meet ing challenges · 2019-08-09 · amidst the global complexities of the 21st century. to day,...

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A N N U A L

R E P O R T

ChallengesMeeting the

OurTimeoƒ

F i n a n c i a l H i g h l i g h t s

A t l a n t i c M u t u a l C o m p a n i e s

Combined StatutoryFinancial HighlightsFor the years ended December 31 ($ in thousands)

2001 2000 % Change

Gross premiums written $ 1,000,064 $ 915,791 9.2)

Net premiums written 634,256 738,290 (14.1)

Claims incurred 645,747 544,686 18.6)

Dividends to policyholders 10,892 12,030 (9.5)

Investment income 74,122 86,682 (14.5)

Net income (loss) (14,274) 11,215 —

At year end

Total admitted assets 1,763,794 1,794,837 (1.7)

Policyholders’ surplus 420,393 471,706 (10.9)

$1,000

900

800

700

600

500

400

300

200

100

01997 1998 1999 2000 2001

Gross premiums written($ in millions)

$1.8

1.7

1.6

1.5

1.4

1.3

1.2

1.1

01997 1998 1999 2000 2001

Total admitted assets($ in billions)

In its 160-year existence, Atlantic Mutual

has participated in major events in the

history of the United States such as

insuring Union shipping during the Civil

War, insuring part of the Titanic’s hull

on her ill-fated maiden voyage and insur-

ing risks in and around the World Trade

Center during the horrific terrorist attack

on September 11. Atlantic Mutual’s

corporate headquarters and New York City

branch are located at 140 Broadway, just

one short block from the site of the for-

mer World Trade Center. All employees

evacuated safely from our building after

the event, but many of our policyholders

and producers were not as fortunate. We

express our deepest condolences to all of

the families who suffered the loss of

loved ones during the attack on America.

There was little disruption in our service

after September 11, and full New York City

operations were resumed within a few

days since our Customer Service Center

is located in Roanoke, Virginia, and we

were also able to back up New York City

operations in our nearby Melville, New

York and Madison, New Jersey facilities.

As featured in this report, the focus of

the organization quickly became the

recovery of our policyholders and

producers. Existing claims catastrophe

response procedures were initiated

immediately after the disaster.

M E E T I N G T H E C H A L L E N G E S O F O U R T I M E 1

To OurPolicyholders

andProducers:

T O O U R P O L I C Y H O L D E R S A N D P R O D U C E R S

M E E T I N G T H E C H A L L E N G E S O F O U R T I M E2

Financial resultsGross premiums written of $1.0 billion

were 9.2 percent higher compared to

last year. While we enjoyed premium

growth in all of our business units, the

Marine Division in particular had a

banner year with a 34.0 percent rise in

premiums. After declining prices

throughout the 1990s, property and

casualty insurance prices in 2001 con-

tinued the upward trend that started

in the prior year. Due to extraordinary

increases in reinsurance costs as a

result of September 11, premiums are

expected to remain firm in 2002.

A net loss of $14.3 million was

incurred in 2001 compared to $11.2

million of net income in 2000. The loss

was primarily attributable to claims

from September 11. As a mutual

insurance company, Atlantic Mutual’s

focus is on its claims-paying ability

through adequate liquidity and strong

solvency rather than short-term earn-

ings. To that end, Atlantic Mutual

fulfilled its mission with flying colors

by promptly and fairly responding to

all claims from September 11.

While our equity portfolio declined by

6.1 percent during 2001, the result was

favorable compared to the 12.1 percent

decline experienced by the total market.

Atlantic Mutual is a long-term investor

in quality large and small companies.

Our portfolio is well diversified and

carefully managed to a prudent level

in keeping with the size of our assets

and surplus.

Terrorism insuranceMost insurance policies have long

excluded acts of war, but not necessarily

terrorism. While September 11 could

logically be considered a war as stated

by the President, it was not part of a

declared war, and the industry did not

attempt to apply war exclusions. As

with other major catastrophes such

as Hurricane Andrew in 1992, which

resulted in estimated insured losses of

$15.5 billion, the industry responded

swiftly to settle claims as a result of

September 11. The property and casu-

alty industry has a positive record in

responding to natural disasters.

Unfortunately, the September 11

attack was man-made, and it will

result in the largest insured loss in

history. According to the Insurance

Information Institute, the insured loss

is estimated to be $40 billion. This

extraordinarily large sum will be paid by

private capital without help from the

government. There was no governmental

bailout of the insurance industry.

In the debate about how much insur-

ance industry capital exists to pay

terrorism claims, there has been reckless

speculation that trillions of dollars are

available. According to the Insurance

Information Institute, there is less than

$100 billion of property and casualty

surplus backing target lines such as

commercial property, liability and

workers’ compensation. This same

surplus must also back up non-terrorism-

related claims for these lines. Life

insurance industry capital is, of

course, not available for property

and casualty claims.

