-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MrPNhulOKAbWWwRmSC2N0giOE0/XH07VAFJqcnM+wc5rPgwt8nlrSNdpXa/s/vAl 59Ji78x/trSxKfnJSp0NIA== 0000003642-99-000009.txt : 19990517 0000003642-99-000009.hdr.sgml : 19990517 ACCESSION NUMBER: 0000003642-99-000009 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990331 FILED AS OF DATE: 19990514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ALLCITY INSURANCE CO /NY/ CENTRAL INDEX KEY: 0000003642 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 132530665 STATE OF INCORPORATION: NY FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-07411 FILM NUMBER: 99623621 BUSINESS ADDRESS: STREET 1: 122 FIFTH AVE CITY: NEW YORK STATE: NY ZIP: 10011 BUSINESS PHONE: 2123873000 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [S] For the transition period from ____ to ____ [S] Commission File Number 1-7411 [S] ALLCITY INSURANCE COMPANY (Exact name of registrant as specified in its charter) [S] New York 13-2530665 (State or other jurisdiction of (I.R.S. Employer Incorporation or organization) Identification No.) 335 Adams Street, Brooklyn, N.Y 11201-3731 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (718) 422-4000 Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] On May 13, 1999, there were 7,078,625 shares of Common Stock outstanding. ALLCITY INSURANCE COMPANY [S] INDEX PART 1 Financial Information PAGE Item 1. Interim Consolidated Financial Statements (Unaudited) Consolidated Balance Sheets - March 31, 1999 and December 31, 1998 1 Consolidated Statements of Income - Three months ended March 31, 1999 and March 31, 1998 2 Consolidated Statements of Cash Flows - Three months ended March 31, 1999 and March 31, 1998 3 Consolidated Statements of Changes in Shareholders' Equity Three months ended March 31, 1999 and March 31, 1998 . 4 Notes to Interim Consolidated Financial Statements 5 Item 2. Management's Discussion and Analysis of Financial Condition and Interim Results of Operations 7 PART II Other Information Item 5. Other Information 11 Item 6. Exhibits and Reports on Form 8-K 11 Signature Page 12 i CONSOLIDATED BALANCE SHEETS ALLCITY INSURANCE COMPANY AND SUBSIDIARY (In thousands, except share and par value amounts)
March 31, December 31, 1999 1998 (Unaudited) ASSETS Investments: Available for sale at fair value (amortized cost of $168,372 in 1999 and $181,214 in 1998) $167,222 $181,905 Held to maturity at amortized cost (fair value of $491 in 1999 and $498 in 1998) 499 502 Short-term 33,396 20,186 Other invested assets 31,847 31,446 TOTAL INVESTMENTS 232,964 234,039 Cash 944 390 Agents' balances, less allowance for doubtful accounts ($1,838 in 1999 and $1,817 in 1998) 12,229 10,015 Accrued investment income 1,785 3,662 Reinsurance balances receivable 270,628 295,994 Prepaid reinsurance premiums 32,496 37,691 Deferred policy acquisition costs 5,242 5,365 Deferred income taxes 11,774 11,101 Due from affiliates - 3,010 Other assets 4,707 4,437 TOTAL ASSETS $572,769 $605,704 LIABILITIES Unpaid losses $365,155 $382,109 Unpaid loss adjustments expenses 35,394 52,123 Unearned premiums 58,412 63,972 Drafts payable 3,627 3,912 Due to affiliates 6,810 - Unearned service fee income 1,801 2,240 Reserve for service carrier claim expenses 1,484 1,730 Reinsurance balances payable 906 885 Other liabilities 6,641 5,233 Surplus note 15,449 15,300 TOTAL LIABILITIES 495,679 527,504 SHAREHOLDERS' EQUITY Common stock, $1.00 par value; 7,368,420 Shares authorized; 7,078,625 shares issued and outstanding in 1999 and 1998 7,079 7,079 Additional paid-in-capital 9,331 9,331 Accumulated other comprehensive income, net of deferred taxes of $(403) and $242 in 1999 and 1998, respectively (748) 449 Retained earnings 61,428 61,341 TOTAL SHAREHOLDERS' EQUITY 77,090 78,200 TOTAL LIABILITIES AND SHAREHOLDERS'EQUITY $572,769 $605,704 See Notes to Interim Consolidated Financial Statements
1 CONSOLIDATED STATEMENTS OF INCOME (Unaudited) ALLCITY INSURANCE COMPANY AND SUBSIDIARY (In thousands, except share and per share amounts)
