(a) Directors:
Expire at
Annual
Name (Age) Other Directorships, Business Meeting
Date of Original Election Principal Occupation Experience and Miscellaneous Information In:
--------------------------- --------------------------------------- ---------------------------------------------------- ---------
Paul J. Breitnauer (61) Vice President and Treasurer of the Mr. Breitnauer has been associated with the 2002
1986 Company; Senior Vice President and insurance industry in various capacities since 1963.
Treasurer of CIC, CSIC and CFC, wholly-
owned subsidiaries of the Company.
Madison, Wisconsin
George A. Fait (74) Chairman of the Board and President of Mr. Fait is has been associated with the insurance 2003
1965 the Company and its wholly-owned industry in various capacities since 1950.
subsidiaries; Director of Bank One.
Madison, Wisconsin
Larry Burcalow (59) Owner & President Mr. Burcalow as been Owner and President of 2001
1997 Yahara Materials, Inc. Yahara Materials, Inc. for over 30 years.
Waunakee, Wisconsin
13
Item 10 (continued)
---------------------------
Expire at
Annual
Name (Age) Other Directorships, Business Meeting
Date of Original Election Principal Occupation Experience and Miscellaneous Information In:
--------------------------- --------------------------------------- ---------------------------------------------------- ---------
Michael J. Larson (59) Principal Mr. Larson has been associated with the banking 2001
1991 Southwestern Financial Services industry in various capacities since 1965.
Madison, Wisconsin
Reinhart H. Postweiler (71) Retired, formerly with Flad Affiliated Mr. Postweiler is a member of the Wisconsin 2002
1977 Corporation; Director of Bank One Society of Professional Engineers and the National
Madison, Wisconsin Society of Professional Engineers.
Kenneth P. Urso (66) Principal Mr. Urso has been in the insurance business for 2003
1997 Urso Ventures; Director of First over 30 years.
Business Bank
Madison, Wisconsin
None of the above directors are related and there are no arrangements or
understandings between directors since each is acting solely in their described
capacity. There have been no events during the past five years which are
material to the evaluation of the ability and integrity of any director of CTC.
14
(continued)
(b) Executive Officers:
Chairman of the Board and President - George A. Fait (74 years of age)
Elected in 1960. Chairman of the Board and President - CIC, CSIC and
CFC, wholly-owned subsidiary companies.
Vice President and Treasurer - Paul J. Breitnauer (61 years of age)
Elected Treasurer in 1970 and Vice President in 1982. Senior Vice
President and Treasurer - CIC, CSIC and CFC.
Secretary - Virgiline M. Schulte (72 years of age)
Vice President - Property & Casualty Claims Vice President - Personnel
------------------------------------------- --------------------------
Robert F. Miller (62 years of age) Virgiline M. Schulte (72 years of age)
Elected in 1986. Elected in 1993.
Vice President - Agency Vice President - Data Processing
----------------------- ------------------------------------------------
Joel G. Fait (42 years of age) Frank S. Zillner (39 years of age)
Elected in 1993. Elected in 1993.
Vice President - Rating Corporate Counsel
----------------------- -----------------
Vacant Vacant
Vice President - Property & Casualty & Underwriting Vice President - Fidelity & Surety Underwriting
---------------------------------------------------- ------------------------------------------------
Vacant Jess J. Wadle (61 years of age)
Elected in 1998
(d) Disclosure of Delinquent Filers
The section captioned "Compliance with Section 16(a) of the Securities
Exchange Act of 1934" in the Capitol Transamerica Corporation ("CTC")
Proxy Statement dated April 6, 2001 is incorporated herein by
reference.
Item 11. Executive Compensation and Transactions
The sections captioned "Compensation of Directors", "Report on
Executive Compensation" and "Executive Compensation Committee Report"
in the CTC Proxy Statement dated April 6, 2001 are incorporated herein
by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The sections captioned "Principal Shareholders", "Option Exercised in
Last Fiscal Year" and "Compensation Plans" in the CTC Proxy Statement
dated April 6, 2001 are incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
The section captioned "Compensation Committee Interlocks and Insider
Participation" and the three sections referenced in Item 11 above, all
included in the CTC Proxy Statement dated April 6, 2001, are
incorporated herein by reference.
George Fait and Virgiline Schulte are brother and sister; Joel Fait is
George Fait's son and Frank Zillner is his son-in-law; none of the
other officers are related and there are no arrangements or
understandings between officers since each is acting solely in their
described capacity. There have been no events during the past five
years which are material to the evaluation or the ability and
integrity of any executive officer of the Company or its subsidiaries.
15
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1 and 2. Financial statements and financial statement schedules
The following financial statements of Capitol Transamerica
Corporation and Subsidiaries are included in Item 8.
Consolidated balance sheets - December 31, 2000 and 1999.
Consolidated statements of income - for each of the three years
in the period ended December 31, 2000.
Consolidated statements of shareholders' investment and
comprehensive income- for each of the three years in the period
ended December 31, 2000.
Consolidated statements of cash flows - for each of the three
years in the period ended December 31, 2000.
Notes to consolidated financial statements.
The following financial statement schedules of Capitol Transamerica
Corporation and Subsidiaries are included in Item 14(d).
Schedule I Summary of Investments Other than Investments in
Related Parties
Schedule II Condensed Financial Information of Registrant -
Parent Company
Schedule III Supplementary Insurance Information
Schedule IV Reinsurance
Schedule VI Supplemental Information Concerning
Property-Casualty Insurance Operations
All other schedules required by Article 7 of Regulation S-K are not
required under the related instructions or are inapplicable, and
therefore have been omitted.
(b) No Reports on Form 8-K were filed during the fourth quarter of the
fiscal year ended December 31, 2000.
(c) Exhibits
None
(d) Financial Statement Schedules
Reference is made to the financial statement schedules above.
16
SIGNATURES
Pursuant to the requirements of Section 13 and 15(d) of the Securities
Exchange Act of l934, the company has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
CAPITOL TRANSAMERICA CORPORATION
By By
------------------------------- ----------------------------------
George A. Fait Paul J. Breitnauer
Chairman of the Board, Vice President,
President and Director Treasurer and Director
By By
------------------------------- ----------------------------------
Virgiline M. Schulte Larry Burcalow
Secretary Director
By By
------------------------------- ----------------------------------
Michael J. Larson Reinhart H. Postweiler
Director Director
By
Kenneth P. Urso
Director
March 26, 2001
17
RESPONSIBILITY FOR FINANCIAL REPORTING
To The Shareholders and Board of Directors of Capitol Transamerica Corporation:
The Company has prepared the consolidated financial statements, related notes,
and other financial data appearing in this Annual Report. The statements were
developed using accounting principles generally accepted in the United States
and policies considered appropriate in the circumstances. They reflect, where
applicable, management's best estimates and judgments. The financial data also
includes disclosures and explanations that are relevant to an understanding of
the financial affairs of the Company. To meet management's responsibility for
financial reporting, internal control systems and procedures are designed to
provide reasonable assurance as to the reliability of the financial records and
compliance with corporate policy throughout the organization.
Ernst & Young LLP, independent auditors, have audited the financial statements.
To express an opinion thereon, they review and evaluate the Company's internal
accounting controls and conduct such tests of the accounting records and other
auditing procedures as they deem necessary. The Board of Directors oversees the
Company's financial reporting through its Audit Committee, which regularly meets
with the independent auditors, both with and without management present, to
review accounting, auditing and financial reporting matters. A policy of
business ethics is communicated annually to the Company's directors, officers
and responsible employees. The Company monitors compliance with the policy to
help assure that operations are conducted in a responsible and professional
manner with a commitment to the highest standard of business conduct.
