-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Ngw+TdbtbjEtx4amECQeoBLYgouCxnSxVDA0cEyEifJgWnKiCORcaXTmZBU8czsv C0PZoKG/O3cIw1O+AfOU7g== 0001005477-00-002626.txt : 20000331 0001005477-00-002626.hdr.sgml : 20000331 ACCESSION NUMBER: 0001005477-00-002626 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FPIC INSURANCE GROUP INC CENTRAL INDEX KEY: 0001010247 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 593359111 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-11983 FILM NUMBER: 584234 BUSINESS ADDRESS: STREET 1: 1000 RIVERSIDE AVE STREET 2: STE 800 CITY: JACKSONVILLE STATE: FL ZIP: 32204 BUSINESS PHONE: 9043545910 MAIL ADDRESS: STREET 1: P O BOX 44033 CITY: JACKSONVILLE STATE: FL ZIP: 32231 10-K 1 FORM 10-K United States SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 1999 or [_] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from ____________to ___________ Commission file number 1-11983 FPIC Insurance Group, Inc. (Exact name of registrant as specified in its charter) Florida 59-3359111 (State or other jurisdiction of (IRS Employer Identification No.) incorporation or organization) 225 Water Street, Suite 1400, Jacksonville, Florida 32202 (Address of principal executive offices) (Zip Code) (904) 354-2482 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.10 par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ------------ -------------- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [___] The aggregate market value of the Registrant's Common Stock (its only voting stock) held by non-affiliates of the Registrant as of March 24, 2000 was approximately $176,579,291. As of March 17, 2000, there were 9,515,936 shares of the Registrant's Common Stock, $.10 Par Value, outstanding. DOCUMENTS INCORPORATED BY REFERENCE Portions of the Registrant's Proxy Statement for the 2000 Annual Shareholders' Meeting are incorporated by reference into Part II, items 10, 11, 12, and 13 of this Report. Such Proxy Statement, except for the parts therein that have been specifically incorporated by reference, shall not be deemed "filed" for the purposes of this Report on Form 10-K. FPIC Insurance Group, Inc. 1999 Annual Report on Form 10-K Table of Contents Description Page - ----------- ---- Part I Item 1. Business 3 Item 2. Properties 15 Item 3. Legal Proceedings 16 Item 4. Submission of Matters to a Vote of Security Holders 16 Part II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 16 Item 6. Selected Financial Data 16 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 17 Item 7A. Quantitative and Qualitative Disclosures about Market Risk 27 Item 8. Financial Statements and Supplementary Data 29 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 29 Part III Item 10. Directors and Executive Officers of the Registrant 29 Item 11. Executive Compensation 30 Item 12. Security Ownership of Certain Beneficial Owners and Management 30 Item 13. Certain Relationships and Related Transactions 30 Part IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 30 2 Part I Item 1. Business Forward-Looking Statements - -------------------------- This Annual Report on Form 10-K contains forward-looking statements under many different captions. These forward-looking statements are subject to certain risks, uncertainties or assumptions. Except for historical information, all information provided under "Quantitative and Qualitative Disclosures About Market Risk" and "Year 2000" should be considered forward-looking statements. Should one or more of these risks, uncertainties or other factors materialize or should any underlying assumptions prove incorrect, actual results, performance or achievements of the Company may vary materially from any future results, performance or achievements expressed or implied by such forward-looking statements. The assumptions underlying certain forward-looking statements are that the Company will continue to: (i) profitably price its insurance products; (ii) maintain its underwriting standards; (iii) market its insurance products competitively; (iv) maintain its successful handling of claims; (v) retain existing agents and key management personnel; and (vi) reserve adequately for losses and loss adjustment expenses ("LAE"). Additionally, the primary risk in maintaining adequate reserves is unexpected changes in the frequency or severity of reported claims, particularly adverse development which may occur during the last three report years. Other important considerations include: (i) the Company's reinsurers remaining solvent and (ii) competitors not further reducing rates for medical professional liability ("MPL") insurance products. Many of the forward-looking statements are also premised upon the Company successfully continuing its growth strategy. Although the Company has experienced significant growth in the past through acquisitions, there can be no assurance that the Company will be able to continue to identify suitable acquisition candidates, be able to negotiate acquisitions on acceptable terms, and be able to integrate successfully all acquired businesses. The Company's diversification of its product portfolio and geographic expansion present additional risks and uncertainties. These risks and uncertainties include whether the Company can demonstrate the necessary underwriting and marketing expertise required by these new products and locations. Many of the forward-looking statements, as well as many of the Company's strategies, are dependent upon the market price of the Company's common stock. The Company's common stock can be affected not only by the Company's financial performance but also by general economic and market conditions that are not within the Company's control. The liquidity of the Company's common stock is small compared to the liquidity of many other stocks. As a result, the Company's common stock may be more volatile. The Company's common stock price experienced a significant decline during 1999. This and any further adverse developments with the Company's common stock price could greatly hinder, among other things, the Company's growth strategy. Assumptions relating to the foregoing are difficult or impossible to predict accurately and many are beyond the control of the Company. In light of the significant uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives or plans of the Company will be achieved. Overview - -------- FPIC Insurance Group, Inc. (the "Company") was formed in 1996. On June 11, 1996, the shareholders of Florida Physicians Insurance Company, Inc. ("FPIC") approved the formation of a holding company structure ("the Reorganization") that resulted in FPIC becoming a subsidiary of the Company. In connection with the Reorganization, FPIC's shareholders became the shareholders of the Company and received five shares of the 3 Company's common stock for each of their shares of FPIC's common stock. As of December 31, 1999, the Company's principal direct and indirect subsidiaries include: Florida Physicians Insurance Company, Inc. ("FPIC"), FPIC Publishing, Inc., Anesthesiologists' Professional Assurance Company, FPIC Insurance Agency, Inc., Administrators For The Professions, Inc. and its two subsidiaries: Group Data Corporation and FPIC Intermediaries, Inc., The Tenere Group, Inc. ("Tenere") and its two subsidiaries: Intermed Insurance Company ("Intermed") and Interlex Insurance Company ("Interlex"), McCreary Corporation and its subsidiary Employers Mutual, Inc. and its two subsidiaries: FPIC Services, Inc., and Sy.Med Development, Inc. For developments during 1999, see Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations. The Company, through FPIC, APAC, Intermed, and Interlex, is a provider of MPL and other professional liability insurance principally in Florida and Missouri, and certain other states. MPL insurance protects the physician, dentist, hospital, or other healthcare provider against liabilities arising from the rendering of or failure to render professional healthcare services. Under the typical MPL insurance policy, the insurer also pays the legal costs of defending the claim. The Company has the exclusive endorsement of both the Florida Medical Association ("FMA") and the Florida Dental Association ("FDA"). MPL premium in Florida and Missouri accounts for approximately 91% of the Company's total premiums written. As of December 31, 1999, the Company was also licensed in Alabama, Arkansas, Georgia, Kansas, Kentucky, Illinois, Indiana, Maryland, Michigan, Mississippi, Missouri, Ohio, Pennsylvania, Tennessee, Texas, Virginia and West Virginia. The Company has begun or will begin marketing in each of these states when it determines that an opportunity exists to write profitable business. The Company's three significant industry segments are insurance, third party administration services and reciprocal management. For financial information relating to the Company's operations and significant industry segments, see Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations, and the notes to the consolidated financial statements. Insurance - --------- The Company has developed a variety of insurance products for participants in the healthcare industry. These products include: MPL insurance for medical professionals, legal professional liability ("LPL"), managed care liability insurance, professional and comprehensive general liability insurance for healthcare facilities, investigation defense coverage, provider stop loss insurance, workers' compensation, and group accident and health ("A&H") coverage. The following table (in thousands) summarizes by product the direct premium written and assumed for the year-ended December 31, 1999, 1998 and 1997.
1999 1998 1997 -------- -------- -------- Medical professional liability for physicians $118,044 94,769 71,056 Medical professional liability for dentists 4,529 4,238 3,726 Legal professional liability for attorneys 1,197 -- -- Group accident and health 19,190 14,959 989 Professional and comprehensive general liability 1,509 1,226 814 Provider stop loss 1,611 13 -- Workers' compensation 802 552 -- Managed care -- 141 130 Investigation defense coverage 1,334 1,091 1,056 -------- -------- -------- Totals $148,216 116,989 77,771 ======== ======== ========
4 Medical Professional Liability. The principal product offered by the Company is MPL insurance for physicians and dentists. The Company's MPL insurance is offered to physicians and dentists in all types of settings, including solo practices, group practices and hospitals. MPL insurance provides coverage against the legal liability of an insured for such things as injury caused by or as a result of treatment of a patient, failure to treat a patient and failure to diagnose a patient. The Company's MPL policies are issued substantially on a "claims-made" basis. Coverage is provided for claims reported to the Company during the policy period arising from incidents that occurred at any time the insured was covered by the policy. The Company also offers "tail coverage" for claims reported after the expiration of the policy for occurrences during the coverage period. The price of tail coverage is based on the length of time the insured has been covered under the Company's claims-made form. The Company provides free tail coverage for insured physicians who die or become disabled during the coverage period of the policy and those who have been insured by the Company for at least five consecutive years and retire completely from the practice of medicine. MPL insurance policies offered by the Company are issued with liability limits up to $5.0 million per incident and $7.0 million in annual aggregate for physicians and $2.0 million per incident and $5.0 million in annual aggregate for dentists. At December 31, 1999, the Company had 7,905 physician insureds and 2,174 dentist insureds. For the year ended December 31, 1999, the Company's $122.6 million in direct and assumed premium from MPL insurance represents 82.7% of the Company's total premium. Legal Professional Liability. Legal professional liability insurance provides coverage for a wrongful act committed by an insured while providing professional services as a lawyer, notary public, arbitrator, or mediator. Coverage is written on a claims-made basis with a single policy limit shared by all members of the insured firm. Defense costs are included within the policy limit. Limits up to $1.0 million per incident and $3.0 million in annual aggregate are available. Higher limits are placed through semi-facultative reinsurance agreements. For the year ended, December 31, 1999, the Company had 1,205 LPL insureds. Managed Care. Managed care liability insurance provides coverage for liability arising from the errors and omissions of a managed care organization, the vicarious liability of a managed care organization for acts or omissions by contracted and employed providers ("E&O") and the liability of directors and officers of a managed care organization ("D&O"). These policies are issued on a claims-made basis. The typical limits of coverage for E&O policies are $1.0 million per incident and $1.0 million in annual aggregate. For D&O policies, the typical limits are $3.0 million per incident and $3.0 million in annual aggregate. Professional and Comprehensive General Liability. The Company also offers professional and comprehensive general liability insurance to hospitals and healthcare facilities, such as ambulatory surgery centers and walk-in medical care clinics. The policies issued to healthcare facilities provide both comprehensive general liability and protection for professional liability related to the operation of a healthcare facility and its various staff committees. Professional liability insurance is offered by the Company to healthcare facilities on a claims-made basis. Commercial general liability is available on a claims-made or occurrence basis, although all policies issued as of December 31, 1999 were on a claims-made basis. The maximum limits of coverage for these policies available to non-hospital healthcare facilities are $1.0 million per incident and $3.0 million in annual aggregate. The maximum limits of coverage for policies available to hospitals are $11.0 million per incident and $13.0 million in annual aggregate. Higher liability limits are placed through facultative reinsurance arrangements. As of December 31, 1999, the Company had 34 facility insureds. Investigation Defense Coverage. The Company also offers investigation defense coverage to physicians and dentists for costs associated with investigations initiated by state licensing agencies as well as the Occupational Safety and Health Administration ("OSHA") and Equal Employment Opportunity Commission ("EEOC"). This coverage is offered to the Company's insureds for investigations that are not related to an 5 MPL claim; investigations related to an MPL claim are provided to the Company's insureds as part of their MPL policy coverage. This coverage is also offered to physicians and dentists not otherwise insured by the Company. Policy limits for this coverage are $25,000 per incident and $75,000 in annual aggregate. For the year ended December 31, 1999, the Company had $1.3 million in direct premium written from investigation defense coverage. Workers' Compensation. The Company began writing workers' compensation insurance in 1998. Workers' compensation insurance covers the liability of an employer for work-related injuries to employees, in accordance with the requirements of law. The Company's workers' compensation insurance is primarily offered to physicians and dentists, as well as to other professional occupations such as accountants, architects, engineers, attorneys and insurance agents. The initial focus has been to write in the state of Florida with a guaranteed cost product. As the Company expands into other states with MPL insurance, the intent is to offer workers' compensation coverage to the existing or potential customer base. The Company uses its subsidiary, McCreary, for claims handling, policy administration, and underwriting of its workers' compensation insurance. Group Accident and Health. The Company began writing and assuming A&H premium in 1997. Through its relationships with the FMA and the FDA, the Company began underwriting small employer, accident and health programs for physicians and dentists. A&H insurance provides comprehensive coverage for preventive care and medically necessary expenses at various deductible, co-insurance and stop loss limits. For the year ended December 31, 1999, the Company had $19.2 million in direct and assumed premium from group accident and health, representing 12.9% of the Company's total premium. During February 2000, the Company announced its intention to withdraw from its group accident and health programs. See Item 7, Management's Discussion and Analysis of Financial Condition and Results of Operations for additional information. Assumed Reinsurance. In addition to its direct business, the Company reinsures risks underwritten by other insurers. As an assuming reinsurer, the Company essentially acts as an insurer of the direct writer for a portion of their insurance risks, as specified under the terms of the reinsurance agreement. The Company's assumed reinsurance consists primarily of MPL, LPL, and a group accident and health business written on an excess of loss and a quota share basis. Under excess of loss contracts, the Company assumes risks over a certain limit on a per loss basis. Under the Company's quota share agreements, it assumes a pro-rata portion of each underlying risk, up to and including 100% in some cases. The Company's assumed reinsurance contracts are treaty agreements whereby, terms are set in advance and the underlying individual contracts of the ceding company are automatically assumed as they are written. For the years ended December 31, 1999, 1998 an 1997, the Company's direct premium written and assumed included assumed reinsurance of $34.2 million, $22.1 million and $1.7 million, respectively; or 23%, 19%, and 2% of the totals. Rates - ----- The Company establishes, through its own actuary and staff and independent actuaries, rates and rating classifications for its MPL and LPL insureds based on loss and LAE experience developed over the past 20 years, taking into account rates charged by its competitors. The Company uses risk factors based among other things, on geographic location, medical specialty, and policy limits to determine rates. The Company has established its premium rates and rating classifications for healthcare facilities and managed care organizations utilizing data publicly filed by other insurers and guidelines provided by its reinsurers. All rates 6 for liability insurance are subject to review by the relevant insurance regulatory authority. As part of its pricing strategy, the Company targets medical and legal professionals with low levels of previous claims. Marketing and Policyholder Services - ----------------------------------- The Company markets its MPL policies in Florida and Missouri primarily through independent agencies. As of December 31, 1999, the Company's MPL products were sold through 198 independent agencies. During 1999, approximately 68% of the Company's MPL direct premium written was produced by independent agents, 10 of which accounted for approximately 53% of such premiums or 25% of the Company's total premiums. Through the Agency, the Company also sells insurance products directly. The insurance products that are sold directly by the Agency are a result of direct requests from physicians. The Company markets its LPL policies in Missouri primarily through a direct sales force. In October of 1999, the Company signed an agreement with Charlton Manley, Inc. to serve as the State Administrator for all marketing and underwriting functions in the state of Kansas. During 1999, the direct sales force produced approximately 91% of LPL premiums written. An integral part of the Company's marketing strategy is targeting sectors of the MPL industry that it believes generate above average underwriting profits. The Company has identified certain medical specialties and "claims-free" physicians as sectors in which it wishes to increase its market share. This marketing strategy includes sending targeted physicians personal mail solicitation packages, encouraging agents to refer targeted physicians and providing an expedited application process for those physicians. As a result of this strategy, approximately 60% of the increase in direct premium written in 1999 was received from physicians in the targeted specialties. The Company has also entered into endorsement and marketing agreements with local medical associations and other provider-supported organizations that provide rate credits and certain services for insureds of the programs. These endorsement and marketing agreements gain the Company access to meetings of these groups in order to make presentations and provide access to their respective publications for advertisements. In addition, several local associations have agreed to assist the Company in developing loss prevention programs, monitoring proposed legislation and administrative regulations and providing information on healthcare matters relating primarily to professional liability. The Company provides comprehensive risk management services, as a service to its insureds, designed to heighten their awareness of situations giving rise to potential loss exposures, to educate them on ways to improve their medical practice procedures and to assist them in implementing risk modification measures. In addition, the Company conducts surveys for hospitals and large medical groups to review their practice procedures. Complete reports that specify areas of the insured's medical practice that may need attention are provided to the policyholder. The Company also presents and participates in periodic seminars with medical societies and other groups at which pertinent subjects are presented. These educational offerings are designed to increase risk awareness and the effectiveness of various medical professionals. Underwriting - ------------ Eight underwriters, averaging 14 years of experience underwriting MPL and LPL insurance, perform the underwriting of the Company's insurance internally. The Company has given its internal underwriting department complete authority for all initial underwriting decisions. The Company's MPL agents have no binding authority. 7 As part of the MPL underwriting process, the Company utilizes the data collected by the states of Florida and Missouri, which includes a record of all MPL claims-paid information that insurers are required to report. When applications are received from physicians for MPL insurance, the Company reviews this database to verify the physician's claims-paid record. If a physician has an excessive claims-paid history, the application is denied. All other applicants are reviewed on the basis of the physician's educational background, residency experience, practice history and comments received from personal references. Annually, the Company's underwriting department also reexamines each insured before coverage is renewed, including verifying that the insured's license is current and that any reported claims for the insured were within acceptable limits. In underwriting LPL insurance, the Company's underwriters use an underwriting committee composed of lawyers. The committee is geographically broad-based, and in most instances, has personal knowledge of applicants and renewals. This structure has enabled the Company to maintain high underwriting standards. The underwriting of the Company's other insurance products is conducted in conjunction with external underwriters. With respect to these products, the Company receives applications from prospective insureds. After a review of the information contained in such applications, the Company forwards them to an external underwriter. The external underwriter performs its review procedures for each application and consults with the Company on the amount of premium to charge each insured. Claims - ------ The Company's claims department is responsible for the supervision of claims investigation, the establishment of case reserves, case management, development of the defense strategy and the coordination and control of attorneys engaged by the Company. The Company's claims department has 26 employees, including 8 supervisors and 7 field investigators who are located in Orlando, Tampa, Sarasota, Miami, and Jacksonville, Florida and Springfield, Missouri. Employees in the claims department with settlement authority have an average of 17 years of experience with the Company. The Company's claims department has complete settlement authority for most claims filed against the Company's insureds. The Company's policy is and has been to refuse settlement and to defend aggressively all claims that appear to have no merit. In those instances where claims may have merit, the claims department attempts to settle the case as expeditiously as possible. The Company believes that it has developed relationships with attorneys in Florida and Missouri who have significant experience in the defense of MPL / LPL claims and who are able to defend in an aggressive, cost-efficient manner the claims against the Company's insureds. Reinsurance - ----------- The Company follows the customary industry practice of reinsuring its business. The Company cedes to reinsurers a portion of its risks and pays a fee based upon premiums received on all policies subject to such reinsurance. Insurance is ceded principally to reduce net liability on individual risks and to provide protection against large losses. Although reinsurance does not legally discharge the Company from its primary liability for the full amount of the policies reinsured, it does make the reinsurer liable to the Company to the extent of risk ceded. For MPL, LPL, and professional and comprehensive general liability insurance written during 1999 and prior years, the Company has reinsured risks in excess of $500,000 per loss, except on the Company's anesthesiology program in which the Company has reinsured risks in excess of $750,000. The Company reinsures risks associated with these policies under treaties pursuant to which reinsurers agree to assume those risks insured by the Company in excess of its individual risk retention level and up to its maximum individual 8 policy limit offered. Effective January 1, 2000, the Company lowered its retention to $250,000, and thus, reinsures risks in excess of $250,000 per loss on business written in 2000. For group accident and health insurance, the Company has entered into a separate excess of loss reinsurance treaty. Under this treaty, the reinsurers bear losses in excess of $100,000 per person. For workers' compensation insurance, the Company has entered into a separate excess of loss reinsurance treaty. Under this treaty, the reinsurers bear losses in excess of $100,000 per loss. Reinsurance is placed under reinsurance treaties and agreements with a number of individual companies and syndicates to mitigate concentration of credit risk. General Reinsurance Corporation has been one of the Company's largest reinsurers of MPL insurance, with 25% of the ceded risks for professional and comprehensive general liability insurance written in 1999 and prior years. The Company relies on reinsurance brokers and intermediaries to assist in the analysis of the credit quality of its reinsurers. The Company also requires reinsurers that are not authorized to do business in Florida and Missouri to post an evergreen letter of credit to secure their reinsurance recoverables. Under Florida and Missouri laws, in the event the Company has the opportunity to settle a claim within policy limits but fails to do so, and a judgment is rendered against a policyholder for an amount exceeding the policy limit, the Company may be charged with bad faith in failing to settle. The Company may be held responsible for the amount exceeding the policy limit or extra contractual damages. The Company's primary reinsurance contracts include coverage for policies with limits equal to or greater than $1 million for which the claim exceeds policy limits or extra contractual damage. In the past five years, the Company has not paid a claim, including bad faith claims, in excess of $3.0 million. Effective January 1, 2000, the Company has obtained reinsurance covering such claims. Liability for Loss and LAE - -------------------------- The determination of the total liability for loss and LAE is based upon a projection of ultimate losses through an actuarial analysis of the claims history of the Company and other MPL insurers, subject to adjustments deemed appropriate by the Company due to differing or changing circumstances. Included in its claims history are losses and LAE paid by the Company in prior periods and case reserves for anticipated losses and LAE developed by the Company's claims department as claims are reported and investigated. The Company relies primarily on such historical loss experience in determining reserve levels on the assumption that historical loss experience provides a good indication of future loss experience despite the uncertainties in loss cost trends and the delays in reporting and settling claims. As additional information becomes available, the estimates reflected in earlier loss and LAE reserves may be revised. Any increase in the amount of reserves, including reserves for insured events of prior years, could have an adverse effect on the Company's results for the period in which the adjustments are made. The uncertainties inherent in estimating ultimate losses on the basis of past experience have grown significantly in recent years principally as a result of judicial expansion of liability standards and expansive interpretations of insurance contracts. These uncertainties may be further affected by, among other factors, changes in the rate of inflation and changes in the propensities of individuals to file claims. MPL insurance is a long-tail line of business for which the initial loss and LAE estimates may be adversely impacted by events occurring long after the reporting of the claim, such as sudden severe inflation or adverse judicial or legislative decisions. The Company utilizes both its staff and independent actuaries in establishing its reserves. The Company's independent actuaries review the Company's loss and LAE reserves one or more times each year and prepare a report that includes a recommended level of reserves. The Company considers this recommendation as well as other factors, such as known, anticipated or estimated changes in frequency and severity of losses, loss retention levels and premium rates, in establishing the amount of its loss and LAE 9 reserves. The Company continually refines reserve estimates as experience develops and further claims are reported and settled. The Company reflects adjustments to reserves in the results of the current period. The following table sets forth the development of loss and LAE reserves of the Company, net of reinsurance recovered or recoverable, for the 10-year period ended December 31, 1999:
Year Ended December 31 1999 1998 1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- ---- ---- Balance Sheet Reserves (2) 214,691 200,763 173,971 161,124 155,318 143,415 132,190 Reestimated Liability As Of: (2) - -------------------------------- One year later 182,208 159,639 146,009 140,322 129,472 121,543 Two years later 142,369 127,529 116,151 114,193 105,704 Three years later 112,770 106,937 90,666 91,929 Four years later 104,684 86,154 72,854 Five years later 87,807 73,753 Six years later 75,032 Seven years later Eight years later Nine years later Ten years later Cumulative Paid As Of: (2) - -------------------------- One year later 76,292 49,697 33,103 35,562 28,701 24,794 Two years later 90,165 62,612 60,464 52,832 45,162 Three years later 88,649 78,291 63,738 57,597 Four years later 94,882 73,296 62,630 Five years later 82,840 68,052 Six years later 72,509 Seven years later Eight years later Nine years later Ten years later Redundancy (1) 18,555 31,602 48,354 50,634 55,608 57,158 % Redundancy 9.24% 18.17% 30.01% 32.60% 38.77% 43.24% 1992 1991 1990 1989 ---- ---- ---- ---- Balance Sheet Reserves (2) 126,651 118,995 119,031 97,302 Reestimated Liability As Of: (2) - -------------------------------- One year later 98,706 101,844 103,533 108,496 Two years later 89,301 80,932 86,249 89,478 Three years later 76,247 71,653 64,456 72,321 Four years later 68,445 66,891 56,578 57,068 Five years later 69,396 63,884 55,459 53,499 Six years later 70,596 63,133 55,068 53,486 Seven years later 71,547 63,980 53,875 53,184 Eight years later 64,714 54,345 52,237 Nine years later 54,832 52,453 Ten years later 52,646 Cumulative Paid As Of: (2) - -------------------------- One year later 25,924 26,482 17,500 22,656 Two years later 42,520 44,758 37,399 34,707 Three years later 55,677 52,675 47,689 43,911 Four years later 60,448 57,248 50,106 49,671 Five years later 63,458 59,309 52,600 49,716 Six years later 66,468 59,637 52,746 51,179 Seven years later 69,975 61,258 52,849 51,265 Eight years later 63,468 53,653 51,314 Nine years later 54,710 51,761 Ten years later 52,524 Redundancy (1) 55,104 54,281 64,199 44,656 % Redundancy 43.51% 45.62% 53.93% 45.89%
(1) There may be a difference of 1 (,000) in the redundancies due to rounding. (2) The Company has changed its presentation of the above data from a gross basis to a net of reinsurance basis, which is consistent with prevalent practice. Data presented for the years 1993 through 1998 have been restated accordingly. Data presented for the years prior to 1993 have previously been reported on a net basis and, therefore, no restatement is necessary for these years. 10 The following table (in thousands) sets forth an analysis of the Company's reserves for losses and LAE and provides a reconciliation of beginning and ending liability for loss and LAE, net of reinsurance for the periods presented:
Year Ended December 31, 1999 1998 1997 --------- --------- --------- Net loss and LAE liability, at beginning of period $ 200,763 173,971 161,124 Loss and LAE of entity acquired 24,590 23,406 -- Provisions for losses and LAE occurring in the current period 99,523 81,694 69,126 Decrease in estimated losses and LAE for claims occurring in prior periods (18,555) (14,332) (15,115) --------- --------- --------- Total incurred during current period 80,968 67,362 54,011 --------- --------- --------- Losses and LAE payments relating to: Current period 15,338 14,279 8,061 Prior periods 76,292 49,697 33,103 --------- --------- --------- Total paid during current period 91,630 63,976 41,164 --------- --------- --------- Net liability, at end of period $ 214,691 200,763 173,971 ========= ========= ========= Gross liability at end of period $ 273,092 242,377 188,086 Reinsurance recoverable at end of period 58,401 41,614 14,115 --------- --------- --------- Net liability at end of period $ 214,691 200,763 173,971 ========= ========= =========
The net reductions in incurred losses and LAE related to prior years (net of reinsurance recoveries of $985,357, $7,115,000, and $5,834,000, in 1999, 1998, and 1997, respectively) for each of the years ended December 31, 1999, 1998 and 1997, are the result of reevaluations of the adequacy of reserve estimates and reflect overall favorable underwriting results and lower than anticipated losses and LAE. Given recent competitive market conditions, which have lessened the Company's ability to underwrite and price its business at such favorable terms, management does not expect reserve reductions to continue at these levels in 2000. Furthermore, given the inherent uncertainties in the estimation of loss and LAE reserves, there can be no assurance concerning future adjustments, positive or negative, for prior years' claims. Investment Portfolio - -------------------- The Company's investment strategy for its bond portfolio is to maintain a diversified investment-grade fixed income portfolio, provide liquidity, and maximize after-tax yield. As of December 31, 1999, the Company's portfolio was managed internally and the Company had $327.1 million of fixed income securities valued at market value. All of the Company's fixed income and equity securities are classified as available-for-sale. The Company believes that its focus on income generation rather than capital appreciation has reduced the portfolio's overall volatility. In addition, the Company has invested a greater portion of its portfolio in municipal bonds, which the Company believes generate a greater after-tax return than investments in taxable fixed income securities of comparable risk, duration, and other investment characteristics. All of the fixed maturity securities held in the investment portfolio are publicly traded securities. In addition to the fixed income portfolio, the Company invests in other securities such as investment partnerships and certain strategic equity investments. Aside from certain strategic investments, the Company's current policy is to limit such investments to $10 million in aggregate. 11 The Company generally does not invest in off-balance sheet derivative financial investments. However, the Company has invested in one interest rate swap contract in connection with its revolving credit facility. The contract is an off-balance sheet instrument and serves to fix the Company's interest expense on the revolving credit facility. Competition - ----------- The MPL insurance markets in Florida and Missouri are highly competitive from the perspective of pricing and the number of competitors writing business. Several companies offer products at lower premium rates than the Company and more companies may enter the Company's markets in the future. In addition, the Company believes that the number of healthcare entities that insure their affiliated physicians through self-insurance may begin to increase and affect both its Florida and Missouri based operations. Many of the MPL insurers are substantially larger and have considerably greater resources than the Company. Additionally, several of these insurers have received A.M. Best ratings that are higher than the Company's insurance subsidiaries ratings of "A- (Excellent)." In addition, because a substantial portion of the Company's products are marketed through independent insurance agencies, all of which represent more than one company, the Company faces competition within each agency in its own agency system. However, the Company's name recognition, medical society endorsements, physician board of directors, agency force and program development have all contributed to helping the Company maintain its number of insureds. Furthermore, the Company has been successful at target marketing groups and specialties that exhibit above average profitability and believes that its marketing success has allowed it to improve the quality and profitability of its overall business. The Company believes that the principal competitive factors affecting its business in Florida are service, name recognition, and price, and that it is competitive in Florida in all of these areas. The Company enjoys strong name recognition in Florida by virtue of having been organized by, and operated for the principal benefit of, Florida physicians. The services offered to insureds of the Company, as well as the healthcare community in general, are intended to promote name recognition and to maintain and improve loyalty among the insureds of the Company. MPL insurance offered by FPIC has the exclusive endorsement of both the FMA and the FDA, and is also endorsed by various county and state medical societies. In both Missouri and Kansas, Intermed and Interlex compete with both regional and national companies. In 1998, the last year for which statistics are available from the Missouri Department of Insurance, there were 54 companies writing medical malpractice insurance in the state. The top five writers have 57% of the market. The largest market share was 14.73%. Intermed, the seventh largest writer in the state in 1998, had a market share of 7.67%. Ten companies wrote LPL insurance in the state of Missouri in 1998 according to the latest statistics available from the Missouri Department of Insurance. One company, sponsored by the Missouri Bar Association, had a market share of 69.36%. Interlex, which commenced operations in October 1994, had a market share of 10.8% and was the second largest writer. A number of hospitals in Missouri have purchased the medical practices of fee-for-service physicians and hired the physicians as employees of the hospital or a corporate entity affiliated with the hospital. A number of such physicians formerly purchased their own professional liability insurance through smaller insurance companies such as Intermed. As a result of the consolidation, many of the hospitals purchasing the practices of physicians have become self-insured or sought professional liability insurance from professional liability carriers with capital and surplus greater than that of Intermed and at premiums lower than those currently offered by Intermed. 12 In general, local carriers who have been able to maintain strong customer loyalty dominate the MPL market in other states. The same targeted specialty and loss-free approach developed in Florida is being used in these other states. The Company is recruiting and developing an agency force to expand its market, provide service, and develop name recognition. Insurance Ratings - ----------------- FPIC, APAC, Intermed, and Interlex currently have a financial condition rating from A.M. Best of "A- (Excellent)". An A.M. Best rating is intended to provide an independent opinion of an insurer's ability to meet its obligations to policyholders and should not be considered an investment recommendation. A.M. Best's ratings are based upon a comprehensive review of a company's financial performance that is supplemented by certain data, including responses to A.M. Best's questionnaires, quarterly National Association of Insurance Commissioners ("NAIC") filings, state insurance department examination reports, loss reserve reports, annual reports and reports filed with the Securities and Exchange Commission. A.M. Best undertakes a quantitative evaluation based upon profitability, leverage and liquidity and a qualitative evaluation based upon the composition of an insurer's book of business or spread of risk, the amount, appropriateness and soundness of reinsurance, the quality, diversification and estimated market value of its assets, the adequacy of its loss reserves and policyholders' surplus and the experience and competency of its management. Regulation - ---------- The Company and its insurance subsidiaries are subject to extensive state regulatory oversight in Florida, Missouri and in the other jurisdictions in which they conduct business. Florida and Missouri insurance laws regulate insurance holding company structures, including the Company and its subsidiaries. Each insurance company in a holding company structure is required to register with its domiciliary Department of Insurance (the "Department of Insurance") and furnish information concerning the operations of companies within the holding company structure that may materially affect the operations, management or financial condition of the insurers within the structure. Pursuant to these laws, the Department of Insurance may examine the Company, and/or FPIC, APAC, Intermed, and Interlex at any time and require disclosure of and/or approval of material transactions involving any insurance subsidiary of the Company, such as extraordinary dividends from FPIC, APAC, Intermed, and Interlex. All transactions within the holding company structure affecting the Company's insurance subsidiaries must be fair and reasonable. Florida insurance laws provide that no person may acquire directly or indirectly five percent or more of the voting securities of a domiciled insurance company unless such person has obtained the prior written approval of the Department of Insurance for such acquisition. Any purchaser of five percent or more of the Company's insurance subsidiaries' outstanding common stock will generally be presumed to have acquired control of the insurance company. In lieu of obtaining such prior approval, a purchaser owning less than 10% of the outstanding shares of the Company or FPIC, APAC, Intermed, or Interlex may file a disclaimer of affiliation and control with the Department of Insurance. Missouri insurance laws provide generally no person may acquire directly or indirectly ten percent or more of the voting securities of a domiciled insurance company unless such person has obtained the prior written approval of the Department of Insurance for such acquisition. Since FPIC, APAC, Intermed, and Interlex are insurance companies, the Departments of Insurance in Florida and Missouri are their principal supervisors and regulators. However, these companies are also subject to supervision and regulation in the states in which they transact business in relation to numerous aspects of their 13 business and financial condition. The primary purpose of such supervision and regulation is to insure the financial stability of the insurance companies for the protection of policyholders. The laws of the various states establish insurance departments with broad regulatory powers relative to granting and revoking licenses to transact business, regulating trade practices, required statutory financial statements and prescribing the types and amount of investments permitted. Although premium rate regulations vary among states and lines of insurance, such regulations generally require approval by each state regulator of the rates and policies to be used in its state. Insurance companies are required to file detailed annual reports with the supervisory agencies in each state in which they do business, and their business and accounts are subject to examination by such agencies at any time. In March 1998, the NAIC adopted the Codification of Statutory Accounting Principles Project (the "Codification") as the NAIC supported basis of accounting. The Codification was approved with a provision allowing for discretion by each states' Department of Insurance in determining appropriate statutory accounting for insurers. Accordingly, such discretion will continue to allow prescribed or permitted accounting practices that may differ from state to state. The Codification will not affect the Company's consolidated financial statements, which are prepared in accordance with generally accepted accounting principles ("GAAP"). The impact of the Codification on the Company's insurance subsidiaries' statutory financial statements has not been determined. Because the Codification represents a new basis of accounting for statutory financial statements, adoption of the Codification may have a significant impact on the insurance subsidiaries' statutory financial statements. Although the NAIC has stated that the adoption date for the Codification is January 1, 2001, the implementation date is dependent upon an insurer's state of domicile. Accordingly, the Company's adoption date of the Codification is dependent upon actions of the Insurance Departments of the State of Florida and Missouri and the Florida and Missouri State Legislatures. The insurance subsidiaries of the Company are subject to assessment by the Financial Guaranty Associations in the states in which they conduct business for the provision of funds necessary for the settlement of covered claims under certain policies of insolvent insurers. Generally, these associations can assess member insurers on the basis of written premiums in their particular states. The Gramm-Leach-Bliley Act of 1999 (the "Act") establishes a comprehensive framework to permit affiliations among commercial banks, insurance companies, securities firms and other financial service providers by revising and expanding the federal Bank Holding Company Act framework to permit a bank holding company system to engage in a full range of financial activities, including insurance, through a new entity known as a "financial holding company." The Act may significantly change the competitive, operational and regulatory environment in which the Company and its subsidiaries conduct business. Generally, the Act (i) repeals historical restrictions on, and eliminates many federal and state law barriers to, affiliations among commercial banks, securities firms, insurance companies, and other financial service providers; (ii) provides a uniform framework for the functional regulation of commercial banks, insurance companies and securities firms; (iii) broadens the activities that may be conducted by national banks (and derivatively, state banks), banking subsidiaries of bank holding companies, and their financial subsidiaries; and (iv) addresses a variety of other legal and regulatory issues affecting both day-to-day operations and long-term activities of insurance companies and other financial institutions. The insurance industry is under continuous review by Congress, state legislatures and state and federal regulatory agencies. From time to time, various regulatory and legislative changes have been proposed for the insurance industry, some of which could have an effect on insurers or reinsurers. Among the proposals 14 that have in the past been, or are at present being, considered are the possible introduction of state and federal limits on certain damages for MPL as well as federal regulation in addition to, or in lieu of, the current system of state regulation of insurers. The Company is unable to predict whether any of these proposals will be adopted, the form in which any such proposals would be adopted, or the impact, if any, such adoption would have on the Company, although such impact could be material. Third Party Services - -------------------- Through McCreary and its subsidiary, Employers Mutual, Inc. ("EMI"), the Company offers third party administration services, which it operates as a separate industry segment. McCreary specializes in the administration of self-insured plans for large employers. The lines of insurance that McCreary primarily administers are group accident and health, workers' compensation, general liability, and property. The main product of EMI is administration of self-insured plans for emerging managed care organizations. The Company intends to offer these services to its existing and potential customer base of healthcare facilities and managed care organizations on both a self-insured and fully insured basis. For the year ended December 31, 1999, McCreary contributed $13.6 million to the Company's total revenues. Reciprocal Management - --------------------- Effective January 1, 1999, the Company purchased Administrators For The Professions, Inc. ("AFP"). AFP is the manager and attorney-in-fact for Physicians' Reciprocal Insurers ("PRI"), the second largest MPL insurer for physicians in the state of New York. As such, AFP's primary business is the management and administration of PRI on behalf of its physician members. In this regard, AFP has an exclusive 10-year management agreement with PRI, the current term of which runs through December 31, 2008, whereby it provides all underwriting, administrative and investment functions for PRI in exchange for compensation. Compensation under the agreement is based upon PRI's direct written premium and statutory operating results. The management agreement also provides that AFP is to be reimbursed by PRI for certain expenses paid by AFP on PRI's behalf. The expenses reimbursed by PRI consist principally of salary, related payroll, and overhead costs of AFP's claims, legal and risk management course personnel who work on PRI's behalf. AFP's reciprocal management and related operations have been consolidated with those of the Company. For the year ended December 31, 1999, AFP and its subsidiaries contributed $20.6 million to the Company's total revenues. Employees - --------- At December 31, 1999, the Company employed 596 persons. None of these employees are covered by a collective bargaining agreement. Management considers the Company's relationships with its employees to be good. Item 2. Properties - ------------------- The Company leases 8,926 square feet for its corporate headquarters and administrative offices located in downtown Jacksonville, Florida. The Company also owns an 8-story, 70,000 square foot office building in Jacksonville where 26,600 square feet of space is occupied by FPIC for its insurance operations and 12,000 square feet is occupied by EMI. The Company and its subsidiaries also lease additional facilities for their operations in various locations throughout the United States. Management believes the Company's owned and leased properties are adequate for the Company's current needs. 15 Item 3. Legal Proceedings - -------------------------- There are no material pending legal proceedings against the Company or its subsidiaries other than litigation arising in connection with the settlement of insurance claims. Item 4. Submission of Matters to a Vote of Security Holders - ------------------------------------------------------------ There were no matters submitted to a vote of security holders in the fourth quarter of 1999. PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters - ------- The Company's common equity has been publicly traded on the NASDAQ National Market System since August 1, 1996 under the symbol FPIC. The following table sets forth for the periods indicated the high and low bid quotations as reported. Such quotations reflect inter-dealer bids and offers, without retail mark-up, mark-down, or commission and may not necessarily represent actual transactions.
