SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1996
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ________ to ___________
Commission file number: 1-11794
E. W. Blanch Holdings, Inc.
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
Delaware 41-1741779
E. W. Blanch Holdings, Inc.
3500 West 80th Street, Minneapolis, Minnesota 55431
612-835-3310
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 ____
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Title Outstanding
Common Stock par value $.01 per share 13,254,274
Part I. Financial Information
Item 1. Financial Statements
E. W. Blanch Holdings, Inc.
Consolidated Statements of Income
(in thousands, except per share amounts)
Unaudited
Three months ended Six months ended
June 30, June 30,
------------------ ------------------
1996 1995 1996 1995
-------- -------- -------- --------
Revenues:
Brokerage commissions and fees $21,112 $18,608 $45,248 $43,662
Investment income 1,759 1,832 3,501 3,608
-------- -------- -------- --------
Total revenues 22,871 20,440 48,749 47,270
Expenses:
Salaries and benefits 10,622 9,896 21,090 20,537
Travel and marketing 1,866 1,590 3,578 2,856
General and administrative 4,726 3,711 9,313 7,857
Amortization of goodwill 768 760 1,536 1,490
Interest and other expense 44 78 110 178
-------- -------- -------- --------
Total expenses 18,026 16,035 35,627 32,918
-------- -------- -------- --------
Income before taxes 4,845 4,405 13,122 14,352
Income taxes 1,910 1,682 5,081 5,562
-------- -------- -------- --------
Net income $ 2,935 $ 2,723 $ 8,041 $ 8,790
======== ======== ======== ========
Net income per share $ 0.22 $ 0.20 $ 0.60 $ 0.64
======== ======== ======== ========
Weighted average number of shares
of Common Stock outstanding 13,323 13,653 13,309 13,651
======== ======== ======== ========
Cash dividends declared per share $ 0.10 $ 0.10 $ 0.20 $ 0.20
======== ======== ======== ========
See accompanying notes.
E. W. Blanch Holdings, Inc.
Consolidated Balance Sheets
(in thousands)
June 30, December 31,
1996 1995
------------- --------------
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 1,478 $ 4,977
Due from fiduciary accounts 7,432 4,537
Premium finance notes 15,538 12,212
Prepaid insurance 153 1,212
Other current assets 2,549 2,117
------------- --------------
Total current assets 27,150 25,055
Long-term investments, available for sale 6,877 7,035
Property and equipment, net 9,729 9,386
Goodwill, net 38,312 38,939
Other assets 2,504 2,143
Fiduciary accounts--assets 436,047 414,855
------------- --------------
Total assets $520,619 $497,413
============= ==============
Liabilities and Shareholders' equity
Current liabilities:
Accrued compensation $ 2,088 $ 3,311
Notes payable to banks 1,950 4,500
Accounts payable 2,660 3,848
Current portion of long-term liabilities 582 582
Other current liabilities 2,076 1,379
------------- -------------
Total current liabilities 9,356 13,620
Long-term debt, less current portion 21 350
Deferred income taxes 1,627 1,320
Other liabilities, less current portion 462 589
Fiduciary accounts--liabilities 436,047 414,855
------------- -------------
Total liabilities 447,513 430,734
Shareholders' equity 73,106 66,679
------------- --------------
Total liabilities and shareholders' equity $520,619 $497,413
============= ==============
See accompanying notes.
