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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
[ 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
-----------------------------------
[ ] 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 ___022316_____
PENN-AMERICA GROUP, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Pennsylvania 23-2731409
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
420 S. York Road, Hatboro, PA 19040
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (215) 443-3600
-----------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
------------------- -----------------------------------------
Common stock, par value, per share New York
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Securities registered pursuant to Section 12(g) of the Act:
None
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(Title of class)
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. [ ]
As of March 20, 2001, the aggregate market value of the outstanding Common Stock
held by non-affiliates of the Registrant was approximately $41,391,030. As of
March 20, 2001, there were 7,586,525 shares of the Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the Registrant's annual report to stockholders for the fiscal
year-ended December 31, 2000 are incorporated by reference in Parts I, II and IV
of this report.
Part III - Portions of the Registrant's definitive Proxy Statement with respect
to the Registrant's 2001 Annual Meeting of Shareholders, to be filed not later
than 120 days after the close of the Registrant's fiscal year.
PENN-AMERICA GROUP, INC.
ANNUAL REPORT ON FORM 10-K
DECEMBER 31, 2000
Page
PART I
ITEM 1. BUSINESS...................................................... 3
ITEM 2. PROPERTIES.................................................... 15
ITEM 3. LEGAL PROCEEDINGS............................................. 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY-HOLDERS.............................................. 15
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK
AND RELATED STOCKHOLDER MATTERS............................... 16
ITEM 6. SELECTED FINANCIAL DATA....................................... 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS................. 16
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................... 16
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.................................................... 16
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE
REGISTRANT.................................................... 17
ITEM 11. EXECUTIVE COMPENSATION........................................ 17
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT......................................... 17
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS................ 17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K........................................... 18
Page 2
PART I
ITEM 1. BUSINESS
General
Penn-America Group, Inc. ("PAGI", or "the Company") is a specialty property and
casualty insurance holding company which, through its subsidiary, Penn-America
Insurance Company and its subsidiary Penn-Star Insurance Company (collectively
"Penn-America"), markets and underwrites commercial property, general liability
and multi-peril insurance for small businesses located primarily in small towns
and suburban and rural areas. The Company provides commercial property and
casualty insurance both on an excess and surplus lines basis and on an admitted
basis. During 1999, the Company announced that it would exit the non-standard
personal automobile business entirely, a business it entered in 1988. In late
2000, the Company announced that it also was exiting the commercial automobile
business.
Penn-America Insurance Company was formed in 1975 by Irvin Saltzman, who began
working in the insurance industry in 1947 when he founded a general agency. Jon
S. Saltzman, Irvin Saltzman's son, is President and Chief Executive Officer of
the Company and has been employed by the Company since 1976. The Company
completed an initial public offering ("IPO") on October 28, 1993, at a price of
$6.00 per share, which was then followed by a secondary offering in July of 1997
where approximately 3.2 million shares were sold by the Company at $14.50 per
share. Currently, the Saltzman family, substantially through their ownership of
Penn Independent Corporation (Penn-Independent), owns approximately 41% of the
Company's Common Stock.
Marketing and Distribution
Penn-America's commercial insureds consist primarily of small, "Main Street"
businesses including restaurants, taverns, mercantiles and artisan contractors.
In addition, the Company has developed customized products and coverages for
other small commercial insureds such as daycare facilities, fitness centers and
special events. The Company believes it has benefited from a general migration
of small businesses out of urban centers and into suburban and rural areas.
Industry consolidation, corporate downsizing and the increased use of
communications technology and personal computers, among other factors, have
contributed to the high growth in the number of small businesses in these areas.
The Company selects only insurance lines of business and industry segments for
which it reasonably can evaluate the probability of future loss exposure.
Therefore, the Company avoids high-hazard risks and high-hazard lines of
business such as medical malpractice and environmental liability.
Penn-America markets its products through about 50 high-quality general agents,
who in turn produce business through more than 25,000 retail insurance brokers
located throughout the United States. The Company focuses on serving the
insurance needs of small or non-standard markets, which generally are
characterized by small average policy premiums that are serviced by retail
insurance brokers with limited access to larger, standard lines insurers. The
Company believes that these markets generally are underserved by larger,
standard lines insurers, which often limit their underwriting to larger policies
or to certain risk classes. Penn-America believes that its distribution network
enables it to access effectively these numerous small markets at a relatively
low fixed-cost through the marketing, underwriting and administrative support of
its general agents. This access also is enabled by the local market knowledge
and expertise of these general agents and their retail insurance brokers.
Penn-America's distribution strategy is to maintain strong relationships with a
select group of high-quality general agents. The Company believes that its
network comprises a smaller, higher-quality group of agents than
Page 3
its competitors. The Company carefully selects a limited number of general
agents based on their experience and reputation and strives to preserve each
agent's franchise value within its marketing territory. The Company seeks to
grow with these general agents and develop strong, long-standing relationships
by providing a high level of service and support. The success of the Company's
strategy is demonstrated by its strong and consistent growth. From 1992 to 2000,
commercial gross written premiums grew at a 22% compound annual rate from $22.6
million to $107.0 million while the number of general agents rose from 38 to 52.
Underwriting
The Company underwrites its business through three underwriting units: The
Binding Authority Unit, the Submit Unit and the Specialty Lines Unit. This
underwriting approach allows the Company to maintain low fixed costs.
Approximately 85.0% of the Company's business is underwritten by the Binding
Authority Unit. Of this amount, approximately 85% is bound by general agents in
accordance with the Company's underwriting manual.
With respect to commercial risks written by general agents through The Binding
Authority Unit, the Company generally has 60 days from the effective date to
cancel a policy if the risk insured does not comply with the Company's
underwriting guidelines. In the event an agent exceeds its authority by binding
the Company on a risk when it had no authority to do so, the Company is at risk
for that policy until it receives the policy and effects a cancellation. General
agents must deliver all policies to the Company within 35 days of the date
written. The Company monitors this activity closely through its computer system
and underwriting department.
The Company provides its general agents with a comprehensive, regularly updated
underwriting manual, which also is available online through a secure Intranet
site called PennLink. This manual clearly outlines the Company's risk
eligibility, pricing parameters and underwriting guidelines. Penn-America
closely monitors the quality of business it underwrites. The Company generally
reviews new and renewal commercial policies on a continuous basis to ensure that
its underwriting guidelines are being followed. The Company also periodically
audits each agent's office to determine if the Company's underwriting guidelines
are being followed in all aspects of risk selection, underwriting compliance,
policy issuance and pricing. In addition to standard commissions, the Company
provides strong incentives to its general agents to produce profitable business
through a contingent commission structure, which is tied substantially to
underwriting profitability. Payments of these contingent commissions have been
in cash and through the issuance of shares of Company common stock and stock
options. Since 1996, the Company has awarded agents approximately 161,000 shares
of the Company's common stock through its contingent commission structure.
The Submit Unit was formed in the fourth quarter of 1999 and produced
approximately 3% of the Company's business in 2000. The unit provides a market
to the Company's general agents for approximately fifty classes of insureds that
were previously restricted by the Company's underwriting manual. 100% of the
business written by the Submit Unit is bound by Penn-America underwriters -
general agents have no binding authority. Each risk is considered individually
by the Company's underwriters and approximately 15% of policies submitted are
bound.
In determining whether to accept such risks, the Company's Submit Unit will
review such factors as the type of risk, the agent's knowledge and control of
the risk, potential underwriting profitability and historical data regarding any
similar risk previously underwritten by the Company. During this process, the
Company will quote a proposed premium reflecting relevant ISO benchmarks, if
available, and adjustments that may be warranted based on the individual
characteristics of the particular risk. The Submit Unit then assembles a
Page 4
complete underwriting file with respect to the particular submission and
specific approval procedures are employed, depending on the characteristics and
magnitude of the particular risk.
The Specialty Lines Unit, which accounted for 12% of the Company's business in
2000, creates specialized underwriting and marketing programs for individual
agents based upon specific territorial needs and opportunities. The individual
general agent typically is given exclusive marketing authority for the program
subject to territorial limitations. The Company believes it can achieve superior
underwriting results and expense savings on these programs. In all of its
commercial product lines, the Company continuously is developing specialized
programs for certain industry segments to meet the needs of these marketplaces.
For example, Penn-America has developed programs for Alaska dwellings, cargo and
retail jewelers. As a group, these programs are a significant benefit to
Penn-America's marketing efforts.
Financial Information About Business Segments
The Company has two reportable segments: non-standard personal automobile and
commercial lines. The Company announced in April 1999 that it would run-off its
remaining portfolio of the personal lines automobile business, which was
underwritten through a single agent in California. This followed a decision
earlier in 1999 to eliminate the remainder of the Company's non-standard
personal automobile portfolio of this business in six other states. The Company
will continue to report on this segment separately until the amounts relating to
the non-standard personal automobile business become immaterial to the financial
statements presented. These segments are managed separately because they have
different customers, pricing and expense structures. The Company does not
allocate assets between segments because assets are reviewed in total by
management for decision-making purposes.
