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March 12, 2002
To the Policyholders of Greater New York Mutual Insurance
Company
I am pleased
to report that 2001 was one of the most successful years in the
history of Greater New York Mutual Insurance Company (GNY) and its
wholly owned stock subsidiaries, Insurance Company of Greater New
York (Insco), Strathmore Insurance Company (Strathmore), and Brite
Insurance Agency, Inc. (Brite).
To put
these results in perspective, one needs to take into account that
2001 was a particularly bad year for the property and casualty insurance
industry. The industry's operating results had significantly deteriorated
during 2001, with an estimated loss of surplus of 12.1%, or $38.4
billion, caused by a number of unfortunate developments: a sizable
increase in underwriting losses, including losses from the collapse
of Enron and the World Trade Center tragedy, deficient loss reserves
caused by an adverse development of prior-year loss reserves, and
poor investment returns and capital losses.
In every
important respect our companies made significant progress in 2001,
and reached a new milestone of growth. A. M. Best in its edition
of Review & Preview, subtitled "Everything Changes: P/C
Trends Gain Momentum After U.S. Attacks" dated January 2002,
made the following statement:
"…Sound operating fundamentals are enabling successful
insurers to effectively manage the inevitable underwriting cycle. Ultimately, these frontrunners are better
positioned to capitalize on renewed flight-to-quality trends and benefits from the hardening market.
Those with higher quality books of business and stronger balance sheets will outperform the industry
when the soft market returns…"
We completely
support that statement by Best. Throughout our history, we have
firmly adhered to our basic principles, which are to maintain a
strong financial position with full and adequate reserves monitored
by independent casualty actuaries; to invest only in the safest
and least volatile of securities, preferably in the obligations
of the U.S. Treasury; to maintain a conservative ratio of net premiums
written to surplus; and to write only quality business at adequate
rates. By espousing these principles, we believe that we protect
the interests of our policyholders to the greatest extent possible.
That we have not deviated from those principles is a testimonial
to our disciplined and focused approach to underwriting and to all
aspects of our operations.
A. M. Best has
acknowledged the disciplined approach to our operations and has
consistently over the years awarded our companies an A+ Policyholders'
Rating. The current rating rationale states, "The rating applies
to a three-member pool, led by Greater New York Mutual Insurance
Co. The rating reflects the group's superior capitalization, favorable
overall earnings and solid market position as a leading writer of
commercial package business for habitational, light industrial and
office building risks in northeastern urban areas. These strengths
are derived from the group's low underwriting leverage, conservative
investment and operating strategy and solid underwriting performance
of its leading business line, commercial multiperil. In addition,
the group has adhered to strict underwriting guidelines and adjusted
its emphasis in an extremely competitive market…"
Let me
first set the background of our results in 2001 with a review of
the results on an aggregate basis for the last ten years. During
the ten years ending December 31, 2001, GNY's surplus on a statutory
basis has grown by $95.6 million to $200.5 million, cash and invested
assets have grown by $46 million to $451.7 million while admitted
assets have grown by $76.5 million to $512.7 million; during this
period, GNY's income tax obligations were $44.6 million, and GNY
returned $22.6 million to its policyholders in the form of dividends.
These are impressive achievements, indeed.
Notable financial achievements in 2001 were as follows:
Net premium writings increased
36.2% or more than four times greater than the industry's premium
growth rate of 8.5%, to a record level of $137.2 million.
The ratio of net premiums written
to surplus for the twelve months ending December 31, 2001 was an ultra-conservative .68 to 1 (2000 -.51 to 1).
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The combined ratio
was 109.9%, or 7.1 points lower than the industry's combined
ratio of 117%. The operating ratio, which measures overall profitability
inclusive of investment income, was a profitable 87.7%, or 18.1
points lower than the industry's unprofitable operating ratio
of 105.8%.
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Pre-tax operating
income declined to $8.5 million from $11.5 million due to our
adherence to statutory accounting principles, which require
the immediate expensing of commissions and other costs associated
with the 36.2% increase in premiums. Pre-tax operating income
determined on a more realistic GAAP basis, under which commissions
and other variable costs are deferred to ensure a proper matching
of these costs with related earned premiums, amounted to $12.7
million or 49% greater than the reported statutory pre-tax operating
income of $8.5 million.
Net income, after a provision
for federal income taxes of $4.1 million, amounted to $4.4 million.
Consolidated statutory surplus
increased 1.6% to a record level $200.5 million. In contrast,
the industry's surplus declined 12.1%.
The balance sheet, which is one of the strongest in the industry,
reflects superior asset quality, liquidity and a full loss reserve position.
- Total admitted assets grew
$36.9 million, or 7.8%, to $512.7 million.
The investment portfolio is comprised of high quality bonds,
and includes no junk bonds, no mortgages, no real estate,
and no derivatives of any kind.
- 76.5% of all admitted assets were invested in U.S. Treasury
obligations.
Total invested assets of $457.4 million exceeded loss and
loss adjustment expense reserves of $210.8 million by a wide
margin of $246.6 million, which produces liquidity ratios
far and above industry standards.
- Operating cash flow for the 2001 year was a very strong $19.2
million.
2001 was the twenty-first consecutive year in which independent
casualty actuaries certified the adequacy of our loss and
loss adjustment expense reserves to the regulatory authorities.
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The strength of our capital continues to be superior according
to financial models constructed by A. M. Best and the state insurance regulators.
In addition
to obtaining a continuation of our A+ rating from the A.M. Best
Company, in August 2001, for the second consecutive year, GNY was
named one of the fifty best property/casualty insurance companies
by Ward Financial Group, in terms of performance over the past five
years out of 2,700 property/casualty insurance companies in the
United States.
I would
like to note the passing of our esteemed Chairman and Chief Executive
Officer, Alexander E. Rosenthal, who served our company with devotion
and distinction for over sixty-seven years. He made a significant
contribution to the success of our company, and left it in excellent
condition at the most successful period in its history.
At the
six-month anniversary of the World Trade Center disaster, it seems
appropriate to comment on the tragedy, which brought to our nation
the largest loss of life and property in our history from a single
deliberate senseless act. Our hearts go out to the families who
suffered from this horrific event. We were pleased to be able to
provide assistance to those insureds who sustained property losses,
in a timely and open handed manner.
In closing,
I wish to pay tribute to my fellow officers and our capable and
dedicated staff, without whose able assistance we would not have
been able to have experienced such a successful 2001. And, finally,
I am most grateful for the outstanding contribution to our companies'
success by our Board of Directors and by our President, Dominick
Vicari, and by our Executive Vice President, Max Solomon, who retired
in September after 53 years of service, for their superior performance
and skill with which they performed their duties.
Respectfully
submitted,
Warren
W. Heck
Chairman of the Board &
Chief Executive Officer
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