<PAGE> 1
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, 1997 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.
(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
(Address of principal executive offices) (Zip Code)
(904) 354-5910
(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 ______
As of October 31, 1997 there were 9,028,918 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.......................................14
Item 2. Changes in Securities...................................14
Item 3. Defaults Upon Senior Securities.........................14
Item 4. Submission of Matters to a Vote of Security Holders.....14
Item 5. Other Information.......................................14
Item 6. Exhibits and Reports on Form 8-K........................14
Signatures..................................................................14
</TABLE>
2
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FPIC Insurance Group, Inc.
Consolidated Balance Sheets
<TABLE>
<CAPTION>
9/30/97 12/31/96
=================== ====================
(unaudited)
<S> <C> <C>
Assets
Bonds and U.S. Government securities:
Available-for-sale, at fair value ........................... $254,645,509 $ 234,650,172
Common stocks, at fair value .................................... 2,516,949 185,000
Real estate investments ......................................... 4,235,905 3,661,726
Other invested assets ........................................... 2,000,000 0
------------ -------------
Total Investments ................................................ 263,398,363 238,496,898
------------ -------------
Cash and cash equivalents ...................................... 5,210,091 5,463,096
Premiums receivable, net ....................................... 17,078,402 12,551,992
Accrued investment income ...................................... 4,514,072 3,641,391
Reinsurance recoverable on paid losses ......................... 580,347 73,873
Due from reinsurers on unpaid losses and advance premiums ...... 11,567,618 12,020,239
Deposits with reinsurers ....................................... 17,775,228 16,419,179
Property and equipment, net of accumulated depreciation ........ 1,865,526 1,617,750
Deferred policy acquisition costs .............................. 1,802,834 1,212,035
Deferred income taxes .......................................... 6,779,216 8,913,225
Finance charge receivable ...................................... 343,753 230,443
Prepaid expenses ............................................... 22,688 409,718
Goodwill ....................................................... 3,318,426 1,989,113
Other assets ................................................... 1,874,027 513,566
------------ -------------
Total Assets .................................................... $336,130,591 $ 303,552,518
============ =============
Liabilities and Shareholders' Equity
Liabilities
Loss and loss adjustment expense reserves ..................... $184,664,000 $ 172,738,000
Unearned premiums ............................................. 33,050,416 23,458,641
Paid in advance and unprocessed ............................... 991,706 5,250,755
Short term debt ............................................... 2,000,000 0
FIGA accrual .................................................. 372,622 1,345,244
Accrued expenses and other liabilities ........................ 4,365,173 4,348,488
------------ -------------
Total Liabilities ............................................... 225,443,917 207,141,128
------------ -------------
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;
9,028,918 and 9,021,670 shares issued and outstanding
in 1997 and 1996, respectively .............................. 902,891 902,167
Additional paid-in capital ................................... 22,369,894 22,444,711
Net unrealized gain on investments ........................... 2,268,469 80,169
Retained earnings ............................................ 85,145,420 73,166,334
------------ -------------
110,686,674 96,593,381
Less Treasury Stock (19,569 common shares) ................... 0 (181,991)
------------ -------------
Total Shareholders' Equity ...................................... 110,686,674 96,411,390
------------ -------------
Total Liabilities and Shareholders' Equity ...................... $336,130,591 $ 303,552,518
============ =============
</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
================================== =================================
1997 1996 1997 1996
========== ========== =========== ===========
<S> <C> <C> <C> <C>
Revenues
Net premiums earned ................................ $16,188,199 $14,581,152 $ 47,771,848 $ 41,172,622
Net investment income .............................. 3,757,665 3,495,433 11,234,712 10,020,808
Net realized investment losses ..................... 7,758 16,281 (46,483) (19,435)
Claims administration fees ......................... 2,224,914 1,022,215 6,065,579 2,962,669
Commission income .................................. 758,594 552,342 1,147,222 850,130
Other income ....................................... 766,578 670,887 2,181,729 1,588,166
----------- ----------- ------------ ------------
Total revenues ..................... 23,703,708 20,338,310 68,354,607 56,574,960
----------- ----------- ------------ ------------
Expenses
Net losses and loss adjustment expenses ............ 14,014,005 12,523,073 40,717,230 35,191,348
