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Privilege Underwriters Reciprocal Exchange

2009 Report to members


PURE at a Glance: 2009 Insurance for Successful Families High Value Homeowners Private Fleet Automobile Jewelry & Art Personal Excess Liability Watercraft

Membership

Membership increased by 76% in 2009 due, in part, to successful expansion into New York, New Jersey and Connecticut.

2007

2008

2009

5,542 NY/NJ/CT

3,140

SC SC

1,690

FL FL

FL

Gross Written Premium

Our growth in membership resulted in more than $50 million in gross written premium in 2009.

2007

2009

2008

$52.7M NY/NJ/CT

$32.5M

SC SC

$18.4M

FL

FL FL

Policy lines per member

As we continue to expand, more members are purchasing multiple insurance policies with PURE. Our growth has been particularly strong in auto, jewelry & art and personal excess liability. making the switch

Of new members reporting their prior insurer, 62% moved from high-net-worth specialist companies such as AIG Private Client Group, Chubb and Fireman’s Fund. W W W. P U R E H N W. C O M

2007

2008

2009

2.27 1.87

1.66

$18.4M

Prior insurer of members moving to pure in 2009

AIG

CHUBB

26%

23%

OTHERS

26%

FIREMAN’S FUND

13%

ALLSTATE STATE FARM NATIONWIDE

13%


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With a lot of hard work and a bit of good fortune, PURE had an impressive performance in 2009. 

O

ur employees and our agents deserve an enormous amount of credit for increasing our premiums written by more than 62% without a material change to our exposure to Florida hurricanes. The absence of a serious storm making landfall in Florida this year contributed to strong gross underwriting results. Strong underwriting, combined with solid investment returns and surplus contributions from PURE members, allowed PURE to grow statutory surplus by more than $2.1 million in 2009 — despite a massive increase in the cost of reinsurance. In short, your insurance company performed very well despite this year’s difficult economic climate. In the pages that follow, your 2009 Annual Report will provide even more financial detail and a comprehensive overview of our operations. In 2009, we successfully entered New York, New Jersey and Connecticut, welcoming more than 1,300 new members in the Northeast. We have now earned licenses to expand to Alabama, Georgia, Maryland, Mississippi, North Carolina, Rhode Island, Texas and Washington, D.C. This steady diversification is crucially important to PURE, and we have every expectation that Florida will represent less than half of our in-force premium well before the end of 2010. I am encouraged by the positive feedback we have received from our members after they experience our claims service. We have featured a few examples in this year’s report in which PURE members helped us to control claims costs or enhance coverage for all members. On behalf of your Subscribers’ Advisory Committee, we welcome many more of your bright ideas. I hope you find this report to be a useful reminder of the benefits of PURE membership. I look forward to serving you for many years to come. Sincerely,

Ross J. Buchmueller

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2009 Review of Operations By almost every measure 2009 was a successful year for PURE. We grew direct premiums written by 62% to $52.7 million; produced a Gross Combined Ratio (an important measure of underwriting profitability) of 73.5%; and grew surplus in PURE by almost $2.1 million from 2008. Here is a look at this year’s business in greater detail: Homeowners

Florida

Our largest line of business performed well in 2009, with a 28.7% reported loss ratio. This was in large part due to the absence of hurricanes making landfall in the United States. For all of the benefits of diversification, we also face new risks in the Northeast, including damage from frozen pipes. In early 2010, we handled dozens of losses resulting from winter storms in this region.

We achieved modest growth in Florida with $31.6 million in premiums written, up from $28.0 million in 2008. There is no question that Florida remains a challenging market. There’s much discussion about the health of Florida’s insurers, and it is important to remember that PURE remains the only Florida-domiciled homeowners insurer formed in the past 10 years to earn an A(Excellent) rating from A.M. Best Company.

Automobile

We grew our automobile line by 83%, a faster rate than our overall portfolio. We remain committed to providing a total solution for our members and hope to encourage our Florida and South Carolina members, who may have received a PURE quote for their car insurance, by reminding them of our generous companion premium credits.

South Carolina

We more than doubled our writings in South Carolina, from $4.5 million last year to more than $10.2 million in 2009. We have a strong membership by almost every measure. Our loss experience has been modest and we are retaining nearly 100% of our membership at renewal. This year, we hosted two “Member-Guest” luncheons in Charleston and Hilton Head. Members were able to learn more about their company, and were asked to invite prospective members as guests. By all accounts, these events were successful and certainly gave us greater insights into the needs of our membership.

