<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the Quarterly period ended March 31, 2000.
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934.
For the transition period from_____________________ to ___________________.
Commission file number 000-28249
AMERINST INSURANCE GROUP, LTD.
------------------------------
(Exact Name of Registrant as Specified in its Charter)
BERMUDA 98-020-7447
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
C/O USA Offshore Management, Limited, No. 2 Reid Street, Hamilton, Bermuda HM11
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (441) 295-3952
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.
[X] YES [_] NO
Number of shares of common stock outstanding:
Number outstanding
Class as of May 10, 2000
----- ------------------
COMMON SHARES, PAR VALUE $1.00 PER SHARE 331,263
<PAGE>
Part I, Item 1
AMERINST INSURANCE GROUP, LTD.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
As of As of
March 31, December 31,
ASSETS 2000 1999
----------- ------------
<S> <C> <C>
INVESTMENTS
Fixed maturity investments, at market value............. $33,008,861 $30,896,604
Equity securities, at market value...................... 8,336,939 8,384,653
----------- -----------
TOTAL INVESTMENTS..................................... 41,345,800 39,281,257
Cash and cash equivalents............................... 3,048,679 5,127,555
Assumed reinsurance premiums receivable................. 129,929 --
Reinsurance balances recoverable........................ 674,223 674,223
Fund deposit with a reinsurer........................... 108,000 108,000
Accrued investment income............................... 428,829 487,842
Deferred policy acquisition costs....................... 922,831 871,362
Federal income taxes receivable......................... 672,335 672,335
Prepaid expenses and other assets....................... 54,824 80,587
----------- -----------
TOTAL ASSETS.......................................... $47,385,450 $47,303,161
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Unpaid losses and loss adjustment expenses.............. $25,790,880 $25,037,029
Unearned premiums....................................... 3,238,002 3,057,408
Reinsurance balances payable............................ -- 96,108
Federal income taxes payable............................ -- --
Accrued expenses and other liabilities.................. 662,345 502,797
----------- -----------
TOTAL LIABILITIES..................................... 29,691,227 28,693,342
----------- -----------
SHAREHOLDERS' EQUITY
Common shares, $1 par value, 500,000 shares authorized,
1999 $1 par value, 500,000 shares authorized:
2000: 331,716 issued and outstanding
1999: 331,751 issued and outstanding................ 331,716 331,751
Additional paid-in capital.............................. 6,801,030 6,801,870
Retained earnings....................................... 11,088,957 11,322,139
Accumulated other comprehensive income.................. (527,480) 154,059
----------- -----------
TOTAL SHAREHOLDERS' EQUITY............................ 17,694,223 18,609,819
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............ $47,385,450 $47,303,161
=========== ===========
</TABLE>
See the accompanying notes to the condensed consolidated financial statements.
2
<PAGE>
AMERINST INSURANCE GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(Unaudited)
<TABLE>
<CAPTION> (Predecessor)
Three Months Three Months
Ended Ended
March 31, March 31,
2000 1999
----------- -----------
<S> <C> <C>
REVENUE
Premiums earned................................................................. $ 1,660,158 $ 1,827,838
Net investment income........................................................... 623,574 541,050
Net realized capital gain....................................................... 288,179 243,398
----------- -----------
Total revenue................................................................. 2,571,911 2,612,286
LOSSES AND EXPENSES
Losses and loss adjustment expense.............................................. 1,826,172 1,827,838
Policy acquisition costs........................................................ 473,146 523,501
Operating and management expenses............................................... 289,302 261,124
----------- -----------
Total losses and expenses..................................................... 2,588,620 2,612,463
----------- -----------
Income (loss) before income taxes................................................. (16,709) (177)
Provision for income taxes...................................................... -- (41,173)
----------- -----------
Income (loss) before cumulative effect of a change in accounting principle........ (16,709) (41,350)
Cumulative effect on prior years of retroactive
application of new statement of position, net of tax........................... -- (154,466)
----------- -----------