Paul J. Breitnauer
Vice President and Treasurer
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
To the Shareholders and Board of Directors of Capitol Transamerica Corporation:
We have audited the accompanying consolidated balance sheets of Capitol
Transamerica Corporation (the "Company") as of December 31, 2000 and 1999, and
the related consolidated statements of operations, shareholders' investment and
comprehensive income, and cash flows for the three years in the period ended
December 31, 2000. Our audits also included the financial statement schedules
listed in the Index at Item 14(a). These financial statements and schedules are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedules based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Capitol
Transamerica Corporation at December 31, 2000 and 1999, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 2000, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
Ernst & Young LLP
Milwaukee, Wisconsin
February 16, 2001
18
CAPITOL TRANSAMERICA CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 1999
2000 1999
------------ ------------
Assets
Investments (Notes (1)(b) and (2)):
Available-for-sale investment securities, at fair value
Fixed maturities (amortized cost $85,369,980 and $80,019,257, respectively) $ 90,841,811 $ 83,210,487
Equity securities:
Common stock, (cost $123,504,211 and $125,913,872, respectively) 119,413,538 116,656,582
Nonredeemable preferred stock, (cost $6,470,793 and
$5,725,500, respectively) 5,516,567 5,695,567
Investment real estate, at cost, net of depreciation 11,008,554 10,540,426
Short-term investments, at cost which approximates fair value (Note(2)(d)) 5,587,306 1,982,122
------------ ------------
Total Investments 232,367,776 218,085,184
------------ ------------
Cash 3,641,628 1,080,435
Accrued investment income 1,953,466 1,927,901
Receivables from agents, insureds and others, less allowance
for doubtful accounts of $530,000 each year 18,438,610 14,892,647
Balances due from reinsurers 1,794,851 -
Funds held by ceding reinsurers 47,000 40,000
Income taxes recoverable- current 67,463 686,240
Deferred income taxes (Notes (1)(f) and (5)) 2,468,713 4,153,393
Deferred insurance acquisition costs (Note (1)(e)) 13,726,372 12,644,189
Prepaid reinsurance premiums 1,714,017 1,287,627
Due from securities brokers 4,218,650 639,136
Other assets 2,819,506 2,114,074
------------ ------------
Total Assets $283,258,052 $257,550,826
============ ============
The accompanying notes to the consolidated financial statements are
an integral part of these financial statements.
19
CAPITOL TRANSAMERICA CORPORATION
CONSOLIDATED BALANCE SHEETS
December 31, 2000 and 1999
2000 1999
------------- -------------
Liabilities
Policy Liabilities and Accruals (Notes (1)(d), (3) and (4)):
Reserve for losses $ 52,231,685 $ 53,575,780
Reserve for loss adjustment expenses 25,749,288 23,680,412
Unearned premiums 45,587,586 39,454,257
------------- -------------
Total Policy Liabilities and Accruals 123,568,559 116,710,449
------------- -------------
Accounts payable 4,203,407 3,950,898
Claim drafts outstanding 4,927,097 1,854,701
Due to securities brokers 34,125 -
Balances due to reinsurers 4,097,368 1,469,705
Accrued premium taxes 727,627 338,863
------------- -------------
Total Other Liabilities 13,989,624 7,614,167
------------- -------------
Total Liabilities 137,558,183 124,324,616
------------- -------------
Commitments and contingent liabilities (Notes (4) and (8)) - -
Shareholders' Investment (Notes (6) and (7))
Common stock, $1.00 par value, authorized 15,000,000 shares,
issued 11,558,767 and 11,538,970, respectively 11,558,767 11,538,970
Paid-in surplus 22,733,088 22,594,538
Accumulated other comprehensive income (loss), net of deferred taxes of
$149,428 and ($2,133,595), respectively (Notes (1)(b) and (2)) 277,504 (3,962,398)
Retained earnings 114,944,048 103,577,193
------------- -------------
Shareholders' investment before treasury stock 149,513,407 133,748,303
Treasury stock, 549,867 and 271,071 shares, respectively, at cost (3,813,538) (522,093)
------------- -------------
Total Shareholders' Investment 145,699,869 133,226,210
------------- -------------
Total Liabilities and Shareholders' Investment $283,258,052 $257,550,826
============= =============
The accompanying notes to the consolidated financial statements are
an integral part of these financial statements.
20
CAPITOL TRANSAMERICA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
For The Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998
------------- ------------ ------------
Revenues:
Premiums earned (Note (1)(c)) $ 88,184,842 $ 82,841,104 $ 88,629,476
Net investment income (Note (2)(e)) 9,163,062 9,136,244 9,119,936
Realized investment gains (Notes (1)(b) and (2)) 11,805,350 8,184,101 13,198,139
Other revenues 355,208 249,672 113,005
------------- ------------ ------------
Total Revenues 109,508,462 100,411,121 111,060,556
------------- ------------ ------------
Losses and Expenses Incurred (Notes (1)(d), (3) and (4)):
Losses incurred 43,728,496 34,407,096 43,994,221
Loss adjustment expenses incurred 13,772,879 10,893,745 8,382,893
Underwriting, acquisition and insurance expenses (Note (10)) 32,299,497 28,920,512 28,558,650
(Increase) decrease in deferred insurance acquisition costs (1,082,183) 880,588 662,164
Other expenses 1,471,512 1,398,483 1,461,640
------------- ------------ ------------
Total Losses and Expenses Incurred 90,190,201 76,500,424 83,059,568
------------- ------------ ------------
Income from operations before income taxes 19,318,261 23,910,697 28,000,988
Income tax expense (Note (5)) 4,864,944 7,198,234 8,577,075
------------- ------------ ------------
Net Income $ 14,453,317 $ 16,712,463 $ 19,423,913
============= ============ ============
Income Per Share- basic (Note (1)(g)) $ 1.30 $ 1.49 $ 1.73
============= ============ ============
Weighted average number of shares outstanding- basic (Note (1)(g)) 11,124,074 11,252,358 11,206,018
============= ============ ============
Income Per Share- diluted (Note (1)(g)) $ 1.30 $ 1.48 $ 1.72
============= ============ ============
Weighted average number of shares outstanding- diluted (Note (1)(g)) 11,158,462 11,297,289 11,280,442
============= ============ ============
The accompanying notes to the consolidated financial statements are an integral
part of these financial statements.
