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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(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, 2000
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 Item 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, 2001 was approximately $59,196,973.
The number of shares outstanding of each of the registrant's classes of common
stock, as of March 1, 2001, was 9,179,992 shares of common stock, $1.00 par
value.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Company's Proxy Statement for the 2001 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 UK")
MMO EU, Ltd. - ("MMO EU")
Insurance Underwriters and Managers:
-----------------------------------
Mutual Marine Office, Inc. - ("MMO")
Pacific Mutual Marine Office, Inc. - ("PMMO")
Mutual Marine Office of the Midwest, Inc. - ("Midwest")
New York Marine and Gotham each maintains an A.M. Best 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.
In 1997, the Company formed MMO EU as a holding Company for MMO UK
which operates as a corporate vehicle to provide capacity for syndicates within
Lloyd's of London. In 1997, the Company acquired ownership of Highgate Managing
Agencies, Ltd. which subsequently was renamed MMO Underwriting Agency, Ltd. MMO
Underwriting Agency Ltd., a Lloyd's managing agency, commenced underwriting in
1998 for the Company's wholly owned subsidiary MMO UK, which provides 100% of
the capital for Syndicate 1265. In 2000, the Company sold MMO Underwriting
Agency Ltd. in exchange for a minority interest in Cathedral Capital PLC.
Syndicate 1265 was placed into runoff in 2000. In 2001, MMO UK will provide
approximately $13.6 million of capacity for Syndicate 2010, which will be
managed by Cathedral Capital. MMO EU, MMO UK, Syndicate 1265 and Syndicate 2010
are collectively hereinafter referred to as "MMO London."
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/Environmental 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.
2
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.
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.
The Manager also receives any profits derived from reinsurance
contingent commissions on pool business ceded under various reinsurance
agreements. Reinsurance contingent commissions are calculated on an earned basis
using inception to date underwriting results for the various reinsurance
treaties and is recorded 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 in 1994 and 1996, respectively, 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 by management and the Finance Committee of the Board of
Directors.
The investment policy for New York Marine as of December 31, 2000 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 Baa2/BBB 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 Baa2/BBB 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.
4) Commercial Mortgage Backed Securities (CMBS)
with a rating not less than AA2/AA and all
such investments in CMBS, collectively, not
in excess of 10% of total investments.
B) Preferred stocks with sinking funds, rated Baa2/BBB
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.
D) All investments in Bonds rated less than
A3/A- limited to 7% of total investments.
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 New York Marine's investment policy.
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 investments.
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 Sanford Bernstein & Co.(SB&C). New York Marine's equity portfolio is
managed, in part, by SB&C and, in part, by Groupama Asset Management. Gotham has
its fixed income portfolio managed by SB&C and its equity portfolio managed by
Rorer Asset Management. The Company's MMO London investments are managed by
Aberdeen Asset Managers Ltd. See "Subsidiaries".
As of December 31, 2000, the Company's fixed maturities and equity
securities were invested as follows:
NYMAGIC, INC. New York Marine Gotham MMO London
------------- --------------- ------ ----------
(In thousands)
Bonds Rated A- or better $3,562 $201,532 $64,006 $10,366
Equities -0- $38,197 $17,520 $3,275
4
Segments
The Company considers its domestic insurance/agency companies and MMO
London as appropriate segments to conduct its business operations. The Company's
overall performance is evaluated through the two main business segments.
The domestic insurance companies include New York Marine and Gotham.
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 worldwide
regions as Europe, Asia, and Latin America. See "Regulation." The domestic
insurance agencies include MMO, PMMO and Midwest. These agencies underwrite all
the business for the domestic insurance companies. Revenues from this segment
include premiums, investment income and contingent commissions from reinsurance
transactions. Expenses include losses incurred, policy acquisition costs and
general and administrative expenses.
MMO London includes its insurance participation in Lloyd's of London.
Lloyd's provides worldwide licenses for MMO London to operate. Revenues from
this segment include premiums, investment income, contingent commissions from
reinsurance transactions and other income. Expenses include losses incurred,
policy acquisition costs and general and administrative expenses.
Business obtained through the domestic insurance/agency companies
segment 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 traditionally includes property while being transported, or property
of a movable, or "floating" nature. Inland marine, among other things includes,
insurance of real property when covered under a difference in conditions (DIC),
or builders risk policy, inland cargo and transit shipments, equipment floaters,
miscellaneous property insurance and assumed reinsurance. DIC insurance covers
those perils not included with a fire and extended coverage policy, including
burglary, collapse, flood, and earthquake. Inland marine also includes excess &
surplus lines property coverage as provided on unique or hard to place risks
that do not fit into standard commercial lines companies and such coverage is
written primarily through Gotham. Aircraft insurance includes hull and engine
insurance, liability insurance as well as products liability insurance.
Non-marine liability insurance includes, among other things, coverage for
manufacturers and contractors risks, building owners and commercial stores,
assumed reinsurance and casualty excess and surplus line risks written primarily
through Gotham.
Business obtained by MMO London through Syndicate 1265 includes the
underwriting of ocean marine insurance. Ocean marine insurance includes coverage
for hull, cargo, energy, war risks, marine liability, and marine excess of loss
risks. In 2001, business to be obtained through Syndicate 2010 will include
mainly treaty reinsurance of property and aviation insurance.
5
The following tables set forth the Company's gross and net written
premiums including business from MMO London.
Gross Premiums Written by
Line of Business Year Ended December 31,
- ------------------------- -------------------------------------------------------------------
2000 1999 1998
---- ---- ----
(Dollars in thousands)
Ocean marine (a) ........ $ 83,178 62% $ 71,000 60% $ 78,618 60%
Inland marine ........... 1,433 1% 740 -- 1,218 1%
Aircraft ................ 46,392 34% 44,579 38% 36,579 28%
Other liability ......... 3,269 3% 2,084 2% 3,176 2%
Other ................... 322 -- 6 -- 12,546 9%
-------- -------- -------- -------- -------- --------
Total ................... $134,594 100% $118,409 100% $132,137 100%
Net Premiums Written by
Line of Business Year Ended December 31,
- ------------------------- --------------------------------------------------------------------
2000 1999 1998
---- ---- ----
(Dollars in thousands)
Ocean marine (b) ....... $ 60,100 67% $ 48,564 87% $ 59,231 81%
Inland marine ........... 517 1% 153 -- (350) --
Aircraft ................ 25,060 28% 5,319 9% 82 --
Other liability ......... 3,239 4% 2,064 4% 2,969 4%
Other ................... 322 -- 6 -- 10,796 15%
-------- -------- -------- -------- -------- ---------
Total ................... $ 89,238 100% $ 56,106 100% $ 72,728 100%
(a) Includes gross premiums written from MMO London of $35,898, $23,273 and
$17,817 for 2000, 1999 and 1998, respectively.
(b) Includes net premiums written from MMO London of $27,654, $17,365 and
$16,832 for 2000, 1999 and 1998, respectively.
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
6
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. For insurance
policies incepting on or after January 1, 2000, the Company's net retention in
its aviation line of business increased to a maximum of $3,000,000 per loss or
occurrence. The maximum net retention per loss in the aviation line is expected
to decrease to $1,750,000 for insurance policies incepting on or after April 1,
2001.
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. 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.
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 unsecured
reinsurance recoverables on a statutory basis as of December 31, 2000, were from
Arkwright, Lloyd's (including amounts from Equitas, a company established to
settle claims for underwriting years 1992 and prior) and Utica Mutual, with
aggregate net recoverables of $31 million, $20 million and $13 million,
respectively. The A.M. Best rating for the 1999 year was A+ for Arkwright and A
for Utica Mutual. 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, 1997, 1996, and 1995, Lloyd's reported
losses in 1997 and income in 1996 and 1995. Lloyd's is expected to report losses
for the 1999 and 1998 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 the total Lloyd's recoverables might be adversely affected
in the future. At December 31, 2000, the Company's net exposure to reinsurers,
other than Arkwright, Lloyd's and Utica Mutual, was approximately $156 million,
including amounts recoverable for paid losses, outstanding losses, IBNR and
unearned premium reserves. This amount is recoverable collectively from
approximately 680 reinsurers or syndicates, no single one of which was liable to
the Company for an unsecured amount in excess of approximately $6.1 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.
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.
7
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 both the issuance of umbrella
casualty insurance for various Fortune 1000 companies and the issuance of ocean
marine liability insurance for various oil companies during the period from 1978
to 1984. Depending on the accident year, the insurance pools' maximum net
retention per occurrence after applicable reinsurance ranged from $250,000 to
$1,000,000. The Company's effective pool participation on such risks varied from
11% in 1978 to 59% in 1984. Subsequent to this period, the pools substantially
reduced its umbrella writings and coverage was provided to smaller insureds.
Ocean marine and non-marine policies issued during the past three years contain
some coverage for environmental risks. At December 31, 2000 and 1999, the
Company's gross, ceded and net loss and loss adjustment expense reserves for all
Asbestos/Environmental policies amounted to $33.2 million, $20.8 million and
$12.4 million, and $27.8 million, $18.1 million and $9.7 million, respectively.
As of December 31, 2000, the Company had approximately 300 policies which had at
least one claim relating to Asbestos/Environmental exposures. The Company
believes that the uncertainty surrounding Asbestos/Environmental exposures,
including issues as to insureds' liabilities, ascertainment of loss date,
definitions of occurrence, scope of coverage, policy limits and application and
interpretation of policy terms, including exclusions, all affect the estimation
of ultimate losses. Under such circumstances, it is difficult to determine the
ultimate loss for Asbestos/Environmental related claims. Given the uncertainty
in this area, losses from Asbestos/Environmental related claims may develop
adversely. However, the Company believes that, in aggregate, the net unpaid loss
and loss adjustment expense reserves as of December 31, 2000, allow for an
adequate provision and that the ultimate resolution of the
Asbestos/Environmental 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/Environmental policies for each of the past three years:
2000 1999 1998
---- ---- ----
(In thousands)
Asbestos
- --------
Case reserves at beginning of period .......... $ 1,594 $ 802 $ 1,067
Incurred loss and loss adjustment expenses .... 227 986 (27)
Payments ...................................... (265) (194) (238)
------- ------- -------
Case reserves at end of period ................ $ 1,556 $ 1,594 $ 802
======= ======= =======
2000 1999 1998
---- ---- ----
(In thousands)
Environmental
- -------------
Case reserves at beginning of period .......... $ 1,043 $ 1,155 $ 1,417
Incurred loss and loss adjustment expenses .... 3,298 503 351
Payments ...................................... (481) (615) (613)
------- ------- -------
Case reserves at end of period ................ $ 3,860 $ 1,043 $ 1,155
======= ======= =======
The following table sets forth NYMAGIC's net loss and loss adjustment
expense experience for Asbestos/Environmental policies for each of the past
three years:
2000 1999 1998
---- ---- ----
(In thousands)
Asbestos/Environmental
- ----------------------
Unpaid loss and loss adjustment expenses
(Including IBNR) at beginning of period ... $ 9,697 $ 9,017 $ 9,029
Incurred loss and loss adjustment expenses . 3,406 1,489 839
Payments ................................... (746) (809) (851)
-------- -------- --------
Unpaid loss and loss adjustment expenses
(Including IBNR) at end of period ......... $ 12,357 $ 9,697 $ 9,017
======== ======== ========
8
The loss and loss adjustment payments related to the Company's
Asbestos/Environmental exposures have not been material in relation to the
Company's total loss and loss adjustment expense payments as shown in the table
below:
2000 1999 1998
---- ---- ----
(In thousands)
Total loss and loss adjustment expense
payments for the year ended December 31, ............. $65,121 $53,379 $58,983
Asbestos/Environmental loss and loss adjustment expense
payments for the year ended December 31, ............. $ 746 $ 809 $ 851
The insurance pools have written primary other liability 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 such products 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,
2000, the aggregate change in the estimates over all prior years. The
redundancies have been reflected in income over the periods shown.