NET INCOME (LOSS)................................................................. (16,709) (195,816)
----------- -----------
OTHER COMPREHENSIVE INCOME, NET OF TAX
Net unrealized holding gains (losses) arising during the period................. (393,360) (235,546)
Less: reclassification adjustment for gains and losses included in net income.. (288,179) (160,643)
----------- -----------
OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX................................... (681,539) (396,189)
----------- -----------
COMPREHENSIVE INCOME (LOSS)..................................................... $ (698,248) $ (592,005)
=========== ===========
RETAINED EARNINGS, BEGINNING OF PERIOD............................................ $11,322,139 $13,636,875
Net income (loss)................................................................. (16,709) (195,816)
Dividends paid.................................................................... (215,615) (215,984)
Excess of purchase price on stock redemptions..................................... (858) (4,907)
----------- -----------
RETAINED EARNINGS, END OF PERIOD.................................................. $11,088,957 $13,220,168
=========== ===========
Per share amounts
Income (loss) before cumulative effect of a change
in accounting principle....................................................... $ (0.05) $ (0.12)
Cumulative effect on prior years of retroactive
application of new statement of position...................................... -- (0.47)
----------- -----------
Net income.................................................................. $ (0.05) $ (0.59)
=========== ===========
Dividends paid.................................................................. $ 0.65 $ 0.65
=========== ===========
Weighted average number of shares
outstanding for the entire period............................................. 331,734 332,303
=========== ===========
</TABLE>
See the accompanying notes to the condensed consolidated financial statements.
3
<PAGE>
AMERINST INSURANCE GROUP, LTD.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
(Predecessor)
Three Months Three Months
Ended Ended
March 31, March 31,
2000 1999
------------ -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net Cash Provided by Operating Activities............ $ 907,979 $ 1,538,752
------------ -----------
INVESTING ACTIVITIES
Purchases of investments........................... (12,148,122) (2,848,520)
Proceeds from sales and maturities of investments.. 9,378,615 2,355,143
------------ -----------
Net Cash Used by Investing Activities................ (2,769,507) (493,378)
------------ -----------
FINANCING ACTIVITIES
Redemption of shares............................... (1,733) (10,357)
Dividends paid..................................... (215,615) (215,984)
------------ -----------
Net Cash Used by Financing Activities................ (217,348) (226,341)
------------ -----------
INCREASE (DECREASE) IN CASH.......................... $ (2,078,876) $ 819,034
============ ===========
</TABLE>
See the accompanying notes to the condensed consolidated financial statements.
4
<PAGE>
AMERINST INSURANCE GROUP, LTD.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
March 31, 2000
Basis of Presentation
The condensed consolidated financial statements included herein have been
prepared by AmerInst Insurance Group, Ltd. ("AIG" or the "Company") without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission and reflect all adjustments consisting of normal recurring accruals,
which are, in the opinion of management, necessary for a fair presentation of
the results of operations for the periods shown. These statements are condensed
and do not incorporate all the information required under generally accepted
accounting principles to be included in a full set of financial statements. It
is suggested that these condensed statements be read in conjunction with the
consolidated financial statements at and for the year ended December 31, 1999
and notes thereto, included in the Registrant's annual report as of that date.
Prior to December 2, 1999, the Company operated as AmerInst Insurance Group,
Inc., a Delaware corporation ("AIIG" or the "Predecessor"). See "Redomestication
and Restructuring." Results reported herein for the three months ended March 31,
1999 are results of the Predecessor for such period.
Part I, Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OPERATIONS
A net loss of $(16,709) was recorded for the first quarter of 2000 in comparison
to a net loss of $(195,816) for the same period of 1999. Earned premiums for the
first quarter of 2000 amounted to $1,660,158 as compared to $1,827,838 for the
first quarter of 1999, a decrease of $167,680 or 9.2%. The decrease in earned
premiums is attributable to adjustments made by CNA in the first quarter of
1999, which had the effect of increasing the prior year comparative amount.