E. W. Blanch Holdings, Inc.
Consolidated Statements of Cash Flows
(in thousands)
Unaudited
Six months ended June 30,
1996 1995
-------------- --------------
Operating Activities
Net income $ 8,041 $ 8,790
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 2,876 2,483
Equity in the earnings of Swire Blanch (96) (92)
Loss on sale of investments 12 77
Changes in operating assets and
liabilities:
Due from fiduciary accounts (2,895) 3,653
Other current assets 1 (202)
Accrued compensation (1,223) (1,035)
Accounts payable and other
current liabilities (504) (6,459)
Other, net (59) 84
----------- --------------
Net cash provided by operating activities 6,153 7,299
Investing Activities
Purchases of property and equipment (1,698) (1,054)
Issuance of finance notes receivable, net (3,361) (5,685)
Sales and other disposals of investments 322 3,016
Other investing activities, net 133 (380)
----------- --------------
Net cash used in investing activities (4,604) (4,103)
Financing Activities
Proceeds from sale of treasury shares 831 -
Dividends paid (2,646) (2,730)
Net (repayments) borrowings on lines of credit (2,593) 1,325
Payments on long-term debt (549) (292)
Other financing activities, net (91) 112
----------- --------------
Net cash (used in) provided by
financing activities (5,048) (1,585)
----------- --------------
Net (decrease) in cash and cash equivalents (3,499) 811
Cash and cash equivalents at
beginning of period 4,977 1,338
=========== ==============
Cash and cash equivalents at end of period $ 1,478 $ 2,149
=========== ==============
See accompanying notes.
E. W. Blanch Holdings, Inc.
Notes to Consolidated Financial Statements
June 30, 1996
1. Organization and Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and in accordance with the instructions to Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the interim periods are
not necessarily indicative of the results for the full year. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's annual report to shareholders for the year
ended December 31, 1995.
E. W. Blanch Holdings, Inc. ("the Company") and its predecessor organizations
have been in operation since 1957. The Company is a leading provider of
integrated risk management and distribution services including reinsurance
intermediary services, risk management consulting and administration services,
and wholesale insurance services.
The consolidated financial statements include the accounts of the Company and
its subsidiaries. The Company categorizes its business operations into three
segments: reinsurance services, wholesale insurance services and general
corporate services. The principal subsidiaries comprising the reinsurance
services segment include E. W. Blanch Co., Inc., Paragon Reinsurance Risk
Management Services, Inc., E. W. Blanch Capital Risk Solutions, Inc., and E. W.
Blanch International, Inc. (which owns a 50% interest in Swire Blanch Holdings,
Ltd., a joint venture with Swire Fraser Insurance (Holdings) Ltd.). The
principal subsidiary comprising the wholesale insurance segment is E. W. Blanch
Wholesale Insurance Services, Inc., which includes its operating subsidiaries
Blanch Insurance Services, Inc., Medical Reinsurance Corporation, and InsGroup
Services Company (InsGroup). General corporate services includes investment
income from corporate investments, corporate expenses such as legal, finance,
corporate development, and the office of the chief executive, and results of
other insignificant operations.
2. Shareholder's Equity
In 1996, the Company began using treasury shares to fund employee benefit plans
which include common shares of Company stock as an investment option.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation
E. W. Blanch Holdings, Inc.
Management's Discussion and Analysis of Financial Condition
and Results of Operations
For the Three Months and Six Months Ended June 30, 1996
Forward Looking Statements
Except for the historical information contained herein, the matters discussed in
this quarterly report on Form 10-Q are forward looking statements that involve
risks and uncertainties, many of which are outside the Company's control and,
accordingly, actual results may differ materially. The Company's Form 8-K filed
with the SEC on March 22, 1996 includes a discussion of these risk factors and
is incorporated herein by reference.
