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STABILITY In Troubled Times Annual Report 2012


Annual Report 2012 Table of Contents Message from the Chair Stability In DDI’s Financial Performance Independent Auditors’ Report Statutory Basis Statements of Admitted Assets, and Liabilities Statutory Basis Statements of Operations Statutory Basis Statements of Changes in Capital Surplus Statutory Basis Statements of Cash Flows Notes to Statutory Basis Financial Statements

02 04 06 07 08 09 10 11


DDI ANNUAL REPORT 2012

Stability in Troubled Times We live in an era in which those who deliver health care to the public are seemingly under attack. There is unprecedented scrutiny of physicians combined with new laws that place increasing burdens on them. Many observers believe that the landscape has changed forever, and that the future of health care is clear and unalterable. At the same time, many physicians are seeking ways in which they can maintain their independence as private practitioners. Amid all of the uncertainty, it is clear that the liability exposure that doctors carry is not declining; the risk of medical practice remains significant. In the face of all the doubts and ambiguity, Doctors Direct stands as an effective, long-term carrier, continuing to defend our physicians and preserving their professional reputations.

Forbes Magazine reports........

Chaos in Healthcare Reform Implementation April 2013


DDI ANNUAL REPORT 2012

Message From the Chair We are pleased to present the 2012 Annual Report for Doctors Direct Insurance, Inc. (DDI) to our shareholders and insured physicians. We encourage you to read the entire report carefully. As you can see, a major portion of this document consists of the audited financial statements, which are informative and thoroughly explain the Company’s financial position. The theme of this year’s report is “Stability in Troubled Times.” For healthcare practitioners in the United States, this is surely a troubled time. There are significant changes being implemented now and others that are just over the horizon. Some observers wonder if some of the new statutory provisions can even be implemented successfully. Taken together, these changes are viewed as highly unfavorable to the practice of medicine.

Understanding Physician Needs Direct Access Means Direct Control

As I write this, many of our physician colleagues have recently left private practice for employment by hospital systems. At the same time, many who previously joined a hospital are expressing regret for having made that decision. We appear to be at a watershed moment. Can physicians endure in a private practice setting? More importantly, what will the healthcare landscape look like when all the changes have taken place?

our Approach As a physician-owned insurer, we understand intimately the needs and challenges that physicians face. That’s why we take the time to individually assess every practice we underwrite. By evaluating each doctor’s unique risk profile, not only based on a classification table, but on the treatment each doctor offers, Doctors Direct is able to zero in on a more precise and fair rate for you.


DDI ANNUAL REPORT 2012

In the midst of all of this transformation stands DDI. The visionaries who created this company just seven years ago have overseen its growth into a financial powerhouse that will last for decades to come. We have worked very hard to develop this physician-centered company into a high-performance organization that is an island of stability amid the healthcare storm. At the core of DDI’s business model are two principles: efficient, high-level service and significant cost savings to physicians. At a time when doctors are being squeezed financially, DDI is there to provide premium savings that lowers practice overhead. We do this by conducting our business on a direct basis. As implied by our name – Doctors Direct – we avoid the unnecessary cost of the insurance agent and deliver the product directly to you and your colleagues. Our direct approach yields an instant savings of between 10-12% (the typical commission paid by the large medical malpractice carriers). In addition, DDI carefully underwrites the physicians who apply for coverage, with the result being a higher quality book of business.

On the pages that follow show, you will find several charts showing that DDI has achieved solid financial success. Yet, our success would be hollow if the physicians we insure do not feel a sense of stability and comfort with both our coverage and service. DDI’s record with respect to claims defense is enviable, with the vast majority of cases disposed of with no adverse verdict or payment to a claimant. The physicians we insure report with near unanimity their extreme satisfaction with the excellent service and rate stability that DDI provides. The majority of the members of DDI’s Board of Directors are doctors. Together with our physician colleagues on the Advisory Board and our professional staff, we are dedicated to being a resource for the physician community in these troubled times. If you are a practicing physician insured by another carrier, we ask you to consider DDI to insure your livelihood. Stability is a key in days such as this, and DDI is a superior carrier that can offer it to you. Sincerely,

Stanley W. Fronczak, MD, JD Board Chair Doctors Direct Insurance, Inc.

our Commitment

our Service

Doctors’ Direct is committed to intelligent innovation that enhances the value of the services we provide, while still keeping our overhead costs down and engaging the insights of our physician owners.

The best example of superior service aspect at DDI is found in the area of claims. We maintain an extraordinary panel of defense attorneys. This panel works hand in hand with our claims department personnel and our physician advisors to ensure that all claims are handled promptly and professionally.


DDI ANNUAL REPORT 2012

Stability in DDI’s Financial Performance Doctors Direct has performed extremely well as a medical malpractice carrier that is less than ten years old. As the following charts demonstrate, DDI is a strong, well-capitalized company poised for additional growth and success. Amidst a very soft market, the Company is adding quality business, realizing solid investment returns and growing its capital to insure greater numbers of physicians in the future.


DDI ANNUAL REPORT 2012


DDI ANNUAL REPORT 2012

2012 Financial Statements For Years End December 31, 2012 & 2011

Dear Reader:

May 2013

The audited financial statements of Doctors Direct Insurance, Inc. (“the Company”) are included in this annual report. Kollath & Associates, CPA LLC audited these financial statements. These financial statements were prepared using the statutory basis of accounting, which is required by the Illinois De­partment of Insurance. Statutory accounting principles (“SAP”) are intended to be more conservative than generally accepted accounting principles (“GAAP”). We encourage you to review these documents in their entirety. The statutory basis statements of ad­mitted assets, liabilities and capital and surplus are the equivalent of a balance sheet for a non-insur­ance company. The statutory basis statements of operations are the equivalent of an income statement for a non-insurance company. The footnotes which accompany this audit report are part of the report and serve to provide a more complete picture of the Company’s financial status as developed in the course of our audit work. Our opinion on the financial statements addresses whether or not the financial statements are pre­sented fairly in accordance with both GAAP and SAP. Because the Company does not prepare GAAP financial statements, our opinion states that the financial statements are not presented fairly in accor­dance with GAAP. Our opinion on SAP indicates that the financial statements are presented fairly in accordance with SAP. Sincerely,

Julie Miller, CPA Kollath & Associates, CPA LLC


DDI ANNUAL REPORT 2012

DOCTORS DIRECT INSURANCE, INC. Statutory Basis Statements of Admitted Assets, Liabilities and Capital and Surplus Years Ended December 31, 2012 and 2011

