Our Mission and Vision
Combined Statutory Financial Highlights You’re known by the company you keep.
to Penn National Insurance’s Welcome2012 Annual Report 2012 Annual Report 1 / 21 2012 Annual Report
Our Vision What we are seeking to build, grow and maintain Penn National Insurance will distinguish itself from its peers and will be the regional Our Mission and Vision carrier of choice of top-performing independent agents. We will partner with our agents to grow profitably by providing them with comprehensive solutions that meet their needs. Combined Statutory Financial Highlights As an employer, Penn National Insurance will: n Be accountable for its actions. President’s Message n Provide professional growth and development opportunities. Our Independent Agents = Best Service n Create a culture that encourages prudent risk-taking. n Empower employees to take initiative and make decisions. Bad Weather, Good Service n Promote a healthy personal and work/life balance.
Combined Statutory Financial Statements
Officers & Directors Our Mission Why we exist Facts in Brief 2012 Annual Report We deliver superior property and casualty insurance products and services through independent agents. In doing so, we provide financial security to 2 / 23 businesses and individuals that assists them in managing their risk. 2012 Annual Report Combined Statutory Financial Highlights 2012
(Dollars in thousands) 2012 2011* 2010* 2009* 2008* 2007* 2006* Our Mission and Vision Direct premiums written $ 633,571 $ 551,033 $ 518,978 $ 512,056 $ 537,878 $ 568,442 $ 578,738 Combined Statutory Financial Highlights Net premiums written 595,863 517,723 489,123 481,156 506,734 536,857 553,082 Net premiums earned 570,761 507,689 488,099 487,031 518,373 538,849 555,447 President’s Message Investment income, including realized gains and losses 49,272 46,369 50,672 51,528 37,095 46,201 41,821 Our Independent Agents = Best Service Net income (loss) 13,715 (25,164) (11,029) 29,040 35,135 39,150 38,849
Bad Weather, Good Service Total cash and investments $1,223,269 $1,137,748 $1,210,396 $1,204,785 $1,161,226 $1,169,440 $1,092,727 Total admitted assets 1,454,559 1,348,683 1,406,703 1,382,014 1,353,668 1,376,329 1,300,397 Combined Statutory Financial Statements Total policyholders’ surplus 481,590 451,151 487,148 484,850 427,155 439,921 398,940 Combined ratio after dividends 111.6 113.8 115.7 103.0 99.9 99.1 98.3 Officers & Directors
Facts in Brief
3 / 23 Direct Premiums Written Total Admitted Assets Total Policyholders’ Surplus Statutory Combined Ratio After Dividends
(in millions) (in millions) (in millions) n Industry Average n Penn National Insurance (lower is better)
$700 $1500 $500 115
600 1400 400 110 500 1300 105 400 300 1200 300 100 200 1100 200
95 1000 100 100
0 900 0 90 06 07 08 09 10 11 12 * 06 07 08 09 10 11 12 * 06 07 08 09 10 11 12 * 06 07 08 09 10 11 12 *
*2011 and prior years do not include the results of Partners Mutual Insurance. Representatives of the advertising and communications industry consistently tell corporations that many annual report readers spend very little time looking through everything in a report. Rather, they say people tend to read only the initial part of any piece of content. With that in mind, I would like to first thank you for taking the time to spend a few minutes with us to review our 95th annual report.