“We would like to thank our

We also extend our appreciat

Together, we renew our promi


The key question is how will the risk

of terrorism be managed in the future.

Terrorism reinsurance is generally not

currently available for commercial risks,

and few, if any, insurance companies

have the financial capacity to insure

terrorism without reinsurance.

Terrorism is not a predictable, insurable

event, but it is a problem for our entire

society. The insurance industry needs a

cooperative effort with the government

to provide transitional protection until

a permanent solution for terrorism

insurance is developed. As of this

writing, such legislation has not been

enacted. Government and all business

must work together to find solutions

that will allow our economy to grow.

Without terrorism insurance, com-

mercial transactions involving target

risks will be difficult, and the economy

will suffer.

Trustee ChangesAt the December 2001 BoardMeeting, E. Virgil Conway retiredfrom the Boards following 27 yearsof distinguished service. His valuableguidance and insight will be greatlymissed. At the February 2002 meeting,Niels M. Johnsen, Chairman of theBoard of Central Gulf Lines, wasappointed a trustee of AtlanticMutual Insurance Company and adirector of Centennial InsuranceCompany and Atlantic SpecialtyInsurance Company.

Officer AppointmentsDiane T. DeSantiAssistant Vice PresidentPersonal Insurance Division

William JungreisAssistant Vice PresidentSurety

Curt GoetschVice PresidentPersonal Insurance Division

Mava D. WingateVice PresidentPolicyholder Services

James A. NaughtonVice President Commercial Insurance Division

policyholders and producers for their strong support.

tion to our Board and employees for their contributions.

se to help our customers meet the challenges of our time.”

Klaus G. Dorfi (Right)Chairman of the Board andChief Executive Officer

Kermit C. Smith (Left)President and Chief Operating Officer

T H R O U G H U N C E R T A I N T I M E S …


A Beacon

ofResponsiveness and

Innovation


Understanding and responding to the

needs of producers and policyholders,

especially in turbulent times, have been

hallmarks of Atlantic Mutual’s long and

distinguished history.

The national tragedy of September 11,

unparalleled in our country’s history, has

challenged not only the nation and its

people, but also the insurance industry

that supports us all. Atlantic Mutual is

used to such challenges. We have provided

quality insurance for more than 160 years—

from covering the first clipper ships that

drove America’s early economic expansion

to providing policies for a range of risks

amidst the global complexities of the

21st century.

Today, as the marvels of advanced

technology help us bridge the limitations

of time and distance, we continue to be a

beacon of innovation—developing new

products and improving service to help

our producers and policyholders meet

the challenges of our time.

As a large company that still offers the

personal touch, Atlantic Mutual has the

expertise and a wide range of products

and services that enable policyholders to

enjoy the fruits of their accomplishments

with a sense of security.

And as a mutual company, we’re able to

set our sights beyond the next quarter

and into the future. This means offering:

• Policies that are comprehensive, tailored

and appropriate;

• ISO 9002 certified loss control services

that can reduce risk and save policy-

holders money; and

• Claims handling that is considerate,

fair and responsive.

This attention to detail in all aspects of

our business—with a focus on your

future—is what separates us from

other insurance companies. It’s a legacy

of service and strength that’s reflected

in our new logo. The new design says,

simply, we’re the same company we’ve

always been, only better. We’ve been there

“When it Counts®” for 160 years, with an

uncommon ability to embrace the future

with innovative products and technologies.


An unprecedented effortAtlantic Mutual’s culture of caring was clearly

demonstrated by the outpouring of support

for our New York City colleagues, producers,

and policyholders in the aftermath of

September 11.

Although our New York City offices were

closed until October 17, we were able to

resume operations quickly and respond

effectively to our policyholders and producers.

The IT, telecommunications and facilities

management people quickly moved our

New York employees to our offices in Madison,

New Jersey and Melville, New York. Our claim

reporting hotline operation is based in our

Roanoke, Virginia office, so those operations

suffered no disruption.

Through it all, the courage and resiliency of

the entire New York staff was extraordinary.

Everyone at Atlantic is proud of them and the

way they assisted producers and policyholders

in such trying times.

Progress in 2001Despite the jarring impact of September 11,

the Commercial Insurance Division made

substantial improvements during 2001 in

operational efficiencies and pricing.

The company’s series of @vantage® products—

which combine liability, umbrella, property,

automobile, crime and inland marine coverages

into one convenient product—enjoyed con-

tinued success in 2001 and was a positive factor

in the division’s growth. Customized for such

industries as financial services, technology,

plastics, food, metalworkers, retailers, profes-

sional services, wholesalers and printers, the

series now includes @vantageSelect® for small

businesses.

