Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
---------------- ----------------
Commission file number 1-11238.
NYMAGIC, INC.
(Exact name of registrant as specified in its charter)
New York 13-3534162
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
330 Madison Avenue, New York, NY 10017
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 551-0600
--------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of each exchange on which registered:
Common Stock, $1.00 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Rule 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of 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. [ ]
The aggregate market value of voting stock held by non-affiliates of the
registrant, as of March 1, 2000, was approximately $48,740,688.
The number of shares outstanding of each of the registrant's classes of common
stock, as of March 1, 2000, was 9,422,952 shares of common stock, $1.00 par
value.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for the 2000 Annual Meeting of
Shareholders are incorporated by reference in Part III.
1
Part I
ITEM 1. BUSINESS.
General
- -------
NYMAGIC, INC., a New York corporation (the "Company" or "NYMAGIC"), is
a holding company which owns and operates the following insurance companies,
risk bearing entities and insurance underwriters and managers:
Insurance Companies and Lloyd's Corporate Capital Vehicle:
---------------------------------------------------------
New York Marine And General Insurance Company - ("New York Marine")
Gotham Insurance Company - ("Gotham")
MMO UK, Ltd.
MMO EU, Ltd.
Insurance Underwriters and Managers:
-----------------------------------
Mutual Marine Office, Inc. - ("MMO")
Pacific Mutual Marine Office, Inc. - ("PMMO")
Mutual Marine Office of the Midwest, Inc. - ("Midwest")
MMO Underwriting Agency, Ltd.
New York Marine and Gotham each maintains an A.M. Best insurance rating
of A.
The Company specializes in underwriting ocean marine, inland marine,
aviation and other liability insurance through insurance pools managed by MMO,
PMMO, and Midwest (collectively referred to as "MMO and affiliates") since 1964.
In addition to managing the insurance pools, the Company participates in the
risks underwritten for the pools through New York Marine and Gotham. All
premiums, losses and expenses are pro-rated among pool members in accordance
with their pool participation percentages.
On December 31, 1997, the Company acquired ownership of Highgate
Managing Agencies, Ltd. which subsequently was renamed to MMO Underwriting
Agency, Ltd. MMO Underwriting Agency Ltd. is a Lloyd's managing agency which
commenced underwriting in 1998 for the Company's wholly owned subsidiary MMO UK,
Ltd. which is a Lloyd's corporate capital vehicle providing 100% of the capital
for Syndicate 1265 (collectively referred to as "Syndicate 1265"). In 1997, The
Company formed MMO EU, Ltd. as a holding Company for MMO UK, Ltd.
This report contains certain forward-looking statements concerning the
Company's operations, economic performance and financial condition, including,
in particular the likelihood of the Company's success in developing and
expanding its business. These statements are based upon a number of assumptions
and estimates which are inherently subject to significant uncertainties and
contingencies, many of which are beyond the control of the Company, and reflect
future business decisions which are subject to change. Some of these assumptions
inevitably will not materialize, and unanticipated events will occur which will
affect the Company's results.
Such statements are made under the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995. These statements may include,
but are not limited to, projections of premium revenue, investment income, other
revenue, losses, expenses, earnings, cash flows, plans for future operations,
common stockholders' equity, investments, capital plans, dividends, plans
relating to products or services, adequacy of Asbestos/Pollution reserves,
collectability of receivables from Equitas and estimates concerning the effects
of litigation or other disputes, as well as assumptions of any of the foregoing
and are generally expressed with words such as "believes," "estimates,"
"expects," "anticipates," "plans," "projects," "forecasts," "goals," "could
have," "may have" and similar expressions.
The Pools
- ---------
MMO, located in New York, PMMO, located in San Francisco and Midwest,
located in Chicago (the "Manager" or the "Managers"), manage the insurance pools
in which the Company participates.
2
The Manager accepts, on behalf of the pools, insurance risks brought to
the pools by brokers and others. All premiums, losses and expenses are prorated
among the pool members in accordance with their percentage participations in the
pools. Pursuant to the pool management agreements, the pool members have agreed
not to accept ocean marine insurance (other than ocean marine reinsurance)
unless received through the Manager and have authorized the Manager to accept
risks on behalf of the pool members and to effect all transactions in connection
with such risks, including the issuance of policies and endorsements and the
adjustment of claims. As compensation for its services, the Manager receives a
fee of 5.5% of gross premiums written by the pools and a contingent commission
of 10% on net underwriting profits, subject to adjustment.
Inception to date underwriting results for various reinsurance treaties
are used to calculate reinsurance contingent commissions on an earned basis in
the period in which the related profit commission is billed. Adjustments to
commissions, resulting from revisions in coverage, retroactive or audit
adjustments, are recorded in the period when realized. Subject to review by the
reinsurers, the Managers determine the profitability of all contingent
commission agreements placed with various reinsurance companies.
The Company's participation in the business underwritten for the pools
by the Manager has increased over the years and, since January 1, 1997, the
Company has had a 100% participation in all lines of business produced by the
pools.
Two former pool members, Utica Mutual Insurance Company ("Utica
Mutual") and Arkwright Mutual Insurance Company ("Arkwright") withdrew from the
pools and retained liability for their effective pool participation for all loss
reserves, including IBNR (incurred but not reported) and unearned premium
reserves, incurred on policies effective prior to their withdrawal from the
pools.
The Company is not aware of any uncertainties with respect to any
possible defaults by either Arkwright or Utica Mutual with respect to their pool
obligations which might impact liquidity or results of operations of the
Company.
Assets and liabilities resulting from the insurance pools are allocated
to the members of the insurance pools based upon the pro-rata participation of
each member in each pool which is set forth in the management agreement entered
into by and between the pool participants and the Managers.
Investment Policy
- -----------------
The Company follows an investment policy which is reviewed quarterly
and revised periodically.
The investment policy for New York Marine as of December 31, 1999 was
as follows:
1. LIQUID FUNDS - MINIMUM 7-1/2% OF INVESTABLE FUNDS. In cash,
certificates of deposit, prime bankers acceptances, prime
commercial paper, tax-exempts rated Aa3/AA- or MIG 2 or
better, tax-exempts rated Aa3 or AA- by one service and
unrated by the other, not to exceed $5,000,000 par value in
any one institution; obligations of the U.S. Government and
its agencies due in one year or less; tax-exempt notes with a
split A1/AA- or Aa3/A+ rating not to exceed $500,000 in any
one institution.
3
2. BOND FUNDS
A) Tax-exempt securities and obligations of private
corporations rated A3/A- or better by each service
which provides a rating, not to exceed $5,000,000
maturity value per issuing entity; maturities not to
exceed December 31 of the 20th year from the purchase
date, to include:
1) Pollution - control bonds guaranteed by
industrial corporations rated A3/A- or
better.
2) Pre-refunded bonds.
3) Housing issues sponsored by the U.S.
Government and its agencies secured by
underlying mortgage securities with
maturities not in excess of 30 years and
average maturities not in excess of 20
years.
B) Preferred stocks with sinking funds, rated A3/A- or
better, limited to $500,000 par value per issuer for
new issues; to $500,000 purchase price for
outstanding issues.
C) Obligations of the U.S. Government and its agencies.
3. EQUITY FUNDS
A) Equities (including convertible securities) - Not
more than 25% of policyholders' surplus, and
investment in any one institution not to exceed five
percent (5%) of policyholders' surplus at the time of
purchase as last reported to the New York State
Insurance Department.
B) Subsidiaries - New York Marine's investments in
subsidiary companies are excluded from the
requirements of the New York Marine's Investment
Program.
The investment policy of Gotham is similar to that of New York Marine
except that Gotham is limited to $2,000,000 maturity value for its bond
investments and $1,000,000 for short-term investments in any one institution for
liquid funds.
The investments of the Company's subsidiaries must also conform to the
requirements contained in the New York State Insurance Law and Regulations.
The Company's investments are monitored by management and the Finance
Committee of the Board of Directors. New York Marine's fixed income portfolio is
managed by J.P. Morgan Investment Management, Inc. ("JPMIM"). New York Marine's
equity portfolio is managed, in part, by JPMIM and, in part, by Groupama Asset
Management. Gotham has its fixed income portfolio managed by JPMIM and its
equity portfolio managed by Rorer Asset Management. The Company's U.K.
operations investments are managed by Aberdeen Asset Managers Ltd. See
"Subsidiaries".
As of December 31, 1999, the Company's fixed maturities and equity
securities were invested as follows:
New York Marine Gotham Syndicate 1265
--------------- ------ --------------
(In thousands)
Bonds Rated A- or better $221,611 $69,023 $6,659
Equities $ 52,729 $18,953 -0-
Segments
--------
The Company conducts its business operations and evaluates its overall
performance through three main segments: domestic insurance companies, domestic
insurance agencies and Syndicate 1265.
4
The domestic insurance companies segment, which includes New York
Marine and Gotham, underwrite insurance business by accepting risks generally
through insurance brokers. The domestic insurance companies engage in business
in all 50 states as well as accept business risks in such world-wide regions as
Europe, Asia, and Latin America. See "Regulation."
The domestic insurance agencies segment, which includes MMO, PMMO and
Midwest, underwrite all the business for the domestic insurance companies.
Revenues from this segment include contingent commissions from reinsurance
transactions and intercompany management commissions which are eliminated on a
consolidated basis. Expenses include general and administrative expenses.
Syndicate 1265 segment includes the Company's Lloyd's of London agency
and insurance operations. Syndicate 1265 underwrites insurance business by
accepting risks generally through insurance brokers under worldwide licenses
provided by Lloyd's.
Business obtained through the domestic insurance companies and
agencies segments includes the underwriting of ocean marine, inland marine,
aircraft and non-marine liability lines of insurance. Ocean marine insurance
covers a broad range of classes, including marine hull, primary and excess
marine liabilities, drilling rig, marine cargo, war risks and assumed
reinsurance. Inland marine insurance includes, among other things, differences
in condition ("DIC"), excess property packages, miscellaneous property
insurance, inland cargo shipments and assumed reinsurance. DIC insurance covers
those perils not included with a fire and extended coverage policy, including
burglary, collapse, flood, volcano and earthquake. Aircraft insurance includes
hull and engine insurance, liability insurance as well as products liability
insurance. Non-marine liability insurance includes, among other things, umbrella
(excess casualty) insurance, and excess and surplus line risks written primarily
through Gotham.
Business obtained through Syndicate 1265 includes the underwriting of
ocean marine insurance which includes coverage for hull, cargo, energy, war
risks, marine liability, and marine excess of loss risks.
The following tables set forth the pools' gross and net written
premiums including business from Syndicate 1265. Insurance premiums written on a
calendar year basis may be attributable to various policy years. Therefore, the
Company's gross and net written premiums cannot be obtained by multiplying the
amounts below by the Company's percentage participation in each year since some
of the calendar year premiums written may arise from policies incepting in 1996
and prior when the Company had a different participation in the pools. However,
the tables below, which set forth calendar year premiums, do reflect the size
and mix of business produced by the Managers for the years so indicated.
Gross Premiums Written by
Line of Business Year Ended December 31,
- ------------------------- -----------------------
1999 1998 1997
---- ---- ----
(In thousands)
Ocean marine (a) ............................... $ 71,018 60% $ 78,768 60% $ 72,995 59%
Inland marine ................................... 739 -- 1,321 1% 1,117 1%
Aircraft ........................................ 44,571 38% 36,594 28% 45,853 37%
Other liability ................................. 2,084 2% 3,176 2% 3,897 3%
Other ........................................... 6 -- 12,337 9% 207 --
--------- --------- --------- --------- --------- ---------
Total ........................................... $ 118,418 100% $ 132,196 100% $ 124,069 100%
Net Premiums Written by
Line of Business Year Ended December 31,
- ----------------------- -----------------------
1999 1998 1997
---- ---- ----
(In thousands)
Ocean marine (b) ............................... $ 49,176 87% $ 58,800 82% $ 49,666 79%
Inland marine ................................... 255 -- (355) -- (217) --
Aircraft ........................................ 5,114 9% (55) -- 9,568 15%
Other liability ................................. 2,046 4% 2,977 4% 3,864 6%
Other ........................................... (25) -- 10,587 14% 207 --
--------- --------- --------- --------- --------- ---------
Total ........................................... $ 56,566 100% $ 71,954 100% $ 63,088 100%
(a) Includes gross premiums written from Syndicate 1265 of $23,273 and $17,817
for 1999 and 1998, respectively.
(b) Includes net premiums written from Syndicate 1265 of $17,365 and $16,832
for 1999 and 1998, respectively.
5
Reinsurance Ceded
- -----------------
A reinsurance transaction takes place when an insurance company
transfers (cedes) a portion or all of its exposure on insurance written by it to
another insurer. The reinsurer assumes the exposure in return for a portion or
all of the premium. The ceding of reinsurance does not legally discharge the
insurer from its primary liability for the full amount of the policies, and the
ceding company is required to pay the loss if the assuming company fails to meet
its obligations under the reinsurance agreement. The Company, through the pools,
cedes the greater part of its reinsurance through annual reinsurance agreements
(treaties) with other insurance companies. These treaties, which are drawn by
lines or classes of insurance, allow the Company to automatically reinsure risks
without having to cede insurance on a risk by risk (facultative) basis, although
facultative reinsurance is utilized on occasion.
Generally, the Managers place reinsurance with companies which have an
A.M. Best rating of A- or greater or which have sufficient financial strength,
in management's opinion, to warrant being used for reinsurance protections. The
Managers also examine financial statements of reinsurers and review such
statements for profitability, reasonable leverage and adequate surplus. In
addition, the Company, through the pools, withholds funds and may obtain letters
of credit under reinsurance treaties. The Company continues to monitor the
financial status of all reinsurers on an annual basis, as well as the timely
receipt of cash, to assess the ability of reinsurers to pay reinsurance claims.
The Company, through the pools, attempts to limit its exposure from
losses on any one occurrence through the use of various excess of loss, quota
share and facultative reinsurance arrangements and to minimize the risk of
default by a reinsurer by reinsuring risks with many different reinsurers. The
Company utilizes many separate reinsurance treaties each year with a range of 8
to 20 reinsurers participating on each treaty. Many reinsurers participate on
multiple treaties. The Company utilizes quota share reinsurance treaties in
which the reinsurers participate on a set proportional basis in both the
premiums and losses. Additionally, the Company utilizes excess of loss
reinsurance treaties in which the reinsurers, in exchange for a minimum premium,
subject to upward adjustment based upon premium volume, agree to pay for that
part of each loss in excess of an agreed upon amount. The Company's retention of
exposure, net of these treaties, varies between its different classes of
business and from year to year, depending on several factors including the
pricing environment on both the direct and ceded book of business and the
availability of reinsurance. In general, reinsurance is obtained for each line
of business when necessary to reduce the Company's exposure to a maximum of $2
million for any one insured on any one occurrence. The Company can and does,
from time to time, carry a maximum exposure in excess of $2 million for any one
insured on any one occurrence. Such instances, when they occur, generally
reflect a business decision regarding the cost of further reductions in the
Company's exposure and/or the availability of reinsurance. In 2000, the
Company's net retention in its aviation line of business may, in certain
instances, increase to $3 million per occurrence. The Company is currently
evaluating and negotiating reinsurance proposals to lower the aviation net
retention. However, no assurance can be given as to the ultimate outcome of such
negotiations.
The Company attempts to limit its exposure from catastrophes through
the purchase of general excess of loss reinsurance which provides coverage in
the event that multiple insureds incur losses arising from the same occurrence.
These coverages require the Company to pay a minimum premium, subject to upward
adjustment based upon premium volume. The treaties, which extend in general for
a twelve month period, obligate the reinsurers to pay for the portion of the
Company's aggregate losses (net of specific reinsurance) which fall within each
treaty's layer or exposure. The Company's retention on any one occurrence, after
it obtains the benefit of its excess of loss reinsurance, has not exceeded $2
million during the past three years. In the event of a loss, the Company may
incur additional reinstatement premium charges for its excess of loss
reinsurance, to the extent that such treaties incur a portion of the loss and in
an amount not greater than the original cost of the reinsurance. Every effort is
made to purchase sufficient reinsurance coverage to protect the Company against
the cumulative impact of several losses arising from a single occurrence, but
there is no guarantee that such limits will prove sufficient.
6
The Company reinsures risks with several domestic and foreign
reinsurers as well as syndicates including Lloyd's of London ("Lloyd's"). The
Company's consolidated domestic insurance companies' largest reinsurers, on a
statutory basis as of December 31, 1999, were Arkwright, Lloyd's and Utica
Mutual, with aggregate net recoverables of $42 million, $23 million and $16
million, respectively. The 1999 A.M. Best ratings for Arkwright and Utica Mutual
are each A. Lloyd's maintains a trust fund which was established for the benefit
of all United States ceding companies. For the three most recent years for which
Lloyd's has reported results, 1996, 1995 and 1994, Lloyd's reported gains for
each of those years. The Company has not experienced difficulties in collecting
amounts due from Lloyd's and the timing of cash receipts has not materially
affected the Company's liquidity. However, given the uncertainty surrounding the
sufficiency of assets in Equitas to meet its ultimate obligations, there is a
reasonable possibility that the Company's collection efforts relating to its
Lloyd's recoverables might be adversely affected in the future. At December 31,
1999, the Company's net exposure to reinsurers, other than Arkwright, Lloyd's
and Utica Mutual, was approximately $153 million, including amounts recoverable
for paid losses, outstanding losses, IBNR and unearned premium reserves. This
amount is recoverable collectively from approximately 830 reinsurers or
syndicates, no single one of which was liable to the Company for an unsecured
amount in excess of approximately $5.8 million.
Reserves
- --------
The applicable insurance laws under which the Company operates require
that reserves be maintained for the payment of losses and loss adjustment
expenses with respect to both reported and IBNR claims under its insurance
policies. IBNR claims are those losses, based upon historical experience and
other relevant data, that the Company estimates will be reported or ultimately
develop on risks undertaken by the Company. Case loss reserves are determined by
evaluating reported claims on the basis of the type of loss involved, knowledge
of the circumstances surrounding the claim, and the policy provisions relating
to the type of loss. IBNR claims are estimated on the basis of statistical
information with respect to the probable number and nature of claims arising
from occurrences which have not yet been reported. The establishment of reserves
acts to reduce income while the downward adjustment or reduction of reserves
increases income.