The accounting policies of the segments are the same as those more fully
described in the summary of significant accounting policies in Note 1 to the
audited financial statements, incorporated herein by reference. The Company
evaluates segment profit based on profit or loss from operating activities.
Segment profits or losses from operations are pre-tax and do not include
unallocated expenses but do include investment income attributable to insurance
transactions. Segment profit or loss therefore excludes federal income taxes,
unallocated expenses and investment income attributable to equity as opposed to
investment income attributable to insurance transactions. The aforementioned
segment information is presented in Note 8 to the audited financial statements
incorporated herein by reference.
The following table sets forth the geographic distribution of the Company's
gross written premiums for the periods indicated:
Years ended December 31,
------------------------------- ------------------------------ -------------------------------
2000 1999 1998
------------------------------- ------------------------------ -------------------------------
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
(in thousands) (in thousands) (in thousands)
Pacific $ 19,961 18.2% $ 21,404 22.3% $ 25,282 26.6%
Midwest 21,768 19.8 17,516 18.2 14,068 14.8
South 16,539 15.1 13,811 14.4 13,683 14.4
Southwest 15,532 14.1 13,971 14.6 14,907 15.7
Mid-Atlantic 17,253 15.7 12,496 13.0 11,282 11.9
Mountain/Northwest 10,457 9.5 10,849 11.3 9,831 10.3
New England 8,281 7.6 5,935 6.2 6,044 6.3
-------------- ------------ --------------- ------------ --------------- ------------
$ 109,791 100.0% $ 95,983 100.0% $ 95,097 100.0%
============== ============ =============== ============ =============== ============
Page 5
Lines of Business
The following table sets forth an analysis of gross earned premium by specific
product lines during the periods indicated:
Years ended
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2000 1999 1998
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Amount Percent Amount Percent Amount Percent
------------ ---------- ----------- ------------ ----------- ----------
(dollars in thousands)
Commercial lines:
Commercial multi-peril $ 55,674 54.1% $43,851 46.7% $39,113 40.3%
Liability 28,043 27.2 24,961 26.6 24,863 25.6
Property 5,734 5.6 5,498 5.9 5,398 5.6
Commercial automobile 9,522 9.3 5,580 5.9 958 1.0
------------ ----------- ---------- ------------ ----------- ----------
98,973 96.2 79,890 85.1 70,333 72.5
------------ ----------- ---------- ------------ ----------- ----------
Personal lines:
Auto liability 3,114 3.0 11,400 12.1 22,125 22.8
Auto physical damage 796 0.8 2,614 2.8 4,560 4.7
------------ ----------- ---------- ------------ ----------- ----------
3,910 3.8 14,014 14.9 26,684 27.5
------------ ----------- ---------- ------------ ----------- ----------
Total gross earned premium $102,883 100.0% $93,904 100.0% $97,017 100.0%
============ =========== ========== ============ =========== ==========
o The Company's Commercial General Liability insurance is written on an
occurrence policy form (as opposed to a claims-made policy form) and
provides limits generally ranging from $25,000 to $3 million, with the
majority of such policies having limits between $500,000 and $1 million.
The Company's general liability policies provide for defense and related
expenses in addition to per occurrence and aggregate policy limits.
o The Company's Commercial Property lines provide limits usually no higher
than $4 million, with almost all of the policies being written at limits
less than $1 million.
o The Company writes Commercial Multi-Peril policies that provide the same
commercial property and general liability coverages bundled together as a
"package" for its insureds. The limits on these policies are the same as if
written on a monoline basis. Consistent with the current industry trend,
the Company has been writing more commercial multi-peril policies than
individual property and liability policies during the past several years.
The Company expects this trend to continue as the Insurance Services Office
(ISO) forms make it easier and more efficient to write such multi-peril
policies, and because a substantial number of the Company's commercial
insureds customarily require both liability and property insurance
coverage.
o The Company also offers Commercial Umbrella coverage to enhance its
commercial multi-peril writings. The types of risks and insureds targeted
are similar to those already written, such as restaurants, bars and
taverns, mercantile, artisan contractors and similar classes. Commercial
umbrella insurance can be written for limits up to $5 million with
significant reinsurance support from General Reinsurance Corporation. For
commercial umbrella coverage, Penn-America usually writes the primary
million liability limit.
o Commercial Automobile coverage is offered by the Company from 1998 through
the first quarter of 2001.The commercial automobile insurance line (cars
and light trucks) is written with liability limits up to $1 million. No new
policies currently are being issued and all existing policies are being
non-renewed in accordance with each state's non-renewal laws. Commercial
automobile business represented approximately 10.4% of the total gross
premium written by the Company in 2000, compared with 7.3% in
Page 6
1999. The Company anticipates that run-off from commercial automobile gross
written premium in 2001 will be approximately $ 4.5 million, compared with
$11.5 million in 2000.
o Penn-America wrote Non-Standard Personal Automobile policies in seven
states. In 1999, the Company announced that it was exiting this line
entirely and that it would be in run-off. The business being run-off
represented $2.8 million of gross written premiums in 2000. The
non-standard automobile written premium anticipated to be written by the
Company in 2001 is largely the result of the statutory requirements of
states regarding renewals. The Company estimates that approximately $ 0.5
million of personal non-standard automobile written premiums will be
written in 2001. Non-standard personal automobile business represented
approximately 2.5% of the total gross premium written by the Company in
2000 as compared with 12.0% in 1999.
Pricing
In the commercial property and casualty market, the rates and terms of coverage
provided by property and casualty insurance carriers are frequently based on ISO
benchmark and forms. ISO makes available to its members advisory, rating,
statistical and actuarial services, policy language and related services. ISO
and its related organizations currently provide such services, including loss
costs and forms, to more than 1,500 property and casualty insurance companies in
the U.S. One of the important services that ISO provides is an actuarial-based
estimate of the "ideal" loss cost for risks in each of approximately 1,250 risk
classifications. These benchmark loss costs reflect an analysis of the loss and
loss adjustment expenses on claims reported to ISO. ISO statistics, however,
include only claims and policy information reported to ISO, and therefore do not
reflect all of the loss experience for each class. Also, the historical results
for a particular class may not be sufficient to provide actuarially meaningful
results.
The Company primarily uses ISO statistics as a benchmark for risk selection and
pricing. Other carriers may or may not rely as heavily on this information, and
several of the larger standard carriers have developed their own actuarial
databases. As a general rule, most standard carriers set rates lower than ISO
benchmarks. However, the Company, because of its strategy of providing insurance
to under-served markets, typically charges 100% or more of prescribed ISO
benchmarks. Generally, the Company provides its general agents with pricing
flexibility on a per-policy basis, with the objective that in the aggregate, the
weighted average premium of all new and renewal commercial policies written by a
general agent are at approximately 110% of ISO benchmarks. According to ISO
data, most standard carriers typically price at 60-80% of ISO benchmarks.
Claims Management and Administration
Commercial Claims:
The Company's approach to commercial claims management is designed to
investigate reported incidents at the earliest juncture, to select, manage and
supervise all legal and adjustment aspects thereof and to provide a high level
of service and support to general agents, retail insurance brokers and insureds
throughout the claims process. The Company's commercial general agents have no
authority to settle commercial claims or otherwise exercise control over the
claims process. All commercial lines claims are supervised and processed
centrally by the Company's claims management staff. Senior claims management
reviews all claims over $25,000.
Page 7
Discontinued Personal Automobile Claims:
All claims for the personal automobile business are handled by the Company's
internal claims unit. Prior to February 1, 2000, if an automobile claim was in
the States of California and Washington, they were handled by outside
third-party claims management companies.
Reserves
The Company is directly liable for losses and loss adjustment expenses under the
terms of the insurance policies that it writes. In many cases, several years may
lapse between the occurrence of an insured loss, the reporting of the loss to
the Company and the Company's payment of that loss. The Company reflects its
liability for the ultimate payment of all incurred losses and loss adjustment
expenses by establishing loss and loss adjustment expense reserves for both
reported and unreported claims, which are balance sheet liabilities representing
estimates of future amounts needed to pay claims and related expenses.
When a claim involving a probable loss is reported, the Company establishes a
case reserve for the estimated amount of the Company's ultimate loss. The
estimate of the amount of the ultimate loss is based upon such factors as the
type of loss, jurisdiction of the occurrence, knowledge of the circumstances
surrounding the claim, severity of injury or damage, potential for ultimate
exposure and policy provisions relating to the claim. Loss adjustment expenses
are determined via a formula method that estimates loss adjustment expenses as a
percentage of expected indemnity losses based on historical patterns adjusted to
current experience.
In addition, management establishes reserves on an aggregate basis to provide
for Incurred But Not Reported Losses and Loss Adjustment Expenses ("IBNR"). The
Company's independent actuarial consultant annually reviews the provision for
IBNR and the reserves taken as a whole. The Company does not discount its loss
reserves. The estimates of reserves are subject to the effect of trends in
claims severity and frequency and are continually reviewed. As part of this
process, the Company reviews historical data and considers various factors,
including known and anticipated legal developments, changes in social attitudes,
inflation and economic conditions. As experience develops and other data become
available, these estimates are revised, as required, resulting in increases or
decreases to existing reserves. Adjustments are reflected in results of
operations in the period in which they are made and may deviate substantially
from prior estimates.
