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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 year ended December 31, 2001.
|_| Transition Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from to _____ to _____.
Commission File Number: 0-29042
SYMONS INTERNATIONAL GROUP, INC.
(Exact name of registrant as specified in its charter)
INDIANA 35-1707115
State of Incorporation IRS Employer Identification No.
4720 KINGSWAY DRIVE, INDIANAPOLIS, INDIANA 46205 (317) 259-6300
Address of Principal Executive Offices Telephone
Securities registered pursuant to Section 12(g) of the Act: Common Stock, No Par Value
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 the 2,609,108 shares of the Registrant's common
stock held by non-affiliates as of March 1, 2002 was $182,638.
The number of shares of common stock of the Registrant, without par value,
outstanding as of March 29, 2002 was 10,385,399.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Annual Report to Shareholders for the year ended
December 31, 2001 are incorporated by reference in Parts II and IV hereof.
Portions of the Registrant's Proxy Statement for the 2002 Annual Meeting of
Shareholders are incorporated by reference in Part III hereof.
-1-
Table of Contents
ITEM PAGE
----
PART I
1. Business 3
2. Properties 18
3. Legal Proceedings 19
4. Submission of Matters to a Vote of Security Holders 23
PART II
5. Market for Registrant's Common Equity and Related Shareholder Matters 23
6. Selected Consolidated Financial Data 23
7. Management's Discussion and Analysis of Financial Condition and Results
of Operations 23
7A. Quantitative and Qualitative Disclosures about Market Risk 23
8. Financial Statements and Supplementary Data 23
9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 23
PART III
10. Directors and Executive Officers of the Registrant 24
11. Executive Compensation 24
12. Security Ownership of Certain Beneficial Owners and Management 24
13. Certain Relationships and Related Transactions 24
PART IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 25
15. Signatures 32
-2-
PART I
ITEM 1 - BUSINESS
FORWARD-LOOKING STATEMENTS
All statements, trend analyses, and other information herein contained relative
to markets for the Company's products and/or trends in the Company's operations
or financial results, as well as other statements including words such as
"anticipate," "could," "feel(s)," "believes," "plan," "estimate," "expect,"
"should," "intend," "will," and other similar expressions, constitute
forward-looking statements under the Private Securities Litigation Reform Act of
1995. These forward-looking statements are subject to known and unknown risks,
uncertainties and other factors which may cause actual results to be materially
different from those contemplated by the forward-looking statements. Such
factors include, among other things: (i) the effect on customers, agents,
employees and others due to the Company's receipt of a going concern opinion
from its accountants; (ii) general economic conditions, including prevailing
interest rate levels and stock market performance; (iii) factors affecting the
Company's nonstandard automobile operations such as rate increase approval,
policy renewals, new business written, and premium volume; and (iv) the factors
described in this section and elsewhere in this report.
OVERVIEW OF THE BUSINESS
Symons International Group, Inc. (the "Company") owns insurance companies that
underwrite and market nonstandard private passenger automobile insurance. The
Company's principal insurance company subsidiaries are Pafco General Insurance
Company ("Pafco") and Superior Insurance Company ("Superior"). The Company is a
73.1% owned subsidiary of Goran Capital Inc. ("Goran").
As previously announced, the Company sold its crop insurance operations to
Acceptance Insurance Companies, Inc. ("Acceptance") on June 6, 2001. The crop
insurance business was written through the Company's subsidiary, IGF Insurance
Company ("IGF"), which is in runoff. Accordingly, the financial statements
included in this report reflect the results of the crop insurance segment as
"discontinued operations".
NONSTANDARD AUTOMOBILE INSURANCE
OVERVIEW
Pafco, Superior and Superior's subsidiaries, Superior Guaranty Insurance Company
("Superior Guaranty") and Superior American Insurance Company ("Superior
American") are engaged in the writing of insurance coverage for automobile
physical damage and liability policies. Nonstandard insureds are those
individuals who are unable to obtain insurance coverage through standard market
carriers due to factors such as poor premium payment history, driving experience
or violations, particular occupation or type of vehicle. The Company offers
several different policies, which are directed toward different classes of risk
within the nonstandard market. Premium rates for nonstandard risks are higher
than for standard risks. Since it can be viewed as a residual market, the size
of the nonstandard private passenger automobile insurance market changes with
the insurance environment and grows when standard coverage becomes more
restrictive. Nonstandard policies have relatively short policy periods and low
limits of liability. Also, since the nonstandard automobile insurance business
typically experiences a lower rate of retention than standard automobile
insurance, the number of new policyholders underwritten by nonstandard
automobile insurance carriers each year is substantially greater than the number
of new policyholders underwritten by standard carriers.
PRODUCTS
The Company offers both liability and physical damage coverage in the insurance
marketplace, with policies having terms from three to twelve months. Most
nonstandard automobile insurance policyholders choose the basic limits of
liability coverage which, though varying from state to state, generally is
$25,000 per person and $50,000 per accident for bodily injury to others and in
the range of $10,000 to $20,000 for damage to cars or other property.
-3-
Primarily, the Company offers two policies, each directed toward different
classes of risk within the nonstandard market. The Superior Choice policy offers
insureds a lower cost alternative in exchange for restricted coverage terms. The
Superior Standard policy is intended for risks who desire more traditional auto
coverage.
Where permitted, Superior offers a five-tier product covering the full spectrum
of automobile insurance customers from nonstandard to ultra-preferred. The focus
of the Company's marketing, however, is the nonstandard auto insurance market.
MARKETING
The Company's nonstandard automobile insurance business is concentrated in the
states of Florida, California, Virginia, Colorado, and Georgia. The Company also
writes nonstandard automobile insurance in fifteen additional states. Although
the Company wrote $9.7 million of business in Pennsylvania in 2001, it is
prohibited from writing other than renewal business after July 30, 2001, based
on an agreement with the Indiana Department of Insurance ("IDOI") (see
Regulation-"REGULATORY DEVELOPMENTS"). The Company selects states for expansion
or withdrawal based on a number of criteria, including the size of the
nonstandard automobile insurance market, state-wide loss results, competition,
capitalization of its companies and the regulatory climate. The following table
sets forth the geographic distribution of gross premiums written by the Company
for the periods indicated sorted in descending order of 2001 volume.
Gross Premiums Written
Years Ended December 31,
(in thousands)
State 2001 2000 1999
----- ---- ---- ----
Florida $ 49,162 $ 44,070 $ 67,459
California 34,287 32,480 29,993
Virginia 21,054 20,089 15,470
Georgia 15,481 13,670 22,945
Colorado 10,112 6,938 8,238
Pennsylvania (1) 9,683 -- --
Indiana 6,275 12,804 23,599
Kentucky 3,135 5,034 5,768
Nevada 1,980 3,707 6,954
Tennessee 1,696 9,794 6,840
Texas 1,267 5,918 2,641
Arizona 1,111 4,484 10,912
Iowa 1,066 2,023 4,028
Oregon 1,008 4,236 12,394
Missouri 839 1,929 4,555
Other states 697 5,156 12,056
Oklahoma 635 1,090 1,921
-------- -------- --------
Total nonstandard auto 159,488 173,422 235,773
Other property 1,604 1,039 628
-------- -------- --------
Total $161,092 $174,461 $236,401
======== ======== ========
(1) All premiums written in Pennsylvania are on the books of IGF,
which was precluded from writing other than renewal premium after July
30, 2001.
-4-
The Company markets its nonstandard products exclusively through independent
agencies. The Company has several territory managers, each of whom resides in a
specific marketing region and has access to the technology and software
necessary to provide marketing, rating and administrative support to the
agencies in his or her region.
The Company attempts to foster strong service relationships with its agents and
customers. The Company has automated certain marketing, underwriting and
administrative functions and has allowed on-line communication with its agency
force. In addition to delivering prompt service while ensuring consistent
underwriting, the Company offers rating software to its agents which permits
them to rate risks in their offices. Over 90% of new business applications are
electronically uploaded directly from the agents' office to the Company through
this software. An in-house developed point of sale product allows agents to
order motor vehicle, credit and other reports on line at the time of sale in a
number of states. This service will be offered in all states by the end of 2002.
Most of the Company's agents have limited authority to sell and bind insurance
coverages in accordance with procedures established by the Company, which is a
common practice in the nonstandard automobile insurance business. The Company
reviews all coverages bound by the agents promptly and generally accepts
coverages that fall within its stated underwriting criteria. In most
jurisdictions, the Company has the right within a specified time period to
cancel any policy even if the risk falls within its underwriting criteria. The
Company compensates its agents by paying a commission based on a percentage of
premiums produced.
The Company believes having four individual companies licensed in various states
allows it the flexibility to engage in multi-tiered marketing efforts in which
specialized automobile insurance products are directed toward specific segments
of the market. Since certain state insurance laws prohibit a single insurer from
offering similar products with different commission structures or, in some cases
premium rates, it is necessary to have multiple licenses in certain states in
order to obtain the benefits of market segmentation.
UNDERWRITING
The Company utilizes many factors in determining its rates. Some of the
characteristics used are type, age and location of the vehicle, number of
vehicles per policyholder, number and type of convictions or accidents, limits
of liability, deductibles, and, where allowed by law, credit, age, sex and
marital status of the insured. The rate approval process varies from state to
state. Some states allow filing and immediate use of rates, while others require
approval by the state's insurance department prior to the use of the rates.
Underwriting results of insurance companies are frequently measured by their
combined ratios. However, investment income, federal income taxes and other
non-underwriting income or expense are not reflected in the combined ratio. The
profitability of property and casualty insurance companies depends on income
from underwriting, investment and service operations. Underwriting results are
generally considered profitable when the combined ratio is under 100% and
unprofitable when the combined ratio is over 100%. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations" for further
discussion on the combined ratio.
In an effort to maintain and improve underwriting profits, the territory
managers monitor loss ratios of the agencies in their regions and meet
periodically with the agents in order to address any adverse trends in loss
ratios or other profitability indicators.
CLAIMS
The Company's nonstandard automobile insurance claims department handles claims
on a regional and local basis from claim offices in Indianapolis, Indiana;
Atlanta, Georgia; Tampa, West Palm Beach and Jacksonville, Florida; Orange and
Glendale, California; Alexandria, Virginia; and Lakewood, Colorado. In 2002, the
Company also has established a new claim center in Virginia Beach, Virginia. The
Company uses a combination of its own adjusters and independent appraisers and
adjusters for estimating physical damage claims and limited elements of
investigation.
Claims settlement authority levels are established for each adjuster or manager
based on the employee's ability and experience. Upon receipt, each claim is
reviewed and assigned to an adjuster based on the type and severity of the
claim.
-5-
A home office supervisor or litigation manager monitors all claim-related
litigation. The claims policy of the Company emphasizes prompt and fair
settlement of meritorious claims, appropriate reserving for outstanding claims
and controlling claims adjustment expenses.
REINSURANCE
The Company follows the customary industry practice of reinsuring a portion of
its risks. Insurance is ceded principally to reduce the Company's exposure on
large individual risks and to provide protection against large losses, including
catastrophic losses. Although reinsurance does not legally discharge the ceding
insurer from its primary obligation to pay the full amount of losses incurred
under policies reinsured, it does render the reinsurer liable to the insurer to
the extent provided by the terms of the reinsurance treaty. As part of its
internal procedures, the Company evaluates the financial condition of each
prospective reinsurer before it cedes business to that carrier. Based on the
Company's review of its reinsurers' financial health and reputation in the
insurance marketplace, the Company believes its reinsurers are financially sound
and that they can meet their obligations to the Company under the terms of the
respective reinsurance treaties.
In 2001, Pafco and Superior maintained casualty excess of loss reinsurance on
their nonstandard automobile insurance business covering 62.5% of $750,000 of
losses on an individual occurrence basis in excess of $250,000 up to a maximum
of $3,000,000.
As of December 31, 2001, amounts recoverable from reinsurers relating to
nonstandard automobile operations follows (in thousands):
Reinsurance
Recoverables as of
Reinsurers A.M. Best Rating December 31, 2001 (1)
---------- ---------------- ---------------------
National Union Fire Insurance Company
of Pittsburgh, PA A++ $66,077
Gerling Global Reinsurance Corporation of America A 384
Lloyds of London (Various Syndicates) Not Rated 1,102
(1) Only recoverables greater than $200,000 are shown. Total
nonstandard automobile reinsurance recoverables as of December 31,
2001 were approximately $69,856,000.
(2) An A.M. Best Rating of "A++" is the highest of 15 ratings. An A.M.
Best Rating "A" is the third highest of 15 ratings.
Effective January 1, 2000, Pafco and Superior entered into an automobile quota
share agreement with National Union Fire Insurance Company of Pittsburgh (A.M.