7
The loss settlement period on insurance claims may be many years and
during this period it often becomes necessary to adjust the estimate of
liability on a claim either upward or downward. Among the classes of marine,
aviation and non-marine liability insurance written by the Company are liability
classes which historically have had long lead times between occurrence of an
insurable event, reporting of the claim to the Company and final settlement. In
such cases, the Company is forced to estimate reserves over long periods of
time, with the possibility of several adjustments. Other classes of insurance,
such as property and claims-made non-marine liability classes, historically have
had shorter lead times between occurrence of an insurable event, reporting of
the claim to the Company and final settlement. The reserves with respect to such
classes are less likely to be readjusted.
The Company, from time to time, has increased its participation in the
pools. The effect of each such increase is prospective in nature and does not
affect the loss reserves herein set forth for the years prior to the effective
date of any such change in participation percentage.
The insurance pools participated in the issuance of umbrella casualty
insurance for various Fortune 1000 companies in the period from 1978 to 1983.
Depending on the accident year, the insurance pools' maximum retention per
occurrence ranged from $250,000 to $500,000. The Company's effective pool
participation on such risks varied from 11% in 1978 to 30% in 1983. At December
31, 1999 and 1998, the Company's gross, ceded and net loss and loss adjustment
expense reserves for Asbestos/Pollution policies amounted to $27.8 million,
$18.1 million and $9.7 million, and $24.3 million, $15.3 million and $9.0
million, respectively. As of December 31, 1999, the Company had approximately
355 policies which had at least one claim relating to Asbestos/Pollution
exposures. The Company believes that the uncertainty surrounding
Asbestos/Pollution exposures, including issues as to insureds' liabilities,
ascertainment of loss date, definitions of occurrence, scope of coverage, policy
limits and application and interpretation of policy terms, including exclusions,
all affect the estimation of ultimate losses. Under such circumstances, it is
difficult to determine the ultimate loss for Asbestos/Pollution related claims.
Given the uncertainty in this area, losses from Asbestos/Pollution related
claims may develop adversely. However, the Company believes that, in aggregate,
the net unpaid loss and loss adjustment expense reserves as of December 31,
1999, allow for an adequate provision and that the ultimate resolution of the
Asbestos/Pollution claims will not have a material impact on the Company's
financial position.
The following table sets forth NYMAGIC's net case reserve experience
for Asbestos/Pollution policies for each of the past three years:
1999 1998 1997
------- ------- -------
(In thousands)
Asbestos
Case reserves at beginning of period ......................... $ 802 $ 1,067 $ 1,103
Incurred loss and loss adjustment expenses ................... 986 (27) 52
Payments ..................................................... (194) (238) (88)
------- ------- -------
Case reserves at end of period ............................... $ 1,594 $ 802 $ 1,067
======= ======= =======
1999 1998 1997
------- ------- -------
(In thousands)
Pollution
Case reserves at beginning of period ......................... $ 1,155 $ 1,417 $ 2,323
Incurred loss and loss adjustment expenses ................... 503 351 (486)
Payments ..................................................... (615) (613) (420)
------- ------- -------
Case reserves at end of period ............................... $ 1,043 $ 1,155 $ 1,417
======= ======= =======
8
The following table sets forth NYMAGIC's net loss and loss adjustment
expense experience for Asbestos/Pollution policies for each of the past three
years:
1999 1998 1997
-------- -------- --------
(In thousands)
Asbestos/Pollution
Unpaid loss and loss adjustment expenses
(Including IBNR) at beginning of period ..................... $ 9,017 $ 9,029 $ 8,500
Incurred loss and loss adjustment expenses ................... 1,489 839 1,037
Payments ..................................................... (809) (851) (508)
-------- -------- --------
Unpaid loss and loss adjustment expenses
(Including IBNR) at end of period ........................... $ 9,697 $ 9,017 $ 9,029
======== ======== ========
The loss and loss adjustment payments related to the Company's
Asbestos/Pollution exposures have not been material in relation to the Company's
total loss and loss adjustment expense payments as shown in the table below:
1999 1998 1997
-------- -------- --------
(In thousands)
Total loss and loss adjustment expense
payments for the year ended December 31, .................... $ 53,379 $ 58,983 $ 55,483
Asbestos/Pollution loss and loss adjustment expense
payments for the year ended December 31, .................... 809 851 508
The insurance pools have written primary insurance relating to products
liability since 1985. The insurance pools' maximum loss per risk is generally
limited to $1,000,000 and the Company's participation percentage ranges from 59%
to 100% based upon policy year. The Company believes that, based upon the
maximum amount per risk and the Company's conservative reserving posture, the
reserves currently established are adequate to cover the ultimate resolution of
all product liability claims.
The following table shows changes in reserves in subsequent years from
the prior loss estimates based upon experience as of the end of each succeeding
year. The estimate is increased or decreased as more information becomes known
about the frequency and severity of losses for individual years. A redundancy
means the original estimate of the Company's consolidated liability was higher
than the current estimate; a deficiency means that the current estimate is
higher than the original estimate.
The first line of the table presents, for each of the last ten years,
the estimated liability for net unpaid losses and loss adjustment expenses at
the end of the year, including IBNR losses. The first section of the table
shows, by year, the cumulative amounts of net losses and loss adjustment
expenses paid as of the end of each succeeding year, expressed as a percentage
of the estimated liability for such amounts.
The second section sets forth the re-estimates in later years of net
incurred losses, including net payments, as a percentage of the estimate for the
years indicated. The net cumulative redundancy represents as of December 31,
1999, the aggregate change in the estimates over all prior years. The
redundancies have been reflected in income over the periods shown.
9
Year Ended December 31,
--------------------------------------------------------------------------------------------------------
1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
(Dollars in thousands)
Estimated Liability
for Net Unpaid Losses
and Loss Adjustment
Expenses 138,920 156,533 170,744 203,735 208,366 212,377 229,916 227,370 222,335 213,589 196,865
Cumulative Amount of
Net Liability Paid
As a Percentage of
Estimate Through:
1 Year Later 17% 18% 19% 20% 22% 20% 20% 17% 19% 20%
2 Years Later 32% 36% 37% 37% 37% 34% 32% 30% 32%
3 Years Later 46% 49% 52% 48% 49% 44% 42% 42%
4 Years Later 57% 62% 61% 58% 57% 53% 51%
5 Years Later 66% 69% 69% 64% 64% 62%
6 Years Later 72% 75% 74% 70% 71%
7 Years Later 75% 78% 78% 76%
8 Years Later 77% 81% 84%
9 Years Later 79% 85%
10 Years Later 82%
Net Liability Reestimated
including Cumulative
Net Paid Losses and
Loss Adjustment Expenses
As a Percentage of
Estimate As of:
1 Year Later 96% 100% 99% 99% 99% 97% 94% 90% 91% 94%
2 Years Later 98% 100% 99% 97% 96% 95% 87% 87% 87%
3 Years Later 96% 98% 99% 95% 95% 91% 86% 85%
4 Years Later 94% 98% 97% 95% 93% 91% 86%
5 Years Later 91% 96% 98% 94% 94% 92%
6 Years Later 90% 96% 96% 95% 95%
7 Years Later 91% 95% 97% 96%
8 Years Later 90% 97% 99%
9 Years Later 92% 98%
10 Years Later 93%
Net Cumulative Redundancy 9,082 2,766 2,316 8,396 10,424 16,383 32,327 33,657 28,257 12,183
Gross Unpaid Losses and Loss Adjustment Expenses 407,321 $435,072 $417,795 $411,837 $388,402 $401,584 $425,469
Reinsurance Recoverable on Unpaid Losses and Loss 198,955 222,695 187,879 184,467 166,067 187,995 228,604
Adjustment Expenses
Reserve Re-estimated Gross 382,155 404,954 392,348 366,149 393,044 426,369
Reserve Re-estimated Reinsurance Recoverable 188,331 212,722 193,401 160,653 190,175 224,963
Gross Cumulative Redundancy (Deficiency) 25,166 30,118 25,447 45,688 -4,643 -24,785
10
The Company makes no specific provision for inflation in connection
with reserve estimates, but does each year consider the adjustment of
outstanding case reserves and current inflationary indices in determining the
adequacy of the overall loss reserve. The Company monitors historical loss
payments to determine the sufficiency of this provision.
The following table provides a reconciliation of the consolidated
liability for losses and loss adjustment expenses at the beginning and end of
1999, 1998 and 1997:
Year ended December 31,
1999 1998 1997
-------- -------- --------
(In thousands)
Net liability for losses and loss adjustment
expenses at beginning of year .......................... $213,589 $222,335 $227,370
-------- -------- --------
Provision for losses and loss adjustment
expenses occurring in current year ..................... 48,838 69,703 72,322
Decrease in estimated losses and loss
adjustment expenses for claims occurring
in prior years (1) ..................................... (12,183) (19,466) (21,874)
Deferred income-loss portfolio
assumption(2) .......................................... 198 275 320
-------- -------- --------
Total losses and loss adjustment expenses
incurred ............................................... 36,853 50,512 50,768
-------- -------- --------
Less:
Losses and loss adjustment expense payments
for claims occurring during:
current year ....................................... 11,517 17,407 17,029
prior years ........................................ 41,862 41,576 38,454
-------- -------- --------
53,379 58,983 55,483
Plus:
Deferred income-loss portfolio assumption(2) ............. (198) (275) (320)
-------- -------- --------
Net liability for losses and loss adjustment
expenses at year end ................................... 196,865 213,589 222,335
-------- -------- --------
Ceded unpaid losses and loss adjustment
expenses ............................................... 228,604 187,995 166,067
-------- -------- --------
Gross unpaid losses and loss adjustment
expenses at year end ................................... $425,469 $401,584 $388,402
======== ======== ========
(1) The adjustment to the consolidated liability for losses and loss
adjustment expenses for losses occurring in prior years reflects the net effect
of the resolution of losses for other than full reserve value and subsequent
readjustments of loss values. The decrease in estimated losses is attributable
to the ocean marine and aviation lines of business as a result of favorable
payout trends due , in part, to lower retention levels per loss.
(2) Deferred income-loss portfolio assumption represents the difference
between cash received and unpaid loss reserves assumed as a result of the
assumption of net pool obligations from two former pool members which was
initially capitalized and is being amortized over the payout period of the
related losses.
The principal differences between the consolidated liability for unpaid
losses and loss adjustment expenses as reported in the Annual Statement filed
with state insurance departments in accordance with statutory accounting
principles and the liability based on generally accepted accounting principles
shown in the above tables is due to the assumption of loss reserves arising from
former participants in the MMO insurance pools, the Company's reserves for
Syndicate 1265, reserves for uncollectible reinsurance and unpaid unallocated
loss adjustment expenses based upon management commissions payable to the
Managers which are eliminated on a consolidated basis. The loss reserves shown
in the above tables reflect in each year salvage and subrogation accruals of
approximately 1% to 6%. The estimated accrual for salvage and subrogation is
based on the line of business and historical salvage and subrogation recovery
data. In neither statutory nor generally accepted accounting principles are loss
and loss adjustment expense reserves discounted.
11
The following table sets forth the reconciliation of the consolidated
net liability for losses and loss adjustment expenses based on statutory
accounting principles for the domestic insurance companies and based on
generally accepted accounting principles as of December 31, 1999, 1998 and 1997:
Year ended December 31,
-----------------------
1999 1998 1997
-------- -------- --------
(In thousands)
Liability for losses and loss adjustment expenses
reported based on statutory accounting principles ............................ $170,664 $193,680 $217,016
Liability for losses and loss adjustment expenses assumed
from two former pool members ................................................. 4,911 4,529 4,469
(excludes $3,684, $4,636 and $5,580 at December 31, 1999,
1998 and 1997, accounted for in the statutory liability for
losses and loss adjustment expenses)
Syndicate 1265 ................................................................. 18,401 13,504 --
Other, net ..................................................................... 2,889 1,876 850
-------- -------- --------
Net liability for losses and loss adjustment expenses reported
based on generally accepted accounting principles ............................ 196,865 213,589 222,335
Ceded liability for unpaid losses and loss adjustment expenses ................. 228,604 187,995 166,067
-------- -------- --------
Gross liability for unpaid losses and loss adjustment expenses ................. $425,469 $401,584 $388,402
======== ======== ========
Regulation
- ----------
The Company is regulated by the insurance regulatory agencies of the
states in which it is authorized to do business. New York Marine is licensed to
engage in the insurance business in all states.
Gotham is permitted to write excess and surplus lines insurance on a
non-admitted basis in all of the states except Arkansas, Massachusetts, Nevada,
New Jersey, New Hampshire and Vermont. Gotham is licensed to engage in the
insurance business in the state of New York and, as such, cannot write excess
and surplus business in that state.
Many aspects of the Company's insurance business are subject to
regulation. For example, minimum capitalization must be maintained; certain
forms of policies must be approved before they may be offered; reserves must be
established in relation to the amounts of premiums earned and losses incurred;
and, in some cases, schedules of premium rates must be approved.
The domestic insurance company subsidiaries also file statutory
financial statements with each state in the format requested by the National
Association of Insurance Commissioners (the "NAIC"). The NAIC provides
accounting guidelines for companies to report and provides minimum solvency
standards for all companies in the form of risk-based capital requirements. The
Company believes that the surplus of each of the insurance companies is above
the minimum amount required by the NAIC.
The NAIC's project to codify statutory accounting principles, which
will ultimately change currently prescribed statutory accounting principles, was
approved by the NAIC in March 1998. The approval included a provision for
commissioner discretion in determining appropriate statutory accounting for
insurers in their state. The NAIC indicated that codification will become
effective on January 1, 2001. The Company is examining how implementation will
affect its statutory financial statements.
New York Marine and Gotham are subject to examination by the Insurance
Department of the State of New York. The insurance companies' most recent
examination was for the year ended December 31, 1995. There were no significant
adjustments which resulted from that examination.
12
Syndicate 1265 operates in a highly regulated environment within the
overall Lloyd's market. Lloyd's maintains regulatory departments that review the
management and operation of all agencies and syndicates to ensure that business
is conducted in accordance with Lloyd's standards. Syndicates are required to
maintain trust funds for insurance transactions with strict guidelines on
withdrawals from such funds. Annual solvency tests are conducted whereby
syndicates must maintain minimum capital requirements in accordance with ratios
prescribed by Lloyd's.
The following table shows, for the periods indicated, the Company's
consolidated domestic insurance companies' statutory ratios of net premiums
written (gross premiums less premiums ceded) to policyholders' surplus:
Year Ended December 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(Dollars in thousands)
Net premiums written ................. $ 38,741 $ 45,333 $ 62,221 $ 90,513 $ 97,817
Policyholders' surplus ............... 200,899 196,745 181,844 160,929 148,785
-------- -------- -------- -------- --------
Ratio ................................ .19 to 1 .23 to 1 .34 to 1 .56 to 1 .66 to 1
While there are no statutory requirements applicable to the Company
which establish permissible premium to surplus ratios, guidelines established by
the National Association of Insurance Commissioners provide that the statutory
net premiums written to surplus ratio should be no greater than 3 to 1. The
Company is well within those guidelines. Syndicate 1265 maintained a capacity to
write approximately a U.S. dollar equivalent of $32.2 million of net premiums
written in 1999.
Policyholders' surplus is not a substitute for the Company's
shareholders' equity computed in accordance with Generally Accepted Accounting
Principles (GAAP). It excludes the effect on shareholders' equity from dividends
declared, accumulated other comprehensive income, common stock, treasury stock,
additional paid-in capital and the effect of consolidating all Non-Domestic and
Non-Insurance subsidiaries. The definition of policyholders' surplus used by
NYMAGIC may differ from definitions of policyholders' surplus used by other
public holding companies of property and casualty insurers.
Net premiums written (gross premiums less premiums ceded) is not a
substitute for the Company's net premiums written computed in accordance with
GAAP. It excludes the effect on net premiums written of consolidating all
Non-Domestic subsidiaries. The definition of net premiums written used by
NYMAGIC may differ from definitions of net premiums written used by other public
holding companies of property and casualty insurers.
Statutory ratios of net premiums written (gross premiums less premiums
ceded) to policyholders' surplus is not promulgated under GAAP. It includes
statutory gross, net and ceded premiums written and policyholders' surplus for
the domestic insurance companies only. The definition of net premiums written
(gross premiums less premiums ceded) to policyholders' surplus used by NYMAGIC
may differ from definitions of net premiums written (gross premiums less
premiums ceded) to policyholders' surplus used by other public holding companies
of property and casualty insurers.
The domestic insurance company subsidiaries are limited under New York
law in the amount of dividends they can pay to the parent company, NYMAGIC,
without prior approval of the Insurance Department of the State of New York.
NYMAGIC's principal source of income is dividends from its
subsidiaries, which is used for payment of operating expenses, including
interest expense, loan repayments and payment of dividends to NYMAGIC's
shareholders. The maximum amount of dividends that may be paid to NYMAGIC by the
domestic insurance company subsidiaries is limited to the lesser of 10% of
statutory surplus or 100% of net investment income, as defined under New York
insurance law. The maximum amount which could be paid to the Company out of the
domestic insurance companies' surplus was approximately $19,630,000 as of
December 31, 1999. Dividends can be paid from Syndicate 1265 to the extent
solvency margins are maintained and after the closing of a calendar year, which
occurs three years following each calendar year.
Insurance companies are being regulated more strictly by the various
states in recent years. Many states have also increased regulation of surplus
lines insurance thereby requiring stricter standards for authorization. Several
states have established guaranty funds which serve to provide the assured with
payments due under policies issued by insurance companies that have become
insolvent. Insurance companies that are authorized to write in states are
assessed a fee, normally based on direct writings in a particular state, to
cover any payments drawn from insolvency funds. New York Marine and Gotham are
subject to such assessments in the various states.
Subsidiaries
- ------------
NYMAGIC's largest insurance company subsidiary is New York Marine which
was formed in 1972. NYMAGIC was formed in 1989 to serve as a holding company for
the subsidiary insurance companies. NYMAGIC's other domestic insurance company
subsidiary, Gotham, was organized in 1986 as a means of expanding into the
excess and surplus lines marketplace. New York Marine and Gotham entered into a
Reinsurance Agreement, effective January 1, 1987, under terms of which Gotham
will cede 100% of its gross direct writings to New York Marine and assume 15% of
New York Marine's total retained business, beginning with the 1987 policy year.
