UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ
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Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
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For the Quarterly Period Ended June 30, 2008
Commission File Number 0-22280
PHILADELPHIA CONSOLIDATED HOLDING CORP.
(Exact name of registrant as specified in its charter)
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PENNSYLVANIA
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23-2202671
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(State of Incorporation)
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(IRS Employer Identification No.)
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One Bala Plaza, Suite 100
Bala Cynwyd, Pennsylvania 19004
(610) 617-7900
(Address, including zip code and telephone number,
including area code, of registrants principal executive offices)
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:
þ
NO:
o
Indicate by check mark whether the registrant is a
large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer,
accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer
þ
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Accelerated filer
o
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Non-accelerated filer
o
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Smaller reporting company
o
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
YES:
o
NO:
þ
Indicate the number of shares outstanding of each of the issuers classes of common stock as of
July 31, 2008.
Common Stock, no par value, 71,512,810 shares outstanding
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
INDEX
For the Quarterly Period Ended June 30, 2008
2
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
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As of
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June 30, 2008
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December 31,
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(Unaudited)
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2007
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ASSETS
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INVESTMENTS:
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FIXED MATURITIES AVAILABLE FOR SALE AT MARKET
(AMORTIZED COST $2,864,732 AND $2,639,471)
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$
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2,844,209
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$
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2,659,197
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EQUITY SECURITIES AT MARKET (COST $339,169
AND $322,877)
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348,374
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356,026
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TOTAL INVESTMENTS
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3,192,583
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3,015,223
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CASH AND CASH EQUIVALENTS
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89,657
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106,342
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ACCRUED INVESTMENT INCOME
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28,300
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24,964
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PREMIUMS RECEIVABLE
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399,896
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378,217
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PREPAID REINSURANCE PREMIUMS AND REINSURANCE
RECEIVABLES
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301,012
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280,110
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DEFERRED INCOME TAXES
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81,717
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42,855
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DEFERRED ACQUISITION COSTS
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187,389
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184,446
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PROPERTY AND EQUIPMENT, NET
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21,992
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26,330
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OTHER ASSETS
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100,964
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41,451
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TOTAL ASSETS
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$
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4,403,510
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$
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4,099,938
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LIABILITIES AND SHAREHOLDERS EQUITY
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POLICY LIABILITIES AND ACCRUALS:
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UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES
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$
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1,613,322
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$
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1,431,933
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UNEARNED PREMIUMS
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866,596
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847,485
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TOTAL POLICY LIABILITIES AND ACCRUALS
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2,479,918
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2,279,418
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PREMIUMS PAYABLE
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77,770
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97,674
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OTHER LIABILITIES
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251,135
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175,373
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TOTAL LIABILITIES
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2,808,823
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2,552,465
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COMMITMENTS AND CONTINGENCIES
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SHAREHOLDERS EQUITY:
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PREFERRED STOCK, $.01 PAR VALUE,
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10,000,000 SHARES AUTHORIZED,
NONE ISSUED AND OUTSTANDING
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COMMON STOCK, NO PAR VALUE,
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125,000,000 SHARES AUTHORIZED, 71,503,346 AND
72,087,287 SHARES ISSUED AND OUTSTANDING
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399,704
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423,379
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NOTES RECEIVABLE FROM SHAREHOLDERS
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(22,565
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)
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(19,595
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)
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ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
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(7,356
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)
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34,369
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RETAINED EARNINGS
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1,224,904
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1,109,320
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TOTAL SHAREHOLDERS EQUITY
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1,594,687
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1,547,473
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TOTAL LIABILITIES AND SHAREHOLDERS EQUITY
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$
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4,403,510
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$
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4,099,938
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The accompanying notes are an integral part of the consolidated financial statements.
3
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(Unaudited)
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For the Three Months
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For the Six Months
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Ended June 30,
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Ended June 30,
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2008
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2007
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2008
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2007
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REVENUE:
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NET EARNED PREMIUMS
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$
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393,037
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$
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337,315
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$
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772,425
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$
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656,033
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NET INVESTMENT INCOME
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32,299
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28,522
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64,304
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55,495
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NET REALIZED INVESTMENT GAIN (LOSS)
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(11,513
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)
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28,064
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(22,907
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)
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29,821
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OTHER INCOME
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3,654
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850
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5,007
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1,680
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TOTAL REVENUE
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417,477
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394,751
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818,829
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743,029
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LOSSES AND EXPENSES:
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LOSS AND LOSS ADJUSTMENT EXPENSES
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266,106
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172,234
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489,492
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332,753
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NET REINSURANCE RECOVERIES
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(42,836
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)
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(23,645
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)
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(72,803
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)
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(33,659
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)
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NET LOSS AND LOSS ADJUSTMENT EXPENSES
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223,270
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148,589
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416,689
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299,094
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ACQUISITION COSTS AND OTHER
UNDERWRITING EXPENSES
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115,479
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101,746
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229,635
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198,650
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OTHER OPERATING EXPENSES
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4,376
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2,981
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7,965
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6,136
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TOTAL LOSSES AND EXPENSES
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343,125
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253,316
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654,289
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503,880
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INCOME BEFORE INCOME TAXES
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74,352
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141,435
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164,540
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239,149
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INCOME TAX EXPENSE (BENEFIT):
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CURRENT
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30,072
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56,511
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65,350
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93,330
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DEFERRED
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(8,628
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)
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(9,477
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)
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(16,394
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)
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(14,562
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)
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TOTAL INCOME TAX EXPENSE
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21,444
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47,034
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48,956
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78,768
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NET INCOME
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$
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52,908
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$
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94,401
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$
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115,584
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$
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160,381
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OTHER COMPREHENSIVE LOSS, NET OF TAX:
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HOLDING LOSS ARISING DURING PERIOD
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$
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(32,906
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)
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$
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(11,920
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)
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$
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(56,615
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)
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$
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(3,039
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)
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RECLASSIFICATION ADJUSTMENT
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7,484
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(18,242
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)
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14,890
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(19,384
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)
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OTHER COMPREHENSIVE LOSS
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(25,422
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)
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(30,162
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)
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(41,725
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)
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(22,423
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)
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COMPREHENSIVE INCOME
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$
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27,486
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$
|
64,239
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$
|
73,859
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$
|
137,958
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PER AVERAGE SHARE DATA:
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NET INCOME BASIC
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$
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0.76
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$
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1.34
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$
|
1.65
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$
|
2.28
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NET INCOME DILUTED
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$
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0.73
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$
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1.27
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$
|
1.59
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$
|
2.16
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WEIGHTED-AVERAGE COMMON SHARES
OUTSTANDING
|
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69,809,174
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70,361,554
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70,128,823
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70,255,758
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WEIGHTED-AVERAGE SHARE EQUIVALENTS
OUTSTANDING
|
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2,608,996
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3,835,617
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2,597,895
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3,966,198
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WEIGHTED-AVERAGE SHARES AND SHARE
EQUIVALENTS OUTSTANDING
|
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72,418,170
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74,197,171
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|
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72,726,718
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74,221,956
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|
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The accompanying notes are an integral part of the consolidated financial statements.
4
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES
IN SHAREHOLDERS EQUITY
(IN THOUSANDS, EXCEPT SHARE DATA)
|
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|
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|
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For the Six
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Months Ended
|
|
|
|
|
|
|
June 30, 2008
|
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|
For the Year Ended
|
|
|
|
(Unaudited)
|
|
|
December 31, 2007
|
|
COMMON SHARES:
|
|
|
|
|
|
|
|
|
BALANCE AT BEGINNING OF YEAR
|
|
|
72,087,287
|
|
|
|
70,848,482
|
|
ISSUANCE OF SHARES PURSUANT TO STOCK PURCHASE PLANS, NET
|
|
|
195,654
|
|
|
|
491,416
|
|
ISSUANCE OF SHARES PURSUANT TO STOCK
BASED COMPENSATION PLANS
|
|
|
573,605
|
|
|
|
747,389
|
|
LESS: TREASURY SHARES ACQUIRED
|
|
|
(1,353,200
|
)
|
|
|
|
|
|
|
|
|
|
|
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|
BALANCE AT END OF PERIOD
|
|
|
71,503,346
|
|
|
|
72,087,287
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
COMMON STOCK:
|
|
|
|
|
|
|
|
|
BALANCE AT BEGINNING OF YEAR
|
|
$
|
423,379
|
|
|
$
|
376,986
|
|
ISSUANCE OF SHARES PURSUANT TO STOCK
PURCHASE PLANS
|
|
|
5,060
|
|
|
|
16,448
|
|
EFFECTS OF ISSUANCE OF SHARES PURSUANT TO STOCK
BASED COMPENSATION PLANS
|
|
|
14,166
|
|
|
|
29,155
|
|
OTHER
|
|
|
|
|
|
|
790
|
|
LESS: COST OF TREASURY SHARES ACQUIRED
|
|
|
(42,901
|
)
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE AT END OF PERIOD
|
|
|
399,704
|
|
|
|
423,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTES RECEIVABLE FROM SHAREHOLDERS:
|
|
|
|
|
|
|
|
|
BALANCE AT BEGINNING OF YEAR
|
|
|
(19,595
|
)
|
|
|
(17,074
|
)
|
NOTES RECEIVABLE ISSUED PURSUANT TO
EMPLOYEE STOCK PURCHASE PLANS
|
|
|
(4,934
|
)
|
|
|
(8,466
|
)
|
COLLECTION OF NOTES RECEIVABLE
|
|
|
1,964
|
|
|
|
5,945
|
|
|
|
|
|
|
|
|
BALANCE AT END OF PERIOD
|
|
|
(22,565
|
)
|
|
|
(19,595
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ACCUMULATED OTHER COMPREHENSIVE INCOME,
NET OF DEFERRED INCOME TAXES:
|
|
|
|
|
|
|
|
|
BALANCE AT BEGINNING OF YEAR
|
|
|
34,369
|
|
|
|
24,848
|
|
OTHER COMPREHENSIVE INCOME (LOSS) INCOME,
NET OF TAXES
|
|
|
(41,725
|
)
|
|
|
9,521
|
|
|
|
|
|
|
|
|
BALANCE AT END OF PERIOD
|
|
|
(7,356
|
)
|
|
|
34,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
RETAINED EARNINGS:
|
|
|
|
|
|
|
|
|
BALANCE AT BEGINNING OF YEAR
|
|
|
1,109,320
|
|
|
|
782,507
|
|
NET INCOME
|
|
|
115,584
|
|
|
|
326,813
|
|
|
|
|
|
|
|
|
BALANCE AT END OF PERIOD
|
|
|
1,224,904
|
|
|
|
1,109,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL SHAREHOLDERS EQUITY
|
|
$
|
1,594,687
|
|
|
$
|
1,547,473
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
5
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended June 30,
|
|
|
|
2008
|
|
|
2007
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
NET INCOME
|
|
$
|
115,584
|
|
|
$
|
160,381
|
|
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
NET REALIZED INVESTMENT (GAIN) LOSS
|
|
|
22,907
|
|
|
|
(29,821
|
)
|
GAIN ON SALE OF FIXED ASSETS
|
|
|
(1,174
|
)
|
|
|
|
|
AMORTIZATION OF INVESTMENT PREMIUMS, NET OF DISCOUNT
|
|
|
4,916
|
|
|
|
3,044
|
|
AMORTIZATION OF INTANGIBLE ASSETS
|
|
|
1,946
|
|
|
|
1,434
|
|
DEPRECIATION
|
|
|
4,374
|
|
|
|
3,821
|
|
DEFERRED INCOME TAX BENEFIT
|
|
|
(16,394
|
)
|
|
|
(14,562
|
)
|
CHANGE IN PREMIUMS RECEIVABLE
|
|
|
(21,679
|
)
|
|
|
9,019
|
|
CHANGE IN PREPAID REINSURANCE PREMIUMS AND REINSURANCE
RECEIVABLES, NET OF FUNDS HELD PAYABLE TO REINSURER
|
|
|
(20,902
|
)
|
|
|
(2,866
|
)
|
CHANGE IN ACCRUED INVESTMENT INCOME
|
|
|
(3,336
|
)
|
|
|
(2,172
|
)
|
CHANGE IN DEFERRED ACQUISITION COSTS
|
|
|
(2,943
|
)
|
|
|
(8,547
|
)
|
CHANGE IN INCOME TAXES PAYABLE
|
|
|
(11,022
|
)
|
|
|
11,544
|
|
CHANGE IN OTHER ASSETS
|
|
|
(12,006
|
)
|
|
|
4,542
|
|
CHANGE IN UNPAID LOSS AND LOSS ADJUSTMENT EXPENSES
|
|
|
181,389
|
|
|
|
100,213
|
|
CHANGE IN UNEARNED PREMIUMS
|
|
|
19,111
|
|
|
|
19,513
|
|
CHANGE IN OTHER LIABILITIES
|
|
|
(13,009
|
)
|
|
|
1,854
|
|
FAIR VALUE OF STOCK BASED COMPENSATION
|
|
|
8,393
|
|
|
|
7,649
|
|
EXCESS TAX BENEFIT FROM ISSUANCE OF SHARES PURSUANT TO
STOCK BASED COMPENSATION PLANS
|
|
|
(1,971
|
)
|
|
|
(2,902
|
)
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY OPERATING ACTIVITIES
|
|
|
254,184
|
|
|
|
262,144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
PROCEEDS FROM SALES OF INVESTMENTS IN FIXED MATURITIES
|
|
|
500
|
|
|
|
114,212
|
|
PROCEEDS FROM MATURITY OF INVESTMENTS IN FIXED MATURITIES
|
|
|
158,054
|
|
|
|
119,214
|
|
PROCEEDS FROM SALES OF INVESTMENTS IN EQUITY SECURITIES
|
|
|
40,859
|
|
|
|
199,048
|
|
COST OF FIXED MATURITIES ACQUIRED
|
|
|
(388,919
|
)
|
|
|
(479,195
|
)
|
COST OF EQUITY SECURITIES ACQUIRED
|
|
|
(69,926
|
)
|
|
|
(220,459
|
)
|
PROCEEDS FROM SALE OF FIXED ASSETS
|
|
|
3,825
|
|
|
|
|
|
PURCHASE OF PROPERTY AND EQUIPMENT, NET
|
|
|
(2,687
|
)
|
|
|
(2,704
|
)
|
PAYMENT FOR ACQUISITION OF GILLINGHAM & ASSOCIATES INC.,
NET OF CASH ACQUIRED
|
|
|
(32,881
|
)
|
|
|
|
|
PURCHASE OF OTHER INTANGIBLES
|
|
|
(1,877
|
)
|
|
|
(8,564
|
)
|
|
|
|
|
|
|
|
NET CASH USED FOR INVESTING ACTIVITIES
|
|
|
(293,052
|
)
|
|
|
(278,448
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
REPAYMENTS ON LOANS
|
|
|
(45,000
|
)
|
|
|
|
|
PROCEEDS FROM LOANS
|
|
|
102,220
|
|
|
|
|
|
PROCEEDS FROM EXERCISE OF EMPLOYEE STOCK OPTIONS
|
|
|
3,803
|
|
|
|
3,835
|
|
PROCEEDS FROM COLLECTION OF SHAREHOLDER NOTES RECEIVABLE
|
|
|
1,964
|
|
|
|
2,791
|
|
PROCEEDS FROM SHARES ISSUED PURSUANT TO
STOCK PURCHASE PLANS
|
|
|
126
|
|
|
|
206
|
|
EXCESS TAX BENEFIT FROM ISSUANCE OF SHARES PURSUANT TO
STOCK BASED COMPENSATION PLANS
|
|
|
1,971
|
|
|
|
2,902
|
|
COST OF COMMON STOCK REPURCHASED
|
|
|
(42,901
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET CASH PROVIDED BY FINANCING ACTIVITIES
|
|
|
22,183
|
|
|
|
9,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH AND CASH EQUIVALENTS
|
|
|
(16,685
|
)
|
|
|
(6,570
|
)
|
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD
|
|
|
106,342
|
|
|
|
108,671
|
|
|
|
|
|
|
|
|
CASH AND CASH EQUIVALENTS AT END OF PERIOD
|
|
$
|
89,657
|
|
|
$
|
102,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NON-CASH TRANSACTIONS:
|
|
|
|
|
|
|
|
|
ISSUANCE OF SHARES PURSUANT TO EMPLOYEE STOCK
PURCHASE PLANS IN EXCHANGE FOR NOTES RECEIVABLE
|
|
$
|
4,934
|
|
|
$
|
3,450
|
|
The accompanying notes are an integral part of the consolidated financial statements.
6
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1.
|
|
Basis of Presentation
|
|
|
|
The consolidated financial statements for the quarterly period ended June 30, 2008 are
unaudited, but in the opinion of management have been prepared on the same basis as the annual
audited consolidated financial statements and reflect all adjustments, consisting of normal
recurring adjustments and accruals, necessary for a fair statement of the information set forth
therein. The results of operations for the six months ended June 30, 2008 are not necessarily
indicative of the operating results to be expected for the full year or any other period.
|
|
|
|
These consolidated financial statements should be read in conjunction with the financial
statements and notes included in the Companys Annual Report on Form 10-K as of and for the year
ended December 31, 2007.
|
|
2.
|
|
Fair Value Measurements
|
|
|
|
On January 1, 2008, the Company adopted the provisions of Financial Accounting Standards Board
(FASB) Statement No. 157 Fair Value Measurements (SFAS 157). SFAS 157 defines fair value
and provides a consistent framework for measuring items at fair value as previously permitted by
existing accounting pronouncements. SFAS 157 provides a fair value hierarchy which
prioritizes the quality of inputs used when measuring items at fair value and requires expanded
disclosures for fair value measurements.
|
|
|
|
On February 12, 2008, SFAS 157 was amended by FASB Staff Position No. FAS 157-2 (FSP FAS
157-2). FSP FAS 157-2 delayed the effective date of SFAS 157 for non-financial assets and
non-financial liabilities which are measured at fair value on a nonrecurring basis.
Non-financial assets and non-financial liabilities which are measured at fair value on a
recurring basis (i.e. at least annually) are not subject to this deferral. This deferral is
effective until fiscal years beginning after November 15, 2008 and interim periods within those
fiscal years. At that time, provisions of SFAS 157 will apply to non-financial assets and
non-financial liabilities which are measured at fair value on a non-recurring basis.
|
|
|
|
As of June 30, 2008, the Company has no non-financial assets or non-financial liabilities that
are measured at fair value on a recurring basis. The Company is currently evaluating the impact
of measuring non-financial assets and non-financial liabilities on a non-recurring basis.
|
|
|
|
The Companys financial assets consist of its investments in fixed maturity and equity
securities, and cash equivalents. The Company accounts for its fixed maturity and equity
securities assets at fair value under FASB Statement No. 115 Accounting for Certain Investments
in Debt and Equity Securities (SFAS 115). Historically, the Companys external fixed
maturity investment manager has provided pricing for the Companys financial assets based upon
pricing methodologies approved by the investment managers internal pricing committee utilizing
pricing information from market vendors on a pre-established provider list. Effective with the
Companys adoption of SFAS 157 and as of June 30, 2008, the Companys external fixed maturity
investment manager has assisted the Company in measuring the fair value of these financial
assets accounted for under SFAS 115, in accordance with the provisions of SFAS 157. No
cumulative effect adjustment to the opening balance of retained earnings as of January 1, 2008
was required as the result of the adoption of SFAS 157. As of June 30, 2008, the Company has no
liabilities required to be measured at fair value in accordance with the provisions of SFAS 157.
|
|
|
|
SFAS 157 Valuation Techniques:
|
|
|
|
SFAS 157 provides three acceptable valuation techniques that should be used to measure fair
value. The following is a brief description of these valuation techniques:
|
Market Approach Uses prices and other relevant information generated by market
transactions involving identical or comparable assets or liabilities to measure fair value.
7
Income Approach Uses valuation techniques to convert future amounts (i.e. cash flows or
earnings) to a single discounted present value amount to measure fair value.
Cost Approach Uses the cost that would currently be required to replace the service
capacity of an asset (current replacement cost) to measure fair value.
As of June 30, 2008, the Company primarily measured the fair value of its financial assets which
are measured on a recurring basis utilizing the Market Approach. Certain other financial assets
were measured using the Income Approach. The Company has consistently applied these valuation
techniques during the six months ended June 30, 2008.
Fair Value Hierarchy to SFAS 157 Valuation Techniques:
The SFAS 157 fair value hierarchy provides three priority levels to the inputs used in the
valuation techniques described above when determining a fair value measurement. The fair value
hierarchy gives the highest priority to observable inputs represented by quoted prices in
active markets for identical assets or liabilities (Level 1 input) and the lowest priority to
unobservable inputs primarily based upon a Companys own internal determinations of the
assumptions that a market participant would use in pricing the asset or liability (Level 3
input). In the event that the inputs utilized to measure a financial asset at fair value fall
within different levels of the fair value hierarchy, the Company uses the lowest level of the
most significant input utilized to categorize the measurement within the fair value hierarchy.
Consequently, a fair value measurement categorized as having Level 3 inputs may also contain
Level 1 or Level 2 inputs.
The following is a description of the Companys categorization of the inputs used in the
recurring fair value measurements of its financial assets included in its Consolidated Balance
Sheets as of June 30, 2008:
Level 1 Represents financial assets whose fair value is determined based upon observable
unadjusted quoted market prices for identical financial assets in active markets that the
Company has the ability to access. The Company determines a market to be active if
securities have traded on it within the last 7 business days. An example of a Level 1 input
utilized to measure fair value includes the closing price of one share of common stock on an
active exchange market.