Other operating expenses ........................... 1,492,201 1,471,294 4,632,288 4,363,295
Claims administration expenses ..................... 2,196,916 1,076,165 6,065,610 3,101,945
----------- ----------- ------------ ------------
Total expenses .................... 17,703,122 15,070,532 51,415,128 42,656,588
----------- ----------- ------------ ------------
Income before income taxes ......................... 6,000,586 5,267,778 16,939,479 13,918,372
Income taxes ....................................... 1,722,276 1,639,479 4,960,393 4,331,220
----------- ----------- ------------ ------------
Net income ....................... $ 4,278,310 $ 3,628,299 $ 11,979,086 $ 9,587,152
=========== =========== ============ ============
Net income per common share ...... $ 0.46 $ 0.43 $ 1.28 $ 1.13
=========== =========== ============ ============
Weighted average common and common
share equivalents outstanding ... 9,382,477 8,480,854 9,373,541 8,480,854
=========== =========== ============ ============
</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
====================================
1997 1996
============= =============
<S> <C> <C>
Cash flows from operating activities
Net income $11,979,086 $9,587,152
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization expense 1,610,866 1,309,179
Realized losses on investments 46,483 19,435
Deferred income taxes 1,232,519 1,199,195
Changes in assets and liabilities:
Premiums receivable (4,526,410) (4,284,572)
Accrued investment income (872,681) (959,664)
Reinsurance recoverable on paid losses (506,474) 48,804
Due from reinsurers on unpaid losses
and advance premiums 452,621 (763,924)
Deposits with reinsurers (1,356,049) (1,257,172)
Deferred policy acquisition costs (590,799) (661,032)
Federal income tax receivable 0 795,342
Other assets (1,360,461) (65,054)
Prepaid expenses and finance charge receivable 273,720 (17,750)
Loss and loss adjustment expense reserves 11,926,000 5,175,000
Unearned premiums 9,591,775 9,164,319
Paid in advance and unprocessed (4,259,049) (2,874,283)
FIGA accrual (972,622) (584,692)
Accrued expenses and other liabilities 16,685 1,260,047
------------------ ----------------
Net cash provided by operating activities 22,685,210 17,090,330
------------------ ----------------
Cash flows from investing activities
Proceeds from sale of short-term investments 0 500,000
Proceeds from sale or maturity of securities available-for-sale 59,670,167 52,335,037
Purchase of securities available-for-sale (77,785,864) (63,736,505)
Purchase of goodwill (1,077,173) (1,000,000)
Purchase of real estate investments (628,237) (8,142)
Purchase of common stock (2,331,949) (45,000)
Purchase of subsidiary's net other assets (289,384) 0
Purchase of property and equipment, net (603,673) (34,824)
------------------ -----------------
Net cash used in investing activities (23,046,113) (11,989,434)
------------------ -----------------
Cash flows from financing activities
Issuance of common stock, net 107,898 3,980,496
Dividends paid on common stock 0 (813,964)
------------------- ------------------
Net cash provided by financing activities 107,898 3,166,532
------------------- ------------------
Net (decrease) increase in cash (253,005) 8,267,428
Cash and cash equivalents, beginning of period 5,463,096 494,095
------------------- ------------------
Cash and cash equivalents, end of period $5,210,091 $8,761,523
=================== ===================
Supplemental disclosure of cash flow information:
Federal income taxes paid $2,216,000 $2,411,212
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 September 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,
including its subsidiary, Employers Mutual, Inc., which was acquired on January
17, 1997, together referred to as McCreary, 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, 1997 are not
necessarily indicative of the results that may be expected for the year ending
December 31, 1997. 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 the Company for the year ended
December 31, 1996, which were filed with the Securities and Exchange Commission
on Form 10-K on March 26, 1997.
2. Loss and Loss Adjustment Expense Liability
The liability for loss and loss adjustment expenses represents management's best
estimate of the ultimate cost of all losses incurred but unpaid. The estimated
liability is continually reviewed and any adjustments which become necessary are
included in current income. Incurred losses and loss adjustment expenses for the
nine-month periods ended September 30, 1997 and 1996 were principally determined
by considering prior loss experience, loss trends, the Company's loss retention
levels, and changes in frequency and severity of claims.
3. 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.
6
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4. Investments
Proceeds from sales of investments available-for-sale were $59,670,167 and
$52,335,037 during the nine months ended September 30, 1997 and 1996,
respectively.
Gross realized gains and (losses) from sales of debt securities based on
specific identification, were $40,791 and ($87,274); and $48,385 and ($86,992)
for the nine months ended September 30, 1997 and 1996, respectively.
The amortized cost of investments in securities available-for-sale was
$251,208,434 and $234,528,705 as of September 30, 1997 and December 31, 1996,
respectively.