Accordingly, for policy year 1987 and subsequent, Gotham's underwriting
statistics are similar to New York Marine's. As of December 31, 1999, 75% and
25% of Gotham's common stock is owned by New York Marine and NYMAGIC,
respectively.
Gotham does not assume or cede business to or from other insurance
companies. As of December 31, 1999, New York Marine had aggregate recoverables
due from Gotham of approximately $28 million or 14% of New York Marine's
statutory surplus. Gotham had aggregate recoverables due from New York Marine as
of December 31, 1999, of approximately $21 million or 34% of Gotham's statutory
surplus.
New York Marine's and Gotham's combined net income on a GAAP basis
represented substantially all of the consolidated net income of the Company for
each of the years ended December 31, 1999, 1998 and 1997.
13
MMO was acquired in 1991 and was formed in 1964 to underwrite a book of
ocean marine insurance. MMO's activities expanded over the years and it now
underwrites a book of ocean marine, inland marine, aviation and other liability
insurance.
On December 31, 1997, the Company acquired ownership of Highgate
Managing Agencies, Ltd. and subsequently changed its name to MMO Underwriting
Agency, Ltd. MMO Underwriting Agency Ltd. is a Lloyd's managing agency which
commenced underwriting in 1998 for the Company's wholly owned subsidiary MMO UK,
Ltd. which is a Lloyd's corporate capital vehicle providing 100% of the capital
for Syndicate 1265.
Midwest was acquired in 1991 and was formed in 1978 to underwrite a
varied book of business located in the Midwest region.
PMMO was acquired in 1991 and was formed in 1975 to underwrite a varied
book of business in the West Coast region.
Competition
- -----------
The insurance industry is highly competitive and the companies, both
domestic and foreign, against which the Company competes are often larger with
greater capital resources than the Company and the pools. The principal methods
of competition are pricing and responsiveness to the individual insured's
coverage requirements. The competitive nature of the business intensified
through 1999 as rates softened in the aviation and ocean marine lines.
Competition remains intense as a result of excess capacity in the casualty
market.
The Company believes it can successfully compete against other
companies in the insurance market due to its philosophy of underwriting quality
insurance, its reputation as a conservative well-capitalized insurer and its
willingness to forego unprofitable business.
Employees
- ---------
The Company currently employs approximately 108 persons, of whom 24 are
insurance underwriters.
ITEM 2. PROPERTIES.
The Company does not own, directly or indirectly, any real estate. The
Company leases office space for day to day operations in the following cities:
New York - 37,000 square feet
Chicago - 3,500 square feet
San Francisco - 4,050 square feet
London - 1,450 square feet
The Company's principal executive offices are approximately 37,000 sq.
ft. in size and are located in New York City. The lease for the Company's
principal executive offices expires December 30, 2003. The minimum annual rent
under the lease is $1,184,000 from 2000 until the expiration of the lease. The
lease included an initial cash payment by the lessor to the Company of
$1,853,000 of which the benefit was deferred and is being amortized over the
lease term.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not currently involved in any legal proceedings other
than litigation all of which, collectively, is not expected to have a material
adverse effect on the business, financial condition or results of operations of
the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company did not submit any matters to a vote of security holders
during the fourth quarter of 1999.
14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
The Company's common stock trades on the New York Stock Exchange (NYSE
Symbol: NYM). The following table sets forth high and low closing prices for the
periods indicated as reported on the New York Stock Exchange Composite Tape.
1999 1998
-------- --------
High Low High Low
---- --- ---- ---
First Quarter ........... $ 20.63 $ 13.00 $ 30.06 $ 24.38
Second Quarter .......... 17.50 12.19 34.25 27.00
Third Quarter ........... 16.00 13.00 28.63 21.75
Fourth Quarter .......... 15.00 12.75 25.25 19.75
As of March 1, 2000, there were 89 shareholders of record. However,
management believes there are in excess of 2,500 beneficial owners of NYMAGIC's
common stock.
Dividend Policy
- ---------------
A cash dividend of ten (10) cents per share was declared and paid to
shareholders of record in March, June, September, and December 1999 and 1998.
For a description of restrictions on the ability of the Company's insurance
subsidiaries to transfer funds to the Company in the form of dividends, see
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources" and "Business- Regulation."
ITEM 6. SELECTED FINANCIAL DATA.
OPERATING DATA Year Ended December 31,
--------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(In thousands, except per share amounts)
Revenues:
Net premiums earned .............. $ 56,155 $ 76,023 $ 87,537 $ 97,036 $103,461
Net investment income ............ 18,642 20,803 21,325 21,270 21,659
Commission income ................ 1,956 591 1,439 1,981 3,438
Realized investment gains, net.... 12,504 8,615 10,425 4,589 4,111
Other income ..................... 237 396 293 690 661
-------- -------- -------- -------- --------
Total revenues ................... $ 89,494 $106,428 $121,019 $125,566 $133,330
-------- -------- -------- -------- --------
15
Selected Financial Data (continued)
Year Ended December 31,
----------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(In thousands, except per share amounts)
Expenses:
Losses and loss adjustment
expenses incurred ................................... $ 36,853 $ 50,512 $ 50,768 $ 59,359 $ 69,716
Policy acquisition expenses ........................... 11,077 10,107 16,583 18,828 21,017
General and administrative
expenses ............................................ 19,327 21,531 16,763 16,168 16,236
Interest expense ...................................... 1,058 1,374 1,450 1,035 438
--------- --------- --------- --------- ---------
Total expenses ........................................ $ 68,315 $ 83,524 $ 85,564 $ 95,390 $ 107,407
--------- --------- --------- --------- ---------
Income before income taxes ............................ 21,179 22,904 35,455 30,176 25,923
--------- --------- --------- --------- ---------
Income taxes
Current...................................... 3,189 5,250 8,962 7,495 5,393
Deferred ............................................ 1,577 (869) 125 56 410
--------- --------- --------- --------- ---------
Total income taxes .................................... 4,766 4,381 9,087 7,551 5,803
--------- --------- --------- --------- ---------
Net income ............................................ $ 16,413 $ 18,523 $ 26,368 $ 22,625 $ 20,120
========= ========= ========= ========= =========
BASIC EARNINGS PER SHARE(1):
Weighted average shares
outstanding ......................................... 9,687 9,679 9,849 10,499 11,299
Basic earnings per share .............................. $ 1.69 $ 1.91 $ 2.68 $ 2.15 $ 1.78
========= ========= ========= ========= =========
DILUTED EARNINGS PER SHARE(1):
Weighted average shares
outstanding ......................................... 9,687 9,705 9,872 10,524 11,341
Diluted earnings per share ............................ $ 1.69 $ 1.91 $ 2.67 $ 2.15 $ 1.77
========= ========= ========= ========= =========
Dividends declared per share .......................... $ .40 $ .40 $ .40 $ .40 $ .40
========= ========= ========= ========= =========
BALANCE SHEET DATA:
December 31,
----------------------------------------------------------
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(In thousands)
Total investments ..................................... $ 396,710 $ 443,022 $ 438,591 $ 409,209 $ 403,306
Total assets .......................................... 764,304 730,320 707,903 714,949 722,250
Unpaid losses and loss
adjustment expenses ................................ 425,469 401,584 388,402 411,837 417,795
Notes payable ......................................... 12,458 17,458 22,458 20,438 12,727
Total shareholders' equity ............................ $ 231,142 $ 228,180 $ 206,519 $ 188,852 $ 182,717
For a description of factors that materially affect the comparability
of the information reflected in the Selected Financial Data, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
(1) Earnings per share data prior to 1997 have been restated as required under
Statement of Financial Accounting Standards No. 128, "Earnings Per Share."
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Results of Operations
---------------------
The Company's results of operations are derived from its three main
segments which include the domestic insurance companies, the domestic agencies
and Syndicate 1265. The Company's domestic insurance companies participate in
pools of insurance covering ocean marine, inland marine, aircraft and non-marine
liability insurance managed by MMO and affiliates. Effective January 1, 1997,
the Company's participation in the pools increased to 100%. Syndicate 1265
underwrites a book of ocean marine insurance. The following represents the
Company's net premiums written and net premiums earned for each of the past
three years.
NYMAGIC Net Premiums Written
by Line of Business Year Ended December 31,
------------------- ---------------------------------------------------------------------
1999 1998 1997
-------- -------- --------
(In thousands)
Ocean marine (a) .......................... $ 48,564 87% $ 59,231 81% $ 48,658 78%
Inland marine ............................. 153 -- (350) -- 146 --
Aircraft .................................. 5,319 9% 82 -- 9,354 15%
Other liability ........................... 2,064 4% 2,969 4% 3,856 6%
Other ..................................... 6 -- 10,796 15% 207 1%
-------- -------- -------- -------- -------- --------
Total ..................................... $ 56,106 100% $ 72,728 100% $ 62,221 100%
======== ======== ======== ======== ======== ========
NYMAGIC Net Premiums Earned
by Line of Business Year Ended December 31,
------------------- ---------------------------------------------------------------------
1999 1998 1997
-------- -------- --------
(In thousands)
Ocean marine (b) .......................... $ 48,159 86% $ 60,219 79% $ 49,984 57%
Inland marine ............................. 182 -- (393) -- 443 1%
Aircraft .................................. 5,310 9% 2,005 3% 32,566 37%
Other liability ........................... 2,529 5% 3,393 4% 4,328 5%
Other ..................................... (25) -- 10,799 14% 216 --
-------- -------- -------- -------- -------- --------
Total ..................................... $ 56,155 100% $ 76,023 100% $ 87,537 100%
======== ======== ======== ======== ======== ========
(a) Includes net premiums written from Syndicate 1265 of $17,365 and $16,832
for 1999 and 1998, respectively.
(b) Includes net premiums earned from Syndicate 1265 of $13,614 and $14,832 for
1999 and 1998, respectively.
Unlike many types of property and casualty insurance, ocean marine,
inland marine, aviation and other liability premium rates are not strictly
regulated by governmental authorities. Consequently, the Company is able to
adjust premium rates quickly in response to competition, varying degrees of risk
and other factors. In addition, the Company, by virtue of its underwriting
flexibility, is able to emphasize specific lines of business in response to
advantageous premium rates and the anticipation of positive underwriting
results.
The Company's general and administrative expenses consist primarily of
compensation expense, employee benefits and rental expense for office
facilities. The Company's policy acquisition costs include both brokerage
commissions and premium taxes which are primarily based on a percentage of
premiums written. Such costs have generally changed in proportion with changes
in premium volume. Losses and loss adjustment expenses incurred in connection
with insurance claims in any particular year depend upon a variety of factors
including the rate of inflation, accident or claim frequency, the occurrence of
natural catastrophes and the number of policies written.
17
The Company estimates reserves each year based upon, and in conformity
with, the factors discussed under "Business-Reserves". Changes in estimates of
reserves are reflected in operating results in the year in which the change
occurs.
1999 as Compared to 1998
- ------------------------
Net income for the year ended December 31, 1999, was $16,413,000 or
$1.69 per diluted share compared with the year ended December 31, 1998, net
income of $18,523,000 or $1.91 per diluted share. Operating income, which
excludes the effects of realized investment gains after taxes, was $8,286,000,
or $.86 per share, for the year ended December 31, 1999, versus $12,924,000, or
$1.33 per share, for the prior year.
For the year ended December 31, 1999, net premiums earned were
$56,155,000 as compared with $76,023,000 for 1998. The 1998 amount included
approximately $24.7 million relating to two transactions involving assumptions
of ocean marine and casualty business. Excluding these one-time items, net
premiums earned for the year ended December 31, 1999 would have increased 9%.
Ocean marine net premiums earned increased in 1999 by 5%, excluding
one-time items, and is largely attributable to business derived from the
Syndicate 1265 segment. Approximately $13.6 million in net premiums earned,
mostly ocean marine hull, was produced by Syndicate 1265 in 1999, its first full
year of operations, when compared to $700,000, excluding one-time items, in
1998. Net premiums earned from the domestic insurance companies segment were
down 24% as competition generally remained intense in 1999 and adversely
affected ocean marine premium rates as well as premium renewals. The outlook for
2000 indicates that pricing pressures will remain as the over capacity within
this market still exists. Syndicate 1265 will also continue to write at a
cautious pace.
Aviation gross premium written grew 22% in 1999 to $44.6 million as a
result of rate increases obtained in 1999 on accounts with poor loss records as
well as increases in overall line size per account. As the underwriting climate
for gross premiums has remained soft for several years in the aviation line, the
Company maintained an adequate level of reinsurance to protect its exposure to
any one loss. As a result, after excess of loss and quota share reinsurance, the
Company's net writings amounted to $5.3 million in 1999. The Company expects
premiums to increase in 2000 due in part to the trend in premium rates which
occurred in the latter half of 1999.
The other liability line decreased 26% in 1999, excluding one-time
items, when compared to 1998 due to the effects of competitive pricing as well
as a decline in premium production. The Company expects the casualty market to
remain competitive in 2000 with premiums likely to decline further.
Losses and loss adjustment expenses incurred as a percentage of net
premiums earned were 65.6% for the year ended December 31, 1999, as compared to
56.6%, excluding one time items, for the same period of the prior year. The
domestic insurance subsidiaries recorded higher loss ratios in the aviation line
of business in 1999 due to increases in both the frequency and severity of
losses. In addition, the Company's ocean marine line recorded higher loss ratios
in 1999, primarily attributable to the loss experience produced from our
Syndicate 1265 segment. Syndicate 1265 experienced a relatively high frequency
of marine hull claims in 1999.
Commission and other income increased substantially in 1999 when
compared to 1998 and reflected larger profit commissions on the reinsurance of
our ocean marine and aviation lines from our domestic insurance agency segment.
Interest expense decreased to $1,058,000 for the year ended December
31, 1999 from $1,373,000 for the prior year primarily as a result of a decrease
in loan principal outstanding.
Net investment income for the year ended December 31, 1999 decreased by
10% from the level of net investment income achieved in 1998. Contributing to
the decline were lower overall investment yields and a reduction in invested
assets brought about by the payments of a large number of losses on a gross
basis in the aviation and umbrella lines of business.
Policy acquisition expenses as a percentage of net premiums earned for
the year ended December 31, 1999 were 19.7% as compared with 13.3% for the prior
year. The increase in the ratio is due in large part to the two transactions
involving assumptions of premiums in 1998. Absent such business, the ratio would
have been approximately 19.7% for the year ended December 31 1998.
18
General and administrative expenses decreased by 10.2% in 1999 from
1998. The prior year's amounts included certain non-recurring expenses incurred
in connection with the assumption of premiums and the formation of Syndicate
1265. In addition, larger expenses were recorded for two employee benefit plans
in 1998 within the domestic insurance agencies.
Realized investment gains of $12,504,000 for the year ended December
31, 1999 result in large part from the sale of appreciated equity securities. In
addition, sales resulted from monitoring the Company's overall exposure to
equity securities to be in accordance with its investment guidelines.
Total investments decreased to $396.7 million at December 31, 1999
primarily due to reductions in unrealized gains on investments as a result of
rising interest rates and reductions in the investment portfolio to fund
payments of aviation and umbrella losses on a gross basis. These payments
contributed to cash flow used in operations in 1999 of $33.6 million. The
Company maintains an adequate level of reinsurance to prevent any one loss from
significantly affecting net income. However, timing differences between the
payment of gross losses by the Company and cash collections received from
reinsurers may adversely impact cash flow in any one period.
Reinsurance receivables increased by 28% to $255.8 million as of
December 31, 1999. Increases in gross severity losses in the aviation, umbrella
and ocean marine lines, of which substantial amounts were ceded under various
reinsurance agreements, accounted for the increase.
Accumulated other comprehensive income decreased to $9.9 million from
$19.4 million in 1998 and principally reflects the adverse impact of higher
interest rates in 1999 on the Company's market value of its fixed income
portfolio.
1998 as Compared to 1997
- ------------------------
Net income decreased to $18.5 million for the year ended December 31,
1998, from $26.4 million for the prior year. Diluted earnings per share
decreased to $1.91 in 1998 as compared to $2.67 in 1997. Operating income, which
excludes realized investment gains, was $12.9 million in 1998 compared to $19.6
million in 1997. Operating earnings per share on a diluted basis was $1.33 in
1998 compared with $1.98 in 1997.
The Company's net premiums earned decreased to $76.0 million in 1998 as
compared to $87.5 million in 1997. Premiums earned in 1998 reflected very
competitive markets across all lines of business, premiums from Syndicate 1265
and the effects of two transactions involving the assumption of premiums.
Ocean marine earned premiums increased by 20% in 1998 compared to 1997.
The increase resulted from a reinsurance transaction involving a one-time
assumption of approximately $14.2 million of premiums that emanated from
Syndicate 1265, which commenced operations in 1998. Syndicate 1265 contributed
an additional $3.6 million in gross direct ocean marine writings in 1998. The
domestic insurance companies reported a 9% decrease in earned premiums as
competition remained intense and adversely affected premium rates.
Collectively, other liability and other premiums earned were $14.0
million in 1998 compared to $4.3 million in 1997. The increase resulted from the
second reinsurance transaction in 1998 that included a one-time assumption of
approximately $10.5 million of miscellaneous casualty net premiums. Excluding
the effect of this transaction, premiums earned would have decreased
approximately 22% in 1998 primarily as a result of the soft casualty market
which led to a decline in premium production.
The aviation line of business was most affected by the competitive
market, with gross writings down by 20%, and coupled with the purchase of
additional reinsurance protection resulted in premiums earned decreasing to $2.0
million in 1998 compared with $32.6 million in 1997. Obtaining additional
reinsurance protection is consistent with the Company's strategy of minimizing
risk and preserving capital as the underwriting climate for gross premiums
remained soft in 1998. In addition, large aviation gross losses resulted in
additional reinsurance reinstatement costs of approximately $3.7 million that
further contributed to the decline in premiums.
Inland marine gross premium writings increased 15% to $1.3 million in
1998 due in large part to writing policies that are ancillary to its ocean
marine risks. Earned premiums were negative due to reinsurance costs for
catastrophe protection, reinstatement costs, and quota share reinsurance which
collectively amounted to approximately $1.6 million.