Premiums written in the first quarter of 2000 were $1,840,751 as compared to
$1,574,258 for the same period in 1999, an increase of $266,493 or 16.9%. The
increase is due to the continued growth of the AICPA Professional Liability
Insurance Plan ("AICPA Plan"), an increase in the number of insureds under the
AICPA Plan, and certain rate increases associated with a "step plan" that was
initiated during 1995. Under the step plan, insureds are offered discounted
premium rates for favorable loss experience. However, as these insureds
experience losses their premiums are "stepped up" accordingly. Because of the
use of claims-made policies, as the number of years of coverage provided
increases, CNA's (and AIG's) exposure increases. This additional exposure
results in an increase in premiums charged.
The loss ratio for the first quarter of 2000 was 110% as compared to 100% for
the same period of 1999. The loss ratio of 110% represents management's current
estimated effective loss rate selected in consultation with the Company's
independent consulting actuary to apply to current premiums assumed and earned.
Losses incurred in the first quarter of 2000 do not reflect any development of
prior year reserves. The Company's overall loss ratio for the year ended
December 31, 1999 was 105%. The ratio calculated using only losses and loss
adjustment expenses incurred for 1999 (excluding the effects of favorable
development and excluding reductions to retrocession premiums) was 149% at
December 31, 1999.
5
<PAGE>
AMERINST INSURANCE GROUP, LTD.
OPERATIONS--(Continued)
Policy acquisition costs of $473,146 were expensed in the first quarter of 2000
as compared to $523,501 for the same period of 1999, a decrease of $50,355 or
9.6%. Such costs as a percentage of premiums earned are 28.5% and 28.6% for the
quarters ended March 31, 2000 and 1999, respectively. Policy acquisition costs
result from ceding commissions paid to ceding companies determined contractually
pursuant to reinsurance agreements.
The Predecessor implemented Statement of Position 98-5 ("SOP 98-5"), "Reporting
on the Costs of Start-Up Activities", in the first quarter of 1999. With the
adoption of SOP 98-5, the Predecessor expensed certain start-up costs associated
with the redomestication as incurred (see discussion detailing the
redomestication below). Previously, the Predecessor had capitalized these costs
to be expensed over a period of 60 months. The adoption of SOP 98-5 has been
applied retroactively to the costs of start-up activities that were previously
capitalized in order to determine their cumulative effect. The effect of the
change for the three months ended March 31, 1999 was to decrease income before
cumulative effect of a change in accounting principle by $29,722 (or $0.09 per
share.) The adjustment necessary for retroactive application of SOP 98-5,
amounting to $154,466 (net of tax), is included in net income for the three
months ended March 31, 1999.
These fluctuations in premiums, losses and expenses combined to result in a net
underwriting loss of $(928,462)for the first quarter of 2000 as compared to
$(1,018,664) for the same period of 1999, a decrease of $90,202 or 8.9%.
Investment yield for the first quarter of 2000 was 5.4%, consisting of interest
and dividend income, and represents an increase from the 4.9% return earned in
the first quarter of 1999 and the 5.2% return earned throughout the rest of
1999. The higher yield trend in recent periods is attributable to the
elimination in holdings of tax free municipal securities. Sales of securities
during the first quarter of 2000 resulted in realized capital gains of $288,179
as compared to gains of $243,398 in the first quarter of 1999. Gains recorded in
the first quarter of 2000 primarily related to sales of equities. Proceeds from
these sales were subsequently reinvested in other equity securities.
FINANCIAL CONDITION AND LIQUIDITY
As of March 31, 2000, total invested assets amounted to $41,345,800, an increase
of $2,064,543 or 5.3% from $39,281,257 at December 31, 1999. Cash balances
decreased from $5,127,555 at December 31, 1999 to $3,048,679 at March 31, 2000,
a decrease of $2,078,876, or 40.5%. The amount of cash on hand fluctuates based
on the timing of bond maturities. As bonds mature, the proceeds are temporarily
placed in cash until they are reinvested. The ratio of cash and invested assets
to total liabilities at March 31, 2000 was 1.69:1, compared to a ratio of 1.63:1
at March 31, 1999.
