SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-Q
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the period ended September 30, 1995 Commission file number: 0-2047
CAPITOL TRANSAMERICA CORPORATION (CTC)
(Exact name of registrant as specified in its charter)
A WISCONSIN CORPORATION 39-1052658
4610 University Avenue
Madison, Wisconsin 53705-0900
Registrant's telephone number, including area code: (608) 231-4450
Securities registered pursuant to Section 12 (g) of the Act:
COMMON STOCK, $1.00 PAR VALUE
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 twelve 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
Based on the closing average of the high (19 3/8) and low price (19),
the aggregate market value of voting stock held by non-affiliates
of the registrant as of September 30, 1995 was approximately
$128,627,455.
Indicate the number of shares of each of the issuer's class of
common stock, as of the latest practicable date:
At September 30, 1995
Common Stock, $1.00 Par Value;
Issued: 6,894,467
Outstanding: 6,703,711
Total Pages: 22
<PAGE>
Securities and Exchange Commission
Washington, D.C. 20549
Form 10-Q
Part I
Financial Information Page
Consolidated Financial Statements 3 - 7
Notes to Consolidated Financial Statements 8 - 9
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10 - 12
Condensed Statutory Financial
Statements of Subsidiaries 13
Part II
Other Information and Exhibits
Other Disclosures 15
Officers and Directors 16
Signatures 17
Exhibit 1 (Press Release) 18 - 21
Exhibit 2 (Special Press Release) 22
2
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<TABLE>
CAPITOL TRANSAMERICA CORPORATION
CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 30, December 31, September 30,
1995 1994 1994
<S> <C> <C> <C>
ASSETS
Investments:
Available-for-sale investment securities, at fair value
U.S. Government bonds (amortized cost $597,235, $607,165
and $612,053, respectively) $ 601,452 $ 583,711 $ 598,637
State, municipal and political subdivision bonds (amortized
cost $65,046,918, $55,980,952 and $54,694,184, respectively) 70,275,297 56,747,846 56,223,465
Corporate bonds and notes (amortized cost $879,373,
$2,256,865 and $2,602,653, respectively) 926,996 2,197,810 2,625,922
Equity securities:
Common stock (cost $47,736,672, $32,295,835 and
$30,188,865, respectively) 58,163,813 30,804,059 29,441,710
Nonredeemable preferred stock (cost $3,717,586, $3,052,524
and $3,854,979, respectively) 3,812,762 2,864,850 3,750,250
Investment real estate, at cost, net of depreciation 1,469,887 1,442,910 1,311,488
Short-term investments, at cost which
approximates fair value 2,517,326 10,143,960 7,099,296
Total Investments 137,767,533 104,785,146 101,050,768
Cash 295,501 1,253,320 573,423
Accrued investment income 1,576,550 1,366,123 1,280,033
Receivables from agents, insureds and others, less allowance for
doubtful accounts of $310,000, $262,260 and $248,500, respectively 12,736,500 9,344,224 10,814,140
Balances due from reinsurers 619,071 201,045 524,681
Funds held by ceding reinsurers 77,117 137,422 137,422
Reinsurance recoverable on unpaid losses 262,211 12,363 489,165
Reinsurance recoverable on paid losses 195,014 54,259 89,623
Deferred insurance acquisition costs 9,018,701 7,715,389 7,913,696
Prepaid reinsurance premiums 877,113 627,038 698,848
Due from securities brokers - 3,987
Income taxes receivable - 481,711 447,378
Deferred income taxes - 1,211,241 293,621
Other assets 477,435 443,914 488,830
Total Assets $163,902,746 $127,633,195 $124,805,615
</TABLE>
3
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<TABLE>
CAPITOL TRANSAMERICA CORPORATION
CONSOLIDATED BALANCE SHEETS
<CAPTION>
September 30, December 31, September 30,
1995 1994 1994
<S> <C> <C> <C>
LIABILITIES
Policy liabilities and accruals:
Reserve for losses $ 24,817,806 $ 19,144,647 $ 19,119,091
Reserve for loss adjustment expenses 10,603,291 8,330,676 5,133,469
Unearned premiums 30,747,328 26,794,249 27,420,251
Total Policy Liabilities and Accruals 66,168,425 54,269,572 51,672,811
Accounts payable 3,617,179 3,913,672 3,420,173
Due to securities brokers 350,450 300,000 501,039
Balances due to reinsurers 1,631,780 901,055 748,751
Accrued premium taxes 255,518 269,722 315,123
Income taxes payable 349,149 - -