2012 Annual Report President’s Message A message from Kenneth R. Shutts, president & chief executive officer
If you are a policyholder, I hope you find the content Our goal in this annual report of this annual report valuable in informing you of where is to talk with you about who your company is headed, and that it validates the trust you Our Mission and Vision have placed in Penn National Insurance for providing all of we are as a company, what we your insurance coverage needs. If you are a prospective Combined Statutory Financial Highlights policyholder, I hope you learn more about our organization, believe in, how we see the world and the added value Penn National Insurance can bring to you by being your insurance company. President’s Message changing, and most importantly, When I talk to our policyholders, I always refer to Penn Our Independent Agents = Best Service how we are preparing the National Insurance as “your” company, because simply put, it is. As a mutual company, we are owned by our Bad Weather, Good Service company to meet and exceed policyholders. We do not have stockholders to answer to the challenges confronting or pay dividends to. We answer to main street, not Wall Combined Statutory Financial Statements Street. As a mutual company, we have a business vision that the insurance industry. aligns our operational goals with those of our policyholder- owners. That business vision succeeds because your Officers & Directors company’s interests and those of our policyholders are one For all readers of this report, our objective is that through and the same. It succeeds because it focuses our time, Facts in Brief this vehicle, you will gain a greater understanding of Penn attention, and resources on delivering superior financial National Insurance — where we are headed strategically, strength and stability, a comprehensive product portfolio and how we are achieving our mission of providing a safety 4 / 23 that affords our agents one-stop shopping, an emphasis net that allows businesses and individuals to take risks — on long-term relationships, and most of all, doing what’s whether that is building a business, buying a home or driving right for policyholders. To us, policyholders are much more a car — and feel secure doing so. Indeed, providing the than insurance consumers. And because of that, all of our TM means for our policyholders to “Feel Secure ” (our brand business decisions are made with a policyholder-first focus. promise, which we are protecting for use in our marketing) is our over-arching corporate promise and deliverable. Why should awareness of being insured with a regional mutual company be so vitally important? Because, as our If you are an agent, I trust that you will see why Penn policyholder, you are an owner of Penn National Insurance, National Insurance is the regional carrier of choice for and it is therefore fundamentally important that you are an ever-growing number of independent agencies. In an aware that we reinvest all of our corporate earnings and industry in which many national carriers are now openly profitability back into your company to serve the needs of channel indifferent — meaning that they will write the providing financial security to all of our more than 320,000 policyholder either directly or through an agent — Penn policyholder-owners. National Insurance believes that the independent agent provides the absolute best means of distributing insurance Every one of our policyholders reaches Penn National products and services, because agents offer the consumer Insurance through the recommendation of one of our 906 many choices. Our new television ad, which can be local independent agencies — their trusted insurance seen at this link http://tinyurl.com/chaemv3, features the advisor. The independent agency system is alive and well, many advantages of feeling secure by insuring with Penn having a commanding 78% market share in business National Insurance by dealing with your local, professional, insurance, and close to a 40% share in the personal independent agent as your trusted insurance advisor. auto insurance and homeowners insurance segment of our industry. 2012 Annual Report
Our Mission and Vision
Combined Statutory Financial Highlights
President’s Message
Our Independent Agents = Best Service
Bad Weather, Good Service
Combined Statutory Financial Statements
Officers & Directors
Facts in Brief Christine Sears, CPCU Kenneth R. Shutts executive vice president and president and chief operating officer chief executive officer 5 / 23
At Penn National Insurance, we firmly believe that factor in the buying decision is to find the lowest-cost the independent agency channel is the best method provider — which it emphatically is not. Indeed, a of selling insurance. As opposed to direct writers and recent J. D. Power and Associates survey of insurance captive agencies, independent agents offer prospective consumers found that a competitive price is only the fourth customers the most choice of which carrier best meets the most important factor influencing the buying decision of needs of the particular customer. The independent agency policyholders. The most important decision factor is the system is undergoing significant evolution, with a strong trend strength of the trust relationship between the consumer, of agency consolidations. the agent and the carrier. That is followed by the quality of claims service when the policyholder sustains a loss, Independent agents need to increasingly use the Internet and and then by premium payment options and flexibility. social media to attract new customers and to more promptly service existing customers. In a time when the basic insurance Our strategic plan focuses our efforts on aligning your contract has increasingly become seen as an undifferentiated, company’s services, sales support and target markets commodity product, independent agents are involved in an with those agencies that are evolving their business model arms race of consumer messaging to demonstrate the service to confront the business realities of today and the future. value they bring along with the commodity product. Insurance Increasingly, we are implementing tactical steps and actions carriers that do not use independent agents, but instead sell to help our agents adapt to new consumer behaviors so directly to the public, are spending billions of advertising that they create and focus their value propositions to dollars trying to convince consumers that the most important resonate with specific target customer segments.
