WASHINGTON, D.C. 20549
FORM 10-QSB
--X- Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
---- Transition Report Pursuant to Section 13 or 15(d)
---- of the Securities Exchange Act of 1934
For Quarter Ending June 30, 2000
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Commission File Number 333-24739
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STONEVILLE INSURANCE COMPANY
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(Exact name of registrant as specified in its charter)
MISSISSIPPI 72-1341156
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
633 NORTH STATE STREET, SUITE 200, JACKSON, MISSISSIPPI 39202-7817
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(Address of principal executive offices) (Zip Code)
(601) 352-7817
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(Registrant’s telephone number, including area code)
NOT APPLICABLE
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(Former name, address and fiscal year, if changed since last report)
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
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503,384 Common Shares were outstanding as of June 30, 2000 for financial
statement purposes.
Transitional Small Business Disclosure format
YES NO
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STONEVILLE INSURANCE COMPANY
Unaudited Quarterly Financial Statements
Page
Consolidated Balance Sheets
June 30, 2000 and December 31, 1999 3
Consolidated Statements of Income
Six Months Ended June 30, 2000 and 1999 4
Changes in Shareholders’ Equity 5
Six Months Ended June 30, 2000
Consolidated Statements of Cash Flows 6
Six Months Ended June 30, 2000 and 1999
Notes To Consolidated Financial Statements 7
Management’s Discussion and Analysis 9
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
STONEVILLE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Balance Sheets
June 30, 2000 and December 31, 1999
June 30, December 31,
2000 1999
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Assets
Investments:
Securities available-for-sale at fair value - amortized
cost of $958,867 (2000) and $967,000 (1999) $951,765 $961,939
Short-term investments, at cost which approximates market 351,692 351,692
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Total Investments 1,303,457 1,313,631
Cash and Cash Equivalents 1,395,927 1,062,290
Premiums receivable 503,282 622,228
Accounts receivable 294,769 309,081
Refundable income taxes 68,419 211,063
Reinsurance recoverable 556,986 573,676
Equipment, net of accumulated depreciation of
$83,000 (2000) and $59,000 (1999) 181,541 183,807
Deferred tax assets 198,356 62,849
Intangible assets, net of accumulated amortization of
$45,000 (2000) and $30,000 (1999) 155,000 170,000
Other 65,098 29,621
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Total Assets $4,722,835 $4,538,246
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Liabilities
Reserve for losses and loss adjustment expenses $1,326,604 $1,258,463
Unearned premium 663,411 846,982
Funds advanced under reinsurance contracts 652,901 443,015
Accounts payable and accrued liabilities 272,843 197,755
Capital lease obligations 6,400 6,953
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Total Liabilities 2,922,159 2,753,168
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Shareholders’ Equity
Common stock ($1 par value; 10,000,000 shares authorized;
503,384 shares issued and outstanding) 503,384 503,384
Retained earnings 1,299,732 1,284,625
Accumulated other comprehensive income -
Unrealized gains on securities available for sale,
net of income taxes (benefit) of $(4,662) (2000) and $(2,000) (1999) (2,440) (2,931)
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Total Shareholders’ Equity 1,800,676 1,785,078
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Total Liabilities and Shareholders’ Equity $4,722,835 $4,538,246
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See accompanying notes to financial statements.
STONEVILLE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Operations
Three Months and Six Months Ended June 30, 2000 and 1999
(Unaudited)
Three Months Ended Six Months Ended
June 30 June 30
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2000 1999 2000 1999
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Revenues
Net premiums earned (less ceded amount of approximately
$364,840 and $626,405 in 2000 and $98,067 and
$152,744 in 1999) $512,586 $534,540 1,004,757 769,932
Investment income 30,691 23,821 56,895 49,229
Gain on sale of securities 0 6,387 0 6,387
Administrative and management fees 476,268 198,873 835,608 569,215
Other 101,232 20,447 181,232 22,109
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Total Revenues 1,120,777 784,068 2,078,492 1,416,872
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Expenses
Loss and loss adjustment expenses 358,334 437,298 766,466 660,068
Policy acquisition fees 41,240 37,225 81,143 61,348
Program administration fees 82,234 75,262 148,535 118,284
Regulatory fees 31,674 29,711 61,335 46,949
General expenses 568,608 427,132 996,250 773,753
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Total Expenses 1,082,090 1,006,628 2,053,729 1,660,402
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Income (Loss) before Income Taxes 38,687 (222,560) 24,763 (243,530)
Provision (benefit) for income taxes 15,081 (88,345) 9,658 (96,524)
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Net Income (Loss) 23,606 (134,215) 15,105 (147,006)
Other Comprehensive Income, net of income tax effect -
Unrealized gain (loss) on investments in securities 4,851 (6,372) 493 (18,588)
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Comprehensive Income (Loss) 28,457 (140,587) 15,598 (165,594)
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Net Income (Loss) Per Share $0.05 ($0.27) $0.03 ($0.29)
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See accompanying notes to financial statements.
