<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1998 Commission File Number 0-6964
20TH CENTURY INDUSTRIES
- - -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-1935264
- - -------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
Suite 700, 6301 Owensmouth Avenue, Woodland Hills, California 91367
- - -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (818) 704-3700
None
- - -------------------------------------------------------------------------------
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.
Class Outstanding at April 24, 1998
Common Stock, Without Par Value 51,715,380 shares
1
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---- ----
(Unaudited)
(Amounts in thousands)
<S> <C> <C>
Investments, available-for-sale, at fair value:
Fixed maturities $1,083,761 $1,082,708
Equity securities 1,781 1,745
---------- ----------
Total investments - Note 3 1,085,542 1,084,453
Cash and cash equivalents 30,341 31,268
Accrued investment income 18,670 20,008
Premiums receivable 72,682 71,494
Reinsurance receivables and recoverables 73,328 70,050
Prepaid reinsurance premiums 33,942 32,154
Deferred income taxes - Note 4 113,595 126,877
Deferred policy acquisition costs 11,145 11,510
Other assets 39,767 34,640
---------- ----------
$1,479,012 $1,482,454
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to financial statements.
2
<PAGE>
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---- ----
(Unaudited)
(Amounts in thousands, except share data)
<S> <C> <C>
Unpaid losses and loss adjustment expenses $ 418,638 $ 437,887
Unearned premiums 232,921 233,402
Bank loan payable 146,250 157,500
Claims checks payable 33,014 35,569
Reinsurance payable 25,172 19,347
Other liabilities 23,332 15,788
---------- ----------
Total liabilities 879,327 899,493
---------- ----------
Stockholders' equity
Capital stock
Preferred stock, par value $1.00 per
share; authorized 500,000 shares,
none issued
Series A convertible preferred stock, par value
$1.00 per share, stated value $1,000 per
share; authorized 376,126 shares, out-
standing 224,950 in 1998 and 1997 224,950 224,950
Common stock without par value;
authorized 110,000,000 shares, out-
standing 51,695,879 in 1998 and
51,636,361 in 1997 71,778 71,230
Common stock warrants 16,000 16,000
Retained earnings 268,120 250,483
Accumulated other comprehensive income 18,837 20,298
---------- ----------
Total stockholders' equity 599,685 582,961
---------- ----------
$1,479,012 $1,482,454
---------- ----------
---------- ----------
</TABLE>
See accompanying notes to financial statements
3
<PAGE>
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
---- ----
(Amounts in thousands, except per share data)
<S> <C> <C>
REVENUES:
Net premiums earned $193,501 $194,969
Net investment income 18,332 17,834
Realized investment gains 3,234 1,072
-------- --------
215,067 213,875
LOSSES AND EXPENSES:
Net losses and loss adjustment expenses 152,409 152,901
Policy acquisition costs 10,149 10,312
Other operating expenses 6,903 7,285
Loan interest and fees expense 2,838 3,293
-------- --------
172,299 173,791
-------- --------
Income before federal income taxes 42,768 40,084
Federal income taxes - Note 4 14,900 13,213
-------- --------
NET INCOME $ 27,868 $ 26,871
-------- --------
-------- --------
EARNINGS PER COMMON SHARE - NOTE 2
- - ----------------------------------
BASIC $ 0.44 $ 0.42
-------- --------
-------- --------
DILUTED $ 0.34 $ 0.34
-------- --------
-------- --------
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(Unaudited)
THREE MONTHS ENDED MARCH 31, 1998
---------------------------------
<TABLE>
<CAPTION> Accumulated
Convertible Common Other
Preferred Common Stock Retained Comprehensive
Stock Stock Warrants Earnings Income Total
------------ -------- ---------- --------- ------------- ---------
(Amounts in thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1998 $224,950 $71,230 $16,000 $ 250,483 $ 20,298 $ 582,961
---------
Comprehensive income:
Net income 27,868 27,868
Change in accumulated other
comprehensive income, net of tax
benefit of $787 - Note 3 (1,461) (1,461)
---------
Total comprehensive income 26,407
Cash dividends declared (10,231) (10,231)
Other 548 548
-------- ------- ------- --------- -------- ---------
Balance at March 31, 1998 $224,950 $71,778 $16,000 $ 268,120 $ 18,837 $ 599,685
-------- ------- ------- --------- -------- ---------
-------- ------- ------- --------- -------- ---------
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended March 31,
---------------------------
1998 1997
---- ----
(Unaudited)
(Amounts in thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 27,868 $ 26,872
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for depreciation and amortization 1,812 1,199
Provision for deferred income taxes 14,070 12,737
Realized gains on sale of investments (3,234) (1,073)
