1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[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
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
From the transition period from to
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Commission File Number 0-14320
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UICI
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(Exact name of registrant as specified in its charter)
Delaware 75-2044750
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
4001 McEwen, Suite 200, Dallas, Texas 75244
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(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (214) 960-8497
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United Insurance Companies, Inc.
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Former name, former address and former 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 .
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date. Common Stock, $.01
Par Value--43,438,745 shares as of June 30, 1996.
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INDEX
UICI AND SUBSIDIARIES
Page
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PART I. FINANCIAL INFORMATION
Consolidated condensed balance sheets-June 30, 1996 and
December 31, 1995 3
Consolidated condensed statements of income-Three months ended
June 30, 1996 and 1995 and the six months ended June 30, 1996 and 1995 4
Consolidated condensed statements of cash flows-Six months ended June 30, 1996 and 1995 5
Notes to consolidated condensed financial statements-June 30, 1996 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
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UICI AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
(In thousands, except share amounts)
June 30, December 31,
1996 1995
(Unaudited) (Note)
------------ ------------
ASSETS
Investments:
Securities available for sale--
Fixed maturities, at fair value
(cost: 1996--$747,315; 1995--$743,945) . . . . . . . . . . . $ 739,040 $ 754,473
Equity securities, at fair value
(cost: 1996--$10,275; 1995--$5,114) . . . . . . . . . . . . 10,622 5,288
Guaranteed student loans . . . . . . . . . . . . . . . . . . . . . . 12,815 12,159
Mortgage and collateral loans . . . . . . . . . . . . . . . . . . . 15,125 15,559
Policy loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,626 24,042
Credit card loans . . . . . . . . . . . . . . . . . . . . . . . . . 45,493 36,727
Short-term investments . . . . . . . . . . . . . . . . . . . . . . . 146,008 83,024
------------ ------------
Total investments . . . . . . . . . . . . . . . . . . . . . . 992,729 931,272
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,695 5,913
Agents' receivables . . . . . . . . . . . . . . . . . . . . . . . . . 9,203 4,538
Reinsurance receivables . . . . . . . . . . . . . . . . . . . . . . . 64,664 65,332
Federal income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 7,803 4,987
Due premiums and other receivables . . . . . . . . . . . . . . . . . . 18,808 19,256
Investment income due and accrued . . . . . . . . . . . . . . . . . . 12,621 11,283
Deferred acquisition costs . . . . . . . . . . . . . . . . . . . . . . 57,952 56,122
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,067 15,564
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . 23,740 12,937
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,278 3,655
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$ 1,219,560 $ 1,130,859
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LIABILITIES
Policy liabilities:
Future policy and contract benefits . . . . . . . . . . . . . . . . $ 515,521 $ 526,777
Claims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 188,302 179,809
Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . 58,094 68,099
Other policy liabilities . . . . . . . . . . . . . . . . . . . . . . 13,587 13,220
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . 26,983 25,501
Short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 22,726
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27,655 27,655
------------ ------------
830,142 863,787
MINORITY INTERESTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,987 18,253
STOCKHOLDERS' EQUITY
Common stock, par value $.01 per share . . . . . . . . . . . . . . . . 434 382
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . . 150,667 50,554
Net unrealized investment gains (losses) . . . . . . . . . . . . . . . (5,003) 6,789
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . 223,333 191,094
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369,431 248,819
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$ 1,219,560 $ 1,130,859
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NOTE: The balance sheet as of December 31, 1995 has been derived from the
audited financial statements at that date.
See notes to consolidated condensed financial statements.