1999 First Quarter Second Quarter Third Quarter Fourth Quarter ---- ------------- -------------- ------------- -------------- High Bid $ 49.13 49.88 50.63 22.38 Low Bid 37.88 40.25 14.25 14.88 1998 ---- High Bid $ 32.37 37.25 37.25 47.81 Low Bid 26.00 31.87 24.75 23.00
As of March 23, 2000, the Company estimated that there were approximately 5,500 beneficial owners of the Company's common stock. The Company does not anticipate paying any cash dividends in the foreseeable future. Item 6. Selected Financial Data The selected financial data presented below for the fiscal years ending December 31 should be read in conjunction with the Company's consolidated financial statements and the notes thereto, which are included elsewhere herein. All per share amounts have been stated giving retroactive effect for the stock split that occurred as a result of the Reorganization in June 1996. (in thousands, except per share amounts)
Income Statement Data: 1999 1998 1997 1996 1995 - --------------------- ---- ---- ---- ---- ---- Direct written premiums $148,216 116,989 77,771 64,292 56,641 Total revenues $170,823 120,321 93,216 76,982 69,531 Net income $ 21,869 20,693 16,557 13,324 11,686 Basic earnings per share $ 2.24 2.22 1.83 1.57 1.47 Diluted earnings per share $ 2.19 2.11 1.76 1.53 1.47 Cash dividend declared per share $ -- -- -- .10 .10
16 (in thousands)
Balance Sheet Data: 1999 1998 1997 1996 1995 - ------------------ ---- ---- ---- ---- ---- Total investments $346,589 345,004 268,300 238,497 221,604 Total assets $582,223 479,378 352,849 303,553 276,699 Loss and LAE liabilities $273,092 242,377 188,086 172,738 164,506 Revolving credit facility $ 62,719 27,165 -- -- -- Total liabilities $415,844 328,448 232,785 207,141 195,143 Shareholders' equity $166,379 150,931 120,064 96,411 81,556
Item 7. Management's Discussion & Analysis of Financial Condition and Results of Operations - ------------- The following discussion and analysis should be read in conjunction with the consolidated financial statements and the notes to the consolidated financial statements appearing elsewhere in this report. The consolidated financial statements include the results of all of the Company's wholly owned and majority owned subsidiaries. The results of AFP and Tenere have been included from January 1, 1999 and March 17, 1999, respectively. All amounts have been rounded to the nearest $100,000. General - ------- FPIC Insurance Group, Inc. ("FIG" or the "Company") was formed in 1996 in connection with a reorganization pursuant to which it became the parent company of Florida Physicians Insurance Company, Inc. ("FPIC") and McCreary Corporation ("McCreary"), a third party administrator. The Company's primary source of revenue is management fees and dividends from its subsidiaries. The primary sources of revenues for these amounts are premiums earned and investment income derived from the insurance operations of FPIC, APAC, Intermed, and Interlex, and fee and commission income from McCreary, AFP and their respective subsidiaries. The Company, through its insurance subsidiaries, specializes in professional liability insurance products and services for the healthcare community, with MPL insurance for physicians and dentists as its primary product. The Company's MPL insurance is written substantially on a "claims-made" basis (as opposed to an "occurrence" basis) providing protection to the insured only for those claims that arise out of incidents occurring, and of which notice to the insurer is given, while coverage is in effect. The Company also offers "tail coverage" for claims reported after the expiration of the policy for occurrences during the coverage period. The price of tail coverage is based on the length of time the insured has been covered under the Company's claims-made form. The Company provides free tail coverage for insured physicians who die or become disabled during the coverage period of the policy and those who have been insured by the Company for at least five consecutive years and retire completely from the practice of medicine. During 1997, (i) McCreary acquired Employers Mutual, Inc. ("EMI"), a third party administrator; (ii) the Company acquired a 20% interest in APS Insurance Services, Inc. ("APS"), a management company for a Texas MPL insurance reciprocal; and (iii) FPIC acquired renewal rights with respect to Frontier Insurance Company's Florida book of physician MPL business. On July 1, 1998, the Company acquired Anesthesiologists' Professional Assurance Company ("APAC"), a Florida-based MPL insurer. On January 6, 1999, the Company acquired Administrators for the Professions, Inc. ("AFP"), the management company for Physicians' Reciprocal Insurers ("PRI"), a New York MPL insurance reciprocal. On March 17, 1999, FPIC acquired The Tenere Group, Inc. ("Tenere"), a Missouri insurance holding company that owns Intermed Insurance Company ("Intermed"), a Missouri MPL insurer, and Interlex Insurance Company ("Interlex"), a Missouri LPL insurer. The Company's financial position and results of operations are subject to fluctuations due to a variety of factors. Unexpected high frequency or severity of losses for the Company's insurance subsidiaries in any period, particularly in the Company's prior three policy years, could have a material adverse effect on the 17 Company. In addition, reevaluations of the liability for loss and LAE could result in an increase or decrease in liabilities and a corresponding adjustment to earnings. The Company's historical results of operations are not necessarily indicative of future earnings. Overview - -------- Fiscal year 1999 was another year of growth for the Company. Net premiums earned by the Company's insurance subsidiaries grew 31.9%, from $89.6 million in 1998 to $118.2 million in 1999. Total revenues increased 42.0%, from $120.3 million in 1998 to $170.8 million in 1999. Net income increased 5.8%, from $20.7 million in 1998 to $21.9 million in 1999. Fully diluted earnings per share increased $.08 per share from $2.11 per share in 1998 to $2.19 per share in 1999. During 1999, the portion of the Company's revenues attributable to areas other than its core physicians MPL market continued to increase. The 1999 net losses and loss adjustment expenses for the Company's insurance subsidiaries rose 20.2%, from $67.4 million in 1998 to $81.0 million in 1999. The Company believes that the premiums and earnings growth rates in 2000 are not likely to be comparable to those achieved in 1999, which were largely the results of acquisitions. Insurance Operations - -------------------- With respect to the Company's core MPL business, total insureds increased 2,793 from 8,525 in 1998 to 11,318 in 1999. Of this increase, 2.9% is attributable to growth at APAC and the acquisition of Intermed and Interlex, which accounted for 51.5% and 43.1% of the increase, respectively. FPIC accounted for the balance of the increase. Physician insureds grew 23.8%, from 6,383 in 1998 to 7,905 in 1999. Dental insureds grew 18.0%, from 1,843 in 1998 to 2,174 in 1999. Net premiums earned on the Company's MPL business grew 30.6%, from $74.8 million in 1998 to $97.7 million in 1999. Growth was achieved during 1999 in other product areas such as legal defense for healthcare provider licensure investigations, group accident and health insurance coverage and errors & omissions and directors & officers liability insurance for managed care organizations. Net premiums earned for these products increased from $14.7 million in 1998 to $20.5 million in 1999, primarily as a result of the increased health premium. The Company experienced another solid year of underwriting results during 1999, with the frequency of physician claims reported decreasing by 2.6% from 1998 levels. The decline in claims frequency over the past several years is a positive sign for future claims development. The primary risk to future positive development of the Company's claims expense is unanticipated increases in the average claim payment, also known as severity. Loss experience on the 1996 and prior report years is developing as expected and, in some instances, better than expected. However, while report years 1997, 1998, and 1999 are not mature enough to accurately project at this time, management believes it is unlikely that the reserves carried for these years will develop to be as materially redundant as has been the case in the past. The Company's combined ratio for fiscal year 1999, calculated using generally accepted accounting principles ("GAAP"), declined 1.7%, from 89.2% in 1998 to 87.7% in 1999. The combined ratio is defined as the sum of net losses and loss adjustment expenses plus other underwriting expenses as a percentage of net premiums earned. This positive trend was primarily due to favorable loss and LAE experience on the Company's core MPL business, the addition of assumed reinsurance, which carries a lower loss and combined ratio than the core MPL business, offset to some extent by adverse results from the Company's group accident and health business. As discussed in the preceding paragraph, management expects that the 18 level of favorable development and corresponding reserve reductions will decline in 2000; therefore, the Company's combined ratio can be expected to increase accordingly. During 1999, the Company requested a 40% rate increase on its FDA group accident and health program from the Florida Department of Insurance for which it received approval in February 2000. This rate increase will begin to take effect for business written or renewed beginning April 1, 2000. However, based upon management's expectation that adverse accident and health claim trends may continue, the Company has subsequently announced its intention to withdraw from all its group accident and health programs. The Company's group accident and health programs combined contributed an after-tax operating loss of approximately $3.9 million for the year ended December 31, 1999, as compared to an after-tax operating gain of $.4 million for the year ended December 31, 1998. Investments - ----------- The Company invests primarily in a diversified portfolio of high grade, taxable and tax-exempt, fixed-income securities, with a targeted duration of approximately five years. The majority of these securities are held as invested assets by the various insurance subsidiaries. At the close of 1999, 55% of the fixed-income portfolio was invested in tax-exempt securities and 45% in taxable securities. On a consolidated basis, the Company's total investment portfolio grew $1.6 million from $345.0 million in 1998 to $346.6 million in 1999. APAC and Tenere accounted for $4.3 million and $44.5 million, respectively, of the increase in the Company's total investment portfolio while FPIC's portfolio declined $39.8 million due to sales of bonds in connection with the acquisition of Tenere, dividends paid to the Company in connection with the acquisition of AFP and unrealized losses on FPIC's portfolio. The growth in investments also consisted of a net contribution from the reinvestment of net interest income, a decrease in equity securities of $.6 million and an increase in other invested assets of $.4 million. Net investment income earned increased 8.6%, from $17.5 million in 1998 to $19.0 million in 1999. Outlook for Florida and Missouri MPL Markets - -------------------------------------------- The Company's assessment of the current Florida and Missouri MPL markets indicates that premium growth may be flat to slightly negative for 2000 due to the continuation of intense competition from both the large numbers of carriers already present and new carriers entering these states. This competition is likely to keep downward pressure on rates during 2000. Effective January 1, 2000, the insurance subsidiaries of the Company did not institute any overall rate increases. However, certain regions in the various states in which the Company does business as well as certain medical specialties did receive rate increases. Within these specialties and regions, the Company has continued to realize deteriorating loss experience with loss ratios reaching levels that, over time, could negatively affect earnings. The Company's strategy is to increase pricing on these negatively developing medical specialties and regions to the level where contribution is being made toward covering related fixed expenses. 1999 Acquisitions and 2000 Strategy - ----------------------------------- Effective January 1, 1999, the Company acquired AFP, which is the manager and attorney-in-fact for Physicians' Reciprocal Insurers ("PRI"), a New York MPL insurance reciprocal. PRI, which is the second largest MPL carrier for physicians in New York, insures over 8,000 physicians and has direct written premiums of approximately $130 million and total assets of approximately $897 million. The purchase consideration paid by the Company for AFP consisted of $44 million in cash and 214,286 shares of the Company's common stock. AFP derives its income from management fees paid by PRI. The acquisition of AFP had a positive impact on the Company's 1999 operating results. 19 The Company continues to consider and analyze the possibility of sponsoring a conversion of PRI to a stock insurer and acquiring it. Such a transaction, although unlikely during the coming year, would be subject to the approval of the Company's board of directors and shareholders, as well as PRI's Board of Trustees and policyholders, and the Florida and New York Departments of Insurance and other regulatory authorities. Such an acquisition would give the Company direct ownership of a large northeastern MPL insurer and has the potential to further improve the Company's operating results. On March 17, 1999, FPIC acquired Tenere, which is the holding company for Intermed, a Missouri MPL insurer with approximately 1,439 insureds, and Interlex, a Missouri LPL insurer with approximately 1,205 insureds. The purchase price for Tenere was approximately $19.6 million in cash. Included in the net assets acquired was approximately $14 million in cash. Contrary to management's initial expectations, Tenere contributed an after-tax net operating loss of approximately $688,000 to the Company's consolidated operating results for 1999. Tenere's 1999 loss was primarily the result of a reserve strengthening. The acquisition of Tenere, Intermed, and Interlex provided the Company with approximately $8.2 million of additional net premiums earned and increased the Company's presence in the southern mid-west. The Company contemplates prudently expanding the LPL business to the Company's other states of operation and to use the Company's existing relationships with legal defense attorneys to help market this business. On August 6, 1999, the Company's subsidiary, EMI, purchased all of the assets of Brokerage Services, Inc. ("BSI") and Group Brokerage, Inc. ("GBI"), related corporations headquartered in Albuquerque, New Mexico. BSI and GBI provide third party administration services for self-insured and fully insured health plans. The consideration paid by EMI for such assets aggregated approximately $1,000,000. The Company continues to believe that the MPL industry is in a consolidation phase and will ultimately be dominated by companies with a national or large regional presence. During 2000, the Company will continue to work to implement its strategy of growing nationally within the MPL industry by expanding writings of its existing carriers geographically and through strategic acquisitions that may become available. The Company views ideal acquisition candidates as companies that are as strong or stronger than the Company on a relative basis and seeks acquisitions that are expected to be immediately accretive to earnings. The acquisitions to date provide the Company with infrastructure to expand its products and services to the southeast, northeast and southern midwest. The Company's goal over the next few years is to acquire additional companies to provide management support and operations in the rest of the country. Accomplishing this goal will provide the Company with the resources to compete nationally for physicians and healthcare facilities insurance business. The Company views this expansion as the cornerstone of its strategy to meet the growing needs of the consolidating healthcare marketplace. A secondary acquisition strategy that the Company considers viable is the acquisition and consolidation of operations of small to medium sized third party administrators ("TPAs") for self-insured and fully insured health plans. The Company currently owns two TPAs, McCreary and EMI, and has identified other TPAs that are acquisition candidates. A number of capital sources are available to finance acquisitions, including internally generated funds, bank credit facilities and newly issued debt and/or equity securities. On June 29, 1999, the Company's Board of Directors approved the extension of a stock repurchase plan pursuant to which the Company is authorized to repurchase, at management's discretion, up to 500,000 of its shares on the open market over a twelve-month period. As of December 31, 1999, the Company had 20 repurchased 460,500 shares pursuant to this plan at a cost of approximately $10.1 million. On September 11, 1999, the Company's Board of Directors approved an additional stock buyback program, pursuant to which the Company is authorized to repurchase an additional 500,000 shares of its stock on the open market when all available shares have been repurchased under the previously announced program. On January 25, 2000, the Company's Board approved a third stock buyback program for an additional 500,000 shares, under which the Company can repurchase shares upon completion of the first two programs. Subsequent to December 31, 1999, and as of March 20, 2000, the Company has repurchased an additional 280,000 shares for approximately $4.7 million, completing the first program plus 240,500 shares authorized under the second program. This leaves 259,500 shares that are authorized under the second program, and 500,000 shares under the third, for a total of 759,500 shares available for repurchase. Selected Balance Sheet Items - December 31, 1999 compared to December 31, 1998 As noted above, the Company completed two significant acquisitions, AFP and Tenere, in the first quarter of 1999. These acquisitions were accounted for using the purchase method and had an impact on certain balance sheet accounts. The effects of these acquisitions as well as other changes are described below. Premiums Receivable - ------------------- Premiums receivable increased $5.5 million, from $40.3 million at December 31, 1998 to $45.8 million at December 31, 1999 primarily due to the acquisition of Tenere, which added $1.9 million, additional health premium receivables of $.5 million and additional assumed premiums of $3.2 million. Due From Reinsurers on Unpaid Losses and Advance Premiums - --------------------------------------------------------- Due from reinsurers on unpaid losses and advance premiums increased $18.3 million, from $42.1 million at December 31, 1998 to $60.4 million at December 31, 1999 primarily due to the acquisition of Tenere. Deferred Income Taxes - --------------------- Deferred income taxes increased $11.9 million, from $9.3 million at December 31, 1998 to $21.2 million at December 31, 1999. Approximately $5.8 million of the increase is due to the acquisition of Tenere. The remaining $6.1 million relates to deferred tax changes due to fluctuations in unrealized gains and losses on investments available for sale. Goodwill - -------- Goodwill increased $57.7 million, from $12.7 million at December 31, 1998 to $70.4 million at December 31, 1999. The increase is primarily related to the acquisitions of AFP and Tenere, of $55.0 million and $3.9 million, respectively. Loss and Loss Adjustment Expenses - --------------------------------- The liability for loss and LAE increased $30.7 million, from $242.4 million at December 31, 1998 to $273.1 million at December 31, 1999. The increase is primarily due to the acquisition of Tenere and the inclusion of its reserves. 21 Unearned Premiums - ----------------- Unearned premiums increased $11.5 million, from $44.3 million at December 31, 1998 to $55.8 million at December 31, 1999. Approximately $1.8 million of the increase is due to the acquisition of Tenere. The remaining $9.7 million is primarily due to an increase in premiums on assumed business during 1999. Revolving Credit Facility - ------------------------- The revolving credit facility increased $35.5 million, from $27.2 million at December 31, 1998 to $62.7 million at December 31, 1999. The increase in the credit facility is due to additional borrowings to complete the acquisition of AFP and fund non-operating cash needs, such as the repurchase of the Company's common stock. Accrued Expenses and Other Liabilities - -------------------------------------- Accrued expenses and other liabilities increased $10.0 million, from $8.8 million at December 31, 1998 to $18.8 million at December 31, 1999 primarily due to the acquisitions of AFP and Tenere, which added $2.6 million and $5.5 million, respectively. Additional Paid-In Capital - -------------------------- Additional paid-in capital increased $7.6 million, from $34.3 million at December 31, 1998 to $41.9 million at December 31, 1999. This increase is due to shares issued in connection with the purchase of AFP offset by a decline in additional paid-in capital due to repurchase of the Company's common stock. Accumulated Other Comprehensive Income - -------------------------------------- Accumulated other comprehensive income decreased $14.1 million from $5.6 million at December 31, 1998 to $(8.5) million at December 31, 1999 due to unrealized losses on securities available for sale. Results of Operations - Year Ended December 31, 1999 Compared to Year Ended December 31, 1998 Premiums - -------- Direct premiums written and assumed increased $31.2 million, or 26.7%, from $117.0 million in 1998 to $148.2 million in 1999. The increase in premiums written and assumed is due to the acquisitions of APAC and Tenere, which added $6.1 million and $6.2 million, respectively, and additional assumed premiums written of $12.1 million. Net premiums earned increased $28.6 million, or 31.9%, from $89.6 million for the year ended December 31, 1998 to $118.2 million for the year ended December 31, 1999. The increase in net premiums earned is due to the acquisition of Tenere, which added $6.3 million, a full year of premiums earned at APAC of $4.2 million, additional assumed MPL premium of $13.4 million, and additional health premium of $4.7 million. Net Investment Income - --------------------- Net investment income increased $1.5 million, or 8.6%, from $17.5 million in 1998 to $19.0 million in 1999. The increase was primarily attributable to the inclusion of Tenere, which added approximately $1.9 million of investment income. The overall allocation to tax-free securities decreased from 58% in 1998 to 55% in 1999. 22 Claims Administration and Management Fees and Commission Income - --------------------------------------------------------------- Claims administration fees and commission income increased $19.4 million, or 167.2%, from $11.6 million in 1998 to $31.0 million in 1999. The increase is primarily attributable to the acquisition of AFP, which added $20.6 million in management fees and commission revenue during 1999. Claims administration fees are revenues generated by McCreary's core business, which is the administration of self-insured programs for large employers, primarily in the health and workers' compensation areas. Neither McCreary nor the Company assume insurance risks on these products; each employer assumes the risk and McCreary places any desired excess coverage with various insurers and reinsurers. McCreary generated commission income from the placement of this excess coverage. Management fees are revenues generated by AFP for providing all underwriting, administrative and investment functions for PRI. Losses and LAE - -------------- Losses and LAE increased $13.6 million, or 20.2%, from $67.4 million in 1998 to $81.0 million in 1999, reflecting, in part, the increase in premiums earned. The GAAP loss ratios were 68.5% in 1999 and 75.2% in 1998. The loss ratio is defined as losses and loss adjustment expenses as a percentage of net premiums earned. The positive trend in the Company's loss ratio was primarily due to favorable loss and LAE experience on business written on the Company's core MPL business, the addition of assumed reinsurance, which carries a lower loss ratio than the core MPL business, offset to some extent by adverse results from the Company's group accident and health business. The liability for losses and LAE represents management's best estimate of the ultimate cost of all losses incurred but unpaid and considers prior loss experience, loss trends, the Company's loss retention levels and changes in frequency and severity of claims. In connection with the Company's review of the liability for losses and LAE, which includes a reevaluation of the adequacy of reserve levels for prior years' claims, the Company reduced its reserves for claims occurring in prior periods by $18.6 million in 1999 and $14.3 million in 1998. Given recent competitive market conditions, which have lessened the Company's ability to underwrite and price its business at such favorable terms, management does not expect reserve reductions to continue at these levels in 2000. Furthermore, given the inherent uncertainties in the estimation of loss and LAE reserves, there can be no assurance concerning future adjustments, positive or negative, for prior years' claims. Other Underwriting Expenses - --------------------------- Other underwriting expenses increased $10.2 million, or 81.6%, from $12.5 million in 1998 to $22.7 million in 1999. The increase is primarily attributable to an increase in expenses related to assumed premiums of $1.4 million, and the inclusion of APAC and Tenere, which combined, added $6.0 million. In addition, general and administrative expenses increased $2.3 million, including a non-recurring severance charge of $1.9 million. In addition, the Company's health insurance products have a higher expense factor than the Company's core MPL products. Claims Administration and Management Expenses - --------------------------------------------- Claims administration and management expenses increased $16.9 million, or 170.7%, from $9.9 million in 1998 to $26.8 million in 1999. The increase is primarily attributable to the purchase of AFP, which incurred $14.3 million in management expenses during 1999 and $.7 in compensation expense related to stock grants for AFP employees. 23 Interest Expense - ---------------- Interest expense increased $3.2 million, from $.8 million in 1998 to $4.0 million in 1999. The increase is primarily due to additional draws on the credit facility to fund non-operating activities and the acquisition of AFP. Other Expenses - -------------- Other expenses increased $4.4 million, from $.8 million in 1998 to $5.2 million in 1999. The increase is primarily attributable to amortization expense on goodwill recorded in connection with acquisitions accounted for under the purchase method. Income Tax - ---------- Income taxes increased $1.1 million, or 13.4%, from $8.2 million in 1998 to $9.3 million in 1999. This increase was due to additional income before taxes. Net Income - ---------- Net income increased $1.2 million, or 5.8%, from $20.7 million in 1998 to $21.9 million in 1999. Diluted earnings increased $.08 per share from $2.11 per share for the year ended December 31, 1998 to $2.19 per share (including the $.16 per share nonrecurring severance charge) for the year ended December 31, 1999. Excluding the nonrecurring severance charge of $.16 per share, operating earnings per share for the year-ended December 31, 1999 would be $2.32 per share. Results of Operations - Year Ended December 31, 1998 Compared to Year Ended December 31, 1997 Premiums - -------- Direct premiums written and assumed increased $39.2 million, or 50%, from $77.8 million in 1997 to $117.0 million in 1998. This increase was primarily attributable to assumed premium of $22 million, of which $16 million was MPL premium, the purchase of APAC, which added $2.8 million, and an average rate increase of 5.5% on MPL premiums effective January 1, 1998. In addition, the Company added direct premium written of $5.2 million in Texas and $8 million in group accident and health coverage in 1998. Reinsurance premium ceded more than doubled from $7.5 million in 1997 to $16 million in 1998 due to the increase in premium written in Texas and the APAC premium. Net premiums earned increased $24.1 million, or 37%, from $65.5 million in 1997 to $89.6 million in 1998 due to the increase in direct premiums written and the assumed premium. Net Investment Income - --------------------- Net investment income increased $1.5 million, or 9%, from $16.0 million in 1997 to $17.5 million in 1998. The increase was primarily attributable to a higher level of invested assets and the inclusion of APAC, which added approximately $0.9 million of investment income. The increase was achieved despite an increase in the overall allocation to tax-free securities from 50% in 1997 to 58% in 1998. Claims Administration and Management Fees and Commission Income - --------------------------------------------------------------- Claims administration fees are revenues generated by McCreary's core business, which is the administration of self-insured programs for large employers, primarily in the health and 24 workers' compensation areas. Neither McCreary nor the Company assumes insurance risk on these products; each employer assumes the risk and McCreary places any desired excess coverage with various insurers and reinsurers. McCreary generated all the commission income from the placement of this excess coverage. Claims administration fees and commission income increased $1.4 million, or 14%, from $10.2 million in 1997 to $11.6 million in 1998. This increase is attributable to the addition of new contracts. Losses and LAE - -------------- Losses and LAE increased $13.4 million, or 25%, from $54.0 million in 1997 to $67.4 million in 1998 reflecting, in part, the increase in premiums earned. The GAAP loss ratios were 75.2% in 1998 and 82.5% in 1997. The lower loss ratio in 1998 reflects a change in the mix of business, particularly the group accident and health product, which during 1998 ran at a lower loss ratio than the Company's MPL business. In connection with the Company's review of the liability for losses and LAE, which includes a reevaluation of the adequacy of reserve levels for prior years' claims, the Company reduced its reserves for claims occurring in prior periods by $14.3 million in 1998 and $15.1 million in 1997. The liability for losses and LAE represents management's best estimate of the ultimate cost of all losses incurred but unpaid and considers prior loss experience, loss trends, the Company's loss retention levels and changes in frequency and severity of claims. Given the inherent uncertainties in the estimation of loss and LAE reserves, there can be no assurance concerning future adjustments, positive or negative, for prior years' claims. Other Underwriting Expenses - --------------------------- Other underwriting expenses increased $5.4 million, or 76%, from $7.1 million in 1997 to $12.5 million in 1998. This increase was primarily attributable to acquisition costs relating to the increase of insureds and the related premium written. In addition, the increase in assumed premium and the expansion into other product lines, such as group accident and health, have higher acquisition costs and added $3.8 million. Claims Administration and Management Expenses - --------------------------------------------- Claims administration expenses increased $1.4 million, or 16%, from $8.5 million in 1997 to $9.9 million in 1998. This increase was primarily attributed to the addition of new contracts. Other Expenses - -------------- Other expenses increased $.5 million, or 166.7%, from $.3 million in 1997 to $.8 million in 1998. The increase is primarily attributable to the purchase of Sy.Med in 1998. Income Tax - ---------- Income taxes increased $1.4 million, or 21%, from $6.8 million in 1997 to $8.2 million in 1998. This increase was due to additional income before taxes. Net Income - ---------- Net income increased $4.1 million, or 25%, from $16.6 million in 1997 to $20.7 million in 1998. Diluted earnings increased $.35 per share, or 19.9%, from $1.76 per share for the year-ended December 31, 1997 to $2.11 per share for the year-ended December 31, 1998. 25 Liquidity and Capital Resources The payment of losses and LAE and operating expenses in the ordinary course of business is the principal need for the Company's liquid funds. Cash used to pay these items has been provided by operating activities. Cash provided from these activities was sufficient during 1999 to meet the Company's needs. Management believes these sources will be sufficient to meet the Company's cash needs for operating purposes for at least the next twelve months. However, a number of factors could cause increases in the dollar amount of losses and LAE and may therefore adversely affect future reserve development and cash flow needs. Management believes these factors include, among others, inflation, changes in medical procedures, increasing use of managed care and adverse legislative changes. In order to compensate for such risk, the Company: (i) maintains what management considers to be adequate reinsurance; (ii) conducts regular actuarial reviews of loss reserves; and (iii) maintains adequate asset liquidity (by managing its cash flow from operations coupled with the maturities from its fixed income portfolio investments). The Company maintains a $75,000,000 revolving credit facility with five banks to meet certain non-operating cash needs as they may arise. As of December 31, 1999, $62,719,109 had been borrowed under this facility at an interest rate of approximately 6.4% per annum. The credit facility bears interest at various rates ranging from LIBOR plus 0.75% to Prime plus 0.50%. The credit facility terminates on January 4, 2002. The Company anticipates that before such time, it would either extend the financing or obtain alternative financing. The Company is not required to maintain compensating balances in connection with this credit facility but is charged a fee on the unused portion, which ranges from 20 to 30 basis points. Under the terms of the credit facility, the Company is required to meet certain financial covenants. Significant covenants are as follows: a) the Company's funded debt to total capital plus funded debt ratio cannot exceed 0.35:1 and b) net premiums written to statutory capital and surplus ratio cannot exceed 2.0:1. At December 31, 1999, the Company's subsidiary, Intermed, was in technical violation of one of the Company's loan covenants. The Company has obtained a waiver for this technical violation bringing Intermed and the Company into compliance. The credit facility is guaranteed by certain subsidiaries and collateralized by the common stock of certain subsidiaries. At December 31, 1999, the Company held approximately $14.3 million in investments scheduled to mature during the next twelve months, which combined with net cash flows from operating activities, are expected to provide the Company with sufficient liquidity and working capital. As highlighted in the accompanying consolidated statements of cash flows, the Company generated positive net cash from operations of $14,342,940 in 1999. Shareholder dividends payable by the Company's insurance subsidiaries are subject to certain limitations imposed by Florida and Missouri law. In 2000, these subsidiaries are permitted, within insurance regulatory guidelines, to pay dividends of approximately $19,700,000 without prior regulatory approval. The NAIC has developed risk-based capital ("RBC") measurements for insurers, which have been adopted by the Florida and Missouri Departments of Insurance. RBC measurements provide state regulators with varying levels of authority based on the adequacy of an insurer's adjusted surplus. At December 31, 1999, the Company's insurance subsidiaries maintain adjusted surplus in excess of all required RBC thresholds. Accounting Pronouncements SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," was issued in June 1998, and establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts (collectively referred to as derivatives), and for hedging activities. As issued, SFAS No. 133 is effective for all fiscal quarters of all fiscal years beginning after June 15, 1999. SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB Statement No. 133," was issued in June 1999 and defers the effective date of SFAS No. 133. SFAS No. 133 26 is now effective for all fiscal quarters of all fiscal years beginning after June 15, 2000. Management believes that SFAS No. 133 will not have a significant impact on the Company's consolidated financial position or results of operations. Guaranty Fund Assessments The Company is subject to assessment by the Florida Insurance Guaranty Association, Inc. (FIGA) and the Missouri Property and Casualty Insurance Guaranty Association (MPCIGA) as well as similar associations in other states where it is licensed, for the provision of funds necessary for the settlement of covered claims under certain policies of insolvent insurers. In addition to the standard assessments, the Florida and Missouri Legislatures may levy special assessments to settle claims caused by certain catastrophic losses. The Company would be assessed on a basis of premium written. No provision for special assessments was made in the 1999 financial statements. However, damages caused by future catastrophes could subject the Company to additional assessments. Item 7A. Quantitative and Qualitative Disclosures About Market Risk The following discussion about the Company's risk-management activities includes "forward-looking statements" that involve various risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. Market risk is the risk of loss arising from adverse changes in market rates and conditions, such as interest rates, spreads among various asset classes, foreign currency exchange rates, and other relevant market rate or price changes. Market risk is directly influenced by the volatility and liquidity in the markets in which the related underlying assets are traded. The following is a discussion of the Company's primary market risk exposures and how those exposures are currently managed as of December 31, 1999. The Company's market risk sensitive instruments are entered into for purposes other than trading. The fair value of the Company's debt and equity investment portfolio as of December 31, 1999 was $335,899,101. Approximately 97.4% of the portfolio was invested in fixed maturity securities. The primary market risk to the investment portfolio is interest rate risk associated with investments in fixed maturity securities. The Company's exposure to equity risk is not material. The Company does not believe it has any foreign currency exposure. The Company does not conduct any operations outside of the United States nor does the Company own any non-U.S. dollar denominated securities. Generally, the Company does not invest in derivatives and does not currently use any hedging strategies in its investment portfolio. However, the Company has invested in one interest rate swap contract to fix the interest rate in connection with its revolving credit facility. As of December 31, 1999, the Company's investments in Collateral Mortgage Obligations and Asset Backed Securities represented approximately one percent of its investment portfolio. The Company's investment portfolio is predominately fixed-income with approximately 43.4% allocated to the municipal sector. The balance is diversified through investments in Treasuries, agencies, corporates and mortgage-backed securities. The three market risks that can most directly affect the investment portfolio are changes in US interest rates, credit risks and legislative changes impacting the tax-exempt status of municipal securities. Adverse impacts to the Company resulting from changes in interest rates is primarily controlled through limiting the duration, or average maturity, of the overall portfolio. The Company manages the duration of its portfolio relative to the duration of the anticipated liabilities of the Company. Credit risks are controlled 27 through investing in securities with above average credit ratings. Approximately 63.3% of the portfolio is AAA, 15.0% is AA, 5.7% is A and 15.9% is BBB rated. From time to time discussion arises in the United States Congress relative to changing or modifying the tax-exempt status of municipal securities. While the Company is diligent in its efforts to stay current on legislative acts that could adversely impact the tax exempt status of municipal securities, and while it is uncertain as to whether these changes would ultimately affect valuation of municipal securities currently held in the portfolio, at present there are no hedging or other strategies being specifically used to minimize this risk. If interest rates were to rise 100 basis points, the fair value of the Company's fixed maturity securities would decrease approximately $17,600,000. There have been no significant changes to the Company's exposure to financial market risks during the year nor does the Company anticipate any significant changes in future reporting periods. The amounts reported as cash flows in the table below for fixed maturities represent par values at maturity date. The fair values of fixed maturities as disclosed in the table below are based upon quoted market prices or dealer quotes for comparable securities. The fair value of the credit facility is based on the amount of cash flows discounted over the applicable term at the Company's borrowing rate at December 31, 1999.