Collections of Jewelry & Art

We wrote nearly $2.3 million of premium for collections of valuables, including jewelry and art. While our rates are very competitive, our loss ratio continues to be extremely favorable. With that said, we had a number of claims for jewelry that were not fully covered because the member did not specifically insure some very valuable pieces. We continue to remind our members to purchase the appropriate protection for their jewelry. At the same time, we are expanding our High Value Homeowners policy to provide even more coverage (as we go to print, this enhanced coverage is approved in all states except for Florida). This coverage enhancement even further separates PURE from the competition and provides important coverage to reduce the likelihood of “out-of-pocket” losses for our members.

Northeast

In January 2009, we launched in New York, and by the end of the summer we were accepting new members in Connecticut and New Jersey. In total, we wrote $10.9 million of premiums in the Northeast, representing more than 1,300 new members. We also began writing the Northeast homes of members who initially joined us in Florida. We are delighted that most of our members in the Northeast have purchased all lines of coverage from PURE (Home, Auto, Collections of Jewelry & Art, and Personal Excess Liability).    Further Expansion

Personal Excess Liability

In addition to these states, we have received licenses to enter Alabama, Georgia, Maryland, Mississippi, North Carolina, Rhode Island, Texas and Washington, D.C. As we prepare to launch into each new state in 2010, we remain committed to a disciplined and controlled expansion.

We nearly doubled our writings in this important class of business in 2009, while paying a very large claim. We paid more than $5 million in damages and legal expenses on behalf of a member following a low-speed car accident (80% of this claim was recovered from our reinsurers). If you have not protected yourself with a Personal Excess Liability policy (with PURE or another insurer), we strongly encourage you to consider it.

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The Path to Subscriber Savings Accounts We hope that all PURE members will elect to continue to renew with PURE because of the overall value we provide – coverage, service and pricing. We do believe, however, that it is important to understand how, as a member of PURE, your unique alignment with your company works. It’s simple to say that should PURE achieve net underwriting profits they will be credited to the membership in the form of Subscriber Savings Accounts. It can be much more difficult to explain why generating net underwriting profits for a growing company like PURE is a challenge, even without a major catastrophe. The following attempts to illustrate the steps involved in creating a net underwriting profit under the insurance industry’s Statutory Accounting Principles (SAP). Step 1. Create a strong “Gross” underwriting result.

The insurance industry uses an important measure of underwriting profitability called a Combined Ratio. Essentially, all claims costs (as a percentage of premiums earned) added to all expenses, (as a percentage of premiums written) create a Combined Ratio. Typically, a Combined Ratio under 100% indicates that the business is profitable. Before factoring for any reinsurance costs, or on a “gross” basis, PURE produced a Combined Ratio of 73.5% in 2009. This is an excellent result that speaks to both the responsibility of our membership and the strength of our underwriting.

Step 2. Create a strong “Net” underwriting result.

PURE purchases a very conservative reinsurance program to protect against severe losses (including hurricanes). In 2009, the financial crisis contributed to rising reinsurance rates across the industry, and PURE was not immune. After factoring for the cost of reinsurance, PURE’s Net Combined Ratio was 127% in 2009. As PURE continues to grow and diversify its portfolio, the impact of reinsurance costs on net underwriting results will moderate.

Step 3. Earn a Statutory Underwriting Profit.

In time, Net Combined Ratios below 100% will generate underwriting profits. However, there is an important provision in SAP that differs from Generally Accepted Accounting Principles (GAAP), and serves as a “growth penalty.” Under SAP, an insurance company recognizes all expenses associated with generating a policy on the date the policy becomes effective, but recognizes the revenue (or “earned premium”) on a pro-rata basis throughout the policy term (essentially earning 1/12 of the annual policy premium each month). In a fast growing business like PURE, which grew premiums written by 62% in 2009, even a Net Combined Ratio under 100% can produce an underwriting loss due to the timing mismatch between revenue and expenses.

Despite an underwriting loss, PURE grew surplus by over $2 million in 2009 due to strong investment returns and surplus contributions from our members. PURE’s financial results in our first three years of operations are strong, in line with expectations and bode well for the future.

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We grew direct premiums written by 62% to $52.7 million and produced a Gross Combined Ratio of 73.5%.


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One Responsible Act Benefits Us All We have received hundreds of car accident reports in the past year, and it is not uncommon to receive photographs from claimants detailing the damage to their vehicles after a loss occurs. So it did not surprise us to review a series of pictures showing the near removal of a bumper, a mangled head rest and the clear signs of a seriously damaged Mercedes. The images would, however, prove to be a huge surprise to the PURE member who was involved in the accident.

