United Casualty and Surety

Insurance Company

Financial Statements for the Years Ended

December 31, 2015 and 2014 and Report of

Independent Registered Public Accounting Firm

UNITED CASUALTY AND SURETY INSURANCE COMPANY

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and the Board of Directors of

United Casualty and Surety Insurance Company

Quincy, Massachusetts

We have audited the accompanying balance sheets of United Casualty and Surety Insurance Company (the "Company") as of December 31, 2015 and 2014 and the related statements of income, changes in stockholders' equity, and cash flows for each of the years in the two-year period ended December 31, 2015.  These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on the financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of United Casualty and Surety Insurance Company as of December 31, 2015 and 2014, and the results of its operations and its cash flows for the years in the two-year period ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America.

/s/ Stowe & Degon LLC

Westborough, MA

January 9, 2017

UNITED CASUALTY AND SURETY INSURANCE COMPANY
BALANCE SHEETS
DECEMBER 31, 2015 AND 2014

ASSETS		2015				2014
CURRENT ASSETS:
Cash and cash equivalents		$	884,609			$	848,047
Investments, short-term			1,766,686				523,716
Receivables:
Premiums			230,312				261,846
Anticipated salvage and subrogation			29,675				37,263
Total receivables			259,987				299,109
Prepaid reinsurance premiums			97,545				90,102
Deferred policy acquisition costs			289,812				261,976
Total current assets			3,298,639				2,022,950
Other assets			4,864				4,864
Investments, long-term			3,346,861				4,291,216
Funds held as collateral assets			2,145,513				3,377,331
Property and equipment, net			22,511				36,652
TOTAL ASSETS		$	8,818,388			$	9,733,013
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued underwriting expenses		$	89,817			$	85,974
Dividends payable			81,798				7,542
Unearned premiums			1,174,208				1,084,285
Accrued losses and loss adjustment expenses			22,000				20,000
Federal income taxes payable			-				12,500
Funds held as collateral			2,145,513				3,377,331
Total current liabilities			3,513,336				4,587,632
LONG-TERM LIABILITIES:
Deferred tax liability			155,000				147,000
TOTAL LIABILITIES			3,668,336				4,734,632
STOCKHOLDERS' EQUITY:
Common stock, $75 par value – 20,000 shares authorized, 14,484 shares
issued and outstanding at December 31, 2015 and 2014			1,086,300				1,086,300
Additional paid-in capital			1,459,445				1,459,445
Retained earnings			2,604,307				2,452,636
Total Stockholders' Equity			5,150,052				4,998,381
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY		$	8,818,388			$	9,733,013
The accompanying notes are an integral part of the financial statements.

UNITED CASUALTY AND SURETY INSURANCE COMPANY
STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2015 AND 2014

		2015				2014
OPERATING REVENUES:
Premiums earned		$	2,585,127			$	2,383,071
Salvage and subrogation			19,276				86,989
Net investment income			96,741				82,897
Total Operating Revenues			2,701,144				2,552,957
OPERATING EXPENSES:
Underwriting, acquisition and insurance expenses			2,002,230				1,883,403
Losses and loss adjustment expenses			19,283				99,840
Other (income) expense			(5,378	)			(1,612	)
Depreciation and amortization expense			14,141				13,525
Total Operating Expenses			2,030,276				1,995,156
INCOME BEFORE FEDERAL INCOME TAXES			670,868				557,801
FEDERAL INCOME TAXES			219,200				216,300
NET INCOME		$	451,668			$	341,501
The accompanying notes are an integral part of the financial statements.

UNITED CASUALTY AND SURETY INSURANCE COMPANY
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2015 AND 2014

										Additional								Total
		Common Stock								Paid-in				Retained				Stockholders'
		Shares				Amount				Capital				Earnings				Equity
BALANCE, JANUARY 1, 2014			14,484			$	1,086,300			$	1,459,445			$	2,286,133			$	4,831,878
Dividend declared			-				-				-				(174,998	)			(174,998	)
Net income			-				-				-				341,501				341,501
BALANCE, DECEMBER 31, 2014			14,484				1,086,300				1,459,445				2,452,636				4,998,381
Dividend declared			-				-				-				(299,997	)			(299,997	)
Net income			-				-				-				451,668				451,668
BALANCE, DECEMBER 31, 2015			14,484			$	1,086,300			$	1,459,445			$	2,604,307			$	5,150,052
The accompanying notes are an integral part of the financial statements.