Level 2 Represents financial assets whose fair value is determined based upon various
inputs including, but not limited to, quoted market prices for similar assets in active
markets, quoted market prices for identical assets in inactive markets, inputs other than
quoted market prices that are observable for the asset such as interest rates or yield
curves, or other inputs derived principally from or corroborated from other observable
market information. An example of a Level 2 input utilized to measure fair value,
specifically for the Companys fixed maturity portfolio, is matrix pricing. Matrix
pricing relies on observable inputs from active markets other than quoted market prices
including, but not limited to, benchmark securities and yields, latest reported trades,
quotes from brokers or dealers, issuer spreads, bids, offers, and other relevant reference
data to determine fair value. Matrix pricing is used to measure the fair value of fixed
maturity securities where obtaining individual quoted market prices is impractical.
Level 3 Represents financial assets whose fair value is determined based upon inputs that
are unobservable, including the Companys own determinations of the assumptions that a
market participant would use in pricing the asset. Examples of a Level 3 input utilized to
measure fair value include broker pricing and net asset value calculations. As financial
assets measured using Level 3 inputs may represent non-investment grade structured
securities, the Company obtains the broker pricing from either the lead manager of the issue
or from the broker used at the time the security was purchased. Material assumptions and
factors considered by the brokers in pricing these securities may include cash flows,
collateral performance including delinquencies, defaults and recoveries, and any market
clearing activity or liquidity circumstances in the security or benchmark securities that
may have occurred since the prior pricing period. Net asset value calculations are obtained
from the lead investment manager of the asset being measured.
8
The Companys external fixed maturity investment manager assists the Company with the
categorization of these inputs within the SFAS 157 fair value hierarchy based upon their
internal SFAS 157 policies and procedures, approved by their internal pricing committee.
Gains or losses for assets categorized with Level 3 inputs may include changes in fair value
that are attributable to both observable Level 1 and Level 2 inputs and unobservable Level 3
inputs.
SFAS 157 Recurring Fair Value Measurements:
The following table represents the Companys fair value hierarchy for all assets measured on a
recurring basis as of June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of June 30, 2008 Utilizing:
|
(In Thousands)
|
|
|
Quoted Prices
|
|
|
|
|
|
|
|
|
|
|
Active Markets
|
|
|
|
|
|
Significant
|
|
|
|
|
Identical Assets
|
|
Significant Other
|
|
Unobservable
|
|
|
|
|
Observable Inputs
|
|
Observable Inputs
|
|
Inputs
|
|
|
Description
|
|
(Level 1)
|
|
(Level 2)
|
|
(Level 3)
|
|
Total
|
|
US Treasury Securities and
Obligations of US Government
Corporations and Agencies
|
|
$
|
9,363
|
|
|
$
|
4,016
|
|
|
$
|
|
|
|
$
|
13,379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of States and
Political
Subdivisions
|
|
|
|
|
|
|
1,597,298
|
|
|
|
|
|
|
|
1,597,298
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and Bank Debt
Securities
|
|
|
|
|
|
|
154,885
|
|
|
|
|
|
|
|
154,885
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Backed Securities
|
|
|
|
|
|
|
200,677
|
|
|
|
19,161
|
|
|
|
219,838
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Pass-Through Securities
|
|
|
|
|
|
|
570,405
|
|
|
|
|
|
|
|
570,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized Mortgage
Obligations
|
|
|
|
|
|
|
288,404
|
|
|
|
|
|
|
|
288,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fixed Maturities
Available
For Sale at Market
|
|
$
|
9,363
|
|
|
$
|
2,815,685
|
|
|
$
|
19,161
|
|
|
$
|
2,844,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity Securities at Market
|
|
|
318,378
|
|
|
|
7,602
|
|
|
|
22,394
|
|
|
|
348,374
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Equivalents
|
|
|
101,594
|
|
|
|
|
|
|
|
|
|
|
|
101,594
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fair Value Measurements
|
|
$
|
429,335
|
|
|
$
|
2,823,287
|
|
|
$
|
41,555
|
|
|
$
|
3,294,177
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of Total Fair Value
Measurements
|
|
|
13.0
|
%
|
|
|
85.7
|
%
|
|
|
1.3
|
%
|
|
|
100.0
|
%
|
|
On at least a quarterly basis, the Company reviews the fair value hierarchy classifications
for its financial assets measured at fair value on a recurring basis. Changes in the
observability of the inputs used to calculate the fair value of these financial assets may
result in a reclassification of these financial assets within the fair value hierarchy. Any
significant reclassifications impacting Level 3 inputs of the fair value hierarchy will be
reported as transfers in or out of the Level 3 category as of the beginning of the quarter in
which the reclassification occurred.
9
Fair Value Measurements Utilizing Level 3 Inputs:
The $19.2 million of Asset Backed Securities measured utilizing Level 3 inputs included in the
table above represents two securities.
The $22.4 million of Equity Securities measured utilizing Level 3 inputs included in the table
above primarily consists of $17.9 million of investments in an international equity fund owning
international equity securities, and $4.4 million of investments in limited partnerships.
The following tables represent a summary of the changes in the fair value of the Companys
assets measured on a recurring basis using Level 3 inputs as of and for the three and six months
ended June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Utilizing Significant Unobservable (Level 3) Inputs:
|
(In Thousands)
|
|
|
|
|
|
|
Collateralized
|
|
|
|
|
|
|
Asset Backed
|
|
Mortgage
|
|
Equity
|
|
|
|
|
Securities
|
|
Obligations
|
|
Securities
|
|
Total
|
|
For The Three Months Ended
June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance as of April 1, 2008:
|
|
$
|
9,682
|
|
|
$
|
142
|
|
|
$
|
16,399
|
|
|
$
|
26,223
|
|
Total gains or loss (realized/unrealized)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
|
|
|
|
|
(7
|
)
|
|
|
(192
|
)
|
|
|
(199
|
)
|
Included in Other Comprehensive Income
|
|
|
(65
|
)
|
|
|
13
|
|
|
|
(614
|
)
|
|
|
(666
|
)
|
Purchases, issuances, settlements
|
|
|
9,882
|
|
|
|
(8
|
)
|
|
|
6,801
|
|
|
|
16,675
|
|
Transfers in and/or out of Level 3
|
|
|
(338
|
)
|
|
|
(140
|
)
|
|
|
|
|
|
|
(478
|
)
|
|
Ending Balance as of June 30, 2008:
|
|
$
|
19,161
|
|
|
$
|
|
|
|
$
|
22,394
|
|
|
$
|
41,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Six Months Ended June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning Balance as of January 1, 2008:
|
|
$
|
10,511
|
|
|
$
|
121
|
|
|
$
|
11,505
|
|
|
$
|
22,137
|
|
Total gains or loss (realized/unrealized)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Included in earnings
|
|
|
1
|
|
|
|
(12
|
)
|
|
|
(795
|
)
|
|
|
(806
|
)
|
Included in Other Comprehensive Income
|
|
|
(835
|
)
|
|
|
47
|
|
|
|
(1,862
|
)
|
|
|
(2,650
|
)
|
Purchases, issuances, settlements
|
|
|
9,822
|
|
|
|
(16
|
)
|
|
|
13,546
|
|
|
|
23,352
|
|
Transfers in and/or out of Level 3
|
|
|
(338
|
)
|
|
|
(140
|
)
|
|
|
|
|
|
|
(478
|
)
|
|
Ending Balance as of June 30, 2008:
|
|
$
|
19,161
|
|
|
$
|
|
|
|
$
|
22,394
|
|
|
$
|
41,555
|
|
Realized gains and losses included in earnings for the three and six months ended June 30, 2008
are reported as net realized investment gain (loss). During the three and six months ended June
30, 2008, the Company recorded $0.2 million and $0.8 million, respectively, of net realized
investment losses on its assets measured at fair value on a recurring basis utilizing Level 3
inputs within the net realized investment gain (loss) line of revenues.
For the three and six months ended June 30, 2008, the Company has not included any gains or
losses in earnings that are attributable to the change in unrealized gains or losses relating to
assets still held as of June 30, 2008. Due to the fact that the Companys investment portfolio
is classified as available for sale under SFAS 115, unrealized gains and losses are recorded as
a component of other comprehensive income rather than earnings.
SFAS 159 Fair Value Option for Eligible Financial Assets and Liabilities:
On January 1, 2008, the provisions of Statement No. 159 The Fair Value Options for Financial
Assets and Financial Liabilities (SFAS 159) also became effective. The purpose of SFAS 159
was to expand the use of fair value measurements by providing entities with the option of
measuring certain financial assets and liabilities at fair value, which were previously measured
on a basis other than fair value under existing accounting pronouncements. The Company did not
elect the fair value option under SFAS 159 for any of its eligible financial instruments as of
June 30, 2008.
10
3.
|
|
Investments
|
|
|
|
Impairment Reviews as of June 30, 2008:
|
|
|
|
The Company regularly performs impairment reviews with respect to its investments. There are
certain risks and uncertainties inherent in the Companys impairment methodology, including, but
not limited to, the financial condition of specific industry sectors and the resultant effect on
any such underlying security collateral values and changes in accounting, tax, and/or regulatory
requirements which may have an effect on either, or both, the investor and/or the issuer. For
investments other than interests in securitized assets, these reviews include identifying any
security whose fair value is below its cost and an analysis of securities meeting predetermined
impairment thresholds to determine whether such decline is other than temporary. If the Company
does not intend to hold a security to maturity or determines a decline in value to be other than
temporary, the cost basis of the security is written down to its fair value with the amount of
the write down included in earnings as a realized investment loss in the period the impairment
arose. This evaluation, for investments other than interests in securitized assets, resulted
in non-cash realized investment losses of $11.7 million and $0.1 million, respectively, for the
three months ended June 30, 2008 and 2007, and $22.4 million and $2.6 million, respectively, for
the six months ended June 30, 2008 and 2007. The Companys impairment review also includes an
impairment evaluation for interests in securitized assets conducted in accordance with the
guidance provided by the Emerging Issues Task Force of the FASB. As a result of the Companys
impairment evaluation for investments in securitized assets, there were no non-cash realized
investment losses recorded for the three or six months ended June 30, 2008 or 2007
|
|
|
|
The following table identifies the period of time securities with an unrealized loss as of June
30, 2008 have continuously been in an unrealized loss position. None of the amounts displayed in
the table are due to non-investment grade fixed maturity securities. No issuer of securities or
industry represents more than 2.0% and 22.9%, respectively, of the total estimated fair value,
or 4.7% and 11.4%, respectively, of the total gross unrealized loss included in the table below.
The industry concentration as a percentage of total estimated fair value represents investments
in a geographically diversified pool of investment grade Municipal securities issued by states,
political subdivisions, and public authorities under general obligation and/or special
district/purpose issuing authority. The industry concentration as a percentage of the total
gross unrealized loss primarily represents investments in equity securities issued by companies
in the Diversified Financial Services industry.
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
12 Months or More
|
|
Total
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
Fair Value
|
|
Losses
|
|
Fair Value
|
|
Losses
|
|
Fair Value
|
|
Losses
|
|
|
|
June 30, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Maturities Available for Sale:
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury Securities and
Obligations of U.S. Government
Corporations and Agencies
|
|
$
|
714
|
|
|
$
|
22
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
714
|
|
|
$
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of States and
Political Subdivisions
|
|
|
871,007
|
|
|
|
13,875
|
|
|
|
165,804
|
|
|
|
6,176
|
|
|
|
1,036,811
|
|
|
|
20,051
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and Bank Debt Securities
|
|
|
83,673
|
|
|
|
1,816
|
|
|
|
5,458
|
|
|
|
315
|
|
|
|
89,131
|
|
|
|
2,131
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Backed Securities
|
|
|
100,906
|
|
|
|
3,083
|
|
|
|
13,420
|
|
|
|
1,079
|
|
|
|
114,326
|
|
|
|
4,162
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Pass-Through Securities
|
|
|
318,167
|
|
|
|
4,591
|
|
|
|
25,203
|
|
|
|
897
|
|
|
|
343,370
|
|
|
|
5,488
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized Mortgage Obligations
|
|
|
82,578
|
|
|
|
2,993
|
|
|
|
20,468
|
|
|
|
1,057
|
|
|
|
103,046
|
|
|
|
4,050
|
|
|
Total Fixed Maturities
Available for Sale
|
|
$
|
1,457,045
|
|
|
$
|
26,380
|
|
|
$
|
230,353
|
|
|
$
|
9,524
|
|
|
$
|
1,687,398
|
|
|
$
|
35,904
|
|
|
Equity Securities
|
|
|
155,737
|
|
|
|
30,255
|
|
|
|
|
|
|
|
|
|
|
|
155,737
|
|
|
|
30,255
|
|
|
Total Investments
|
|
$
|
1,612,782
|
|
|
$
|
56,635
|
|
|
$
|
230,353
|
|
|
$
|
9,524
|
|
|
$
|
1,843,135
|
|
|
$
|
66,159
|
|
|
The Companys impairment evaluation as of June 30, 2008 for fixed maturities available for sale
excluding interests in securitized assets resulted in the following conclusions:
U.S. Treasury Securities and Obligations of U.S. Government Agencies:
The unrealized losses on the Companys investments in U.S. Treasury Securities and
Obligations of U.S. Government Agencies which have ratings of Aaa/AAA are attributable to
the general level of interest rates. Of the 29 investment positions held, approximately
10.3% were in an unrealized loss position as of June 30, 2008.
Obligations of States and Political Subdivisions:
The unrealized losses on the Companys investments in long term tax exempt securities which
have ratings of Baa3/BBB- to Aaa/AAA are attributable to changes both in market spreads and
in the level of Treasury yields. Of the 968 investment positions held, approximately 57.9%
were in an unrealized loss position. The contractual terms of the investments do not permit
the issuer to settle the securities at a price less than the amortized cost of the
investments. Therefore, it is expected that the securities would not be settled at a price
less than the amortized cost of the investments.
Corporate and Bank Debt Securities:
The unrealized losses on the Companys long term investments in Corporate bonds which have
ratings from Baa3/BBB to Aaa/AAA are attributable primarily to changes in market spreads.
Of the 62 investment positions held, approximately 59.7% were in an unrealized loss
position. The contractual terms of the investments do not permit the issuer to settle the
securities at a price less than the amortized cost of the investments. Therefore, it is
expected that the securities would not be settled at a price less than the amortized cost of
the investments.
The Companys impairment evaluation as of June 30, 2008 for interests in securitized assets
resulted in the following conclusions:
Asset Backed Securities:
The unrealized losses on the Companys investments in Asset Backed Securities which have
ratings of Baa2/BBB to Aaa/AAA are attributable primarily to changes in market spreads. Of
the 113 investment positions held, approximately 53.1% were in an unrealized loss position.
The contractual terms of the
12
investments do not permit the issuer to settle the security at a price less than the
amortized cost of the investments. Therefore, it is expected that the securities would not
be settled at a price less than the amortized cost of the investments.
Mortgage Pass-Through Securities:
The unrealized losses on the Companys investments in U.S. government agency issued Mortgage
Pass-Through Securities which have ratings of Aaa/AAA are attributable primarily to changes
in market spreads. Of the 150 investment positions held, approximately 57.3% were in an
unrealized loss position. The contractual terms of the investments do not permit the issuer
to settle the security at a price less than the amortized cost of the investments.
Therefore, it is expected that the securities would not be settled at a price less than the
amortized cost of the investments.
Collateralized Mortgage Obligations:
The unrealized losses on the Companys investments in Collateralized Mortgage Obligations
which have ratings of A2/Ato Aaa/AAA are attributable primarily to changes in market
spreads. Of the 167 investment positions held, approximately 33.5% were in an unrealized
loss position. The contractual terms of the investments do not permit the issuer to settle
the security at a price less than the amortized cost of the investments. Therefore, it is
expected that the securities would not be settled at a price less than the amortized cost of
the investments.
The Companys impairment evaluation as of June 30, 2008 for equity securities resulted in the
conclusion that the Company does not consider the equity securities remaining in an unrealized
loss position to be other than temporarily impaired. Of the 2,922 investment positions held,
approximately 45.8% were in an unrealized loss position.
Structured Securities Investment Portfolio:
The fair value of the Companys structured securities investment portfolio (Asset Backed,
Mortgage Pass-Through and Collateralized Mortgage Obligation securities) amounted to $1,078.0
million as of June 30, 2008. AAA rated securities represented approximately 98.6% of the June
30, 2008 structured securities portfolio. Approximately $864.5 million of the structured
securities investment portfolio is backed by residential collateral, consisting of:
|
|
|
$569.4 million of U.S. government agency backed Mortgage Pass-Through Securities;
|
|
|
|
|
$207.7 million of U.S. government agency backed Collateralized Mortgage Obligations;
|
|
|
|
|
$68.1 million of non-U.S. government agency Collateralized Mortgage Obligations backed
by pools of prime loans (generally consists of loans made to the highest credit quality
borrowers with Fair Isaac Corporation (FICO) scores generally greater than 720);
|
|
|
|
|
$16.2 million of structured securities backed by pools of ALT A loans (loans with less
than normal documentation and borrowers with FICO scores in the approximate range of 650 to
the low 700s); and
|
|
|
|
|
$3.1 million of structured securities backed by pools of subprime loans (loans with low
documentation, higher combined loan-to-value ratios and borrowers with FICO scores capped
at approximately 650).
|
The Companys $19.3 million ALT-A and subprime overall AAA rated loan portfolio is comprised of
20 securities with net unrealized losses of $0.9 million as of June 30, 2008. These securities
have the following characteristics:
|
|
|
first to pay or among the first cash flow tranches of their respective transactions;
|
|
|
|
|
weighted average life of 1.9 years;
|
|
|
|
|
spread across multiple vintages (origination year of underlying collateral pool); and
|
|
|
|
|
have not experienced any ratings downgrades as of June 30, 2008.
|
The Companys ALT-A and subprime loan portfolio has paid down to $19.3 million as of June 30,
2008 from $27.6 million as of December 31, 2007, and $42.0 million as of June 30, 2007.
13
As of June 30, 2008, the Company holds no investments in Collateralized Debt Obligations or Net
Interest Margin securities.
The Company expects fixed maturity and equity markets, in general, to continue to experience
more volatility than during most prior historical reporting periods over the past few years.
This expectation is based on a number of variables including, but not limited to, events in the
housing and mortgage finance sectors, issues surrounding the monoline financial guarantors and
the impact on municipal and asset backed finance and the effect on capital markets and investors
as financial institutions de-leverage and undergo a period of recapitalization. As of June 30,
2008, the Company had no impairments or surveillance issues related to these market conditions.
However, the Company expects that ongoing volatility in these sectors, in particular, and in
spread related sectors, in general, may impact the prices of securities held in the Companys
average AA+ rated investment portfolio, including its average AAA rated structured securities
portfolio.
Amortized Cost of Structured Securities:
For mortgage and asset-backed securities (structured securities) of high credit quality,
changes in expected cash flows are recognized using the retrospective method. Under the
retrospective method, the effective yield on a security is recalculated each period based upon
future expected and past actual cash flows. The securitys book value is restated based upon
the most recently calculated effective yield, assuming such yield had been in effect from the
securitys purchase date. The retrospective method results in an increase or decrease to
investment income (amortization of premium or discount) at the time of each recalculation.
Future expected cash flows consider various prepayment assumptions, as well as current market
conditions. These assumptions include, but are not limited to, prepayment rates, default rates,
and loss severities.
For structured securities where the possibility of credit loss is other than remote, changes in
expected cash flows are recognized on the prospective method over the remaining life of the
security. Under the prospective method, revisions to cash flows are reflected in a higher or
lower effective yield in future periods and there are no adjustments to the securitys book
value. Various assumptions are used to estimate projected cash flows and projected book yields
based upon the most recent month end market prices. These assumptions include, but are not
limited to, prepayment rates, default rates, and loss severities.
Cash flow assumptions for structured securities are obtained from a primary market provider of
such information. These assumptions represent a market based best estimate of the amount and
timing of estimated principal and interest cash flows based on current information and events.
Prepayment assumptions for asset/mortgage backed securities consider a number of factors in
estimating the prepayment activity, including, but not limited to, seasonality (the time of the
year), refinancing incentive (current level of interest rates), economic activity (including
housing turnover) and burnout/seasoning (term and age of the underlying collateral).
Municipal Bond Portfolio:
The Companys $1,606.6 million municipal bond overall AA+ rated portfolio consists of $996.1
million of insured securities, or 62.0% of the Companys total municipal bond portfolio. The
weighted average underlying rating of the insured portion of the Companys municipal bond
portfolio is AA and the weighted average underlying rating of the uninsured portion of the
Companys municipal bond portfolio is AA+. The following table represents the Companys insured
bond portfolio by monoline insurer as of June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market Value of Insured
|
|
|
|
|
|
Weighted Average
|
|
|
|
Municipal Bonds
|
|
|
Percentage of Municipal
|
|
|
Underlying Rating of
|
|
Monoline Insurer
|
|
(In Thousands)
|
|
|
Bond Portfolio
|
|
|
Insured Municipal Bonds
|
|
Financial Security Assurance, Inc.
|
|
$
|
327,889
|
|
|
|
20.4
|
%
|
|
AA
|
MBIA, Inc.
|
|
|
298,740
|
|
|
|
18.6
|
|
|
AA
|
FGIC Corporation.
|
|
|
198,943
|
|
|
|
12.4
|
|
|
AA-
|
AMBAC Financial Group, Inc.
|
|
|
166,058
|
|
|
|
10.3
|
|
|
AA-
|
XL Capital, LTD.
|
|
|
4,444
|
|
|
|
0.3
|
|
|
AA-
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
996,074
|
|
|
|
62.0
|
%
|
|
AA
|
|
|
|
|
|
|
|
|
|
|
14
At the time of purchase, each municipal bond is evaluated with regard to certain characteristics
including, but not limited to, the issuer, the underlying obligation and/or the revenue
pledge/collateral. The presence of any financial guarantee insurance is not an attribute used
in the purchase decision. The Company considers the financial guarantee insurance to be
extra protection. As of June 30, 2008, the Company had no impairments or surveillance issues
related to these insured municipal bonds.