STONEVILLE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Changes in Shareholders’ Equity
For Periods Indicated
Accumulated
Other Total
Common Stock Retained Comprehensive Shareholders’
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Shares Amount Earnings Income Equity
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Balance at December 31, 1998 503,384 $503,384 $1,388,334 $23,335 $1,915,053
Net income (loss) (103,709) (103,709)
Net decrease in unrealized appreciation of
securities available for sale (26,266) (26,266)
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Balance at December 31, 1999 503,384 $503,384 $1,284,625 ($2,931) $1,785,078
Net income 15,105 15,105
Net increase in unrealized appreciation of
securities available for sale 493 493
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Balance at June 30, 2000 503,384 $503,384 $1,299,730 ($2,438) $1,800,676
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See accompanying notes to financial statements.
STONEVILLE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2000 and 1999
2000 1999
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Cash Flows From Operating Activities
Premiums collected $1,126,219 $641,864
Other income 1,028,636 289,750
Losses and loss adjustment expenses paid (438,342) (345,578)
General insurance and administrative expenses paid (1,416,552) (883,860)
Investment income received 55,877 54,688
Interest paid (500) (497)
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Net Cash Provided by (Used by) Operating Activities 355,338 (243,633)
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Cash Flows From Investing Activities
Proceeds from sales and maturities of securities available-for-sale 468 478,104
Purchase of available-for-sale securities (131,414)
Capital expenditures (21,616) (211,541)
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Net Cash Provided by (Used in) Investing Activities (21,148) 135,149
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Cash Flows From Financing Activities
Principal payments under capital lease obligations (553) (607)
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Net Cash Used in Financing Activities (553) (607)
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Net Increase (Decrease) in Cash and
Cash Equivalents 333,637 (109,091)
Cash and Cash Equivalents at Beginning of Period 1,062,290 1,222,322
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Cash and Cash Equivalents at End of Period $1,395,927 $1,113,231
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See accompanying notes to financial statements.
Stoneville Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
Quarters Ended June 30, 2000 and 1999 (Unaudited)
1. Basis of Presentation
These interim consolidated financial statements have been prepared in accordance with the
instructions to Form 10Q and do not include all of the information and note disclosures required by
accounting principles generally accepted in the United States of America and must be read in conjunction
with the 1999 annual statement. The accompanying financial statements have not been audited by independent
accountants in accordance with auditing standards generally accepted in the United States of America,
but in the opinion of management, the accompanying interim unaudited financial statements contain all adjustments
necessary to summarize fairly the statement of financial position and results of operations of the
Company for the interim periods.
2. Consolidation of Subsidiaries
In January, 1999, the Company formed Stoneville Service Company, Inc., a Mississippi corporation
owned entirely by Stoneville Insurance Company. Stoneville Service Company, Inc. provides claims
and risk control services primarily to Arkansas groups that are self-funded for workers’ compensation
purposes.
In May, 1999, the Company acquired all of the outstanding stock of American Colonial Insurance
Company, an Arkansas property and casualty insurance company. Immediately after the
acquisition, the name was changed to Stoneville Insurance Company of Arkansas. The Company
has begun to write small premium workers’ compensation insurance in Arkansas and will reinsure
other workers’ compensation carriers on a limited risk basis. The Company also plans to provide
claims administration and program management services for these insurance programs through its
Arkansas subsidiary.
The accompanying financial statements present the Company and its subsidiaries, Stoneville
Service Company, Inc. and Stoneville Insurance Company of Arkansas, on a consolidated basis.
All material inter-company profits, transactions and balances have been eliminated.
3. Operations of the Company
The Company was formed to become the successor to the Delta Agricultural and Industrial Trust,
a Mississippi self-funded workers compensation trust. The Company entered the workers
compensation market in the first quarter of 1998 as a reinsurer and began direct writing of workers’
compensation insurance in the fourth quarter of 1998. In July, 1998, the Company began providing
claims and risk control services as well as program management services to the insurance programs
being reinsured by the Company. In January, 1999, the Company began providing claims and risk
control services to Arkansas self-funded workers’ compensation groups through its newly formed
subsidiary, Stoneville Service Company, Inc.
The Company also began duplicating its Mississippi workers’ compensation programs in Arkansas
through Stoneville Insurance Company of Arkansas in the third quarter of 1999.
4. Assets Pledged
All of the $951,765 in securities available-for-sale and approximately $500,000 in cash is pledged
collateral for letters of credit issued to an insurance carrier that the Company reinsures on a quota
share basis. A claim may be made against the letter of credit if the ceding insurer is unable to pay
claims from premiums collected by it.
5. Reserve for Losses and Loss Adjustment Expenses
The reserve for losses and loss adjustment expenses (“LAE”) is based upon case reserve reports
received from ceding insurance companies and the company’s own estimates. Loss and LAE
reserves also include estimates of incurred but not reported losses based on past experience
modified for current trends and estimates of expenses for investigating and settling claims. It is the
company’s policy not to discount such reserves. Management believes that the reserve for loss and
LAE as of June 30, 2000 is adequate to cover ultimate gross cost of losses and LAE incurred
through June 30, 2000. The reserve is based on estimates of losses and LAE incurred and,
therefore, the amount ultimately paid may be more or less than such estimates.