The following table represents the development of unpaid loss and loss
adjustment expense reserves during the ten years ended December 31, 2000. The
top of the table reflects the ten-year development of the Company's reserves net
of reinsurance. The bottom of the table reconciles 1992 through 2000 ending
reserves to the gross reserves in the Company's consolidated financial
statements. Prior to 1992, the Company developed its reserves on a net of
reinsurance basis and restatement for those prior years is not presented. The
top line of the table shows the estimated reserve for unpaid loss and loss
adjustment expenses at the balance sheet date for each of the indicated years.
These figures represent the estimated amount of unpaid loss and loss adjustment
expenses for claims arising in all prior years that were unpaid at the balance
sheet date, including losses that had been incurred but not yet reported. The
table also shows the re-estimated amount of the previously recorded reserve
based on experience as of the end of each succeeding year. The estimate changes
as more information becomes available about the frequency and severity of
claims. The cumulative redundancy or deficiency represents the aggregate change
in the reserve estimates over all prior years.
Page 8
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
------- -------- ------- ------- ------- ------- ------- ------- ------- ------- -------
Reserves for unpaid losses
and loss adjustment $25,352 $25,681 $26,110 $26,830 $35,307 $46,512 $55,656 $68,863 $72,435 $75,633 $91,221
Expenses, as stated (In thousands)
a. Net cumulative paid as of
1 year later $6,929 $6,605 $7,381 $6,852 $12,383 $17,208 $23,660 $30,236 $36,449 $34,626
2 years later 11,610 10,988 11,127 13,127 20,617 29,612 38,819 51,141 55,718
3 years later 14,667 13,325 15,546 18,656 27,266 38,091 50,982 63,470
4 years later 16,341 16,417 19,253 22,254 32,119 44,016 57,613
5 years later 18,363 19,283 21,503 24,303 34,883 48,236
6 years later 20,214 20,872 22,796 25,642 37,687
7 years later 21,470 21,881 23,714 27,121
8 years later 22,084 22,452 24,959
9 years later 22,432 23,303
10 years later 22,929
b. Reserves re-estimated as of end of year
1 year later $23,468 $23,228 $24,478 $23,897 $33,601 $45,708 $55,997 $68,946 $80,855 $84,797
2 years later 22,658 22,383 21,945 23,489 34,281 47,225 57,913 76,217 86,351
3 years later 22,252 20,471 22,032 24,558 36,453 47,378 63,575 79,881
4 years later 21,465 20,819 22,767 26,335 36,359 50,704 67,310
5 years later 21,469 21,726 23,935 26,380 38,768 54,245
6 years later 21,990 22,550 24,143 27,532 41,425
7 years later 22,609 22,761 24,776 29,050
8 years later 22,609 23,117 26,485
9 years later 23,004 24,280
10 years later 23,515
Net cumulative redundancy
(deficiency) $1,837 $1,401 ($375) ($2,220) ($6,118) ($7,733)($11,654)($11,018)($13,915) ($9,164)
Gross liability for unpaid
losses and loss adjustment
expenses, as stated $31,703 $33,314 $44,796 $60,139 $70,728 $84,566 $88,937 $93,719 $115,314
Reinsurance recoverable 5,593 6,484 9,489 13,627 15,072 15,703 16,502 18,086 24,093
Net liability for unpaid
losses and loss adjustment
expenses, as stated 26,110 26,830 35,307 46,512 55,656 68,863 72,435 75,633 91,221
Gross liability re-estimated
- 1 year later 30,609 32,796 48,173 63,884 71,644 85,640 98,395 101,597
Reinsurance recoverable
re-estimated 6,131 8,899 14,572 18,176 15,647 16,694 17,540 16,800
Net liability re-estimated
- 1 year later 24,478 23,897 33,601 45,708 55,997 68,946 80,855 84,797
----------------------------------------------------------------------------------------------------
Gross liability re-estimated
- 2 years later 30,390 36,243 53,009 66,405 74,312 92,832 104,664
Reinsurance recoverable
re-estimated 8,445 12,754 18,728 19,180 16,399 16,615 18,313
Net liability re-estimated
- 2 years later 21,945 23,489 34,281 47,225 57,913 76,217 86,351
----------------------------------------------------------------------------------------------------
Gross liability re-estimated
- 3 years later 33,992 41,600 56,042 66,891 80,574 97,786
Reinsurance recoverable
re-estimated 11,960 17,042 19,589 19,513 16,999 17,905
Net liability re-estimated
- 3 years later 22,032 24,558 36,453 47,378 63,575 79,881
----------------------------------------------------------------------------------------------------
Gross liability re-estimated
- 4 years later 38,165 43,824 56,167 68,927 84,831
Reinsurance recoverable
re-estimated 15,398 17,489 19,808 18,223 17,521
Net liability re-estimated
- 4 years later 22,767 26,335 36,359 50,704 67,310
----------------------------------------------------------------------------------------------------
Gross liability re-estimate
- 5 years later 39,956 44,466 58,272 73,042
Reinsurance recoverable
re-estimated 16,021 18,086 19,504 18,797
Net liability re-estimated
- 5 years later 23,935 26,380 38,768 54,245
----------------------------------------------------------------------------------------------------
Gross Liability re-estimate
- 6 years later 40,670 45,595 61,814
Reinsurance recoverable
re-estimated 16,527 18,063 20,389
Net liability re-estimated
- 6 years later 24,143 27,532 41,425
----------------------------------------------------------------------------------------------------
Gross liability re-estimated
- 7 years later 41,679 47,955
Reinsurance recoverable
re-estimated 16,903 18,905
Net liability re-estimated
- 7 years later 24,776 29,050
----------------------------------------------------------------------------------------------------
Gross liability re-estimated
- 8 years later 43,958
Reinsurance recoverable
re-estimated 17,473
Net liability re-estimated
- 8 years later 26,485
----------------------------------------------------------------------------------------------------
Gross cumulative deficiency ($12,255)($14,641)($17,018)($12,902)($14,103)($13,220)($15,727) ($7,878)
a. Net cumulative paid as of equals the amounts of paid losses and loss
adjustment expenses subsequent to the year in which the original reserves
were established.
b. Reserves re-estimated as of equals the amounts of unpaid losses and loss
adjustment expenses which the company would have originally established
based on experience as of the end of each year. Succeeding year. These
Amounts were calculated as the sum of the cumulative paid amounts described
in (a.) above plus the amounts of unpaid losses and loss adjustment
expenses reevaluated at the end of each succeeding year-end.
Page 9
The following table sets forth ratios for the Company and the industry prepared
in accordance with statutory accounting practices ("SAP") prescribed or
permitted by state insurance authorities. The statutory combined ratio, which
reflects underwriting results but not investment income, is a traditional
measure of the underwriting performance of a property and casualty insurer. This
ratio is the sum of (i) the ratio of incurred losses and loss adjustment
expenses to net earned premium ("loss ratio"); and (ii) the ratio of expenses
incurred for commissions, premium taxes, administrative and other underwriting
expenses to net written premium ("expense ratio").
Years ended December 31,
---------------------------------------
2000 1999 1998
------------ ----------- ------------
The Company:
SAP Basis
Loss and loss adjustment expense ratio 82.4 73.8 62.3
Expense ratio 33.2 34.9 35.0
------------ ----------- ------------
Combined ratio 115.6 108.7 97.3
============ =========== ============
Years ended December 31,
---------------------------------------
2000 (1) 1999 (2) 1998 (2)
------------ ----------- ------------
Property and casualty insurance industry:
SAP Basis
Loss and loss adjustment expense ratio 80.5 78.8 76.4
Expense ratio 27.3 27.9 27.7
Dividend ratio 1.1 1.4 1.9
------------ ----------- ------------
Combined ratio 108.9 108.1 106.0
============ =========== ============
(1) Source: Industry Estimate for 2000, Best's Viewpoint, P/C Supplement,
December 11, 2000 edition
(2) Source: Best's Aggregates & Averages, Property/Casualty United States 2000
Edition
Reinsurance
The Company purchases reinsurance through contracts called "treaties" to reduce
its exposure to liability on individual risks, and to protect against
catastrophic losses. Reinsurance involves an insurance company transferring or
"ceding" a portion of its exposure on a risk to another insurer (the
"reinsurer"). The reinsurer assumes the exposure in return for a portion of the
premium. The ceding of liability to a reinsurer does not legally discharge the
primary insurer from its liability for the full amount of the policies on which
it obtains reinsurance. The primary insurer will be required to pay the entire
loss if the reinsurer fails to meet its obligations under the reinsurance
agreement.
In formulating its reinsurance programs, the Company is selective in its choice
of reinsurers and considers numerous factors, the most important of which are
the financial stability of the reinsurer, its history of responding to claims
and its overall reputation. In an effort to minimize its exposure to the
insolvency of its reinsurers, the Company evaluates the acceptability and
reviews the financial condition of each reinsurer annually. The Company's policy
is to use only reinsurers that have an A.M. Best rating of "A (Excellent)" or
better and that have at least $250 million in policyholders' surplus.