Impairment Reviews as of December 31, 2007:
The following table identifies the period of time securities with an unrealized loss as of
December 31, 2007 have continuously been in an unrealized loss position. None of the amounts
displayed in the table are due to non-investment grade fixed maturity securities. No issuer of
securities or industry represents more than 3.8% and 19.9%, respectively, of the total estimated
fair value, or 9.0% and 20.5%, respectively, of the total gross unrealized loss included in the
table below. The industry concentration as a percentage of total estimated fair value
represents investments in a geographically diversified pool of investment grade Municipal
securities issued by states, political subdivisions, and public authorities under general
obligation and/or special district/purpose issuing authority. The industry concentration as a
percentage of the total gross unrealized loss primarily represents investments in equity
securities issued by companies in the Diversified Financial Services industry.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less Than 12 Months
|
|
12 Months or More
|
|
Total
|
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
|
|
|
Unrealized
|
|
|
Fair Value
|
|
Losses
|
|
Fair Value
|
|
Losses
|
|
Fair Value
|
|
Losses
|
|
|
|
December 31, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed Maturities Available for Sale:
|
|
|
|
|
|
|
|
|
|
(In Thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury Securities and
Obligations of U.S. Government
Corporations and Agencies
|
|
$
|
|
|
|
$
|
|
|
|
$
|
5,670
|
|
|
$
|
21
|
|
|
$
|
5,670
|
|
|
$
|
21
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Obligations of States and
Political Subdivisions
|
|
|
294,719
|
|
|
|
2,377
|
|
|
|
203,427
|
|
|
|
1,006
|
|
|
|
498,146
|
|
|
|
3,383
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and Bank Debt Securities
|
|
|
7,835
|
|
|
|
33
|
|
|
|
58,709
|
|
|
|
570
|
|
|
|
66,544
|
|
|
|
603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Backed Securities
|
|
|
50,574
|
|
|
|
138
|
|
|
|
13,989
|
|
|
|
81
|
|
|
|
64,563
|
|
|
|
219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Pass-Through Securities
|
|
|
68,691
|
|
|
|
366
|
|
|
|
128,382
|
|
|
|
1,493
|
|
|
|
197,073
|
|
|
|
1,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collateralized Mortgage Obligations
|
|
|
30,731
|
|
|
|
236
|
|
|
|
65,252
|
|
|
|
725
|
|
|
|
95,983
|
|
|
|
961
|
|
|
Total Fixed Maturities
Available for Sale
|
|
|
452,550
|
|
|
|
3,150
|
|
|
|
475,429
|
|
|
|
3,896
|
|
|
|
927,979
|
|
|
|
7,046
|
|
|
Equity Securities
|
|
|
118,095
|
|
|
|
22,159
|
|
|
|
|
|
|
|
|
|
|
|
118,095
|
|
|
|
22,159
|
|
|
Total Investments
|
|
$
|
570,645
|
|
|
$
|
25,309
|
|
|
$
|
475,429
|
|
|
$
|
3,896
|
|
|
$
|
1,046,074
|
|
|
$
|
29,205
|
|
|
The Companys impairment evaluation as of December 31, 2007 for fixed maturities available for
sale excluding interests in securitized assets resulted in the following conclusions:
US Treasury Securities and Obligations of U.S. Government Agencies:
The unrealized losses on the Companys Aaa/AAA rated investments in U.S. Treasury Securities
and Obligations of U.S. Government Agencies are attributable to interest rate fluctuations
since the date of purchase. Of the 30 investment positions held, approximately 26.7% were in
an unrealized loss position. The contractual terms of the investments do not permit the issuer
to settle the securities at a price less than the amortized cost of the investments.
Therefore, it is expected that the securities would not be settled at a price less than the
amortized cost of the investments.
Obligations of States and Political Subdivisions:
The unrealized losses on the Companys investments in long term tax exempt securities which
have ratings of A1/A+ to Aaa/AAA are attributable to the spread widening. Of the 873
investment positions held, approximately 32.8% were in an unrealized loss position. The
contractual terms of the investments do not
15
permit the issuer to settle the securities at a price less than the amortized cost of the
investments. Therefore, it is expected that the securities would not be settled at a price
less than the amortized cost of the investments.
Corporate and Bank Debt Securities:
The unrealized losses on the Companys long term investments in Corporate bonds which have
ratings from Baa3/BBB to Aaa/AAA are attributable to the spread widening. Of the 73
investment positions held, approximately 79.5% were in an unrealized loss position. The
contractual terms of the investments do not permit the issuer to settle the securities at a
price less than the amortized cost of the investments. Therefore, it is expected that the
securities would not be settled at a price less than the amortized cost of the investments.
The Companys impairment evaluation as of December 31, 2007 for interests in securitized assets
resulted in the following conclusions:
Asset Backed Securities:
The unrealized losses on the Companys investments in Asset Backed Securities which have
ratings from A2/A to Aaa/AAA are attributable to the spread widening. Of the 116 investment
positions held, approximately 40.5% were in an unrealized loss position. The contractual terms
of the investments do not permit the issuer to settle the security at a price less than the
amortized cost of the investments. Therefore, it is expected that the securities would not be
settled at a price less than the amortized cost of the investments.
Mortgage Pass-Through Securities:
The unrealized losses on the Companys investments in U.S. Government Agency Issued Mortgage
Pass-Through Securities which have ratings of Aaa/AAA are attributable to the spread widening.
Of the 150 investment positions held the average rating was Aaa/AAA and approximately 38.7%
were in an unrealized loss position. The contractual terms of the investments do not permit
the issuer to settle the security at a price less than the amortized cost of the investments.
Therefore, it is expected that the securities would not be settled at a price less than the
amortized cost of the investments.
Collateralized Mortgage Obligations:
The unrealized losses on the Companys investments in Collateralized Mortgage Obligations
which have ratings of Aa2/AA+ to Aaa/AAA are attributable to the spread widening. Of the 172
investment positions held the average rating was Aaa/AAA and approximately 41.3% were in an
unrealized loss position. The contractual terms of the investments do not permit the issuer
to settle the security at a price less than the amortized cost of the investments. Therefore,
it is expected that the securities would not be settled at a price less than the amortized
cost of the investments.
The Companys impairment evaluation as of December 31, 2007 for equity securities resulted in
the conclusion that the Company does not consider the equity securities to be other than
temporarily impaired. Of the 2,674 investment positions held, approximately 38.4% were in an
unrealized loss position.
4.
|
|
Restricted Assets
|
|
|
|
The Insurance Subsidiaries have investments, principally U.S. Treasury securities and
Obligations of States and Political Subdivisions, on deposit with the various states in which
they are licensed insurers. As of June 30, 2008 and December 31, 2007, the carrying value of the
securities on deposit totaled $16.7 million and $15.7 million, respectively.
|
|
|
|
Additionally, as of June 30, 2008 the Insurance Subsidiaries had $57.2 million
of borrowings outstanding within the Federal Home Loan Bank of Pittsburgh (FHLB).
These borrowings are collateralized by investments, principally asset backed securities, with a
carrying value of $82.1 million as of June 30, 2008. As of December 31, 2007,
the Insurance Subsidiaries had no borrowings outstanding or investments pledged as collateral
to FHLB.
|
|
5.
|
|
Liability for Unpaid Loss and Loss Adjustment Expenses
|
|
|
|
The liability for unpaid loss and loss adjustment expenses reflects the Companys best estimate
for future amounts needed to pay losses and related settlement expenses with respect to insured
events. The process of
|
16
|
|
establishing the liability for property and casualty unpaid loss and loss adjustment expenses is
a complex and imprecise process, requiring the use of informed estimates and judgments. The
liability includes an amount determined on the basis of claim adjusters evaluations with
respect to insured events that have been reported to the Company and an amount for losses
incurred that have not yet been reported to the Company. In some cases significant periods of
time, up to several years or more, may elapse between the occurrence of an insured loss and the
reporting it to the Company.
|
|
|
|
Estimates for unpaid loss and loss adjustment expenses are based on managements assessment of
known facts and circumstances, review of past loss experience and settlement patterns and
consideration of other internal and external factors. These factors include, but are not
limited to, the Companys growth, changes in the Companys operations, and legal, social, and
economic developments. These estimates are reviewed regularly and any resulting adjustments are
made in the accounting period in which the adjustment arose. If the Companys ultimate losses,
net of reinsurance, prove to differ substantially from the amounts recorded as of June 30, 2008,
the related adjustments could have a material adverse impact on the Companys financial
condition and results of operations.
|
|
|
|
During the three months ended June 30, 2008, the Company decreased the estimated net unpaid loss
and loss adjustment expenses for accident years 2007 and prior by the following amounts:
|
|
|
|
|
|
|
|
Net
|
|
(In Millions)
|
|
Decrease
|
|
Accident Year 2007
|
|
$
|
6.6
|
|
Accident Year 2006
|
|
|
4.8
|
|
Accident Year 2005
|
|
|
4.1
|
|
Accident Years 2004 and prior
|
|
|
3.0
|
|
|
|
|
|
Total
|
|
$
|
18.5
|
|
|
|
|
|
For accident year 2007, the decrease in estimated net unpaid loss and loss adjustment expenses
was principally due to lower loss estimates for commercial general liability, commercial
property, and management liability coverages due to better than expected case incurred loss
development, primarily as a result of claim frequency being less than anticipated for commercial
general liability and commercial property coverages, and claim severity being less than
anticipated for management liability coverage. These lower loss estimates were partially offset
by higher loss estimates for commercial automobile coverages due to higher than expected case
incurred loss development, primarily as a result of both claim frequency and severity being
greater than anticipated.
For accident year 2006, the decrease in estimated net unpaid loss and loss adjustment expenses
was principally due to lower loss estimates for commercial property and professional liability
coverages due to better than expected case incurred loss development, primarily as a result of
claim severity being less than anticipated. These lower loss estimates were partially offset by
higher loss estimates for commercial automobile coverages due to higher than expected case
incurred loss development, primarily as a result of claim severity being greater than
anticipated.
For accident year 2005, the decrease in estimated net unpaid loss and loss adjustment expenses
was principally due to lower loss estimates for management liability and professional liability
coverages due to better than expected case incurred loss development, primarily as a result of
claim severity being less than anticipated.
For accident years 2004 and prior, the decrease in estimated net unpaid loss and loss adjustment
expenses was principally due to lower loss estimates for commercial general liability,
management liability, and professional liability coverages due to better than expected case
incurred loss development, primarily as a result of claim severity being less than anticipated.
During the six months ended June 30, 2008, the Company decreased the estimated net unpaid loss
and loss adjustment expenses for accident years 2007 and prior by the following amounts:
17
|
|
|
|
|
|
|
Net
|
|
(In Millions)
|
|
Decrease
|
|
Accident Year 2007
|
|
$
|
4.7
|
|
Accident Year 2006
|
|
|
8.9
|
|
Accident Year 2005
|
|
|
5.3
|
|
Accident Years 2004 and prior
|
|
|
5.5
|
|
|
|
|
|
Total
|
|
$
|
24.4
|
|
|
|
|
|
For accident year 2007, the decrease in estimated net unpaid loss and loss adjustment expenses
was principally due to lower loss estimates for commercial general liability and management
liability coverages due to better than expected case incurred loss development, primarily as a
result of claim frequency being less than anticipated for commercial general liability coverage
and claim severity being less than anticipated for management liability coverage These lower
loss estimates were partially offset by higher loss estimates for commercial automobile
coverages due to higher than expected case incurred loss development, primarily as a result of
both claim frequency and severity being greater than anticipated.
For accident year 2006, the decrease in estimated net unpaid loss and loss adjustment expenses
was principally due to lower loss estimates for commercial general liability, commercial
property, and professional liability coverages due to better than expected case incurred loss
development, primarily as a result of claim severity being less than anticipated. These lower
loss estimates were partially offset by higher loss estimates for commercial automobile
coverages due to higher than expected case incurred loss development, primarily as a result of
claim severity being greater than anticipated.
For accident year 2005, the decrease in estimated net unpaid loss and loss adjustment expenses
was principally due to lower loss estimates for commercial general liability and management
liability and professional liability coverages due to better than expected case incurred loss
development, primarily as a result of claim severity being less than anticipated.
For accident years 2004 and prior, the decrease in estimated net unpaid loss and loss adjustment
expenses was principally due to lower loss estimates across most coverages due to better than
expected case incurred loss development, primarily as a result of claim severity being less than
anticipated.
6.
|
|
Shareholders Equity
|
|
|
|
The Philadelphia Consolidated Holding Corp. Amended and Restated Employees Stock Incentive and
Performance Based Compensation Plan (the Plan) provides incentives and awards to those
employees and members of the Board (participants) largely responsible for the long term
success of the Company. Under the Plan, the Company issued 512,760 and 436,607 stock settled
appreciation rights (SARS) during the six months ended June 30, 2008 and the year ended
December 31, 2007, respectively. The Company also issued 259,695 and 146,884 shares of
restricted stock awards during the six months ended June 30, 2008 and the year ended December
31, 2007, respectively.
|
|
7.
|
|
Stock Repurchase
|
|
|
|
During the six months ended June 30, 2008, the Company repurchased 1,353,200 shares of stock at
a cost of $42.9 million under its stock repurchase authorization. As of June 30, 2008, $52.1
million remains available under previous stock purchase authorizations which aggregated $125.3
million. During the six months ended June 30, 2007, the Company did not repurchase any shares
of stock under its stock repurchase authorization.
|
|
8.
|
|
Earnings Per Share
|
|
|
|
Earnings per common share have been calculated by dividing net income for the period by the
weighted average number of common shares and common share equivalents outstanding during the
period. The computation of earnings per share for the three and six months ended June 30, 2008
and 2007, is as follows:
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and For the Three
|
|
|
As of and For the Six
|
|
|
|
Months Ended June 30,
|
|
|
Months Ended June 30,
|
|
(In Thousands, Except Per Share Amounts)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Weighted-Average Common Shares Outstanding
|
|
|
69,809
|
|
|
|
70,362
|
|
|
|
70,129
|
|
|
|
70,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average Potential Shares Issuable
|
|
|
2,609
|
|
|
|
3,835
|
|
|
|
2,598
|
|
|
|
3,966
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average Shares and Potential
Shares Issuable
|
|
|
72,418
|
|
|
|
74,197
|
|
|
|
72,727
|
|
|
|
74,222
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
52,908
|
|
|
$
|
94,401
|
|
|
$
|
115,584
|
|
|
$
|
160,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings per Share
|
|
$
|
0.76
|
|
|
$
|
1.34
|
|
|
$
|
1.65
|
|
|
$
|
2.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings per Share
|
|
$
|
0.73
|
|
|
$
|
1.27
|
|
|
$
|
1.59
|
|
|
$
|
2.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables present stock appreciation rights (SARS) that were outstanding during 2008
or 2007, but were not included in the computation of earnings per share as of or for the three or
six months ended June 30, 2008 and 2007 because the SARS hypothetical option price was greater
than the average market prices of the Companys common shares for the period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and For the Three Months Ended June 30, 2008
|
|
As of and For the Three Months Ended June 30, 2007
|
SARS Outstanding
|
|
|
|
|
|
|
|
SARS Outstanding
|
|
|
|
|
as of
|
|
Hypothetical
|
|
Expiration Date
|
|
as of
|
|
Hypothetical
|
|
Expiration Date
|
June 30, 2008
|
|
Option Price
|
|
of SAR
|
|
June 30, 2007
|
|
Option Price
|
|
of SAR
|
|
30,000
|
|
|
$
|
39.95
|
|
|
September 28, 2016
|
|
|
407,446
|
|
|
$
|
47.52
|
|
|
February 21, 2017
|
|
407,446
|
|
|
$
|
47.52
|
|
|
February 21, 2017
|
|
|
25,000
|
|
|
$
|
43.44
|
|
|
March 19, 2017
|
|
25,000
|
|
|
$
|
43.44
|
|
|
March 19, 2017
|
|
|
|
|
|
|
|
|
|
|
|
661
|
|
|
$
|
42.41
|
|
|
May 1, 2017
|
|
|
|
|
|
|
|
|
|
|
|
3,500
|
|
|
$
|
36.85
|
|
|
August 1, 2017
|
|
|
|
|
|
|
|
|
|
|
|
65,620
|
|
|
$
|
37.12
|
|
|
April 29, 2018
|
|
|
|
|
|
|
|
|
|
|
|
As of and For the Six Months Ended June 30, 2008
|
|
As of and For the Six Months Ended June 30, 2007
|
SARS Outstanding
|
|
|
|
|
|
|
|
SARS Outstanding
|
|
|
|
|
as of
|
|
Hypothetical
|
|
Expiration Date
|
|
as of
|
|
Hypothetical
|
|
Expiration Date
|
June 30, 2008
|
|
Option Price
|
|
of SAR
|
|
June 30, 2007
|
|
Option Price
|
|
of SAR
|
|
22,500
|
|
|
$
|
35.35
|
|
|
March 1, 2016
|
|
|
407,446
|
|
|
$
|
47.52
|
|
|
February 21, 2017
|
|
30,000
|
|
|
$
|
39.95
|
|
|
September 28, 2016
|
|
|
|
|
|
|
|
|
|
|
|
407,446
|
|
|
$
|
47.52
|
|
|
February 21, 2017
|
|
|
|
|
|
|
|
|
|
|
|
25,000
|
|
|
$
|
43.44
|
|
|
March 19, 2017
|
|
|
|
|
|
|
|
|
|
|
|
661
|
|
|
$
|
42.41
|
|
|
May 1, 2017
|
|
|
|
|
|
|
|
|
|
|
|
3,500
|
|
|
$
|
36.85
|
|
|
August 1, 2017
|
|
|
|
|
|
|
|
|
|
|
|
65,620
|
|
|
$
|
37.12
|
|
|
April 29, 2018
|
|
|
|
|
|
|
|
|
|
|
9.
|
|
Income Taxes
|
|
|
|
The Companys liability for its unrecognized tax benefits was $0.2 million as of June 30, 2008
and December 31, 2007. As of June 30, 2008 and December 31, 2007, the total amount of
unrecognized tax benefits that, if recognized, would affect the effective tax rate was $0.2
million. Interest and penalties accrued for the underpayment of taxes are recorded as a
component of income tax expense. The liability for interest and penalties amounted to $0.1
million as of June 30, 2008 and December 31, 2007.
|
|
|
|
The Company and its subsidiaries file Federal and State income tax returns as required. The
Company and its subsidiaries are subject to Federal and State examinations for tax years 2003
through 2007, and 2005 through 2007, respectively.
|
|
|
|
The effective tax rate differs from the 35% marginal tax rate principally as a result of
tax-exempt interest income, the dividend received deduction and other differences in the
recognition of revenues and expenses for tax and financial reporting purposes.
|
|
10.
|
|
Reinsurance
|
|
|
|
In the normal course of business, the Company has entered into various reinsurance contracts
with unrelated reinsurers. The Company participates in such agreements for the purpose of
limiting loss exposure and diversifying business. Reinsurance contracts do not relieve the
Company from its obligations to policyholders. The effect of reinsurance on written and earned
premiums is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended
|
|
|
For the Three Months Ended
|
|
|
|
June 30, 2008
|
|
|
June 30, 2007
|
|
(In Thousands)
|
|
Written
|
|
|
Earned
|
|
|
Written
|
|
|
Earned
|
|
Direct Business
|
|
$
|
444,741
|
|
|
$
|
439,538
|
|
|
$
|
397,829
|
|
|
$
|
394,634
|
|
Reinsurance Assumed
|
|
|
538
|
|
|
|
808
|
|
|
|
684
|
|
|
|
865
|
|
Reinsurance Ceded
|
|
|
(46,833
|
)
|
|
|
(47,309
|
)
|
|
|
(59,326
|
)
|
|
|
(58,184
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Premiums
|
|
$
|
398,446
|
|
|
$
|
393,037
|
|
|
$
|
339,187
|
|
|
$
|
337,315
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
June 30, 2008
|
|
|
June 30, 2007
|
|
|
|
Written
|
|
|
Earned
|
|
|
Written
|
|
|
Earned
|
|
Direct Business
|
|
$
|
887,345
|
|
|
$
|
867,830
|
|
|
$
|
791,360
|
|
|
$
|
771,576
|
|
Reinsurance Assumed
|
|
|
1,021
|
|
|
|
1,425
|
|
|
|
1,267
|
|
|
|
1,538
|
|
Reinsurance Ceded
|
|
|
(83,952
|
)
|
|
|
(96,830
|
)
|
|
|
(116,007
|
)
|
|
|
(117,081
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Premiums
|
|
$
|
804,414
|
|
|
$
|
772,425
|
|
|
$
|
676,620
|
|
|
$
|
656,033
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
19
11.
|
|
Commitments and Contingencies
|
|
|
|
Legal Proceedings:
|
|
|
|
On February 26, 2008, the Company received a complaint filed on February 14, 2008 with the U.S.