All of these products are being increasingly

supported by AbizSM, our expanding and

popular online information portal that lets

agents apply for, endorse and renew commercial

property and casualty insurance for their

clients with ease, and have access to the same

information that our underwriters and claims

representatives use.

Also in 2001, our Central Accounts Department

(CAD) was created in Roanoke to handle

smaller accounts with standardized processing,

which will provide quicker, more consistent

service to our agents. And, the Commercial

Insurance Division expanded internationally

with Atlantic Mutual International, Ltd., a wholly-

owned subsidiary based in London, that offers

coverage for policy holders with exposures in

the countries of the European Union.

Commercial

Robert G. HimmerSenior Vice President

Commercial InsuranceDivision

When it counts®

The offices of three Taiwanese banks

in or near the World Trade Center—

First Commercial Bank, Chang Hwa

Commercial Bank, and International

Commercial Bank of China—were

torn apart on September 11.

Represented by The Chen Agency,

these bank operations managed to

recover more quickly than most, thanks

to the speed and responsiveness of

Atlantic Mutual. International

Commercial Bank began receiving

payments within a week of the initial

damage assessment, and it was back in

its offices within a month. First

Commercial and Chang Hwa

Commercial had to relocate entirely,

but Atlantic Mutual quickly laid out

substantial advances to help them

resume operations, and each bank

was well on its way to full recovery as

information gathering and construction

got underway. “I’ve got nothing but

praise for Atlantic Mutual. There is no

one better,” says Henry Chen. “They

are compassionate, reasonable and

fast,” he says. “This is not a compliment

but a fact.”


Grace under fire“It was a harrowing experience for anyone in the

office that day,” recalls John Tillistrand, vice

president of Atlantic Mutual’s Northeast Region.

“Some of our people not only witnessed the

devastation up close, but they had to make their

way through the chaos and debris, unable to

contact their loved ones for quite some time,” he

says. “Our first priority was to ensure the physical

and emotional well being of each employee.”

Under the leadership of Tillistrand and the man-

agement team, what followed was a determined

and spirited effort to get back to business.

“We quickly contacted all agencies and brokers

and were able to write new business and book

renewals,” Tillistrand explains. “We were particu-

larly focused on helping the three major brokers

based in the World Trade Center—Aon, Marsh and

Frenkel— as they scrambled to recover,” he adds.

“It’s difficult to see so many people hurting,”

Tillistrand says. “But we believed that the best

therapy was to resume our lives quickly and come

back stronger than ever. I’ve been amazed at how

successful our people have been. And our senior

management never wavered, maintaining a focus

on taking care of our people and business partners.”

“We believed that thebest therapy as anorganization was toresume our lives asquickly as possibleand come backstronger than ever.”

John Tillistrand, Vice President,Commercial Insurance Division(Northeast Region), commenting on September 11

“I’ve got nothing but praise for Atlantic Mutual. There is noone better…This is not a compliment but a fact.”

Henry Chen, The Chen Agency


Building on a noble traditionThanks to our distinguished reputation

and a staff of responsive, highly qualified

specialists who understand the risks and

businesses they insure, the Marine and

Surety Division enjoyed solid growth,

despite an unsettled marketplace and

economy.

On sea or land, Atlantic insures cargo in

transit—just as it has since the middle of

the 19th century. And we continue to set

the course for marine insurance by adding

new products—like @vantage® for

Cargo—to meet current needs, while

incorporating Internet-based technologies

to streamline account management,

processing and communications.

The goal: to provide the greatest amount

of flexibility in our policies, and speed

and reliability in our service delivery—

for everyone from commercial shippers

to private yacht owners.

Our Inland Marine programs—developed

through our close partnerships with

agents—are designed to address specialized

property insurance needs. Tailored policies

have been developed for everything from

contractors’ equipment to builders’ risk

exposures, from transportation to ware-

housing, and from fine arts to race cars.

In 2001, Inland Marine introduced a

new product for the communications

industry, covering assets such as towers,

transmitters, satellite dishes, and studio

and broadcasting equipment.

Meanwhile, our two-year-old Surety

business is enjoying great success in

both the contract and commercial

fields, providing guarantees for public

construction projects, as well as bonds

for license, permit, court and fiduciary

obligations. Ultimately, Surety offers our

agents and policyholders additional

opportunities to do business with

Atlantic, while giving us a chance to

further develop the strong relationships

that are so vital to our overall success.