General
The Company is a leading provider of integrated risk management and distribution
services including reinsurance intermediary services, risk management consulting
and administration services, and wholesale insurance services. The Company
categorizes its business operations into three segments: reinsurance services,
wholesale insurance services, and general corporate services. The following is a
summary of the revenues and pretax income (loss) of each business segment for
the periods indicated (in thousands):
Quarter Ended June 30, 1996
Brokerage Pre-tax
commissions Investment Total income
and fees Income Revenues (loss)
----------- ---------- -------- --------
Reinsurance services $16,761 $ 970 $17,731 $5,810
Wholesale insurance services 4,351 697 5,048 (262)
General corporate services - 437 437 (703)
Eliminations - (345) (345) -
----------- ---------- -------- --------
$21,112 $1,759 $22,871 $4,845
=========== ========== ======== ========
Quarter Ended June 30, 1995
Brokerage Pre-tax
commissions Investment Total income
and fees Income Revenues (loss)
----------- ---------- -------- --------
Reinsurance services $14,298 $1,103 $15,401 $5,929
Wholesale insurance services 4,310 619 4,929 (68)
General corporate services - 311 311 (1,456)
Elimination - (201) (201) -
----------- ---------- -------- --------
$18,608 $1,832 $20,440 $4,405
=========== ========== ======== ========
Six Months Ended June 30, 1996
Brokerage Pre-tax
commissions Investment Total income
and fees Income Revenues (loss)
----------- ---------- -------- --------
Reinsurance services $37,347 $ 2,032 $39,739 $16,172
Wholesale insurance services 7,901 1,311 9,212 (829)
General corporate services - 802 802 (2,221)
Eliminations - (644) (644) -
----------- ---------- -------- --------
$45,248 $ 3,501 $48,749 $13,122
=========== ========== ======== ========
Six Months Ended June 30, 1995
Brokerage Pre-tax
commissions Investment Total income
and fees Income Revenues (loss)
----------- ---------- --------- --------
Reinsurance services $34,930 $2,144 $37,074 $17,529
Wholesale insurance services 8,732 1,123 9,855 (429)
General corporate services - 545 545 (2,978)
Elimination - (204) (204) -
----------- ---------- --------- --------
$43,662 $3,608 $47,270 $14,352
=========== ========== ========= ========
Reinsurance services continue to be the primary source of the Company's revenues
and pre-tax income, and include the reinsurance intermediary services provided
by E. W. Blanch Co., Inc. (EWB Co.), the risk management services provided by
Paragon Reinsurance Risk Management Services, Inc. (Paragon) and E. W. Blanch
Capital Risk Solutions, Inc. (Capital Risk Solutions), and the 50% interest in
the international reinsurance services of Swire Blanch Holdings Limited.
Wholesale insurance services include the wholesale insurance distribution,
alternative distribution and premium finance services provided by Blanch
Insurance Services, Inc. and the association dues and distribution of
specialized insurance products business performed by InsGroup, which was
acquired on January 1, 1996. Also included in the wholesale segment effective
January 1, 1996, is EWB Co.'s unit which specializes in life, accident/health
and medical professional liability reinsurance. The operations of this unit were
combined with Medical Reinsurance Corporation (MRC), a wholly owned subsidiary
of E. W. Blanch Wholesale Insurance Services, Inc., and the combined operation
has the capability to produce, underwrite and place insurance and reinsurance on
behalf of accident/health and medical professional liability companies. Prior
year segment information has been restated to conform with the current year
presentation. MRC had a pre-tax loss of $0.1 million in the quarter ended June
30, 1996 and pre-tax income of $0.2 million in the quarter ended June 30, 1995.
MRC had an insignificant pre-tax loss for the six months ended June 1996
compared to $0.6 million of pre-tax income for the six months ended June 30,
1995.
General corporate services includes investment income from corporate
investments, corporate expenses such as legal, finance, corporate development,
and the office of the chief executive, and results of other insignificant
operations.
Reinsurance services revenues for the second quarter of 1996 rose 15.1% from the
second quarter of 1995 due primarily to new account production and growth in
existing business. This revenue increase was offset by an increase in expenses,
resulting in a slight decrease in pre-tax income for the second quarter of 1996
compared to the same period a year ago. Based on several significant production
opportunities, the company remains optimistic about its ability to grow the
revenues and earnings of its core reinsurance services business.
On July 1, 1996 the Company, through its wholly owned subsidiary Paragon,
expanded its risk management servicing capabilities by acquiring a ceded
reinsurance software system and certain assets of The UniSURe Corporation.
Paragon will market, develop, and support this software product, as well as
provide outsourced services. The Company does not expect a meaningful
contribution to profits from this unit in 1996.
The wholesale insurance business continued to show unprofitable results during
the second quarter of 1996, however, the loss was much less than in prior
quarters assisted by the positive pre-tax earnings of the Company's newly
acquired InsGroup operations. The Company believes that its efforts to
reposition the general agency book of business are taking effect, and expects
further increases in written premium and commission and fee revenue levels
during the remainder of 1996. The expected turnaround in the general agency
business combined with excellent opportunities in the alternative distribution
area leads the Company to believe that the wholesale insurance services business
will grow and continue moving toward profitability in 1996. However, there can
be no assurances as to such future profitability.