District Court for the Southern District of Florida by seven individuals. These individuals
purported to act on behalf of a class of similarly situated persons who had been issued
insurance policies by Liberty American Select Insurance Company, formerly known as Mobile USA
Insurance Company (LASIC). The complaint, which is alleged to be a class action complaint,
was filed against the Company and its subsidiaries, LASIC, Liberty American Insurance Company
and Liberty American Insurance Group, Inc. The complaint requests an unspecified amount of
damages in excess of $5,000,000 and equitable relief to prevent the defendants from committing
what are alleged to be unfair business practices. The plaintiffs allege that from the period
from at least as early as September 1, 2003 through December 31, 2006 they and other
policyholders sustained property damage covered under policies issued by LASIC, and that LASIC
improperly denied or paid only a portion of the policyholders claims for which they were
entitled to be reimbursed.
|
|
|
|
The Company believes that it has valid defenses to the claims made in the complaint, and that
the claims may not be entitled to be brought as a class action. The Company will vigorously
defend against such claims. Although there is no assurance as to the outcome of this litigation
or as to its effect on the Companys financial position, the Company believes, based on the
facts currently known to it, that the outcome of this litigation will not have a material
adverse effect on its financial position.
|
|
|
|
The Company is also subject to routine legal proceedings in connection with its property and
casualty insurance business.
|
|
|
|
Credit Agreement:
|
|
|
|
The Company maintains an unsecured Credit Agreement (the Credit Agreement) which establishes a
revolving credit facility providing for loans to the Company of up to $50.0 million in principal
amount outstanding at any one time. The Credit Agreement had a maturity date of June 27, 2008,
which was extended to July 11, 2008. The Credit Agreement contains an annual commitment fee of
6.0 basis points per annum on the unused commitments under the Credit Agreement. Each loan under
the amended Credit Agreement will bear interest at a per annum rate equal to, at the Companys
option, (i) Libor plus 0.35% or (ii) the higher of the administrative agent and lenders prime
rate and the Federal Funds rate plus 0.50%. As of June 30, 2008, no borrowings were outstanding
under the Credit Agreement. The Credit Agreement contains various representations, covenants and
events of default typical for credit facilities of this type. As of June 30, 2008, the Company
was in compliance with all covenants contained in the Credit Agreement.
|
|
|
|
On July 11, 2008, the Company entered into an Amended and Restated Credit Agreement (the
Amended Credit Agreement) with Bank of America, N.A. and Wachovia Bank, National Association.
The Amended Credit Agreement amended and restated the Companys existing unsecured Credit
Agreement among the Company and such Banks. The Amended Credit Agreement changed the terms of
the existing Credit Agreement by extending the maturity date to June 26, 2009, including a $10.0
million letter of credit facility as part of the aggregate $50.0 million revolving credit
commitments of the Bank lenders, increasing the unused commitment fee from 6.0 basis points to
7.0 basis points per annum and increasing the Companys Libor option per annum interest rate
from Libor plus 0.35% to Libor plus 0.40%.
|
|
|
|
State Insurance Guaranty Funds:
|
|
|
|
As of June 30, 2008 and December 31, 2007, included in Other Liabilities in the Consolidated
Balance Sheets were $17.9 million and $13.2 million, respectively, of liabilities for state
insurance guaranty funds. As of June 30, 2008 and December 31, 2007, included in Other Assets
in the Consolidated Balance Sheets were $0.2 million of related assets for premium tax offsets
or policy surcharges. The related asset is limited to the amount that is determined based upon
future premium collections or policy surcharges from policies in force.
|
20
|
|
State Insurance Facility Assessments:
|
|
|
|
The Company continually monitors developments with respect to state insurance facilities. The
Company is required to participate in various state insurance facilities that provide insurance
coverage to individuals or entities that otherwise are unable to purchase such coverage from
private insurers. Because of the Companys participation, it may be exposed to losses that
surpass the capitalization of these facilities and/or to assessments from these facilities.
|
|
|
|
Among other state insurance facilities, the Company is subject to assessments from Florida
Citizens Property Insurance Corporation (Florida Citizens), which was originally created by
the state of Florida to provide insurance to property owners unable to obtain coverage in the
private insurance market. Florida Citizens, at the discretion and direction of its Board of
Governors (Florida Citizens Board), can levy a regular assessment on participating companies
for a deficit in any calendar year up to a maximum of the greater of 6% of the deficit or 6% of
Florida property premiums industry-wide for the prior year. The portion of the total assessment
attributable to the Company is based on its market share. An insurer may recoup a regular
assessment through a surcharge to policyholders. If a deficit remains after the regular
assessment, Florida Citizens can also fund any remaining deficit through emergency assessments
in the current and subsequent years. Companies are required to collect the emergency assessments
directly from residential property policyholders and remit to Florida Citizens as collected. In
addition, Florida Citizens may issue bonds to further fund a deficit.
|
|
|
|
Florida Hurricane Catastrophe Fund:
|
|
|
|
The Company and other insurance companies writing residential property policies in Florida must
participate in the Florida Hurricane Catastrophe Fund (FHCF). If the FHCF does not have
sufficient funds to pay its ultimate reimbursement obligations to participating insurance
companies, it has the authority to issue bonds, which are funded by assessments on generally all
property and casualty premiums in Florida. By law, these assessments are the obligation of
insurance policyholders, which insurance companies must collect. The FHCF assessments are
limited to 6% of premiums per year beginning the first year in which reimbursements require
bonding, and up to a total of 10% of premiums per year for assessments in the second and
subsequent years, if required to fund additional bonding. Upon the order of the Florida Office
of Insurance Regulation (FLOIR), companies are required to collect the FHCF assessments
directly from their policyholders and remit them to the FHCF as they are collected.
|
|
12.
|
|
Comprehensive Income
|
|
|
|
Components of comprehensive income, as detailed in the Consolidated Statements of Operations and
Comprehensive Income, are net of tax. The related tax effect of Holding Losses arising during
the three and six months ended June 30, 2008 and 2007 was $17.7 million and $6.4 million,
respectively, and $30.5 million and $1.6 million, respectively. The related tax effect of
Reclassification Adjustments for the three and six months ended June 30, 2008 and 2007 was $4.0
million and $(9.8) million, respectively, and $8.0 million and $(10.4) million, respectively.
|
|
13.
|
|
New Accounting Pronouncements
|
|
|
|
In March 2008, the FASB issued Statement No. 161 Disclosures about Derivative Instruments and
Hedging Activities (SFAS 161) to enhance disclosures about an entitys derivative and hedging
activities. SFAS 161 is effective for all financial statements issued in fiscal years and
interim periods beginning after November 15, 2008 and early application is encouraged. SFAS 161
also encourages but does not require comparative disclosures for earlier periods at initial
adoption. As the Company does not currently engage in derivative transactions or hedging
activities, the Company does not anticipate any significant financial statement disclosure
impact resulting from its evaluation of SFAS 161.
|
|
|
|
In May 2008, the FASB issued Statement No. 162 The Hierarchy of Generally Accepted Accounting
Principles (SFAS 162) to identify the sources of accounting principles and provide a
framework for selecting the principles to be used in the preparation of financial statements in
accordance with generally accepted accounting principles in the United States. SFAS 162 is
effective 60 days following the Securities and Exchange Commissions approval of the Public
Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly
in Conformity With Generally Accepted Accounting Principles.
|
21
|
|
The Company does not anticipate any significant financial statement impact resulting from its
evaluation of SFAS 162.
|
|
|
|
In May 2008, the FASB issued Statement No. 163 Accounting for Financial Guarantee Insurance
Contracts an interpretation of FASB Statement No. 60 (SFAS 163) to eliminate diversity in
practice in accounting for financial guarantee insurance contracts by insurance enterprises
under FASB Statement No. 60 Accounting and Reporting by Insurance Enterprises. SFAS 163 is
effective for all financial statements issued in fiscal years and interim periods beginning
after December 15, 2008, with the exception of disclosures about insurance enterprises
risk-management activities used to track and monitor deteriorating insured financial
obligations, which are effective for the first period, including interim periods, after the
issuance of SFAS 163. Except for these risk-management disclosures, early application is not
permitted. As the Company does not currently enter into financial guarantee insurance
contracts, the Company does not anticipate any significant financial statement or disclosure
impact resulting from its evaluation of SFAS 163.
|
|
14.
|
|
Segment Information
|
|
|
|
The Companys operations are classified into three reportable business segments which are
organized around its underwriting divisions:
|
|
|
|
The Commercial Lines Underwriting Group, which has underwriting responsibility for
the commercial multi-peril package, commercial automobile, specialty property and
inland marine, and antique/collector car insurance products;
|
|
|
|
|
The Specialty Lines Underwriting Group, which has underwriting responsibility for
the professional and management liability insurance products; and
|
|
|
|
|
The Run-Off (previously the Personal Lines Group) business segment, which pursuant
to approval received in February, 2008 from the Florida Office of Insurance Regulation,
is currently in the process of non-renewing all personal lines policies, other than
policies issued pursuant to the National Flood Insurance Program (NFIP), beginning
with policies expiring on or about July 23, 2008. The Company currently expects the
non-renewal process to be completed by July 23, 2009.
|
Each business segments responsibilities include: pricing, managing the risk selection process,
and monitoring the loss ratios by product and insured. The reportable segments operate solely
within the United States and have not been aggregated.
The segments follow the same accounting policies used for the Companys consolidated financial
statements as described in the summary of significant accounting policies. Management evaluates
a segments performance based upon premium production and the associated loss experience which
includes paid losses, an amount determined on the basis of claim adjusters evaluation with
respect to insured events that have occurred and an amount for losses incurred that have not yet
been reported. Investments and investment performance including investment income and net
realized investment gain; acquisition costs and other underwriting expenses including
commissions, premium taxes and other acquisition costs; and other operating expenses are managed
at a corporate level by the corporate accounting function in conjunction with other corporate
departments and are included in Corporate.
Following is a tabulation of business segment information for the three and six months ended
June 30, 2008 and 2007. Corporate information is included to reconcile segment data to the
consolidated financial statements:
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and For The Three Months Ended June 30,
|
|
|
Commercial
|
|
Specialty
|
|
|
|
|
|
|
(In Thousands)
|
|
Lines
|
|
Lines
|
|
Run-Off
|
|
Corporate
|
|
Total
|
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Written Premiums
|
|
$
|
364,625
|
|
|
$
|
65,198
|
|
|
$
|
15,457
|
|
|
$
|
|
|
|
$
|
445,280
|
|
|
|
|
Net Written Premiums
|
|
$
|
335,469
|
|
|
$
|
60,085
|
|
|
$
|
2,892
|
|
|
$
|
|
|
|
$
|
398,446
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earned Premiums
|
|
$
|
332,583
|
|
|
$
|
58,348
|
|
|
$
|
2,106
|
|
|
$
|
|
|
|
$
|
393,037
|
|
Net Investment Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
32,299
|
|
|
|
32,299
|
|
Net Realized Investment Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,513
|
)
|
|
|
(11,513
|
)
|
Other Income
|
|
|
|
|
|
|
|
|
|
|
1,381
|
|
|
|
2,273
|
|
|
|
3,654
|
|
|
|
|
Total Revenue
|
|
|
332,583
|
|
|
|
58,348
|
|
|
|
3,487
|
|
|
|
23,059
|
|
|
|
417,477
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss and Loss Adjustment Expenses
|
|
|
205,107
|
|
|
|
17,231
|
|
|
|
932
|
|
|
|
|
|
|
|
223,270
|
|
Acquisition
Costs and Other Underwriting Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
115,479
|
|
|
|
115,479
|
|
Other Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
121
|
|
|
|
4,255
|
|
|
|
4,376
|
|
|
|
|
Total Losses and Expenses
|
|
|
205,107
|
|
|
|
17,231
|
|
|
|
1,053
|
|
|
|
119,734
|
|
|
|
343,125
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes
|
|
|
127,476
|
|
|
|
41,117
|
|
|
|
2,434
|
|
|
|
(96,675
|
)
|
|
|
74,352
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Income Tax Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,444
|
|
|
|
21,444
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
127,476
|
|
|
$
|
41,117
|
|
|
$
|
2,434
|
|
|
$
|
(118,119
|
)
|
|
$
|
52,908
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
|
|
|
$
|
|
|
|
$
|
88,589
|
|
|
$
|
4,314,921
|
|
|
$
|
4,403,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Written Premiums
|
|
$
|
321,908
|
|
|
$
|
59,963
|
|
|
$
|
16,642
|
|
|
$
|
|
|
|
$
|
398,513
|
|
|
|
|
Net Written Premiums
|
|
$
|
293,543
|
|
|
$
|
49,337
|
|
|
$
|
(3,693
|
)
|
|
$
|
|
|
|
$
|
339,187
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earned Premiums
|
|
$
|
286,642
|
|
|
$
|
47,811
|
|
|
$
|
2,862
|
|
|
$
|
|
|
|
$
|
337,315
|
|
Net Investment Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,522
|
|
|
|
28,522
|
|
Net Realized Investment Gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
28,064
|
|
|
|
28,064
|
|
Other Income
|
|
|
|
|
|
|
|
|
|
|
630
|
|
|
|
220
|
|
|
|
850
|
|
|
|
|
Total Revenue
|
|
|
286,642
|
|
|
|
47,811
|
|
|
|
3,492
|
|
|
|
56,806
|
|
|
|
394,751
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss and Loss Adjustment Expenses
|
|
|
123,238
|
|
|
|
24,024
|
|
|
|
1,327
|
|
|
|
|
|
|
|
148,589
|
|
Acquisition Costs and Other Underwriting
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
101,746
|
|
|
|
101,746
|
|
Other Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
357
|
|
|
|
2,624
|
|
|
|
2,981
|
|
|
|
|
Total Losses and Expenses
|
|
|
123,238
|
|
|
|
24,024
|
|
|
|
1,684
|
|
|
|
104,370
|
|
|
|
253,316
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes
|
|
|
163,404
|
|
|
|
23,787
|
|
|
|
1,808
|
|
|
|
(47,564
|
)
|
|
|
141,435
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Income Tax Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
47,034
|
|
|
|
47,034
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
163,404
|
|
|
$
|
23,787
|
|
|
$
|
1,808
|
|
|
$
|
(94,598
|
)
|
|
$
|
94,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
|
|
|
$
|
|
|
|
$
|
107,019
|
|
|
$
|
3,647,930
|
|
|
$
|
3,754,949
|
|
|
|
|
23
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of and For The Six Months Ended June 30,
|
|
|
Commercial
|
|
Specialty
|
|
|
|
|
|
|
(In Thousands)
|
|
Lines
|
|
Lines
|
|
Run-Off
|
|
Corporate
|
|
Total
|
2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Written Premiums
|
|
$
|
722,978
|
|
|
$
|
134,330
|
|
|
$
|
31,058
|
|
|
$
|
|
|
|
$
|
888,366
|
|
|
|
|
Net Written Premiums
|
|
$
|
662,800
|
|
|
$
|
133,659
|
|
|
$
|
7,955
|
|
|
$
|
|
|
|
$
|
804,414
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earned Premiums
|
|
$
|
653,816
|
|
|
$
|
113,987
|
|
|
$
|
4,622
|
|
|
$
|
|
|
|
$
|
772,425
|
|
Net Investment Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64,304
|
|
|
|
64,304
|
|
Net Realized Investment Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,907
|
)
|
|
|
(22,907
|
)
|
Other Income
|
|
|
|
|
|
|
|
|
|
|
1,807
|
|
|
|
3,200
|
|
|
|
5,007
|
|
|
|
|
Total Revenue
|
|
|
653,816
|
|
|
|
113,987
|
|
|
|
6,429
|
|
|
|
44,597
|
|
|
|
818,829
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss and Loss Adjustment Expenses
|
|
|
366,086
|
|
|
|
47,969
|
|
|
|
2,634
|
|
|
|
|
|
|
|
416,689
|
|
Acquisition Costs and Other Underwriting
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
229,635
|
|
|
|
229,635
|
|
Other Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
586
|
|
|
|
7,379
|
|
|
|
7,965
|
|
|
|
|
Total Losses and Expenses
|
|
|
366,086
|
|
|
|
47,969
|
|
|
|
3,220
|
|
|
|
237,014
|
|
|
|
654,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes
|
|
|
287,730
|
|
|
|
66,018
|
|
|
|
3,209
|
|
|
|
(192,417
|
)
|
|
|
164,540
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Income Tax Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
48,956
|
|
|
|
48,956
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
287,730
|
|
|
$
|
66,018
|
|
|
$
|
3,209
|
|
|
$
|
(241,373
|
)
|
|
$
|
115,584
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
|
|
|
$
|
|
|
|
$
|
88,589
|
|
|
$
|
4,314,921
|
|
|
$
|
4,403,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Written Premiums
|
|
$
|
633,277
|
|
|
$
|
120,705
|
|
|
$
|
38,645
|
|
|
$
|
|
|
|
$
|
792,627
|
|
|
|
|
Net Written Premiums
|
|
$
|
578,965
|
|
|
$
|
99,897
|
|
|
$
|
(2,242
|
)
|
|
$
|
|
|
|
$
|
676,620
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Earned Premiums
|
|
$
|
558,547
|
|
|
$
|
93,293
|
|
|
$
|
4,193
|
|
|
$
|
|
|
|
$
|
656,033
|
|
Net Investment Income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,495
|
|
|
|
55,495
|
|
Net Realized Investment Gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29,821
|
|
|
|
29,821
|
|
Other Income
|
|
|
|
|
|
|
|
|
|
|
1,448
|
|
|
|
232
|
|
|
|
1,680
|
|
|
|
|
Total Revenue
|
|
|
558,547
|
|
|
|
93,293
|
|
|
|
5,641
|
|
|
|
85,548
|
|
|
|
743,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Losses and Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Loss and Loss Adjustment Expenses
|
|
|
238,706
|
|
|
|
54,800
|
|
|
|
5,588
|
|
|
|
|
|
|
|
299,094
|
|
Acquisition Costs and Other Underwriting
Expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
198,650
|
|
|
|
198,650
|
|
Other Operating Expenses
|
|
|
|
|
|
|
|
|
|
|
796
|
|
|
|
5,340
|
|
|
|
6,136
|
|
|
|
|
Total Losses and Expenses
|
|
|
238,706
|
|
|
|
54,800
|
|
|
|
6,384
|
|
|
|
203,990
|
|
|
|
503,880
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes
|
|
|
319,841
|
|
|
|
38,493
|
|
|
|
(743
|
)
|
|
|
(118,442
|
)
|
|
|
239,149
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Income Tax Expense
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
78,768
|
|
|
|
78,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income
|
|
$
|
319,841
|
|
|
$
|
38,493
|
|
|
$
|
(743
|
)
|
|
$
|
(197,210
|
)
|
|
$
|
160,381
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
|
|
|
$
|
|
|
|
$
|
107,019
|
|
|
$
|
3,647,930
|
|
|
$
|
3,754,949
|
|
|
|
|
24
Summarized revenue information by product grouping for the Companys three reportable business
segments for the three and six months ended June 30, 2008 and 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For The Three Months Ended
|
|
|
For The Six Months Ended
|
|
|
|
June 30,
|
|
|
June 30,
|
|
(In Thousands)
|
|
2008
|
|
|
2007
|
|
|
2008
|
|
|
2007
|
|
Commercial Lines Net Earned Premiums
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Package
|
|
$
|
303,282
|
|
|
$
|
261,611
|
|
|
$
|
595,084
|
|
|
$
|
513,053
|
|
Specialty Property
|
|
|
14,498
|
|
|
|
14,508
|
|
|
|
30,042
|
|
|
|
27,757
|
|
Commercial Auto
|
|
|
6,073
|
|
|
|
6,104
|
|
|
|
11,750
|
|
|
|
11,238
|
|
Antique/Collector Auto
|
|
|
7,967
|
|
|
|
3,566
|
|
|
|
15,552
|
|
|
|
5,136
|
|
All Other
|
|
|
763
|
|
|
|
853
|
|
|
|
1,388
|
|
|
|
1,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Lines
|
|
|
332,583
|
|
|
|
286,642
|
|
|
|
653,816
|
|
|
|
558,547
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Specialty Lines Net Earned Premiums
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management Liability
|
|
|
35,176
|
|
|
|
25,940
|
|
|
|
67,555
|
|
|
|
49,658
|
|
Professional Liability
|
|
|
23,172
|
|
|
|
21,871
|
|
|
|
46,432
|
|
|
|
43,635
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Specialty Lines
|
|
|
58,348
|
|
|
|
47,811
|
|
|
|
113,987
|
|
|
|
93,293
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Run-Off Net Earned Premiums
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Homeowners and Manufactured Housing
|
|
|
2,106
|
|
|
|
2,862
|
|
|
|
4,622
|
|
|
|
4,193
|
|
National Flood Insurance Program
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Run-Off Net Earned Premiums
|
|
|
2,106
|
|
|
|
2,862
|
|
|
|
4,622
|
|
|
|
4,193
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income
|
|
|
1,381
|
|
|
|
630
|
|
|
|
1,807
|
|
|
|
1,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Run-Off
|
|
|
3,487
|
|
|
|
3,492
|
|
|
|
6,429
|
|
|
|
5,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Investment Income
|
|
|
32,299
|
|
|
|
28,522
|
|
|
|
64,304
|
|
|
|
55,495
|
|
Net Realized Investment Gain (Loss)
|
|
|
(11,513
|
)
|
|
|
28,064
|
|
|
|
(22,907
|
)
|
|
|
29,821
|
|
Other Income
|
|
|
2,273
|
|
|
|
220
|
|
|
|
3,200
|
|
|
|
232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Corporate
|
|
|
23,059
|
|
|
|
56,806
|
|
|
|
44,597
|
|
|
|
85,548
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
$
|
417,477
|
|
|
$
|
394,751
|
|
|
$
|
818,829
|
|
|
$
|
743,029
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15.
|
|
Subsequent Event
|
|
|
|
On July 23, 2008, the Company and Tokio Marine Holdings, Inc. (TMHD) entered into an Agreement
and Plan of Merger under which, at the closing of the merger, TMHD
would acquire all outstanding shares of the Company for $61.50 per share, in cash, through TMHDs wholly owned subsidiary,
Tokio Marine & Nichido Fire Insurance Co., Ltd. The total value of this transaction is
approximately $4,700.0 million, and the transaction is expected to close in the fourth quarter
of 2008. The closing of the merger is subject to regulatory and shareholder approval, as well
as other customary closing conditions.
|
25
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Information
Certain information included in this report and other statements or materials published or to be
published by us are not historical facts but are forward-looking statements relating to such
matters as anticipated financial performance, business prospects, technological developments, new
and existing products, expectations for market segment and growth, and similar matters. In
connection with the safe harbor provisions of the Private Securities Litigation Reform Act of
1995, we provide the following cautionary remarks regarding important factors which, among others,
could cause our actual results and experience to differ materially from the anticipated results or
other expectations expressed in our forward-looking statements. The risks and uncertainties that
may affect the operations, performance, development, results of our business, and the other matters
referred to below include, but are not limited to those matters set forth in Item 1A of our Annual
Report on Form 10-K for the fiscal year ended December 31, 2007 and in Item 1A of Part II of this
Report. We do not intend to publicly update any forward looking statement, except as may be
required by law.