UNITED CASUALTY AND SURETY INSURANCE COMPANY
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2015 AND 2014

		2015				2014
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income		$	451,668			$	341,501
Adjustments to reconcile net income to net cash provided by operating activities:
Deferred income tax expense			8,000				5,000
Depreciation and amortization			14,141				13,525
Amortization of held to maturity investments			3,279				5,940
Change in carrying value of certificates of deposit			(59,032	)			(55,669	)
Changes in operating assets and liabilities:
Decrease (increase) in receivables			39,122				(15,686	)
Increase in prepaid reinsurance premiums			(7,443	)			(907	)
Increase in deferred policy acquisition costs			(27,836	)			(18,167	)
Increase in accrued underwriting expenses			3,843				14,232
Increase in unearned premiums			89,923				47,979
Increase in accrued losses and loss adjustment expenses			2,000				1,000
Decrease in federal income taxes payable			(12,500	)			(22,500	)
Net cash provided by operating activities			505,165				316,248
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets			-				(3,707	)
Proceeds from the sale of investments			497,138				1,502,601
Investment purchases			(740,000	)			(1,825,000	)
Net cash used in investing activities			(242,862	)			(326,106	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash dividends paid to stockholders			(225,741	)			(272,319	)
Net cash used in financing activities			(225,741	)			(272,319	)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS			36,562				(282,177	)
CASH AND CASH EQUIVALENTS:
Beginning of year			848,047				1,130,224
End of year		$	884,609			$	848,047
NONCASH CHANGE IN FINANCING ACTIVITIES:
Dividends declared but not paid		$	74,256			$	-
SUPPLEMENTAL DISCLOSURES:
Interest paid		$	-			$	-
Federal income taxes paid		$	223,700			$	233,800
The accompanying notes are an integral part of the financial statements.

UNITED CASUALTY AND SURETY INSURANCE COMPANY

NOTES TO FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014

1.	BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Background – United Casualty and Surety Insurance Company ("UCSIC" or the "Company"), originally a Georgia corporation, redomesticated to the Commonwealth of Massachusetts in June 1993. The Company is licensed and authorized to issue Fidelity and Surety bonds in Massachusetts, New York, Connecticut, New Hampshire, Rhode Island, Maine, Pennsylvania, New Jersey, and Florida. The Company also holds a certificate of authority from the United States Department of the Treasury to act as a Surety and Reinsurer on Federal Bonds.

Basis of Accounting – The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP).

Use of Estimates – The preparation of financial statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities.  Management reviews its estimates and assumptions annually.  Amounts reported for anticipated salvage and subrogation, accrued losses and loss adjustment expenses, and litigation contingencies are based, in part, on management estimates.  Management estimates have been made as to the recoverability and value of the collateral held, deferred tax liabilities, and incurred but not reported losses.  Actual results could differ from management estimates.

Cash and Cash Equivalents – The Company considers all investments with original maturities of 90 days or less to be cash equivalents.  The carrying value of the Company's cash and cash equivalents approximates fair value.

Concentration of Credit Risks – During 2015 and 2014, cash and cash equivalents and certificates of deposit at various financial institutions exceeded the FDIC limit of $250,000.  These funds are deposited with institutions that management believes are financially sound.  The Company limits its collection risk exposure on accounts receivable by obtaining collateral from the policyholders.

Investments – Investments are classified as held-to-maturity and are accounted for at amortized cost, or carrying value with regards to certificates of deposit, with no adjustments for changes in fair value.  Premiums and discounts are amortized or accreted over the lives of the related fixed maturities as an adjustment to the yield using the effective interest method.  Dividend and interest income are recognized when earned.  Realized investment gains or losses are included in earnings.

Deferred Policy Acquisition Costs – Policy acquisition costs, primarily commissions to agents and brokers and premium taxes, directly related to the successful acquisition of new or renewal insurance contracts are deferred and amortized over the related policy period, generally one year.  The recoverability of these costs is analyzed by management quarterly and if determined to be impaired, is charged to expense.  The Company does not consider anticipated investment income in determining whether a premium deficiency exists.  All other acquisition expenses are charged to operations as incurred.