The Company makes no specific provision for inflation in connection
with reserve estimates, but does each year consider the adjustment of
outstanding case reserves, historical loss payments and current inflationary
indices in determining the adequacy of the overall loss reserve.
9
Year Ended December 31,
-------------------------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ---- ---- ---- ----
(Dollars in thousands)
Estimated Liability
for Net Unpaid Losses
and Loss Adjustment
Expenses............... 156,533 170,744 203,735 208,366 212,377 229,916 227,370 222,335 213,589 196,865 199,685
Cumulative Amount of
Net Liability Paid As a
Percentage of Estimate
Through:
1 Year Later ...... 18% 19% 20% 22% 20% 20% 17% 19% 20% 24%
2 Years Later ..... 36% 37% 37% 37% 34% 32% 30% 32% 35%
3 Years Later ..... 49% 52% 48% 49% 44% 42% 42% 43%
4 Years Later ..... 62% 61% 58% 57% 53% 51% 51%
5 Years Later ..... 69% 69% 64% 64% 62% 58%
6 Years Later ..... 75% 74% 70% 71% 68%
7 Years Later ..... 78% 78% 76% 76%
8 Years Later ..... 81% 84% 80%
9 Years Later ..... 85% 87%
10 Years Later ..... 88%
Net Liability Reestimated
including Cumulative Net
Paid Losses and Loss
Adjustment Expenses As a
Percentage of Estimate As of:
1 Year Later ...... 100% 99% 99% 99% 97% 94% 90% 91% 94% 96%
2 Years Later ..... 100% 99% 97% 96% 95% 87% 87% 87% 87%
3 Years Later ..... 98% 99% 95% 95% 91% 86% 85% 83%
4 Years Later ..... 98% 97% 95% 93% 91% 86% 83%
5 Years Later ..... 96% 98% 94% 94% 92% 85%
6 Years Later ..... 96% 96% 95% 95% 93%
7 Years Later ..... 95% 97% 96% 95%
8 Years Later ..... 97% 99% 96%
9 Years Later ..... 98% 99%
10 Years Later ..... 98%
Net Cumulative Redundancy 2,365 2,062 7,865 9,670 15,617 33,932 38,863 38,500 27,714 8,484
Gross Unpaid Losses and Loss Adjustment Expenses $407,321 $435,072 $417,795 $411,837 $388,402 $401,584 $425,469 $411,267
Reinsurance Recoverable on Unpaid Losses and
Loss Adjustment Expenses 198,955 222,695 187,879 184,467 166,066 187,995 228,604 211,582
Reserve Re-estimated Gross 369,899 411,440 392,678 361,857 379,088 422,393 427,298
Reserve Re-estimated Reinsurance Recoverable 176,076 219,209 193,731 156,361 176,219 220,988 238,916
Gross Cumulative Redundancy (Deficiency) 37,422 23,632 25,117 49,980 9,314 (20,809) (1,829)
10
The following table provides a reconciliation of the consolidated
liability for losses and loss adjustment expenses at the beginning and end of
2000, 1999 and 1998:
Year ended December 31,
------------------------------
2000 1999 1998
---- ---- ----
(In thousands)
Net liability for losses and loss adjustment
expenses at beginning of year ............ $ 196,865 $ 213,589 $ 222,335
--------- --------- ---------
Provision for losses and loss adjustment
expenses occurring in current year ....... 76,425 48,838 69,703
Decrease in estimated losses and loss
adjustment expenses for claims occurring
in prior years (1) ....................... (8,484) (12,183) (19,466)
Deferred income-loss portfolio
assumption(2) ............................ 122 198 275
--------- --------- ---------
Net losses and loss adjustment expenses
Incurred ................................. 68,063 36,853 50,512
--------- --------- ---------
Less:
Losses and loss adjustment expense payments
for claims occurring during:
current year ......................... 17,530 11,517 17,407
prior years .......................... 47,591 41,862 41,576
--------- --------- ---------
65,121 53,379 58,983
Plus:
Deferred income-loss portfolio assumption(2) (122) (198) (275)
--------- --------- ---------
Net liability for losses and loss adjustment
expenses at year end ..................... 199,685 196,865 213,589
--------- --------- ---------
Ceded unpaid losses and loss adjustment
expenses ................................. 211,582 228,604 187,995
--------- --------- ---------
Gross unpaid losses and loss adjustment
expenses at year end ..................... $ 411,267 $ 425,469 $ 401,584
========= ========= =========
(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 MMO
London, 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 to the consolidated
amounts based on accounting principles generally accepted in the United States
of America as of December 31, 2000, 1999 and 1998:
Year ended December 31,
------------------------------
2000 1999 1998
---- ---- ----
(In thousands)
Liability for losses and loss adjustment expenses
reported based on statutory accounting principles .......... $151,752 $170,664 $193,680
Liability for losses and loss adjustment expenses assumed
from two former pool members ............................... 5,508 4,911 4,529
(excludes $2,448, $3,684 and $4,636 at December 31, 2000,
1999 and 1998, accounted for in the statutory liability for
losses and loss adjustment expenses)
MMO London ................................................... 39,789 18,401 13,504
Other, net ................................................... 2,636 2,889 1,876
-------- -------- --------
Net liability for losses and loss adjustment expenses reported
based on generally accepted accounting principles .......... 199,685 196,865 213,589
Ceded liability for unpaid losses and loss adjustment expenses 211,582 228,604 187,995
-------- -------- --------
Gross liability for unpaid losses and loss adjustment expenses $411,267 $425,469 $401,584
======== ======== ========
Regulation
The Company's domestic insurance companies are regulated by the
insurance regulatory agencies of the states in which they are authorized to do
business. New York Marine is licensed to engage in the insurance business in all
states.
Gotham is permitted to write excess and surplus lines insurance on a
non-admitted basis in all 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
surplus of each of the domestic insurance companies is above the minimum amount
required by the NAIC.
The NAIC's project to codify statutory accounting principles was
approved by the NAIC in 1998. The purpose of codification was to provide a
comprehensive basis of accounting for reporting to state insurance departments.
The approval of codified accounting rules included a provision for the state
insurance commissioners to modify such accounting rules by practices prescribed
or permitted for insurers in their state. Codification became effective on
January 1, 2001 and did not have a material effect on the domestic insurance
companies' statutory surplus.
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
MMO London 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,
----------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(Dollars in thousands)
Net premiums written .... $ 61,584 $ 38,741 $ 45,333 $ 62,221 $ 90,513
Policyholders' surplus .. 184,688 200,899 196,745 181,844 160,929
-------- -------- -------- -------- --------
Ratio ................... .33 to 1 .19 to 1 .23 to 1 .34 to 1 .56 to 1
While there are no statutory requirements applicable to the Company
which establish permissible premium to surplus ratios, guidelines established by
the NAIC provide that the statutory net premiums written to surplus ratio should
be no greater than 3 to 1. The Company is well within those guidelines.
Syndicate 1265 maintained a capacity to write approximately a U.S. dollar
equivalent of $29.8 million of gross premiums written in underwriting year 2000.
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 $17,000,000 as of
December 31, 2000. Dividends can be paid from Syndicate 1265 to the extent
solvency margins are maintained and after the closing of an underwriting year,
which occurs after thirty-six months. The Company does not expect to receive a
dividend from the closing of the 1998, 1999 and 2000 underwriting years.
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
cedes 100% of its gross direct writings to New York Marine and assumes 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, 2000, 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, 2000, New York Marine had aggregate recoverables
due from Gotham of approximately $26 million or 16% of New York Marine's
statutory surplus. Gotham had aggregate recoverables due from New York Marine as
of December 31, 2000, of approximately $21 million or 33% of Gotham's statutory
surplus.
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.
13
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.
MMO UK was formed in 1997 as a Lloyd's corporate capital vehicle and
provides 100% of the capital for Syndicate 1265.
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. 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 97 persons, of whom 19 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 - 2,000 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 2001 until the expiration of the lease. The
lease included an initial cash payment by the lessor to the Company of
$1,853,000, the benefit of which 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 2000.
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.
2000 1999
--------------------- ---------------------
High Low High Low
---- --- ---- ---
First Quarter ............ $ 14.38 $ 12.38 $ 20.63 $ 13.00
Second Quarter ........... 15.38 13.13 17.50 12.19
Third Quarter ............ 15.56 13.00 16.00 13.00
Fourth Quarter ........... 19.19 15.00 15.00 12.75
As of March 1, 2001, there were 83 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 of 2000 and 1999,
respectively. 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 "Business - Regulation" and "Management's Discussion and Analysis
of Financial Condition and Results of Operations - Liquidity and Capital
Resources".
Item 6. Selected Financial Data.