Assumed reinsurance premiums receivable represents current assumed premiums
receivable less commissions payable to the fronting carriers. Reinsurance
balances payable represents current losses payable to the reinsurer. Beginning
with the December 31, 1999 financial statements, these balances are presented on
a net basis. At December 31, 1999, the balance was a net payable of $96,108 and
at March 31, 2000, the balance was a net receivable of $129,929, an increase of
$226,037. The net balance fluctuates due to timing of renewal premiums written,
as well as remittances and receipts.
6
<PAGE>
AMERINST INSURANCE GROUP, LTD.
FINANCIAL CONDITION AND LIQUIDITY--(Continued)
The Registrant paid its nineteenth consecutive quarterly dividend of $0.65 per
share during the first quarter of 2000.
YEAR 2000 READINESS
AIG was aware of the issues associated with the programming code in existing
computer systems as the year 2000 approached. The "Year 2000" problem was due to
computer programs being written using two digits rather than four to define the
applicable year. Programs with time-sensitive software may recognize a date
using "00" as the year 1900 rather than the year 2000. Systems that do not
properly recognize such information could generate erroneous data or fail.
The Company's operations are conducted through its management company, USA
Offshore Management, Ltd. ("USAOM"). Prior to the redomestication of the
company, Vermont Insurance Management, Inc. ("VIM") provided these services.
The majority of insurance transactions affecting the Company are originated by
CNA, the company's primary insurance carrier, operating systems, with quarterly
reporting to the Company. USAOM, VIM and CNA performed an extensive review of
their hardware and software systems during 1999 and believed they were fully
Year 2000 compliant.
Since January 1, 2000, the Company has not been made aware by USAOM, VIM or CNA
of any non-compliance and believes that there has been no negative effect on its
results due to the Year 2000 problem.
7
<PAGE>
AMERINST INSURANCE GROUP, LTD.
REDOMESTICATION AND RESTRUCTURING
On December 2, 1999, the Company and its predecessor entity, AIIG, consummated
an exchange transaction pursuant to an Exchange Agreement, in which AIIG
transferred all of its assets and liabilities to the Company in exchange for
newly issued common shares of the Company. AIIG was then liquidated and AIIG
shareholders received, on a share-for-share basis, the newly issued common
shares of the Company.
The primary purpose of AIIG and its subsidiary, AmerInst Insurance Company, an
Illinois corporation ("AIIC"), had been to establish, for the benefit of
accounting firms which are shareholders of the Company, an insurance company
which over time could exert a stabilizing influence on the design, pricing, and
availability of accountant's professional liability insurance. AIIC's sole
business activity was to act as a reinsurer of professional liability insurance
policies which are issued under the AICPA Plan.
As discussed in more depth in our Annual Report on Form 10-K for the fiscal year
ending December 31, 1999, the principal purpose for the formation and operation
of the Company and its wholly owned subsidiaries, including AmerInst Insurance
Company, Ltd. ("AIC Ltd."), is to restructure AIIG's operations and change
AIIG's domicile from Delaware to Bermuda. With its operations now based in
Bermuda, the Company continues to pursue AIIG's mission and purpose.
8
<PAGE>
AMERINST INSURANCE GROUP, LTD.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits
See Index to Exhibits immediately following the signature page.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended March 31, 2000.
9
<PAGE>
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.
AMERINST INSURANCE GROUP, LTD.
------------------------------
(Registrant)
May 15, 2000 /s/ Janice E. Witkowski
-------------------------------
Janice E. Witkowski
(Vice President and Chief Financial Officer,
duly authorized to sign this Report in such
capacity and on behalf of the Registrant.)
10
<PAGE>
AMERINST INSURANCE GROUP, LTD.
