<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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FORM 10-Q
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|X| Quarterly Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the quarterly period ended March 31, 1999
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 0-27146
AMERIN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 11-3085148
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 E. Randolph Drive, 49th Floor, Chicago, IL 60601-7125
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 540-0078
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___
APPLICABLE ONLY TO ISSUER'S INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Section 12, 13 or 15(d) of the
Securities Exchange Act of 1934 subsequent to the distribution of securities
under a plan confirmed by a court.
Yes No___
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT MAY 1, 1999
----- --------------------------
Voting Common Stock, $.01 per value 25,766,078
Nonvoting Common Stock, $.01 per value 752,547
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AMERIN CORPORATION
Table of Contents
<TABLE>
<CAPTION>
PAGE
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements:
Condensed Consolidated Balance Sheets at
March 31, 1999 (unaudited) and December 31, 1998....................... 1
Condensed Consolidated Statements of Operations for the
Three Month Periods Ended March 31, 1999 and 1998 (unaudited).......... 2
Condensed Consolidated Statements of Cash Flows for the
Three Month Periods Ended March 31, 1999 and 1998 (unaudited).......... 3
Notes to Condensed Consolidated Financial Statements (unaudited)............ 4
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................ 5
PART II. OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K....................................... 8
</TABLE>
i
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Amerin Corporation and Subsidiaries
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1999 1998
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(UNAUDITED)
(IN THOUSANDS OF DOLLARS)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities available-for-sale, at fair value............................ $ 450,257 $ 433,377
Short-term investments........................................................ 12,695 5,765
------------------- --------------
Total investments.................................................................. 462,952 439,142
Cash and cash equivalents.......................................................... 9,440 7,186
Accrued investment income.......................................................... 6,351 6,024
Premiums receivable................................................................ 3,504 5,607
Deferred policy acquisition costs.................................................. 17,745 16,839
Prepaid federal income taxes....................................................... 45,000 45,000
Leasehold improvements, furniture and equipment, at cost,
net of accumulated deciation.................................................. 12,939 13,203
Goodwill, net of accumulated amortization.......................................... 1,947 1,984
Other assets....................................................................... 7,935 10,247
------------------- --------------
Total assets....................................................................... $ 567,813 $ 545,232
------------------- --------------
------------------- --------------
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Liabilities:
Loss reserves................................................................. $ 47,754 $ 43,849
Unearned premiums............................................................. 27,927 26,114
Deferred income taxes......................................................... 53,871 54,221
Payable for securities........................................................ 10,571 2,699
Accrued expenses and other liabilities........................................ 7,200 9,119
------------------- --------------
Total liabilities............................................................. 147,323 136,002
Common Stockholders' Equity:
Voting Common Stock, $.01 par, 50,000,000 shares authorized, 25,766,078
shares and 25,755,221 shares issued and
outstanding in 1999 and 1998, respectively................................ 258 258
Nonvoting Common Stock, $.01 par, 50,000,000 shares authorized, 752,547
shares issued and outstanding
in 1999 and 1998, respectively............................................ 8 8
Additional paid-in capital.................................................... 321,933 321,811
Accumulated other comprehensive income........................................ 7,610 10,948
Retained earnings............................................................. 90,681 76,205
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Total common stockholders' equity.................................................. 420,490 409,230
------------------- --------------
Total liabilities and common stockholders' equity............................. $ 567,813 $ 545,232
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</TABLE>
See accompanying notes.
1
<PAGE>
Amerin Corporation and Subsidiaries
Condensed Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three months ended
March 31,
1999 1998
---- ----
(unaudited)
(in thousands of dollars, except per share data)
<S> <C> <C>
Revenues:
Net premiums written....................................... $ 38,269 $ 27,162
Decrease (increase) in unearned premiums................... (1,748) 447
-------- --------
Net premiums earned........................................ 36,521 27,609
Net investment income...................................... 5,629 5,088
Realized investment gains.................................. 13 430
-------- --------
Total revenues................................................. 42,163 33,127
Expenses:
Losses incurred ........................................... 10,170 9,334
Policy acquisition costs .................................. 7,032 3,939
Underwriting and other expenses ........................... 3,841 3,175
Merger expenses............................................ 432 --
-------- --------
Total expenses ................................................ 21,475 16,448
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Income before income taxes .................................... 20,688 16,679
Income taxes .................................................. 6,213 4,729
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Net income..................................................... $ 14,475 $ 11,950
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-------- --------
Net income per common share:
Basic ..................................................... $ .55 $ .46
Diluted ................................................... $ .54 $ .45
Average common and common equivalent shares
outstanding ................................................... 26,697.4 26,666.0
</TABLE>
See accompanying notes.
