-tax
income (loss), net of non-controlling interest
|
9,266 | 20,883 | 11,000 | (7,944 | ) | 33,205 | ||||||||||||||
Net
loss ratio (2)
|
62.2 | % | 58.3 | % | 64.9 | % | 61.2 | % | ||||||||||||
Net
expense ratio (2)
|
31.3 | % | 30.1 | % | 21.6 | % | 30.5 | % | ||||||||||||
Net
combined ratio (2)
|
93.5 | % | 88.4 | % | 86.5 | % | 91.7 | % | ||||||||||||
Year Ended December 31, 2008
|
||||||||||||||||||||
Standard
|
Specialty
|
|||||||||||||||||||
Commercial
|
Commercial
|
Personal
|
||||||||||||||||||
Segment
|
Segment
|
Segment
|
Corporate
|
Consolidated
|
||||||||||||||||
Produced
premium (1)
|
$ | 80,193 | $ | 146,054 | $ | 60,834 | $ | - | $ | 287,081 | ||||||||||
Gross
premiums written
|
80,190 | 102,825 | 60,834 | - | 243,849 | |||||||||||||||
Ceded
premiums written
|
(4,829 | ) | (4,093 | ) | - | - | (8,922 | ) | ||||||||||||
Net
premiums written
|
75,361 | 98,732 | 60,834 | - | 234,927 | |||||||||||||||
Change
in unearned premiums
|
4,434 | (1,226 | ) | (1,815 | ) | - | 1,393 | |||||||||||||
Net
premiums earned
|
79,795 | 97,506 | 59,019 | - | 236,320 | |||||||||||||||
Total
revenues
|
84,075 | 127,882 | 64,475 | (7,742 | ) | 268,690 | ||||||||||||||
Losses
and loss adjustment expenses
|
49,270 | 55,933 | 39,042 | (1 | ) | 144,244 | ||||||||||||||
Pre-tax
income (loss), net of non-controlling interest
|
9,683 | 21,328 | 8,989 | (18,926 | ) | 21,074 | ||||||||||||||
Net
loss ratio (2)
|
61.7 | % | 57.4 | % | 66.2 | % | 61.0 | % | ||||||||||||
Net
expense ratio (2)
|
30.8 | % | 30.7 | % | 22.0 | % | 30.6 | % | ||||||||||||
Net
combined ratio (2)
|
92.5 | % | 88.1 | % | 88.2 | % | 91.6 | % |
1
|
Produced
premium is a non-GAAP measurement that management uses to track total
premium produced by our operations. Produced premium excludes
unaffiliated third party premium fronted on our recently acquired HCM
subsidiary. We believe this is a useful tool for users of our
financial statements to measure our premium production whether retained by
our insurance company subsidiaries or assumed by third party insurance
carriers who pay us commission
revenue.
|
2
|
The
net loss ratio is calculated as incurred losses and LAE divided by net
premiums earned, each determined in accordance with
GAAP. During the second quarter of 2009 we
changed the method in which the net expense ratio is
calculated. The net expense ratio is now calculated for our
operating units that retain 100% of produced premium as total operating
expenses for the unit offset by agency fee income, divided by net premiums
earned, each determined in accordance with GAAP. For the
operating units that do not retain 100% of the produced premium, the net
expense ratio is calculated as underwriting expenses of the insurance
company subsidiaries for the unit offset by agency fee income, divided by
net premiums earned, each determined in accordance with
GAAP. Net combined ratio is calculated as the sum of the net
loss ratio and the net expense ratio. All prior periods have
been restated to conform to the new method, resulting in an increase to
the consolidated net expense ratio of 1.7% for the twelve months ended
December 31, 2008.
|
Year Ended December 31, 2008
|
||||||||||||||||||||
Standard
|
Specialty
|
|||||||||||||||||||
Commercial
|
Commercial
|
Personal
|
||||||||||||||||||
Segment
|
Segment
|
Segment
|
Corporate
|
Consolidated
|
||||||||||||||||
Produced
premium (1)
|
$ | 80,193 | $ | 146,054 | $ | 60,834 | $ | - | $ | 287,081 | ||||||||||
Gross
premiums written
|
80,190 | 102,825 | 60,834 | - | 243,849 | |||||||||||||||
Ceded
premiums written
|
(4,829 | ) | (4,093 | ) | - | - | (8,922 | ) | ||||||||||||
Net
premiums written
|
75,361 | 98,732 | 60,834 | - | 234,927 | |||||||||||||||
Change
in unearned premiums
|
4,434 | (1,226 | ) | (1,815 | ) | - | 1,393 | |||||||||||||
Net
premiums earned
|
79,795 | 97,506 | 59,019 | - | 236,320 | |||||||||||||||
Total
revenues
|
84,075 | 127,882 | 64,475 | (7,742 | ) | 268,690 | ||||||||||||||
Losses
and loss adjustment expenses
|
49,270 | 55,933 | 39,042 | (1 | ) | 144,244 | ||||||||||||||
Pre-tax
income (loss), net of non-controlling interest
|
9,683 | 21,328 | 8,989 | (18,926 | ) | 21,074 | ||||||||||||||
Net
loss ratio (2)
|
61.7 | % | 57.4 | % | 66.2 | % | 61.0 | % | ||||||||||||
Net
expense ratio (2)
|
30.8 | % | 30.7 | % | 22.0 | % | 30.6 | % | ||||||||||||
Net
combined ratio (2)
|
92.5 | % | 88.1 | % | 88.2 | % | 91.6 | % | ||||||||||||
Year Ended December 31, 2007
|
||||||||||||||||||||
Standard
|
Specialty
|
|||||||||||||||||||
Commercial
|
Commercial
|
Personal
|
||||||||||||||||||
Segment
|
Segment
|
Segment
|
Corporate
|
Consolidated
|
||||||||||||||||
Produced
premium (1)
|
$ | 90,985 | $ | 151,003 | $ | 55,916 | $ | - | $ | 297,904 | ||||||||||
Gross
premiums written
|
90,868 | 102,688 | 55,916 | - | 249,472 | |||||||||||||||
Ceded
premiums written
|
(6,273 | ) | (4,388 | ) | - | - | (10,661 | ) | ||||||||||||
Net
premiums written
|
84,595 | 98,300 | 55,916 | - | 238,811 | |||||||||||||||
Change
in unearned premiums
|
(840 | ) | (9,589 | ) | (2,411 | ) | - | (12,840 | ) | |||||||||||
Net
premiums earned
|
83,755 | 88,711 | 53,505 | - | 225,971 | |||||||||||||||
Total
revenues
|
86,512 | 126,550 | 58,268 | 3,836 | 275,166 | |||||||||||||||
Losses
and loss adjustment expenses
|
48,480 | 48,484 | 35,969 | (15 | ) | 132,918 | ||||||||||||||
Pre-tax
income (loss)
|
12,415 | 28,338 | 7,523 | (6,507 | ) | 41,769 | ||||||||||||||
Net
loss ratio (2)
|
57.9 | % | 54.7 | % | 67.2 | % | 58.8 | % | ||||||||||||
Net
expense ratio (2)
|
29.9 | % | 31.1 | % | 22.2 | % | 29.1 | % | ||||||||||||
Net
combined ratio (2)
|
87.8 | % | 85.8 | % | 89.4 | % | 87.9 | % |
1
|
Produced
premium is a non-GAAP measurement that management uses to track total
premium produced by our operations. Produced premium excludes
unaffiliated third party premium fronted on our recently acquired HCM
subsidiary. We believe this is a useful tool for users of our
financial statements to measure our premium production whether retained by
our insurance company subsidiaries or assumed by third party insurance
carriers who pay us commission
revenue.
|
2
|
The
net loss ratio is calculated as incurred losses and LAE divided by net
premiums earned, each determined in accordance with
GAAP. During the second quarter of 2009 we
changed the method in which the net expense ratio is
calculated. The net expense ratio is now calculated for our
operating units that retain 100% of produced premium as total operating
expenses for the unit offset by agency fee income divided by net premiums
earned, each determined in accordance with GAAP. For the
operating units that do not retain 100% of the produced premium, the net
expense ratio is calculated as underwriting expenses of the insurance
company subsidiaries for the unit offset by agency fee income, divided by
net premiums earned, each determined in accordance with
GAAP. Net combined ratio is calculated as the sum of the net
loss ratio and the net expense ratio. All prior periods have
been restated to conform to the new method, resulting in an increase to
the consolidated net expense ratio of 1.7% and
1.3% for the twelve months ended December 31, 2008 and 2007,
respectively.
|
Estimated Payments by Period (in thousands)
|
||||||||||||||||||||
Total
|
2010
|
2011-2012 | 2013-2014 |
After 2014
|
||||||||||||||||
Notes
payable
|
$ | 59,502 | $ | 280 | $ | 1,120 | $ | 1,400 | $ | 56,702 | ||||||||||
Interest
on notes payable
|
116,591 | 4,445 | 8,856 | 8,775 | 94,515 | |||||||||||||||
Unpaid
losses and loss adjustment expenses (1)
|
184,662 | 81,788 | 67,706 | 25,590 | 9,578 | |||||||||||||||
Operating
leases
|
2,954 | 1,194 | 967 | 531 | 262 | |||||||||||||||
Purchase
obligations
|
629 | 120 | 232 | 194 | 83 |
Description
|
Page Number
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
Consolidated
Balance Sheets at December 31, 2009 and 2008
|
F-3
|
|
Consolidated
Statements of Operations for the Years Ended
|
F-4
|
|
December
31, 2009, 2008 and 2007
|
||
Consolidated
Statements of Stockholders’ Equity and Comprehensive Income
(Loss)
|
F-5
|
|
for
the Years Ended December 31, 2009, 2008 and 2007
|
||
Consolidated
Statements of Cash Flows for the Years Ended
|
F-7
|
|
December
31, 2009, 2008 and 2007
|
||
Notes
to Consolidated Financial Statements
|
F-8
|
|
Financial
Statement Schedules
|
F-45
|
(a)(1)
|
Financial
Statements
|
|
The
following consolidated financial statements, notes thereto and related
information are included in Item 8 of this report:
|
||
Report
of Independent Registered Public Accounting Firm
|
||
Consolidated
Balance Sheets at December 31, 2009 and 2008
|
||
Consolidated
Statements of Operations for the Years Ended December 31, 2009, 2008 and
2007
|
||
Consolidated
Statements of Stockholders’ Equity and Comprehensive Income (Loss) for the
Years Ended December 31, 2009, 2008 and 2007
|
||
Consolidated
Statements of Cash Flows for the Years Ended December 31, 2009, 2008 and
2007
|
||
Notes
to Consolidated Financial Statements
|
||
(a)(2)
|
Financial
Statement Schedules
|
|
The
following financial statement schedules are included in this
report:
|
||
Schedule
II – Condensed Financial Information of Registrant (Parent
Company Only)
|
||
Schedule
III – Supplemental Insurance Information
|
||
Schedule
IV – Reinsurance
|
||
Schedule VI –
Supplemental Information Concerning Property-Casualty Insurance
Operations
|
||
(a)(3)
|
Exhibit
Index
|
Exhibit
Number
|
Description
|
|
3.1
|
Restated
Articles of Incorporation of the registrant (incorporated by reference to
Exhibit 3.1 to Amendment No. 1 to the registrant’s Registration Statement
on Form S-1 [Registration No. 333-136414] filed September 8,
2006).
|
|
3.2
|
Amended
and Restated By-Laws of the registrant (incorporated by reference to
Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed October
1, 2007).
|
|
4.1
|
Specimen
certificate for common stock, $0.18 par value, of the registrant
(incorporated by reference to Exhibit 4.1 to Amendment No. 1 to the
registrant’s Registration Statement on Form S-1 [Registration No.