21
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' INVESTMENT
AND COMPREHENSIVE INCOME (LOSS)
Common Accumulated
Stock Other
(Par Value Paid-In Comprehensive Comprehensive Retained Treasury
$1.00) Surplus Income (Loss) Income (Loss) Earnings Stock
------------ ----------- --------------- --------------- ------------- ------------
Balance, January 1, 1998 $11,502,520 $21,832,206 $ - $ 32,676,572 $ 73,732,118 $ (401,275)
Comprehensive income (loss):
Net income - - 19,423,913 - 19,423,913 -
---------------
Other comprehensive loss:
Unrealized depreciation on
available-for-sale securities,
net of deferred taxes - - (6,078,237) - - -
Less: reclassification adjustment,
net of tax of $4,619,349,
for gain included in net income - - (8,578,790) - - -
---------------
Other comprehensive loss - - (14,657,027) (14,657,027) - -
---------------
Comprehensive income - - 4,766,886 - - -
Stock options exercised 26,856 142,409 - - - (18,952)
Purchases and sales
of treasury stock, net - 271,751 - - - (75,332)
Cash dividends paid - - - - (3,139,786) -
------------ ----------- --------------- --------------- ------------- ------------
Balance, December 31, 1998 11,529,376 22,246,366 - 18,019,545 90,016,245 (495,559)
Comprehensive income (loss):
Net income - - 16,712,463 - 16,712,463 -
---------------
Other comprehensive loss:
Unrealized depreciation on
available-for-sale securities,
net of deferred taxes - - (16,662,277) - - -
Less: reclassification adjustment,
net of tax of $2,864,435,
for gain included in net income - - (5,319,666) - - -
---------------
Other comprehensive loss - - (21,981,943) (21,981,943) - -
---------------
Comprehensive loss - - (5,269,480) - - -
Stock options exercised 9,594 57,748 - - - (26,534)
Purchases and sales
of treasury stock, net - 290,424 - - - -
Cash dividends paid - - - - (3,151,515) -
------------ ----------- --------------- --------------- ------------- ------------
Balance, December 31, 1999 $11,538,970 $22,594,538 $ - $ (3,962,398) $103,577,193 $ (522,093)
Comprehensive income
Net income - - 14,453,317 - 14,453,317 -
---------------
Other comprehensive income:
Unrealized appreciation on
available-for-sale securities,
net of deferred taxes - - 11,913,380 - - -
Less: reclassification adjustment,
net of tax of $2,546,352,
for gain included in net income - - (7,673,478) - - -
---------------
Other comprehensive income - - 4,239,902 4,239,902 - -
---------------
Comprehensive income - - 18,693,219 - - -
Stock options exercised 19,797 138,550 - - - (76,250)
Stock-based compensation - - - - 25,476 -
Purchases and sales
of treasury stock, net - - - - - (3,215,195)
Cash dividends paid - - - - (3,111,938) -
------------ ----------- --------------- --------------- ------------- ------------
Balance, December 31, 2000 $11,558,767 $22,733,088 $ - $ 277,504 $114,944,048 $(3,813,538)
============ =========== =============== =============== ============= ============
The accompanying notes to the consolidated financial statements are an integral
part of these financial statements.
22
CAPITOL TRANSAMERICA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2000, 1999 and 1998
2000 1999 1998
------------- ------------- -------------
Cash flows provided by operating activities:
----------------------------------------------------------------------
Net Income $ 14,453,317 $ 16,712,463 $ 19,423,913
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 1,215,024 1,161,702 1,195,955
Realized investment gains (11,805,350) (8,184,101) (13,198,139)
Change in:
Deferred insurance acquisition costs (1,082,183) 880,588 662,164
Unearned premiums 6,133,329 (2,087,175) (5,870,417)
Allowance for doubtful accounts receivable from agents - 30,000 60,000
Accrued investment income (25,565) (248,903) 28,694
Receivables from agents, insureds and others (3,545,963) 2,294,999 3,542,835
Balances due to/from reinsurers 149,564 317,498 (191,361)
Reinsurance recoverable on paid and unpaid losses 683,248 1,026,426 (897,506)
Funds held by ceding reinsurers (7,000) (4,244) (35,756)
Income taxes payable/recoverable 618,777 (635,702) 633,804
Deferred income taxes (598,340) (538,796) (304,896)
Due to/from securities brokers (3,545,389) 763,512 (6,721,020)
Prepaid reinsurance premiums (426,390) (560,553) 16,914
Other assets (707,858) (332,788) (5,305)
Reserves for losses and loss adjustment expenses 724,781 (1,247,858) 7,031,712
Accounts payable 3,324,905 (371,947) 371,977
Accrued premium taxes 388,764 101,692 (99,992)
------------- ------------- -------------
Net cash provided by operating activities 5,947,671 9,076,813 5,643,576
------------- ------------- -------------
Cash flows provided by (used for) investing activities:
----------------------------------------------------------------------
Proceeds from sales of available-for-sale investments 26,278,568 29,718,246 40,484,195
Purchases of available-for-sale investments (26,716,842) (44,377,254) (49,573,482)
Maturities of available-for-sale investments 4,053,867 8,690,009 7,660,719
Purchases of depreciable assets (782,511) (751,534) (1,080,065)
------------- ------------- -------------
Net cash provided by (used for) investing activities 2,833,082 (6,720,533) (2,508,633)
------------- ------------- -------------
Cash flows used for financing activities:
----------------------------------------------------------------------
Cash dividends paid (3,111,938) (3,151,515) (3,139,786)
Stock options exercised 45,273 40,808 441,017
Net (cost of) proceeds from sale (purchase) of treasury stock (3,152,895) 290,424 (94,284)
------------- ------------- -------------
Net cash used for financing activities (6,219,560) (2,820,283) (2,793,053)
------------- ------------- -------------
Net increase (decrease) in cash 2,561,193 (464,003) 341,890
Cash, beginning of year 1,080,435 1,544,438 1,202,548
------------- ------------- -------------
Cash, end of year $ 3,641,628 $ 1,080,435 $ 1,544,438
============= ============= =============
Cash paid during the year for:
Income taxes $ 4,856,364 $ 8,611,726 $ 8,358,132
The accompanying notes to the consolidated financial statements are an
integral part of these financial statements.
23
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Summary of Significant Accounting Policies
Capitol Transamerica Corporation (the "Company") is an insurance
holding company, which writes, through its subsidiaries, commercial
insurance coverages in 37 states. The property-casualty insurance
coverages represent approximately 77% of the Company's premiums
written while fidelity-surety coverages represent approximately 23% of
the Company's premiums written. The Company's products are marketed
through independent agents located throughout the United States.
The consolidated financial statements are presented in accordance with
accounting principles generally accepted in the United States
("GAAP"). The preparation of financial statements of insurance
companies requires management to make estimates and assumptions that
affect amounts reported in the financial statements and accompanying
notes. Actual results could differ significantly from those estimates.
(a) Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, Capitol Indemnity
Corporation ("CIC"), Capitol Specialty Insurance Corporation ("CSIC")
and Capitol Facilities Corporation ("CFC"). All significant
inter-company accounts and transactions have been eliminated in
consolidation.
(b) Investments
The Company classifies all of its fixed maturities and equity
securities as available-for-sale. Accordingly, investments in fixed
maturities and equity securities are reported at fair value, with
unrealized gains and losses reported in a separate component of
shareholders' investment, net of tax effect. The cost of fixed
maturities is adjusted for amortization of premiums and accretion of
discounts to maturity. Fixed maturities and equity securities deemed
to have declines in value that are other than temporary are written
down through the statement of income to carrying values equal to their
estimated fair values.
Investment real estate is carried at cost net of accumulated
depreciation of $1,595,693 and $1,173,643 as of December 31, 2000 and
December 31, 1999, respectively. The real estate is depreciated over
the estimated useful life of the asset.
Cost of investments sold is determined under the specific
identification method.
(c) Premiums
Premiums are recognized as revenue on a pro-rata basis over the term
of the contracts. Approximately 18.5% and 13.9% of the total premiums
written are on risks located in Wisconsin and Illinois, respectively.
No other state exceeds 10%.
