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United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the quarterly period ended September 30, 1996
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transaction period from ____________to
___________.
Commission file number 1-11983
FPIC Insurance Group, Inc.
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(Exact name of registrant as specified in its charter)
Florida 59-3359111
- ---------------------------------- -----------------
(State or other jurisdiction (IRS Employer
of incorporation of organization) Identification No.)
1000 Riverside Avenue, Suite 800, Jacksonville, FL 32204
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(Address of principal executive offices) (Zip Code)
(904) 354-5910
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(Registrant's telephone number,
including area code)
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
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As of October 31, 1996, there were 9,021,670 shares of the registrant's common
stock outstanding.
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Table of Contents
<TABLE>
<S> <C>
Part I - Financial Information
Item 1. Consolidated Financial Statements (unaudited)
of FPIC Insurance Group, Inc. and Subsidiaries:
Consolidated Balance Sheets......................................... 3
Consolidated Statements of Income................................... 4
Consolidated Statements of Cash Flows............................... 5
Notes to the Consolidated Financial Statements...................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..................... 9
Part II - Other Information
Item 1. Legal Proceedings................................................... 13
Item 2. Changes in Securities............................................... 13
Item 3. Defaults Upon Senior Securities..................................... 13
Item 4. Submission of Matters to a Vote of Security Holders................. 13
Item 5. Other Information................................................... 13
Item 6. Exhibits and Reports on Form 8-K.................................... 13
Signatures............................................................................. 13
</TABLE>
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FPIC Insurance Group, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
9/30/96 12/31/95
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(unaudited)
<S> <C> <C>
ASSETS
Bonds and U.S. Government securities:
Available-for-sale, at fair value $224,372,838 $218,303,504
Common stocks, at fair value 170,000 125,000
Real estate investments 2,684,118 2,675,976
Short-term investments, at cost 0 500,000
TOTAL INVESTMENTS 227,226,956 221,604,480
---------------- ----------------
Cash and cash equivalents 8,761,523 494,095
Premiums receivable, net 15,130,579 10,846,007
Accrued investment income 4,024,530 3,064,866
Reinsurance recoverable on paid losses 760,096 808,900
Due from reinsurers on unpaid losses and advance premiums 10,244,201 9,480,277
Deposits with reinsurers 16,100,124 14,842,952
Property and equipment, net of accumulated depreciation 1,369,415 1,388,543
Deferred policy acquisition costs 1,479,344 818,312
Federal income tax receivable 870,422 1,665,764
Deferred income taxes 9,548,076 9,472,406
Finance charge receivable 311,427 204,641
Prepaid expenses 248,380 347,378
Goodwill 2,025,947 1,108,117
Other assets 617,085 552,031
TOTAL ASSETS $298,718,105 $276,698,769
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LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Loss and loss adjustment expense reserves $169,681,000 $164,506,000
Unearned premiums 30,112,204 20,947,885
Paid in advance and unprocessed 1,107,860 3,982,143
FIGA accrual 2,447,542 3,032,234
Accrued expenses and other liabilities 3,934,132 2,674,085
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TOTAL LIABILITIES 207,282,738 195,142,347
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SHAREHOLDERS' EQUITY
Preferred stock, $.10 par value, 50,000,000 shares authorized;
no shares issued and outstanding - -
Common stock, $.10 par value: 25,000,000 shares authorized;
9,019,420 shares issued and outstanding in 1996; $1 par value:
5,000,000 shares authorized; 1,627,928 shares issued and
outstanding in 1995 901,942 1,627,928
Additional paid-in capital 21,947,227 17,640,745
Net unrealized gain (loss) on investments (849,564) 1,625,175
Retained earnings 69,435,762 60,662,574
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TOTAL SHAREHOLDERS' EQUITY 91,435,367 81,556,422
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TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $298,718,105 $276,698,769
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</TABLE>
See accompanying notes.
3
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FPIC Insurance Group, Inc.