5. 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
plus certain additional payments based upon earnings. The acquisition agreement
specified additional payments, based upon earnings, to be made to the seller
from 1996 through 2000. Since projected earnings were attained for the
twelve-month period ended June 30, 1996, the Company paid an additional
$1,000,000 in 1996. Also, projected earnings were attained for the twelve-month
period ended June 30, 1997 and the $900,000 payment will be made in 1997.
On January 17, 1997, McCreary Corporation acquired all of the outstanding common
stock of Employers Mutual, Inc. (EMI), a Florida third party administrator, for
a cost of $1,250,000 plus certain additional payments based upon earnings. The
earnings of EMI are not material to the consolidated results of the Company. The
acquisition agreement specified additional payments, based upon earnings, to be
made to the selling shareholders from 1997 through 2000.
The remaining payments for these two acquisitions are as follows:
<TABLE>
<CAPTION>
McCreary EMI
-------- ---
<S> <C> <C>
1997 900,000 250,000
1998 800,000 250,000
1999 700,000 250,000
2000 600,000 250,000
</TABLE>
These payments are subject to adjustment in accordance with the agreements based
on attainment of projected annual earnings from the date of acquisition 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. The agreements
allow for an additional final payment based on the aggregate earnings compared
to the aggregate projected earnings during the earnout period. The effect of
these subsequent payments is to increase the original purchase price and the
recorded goodwill.
7
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On July 1, 1997, the Company purchased 20% of the common stock of APS Insurance
Services, Inc. (APS), a Texas insurance service corporation, for a cost of
$2,000,000. The purchase agreement provides an option to purchase an additional
35% of the common stock of APS after two years, allowing the Company 55%
ownership.
On September 22, 1997, the Company entered into an agreement in principle with
Frontier Insurance Group, Inc. (Frontier) to combine their medical professional
liability businesses in Florida. Beginning December 1, 1997, the Company's
subsidiary, FPIC, will assume underwriting Frontier's Florida book of business.
The transaction is subject to a definitive agreement, but is estimated to cost
$3.2 million, payable in cash and restricted common stock, with additional
adjustments based on the number of Frontier policyholders that eventually become
insured by FPIC. In addition, the two companies will establish a jointly-owned
claims entity in two locations in Florida.
6. 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.
7. 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. Borrowing Arrangements
The Company maintains a $10,000,000 revolving credit facility. The credit
facility agreement terminates on May 31, 1999. The Company is not required to
maintain compensating balances in connection with this credit facilty.
As of September 30, 1997, $2,000,000 had been borrowed under this agreement.
8
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FPIC Insurance Group, Inc.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
For purposes of this management discussion and analysis, "Company" refers to
FPIC Insurance Group, Inc., a holding company, and its consolidated
subsidiaries, "FPIC" refers only to Florida Physicians Insurance Company, Inc.,
and "McCreary" refers to McCreary Corporation and its wholly-owned subsidiary,
Employers Mutual, Inc. (EMI). EMI was acquired on January 17, 1997. All amounts
in this management discussion and analysis have been rounded to the nearest
$100,000.
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.
On January 17, 1997, McCreary acquired all of the outstanding stock of EMI, a
third party administrator of self-insured managed care health plans in Florida
and Texas, for $1,250,000, with additional payments up to $1,000,000 if
specified earnings targets are met over the next four years. EMI had 1996
revenues in excess of $3 million and its primary market consists of hospitals
and provider-sponsored delivery organizations.
On July 1, 1997, the Company completed the purchase of a 20 percent interest in
APS Insurance Services, Inc. (APS) for $2 million, with the option to purchase
an additional 35 percent after two years. The primary source of revenue for APS
is fee income from its subsidiary that manages the business of a medical
professional liability company domiciled in Texas. This interest will allow
FPIC, recently licensed in Texas, an opportunity to expand its market potential
in that state.
On September 22, 1997, the Company entered into an agreement in principle with
Frontier Insurance Group, Inc. (Frontier) to combine their medical professional
liability businesses in Florida. Beginning December 1, 1997, and continuing for
12 months thereafter, the Company's subsidiary, FPIC, will begin soliciting
Frontier's Florida book of business. The transaction is subject to a definitive
agreement and will cost a one-time fee of 40% of the premium FPIC writes. An
initial purchase price of $3.2 million has been set and will be paid in Company
common stock with a final adjustment based on the number of Frontier
policyholders that eventually become insured by FPIC, which will be paid in
cash. In addition, the two companies will establish a jointly-owned claims
entity in two locations in Florida.