Best rated A++). The amount of cession for Pafco is variable up to a maximum of
90% or $30 million and for Superior is variable up to a maximum of 75% or $70
million for all new and renewal business. In 2001, Pafco and Superior ceded 54%
of their nonstandard automobile gross written premiums on new and renewal
business under this treaty. In addition, the Company ceded a portion of its
unearned premium reserve bringing the total cession to 79% in 2001.
On April 29, 1996, Pafco also entered into a 100% quota share reinsurance
agreement with Granite Reinsurance Company Ltd. ("Granite Re") (no A.M. Best
rating), whereby all of Pafco's commercial business from 1996 and thereafter was
ceded effective January 1, 1996. This agreement was in effect during 2001.
Neither Pafco nor Superior has any facultative reinsurance with respect to its
nonstandard automobile insurance business.
COMPETITION
The Company competes with both large national and smaller regional companies in
each state in which it operates. The Company's competitors include other
companies that serve the agency market, as well as companies that sell insurance
directly to consumers. Direct writers may have certain competitive advantages
over agency writers, including increased name recognition, increased loyalty of
their customer base and, potentially, reduced acquisition costs. The Company's
-6-
primary competitors are Progressive Casualty Insurance Company and specialty
subsidiaries of a number of insurance groups, including AIG, Allstate, American
Financial Group and GMAC. Generally, these competitors are larger and have
greater financial resources than the Company.
The nonstandard automobile insurance business is price sensitive and rates were
decreasing the past several years as competitors moved to protect or increase
their market share. During 2001, however, competitors aggressively raised rates
in an effort to improve underwriting results.
RECENT DEVELOPMENTS
In January 2000, the Company engaged Gene Yerant as the President of its
nonstandard automobile operations and raised rates an aggregate of 12%,
redesigned the auto insurance product, reduced staff and closed the Tampa
processing center. During 2001, rates were raised an additional 24%, financial
reporting was automated and a new in-house processing system was developed. The
Company is in the process of converting its business to this new system.
Beginning in the fourth quarter of 2001 and continuing in January and February
2002, the Company sustained adverse loss experience on a substantial portion of
its new business written in certain markets. In late February and early March
2002, the Company commenced further analysis of loss ratios by individual agency
and a review of claim settlement procedures. Based on this and other analysis,
the Company has as of the filing of this document or plans to before the end of
the second quarter, taken the following actions to improve the financial
position and operating results of the Company:
o Eliminated reinstatements in all markets, i.e., upon policy cancellation,
the insured must obtain a new policy at prevailing rates and underwriting
guidelines;
o Terminated or placed on new business moratorium several hundred agents
whose loss ratios were abnormally high when compared to the average for
the remaining agents (these agents accounted for approximately 16% of the
total gross written premium in 2001);
o Increased underwriting requirements in certain markets including: higher
down payments, new policy fees, and shorter policy terms;
o Hired a consultant with significant auto claims experience to review
processes and suggest modifications to the claims function.
The Company expects the above actions to result in a decline of approximately 10
to 15% in gross written premiums from 2001 levels with a corresponding decrease
in management fees payable to Superior Group, offset by reductions in operating
expenses due to process changes and efficiencies.
RESERVE FOR LOSSES AND LOSS ADJUSTMENT EXPENSES
Loss reserves are estimates, established at a given point in time based on facts
then known and assumptions believed to be reasonable, of what an insurer
predicts its exposure to be in connection with incurred losses. Loss adjustment
expense reserves are estimates of the ultimate liability associated with the
expense of settling all claims, including investigation and litigation costs
resulting from such claims. The actual liability of an insurer for its losses
and loss adjustment expense reserves at any point in time will be greater or
less than these estimates.
The Company maintains reserves for the eventual payment of losses and loss
adjustment expenses with respect to both reported and unreported claims.
Nonstandard automobile reserves for reported claims are established on a
case-by-case basis. The reserving process takes into account the type of claim,
policy provisions relating to the type of loss and historical paid loss and loss
adjustment expense for similar claims.
Loss and loss adjustment expense reserves for claims that have been incurred but
not reported are estimated based on many variables including historical and
statistical information, inflation, legal developments, economic conditions,
trends in claim severity and frequency and other factors that could affect the
adequacy of loss reserves.
-7-
The Company's recorded loss reserves at December 31, 2001 are certified by the
Company's Vice President and Chief Actuary.
The following loss reserve development table illustrates the change over time of
reserves established for loss and loss adjustment expenses as of the end of the
various calendar years for the nonstandard automobile segment of the Company
(see pages 9 and 10). The table includes the loss reserves acquired from the
acquisition of Superior in 1996 and the related loss reserve development
thereafter. The first section shows the reserves as originally reported at the
end of the stated year. The second section, reading down, shows the cumulative
amounts paid as of the end of successive years with respect to the reserve
liability. The third section, reading down, shows the re-estimates of the
original recorded reserve as of the end of each successive year which is a
result of sound insurance reserving practices of addressing emerging facts and
circumstances which indicate that a modification of the prior estimate is
necessary. The last section compares the latest re-estimated reserve to the
reserve originally established, and indicates whether or not the original
reserve was adequate or inadequate to cover the estimated costs of unsettled
claims.
The loss reserve development table is cumulative and, therefore, ending balances
should not be added since the amount at the end of each calendar year includes
activity for both the current and prior years.
The reserve for losses and loss adjustment expenses is an accumulation of the
estimated amounts necessary to settle all outstanding claims as of the date for
which the reserve is stated. The reserve and payment data shown below have been
reduced for estimated subrogation and salvage recoveries. The Company does not
discount its reserves for unpaid losses and loss expenses. No attempt is made to
isolate explicitly the impact of inflation from the multitude of factors
influencing the reserve estimates, though inflation is implicitly included in
the estimates. The Company regularly updates its reserve forecasts by type of
claim as facts become known and events occur which affect unsettled claims.
Activity in the liability for unpaid loss and loss adjustment expenses for
nonstandard automobile insurance is summarized below, in thousands:
2001 2000 1999
---- ---- ----
Balance at January 1, $108,117 $152,455 $134,024
Less reinsurance recoverables 23,252 13,527 17,844
-------- -------- --------
Net balance at January 1, 84,865 138,928 116,180
Incurred related to:
Current year 69,667 127,497 214,606
Prior years 774 (14,118) 16,367
-------- -------- --------
Total incurred 70,441 113,379 230,973
Paid related to:
Current year 46,973 85,334 122,380
Prior years 57,791 82,108 85,845
-------- -------- --------
Total paid 104,764 167,442 208,225
Net balance at December 31, 50,542 84,865 138,928
Plus reinsurance balance 30,600 23,252 13,527
-------- -------- --------
Balance at December 31, $ 81,142 $108,117 $152,455
======== ======== ========
-8-
Symons International Group, Inc.
Nonstandard Automobile Insurance Only
For The Years Ended December 31, (in thousands)
- --------------- ---------- --------- --------- --------- --------- --------- ---------- ---------- ---------- ----------
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
- --------------- ---------- --------- --------- --------- --------- --------- ---------- ---------- ---------- ----------
- --------------- ---------- --------- --------- --------- --------- --------- ---------- ---------- ---------- ----------
Gross
reserves for
unpaid losses
and LAE $27,403 $25,248 $71,748 $79,551 $101,185 $121,661 $141,260 $103,441
- --------------- ---------- --------- --------- --------- --------- --------- ---------- ---------- ---------- ----------
Deduct
reinsurance
recoverable 12,581 10,927 9,921 8,124 16,378 6,515 3,167 18,709
- --------------- ---------- --------- --------- --------- --------- --------- ---------- ---------- ---------- ----------
Reserve for
unpaid losses
and LAE, net
of reinsurance $15,682 $17,055 14,822 14,321 61,827 71,427 84,807 114,829 138,093 84,732
- --------------- ---------- --------- --------- --------- --------- --------- ---------- ---------- ---------- ----------
Paid
cumulative as
of:
- --------------- ---------- --------- --------- --------- --------- --------- ---------- ---------- ---------- ----------
One Year
Later 7,519 10,868 8,875 7,455 42,183 59,410 62,962 85,389 81,444 57,696
- --------------- ---------- --------- --------- --------- --------- --------- ---------- ---------- ---------- ----------
Two Years
Later 12,358 15,121 11,114 10,375 53,350 79,319 89,285 111,042 107,534 --
- --------------- ---------- --------- --------- --------- --------- --------- ---------- ---------- ---------- ----------
Three
Years Later 13,937 16,855 13,024 12,040 58,993 86,298 98,469 121,907 -- --
- --------------- ---------- --------- --------- --------- --------- --------- ---------- ---------- ---------- ----------
Four Years
Later 14,572 17,744 13,886 12,822 61,650 89,166 102,854 -- -- --
- --------------- ---------- --------- --------- --------- --------- --------- ---------- ---------- ---------- ----------
Five Years
Later 14,841 18,195 14,229 13,133 62,621 90,477 -- -- -- --
- --------------- ---------- --------- --------- --------- --------- --------- ---------- ---------- ---------- ----------
Six Years
Later 14,992 18,408 14,330 13,375 63,031 -- -- -- -- --
- --------------- ---------- --------- --------- --------- --------- --------- ---------- ---------- ---------- ----------
Seven
Years Later 15,099 18,405 14,426 13,418 -- -- -- -- -- --
- --------------- ---------- --------- --------- --------- --------- --------- ---------- ---------- ---------- ----------
Eight Years
Later 15,095 18,460 14,386 -- -- -- -- -- -- --
- --------------- ---------- --------- --------- --------- --------- --------- ---------- ---------- ---------- ----------
Nine Years
Later 15,135 18,411 -- -- -- -- -- -- -- --
- --------------- ---------- --------- --------- --------- --------- --------- ---------- ---------- ---------- ----------
Ten Years
Later 15,086 -- -- -- -- -- -- -- -- --
- --------------- ---------- --------- --------- --------- --------- --------- ---------- ---------- ---------- ----------
Liabilities
re-estimated
as of:
- --------------- ---------- --------- --------- --------- --------- --------- ---------- ---------- ---------- ----------
One Year
Later 14,453 17,442 14,788 13,365 59,626 82,011 97,905 131,256 124,012 85,538
- --------------- ---------- --------- --------- --------- --------- --------- ---------- ---------- ---------- ----------
Two Years
Later 14,949 18,103 13,815 12,696 60,600 91,743 104,821 128,302 121,480 --
- --------------- ---------- --------- --------- --------- --------- --------- ---------- ---------- ---------- ----------
Three
Years Later 15,139 18,300 14,051 13,080 63,752 91,641 104,551 127,885 -- --
- --------------- ---------- --------- --------- --------- --------- --------- ---------- ---------- ---------- ----------
Four Years
Later 15,218 18,313 14,290 13,485 63,249 91,003 105,012 -- -- --
- --------------- ---------- --------- --------- --------- --------- --------- ---------- ---------- ---------- ----------
Five Years
Later 15,198 18,419 14,499 13,441 63,233 91,323 -- -- -- --
- --------------- ---------- --------- --------- --------- --------- --------- ---------- ---------- ---------- ----------
Six Years
Later 15,114 18,533 14,523 13,592 63,373 -- -- -- -- --
- --------------- ---------- --------- --------- --------- --------- --------- ---------- ---------- ---------- ----------
Seven 15,157 18,484 14,584 13,652 -- -- -- -- -- --
- --------------- ---------- --------- --------- --------- --------- --------- ---------- ---------- ---------- ----------
- --------------- ---------
2001
----
- --------------- ---------
- --------------- ---------
Gross
reserves for
unpaid losses
and LAE $79,047
- --------------- ---------
Deduct
reinsurance
recoverable 28,511
- --------------- ---------
Reserve for
unpaid losses
and LAE, net
of reinsurance 50,536
- --------------- ---------
Paid
cumulative as
of:
- --------------- ---------
One Year
Later
- --------------- ---------
Two Years
Later
- --------------- ---------
Three
Years Later
- --------------- ---------
Four Years
Later
- --------------- ---------
Five Years
Later
- --------------- ---------
Six Years
Later
- --------------- ---------
Seven
Years Later
- --------------- ---------
Eight Years
Later
- --------------- ---------
Nine Years
Later
- --------------- ---------
Ten Years
Later
- --------------- ---------
Liabilities
re-estimated
as of:
- --------------- ---------
One Year
Later
- --------------- ---------
Two Years
Later
- --------------- ---------
Three
Years Later
- --------------- ---------
Four Years
Later
- --------------- ---------
Five Years
Later
- --------------- ---------
Six Years
Later
- --------------- ---------
Seven
- --------------- ---------
-9-
- --------------- ---------- --------- --------- --------- --------- --------- ---------- ---------- ---------- ----------
Years Later
- --------------- ---------- --------- --------- --------- --------- --------- ---------- ---------- ---------- ----------
Eight
Years Later 15,145 18,508 14,574 -- -- -- -- -- -- --
- --------------- ---------- --------- --------- --------- --------- --------- ---------- ---------- ---------- ----------
Nine Years
Later 15,165 18,494 -- -- -- -- -- -- -- --
- --------------- ---------- --------- --------- --------- --------- --------- ---------- ---------- ---------- ----------
Ten Years
Later 15,157 -- -- -- -- -- -- -- -- --
- --------------- ---------- --------- --------- --------- --------- --------- ---------- ---------- ---------- ----------
Net 525 (1,439) 248 669 (1,546) (19,896) (20,205) (13,056) 16,613 (806)
cumulative
(deficiency)
or redundancy
- --------------- ---------- --------- --------- --------- --------- --------- ---------- ---------- ---------- ----------
Expressed as
a percentage
of unpaid
losses and
LAE 3.3% (8.4%) 1.7% 4.7% (2.5%) (27.9%) (23.8%) (11.4%) 12.0% (1.0%)
- -------------------------------------- --------- --------- --------- --------- ---------- ---------- ---------- ----------
REVALUATION OF GROSS LOSSES AND LAE
AS OF YEAR-END 2001:
- -------------------------------------- --------- --------- --------- --------- ---------- ---------- ---------- ----------
Cumulative Gross Paid as of 27,072 24,788 73,164 98,585 120,942 125,070 108,213 73,484
Year-end 2000
- -------------------------------------- --------- --------- --------- --------- ---------- ---------- ---------- ----------
Gross liabilities re-estimated
as of year-end 2001 27,674 25,461 73,976 99,901 123,570 131,999 123,310 104,850
- -------------------------------------- --------- --------- --------- --------- ---------- ---------- ---------- ----------
Gross cumulative (deficiency) or
redundancy (271) (213) (2,228) (20,350) (22,385) (10,338) 17,950 (1,409)
- -------------------------------------- --------- --------- --------- --------- ---------- ---------- ---------- ----------
-10-
RATINGS
A.M. Best has currently assigned a "B-" rating to Superior and a "C" rating to
Pafco. A.M. Best's ratings are based upon a comprehensive review of a company's
financial performance, which is supplemented by certain data, including
responses to A.M. Best's questionnaires, phone calls and other correspondence
between A.M. Best analysts and company management, quarterly NAIC filings, state
insurance department examination reports, loss reserve reports, annual reports,
company business plans and other reports filed with state insurance departments.