Consolidated Statements of Income
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SEPTEMBER 30 NINE MONTHS ENDED SEPTEMBER 30
-------------------------------- --------------------------------
1996 1995 1996 1995
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<S> <C> <C> <C> <C>
REVENUES
Premiums earned, net $14,581,152 $12,696,118 $41,172,622 $36,077,037
Investment income, net 3,495,433 3,078,901 10,020,808 9,314,202
Net realized investment gains (losses) 16,281 221,853 (19,435) (118,250)
Claims administration fees 1,022,215 940,088 2,962,669 940,088
Commission income 552,342 424,662 850,130 424,662
Other income 670,887 375,209 1,588,166 1,138,150
------------- ------------ ------------ ------------
TOTAL REVENUES 20,338,310 17,736,831 56,574,960 47,775,889
------------- ------------ ------------ ------------
EXPENSES
Losses and loss adjustment expenses, net 12,523,073 8,793,586 35,191,348 28,556,041
Other operating expenses 1,471,294 1,243,049 4,363,295 3,557,663
Claims administration expenses 1,076,165 966,461 3,101,945 966,461
------------- ------------ ------------ ------------
TOTAL EXPENSES 15,070,532 11,003,096 42,656,588 33,080,165
------------- ------------ ------------ ------------
Income before income taxes 5,267,778 6,733,735 13,918,372 14,695,724
Income taxes 1,639,479 2,640,855 4,331,220 5,481,656
------------- ------------ ------------ ------------
NET INCOME $3,628,299 $4,092,880 $9,587,152 $9,214,068
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NET INCOME PER COMMON SHARE $0.43 $0.52 $1.13 $1.17
============= ============ ============ ============
WEIGHTED AVERAGE COMMON AND COMMON
SHARE EQUIVALENTS OUTSTANDING 8,480,854 7,854,805 8,480,854 7,854,805
============= ============ ============ ============
</TABLE>
See accompanying notes.
4
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FPIC Insurance Group, Inc.
Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30
======================================
1996 1995
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $9,587,152 $9,214,068
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization expense 1,309,179 1,003,905
Realized losses on investments 19,435 118,250
Deferred income taxes 1,199,195 682,353
Changes in assets and liabilities:
Premiums receivable (4,284,572) (2,002,523)
Accrued investment income (959,664) (313,701)
Reinsurance recoverable on paid losses 48,804 21,572
Due from reinsurers on unpaid losses
and advance premiums (763,924) 8,102,142
Deposits with reinsurers (1,257,172) (4,393,965)
Mortgage receivable 0 2,200,000
Deferred policy acquisition costs (661,032) (331,561)
Federal income tax receivable 795,342 441,197
Other assets (65,054) (837,462)
Prepaid expenses and finance charge receivable (17,750) (221,146)
Loss and loss adjustment expense reserves 5,175,000 935,000
Unearned premiums 9,164,319 6,918,843
Paid in advance and unprocessed (2,874,283) (3,759,187)
FIGA accrual (584,692) (547,722)
Accrued expenses and other liabilities 1,260,047 445,359
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Net cash provided by operating activities 17,090,330 17,675,422
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of short-term investments 500,000 4,149,143
Proceeds from sale or maturity of securities available-for-sale 52,335,037 126,434,948
Purchase of securities available-for-sale (63,736,505) (140,710,910)
Purchase of goodwill (1,000,000) (1,144,879)
Purchase of real estate investments (8,142) (2,407,193)
Purchase of common stock (45,000) (60,000)
Purchase of subsidiary's net other assets 0 (855,121)
Purchase of property and equipment, net (34,824) (22,784)
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Net cash used in investing activities (11,989,434) (14,616,796)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock, net 3,980,496 0
Dividends paid on common stock (813,964) (775,986)
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Net cash provided by (used in) financing activities 3,166,532 (775,986)
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Net increase in cash 8,267,428 2,282,640
Cash and cash equivalents, beginning of period 494,095 12,669
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CASH AND CASH EQUIVALENTS, END OF PERIOD $8,761,523 $2,295,309
------------- -------------
Supplemental disclosure of cash flow information:
Federal income taxes paid $2,411,212 $2,950,000
Interest paid $0 $0
</TABLE>
See accompanying notes.
5
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FPIC INSURANCE GROUP, INC.
Notes to the Consolidated Financial Statements
(Unaudited)
1. BASIS OF PRESENTATION
FPIC Insurance Group, Inc. (the Company) is a Florida corporation formed by
Florida Physicians Insurance Company, Inc. (FPIC) to serve as a holding
corporation for FPIC and other subsidiaries. On June 11, 1996, FPIC and the
Company consummated a Reorganization which generally provided that each share
of common stock of FPIC, par value $1 per share, would be exchanged for five
shares of common stock of the Company, par value $.10 per share.
The accompanying unaudited consolidated financial statements include the
accounts of the Company and its subsidiaries, FPIC and McCreary Corporation,
and have been prepared in accordance with generally accepted accounting
principles for interim financial information and with instructions to Form 10-Q
and Article 10 of Regulation S-X. Accordingly, they do not include all of the
information and notes 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 nine-month period
ended September 30, 1996 are not necessarily indicative of the results that may
be expected for the year ending December 31, 1996. These consolidated financial
statements and notes should be read in conjunction with the financial
statements and notes included in the audited consolidated financial statements
of FPIC and its subsidiary for the year ended December 31, 1995 contained in
the Company's Registration Statement on Form S-1, which was filed with the
Securities and Exchange Commission on May 24, 1996 (File No. 333-04585).
2. INITIAL PUBLIC OFFERING OF COMMON STOCK
On August 6, 1996, the $10.00 per share, 500,000 of which were offered by the
Company and 2.9 million were offered by certain shareholders of the Company.