Funds Held as Collateral Assets – Funds held as collateral assets consist principally of cash collateral received from principals to guarantee performance on surety bonds issued by the Company, as well as all other contractual obligations of the principals to the surety. The Company also holds other non-cash collateral.

1.	BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Property and Equipment – Property and equipment are stated at cost less accumulated depreciation and amortization.  Depreciation and amortization of property and equipment are calculated using the straight-line method over the estimated useful lives (generally, the life of the leasehold improvement and three to five years for furniture and equipment.)

Premium and Unearned Premium Reserves – Premiums written are recognized as revenues based on a pro-rata daily calculation over the respective term of the policies in-force.  Unearned premiums represent the portion of premiums written applicable to the unexpired term of the policies in-force.  The cost of reinsurance ceded is initially written as prepaid reinsurance premiums and is amortized over the reinsurance contract period in proportion to the amount of insurance protection provided.  Premiums ceded are netted against premiums written.

Losses and Loss Adjustment Expenses – Unpaid losses and loss adjustment expenses represent estimates for the ultimate cost of unpaid reported and unreported claims incurred and related expense.  Estimates for losses and loss adjustment expenses are based on past experience of unreported losses, experience of investigating and adjusting claims and consideration of the level of premiums written during 2015 and 2014, among other things.  Since the reserves are based on estimates, the ultimate liability may be more or less than such reserves.  At December 31, 2015 and 2014, the Company is unaware of any significant incurred losses not specifically reserved for.  The effects of changes in such estimated reserves are included in the results of operations in the periods in which the estimates are changed.  In spite of the variability of such estimates, management believes that the liabilities for losses and loss adjustment expenses are adequate.

Income Taxes – The Company calculates deferred income taxes using the "asset and liability method."  Under this method, deferred income tax assets and liabilities arise from temporary differences between the tax basis of the assets and liabilities and their reported amount in the financial statements and are measured using enacted tax rates.  Current and deferred tax assets and liabilities are aggregated on the balance sheets.

The Company has concluded that there are no significant uncertain tax positions requiring recognition in the financial statements.  The Company will report any tax-related interest and penalties related to uncertain tax positions as a component of federal income tax expense.

Premium taxes assessed in each licensed state are typically based on premiums written in each respective state.  However, there are several states that assess a retaliatory premium tax which permits the state taxing authority to assess a premium tax at least equal to the premium tax paid to the state in which the insurer is domiciled.  Premium taxes, which amounted to $105,700 and $98,000 in 2015 and 2014, respectively are reported in the Statements of Income as a component of underwriting, acquisition and insurance expenses.

Advertising Costs – Advertising costs are charged to expense as incurred.  Total advertising costs were approximately $11,900 and $6,700 for the years ended December 31, 2015 and 2014, respectively.

Recent Accounting Pronouncements – In November 2015, the Financial Accounting Standards Board (FASB) issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes, which, effective for annual and interim reporting periods beginning after December 15, 2016, simplifies the presentation of deferred income taxes, requiring that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. Since early application is permitted, the new standard has been applied in the Company's financial statements as of December 31, 2015.

1.	BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

In May 2015 the FASB issued ASU No. 2015-09, Financial Services-Insurance (Topic 944): Disclosures about Short-Duration Contracts. The guidance requires additional disclosures related to the liability for unpaid claims and claim adjustment expenses in an effort to increase transparency and comparability. The standard is effective for fiscal years beginning after December 15, 2015, and is to be applied retroactively. Management believes that the new guidance will have no material impact on the Company's results of operations or financial position.

In May 2014 the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606).  Insurance contracts have been excluded from the scope of the guidance. In August 2015 the FASB issued an ASU to defer the effective date from fiscal years beginning after December 15, 2016, to fiscal years beginning after December 15, 2017. Management does not expect the adoption of this standard to have a material impact on the Company's financial condition or results of operations.

Subsequent Events – The Company has evaluated all subsequent events through January 9, 2017, the date the financial statements were available to be issued.