2
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Amerin Corporation and Subsidiaries
Condensed Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three months ended March 31
1999 1998
---- ----
(unaudited)
(in thousands of dollars)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income .................................................... $ 14,475 $ 11,950
Adjustments to reconcile net income to net cash
provided by operating activities:
Change in:
Accrued investment income and premiums receivable .... 1,776 (1,084)
Loss reserves ......................................... 3,905 4,127
Unearned premiums ..................................... 1,813 (353)
Accounts payable and accrued expenses ................. (2,521) (978)
Federal income taxes .................................. 6,151 2,638
Policy acquisition costs deferred ............................. (4,250) (2,558)
Policy acquisition costs amortized ............................ 3,344 1,336
Depreciation and other amortization ........................... 839 543
Realized investment gains ..................................... (13) (430)
Other items, net .............................................. (1,530) (1,352)
-------- --------
Net cash provided by operating activities ..................... 23,989 13,839
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of:
Fixed maturity securities ................................ (22,026) (33,281)
Property and equipment ................................... (539) (969)
Short-term investments, net .............................. (6,930) (2,626)
Sale or maturity of:
Fixed maturity securities ................................ 7,637 24,740
Property and equipment ................................... --- ---
-------- --------
Net cash used by investing activities ......................... (21,858) (12,136)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock ...................................... 123 1,308
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Net cash provided by financing activities ..................... 123 1,308
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Net increase in cash and cash equivalents ..................... 2,254 3,011
Cash and cash equivalents at beginning of period .............. 7,186 4,456
-------- --------
Cash and cash equivalents at end of period .................... $ 9,440 $ 7,467
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-------- --------
</TABLE>
See accompanying notes.
3
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Amerin Corporation and Subsidiaries
Notes to Condensed Consolidated Financial Statements
March 31, 1999
(Unaudited)
1. ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles (GAAP) for
interim financial information and with the requirements of Form 10-Q.
Accordingly, they do not include all of the information and footnotes required
by GAAP for complete financial statements. The Company operates in only one
reportable industry segment and therefore no further breakdown of the Company's
operating results is warranted. In the opinion of management, all adjustments
(consisting only of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month period
ended March 31, 1999, are not necessarily indicative of the results that may be
expected for the year ending December 31, 1999. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Company's Annual Report on Form 10-K/A for the year ended December 31, 1998.
2. INCOME TAXES
The provision for income taxes varies from the statutory federal income tax rate
applied to income before income taxes principally due to tax exempt interest.
3. NET INCOME PER COMMON SHARE
The following table sets forth the computation of net income per common share
(in thousands, except per share data):
<TABLE>
<CAPTION>
Three months ended March 31
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1999 1998
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<S> <C> <C>
Net income ............................................................... $14,475 $11,950
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Weighted average number of common shares outstanding ..................... 26,517 26,193
Dilutive effect of stock options using the treasury stock method ......... 180 473
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Weighted average number of common and common equivalent
shares outstanding .................................................. 26,697 26,666
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Net income per common share:
Basic ............................................................... $ .55 $ .46
Diluted ............................................................. $ .54 $ .45
</TABLE>
Where the effect of common stock equivalents on net income per common share
would be antidilutive, they are excluded from the average common and common
equivalent shares outstanding.
