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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-7411
ALLCITY INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
New York 13-2530665
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
122 Fifth Avenue, New York, New York 10011
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212)387-3000
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 6, 1997 there were 7,078,625 shares of Common Stock outstanding.
ALLCITY INSURANCE COMPANY
INDEX
PAGE
PART I Financial Information
Item 1. Interim Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets - September 30, 1997 and December 31, 1996... 2
Consolidated Statements of Income - Nine months ended September
30, 1997 and September 30, 1996 and three months ended September 30,
1997 and September 30, 1996.............................................. 3-4
Consolidated Statements of Cash Flows - Nine months ended September
30, 1997 and September 30, 1996.......................................... 5
Consolidated Statements of Changes in Shareholders' Equity - Nine
months ended September 30, 1997 and September 30, 1996................... 6
Notes to Interim Consolidated Financial Statements....................... 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Interim Operations................................. 8-10
PART II Other Information
Item 5. Other Information................................................. 11
Item 6. Exhibits and Reports on Form 8-K.................................. 11
Signatures................................................................. 12
CONSOLIDATED BALANCE SHEETS
ALLCITY INSURANCE COMPANY
(Thousands of dollars, except share and par value amounts)
September 30, December 31,
1997 1996
(Unaudited)
ASSETS
Investments:
Available for sale (aggregate cost of
$268,245 in 1997 and $254,645 in 1996) $268,256 $252,073
Held to maturity (aggregate fair value
of $476 in 1997 and $485 in 1996) 475 477
Short term (at cost) 5,617 20,442
TOTAL INVESTMENTS 274,348 272,992
Cash 1,112 2,232
Agents' balances, less allowance for doubtful
accounts ($1,483 in 1997 and $1,363 in 1996) 16,590 17,814
Accrued investment income 4,691 2,822
Reinsurance balances receivable 275,297 264,159
Prepaid reinsurance premiums 61,615 70,061
Deferred policy acquisition costs 7,849 7,707
Deferred tax benefit 12,193 13,019
Other assets 3,411 2,924
TOTAL ASSETS $657,106 $653,730
LIABILITIES
Unpaid losses $363,538 $353,536
Unpaid loss adjustment expenses 52,942 52,551
Unearned premiums 101,992 111,657
Accounts payable and accrued liabilities 2,304 2,644
Drafts payable 4,533 5,712
Due to affiliates 18,175 14,232
Unearned service fee income 5,289 5,461
Reserve for servicing carrier claim expenses 6,500 8,043
Other postretirement benefits 3,732 3,819
Reinsurance balances payable 3,878 4,887
Other liabilities 1,582 1,415
Surplus note 14,561 14,115
TOTAL LIABILITIES 579,026 578,072
SHAREHOLDERS' EQUITY
Common stock, par value $1.00: 7,368,420
shares authorized; 7,078,625 shares issued
and outstanding in 1997 and 1996 7,079 7,079
Additional paid-in capital 9,331 9,331
Net unrealized gain/(loss) on investments 7 (1,672)
Retained earnings 61,663 60,920
TOTAL SHAREHOLDERS' EQUITY 78,080 75,658
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $657,106 $653,730
<FN>
See Notes to Interim Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
ALLCITY INSURANCE COMPANY
(Thousands of dollars, except per share amounts)
Nine Months Ended
September 30,
1997 1996
REVENUES
Premiums earned $63,437 $73,317
Net investment income less expenses of $251
in 1997 and $289 in 1996 11,684 12,188
Service fee income 5,230 5,266
Net (loss)/gain on securities (281) 910
Other income 424 517
80,494 92,198
LOSSES AND EXPENSES
Losses 53,055 57,677
Loss adjustment expenses 7,388 9,599
Other underwriting expenses less deferrals
of $11,526 in 1997 and $12,427 in 1996 7,080 9,335
Amortization of deferred policy acquisition
costs 11,384 12,323
Interest on surplus note 446 446
79,353 89,380
INCOME BEFORE FEDERAL INCOME TAXES 1,141 2,818
FEDERAL INCOME TAXES:
Current 476 2,298
Deferred (benefit) (78) (1,313)