2012 Annual Report President’s Message A message from Kenneth R. Shutts, president & chief executive officer
What will the successful agent of the future look There is no question that policyholder expectations like? As part of our strategic plan, we have conducted are evolving and changing. Insurance consumers want extensive one-on-one interviews with 32 high-performing pertinent information in real time, at their fingertips, 24/7. Our Mission and Vision agencies in our operating territory. Though each of these They expect service from their insurance carrier on their agencies is different, they all share common traits that make terms, not only when they want to communicate, but also Combined Statutory Financial Highlights them very successful. I invite you to review each of these in the form, manner and media that they want to receive the characteristics, which can be found beginning on page 14. communication. Social media is here to stay. Just look at Within this section, you will also enjoy reading reflections some of the dynamic trends in current consumer behavior: President’s Message offered by executives running these successful enterprises n Social Media forums are growing at an exponential on their key strategies and tactics that propel their winning rate, with 65% of all adults now using social networks. Our Independent Agents = Best Service performance. n We gained valuable perspectives from the interviews with Consumers are taking control over how and when Bad Weather, Good Service high-performing agencies. These insights have enabled us they communicate with businesses and the format to contemplate and plan for improvements in our delivery of and media through which they want to receive Combined Statutory Financial Statements underwriting, marketing, and claims services that will better business communications. align with the expectations of the agencies that are thriving. n Insurance consumers are helping other consumers Officers & Directors The interviews also yielded information that we can use to through on-line forums. assist agencies that are focused on improving their own n performance and increasing their agency revenues. Policyholders want value-added information to be Facts in Brief sent to them digitally by their insurance carrier when These trends and new realities that successful agents are it will make a difference to the safety of their families reacting to are creating opportunities for carriers that are and property. 6 / 23 willing to refresh their strategies, tighten execution, embrace a more scientific and data-driven approach, and invest heavily We are currently in the process of designing digital tools that in talent and capabilities to drive competitive advantage. will create value for our agents and policyholders by offering Our company is augmenting our strategy to respond to the real-time, customized communications about all of our changing needs of today’s agents, given emerging policyholder products, to include precautionary alerts for severe weather buying behaviors. We have implemented a pilot program, in in their area. conjunction with MarshBerry, a leading agency performance We live in a world of ever-increasing complexity. consultant, to train, build, and mentor top, front-line The volatility of the corporate risk universe has increased over sales producers for our agencies, and give them the tools the last five years, not just with severe weather catastrophes, they need to compete and be successful in today’s world. but also with economic and geopolitical risk. Enterprise risk This year we will also be sharing information and data-metrics management is the process of managing and mitigating a with our agents that will enable them to better understand corporation’s exposure to known and unknown risks, thereby their agency’s production, broken down by every source of protecting its financial stability. At Penn National Insurance, revenue. Lastly, we will be providing our agents with the results we have embedded enterprise risk management into our of our analysis of our historical experience in various lines, culture, and this has enabled us to identify risks, quantify the classes and target markets, which will enable them to identify scope of those risks, and then measure, manage and mitigate the most profitable segments of business for them to pursue those risks. and thus improve their bottom lines.
2012 Annual Report President’s Message A message from Kenneth R. Shutts, president & chief executive officer
During the past year, the pricing environment in the property- agencies, demonstrated the value of working with a mutual casualty insurance marketplace continued moving toward insurance company, whose owners are its policyholders, modest rate increases. This trend in tandem with a healthy and the value of selling through independent agents, who Our Mission and Vision policyholder retention rate contributed to our company’s look out for their customers and come through during the $82.5 million increase in direct premiums written over the toughest times. previous year. Total premium revenue was also favorably Combined Statutory Financial Highlights In our rapidly changing industry, we are changing and impacted by the 2012 affiliation between Penn National enhancing the services and systems that we provide to keep Insurance and Partners Mutual Insurance. Overall, net President’s Message our agency relationships and agency service strong, so that premiums earned for the year were $570.8 million compared we and our agents can keep providing customer service that to $507.7 million in 2011. Our Independent Agents = Best Service differentiates us from other types of insurance companies. For the twelve months ended December 31, 2012, Penn In the midst of change, we will keep those hallmark National Insurance achieved statutory net income of characteristics — our ownership by our policyholders and our Bad Weather, Good Service $13.7 million, representing a $38.9 million increase from the dedication to the independent agency system — unchanged. net loss of $25.2 million reported for the year 2011. This This commitment will make the value that we offer our Combined Statutory Financial Statements improvement was largely the