Three Months Ended March 31, 1999 1998 REVENUES Net earned premiums $13,739 $18,844 Net investment income 3,147 3,862 Service fee income 600 1,061 Net realized securities (losses)/ gains (208) 242 Other income 112 159 17,390 24,168 LOSSES AND EXPENSES Losses 9,341 15,685 Loss adjustment expenses 2,443 2,417 Other underwriting expenses less deferrals of $2,932 in 1999 and $3,989 in 1998 2,267 2,101 Amortization of deferred policy acquisition costs 3,056 3,680 Interest on surplus note 149 116 17,256 23,999 INCOME BEFORE FEDERAL INCOME TAXES 134 169 FEDERAL INCOME TAXES Current tax expense/(benefit) 75 (102) Deferred tax (benefit)/expense (28) 161 47 59 NET INCOME $ 87 $ 110 Per share data, based on 7,078,625 average shares outstanding in 1999 and 1998: BASIC AND FULLY DILUTED EARNINGS PER SHARE $ 0.01 $ 0.02
[S] See Notes to Interim Consolidated Financial Statements. [S] 2 CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) ALLCITY INSURANCE COMPANY AND SUBSIDIARY (In thousands)
Three Months Ended March 31, 1999 1998 NET CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 87 $ 110 Adjustment to reconcile net income to net cash provided by/(used for) operations: Benefit/provision for deferred income taxes (28) 161 Amortization of deferred policy acquisition costs 3,056 3,680 Provision for doubtful accounts 21 (30) Net realized securities losses/(gains) 208 (242) Policy acquisition costs incurred and deferred (2,932) (3,989) Net changes in: Agents' balances (2,235) (3,729) Reinsurance balances receivable 25,366 731 Prepaid reinsurance premiums 5,195 3,268 Unpaid losses and loss adjustment expenses (33,683) (3,816) Unearned premiums (5,560) (661) Drafts payable (285) 601 Due to affiliates 9,820 (3,202) Unearned service fees (439) (137) Reserve for servicing carrier claim expense (246) (362) Reinsurance balances payable 21 (1,714) Other 3,576 (631) NET CASH PROVIDED BY/(USED FOR) OPERATING ACTIVITIES 1,942 (9,962) NET CASH FLOWS FROM INVESTING ACTIVITIES Available for sale: Acquisition of fixed maturities (49,721) (10,677) Proceeds from sale of fixed maturities 57,239 52,084 Proceeds from maturities of fixed maturities 4,705 4,707 Net change in other invested assets (401) - Net change in short-term investments (13,210) (31,123) NET CASH (USED FOR)/PROVIDED BY INVESTING ACTIVITIES (1,388) 14,991 NET INCREASE IN CASH 554 5,029 Cash, at beginning of period 390 2,863 Cash, at the end of period $ 944 $ 7,892 See Notes to Interim Consolidated Financial Statements
3 CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited) ALLCITY INSURANCE COMPANY AND SUBSIDIARY (In thousands, except par value amounts)
Accumulated Common Other Stock Additional Comprehensive $1 Par Paid-in Income/ Retained Value Capital (Loss) Earnings Total Balance, January 1, 1998 $7,079 $9,331 $ 917 $60,837 $78,164 Comprehensive income: Net income 110 110 Other comprehensive income: Net change in unrealized gain on investments (net of deferred tax of $122) 226 226 Less: reclassification of net securities gains included in net income (net of tax of $85) (157) (157) Comprehensive income 179 Balance, March 31, 1998 $7,079 $9,331 $ 986 $60,947 $78,343 Balance, January 1,1999 $7,079 $9,331 $ 449 $61,341 $78,200 Comprehensive income: Net income 87 87 Other comprehensive income: Net change in unrealized gain (loss) on investments (net of deferred tax benefitof $743) (1,380) (1,380) Less: reclassification of net securities losses included in net income (net of tax of $98) 183 183 Comprehensive income (1,110) Balance, March 31, 1999 $7,079 $9,331 $ (748) $61,428 $77,090
[S] See Notes to Interim Consolidated Financial Statements. [S] 4 ALLCITY INSURANCE COMPANY AND SUBSIDIARY NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS 1. The unaudited interim consolidated financial statements, which reflect all adjustments (consisting only of normal recurring items) that management believes necessary to fairly present interim results of operations, should be read in conjunction with the Notes to Consolidated Financial Statements (including the Summary of Significant Accounting Policies) included in the Company's audited consolidated financial statements for the year ended December 31, 1998, which are included in the Company's Annual Report filed on Form 10-K for such year (the "1998 10-K"). Results of operations for interim periods are not necessarily indicative of annual results of operations. The consolidated balance sheet at December 31, 1998 was extracted from the audited annual financial statements and does not include all disclosures required by generally accepted accounting principles for annual financial statements. 