General
Although our financial performance is dependent upon our own specific business characteristics,
certain risk factors can affect our profitability and/or our financial condition. These include,
but are not limited to, the risk factors set forth in Item 1A of our Annual Report on Form 10-K for
the fiscal year ended December 31, 2007 and in Item 1A of Part II of this Report.
These risk factors should be read in conjunction with the Certain Critical Accounting Estimates and
Judgments included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2007.
Our operations are classified into three reportable business segments which are organized as
follows: the Commercial Lines Underwriting Group, the Specialty Lines Underwriting Group and the
Run-Off (previously the Personal Lines Underwriting Group) business segments. The Run-Off business
segment, pursuant to an approval received in February, 2008 from the Florida Office of Insurance
Regulation, is currently in the process of non-renewing all personal lines policies, other than
policies issued pursuant to the National Flood Insurance Program (NFIP), beginning with policies
expiring on or about July 23, 2008. We currently expect the non-renewal process to be completed by
July 23, 2009.
On July 23, 2008, we and Tokio Marine Holdings, Inc. (TMHD) entered into an Agreement and Plan of
Merger under which TMHD would acquire all of our outstanding shares for $61.50 per share, in cash,
through TMHDs wholly owned subsidiary, Tokio Marine & Nichido Fire Insurance Co., Ltd. The total
value of this transaction is approximately $4,700.0 million. The merger is expected to close in the
fourth quarter of 2008. The closing of the merger is subject to regulatory and shareholder
approval, as well as other customary closing conditions.
Critical Accounting Estimates
The preparation of our financial statements and related disclosures in conformity with generally
accepted accounting principles, or GAAP, requires estimates and assumptions that affect the
reported amounts of assets, liabilities, revenues and expenses. These estimates and assumptions are
based on historical experience and on various other factors that we believe are reasonable under
the circumstances. Accounting policies and estimates are periodically reviewed and adjustments are
made when facts and circumstances dictate. Critical accounting policies that are affected by
accounting estimates include:
|
|
|
Investments fair value;
|
|
|
|
Investments other than temporary impairments;
|
|
|
|
Liability for unpaid loss and loss adjustment expenses;
|
|
|
|
Reinsurance receivables;
|
|
|
|
Liability for preferred agent profit sharing; and
|
|
|
|
Share-based compensation expense.
|
26
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
On January 1, 2008, we adopted the provisions of SFAS 157. SFAS 157 defines fair value and
provides a consistent framework for measuring items at fair value as previously permitted by
existing accounting pronouncements. SFAS 157 provides a fair value hierarchy which prioritizes
the quality of inputs used when measuring the items at fair value and requires expanded disclosures
for fair value measurements. As of June 30, 2008, the fair value of our investments has been
determined in accordance with the provisions of SFAS 157. A further discussion of this matter is
included under the Investments section below.
Our accounting policies are impacted significantly by judgments, assumptions and estimates used in
the preparation of the Consolidated Financial Statements. Actual results could differ materially
from these estimates. For a discussion of how these estimates and other factors may affect our
business, see the Risk Factors set forth in Item 1A of our Annual Report on Form 10-K for the
fiscal year ended December 31, 2007.
Results of Operations (Six Months Ended June 30, 2008 compared to June 30, 2007)
Premiums
: Premium information for the six months ended June 30, 2008 compared to June 30,
2007 for each of our business segments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars In Millions)
|
|
Commercial Lines
|
|
Specialty Lines
|
|
Run-off
|
|
Total
|
2008 Gross Written Premiums
|
|
$
|
723.0
|
|
|
$
|
134.3
|
|
|
$
|
31.1
|
|
|
$
|
888.4
|
|
2007 Gross Written Premiums
|
|
$
|
633.3
|
|
|
$
|
120.7
|
|
|
$
|
38.6
|
|
|
$
|
792.6
|
|
Percentage Increase (Decrease)
|
|
|
14.2
|
%
|
|
|
11.3
|
%
|
|
|
(19.4
|
)%
|
|
|
12.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Gross Earned Premiums
|
|
$
|
716.3
|
|
|
$
|
124.6
|
|
|
$
|
28.4
|
|
|
$
|
869.3
|
|
2007 Gross Earned Premiums
|
|
$
|
613.2
|
|
|
$
|
115.2
|
|
|
$
|
44.7
|
|
|
$
|
773.1
|
|
Percentage Increase (Decrease)
|
|
|
16.8
|
%
|
|
|
8.2
|
%
|
|
|
(36.5
|
)%
|
|
|
12.4
|
%
|
The overall growth in gross written premiums is primarily attributable to the following:
|
|
|
Prospecting efforts by marketing personnel in conjunction with long term relationships
formed by our marketing Regional Vice Presidents continue to result in additional prospects
and increased premium writings in existing product offerings, most notably for the
following:
|
|
§
|
|
Our condominium and homeowners associations, religious organizations,
non-profit, antique/collector vehicle, golf and country clubs, day care centers,
and specialty schools products in the commercial package product grouping. These
product offerings accounted for approximately $49.2 million of the $89.7 million
total commercial lines segment gross written premiums increase.
|
|
|
§
|
|
Our consultant liability product in the professional liability product grouping,
as well as our private company protection, directors and officers, and business
owners products in the management liability product grouping. These product
offerings accounted for all of the $13.6 million total specialty lines segment
gross written premiums increase.
|
|
|
|
The introduction of several new niche product offerings, such as the affordable housing,
special events, and museum commercial package products, as well as the difference in
conditions inland marine specialty property product. These new product offerings accounted
for approximately $26.1 million of the $89.7 million total commercial lines segment gross
written premiums increase.
|
|
|
|
|
The acquisition of Gillingham & Associates, Inc. on March 10, 2008, which accounted for
approximately $8.9 million of commercial lines segment gross written premium growth for the
six months ended June 30, 2008.
|
27
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
|
|
|
An increase in our marketing personnel, as well as an increase in the number of our
preferred agents.
|
|
|
|
Our Firemark Producer program, which promotes our product offerings and underwriting
philosophy in selected producers offices.
|
|
|
|
|
As a result of the factors noted above, the commercial lines and specialty lines
segments in-force policy counts increased by 12.6% and 49.3%, respectively, for the six
months ended June 30, 2008.
|
The growth in gross written premiums was offset in part by:
|
|
|
Realized average rate decreases on renewal business approximating 4.6% and 2.2% for the
commercial lines and specialty lines segments, respectively.
|
|
|
|
|
Continued price competition during the six months ended June 30, 2008, particularly with
respect to the following:
|
|
§
|
|
Large commercial property-driven accounts located in the non-coastal areas of
the country;
|
|
|
§
|
|
Commercial package business with annual premiums in excess of $100,000; and
|
|
|
§
|
|
Professional liability accounts at all premium levels.
|
|
|
|
A reduction in personal lines (run-off segment) production for our homeowners and rental
dwelling policies. This reduction was imposed to reduce our exposure to catastrophe wind
losses. On February 29, 2008, we received approval from the Florida Office of Insurance
Regulation (FOIR) to non-renew all of our Florida personal lines policies, other than
policies issued pursuant to the National Flood Insurance Program, beginning with policies
expiring on or about July 23, 2008. We currently expect the non-renewal process to be
completed by July 23, 2009. As of June 30, 2008, there were approximately 3,677 in-force
policies with an aggregate in-force premium of approximately $2.9 million which expire
between July 23, 2008 and December 31, 2008, which we will not renew during 2008.
|
|
|
|
|
A decrease in bowling centers commercial package product gross written premium of $3.2
million as a result of non-renewing policies due to unacceptable underwriting results. For
the six months ended June 30, 2008, gross written premium for the bowling centers
commercial package product was $0.6 million. The Company anticipates that it will continue
to non-renew its remaining bowling centers commercial package business throughout 2008,
which approximated $0.6 million of gross written premium for the six months ended December
31, 2007.
|
One of our preferred agents has terminated their preferred agency agreement with us effective
August 1, 2008. It has been agreed that we will not compete for a period of one year on a mutually
agreed upon list of accounts. The list of accounts is estimated to total approximately $30.0
million in annual gross written premium.
The respective net written premiums and net earned premiums for each of our business segments for
the six months ended June 30, 2008 compared to June 30, 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars In Millions)
|
|
Commercial Lines
|
|
Specialty Lines
|
|
Run-off
|
|
Total
|
2008 Net Written Premiums
|
|
$
|
662.8
|
|
|
$
|
133.7
|
|
|
$
|
7.9
|
|
|
$
|
804.4
|
|
2007 Net Written Premiums
|
|
$
|
578.9
|
|
|
$
|
99.9
|
|
|
$
|
(2.2
|
)
|
|
$
|
676.6
|
|
Percentage Increase
|
|
|
14.5
|
%
|
|
|
33.8
|
%
|
|
|
459.1
|
%
|
|
|
18.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Net Earned Premiums
|
|
$
|
653.8
|
|
|
$
|
114.0
|
|
|
$
|
4.6
|
|
|
$
|
772.4
|
|
2007 Net Earned Premiums
|
|
$
|
558.5
|
|
|
$
|
93.3
|
|
|
$
|
4.2
|
|
|
$
|
656.0
|
|
Percentage Increase
|
|
|
17.1
|
%
|
|
|
22.2
|
%
|
|
|
9.5
|
%
|
|
|
17.7
|
%
|
28
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
The differing percentage changes in net written premiums and/or net earned premiums versus gross
written premiums and/or gross earned premiums for our commercial lines, specialty lines and run-off
(personal lines) segments results primarily from the following:
|
|
|
We experienced higher property catastrophe reinsurance rates, maintained the same
catastrophe loss retention, and increased catastrophe coverage limits for our annual June 1, 2007 reinsurance renewal compared to the June 1, 2006 renewal. This resulted in
increased property catastrophe costs for the six month period ended June 30, 2008, compared
to the six month period ended June 30, 2007.
|
|
|
|
|
For our June 1, 2008 commercial lines segment property catastrophe reinsurance renewal,
we experienced higher reinsurance rates, purchased increased catastrophe limits due to
higher exposures primarily in the northeastern portion of the country, and increased our
catastrophe loss retention compared to the June 1, 2007 renewal. Our commercial lines
segment property catastrophe reinsurance coverage which is effective June 1, 2008 through
May 31, 2009 is as follows:
|
|
§
|
|
Our open-market catastrophe reinsurance coverage is $480.0 million in excess of a
$20.0 million per occurrence retention. The open-market catastrophe program
(coverage principally provided by large reinsurers that are rated at least A-
(Excellent) by A.M. Best Company) includes one mandatory reinstatement.
|
|
|
§
|
|
We also purchased a reinstatement premium protection contract for the First and
Second Excess Layers of our commercial lines segment open-market catastrophe
reinsurance coverage, effective June 1, 2008. This reinstatement premium protection
contract provides coverage for reinstatement premiums which we may become liable to
pay as a result of a loss occurrence between $20.0 million and $100.0 million (the
First and Second Excess Layers of the commercial lines segment open-market
catastrophe reinsurance program).
|
|
|
|
For our run-off segment, our property catastrophe costs were significantly lower for the
six months ended June 30, 2008 compared to June 30, 2007. For our June 1, 2007 run-off
segment property catastrophe reinsurance renewal, we experienced reduced reinsurance rates,
lower catastrophe loss retention and purchased decreased catastrophe coverage limits due to
lower exposures, compared to the June 1, 2006 renewal.
|
|
|
|
|
For our June 1, 2008 run-off segment property catastrophe reinsurance renewal, we experienced lower
reinsurance rates, maintained the same catastrophe loss retention, and purchased decreased
catastrophe coverage limits due to lower exposures, compared to our June 1, 2007 renewal.
Our run-off segment property catastrophe reinsurance coverage, which is effective June 1,
2008 through May 31, 2009 is as follows:
|
|
§
|
|
Our reinsurance coverage is approximately $43.3 million in excess of a $3.5
million per occurrence retention. Of this total amount, the Florida Hurricane
Catastrophe Fund (FHCF) provides, on an aggregate basis for Liberty American
Select Insurance Company and Liberty American Insurance Company, 90% coverage for
approximately $26.8 million in excess of $6.4 million per occurrence. The FHCF
coverage inures to the benefit of our open-market catastrophe program. The coverage
provided by our open-market catastrophe program (large reinsurers that are rated at
least A- (Excellent) by A.M. Best Company) includes one mandatory reinstatement,
but the FHCF coverage does not reinstate. Since the FHCF reimbursement coverage
cannot be reinstated, our open-market program is structured such that catastrophe
reinsurance coverage in excess of the FHCF coverage will drop down and fill in any
portion of the FHCF which has been utilized.
|
|
|
|
For our commercial and specialty lines segments, we experienced rate reductions on our
annual January 1, 2008 renewal of our casualty excess of loss reinsurance coverage compared
to the rate on our January 1, 2007 renewal of this coverage.
|
29
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
|
|
|
For our commercial lines segment, we experienced a rate increase on our annual January
1, 2008 renewal of our property excess of loss reinsurance coverage compared to the rate on
our January 1, 2007 renewal of this coverage.
|
|
|
|
|
For our specialty lines segment, the higher percentage increase in our net written
premiums compared to the percentage increase in our gross written premiums for the six
months ended June 30, 2008 is primarily
due to the January 1, 2008 renewal of our casualty excess of loss reinsurance coverage. We
experienced rate reductions on our January 1, 2008 renewal of this coverage compared to our
January 1, 2007 renewal of this coverage. This reduced rate was applied to our January 1,
2008 gross unearned premiums, which resulted in a reduction to ceded written premium as of
January 1, 2008.
|
|
|
|
|
Certain of our reinsurance contracts have reinstatement or additional premium provisions
under which we must pay reinstatement or additional reinsurance premiums to reinstate
coverage provisions upon utilization of initial reinsurance coverage. During the six
months ended June 30, 2008 and 2007, we accrued $0.9 million ($1.0 million for the
commercial lines segment and $(0.1) million for the specialty lines segment) and $1.9
million ($0.8 million for the commercial lines segment and $1.1 million for the specialty
lines segment) respectively, of reinstatement or additional reinsurance premium under our
excess of loss reinsurance treaties, as a result of changes in our ultimate loss estimates.
These reinstatement and additional premiums increase ceded written and earned premiums and
decrease net written and earned premiums.
|
Net Investment Income:
Net investment income increased 15.9% to $64.3 million for the six
months ended June 30, 2008 from $55.5 million for the same period of 2007. Total investments grew
by 17.1% to $3,192.6 million as of June 30, 2008 from $2,725.5 million as of June 30, 2007. The
growth in investment income is primarily due to our ability to invest increased net cash flows
provided from our operating activities. In addition, despite a general decline in interest rates
compared with the previous historical reporting period, the capital market spreads to U.S.
Treasuries were generally wider, which also had a favorable impact on our ability to increase
investment income through new investments. The taxable equivalent book yield on our fixed income
holdings approximated 5.4% as of June 30, 2008, compared to 5.5% as of June 30, 2007.
The average duration of our fixed maturity portfolio was 5.1 years and 4.7 years as of June 30,
2008 and 2007, respectively. Our decision to continue to increase the average duration of our
fixed maturity portfolio was based upon enterprise risk management analyses indicating our capacity
to further refine the risk/return profile of our investment portfolio.
Effective January 1, 2008, we substituted a customized Merrill Lynch Enterprise Based Investment
Benchmark Index (the Index) for the Lehman Brothers Intermediate Aggregate Index to evaluate the
total return performance of our fixed income portfolio. This change was made in an effort to
establish an Index that more closely represents our strategic enterprise -based risk and return
profile, as reflected in a strategic optimal fixed maturity portfolio. We also believe that the
Index provides a more relevant measure of return than the index used in prior periods.
The total tax equivalent performance of our fixed income portfolio was 1.26% for the six months
ended June 30, 2008, compared to the Index tax equivalent performance of 1.49% for the same period.
This variance is primarily due to the difference between our underweighted allocation percentage
to Municipal securities compared to the Municipal security allocation percentage in the custom
Index. During the six months ended June 30, 2008, we continued to add to our Municipal portfolio
given the attractive relative returns in this sector. The total pre-tax return, which includes the
effects of both income and price returns on securities, of our fixed income portfolio was 0.77% for
the six months ended June 30, 2007, compared to the Lehman Brothers Intermediate Aggregate Bond
Index total pre-tax return of 1.22% for the same period. We expect some variation in our
portfolios total return compared to the Index primarily because of the differing sector, security
and duration composition of our portfolio as compared to the Index.
30
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
Net Realized Investment Gain (Loss):
Net realized investment (losses) gains were $(22.9)
million and $29.8 million for the six months ended June 30, 2008 and 2007, respectively.
For the six months ended June 30, 2008, we did not realize net investment gains (losses) from
the sale of fixed maturity securities. For the six months ended June 30, 2008, we realized net
investment gains of $0.4 million from the sale of equity securities. In addition, for the six
months ended June 30, 2008, we did not recognize any non-cash realized fixed maturity security
investment losses as a result of our impairment evaluations. For the six months
ended June 30, 2008, we recognized $23.3 million in non-cash realized equity security investment
losses as a result of our impairment evaluations.
For the six months ended June 30, 2007, we realized net investment gains of $0.1 million and $32.3
million from the sale of fixed maturity and equity securities, respectively. In addition, for the
six months ended June 30, 2007, we recognized $0.5 million and $2.1 million in non-cash realized
investment losses for fixed maturity and equity securities, respectively, as a result of our
impairment evaluations. The $32.3 million net realized gains from the sale of equity securities
included approximately $22.2 million of net realized gains as a result of the liquidation of one of
our equity portfolios following our decision to change one of our common stock investment managers.
Other Income
: Other income approximated $5.0 million and $1.7 million for the six months
ended June 30, 2008 and 2007, respectively. Other income consists primarily of commissions and
fees earned on servicing and brokering commercial lines business, and to a lesser extent
commissions and fees earned on servicing and brokering personal lines business. In addition, other
income for the six months ended June 30, 2008 includes our recognition of a $1.2 million gain
related to the sale of the headquarters building of our Run-Off segment.
Net Loss and Loss Adjustment Expenses:
Net loss and loss adjustment expenses increased $117.6
million (39.3%) to $416.7 million for the six months ended June 30, 2008 from $299.1 million for
the same period of 2007, and the loss ratio increased to 53.9% in 2008 from 45.6% in 2007.
The increase in net loss and loss adjustment expenses was primarily due to:
|
|
|
The growth in net earned premiums.
|
|
|
|
|
Net reserve actions taken during the six months ended June 30, 2008 which decreased net
estimated unpaid loss and loss adjustment expenses for accident years 2007 and prior by
$24.4 million, as compared to net reserve actions taken during the six months ended June
30, 2007 which decreased estimated net unpaid loss and loss adjustment expenses for
accident years 2006 and prior by $33.7 million. Decreases in the estimated net unpaid loss
and loss adjustment expenses for prior accident years during the six months ended June 30,
2008 were as follows:
|
|
|
|
|
|
|
|
Net Basis
|
|
(Dollars In Millions)
|
|
Decrease
|
|
Accident Year 2007
|
|
$
|
4.7
|
|
Accident Year 2006
|
|
|
8.9
|
|
Accident Year 2005
|
|
|
5.3
|
|
Accident Years 2004 and prior
|
|
|
5.5
|
|
|
|
|
|
Total
|
|
$
|
24.4
|
|
|
|
|
|
|
|
|
For accident year 2007, the decrease in estimated net unpaid loss and loss adjustment
expenses was principally due to lower loss estimates for commercial general liability and
management liability coverages due to better than expected case incurred loss development,
primarily as a result of claim frequency being less than anticipated for commercial general
liability coverage and claim severity being less than anticipated for management liability
coverage These lower loss estimates were partially offset by higher
|
31
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
|
|
|
loss estimates for
commercial automobile coverages due to higher than expected case incurred loss development,
primarily as a result of both claim frequency and severity being greater than anticipated.
|
|
|
|
|
For accident year 2006, the decrease in estimated net unpaid loss and loss adjustment
expenses was principally due to lower loss estimates for commercial general liability,
commercial property, and professional liability coverages due to better than expected case
incurred loss development, primarily as a result of claim severity being less than
anticipated. These lower loss estimates were partially offset by higher loss estimates for
commercial automobile coverages due to higher than expected case incurred loss development,
primarily as a result of claim severity being greater than anticipated.
|
|
|
|
|
For accident year 2005, the decrease in estimated net unpaid loss and loss adjustment
expenses was principally due to lower loss estimates for commercial general liability and
management liability and professional liability coverages due to better than expected case
incurred loss development, primarily as a result of claim severity being less than
anticipated.
|
|
|
|
|
For accident years 2004 and prior, the decrease in estimated net unpaid loss and loss
adjustment expenses was principally due to lower loss estimates across most coverages due to
better than expected case incurred loss development, primarily as a result of claim severity
being less than anticipated.
|
|
|
|
An increase in the current accident year net ultimate loss and loss adjustment expense
ratio for the six months ended June 30, 2008 compared to 2007. During the six months ended
June 30, 2008, a net ultimate loss and loss adjustment expense ratio of 57.1% was estimated
for the 2008 accident year. During the six months ended June 30, 2007, a net ultimate loss
and loss adjustment expense ratio of 50.7% was estimated for the 2007 accident year. The
increase in the 2008 accident year loss and loss adjustment expense ratio is principally
attributable to:
|
|
§
|
|
Realized average rate decreases on renewal business approximating 4.6% and 2.2%
for the commercial and specialty lines segments, respectively, for the six months
ended June 30, 2008 compared to the same period in 2007.
|
|
|
§
|
|
$20.6 million of loss and loss adjustment expenses during the six months ended
June 30, 2008 resulting from hail, tornado, and wind losses which occurred in
Minnesota, Nebraska, Kansas, and Oklahoma during the period of May 22, 2008
through May 26, 2008, and which occurred in Illinois, Indiana, Kansas, Minnesota,
Nebraska, and Oklahoma during the period of May 29, 2008 through June 1, 2008. We
did not have similar losses during the six months ended June 30, 2007.
|
Establishing loss reserve estimates is a complex and imprecise process. Our estimation procedures
employ several generally accepted actuarial methods to determine net unpaid loss and loss
adjustment expenses. Some of these methods are based on actual loss development, while others are
based on expected loss development, and still others use a blend of both. Over time, more reliance
is placed on actuarial methods based on actual loss development, and accordingly, over time, less
reliance is placed on actuarial methods based on expected loss development.