Member advocate service In 2009, PURE’s Member Advocate service expanded to include even more risk management and loss prevention services to our members. We have contracted the services of a national risk consulting company to perform background checks for members in the process of hiring domestic staff. We have also negotiated discounted rates for the services of fine arts and jewelry experts, who are now available to provide advice regarding the value and preservation of your collections. Our Member Advocate service is taking a more active role in helping our membership apply the good advice that often comes from our complimentary home appraisal service. Moving forward, our Member Advocate service will continue to be a valuable resource for the best methods to assist you in these and other risk management and loss prevention efforts.

One evening last winter, one of our members was involved in what she described as a seemingly minor automobile accident. Curiously, the other driver’s recollection of the accident differed greatly. She reported that her car had been towed from the scene of the accident and declared a total loss, and described injuries that left her unable to get out of bed. After a bit of resistance from the body shop, our adjusters were allowed to see her vehicle, and sure enough, the car was dented and scratched on all sides, and damaged in the interior. The other driver did not anticipate the quick thinking and resourcefulness of our member. At the scene of the accident, our member had not only given a complete statement to the police, but she had also taken the time to snap a very clear picture of

the undamaged car. There was no damaged fender; no mangled head rest; and no injuries. The photograph that our member took with her cell phone proved invaluable. It turned what could have been a long and expensive investigation into an apparent case of insurance fraud, and provided us with enough evidence to turn the case over to the Florida Division of Insurance Fraud. Fraudulent claims are not infrequent, especially during tough economic times. We are confident in our ability to fight fraud, and the proven responsibility of our membership can make all the difference. We encourage all of our members to be alert as incidences of staged accidents and other fraudulent activity seem to be on the rise. We are proud that the responsibility of individual members continues to benefit the entire membership.

Inset: The photo taken by our quick-thinking member at the scene of the auto accident. Below: The same car photographed days after the accident.

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Recognizing a Need for Broader Coverage One evening this past autumn, PURE members Roman and Sharon Urbanczyk reported that a large electrical fire had erupted in the attic of their New York home. Originally constructed over 200 years ago, the Urbanczyks’ home enjoys spectacular views of Lloyd Harbor on the Long Island Sound.

When a fire broke out in the attic of the Urbanczyk family’s NY home, their cats were trapped inside. PURE agreed to cover the cost of the veterinary bills, and has since filed to include $5,000 of coverage for Pet Injury Expenses for all members under our homeowners policy.

Our claims professionals immediately went to work to mitigate further damage and to salvage any contents or sentimental items, and their Member Advocate began looking for appropriate alternative accommodations for Dr. Urbanczyk and his family. The challenge of a loving restoration of their 18th century home would lie ahead. However, immediately following the fire, a more critical situation arose. During the fire, the family’s cats were trapped in the home and suffered severe smoke inhalation. The costs for full treatment of the pets exceeded $4,700, and the stress of these injuries weighed heavily on the family.

The Urbanczyks’ crisis encouraged us to reassess our coverage for pet injury. We agreed to include those expenses in the claim settlement and have since made regulatory filings in an effort to broaden our coverage to include up to $5,000 of Pet Injury Expenses for domestic animal injuries that arise out of a covered homeowners loss. Like many of you, the PURE team has a number of pet owners who would value this important coverage, but sometimes it takes a simple suggestion from a member to see the full value of a great idea. As this policy enhancement is approved in your state, you may want to take a moment and thank the Urbanczyks.

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Jewelry coverage In our 2008 Report to Members, we encouraged our members to schedule their jewelry and art on a collections policy. In 2009, our members continued to experience claims where the value of a piece of jewelry that was lost, misplaced or stolen exceeded the Homeowners Special Limit of coverage. Although high value homes have increased in value through the years, allowances offered by specialist companies for unscheduled jewelry have not followed at nearly the same rate. We have increased coverage for unscheduled jewelry under PURE’s homeowners policy from $5,000 to $50,000, to better address our membership’s needs. As we go to print, this enhancement has been approved in all states except Florida. PURE still encourages you to schedule your valuables on a separate collections policy. Our rates are among the lowest in the industry, and we are flexible about providing you with itemized or blanket coverage for your collections.


