Delaware
|
95-1935264
|
|||
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
|||
6301
Owensmouth Avenue
|
||||
Woodland
Hills, California
|
91367
|
|||
(Address
of principal executive offices)
|
(Zip
Code)
|
|||
(818)
704-3700
|
www.21st.com
|
|||
(Registrant’s
telephone number, including area code)
|
(Registrant’s
web site)
|
Large
accelerated filer o
|
Accelerated
filer x
|
Non-accelerated
filer o
|
Description
|
Page
Number
|
|
PART
I - FINANCIAL INFORMATION
|
||
Item
1.
|
2
|
|
Item
2.
|
17
|
|
Item
3.
|
31
|
|
Item
4.
|
33
|
|
PART
II - OTHER INFORMATION
|
|
|
Item
1.
|
33
|
|
Item
1A.
|
33
|
|
Item
2.
|
33
|
|
Item
3
|
33
|
|
Item
4.
|
33
|
|
Item
5.
|
33
|
|
Item
6.
|
33
|
|
34
|
||
35
|
||
31.1
|
Certification
of Principal Executive Officer
|
|
31.2
|
Certification
of Principal Financial Officer
|
|
32.1
|
Certification
Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section
906 of
the Sarbanes-Oxley Act of 2002
|
21ST
CENTURY INSURANCE GROUP
|
|||||||
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
|||||||
Unaudited
|
|||||||
AMOUNTS
IN THOUSANDS, EXCEPT SHARE DATA
|
March
31, 2006
|
December
31, 2005
|
|||||
Assets
|
|||||||
Fixed
maturity investments available-for-sale, at fair value (amortized
cost:
$1,467,093 and $1,365,948)
|
$
|
1,434,761
|
$
|
1,354,707
|
|||
Equity
securities available-for-sale, at fair value (cost: $848 and
$49,210)
|
850
|
47,367
|
|||||
Total
investments
|
1,435,611
|
1,402,074
|
|||||
Cash
and cash equivalents
|
35,146
|
68,668
|
|||||
Accrued
investment income
|
17,333
|
16,585
|
|||||
Premiums
receivable
|
107,231
|
100,900
|
|||||
Reinsurance
receivables and recoverables
|
6,223
|
6,539
|
|||||
Prepaid
reinsurance premiums
|
2,023
|
1,946
|
|||||
Deferred
income taxes
|
59,307
|
56,209
|
|||||
Deferred
policy acquisition costs
|
62,919
|
59,939
|
|||||
Leased
property under capital lease, net of deferred gain of $1,423 and
$1,534
and net of accumulated amortization of $38,273 and $36,995
|
21,587
|
22,651
|
|||||
Property
and equipment, at cost less accumulated depreciation of $94,976 and
$89,595
|
147,047
|
145,811
|
|||||
Other
assets
|
42,183
|
38,907
|
|||||
Total
assets
|
$
|
1,936,610
|
$
|
1,920,229
|
|||
Liabilities
and stockholders’ equity
|
|||||||
Unpaid
losses and loss adjustment expenses
|
$
|
508,428
|
$
|
523,835
|
|||
Unearned
premiums
|
331,152
|
319,676
|
|||||
Debt
|
124,796
|
127,972
|
|||||
Claims
checks payable
|
40,609
|
42,681
|
|||||
Reinsurance
payable
|
755
|
643
|
|||||
Other
liabilities
|
94,057
|
75,450
|
|||||
Total
liabilities
|
1,099,797
|
1,090,257
|
|||||
Commitments
and contingencies
|
|||||||
Stockholders’
equity:
|
|||||||
Common
stock, par value $0.001 per share; 110,000,000 shares authorized;
shares
issued 86,101,668 and 85,939,889
|
86
|
86
|
|||||
Additional
paid-in capital
|
430,
360
|
425,454
|
|||||
Treasury
stock, at cost; 5,929 shares
|
(84
|
)
|
(84
|
)
|
|||
Retained
earnings
|
429,343
|
414,898
|
|||||
Accumulated
other comprehensive loss
|
(22,892
|
)
|
(10,382
|
)
|
|||
Total
stockholders’ equity
|
836,813
|