Projected Cash Flows (in thousands) -------------------------------------------------------------------------------------------------- December 31, 1999 2000 2001 2002 2003 2004 Thereafter Total Fair Value ---- ---- ---- ---- ---- ---------- ----- --------------------- Assets - ------ Fixed maturity securities: Available for sale $ 14,300 15,028 5,800 17,047 14,007 273,337 339,518 327,076 Liabilities: - ------------ Credit facility $ 62,719 56,559 Weighted Average Interest Rate: - ------------------------------- Fixed maturity securities 5.52% 6.39% 6.54% 6.34% 6.96% 6.23% 6.26% Credit facility 5.27%
Year 2000 In order to avoid potential Year 2000 ("Y2K") problems, the Company adopted a Year 2000 Plan ("the Plan") covering all of the Company's operations. The aim of the Plan was to take steps to prevent the Company's processes and systems, with emphasis on mission-critical functions, from being impaired due to Y2K problems. Y2K problems result from the use in computer hardware and software of two digits rather than four digits to define the applicable year. The Plan considered the readiness of software systems written internally and those provided by third parties to process data and perform date calculations correctly using dates beginning January 1, 2000 and beyond. Hardware, including network servers, PC workstations, network routers, and communication equipment were reviewed to determine that firmware and operating system software were Y2K compliant. As of March 30, 2000, the Company has not experienced any significant Y2K problems prior to or after January 1, 2000. The Company further believes that it will not experience any material Y2K problems in its mission critical functions, processes and systems. The Company anticipated that total costs for Y2K awareness, inventory, assessment, analysis, conversion, testing and contingency planning would be approximately $150,000. As of March 30, 2000, approximately $140,000 in costs had been incurred. The Company does not anticipate any material costs related to Y2K. 28 The costs incurred to address Y2K problems did not have a material effect on the Company's consolidated financial position or results of operations. From a forward-looking perspective, Y2K problems may affect the Company for some period of time after January 1, 2000. However, the extent and magnitude of the Y2K problem is difficult to predict or quantify. If, despite the Company's reasonable efforts under its Plan, there are mission critical Y2K related failures that create substantial disruptions to the Company's business, the adverse impact on the Company's business could be material. Item 8. Financial Statements and Supplementary Data - ------- ------------------------------------------- The consolidated financial statements and schedules listed in Item 14(a)(1) and (2) are included in this Report beginning on Page 35. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure - -------------------- None PART III Item 10. Directors and Executive Officers of the Registrant Information required hereunder with respect to directors and the five highest compensated officers will appear under the heading "Executive Compensation" in the Company's Proxy Statement for the 2000 Annual Meeting of Shareholders, which information is incorporated herein by reference. Information regarding the Company's other executive officers is as follows: Name of Executive Officers Age Capacity Kim D. Thorpe 44 Executive Vice President and Chief Financial Officer Donald J. Sabia 41 Vice President-Finance David L. Rader 53 President and Director Kim D. Thorpe has served the Company as Executive Vice President and Chief Financial Officer since November 1999. Mr. Thorpe is a certified public accountant. Prior to joining the Company, Mr. Thorpe served as the chief financial officer of a life insurance business unit of GE Financial Assurance, a subsidiary of GE Capital Corporation and General Electric Company. Before joining GE in March 1998, Mr. Thorpe was a partner with the accounting firm of PricewaterhouseCoopers LLP, where he practiced public accounting for approximately 12 years. Donald J. Sabia has served as a Vice President of the Company since its formation in 1996 and as an officer of FPIC since 1995 and has been employed by the Company since 1993. From 1986 to 1993, Mr. Sabia was an auditor with the accounting firm of Coopers & Lybrand. Mr. Sabia is a Certified Public Accountant. Mr. Sabia has tendered his resignation and will be departing the Company effective April 1, 2000. David L. Rader has served as President, Chief Operating Officer and Director of FPIC since September 1999. Mr. Rader previously served as President and Director of FPIC from 1984 through 1990. He has been a senior officer or director of Physicians Insurance Company of Ohio, Physicians Insurance Company of Michigan, Physicians Insurance Company of Indiana and Kentucky Medical Insurance Company. Immediately prior to joining FPIC in 1984, he was President of American Physicians Life Insurance Company. From 1995 through 1997, he was President and Chief Operating Officer of Plans' Liability 29 Insurance Company in Chicago, Illinois. He is a founding member of Physicians Insurers Association of America (PIAA). Item 11. Executive Compensation The information required herein will appear under the heading "Executive Compensation" in the Company's Proxy Statement for the 2000 Annual Meeting of Shareholders, which information is incorporated herein by reference. Item 12. Security Ownership of Certain Beneficial Owners and Management The information required herein will appear under the heading "Principal Shareholders and Securities Ownership of Management" in the Company's Proxy Statement for the 2000 Annual Meeting of Shareholders, which information is incorporated herein by reference. Item 13. Certain Relationships and Related Transactions The information required herein will appear under the heading "Certain Relationships and Related Transactions" in the Company's Proxy Statement for the 2000 Annual Meeting of Shareholders, which information is incorporated herein by reference. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K (a) 1. Financial Statements and Schedules: ----------------------------------- FPIC Insurance Group, Inc.: Independent Auditors' Report Consolidated Balance Sheets at December 31, 1999 and 1998 Consolidated Statements of Income for the years ended December 31, 1999, 1998 and 1997 Consolidated Statements of Comprehensive Income for the years ended December 31, 1999, 1998 and 1997 Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 1999, 1998 and 1997 Consolidated Statements of Cash Flows for the years ended December 31, 1999, 1998 and 1997 Notes to the Consolidated Financial Statements 2. Financial Statement Schedules: ------------------------------ (Schedules other than those listed are omitted for the reason that they are not required or are not applicable or the required information is shown in the financial statements or notes thereto) I Summary of Investments - Other than Related Party Investments II Condensed Financial Information of Registrant III Supplemental Insurance Information IV Reinsurance V Valuation and Qualifying Accounts 30 3. Exhibits: --------- Exhibit No. ----------- 3.1 Restated Articles of Incorporation of FPIC Insurance Group, Inc., incorporated by reference to the Company's Form 10-Q (Commission File No. 1-11983) filed on August 16, 1999. 3.2 Bylaws of FPIC Insurance Group, Inc., incorporated by reference to the Company's Registration Statement on Form S-4 (Registration No. 333-02040) first filed on March 7, 1996. 10(a) Form of Employment Agreement dated December 30, 1992, amended November 4, 1995, and amended February 28, 1996 and extended on November 7, 1998, between FPIC and William R. Russell, incorporated by reference to the Company's Registration Statement on Form S-4 (Registration No. 333-02040) first filed on March 7, 1996 and the Company's Form 10-Q, incorporated by reference to the Company's definitive proxy statement (Commission File No. 1-11983) filed on May 7, 1999. 10(b) Form of Severance Agreements dated February 28, 1996, between FPIC and William R. Russell, incorporated by reference to the Company's Registration Statement on Form S-4 (Registration No. 333-02040) first filed on March 7, 1996. 10(c) Form of Indemnity Agreement dated February 28, 1996 between the Registrant and Drs. Acosta-Rua, Gause, Shapiro, Selander, White, Bagby, Baratta, Murray, Bridges, Hagen, Van Eldik, Yonge, Messrs. Russell, Rosenbloom, Sabia, Carey, Driscoll and Ms. Whitter, incorporated by reference to the Company's Registration Statement on Form S-4 (Registration No. 333-02040) first filed on March 7, 1996). 10(d) Omnibus Incentive Plan, as amended, incorporated by reference to the Company's definitive proxy statement (Commission File No. 1-11983) filed on May 7, 1999. 10(e) Director Stock Option Plan, as amended, incorporated by reference to the Company's definitive proxy statement (Commission File No. 1-11983) filed on May 7, 1999. 10(f) Supplemental Executive Retirement Plan, as amended, incorporated by reference to the Company's Form 10-Q (Commission File No. 1-11983) filed on May 17, 1999. 10(g) Excess Benefit Plan, incorporated by reference to the Company's Registration Statement on Form S-4 (Registration No. 333-02040) first filed on March 7, 1996. 10(h) Deferred Compensation Plan, incorporated by reference to the Company's Registration Statement on Form S-1 (Registration No. 333-04585) first filed on May 24, 1996. 10(i) Agreement and Plan of Merger dated as of April 14, 1998 among the Company, Anesthesiologists' Professional Assurance Association, Inc., the APAA Liquidating Trust and Anesthesiologists' Professional Assurance Company, incorporated by reference to the Company's filing on Form 10-K (Commission File No. 1-11983) filed on March 31, 1999. 31 10(l) Form of Severance Agreement dated January 1, 1999 between the Registrant and John R. Byers incorporated by reference to the Company's Form 10-Q (Commission File No. 1-11983) filed on May 17, 1999. 10(m) Form of Employment Agreement dated January 1, 1999 between the Registrant and John R. Byers incorporated by reference to the Company's Form 10-Q (Commission File No. 1-11983) filed on May 17, 1999. 10(n) Form of Employment Agreement dated November 22, 1999 between the Registrant and Kim D. Thorpe. 10(o) Form of Severance Agreement dated November 22, 1999 between the Registrant and Kim D. Thorpe. 10(p) Form of Indemnity Agreement dated January 1, 1999 between the Registrant and Frank Moya, M.D. and John R. Byers. 10(q) Form of Indemnity Agreement dated May 8, 1999 between the Registrant and Mss. Deyo, Parks and Ryan. 10(r) Form of Indemnity Agreement dated August 22, 1999 between the Registrant and Steven Coniglio. 10(s) Form of Indemnity Agreement dated November 6, 1999 between the Registrant and Messrs. Cetin and Thorpe. 21 Subsidiaries of the Registrant. 23 Consent of KPMG LLP 27 Financial Data Schedule. (b) Reports on Form 8-K ------------------- The Company did not file any reports on Form 8-K during the fourth quarter of 1999. 32 SIGNATURES Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this the 27th day of March, 2000. FPIC Insurance Group, Inc. By /s/ William R. Russell --------------------------- William R. Russell, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date --------- ----- ---- /s/ William R. Russell President, Chief Executive March 27, 2000 ------------------------ Officer and Director William R. Russell (Principal Executive Officer) /s/ Kim D. Thorpe Executive Vice President March 27, 2000 ------------------------ and Chief Financial Officer Kim D. Thorpe (Principal Financial Officer) /s/ Donald J. Sabia Vice President - Finance March 27, 2000 ------------------------ (Principal Accounting Officer) Donald J. Sabia /s/ Robert O. Baratta Chairman of the Board March 27, 2000 ------------------------ Robert O. Baratta, M.D. /s/ David M. Shapiro Vice Chairman March 27, 2000 ------------------------ David M. Shapiro, M.D. /s/ Gaston J. Acosta-Rua Director March 27, 2000 ------------------------ Gaston J. Acosta-Rua, M.D. /s/ Richard J. Bagby Director March 27, 2000 ------------------------ Richard J. Bagby, M.D. /s/ James W. Bridges Director March 27, 2000 ------------------------ James W. Bridges, M.D. /s/ Curtis E. Gause Director March 27, 2000 ------------------------ Curtis E. Gause, D.D.S. /s/ J. Stewart Hagen Director March 27, 2000 ------------------------ J. Stewart Hagen, M.D. 33 /s/ Frank M. Moya Director March 27, 2000 --------------------- Frank M. Moya, M.D. /s/ Louis C. Murray Director March 27, 2000 --------------------- Louis C. Murray, M.D. /s/ Guy T. Selander Director March 27, 2000 --------------------- Guy T. Selander, M.D. /s/ Dick L. Van Eldik Director March 27, 2000 -------------------------- Dick L. Van Eldik, M.D. /s/ James G. White Director March 27, 2000 --------------------- James G. White, M.D. /s/ Henry M. Yonge Director March 27, 2000 --------------------- Henry M. Yonge, M.D. 34 Independent Auditors' Report The Board of Directors FPIC Insurance Group, Inc. We have audited the consolidated financial statements of FPIC Insurance Group, Inc. as listed in the accompanying index. In connection with our audits of the consolidated financial statements, we also have audited the financial statement schedules as listed in the accompanying index. These consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of FPIC Insurance Group, Inc. as of December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the years in the three-year period ended December 31, 1999 in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly, in all material respects, the information set forth therein. KPMG LLP Jacksonville, Florida March 8, 2000 35 FPIC INSURANCE GROUP, INC. Consolidated Balance Sheets As of December 31, 1999 and 1998
1999 1998 ------------- ------------- Assets Cash and cash equivalents $ 6,829,802 7,062,695 Bonds and U.S. Government securities, available for sale 327,076,429 325,922,559 Equity securities, available for sale 8,822,672 9,427,990 Real estate 5,235,379 4,581,671 Other invested assets 5,454,775 5,071,771 ------------- ------------- Total cash and investments 353,419,057 352,066,686 Premiums receivable, net of allowance for doubtful accounts of $1,246,580 and $908,409 in 1999 and 1998, respectively 45,782,784 40,296,590 Accrued investment income 5,426,270 4,981,612 Reinsurance recoverable on paid losses 3,080,859 3,190,042 Due from reinsurers on unpaid losses and advance premiums 60,355,677 42,100,852 Property and equipment, net 3,773,502 2,614,686 Deferred policy acquisition costs 2,789,170 2,001,248 Deferred income taxes 21,243,776 9,348,494 Finance charge receivable 378,860 370,875 Prepaid expenses 1,126,167 644,336 Goodwill, net 70,441,159 12,699,714 Intangible assets, net 3,480,696 3,886,574 Federal income tax receivable 4,128,756 271,029 Other assets 6,796,269 4,905,730 ------------- ------------- Total assets $ 582,223,002 479,378,468 ============= ============= Liabilities and Shareholders' Equity Loss and loss adjustment expenses $ 273,092,000 242,377,000 Unearned premiums 55,758,929 44,309,691 Paid in advance and unprocessed premiums 5,458,683 5,767,080 Revolving credit facility 62,719,109 27,165,000 Accrued expenses and other liabilities 18,815,339 8,829,169 ------------- ------------- Total liabilities 415,844,060 328,447,940 ------------- ------------- Commitments and contingencies (note 16) Common stock, $.10 par value, 50,000,000 shares authorized; 9,621,298 and 9,518,679 shares issued and outstanding at December 31, 1999 and 1998, respectively 962,130 951,868 Additional paid-in capital 41,856,912 34,297,994 Unearned compensation (230,669) (356,528) Accumulated other comprehensive (loss) income (8,494,573) 5,621,533 Retained earnings 132,285,142 110,415,661 ------------- ------------- Total shareholders' equity 166,378,942 150,930,528 ------------- ------------- Total liabilities and shareholders' equity $ 582,223,002 479,378,468 ============= =============
See accompanying notes to consolidated financial statements. 36 FPIC INSURANCE GROUP, INC. Consolidated Statements of Income For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997 ------------ ------------ ------------ Revenues Net premiums earned $118,188,873 89,561,578 65,503,675 Net investment income 19,023,878 17,549,099 15,978,534 Net realized investment gains (losses) 350,596 (39,226) 32,065 Claims administration and management fees 26,805,357 9,861,210 8,758,651 Commission income 4,152,233 1,740,005 1,465,282 Finance charge and other income 2,301,863 1,648,144 1,477,824 ------------ ------------ ------------ Total revenues 170,822,800 120,320,810 93,216,031 ------------ ------------ ------------ Expenses Net losses and loss adjustment expenses 80,967,650 67,361,507 54,010,515 Other underwriting expenses 22,695,107 12,513,065 7,079,238 Claims administration and management expenses 26,804,723 9,936,558 8,461,264 Interest expense 3,981,500 844,451 48,980 Other expenses 5,170,843 801,013 271,811 ------------ ------------ ------------ Total expenses 139,619,823 91,456,594 69,871,808 ------------ ------------ ------------ Income before income taxes 31,202,977 28,864,216 23,344,223 Income taxes 9,333,496 8,171,574 6,787,538 ------------ ------------ ------------ Net income $ 21,869,481 20,692,642 16,556,685 ============ ============ ============ Basic earnings per common share $ 2.24 2.22 1.83 ============ ============ ============ Diluted earnings per common share $ 2.19 2.11 1.76 ============ ============ ============ Basic weighted average common shares outstanding 9,748,190 9,332,206 9,044,984 ============ ============ ============ Diluted weighted average common shares outstanding 10,006,614 9,808,664 9,407,093 ============ ============ ============
See accompanying notes to consolidated financial statements. 37 FPIC INSURANCE GROUP, INC. Consolidated Statements of Comprehensive Income For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997 ------------ ------------ ------------ Net Income $ 21,869,481 20,692,642 16,556,685 ------------ ------------ ------------ Other Comprehensive Income Unrealized (losses) gains on securities Unrealized holding (losses) gains arising during period (22,067,683) 3,096,509 5,352,980 Reclassification adjustment for gains (losses) included in net income 350,596 (39,226) 32,065 Income tax benefit (expense) related to unrealized gains and losses on securities 7,600,981 (1,070,049) (1,830,915) ------------ ------------ ------------ Other comprehensive (loss) income (14,116,106) 1,987,234 3,554,130 ------------ ------------ ------------ Comprehensive income $ 7,753,375 22,679,876 20,110,815 ============ ============ ============
See accompanying notes to consolidated financial statements. 38 FPIC INSURANCE GROUP, INC. Consolidated Statements of Changes in Shareholders' Equity For the Years Ended December 31, 1999, 1998 and 1997
Accumulated Other Common Additional Comprehensive Retained Treasury Stock Paid-in capital Income Earnings Stock --------------- ---------------- --------------- ----------- --------- December 31, 1996 $ 902,167 22,444,711 80,169 73,166,334 (181,991) Net income -- -- -- 16,556,685 -- Retirement of treasury shares (1,957) (180,034) -- -- 181,991 Net unrealized gain on debt and equity securities -- -- 3,554,130 -- -- Issuance of shares, net 17,748 3,524,467 -- -- -- December 31, 1997 $ 917,958 25,789,144 3,634,299 89,723,019 -- Net income -- -- -- 20,692,642 -- Unearned compensation -- -- -- -- -- Net unrealized gain on debt and equity securities -- -- 1,987,234 -- -- Issuance of shares, net 33,910 8,508,850 -- -- -- December 31, 1998 $ 951,868 34,297,994 5,621,533 110,415,661 -- Net income -- -- -- 21,869,481 -- Earned compensation on option issue -- -- -- -- -- Net unrealized loss on debt and equity securities -- -- (14,116,106) -- -- Issuance of shares, net 10,262 7,558,918 -- -- -- ------------ ------------ ------------ ------------ ------------ December 31, 1999 $ 962,130 41,856,912 (8,494,573) 132,285,142 -- ============ ============ ============ ============ ============ Unearned Compensation Total ------------ ------------ December 31, 1996 -- 96,411,390 Net income -- 16,556,685 Retirement of treasury shares -- -- Net unrealized gain on debt and equity securities -- 3,554,130 Issuance of shares, net -- 3,542,215 ------------ ------------ December 31, 1997 -- 120,064,420 Net income -- 20,692,642 Unearned compensation (356,528) (356,528) Net unrealized gain on debt and equity securities -- 1,987,234 Issuance of shares, net -- 8,542,760 ------------ ------------ December 31, 1998 (356,528) 150,930,528 Net income -- 21,869,481 Earned compensation on option issue 125,859 125,859 Net unrealized loss on debt and equity securities -- (14,116,106) Issuance of shares, net -- 7,569,180 ------------ ------------ December 31, 1999 (230,669) 166,378,942 ============ ============
See accompanying notes to consolidated financial statements. 39 FPIC INSURANCE GROUP, INC. Consolidated Statements of Cash Flows For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997 ------------ ------------ ------------ Cash flows from operating activities: Net income $ 21,869,481 20,692,642 16,556,685 Adjustments to reconcile net income to cash provided by operating activities: Depreciation and amortization 5,908,262 2,256,019 2,108,350 Realized (gain) loss on investments (350,596) 39,226 (32,065) Realized loss on sale of property and equipment 16,191 10,886 7,275 Noncash compensation 125,859 20,972 -- Net loss (earnings) from equity investments 339,036 (300,046) -- Deferred income taxes 1,096,986 (361,043) (1,939,499) Writedown of goodwill to net realizable value 436,042 -- -- Bad debt expense 352,178 227,234 297,595 Changes in assets and liabilities: Premiums receivable, net 965,314 (19,136,259) (5,670,261) Accrued investment income, net (25,271) (831,355) (99,588) Reinsurance recoverable 109,183 (2,207,575) (792,276) Due from reinsurers on unpaid losses and advance premiums (5,650,686) (11,319,478) (2,094,761) Deposits with reinsurers 662,496 18,606,551 (1,651,162) Deferred policy acquisition costs (525,734) (589,828) (199,385) Prepaid expenses and finance charge receivable (652,590) (310,666) (64,385) Other assets 340,096 (1,620,628) (784,846) Loss and loss adjustment expenses (6,790,115) 14,880,897 15,348,000 Unearned premiums 3,234,011 11,372,617 4,758,896 Paid in advance and unprocessed premiums (308,397) 348,712 (467,920) Federal income tax receivable / payable (3,857,727) (3,006,556) 2,214,942 FIGA accrual -- -- (1,345,244) Accrued expenses and other liabilities (2,951,079) 1,456,300 2,973,378 ------------ ------------ ------------ Net cash provided by operating activities 14,342,940 30,228,622 29,123,729 ------------ ------------ ------------ Cash flows from investing activities: Proceeds from sale or maturity of bonds and U.S. Government securities 69,470,532 44,017,742 81,416,058 Purchase of bonds and U.S. Government securities (61,577,622) (83,056,363) (102,081,907) Proceeds from sale of equity securities 236,433 300,000 -- Purchase of equity securities -- (7,680,500) (2,331,950) Proceeds from sale of real estate investments -- -- 281,060 Purchase of real estate investments (902,312) (376,833) (864,224) Purchase of other invested assets (703,558) (2,171,771) (2,000,000) Purchases of property and equipment, net (1,556,323) (1,215,618) (1,174,941) Purchase of subsidiary's net other assets and stock (49,763) (2,433,623) (285,726) Purchase of goodwill (50,986,139) (11,559,043) (5,407,588) ------------ ------------ ------------ Net cash used in investing activities (46,068,752) (64,176,009) (32,449,218) ------------ ------------ ------------ Cash flows from financing activities: Receipt of revolving credit facility 39,054,109 25,165,000 2,000,000 Payment on revolving credit facility (3,500,000) -- -- Buyback of common stock outstanding (8,272,435) -- -- Issuance of common stock 4,211,245 8,165,260 3,542,215 ------------ ------------ ------------ Net cash provided by financing activities 31,492,919 33,330,260 5,542,215 ------------ ------------ ------------ Net (decrease) increase in cash and cash equivalents (232,893) (617,127) 2,216,726 Cash and cash equivalents at beginning of period 7,062,695 7,679,822 5,463,096 ------------ ------------ ------------ Cash and cash equivalents at end of period $ 6,829,802 7,062,695 7,679,822 ============ ============ ============
See accompanying notes to consolidated financial statements. Continued. 40 FPIC INSURANCE GROUP, INC. Consolidated Statements of Cash Flows For the Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997 ------------ --------- ------------ Supplemental disclosure of noncash financing activities: Interest paid $ 4,015,726 844,151 65,962 ============ ========= ============ Federal income taxes paid $ 6,634,000 9,816,000 6,071,204 ============ ========= ============ Retirement of treasury stock $ -- -- 181,991 ============ ========= ============ Supplemental schedule of noncash investing and financing activities: The Company purchased all of the capital stock of Administrators For The Professions, Inc. for $53,830,370 and a 70% equity interest in a limited liability company for $2,500,000. In conjunction with the acquisitions, common stock was issued as follows: Goodwill and other tangible assets acquired $ 56,330,370 -- -- Cash paid for the capital stock (44,700,000) -- -- ------------ --------- ------------ Common stock issued and related additional paid-in capital $ 11,630,370 -- -- ============ ========= ============