398 985
NET INCOME $ 743 $ 1,833
Per share data, based on 7,078,625 average
shares outstanding in 1997 and 1996:
NET INCOME PER SHARE $ 0.10 $ 0.26
<FN>
See Notes to Interim Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
ALLCITY INSURANCE COMPANY
(Thousands of dollars, except per share amounts)
Three Months Ended
September 30,
1997 1996
REVENUES
Premiums earned $20,395 $23,474
Net investment income less expenses of $70
in 1997 and $107 in 1996 3,958 4,211
Service fee income 1,453 2,308
Net (loss)/gain on securities (145) 446
Other income 165 161
25,826 30,600
LOSSES AND EXPENSES
Losses 17,779 19,986
Loss adjustment expenses 2,182 2,768
Other underwriting expenses less deferrals
of $3,690 in 1997 and $2,237 in 1996 1,850 3,583
Amortization of deferred policy acquisition
costs 3,792 2,916
Interest on surplus note 149 149
25,752 29,402
INCOME BEFORE FEDERAL INCOME TAXES 74 1,198
FEDERAL INCOME TAXES:
Current 81 803
Deferred (benefit) (56) (385)
25 418
NET INCOME $ 49 $ 780
Per share data, based on 7,078,625 average
shares outstanding in 1997 and 1996:
NET INCOME PER SHARE $ 0.01 $ 0.11
<FN>
See Notes to Interim Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
ALLCITY INSURANCE COMPANY
(Thousands of dollars)
Nine Months Ended
September 30,
1997 1996
NET CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 743 $ 1,833
Adjustments to reconcile net income to net
cash (used for)/provided by operations:
Provision for deferred tax benefits (78) (1,313)
Amortization 11,632 12,700
Provision for doubtful accounts 120 135
Net loss/(gain) on securities 281 (910)
Policy acquisition costs incurred and deferred (11,526) (12,427)
Net change in:
Agents' balances 1,104 (1,600)
Reinsurance balances receivable (11,138) (13,200)
Prepaid reinsurance premiums 8,446 (1,360)
Unpaid losses and loss adjustment expenses 10,393 16,638
Unearned premiums (9,665) 2,730
Drafts payable (1,179) 613
Due to affiliates 3,943 (2,654)
Unearned service fees (172) 617
Reserve for servicing carrier claim expenses (1,543) 1,333
Reinsurance balances payable (1,009) (59)
Other (2,281) 609
NET CASH (USED FOR)/PROVIDED BY OPERATING
OPERATING ACTIVITIES (1,929) 3,685
NET CASH FLOWS FROM INVESTING ACTIVITIES
Available for sale:
Acquisition of investments (93,262) (149,240)
Proceeds from sales of investments 75,759 112,887
Proceeds from maturities of investments 3,487 21,521
Net change in short-term investments 14,825 11,552
NET CASH PROVIDED BY/(USED FOR) INVESTING
ACTIVITIES 809 (3,280)
NET (DECREASE)/INCREASE IN CASH (1,120) 405
Cash at beginning of period 2,232 3,272
Cash at the end of period $ 1,112 $ 3,677
<FN>
See Notes to Interim Consolidated Financial Statements.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
ALLCITY INSURANCE COMPANY
(Thousands of dollars, except par value)
Net
Common Unrealized
Shares Additional Gain
$1 Par Paid-in (Loss) on Retained
Value Capital Investments Earnings Total
Balance, January 1, 1996 $7,079 $9,331 $ 1,240 $58,286 $75,936
Change in unrealized
gain (loss) on
investments (3,500) (3,500)
Net income 1,833 1,833
Balance September 30, 1996 $7,079 $9,331 $(2,260) $60,119 $74,269
Balance January 1, 1997 $7,079 $9,331 $(1,672) $60,920 $75,658
Change in unrealized
gain (loss) on
investments 1,679 1,679
Net income 743 743
Balance September 30, 1997 $7,079 $9,331 $ 7 $61,663 $78,080
<FN>
See Notes to Interim Consolidated Financial Statements.
ALLCITY INSURANCE COMPANY
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 results of interim 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, 1996, which are included in the Company's Annual Report filed on
Form 10-K for such year (the "1996 10-K"). Results of operations for interim
periods are not necessarily indicative of annual results of operations. The
consolidated balance sheet at December 31, 1996 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 1997 presentation.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Interim Operations
The following should be read in conjunction with "Management's Discussion
and Analysis of Financial Condition and Results of Operations" included in the
1996 10-K.