Acquisition Costs and Other Underwriting Expenses:
Acquisition costs and other underwriting
expenses increased $30.9 million (15.6%) to $229.6 million for the six months ended June 30, 2008
from $198.7 million for the same period of 2007, and the expense ratio decreased slightly to 29.7%
in 2008 versus 30.3% in 2007. The increase in acquisition costs and other underwriting expenses
was due primarily to the growth in net earned premiums.
Income Tax Expense:
Our effective tax rate for the six months ended June 30, 2008 and 2007
was 29.8% and 32.9%, respectively. The effective rates for 2008 and 2007 differed from the 35%
statutory rate principally due to investments in tax-exempt securities and the relative proportion
of tax exempt income to our income before tax. The decrease in the effective tax rate during 2008
is due principally to increased investments in tax exempt securities.
32
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
Results of Operations (Three Months Ended June 30, 2008 compared to June 30, 2007)
Premiums
: Premium information for the three months ended June 30, 2008 compared to June 30,
2007 for each of our business segments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars In Millions)
|
|
Commercial Lines
|
|
Specialty Lines
|
|
Run-off
|
|
Total
|
2008 Gross Written Premiums
|
|
$
|
364.6
|
|
|
$
|
65.2
|
|
|
$
|
15.5
|
|
|
$
|
445.3
|
|
2007 Gross Written Premiums
|
|
$
|
321.9
|
|
|
$
|
60.0
|
|
|
$
|
16.6
|
|
|
$
|
398.5
|
|
Percentage Increase (Decrease)
|
|
|
13.3
|
%
|
|
|
8.7
|
%
|
|
|
(6.6
|
)%
|
|
|
11.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Gross Earned Premiums
|
|
$
|
363.4
|
|
|
$
|
63.3
|
|
|
$
|
13.6
|
|
|
$
|
440.3
|
|
2007 Gross Earned Premiums
|
|
$
|
315.5
|
|
|
$
|
58.4
|
|
|
$
|
21.6
|
|
|
$
|
395.5
|
|
Percentage Increase (Decrease)
|
|
|
15.2
|
%
|
|
|
8.4
|
%
|
|
|
(37.0
|
)%
|
|
|
11.3
|
%
|
The overall growth in gross written premiums is primarily attributable to the following:
|
|
|
Prospecting efforts by marketing personnel in conjunction with long term relationships
formed by our marketing Regional Vice Presidents continue to result in additional prospects
and increased premium writings in existing product offerings, most notably for the
following:
|
|
§
|
|
Our condominium and homeowners associations, religious organizations,
non-profit, antique/collector vehicle, specialty schools, and golf and country
clubs products in the commercial package product grouping; These product offerings
accounted for approximately $21.6 million of the $42.7 million total commercial
lines segment gross written premiums increase.
|
|
|
§
|
|
Our consultant liability product in the professional liability product grouping,
as well as our private company protection, directors and officers, and business
owners products in the management liability product grouping. These product
offerings accounted for all of the $5.2 million total specialty lines segment gross
written premiums increase.
|
|
|
|
The introduction of several new niche product offerings, such as the affordable housing,
vehicle parks, special events, and museums commercial package products, as well as the
difference in conditions inland marine specialty property product. These new product
offerings accounted for approximately $14.8 million of the $42.7 million total commercial
lines segment gross written premiums increase.
|
|
|
|
|
The acquisition of Gillingham & Associates, Inc. on March 10, 2008, which accounted for
approximately $8.9 million of commercial lines segment gross written premium growth for the
three months ended June 30, 2008.
|
|
|
|
|
An increase in our marketing personnel, as well as an increase in the number of our
preferred agents.
|
|
|
|
|
Our Firemark Producer program, which promotes our product offerings and underwriting
philosophy in selected producers offices.
|
|
|
|
|
As a result of the factors noted above the commercial and specialty lines segments
in-force policy counts increased by 5.6% and 17.8%, respectively, for the three months
ended June 30, 2008.
|
The growth in gross written premiums was offset in part by:
|
|
|
Realized average rate decreases on renewal business approximating 4.4% and 2.4% for the
commercial lines and specialty lines segments, respectively.
|
33
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
|
|
|
Continued price competition during the three months ended June 30, 2008, particularly
with respect to the following:
|
|
§
|
|
Large commercial property-driven accounts located in the non-coastal areas of
the country;
|
|
|
§
|
|
Commercial package business with annual premiums in excess of $100,000; and
|
|
|
§
|
|
Professional liability accounts at all premium levels.
|
|
|
|
A reduction in personal lines (run-off segment) production for our homeowners and rental
dwelling policies. This reduction was imposed to reduce our exposure to catastrophe wind
losses.
|
|
|
|
|
On February 29, 2008, we received approval from the Florida Office of Insurance Regulation
(FOIR) to non-renew all of our Florida personal lines policies, other than policies issued
pursuant to the National Flood Insurance Program, beginning with policies expiring on or
about July 23, 2008. We currently expect the non-renewal process to be completed by July
23, 2009. As of June 30, 2008, there were approximately 3,677 in-force policies with an
aggregate in-force premium of approximately $2.9 million which expire between July 23, 2008
and December 31, 2008, which we will not renew during 2008.
|
|
|
|
|
A decrease in bowling centers commercial package product gross written premium of $0.8
million as a result of non-renewing policies due to unacceptable underwriting results. For
the three months ended June 30, 2008, gross written premium for the bowling centers
commercial package product was $0.3 million. The Company anticipates that it will continue
to non-renew its remaining bowling centers commercial package business throughout 2008,
which approximated $0.6 million of gross written premium for the six months ended December
31, 2007.
|
One of our preferred agents has terminated their preferred agency agreement with us effective
August 1, 2008. It has been agreed that we will not compete for a period of one year on a mutually
agreed upon list of accounts. The list of accounts is estimated to total approximately $30.0
million in annual gross written premium.
The respective net written premiums and net earned premiums for each of our business segments for
the three months ended June 30, 2008 compared to June 30, 2007 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Dollars In Millions)
|
|
Commercial Lines
|
|
Specialty Lines
|
|
Run-off
|
|
Total
|
2008 Net Written Premiums
|
|
$
|
335.4
|
|
|
$
|
60.1
|
|
|
$
|
2.9
|
|
|
$
|
398.4
|
|
2007 Net Written Premiums
|
|
$
|
293.6
|
|
|
$
|
49.3
|
|
|
$
|
(3.7
|
)
|
|
$
|
339.2
|
|
Percentage Increase
|
|
|
14.2
|
%
|
|
|
21.9
|
%
|
|
|
178.4
|
%
|
|
|
17.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008 Net Earned Premiums
|
|
$
|
332.6
|
|
|
$
|
58.3
|
|
|
$
|
2.1
|
|
|
$
|
393.0
|
|
2007 Net Earned Premiums
|
|
$
|
286.6
|
|
|
$
|
47.8
|
|
|
$
|
2.9
|
|
|
$
|
337.3
|
|
Percentage Increase (Decrease)
|
|
|
16.1
|
%
|
|
|
22.0
|
%
|
|
|
(27.6
|
)%
|
|
|
16.5
|
%
|
The differing percentage changes in net written premiums and/or net earned premiums versus gross
written premiums and/or gross earned premiums for our commercial lines, specialty lines and run-off
(personal lines) segments results primarily from the following:
|
|
|
We experienced higher property catastrophe reinsurance rates, maintained the same
catastrophe loss retention, and increased catastrophe coverage limits for our annual June
1, 2007 reinsurance renewal compared to the June 1, 2006 renewal. This resulted in
increased property catastrophe costs for the three month period ended June 30, 2008,
compared to the three month period ended June 30, 2007. For the June 1, 2008 commercial
lines segment property catastrophe reinsurance renewal, we experienced higher reinsurance
rates, purchased increased catastrophe limits due to higher exposures primarily in the
northeastern portion of the country, and increased our catastrophe loss retention compared
to the June 1, 2007 renewal.
|
34
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
|
|
|
For our run-off segment, our property catastrophe costs were significantly lower for the
three months ended June 30, 2008 compared to June 30, 2007. For our June 1, 2007 run-off
segment property catastrophe reinsurance renewal, we experienced reduced reinsurance rates,
lower catastrophe loss retention and purchased decreased catastrophe coverage limits due to
lower exposures, compared to the June 1, 2006
renewal. For our June 1, 2008 run-off segment property catastrophe reinsurance renewal, we experienced
lower reinsurance rates, maintained the same catastrophe loss retention, and purchased
decreased catastrophe coverage limits due to lower exposures, compared to our June 1, 2007
renewal.
|
|
|
|
|
For our commercial and specialty lines segments, we experienced rate reductions on our
annual January 1, 2008 renewal of our casualty excess of loss reinsurance coverage compared
to the rate on our January 1, 2007 renewal of this coverage.
|
|
|
|
|
For our commercial lines segment, we experienced a rate increase on our annual January
1, 2008 renewal of our property excess of loss reinsurance coverage compared to the rate on
our January 1, 2007 renewal of this coverage.
|
Net Investment Income:
Net investment income increased 13.3% to $32.3 million for the three
months ended June 30, 2008 from $28.5 million for the same period of 2007. Total investments grew
by 17.1% to $3,192.6 million as of June 30, 2008 from $2,725.5 million as of June 30, 2007. The
growth in investment income is primarily due to our ability to invest increased net cash flows
provided from our operating activities. In addition, despite a general decline in interest rates
compared with the previous historical reporting period, the capital market spreads to U.S.
Treasuries were generally wider, which also had a favorable impact on our ability to increase
investment income through new investments. The taxable equivalent book yield on our fixed income
holdings approximated 5.4% as of June 30, 2008, compared to 5.5% as of June 30, 2007.
The average duration of our fixed maturity portfolio was 5.1 years and 4.7 years as of June 30,
2008 and 2007, respectively. Our decision to continue to increase the average duration of our
fixed maturity portfolio was based upon enterprise risk management analyses indicating our capacity
to further refine the risk/return profile of our investment portfolio.
Effective January 1, 2008, we substituted a customized Merrill Lynch Enterprise Based Investment
Benchmark Index (the Index) for the Lehman Brothers Intermediate Aggregate Index to evaluate the
total return performance of our fixed income portfolio. This change was made in an effort to
establish an Index that more closely represents our strategic enterprise -based risk and return
profile, as reflected in a strategic optimal fixed maturity portfolio. The Company also believes
that the Index provides a more relevant measure of return than the index used in prior periods.
The total tax equivalent performance of our fixed income portfolio was (0.11)% for the three months
ended June 30, 2008, compared to the Index tax equivalent performance of 0.18% for the same period.
This variance is primarily due to the difference between our underweighted allocation percentage
to Municipal securities compared to the Municipal security allocation percentage in the custom
Index. During the three months ended June 30, 2008, we continued to add to our Municipal security portfolio
given the attractive relative returns in this sector.. The total pre-tax return, which includes
the effects of both income and price returns on securities, of our fixed income portfolio was
(0.43)% for the three months ended June 30, 2007, compared to the Lehman Brothers Intermediate
Aggregate Bond Index total pre-tax return of (0.35)% for the same period. We expect some variation
in our portfolios total return compared to the Index primarily because of the differing sector,
security and duration composition of our portfolio as compared to the Index.
Net Realized Investment Gain (Loss):
Net realized investment (losses) gains were $(11.5)
million and $28.1 million for the three months ended June 30, 2008 and 2007, respectively.
For the three months ended June 30, 2008, we did not realize net investment gains (losses)
from the sale of fixed maturity securities. For the three months ended June 30, 2008, we realized
net investment gains of $0.1 million from the sale of equity securities. In addition, for the
three months ended June 30, 2008, we did not recognize any
35
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
non-cash realized fixed maturity
security investment losses as a result of our impairment evaluations. For the three months ended
June 30, 2008, we recognized $11.6 million in non-cash realized equity security investment losses
as a result of our impairment evaluations.
For the three months ended June 30, 2007, we realized net investment gains of $0.2 million and
$28.0 million from the sale of fixed maturity and equity securities, respectively. In addition,
for the three months ended June 30, 2007,
we recognized no non-cash realized investment losses for fixed maturity securities and $0.1 million
in non-cash realized investment losses for equity securities, respectively, as a result of our
impairment evaluations. The $28.0 million net realized gains from the sale of equity securities
included approximately $22.2 million of net realized gains as a result of the liquidation of one of
our equity portfolios following our decision to change one of our common stock investment managers.
Other Income
: Other income approximated $3.7 million and $0.9 million for the three months
ended June 30, 2008 and 2007, respectively. Other income consists primarily of commissions and
fees earned on servicing and brokering commercial lines business, and to a lesser extent
commissions and fees earned on servicing and brokering personal lines business. In addition, other
income for the three months ended June 30, 2008 includes our recognition of a $1.2 million gain
related to the sale of the headquarters building of our Run-Off segment.
Net Loss and Loss Adjustment Expenses:
Net loss and loss adjustment expenses increased $74.7
million (50.3%) to $223.3 million for the three months ended June 30, 2008 from $148.6 million for
the same period of 2007, and the loss ratio increased to 56.8% in 2008 from 44.1% in 2007.
The increase in net loss and loss adjustment expenses was primarily due to:
|
|
|
The growth in net earned premiums.
|
|
|
|
|
Net reserve actions taken during the three months ended June 30, 2008 which decreased
net estimated unpaid loss and loss adjustment expenses for accident years 2007 and prior by
$18.5 million, as compared to net reserve actions taken during the three months ended June
30, 2007 which decreased estimated net unpaid loss and loss adjustment expenses for
accident years 2006 and prior by $20.8 million. Decreases in the estimated net unpaid loss
and loss adjustment expenses for prior accident years during the three months ended June 30, 2008 were as follows:
|
|
|
|
|
|
(Dollars In Millions)
|
|
Net Basis Decrease
|
|
Accident Year 2007
|
|
$
|
6.6
|
|
Accident Year 2006
|
|
|
4.8
|
|
Accident Year 2005
|
|
|
4.1
|
|
Accident Years 2004 and prior
|
|
|
3.0
|
|
|
|
|
|
Total
|
|
$
|
18.5
|
|
|
|
|
|
|
|
|
For accident year 2007, the decrease in estimated net unpaid loss and loss adjustment
expenses was principally due to lower loss estimates for commercial general liability,
commercial property, and management liability coverages due to better than expected case
incurred loss development, primarily as a result of claim frequency being less than
anticipated for commercial general liability and commercial property coverages, and claim
severity being less than anticipated for management liability coverage. These lower loss
estimates were partially offset by higher loss estimates for commercial automobile coverages
due to higher than expected case incurred loss development, primarily as a result of both
claim frequency and severity being greater than anticipated.
|
|
|
|
|
For accident year 2006, the decrease in estimated net unpaid loss and loss adjustment
expenses was principally due to lower loss estimates for commercial property and
professional liability coverages due to better than expected case incurred loss development,
primarily as a result of claim severity being less than anticipated. These lower loss
estimates were partially offset by higher loss estimates for commercial
|
36
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
|
|
|
automobile coverages
due to higher than expected case incurred loss development, primarily as a result of claim
severity being greater than anticipated.
|
|
|
|
|
For accident year 2005, the decrease in estimated net unpaid loss and loss adjustment
expenses was principally due to lower loss estimates for management liability and
professional liability coverages due to better than expected case incurred loss development,
primarily as a result of claim severity being less than anticipated.
|
|
|
|
|
For accident years 2004 and prior, the decrease in estimated net unpaid loss and loss
adjustment expenses was principally due to lower loss estimates for commercial general
liability, management liability, and professional liability coverages due to better than
expected case incurred loss development, primarily as a result of claim severity being less
than anticipated.
|
|
|
|
|
An increase in the current accident year net ultimate loss and loss adjustment expense
ratio for the three months ended June 30, 2008 compared to 2007. During the three months
ended June 30, 2008, a net ultimate loss and loss adjustment expense ratio of 61.5% was
estimated for the 2008 accident year. During the three months ended June 30, 2007, a net
ultimate loss and loss adjustment expense ratio of 50.2% was estimated for the 2007
accident year. The increase in the 2008 accident year loss and loss adjustment expense
ratio is principally attributable to:
|
|
§
|
|
Realized average rate decreases on renewal business approximating 4.4% and 2.4%
for the commercial and specialty lines segments, respectively, for the three
months ended June 30, 2008 compared to the same period in 2007.
|
|
|
§
|
|
$20.6 million of loss and loss adjustment expenses during the three months
ended June 30, 2008 resulting from hail, tornado, and wind losses which occurred
in Minnesota, Nebraska, Kansas, and Oklahoma during the period of May 22, 2008
through May 26, 2008, and which occurred in Illinois, Indiana, Kansas, Minnesota,
Nebraska, and Oklahoma during the period of May 29, 2008 through June 1, 2008. We
did not have similar losses during the three months ended June 30, 2007.
|
Establishing loss reserve estimates is a complex and imprecise process. Our estimation procedures
employ several generally accepted actuarial methods to determine net unpaid loss and loss
adjustment expenses. Some of these methods are based on actual loss development, while others are
based on expected loss development, and still others use a blend of both. Over time, more reliance
is placed on actuarial methods based on actual loss development, and accordingly, over time, less
reliance is placed on actuarial methods based on expected loss development.
Acquisition Costs and Other Underwriting Expenses:
Acquisition costs and other underwriting
expenses increased $13.8 million (13.6%) to $115.5 million for the three months ended June 30, 2008
from $101.7 million for the same period of 2007, and the expense ratio decreased slightly to 29.4%
in 2008 versus 30.2% in 2007. The increase in acquisition costs and other underwriting expenses
was due primarily to the growth in net earned premiums.
Income Tax Expense:
Our effective tax rate for the three months ended June 30, 2008 and 2007
was 28.8% and 33.3%, respectively. The effective rates for 2008 and 2007 differed from the 35%
statutory rate principally due to investments in tax-exempt securities and the relative proportion
of tax exempt income to our income before tax. The decrease in the effective tax rate during 2008
is due principally to increased investments in tax exempt securities.
Investments
On January 1, 2008, we adopted the provisions of SFAS 157. SFAS 157 defines fair value and
provides a consistent framework for measuring items at fair value as previously permitted by
existing accounting pronouncements. SFAS 157 provides a fair value hierarchy which prioritizes
the quality of inputs utilized when measuring the items at fair
37
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
value and requires expanded
disclosures for fair value measurements. As of June 30, 2008, the fair value of our total
invested assets (financial assets consisting of total investments plus cash equivalents) has been
determined in accordance with the provisions of SFAS 157. As a result of the adoption of SFAS
157, we note the following:
§
|
|
The fair value of our total invested assets is primarily measured utilizing a market based
valuation methodology (Market Approach). A Market Approach utilizes prices and other
relevant information generated by market transactions involving identical or comparable assets
or liabilities to measure fair value. We have consistently applied the Market Approach as of
and for the three and six months ended June 30, 2008.
|
§
|
|
Approximately 98.7% of our total invested assets is measured utilizing significant
observable inputs (Level 1 or Level 2 per SFAS 157). Approximately 1.3% of our total invested
assets is measured utilizing significant unobservable inputs (Level 3 per SFAS 157).
|
§
|
|
Approximately 99.3% of our fixed maturity investments is measured utilizing significant
observable inputs (Level 1 or Level 2 per SFAS 157). Approximately 93.6% of our equity
investments is measured utilizing significant observable inputs (Level 1 or Level 2 per SFAS
157). We do not consider our use of unobservable inputs (Level 3 per SFAS 157) in our fair
value measurements to be significant to our financial position, results of operations, or
liquidity.
|
§
|
|
Significant observable inputs utilized to measure fair value include matrix pricing for
fixed maturity investments (Level 2 per SFAS 157) and quoted market prices for equity
investments (Level 1 per SFAS 157). Matrix pricing relies on observable inputs from active
markets other than quoted market prices including, but not limited to, benchmark securities
and yields, latest reported trades, quotes from brokers or dealers, issuer spreads, bids,
offers, and other relevant reference data to determine fair value. Matrix pricing is used
to measure the fair value of fixed maturity securities where obtaining individual quoted
market prices is impractical.
|
§
|
|
The significant unobservable inputs utilized to measure fair value include broker pricing
and net asset value calculations.
|
§
|
|
We made no material adjustments to the fair value of our invested assets as of and for the
three and six months ended June 30, 2008.
|
We utilize external independent investment managers in obtaining the pricing inputs noted above for
our fixed maturity and equity investments. In order to ensure we are maximizing our use of
observable pricing inputs and minimizing our use of unobservable pricing inputs, we verify with our
external investment managers that pricing for our fixed maturity and equity investments is obtained
from external market sources. In the event that pricing is obtained from sources other than
external market sources, we review the pricing inputs and reasons in order to determine that the
fair value measurements resulting from these inputs are properly categorized within the fair value
hierarchy. As our fair value measurements are primarily measured using external market
information, they are sensitive to changes in market conditions.