829,972
|
|||||
Total
liabilities and stockholders’ equity
|
$
|
1,936,610
|
$
|
1,920,229
|
21ST
CENTURY INSURANCE GROUP
|
|||||||
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
|
|||||||
Unaudited
|
|||||||
AMOUNTS
IN THOUSANDS, EXCEPT SHARE DATA
|
|||||||
Three
Months Ended March 31,
|
2006
|
2005
|
|||||
Revenues
|
|||||||
Net
premiums earned
|
$
|
325,824
|
$
|
336,364
|
|||
Net
investment income
|
17,755
|
17,037
|
|||||
Net
realized investment losses
|
(1,067
|
)
|
(460
|
)
|
|||
Total
revenues
|
342,512
|
352,941
|
|||||
Losses
and expenses
|
|||||||
Net
losses and loss adjustment expenses
|
236,496
|
251,031
|
|||||
Policy
acquisition costs
|
59,333
|
64,323
|
|||||
Other
underwriting expenses
|
12,600
|
7,358
|
|||||
Interest
and fees expense
|
1,898
|
2,057
|
|||||
Total
losses and expenses
|
310,327
|
324,769
|
|||||
Income
before provision for income taxes
|
32,185
|
28,172
|
|||||
Provision
for income taxes
|
10,868
|
8,735
|
|||||
Net
income
|
$
|
21,317
|
$
|
19,437
|
|||
Earnings
per common share
|
|||||||
Basic
and diluted
|
$
|
0.25
|
$
|
0.23
|
|||
Weighted-average
shares outstanding –
basic
|
85,868,878
|
85,520,909
|
|||||
Weighted-average
shares outstanding –
diluted
|
86,517,163
|
85,714,469
|
Common
Stock
|
||||||||||||||||||||||
$0.001
par value
|
||||||||||||||||||||||
AMOUNTS
IN THOUSANDS,
EXCEPT
SHARE DATA
|
Issued
Shares
|
Amount
|
Additional
Paid-in Capital
|
Treasury
Stock
|
Retained
Earnings
|
Accumulated
Other Comprehensive Loss
|
Total
|
|||||||||||||||
Balance
- January 1, 2006
|
85,939,889
|
$
|
86
|
$
|
425,454
|
$
|
(84
|
)
|
$
|
414,898
|
$
|
(10,382
|
)
|
$
|
829,972
|
|||||||
Comprehensive
income (loss)
|
21,317
|
(1)
|
(12,510
|
) (2)
|
8,807
|
|||||||||||||||||
Cash
dividends declared on common stock ($0.08 per share)
|
(6,872
|
)
|
|
(6,872
|
)
|
|||||||||||||||||
Exercise
of stock options
|
58,229
|
718
|
|
718
|
||||||||||||||||||
Issuance
of restricted stock
|
103,550
|
—
|
||||||||||||||||||||
Stock-based compensation cost | 4,099 | 4,099 | ||||||||||||||||||||
Excess tax benefits of stock-based compensation | 89 | 89 | ||||||||||||||||||||
Balance
- March 31, 2006
|
86,101,668
|
$
|
86
|
$
|
430,360
|
$
|
(84
|
)
|
$
|
429,343
|
$
|
(22,892
|
)
|
$
|
836,813
|
Three
Months Ended
March
31,2006
|
||||
Unrealized
holding losses arising during the period, net of tax benefit of
$(7,109)
|
$
|
(13,204
|
)
|
|
Reclassification
adjustment for investment losses included in net income, net of tax
expense of $373
|
694
|
|||
Total
|
$
|
(12,510
|
)
|
21ST
CENTURY INSURANCE GROUP
|
|||||||
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|||||||
Unaudited
|
|||||||
AMOUNTS
IN THOUSANDS, EXCEPT SHARE DATA
|
|||||||
Three
Months Ended March 31,
|
2006
|
2005
|
|||||
Operating
activities
|
|||||||
Net
income
|
$
|
21,317
|
$
|
19,437
|
|||
Adjustments
to reconcile net income to net cash provided by operating
activities:
|
|||||||
Depreciation
and amortization
|
6,661
|
6,602
|
|||||
Net
amortization of investment premiums and discounts
|
2,007
|
2,371
|
|||||
Stock-based