-----------------------
OPERATING DATA Year Ended December 31,
----------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(In thousands, except per share amounts)
Revenues:
Net premiums earned ..... $ 75,448 $ 56,155 $ 76,023 $ 87,537 $ 97,036
Net investment income ... 18,076 18,642 20,803 21,325 21,270
Commission income ....... 903 1,956 591 1,439 1,981
Realized investment gains 5,247 12,504 8,615 10,425 4,589
Other income ............ 1,059 237 396 293 690
-------- -------- -------- -------- --------
Total revenues .......... $100,733 $ 89,494 $106,428 $121,019 $125,566
-------- -------- -------- -------- --------
15
Year Ended December 31,
------------------------------------------------------------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(In thousands, except per share amounts)
Expenses:
Net losses and loss adjustment
expenses incurred ..................... $ 68,063 $ 36,853 $ 50,512 $ 50,768 $ 59,359
Policy acquisition expenses ............. 18,178 11,077 10,107 16,583 18,828
General and administrative
expenses .............................. 19,439 19,327 21,531 16,763 16,168
Interest expense ........................ 712 1,058 1,374 1,450 1,035
--------- --------- --------- --------- ---------
Total expenses .......................... $ 106,392 $ 68,315 $ 83,524 $ 85,564 $ 95,390
--------- --------- --------- --------- ---------
Selected Financial Data (continued)
- -----------------------------------
Income before income taxes .............. (5,659) 21,179 22,904 35,455 30,176
--------- --------- --------- --------- ---------
Income taxes
Current................................ 1,276 3,189 5,250 8,962 7,495
Deferred .............................. (1,433) 1,577 (869) 125 56
--------- --------- --------- --------- ---------
Total income taxes ...................... (157) 4,766 4,381 9,087 7,551
--------- --------- --------- --------- ---------
Net income .............................. $ (5,502) $ 16,413 $ 18,523 $ 26,368 $ 22,625
========= ========= ========= ========= =========
BASIC EARNINGS (LOSS) PER SHARE(1):
Weighted average shares
outstanding ........................... 9,244 9,687 9,679 9,849 10,499
Basic earnings (loss) per share ........ $ (0.60) $ 1.69 $ 1.91 $ 2.68 $ 2.15
========= ========= ========= ========= =========
DILUTED EARNINGS (LOSS) PER SHARE(1):
Weighted average shares
outstanding ........................... 9,244 9,687 9,705 9,872 10,524
Diluted earnings (loss) per share ....... $ (0.60) $ 1.69 $ 1.91 $ 2.67 $ 2.15
========= ========= ========= ========= =========
Dividends declared per share ............ $ .40 $ .40 $ .40 $ .40 $ .40
========= ========= ========= ========= =========
BALANCE SHEET DATA:
December 31,
------------------------------------------------------------
2000 1999 1998 1997 1996
----- ---- ---- ---- ----
(In thousands)
Total investments ....................... $ 371,291 $ 396,710 $ 443,022 $ 438,591 $ 409,209
Total assets ............................ 720,329 764,304 730,320 707,903 714,949
Unpaid losses and loss
adjustment expenses .................. 411,267 425,469 401,584 388,402 411,837
Notes payable ........................... 7,458 12,458 17,458 22,458 20,438
Total shareholders' equity .............. $ 216,290 $ 231,142 $ 228,180 $ 206,519 $ 188,852
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 two main
segments which include the domestic insurance companies/agencies and MMO London.
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 and
subsequent, the Company's participation in the pools increased to 100%. MMO
London wrote a book of ocean marine insurance through its participation in
Syndicate 1265. 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,
- ---------------------------- ------------------------------------------------------------------
2000 1999 1998
---- ---- ----
(Dollars in thousands)
Ocean marine (a) ........... $ 60,100 67% $ 48,564 87% $ 59,231 81%
Inland marine .............. 517 1% 153 -- (350) --
Aircraft ................... 25,060 28% 5,319 9% 82 --
Other liability ............ 3,239 4% 2,064 4% 2,969 4%
Other ...................... 322 -- 6 -- 10,796 15%
-------- -------- -------- -------- -------- --------
Total ...................... $ 89,238 100% $ 56,106 100% $ 72,728 100%
======== ======== ======== ======== ======== ========
NYMAGIC Net Premiums Earned
by Line of Business Year Ended December 31,
- ---------------------------- ------------------------------------------------------------------
2000 1999 1998
---- ---- ----
(Dollars in thousands)
Ocean marine (b) ........... $ 58,670 78% $ 48,159 86% $ 60,219 79%
Inland marine .............. 381 1% 182 -- (393) --
Aircraft ................... 12,823 17% 5,310 9% 2,005 3%
Other liability ............ 3,228 4% 2,529 5% 3,393 4%
Other ...................... 346 -- (25) -- 10,799 14%
-------- -------- -------- -------- -------- --------
Total ...................... $ 75,448 100% $ 56,155 100% $ 76,023 100%
======== ======== ======== ======== ======== ========
(a) Includes net premiums written from MMO London of $27,654, $17,365 and
$16,832 for 2000, 1999 and 1998, respectively.
(b) Includes net premiums earned from MMO London of $26,399, $13,614 and
$14,832 for 2000, 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 to changes in
premium volume. Losses and loss adjustment expenses incurred in connection with
insurance claims in any particular year depend upon a variety of factors
including the rate of inflation, accident or claim frequency, the occurrence of
natural catastrophes and the number of policies written.
The Company estimates reserves each year based upon, and in conformity
with, the factors discussed under "Business-Reserves". Changes in estimates of
reserves are reflected in operating results in the year in which the change
occurs.
17
2000 as Compared to 1999
The Company reported a net loss for the year ended December 31, 2000 of
$5.5 million, or $.60 per diluted share as compared with net income of $16.4
million, or $1.69 per diluted share, for the year ended December 31, 1999.
The Company reported an operating loss, which excludes the effects of
realized investment gains after taxes, for the year ended December 31, 2000, of
$8.9 million or $.96 per diluted share compared with operating income of $8.3
million, or $.86 per diluted share, for the year ended December 31, 1999. The
decline in operating income in 2000 principally reflects the underwriting losses
attributable to MMO London including costs associated with the run-off of
Syndicate 1265 which ceased underwriting in the third quarter of 2000. Results
from operations were reduced by such losses for the year ended December 31, 2000
by $1.67 per diluted share. This compares with losses of $.10 per diluted share
from MMO London in the prior year. The exchange of the Company's Lloyd's agency
for a minority interest in Cathedral Capital PLC, in the fourth quarter of 2000,
resulted in an after tax gain of approximately $450,000 or $.05 per diluted
share.
Net premiums earned increased by 34% for the year ended December 31,
2000 when compared to the prior year. The increase in the current year's
premiums is largely attributable to premiums emanating from the participation in
Syndicate 1265 through MMO London. Net premiums earned from MMO London grew to
$26.4 million in 2000 as compared to $13.6 million in 1999 and much of the
increase is attributable to a transaction involving a one-time assumption of
approximately $7.4 million of ocean marine and casualty premiums. The Company
placed Syndicate 1265 into run-off in the third quarter of 2000. In 2001, MMO
London will maintain a position in Syndicate 2010 and will derive its share of
gross premium writings up to a maximum of $13.6 million. Such writings will be
concentrated mainly in assumed reinsurance of aviation and property business.
Net premiums earned from domestic insurance companies increased by 15%
in 2000 due mainly to growth in the aviation line of business. Aviation net
premiums earned grew 142% for the year as a result of the effect of higher
retention levels in 2000 due to the non-renewal of a 75% quota share treaty
which the Company maintained since 1997 as well as rate increases on policies.
The increase in aviation writings was offset by a reduction in policy count and
average line size. In 2001, the Company expects gross premium rates to continue
to firm; however, additional reinsurance costs as a result of the hardening of
the aviation reinsurance market will mitigate such increases.
Ocean marine premiums earned derived from the domestic insurance
companies decreased 7% in 2000 when compared to 1999. However, net writings
increased 4% in 2000 when compared to the prior year due, in large part, to a
firming of marine rates in 2000 which created opportunities to produce
additional writings particularly in the hull and cargo marine classes. The
Company expects gross and net writings to increase in 2001 as rates continue to
firm across the various classes within the ocean marine line.
Other liability premiums earned increased 28% in 2000. The growth in
premiums is attributable to writing a new class of assumed auto liability
business in 2000. The Company expects other liability premiums to increase in
2001 as opportunities exist for additional production in the excess and surplus
lines markets as pricing continues to firm.
Inland marine premiums increased mainly due to additional production in
2000. The Company expects inland marine writings to further increase in 2001 due
to additional production opportunities in the excess and surplus lines markets.
Net losses and loss adjustment expenses incurred as a percentage of net
premiums earned (the "loss ratio") was 90.2% for the year ended December 31,
2000 as compared to 65.6% for the prior year. The increase resulted from a
significant frequency of larger than anticipated losses derived from the
underwriting operations of MMO London which resulted in a loss ratio of 137.4%
for year ended December 31, 2000. The loss ratio from the domestic insurance
companies increased in 2000 to 64.8% from 61.7% in the prior year primarily due
to increases in both the frequency and severity of losses in the aviation line
of business. The Company's domestic insurance companies recorded favorable net
loss experience in the ocean marine line compared to the prior year period.
Policy acquisition expenses as a percentage of net premiums earned for
the year ended December 31, 2000 was 24.1% as compared with 19.7% for the same
period in 1999. The increase in the ratio in 2000 is primarily attributable to
higher acquisition costs on UK derived business and larger acquisition expenses
in the current year's aviation line which do not reflect the benefit of ceded
override commissions for business incepting in 2000.
Net investment income for the year ended December 31, 2000 decreased by
3% from the level of net investment income achieved in 1999. The decline was
principally caused by a reduction in invested assets offset by higher yields on
investments due to a higher interest rate environment in 2000 and increased
investments in taxable securities.
18
General and administrative expenses were flat in 2000 when compared to
the prior year. The prior year's amounts included larger expenses incurred in
connection with employee benefit plans; however, the current year expenses
reflect a $1.1 million litigation settlement.
Realized investment gains were $5.2 million and $12.5 million for the
years ended December 31, 2000 and 1999, respectively, and each resulted mainly
from the sale of appreciated equity securities.
Interest expense decreased to $712,000 for the year ended December 31,
2000 from $1,058,000 for the prior year primarily as a result of a decrease in
loan principal outstanding.
Commission income was approximately $900,000 for the year ended
December 31, 2000 as compared to $2.0 million in the prior year. 1999 reflected
larger reinsurance contingent commissions derived from the profitability of
certain reinsurance agreements in the aviation and ocean marine lines.
Other income increased substantially for the year ended December 31,
2000 as compared to the prior year. The increase was attributable to the
exchange of the Company's Lloyd's agency for a minority interest in Cathedral
Capital PLC which resulted in a pre-tax gain of approximately $700,000.
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 MMO London.
Approximately $13.6 million in net premiums earned, mostly ocean marine hull,
was produced by Syndicate 1265 through MMO London 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/agencies segment were down
24% as competition generally remained intense in 1999 and adversely affected
ocean marine premium rates as well as premium renewals.
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 remained soft in 1999 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 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
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 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 MMO London which experienced a
relatively high frequency of marine hull claims in 1999.
Commission income increased substantially in 1999 when compared to 1998
and reflected larger profit commissions on the reinsurance of the Company's
ocean marine and aviation lines of business.
19
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 other liability 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.
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 MMO London.
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 resulted 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 other liability losses on a gross basis. These payments
contributed to cash flow used in operations in 1999 of $33.6 million.
Reinsurance is maintained at an adequate level 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 market value of the Company's fixed income
portfolio.
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, 2000, the Company's assets included approximately
$33.4 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.
Cash flows were used in operating activities in each of the past three
years as declines in premium rates, increases in ceded reinsurance premium costs
and increases in gross severity claims negatively affected cash flows from
operations. The Company's maturing book of other liability business also
adversely affected cash flows. The cash flows used in operating activities in
the past three years was provided by investing activities and, in particular,
through the sale or maturity of fixed income securities.
Financing activities occurred as a result of borrowings under the
Company's revolving credit agreement and unsecured credit facility. The Company
borrowed approximately $5,000,000 in 1998 to assist in the payment of gross
losses of the Company and to repurchase the Company's Common Stock. Borrowings
under the unsecured credit facility were fully repaid after collecting
recoverables due from reinsurers on such losses and repayments under the
Company's existing loan were made at $1,250,000 per quarter over the past three
years through December 31, 2000.