333-136414] filed September 8, 2006).
|
|
4.2
|
Indenture
dated June 21, 2005, between Hallmark Financial Services, Inc. and
JPMorgan Chase Bank, National Association (incorporated by reference to
Exhibit 4.1 to the registrant’s Current Report on Form 8-K filed June 27,
2005).
|
|
4.3
|
Amended and Restated Declaration of Trust of Hallmark
Statutory Trust I dated as of June 21,
2005, among Hallmark Financial Services, Inc., as
sponsor, Chase Bank USA, National Association, as
Delaware trustee, and JPMorgan Chase
Bank,
National Association, as institutional trustee, and Mark
Schwarz and Mark Morrison, as administrators (incorporated by reference to
Exhibit 4.2 to the registrant’s Current Report on Form 8-K filed June 27,
2005).
|
|
4.4
|
Form
of Junior Subordinated Debt Security Due 2035 (included in Exhibit 4.2
above).
|
|
4.5
|
Form
of Capital Security Certificate (included in Exhibit 4.3
above).
|
|
4.6
|
First
Restated Credit Agreement dated January 27, 2006, between Hallmark
Financial Services, Inc. and The Frost National Bank
(incorporated by reference to Exhibit 4.1 to the registrant’s Current
Report on Form 8-K filed February 2,
2006).
|
4.7
|
Form
of Registration Rights Agreement dated January 27, 2006, between Hallmark
Financial Services, Inc. and Newcastle Special Opportunity Fund I, Ltd.
and Newcastle Special Opportunity Fund II, L.P. (incorporated by reference
to Exhibit 4.1 to the registrant’s Current Report on Form 8-K filed
February 2, 2006).
|
|
4.8
|
Indenture
dated as of August 23, 2007, between Hallmark Financial Services, Inc. and
The Bank of New York Trust Company, National Association (incorporated by
reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K
filed August 24, 2007).
|
|
4.9
|
Amended
and Restated Declaration of Trust of Hallmark Statutory Trust II dated as
of August 23, 2007, among Hallmark Financial Services, Inc., as sponsor,
The Bank of New York (Delaware), as Delaware trustee, and The Bank of New
York Trust Company, National Association, as institutional trustee, and
Mark Schwarz and Mark Morrison, as administrators (incorporated by
reference to Exhibit 4.2 to the registrant’s Current Report on Form 8-K
filed August 24, 2007).
|
|
4.10
|
Form
of Junior Subordinated Debt Security Due 2037 (included in Exhibit 4.8
above).
|
|
4.11
|
Form
of Capital Security Certificate (included in Exhibit 4.9
above).
|
|
4.12
|
Fifth
Amendment to First Restated Credit Agreement among Hallmark Financial
Services, Inc. and its subsidiaries and The Frost National Bank dated
February 20, 2008 (incorporated by reference to Exhibit 99.1 to the
registrant’s Current Report on Form 8-K filed February 25,
2009).
|
|
4.13
|
Sixth
Amendment to First Restated Credit Agreement among Hallmark Financial
Services, Inc. and its subsidiaries and The Frost National Bank dated
January 21, 2010 (incorporated by reference to Exhibit 99.1 to the
registrant’s Current Report on Form 8-K filed January 25,
2010).
|
|
10.1
|
Office
Lease for 6500 Pinecrest, Plano, Texas, dated July 22, 2008, between
Hallmark Financial Services, Inc. and Legacy Tech IV Associates, Limited
Partnership (incorporated by reference to Exhibit 99.1 to the registrant’s
Current Report on Form 8-K filed July 29, 2008).
|
|
10.2
|
Lease
Agreement for 777 Main Street, Fort Worth, Texas, dated June 12, 2003
between Hallmark Financial Services, Inc. and Crescent Real Estate Funding
I, L.P. (incorporated by reference to Exhibit 10(a) to the registrant’s
Quarterly Report on Form 10-QSB for the quarter ended June 30,
2003).
|
|
10.3
|
Lease
Agreement for 7411 John Smith Drive, San Antonio, Texas, dated February
18, 1997, between Pan American Acceptance Corporation and Medical Plaza
Partners, Ltd. (incorporated by reference to Exhibit 10.4 to the
registrant’s Registration Statement on Form S-1 [Registration No.
333-136414] filed August 8, 2006).
|
|
10.4
|
Amendment
No. 1 to Lease Agreement for 7411 John Smith Drive, San Antonio, Texas,
dated June 10, 2002, between Pan American Acceptance Corporation and San
Antonio Technology Center Corporation, as successor to Medical Plaza
Partners, Ltd. (incorporated by reference to Exhibit 10.5 to the
registrant’s Registration Statement on Form S-1 [Registration No.
333-136414] filed August 8, 2006).
|
|
10.5
|
Amendment
No. 2 to Lease Agreement for 7411 John Smith Drive, San Antonio, Texas,
dated February 27, 2003, between Pan American Acceptance Corporation and
San Antonio Technology Center Corporation, as successor to Medical Plaza
Partners, Ltd. (incorporated by reference to Exhibit 10.6 to the
registrant’s Registration Statement on Form S-1 [Registration No.
333-136414] filed August 8, 2006).
|
|
10.6
|
Amendment
No. 3 to Lease Agreement for 7411 John Smith Drive, San Antonio, Texas,
dated November 10, 2004, between Pan American Acceptance Corporation and
San Antonio Technology Center Corporation, as successor to Medical Plaza
Partners, Ltd. (incorporated by reference to Exhibit 10.7 to the
registrant’s Registration Statement on Form S-1 [Registration No.
333-136414] filed August 8, 2006).
|
|
10.7
|
Amended
and Restated Lease Agreement for 14990 Landmark Boulevard, Addison, Texas,
dated December 13, 2005, between Aerospace Managers, Inc. and Donnell
Investments, L.L.C. (incorporated by reference to Exhibit 10.8 to the
registrant’s Registration Statement on Form S-1 [Registration No.
333-136414] filed August 8,
2006).
|
10.8
|
Office
Lease by and between SAOP Northwest Center, L.P. and TGA Insurance
Managers, Inc. dated January 29, 2010 (incorporated by reference to
Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed February
2, 2010).
|
|
10.9*
|
1994
Key Employee Long Term Incentive Plan (incorporated by reference to
Exhibit 10(f) to the registrant’s Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1994).
|
|
10.10*
|
First
Amendment to Hallmark Financial Services, Inc. 1994 Key Employee Long Term
Incentive Plan (incorporated by reference to Exhibit 10(bm) to the
registrant’s Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2002).
|
|
10.11*
|
1994
Non-Employee Director Stock Option Plan (incorporated by reference to
Exhibit 10(g) to the registrant’s Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1994).
|
|
10.12*
|
First
Amendment to Hallmark Financial Services, Inc. 1994 Non-Employee Director
Stock Option Plan (incorporated by reference to Exhibit 10(bn) to the
registrant’s Annual Report on Form 10-KSB for the fiscal year ended
December 31, 2002).
|
|
10.13*
|
Second
Amendment to Hallmark Financial Services, Inc. 1994 Non-Employee Director
Stock Option Plan (incorporated by reference to Exhibit 10(e) to the
registrant’s Quarterly Report on Form 10-QSB for the quarter ended
September 30, 2001).
|
|
10.14*
|
Form
of Indemnification Agreement between Hallmark Financial Services, Inc. and
its officers and directors, adopted July 19, 2002 (incorporated by
reference to Exhibit 10(c) to the registrant’s Quarterly Report on Form
10-QSB for the quarter ended September 30, 2002).
|
|
10.15*
|
Hallmark
Financial Services, Inc. 2005 Long Term Incentive Plan (incorporated by
reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K
filed June 3, 2005).
|
|
10.16*
|
Form
of Incentive Stock Option Grant Agreement (incorporated by reference to
Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed June 3,
2005).
|
|
10.17*
|
Form
of Non-qualified Stock Option Agreement (incorporated by reference to
Exhibit 10.3 to the registrant’s Current Report on Form 8-K filed June 3,
2005).
|
|
10.18*
|
Employment
Agreement dated as of February 1, 2006, between Texas General Agency, Inc.
and Donald E. Meyer (incorporated by reference to Exhibit 10.19 to the
registrant’s Registration Statement on Form S-1 [Registration No.
333-136414] filed August 8, 2006).
|
|
10.19
|
Guarantee
Agreement dated as of June 21, 2005, by Hallmark Financial Services, Inc.
for the benefit of the holders of trust preferred securities
(incorporated by reference to Exhibit 10.1 to the registrant’s Current
Report on Form 8-K filed June 27, 2005).
|
|
10.20
|
Guarantee
Agreement dated as of August 23, 2007, by Hallmark Financial Services,
Inc. for the benefit of the holders of trust preferred securities
(incorporated by reference to Exhibit 10.1 to the registrant’s Current
Report on Form 8-K filed August 24, 2007).
|
|
10.21
|
Purchase
Agreement dated November 9, 2005, by and among Hallmark
Financial Services, Inc. and Samuel M. Cangelosi, Donate A. Cangelosi and
Donald E. Meyer (incorporated by reference to Exhibit 4.1 to the
registrant’s Current Report on Form 8-K filed November 14,
2005).
|
|
10.22
|
Quota
Share Reinsurance Treaty Attaching January 1, 2006 by and among American
Hallmark Insurance Company, Phoenix Indemnity Insurance Company (n/k/a
Hallmark Insurance Company) and Gulf States Insurance Company (n/k/a
Hallmark Specialty Insurance Company) (incorporated by reference to
Exhibit 10.25 to the registrant’s Registration Statement on Form S-1
[Registration No. 333-136414] filed August 8, 2006).
|
|
10.23
|
Amendment
No. 1 to Quota Share Reinsurance Treaty Attaching January 1, 2006 by and
among American Hallmark Insurance Company, Phoenix Indemnity Insurance
Company (n/k/a Hallmark Insurance Company) and Gulf States Insurance
Company (n/k/a Hallmark Specialty Insurance Company) (incorporated by
reference to Exhibit 10.26 to the registrant’s Registration Statement on
Form S-1 [Registration No. 333-136414] filed August 8,
2006).
|
10.24
|
Amendment
No. 2 to Quota Share Reinsurance Treaty Attaching January 1, 2006 by and
among American Hallmark Insurance Company, Phoenix Indemnity Insurance
Company and Gulf States Insurance Company (n/k/a Hallmark Specialty
Insurance Company) (incorporated by reference to Exhibit 10.27 to the
registrant’s Registration Statement on Form S-1 [Registration No.
333-136414] filed August 8, 2006).
|
|
10.25
|
Amendment
No. 3 to Quota Share Reinsurance Treaty attaching January 1, 2006 by and
among American Hallmark Insurance Company, Phoenix Indemnity Insurance
Company (n/k/a Hallmark Insurance Company) and Gulf States Insurance
Company (n/k/a Hallmark Specialty Insurance Company) (incorporated by
reference to Exhibit 10.28 to the registrant’s Annual Report on Form 10-K
for the fiscal year ended December 31, 2006).
|
|
10.26
|
Purchase
Agreement dated August 29, 2008 by and among Hallmark Financial Services,
Inc. and Jeffrey L. Heath (incorporated by reference to Exhibit 10.1 to
the registrants Current Report on Form 8-K filed September 4,
2008).
|
|
10.27*
|
Employment
Agreement dated as of August 29, 2008, between Heath XS, LLC and Jeffrey
L. Heath (incorporated by reference to Exhibit 10.4 to the registrant’s
Current Report on Form 8-K filed September 4, 2008).
|
|
10.28
|
Second
Amendment to the Purchase Agreement dated December 18, 2008,
between Hallmark Financial Services, Inc. and Samuel M. Cangelosi, Donate
A. Cangelosi, and Donald E. Meyer (incorporated by reference to Exhibit
10.1 to the registrant’s Current Report on Form 8-K filed December 23,
2008).
|
|
10.29
|
Stock
Purchase Agreement dated February 13, 2009 between American Hallmark
Insurance Company and T.B.A. Insurance Group, Ltd. (incorporated by
reference to the registrant’s Current Report on Form 8-K filed February
18, 2009).
|
|
21+
|
List
of subsidiaries of the registrant.
|
|
23+
|
Consent
of Independent Registered Public Accounting Firm.
|
|
31(a)+
|
Certification
of principal executive officer required by Rule 13a-14(a) or Rule
15d-14(b).
|
|
31(b)+
|
Certification
of principal financial officer required by Rule 13a-14(a) or Rule
15d-14(b).
|
|
32(a)+
|
Certification
of principal executive officer pursuant to 18 U.S.C.
1350.
|
|
32(b)+
|
Certification
of principal financial officer pursuant to 18 U.S.C.