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Customized Solutions. One Standard of Service.

avoiding catastrophe We have spent the past three years building a comprehensive plan to handle a catastrophic event should one occur. Our emergency equipment, ready for deployment in the case of a catastrophe, includes dehumidifiers, air movers, plywood, lumber, tarps and other supplies. PURE has also secured the services of water damage remediation firms, as well as specialized content handlers to assist members in the inventory, pricing and replacement of content losses. While we remain thankful that our plans have gone unneeded thus far, our aim is to help you prepare for any eventuality.

We endeavor to treat each and every claim with the same consistent communication, attention to detail, and level of care. The collaborative efforts of our adjusters, the Member Advocate and our appointed agents are intended to ensure that each loss is handled in a timely, precise manner that takes into account the unique circumstances of each claim. In 2009, PURE members reported more than 500 claims, the majority of which did not include major losses. Here are just a few examples of the ways in which our claims team provided customized solutions to PURE members this year: What happens when you find that a colony of bats have made a home out of your home?

After a member discovered an infestation of bats in the Spanish-style barrel tiles of his roof, his PURE adjuster facilitated the removal of the bats and all they had left behind. The infestation caused damage that was so extensive the entire roof was destroyed. PURE replaced the roof and covered the cost to prevent the unwelcome guests from returning. What happens when you plan a week-long family cruise to the Bahamas and discover — three days prior to leaving — that your boat’s engine is flooded with oil?

One of our New York members had planned a weeklong family cruise from his home in Florida to the Bahamas. Three days prior to departure, he discovered that saltwater had eroded the generator, causing oil to flood the engine compartment. His Member Advocate quickly procured a replacement engine and had the boat repaired for an on-time departure. What if you discover extensive water damage in your home on saturday night — and you have plans to travel cross-country on Monday morning?

One Saturday night, a member found significant water damage in his home. With travel plans scheduled for Monday morning, his PURE adjuster immediately arranged for a restoration company to begin work on the home first thing Sunday morning. PURE’s adjuster communicated with our member every step of the way, providing him peace of mind that his home was being cared for, even while he was 3,000 miles away and unable to personally make arrangements and oversee repairs.

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What if you’re an hour away from home, in a dark parking lot, and your keys are locked in your car?

One evening, while an hour away from her home, a member locked her keys in the trunk of her car. Her Member Advocate was quickly able to locate a nearby dealership and arrange to have a spare key delivered to our member. PURE helped her avoid a long, lonely wait and got her home in time for dinner. What if your furnace malfunctions and causes a “puff back” reaction — engulfing your entire house in soot and oil?

One of our members was dismayed to find his home entirely covered in ash and sticky soot from a malfunctioning oil burner. The debris had worked its way into virtually every inch of the home, from closed drawers to between pages of books. Our Member Advocate found the family temporary living accommodations, and hired a restoration company to clean every surface, repaint the walls and take all necessary measures to return the home to its original state. What happens when one of your valuable collectibles is damaged by your moving company?

When the $100,000 bronze statue belonging to one of our Florida members was damaged in transit, PURE arranged for a fine arts expert in New York, specializing in statue restoration, to repair the piece. Her Member Advocate hired a trusted shipping company dedicated to transporting fine arts to safely deliver the piece to New York for restoration. Our member has since contracted the shipping company for future transportation of her art collection.


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Big Plans For a Small State Rhode Island may be one of the smaller states in the country, but it serves an important strategic role for PURE. Over the past several years, stock insurance companies have reduced their exposure to coastal risks and few states have seen as large an impact on the availability or affordability of homeowners insurance as the Ocean State. We believe there is an opportunity to help a select group of homeowners improve their coverage and reduce their premiums at the same time. By carefully and selectively adding several hundred new members to PURE in Rhode Island, we will add premiums and surplus contributions, with virtually no increase in our exposure to a major hurricane impacting Florida. To help us diversify and attract such an exclusive membership, we have appointed two of the finest insurance agencies in Rhode Island: Starkweather & Shepley Insurance Brokerage, Inc. and Carey, Richmond & Viking Insurance. Both agencies have a thorough understanding of the personal insurance needs of the high-net-worth market, as well as proven reputations for providing sound guidance and service to their clients and communities. The PURE model relies on us selecting the absolute finest membership. The discipline to only insure the “best of the best” begins with choosing the best agents. In 2010, PURE will see steady expansion into Alabama, Georgia, Maryland, North Carolina, Texas and Washington, D.C. and maybe more. In each state, we are committed to working with professional insurance agents we respect and with whom we can build mutually rewarding relationships. In this regard, we will proudly look to our appointed Rhode Island agents as an inspiring model.

