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, 2000
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 10, 2000, there were 7,078,625 shares of Common Stock outstanding.
ALLCITY INSURANCE COMPANY
INDEX
PART I Financial Information PAGE
Item 1. Interim Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets - March 31, 2000
and December 31, 1999 1
Consolidated Statements of Income - Three months ended
March 31, 2000 and 1999 2
Consolidated Statements of Cash Flows - Three months
ended March 31, 2000 and 1999 3
Consolidated Statements of Changes in Shareholders' Equity -
Three months ended March 31, 2000 and 1999 . 4
Notes to Interim Consolidated Financial Statements 5-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Interim Results of Operations 6-9
PART II Other Information
Item 5. Other Information. 9
Item 6. Exhibits and Reports on Form 8-K.. 9
Signature Page 10
CONSOLIDATED BALANCE SHEETS
ALLCITY INSURANCE COMPANY AND SUBSIDIARY
(In thousands, except share and par value amounts)
March 31, December 31,
2000 1999
ASSETS (Unaudited)
Investments:
Fixed Maturities:
Available for sale
(amortized cost of $161,634 in 2000
and $167,294 in 1999) $158,064 $163,495
Held to maturity
(fair value of $474 in 2000 and $476
in 1999) 492 492
Equity securities available for sale 255 255
Short-term 1,179 7,129
Other invested assets 34,856 33,875
TOTAL INVESTMENTS 194,846 205,246
Cash 522 644
Agents' balances, less allowance for
doubtful accounts ($1,822 in 2000 and
$1,812 in 1999) 8,330 6,115
Accrued investment income 1,833 3,041
Reinsurance balances receivable 213,974 230,193
Prepaid reinsurance premiums 19,822 22,282
Deferred policy acquisition costs 3,912 3,415
Deferred income taxes 10,251 9,938
Other assets 5,979 5,146
TOTAL ASSETS $459,469 $486,020
LIABILITIES
Unpaid losses $285,858 $307,075
Unpaid loss adjustments expenses 28,233 34,861
Unearned premiums 38,989 38,927
Due to affiliates 6,395 7,476
Reinsurance balances payable 1,347 717
Other liabilities 10,499 9,397
Surplus note 15,996 15,851
TOTAL LIABILITIES 387,317 414,304
SHAREHOLDERS' EQUITY
Common stock, $1.00 par value; 7,368,420
Shares authorized; 7,078,625 shares
issued and outstanding in 2000 and 1999 7,079 7,079
Additional paid-in-capital 9,331 9,331
Accumulated other comprehensive loss,
net of deferred tax benefits of $1,160 and
$1,240 in 2000 and 1999, respectively (2,155) (2,304)
Retained earnings 57,897 57,610
TOTAL SHAREHOLDERS' EQUITY 72,152 71,716
TOTAL LIABILITIES AND SHAREHOLDERS'EQUITY $459,469 $486,020
See Notes to Interim Consolidated Financial Statements
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
ALLCITY INSURANCE COMPANY AND SUBSIDIARY
(In thousands, except share and per share amounts)
Three Months Ended
March 31,
2000 1999
REVENUES
Net earned premiums $ 8,077 $13,739
Net investment income 3,285 3,147
Service fee income 90 600
Net realized securities losses (221) (208)
Other income 68 112
11,299 17,390
LOSSES AND EXPENSES
Losses 5,792 9,341
Loss adjustment expenses 1,722 2,443
Other underwriting expenses less deferrals
of $2,386 in 2000 and $2,932 in 1999 1,859 2,267
Amortization of deferred policy
acquisition costs 1,890 3,056
Interest on surplus note 144 149
11,407 17,256
(LOSS)/INCOME BEFORE FEDERAL INCOME TAXES (108) 134
FEDERAL INCOME TAXES
Current tax expense - 75
Deferred tax benefit (395) (28)
(395) 47
NET INCOME $ 287 $ 87
Per share data, based on 7,078,625 average
shares outstanding in 2000 and 1999:
BASIC AND FULLY DILUTED
EARNINGS PER SHARE $ 0.04 $ 0.01
See Notes to Interim Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
ALLCITY INSURANCE COMPANY AND SUBSIDIARY
(In thousands)
Three Months Ended
March 31,
2000 1999