compensation cost
|
4,099
|
34
|
|||||
Provision
for deferred income taxes
|
2,820
|
3,459
|
|||||
Realized
losses on sale of investments
|
1,067
|
460
|
|||||
Changes
in assets and liabilities
|
|||||||
Premiums
receivable
|
(6,331
|
)
|
(8,496
|
)
|
|||
Deferred
policy acquisition costs
|
(2,980
|
)
|
(8,636
|
)
|
|||
Reinsurance
receivables and recoverables
|
352
|
1,181
|
|||||
Federal
income taxes
|
4,529
|
10,407
|
|||||
Other
assets
|
(2,880
|
)
|
2,883
|
||||
Unpaid
losses and loss adjustment expenses
|
(15,407
|
)
|
(5,371
|
)
|
|||
Unearned
premiums
|
11,476
|
14,579
|
|||||
Claims
checks payable
|
(2,072
|
)
|
1,277
|
||||
Other
liabilities
|
14,079
|
(743
|
)
|
||||
Net
cash provided by operating activities
|
38,737
|
39,444
|
|||||
Investing
activities
|
|||||||
Purchases
of:
|
|||||||
Fixed
maturity investments available-for-sale
|
(146,738
|
)
|
(31,759
|
)
|
|||
Equity
securities available-for-sale
|
(35,627
|
)
|
(70,902
|
)
|
|||
Property
and equipment
|
(6,627
|
)
|
(7,629
|
)
|
|||
Maturities
and calls of fixed maturity investments available-for-sale
|
21,139
|
10,775
|
|||||
Sales
of:
|
|||||||
Fixed
maturity investments available-for-sale
|
21,022
|
2,196
|
|||||
Equity
securities available-for-sale
|
83,989
|
69,539
|
|||||
Net
cash used in investing activities
|
(62,842
|
)
|
(27,780
|
)
|
|||
Financing
activities
|
|||||||
Repayment
of debt
|
(3,352
|
)
|
(2,954
|
)
|
|||
Dividends
paid (per share: $0.08 and $0.04)
|
(6,872
|
)
|
(3,422
|
)
|
|||
Proceeds
from the exercise of stock options
|
718
|
1,308
|
|||||
Excess
tax benefits from stock-based compensation
|
89
|
—
|
|||||
Net
cash used in financing activities
|
(9,417
|
)
|
(5,068
|
)
|
|||
Net
(decrease) increase in cash and cash equivalents
|
(33,522
|
)
|
6,596
|
||||
Cash
and cash equivalents, beginning of period
|
68,668
|
34,697
|
|||||
Cash
and cash equivalents, end of period
|
$
|
35,146
|
$
|
41,293
|
|||
Supplemental
information:
|
|||||||
Income
taxes paid
|
$
|
3,519 |
$
|
6,784 | |||
Interest
paid
|
388
|
547
|
AMOUNTS
IN THOUSANDS
|
1995
Stock Option Plan
|
2004
Stock Option Plan
|
|||||
Total
number of securities authorized
|
10,000
|
4,000
|
|||||
Number
of securities issued
|
(944
|
)
|
—
|
||||
Number
of securities issuable upon the exercise of all outstanding
options
|
(6,782
|
)
|
(3,640
|
)
|
|||
Number
of securities forfeited
|
(2,559
|
)
|
(68
|
)
|
|||
Number
of forfeited securities returned to plan
|
2,559
|
68
|
|||||
Unused
options assumed by 2004 Stock Option Plan
|
(2,274
|
)
|
2,274
|
||||
Number
of securities remaining available for future grants under each
plan
|
—
|
2,634
|
AMOUNTS
IN THOUSANDS, EXCEPT PRICE DATA
|
Number
of Options
|
Weighted-Average
Exercise Price
|
|||||
Options
outstanding December 31, 2005
|
8,869
|
$
|
16.22
|
||||
Granted
in 2006
|
1,814
|
16.62
|
|||||
Exercised
in 2006
|
(58
|
)
|
16.06
|
||||
Forfeited
in 2006
|
(3
|
)
|
13.88
|
||||
Canceled
in 2006
|
(200
|
)
|
18.73
|
||||
Options
outstanding March 31, 2006
|
10,422
|
16.24
|
AMOUNTS
IN THOUSANDS, EXCEPT PRICE DATA
|
March
31,