Admitted Assets

2012

2011

Cash and invested assets: Bonds $ 9,731,375 $ 9,321,400 Preferred stocks 789,528 192,395 Common stocks 1,242,461 689,255 Cash and short-term investments 240,755 254,311 Receivable for securities sold - Total cash and invested assets

12,004,119

Premiums in the course of collection Accrued investment income Net deferred tax asset Total admitted assets

$

10,457,361

934,539 125,070 185,331

13,249,059

$

936,597 134,532 124,456 11,652,946

Liabilities and Capital and Surplus

Liabilities: Loss reserves $ 3,548,178 $ Loss adjustment expense reserves 1,236,135 Unearned premiums 1,355,029 Accrued commissions and expenses 98,908 Accrued taxes, licenses, and fees 34,802 Federal income taxes payable 95,332 Advance premiums 40,916 Ceded reinsurance payable 921,280

3,153,990 1,286,092 1,249,190 51,091 3,368 53,656 663,186

Total liabilities

7,330,580

6,460,573

Capital and surplus: Capital Common stock, $1,000 par value, authorized 2000 shares; issued and outstanding 1110 shares Paid-in surplus Unassigned surplus Treasury stock, at cost (2012 - 69 shares; 2011 - 7 shares)

1,110,000 4,440,000 752,879 (384,400)

1,110,000 4,440,000 32,373 (390,000)

Total capital and surplus

5,918,479

$

13,249,059

Total liabilities and capital and surplus

5,192,373 $

11,652,946


DDI ANNUAL REPORT 2012

DOCTORS DIRECT INSURANCE, INC. Statutory Basis Statements of Operations Years Ended December 31, 2012 and 2011

Premiums earned

2012

$

2,428,876

Losses and expenses incurred: Losses Loss adjustment expenses Underwriting expenses Total losses and expenses incurred

$ 2,358,498

404,188 540,655 1,265,409

Net underwriting gain (loss)

2011

756,462 490,122 1,038,253

2,210,252

218,624

Net investment income Realized capital gains, net of tax expense (2012 - $48,710; 2011 - $6,000) Miscellaneous income (expense)

2,284,837

73,661

511,714

389,296

94,555 (12,120)

11,107 (12,332)

Income (loss) before federal and foreign income tax expense (benefit)

812,773

461,732

Federal and foreign income tax expense (benefit), excluding tax on realized capital gains

264,626

139,096

Net income (loss)

$

548,147

$

322,636


DDI ANNUAL REPORT 2012

DOCTORS DIRECT INSURANCE, INC. statutory basis Statements of changes in capital surplus Years Ended December 31, 2012 and 2011

Balance at the beginning of year Additions (deductions): Net income (loss) Change in unrealized capital gains

2012

2011

$ 5,192,373

$ 5,061,933

548,147

322,636

78,277 (34,649) Change in net deferred income tax 24,956 (2,810) Change in nonadmitted assets 17,147 16,863 Cumulative effect of changes in accounting principles 51,979 Change in provision for reinsurance - Dividends paid to shareholders - (171,600) Change in treasury stock 5,600 (losses), net of tax (benefit) (2012 - ($27,416); 2011 - ($5,312))

Net change Balance at the end of year

726,106 $ 5,918,479

130,440 $ 5,192,373


DDI ANNUAL REPORT 2012

DOCTORS DIRECT INSURANCE, INC. Statutory Basis Statements of cash flows Years Ended December 31, 2012 and 2011

Cash from operating activities Premiums collected $ Net investment income received Miscellaneous income Benefits paid Commissions and expenses paid Federal income taxes refunded (paid) Net cash provided by (used in) operating activities

2012

2011

2,835,783 $ 2,672,314 576,300 411,436 (12,120) (12,332) (10,000) (5,000) (1,776,770) (1,255,097) (271,660) (103,371) 1,341,533

1,707,950

Cash from investing activities: Proceeds from investments sold; matured or repaid Bonds and notes 5,384,518 Stocks 2,277,137 Miscellaneous proceeds -

5,958,338 2,412,312 135,102

Total investment proceeds

7,661,655

Cost of investments acquired: Bonds Stocks Miscellaneous applications

8,505,752

5,674,095 3,354,597 -

Total investments acquired

7,761,920 2,881,798 -

9,028,692

10,643,718

Net cash used in investing activities (1,367,037) (2,137,966) Cash from financing and miscellaneous activities: Capital and paid in surplus, less treasury stock 5,600 Other cash provided (used), net 6,348 9,616 Dividends paid to shareholders - (171,600) Net cash provided by (used in) financing and miscellaneous activities Net change in cash and short-term investments Cash and short-term investments at the beginning of year Cash and short-term investments at the end of year

$

11,948

(161,984)

(13,556)

(592,000)

254,311

846,311

240,755

$

254,311


DDI ANNUAL REPORT 2012

DOCTORS DIRECT INSURANCE, INC. Notes to Statutory Basis financial Statements Years Ended December 31, 2012 and 2011 1. Nature of Business Doctors Direct Insurance, Inc. (the “Company”) was formed November 3, 2006, and is domiciled in the state of Illinois. The Company is involved solely in the sale of medical malpractice insurance. The Company currently writes policies in Illinois and Indiana and is licensed in Iowa, Kentucky and Missouri. Products are marketed through direct distribution channels. 2. Basis of Presentation and Summary of Significant Accounting Policies Basis of Presentation The accompanying statutory basis financial statements have been prepared in conformity with accounting practices prescribed or permitted by the Illinois Department of Insurance (the “Department”), which differ in some respects from accounting principles generally accepted in the United States of America (“GAAP”). Prescribed statutory accounting practices are practices incorporated directly or by reference in state laws, regulations and general administrative rules and are applicable to all insurance enterprises domiciled in a particular state. The Department has identified the Accounting Practices and Procedures Manual, as promulgated by the National Association of Insurance Commissioners (“NAIC”), as a source of prescribed statutory accounting practices for insurers domiciled in Illinois. Permitted statutory accounting practices encompass all accounting practices not so prescribed when such practices are approved by the insurance department of the insurer’s state of domicile. The Company does not employ any permitted practices. The following summary identifies the significant differences between the accounting practices prescribed or permitted by the Insurance Department and GAAP: • Acquisition costs, such as commissions, premium taxes, and other costs relating to acquiring new and renewal business, are expensed as incurred, while under GAAP, they are deferred and amortized to income as premiums are earned. • The Company’s reserve for death, disability and retirement is included in unearned premiums. Under GAAP, the reserve for death, disability and retirement is included as a component of loss reserves. • On a statutory basis, reserves are provided through a charge to unassigned surplus for the amount of unearned premiums and losses recoverable recorded in excess of the related collateral held on business reinsured with companies not authorized to do business in Illinois and for a portion of past-due recoverables from authorized reinsurers. Under GAAP, reserves for unauthorized reinsurers are not required and the Company establishes a valuation allowance when reinsurance recoverables are considered uncollectible. • Amounts due from reinsurers for their share of ceded unearned premiums and loss and loss adjustment expense reserves are netted with the related reserve liabilities under statutory accounting, rather than shown as assets as under GAAP. • For statutory accounting, after an other-than-temporary impairment of all bonds other than loan-backed securities is recognized, the fair value of the other-than-temporarily impaired bond becomes its new cost basis. For GAAP, the bond’s new cost basis is the net present value of cash flows. • “Nonadmitted assets” (principally a portion of deferred taxes, overdue premiums receivable, software, and office furniture and equipment) are excluded from the statutory basis statements of admitted assets, liabilities and capital and surplus through a direct charge to unassigned surplus. Under GAAP, nonadmitted assets are reinstated to the balance sheet, net of any valuation allowance. • Under both GAAP and statutory accounting, deferred federal income taxes are provided for unrealized gains or losses on investments and the temporary differences between the reporting and tax bases of assets and liabilities; however, there are limitations as to the amount of deferred tax assets that may be reported as admitted assets under statutory accounting. Further, the change in deferred taxes is recognized as an adjustment to unassigned surplus under statutory accounting. For GAAP, changes in deferred taxes related to revenue and expense items are recorded in the statement of operations. A federal income tax provision is required on a current basis only for the statutory basis statement of operations.