LIQUIDITY AND CAPITAL RESOURCES
Although the Company has been profitable for the first nine months of
1997, it had a modest profit in the three month period ended September 30,
1997 mainly due to reduced earned premiums, lower service fee income and lower
investment income. These reductions were partially offset by lower losses and
loss adjustment expenses. For the nine and three month periods ended
September 30, 1997, the Company had a negative cash flow from operations
principally due to decreased premiums from competition, and loss and loss
adjustment expense payments. Cash required to fund operations was principally
provided from the maturity of short-term investments.
The Company maintains cash, short-term and readily marketable securities
in an amount sufficient to satisfy its anticipated cash needs and believes it
has sufficient capital to meet its currently anticipated level of operations.
RESULTS OF OPERATIONS--NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED
TO THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 1996
Earned premium revenues were $63.4 million and $73.3 million for the nine
month periods ended September 30, 1997 and 1996, respectively, and $20.4
million and $23.5 million for the three month periods ended September 30, 1997
and 1996, respectively. The decreases in earned premiums principally relate
to the depopulation of the assigned risk automobile pools and reduced volume
in certain commercial lines resulting from tighter underwriting standards and
increased competition.
Investment income for the three months ended September 30, 1997 was $0.3
million, or 6% lower when compared to the three months ended September 30,
1996 due to lower yields and negative cash flows. Investment income for the
nine months ended September 30, 1997 was $0.5 million, or 4%, lower than the
nine months 1996. This decrease resulted mainly from the decrease in invested
assets experienced by the Company in the first quarter 1997 caused by the
negative cash flow from operations.
Service fee income for the nine months ended September 30, 1997 was
relatively flat when compared to the nine month period ended September 30,
1996. Service fee income for the three months ended September 30, 1997 was
$0.9 million, or 37%, lower compared to the three months ended September 30,
1996 due to increased competition in the assigned risk automobile pools and a
higher portion of the fee being allocated to the reserve for servicing carrier
claim expenses.
Incurred losses and loss adjustment expenses for the nine month and three
month periods ended September 30, 1997 were $6.8 million, or 10.2%, and $2.8
million, or 12.3%, lower, respectively, than in the comparable 1996 periods
mainly as a result of the reduced volume of business. The loss ratios (the
ratio of incurred losses and loss adjustment expenses to premiums earned) for
the nine month and three month periods ended September 30, 1997 were 95.3% and
97.9%, respectively, compared to 91.8% and 96.9% for the nine month and three
month periods ended September 30, 1996, respectively.
The increases in the loss ratios in 1997 were primarily the result of
reserve strengthening for prior accident years in the commercial package,
voluntary commercial automobile, and workers' compensation lines of business
as unfavorable claims development resulted in a revision to the assumptions
used in the actuarial calculations of the estimated liability for unpaid
losses and increased levels of new voluntary automobile business. In
addition, in the third quarter of 1997, additional losses were recognized for
the current accident year primarily for the voluntary automobile and
commercial assigned risk lines of business due to increased claim frequency.
The combination of other underwriting expenses and the amortization of
deferred policy acquisition costs for the nine month and three month periods
ended September 30, 1997 were lower than in the comparable periods ended
September 30, 1996. The decrease to current year expenses was largely the
result of lower operating costs related to reduced premium volume and an
unusually high assessment from the New York State workers' compensation fund
and severance benefits for certain employees, both of which were recorded in
the nine month period ended September 30, 1996.
Part II - Other Information
Item 5. Other Information
In June 1997, the Company formed a special committee to evaluate a
proposal from Leucadia National Corporation ("Leucadia") for a
business combination pursuant to which shares of the Company's
common stock not currently beneficially owned by Leucadia would be
acquired at a purchase price of $10.00 per share. Affiliates of
Leucadia currently beneficially own approximately 90% of the
outstanding shares of common stock of the Company. The special
committee, which consists of directors of the Company unaffiliated
with Leucadia, is currently evaluating the proposal.
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) Reports on Form 8-K
There were no reports on Form 8-K filed for the three
months ended September 30, 1997.
SIGNATURES
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, 1997 By FRANCIS M. COLALUCCI
Francis M. Colalucci
Senior Vice President, CFO and Treasurer
(Principal Financial and Accounting
Officer)