2. Certain amounts for prior periods have been reclassified to conform with the 1999 presentation. 3. In 1998, the Company adopted Statement of Financial Accounting Standards No. 131, "Disclosures about Segments of an Enterprise and Related Information", ("SFAS No. 131"). At the time the Company adopted SFAS No. 131, the Company had identified three reportable segments: 1) automobile lines; 2) commercial lines; and 3) miscellaneous and personal lines. Beginning in 1999, the Company's business was reorganized into three segments: 1) Small Business; 2) Personal Lines and Residual Markets; and 3) Mid-Market. Each of these segments has separate management teams responsible for all marketing, sales and underwriting decisions within their units. The reorganization is designed to provide a greater degree of accountability for underwriting results and to create a closer relationship with agents and customers of the Company. The Small Business segment will primarily focus on commercial package products for small businesses; the Personal Lines and Residual Market segment will primarily concentrate on personal automobile and homeowners insurance; and the Mid-Market segment 5 will focus on commercial auto, commercial package and workers' compensation insurance for larger accounts. Further segment information is provided in Note 4 in this Report. In January 1998, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants issued Statement of Position 97-3, "Accounting by Insurance and Other Enterprises for Insurance-Related Assessments" ("SOP 97-3"), which is effective for fiscal years beginning after December 15, 1998, and provides guidance for determining when an insurance company should recognize a liability for guaranty-fund and other insurance related assessments and how to measure that liability. In 1999, the Company adopted SOP 97-3; the financial position and operating results of the Company have not been materially affected. 4. Certain information concerning the Company's segments, as restated (see Note 3 above) for the three month periods ended March 31, 1999 and 1998 is as follows (in thousands):
1999 1998 Net Earned Premiums Small Business $ 1,997 $ 1,466 Mid Market 4,358 6,244 Personal Lines & Residual Markets 7,384 11,134 Total Net Earned Premiums $13,739 $18,844 Losses Incurred Small Business $ 1,034 $ 1,322 Mid Market 3,236 5,668 Personal Lines & Residual Markets 5,071 8,695 Total Losses Incurred $ 9,341 $15,685 Loss Adjustment Expenses Incurred Small Business $ 218 $ 187 Mid Market 860 468 Personal Lines & Residual Markets 1,365 1,762 Total Loss Adjustment Expenses Incurred $ 2,443 $ 2,417
6 Item 2.: [S] Management's Discussion and Analysis of Financial Condition and Interim Results of Operations The following should be read in conjunction with the Management's Discussion and Analysis of Financial Condition and Results of Operations included in the 1998 10-K. LIQUIDITY AND CAPITAL RESOURCES During each of the three month periods ended March 31, 1999 and 1998 the Company operated profitably. For the three month period ended March 31, 1999, net cash was provided by operations principally due to the settlement of balances receivable from Empire Insurance Company under the terms of the intercompany pooling agreement. For the three month period ended March 31, 1998, net cash was used for operations principally due to decreased premium writings and increased loss and loss adjustment expense payments relative to collected premiums as a result of a program to reduce pending claims. For the period ended March 31, 1999, cash provided by operations was principally invested in short-term investments while cash required to fund operations for the comparable 1998 period was provided from the maturity of investments available for sale and short-term investments as well as the sale of fixed maturity securities. At March 31, 1999 and 1998, the yield on the Company's fixed maturities portfolio was 5.4% and 6.0%, respectively, with an average maturity of 2.8 years and 2.5 years, respectively. At March 31, 1999, a significant portion of the Company's investment portfolio is invested in U.S. Government and its agencies and other investment grade corporate and industrial issues. The Company maintains cash, short-term and readily marketable securities and anticipates that the cash flow generated from investment income and the maturities and sales of short-term investments and fixed maturities will be sufficient to satisfy its anticipated cash needs. The Company does not presently anticipate paying dividends in the near future and believes it has sufficient capital to meet its currently anticipated level of operations. 