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UICI AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(In thousands, except per share amounts)
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
------------ ----------- ------------ -----------
REVENUES
Health premiums . . . . . . . . . . . . . . . . . . . . . $ 125,563 $ 118,121 $ 247,234 $ 235,416
Life premiums and other considerations . . . . . . . . . . 12,777 11,109 24,266 21,110
Net investment income . . . . . . . . . . . . . . . . . . 17,863 16,987 33,882 32,937
Fees and other income . . . . . . . . . . . . . . . . . . 30,131 6,422 51,676 13,225
Gains (losses) on sale of investments . . . . . . . . . . (149) 1,654 743 2,444
------------ ----------- ------------ -----------
186,185 154,293 357,801 305,132
BENEFITS AND EXPENSES
Benefits, claims, and settlement expenses . . . . . . . . 84,154 79,083 167,049 159,513
Underwriting, acquisition, and insurance expenses . . . . 72,993 52,759 135,988 103,675
Interest expense . . . . . . . . . . . . . . . . . . . . . 594 844 1,262 1,954
------------ ----------- ------------ -----------
157,741 132,686 304,299 265,142
INCOME BEFORE FEDERAL INCOME TAXES
AND MINORITY INTERESTS . . . . . . . . . . . . . . . . . 28,444 21,607 53,502 39,990
Federal income taxes . . . . . . . . . . . . . . . . . . . . 9,384 6,764 17,615 12,651
------------ ----------- ------------ -----------
INCOME BEFORE MINORITY INTERESTS . . . . . . . . . . . . 19,060 14,843 35,887 27,339
Minority interests . . . . . . . . . . . . . . . . . . . . . 2,043 1,049 3,648 1,402
------------ ----------- ------------ -----------
NET INCOME . . . . . . . . . . . . . . . . . . . . . . . $ 17,017 $ 13,794 $ 32,239 $ 25,937
============ =========== ============ ===========
NET INCOME PER SHARE . . . . . . . . . . . . . . . . . . $ 0.41 $ 0.37 $ 0.81 $ 0.69
============ =========== ============ ===========
See notes to consolidated condensed financial statements.
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UICI AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
Six Months Ended
June 30,
1996 1995
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OPERATING ACTIVITIES
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 32,239 $ 25,937
Adjustments to reconcile net income to
cash provided by operating activities:
Increase (decrease) in policy liabilities . . . . . . . . . . . . . 825 (17,223)
Increase in other liabilities . . . . . . . . . . . . . . . . . . . 1,647 1,339
Decrease (increase) in federal income taxes receivable . . . . . . . 2,999 (4,138)
(Increase) decrease in deferred acquisition costs . . . . . . . . . (1,830) 4,213
(Increase) decrease in accrued investment income
and reinsurance and other receivables . . . . . . . . . . . . . (222) 3,374
Net income attributable to minority interests . . . . . . . . . . . 3,648 1,402
Depreciation and amortization . . . . . . . . . . . . . . . . . . . 3,150 823
Gains on sale of investments . . . . . . . . . . . . . . . . . . . . (743) (2,444)
Other items, net . . . . . . . . . . . . . . . . . . . . . . . . . . (1,631) 231
----------- -----------
Cash Provided by Operations . . . . . . . . . . . . . . . . . . 40,082 13,514
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INVESTING ACTIVITIES
(Increase) decrease in investments . . . . . . . . . . . . . . . . . . (79,345) 16,065
Additions to property and equipment . . . . . . . . . . . . . . . . . (13,094) (1,011)
Increase in agents' receivables . . . . . . . . . . . . . . . . . . . (4,665) (479)
----------- -----------
Cash Provided by (Used in) Investing Activities . . . . . . . . (97,104) 14,575
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FINANCING ACTIVITIES
Deposits from investment products . . . . . . . . . . . . . . . . . . 7,685 7,214
Withdrawals from investment products . . . . . . . . . . . . . . . . . (20,911) (17,010)
Proceeds from debt . . . . . . . . . . . . . . . . . . . . . . . . . . 10,250 1,100
Repayments of debt . . . . . . . . . . . . . . . . . . . . . . . . . . (32,976) (20,000)
Proceeds from payable to related party . . . . . . . . . . . . . . . . 550 --
Repayment of payable to related party . . . . . . . . . . . . . . . . (715) (184)
Proceeds from exercise of warrants . . . . . . . . . . . . . . . . . . 89 89
Issuance of common stock . . . . . . . . . . . . . . . . . . . . . . . 100,148 --
Proceeds from exercise of stock options . . . . . . . . . . . . . . . -- 6
Purchase of treasury stock . . . . . . . . . . . . . . . . . . . . . . (64) (26)
Distributions to minority interests . . . . . . . . . . . . . . . . . (1,252) (83)
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Cash Provided by (Used in) Financing Activities . . . . . . . . 62,804 (28,894)
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Net Increase (Decrease) in Cash . . . . . . . . . . . . . . . . 5,782 (805)
Net Cash at Beginning of Period . . . . . . . . . . . . . . . . 5,913 7,709
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Cash at End of Period . . . . . . . . . . . . . . . . . . . . . $ 11,695 $ 6,904
=========== ===========
See notes to consolidated condensed financial statements.