4
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4. COMPREHENSIVE INCOME
The components of comprehensive income and accumulated other comprehensive
income are as follows (in thousands):
<TABLE>
<CAPTION>
Three months ended March 31
---------------------------
1999 1998
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<S> <C> <C>
Net income............................................................. $ 14,475 $ 11,950
Net change in unrealized gain on available for sale securities,
net of income taxes of $(1,797) and $(494), respectively.......... (3,338) (917)
-------- --------
Comprehensive income................................................... $ 11,137 $ 11,033
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-------- --------
Accumulated other comprehensive income at beginning of period ......... $ 10,948 $ 8,229
Net change in unrealized gain on available for sale securities,
net of income taxes .............................................. (3,338) (917)
-------- --------
Accumulated other comprehensive income at end of period ............... $ 7,610 $ 7,312
-------- --------
-------- --------
</TABLE>
5
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31,
1998. Net premiums written for the three months ended March 31, 1999 were $38.3
million compared to $27.2 million for the three months ended March 31, 1998,
which represents a 41% increase. The increase was primarily attributable to
growth in insurance in force and related renewal premiums of the Company's
primary insurance subsidiary, Amerin Guaranty Corporation ("Amerin Guaranty").
Management believes that Amerin Guaranty was able to increase revenues due
primarily to a 36% increase in insurance in force over the level at March 31,
1998 and the 14% increase in new insurance written.
Net premiums earned increased by $8.9 million to $36.5 million for the
three months ended March 31, 1999 from $27.6 million for the three months ended
March 31, 1998. This increase was primarily due to the increase in insurance
written and in force in the 1999 period over the corresponding period in 1998.
Net investment income of $5.6 million for the three months ended March 31,
1999 increased by $.5 million over the same period in 1998 primarily due to
investment of the proceeds of Amerin Guaranty's net operating cash flows over
the course of 1998 and the first three months of 1999. Realized investment gains
for the three months ended March 31, 1999 were $13,000 compared to $430,000 for
the same period in 1998.
Losses incurred in the three months ended March 31, 1999 were $10.2
million, compared to $9.3 million of losses incurred in the three months ended
March 31, 1998, as a result of the aging of the Company's policies and growth in
insurance in force. Approximately 85% of the Company's insurance in force has
been issued within the last three years and has not reached the peak claim
paying period. Based on historical industry experience, a majority of the claims
occur in the third through sixth year after loan origination. Because of the
Company's limited operating history, its loss experience is expected to
significantly increase as its policies age further. Policy acquisition costs
during the three months ended March 31, 1999 of $7.0 million increased by $3.1
million (or 79%) compared to the same period in 1998 principally due to the
growth in the level of marketing and underwriting activity in connection with
the increased production of new insurance written and the increased level of
contract underwriting expenses. The first quarter expense level is consistent
with costs incurred dureing the final two quarters of 1998. Underwriting and
other expenses increased by $.7 million (or 21%) for the three months ended
March 31, 1999 over the same period in 1998 due to the growth in the Company's
insurance in force.
The Company's effective tax rate was 30% in the three months ended March
31, 1999 compared to 28% for the same period in 1998. The effective tax rate for
the first quarter of 1999 and 1998 was below the statutory rate of 35%,
reflecting the benefits of tax-preferenced investment income.
As a result of the foregoing factors, the Company had net income of $14.5
million for the three months ended March 31, 1999, compared to net income of
$12.0 million for the same period in 1998.
LIQUIDITY AND CAPITAL RESOURCES
The following discussion does not take into account the effects of the
pending merger between the Company and CMAC Investment Corporation on the
overall liquidity and capital resources of the resulting combined company. The
liquidity and capital resource considerations are different for Amerin
Corporation and its principal insurance operating subsidiary, Amerin Guaranty,
as discussed below.
6
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Amerin Corporation is a holding company whose principal assets are its
investments in Amerin Guaranty and Amerin Re. Amerin Corporation has no
operations of its own and no employees and has only limited needs for
liquidity to meet certain legal, accounting, tax and administrative expenses.
Amerin Corporation relies primarily on dividends and other permitted
distributions from Amerin Guaranty and Amerin Re as sources of funds. Amerin
Corporation does not currently have any committed lines of credit.
The principal sources of funds for Amerin Guaranty are premiums received on
new and renewal business, amounts earned from the investment of its contributed
capital as well as the investment of its cash flow and commissions on ceded
business and reimbursement of losses from reinsurers. The principal uses of
funds by Amerin Guaranty are the payment of claims and related expenses,
reinsurance premiums, other operating expenses and dividends to Amerin
Corporation. Liquidity requirements are influenced significantly by the level of
claims incidence. Amerin Guaranty does not currently have any committed lines of
credit.
