U-Haul 2005 Annual Report Download - page 32

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31 I AMERCO ANNUAL REPORT
Management’s Discussion and Analysis
of Financial Condition and Results of Operations
Although฀ we฀ continued฀ to฀ exercise฀ tight฀ controls฀ over฀
spending,฀ total฀ costs฀ and฀ expenses฀ increased฀ $81.2฀
million,฀ or฀ 5.2%฀ in฀ fiscal฀ 2004฀ compared฀ with฀ fiscal฀
2003.฀ Operating฀ expenses฀ increased฀ $37.5฀ million฀ as฀
a฀ result฀ of฀ higher฀ restructuring฀ costs.฀ Also,฀ payroll฀ and฀
benefit฀inflation฀ and฀ rising฀repair฀and฀maintenance฀ costs฀
contributed฀to฀higher฀costs.
As฀a฀result฀of฀the฀above฀mentioned฀changes฀in฀revenues฀
and฀expenses,฀earnings฀from฀operations฀improved฀35.8%฀
to฀ $93.6฀ million฀ in฀ fiscal฀ 2004฀ compared฀ with฀ $68.9฀
million฀for฀fiscal฀2003.
Republic฀Western฀Insurance฀Company
2004 Compared with 2003
Premium฀ revenues฀ were฀ $25.0฀ million฀ and฀ $93.2฀
million฀ for฀ the฀ years฀ ended฀ December฀ 31,฀ 2004฀ and฀
2003,฀ respectively.฀ The฀ overall฀ decrease฀ is฀ due฀ to฀
the฀ Company’s฀ exiting฀ lines฀ not฀ associated฀ with฀ the฀฀
Self-Storage฀or฀Self-Moving฀industries.฀Self-Storage฀and฀
Self-Moving฀ industry฀ premiums฀ were฀ $18.9฀ million฀
and฀ $23.6฀ million฀for฀ 2004฀ and฀2003,฀respectively.฀The฀
decrease฀is฀a฀result฀of฀the฀company฀being฀under฀supervision฀
and฀ its฀ “C”,฀ rating฀ which฀ resulted฀ in฀ lower฀ writings฀ on฀฀
non-U-Haul฀self฀storage฀business.฀Other฀lines฀of฀business฀
were฀ $6.1฀ million฀ and฀ $69.6฀ million฀ for฀ 2004฀ and฀฀
2003,฀
respectively.
Net฀ investment฀ income฀ was฀ $16.4฀ million฀ and฀ $21.7฀
million฀ for฀ 2004฀ and฀ 2003,฀ respectively.฀ The฀ reduction฀
was฀due฀to฀a฀decrease฀in฀the฀Company’s฀invested฀asset฀base.
Benefits฀ and฀ losses฀ incurred฀ were฀ $39.7฀ million฀
and฀ $109.4฀ million฀ for฀ 2004฀ and฀ 2003,฀ respectively.฀฀
The฀ decreases฀ resulted฀ from฀ reduced฀ earned฀ premiums฀
resulting฀ from฀ RepWest’s฀ decision฀ to฀ exit฀ its฀ non-฀
U-Haul฀ lines,฀ which฀ was฀ offset฀ by฀ the฀ losses฀ from฀ the฀
Florida฀ hurricanes฀ and฀ additional฀ reserves฀added฀ to฀the฀฀
long-tailed฀programs.
Amortization฀ of฀ deferred฀ acquisition฀ costs฀ was฀ $4.7฀
million฀and฀$14.1฀million฀for฀2004฀and฀2003,฀respectively.฀
The฀decrease฀is฀due฀to฀decreased฀premium฀writings.
Operating฀expenses฀were฀$11.8฀million฀and฀$27.4฀million฀
for฀ 2004฀ and฀ 2003,฀ respectively.฀ The฀ decrease฀ was฀ due฀
to฀ decreased฀ commissions,฀ as฀ well฀ as,฀ a฀ reduction฀ of฀
general฀
administrative฀expenses฀due฀to฀the฀exit฀of฀the฀non-U-
Haul฀lines.