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. The
interest expense (benefit) recorded under the agreement was ($67,626) in 2000,
$91,462 in 1999 and $44,719 in 1998.
20
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 position of investments in 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 reduced its investment in such securities in the most recent
year 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. During 2000, the Company repurchased 520,326 shares of common
stock, under the Company's Common Stock Repurchase Plan, for a total cost of
approximately $6.7 million. As of December 31, 2000, the Company had repurchased
a total of 2,644,408 shares of common stock at a total cost of approximately
$45,285,581 at market prices ranging from $12.38 to $28.81 per share.
NYMAGIC's principal source of cash flow is dividends from its insurance
company subsidiaries which is then used to fund various operating expenses,
including interest expense, loan repayments and the 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 a material 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 through MMO London to the extent solvency margins are maintained and after
the closing of an underwriting year, which occurs three years following the
beginning of a calendar year. The Company does not expect to receive a dividend
from the closing of the 1998, 1999 and 2000 underwriting years.
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 are recorded at fair value with any change in the fair
value of the derivative 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 effectiveness 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 1999 and
deferred 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 strategy for interest rate management. The
Company adopted SFAS 133 on January 1, 2001 and such adoption did not have a
material effect on its financial statements.
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.
21
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 2001 2002 2003 2004 2005 after Cost Value
- ---------------- ---- ---- ---- ---- ---- ----- ---- -----
Tax-exempts .................. -- $ 2 $ 3 $ 4 $ 5 $ 28 $ 42 $ 42
Average interest rate ...... -- 6.3% 6.7% 5.2% 6.3% 6.1% -- --
Taxables ..................... 15 60 20 36 16 86 233 237
Average interest rate ...... 6.6% 6.3% 6.8% 6.6% 7.5% 7.5% -- --
----------------------------------------------------------------
Total ........................ $ 15 $ 62 $ 23 $ 40 $ 21 $114 $275 $279
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
maintains fixed maturities with an average credit quality rating of AA as of
December 31, 2000. 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. MMO London operations maintains cash and investments in British
Pounds Sterling with a US equivalent of $636,000 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.
22
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 2001 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 2001 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 2001 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 2001 Annual Meeting of
Shareholders.
23
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 27.
2. Financial Statement Schedules
-----------------------------
The list of financial statement schedules appears in
the accompanying index on page 27.
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. (Incorporated by
reference to Exhibit 3.3 of the registrant's Annual
Report of Form 10-K for the fiscal year ended
December 31, 1999 (Commission file No.1-11238).)
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 on 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, by and among Mutual Marine
Office, Inc. and Arkwright Mutual Insurance Company,
Utica Mutual Insurance Company, Lumber Mutual
Insurance Company, the Registrant and Pennsylvania
National Mutual Casualty Insurance Company.
(Incorporated by reference to Exhibit 10.2.2. of the
Registrant's Current 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 by and among Mutual Marine
Office, Inc. and Arkwright Mutual Insurance Company,
Utica Mutual Insurance Company, the Registrant and
Pennsylvania National Mutual Casualty Insurance
Company. (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 on 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, by and among Mutual Inland
Marine Office, Inc. and Arkwright Mutual Insurance
Company, Utica Mutual Insurance Company, Lumber
Mutual Insurance Company, the Registrant and
Pennsylvania National Mutual Casualty Insurance
Company (Incorporated by reference to Exhibit 10.4.2
of the Registrant's Current 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
24
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 Current 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 Current 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. (Incorporated by
reference to Exhibit 10.10 of Registrant's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1999 (Commission File No. 1-112381).)
10.11 1999 NYMAGIC, INC. Phantom Stock Plan. (Incorporated
by reference to Exhibit 10.11 of the Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1999 (Commission File No. 1-11238).)
10.12 Executive Severance Pay Plan, effective as of January
1, 2000, for the benefit of Lawrence S. Davis.
21. Subsidiaries of the Registrant.
23. Consent of KPMG LLP.
(b) Reports on Form 8-K
-------------------
None.
25
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, 2001
----------------
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, 2001
- ---------------------------
John Ross Anderson
/s/ Robert W. Bailey Director, Chairman March 30, 2001
- --------------------------- and Chief Executive
Robert Wayne Bailey Officer
/s/ Jonathan S. Bannett Director March 30, 2001
- ---------------------------
Jonathan Seth Bannett
/s/ John N. Blackman, Jr. Director March 30, 2001
- ---------------------------
John Nicholas Blackman, Jr.
/s/ Mark W. Blackman Director March 30, 2001
- ---------------------------
Mark Willis Blackman
/s/ John Kean, Jr. Director March 30, 2001
- ---------------------------
John Kean, Jr.
/s/ Costa N. Kensington Director March 30, 2001
- ---------------------------
Costa Nicholas Kensington
/s/ Charles A. Mitchell Director March 30, 2001
- ---------------------------
Charles Arthur Mitchell
/s/ William Ross Scarbrough Director March 30, 2001
- ---------------------------
William Ross Scarbrough
/s/ Robert George Simses Director March 30, 2001
- ---------------------------
Robert George Simses
/s/ William A. Thorne Director March 30, 2001
- ---------------------------
William Arnold Thorne
/s/ Edward Judson Waite III Director March 30, 2001
- ---------------------------
Edward Judson Waite III
/s/ Glenn Robert Yanoff Director March 30, 2001
- ---------------------------
Glenn Robert Yanoff
/s/ Thomas J. Iacopelli Principal Accounting March 30, 2001
- --------------------------- Officer and Chief
Thomas John Iacopelli Financial Officer
26
NYMAGIC, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report............................................ 28
Consolidated Balance Sheets............................................. 29
Consolidated Statements of Income....................................... 30
Consolidated Statements of Shareholders' Equity......................... 31
Consolidated Statements of Cash Flows................................... 32
Notes to Consolidated Financial Statements.............................. 33
Financial Statement Schedule II......................................... 52
Financial Statement Schedule V.......................................... 54
Financial Statement Schedule VI......................................... 55
27
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, 2000 and 1999, 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, 2000. 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 auditing standards generally
accepted in the United States of America. 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, 2000 and 1999, and the
consolidated results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 2000 in conformity with
accounting principles generally accepted in the United States of America. 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.
KPMG LLP
New York, New York
February 15, 2001
28
NYMAGIC, INC.
CONSOLIDATED BALANCE SHEETS
December 31,
---------------------
2000 1999
-------- --------
ASSETS
Investments:
Fixed maturities available for sale at fair value
(amortized cost $275,291,173 and $300,687,622) $279,465,655 $297,293,353
Equity securities at fair value
(cost $47,115,772 and $52,922,679)............ 58,991,670 71,681,895
Short-term investments........................ 32,834,155 27,734,786
------------ ------------
Total investments.......................... 371,291,480 396,710,034
------------ ------------
Cash............................................. 552,322 1,016,945
Accrued investment income........................ 4,604,185 5,195,227
Premiums and other receivables, net.............. 53,984,744 56,003,308
Reinsurance receivables.......................... 248,048,171 255,761,760
Deferred policy acquisition costs................ 5,354,489 4,850,587
Prepaid reinsurance premiums..................... 19,210,358 28,597,355
Deferred income taxes............................ 10,504,182 9,311,335
Property, improvements & equipment, net.......... 1,225,281 1,792,876
Other assets..................................... 5,553,991 5,064,631
------------ ------------
Total assets............................... $720,329,203 $764,304,058
============ ============
LIABILITIES
Unpaid losses and loss adjustment expenses....... $411,266,969 $425,469,125
Reserve for unearned premiums.................... 60,435,774 56,033,281
Ceded reinsurance payable........................ 15,043,696 29,445,275
Notes payable.................................... 7,458,413 12,458,413
Other liabilities................................ 8,918,839 8,787,820
Dividends payable................................ 915,803 967,785
Total liabilities.......................... ------------ ------------
504,039,494 533,161,699
------------ ------------
SHAREHOLDERS' EQUITY
Common stock..................................... 15,018,392 15,017,892
Paid-in capital.................................. 27,992,916 27,935,907
Accumulated other comprehensive income........... 10,918,088 9,931,438
Retained earnings................................ 211,565,023 220,736,910
------------ ------------
265,494,419 273,622,147
Treasury stock, at cost, 5,860,366 and 5,340,040
shares........................................... (49,204,710) (42,479,788)
------------ ------------
Total shareholders' equity................... 216,289,709 231,142,359
------------ ------------
Total liabilities and shareholders' equity. $720,329,203 $764,304,058
============ ============
The accompanying notes are an integral part of these consolidated financial
statements.
29
NYMAGIC, INC.