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UICI AND SUBSIDIARIES
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
June 30, 1996
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited consolidated condensed financial statements for UICI
and its subsidiaries (the Company) have been prepared in accordance with
generally accepted accounting principles ("GAAP") for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation
S-X. Accordingly, they do not include all of the information and footnotes
required by GAAP 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 six-month period ended June 30, 1996 are not necessarily
indicative of the results that may be expected for the year ended December 31,
1996. For further information, refer to the consolidated financial statements
and footnotes thereto included in the Company's annual report on Form 10-K for
the year ended December 31, 1995. Certain amounts in the 1995 financial
statements have been reclassified to conform with the 1996 financial statement
presentation.
NOTE B--ACQUISITION
On April 1, 1996, the Company completed a transaction where substantially all
new health insurance policies sold by United Group Association, Inc. ("UGA"),
which is wholly-owned by the Company's Chairman of the Board, are directly
issued by the Company, following a transition period, pursuant to agreements
between the Company and AEGON USA, Inc. (the "AEGON Transaction"). The
Company acquired AEGON's underwriting, claims management and administrative
capabilities related to the products coinsured by the Company, through the
purchase of AEGON's insurance center building and equipment for $10.0 million.
The Company and AEGON will maintain the coinsurance agreement for policies
issued by AEGON prior to April 1, 1996 and during the transition period. The
Company's coinsurance percentage is 57.5% in 1996 and 60% thereafter until
December 31, 2000, at which time the Company will acquire all remaining
policies from AEGON at a formula price set forth in the agreement. The Company
does not anticipate that this transaction will have a material impact on the
results of operations for the Company in 1996.
NOTE C--STOCKHOLDERS' EQUITY
At the Annual Meeting of Stockholders on April 16, 1996, approval for an
increase in authorized shares of common stock with a par value of $.01 from
40,000,000 shares to 50,000,000 shares was obtained in order to facilitate the
public offering of 5,175,000 shares of common stock at $20.50 per share,
completed on May 1, 1996. After completion of the public offering the Company
increased its common stock outstanding to 43,438,745 shares. All of the shares
were sold by the Company. The net proceeds to the Company (after deducting
underwriting discounts
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and commissions and offering expenses) from the sale of the shares was
approximately $100.1 million.
NOTE D--COMPANY NAME CHANGE
On June 27, 1996, the Company announced that shareholders had approved a name
change for the Company from United Insurance Companies, Inc. to UICI. The
change was effective July 1, 1996. The name change was indicative of the
Company's broadening activities beyond our historical core life, accident and
health insurance business.
NOTE E--SUBSEQUENT EVENT
Effective August 1, 1996, UICI acquired 20% of Mid-West National Life Insurance
Company of Tennessee ("Mid-West") for $9.8 million. This increases UICI's
ownership percentage in Mid-West to 99% from 79%. The purchase price was based
on a predetermined formula which approximated GAAP book value. Of the 20%
acquired, 18.6% was acquired from Onward and Upward, Inc. and the five adult
children of the Company's Chairman of the Board. Onward and Upward, Inc. is a
corporation owned by the five adult children of the Company's Chairman of the
Board. The effect of purchase accounting relating to this transaction was
insignificant.
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PART I. FINANCIAL INFORMATION
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
UICI and its subsidiaries (the "Company") reported net income of $0.41 per
share for the three month period ended June 30, 1996 compared to net income of
$0.37 per share for the comparable period in 1995. There were no gains from
the sale of investments for the three month period ended June 30, 1996 compared
to gains on the sale of investments of $0.03 per share in 1995. For the six
month period ended June 30, 1996, net income was $0.81 per share compared to
$0.69 per share in 1995. Included in net income were gains from the sale of
investments of $0.01 per share for the six month period ended June 30, 1996
compared to $0.04 per share in 1995.