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 287 $ 87
Adjustment to reconcile net income to net
cash (used for)/provided by operations:
Deferred tax benefit (395) (28)
Amortization of deferred policy acquisition
costs 1,890 3,056
Provision for doubtful accounts 10 21
Net realized securities losses 221 208
Policy acquisition costs incurred and deferred (2,386) (2,932)
Net changes in:
Agents' balances (2,225) (2,235)
Reinsurance balances receivable 16,219 25,366
Prepaid reinsurance premiums 2,460 5,195
Unpaid losses and loss adjustment expenses (27,845) (33,683)
Unearned premiums 62 (5,560)
Due to affiliates (1,081) 9,820
Reinsurance balances payable 630 21
Other 1,845 2,606
NET CASH (USED FOR)/PROVIDED BY OPERATING
ACTIVITIES (10,308) 1,942
NET CASH FLOWS FROM INVESTING ACTIVITIES
Available for sale:
Acquisition of fixed maturities (6,377) (49,721)
Proceeds from sale of fixed maturities 10,789 57,239
Proceeds from maturities of fixed maturities 805 4,705
Net change in other invested assets (981) (401)
Net change in short-term investments 5,950 (13,210)
NET CASH PROVIDED BY/(USED FOR) INVESTING ACTIVITIES 10,186 (1,388)
NET (DECREASE)/INCREASE IN CASH (122) 554
Cash, at beginning of period 644 390
Cash, at the end of period $ 522 $ 944
See Notes to Interim Consolidated Financial Statements
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, 1999 $7,079 $9,331 $ 449 $61,341 $78,200
Comprehensive income:
Net income 87 87
Other comprehensive loss:
Net change in unrealized
gain (loss) on investments
(net of deferred tax benefit
of $743) (1,380) (1,380)
Less: reclassification of
net securities losses
included in net income
(net of tax of $98) 183 183
Comprehensive loss _____ _____ _____ ______ (1,110)
Balance, March 31, 1999 $7,079 $9,331 $ (748) $61,428 $77,090
Balance, January 1, 2000 $7,079 $9,331 $(2,304) $57,610 $71,716
Comprehensive income:
Net income 287 287
Other comprehensive income:
Net change in unrealized
loss on investments
(net of deferred tax
of $64) 118 118
Less: reclassification of
net securities losses
included in net income
(net of deferred tax of $16) 31 31
Comprehensive income _____ _____ _____ ______ 436
Balance, March 31, 2000 $7,079 $9,331 $(2,155) $57,897 $72,152
See Notes to Interim Consolidated Financial Statements.
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, 1999, which are included in the Company's Annual Report filed on
Form 10-K for such year (the "1999 10-K"). Results of operations for interim
periods are not necessarily indicative of annual results of operations. The
consolidated balance sheet at December 31, 1999 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 2000 presentation.
3. Certain information concerning the Company's segments for the three month
periods ended March 31, 2000 and 1999 is as follows (in thousands):
2000 1999
Net Earned Premiums
Small Business $ 1,419 $ 1,997
Mid-Market 3,032 4,358
Personal Lines (1) 3,626 7,384
Total Net Earned Premiums $ 8,077 $13,739
Losses Incurred
Small Business $ 753 $ 1,034
Mid-Market 2,590 3,236
Personal Lines (1) 2,449 5,071
Total Losses Incurred $ 5,792 $ 9,341
Loss Adjustment Expenses Incurred
Small Business $ 222 $ 218
Mid-Market 624 860
Personal Lines (1) 876 1,365
Total Loss Adjustment Expenses
Incurred $1,722 $ 2,443
[S]
(1) Includes assigned risk automobile business which the Company no longer
participates in effective January 1, 2000.
4. In June 1999, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective date of FASB Statement NO. 133
("SFAS 133")", which will be effective for fiscal years beginning after June
15, 2000. The Company is reviewing the impact of the implementation of SFAS
133 on the Company's financial position and results of operations.