The Company's current treaty reinsurance is with Gen Re, which is rated "A++
(Superior)" by A.M. Best. Since January 1995, the Company has maintained net
retention limits of $500,000 (including indemnity and/or loss adjustment
expense) for casualty insurance, except during the first six month period of
1999, where the
Page 10
Company raised its casualty net retention to $1 million. As of July 1, 1999, the
casualty retention was returned to its previous retention limit of $500,000. Net
retention limits for property insurance were $300,000 per risk for 2000, 1999
and 1998. The combined Company retention for any one loss resulting from a
common occurrence involving both the property and casualty coverage on a single
risk is $500,000. The Company also maintains casualty contingent excess coverage
with General Re, which covers exposures such as punitive damages and other
extra-contractual obligations, losses in excess of policy limits (such as bad
faith and errors and omissions) and liability actions brought by two or more of
the Company's insureds against each other resulting from the same occurrence.
Effective December 1, 1997, reinsurance was added for both commercial automobile
and commercial umbrella risks through General Re. The Company maintained
commercial automobile net retention of $100,000 per occurrence for 1999 and
1998, and $250,000 per occurrence for 2000. The Company maintained commercial
umbrella net retention of 10% of the first $1,000,000 for 2000, 1999 and 1998.
Commercial automobile limits are generally written up to $1,000,000. Umbrella
policy limits are up to $5,000,000.
For 1999 and 1998, the Company entered into a property catastrophic reinsurance
program with a group of reinsurers including General Re, Lloyds and other "A"
rated or better reinsurers. Under the terms of the agreement, the Company
retains the first $2 million of losses and the group reinsures 95.0% of the next
$23 million, with the Company retaining 5.0% of each layer (i.e., 1st layer, $3
million, 2nd layer, $5 million, 3rd layer, $15 million) within the $23 million.
The 2000 and 2001 catastrophe reinsurance program includes American Agricultural
Insurance Company, CNA Reinsurance Company, Everest Insurance Company, Gerling
Global Reinsurance Corporation, Lloyd's, Zurich Insurance Company and Zurich
Reinsurance North America. Under the terms of the agreement, the Company retains
100% of the first $1 million of losses and the group reinsures 97.5% of losses
up to $5 million in excess of the first $1 million. Losses in excess $5 million
up to $25 million are reinsured 100%.
The Company may write individual risks with limits greater than the treaty
limits on a per-policy basis by using facultative reinsurance. The facultative
reinsurers must also meet Penn-America's reinsurer guidelines.
Information regarding the amount of premiums written and ceded under reinsurance
treaties is included in Note 5 to the audited financial statements incorporated
herein by reference.
Investments
The Company's investment policy seeks to maximize investment income consistent
with the overriding objective of maintaining liquidity and minimizing risk.
Approximately 98% of the Company's fixed income securities as of December 31,
2000 were rated "A" or better by Standard & Poor's or an equivalent rating by
Moody's. As of December 31, 2000, the Company's fixed maturity investments had
an effective average duration of approximately 3.6 years. Publicly traded equity
securities, the majority of which consisted of preferred stocks, represented
14.6% of the Company's investment portfolio as of December 31, 2000.
As of December 31, 2000, the Company's investment portfolio contained $45.8
million of mortgage- and asset-backed securities at their carrying value. All of
these securities are at least "AA"-rated and 80% are "AAA"-rated securities
issued by government and government-related agencies, are publicly traded, and
have market values obtained from an external pricing service. Changes in
estimated cash flows due to changes in prepayment assumptions from the original
purchase assumptions are revised based on current interest rates and the
economic environment. Although the Company is permitted to invest in other
derivative financial instruments, real estate
Page 11
mortgages and real estate, the Company does not participate in these markets and
does not have any such investments in its investment portfolio.
The Company's investment portfolio is under the direction of the Board of
Directors of Penn-America acting through its Investment Committee (consisting of
selected members of the Company's Board). The Investment Committee establishes
and monitors the Company's investment policies, which are intended to maximize
after-tax income while maintaining a high level of quality and liquidity in its
portfolio for insurance operations. All investment transactions are approved by
the Chairman of the Investment Committee.
The Investment Committee retained New England Asset Management ("NEAM"), a
subsidiary of Gen Re, to manage its fixed income portfolio in accordance with
the investment strategy adopted by the Investment Committee.
The following table shows the classifications of the Company's investments at
December 31, 2000:
Amount
reflected
Fair on balance Percent of
value sheet total
------------- ---------------- -------------
(In thousands)
Fixed maturities:
Available for sale:
U.S. Treasury securities and obligations of
U.S. government agencies $ 4,122 $ 4,122 2.5%
Corporate securities 52,365 52,365 31.3
Mortgage-backed securities 23,944 23,944 14.3
Other structured securities 21,872 21,872 13.1
Municipal 16,419 16,419 9.8
Public Utilities 6,755 6,755 4.0
------------- ---------------- -------------
Total 125,477 125,477 75.0
------------- ---------------- -------------
Held to maturity:
U.S. Treasury securities and obligations of
U.S. government agencies 13,908 13,760 8.2
Corporate securities 2,374 2,378 1.4
Municipal 150 150 0.1
Public utilities 1,009 994 0.6
------------- ---------------- -------------
Total 17,441 17,282 10.3
------------- ---------------- -------------
Total fixed maturity securities 142,918 142,759 85.3
------------- ---------------- -------------
Equity securities:
Common stock 6,443 6,443 3.9
Preferred stock 18,048 18,048 10.8
------------- ---------------- -------------
Total equity investments 24,491 24,491 14.7
------------- ---------------- -------------
Total investments $167,409 $167,250 100.0%
============= ================ =============
The chart presented on Page 18 of the Company's Annual Report, incorporated
herein by reference, sets forth the composition of the Company's portfolio of
fixed maturity investments by rating at December 31, 2000.
Footnote 5 to the audited financial statements, incorporated herein by
reference, sets forth the net investment income results of the Company for 2000,
1999 and 1998.
Page 12
Competition
The property and casualty insurance industry is highly competitive and includes
several thousand insurers, ranging from large companies offering a wide variety
of products worldwide to smaller, specialized companies in a single state or
region and offering in some cases only a single product. The Company competes
with a significant number of these insurers in attracting quality general agents
and in selling insurance products. Many of the Company's existing or potential
competitors are larger excess and surplus lines and specialty admitted insurers
which have considerably greater financial and other resources, have greater
experience in the insurance industry and offer a broader line of insurance
products than the Company. The Company also competes with other forms of
insurance (such as risk retention groups) and alternative self-insurance
mechanisms. The Company believes that in order to be successful in its market,
it must be aware of pricing cycles, must be able to minimize the impact of such
cycles through tight expense control and superior customer service and must
continually identify profitable opportunities. Other competitive factors include
ratings by A.M. Best, pricing and admitted versus excess and surplus lines
status in a given state.
The Company believes that its distribution strategy which is based on building
and maintaining strong relationships with a small number of high quality general
agents that are enabled with the latest technological innovation provides a
competitive advantage in the markets it targets. The "Marketing and
Distribution" section included herein more fully describes the elements of the
strategies which the Company believes provide this competitive advantage.
Regulation
General. The Company is subject to regulation under the insurance statutes and
regulations, including insurance holding company statutes, of the various states
in which it does business. These statutes are generally designed to protect the
interests of insurance policyholders, as opposed to the interests of
stockholders, and they relate to such matters as the standards of solvency which
must be met and maintained; the licensing of insurers and their agents; the
nature and limitations of investments; deposits of securities for the benefit of
policyholders; approval of policy forms and premium rates; periodic examination
of the affairs of insurance companies; annual and other reports required to be
filed on the financial condition of insurers or for other purposes;
establishment and maintenance of reserves for unearned premiums and losses; and
requirements regarding numerous other matters. All insurance companies must file
annual statements with certain state regulatory agencies and are subject to
regular and special financial examinations by those agencies. The last
regulatory financial examination of Penn-America was completed by the
Pennsylvania Insurance Department in 1999, covering the five-year period ended
December 31, 1998, and for Penn-Star, covering a two year period ended December
31, 1998, since its initial licensing in 1997.
Penn-America and Penn-Star currently have a pooled rating from A.M. Best of "A-"
(Excellent), which was lowered from "A" (Excellent) by Best in December 2000.
The Company does not believe that this lower rating will affect its ability to
market its products in its target markets. The Company's rating is based upon
factors of concern to policyholders, including financial condition and solvency
and is not directed to the protection of investors.
As of December 31, 2000 , Penn-America and Penn-Star combined are licensed as an
admitted insurer in 43 states and are approved non-admitted (excess and surplus
lines) insurers in 45 states and the District of Columbia. All insurance is
written through licensed agents and brokers. In states in which the Company
operates on a non-admitted basis, general agents and their retail insurance
brokers generally are required to
Page 13
certify that a certain number of licensed admitted insurers will not write a
particular risk prior to placing that risk with the Company.