19
Losses and loss adjustment expenses incurred as a percentage of net
premiums earned were 66.4% for the year ended December 31, 1998 as compared to
58.0% for the prior year.
The ocean marine loss ratio for Syndicate 1265's assumption of premiums
in 1998 was approximately 94% and had the effect of increasing the overall loss
ratio significantly. Absent such business, the ocean marine loss ratio would
have been approximately 54% as compared to 57% for the prior year. The domestic
insurance companies recorded favorable net loss experience in the Company's core
ocean marine line largely due to lower retention levels per loss.
The other liability loss ratio increased to 96% from 91% in 1997. The
assumption of miscellaneous net casualty premiums in 1998 was subsequently
commuted in the fourth quarter of 1998 at a loss ratio of 77%. Excluding this
business, the loss ratio would have been approximately 152%. Adverse development
from prior year losses contributed to the increase.
An improvement in the frequency of losses and favorable net loss
development contributed to a lower loss ratio in the aviation line in 1998.
Policy acquisition costs as a percentage of net premiums earned for the
year ended December 31, 1998 were 13.3% as compared with 18.9% for the prior
year. The reduction in the ratio is due to the two transactions involving an
assumption of premiums in 1998. Excluding the effect of such business, the ratio
would have been approximately 19.7% for 1998. This ratio approximates the ocean
marine line of business ratio as those premiums represent a larger percentage of
total premiums in 1998 than in 1997.
Net investment income in 1998 decreased by 2% to $20.8 million from
$21.3 million in 1997 as a result of a decrease in investment yield in the
Company's fixed maturity portfolio caused by additional purchases of tax-exempt
securities and lower overall interest rates. Although investment yield was lower
in 1998, Syndicate 1265's operations contributed to a larger average invested
asset base in 1998.
Commission income in 1998 was $591,448 as compared to $1,438,606 for
1997. The prior year included larger profit commissions from reinsurance
transactions in the aviation and ocean marine lines of business.
General and administrative expenses increased by 28% in 1998 over 1997.
The increase included operating expenses from Syndicate 1265. Also, certain
one-time expenses were incurred in connection with the assumption of premiums
and the formation of Syndicate 1265. Lastly, contributing to the overall
increase were expenses associated with two employee benefit plans adopted by the
Board of Directors in 1998.
Interest expense decreased 5% for the year ended December 31,1998 to
$1.4 million primarily as a result of a decrease in average loan principal
outstanding.
The Company was able to realize investment gains of $8.6 million in
1998 mainly as a result of the sale of appreciated equity securities in 1998.
The Company's effective tax rate for 1998 was 19.1% as compared to
25.6% for 1997. Taxable income was greater in 1997 as a result of larger
underwriting profits and realized investment gains. The decrease in the
effective rate was also due to increased tax-exempt income as a percentage of
pre-tax income in 1998.
Liquidity and Capital Resources
- -------------------------------
The Company monitors cash and short-term investments in order to have
an adequate level of funds available to satisfy claims and expenses as they
become due. As of December 31, 1999, the Company's assets included approximately
$28.8 million in cash and short-term investments. The primary sources of the
Company's liquidity are funds generated from insurance premiums, investment
income and maturing or liquidating investments.
Historically, cash flows provided by operating activities were used in
investing and financing activities. In 1997 cash inflows increased as premium
rates were higher in the ocean marine and aviation lines. Cash flows were used
in operating activities in 1999 and 1998 as further declines in premium rates,
increases in ceded reinsurance premium costs
20
and increases in gross severity claims negatively affected cash flows from
operations. The Company's maturing book of casualty business also adversely
affected cash flows.
Investing and financing activities occurred as a result of utilizing
the Company's revolving credit agreement and unsecured credit facility.
Additional borrowings of approximately $5,000,000 and $9,520,000 were made in
1998 and 1997, respectively, to assist in the payment of gross losses of the
Company and to repurchase the Company's Common Stock. Repayments under the
Company's existing loan were made at $1,250,000 per quarter through December 31,
1999 and borrowings under the unsecured credit facility were fully repaid after
collecting recoverables due from reinsurers on such losses.
In 1998, the Company entered into an interest rate swap agreement (the
"agreement") with a bank for purposes of hedging its interest rate risk on its
existing bank loan. The agreement requires the Company to pay interest to the
bank at a rate of 6.50% on the original notional amount outstanding of
$22,500,000, which is subsequently adjusted quarterly by notional reductions of
$1,250,000. The bank is required to pay the Company, on the same notional
amounts outstanding, an amount equal to the three month US Dollar London
Interbank Offered Rate plus .65% which is reset on a quarterly basis. Interest
expense recorded under the agreement was $91,462 in 1999 and $44,719 in 1998.
The Company adheres to investment guidelines set by the Finance
Committee of the Board of Directors. The investment guidelines are
conservatively designed to provide the Company with adequate capital growth and
sufficient liquidity to meet existing obligations. Such guidelines consider many
factors including anticipated tax position and regulatory requirements.
The Company maintains a large position in investments of bonds from
various states and municipalities. Such securities receive favorable tax
treatment under existing tax laws. The investment position is monitored
regularly, and as a result, the Company has reduced its investment in such
securities after consideration of the alternative minimum tax.
Under the Common Stock Repurchase Plan, the Company may purchase up to
$55,000,000 of the Company's issued and outstanding shares of common stock on
the open market. As of December 31, 1999, the Company had repurchased a total of
2,124,082 shares of common stock at a total cost of approximately $38,560,659 at
market prices ranging from $13.69 to $28.81 per share.
NYMAGIC's principal source of cash flow is dividends from its insurance
company subsidiaries which is used to fund operating expenses, including
interest expense, loan repayments and payment of dividends to shareholders. The
Company's domestic insurance company subsidiaries are limited by statute in the
amount of dividends that may be declared or paid during a year. The limitation
restricts dividends paid or declared to the lower of 10% of policyholders'
surplus or 100% of net investment income as defined under New York insurance
law. The limitations on dividends from the insurance company subsidiaries are
not expected to have an impact on the Company's ability to meet current cash
obligations or materially limit the current payment of dividends to the
Company's shareholders. Dividends can be paid from Syndicate 1265 to the extent
solvency margins are maintained and after the closing of a calendar year, which
occurs three years following each calendar year.
Other matters
- -------------
In 1999, Vincent T. Papa, a former President and Chief Executive
Officer of the Company, filed suit in the New York Supreme Court seeking damages
from the Company based upon alleged breaches by the Company of its obligations
under an employment agreement with Mr. Papa. The Company intends vigorously to
defend itself against such claims and believes it has no further obligations to
Mr. Papa.
Effect of recent accounting pronouncements
- ------------------------------------------
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities", ("SFAS 133") was issued by the
Financial Accounting Standards Board ("FASB") in June 1998. SFAS 133 requires
derivatives to be recorded on the balance sheet at fair value. Derivatives not
considered as hedges must be recorded at fair value with adjustments recorded in
the income statement. For derivatives that qualify as a hedge, changes in the
fair value of the derivative are offset against changes in the fair value of the
hedged assets or liabilities and are recognized in the income statement or in
other comprehensive income depending on the nature of the hedge. SFAS 133 is
effective for years beginning after June 15, 1999.
21
Statement of Financial Accounting Standards No. 137, "Accounting for
Derivative Instruments and Hedging Activities-Deferral of the Effective Date of
FASB Statement No. 133", ("SFAS 137") was issued by the FASB in June 1999. SFAS
137 defers the effective date of SFAS 133 to fiscal years beginning after June
15, 2000.
The Company uses derivatives, in the form of an interest rate swap, for
hedging purposes as part of its interest rate management. The Company has not
yet determined the effect of SFAS 133 on its financial statements.
The Company adopted AICPA Statement of Position 97-3, "Accounting by
Insurance and other Enterprises for Insurance-Related Assessments," ("SOP 97-3")
effective January 1, 1999. This statement provides guidance for reporting
guaranty fund and other insurance related assessments. The adoption of SOP 97-3
did not have a material impact on the Company's results of operations or
financial condition.
The Company adopted AICPA Statement of Position 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use," ("SOP
98-1") effective January 1, 1999. SOP 98-1 provides standards for capitalizing
certain internal costs incurred to develop software used internally. The
adoption of SOP 98-1 did not have a material impact on the Company's results of
operations or financial condition.
Inflation
- ---------
Periods of inflation have prompted the pools, and consequently the
Company, to react quickly to actual or potential imbalances between costs,
including claim expenses, and premium rates. These imbalances have been
corrected mainly through improved underwriting controls, responsive management
information systems and frequent review of premium rates and loss experience.
Inflation also affects the final settlement costs of claims which may
not be paid for several years. The longer a claim takes to settle, the more
significant the impact of inflation on final settlement costs. The Company
periodically reviews outstanding claims and adjusts reserves for the pools based
on a number of factors, including inflation.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risk includes the potential for future losses due to reasonably
possible changes in the fair value of financial instruments which relates mainly
to the Company's investment portfolio. Those risks associated with the
investment portfolio include the effects of exposure to adverse changes in
interest rates, credit quality, equity prices and foreign exchange rates.
The largest market risk to the Company relates to interest rate risk.
Interest rate risk includes the changes in the fair value of fixed maturities
based upon changes in interest rates. This risk is considered when developing
benchmarks for evaluating the Company's portfolio. Such benchmarks also consider
the overall duration of the Company's loss reserves. Through the matching of
cash flows from future maturing investments and the ultimate payout pattern of
loss reserves, the Company believes it can minimize the effect of interest rate
risk.
The following tabular presentation outlines the expected cash flows of
fixed maturities available for sale for each of the next five years and the
aggregate cash flows expected for the remaining years thereafter based upon
maturity dates. Fixed maturities include taxable and tax-exempt securities with
applicable weighted average interest rates. Taxables also include mortgage
backed securities that have prepayment features which may cause actual cash
flows to differ from those based on maturity date.
Future cash flows of expected principal amounts
-----------------------------------------------
(Dollars in millions)
Total Total
There- Amortized Fair
Fixed maturities 2000 2001 2002 2003 2004 after Cost Value
- ---------------- ---- ---- ---- ---- ---- ------ ---- -----
Tax-exempt ................... $ 11 $ 10 $ 13 $ 27 $ 13 $ 80 $154 $153
Average interest rate 6.5% 5.8% 5.6% 5.9% 5.6% 6.3% -- --
Taxables ..................... -- 28 2 7 40 70 147 144
Average interest rate -- 6.4% 5.6% 5.6% 6.5% 7.2% -- --
---- ---- ---- ---- ---- ---- ---- ----
Total ........................ $ 11 $ 38 $ 15 $ 34 $ 53 $150 $301 $297
22
Credit quality risk includes the risk of default by issuers of debt
securities. The Company's investment guidelines are conservatively designed and
prevent the investment in securities below an A rating. Overall, the Company has
maintained fixed maturities with an average credit quality rating of AA as of
December 31, 1999. The Company's exposure to credit risk is considered minimal.
Foreign currency risk includes exposure to changes in foreign exchange
rates on the market value and interest income of foreign denominated
investments. Syndicate 1265 operations maintain investments in British Pounds
Sterling with a US equivalent of $1.0 million to the extent business is derived
from transactions in such currency. The investment of cash flows from business
written in Pounds Sterling in securities of the same foreign currency, should
ultimately mitigate the risk associated with changes in foreign exchange rates
with respect to British Pounds Sterling.
Equity risk includes the potential loss from changes in the fair value
of equity securities. The Company's equity securities are traded on major stock
exchanges and are highly liquid. The investment in such securities are limited
by the Company's investment guidelines to 25% of statutory surplus in order to
minimize the impact of large changes in the stock market on its surplus.
The Company monitors market risks on a regular basis through meetings
with investment advisors, examining the existing portfolio and reviewing
potential changes in investment guidelines. The overall effect of which is to
allow management to make informed decisions concerning the impact that market
risks have on the portfolio.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The consolidated financial statements required in response to this item
are included as part of Item 14(a) of this report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
23
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item is incorporated by reference
herein from NYMAGIC's Proxy Statement for the 2000 Annual Meeting of
Shareholders.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated by reference
herein from NYMAGIC's Proxy Statement for the 2000 Annual Meeting of
Shareholders.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is incorporated by reference
herein from NYMAGIC's Proxy Statement for the 2000 Annual Meeting of
Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is incorporated by reference
herein from NYMAGIC's Proxy Statement for the 2000 Annual Meeting of
Shareholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) 1. Financial Statements
--------------------
The list of financial statements appears in the
accompanying index on page 29.
2. Financial Statement Schedules
-----------------------------
The list of financial statement schedules appears in
the accompanying index on page 29.
3. Exhibits
--------
3.1. Charter. (Incorporated by reference to Exhibit 3-1 to
the Registrant's Registration Statement No. 33-27665.)
3.3. Amended and Restated By-laws.
4.0. Specimen Certificate of common stock
(Incorporated by reference to Exhibit 4 to the Registrant's Registration
Statement No. 33-27665.)
10.2. Restated Management Agreement dated as of January 1, 1986, by and
among Mutual Marine Office, Inc. and Arkwright-Boston Manufacturers Mutual
Insurance Company, Utica Mutual Insurance Company, Lumber Mutual Insurance
Company, the Registrant and Pennsylvania National Mutual Casualty Insurance
Company (Incorporated by reference to Exhibit 10.2 of the Registrant's Annual
Report Form 1O-K for the fiscal year ended December 31, 1986 (Commission File
No. 1-11238).)
10.2.2. Amendment to Restated Management Agreement, dated as of
December 30, 1988, and among Mutual Marine Office, Inc. and Arkwright Mutual
Insurance Company, Utica Mutual Insurance Company, Lumber Mutual Insurance
Company, the Registrant and Pennsylvania National Mutual Casualty Insurance
Company. (Incorporated by reference to Exhibit 10.2.2. of the Registrant's
Report on Form 8-K dated January 6, 1989 (Commission File No. 1-11238).)
10.2.3. Amendment to Restated Management Agreement, dated as of
December 31, 1990, and among Mutual Marine Office, Inc. and Arkwright Mutual
Insurance Company, Utica Mutual Insurance Company, the Registrant
24
and Pennsylvania National Mutual Casualty Insurance Company. (Incorporated by
reference to Exhibit 10.2.3. of the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1992 (Commission File No. 1-11238).)
10.4. Restated Management Agreement dated as of January 1, 1986, by and
among Mutual Inland Marine Office, Inc. and Arkwright-Boston Manufacturers
Mutual Insurance Company, Utica Mutual Insurance Company, Lumber Mutual
Insurance Company, the Registrant and Pennsylvania National Mutual Casualty
Insurance Company (Incorporated by reference to Exhibit 10.4 of the Registrant's
Annual Report Form 10-K for the fiscal year ended December 31, 1986 (Commission
File No. 1-11238).)
10.4.2. Amendment to Restated Management Agreement, dated as of
December 30, 1988, and among Mutual Inland Marine Office, Inc. and Arkwright
Mutual Insurance Company, Utica Mutual Insurance Company, Lumber Mutual
Insurance Company, the Registrant and Pennsylvania National Mutual Casualty
Insurance Company (Incorporated by reference to Exhibit 10.4.2 of the
Registrant's Report on Form 8-K, dated January 6, 1989 (Commission File No.
1-11238).)
10.4.3. Amendment to Restated Management Agreement, dated as of
December 31, 1990, by and among Mutual Inland Marine Office, Inc. and Arkwright
Mutual Insurance Company, Utica Mutual Insurance Company, the Registrant and
Pennsylvania National Mutual Casualty Insurance Company. (Incorporated by
reference to Exhibit 10.4.3. of the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1992 (Commission File No. 1-11238).)
10.6. Restated Management Agreement dated as of January 1, 1986, by and
among Mutual Marine Office of the Midwest, Inc. and Arkwright-Boston
Manufacturers Mutual Insurance Company, Utica Mutual Insurance Company, Lumber
Mutual Insurance Company, the Registrant and Pennsylvania National Mutual
Casualty Insurance Company. (Incorporated by reference to Exhibit 10.6 of the
Registrant's Annual Report on Form 10-K for the fiscal year ended December 31,
1986 (Commission File No. 1-11238).)
10.6.2. Amendment to Restated Management Agreement dated as of December
30, 1988, by and among Mutual Marine Office of the Midwest, Inc. and Arkwright
Mutual Insurance Company, Utica Mutual Insurance Company, Lumber Mutual
Insurance Company, the Registrant and Pennsylvania National Mutual Casualty
Insurance Company. (Incorporated by reference to Exhibit 10.6.2 of the
Registrant's Report on Form 8-K, dated January 6, 1989 (Commission File No.
1-11238).)
10.6.3. Amendment to Restated Management Agreement dated as of December
31, 1990, by and among Mutual Marine Office of the Midwest, Inc. and Arkwright
Mutual Insurance Company, Utica Mutual Insurance Company, the Registrant and
Pennsylvania National Mutual Casualty Insurance Company. (Incorporated by
reference to Exhibit 10.6.3. of the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1992 (Commission File No. 1-11238).)
10.8. Restated Management Agreement dated as of January 1, 1986, by and
among Pacific Mutual Marine Office, Inc. and Arkwright-Boston Manufacturers
Mutual Insurance Company, Lumber Mutual Insurance Company, Utica Mutual
Insurance Company, the Registrant and Pennsylvania National Mutual Casualty
Insurance Company. (Incorporated by reference to Exhibit 10.8 of the
Registrant's Annual Report on Form 10-K for the fiscal year ended December 31,
1986 (Commission File No. 1-11238).)
10.8.2. Amendment to Restated Management Agreement dated as of December
30, 1988, by and among Pacific Mutual Marine Office, Inc. and Arkwright Mutual
Insurance Company, Lumber Mutual Insurance Company, Utica Mutual Insurance
Company, the Registrant and Pennsylvania National Mutual Casualty Insurance
Company. (Incorporated by reference to Exhibit 10.8.2 of the Registrant's Report
on Form 8-K, dated January 6, 1989 (Commission File No. 1-11238).)