2006
|
|||
Total
options outstanding
|
10,422
|
|||
Non-vested
options
|
(3,654
|
)
|
||
Exercisable
options
|
6,768
|
|||
Weighted-average
exercise price for exercisable options
|
$
|
16.72
|
Outstanding
|
Exercisable
|
|||||||||||||||||||||||||
Range
of
Exercise
Prices
|
Number
of
Options
|
Weighted-
Average
Remaining
Contractual
Life
|
Weighted-
Average
Exercise
Price
|
Aggregate
Intrinsic
Value
|
Number
of
Options
|
Weighted-
Average
Remaining
Contractual
Life
|
Weighted-
Average
Exercise
Price
|
Aggregate
Intrinsic
Value
|
||||||||||||||||||
$
11.68 -$13.00
|
1,428
|
7.1
Years
|
$
|
11.87
|
$
|
5,617
|
1,283
|
7.0
Years
|
$
|
11.74
|
$
|
5,205
|
||||||||||||||
13.01
- 15.00
|
2,988
|
8.5
Years
|
14.28
|
4,534
|
1,293
|
8.2
Years
|
14.36
|
1,860
|
||||||||||||||||||
15.01
- 17.00
|
3,174
|
8.1
Years
|
16.41
|
3
|
1,360
|
5.7
Years
|
16.13
|
3
|
||||||||||||||||||
17.01
- 19.00
|
1,796
|
4.5
Years
|
18.05
|
—
|
1,796
|
4.5
Years
|
18.05
|
—
|
||||||||||||||||||
19.01
- 22.00
|
250
|
1.7
Years
|
20.72
|
—
|
250
|
1.7
Years
|
20.72
|
—
|
||||||||||||||||||
22.01
- 29.25
|
786
|
3.1
Years
|
25.43
|
—
|
786
|
3.1
Years
|
25.43
|
—
|
||||||||||||||||||
$
11.68 -$29.25
|
10,422
|
6.9
Years
|
16.24
|
$
|
10,154
|
6,768
|
5.6
Years
|
16.72
|
$
|
7,068
|
||||||||||||||||
|
AMOUNTS
IN THOUSANDS
|
Restricted
Shares
Plan
|
|||
Total
number of securities authorized
|
1,422
|
|||
Number
of securities issued
|
(1,247
|
)
|
||
Number
of forfeited securities returned to plan
|
162
|
|||
Number
of securities remaining available for future grants under the
plan
|
337
|
AMOUNTS IN THOUSANDS, EXCEPT PRICE DATA |
Number
of
Shares
|
Average
Market
Price
Per Share
on
Date of Grant
|
|||||
Non-vested,
December 31, 2005
|
87
|
$
|
14.08
|
||||
Granted
in 2006
|
104
|
15.88
|
|||||
Non-vested,
March 31, 2006
|
191
|
15.06
|
Three
Months Ended March
31, 2006
|
||||||||||
AMOUNTS
IN THOUSANDS, EXCEPT SHARE DATA
|
Without
FAS 123R1
|
FAS
123R Impact
|
With
FAS 123R
|
|||||||
Total
revenues
|
$
|
342,512
|
$
|
—
|
$
|
342,512
|
||||
Losses
and expenses
|
||||||||||
Net
losses and loss adjustment expenses
|
235,362
|
1,134
|
236,496
|
|||||||
Policy
acquisition costs
|
58,846
|
487
|
59,333
|
|||||||
Other
underwriting expenses
|
10,765
|
1,835
|
12,600
|
|||||||
Interest
and fees expense
|
1,898
|
—
|
1,898
|
|||||||
Total
losses and expenses
|
306,871
|
3,456
|
310,327
|
|||||||
Income
before provision for income taxes
|
35,641
|
(3,456
|
)
|
32,185
|
||||||
Provision
for income taxes
|
11,625
|
(757
|
)
|
10,868
|
||||||
Net
income
|
$
|
24,016
|
$
|
(2,699
|
)
|
$
|
21,317
|
|||
Basic
earnings per common share
|
$
|
0.28
|
$
|
(0.03
|
) |
$
|
0.25
|
|||
Diluted
earnings per common share
|
$
|
0.28
|
$
|
(0.03
|
) |
$
|
0.25
|
|||
|
||||||||||
Net
cash provided by operating activities
|
$
|
38,826
|
$
|
(89
|
)
|
$
|
38,737
|
|||
Net
cash used in financing activities
|
(9,506
|
)
|
89
|
(9,417
|
)
|
1 |
Includes
stock-based compensation related to restricted shares, as the previous
accounting under APB 25 was consistent with that of FAS
123.