The Company's business segments are: (i) Health Insurance, which includes the
businesses of the Self-Employed Health Insurance Division and the Student
Health Insurance Division; (ii) Life Insurance and Annuity; (iii) Credit
Services; and (iv) Corporate and Other, which includes the businesses of the
HealthCare Solution Partners Division, investment income not allocated to the
other segments, expenses relating to corporate operations, interest expense and
realized gains (losses) on sale of investments. Net investment income is
allocated to the Health Insurance segment and the Life Insurance and Annuity
segment based on policyholder liabilities. The interest rate for the
allocation is based on a high credit quality investment portfolio with a
duration consistent with the targeted duration of the segment's policy
liabilities.
The following table sets forth income statement data as a percentage of
revenues for the periods indicated.
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
----- ----- ----- -----
Revenues . . . . . . . . . . . . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0%
Benefits, claims, and settlement expenses . . . . . . 45.2 51.3 46.7 52.3
Underwriting, acquisition
and insurance expenses . . . . . . . . . . . . . . 39.2 34.2 38.0 34.0
Interest expense . . . . . . . . . . . . . . . . . . 0.3 0.5 0.3 0.6
----- ----- ----- -----
84.7 86.0 85.0 86.9
----- ----- ----- -----
Income before federal income taxes
and minority interests . . . . . . . . . . . . . . 15.3 14.0 15.0 13.1
Federal income taxes . . . . . . . . . . . . . . . . 5.0 4.4 5.0 4.1
----- ----- ----- -----
Income before minority interests . . . . . . . . . . 10.3 9.6 10.0 9.0
Minority interests . . . . . . . . . . . . . . . . . 1.1 0.7 1.0 0.5
----- ----- ----- -----
Net income . . . . . . . . . . . . . . . . . . . . 9.2% 8.9% 9.0% 8.5%
===== ===== ===== =====
CONSOLIDATED RESULTS OF OPERATIONS FOR THE THREE AND SIX MONTH PERIODS ENDED
JUNE 30, 1996 COMPARED TO 1995
Health premiums. Health premiums increased to $125.6 million for the
three month period in 1996 from $118.1 million in 1995, an increase of $7.5
million, or 6%, and increased to $247.2 million for the six month period in
1996 from $235.4 million in 1995, an increase of $11.8 million, or 5%. After
deducting the health premiums from a 1995 acquired block of health
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insurance policies, health premiums increased 9% and 8% for the three and six
month periods in 1996, respectively, compared to 1995. The increase was
primarily due to the growth in sales of new health insurance policies and
increased premiums from coinsured policies sold by UGA and issued by AEGON. In
1996, the coinsurance percentage on both in force and new health insurance
policies issued by AEGON increased to 57.5% from 55.0% in 1995.
Life premiums and other considerations. Life premiums and other
considerations increased to $12.8 million for the three month period in 1996
from $11.1 million in 1995, an increase of $1.7 million, or 15%, and increased
to $24.3 million for the six month period in 1996 from $21.1 million in 1995, an
increase of $3.2 million, or 15%. The increase was a result of the sale of new
life policies.
Net investment income. Net investment income increased to $17.9
million for the three month period in 1996 from $17.0 million in 1995, an
increase of $900,000, or 5%, and increased to $33.9 million for the six month
period in 1996 from $32.9 million in 1995, an increase of $1.0 million or 3%.
The increase was due to an increase in invested assets principally from the net
proceeds from the public offering completed by the Company on May 1, 1996. The
effect of the increase in the invested assets was partially offset by the lower
yield on invested assets in 1996 compared to 1995.
Fees and other income. Fees and other income increased to $30.1
million for the three month period in 1996 from $6.4 million in 1995, an
increase of $23.7 million, or 370%, and increased to $51.7 million for the six
month period in 1996 from $13.2 million in 1995, an increase of $38.5 million,
or 292%. The increase related primarily to the increase in revenue from the
Credit Services business, revenue from the companies acquired in the third and
fourth quarters of 1995 by the HealthCare Solution Partners Division, and
administrative fees from the administrative operation acquired from AEGON on
April 1, 1996.
