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 September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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 November 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 - September 30, 2000
and December 31, 1999 1
Consolidated Statements of Operations - Nine months ended
September 30, 2000 and September 30, 1999 2
Consolidated Statements of Operations - Three months ended
September 30, 2000 and September 30, 1999 3
Consolidated Statements of Cash Flows - Nine months
ended September 30, 2000 and September 30, 1999 4
Consolidated Statements of Changes in Shareholders' Equity -
Nine months ended September 30, 2000 and September 30, 1999 . 5
Notes to Interim Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Interim Operations . 7
PART II Other Information
Item 5. Other Information ... 9
Item 6. Exhibits and Reports on Form 8-K.. 9
Signature Page 10
ALLCITY INSURANCE COMPANY AND SUBSIDIARY
Consolidated Balance Sheets
September 30, 2000 and December 31, 1999
(In thousands, except share and par value amounts)
September 30, December 31,
2000 1999
ASSETS (Unaudited)
Investments:
Fixed Maturities:
Available for sale
(amortized cost of $121,991 in
2000 and $167,294 in 1999) $120,804 $163,495
Held to maturity
(fair value of $477 in 2000 and $476
in 1999) 486 492
Equity securities available for sale 375 255
Short-term 11,203 7,129
Other invested assets 37,257 33,875
TOTAL INVESTMENTS 170,125 205,246
Cash 133 644
Agents' balances, less allowance for
doubtful accounts ($1,841 in 2000 and
$1,812 in 1999) 6,331 6,115
Accrued investment income 1,416 3,041
Reinsurance balances receivable 186,655 230,193
Prepaid reinsurance premiums 18,389 22,282
Deferred policy acquisition costs 3,339 3,415
Deferred income taxes 11,360 9,938
Due from affiliates 5,915 -
Other assets 5,783 5,146
TOTAL ASSETS $409,446 $486,020
LIABILITIES
Unpaid losses $245,644 $307,075
Unpaid loss adjustment expenses 31,399 34,861
Unearned premiums 34,768 38,927
Due to affiliates - 7,476
Reinsurance balances payable 3,336 717
Other liabilities 7,885 9,397
Surplus note 16,319 15,851
TOTAL LIABILITIES 339,351 414,304
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 $284 and
$1,240 in 2000 and 1999, respectively (528) (2,304)
Retained earnings 54,213 57,610
TOTAL SHAREHOLDERS' EQUITY 70,095 71,716
TOTAL LIABILITIES AND SHAREHOLDERS'EQUITY $409,446 $486,020
See Notes to Interim Consolidated Financial Statements.
ALLCITY INSURANCE COMPANY AND SUBSIDIARY
Consolidated Statements of Operations (Unaudited)
For the nine months ended September 30, 2000 and 1999
(In thousands, except share and per share amounts)
Nine Months Ended
September 30,
2000 1999
REVENUES
Net earned premiums $23,650 $34,474
Net investment income 9,598 9,336
Service fee income 19 1,649
Net realized securities losses (298) (1,339)
Other income 162 305
33,131 44,425
LOSSES AND EXPENSES
Losses 18,523 25,025
Loss adjustment expenses 8,362 6,575
Other underwriting expenses less deferrals
of $5,750 in 2000 and $6,083 in 1999 5,726 6,915
Amortization of deferred policy
acquisition costs 5,826 7,558
Interest on surplus note 468 407
38,905 46,480
LOSS BEFORE FEDERAL INCOME TAXES (5,774) (2,055)
FEDERAL INCOME TAXES
Current tax expense/(benefit) 3 (1,456)
Deferred tax (benefit)/expense (2,380) 54
(2,377) (1,402)
NET LOSS $ (3,397) $ (653)
Per share data, based on 7,078,625 average
shares outstanding in 2000 and 1999:
BASIC AND DILUTED LOSS PER SHARE $ (0.48) $ (0.09)
See Notes to Interim Consolidated Financial Statements.