2.     INVESTMENTS

        The carrying value and estimated fair value of investments are as follows:

		December 31, 2015
		Amortized Cost/ Carrying Value				Gross Unrealized Gains				Gross Unrealized Loss				Estimated Fair Value
U.S. Treasury securities		$	814,620			$	6,295			$	-			$	820,915
Certificates of deposit, less than 12 months*			1,766,686				-				-				1,761,240
Certificates of deposit, greater than 12 months*			2,532,241				-				-				2,532,241
Total investments, held-to-maturity			5,113,547			$	6,295			$	-			$	5,114,396
Amount reported as investments, short-term			1,766,686
Investments, long-term		$	3,346,861

		December 31, 2014
		Amortized Cost/ Carrying Value				Gross Unrealized Gains				Gross Unrealized Loss				Estimated Fair Value
U.S. Treasury securities		$	817,899			$	14,065			$	-			$	831,964
Certificates of deposit, less than 12 months*			523,716				-				-				497,138
Certificates of deposit, greater than 12 months*			3,473,317				-				-				3,473,317
Total investments, held-to-maturity			4,814,932			$	14,065			$	-			$	4,802,419
Amount reported as investments, short-term			523,716
Investments, long-term		$	4,291,216
* Certificates of deposit are stated at carrying value which estimates fair value.

 

3.	DEFERRED POLICY ACQUISITION COSTS

The following table presents the amounts of policy acquisition costs deferred and amortized for the years ended December 31:

		2015				2014
Deferred policy acquisition costs, beginning of year		$	261,976			$	243,809
Policy acquisition costs deferred			665,884				593,945
Policy acquisition costs expensed			(638,048	)			(575,778	)
Deferred policy acquisition costs, end of year		$	289,812			$	261,976

The following table presents the components of underwriting, acquisition and insurance expenses for the years ended December 31:

		2015				2014
Policy acquisition costs expensed		$	638,048			$	575,778
Payroll and payroll taxes			844,897				810,573
Other operating expenses			519,285				497,052
Underwriting, acquisition and insurance expenses		$	2,002,230			$	1,883,403

4.	PROPERTY AND EQUIPMENT

The following table presents the components of property and equipment at December 31:

		2015				2014
Equipment		$	80,667			$	80,667
Furniture and fixtures			40,266				40,266
Leasehold improvements			24,265				24,265
			145,198				145,198
Accumulated depreciation and amortization			(122,687	)			(108,546	)
Property and equipment, net		$	22,511			$	36,652

Depreciation expense was $14,141 and $13,525 for the years ended December 31, 2015 and 2014, respectively.

5.	LIABILITY FOR ACCRUED LOSSES AND LOSS ADJUSTMENT EXPENSES

Activity in the liability for accrued losses and loss adjustment expenses (net of revenue from salvage and subrogation) for 2015 and 2014 is summarized as follows:

		2015				2014
Balance at January 1:		$	20,000			$	19,000
Incurred related to current year			2,000				1,000
Balance at December 31:		$	22,000			$	20,000

Revenue from salvage and subrogation amounted to $19,276 and $86,989 in 2015 and 2014, respectively.

6.	FEDERAL INCOME TAXES

The following is a reconciliation of income taxes at the federal statutory rate of 34% to the effective provision for federal income taxes as shown in the Statements of Income:

		2015				2014
Earnings before federal income taxes		$	670,868			$	557,801
Income taxes at federal statutory rate		$	228,100			$	189,600
Effect of:
Change in unearned premium balance			22,303				12,721
Other, net			(31,203	)			13,979
Provision for federal income taxes as reported
on the Statements of Income		$	219,200			$	216,300

The provision for federal income taxes consists of the following for the years ended December 31:

		2015				2014
Current		$	211,200			$	211,300
Deferred			8,000				5,000
Provision for federal income taxes		$	219,200			$	216,300

The following summarizes the estimated tax effects of temporary difference that are included in the net deferred federal income tax provision:

		2015				2014
Deferred policy acquisition costs		$	11,000			$	7,000
Property and equipment			(5,000	)			(5,000	)
Accrued losses and loss adjustment expenses			2,000				3,000
		$	8,000			$	5,000

Deferred income taxes reflect the net tax effect of temporary difference between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes.  The tax effects of significant items comprising the Company's net deferred income tax liability are as follows, as of December 31:

		2015				2014
Deferred federal income tax liabilities:
Deferred policy acquisition costs		$	116,000			$	105,000
Property and equipment			6,000				11,000
Accrued losses and loss adjustment expenses			33,000				31,000
Net deferred federal income tax liability		$	155,000			$	147,000

Management believes that all U.S. federal income and state tax matters have been concluded through 2012.