As PURE continues to expand, we remain committed to selecting only the best agencies to represent us. From left: Victor M. Andrade and Joseph E. Rosa of Carey, Richmond & Viking Insurance; Jennifer Selvidio, Joanne Koppel, Sue Ring, Donald Curran and Sheryl Faria of Starkweather & Shepley Insurance Brokerage, Inc.

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Our agents are leaders Jules Anderson is a leader. Until recently, he served as Chairman of the Independent Insurance Agents and Brokers of South Carolina (IIABSC). And while we are delighted to see him hand the reigns of the IIABSC to Kathy McKay (another PURE agency partner and the first female Chairperson in IIABSC history), Jules’ work is far from over.

Jules is leading an initiative to educate his community on relevant and important insurance issues. From writing articles to giving speeches, Jules is a tireless champion for the informed consumer. For six straight years, Anderson Insurance Associates has achieved the “Best Practices Agency” designation from the Independent Insurance Agents and Brokers of America. With offices in Charleston and Pawley’s Island, SC, Anderson Insurance Associates has introduced more than 150 families to PURE since our South Carolina launch in 2008.


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Financial Report

Privilege underwriters reciprocal exchange Statement of Income (Statutory Basis) 1 2 M O N T H S E N DI N G

31 Dec 09

31 DEC 08

Earned Premium

Gross Written Premium

$ 52,744,642

$

32,524,045

Reinsurance Ceded

$ (43,023,084)

$

(25,717,769)

Net Written Premium

$ 9,721,558

$

6,806,276

$ (2,915,896)

$

58,057

$ 6,805,662

$

6,864,333

Change in Ending Unearned Premium

Net Earned Premium Expenses

Net Commission, Underwriting & Management Fees

$ 3,491,746

$

3,965,525

Advertising, Marketing & Communications

$ 1,071,557

$

1,033,591

Premium Taxes

$ 1,374,794

$

710,908

Other Expenses

$

401,689

$

625,456

Total Operating Expense

$ 6,339,786

$

6,335,480

$ 4,260,928

$

3,520,627

$ (3,795,053)

$

(2,991,775)

Losses & Loss Expense Incurred (net of reinsurance)

Net Underwriting Gain (Loss)

Investment Income

Gross Investment Income

$

$

1,970,414

Interest on Surplus Notes

$ (1,278,905)

$

(2,783,198)

$ 1,620,829

$

(812,784)

Income from Operations (pre-tax)

$ (2,174,223)

$

(3,804,559)

Income Tax

$

$

$ (2,174,223)

$

Net Investment Income

2,899,734

Net Income

(3,804,559)

Subscriber Surplus Contributions: PURE members make surplus contributions (in addition to premium) for each of the first five years of their

membership. Some members have already made four years’ worth of contributions. These contributions are not reflected in the calculation of underwriting income, as they go directly to support PURE’s balance sheet. PURE members made surplus contributions of $4.4 million in 2009, allowing PURE to grow policyholder surplus in a year with a $2.1 million operating loss.

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Financial Report

Privilege underwriters reciprocal exchange Balance Sheet (Statutory Basis) 1 2 M O N T H S E N DI N G

31 Dec 09

31 DEC 08

Assets

Short-Term Assets

Cash and Short-Term Investments

$

5,284,619

$

1,010,193

Bonds

$

50,571,045

$

48,789,859

Premium Receivable – in the Course of Collection

$

2,432,987

$

1,539,193

Premium Receivable – not yet due

$

10,692,448

$

6,573,741

Other Short-Term Assets

$

2,555,917

$

1,969,077

Short-Term Assets

$

71,537,016

$

59,882,063

Other Assets

$

$

$

71,537,016

$

59,882,063

2,431,469

Total Assets Liabilities & Policyholder Surplus

Liabilities

Loss & LAE Reserves (net of reinsurance)

$

2,502,163

$

Accounts Payable

$

2,778,334

$

987,526

Unearned Premium (net of reinsurance)

$

6,505,635

$

3,589,739

Reinsurance Premium Payable (net of commissions)

$

8,150,325

$

4,775,753

Other Current Liabilities

$

1,622,430

$

236,373

$

21,558,887

$

12,020,860

51,000,000

$

51,000,000

Total Liabilities

Policyholder Surplus and Other Funds

Surplus Notes

$

Policyholder Surplus Contributions

$

8,738,949

$

4,356,122

Unassigned Funds (surplus)

$

(9,760,820)

$

(7,494,919)

$

49,978,129

$

47,861,203

$

71,537,016

$

59,882,063

Total Policyholder Surplus

Total Liabilities and Policyholder Surplus

The Pure Group of Insurance Companies

Privilege Underwriters Reciprocal Exchange (PURE) is the member-owned insurer at the center of the PURE Group. PURE is fuelled by surplus contributions from members and is the company that underwrites policies for our members.