DDI ANNUAL REPORT 2012

DOCTORS DIRECT INSURANCE, INC. Notes to Statutory Basis financial Statements Years Ended December 31, 2012 and 2011 • Investments in bonds are generally carried at amortized cost, while under GAAP, they are carried at either cost or fair value based on their classification according to the Company’s ability and intent to hold or trade securities. • The statutory statements of cash flow are presented in the required statutory format. The GAAP format requires a reconciliation of net income (loss) to net cash provided by (used in) operating activities. • Comprehensive income and its components are not presented in the statutory basis financial statements, whereas under GAAP, comprehensive income is disclosed and changes in comprehensive income are reflected in accumulated comprehensive income, a component of capital and surplus. Use of Estimates In preparing the statutory basis financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the statutory basis financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Investment valuations, determination of other- than-temporary impairments, deferred tax asset valuation, premiums receivable, reinsurance balances, accrued expenses and loss and loss adjustment expense reserves are most affected by the use of estimates and assumptions. Investments Investments are valued as prescribed by the NAIC. • Bonds are generally stated at amortized cost as prescribed by the Securities Valuation Office of the NAIC. • Investments in common and preferred stocks are stated at fair value using quotations published by the NAIC Securities Valuation Office (“SVO”), which are generally equivalent to market prices. Where the SVO has not published a value for a security, the Company estimates fair values using independent pricing services. • Preferred stocks are carried at amortized cost or the lower of amortized cost or NAIC fair value depending on the assigned credit rating and whether the preferred stock has mandatory sinking fund provisions. Where the SVO has not published a value for a security, the Company estimates fair values using independent pricing services. Interest income is recognized on an accrual basis and dividends are recorded as earned at the ex-dividend date. Investment income reflects amortization of premiums and accretion of discounts on an effective-yield basis, using expected cash flows. Realized capital gains and losses on the sale of investments are determined based upon the specific identification method and are recorded on the trade date. Unrealized capital gains and losses are included in unassigned surplus, net of deferred federal income taxes. Bonds and stocks are considered other-than-temporarily impaired, and their cost basis written down to fair value with the impairment loss being included in realized capital losses, when management believes the decline in value to persist and the cost not to be recoverable. In determining whether an unrealized loss is other-than-temporary, the Company considers, among other factors, the severity and duration of impairment, financial position of the issuer, recent events affecting the issuer’s business and industry sector, credit ratings, and the intent and ability of the Company to hold the investment until the fair value has recovered. When an other-than-temporary impairment of a loan-backed or structured security has occurred because the Company does not expect to recover the entire cost or amortized cost, even though it has no intent to sell and has the intent and ability to hold to recovery, the amount of the impairment loss recognized is equal to the difference between the security’s amortized cost basis and the present value of cash flows expected to be collected at the balance sheet date. See Note 3 for a more detailed discussion. Cash and Short-term Investments Cash and short-term investments include unrestricted deposits in financial institutions, money market mutual funds, and short-term investments with original maturities of one year or less. Short-term investments, other than money market mutual funds, are reported at amortized cost, which approximates fair value. Money market mutual funds are stated at values obtained from the NAIC, which are equivalent to fair value.


DDI ANNUAL REPORT 2012

DOCTORS DIRECT INSURANCE, INC. Notes to Statutory Basis financial Statements Years Ended December 31, 2012 and 2011 Electronic Data Processing Equipment, Software, Furniture and Equipment Equipment and computer software are carried at cost net of accumulated depreciation. Depreciation is determined on a double declining balance basis over the estimated useful lives of the assets. The useful life of equipment and software is generally three to four years. The following table is a summary of equipment and software. Assets not meeting the definition of admitted assets are nonadmitted. Equipment and computer software-nonadmitted: Furniture and equipment $ Computer software Total equipment and computer software-nonadmitted Accumulated depreciation Net equipment and computer software-nonadmitted Depreciation expense $