Federal income taxes 750 1,498
Reinsurance balances 760 5,728
Unpaid losses and loss adjustment expenses (19,249) (45,760)
Unearned premiums (483) 6,058
Claims checks payable (2,555) 1,269
Other 7,147 (254)
-------- --------
NET CASH PROVIDED BY
OPERATING ACTIVITIES $ 26,886 $ 8,274
</TABLE>
6
<PAGE>
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
---- ----
(Unaudited)
(Amounts in thousands)
<S> <C> <C>
INVESTING ACTIVITIES:
Investments available-for-sale:
Purchases $(169,304) $(225,906)
Calls or maturities 8,062 --
Sales 161,069 240,629
Net purchases of property and equipment (6,159) (4,904)
--------- ---------
NET CASH PROVIDED BY (USED IN)
INVESTING ACTIVITIES (6,332) 9,819
FINANCING ACTIVITIES:
Bank loan principal repayment (11,250) --
Dividends paid (10,231) (7,642)
--------- ---------
NET CASH USED IN
FINANCING ACTIVITIES (21,481) (7,642)
--------- ---------
Net increase (decrease) in cash and cash equivalents (927) 10,451
Cash and cash equivalents, beginning of year 31,268 18,078
--------- ---------
Cash and cash equivalents, end of quarter $ 30,341 $ 28,529
--------- ---------
--------- ---------
</TABLE>
See accompanying notes to financial statements.
7
<PAGE>
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998
(Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and 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 three month period ended March 31, 1998, are not necessarily
indicative of the results that may be expected for the year ending
December 31, 1998. For further information, refer to the consolidated
financial statements and notes thereto included in the 20th Century
Industries Annual Report on Form 10-K for the year ended December 31, 1997.
8
<PAGE>
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
2. Earnings Per Common Share
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
---- ----
(Amounts in thousands, except per share data)
<S> <C> <C>
Numerator:
Net income $ 27,868 $ 26,872
Preferred stock dividends (5,061) (5,061)
-------- --------
Numerator for basic earnings per share -
income available to common stockholders $ 22,807 $ 21,811
Effect of dilutive securities:
Dividends on convertible preferred stock 5,061 5,061
-------- --------
Numerator for diluted earnings per share -
income available to common stockholders
after assumed conversions $ 27,868 $ 26,872
-------- --------
-------- --------
Denominator:
Denominator for basic earnings per share -
weighted-average shares outstanding 51,555 51,489
Effect of dilutive securities:
Restricted stock grants 135 121
Employee stock options 367 50
Warrants 10,721 7,694
Convertible preferred stock 19,854 19,854
-------- --------
Dilutive potential common shares 31,077 27,719
Denominator for diluted earnings per share -
adjusted weighted-average shares outstanding 82,632 79,208
-------- --------
-------- --------
Basic earnings per share $ 0.44 $ 0.42
-------- --------
-------- --------
Diluted earnings per share $ 0.34 0.34
-------- --------
-------- --------
</TABLE>
9
<PAGE>
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Investments
The amortized cost, gross unrealized gains and losses, and fair values of
investments as of March 31, 1998 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- ---------- ---------- -------
(Amounts in thousands)
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S. government
corporations and agencies $ 9,189 $ 31 $ 56 $ 9,164
Obligations of states and political
subdivisions 34,690 2,674 -- 37,364
Public utilities 173,080 4,708 111 177,677
Corporate securities 839,353 23,420 3,217 859,556
---------- ------- ------ ----------
Total fixed maturities 1,056,312 30,833 3,384 1,083,761
Equity securities 250 1,531 -- 1,781
---------- ------- ------ ----------
Total investments $1,056,562 $32,364 $3,384 $1,085,542
---------- ------- ------ ----------
---------- ------- ------ ----------
</TABLE>
Details follow concerning the change during the quarter ended March 31, 1998,
in the after-tax net unrealized gain on investments, which is included in
accumulated other comprehensive income in the consolidated balance sheet:
<TABLE>
<S> <C>
Unrealized gain on available-for-sale investments, net of tax expense of $134 $ 251
Less: reclassification adjustment for gains included in net income, net of tax
benefit of $921 (1,712)
--------
Total $(1,461)
--------
--------
</TABLE>
10
<PAGE>
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Federal Income Taxes
Income taxes do not bear the expected relationship to pre-tax income
primarily because of tax-exempt investment income. As of March 31, 1998, the
Company has a net operating loss carryforward of approximately $233,000,000
and $106,000,000 for regular and alternative minimum tax purposes,
respectively, and an alternative minimum tax credit carryforward of
$14,677,000. The net operating loss carryforwards will expire in 2009.