Additionally, the Company's Underwriters purchased 510,000 additional shares
from selling shareholders to cover over-allotments. The Company intends to use
the net proceeds of approximately $4.1 million (after discounts, commissions,
and expenses) for general corporate purposes and future acquisitions, if any.
3. LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES
The reserve for loss and loss adjustment expenses represent management's best
estimate of the ultimate cost of all losses incurred but unpaid. The estimated
liability is continually reviewed and
6
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any adjustments which become necessary are included in current income.
Incurred losses and loss adjustment expenses for the nine-month periods ended
September 30, 1996 and 1995 were principally determined by considering prior
loss experience, loss trends, the Company's loss retention levels, and changes
in frequency and severity of claims.
4. INCOME TAXES
Income taxes were accounted for under the asset and liability method. Income
tax expense differs from the normal relationship to financial statement income
principally because of tax exempt interest income.
5. INVESTMENTS
Proceeds from sales of investments available-for-sale were $52,335,037 and
$126,434,948 during the nine months ended September 30, 1996 and 1995,
respectively.
Gross realized gains and (losses) from sales of debt securities based on
specific identification, were $48,385 and ($86,992); and $627,973 and
($746,223) for the nine months ended September 30, 1996 and 1995, respectively.
The amortized cost of investments in securities available-for-sale was
$225,660,056 and $215,841,118 as of September 30, 1996 and December 31, 1995,
respectively.
6. BUSINESS ACQUISITIONS
On July 1, 1995, McCreary Corporation acquired the assets of McCreary
Enterprises, Inc., a Florida third party administrator, for a cost of
$2,000,000. The acquisition agreement specified annual payments to be made to
the seller from 1996 through 2000. Projected earnings were attained for the
twelve-month period ended June 30, 1996, and the Company paid the $1,000,000
annual payment in 1996. The remaining payments are as follows:
1997 900,000
1998 800,000
1999 700,000
2000 600,000
These specific payments are subject to adjustment in accordance with the
agreement based on attainment of projections of annual earnings from 1997
through 2000. No individual annual payment will exceed the annual earnings,
and may be reduced if the projected earnings are not attained for that year. At
the end of the five year period, the agreement allows for an additional payment
based on the aggregate earnings of the five year period compared to the
aggregate projected earnings of the same five year period
7
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The effect of these subsequent payments is to increase the original purchase
price and the recorded goodwill.
7. REINSURANCE
The Company presently has excess of loss reinsurance contracts that serve to
limit the Company's maximum loss to $500,000 per occurrence. To the extent
that any reinsurer is unable to meet its obligations, the Company would be
liable for such defaulted amounts not covered by letters of credit, which the
Company obtains from reinsurers that are not designated as authorized
reinsurers by the Florida Department of Insurance.
8. COMMITMENTS AND CONTINGENCIES
The Company is involved in numerous legal actions arising primarily from claims
made insurance policies. The legal actions arising from claims made insurance
policies have been considered by the Company in establishing its reserves.
While the outcomes of all legal actions are not presently determinable, the
Company's management is of the opinion that the settlement of these actions
will not have a material adverse effect on the Company's financial position or
results of operations.
8
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FPIC INSURANCE GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
For purposes of this management discussion and analysis, "Company" refers to
FPIC Insurance Group, Inc. and its consolidated subsidiaries, "FPIC" refers
only to Florida Physicians Insurance Company, Inc., and "McCreary" refers only
to McCreary Corporation. All amounts in this management discussion and
analysis have been rounded to the nearest $100,000. On June 11, 1996, FPIC's
shareholders approved the Company becoming a holding corporation for FPIC and
other subsidiaries.
The Company's primary sources of revenue are dividends from its subsidiaries.
The primary sources of revenues for these dividends are premium earned and
investment income derived from the insurance operations of FPIC, and fee and
commission income from McCreary. The Company concentrates on liability
insurance products for the healthcare community, with medical professional
liability (MPL) insurance for physicians and dentists as its primary product.
The Company, through FPIC, writes MPL insurance on a claims-made basis, which
provides protection to the insured against only those claims that arise out of
incidents occurring and of which notice to the insurer is given while coverage
is effective.
The Company's financial position and results of operations are subject to
fluctuations due to a variety of factors. Unexpectedly high frequency or
severity of losses in any period would have a material adverse effect on the
Company. Additionally, reevaluations of the Company's loss and loss adjustment
expenses (LAE) reserves could result in an increase or decrease in reserves and
a corresponding adjustment to earnings. The Company's historical results of
operations are not necessarily indicative of future results.
RESULTS OF OPERATIONS - THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE
MONTHS ENDED SEPTEMBER 30, 1995.