(d) Loss and Loss Adjustment Expenses
Losses and loss adjustment expenses less related reinsurance and
subrogation recoverable, are provided for as claims are incurred. The
reserves for losses and loss adjustment expenses include: (1) the
accumulation of individual estimates for claims reported on direct
business prior to the close of the accounting period; (2) estimates
received from other insurers with respect to reinsurance assumed; (3)
estimates for incurred but not reported claims based on past
experience modified for current trends; and (4) estimates of expenses
for investigating and settling claims based on past experience. The
liabilities recorded are based on estimates resulting from the
continuing review process, and differences between estimates and
ultimate payments are reflected in expense for the period in which the
estimates are changed.
24
(e) Deferred Insurance Acquisition Costs
Deferred insurance acquisition costs that vary with, and are directly
related to, the production of premiums (principally commissions,
premium taxes, compensation and certain underwriting expenses) are
deferred. Deferred insurance acquisition costs are amortized to
expense as the related premiums are earned.
(f) Income Taxes
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial statement purposes and the amounts used for income tax
reporting.
(g) Income Per Share
Basic income per share is computed by dividing net income by the
weighted-average number of shares of stock outstanding during the
year. Diluted income per share is computed by dividing net income by
the weighted- average number of shares of common stock and common
stock equivalents from options outstanding. The following table sets
forth the computation of basic and diluted EPS:
December 31,
2000 1999 1998
----------- ----------- -----------
Numerator:
Consolidated net income $14,453,317 $16,712,463 $19,423,913
Denominator:
Denominator for basic EPS -
weighted average shares 11,124,074 11,252,358 11,206,018
Effect of dilutive securities -
unexercised stock options 34,388 44,931 74,424
----------- ----------- -----------
Denominator for diluted EPS 11,158,462 11,297,289 11,280,442
Basic EPS $ 1.30 $ 1.49 $ 1.73
Diluted EPS $ 1.30 $ 1.48 $ 1.72
(h) Comprehensive Income (Loss)
Comprehensive income (loss) is defined as net income plus or minus
other comprehensive income (loss), which for the Company, under
existing accounting standards, consists of unrealized gains and
losses, net of income tax effects, on certain investments in debt and
equity securities. Comprehensive income (loss) is reported by the
Company in the consolidated statements of changes in shareholders'
investment and comprehensive income (loss).
(i) Reclassifications
Certain reclassifications have been made to the 1999 financial
statements to conform with the 2000 presentation.
25
(2) Investments
(a) The amortized cost and estimated fair value of fixed maturities and
equity securities are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Type of investment Cost Gains Losses Value
-------------------------------------------------------------------------------------------
DECEMBER 31, 2000
Fixed maturities:
U.S. Government bonds $ 33,930 $ 1,690 - $ 35,620
State, municipal and political
subdivision bonds 84,236,162 5,559,420 (63,528) 89,732,054
Corporate bonds and notes 1,099,888 - (25,751) 1,074,137
-------------------------------------------------------------------------------------------
Total fixed maturities $ 85,369,980 $ 5,561,110 ($89,279) $ 90,841,811
===========================================================================================
Equity securities:
Common stock $123,504,211 $26,442,675 ($30,533,348) $119,413,538
Non-redeemable preferred stock 6,470,793 185,332 (1,139,558) 5,516,567
-------------------------------------------------------------------------------------------
Total equity securities $129,975,004 $26,628,007 ($31,672,906) $124,930,105
===========================================================================================
DECEMBER 31, 1999
Fixed maturities:
U.S. Government bonds $ 39,428 $ 2,196 - $ 41,624
State, municipal and political
subdivision bonds 78,855,846 4,423,576 (1,204,274) 82,075,148
Corporate bonds and notes 1,123,983 - (30,268) 1,093,715
-------------------------------------------------------------------------------------------
Total fixed maturities $ 80,019,257 $ 4,425,772 ($1,234,542) $ 83,210,487
===========================================================================================
Equity securities:
Common stock $125,913,872 $16,310,888 ($25,568,178) $116,656,582
Non-redeemable preferred stock 5,725,500 552,975 (582,908) 5,695,567
-------------------------------------------------------------------------------------------
Total equity securities $131,639,372 $16,863,863 ($26,151,086) $122,352,149
===========================================================================================
(b) The amortized cost and estimated fair value of fixed maturities at
December 31, 2000, by contractual maturity, is shown below. Expected
maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call
or prepayment penalties.
Amortized Fair
Cost Value
----------------------------------------------------------------
Due in one year or less $ - $ -
Due after one year through five years 3,014,408 3,125,891
Due after five years through ten years 10,295,355 10,745,902
Due after ten years 72,060,217 76,970,018
----------------------------------------------------------------
Total $85,369,980 $90,841,811
================================================================
26
(c) Realized gains (losses) and change in unrealized gains (losses) for
the three years ended December 31, 2000, 1999 and 1998 are as follows:
(d) The fair value of securities on deposit with insurance regulators
in accordance with statutory requirements was $3,936,264 at December
31, 2000 and $3,927,732 at December 31, 1999.
In connection with the reinsurance assumed operations, CIC has
established security trust fund agreements with a bank, consisting of
cash and securities in the amount of $835,000 at December 31, 2000 and
$865,000 at December 31, 1999.
27
(e) Following is a summary of investment income from each category of
investments:
2000 1999 1998
------------------------------------------------------------------------
Fixed maturities $ 4,927,452 $ 4,732,097 $ 4,619,471
Equity securities 3,792,573 3,917,943 3,907,213
Investment real estate 2,343,288 2,458,961 2,383,255
Short-term 350,688 252,387 186,341
------------------------------------------------------------------------
Total investment income 11,414,001 11,361,388 11,096,280
Investment expenses - real estate 1,484,161 1,434,580 1,310,113
Other investment expenses 344,742 406,518 321,016
Depreciation on real estate 422,036 384,046 345,215
------------------------------------------------------------------------
Net investment income $ 9,163,062 $ 9,136,244 $ 9,119,936
========================================================================
(f) The Company had investments in state, municipal and political
subdivision bonds with amortized costs of $84,236,162 and $78,855,846
at December 31, 2000 and 1999 respectively. Approximately 93% of these
bonds were special assessment revenue bonds and approximately 7% of
these bonds were state and political subdivision obligations at
December 31, 2000 and 1999. The Company monitors its exposure by
investing its funds in accordance with guidelines set by the Company's
investment committee. At December 31, 2000, approximately 40% of the
municipal bond portfolio consisted of securities of Wisconsin and
Minnesota. No other state total exceeded 10%.
(g) Fair values for fixed maturities and equity securities are
determined from quoted market prices where available, or are estimated
using values obtained from independent pricing services. Thinly traded
fixed maturities are individually priced based upon year-end market
conditions, type of security, interest rate and maturity of the issue.