2012 3,446 $ 47,652 51,098 (45,210) 5,888 10,790 $

2011

3,446 42,652 46,098 (34,420) 11,678 18,473

Loss and Loss Adjustment Expense Reserves Loss and loss adjustment expense reserves represent the estimated claim cost and loss adjustment expense payments necessary to investigate and settle all losses incurred and unpaid, without discounting. Such estimates are based on individual case estimates for reported losses and estimates for incurred but not reported losses based on past experience and are stated net of estimated salvage and subrogation recoverable. These estimates are regularly reviewed and, as appropriate, adjusted in the aggregate for changes in ultimate loss expectations based on historical experience patterns and current economic trends. Any change in the probable ultimate liabilities, which might arise from new information emerging, is reflected in the statutory basis statements of operations in the period the change is determined to be necessary. Such adjustments could possibly be significant. Reinsurance Reinsurance premiums, commission, and reserves related to reinsured business ceded are accounted for on a basis consistent with the accounting for the underlying direct policies issued and the terms of the reinsurance contracts. Premiums, losses and loss adjustment expenses ceded to other companies have been reported as reductions of premiums earned and losses and expenses incurred in the accompanying statutory basis statements of operations. Loss and loss adjustment expense reserves and unearned premiums are reported net of unbilled reinsurance recoverables. The Company has evaluated its reinsurance contracts and determined that all significant contracts transfer the underlying economic risk of loss. Premium Recognition Premiums written are recorded on the effective date of the contract and are earned on a pro rata basis over the terms of the policies. The reserve for unearned premiums is determined on a daily pro rata basis. Unearned premiums for death, disability, and retirement premiums are determined actuarially. The Company anticipates investment income as a factor in its premium deficiency calculation. The Company was not required to record a premium deficiency reserve in 2012 or 2011. Income Tax Deferred income taxes are recognized, subject to an admissibility test for deferred tax assets and represent the future tax consequences attributable to differences between the financial statement carrying amount of assets and liabilities and their respective tax bases. Gross deferred tax assets are reduced by a statutory valuation allowance if it is more likely than not that some portion or all of the deferred tax assets will not be realized. See Note 4 for the components of the admissibility test used to calculate the admitted deferred tax assets. Recorded deferred tax amounts are adjusted to reflect changes in income tax rates and other tax law provisions as they are enacted. The net change in deferred taxes is recorded directly to unassigned surplus. The Company is subject to tax-related audits in the normal course of operations. The Company accounts for any tax contingent liabilities in accordance with SSAP No. 5R, Liabilities, Contingencies and Impairments of Assets (“SSAP No. 5R�). Vulnerability Due to Certain Concentrations The Company is subject to substantial federal and state government regulation, including licensing and other


DDI ANNUAL REPORT 2012

DOCTORS DIRECT INSURANCE, INC. Notes to Statutory Basis financial Statements Years Ended December 31, 2012 and 2011 requirements both of which may restrict the Company’s ability to expand its business. The Company has two customers that accounted for approximately 44% and 41% of gross written premium in 2012 and 2011, respectively. The Company has three customers that accounted for approximately 35% and 38% of uncollected premiums for 2012 and 2011, respectively. Recent Accounting Standards – Adopted The NAIC adopted changes to the disclosure requirements of SSAP No. 100, Fair Value Measurements, which are effective January 1, 2012. The new disclosures include information about the methods used to obtain fair values for all financial instruments, rather than just those financial instruments reported at fair value on the balance sheet date, as in current guidance. There is no change to which financial instruments are reported at fair value. The NAIC adopted SSAP No. 101, Income Taxes, A Replacement of SSAP No. 10R and SSAP No. 10, effective January 1, 2012. Some of the key provisions include the following: • The three part admissibility test for deferred tax assets is retained with some changes to carryback provisions and the threshold levels used to determine the appropriate reversal period and surplus limitation. The reversal period and surplus limitation are prescribed by SSAP No. 101 and the ability to elect a different reversal period and surplus limitation is no longer available. Also, for purposes of determining the surplus limitation, the current period surplus level is used rather than surplus as reported in the most recently filed consolidated statutory financial statements. • Income tax contingencies are governed by a modified version of SSAP No. 5R, Liabilities, Contingencies and Impairments of Assets, requiring insurers to establish a tax loss contingency based upon a “more likely than not” rather than a “probable” threshold. • Tax planning strategies involving reinsurance must be disclosed. Adoption of SSAP No. 101 on January 1, 2012 did not have a material impact on the Company’s consolidated statutory basis financial statements. Recent Accounting Standards – Pending SSAP No. 103, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities (“SSAP No. 103”), is effective January 1, 2013, replacing SSAP No. 91R. The new standard clarifies the guidance around whether certain transfers of financial assets qualify for sale accounting; the Company is currently evaluating SSAP No. 103 but it is not expected to have a material impact on the consolidated statutory basis financial statements. 3. Invested Assets The statement value for invested assets generally represents cost, amortized cost, gross unrealized gains and losses and estimated fair value of investments at December 31, 2012 and 2011 as follows:

Amortized Value or December 31, 2012 Cost

Gross Unrealized Gains Losses

U.S. government and agencies $ 1,116,933 $ Political subdivisions of states, 4,186,569 territories and possessions Industrial and miscellaneous 3,992,873 Certificates of deposit - domestic 435,000 Total bonds $ 9,731,375 $ Preferred stock 754,000 Common stock 1,197,354 Cash 240,755 Total invested assets

$

11,923,484

$

Statement Value

12,292 281,735

$

238,700 18,136 550,863 37,499 86,083 -

(15,139) (330) $ (24,188) (1,970) (40,975) -

4,216,434 452,806 $ 10,258,050 789,528 1,242,461 240,755

3,992,873 435,000 $ 9,731,375 789,528 1,242,461 240,755

$ (67,133)

$ 12,530,794

$ 12,004,119

$ 674,445

(452) (8,267)

Estimated Fair Value

1,128,773 $ 4,460,037

1,116,933 4,186,569


DDI ANNUAL REPORT 2012

DOCTORS DIRECT INSURANCE, INC. Notes to Statutory Basis financial Statements Years Ended December 31, 2012 and 2011 December 31, 2011 U.S. government and agencies Political subdivisions of states, territories and possessions Industrial and miscellaneous Certificates of deposit - domestic Certificates of deposit - foreign Foreign industrial and miscellaneous Total bonds Preferred stock Common stock Cash Total invested assets

Amortized Value or Cost $ 1,640,765 3,773,705 3,292,570 480,000 101,929 54,181 $ 9,343,150

Gross Unrealized Gains Losses $

48,617 $ 163,381 56,672 14,185 -

$

282,855

193,935 680,242 254,311 $ 10,471,638 $

$

6,050 49,045 -

Estimated Fair Value

(2,257) $ 1,687,125

$ 1,640,765

(8,190) 3,928,896 (72,266) 3,276,976 (7,196) 486,989 (21,750) 80,179 (1,453) 52,728 (113,112) $ 9,512,893

3,773,705 3,292,570 480,000 80,179 54,181 $ 9,321,400

(7,590) (40,032) -

337,950 $

Statement Value

192,395 689,255 254,311

192,395 689,255 254,311

(160,734) $ 10,648,854 $ 10,457,361

The estimated fair value and statement value of bonds at December 31, 2012, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because certain borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. Due in one year or less Due after one year through five years Due after five years through ten years Due after ten years through twenty years Due after twenty years

Total bonds

Estimated Statement Fair Value Value $ 1,071,887 2,782,218 3,719,114 1,461,021 1,223,810

$ 1,067,796 2,656,286 3,495,750 1,372,714 1,138,829

$ 10,258,050

$ 9,731,375

Preferred and Common Stocks The carrying value and estimated fair value of preferred stocks and common stocks are the same as of December 31, 2012 and 2011. Cash and Short-term Investments Cash and short-term investments as of December 31, 2012 and 2011 are comprised of cash in the Company’s bank accounts of $240,755 and $254,311, respectively. The Company occasionally has on deposit in a financial institution a balance in excess of amounts insured by the Federal Deposit Insurance Corporation (FDIC). The Company does not believe it is exposed to any significant credit risk on this account. Net Investment Income Sources of net investment income for the years ended December 31 are as follows: 2012

2011

Bonds Preferred stocks Common stocks Cash and short-term investments Gross investment income Investment expenses

$ $ $

436,116 $ 42,464 $ 48,377 $ 348 527,305 15,591

354,961 13,654 33,116 401,731 12,435

Net investment income

$

511,714

389,296

$

Due and accrued investment income over 90 days past due is excluded from the balance sheet as a nonadmitted asset. At December 31, 2012 and 2011, no accrued investment income was excluded on this basis.