result of a decrease in total net customers even stronger. catastrophe losses and loss adjustment expenses incurred, We are excited about what the future holds for companies Officers & Directors which were $62.8 million in 2011 compared to $27.4 million that are actively embracing the changing trends in how in 2012. By December 31, 2012, policyholders’ surplus was insurance will be transacted, including changing policyholder strengthened by another $30.4 million from the prior year, Facts in Brief expectations, consolidation in the independent agency to a total of $481.6 million. system, and the ever-increasing use of predictive analytics to 7 / 23 Due to an increase in the number of claims received over gain greater insight into factors driving customer satisfaction, the last two years, the reserves for loss and loss adjustment customer loyalty, loss trends, and new product demand. expenses on our legacy lead paint claims were increased Our company has several strategically important initiatives by $38.9 million as of December 31, 2012. Although this underway to make sure we are well-positioned to take increase does not push the total liability for such claims advantage of these changes in our industry. We are giving beyond our reinsurance limit (and is therefore ceded to the significant corporate focus, attention and resources to reinsurer), statutory accounting standards consider this to be projects that look at how we interface with, support and retroactive reinsurance, whereby the claim reserve increase incent our high-performing agencies; how we become a data- is recorded to direct incurred loss and loss adjustment centric organization; how we more granularly allocate capital expenses with the offsetting reinsurance recoveries being by line of business; and how we deliver superior services recorded as other income. As a result, overall net income to agents and policyholders. I have asked Chris Sears, our for the year was not affected by the reserve adjustment, but executive vice president and chief operating officer, and Greg the 2012 loss and LAE ratio was unfavorably impacted by Stine, our senior vice president and chief financial officer, to 6.8 points. For the year ended December 31, 2012, our lead each of these initiatives through to implementation. We company reported a combined ratio of 111.6. will report on our progress on these vital corporate projects in our quarterly financial and operational updates during 2013. We are proud to have received such positive feedback from our policyholders whose lives were turned upside down by Thank you for your partnership with Penn National Insurance. Hurricane Sandy and other catastrophic weather events throughout 2012. We believe that the customer service that we provided, and the service given by our independent
Kenneth R. Shutts, president & chief executive officer
March 19, 2013 2012 Annual Report
You can count on Our Mission and Vision some things to Combined Statutory Financial Highlights President’s Message remain the same… Our Independent Agents = Best Service
Bad Weather, Good Service
Combined Statutory Financial Statements
Officers & Directors
Facts in Brief
8 / 23 2012 Annual Report
Our Mission and Vision
Combined Statutory Financial Highlights
President’s Message
Our Independent Agents = Best Service
Bad Weather, Good Service
Combined Statutory Financial Statements
Officers & Directors
Facts in Brief
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…the Grand Canyon 2012 Annual Report
Our Mission and Vision
Combined Statutory Financial Highlights
President’s Message
Our Independent Agents = Best Service
Bad Weather, Good Service
Combined Statutory Financial Statements
Officers & Directors
Facts in Brief
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…the smell of rain on a spring day 2012 Annual Report
Our Mission and Vision
Combined Statutory Financial Highlights
President’s Message
Our Independent Agents = Best Service
Bad Weather, Good Service
Combined Statutory Financial Statements
Officers & Directors
Facts in Brief
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…the Pyramids 2012 Annual Report
Our Mission and Vision
Combined Statutory Financial Highlights
President’s Message
Our Independent Agents = Best Service
Bad Weather, Good Service
Combined Statutory Financial Statements
Officers & Directors
Facts in Brief
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The Value Added by Your Trusted, Local Independent Insurance Agent 2012 Annual Report ... the way we sell insurance
e remain confident that independent agents will Our Mission and Vision We studied changes Wcontinue to provide the best — and the preferred — in consumer behavior Combined Statutory Financial Highlights distribution channel for property-casualty insurance. The best and expectations. independent agents are changing the way they do business, so they can profit from opportunities coming in the rapidly President’s Message v changing expectations of insurance customers. We expect Our Independent Agents = Best Service and encourage the necessary changes that agents need to make, to change and thrive with the market. We analyzed the Bad Weather, Good Service characteristics We will not change the way we sell our insurance of agencies that are Combined Statutory Financial Statements products. We will continue to sell only through independent positioned to achieve agencies. long-term growth, Officers & Directors profitability and he change will come in the nature of the agents that sustainability. Facts in Brief Trepresent us. We will encourage and support their adaptation to changing customer needs. We will make sure v 13 / 23 that our agents are poised to remain the top performers in the business. We will change and improve the services and technology that we offer our agents and their customers, We developed a profile so agents and their customers can transact business easily of top-performing with us as technology changes. We will improve, change agencies and key and adapt, and help all our agents develop the traits of attributes that make high-performing agencies. them successful.
We will not change our distribution system — the independent agency system. 2012 Annual Report What is a high-performing agency?