Alternative minimum tax credits may be carried forward indefinitely to
offset future regular tax liabilities.
Federal income tax expense consists of:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
---- ----
(Amounts in thousands)
<S> <C> <C>
Current tax expense $ 830 $ 476
Deferred tax expense 14,070 12,737
------- -------
$14,900 $13,213
------- -------
------- -------
</TABLE>
5. New Accounting Standards
Statement of Financial Accounting Standards ("SFAS") No. 130, REPORTING
COMPREHENSIVE INCOME, became effective for periods ending after December 15,
1997. SFAS No. 130 establishes new rules for the reporting and display of
comprehensive income and its components; however, the adoption of this
Statement has no impact on the Company's net income or stockholders' equity.
Essentially, under SFAS No. 130, the new label "accumulated other
comprehensive income" has replaced that of the former "unrealized investment
gains, net" in the stockholders'equity section of the consolidated balance
sheet. Also, the consolidated statement of
11
<PAGE>
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
5. New Accounting Standards (continued)
stockholders' equity has been reformatted to conform to the requirements
of SFAS No. 130. Total comprehensive income amounted to $26.4 million and
$5.7 million during the first quarter of 1998 and 1997, respectively.
In 1997, the Financial Accounting Standards Board also issued SFAS No. 131,
DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. The
Company plans to adopt this Statement effective December 31, 1998 and
believes that this Statement will not require disclosure of any significant
information beyond that already provided in the Company's financial
statements.
12
<PAGE>
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
FINANCIAL CONDITION
- - -------------------
The core automobile business experienced steady growth in the first quarter of
1998 despite increased competition in the industry. The number of written
vehicles increased by 21,372 in the first quarter of 1998 compared to an
increase of 22,514 for the same period of 1997. As of March 31, 1998, the
Company's insurance subsidiaries had a combined statutory surplus of $566.1
million, and a net written premium to surplus ratio of 1.4:1. In addition,
Standard & Poor's recently upgraded its rating of the Company's claims paying
ability to A+ from A-. The Company also announced it has been granted licenses
in the states of Nevada, Oregon and Washington and expects to begin writing new
policies in these new markets, which collectively represent six million
vehicles, by the end of the year.
Invested assets as of March 31, 1998 were approximately $1.1 billion. All
investments in fixed maturities are investment grade. Of the Company's total
investments at March 31, 1998, 1.5% at fair value were invested in tax-exempt
state and municipal bonds and 98.3% were invested in taxable government,
corporate and municipal securities.
Loss and loss expense payments are the most significant cash flow requirement of
the Company. The Company continually monitors loss payments to provide
projections of future cash requirements. Cash flow from operations was more
than sufficient to fund loss payments in the first three months of 1998.
At April 1, 1998, the Company has a variable rate credit line available of
$135.0 million, all of which is outstanding. Presently, interest is paid
monthly; interest payments in the first three months of 1998 totaled $2.5
million.
13
<PAGE>
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
ITEM 2. (CONTINUED)
At March 31, 1998, the Company had $225 million of preferred stock outstanding,
bearing dividends of 9% per year payable quarterly in cash or in kind. Cash
dividends of $5,061,375 were paid on the preferred stock in the first three
months of 1998.
Funds required by 20th Century Industries to pay dividends, debt obligations and
holding company expenses are provided by the insurance subsidiaries. The ability
of the insurance subsidiaries to pay dividends to the holding company is
regulated by state law.
In August 1996, 20th Century Insurance Company of Arizona began writing private
passenger automobile policies in that state. As of March 31, 1998, insured
vehicles totaled 12,741, an increase of 17.4% over the total at December 31,
1997. 20th Century Insurance Company of Arizona is a joint venture owned 51% by
American International Group ("AIG") and 49% by 20th Century Industries. The
Company's investment in and advances to this venture totaled $3,268,000 at March
31, 1998, and is included in other assets in the consolidated balance sheet. The
Company's equity in the net loss of this venture was $(165,000) and $(183,000)
for the three months ended March 31, 1998 and 1997, respectively, and is
included in investment income in the consolidated statement of income. The
statistical and other information presented hereinafter do not include the
activities of 20th Century Insurance Company of Arizona.