1350.
|
|
|
*Management
contract or compensatory plan or arrangement.
|
|
|
+Filed
herewith.
|
HALLMARK
FINANCIAL SERVICES, INC.
|
|||
(Registrant)
|
|||
Date:
|
March
25, 2010
|
/s/ Mark J. Morrison
|
|
Mark
J. Morrison, Chief Executive Officer and
President
|
|||
(Principal
Executive Officer)
|
|||
Date:
|
March
25, 2010
|
/s/ Jeffrey R. Passmore
|
|
Jeffrey
R. Passmore, Chief Accounting Officer and Senior Vice
President
|
|||
(Principal
Financial Officer and Principal Accounting
Officer)
|
Date:
|
March
25, 2010
|
/s/ Mark E. Schwarz
|
|
Mark
E. Schwarz, Executive Chairman
|
|||
Date:
|
March
25, 2010
|
/s/ James H. Graves
|
|
James
H. Graves, Director
|
|||
Date:
|
March
25, 2010
|
/s/ Jim W. Henderson
|
|
Jim
W. Henderson, Director
|
|||
Date:
|
March
25, 2010
|
/s/ Scott T. Berlin
|
|
Scott
T. Berlin, Director
|
|||
Date:
|
March
25, 2010
|
/s/ George R. Manser
|
|
George
R. Manser, Director
|
Description
|
Page Number
|
|
Report
of Independent Registered Public Accounting Firm
|
F-2
|
|
Consolidated
Balance Sheets at December 31, 2009 and 2008
|
F-3
|
|
Consolidated
Statements of Operations for the Years Ended
|
F-4
|
|
December
31, 2009, 2008 and 2007
|
||
Consolidated
Statements of Stockholders’ Equity and Comprehensive
Income
|
F-5
|
|
(Loss)
for the Years Ended December 31, 2009, 2008 and 2007
|
||
Consolidated
Statements of Cash Flows for the Years Ended
|
F-7
|
|
December
31, 2009, 2008 and 2007
|
||
Notes
to Consolidated Financial Statements
|
F-8
|
|
Financial
Statement Schedules
|
F-45
|
/s/ KPMG
LLP
|
|
KPMG
LLP
|
2009
|
2008
|
|||||||
ASSETS
|
||||||||
Investments:
|
||||||||
Debt
securities, available-for-sale, at fair value
|
$ | 291,876 | $ | 268,513 | ||||
Equity
securities, available-for-sale, at fair value
|
35,801 | 25,003 | ||||||
Total
investments
|
327,677 | 293,516 | ||||||
Cash
and cash equivalents
|
112,270 | 59,134 | ||||||
Restricted
cash and cash equivalents
|
5,458 | 8,033 | ||||||
Prepaid
reinsurance premiums
|
12,997 | 1,349 | ||||||
Premiums
receivable
|
46,635 | 44,032 | ||||||
Accounts
receivable
|
3,377 | 4,531 | ||||||
Receivable
for securities
|
- | 1,031 | ||||||
Reinsurance
recoverable
|
10,008 | 8,218 | ||||||
Deferred
policy acquisition costs
|
20,792 | 19,524 | ||||||
Excess
of cost over fair value of net assets acquired
|
41,080 | 41,080 | ||||||
Intangible
assets
|
28,873 | 28,969 | ||||||
Federal
income tax recoverable
|
- | 696 | ||||||
Deferred
federal income taxes
|
- | 6,696 | ||||||
Prepaid
expenses
|
923 | 1,007 | ||||||
Other
assets
|
18,779 | 20,582 | ||||||
$ | 628,869 | $ | 538,398 | |||||
LIABILITIES AND STOCKHOLDERS’
EQUITY
|
||||||||
Liabilities:
|
||||||||
Notes
payable
|
$ | 59,502 | $ | 60,919 | ||||
Reserves
for unpaid losses and loss adjustment expenses
|
184,662 | 156,363 | ||||||
Unearned
premiums
|
125,089 | 102,192 | ||||||
Unearned
revenue
|
191 | 2,037 | ||||||
Reinsurance
balances payable
|
3,281 | - | ||||||
Accrued
agent profit sharing
|
1,790 | 2,151 | ||||||
Accrued
ceding commission payable
|
8,600 | 8,605 | ||||||
Pension
liability
|
2,628 | 4,309 | ||||||
Payable
for securities
|
19 | 3,606 | ||||||
Deferred
federal income taxes
|
942 | - | ||||||
Federal
income tax payable
|
1,266 | - | ||||||
Accounts
payable and other accrued expenses
|
13,258 | 18,067 | ||||||
401,228 | 358,249 | |||||||
Commitments
and contingencies (Note 15)
|
||||||||
Redeemable
non-controlling interest
|
1,124 | 737 | ||||||
Stockholders’
equity:
|
||||||||
Common
stock, $.18 par value, authorized 33,333,333 shares in 2009 and 2008;
issued 20,872,831 shares in 2009 and 20,841,782 shares in
2008
|
3,757 | 3,751 | ||||||
Capital
in excess of par value
|
121,016 | 119,928 | ||||||
Retained
earnings
|
98,482 | 72,242 | ||||||
Accumulated
other comprehensive income (loss)
|
8,589 |
(16,432
|
) | |||||
Treasury
stock, (757,828 shares in 2009 and 7,828 in 2008), at cost
|
(5,327 | ) | (77 | ) | ||||
Total
stockholders’ equity
|
226,517 | 179,412 | ||||||
|
$ | 628,869 | $ | 538,398 |
2009
|
2008
|
2007
|
||||||||||
Gross
premiums written
|
$ | 287,558 | $ | 243,849 | $ | 249,472 | ||||||
Ceded
premiums written
|
(25,818 | ) | (8,922 | ) | (10,661 | ) | ||||||
Net
premiums written
|
261,740 | 234,927 | 238,811 | |||||||||
Change
in unearned premiums
|
(10,668 | ) | 1,393 | (12,840 | ) | |||||||
Net
premiums earned
|
251,072 | 236,320 | 225,971 | |||||||||
Investment
income, net of expenses
|
14,947 | 16,049 | 13,180 | |||||||||
Gain
(loss) on investments
|
3,032 | (11,261 | ) | 2,586 | ||||||||
Finance
charges
|
5,874 | 5,174 | 4,702 | |||||||||
Commission
and fees
|
12,011 | 22,280 | 28,054 | |||||||||
Processing
and service fees
|
39 | 114 | 657 | |||||||||
Other
income
|
64 | 14 | 16 | |||||||||
Total
revenues
|
287,039 | 268,690 | 275,166 | |||||||||
Losses
and loss adjustment expenses
|
153,619 | 144,244 | 132,918 | |||||||||
Other
operating expenses
|
92,233 | 96,096 | 94,272 | |||||||||
Interest
expense
|
4,602 | 4,745 | 3,914 | |||||||||
Amortization
of intangible asset
|
3,328 | 2,481 | 2,293 | |||||||||
Total
expenses
|
253,782 | 247,566 | 233,397 | |||||||||
Income
before tax
|
33,257 | 21,124 | 41,769 | |||||||||
Income
tax expense
|
8,630 | 8,175 | 13,906 | |||||||||
Net
income
|
24,627 | 12,949 | 27,863 | |||||||||
Less:
Net income attributable to non-controlling interest
|
52 | 50 | - | |||||||||
Net
income attributable to Hallmark Financial Services, Inc.
|
$ | 24,575 | $ | 12,899 | $ | 27,863 | ||||||
Net
income per share attributable to
|
||||||||||||
Hallmark
Financial Services, Inc common stockholders:
|
||||||||||||
Basic
|
$ | 1.19 | $ | 0.62 | $ | 1.34 | ||||||
Diluted
|
$ | 1.19 | $ | 0.62 | $ | 1.34 |
Number
|
Capital In
|
Accumulated Other
|
Number
|
Total
|
Comprehensive
|
|||||||||||||||||||||||||||||||
of
|
Par
|
Excess of
|
Retained
|
Comprehensive
|
Treasury
|
of
|
Stockholders'
|
Income
|
||||||||||||||||||||||||||||
Shares
|
Value
|
Par Value
|
Earnings
|
Income (Loss)
|
Stock
|
Shares
|
Equity
|
(Loss)
|
||||||||||||||||||||||||||||
Balance
at December 31, 2006
|
20,776 | $ | 3,740 | $ | 117,932 | $ | 31,480 | $ | (2,344 | ) | $ | (77 | ) | 8 | $ | 150,731 | ||||||||||||||||||||
Amortization
of fair value of stock options granted
|
- | - | 527 | - | - | - | - | 527 | ||||||||||||||||||||||||||||
Comprehensive
income:
|
||||||||||||||||||||||||||||||||||||
Net
income
|
- | - | - | 27,863 | - | - | - | 27,863 | $ | 27,863 | ||||||||||||||||||||||||||
Other
comprehensive income:
|
||||||||||||||||||||||||||||||||||||
Change
in net actuarial loss
|
- | - | - | - | 1,378 | - | - | 1,378 | 1,378 | |||||||||||||||||||||||||||
Net
unrealized holding losses arising during period
|
- | - | - | - | (339 | ) | - | - | (339 | ) | (339 | ) | ||||||||||||||||||||||||
Reclassification
adjustment for losses included in net income
|
- | - | - | - | (270 | ) | - | - | (270 | ) | (270 | ) | ||||||||||||||||||||||||
Net
unrealized losses on securities
|
(609 | ) | (609 | ) | (609 | ) | ||||||||||||||||||||||||||||||
Total
other comprehensive income before tax
|
769 | 769 | 769 | |||||||||||||||||||||||||||||||||
Tax
effect on other comprehensive income
|
(269 | ) | (269 | ) | (269 | ) | ||||||||||||||||||||||||||||||
Other
comprehensive income after tax
|
500 | 500 | 500 | |||||||||||||||||||||||||||||||||
Comprehensive
income
|
$ | 28,363 | ||||||||||||||||||||||||||||||||||
Balance
at December 31, 2007
|
20,776 | $ | 3,740 | $ | 118,459 | $ | 59,343 | $ | (1,844 | ) | $ | (77 | ) | 8 | $ | 179,621 | ||||||||||||||||||||
Amortization
of fair value of stock options granted
|
- | - | 1,368 | - | - | - | - | 1,368 | ||||||||||||||||||||||||||||
Stock
options exercised
|
66 | 11 | 208 | - | - | - | - | 219 | ||||||||||||||||||||||||||||
Accretion
of redeemable non-controlling interest
|
- | - | (107 | ) | - | - | - | - | (107 | ) | ||||||||||||||||||||||||||
Comprehensive
loss:
|
||||||||||||||||||||||||||||||||||||
Net
income
|
- | - | - | 12,899 | - | - | - | 12,899 | $ | 12,899 | ||||||||||||||||||||||||||
Other
comprehensive loss:
|
||||||||||||||||||||||||||||||||||||
Change
in net actuarial loss
|
- | - | - | - | (3,380 | ) | - | - | (3,380 | ) | (3,380 | ) | ||||||||||||||||||||||||
Net
unrealized holding loss arising during period
|
- | - | - | - | (15,605 | ) | - | - | (15,605 | ) | (15,605 | ) | ||||||||||||||||||||||||
Reclassification
adjustment for losses included in net income
|
- | - | - | - | (1,083 | ) | - | - | (1,083 | ) | (1,083 | ) | ||||||||||||||||||||||||
Net
unrealized losses on securities
|
(16,688 | ) | (16,688 | ) | (16,688 | ) | ||||||||||||||||||||||||||||||
Total
other comprehensive loss before tax
|
(20,068 | ) | (20,068 | ) | (20,068 | ) | ||||||||||||||||||||||||||||||
Tax
effect on other comprehensive loss
|
5,480 | 5,480 | 5,480 | |||||||||||||||||||||||||||||||||
Other
comprehensive loss after tax
|
(14,588 | ) | (14,588 | ) | (14,588 | ) | ||||||||||||||||||||||||||||||
Comprehensive
loss
|
$ | (1,689 | ) | |||||||||||||||||||||||||||||||||
Balance
at December 31, 2008
|
20,842 | $ | 3,751 | $ | 119,928 | $ | 72,242 | $ | (16,432 | ) | $ | (77 | ) | 8 | $ | 179,412 |
Capital
|
Accumlated
|
|||||||||||||||||||||||||||||||||||
Number
|
In
|
Other
|
Number
|
Total
|
Comprehensive
|
|||||||||||||||||||||||||||||||
of
|
Par
|
Excess of
|
Retained
|
Comprehensive
|
Treasury
|
of
|
Stockholders'
|
Income
|
||||||||||||||||||||||||||||
Shares
|
Value
|
Par Value
|
Earnings
|
Income (Loss)
|
Stock
|
Shares
|
Equity
|
(Loss)
|
||||||||||||||||||||||||||||
Balance
at December 31, 2008
|
20,842 | $ | 3,751 | $ | 119,928 | $ | 72,242 | $ | (16,432 | ) | $ | (77 | ) | 8 | $ | 179,412 | ||||||||||||||||||||
Cumulative
effect of adjustments resulting from adoption of change in
accounting principle, net of tax (note 1)
|
-
|
-
|
-
|
1,665
|
(1,665
|
) |
-
|
-
|
-
|
|||||||||||||||||||||||||||
Acquisition
of treasury shares
|
- | - | - | - | - | (5,250 | ) | 750 | (5,250 | ) | ||||||||||||||||||||||||||
Amortization
of fair value of stock options granted
|
- | - | 1,334 | - | - | - | - | 1,334 | ||||||||||||||||||||||||||||
Stock
options exercised
|
31 | 6 | 109 | - | - | - | - | 115 | ||||||||||||||||||||||||||||
Accretion