CONSOLIDATED STATEMENTS OF INCOME
Year ended December 31,
-----------------------------------------------
2000 1999 1998
-----------------------------------------------
Revenues:
Net premiums earned ................... $ 75,448,179 $ 56,155,156 $ 76,022,663
Commission income ..................... 902,653 1,956,276 591,448
Net investment income ................. 18,076,089 18,641,619 20,803,433
Realized investment gains ............. 5,246,802 12,503,731 8,615,058
Other income .......................... 1,059,638 237,701 395,560
------------- ------------- -------------
Total revenues ..................... 100,733,361 89,494,483 106,428,162
------------- ------------- -------------
Expenses:
Net Losses and loss adjustment expenses
incurred ............................ 68,062,971 36,853,012 50,512,063
Policy acquisition expenses ........... 18,177,724 11,077,382 10,107,327
General and administrative expenses ... 19,439,484 19,326,472 21,531,287
Interest expense ...................... 712,424 1,057,993 1,373,408
------------- ------------- -------------
Total expenses ..................... 106,392,603 68,314,859 83,524,085
------------- ------------- -------------
Income (loss) before income taxes ........ (5,659,242) 21,179,624 22,904,077
------------- ------------- -------------
Income tax provision:
Current ............................... 1,275,620 3,189,162 5,250,123
Deferred .............................. (1,432,748) 1,577,201 (869,462)
------------- ------------- -------------
Total income tax expense (benefit) . (157,128) 4,766,363 4,380,661
------------- ------------- -------------
Net income (loss) ..................... $ (5,502,114) $ 16,413,261 18,523,416
============= ============= =============
Weighted average number of shares of
common stock outstanding-basic ...... 9,243,669 9,687,466 9,678,802
============= ============= =============
Basic earnings (loss) per share .......... $ (.60) $ 1.69 $ 1.91
============= ============= =============
Weighted average number of shares of
common stock outstanding-diluted .... 9,243,669 9,687,466 9,705,433
============= ============= =============
Diluted earnings (loss) per share ........ $ (.60) $ 1.69 $ 1.91
============= ============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
30
NYMAGIC, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Year ended December 31,
-----------------------------------------------
2000 1999 1998
---- ---- ----
Retained earnings:
Balance, beginning of year ..................................... $ 220,736,910 $ 208,198,204 $ 193,547,346
Net income (loss) .............................................. (5,502,114) 16,413,261 18,523,416
Dividends declared ............................................. (3,669,773) (3,874,555) (3,872,558)
------------- ------------- -------------
Balance, end of year .......................................... 211,565,023 220,736,910 208,198,204
============= ============= =============
Accumulated other comprehensive income:
Balance, beginning of year ..................................... 9,931,438 19,436,591 12,931,785
Unrealized gain (loss) on securities,
net of reclassification adjustment ............................ 445,531 (9,428,336) 6,489,767
Foreign currency translation adjustments ....................... 541,119 (76,817) 15,039
------------- ------------- -------------
Other comprehensive income (loss) .............................. 986,650 (9,505,153) 6,504,806
------------- ------------- -------------
Balance, end of year ......................................... 10,918,088 9,931,438 19,436,591
============= ============= =============
Common stock:
Balance, beginning of year ..................................... 15,017,892 15,017,892 14,991,992
Shares issued .................................................. 500 -- 25,900
------------- ------------- -------------
Balance, end of year ......................................... 15,018,392 15,017,892 15,017,892
============= ============= =============
Paid-in capital:
Balance, beginning of year ..................................... 27,935,907 28,029,410 27,529,877
Shares issued and other ........................................ 57,009 (93,503) 499,533
------------- ------------- -------------
Balance, end of year ......................................... 27,992,916 27,935,907 28,029,410
============= ============= =============
Treasury stock, at cost:
Balance, beginning of year ..................................... (42,479,788) (42,502,230) (42,481,657)
Net repurchase of common stock ................................. (6,724,922) 22,442 (20,573)
------------- ------------- -------------
Balance, end of year ......................................... (49,204,710) (42,479,788) (42,502,230)
============= ============= =============
Total Shareholders' Equity ......................................... $ 216,289,709 $ 231,142,359 $ 228,179,867
============= ============= =============
Comprehensive income:
Net income (loss) .............................................. (5,502,114) 16,413,261 18,523,416
Other comprehensive income (loss) .............................. 986,650 (9,505,153) 6,504,806
------------- ------------- -------------
Comprehensive income (loss) .................................. $ (4,515,464) $ 6,908,108 $ 25,028,222
============= ============= =============
Number of Shares
Common stock, par value $1 each:
Issued, beginning of year ...................................... 15,017,892 15,017,892 14,991,992
Shares Issued .................................................. 500 -- 25,900
------------- ------------- -------------
Issued, end of year .......................................... 15,018,392 15,017,892 15,017,892
============= ============= =============
Common stock, authorized shares,
par value $1 each .............................................. 30,000,000 30,000,000 30,000,000
============= ============= =============
Common stock,
shares outstanding, end of year ................................ 9,158,026 9,677,852 9,685,492
============= ============= =============
Dividends declared per share ....................................... $ .40 $ .40 $ .40
============= ============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
31
NYMAGIC, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31,
-----------------------------------------------
2000 1999 1998
---- ---- ----
Cash flows from operating activities:
Net income (loss) ................................ $ (5,502,114) $ 16,413,261 $ 18,523,416
------------- ------------- -------------
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Provision for deferred taxes ................... (1,432,748) 1,577,201 (869,462)
Realized investment gains ...................... (5,246,802) (12,503,731) (8,615,058)
Net bond amortization .......................... 1,113,936 2,136,408 2,220,565
Depreciation and other, net .................... 825,543 699,107 733,950
Changes in:
Premiums and other receivables ................. 2,018,564 (14,580,395) (787,749)
Reinsurance receivables ........................ 7,713,589 (56,030,958) (24,072,850)
Ceded reinsurance payable ...................... (14,401,579) 5,649,283 (3,511,137)
Accrued investment income ...................... 591,042 994,639 132,504
Deferred policy acquisition costs .............. (503,902) (573,157) 1,290,058
Prepaid reinsurance premiums ................... 9,386,997 (9,203,809) 5,021,074
Other assets ................................... (489,360) 1,482,772 (1,677,794)
Unpaid losses and loss
adjustment expenses ........................... (14,202,156) 23,884,979 13,182,598
Reserve for unearned premiums .................. 4,402,493 9,154,731 (8,309,731)
Foreign currency translation
adjustments ................................... 541,119 (76,817) 15,039
Other liabilities .............................. 131,019 (2,667,157) 4,392,882
------------- ------------- -------------
Total adjustments ........................... (9,552,245) (50,056,904) (20,855,111)
------------- ------------- -------------
Net cash used in operating
activities .................................... (15,054,359) (33,643,643) (2,331,695)
------------- ------------- -------------
Cash flows from investing activities:
Fixed maturities acquired ...................... (232,437,048) (105,025,752) (77,604,001)
Equity securities acquired ..................... (48,277,165) (60,300,853) (51,440,490)
Net (purchase) sale of
short-term investments ........................ (5,023,999) (11,540,504) 1,890,059
Fixed maturities matured ....................... 15,744,648 26,005,874 34,682,127
Fixed maturities sold .......................... 241,119,297 118,911,079 51,905,388
Equity securities sold ......................... 59,111,119 74,124,696 52,514,190
Acquisition of property & equipment, net........ (257,948) (150,962) (709,318)
------------- ------------- -------------
Net cash provided by investing activities ........ 29,978,904 42,023,578 11,237,955
------------- ------------- -------------
Cash flows from financing activities:
Proceeds from stock issuance and other ......... 57,509 (93,503) 525,433
Cash dividends paid to stockholders ............ (3,721,755) (3,875,319) (3,870,040)
Net repurchase of common stock ................. (6,724,922) 22,442 (20,573)
Proceeds from borrowings ....................... -- -- 5,000,000
Loan principal payments ........................ (5,000,000) (5,000,000) (10,000,000)
------------- ------------- -------------
Net cash used in financing activities ............ (15,389,168) (8,946,380) (8,365,180)
------------- ------------- -------------
Net (decrease) increase in cash .................. (464,623) (566,445) 541,080
Cash at beginning of year ...................... 1,016,945 1,583,390 1,042,310
------------- ------------- -------------
Cash at end of year ............................ $ 552,322 $ 1,016,945 $ 1,583,390
============= ============= =============
The accompanying notes are an integral part of these consolidated financial
statements.
32
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 and subsequent, the
Company increased to 100% its participation in the business produced by the
pools.
In 1997, the Company formed MMO EU Ltd., a holding company, and MMO UK
Ltd., a Lloyd's of London corporate vehicle which provides 100% capacity for
Lloyd's Syndicate 1265. The assets and liabilities and results of operations of
MMO EU and MMO UK, including its interest in Syndicate 1265 (collectively
referred to as "MMO London") are included in the consolidated financial
statements.
In 1997, the Company acquired ownership of Highgate Managing Agencies,
Ltd. which subsequently was renamed MMO Underwriting Agency, Ltd. MMO
Underwriting Agency Ltd., a Lloyd's managing agency, commenced underwriting in
1998 for the Company's wholly owned subsidiary MMO UK, which provides 100% of
the capital for Syndicate 1265. In 2000, the Company sold MMO Underwriting
Agency Ltd. in exchange for a minority interest in Cathedral Capital PLC, which
resulted in a pre-tax gain of approximately $700,000. Syndicate 1265 was placed
into runoff in 2000.
Basis of Reporting
The consolidated financial statements have been prepared on the basis of
accounting principles generally accepted in the United States of America (GAAP),
which differ in certain material respects from the accounting principles
prescribed or permitted by state insurance regulatory authorities for the
Company's two domestic insurance subsidiaries. The principal differences
recorded under GAAP 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 MMO London.
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.
33
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
Realized investment gains and losses (determined on the basis of first in
first out) also include any declines in value which are considered to be other
than temporary. Unrealized appreciation or depreciation of investments, net of
related deferred income taxes, is reflected in accumulated other comprehensive
income in shareholders' equity.
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 for each year ended December 31, 2000 and 1999, 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 using an interest rate of 7% 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. 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 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.
34
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
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.
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. The balances at
December 31, 2000 and 1999 were $-0- and $117,088, respectively.
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 2000 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 are recorded at fair value with any change in the fair
value of the derivative 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 effectiveness of the hedge. SFAS 133 is effective for years beginning after
June 15, 1999.
35
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
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 1999 and
deferred 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 strategy for interest rate management. The
Company adopted SFAS 133 on January 1, 2001 and such adoption did not have a
material effect on the financial statements.
(2) Investments:
A summary of investment components at December 31, 2000 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 .. $124,885,322 $126,573,706 $126,573,706
States, municipalities and
political subdivisions ............... 41,433,877 42,527,560 42,527,560
Public utilities ...................... 12,395,780 12,524,704 12,524,704
All other corporate bonds ............. 96,576,194 97,839,685 97,839,685
------------ ------------ ------------
Total fixed maturities
available for sale .............. 275,291,173 279,465,655 279,465,655
------------ ------------ ------------
Equity securities:
Common stocks:
Public utilities ...................... 2,961,900 4,040,953 4,040,953
Banks, trusts and insurance companies . 3,118,460 4,219,091 4,219,091
Industrial, miscellaneous and all other 41,035,412 50,731,626 50,731,626
------------ ------------ ------------
Total equity securities ............ 47,115,772 58,991,670 58,991,670
------------ ------------ ------------
Short term investments ................ 32,834,155 32,834,155 32,834,155
------------ ------------ ------------
Total investments .................. $355,241,100 $371,291,480 $371,291,480
============ ============ ============
Unrealized depreciation or appreciation of investments (before applicable
income taxes) at December 31, 2000 and 1999 included gross unrealized gains on
equity securities of $14,077,825 and $20,331,826, respectively; and gross
unrealized losses on equity securities of $2,201,927 and $1,572,610,
respectively; and gross unrealized gains on fixed maturities available for sale
of $4,645,011 and $957,805 at December 31, 2000 and 1999, respectively; and
gross unrealized losses on fixed maturities available for sale of $470,529 and
$4,352,074 at December 31, 2000 and 1999, respectively.
Included in investments at December 31, 2000 are bonds on deposit with
various regulatory authorities as required by law with a fair value of
$8,849,600.
There were no non-income producing fixed maturity investments for each of
the years ended December 31, 2000 and 1999.
All mortgage backed securities at December 31, 2000 and 1999 are
obligations of various U.S. Government agencies and consist of GNMA, FHLMC or
FNMA pass through securities. These securities are readily marketable.
36
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
The gross unrealized gains and losses on debt securities at December 31, 2000
and 1999 are as follows:
2000
----------------------------------------------------------
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 ........ $124,885,322 $ 1,701,930 $ (13,546) $126,573,706
Obligations of states and
political subdivisions .......... 41,433,877 1,101,960 (8,277) 42,527,560
Corporate securities ............. 108,971,974 1,841,121 (448,706) 110,364,389
------------ ------------ ------------ ------------
Totals .................... $275,291,173 $ 4,645,011 $ (470,529) $279,465,655
============ ============ ============ ============
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
============ ============ ============ ============
37
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
The amortized cost and fair value of debt securities at December 31, 2000,
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 ................ $ 13,395,590 $ 13,459,849
Due after one year
through five years ..................... 140,564,653 141,933,285
Due after five years
through ten years ...................... 46,077,007 47,371,699
Due after ten years .................... 44,162,568 45,179,951
------------ ------------
244,199,818 247,944,784
Mortgage backed securities ............. 31,091,355 31,520,871
------------ ------------
Totals ........................... $275,291,173 $279,465,655
============ ============
The investment portfolio has exposure to market risks which includes the
effect of adverse changes in interest rates, credit quality, foreign exchange
rates and equity prices 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.