Insurance Holding Company Laws. Pennsylvania, the Companies' state of domicile,
has laws governing insurers and insurance holding companies. The Pennsylvania
statutes generally require insurers and insurance holding companies to register
and file reports concerning their capital structure, ownership, financial
condition and general business operations. Under the statutes, a person must
generally obtain the Pennsylvania Insurance Department's approval to acquire,
directly or indirectly, 10% or more of the outstanding voting securities of the
Company or any of its insurance company subsidiaries. The insurance department's
determination of whether to approve any such acquisition is based on a variety
of factors, including an evaluation of the acquirer's financial condition, the
competence of its management and whether competition would be reduced. All
transactions within a holding company's group affecting an insurer must be fair
and reasonable, and the insurer's policyholders' surplus following any such
transaction must be both reasonable in relation to its outstanding liabilities
and adequate for its needs. Notice to applicable regulators is required prior to
the consummation of certain transactions affecting insurance subsidiaries of the
holding company group.
Dividend Restrictions. PAGI is a holding company, the principal asset of which
is the common stock of Penn-America. The principal source of cash for the
payment of dividends to PAGI's stockholders, PAGI operating expenses and
repurchase of PAGI stock is dividends from Penn-America and Penn-Star.
Penn-America's principal sources of funds are operations, investment income and
proceeds from sales and redemptions of investments. Funds are used by
Penn-America and Penn-Star principally to pay claims and operating expenses, to
purchase investments and to make dividend and other payments to PAGI.
Penn-America is required by law to maintain a certain minimum surplus on a
statutory basis and is subject to risk-based capital requirements and
regulations under which payment of dividends from statutory surplus may require
prior approval from the Pennsylvania Insurance Department. Penn-America may pay
dividends to PAGI without advance regulatory approval only from unassigned
surplus and only to the extent that all dividends in the past twelve months do
not exceed the greater of 10% of total statutory surplus, or statutory net
income for the prior year. Using this criteria, the available ordinary dividend
for 2001 is $5.5 million. No ordinary dividends were paid to PAGI in 2000.
Rather, Penn-America paid a $6.4 million return of capital to PAGI in 2000,
after receiving approval from the Pennsylvania Insurance Department, which PAGI
used to repurchase stock and pay dividends and PAGI operating expenses.
Insurance Guaranty Funds. Under insolvency or guarantee laws in states in which
Penn-America is licensed as an admitted insurer (and in New Jersey),
organizations have been established (often referred to as guaranty funds) with
the authority to assess admitted insurers up to prescribed limits for the claims
of policyholders insured by insolvent, admitted insurance companies. Surplus
lines insurance companies are generally not subject to such assessments except
in New Jersey, and their policyholders aren't eligible to file claims against
the guaranty funds.
Additional Legislation or Regulations. New regulations and legislation are
proposed from time to time to limit damage awards, to bring the industry under
regulation by the federal government, to control premiums, policy terminations
and other policy terms, and to impose new taxes and assessments. Difficulties
with insurance availability and affordability have increased legislative
activity at both the federal and state levels. Some state legislatures and
regulatory agencies have enacted measures, particularly in personal lines, to
limit midterm cancellations by insurers and require advance notice of renewal
intentions. In addition, Congress is investigating possible avenues for federal
regulation of the insurance industry.
Page 14
EMPLOYEES
The Company has approximately 110 employees. The Company is not a party to any
collective bargaining agreements and believes that its employee relations are
good.
Item 2. PROPERTIES
The Company leases approximately 23,000 square feet in an office building
located in Hatboro, Pennsylvania. The office building also houses Penn
Independent and certain of its subsidiaries. The Company leases the space from
Mr. Irvin Saltzman, Chairman of the Board of Directors of the Company, pursuant
to a lease agreement renewed June 30, 2000 that expires on June 30, 2005, and
provides for an annual rental payment of approximately $357,247. This amount is
considered by the Company to be at fair market value.
ITEM 3. LEGAL PROCEEDINGS
The Company's insurance subsidiaries are subject to routine legal proceedings in
connection with their property and casualty insurance business. Neither the
Company nor its subsidiaries is involved in any pending or threatened legal or
administrative proceedings that management believes might have a material
adverse effect on the Company's financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during 2000 to a vote of holders of the Company's Common
Stock.
Page 15
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The "Market for Common Stock and Related Security Holder Matters" section on
pages 41 of the Company's Annual Report to stockholders for the year ended
December 31, 2000, which is included as Exhibit (13) to this Form 10-K Report,
is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
The "Selected Consolidated Financial Data" section on page 12 of the Company's
Annual Report to stockholders for the year ended December 31, 2000, which is
included as Exhibit (13) to this Form 10-K Report, is incorporated herein by
reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The "Management's Discussion and Analysis of Results of Operations and Financial
Condition" section on pages 13 to 20 of the Company's Annual Report to
stockholders for the year ended December 31, 2000, which is included as Exhibit
(13) to this Form 10-K Report, is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The consolidated financial statements on pages 21 to 40 of the Company's Annual
Report to stockholders for the year ended December 31, 2000, which is included
as Exhibit (13) to this Form 10-K Report, are incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
Page 16
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Director's information will be in the Company's definitive Proxy Statement
with respect to the Company's 2001 Annual Meeting of Shareholders, to be filed
with the Securities and Exchange Commission within 120 days following the end of
the Company's fiscal year, and is hereby incorporated by reference thereto.
Executive Officers of the Registrant as of March 20, 2001 are as follows:
Irvin Saltzman 78 Chairman of the Board of Directors of PAGI and
Penn-America
Jon S. Saltzman 43 President and Chief Executive Officer of PAGI
and Penn-America, and Director
Joseph F. Morris 46 Senior Vice President and Chief Financial
Officer of PAGI and Penn-America
Garland P. Pezzuolo 36 Secretary and General Counsel of PAGI and
Penn-America
ITEM 11. EXECUTIVE COMPENSATION
This information will be contained in the Company's definitive Proxy Statement
with respect to the Company's 2001 Annual Meeting of Shareholders, to be filed
with the Securities and Exchange Commission within 120 days following the end of
the Company's fiscal year, and is hereby incorporated by reference thereto.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
This information will be contained in the Company's definitive Proxy Statement
with respect to the Company's 2001 Annual Meeting of Shareholders, to be filed
with the Securities and Exchange Commission within 120 days following the end of
the Company's fiscal year, and is hereby incorporated by reference thereto.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
This information will be contained in the Company's definitive Proxy Statement
with respect to the Company's 2001 Annual Meeting of Shareholders, to be filed
with the Securities and Exchange Commission within 120 days following the end of
the Company's fiscal year, and is hereby incorporated by reference thereto.
Page 17
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND
REPORTS ON FORM 8-K
a.) The following consolidated financial statements, financial statement
schedules and exhibits are filed as part of this report:
1. Consolidated Financial Statements
Page*
--------------
Consolidated Balance Sheets at December 31, 2000 and 1999 22
Consolidated Statements of Operations for the years ended
December 31, 2000, 1999, and 1998 23
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 2000, 1999 and 1998 24
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, 1999, and 1998 25
Notes to Consolidated Financial Statements 26-40
Independent Auditors' Report 21
The following consolidated financial statement schedules for the years 2000,
1999 and 1998 are submitted herewith:
2. Financial Statement Schedules.
Page
--------------
Schedule I. Summary of Investments - Other Than Investments
in Related Parties 26
Schedule II. Condensed Financial Information of Parent Company 27-29
Schedule III. Supplementary Insurance Information 30
Schedule IV. Reinsurance 31
Schedule VI. Supplemental Insurance Information Concerning
Property and Casualty Operations 32
Independent Auditors' Consents and Reports on Schedules
(filed as Exhibit 23)
Independent Auditors' Report for the years 2000 and 1999
Prior Independent Auditors' Report for 1998
All other schedules are omitted because they are not applicable or the required
information is included in the financial statements or notes thereto.
3. Exhibit Index: 19-25
- --------
* Refers to the respective page of Penn-America Group's 2000 Annual
Report to Stockholders attached as Exhibit (13). The Consolidated Financial
Statements and Independent Auditors' Report on pages 22 to 40 are incorporated
herein by reference. With the exception of the portions of such Annual Report
specifically incorporated by reference in this Item and Items 5, 6, 7 and 8,
such Annual Report shall not be deemed filed as part of this Form 10-K or
otherwise subject to the liabilities of Section 18 of the Securities and
Exchange Act of 1934.
Page 18
Exhibit Index
Exhibit No. Description
- ----------- -----------
3.1 Articles of Incorporation of the Registrant. Incorporated by
reference to Exhibit 3.1 to the Registrant's Registration
Statement on Form S-1 (No. 33-66892) filed with the Securities
and Exchange Commission on August 2, 1993.
3.2 Bylaws of the Registrant. Incorporated by reference to Exhibit
3.2 to the Registrant's Registration Statement on Form S-1 (No.
