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 September 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 September 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
September 30, 2000 and December 31, 1999 3
Consolidated Statements of Income
Six Months Ended September 30, 2000 and 1999 4
Changes in Shareholders’ Equity 5
Six Months Ended September 30, 2000
Consolidated Statements of Cash Flows 6
Six Months Ended September 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
September 30, 2000 and December 31, 1999
September 30, December 31,
2000 1999
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Assets
Investments:
Securities available-for-sale at
fair value - amortized
cost of $922,718 (2000) and $967,000 (1999) $922,825 $961,939
Short-term investments, at cost which approximates market 351,692 351,692
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Total Investments 1,274,517 1,313,631
Cash and Cash Equivalents 1,090,801 1,062,290
Premiums receivable 929,457 622,228
Accounts receivable 548,218 309,081
Refundable income taxes 171,505 211,063
Reinsurance recoverable 484,413 573,676
Equipment, net of accumulated depreciation of
$95,000 (2000) and $59,000 (1999) 178,002 183,807
Deferred tax assets 11,104 62,849
Intangible assets, net of accumulated amortization of
$52,500 (2000) and $30,000 (1999) 147,500 170,000
Other 102,616 29,621
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Total Assets $4,938,133 $4,538,246
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Liabilities
Reserve for losses and loss adjustment expenses $1,414,533 $1,258,463
Unearned premium 1,245,917 846,982
Funds advanced under reinsurance contracts 158,843 443,015
Accounts payable and accrued liabilities 245,671 197,755
Capital lease obligations 4,115 6,953
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Total Liabilities 3,069,079 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 1,365,563 1,284,625
Accumulated other comprehensive income -
Unrealized gains (losses) on securities available for sale,
net of income taxes (benefit) of ($0) (2000) and ($2,000) (1999) 107 (2,931)
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Total Shareholders’ Equity 1,869,054 1,785,078
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Total Liabilities and Shareholders’ Equity $4,938,133 $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 Nine Months Ended September 30, 2000 and 1999
(Unaudited)
Three Months Ended Nine Months Ended
September 30 September 30
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2000 1999 2000 1999
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Revenues
Net premiums earned (less ceded
amount of approximately $294,715 and
$921,120 in 2000 and $151,926 and
$304,700 in 1999) $500,887 $480,345 1,505,644 1,250,277
Investment income 38,526 23,852 95,423 73,392
Gain on sale of securities 0 0 0 6,387
Administrative and management fees 559,372 342,117 1,394,980 911,332
Other 47,345 0 228,577 22,109
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Total Revenues 1,146,130 846,314 3,224,624 2,263,497
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Expenses
Loss and loss adjustment expenses 417,282 378,348 1,183,749 1,038,415
Policy acquisition fees 35,289 57,673 116,431 119,021
Program administration fees 110,261 59,961 258,796 178,245
Regulatory fees 32,987 28,278 94,322 75,227
General expenses 442,393 414,218 1,438,643 1,187,975
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Total Expenses 1,038,212 938,478 3,091,941 2,598,883
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Income (Loss) before Income Taxes 107,918 (92,164) 132,683 (335,386)
Provision (benefit) for income taxes 42,087 (34,823) 51,745 (131,347)
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Net Income (Loss) 65,831 (57,341) 80,938 (204,039)
Other Comprehensive Income, net
of income tax effect -
Unrealized gain (loss) on
investments in securities 2,547 (2,337) 3,038 (16,925
Reclassification of gains
included in net income 0 0 0 (4,000)
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Comprehensive Income (Loss) 68,378 (59,678) 83,976 (224,964)
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Net Income (Loss) Per Share $0.13 $(0.11) $0.16 $(0.41)
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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’
Shares Amount Earnings Income Equity
Balance at December 31, 1998 503,384 $503,384 $1,388,334 $23,335 $1,915,053
Net loss (103,709) (103,709)
Net decrease in unrealized appreciation of
securities available for sale (26,266) (26,266)
Balance at December 31, 1999 503,384 $503,384 $1,284,625 ($2,931) $1,785,078
Net income 80,938 80,938
Net increase in unrealized appreciation of
securities available for sale 3,038 3,038
Balance at September 30, 2000 503,384 $503,384 $1,365,563 $107 $1,869,054
See accompanying notes to financial statements.
STONEVILLE INSURANCE COMPANY AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 2000 and 1999
2000 1999
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Cash Flows From Operating Activities
Premiums collected $1,723,855 $1,013,468
Administrative and other income received 1,152,154 780,985
Losses and loss adjustment expenses paid (758,299) (729,989)
General insurance and administrative expenses paid (2,228,370) (1,481,556)
Income tax refund received 37,417 31,351
Investment income received 91,265 76,212
Interest paid (711) (685)
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Net Cash Provided by (Used by) Operating Activities 17,311 (310,214)
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Cash Flows From Investing Activities
Proceeds from sales and maturities of securities
available-for-sale 44,482 478,104
Purchase of available-for-sale securities (246,394)
Capital expenditures (30,444) (212,127)
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Net Cash Provided by (Used in) Investing Activities 14,038 19,583
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Cash Flows From Financing Activities
Principal payments under capital lease obligations (2,838) (862)
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Net Cash Used in Financing Activities (2,838) (862)
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Net Increase (Decrease) in Cash and
Cash Equivalents 28,511 (291,493)
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 $1,090,801 $930,829
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See accompanying notes to financial statements.