A.M. Best undertakes a quantitative evaluation, based upon profitability,
leverage and liquidity, and a qualitative evaluation, based upon the composition
of a company's book of business or spread of risk, the amount, appropriateness
and soundness of reinsurance, the quality, diversification and estimated market
value of its assets, the adequacy of its loss reserves and policyholders'
surplus, the soundness of a company's capital structure, the extent of a
company's market presence and the experience and competence of its management.
A.M. Best's ratings represent an independent opinion of a company's financial
strength and ability to meet its obligations to policyholders. A.M. Best's
ratings are not a measure of protection afforded investors. "B-" and "C" ratings
are A.M. Best's eighth and eleventh highest rating classifications,
respectively, out of fifteen ratings. A "B-" rating is awarded to insurers
which, in A.M. Best's opinion, "have, on balance, fair financial strength,
operating performance and market profile when compared to the standards
established by the A.M. Best Company" and "have an ability to meet their current
obligations to policyholders, but their financial strength is vulnerable to
adverse changes in underwriting and economic conditions". A "C" rating is
awarded to insurers which, in A. M. Best's opinion, "have, on balance, weak
financial strength, operating performance and market profile when compared to
the standards established by the A.M. Best Company" and "have an ability to meet
their current obligations to policyholders, but their financial strength is very
vulnerable to adverse changes in underwriting and economic conditions".
A.M. Best has currently assigned an "E" rating (Under Regulatory Supervision) to
IGF reflecting the significant regulatory constraint resulting from the Consent
Order entered into between IGF and the Indiana Department Of Insurance (see
Regulation-"REGULATORY DEVELOPMENTS").
REGULATION
GENERAL
The Company's insurance businesses are subject to comprehensive, detailed
regulation throughout the United States, under statutes which delegate
regulatory, supervisory and administrative powers to state insurance
commissioners. The primary purpose of such regulations and supervision is the
protection of policyholders and claimants rather than shareholders or other
investors. Depending on whether an insurance company is domiciled in the state
and whether it is an admitted or non-admitted insurer, such authority may extend
to such things as (i) periodic reporting of the insurer's financial condition;
(ii) periodic financial examination; (iii) approval of rates and policy forms;
(iv) loss reserve adequacy; (v) insurer solvency; (vi) the licensing of insurers
and their agents; (vii) restrictions on the payment of dividends and other
distributions; (viii) approval of changes in control; and (ix) the type and
amount of permitted investments.
The losses, adverse trends and uncertainties discussed in this report have been
and continue to be matters of concern to the domiciliary and other insurance
regulators of the Company's operating subsidiaries. (See "REGULATORY
DEVELOPMENTS", "RISK BASED CAPITAL REQUIREMENTS", and "RISK FACTORS").
REGULATORY DEVELOPMENTS
Pafco has been subject to an agreed to order of the IDOI since February 17,
2000, which requires Pafco, among other matters, to:
o Refrain from doing any of the following without the IDOI's prior written
consent: selling assets or business in force or transferring property,
except in the ordinary course of business; disbursing funds, other than
for specified purposes or for normal operating expenses and in the
ordinary course of business (which does not include payments to
affiliates, other than under written contracts previously approved by the
IDOI, and does not include payments in excess of $10,000); lending funds;
making investments, except in specified types of investments; incurring
debt, except in the ordinary course of business and to unaffiliated
parties; merging or consolidating with another company,
-11-
or entering into new, or modifying existing, reinsurance contracts.
o Reduce its monthly auto premium writings, or obtain additional statutory
capital or surplus, such that the ratio of gross written premium to
surplus and net written premium to surplus does not exceed 4.0 and 2.4,
respectively; and provide the IDOI with regular reports demonstrating
compliance with these monthly writings limitations. Restrictions on
premium writings would result in lower premium volume and management fees
payable to Superior Insurance Group, Inc. ("Superior Group") are based on
gross written premium; therefore, lower premium volume results in reduced
management fees paid by Pafco.
o Continue to comply with prior IDOI agreements and orders to correct
business practices, under which Pafco must provide monthly financial
statements to the IDOI, obtain prior IDOI approval of reinsurance
arrangements and of affiliated party transactions, submit business plans
to the IDOI that address levels of surplus and net premiums written, and
consult with the IDOI on a monthly basis.
Pafco is in compliance with the order. Pafco's inability or failure to comply
with any of the above could result in the IDOI requiring further reductions in
Pafco's permitted premium writings or in the IDOI instituting future proceedings
against Pafco.
Pafco has agreed with the Iowa Department of Insurance ("IADOI") that it will
not write any new nonstandard business in Iowa until such time as Pafco has
reduced its overall nonstandard automobile policy counts in the state or has:
o Increased surplus; or
o Has a net written premium to surplus ratio of less than three to one; or
o Has surplus reasonable to its risk.
Pafco has continued to service existing policyholders and renew policies in Iowa
and provide policy count information on a monthly basis in conformance with
IADOI requirements.
The Florida Department of Insurance ("FDOI") concluded its financial review of
Superior for the year ended December 31, 1999 and issued its final report during
the fourth quarter of 2001. The FDOI's final report recommended additional
examination of compliance issues and financial records accuracy for years
subsequent to 1999. Superior is required to submit monthly financial information
to the FDOI, including a demonstration that it has not exceeded a ratio of net
written premiums to surplus of four to one.
On July 7, 2000, the FDOI issued a notice of its intent to issue an order (the
"Notice"), which principally addressed certain policy and finance fee payments
by Superior to Superior Insurance Group, Inc. ("Superior Group"), another
subsidiary of the Company. A formal administrative hearing to review the Notice
and a determination that the order contemplated by the Notice not be issued was
held in February 2001. The administrative law judge entered a recommended order
on June 1, 2001 that was acceptable to the Company. On August 30, 2001, the FDOI
rejected the recommended order and issued its final order which the Company
believes improperly characterized policy fees paid by Superior to Superior Group
and which seeks repayment of approximately $15 million by Superior Group to
Superior. On September 28, 2001, Superior filed an appeal of the final order to
the First District Court of Appeal of the State of Florida. On March 4, 2002,
the FDOI filed a petition in the Circuit Court of Leon County, Florida which
seeks enforcement of the FDOI's final order. Superior filed a motion with the
FDOI for stay of the FDOI's final order. Superior also filed a motion with the
District Court of Appeals, which was denied pending a ruling from the FDOI on
Superior's motion for stay.
In 1999, Superior ceased writing business in Illinois and subsequently agreed to
obtain the approval of the Illinois Department of Insurance prior to writing any
new business in Illinois. In July 2001, Superior agreed with the Department of
Insurance in Texas to obtain its prior approval before writing any new business
in that state. On October 9, 2001, the State Corporation Commission of Virginia
issued an order to take notice regarding an order suspending Superior's license
to write business in that state, which Superior believes is unwarranted. An
administrative hearing for a determination that the suspension order not be
issued was held March 5, 2002. The nonstandard automobile insurance policies
written in Virginia by Superior accounted for approximately 13.1% of the total
gross written premiums of the Company in 2001.
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A decision has not yet been rendered, and although Superior does not expect an
adverse decision, Superior would appeal any decision that prohibits it from
writing business in Virginia.
On June 6, 2001, IGF sold substantially all of its crop insurance assets to
Acceptance. On June 29, 2001, following the sale of IGF's crop insurance assets
and as a result of losses experienced by IGF in its crop insurance operations,
the IDOI and IGF entered into a Consent Order (the "Consent Order") relating to
IGF. IGF has discontinued writing new business and its operations are presently
in run off.
The IDOI has continued to monitor the status of IGF. The Consent Order prohibits
IGF from taking any of the following actions without prior written consent of
the IDOI:
o Sell or encumber any of its assets, property, or business in force;
o Disburse funds, except to pay direct unaffiliated policyholder claims and
normal operating expenses in the ordinary course of business (which does
not include payment to affiliates except for the reimbursement of costs
for running IGF by the Company, and does not include payments in excess of
$10,000;
o Lend its funds or make investments, except in specified types of
investments;
o Incur debts or obligations, except in the ordinary course of business to
unaffiliated parties;
o Merge or consolidate with another company;
o Enter into new, or amend existing, reinsurance agreements;
o Complete, enter into or amend any transaction or arrangement with an
affiliate; and
o Disburse funds or assets to any affiliate.
The Consent Order requires IGF to provide the IDOI with monthly written updates
and immediate notices of any material change regarding the status of litigation
with Mutual Service Casualty Insurance Company and with Continental Casualty
Company, statutory reserves, number of non-standard automobile insurance
policies in-force by state, and reports of all non-claims related disbursements.
IGF's failure to comply with the Consent Order could cause the IDOI to begin
proceedings to have a rehabilitator or liquidator appointed for IGF to extend
the provisions of the Consent Order.
While IGF is prohibited from writing any new business pursuant to the Consent
Order, the departments of insurance of Florida, Illinois, Minnesota, Missouri,
Nebraska, Virginia and South Carolina have also required IGF to cease writing
business in those states. IGF has also agreed with the departments of insurance
of Texas and Washington to not write business in those states, and IGF presently
intends to surrender its certificates of authority in most states in which it
operated prior to the sale to Acceptance.
As a result of the Consent Order, IGF was prohibited from writing new
non-standard automobile insurance in Pennsylvania after July 30, 2001. Prior to
July 31, 2001, the non-standard automobile insurance policies written in
Pennsylvania by IGF accounted for approximately 10% of the total gross written
premiums of the Company. During the third quarter of 2001, the Pennsylvania
Department of Insurance determined that it would not permit new business to be
written in that state by Superior or the Company's other insurance company
subsidiaries. Therefore, total written premiums for 2001 were less than
anticipated. For the year ended December 31, 2001, Pennsylvania premiums were
6.0% of the Company's total written premiums.
INSURANCE HOLDING COMPANY REGULATION
The Company also is subject to laws governing insurance holding companies in
Florida and Indiana, where its insurance company subsidiaries are domiciled.
These laws, among other things, (i) require the Company to file periodic
information with state regulatory authorities including information concerning
its capital structure, ownership, financial condition and general business
operations; (ii) regulate certain transactions between the Company, its
affiliates, IGF, Pafco, Superior, Superior American and Superior Guaranty,
including the amount of dividends and other distributions and the terms of
surplus notes; and (iii) restrict the ability of any one person to acquire
certain levels of the Company's voting securities without prior regulatory
approval.