Gains (losses) on sale of investments. The Company recognized gains
(losses) on the sale of investments of ($149,000) and $743,000 for the three
month and six month periods in 1996, respectively, compared to $1.7 million and
$2.4 million for the same periods in 1995. The amount of realized gains or
losses on the sale of investments is a function of interest rates, market
trends and the timing of sales. In addition, due to increasing long term
interest rates in 1996, the net unrealized investment losses on securities
classified as "available for sale," reported as a separate component of
stockholders' equity and net of applicable income taxes and minority interests,
was $5.0 million at June 30, 1996 compared to net unrealized investment gains
of $6.8 million at December 31, 1995.
Benefits, claims, and settlement expenses. Benefits, claims, and
settlement expenses increased to $84.2 million for the three month period in
1996 from $79.1 million in 1995, an increase of $5.1 million, or 6%, and
increased to $167.0 million for the six month period in 1996 from $159.5
million in 1995, an increase of $7.5 million, or 5%. The increase was
primarily due to the growth in premium volume. As a percentage of revenues,
these expenses decreased to 45.2% and 46.7% for the three and six month periods
in 1996, respectively, from 51.3% and 52.3% for the same periods in 1995. The
decrease in these expenses were the result of the increased revenues from the
Credit Services business and the HealthCare Solution Partners Division, whose
expenses are primarily classified as underwriting, acquisition, and insurance
expenses.
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Underwriting, acquisition and insurance expenses. Underwriting,
acquisition and insurance expenses increased to $73.0 million for the three
month period in 1996 from $52.8 million in 1995, an increase of $20.2 million,
or 38%, and increased to $136.0 million for the six month period in 1996 from
$103.7 million in 1995, an increase of $32.3 million, or 31%. The increase was
primarily due to the growth in premium volume and costs associated with the
operations of the Credit Services Division, businesses acquired in the third
and fourth quarters of 1995 by the HealthCare Solution Partners Division, and
expenses relating to the administrative operation acquired from AEGON. As a
percentage of revenues, these expenses increased to 39.2% and 38.0% for the
three and six month periods in 1996, respectively, from 34.2% and 34.0% for the
same periods in 1995. The increase in these expenses were primarily the result
of the increased costs from the HealthCare Solution Partners Division.
Interest expense. Interest expense decreased to $594,000 for the
three month period in 1996 from $844,000 in 1995, a decrease of $250,000, and
decreased to $1.3 million for the six month period in 1996 from $2.0 million in
1995, a decrease of $700,000. The decrease was due to a lower cost of
borrowing and a lower average amount of debt outstanding in 1996 compared to
1995, due to the use of part of the proceeds from the public offering to pay
off $10.3 million of debt.
Federal income taxes. The Company's effective tax rate was 32.9% for
the six month period in 1996 compared to 31.6% for 1995 which varied from the
federal tax rate of 35% primarily due to the small life insurance company
deduction allowed for certain insurance subsidiaries of the Company.
Minority interests. Minority interests increased to $2.0 million for
the three month period in 1996 from $1.0 million in 1995, an increase of $1.0
million, and increased to $3.6 million for the six month period in 1996 from
$1.4 million in 1995, an increase of $2.2 million. The increase was the result
of increased earnings from subsidiaries of the Company of which there is
minority ownership.