10.8.3. Amendment to Restated Management Agreement dated as of December
31, 1990, by and among Pacific Mutual Marine Office, Inc. and Arkwright Mutual
Insurance Company, Utica Mutual Insurance Company, the Registrant and
Pennsylvania National Mutual Casualty Insurance Company. (Incorporated by
reference to Exhibit 10.8.3. of the Registrant's Annual Report on Form 10-K for
the fiscal year ended December 31, 1992 (Commission File No. 1-11238).)
10.9 1991 Option Plan (Incorporated by reference to the Registrant's
Proxy Statement for its 1991 Annual Meeting of Shareholders (Commission File No.
1-11238).)
10.10 Form of Indemnification Agreement.
25
10.11 1999 NYMAGIC, INC. Phantom Stock Plan.
21. Subsidiaries of the Registrant.
23. Consent of KPMG LLP.
27. Financial Data Schedule.
(b) Reports on Form 8-K
-------------------
None.
26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NYMAGIC, INC.
(Registrant)
By: /s/ ROBERT W. BAILEY
-----------------------------
Robert W. Bailey
Chief Executive Officer
Date: March 30, 2000
-----------------
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Name Title Date
- ---- ----- ----
/s/ JOHN R. ANDERSON Director March 30, 2000
- -------------------------
John R. Anderson
/s/ ROBERT W. BAILEY Director, Chief March 30, 2000
- ------------------------- Executive Officer
Robert W. Bailey and Chairman
/s/ JONATHAN S. BANNETT Director March 30, 2000
- -------------------------
Jonathan S. Bannett
/s/ JOHN N. BLACKMAN, JR. Director March 30, 2000
- -------------------------
John N. Blackman, Jr.
/s/ MARK W. BLACKMAN Director March 30, 2000
- -------------------------
Mark W. Blackman
/s/ JEAN H. GOULDING Director March 30, 2000
- -------------------------
Jean H. Goulding
27
Name Title Date
- ---- ----- ----
/s/ JOHN KEAN, JR. Director March 30, 2000
- -------------------------
John Kean, Jr.
/s/ COSTA N. KENSINGTON Director March 30, 2000
- -------------------------
Costa N. Kensington
/s/ CHARLES A. MITCHELL Director March 30, 2000
- -------------------------
Charles A. Mitchell
/s/ WILLIAM R. SCARBROUGH Director March 30, 2000
- -------------------------
William R. Scarbrough
/s/ WILLIAM A. THORNE Director March 30, 2000
- -------------------------
William A. Thorne
/s/ BENNETT H. TOLLEFSON Director March 30, 2000
- -------------------------
Bennett H. Tollefson
/s/ LOUISE B. TOLLEFSON Director March 30, 2000
- -------------------------
Louise B. Tollefson
/s/ EDWARD J. WAITE III Director March 30, 2000
- -------------------------
Edward J. Waite III
/s/ GLENN R. YANOFF Director March 30, 2000
- -------------------------
Glenn R. Yanoff
/s/ THOMAS J. IACOPELLI Principal Accounting March 30, 2000
- ------------------------- Officer and Chief
Thomas J. Iacopelli Financial Officer
28
NYMAGIC, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report....................................... 30
Consolidated Balance Sheets........................................ 31
Consolidated Statements of Income.................................. 32
Consolidated Statements of Shareholders' Equity.................... 33
Consolidated Statements of Cash Flows.............................. 34
Notes to Consolidated Financial Statements......................... 35
Financial Statement Schedule II.................................... 53
Financial Statement Schedule V..................................... 55
Financial Statement Schedule VI.................................... 56
29
INDEPENDENT AUDITORS' REPORT
----------------------------
The Board of Directors and Shareholders
NYMAGIC, INC.:
We have audited the accompanying consolidated balance sheets of NYMAGIC,
INC. and subsidiaries as of December 31, 1999 and 1998, and the related
consolidated statements of income, shareholders' equity and cash flows for each
of the years in the three-year period ended December 31, 1999. In connection
with our audits of the consolidated financial statements, we have also audited
the financial statement schedules as listed in the accompanying index. These
consolidated financial statements and financial statement schedules are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
NYMAGIC, INC. and subsidiaries as of December 31, 1999 and 1998, and the
consolidated results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1999 in conformity with
generally accepted accounting principles. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
/s/ KPMG LLP
KPMG LLP
New York, New York
February 15, 2000
30
NYMAGIC, INC
CONSOLIDATED BALANCE SHEETS
December 31,
------------------------------
1999 1998
------------- -------------
ASSETS
Investments:
Fixed maturities available for sale at fair value
(amortized cost $300,687,622 and $342,583,525) ........................... $ 297,293,353 $ 353,403,303
Equity securities at fair value
(cost $52,922,679 and $54,368,172) ....................................... 71,681,895 73,418,473
Short-term investments ...................................................... 27,734,786 16,200,606
------------- -------------
Total investments........................................................ 396,710,034 443,022,382
------------- -------------
Cash......................................................................... 1,016,945 1,583,390
Accrued investment income ................................................... 5,195,227 6,189,866
Premiums and other receivables, net ......................................... 56,003,308 41,422,913
Reinsurance receivables ..................................................... 255,761,760 199,730,802
Deferred policy acquisition costs.......................................... 4,850,587 4,277,430
Prepaid reinsurance premiums............................................. 28,597,355 19,393,546
Deferred income taxes ....................................................... 9,311,335 5,811,741
Property, improvements & equipment, net ..................................... 1,792,876 2,341,021
Other assets ................................................................ 5,064,631 6,547,403
------------- -------------
Total assets ............................................................ $ 764,304,058 $ 730,320,494
============= =============
LIABILITIES
Unpaid losses and loss adjustment expenses .................................. $ 425,469,125 $ 401,584,146
Reserve for unearned premiums................................................ 56,033,281 46,878,550
Ceded reinsurance payable ................................................... 29,445,275 23,795,992
Notes payable ............................................................... 12,458,413 17,458,413
Other liabilities ........................................................... 8,787,820 11,454,977
Dividends payable ........................................................... 967,785 968,549
------------- -------------
Total liabilities........................................................ 533,161,699 502,140,627
------------- -------------
SHAREHOLDERS' EQUITY
Common stock................................................................. 15,017,892 15,017,892
Paid-in capital ............................................................. 27,935,907 28,029,410
Accumulated other comprehensive income ...................................... 9,931,438 19,436,591
Retained earnings............................................................ 220,736,910 208,198,204
------------- -------------
273,622,147 270,682,097
Treasury stock, at cost, 5,340,040 and 5,332,400 shares ..................... (42,479,788) (42,502,230)
------------- -------------
Total shareholders' equity .............................................. 231,142,359 228,179,867
------------- -------------
Total liabilities and shareholders' equity .............................. $ 764,304,058 $ 730,320,494
============= =============
The accompanying notes are an integral part of these consolidated
financial statements.
31
NYMAGIC, INC.
CONSOLIDATED STATEMENTS OF INCOME
Year ended December 31,
-------------------------------------
1999 1998 1997
---- ---- ----
Revenue:
Net premiums earned .......................... $ 56,155,156 $ 76,022,663 $ 87,536,906
Commission income ............................ 1,956,276 591,448 1,438,606
Net investment income ........................ 18,641,619 20,803,433 21,325,065
Realized investment gains,net ................ 12,503,731 8,615,058 10,425,133
Other income ................................. 237,701 395,560 292,918
------------- ------------- -------------
Total revenues ............................. 89,494,483 106,428,162 121,018,628
------------- ------------- -------------
Expenses:
Losses and loss adjustment expenses incurred.. 36,853,012 50,512,063 50,768,248
Policy acquisition expenses .................. 11,077,382 10,107,327 16,582,623
General and administrative expenses .......... 19,326,472 21,531,287 16,763,699
Interest expense ............................. 1,057,993 1,373,408 1,449,770
------------- ------------- -------------
Total expenses ............................. 68,314,859 83,524,085 85,564,340
------------- ------------- -------------
Income before income taxes ..................... 21,179,624 22,904,077 35,454,288
------------- ------------- -------------
Income tax provision:
Current ...................................... 3,189,162 5,250,123 8,962,799
Deferred ..................................... 1,577,201 (869,462) 123,749
------------- ------------- -------------
Total income taxes ......................... 4,766,363 4,380,661 9,086,548
------------- ------------- -------------
Net income ................................... $ 16,413,261 $ 18,523,416 $ 26,367,740
============= ============= =============
Weighted average number of shares of
common stock outstanding-basic ............... 9,687,466 9,678,802 9,848,959
============= ============= =============
Basic earnings per share ....................... $ 1.69 $ 1.91 $ 2.68
============= ============= =============
Weighted average number of shares of
common stock outstanding-diluted ............. 9,687,466 9,705,433 9,871,586
============= ============= =============
Diluted earnings per share ..................... $ 1.69 $ 1.91 $ 2.67
============= ============= =============
The accompanying notes are an integral part of these consolidated
financial statements.
32
NYMAGIC, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Year ended December 31,
-----------------------------------------------
1999 1998 1997
------------- ------------- -------------
Retained earnings:
Balance, beginning of year .................................... $ 208,198,204 $ 193,547,346 $ 171,089,462
Net income .................................................... 16,413,261 18,523,416 26,367,740
Dividends declared ............................................ (3,874,555) (3,872,558) (3,909,856)
------------- ------------- -------------
Balance, end of year...................................... 220,736,910 208,198,204 193,547,346
============= ============= =============
Accumulated other comprehensive income:
Balance, beginning of year .................................... 19,436,591 12,931,785 8,150,910
Unrealized (loss) gain on securities,
net of reclassification adjustment ...................... (9,428,336) 6,489,767 4,774,875
Foreign currency translation adjustments ...................... (76,817) 15,039 6,000
------------- ------------- -------------
Other comprehensive income (loss) ............................. (9,505,153) 6,504,806 4,780,875
------------- ------------- -------------
Balance, end of year ..................................... 9,931,438 19,436,591 12,931,785
============= ============= =============
Common stock:
Balance, beginning of year .................................... 15,017,892 14,991,992 14,911,992
Shares issued ................................................. -- 25,900 80,000
------------- ------------- -------------
Balance, end of year ..................................... 15,017,892 15,017,892 14,991,992
============= ============= =============
Paid-in capital:
Balance, beginning of year..................................... 28,029,410 27,529,877 26,258,259
Shares issued and other ....................................... (93,503) 499,533 1,271,618
------------- ------------- -------------
Balance, end of year ..................................... 27,935,907 28,029,410 27,529,877
============= ============= =============
Treasury stock, at cost:
Balance, beginning of year .................................... (42,502,230) (42,481,657) (31,558,897)
Net repurchase of common stock ................................ 22,442 (20,573) (10,922,760)
------------- ------------- -------------
Balance, end of year...................................... (42,479,788) (42,502,230) (42,481,657)
============= ============= =============
Total Shareholders' Equity ........................................ $ 231,142,359 $ 228,179,867 $ 206,519,343
============= ============= =============
Comprehensive income:
Net income .................................................... 16,413,261 18,523,416 26,367,740
Other comprehensive income (loss) ............................. (9,505,153) 6,504,806 4,780,875
------------- ------------- -------------
Comprehensive income...................................... 6,908,108 $ 25,028,222 $ 31,148,615
============= ============= =============
Number of Shares
----------------
Common stock, par value $1 each:
Issued, beginning of year ..................................... 15,017,892 14,991,992 14,911,992
Shares Issued ................................................. -- 25,900 80,000
------------- ------------- -------------
Issued, end of year....................................... 15,017,892 15,017,892 14,991,992
============= ============= =============
Common stock, authorized shares,
par value $1 each ............................................. 30,000,000 30,000,000 30,000,000
============= ============= =============
Common stock, shares outstanding .................................. 9,677,852 9,685,492 9,660,306
============= ============= =============
Dividends declared per share....................................... $ .40 $ .40 $ .40
============= ============= =============
The accompanying notes are an integral part of these consolidated
financial statements.
33
NYMAGIC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
--------------------------------------
1999 1998 1997
---- ---- ----
Cash flows from operating activities:
Net income ...................................... $ 16,413,261 $ 18,523,416 $ 26,367,740
------------- ------------- -------------
Adjustments to reconcile net income to
net cash (used in) provided by operating
activities:
Provision for deferred taxes .................. 1,577,201 (869,462) 123,749
Realized investment gains ..................... (12,503,731) (8,615,058) (10,425,133)
Net bond amortization ......................... 2,136,408 2,220,565 1,895,355
Depreciation and other, net ................... 699,107 733,950 582,126
Changes in:
Premiums and other receivables ................ (14,580,395) (787,749) 22,404,229
Reinsurance receivables ....................... (56,030,958) (24,072,850) 22,330,121
Ceded reinsurance payable ..................... 5,649,283 (3,511,137) 7,553,186
Accrued investment income ..................... 994,639 132,504 (362,173)
Deferred policy acquisition costs ............. (573,157) 1,290,058 5,336,753
Prepaid reinsurance premiums .................. (9,203,809) 5,021,074 (13,852,407)
Other assets .................................. 1,482,772 (1,677,794) (1,523,783)
Unpaid losses and loss adjustment expenses .... 23,884,979 13,182,598 (23,435,433)
Reserve for unearned premiums ................. 9,154,731 (8,309,731) (11,463,652)
Foreign currency translation adjustments ...... (76,817) 15,039 6,000
Other liabilities ............................. (2,667,157) 4,392,882 660,632
------------- ------------- -------------
Total adjustments ......................... (50,056,904) (20,855,111) (170,430)
------------- ------------- -------------
Net cash (used in) provided by operating
activities ..................................... (33,643,643) (2,331,695) 26,197,310
------------- ------------- -------------
Cash flows from investing activities:
Fixed maturities acquired ..................... (105,025,752) (77,604,001) (205,891,607)
Equity securities acquired .................... (60,300,853) (51,440,490) (50,578,073)
Net (purchase) sale of short-term investments.. (11,540,504) 1,890,059 178,516
Fixed maturities matured ...................... 26,005,874 34,682,127 25,059,072
Fixed maturities sold ......................... 118,911,079 51,905,388 167,867,245
Equity securities sold ........................ 74,124,696 52,514,190 49,858,725
Acquisition of property & equipment, net ...... (150,962) (709,318) (840,692)
------------- ------------- -------------
Net cash provided by (used in) investing
activities ..................................... 42,023,578 11,237,955 (14,346,814)
------------- ------------- -------------
Cash flows from financing activities:
Proceeds from stock issuance and other ........ (93,503) 525,433 1,351,618
Cash dividends paid to stockholders ........... (3,875,319) (3,870,040) (3,958,130)
Net repurchase of common stock ................ 22,442 (20,573) (10,922,760)
Proceeds from borrowings ...................... -- 5,000,000 9,520,000
Loan principal payments ....................... (5,000,000) (10,000,000) (7,500,000)
------------- ------------- -------------
Net cash used in financing activities ......... (8,946,380) (8,365,180) (11,509,272)
------------- ------------- -------------
Net (decrease) increase in cash ............... (566,445) 541,080 341,224
Cash at beginning of year ................... 1,583,390 1,042,310 701,086
------------- ------------- -------------
Cash at end of year ......................... $ 1,016,945 $ 1,583,390 $ 1,042,310
============= ============= =============
The accompanying notes are an integral part of these consolidated
financial statements.
34
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Nature of Operations
--------------------
NYMAGIC, through its subsidiaries, specializes in underwriting ocean
marine, inland marine, aviation and other liability insurance through insurance
pools managed by Mutual Marine Office, Inc.("MMO"), Pacific Mutual Marine
Office, Inc. ("PMMO"), and Mutual Marine Office of the Midwest, Inc.("Midwest").
MMO, located in New York, PMMO located in San Francisco, and Midwest, located in
Chicago, manage the insurance pools in which the Company's insurance
subsidiaries, New York Marine And General Insurance Company ("New York Marine")
and Gotham Insurance Company ("Gotham"), participate. All premiums, losses and
expenses are prorated among pool members in accordance with their pool
participation percentages. Effective January 1, 1997, the Company increased to
100% its participation in the business produced by the pools.
On December 31, 1997, the Company acquired 100% of the stock of
Highgate Managing Agency, a Lloyd's of London underwriting agent for a nominal
amount and renamed the Company MMO Underwriting Agency Ltd ("MMO UA"). The
acquisition was accounted for under the purchase method of accounting. In 1997,
the Company formed MMO EU Ltd, a holding company, and MMO UK LTD, a Lloyd's of
London corporate vehicle for Lloyd's Syndicate #1265. The assets and liabilities
and results of operations of MMO EU, MMO UK and MMO UA (collectively referred to
as "Syndicate 1265") are included in the consolidated financial statements.
Basis of Reporting
------------------
The consolidated financial statements have been prepared on the basis
of generally accepted accounting principles which differ in certain material
respects from the accounting principles prescribed or permitted by state
insurance regulatory authorities for the Company's two domestic insurance
subsidiaries. The principal differences recorded under generally accepted
accounting principles are deferred policy acquisition costs, an allowance for
doubtful accounts, deferred income taxes and fixed maturities held for sale are
carried at fair value.
The preparation of financial statements requires management to make
estimates that affect the reported amounts of assets, liabilities, revenues and
expenses. Actual amounts could differ from those amounts previously estimated.
Consolidation
-------------
The consolidated financial statements include the accounts of the
Company, two insurance subsidiaries, New York Marine and Gotham, three agency
subsidiaries hereinafter collectively referred to as ("MMO") and the Company's
UK operations. Gotham is owned 25% by the Company and 75% by New York Marine.
All other subsidiaries are wholly owned by NYMAGIC. All intercompany accounts
and transactions have been eliminated in consolidation.
Investments
-----------
Fixed maturities held for sale are carried at fair value and include
those bonds where the Company's intent to carry such investments to maturity may
be affected in future periods by changes in market interest rates or tax
position. Equity securities (common stocks and non-redeemable preferred stocks)
are carried at fair value. Short-term investments are carried at cost which
approximates fair value. Fair value is based upon quotes obtained from
independent sources.
Realized investment gains and losses (determined on the basis of
specific identified cost) also include any declines in value which are
considered to be other than temporary. Unrealized appreciation or depreciation
of investments, net of related deferred income taxes, is reflected in
accumulated other comprehensive income in shareholders' equity.
35
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
Derivatives
-----------
In 1998, an interest rate agreement was entered into for purposes of
hedging interest rate risk on the Company's existing note payable. Cash flows as
a result of the hedge are recorded as adjustments to interest expense.