7 RESULTS OF OPERATIONS-THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THE THREE MONTHS ENDED MARCH 31, 1998. [S] Net earned premium revenues were $13.7 million and $18.8 million for the three month periods ended March 31, 1999 and 1998, respectively. The decrease in earned premiums principally relates to a decline in the number of assigned risk automobile pool contracts acquired due to competition and the depopulation of the assigned risk automobile pools, as well as a reduction in certain personal and commercial lines of business, principally voluntary private passenger, commercial automobile and commercial package policies, due to tighter underwriting standards, reunderwriting, and increased competition. Service fee income was $0.6 million and $1.1 million for the three month periods ended March 31, 1999 and 1998, respectively. The decrease is largely the result of a decline in the number of assigned risk automobile pool contracts acquired due to competition combined with lower premium volume due to continued depopulation of the assigned risk pools. Net investment income was $3.1 million and $3.9 million for the three month periods ended March 31, 1999 and 1998, respectively. The decline was principally the result of lower overall yields due to current market conditions, and a lower invested asset base. Losses incurred for the first quarter 1999 were 40% less than the first quarter 1998 generally as a result of the reduced reserve strengthening required for prior accident years and lower current accident year loss ratios resulting from product mix and improved underwriting. The combination of other underwriting expenses and the amortization of deferred policy acquisition costs for the first quarter 1999 was $5.3 million compared to $5.8 million in 1998. The decrease is primarily related to the decline in premium revenue. 8 Year 2000 and Information Technology Systems The Company continues to evaluate its information technology systems to determine the potential impact of the year 2000. The year 2000 issue is the result of computer programs being written using two digits (rather than four) to define the applicable year. Any programs that have time-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000, which could result in miscalculations or system failures. As more fully described in the 1998 10-K, since 1996, the Company has been evaluating its year 2000 readiness. The Company's policy management system has been successfully migrated into production for all new and renewal business. The Company's primary focus during 1999 is to complete the migration of historical data to the policy system. The Company expects this migration to be completed during the third quarter of 1999. Additionally, computer equipment and software inventories have been completed and upgrades are expected to be substantially completed by the end of the second quarter. Although a significant portion of the Company's current systems are year 2000 compliant, the Company formed a year 2000 readiness team to further increase the Company's state of readiness. The team, which meets regularly, is developing a contingency plan to address any actual failures that may occur thereby minimizing any outages in operational functions. The Company expects to complete this plan before the end of the second quarter of 1999. The Company has made inquiries of third parties with whom it has material relationships as to the year 2000 compliance of such third parties. Many of such parties have reported plans to be fully compliant by the end of 1999 and most had reported substantial progress at the end of 1998. However, at this time the Company cannot predict the effect of the year 2000 issue on its material third parties or the impact any deficiency in the year 2000 readiness of such parties could have on the Company. 