Deferred income taxes 4,487,389 - -
Total Other Liabilities 10,691,465 5,384,449 4,985,086
Total Liabilities 76,859,890 59,654,021 56,657,897
SHAREHOLDERS' INVESTMENT
Common stock, $1.00 par value, authorized 15,000,000 shares,
issued 6,894,467, 6,877,596 and 6,873,488, respectively 6,894,467 6,877,596 6,873,488
Paid-in surplus 7,996,027 7,931,671 7,912,112
Net unrealized appreciation (depreciation) on investment securities
carried at fair value, net of deferred taxes of $5,372,862, $338,322
and $233,665, respectively 10,429,673 (656,743) 453,585
Retained earnings 62,044,396 54,157,275 53,239,158
Shareholders' investment before treasury stock 87,364,563 68,309,799 68,478,343
Treasury stock, 190,756, 191,273 and 191,273 shares,
respectively, at cost (321,707) (330,625) (330,625)
Total Shareholders' Investment 87,042,856 67,979,174 68,147,718
Total Liabilities and Shareholders' Investment $163,902,746 $127,633,195 $124,805,615
Book Value Per Share $ 12.98 $ 10.17 $ 10.20
Shares Outstanding 6,703,711 6,686,323 6,682,215
</TABLE>
4
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<TABLE>
CAPITOL TRANSAMERICA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
For the Nine Months For the Three Months
Ended September 30 Ended September 30
<CAPTION>
1995 1994 1995 1994
<S> <C> <C> <C> <C>
REVENUES
Premiums earned $ 46,578,365 $ 38,768,832 $ 16,446,484 $ 13,551,139
Net investment income 4,781,290 3,889,170 1,669,199 1,352,814
Realized investment gains 868,309 (114,088) (743) (134,876)
Other revenues 143,315 104,539 16,107 21,782
Total Revenues 52,371,279 42,648,453 18,131,047 14,790,859
LOSSES INCURRED AND EXPENSES
Losses incurred 17,714,251 14,745,286 6,888,189 5,013,790
Loss adjustment expenses incurred 5,868,831 3,949,434 1,366,565 1,477,186
Underwriting, acquisition and insurance expenses 15,950,007 13,347,743 5,646,838 4,570,338
(Increase) decrease in deferred insurance acquisition costs (1,303,312) (982,680) 61,874 (296,460)
Other expenses 850,102 908,124 360,668 366,797
Total Losses Incurred and Expenses 39,079,879 31,967,907 14,324,134 11,131,651
Income from operations before income taxes 13,291,400 10,680,546 3,806,913 3,659,208
Income tax expense (benefit)
Current 3,541,165 2,823,605 1,273,116 940,579
Deferred (12,555) 62,725 (323,050) 116,121
3,528,610 2,886,330 950,066 1,056,700
Net Income $ 9,762,790 $ 7,794,216 $ 2,856,847 $ 2,602,508
INCOME PER SHARE $ 1.46 $ 1,17 $ 0.43 $ 0.39
Weighted Average Number of Shares Outstanding 6,691,722 6,666,547 6,691,722 6,666,547
</TABLE>
5
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<TABLE>
CAPITOL TRANSAMERICA CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' INVESTMENT
<CAPTION>
Unrealized
(Depreciation)
Common Appreciation
Stock on Securities
(Par Value Paid-In Carried at Retained Treasury
$1.00) Surplus Fair Value Earnings Stock
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 $ 6,877,596 $ 7,931,671 $ (656,743) $54,157,275 $ (330,625)
Net income - - - 9,762,790 -
Unrealized appreciation on
securities, net of deferred taxes - - 11,086,416 - -
Stock options exercised 16,871 64,356 - - (935)
Dividends paid - - - (1,875,669) -
Other, net - - - - 9,853
Balance, September 30, 1995 $ 6,894,467 $ 7,996,027 $10,429,673 $62,044,396 $ (321,707)
</TABLE>
6
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<TABLE>
CAPITOL TRANSAMERICA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
September 30, December 31, September 30,
1995 1994 1994
Cash flows provided by operating activities:
<S> <C> <C> <C>
Net Income $ 9,762,790 $ 9,247,240 $ 7,794,216
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 273,982 344,328 274,791
Realized investment (gains) losses (868,309) 106,188 114,088
Change in:
Deferred insurance acquisition costs (1,303,312) (784,373) (982,680)
Unearned premiums 3,953,079 3,466,567 4,092,569
Allowance for doubtful accounts receivable from agents 45,000 60,000 45,000
Accrued investment income (210,427) (26,674) 59,416
Receivables from agents, insureds and others (3,437,276) (415,046) (1,869,962)
Balances due to/from reinsurers 312,699 55,481 (420,459)
Reinsurance recoverable on paid and unpaid losses (390,603) 117,133 (395,033)
Funds held by ceding reinsurers 60,305 (2,829) (2,829)