of redeemable non-controlling interest
|
- | - | (355 | ) | - | - | - | - | (355 | ) | ||||||||||||||||||||||||||
Comprehensive
income:
|
||||||||||||||||||||||||||||||||||||
Net
income
|
- | - | - | 24,575 | - | - | - | 24,575 | $ | 24,575 | ||||||||||||||||||||||||||
Other
comprehensive income:
|
||||||||||||||||||||||||||||||||||||
- | ||||||||||||||||||||||||||||||||||||
Change
in net actuarial loss
|
- | - | - | - | 2,327 | - | - | 2,327 | 2,327 | |||||||||||||||||||||||||||
Net
unrealized holding gains arising during period
|
- | - | - | - | 42,299 | - | - | 42,299 | 42,299 | |||||||||||||||||||||||||||
Reclassification
adjustment for losses included in net income
|
- | - | - | - | (3,571 | ) | - | - | (3,571 | ) | (3,571 | ) | ||||||||||||||||||||||||
Net
unrealized gains on securities
|
38,728 | 38,728 | 38,728 | |||||||||||||||||||||||||||||||||
Total
other comprehensive income before tax
|
41,055 | 41,055 | 41,055 | |||||||||||||||||||||||||||||||||
Tax
effect on other comprehensive income
|
(14,369 | ) | (14,369 | ) | (14,369 | ) | ||||||||||||||||||||||||||||||
Other
comprehensive income after tax
|
26,686 | 26,686 | 26,686 | |||||||||||||||||||||||||||||||||
Comprehensive
income
|
$ | 51,261 | ||||||||||||||||||||||||||||||||||
Balance
at December 31, 2009
|
20,873 | $ | 3,757 | $ | 121,016 | $ | 98,482 | $ | 8,589 | $ | (5,327 | ) | 758 | $ | 226,517 |
2009
|
2008
|
2007
|
||||||||||
Cash
flows from operating activities:
|
||||||||||||
Net
income
|
$ | 24,627 | $ | 12,949 | $ | 27,863 | ||||||
Adjustments
to reconcile net income to cash provided by operating
activities:
|
||||||||||||
Depreciation
and amortization expense
|
4,105 | 3,219 | 3,119 | |||||||||
Amortization
of discount on structured settlement
|
- | - | 413 | |||||||||
Deferred
income tax benefit
|
(1,535 | ) | (912 | ) | (1,481 | ) | ||||||
Realized
(gain) loss on investments
|
(3,032 | ) | 11,261 | (2,586 | ) | |||||||
Change
in prepaid reinsurance premiums
|
(6,835 | ) | (407 | ) | 687 | |||||||
Change
in premiums receivable
|
(2,628 | ) | 1,994 | (1,382 | ) | |||||||
Change
in prepaid commissions
|
- | - | 487 | |||||||||
Change
in accounts receivable
|
1,215 | 688 | 2,632 | |||||||||
Change
in deferred policy acquisition costs
|
(1,268 | ) | 233 | (2,612 | ) | |||||||
Change
in unpaid losses and loss adjustment expenses
|
19,735 | 31,025 | 47,774 | |||||||||
Change
in unearned premiums
|
18,084 | (806 | ) | 11,392 | ||||||||
Change
in unearned revenue
|
(1,846 | ) | (912 | ) | (2,785 | ) | ||||||
Change
in accrued agent profit sharing
|
(361 | ) | (693 | ) | 1,060 | |||||||
Change
in reinsurance recoverable
|
6,774 | (3,266 | ) | 978 | ||||||||
Change
in reinsurance balances payable
|
3,281 | - | (1,060 | ) | ||||||||
Change
in current federal income tax payable/recoverable
|
1,962 | (1,560 | ) | (1,268 | ) | |||||||
Change
in accrued ceding commission payable
|
(5 | ) | (3,494 | ) | 8,143 | |||||||
Change
in all other liabilities
|
(5,783 | ) | 977 | (673 | ) | |||||||
Change
in all other assets
|
5,208 | (1,584 | ) | (5,017 | ) | |||||||
Net
cash provided by operating activities
|
61,698 | 48,712 | 85,684 | |||||||||
Cash
flows from investing activities:
|
||||||||||||
Purchases
of property and equipment
|
(1,263 | ) | (1,119 | ) | (455 | ) | ||||||
Acquisitions
of subsidiaries, net of cash received
|
(7,246 | ) | (14,799 | ) | - | |||||||
Change
in restricted cash
|
3,930 | 8,010 | 8,526 | |||||||||
Purchases
of debt and equity securities
|
(109,959 | ) | (704,247 | ) | (290,765 | ) | ||||||
Proceeds
from maturities and redemptions of securities
|
112,548 | 586,034 | 252,043 | |||||||||
Net
cash used in investing activities
|
(1,990 | ) | (126,121 | ) | (30,651 | ) | ||||||
Cash
flows from financing activities:
|
||||||||||||
Proceeds
from borrowings
|
- | - | 25,774 | |||||||||
Net
borrowings (repayment) of note payable
|
(1,417 | ) | 105 | (723 | ) | |||||||
Debt
issuance costs
|
- | - | (674 | ) | ||||||||
Distribution to
non-controlling interest
|
(20 | ) | - | - | ||||||||
Proceeds
from exercise of employee stock options
|
115 | 219 | - | |||||||||
Purchase
of treasury shares
|
(5,250 | ) | - | - | ||||||||
Repayment
of borrowings
|
- | (10,000 | ) | (15,000 | ) | |||||||
Net
cash (used in) provided by financing activities
|
(6,572 | ) | (9,676 | ) | 9,377 | |||||||
Increase
(Decrease) in cash and cash equivalents
|
53,136 | (87,085 | ) | 64,410 | ||||||||
Cash
and cash equivalents at beginning of year
|
59,134 | 146,219 | 81,809 | |||||||||
Cash
and cash equivalents at end of year
|
$ | 112,270 | $ | 59,134 | $ | 146,219 | ||||||
Supplemental
cash flow information:
|
||||||||||||
Interest
paid
|
$ | (4,641 | ) | $ | (4,759 | ) | $ | (3,402 | ) | |||
Income
taxes paid
|
$ | (8,202 | ) | $ | (10,649 | ) | $ | (16,655 | ) | |||
Supplemental
disclosure of noncash activities:
|
||||||||||||
Change
in receivable for securities related to investment disposals that settled
after the balance sheet date
|
$ | 983 | $ | 26,364 | $ | (22,024 | ) | |||||
Change
in payable for securities related to investment purchases that settled
after the balance sheet date
|
$ | (3,587 | ) | $ | (87,795 | ) | $ | 91,401 |
1.
|
Accounting
Policies:
|
2009
|
2008
|
|||||||
Beginning
balance
|
$ | 737 | $ | - | ||||
Acquistion
of Heath XS Operating Unit
|
- | 580 | ||||||
Accretion
of redeemable non-controlling interest
|
355 | 107 | ||||||
Net
income attributable to non-controlling interest
|
52 | 50 | ||||||
Distribution
to non-controlling interest
|
(20 | ) | - | |||||
Ending
balance
|
$ | 1,124 | $ | 737 |
For
the Year
|
||||
Ended
|
||||
December
31,
|
||||
2007
|
||||
As previously reported:
|
||||
Ceded
premiums written
|
$ | (11,329 | ) | |
Net
premiums written
|
238,143 | |||
Net
premiums earned
|
225,303 | |||
Total
revenues
|
274,498 | |||
Income
before tax
|
41,101 | |||
Income
tax expense
|
13,672 | |||
Net
income
|
$ | 27,429 | ||
Common
stockholders net income per share:
|
||||
Basic
|
$ | 1.32 | ||
Diluted
|
$ | 1.32 | ||
Adjustments:
|
||||
Ceded
premiums written
|
$ | 668 | ||
Income
tax expense
|
234 | |||
Net
income impact
|
$ | 434 | ||
As revised:
|
||||
Ceded
premiums written
|
$ | (10,661 | ) | |
Net
premiums written
|
238,811 | |||
Net
premiums earned
|
225,971 | |||
Total
revenues
|
275,166 | |||
Income
before tax
|
41,769 | |||
Income
tax expense
|
13,906 | |||
Net
income
|
$ | 27,863 | ||
Common
stockholders net income per share:
|
||||
Basic
|
$ | 1.34 | ||
Diluted
|
$ | 1.34 |
For
the Year
|
||||
Ended
|
||||
December
31,
|
||||
2007
|
||||
As previously reported:
|
||||
Net
income
|
$ | 27,429 | ||
Change
in prepaid reinsurance premiums
|
1,355 | |||
Change
in current federal income tax payable
|
(1,502 | ) | ||
Net
cash provided by operating activities
|
79,563 | |||
Adjustments:
|
||||
Net
income
|
$ | 434 | ||
Change
in prepaid reinsurance premiums
|
(668 | ) | ||
Change
in current federal income tax payable
|
234 | |||
Net
cash provided by operating activities
|
- | |||
As revised:
|
||||
Net
income
|
$ | 27,863 | ||
Change
in prepaid reinsurance premiums
|
687 | |||
Change
in current federal income tax payable
|
(1,268 | ) | ||
Net
cash provided by operating activities
|
79,563 |
Treaty Effective Dates
|
||||||||||||||||
7/1/01
|
7/1/02
|
7/1/03
|
7/1/04
|
|||||||||||||
Provisional
loss ratio
|
60.0 | % | 59.0 | % | 59.0 | % | 64.2 | % | ||||||||
Estimated
ultimate loss ratio booked to at December 31, 2009
|
63.5 | % | 64.5 | % | 67.0 | % | 57.8 | % |
Treaty Effective Dates
|
||||||||||||
01/01/06
|
01/01/07
|
01/01/08
|
||||||||||
Provisional
loss ratio
|
65.0 | % | 65.0 | % | 65.0 | % | ||||||
Ultimate
loss ratio booked to at December 31, 2009
|
57.1 | % | 60.7 | % | 58.0 | % |
Year Claim Servicing Fee Recognized
|
||||||||||||||||
1st
|
2nd
|
3rd
|
4th
|
|||||||||||||
Commercial
property fees
|
80 | % | 20 | % | - | - | ||||||||||
Commercial
liability fees
|
60 | % | 30 | % | 10 | % | - | |||||||||
Personal
property fees
|
90 | % | 10 | % | - | - | ||||||||||
Personal
liability fees
|
49 | % | 33 | % | 12 | % | 6 | % |
Tradename
|
$ | 757 |
15
years
|
||
Non-compete
agreement
|
$ | 526 |
6
years
|
||
Agency
relationships
|
$ | 6,385 |
15
years
|
Fair
value of tangible assets excluding cash and cash
equivalents
|
$ | (3 | ) | |
Fair
value of intangible assets acquired, net of deferred taxes
|
15,381 | |||
Redeemable
non-controlling interest assumed
|
(579 | ) | ||
Cash
and cash equivalents used in acquisitions,
|
||||
net
of $201 thousand cash and cash equivalents acquired
|
$ | 14,799 |
December 31,
|
||||||||
2009
|
2008
|
|||||||
Gross Carrying Amount:
|
||||||||
Customer/agent
relationships
|
$ | 29,114 | $ | 29,114 | ||||
Tradename
|
3,440 | 3,440 | ||||||
Management
agreement
|
3,232 | - | ||||||
Non-compete
& employment agreements
|
3,565 | 3,565 | ||||||
Total
gross carrying amount
|
39,351 | 36,119 | ||||||
Accumulated Amortization:
|
||||||||
Customer/agent
relationships
|
(6,676 | ) | (4,744 | ) | ||||
Tradename
|
(782 | ) | (553 | ) | ||||
Management
agreement
|
(471 | ) | - | |||||
Non-compete
& employment agreements
|
(2,549 | ) | (1,853 | ) | ||||
Total
accumulated amortization
|
(10,478 | ) | (7,150 | ) | ||||
Total
net carrying amount
|
$ | 28,873 | $ | 28,969 |
2010
|
$ | 3,665 | ||
2011
|
$ | 3,057 | ||
2012
|
$ | 3,057 | ||
2013
|
|
$ | 2,585 | |
2014
|
$ | 2,220 |
Years
|
||||
Tradename
|
15
|
|||
Customer
relationships
|
15
|
|||
Management
agreement
|
4
|
|||
Non-compete
agreements
|
5
|
2009
|
2008
|
2007
|
||||||||||
U.S.
Treasury securities and obligations of U.S. government
|
$ | 169 | $ | 918 | $ | 3,392 | ||||||
Corporate
debt securities
|
7,118 | 3,195 | 2,829 | |||||||||
Municipal
bonds
|
6,486 | 10,101 | 2,980 | |||||||||
Assets
backed
|
15 | - | - | |||||||||
Equity
securities-financial services
|
941 | 647 | 28 | |||||||||
Equity
securities- all other
|
420 | 327 | 272 | |||||||||
Cash
and cash equivalents
|
216 | 1,255 | 3,890 | |||||||||
15,365 | 16,443 | 13,391 | ||||||||||
Investment
expenses
|
(418 | ) | (394 | ) | (211 | ) | ||||||
Net
investment income
|
$ | 14,947 | $ | 16,049 | $ | 13,180 |
Twelve Months Ended
|
||||||||||||
December 31
|
||||||||||||
2009
|
2008
|
2007
|
||||||||||
U.S.