Amerin Guaranty generates substantial cash flows from operations as a
result of premiums being received in advance of the time when claim payments are
required. Cash flows generated from Amerin Guaranty's mortgage insurance
operations totaled $24.0 million and $13.8 million for the first three months of
1999 and 1998, respectively. These operating cash flows, along with that portion
of the investment portfolio that is held in cash and highly liquid securities,
are available to meet the liquidity requirements of Amerin Guaranty. The fair
value of the Company's investment portfolio was $463.0 million at March 31, 1999
and $439.1 million at December 31, 1998.
All of the Company's $450.3 million of fixed income securities at March 31,
1999 are rated "investment grade," which is defined by the Company as a security
having a National Association of Insurance Commissioners ("NAIC") rating of 1 or
2 or an S&P rating ranging from "AAA" to "BBB-."
RISK TO CAPITAL RATIO. As a condition to maintenance of its claims-paying
ratings, the total amount of insurance risk that may be written by Amerin
Guaranty is limited to a multiple of 20 times its statutory capital (which
includes the statutory contingency reserve) less the carrying value of
non-investment grade debt and tax and loss bonds and investments in affiliates,
or such higher or lower multiple as is reasonably determined by the rating
agency in its sole discretion. Amerin Guaranty has several alternatives
available to control its risk to capital ratio, including obtaining capital
contributions from the Company, purchasing reinsurance and reducing the amount
of new business written. A material reduction in statutory capital, whether
resulting from underwriting or investment losses or otherwise, or a
disproportionate increase in risk in force, could increase the risk to capital
ratio. An increase in the risk to capital ratio could limit Amerin Guaranty's
ability to write new business (which in turn could materially adversely affect
the Company's results of operations and prospects). At March 31, 1999 and
December 31, 1998, Amerin Guaranty's risk to capital ratio was 18.6 to 1 and
18.3 to 1, respectively.
7
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PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS
No matters were submitted to a vote of holders of the Company's
securities in the first quarter.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
See Exhibit Index on Page E-1 for exhibits filed with this report on
Form 10-Q.
b) Reports on Form 8-K
The Registrant did not file any reports on Form 8-K during the quarter
for which this report on Form 10-Q is filed.
8
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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.
AMERIN CORPORATION
Date: May 13, 1999 By:/s/ Gerald L. Friedman
------------------------------------
Gerald L. Friedman
Chairman of the Board and
Chief Executive Officer
Date: May 13, 1999 By:/s/ David I. Vickers
------------------------------------
David I. Vickers
Senior Vice President
Chief Financial Officer
9
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description of Document Page
- ------- ----------------------- ----
<S> <C> <C>
27.1 Financial Data Schedule.
</TABLE>
10
<TABLE> <S> <C>
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<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED FINANCIAL STATEMENTS AND RELATED NOTES OF AMERIN CORPORATION AND
SUBSIDIARIES FOR THE THREE MONTH PERIOD ENDED MARCH 31, 1999 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<DEBT-HELD-FOR-SALE> 450,257
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 462,952
<CASH> 9,440
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 17,745
<TOTAL-ASSETS> 567,813
<POLICY-LOSSES> 47,754
<UNEARNED-PREMIUMS> 27,927
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 266<F1>
<OTHER-SE> 420,224
<TOTAL-LIABILITY-AND-EQUITY> 567,813
36,521
<INVESTMENT-INCOME> 5,629
<INVESTMENT-GAINS> 13
<OTHER-INCOME> 0
<BENEFITS> 10,170
<UNDERWRITING-AMORTIZATION> 7,032
<UNDERWRITING-OTHER> 3,841
<INCOME-PRETAX> 20,688
<INCOME-TAX> 6,213
<INCOME-CONTINUING> 14,475
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,475
<EPS-PRIMARY> .55
<EPS-DILUTED> .54
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0<F2>
<PROVISION-PRIOR> 0<F2>
<PAYMENTS-CURRENT> 0<F2>
<PAYMENTS-PRIOR> 0<F2>
<RESERVE-CLOSE> 0<F2>
<CUMULATIVE-DEFICIENCY> 0<F2>
<FN>
<F1>Common stock at par value.
<F2>Available on an annual basis only.
</FN>
</TABLE>