Premiums
Direct premium written increased $1.9 million, or 13%, from $14.8 million for
the three months ended September 30, 1995 to $16.7 million for the three months
ended September 30, 1996. Net premium earned increased $1.9 million, or 15%,
from $12.7 million for the three months ended September 30, 1995 to $14.6
million for the three months ended September 30, 1996. This increase was
primarily due to an increase in the number of insureds.
9
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Net Investment Income
Net investment income increased $0.4 million, or 13%, from $3.1 million for the
three months ended September 30, 1995 to $3.5 million for the three months
ended September 30, 1996. The increase is primarily due to an increase in
invested assets.
Claims Administration Fees and Commission Income
This income is generated by McCreary, which was acquired on July 1, 1995.
Claims administration fees are revenues generated by McCreary's core business,
which is the administration of self-insured programs for large employers,
primarily in the health and workers compensation area. Neither McCreary nor
the Company assumes any risk on these products. Instead the risk is assumed by
each employer and any excess coverage desired is placed by McCreary with
various insurers and reinsurers. All the commission income was generated from
the placement of this excess coverage by McCreary.
Claims administration fees and commission income increased $0.2 million, or
14%, from $1.4 million for the three months ended September 30, 1995 to $1.6
million for the three months ended September 30, 1996. This increase is
attributable to the addition of new contracts.
Losses and Loss Adjustment Expenses, net
Losses and LAE increased $3.7 million, or 42%, from $8.8 million for the three
months ended September 30, 1995 to $12.5 million for the three months ended
September 30, 1996, reflecting primarily an increase in insured exposures. The
loss and LAE ratios were 69.3% for the three months ended September 30, 1995
and 85.9% for the three months ended September 30, 1996. The low loss ratio
for the three months ended September 30, 1995 reflects an adjustment to release
additional loss and LAE reserves for prior years.
Other Operating Expenses
Other operating expenses increased $0.3 million, or 25%, from $1.2 million for
the three months ended September 30, 1995, to $1.5 million for the three months
ended September 30, 1996. This increase was primarily attributable to an
increase in agents commission expense and general and administrative expenses.
Claims Administration Expenses
These expenses relate entirely to the operation of McCreary, and increased $0.1
million, or 10%, from $1.0 million for the three months ended September 30,
1995 to $1.1 million for the three months ended September 30, 1996.
10
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RESULTS OF OPERATIONS - NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE
MONTHS ENDED SEPTEMBER 30, 1995
Premiums
Direct premium written increased $7.1 million, or 15%, from $47.7 million for
the nine months ended September 30, 1995 to $54.8 million for the nine months
ended September 30, 1996. This increase was primarily attributable to an
increase in the number of individual insureds, from 5,007 as of September 30,
1995 to 5,728 as of September 30, 1996, and to an increase in the average
premium per insured. This increase was partially offset by an average rate
reduction of 2.4% on physician MPL premiums effective January 1, 1996. Net
premium earned increased $5.1 million, or 14%, from $36.1 million for the nine
months ended September 30, 1995 to $41.2 million for the nine months ended
September 30, 1996 for the foregoing reasons.
Claims Administration Fees and Commission Income
This income increased $2.4 million, from $1.4 million for the nine months ended
September 30, 1995 to $3.8 million for the nine months ended September 30,
1996. This increase is due to the inclusion of McCreary, which was purchased
on July 1, 1995, for a full nine months in 1996.
Net Investment Income
Net investment income increased $0.7 million, or 8%, from $9.3 million for the
nine months ended September 30, 1995 to $10.0 million for the nine months ended
September 30, 1996. This increase was primarily attributable to an increase in
the amount of invested assets. The tax equivalent yield on invested assets
decreased from 7.5% for the nine months ended September 30, 1995 to 7.3% for
the nine months ended September 30, 1996. Net investment income and the tax
equivalent yield on invested assets were both affected by the maturation during
the year of higher coupon securities and reinvestment into both taxable and
tax-exempt securities with lower coupons.
The Company's current investment strategy is to acquire investment grade fixed
income securities with an average duration of less than four years. The
Company's intention is to acquire and hold any fixed income investment to
maturity unless management believes there is a clear economic advantage to sell
the security. This strategy is intended to minimize the portfolio's overall
volatility.
Other Income
Other income, comprised principally of finance charges on premiums internally
financed by the Company, increased $0.5 million, or 45%, from $1.1 million for
the nine months ended September 30, 1995 to $1.6 million for the nine months
ended September 30, 1996. This increase was primarily attributable to the
increase in the amount of premium financed and the inclusion McCreary's other
income for the entire nine months in 1996.