38
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
Proceeds from sales of investments in debt securities during 2000, 1999
and 1998 were $241,119,297, $118,911,079 and $51,905,388, respectively. Gross
gains of $1,183,033, $929,242 and $1,105,100 and gross losses of $1,038,655,
$797,483 and $14,246 were realized on those sales in 2000, 1999 and 1998,
respectively.
Realized gains (losses) and unrealized investment appreciation
(depreciation) on fixed maturities and equity securities for the years ended
December 31, 2000, 1999 and 1998 are as follows:
Year ended December 31,
--------------------------------------------
2000 1999 1998
---- ---- ----
Realized gains (losses) on sale
of investments
Fixed maturities .......................... $ 144,378 $ 131,759 $ 1,090,854
Equity securities ......................... 5,027,054 12,378,350 7,516,080
Short-term investments .................... 75,370 (6,378) 8,124
------------ ------------ ------------
Realized investment gains ................. 5,246,802 12,503,731 8,615,058
Less: applicable income taxes ............. (1,836,381) (4,376,306) (3,015,270)
------------ ------------ ------------
Net realized investment gains .............. $ 3,410,421 $ 8,127,425 $ 5,599,788
============ ============ ============
Change in unrealized investment appreciation
(depreciation) of securities:
Fixed maturities .......................... $ 7,568,751 $(14,214,047) $ 2,266,766
Equity securities ......................... (6,883,318) (291,085) 7,717,489
------------ ------------ ------------
Unrealized investment gains (losses) ..... 685,433 (14,505,132) 9,984,255
Less: applicable deferred income taxes .... (239,902) 5,076,796 (3,494,488)
------------ ------------ ------------
Net unrealized investment gains (losses) .. $ 445,531 $ (9,428,336) $ 6,489,767
============ ============ ============
Net investment income from each major category of investments for the
years indicated is as follows:
Year ended December 31,
---------------------------------------------
2000 1999 1998
---- ---- ----
Fixed maturities ............... $ 16,376,816 $ 17,686,462 $ 18,740,628
Short-term investments ......... 1,653,764 994,215 2,021,670
Equity securities .............. 836,917 815,161 846,610
------------ ------------ ------------
Total investment income .... 18,867,497 19,495,838 21,608,908
Investment expenses ............ (791,408) (854,219) (805,475)
------------ ------------ ------------
Net investment income .... $ 18,076,089 $ 18,641,619 $ 20,803,433
============ ============ ============
39
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(3) Fiduciary Funds:
The Company's insurance agency subsidiaries maintain separate underwriting
accounts which record all of the underlying insurance transactions of the
insurance pools which they manage. These transactions primarily include
collecting premiums from the insureds, collecting paid 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, 2000 and
1999 is as follows:
December 31,
-----------------------------
2000 1999
---- ----
Cash and short-term investments ............ $ 864,339 $ 556,542
Premiums receivable ........................ 44,085,797 40,151,568
Reinsurance and other recoverables ......... 48,546,626 43,451,589
----------- -----------
Total assets ............................... $93,496,762 $84,159,699
=========== ===========
Due to insurance pool members .............. 64,237,587 43,207,673
Reinsurance payable ........................ 14,181,286 29,718,908
Funds withheld from reinsurers ............. 8,240,251 8,174,400
Other liabilities .......................... 6,837,638 3,058,718
----------- -----------
Total liabilities .......................... $93,496,762 $84,159,699
=========== ===========
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 34%, 53% and 45% of the Company's insurance subsidiaries'
direct and assumed gross premiums written for the years ended December 31, 2000,
1999 and 1998, 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 unsecured reinsurance recoverables at December 31, 2000
were from Arkwright Insurance Company ("Arkwright"), Lloyd's of London including
amounts from Equitas, a company formed to handle the runoff obligations of
Lloyd's of London for policy years 1992 and prior ("Lloyd's"), and Utica Mutual
Insurance Company ("Utica Mutual"), with aggregate recoverables of $31 million,
$20 million and $13 million, respectively. The A.M. Best rating for the 1999
year was A+ for Arkwright and A for Utica Mutual. The Company has not
experienced any difficulties in collecting amounts due from Lloyd's and the
settlement of recoverables due the Company has not materially impacted its
liquidity.
40
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
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. The Company's exposure to reinsurers, other
than Arkwright, Lloyd's and Utica Mutual, include reinsurance recoverables
collectively from approximately 680 reinsurers or syndicates, and as of December
31, 2000, no single one was liable to the Company for an unsecured amount in
excess of approximately $6.1 million.
Funds withheld and letters of credit obtained under various reinsurance
treaties amounted to approximately $106 million as of December 31, 2000.
Reinsurance receivables as of December 31, 2000 and 1999 included an allowance
for uncollectible reinsurance receivables of $7,662,000 and $7,871,000,
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 MMO London. In addition, a second reinsurance transaction involving the
assumption of approximately $10.5 million in miscellaneous casualty net premiums
was written by New York Marine in 1998. The second transaction was subsequently
commuted resulting in total payments of approximately $7.5 million. In 2000, MMO
London entered into a reinsurance transaction involving the assumption of
approximately $7.4 million in ocean marine and casualty premiums.
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, 2000 $88,558,156 $45,355,855 $46,035,368 $89,237,669 52%
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%
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, 2000 $86,523,483 $54,742,852 $43,667,548 $75,448,179 58%
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%
Losses and loss adjustment expenses incurred are net of ceded reinsurance
recoveries of $85,766,299, $129,021,415, and $83,487,279 for the years ended
December 31, 2000, 1999, and 1998, 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 2000, 1999 and 1998:
41
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
Year ended December 31,
-------------------------------
2000 1999 1998
---- ---- ----
(in thousands)
Net liability for losses and loss adjustment
expenses at beginning of year .............. $ 196,865 $ 213,589 $ 222,335
--------- --------- ---------
Provision for losses and loss adjustment
expenses occurring in current year ......... 76,425 48,838 69,703
Decrease in estimated losses and loss
adjustment expenses for claims occurring
in prior years (1) ......................... (8,484) (12,183) (19,466)
Deferred income-loss portfolio
assumption(2) .......................... 122 198 275
--------- --------- ---------
Net losses and loss adjustment expenses
incurred ................................... 68,063 36,853 50,512
--------- --------- ---------
Less:
Losses and loss adjustment expense payments
for claims occurring during:
current year ............................ 17,530 11,517 17,407
prior years ............................. 47,591 41,862 41,576
--------- --------- ---------
65,121 53,379 58,983
Add:
Deferred income-loss portfolio assumption (2) (122) (198) (275)
--------- --------- ---------
Net liability for losses and loss adjustment
expenses at year end ....................... 199,685 196,865 213,589
--------- --------- ---------
Ceded unpaid losses and loss adjustment
expenses ................................... 211,582 228,604 187,995
--------- --------- ---------
Gross unpaid losses and loss adjustment
expenses at year end ....................... $ 411,267 $ 425,469 $ 401,584
========= ========= =========
(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 both the issuance of umbrella casualty
insurance for various Fortune 1000 companies and the issuance of ocean marine
liability insurance for various oil companies during the period from 1978 to
1984. Depending on the accident year, the insurance pools' maximum net retention
per occurrence after applicable reinsurance ranged from $250,000 to $1,000,000.
The Company's effective pool participation on such risks varied from 11% in 1978
to 59% in 1984. Subsequent to this period, the pools substantially reduced its
umbrella writings and coverage was provided to smaller insureds. Ocean marine
and non-marine policies issued during the past three years contain some coverage
for environmental risks.
At December 31, 2000 and 1999, the Company's gross, ceded and net loss and
loss adjustment expense reserves for all Asbestos/Environmental policies
amounted to $33.2 million, $20.8 million and $12.4 million, and $27.8 million,
$18.1 million and $9.7 million, respectively. As of December 31, 2000, the
Company had approximately 300 policies which had at least one claim relating to
Asbestos/Environmental exposures. The Company believes that the uncertainty
surrounding Asbestos/Environmental exposures, including issues as to insureds'
liabilities, ascertainment of loss date, definitions of occurrence, scope of
coverage, policy limits and application and interpretation of policy terms,
42
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
including exclusions, all affect the estimation of ultimate losses. Under such
circumstances, it is difficult to determine the ultimate loss for
Asbestos/Environmental related claims. Given the uncertainty in this area,
losses from Asbestos/Environmental related claims may develop adversely.
However, the Company believes that, in aggregate, the net unpaid loss and loss
adjustment expense reserves as of December 31, 2000, allow for an adequate
provision and that the ultimate resolution of the Asbestos/Environmental claims
will not have a material impact on the Company's financial position.
Salvage and Subrogation
Estimates of salvage and subrogation recoveries on paid and unpaid losses
have been recorded as a reduction of unpaid losses amounting to $5,222,707 and
$5,884,591 at December 31, 2000 and 1999, respectively.
Deferred Policy Acquisition Costs
Deferrable acquisition costs amortized to income amounted to $18,177,724,
$11,077,382 and $10,107,327 for the years ended December 31, 2000, 1999 and
1998, respectively.
(5) Property, Improvements and Equipment, Net:
Property, improvements and equipment, at December 31, 2000 and 1999
include the following:
2000 1999
----------- ------------
Office furniture and equipment ................... $ 814,140 $ 760,333
Computer equipment ............................... 1,277,419 1,573,091
Leasehold improvements ........................... 2,332,479 2,351,498
----------- -----------
4,424,038 4,684,922
Less: accumulated depreciation and amortization .. (3,198,757) (2,892,046)
----------- -----------
Property, improvements and equipment, net .. $ 1,225,281 $ 1,792,876
=========== ===========
Depreciation and amortization and other expenses for the years ended December
31, 2000, 1999, and 1998 amounted to $825,543, $699,107 and $733,950,
respectively.
(6) Income Taxes:
The components of deferred tax assets and liabilities as of December 31,
2000 and 1999 are as follows:
December 31,
-----------------------------
2000 1999
-----------------------------
Deferred Tax Assets:
Loss reserve discounting .............. $ 9,180,065 $10,561,268
Unearned premiums ..................... 2,885,779 1,920,515
Equity securities write-down .......... 603,741 820,578
Loss carryforwards .................... 8,272,202 2,667,328
Deferred rent liability ............... 224,418 333,874
Bad debt reserve ...................... 2,839,290 2,912,486
Other ................................. 1,050,441 490,508
----------- -----------
Deferred tax assets ................... 25,055,936 19,706,557
----------- -----------
Less: Valuation allowance ............. 5,859,015 2,191,576
----------- -----------
Total deferred tax assets ............. 19,196,921 17,514,981
----------- -----------
43
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
December 31,
-----------------------------
2000 1999
-----------------------------
Deferred Tax Liabilities:
Deferred policy acquisition costs .............. 1,874,071 1,697,705
Unrealized appreciation of investments ......... 5,617,633 5,377,732
Deferred income-loss portfolio assumption ...... 32,037 74,753
Discount on accrued salvage and subrogation .... 261,476 311,200
Other .......................................... 907,522 742,256
----------- -----------
Total deferred tax liabilities ................. 8,692,739 8,203,646
----------- -----------
Net deferred tax assets ........................ $10,504,182 $ 9,311,335
=========== ===========
Included in other deferred tax assets at December 31, 2000 is an
alternative minimum tax (AMT) credit carryforward of $493,228. This amount
represents the excess of AMT over regular tax, which can be carried forward
indefinitely to reduce any regular tax liabilities occurring in future years.