On July 16, 1996, the Wholesale business announced the formation of Rockwood
Programs, Inc. to manage, market, and underwrite program business to insurance
clients. This unit will also serve as an outsourced marketing department to
insurers and other program administrators by providing research, telemarketing,
marketing consulting, full service production of marketing materials and
administration of a comprehensive "back office" to its clients. This unit is
expected to have a small loss in the last half of 1996.
The Company is engaged as the lead reinsurance intermediary by the California
Earthquake Authority (the "CEA"). Although the California Legislature originally
established a deadline of March 31, 1996 for approval of the legislation
necessary to activate the CEA, this deadline has been extended and the
Legislature has not yet taken the action necessary to activate the CEA. A
two-thirds majority vote is required in both the Assembly and the Senate in
order to activate the CEA in 1996, whereas a majority vote in both houses can
activate the CEA on January 1, 1997. So far, a two-thirds vote has been achieved
in the Assembly and a majority vote has been achieved in the Senate. The
California Senate continues to consider this legislation.
The Company understands that the CEA transaction, if passed by the California
Legislature, will require participation by insurers representing at least 70% of
California's residential earthquake market, and that the CEA requires a
tax-exempt status ruling from the Internal Revenue Service. It is uncertain what
the current participation levels are relative to the 70% benchmark and how such
participation levels may be affected by further legislative delays and the
ultimate content of the bill. The Internal Revenue Service has provided a
tax-exempt status ruling for the CEA, but it is unclear what effect any changes
in the legislation may have on that ruling. Finally, the legislative delays have
also resulted in losses of capacity commitments from the reinsurance
marketplace, and the impact of further delays on such capacity levels is
unknown.
The Company remains optimistic that CEA legislation will pass and the
transaction will be completed; however, it is a complex process and there can be
no assurances given that this will happen or when it will happen.
The Company continues to be involved with significant alternative distribution
opportunities. There was favorable progress made on these opportunities during
the quarter, specifically including the announcement by Allstate Insurance
Company to transfer certain Florida homeowners policies on renewal to Clarendon
National Insurance Company starting in November 1996. The Company remains
optimistic that its alternative distribution opportunities will begin to
generate meaningful revenues later in 1996, but no assurances can be given as to
the completion of these transactions or the timing.
The Company plans to continue to increase its expenditures in the development of
risk management services through the expansion of Capital Risk Solutions as well
as its catastrophe modeling and consulting capabilities, including the
development of a proprietary model.
Second Quarter 1996 Compared with Second Quarter 1995
Reinsurance Services
The following are the components of Brokerage commissions and fees for the
reinsurance services segment for the quarter ended June 30 (in thousands):
Quarter ended June 30,
---------------------------------------------
1996 1995
------------------- -------------------
Reinsurance brokerage $16,246 $13,822
Risk management fees 565 428
Equity in Swire Blanch (50) 48
------------------- -------------------
$16,761 $14,298
=================== ===================
Reinsurance brokerage increased $2.4 million, or 17.5%, to $16.2 million for the
quarter ended June 30, 1996 compared to $13.8 million the prior year. The
components of the net increase were as follows: new business production, $4.0
million, offset by non-continuing business, $1.5 million, declines on existing
business, $0.3 million, and other net increases, $0.2 million. The $0.3 million
decline on existing business is attributed to continuing competitive market
conditions and decreases in clients' ceded volume offset by other net increases.
Risk management fees were $0.6 million for the quarter ended June 30, 1996
compared to $0.4 million the prior year. These revenues were earned primarily
from a contract to administer the Florida Hurricane Catastrophe Fund.
Equity in the loss of Swire Blanch was $50,000 for the quarter ended June 30,
1996 compared to income of $48,000 the prior year, primarily due to declines in
revenues from its Copenhagen office. New Swire Blanch offices were opened in
Hong Kong and Paris during the second quarter.
Fiduciary investment income declined $0.1 million or 9.1% to $1.0 million for
the quarter ended June 30, 1996 compared to $1.1 million the prior year. The
average balance for the quarter ended June 30, 1996 was $72.0 million compared
to $74.4 million at June 30, 1995. The average yield was 5.4% for the quarter
ended June 30, 1996 compared to 5.9% the prior year.