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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
expense (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, 1997 Compared to Three
Months Ended September 30, 1996.
Premiums
Direct premium written increased $1.8 million, or 10.8%, from $16.7 million for
the three months ended September 30, 1996 to $18.5 million for the three months
ended September 30, 1997. Net premium earned increased $1.6 million, or 11.0%,
from $14.6 million for the three months ended September 30, 1996 to $16.2
million for the three months ended September 30, 1997. These increases were
primarily due to an increase in the number of insureds, a rate increase of 2.4%
on physician MPL premiums effective January 1, 1997, and $1.1 million of new
premium written in Texas.
Net Investment Income
Net investment income increased $0.3 million, or 8.6%, from $3.5 million for the
three months ended September 30, 1996 to $3.8 million for the three months ended
September 30, 1997. The increase is due to an increase in invested assets,
primarily in tax-exempt securities.
Claims Administration Fees and Commission Income
This income is generated by McCreary and its subsidiary, EMI. 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; 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 nearly doubled, from $1.6
million for the three months ended September 30, 1996 to $3.0 million for the
three months ended September 30, 1997. This increase is attributable to the
addition of new contracts and the inclusion of the EMI revenue of $1.2 million
for the three months ended September 30, 1997.
10
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Net Losses and Loss Adjustment Expenses (LAE)
Net losses and LAE increased $1.5 million, or 12%, from $12.5 million for the
three months ended September 30, 1996 to $14.0 million for the three months
ended September 30, 1997, reflecting primarily an increase in insured exposures.
The loss and LAE ratios were 85.9% for the three months ended September 30, 1996
and 86.6% for the three months ended September 30, 1997. The Company currently
estimates its anticipated reserve redundancy for the year based on a continuous
analysis of frequency and severity trends, and allocates it evenly over the
quarters. Any negative development, however, would be recorded in the quarter
when a change in trends becomes known.
Claims Administration Expenses
These expenses relate entirely to the operation of McCreary, and doubled from
$1.1 million for the three months ended September 30, 1996 to $2.2 million for
the three months ended September 30, 1997. This increase was primarily
attributable to the addition of the EMI operations ($1.0 million) and an
increase in the core operations of McCreary.
Net Income
Net income increased $0.7 million, or 19.4%, from $3.6 million for the three
months ended September 30, 1996 to $4.3 million for the three months ended
September 30, 1997. Net income per common share (fully diluted) increased $0.03,
or 7.0%, from $0.43 per share for the three months ended September 30, 1996 to
$0.46 per share for the three months ended September 30, 1997.
Results of Operations - Nine Months ended September 30, 1997 Compared to Nine
Months ended September 30, 1996
Premiums
Direct premium written increased $9.2 million, or 16.8%, from $54.8 million for
the six months ended September 30, 1996 to $64.0 million for the nine months
ended September 30, 1997. This increase was primarily attributable to an
increase in 1997 in the number of insureds, an increase in the average premium
per insured, and $1.9 million of new premium written in Texas. Reinsurance
premium ceded increased $2.2 million, or 50.0 %, from $4.4 million for the nine
months ended September 30, 1996 to $6.6 million for the nine months ended
September 30, 1997 because of increased premium and the addition of the premium
in Texas. Net premium earned increased $6.6 million, or 16.0%, from $41.2
million for the nine months ended September 30, 1996 to $47.8 million for the
nine months ended September 30, 1997 for the foregoing reasons.
Net Investment Income
Net investment income increased $1.2 million, or 12.0%, from $10.0 million for
the nine months ended September 30, 1996 to $11.2 million for the nine months
ended September 30, 1997. This increase was primarily attributable to an
11
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increase in the amount of invested assets and the high level of current return
in the portfolio. This was partially offset by a decrease in the current yield,
as the Company increased its investment in tax-exempt securities.
The Company's current investment strategy is to acquire investment grade fixed
income securities with an average modified duration of less than five 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.
Claims Administration Fees and Commission Income
Claims administration fees and commission income increased $3.4 million, or
89.5%, from $3.8 million for the nine months ended September 30, 1996 to $7.2
million for the nine months ended September 30, 1997. This increase was
attributable to the addition of new contracts and the inclusion of the EMI
revenue of $3.1 million for the nine month period ended September 30, 1997.