33-66892) filed with the Securities and Exchange Commission on
August 2, 1993.
10.2 Agency Agreement between Penn-America Insurance Company
("Penn-America") and Carnegie General Agency, incorporated by
reference to Exhibit 10.2 to the Registrant's Registration
Statement on Form S-1 (No. 33-66892) and filed with the
Securities and Exchange Commission on August 2, 1993.
10.2(a) Amended Carnegie Agreement, effective March 1, 1998, filed with
the Registrant's report on Form 10-K for the period ended
December 13, 1997, which has been filed with the Securities and
Exchange Commission.
10.2(b) Notice of Termination of Carnegie Agreement, dated April 30,
1999, , filed with Registrant's Report on Form 10-K for the
period ended December 31, 1999, which has been filed with the
Securities and Exchange Commission.
10.3 1993 Casualty Excess of Loss Reinsurance Agreement with National
Reinsurance Corporation, incorporated by reference to Exhibit
10.3 to the Registrant's Registration Statement on Form S-1 (No.
33-66892) and filed with the Securities and Exchange Commission
on August 2, 1993.
10.3(i) Endorsement Nos. 4 through 6 (Termination Endorsement) to
Casualty Excess of Loss Reinsurance Agreement with National
Reinsurance Corporation, filed with the Securities and Exchange
Commission with Registrant's Report on Form 10-K for the period
ended December 31, 1995.
10.4 1993 Underlying Homeowners and Dwelling Fire Property Per Risk
Excess of Loss Reinsurance (Run-off Business) Agreement with
National Reinsurance Corporation, incorporated by reference to
Exhibit 10.4 to the Registrant's Registration Statement on Form
S-1 (No. 33-66892) and filed with the Securities and Exchange
Commission on August 2, 1993.
10.5 1993 Property Per Risk Excess of Loss (Commercial) Reinsurance
Agreement with Employers Reinsurance Corporation, incorporated by
reference to Exhibit 10.5 to the Registrant's Registration
Statement on Form S-1 (No. 33-66892) and filed with the
Securities and Exchange Commission on August 2, 1993.
Page 19
Exhibit No. Description
- ----------- -----------
10.5(i) Endorsement No. 3 to Property Per Risk of Excess Loss
(Commercial) Reinsurance Agreement with Employers Reinsurance
Corporation, filed with the Securities and Exchange Commission
with Registrant's Report on Form 10-K for the period ending
December 31, 1994.
10.6 1993 Property Catastrophe Excess Reinsurance Agreement with
Employers Reinsurance Corporation, incorporated by reference to
Exhibit 10.6 to the Registrant's Registration Statement on Form
S-1 (No. 33-66892) and filed with the Securities and Exchange
Commission on August 2, 1993.
10.6(i) Endorsement No. 6 to Property Catastrophe Excess Reinsurance
Agreement with Employers Reinsurance Corporation, filed with the
Registrant's Report on Form 10-K for the period ending December
31, 1994, which has been filed with the Securities and Exchange
Commission.
10.6(ii) Stipulation of Termination of Property Catastrophe Excess
Reinsurance Agreement with Employers Reinsurance Corporation
effective January 1, 1995, filed with the Registrant's Report on
Form 10-K for the period ending December 31, 1994, which has been
filed with the Securities and Exchange Commission.
10.7 Agreement dated August 20, 1993 between Penn Independent
Corporation ("Penn Independent") and the Registrant regarding the
reimbursement of certain employment costs, incorporated by
reference to Exhibit 10.7 to Amendment No. 1 to the Registrant's
Registration Statement on Form S-1 (No. 33-66892) and filed with
the Securities and Exchange Commission on August 26, 1993.
10.7(i) Amendment effective January 1, 1995 to August 20, 1993. Agreement
between Penn Independent and Registrant regarding the sharing of
certain operating costs, filed with Registrant's Report on Form
10-K for the period ended December 31, 1995, which has been filed
with the Securities and Exchange Commission.
10.7(ii) Amendments dated January 1, 1996 and March 1, 1996, to August 20,
1993 Agreement between Penn Independent and Registrant regarding
the sharing of certain operating costs, filed with Registrant's
Report on Form 10-K for the period ended December 31, 1996, which
has been filed with the Securities and Exchange Commission.
10.7(iii) Amendment dated March 1, 1997 to August 20, 1993 Agreement
between Penn Independent and Registrant regarding the sharing of
certain operating costs, filed with Registrant's Report on Form
10-K for the period ended December 31, 1997, which has been filed
with the Securities and Exchange Commission.
10.7(iv) Amendment dated January 1, 1999 to August 20, 1993 Agreement
between Penn Independent and Registrant regarding the sharing of
certain operating costs, filed with the Registrant's Report on
Form 10-K for the period ended December 31, 1998, which has been
filed with the Securities and Exchange Commission. Exhibit No.
Description
10.7(v) Amendment dated January 1, 2000 to August 20, 1993 Agreement
between Penn Independent and Registrant regarding the sharing of
certain operating costs, filed with Registrant's Report on Form
10-K for the period ended December 31, 1999, which has been filed
with the Securities and Exchange Commission..
10.7(vi) Amendment dated July 1, 2000 to August 20, 1993 Agreement between
Penn Independent and Registrant regarding the sharing of certain
operating costs.
Page 20
Exhibit No. Description
- ----------- -----------
10.9 Restated Investment Advisory Agreement effective July 1, 1990
between Penn America and Carl Domino Associates, L.P.,
incorporated by reference to Exhibit 10.9 to the Registrant's
Registration Statement on Form S-1 (No. 33-66892) and filed with
the Securities and Exchange Commission on August 2, 1993.
10.9(i) Amended Investment Advisory Agreement effective September 1, 1997
between and among Penn-America, its subsidiary, Penn-Star and
Carl Domino Associates, L.P., filed with the Registrant's Report
on Form 10-K for the period ending December 31, 1997, which was
filed with the Securities and Exchange Commission.
10.9(ii) Agreement dated April 15, 1997 between and among General Re, New
England Asset Management, Inc., Penn-America, and its subsidiary,
Penn-Star filed with the Registrant's Report on Form 10-K for the
period ending December 31, 1997, which was filed with the
Securities and Exchange Commission.
10.9(iii) Investment Advisory Agreement effective February 19, 1999 between
Penn-America Insurance Company and Madison Monroe, Inc., filed
with Registrant's Report on Form 10-K for the period ended
December 31, 1999, which has been filed with the Securities and
Exchange Commission.
10.9(iv) Notice of Termination effective July 1, 2000 of Investment
Advisory Agreement dated September 1, 1997 between and among
Penn-America Insurance Company, its subsidiary, Penn-Star
Insurance Company and Carl Domino Associates, L.P.
10.9(v) Amendment dated November 7, 2000 to Agreement dated April 15,
1997 between and among General Re, New England Asset Management,
Inc., Penn-America Insurance Company, and its subsidiary,
Penn-Star.
10.9(vi) Amendment dated August 2, 2000 to Investment Management Agreement
dated February 25, 1999 between Penn-America Insurance Company
and Madison Monroe, Inc.
10.9(vii) Notice of Termination dated November 2, 2000 of Investment
Management Agreement dated February 25, 1999 between Penn-America
Insurance Company and Madison Monroe, Inc.
Page 21
Exhibit No. Description
- ----------- -----------
10.10 1993 Stock Incentive Plan, incorporated by reference to Exhibit
10.10 to Amendment No. 4 to the Registrant's Registration
Statement on Form S-1 (No. 33-66892) and filed with the
Securities and Exchange Commission on September 29, 1993.
10.10(i) Penn-America Group, Inc. 1993 Stock Incentive Plan, as amended
and restated April 4, 1994, incorporated by reference to Exhibit
4.1 to the Registrant's Registration Statement on Form S-8 (No.
33-82728) and filed with the Securities and Exchange Commission
on August 11, 1994.
10.10(ii) Employee Bonus Plan, January 1, 2000, filed with Registrant's
Report on Form 10-K for the period ended December 31, 1999, which
has been filed with the Securities and Exchange Commission.
10.11 Lease effective June 30, 1995 between Registrant and Irvin
Saltzman, filed with Registrant's Report on Form 10-K for the
period ended December 31, 1995, which has been filed with the
Securities and Exchange Commission.
10.11(i) Lease effective July 1, 2000 between Penn-America Insurance
Company and Irvin Saltzman.
10.12 Demand Promissory Note dated January 12, 1993 from Penn
Independent Financial Services, Inc. to Penn-America,
incorporated by reference to Exhibit 10.12 to the Registrant's
Registration Statement on Form S-1 (No. 33-66892) and filed with
the Securities and Exchange Commission on August 26, 1993.
10.13 Promissory Note dated December 29, 1993 from the Registrant to
Penn Independent, filed with Registrant's Report on Form 10-K for
the period ended December 31, 1995, which has been filed with the
Securities and Exchange Commission.
10.13(i) Amendment No.1 dated November 30, 1995 to Demand Promissory Note
dated January 12, 1993 from Penn Independent Financial Services,
Inc. to Penn-America, filed with the Registrant's Report on Form
10-K for the period ended December 31, 1996, which has been filed
with the Securities and Exchange Commission.