DDI ANNUAL REPORT 2012

DOCTORS DIRECT INSURANCE, INC. Notes to Statutory Basis financial Statements Years Ended December 31, 2012 and 2011 Realized Capital Gains (Losses) Realized capital gains (losses) for the years ended December 31 are summarized as follows:

2012

2011

Bonds Gross gains $ Gross losses Preferred stocks Gross gains Gross losses Common stocks Gross gains Gross losses Net realized capital losses before tax Federal income tax benefit on realized capital gains Realized capital gains, net of tax

$

183,654 (29,882) 12,949 (5,442)

$

19,515 (37,529) 143,265 48,710 94,555

104,857 (69,824)

-

23,358 (41,284) 17,107 6,000 $

11,107

Proceeds from the sale of bonds were $3,526,934 and $4,363,338 in 2012 and 2011, respectively. Proceeds from the sale of stocks were $2,051,056 and $2,412,312 in 2012 and 2011, respectively. Proceeds from the sale of preferred stocks were $175,449 in 2012 and $0 for 2011. Other-Than-Temporary Impairments of Investments Investment securities are reviewed for other-than-temporary impairment on an ongoing basis. The determination of other-than-temporary impairment requires significant judgment on the part of the Company and will depend on several factors, including: • The existence of any plans to sell the investment security. •

The duration and extent to which fair value has been less than amortized cost.

The reason for the decline in fair value (credit concerns, interest rates, etc.).

• The financial condition and near term prospects of the issuer/borrower, including the ability to meet contractual obligations, relevant industry trends and conditions and implications of rating agency actions. • The Company’s ability to retain its investment in debt securities for a period of time sufficient to allow for an anticipated recovery in fair value. • The Company’s intent to retain its investment for a period of time sufficient to allow for an anticipated recovery in fair value. •

The Company’s ability to recover all amounts due according to the contractual terms of the agreements.

The Company’s collateral positions.

If a security is deemed to be other-than-temporarily impaired, a charge is recorded in net realized capital losses equal to the difference between the fair value and the cost or amortized cost basis of the security. The fair value of the other-than-temporarily impaired security becomes its new cost basis. In addition, when an other-than-temporary impairment has occurred because the Company does not expect to recover the entire cost or amortized cost, even though it has no intent to sell and has the intent and ability to hold to recovery, the amount of the impairment loss recognized is equal to the difference between the security’s amortized cost basis and the present value of cash flows expected to be collected at the balance sheet date. The new cost basis of the other-than-temporarily impaired loan-backed or structured security is the present value of cash flows expected to be collected. The Company did not recognize any other-than-temporary impairments during the current period related to intent to sell or lack of intent and ability to hold until recovery of the amortized cost basis.


DDI ANNUAL REPORT 2012

DOCTORS DIRECT INSURANCE, INC. Notes to Statutory Basis financial Statements Years Ended December 31, 2012 and 2011 Net Unrealized Capital Losses The following table presents fair value and unrealized losses for the Company’s bonds and common stocks, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position as of December 31, 2012. At December 31, 2012 and 2011, the Company did not have any mortgage or loan backed securities. Months in Unrealized Loss Position Less Than Twelve Total Twelve Months Months or Greater December 31, 2012 No. of Unrealized Unrealized Bonds and notes Securities Fair Value Loss Fair Value Loss U.S. gov. & agencies 1 $ 347,266 $ (452) $ - $ - Political subdivisions of states, territories and possessions 3 339,996 (8,267) - - Industrial and miscellaneous 6 579,388 (13,049) 197,580 (2,420) Total of bonds 10 1,266,650 (21,768) 197,580 (2,420) Preferred stocks Common stocks Total temporarily impaired securities

Fair Value $ 347,266

Unrealized Loss $ (452)

339,996 776,968 1,464,230

(8,267) (15,469) (24,188)

2 21

24,800 171,597

(180) (18,572)

27,160 172,324

(1,790) (22,403)

51,960 343,921

(1,970) (40,975)

33

$ 1,463,047

$ (40,520)

$ 397,064

$(26,613)

$ 1,860,111

$ (67,133)

Months in Unrealized Loss Position Less Than Twelve Twelve Months Months or Greater Bonds and notes U.S. government and agencies

No. of Securities 1

Fair Value $

247,743

Unrealized Loss Fair Value

Unrealized Loss

$

$

(2,258) $

-

-

Total December 31, 2011 Fair Value $

247,743

Unrealized Loss $

(2,258)

Political subdivisions of states, territories and possessions

6

729,248

(8,190)

Industrial and miscellaneous Foreign industrial and miscellaneous

22 1

1,513,937 52,728

(52,693) (1,453)

414,273 -

Total of bonds

30

2,543,656

(64,594)

Preferred stocks Common stocks

3 20

22,280 314,161

(2,720) (40,032)

Total temporarily impaired securities

53

$ 2,880,097

729,248

(8,190)

(26,768) -

1,928,210 52,728

(79,461) (1,453)

414,273

(26,768)

2,957,929

(91,362)

77,550 -

(4,870) -

99,830 314,161

(7,590) (40,032)

$ (31,638) $ 3,371,920

$ (138,984)