Stoneville Insurance Company and Subsidiaries
Notes to Consolidated Financial Statements
Quarters Ended September 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 generally accepted accounting principles 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
generally accepted auditing standards, 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 writes small premium workers’ compensation
insurance in Arkansas and reinsures other workers’ compensation carriers on a
limited risk basis. The Company also provides 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 $922,825 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 September 30, 2000 is adequate to cover
ultimate gross cost of losses and LAE incurred through September 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 quarter ended
September 30, 2000 and 1999.
Total shareholders’ equity increased by $83,976 or 4.7% from $1,785,078 at December 31, 1999 to $1,869,054 at September 30, 2000. This increase in total shareholders’ equity resulted from net income from operations of $80,938 for the first nine months of 2000 and an unrealized gain on securities available-for-sale of $3,038.
Total assets increased by $961,491 or 21.2% to $4,938,133 at September 30, 2000 from $4,538,246 at December 31, 1999. This increase in total assets was due to an increase in accounts receivable of $239,137, most of which were collected early in the fourth quarter of 2000. Premium receivable increased by $307,229 due primarily to an increase in written premium for customers choosing a deferred payment option. Reinsurance recoverable increased by $472,341, reflecting an increase in ceded insurance liabilities. Cash and investments decreased a total of $10,603 during the nine months ended September 30, 2000.
Total liabilities increased by $877,515 or 31.9% to $3,630,683 at September 30, 2000 from $2,753,168 at December 31, 1999. This increase in total liabilities was due primarily to an increase of insurance liabilities to include amounts ceded to reinsurers of $472,341. There was a corresponding increase in reinsurance recoverable which resulted in no net change in the Company’s shareholders’ equity at September 30, 2000 compared to December 31, 1999. Liabilities also increased by $398,935 as a result of an increase in unearned premium which was due to an increase in written and assumed insurance premiums during the first nine months of 2000.
Results of OperationsThe Company experienced a net income of $65,831 during the third quarter of 2000 compared to a net loss of $57,341 during the third quarter of 1999. This increase in net income was due primarily to fees generated in connection with the assumption of the insurance obligations of another workers compensation carrier in early 2000 and to increased fee-based revenue. Total revenue increased by $299,816 to $1,146,130 in the third quarter of 2000 compared to $846,314 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 by $217,255 to $559,372 in the third quarter of 2000 compared to $342,117 in the same period in 1999. The Company intends to continue to 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 as a percentage of direct business written has declined. However, due to increased volume, net premiums earned increased from $480,345 in the third quarter of 1999 to $500,887 in the third quarter of 2000. Losses and loss adjustment expenses were $417,282 during the third quarter of 2000 compared to $378,348 in the same period in 1999. Other expenses directly associated with the Company’s insurance programs totaled $178,537 during the third quarter of 2000 compared to $145,912 in the third quarter of 1999. The Company plans to continue its policy of retaining the smallest amount of risk possible on any direct insurance business it writes.
Investment income of the Company increased from $23,852 in the third quarter of 1999 to $38,526 in the third quarter of 2000. The increase in cash available for investment in the third quarter of 2000 compared to the third quarter of 1999 was due to increased collections of fee-based income.
General expenses increased from $414,218 in the third quarter of 1999 to $442,393 in the third quarter of 2000. This increase in general expenses was due primarily to the costs associated with the growth of the Company’s claims administration operation.
The Company recorded an income tax provision for the quarter ended September 30, 2000 in the amount of $42,087 compared to a tax benefit for the same quarter in 1999 of $34,823.
The Company experienced a net income of $80,938 during the first nine months of 2000 compared to a net loss of $204,039 during the same period in 1999. The increase in net income was due primarily to income generated in connection with the assumption of the insurance obligations of another workers compensation carrier in early 2000 and an increase in the company’s fee based income. Total revenue increased by $961,127 to $3,224,624 in the first nine months of 2000 compared to $2,263,497 in the same period in 1999.
Administrative and management fees increased $483,648 to $1,394,980 in the first nine months of 2000 compared to $911,332 in the same period in 1999.
Net premiums earned increased from $1,250,277 in the first nine months of 1999 to $1,505,644 in the same period of 2000. Losses and loss adjustment expenses were $1,183,749 during the nine months of 2000 compared to $1,038,415 in the same period in 1999. Other expenses directly associated with the Company’s insurance programs totaled $469,549 during the first nine months of 2000 compared to $372,493 in the first nine months of 1999.
Investment income of the Company increased from $73,392 in the first nine months of 1999 to $95,423 in the first nine months of 2000. The increase in cash available for investment in 2000 compared to 1999 was due to increased collections of fee-based income.
General expenses increased from $1,187,975 during the first nine months of 1999 compared to $1,438,643 in the first nine months of 2000. This increase in general expenses was due primarily to the costs associated with the growth of the Company’s claims administration operations.
The Company recorded an income tax provision for the nine months ended September 30, 2000 in the amount of $51,745 compared to a tax benefit for the same period in 1999 of $131,347.
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: November 14, 2000
By: /s/ Richard L. Eaton
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Richard L. Eaton, Chief Financial
Officer (Principal Financial Officer
and Principal Accounting Officer