Marine & SuretyThomas P. GorkeSenior Vice PresidentMarine & Surety Division

Gentlemen, start your coverageMany leading race car drivers—including

stars such as Richard Petty, Dale

Earnhardt Jr., Bobby Labonte and Kenny

Bernstein—enjoy the peace of mind of

having Atlantic Mutual insure their cars,

related equipment and spare engines

when they’re idle or in transit. A key part-

ner in this market is K&K Insurance of

Fort Wayne, Indiana. David Hatlem,

K&K’s vice president for Motor Sports,

says, “Atlantic provides the underwriting

flexibility needed to work in this unique

environment. Our relationship is a true

partnership in every sense of the word.”

Crossing that bridge The State of Connecticut found itself in

a difficult spot when the construction

company contracted to rebuild New

Haven’s Tomlinson Bridge was unable

to complete the project. With costs and

delays mounting, the original contractor’s

surety company and the state hired

Cianbro Corporation—a Maine-based

company with expertise in bridge con-

struction and repair—to finish the job.

On such a large public project, contractors

are required to carry surety bonds, and

that’s where Atlantic’s Surety Division

stepped in.

Working closely with the Dunlap

Corporation, the agency for Cianbro,

Atlantic was one of three surety companies

to guarantee the $68 million “rescue”

project. Cianbro got the “unbuildable”

bridge back on track and on schedule,

with completion expected in the summer

of 2002. “Surety is a relationship business,

built on trust,” says Michelle Orlando,

vice president of Dunlap, an HRH

company. “We know and think very

highly of the key players at Atlantic

Mutual. We were happy to have them

on board to help get this difficult project

going and on to completion.” Tom Stone,

Cianbro’s CFO, says, “We’re very fortunate

to have Atlantic participate as an important

player in our surety bond program. As a

stakeholder in our company, their support

is essential.”

Cruising with confidenceAlerionTM, Atlantic Mutual’s Luxury Yacht program, offers an insurance product tailored

to the needs of high-end consumers and specialized producers. Designed to insure yachts

valued at between $1 million and $40 million, AlerionTM is now the industry benchmark

for innovative coverage, creative and expert underwriting, policyholder service, and rapid

claim response. In partnership with network agent Carle & Carle/Frenkel of Englewood

Cliffs, New Jersey, Atlantic was selected as the carrier for the prestigious New York Yacht

Club/Team Dennis Conner’s 2003 America’s Cup campaign. AlerionTM was also chosen

to insure the Commodore’s yacht, as well as many others owned by New York Yacht

Club members.


“Atlantic provides theunderwriting flexibilityneeded to work in thisunique environment.”

David Hatlem, K & K’s vice president for Motor Sports


The sophisticated approachto personal insuranceRecent events in the United States

have heightened awareness about

appropriate insurance coverage—

for affluent individuals as well as

businesses.

That’s why Atlantic's Personal

Insurance Division provides the

highest quality products and services.

We understand that our policyholders

view their possessions as an important

part of their lifestyle, and place a

high value on simplicity, clarity and

convenience.

A case in point is our Atlantic Master

Plan®, a comprehensive policy that

provides insurance for multiple homes,

automobiles, boats, valuable posses-

sions and personal liability—all in

one streamlined, easy-to-understand

package.

Based on feedback from our agents,

moreover, we have enhanced the

Atlantic Master Plan® to better meet

our insureds’ changing needs. These

enhancements include automatic

coverage for identity fraud, credit

card theft over the Internet, personal

computer data loss due to computer

viruses, and losses to business property

in the home. We also offer special

coverages tailored for professionals

such as attorneys, architects and

physicians.

Another unique program designed

for this market includes worldwide

coverage for collectibles and valuables,

including heirlooms and fine art.

The valuables policy is supported by

our access to a network of appraisers

who can help insureds determine the

appropriate insurance limits for their

valuables, and a network of restoration

professionals who can help repair

damaged pieces.

What’s more, the Personal Insurance

Division has also introduced a new

home appraisal unit to make sure your

policy limit is a true reflection of your

home’s replacement value. Our well-

trained professional appraisers will

also provide a custom appraisal report

containing important information to

help make your home safer.

All of our personal lines products are

supported by our superior claims

service that includes offices throughout

the U.S. as well as a 24-hour, toll-free

claims reporting number. Our claims

operation enjoys a reputation for

responsiveness, fairness and customer

satisfaction.

PersonalDaniel H. Olmsted, CPCUSenior Vice PresidentPersonal Insurance Division


Earning an extraordinaryreputationExcerpts from a letter by William F. Tanona,

whose apartment was destroyed by the

World Trade Center collapse.

“Our loss, while minor compared to the

families of the victims, was still traumatic

for us. We essentially lost everything we

owned and we effectively became homeless.

Fortunately, we had renters’ insurance

through Atlantic Mutual…We were

immediately contacted by Jim O’Keefe ...

Jim was tremendously helpful to us

throughout our ordeal…He was extraor-

dinarily courteous and patient with us

from start to finish, and he was accessible,

day or night, seven days a week. Client

service clichés are so often used today.