INDEX TO EXHIBITS
Quarterly Period Ended March 31, 2000
Exhibit
Number Description
- ------ -----------
3(i) Memorandum of Association of the Company (1)
3(ii) Bye-laws of the Company (1)
4.1 Section 47 of the Company's Bye-laws -- included in Exhibit
3(ii) above
4.2 Statement of Share Ownership Policy, as Amended (9)
10.1 Reinsurance Treaty between AIIC and Virginia Surety Company, Inc. (2)
10.2 Agreement between Country Club Bank and AIIC (2)
10.3 Agreement between Country Club Bank and AIIG (2)
10.4 Reinsurance Treaty between AIIC and CNA Insurance Companies (3), 1994
placement slip (4), 1995 placement slip (5), 1996 placement slip (6),
1997 placement slip (9), and 1998 placement slip (10) and Endorsement
No. 1 to the Treaty effective July 1, 1999 (11)
10.5 Revised Management Agreement between Vermont Insurance Management,
Inc. and AIIC dated May 1, 1997 (7), Addenda to Management Agreement
dated July 1, 1997 (8) and Addenda to Management Agreement dated July
1, 1998 (10)
10.6 Escrow Agreement among AIIC, United States Fire Insurance Company and
Harris Trust and Savings Bank dated March 7, 1995 (5)
10.7 Security Trust Agreement among AIIC, Harris Trust and Savings Bank and
Virginia Surety Company, Inc. dated March 9, 1995 (5)
10.8 Investment Advisory Agreement For Discretionary Accounts between
Amerinst Insurance Company and Harris Associates L.P. dated as of
January 22, 1996, as amended by the Amendment to Investment Advisory
Agreement for Discretionary Accounts dated as of April 2, 1996 (10)
10.9 Exchange Agreement between the Company the AIG Ltd., dated as of
January 20, 1999 (1)
10.10 Reinsurance Treaty between AIC Ltd. and CNA Insurance Companies,
effective December 1, 1999 (11)
10.11 Value Plan Reinsurance Treaty between AIC Ltd. and CNA Insurance
Companies, effective December 1, 1999 (11)
16 Letter regarding change in Certifying Accountant (1)
21 Subsidiaries of the Registrant (1)
23 Consent of Independent Accountants (11)
27 Financial Data Schedule (Filed Herewith)
- --------------------------
(1) Filed with the Company's Registration Statement on Form S-4, Registration
No. 333-64929 and incorporated herein by reference.
(2) Filed with the AIIG's Annual Report on Form 10-K for the year ended
December 31, 1992 and incorporated herein by reference.
(3) Filed with the AIIG's Annual Report on Form 10-K for the year ended
December 31, 1993 and incorporated herein by reference.
(4) Filed with the AIIG's Annual Report on Form 10-K for the year ended
December 31, 1994 and incorporated herein by reference.
(5) Filed with the AIIG's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1995 and incorporated herein by reference.
11
<PAGE>
(6) Filed with the AIIG's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996 and incorporated herein by reference.
(7) Filed with the AIIG's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1997 and incorporated herein by reference.
(8) Filed with the AIIG's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1997 and incorporated herein by reference.
(9) Filed with AIIG's Annual Report on Form 10-K for the year ended December
31, 1996 and incorporated herein by reference.
(10) Filed with AIIG's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998 and incorporated herein by reference.
(11) Filed with the Company's Annual Report on Form 10-K for the year ended
December 31, 1999.
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<DEBT-HELD-FOR-SALE> 33,008,861
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 8,336,939
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 41,345,800
<CASH> 3,048,679
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 922,831
<TOTAL-ASSETS> 47,385,450
<POLICY-LOSSES> 25,790,880
<UNEARNED-PREMIUMS> 3,238,002
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
0
0
<COMMON> 331,716
<OTHER-SE> 17,362,507
<TOTAL-LIABILITY-AND-EQUITY> 47,385,450
1,660,158
<INVESTMENT-INCOME> 623,574
<INVESTMENT-GAINS> 288,179
<OTHER-INCOME> 0
<BENEFITS> 1,826,172
<UNDERWRITING-AMORTIZATION> 473,146
<UNDERWRITING-OTHER> 289,302
<INCOME-PRETAX> (16,709)
<INCOME-TAX> 0
<INCOME-CONTINUING> (16,709)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (16,709)
<EPS-BASIC> (.05)
<EPS-DILUTED> 0
<RESERVE-OPEN> 24,362,806
<PROVISION-CURRENT> 1,826,172
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 1,072,321
<RESERVE-CLOSE> 25,116,657
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