Any purchaser of 10% or more of the outstanding shares of common stock of the
Company would be presumed to have acquired control of Pafco and IGF unless the
Indiana Commissioner of Insurance ("Indiana Commissioner") upon
-13-
application has determined otherwise. In addition, any purchaser of 5% or more
of the outstanding shares of common stock of the Company will be presumed to
have acquired control of Superior unless the Florida Commissioner of Insurance
("Florida Commissioner"), upon application, has determined otherwise.
Dividend payments by the Company's insurance subsidiaries are subject to
restrictions and limitations under applicable laws under which an insurance
subsidiary may not pay dividends to the Company without prior notice to, or
approval by, the subsidiary's domiciliary insurance regulator. The 1996 FDOI
consent order approving the Company's acquisition of Superior, prohibited
Superior from paying any dividends for four years from the date of acquisition
without prior approval. This restriction expired in April 2000. As a result of
regulatory actions taken by the IDOI with respect to Pafco and IGF, those
subsidiaries may not pay dividends to the Company without prior approval by the
IDOI (see "REGULATORY DEVELOPMENTS" above). Further, payment of dividends may be
constrained by business and regulatory considerations, and state insurance laws
and regulations require that the statutory surplus of an insurance company
following any dividend or distribution by such company be reasonable in relation
to its outstanding liabilities and adequate for its financial needs.
Accordingly, there can be no assurance that the IDOI or the FDOI would permit
any of the Company's insurance subsidiaries to pay dividends at this time or in
the future (see "RISK FACTORS").
While the non-insurance company subsidiaries are not subject directly to these
dividend and other distribution limitations, insurance holding company
regulations govern the amount which a subsidiary within the holding company
system may charge any of the Insurers for services (e.g., management fees and
commissions). These regulations may affect the amount of management fees which
may be paid by Pafco and Superior to Superior Group. The management agreement
between Pafco and Superior Group provides for an annual management fee equal to
15% of gross premiums. The management agreement between Superior and Superior
Group provides for an annual management fee of 17% of gross premiums. There can
be no assurance that either the IDOI or the FDOI will not in the future require
a reduction in these management fees.
In addition, neither Pafco nor IGF may engage in any transaction with an
affiliate, including the Company, without the prior approval of the IDOI (see
Regulation -"REGULATORY DEVELOPMENTS").
UNDERWRITING AND MARKETING RESTRICTIONS
During the past several years, various regulatory and legislative bodies have
adopted or proposed new laws or regulations to deal with the cyclical nature of
the insurance industry, catastrophic events and insurance capacity and pricing.
These regulations include (i) the creation of "market assistance plans" under
which insurers are induced to provide certain coverages; (ii) restrictions on
the ability of insurers to rescind or otherwise cancel certain policies in
mid-term; (iii) advance notice requirements or limitations imposed for certain
policy non-renewals; and (iv) limitations upon or decreases in rates permitted
to be charged.
INSURANCE REGULATORY INFORMATION SYSTEM
The NAIC Insurance Regulatory Information System ("IRIS") was developed
primarily to assist state insurance departments in executing their statutory
mandate to oversee the financial condition of insurance companies. IRIS ratios
consist of twelve ratios with defined acceptable ranges. They are used as an
initial screening process for identifying companies that may be in need of
special attention. Companies that have several ratios that fall outside of the
acceptable range are selected for closer review by the NAIC. If the NAIC
determines that more attention may be warranted, one of five priority
designations is assigned and the insurance department of the state of domicile
is then responsible for follow-up action.
As of December 31, 2001, Pafco had values outside of the acceptable ranges for
five IRIS tests. These included the change in net writings ratio, the surplus
aid to surplus ratio, the two-year overall operating ratio, the investment yield
ratio, and the change in surplus ratio.
As of December 31, 2001, Superior had values outside of the acceptable ranges
for four IRIS tests. These included the change in net writings ratio, the
surplus aid to surplus ratio, the two-year overall operating ratio, and the
change in surplus ratio.
-14-
As of December 31, 2001, IGF had values outside of the acceptable ranges for
eight IRIS tests. These included the gross premiums to surplus ratio, the net
premium to surplus ratio, the change in net writings ratio, the two-year overall
operating ratio, the investment yield ratio, the change in surplus ratio, the
liabilities to liquid assets ratio, and the agents' balances to surplus ratio.
RISK-BASED CAPITAL REQUIREMENTS
In order to enhance the regulation of insurer solvency, the NAIC has adopted a
formula and model law to implement risk-based capital ("RBC") requirements for
property and casualty insurance companies designed to assess minimum capital
requirements and to raise the level of protection that statutory surplus
provides for policyholder obligations. Indiana and Florida have substantially
adopted the NAIC model law and Indiana directly, and Florida indirectly, have
adopted the NAIC model formula. The RBC formula for property and casualty
insurance companies measures four major areas of risk facing property and
casualty insurers: (i) underwriting, which encompasses the risk of adverse loss
developments and inadequate pricing; (ii) declines in asset values arising from
credit risk; (iii) declines in asset values arising from investment risks; and
(iv) off-balance sheet risk arising from adverse experience from non-controlled
assets, guarantees for affiliates, contingent liabilities and reserve and
premium growth. Pursuant to the model law, insurers having less statutory
surplus than that required by the RBC calculation will be subject to varying
degrees of regulatory action, depending on the level of capital inadequacy.
The RBC model law provides for four levels of regulatory action. The extent of
regulatory intervention and action increases as the level of surplus to RBC
decreases. The first level, the Company Action Level (as defined by the NAIC),
requires an insurer to submit a plan of corrective actions to the regulator if
surplus falls below 200% of the RBC amount. The Regulatory Action Level requires
an insurer to submit a plan containing corrective actions and requires the
relevant insurance commissioner to perform an examination or other analysis and
issue a corrective order if surplus falls below 150% of the RBC amount. The
Authorized Control Level gives the relevant insurance commissioner the option
either to take the aforementioned actions or to rehabilitate or liquidate the
insurer if surplus falls below 100% of the RBC amount. The fourth action level
is the Mandatory Control Level that requires the relevant insurance commissioner
to rehabilitate or liquidate the insurer if surplus falls below 70% of the RBC
amount. Based on the foregoing formula, as of December 31, 2001, the RBC
calculations for Superior and Pafco were in excess of 200% and the calculation
for IGF was in excess of 100%, or above the Authorized Control Level.
GUARANTY FUNDS; RESIDUAL MARKETS
The insurance company subsidiaries also may be required under the solvency or
guaranty laws of most states in which they do business to pay assessments (up to
certain prescribed limits) to fund policyholder losses or liabilities of
insolvent or rehabilitated insurance companies. These assessments may be
deferred or forgiven under most guaranty laws if they would threaten an
insurer's financial strength and, in certain instances, may be offset against
future premium taxes. Some state laws and regulations further require
participation by the insurance company subsidiaries in pools or funds to provide
some types of insurance coverage that they would not ordinarily accept. The
Company recognizes its obligations for guaranty fund assessments when it
receives notice that an amount is payable to the fund. The ultimate amount of
these assessments may differ from that which has already been assessed.
It is not possible to predict the future impact of changing state and federal
regulation on the Company's operations and there can be no assurance that laws
and regulations enacted in the future will not be more restrictive than existing
laws.
EMPLOYEES
At March 1, 2002, the Company and its subsidiaries employed approximately 336
full and part-time employees. None of the Company's employees is represented by
either unions or collective bargaining agreements. The Company believes that
relations with its employees are excellent.
RISK FACTORS
The following factors, in addition to the other information contained in this
report should be considered in evaluating the Company and its prospects.
-15-
SIGNIFICANT LOSSES HAVE BEEN REPORTED AND MAY CONTINUE
The Company reported losses from continuing operations of $(30,736,000) for the
year 2001, $(71,384,000) for 2000 and $(65,443,000) for 1999. Results from
continuing operations before the effects of income taxes, minority interest and
amortization expense were losses of $(15,759,000) and $(24,969,000) for 2001 and
2000 respectively. Losses from continuing operations decreased from 2000 largely
due to lower volume and actions taken to reduce operating expenses. Although the
Company has taken a number of actions to address factors contributing to these
past losses, there can be no assurance that operating losses will not continue.
THE COMPANY'S ACCOUNTANTS HAVE ISSUED A GOING CONCERN OPINION
The Company's accountants have issued a report on their audit of the
Consolidated Financial Statements of the Company as of December 31, 2001 which
raises doubt as to the Company's ability to continue as a going concern given
the recurring operating losses experienced by the Company over the past few
years and the Company's net capital deficiency. None of the Company's insurance
subsidiaries have going concern opinions.
RECENT AND FURTHER REGULATORY ACTIONS MAY AFFECT THE COMPANY'S FUTURE OPERATIONS
The Company's insurance company subsidiaries, their business operations, and
their transactions with affiliates, including the Company, are subject to
extensive regulation and oversight by the IDOI, the FDOI and the insurance
regulators of other states in which the insurance company subsidiaries write
business. Moreover, the insurance company subsidiaries' losses, adverse trends
and uncertainties discussed in this report have been and continue to be matters
of concern to the domiciliary and other insurance regulators of the Company's
insurance company subsidiaries and have resulted in enhanced scrutiny and
regulatory action by several regulators. (See "REGULATORY DEVELOPMENTS" and
"RISK-BASED CAPITAL REQUIREMENTS"). The primary purpose of insurance regulation
is the protection of policyholders rather than shareholders. Failure to resolve
issues with the IDOI and the FDOI, and with other regulators, in a manner
satisfactory to the Company could impair the Company's ability to execute its
business strategy or result in future regulatory actions or proceedings that
could otherwise materially and adversely affect the Company's operations.
THE COMPANY IS SUBJECT TO A NUMBER OF PENDING LEGAL PROCEEDINGS
As discussed elsewhere in this report, the Company is involved in a number of
pending legal proceedings (see Part I - Item 3, "Legal Proceedings"). Although
the Company believes that many of the allegations of wrongdoing are without
merit and intends to vigorously defend the claims brought against it, there can
be no assurance that such proceedings will not have a material adverse effect on
the Company's financial position or results of operations. Furthermore, the
existence of these lawsuits diverts the time and attention of management and
they are expensive to defend.
THE TERMS OF THE TRUST PREFERRED SECURITIES MAY RESTRICT THE COMPANY'S ABILITY
TO ACT
The Company has issued through a wholly owned trust subsidiary $135 million
aggregate principal amount in trust originated preferred securities ("Preferred
Securities"). The Preferred Securities have a term of 30 years with annual
interest at 9.5% paid semi-annually. The obligations of the Preferred Securities
are funded from the Company's nonstandard automobile insurance management
company. The Company elected to defer the semi-annual interest payments due in
February and August 2000 and 2001 and the payment due in February 2002 and may
continue to defer such payments for up to an aggregate of five years as
permitted by the indenture for the Preferred Securities. All of the deferred
interest (if all payments due in 2002, 2003, and 2004 are deferred)
approximating $84 million will become due and payable in February 2005. Although
there is no present default under the indenture that would accelerate the
payment of the Preferred Securities, the indenture contains a number of
covenants that may restrict the Company's ability to act in the future. These
covenants include restrictions on the Company's ability to incur or guarantee
debt, make payment to affiliates, repurchase its common stock, pay dividends on
common stock or increase its level of certain investments other than
investment-grade, fixed-income securities. There can be no assurance that
compliance with these restrictions and other provisions of the indenture for the
Preferred Securities will not adversely affect the cash flow of the Company.
-16-
UNCERTAIN PRICING AND PROFITABILITY
One of the distinguishing features of the property and casualty industry is that
its products are priced before losses are reported and final costs are known.
Premium rate levels are related in part to the availability of insurance
coverage, which varies according to the level of surplus in the industry.
Increases in surplus have generally been accompanied by increased price
competition among property and casualty insurers. The nonstandard automobile
insurance business, in recent years, has experienced very competitive pricing
conditions and there can be no assurance as to the Company's ability to achieve
adequate pricing. Changes in case law, the passage of new statutes or the
adoption of new regulations relating to the interpretation of insurance
contracts can retroactively and dramatically affect the liabilities associated
with known risks after an insurance contract is in place. New products also
present special issues in establishing appropriate premium levels in the absence
of experience with such products' performance. The level of claims cannot be
accurately determined for periods after the sale of policies, therefore reserves
are estimated and these estimates are used to set price. If they are low, then
resulting rates could be inadequate.