Treasury securities and obligations of U.S. government
|
$ | - | $ | 1,217 | $ | 103 | ||||||
Corporate
debt securities
|
1,544 | (3,032 | ) | 70 | ||||||||
Municipal
bonds
|
(41 | ) | 233 | 1 | ||||||||
Equity
securities-financial services
|
1,862 | 157 | 843 | |||||||||
Equity
securities- all other
|
205 | (991 | ) | 2,045 | ||||||||
Net
realized gain (loss)
|
3,570 | (2,416 | ) | 3,062 | ||||||||
Other-than-temporary
impairments
|
(538 | ) | (8,845 | ) | (476 | ) | ||||||
Gain
(loss) on investments
|
$ | 3,032 | $ | (11,261 | ) | $ | 2,586 |
Gross
|
Gross
|
|||||||||||||||
Amortized
|
Unrealized
|
Unrealized
|
Fair
|
|||||||||||||
Cost
|
Gains
|
Losses
|
Value
|
|||||||||||||
As of December 31, 2009
|
||||||||||||||||
U.S.
Treasury securities and obligations of U.S. government
|
$ | 6,830 | $ | 23 | $ | (17 | ) | $ | 6,836 | |||||||
Corporate
debt securities
|
94,560 | 7,190 | (2,201 | ) | 99,549 | |||||||||||
Municipal
bonds
|
185,036 | 2,543 | (2,786 | ) | 184,793 | |||||||||||
Asset
backed
|
682 | 17 | (1 | ) | 698 | |||||||||||
Total
debt securities
|
287,108 | 9,773 | (5,005 | ) | 291,876 | |||||||||||
Financial
services
|
17,156 | 5,008 | (232 | ) | 21,932 | |||||||||||
All
other
|
10,095 | 3,790 | (16 | ) | 13,869 | |||||||||||
Total
equity securities
|
27,251 | 8,798 | (248 | ) | 35,801 | |||||||||||
Total
debt and equity securities
|
$ | 314,359 | $ | 18,571 | $ | (5,253 | ) | $ | 327,677 | |||||||
As of December 31, 2008
|
||||||||||||||||
U.S.
Treasury securities and obligations of U.S.
government
|
$ | 3,996 | $ | 179 | $ | - | $ | 4,175 | ||||||||
Corporate
debt securities
|
67,157 | 395 | (7,005 | ) | 60,547 | |||||||||||
Municipal
bonds
|
211,083 | 631 | (7,923 | ) | 203,791 | |||||||||||
Total
debt securities
|
282,236 | 1,205 | (14,928 | ) | 268,513 | |||||||||||
Financial
services
|
24,761 | 332 | (3,618 | ) | 21,475 | |||||||||||
All
other
|
4,292 | 29 | (793 | ) | 3,528 | |||||||||||
Total
equity securities
|
29,053 | 361 | (4,411 | ) | 25,003 | |||||||||||
Total
debt and equity securities
|
$ | 311,289 | $ | 1,566 | $ | (19,339 | ) | $ | 293,516 |
As of December 31, 2009
|
||||||||||||||||||||||||
12 months or less
|
Longer than 12 months
|
Total
|
||||||||||||||||||||||
Unrealized
|
Unrealized
|
Unrealized
|
||||||||||||||||||||||
Fair Value
|
Losses
|
Fair Value
|
Losses
|
Fair Value
|
Losses
|
|||||||||||||||||||
U.S.
Treasury securities and obligations of U.S. government
|
$ | 3,202 | $ | (17 | ) | $ | - | $ | - | $ | 3,202 | $ | (17 | ) | ||||||||||
Corporate
debt securities
|
18,924 | (166 | ) | 9,642 | (2,035 | ) | 28,566 | (2,201 | ) | |||||||||||||||
Municipal
bonds
|
28,940 | (1,524 | ) | 42,183 | (1,262 | ) | 71,123 | (2,786 | ) | |||||||||||||||
Asset
backed
|
51 | (1 | ) | - | - | 51 | (1 | ) | ||||||||||||||||
Total
debt securities
|
51,117 | (1,708 | ) | 51,825 | (3,297 | ) | 102,942 | (5,005 | ) | |||||||||||||||
Financial
services
|
1,417 | (232 | ) | - | - | 1,417 | (232 | ) | ||||||||||||||||
All
other
|
658 | (16 | ) | - | - | 658 | (16 | ) | ||||||||||||||||
Total
equity securities
|
2,075 | (248 | ) | - | - | 2,075 | (248 | ) | ||||||||||||||||
Total
debt and equity securities
|
$ | 53,192 | $ | (1,956 | ) | $ | 51,825 | $ | (3,297 | ) | $ | 105,017 | $ | (5,253 | ) |
As of December 31, 2008
|
||||||||||||||||||||||||
12 months or less
|
Longer than 12 months
|
Total
|
||||||||||||||||||||||
Unrealized
|
Unrealized
|
Unrealized
|
||||||||||||||||||||||
Fair Value
|
Losses
|
Fair Value
|
Losses
|
Fair Value
|
Losses
|
|||||||||||||||||||
Corporate
debt securities
|
$ | 34,314 | $ | (5,175 | ) | $ | 9,786 | $ | (1,830 | ) | $ | 44,100 | $ | (7,005 | ) | |||||||||
Municipal
bonds
|
106,175 | (7,258 | ) | 10,295 | (665 | ) | 116,470 | (7,923 | ) | |||||||||||||||
Total
debt securities
|
140,489 | (12,433 | ) | 20,081 | (2,495 | ) | 160,570 | (14,928 | ) | |||||||||||||||
Financial
services
|
7,110 | (3,618 | ) | - | - | 7,110 | (3,618 | ) | ||||||||||||||||
All
other
|
1,822 | (793 | ) | - | - | 1,822 | (793 | ) | ||||||||||||||||
Equity
securities
|
8,932 | (4,411 | ) | - | - | 8,932 | (4,411 | ) | ||||||||||||||||
Total
debt and equity securities
|
$ | 149,421 | $ | (16,844 | ) | $ | 20,081 | $ | (2,495 | ) | $ | 169,502 | $ | (19,339 | ) |
Amortized
|
Fair
|
|||||||
Cost
|
Value
|
|||||||
(in
thousands)
|
||||||||
Due
in one year or less
|
$ | 35,138 | $ | 36,563 | ||||
Due
after one year through five years
|
132,759 | 138,179 | ||||||
Due
after five years through ten years
|
46,910 | 46,335 | ||||||
Due
after ten years
|
71,620 | 70,101 | ||||||
Asset
backed
|
681 | 698 | ||||||
$ | 287,108 | $ | 291,876 |
Balance,
January 1, 2009
|
$ | - | ||
Credit
componment of other-than-temporary impairment not reclassified to OCI in
conjuction with the cumulative effect transition adjustment
(1)
|
1,168 | |||
Additions
for the credit component on debt securities in which other-than-temporary
impairment was not previously recognized
|
- | |||
Balance,
December 31, 2009
|
$ | 1,168 |
|
·
|
Level
1: quoted prices in active markets for identical
assets;
|
|
·
|
Level
2: inputs to the valuation methodology include quoted prices for similar
assets and liabilities in active markets, inputs of identical assets for
less active markets, and inputs that are observable for the asset or
liability, either directly or indirectly, for substantially the full term
of the instrument; and
|
|
·
|
Level
3: inputs to the valuation methodology that are unobservable for the asset
or liability.
|
As of December 31, 2009
|
||||||||||||||||
Quoted Prices in
|
Other
|
|||||||||||||||
Active Markets for
|
Observable
|
Unobservable
|
||||||||||||||
Identical Assets
|
Inputs
|
Inputs
|
||||||||||||||
(Level 1)
|
(Level 2)
|
(Level 3)
|
Total
|
|||||||||||||
U.S.
Treasury securities and obligations of U.S. government
|
$ | - | $ | 6,836 | $ | - | $ | 6,836 | ||||||||
Corporate
debt securities
|
- | 99,549 | - | 99,549 | ||||||||||||
Municipal
bonds
|
- | 159,521 | 25,272 | 184,793 | ||||||||||||
Asset
backed
|
- | 698 | - | 698 | ||||||||||||
Total
debt securities
|
- | 266,604 | 25,272 | 291,876 | ||||||||||||
Financial
services
|
21,932 | - | - | 21,932 | ||||||||||||
All
other
|
13,869 | - | - | 13,869 | ||||||||||||
Total
equity securities
|
35,801 | - | - | 35,801 | ||||||||||||
Total
debt and equity securities
|
$ | 35,801 | $ | 266,604 | $ | 25,272 | $ | 327,677 |
As of December 31, 2008
|
||||||||||||||||
Quoted Prices in
|
Other
|
|||||||||||||||
Active Markets for
|
Observable
|
Unobservable
|
||||||||||||||
Identical Assets
|
Inputs
|
Inputs
|
||||||||||||||
(Level 1)
|
(Level 2)
|
(Level 3)
|
Total
|
|||||||||||||
U.S.
Treasury securities and obligations of U.S. government
|
$ | - | $ | 4,175 | $ | - | $ | 4,175 | ||||||||
Corporate
debt securities
|
- | 60,546 | - | 60,546 | ||||||||||||
Municipal
bonds
|
- | 157,688 | 46,104 | 203,792 | ||||||||||||
Asset
backed
|
- | - | - | - | ||||||||||||
Total
debt securities
|
- | 222,409 | 46,104 | 268,513 | ||||||||||||
Financial
services
|
21,474 | - | - | 21,474 | ||||||||||||
All
other
|
3,529 | - | - | 3,529 | ||||||||||||
Total
equity securities
|
25,003 | - | - | 25,003 | ||||||||||||
Total
debt and equity securities
|
$ | 25,003 | $ | 222,409 | $ | 46,104 | $ | 293,516 |
Beginning
balance as of January 1, 2009
|
$ | 46,104 | ||
Net
purchases, issuances, sales and settlements
|
(20,525 | ) | ||
Total
realized/unrealized gains included in net income
|
- | |||
Net
gains or (losses) included in other comprehensive income
|
(307 | ) | ||
Transfers
in and/or out of Level 3
|
- | |||
Ending
balance as of December 31, 2009
|
$ | 25,272 |
Beginning
balance as of January 1, 2008
|
$ | 4,000 | ||
Net
purchases, issuances, sales and settlements
|
43,200 | |||
Total
realized/unrealized gains included in net income
|
- | |||
Net
gains or (losses) included in other comprehensive income
|
(1,096 | ) | ||
Transfers
in and/or out of Level 3
|
- | |||
Ending
balance as of December 31, 2008
|
$ | 46,104 |
2009
|
2008
|
|||||||
Profit
sharing commission receivable
|
$ | 9,561 | $ | 12,445 | ||||
Accrued
investment income
|
3,611 | 2,954 | ||||||
Debt
issuance costs
|
1,362 | 1,414 | ||||||
Investment
in unconsolidated trust subsidiaries
|
1,702 | 1,702 | ||||||
Fixed
assets
|
2,140 | 1,654 | ||||||
Other
assets
|
403 | 413 | ||||||
$ | 18,779 | $ | 20,582 |
2009
|
2008
|
2007
|
||||||||||
Balance
at January 1
|
$ | 156,363 | $ | 125,338 | $ | 77,564 | ||||||
Less
reinsurance recoverable
|
6,338 | 4,489 | 4,763 | |||||||||
Net
Balance at January 1
|
150,025 | 120,849 | 72,801 | |||||||||
Incurred
related to:
|
||||||||||||
Current
year
|
151,999 | 146,059 | 139,332 | |||||||||
Prior
years
|
1,620 | (1,815 | ) | (6,414 | ) | |||||||
Total
incurred
|
153,619 | 144,244 | 132,918 | |||||||||
Paid
related to:
|
||||||||||||
Current
year
|
62,584 | 64,610 | 54,809 | |||||||||
Prior
years
|
64,810 | 50,458 | 30,061 | |||||||||
Total
paid
|
127,394 | 115,068 | 84,870 | |||||||||
Net
Balance at December 31
|
176,250 | 150,025 | 120,849 | |||||||||
Plus
reinsurance recoverable
|
8,412 | 6,338 | 4,489 | |||||||||
Balance
at December 31
|
$ | 184,662 | $ | 156,363 | $ | 125,338 |
6.