Our investment objectives are the realization of relatively high levels of after-tax net investment
income with competitive after-tax total rates of return subject to established specific guidelines
and objectives based on our enterprise based asset allocation methods. We utilize external
independent professional investment managers for our fixed maturity and equity investments to help
us achieve these objectives. These investments consist of diversified issuers and issues, and as
of June 30, 2008 approximately 86.7% and 10.3% of our total invested assets on a cost basis
consisted of investments in fixed maturity and equity securities, respectively, versus 87.8% and
10.7%, respectively, as of December 31, 2007.
Of our total fixed maturity investments, asset backed, mortgage pass-through, and collateralized
mortgage obligation securities, on a cost basis, amounted to $223.3 million, $572.2 million and
$289.5 million, respectively, as of June 30, 2008, and $199.3 million, $604.3 million and $329.5
million, respectively, as of December 31, 2007.
38
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
We regularly perform impairment reviews with respect to our investments. For investments other than
interests in securitized assets, these reviews include identifying any security whose fair value is
below its cost and an analysis of securities meeting predetermined impairment thresholds to
determine whether such decline is other than temporary. If we do not intend to hold a security to
maturity or determine a decline in value to be other than temporary, the cost basis of the security
is written down to its fair value with the amount of the write down reflected in our earnings as a
realized loss in the period the impairment arose. These evaluations, for investments other than
interests in securitized assets, resulted in non-cash realized investment losses of $11.7 million
and $0.1 million, respectively, for the three months ended June 30, 2008 and 2007, and $22.4
million and $2.6 million, respectively, for the six months ended June 30, 2008 and 2007. Our
impairment review also includes an impairment evaluation for interests in securitized assets
conducted in accordance with the guidance provided by the Emerging Issues Task Force of the
FASB. As a result of our impairment evaluations for investments in securitized assets, there were
no non-cash realized investment losses recorded for the three and six months ended June 30, 2008
and 2007.
Our fixed maturity portfolio amounted to $2,844.2 million and $2,659.2 million, as of June 30, 2008
and December 31, 2007, respectively. 99.9% of the portfolio was comprised of investment grade
securities as of June 30, 2008 and December 31, 2007. We had fixed maturity investments with gross
unrealized losses amounting to $35.9 million and $7.0 million as of June 30, 2008 and December 31,
2007, respectively. Of these amounts, interests in securitized assets had gross unrealized losses
amounting to $13.7 million and $3.0 million as of June 30, 2008 and December 31, 2007,
respectively.
Securities with an Unrealized Loss as of June 30, 2008:
The following table identifies the period of time securities with an unrealized loss as of June 30,
2008 have continuously been in an unrealized loss position. None of the amounts displayed in the
table are due to non-investment grade fixed maturity securities. No issuer of securities or
industry represents more than 2.0% and 22.9%, respectively, of the total estimated fair value, or
4.7% and 11.4%, respectively, of the total gross unrealized loss included in the table below.
|
|
|
The industry concentration as a percentage of total estimated fair value represents
investments in a geographically diversified pool of investment grade municipal securities
issued by states, political subdivisions, and public authorities under general obligation
and/or special district/purpose issuing authority. The unrealized losses on these
securities are generally attributable to changes both in market spreads and in the level of
Treasury yields. The primary factor underlying the spread widening is the increasing
market risk aversion to issues surrounding the monoline financial guarantors, given such
guarantors significant participation in the municipal sector through their financial
guarantee insurance.
|
|
|
|
|
The industry concentration as a percentage of the total gross unrealized loss primarily
represents investments in equity securities issued by companies in the diversified
financial services industry. The unrealized losses on these securities are generally
attributable to the recent correction in the financial services industry primarily caused
by the deterioration of credit conditions and increased risk aversion in the marketplace
during the second half of 2007 and the first half of 2008. As of June 30, 2008, these
securities were evaluated for other than temporary impairment in accordance with the
Companys impairment policy, and the Company concluded that these securities were not other
than temporarily impaired.
|
The contractual repayment of the municipal securities is backed either by the general taxing
authority of the state or political subdivision or by general or specific revenues of the public
authorities and, in addition, a portion is pre-refunded and supported by US Government collateral.
Additionally, a portion of the securities is backed by financial guarantee insurance issued by
monoline financial guarantors. The contractual terms of these investments do not permit the issuer
to settle the securities at a price less than the amortized costs of the investments. Given the
investment grade credit quality of the issuers represented in the municipal portfolio, without
considering any monoline financial guarantee, we believe we will be able to collect all amounts due
according to the contractual terms of the investments. At the present time, we have the ability and
intent to hold these securities until a recovery
39
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
of fair value, which may be maturity; therefore,
we do not consider these investments to be other than temporarily impaired as of June 30, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
Gross Unrealized Losses as of June 30, 2008
|
|
|
|
Fixed Maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excluding Interests
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuous time in
|
|
in Securitized
|
|
|
Interests in
|
|
|
Fixed Maturities
|
|
|
|
|
|
|
Total
|
|
Unrealized loss position
|
|
Assets
|
|
|
Securitized Assets
|
|
|
Available for Sale
|
|
|
Equity Securities
|
|
|
Investments
|
|
0 3 months
|
|
$
|
5.0
|
|
|
$
|
6.0
|
|
|
$
|
11.0
|
|
|
$
|
10.7
|
|
|
$
|
21.7
|
|
4 6 months
|
|
|
9.3
|
|
|
|
4.4
|
|
|
|
13.7
|
|
|
|
9.3
|
|
|
|
23.0
|
|
7 9 months
|
|
|
1.3
|
|
|
|
0.2
|
|
|
|
1.5
|
|
|
|
10.3
|
|
|
|
11.8
|
|
10 12 months
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
0.2
|
|
|
|
|
|
|
|
0.2
|
|
13 18 months
|
|
|
5.6
|
|
|
|
0.9
|
|
|
|
6.5
|
|
|
|
|
|
|
|
6.5
|
|
19 24 months
|
|
|
0.1
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
0.1
|
|
> 24 months
|
|
|
0.8
|
|
|
|
2.1
|
|
|
|
2.9
|
|
|
|
|
|
|
|
2.9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gross
Unrealized Losses
|
|
$
|
22.2
|
|
|
$
|
13.7
|
|
|
$
|
35.9
|
|
|
$
|
30.3
|
|
|
$
|
66.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated fair
value of
securities with a
gross
unrealized loss
|
|
$
|
1,126.7
|
|
|
$
|
560.7
|
|
|
$
|
1,687.4
|
|
|
$
|
155.7
|
|
|
$
|
1,843.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our impairment evaluation as of June 30, 2008 for fixed maturities available for sale excluding
interests in securitized assets resulted in the following conclusions:
|
|
US Treasury Securities and Obligations of U.S. Government Agencies:
|
|
|
|
The unrealized losses on our investments in U.S. Treasury Securities and Obligations of U.S.
Government Agencies which have ratings of Aaa/AAA are attributable to the general level of
interest rates. Of the 29 investment positions held, approximately 10.3% were in an unrealized
loss position as of June 30, 2008.
|
|
|
|
Obligations of States and Political Subdivisions:
|
|
|
|
The unrealized losses on our investments in long term tax exempt securities, which have ratings
of Baa3/BBB- to Aaa/AAA are attributable to changes both in market spreads and in the level of
Treasury yields. Of the 968 investment positions held, approximately 57.9% were in an
unrealized loss position. The contractual terms of the investments do not permit the issuer to
settle the securities at a price less than the amortized cost of the investments.
|
|
|
|
Corporate Debt Securities:
|
|
|
|
The unrealized losses on our long term investments in corporate bonds, which have ratings from
Baa3/BBB to Aaa/AAA are attributable primarily to changes in market spreads. Of the 62
investment positions held, approximately 59.7% were in an unrealized loss position. The
contractual terms of the investments do not permit the issuer to settle the securities at a
price less than the amortized cost of the investments.
|
Our evaluation as of June 30, 2008 for interests in securitized assets resulted in the following
conclusions:
|
|
Asset Backed Securities:
|
|
|
|
The unrealized losses on our investments in Asset Backed Securities which have ratings of
Baa2/BBB to Aaa/AAA, are attributable primarily to changes in market spreads. Of the 113
investment positions held, approximately 53.1% were in an unrealized loss position. The
contractual terms of the investments do not permit the issuer to settle the security at a price
less than the amortized cost of the investments.
|
|
|
|
Mortgage Pass-Through Securities:
|
|
|
|
The unrealized losses on our investments in Mortgage Pass-Through Securities which have ratings
of Aaa/AAA, are attributable primarily to changes in market spreads. Of the 150 investment
positions held,
|
40
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
|
|
approximately 57.3% were in an unrealized loss position. The contractual terms
of the investments do not permit the issuer to settle the security at a price less than the
amortized cost of the investments.
|
|
|
|
Collateralized Mortgage Obligations:
|
|
|
|
The unrealized losses on our investments in Collateralized Mortgage Obligations which have
ratings of A2/A to Aaa/AAA, are attributable primarily to changes in market spreads. Of the 167
investment positions held, approximately 33.5% were in an unrealized loss position. The
contractual terms of the investments do not permit the issuer to settle the security at a price
less than the amortized cost of the investments.
|
Our impairment evaluation as of June 30, 2008 for equity securities resulted in the conclusion that
we do not consider the equity securities remaining in an unrealized loss position to be other than
temporarily impaired. Of the 2,922 investment positions held, approximately 45.8% were in an
unrealized loss position.
Structured Securities Portfolio:
The fair value of our structured securities investment portfolio (Asset Backed, Mortgage
Pass-Through and Collateralized Mortgage Obligation securities) amounted to $1,078.8 million as of
June 30, 2008. AAA rated securities represented approximately 98.6% of our June 30, 2008
structured securities portfolio. Approximately $864.5 million of our structured securities
investment portfolio is backed by residential collateral, consisting of:
|
|
$569.4 million of U.S. government agency backed Mortgage Pass-Through Securities;
|
|
|
$207.7 million of U.S. government agency backed Collateralized Mortgage Obligations;
|
|
|
$68.1 million of non-U.S. government agency Collateralized Mortgage Obligations backed by
pools of prime loans (generally consists of loans made to the highest credit quality borrowers
with Fair Isaac Corporation (FICO) scores generally greater than 720);
|
|
|
$16.2 million of structured securities backed by pools of ALT A loans (loans with less than
normal documentation and borrowers with FICO scores in the approximated range of 650 to the
low 700s); and
|
|
|
$3.1 million of structured securities backed by pools of subprime loans (loans with less than
normal documentation, higher combined loan-to-value ratios and borrowers with FICO scores
capped at approximately 650).
|
Our $19.3 million ALT-A and subprime overall AAA rated loan portfolio is comprised of 20 securities
with net unrealized losses of $0.9 million as of June 30, 2008. These securities have the following
characteristics:
|
|
first to pay or among the first cash flow tranches of their respective transactions;
|
|
|
|
weighted average life of 1.9 years;
|
|
|
|
spread across multiple vintages (origination year of underlying collateral pool), and
|
|
|
|
have not experienced any ratings downgrades as of June 30, 2008.
|
Our ALT-A and subprime loan portfolio has paid down to $19.3 million as of June 30, 2008, from
$27.6 million as of December 31, 2007, and $42.0 million as of June 30, 2007.
As of June 30, 2008, we hold no investments in Collateralized Debt Obligations or Net Interest
Margin securities.
We expect fixed maturity and equity markets, in general, to continue to experience more volatility
than during most prior historical reporting periods over the past few years. This expectation is
based on a number of variables including, but not limited to, events in the housing and mortgage
finance sectors, issues surrounding the monoline financial guarantors and the impact on municipal
and asset backed finance and the effect on capital markets and investors as financial institutions
de-leverage and undergo a period of recapitalization. As of June 30, 2008, we had no impairments
related to these market conditions. However, we expect that ongoing volatility in these sectors,
in particular, and in spread related sectors, in general, may impact the prices of securities held
in our average AA+ rated investment portfolio, including our average AAA rated structured
securities portfolio.
41
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
Municipal Bond Portfolio:
Our $1,606.6 million municipal bond overall AA+ rated portfolio consists of $996.1 million of
insured securities, or 62.0% of our total municipal bond portfolio. The weighted average
underlying rating of the insured portion of our municipal bond portfolio is AA and the weighted
average rating of the uninsured portion of our municipal bond portfolio is AA+. The following
table represents our insured bond portfolio by monoline insurer as of June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
Market Value of Insured
|
|
|
Percentage of
|
|
|
Underlying Rating of
|
|
|
|
Municipal Bonds
|
|
|
Municipal Bond
|
|
|
Insured Municipal
|
|
Monoline Insurer
|
|
(In Millions)
|
|
|
Portfolio
|
|
|
Bonds
|
|
Financial Security
Assurance, Inc.
|
|
$
|
327.9
|
|
|
|
20.4
|
%
|
|
AA
|
MBIA, Inc.
|
|
|
298.7
|
|
|
|
18.6
|
|
|
AA
|
FGIC Corporation.
|
|
|
198.9
|
|
|
|
12.4
|
|
|
AA-
|
AMBAC Financial Group, Inc.
|
|
|
166.1
|
|
|
|
10.3
|
|
|
AA-
|
XL Capital, LTD.
|
|
|
4.4
|
|
|
|
0.3
|
|
|
AA-
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
996.0
|
|
|
|
62.0
|
%
|
|
AA
|
|
|
|
|
|
|
|
|
|
|
At the time of purchase, each municipal bond is evaluated with regard to certain characteristics
including, but not limited to, the issuer, the underlying obligation and/or the revenue
pledge/collateral. The presence of any financial guarantee insurance is not an attribute used in
the purchase decision. We consider the financial guarantee insurance to be extra protection.
As of June 30, 2008, we had no impairments or surveillance issues related to these insured
municipal bonds.
Securities with an Unrealized Loss as of December 31, 2007:
The following table identifies the period of time securities with an unrealized loss as of December
31, 2007 have continuously been in an unrealized loss position. None of the amounts shown in the
table include unrealized losses due to non-investment grade fixed maturity securities. No issuer
of securities or industry represents more than 3.8% and 19.9%, respectively, of the total estimated
fair value, or 9.0% and 20.5%, respectively, of the total gross unrealized loss:
|
|
The industry concentration as a percentage of total estimated fair value represents
investments in a geographically diversified pool of investment grade municipal securities
issued by states, political subdivisions, and public authorities under general obligation
and/or special district/purpose issuing authority. The unrealized losses on these securities
are generally attributable to spread widening. The primary factor underlying the spread
widening is the increasing market risk aversion to issues surrounding the monoline financial
guarantors, given the monolines significant participation in the municipal sector through
their financial guarantee insurance.
|
|
|
The industry concentration as a percentage of the total gross unrealized loss primarily
represents investments in equity securities issued by companies in the Diversified Financial
Services industry. The unrealized losses on these securities are generally attributable to the
recent correction in the Financial Services industry primarily caused by the deterioration of
credit conditions in the marketplace during the third and fourth quarters of 2007. As of
December 31, 2007, these equity securities were evaluated for other than temporary impairment
in accordance with the Companys impairment policy and the Company concluded that these
securities were not other than temporarily impaired.
|
The contractual repayment of the Municipal securities is backed either by the general taxing
authority of the state or political subdivision or by general or specific revenues of the public
authorities. Additionally, a portion of the securities are backed by financial guarantee insurance
issued by the monoline financial guarantors. The contractual terms of these investments do not
permit the issuer to settle the securities at a price less than the amortized costs of the
investments. Given the investment grade credit quality of the issuers represented in the Municipal
portfolio,
42
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
without considering any monoline financial guarantee, we believe we will be able to
collect all amounts due
according to the contractual terms of the investments. At the present time, we have the ability and
intent to hold these securities until a recovery of fair value, which may be maturity; therefore,
we do not consider these investments to be other than temporarily impaired as of December 31, 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In Millions)
|
|
Gross Unrealized Losses as of December 31, 2007
|
|
|
|
Fixed Maturities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available for Sale
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Excluding Interests
|
|
|
Interests in
|
|
|
Fixed Maturities
|
|
|
|
|
|
|
|
Continuous time in
|
|
in Securitized
|
|
|
Securitized
|
|
|
Available
|
|
|
Equity
|
|
|
Total
|
|
Unrealized loss position
|
|
Assets
|
|
|
Assets
|
|
|
for Sale
|
|
|
Securities
|
|
|
Investments
|
|
0 3 months
|
|
$
|
0.2
|
|
|
$
|
0.7
|
|
|
$
|
0.9
|
|
|
$
|
8.1
|
|
|
$
|
9.0
|
|
>3 6 months
|
|
|
|
|
|
|
0.1
|
|
|
|
0.1
|
|
|
|
6.5
|
|
|
|
6.6
|
|
>6 9 months
|
|
|
0.8
|
|
|
|
|
|
|
|
0.8
|
|
|
|
7.6
|
|
|
|
8.4
|
|
>9 12 months
|
|
|
1.3
|
|
|
|
|
|
|
|
1.3
|
|
|
|
|
|
|
|
1.3
|
|
>12 18 months
|
|
|
0.2
|
|
|
|
|
|
|
|
0.2
|
|
|
|
|
|
|
|
0.2
|
|
>18 24 months
|
|
|
0.1
|
|
|
|
|
|
|
|
0.1
|
|
|
|
|
|
|
|
0.1
|
|
> 24 months
|
|
|
1.4
|
|
|
|
2.2
|
|
|
|
3.6
|
|
|
|
|
|
|
|
3.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Gross Unrealized Losses
|
|
$
|
4.0
|
|
|
$
|
3.0
|
|
|
$
|
7.0
|
|
|
$
|
22.2
|
|
|
$
|
29.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated fair value of
securities with a gross
unrealized loss
|
|
$
|
570.4
|
|
|
$
|
357.6
|
|
|
$
|
928.0
|
|
|
$
|
118.1
|
|
|
$
|
1,046.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Our impairment evaluation as of December 31, 2007 for fixed maturities available for sale excluding
interests in securitized assets resulted in the following conclusions:
|
|
US Treasury Securities and Obligations of U.S. Government Agencies:
The unrealized losses on our Aaa/AAA rated investments in U.S. Treasury Securities and
Obligations of U.S. Government Agencies are attributable to interest rate fluctuations since the
date of purchase. Of the 30 investment positions held, approximately 26.7% were in an
unrealized loss position. The contractual terms of the investments do not permit the issuer to
settle the securities at a price less than the amortized cost of the investments.
|
|
|
|
Obligations of States and Political Subdivisions:
|
|
|
|
The unrealized losses on our investments in long term tax exempt securities, which have ratings
of A1/A+ to AAA/Aaa, are generally caused by spread widening. Of the 873 investment positions
held, approximately 32.8% were in an unrealized loss position. The contractual terms of the
investments do not permit the issuer to settle the securities at a price less than the amortized
cost of the investments.
|
|
|
|
Corporate Debt Securities:
|
|
|
|
The unrealized losses on our long term investments in Corporate bonds, which have ratings from
Baa3/BBB to Aaa/AAA, are generally caused by spread widening. Of the 73 investment positions
held, approximately 79.5% were in an unrealized loss position. The contractual terms of the
investments do not permit the issuer to settle the securities at a price less than the amortized
cost of the investments.
|
Our impairment evaluation as of December 31, 2007 for interests in securitized assets resulted in
the following conclusions:
|
|
Asset Backed Securities:
|
|
|
|
The unrealized losses on our investments in Asset Backed Securities, which have ratings from
A2/A to Aaa/AAA are generally caused by spread widening. Of the 116 investment positions held,
approximately 40.5% were in an unrealized loss position. The contractual terms of the
investments do not permit the issuer to settle the security at a price less than the amortized
cost of the investments.
|
43
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
|
|
Mortgage Pass-Through Securities:
|
|
|
|
The unrealized losses on our investments in Mortgage Pass-Through Securities which have ratings
of Aaa/AAA are generally caused by spread widening. Of the 150 investment positions held,
approximately 38.7% were in an unrealized loss position. The contractual terms of the
investments do not permit the issuer to settle the security at a price less than the amortized
cost of the investments.
|
|
|
Collateralized Mortgage Obligations:
|
|
|
|
The unrealized losses on our investments in Collateralized Mortgage Obligations which have
ratings of Aa2/AA+ to Aaa/AAA are generally caused by spread widening. Of the 172 investment
positions held, approximately 41.3% were in an unrealized loss position. The contractual terms
of the investments do not permit the issuer to settle the security at a price less than the
amortized cost of the investments.
|
Our impairment evaluation as of December 31, 2007 for equity securities resulted in the conclusion
that we do not consider the equity securities to be other than temporarily impaired. Of the 2,674
investment positions held, approximately 38.4% were in an unrealized loss position.
Gross Realized Losses:
For the three months ended June 30, 2008, we did not have a gross loss on the sale of fixed
maturity securities. For the three months ended June 30, 2008, our gross loss on the sale of
equity securities was $2.9 million. The fair value of the equity securities at the time of sale
was $8.0 million.
For the three months ended June 30, 2007, our gross loss on the sale of fixed maturity and equity
securities was $0.2 million and $1.5 million, respectively. $1.2 million of the $1.5 million gross
loss on the sale of equity securities for the three months ended June 30, 2007 was a result of the
liquidation of one of our equity portfolios following our decision to change one of our common
stock investment managers. The fair value of the fixed maturity and equity securities at the time
of sale was $32.5 million and $19.0 million, respectively.