ALLCITY INSURANCE COMPANY AND SUBSIDIARY
Consolidated Statements of Operations (Unaudited)
For the three months ended September 30, 2000 and 1999
(In thousands, except share and per share amounts)
Three Months Ended
September 30,
2000 1999
REVENUES
Net earned premiums $ 7,619 $ 9,496
Net investment income 3,064 3,157
Service fee(expense)income (99) 483
Net realized securities gains/(losses) 290 (867)
Other income 51 84
10,925 12,353
LOSSES AND EXPENSES
Losses 7,223 7,339
Loss adjustment expenses 4,640 2,111
Other underwriting expenses less deferrals
of $1,577 in 2000 and $1,494 in 1999 1,806 2,221
Amortization of deferred policy
acquisition costs 1,889 2,079
Interest on surplus note 166 136
15,724 13,886
LOSS BEFORE FEDERAL INCOME TAXES (4,799) (1,533)
FEDERAL INCOME TAXES
Current tax expense/(benefit) 1 (1,516)
Deferred tax (benefit)/expense (1,680) 297
(1,679) (1,219)
NET LOSS $(3,120) $ (314)
Per share data, based on 7,078,625 average
shares outstanding in 2000 and 1999:
BASIC AND DILUTED LOSS PER SHARE $ (0.44) $ (0.04)
See Notes to Interim Consolidated Financial Statements.
ALLCITY INSURANCE COMPANY AND SUBSIDIARY
Consolidated Statements of Cash Flows (Unaudited)
For the nine months ended September 30, 2000 and 1999
(In thousands, except share and par value amounts)
Nine Months Ended
September 30,
2000 1999
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $(3,397) $ (653)
Adjustment to reconcile net loss to net
cash used for operations:
Deferred tax (benefit) expense (2,380) 54
Amortization of deferred policy acquisition
costs 5,826 7,558
Provision for doubtful accounts 29 78
Net realized securities losses 298 1,339
Policy acquisition costs incurred and deferred (5,750) (6,083)
Net changes in:
Agents' balances (245) 3,759
Reinsurance balances receivable 43,538 40,077
Prepaid reinsurance premiums 3,893 12,715
Unpaid losses and loss adjustment expenses (64,893) (63,656)
Unearned premiums (4,159) (19,545)
Due to/from affiliates (13,391) (6,502)
Reinsurance balances payable 2,619 1,274
Other 558 512
NET CASH USED FOR OPERATING ACTIVITIES (37,454) (29,073)
NET CASH FLOWS FROM INVESTING ACTIVITIES
Available for sale:
Acquisition of fixed maturities (11,235) (165,798)
Proceeds from sale of fixed maturities 52,873 170,079
Proceeds from maturities of fixed maturities 2,761 14,493
Net change in other invested assets (3,382) (1,761)
Net change in short-term investments (4,074) 12,839
NET CASH PROVIDED BY INVESTING ACTIVITIES 36,943 29,852
NET (DECREASE)/INCREASE IN CASH (511) 779
Cash, at beginning of period 644 390
Cash, at the end of period $ 133 $ 1,169
See Notes to Interim Consolidated Financial Statements.
ALLCITY INSURANCE COMPANY AND SUBSIDIARY
Consolidated Statements of Changes in Shareholders Equity (Unaudited)
For the nine months ended September 30, 2000 and 1999
(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 loss:
Net loss (653) (653)
Other comprehensive loss:
Net change in unrealized
gain (loss) on investments
(net of deferred tax benefit
of $1,331) (2,473) (2,473)
Less: reclassification of
net securities losses
included in net loss
(net of deferred tax
of $286) 532 532
Comprehensive loss (2,594)
Balance, September 30, 1999 $7,079 $9,331 $(1,492) $60,688 $75,606
Balance, January 1, 2000 $7,079 $9,331 $(2,304) $57,610 $71,716
Comprehensive income:
Net loss (3,397) (3,397)
Other comprehensive income:
Net change in unrealized
loss on investments
(net of deferred tax
of $590) 1,095 1,095
Less: reclassification of
net securities losses
included in net loss
(net of deferred tax of
$367) 681 681
Comprehensive income (1,621)
Balance, September 30, 2000 $7,079 $9,331 $ (528) $54,213 $ 70,095
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 and nine month periods ended September 30, 2000 and 1999 is as
follows (in thousands):
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
Net Earned Premiums
Personal Lines (1) $2,854 $ 5,048 $ 9,704 $18,510
Mid-Market 3,350 2,944 9,687 10,933
Small Business 1,415 1,504 4,259 5,031
Total Net Earned Premiums $7,619 $ 9,496 $23,650 $34,474
Losses Incurred
Personal Lines (1) $3,174 3,967 $ 8,222 $13,522
Mid-Market 3,199 2,596 7,933 8,838
Small Business 850 776 2,368 2,665
Total Losses Incurred $7,223 $ 7,339 $18,523 $25,025
Loss Adjustment Expenses Incurred
Personal Lines (1) $2,046 $ 1,159 $ 3,939 $ 3,608
Mid Market 2,325 746 3,673 2,325
Small Business 269 206 750 642
Total Loss Adjustment
Expenses Incurred $4,640 $ 2,111 $ 8,362 $ 6,575
[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 has reviewed
the impact of the implementation of SFAS 133, and does not expect it
to have a material effect on the Company's financial position or results
of operations.