Income taxes payable 830,860 (2,000,010) (1,965,677)
Deferred income taxes (12,554) (262,036) 83,597
Due to/from securities brokers 50,450 2,651,078 2,848,130
Prepaid reinsurance premiums (250,075) 601,845 530,035
Other assets 147,948 504,974 321,437
Reserve for losses and loss adjustment expenses 7,945,774 8,155,874 4,933,111
Accounts payable (296,493) (239,443) (732,942)
Accrued premium taxes (14,204) 6,432 51,833
Net cash provided by operating activities 16,599,634 21,586,729 14,778,641
Cash flows provided by (used for) investing activities:
Proceeds from sales of available-for-sale investments 12,454,050 1,895,147 1,260,254
Purchases of available-for-sale investments (33,398,210) (26,596,166) (19,329,883)
Maturities of available-for-sale investments 5,599,361 6,074,710 4,899,977
Purchase of depreciable assets (427,130) (320,920) (160,626)
Net cash used for investing activities (15,771,929) (18,947,229) (13,330,278)
Cash flows provided by (used for) financing activities:
Cash dividends paid (1,875,669) (2,938,618) (2,403,711)
Stock options exercised 81,227 139,710 116,043
Net proceeds from sale (purchase) of treasury stock 8,918 8,444 8,444
Net cash used for financing activities (1,785,524) (2,790,464) (2,279,224)
Net decrease in cash (957,819) (150,964) (830,861)
Cash, beginning of period 1,253,320 1,404,284 1,404,284
Cash, end of period $ 295,501 $ 1,253,320 $ 573,423
Cash paid during the year for:
Income taxes $ 2,717,638 $ 5,427,361 $ 4,775,000
Interest - - -
</TABLE>
7
<PAGE>
CAPITOL TRANSAMERICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995
(1) Basis of Presentation
The condensed financial statements included herein of Capitol
Transamerica Corporation (the "Company"), other than the Consolidated
Balance Sheet as of December 31, 1994, and the Consolidated Statement
of Cash Flows as of December 31, 1994, have been prepared by the Compa-
ny without audit, pursuant to the rules and regulations of the
Securities Exchange Commission. Certain information and footnote dis-
closures normally included in financial statements prepared in accor-
dance with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations.
Although the Company believes the disclosures are adequate to make the
information presented not misleading, it is suggested that these con-
densed financial statements be read in conjunction with the financial
statements and the notes thereto included in the Company's 1994 annual
report on Form 10-K. Wherever applicable, prior period's information
has been restated to reflect the June 15, 1992 three-for-two stock
split effected as a stock dividend. Certain amounts in the prior
periods' consolidated financial statements have been reclassified to
conform with the 1995 presentation.
(2) Income Per Share
Net income per share is computed by dividing net income by the weighted
average number of shares of stock outstanding during the period.
(3) Income Taxes
Deferred income taxes reflect the net tax effects of temporary differ-
ences between the carrying amounts of assets and liabilities for finan-
cial statement purposes and the amounts used for income taxes.
(4) Common Stock Options
There were 16,871 options exercised during the nine months ended Sep-
tember 30, 1995 and there were 27,078 options exercised during the
nine months ended September 30, 1994. For further information regard-
ing stock options refer to Note 6 of Notes to Consolidated Financial
Statements included in the Company's 1994 annual report.
(5) Dividends
1995
On July 28, 1995 a cash dividend of $.10 per share was declared to
shareholders of record September 15 and paid September 29 in the
amount of $670,359.
On May 09, 1995 a cash dividend of $.10 per share was declared to
shareholders of record June 15 and paid June 30 in the amount of
$670,006.
On January 27, 1995 a cash dividend of $.08 per share was declared to
shareholders of record March 17 and paid March 31 in the amount of
$535,304.
1994
On October 28, 1994 a cash dividend of $.08 per share was declared to
shareholders of record December 15 and paid December 30 in the amount
of $534,907.
On July 29, 1994 a cash dividend of $.08 per share was declared to
shareholders of record September 15 and paid September 30 in the amount
of $534,585.