$ (107,346) $ 491,823

-

Fair Value Measurement The Financial Accounting Standards Board Accounting Standards Codification Section 820 “Fair Value Measurements and disclosures establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. In accordance with this guidance, we have categorized our financial instruments, based on the degree of subjectivity inherent in the valuation technique, as follows: • Level 1: Inputs are directly observable and represent quoted prices for identical assets or liabilities in active markets the Company has the ability to access at the measurement date (for example, U.S. Government securities and active exchange-traded equity securities). • Level 2: Inputs are observable, either directly or indirectly, other than quoted prices included in Level 1, for the asset or liability. This includes: (i) quoted prices for similar instruments in active markets, (ii) quoted prices for identical or similar instruments in markets that are not active, (iii) inputs other than quoted prices that are observable for the instruments and (iv) inputs that are derived principally from or corroborated by observable market data by correlation or other means (for example, certain corporate and municipal bonds and certain preferred stocks). • Level 3: Inputs are unobservable inputs reflecting the Company’s estimates of the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk (for example, certain structured securities and privately held investments). Observable inputs are those inputs used by market participants in valuing financial instruments, which are developed based on market data obtained from independent sources. The statutory basis of accounting generally requires that fair value disclosures for bonds and certain preferred stocks, as well as statement value for


DDI ANNUAL REPORT 2012

DOCTORS DIRECT INSURANCE, INC. Notes to Statutory Basis financial Statements Years Ended December 31, 2012 and 2011 common stocks and certain preferred stocks, be based on values published by the National Association of Insurance Commissioners’ Securities Valuation Office (“SVO”), when available. The Company understands that SVO values are based on quoted market prices, when available, or SVO-developed pricing models. In the absence of sufficient observable inputs, unobservable inputs, reflecting the Company’s estimates of the assumptions market participants would use in valuing financial assets and liabilities, are developed based on the best information available in the circumstances. The hierarchy requires the use of market observable information when available for assessing fair value. The following table summarizes the Company’s assets measured at fair value as of December 31, 2012. The Company has no liabilities measured at fair value at December 31, 2012.

Assets, at fair value Bonds Preferred stocks Common stocks

Level 1 $

Level 2

Level 3

- $ - $ - 789,528 - - 1,242,461

Total $

789,528 1,242,461

Total assets $ 2,031,989 - $ - $ 2,031,989 A summary of valuation techniques for classes of financial assets and liabilities by fair value hierarchy level are as follows: Level 1 Measurements Bonds: Consists of U.S. government and government agency bonds, bonds issued by political subdivisions of states, U.S. industrial and miscellaneous bonds, including some foreign industrial and miscellaneous bonds. Valuation is based upon unadjusted quoted prices for identical assets in active markets that the Company can access. Preferred stocks: Consists of U.S. and Canadian exchange traded common stocks; valuation is based on unadjusted quoted prices for identical assets in active markets that the Company can access. Common stocks: Consists of U.S. and Canadian exchange traded common stocks; valuation is based on unadjusted quoted prices for identical assets in active markets that the Company can access. Securities on Deposit/Assets Designated At December 31, 2012 and 2011, bonds with a carrying value of $1,566,933 and $1,680,621 respectively, were on deposit with regulatory authorities as required by law or to meet other requirements.

4. Income Tax Income tax expense attributable to income (loss) from operations and realized capital losses for the years ended December 31 is as follows:

2012 2011 Change Federal income tax expense on operations $ 264,626 $ 139,096 Federal income tax on capital gains/losses 48,710 6,000 Federal income taxes expense $ 313,336 $ 145,096 The 2012 change in net deferred income tax is comprised of the following:

$ 125,530 42,710 $ 168,240

2012 2011 Change Total deferred tax assets $ 243,041 $ 225,785 $ 17,256 Total deferred tax liabilities 31,395 11,679 19,716 Net deferred tax asset 211,646 $ 214,106 $ (2,460) Tax effect of unrealized capital gains (losses) 27,416 Change in net deferred income tax $ 24,956 Reconciliation to U.S. Tax Rate The total statutory provision for income taxes for the years ended December 31 differs from the amount computed by applying the U.S. federal corporate income tax rate of 34% to income (loss) before federal income taxes, plus gross realized capital gains (losses) due to the items listed in the following reconciliation.


DDI ANNUAL REPORT 2012

DOCTORS DIRECT INSURANCE, INC. Notes to Statutory Basis financial Statements Years Ended December 31, 2012 and 2011

2012

Pre tax income Dividends received deduction (net of proration) Penalties Other assets nonadmitted State income taxes Valuation allowance Meals and entertainment Prior year return to provision adjustment Other Total statutory income taxes Federal income tax expense (benefit) Change in deferred income taxes Total statutory income taxes

2011

$ 327,339 (18,377) - 1,968 (32,499) 7,098 3,005 (154) 288,380 313,336 (24,956) $ 288,380

$

159,029 (9,462) 379 4,038 (4,670) 5,516 (11,409) 2,470 145,891 145,096 795 145,891

$

Deferred Income Taxes The components of the net deferred tax asset (liability) at December 31 are as follows:

December 31, 2012 Ordinary Capitol Total

Gross Deferred Tax Assets Statutory Valuation Allowance Adjustment Adjusted Gross Deferred Tax Assests Deferred Tax Asset Nonadmitted Admitted Deferred Tax Assets Deferred Tax Liabilities

$ 243,041 -

$243,041

$225,785

$ 4,670

$ 17,256

$ 12,586

4,670

4,670

-

243,041

-

243,041

225,785

-

225,785

17,256

-

17,256

26,315

-

26, 315

89,650

-

89,650

(63,335)

-

(63,335)

216,726

-

216,726

136,135

-

136,135

80,591

-

80,591

27,416 $(27,416)

31,395

11,679

$185,331

$124,456

$

(4,670)

$ (4,670)

-

$ 212,747

(4,670)

$230,455

Change Capitol Total

-

3,979

Net Admitted Deferred Tax Asests

$ -

December 31, 2011 Ordinary Capitol Total Ordinary

-

-

11,679

(7,700)

27,416

60,875

-

$124,456

$ 88,291

$(27,416)

$ 60,875

The nonadmitted deferred tax asset decreased $63,335 in 2012 and $4,988 in 2011. Based on the Company’s assessment of the likelihood of realization of deferred tax assets, the Company has determined a valuation allowance is required for capital assets for which there is some uncertainty of realizing the asset. The tax effects of temporary differences that give rise to the significant portions of the deferred tax assets and liabilities at December 31 are as follows:

2012

2011

Ordinary deferred tax assests Discounting of Unpaid Losses $ 139,094 $ Unearned premium reserve 94,924 Other assets nonadmitted 2,002 Other 7,021 Subtotal ordinary deferred tax assets 243,041 Nonadmitted deferred tax assets 26,315 Admitted ordinary deferred tax assets 216,726 Capital deferred tax assets: Investments - Subtotal capital deferred tax assets - Statutory valuation allowance adjustment - Nonadmitted deferred tax assets - Admitted capital deferred tax assets - Admitted deferred tax asset 216,726 Ordinary deferred tax liabilities: Stock, bonds and other investments Fixed assets Subtotal ordinary deferred tax liabilities Capital deferred tax liabilities: Investments Subtotal capital deferred tax liabilities Deferred tax liabilities Net admitted deferred tax asset