[S]
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 nine month period ended September 30, 2000, net cash was
used for operations principally as a result of a decrease in premiums
written and the payment of claims. For the nine month period ended
September 30, 1999, net cash was used for operations principally
due to decreased premium writings from tighter underwriting
standards, reunderwriting, competition, and a decline in the
number of assigned risk contracts under which the Company
acquired assigned risk business from other insurance companies
combined with a depopulation of the related assigned risk
pools.
At September 30, 2000 and 1999, the yield on the Company's fixed
maturities portfolio was 6.6% and 5.8%, respectively, with an average
maturity of 1.9 years and 2.6 years, respectively. At September 30, 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 and
an investment limited partnership.
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 nine month periods ended September 30, 2000 and 1999, the Company sold
certain securities at a securities 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-NINE MONTHS ENDED SEPTEMBER 30, 2000
COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1999.
[S]
Net earned premium revenues were $23,650,000 and $34,474,000
for the nine month periods ended September 30, 2000 and 1999,
respectively, and $7,619,000 and $9,496,000 for the three month periods
ended September 30, 2000 and 1999, respectively. While net 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, homeowners and workers' compensation. 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 loss ratios were as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
Loss and LAE Ratio:
GAAP 155.7% 99.5% 113.7% 91.7%
SAP 155.7% 99.5% 113.7% 91.7%
Expense Ratio:
GAAP 52.0% 41.6% 50.7% 38.4%
SAP 52.3% 49.4% 47.5% 40.9%
Combined Ratio:
GAAP 207.7% 141.1% 164.4% 130.1%
SAP 208.0% 148.9% 161.2% 132.6%
During the three months ended September 30, 2000, the Company
updated its actuarial estimates and strengthened reserves by
approximately $3,900,000. The increase primarily resulted from
adverse development for accident years 1997 to 1999 in the assigned
risk automobile and voluntary private passenger automobile lines,
and an increase for estimated loss adjustment expenses.
Claim files were reviewed and settlements were accelerated, due
to efforts by both in house claim personnel and recently employed third
party claim servicers. The Company is outsourcing claim handling functions
for lines of business it is discontinuing (commercial and personal assigned
risk automobile), as well as reducing the level of claims handled in house
to better match current premium volumes. The Company reestimated its total
liability for loss adjustment expenses based on the substantial increase in
claims handled by third parties during the third quarter and concluded an
increase was needed.
Expense ratios for the 2000 periods increased as compared to the 1999
periods due to reduced service fees, higher severance costs and overhead
costs which, although lower, have not declined proportionally with premiums.
This high overhead cost structure, which must be further reduced, and the
continued decline in premiums and higher than expected loss ratios in
certain business lines, is requiring management to reevaluate which lines
of business it can profitably pursue. This evaluation is expected to be
completed in the fourth quarter of 2000.
Income taxes for the nine month period ended September 30, 2000
reflect a benefit of $358,000 for a change in the Company's estimated
prior year's federal tax liability.
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 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 and loss adjustment expense 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.
Part II - Other Information
Item 5. Other Information
NONE.
Item 6. Exhibits and Reports on Form 8-K
a) Exhibits
The following exhibit is filed herewith:
Exhibit Number Description of Document
27 Financial Data Schedule
b) Report on Form 8-K
NONE.
SIGNATURE
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.
ALLCITY INSURANCE COMPANY
Registrant
Date: November 14, 2000 By: /s/Francis M. Colalucci
Francis M. Colalucci
Executive Vice President, CFO and
Treasurer
(Principal Financial and Accounting
Officer)