Pretax฀ losses฀ from฀ operations฀ were฀ $14.8฀ million฀ and฀
$36.0฀million฀for฀2004฀and฀2003,฀respectively.฀The฀loss฀
in฀2004฀was฀the฀result฀of฀approximately฀$9.5฀million฀in฀
incurred฀ losses฀ and฀ related฀ expenses฀ resulting฀ from฀ the฀
hurricanes฀that฀hit฀the฀Southeastern฀United฀States฀in฀the฀
summer฀and฀fall฀of฀2004,฀as฀well฀as฀additional฀reserves฀
recorded฀for฀the฀Company’s฀cancelled฀lines฀of฀business.
2003 Compared with 2002
Premium฀ revenues฀ were฀ $93.2฀ million฀ and฀ $152.6฀
million฀ for฀ the฀ years฀ ended฀ December฀ 31,฀ 2003฀฀
and฀2002,฀respectively.฀The฀overall฀decrease฀is฀due฀to฀the฀
Company’s฀exiting฀all฀lines฀not฀associated฀with฀the฀Self-
Storage฀or฀Self-Moving฀industries.฀Self-Storage฀and฀฀Self-
Moving฀industry฀premiums฀were฀$23.6฀million฀and฀$32.1฀
million฀for฀2003฀and฀2002,฀respectively.฀The฀decrease฀is฀a฀
result฀of฀a฀change฀in฀the฀structure฀of฀the฀U-Haul฀business฀
to฀ deductible/self-insured฀ arrangements.฀ Other฀ lines฀ of฀
business฀were฀$69.6฀million฀and฀$120.5฀million฀for฀2003฀
and฀2002,฀respectively.
Net฀ investment฀ income฀ was฀ $21.7฀ million฀ and฀ $22.3฀
million฀for฀2003฀and฀2002฀respectively.
Benefits฀ and฀ losses฀ incurred฀ were฀ $109.4฀ million฀ and฀
$128.7฀ million฀ for฀ 2003฀ and฀ 2002,฀ respectively.฀ The฀
decrease฀ resulted฀ from฀ reduced฀ earned฀ premiums฀
resulting฀ from฀ RepWest’s฀ decision฀ to฀ exit฀ its฀ non฀฀
Self-Storage฀and฀Self-Moving฀lines,฀which฀was฀offset฀by฀
the฀additional฀reserves฀added฀to฀the฀non฀Self-Storage฀and฀
Self-moving฀lines฀that฀were฀exited.
Amortization฀ of฀ deferred฀ acquisition฀ costs฀ was฀ $14.1฀
million฀and฀$17.1฀million฀for฀2003฀and฀2002,฀respectively.฀
The฀decrease฀was฀due฀to฀decreased฀premium฀writings.
Operating฀expenses฀were฀$27.4฀million฀and฀$37.1฀million฀
for฀2003฀and฀2002,฀respectively.฀The฀decrease฀was฀due฀to฀
decreased฀commissions,฀as฀well฀as,฀a฀reduction฀of฀general฀
administrative฀expenses฀due฀to฀the฀ exit฀of฀the฀non฀Self-
Storage฀and฀non฀Self-Moving฀lines.
Pretax฀ losses฀ from฀ operations฀ were฀ $36.0฀ million฀ and฀
$8.0฀million฀for฀the฀year฀ended฀December฀31,฀2003฀and฀
2002,฀ respectively.฀ The฀ increase฀ in฀ losses฀ in฀ 2003฀ was฀
due฀ to฀ the฀ additional฀ reserves฀ that฀ were฀ recorded฀ for฀
business฀lines฀that฀were฀terminated.
The฀ provision฀ for฀ unpaid฀ losses฀ and฀ loss฀ adjustment฀
expenses฀(net฀of฀reinsurance฀recoveries฀of฀$107.4฀million)฀
for฀insured฀events฀in฀prior฀years฀increased฀by฀$53.1฀million฀
in฀calendar฀2003.฀The฀adjustment฀related฀to฀prior฀years฀is฀
primarily฀associated฀with฀two฀developments฀in฀2003.฀The฀
first฀is฀associated฀with฀the฀long฀tail฀nature฀of฀the฀assumed฀
reinsurance฀and฀excess฀workers฀compensation฀lines,฀two฀
lines฀that฀were฀previously฀written฀by฀Republic฀Western.฀
Claims฀associated฀with฀these฀lines฀take฀numerous฀years฀to฀
be฀fully฀reported฀and฀finally฀settled.฀During฀2003,฀these฀
programs฀ were฀ evaluated฀ and฀ additional฀ reserves฀ were฀
recorded฀ to฀ account฀ for฀ unanticipated฀ and฀ previously฀