Our Mission and Vision
We define a high-performing agency as one that: Combined Statutory Financial Highlights n President’s Message Demonstrates the ability to generate profitable property-casualty growth in commercial lines, Our Independent Agents = Best Service personal lines or both.
Bad Weather, Good Service n Displays strong, consistent financial performance.
Combined Statutory Financial Statements n Will continue to exist and thrive over
Officers & Directors the next decade.
Facts in Brief
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“We promote ourselves to our clients as a solutions “We figure that we’ll lose about 10% of our provider in six core areas: insurance, risk management, business every year, even if we’re doing employee benefits, HR consulting, third-party everything right. So we know we have to grow 20% to get administration and wealth management. We can go 10% net growth. We share all the production information to a large commercial client, address all those areas with our employees. No secrets. We have a mandatory and talk about how we can help in their entire risk screensaver on every employee’s computer – they can’t management program. We go for the whole account, have a picture of the spouse or kids or dog – this is a but we can offer individual solutions beyond just the mandatory screensaver. It shows the new business goal traditional insurance product. and the ranking of all the sales people, in order, top to We’re unique in having the depth bottom. You don’t want to show up at the bottom of the of risk-management staff in house.” list on the screensaver.”
Rick Rankin Brian Long Murray Securus Seubert and Associates Lancaster, Pa. Pittsburgh, Pa. 2012 Annual Report What are the characteristics of a high-performing agency?
Our research identified the following n Offers and encourages employee training and key characteristics of high-performing agencies: development. In one survey, 88% of respondents reported that they rely on carrier sales programs for producer training Our Mission and Vision n Creates an aggressive, results-based sales culture. assistance. Agents particularly value online sales training for This culture cultivates a burning desire to grow through new producers and CSRs, co-op advertising and in-person Combined Statutory Financial Highlights peer pressure, internal structure and accountability. A key sales training for new producers. element is a corporate prospect pipeline that is a roll-up of individual producer prospect pipeline reports and is “We focus on reinvesting funds into the agency, particularly in President’s Message systematically and constantly managed. Also, agencies technology and employee development. For the entire time have well-defined marketing strategies and frequently have that I was the owner of this agency, I kept a lifestyle below Our Independent Agents = Best Service a dedicated sales manager. what I could have, and directed the majority of our profits toward the development of our firm. My sole purpose has been to grow the agency, and to do that, you have to invest “We try new ways to grow. We took an interesting approach Bad Weather, Good Service in people, advertising and technology. I’m something of a by combining social media with our charitable work. dictator when it comes to continuing education. There are a We made an offer that for every person who hit the LIKE lot of programs that qualify for continuing education credits Combined Statutory Financial Statements button on our Facebook page, we would donate $5 to a that I don’t see as worthwhile, so I’ve always encouraged designated charity. We got 300 new LIKEs on our page, the important curricula – CPCU, CIC, CISR, CPIW – and which was good for us, and the donation was good for Officers & Directors we have a very large percentage of the organization and our relationship with the organization. our people with those designations, We also write blogs for community information websites, which we pay for entirely.” Facts in Brief mostly with insurance information and sometimes talking
about our charity work and community work. Bill Eaddy
15 / 23 Correll Insurance Group Last year, our hit ratio was 72% with the prospects that we worked with through to a proposal. We use online Columbia, S.C. prospecting, direct-mail, business data sources, and we’re adding a high-grade telemarketer to get us more at-bats. n Maintains strong financials and reinvests earnings We try lots of things. Some work, some into the agency. High-performing agencies are financially don’t, but we keep trying. The only way to strong and reinvest earnings into the agency by developing get different results is to do things differently.” staff and technology. Strong balance sheets benefit all
stakeholders: owners, employees, clients, community. Bill Rue Rue Insurance n Invests in current technology. High-growth agencies Hamilton, N.J. invest in the latest technology to achieve automation and workflow efficiencies. These activities not only include n Regularly hires new producers. Our research found that system software and hardware expenditures, but also require high-performing agencies typically achieve double- investing in Internet marketing, information security and digit growth by hiring new producers every year. Agencies actively using social media. don’t wait until they can afford new producers, but n constantly recruit and train new producers. Agencies are Has an established internal perpetuation plan. Agencies that are able to plan for internal perpetuation most successful when they value proven sales experience have a much higher probability of success. A successful in the hiring decision more so than the technical insurance perpetuation plan requires three to five years to execute. knowledge that the candidates demonstrate. Recent research indicates that more than 20% of agencies do not have any perpetuation plans. 2012 Annual Report What are the needs of high-performing agencies?