However, to most of these companies, the

slogans are just that—slogans. Other

firms would benefit from your excellent

customer service model. Please accept my

sincere thanks and appreciation for the

help I received from your firm, and

particularly, Jim O’Keefe. It is because of

employees like Jim that Atlantic Mutual

earns its extraordinary reputation.”

The loyalty goes both waysDan Decraene of Atlanta has been an Atlantic Master Plan®

policyholder for about 15 years. In that time he's had a few

small claims, all with satisfying results. Even with an unusual

claim, he received great service. After discovering that a small

animal had chewed on the distributor cap wires of his 1992

Mercedes—causing considerable damage to the electrical

system—he found Atlantic to be "remarkably responsive"

and understanding. He received a check to cover the repairs

within a week.

According to his agent, Ben Witcher of Little & Smith Inc.,

“We really appreciate Dan’s loyalty all these years. I’m so fond

of Atlantic Mutual myself, that I’ve been a policyholder since

the mid-1980s. So, for me, it’s a very enthusiastic selling

proposition.”

“Other firms would benefit from your excellent customerservice model.”

William F. Tanona, Atlantic Mutual policyholder

“We get a lot of value for the money; theclaim service is just outstanding…I don’tshop around anymore, because I know I’llalways get such great service.”

Dan Decraene, Atlantic Mutual policyholder for 15 years


Raising the service barto new heightsThe proof, they say, is in the results.

Independent agents in independent

surveys rank Atlantic’s claims service

“number one” in several key areas—

ease of doing business, ease of reporting

claims, prompt return of phone calls,

communication skills, clear, concise

reports and easy access to claims data.

Such capabilities are also recognized by

policyholders. A remarkable 97 percent

of those surveyed express their satis-

faction with our services at the close of

first-party claims. And of those recently

surveyed for a property claim, 97 percent

said they would be likely to refer

Atlantic Mutual to a friend.

While positive feedback is reassuring, we

certainly don’t rest on our laurels. In

2001, we added a new Automatic Call

Distribution System to our Central

Reporting Unit in Roanoke to improve

our speed and responsiveness. And

thanks to our Adjuster-On-Call capability,

we’re making an experienced adjuster—

not just an answering service—available

24/7 for emergency cases. Ten days

into a claim, moreover, we contact

claimants for information and

insights, in order to make our

service even better.

Because of these and other initiatives,

the time required to complete claims is

continually being reduced. Today, in

fact, more than 50 percent of first-party

property claims are being completed in

just five days, down from a total average

of 67 days a few years ago. And with

new technologies and techniques

becoming available, we hope to reduce

cycle times even further.

Fighting FraudAtlantic Mutual is also leading the fight

against fraud in a number of ways,

including the use of new technologies.

Our Special Investigation Unit has had

great success using Internet-based data

to identify suspicious claims and spot

trends. We are also licensing a desktop

software tool that helps us analyze

automobile accidents to tell whether

an injury claim is consistent with the

physical evidence. The tool, called

WrExpertTM, is playing a key role in

defending against fraudulent claims

involving soft-tissue injuries.

Claims

Theodore R. HenkeSenior Vice President

Claims Services Division/Corporate Counsel

Containingfraudulent claimsWrExpertTM uses forensic science, physics,

12-point photos of cars involved in acci-

dents, and published research data on the

body’s ability to tolerate stresses to assist

adjusters in completing a bio-mechanical

analysis of low-impact automobile colli-

sions. This analysis helps our adjusters

identify medical build-up claims before

they escalate. For example, if an insured

is involved in a low-impact, rear-end

collision with another car, the driver of

the other car may be tempted to exag-

gerate the nature of any injuries sustained

and may try to file an inflated claim

against our insured. But with WrExpertTM,

our adjusters are able to negotiate a fair

settlement based on the actual injury

potential rather than unnecessary or

inflated medical treatment.

Of those recently surveyed for a property claim,97 percent said they would be likely to refer AtlanticMutual to a friend.


Independent agents in independent surveys rankAtlantic Mutual’s claims service “number one.”