Premium and policy acquisition cost recognition
-----------------------------------------------
Premiums and policy acquisition costs are reflected in income and
expense on a monthly pro rata basis over the terms of the respective policies.
Accordingly, unearned premium reserves are established for the portion of
premiums written applicable to unexpired policies in force, and acquisition
costs, consisting mainly of net brokerage commissions, and premium taxes
relating to these unearned premiums are deferred to the extent recoverable. The
Company has provided an allowance for uncollectible premium receivables of
$450,000 and $650,000 as of December 31, 1999 and 1998, respectively. The
determination of acquisition costs to be deferred considers historical and
current loss and loss adjustment expense experience. Consideration is also given
to anticipated investment income in measuring the carrying value of deferred
policy acquisition costs.
Revenue recognition
-------------------
Management commission income on policies written by the MMO insurance
pools is recognized primarily as of the effective date of the policies issued.
Adjustments to the policies, resulting principally from changes in coverage and
audit adjustments, are recorded in the period reported.
Contingent profit commission revenue derived from the reinsurance
transactions of the insurance pools is recognized when such amount becomes
billable to the respective reinsurers.
Reinsurance
-----------
The Company's insurance subsidiaries participate in various reinsurance
agreements on both an assumed and ceded basis through the MMO insurance pools.
The Company uses various types of reinsurance including quota-share, excess of
loss and facultative agreements to spread the risk of loss among several
reinsurers and to limit its exposure from losses on any one occurrence. Any
recoverable due from reinsurers is recorded in the period in which the related
gross liability is established.
The Company accounts for all reinsurance recoverables and prepaid
reinsurance premiums as assets.
Depreciation
------------
Property, equipment and leasehold improvements are depreciated using
both straight line and accelerated methods over their estimated useful lives.
Income Taxes
------------
The Company and its subsidiaries file a consolidated Federal tax
return. The Company provides deferred income taxes on temporary differences
between the financial reporting basis and the tax basis of the Company's assets
and liabilities based upon enacted tax rates. The effect of a change in tax
rates is recognized in income in the period of change.
Fair Values of Financial Instruments
------------------------------------
The fair value of the Company's fixed maturity investments is disclosed
in Note 2. The Company's other financial instruments include short-term
receivables, notes payable and other payables which are recorded at the
underlying transaction value and approximate fair value.
36
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
Goodwill
--------
The excess of purchase price over the fair value of net assets acquired
is amortized to income on a straight line basis over five years.
Foreign currency translation
----------------------------
The assets and liabilities of the Company's UK operations, recorded in
Pounds Sterling, are translated to U.S. dollars at exchange rates in effect at
the balance sheet date and the resulting adjustments are recorded in accumulated
other comprehensive income in shareholders' equity. Revenues and expenses are
translated to U.S. dollars using the average exchange rates for the year.
Incurred losses
---------------
Unpaid losses are based on individual case estimates for losses
reported. A provision is also included, based on past experience, for losses
incurred but not reported, salvage and subrogation recoveries and for loss
adjustment expenses. The method of making such estimates and for establishing
the resulting reserves is continually reviewed and updated and any changes
resulting therefrom are reflected in operating results currently.
Basic and diluted earnings per share
------------------------------------
Basic EPS is calculated by dividing net income by the weighted average
number of common shares outstanding during the year. Diluted EPS is calculated
by dividing net income by the weighted average number of common shares
outstanding during the year and the dilutive effect of assumed stock option
exercises. See Note 12 for a reconciliation of the shares outstanding in
determining basic and diluted EPS.
Reclassification
----------------
Certain accounts in the prior year's financial statements have been
reclassified to conform to the 1999 presentation.
Effects of recent accounting pronouncements
-------------------------------------------
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"), was issued by the
Financial Accounting Standards Board ("FASB") in June 1998. SFAS 133 requires
derivatives to be recorded on the balance sheet at fair value. Derivatives not
considered as hedges must be recorded at fair value with adjustments recorded in
the income statement. For derivatives that qualify as a hedge, changes in the
fair value of the derivative are offset against changes in the fair value of the
hedged assets or liabilities and are recognized in the income statement or in
other comprehensive income depending on the nature of the hedge. SFAS 133 is
effective for years beginning after June 15, 1999.
Statement of Financial Accounting Standards No. 137, "Accounting for
Derivative Instruments and Hedging Activities-Deferral of the Effective Date of
FASB Statement No. 133", ("SFAS 137") was issued by the FASB in June 1999. SFAS
137 defers the effective date of SFAS 133 to fiscal years beginning after June
15, 2000.
The Company uses derivatives, in the form of an interest rate swap, for
hedging purposes as part of its interest rate management. The Company has not
yet determined the effect of SFAS 133 on its financial statements.
The Company adopted AICPA Statement of Position 97-3, "Accounting by
Insurance and Other Enterprises for Insurance-Related Assessments," ("SOP 97-3")
effective January 1, 1999. This statement provides guidance for reporting
guaranty fund and other insurance related assessments. The adoption of SOP 97-3
did not have a material impact on the Company's results of operations or
financial condition.
37
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
The Company adopted AICPA Statement of Position 98-1, "Accounting for
the Costs of Computer Software Developed or Obtained for Internal Use," ("SOP
98-1") effective January 1, 1999. SOP 98-1 provides standards for capitalizing
certain internal costs incurred to develop software used internally. The
adoption of SOP 98-1 did not have a material impact on the Company's results of
operations or financial condition.
(2) INVESTMENTS:
A summary of investment components at December 31, 1999 consists of the
following:
Amount at which
Fair shown in the
Type of Investment Cost Value balance sheet
- ------------------ ---- ----- -------------
Fixed maturities available for sale:
Bonds:
United States Government and
government agencies and authorities .................. $ 88,757,727 $ 86,969,559 $ 86,969,559
States, municipalities and
political subdivisions ............................... 153,794,424 153,409,400 153,409,400
Public utilities .......................................... 12,401,385 12,363,000 12,363,000
All other corporate bonds ................................. 45,734,086 44,551,394 44,551,394
------------ ------------ ------------
Total fixed maturities
available for sale ................................... 300,687,622 297,293,353 297,293,353
------------ ------------ ------------
Equity securities:
Common stocks:
Public utilities ............................................ 1,577,810 2,585,152 2,585,152
Banks, trusts and insurance companies ....................... 4,692,428 4,618,997 4,618,997
Industrial, miscellaneous and all other ..................... 46,652,441 64,477,746 64,477,746
------------ ------------ ------------
Total equity securities ................................... 52,922,679 71,681,895 71,681,895
------------ ------------ ------------
Short term investments ........................................ 27,734,786 27,734,786 27,734,786
------------ ------------ ------------
Total investments ......................................... $381,345,087 $396,710,034 $396,710,034
============ ============ ============
Unrealized depreciation or appreciation of investments (before
applicable income taxes) at December 31, 1999 and 1998 included gross unrealized
gains on equity securities of $20,331,826 and $19,915,191, respectively; and
gross unrealized losses on equity securities of $1,572,610 and $864,890,
respectively; and gross unrealized gains on fixed maturities available for sale
of $957,805 and $10,841,711 at December 31, 1999 and 1998, respectively; and
gross unrealized losses on fixed maturities available for sale of $4,352,074 and
$21,933 as of December 31, 1999 and 1998, respectively.
Included in investments at December 31, 1999 are bonds on deposit with
various regulatory authorities as required by law with a fair value of
$8,752,500.
There were no non-income producing fixed maturity investments for each
of the years ended December 31, 1999, 1998 and 1997.
All mortgage backed securities as of December 31, 1999 and 1998 are
obligations of various U.S. Government agencies and consist of GNMA, FHLMC or
FNMA pass through securities. These securities are readily marketable.
38
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
The gross unrealized gains and losses on debt securities as of December
31, 1999 and 1998 are as follows:
1999
----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ------------ --------------- --------------
Fixed maturities available for sale:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies................... $ 88,757,727 $ 17,501 $ (1,805,669) $ 86,969,559
Obligations of states and
political subdivisions...................... 153,794,424 854,048 (1,239,072) 153,409,400
Corporate securities ......................... 58,135,471 86,256 (1,307,333) 56,914,394
------------- ----------- ------------ ------------
Totals .............................. $ 300,687,622 $ 957,805 $ (4,352,074) $297,293,353
============= =========== ============== ============
1998
----------------------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ------------ --------------- --------------
Fixed maturities available for sale:
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies................... $ 55,934,951 $ 1,521,904 $ (4,953) $ 57,451,902
Obligations of states and
political subdivisions...................... 252,371,231 8,054,549 (16,980) 260,408,800
Corporate securities ......................... 34,277,343 1,265,258 -- 35,542,601
------------- ----------- ------------ ------------
Totals .............................. $ 342,583,525 $10,841,711 $ (21,933) $353,403,303
============= =========== ============== ============
39
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
The amortized cost and fair value of debt securities at December 31,
1999, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to call or
prepay obligations with or without call or prepayment penalties.
Fixed maturities available
for sale
-----------------------------
Amortized Fair
Cost Value
-----------------------------
Due in one year or less..................... $ 11,107,583 $ 11,222,752
Due after one year
through five years ......................... 136,083,543 135,165,742
Due after five years
through ten years .......................... 53,294,395 52,372,127
Due after ten years ........................ 54,984,653 54,175,654
------------ ------------
255,470,174 252,936,275
Mortgage backed securities ................. 45,217,448 44,357,078
------------ ------------
Totals...................................... $300,687,622 $297,293,353
============ ============
The investment portfolio has exposure to market risks which includes
the effect of adverse changes in interest rates, credit quality, equity prices
and foreign exchange rates on the portfolio. Interest rate risk includes the
changes in the fair value of fixed maturities based upon changes in interest
rates. Credit quality risk includes the risk of default by issuers of debt
securities. Foreign currency risk includes exposure to changes in foreign
exchange rates on the market value and interest income of foreign denominated
investments. Equity risk includes the potential loss from changes in the fair
value of equity securities.
40
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
Proceeds from sales of investments in debt securities during 1999, 1998
and 1997 were $118,911,079, $51,905,388 and $167,867,245, respectively. Gross
gains of $929,242, $1,105,100 and $1,365,460 and gross losses of $ 797,483, $
14,246 and $ 868,944 were realized on those sales in 1999, 1998 and 1997,
respectively.
Realized gains (losses) and unrealized investment appreciation
(depreciation) on fixed maturities and equity securities for the years ended
December 31, 1999, 1998 and 1997 are as follows:
Year ended December 31,
----------------------------------------------
1999 1998 1997
----------------------------------------------
Realized gains (losses) on sale
of investments
Fixed maturities................................................... $ 131,759 $ 1,090,854 $ 496,516
Equity securities.................................................. 12,378,350 7,516,080 10,044,741
Short-term investments ............................................ (6,378) 8,124 (116,124)
------------ ------------ ------------
Realized investments gains ........................................ 12,503,731 8,615,058 10,425,133
Less: applicable income taxes ..................................... (4,376,306) (3,015,270) (3,648,797)
------------ ------------ ------------
Net realized investment gains ....................................... $ 8,127,425 $ 5,599,788 $ 6,776,336
============ ============ ============
Change in unrealized investment appreciation (depreciation)
of securities:
Fixed maturities .................................................. $(14,214,047) $ 2,266,766 $ 4,200,177
Equity securities.................................................. (291,085) 7,717,489 3,145,784
------------ ------------ ------------
Unrealized investment gains (losses) .............................. (14,505,132) 9,984,255 7,345,961
Less: applicable deferred income taxes ........................... 5,076,796 (3,494,488) (2,571,086)
------------ ------------ ------------
Net unrealized investment gains (losses) .......................... $ (9,428,336) $ 6,489,767 $ 4,774,875
============ ============ ============
Net investment income from each major category of investments for the
years indicated is as follows:
Year ended December 31,
----------------------------------------------
1999 1998 1997
----------------------------------------------
Fixed maturities..................................................... $17,686,462 $ 18,740,628 $ 20,192,031
Short-term investments .............................................. 994,215 2,021,670 1,089,128
Equity securities.................................................... 815,161 846,610 814,341
------------ ------------ ------------
Total investment income ......................................... 19,495,838 21,608,908 22,095,500
Investment expenses ................................................. (854,219) (805,475) (770,435)
------------ ------------ ------------
Net investment income ........................................... $ 18,641,619 $ 20,803,433 $ 21,325,065
============ ============ ============
41
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(3) FIDUCIARY FUNDS:
The Company's insurance agency subsidiaries maintain separate
underwriting accounts which record all the underlying insurance transactions of
the insurance pools which they manage. These transactions primarily include
collecting premiums from the insured, collecting paid recoverables from
reinsurers, paying claims as losses become payable, paying reinsurance premiums
to reinsurers and remitting net account balances to member insurance companies
in the pools which MMO manages. Unremitted amounts to members of the insurance
pools are held in a fiduciary capacity and interest income earned on such funds
inure to the benefit of the members of the insurance pools based on their
pro-rata participation in the pools.
A summary of the pools' underwriting accounts as of December 31, 1999
and 1998 is as follows:
December 31,
----------------------------
1999 1998
----------- -----------
Cash and short-term investments .... $ 556,542 $ 5,264,642
Premiums receivable ................ 40,151,568 36,384,613
Reinsurance and other recoverables.. 51,698,589 27,525,077
----------- -----------
Total Assets ....................... $92,406,699 $69,174,332
=========== ===========
Due to insurance pool members ...... 51,454,673 29,705,029
Reinsurance payable ................ 29,718,908 26,500,070
Funds withheld from reinsurers ..... 8,174,400 6,447,912
Other liabilities .................. 3,058,718 6,521,321
----------- -----------
Total Liabilities .................. $92,406,699 $69,174,332
=========== ===========
A portion of the pools' underwriting accounts above have been included
in the Company's insurance subsidiaries operations based upon their pro-rata
participation in the MMO insurance pools.
(4) INSURANCE OPERATIONS:
Reinsurance Transactions
------------------------
Approximately 53%, 45% and 50% of the Company's insurance subsidiaries'
direct and assumed gross premiums written for the years ended December 31, 1999,
1998 and 1997, respectively, have been reinsured by the pools with other
companies on both a treaty and a facultative basis.
In the event that all or any of the pool companies might be unable to
meet their obligations to the pools, the remaining companies would be liable for
such defaulted amounts on a pro rata pool participation basis. A contingent
liability also exists with respect to reinsurance ceded since such transactions
generally do not relieve the Company of its primary obligation to the
policyholder and such reinsurance ceded would become a liability of the
Company's insurance subsidiaries in the event that any reinsurer might be unable
to meet the obligations assumed under the reinsurance agreements. All reinsurers
must meet certain minimum standards of financial condition as established by the
pools. The Company's largest reinsurers at December 31, 1999, were Arkwright
Mutual Insurance Company ("Arkwright"), Lloyd's of London ("Lloyd's") and Utica
Mutual Insurance Company ("Utica Mutual"), with aggregate recoverables of $42
million, $23 million and $16 million, respectively. The 1999 A.M. Best ratings
for Arkwright and Utica Mutual are each A. Lloyd's maintains a trust fund which
was established for the benefit of all United States ceding companies. The
Company has not experienced difficulty in collecting amounts due from Lloyd's
and the settlement of recoverables due the Company has not materially impacted
its liquidity. However,
42
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
given the uncertainty surrounding the sufficiency of assets in Equitas to meet
its ultimate obligations, there is a reasonable possibility that the Company's
collection efforts relating to its Lloyd's recoverables might be adversely
affected in the future. The Company's exposure to reinsurers, other than
Arkwright, Lloyd's and Utica Mutual include reinsurance recoverables
collectively from approximately 830 reinsurers or syndicates, and as of December
31, 1999, no single one was liable to the Company for an unsecured amount in
excess of approximately $5.8 million.
Funds withheld and letters of credit obtained under various reinsurance
treaties amounted to approximately $116 million as of December 31, 1999.
Reinsurance receivables as of December 31, 1999 and 1998 included an allowance
for uncollectible reinsurance recoverables of $7,871,000 and $6,823,000,
respectively.
In 1998, the Company entered into a reinsurance transaction involving
the assumption of approximately $14.2 million in ocean marine premiums that
emanated from the Company's Syndicate 1265. In addition, a second reinsurance
transaction involving the assumption of approximately $10.5 million in
miscellaneous casualty net premiums was written by the Company's domestic
insurance company subsidiary in 1998. The second transaction was subsequently
commuted resulting in total payments of approximately $7.5 million.
Reinsurance ceded and assumed relating to premiums written were as
follows:
Gross Ceded Assumed Percentage
(direct) to other from other of assumed
Year Ended amount companies companies Net amount to net
---------- ------------ --------- --------- ---------- ----------
December 31, 1999 $82,065,506 $62,303,230 $36,343,802 $56,106,078 65%
December 31, 1998 85,489,133 59,408,755 46,647,604 72,727,982 64%
December 31, 1997 89,396,181 61,728,408 34,553,074 62,220,847 56%
Reinsurance ceded and assumed relating to premiums earned were as
follows:
Gross Ceded Assumed Percentage
(direct) to other from other of assumed
Year Ended amount companies companies Net amount to net
---------- ----------- --------- --------- ---------- ----------
December 31, 1999 $75,856,987 $53,099,421 $33,397,590 $56,155,156 59%
December 31, 1998 93,908,920 64,431,374 46,545,117 76,022,663 61%
December 31, 1997 97,920,323 47,875,999 37,492,582 87,536,906 43%
Losses and loss adjustment expenses incurred are net of ceded
reinsurance recoveries of $129,021,415, $83,487,279, and $26,912,355 for the
years ended December 31, 1999, 1998, and 1997, respectively.