The number of competitors and the similarity of products offered, as well as
regulatory constraints, limit the ability of property and casualty insurers to
increase prices in response to declines in profitability. In states that require
prior approval of rates, it may be more difficult for the Company to achieve
premium rates that are commensurate with the Company's underwriting experience
with respect to risks located in those states. Accordingly, there can be no
assurance that these rates will be sufficient to produce an underwriting profit.
The reported profits and losses of a property and casualty insurance company are
also determined, in part, by the establishment of, and adjustments to, reserves
reflecting estimates made by management as to the amount of losses and loss
adjustment expenses ("LAE") that will ultimately be incurred in the settlement
of claims. The ultimate liability of the insurer for all losses and LAE reserved
at any given time will likely be greater or less than these estimates, and
material differences in the estimates may have a material adverse effect on the
insurer's financial position or results of operations in future periods.
UNCERTAINTY ASSOCIATED WITH ESTIMATING RESERVES FOR UNPAID LOSSES AND LAE
The reserve for unpaid losses and LAE established by the Company is an estimate
of amounts needed to pay reported and unreported claims and related loss
adjustment expenses based on facts and circumstances then known. These reserves
are based on estimates of trends in claims severity, judicial theories of
liability and other factors.
Although the nature of the Company's insurance business is primarily short-tail,
the establishment of adequate reserves is an inherently uncertain process,
provides no assurance that the ultimate liability will not materially exceed the
Company's reserves for losses and LAE and have a material adverse effect on the
Company's results of operations and financial condition. Due to the inherent
uncertainty of estimating these amounts, it has been necessary, and may over
time continue to be necessary, to revise estimates of the Company's reserves for
losses and LAE. The historical development of reserves for losses and LAE may
not necessarily reflect future trends in the development of these amounts.
Accordingly, it may not be appropriate to extrapolate redundancies or
deficiencies based on historical information.
NATURE OF NONSTANDARD AUTOMOBILE INSURANCE BUSINESS
The nonstandard automobile insurance business is affected by many factors that
can cause fluctuation in the results of operations of this business. Many of
these factors are not subject to the control of the Company.
The size of the nonstandard market can be significantly affected by, among other
factors, the underwriting capacity and underwriting criteria of standard
automobile insurance carriers. In addition, an economic downturn in the states
in which the Company writes business could result in fewer new car sales and
less demand for automobile insurance. These factors, together with competitive
pricing and other considerations, could result in fluctuations in the Company's
underwriting results.
-17-
HIGHLY COMPETITIVE BUSINESS
Nonstandard automobile insurance is a highly competitive business. Many of the
Company's competitors have substantially greater financial resources than the
Company and there can be no assurance that the Company will be able to compete
effectively against such competitors in the future.
The Company competes with both large national writers and smaller regional
companies. The Company's competitors include other companies, which, like the
Company, serve the independent agency market, as well as companies that sell
insurance directly to consumers. Direct writers may have certain competitive
advantages over agency writers, including increased name recognition, loyalty of
the customer base to the insurer, and potentially reduced acquisition costs. In
addition, certain competitors of the Company have from time to time decreased
their prices in an apparent attempt to gain market share. Also, in certain
states, assigned risk plans may provide nonstandard automobile insurance
products at a lower price than private insurers. In addition, because the
Company's insurance products are marketed through independent insurance
agencies, which represent more than one insurance company, the Company faces
competition within each agency.
RELIANCE ON INDEPENDENT INSURANCE AGENTS
The Company markets and sells its insurance products through independent,
non-exclusive insurance agents and brokers. The agents and brokers also sell
competitors' insurance products. The Company's business depends, in part, on the
marketing efforts of those agents and brokers and the Company must offer
insurance products that meet the requirements of their customers. If those
agents and brokers fail to market the Company's products successfully, the
Company's business may be adversely impacted.
RELIANCE UPON REINSURANCE
In order to reduce risk and to increase its underwriting capacity, the Company
purchases reinsurance. Reinsurance does not relieve the Company of liability to
its insureds for the risks ceded to reinsurers. As such, the Company is subject
to credit risk with respect to the risks ceded to reinsurers. Although the
Company places its reinsurance with reinsurers that the Company generally
believes to be financially stable, a significant reinsurer's insolvency or
inability to make payments under the terms of a reinsurance treaty could have a
material adverse effect on the Company's financial condition or results of
operations.
The amount and cost of reinsurance available to companies specializing in
property and casualty insurance is subject, in large part, to prevailing market
conditions beyond the control of such companies. The Company's ability to
provide insurance at competitive premium rates and coverage limits on a
continuing basis depends upon its ability to obtain adequate reinsurance in
amounts and at rates that will not adversely affect its competitive position.
Due to continuing market uncertainties regarding reinsurance capacity, no
assurances can be given as to the Company's ability to maintain its current
reinsurance facilities, which generally are subject to annual renewal. If the
Company is unable to renew such facilities upon their expiration and is
unwilling to bear the associated increase in net exposures, the Company may need
to reduce the level of its underwriting commitments.
ITEM 2 - PROPERTIES
HEADQUARTERS
The headquarters for the Company is located at 4720 Kingsway Drive,
Indianapolis, Indiana. All corporate administration, accounting and management
functions are contained at this location. Pafco is also located at 4720 Kingsway
Drive, Indianapolis, Indiana in a building that is owned 100% by Pafco with no
encumbrances. The building is an 80,000 square foot multilevel structure;
approximately 50% of which is utilized by the Company. The remaining space is
leased to third parties at a price of approximately $10 per square foot.
-18-
SUPERIOR
Superior's operations are conducted at leased facilities in Atlanta, Georgia;
Orange, California; Glendale, California; Alexandria, Virginia; Bala Cynwyd,
Pennsylvania; Tampa, Jacksonville and Palm Beach Gardens, Florida; and Lakewood,
Colorado. Under a lease term that extends through February 2003, Superior leases
an office at 280 Interstate North Circle, N.W., Suite 500, Atlanta, Georgia.
Superior occupies a leased office located at 1400 South Marietta Parkway; Suite
105, Marietta, Georgia and the lease term expires August 2003. Superior leases
an office located at 5483 West Waters Avenue, Suite 1200, Tampa, Florida for a
lease term extending through December 2007. Superior occupies a leased office
located at 1745 West Orangewood, Orange, California for a lease term extending
through June 2002. Superior leases an office located at 700 North Central
Avenue, Glendale, California for a lease term extending through November 2005.
Superior occupies a leased office located at 6303 Little River Turnpike, Suite
220, Alexandria, Virginia for a lease term extending through October 2003.
Superior leases an office located at 150 Monument Road, Bala Cynwyd,
Pennsylvania for a lease term extending through April 2003. Superior occupies a
leased office at 4500 PGA Blvd., Suite 304A, Palm Beach Gardens, Florida for a
lease term extending through September 2002. Superior leases an office located
at 141 Union Blvd., Suite 130, Lakewood, Colorado for a term extending through
March 2005.
Underwriting, customer service, and administration activities are housed at the
Atlanta location. Claims activities are split between Atlanta, Tampa, Orange,
Glendale, and Alexandria locations. Claims property damage training is performed
at the Marietta location. Accounting activities are performed at the
headquarters location in Indianapolis, Indiana.
The Company considers all of its properties suitable and adequate for its
current operations.
ITEM 3 - LEGAL PROCEEDINGS
As previously reported, IGF, which is a wholly owned subsidiary of the Company,
had been a party to a number of pending legal proceedings and claims relating to
agricultural production interruption insurance policies (the "AgPI Program")
which were sold during 1998. All of the policies of insurance, which were issued
in the AgPI Program, were issued by and under the name of Mutual Service
Casualty Insurance Company ("MSI"), a Minnesota corporation with its principal
place of business located in Arden Hills, Minnesota. Sales of this product
resulted in large underwriting losses by IGF.
Approximately $29 million was paid through December 31, 2001 in settlement of
legal proceedings and claims related to the AgPI Program, with payments totaling
approximately $359,000 during 2001. The Company reduced reserves related to AgPI
by approximately $7 million during 2001. The Company has retained a reserve of
approximately $3 million as a provision for expenses and settlement of ongoing
litigation.
All policyholder claims had been settled during 2000. On January 12, 2001 a case
was filed in the Superior Court of California, County of Fresno, entitled S&W
Seed Company, Dudley Silveira, Ric Blanchard and Darrell Silveira v. Mutual
Service Casualty Insurance Company, IGF Insurance Company, and Dibuduo &
Defendis Insurance Agency, Inc.; Case No. OICE CG 00137. The case was brought by
four AgPI policyholders who had previously settled their AgPI claims pursuant to
binding settlement agreements who now seek additional compensation by asserting
through litigation that IGF and the third party carrier paid less than the
policy limits they were promised when they purchased the policy and that each
settling policyholder was forced to accept the lesser amount due their economic
duress - a legal theory recognized in California if certain elements of economic
duress can be established. Discovery is proceeding. On January 16, 2002, the
court entered an order granting IGF's motion for judgment on the pleadings and
required plaintiffs to show an insurable interest. Plaintiffs amended their
complaint attempting to allege an insurable interest and on March 19, 2002, the
court granted IGF's demurrer to the amended complaint. In granting the demurrer
the court held that any recovery payable to plaintiff would be limited to their
actual economic losses regardless of how much plaintiffs thought they had been
promised (i.e. plaintiffs cannot be paid policy limits without regard to actual
losses incurred). The plaintiffs have ten (10) days in which to again amend
their complaint.
IGF remains a defendant/cross-complainant in eight lawsuits pending in Fresno
County, California, which relate to the cross-claims between the selling
brokers, MSI and IGF. These lawsuits have been consolidated for all purposes and
discovery is proceeding.
-19-
IGF and MSI are engaged in arbitration with respect to responsibility for the
AgPI program settlements. The arbitration commenced in December 2000 and the
parties had their first meeting with the panel on May 22, 2001. At that meeting,
MSI moved for an order requiring IGF to post pre-hearing security through the
issuance of a letter of credit in the amount of $39 million. Over IGF's
objection, in a two to one vote, the panel ordered IGF to post the $39 million
security by June 19, 2001. IGF sought relief from the order in the United States
District Court for the District of New Jersey, but was unsuccessful.
On November 7, 2001, the arbitration panel considered a petition for default
judgment against IGF based on IGF's failure to post the pre-hearing security. On
November 23, 2001, the arbitration panel issued an order denying MSI's motion
for default judgment and requiring IGF to place $600,000 in an escrow account to
cover MSI's prospective legal expenses. The panel also continued its original
order that required IGF to post the $39 million security. IGF has deposited
$600,000 into an escrow account as required by the arbitration panel but has not
posted the $39 million letter of credit and is financially unable to do so.
On June 25, 2001, MSI filed a complaint for preliminary and permanent injunctive
relief and damages (the "MSI Complaint") against the Company, IGF Holdings,
Inc., ("IGFH"), Granite Re, Goran and certain affiliates of those companies, as
well as certain members of the Symons family, and Acceptance in the United
States District Court for the Southern District of Indiana, Indianapolis
Division. The MSI Complaint alleges that the June 6, 2001 transfer of IGF's
assets to Acceptance and the payments by Acceptance to the Company, Goran and
Granite Re violated Indiana law and are voidable. In addition, the MSI Complaint
alleges that Acceptance, the Company, Goran, IGFH and the Symons Family are
liable to MSI for the entire $39 million claim which MSI is asserting against
IGF in the arbitration proceeding on theories of successor liability and
"piercing the corporate veil." The MSI Complaint seeks preliminary and permanent
injunctive relief against the defendants, an order voiding the various
transactions between and among the defendants and an order determining that the
defendants are directly responsible to MSI for MSI's $39 million claim against
IGF.
The defendants filed answers to the MSI Complaint denying the material
allegations and asserting affirmative defenses to the MSI Complaint. A hearing
on MSI's Motion for Preliminary Injunctive Relief was held Thursday, August 2,
2001. On August 3, 2001, the court denied MSI preliminary injunctive relief. On
January 7, 2002, MSI filed an amended complaint which added Superior Insurance
Group Management, Inc., Superior Group, Superior and Pafco as defendants (the
"MSI Amended Complaint"). The MSI Amended Complaint asserts claims substantively
identical to the claims in the MSI Complaint. On February 21, 2002, the
defendants filed answers to the MSI Amended Complaint and denied the material
allegations contained in the MSI Amended Complaint and asserted affirmative
defenses.
Should MSI be successful in obtaining permanent injunctive relief against the
Company and its affiliates, any such relief would have an adverse impact upon
the Company and its affiliates and their respective assets and operations.
Further, in the event MSI is successful in voiding the various transactions
between the defendants or in the event the defendants are determined to be
responsible to MSI for MSI's $39 million claim against IGF, those orders and
determinations could have an adverse effect upon the Company and its affiliates
and their respective assets and operations.