When examining the financial strength and claims-paying ability of PURE, one must look at the pooled PURE Group of Insurance Companies (see page 11 for a statutory balance sheet for the PURE Group). A summary of the member companies of the PURE Group is illustrated below:

Privilege Underwriters, Inc. (PUI) was founded in 2006 and provides the management resources and capital that enabled PURE’s creation and early success. PUI was capitalized through investments from management and Trident III, a private equity fund managed by Stone Point Capital, a preeminent investor in the insurance industry. In 2008, through a subsidiary, Nationwide Mutual Insurance Company acquired a minority interest in PUI.

P ri v ilege U nderwriters , I nc . (PUI)

pure ris k management (PRM)

PURE Risk Management, LLC (PRM) is a subsidiary of PUI, and serves as the attorney-in-fact for PURE. PRM is paid a fee to provide all marketing, underwriting and claims administration services for PURE.

P ooled capital pure insurance company ( P I C )

PURE Insurance Company (PIC) is also a subsidiary of PUI, and plays a major

role in the Group. PIC is a reinsurance company that is pooled with PURE and shares in its net results. PIC also holds surplus notes issued by PURE.

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Financial Report

privilege underwriters Reciprocal exchange Investment Portfolio as of December 31, 2009

% of Book Book

Government Money Market Government U.S. Agency

Market

Unrealized Gains Book Yield Duration

Av Life

4%

$

2,154,315

$

2,154,315

$

0.13%

0.09

0.10

17%

$

9,073,402

$

9,185,920

$

112,518

2.27%

2.79

2.90

$

3,506,826

$

3,472,840

$

(33,986)

2.58%

4.63

4.89

Corporate

26%

7%

$ 13,806,736

$

13,711,452

$

(95,284)

2.66%

2.64

3.07

Industrial

16%

$

8,363,596

$

8,256,109

$

(107,487)

2.45%

3.57

3.89

Financial

8%

$

4,331,957

$

4,349,491

$

17,534

2.80%

0.83

1.46

Utility

2%

$

3.30

1,111,183

$

1,105,852

$

(5,331)

3.69%

2.76

24%

$ 12,768,895

$

12,797,169

$

28,275

3.76%

2.57

3.35

US Agency

24%

$ 12,768,895

$

12,797,169

$

28,275

3.76%

2.57

3.35

Other

0%

$

$

$

n/a

n/a

n/a

CMO

14%

$

7,472,022

$

7,620,671

$

148,649

4.30%

1.55

2.20

US Agency

13%

$

6,743,948

$

6,862,704

$

118,756

4.12%

1.45

2.15

Other

1%

$

728,074

$

757,967

$

29,893

5.97%

2.50

2.62

ABS3

6%

$

3,234,770

$

3,305,599

$

70,829

5.45%

0.74

0.77

MBS1

2

CMBS

4%

$

2,078,879

$

2,100,265

$

21,386

5.56%

0.56

0.58

Other

2%

$

1,155,891

$

1,205,334

$

49,443

5.45%

1.07

1.10

Municipal

1%

$

708,397

$

652,373

$

(56,024)

5.75%

7.62

9.79

Taxable

1%

$

708,397

$

652,373

$

(56,024)

5.75%

7.62

9.79

Tax-Exempt

0%

$

$

$

n/a

n/a

n/a

$ 52,725,362

$

52,900,339

$

174,977

3.19%

2.46

2.92

4

Total

100%

Mortgaged-Backed Securities

1

Collateralized Mortgage Obligations

2

Asset-Backed Securities

3

Commercial Mortgage-Backed Securities

4

STRONG INVESTMENT RESULTS

Pure holdings by credit quality

Our conservative and high-quality investment portfolio provided shelter from the market turmoil of 2008 and enabled PURE to participate in the bounce-back of 2009. We were able to recognize investment gains this year while reducing our already limited exposure to some of the higher-risk asset classes (i.e. commercial mortgage-backed securities and financial-sector corporate bonds). Our investment portfolio is highly diverse, and is short in duration and of high credit-quality.