Operating expenses, prior to overhead allocations, increased 18.4% for the
quarter ended June 30, 1996 primarily due to increases in salaries and benefits
as a result of key staff additions in the risk management services area
(primarily in Capital Risk Solutions and Paragon's Catastrophe Modeling and
Consulting Group) and normal salary progressions. Other expense increases were
experienced in travel and marketing, office rent, and amortization of software.
Wholesale Insurance Services
The following are the components of Brokerage commissions and fees for the
wholesale insurance services segment for the quarter ended June 30 (in
thousands):
Quarter ended June 30,
--------------------------------
1996 1995
-------------- --------------
General agency commissions and fees $2,759 $2,709
Medical Reinsurance Corporation
commissions and fees 862 1,601
Other commissions and fees 730 -
-------------- --------------
$4,351 $4,310
============== ==============
General agency commissions and fees increased slightly in the second quarter of
1996 compared to a year ago. Total written premium and fees for the quarter
ended June 30 are as follows (in thousands):
Quarter ended June 30,
------------------------------------------------
1996 1995
----------------------- -----------------------
Written Written
premium and % of premium and % of
fees Total fees Total
------------- -------- ------------- --------
Commercial lines $ 8,347 38.5% $ 9,029 57.2%
Special risks 4,613 21.3 4,173 26.4
Personal lines 8,459 39.0 1,928 12.2
NAFTA/Mexican National 247 1.2 657 4.2
------------- -------- ------------- --------
$21,666 100.0% $15,787 100.0%
============= ======== ============= ========
Medical Reinsurance Corporation commissions and fees declined $0.7 million, or
46.1%, to $0.9 million for the quarter ended June 30, 1996 compared to $1.6
million the prior year. The decline from the prior year results primarily from
lost business.
Other commissions and fees result primarily from dues and fees earned by
InsGroup, acquired effective January 1, 1996. InsGroup is an association of more
than 80 independent property/casualty insurance agencies located throughout the
United States. The Company believes that the acquisition will enhance its
capabilities in the distribution of specialized insurance products.
The following are the components of Investment income for the quarter ended June
30 (in thousands):
Quarter ended June 30,
----------------------------------------
1996 1995
----------------- -----------------
Premium finance interest and fees $581 $503
Fiduciary investment income 116 117
================= =================
$697 $620
================= =================
Premium finance interest and fees increased $78,000, or 15.5%, to $0.6 million
for the quarter ended June 30, 1996 compared to $0.5 million the prior year. The
increase results from the continued growth of the outstanding balance of premium
finance notes. The outstanding balance of premium finance notes was $15.6
million at a weighted average rate of 13.0% at June 30, 1996, compared to $12.2
million at 13.5% at December 31, 1995, and $12.3 million at 14.9% at June 30,
1995.
Fiduciary investment income approximated the prior year amount. The average
invested balance for the quarter was $9.3 million compared to $8.3 million the
prior year. The average yield was 5.2% for the quarter ended June 30, 1996
compared to 5.9% the prior year.
Operating expenses, prior to overhead allocations, increased 14.9% for the
quarter ended June 30, 1996, compared to the quarter ended June 30, 1995. This
increase is comprised primarily of an increase in general and administrative
expenses, resulting from changes in claims processing, the expenses associated
with the InsGroup operations, and an increase in interest expense related to the
growth in premium finance notes.
General Corporate Services and Eliminations
Corporate investment income of $0.4 million, compared to $0.3 million the prior
year, is comprised of $0.1 million of interest income from investment securities
and $0.3 million of inter-company interest charged to the wholesale insurance
segment to fund the premium finance operation. Investment securities income
declined $0.1 million, or 50%, to $0.1 million for the quarter ended June 30,
1996 compared to the prior year. The prior year amount includes $0.2 million
interest income on investment securities, $0.2 million of inter-company interest
charged to the wholesale insurance segment and $0.1 million in losses on the
sales of investment securities. The decline in investment income is due to sales
of securities in 1995, primarily to fund the October 1995 purchase of treasury
stock, which resulted in a smaller investment portfolio of $6.9 million at June
30, 1996, compared to $13.6 million at June 30, 1995. The Company continues to
employ its available funds to generate greater investment returns in its premium
finance business rather than making passive investments in securities.