(3) Reserves for Losses and Loss Adjustment Expenses
The table below provides a reconciliation of the beginning and ending
reserves for losses and loss adjustment expenses, net of reinsurance:
2000 1999 1998
---------------------------------------------------------------------------------------------------
Balance as of January 1, $77,256,192 $78,504,050 $71,472,338
Reinsurance balances 121,478 (1,101,770) (594)
---------------------------------------------------------------------------------------------------
Net reserves 77,377,670 77,402,280 71,471,744
Incurred losses and loss adjustment expenses related to:
Current year 60,051,007 47,749,455 49,862,090
Prior years
Direct losses (net of ceded) (1,744,893) (562,627) 4,091,923
Direct loss adjustment expenses (net of ceded) 520,814 (2,379,899) (1,956,631)
Discontinued assumed reinsurance (1,325,553) 493,912 379,732
---------------------------------------------------------------------------------------------------
Total prior years (2,549,632) (2,448,614) 2,515,024
Total incurred 57,501,375 45,300,841 52,377,114
---------------------------------------------------------------------------------------------------
Paid losses and loss adjustment expenses related to:
Current year 25,045,636 18,642,962 20,035,517
Prior years 29,411,213 26,682,489 26,370,166
---------------------------------------------------------------------------------------------------
Total paid 54,456,849 45,325,451 46,405,683
---------------------------------------------------------------------------------------------------
Other adjustments, net - - (40,895)
---------------------------------------------------------------------------------------------------
Net balance at December 31 80,422,196 77,377,670 77,402,280
Reinsurance balances (2,441,223) (121,478) 1,101,770
---------------------------------------------------------------------------------------------------
Balance at December 31 $77,980,973 $77,256,192 $78,504,050
===================================================================================================
28
The Company continually reviews its reserves for losses and loss
adjustment expenses and the related reinsurance recoverables. As
explained in Note (1)(d), differences between estimates and ultimate
payments are reflected in expense for the period in which the
estimates are changed. As a result of the variability in these
estimates, reserves have differed from actual experience during 2000,
1999 and 1998. The actuarial estimates are based on past claim
experience and consider current claim trends and premium volume as
well as social and economic conditions.
While the Company has recorded its best estimate of its reserves for
losses and loss adjustment expenses, it is reasonably possible these
estimates, net of estimated reinsurance recoverables, may change in
the future. See Note 4(b) for a discussion of discontinued assumed
reinsurance.
(4) Reinsurance
(a) Ceded
From 1996 through 2000, the Company reinsured losses in excess of
$1,000,000 with various other companies through reinsurance ceded
contracts. These arrangements provide for greater diversification of
business, allow the Company to control exposure to potential losses
arising from large risks, and provide additional capacity for growth.
Amounts recoverable fromreinsurers are estimated in a manner
consistent with the claim liability associated with the reinsured
policies.
Reinsurance ceded contracts do not relieve the Company from its
obligations to policyholders. The Company remains liable to its
policyholders for the portion reinsured to the extent that any
reinsurer does not meet the obligations assumed under the reinsurance
agreements. To minimize its exposure to losses from reinsurer
insolvencies, the Company continually evaluates the financial
condition of its reinsurers.
(b) Assumed - Discontinued
CIC was involved in providing reinsurance coverage by assuming a
portion of risks underwritten by other insurance companies and risk
pools. Although CIC withdrew from this reinsurance business in 1976,
liability remains for losses on policies written during the period in
which it participated as a reinsurer. The Company is involved with
treaties that cover certain risks which have had significant
development industry-wide over the past several years. The
discontinued reinsurance assumed loss reserves are based on current
information available from the ceding companies and are continually
reviewed for accuracy and reasonableness.
Management believes that the reserves of $7,344,795 at December 31,
2000 are adequate, but recognizes the uncertainty industry-wide
concerning these exposures. The Company has provided a letter of
credit relating to reinsurance assumed of $130,000 at both December
31, 2000 and 1999.
(c) Assumed - Active
CIC participates in reinsurance programs in the accident and health
and commercial multiple peril lines of business. The exposure on this
business is minimal.
Net written and earned premiums and losses and loss adjustment
expenses included in this reinsurance activity are as follows:
Written Premiums
-----------------------------------------
2000 1999 1998
---------------------------------------------------------------
Direct $100,103,877 $84,460,081 $86,329,672
Assumed 2,006,338 1,542,719 1,599,480
Ceded (8,218,433) (5,809,424) (5,153,179)
--------------------------------------------------------------
Net premiums written $ 93,891,782 $80,193,376 $82,775,973
===============================================================
Losses and Loss Adjustment Expenses Incurred
2000 1999 1998
----------------------------------------------------------------------------------------
Direct $66,443,778 $47,738,063 $53,447,519
Assumed - Losses (408,609) 1,253,237 280,900
Assumed - Legal and audit 30,571 17,084 98,832
Ceded (8,564,365) (3,707,543) (1,450,137)
----------------------------------------------------------------------------------------
Net loss and loss adjustment expenses incurred $57,501,375 $45,300,841 $52,377,114
========================================================================================
(5) Income Taxes
(a) The Company and its subsidiaries file a consolidated federal income
tax return and separate state franchise and premium tax returns as
applicable.
(b) The components of income tax expense for the years 2000, 1999 and 1998
are as follows:
2000 1999 1998
----------------------------------------------------------------------------------------------
Current expense:
Federal $4,827,862 $7,115,401 $8,096,181
State 635,425 621,630 785,787
----------------------------------------------------------------------------------------------
Total current expense 5,463,287 7,737,031 8,881,968
Deferred expense(benefit):
Deferred insurance acquisition costs 378,764 (308,206) (231,757)
Unearned premiums (399,486) 185,341 409,745
Discount on loss and loss adjustment expense reserves (555,695) (69,897) (322,034)
Unpaid commissions (18,931) (333,362) (140,748)
Other, net (2,995) (12,673) (20,099)
----------------------------------------------------------------------------------------------
Total deferred benefit (598,343) (538,797) (304,893)
----------------------------------------------------------------------------------------------
Income tax expense $4,864,944 $7,198,234 $8,577,075
==============================================================================================
(c) A reconciliation of the effective income tax rate, as reflected in
the consolidated statements of income, to the statutory federal income
tax rate, is as follows:
2000 1999 1998
----------------------------------------------------------------------------
Statutory tax rate 35.0% 35.0% 35.0%
Municipal bond income, net of proration (7.7%) (5.9%) (4.9%)
Dividend received exemption, net of proration (2.1%) (1.8%) (1.7%)
State income tax expense, net of federal tax benefit 2.1% 1.7% 1.7%
Other, net (2.1%) 1.1% 0.5%
----------------------------------------------------------------------------
Effective income tax rate 25.2% 30.1% 30.6%
============================================================================
(d) Significant components of the deferred tax liabilities and assets
are as follows:
December 31, December 31,
2000 1999
-------------------------------------------------------------------------------------
Deferred tax liabilities:
Deferred insurance acquisition costs $ 4,804,230 $ 4,425,466
Net unrealized gains on investment securities 149,425 -
Other, net 110,934 79,339
-------------------------------------------------------------------------------------
Total deferred tax liabilities 5,064,589 4,504,805
-------------------------------------------------------------------------------------
Deferred tax assets:
Unearned premium reserve discounting 3,071,150 2,671,664
Loss and loss adjustment expense reserve discounting 3,197,269 2,641,574
Net unrealized losses on investment securities - 2,133,595
Unpaid commissions 858,601 839,670
Other, net 406,283 371,695
-------------------------------------------------------------------------------------
Total deferred tax assets 7,533,302 8,658,198
-------------------------------------------------------------------------------------
Net deferred tax asset $ 2,468,713 $ 4,153,393
=====================================================================================
30
(6) Common Stock Options
The Company has elected to follow Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25) and
related Interpretations in accounting for its stock options. Under APB
25, since the exercise price of the Company's stock options equals the
market price of the underlying stock at the date of the grant, no
compensation expense is recognized. The Company did recognize $25,476
in compensation expense during 2000 under FASB Interpretation 44
effective July 1, 2000 for APB 25 related to options which were
repriced to the stockmarket value in 1999.
Had the Company elected to follow the fair value method under SFAS 123
"Accounting for Stock-Based Compensation", net income and earnings per
share would not be materially different for the years 2000, 1999, and
1998. Pro forma disclosure is required and has been determined as if
the Company had accounted for its stock options under this method.