For the six months ended June 30, 2008, we did not have a gross loss on the sale of fixed maturity
securities. For the six months ended June 30, 2008, our gross loss on the sale of equity
securities was $6.3 million. The fair value of the equity securities at the time of sale was $13.5
million. $2.7 million of the $6.3 million gross loss on the sale of equity securities for the six
months ended June 30, 2008 resulted from the sale during the three months ended March 31, 2008 of
the common stock we held in The Bear Stearns Companies, Inc.
For the six months ended June 30, 2007, our gross loss on the sale of fixed maturity and equity
securities amounted to $0.3 million and $2.0 million, respectively. $1.2 million of the $2.0
million gross loss on the sale of equity securities for the six months ended June 30, 2007 was a
result of the liquidation of one of our equity portfolios following the decision to change one of
our common stock investment managers. The $1.2 million realized gross loss on the sale of equity
securities was in addition to the $1.6 million impairment loss recognized during the three months
ended March 31, 2007 arising from the initial decision to change one of our common stock investment
managers and no longer hold the securities to recovery. The fair value of the fixed maturity and
equity securities at the time of sale was $33.7 million and $27.9 million, respectively.
Liquidity and Capital Resources
For the six months ended June 30, 2008, our fixed maturity investments experienced unrealized
investment depreciation of $26.2 million, net of the related deferred tax benefit of $14.1 million,
and our equity investments experienced unrealized investment depreciation of $15.6 million, net of
the related deferred tax benefit of $8.4 million
As of June 30, 2008, we had total investments with a carrying value of $3,192.6 million, of which
89.1% consisted of investments in fixed maturity securities, including U.S. treasury securities and
obligations of U.S. government corporations and agencies, obligations of states and political
subdivisions, corporate debt securities, collateralized
44
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
mortgage, mortgage pass-through and asset
backed securities. The remaining 10.9% of our total investments consisted primarily of publicly
traded common stock securities.
We produced net cash from operations of $254.2 million and $262.1 million for the six months ended
June 30, 2008 and 2007, respectively. Sources of operating funds consist primarily of net premiums
written and investment income. Funds are used primarily to pay claims and operating expenses and
for the purchase of investments. Cash from operations for the six months ended June 30, 2008 was
primarily generated from premium growth during the current year as a result of increases in the
number of policies written. Net loss and loss expense payments were $278.4 million and $200.8
million, respectively, for the six months ended June 30, 2008 and 2007. We believe we have
adequate liquidity to pay all claims and meet all other cash needs.
We generated $22.2 million of net cash from financing activities during the six months ended June
30, 2008.
Cash provided by financing activities consisted of:
|
|
|
$57.2 million of cash provided from borrowings from the Federal Home Loan Bank of
Pittsburgh (FHLB),
|
|
|
|
|
$45.0 million of cash provided from borrowings from our unsecured $50.0 million credit
agreement,
|
|
|
|
|
$3.9 million of cash provided from proceeds from the issuance of shares pursuant to our
stock based compensation plans and stock purchase plans,
|
|
|
|
|
$2.0 million of cash provided from excess tax benefit from the issuance of shares
pursuant to stock based compensation plans, and
|
|
|
|
|
$2.0 million of cash provided from the collection of notes receivable associated with
our employee stock purchase plans.
|
Cash used for financing activities included:
|
|
|
$42.9 million of cash used to repurchase common stock under our stock purchase
authorization;
|
|
|
|
|
$45.0 million of cash used for repayments on our unsecured $50.0 million credit
agreement.
|
During the six months ended June 30, 2008, Philadelphia Consolidated Holding Corp. received $80.0
million of dividend payments from Philadelphia Indemnity Insurance Company, one of our Insurance
Subsidiaries.
On June 27, 2008, we entered into a Second Amendment to our existing unsecured Credit Agreement.
This Amendment extended the maturity date of our revolving credit facility to July 11, 2008. On
July 11, 2008, we entered into an Amended and Restated Credit Agreement (the Amended Credit
Agreement) with Bank of America, N.A. and Wachovia Bank, National Association. The Amended Credit
Agreement amended and restated our existing unsecured Credit Agreement. The Amended Credit
Agreement changed the terms of our existing Credit Agreement by extending the maturity date of our
revolving credit facility to June 26, 2009, including a $10.0 million letter of credit facility as
part of the aggregate $50.0 million revolving credit commitments of the Bank lenders, and
increasing the unused commitment fee from .06% to .07% per annum. The Amended Credit Agreement
provides capacity for working capital and other general corporate purposes and contains various
representations, covenants and events of default typical for credit facilities of this type. As of
June 30, 2008, no borrowings were outstanding under the Credit Agreement.
Two of our Insurance Subsidiaries are members of FHLB. A primary advantage of FHLB membership is
the ability of members to access credit products from a reliable capital markets provider. The
availability of any one members access to credit is based upon its FHLB eligible collateral. Our
Insurance Subsidiaries have utilized a portion of their borrowing capacity to purchase a
diversified portfolio in investment grade floating rate securities. These purchases were funded by
floating rate FHLB borrowing to achieve a positive spread between the rate of interest on these
securities and borrowing rates. As of June 30, 2008 our Insurance Subsidiaries unused borrowing
capacity was $589.7 million. The remaining borrowing capacity will provide an immediately
available line of credit. As of June 30, 2008, our Insurance Subsidiaries had $57.2 million of
borrowings outstanding at interest rates ranging from
45
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
(Continued)
LIBOR plus 0.15% to LIBOR plus 0.20% which
mature twelve months or less from inception and are collateralized by $82.1 million of our fixed
maturity securities.
The NAICs risk-based capital method is designed to measure the acceptable amount of capital and
surplus an insurer should have, based on the inherent specific risks of each insurer. The adequacy
of a companys actual capital and surplus is evaluated by a comparison to the risk-based capital
results. Insurers failing to meet minimum risk-based capital requirements may be subject to
scrutiny by the insurers domiciliary insurance department and ultimately rehabilitation or
liquidation. Based on the standards currently adopted, our Insurance Subsidiaries capital and
surplus is in excess of the prescribed risk-based capital requirements.
New Accounting Pronouncements
In March 2008, the FASB issued Statement No. 161 Disclosures about Derivative Instruments and
Hedging Activities (SFAS 161) to enhance disclosures about an entitys derivative and hedging
activities. SFAS 161 is effective for all financial statements issued in fiscal years and interim
periods beginning after November 15, 2008 and early application is encouraged. SFAS 161 also
encourages but does not require comparative disclosures for earlier periods at initial adoption.
Because we do not currently engage in derivative transactions or hedging activities, we do not
anticipate any significant financial statement disclosure impact resulting from SFAS 161.
In May 2008, the FASB issued Statement No. 162 The Hierarchy of Generally Accepted Accounting
Principles (SFAS 162) to identify the sources of accounting principles and provide a framework
for selecting the principles to be used in the preparation of financial statements in accordance
with generally accepted accounting principles in the United States. SFAS 162 is effective 60 days
following the Securities and Exchange Commissions approval of the Public Company Accounting
Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With
Generally Accepted Accounting Principles. We do not anticipate any significant financial
statement impact resulting from SFAS 162.
In May 2008, the FASB issued Statement No. 163 Accounting for Financial Guarantee Insurance
Contracts an interpretation of FASB Statement No. 60 (SFAS 163) to eliminate diversity in
practice in accounting for financial guarantee insurance contracts by insurance enterprises under
FASB Statement No. 60 Accounting and Reporting by Insurance Enterprises. SFAS 163 is effective
for all financial statements issued in fiscal years and interim periods beginning after December
15, 2008, with the exception of disclosures about insurance enterprises risk-management activities
used to track and monitor deteriorating insured financial obligations, which are effective for the
first period, including interim periods, after the issuance of SFAS 163. Except for these
risk-management disclosures, early application is not permitted. As we do not currently enter into
financial guarantee insurance contracts, we do not anticipate any significant financial statement
or disclosure impact resulting from SFAS 163.
46
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Our financial instruments are subject to the market risk of potential losses from adverse changes
in market rates and prices. The primary market risks to us are equity price risks associated with
investments in equity securities and interest rate and spread risks associated with investments in
fixed maturities. We have established, among other criteria, duration, asset quality and asset
allocation guidelines for managing our investment portfolio market risk exposure. Our investments
are classified as Available for Sale and consist of diversified issuers and issues.
The table below provides information about our financial instruments that are sensitive to changes
in interest rates and shows the effect of hypothetical changes in interest rates as of June 30,
2008 and 2007. The selected hypothetical changes do not indicate what could be the potential best
or worst case scenarios. The information is presented in U.S. dollar equivalents, which is our
reporting currency.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
Hypothetical Percentage
|
|
|
|
|
|
|
Hypothetical Change
|
|
Fair Value after
|
|
Increase (Decrease) in
|
|
|
Estimated
|
|
in Interest Rates
|
|
Hypothetical Changes
|
|
|
|
|
|
Shareholders
|
|
|
Fair Value
|
|
(bp=basis points)
|
|
in Interest Rates
|
|
Fair Value
|
|
Equity
|
|
|
(Dollars in Thousands)
|
June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fixed Maturities Available For Sale
|
|
$
|
2,844,209
|
|
|
200 bp decrease
|
|
$
|
3,133,908
|
|
|
|
10.2
|
%
|
|
|
11.8
|
%
|
|
|
|
|
|
|
100 bp decrease
|
|
$
|
2,990,793
|
|
|
|
5.2
|
%
|
|
|
6.0
|
%
|
|
|
|
|
|
|
50 bp decrease
|
|
$
|
2,917,768
|
|
|
|
2.6
|
%
|
|
|
3.0
|
%
|
|
|
|
|
|
|
50 bp increase
|
|
$
|
2,770,855
|
|
|
|
(2.6
|
)%
|
|
|
(3.0
|
)%
|
|
|
|
|
|
|
100 bp increase
|
|
$
|
2,698,571
|
|
|
|
(5.1
|
)%
|
|
|
(5.9
|
)%
|
|
|
|
|
|
|
200 bp increase
|
|
$
|
2,558,889
|
|
|
|
(10.0
|
)%
|
|
|
(11.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2007:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Fixed Maturities Available For Sale
|
|
$
|
2,367,228
|
|
|
200 bp decrease
|
|
$
|
2,590,289
|
|
|
|
9.4
|
%
|
|
|
11.0
|
%
|
|
|
|
|
|
|
100 bp decrease
|
|
$
|
2,479,171
|
|
|
|
4.7
|
%
|
|
|
5.5
|
%
|
|
|
|
|
|
|
50 bp decrease
|
|
$
|
2,423,438
|
|
|
|
2.4
|
%
|
|
|
2.8
|
%
|
|
|
|
|
|
|
50 bp increase
|
|
$
|
2,310,641
|
|
|
|
(2.4
|
)%
|
|
|
(2.8
|
)%
|
|
|
|
|
|
|
100 bp increase
|
|
$
|
2,254,153
|
|
|
|
(4.8
|
)%
|
|
|
(5.6
|
)%
|
|
|
|
|
|
|
200 bp increase
|
|
$
|
2,142,740
|
|
|
|
(9.5
|
)%
|
|
|
(11.0
|
)%
|
47
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures. Our disclosure controls and procedures,
as that term is defined in Rule 13a-15(e) of the Securities Exchange Act of 1934, as amended (the
Exchange Act), are designed with the objective of providing reasonable assurance that information
required to be disclosed in our reports filed or submitted under the Exchange Act, such as this
report, is recorded, processed, summarized and reported within the time periods specified in the
rules and forms of the Securities and Exchange Commission (the SEC). In designing and evaluating
our disclosure controls and procedures, our management recognizes that any disclosure controls and
procedures, no matter how well designed and operated, can provide only reasonable, rather than
absolute, assurance of achieving the desired control objectives.
An evaluation was performed by our management, with the participation of our chief executive
officer (CEO) and chief financial officer (CFO), of the effectiveness of the design and
operation of our disclosure controls and procedures as of the end of the period covered by this
report. Based on this evaluation, our CEO and CFO have concluded that, as of the end of such
period, our disclosure controls and procedures are effective to provide reasonable assurance that
information required to be disclosed in the reports that we file or submit under the Exchange Act
is recorded, processed, summarized and reported, within the time periods specified in the SECs
rules and forms and made known to our management, including our CEO and CFO, as appropriate, to
allow timely decisions regarding required disclosures.
(b) Changes in Internal Controls. There has been no change in our internal control over
financial reporting during our most recent fiscal quarter that has materially affected, or is
reasonably likely to materially affect, our internal control over financial reporting.
48
PHILADELPHIA CONSOLIDATED HOLDING CORP. AND SUBSIDIARIES
PART II OTHER INFORMATION
Item 1. Legal Proceedings
As previously reported in Item 3 of the Companys Annual Report on Form 10-K for its fiscal
year ended December 31, 2007, on February 26, 2008, the Company received a complaint filed on
February 14, 2008 with the U.S. District Court for the Southern District of Florida by seven
individuals. These individuals purported to act on behalf of a class of similarly situated
persons who had been issued insurance policies by Liberty American Select Insurance Company,
formerly known as Mobile USA Insurance Company (LASIC). The complaint, which is alleged to
be a class action complaint, was filed against the Company and its subsidiaries, LASIC,
Liberty American Insurance Company and Liberty American Insurance Group, Inc. The complaint
requests an unspecified amount of damages in excess of $5,000,000 and equitable relief to
prevent the defendants from committing what are alleged to be unfair business practices. The
plaintiffs allege that from the period from at least as early as September 1, 2003 through
December 31, 2006 they and other policyholders sustained property damage covered under
policies issued by LASIC, and that LASIC improperly denied or paid only a portion of the
policyholders claims for which they were entitled to be reimbursed.
The Company believes that it has valid defenses to the claims made in the complaint, and that
the claims may not be entitled to be brought as a class action. The Company will vigorously
defend against such claims. Although there is no assurance as to the outcome of this
litigation or as to its effect on the Companys financial position, the Company believes,
based on the facts currently known to it, that the outcome of this litigation will not have a
material adverse effect on its financial position.
Item 1A. Risk Factors
There were no material changes to the risk factors disclosed in Item 1A of the Companys
Annual Report on Form 10-K for the fiscal year ended December 31, 2007, except for risks
related to the proposed merger with an indirect wholly-owned subsidiary of Tokio Marine
Holdings, Inc. (TMHD), referred in Note 15 to the consolidated financial statements
included in this Form 10-Q and in Item 5 below. The Company is subject to several risks
relating to the proposed merger, including the following:
(a) if the merger is not completed, the share price of our common stock may decline
significantly;
(b) the occurrence of any circumstance that could give rise to the termination of the Merger
Agreement; in certain circumstances we may, in the event of such termination, be obligated to
pay to TMHD (i) a termination fee of $141.0 million and (ii) an expense reimbursement of up
to $15.0 million;
(c) failure of TMHD to obtain certain required regulatory approvals, the failure of our
shareholders to approve the merger or the failure to satisfy certain other conditions would
prevent the closing of the merger;
(d) the failure of the merger to be completed for any reason;
(e) the risk that the proposed merger could disrupt our operations and that our managements
and employees attention may be diverted from day-to-day operations; and
(f) the effect of the announcement of the merger on our employee, agency and broker
relationships, operating results and business generally.
49
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The Companys purchases of its common stock during the second quarter of 2008 are shown in
the following table:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(c) Total
|
|
(d)
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
Approximate
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Dollar Value of
|
|
|
|
|
|
|
|
|
|
|
Purchased as
|
|
Shares That
|
|
|
|
|
|
|
|
|
|
|
Part of
|
|
May Yet Be
|
|
|
|
|
|
|
|
|
|
|
Publicly
|
|
Purchased
|
|
|
(a) Total Number
|
|
(b) Average
|
|
Announced
|
|
Under the
|
|
|
of Shares
|
|
Price Paid per
|
|
Plans or
|
|
Plans or
|
Period
|
|
Purchased
|
|
Share
|
|
Programs
|
|
Programs
|
April 1 April 30
|
|
|
6,170
|
(1)
|
|
$
|
34.68
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
52,100,000
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 1 May 31
|
|
|
500
|
(1)
|
|
$
|
30.64
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
52,100,000
|
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 1 June 30
|
|
|
6,025
|
(1)
|
|
$
|
34.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
52,100,000
|
(2)
|
|
|
|
(1)
|
|
Such shares were issued under the Companys Employee Stock Purchase Plan and
Amended and Restated Employees Stock Incentive and Performance Based Compensation Plan
and were repurchased by the Company upon the employees termination.
|
|
(2)
|
|
The Companys total stock purchase authorization, which was publicly announced
in August 1998 and subsequently increased, was $125.3 million as of June 30, 2008. As
of June 30, 2008, $73.2 million has been utilized.
|
Item 3. Defaults Upon Senior Securities
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
At the Companys annual meeting of shareholders held on May 16, 2008, the following nominees
were elected to the Board of Directors:
|
|
|
|
|
|
|
|
|
Name
|
|
Votes For
|
|
Votes Withheld
|
James J. Maguire
|
|
|
63,796,244
|
|
|
|
3,647,074
|
|
James J. Maguire, Jr.
|
|
|
67,067,553
|
|
|
|
375,765
|
|
Sean S. Sweeney
|
|
|
67,068,388
|
|
|
|
374,930
|
|
Aminta Hawkins Breaux
|
|
|
67,071,030
|
|
|
|
372,288
|
|
Michael J. Cascio
|
|
|
67,071,162
|
|
|
|
372,156
|
|
Elizabeth H. Gemmill
|
|
|
67,071,757
|
|
|
|
371,561
|
|
Paul R. Hertel, Jr.
|
|
|
67,069,780
|
|
|
|
373,538
|
|
Michael J. Morris
|
|
|
64,618,801
|
|
|
|
2,824,517
|
|
Shaun F. OMalley
|
|
|
67,069,063
|
|
|
|
374,255
|
|
Donald A. Pizer
|
|
|
67,072,563
|
|
|
|
370,755
|
|
Ronald R. Rock
|
|
|
67,072,403
|
|
|
|
370,915
|
|
50
The following other matters were approved at the Annual Meeting:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broker
|
|
|
Votes For
|
|
Votes Against
|
|
Abstentions
|
|
Non-Votes
|
Approval of the
appointment of
PricewaterhouseCoopers,
LLP as independent
registered public
accounting firm for the
year 2008
|
|
|
67,339,986
|
|
|
|
85,982
|
|
|
|
17,352
|
|
|
|
|
|
|
Approval of an
amendment to the
Companys Articles of
Incorporation to adopt
a majority vote
standard for
uncontested elections
of Directors and
eliminate cumulative
voting in elections of
Directors
|
|
|
62,007,356
|
|
|
|
1,124,776
|
|
|
|
118,362
|
|
|
|
4,192,827
|
|
|
Approval of an
amendment to the
Companys Articles of
Incorporation to
increase the number of
authorized shares of
common stock from
100,000,000 to 125,000,000
|
|
|
62,264,100
|
|
|
|
3,164,956
|
|
|
|
14,256
|
|
|
|
|
|
Item 5. Other Information
On July 23, 2008, the Company filed with the SEC a Current Report on Form 8-K reporting
that it had entered into an Agreement and Plan of Merger with Tokio Marine Holdings, Inc.
(TMHD) relating to a proposed merger pursuant to which, at the effective time thereof, (a)
an indirect wholly-owned subsidiary of TMHD would merge with and into the Company, (b) the
Company would become an indirect wholly-owned subsidiary of TMHD, and (c) the shareholders of
the Company would receive $61.50 per share for each share of the Company held by them. For
additional information about the proposed merger, see such Current Report and Note 15 to the
consolidated financial statements included in this Form 10-Q.
51
Item 6. Exhibits
Exhibits:
|
|
|
Exhibit No.
|
|
Description
|
|
|
|
10.1*
|
|
Casualty Excess of Loss Reinsurance Contract effective January 1, 2008.
|
|
|
|
10.2*
|
|
Casualty (Clash) Excess of Loss Contract effective January 1, 2008.
|
|
|
|
10.3*
|
|
Property Per Risk Excess of Loss Agreement of Reinsurance with General
Reinsurance Corporation effective January 1, 2008.
|
|
|
|
10.4*
|
|
Property Fourth Per Risk Excess of Loss Reinsurance Agreement
effective January 1, 2008 25% Placement via Willis Re Inc.
|
|
|
|
10.5*
|
|
Property Fifth Per Risk Excess of Loss Reinsurance Agreement effective
January 1, 2008 50% Share with Arch Reinsurance Company.
|
|
|
|
10.6*
|
|
Terrorism Catastrophe Excess of Loss Reinsurance Contract 20% Share
with Validus Reinsurance, LTD. effective March 1, 2008
|
|
|
|
31.1*
|
|
Certification of the Companys chief executive officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
31.2*
|
|
Certification of the Companys chief financial officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
|
|
|
|
32.1*
|
|
Certification of the Companys chief executive officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
|
|
|
32.2*
|
|
Certification of the Companys chief financial officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
52
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
|
PHILADELPHIA CONSOLIDATED HOLDING CORP.
|
|
|
|
|
Registrant
|
|
|
|
|
|
|
|
Date August 5, 2008
|
|
James J. Maguire, Jr.
|
|
|
|
|
|
|
|
|
|
James J. Maguire, Jr.
|
|
|
|
|
President and Chief Executive Officer
|
|
|
|
|
(Principal Executive Officer)
|
|
|
|
|
|
|
|
Date August 5, 2008
|
|
Craig P. Keller
|
|
|
|
|
|
|
|
|
|
Craig P. Keller
|
|
|
|
|
Executive Vice President, Secretary,
|
|
|
|
|
Treasurer and Chief Financial Officer
|
|
|
|
|
(Principal Financial and Accounting Officer)
|
|
|
53
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