11
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Losses and Loss Adjustment Expenses, net
Losses and LAE increased $6.6 million, or 23%, from $28.6 million for the nine
months ended September 30, 1995 to $35.2 million for the nine months ended
September 30, 1996, reflecting in part the increase in insured exposures in
1996. The loss and LAE ratios were 79.2% for the nine months ended September
30, 1995 and 85.4% for the nine months ended September 30, 1996. Overall, FPIC
has experienced stability in its loss trends in recent years. As discussed
previously, the lower loss ratio for the nine months ended September 30, 1995
reflects an additional adjustment for prior years reserves. Losses for both
periods are principally based on the application of an expected loss ratio to
net premium earned. These loss ratios reflect consideration of prior loss
experience and changes, if any, in the frequency and severity of claims.
Other Operating Expenses
Other operating expenses increased $0.8 million, or 22%, from $3.6 million, for
the nine months ended September 30, 1995 to $4.4 million for the nine months
ended September 30, 1996. This increase was primarily attributable to an
increase of $0.4 million for commission expense to agents and $0.4 million for
general and administrative expenses.
Claims Administration Expenses
Claims administration expenses increased $2.1 million from $1.0 million for the
nine months ended September 30, 1995 to $3.1 million for the nine months ended
September 30, 1996. These expenses relate entirely to McCreary, which was
purchased July, 1, 1995, and the amount for the period ended September 30, 1996
includes a full nine months.
Liquidity and Capital Resources
The payment of losses, LAE, and operating expenses in the ordinary course of
business is the principal need for the Company's liquid funds. Cash used to
pay these items has been provided by operating activities. Cash provided from
these activities was sufficient during the nine months ended September 30,
1996, to meet the Company's needs. Management believes these sources will be
sufficient to meet the Company's cash needs for operating purposes for at least
the next twelve months. However, a number of factors could cause increases in
the dollar amount of losses and LAE paid and may, therefore, adversely affect
future reserve development and cash flow needs. Management believes these
factors include, among others, inflation, changes in medical procedures,
increasing influence of managed care and adverse legislative changes. The
Company did not borrow any funds in the nine months ended September 30, 1995
and 1996, and has no current plans to borrow funds during 1996.
Shareholder dividends payable by FPIC are subject to certain limitations
imposed by Florida law. In 1996, FPIC is permitted, within insurance
regulatory guidelines, to pay dividends of approximately $11.6 million without
regulatory approval.
12
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Part II - Other Information
Item 1. Legal Proceedings - None
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
Exhibit (10) - Supplemental Executive Retirement Plan, as amended.
Exhibit (27) - Financial Data Schedule (for SEC use only).
(b) No reports on Form 8-K have been filed during the quarter for which
this report is filed.
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.
FPIC Insurance Group, Inc.
November 14, 1996 /s/ Robert B. Finch
--------------------------------------
Robert B. Finch, Chief Financial Officer
and Treasurer (a duly authorized officer and
the principal financial officer of the registrant)
13
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FLORIDA PHYSICIANS INSURANCE COMPANY
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Amended and Restated Effective January 1, 1996
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
PREAMBLE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2. ELIGIBILITY FOR BENEFITS . . . . . . . . . . . . . . . . . . . . . . 5
3. AMOUNT AND FORM OF RETIREMENT BENEFIT . . . . . . . . . . . . . . . 6
4. PAYMENT OF RETIREMENT BENEFITS . . . . . . . . . . . . . . . . . . . 7
5. DEATH BENEFITS PAYABLE . . . . . . . . . . . . . . . . . . . . . . . 7
6. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
<PAGE> 3
FLORIDA PHYSICIANS INSURANCE COMPANY
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
PREAMBLE
The Supplemental Executive Retirement Plan is amended and restated in its
entirety effective as of January 1, 1996. The principle objective of this
Supplemental Executive Retirement Plan is to ensure the payment of a
competitive level of retirement income in order to attract, retain and motivate
selected executives. The plan is designed to provide a benefit which, when
added to other retirement income of the executive, will meet the objective
described above. Eligibility for participation in the plan on December 31,
1996, is limited to the two (2) top executives of the Company who are
presently: William R. Russell, President and Chief Executive Officer and
Steven R. Smith, Executive Vice President and Chief Operating Officer.
<PAGE> 4
1. DEFINITIONS
1.1 "Affiliate" means any corporation, partnership or other
organization which, during any period of employment of a Participant, was at
least 50% controlled by the Company or an affiliate of the Company.
1.2 "Basic Plan" means the Florida Physicians Insurance Company,
Inc. Defined Benefit Plan and any successor thereto.
1.3 "Basic Plan Benefit" means the amount of benefit payable from
the Basic Plan to a Participant in the form of a straight life annuity.
1.4 "Board" means the Board of Directors of the Company.
1.5 "Code" means the Internal Revenue Code of 1986, as amended.
1.6 "Committee" means members of the Compensation Committee of
the Board.
1.7 "Company" means Florida Physicians Insurance Company until the
Restructure and on and after the Restructure, FPIC Insurance Group, Inc.
1.8 "Disability Retirement Benefit" means the benefit payable at
the Normal Retirement Date determined pursuant to Section 3.3 of this Plan.