|
Reinsurance:
|
2009
|
2008
|
2007
|
||||||||||
Premium
Written :
|
||||||||||||
Direct
|
$ | 214,074 | $ | 152,156 | $ | 157,202 | ||||||
Assumed
|
73,484 | 91,693 | 92,270 | |||||||||
Ceded
|
(25,818 | ) | (8,922 | ) | (10,661 | ) | ||||||
$ | 261,740 | $ | 234,927 | $ | 238,811 | |||||||
Premium
Earned:
|
||||||||||||
Direct
|
$ | 185,727 | $ | 155,616 | $ | 151,276 | ||||||
Assumed
|
83,747 | 89,040 | 86,804 | |||||||||
Ceded
|
(18,402 | ) | (8,336 | ) | (12,109 | ) | ||||||
$ | 251,072 | $ | 236,320 | $ | 225,971 | |||||||
Reinsurance
recoveries
|
$ | 8,975 | $ | 11,994 | $ | 3,862 |
|
·
|
Property
catastrophe. Our property catastrophe reinsurance
reduces the financial impact a catastrophe could have on our commercial
and personal property insurance lines. Catastrophes might
include multiple claims and policyholders. Catastrophes include
hurricanes, windstorms, earthquakes, hailstorms, explosions, severe winter
weather and fires. Our property catastrophe reinsurance is
excess-of-loss reinsurance, which provides us reinsurance coverage for
losses in excess of an agreed-upon amount. We utilize
catastrophe models to assist in determining appropriate retention and
limits to purchase. The terms of our property catastrophe
reinsurance are:
|
|
o
|
We
retain the first $3.0 million of property catastrophe losses;
and
|
|
o
|
Our
reinsurers reimburse us 100% for any loss in excess of our $3.0 million
retention up to $35.0 million for each catastrophic occurrence, subject to
an aggregate limit of $64.0
million.
|
|
·
|
Commercial
property. Our commercial property reinsurance is
excess-of-loss coverage intended to reduce the financial impact a
single-event or catastrophic loss may have on our results. The
terms of our commercial property reinsurance
are:
|
|
o
|
We
retain the first $1.0 million of loss for each commercial property
risk;
|
|
o
|
Our
reinsurers reimburse us for the next $5.0 million for each commercial
property risk, and $10.0 million for all commercial property risk involved
in any one occurrence, in all cases subject to an aggregate limit of $30.0
million for all commercial property losses occurring during the treaty
period; and
|
|
o
|
Individual
risk facultative reinsurance is purchased on any commercial property with
limits above $6.0 million.
|
|
·
|
Commercial
casualty. Our commercial casualty reinsurance is
excess-of-loss coverage intended to reduce the financial impact a
single-event loss may have on our results. The terms of our
commercial casualty reinsurance
are:
|
|
o
|
We
retain the first $1.0 million of any commercial liability risk:
and
|
|
o
|
Our
reinsurers reimburse us for the next $5.0 million for each commercial
liability risk.
|
|
·
|
Aviation. We
purchase reinsurance specific to the aviation risks underwritten by our
Aerospace Operating Unit. This reinsurance provides aircraft
hull and liability coverage and airport liability coverage on a per
occurrence basis on the following
terms:
|
|
o
|
We
retain the first $350,000 of each aircraft hull or liability loss or
airport liability loss;
|
|
o
|
Our
reinsurers reimburse us for the next $3.3 million of each combined
aircraft hull and liability loss and for the next $650,000 of each airport
liability loss; and
|
|
o
|
Other
risks with liability limits greater than $1.0 million are placed in a
quota share treaty where we retain 20% of incurred
losses.
|
|
·
|
Heath
XS. Effective July 1, 2009, in states where we are
admitted, we directly insure policies written by our Heath XS Operating
Unit and reinsure a portion of the risk with third party carriers.
In states where we are not admitted, our Heath XS Operating Unit writes
policies under fronting arrangements pursuant to which we assume all of
the risk and then retrocede a portion of the risk to third party
reinsurers. We reinsure or retrocede 79% of the risk on policies
written by our Heath XS Operating Unit. Through June 30, 2009,
our Heath XS Operating Unit wrote policies under a fronting arrangement
pursuant to which we assumed 35% of the
risk.
|
|
·
|
Hallmark County
Mutual. HCM is used to front certain lines of business
in our Specialty Commercial and Personal Segments in Texas where we
previously produced policies for third party county mutual insurance
companies and reinsured 100% for a fronting fee. In addition
HCM is used to front business produced by unaffiliated third parties. HCM
does not retain any business.
|
7.
|
Notes
Payable:
|
8.
|
Credit
Facilities:
|
9.
|
Segment
Information:
|
|
·
|
Standard
Commercial Segment. The Standard Commercial Segment
includes the standard lines commercial property/casualty insurance
products and services handled by our AHIS Operating Unit which is
comprised of our American Hallmark Insurance Services and ECM
subsidiaries.
|
|
·
|
Specialty
Commercial Segment. The Specialty Commercial Segment
primarily includes the excess and surplus lines commercial
property/casualty insurance products and services handled by our TGA
Operating Unit, the general aviation insurance products and services
handled by our Aerospace Operating Unit and the commercial umbrella and
excess liability risks handled by our Heath XS Operating
Unit. The Specialty Commercial Segment also includes a
relatively small amount of non-strategic legacy personal lines insurance
products handled by our TGA Operating Unit. Our TGA Operating
Unit is comprised of our TGA, PAAC and TGARSI subsidiaries. Our
Aerospace Operating Unit is comprised of our Aerospace Insurance Managers,
ASRI and ACMG subsidiaries. Our Heath XS Operating Unit is comprised of HXS and HDS which
were both acquired August 29,
2008.
|
|
·
|
Personal
Segment. The Personal Segment includes the non-standard
personal automobile insurance products and services handled by our
Personal Lines Operating Unit which is comprised of American Hallmark
General Agency, Inc. and Hallmark Claims Services, Inc., both of which do
business as Hallmark Insurance
Company.
|
|
·
|
American
Hallmark Insurance Company of Texas presently retains all of the
risks on the commercial property/casualty policies marketed within the
Standard Commercial Segment, retains a portion of risks on the personal
policies marketed within the Personal Lines Operating Unit and assumes a
portion of the risks on the commercial and aviation property/casualty
policies marketed within the Specialty Commercial
Segment.
|
|
·
|
Hallmark
Specialty Insurance Company presently retains a portion of the
risks on the commercial property/casualty policies marketed within the
Specialty Commercial Segment.
|
|
·
|
Hallmark
Insurance Company presently retains a portion of the risks on both
the personal policies marketed within the Personal Lines Operating Unit
and on the aviation property/casualty products marketed within the
Specialty Commercial Segment.
|
|
·
|
Hallmark
County Mutual Insurance Company control and management was acquired
effective June 5, 2009 through the acquisition of all of the issued and
outstanding shares of CYR Insurance Management Company
(“CYR”). CYR has as its primary asset a management agreement
with HCM which provides for CYR to have management and control of
HCM. HCM is used to front certain lines of business in our
Specialty Commercial and Personal Segments in Texas where we previously
produced policies for third party county mutual insurance companies and
reinsured 100% for a fronting fee. HCM does not retain any
business.
|
2009
|
2008
|
2007
|
||||||||||
Revenues
|
||||||||||||
Standard
Commercial Segment
|
$ | 76,496 | $ | 84,075 | $ | 86,512 | ||||||
Speciality
Commercial Segment
|
131,504 | 127,882 | 126,550 | |||||||||
Personal
Segment
|
73,785 | 64,475 | 58,268 | |||||||||
Corporate
|
5,254 | (7,742 | ) | 3,836 | ||||||||
Consolidated
|
$ | 287,039 | $ | 268,690 | $ | 275,166 | ||||||
Depreciation and Amortization
Expense
|
||||||||||||
Standard
Commercial Segment
|
$ | 87 | $ | 173 | $ | 215 | ||||||
Speciality
Commercial Segment
|
3,075 | 2,718 | 2,608 | |||||||||
Personal
Segment
|
494 | 255 | 222 | |||||||||
Corporate
|
449 | 73 | 74 | |||||||||
Consolidated
|
$ | 4,105 | $ | 3,219 | $ | 3,119 | ||||||
Interest Expense
|
||||||||||||
Standard
Commercial Segment
|
$ | - | $ | - | $ | - | ||||||
Speciality
Commercial Segment
|
30 | 96 | 151 | |||||||||
Personal
Segment
|
- | - | 1 | |||||||||
Corporate
|
4,572 | 4,649 | 3,762 | |||||||||
Consolidated
|
$ | 4,602 | $ | 4,745 | $ | 3,914 | ||||||
Tax Expense
|
||||||||||||
Standard
Commercial Segment
|
$ | 1,905 | $ | 1,763 | $ | 3,341 | ||||||
Speciality
Commercial Segment
|
5,151 | 5,116 | 8,530 | |||||||||
Personal
Segment
|
2,482 | 1,993 | 1,956 | |||||||||
Corporate
|
(908 | ) | (697 | ) | 79 | |||||||
Consolidated
|
$ | 8,630 | $ | 8,175 | $ | 13,906 | ||||||
Pre-tax Income, net of non-controlling
interest
|
||||||||||||
Standard
Commercial Segment
|
$ | 9,266 | $ | 9,683 | $ | 12,415 | ||||||
Speciality
Commercial Segment
|
20,883 | 21,328 | 28,338 | |||||||||
Personal
Segment
|
11,000 | 8,989 | 7,523 | |||||||||
Corporate
|
(7,944 | ) | (18,926 | ) | (6,507 | ) | ||||||
Consolidated
|
$ | 33,205 | $ | 21,074 | $ | 41,769 |
9.
|
Segment
Information, continued
|
December 31,
|
||||||||
2009
|
2008
|
|||||||
Assets
|
||||||||
Standard
Commercial Segment
|
$ | 136,745 | $ | 146,415 | ||||
Specialty
Commercial Segment
|
280,970 | 230,130 | ||||||
Personal
Segment
|
109,844 | 84,456 | ||||||
Corporate
|
101,310 | 77,397 | ||||||
Consolidated
|
$ | 628,869 | $ | 538,398 |
10.
|
Earnings Per
Share:
|
2009
|
2008
|
2007
|
||||||||||
Numerator for both basic and diluted earnings per
share:
|
||||||||||||
Net
income attributable to Hallmark Financial Services, Inc.
|
$ | 24,575 | $ | 12,899 | $ | 27,863 | ||||||
Denominator,
basic shares
|
20,620 | 20,803 | 20,768 | |||||||||
Effect
of dilutive securities:
|
||||||||||||
Stock
options
|
13 | 74 | - | |||||||||
Denominator,
diluted shares
|
20,633 | 20,877 | 20,768 | |||||||||
Basic earnings per
share:
|
$ | 1.19 | $ | 0.62 | $ | 1.34 | ||||||
Diluted earnings per
share:
|
$ | 1.19 | $ | 0.62 | $ | 1.34 |
11.
|
Regulatory Capital
Restrictions:
|
12.
|
Share-based Payment
Arrangements:
|
Average
|
Contractual
|
Intrinsic
|
||||||||||||||
Number of
|
Exercise
|
Term
|
Value
|
|||||||||||||
Shares
|
Price
|
(Years)
|
($000)
|
|||||||||||||
Outstanding
at January 1, 2009
|
1,052,298 | $ | 11.12 | |||||||||||||
Granted
|
595,000 | $ | 6.62 | |||||||||||||
Exercised
|
(31,049 | ) | $ | 3.66 | ||||||||||||
Forfeited
or expired
|
(2,083 | ) | $ | 2.63 | ||||||||||||
Outstanding
at December 31, 2009
|
1,614,166 | $ | 9.62 | 7.9 | $ | 1,013 | ||||||||||
Exercisable
at December 31, 2009
|
474,500 | $ | 9.91 | 6.8 | $ | 291 |
2009
|
2008
|
2007
|
||||||||||
Intrinsic
value of options exercised
|
$ | 113 | $ | 415 | $ | - | ||||||
Cost
of share-based payments (non-cash)
|
$ | 1,334 | $ | 1,368 | $ | 527 | ||||||
Income
tax benefit of share-based payments recognized in income
|
$ | 78 | $ | 30 | $ | 53 |
2009
|
2008
|
2007
|
||||||||||
Grant
date fair value per share
|
$ | 3.00 | $ | 4.74 | $ | 4.04 | ||||||
Expected
term (in years)
|
6.8 | 6.4 | 6.4 | |||||||||
Expected
volatility
|
40.0 | % | 35.0 | % | 19.4 | % | ||||||
Risk
free interest rate
|
2.7 | % | 3.4 | % | 4.5 | % |
13.