Item 2.:
[S]
Management's Discussion and Analysis of Financial Condition and Results of
Interim Operations
[S]
The following should be read in conjunction with the Management's Discussion
and Analysis of Financial Condition and Results of Operations included in the
1999 10-K.
[S]
LIQUIDITY AND CAPITAL RESOURCES
[S]
For the three month period ended March 31, 2000, net cash was used for
operations principally as a result of a decrease in premiums written and the
payment of claims. 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.
At March 31, 2000 and 1999, the yield on the Company's fixed maturities
portfolio was 6.7% and 5.4%, respectively, with an average maturity of 2.5
years and 2.8 years, respectively. At March 31, 2000, a significant portion
of the Company's investment portfolio is invested in issues of the U.S.
Treasury and its governmental agencies with the remainder primarily invested
in investment grade corporate and industrial issues.
The Company maintains cash, short-term and readily marketable securities and
anticipates that the cash flow from investment income and the maturities and
sales of short-term investments and fixed maturities will be sufficient to
satisfy its anticipated cash needs. During each of the three month periods
ended March 31, 2000 and 1999, the Company sold certain securities at a net
realized capital loss to meet short-term cash flow 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.
[S]
INTERIM RESULTS OF OPERATIONS-THREE MONTHS ENDED MARCH 31, 2000 COMPARED TO
THE THREE MONTHS ENDED MARCH 31, 1999.
[S]
Net earned premium revenues were $8.1 million and $13.7 million for the
three month periods ended March 31, 2000 and 1999, respectively. While earned
premiums declined in almost all lines of business, the most significant
reductions were in assigned risk automobile, voluntary private passenger
automobile, commercial package policies and homeowners. As discussed in the
1999 10-K, as a result of poor operating results, the Company is no longer
entering into new assigned risk contracts. Effective January 1, 2000, all
policy renewal obligations have been assigned to another insurance company.
However, the Company remains liable for the claim settlement costs for
assigned risk claims that occurred during the policy term. The decline in
voluntary private passenger automobile resulted from tighter underwriting
standards, increased competition and the Company's decision to no longer
accept new policies from those agents who historically have had poor
underwriting results. The Company's termination of certain unprofitable
agents has also adversely affected premium volume in other lines of business.
The Company's first quarter loss ratios were as follows:
2000 1999
Loss and LAE Ratio:
GAAP 93.0% 85.8%
SAP 93.0% 85.8%
Expense Ratio:
GAAP 47.1% 35.5%
SAP 39.1% 33.6%
Combined Ratio:
GAAP 140.1% 121.3%
SAP 132.1% 119.4%
During the first quarter of 2000, the Company experienced unfavorable
development principally in assigned risk and private passenger automobile
lines of business and reserves were strengthened by $0.9 million. While the
dollar amount of reserve strengthening was the same in each period, the
reduction in earned premiums in 2000 resulted in a higher loss ratio on a
percentage basis. The current accident year loss ratios declined slightly
from the prior year. Expense ratios increased due to higher allocated loss
adjustment expense payments, reduced service fees and overhead costs which,
although lower, have not declined proportionally with premiums.
The Empire Group ("Group"), which includes the Company and its parent Empire
Insurance Company, has begun to implement an expense reduction program to more
closely align its expenses with its current volume of business. Through May
1, 2000, staff reductions have resulted in the elimination of 122 job
positions, representing approximately 23% of the Group's December 31, 1999
workforce. In certain instances, particularly in the claims department, the
cost savings from the reductions will be partially offset by increased
outsourcing expenses. The Group will continue to examine its overhead costs
and additional staff reductions are likely to occur in 2000.
Income taxes for 2000 reflect a benefit of $0.4 million for a change in the
Company's estimated prior year's federal tax liability.
[S]
Cautionary Statement for Forward-Looking Information
[S]
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 forward-looking 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, 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 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
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
[S]
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, 2000.
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 12, 2000 By: /s/Francis M. Colalucci____________
Francis M. Colalucci
Executive Vice President, CFO and
Treasurer
(Principal Financial and Accounting
Officer)