Other Income
Other income, comprised principally of finance charges on premiums internally
financed by the Company, increased $0.6 million, or 37.5%, from $1.6 million for
the nine months ended September 30, 1996 to $2.2 million for the nine months
ended September 30, 1997. This increase was primarily attributable to the
increase in the amount of premium financed and the absence of expenses incurred
in 1996 related to the reorganization of the Company into a holding company.
Net Losses and Loss Adjustment Expense (LAE)
Net losses and LAE increased $5.5 million, or 15.6%, from $35.2 million for the
nine months ended September 30, 1996 to $40.7 million for the nine months ended
September 30, 1997 reflecting in part the increase in insured exposures in 1997.
The loss ratios of 85.4% for the nine months ended September 30, 1996 and 85.2%
for the nine months ended September 30, 1997 reflect the stability FPIC has
experienced in its loss trends in recent years. The Company currently estimates
its anticipated reserve redundancy for the year based on a continuous analysis
of frequency and severity trends, and allocates it evenly over the quarters. Any
negative development, however, would be recorded in the quarter when a change in
trends becomes known.
Other Operating Expenses
Other operating expenses increased $0.2 million, or 4.6%, from $4.4 million for
the nine months ended September 30, 1996 to $4.6 million for the nine months
ended September 30, 1997. This increase was primarily attributable to an
increase in commission expense to agents and general and administrative
expenses.
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Claims Administrative Expenses
These expenses relate entirely to the operations of McCreary, and increased $3.0
million, from $3.1 million for the nine months ended September 30, 1996 to $6.1
million for the nine months ended September 30, 1997. This increase was
primarily attributable to the addition of the EMI operation, which added $2.7
million in expenses, and an increase in the core operations of McCreary.
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 by these
activities was $22.7 million during the nine months ended September 30, 1997 and
was sufficient 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.
On September 30, 1997, the Company secured a revolving credit facility with a
Florida lending institution to meet certain non-operating cash needs as they may
arise. The credit facility terminates May 31, 1999 and is not to exceed $10
million in principal. The Company is not charged a fee nor is it required to
maintain compensating balances in connection with this credit facility. On
September 30, 1997, the Company borrowed $2 million against the credit facility
for non-operating purposes.
Dividends payable by FPIC to the Company are subject to certain limitations
imposed by Florida law. In 1997, FPIC is permitted, within insurance regulatory
guidelines, to pay dividends to the Company of approximately $10.4 million
without regulatory approval.
Important Considerations Related to Forward Looking Statements
This Form 10-Q contains certain forward-looking statements within the meaning of
Section 21E of the Securities Exchange Act of 1934, as amended. These
forward-looking statements may be found under "Management's Discussion and
Analysis of Financial Condition and Results of Operations - General" and
"Liquidity and Capital Resources." These statements include or relate to, among
others, the Company having sufficient liquidity and working capital. These
statements are based on current expectations that involve a number of risks and
uncertainties that are discussed in the above sections.
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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 (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.
___/s/ Robert B. Finch________________
November 13, 1997 Robert B. Finch, Senior Vice President,
Chief Financial Officer and Treasurer
(a duly authorized officer and the principal
financial officer of the registrant)
14
<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> 9-mos
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<DEBT-HELD-FOR-SALE> 0
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 254,646
<EQUITIES> 2,517
<MORTGAGE> 0
<REAL-ESTATE> 4,236
<TOTAL-INVEST> 263,398
<CASH> 5,210
<RECOVER-REINSURE> 580
<DEFERRED-ACQUISITION> 1,802
<TOTAL-ASSETS> 336,131
<POLICY-LOSSES> 184,664
<UNEARNED-PREMIUMS> 33,050
<POLICY-OTHER> 992
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 2,000
0
0
<COMMON> 903
<OTHER-SE> 109,784
<TOTAL-LIABILITY-AND-EQUITY> 336,131
47,772
<INVESTMENT-INCOME> 11,235
<INVESTMENT-GAINS> (46)
<OTHER-INCOME> 9,395
<BENEFITS> 40,717
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 4,632
<INCOME-PRETAX> 16,939
<INCOME-TAX> 4,960
<INCOME-CONTINUING> 11,979
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,979
<EPS-PRIMARY> 1.28
<EPS-DILUTED> 1.28
<RESERVE-OPEN> 172,738
<PROVISION-CURRENT> 49,974
<PROVISION-PRIOR> (13,534)
<PAYMENTS-CURRENT> 1,139
<PAYMENTS-PRIOR> 23,375
<RESERVE-CLOSE> 184,664
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