The last year to which the loss carryforwards can be carried forward
against future tax liabilities is the year 2020.
The change in the valuation allowance account is primarily attributable to
the loss carryforwards. The Company's valuation allowance account with respect
to the deferred tax asset and the change in the account is as follows:
2000 1999 1998
----------------------------------------
Balance, beginning of year ........ $2,191,576 $1,187,445 $ --
Change in valuation allowance ..... 3,667,439 1,004,131 1,187,445
---------- ---------- ----------
Balance, end of year .............. $5,859,015 $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, 2000 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,
--------------------------
2000 1999 1998
---- ---- ----
Income taxes at the Federal statutory rate .... (35.0)% 35.0% 35.0%
Tax exempt interest ........................... (40.7) (20.8) (21.7)
Valuation allowance ........................... 67.7 4.7 5.2
State taxes ................................... (8.3) (2.4) (3.9)
Net bond amortization ......................... 6.6 3.4 3.3
Investment income proration ................... 5.5 2.8 2.9
Other, net .................................... 1.4 (0.2) (1.7)
---- ---- ----
Income tax provisions ......................... (2.8)% 22.5% 19.1%
==== ==== ====
Federal income tax payments amounted to $1,055,877, $2,611,055 and
$5,328,181 for the years ended December 31, 2000, 1999 and 1998, respectively.
Federal income taxes payable included in other liabilities at December 31,
2000 and December 31, 1999 amounted to $305,672 and $409,939, respectively.
44
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 declared to the
holding company from December 31, 2000 surplus is approximately $17,000,000.
Combined statutory net income, surplus and dividends declared by the
Company's domestic insurance subsidiaries were as follows for the periods
indicated:
Combined Combined Dividends
Statutory Statutory Declared
Year Ended Net Income Surplus To Parent
---------- ---------- ------- ---------
December 31, 2000 $ 13,146,000 $184,688,000 $ 15,475,000
December 31, 1999 25,476,000 200,899,000 19,175,000
December 31, 1998 30,223,000 196,745,000 18,367,000
(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 7.5% 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, 2000, 1999 and 1998 amounted to
$939,973, $600,346, and $1,017,551, 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
7.275% on the outstanding principal balance of the loan at December 31, 2000 of
$7,458,413. 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 credit 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 credit agreement as of December 31, 2000. The credit agreement
also provides for a facility fee of .15 of 1% on the outstanding balance of the
loan.
45
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
Interest paid amounted to $709,565, $1,057,993 and $1,347,653 for the
years ended December 31, 2000, 1999 and 1998, 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. The
interest expense (benefit) recorded under the agreement was $(67,626) in 2000,
$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 July, 2004.
The aggregate minimum annual rental payments under various operating
leases for office facilities as of December 31, 2000 are as follows:
Amount
- --------------------------------------------------------------------------------
Amount
2001 ................................................ $1,234,412
2002 ................................................ 1,234,412
2003 ................................................ 1,207,080
Thereafter .......................................... 1,589
- --------------------------------------------------------------------------------
Total.......................................... $3,677,493
The operating leases also include provisions for additional payments based
on certain annual cost increases. Rent expenses for the years ended December 31,
2000, 1999, and 1998 amounted to $1,104,187, $1,285,950, and $1,131,951,
respectively.
The Company is not involved in any litigation which would require
disclosure in the financial statements or could reasonably be expected to have a
material effect on the Company's financial statements.
In order to provide corporate capital for the underwriting operations of
MMO London, the Company has an unsecured letter of credit from a bank in pounds
sterling with a US dollar equivalent of approximately $23.9 million as of
December 31, 2000.
46
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
(11) Comprehensive Income:
The Company's comparative comprehensive income is as follows:
Year ended December 31,
-----------------------------------
2000 1999 1998
---- ---- ----
Net income (loss) .................................. $ (5,502,114) $ 16,413,261 $ 18,523,416
Other comprehensive income (loss), net of tax:
Unrealized holding gains (losses) on securities,
net of deferred tax benefit (expense) of
$(2,076,283), $700,490,and $(6,509,758) .......... 3,855,952 (1,300,911) 12,089,555
Less: reclassification adjustment for gains realized
in net income, net of tax expense of
$(1,836,381),$(4,376,306), and $(3,015,270) ....... 3,410,421 8,127,425 5,599,788
Foreign currency translation adjustment ............ 541,119 (76,817) 15,039
------------ ------------ ------------
Other comprehensive income (loss) ............. 986,650 (9,505,153) 6,504,806
------------ ------------ ------------
Total comprehensive income (loss) .................. $ (4,515,464) $ 6,908,108 $ 25,028,222
============ ============ ============
The Company recorded unrealized holding gains on securities, net of
deferred taxes, of $10,432,747 and $9,987,216 as of December 31, 2000 and 1999,
respectively. The Company recorded foreign currency translation adjustments of
$485,341 and $(55,778) as of December 31, 2000 and 1999, 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, 2000, the Company had repurchased a total of 2,644,408 shares of common
stock under this plan at a total cost of $45,285,581 at market prices ranging
from $12.38 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 earnings (loss) per share for each
of the years ended December 31, 2000, 1999 and 1998 is as follows:
2000 1999 1998
-----------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Net Shares Per Net Shares Per Net Shares Per
(Loss) Outstanding Share Income Outstanding Share Income Outstanding Share
-----------------------------------------------------------------------------------------
(In thousands except for per share data)
Basic
EPS ....... ($5,502) 9,244 ($.60) $16,413 9,687 $ 1.69 $18,523 9,679 $ 1.91
Effect of
Dilutive
Securities:
Stock
Options ... -- -- -- -- -- -- -- 26 --
-----------------------------------------------------------------------------------------
Diluted
EPS ....... ($5,502) 9,244 ($.60) $16,413 9,687 $ 1.69 $18,523 9,705 $ 1.91
=========================================================================================
47
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, 2000, 1999, and 1998 follows:
2000 1999 1998
---------------------------------------------------------------------
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 255,500 $12.05-$20.25 228,200 $15.56-$22.92 243,100 $13.78-$22.92
Granted 65,000 $12.00-$14.13 140,000 $12.05-$15.00 30,000 $20.25
Exercised (500) $15.79 ----- ----- (25,900) $13.78-$15.79
Forfeited (1,500) $15.79 (112,700) $15.56-$22.92 (19,000) $15.56-$15.79
------- --------- --------
Outstanding,
end of year 318,500 $12.00-$20.25 255,500 $12.05-$20.25 228,200 $15.56-$22.92
======= ======= =======
Exercisable,
end of year 192,167 $12.05-$20.25 138,000 $15.56-$20.25 115,367 $15.56-$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, 2000, 1999 and 1998 is
as follows:
2000 1999 1998
---- ---- ----
Net income (loss) - as reported $ (5,502,114) $ 16,413,261 $ 18,523,416
Net income (loss) - pro forma . $ (5,655,392) $ 16,280,784 $ 18,414,657
Diluted EPS - as reported ..... $ (.60) $ 1.69 $ 1.91
Diluted EPS - pro forma ....... $ (.61) $ 1.68 $ 1.90
In determining the pro forma effect on net income, the fair value of options
granted in 2000, 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 2000, 1999, 1998, 1996 and 1995, respectively; dividend yield of
3.0%, 3.0%, 1.9%, 2.2% and 2.4%; expected volatility of 25%, 25%, 28%, 25% and
28%; expected lives of 5 years for each year and a risk-free interest rate of
4.75%, 6.48%, 4.56%, 6.00% and 5.38%. There were no options granted in 1997.
48
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
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.
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. In
2000, 15,000 shares were exercised at market prices ranging from $13 to $13.6875
per share. The Company recorded an expense of $410,000 and $263,750 in 2000 and
1999, respectively.
(14) Segment Information:
In 2000, the Company's subsidiaries include two domestic insurance
companies, three domestic agencies, and MMO London. MMO London includes the
operations of MMO EU and MMO UK. The Company considers the domestic insurance
companies/agencies and MMO London 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, commission
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 financial information by segment is as follows:
2000 1999 1998
--------------------------------
(in thousands)
Revenues, excluding net investment income
and realized gains:
Domestic Insurance Companies/Agencies ..... $ 50,538 $ 44,275 $ 61,674
MMO London ................................ 26,872 14,446 15,262
Other (includes corporate operations and
consolidating adjustments) ............... -- (372) 74
-------- -------- --------
Total ........................ $ 77,410 $ 58,349 $ 77,010
======== ======== ========
Net investment income:
Domestic Insurance Companies/Agencies ..... $ 16,941 $ 17,904 $ 19,695
MMO London ................................ 1,087 721 1,108
Other (includes corporate operations and
consolidating adjustments) ............... 48 17 --
-------- -------- --------
Total ........................ $ 18,076 $ 18,642 $ 20,803
======== ======== ========
Realized gains (losses) on investments:
Domestic Insurance Companies/Agencies ..... $ 5,349 $ 12,589 $ 8,615
MMO London ................................ (102) (85) --
-------- -------- --------
Total ........................ $ 5,247 $ 12,504 $ 8,615
======== ======== ========
Income (loss) before tax expense:
Domestic Insurance Companies/Agencies ..... $ 16,078 $ 25,452 $ 27,899
MMO London ................................ (17,704) (1,119) 132
Other (includes corporate operations and
consolidating adjustments) ............... (4,033) (3,154) (5,127)
-------- -------- --------
Total ........................ $ (5,659) $ 21,179 $ 22,904
======== ======== ========
49
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
2000 1999 1998
--------------------------------
(in thousands)
Income tax expense (benefit):
Domestic Insurance Companies/Agencies .. $ 3,109 $ 5,448 $ 5,983
MMO London ............................. (2,352) (115) 60
Other (includes corporate operations and
consolidating adjustments) ............ (914) (567) (1,662)
-------- -------- --------
Total ..................... $ (157) $ 4,766 $ 4,381
======== ======== ========
Net income (loss):
Domestic Insurance Companies/Agencies .. $ 12,969 $ 20,004 $ 21,916
MMO London ............................. (15,352) (1,004) 72
Other (includes corporate operations and
consolidating adjustments) ............ (3,119) (2,587) (3,465)
-------- -------- --------
Total ..................... $ (5,502) $ 16,413 $ 18,523
======== ======== ========
Identifiable assets at year end:
Domestic Insurance Companies/Agencies .. $650,146 $708,598 $694,088
MMO London ............................. 61,358 41,019 25,748
Other (includes corporate operations and
consolidating adjustments) ............ 8,825 14,687 10,484
-------- -------- --------
Total ..................... $720,329 $764,304 $730,320
======== ======== ========
The Company's gross written premiums cover risks in the following geographic
locations:
2000 1999 1998
------------------------------
(in thousands)
United States ................ $ 66,492 $ 72,881 $ 93,460
Europe ....................... 47,746 20,146 18,480
Asia ......................... 12,332 15,302 11,948
Latin America ................ 2,406 2,798 2,970
Other ........................ 5,618 7,282 5,279
-------- -------- --------
Total Gross Written Premiums $134,594 $118,409 $132,137
======== ======== ========
(15) Quarterly Financial Data (unaudited):
The quarterly financial data for 2000 and 1999 are as follows:
Three Months Ended
-------------------------------------------
March 31, June 30, Sept. 30, Dec. 31,
2000 2000 2000 2000
-------------------------------------------
(in thousands, except per share data)
Total revenues ................... $ 27,132 $ 20,455 $ 20,360 $ 32,786
Income (loss) before income taxes $ 3,459 $ 1,132 $ (3,800) $ (6,450)
Net income (loss) ................ $ 2,495 $ 1,087 $ (2,781) $ (6,303)
Basic earnings (loss) per share .. $ 0.26 $ 0.12 $ (0.30) $ (0.69)
Diluted earnings (loss) per share $ 0.26 $ 0.12 $ (0.30) $ (0.69)
50
NYMAGIC, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--Continued
Three Months Ended
----------------------------------------
March 31, June 30, Sept. 30, Dec. 31,
1999 1999 1999 1999
----------------------------------------
(in thousands, except per share data)
Total revenues ....................... $22,782 $19,598 $23,675 $23,441
Income (loss) before income taxes .... $ 6,501 $ 3,669 $ 3,734 $ 7,276
Net income (loss) .................... $ 5,152 $ 3,283 $ 3,114 $ 4,863
Basic earnings (loss) per share ...... $ 0.53 $ 0.34 $ 0.32 $ 0.50
Diluted earnings (loss) per share .... $ 0.53 $ 0.34 $ 0.32 $ 0.50
(16) Related Party Transactions:
The Company made payments of $145,960 and $212,259 in 2000 and 1999,
respectively, 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.