14
<PAGE>
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
ITEM 2. (CONTINUED)
RESULTS OF OPERATIONS
- - ---------------------
UNITS IN FORCE
Units in force for the Company's insurance programs as of March 31 were as
follows:
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Private Passenger Automobile
(number of vehicles) 1,098,248 1,034,123
Homeowner and Condominium
(number of policies) 59,781 70,073
Personal Excess Liability
(number of policies) 11,961 10,238
--------- ---------
Total 1,169,990 1,114,434
--------- ---------
--------- ---------
</TABLE>
The overall increase in units in force of approximately 5% is attributable
mainly to an increase in vehicles insured.
Strong unit growth in the auto business remains the Company's priority for 1998.
The Company's voluntary auto units in force increased by 6.3% compared to a year
ago from 1,024,313 units in force at March 31, 1997 to 1,089,188 units in force
at March 31, 1998. Voluntary auto units grew in the quarter by 24,445 (2.3%)
from December 31, 1997, compared to an increase in units of 19,551 (1.9%) for
the same period in 1997. Through its aggressive marketing efforts and the
introduction of rating plans that offer lower rates to its more profitable,
preferred customers and higher rates for drivers deemed to represent greater
risks, the Company expects to enhance its profitable customer mix. The Company's
average customer retention rate for first quarter 1998 was an excellent 97.5%.
15
<PAGE>
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
ITEM 2. (CONTINUED)
Assigned Risk units decreased by 3,073 (25.3%) to 9,060 during the first quarter
of 1998 compared to an increase of 2,963 (43.3%) for the same period in 1997.
This is primarily the result of policyholders dropping out of the program after
initially responding to the new legislation effective January 1, 1997.
Units in force for the Company's homeowner and condominium programs declined by
14.7% between March 31, 1997 and March 31, 1998 mainly due to attrition
resulting from the Company's inability to write new homeowners policies in
accordance with an order by the California Department of Insurance. Although
the Company continues to seek approval to resume writing new business, it is
unable to predict if or when the California Insurance Commissioner will grant
the Company's request, which in turn, has a negative impact on customer
retention. The Company's request to re-enter the homeowners market is intended
to complement its auto business and facilitate growth in that line.
16
<PAGE>
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
ITEM 2. (CONTINUED)
UNDERWRITING RESULTS
Premium revenue and underwriting results for the Company's insurance programs
were as follows:
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------
1998 1997
---- ----
(Amounts in thousands)
<S> <C> <C>
Gross Premiums Written
Automobile $ 212,255 $ 218,768
Homeowners and Condo 8,586 8,604
PELP 545 493
--------- ---------
Total $ 221,386 $ 227,865
--------- ---------
--------- ---------
Net Premiums Earned
Automobile $ 193,283 $ 192,388
Homeowners and Condo -- 2,392
PELP 218 189
--------- ---------
Total $ 193,501 $ 194,969
--------- ---------
--------- ---------
Underwriting Profit (Loss)
Automobile $ 25,330 $ 24,549
Homeowners and Condo (1,469) (257)
PELP 179 179
--------- ---------
Total $ 24,040 $ 24,471
--------- ---------
--------- ---------
</TABLE>
Automobile
Automobile insurance is the primary line of business written by the Company and
has been consistently profitable. The majority of the Company's insured autos
are located in Southern California; however, the Company continues to expand its
coverage throughout the state by aggressively marketing its business in
Northern California. Approximately 27% of all new business written in the first
quarter came from this region.
17
<PAGE>
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
ITEM 2. (CONTINUED)
The Company's automobile program realized underwriting profits of $25.3 million
and $24.5 million for the three months ended March 31, 1998 and 1997,
respectively. The Company's solid 1998 first quarter results were achieved
despite increased competition and unfavorable weather during the quarter. The
effects of weather were offset by continuing declines in accident frequency and
severity, resulting in a combined ratio for the first three months of 1998 of
87.6 versus 87.5 for the same period last year.
While a growth in business generally indicates the need for an increase in
incurred but not reported (IBNR) reserves, favorable development in older case
reserves and the lower severity of new claims have resulted in the Company
making a smaller provision for IBNR reserves than in the past, favorably
impacting underwriting results.
Assigned Risk units produced an underwriting gain of $301,000 in the first three
months of 1998 compared to underwriting loss of $436,000 for the same period in
1997. The underwriting profit in the first quarter was reflective of a 7.7%
decline in the number of Assigned Risk vehicles coupled with an improved loss
ratio over the same period last year.
