SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
Current Report
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported)
November 4, 1996
HIGHLANDS INSURANCE GROUP, INC.
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(Exact name of registrant as specified in its charter)
Delaware
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(State or Other Jurisdiction of Incorporation)
1-14028 75-2370945
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(Commission File Number) (IRS Employee Identification No.)
10370 Richmond Avenue, Houston, Texas 77042-4123
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(Address of principal executive offices) (Zip Code)
(713)952-9555
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Registrant's telephone number, including area code
<PAGE> 2
ITEM 5. Other Events
The registrant, may at its option, report under this item
any events, with respect to which information is not otherwise
called for by this form, that the registrant deems of importance
to security holders.
(a) On November 4, 1996, the registrant, Highlands
Insurance Group, Inc. (Highlands) issued a press release
entitled, "Highlands Insurance Group, Inc. Announces Third
Quarter 1996 Results", pertaining, among other things, to the
announcement that Highlands reported net income of $1.2 million
or $.11 per share for the third quarter 1996 compared with a net
loss of $123.2 million or $10.77 per share for the third quarter
1995. For the nine months ended September 30, 1996, Highlands
sustained a loss of $2.1 million or $.18 per share compared with
a net loss of $118.1 million or $10.31 per share for the same
period of 1995. The third quarter 1996 results include pre-tax
reserve strengthening amounting to $2.4 million for retained
probate bond losses incurred before 1996. This line was sold in
early 1996. Included in the third quarter underwriting expenses
is a $1.0 million pre-tax increase to legal reserves. This
amount was offset by a pre-tax reversal of $1.0 million
previously accrued in other expenses for management incentive
compensation.
Highlands reported that it is currently conducting
additional due diligence to assess the impact of Hurricane Fran
on Vik Brothers Insurance, Inc. ("VBI") and reviewing its third
quarter results. Due to the review, Highlands is engaged in
discussions with VBI regarding possible adjustments to the
consideration to be paid by Highlands in connection with its
previously announced proposed acquisition of VBI. The outcome of
such discussions cannot be predicted at this time.
ITEM 7.
The following exhibit is filed with this report on Form 8-K:
Exhibit 1 - Press release dated November 4, 1996
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 hereunto duly authorized.
HIGHLANDS INSURANCE GROUP, INC.
November 12, 1996 By: /s/ MICHAEL A. WEBERPAL
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Michael A. Weberpal
Vice President and Secretary
<PAGE> 3
EXHIBIT INDEX
EXHIBIT NO.
1 Press Release of November 4, 1996
Incorporated by Reference
<PAGE> 4
FOR IMMEDIATE RELEASE Contact: Charles J. Bachand
Vice President
(713)267-8567
(713)267-8688 (Facsimile)
HIGHLANDS INSURANCE GROUP, INC.
ANNOUNCES THIRD QUARTER 1996 RESULTS
Houston, Texas - November 4, 1996 .. Highlands Insurance
Group, Inc. (NYSE:HIC), a regional property and casualty insurer,
today announced its third quarter 1996 results. Highlands
reported net income of $1.2 million or $.11 per share for the
third quarter 1996 compared with a net loss of $123.2 million or
$10.77 per share for the third quarter 1995. For the nine months
ended September 30, 1996, the Company sustained a loss of $2.1
million or $.18 per share compared with a net loss of $118.1
million or $10.31 per share for the same period of 1995.
Third quarter 1995 results included a pre-tax charge of
$125.0 million as the result of extensive internal and external
reviews of loss reserves. Of this amount, $117.0 million was
recorded as an increase to loss reserves and $8.0 million to
legal reserves. The third quarter 1996 results include pre-tax
reserve strengthening amounting to $2.4 million for retained
probate bond losses incurred before 1996. This line was sold in
early 1996. Included in the third quarter underwriting expenses
is a $1.0 million pre-tax increase to legal reserves. This
amount was offset by a pre-tax reversal of $1.0 million
previously accrued in other expenses for management incentive
compensation.
Gross premiums written declined 20.6% and 24.2% for the
third quarter and nine months ended September 30, 1996,
respectively, compared with the same 1995 periods. These
declines result from exiting both the assumed reinsurance and
probate bond business, tightening underwriting standards and
raising rates. Net premiums earned declined 31.6% and 25.8% for
the third quarter and nine months ended September 30, 1996,
respectively, compared with the same 1995 periods and are
impacted by the above actions.
"In connection with our aggressive actions to eliminate
unprofitable businesses, Highlands completed its exit from
Florida personal property lines effective October 15, 1996.
Other actions such as tightening underwriting standards, raising
prices and lowering commissions for certain types of business are
expected to result in continued reductions in gross premiums
written for the balance of 1996," said Richard M. Haverland,
Chairman and Chief Executive Officer of Highlands.
"We continue to make excellent progress toward our goal of
achieving underwriting profits. Our combined ratio on continuing
business which includes the reserve strengthening for the probate
bond line was 116.4% for the third quarter. Our expenses
continue to be reduced largely reflecting a reduction in total
employment from 657 at September 30, 1995 to 397 currently. We
are now beginning to focus on additional premium opportunities.
In September, we introduced to the Texas market a workers'
compensation product aimed at a specific segment of the market
where we expect limited price competition," said Mr. Haverland.