AAA

74.9%

AA

6.7% A

16.5%

BBB OR BELOW

1.8%

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Financial Report

the PURE GROUP OF INSURANCE COMPANIES Consolidated Balance Sheet (Statutory Basis) 1 2 M O N T H S E N DI N G

31 Dec 09

31 DEC 08

Assets

Cash and Short-Term Investments

$ 7,666,412

$

5,469,898

Bonds

$ 103,104,098

$

95,485,242

Premiums Receivable

$ 12,770,603

$

9,401,347

Reinsurance Recoverables

$ 1,034,677

$

886,740

Other Assets

$

727,161

$

2,158,258

$ 125,302,951

$

113,401,485

Total Assets

Liabilities and Policyholder Surplus

Liabilities

Loss & LAE Reserves

$ 4,975,746

$

4,863,204

Operating Expenses Payable

$ 3,370,513

$

2,114,155

Unearned Premium

$ 13,011,270

$

7,179,478

Reinsurance Premium Payable

$ 6,911,932

$

4,775,753

Other Liabilities

$ 1,220,823

$

$ 29,490,284

$

18,932,590

Total Liabilities

Policy Surplus and Other Funds

Common Capital Stock

$

840,000

$

840,000

Surplus Notes

$ 51,000,000

$

51,000,000

Contributed Capital

$ 91,898,949

$

87,516,122

Unassigned funds (surplus)

$ (47,926,282)

$

(44,887,227)

Total Policyholder Surplus

$

95,812,667

$

94,468,895

$

125,302,951

$

Total Liabilities and Policyholder Surplus

113,401,485

Stone Point Capital

From left: Stone Point Capital executives Chuck Davis, CEO; Jim Carey, Senior Principal; and Steve Friedman, Chairman, are all proud members of PURE.

Stone Point Capital, manager of the Trident Funds, is a private equity and venture capital firm that has raised over $10 billion in committed capital for investments in the global financial services industry. Stone Point has been a sponsor of Privilege Underwriters, Inc. since our inception and many of the Stone Point principals have put their trust in PURE for their personal insurance. “From the beginning, we have felt that PURE represents a better model,” said Jim Carey, Senior Principal of Stone Point Capital and member of the Investment Committees of the Trident Funds. “Stone Point Capital is proud to be a partner with Privilege, and I am personally delighted to be a member of PURE.”

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The Voice of Membership

From left: Jamie McLaughlin, Doug Fields, Ross Buchmueller, Bill Wilson, Skip Bitler

In 2009, PURE members were well represented by the Subscribers’ Advisory Committee (SAC). In addition to overseeing the audit of PURE, the SAC advised on a variety of service, billing and communications issues, new coverage ideas and claims service enhancements. The SAC also weighed in on major initiatives, such as the creation of a guide to welcome new members, and improvements to our catastrophe planning and response systems. The SAC is chaired by William (Bill) Wilson III, PURE member since 2007. Bill lives in Key Largo, FL and served as the Chief Information Officer of Marsh Inc. before enjoying a successful career as an entrepreneur. Harold (Skip) Bitler has been a PURE member since 2008 and has added immense value to the SAC’s efforts to procure and oversee the audit of PURE. Skip is a resident of Hilton Head Island, SC and is the former Senior Vice President of Finance for SunTrust. Doug Fields, a PURE member since 2007, has supported PURE members and acted as a local champion for PURE through his role as an executive with BB&T — Oswald Trippe in Weston, FL. The advice and wisdom that these individuals bring to your company, as both PURE members and renowned experts in their respective fields, has been invaluable. PURE is a better company because of the insight and guidance of the dedicated members who serve on this committee. 12

James (Jamie) H. McLaughlin is the newest member of the PURE Subscribers’ Advisory Committee. Jamie is a preeminent leader in the wealth management industry, and most recently served as Chief Executive Officer of Geller Family Office Services LLC, one of the leading multi-family offices in the country. He has served in senior management roles at Mellon Private Wealth Management and Convergent Wealth Advisors. Jamie served ten years in the Connecticut General Assembly, including three terms in the State Senate where he chaired and served as Ranking Member of the Finance, Revenue, and Bonding Committee. He serves on the Board of Trustees for the American Foundation for the Blind (AFB). “Jamie’s experience and insights in the high-net-worth market will be of great value to PURE and its membership,” said Bill Wilson, Chairman of the Subscribers’ Advisory Committee. “I am thrilled to welcome him to the Committee and look forward to working with him.” A PURE member since 2009, Jamie lives in Darien, CT with his wife, Julie, and their son, Austin. Jamie received a B.A. from Lafayette College and his Master’s in Public Administration from Harvard University’s Kennedy School of Government.