See accompanying notes to consolidated financial statements. 41 FPIC INSURANCE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. Organization and Significant Accounting Policies FPIC Insurance Group, Inc. ("the Company") is an insurance holding company. The Company's principal direct and indirect subsidiaries are: Florida Physicians Insurance Company, Inc. ("FPIC"), FPIC Publishing, Inc. ("Publishing"), Anesthesiologists' Professional Assurance Company, Inc. ("APAC"), FPIC Insurance Agency, Inc. ("the Agency"), Administrators For The Professions, Inc. ("AFP") and its two subsidiaries: Group Data Corporation and FPIC Intermediaries, Inc., The Tenere Group, Inc. ("Tenere") and its two subsidiaries: Intermed Insurance Company ("Intermed") and Interlex Insurance Company ("Interlex"), McCreary Corporation ("MCC") and its subsidiary Employer's Mutual, Inc. ("EMI") and its two subsidiaries: FPIC Services, Inc., and Sy.Med Development, Inc. ("Sy.Med"). FPIC is a licensed casualty insurance carrier and writes professional liability insurance for physicians, dentists, hospitals, and other healthcare providers. AFP is a manager and attorney-in-fact for the medical professional liability insurer, Physicians Insurers' Reciprocal ("PRI") in the state of New York. The subsidiaries of AFP provide various brokerage services to the Company's insurance subsidiaries and PRI. APAC is a licensed casualty insurance carrier and writes professional liability insurance for anesthesiologists. Intermed and Interlex are licensed casualty insurance carriers and write professional liability insurance for physicians and attorneys, respectively. Publishing publishes the bimonthly magazine, Women In Medicine. MCC and EMI are third-party administrators of various lines of business in the insurance industry. The subsidiaries of EMI provide various services and software programs to assist physicians in the managed care environment. The Agency conducts various insurance agency activities. The Company's subsidiaries are located primarily in the states of Florida, Missouri, New Mexico, and New York. Basis of Presentation The accompanying consolidated financial statements have been prepared in conformity with generally accepted accounting principles (`GAAP"). These financial statements include the accounts of the Company and all of its wholly owned and majority-owned subsidiaries. Less than majority-owned entities in which the company has at least a 20% interest are reported on the equity basis. Intercompany transactions and balances have been eliminated in consolidation. Nature of Operations The Company, through FPIC, APAC, Intermed, and Interlex, operates in the property and casualty insurance industry and is a provider of medical professional liability ("MPL") and legal professional liability ("LPL") insurance in Florida, Kansas, and Missouri. The Company is licensed to write insurance in Alabama, Arkansas, Florida, Georgia, Kansas, Kentucky, Illinois, Indiana, Maryland, Mississippi, Missouri, Ohio, Pennsylvania, Tennessee, Texas, Virginia, and West Virginia. In addition, the Company is subject to regulation by the Departments of Insurance in these states. Following is a description of the most significant risks facing property and casualty insurers: Legal/Regulatory Risk is the risk that changes in the legal or regulatory environment in which an insurer operates will change and create additional loss costs or expenses not anticipated by the insurer in pricing its products. That is, regulatory initiatives designed to reduce insurer profits or new legal theories may create costs for the insurer beyond those currently recorded in the consolidated financial statements. This risk is concentrated in Florida, where the Company writes approximately 85% of its business, but may expand to other states as it begins writing in those states. Credit Risk is the risk that issuers of securities owned by the Company will default, or other parties, including reinsurers that owe the Company money, will not pay. Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of fixed maturity investments, premiums receivable and deposits with reinsurers. The Company has not experienced significant losses related to premiums receivable from individual policyholders or groups of policyholders in a particular industry or geographic area. Management believes no additional credit risk beyond amounts provided for collection losses is inherent in the Company's premiums receivable. The Company typically requires that deposits with reinsurers be held in trust or collateralized by irrevocable letters of credit. The Company has not experienced significant losses related to such deposits. 42 FPIC INSURANCE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Market Risk is the risk that a change in interest rates will cause a decrease in the value of an insurer's investments. The Company mitigates this risk by following a conservative investment strategy. To the extent that liabilities come due more quickly than assets mature, an insurer would have to sell assets prior to maturity and recognize a gain or loss. Given the Company's liquidity position and prior history, it is unlikely that it would need to liquidate its investment portfolio prior to its scheduled maturity. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. The estimates most susceptible to change are those used in determining the liability for losses and loss adjustment expenses ("LAE"). Although considerable variability is inherent in these estimates, management believes that these liabilities are adequate. These amounts are continually reviewed and adjusted as necessary in current operations. Cash and Cash Equivalents For purposes of the consolidated statements of cash flows, the Company considers all demand deposits, overnight investments and instruments with a maturity of three months or less to be cash equivalents. Investments The Company accounts for its investments under Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Under the provisions of SFAS No. 115, the Company is required to classify investments in debt and equity securities into one of three categories: held-to-maturity, available-for-sale, or trading. All of the Company's investments in debt and equity securities are classified as available-for-sale on the consolidated balance sheet, with the change in fair value during the period excluded from earnings and recorded net of tax as a component of other comprehensive income. Market values for debt and equity securities were based on quoted market prices or dealer quotations. Where a quoted market price was not available, fair value was measured utilizing quoted market prices for similar securities or by using discounted cash flow methods. Other invested assets include investments in three limited partnerships and a joint venture. Two of the partnerships invest in stocks and other financial securities of both public and non-publicly traded companies, primarily in the insurance and financial services industries. The third partnership is a diversified real estate fund. The Company accounts for these investments based on the cost method. Income on investments is net of amortization of premium and accretion of discount on the yield-to-maturity method relating to debt securities acquired at other than par value. Realized investment gains and losses are determined on the basis of specific identification. Declines in the fair value of securities considered to be other than temporary, if any, would be recorded as realized losses in the consolidated statements of income. Real estate investments consist of a building, various rental units and vacant lots. These investments are carried at cost less accumulated depreciation. Depreciation is computed over the estimated useful lives of the property, using the straight-line method. Estimated useful lives range from 27.5 to 39 years. Rental income and expenses are included in net investment income. Reinsurance The Company records its reinsurance contracts under the provisions of SFAS No. 113, "Accounting and Reporting for Reinsurance on Short-Duration and Long-Duration Contracts." In the normal course of business, the Company seeks to reduce the loss that may arise from events that cause unfavorable underwriting results by reinsuring certain levels of risk in various areas of exposure with other insurance enterprises or reinsurers. The Company retains a maximum of $500,000 per occurrence, except on the Company's anesthesiology program in 43 FPIC INSURANCE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS which the maximum loss is $750,000 per occurrence. Amounts recoverable from reinsurers are estimated in a manner consistent with the claim liability associated with the reinsured policy. Reinsurance contracts do not relieve the Company from its primary obligations to policyholders. Failure of reinsurers to honor their obligations could result in losses to the Company. The Company evaluates the financial condition of reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities or economic characteristics of the reinsurers to minimize its exposure to significant losses from reinsurer insolvencies. The Company holds collateral in the form of letters of credit for amounts recoverable from reinsurers that are not designated as authorized reinsurers by the domiciliary Departments of Insurance. The Company uses the deposit method of accounting for short-duration and multiple-year contracts that do not transfer both underwriting and timing risk or for which risk transfer is undeterminable. Property and Equipment The cost of property and equipment is depreciated over the estimated useful lives of the related assets ranging from five to fifteen years. Depreciation is computed on the straight-line basis. Deferred Policy Acquisition Costs Costs related to acquiring insurance contracts, principally commissions, are capitalized when incurred and amortized over the term of the insurance contracts. Income Taxes The Company accounts for income taxes in accordance with SFAS No. 109, "Accounting for Income Taxes." Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Goodwill Goodwill represents the aggregate cost of companies acquired over the fair value of net assets at the date of acquisition and is being amortized into income using the straight-line method over periods not exceeding twenty-five years. Management regularly reviews the carrying value of goodwill by determining whether the amortization of the goodwill can be recovered through undiscounted future operating cash flows of the acquired operation. Intangible Assets Intangible assets represent broker fees, trade secrets and non-compete agreements acquired in connection with business combinations. These assets are being amortized into income over periods not exceeding ten years using the straight-line method. Management regularly reviews the carrying value of intangible assets by determining whether the amortization of the intangible assets can be recovered through undiscounted future operating cash flows of the acquired operation. Recognition of Revenues Premiums are recognized as revenues on a monthly pro rata basis over the terms of the policies. Policy terms generally do not exceed one year. Unearned premiums represent the portion of written premiums which relate to future periods net of deductions for reinsurance placed with reinsurers. Premiums received in advance of the policy year are recorded as premiums collected in advance on the consolidated balance sheet. Claims administration and management fee income is recognized when earned over the life of the contracts. Commission income is recognized at the time a policy is signed. Loss and Loss Adjustment Expenses As more fully described in Note 11, the Company estimates its liability for loss and LAE based on actuarial projections of the best estimate of ultimate losses and LAE. The estimated liability for losses is based upon case base estimates for losses reported, adjusted through formula calculations for ultimate loss expectations; estimates of incurred but not reported losses based on past experience; deduction of amounts for reinsurance placed with 44 FPIC INSURANCE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS reinsurers; and estimates received related to assumed reinsurance. Amounts attributable to ceded reinsurance derived in estimating the liability for loss and LAE are reclassified as assets in the consolidated balance sheets are required by SFAS No. 113. The liability for LAE is provided by estimating future expenses to be incurred in settlement of claims provided for in the liability for losses. The liabilities for losses and LAE and the related estimation methods are continually reviewed and revised to reflect current conditions and trends. The resulting adjustments are reflected in operating results of the year the revisions are made. While management believes the liabilities for losses and LAE are adequate to cover the ultimate liability, the actual ultimate loss costs may vary from the amounts presently provided. Per Share Data Basic and diluted earnings per common share are based upon the weighted average number of common and common and common equivalent shares, respectively, outstanding during each year. Accounting for Stock-based Compensation SFAS No. 123, "Accounting for Stock-based Compensation" requires the fair value of stock options and other stock-based compensation issued to employees to either be recognized as compensation expense in the income statement, or be disclosed as a pro forma effect on net income and earnings per share in the footnotes to the Company's consolidated financial statements. The Company elected to adopt SFAS No.123 on a disclosure basis only and will continue to measure stock-based compensation in accordance with Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," using intrinsic values with appropriate disclosures under the fair value based method as required by SFAS 123. Accordingly, SFAS No. 123 does not have an effect on the Company's consolidated financial position and results of operations. Commitments and Contingencies Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated. Interest Rate Swap The Company uses a derivative financial instrument, specifically an interest rate swap, to manage market risks related to changes in interest rates. The instrument is off-balance-sheet and therefore has no carrying value. The differential to be paid or received as interest rates change is accrued and recognized as an adjustment on interest expense related to the debt. The related amount payable to or receivable from the counterparty is included as an adjustment to accrued interest. The Company does not currently hold or issue any other derivative financial instruments for trading purposes or otherwise. Reclassification Certain amounts for 1998 and 1997 have been reclassified to conform to the 1999 presentation. 2. Business Acquisitions On July 1, 1995, MCC acquired the assets of McCreary Enterprises, Inc., a Florida third party administrator, for $2,000,000 plus certain additional payments based on earnings. On January 17, 1997, MCC acquired all of the outstanding common stock of EMI, a Florida third party administrator, for $1,250,000 plus certain additional payments based upon earnings. The acquisition agreements specified additional payments, based upon earnings, to be made to the sellers from the acquisition date through 2001. The remaining contingent payments and the year of payment for these two acquisitions are as follows: MCC EMI -------------- ------------ 2000 $ 600,000 $ 250,000 2001 -- 250,000 45 FPIC INSURANCE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS These payments are subject to adjustment in accordance with the agreements based on attainment of projected annual earnings from the date of acquisition through 2001. The Company made a $700,000 and a $250,000 payment in 1999 to MCC and EMI, respectively, in accordance with the acquisition agreements. Subsequent to December 31, 1999, the Company entered into agreements ("the new agreements") with the sellers to fix the remaining payments and thereby effectively eliminate the contingent terms under the previous agreements. Under the new agreements, the Company will pay the sellers of McCreary $1,668,362 on July 31, 2000, and the sellers of EMI $226,918 and $537,613 on March 27, 2000 and March 1, 2001, respectively. These payments will increase the original purchase price and the recorded goodwill, accordingly. 1999 business acquisitions Effective January 1, 1999, the Company purchased all of the outstanding common stock of AFP and a 70% interest in Professional Medical Administrators, LLC. ("PMA") for aggregate consideration equal to $56,330,000, paid in cash of $44,700,000 and Company common stock. AFP is the manager and attorney-in-fact for Physicians Reciprocal Insurers, the second largest medical professional liability insurer for physicians in the state of New York. The earnings of PMA are not material to the consolidated results of the Company. The purchase had the following impact for the year ended December 31, 1999, which is included in the consolidated financial statements. Had AFP been included in the consolidated results of operations for the Company for the year ended December 31, 1998 the following increases and decreases would have resulted: Actual Proforma 1999 1998 ----------- ----------- Revenues $20,649,910 16,210,469 Expenses 18,551,632 17,943,619 Net income loss 1,010,965 (94,613) Earnings (loss) per share .10 (.01) On March 17, 1999, the Company's subsidiary, FPIC, purchased all of the outstanding common stock of Tenere for $19,608,000 in cash. Included in the net assets acquired was approximately $14,000,000 in cash. Tenere, headquartered in Springfield, Missouri, is a stock holding company, with two primary insurance subsidiaries, Intermed and Interlex. Intermed and Interlex provide MPL and LPL insurance. The purchase had the following impact for the nine and a half month period ended December 31, 1999, which is included in the consolidated financial statements: Revenues $ 8,217,401 Expenses 9,302,876 Net loss (688,710) Loss per share (.07) Had Tenere been included in the consolidated results of operations for the Company for the years ended December 31, 1999 and 1998, the following increases and decreases would have resulted: 1999 1998 ------------ ------------ Revenues $ 9,565,187 9,586,374 Expenses 13,920,485 14,087,589 Net loss (2,484,171) (2,990,678) Loss per share (.25) (.30) On August 6, 1999, the Company's subsidiary, EMI, purchased all of the assets of Brokerage Services, Inc. ("BSI") and Group Brokerage, Inc. ("GBI"), related corporations headquartered in Albuquerque, New Mexico. 46 FPIC INSURANCE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS BSI and GBI provide third party administration services for self-insured and fully insured health plans. The consideration paid by EMI for such assets aggregated approximately $1,000,000. The purchase had the following impact for the five-month period ended December 31, 1999, which is included in the consolidated financial statements: Revenues $ 1,364,188 Expenses 1,705,333 Net loss (221,744) Loss per share (.02) Had BSI and GBI been included in the consolidated results of operations for the Company for the years ended December 31, 1999 and 1998, the following increases and decreases would have resulted: 1999 1998 ----------- ----------- Revenues $ 3,824,999 5,471,618 Expenses 4,661,003 4,977,872 Net loss / income (543,403) 297,235 Loss / earnings per share (.05) .03 1998 business acquisitions On July 1, 1998, the Company purchased all of the outstanding common stock of APAC, a medical malpractice insurance company, for $18,000,000. Additionally, $3,500,000 was paid in non-compete agreements and other fees to certain key employees. These amounts are recorded as intangible assets on the consolidated balance sheet. APAC insures over 800 anesthesiologists in over 20 states. Concurrent with the purchase of APAC on July 1, 1998, the Company purchased a 9.9% interest in American Professional Assurance Ltd. ("APAL"), a Cayman Islands captive reinsurer, for $5,500,000. The Company's investment in APAL is being accounted for under the cost method. On July 1, 1998, EMI purchased all of the outstanding stock of Sy.Med, a software development and consulting company located in Nashville, Tennessee, for a cost of $400,000, plus certain additional payments based upon future earnings. The purchase agreement sets the initial future earn out amounts at $175,000 for the six month period ended December 31, 1998 and $400,000, $500,000 and $600,000 for the fiscal years ending December 31, 1999 through 2001 and $325,000 for the six month period January 1, 2002 through June 30, 2002. These amounts are subject to adjustment depending on the actual results attained. The December 31, 1998 and 1999 earnings amounts were not achieved and therefore no payments were made. During 1999, goodwill of $436,042 related to the acquisition of Sy.Med was written off because it was considered to have no continuing value. On November 6, 1998, the Company's subsidiary, FPIC Services, Inc. ("Services"), a Florida corporation, formed a Texas corporation with one other Texas corporation and a Texas self insurance trust association. Services cost for its one-third ownership was $900,000. The new corporation offers credential verification and other related services and markets software programs related to those services. 1997 business acquisitions On July 1, 1997, the Company purchased 20% of the common stock of APS Insurance Services, Inc. (APS), a Texas insurance service corporation, for $2,000,000. This investment is accounted for under the equity method. The market value of APS approximates the book value at December 31, 1999. On September 22, 1997, the Company entered into an agreement with Frontier Insurance Group, Inc. ("Frontier") pursuant to which, beginning December 1, 1997, FPIC began underwriting Frontier's Florida book of business. The cost of the transaction was $3,200,000, payable in the Company's common stock, with a cash adjustment based on actual results. The excess of the purchase price over tangible assets is included in goodwill and will be 47 FPIC INSURANCE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS amortized over the expected life of this book of business, considering the Company's historical policy renewal rate. Based on the actual results achieved, the Company received a cash refund of approximately $1,500,000 from Frontier during 1999. The effect is to reduce the original cost of the transaction and goodwill by the same amount. 3. Fair Value of Financial Instruments Fair value estimates are made as of a specific point in time based on the characteristics of the financial instruments and the relevant market information. Where available, quoted market prices are used. In other cases, fair values are based on estimates using other valuation techniques, such as discounting estimated future cash flows using a rate commensurate with the risks involved or other acceptable methods. These techniques involve uncertainties and are significantly affected by the assumptions used and the judgments made regarding risk characteristics of various financial instruments, prepayments, discount rates, estimates of future cash flows, future anticipated loss experience and other factors. Changes in assumptions could significantly affect these estimates. Independent market data may not be available to validate those fair value estimates that are based on internal valuation techniques. Moreover, such fair value estimates may not be indicative of the amounts that could be realized in an immediate sale of the instrument. Also, because of differences in methodologies and assumptions used to estimate fair value, the Company's fair values should not be compared to those of other companies. Fair value estimates are based on existing financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company. For certain assets and liabilities, the information required is supplemented with additional information relevant to an understanding of the fair value. The Company has an interest rate swap agreement to fix interest rates on variable rate debt and reduce certain exposures to market fluctuations. The interest rate swap has a notional principal amount of $60,000,000 with a fixed interest rate of 5.27% at December 31, 1999. The agreement terminates on January 2, 2004. However, the counter parties have the option to call the interest rate swap as of December 31, 2001. The Company is required to make payments at the variable LIBOR rate, plus or minus differences between that rate and the fixed rate as specified in the agreement. The Company is exposed to credit loss in the event the nonperformance by the counter parties to the swap agreement. However, the Company does not anticipate nonperformance by the counter parties. The following methods and assumptions were used to estimate the fair value of each class of financial instruments for which it is practicable to estimate that value: Cash and cash equivalents - The carrying value approximates the fair value because of the short maturity of these instruments. Bonds and equity securities - The fair value was estimated based on bid prices published in financial newspapers, bid quotations received from securities dealers, or by using discounted cash flow methods. Other invested assets - The fair value was estimated based on audited financial amounts of the limited partnerships and a joint venture. Revolving Credit Facility - The fair value was estimated based on the amount of cash flows discounted over the applicable term at the Company's borrowing rate at December 31, 1999. Interest Rate Swap - The fair value is estimated using quotes from brokers and represents the cash requirement if the existing agreement had been settled at year end. 48 FPIC INSURANCE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table presents the carrying values and estimated fair values of the Company's financial instruments at December 31, 1999 and 1998.
December 31, 1999 --------------------------- Carrying Estimated Value Fair Value ------------ ------------ Financial assets Cash and cash equivalents $ 6,829,802 6,829,802 Bonds 327,076,429 327,076,429 Equity securities 8,822,672 8,822,672 Other invested assets 5,454,775 6,127,524 ------------ ------------ Total financial assets $348,183,678 348,856,427 ============ ============ Financial liabilities Revolving credit facility $ 62,719,109 56,559,000 ------------ ------------ Total financial liabilities $ 62,719,109 56,559,000 ============ ============ Off Balance Sheet Instruments: Interest Rate Swap $ -- 1,560,554 ============ ============ December 31, 1998 --------------------------- Carrying Estimated Value Fair Value ------------ ------------ Financial assets Cash and cash equivalents $ 7,062,695 7,062,695 Bonds 325,922,559 325,922,559 Equity securities 9,427,990 9,427,990 Other invested assets 5,071,771 5,319,789 ------------ ------------ Total financial assets $347,485,015 347,733,033 ============ ============ Financial liabilities Revolving credit facility $ 27,165,000 21,590,000 ------------ ------------ Total financial liabilities $ 27,165,000 21,590,000 ============ ============ Off Balance Sheet Instruments: Interest Rate Swap $ -- 262,919 ============ ============
49 FPIC INSURANCE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4. Investments The amortized cost and estimated fair value of investments in debt and equity securities as of December 31, 1999 and 1998 were as follows:
Gross Gross Amortized unrealized unrealized Fair 1999 Cost gains losses value ---- ------------ ------------ ------------ ------------ Bonds: United States Government agencies and authorities $ 70,498,384 65,110 2,489,620 68,073,874 States, municipalities and political subdivisions 151,792,331 448,330 6,386,647 145,854,014 Corporate securities 65,407,976 45,127 3,304,207 62,148,896 Mortgage-backed securities 52,211,055 326,452 1,537,862 50,999,645 ------------ ------------ ------------ ------------ Total bonds $339,909,746 885,019 13,718,336 327,076,429 ------------ ------------ ------------ ------------ Equity securities: Common stocks $ 8,057,869 69,156 4,353 8,122,672 Preferred stocks 1,000,000 -- 300,000 700,000 ------------ ------------ ------------ ------------ Total equity securities $ 9,057,869 69,156 304,353 8,822,672 ------------ ------------ ------------ ------------ Total securities available-for-sale $348,967,615 954,175 14,022,689 335,899,101 ============ ============ ============ ============ Gross Gross Amortized unrealized unrealized Fair 1998 Cost gains losses value ---- ------------ ------------ ------------ ------------ Bonds: United States Government agencies and authorities $ 56,259,581 2,033,736 10,277 58,283,040 States, municipalities and political subdivisions 148,544,449 4,559,260 34,325 153,069,384 Corporate securities 46,072,483 702,508 684,079 46,090,912 Mortgage-backed securities 66,532,029 2,258,563 311,369 68,479,223 ------------ ------------ ------------ ------------ Total bonds $317,408,542 9,554,067 1,040,050 325,922,559 ------------ ------------ ------------ ------------ Equity securities: Common stocks $ 8,293,495 134,495 -- 8,427,990 ------------ ------------ ------------ ------------ Preferred stocks 1,000,000 -- -- 1,000,000 ------------ ------------ ------------ ------------ Total equity securities $ 9,293,495 134,495 -- 9,427,990 ------------ ------------ ------------ ------------ Total securities available-for-sale $ 326,702,037 9,688,562 1,040,050 335,350,549 ============ ============ ============ ============
The Company's other invested assets include investments in limited partnerships and a joint venture. These assets are recorded at a cost of $5,454,775 and $5,071,771 at December 31, 1999 and 1998, respectively. The market value of these assets at December 31, 1999 and 1998 was $6,127,524 and $5,319,789, respectively. 50 FPIC INSURANCE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The amortized cost and estimated fair value of debt securities at December 31, 1999, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities, because borrowers have the right to call or prepay these obligations with or without call or prepayment penalties. Amortized Fair Cost Value ------------ ------------ Due in one year or less $ 14,268,212 14,268,803 Due after one year through five years 46,076,443 45,307,351 Due after five years through ten years 97,101,816 93,689,017 Due after ten years 182,463,275 173,811,258 ------------ ------------ $339,909,746 327,076,429 ============ ============ Treasury notes, a political sub-division bond and a cash deposit with a carrying value of $7,918,458 and a market value of $7,746,332 were on deposit with the Insurance Departments in various states as of December 31, 1999 as required by law. Net investment income earned for the years ended December 31, 1999, 1998, and 1997 was as follows:
1999 1998 1997 ------------ ------------ ------------ Bonds $ 19,339,900 18,131,630 16,628,612 Equity securities 72,192 51,112 53,667 Real estate 596,408 452,099 368,270 Short-term investments 266,010 113,050 132,721 Other invested assets 205,489 551,965 123,210 Cash on hand and on deposit 296,728 83,206 13,846 ------------ ------------ ------------ 20,776,727 19,383,062 17,320,326 Less investment expenses (1,752,849) (1,833,963) (1,341,792) ------------ ------------ ------------ Net investment income $ 19,023,878 17,549,099 15,978,534 ============ ============ ============
Proceeds from sales and maturities of bonds were $69,470,532, $44,017,742, and $81,416,058 for the years ended December 31, 1999, 1998, and 1997 respectively. Proceeds from sales of equity securities were $236,433, and $300,000 for the years ended December 31, 1999, and 1998, respectively. Gross gains of $354,068, $10,384, and $42,643 and gross losses of $3,472, $49,610, and $89,057 were realized on sales of debt and equity securities for the years ended December 31, 1999, 1998, and 1997, respectively. Gross gains of $78,479 were realized on the sale of real estate investments for the year ended December 31, 1997. 5. Real Estate Investments At December 31, 1999 and 1998, real estate investments consisted of the following: 1999 1998 ----------- ----------- Land and building $ 4,670,310 4,670,310 Rental units 1,363,512 461,200 Other 37,670 37,670 ----------- ----------- 6,071,492 5,169,180 Accumulated depreciation (836,113) (587,509) ----------- ----------- Net real estate investments $ 5,235,379 4,581,671 =========== =========== Total depreciation expense on real estate investments was $248,604, $338,837, and $138,598, in 1999, 1998, and 1997, respectively. 51 FPIC INSURANCE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6. Property and Equipment At December 31, 1999 and 1998, property and equipment consisted of the following:
1999 1998 ----------- ----------- Furniture, fixtures and equipment $ 3,243,792 2,258,917 Data processing equipment, including software 3,814,625 1,835,510 Leasehold improvements 1,057,588 795,933 Automobiles 211,031 282,577 ----------- ----------- 8,327,036 5,172,937 Accumulated depreciation (4,553,534) (2,558,251) ----------- ----------- Net property and equipment $ 3,773,502 2,614,686 =========== ===========
Total depreciation expense on property and equipment was $1,174,317, $699,646, and $605,516, in 1999, 1998, and 1997, respectively. 7. Deferred Policy Acquisition Costs Changes in deferred policy acquisition costs for the years ended December 31, 1999, 1998, and 1997, were as follows: 1999 1998 1997 ----------- ----------- ----------- Beginning balance $ 2,001,248 1,411,420 1,212,035 Additions 7,515,452 5,450,153 4,194,981 Amortization expense (6,727,530) (4,860,325) (3,995,596) ----------- ----------- ----------- Ending balance $ 2,789,170 2,001,248 1,411,420 =========== =========== =========== 8. Goodwill Goodwill represents the aggregate cost of companies acquired over the fair value of net assets at the date of acquisition and is being amortized into income using the straight-line method over periods not exceeding twenty-five years.