On May 3, 1994 a cash dividend of $.08 per share was declared to share-
holders of record June 15 and paid June 30 in the amount of $534,176.
On January 28, 1994 a regular cash dividend of $.08 per share and an
extra cash dividend of $.12 per share were declared to shareholders of
record March 4 and paid March 18 in the amount of $1,334,950.
8
<PAGE>
(6) Investments
Fixed maturities and equity securities are classified as available-for-
sale and, accordingly, are carried at fair value, with unrealized gains
and losses reported as a separate component of shareholders' investment
net of taxes. The cost of fixed maturities is adjusted for amortization
of premiums and discounts to maturity. Fixed maturities and equity
securities deemed to have declines in value that are other than tempo-
rary are written down through the statement of income to carrying
values equal to their estimated fair values.
Investment real estate is carried at cost net of accumulated deprecia-
tion of $116,4862, $82,130 and $72,080 as of September 30, 1995, De-
cember 31, 1994 and September 30, 1994, respectively.
Cost of investments sold is determined under the specific identifica-
tion method.
(7) Contingent Liabilities
The Company is a defendant in certain lawsuits involving complaints
which demand damages and recoveries for claims and losses alledgedly
related to risks insured by the Company. In the opinion of management,
such lawsuits are routine in that they result from the ordinary course
of business in the insurance industry. The reserve for losses includes
management's estimates of the probable ultimate cost of settling all
losses involving lawsuits.
9
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
OVERVIEW
Capitol Transamerica Corporation (the "Company") is an insurance holding company
operating in 33 states which writes, through its insurance subsidiaries, both
property-casualty and fidelity-surety insurance. The property-casualty segement
accounts for approximately 78% of the business written while the fidelity-surety
segment accounts for approximately 22% of the Company's business.
The underwriting cylcles of the property-casualty insurance industry have been
characterized by peak periods of adequate rates, underwriting profits and lower
combined ratios, while the downward side of the cycle is characterized by inade-
quate rates, underwriting losses and, as a result, higher combined ratios. The
adequacy of premium rates is affected primarily by the severity and frequency of
claims which in turn are affected by natural disasters, regulatory measures and
court decisions which continue to uphold the "deep pocket" theory in awarding
against insurance companies. Unfortunately for the insurance industry, the trend
of increasing price competition has continued as has the number of significant
natural disasters. This combination has resulted in considerable reduction in
underwriting profitability for the industry as a whole.
Inflation also has a significant impact on the insurance industry in general, as
well as on the Company. Inflation creates higher claim costs, which are then
matched currently against premiums whose rating statistics were developed from
data of previous years. In recent inflationary periods, this has led to inade-
quate rate structures, since rate regualtors are slow to grant rate adjustments
at times when the overall economy is in an inflationary cycle. Studies have
shown that premium rates trail the claim experience by a period of two years or
more. Adequate premium rates continue to be of concern to the Company as well as
the entire property-casulaty insurance industry.
OPERATING RESULTS
As mentioned in the Overview section, the property-casualty insurance industry
is in a downward cycle. However, based on its operating results the Company is
in a peak period as it continues to generate considerable underwriting profits.
The Company's increase in premiums earned has been strictly due to volume
increases resulting from new product lines, expansion of coverages and entry in-
to new geographic territories. The ability to maintain a steady combined ratio,
typically 15 to 20 points below the industry average, is due to its basic phi-
losophy of generating underwriting profits. When the industry's cycle reverses,
the Company will be in an excellent position to take advantage of premium rate
increases which will benefit the Company's overall profitability.
For the nine months ended September 30, 1995 gross premiums written were
$52,173,363 compared with $58,564,342 for the year ended December 31, 1994 and
$44,912,718 at September 30, 1994.
Premiums earned are recognized as net revenues after reduction for reinsurance
ceded and after establishment of the provision for the pro-rata unearned portion
of premiums written. Net premiums earned totaled $46,578,365, $52,461,456 and
$38,768,832 for the respective periods; and net unearned premiums were
$30,747,328, $26,794,249 and $27,420,251 at each respective period.
