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2006 was a quite successful year for your company. It certainly had its share
of challenges, but overall results and related accomplishments were predominantly
very positive.
Our biggest success was the fact that operating results improved year-over-year
by $5,127,189 -- from a 2005 loss of $4,133,703 to a 2006 net operating
profit of $993,486. The positive turn-around was primarily attributable to
much improved loss experience; more specifically, your company posted a 2005
loss ratio of 141%, as compared to the 2006 loss ratio of 86%. While we do
believe that our risk control efforts distinctly contributed to the improvement,
it is only fair to say that most of it represents a reduction last year in
the random variability of TNCRRG losses. Note here that TNCRRG writes very
broad coverage terms, with quite high limits, in an excess carrier role, so
that its results are characterized not by frequency of loss, but instead, by
severity of loss. Put quite simply, our full expectation is that TNCRRG will
get "hammered" by losses every so often. Last year was not one
of those years; 2005 definitely was.
Our net investment results also contributed positively to year-end operating
results, reflecting a 13% increase year-over-year. Additionally, while our
general and administrative expenses increased 2% year-end 2005 to 2006, and
our management and professional fees increased 13% in this period, these increases
were primarily the result of Board approved technology expenditures to implement
very much needed enhancements and upgrades to our TNCRRG claims and underwriting
systems.
Meanwhile, TNCRRG results for 2006 reflect many other highly positive accomplishments.
On the underwriting front, we further increased TNCRRG operational stability
by adding a fifth reinsurer -- Faraday Syndicate at Lloyd's, rated
A15 by Best's -- to our already very solid portfolio of reinsurer
partners. [N.B. Faraday is the wholly owned Lloyd's affiliate of General
Re/Berkshire Hathaway.] TNCRRG's claims and underwriting operations
were audited by home office teams from three of its
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reinsurers (Munich
Reinsurance America, Hannover Re and Odyssey Re) and TNCRRG
passed each time "with flying colors." Finally,
we successfully placed reinsurance coverage allowing us to
introduce a brand new layer of coverage for our shareholders
-- the $5M xs $10M layer. [N.B. TNCRRG retains 20% of this
layer for our own account.] Consequently, we can now provide
total limits of $14.75M xs $250K and a new optional excess
layer of $14M xs $1M.
Marketing
results were also very good in 2006. TNCRRG added its 66th
shareholder, the Diocese of San Jose, on July 1st and then,
on August 1, added its 67th shareholder, the Diocese of Jefferson
City. We extend a very sincere and heartfelt welcome to our
newest shareholders!
VIRTUS® results in 2006 were again outstanding
and can be reviewed in detail on page five (5) of this report.
It is noteworthy that in January  2006
we received a Crystal Award of Excellence for our Touching
Safety Program introductory videos, at the Communicator Awards.
The "Communicator" is a prestigious
international competition that honors excellence in video,
film and multi-media production. VIRTUS programs have so
far won five such awards of excellence from four different
such organizations and competitions. National Catholic remains
far and away the undisputed leader in the provision of safe
environment programs for the Church.
In closing, I want to thank all of our shareholders and
other friends for your support, confidence and encouragement.
Rest assured that we will always do our very best to serve
you and our Church.
Michael J. Bemi
President & CEO
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