10.14 1995 Multiple Line Excess of Loss (Casualty and Property)
Reinsurance Agreement with National Reinsurance Corporation,
filed with Registrant's Report on Form 10-K for the period ended
December 31, 1995, which has been filed with the Securities and
Exchange Commission.
10.14(i) Endorsement No. 1 to Multiple Line Excess of Loss Reinsurance
Agreement with National Reinsurance Corporation, effective as of
January 1, 1995, filed with Registrant's Report on Form 10-K for
the period ended December 31, 1995, which has been filed with the
Securities and Exchange Commission.
Page 22
Exhibit No. Description
- ----------- -----------
10.14(ii) Endorsement No. 2 to Multiple Line Excess of Loss Reinsurance
Agreement with National Reinsurance Corporation, effective as of
January 1, 1995, filed with Registrant's Report on Form 10-K for
the period ended December 31, 1995, which has been filed with the
Securities and Exchange Commission.
10.14(iii) 1996 Property & Liability Reinsurance Agreement with General Re
Corporation effective May 1, 1996, filed with the Registrant's
Report on Form 10-K for the period ended December 31, 1996, which
has been filed with the Securities and Exchange Commission.
10.15 1995 Property Catastrophe Excess of Loss Reinsurance Agreement
with the subscribing Reinsurers, filed with the Registrant's
Report on Form 10-K for the period ending December 31, 1994,
which has been filed with the Securities and Exchange Commission.
10.15(i) 1996 Property Catastrophe Excess of Loss Reinsurance Agreement
with the subscribing Reinsurers, filed with the Registrant's
Report on Form 10-K for the period ended December 31, 1996 which
has been filed with the Securities and Exchange Commission.
10.16 Penn-America Group, Inc. 1995 Key Employee Incentive Compensation
Plan, incorporated as Part I to Registrant's Registration
Statement on Form S-8 (No. 333-00050) and filed with the
Securities and Exchange Commission on January 4, 1996.
10.16(i) 2001 Key Employee Incentive Compensation Plan.
10.17 Penn-America Insurance Company's Agency Award and Profit Sharing
Plan, incorporated as Exhibit 4 to Registrant's Registration
Statement on Form S-3 (No. 333-00046) and filed with the
Securities and Exchange Commission on January 4, 1996.
10.17(i) Penn-America Insurance Company's Agency Award and Profit Sharing
Plan, attached as Exhibit 4 to Registrant's Registration
Statement on Form S-3 (No. 333-49055) and filed with the
Securities and Exchange Commission on March 31, 1998.
10.17(ii) Amended General Agency Profit Sharing Addendum to Agency Award &
Profit Sharing Plan, filed with Registrant's Report on Form 10-K
for the period ended December 31, 1999, which has been filed with
the Securities and Exchange Commission.
10.18 Stipulation of Termination of Property and Liability Reinsurance
Agreement with National Reinsurance Corporation effective May 1,
1996, filed with the Registrant's Report on Form 10-K for the
period ended December 31, 1996, which has been filed with the
Securities and Exchange Commission.
11 Statement re: computation of per share earnings, incorporated by
reference from Note 2 to the Consolidated Financial Statements,
filed with Registrant's Report on Form 10-K for the period ended
December 31, 2000, which has been filed with the Securities and
Exchange Commission.
Page 23
Exhibit No. Description
- ----------- -----------
13 2000 Annual Report to Shareholders, incorporated by reference
under Item 8.
21 As of December 31, 2000, the Registrant's only subsidiary is
Penn-America Insurance Company, a Pennsylvania Corporation.
23 Independent Auditors' Consents and Reports on Schedules
28.1 Loan and Security Agreement, Term Note and Stock Pledge Agreement
dated December 20, 1995 between Registrant and PNC Bank
(successor to Midlantic Bank, N.A), filed with the Registrant's
Report on Form 10-K for the period ending December 31, 1995,
which has been filed with the Securities and Exchange Commission.
28.2 Credit Agreement among Registrant, Certain Lenders and First
Union National Bank dated September 28, 1998, filed with the
Securities and Exchange Commission, filed with the Registrant's
Report on Form 10-K for the period ended December 31, 1998, which
has been filed with the Securities and Exchange Commission.
28.3 First Amendment to Credit Agreement, dated May 12, 1999, among
registrant, certain lenders and First Union National Bank, dated
September 28, 1998, filed with Registrant's Report on Form 10-K
for the period ended December 31, 1999, which has been filed with
the Securities and Exchange Commission.
28.4 Second Amendment to Credit Agreement, dated August 26, 1999,
among registrant, certain lenders and First Union National Bank,
dated September 28, 1998, filed with Registrant's Report on Form
10-K for the period ended December 31, 1999, which has been filed
with the Securities and Exchange Commission.
28.5 Third Amendment to Credit Agreement, dated March 15, 2000, among
registrant certain lenders and First Union National Bank, dated
September 28, 1998, filed with Registrant's Report on Form 10-K
for the period ended December 31, 1999, which has been filed with
the Securities and Exchange Commission.
28.6 Notice of Termination of Credit Agreement, dated July 31, 2000,
among Registrant, Certain Lenders and First Union National Bank,
parties to the Credit Agreement dated September 28, 1998.
30.0 Reinsurance Pooling Agreement between Penn-America Insurance
Company and Penn- Star Insurance Company dated July 1, 1998,
filed with the Securities and Exchange Commission.
31.0 Promissory Note and Security Agreement dated January 17, 2000
between Penn-America Insurance Company and Jon S. Saltzman.
Page 24
Exhibit No. Description
- ----------- -----------
31.0(i) Amendment dated May 17, 2000 to Promissory Note and Security
Agreement dated January 17, 2000 between Penn-America Insurance
Company and Jon S. Saltzman
31.0(ii) Promissory Note and Security Agreement dated February 16, 2000,
between Penn-America Insurance Company and J. Ransley Lennon.
31.0(iii) Amendment dated May 17, 2000 to Promissory Note and Security
Agreement dated February 16, 2000 between Penn-America Insurance
Company and J. Ransley Lennon.
31.0(iv) Promissory Note and Security Agreement dated March 10, 2000
between Penn-America Insurance Company and Jon S. Saltzman.
(b)
(1) Form 8-K dated November 14, 2000 re: Quarterly Statements of
Penn-America Insurance Company and Penn-Star Insurance Company.
Page 25
PENN-AMERICA GROUP, INC.
Schedule I - Summary of Investments - Other than Investments in Related Parties
(in thousands)
December 31, 2000
-------------------------------------------------------------------
Amortized Amount shown on
Cost Fair Value Balance Sheet
------------------ ----------------- ---------------------
Fixed maturities:
Available for sale
U.S. treasury securities and obligations of
U.S. government agencies $ 4,015 $ 4,122 $ 4,122
Corporate securities 52,084 52,365 52,365
Mortgage-backed securities 23,321 23,944 23,944
Other structured securities 21,381 21,872 21,872
Municipal 15,882 16,419 16,419
Public Utilities 7,190 6,755 6,755
------------------ ----------------- -----------------
Total available for sale 123,873 125,477 125,477
------------------ ----------------- -----------------
Held to maturity
U.S. treasury securities and obligations of
U.S. government agencies 13,760 13,908 13,760
Corporate securities 2,378 2,374 2,378
Municipal 150 150 150
Public Utilities 994 1,009 994
------------------ ----------------- -----------------
Total held to maturity 17,282 17,441 17,282
------------------ ----------------- -----------------
Total fixed maturities 141,155 142,918 142,759
------------------ ----------------- -----------------
Equity securities:
Common stock 20,014 18,048 18,048
Preferred stock 7,310 6,444 6,443
------------------ ----------------- -----------------
Total equity investments 27,324 24,491 24,491
------------------ ----------------- -----------------
Total investments $168,479 $167,409 $167,250
================== ================= =================
Page 26
PENN-AMERICA GROUP, INC.
Schedule II--Condensed Financial Information of Parent Company
Condensed Balance Sheets
(in thousands except share data)
December 31,
----------------------------------------
2000 1999
------------------- -------------------
ASSETS
Cash $ 972 $ 55
Short-term investments - 449
Investment in subsidiary, equity method 73,441 79,680
Other assets 357 499
------------------- -------------------
Total assets $ 74,770 $ 80,683
=================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 173 $ 65
------------------- -------------------
Total liabilities 173 65
------------------- -------------------
Stockholders' equity:
Preferred stock, $ .01 par value; authorized 2,000,000 shares;
none issued
Common stock, $.01 par value; authorized 20,000,000 in 2000 and 1999;
issued 2000, 10,076,025 and 1999, 9,990,436 shares; outstanding
2000, 7,576,025 and 1999, 8,062,861 101 100
Additional paid-in capital 70,164 69,591
Accumulated other comprehensive loss, net (811) (4,324)
Treasury stock, 2000, 2,500,000 and 1999, 1,927,575, shares at cost (24,161) (19,474)
Retained earnings 29,583 35,050
Unearned compensation from restricted stock awards (279) (325)
------------------- -------------------
Total stockholders' equity 74,597 80,618
------------------- -------------------
Total liabilities and stockholders' equity $ 74,770 $ 80,683
=================== ===================
Page 27
PENN-AMERICA GROUP, INC.