18
<PAGE>
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
ITEM 2. (CONTINUED)
Homeowners and Condominium
In December 1996, the Company was granted authority to offer renewals of
policies for approximately 68,000 homeowner insurance customers beginning
February 15, 1997. This renewal business is covered by a quota share reinsurance
agreement which cedes 100% of all risk to three reinsurers, as follows:
<TABLE>
<CAPTION>
Reinsurer Participation
- - --------- -------------
<S> <C>
National Union Fire Insurance Co. of Pittsburgh, PA
(A subsidiary of AIG) 50%
United States Fidelity & Guaranty Company 25%
Risk Capital Reinsurance Company 25%
</TABLE>
Earthquake coverage, which the Company is obliged to offer in conjunction with
its homeowner policies, is provided through American Home Assurance Company, a
subsidiary of AIG; no earthquake exposures are assumed by the Company. As of
March 31, 1998, more than 59,000 policies had been renewed, which is
approximately 87.9% of those eligible. Homeowners policies in force on June 30,
1996 or renewed before July 23, 1996 (which do not include earthquake coverage)
were ceded 100% in equal participations to United States Fidelity & Guaranty
Company and Risk Capital Reinsurance Company. This coverage was effective until
the underlying policies expired or were renewed.
Because of the reinsurance agreements in place, the Company's exposure under
these programs is limited and primarily relates to development on policies
incepted prior to July 1, 1996. The underwriting losses for this line were $1.5
million for the first three months of 1998 compared to an underwriting loss of
$257,000 for the same period in 1997. As a result of the 100% quota share
19
<PAGE>
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
ITEM 2. (CONTINUED)
agreements entered into as of July 1, 1996 and February 15, 1997, the Company's
exposure to weather-related and disaster claims has been significantly reduced.
The Company remains exposed to possible further upward development in the
estimated cost to resolve certain claims stemming from the 1994 Northridge
Earthquake. Although management believes current reserves are adequate, the
outcome of future events could require changes in previous estimates.
Personal Excess Liability
Units in force increased by 16.8% compared to a year ago from 10,238 units in
force at March 31, 1997 to 11,961 units in force at March 31, 1998. Gross
premiums written increased by 10.5% in the first three months of 1998 compared
to the same period in 1997. The growth in this business from the prior year is
primarily attributable to a cross-selling campaign, which began late in 1997.
Underwriting profits for this line can vary significantly with the number of
claims, which occur infrequently. Personal Excess Liability business is subject
to two quota share reinsurance agreements resulting in a net retention by the
Company of approximately 36%.
20
<PAGE>
20TH CENTURY INDUSTRIES AND SUBSIDIARIES
ITEM 2. (CONTINUED)
Policy Acquisition and General Operating Expenses
The Company's policy acquisition and general operating expense ratio continues
to be one of the lowest in the industry. As a direct writer, the Company does
not incur agent commissions and thus enjoys an expense advantage over most of
its competitors. Net underwriting expenses, which consist of policy acquisition
costs and other operating expenses, decreased by $545,000 (3.1%) for the first
three months of 1998 compared to the same period in 1997. This decrease reflects
a reduction in general operating expenses due to steps taken to achieve
operating cost efficiencies. The ratio of net underwriting expenses (excluding
loan interest and fees) to net premiums earned for the first quarter ended March
31, 1998 was 8.8% compared to 9.0% for the same period in 1997.
INVESTMENT INCOME
Net pre-tax investment income increased 2.8% during the first three months of
1998 compared to the same period in 1997. Average invested assets increased 1.1%
between March 1997 and March 1998.
The average annual pre-tax yield on invested assets for the three months ended
March 31, 1998 was 6.7% compared to 6.6% for the same period in 1997.
Realized gains on sales of investments increased in the first three months of
1998 to $3.2 million from $1.1 million for the same period in 1997. Unrealized
after-tax gains on investments decreased $1.5 million since December 31, 1997 to
a net unrealized after-tax gain of $18.8 million as of March 1998, primarily
because of unfavorable conditions in the bond market.
21
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three months ended
March 31, 1998.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
20TH CENTURY INDUSTRIES
-----------------------
(Registrant)
Date May 11, 1998 /s/ William L. Mellick
----------------- ---------------------------------
WILLIAM L. MELLICK
President and Chief Executive Officer
Date May 11, 1998 /s/ Robert B. Tschudy
----------------- ---------------------------------
ROBERT B. TSCHUDY
Senior Vice President and
Chief Financial Officer
23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<DEBT-HELD-FOR-SALE> 1,083,761
<DEBT-CARRYING-VALUE> 1,083,761
<DEBT-MARKET-VALUE> 1,083,761
<EQUITIES> 1,781
<MORTGAGE> 0
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0
224,950
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193,501
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<UNDERWRITING-OTHER> 6,903
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<INCOME-TAX> 14,900
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<EPS-PRIMARY> .44
<EPS-DILUTED> .34
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<PAYMENTS-PRIOR> 0
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</TABLE>