DESIGN: ROSS CULBERT & LAVERY, INC. NEW YORK, NY

James H. McLaughlin


The PURE Group of Insurance Companies

Privilege Underwriters Reciprocal Exchange Subscribers Advisory Committee

Harold P. Bitler Retired, previously Senior Vice President, Sun Trust Banks, Inc. Ross J. Buchmueller President & CEO, Privilege Underwriters, Inc. Douglas G. Fields (Secretary) Senior Vice President, BB&T–Oswald Trippe and Co. James H. McLaughlin Former CEO of Geller Family Office Services LLC William W. Wilson III (Chairman) CEO, RefocuX Inc. Attorney-in-Fact

PURE Risk Management, LLC (wholly-owned subsidiary of Privilege Underwriters, Inc.) Actuarial Services

Perr & Knight Boca Raton, FL Auditor

Amper, Politziner, Mattia, P.C. Edison, NJ Legal Representation

Carlton Fields, P.A. Tallahassee, FL Investment Management

General Re – New England Asset Management Farmington, CT

Pure Insurance Company

Privilege Underwriters Inc.

Directors

Directors

J. Stephen Baine Retired, Chief Strategy Officer, Nationwide Mutual Insurance Company

J. Stephen Baine Ross J. Buchmueller James D. Carey Matthew Jauchius Peter M. Mundheim Nicolas D. Zerbib

Ross J. Buchmueller President & CEO, Privilege Underwriters, Inc. James D. Carey Senior Principal, Stone Point Capital Peter M. Mundheim Principal, Stone Point Capital Nicolas D. Zerbib Senior Principal, Stone Point Capital Actuarial Services

Perr & Knight Boca Raton, FL Auditor

Amper, Politziner, Mattia, P.C. Edison, NJ Legal Representation

Carlton Fields, P.A. Tallahassee, FL Investment Management

AAM – Asset Allocation and Management Chicago, IL

Corporate Officers

Ross J. Buchmueller President & CEO Martin A. Hartley Executive Vice President, COO Jeffrey A. Paraschac Executive Vice President, CFO Executives

Robert O. Collins Senior Vice President, General Manager Phil M. Figueiredo Senior Vice President, Controller Dennis P. Kirwin Senior Vice President, Underwriting W. Keith Self Senior Vice President, General Manager Gary D. Stephen Senior Vice President, Claims & Risk Management Stuart G. Tainsky Senior Vice President, Chief Information Officer Vivian S. Gee Vice President, Underwriting William J. Johnson Vice President, Underwriting Jason M. Lichtenthal Vice President, Information Services Karen M. Riemer Vice President, Process Improvement Nicki Colosi Trilling Vice President, Service Operations John J. Willis Jr. Vice President, Product Management

W W W. P U R E H N W. C O M


FLORIDA

800 Corporate Drive Suite 420 Fort Lauderdale, FL 33334 NEW YORK

One North Lexington Avenue Suite 1450 White Plains, NY 10601 SOUTH CAROLINA

2000 Sam Rittenberg Boulevard Suite 2020 Charleston, SC 29407

W W W. P U R E H N W. C O M 888-813-PURE (7873) memberservices@purehnw.com

For promotional purposes, PURE refers to Privilege Underwriters Reciprocal Exchange, a Florida-domiciled reciprocal insurer. This material is descriptive only. The precise coverage offered is subject to the terms and conditions of the policies issued. The rights and responsibilities of members are subject to the Subscriber’s Agreement and Power of Attorney. Coverage may not be available in all jurisdictions. Certain sections of PURE’s 2009 Member Report contain forward-looking statements based on outlooks, estimates, projections and assumptions. Words referring to expectations, anticipations, planning, beliefs, schedules, estimations and variations of these words and similar expressions are intended to recognize forward-looking statements, which include but are not limited to projections of revenues, earnings, cash flows, and SSA allocations. Statements are subject to certain risks and uncertainties. Many important factors could affect PURE in the future which could cause its results to differ materially from those expressed in the forward-looking statement. Please consider such risk factors. All content refers only as of the date of this report. The PURE Group of Insurance Companies does not assume any obligation to amend or publicly release any changes to forward-looking statements to reflect events, circumstances or modifications in expectations of this report. The survey referred to on the inside front cover titled, “Making the Switch,” consisted of 1,221 members with homeowners policies reporting prior carriers.


2009 Annual Report to Members