1.9 "Early Retirement Benefit" means the benefit payable at the
Early Retirement Date determined pursuant to Section 3.2 of this Plan.
1.10 "Early Retirement Date" means the first day of the month
following the earlier of (i) the date on which the Participant terminates
employment on or after age 60 and elects to commence benefits hereunder, or
(ii) the date on which the Participant terminates employment on or after age 55
and elects to commence benefits hereunder with the consent of the Committee. A
Participant is eligible for an Early Retirement Date only if the Participant is
an employee of the Company or an Affiliate on or after the age specified in the
clause (i) or (ii) of this Section 1.10.
1.11 "Earnings" means the basic salary of a Participant excluding
bonuses, averaged over the highest three consecutive years of Service;
provided, however, Earnings as a result of employment after attainment of age
65 shall not be considered.
1.12 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
2
<PAGE> 5
1.13 "Normal Retirement Benefit" means the benefit payable at or
after age 65 determined pursuant to Section 3.1 of this Plan.
1.14 "Normal Retirement Date" means the first day of the month
following the later of (i) the date the Participant reaches age 65, or (ii) the
date the Participant terminates employment with the Company.
1.15 "Other Retirement Income" means retirement income payable to a
Participant from the following sources:
(a) his Social Security Benefit,
(b) any benefit previously paid or payable from a defined
benefit plan maintained by:
(i) Florida Physicians Insurance Company,
(ii) Physicians Insurance Company of Ohio, or
(iii) Professional Insurance Management Company, or
(iv) Any subsidiaries of any of the above
(c) any benefits which would have been paid or payable
from a defined benefit plan described in Section
1.16(b) which were not paid because the individual
elected not to receive the benefit or continued
employment and was ineligible for the benefits, also
shall be considered to have been paid for purposes of
determining Other Retirement Income. For purposes of
determining a Participant's Early Retirement Benefit
or Disability Retirement Benefit under this Plan any
amount paid or payable from a defined benefit plan
described in Section 1.16(b) shall be based on such
Participant's Earnings at the time of such Early
Retirement Date.
1.16 "Participant" means an employee of the Company designated as a
Participant. The Participants on January 1, 1996, are as follows: William R.
Russell, President and Chief Executive Officer and Steven R. Smith, Executive
Vice President and Chief Operating Officer. A change in the Participant's
title will not affect their status as a Participant. Any additional
Participants will be selected by the Committee.
1.17 "Permanent and Total Disability" means termination of
employment with the Company on or after the date the Participant has at least
10 years of Service due to an injury or illness which is considered a permanent
and total disability within the meaning of Code Section 22(e)(3) and any
regulations or rulings promulgated thereunder. A doctor approved, or selected
by, the Committee shall
3
<PAGE> 6
make the final determination of whether a Participant meets the provisions of
such Code Section.
1.18 "Plan" means the Company's Supplemental Executive Retirement
Plan.
1.19 "Restructure" means the corporate reorganization pursuant to
which Florida Physicians Insurance Company shall become the wholly-owned
subsidiary of FPIC Insurance Group, Inc.
1.20 "Retirement Benefit" means either the Early Retirement
Benefit, Disability Retirement Benefit, or Normal Retirement Benefit as
determined pursuant to Section 3.
1.21 "Service" means a Participant's credited years of service as
defined in the Basic Plan.
1.22 "Social Security Benefit" means the annual Primary Insurance
Amount estimated by the Company to be payable to the Participant at age 65 (or
later date if applicable) under the Federal Social Security Act, provided,
however, that:
(a) the Social Security Benefit for a Participant who
dies, retires, or terminates employment prior to age
65 will be calculated assuming:
(i) the Participant will receive future wages
which would be treated as wages for purposes
of the Federal Social Security Act at the
same level as received by the Participant
from the Company on the date of employment
termination; and
(ii) the Participant will elect to begin receiving
his Social Security Benefit as of the
earliest age then allowable under the said
Act, or if later, the date the Participant
terminates employment with the Company.
(b) the Social Security Benefit for a Participant who is
entitled to a Disability Retirement Benefit will be
calculated assuming the Participant's disability
would make him eligible for Social Security
disability benefits.
(c) the Social Security Benefit; once calculated, will be
frozen as of the date the Participant dies, retires,
is totally disabled or otherwise terminates
employment, whichever is applicable.
(d) For purposes of determining the Social Security
Benefit, amounts which would have been payable
beginning at age 65 (or such later date as
4
<PAGE> 7
specified as the Normal Retirement Age as specified
under the Social Security Act) but were not paid
because the Participant did not apply for such
benefits or was ineligible for such because of
continued employment, will be considered to have been
paid.
1.23 "Surviving Spouse" means the spouse to whom the Participant is
married on the earlier of (i) the date of the Participant's death, or (ii) the
effective date the Participant's Normal, Early or Disability Retirement
Benefits, whichever is applicable, begin.