Schedule II--Condensed Financial Information of Parent Company
Condensed Statements of Operations
(in thousands except per share data)
Years ended December 31,
------------------------------------
2000 1999 1998
------- ------- -------
Other income $27 $56 $65
Operating expenses (791) (1,306) (1,532)
------- ------- -------
Income before income tax and undistributed net income (loss)
of subsidiary (764) (1,250) (1,467)
Income tax benefit 260 425 499
------- ------- -------
Income before equity in undistributed
net income of subsidiary (504) (825) (968)
Equity in undistributed net income (loss)
of subsidiary (3,352) 2,863 9,849
------- ------- -------
Net income (loss) ($3,856) $2,038 $8,881
======= ======= =======
Net income (loss) per share
Basic ($0.50) $0.24 $0.91
======= ======= =======
Diluted ($0.50) $0.24 $0.90
======= ======= =======
Page 28
PENN-AMERICA GROUP, INC.
Schedule II - Condensed Financial Information of Parent Company
Condensed Statements of Cash Flows
(in thousands)
Years ended
December 31,
-----------------------------------------------
2000 1999 1998
---- ---- ----
Cash flows from operating activities:
Net income (loss) ($ 3,856) $ 2,038 $ 8,881
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Dividends received from subsidiaries 6,400 14,500 7,950
Equity in undistributed net (income) loss of subsidiary 3,352 (2,863) (9,849)
Amortization 246 256 309
Increase (decrease) in :
Accounts payable and accrued expenses 108 65 (196)
Other, net 16 328 (519)
-------------- ------------ ---------------
Net cash provided by operating activities 6,266 14,324 6,576
-------------- ------------ ---------------
Cash flows from investing activities:
Change in short-term investments 449 548 (997)
-------------- ------------ ---------------
Net cash provided (used) by investing activities 449 548 (997)
-------------- ------------ ---------------
Cash flows from financing activities:
Issuance of common stock (net of expenses) 500 465 815
Purchase of treasury stock (4,687) (13,831) (5,643)
Dividends paid (1,611) (1,767) (1,951)
-------------- ------------ ---------------
Net cash used by financing activities (5,798) (15,133) (6,779)
-------------- ------------ ---------------
Increase (decrease) in cash 917 ( 261) (1,200)
Cash, beginning of period 55 316 1,516
-------------- ------------ ---------------
Cash, end of period $ 972 $ 55 $ 316
============== ============ ===============
Page 29
PENN-AMERICA GROUP, INC.
Schedule III - Supplementary Insurance Information
Years Ended December 31, 2000, 1999 and 1998
(in thousands)
Liability
for Unpaid
Deferred Losses and
Policy Loss Net
Acquisition Adjustment Unearned Earned Investment
Costs Expenses Premiums Premiums Income
----- -------- -------- -------- ------
2000
Commercial $ 10,310 $ 109,377 $ 43,218 $ 87,556 $ 5,152
Personal 7 5,937 21 3,893 479
Unallocated - - - - 3,492
--------------- -------------- ------------- ------------- -------------
Total $ 10,317 $ 115,314 $ 43,239 $ 91,449 $ 9,123
--------------- -------------- ------------- ------------- -------------
1999
Commercial $ 8,914 $ 82,192 $ 35,188 $ 71,731 $ 4,347
Personal 392 11,527 1,144 13,946 735
Unallocated - - - - 4,455
--------------- -------------- ------------- ------------- -------------
Total $ 9,306 $ 93,719 $ 36,332 $ 85,677 $ 9,537
--------------- -------------- ------------- ------------- -------------
1998
Commercial $ 7,553 $ 69,845 $ 30,625 $ 62,949 $ 4,119
Personal 1,175 19,092 3,628 26,544 943
Unallocated - - - - 5,701
--------------- -------------- ------------- ------------- -------------
Total $ 8,728 $ 88,937 $ 34,253 $ 89,493 $ 10,763
--------------- -------------- ------------- ------------- -------------
Amortization
of
Losses Deferred
and Loss Policy Other Net
Adjustment Acquisition Underwriting Premiums
Expenses Costs Expenses Written
-------- ----- -------- -------
2000
Commercial $ 72,893 $ 23,857 $ 1,757 $ 94,481
Personal 2,485 1,362 1,362 2,769
Unallocated - - 5,045 -
---------------- --------------- --------------- -------------
Total $ 75,378 $ 25,219 $ 6,802 $ 97,250
---------------- --------------- --------------- -------------
1999
Commercial $ 49,744 $ 20,269 $ 1,596 $ 75,574
Personal 13,443 4,533 - 11,462
Unallocated - - 4,443 -
---------------- --------------- --------------- -------------
Total $ 63,187 $ 24,802 $ 6,039 $ 87,036
---------------- --------------- --------------- -------------
1998
Commercial $ 37,121 $ 17,112 $ 1,575 $ 64,283
Personal 18,612 8,340 207 23,546
Unallocated - - 4,607 -
---------------- --------------- --------------- -------------
Total $ 55,733 $ 25,452 $ 6,389 $ 87,829
---------------- --------------- --------------- -------------
Page 30
PENN-AMERICA GROUP, INC.
Schedule IV - Reinsurance
Years Ended December 31, 2000, 1999 and 1998
(in thousands)
Ceded to Assumed Net Premium Percentage
Property and Liability Other from Other Written of Assumed
Insurance Premiums Direct Companies Companies to Net
--------------- -------------- ------------ ------------- ---------------
2000 $108,622 $12,540 $ 1,169 $ 97,250 1.2%
=============== ============== ============ ============= ===============
1999 $ 94,967 $ 8,947 $ 1,016 $ 87,036 1.2%
=============== ============== ============ ============= ===============
1998 $ 94,831 $ 7,268 $ 266 $ 87,829 0.3%
=============== ============== ============ ============= ===============
Page 31
PENN-AMERICA GROUP, INC.
Schedule VI- Supplemental Insurance Information Concerning
Property and Casualty Operations
Years Ended December 31, 2000, 1999 and 1998
(in thousands)
Liability Loss and Loss
for Unpaid Discount Adjustment Expenses
Losses and If Any, (Benefits) Incurred Paid Losses
Loss Deducted Related to and Loss
Adjustment From Current Prior Adjustment
Expenses Reserves Year Year Expenses
--------------- -------------- ------------ -------------- -------------------
Years Ended
December 31, 2000 $115,314 0 $66,214 $9,164 $59,790
December 31, 1999 93,719 0 54,768 8,419 59,989
December 31, 1998 88,937 0 55,647 86 52,161
Page 32
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
Penn-America Group, Inc.
We have audited the accompanying consolidated balance sheets of Penn-America
Group, Inc. (the Company) as of December 31, 2000 and 1999, and the related
consolidated statements of operation, changes in stockholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Penn-America
Group, Inc. at December 31, 2000 and 1999, and the consolidated results of its
operations and its cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.
/s/ ERNST & YOUNG LLP
Philadelphia, Pennsylvania
January 19, 2001
Independent Auditors' Report
The Board of Directors and Stockholders
Penn-America Group, Inc.
We have audited the accompanying consolidated statements of operations,
stockholders' equity, and cash flows of Penn-America Group, Inc. and
subsidiaries for the year ended December 31, 1998. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Penn-America Group, Inc. and subsidiaries for the year ended December 31, 1998,
in conformity with accounting principles generally accepted in the United States
of America.
/s/ KPMG LLP
January 22, 1999
Philadelphia, Pennsylvania
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.
Penn-America Group, Inc.
Date: March 28, 2001 By: /s/ Jon S. Saltzman
--------------------------------------
Jon S. Saltzman,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed by the following persons on behalf of the Registrant in the
capacities and on the dates indicated.
/s/ Irvin Saltzman Chairman of the Board of Directors March 28, 2001
- ------------------------ and Director
Irvin Saltzman
/s/ Jon S. Saltzman President, Chief Executive Officer and March 28, 2001
- ------------------------ Director (Principal Executive Officer)
Jon S. Saltzman
/s/ Robert A. Lear Director March 28, 2001
- ------------------------
Robert A. Lear
/s/ Joseph F. Morris Senior Vice President and Chief Financial Officer March 28, 2001
- ------------------------
Joseph F. Morris
/s/ Garland P. Pezzuolo Secretary and General Counsel March 28, 2001
- ------------------------
Garland P. Pezzuolo
/s/ Paul Simon Director March 28, 2001
- ------------------------
Paul Simon
/s/ Charles Ellman Director March 28, 2001
- ------------------------
Charles Ellman
/s/ M. Moshe Porat Director March 28, 2001
- ------------------------
M. Moshe Porat
/s/ Jami Saltzman-Levy Director March 28, 2001
- ------------------------
Jami Saltzman-Levy