The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following
weighted-average assumptions for 2000, 1999, and 1998, respectively:
risk-free interest rates of 6.4%, 6.1%, and 4.4%; dividend yields of
2.4%, 2.0%, and 1.4%; volatility factors of the expected market price
of the Company's common stock of .394, .394 and .345; and a
weighted-average expected life of the options of two and one-half
years. The weighted-average fair value of options granted for the
years 2000, 1999, and 1998 was $3.03, $2.29, and $3.92, respectively.
The estimated fair value is amortized to expense over the options'
vesting period.
The Company's pro forma information follows:
2000 1999 1998
----------- ----------- -----------
Pro forma net income $14,333,943 $16,538,296 $19,156,540
Pro forma earnings per share:
Basic $ 1.30 $ 1.47 $ 1.71
Diluted $ 1.30 $ 1.46 $ 1.70
The Company's 1993 Stock Option Plan has authorized the grant of
options for up to 1,072,500 shares of the Company's common stock. All
options granted have a five year term and become fully vested at the
end of four years. Stock options available to be granted in the future
equal 721,011 shares at December 31, 2000.
A summary of the Company's stock option activity, and related
information for the years ended December 31 follows:
2000 1999 1998
-------------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options Price Options Price Options Price
-------------------------------------------------------------------------------------
Outstanding,
beginning of year 280,545 $ 9.93 280,924 $ 13.38 237,111 $ 11.81
Granted 6,400 11.28 236,704 10.19 97,900 15.75
Exercised (19,797) 7.99 (9,594) 7.02 (26,856) 6.30
Expired (30,296) 9.40 (227,489) 14.58 (27,231) 15.15
-------- --------- -------- ----------
Outstanding,
end of year 236,852 $ 10.20 280,545 $ 9.93 280,924 $ 13.38
-------------------------------------------------------------------------------------
Options exercisable at December 31, 2000 were 64,890. The weighted
average remaining exercise period for all outstanding options as of
December 31, 2000 was 4.0 years. Exercise prices for options
outstanding as of December 31, 2000 ranged from $4.37 to $12.50 with
44%, and 52% having exercise prices of $9.69 and $10.66, respectively.
31
(7) Statutory Reporting
(a) The financial statements of the insurance subsidiaries have been
prepared in accordance with accounting principles generally accepted
in the United States, which differ in certain respects from accounting
practices prescribed or permitted by insurance regulatory authorities
(statutory basis). The statutory capital and surplus, and net income
of the insurance subsidiaries as reported to state regulatory
authorities, were as follows:
Policyholders' Surplus as of December 31,
-------------------------------------------------------------------------------
2000 1999 1998
-------------------------------------------------------------------------------
Capitol Indemnity Corporation $107,917,384 $91,570,236 $102,902,836
Capitol Specialty Insurance Corporation 4,667,963 4,865,494 5,865,245
-------------------------------------------------------------------------------
Total $112,585,347 $96,435,730 $108,768,081
================================================================================
Net Income For The Year Ended December 31,
-------------------------------------------------------------------------------
2000 1999 1998
-------------------------------------------------------------------------------
Capitol Indemnity Corporation $13,003,336 $16,306,022 $19,051,239
Capitol Specialty Insurance Corporation 232,388 689,133 479,019
-------------------------------------------------------------------------------
Total $13,235,724 $16,995,155 $19,530,258
================================================================================
(b) CIC is required by the Insurance Commissioner of the State of
Wisconsin to maintain a minimum compulsory surplus (surplus as regards
policyholders) of 25% of net premiums written during the preceding
twelve months. As of December 31, 2000, the amount of compulsory
surplus required to be maintained by CIC was $23,350,674.
(c) In accordance with state insurance regulations, the insurance
subsidiaries can distribute dividends to the Company of the lesser of
their net income or 10% of their surplus without regulatory approval.
(d) The National Association of Insurance Commissioners (NAIC) revised the
Accounting and Procedures Manual in a process referred to as
Codification, with the revised manual becoming effective January 1,
2001. The revised manual has changed, to some extent, prescribed
statutory accounting practices and will resultin changes to the
accounting practices CIC and CSIC use to prepare their statutory-basis
financial statements. Management believes the impact of these changes
to CIC's and CSIC's statutory-basis capital and surplus as of January
1, 2001 will be insignificant.
(8) Contingent Liabilities
CIC is a defendant in certain lawsuits involving complaints which demand
damages and recoveries for claims and losses allegedly related to risks
insured by CIC. In the opinion of management, such lawsuits are routine in
that they result from the ordinary course of business in the insurance
industry. The reserve for losses and loss adjustment expenses include
management's estimates of the probable ultimate cost of settling all losses
involving lawsuits. See Notes (1)(d), (3) and (4).
(9) Employee Benefit Plans
The Company has a defined contribution benefit plan (the Plan) in which all
qualified employees are eligible to participate. The Plan incorporates a
contributory feature under Section 401(k) of the Internal Revenue Code
allowing employees to defer portions of their income through contributions
to the Plan. The Company's annual contribution to the Plan is 150% of the
first $1,500 of each participant's contributions during the plan year. The
Company made contributions of $250,637, $242,511 and $214,839 in 2000, 1999
and 1998, respectively.
The Company also has an Employee Stock Ownership Plan in which all
qualified employees are eligible to participate. The plan provides for
discretionary employer contributions of shares of Company stock or cash to
purchase shares of Company stock. The Company made contributions of
$301,000, $179,000 and $100,000 in 2000, 1999 and 1998, respectively.
(10) Underwriting, Acquisition and Insurance Expenses
A summary of underwriting, insurance acquisition costs and insurance
expenses incurred during the years ended December 31, 2000, 1999 and 1998
is as follows:
2000 1999 1998
---------------------------------------------------------------------------------------------------
Net commissions $19,869,276 $18,001,338 $18,459,299
Salaries and other compensation 5,647,661 4,944,476 4,710,297
Other 6,782,560 5,974,697 5,389,054
---------------------------------------------------------------------------------------------------
Total costs 32,299,497 28,920,511 28,558,650
(Increase) decrease in deferred insurance acquisition costs (1,082,183) 880,588 662,164
---------------------------------------------------------------------------------------------------
Total underwriting, acquisition and insurance expenses $31,217,314 $29,801,099 $29,220,814
===================================================================================================
32
Included in net commissions is the fair value of CTC stock purchased by CIC
and issued to agents as part of a contingent commission agreement. The
amounts expensed were $201,212, $478,880 and $468,858 for the years 2000,
1999 and 1998, respectively.
Deferred insurance acquisition costs are amortized over the term of CIC
insurance contracts. The amount of deferred insurance costs amortized was
$28,431,941, $28,325,677 and $27,833,262 in 2000, 1999 and 1998,
respectively.
(11) Credit Lines
The Company has credit lines of $11,200,000. There were no significant
borrowings during 2000, and none outstanding as of December 31, 2000.