1.24 "Vested Benefit Percentage" means the percentage of a
Participant's Retirement Benefit which is vested pursuant to Section 2.2, or if
applicable Section 2.3 or 2.4.
2. ELIGIBILITY FOR BENEFITS
2.1 Each Participant under this Plan is eligible to retire and
receive a Retirement Benefit, as determined under Section 3 of this Plan,
beginning on the earlier of such Participant's (i) Early Retirement Date or
(ii) Normal Retirement Date.
2.2 A Participant's Retirement Benefit will vest ratably
commencing on such Participant's initial date of employment with the Company,
or an Affiliate (considering only the time the entity was an Affiliate) with
1/240 of the total Retirement Benefit vesting at the end of each month the
Participant is employed by the Company, or an Affiliate (considering only the
time the entity was an Affiliate). A Participant's vested Retirement Benefit
shall not be forfeited.
2.3 Notwithstanding Section 2.2 of this Plan, a Participant shall
be 100% vested in such Participant's Retirement Benefit under this Plan on the
date such Participant attains age 64 if such Participant is an employee of the
Company or an Affiliate on such date.
2.4 Notwithstanding Section 2.2, the Committee may, in its sole
discretion, 100% vest a Participant's Retirement Benefit even if the
Participant has not attained age 64 or does not have 20 years of Service with
the Company and Affiliates.
5
<PAGE> 8
3. AMOUNT AND FORM OF RETIREMENT BENEFIT
3.1 The Normal Retirement Benefit will equal ((60% x A)-B) x C),
where
A = Earnings
B = Other Retirement Income
C = Vested Benefit Percentage
3.2 The Early Retirement Benefit will equal the Normal Retirement
Benefit, multiplied by the factor shown below corresponding to the number of
years a Participant's Early Retirement Date precedes such Participant's Normal
Retirement Date. The factors will be prorated for a partial year (counting a
partial month as a complete month).
<TABLE>
<CAPTION>
Number of Years Early
Retirement Date Precedes
Normal Retirement Date Factor
---------------------- ------
<S> <C>
1 .9231
2 .8462
3 .7692
4 .7308
5 .6923
6 .6538
7 .6154
8 .5769
9 .5292
10 .4862
</TABLE>
3.3 If a Participant terminates employment due to a Permanent and
Total Disability, the Participant will be eligible for a Disability Retirement
Benefit. The Disability Retirement Benefit will equal (60% x A)-B, where
A = Earnings
B = Other Retirement Income
The Company may require, no more frequently than once in any calendar year,
that a disabled Participant submit medical evidence of disability satisfactory
to the Company. The Company will have sole discretion to discontinue a
disability benefit based on a consideration of such evidence or lack thereof.
3.4 The Normal Retirement Benefit will be determined as of the
first day of the month following the date the Participant attains, or would
have attained, age 65, even if the Participant continued employment with the
Company. Payments of the Normal Retirement Benefit will begin on the Normal
Retirement Date.
6
<PAGE> 9
3.5 The Early Retirement Benefit will be determined as of, and
will begin on, the Early Retirement Date.
3.6 Payments of the Disability Retirement Benefit will begin on
the Normal Retirement Date.
3.7 The benefits determined under this Plan will be payable in the
same form as benefits payable under the Basic Plan; provided, however, that in
the event the Participant elects to receive benefits under the Basic Plan in
the form of a lump sum, benefits under this Plan will be payable in the form of
a straight life annuity, unless the Committee approves a payment of a lump sum
hereunder. (If the Basic Plan is not in existence, such form of benefit
hereunder shall be the form elected by the Participant as if the Basic Plan
were still in existence based on Basic Plan provisions in effect on the date of
its termination). The amount payable under all forms of benefits other than a
straight life annuity shall be determined pursuant to Section 3.8.
3.8 For purposes of determining the amount of payment under any
form of benefit other than a single life annuity, the Committee shall determine
the single sum amount necessary to purchase a straight life annuity in the
amount determined in Sections 3.1 or 3.2 from an insurance company "A Best
Rated" or better as selected by the Committee. All other forms of benefits
shall be the benefit which can be purchased with such single sum amount as
determined by such selected insurance company.
4. PAYMENT OF RETIREMENT BENEFITS
4.1 Benefits payable in accordance with Section 3 will commence on
the first day of the month following the earlier of Participant's (i) Normal
Retirement Date or (ii) Early Retirement Date. Benefits will continue to be
paid on the first day of each succeeding month. The last payment will be on
the first day of the month in which the retired Participant dies unless
otherwise elected in accordance with Section 3.7.
