Annual Report 2011 - SNL Financial

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Annual Report 2011 - SNL Financial

Losses and LAE

The decrease in the calendar period loss and LAE ratio from 2010 to 2011 primarily reflects the impact of audit

premium and a reduction in the impact of severity-related claims. Audit premium, including the EBUB estimate, reduced the

2011 loss ratio by 2.1 percentage points, compared to increasing the 2010 loss ratio by 1.0 percentage points. The Company

did not record any prior year reserve development in 2011 or 2010.

Severity-related claims for the years ended December 31, 2011 and 2010 were as follows:

Number of

Claims

2011 2010

Retained

Undeveloped

Losses Incurred

Number of

Claims

Retained

Undeveloped

Losses Incurred

Claims exceeding the Company’s $500,000 retention ...... 1 $ 500,000 4 $2,000,000

Claims over $200,000, but less than $500,000 ............ 9 2,850,000 7 1,810,000

Total ........................................ 10 $3,350,000 11 $3,810,000

Acquisition and Other Underwriting Expenses and Other Expenses

The acquisition and other underwriting expense ratio was 6.8% in 2011, compared to 6.3% in 2010.

The other expense ratio was 16.2% in 2011, compared to 18.3% in 2010. The decrease in the other expense ratio

primarily reflects the impact of the increase in net premiums earned, including the impact of audit premium from customers.

Policyholder Dividend Expense

The increase in the policyholder dividend expense primarily reflects the loss experience of underlying policies related to

policies with a 2011 policy effective date. As of December 31, 2011, approximately 12.5% of the Company’s policies were

written on a participating basis, compared to approximately 12.3% as of December 31, 2010.

Tax Expense

The effective tax rate was 33.2% and 31.0% for the years ended December 31, 2011 and 2010, respectively. The

primary difference between the statutory tax rate of 35.0% and the effective tax rate reflects tax exempt income on municipal

bond securities.

SEGREGATED PORTFOLIO CELL REINSURANCE

The following table represents the operations of the segregated portfolio cell reinsurance segment for the years ended

December 31, 2011 and 2010 (in thousands):

2011 2010

Revenue:

Reinsurance premiums assumed ................................... $33,994 $28,798

Ceded premiums written ......................................... (3,887) (3,284)

Net premiums written ............................................ 30,107 25,514

Change in unearned premiums ..................................... (1,602) (809)

Net premiums earned ............................................ 28,505 24,705

Net investment income ........................................... 420 556

Net realized investment gains ...................................... 33 1,065

Total revenue .............................................. $28,958 $26,326

Expenses:

Losses and LAE incurred ......................................... $15,920 $18,299

Acquisition and other underwriting expenses ......................... 8,582 7,547

Other expenses ................................................. 390 251

Policyholder dividend expense ..................................... 29 6

Segregated portfolio dividend expense (1) ............................ 4,037 223

Total expenses ............................................. $28,958 $26,326

Net income (1) ..................................................... $ — $ —

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