Combined Statutory Statements of IncomeFor the years ended December 31 ($ in thousands)

2001 2000

Gross premiums written $ 1,000,064) $ 915,791)

Net premiums written 634,256) 738,290)

Net premiums earned 763,589) 700,979)

Claims incurred (645,747) (544,686)

Underwriting expenses (217,841) (252,319)

Total underwriting costs (863,588) (797,005)

Statutory underwriting results (99,999) (96,026)

Investment income 74,122) 86,682)

Interest expense on surplus note (8,150) (8,150)

Dividends to policyholders (10,892) (12,030)

Other (expense) income (8,030) 1,297)

Realized gains on investments 33,975) (39,342)

Income (loss) before taxes (18,974) 11,115)

Income (tax) benefit 4,700) 100)

Net income $ 0(14,274)) $ 0011,215)



Combined Statutory Statements of Admitted Assets,Liabilities, and Policyholders’ SurplusAs of December 31 ($ in thousands)

2001 2000

Admitted assetsFixed maturities, at amortized costs $ 906,367) $ 1,011,572) Equity securities, at market 251,570) 265,557) Cash and short-term investments 93,546) 101,279)Company-occupied real estate, net 2,691) 2,954)Investment in subsidiaries 2,173) 2,133)Other invested assets 300) 348)Receivable for securities 15,970) 0)Total invested assets and cash 1,272,617) 1,383,843) Insurance balances receivable, net 369,361) 329,606)Cash value of life insurance 51,026) 12,500)Reinsurance deposit 25,000) 25,032) Accrued investment income 17,747) (21,742)Other assets 28,043) 22,114)Total admitted assets $ 1,763,794) $ 1,794,837)

LiabilitiesClaim reserves $ 0,816,198) $ 0,815,745) Unearned premiums 228,997) 352,592) Funds held under reinsurance treaties 180,222) 56,930)Statutory provision for reinsurance 10,526) 6,373)Ceded reinsurance premiums payable 8,497) 6,834)Payable for securities 5,047) 0)Policyholders’ dividends payable 4,198) 4,282)Federal income tax payable 0) 3,045)Other liabilities 89,716) 77,330)Total liabilities 1,343,401) 1,323,131)

Policyholders’ surplusGuaranty fund 3,000) 3,000) Surplus note 100,000) 100,000) Unassigned surplus ) )

Unrealized appreciation of investments 19,629) 73,872)Other 297,764) 294,834)

Total policyholders’ surplus 420,393) 471,706)

Total liabilities and policyholders’ surplus $ 1,763,794) $ 1,794,837)



Combined Statutory Statements of Changesin Policyholders’ SurplusFor the years ended December 31 ($ in thousands)

Explanatory NotesThe accompanying unaudited combined statutory financial statements include the accounts of the Atlantic

Mutual Insurance Company and its directly and indirectly and wholly-owned insurance subsidiaries:

Centennial Insurance Company, Atlantic Specialty Insurance Company, and Atlantic Lloyd’s Insurance

Company of Texas. The statements also include the operating results on an equity basis of Atlantic Mutual

Insurance Company’s wholly-owned subsidiaries, Atlantic Companies Holding Corporation and Atlantic

Mutual of Bermuda Limited. These organizations are collectively referred to as the Atlantic Mutual

Companies (the Companies).

The accounts of the Companies included in the combination are based on the accounting practices

prescribed or permitted by the Insurance Department of the State of New York. Such practices, including the

basis of presentation of the combined accounts, differ in certain respects from generally accepted account-

ing principles. All significant intercompany balances and transactions have been eliminated in combination.

Certain amounts for 2000 have been reclassified to conform with the 2001 presentation.

The Companies retained Arthur Anderson to perform the audit of the Companies’ 2001 financial statements.

This audit is currently in progress, and the reports will be available for inspection after May 31, 2002.

Fixed maturities are carried at amortized values. The market values for fixed maturities exceeded the

carrying values by $25.0 million and $17.5 million at December 31, 2001 and 2000, respectively.

Effective 2001, changes to statutory accounting principles were enacted by the New York Insurance

Department which did not have a significant effect on policyholders’ surplus. However, the New York

Insurance Department may adopt additional changes to statutory accounting principles during 2002 that

could increase policyholders’ surplus by approximately $36.9 million, primarily from the recognition of

deferred tax assets (future tax benefits).

2001 2000

Balances at January 1 $ 471,706) $ 538,157)

Net income (loss) (14,274) 11,215)

Decrease in unrealized appreciation on investments (54,243) (54,794)

Decrease (increase) in nonadmitted assets 22,730) (22,278)

Increase in statutory provision for reinsurance (4,153) (846)

Other (1,373) 252)

Balances at December 31 $ 420,393) $ 471,706)


InvestmentsAtlantic Mutual Companies’ conservative investment philosophy emphasizes quality, liquidity, and diversifi-

cation in all sectors of its portfolio. To ensure that adequate funds are available for the prompt payment of

all just claims, the Companies maintain appropriate cash holdings and invest in high-grade government and

corporate bonds and notes, and money markets. Fixed income securities make up 80% of Atlantic Mutual’s

portfolio, with virtually 100% in highly rated instruments.

The Companies also invests in common stocks, primarily of large capitalization, financially strong and

successful corporations. Limiting equity securities to a relatively small percentage of total investments allows

the Companies to reduce downside risks while still participating in the attractive long-term growth potential.