|
Retirement
Plans:
|
2009
|
2008
|
2007
|
||||||||||
Assumptions
(end of period):
|
||||||||||||
Discount
rate used in determining benefit obligation
|
6.00 | % | 5.50 | % | 5.75 | % | ||||||
Rate
of compensation increase
|
N/A | N/A | N/A | |||||||||
Reconciliation
of funded status (end of period):
|
||||||||||||
Accumulated
benefit obligation
|
$ | (11,301 | ) | $ | (12,159 | ) | $ | (12,053 | ) | |||
Projected
benefit obligation
|
$ | (11,301 | ) | $ | (12,159 | ) | $ | (12,053 | ) | |||
Fair
value of plan assets
|
8,673 | 7,850 | 10,384 | |||||||||
Funded
status
|
$ | (2,628 | ) | $ | (4,309 | ) | $ | (1,669 | ) | |||
Net
actuarial loss
|
(2,805 | ) | (5,132 | ) | (1,752 | ) | ||||||
Accumulated
other comprehensive loss
|
(2,805 | ) | (5,132 | ) | (1,752 | ) | ||||||
Prepaid/(accrued)
pension cost
|
177 | 823 | 83 | |||||||||
Net
amount recognized as of December 31
|
$ | (2,628 | ) | $ | (4,309 | ) | $ | (1,669 | ) | |||
Changes
in projected benefit obligation:
|
||||||||||||
Benefit
obligation as of beginning of period
|
$ | 12,159 | $ | 12,053 | $ | 12,994 | ||||||
Interest
cost
|
643 | 667 | 720 | |||||||||
Actuarial
liability (gain)/loss
|
(631 | ) | 327 | (749 | ) | |||||||
Benefits
paid
|
(870 | ) | (888 | ) | (912 | ) | ||||||
Benefit
obligation as of end of period
|
$ | 11,301 | $ | 12,159 | $ | 12,053 | ||||||
Change
in plan assets:
|
||||||||||||
Fair
value of plan assets as of beginning of period
|
$ | 7,850 | $ | 10,384 | $ | 9,868 | ||||||
Actual
return on plan assets (net of expenses)
|
1,693 | (2,448 | ) | 1,073 | ||||||||
Employer
contributions
|
- | 802 | 355 | |||||||||
Benefits
paid
|
(870 | ) | (888 | ) | (912 | ) | ||||||
Fair
value of plan assets as of end of period
|
$ | 8,673 | $ | 7,850 | $ | 10,384 | ||||||
Net
periodic pension cost:
|
||||||||||||
Service
cost - benefits earned during the period
|
$ | - | $ | - | $ | - | ||||||
Interest
cost on projected benefit obligation
|
643 | 667 | 720 | |||||||||
Expected
return on plan assets
|
(485 | ) | (670 | ) | (642 | ) | ||||||
Recognized
actuarial loss
|
489 | 64 | 199 | |||||||||
Net
periodic pension cost
|
$ | 647 | $ | 61 | $ | 277 | ||||||
Discount
rate
|
5.50 | % | 5.75 | % | 5.75 | % | ||||||
Expected
return on plan assets
|
6.50 | % | 6.50 | % | 6.50 | % | ||||||
Rate
of compensation increase
|
N/A | N/A | N/A |
2010
|
$ | 913 | ||
2011
|
$ | 917 | ||
2012
|
$ | 926 | ||
2013
|
$ | 921 | ||
2014
|
$ | 909 | ||
2015-2019
|
$ | 4,360 |
12/31/09
|
12/31/08
|
|||||||
Asset
Category:
|
||||||||
Fixed
income securities
|
32 | % | 36 | % | ||||
Equity
securities
|
65 | % | 62 | % | ||||
Other
|
3 | % | 2 | % | ||||
Total
|
100 | % | 100 | % |
Quoted
Prices in
|
Other
|
|||||||||||||||
Active
Markets for
|
Observable
|
Unobservable
|
||||||||||||||
Identical
Assets
|
Inputs
|
Inputs
|
||||||||||||||
(Level
1)
|
(Level
2)
|
(Level
3)
|
Total
|
|||||||||||||
Debt
securities
|
$ | - | $ | 2,794 | $ | - | $ | 2,794 | ||||||||
Equity
securities
|
$ | 5,625 | $ | - | $ | - | 5,625 | |||||||||
Cash
and equivalents
|
254 | - | - | 254 | ||||||||||||
Total
|
$ | 5,879 | $ | 2,794 | $ | - | $ | 8,673 |
14.
|
Income
Taxes:
|
2009
|
2008
|
|||||||
Deferred
tax liabilities:
|
||||||||
Deferred
policy acquisition costs
|
$ | (7,277 | ) | $ | (6,833 | ) | ||
Net
unrealized holding gain on investments
|
(4,661 | ) | - | |||||
Agency
relationship
|
(123 | ) | (132 | ) | ||||
Intangible
assets
|
(6,811 | ) | (7,442 | ) | ||||
Fixed
assets
|
(344 | ) | (210 | ) | ||||
Other
|
(477 | ) | (155 | ) | ||||
Total
deferred tax liabilities
|
$ | (19,693 | ) | $ | (14,772 | ) | ||
Deferred
tax assets:
|
||||||||
Unearned
premiums
|
$ | 7,846 | $ | 7,100 | ||||
Deferred
ceding commissions
|
22 | 653 | ||||||
Amortization
of non-compete agreements
|
655 | 714 | ||||||
Pension
liability
|
982 | 1,796 | ||||||
Net
operating loss carry-forward
|
990 | 1,104 | ||||||
Net
unrealized holding losses on investments
|
- | 6,221 | ||||||
Unpaid
loss and loss adjustment expense
|
5,149 | 4,052 | ||||||
Goodwill
|
511 | 720 | ||||||
Rent
reserve
|
22 | 33 | ||||||
Investment
impairments
|
2,416 | 3,227 | ||||||
Capital
loss
|
9 | 290 | ||||||
Other
|
149 | 71 | ||||||
Total
deferred tax assets
|
$ | 18,751 | $ | 25,981 | ||||
Net
deferred tax asset before valuation allowance
|
$ | (942 | ) | $ | 11,209 | |||
Valuation
allowance
|
- | 4,513 | ||||||
Net
deferred tax asset (liability)
|
$ | (942 | ) | $ | 6,696 |
2009
|
2008
|
2007
|
||||||||||
Continuing
operations
|
$ | (1,213 | ) | $ | 2,969 | $ | (203 | ) | ||||
Changes
in other comprehensive income
|
(3,300 | ) | 1,544 | - | ||||||||
$ | (4,513 | ) | $ | 4,513 | $ | (203 | ) |
14.
|
Income
Taxes,
continued:
|
2009
|
2008
|
2007
|
||||||||||
Computed
expected income tax expense at statutory regulatory tax
rate
|
$ | 11,640 | $ | 7,394 | $ | 14,619 | ||||||
Meals
and entertainment
|
14 | 18 | 23 | |||||||||
Tax
exempt interest
|
(2,157 | ) | (2,883 | ) | (813 | ) | ||||||
Dividends
received deduction
|
(253 | ) | (147 | ) | (43 | ) | ||||||
State
taxes (net of federal benefit)
|
159 | 269 | 194 | |||||||||
Valuation
allowance
|
(1,213 | ) | 2,969 | (203 | ) | |||||||
Other
|
440 | 555 | 129 | |||||||||
Income
tax expense
|
$ | 8,630 | $ | 8,175 | $ | 13,906 | ||||||
Current
income tax expense
|
$ | 10,165 | $ | 9,087 | $ | 15,387 | ||||||
Deferred
tax benefit
|
(1,535 | ) | (912 | ) | (1,481 | ) | ||||||
Income
tax expense
|
$ | 8,630 | $ | 8,175 | $ | 13,906 |
Year
|
||||
2021
|
$ | 1,950 | ||
2022
|
878 | |||
$ | 2,828 |
15.
|
Commitments
and Contingencies:
|
Year
|
||||
2010
|
$ | 1,194 | ||
2011
|
637 | |||
2012
|
330 | |||
2013
|
280 | |||
2014
|
251 | |||
2015
and thereafter
|
262 | |||
Total
minimum lease payments
|
$ | 2,954 |
16.
|
Concentrations
of Credit Risk:
|
17.
|
Unaudited Selected
Quarterly Financial
Information:
|
2009
|
2008
|
|||||||||||||||||||||||||||||||
Q1
|
Q2
|
Q3
|
Q4
|
Q1
|
Q2
|
Q3
|
Q4
|
|||||||||||||||||||||||||
Total
revenue
|
$ | 70,910 | $ | 70,744 | $ | 71,903 | $ | 73,482 | $ | 71,521 | $ | 71,984 | $ | 64,989 | $ | 60,196 | ||||||||||||||||
Total
expense
|
62,465 | 63,941 | 66,070 | 61,306 | 60,727 | 61,396 | 64,828 | 60,615 | ||||||||||||||||||||||||
Income
(loss) before tax
|
8,445 | 6,803 | 5,833 | 12,176 | 10,794 | 10,588 | 161 | (419 | ) | |||||||||||||||||||||||
Income
tax expense (benefit)
|
1,662 | 2,519 | 1,585 | 2,864 | 3,529 | 3,178 | (485 | ) | 1,953 | |||||||||||||||||||||||
Net
income (loss)
|
6,783 | 4,284 | 4,248 | 9,312 | 7,265 | 7,410 | 646 | (2,372 | ) | |||||||||||||||||||||||
Net
income (loss) attributable to non-controlling interest
|
(7 | ) | 9 | 34 | 16 | - | - | 15 | 35 | |||||||||||||||||||||||
Net
income (loss) attributable to Hallmark Financial Services,
Inc.