51
FINANCIAL STATEMENT SCHEDULES
SCHEDULE II-CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NYMAGIC, INC.
Balance Sheets
(Parent Company)
December 31,
------------------------------
2000 1999
------------------------------
Assets:
Cash .......................................... $ 7,149 $ 55,745
Short term investments ........................ 4,035,917 7,767,122
Investment in subsidiaries .................... 214,705,032 220,000,865
Due from subsidiaries and MMO insurance pools . 4,690,341 15,203,952
Other assets .................................. 2,683,484 2,456,387
------------- -------------
Total assets ................................ $ 226,121,923 $ 245,484,071
============= =============
Liabilities:
Notes payable ................................. $ 7,458,413 $ 12,458,413
Dividends payable ............................. 915,803 967,785
Other liabilities ............................. 1,457,998 915,514
------------- -------------
Total Liabilities ........................... 9,832,214 14,341,712
------------- -------------
Shareholders' equity:
Common stock .................................. 15,018,392 15,017,892
Paid in capital ............................... 27,992,916 27,935,907
Accumulated other comprehensive income ........ 10,918,088 9,931,438
Retained earnings ............................. 211,565,023 220,736,910
Treasury stock ................................ (49,204,710) (42,479,788)
------------- -------------
Total shareholders' equity ................... 216,289,709 231,142,359
------------- -------------
Total liabilities and shareholders' equity ... $ 226,121,923 $ 245,484,071
============= =============
Statements of Income
(Parent Company)
Year Ended December 31,
---------------------------------------------
2000 1999 1998
---- ---- ----
Revenues:
Cash dividends from subsidiary . $ 15,475,000 $ 19,175,000 $ 18,367,000
Net investment and other income 48,277 17,122 74,122
------------ ------------ ------------
15,523,277 19,192,122 18,441,122
------------ ------------ ------------
Expenses:
Operating expenses ............. 4,081,494 3,171,627 5,200,857
Income tax benefit ............. (913,651) (567,028) (1,661,488)
------------ ------------ ------------
3,167,843 2,604,599 3,539,369
------------ ------------ ------------
Income before equity income .... 12,355,434 16,587,523 14,901,753
Equity in undistributed earnings
(loss) of subsidiaries ....... (17,857,548) (174,262) 3,621,663
------------ ------------ ------------
Net income (loss) ........... $ (5,502,114) $ 16,413,261 $ 18,523,416
============ ============ ============
52
SCHEDULE II-CONDENSED FINANCIAL INFORMATION OF REGISTRANT
NYMAGIC, INC.
Statements of Cash Flows
(Parent Company)
Year Ended December 31,
------------------------------------
2000 1999 1998
---- ---- ----
Cash flows from operating activities:
Net income (loss) .......................... $(5,502,114) $16,413,261 $18,523,416
------------ ------------ ------------
Adjustments to reconcile net income
to cash provided by operating activities:
Equity in undistributed earnings of
subsidiaries ........................ 17,857,548 174,262 (3,621,663)
Decrease (increase) in other assets ..... (227,097) 13,604 192,184
Decrease (increase) in due
from subsidiaries ................... 10,513,611 (538,297) (11,997,928)
Increase in other liabilities ........... 542,484 659,301 100,592
------------ ------------ ------------
Net cash provided by operating
activities .......................... 23,184,432 16,722,131 3,196,601
------------ ------------ ------------
Cash flows from investing activities:
Short term investments acquired ......... (3,562,344) (7,767,122) (2,870,000)
Short term investments matured .......... 7,293,550 -- 8,870,000
Investment in subsidiaries .............. (11,575,066) -- (989,821)
------------ ------------ ------------
Net cash provided by (used in) investing
activities .......................... (7,843,860) (7,767,122) 5,010,179
------------ ------------ ------------
Cash flows from financing activities:
Proceeds from stock issued and other .... 57,509 (93,503) 525,433
Cash dividends paid to stockholders ..... (3,721,755) (3,875,319) (3,870,040)
Net repurchase of common stock .......... (6,724,922) 22,442 (20,573)
Proceeds from borrowings ................ -- -- 5,000,000
Loan principal payments ................. (5,000,000) (5,000,000) (10,000,000)
------------ ------------ ------------
Net cash used in financing activities ... (15,389,168) (8,946,380) (8,365,180)
------------ ------------ ------------
Net increase (decrease) in cash ......... (48,596) 8,629 (158,400)
Cash at beginning of period ............. 55,745 47,116 205,516
------------ ------------ ------------
Cash at end of period ................... $ 7,149 $ 55,745 $ 47,116
============ ============ ============
The condensed financial information of NYMAGIC, INC. for the years ended
December 31, 2000, 1999 and 1998 should be read in conjunction with the
consolidated financial statements of NYMAGIC, INC. and subsidiaries and notes
thereto.
53
NYMAGIC, INC.
SCHEDULE V-VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31, 2000 AND 1999
- --------------------------------------------------------------------------------
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- --------------------------------------------------------------------------------
DESCRIPTION Balance at Balance at
beginning close of
of period Additions Deductions period
- --------------------------------------------------------------------------------
December 31, 2000:
Allowance for
doubtful accounts .... $ 8,321,388 $ 1,375,536 $(1,584,667) $ 8,112,257
December 31, 1999:
Allowance for
doubtful accounts .... $ 7,472,739 $ 2,158,060 $(1,309,411) $ 8,321,388
54
NYMAGIC, INC.
SCHEDULE VI - SUPPLEMENTAL INFORMATION CONCERNING
PROPERTY/CASUALTY INSURANCE OPERATIONS
(In thousands)
CLAIMS AND CLAIMS
EXPENSES INCURRED OF
DEFERRED RESERVE FOR RELATED TO
AFFILIATION POLICY UNPAID CLAIMS UNEARNED NET NET --------------------
WITH ACQUISITION AND CLAIMS PREMIUM EARNED INVESTMENT CURRENT PRIOR
REGISTRANT COSTS EXPENSES DISCOUNT RESERVE PREMIUMS INCOME YEAR YEARS
- --------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 2000 ....... $ 5,354 $411,267 -- $ 60,436 $ 75,448 $ 18,014 $ 76,425 $(8,484)
CONSOLIDATEDSUBSIDIARIES
DECEMBER 31, 1999 ....... 4,851 425,469 -- 56,033 56,155 18,624 48,838 (12,183)
CONSOLIDATED SUBSIDIARIES
DECEMBER 31, 1998 ....... 4,277 401,584 -- 46,879 76,023 20,729 69,703 (19,466)
CONSOLIDATED SUBSIDIARIES
AMORTIZATION
DEFERRED
AFFILIATION POLICY PAID CLAIMS
WITH ACQUISITION AND CLAIMS PREMIUMS
REGISTRANT COSTS EXPENSES WRITTEN
- --------------------------------------------------------------------------------------------------------------------------
DECEMBER 31, 2000 ....... $18,178 $ 65,122 $ 89,238
CONSOLIDATEDSUBSIDIARIES
DECEMBER 31, 1999 ....... 11,077 53,379 56,106
CONSOLIDATED SUBSIDIARIES
DECEMBER 31, 1998 ....... 10,107 58,983 72,728
CONSOLIDATED SUBSIDIARIES
55
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. (Incorporated by
reference to Exhibit 3.3 of the registrant's Annual
Report of Form 10-K for the fiscal year ended
December 31, 1999 (Commission file No.1-11238).)
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 on 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, by and among Mutual Marine
Office, Inc. and Arkwright Mutual Insurance Company,
Utica Mutual Insurance Company, Lumber Mutual
Insurance Company, the Registrant and Pennsylvania
National Mutual Casualty Insurance Company.
(Incorporated by reference to Exhibit 10.2.2. of the
Registrant's Current 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 by and among Mutual Marine
Office, Inc. and Arkwright Mutual Insurance Company,
Utica Mutual Insurance Company, the Registrant and
Pennsylvania National Mutual Casualty Insurance
Company. (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 on 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, by and among Mutual Inland
Marine Office, Inc. and Arkwright Mutual Insurance
Company, Utica Mutual Insurance Company, Lumber
Mutual Insurance Company, the Registrant and
Pennsylvania National Mutual Casualty Insurance
Company (Incorporated by reference to Exhibit 10.4.2
of the Registrant's Current 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 Current 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 Current 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. (Incorporated by
reference to Exhibit 10.10 of Registrant's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1999 (Commission File No. 1-112381).)
10.11 1999 NYMAGIC, INC. Phantom Stock Plan. (Incorporated
by reference to Exhibit 10.11 of the Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1999 (Commission File No. 1-11238).)
10.12 Executive Severance Pay Plan, effective as of January
1, 2000, for the benefit of Lawrence S. Davis.
21. Subsidiaries of the Registrant.
23. Consent of KPMG LLP.