|
Three
Months Ended
|
||||
AMOUNTS
IN THOUSANDS, EXCEPT SHARE DATA
|
March
31, 2005
|
|||
Net
income, as reported
|
$
|
19,437
|
||
Add:
Stock-based employee compensation expense included in reported net
income,
net of related tax effects
|
22
|
|||
Deduct:
Total stock-based employee compensation expense determined under
fair-value-based method for all awards, net of related tax
effects
|
(1,268
|
)
|
||
Net
income, pro forma
|
$
|
18,191
|
||
Basic
and diluted earnings per share
|
||||
As
reported
|
$
|
0.23
|
||
Pro
forma
|
$
|
0.21
|
Three
Months Ended March 31,
|
2006
|
2005
Pro Forma
|
|||||
Risk-free
interest rate:
|
|||||||
Minimum
|
4.5%
|
|
3.9%
|
|
|||
Maximum
|
4.7%
|
|
3.9%
|
|
|||
Dividend
yield
|
1.9%
|
|
1.1%
|
|
|||
Volatility
factor of the expected market price of the Company’s common
stock
|
0.29
|
0.32
|
|||||
Expected
option term (in years)
|
6 years
|
6 years
|
March
31, 2006
|
December
31, 2005
|
||||||
Net
unrealized losses on available-for-sale investments, net of deferred
income taxes of $11,316 and $4,579
|
$
|
(21,014
|
)
|
$
|
(8,504
|
)
|
|
Minimum
pension liability in excess of unamortized prior service cost, net
of
deferred income taxes of $1,011 and $1,011
|
(1,878
|
)
|
(1,878
|
)
|
|||
Total
accumulated other comprehensive loss
|
$
|
(22,892
|
)
|
$
|
(10,382
|
)
|
Three
Months Ended March
31,
|
|||||||
2006
|
2005
|
||||||
Service
cost
|
$
|
1,872
|
$
|
1,762
|
|||
Interest
cost
|
1,971
|
1,855
|
|||||
Expected
return on plan assets
|
(2,108
|
)
|
(1,830
|
)
|
|||
Amortization
of prior service cost
|
34
|
27
|
|||||
Amortization
of net loss
|
678
|
507
|
|||||
Total
|
$
|
2,447
|
$
|
2,321
|
Personal
Auto
Lines
|
Homeowner
and
Earthquake
Lines
in Runoff 2
|
Total
|
||||||||
Three
Months Ended March 31, 2006
|
___________________
|
|||||||||
Net
premiums earned
|
$
|
325,824
|
$
|
—
|
$
|
325,824
|
||||
Depreciation
and amortization expense
|
6,659
|
2
|
6,661
|
|||||||
Segment
profit (loss)
|
17,472
|
(77
|
)
|
17,395
|
||||||
Three
Months Ended March 31, 2005
|
||||||||||
Net
premiums earned
|
$
|
336,361
|
$
|
3
|
$
|
336,364
|
||||
Depreciation
and amortization expense
|
6,600
|
2
|
6,602
|
|||||||
Segment
profit (loss)
|
13,824
|
(172
|
)
|
13,652
|
Three
Months Ended
|
|||||||
March
31,
|
|||||||
2006
|
2005
|
||||||
Segment
profit
|
$
|
17,395
|
$
|
13,652
|
|||
Net
investment income
|
17,755
|
17,037
|
|||||
Realized
investment losses
|
(1,067
|
)
|
(460
|
)
|
|||
Interest
and fees expense
|
(1,898
|
)
|
(2,057
|
)
|
|||
Income
before provision for income taxes
|
$
|
32,185
|
$
|
28,172
|
2 |
Homeowner
and earthquake lines in runoff segment revenue represents premium
earned
as a result of the Company’s participation in the California FAIR
Plan.
|
· |
Financial
Condition
|
· |
Liquidity
and Capital Resources
|
· |
Transactions
with Related Parties
|
· |
Contractual
Obligations and Commitments
|
· |
Results
of Operations
|
· |
Net
Investment Income
|
· |
Critical
Accounting Estimates
|
· |
Forward-Looking
Statements
|
March
31, 2006
|
December
31, 2005
|
|||||||||||||
AMOUNTS
IN THOUSANDS
|
Gross
|
Net
|
Gross
|
Net
|
||||||||||
Unpaid
losses and LAE
|
||||||||||||||
Personal
auto lines
|
$
|
506,941
|
$
|
502,054
|
$
|
521,528
|
$
|
516,849
|
||||||
Homeowner
and earthquake lines in runoff
|
1,487
|
733
|
2,307
|
1,368
|
||||||||||
Total
|
$
|
508,428
|
$
|
502,787
|
$
|
523,835
|
$
|
518,217
|
AMOUNTS
IN THOUSANDS
|
March
31, 2006
|
December
31, 2005
