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)
February 25, 1997
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
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 February 25, 1997, the registrant, Highlands
Insurance Group, Inc. ("Highlands") issued a press release
entitled "Highlands Insurance Group, Inc. Announces Fourth
Quarter 1996 Results."
ITEM 7.
The following exhibit is filed with this report on Form 8-K:
Exhibit 1 - Press release dated February 25, 1997
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned
hereunto duly authorized.
HIGHLANDS INSURANCE GROUP, INC.
March 1, 1997 By: /s/ DWAYNE D. HALLMAN
--------------------------
Dwayne D. Hallman
Vice President and Secretary
EXHIBIT INDEX
EXHIBIT NO.1 Press Release of February 25, 1997
Incorporated by Reference
EXHIBIT NO. 1:
FOR IMMEDIATE RELEASE
Contact: Charles J. Bachand
Vice President
(713)267-8567
(713)267-8688 (Facsimile
HIGHLANDS INSURANCE GROUP, INC.
ANNOUNCES FOURTH QUARTER 1996 RESULTS
Houston, Texas - February 25, 1997 - Highlands Insurance
Group, Inc. (NYSE:HIC), a regional property and casualty insurer,
today announced its fourth quarter 1996 results. Highlands
reported a net loss of $3.3 million or $.29 per share for the
fourth quarter 1996 compared with a net loss of $2.7 million or
$.23 per share for the fourth quarter 1995. For the year ended
December 31, 1996, Highlands sustained a loss of $5.3 million or
$.47 per share compared with a net loss of $120.7 million or
$10.55 per share for the same period of 1995.
The fourth quarter 1996 results include a pre-tax reserve
strengthening charge amounting to $12.0 million primarily related
to asbestos, environmental, mass tort and assumed reinsurance
treaties. Additionally, the fourth quarter includes a $1.0
million pre-tax increase to legal reserves for the settlement of
Proposition 103 and a $1.8 million reduction of net premiums
earned related to prior years reinsurance treaties. Highlands
recorded an $11.7 million tax benefit associated with these
charges.
Net premiums written declined 27.6% and 33.0% for the fourth
quarter and year ended December 31, 1996, respectively, compared
with the same 1995 periods. These declines result from exiting
the assumed reinsurance and probate bond business, tightening
underwriting standards, raising rates and declines in premiums
due under retrospective policies. Net premiums earned declined
18.8% and 24.5% for the fourth quarter and year ended December
31, 1996, respectively, compared with the same 1995 periods and
are impacted by the above items.
"Reported results continue to show losses as we continue to
strengthen Highlands' balance sheet. We are making progress
toward our goal of achieving an underwriting profit. During
1996, our clean up efforts resulted in $35.9 million of pre-tax
charges for prior year items including prior years loss reserve
charges of $22.9 million. We enter 1997 with our major legal
issues (Proposition 103 and Weatherford Roofing) behind us and a
much stronger balance sheet," said Richard M. Haverland, Chairman
and Chief Executive Officer of Highlands.
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 December 31
---------------------------
(Unaudited)
Fourth Quarter Year Ended
--------------- -------------
1996 1995 Change 1996 1995 Change
---- ---- ------ ---- ---- ------
<S> <C> <C> <C> <C> <C> <C>
Gross premiums
written (a) $37,181 48,570 (23.4%) $158,546 234,375 (32.4%)
Net premiums
written (a) $25,875 35,734 (27.6%) $135,051 201,565 (33.0%)
======= ====== ====== ======== ======== ======
REVENUES:
Net premiums
earned $30,137 37,120 (18.8%) $152,048 201,446 (24.5%)
Net investment
income 13,111 11,908 10.1% 50,988 48,529 5.1%
Net realized
investment
gains 278 524 (46.9%) 1,199 2,618 (54.2%)
------- ------ -------- -------
Total
revenues 43,526 49,552 (12.2%) 204,235 252,593 (19.1%)
------- ------ ------- -------
EXPENSES:
Loss and loss
adjustment
expense 42,446 33,464 26.8% 156,589 300,253 (47.8%)
Underwriting
expenses 14,203 18,786 (24.4%) 56,487 73,905 (23.6%)
Other expenses
(income),net 1,837 (21) NM 8,600 (823) NM
------- ------- ------- -------
Total expenses
58,486 52,229 12.0% 221,676 373,335 (40.6%)
------- ------- ------- -------
INCOME (LOSS)
BEFORE INCOME
TAX (14,960) (2,677) NM (17,441) (120,742) NM
INCOME TAX
EXPENSE
(BENEFIT) (b) (11,676) - NM (12,098) - NM
------ ------ ------- -------
NET INCOME
(LOSS) $(3,284) (2,677) 22.7% $(5,343) (120,742) NM
======= ======= ======= =======
Earnings (loss)
per share (c) $ (0.29) (.23) $ (0.47) (10.55)
====== ====== ====== ======
GAAP ratios:
Loss 140.8% 90.2% 103.0% 149.2%
Expense 47.1% 50.6% 37.2% 36.7%
------ ------ ------ ------
Combined 187.9% 140.8% 140.2% 185.9%
</TABLE>
a) Gross premiums and net premiums written have been redefined
for all periods presented to include the effects of changes in
premiums due under retrospective policies. Such changes were
previously recorded only as net premiums earned.
b) 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.
c) Common stock warrants and stock options are considered to be
antidilutive for primary and fully dilutive earning per share for
each of the periods presented. Earnings per share for 1995 have
been computed based upon 11,448,430 shares of Company common
stock distributed on January 23, 1996.
[CAPTION]
HIGHLANDS INSURANCE GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except per share data)
[CAPTION]
December 31,
----------------
1996 1995
---- ----
(Unaudited)
[S] [C] [C]
Assets:
Investments:
Fixed income securities:
Available for sale, at fair value $ 324,905 227,509
Held to maturity, at amortized cost 355,492 374,364
Equity securities, at fair value 26,967 33,697
Other 3,770 -
---------- ---------
Total investments 711,134 635,570
Cash and cash equivalents 49,484 85,176
Premiums in course of collection 24,048 40,959
Premiums due under retrospective
policies 121,276 134,428
Receivable from reinsurers 556,900 602,380
Funds on deposit with reinsurers 14,456 15,449
Deferred taxes 37,126 29,534
Receivable from former affiliates 250 41,255
Accrued investment income 12,600 11,131
Deferred policy acquisition costs 6,436 11,744
Other assets 32,321 28,465
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Total assets $1,566,031 1,636,091
========== =========
Liabilities:
Loss and loss adjustment expense $1,156,824 1,253,627
Unearned premiums 31,474 52,571
Convertible subordinated debentures 55,452 -
Other liabilities 58,806 62,783
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Total liabilities 1,302,556 1,368,981
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Stockholders' equity:
Common stock 114 1,000
Additional paid-in capital 192,273 184,168
Net unrealized gain on investments 3,036 8,547
Retained earnings 68,052 73,395
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Total stockholders' equity 263,475 267,110
---------- ---------
Total liabilities and stockholders'
equity $1,566,031 1,636,091
========== =========
Common shares outstanding - proforma for
December 31, 1995 11,448 11,448
========== =========
Book value per common share $ 23.02 23.33
========== =========
Fully diluted book value per common
share (1) $ 18.71 NA
========== =========
[/TABLE]
(1) Warrant exercise price at December 31, 1996 reduced by $1.80
per share due to the reserve development adjustment mechanism.