(12) Quarterly Results of Operations (Unaudited)
------------------------------------------------------------------------------------------------------
For the year ended December 31, 2000 First Second Third Fourth Total
------------------------------------------------------------------------------------------------------
Revenues $24,043,062 $26,676,380 $28,442,325 $30,346,695 $109,508,462
Losses and expenses incurred 15,768,779 22,009,105 23,921,438 28,490,879 90,190,201
Net income 5,680,879 3,391,751 3,323,751 2,056,936 14,453,317
Net income per share - basic $ 0.50 $ 0.30 $ 0.30 $ 0.20 $ 1.30
Net income per share - diluted $ 0.50 $ 0.30 $ 0.30 $ 0.20 $ 1.30
Dividends per share $ 0.07 $ 0.07 $ 0.07 $ 0.07 $ 0.28
------------------------------------------------------------------------------------------------------
For the year ended December 31, 1999 First Second Third Fourth Total
------------------------------------------------------------------------------------------------------
Revenues $25,089,802 $26,254,623 $25,857,210 $23,209,486 $100,411,121
Losses and expenses incurred 18,550,741 16,380,003 21,460,886 20,108,794 76,500,424
Net income 4,525,052 6,732,395 3,107,433 2,347,583 16,712,463
Net income per share - basic $ 0.40 $ 0.60 $ 0.28 $ 0.21 $ 1.49
Net income per share - diluted $ 0.39 $ 0.60 $ 0.28 $ 0.21 $ 1.48
Dividends per share $ 0.07 $ 0.07 $ 0.07 $ 0.07 $ 0.28
------------------------------------------------------------------------------------------------------
For the year ended December 31, 1998 First Second Third Fourth Total
------------------------------------------------------------------------------------------------------
Revenues $25,467,589 $31,516,526 $25,107,417 $28,969,024 $111,060,556
Losses and expenses incurred 20,787,325 21,504,889 21,144,534 19,622,820 83,059,568
Net income 3,460,541 7,032,357 2,806,682 6,124,333 19,423,913
Net income per share - basic $ 0.31 $ 0.62 $ 0.25 $ 0.55 $ 1.73
Net income per share - diluted $ 0.31 $ 0.62 $ 0.25 $ 0.54 $ 1.72
Dividends per share $ 0.07 $ 0.07 $ 0.07 $ 0.07 $ 0.28
(13) Industry Segment Disclosures
The Company has three business segments, which are segregated based on the
types of products and services provided. The segments are 1) property and
casualty, 2) fidelity and surety, and 3) discontinued reinsurance assumed
operations. These segments constitute 100% of the operations of the
Company.
The property and casualty segment provides specialty commercial coverages
for beauty and barber shops, bowling alleys, contractors/manufacturers, day
care centers, restaurants, detective/guard agencies, golf courses and
taverns. This segment also provides nurses professional, deerhunters and
sportsmen's accident, and special event coverages. The fidelity and surety
segment offers a full range of surety and fidelity bonds, including
contractor's payment and performance bonds, license/permit bonds, fiduciary
and judicial bonds, as well as commercial fidelity bonds. The reinsurance
assumed segment was discontinued in 1976, but, due to the nature of the
coverages, the Company continues to experience loss activity related to
this business. The Company maintains and monitors its segment information
on a statutory basis. Financial data by segment, including a reconciliation
to consolidated GAAP basis, for 1998 through 2000 is as follows:
2000 1999 1998
------------- ------------- -------------
Revenue, excluding net investment income
and realized investment gains:
Property and Casualty $ 67,773,588 $ 63,918,736 $ 65,678,284
Fidelity and Surety 20,369,689 18,908,835 22,948,025
Reinsurance Assumed 41,565 13,533 3,167
------------- ------------- -------------
Totals: $ 88,184,842 $ 82,841,104 $ 88,629,476
============= ============= =============
33
Assets:
Property and Casualty $ 84,545,028 $ 90,756,970 $105,614,860
Fidelity and Surety 40,146,831 24,936,678 20,432,187
Reinsurance Assumed 12,866,324 8,702,723 9,996,577
------------- ------------- -------------
Totals: $137,558,183 $124,396,371 $136,043,624
Reconciliation to Consolidated GAAP:
Capital and surplus 145,699,869 133,226,210 141,315,973
------------- ------------- -------------
Consolidated GAAP $283,258,052 $257,622,581 $277,359,597
============= ============= =============
The Company operates in 37 states, with all business conducted within
the United States. No customer represents greater than 10% of the
Company's revenue. There have been no material intersegment
transactions.
35
SCHEDULE I
CAPITOL TRANSAMERICA CORPORATION
SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
As of December 31, 2000
SCHEDULE I
CAPITOL TRANSAMERICA CORPORATION
SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
As of December 31, 2000
Amount at
Which Shown
Fair in Balance
Type of Investment Cost Value Sheet
------------------------------------------------------ ------------------- ------------ ------------
Fixed maturity securities, available-for-sale:
Bonds: 0
United States Government and government 0
agencies and authorities $ 33,930 $ 35,620 $ 35,620
State, municipalities, and political subdivisions 84,236,162 89,732,054 89,732,054
All other corporate bonds 1,099,888 1,074,137 1,074,137
------------------- ------------ ------------
Total 85,369,980 90,841,811 90,841,811
------------------- ------------ ------------
Equity securities, available-for-sale:
Common stocks:
Public utilities 2,065,853 2,129,269 2,129,269
Banks, trusts, and insurance companies 66,009,901 66,983,698 66,983,698
Industrial, miscellaneous, and all other 55,428,457 50,300,571 50,300,571
Nonredeemable preferred stocks 6,470,793 5,516,567 5,516,567
------------------- ------------ ------------
Total 129,975,004 124,930,105 124,930,105
------------------- ------------ ------------
Real estate, net of depreciation 11,008,554 11,008,554 11,008,554
Short-term investments 5,587,306 5,587,306 5,587,306
------------------- ------------ ------------
Total Investments $ 231,940,844 $232,367,776 $232,367,776
=================== ============ ============
36
SCHEDULE II
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
CAPITOL TRANSAMERICA CORPORATION
(Parent Company)
CONDENSED BALANCE SHEETS December 31,
------------------------ ------------------------------------------
Assets 2000 1999
------ -------------------------- --------------
Investments $ 9,067,200 $ 7,046,418
Cash 553,169 13,908
Accrued investment income 45,164 47,730
Investment in subsidiaries 134,350,154 124,363,795
Income taxes recoverable 189,696 169,680
Other assets 1,728,997 1,619,474
-------------------------- --------------
Total assets $ 145,934,380 $ 133,261,005
========================== ==============
Liabilities and shareholders' investment
-----------------------------------------
Liabilities:
------------
Accounts payable $ 11,170 $ 30,795
Payable to affiliates - 4,000
Deferred income taxes 223,340 -
-------------------------- --------------
Total liabilities 234,510 34,795
-------------------------- --------------
Shareholders' investment:
Common stock 11,558,767 11,538,970
Additional paid-in-capital 21,995,693 21,857,143
Accumulated other comprehensive (loss) income,
net of deferred taxes 414,771 (37,235)
Retained earnings (including undistributed earnings of
subsidiaries of $132,038,443 and $123,866,985, respectively) 115,544,177 100,389,425
-------------------------- --------------
149,513,408 133,748,303
Less treasury stock, at cost (3,813,538) (522,093)
-------------------------- --------------
Total shareholders' investment 145,699,870 133,226,210
-------------------------- --------------
Total liabilities and shareholders' investment $ 145,934,380 $ 133,261,005
========================== ==============
For the years ended December 31,
-------------------------------------
STATEMENTS OF INCOME 2000 1999 1998
-------------------- ------------ ----------- -----------
Dividends received from subsidiaries $ 5,500,000 $ 500,000 $ 5,000,000
Management fees received from subsidiaries 913,404 906,737 2,031,293
Investment income 253,257 306,874 350,901
Realized investment (losses) gains (107,273) 966,943 13
Other income 4,752 4,052 7,100
------------ ----------- -----------
Total Income 6,564,140 2,684,606 7,389,307
Administrative expenses 1,698,363 1,504,083 1,495,240
------------ ----------- -----------
Net income before tax and equity in undistributed
net income of subsidiaries 4,865,777 1,180,523 5,894,067
Income tax (benefit) expense (258,439) 166,487 346,794
------------ ----------- -----------
Income before equity in undistributed net
income of subsidiaries 5,124,216 1,014,036 5,547,273
Equity in undistributed net income of
subsidiaries, net of dividends paid 9,329,101 15,698,427 13,876,640
------------ ----------- -----------
Net Income $14,453,317 $16,712,463 $19,423,913
============ =========== ===========
The accompanying condensed financial information should be read in
conjunction with the consolidated financial statements and notes thereto of
Capitol Transamerica Corporation.