1,977 2,002 3,979

$

4,670 4,670 4,670 136,135 8,499 3,180 11,679

27,416 27,416 31,395 185,331

129,054 84,945 3,970 7,816 225,785 89,650 136,135

$

11,679 124,456


DDI ANNUAL REPORT 2012

DOCTORS DIRECT INSURANCE, INC. Notes to Statutory Basis financial Statements Years Ended December 31, 2012 and 2011 Deferred Tax Limits The net admitted deferred tax asset of $185,331 and $124,456 at December 31, 2012 and 2011, respectively, is less than ten percent of adjusted capital and surplus. For calculating these limitations at December 31, 2012, capital and surplus was $5,918,479 and total adjusted capital and authorized control level capital for purposes of the risk-based capital model were $5,918,479 and $610,345, respectively. For calculating these limitations at December 31, 2011, capital and surplus was $5,192,373 and total adjusted capital and authorized control level capital for purposes of the risk-based capital model were $5,192,373 and $597,093, respectively. There was no tax valuation allowance applied to the deferred tax asset at December 31, 2012. Deferred Tax Asset Admission Calculation The components of the deferred tax asset admission calculation at December 31 are as follows:

December 31, 2012 Ordinary Capitol Total

(a) Federal income taxes paid in prior years recoverable through loss carrybacks

December 31, 2011 Ordinary Capitol Total Ordinary

$ 130,095

$130,095

$ 78,690

55,236

55,236

45,766

55,236

55,236

45,766

$

-

$ 78,690

$ 51,405

45,766

Change Capitol Total $

-

$ 51,405

9,470

-

9,470

45,766

9,470

-

9,470

760,188

-

-

103,378

(b) Adjusted gross deferred tax assets expected to be realized after application of the threshold limitation; the lesser of (i) or (ii): (i) Adjusted gross deferred tax assets expected to be realized following the balance sheet date (ii) Adjusted gross deferred tax assets -

allowed per limitation threshold

-

863,566

-

(c) Adjusted gross deferred tax assets offset by gross deferred tax liabilities Admitted deferred tax asset

3,979

27,416

31,395

11,679

$ 189,310

27,416

$216,726

$136,135

- $

0

11,679

(7,700)

27,416

19,716

$136,135

$ 53,175

$ 27,416

$ 80,591

At December 31, 2012, the Company did not have any unused operating loss or tax credit carryforwards available to offset against future taxable income. The net admitted deferred tax asset was determined using the guidance related to admissibility provided in the following paragraphs of NAIC Statement of Statutory Accounting Principles No. 101 (SSAP 101). SSAP 101 was adopted by the Company effective January 1, 2012, with no significant impact on net income or surplus. Income taxes incurred that are available for recoupment in the event of future losses are $310,332 and $162,040 as of December 31, 2012 and 2011, respectively. 5. Related Party Transactions The Company engaged in transactions with several shareholders and their respective companies. The Company’s investment manager is also a shareholder and was paid custodial fees of $15,591 and $12,435 for 2012 and 2011, respectively, in addition to executing trades. The Company paid $1,745 and $1,500 in 2012 and 2011, respectively, to the accounting firm of a shareholder for payroll services. 6. Reinsurance The Company enters into ceded reinsurance agreements for the purpose of limiting its exposure to loss on any one single insured or to diversify its risk and limit its overall financial exposure. The Company retains the risk of loss in the event that a reinsurer is unable to meet the obligations assumed under the reinsurance agreements. The Company also assumes insurance risk that was directly written by other insurance entities. The following table shows the effect of reinsurance on premiums and on loss and loss adjustment expenses incurred for the years ended December 31, 2012 and 2011.


DDI ANNUAL REPORT 2012

DOCTORS DIRECT INSURANCE, INC. Notes to Statutory Basis financial Statements Years Ended December 31, 2012 and 2011

Premium written: Direct Ceded to nonaffiliates Net premium written

Premiums earned: Direct Ceded to nonaffiliates Net premiums earned Loss and loss adjustment expenses incurred Direct Ceded to nonaffiliates Net premiums earned

2012 $ $ $

$ $ $

2011

3,367,844 (833,128) 2,534,716

$

3,263,360 (834,483) 2,428,877

$

1,177,912 (233,069) 944,843

$

$

$

$

3,206,516 ( 801,629) 2,404,887 3,175,256 (816,758) 2,358,498 1,766,309 (519,725) 1,246,584

The Company has the following unsecured reinsurance receivables in excess of 3% of policyholders’ surplus at December 31, 2012: Federal ID # AA-1128001 AA-1340125 AA-1126006

Name of Reinsurer Lloyds Syndicate Number 2001 Hannover Ruckversicherungs Ag Lloyds Syndicate Number 4472

Amount 490,831 278,767 228,671

7. Loss and Loss Adjustment Expense Reserves The Company’s losses and loss adjustment expense reserves were evaluated by independent consulting actuaries and reflect consideration of prior loss experience and changes in the frequency and severity of claims. Actual incurred losses may vary from estimated amounts due to the inherent difficulty in estimating development of long- tailed lines of business. However, the Company’s management believes that its actual incurred losses and loss adjustment expenses will not significantly exceed its reported estimated amounts. The Company’s management believes the unearned premiums under policies, together with the related anticipated investment income to be earned, are adequate to discharge the related policy liabilities. Activity in the loss and loss adjustment expense reserves are summarized as follows:

Balance as of January 1, net of reinsurance recoverables of $1,279,795 and $760,070 Incurred related to: Current year Prior years Total incurred Paid related to: Current year Prior years Total paid Balance as of December 31, net of reinsurance recoverables of $1,512,864 and $1,279,795

$

2012

4,440,082 1,678,218 (733,375) 944,843

151,920 448,692 600,612 $ 4,784,313

2011 $

3,444,342

1,648,479 (401,895) 1,246,584

96,910 153,934 250,844

$

4,440,082

8. Statutory Financial Data and Dividend Restrictions Risk based capital requirements promulgated by the NAIC and adopted by the Department require property and casualty insurers to maintain minimum capitalization levels that are determined based on formulas incorporating asset risk, credit risk, and underwriting risk. At December 31, 2012 and 2011, the Company’s adjusted surplus exceeds the minimum requirements. The payment of dividends by the Company to shareholders is limited and can only be made from earned profits without the prior approval of the Division of Insurance of Illinois. The maximum amount of dividends that may be paid without prior approval is further subject to restrictions relating to statutory surplus and net income. In 2011, the Company paid $171,600 as a dividend to its shareholders.