|
|||||
Stockholders’
equity - GAAP
|
$
|
836,813
|
$
|
829,972
|
|||
Condensed
adjustments to reconcile GAAP shareholders’ equity to statutory
surplus:
|
|||||||
Net
book value of fixed assets under capital leases
|
(23,011
|
)
|
(24,185
|
)
|
|||
Deferred
gain under capital lease transactions
|
(706
|
)
|
(914
|
)
|
|||
Capital
lease obligation
|
24,895
|
28,074
|
|||||
Nonadmitted
net deferred tax assets
|
(23,089
|
)
|
(34,936
|
)
|
|||
Net
deferred tax assets related to items nonadmitted under SAP
|
24,137
|
38,544
|
|||||
Intercompany
receivables
|
(61,843
|
)
|
(57,683
|
)
|
|||
Fixed
assets
|
(21,510
|
)
|
(22,492
|
)
|
|||
Equity
in non-insurance entities
|
31,728
|
26,798
|
|||||
Unrealized
losses on investments
|
31,683
|
10,788
|
|||||
Deferred
policy acquisition costs
|
(62,919
|
)
|
(59,939
|
)
|
|||
Prepaid
pension costs and intangible pension asset
|
(19,791
|
)
|
(21,309
|
)
|
|||
Other
prepaid expenses
|
(14,623
|
)
|
(11,049
|
)
|
|||
Other,
net
|
3,380
|
3,002
|
|||||
Statutory
surplus
|
$
|
725,144
|
$
|
704,671
|
·
|
Workers’
compensation insurance
|
·
|
General
liability insurance
|
·
|
Property
insurance
|
·
|
Umbrella
excess insurance
|
·
|
Fiduciary
liability insurance
|
·
|
Fidelity
insurance
|
·
|
Auto
insurance
|
·
|
Employment
practices liability insurance
|
AMOUNTS
IN THOUSANDS, EXCEPT SHARE DATA
|
Results
of Operations
|
Increase/(Decrease)
|
|||||||||
Three
Months Ended March 31,
|
2006
|
2005
|
2006
vs. 2005
|
||||||||
Direct
premiums written
|
$
|
338,569
|
$
|
352,117
|
(3.8
|
)%
|
|||||
Net
income
|
21,317
|
19,437
|
9.7
|
||||||||
Basic
and diluted earnings per share
|
0.25
|
0.23
|
8.7
|
Three
Months Ended
March
31,
|
|||||||
AMOUNTS
IN THOUSANDS
|
2006
|
2005
|
|||||
Net
losses and LAE incurred related to insured events in:
|
|||||||
Current
year personal auto lines
|
$
|
243,511
|
$
|
258,702
|
|||
Prior
years:
|
|||||||
Personal
auto lines
|
(7,092
|
)
|
(7,847
|
)
|
|||
Homeowner
and earthquake lines in runoff
|
77
|
176
|
|||||
Total
prior years’ redundancy recorded in current year
|
(7,015
|
)
|
(7,671
|
)
|
|||
Total
net losses and LAE
|
$
|
236,496
|
$
|
251,031
|
Increase/(Decrease)
|
||||||||||||||
AMOUNTS
IN THOUSANDS
|
Personal
Auto Lines
|
2006
vs.2005
|
||||||||||||
Three
Months Ended March 31,
|
2006
|
2005
|
Percent
|
Amount
|
||||||||||
Direct
premiums written
|
$
|
338,569
|
$
|
352,117
|
(3.8
|
)%
|
$
|
(13,548
|
)
|
|||||
Net
premiums written
|
$
|
337,223
|
$
|
350,940
|
(3.9
|
)%
|
$
|
(13,717
|
)
|
|||||
Net
premiums earned
|
$
|
325,824
|
$
|
336,361
|
(3.1
|
)%
|
$
|
(10,537
|
)
|
|||||
Net
losses and LAE
|
236,419
|
250,856
|
(5.8
|
)
|
(14,437
|
)
|
||||||||
Underwriting
expenses
|
71,933
|
71,681
|
0.4
|
|
252
|
|||||||||
Underwriting
profit
|
$
|
17,472
|
$
|
13,824
|
|
26.4
|
%
|
$
|
3,648
|
|||||
Ratios:
|
||||||||||||||
Loss
and LAE ratio
|
72.6
|
%
|
74.6
|
%
|
|
(2.0
|
)%
|
|||||||
Underwriting
expense ratio
|
22.0
|
|
21.3
|
0.7
|
||||||||||
Combined
ratio
|
94.6
|
%
|
95.9
|
%
|
(1.3
|
)%
|
Three
Months Ended
|
|||||||
March
31,
|
|||||||
AMOUNTS
IN THOUSANDS
|
2006
|
2005
|
|||||
Personal
auto lines underwriting profit
|
$
|
17,472
|
$
|
13,824
|
|||
Homeowner
and earthquake lines in runoff underwriting loss
|
(77
|
)
|
(172
|
)
|
|||
Net
investment income
|
17,755
|
17,037
|
|||||
Realized
investment losses
|
(1,067
|
)
|
(460
|
)
|
|||
Interest
and fees expense
|
(1,898
|
)
|
(2,057
|
)
|
|||
Provision
for income taxes