General corporate expenses decreased 4.3% for the quarter ended June 30, 1996,
compared to the prior year. This decrease results primarily from lower salary
and benefit expenses offset by additional office space, losses on the sale of
real estate, and other net expense increases.
The Company's effective tax rate, after adjustment for equity in the income of
Swire Blanch which is already reflected on an after tax basis, continues to be
39%.
Six months ended June 30, 1996 compared to six months ended June 30,1995
Reinsurance Services
The following are the components of Brokerage commissions and fees for the
reinsurance services segment for the six months ended June 30 (in thousands):
Six months ended June 30,
---------------------------------------------
1996 1995
------------------- -------------------
Reinsurance brokerage $36,098 $33,954
Risk management fees 1,153 884
Equity in Swire Blanch 96 92
------------------- -------------------
$37,347 $34,930
=================== ===================
Reinsurance brokerage increased $2.1 million, or 6.3%, to $36.1 million for the
six months ended June 30, 1996 compared to $34.0 million the prior year. The
components of the net increase were as follows: new business production, $6.8
million, offset by non-continuing business, $4.1 million, declines on existing
business, $0.7 million, and other net increases, $0.1 million. The $0.7 million
decline on existing business is attributed to a reduction in catastrophe
contract premium adjustments and continuing competitive market conditions offset
by other net increases in clients' ceded volume.
Risk management fees were $1.2 million for the six months ended June 30, 1996
compared to $0.9 million the prior year. These revenues were earned primarily
from a contract to administer the Florida Hurricane Catastrophe Fund.
Equity in the income of Swire Blanch was $96,000 for the six months ended June
30, 1996 compared to $92,000 the prior year.
Fiduciary investment income declined $0.1 million or 5.2% to $2.0 million for
the six months ended June 30, 1996 compared to $2.1 million for the prior year.
The average balance for the six months ended June 30, 1996 was $73.7 million
compared to $74.7 million at June 30, 1995. The average yield was 5.5% for the
six months ended June 30, 1996 compared to 5.8% the prior year.
Operating expenses, prior to overhead allocations, increased 16.6% for the six
months ended June 30, 1996 primarily due to net increases in salaries and
benefits as a result of key staff additions in the risk management services area
(primarily in Capital Risk Solutions and Paragon's Catastrophe Modeling and
Consulting Group) and normal salary progressions. Other expense increases were
experienced in travel and marketing, office rent, and amortization of software.
Wholesale Insurance Services
The following are the components of Brokerage commissions and fees for the
wholesale insurance services segment for the six months ended June 30 (in
thousands):
Six months ended June 30,
-------------------------------
1996 1995
-------------- -------------
General agency commissions and fees $5,225 $5,785
Medical Reinsurance Corporation
commissions and fees 1,817 2,947
Other commissions and fees 859 -
-------------- -------------
$7,901 $8,732
============== =============
General agency commissions and fees declined $0.6 million, or 9.7%, to $5.2
million for the six months ended June 30, 1996 compared to $5.8 million for the
six months ended June 30, 1995, due primarily to declines in commercial lines
offset by increases in personal lines. Total written premium and fees for the
six months ended June 30 are as follows (in thousands):
Six months ended June 30,
-----------------------------------------------
1996 1995
---------------------- -----------------------
Written Written
premium and % of premium and % of
fees Total fees Total
------------ -------- ------------ --------
Commercial lines $15,943 43.0% $17,102 48.4%
Special risks 9,245 24.9 8,754 24.8
Personal lines 11,188 30.2 7,294 20.7
NAFTA/Mexican National 720 1.9 2,157 6.1
------------ -------- ------------ --------
$37,096 100.0% $35,307 100.0%
============ ======== ============ ========
Medical Reinsurance Corporation commissions and fees declined $1.1 million, or
38.3%, to $1.8 million for the six months ended June 30, 1996 compared to $2.9
million the prior year. The decline from the prior year results primarily from
lost business.