DDI ANNUAL REPORT 2012

DOCTORS DIRECT INSURANCE, INC. Notes to Statutory Basis financial Statements Years Ended December 31, 2012 and 2011 9. Leases The Company leased office space under a two year lease agreement that expired in 2008. This agreement was extended to July 31, 2011. Rental expense for all leases was $43,149 and $18,833 for December 31, 2012 and 2011, respectively. In 2011, a new lease agreement was signed and the home office relocated to Oak Park, Illinois on March 1, 2011. The monthly lease payments for 2011 are $2,726, with the rent abated for months one through five. The monthly lease payments for 2012 are $2,808. The following shows minimum rental payments for the next five years: 2012 43,149 2013 34,535 2014 35,564 2015 36,627 2016 21,930 10. Commitments and Contingencies Insurance Guaranty Funds The Company is liable for guaranty fund assessments related to unaffiliated insurance companies that have become insolvent during 2012 and prior years. Due to the Company’s low percentage of marketplace premium and the lack of major insolvencies, the Company has not made a provision. Other Contingencies Various legal actions are currently pending that involve the Company. Like other members of the insurance industry, the Company is the target of a number of lawsuits and other types of proceedings, some of which may involve claims for substantial or indeterminate amounts. These actions are based on a variety of issues and target a range of the Company’s practices. The ultimate outcome of these disputes is unpredictable. 11. Unassigned Surplus Unassigned surplus at December 31 reflects the accumulated balances for the following elements of unassigned surplus:

Nonadmitted assets: Net deferred tax asset $ Office equipment and software Change in deferred tax asset due to SSAP 101 Total nonadmitted assets Provision for reinsurance Unrealized capital gains (losses), net of taxes (2012 - ($27,416); 2011 - ($5,312)) $

2012

(26,315) $ (5,888) - (32,203) - 78,278 $

2011

(37,672) (11,678) (51,979) (101,329) (34,649)

12. Disclosure About Fair Value of Financial Instruments Accounting standards require disclosure of fair value information about certain on and off -balance sheet financial instruments for which it is practical to estimate that value. In cases where quoted market prices are not readily available, fair values are based on estimates using present value or other valuation techniques. These techniques are significantly affected by the assumptions used, including discount rates and estimates of future cash flows. Although fair value estimates are calculated using assumptions that management believes are appropriate, changes in assumptions could cause these estimates to vary materially. In that regard, the derived fair value estimates cannot necessarily be substantiated by comparison to independent markets and, in many cases, may not be realized in the immediate settlement of the instruments. Certain financial instruments, investments accounted for using the equity method, and all non-financial instruments are excluded from the disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. The following methods and assumptions were used by the Company in estimating its fair value disclosures for financial instruments: Cash, Short-term Investments, and Accrued Investment Income: The carrying amounts for these instruments approximate their fair values due to their short term nature.


DDI ANNUAL REPORT 2012

DOCTORS DIRECT INSURANCE, INC. Notes to Statutory Basis financial Statements Years Ended December 31, 2012 and 2011 Bonds: Fair values for bonds are based on fair values published by the SVO of the NAIC, where available. Where the SVO has not published a fair value for a security, the Company estimates fair values using independent pricing services or, in the case of private placements, by discounting expected future cash flows using a current market rate applicable to the yield, credit quality, and maturity of the investments. Common and Preferred Stocks: The fair values of common stocks and preferred stocks are based on fair values published by the SVO, which are generally equivalent to quoted market prices. Where the SVO has not published a value for a security, the Company estimates fair values using independent pricing services. 13. Subsequent Events The Company evaluated subsequent events from December 31, 2012 through May 15, 2013, the issuance date of these financial statements. During this period, there have been no significant subsequent events that require adjustment to or disclosure in the accompanying financial statements. 14. Stock Split The Company’s board of directors authorized a ten-for-one stock split in 2012. All share and related information presented in these financial statements and accompanying footnotes has been adjusted to reflect the increased number of shares resulting from this action. 15. Employee Benefit Plan Beginning in 2012, the Company implemented a 401k retirement plan whereby the Company will match employee contributions up to 3% of their gross wages. During 2012, the Company’s contribution expense was $11,547.


DDI ANNUAL REPORT 2012

Customized, Efficient Protection For Your Practice Medical malpractice insurance is a specialized business that requires exceptional management and oversight. During its formative years, Doctors Direct has assembled a quality team that gives us professional management of the highest quality. In addition, the Board of Directors contains individuals from the medical and business communities who understand what it takes to build and oversee a long-term provider of this kind of coverage. As a physician-owned insurer, Doctors Direct understands intimately the needs and challenges that physicians face. That’s why we take the time to individually assess every practice we insure. By evaluating each doctor’s unique risk profile, not only based on a classification table, but on the treatment each doctor offers, Doctors Direct is able to zero in on a more precise and fair rate for you. DDI was founded to overturn the conventional wisdom by allowing Illinois Physicians the ability to work directly with their insurance company free of intermediaries. Quality physicians deserve competitively priced coverage and the consistency, reliability, and stability of a direct market for malpractice insurance. By removing the intermediary, the insurance purchasing process at Doctors Direct is streamlined and benefits you in THREE simple ways: 1.Applying Direct Saves Time We don’t require you to fill out a lengthy application 2.Buying Direct Saves Money You are not paying a broker commission 3.Communicating Direct gets answers fast and correct, THE FIRST TIME Talk to the decision makers, not the middle man We would love to have the opportunity to sit down with you to learn about your practice and how doctors direct can help you alleviate one of your largest overhead expenses. Contact us today for a quick hassle free quote: 630-574-9800 www.doctorsdirectinsurance.com


DDI ANNUAL REPORT 2012

DDI A Model of Stability Consistent Financial Performance – DDI has consistently met all of the standards of the states in which it is licensed and has passed with flying colors all of the ratio tests applied annually by the National Association of Insurance Commissioners. Stable Pricing – DDI’s rate levels by specialty are unchanged during the past seven years. Long-Term Board and Management – DDI has been guided from the beginning by a solid core group of physicians. Its management people possess collectively decades of medical malpractice experience. Consistent and Fair Underwriting – DDI’s underwriting guidelines are impartial and consistent, and each physician’s premium is matched to her/his risk profile. Aggressive Claims Defense – More than 95% of DDI’s closed claims have had no indemnity payment whatsoever. The Company’s dedicated claims staff and talented defense counsel ensures that claims will always be aggressively defended to the greatest extent possible.


1140 West Lake Street, Suite 500 Oak Park, IL 60301 www.doctorsdirectinsurance.com 630-574-9800


DDI Annual Report 2012