9 Through March 31, 1999, expenses incurred by the Company in connection with the year 2000 issue (excluding expenses related to the Company's acquisition of new systems, which was not motivated by year 2000 concerns) did not exceed $100,000. Based upon current information, the Company does not expect that the year 2000 issue will have a material effect on its consolidated financial position or consolidated results of operations. Cautionary Statement for Forward-Looking Information Statements included in this Management's Discussion and Analysis of Financial Condition and Results of Interim Operations may contain forward-looking statements. Such forward-looking statements are made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements may relate, but are not limited , to projections of revenues, income or loss, capital expenditures, fluctuations in insurance reserves, plans for growth and future operations (including year 2000 compatibility), competition and regulation as well as assumptions relating to the foregoing. Forward-looking statements are inherently subject to risks and uncertainties, many of which cannot be predicted or quantified. When used in this Management's Discussion and Analysis of Financial Condition and Results of Interim Operations, the words "estimates", "expects", "anticipates", "believes", "plans", "intends" and variations of such words and similar expressions are intended to identify forward-looking statements that involve risks and uncertainties. Future events and actual results could differ materially from those set forth in, contemplated by or underlying the forward-looking statements. The factors that could cause actual results to differ materially from those suggested by any such statements include, but are not limited to, those discussed or identified from time to time in the Company's public filings, including general economic and market conditions, changes in domestic laws, regulations and taxes, changes in competition and pricing environments, regional or general changes in asset valuation, the occurrence of significant natural disasters, the inability to reinsure certain risks economically, the adequacy of loss reserves, prevailing interest rate levels, weather related conditions that may affect the Company's operations, the difficulty in identifying hardware and software that may not be year 2000 compliant, the lack of success of third parties to 10 adequately address the year 2000 issue, vendor delays and technical difficulties affecting the Company's ability to upgrade or replace its hardware and/or software for year 2000 compliance, and changes in composition of the Company's assets and liabilities through acquisitions or divestitures. Undue reliance should not be placed on these forward-looking statements, which are applicable only as of the date hereof. The Company undertakes no obligation to revise or update these forward-looking statements to reflect events or circumstances that arise after the date of this Management's Discussion and Analysis of Financial Condition and Results of Interim Operations or to reflect the occurrence of unanticipated events. [S] Part II - Other Information [S] Item 5. Other Information None. [S] Item 6. Exhibits and Reports on Form 8-K [S] a) Exhibits The following exhibit is filed herewith: Exhibit Number Description of Document 27 Financial Data Schedule [S] b) Report on Form 8-K There were no reports on Form 8-K filed for the three months ended March 31, 1999. 11 SIGNATURE [S] Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. [S] ALLCITY INSURANCE COMPANY Registrant Date: May 14, 1999 By: /s/Francis M. Colalucci Francis M. Colalucci Executive Vice President, CFO and Treasurer (Principal Financial and Accounting Officer) 12 EX-27 2
7 3-MOS DEC-31-1999 MAR-31-1999 $166,732 499 491 176 0 0 232,964 944 270,628 5,242 572,769 400,549 58,412 0 0 0 0 0 7,079 70,011 572,769 13,379 3,147 (208) 712 11,784 3,056 2,267 134 47 87 0 0 0 87 $ 0.01 $ 0.01 0 0 0 0 0 0 0
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