Unpaid Losses
-------------
Unpaid losses are based on individual case estimates for losses
reported and include a provision for losses incurred but not reported and for
loss adjustment expenses. The following table provides a reconciliation of the
consolidated liability for losses and loss adjustment expenses at the beginning
and end of 1999, 1998 and 1997:
43
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
Year ended December 31,
--------------------------------
1999 1998 1997
---- ---- ----
(in thousands)
Net liability for losses and loss adjustment
expenses at beginning of year ......................................... $213,589 $222,335 $227,370
-------- -------- --------
Provision for losses and loss adjustment
expenses occurring in current year ..................................... 48,838 69,703 72,322
Decrease in estimated losses and loss
adjustment expenses for claims occurring
in prior years (1)..................................................... (12,183) (19,466) (21,874)
Deferred income-loss portfolio
assumption(2) ......................................................... 198 275 320
-------- -------- --------
Total losses and loss adjustment expenses incurred ...................... 36,853 50,512 50,768
-------- -------- --------
Less:
Losses and loss adjustment expense payments for claims occurring during:
current year....................................................... 11,517 17,407 17,029
prior years........................................................ 41,862 41,576 38,454
-------- -------- --------
53,379 58,983 55,483
Add:
Deferred income-loss portfolio assumption (2) ........................... (198) (275) (320)
-------- -------- --------
Net liability for losses and loss adjustment
expenses at year end .................................................. 196,865 213,589 222,335
-------- -------- --------
Ceded unpaid loss and loss adjustment
expenses................................................................ 228,604 187,995 166,067
-------- -------- --------
Gross unpaid losses and loss adjustment
expenses at year end .................................................. $425,469 $401,584 $388,402
======== ======== ========
(1) The adjustment to the consolidated liability for losses and loss
adjustment expenses for losses occurring in prior years reflects the
net effect of the resolution of losses for other than full reserve
value and subsequent readjustments of loss values. The decrease in
estimated losses is attributable to the ocean marine and aviation lines
of business as a result of favorable payout trends in part due to lower
retention levels per loss.
(2) Deferred income-loss portfolio assumption represents the difference
between cash received and unpaid loss reserves assumed as a result of
the assumption of net pool obligations from two former members of the
pools which was initially capitalized and is being amortized over the
payout period of the related losses.
The insurance pools participated in the issuance of umbrella casualty
insurance for various Fortune 1000 companies in the period from 1978 to 1983.
Depending on the accident year, the insurance pools' maximum retention per
occurrence ranged from $250,000 to $500,000. The Company's effective pool
participation on such risks varied from 11% in 1978 to 30% in 1983. At December
31, 1999 and 1998, the Company's gross, ceded and net loss and loss adjustment
expense reserves for Asbestos/Pollution policies amounted to $27.8 million,
$18.1 million and $9.7 million, and $24.3 million, $15.3 million and $9.0
million, respectively. Net paid losses resulting from Asbestos/Pollution losses
during 1999, 1998 and 1997 amounted to $809,000, $851,000 and $508,000,
respectively. As of December 31, 1999, the Company had approximately 355
policies which had at least one claim relating to Asbestos/Pollution exposures.
Unpaid losses and loss adjustment expenses are recorded for reported claims
regarding Asbestos/Pollution exposures, including the cost of litigation
expenses, when sufficient information is present to indicate the involvement of
a specific insurance policy and the Company can reasonably estimate this
liability. The Company believes that the uncertainty surrounding
Asbestos/Pollution exposures, including issues as to insureds' liabilities,
ascertainment of loss date, definitions of occurrence, scope of coverage, policy
limits and application and interpretation of policy terms, including exclusions,
all affect the estimation of ultimate losses. Under such circumstances, it is
difficult to determine the ultimate loss for Asbestos/Pollution related claims.
Given the uncertainty in this area, losses from Asbestos/Pollution related
claims may develop adversely. However, the Company believes that, in aggregate,
the net unpaid loss and loss adjustment expense reserves as of December 31,
1999, allow for an adequate provision and that the ultimate resolution of the
Asbestos/Pollution claims will not have a material impact on the Company's
financial position.
44
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
Salvage and Subrogation
-----------------------
Estimates of salvage and subrogation recoveries on paid and unpaid
losses have been recorded as a reduction of unpaid losses amounting to
$5,884,591 and $6,354,281 at December 31, 1999 and 1998, respectively.
Deferred Policy Acquisition Costs
---------------------------------
Deferrable acquisition costs amortized to income amounted to
$11,077,382, $10,107,327 and $16,582,623 for the years ended December 31, 1999,
1998 and 1997, respectively.
(5) PROPERTY, IMPROVEMENTS AND EQUIPMENT, NET:
Property, improvements and equipment, at December 31, 1999 and 1998
include the following.
1999 1998
------------ -----------
Office furniture and equipment........................ $ 1,499,397 $ 1,492,011
Computer equipment.................................... 2,313,591 2,174,561
Leasehold improvements................................ 2,351,498 2,433,141
------------ ------------
6,164,486 6,099,713
Less: accumulated depreciation and amortization...... (4,371,610) (3,758,692)
------------ -----------
Property, improvements and equipment, net...... $ 1,792,876 $ 2,341,021
============ ===========
Depreciation and amortization and other expenses for the years ended
December 31, 1999, 1998 and 1997 amounted to $699,107, $733,950 and
$582,126, respectively.
(6) INCOME TAXES:
The components of deferred tax assets and liabilities as of December
31, 1999 and 1998 are as follows:
December 31,
-----------------------------------
1999 1998
------------- -------------
Deferred Tax Assets:
Loss reserve discounting.............................. $ 10,561,268 $ 13,128,970
Unearned premiums..................................... 1,920,515 1,923,950
Equity securities write-down.......................... 820,578 764,692
Income tax carryforwards.............................. 2,667,328 1,175,845
Deferred rent liability............................... 333,874 374,215
Bad debt reserve...................................... 2,912,486 2,615,459
Other................................................. 490,508 272,841
------------- -------------
Deferred tax assets................................... 19,706,557 20,255,972
------------- -------------
Less: Valuation allowance............................. 2,191,576 1,187,445
------------- -------------
Total deferred tax assets............................. 17,514,981 19,068,527
------------- -------------
45
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
December 31,
------------------------
1999 1998
------------------------
Deferred Tax Liabilities:
Deferred policy acquisition costs..................................... 1,697,705 1,497,101
Unrealized appreciation of investments ............................... 5,377,732 10,454,527
Deferred income-loss portfolio assumption ............................ 74,753 144,167
Discount on accrued salvage and subrogation .......................... 311,200 348,111
Other ................................................................ 742,256 812,880
----------- -----------
Total deferred tax liabilities ....................................... 8,203,646 13,256,786
----------- -----------
Net deferred tax assets .............................................. $9,311,335 $ 5,811,741
=========== ===========
The last year for which the income tax carryforwards can be carried
forward against future tax liabilities is the year 2019.
The Company's valuation allowance account with respect to the deferred
tax asset is related to income tax carryforwards and the change in the account
is as follows:
1999 1998 1997
--------------------------------------
Balance, beginning of year ................. $1,187,445 $ -- $ 516,716
Change in valuation allowance .............. 1,004,131 1,187,445 (516,716)
---------- ---------- ----------
Balance, end of year ...................... $2,191,576 $1,187,445 $ --
========== ========== ==========
The Company believes that the total deferred tax asset net of the
recorded valuation allowance account as of December 31, 1999 will more likely
than not be fully realized.
Income tax provisions differ from the amounts computed by applying the
Federal statutory rate to income before income taxes as follows:
Year ended December 31,
-----------------------
1999 1998 1997
---- ---- ----
Income taxes at the Federal statutory rate ...................... 35.0% 35.0% 35.0%
Tax exempt interest ............................................. (20.8) (21.7) (12.5)
Valuation allowance ............................................. 4.7 5.2 (1.5)
State taxes ..................................................... (2.4) (3.9) (0.5)
Net bond amortization............................................ 3.4 3.3 1.9
Investment income proration ..................................... 2.8 2.9 1.7
Other, net ...................................................... (0.2) (1.7) 1.5
---- ---- ----
Income tax provisions ........................................... 22.5% 19.1% 25.6%
==== ==== ====
Federal income tax payments amounted to $3,694,794, $5,328,181 and
$9,335,632 for the years ended December 31, 1999, 1998 and 1997, respectively.
Federal income tax payable at December 31, 1999 included in other
liabilities amounted to $409,939. Federal income taxes recoverable at December
31, 1998 included in other assets amounted to $181,667.
46
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(7) STATUTORY INCOME AND SURPLUS:
The Company's domestic insurance subsidiaries are limited, based on the
lesser of 10% of statutory basis surplus or 100% of net investment income, as
defined under New York Insurance Law, in the amount of dividends they could pay
without regulatory approval. The maximum amount which may be paid to the holding
company out of December 31, 1999 surplus is approximately $19,630,000.
Consolidated statutory net income, surplus and dividends declared by
the Company's domestic insurance subsidiaries were as follows for the periods
indicated:
Consolidated Consolidated Dividends
Statutory Statutory Declared
Year Ended Net Income Surplus To Parent
---------- ---------- ------- ---------
December 31, 1999 $ 25,476,000 $ 200,899,000 $ 19,175,000
December 31, 1998 30,223,000 196,745,000 18,367,000
December 31, 1997 36,758,000 181,844,000 17,850,262
(8) EMPLOYEE RETIREMENT PLANS:
The Company maintains two retirement plans for the benefit of
employees. Both plans provide for 100% vesting upon completion of two years of
service. The Money Purchase Plan provides for a contribution equal to 7-1/2% of
an employee's cash compensation, including bonuses, for each year of service
during which the employee has completed 1000 hours of service and is employed on
the last day of the plan year. The Profit Sharing Plan does not require any
specific contribution but any contribution made is subject to the restrictions
set forth above for the Money Purchase Plan. Contributions and related
administrative expenses for the years ended December 31, 1999, 1998 and 1997
amounted to $600,346, $1,017,551, and $978,997, respectively.
(9) DEBT:
The Company maintains a credit agreement with a bank. The interest
rate on the loan is fixed, at the Company's option, for a period of one to six
months. The Company has elected to pay interest at an effective rate of
approximately 6.275% on the outstanding principal balance of the loan at
December 31, 1999 of $12,458,413. The interest rate was equal to the bank's
Adjusted London Interbank Offered Rate at the time of the interest rate
adjustment period, plus .65 of 1%. Principal repayments are paid quarterly in
equal installments of $1,250,000 and end on June 30, 2002. The Company has the
option to prepay amounts in excess of the required repayments. At the Company's
option, the interest rate may be based on either the higher of the bank's prime
rate or the applicable Federal Funds Rate, plus 1/2 of 1%, or the bank's
adjusted certificate of deposit rate, plus .775 of 1%.
The bank loan agreement requires the Company to maintain a minimum net
worth of $125,000,000 plus 50% of net profits earned during each year on a
cumulative basis. In addition, other significant covenants include limitations
on total indebtedness, investment purchases, pledging and sales of assets and
requires the Company's insurance subsidiaries to maintain a certain statutory
surplus, gross and net premiums written to surplus ratios and total liabilities
to surplus ratio. The Company was in compliance with all financial covenants as
stipulated in the bank loan agreement as of December 31, 1999. The credit
agreement also provides for a facility fee of .15 of 1% on the outstanding
balance of the loan.
47
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
Interest paid amounted to $1,057,993, $1,347,653 and $1,464,240 for the
years ended December 31, 1999, 1998 and 1997, respectively.
In 1998, the Company entered into an interest rate swap agreement (the
"agreement") with a bank for purposes of hedging its interest rate risk on its
existing bank loan. The agreement requires the Company to pay interest to the
bank at a rate of 6.50% on the original notional amount outstanding of
$22,500,000, which is subsequently adjusted quarterly by notional reductions of
$1,250,000. The bank is required to pay the Company, on the same notional
amounts outstanding, an amount equal to the three month US Dollar London
Interbank Offered Rate plus .65% which is reset on a quarterly basis. Interest
expense recorded under the agreement was $91,462 in 1999 and $44,719 in 1998.
(10) COMMITMENTS:
The Company maintains various operating leases to occupy office space.
The lease terms expire on various dates through April, 2004.
The aggregate minimum annual rental payments under various operating
leases for office facilities as of December 31, 1999 are as follows:
Amount
------
2000......................................... $ 1,351,030
2001......................................... 1,351,030
2002......................................... 1,351,030
2003......................................... 1,351,030
Thereafter................................... 2,723
------------
Total........................................ $ 5,406,843
============
The operating leases also include provisions for additional payments
based on certain annual cost increases. Rent expenses for the years ended
December 31, 1999, 1998 and 1997 amounted to $1,285,950, $1,131,951 and
$1,049,119, respectively.
In 1999, Vincent T. Papa, a former President and Chief Executive
Officer of the Company, filed suit in the New York Supreme Court seeking damages
from the Company based upon alleged breaches by the Company of its obligations
under an employment agreement with Mr. Papa. The Company intends vigorously to
defend itself against such claims and believes it has no further obligations to
Mr. Papa.
The Company is not involved in any other litigation which would require
disclosure in the financial statements or would have a material impact on the
Company's financial statements.
In connection with the formation of MMO UK LTD, in 1997, as corporate
capital for Syndicate 1265, the Company obtained an unsecured letter of credit
from a bank in pounds sterling with a US dollar equivalent of approximately
$22.4 million as of December 31, 1999.
48
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(11) COMPREHENSIVE INCOME:
The Company's comparative comprehensive income is as follows:
Year ended December 31,
-----------------------------------
1999 1998 1997
---- ---- ----
Net Income ......................................... $16,413,261 $ 18,523,416 $ 26,367,740
Unrealized holding gains (losses) on securities,
net of deferred tax benefit (expense) of
$700,490, $(6,509,758), and $(6,219,883) ...... (1,300,911) 12,089,555 11,551,211
Less: reclassification adjustment for gains realized
in net income, net of tax expense of
$(4,376,306), $(3,015,270), and $(3,648,797) ... 8,127,425 5,599,788 6,776,336
Foreign currency translation ....................... (76,817) 15,039 6,000
----------- ----------- -----------
Comprehensive income ............................... $ 6,908,108 $25,028,222 $31,148,615
=========== =========== ===========
The Company recorded unrealized holding gains on securities, net of
deferred taxes, of $9,987,216 and $19,415,552 as of December 31, 1999 and 1998,
respectively. The Company recorded foreign currency translation adjustments of
$(55,778) and $21,039 as of December 31, 1999 and 1998, respectively.
(12) COMMON STOCK REPURCHASE PLAN AND SHAREHOLDERS' EQUITY:
The Company has a common stock repurchase plan which authorizes the
repurchase of up to $55,000,000, at prevailing market prices, of the Company's
issued and outstanding shares of common stock on the open market. As of December
31, 1999, the Company had repurchased a total of 2,124,082 shares of common
stock under this plan at a total cost of $38,560,659 at market prices ranging
from $13.69 to $28.81 per share.
In connection with the acquisition of MMO in 1991, the Company also
acquired 3,215,958 shares of its own common stock held by MMO and recorded such
shares as treasury stock at MMO's original cost of $3,919,129.
A reconciliation of basic and diluted EPS for each of the year ended
December 31, 1999, 1998 and 1997 is as follows:
(In thousands except for per share amounts)
1999 1998 1997
--------------------------- ---------------------------- -----------------------------
Weighted Weighted Weighted
Average Average Average
Net Shares Per Net Shares Per Net Shares Per
Income Outstanding Share Income Outstanding Share Income Outstanding Share
------ ----------- ----- ------ ----------- ----- ------ ----------- -----
Basic EPS: .............. $16,413 9,687 $1.69 $18,523 9,679 $1.91 $26,368 9,849 $ 2.68
Effect of
Dilutive Securities:
Stock Options ........... -- -- -- -- 26 -- -- 23 (.01)
------- ------- ------ ------- -------- ----- ------- ----- -------
Diluted EPS ............. $16,413 9,687 $1.69 $18,523 9,705 $1.91 $26,368 9,872 $ 2.67
======= ======= ====== ======= ======== ===== ======= ===== =======
49
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(13) STOCK PLANS:
The Company has a stock option plan, which was approved by shareholders
in 1991, and provides a means whereby the Company, through the grant of
non-qualified stock options to key officers, may attract and retain persons of
ability as officers to exert their best efforts on behalf of the Company. The
plan authorizes the issuance of options to purchase up to 500,000 shares of the
Company's common stock at not less than 95 percent of the fair market value at
the date of grant. Options are exercisable over a period as determined in each
option agreement and expire at a maximum term of ten years.
A summary of activity under the stock option plan for the years ended
December 31, 1999, 1998, and 1997 follows:
1999 1998 1997
-------------------------------------------------------------------------------
Number Option Number Option Number Option
Shares Under of Price of Price of Price
Option Shares Per Share Shares Per Share Shares Per Share
------ -------- --------- ------ --------- ------ ---------
Outstanding,
beginning of year .......... 228,200 $15.56-$22.92 243,100 $13.78-$22.92 373,200 $13.78-$22.92
Granted .................... 140,000 $12.05-$15.00 30,000 $ 20.25 -- -- --
Exercised .................. -- -- -- (25,900) $13.78-$15.79 (80,000) $13.78-$15.79
Forfeited .................. (112,700) $15.56-$22.92 (19,000) $15.56-$15.79 (50,100) $15.56-$22.92
-------- ------- -------
Outstanding,
end of year ................ 255,500 $12.05-$20.25 228,200 $15.56-$22.92 243,100 $13.78-$22.92
======== ======= =======
Exercisable,
end of year ................ 138,000 $15.56-$20.25 115,367 $15.56-$22.92 95,356 $13.78-$22.92
======== ======= =======
The Company has elected to measure compensation expense for employee
stock options under APB No. 25 as permitted by SFAS 123, "Accounting for Stock
Based Compensation." Under SFAS 123, the Company is required to disclose the pro
forma effects on net income of applying a fair value method of measuring
compensation expense.
The pro forma effect on the years ended December 31, 1999, 1998 and
1997 is as follows:
1999 1998 1997
----------- ----------- -----------
Net income - as reported $16,413,261 $18,523,416 $26,367,740
Net income - pro forma $16,280,784 $18,414,657 $26,261,229
Diluted EPS - as reported $1.69 $1.91 $2.67
Diluted EPS - pro forma $1.68 $1.90 $2.66
In determining the pro forma effect on net income, the fair value of
options granted in 1999, 1998, 1996 and 1995 was estimated at the grant date
using the Black-Scholes option-pricing model with the following weighted average
assumptions in 1999, 1998, 1996 and 1995, respectively; dividend yield of 3.0%,
1.9%, 2.2% and 2.4%; expected volatility of 25%, 28%, 25% and 28%; expected
lives of 5 years for each year and a risk-free interest rate of 6.48%, 4.56%,
6.00% and 5.38%. There were no options granted in 1997.