The Company and two of its subsidiaries, IGFH and IGF, are parties to a
"Strategic Alliance Agreement" dated February 28, 1998 (the "SAA") with
Continental Casualty Company ("CNA"), pursuant to which IGF acquired certain
crop insurance operations of CNA. Through reinsurance agreements, CNA was to
share in IGF's profits or losses on IGF's total crop insurance business. By
letter dated January 3, 2001, CNA gave notice pursuant to the SAA of its
exercise of the "Put Mechanism" under the SAA effective February 19, 2001.
According to the SAA, upon exercise of the Put Mechanism, IGFH is obligated to
pay CNA an amount equal to 5.85 times "Average Pre-Tax Income", an amount based
in part upon payments made to CNA under the SAA. The SAA further provided that
30 days after exercise of the Put, IGF will execute a promissory note payable
six months after the exercise of the Put in the principal amount equal to the
amount owed, as specified by the SAA. In a letter dated March 20, 2001, CNA also
asserted a claim for amounts allegedly due under reinsurance agreements for the
2000 crop year.
The Company believes it has claims against CNA and defenses to CNA's claim that
may ultimately offset or reduce amounts owed to CNA. The Company and CNA engaged
in discussions regarding possible alternatives for the resolution of their
respective claims against each other; however, those discussions ultimately
proved to be unsuccessful.
-20-
Following the failure of settlement discussions, on June 4, 2001, IGF, IGFH and
the Company filed a complaint against CNA (the "IGF Complaint") in the United
States District Court for the Southern District of Indiana, Indianapolis
Division. The IGF Complaint asserts claims against CNA for fraud and
constructive fraud in connection with the SAA and breach of contract and seeks
relief against CNA for compensatory and punitive damages. On June 27, 2001, CNA
filed its "Answer, Separate Defenses and Counterclaim", in which CNA generally
denied the material allegations of the IGF Complaint and asserted various
defenses to those claims.
On June 6, 2001, CNA filed a complaint against IGF, IGFH and the Company in the
United States District Court for the Southern District of Indiana, Indianapolis
Division (the "CNA Complaint"), asserting claims based on the SAA and related
agreements for approximately $25 million allegedly owed CNA by virtue of its
exercise of the Put Mechanism, $3 million for amounts allegedly due under
reinsurance agreements for the 2000 crop year, $1 million for certain "fronting
costs," and $1 million pursuant to a note executed by IGFH to CNA's affiliate in
connection with the acquisition by IGFH of North American Crop Underwriters,
Inc. in 1998. CNA also asserted claims to the effect that the June 6, 2001 sale
of IGF assets to Acceptance resulted in payments of funds to Goran, the Company
and Granite Re, which funds allegedly should have been paid to IGF instead. On
June 6, 2001, CNA asked the district court to enter a temporary restraining
order preventing IGF, IGFH and the Company from disposing of the proceeds
received by them in connection with the sale of IGF assets to Acceptance. In an
emergency hearing, the court denied CNA the relief it requested, without
prejudice to reconsideration of those issues at a future time. CNA has since
amended the CNA Complaint to add Goran and Granite Re as defendants. CNA's
counterclaim in response to the IGF Complaint asserts essentially the same
claims against the same parties as the amended CNA Complaint.
On September 20, 2001 the court ordered a consolidation of the two cases. On
December 4, 2001, CNA filed an Amended Answer and Counterclaim which added
Pafco, Superior and certain members of the Symons family as counterdefendants.
CNA's Amended Answer and Counterclaim also alleges that IGF, IGFH, the Company,
and the other counterdefendants are alter egos of each other and are directly
liable to CNA for its claims. Discovery in the case is proceeding. Although the
Company continues to believe that it has claims against CNA and defenses to
CNA's claims which may offset or reduce amounts owing by the Company or its
affiliates to CNA, there can be no assurance that the ultimate resolution of the
claims asserted by CNA against the Company and its affiliates will not have a
material adverse effect upon the Company's and its affiliates' financial
condition or results of operations.
The California Department of Insurance ("CDOI") filed a Notice of Noncompliance
against Superior on June 29, 2001, which alleged that broker fees were charged
by independent brokers in violation of California law. The Company and the CDOI
agreed to a resolution of the matters raised in the Notice of Noncompliance by a
Stipulation and Consent Order entered on December 26, 2001, wherein Superior
agreed to pay the CDOI a penalty in the amount of $200,000 in settlement of the
action.
The Company is a defendant in a case filed on February 23, 2000, in the United
States District Court for the Southern District of Indiana entitled Robert Winn,
et al. v. Symons International Group, Inc., et al., Cause No. IP 00-0310-C-B/S.
Other parties named as defendants are Goran, three individuals who were or are
officers or directors of the Company or of Goran, PricewaterhouseCoopers, LLP
and Schwartz Levitsky Feldman, LLP. The case purports to be brought on behalf of
a class consisting of purchasers of the Company's stock or Goran's stock during
the period February 27, 1998, through and including November 18, 1999.
Plaintiffs allege, among other things, that defendants misrepresented the
reliability of the Company's reported financial statements, data processing and
financial reporting systems, internal controls and loss reserves in violation of
Section 10(b) of the Securities Exchange Act of 1934 ("1934 Act") and SEC Rule
10b-5 promulgated thereunder. The individual defendants are also alleged to be
liable as "controlling persons" under ss.20(a) of the 1934 Act. The Company and
the individual defendants filed a motion to dismiss the amended consolidated
complaint for failure to state a claim and for failure to plead with
particularity as required by Fed. R. Civ. P.9 (b) and the Private Securities
Litigation Reform Act of 1995. The accounting firms also filed motions to
dismiss. On February 19, 2002 the court granted in part and denied in part
defendants' motion to dismiss. On March 15, 2002 the Company and the individual
defendants filed a motion for reconsideration of the court's ruling on the
motion to dismiss, or alternatively to certify an order for appeal.
Superior is a defendant in a case filed on May 8, 2001 in the United States
District Court for the Southern District of Florida entitled The Chiropractic
Centre, Inc. v. Superior Insurance Company which purports to be brought on
behalf of a class consisting of healthcare providers improperly paid discounted
rates on services to patients based upon a
-21-
preferred provider contract with a third party. The plaintiff alleges that
Superior breached a third party beneficiary contract, committed fraud and
engaged in racketeering activity in violation of federal and Florida law by
obtaining discounted rates offered by a third party with whom the plaintiff
contracted directly. On September 28, 2001 the case was consolidated with
fifteen or more similar actions. On October 29, 2001 Superior filed a motion to
dismiss the action for lack of jurisdiction, which is pending. Superior intends
to vigorously defend the claims brought against it.
IGF is a defendant in a declaratory action entitled Kevin L. Stevens, Bank of
America, Conservator of the Estate of Samuel Jay Ramsey and Gael Ramsey v. IGF
Insurance Company originally filed on February 21, 2001 in the Circuit Court of
Green County, Missouri. The action was subsequently removed to the Federal
District Court for the Western District of Missouri. On October 11, 2001, the
Federal District Court granted declaratory judgment in favor of the Company's
insured, Stevens, and held that IGF was responsible for payment of the premium
attributable to a $15 million appeal bond for Steven's appeal from a judgment
against him in a related personal injury action. IGF believes that the District
Court erred in granting declaratory judgment for Stevens and in holding that IGF
is responsible for payment of the premium on the bond. IGF has appealed to the
United States Court of Appeals for the Eighth Circuit for relief from the
declaratory judgment. In the event IGF is ultimately required to pay the premium
on the appeal bond, it would have a material adverse impact on IGF's financial
position.
Superior is a defendant in a case filed September 15, 2000 in the Circuit Court
for Lee County, Florida entitled Charles L. Fulton, D.C. v. Superior Insurance
Company. The case is purported to be brought on behalf of a class consisting of
healthcare providers that rendered treatment to and obtained a valid assignment
of benefits from persons insured by Superior. The court granted Superior's
motions to dismiss the original and amended complaints but denied Superior's
motion to dismiss the second amended complaint. The court is permitting
plaintiff to go forward with class discovery. The plaintiff alleges that
Superior reduced or denied claims for medical expenses payable to the plaintiff
without first obtaining a written report in violation of Florida law. The
plaintiff also alleges that Superior inappropriately reduced the amount of
benefits payable to the plaintiff in breach of Superior's contractual
obligations to the plaintiff. Superior believes the allegations of wrongdoing in
violation of law are without merit and intends to vigorously defend the claims
brought against it.
Superior is a defendant in a case now entitled Oviedo Family Chiropractic
Center, P.A. v. Superior Insurance Company originally filed February 4, 2000 in
the Circuit Court for Dade County, Florida and entitled Medical Re-Hab Center v.
Superior Insurance Company. The court granted Superior's motions to dismiss the
original and first amended complaints. The plaintiff has filed a motion for
leave to file a second amended complaint which is pending. The case purports to
be brought on behalf of a class consisting of (i) healthcare providers that
rendered treatment to Superior insureds and claimants of Superior insureds and
(ii) such insureds and claimants. The plaintiff alleges that Superior reduced
medical benefits payable and improperly calculated interest in violation of
Florida law. The Company believes the claim is without merit and intends to
vigorously defend the charges brought against it.
Superior Guaranty is a defendant in a case filed October 8, 1999, in the Circuit
Court for Manatee County, Florida entitled Patricia Simmons v. Superior Guaranty
Insurance Company. The case purports to be brought on behalf of a class
consisting of purchasers of insurance from Superior Guaranty. The plaintiff
alleges that the defendant charged interest in violation of Florida law.
Superior Guaranty believes that the allegations of wrongdoing as alleged in the
complaint are without merit and intends to vigorously defend the claims brought
against it.
Superior Guaranty is a defendant in a case filed November 26, 1996, in the
Circuit Court for Lee County, Florida entitled Raed Awad v. Superior Guaranty
Insurance Company, et al. The case purports to be brought on behalf of a class
consisting of purchasers of insurance from Superior Guaranty. The plaintiffs
allege that the defendant charged premium finance service charges in violation
of Florida law. Superior Guaranty believes that the allegations of wrongdoing as
alleged in the complaint are without merit and intends to vigorously defend the
claims brought against it.
On July 7, 2000, the FDOI issued a notice of its intent to issue an order (the
"Notice") which principally addressed certain policy and finance fee payments by
Superior to Superior Group. A formal administrative hearing to review the Notice
and a determination that the order contemplated by the Notice not be issued was
held in February 2001. The administrative law judge entered a recommended order
on June 1, 2001 that was acceptable to the Company. On August 30, 2001, the FDOI
rejected the recommended order and issued its final order which the Company
believes improperly
-22-
characterized billing and policy fees paid by Superior to Superior Group.
Superior filed an appeal of the final order to Florida District Court. On March
4, 2002, the FDOI filed a petition in the Circuit Court of the Second Judicial
Circuit in and for Leon County, Florida which seeks court enforcement of the
FDOI's final order. Superior filed a motion with the FDOI for stay of the FDOI's
final order. Superior also filed a motion with the District Court of Appeals,
which was denied pending a ruling from the FDOI on Superior's motion for stay.
See Regulation-"REGULATORY DEVELOPMENTS", in Part I of this report, for
additional legal matters involving insurance regulatory matters.
The Company's insurance subsidiaries are parties to other litigation arising in
the ordinary course of business. The Company believes that the ultimate
resolution of these lawsuits will not have a material adverse effect on its
financial condition or results of operations. The Company, through its claims
reserves, reserves for both the amount of estimated damages attributable to
these lawsuits and the estimate costs of litigation.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
Information regarding the trading market for the Company's common stock, the
range of selling prices for each quarterly period since January 1, 2000, and the
approximate number of holders of common stock as of December 31, 2001 and other
matters is included under the caption "Market and Dividend Information" on page
42 of the 2001 Annual Report, included as Exhibit 13, which information is
incorporated herein by reference. No securities were issued in the fourth
quarter of 2001.
ITEM 6 - SELECTED FINANCIAL DATA
The data included on page 4 of the 2001 Annual Report, included as Exhibit 13,
under "Selected Financial Data" is incorporated herein by reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The discussion entitled "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included in the 2001 Annual Report on pages
5 through 14 included as Exhibit 13 is incorporated herein by reference.
ITEM 7A - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The discussion entitled "Quantitative and Qualitative Disclosures About Market
Risk" included in the 2001 Annual Report on pages 12 through 14 included as
Exhibit 13 is incorporated herein by reference.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Consolidated Financial Statements in the 2001 Annual Report, included as
Exhibit 13, and listed in Item 14 of this Report are incorporated herein by
reference.