|
(10,868
|
)
|
(8,735
|
)
|
|||
Net
income
|
$
|
21,317
|
$
|
19,437
|
Three
Months Ended
|
|||||||
March
31,
|
|||||||
AMOUNTS
IN THOUSANDS
|
2006
|
2005
|
|||||
Direct
premiums written
|
$
|
338,569
|
$
|
352,117
|
|||
Ceded
premiums written
|
(1,346
|
)
|
(1,177
|
)
|
|||
Net
premiums written
|
337,223
|
350,940
|
|||||
Net
change in unearned premiums
|
(11,399
|
)
|
(14,579
|
)
|
|||
Net
premiums earned
|
$
|
325,824
|
$
|
336,361
|
Three
Months Ended
|
|||||||
March
31,
|
|||||||
2006
|
2005
|
||||||
Pre-tax
|
4.8
|
%
|
4.8
|
%
|
|||
After-tax
|
3.5
|
3.5
|
AMOUNTS
IN THOUSANDS
|
Net
Realized Gains (Losses) on Sale of Investments
|
||||||
Three
Months Ended March 31,
|
2006
|
2005
|
|||||
Gross
realized gains
|
$
|
1,492
|
$
|
1,337
|
|||
Gross
realized losses
|
(2,559
|
)
|
(1,797
|
)
|
|||
Net
realized losses on investments
|
$
|
(1,067
|
)
|
$
|
(460
|
)
|
Year
of Expiration
|
NOL
Excluding 21st
of
the Southwest
|
SRLY
1
NOL
of 21st
of
the Southwest
|
Consolidated
NOL
|
|||||||
2017
|
$
|
―
|
$
|
1,550
|
$
|
1,550
|
||||
2018
|
―
|
1,068
|
1,068
|
|||||||
2019
|
―
|
1,466
|
1,466
|
|||||||
2020
|
―
|
3,172
|
3,172
|
|||||||
2021
|
15,758
|
2,180
|
17,938
|
|||||||
2022
|
37,316
|
―
|
37,316
|
|||||||
Total
|
$
|
53,074
|
$
|
9,436
|
$
|
62,510
|
1 |
“SRLY”
stands for Separate Return Limitation Year. Under the Federal tax
code,
only future income generated by 21st of Southwest may be
utilized
against this portion of our NOL.
|
·
|
Trading
at a significant (25% or more) discount to par, amortized cost (if
lower)
or cost for an extended period of time (nine months or
longer);
|
·
|
The
occurrence of a discrete credit event resulting in (i) the
issuer defaulting on a material outstanding obligation; or (ii) the
issuer seeking protection from creditors under the bankruptcy laws
or any
similar laws intended for the court supervised reorganization of
insolvent
enterprises; or (iii) the
issuer proposing a voluntary reorganization pursuant to which creditors
are asked to exchange their claims for cash or securities having
a fair
value substantially lower than par value of their claims;
or
|
·
|
In
the opinion of the Company’s management, it is possible that the Company
may not realize a full recovery on its investment, irrespective of
the
occurrence of one of the foregoing
events.
|
March
31,
|
December
31,
|
||||||
AMOUNTS
IN THOUSANDS
|
2006
|
2005
|
|||||
Non-investment
grade fixed maturity securities (i.e., rated below BBB-):
|
|||||||
Ford
Motor Credit Company2
|
$
|
—
|
$
|
2,495
|
|||
Non-investment
grade equity securities:
|
|||||||
AmerUs
Group Co.3
|
—
|
864
|
|||||
Unrated
securities:
|
|||||||
Impact
Community Capital, LLC4
|
2,023
|
2,023
|
|||||
Impact
Healthcare, LLC
|
413
|
413
|
|||||
Impact
Childcare, LLC
|
330
|
—
|
|||||
Total
non-investment grade and unrated securities
|
$
|
2,766
|
$
|
5,795
|
|||
Percentage
of total investments, at fair value
|
0.2
|
%
|
0.4
|
%
|
2
|
The
Ford Motor Credit Company security matured in the first quarter of
2006
and the Company received all amounts due, thereby incurring no
loss.
|
3
|
The
AmerUs Group Co. was a preferred stock holding that had an unrealized
gain
as of December 31, 2005.
|
4
|
Impact
Community Capital, LLC is a limited partnership that was voluntarily
established by a group of California insurers to make loans and other
investments that provide housing and other services to economically
disadvantaged communities.