These guidelines have been resolved into specific policies dealing with liquidity, fixed income, and equity

investments, and into portfolio characteristics such as high quality, marketability, and broad diversification.

20.2% Equity Securities

0.2% Company-Occupied Real Estate, Net

79.6% Money Markets, U.S.Government, Municipal, U.S. Agency,Corporate & Other Bonds


Investments (continued)

FIXED INCOME INVESTMENT POLICIES

• To maintain a high level of liquidity, emphasizing high quality and ready marketability throughout the

account. A substantial liquidity provision is made within the fixed income portfolio to assure that all

commitments can be promptly met, even under extraordinarily adverse conditions.

• To follow the principle of broad diversification wherever applicable, and to work toward an account with

evenly spaced bond maturities, over time and to the extent permitted by market availability.

Fixed Income PortfolioAs of December 31, 2001 ($ in mill ions)

Amortized MarketSectors Cost Value

U.S. government/agencies $ 379.3) $ 391.5)

Corporate securities 453.1) 465.6)

Mortgage-backed securities 64.9) 65.1)

Foreign government obligations 6.3) 6.5)

Municipals 2.8) 2.7)

Cash and short-term investments 93.5) 93.5)

Total $ 0 999.9) $ 1,024.9)

Moody’sQuality Rating %

Cash and money markets A1/P1) 8.4)

U.S. government direct and indirect Aaa) 45.0)

All other bonds Aaa) 2.6)

Aa) 11.1)

A) 21.6)

Baa) 11.3)

Total 100.0)

AmortizedMaturity Schedule Cost %

0-5 years $ 506.3) 50.6)

6-10 years 404.9) 40.5)

After 10 years 88.7) 8.9)

Total $ 999.9) 100.0)

• Average duration is 4 years, 7 months.


Investments (continued)

EQUITY INVESTMENT POLICIES

• To maintain broad diversification by investing primarily in companies that are considered to be of high

quality and have a significant position in their business sectors. The Companies also participate in several

mutual funds that invest in small capitalization equity securities as well as high-yield corporate bonds.

• To produce, over time, a high rate of total return (dividends plus appreciation) and to contribute to the

growth of policyholders’ surplus.

Equity PortfolioAs of December 31, 2001 ($ in mill ions)

MarketSectors Value %

Industrials $ 35.0) 13.9)

Financials 31.2) 12.4)

Information technology 29.2) 11.6)

Energy 15.6) 6.2)

Health care 15.2) 6.0)

Consumer staples 13.2) 5.2)

Telecommunications 9.4) 3.7)

Materials 6.7) 2.7)

Consumer discretionary 6.6) 2.6)

Utilities 3.4) 1.4)

Internally managed account 165.5) 65.7)

High-yield bond mutual fund 60.3) 24.0)

Equity mutual funds 21.4) 8.6)

Other equity securities 4.4) 1.7)

Equity securities, at market $ 0251.6) 100.0)

Analysis of Investment IncomeFor the years ended December 31 ($ in mill ions)

2001 2000

Fixed income securities $ 67.5) $ 77.0)

Equity securities 8.5) 11.8)

Other 3.4) 3.1)

Investment income before expenses 79.4) 91.9)

Investment expenses (5.3) (5.2)

Investment income $ 074.1) $ 86.7)


Trustees and DirectorsJ. Carter Bacot 2, 4

DirectorThe Bank of New York

William R. Chaney 1, 4

ChairmanTiffany & Co.

Jill M. Considine 2, 4, 5

Chairman and Chief Executive OfficerThe Depository Trust & Clearing Corporation

Salvatore R. Curiale 1, 5

Senior Executive Vice PresidentMutual of America Life Insurance Company

Hugh A. D’Andrade 1, 3, 5

Retired Vice Chairman and Chief Administrative OfficerSchering-Plough Corporation

Klaus G. Dorfi 1, 2

Chairman of the Board and Chief Executive OfficerAtlantic Mutual Companies

T.M. Farley 2General PartnerBrown Brothers Harriman &Company

Jarobin Gilbert, Jr.* 1President and Chief ExecutiveOfficerDBSS Group, Inc.

J.D. Hammond 2, 3, 5

Dean Emeritus & Wm. ElliottProfessor EmeritusSmeal College of BusinessAdministrationThe Pennsylvania State University

Dan F. Huebner 1, 3, 4

Retired Vice ChairmanGrumman Corporation

Niels M. Johnsen 1Chairman of the BoardCentral Gulf Lines

Eugene R. McGrath 2, 3, 5

Chairman, President and Chief Executive OfficerConsolidated Edison Company of New York, Inc.