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Income before federal income taxes and minority interests ("operating
income"). Operating income increased to $28.4 million for the three month
period in 1996 from $21.6 million in 1995, an increase of $6.8 million, or 31%,
and increased to $53.5 million for the six month period in 1996 from $40.0
million in 1995, an increase of $13.5 million, or 34%. Operating income (loss)
for each of the Company's business segments and divisions was as follows:
Three Months Ended Six Months Ended
June 30, June 30,
(Dollars in thousands) (Dollars in thousands)
1996 1995 1996 1995
----------- ----------- ----------- -----------
Health Insurance:
Self-Employed Health Insurance Division . . . . $ 14,154 $ 11,676 $ 27,803 $ 23,598
Student Health Insurance Division . . . . . . . 3,661 2,895 7,447 5,569
----------- ----------- ----------- -----------
Total Health Insurance . . . . . . . . . . . . 17,815 14,571 35,250 29,167
Life Insurance and Annuity . . . . . . . . . . . . 3,608 2,851 5,986 5,723
Credit Services . . . . . . . . . . . . . . . . . . 3,248 150 5,879 (1,071)
Corporate and Other:
HealthCare Solution Partners Division . . . . . (55) (1,453) (929) (2,308)
Other . . . . . . . . . . . . . . . . . . . . . 3,828 5,488 7,316 8,479
----------- ----------- ----------- -----------
Total Corporate and Other . . . . . . . . . . 3,773 4,035 6,387 6,171
----------- ----------- ----------- -----------
$ 28,444 $ 21,607 $ 53,502 $ 39,990
=========== =========== =========== ===========
Health Insurance. Operating income for the Health Insurance business
increased to $17.8 million for the three month period in 1996 from $14.6
million in 1995, an increase of $3.2 million, or 22%, and increased to $35.3
million for the six month period in 1996 from $29.2 million in 1995, an
increase of $6.1 million or 21%. The increases were due primarily to an
increase in health premiums, a slight decrease in the combined health ratio, an
increase in investment income allocated to the Health Insurance products, and
profits related to certain lead activities of UGA. Operating income increased
$2.4 million and $4.2 million for the three and six month periods in 1996,
respectively, for the Self- Employed Health Insurance Division and $766,000 and
$1.9 million for the three and six month periods in 1996, respectively, for the
Student Health Insurance Division.
Life Insurance and Annuity. Operating income for the Life Insurance
and Annuity business increased to $3.6 million for the three month period in
1996 from $2.9 million in 1995, an increase of $700,000, or 24%, and increased
to $6.0 million for the six month period in 1996 from $5.7 million in 1995, an
increase of $300,000, or 5%. The increases were primarily due to an increase
in premiums and a decrease in administrative expenses. The increases were
partially offset by higher policyholder benefits and claims.
Credit Services. Operating income for the Credit Services business
increased to $3.2 million for the three month period in 1996 from $150,000 in
1995, an increase of $3.1 million, and increased to $5.9 million for the six
month period in 1996 compared to a loss of $1.1 million in 1995, an increase of
$7.0 million. For the three and six month periods in 1996 approximately $2.5
million and $4.2 million, respectively, of the increase was due to an increase
in the profit per card and a 56% increase in the number of cards outstanding at
June 30, 1996 compared to
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June 30, 1995. The remainder of the increase was due to reduced losses on
certain products which are no longer being marketed in 1996.
Corporate and Other. Operating income for Corporate and Other was
$3.8 million and $6.4 million for the three and six month periods in 1996,
respectively, compared to $4.0 million and $6.2 million for the same periods in
1995. HealthCare Solution Partners Division incurred operating losses of
$55,000 and $929,000 in the three and six month periods in 1996, respectively.
The losses primarily resulted from the losses of certain companies in the
development stage which was partially offset by operating income of other
businesses. Operating income from other corporate activities decreased to $3.8
million for the three month period in 1996 from $5.5 million in 1995, a
decrease of $1.7 million. The decrease was primarily due to losses on the sale
of investments for the three month period in 1996 compared to gains on the sale
of investments in 1995. Operating income from other corporate activities
decreased to $7.3 million for the six month period in 1996 from $8.5 million in
1995, a decrease of $1.2 million. The decrease was primarily due to fewer
gains realized on sale of investments for the six month period in 1996 compared
to 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's invested assets increased to $992.7 million at June 30, 1996 from
$931.3 million at December 31, 1995, an increase of $61.4 million. The primary
sources for the asset growth were the investment of the net proceeds from the
public offering completed May 1, 1996 and the cash provided by current year
earnings. The increases were partially offset by the decreases in market
values of the fixed maturity securities held as "available for sale", the
payment of debt and the withdrawals from investment products. The decrease in
market values was the direct result of increases in long term interest rates.
The Company's decrease in unearned premiums to $51.3 million at June 30, 1996
from $63.4 million at December 31, 1995 is due mainly to the decrease in
unearned premiums on the Student Health Insurance Division's health insurance
product. These single premium policies are earned over the approximate one
year term of the policy for the current school year and therefore the unearned
premiums are lower at or near the end of the school year. This decrease is
consistent with prior years.