|
March
31, 2006
|
December
31, 2005
|
||||||||||||||||||
AMOUNTS
IN THOUSANDS,
EXCEPT
NUMBER OF ISSUES
|
#
issues
|
Fair
Value
|
Unrealized
Loss
|
#
issues
|
Fair
Value
|
Unrealized
Loss
|
|||||||||||||
Investments
with unrealized losses:
|
|||||||||||||||||||
Fixed
maturity securities:
|
|||||||||||||||||||
Exceeding
$0.1 million and in a loss position for:
|
|||||||||||||||||||
Less
than 6 months
|
3
|
$
|
19,982
|
$
|
526
|
16
|
$
|
141,034
|
$
|
3,074
|
|||||||||
6-12
months
|
37
|
264,278
|
10,864
|
16
|
129,044
|
4,072
|
|||||||||||||
More
than 1 year
|
74
|
504,783
|
28,172
|
56
|
433,368
|
16,896
|
|||||||||||||
Less
than $0.1 million
|
128
|
267,873
|
5,036
|
113
|
204,724
|
4,347
|
|||||||||||||
Total
fixed maturity securities with unrealized losses
|
242
|
1,056,916
|
44,598
|
201
|
908,170
|
28,389
|
|||||||||||||
Equity
securities:
|
|||||||||||||||||||
Exceeding
$0.1 million
|
—
|
—
|
—
|
2
|
578
|
305
|
|||||||||||||
Less
than $0.1 million
|
—
|
—
|
—
|
245
|
35,672
|
1,873
|
|||||||||||||
Total
equity securities with unrealized losses
|
—
|
—
|
—
|
247
|
36,250
|
2,178
|
|||||||||||||
Total
investments with unrealized losses
5
|
242
|
$
|
1,056,916
|
$
|
44,598
|
448
|
$
|
944,420
|
$
|
30,567
|
March
31, 2006
|
December
31, 2005
|
||||||||||||||||||
AMOUNTS
IN THOUSANDS
|
Amortized
Cost
|
Fair
Value
|
Unrealized
Loss
|
Amortized
Cost
|
Fair
Value
|
Unrealized
Loss
|
|||||||||||||
Fixed
maturity securities:
|
|||||||||||||||||||
Due
in one year or less
|
$
|
2,031
|
$
|
1,995
|
$
|
36
|
$
|
5,562
|
$
|
5,512
|
$
|
50
|
|||||||
Due
after one year through five years
|
360,719
|
347,204
|
13,515
|
205,363
|
200,075
|
5,288
|
|||||||||||||
Due
after five years through ten years
|
385,947
|
368,942
|
17,005
|
415,417
|
401,533
|
13,884
|
|||||||||||||
Due
after ten years
|
352,817
|
338,775
|
14,042
|
310,217
|
301,050
|
9,167
|
|||||||||||||
Total
fixed maturity securities with unrealized losses
|
$
|
1,101,514
|
$
|
1,056,916
|
$
|
44,598
|
$
|
936,559
|
$
|
908,170
|
$
|
28,389
|
5 |
Unrealized
losses represent 4.2% and 3.2% of the total carrying value of investments
with unrealized losses at March 31, 2006 and December 31, 2005,
respectively.
|
·
|
Our
strategy for growth;
|
·
|
Underwriting
results;
|
·
|
Our
expected combined ratio and growth of written
premiums;
|
·
|
Product
development;
|
·
|
Computer
systems;
|
·
|
Regulatory
approvals;
|
·
|
Market
position;
|
·
|
Financial
results;
|
· |
Dividend
policy; and
|
·
|
Reserves.
|
·
|
The
effects of competition and competitors’ pricing
actions;
|
·
|
Changes
in consumer preferences or buying
habits;
|
·
|
Adverse
underwriting and claims experience;
|
·
|
Customer
service problems;
|
·
|
The
impact on our operations of natural disasters, principally earthquake,
or
civil disturbance, due to the concentration of our facilities and
employees in Southern California;
|
·
|
Information
system problems;
|
·
|
Control
environment failures;
|
·
|
Adverse
developments in financial markets or interest rates;
|
·
|
Results
of legislative, regulatory or legal actions, including the inability
to
obtain approval for necessary licenses, rate increases and product
changes
and possible adverse actions taken by state regulators in market
conduct
examinations; and
|
·
|
Our
ability to service the Senior Notes, including our ability to receive
dividends and/or sufficient payments from our subsidiaries to service
our
obligations.
|
DOLLAR
AMOUNTS IN MILLIONS
March
31, 2006
|
Carrying
Value
|
Estimated
Carrying Value at Adjusted Market Rates/Prices Indicated
Above
|
Change
in Value as a Percentage of Carrying Value
|
|||||||
Fixed
maturity investments available-for-sale, at fair value
|
$
|
1,434.8
|
$
|
1,371.0
|
(4.4
|
%)
|
||||
Debt
|
124.8
|
131.8
|
5.6
|
%
|
Effective
Duration Ranges
|
|||||||||||||||||||
March
31, 2006
|
Below
1
|
1
to 3
|
3
to 5
|
5
to 7
|
7
to 10
|
10
to 20
|
|||||||||||||
Market
value percentage of fixed maturity investment portfolio
|
1.5%
|
|
14.7%
|
|
59.6%
|
|
21.9%
|
|
1.4%
|
|
0.9%
|
|