Mr. Haverland also noted, "Highlands is currently conducting
additional due diligence to assess the impact of Hurricane Fran
on Vik Brothers Insurance, Inc. and reviewing its third quarter
results. Due to the review, Highlands is engaged in discussions
with VBI regarding possible adjustments to the consideration to
be paid by Highlands in connection with its previously announced
proposed acquisition of VBI. The outcome of such discussions
cannot be predicted at this time."
Highlands Insurance Group, Inc. is a Texas based regional
insurer that was spun off from Halliburton Company in January
1996, in a transaction sponsored by Insurance Partners, L.P. At
that time, Insurance Partners, L.P. and Highlands' management
invested $62.8 million in the Company. Highlands specializes in
workers' compensation and related coverages in Texas and
Louisiana.
"Safe Harbor" Statement under Private Securities Litigation
Reform Act of 1995
Certain sections of this press release contain statements
which represent the company's expectations or beliefs concerning
future events and are "forward looking statements" within the
meaning of Section 21E of the Exchange Act. The company cautions
that there are a variety of factors which may cause actual
results to differ materially from those in the forward looking
statements, including without limitation, changes in the
regulatory environment, the outcome of various litigation
matters, market acceptance of new products, and the effect of
general economic conditions.
Comparative figures follow . . .
<TABLE>
HIGHLANDS INSURANCE GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
<CAPTION>
Periods Ended September 30
(Unaudited)
Third Quarter Nine Months
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Gross premiums written $57,812 72,803 135,230 178,410
Net premiums written 53,902 65,799 123,041 153,922
======= ====== ======= =======
REVENUES:
Net premiums earned $35,057 51,272 121,911 164,326
Net investment income 12,502 12,800 37,877 36,621
Net realized
investment gains 255 1,659 921 2,094
--- ----- ---- -----
Total revenues 47,814 65,731 160,709 203,041
------ ------ ------- -------
EXPENSES:
Loss and loss
adjustment expense 31,900 162,225 114,143 266,789
Underwriting expenses 12,550 26,461 42,284 55,119
Other expenses
(income), net 1,883 288 6,763 (802)
------ ----- ----- -----
Total expenses 46,333 188,974 163,190 321,106
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INCOME (LOSS) BEFORE 1,481 (123,243) (2,481) (118,065)
INCOME TAX
INCOME TAX EXPENSE 248 - (422) -
(BENEFIT) (a) ----- ------ ------ ------
NET INCOME (LOSS) $ 1,233 (123,243) (2,059) (118,065)
======= ========= ======= =========
Earnings (loss) per
share (b) $.11 (10.77) (.18) (10.31)
==== ======= ===== =======
GAAP ratios:
Loss 91.0% 316.4% 93.6% 162.4%
Expense 35.8% 51.6% 34.7% 33.5%
----- ----- ----- -----
Combined 126.8% 368.0% 128.3% 195.9%
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</TABLE>
(a) The Company provides for income taxes on its statements of
operations pursuant to SFAS 109, "Accounting for Income Taxes"
(SFAS 109). With respect to losses for periods preceding the
spin off (January 23, 1996), no tax benefit was recorded in the
statements of operations pursuant to SFAS 109 and the Company's
tax-sharing arrangement with its former parent, Halliburton
Company. Tax receipts under its intercompany tax-sharing
arrangements with it former parent were recorded as additions to
stockholders' equity for the periods preceding the spin off.
(b) Common stock warrants and stock options are considered to be
antidilutive for primary and fully dilutive earnings per share
for each of the periods ended September 30, 1996. Earnings per
share for 1995 have been computed based upon 11,448,430 shares of
Company common stock distributed on January 23, 1996.
<TABLE>
HIGHLANDS INSURANCE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
<CAPTION>
September December
30, 31,
1996 1995
(Unaudited)
<S> <C> <C>
Assets:
Investments:
Fixed income securities:
Available for sale, at fair value $256,259 227,509
Held to maturity, at amortized cost 361,878 374,364
Equity securities, at fair value 31,486 33,697
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Total investments 649,623 635,570
Cash and cash equivalents 85,853 85,176
Premiums in course of collection 45,198 40,959
Premiums due under retrospective policie s 120,563 134,428
Receivable from reinsurers 554,195 602,380
Funds on deposit with reinsurers 15,103 15,449
Deferred taxes 34,109 29,534
Receivable from former affiliates 27,752 41,255
Accrued investment income 9,857 11,131
Deferred policy acquisition costs 8,252 11,744
Other assets 26,592 28,465
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Total assets $1,577,097 1,636,091
========== =========
Liabilities:
Loss and loss adjustment expense $1,146,613 1,253,627
Unearned premiums 36,898 52,571
Convertible subordinated debentures 55,260 -
Other liabilities 73,310 62,783
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Total liabilities 1,312,081 1,368,981
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Stockholders' equity:
Common stock 114 1,000
Additional paid-in capital 192,492 184,168
Net unrealized gain on investments 1,074 8,547
Retained earnings 71,336 73,395
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Total stockholders' equity 265,016 267,110
------- -------
Total liabilities and
stockholders' equity $1,577,097 1,636,091
========== =========
Common shares outstanding - proforma for
December 31,1995 11,448 11,443
====== ======
Book value per common share $ 23.15 23.33
======= =====
Fully diluted book value per common
share $ 19.13 NA
======= =====
</TABLE>