7.	RELATED-PARTY TRANSACTION

During 2015 and 2014, the Company paid the life insurance premiums for several policies, of which one of its Directors is the beneficiary.  Premiums under these policies amounted to $15,870 in 2015 and 2014, respectively.  In 2004 the Company entered into a split-dollar agreement with the beneficiary of the life insurance policy, whereby the beneficiary has agreed to pay back to the Company the premiums paid on the related policies.  The cash surrender value of the policies and death benefit serve as collateral to the agreement.  The life insurance held by the related party is term coverage.  The Company has conservatively elected not to reflect the premiums paid in 2015 and 2014, as a receivable due from related party as there is no cash surrender value to cover the premiums paid.

8.	REINSURANCE

The Company reinsures certain portions of its surety business in order to limit the amount of loss on individual claims.  Under the terms of the reinsurance agreement, the Company is responsible for $125,000 ($150,000 in 2014) of losses on contract surety for each principal for losses up to $2,500,000.  The Company is also responsible for 20% of the losses on contract surety covered under the reinsurance agreement between $2,500,000 and $3,000,000, subject to a maximum of $100,000 for each principal and in the aggregate.  The reinsurer covers amounts in excess of $125,000.  This excess loss coverage, however, is limited, in the aggregate, to losses of $3,000,000 and, in the case of each principal, to losses of $2,875,000.  Under the excess of loss reinsurance agreement the Company has coverage up to $5,500,000 on any one principal, subject to an annual aggregate limit of $5,500,000 on fully secured court bonds.  With respect to fully secured court bonds, the Company shall retain net for its own account, its underwriting limitation in accordance with The Department of Treasury less $125,000 of the business covered.  Insurance premiums ceded under this reinsurance agreement during 2015 and 2014 amounted to $245,406 and $212,270, respectively. The Company is contingently liable with respect to ceded insurance should any reinsurer be unable to meet the obligations assumed by it.

Effective January 1, 2016, the Company retention layer under its reinsurance agreement was reduced from $125,000 to $100,000 for losses up to $2,500,000 for all surety business in force.  Retention was reduced from 20% to 10% and is subject to a maximum of $50,000 for each principal and in the aggregate for losses between $2,500,000 and $3,000,000.  The excess of loss coverage aggregate was increased from $3,000,000 to $3,500,000 and in the case of each principal to losses of $3,400,000.

9.	STATUTORY FINANCIAL INFORMATION

Insurance companies are required to file financial statements with state insurance regulatory authorities prepared on an accounting basis prescribed or permitted by such authorities (statutory basis).  Net earnings and capital and surplus on a statutory basis as of and for the years ended December 31 were as follows:

Statutory Net Earnings								Statutory Capital and Surplus
2015				2014				2015				2014
$	438,973			$	336,859			$	4,901,365			$	4,739,460

For the years ended December 31, 2015 and 2014, statutory net earnings differ from net earnings on a GAAP basis primarily due to the treatment of deferred policy acquisition costs, the basis difference in property and equipment, and accrued losses and loss adjustment expenses.

9.	STATUTORY FINANCIAL INFORMATION (CONTINUED)

Capital and surplus requirements of the states in which the Company is licensed to underwrite fidelity and surety insurance, including the Commonwealth of Massachusetts, New York, Connecticut, New Hampshire, Rhode Island, Maine, Pennsylvania, New Jersey, and Florida have been met as of December 31, 2015 and 2014.  The Company, as required, maintains a $100,000 cash collateral deposit in the State of Florida.  In addition the Company maintains a deposit of $250,000 and $500,000 in the States of New Hampshire and Massachusetts, respectively.  The deposits in Florida and New Hampshire were established solely for the benefit of policyholders located in those states.  The deposit maintained in Massachusetts is for the benefit of all policyholders.