6. Earnings (Loss) Per Share
Earnings (loss) per common share is based on net income or (loss) and the weighted average
number of shares outstanding during each interim period. The number of shares used in computing
earnings per share is 503,384 for the periods ended June 30, 2000 and 1999.
Total shareholders’ equity increased by $15,598 or .87% from $1,785,078 at December 31, 1999 to $1,800,676 at June 30, 2000. This increase was caused by a net income from operations of $15,105 for the first six months of 2000 and an increase in unrealized gain on securities available-for-sale of $493.
Total assets increased by $184,589 or 4.0% at June 30, 2000 compared to December 31, 1999. Cash and investments increased a total of $333,637 during the six months ended June 30, 2000 due largely to an increase in the collection of premium and other income.
Total liabilities increased by $168,991 or 6.1% at June 30, 2000 compared to December 31, 1999. This increase was due primarily to the collection of premium dollars on behalf of quota share reinsurers that were not due to be distributed until the third quarter of 2000.
Results of OperationsThe Company experienced a net income of $23,606 during the second quarter of 2000 compared to a net loss of $134,215 during the second quarter of 1999. The increase is due primarily to fees generated in connection with the assumption of the insurance obligations of another workers compensation carrier in early 2000. Total revenue increased $336,709 to $1,120,777 in the second quarter of 2000 compared to $784,068 in the same period in 1999.
In the area of fee based services which the Company has emphasized over its risk taking activities during the last twelve months, administrative and management fees increased $277,395 to $476,268 in the second quarter of 2000 compared to $198,873 in the same period in 1999. The Company intends to continue its focus on this line of business for the foreseeable future.
As a result of the Company’s decision in mid 1999 to reduce the amount of risk it retains on direct written insurance business, the Company’s net premiums earned began to decrease in the second quarter of 2000. Net premiums earned decreased from $534,540 in the second quarter of 1999 to $512,586 in the quarter ended June 30, 2000. Losses and loss adjustment expenses were $358,334 during the second six months of 2000 compared to $437,298 in the same period in 1999. Other expenses directly associated with the Company’s insurance programs totaled $155,148 during the second quarter of 2000 compared to $142,198 in the second quarter of 1999. The Company plans to continue its policy of retaining as little risk as possible on any direct insurance business it writes.
Investment income of the Company increased from $23,821 in the second quarter of 1999 to $30,691 in the second quarter of 2000. This increase is a result of having more cash available for investment in the second quarter of 2000 compared to 1999 due to increased collections of fee based income.
General expenses increased from $427,132 in the second quarter of 1999 to $568,608 in 2000. This increase is due primarily to the costs associated with the growth of the claims administration operation.
The Company recorded an income tax provision for the quarter ended June 30, 2000 in the amount of $15,081 compared to a tax benefit for the same quarter in 1999 of $88,345.
The Company experienced a net income of $15,105 during the first six months of 2000 compared to a net loss of $147,006 during the same period in 1999. The increase is due primarily to other income generated in connection with the assumption of the insurance obligations of another workers compensation carrier in early 2000. Total revenue increased $661,620 to $2,078,492 in the first six months of 2000 compared to $1,416,872 in the same period in 1999.
Administrative and management fees increased $266,393 to $835,608 in the first six months of 2000 compared to $569,215 in the same period in 1999.
Net premiums earned increased from $769,932 in the first six months of 1999 to $1,004,757 in the same period of 2000. Losses and loss adjustment expenses were $766,466 during the six months end June 30, 2000 compared to $660,068 in the same period in 1999. Other expenses directly associated with the Company’s insurance programs totaled $291,013 during the first six months of 2000 compared to $226,581 in the first six months of 1999.
Investment income of the Company increased from $49,229 in the first six months of 1999 to $56,895 during the six months ended June 30, 2000. This increase is a result of having more cash available for investment in 2000 compared to 1999 due to increased collections of fee based income.
General expenses increased from $773,753 during the first six months of 1999 compared to $996,250 in 2000. This increase is due primarily to the costs associated with the growth of the claims administration operation.
The Company recorded an income tax provision for the six months ended June 30, 2000 in the amount of $90,658 compared to a tax benefit for the same period in 1999 of $147,006.
PART II: OTHER INFORMATION Item 6 Exhibits and Report on Form 8-K (a) Exhibits Exhibit 27; Financial data schedule
STONEVILLE INSURANCE COMPANY
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.
MISSISSIPPI PHYSICIANS INSURANCE
STONEVILLE INSURANCE COMPANY
COMPANY
By: /s/ Harry E. Vickery
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Harry E. Vickery, President
DATE: August 14, 2000
By: /s/ Richard L. Eaton
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Richard L. Eaton, Chief Financial
Officer (Principal Financial Officer
and Principal Accounting Officer