Other commissions and fees result primarily from dues and fees earned by
InsGroup, acquired effective January 1, 1996. InsGroup is an association of more
than 80 independent property/casualty insurance agencies located throughout the
United States. The Company believes that the acquisition will enhance its
capabilities in the distribution of specialized insurance products.
The following are the components of Investment income for the six months ended
June 30, 1996 (in thousands):
Six months ended June 30,
----------------------------------------
1996 1995
----------------- -----------------
Premium finance interest and fees $1,098 $ 937
Fiduciary investment income 213 186
----------------- -----------------
$1,311 $1,123
================= =================
Premium finance interest and fees increased $161,000, or 17.2%, to $1.1 million
for the six months ended June 30, 1996 compared to $0.9 million the prior year.
The increase results from the continued growth of the outstanding balance of
premium finance notes. The outstanding balance of premium finance notes was
$15.6 million at a weighted average rate of 13.0% at June 30, 1996, compared to
$12.2 million at 13.5% at December 31, 1995, and $12.3 million at 14.9% at June
30, 1995.
Fiduciary investment income increased slightly from the prior year as a result
of larger average balances. The average invested balance for the six months
ended June 30, 1996 was $8.5 million compared to $6.5 million the prior year.
The average yield was 5.2% for the six month ended June 30, 1996 compared to
5.9% the prior year.
Operating expenses, prior to overhead allocations, increased 1.7% for the six
months ended June 30, 1996, compared to the six months ended June 30, 1995. This
increase is comprised primarily of expenses associated with the InsGroup
operations and an increase in interest expense related to the growth in premium
finance notes offset by reductions in salary and benefits, resulting from the
effects of staff reductions which occurred in the second quarter of 1995, and
general and administrative expenses, resulting primarily from changes in claims
processing.
General Corporate Services and Eliminations
Corporate investment income for the six months ended June 30, 1996 is $0.8
million and is comprised of $0.2 million of interest income from investment
securities and $0.6 million of inter-company interest charged to the wholesale
insurance segment to fund the premium finance operation. The prior year amount
was $0.5 million and is comprised of $0.4 million of investment securities
income, $0.2 million of inter-company interest charged to the wholesale segment
and $0.1 million of losses on sales of investment securities. Investment
securities income declined $0.2 million, or 50%, to $0.2 million for the six
months ended June 30, 1996 compared to the prior year. The decline in investment
securities income is due to sales of securities in 1995, primarily to fund the
October 1995 purchase of treasury stock, which resulted in a smaller investment
portfolio of $6.9 million at June 30, 1996, compared to $13.6 million at June
30, 1995. The Company has generally employed its available funds to generate
greater investment returns in its premium finance business rather than making
passive investments in securities.
General corporate expenses increased 1.4% for the six months ended June 30,
1996, compared to the prior year. This increase results primarily from
additional office space, losses on the sale of real estate, and other net
expense increases, offset by salary and benefits expense.
The Company's effective tax rate, after adjustment for equity in the income of
Swire Blanch which is already reflected on an after tax basis, continues to be
39%.
Liquidity and Capital Resources
The Company's sources of funds consist primarily of brokerage commissions and
fees and investment income. Funds are applied generally to the payment of
operating expenses, to the purchase of equipment used in the ordinary course of
business, to the repayment of outstanding indebtedness and to the distribution
of earnings. The Company's cash and cash equivalents were $1.5 million at June
30, 1996. The Company's long-term investment portfolio at June 30, 1996 was $6.9
million. The largest component of the portfolio is comprised of municipal
securities that are exempt from federal income taxes, are rated "AA" or better
by a major rating organization, and have an average maturity of 2.8 years with
an average yield of 5.2%. The Company also maintains some equity investments.
The market value of the Company's investment portfolio at June 30, 1996 is
$150,000 over cost, compared to $0.1 million below cost at December 31, 1995.
Cash, short-term investments and the Company's line of credit are available and
managed for the payment of its operating and capital expenditures. The Company
is not subject to any regulatory capital requirements in connection with its
business.