ITEM 9- CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
-23-
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item regarding Directors of the Company is
incorporated herein by reference to the Company's definitive proxy statement for
its 2001 annual meeting of common shareholders to be filed with the Commission
pursuant to Regulation 14A (the "Proxy Statement").
EXECUTIVE OFFICERS OF THE REGISTRANT
Presented below is certain information regarding the executive officers of the
Company who are not also directors. Their respective ages and their respective
positions with the Company are listed as follows:
NAME AGE POSITION
Gregg F. Albacete 40 Vice President and Chief Information Officer of the Company
David N. Hafling 54 Vice President and Chief Actuary of the Company
Mark A. Paul 34 Vice President, Chief Financial Officer and Treasurer of the Company
Mr. Albacete has served as Vice President and Chief Information Officer of the
Company since January 2000. Mr. Albacete served as Vice President and Chief
Information Officer of Leader Insurance from December 1987 to January 2000. From
March 1982 to February 1985 Mr. Albacete worked for Transport Insurance. Prior
to March 1982, Mr. Albacete was a self-employed consultant.
Mr. Hafling has served as Vice President and Chief Actuary of the Company since
December 1998. Prior to joining the Company, Mr. Hafling spent 26 years with
American States Insurance Company, with his last seven years as Senior Vice
President-Actuary. He has been a fellow of the Casualty Actuarial Society since
1979 and is a member of the American Actuarial Society.
Mr. Paul has served as Vice President, Chief Financial Officer and Treasurer of
the Company since July 2001, after joining the Company as Corporate Controller
in May 2001. From March 2000 to May 2001, Mr. Paul served as Controller for The
Steak n Shake Company, and from August 1997 to March 2000, he was the Vice
President of Finance for Bank One Mortgage. Prior to August 1997, Mr. Paul
practiced public accounting with the firm of PricewaterhouseCoopers LLP, leaving
the firm as a Manager. Mr. Paul is a Certified Public Accountant in the State of
Indiana.
ITEM 11 - EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference to the
Proxy Statement.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated herein by reference to the
Proxy Statement.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated herein by reference to the
Proxy Statement.
-24-
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The documents listed below are filed as a part of this Report, except as
otherwise indicated:
1. Financial Statements. The following described consolidated financial statements found on the pages of
the 2001 Annual Report indicated below are incorporated into Item 8 of this Report by reference.
Description of Financial Statement Item Location in 2001 Annual Report
--------------------------------------- ------------------------------
Report of Independent Accountants Page 41
Consolidated Balance Sheets, December 31,
2001 and 2000 Page 15
Consolidated Statements of Operations, Years
Ended December 31, 2001, 2000 and 1999 Page 16
Consolidated Statements of Changes In
Shareholders' Equity (Deficit), Years Ended
December 31, 2001, 2000 and 1999 Page 17
Consolidated Statements of Cash Flows,
Years Ended December 31, 2001, 2000 and 1999 Page 18
Notes to Consolidated Financial Statements,
Years Ended December 31, 2001, 2000 and 1999 Pages 19 through 39
2. Financial Statement Schedules. The following financial statement schedules are included
beginning on page 27.
Report of Independent Accountants
Schedule II - Condensed Financial Information of Registrant
Schedule IV - Reinsurance
Schedule V - Valuation and Qualifying Accounts
Schedule VI - Supplemental Information Concerning Property - Casualty Insurance Operations
3. Exhibits. The Exhibits set forth on the Index to Exhibits are incorporated herein by reference
to the Index.
4. Reports on Form 8-K: No reports on Form 8-K were filed during the fourth quarter of 2001.
-25-
BOARD OF DIRECTORS AND SHAREHOLDERS OF
SYMONS INTERNATIONAL GROUP, INC. AND SUBSIDIARIES
The audit referred to in our report dated March 29, 2002, relating to the
consolidated financial statements of Symons International Group, Inc. and
subsidiaries, which is incorporated in Item 8 of this Form 10-K by reference to
the annual report to shareholders for the year ended December 31, 2001 included
the audit of the financial statement schedules listed in the accompanying index.
These financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statement schedules based upon our audits.
In our opinion, such financial statement schedules present fairly, in all
material respects, the information set forth therein.
/s/ BDO Seidman, LLP
BDO SEIDMAN, LLP
Grand Rapids, Michigan
March 29, 2002
-26-
SYMONS INTERNATIONAL GROUP, INC.
SCHEDULE I - SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES.
The information required by this schedule is included in Note 3 of Notes to
Consolidated Financial Statements.
SYMONS INTERNATIONAL GROUP, INC. - CONSOLIDATED
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
(Parent Company)
Balance Sheets
As of December 31, 2001 and 2000
(In thousands, except share data)
2001 2000
--------- ---------
ASSETS
Investments in and advances to related parties $ 25,509 $ 38,957
Cash and cash equivalents 267 85
Federal income tax receivable (payable) (1,639) (1,916)
Property and equipment 40 55
Investments 77 --
Other 16
Intangible assets 4,376 4,547
--------- ---------
Total Assets $ 28,630 $ 41,744
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Accrued distributions on preferred securities $ 33,203 $ 18,397
Other 4,439 792
--------- ---------
Total Liabilities 37,642 19,189
--------- ---------
Mandatorily redeemable
Preferred securities 135,000 135,000
--------- ---------
Shareholders' Equity:
Common stock, no par value, 100,000,000 shares
Authorized, 10,385,399 and 10,385,399 issued andOutstanding 38,136 38,136
Additional paid-in capital 5,851 5,851
Unrealized loss on investments (net of deferred taxes of
$nil in 2001 and 2000 (2,613) (3,938)
Retained earnings (185,386) (152,494)
--------- ---------
Total Shareholders' Deficit (144,012) (112,445)
--------- ---------
Total Liabilities and Shareholders' Equity $ 28,630 $ 41,744
========= =========
-27-
SYMONS INTERNATIONAL GROUP, INC. - CONSOLIDATED
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Statements of Operations
For The Years Ended December 31, 2001, 2000 and 1999
(In thousands)
2001 2000 1999
--------- --------- ---------
Fee income $ 1,175 $ 600 $ 600
Net investment income 6,336 6,456 6,186
--------- --------- ---------
Total revenue 7,511 7,056 6,786
--------- --------- ---------
Expenses:
Policy acquisition and general and administrative expenses 3,104 39,032 4,256
Interest expense -- -- --
--------- --------- ---------
Total expenses 3,104 39,032 4,256
--------- --------- ---------
Income before taxes and minority interest 4,407 (31,976) 2,530
Provisions for income taxes 1,542 1,393 5,497
--------- --------- ---------
Net income (loss) before minority interest 2,864 (33,369) (2,967)
Minority interest:
Equity in consolidated subsidiaries (20,950) (41,469) (69,513)
Distributions on preferred securities, net of tax (14,806) (13,587) (8,336)
--------- --------- ---------
Net loss for the period (32,892) (88,425) (80,816)
Change in unrealized gains (losses) on securities 1,325 960 (6,159)
Equity (deficit), beginning of year (112,445) (24,980) 61,995
--------- --------- ---------
Equity (deficit), end of year $(144,012) $(112,445) $ (24,980)
========= ========= =========
-28-
SYMONS INTERNATIONAL GROUP, INC.
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
Statements of Cash Flow
For The Years Ended December 31, 2001, 2000 and 1999
(In thousands)
2001 2000 1999
-------- -------- --------
Net loss $(32,892) $(88,425) $(80,816)
Cash flows from operating activities:
Adjustments to reconcile net cash provided by (used in)
operations:
Equity in net loss of subsidiaries 20,950 41,469 69,513
Depreciation of property and equipment 15 17 5
Amortization of intangible assets 171 34,977 2,194
Net changes in operating assets and liabilities:
Federal income taxes (277) (1,853) 7,613
Other assets -- (210) 293
Other liabilities 18,388 14,209 (582)
-------- -------- --------
Net cash provided by (used in) operations 6,355 184 (1,780)
-------- -------- --------
Cash flows used in investing activities:
Purchase of property and equipment (90) -- (64)
-------- -------- --------
Net cash (used in) investing activities: (90) -- (64)
-------- -------- --------
Cash flows provided by financing activities:
Contributions of capital or dividends received from
Subsidiaries (6,033) (5,037) 4,196
Loans (to)/from related parties (50) --
-------- -------- --------
--------
Net cash provided by (used in) financing activities (6,083) (5,037) 4,196
-------- -------- --------
Increase (decrease) in cash and cash equivalents 182 (4,853) 2,352
Cash and cash equivalents - beginning of year 85 4,938 2,586
-------- -------- --------
Cash and cash equivalents - end of year $ 267 $ 85 $ 4,938
======== ======== ========
29
SYMONS INTERNATIONAL GROUP, INC. - CONSOLIDATED
SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
For The Years Ended December 31, 2001, 2000 and 1999
BASIS OF PRESENTATION
The condensed financial information should be read in conjunction with the
consolidated financial statements of Symons International Group, Inc. The
condensed financial information includes the accounts and activities of the
parent company which acts as the holding company for the insurance subsidiaries.
SYMONS INTERNATIONAL GROUP, INC. - CONSOLIDATED
SCHEDULE IV - REINSURANCE
For The Years Ended December 31, 2001, 2000 and 1999
(In thousands)
PROPERTY AND LIABILITY INSURANCE 2001 2000 1999
--------- --------- ---------
Direct amount $ 159,821 $ 168,626 $ 233,514
Assumed from other companies 1,271 5,835 2,887
Ceded to other companies (105,158) (78,621) 8,425
--------- --------- ---------
Net amounts $ 55,934 $ 95,840 $ 244,826
========= ========= =========
Percentage of amount assumed to net 2.3% 6.1% 1.2%
30
SYMONS INTERNATIONAL GROUP, INC. - CONSOLIDATED
SCHEDULE V - VALUATION AND QUALIFYING ACCOUNTS
For The Years Ended December 31, 2001, 2000 and 1999
(In Thousands)
2001 2000 1999
Allowance for Allowance for Allowance for
Doubtful Accounts Doubtful Accounts Doubtful Accounts
----------------- ----------------- -----------------
Additions:
Balance at beginning of period $1,940 $1,479 $4,953
Charged to costs and expenses (1) 6,122 9,623 6,134
Charged to other accounts -- -- --
Deductions from reserves 6,536 9,162 9,608
------ ------ ------
Balance at end of period $1,526 $1,940 $1,479
====== ====== ======
(1) The Company monitors the adequacy of its allowance for doubtful accounts
monthly and believes the balance of such allowance at December 31, 2001,
2000 and 1999 was adequate.
31
SYMONS INTERNATIONAL GROUP, INC. - CONSOLIDATED
SCHEDULE VI - SUPPLEMENTAL INFORMATION CONCERNING
PROPERTY - CASUALTY INSURANCE OPERATIONS
For The Years Ended December 31, 2001, 2000 and 1999
(In thousands)
CONSOLIDATED PROPERTY - CASUALTY ENTITIES
Reserves
for
Unpaid Amorti- Paid
Claims zation of Claims
Deferred and Deferred and
Policy Claim Net Claims and Policy Claim
Acquisi- Adjust- Invest- Adjustment Expenses Acqui- Adjust-
tion ment Unearned Earned ment Incurred sition ment Premium
Year Costs Expense Premiums Premiums Income Related To: Costs Expense Written
- ---- ----- ------- -------- -------- ------ ---------- ----- ------- -------
Current Prior
Years Years
----- -----
1999 13,908 152,455 80,562 249,094 12,242 214,606 16,367 42,665 208,225 236,401
2000 6,454 108,117 62,386 137,706 10,074 127,497 (14,118) 37,453 167,442 174,461
2001 763 81,142 59,216 76,947 6,286 69,667 774 33,747 104,764 161,092
Note: All amounts in the above table are net of the effects of reinsurance and
related commission income, except for net investment income regarding which
reinsurance is not applicable, premiums written liabilities for losses and loss
adjustment expenses, and unearned premiums which are stated on a gross basis.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Symons International Group, Inc.