37
SCHEDULE II
(continued)
CAPITOL TRANSAMERICA CORPORATION
(Parent Company)
December 31,
-------------------------------------------
STATEMENTS OF CASH FLOWS 2000 1999 1998
---------------------------------------------------------- ------------ ------------- --------------
Cash flows provided by operating activities:
Net income $14,453,317 $ 16,712,463 $ 19,423,913
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 792,989 777,657 850,739
Realized investment losses (gains) 107,273 (966,943) (13)
Change in:
Equity in net income of subsidiaries (9,329,101) (15,698,427) (13,876,640)
Other assets (157,451) (131,113) (21,410)
Other liabilities (23,625) (17,476) 6,093
------------ ------------- --------------
Net cash provided by operating activities 5,843,402 676,161 6,382,682
Cash flows provided by (used for) investing activities:
Proceeds from investments sold/matured 94,575 3,559,461 70,022
Purchases of investments (1,527,553) (347,971) (2,367,149)
Purchase of depreciable assets (782,511) (751,534) (1,079,278)
------------ ------------- --------------
Net cash (used for) provided by investing activities (2,215,489) 2,459,956 (3,376,405)
------------ ------------- --------------
Cash flows provided by (used for) financing activities:
Cash dividends paid (3,170,749) (3,166,188) (3,163,880)
Stock options exercised 158,347 67,342 169,265
Net proceeds from (purchase) sale of treasury stock (76,250) (26,534) (18,952)
------------ ------------- --------------
Net cash used for financing activities (3,088,652) (3,125,380) (3,013,567)
Net increase (decrease) in cash 539,261 10,737 (7,290)
Cash, beginning of year 13,908 3,171 10,461
------------ ------------- --------------
Cash, end of year $ 553,169 $ 13,908 $ 3,171
============ ============= ==============
Cash paid during the year for:
Income taxes $ 262,100 $ 337,110 $ 333,917
Interest - - 4,190
The accompanying condensed financial information should be read in
conjunction with the consolidated financial statements and notes thereto of
Capitol Transamerica Corporation.
38
SCHEDULE III
CAPITOL TRANSAMERICA CORPORATION
SUPPLEMENTARY INSURANCE INFORMATION
December 31, Year ended December 31,
---------------------------------------------------------- --------------------------------------
Deferred Future Policy Benefits,
Policy Benefits, Losses, Other Net Claims, Losses
Acquisition Claims, and Unearned Policyholder Premium Investment and Settlement
Segment Costs Loss Expenses Premiums Funds Revenue Income Expenses
----------------- ---------------------------------------------------------- --------------------------------------
2000
----
Property-casualty
insurance $ 13,726,372 $ 77,980,973 $45,587,586 $ - $ 88,184,842 $ 9,163,062 $ 57,501,375
1999
----
Property-casualty
insurance $ 12,644,189 $ 77,256,192 $39,454,257 $ - $ 82,841,104 $ 9,136,244 $ 45,300,841
1998
----
Property-casualty
insurance $ 13,524,777 $ 78,504,050 $41,541,432 $ - $ 88,629,476 $ 9,119,936 $ 52,377,114
Year ended December 31, (continued)
-------------------------------------------
Amortization of
Deferred Policy Other
Acquisition Operating Premiums
Segment Costs Expenses Written
----------------- --------------- ----------- -------------
2000
----
Property-casualty
insurance $ 28,431,941 $ 1,471,512 $ 102,110,215
1999
----
Property-casualty
insurance $ 28,325,677 $ 1,398,483 $ 86,002,801
1998
----
Property-casualty
insurance $ 27,833,262 $ 1,461,640 $ 87,929,152
39
SCHEDULE IV
CAPITOL TRANSAMERICA CORPORATION
REINSURANCE
For The Years Ended December 31, 2000, l999 and l998
Assumed Percentage
Direct Ceded to From Assumed of Amount
Premiums Other Other From Net Assumed
Written Companies Companies Affiliates Amount To Net
------------ ----------- ---------- ----------- ----------- ----------
December 31, 2000
Premiums Written:
Accident and Health insurance $ 293,424 $ 1,940,917 $1,940,917 $ - $ 293,424 661.5%
Property & casualty and
fidelity & surety insurance 99,810,454 6,277,517 65,421 - 93,598,358 0.1%
------------ ----------- ---------- ----------- ----------- ----------
Total premiums written $100,103,878 $ 8,218,434 $2,006,338 $ 0 $93,891,782 2.1%
============ =========== ========== =========== =========== ==========
December 31, 1999
Premiums Written:
Accident and Health insurance $ 289,728 $ 1,493,857 $1,493,857 $ - $ 289,728 515.6%
Property & casualty and
fidelity & surety insurance 84,170,353 4,315,567 48,862 - 79,903,648 0.1%
------------ ----------- ---------- ----------- ----------- ----------
Total premiums written $ 84,460,081 $ 5,809,424 $1,542,719 $ 0 $80,193,376 1.9%
============ =========== ========== =========== =========== ==========
December 31, 1998
Premiums Written:
Accident and Health insurance $ 288,332 $ 1,596,313 $ 270,803 $ 1,325,510 $ 288,332 553.6%
Property & casualty and
fidelity & surety insurance 86,041,340 3,556,866 3,167 - 82,487,641 0.0%
------------ ----------- ---------- ----------- ----------- ----------
Total premiums written $ 86,329,672 $ 5,153,179 $ 273,970 $ 1,325,510 $82,775,973 1.9%
============ =========== ========== =========== =========== ==========
40
SCHEDULE VI
CAPITOL TRANSAMERICA CORPORATION
SUPPLEMENTAL INFORMATION
CONCERNING PROPERTY-CASUALTY INSURANCE OPERATIONS
December 31, 2000
As of December 31,
--------------------------
BALANCE SHEET DATA: 2000 1999
------------------ ------------- -----------
Deferred insurance acquisition costs $ 13,726,372 $12,644,189
Outstanding loss and loss adjustment expense reserves 77,980,973 77,256,192
Discount deducted from reserves - -
Unearned premiums $ 45,587,586 $39,454,257
INCOME STATEMENT DATA: Year Ended December 31,
---------------------- ----------------------------------------
2000 1999 1998
------------- ------------ -----------
Earned premiums $ 88,184,842 $82,841,104 $88,629,476
Net investment income 9,163,062 9,136,244 9,119,936
Incurred losses and loss adjustment
expenses related to:
Current year 60,051,007 47,749,455 49,862,090
Prior years (2,549,632) (2,448,614) 2,515,024
Amortization of deferred policy acquisition costs 28,431,941 28,325,677 27,833,262
Paid claims and claim adjustment expenses 54,456,849 45,325,451 46,405,683
Gross premiums written $102,110,215 $86,002,801 $87,929,152
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