H. Marshall Schwarz 2, 4

Chairman and Chief Executive OfficerU.S. Trust Corporation

Kermit C. Smith 1, 2

President and Chief Operating OfficerAtlantic Mutual Companies

Lloyd G. Waterhouse 1, 3

Chief Executive Officer,Chairman and PresidentThe Reynolds and ReynoldsCompany

Michael R. MurphyAgent Representative 2001/2002Hilb, Rogal & Hamilton ofBaltimore, Inc.

1. Executive Committee2. Finance Committee3. 2002 Audit Committee4. Executive Development

& Compensation Committee5. Corporate Governance Committee* Serves on Atlantic Mutual and

Centennial Boards only

Senior ManagementKlaus G. Dorfi, CPCUChairman of the Board and Chief Executive Officer

Kermit C. Smith, CPCUPresident and Chief Operating Officer

Cornelius E. GoldingSenior Vice PresidentChief Financial Officer

Thomas P. GorkeSenior Vice PresidentMarine and Surety Division

John G. HeitzSenior Vice PresidentCustomer Service Division

Theodore R. HenkeSenior Vice PresidentClaims Services Division/Corporate Counsel

Robert G. HimmerSenior Vice PresidentCommercial Insurance Division

David P. Mitchell, Jr.Senior Vice PresidentInformation Systems Division

Daniel H. Olmsted, CPCUSenior Vice PresidentPersonal Insurance Division

2001 Agents’ Advisory Council MembersJeffrey Blackburn Assurance Agency, Ltd.Rolling Meadows, IL

S. Michael Boyd Horizons Insurance Group, Inc.Dallas, TX

James CarricoAcordia of KentuckyLouisville, KY

Thomas B. Daggett Tanner Insurance BrokersPleasanton, CA

Bart DeGraafMesirow Insurance Services, Inc.Chicago, IL

Dennis B. FergusonJewett, Barton, Leavy & Kern, Inc.Portland, OR

Douglas D. FyfeThe Mahoney GroupTucson, AZ

Susan G. HartsfieldAcordia SoutheastAtlanta, GA

Charles G. HaakeCharles G. Haake & Sons, Inc.Overland Park, KS

Paul J. Hering Barney & BarneySan Diego, CA

Dan HitePolk & Sullivan Group, Inc.Nashville, TN

Louis E. LefevreBollinger InsuranceShort Hills, NJ

Bruce C. McDonaldSigel Insurance GroupSchwenksville, PA

Michael R. MurphyHilb, Rogal & Hamilton ofBaltimore, Inc.Hunt Valley, MD

Peter E. Peterson Arthur A. Watson & Co., Inc.Wethersfield, CT

John E. Roe, Jr.City Underwriting AgencyNew Hyde Park, NY

Joseph B. SmithSmith Brothers Insurance, Inc.Glastonbury, CT

Fred R. TrippStarkweather & Shepley, Inc.East Providence, RI

Atlantic Mutual Companies:

Atlantic Mutual Insurance CompanyCentennial Insurance CompanyAtlantic Specialty Insurance CompanyAtlantic Lloyd’s Insurance Company of TexasAtlantic Mutual of Bermuda LimitedAtlantic Companies Holding CorporationAtlantic Risk Services, Inc.Atlantic Mutual International, Ltd.

All product names, trademarks or registered trademarksare the property of their respective companies.

Corporate Headquarters

140 Broadway

New York, NY 10005-1101

212.943.1800

Administrative Center

Three Giralda Farms

Madison, NJ 07940-1004

973.408.6000

Technology & Customer

Service Division

1325 Electric Road, S. W.

Roanoke, VA 24018-1101

540.989.3300 or 800.999.4762

National Recoveries Center

Three Giralda Farms

Madison, NJ 07940-1004

973.644.0143 or 800.925.6490

Field Offices

Albany, NY

Atlanta, GA

Chicago, IL

Cincinnati, OH

Cleveland, OH

Crestwood, MO

Dallas, TX

Denver, CO

Detroit, MI

East Lansing, MI

Glastonbury, CT

Hoffman Estates, IL

Hunt Valley, MD

Kansas City, KS

Liverpool, NY

Madison, NJ

Melville, NY

Milwaukee, WI

Minneapolis, MN

Murfreesboro, TN

New York, NY

Orange, CA

Overland Park, KS

Penfield, NY

Philadelphia, PA

Phoenix, AZ

Portland, OR

Richmond, VA

Roanoke, VA

Sacramento, CA

St. John, IN

St. Louis, MO

San Francisco, CA

Seattle, WA

Syracuse, NY

Tampa, FL

Westchester, NY

Canadian Branch

Toronto, Ontario, Canada

Atlantic Mutual International, Ltd.

London, England

www.atlanticmutual.com

cc2001

© 2002 Atlantic Mutual Insurance Company

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