|
$ | 6,790 | $ | 4,275 | $ | 4,214 | $ | 9,296 | $ | 7,265 | $ | 7,410 | $ | 631 | $ | (2,407 | ) | |||||||||||||||
Basic
earnings (loss) per share:
|
$ | 0.33 | $ | 0.20 | $ | 0.20 | $ | 0.46 | $ | 0.35 | $ | 0.36 | $ | 0.03 | $ | (0.12 | ) | |||||||||||||||
Diluted
earnings (loss) per share:
|
$ | 0.33 | $ | 0.20 | $ | 0.20 | $ | 0.46 | $ | 0.35 | $ | 0.35 | $ | 0.03 | $ | (0.12 | ) |
2009
|
2008
|
|||||||
ASSETS
|
||||||||
Equity
securities, available-for-sale, at fair value
|
$ | 944 | $ | 2,014 | ||||
Cash
and cash equivalents
|
9,646 | 7,337 | ||||||
Accounts
receivable
|
- | 640 | ||||||
Investment
in subsidiaries
|
287,566 | 232,391 | ||||||
Deferred
federal income taxes
|
154 | 261 | ||||||
Other
assets
|
3,590 | 4,396 | ||||||
$ | 301,900 | $ | 247,039 | |||||
LIABILITIES AND STOCKHOLDERS’
EQUITY
|
||||||||
Liabilities:
|
||||||||
Notes
payable
|
$ | 59,502 | $ | 59,820 | ||||
Current
federal income tax payable
|
8,555 | 3,417 | ||||||
Accounts
payable and other accrued expenses
|
7,326 | 4,390 | ||||||
75,383 | 67,627 | |||||||
Stockholders’
equity:
|
||||||||
Common
stock, $.18 par value, authorized 33,333,333 shares;
|
||||||||
issued
20,872,831 shares in 2009 and 20,841,782 shares in 2008
|
3,757 | 3,751 | ||||||
Capital
in excess of par value
|
121,016 | 119,928 | ||||||
Retained
earnings
|
98,482 | 72,242 | ||||||
Accumulated
other comprehensive income (loss)
|
8,589 | (16,432 | ) | |||||
Treasury
stock, (757,828 shares in 2009 and 7,828 in 2008), at cost
|
(5,327 | ) | (77 | ) | ||||
Total
stockholders’ equity
|
226,517 | 179,412 | ||||||
Total
liabilities and stockholders’ equity
|
$ | 301,900 | $ | 247,039 |
2009
|
2008
|
2007
|
||||||||||
Investment
income (loss), net of expenses
|
$ | (166 | ) | $ | 127 | $ | 457 | |||||
Realized
gain (loss)
|
313 | (1,056 | ) | 508 | ||||||||
Management
fee income
|
7,127 | 6,044 | 7,205 | |||||||||
7,274 | 5,115 | 8,170 | ||||||||||
Losses
and loss adjustment expenses
|
- | (1 | ) | (15 | ) | |||||||
Other
operating costs and expenses
|
8,190 | 6,537 | 6,596 | |||||||||
Interest
expense
|
4,572 | 4,649 | 3,762 | |||||||||
Amortization
of intangible asset
|
379 | - | - | |||||||||
13,141 | 11,185 | 10,343 | ||||||||||
Loss
before equity in undistributed earnings of subsidiaries and income tax
expense
|
(5,867 | ) | (6,070 | ) | (2,173 | ) | ||||||
Income
tax benefit
|
(1,609 | ) | (1,567 | ) | (653 | ) | ||||||
Loss
before equity in undistributed earnings of subsidiaries
|
(4,258 | ) | (4,503 | ) | (1,520 | ) | ||||||
Equity
in undistributed share of earnings in subsidiaries
|
28,833 | 17,402 | 29,383 | |||||||||
Net
income
|
$ | 24,575 | $ | 12,899 | $ | 27,863 |
2009
|
2008
|
2007
|
||||||||||
Cash
flows from operating activities:
|
||||||||||||
Net
income
|
$ | 24,575 | $ | 12,899 | $ | 27,863 | ||||||
Adjustments
to reconcile net income to cash provided by (used in) operating
activities:
|
||||||||||||
Depreciation
and amortization expense
|
448 | 74 | 486 | |||||||||
Deferred
income tax expense (benefit)
|
112 | (17 | ) | 170 | ||||||||
Change
in unpaid losses and loss adjustment expenses
|
- | (1 | ) | (15 | ) | |||||||
Undistributed
share of earnings of subsidiaries
|
(28,833 | ) | (17,402 | ) | (29,383 | ) | ||||||
Realized
gain (loss)
|
(313 | ) | 1,056 | (508 | ) | |||||||
Change
in accounts receivable
|
- | - | 184 | |||||||||
Change
in current federal income tax payable
|
5,138 | 2,693 | 2,644 | |||||||||
Change
in all other liabilities
|
2,557 | 193 | (5,475 | ) | ||||||||
Change
in all other assets
|
2,406 | 381 | 209 | |||||||||
Net
cash provided by (used in) operating activities
|
6,090 | (124 | ) | (3,825 | ) | |||||||
Cash
flows from investing activities:
|
||||||||||||
Purchases
of property and equipment
|
(22 | ) | (60 | ) | (50 | ) | ||||||
Acquisition
of subsidiaries
|
- | (15,000 | ) | - | ||||||||
Change
in restricted cash
|
- | 10,644 | 10,218 | |||||||||
Purchase
of fixed maturity and equity securities
|
(10,957 | ) | (84,870 | ) | (60,580 | ) | ||||||
Maturities
and redemptions of investment securities
|
12,651 | 91,985 | 55,453 | |||||||||
Net
cash provided by investing activities
|
1,672 | 2,699 | 5,041 | |||||||||
Cash
flows from financing activities:
|
||||||||||||
Proceeds
from exercise of employee stock options
|
115 | 219 | - | |||||||||
Proceeds
from borrowings
|
- | - | 25,774 | |||||||||
Debt
issuance costs
|
- | - | (674 | ) | ||||||||
Purchase
of treasury shares
|
(5,250 | ) | - | - | ||||||||
Repayment
of borrowings
|
(318 | ) | (9,683 | ) | (15,000 | ) | ||||||
Net
cash (used in) provided by financing activities
|
(5,453 | ) | (9,464 | ) | 10,100 | |||||||
Increase
(Decrease) in cash and cash equivalents
|
2,309 | (6,889 | ) | 11,316 | ||||||||
Cash
and cash equivalents at beginning of year
|
7,337 | 14,226 | 2,910 | |||||||||
Cash
and cash equivalents at end of year
|
$ | 9,646 | $ | 7,337 | $ | 14,226 | ||||||
Supplemental
cash flow information:
|
||||||||||||
Interest
paid
|
$ | (4,612 | ) | $ | (4,662 | ) | $ | (3,250 | ) | |||
Income
taxes recovered
|
$ | 6,860 | $ | 4,242 | $ | 2,957 |
Column A
|
Column B
|
Column C
|
Column D
|
Column E
|
Column F
|
Column G
|
Column H
|
Column I
|
Column J
|
Column K
|
||||||||||||||||||||||||||||||
Future
|
||||||||||||||||||||||||||||||||||||||||
Policy
|
||||||||||||||||||||||||||||||||||||||||
Benefits,
|
||||||||||||||||||||||||||||||||||||||||
Losses,
|
Other
|
Amortization
|
||||||||||||||||||||||||||||||||||||||
Deferred
|
Claims
and
|
Policy
|
Benefits,
|
of Deferred
|
||||||||||||||||||||||||||||||||||||
Policy
|
Loss
|
Claims
|
Net
|
Claims, Losses
|
Policy
|
Other
|
Net
|
|||||||||||||||||||||||||||||||||
Acquisition
|
Adjustment
|
Unearned
|
and Benefits
|
Premium
|
Investment
|
and Settlement
|
Acquisition
|
Operating
|
Premiums
|
|||||||||||||||||||||||||||||||
Segment
|
Cost
|
Expenses
|
Premiums
|
Payable
|
Revenue
|
Income
|
Expenses
|
Costs
|
Expenses
|
Written
|
||||||||||||||||||||||||||||||
2009
|
||||||||||||||||||||||||||||||||||||||||
Personal
Segment
|
$ | 3,760 | $ | 24,808 | $ | 17,001 | $ | - | $ | 67,512 | $ | 1,809 | $ | 43,794 | $ | 15,027 | $ | 19,915 | $ | 71,708 | ||||||||||||||||||||
Standard
Commercial Segment
|
6,532 | 79,429 | 35,098 | - | 71,290 | 5,009 | 44,372 | 14,456 | 22,196 | 68,082 | ||||||||||||||||||||||||||||||
Specialty
Commercial Segment
|
10,500 | 80,425 | 72,990 | - | 112,270 | 5,907 | 65,453 | 22,848 | 43,143 | 121,950 | ||||||||||||||||||||||||||||||
Corporate
|
- | - | - | - | - | 2,222 | - | - | 8,246 | - | ||||||||||||||||||||||||||||||
Consolidated
|
$ | 20,792 | $ | 184,662 | $ | 125,089 | $ | - | $ | 251,072 | $ | 14,947 | $ | 153,619 | $ | 52,331 | $ | 93,500 | $ | 261,740 | ||||||||||||||||||||
2008
|
||||||||||||||||||||||||||||||||||||||||
Personal
Segment
|
$ | 2,826 | $ | 22,621 | $ | 12,806 | $ | - | $ | 59,019 | $ | 1,699 | $ | 39,042 | $ | 12,711 | $ | 16,836 | $ | 60,834 | ||||||||||||||||||||
Standard
Commercial Segment
|
7,169 | 77,407 | 38,257 | - | 79,795 | 5,599 | 49,270 | 22,917 | 24,244 | 75,361 | ||||||||||||||||||||||||||||||
Specialty
Commercial Segment
|
9,529 | 56,335 | 51,129 | - | 97,506 | 5,232 | 55,933 | 19,520 | 48,247 | 98,732 | ||||||||||||||||||||||||||||||
Corporate
|
- | - | - | - | - | 3,519 | (1 | ) | - | 6,537 | - | |||||||||||||||||||||||||||||
Consolidated
|
$ | 19,524 | $ | 156,363 | $ | 102,192 | $ | - | $ | 236,320 | $ | 16,049 | $ | 144,244 | $ | 55,148 | $ | 95,864 | $ | 234,927 | ||||||||||||||||||||
2007
|
||||||||||||||||||||||||||||||||||||||||
Personal
Segment
|
$ | 2,436 | $ | 19,939 | $ | 10,991 | $ | - | $ | 53,505 | $ | 1,717 | $ | 35,969 | $ | 11,459 | $ | 15,291 | $ | 55,916 | ||||||||||||||||||||
Standard
Commercial Segment
|
8,019 | 81,417 | 42,664 | - | 83,755 | 5,304 | 48,480 | 23,006 | 25,869 | 84,595 | ||||||||||||||||||||||||||||||
Specialty
Commercial Segment
|
9,302 | 23,981 | 49,343 | - | 88,711 | 4,911 | 48,484 | 20,642 | 49,128 | 98,300 | ||||||||||||||||||||||||||||||
Corporate
|
- | 1 | - | - | - | 1,248 | (15 | ) | - | 6,596 | - | |||||||||||||||||||||||||||||
Consolidated
|
$ | 19,757 | $ | 125,338 | $ | 102,998 | $ | - | $ | 225,971 | $ | 13,180 | $ | 132,918 | $ | 55,107 | $ | 96,884 | $ | 238,811 |
Column A
|
Column B
|
Column C
|
Column D
|
Column E
|
Column F
|
|||||||||||||||
Percentage
|
||||||||||||||||||||
Ceded to
|
Assumed
|
of Amount
|
||||||||||||||||||
Gross
|
Other
|
From Other
|
Net
|
Assumed to
|
||||||||||||||||
Amount
|
Companies
|
Companies
|
Amount
|
Net
|
||||||||||||||||
Year Ended December 31,
2009
|
||||||||||||||||||||
Life
insurance in force
|
$ | - | $ | - | $ | - | $ | - | ||||||||||||
Premiums
|
||||||||||||||||||||
Life
insurance
|
$ | $ | $ | $ | ||||||||||||||||
Accident
and health insurance
|
- | - | - | - | ||||||||||||||||
Property
and liability insurance
|
185,727 | 18,402 | 83,747 | 251,072 | 33.4 | % | ||||||||||||||
Title
Insurance
|
- | - | - | - | ||||||||||||||||
Total
premiums
|
$ | 185,727 | $ | 18,402 | $ | 83,747 | $ | 251,072 | 33.4 | % | ||||||||||
Year Ended December 31,
2008
|
||||||||||||||||||||
Life
insurance in force
|
$ | - | $ | - | $ | - | $ | - | ||||||||||||
Premiums
|
||||||||||||||||||||
Life
insurance
|
$ | $ | $ | $ | ||||||||||||||||
Accident
and health insurance
|
- | - | - | - | ||||||||||||||||
Property
and liability insurance
|
155,616 | 8,336 | 89,040 | 236,320 | 37.7 | % | ||||||||||||||
Title
Insurance
|
- | - | - | - | ||||||||||||||||
Total
premiums
|
$ | 155,616 | $ | 8,336 | $ | 89,040 | $ | 236,320 | 37.7 | % | ||||||||||
Year Ended December 31,
2007
|
||||||||||||||||||||
Life
insurance in force
|
$ | - | $ | - | $ | - | $ | - | ||||||||||||
Premiums
|
||||||||||||||||||||
Life
insurance
|
$ | $ | $ | $ | ||||||||||||||||
Accident
and health insurance
|
- | - | - | - | ||||||||||||||||
Property
and liability insurance
|
151,276 | 12,109 | 86,804 | 225,971 | 38.4 | % | ||||||||||||||
Title
Insurance
|
- | - | - | - | ||||||||||||||||
Total
premiums
|
$ | 151,276 | $ | 12,109 | $ | 86,804 | $ | 225,971 | 38.4 | % |
Column A
|
Column B
|
Column C
|
Column D
|
Column E
|
Column F
|
Column G
|
Column H
|
Column I
|
Column J
|
Column K
|
||||||||||||||||||||||||||||||||||
Reserves
|
|
Claims and Claim
|
|
|
||||||||||||||||||||||||||||||||||||||||
|
for Unpaid
|
Discount
|
Adjustment
|
Amortization
|
Paid
|
|||||||||||||||||||||||||||||||||||||||
|
Deferred
|
Claims and
|
if any,
|
|
Expenses Incurred Related to
|
of Deferred
|
Claims and
|
|||||||||||||||||||||||||||||||||||||
Affiliation
|
Policy
|
Claim
|
Deducted
|
|
|
Net
|
(1)
|
(2)
|
Policy
|
Claims
|
|
|||||||||||||||||||||||||||||||||
With
|
Acquisition
|
Adjustment
|
In
|
Unearned
|
Earned
|
Investment
|
Current
|
Prior
|
Acquisition
|
Adjustment
|
Premiums
|
|||||||||||||||||||||||||||||||||
Registrant
|
Costs
|
Expenses
|
Column C
|
Premiums
|
Premiums
|
Income
|
Year
|
Years
|
Costs
|
Expenses
|
Written
|
|||||||||||||||||||||||||||||||||
(a)
Consolidated property-casualty Entities
|
||||||||||||||||||||||||||||||||||||||||||||
2009
|
$ | 20,792 | $ | 184,662 | $ | - | $ | 125,089 | $ | 251,072 | $ | 14,947 | $ | 151,999 | $ | 1,620 | $ | 52,331 | $ | 127,394 | $ | 261,740 | ||||||||||||||||||||||
2008
|
$ | 19,524 | $ | 156,363 | $ | - | $ | 102,192 | $ | 236,320 | $ | 16,049 | $ | 146,059 | $ | (1,815 | ) | $ | 55,148 | $ | 115,068 | $ | 234,927 | |||||||||||||||||||||
2007
|
$ | 19,757 | $ | 125,338 | $ | - | $ | 102,998 | $ | 225,971 | $ | 13,180 | $ | 139,332 | $ | (6,414 | ) | $ | 55,107 | $ | 84,870 | $ | 238,811 |