The Company generated $6.2 million of cash from operations during the first six
months of 1996 compared with $7.3 million for the same period in 1995. Cash
provided by operating activities reflects the net income of the Company adjusted
for the non-cash charges of depreciation and amortization, equity in the income
of Swire Blanch, gains and losses on the sale of investment securities and
equipment, and changes in other working capital accounts.
Net cash used in investing activities was $4.6 million during the first six
months of 1996, compared with $4.1 million during the first six months of 1995.
The 1996 amount includes net issuance of premium finance notes, $3.4 million and
net purchases of property and equipment, $1.7 million offset by other net
increases of $0.5 million. The 1995 amount includes the net issuance of $5.7
million of premium finance notes, $1.0 million of net purchases of property and
equipment, offset by $3.0 million from sales and disposals of investments, and
other net investments of $0.4 million. Premium finance notes are part of the
wholesale insurance operation. The Company has increased its investments in
computerized information systems in an effort to improve information reporting
and the efficient processing of its business. The Company intends to continue to
increase its investments in such systems.
Net cash used in financing activities for the six months ended June 30, 1996 was
$5.0 million and consisted primarily of $2.6 million in dividends paid to
shareholders and $2.6 million of repayments on lines of credit, offset by other
net cash provided of $0.2 million. In the prior year, net cash used by financing
activities was $1.6 million, consisting primarily of $2.7 million of cash
dividends paid to shareholders, $1.3 million of net borrowings on lines of
credit, and other net cash used of $0.2 million.
On April 29, 1996, the Company's previous $25.0 million line of credit with a
syndicate of banks, including Norwest Bank Minnesota, N.A., Nations Bank of
Texas N.A., and Morgan Guaranty Trust Company of New York, expired. The Company
renewed a $30.0 million facility with the same syndicate of banks for a term of
three years. The facility includes two borrowing methods: short term based on a
floating rate, at 75 basis points less than the base rate and longer term (30,
60, or 90 days), at 75 basis points over the LIBOR rate. The base rate is
defined as the greater of the prime rate or 150 basis points over the federal
funds rate. The approximate rates for these two borrowing methods were 7.4% and
6.4% respectively at June 30, 1996. Additionally, the Company pays a commitment
fee of 25 basis points on unused balances.
On January 25, 1996, the Board of Directors declared a regular quarterly cash
dividend of $0.10 per share, payable March 1, 1996 to shareholders of record as
of February 9, 1996. On April 25, 1996, the Board of Directors declared a
regular quarterly cash dividend of $0.10 per share, payable June 1, 1996 to
shareholders of record as of May 10, 1996. On July 25, 1996, the Board of
Directors declared a regular quarterly cash dividend of $0.10 per share payable
September 3, 1996 to shareholders of record as of August 12, 1996.
E. W. BLANCH HOLDINGS, INC.
Part II. Other Information
Items 1, 2, 3 and 5 are not applicable and have been omitted.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its annual meeting of shareholders on April 25, 1996.
Proxies for the meeting were solicited pursuant to Regulation 14 of
the Securities Exchange Act of 1934. The following matters were voted
upon:
o Election of directors:
Newly elected directors:
In Favor Withheld
Edgar W. Blanch, Jr. 11,205,129 224,074
William B. Madden 11,205,149 224,054
Steven G. Rothmeier 11,205,149 224,054
o Approval of the amendment of the 1993 Stock Incentive Plan.
In Favor Opposed Abstained Broker Non-Vote
7,140,819 2,600,048 902,893 785,443
o Approval of the E. W. Blanch Holdings, Inc. 1996 Management
Incentive Plan
In Favor Opposed Abstained Broker Non-Vote
10,457,919 58,126 913,158 -0-
o Ratification of Ernst & Young LLP as the auditors for the
Company for the year 1996.
In Favor Opposed Abstained Broker Non-Vote
11,421,122 1,190 6,891 -0-
Item 6. Exhibits and Reports on Form 8-K.
(b) The registrant filed no Current Reports on Form 8-K during the
quarter ended June 30, 1996.
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.
E. W. Blanch Holdings, Inc.
By: /s/ Tom S. Nelson
-----------------------------------------------------
Tom S. Nelson
Executive Vice President and Chief Accounting Officer
Date: August 13, 1996