December 31, -------------------------------------------- 1999 1998 1997 ------------ ------------ ------------ Beginning balance $ 12,699,714 7,173,841 1,989,113 Additions at cost 61,341,767 7,524,041 5,407,588 Reductions at cost (note 2) (436,042) (1,500,000) -- Amortization expense (3,164,280) (498,168) (222,860) ------------ ------------ ------------ Ending balance $ 70,441,159 12,699,714 7,173,841 ============ ============ ============
9. Intangible Assets Intangible assets represent broker fees, trade secrets and non-compete agreements acquired in connection with business combinations. These assets are being amortized into income over periods not exceeding ten years using the straight-line method December 31, ----------------------------------------- 1999 1998 1997 ----------- ----------- ----------- Beginning balance $ 3,886,547 -- -- Additions at cost -- 4,035,491 -- Amortization expense (405,851) (148,944) -- ----------- ----------- ----------- Ending balance $ 3,480,696 3,886,547 -- =========== =========== =========== 52 FPIC INSURANCE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 10. Borrowing Arrangements The Company maintains a $75,000,000 revolving credit facility with five banks to meet certain non-operating cash needs as they may arise. As of December 31, 1999 and 1998, $62,719,109 and $27,165,000, respectively, had been borrowed under this credit facility at a per annum rate of approximately 6.4% and 5.9%, respectively. The new credit facility terminates on January 4, 2002 and bears interest at various rates. The interest rates range from LIBOR plus 0.75% to Prime plus 0.50%. As of December 31, 1999, the interest rate was 7.08%. The Company is not required to maintain compensating balances in connection with this credit facility. Under the terms of the credit facility, the Company is required to meet certain financial covenants. Significant covenants are as follows: a) the Company's funded debt to total capital plus funded debt ratio cannot exceed 0.35:1 and b) net premiums written to statutory capital and surplus ratio cannot exceed 2.0:1. Effective January 1, 2001, the funded debt to total capital plus funded debt ratio cannot exceed .30:1. At December 31, 1999, the Company's subsidiary, Intermed, was in technical violation of one of the Company's Loan Covenants. The Company has obtained a waiver for this technical violation bringing Intermed and the Company into compliance. The credit facility is guaranteed by certain subsidiaries and collateralized by the common stock of certain subsidiaries. 11. Liability for Loss and Loss Adjustment Expenses The liability for loss and LAE is generally determined on the basis of individual claims and actuarially determined estimates of future claims based upon the Company's actual experience, assumptions and projections as to claims frequency, severity and inflationary trends and settlement payments. Such estimates may vary significantly from the eventual outcome. The ranges of reasonably expected ultimate unpaid losses and LAE are estimated by the Company's internal and external consulting actuaries on an undiscounted basis. The assumptions used in making such estimates and for establishing the resulting liabilities are continually reviewed and updated based upon current circumstances, and any adjustments resulting therefrom are reflected in current income. Activity in the liability for loss and LAE for the years ended December 31, 1999, 1998, and 1997 was as follows:
1999 1998 1997 ------------- ------------- ------------- Gross balance, January 1 $ 242,377,000 188,086,000 172,738,000 Less reinsurance recoverables 41,614,000 14,115,000 11,614,000 ------------- ------------- ------------- Net balance, January 1 200,763,000 173,971,000 161,124,000 Reserves of entities acquired 24,590,000 23,406,000 -- Incurred related to: Current year 99,523,000 81,694,000 69,126,000 Prior year (18,555,000) (14,332,000) (15,115,000) ------------- ------------- ------------- Total incurred 80,968,000 67,362,000 54,011,000 ------------- ------------- ------------- Paid related to: Current year 15,338,000 14,279,000 8,061,000 Prior year 76,292,000 49,697,000 33,103,000 ------------- ------------- ------------- Total paid 91,630,000 63,976,000 41,164,000 ------------- ------------- ------------- Net balance, December 31 214,691,000 200,763,000 173,971,000 Plus reinsurance recoverables 58,401,000 41,614,000 14,115,000 ------------- ------------- ------------- Gross balance, December 31 $ 273,092,000 242,377,000 188,086,000 ============= ============= =============
The net reductions in incurred losses and LAE related to prior years (net of reinsurance recoveries of $985,357, $7,115,000, and $5,834,000, in 1999, 1998, and 1997, respectively) for each of the years ended December 31, 1999, 1998 and 1997, are the result of reevaluations of the adequacy of reserve estimates; and reflect overall favorable underwriting results and lower than anticipated losses and LAE. Given recent competitive market conditions, which have lessened the Company's ability to underwrite and price its business at such favorable terms, management does not expect reserve reductions to continue at these levels in 2000. Furthermore, given the inherent uncertainties in the estimation of loss and LAE reserves, there can be no assurance concerning future adjustments, positive or negative, for prior years' claims. 53 FPIC INSURANCE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 12. Reinsurance The Company presently has excess of loss reinsurance contracts that serve to limit the Company's maximum loss to $500,000 per occurrence, except on the Company's anesthesiology program in which the maximum loss is limited to $750,000 per occurrence. To the extent that any reinsurer might be unable to meet its obligations, the Company would be liable for such defaulted amounts. At December 31, 1999 and 1998, amounts due from a single reinsurer, APAL, an affiliated company, on unpaid losses had a carrying value of $12,817,000 and $11,035,000, respectively, of which $2,515,000 and $900,000 was secured by letter of credit. Of the total amount due from reinsurers on unpaid losses at December 31, 1999 and 1998, $31,189,000 and $21,685,000, respectively, was due from three reinsurers, of which $27,508,000 and $20,300,000 was secured by letters of credit or other offsets. The effect of reinsurance on premiums written and earned for the years ended December 31, 1999, 1998, and 1997 was as follows:
1999 1998 1997 ------------------------------ ------------------------------ ------------------------------ Written Earned Written Earned Written Earned ------------- ------------- ------------- ------------- ------------- ------------- Direct and assumed $ 148,215,714 144,530,033 116,989,450 105,616,840 77,770,733 73,011,835 Ceded (26,089,417) (26,341,160) (15,512,281) (16,055,262) (7,485,436) (7,508,160) ------------------------------ ------------------------------ ------------------------------ Net premiums $ 122,126,297 118,188,873 101,477,169 89,561,578 70,285,297 65,503,675 ============================== ============================== ==============================
13. Shareholders' Equity The Company has a stock option plan for officers and key employees (the employee plan) and a plan for non-employee directors (the director plan). Both plans became effective in 1996. Under the director plan, only nonqualified stock options may be issued. Under the employee plan, both incentive stock options and nonqualified stock options may be granted to the same individual. The option price of an incentive stock option may not be less than 100% of the fair market value of such shares on the grant date. The option price of a non-qualified option shall not be less than 50% of the fair market value of such shares on the grant date. Under the terms of the director plan, 5,000 shares are granted to each director on the date that person becomes a director, and on a discretionary basis at future dates as approved by the Board, at a price not less than 100% of the fair market value on the grant date. In 1999, the Company began a stock purchase incentive program ("the incentive plan") designed to encourage non-employee directors and employees of the Company and its subsidiaries to increase their beneficial ownership of Company stock. As Company stock is purchased, an equivalent number of options are granted to the participant. During 1999, 130,000 nonqualified stock options were issued under the director plan, 416,283 nonqualified stock options and 86,217 incentive stock options were issued under the employee plan, and 25,900 nonqualified stock options were issued under the incentive plan. In addition, 110,000 nonqualified stock options and 15,000 incentive stock options were forfeited under the employee plan and 25,000 restricted options, which were not part of any plan, were forfeited. During 1998, 116,688 nonqualified stock options and 3,312 incentive stock options were issued under the employee plan. An additional 70,000 restricted options, which were not part of either plan, were issued in connection with acquisitions during the year. During 1997, 120,000 nonqualified stock options were granted under the director plan, and 265,000 nonqualified stock options were issued under the employee plan. During 1996, 320,000 incentive stock options and 335,000 nonqualified stock options were issued under both plans. Of the 1998 nonqualified stock options issued, 50,000 were issued to an employee with an exercise price lower than the fair market value on the date of the grant. This difference in price of $7.55 per option is considered noncash compensation and is being amortized over the period in which the options vest and of which $125,859 has been recognized as an expense in 1999. Options granted under the plans are exercisable at such dates as are determined in connection with their issue, but not later than ten years after the date of grant. 54 FPIC INSURANCE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A summary of the status of the Company's stock option plans as of December 31, 1999 is presented below: Weighted Average Fixed Options Shares Exercise Price ------------- --------- ---------------- Outstanding at beginning of year 1,094,668 $ 17.80 Granted 658,400 30.08 Exercised (201,823) 10.41 Forfeited (150,000) 39.24 --------- Outstanding at end of year 1,401,245 ========= Options exercisable at year-end 886,170 $ 20.64 ========= At December 31, 1999, 539,500 shares of the Company's common stock were reserved for issuance in connection with the stock option plans. The Company maintains an Employee Stock Purchase Plan that allows employees to purchase the Company's common stock at 85% of the market value on the first or last day of the offering period, whichever was lower. Significant assumptions used to estimate the fair values of options using the Black-Sholes option-pricing model were as follows:
1999 1999 1999 1999 stock options Nonqualified Incentive Incentive ----------------- ----------------- --------------- a. Current price of underlying stock at date of grant $48.06 40.00 14.63 b. Exercise price of option $48.06 40.00 14.63 c. Expected life of option 5 years 5 years 5 years d. Expected volatility of underlying stock 33.22% 33.56% 45.01% e. Expected dividends on stock $ -- -- -- f. Risk-free interest rate at the date of grant 4.45% 4.97% 5.62% 1999 1998 1998 1999 and 1998 stock options Nonqualified Nonqualified Nonqualified ----------------- ----------------- --------------- a. Current price of underlying stock at date of grant $15.25 34.38 30.19 b. Exercise price of option $15.25 34.38 30.19 c. Expected life of option 5 years 5 years 5 years d. Expected volatility of underlying stock 46.36% 36.01% 36.01% e. Expected dividends on stock $ -- -- -- f. Risk-free interest rate at the date of grant 5.64% 5.29% 4.48%
55 FPIC INSURANCE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1997 1996 1996 1997 and 1996 stock options Nonqualified Nonqualified Incentive ----------------- ----------------- --------------- a. Current price of underlying stock at date of grant $ 23.63 8.22 10.00 b. Exercise price of option $ 23.63 8.22 10.00 c. Expected life of option 5 years 5 years 5 years d. Expected volatility of underlying stock 26.74% 26.87% 26.87% e. Expected dividends on stock $ -- -- -- f. Risk-free interest rate at the date of grant 6.17% 5.37% 6.31%
The weighted average fair value of options granted during 1999 was $30.08. The pro forma disclosures required under SFAS No.123 methodology were as follows:
1999 1998 1997 ------------ ------------ ------------ Pro forma net income $ 19,399,627 17,946,863 16,002,439 Pro forma tax expense $ 8,003,574 6,693,078 6,489,098 Pro forma diluted earnings per share $ 1.94 1.83 1.70
14. Income Taxes The provision for income taxes consisted of the following:
1999 1998 1997 ------------ ------------ ------------ Current income tax expense Federal $ 6,306,167 6,974,016 7,230,181 State 1,930,343 1,558,601 1,496,856 ------------ ------------ ------------ Total 8,236,510 8,532,617 8,727,037 ------------ ------------ ------------ Deferred income tax (benefit) expense Federal 972,634 (308,340) (1,695,163) State 124,352 (52,703) (244,336) ------------ ------------ ------------ Total 1,096,986 (361,043) (1,939,499) ------------ ------------ ------------ Net income tax expense $ 9,333,496 8,171,574 6,787,538 ============ ============ ============
The provision for income taxes differed from the statutory corporate tax rate of 35 percent for 1999, 1998 and 1997 as follows:
1999 1998 1997 ------------ ------------ ------------ Computed "expected tax expense $ 10,889,122 10,102,476 8,170,478 Municipal bond interest (2,578,598) (2,521,221) (1,834,950) State income taxes, net of federal benefit 1,421,674 978,834 814,138 Other, net (398,702) (388,515) (362,128) ------------ ------------ ------------ Actual expense $ 9,333,496 8,171,574 6,787,538 ============ ============ ============
56 FPIC INSURANCE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS At December 31, 1999 and 1998, the significant components of the net deferred tax asset were as follows: 1999 1998 ----------- ----------- Deferred tax assets arising from: Loss reserve discounting $11,528,011 9,970,448 Unearned premium reserves 4,088,269 3,015,392 Net operating loss carry forward 2,711,352 -- Unrealized losses on securities 4,574,003 -- Other 1,067,184 777,289 ----------- ----------- Total deferred tax assets 23,968,819 13,763,129 ----------- ----------- Deferred tax liabilities arising from: Unrealized gains on securities -- 3,026,979 Deferred acquisition costs 1,555,056 506,782 Other 1,169,987 880,874 ----------- ----------- Total deferred tax liabilities 2,725,043 4,414,635 ----------- ----------- Net deferred tax asset $21,243,776 9,348,494 =========== =========== The Company has not recorded a valuation allowance, as the deferred tax assets considered by Management to be realized based on the level of anticipated future taxable income. Net deferred tax assets and federal income tax expense in future years can be significantly affected by changes in enacted tax rates or by unexpected adverse events that would influence management's conclusions as to the ultimate realizability of deferred tax assets. 15. Employee Benefit Plans FPIC employees are covered by a qualified defined benefit plan and a defined contribution pension plan sponsored by the Company. SFAS No. 132 requires restatement of earlier period amounts provided for comparative purposes unless the information is not readily available. Amounts provided for 1997 have not been restated under SFAS No. 132 as the information is not readily available. The benefits of the defined benefit plan are based on years of service and the employee's compensation. The actuarially computed net periodic pension cost for December 31, 1999, 1998, and 1997 included the following: 1999 1998 1997 --------- --------- --------- Service cost - benefits earned during the period $ 172,768 137,691 94,015 Interest cost on projected benefit obligation 147,110 125,482 106,284 Actual return on plan assets (111,872) (106,633) (219,877) Recognized net actuarial loss 37,757 -- -- Net amortization and deferral 26,268 26,268 181,770 --------- --------- --------- Net periodic pension cost $ 272,031 182,808 162,192 ========= ========= ========= 57 FPIC INSURANCE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1999 1998 1997 ----------- ----------- ----------- Actuarial present value of benefit obligation: Accumulated benefit obligation $(1,521,877) (1,584,795) (1,156,683) =========== =========== =========== Projected benefit obligation for service rendered to date (2,466,135) (2,690,664) (1,945,621) Plan assets at fair value 1,470,669 1,219,686 1,139,563 ----------- ----------- ----------- Projected benefit obligation in excess of plan assets (995,466) (1,470,978) (806,058) Unrecognized net loss (gain) from past experience different from that assumed 103,968 746,695 117,581 Prior service cost not yet recognized in net periodic pension cost (40,055) (44,367) (48,679) Unrecognized net obligation at inception recognized over 15.29 years 253,512 284,092 314,672 ----------- ----------- ----------- Accrued pension cost $ (678,041) (484,558) (422,484) =========== =========== ===========
The following table sets forth the plan's funded status for the fiscal year ending December 31, 1999 and 1998, respectively. 1999 1998 ----------- ----------- Change in Benefit Obligation Benefit Obligation, January 1 $ 2,690,664 1,945,621 Service Cost 172,768 137,691 Interest Cost 147,110 125,482 Actuarial Gain (513,184) 504,493 Benefits Paid (31,223) (22,623) ----------- ----------- Benefit Obligation, December 31 $ 2,466,135 2,690,664 =========== =========== Change in Plan Assets Fair Value of Plan Assets, January 1 $ 1,219,686 1,139,563 Actual Return on Plan Assets 203,658 (17,988) Employer Contributions 78,548 120,734 Benefits Paid (31,223) (22,623) ----------- ----------- Fair Value of Plan Assets, December 31 $ 1,470,669 1,219,686 =========== =========== Assumptions used in the accounting for net periodic pension cost at December 31, 1999, 1998, and 1997, were as follows: 1999 1998 1997 ------- ------- ------ Discount rates 6.50% 5.50% 6.50% Rate of increase in compensation levels 5.19% 5.23% 5.23% Return on assets 9.00% 9.00% 9.00% The FPIC defined contribution plan has two parts. The first part is a profit-sharing plan. The second part allows employees to contribute, beginning in 1997, up to 5 percent of their annual compensation, of which up to 2.5% is matched 100 percent by the Company. The Company's policy is to fully fund the liability at the end of each year. At December 31, 1999, the fair market value of plan assets was $5,981,532. The expense for this plan amounted to $516,134, $434,783, and $426,291 in 1999, 1998, and 1997, respectively. 58 FPIC INSURANCE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The Company also has a supplemental executive retirement plan (SERP) that provides certain executives with income at retirement equal to 60 percent of pre-retirement base compensation, less qualified pension plan benefits paid by the Company and all predecessor plans and Social Security benefits. The projected benefit obligation at December 31, 1999 was $846,934 using a discount rate of 6.5 percent. The plan has no vesting prior to age 55. The Company had a net periodic pension cost of approximately $188,000, $95,000 and $95,000 to cover any liability under this plan in 1999, 1998, and 1997, respectively. The total liability included in the financial statements for this plan amounted to approximately $533,000 and $345,000 as of December 31, 1999 and 1998, respectively. AFP maintains a noncontributory defined benefit pension plan (the "Plan") covering substantially all of its employees. The benefits under the Plan are based on years of service and the employee's compensation during such years of service. AFP's funding policy is to contribute amounts sufficient to meet the minimum funding requirements set forth in the Employee Retirement Income Security Act of 1974, plus such addition amounts as AFP may determine to be appropriate from time to time. Contributions are intended to provide amounts sufficient to cover the costs of benefits attributed to service to date, as well as for those expected to be earned in the future. AFP contributed $1 million to the Plan in 1998. The Plan's assets consist principally of investments in United States government securities. Effective December 14, 1994, AFP's pension plan was merged retroactive to January 1, 1989 into the defined benefit plan sponsored by North American Treaty Corporation, a reinsurance intermediary under common control together with the defined benefit pension plans of First Rehabilitation Insurance company of America ("FRICA") and Group Data Corporation (hereinafter referred to as "the merged plan"), both of which entities are also under common control. All three plans were substantially identical to AFP's former plan. Effective January 1, 1996, FRICA left the pension plan, with no effect on the existing plan. Pension costs allocated to AFP amounted to approximately $740,200 in 1999. The benefits of AFP's defined benefit plan are based on years of service and the employee's compensation. The actuarially computed net periodic pension cost for December 31, 1999 included the following: Service cost - benefits earned during the period $ 708,400 Interest cost on projected benefit obligation 341,000 Actual return on plan assets (309,200) ----------- Net periodic pension cost $ 740,200 =========== Actuarial present value of benefit obligation: ---------------------------------------------- Accumulated benefit obligation $ 3,916,353 =========== Projected benefit obligation for service rendered to date (5,445,600) Plan assets at fair value 5,065,400 ----------- Projected benefit obligation in excess of plan assets $ (380,200) =========== The following table sets forth the plan's funded status for the fiscal year ending December 31, 1999. Change in Benefit Obligation ---------------------------- Benefit Obligation, January 1 $ 6,092,300 Service Cost 708,400 Interest Cost 341,000 Actuarial Loss -- Benefits Paid (1,696,100) ----------- Benefit Obligation, December 31 $ 5,445,600 =========== 59 FPIC INSURANCE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Change in Plan Assets --------------------- Fair Value of Plan Assets, January 1 $ 5,103,100 Actual Return on Plan Assets 659,200 Employer Contributions 999,200 Benefits Paid (1,696,100) ----------- Fair Value of Plan Assets, December 31 $ 5,065,400 =========== Assumptions used in the accounting for net periodic pension cost at December 31, 1999 were as follows: Discount rates 6.5% Rate of increase in compensation levels 5.0% Return on assets 6.5% 16. Commitments and Contingencies The future minimum annual rentals under noncancellable leases are as follows: 2000 $ 2,168,723 2001 2,058,661 2002 1,825,759 2003 1,653,631 Thereafter 1,482,255 -------------- $ 9,189,029 ============== Total rental expense was $2,380,660, $371,038, and $386,016 for 1999, 1998, and 1997, respectively. The Company is involved in numerous legal actions arising primarily from claims under insurance policies. The legal actions arising from claims under insurance policies have been considered by the Company in establishing its liability for losses. While the outcome of all legal actions is not presently determinable, the Company's management is of the opinion that the settlement of these actions will not have a material adverse effect on the Company's financial position or results of operations. The Company's insurance subsidiaries are subject to assessment by the Financial Guaranty Associations in the states in which they conduct business for the provision of funds necessary for the settlement of covered claims under certain policies of insolvent insurers. Generally, these associations can assess member insurers on the basis of written premiums in their particular states. In addition to standard assessments, the Florida and Missouri Legislatures may also levy special assessments to settle claims caused by certain catastrophic losses. The Company would be assessed on a basis of premium written. No provision for special assessments was made in the 1999 financial statements. However, damages caused by future catastrophic losses, such as a hurricane, could subject the Company to additional assessments. 17. Statutory Accounting FPIC, APAC, Intermed, and Interlex are required to file statutory financial statements with state insurance regulatory authorities. The combined statutory capital and surplus for the Company's insurance subsidiaries was $134,697,983, $117,277,880, and $87,875,717 at December 31, 1999, 1998, and 1997, respectively. Statutory net income amounted to $19,038,049, $18,325,503, and $12,404,838, for the years ended December 31, 1999, 1998, and 1997 respectively. 60 FPIC INSURANCE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The insurance subsidiaries are restricted under the Florida and Missouri Insurance Codes as to the amount of dividends they may pay without regulatory consent. In 2000, they may pay dividends up to approximately $19,712,768 without regulatory consent. Restricted net assets of the Company's insurance subsidiaries as of December 31, 1999 is as follows: Intermed FPIC APAC and Interlex ----------- ---------- ---------- Restricted net assets $96,376,647 11,781,392 11,149,614 18. Reconciliation of Basic and Diluted Earnings Per Share 1999 1998 1997 ----------- ----------- ----------- Net income and income from continuing operations $21,869,481 20,692,642 16,556,685 =========== =========== =========== Basic weighted average shares outstanding 9,748,190 9,332,206 9,044,984 Common stock equivalents 258,424 476,458 362,109 ----------- ----------- ----------- Diluted weighted average shares outstanding 10,006,614 9,808,664 9,407,093 =========== =========== =========== Basic earnings per share $ 2.24 2.22 1.83 =========== =========== =========== Diluted earnings per share $ 2.19 2.11 1.76 =========== =========== =========== 19. Segment Information Under the provisions of SFAS No. 131, the Company determined it has three reportable operating segments, which are insurance, third party administration (TPA), and reciprocal management. The insurance segment provides a variety of insurance products for participants in the healthcare industry including MPL insurance for medical professionals, managed care liability insurance, professional and comprehensive general liability insurance for healthcare facilities, provider stop loss insurance, workers compensation insurance, and group accident and health coverage. The TPA segment provides third party administration services such as the administration of self-insurance plans for large employers. The reciprocal management segment provides insurance administration services to an insurance reciprocal. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates a segment's performance based on net income or loss. Intersegment revenues for transactions between the segments are based on actual costs incurred and are similar to services that may have been obtained from an unrelated third party. All segments are managed separately because each business requires different technology and marketing strategies. Information by industry segment follows (in thousands):
1999 1998 1997 --------- --------- --------- Revenues: --------- External customers: Insurance $ 136,476 108,150 82,732 TPA 13,555 12,171 10,484 Reciprocal management 20,792 -- -- --------- --------- --------- 170,823 120,321 93,216 Intersegment: Insurance $ -- -- -- TPA 1,268 583 -- Reciprocal management 1,360 -- -- --------- --------- --------- $ 173,451 120,904 93,216 ========= ========= ========= 61 FPIC INSURANCE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Interest Revenue: ----------------- Insurance $ 19,916 18,716 16,872 TPA 189 164 27 Reciprocal management 3 -- -- --------- --------- --------- $ 20,108 18,880 16,899 ========= ========= ========= Interest Expense: ----------------- Insurance $ 1,887 844 49 TPA -- -- -- Reciprocal management 2,095 -- -- --------- --------- --------- $ 3,982 844 49 ========= ========= ========= Net Income: ----------- Insurance $ 21,063 19,699 15,380 TPA (205) 994 1,177 Reciprocal management 1,011 -- -- --------- --------- --------- $ 21,869 20,693 16,557 ========= ========= ========= Income taxes ------------ Insurance $ 7,596 7,584 5,209 TPA (114) 638 735 Reciprocal management 1,851 -- -- --------- --------- --------- $ 9,333 8,222 5,944 ========= ========= ========= Identifiable Assets: -------------------- Insurance $ 668,419 512,246 369,121 TPA 11,951 10,801 7,508 Reciprocal management 59,310 -- -- --------- --------- --------- $ 739,680 523,047 376,629 ========= ========= ========= Depreciation & Amortization: ---------------------------- Insurance $ 2,483 1,289 1,647 TPA 889 708 429 Reciprocal management 2,506 -- -- --------- --------- --------- $ 5,878 1,997 2,076 ========= ========= =========
The following table provides reconciliations of reportable operating segment revenues, net income, and assets to the Company's consolidated totals:
1999 1998 1997 --------- --------- --------- Revenues: --------- Total revenues for reportable segments $ 173,451 120,904 93,216 Elimination of intersegment revenues (2,628) (583) -- --------- --------- --------- Total consolidated revenues $ 170,823 120,321 93,216 ========= ========= ========= Net Income: ----------- Total income for reportable segments $ 21,869 20,693 16,557 Other -- -- -- --------- --------- --------- Total consolidated net income $ 21,869 20,693 16,557 ========= ========= ========= Assets: ------- Total assets for reportable segments $ 739,680 523,047 376,629 Investments in equity method investees (119,224) (42,670) (23,019) Intercompany receivables (38,233) (999) (760) --------- --------- --------- Total consolidated assets $ 582,223 479,378 352,850 ========= ========= =========
62 FPIC INSURANCE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 20. Related Party Transactions Effective June 30, 1998, the Company entered into a management services agreement with APA Management, Inc. ("APAM") to provide the Company with all necessary insurance management and administrative services of APAC, a wholly owned subsidiary of the Company. The Company has no financial interest in APAM other than through its management services agreement. The agreement terminates on December 31, 2002, unless extended until December 31, 2003, and provides that APAM will receive an annual aggregate of 14.5% of direct premiums consisting of an annual 10.5% service fee and 4% claims management fee. The agreement also provides that anesthesiologist business produced by FPIC or its respective agents will be transferred to APAC upon renewal, if the insured agrees, and APAM will receive an annual 1% service fee. The Company incurred $1,382,150 and $1,181,398 in management fees related to its agreement with APAM during the years ended December 31, 1999 and 1998, respectively. On July 1, 1998, FPIC began assuming reinsurance from PRI, a writer of medical malpractice insurance in the state of New York. PRI is managed by an attorney-in-fact, AFP, which effective January 1, 1999 was acquired and became a wholly owned subsidiary of the Company. Under one contract, which reinsures PRI for policies with limits of $1,000,000 in excess of $1,000,000, FPIC assumes losses only and pays PRI a 15% ceding commission on the premium assumed. Under the second contract, FPIC reinsures PRI for losses of $250,000 each and every claim in excess of $500,000 on each and every loss. During 1999 and 1998, the Company assumed written premiums of approximately $21,821,000 and $8,738,000, respectively, of which approximately $15,035,000 and $4,428,000, respectively, was earned under these contracts. The Company has incurred approximately $6,650,000 and $2,657,000 in losses related to these reinsurance agreements with PRI for the years ending December 31, 1999 and 1998, respectively. Premium on these contracts is paid by PRI on a quarterly basis. As of December 31, 1999 and 1998, the amount due from PRI under these contracts was approximately $4,291,000 and $4,527,000, respectively. In accordance with a management agreement AFP performs underwriting, administrative and investment functions on PRI's behalf for which it receives compensation. Compensation under the agreement is based upon PRI's direct written premium and statutory operating results. Total revenues earned under the agreement were $18,631,688 for 1999. The management agreement also provides that AFP is to be reimbursed by PRI for certain expenses paid by AFP on PRI's behalf. The expenses reimbursed by PRI consist principally of the salary, related payroll, and overhead costs of AFP's claims, legal, and risk management course personnel who work on PRI's behalf. These reimbursed expenses amounted to $10,883,893 in 1999. The management agreement was reviewed and approved by the New York Insurance Department and is effective January 1, 1999 through December 31, 2008. 21. Quarterly Results of Operations The following is a summary of unaudited quarterly results of operations for the year ended December 31, 1999 and 1998:
1999 First Second Third Fourth ---- --------------- ---------------- ------------- ----------- Premiums written and assumed $ 37,521,923 38,159,865 45,697,764 26,836,140 Premiums earned $ 27,583,589 26,549,586 33,170,659 30,885,039 Net investment income $ 4,451,748 4,880,776 5,009,562 4,681,792 Total revenues $ 40,008,377 39,358,067 47,282,158 44,174,198 Net income $ 7,234,434 7,402,265 2,662,265 4,570,517 Basic earnings per share $ .74 .75 .27 .47 Diluted earning per share $ .70 .71 .26 .45
63 FPIC INSURANCE GROUP, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1998 First Second Third Fourth ---- --------------- ---------------- ------------- ----------- Premiums written and assumed $ 29,851,492 25,662,544 27,915,386 33,560,028 Premiums earned $ 17,855,299 22,954,687 22,986,070 25,765,522 Net investment income $ 4,339,754 4,372,425 4,259,182 4,577,738 Total revenues $ 25,486,680 30,459,871 30,831,173 33,543,086 Net income $ 4,785,108 5,046,487 5,480,735 5,380,312 Basic earnings per share $ 0.58 0.55 0.58 0.57 Diluted earning per share $ 0.50 0.52 0.55 0.54
64 SCHEDULE I FPIC Insurance Group, Inc. Summary of Investments Other Than Investments in Related Parties December 31, 1999
Amount in Cost (1) Value Balance Sheet --------------- ---------------- -------------- Bonds: United States Government agencies and authorities $ 70,498,384 68,073,874 68,073,874 States, municipalities and Political subdivisions 151,792,331 145,854,014 145,854,014 Corporate securities 65,407,976 62,148,896 62,148,896 Mortgage-backed securities 52,211,055 50,999,645 50,999,645 --------------- ---------------- -------------- Total bonds 339,909,746 327,076,429 327,076,429 Equity securities: Industrial, miscellaneous, and other 9,057,869 8,822,672 8,822,672 Real Estate 5,235,379 5,235,379 5,235,379 Other Invested Assets 5,454,775 6,127,524 5,454,775 --------------- ---------------- --------------- Total investments $ 359,657,769 347,262,004 346,589,255 =============== ============== ==============
(1) Original cost of equity securities and real estate adjusted for any permanent write downs, and, as to fixed maturities, original cost reduced by repayments, write downs and adjusted for amortization of premiums or accrual of discounts. See accompanying auditors' report. SCHEDULE II FPIC Insurance Group, Inc. Condensed Financial Information of Registrant FPIC Insurance Group, Inc. (Parent Only) Condensed Balance Sheet As of December 31, 1999 and 1998
1999 1998 ------------- ------------- Assets Investments and cash: Investments in subsidiaries* $ 216,774,162 152,945,528 Equity securities 7,567,654 7,586,136 Real estate 902,312 -- Other invested assets 4,875,329 4,171,771 ------------- ------------- Total investments and cash 230,119,457 164,703,435 Property and equipment, net 760,920 293,764 Due from subsidiaries* 2,565,234 5,708,229 Goodwill, net 4,386,704 1,915,528 Intangible assets, net 3,291,364 3,664,288 Federal income tax receivable 5,072,605 1,804,225 Prepaid expenses 325,954 379,856 Other assets 335,312 2,234,210 ------------- ------------- Total assets $ 246,857,550 180,703,535 ============= ============= Liabilities Cash overdraft $ 12,614,890 697,173 Revolving credit facility 62,719,109 27,165,000 Other liabilities 5,144,609 1,910,834 ------------- ------------- Total liabilities 80,478,608 29,773,007 ------------- ------------- Shareholders' Equity Common stock, $.10 par value, 50,000,000 shares authorized: 9,621,298 and 9,518,679 shares issued and outstanding in 1999 and 1998, respectively 962,130 951,868 Additional paid-in-capital 41,856,912 34,297,994 Unearned compensation on stock options (230,669) (356,528) Other comprehensive income (8,494,573) 5,621,533 Retained earnings 132,285,142 110,415,661 ------------- ------------- Total shareholders' equity 166,378,942 150,930,528 ------------- ------------- Total liabilities and shareholders' equity $ 246,857,550 180,703,535 ============= =============
*Eliminated in consolidation. See accompanying auditors' report. See the accompanying Notes to Condensed Financial Statements. SCHEDULE II FPIC Insurance Group, Inc. Condensed Financial Information of Registrant FPIC Insurance Group, Inc. (Parent Only) Condensed Statement of Earnings For the years ended December 31, 1999, 1998 and 1997
1999 1998 1997 ------------ ------------ ------------ Revenues Management fees from subsidiaries* $ 17,974,618 12,267,004 11,204,829 Dividends from subsidiaries* 12,674,000 450,000 -- Net investment income 171,207 326,788 63,846 ------------ ------------ ------------ Total revenues 30,819,825 13,043,792 11,268,675 Expenses Other operating expenses 20,228,680 10,809,689 9,057,547 ------------ ------------ ------------ Total expenses 20,228,680 10,809,689 9,057,547 Income before income taxes 10,591,145 2,234,103 2,211,128 Income taxes (benefit) expense (1,485,686) (49,958) 843,660 ------------ ------------ ------------ Earnings before equity in undistributed earnings of subsidiaries 12,076,831 2,284,061 1,367,468 Equity in undistributed earnings of subsidiaries 9,792,650 18,408,581 15,189,217 ------------ ------------ ------------ Net earnings $ 21,869,481 20,692,642 16,556,685 ============ ============ ============
*Eliminated in consolidation. See accompanying auditors' report. See the accompanying Notes to Condensed Financial Statements. SCHEDULE II FPIC Insurance Group, Inc. Condensed Financial Information of Registrant FPIC Insurance Group, Inc. (Parent Only) Condensed Statements of Cash Flows For the years ended December 31, 1999, 1998 and 1997
1999 1998 1997 ------------ ------------ ------------ Cash flows from operating activities Net earnings $ 21,869,481 20,692,642 16,556,685 Adjustments to reconcile net earnings to net cash provided by operating activities: Equity in undistributed earnings of subsidiaries (9,792,650) (18,408,581) (15,189,217) Common stock dividend from subsidiaries (12,674,000) (450,000) -- Depreciation and amortization 751,680 251,367 21,151 Noncash compensation 125,859 20,972 -- Net loss in equity investment 18,482 -- -- Loss on sale of furniture 8,041 -- -- Changes in assets and liabilities: Due from subsidiaries 2,779,145 230,555 (5,938,784) Prepaid expenses 53,902 (116,611) (263,245) Other assets 1,898,898 (406,443) (185,403) Federal income taxes payable -- (2,620,083) 2,620,083 Federal income taxes receivable (3,268,380) (1,804,225) -- Other liabilities 3,233,775 174,631 1,663,348 ------------ ------------ ------------ Net cash used in operating activities 5,004,233 (2,435,776) (715,382) Cash flows from investing activities Purchase of goodwill (2,708,388) (4,071,107) (3,207,661) Purchase of common stocks -- (5,500,000) (2,086,090) Purchase of other invested assets (703,558) (2,171,771) (2,000,000) Purchase of real estate investments (902,312) -- -- Additional investment in subsidiaries -- -- (1,250,100) Proceeds from sale or maturity of available for sale securities -- -- 3,881,315 Purchase of fixed maturity securities Purchase of subsidiary's net other assets and stock (55,114,240) (19,650,000) -- Purchase of property and equipment, net (616,741) (196,166) (171,210) ------------ ------------ ------------ Net cash used in investing activities (60,045,239) (31,589,044) (4,833,746) Cash flows from financing activities Receipt of revolving credit facility 35,554,109 25,165,000 2,000,000 Issuance of common stock 7,569,180 8,165,260 3,542,215 ------------ ------------ ------------ Net cash provided by financing activities $ 43,123,289 33,330,260 5,542,215
See accompanying auditors' report See the accompanying Notes to Condensed Financial Statements. Continued. SCHEDULE II FPIC Insurance Group, Inc. Condensed Financial Information of Registrant FPIC Insurance Group, Inc. (Parent Only) Condensed Statements of Cash Flows For the years ended December 31, 1999, 1998 and 1997
(In thousands) -------------------------------------------- 1999 1998 1997 ------------ ------------ ------------ Net decrease in cash and cash equivalents $(11,917,717) (694,560) (6,913) Cash and cash equivalents, beginning of year (697,173) (2,613) 4,300 ------------ ------------ ------------ Cash and cash equivalents, end of year $(12,614,890) (697,173) (2,613) ============ ============ ============ Supplemental disclosure of cash flow information: Federal income taxes paid $ 6,634,000 9,816,000 6,071,204 Cash paid for interest $ 4,015,726 844,151 65,962