On April 1, 1996, the Company completed the AEGON Transaction. The Company
acquired the underwriting, claims management and administrative capabilities
related to the products coinsured by the Company, through the purchase of
AEGON's insurance center building and equipment for $10.0 million. The $10.0
million purchase price was funded from existing funds by one of the insurance
subsidiaries of the Company. The Company and AEGON will maintain the
coinsurance agreement for policies issued by AEGON prior to April 1, 1996 and
during the transition period. The Company's coinsurance percentage is 57.5% in
1996 and 60% thereafter until December 31, 2000, at which time the Company will
acquire all remaining policies from AEGON at a formula price set forth in the
agreement. The Company does not anticipate that this transaction will have a
material impact on the results of operations for the Company in 1996. However,
as new health insurance policies are issued by the Company (of which the
Company will retain 100%) and as health insurance policies issued by AEGON (of
which the Company will have coinsured a maximum of only 60%) lapse, the Company
expects premiums will increase as its share of
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premiums on the policies sold by UGA increases from 57.5% in 1996 to 100% in
2001. In 1995, health insurance policies sold by UGA and issued by AEGON
produced premiums of $390.2 million of which the Company's share was 55%, or
$214.6 million. There can be no assurance the Company's premium revenues from
these operations will actually achieve any specified level.
The Company repaid the $12.0 million of non-interest bearing promissory notes
due in January 1996.
During 1996, the Company borrowed $10.3 million from its revolving credit note
with AEGON. On May 1, 1996, the Company repaid the then outstanding balance
of $10.3 million with the proceeds from the public offering commenced on April
25, 1996.
At December 31, 1995, the Company owed $10.7 million to the Company's Chairman
of the Board. The note was repaid in full during 1996.
Effective April 25, 1996 the Company commenced a public offering of 5,175,000
shares of common stock at a price of $20.50 per share. The net proceeds to the
Company (after deducting underwriting discounts and commissions and offering
expenses) from the sale of the shares was approximately $100.1 million. The
Company used $10.3 million of the proceeds to repay the AEGON revolving credit
note. The Company also intends to use a portion of the proceeds for capital
contributions to its insurance subsidiaries. The insurance subsidiaries of the
Company are required by state regulation to maintain certain levels of capital
and surplus. In addition, in order to maintain the current ratings of the
Company's insurance subsidiaries or improve such ratings in the future, higher
levels of capital and surplus may be required. The required levels are
generally based on the amount of insurance issued and the quality of invested
assets. As premiums increase, the Company is generally required to increase
the capital and surplus of the insurance companies. The AEGON Transaction is
expected to result in increased premiums for the Company. While the Company is
not able to project the exact amount of additional capital and surplus which
will be required in the insurance subsidiaries, a portion of the proceeds are
expected to be used for this purpose. The remainder of the proceeds will be
used for general corporate purposes, including acquisitions of complementary
businesses and assets. Pending such uses, the net proceeds are being invested
by the Company in accordance with its current investment policies.
Effective August 1, 1996, UICI acquired 20% of Mid-West National Life Insurance
Company of Tennessee ("Mid-West") for $9.8 million. This increases UICI's
ownership percentage in Mid-West to 99% from 79%. The purchase price was based
on a predetermined formula which approximated GAAP book value.
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PART II. OTHER INFORMATION
ITEM 6 -- EXHIBITS AND REPORTS ON FORM 8-K NUMBER
------
(a) Exhibits.
Exhibit 3.1 - Copy of Certificate of Incorporation
of the Company as amended on June 6, 1996.
Exhibit 11 - Statement Re: Computation of per
share earnings.
(b) Reports on Form 8-K.
A current report on Form 8-K dated July 1, 1996
concerning change in company name from United
Insurance Companies, Inc. to UICI effective
July 1, 1996.
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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.
UNITED INSURANCE COMPANIES, INC.
(Registrant)
Date: August 12, 1996 /s/ W. Brian Harrigan
--------------- --------------------------------
W. Brian Harrigan, President
Date: August 12, 1996 /s/ Vernon R. Woelke
--------------- --------------------------------
Vernon R. Woelke, Treasurer
(Chief Financial Officer)
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EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
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3.1 Copy of Certificate of Incorporation
11 Statement RE: Computation of Per Share Earnings
27 Financial Data Schedule