High-performing agencies value service “Our agency developed the brand statement ‘The Upside and partnership with their carriers. of Insurance,’ which captures what we heard from our clients, about how they like doing business with us and have positive relationships with us. They don’t see us Our Mission and Vision They welcome assistance from their carriers in numerous activities, including: as a vendor that they’re forced to deal with, but instead they enjoy dealing with us. We really focus on positive Combined Statutory Financial Highlights n Recruiting, hiring and training of new producers. relationships. If a client is angry all the time and it’s for a reason that’s not our fault or something we can’t fix, n Training and development of staff other than producers. we suggest that they find another agency where the President’s Message n Developing perpetuation plans. relationship will work better. That lets our employees know that we are out to protect them – to give them a Our Independent Agents = Best Service n Improving agency management and development. positive work experience, which is something we expect to have with all our clients and our employees. We need to have great employees to have Bad Weather, Good Service High-performing agencies also value efficiency great clients and vice versa.” and effectiveness. Top needs include: Combined Statutory Financial Statements Greg Gunn n Low-touch, high-volume and speedy processes Gunn Mowery to serve small business accounts. Lemoyne, Pa. Officers & Directors n Underwriting expertise and support for Facts in Brief middle-market to large account opportunities.
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Other characteristics of high-performing agencies include:
n Creating a clear value proposition to differentiate “We’re working on doing a better job focusing our themselves from the competition, often through community involvement so we don’t get too spread out. We recently set a sales challenge for our developing expertise in and specializing in niche employees in which we gave a percentage of new markets. business production to Habitat for Humanity to build a new house. In that program, we donated enough n Involvement in and support of the local community, to build about three-quarters of a house, and many which includes constantly focusing on developing of our employees got involved with the construction. circles of influence. As a small business in the community, we’re asked by so many different good causes, and we try not to dilute our resources.”
Mark Harbarger Fountain, Parker, Harbarger & Associates, LLC Huntsville, Al. Bad weather, good service 2012 Annual Report When the worst happens, we bring out our best.
Our Mission and Vision
Combined Statutory Financial Highlights
President’s Message Our customers who suffered losses in all the weather We tell our customers that we sell security, and that they Our Independent Agents = Best Service catastrophes of 2012 are very happy about the can be confident when they trust us with their insurance outstanding service that our staff members and our protection that we will make good on our promise. Bad Weather, Good Service independent agents provided. We not only made We thank the employees in our Claims Division and good on our promise of protection, but we exceeded the many employees in other areas throughout our Combined Statutory Financial Statements customers’ expectations with the high level of service company who support them, and our independent that we gave them. agents, for their great work in taking good care of our Officers & Directors customers during 2012. We were hit with more than 6,000 bad-weather Facts in Brief catastrophe claims in 2012, with a total of about $34.5 million paid.
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A sampling of some of the worst weather events of 2012
Date States Weather Event Claims Claims Paid Wind, thunderstorm, flooding, 1/22 – 1/23 Ala. 30 $1.1 million hail, tornadoes Wind, thunderstorm, flooding, 3/02 – 3/03 Ala., Tenn. 648 $5.2 million hail, tornadoes Md., N.C., N.J., S.C., Wind, thunderstorm, flooding, 06/28 – 07/02 870 $5 million Va., D.C. hail, tornadoes Del, Md., N.C., N.J., 10/28 – 10/31 Hurricane Sandy 3,400 $21 million Pa., Va., D.C.
Visit our Facebook page and scroll down through the “Your team made this horrible experience less stressful. many comments sent in by satisfied customers. In their own We cannot thank you enough for all you did to words, they describe how we helped them through rough make us feel at ease and alleviate our concerns.” times and treated them with courtesy, respect and empathy. Larry W., Finksburg, Md.