/s/ Douglas H. Symons
-------------------------------------
March 29, 2002 By: Douglas H. Symons
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on March 29, 2002, on behalf of
the Registrant in the capacities indicated:
(1) Principal Executive Officer:
/s/ Douglas H. Symons
- -----------------------------------------
Douglas H. Symons
President and Chief Executive Officer
(Principal Executive Officer)
(2) Principal Financial Officer:
/s/ Mark A. Paul
- -----------------------------------------
Mark A. Paul
Vice President, Chief Financial Officer and Treasurer
(Principal Accounting Officer)
(3) The Board of Directors:
/s/ G. Gordon Symons /s/ Gene S. Yerant
- ----------------------------------- ----------------------------------------
G. Gordon Symons Gene S. Yerant
Chairman of the Board Director
/s/ Larry S. Wechter /s/ Douglas H. Symons
- ----------------------------------- ----------------------------------------
Larry S. Wechter Douglas H. Symons
Director Director
/s/ Robert C. Whiting /s/ Alan G. Symons
- ----------------------------------- ----------------------------------------
Robert C. Whiting Alan G. Symons
Director Director
/s/ Terry W. Anker
- -----------------------------------
Terry W. Anker
Director
/TABLE>
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EXHIBIT INDEX
REFERENCE TO SEQUENTIAL
REGULATION S-K
- -------------------------------------------------------------------------------
EXHIBIT NO. DOCUMENT
- -------------------------------------------------------------------------------
2.1 The Strategic Alliance Agreement by and between Continental Casualty
Company and IGF Insurance Company, IGF Holdings, Inc. and Symons
International Group, Inc. dated February 28, 1998 is incorporated by
reference to Exhibit 2.1 of the Registrant's 1997 Form 10-K.
2.2 The MPCI Quota Share Reinsurance Contract by and between Continental
Casualty Company and IGF Insurance Company, IGF Holdings, Inc. and
Symons International Group, Inc. dated February 28, 1998 is
incorporated by reference to Exhibit 2.2 of the Registrant's 1997
Form 10-K.
2.3 The MPCI Quota Share Reinsurance Agreement by and between
Continental Casualty Company and IGF Insurance Company, IGF
Holdings, Inc. and Symons International Group, Inc. dated February
28, 1998 is incorporated by reference to Exhibit 2.3 of the
Registrant's 1997 Form 10-K.
2.4 The Crop Hail Insurance Quota Share Contract by and between
Continental Casualty Company and IGF Insurance Company, IGF
Holdings, Inc. and Symons International Group, Inc. dated February
28, 1998 is incorporated by reference to Exhibit 2.4 of the
Registrant's 1997 Form 10-K.
2.5 The Crop Hail Insurance Quota Share Agreement by and between
Continental Casualty Company and IGF Insurance Company, IGF
Holdings, Inc. and Symons International Group, Inc. dated February
28, 1998 is incorporated by reference to Exhibit 2.5 of the
Registrant's 1997 Form 10-K.
2.6 The Crop Hail Insurance Services and Indemnity Agreement by and
between Continental Casualty Company and IGF Insurance Company, IGF
Holdings, Inc. and Symons International Group, Inc. dated February
28, 1998 is incorporated by reference to Exhibit 2.6 of the
Registrant's 1997 Form 10-K.
2.7 The Multiple Peril Crop Insurance Services and Indemnity Agreement
by and between Continental Casualty Company and IGF Insurance
Company, IGF Holdings, Inc. and Symons International Group, Inc.
dated February 28, 1998 is incorporated by reference to Exhibit 2.7
of the Registrant's 1997 Form 10-K.
2.8 The Stock Purchase Agreement between IGF Holdings, Inc. and 1911
CORP, dated July 7, 1998 is incorporated by reference to Exhibit 2.9
of the Registrant's 1998 Form 10-K.
3.1 The Registrant's Restated Articles of Incorporation are incorporated
by reference to Exhibit 3.1 of the Registrant's Registration
Statement on Form S-1, Reg. No. 333-9129.
3.2 Registrant's Restated Code of Bylaws, as amended, is incorporated by
reference to Exhibit 1 of the Registrant's 1996 Form 10-K.
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4.1(1) The Senior Subordinated Indenture between Symons International
Group, Inc. as issuer and Wilmington Trust Company as trustee for
SIG Capital Trust I dated August 12, 1997 is incorporated by
reference to Exhibit 4 of the Registrant's Registration Statement on
Form S-4, Reg. No. 333-35713.
4.1(2) First Supplemental Senior Subordinated Indenture between Symons
International Group, Inc. and Wilmington Trust Company Related to
SIG Capital Trust I dated January 15, 1998 is incorporated by
reference to Exhibit 4.3(2) of the Registrant's 1997 Form 10-K.
10.1 The Management Agreement among Superior Insurance Company, Superior
American Insurance Company, Superior Guaranty Insurance Company and
GGS Management, Inc. dated April 30, 1996 is incorporated by
reference to Exhibit 10.5 of the Registrant's Registration Statement
on Form S-1, Reg. No. 333-9129.
10.2 The Management Agreement between Pafco General Insurance Company and
Registrant dated May 1, 1987, as assigned to GGS Management, Inc.
effective April 30, 1996, is incorporated by reference to Exhibit
10.6 of the Registrant's Registration Statement on Form S-1, Reg.
No. 333-9129.
10.3 The Administration Agreement between IGF Insurance Company and
Registrant dated February 26, 1990, as amended, is incorporated by
reference to Exhibit 10.7 of the Registrant's Registration Statement
on Form S-1, Reg. No. 333-9129.
10.4 The Agreement between IGF Insurance Company and Registrant dated
November 1, 1990 is incorporated by reference to Exhibit 10.8 of the
Registrant's Registration Statement on Form S-1, Reg. No. 333-9129.
10.5 The Registration Rights Agreement between Goran Capital Inc. and
Registrant dated May 29, 1996 is incorporated by reference to
Exhibit 10.13 of the Registrant's Registration Statement on Form
S-1, Reg. No. 333-9129.
10.6* The Employment Agreement between Goran Capital Inc., Symons
International Group, Inc. and Douglas H. Symons effective March 8,
1999 is incorporated by reference to Exhibit 10.5 of the
Registrant's 2000 Form 10-K.
10.7* The Employment Agreement between Goran Capital Inc., Symons
International Group, Inc. and David N. Hafling dated October 15,
2002.
10.8* The Employment Agreement between Symons International Group, Inc.
and Mark A. Paul dated July 30, 2001.
10.9 The GGS Management Holdings, Inc. 1996 Stock Option Plan is
incorporated by reference to Exhibit 10.21 of the Registrant's
Registration Statement on Form S-1, Reg. No. 333-9129.
10.10 The Registrant's 1996 Stock Option Plan is incorporated by referenc
to Exhibit 10.22 of the Registrant's Registration Statement on Form
S-1, Reg. No. 333-9129.
10.11 The Registrant's Retirement Savings Plan is incorporated by
reference to Exhibit 10.24 of the Registrant's Registration
Statement on Form S-1, Reg. No. 333-9129.
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10.12 The Insurance Service Agreement between Mutual Service Casualty
Company and IGF Insurance Company dated May 20, 1996 is incorporated
by reference to Exhibit 10.25 of the Registrant's Registration
Statement on Form S-1, Reg. No. 333-9129.
10.13(2) The Crop Hail Quota Share Reinsurance Contract and Crop Insurance
Service Agreement between Pafco General Insurance Company and IGF
Insurance Company is incorporated by reference to Exhibit 10.27(2)
of the Registrant's Registration Statement on Form S-1, Reg. No.
333-9129.
10.13(3) The Automobile Third Party Liability and Physical Damage Quota Share
Reinsurance Contract between IGF Insurance Company and Pafco General
Insurance Company is incorporated by reference to Exhibit 10.27(3)
of the Registrant's Registration Statement on Form S-1, Reg. No.
333-9129.
10.13(5) The Standard Reinsurance Agreement between Federal Crop Insurance
Corporation and IGF Insurance Company dated July 1, 1997 is
incorporated by reference to Exhibit 10.13(6) to the Registrant's
1999 Form 10-K.
10.13(9) Amendment No. 1 to the 1998 Standard Reinsurance Agreement dated
July 29, 1998 is incorporated by reference to Exhibit 10.18(8) to
the Registrant's 1999 Form 10-K.
10.13(10) The Aggregate Loss Ratio Reinsurance Agreement between National
Union Fire Insurance Company of Pittsburgh, PA and Granite
Reinsurance Company, Ltd. effective January 1, 2000.
10.13(11) Quota Share Reinsurance Agreement between Superior Insurance Company
and its Wholly -Owned Insurance Subsidiaries and National Union Fire
Insurance Company of Pittsburgh, PA effective January 1, 2000.
10.13 (12) Quota Share Reinsurance Agreement between Pafco General Insurance
Company and National Union Fire Insurance Company of Pittsburgh, PA
effective January 1, 2000.
10.13 (13) Addendum I to Aggregate Loss Ratio Reinsurance Agreement between
National Union Fire Insurance Company of Pittsburgh, PA and Granite
Reinsurance Company, Ltd. dated December 21, 2000.
10.13(14) Addendum No. 2 to Quota Share Reinsurance Agreement effective
January 1, 2000 between Superior Insurance Company and its
Wholly-Owned Insurance Subsidiaries and National Union Fire
Insurance Company of Pittsburgh, PA effective December 30, 2000.
10.13 (15) Addendum No. 2 to Quota Share Reinsurance Agreement effective
January 1, 2000 between Pafco General Insurance Company and National
Union Fire Insurance Company of Pittsburgh, PA effective December
30, 2000.
10.14(1) The SIG Capital Trust I 91/2% Trust Preferred Securities Purchase
Agreement dated August 7, 1997 is incorporated by reference in the
Registrant's Registration Statement on Form S-4, Reg. No. 333-35713.
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10.14(2) The Registration Rights Agreement among Symons International Group,
Inc., SIG Capital Trust I and Donaldson, Lufkin & Jenrette
Securities Corporation, Goldman, Sachs & Co., CIBC Wood Gundy
Securities Corp. and Mesirow Financial, Inc. dated August 12, 1997
is incorporated by reference in the Registrant's Registration
Statement on Form S-4, Reg. No. 333-35713.
10.14(3) The Declaration of Trust of SIG Capital Trust 1 dated August 4, 1997
is incorporated by reference in the Registrant's Registration
Statement on Form S-4, Reg. No. 333-35713.
10.14(4) The Amended and Restated Declaration of Trust of SIG Capital Trust I
dated August 12, 1997 is incorporated by reference in the
Registrant's Registration Statement on Form S-4, Reg. No. 333-35713
10.15* The Employment Agreement between Goran Capital Inc., Symons
International Group, Inc. and Gene S. Yerant effective January 10,
2000 is incorporated by reference to Exhibit 10.15 of the
Registrant's March 31, 2000 Form 10-Q.
10.16* The Employment Agreement between Symons International Group, Inc.,
Goran Capital Inc. and Gregg F. Albacete effective January 26, 2000
is incorporated by reference to Exhibit 10.16 of the Registrant's
March 31, 2000 Form 10-Q.
10.17 The Asset Purchase Agreement by and among Acceptance Companies Inc.,
American Growers Insurance Company, American Agrisurance, Inc.,
Goran Capital Inc., Symons International Group, Inc., IGF Holdings,
Inc. and IGF Insurance Company dated Mary 23, 2001 incorporated by
reference to Exhibit 10.9 of the Registrants June 30, 2001 Form
10-Q.
10.18 First Amendment to Asset Purchase Agreement by and among Acceptance
Insurance Companies, Inc., American Growers Insurance Company,
American Agrisurance, Inc., Goran Capital Inc., Symons International
Group, Inc., IGF Holdings, Inc. and IGF Insurance Company dated June
5, 2001 incorporated by reference to Exhibit 10.10 of the
Registrant's June 30, 2001 Form 10-Q.
10.19 Assignment and Assumption Agreement by IGF Holdings, Inc. and IGF
Insurance Company and Acceptance Insurance Companies Inc. dated May
23, 2001 incorporated by reference to Exhibit 10.11 of the
Registrant's June 30, 2001 Form 10-Q.
10.20 IGF/Acceptance Retrocession Agreement by and between Acceptance
Insurance Company and IGF Insurance Company dated May 23, 2001
incorporated by reference to Exhibit 10.13 of the Registrant's June
30, 2001 Form 10-Q.
10.21 Consulting and Non-competition Agreement by and between Symons
International Group, Inc. and Acceptance Insurance Companies Inc.
dated May 23, 2001 incorporated by reference to Exhibit 10.15 of the
Registrant's June 30, 2001 Form 10-Q.
10.22* Amendment to Personal Employment Agreement effective January 1, 1996
between Granite Reinsurance Company Ltd. and G. Gordon Symons.
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10.23* Addendum to Employment Agreement between Goran Capital Inc., Symons
International Group, Inc. and G. Gordon Symons effective January 1,
1998.
10.24* Consulting Agreement between Granite Reinsurance Company Ltd. and
Goran Management Ltd. effective January 1, 1995.
10.25* Addendum to Consulting Agreement dated January 1, 1998 by and
between Goran Capital Inc., Symons International Group, Inc.,
Granite Reinsurance Company Ltd., Goran Management Bermuda Ltd. and
G. Gordon Symons.
13 Annual Report to Shareholder For the Year Ended December 31, 2001
For Symons International Group, Inc.
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