As of December 31, 2015 and 2014, there are no regulatory restrictions on the payment of dividends to shareholders.  However, the Company's ability to declare and pay dividends will depend on the working capital of the Company.  Dividends declared to stockholders amounted to $299,997 and $174,998 in 2015 and 2014, respectively.

10.

LEASES

The Company's corporate offices are located in Quincy, MA.  The lease agreement runs through August 1, 2017 with monthly payments, including storage space, of $5,014.    Rent expense for 2015 and 2014 was $68,438 and $66,416, respectively. During June 2016 the Company extended the operating lease for its corporate office for five years, expiring on July 31, 2022.  The Company has the option to extend the lease for an additional five years through July 2027.

Future minimum lease payments, inclusive of the extension, are as follows:

2016		$	60,171
2017			68,606
2018			81,400
2019			83,766
2020			86,132
Thereafter			140,927

11.	EMPLOYEE BENEFIT PLAN

In September 2004 the Company established the United Casualty and Surety Insurance Company 401(k) Profit Sharing Plan (the "Plan').  The Plan is available to all employees that have completed one year of service and have attained the age of twenty-one.  Employees are allowed to contribute up to 75% of their compensation not to exceed the maximum amount allowed by the Internal Revenue Service.  The Company may make discretionary matching contributions up to 3% of individual compensation and discretionary profit sharing contributions.  During 2015 and 2014, the Company made discretionary contributions of $22,515 and $22,618, respectively.  Company contributions vest 20% after two years and are 100% vested after six-years.

12.	COMMITMENTS AND CONTINGENCIES

Under insurance guaranty fund laws in each state, the District of Columbia and Puerto Rico, insurers licensed to do business can be assessed by state insurance guaranty associations for certain obligations of insolvent insurance companies to policyholders and claimants.  Recent regulatory actions against certain insurers encountering financial difficulty have prompted various state insurance guaranty associations to begin assessing insurance companies for the deemed losses.  Most of these laws do provide, however, that an assessment may be excused or deferred if it would threaten an insurer's solvency and further provide annual limits on such assessments.  A large part of the assessments paid by the Company pursuant to these laws may be used as credits for a portion of the Company's premium taxes.

12.	COMMITMENTS AND CONTINGENCIES (CONTINUED)

Various litigation claims and assessments against the Company, in addition to those otherwise provided for in the Company's statutory financial statements, have arisen in the ordinary course of the Company's business.  Additionally, state insurance regulatory authorities and other federal and state authorities regularly make inquiries and conduct investigations concerning the Company's compliance with applicable insurance and other laws and regulations.

In some of the matters referred to above, large and/or indeterminate amounts, including punitive damages and treble damages, are sought.  While it is not feasible to predict or determine the ultimate outcome of all pending investigations and legal proceedings or provide reasonable ranges of potential losses, it is the opinion of the Company's management that their outcomes, after consideration of available insurance and reinsurance and the provisions made in the Company's financial statements, are not likely to have a material adverse effect on the Company's financial position.  However, given the large and/or indeterminate amounts sought in certain of these matters and the inherent unpredictability of litigation, it is possible that an adverse outcome in certain matters could, from time to time, have a material adverse effect on the Company's operating results or cash flows in particular annual periods.

13.	SUBSEQUENT EVENTS

During June 2016 the Company extended the corporate office operating lease for an additional five years through July 2022.  The lease extension has been reflected in the lease commitment disclosure (see Note 10).

On December 5, 2016, the Massachusetts Department of Insurance approved the purchase of all outstanding common stock of United Casualty Surety Insurance Company by General Indemnity Group, LLC ("GIG"), a subsidiary of Boston Omaha Corporation (OTC: BOMN).  Subsequently, on December 7, 2016, the acquisition was completed and under the terms of the stock purchase agreement, GIG paid the Company's shareholders $13,000,000.

On December 27, 2016 the Company amended its articles whereby the par value of the common stock was increased to $130 per common share from $75 per common share.  This amendment results in a reclassification of additional paid in capital to the common stock account, however does not impact the reported total of stockholders' equity.

* * * * * * * * * * * * *