“I am assuming this great service is standard and not just in special situations “We were extremely satisfied with every aspect like this Hurricane Sandy. Thank you.” of our claim. We applaud your company.” Sachin B., Alexandria, Va. Edwin S., Lansdale, Pa. 2012 Annual Report 2012 Combined Statutory Financial Statements (Unaudited)
Combined Statutory Balance Sheets (Unaudited)
December 31, (dollars in thousands) 2012 2011*
Admitted Assets Investments: Bonds $1,039,077 $ 955,889 Our Mission and Vision Stocks 129,621 141,002 Mortgage loans 20,364 20,989 Real estate & other 2,004 2,300 Combined Statutory Financial Highlights Cash and cash equivalents 32,203 17,568 Total cash and investments 1,223,269 1,137,748 President’s Message
Agents’ balances and uncollected premiums 149,166 130,181 Our Independent Agents = Best Service Investment income due and accrued 11,012 11,097 Amounts due from reinsurers 14,918 10,350 Bad Weather, Good Service Deferred tax asset, net 51,540 47,648 Other assets 4,654 11,659 Combined Statutory Financial Statements Total admitted assets $1,454,559 $1,348,683
Officers & Directors Liabilities and Policyholders’ Surplus Facts in Brief Liabilities: Reserves for losses and loss adjustment expenses $ 603,330 $ 581,864 Unearned premiums 260,537 225,769 18 / 23 Premium taxes and other expenses 53,114 44,965 Drafts outstanding 13,710 14,290 Other liabilities 42,278 30,644 Total liabilities 972,969 897,532
Policyholders’ surplus: Surplus notes 50,000 50,000 Unassigned surplus 431,590 401,151 Total policyholders’ surplus 481,590 451,151 Total liabilities and policyholders’ surplus $1,454,559 $1,348,683
*2011 does not include the results of Partners Mutual Insurance. 2012 Annual Report 2012 Combined Statutory Financial Statements (Unaudited)
Combined Statutory Statements of Income (Unaudited)
Years Ended December 31, (dollars in thousands) 2012 2011*
Underwriting loss: Net premiums written $595,863 $517,723 Increase in unearned premiums (25,102) (10,034) Our Mission and Vision Premiums earned 570,761 507,689
Losses and loss adjustment expenses 441,546 404,998 Combined Statutory Financial Highlights Underwriting expenses 201,941 172,362 Total losses and expenses 643,487 577,360 President’s Message Total underwriting loss (72,726) (69,671)
Our Independent Agents = Best Service Investment income: Net investment income 42,419 44,931 Bad Weather, Good Service Net realized gains on investments 6,853 1,438 Total investment income 49,272 46,369 Combined Statutory Financial Statements Other income, net 40,857 2,534 Officers & Directors Income (loss) before dividends and federal income tax expense 17,403 (20,768) Dividends to policyholders 1,910 3,848 Facts in Brief Income (loss) before federal income tax expense 15,493 (24,616) Federal income tax expense 1,778 548 Net income (loss) $ 13,715 $ (25,164) 19 / 23
Combined Statutory Operating Statistics (Unaudited)
Years Ended December 31, 2012 2011*
Loss ratio 65.9 68.1 Loss adjustment expense ratio 11.5 11.6 Loss and loss adjustment expense ratio 77.4 79.7 Underwriting expense ratio 33.9 33.3 Dividend ratio 0.3 0.8 Combined ratio after dividends 111.6 113.8
Net premiums written to surplus ratio 1.2 1.1 Net liabilities to surplus ratio 2.0 2.0 Net leverage ratio 3.2 3.1
*2011 does not include the results of Partners Mutual Insurance. 2012 Annual Report Officers & Directors
Elected Officers
Kenneth R. Shutts* president and chief executive officer
Our Mission and Vision Christine Sears, CPCU* executive vice president and chief operating officer Combined Statutory Financial Highlights Gregory R. Stine, CTP, FLMI senior vice president, treasurer, and chief financial officer President’s Message Karen C. Yarrish senior vice president, secretary, and general counsel Our Independent Agents = Best Service Robert B. Brandon, CPCU Bad Weather, Good Service senior vice president of underwriting operations
Combined Statutory Financial Statements *Also serves on the Board of Directors
Officers & Directors Board of Directors Facts in Brief
Dennis C. Rowe, CPCU Alexander M. Clark 20 / 23 chairman senior managing director – Griffin Financial Group, LLC retired CEO – Penn National Insurance (investment banking)
John H. Rhodes James H. Davies lead outside director chairman – Davies & Associates, Inc. (insurance agency) retired president – Rhodes Development Group, Inc. (real estate development) Todd R. Fisher, M.D. physician – private practice William H. Alexander faculty – Wharton School, James E. McGill University of Pennsylvania retired senior vice president – Robins & Weill, Inc. (insurance agency) Frank D. Campbell retired executive vice president and director – Sherill T. Moyer, Esq. Conning Asset Management partner – Rhoads & Sinon LLP (law firm) (investment management firm) Douglas C. Stago president – K.R. MacDonald, Inc. (insurance agency)