5. DEATH BENEFITS PAYABLE
5.1 If a vested Participant dies before receiving a Retirement
Benefit under this Plan, the Surviving Spouse of such Participant will be
eligible to receive an annuity for the life of the Surviving Spouse equal to
50% of the Retirement Benefit such Participant would have received pursuant to
Section 3 if, for purposes of determining his eligibility for Early Retirement
Benefits, but not for purposes of determining his Vested Percentage (for which
purposes actual date of employment termination shall be used), the
Participant's employment had continued until the earliest permissible benefit
commencement date (which for purposes of this Section 5.1 shall be deemed to be
age 55 or the date of death if later), had received all necessary consents and
elected to receive a benefit under the form of a 50% joint and survivor
7
<PAGE> 10
annuity. A Surviving Spouse's benefits will be payable monthly, and will
commence on the date selected by the Surviving Spouse, but no sooner than the
first date the Participant could have begun receiving benefits under the Plan.
The last payment will be on the first day of the month in which the Surviving
Spouse dies.
5.2 If a Participant dies after receiving a Retirement Benefit
under this Plan, survivor benefits, if any, shall be paid in accordance with
the form of benefit determined under Section 3.7 hereof.
6. MISCELLANEOUS
6.1 The Committee may amend this Plan at any time or from time to
time, in whole or in part. However, no amendment to the Plan will reduce a
Participant's right to receive the benefits or the right of a Surviving Spouse
to continue to receive a benefit in accordance with this Plan as in effect on
the date of execution.
6.2 The Company agrees that it will not merge or consolidate with
any other company or organization, or permit its business activities to be
taken over by any other organization unless and until the succeeding or
continuing company or other organization shall expressly assume all obligations
and liabilities herein set forth.
6.3 Nothing contained herein will confer upon any Participant the
right to be retained in the service of the Company, nor will it interfere with
the right of the Company to discharge or otherwise deal with Participants
without regard to the existence of this Plan.
6.4 This Plan is unfunded, and the Company will make Plan benefit
payments solely on a current disbursement basis.
6.5 To the maximum extent permitted by law, no benefit under this
Plan shall be assignable or subject in any manner to alienation, sale,
transfer, claims of creditors, pledge, attachment or encumbrances of any kind.
6.6 If the Company shall acquire an insurance policy or annuity
contract or any other asset in connection with the liabilities assumed
hereunder, it is expressly understood and agreed that no Participant shall have
any right with respect to, or claim against, such policy or other asset. Such
policy or asset shall not be deemed to be held under any trust for the benefit
of or to be held in any way as collateral security for the fulfillment of the
obligations of the Company under this Plan. It shall be and remain, a general,
unpledged, unrestricted asset of the Company and to the extent the Participant
acquires a right to receive any payments from the Company under this Plan, such
right shall be no greater than the right of any unsecured, general creditor of
the Company.
8
<PAGE> 11
6.7 The Committee shall have the full authority to and power to
interpret the plan including but not limited to determining eligibility, the
amount of benefits and the date benefits are payable.
6.8 The masculine gender, where appearing in the Plan will be
deemed to include the feminine gender, and the singular may include the plural,
unless the context clearly indicates the contrary.
6.9 Each Participant shall receive a copy of this Plan and the
Company will make available for inspection by any Participant a copy of the
rules and regulations used in administering the Plan.
6.10 This Plan is established under and will be construed according
to the laws of the State of Florida.
Executed this ______ day of ___________________, 1996.
FLORIDA PHYSICIANS INSURANCE COMPANY,INC.
By /s/ Gaston J. Acosta-Rua, M.D.
---------------------------------------
WITNESSES:
/s/ Guy T. Selander, M.D.
- -------------------------------
/s/ James G. White, M.D.
- -------------------------------
9
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S THIRD QUARTER 10-Q 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-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 224,373
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 2,684
<TOTAL-INVEST> 227,227
<CASH> 8,762
<RECOVER-REINSURE> 760
<DEFERRED-ACQUISITION> 1,479
<TOTAL-ASSETS> 298,718
<POLICY-LOSSES> 169,681
<UNEARNED-PREMIUMS> 30,112
<POLICY-OTHER> 1,108
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 902
<OTHER-SE> 91,435
<TOTAL-LIABILITY-AND-EQUITY> 298,718
41,173
<INVESTMENT-INCOME> 10,021
<INVESTMENT-GAINS> 0
<OTHER-INCOME> 5,401
<BENEFITS> 35,191
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 4,363
<INCOME-PRETAX> 13,918
<INCOME-TAX> 4,331
<INCOME-CONTINUING> 9,587
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,587
<EPS-PRIMARY> 1.13
<EPS-DILUTED> 0.00
<RESERVE-OPEN> 164,506
<PROVISION-CURRENT> 44,082
<PROVISION-PRIOR> (11,307)
<PAYMENTS-CURRENT> 2,356
<PAYMENTS-PRIOR> 25,244
<RESERVE-CLOSE> 169,681
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