See accompanying auditors' report. See the accompanying Notes to Condensed Financial Statements. SCHEDULE II FPIC Insurance Group, Inc Condensed Financial Information of Registrant Notes to Condensed Financial Statements (Parent Only) December 31, 1999 The accompanying condensed financial statements should be read in conjunction with the consolidated financial statements and notes thereto of FPIC Insurance Group, Inc. (see part III Item 8). 1. The Parent Company was formed on June 11, 1996. The shareholders of a subsidiary company approved the formation of a holding company structure. The shareholders of the subsidiary company became the shareholders of the Parent Company in a five for one exchange of common stock. Prior to the approval of the holding company structure, the Parent Company had no activity. 2. Investments See Investments in the consolidated financial statements Part II Item 8 and in Note 4 of the notes to the consolidated financial statements. 3. Goodwill See Goodwill in the consolidated financial statements Part II Item 8 and in Note 8 of the notes to the consolidated financial statements. 4. Intangible assets See Intangible Assets in the consolidated financial statements Part II Item 8 and in Note 9 of the notes to the consolidated financial statements. 5. Revolving credit facility See Borrowing Arrangements in Note 10 of the notes to the consolidated financial statements. 6. Income Taxes The Company and its eligible subsidiaries file a consolidated U.S. Federal Income tax return. Income tax liabilities or benefits are recorded by each subsidiary based upon separate return calculations, and any difference between the consolidated provision and the aggregate amounts recorded by the subsidiaries is reflected in the Parent Company financial statements. For further information on income taxes, see Income Taxes in Note 14 of the notes to the consolidated financial statements. 7. Other Comprehensive Income See Other Comprehensive Income in the consolidated financial statements Part II Item 8. 8. Dividend Restrictions See Statutory Accounting in Note 17 of the notes to the consolidated financial statements. 9. Accounting Changes For information concerning new accounting standards adopted in 1999 and 1998, see Note 1 of the notes to the consolidated financial statements. SCHEDULE III FPIC Insurance Group, Inc. Consolidated Supplementary Insurance Information (in thousands) For the years ended December 31, 1999, 1998 and 1997
Other Amortization Deferred Future Policy Policy Benefits of Deferred Policy Benefits Claims & Net Losses and Policy Acquisition Losses, Claims Unearned Benefits Premium Investment Loss Acquisition Segment Costs Loss Expenses Premiums Payable Revenue Income Expenses Costs - ------- ------------ ------------- -------- ------- ------- ------ -------- ----- 1999: Medical professional and other liability $ 2,789 273,092 55,759 -- 118,189 19,024 80,968 6,727 1998: Medical professional and other liability $ 2,001 242,377 44,310 -- 89,562 17,549 67,362 4,860 1997: Medical professional and other liability $ 1,411 188,086 28,218 -- 65,504 15,978 54,011 3,996
Other Premiums Segment Expenses Written - ------- -------- ------- 1999: Medical professional and other liability 15,968 122,126 1998: Medical professional and other liability 7,653 101,477 1997: Medical professional and other liability 3,083 70,285 See accompanying auditors' report SCHEDULE IV FPIC Insurance Group, Inc. Reinsurance For the years ended December 31, 1999, 1998 and 1997
Ceded Assumed Percentage Earned to Earned of Property and Gross Other From Other Net Assumed Liability Insurance Amount Companies Companies Earned to net - ------------------- ------ --------- --------- ------ ------ 1999 $ 116,495,754 26,341,160 28,034,279 118,188,873 23.72 % 1998 $ 91,141,795 16,055,262 14,475,045 89,561,578 16.16 % 1997 $ 71,277,054 7,508,160 1,734,781 65,503,675 2.65 %
See accompanying auditors' report. SCHEDULE V FPIC Insurance Group, Inc. Valuation and Qualifying Accounts
Balance at Charged to Balance Beginning Costs and at End Description of Period Expenses Deductions of Period ----------- --------- -------- ---------- --------- Year-ended December 31, 1999 Allowance for Doubtful Accounts, net $ 908,409 338,171 -- 1,246,580 Year-ended December 31, 1998 Allowance for Doubtful Accounts, net $ 681,175 227,234 -- 908,409
See accompanying auditors' report. EX-10.N 2 EMPLOYMENT AGREEMENT Exhibit 10(n) FPIC INSURANCE GROUP, INC. EMPLOYMENT AGREEMENT This Employment Agreement is made and entered into as of the 22nd day of November 1999 by and between FPIC Insurance Group, Inc., a Florida corporation, with its principal place of business at 225 Water Street, Suite 1400, Jacksonville, Florida 32202 (hereinafter referred to as "Employer"), and Kim D. Thorpe, an individual presently residing at 10135 Gate Parkway N., #1705, Jacksonville, FL 32246 (hereinafter referred to as "Employee"). WITNESSETH: WHEREAS, Employer desires to retain the services of Employee as the Executive Vice President - Chief Financial Officer of Employer, and Employee desires to perform such services for Employer on the terms and conditions set forth herein; WHEREAS, Employee represents and Employer acknowledges that Employee is fully qualified, without the benefit of any further training or experience, to perform the responsibilities and duties, with commensurate authorities, of the position of Executive Vice President - Chief Financial Officer of Employer; and WHEREAS, Employee agrees to devote Employee's full time and business effort, attention and energies to the diligent performance of Employee's duties hereunder; NOW, THEREFORE, Employer and Employee, intending to be legally bound, covenant and agree as follows: 1. Terms of Employment. ------------------- (a) Employee's employment hereunder shall be for a term beginning November 22, 1999 and ending December 31, 2001, which term shall be extended for an additional year at the end of each calendar year, commencing with calendar year 2000, upon Employer's Board of Directors (from time to time herein referred to as the "Board"), or a committee thereof, giving notice to Employee prior to the end of such calendar year that it wishes to extend this Employment Agreement for an additional year. (b) In the event Employer does not give notice to Employee prior to the end of any calendar year, commencing with calendar year 2000, that it wishes to extend this Employment Agreement as specified in subparagraph (a) above, Employee may voluntarily terminate Employee's employment under this Employment Agreement by giving at least ninety (90) days written notice to Employer. Following the effective date of such voluntary termination, Employee shall continue to receive Employee's annual salary, payable as immediately prior to termination, plus all benefits to which Employee is then entitled for the balance of the term of this Employment Agreement. It is provided, however, if Employee directly or indirectly engages in or acts as an executive of or consultant for any trade or occupation that is in competition with Employer, such salary and benefits shall thereupon terminate. (c) The duties of Employee shall be as determined by the Board in accordance with this Employment Agreement and the By-Laws of Employer in effect from time to time. Employee may not be reassigned to an inferior position, given a change in classification or reclassified, or transferred, nor shall Employee's responsibilities, duties, authority or title change during the term of this Employment Agreement, except as provided in subparagraph 1(b) above. Without limiting the generality of the foregoing, Employee shall report to and advise the Board regarding the management and operation of Employer's business. Employee agrees to devote Employee's full time business efforts, attention and energies to the diligent performance of Employee's duties hereunder and will not, during the term hereof, accept employment, full or part-time, from any other person, firm, corporation, governmental agency or other entity that, in the reasonable opinion of the Board, would conflict with or detract from Employee's capable performance of such duties, provided, however, Employee may devote reasonable amounts of time to activities of a public service, civic, or not-for-profit nature. 2. Compensation and Expenses. Employer shall pay, or provide, and Employee shall accept as full consideration for the services to be rendered hereunder, and as a reimbursement or provision for expenses incurred by Employee the following: (a) An annual salary of $260,000 (prorated for 1999) payable in twenty-four (24) equal payments during each year of this Employment Agreement; provided, however, that effective January 1 of each year beginning in 2001, Employee's annual compensation shall be increased in accordance with the provision for salary increases set forth in paragraph (b) below. Employee's minimum total compensation, which in no event may be reduced in whole or in part, shall be the annual salary at the rate of compensation received by Employee for any given period of time or at the time of Employee's termination. (b) Annual performance reviews will determine annual salary increases to which Employee becomes entitled, effective January 1, 2001, based upon Employer's then current Compensation Program. (c) Incentive compensation payable with respect to each year beginning with the year 2000 based on Employee's individual performance and the performance of Employer for the prior year pursuant to Employer's then current Executive Incentive Compensation Program. (d) Any additional compensation payable by resolution of the Board for outstanding performance. (e) Such benefits as may be made available from time to time to senior management employees of Employer, but at no time, less than: (i) a personal company automobile including all the costs of operating, maintaining and licensing the automobile and (ii) initiation fees, dues, assessments and other expenses of membership in appropriate clubs or organizations of Employee's choice, as reasonably approved by Employer's Board or an appropriate committee thereof. 3. Expenses. Employer agrees to reimburse Employee for ordinary and necessary expenses incurred by Employee in performing services for Employer pursuant to the terms of this Employment Agreement, in accordance with established corporate policies. 4. Termination. Unless the employment of Employee previously has been terminated pursuant to subparagraph 1(b), this Employment Agreement may be terminated in the manner set forth in subparagraphs (a) through (f) below. (a) Voluntary Termination by Employee. --------------------------------- Employee may terminate this Employment Agreement at any time by giving at least ninety (90) days written notice to Employer, with no further obligation on Employer's part after the effective date of such termination. It is agreed that should Employee voluntarily terminate Employee's employment prior to the end of the initial term of this Employment Agreement, Employee shall forfeit all rights to compensation and all benefits based upon compensation occurring after the effective date of such termination. (b) Voluntary Termination by Employer. --------------------------------- Employer may terminate this Employment Agreement at any time for any reason sufficient to it, by act of its Board. Such termination shall be immediately effective. Following such voluntary termination, Employee shall continue to receive Employee's annual salary, payable immediately prior to termination, together with any benefits accrued to the date of termination, plus all benefits to which Employee is then entitled, for the balance of the then current Employment Agreement, provided, however, if Employee directly or indirectly engages in or acts as an executive of or consultant for any trade or occupation that is in competition with Employer, such salary and benefits shall thereupon terminate. (c) Permanent Disability of Employee. -------------------------------- If Employee has been, for substantially all the normal working days during three (3) consecutive months, unable to perform Employee's responsibilities and duties and to exercise Employee's authorities in a satisfactory manner due to mental or physical disability, then Employee may be deemed "permanently disabled," and Employee's employment may be terminated at the election of the Board of Employer. Any determination of permanent disability made by Employer shall be final and conclusive. In the event that Employer deems Employee "permanently disabled," Employee shall be entitled to receive the unpaid balance of Employee's annual salary, together with other accrued benefits to the date of the determination of being permanently disabled, payable as immediately prior to termination for the remaining term of this Employment Agreement, less any amount received by Employee under any Employer-provided long term disability coverage and/or program; provided, however, if Employee directly or indirectly engages in or acts as an executive of or consultant for any trade or occupation that is in competition with Employer, such salary and benefits shall thereupon terminate. (d) Death of Employee. ----------------- This Employment Agreement shall terminate on the date of Employee's death, and Employer shall pay, in a lump sum, to the estate or personal representative of Employee the unpaid balance of Employee's annual salary, together with other accrued benefits, to the date of death. (e) Termination for Cause. --------------------- Employer's Board may terminate this Agreement for cause, but only after a written notice specifying the cause has been submitted to Employee. Employee shall be granted a reasonable opportunity to respond to the notice, in writing, and in an appearance before the Board. A determination by the Board to terminate this Agreement for cause may be made at a meeting of the Board at which a quorum is present and by a vote of at least a majority of the entire then current membership of the Board. If Employer terminates this Employment Agreement for cause under this subparagraph, Employer shall not be obligated to make any further payments under this Employment Agreement other than amounts accrued at the time of such termination. "Cause" for the purposes of this Agreement consists of the following: (i) Employee's commission of dishonest acts, fraud, misappropriation, or embezzlement affecting Employer; (ii) Employee's commission of any felony under state or federal law; or (iii) the failure or refusal of Employee to comply with any reasonable lawful policy, directive or instruction of the Board, consistent with subparagraph l(c) hereof (f) Constructive Discharge. Employee may terminate this Employment Agreement in the event of Constructive Discharge by providing written notice to Employer within three months after the occurrence of such event, specifying the event relied upon for a Constructive Discharge. "Constructive Discharge" shall mean any (i) material change by Employer of Employee's position, functions, or duties to an inferior position, functions, or duties from that in effect on the date of this Agreement, (ii) assignment, reassignment, or relocation by Employer of Employee without Employee's consent to another place of employment more than 50 miles from Employee's current place of employment, (iii) liquidation, dissolution, consolidation or merger of Employer, or transfer of all or substantially all of its assets, other than a transaction or series of transactions in which the resulting or surviving transferee entity has, in the aggregate, a net worth at least equal to that of Employer immediately before such transaction and expressly assumes this Agreement and all obligations and undertakings of Employer hereunder, or (iv) reduction in Employee's base salary or target bonus opportunity (if greater than the target bonus opportunity, the average of the annual bonuses paid to Employee in the three calendar years prior to the calendar year of the Constructive Discharge). Following termination of Employee's employment in the event of a Constructive Discharge, Employee shall continue to receive Employee's annual salary, payable as immediately prior to termination, plus all benefits to which Employee is then entitled, for the balance of this Agreement, provided, however, if Employee directly or indirectly engages in or acts as an executive of or consultant for any trade or occupation that is in competition with Employer, such salary and benefits shall thereupon terminate. Employer and Employee, upon mutual agreement, may waive any of the foregoing provisions that would otherwise constitute a Constructive Discharge. Within ten days of receiving such written notice from Employee, Employer may cure the event that constitutes a Constructive Discharge. (g) Upon any termination of this Agreement, Employee shall immediately turn over to Employer all of Employer's property, both tangible and intangible. To the extent that such Employer's property shall constitute a benefit to Employee under this Agreement, Employee shall receive from Employer the value of that benefit for the remaining term of this Agreement. (h) Upon any termination of this Agreement, regardless of the reason for termination, it is agreed: (i) Inducing Employees of Employer to Leave. Any attempt on the part of Employee to induce others to leave Employer's employ, or any efforts by Employee to interfere with Employer's relationships with other employees, would be harmful and damaging to Employer. Employee expressly agrees that during the term of this employment and for a period of two (2) years thereafter, Employee will not, in any way, directly or indirectly: (A) induce or attempt to induce any employee to terminate his or her employment with Employer; (B) interfere with or disrupt Employer's relationship with other employees; or (C) solicit, entice, take away or employ any person employed by Employer. (ii) Confidentiality. Employee agrees not to, without prior written consent of Employer, divulge to others, or use, for Employee's own benefit or for the benefit of others, any intellectual property, trade secrets or confidential or proprietary information or data of Employer, including without limitation, the contents of advertising, customer lists, information regarding customers or their customers, programming methods, business plans, strategies, financial statements, copyrights, correspondence or other records of Employer, except to the extent to which such information is required by law to be disclosed to others. (iii) Remedy. Employee acknowledges that Employee will be conversant with Employer's affairs, operations, trade secrets, customers, customers' customers and other proprietary information data; that Employee's compliance with the provisions of this subparagraph is necessary to protect the goodwill and other proprietary rights of Employer; and that Employee's failure to comply with the provisions of this subparagraph will result in irreparable and continuing damage to Employer for which there will be no adequate remedy at law. If Employee shall fail to comply with the provision of this subparagraph, Employer (and its respective successors and assigns) shall be entitled to injunctive relief and to such other and further relief as may be proper and necessary to ensure such compliance. (iv) Mitigation. In no event shall Employee be obligated to seek other employment or to take other action by way of mitigation of the amounts payable to Employee under any of the provisions of this Agreement. 5. Employment Security. ------------------- (a) If Employer suffers from any natural or manmade disaster, work stoppage, civil disobedience, act of war, or any other emergency condition beyond Employee's control, the term of this Employment Agreement shall remain in full force and effect as if such event had not taken place. (b) In the event of the merger, consolidation or acquisition of Employer with or by any other corporation, corporations or other business entities, the sale of Employer or a major portion of its assets, or of its business or good will or any other corporate reorganization involving Employer, this Employment Agreement shall be assigned and transferred to the successor in interest as an asset of Employer and the assignee shall assume Employer's obligations hereunder, and Employee agrees to continue to perform Employee's duties and obligations hereunder. Failure to assign this Employment Agreement prior to any of the events set forth in this subparagraph 5(b) will obligate Employer to fulfill the terms and conditions hereof prior to consummating the applicable event. 6. Arbitration. In the case of any dispute or disagreement arising out of or connected with this Agreement, the parties hereby agree to submit such disputes or disagreements to the American Arbitration Association within ninety (90) days of such dispute or disagreement for resolution by a panel of three arbitrators designated by the American Arbitration Association. The panel of arbitrators shall be instructed to render their decision within one hundred twenty (120) days of the initial submission of the dispute or disagreement to them. Any decision or award by such arbitration panel shall be final and binding, and except in a case of gross fraud or misconduct by one or more of the arbitrators, the decision or award rendered with respect to such dispute or disagreement shall not be appealable. 7. Miscellaneous. ------------- (a) All notices, requests, demands, or other communications hereunder shall be in writing, and shall be deemed to be duly given when delivered or sent by registered or certified mail, postage prepaid, to Employee's last home address as provided to and reflected on the records of Employer and to Employer when personally delivered to Employer's Secretary or when sent by registered or certified mail, postage prepaid, to such officer. (b) Employer hereby agrees that no request, demand or requirement shall be made to or of Employee that would violate any federal or state law or regulations. (c) Should any valid federal or state law or final determination of any administrative agency or court of competent jurisdiction affect any provision of this Employment Agreement, the provision so affected shall be automatically conformed to the law or determination; otherwise, this Employment Agreement shall continue in full force and effect. (d) This Employment Agreement is made and entered into in the State of Florida and its validity and interpretation, and the performance by the parties hereto of their respective duties and obligations hereunder, shall be governed by the laws of the State of Florida and of the United States of America. (e) This Employment Agreement and any agreements executed contemporaneously herewith constitute the entire agreement between the parties respecting the employment of Employee, there being no representations, warranties or commitments except as set forth herein or therein. (f) This Employment Agreement may be amended only by an instrument in writing executed by the parties hereto. IN WITNESS WHEREOF, the parties hereto have executed this Employment Agreement as of the day and date first set forth above. Employee: FPIC Insurance Group, Inc. By - ------------------------------ ------------------------------------ Kim D. Thorpe William R. Russell President and Chief Executive Officer - ------------------------------ ------------------------------------ Attest Attest EX-10.O 3 SEVERANCE AGREEMENT Exhibit 10(o) SEVERANCE AGREEMENT BETWEEN FPIC INSURANCE GROUP, INC. AND KIM D. THORPE THIS AGREEMENT, effective as of the 22nd day of November, 1999, between FPIC Insurance Group, Inc., a Florida corporation (the "Company"), and Kim D. Thorpe, an individual (the "Executive"). W I T N E S E T H: WHEREAS, the Executive is a valuable employee of the Company and an integral part of its management and a key participant in the decision making process relative to planning and policy for the Company; and WHEREAS, the Company wishes to encourage the Executive to continue his career and services with the Company for the period during and after an actual or threatened Change in Control (as hereinafter defined); NOW THEREFORE, it is hereby agreed by and between the parties hereto as follows: 1. Definitions. a. "Board" shall mean the Board of Directors of the Company. b. "Cause" shall mean the Executive's fraud or dishonesty that has resulted or is likely to result in material economic damage to the Company, or the Executive's willful nonfeasance if such nonfeasance is not cured within ten days of written notice from the Company, as determined in good faith by a vote of at least two-thirds of the non-employee directors of the Company at a meeting of the Board at which the Executive is provided an opportunity to be heard. c. "Change in Control" shall mean the earlier of the following events: (i) either (A) receipt by the Company of a report on Schedule 13D, or an amendment to such a report, filed with the Securities and Exchange Commission pursuant to Section 13(d) of the Securities Exchange Act of 1934 (the "1934 Act"), disclosing that any person (as such term is used in Section 13(d) of the 1934 Act) ("Person"), is the beneficial owner, directly or indirectly, of twenty (20) percent or more of the outstanding stock of the Company, or (B) actual knowledge by the Company of facts on the basis of which any Person is required to file such a report on Schedule 13D, or to file an amendment to such a report, with the SEC (or would be required to file such a report or amendment upon the lapse of the applicable period of time specified in Section 13(d) of the 1934 Act) disclosing that such Person is the beneficial owner, directly or indirectly, of twenty (20) percent or more of the outstanding stock of the Company; (ii) purchase by any Person, other than the Company or a wholly owned subsidiary of the Company, of shares pursuant to a tender or exchange offer to acquire any stock of the Company (or securities convertible into stock) for cash, securities or any other consideration provided that, after consummation of the offer, such Person is the beneficial owner (as defined in Rule 13d-3 under the 1934 Act regardless of whether the Company or such Person would otherwise be subject to the 1934 Act), directly or indirectly, of twenty (20) percent or more of the outstanding stock of the Company (calculated as provided in paragraph (d) of Rule 13d-3 under the 1934 Act in the case of rights to acquire stock regardless of whether the Company or such Person would otherwise be subject to the 1934 Act); (iii) either (A) the filing by any Person acquiring, directly or indirectly, twenty percent (20%) or more of the outstanding stock of the Company of a statement with the Florida Department of Insurance pursuant to ss. 628.461 of the Florida Statutes or a successor statutory provision, or (B) actual knowledge by the Company of facts on the basis of which any Person acquiring, directly or indirectly, twenty percent (20%) or more of the outstanding stock of the Company or a controlling company is required to file such a statement pursuant to ss. 628.461 or a successor provision. (iv) approval by the shareholders of the Company of (A) any consolidation or merger of the Company in which the Company is not the continuing or surviving corporation or pursuant to which shares of stock of the Company would be converted into cash, securities or other property, other than a consolidation or merger of the Company in which holders of its stock immediately prior to the consolidation or merger have substantially the same proportionate ownership of common stock of the surviving corporation immediately after the consolidation or merger as immediately before, or (B) any consolidation or merger in which the Company is the continuing or surviving corporation but in which the common shareholders of the Company immediately prior to the consolidation or merger do not hold at least a majority of the outstanding common stock of the continuing or surviving corporation (except where such holders of common stock hold at least a majority of the common stock of the corporation that owns all of the common stock of the Company), or (C) any sale, lease, exchange or other transfer (in one transaction or a series of related transactions) of all or substantially all the assets of the Company, or (D) any merger or consolidation of the Company where, after the merger or consolidation, one Person owns 100% of the shares of stock of the Company (except where the holders of the Company's common stock immediately prior to such merger or consolidation own at least 90% of the outstanding stock of such Person immediately after such merger or consolidation); or (v) a change in the majority of the members of the Board within a 24-month period unless the election or nomination for election by the Company's shareholders of each new director was approved by the vote of at least two-thirds of the directors then still in office who were in office at the beginning of the 24-month period. d. "Code" shall mean the Internal Revenue Code of 1986, as amended. e. "Constructive Discharge" shall mean any (i) material change by the Company of the Executive's position, functions, or duties to an inferior position, functions, or duties from that in effect on the date of this Agreement, (ii) assignment or reassignment by the Company of the Executive without the Executive's consent to another place of employment more than 50 miles from the Executive's current place of employment, (iii) liquidation, dissolution, consolidation or merger of the Company, or transfer of all or substantially all of its assets, other than a transaction or series of transactions in which the resulting or surviving transferee entity has, in the aggregate, a net worth at least equal to that of the Company immediately before such transaction and expressly assumes this Agreement and all obligations and undertakings of the Company hereunder, or (iv) reduction in the Executive's base salary or target bonus opportunity (if greater than the target bonus opportunity, the average of the annual bonuses paid to the Executive in the three calendar years prior to the calendar year of the Constructive Discharge). f. "Coverage Period" shall mean the period beginning on the Starting Date and ending on the Ending Date. The "Starting Date" shall be the date on which a Change in Control occurs. The "Ending Date" shall be the earlier of (i) the date on which a public announcement is made by the Company of its intention to abandon a Change in Control transaction, or (ii) the date that is 36 full calendar months following the date on which a Change in Control occurs, or (iii) if such Change in Control is subject to shareholder approval of such transaction, the date that is 36 months following the date on which the actual consolidation, merger or sale transaction occurs. g. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. h. "Independent Tax Counsel" shall mean an attorney, a certified public accountant with a nationally recognized accounting firm, or a compensation consultant with a nationally recognized actuarial and benefits consulting firm, with expertise in the area of executive compensation tax law, who shall be selected by the Company and shall be reasonably acceptable to the Executive, and whose fees and disbursements shall be paid by the Company. 2. Term. This Agreement shall be effective as of the date of this Agreement and shall continue thereafter until the earlier of (i) 36 full calendar months following the date of an occurrence of a Change in Control, or (ii) the date of the termination of the Executive's employment if such date is prior to the Coverage Period. After a Change in Control, this Agreement shall remain in effect until all of the obligations of the parties hereunder are satisfied. 3. Severance Benefit. a. If at any time during the Coverage Period the Executive's employment hereunder is terminated by the Company for any reason other than Cause, death or disability, or by the Executive in the event of a Constructive Discharge, then the Company shall pay to the Executive (or if the Executive has died before receiving all payments to which he has become entitled hereunder, the estate of the Executive) severance pay in a lump sum cash amount equal to three times the sum of Executive's (i) annual salary and (ii) target bonus opportunity for the current calendar year (if greater than the target bonus opportunity, the average of the annual bonuses for the three prior calendar years). The Company shall also pay Executive any unpaid salary or benefits accrued to the date of termination. In such event, the Executive shall be 100% vested in all stock options, stock appreciation rights, contingent stock, restricted stock and other long-term incentive plans. The Executive's termination of employment with the Company to become an employee of a corporation that owns 100% of the Company shall not be considered a termination of employment for purposes of this Agreement. The subsequent termination of Executive's employment from such corporation shall be considered a termination of employment for purposes of this Agreement. b. The Company and the Executive, upon mutual written agreement, may waive any of the provisions in paragraph 1(e) that would otherwise constitute a Constructive Discharge. Pursuant to paragraph 3(a) of this Agreement, Executive may terminate his employment in the event of a Constructive Discharge by providing written notice to the Company within three months after the occurrence of such event, specifying the event relied upon for a Constructive Discharge. Within ten days of receiving such written notice from Executive, the Company may cure the event that constitutes a Constructive Discharge. c. If at any time during the Coverage Period the Executive's employment is terminated by the Company for any reason other than Cause, death or disability or by the Executive in the event of a Constructive Discharge, and the Executive is entitled to the benefits described under subparagraph 1(b) or subparagraph 4(b) of his Employment Agreement dated as of November 22, 1999, and as extended and amended thereafter, then the Executive shall be permitted to select either the benefits (i) that he would otherwise have been entitled to receive for the remaining term of his Employment Agreement or (ii) those payments provided for under this Agreement. The Executive shall be permitted to receive benefits under either the Employment Agreement or this Agreement, but not benefits from both the Employment Agreement and this Agreement. d. For a period commencing with the month in which termination of employment as described in paragraph 3(a) above shall have occurred, and ending 24 months thereafter, the Executive shall be entitled to all benefits under the Company's welfare benefit plans (within the meaning of Section 3(1) of ERISA), as if the Executive were still employed during such period, at the same level of benefits and at the same dollar cost to the Executive as is available to all of the Company's senior executives generally and if and to the extent that equivalent benefits shall not be payable or provided under any such plan, the Company shall pay or provide tax equivalent benefits on an individual basis. The benefits provided in accordance with this paragraph 3(d) shall be secondary to any comparable benefits provided by another employer. e. If Independent Tax Counsel shall determine that the aggregate payments made to the Executive pursuant to this Agreement and any other payments to the Executive from the Company that constitute "parachute payments" as defined in Section 280G of the Code (or any successor provision thereto) ("Parachute Payments") would be subject to the excise tax imposed by Section 4999 of the Code (the "Excise Tax"), then payments under this Agreement shall be reduced to the maximum amount that would not trigger such excise tax. The Executive shall be permitted to select the benefits to be reduced. f. In the event of any termination of the Executive's employment described in paragraph 3(a), the Executive shall be under no obligation to seek other employment, and, except as provided in paragraph 3(a), there shall be no offset against amounts due the Executive under this Agreement on account of any remuneration attributable to any subsequent employment. 4. Source of Payments. All payments provided for in paragraph 3 above shall be paid in cash from the general funds of the Company; provided, however, that such payments shall be reduced by the amount of any payments made to the Executive or his dependents, beneficiaries or estate from any trust or special or separate fund established by the Company to assure such payments. The Company shall not be required to establish a special or separate fund or other segregation of assets to assure such payments, and, if the Company shall make any investments to aid it in meeting its obligations hereunder, the Executive shall have no right, title or interest whatever in or to any such investments except as may otherwise be expressly provided in a separate written instrument relating to such investments. Nothing contained in this Agreement, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship between the Company and the Executive or any other person. To the extent that any person acquires a right to receive payments from the Company pursuant to this Agreement, such right shall be no greater than the right of an unsecured creditor of the Company. 5. Mediation and Arbitration. Any dispute or controversy arising out of or in relation to this Agreement shall first be submitted to mediation in the City of Jacksonville, Florida in accordance with the Commercial Mediation Rules of the American Arbitration Association. If mediation fails to resolve such dispute or controversy, then such dispute or controversy shall be determined and settled by arbitration in the City of Jacksonville, Florida, in accordance with the Commercial Arbitration Rules of the American Arbitration Association then in effect, and judgment upon the award rendered by the arbitrator may be entered in any court of competent jurisdiction. The parties hereto agree to use good faith efforts to select a mediator and, if mediation fails to resolve such dispute or controversy, an arbitrator. If the parties cannot agree upon a mediator or arbitrator, such mediator or arbitrator shall be selected in accordance with the relevant Commercial Rules of the American Arbitration Association then in effect. The Company's mediation and arbitration expenses, as well as any litigation costs, including legal counsel and reasonable experts, shall be paid by the Company. The Executive's mediation and arbitration costs, as well as any litigation costs, including legal counsel and reasonable experts, shall be paid by the Company, unless the trier of fact determines the Executive's claims thereunder are without merit. Whenever any action is required to be taken under this Agreement within a specified period of time and the taking of such action is materially affected by a matter submitted to mediation or arbitration, such period shall automatically be extended by the number of days plus ten that are taken for the determination of that matter by the parties through mediation or otherwise by the arbitrator. 6. Income Tax Withholding. The Company may withhold from any payments made under this Agreement all federal, state or other taxes as shall be required pursuant to any law or governmental regulation or ruling. 7. Entire Understanding. This Agreement contains the entire understanding between the Company and the Executive with respect to the subject matter hereof and supersedes any prior severance agreement between the Company and the Executive, except that this Agreement shall not affect or operate to reduce any benefit or compensation inuring to the Executive of any kind elsewhere provided and not expressly provided for in this Agreement, including without limitation, any benefit or compensation provided under an executive incentive compensation program of the Company. 8. Severability. If, for any reason, any one or more of the provisions or part of a provision contained in this Agreement shall be held by a court of competent jurisdiction to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision or part of a provision of this Agreement not held so invalid, illegal or unenforceable, and each other provision or part of a provision shall to the full extent consistent with law continue in full force and effect. 9. Consolidation, Merger, or Sale of Assets. If the Company consolidates or merges into or with, or transfers all or substantially all of its assets to, another corporation, the term "Company" as used herein shall mean such other corporation and this Agreement shall continue in full force and effect. 10. Notices. All notices, requests, demands and other communications required or permitted hereunder shall be given in writing and shall be deemed to have been duly given if hand delivered or mailed, postage prepaid, certified or registered, first class as follows: a. to the Company: FPIC Insurance Group, Inc. Attention: Chief Executive Officer 225 Water Street, Suite 1400 Jacksonville, Florida 32202 b. to the Executive: Kim D. Thorpe c/o Raymond McCall 9252 San Jose Boulevard Jacksonville, FL 32257 or to such other address as either party shall have previously specified in writing to the other. 11. No Attachment. Except as required by law, no right to receive payments under this Agreement shall be subject to anticipation, commutation, alienation, sale, assignment, encumbrance, charge, pledge or hypothecation or to execution, attachment, levy or similar process or assignment by operation of law, and any attempt, voluntary or involuntary, to effect any such action shall be null, void and of no effect. 12. Binding Agreement. This Agreement shall be binding upon, and shall inure to the benefit of, the Executive and the Company and their respective permitted successors and assigns. 13. Modification and Waiver. This Agreement may not be modified or amended except by an instrument in writing signed by the parties hereto. No term or condition of this Agreement shall be deemed to have been waived, nor shall there be any estoppel against the enforcement of any provision of this Agreement except by written instrument signed by the party charged with such waiver or estoppel. No such written waiver shall be deemed a continuing waiver unless specifically stated therein, and each such waiver shall operate only as to the specific term or condition waived and shall not constitute a waiver of such term or condition for the future or as to any act other than that specifically waived. 14. Headings of No Effect. The paragraph headings contained in this Agreement are included solely for convenience of reference and shall not in any way affect the meaning or interpretation of any of the provisions of this Agreement. 15. Governing Law. This Agreement and its validity, interpretation, performance, and enforcement shall be governed by the laws of the State of Florida without giving effect to the choice of law provisions in effect in such State. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. FPIC INSURANCE GROUP, INC. By: ______________________________________ William R. Russell President and Chief Executive Officer ______________________________________ Kim D. Thorpe EX-10.P 4 INDEMNIFICATION AGREEMENT Exhibit 10(p) INDEMNIFICATION AGREEMENT This Indemnification Agreement (the "Agreement"), made as of January 1, 1999, by and between FPIC INSURANCE GROUP, INC., a Florida corporation (the "Company"), and FRANK MOYA, M.D., a director and/or officer of the Company (the "Indemnitee"). W I T N E S S E T H T H A T: WHEREAS, the Company desires to retain and attract as directors and officers the most capable persons available; and WHEREAS, the Company and Indemnitee recognize that Indemnitee is unable to acquire adequate or reliable advance knowledge or guidance with respect to the legal risks and potential civil liabilities to which he may become personally exposed as a result of performing his duties in good faith for the Company; and WHEREAS, the Company and Indemnitee recognize that the cost of defending against such lawsuits, whether or not meritorious, is typically beyond the financial resources of most individuals; and WHEREAS, the Articles of Incorporation and Bylaws of the Company permit the Company to indemnify its officers and directors to the fullest extent permitted by law; and WHEREAS, Section 607.0850 of the Florida Statutes sets forth certain provisions relating to the indemnification of officers and directors of a Florida corporation by such corporation; and WHEREAS, the Company desires to have Indemnitee continue to serve as an officer and/or director of the Company free from any undue concern, from unpredictable, inappropriate or unreasonable civil risks and personal civil liabilities, by reason of acting in good faith in the performance of his duties to the Company and Indemnitee desires to continue to serve as an officer and/or director of the Company; provided, on the express condition, that he is furnished with the indemnity set forth herein; NOW, THEREFORE, in consideration of the mutual covenants and agreements below and based on the premises set forth above, the Company and Indemnitee do hereby agree as follows: 1. Definitions. As used in the Agreement: (a) The term "Proceeding" shall include any threatened, pending or completed action, suit or proceeding, whether brought in the name of the Company or otherwise and whether of civil, administrative or investigative nature, including, but not limited to, actions, suits, or proceedings brought under and/or predicated upon the Securities Act of 1933, as amended, and/or the Securities Exchange Act of 1934, as amended, and/or their respective state counterparts and/or any rule or regulation promulgated thereunder, in which Indemnitee may be or may have been involved as a party or otherwise, by reason of any action taken by him or any inaction on his part while acting as such director and/or officer or by reason of the fact that he is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, whether or not he is serving in such capacity at the time any liability or expense is incurred for which indemnification or reimbursement can be provided under this Agreement. The term "Proceeding" shall not include any criminal action or proceeding. (b) The term "Expenses" includes, without limitation thereto, expenses of investigations, judicial or administrative proceedings or appeals, amounts paid in settlement by or on behalf of Indemnitee, attorneys' fees and disbursements and any expenses of establishing a right to indemnification under Paragraph 7 of this Agreement, but shall not include the amount of judgments, fines or penalties actually levied against Indemnitee and shall not include any Expenses incurred in connection with any criminal Proceeding. (c) References to "other enterprise" shall include employee benefit plans; references to "fines" shall include an excise tax assessed with respect to any employee benefit plan; references to "serving at the request of the Company" shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; references to "employee benefit plans" shall include, and not be limited to, stock option plans, stock award plans, stock purchase plans, 401(k) plans, pension plans, health and welfare plans, and retirement plans; and a person who acts in good faith and in a manner he reasonably believes to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Agreement. 2. Agreement to Serve. Indemnitee agrees to serve or continue to serve as a director and/or officer of the Company at the will of the Company or under separate contract, as the case may be, for so long as he is duly elected or appointed or until such time as he tenders his resignation in writing. 3. Indemnity in Third Party Proceedings. The Company shall indemnify Indemnitee in accordance with the provisions of this section if Indemnitee is a party to or threatened to be made a party to or otherwise involved in any Proceeding (other than a Proceeding by or in the name of the Company to procure a judgment in its favor), by reason of the fact that Indemnitee is or was a director and/or officer of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against all Expenses, judgments, fines and penalties, actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such Proceeding, provided it is determined pursuant to Paragraph 7 of this Agreement or by the court before which such action was brought, that Indemnitee acted in good faith and in a manner which he reasonably believed to be in good faith and in a manner he believed to be in or not opposed to the best interests of the Company. 4. Indemnity in Proceedings By or in the Name of the Company. The Company shall indemnify Indemnitee in accordance with the provisions of this section if Indemnitee is a party to or threatened to be made a party to or otherwise involved in any Proceeding by or in the name of the Company to procure a judgment in its favor by reason of the fact that Indemnitee was or is a director and/or officer of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against all Expenses actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such Proceeding, but only if he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company, except that no indemnification for Expenses shall be made under this Paragraph 4 in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged to be liable to the Company, unless and only to the extent that any court in which such Proceeding is brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such expenses as such court shall deem proper. 5. Indemnification of Expenses of Successful Party. Notwithstanding any other provisions of this Agreement, to the extent that Indemnitee has been successful on the merits or otherwise, in defense of any Proceeding or in defense of any claim, issue or matter therein, including the dismissal of an action without prejudice, Indemnitee shall be indemnified against all Expenses incurred in connection therewith. 6. Advances of Expenses. The Expenses incurred by Indemnitee pursuant to Paragraphs 3 and 4 in any Proceeding shall be paid by the Company in advance at the written request of Indemnitee, if Indemnitee shall undertake to repay such amount to the extent that it is ultimately determined that Indemnitee is not entitled to indemnification. 7. Right of Indemnitee to Indemnification Upon Application; Procedure Upon Application. Any indemnification or advance under Paragraphs 3, 4, and/or 6 hereof shall be made no later than 45 days after receipt of the written request of Indemnitee, unless a determination is made within such 45 day period by (a) the Board of Directors of the Company by a majority vote of a quorum thereof consisting of directors who were not parties to such Proceedings, or (b) independent legal counsel in a written opinion (which counsel shall be appointed if such a quorum is not obtainable), that Indemnitee has not met the relevant standards for indemnification set forth in Paragraphs 3 and 4. The right to indemnification or advances as provided by this Agreement shall be enforceable by Indemnitee in any court of competent jurisdiction. The burden of proving that indemnification or advances are not appropriate shall be on the Company. Neither the failure of the Company (including its Board of Directors or independent legal counsel) to have made a determination prior to the commencement of such action that indemnification or advances are proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including its Board of Directors or independent legal counsel) that Indemnitee has met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct. Indemnitee's Expenses incurred in connection with successfully establishing his right to indemnification or advances, in whole or in part, in any such Proceeding shall also be indemnified by the Company. 8. Indemnification Hereunder Not Exclusive. The indemnification provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may be entitled under the Company's Articles of Incorporation, Bylaws, or another capacity while holding such office. The indemnification under this Agreement shall continue as to Indemnitee even though he may have ceased to be a director and/or officer of the Company and shall inure to the benefit of the heirs and personal representatives of Indemnitee. 9. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the Expenses, judgments, fines or penalties actually and reasonably incurred by him in the investigation, defense, appeal or settlement of any Proceeding but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such Expenses, judgments, fines or penalties to which Indemnitee is entitled. 10. Presumption of Indemnification. For purposes of this Agreement, determination of any Proceeding, suit or proceeding by any means shall not create a presumption that Indemnitee did not meet any particular standard of conduct; act in the best interests of the Company; have any particular belief; or that a court has determined that indemnification is not permitted by applicable law. 11. Liability Insurance. To the extent that Company maintains an insurance policy or policies providing directors' and officers' liability insurance, Indemnitee shall be covered by such policy or policies, in accordance with its or their terms, to the maximum extent of the coverage available for any director and/or officer of the Company. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. FPIC INSURANCE GROUP, INC. By__________________________________________ William R. Russell, President and Chief Executive Officer INDEMNITEE: By__________________________________________ Frank Moya, M.D. INDEMNIFICATION AGREEMENT This Indemnification Agreement (the "Agreement"), made as of January 1, 1999, by and between FPIC INSURANCE GROUP, INC., a Florida corporation (the "Company"), and JOHN R. BYERS, a director and/or officer of the Company (the "Indemnitee"). W I T N E S S E T H T H A T: WHEREAS, the Company desires to retain and attract as directors and officers the most capable persons available; and WHEREAS, the Company and Indemnitee recognize that Indemnitee is unable to acquire adequate or reliable advance knowledge or guidance with respect to the legal risks and potential civil liabilities to which he may become personally exposed as a result of performing his duties in good faith for the Company; and WHEREAS, the Company and Indemnitee recognize that the cost of defending against such lawsuits, whether or not meritorious, is typically beyond the financial resources of most individuals; and WHEREAS, the Articles of Incorporation and Bylaws of the Company permit the Company to indemnify its officers and directors to the fullest extent permitted by law; and WHEREAS, Section 607.0850 of the Florida Statutes sets forth certain provisions relating to the indemnification of officers and directors of a Florida corporation by such corporation; and WHEREAS, the Company desires to have Indemnitee continue to serve as an officer and/or director of the Company free from any undue concern, from unpredictable, inappropriate or unreasonable civil risks and personal civil liabilities, by reason of acting in good faith in the performance of his duties to the Company and Indemnitee desires to continue to serve as an officer and/or director of the Company; provided, on the express condition, that he is furnished with the indemnity set forth herein; NOW, THEREFORE, in consideration of the mutual covenants and agreements below and based on the premises set forth above, the Company and Indemnitee do hereby agree as follows: 1. Definitions. As used in the Agreement: (a) The term "Proceeding" shall include any threatened, pending or completed action, suit or proceeding, whether brought in the name of the Company or otherwise and whether of civil, administrative or investigative nature, including, but not limited to, actions, suits, or proceedings brought under and/or predicated upon the Securities Act of 1933, as amended, and/or the Securities Exchange Act of 1934, as amended, and/or their respective state counterparts and/or any rule or regulation promulgated thereunder, in which Indemnitee may be or may have been involved as a party or otherwise, by reason of any action taken by him or any inaction on his part while acting as such director and/or officer or by reason of the fact that he is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, whether or not he is serving in such capacity at the time any liability or expense is incurred for which indemnification or reimbursement can be provided under this Agreement. The term "Proceeding" shall not include any criminal action or proceeding. (b) The term "Expenses" includes, without limitation thereto, expenses of investigations, judicial or administrative proceedings or appeals, amounts paid in settlement by or on behalf of Indemnitee, attorneys' fees and disbursements and any expenses of establishing a right to indemnification under Paragraph 7 of this Agreement, but shall not include the amount of judgments, fines or penalties actually levied against Indemnitee and shall not include any Expenses incurred in connection with any criminal Proceeding. (c) References to "other enterprise" shall include employee benefit plans; references to "fines" shall include an excise tax assessed with respect to any employee benefit plan; references to "serving at the request of the Company" shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; references to "employee benefit plans" shall include, and not be limited to, stock option plans, stock award plans, stock purchase plans, 401(k) plans, pension plans, health and welfare plans, and retirement plans; and a person who acts in good faith and in a manner he reasonably believes to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Agreement. 2. Agreement to Serve. Indemnitee agrees to serve or continue to serve as a director and/or officer of the Company at the will of the Company or under separate contract, as the case may be, for so long as he is duly elected or appointed or until such time as he tenders his resignation in writing. 3. Indemnity in Third Party Proceedings. The Company shall indemnify Indemnitee in accordance with the provisions of this section if Indemnitee is a party to or threatened to be made a party to or otherwise involved in any Proceeding (other than a Proceeding by or in the name of the Company to procure a judgment in its favor), by reason of the fact that Indemnitee is or was a director and/or officer of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against all Expenses, judgments, fines and penalties, actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such Proceeding, provided it is determined pursuant to Paragraph 7 of this Agreement or by the court before which such action was brought, that Indemnitee acted in good faith and in a manner which he reasonably believed to be in good faith and in a manner he believed to be in or not opposed to the best interests of the Company. 4. Indemnity in Proceedings By or in the Name of the Company. The Company shall indemnify Indemnitee in accordance with the provisions of this section if Indemnitee is a party to or threatened to be made a party to or otherwise involved in any Proceeding by or in the name of the Company to procure a judgment in its favor by reason of the fact that Indemnitee was or is a director and/or officer of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against all Expenses actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such Proceeding, but only if he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company, except that no indemnification for Expenses shall be made under this Paragraph 4 in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged to be liable to the Company, unless and only to the extent that any court in which such Proceeding is brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such expenses as such court shall deem proper. 5. Indemnification of Expenses of Successful Party. Notwithstanding any other provisions of this Agreement, to the extent that Indemnitee has been successful on the merits or otherwise, in defense of any Proceeding or in defense of any claim, issue or matter therein, including the dismissal of an action without prejudice, Indemnitee shall be indemnified against all Expenses incurred in connection therewith. 6. Advances of Expenses. The Expenses incurred by Indemnitee pursuant to Paragraphs 3 and 4 in any Proceeding shall be paid by the Company in advance at the written request of Indemnitee, if Indemnitee shall undertake to repay such amount to the extent that it is ultimately determined that Indemnitee is not entitled to indemnification. 7. Right of Indemnitee to Indemnification Upon Application; Procedure Upon Application. Any indemnification or advance under Paragraphs 3, 4, and/or 6 hereof shall be made no later than 45 days after receipt of the written request of Indemnitee, unless a determination is made within such 45 day period by (a) the Board of Directors of the Company by a majority vote of a quorum thereof consisting of directors who were not parties to such Proceedings, or (b) independent legal counsel in a written opinion (which counsel shall be appointed if such a quorum is not obtainable), that Indemnitee has not met the relevant standards for indemnification set forth in Paragraphs 3 and 4. The right to indemnification or advances as provided by this Agreement shall be enforceable by Indemnitee in any court of competent jurisdiction. The burden of proving that indemnification or advances are not appropriate shall be on the Company. Neither the failure of the Company (including its Board of Directors or independent legal counsel) to have made a determination prior to the commencement of such action that indemnification or advances are proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including its Board of Directors or independent legal counsel) that Indemnitee has met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct. Indemnitee's Expenses incurred in connection with successfully establishing his right to indemnification or advances, in whole or in part, in any such Proceeding shall also be indemnified by the Company. 8. Indemnification Hereunder Not Exclusive. The indemnification provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may be entitled under the Company's Articles of Incorporation, Bylaws, or another capacity while holding such office. The indemnification under this Agreement shall continue as to Indemnitee even though he may have ceased to be a director and/or officer of the Company and shall inure to the benefit of the heirs and personal representatives of Indemnitee. 9. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the Expenses, judgments, fines or penalties actually and reasonably incurred by him in the investigation, defense, appeal or settlement of any Proceeding but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such Expenses, judgments, fines or penalties to which Indemnitee is entitled. 10. Presumption of Indemnification. For purposes of this Agreement, determination of any Proceeding, suit or proceeding by any means shall not create a presumption that Indemnitee did not meet any particular standard of conduct; act in the best interests of the Company; have any particular belief; or that a court has determined that indemnification is not permitted by applicable law. 11. Liability Insurance. To the extent that Company maintains an insurance policy or policies providing directors' and officers' liability insurance, Indemnitee shall be covered by such policy or policies, in accordance with its or their terms, to the maximum extent of the coverage available for any director and/or officer of the Company. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. FPIC INSURANCE GROUP, INC. By__________________________________________ William R. Russell, President and Chief Executive Officer INDEMNITEE: By__________________________________________ John R. Byers EX-10.Q 5 INDEMNIFICATION AGREEMENT Exhibit 10(q) INDEMNIFICATION AGREEMENT This Indemnification Agreement (the "Agreement"), made as of May 8, 1999, by and between FPIC INSURANCE GROUP, INC., a Florida corporation (the "Company"), and PAMELA D. DEYO, a director and/or officer of the Company (the "Indemnitee"). W I T N E S S E T H T H A T: WHEREAS, the Company desires to retain and attract as directors and officers the most capable persons available; and WHEREAS, the Company and Indemnitee recognize that Indemnitee is unable to acquire adequate or reliable advance knowledge or guidance with respect to the legal risks and potential civil liabilities to which she may become personally exposed as a result of performing her duties in good faith for the Company; and WHEREAS, the Company and Indemnitee recognize that the cost of defending against such lawsuits, whether or not meritorious, is typically beyond the financial resources of most individuals; and WHEREAS, the Articles of Incorporation and Bylaws of the Company permit the Company to indemnify its officers and directors to the fullest extent permitted by law; and WHEREAS, Section 607.0850 of the Florida Statutes sets forth certain provisions relating to the indemnification of officers and directors of a Florida corporation by such corporation; and WHEREAS, the Company desires to have Indemnitee continue to serve as an officer and/or director of the Company free from any undue concern, from unpredictable, inappropriate or unreasonable civil risks and personal civil liabilities, by reason of acting in good faith in the performance of her duties to the Company and Indemnitee desires to continue to serve as an officer and/or director of the Company; provided, on the express condition, that she is furnished with the indemnity set forth herein; NOW, THEREFORE, in consideration of the mutual covenants and agreements below and based on the premises set forth above, the Company and Indemnitee do hereby agree as follows: 1. Definitions. As used in the Agreement: (a) The term "Proceeding" shall include any threatened, pending or completed action, suit or proceeding, whether brought in the name of the Company or otherwise and whether of civil, administrative or investigative nature, including, but not limited to, actions, suits, or proceedings brought under and/or predicated upon the Securities Act of 1933, as amended, and/or the Securities Exchange Act of 1934, as amended, and/or their respective state counterparts and/or any rule or regulation promulgated thereunder, in which Indemnitee may be or may have been involved as a party or otherwise, by reason of any action taken by her or any inaction on her part while acting as such director and/or officer or by reason of the fact that she is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, whether or not she is serving in such capacity at the time any liability or expense is incurred for which indemnification or reimbursement can be provided under this Agreement. The term "Proceeding" shall not include any criminal action or proceeding. (b) The term "Expenses" includes, without limitation thereto, expenses of investigations, judicial or administrative proceedings or appeals, amounts paid in settlement by or on behalf of Indemnitee, attorneys' fees and disbursements and any expenses of establishing a right to indemnification under Paragraph 7 of this Agreement, but shall not include the amount of judgments, fines or penalties actually levied against Indemnitee and shall not include any Expenses incurred in connection with any criminal Proceeding. (c) References to "other enterprise" shall include employee benefit plans; references to "fines" shall include an excise tax assessed with respect to any employee benefit plan; references to "serving at the request of the Company" shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; references to "employee benefit plans" shall include, and not be limited to, stock option plans, stock award plans, stock purchase plans, 401(k) plans, pension plans, health and welfare plans, and retirement plans; and a person who acts in good faith and in a manner she reasonably believes to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Agreement. 2. Agreement to Serve. Indemnitee agrees to serve or continue to serve as a director and/or officer of the Company at the will of the Company or under separate contract, as the case may be, for so long as she is duly elected or appointed or until such time as she tenders her resignation in writing. 3. Indemnity in Third Party Proceedings. The Company shall indemnify Indemnitee in accordance with the provisions of this section if Indemnitee is a party to or threatened to be made a party to or otherwise involved in any Proceeding (other than a Proceeding by or in the name of the Company to procure a judgment in its favor), by reason of the fact that Indemnitee is or was a director and/or officer of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against all Expenses, judgments, fines and penalties, actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such Proceeding, provided it is determined pursuant to Paragraph 7 of this Agreement or by the court before which such action was brought, that Indemnitee acted in good faith and in a manner which she reasonably believed to be in good faith and in a manner she believed to be in or not opposed to the best interests of the Company. 4. Indemnity in Proceedings By or in the Name of the Company. The Company shall indemnify Indemnitee in accordance with the provisions of this section if Indemnitee is a party to or threatened to be made a party to or otherwise involved in any Proceeding by or in the name of the Company to procure a judgment in its favor by reason of the fact that Indemnitee was or is a director and/or officer of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against all Expenses actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such Proceeding, but only if she acted in good faith and in a manner which she reasonably believed to be in or not opposed to the best interests of the Company, except that no indemnification for Expenses shall be made under this Paragraph 4 in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged to be liable to the Company, unless and only to the extent that any court in which such Proceeding is brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such expenses as such court shall deem proper. 5. Indemnification of Expenses of Successful Party. Notwithstanding any other provisions of this Agreement, to the extent that Indemnitee has been successful on the merits or otherwise, in defense of any Proceeding or in defense of any claim, issue or matter therein, including the dismissal of an action without prejudice, Indemnitee shall be indemnified against all Expenses incurred in connection therewith. 6. Advances of Expenses. The Expenses incurred by Indemnitee pursuant to Paragraphs 3 and 4 in any Proceeding shall be paid by the Company in advance at the written request of Indemnitee, if Indemnitee shall undertake to repay such amount to the extent that it is ultimately determined that Indemnitee is not entitled to indemnification. 7. Right of Indemnitee to Indemnification Upon Application; Procedure Upon Application. Any indemnification or advance under Paragraphs 3, 4, and/or 6 hereof shall be made no later than 45 days after receipt of the written request of Indemnitee, unless a determination is made within such 45 day period by (a) the Board of Directors of the Company by a majority vote of a quorum thereof consisting of directors who were not parties to such Proceedings, or (b) independent legal counsel in a written opinion (which counsel shall be appointed if such a quorum is not obtainable), that Indemnitee has not met the relevant standards for indemnification set forth in Paragraphs 3 and 4. The right to indemnification or advances as provided by this Agreement shall be enforceable by Indemnitee in any court of competent jurisdiction. The burden of proving that indemnification or advances are not appropriate shall be on the Company. Neither the failure of the Company (including its Board of Directors or independent legal counsel) to have made a determination prior to the commencement of such action that indemnification or advances are proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including its Board of Directors or independent legal counsel) that Indemnitee has met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct. Indemnitee's Expenses incurred in connection with successfully establishing her right to indemnification or advances, in whole or in part, in any such Proceeding shall also be indemnified by the Company. 8. Indemnification Hereunder Not Exclusive. The indemnification provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may be entitled under the Company's Articles of Incorporation, Bylaws, or another capacity while holding such office. The indemnification under this Agreement shall continue as to Indemnitee even though she may have ceased to be a director and/or officer of the Company and shall inure to the benefit of the heirs and personal representatives of Indemnitee. 9. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the Expenses, judgments, fines or penalties actually and reasonably incurred by her in the investigation, defense, appeal or settlement of any Proceeding but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such Expenses, judgments, fines or penalties to which Indemnitee is entitled. 10. Presumption of Indemnification. For purposes of this Agreement, determination of any Proceeding, suit or proceeding by any means shall not create a presumption that Indemnitee did not meet any particular standard of conduct; act in the best interests of the Company; have any particular belief; or that a court has determined that indemnification is not permitted by applicable law. 11. Liability Insurance. To the extent that Company maintains an insurance policy or policies providing directors' and officers' liability insurance, Indemnitee shall be covered by such policy or policies, in accordance with its or their terms, to the maximum extent of the coverage available for any director and/or officer of the Company. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. FPIC INSURANCE GROUP, INC. By ___________________________________ William R. Russell, President and Chief Executive Officer INDEMNITEE: By ___________________________________ Pamela D. Deyo INDEMNIFICATION AGREEMENT This Indemnification Agreement (the "Agreement"), made as of May 8, 1999, by and between FPIC INSURANCE GROUP, INC., a Florida corporation (the "Company"), and PEGGY A. PARKS, a director and/or officer of the Company (the "Indemnitee"). W I T N E S S E T H T H A T: WHEREAS, the Company desires to retain and attract as directors and officers the most capable persons available; and WHEREAS, the Company and Indemnitee recognize that Indemnitee is unable to acquire adequate or reliable advance knowledge or guidance with respect to the legal risks and potential civil liabilities to which she may become personally exposed as a result of performing her duties in good faith for the Company; and WHEREAS, the Company and Indemnitee recognize that the cost of defending against such lawsuits, whether or not meritorious, is typically beyond the financial resources of most individuals; and WHEREAS, the Articles of Incorporation and Bylaws of the Company permit the Company to indemnify its officers and directors to the fullest extent permitted by law; and WHEREAS, Section 607.0850 of the Florida Statutes sets forth certain provisions relating to the indemnification of officers and directors of a Florida corporation by such corporation; and WHEREAS, the Company desires to have Indemnitee continue to serve as an officer and/or director of the Company free from any undue concern, from unpredictable, inappropriate or unreasonable civil risks and personal civil liabilities, by reason of acting in good faith in the performance of her duties to the Company and Indemnitee desires to continue to serve as an officer and/or director of the Company; provided, on the express condition, that she is furnished with the indemnity set forth herein; NOW, THEREFORE, in consideration of the mutual covenants and agreements below and based on the premises set forth above, the Company and Indemnitee do hereby agree as follows: 1. Definitions. As used in the Agreement: (a) The term "Proceeding" shall include any threatened, pending or completed action, suit or proceeding, whether brought in the name of the Company or otherwise and whether of civil, administrative or investigative nature, including, but not limited to, actions, suits, or proceedings brought under and/or predicated upon the Securities Act of 1933, as amended, and/or the Securities Exchange Act of 1934, as amended, and/or their respective state counterparts and/or any rule or regulation promulgated thereunder, in which Indemnitee may be or may have been involved as a party or otherwise, by reason of any action taken by her or any inaction on her part while acting as such director and/or officer or by reason of the fact that she is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, whether or not she is serving in such capacity at the time any liability or expense is incurred for which indemnification or reimbursement can be provided under this Agreement. The term "Proceeding" shall not include any criminal action or proceeding. (b) The term "Expenses" includes, without limitation thereto, expenses of investigations, judicial or administrative proceedings or appeals, amounts paid in settlement by or on behalf of Indemnitee, attorneys' fees and disbursements and any expenses of establishing a right to indemnification under Paragraph 7 of this Agreement, but shall not include the amount of judgments, fines or penalties actually levied against Indemnitee and shall not include any Expenses incurred in connection with any criminal Proceeding. (c) References to "other enterprise" shall include employee benefit plans; references to "fines" shall include an excise tax assessed with respect to any employee benefit plan; references to "serving at the request of the Company" shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; references to "employee benefit plans" shall include, and not be limited to, stock option plans, stock award plans, stock purchase plans, 401(k) plans, pension plans, health and welfare plans, and retirement plans; and a person who acts in good faith and in a manner she reasonably believes to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Agreement. 2. Agreement to Serve. Indemnitee agrees to serve or continue to serve as a director and/or officer of the Company at the will of the Company or under separate contract, as the case may be, for so long as she is duly elected or appointed or until such time as she tenders her resignation in writing. 3. Indemnity in Third Party Proceedings. The Company shall indemnify Indemnitee in accordance with the provisions of this section if Indemnitee is a party to or threatened to be made a party to or otherwise involved in any Proceeding (other than a Proceeding by or in the name of the Company to procure a judgment in its favor), by reason of the fact that Indemnitee is or was a director and/or officer of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against all Expenses, judgments, fines and penalties, actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such Proceeding, provided it is determined pursuant to Paragraph 7 of this Agreement or by the court before which such action was brought, that Indemnitee acted in good faith and in a manner which she reasonably believed to be in good faith and in a manner she believed to be in or not opposed to the best interests of the Company. 4. Indemnity in Proceedings By or in the Name of the Company. The Company shall indemnify Indemnitee in accordance with the provisions of this section if Indemnitee is a party to or threatened to be made a party to or otherwise involved in any Proceeding by or in the name of the Company to procure a judgment in its favor by reason of the fact that Indemnitee was or is a director and/or officer of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against all Expenses actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such Proceeding, but only if she acted in good faith and in a manner which she reasonably believed to be in or not opposed to the best interests of the Company, except that no indemnification for Expenses shall be made under this Paragraph 4 in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged to be liable to the Company, unless and only to the extent that any court in which such Proceeding is brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such expenses as such court shall deem proper. 5. Indemnification of Expenses of Successful Party. Notwithstanding any other provisions of this Agreement, to the extent that Indemnitee has been successful on the merits or otherwise, in defense of any Proceeding or in defense of any claim, issue or matter therein, including the dismissal of an action without prejudice, Indemnitee shall be indemnified against all Expenses incurred in connection therewith. 6. Advances of Expenses. The Expenses incurred by Indemnitee pursuant to Paragraphs 3 and 4 in any Proceeding shall be paid by the Company in advance at the written request of Indemnitee, if Indemnitee shall undertake to repay such amount to the extent that it is ultimately determined that Indemnitee is not entitled to indemnification. 7. Right of Indemnitee to Indemnification Upon Application; Procedure Upon Application. Any indemnification or advance under Paragraphs 3, 4, and/or 6 hereof shall be made no later than 45 days after receipt of the written request of Indemnitee, unless a determination is made within such 45 day period by (a) the Board of Directors of the Company by a majority vote of a quorum thereof consisting of directors who were not parties to such Proceedings, or (b) independent legal counsel in a written opinion (which counsel shall be appointed if such a quorum is not obtainable), that Indemnitee has not met the relevant standards for indemnification set forth in Paragraphs 3 and 4. The right to indemnification or advances as provided by this Agreement shall be enforceable by Indemnitee in any court of competent jurisdiction. The burden of proving that indemnification or advances are not appropriate shall be on the Company. Neither the failure of the Company (including its Board of Directors or independent legal counsel) to have made a determination prior to the commencement of such action that indemnification or advances are proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including its Board of Directors or independent legal counsel) that Indemnitee has met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct. Indemnitee's Expenses incurred in connection with successfully establishing her right to indemnification or advances, in whole or in part, in any such Proceeding shall also be indemnified by the Company. 8. Indemnification Hereunder Not Exclusive. The indemnification provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may be entitled under the Company's Articles of Incorporation, Bylaws, or another capacity while holding such office. The indemnification under this Agreement shall continue as to Indemnitee even though she may have ceased to be a director and/or officer of the Company and shall inure to the benefit of the heirs and personal representatives of Indemnitee. 9. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the Expenses, judgments, fines or penalties actually and reasonably incurred by her in the investigation, defense, appeal or settlement of any Proceeding but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such Expenses, judgments, fines or penalties to which Indemnitee is entitled. 10. Presumption of Indemnification. For purposes of this Agreement, determination of any Proceeding, suit or proceeding by any means shall not create a presumption that Indemnitee did not meet any particular standard of conduct; act in the best interests of the Company; have any particular belief; or that a court has determined that indemnification is not permitted by applicable law. 11. Liability Insurance. To the extent that Company maintains an insurance policy or policies providing directors' and officers' liability insurance, Indemnitee shall be covered by such policy or policies, in accordance with its or their terms, to the maximum extent of the coverage available for any director and/or officer of the Company. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. FPIC INSURANCE GROUP, INC. By ___________________________________ William R. Russell, President and Chief Executive Officer INDEMNITEE: By ___________________________________ Peggy A. Parks INDEMNIFICATION AGREEMENT This Indemnification Agreement (the "Agreement"), made as of May 8, 1999, by and between FPIC INSURANCE GROUP, INC., a Florida corporation (the "Company"), and AMY RYAN, a director and/or officer of the Company (the "Indemnitee"). W I T N E S S E T H T H A T: WHEREAS, the Company desires to retain and attract as directors and officers the most capable persons available; and WHEREAS, the Company and Indemnitee recognize that Indemnitee is unable to acquire adequate or reliable advance knowledge or guidance with respect to the legal risks and potential civil liabilities to which she may become personally exposed as a result of performing her duties in good faith for the Company; and WHEREAS, the Company and Indemnitee recognize that the cost of defending against such lawsuits, whether or not meritorious, is typically beyond the financial resources of most individuals; and WHEREAS, the Articles of Incorporation and Bylaws of the Company permit the Company to indemnify its officers and directors to the fullest extent permitted by law; and WHEREAS, Section 607.0850 of the Florida Statutes sets forth certain provisions relating to the indemnification of officers and directors of a Florida corporation by such corporation; and WHEREAS, the Company desires to have Indemnitee continue to serve as an officer and/or director of the Company free from any undue concern, from unpredictable, inappropriate or unreasonable civil risks and personal civil liabilities, by reason of acting in good faith in the performance of her duties to the Company and Indemnitee desires to continue to serve as an officer and/or director of the Company; provided, on the express condition, that she is furnished with the indemnity set forth herein; NOW, THEREFORE, in consideration of the mutual covenants and agreements below and based on the premises set forth above, the Company and Indemnitee do hereby agree as follows: 1. Definitions. As used in the Agreement: (a) The term "Proceeding" shall include any threatened, pending or completed action, suit or proceeding, whether brought in the name of the Company or otherwise and whether of civil, administrative or investigative nature, including, but not limited to, actions, suits, or proceedings brought under and/or predicated upon the Securities Act of 1933, as amended, and/or the Securities Exchange Act of 1934, as amended, and/or their respective state counterparts and/or any rule or regulation promulgated thereunder, in which Indemnitee may be or may have been involved as a party or otherwise, by reason of any action taken by her or any inaction on her part while acting as such director and/or officer or by reason of the fact that she is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, whether or not she is serving in such capacity at the time any liability or expense is incurred for which indemnification or reimbursement can be provided under this Agreement. The term "Proceeding" shall not include any criminal action or proceeding. (b) The term "Expenses" includes, without limitation thereto, expenses of investigations, judicial or administrative proceedings or appeals, amounts paid in settlement by or on behalf of Indemnitee, attorneys' fees and disbursements and any expenses of establishing a right to indemnification under Paragraph 7 of this Agreement, but shall not include the amount of judgments, fines or penalties actually levied against Indemnitee and shall not include any Expenses incurred in connection with any criminal Proceeding. (c) References to "other enterprise" shall include employee benefit plans; references to "fines" shall include an excise tax assessed with respect to any employee benefit plan; references to "serving at the request of the Company" shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; references to "employee benefit plans" shall include, and not be limited to, stock option plans, stock award plans, stock purchase plans, 401(k) plans, pension plans, health and welfare plans, and retirement plans; and a person who acts in good faith and in a manner she reasonably believes to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Agreement. 2. Agreement to Serve. Indemnitee agrees to serve or continue to serve as a director and/or officer of the Company at the will of the Company or under separate contract, as the case may be, for so long as she is duly elected or appointed or until such time as she tenders her resignation in writing. 3. Indemnity in Third Party Proceedings. The Company shall indemnify Indemnitee in accordance with the provisions of this section if Indemnitee is a party to or threatened to be made a party to or otherwise involved in any Proceeding (other than a Proceeding by or in the name of the Company to procure a judgment in its favor), by reason of the fact that Indemnitee is or was a director and/or officer of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against all Expenses, judgments, fines and penalties, actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such Proceeding, provided it is determined pursuant to Paragraph 7 of this Agreement or by the court before which such action was brought, that Indemnitee acted in good faith and in a manner which she reasonably believed to be in good faith and in a manner she believed to be in or not opposed to the best interests of the Company. 4. Indemnity in Proceedings By or in the Name of the Company. The Company shall indemnify Indemnitee in accordance with the provisions of this section if Indemnitee is a party to or threatened to be made a party to or otherwise involved in any Proceeding by or in the name of the Company to procure a judgment in its favor by reason of the fact that Indemnitee was or is a director and/or officer of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against all Expenses actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such Proceeding, but only if she acted in good faith and in a manner which she reasonably believed to be in or not opposed to the best interests of the Company, except that no indemnification for Expenses shall be made under this Paragraph 4 in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged to be liable to the Company, unless and only to the extent that any court in which such Proceeding is brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such expenses as such court shall deem proper. 5. Indemnification of Expenses of Successful Party. Notwithstanding any other provisions of this Agreement, to the extent that Indemnitee has been successful on the merits or otherwise, in defense of any Proceeding or in defense of any claim, issue or matter therein, including the dismissal of an action without prejudice, Indemnitee shall be indemnified against all Expenses incurred in connection therewith. 6. Advances of Expenses. The Expenses incurred by Indemnitee pursuant to Paragraphs 3 and 4 in any Proceeding shall be paid by the Company in advance at the written request of Indemnitee, if Indemnitee shall undertake to repay such amount to the extent that it is ultimately determined that Indemnitee is not entitled to indemnification. 7. Right of Indemnitee to Indemnification Upon Application; Procedure Upon Application. Any indemnification or advance under Paragraphs 3, 4, and/or 6 hereof shall be made no later than 45 days after receipt of the written request of Indemnitee, unless a determination is made within such 45 day period by (a) the Board of Directors of the Company by a majority vote of a quorum thereof consisting of directors who were not parties to such Proceedings, or (b) independent legal counsel in a written opinion (which counsel shall be appointed if such a quorum is not obtainable), that Indemnitee has not met the relevant standards for indemnification set forth in Paragraphs 3 and 4. The right to indemnification or advances as provided by this Agreement shall be enforceable by Indemnitee in any court of competent jurisdiction. The burden of proving that indemnification or advances are not appropriate shall be on the Company. Neither the failure of the Company (including its Board of Directors or independent legal counsel) to have made a determination prior to the commencement of such action that indemnification or advances are proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including its Board of Directors or independent legal counsel) that Indemnitee has met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct. Indemnitee's Expenses incurred in connection with successfully establishing her right to indemnification or advances, in whole or in part, in any such Proceeding shall also be indemnified by the Company. 8. Indemnification Hereunder Not Exclusive. The indemnification provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may be entitled under the Company's Articles of Incorporation, Bylaws, or another capacity while holding such office. The indemnification under this Agreement shall continue as to Indemnitee even though she may have ceased to be a director and/or officer of the Company and shall inure to the benefit of the heirs and personal representatives of Indemnitee. 9. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the Expenses, judgments, fines or penalties actually and reasonably incurred by her in the investigation, defense, appeal or settlement of any Proceeding but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such Expenses, judgments, fines or penalties to which Indemnitee is entitled. 10. Presumption of Indemnification. For purposes of this Agreement, determination of any Proceeding, suit or proceeding by any means shall not create a presumption that Indemnitee did not meet any particular standard of conduct; act in the best interests of the Company; have any particular belief; or that a court has determined that indemnification is not permitted by applicable law. 11. Liability Insurance. To the extent that Company maintains an insurance policy or policies providing directors' and officers' liability insurance, Indemnitee shall be covered by such policy or policies, in accordance with its or their terms, to the maximum extent of the coverage available for any director and/or officer of the Company. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. FPIC INSURANCE GROUP, INC. By ___________________________________ William R. Russell, President and Chief Executive Officer INDEMNITEE: By ___________________________________ Amy Ryan EX-10.R 6 INDEMNIFICATION AGREEMENT Exhibit 10(r) INDEMNIFICATION AGREEMENT This Indemnification Agreement (the "Agreement"), made as of August 22, 1999, by and between FPIC INSURANCE GROUP, INC., a Florida corporation (the "Company"), and STEVEN CONIGLIO, a director and/or officer of the Company (the "Indemnitee"). W I T N E S S E T H T H A T: WHEREAS, the Company desires to retain and attract as directors and officers the most capable persons available; and WHEREAS, the Company and Indemnitee recognize that Indemnitee is unable to acquire adequate or reliable advance knowledge or guidance with respect to the legal risks and potential civil liabilities to which he may become personally exposed as a result of performing his duties in good faith for the Company; and WHEREAS, the Company and Indemnitee recognize that the cost of defending against such lawsuits, whether or not meritorious, is typically beyond the financial resources of most individuals; and WHEREAS, the Articles of Incorporation and Bylaws of the Company permit the Company to indemnify its officers and directors to the fullest extent permitted by law; and WHEREAS, Section 607.0850 of the Florida Statutes sets forth certain provisions relating to the indemnification of officers and directors of a Florida corporation by such corporation; and WHEREAS, the Company desires to have Indemnitee continue to serve as an officer and/or director of the Company free from any undue concern, from unpredictable, inappropriate or unreasonable civil risks and personal civil liabilities, by reason of acting in good faith in the performance of his duties to the Company and Indemnitee desires to continue to serve as an officer and/or director of the Company; provided, on the express condition, that he is furnished with the indemnity set forth herein; NOW, THEREFORE, in consideration of the mutual covenants and agreements below and based on the premises set forth above, the Company and Indemnitee do hereby agree as follows: 1. Definitions. As used in the Agreement: (a) The term "Proceeding" shall include any threatened, pending or completed action, suit or proceeding, whether brought in the name of the Company or otherwise and whether of civil, administrative or investigative nature, including, but not limited to, actions, suits, or proceedings brought under and/or predicated upon the Securities Act of 1933, as amended, and/or the Securities Exchange Act of 1934, as amended, and/or their respective state counterparts and/or any rule or regulation promulgated thereunder, in which Indemnitee may be or may have been involved as a party or otherwise, by reason of any action taken by him or any inaction on his part while acting as such director and/or officer or by reason of the fact that he is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, whether or not he is serving in such capacity at the time any liability or expense is incurred for which indemnification or reimbursement can be provided under this Agreement. The term "Proceeding" shall not include any criminal action or proceeding. (b) The term "Expenses" includes, without limitation thereto, expenses of investigations, judicial or administrative proceedings or appeals, amounts paid in settlement by or on behalf of Indemnitee, attorneys' fees and disbursements and any expenses of establishing a right to indemnification under Paragraph 7 of this Agreement, but shall not include the amount of judgments, fines or penalties actually levied against Indemnitee and shall not include any Expenses incurred in connection with any criminal Proceeding. (c) References to "other enterprise" shall include employee benefit plans; references to "fines" shall include an excise tax assessed with respect to any employee benefit plan; references to "serving at the request of the Company" shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; references to "employee benefit plans" shall include, and not be limited to, stock option plans, stock award plans, stock purchase plans, 401(k) plans, pension plans, health and welfare plans, and retirement plans; and a person who acts in good faith and in a manner he reasonably believes to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Agreement. 2. Agreement to Serve. Indemnitee agrees to serve or continue to serve as a director and/or officer of the Company at the will of the Company or under separate contract, as the case may be, for so long as he is duly elected or appointed or until such time as he tenders his resignation in writing. 3. Indemnity in Third Party Proceedings. The Company shall indemnify Indemnitee in accordance with the provisions of this section if Indemnitee is a party to or threatened to be made a party to or otherwise involved in any Proceeding (other than a Proceeding by or in the name of the Company to procure a judgment in its favor), by reason of the fact that Indemnitee is or was a director and/or officer of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against all Expenses, judgments, fines and penalties, actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such Proceeding, provided it is determined pursuant to Paragraph 7 of this Agreement or by the court before which such action was brought, that Indemnitee acted in good faith and in a manner which he reasonably believed to be in good faith and in a manner he believed to be in or not opposed to the best interests of the Company. 4. Indemnity in Proceedings By or in the Name of the Company. The Company shall indemnify Indemnitee in accordance with the provisions of this section if Indemnitee is a party to or threatened to be made a party to or otherwise involved in any Proceeding by or in the name of the Company to procure a judgment in its favor by reason of the fact that Indemnitee was or is a director and/or officer of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against all Expenses actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such Proceeding, but only if he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company, except that no indemnification for Expenses shall be made under this Paragraph 4 in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged to be liable to the Company, unless and only to the extent that any court in which such Proceeding is brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such expenses as such court shall deem proper. 5. Indemnification of Expenses of Successful Party. Notwithstanding any other provisions of this Agreement, to the extent that Indemnitee has been successful on the merits or otherwise, in defense of any Proceeding or in defense of any claim, issue or matter therein, including the dismissal of an action without prejudice, Indemnitee shall be indemnified against all Expenses incurred in connection therewith. 6. Advances of Expenses. The Expenses incurred by Indemnitee pursuant to Paragraphs 3 and 4 in any Proceeding shall be paid by the Company in advance at the written request of Indemnitee, if Indemnitee shall undertake to repay such amount to the extent that it is ultimately determined that Indemnitee is not entitled to indemnification. 7. Right of Indemnitee to Indemnification Upon Application; Procedure Upon Application. Any indemnification or advance under Paragraphs 3, 4, and/or 6 hereof shall be made no later than 45 days after receipt of the written request of Indemnitee, unless a determination is made within such 45 day period by (a) the Board of Directors of the Company by a majority vote of a quorum thereof consisting of directors who were not parties to such Proceedings, or (b) independent legal counsel in a written opinion (which counsel shall be appointed if such a quorum is not obtainable), that Indemnitee has not met the relevant standards for indemnification set forth in Paragraphs 3 and 4. The right to indemnification or advances as provided by this Agreement shall be enforceable by Indemnitee in any court of competent jurisdiction. The burden of proving that indemnification or advances are not appropriate shall be on the Company. Neither the failure of the Company (including its Board of Directors or independent legal counsel) to have made a determination prior to the commencement of such action that indemnification or advances are proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including its Board of Directors or independent legal counsel) that Indemnitee has met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct. Indemnitee's Expenses incurred in connection with successfully establishing his right to indemnification or advances, in whole or in part, in any such Proceeding shall also be indemnified by the Company. 8. Indemnification Hereunder Not Exclusive. The indemnification provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may be entitled under the Company's Articles of Incorporation, Bylaws, or another capacity while holding such office. The indemnification under this Agreement shall continue as to Indemnitee even though he may have ceased to be a director and/or officer of the Company and shall inure to the benefit of the heirs and personal representatives of Indemnitee. 9. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the Expenses, judgments, fines or penalties actually and reasonably incurred by him in the investigation, defense, appeal or settlement of any Proceeding but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such Expenses, judgments, fines or penalties to which Indemnitee is entitled. 10. Presumption of Indemnification. For purposes of this Agreement, determination of any Proceeding, suit or proceeding by any means shall not create a presumption that Indemnitee did not meet any particular standard of conduct; act in the best interests of the Company; have any particular belief; or that a court has determined that indemnification is not permitted by applicable law. 11. Liability Insurance. To the extent that Company maintains an insurance policy or policies providing directors' and officers' liability insurance, Indemnitee shall be covered by such policy or policies, in accordance with its or their terms, to the maximum extent of the coverage available for any director and/or officer of the Company. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. FPIC INSURANCE GROUP, INC. By__________________________________________ William R. Russell, President and Chief Executive Officer INDEMNITEE: By__________________________________________ Steven Coniglio EX-10.S 7 INDEMNIFICATION AGREEMENT Exhibit 10(s) INDEMNIFICATION AGREEMENT This Indemnification Agreement (the "Agreement"), made as of November 6, 1999, by and between FPIC INSURANCE GROUP, INC., a Florida corporation (the "Company"), and KURT J. CETIN, a director and/or officer of the Company (the "Indemnitee"). W I T N E S S E T H T H A T: WHEREAS, the Company desires to retain and attract as directors and officers the most capable persons available; and WHEREAS, the Company and Indemnitee recognize that Indemnitee is unable to acquire adequate or reliable advance knowledge or guidance with respect to the legal risks and potential civil liabilities to which he may become personally exposed as a result of performing his duties in good faith for the Company; and WHEREAS, the Company and Indemnitee recognize that the cost of defending against such lawsuits, whether or not meritorious, is typically beyond the financial resources of most individuals; and WHEREAS, the Articles of Incorporation and Bylaws of the Company permit the Company to indemnify its officers and directors to the fullest extent permitted by law; and WHEREAS, Section 607.0850 of the Florida Statutes sets forth certain provisions relating to the indemnification of officers and directors of a Florida corporation by such corporation; and WHEREAS, the Company desires to have Indemnitee continue to serve as an officer and/or director of the Company free from any undue concern, from unpredictable, inappropriate or unreasonable civil risks and personal civil liabilities, by reason of acting in good faith in the performance of his duties to the Company and Indemnitee desires to continue to serve as an officer and/or director of the Company; provided, on the express condition, that he is furnished with the indemnity set forth herein; NOW, THEREFORE, in consideration of the mutual covenants and agreements below and based on the premises set forth above, the Company and Indemnitee do hereby agree as follows: 1. Definitions. As used in the Agreement: (a) The term "Proceeding" shall include any threatened, pending or completed action, suit or proceeding, whether brought in the name of the Company or otherwise and whether of civil, administrative or investigative nature, including, but not limited to, actions, suits, or proceedings brought under and/or predicated upon the Securities Act of 1933, as amended, and/or the Securities Exchange Act of 1934, as amended, and/or their respective state counterparts and/or any rule or regulation promulgated thereunder, in which Indemnitee may be or may have been involved as a party or otherwise, by reason of any action taken by him or any inaction on his part while acting as such director and/or officer or by reason of the fact that he is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, whether or not he is serving in such capacity at the time any liability or expense is incurred for which indemnification or reimbursement can be provided under this Agreement. The term "Proceeding" shall not include any criminal action or proceeding. (b) The term "Expenses" includes, without limitation thereto, expenses of investigations, judicial or administrative proceedings or appeals, amounts paid in settlement by or on behalf of Indemnitee, attorneys' fees and disbursements and any expenses of establishing a right to indemnification under Paragraph 7 of this Agreement, but shall not include the amount of judgments, fines or penalties actually levied against Indemnitee and shall not include any Expenses incurred in connection with any criminal Proceeding. (c) References to "other enterprise" shall include employee benefit plans; references to "fines" shall include an excise tax assessed with respect to any employee benefit plan; references to "serving at the request of the Company" shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; references to "employee benefit plans" shall include, and not be limited to, stock option plans, stock award plans, stock purchase plans, 401(k) plans, pension plans, health and welfare plans, and retirement plans; and a person who acts in good faith and in a manner he reasonably believes to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Agreement. 2. Agreement to Serve. Indemnitee agrees to serve or continue to serve as a director and/or officer of the Company at the will of the Company or under separate contract, as the case may be, for so long as he is duly elected or appointed or until such time as he tenders his resignation in writing. 3. Indemnity in Third Party Proceedings. The Company shall indemnify Indemnitee in accordance with the provisions of this section if Indemnitee is a party to or threatened to be made a party to or otherwise involved in any Proceeding (other than a Proceeding by or in the name of the Company to procure a judgment in its favor), by reason of the fact that Indemnitee is or was a director and/or officer of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against all Expenses, judgments, fines and penalties, actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such Proceeding, provided it is determined pursuant to Paragraph 7 of this Agreement or by the court before which such action was brought, that Indemnitee acted in good faith and in a manner which he reasonably believed to be in good faith and in a manner he believed to be in or not opposed to the best interests of the Company. 4. Indemnity in Proceedings By or in the Name of the Company. The Company shall indemnify Indemnitee in accordance with the provisions of this section if Indemnitee is a party to or threatened to be made a party to or otherwise involved in any Proceeding by or in the name of the Company to procure a judgment in its favor by reason of the fact that Indemnitee was or is a director and/or officer of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against all Expenses actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such Proceeding, but only if he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company, except that no indemnification for Expenses shall be made under this Paragraph 4 in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged to be liable to the Company, unless and only to the extent that any court in which such Proceeding is brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such expenses as such court shall deem proper. 5. Indemnification of Expenses of Successful Party. Notwithstanding any other provisions of this Agreement, to the extent that Indemnitee has been successful on the merits or otherwise, in defense of any Proceeding or in defense of any claim, issue or matter therein, including the dismissal of an action without prejudice, Indemnitee shall be indemnified against all Expenses incurred in connection therewith. 6. Advances of Expenses. The Expenses incurred by Indemnitee pursuant to Paragraphs 3 and 4 in any Proceeding shall be paid by the Company in advance at the written request of Indemnitee, if Indemnitee shall undertake to repay such amount to the extent that it is ultimately determined that Indemnitee is not entitled to indemnification. 7. Right of Indemnitee to Indemnification Upon Application; Procedure Upon Application. Any indemnification or advance under Paragraphs 3, 4, and/or 6 hereof shall be made no later than 45 days after receipt of the written request of Indemnitee, unless a determination is made within such 45 day period by (a) the Board of Directors of the Company by a majority vote of a quorum thereof consisting of directors who were not parties to such Proceedings, or (b) independent legal counsel in a written opinion (which counsel shall be appointed if such a quorum is not obtainable), that Indemnitee has not met the relevant standards for indemnification set forth in Paragraphs 3 and 4. The right to indemnification or advances as provided by this Agreement shall be enforceable by Indemnitee in any court of competent jurisdiction. The burden of proving that indemnification or advances are not appropriate shall be on the Company. Neither the failure of the Company (including its Board of Directors or independent legal counsel) to have made a determination prior to the commencement of such action that indemnification or advances are proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including its Board of Directors or independent legal counsel) that Indemnitee has met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct. Indemnitee's Expenses incurred in connection with successfully establishing his right to indemnification or advances, in whole or in part, in any such Proceeding shall also be indemnified by the Company. 8. Indemnification Hereunder Not Exclusive. The indemnification provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may be entitled under the Company's Articles of Incorporation, Bylaws, or another capacity while holding such office. The indemnification under this Agreement shall continue as to Indemnitee even though he may have ceased to be a director and/or officer of the Company and shall inure to the benefit of the heirs and personal representatives of Indemnitee. 9. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the Expenses, judgments, fines or penalties actually and reasonably incurred by him in the investigation, defense, appeal or settlement of any Proceeding but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such Expenses, judgments, fines or penalties to which Indemnitee is entitled. 10. Presumption of Indemnification. For purposes of this Agreement, determination of any Proceeding, suit or proceeding by any means shall not create a presumption that Indemnitee did not meet any particular standard of conduct; act in the best interests of the Company; have any particular belief; or that a court has determined that indemnification is not permitted by applicable law. 11. Liability Insurance. To the extent that Company maintains an insurance policy or policies providing directors' and officers' liability insurance, Indemnitee shall be covered by such policy or policies, in accordance with its or their terms, to the maximum extent of the coverage available for any director and/or officer of the Company. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. FPIC INSURANCE GROUP, INC. By__________________________________________ William R. Russell, President and Chief Executive Officer INDEMNITEE: By__________________________________________ Kurt J. Cetin INDEMNIFICATION AGREEMENT This Indemnification Agreement (the "Agreement"), made as of November 6, 1999, by and between FPIC INSURANCE GROUP, INC., a Florida corporation (the "Company"), and KIM D. THORPE, a director and/or officer of the Company (the "Indemnitee"). W I T N E S S E T H T H A T: WHEREAS, the Company desires to retain and attract as directors and officers the most capable persons available; and WHEREAS, the Company and Indemnitee recognize that Indemnitee is unable to acquire adequate or reliable advance knowledge or guidance with respect to the legal risks and potential civil liabilities to which he may become personally exposed as a result of performing his duties in good faith for the Company; and WHEREAS, the Company and Indemnitee recognize that the cost of defending against such lawsuits, whether or not meritorious, is typically beyond the financial resources of most individuals; and WHEREAS, the Articles of Incorporation and Bylaws of the Company permit the Company to indemnify its officers and directors to the fullest extent permitted by law; and WHEREAS, Section 607.0850 of the Florida Statutes sets forth certain provisions relating to the indemnification of officers and directors of a Florida corporation by such corporation; and WHEREAS, the Company desires to have Indemnitee continue to serve as an officer and/or director of the Company free from any undue concern, from unpredictable, inappropriate or unreasonable civil risks and personal civil liabilities, by reason of acting in good faith in the performance of his duties to the Company and Indemnitee desires to continue to serve as an officer and/or director of the Company; provided, on the express condition, that he is furnished with the indemnity set forth herein; NOW, THEREFORE, in consideration of the mutual covenants and agreements below and based on the premises set forth above, the Company and Indemnitee do hereby agree as follows: 1. Definitions. As used in the Agreement: (a) The term "Proceeding" shall include any threatened, pending or completed action, suit or proceeding, whether brought in the name of the Company or otherwise and whether of civil, administrative or investigative nature, including, but not limited to, actions, suits, or proceedings brought under and/or predicated upon the Securities Act of 1933, as amended, and/or the Securities Exchange Act of 1934, as amended, and/or their respective state counterparts and/or any rule or regulation promulgated thereunder, in which Indemnitee may be or may have been involved as a party or otherwise, by reason of any action taken by him or any inaction on his part while acting as such director and/or officer or by reason of the fact that he is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, whether or not he is serving in such capacity at the time any liability or expense is incurred for which indemnification or reimbursement can be provided under this Agreement. The term "Proceeding" shall not include any criminal action or proceeding. (b) The term "Expenses" includes, without limitation thereto, expenses of investigations, judicial or administrative proceedings or appeals, amounts paid in settlement by or on behalf of Indemnitee, attorneys' fees and disbursements and any expenses of establishing a right to indemnification under Paragraph 7 of this Agreement, but shall not include the amount of judgments, fines or penalties actually levied against Indemnitee and shall not include any Expenses incurred in connection with any criminal Proceeding. (c) References to "other enterprise" shall include employee benefit plans; references to "fines" shall include an excise tax assessed with respect to any employee benefit plan; references to "serving at the request of the Company" shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; references to "employee benefit plans" shall include, and not be limited to, stock option plans, stock award plans, stock purchase plans, 401(k) plans, pension plans, health and welfare plans, and retirement plans; and a person who acts in good faith and in a manner he reasonably believes to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Company" as referred to in this Agreement. 2. Agreement to Serve. Indemnitee agrees to serve or continue to serve as a director and/or officer of the Company at the will of the Company or under separate contract, as the case may be, for so long as he is duly elected or appointed or until such time as he tenders his resignation in writing. 3. Indemnity in Third Party Proceedings. The Company shall indemnify Indemnitee in accordance with the provisions of this section if Indemnitee is a party to or threatened to be made a party to or otherwise involved in any Proceeding (other than a Proceeding by or in the name of the Company to procure a judgment in its favor), by reason of the fact that Indemnitee is or was a director and/or officer of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against all Expenses, judgments, fines and penalties, actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such Proceeding, provided it is determined pursuant to Paragraph 7 of this Agreement or by the court before which such action was brought, that Indemnitee acted in good faith and in a manner which he reasonably believed to be in good faith and in a manner he believed to be in or not opposed to the best interests of the Company. 4. Indemnity in Proceedings By or in the Name of the Company. The Company shall indemnify Indemnitee in accordance with the provisions of this section if Indemnitee is a party to or threatened to be made a party to or otherwise involved in any Proceeding by or in the name of the Company to procure a judgment in its favor by reason of the fact that Indemnitee was or is a director and/or officer of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against all Expenses actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such Proceeding, but only if he acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Company, except that no indemnification for Expenses shall be made under this Paragraph 4 in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged to be liable to the Company, unless and only to the extent that any court in which such Proceeding is brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to indemnity for such expenses as such court shall deem proper. 5. Indemnification of Expenses of Successful Party. Notwithstanding any other provisions of this Agreement, to the extent that Indemnitee has been successful on the merits or otherwise, in defense of any Proceeding or in defense of any claim, issue or matter therein, including the dismissal of an action without prejudice, Indemnitee shall be indemnified against all Expenses incurred in connection therewith. 6. Advances of Expenses. The Expenses incurred by Indemnitee pursuant to Paragraphs 3 and 4 in any Proceeding shall be paid by the Company in advance at the written request of Indemnitee, if Indemnitee shall undertake to repay such amount to the extent that it is ultimately determined that Indemnitee is not entitled to indemnification. 7. Right of Indemnitee to Indemnification Upon Application; Procedure Upon Application. Any indemnification or advance under Paragraphs 3, 4, and/or 6 hereof shall be made no later than 45 days after receipt of the written request of Indemnitee, unless a determination is made within such 45 day period by (a) the Board of Directors of the Company by a majority vote of a quorum thereof consisting of directors who were not parties to such Proceedings, or (b) independent legal counsel in a written opinion (which counsel shall be appointed if such a quorum is not obtainable), that Indemnitee has not met the relevant standards for indemnification set forth in Paragraphs 3 and 4. The right to indemnification or advances as provided by this Agreement shall be enforceable by Indemnitee in any court of competent jurisdiction. The burden of proving that indemnification or advances are not appropriate shall be on the Company. Neither the failure of the Company (including its Board of Directors or independent legal counsel) to have made a determination prior to the commencement of such action that indemnification or advances are proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Company (including its Board of Directors or independent legal counsel) that Indemnitee has met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct. Indemnitee's Expenses incurred in connection with successfully establishing his right to indemnification or advances, in whole or in part, in any such Proceeding shall also be indemnified by the Company. 8. Indemnification Hereunder Not Exclusive. The indemnification provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may be entitled under the Company's Articles of Incorporation, Bylaws, or another capacity while holding such office. The indemnification under this Agreement shall continue as to Indemnitee even though he may have ceased to be a director and/or officer of the Company and shall inure to the benefit of the heirs and personal representatives of Indemnitee. 9. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Company for some or a portion of the Expenses, judgments, fines or penalties actually and reasonably incurred by him in the investigation, defense, appeal or settlement of any Proceeding but not, however, for the total amount thereof, the Company shall nevertheless indemnify Indemnitee for the portion of such Expenses, judgments, fines or penalties to which Indemnitee is entitled. 10. Presumption of Indemnification. For purposes of this Agreement, determination of any Proceeding, suit or proceeding by any means shall not create a presumption that Indemnitee did not meet any particular standard of conduct; act in the best interests of the Company; have any particular belief; or that a court has determined that indemnification is not permitted by applicable law. 11. Liability Insurance. To the extent that Company maintains an insurance policy or policies providing directors' and officers' liability insurance, Indemnitee shall be covered by such policy or policies, in accordance with its or their terms, to the maximum extent of the coverage available for any director and/or officer of the Company. IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. FPIC INSURANCE GROUP, INC. By__________________________________________ William R. Russell, President and Chief Executive Officer INDEMNITEE: By__________________________________________ Kim D. Thorpe EX-21 8 SUBSIDIARY LIST Exhibit 21 - ---------- The following is a list of wholly-owned subsidiaries, unless otherwise noted, of FPIC Insurance Group, Inc. as of December 31, 1999: Name of Subsidiary State of Incorporation - ------------------- ---------------------- Florida Physicians Insurance Company, Inc. (FPIC) Florida Anesthesiologists' Professional Assurance Company Florida FPIC Insurance Agency, Inc. Florida McCreary Corporation Florida Employers Mutual, Inc. Florida FPIC Services, Inc. Florida SyMed Development, Inc. Tennessee Professional Strategy Options, Inc. Florida FPIC Publishing, Inc. Florida Administrators For The Professions, Inc. (AFP) New York Group Data Corporation New York (100% owned by AFP) FPIC Intermediaries, Inc. New York (100% owned by AFP) The Tenere Group, Inc. (Tenere) Missouri (100% owned by FPIC) Intermed Insurance Company (Intermed) Missouri (100% owned by Tenere) Trout Insurance Services, Inc. Missouri (100% owned by Intermed) Interlex Insurance Company Missouri (100% owned by Intermed) Insurance Services, Inc. Missouri (100% owned by Intermed) EX-23 9 CONSENT OF KPMG LLP Exhibit 23 The Board of Directors FPIC Insurance Group, Inc. We consent to the use of our report dated March 8, 2000 relating to the consolidated balance sheets of FPIC Insurance Group, Inc. as of December 31, 1999 and 1998 and the related consolidated statements of income, comprehensive income, changes in shareholders' equity, and cash flows for each of the five years in the three-year period ended December 31, 1999 incorporated herein by reference in the registration statements on Form S-3 of FPIC Insurance Group, Inc. (333-83835) and Form S-8 of FPIC Insurance Group, Inc.'s Director Stock Option Plan (333-72601), and Omnibus Incentive Plan (333-72599), and Florida Physician Insurance Company's Employee Stock Purchase Plan (333-09365) and Defined Contribution Plan (333-09375). KPMG LLP Jacksonville, Florida March 28, 2000 EX-27 10
7 This schedule contains summary financial information extracted from the consolidated financial statements of FPIC Inc. for the twelve months ended December 31, 1999 and in its entirety by reference to such consolidated financial statements. 1,000 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 327,076 0 0 8,823 0 5,235 346,589 6,830 3,081 2,789 582,223 273,092 55,759 5,459 0 62,719 0 0 962 165,417 582,223 118,189 19,023 351 33,259 80,968 6,727 15,968 31,203 9,333 21,869 0 0 0 21,869 2 2 242,377 99,523 (18,555) 15,338 76,292 273,092 18,555
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