The full impact of calculating compensation expense for stock options
under SFAS 123 is not reflected in the pro forma net income amounts presented
above because options granted prior to January 1, 1995 are not considered in the
determination of the compensation expense.
50
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
In 1999, the Company established the NYMAGIC, Inc. Phantom Stock Plan
(the "Plan"), the purpose of the Plan is to build and retain a capable
experienced long-term management team and key personnel to promote the success
of the Company. Each share of phantom stock granted under the Plan constitutes a
right to receive in cash the appreciation in the fair market value of one share
of the Company's stock, as determined on the date of exercise of such share of
phantom stock over the measurement value of such phantom stock. In 1999, 100,000
shares of phantom stock were granted to employees with a five-year vesting
schedule. The Company recorded an expense of $263,750 in 1999 under this plan.
(14) SEGMENT INFORMATION:
The Company's subsidiaries include two domestic insurance companies,
three domestic agency subsidiaries, and Syndicate 1265. The Company considers
these operating companies as appropriate segments for purposes of evaluating the
Company's overall performance. The Company evaluates revenues and income or loss
by these segments. Revenues include premiums earned, commissions income, and
investment income. Net income or loss includes total revenues, less the sum of
losses incurred, policy acquisition costs, other expenses, and income taxes.
The prior year's segment disclosure has been restated to conform to the
current year's presentation as a result of management's reassessment of its main
business segments.
The financial information by segment is as follows:
1999 1998 1997
--------------------------------
(in thousands)
Revenues, excluding net investment income and realized gains:
Domestic Insurance Companies ............................................ $ 42,603 $ 61,392 $ 87,826
Domestic Insurance Agencies ............................................. 9,076 8,649 10,879
Syndicate 1265 .......................................................... 14,446 15,262 --
Other (includes corporate operations and consolidating adjustments) ..... (7,776) (8,293) (9,437)
-------- -------- --------
Total ........................................................ $ 58,349 $ 77,010 $ 89,268
======== ======== ========
Net investment income:
Domestic Insurance Companies ............................................ $ 17,904 $ 19,695 $ 21,304
Domestic Insurance Agencies ............................................. -- -- --
Syndicate 1265 .......................................................... 721 1,108 --
Other (includes corporate operations and consolidating adjustments) ..... 17 -- 21
-------- -------- --------
Total ........................................................ $ 18,642 $ 20,803 $ 21,325
======== ======== ========
Realized gains (losses) on investments:
Domestic Insurance Companies ............................................ $ 12,589 $ 8,615 $ 10,425
Domestic Insurance Agencies ............................................. -- -- --
Syndicate 1265 .......................................................... (85) -- --
Other (includes corporate operations and consolidating adjustments) ..... -- -- --
-------- -------- --------
Total ........................................................ $ 12,504 $ 8,615 $ 10,425
======== ======== ========
Income (loss) before tax expense:
Domestic Insurance Companies ............................................ $ 30,412 $ 35,965 $ 39,481
Domestic Insurance Agencies ............................................. (4,959) (8,066) (1,851)
Syndicate 1265 .......................................................... (1,119) 132 --
Other (includes corporate operations and consolidating adjustments) ..... (3,154) (5,127) (2,176)
-------- -------- --------
Total ........................................................ $ 21,180 $ 22,904 $ 35,454
======== ======== ========
51
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
1999 1998 1997
------------------------------------
(in thousands)
Income tax expense (benefit):
Domestic Insurance Companies ................................................. $ 7,155 $ 8,769 $ 10,440
Domestic Insurance Agencies .................................................. (1,706) (2,787) (599)
Syndicate 1265 ............................................................... (116) 60 --
Other (includes corporate operations and consolidating adjustments) .......... (567) (1,661) (754)
--------- --------- ---------
Total ............................................................. $ 4,766 $ 4,381 $ 9,087
========= ========= =========
Net income (loss):
Domestic Insurance Companies ................................................. $ 23,257 $ 27,196 $ 29,041
Domestic Insurance Agencies .................................................. (3,253) (5,279) (1,251)
Syndicate 1265 ............................................................... (1,003) 72 --
Other (includes corporate operations and consolidating adjustments) .......... (2,588) (3,466) (1,422)
--------- --------- ---------
Total ............................................................. $ 16,413 $ 18,523 $ 26,368
========= ========= =========
Identifiable assets:
Domestic Insurance Companies ................................................. $ 724,923 $ 702,927 $ 694,224
Domestic Insurance Agencies .................................................. 1,576 1,495 3,507
Syndicate 1265 ............................................................... 32,404 22,144 4,227
Other (includes corporate operations and consolidating adjustments) .......... 5,401 3,754 5,945
--------- --------- ---------
Total ............................................................. $ 764,304 $ 730,320 $ 707,903
========= ========= =========
The Company's gross written premiums cover risks in the following
geographic locations:
1999 1998 1997
---------------------------------
(in thousands)
United States .................................................... $ 72,881 $ 93,460 $ 80,896
Europe ........................................................... 20,146 18,480 18,339
Asia ............................................................. 15,302 11,948 12,860
Latin America .................................................... 2,798 2,970 4,028
Other ............................................................ 7,282 5,279 7,826
--------- --------- ---------
Total Gross Written Premiums ............................. $ 118,409 $ 132,137 $ 123,949
========= ========= =========
(15) Related Party Transactions:
The Company made payments of $212,259 in 1999 to the firm of Kensington
& Ressler L.L.C. for legal services. Costa Kensington, a director of the
Company, is a partner in the firm of Kensington & Ressler L.L.C.
52
FINANCIAL STATEMENT SCHEDULES
SCHEDULE II-CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NYMAGIC, INC.
Balance Sheets
(Parent Company)
December 31,
------------------------------
1999 1998
------------------------------
Assets:
Cash........................................................... $ 55,745 $ 47,116
Short term investments ........................................ 7,767,122 --
Investment in subsidiaries .................................... 219,744,413 229,680,280
Due from subsidiaries and MMO insurance pools ................. 15,203,952 14,664,300
Other assets................................................... 2,456,387 2,471,346
------------- -------------
Total assets.......................................... $ 245,227,619 $ 246,863,042
============= =============
Liabilities:
Notes payable.................................................. $ 12,458,413 $ 17,458,413
Dividends payable ............................................. 967,785 968,549
Other liabilities ............................................. 659,062 256,213
------------- -------------
Total Liabilities.......................................... 14,085,260 18,683,175
------------- -------------
Shareholders' equity:
Common stock .................................................. 15,017,892 15,017,892
Paid in capital................................................ 27,935,907 28,029,410
Accumulated other comprehensive income ........................ 9,931,438 19,436,591
Retained earnings ............................................. 220,736,910 208,198,204
Treasury stock................................................. (42,479,788) (42,502,230)
------------- -------------
Total shareholders' equity ........................... 231,142,359 228,179,867
------------- -------------
Total liabilities and shareholders' equity ........... $ 245,227,619 $ 246,863,042
============= =============
Statements of Income
(Parent Company)
Year Ended December 31,
--------------------------------------------
1999 1998 1997
------------ ------------ ------------
Revenues:
Cash dividends from subsidiary................................. $19,175,000 $ 18,367,000 $ 17,850,262
Net investment income ......................................... 17,122 74,122 21,070
------------ ------------ ------------
19,192,122 18,441,122 17,871,332
------------ ------------ ------------
Expenses:
Operating expenses............................................. 2,799,957 5,200,857 2,197,039
Income tax benefit............................................. (451,810) (1,661,488) (754,480)
------------ ------------ ------------
2,348,147 3,539,369 1,442,559
------------ ------------ ------------
Income before equity income ................................... 16,843,975 14,901,753 16,428,773
Equity in undistributed earnings
(loss) of subsidiaries ........................................ (430,714) 3,621,663 9,938,967
------------ ------------ ------------
Net income .................................................... $ 16,413,261 $ 18,523,416 $ 26,367,740
============ ============ ============
53
SCHEDULE II-CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NYMAGIC, INC.
Statements of Cash Flows
(Parent Company)
Year Ended December 31,
--------------------------------------------
1999 1998 1997
------------ ------------ ------------
Cash flows from operating activities:
Net income ......................................................... $ 16,413,261 $ 18,523,416 $ 26,367,740
------------ ------------ ------------
Adjustments to reconcile net income
to cash provided by operating activities:
Equity in undistributed earnings of
subsidiaries .............................................. 430,714 (3,621,663) (9,938,967)
Decrease (increase) in other assets ............................ 14,959 192,184 (834,339)
(Increase) decrease in due from subsidiaries ................... (539,652) (11,997,928) (439,365)
(Decrease) increase in other liabilities ....................... 402,849 100,592 19,219
------------ ------------ ------------
Net cash provided by operating activities .......................... 16,722,131 3,196,601 15,174,288
------------ ------------ ------------
Cash flows from investing activities:
Short term investments acquired ................................ (7,767,122) (2,870,000) (13,800,000)
Short term investments matured ................................. -- 8,870,000 12,800,000
Investment in subsidiaries ..................................... -- (989,821) (2,476,500)
------------ ------------ ------------
Net cash provided by (used in) investing
activities ................................................ (7,767,122) 5,010,179 (3,476,500)
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from stock issued and other ........................... (93,503) 525,433 1,351,618
Cash dividends paid to stockholders ............................ (3,875,319) (3,870,040) (3,958,130)
Net repurchase of common stock ................................. 22,442 (20,573) (10,922,760)
Proceeds from borrowings ....................................... -- 5,000,000 9,520,000
Loan principal payments......................................... (5,000,000) (10,000,000) (7,500,000)
------------ ------------ ------------
Net cash used in financing activities .......................... (8,946,380) (8,365,180) (11,509,272)
------------ ------------ ------------
Net increase (decrease) in cash .................................... 8,629 (158,400) 188,516
Cash at beginning of period ........................................ 47,116 205,516 17,000
------------ ------------ ------------
Cash at end of period............................................... $ 55,745 $ 47,116 $ 205,516
============ ============ ============
The condensed financial information of NYMAGIC, INC. for the years
ended December 31, 1999, 1998 and 1997 should be read in conjunction with the
consolidated financial statements of NYMAGIC, INC. and subsidiaries and notes
thereto.
54
NYMAGIC, INC.
SCHEDULE V-VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 1999 AND 1998
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- --------------------------------------------------------------------------------------------------
DESCRIPTION Balance at Balance
beginning close of
of period Additions Deductions period
- --------------------------------------------------------------------------------------------------
December 31, 1999:
Allowance for
doubtful accounts...... $7,472,739 $2,158,060 $(1,309,411) $8,321,388
December 31, 1998:
Allowance for
doubtful accounts....... $6,485,000 $1,456,160 $ (468,421) $7,472,739
55
NYMAGIC, INC.
SCHEDULE VI - SUPPLEMENTAL INFORMATION CONCERNING PROPERTY/CASUALTY INSURANCE
OPERATIONS.
(In Thousands)
CLAIMS AND CLAIMS AMORTIZATION
EXPENSES INCURRED OF PAID
DEFERRED RESERVE FOR RELATED TO DEFERRED CLAIMS
AFFILIATION POLICY UNPAID CLAIMS UNEARNED NET NET ----------------- POLICY AND
WITH ACQUISITION AND CLAIMS PREMIUM EARNED INVESTMENT CURRENT PRIOR ACQUISITION CLAIMS PREMIUMS
REGISTRANT COSTS EXPENSES DISCOUNT RESERVE PREMIUMS INCOME YEAR YEAR COSTS EXPENSES WRITTEN
- -----------------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 1999 $4,851 $425,469 -- $56,033 $56,155 $ 18,624 $48,838 $(12,183) $11,077 $53,379 $56,106
CONSOLIDATED
SUBSIDIARIES
DECEMBER 31, 1998 4,277 401,584 -- 46,879 76,023 20,729 69,703 (19,466) 10,107 58,983 72,728
CONSOLIDATED
SUBSIDIARIES
DECEMBER 31, 1997 5,567 388,402 -- 55,188 87,537 21,304 72,322 (21,874) 16,583 55,483 62,221
CONSOLIDATED
SUBSIDIARIES
56
EXHIBIT INDEX
3.1. Charter. (Incorporated by reference to Exhibit 3-1 to the Registrant's
Registration Statement No. 33-27665.)
3.3. Amended and Restated By-laws.
4.0. Specimen Certificate of common stock (Incorporated by reference to
Exhibit 4 to the Registrant's Registration Statement No. 33-27665.)
10.2. Restated Management Agreement dated as of January 1, 1986, by and
among Mutual Marine Office, Inc. and Arkwright-Boston Manufacturers
Mutual Insurance Company, Utica Mutual Insurance Company, Lumber
Mutual Insurance Company, the Registrant and Pennsylvania National
Mutual Casualty Insurance Company (Incorporated by reference to
Exhibit 10.2 of the Registrant's Annual Report Form 1O-K for the
fiscal year ended December 31, 1986 (Commission File No. 1-11238).)
10.2.2. Amendment to Restated Management Agreement, dated as of December 30,
1988, and among Mutual Marine Office, Inc. and Arkwright Mutual
Insurance Company, Utica Mutual Insurance Company, Lumber Mutual
Insurance Company, the Registrant and Pennsylvania National Mutual
Casualty Insurance Company. (Incorporated by reference to Exhibit
10.2.2. of the Registrant's Report on Form 8-K dated January 6, 1989
(Commission File No. 1-11238).)
10.2.3. Amendment to Restated Management Agreement, dated as of December 31,
1990, and among Mutual Marine Office, Inc. and Arkwright Mutual
Insurance Company, Utica Mutual Insurance Company, the Registrant and
Pennsylvania National Mutual Casualty Insurance Company. (Incorporated
by reference to Exhibit 10.2.3. of the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992 (Commission File
No. 1-11238).)
10.4. Restated Management Agreement dated as of January 1, 1986, by and
among Mutual Inland Marine Office, Inc. and Arkwright-Boston
Manufacturers Mutual Insurance Company, Utica Mutual Insurance
Company, Lumber Mutual Insurance Company, the Registrant and
Pennsylvania National Mutual Casualty Insurance Company (Incorporated
by reference to Exhibit 10.4 of the Registrant's Annual Report Form
10-K for the fiscal year ended December 31, 1986 (Commission File No.
1-11238).)
10.4.2. Amendment to Restated Management Agreement, dated as of December 30,
1988, and among Mutual Inland Marine Office, Inc. and Arkwright Mutual
Insurance Company, Utica Mutual Insurance Company, Lumber Mutual
Insurance Company, the Registrant and Pennsylvania National Mutual
Casualty Insurance Company (Incorporated by reference to Exhibit
10.4.2 of the Registrant's Report on Form 8-K, dated January 6, 1989
(Commission File No. 1-11238).)
10.4.3. Amendment to Restated Management Agreement, dated as of December 31,
1990, by and among Mutual Inland Marine Office, Inc. and Arkwright
Mutual Insurance Company, Utica Mutual Insurance Company, the
Registrant and Pennsylvania National Mutual Casualty Insurance
Company. (Incorporated by reference to Exhibit 10.4.3. of the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992 (Commission File No. 1-11238).)
10.6. Restated Management Agreement dated as of January 1, 1986, by and
among Mutual Marine Office of the Midwest, Inc. and Arkwright-Boston
Manufacturers Mutual Insurance Company, Utica Mutual Insurance
Company, Lumber Mutual Insurance Company, the Registrant and
Pennsylvania National Mutual Casualty Insurance Company. (Incorporated
by reference to Exhibit 10.6 of the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1986 (Commission File No.
1-11238).)
10.6.2. Amendment to Restated Management Agreement dated as of December 30,
1988, by and among Mutual Marine Office of the Midwest, Inc. and
Arkwright Mutual Insurance Company, Utica Mutual Insurance Company,
Lumber Mutual Insurance Company, the Registrant and Pennsylvania
National Mutual Casualty Insurance Company. (Incorporated by reference
to Exhibit 10.6.2 of the Registrant's Report on Form 8-K, dated
January 6, 1989 (Commission File No. 1-11238).)
10.6.3. Amendment to Restated Management Agreement dated as of December 31,
1990, by and among Mutual Marine Office of the Midwest, Inc. and
Arkwright Mutual Insurance Company, Utica Mutual Insurance Company,
the Registrant and Pennsylvania National Mutual Casualty Insurance
Company. (Incorporated by reference to Exhibit 10.6.3. of the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992 (Commission File No. 1-11238).)
10.8. Restated Management Agreement dated as of January 1, 1986, by and
among Pacific Mutual Marine Office, Inc. and Arkwright-Boston
Manufacturers Mutual Insurance Company, Lumber Mutual Insurance
Company, Utica Mutual Insurance Company, the Registrant and
Pennsylvania National Mutual Casualty Insurance Company. (Incorporated
by reference to Exhibit 10.8 of the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1986 (Commission File No.
1-11238).)
10.8.2. Amendment to Restated Management Agreement dated as of December 30,
1988, by and among Pacific Mutual Marine Office, Inc. and Arkwright
Mutual Insurance Company, Lumber Mutual Insurance Company, Utica
Mutual Insurance Company, the Registrant and Pennsylvania National
Mutual Casualty Insurance Company. (Incorporated by reference to
Exhibit 10.8.2 of the Registrant's Report on Form 8-K, dated January
6, 1989 (Commission File No. 1-11238).)
10.8.3. Amendment to Restated Management Agreement dated as of December 31,
1990, by and among Pacific Mutual Marine Office, Inc. and Arkwright
Mutual Insurance Company, Utica Mutual Insurance Company, the
Registrant and Pennsylvania National Mutual Casualty Insurance
Company. (Incorporated by reference to Exhibit 10.8.3. of the
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992 (Commission File No. 1-11238).)
10.9 1991 Option Plan (Incorporated by reference the Registrant's Proxy
Statement for its 1991 Annual Meeting of Shareholders (Commission File
No. 1-11238).)
10.10 Form of Indemnification Agreement.
10.11 1999 NYMAGIC, INC. Phantom Stock Plan.
21. Subsidiaries of the Registrant.
23. Consent of KPMG LLP.
27. Financial Data Schedule.