Stephen L. Swanson president – The Alternative Board (business consulting firm) 2012 Annual Report Officers & Directors
Our Mission and Vision
Combined Statutory Financial Highlights
President’s Message
Our Independent Agents = Best Service
Bad Weather, Good Service
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Facts in Brief
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Board of Directors & Elected Officers Standing: Alexander M. Clark, Frank D. Campbell, Stephen L. Swanson, William H. Alexander, James E. McGill, Todd R. Fisher, Douglas C. Stago, Sherill T. Moyer, Esq., James H. Davies Seated: Gregory R. Stine, Karen C. Yarrish, Robert B. Brandon, Dennis C. Rowe, Christine Sears, Kenneth R. Shutts, John H. Rhodes
In Memoriam On January 10, 2013, Penn National Insurance lost a good and great friend in the passing of Jim Davies, who had well and truly served the interests of our company, both as a member of our board of directors and as an independent agent. Jim joined our board in 1984, and served on the Finance Committee, Executive Committee, and Directors and Officers Review Committee. His guidance and astute business insights contributed to our company’s successful navigation of the many changes seen in our industry during those decades, and he served on the board in a tireless manner, with great business acumen, dedication and committment. He also represented the company as an independent agent, as president of Davies & Associates, Inc. in Murray Hill, New Jersey, for close to 50 years. Jim was beloved by his family, respected by his community, and deeply admired by all of his business associates and colleagues in the insurance industry, and his friendship brightened the lives of all who knew him. 2012 Annual Report Operating territories
l We ranked 102nd in net premiums written out of approximately 1,000 U.S. property and casualty insurance groups.
Our Mission and Vision l We employ more than 830 people.
l We sell through more than 900 independent agencies, in eleven states. Combined Statutory Financial Highlights Facts in Brief l We were founded in 1919. President’s Message l Our principal lines of business are personal automobile, other liability, workers’ compensation, commercial automobile and homeowners. Our Independent Agents = Best Service l We have a financial strength rating of A- (Excellent) from the Bad Weather, Good Service A.M. Best Company.
Combined Statutory Financial Statements
Officers & Directors Winner of: Best Places to Work in Insurance • Best Places to Work in IT • Best Places to Work in PA Facts in Brief Best Places to Work in Pittsburgh, PA • Best Places to Work in Greensboro, NC 22 / 23 • A top-10 carrier in Deep Customer Connections Ease of Doing Business national survey
2012 2012 Combined Direct Premiums Combined Direct Premiums Written by Line of Business Written by State
n Personal Auto 27% n Pennsylvania 39% n Other Liability 16% n North Carolina 17% n Workers’ Compensation 14% n New Jersey 12% n Commercial Auto 13% n Alabama 7% n Homeowners 12% n Maryland 6% n Businessowners 8% n Tennessee 6% n Other* 10% n Virginia 5%
*Includes General Liability, n Wisconsin 3% Products Liability and Umbrella Liability n Other 5% www.PennNationalInsurance.com 2012 Annual Report
Core Values How we will do business Integrity We will be open and honest in all of our actions.
Our Mission and Vision Financial Strength We will be profitable and maintain the ability to meet our financial commitments. Combined Statutory Financial Highlights Excellence We will strive to be the best in class for our policyholders, agents and employees. President’s Message Respect We will treat everyone fairly and value differences among ourselves.
Our Independent Agents = Best Service Communication We will provide open, honest and frequent communication.
Bad Weather, Good Service Citizenship We will give back to our communities through both volunteer time and financial support.
Combined Statutory Financial Statements
Officers & Directors Penn National Insurance’s environmental efforts in 2012 achieved the following: • Saved 911 trees • Saved 375,127 gallons of water • Recycled 107,179 pounds of office paper Facts in Brief • Reduced 161 cubic yards of landfill requirements • Saved 24,651 gallons of oil
23 / 23 • Recycled 54 tons of paper materials • Saved 219,717 KW-hours of electricity
Annual Meeting: For more information, please contact: Monday, April 8, 2013, 11:00 a.m. Christopher Markley, at Penn National Insurance’s vice president, Home Office. Corporate Communications
Penn National Insurance All policyholders invited to attend. Two North Second Street P.O. Box 2361 Harrisburg, PA 17105
1-800-388-4764 ext. 6895 [email protected]