<TABLE>
<CAPTION>
September 30, December 31, September 30,
1995 1994 1994
<S> <C> <C> <C>
Gross Premiums Written $52,173,363 $58,564,342 $44,912,718
Reinsurance Ceded 1,891,994 1,912,401 1,399,209
Net Premiums Written $50,281,369 $56,651,941 $43,513,509
Net Premiums Earned $46,578,365 $52,461,456 $38,768,832
Net Unearned Premium Reserve $30,747,328 $26,794,249 $27,420,251
10
<PAGE>
The Company's underwriting results can be measured by reference to the combined loss and expense ratios. This
tabulation includes the operating results of the two subsidiary insurance companies on a statutory basis. Loss and loss
adjustment expenses are stated as a ratio of net premiums earned, while underwriting expenses are stated as a ratio of net
premiums written. The combined ratios were as follows:
<CAPTION>
September 30, December 31, September 30,
Insurance Operating Ratios (Statutory Basis): 1995 1994 1994
<S> <C> <C> <C>
Loss and Loss Adjustment Expenses 50.5% 52.3% 47.9%
Underwriting Expenses 32.9% 32.4% 31.9%
Combined Ratios 83.4% 84.7% 79.8%
The Company's combined loss and expense ratios compare very favorably with the industry average of 106.3% for the
first six months of 1995 and 108.5% for the full year of 1994.
</TABLE>
REINSURANCE
The Company follows the customary practice of reinsuring with other companies,
i.e., ceding a portion of its exposure on the policies it has written. This pro-
gram of reinsurance permits the Company greater diversification of business and
the ability to write larger policies while limiting the extent of its maximum
net loss. It provides protection for the Company against unusually serious oc-
currences in which a number of claims could produce a large aggregate loss.
Management continually monitors the Company's reinsurance program to obtain pro-
tection that should be adequate to ensure the availability of funds for losses
while maintaining future growth.
NET INVESTMENT INCOME AND REALIZED GAINS
In accordance with SFAS No. 115, the Company's fixed maturities and equity se-
curites are classified as available-for-sale and are carried at fair value. The
unrealized gains and losses, net of tax, are reported as a separate component of
shareholders investment.
Interest and Dividend Income: Interest on fixed maturities is recorded as income
when earned and is adjusted for any amortization of purchase premium or dis-
count. Dividends on equity securities are recorded as income on ex-dividend
dates.
<TABLE>
<CAPTION>
September 30, December 31, September 30,
Investments: 1995 1994 1994
<S> <C> <C> <C>
Invested Assets $ 137,767,533 $ 104,785,146 $ 101,050,768
Net Investment Income 4,781,290 5,359,606 3,889,170
Percent of Return to
Average Carrying Value 5.6% 5.6% 5.5%
Realized Gains (Losses) 868,309 (106,188) (114,088)
Change in Unrealized Gains(Losses) $ 16,797,600 $ (6,251,923) $ (4,569,609)
</TABLE>
The $16,798,0000 increase in unrealized gains for 1995 was composed of a
$4,596,000 increase in fixed maturities and a $12,202,000 increase in equity se-
curities. The Company not only has gained back all the unrealized losses ex-
perienced in 1994, but has another $10,546,000 in additional appreciation. Net
investment income for the nine months of 1995 was up 23% over the first nine
months of 1994. Net unrealized gains (losses) were $15,802,536, ($995,065) and
$687,250 as of September 30, 1995, December 31, 1994 and September 30, 1994.
11
<PAGE>
INCOME TAXES
Income tax expense is based on income reported for financial statement purposes
and tax laws and rates in effect for the years presented. Deferred federal in-
come taxes arise from timing differences between the recognition of income de-
termined for financial reporting purposes and income tax purposes. Such timing
differences are related principally to the deferral of policy acquisition costs,
the recognition of unearned premiums, and discounting the claims reserves for
tax purposes. Deferred taxes are also provided on unrealized gains and losses.
LOSS RESERVES
Reserves for loss and loss adjustment expenses reflect the Company's best esti-
mate of the liability for the ultimate cost of reported claims and incurred but
not reported (IBNR) claims as of the end of each period. The estimates are based
on past claim experience and consider current claim trends as well as social and
economic conditions. The Company's reserve for loss and loss adjustment expenses
was $35,421,097 as of September 30, 1995 compared with $27,475,323 as of De-
cember 31, 1994 and $24,252,560 as of September 30,1994. This increase is a com-
bination of giving consideration for the increase in premium volume, increased
retention on all lines of coverages written and an increase in the IBNR re-
serves. Management continues to closely monitor the reserve development trends
and projections as it attempts to stabilize the loss reserve development which
has occurred in recent years.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity refers to the Company's ability to meet obligations as they become
due. The obligations and cash outflow of the Company include claims settlements,
acquisition and administrative expenses, investment purchases and dividends to
shareholders. In addition to satisfying obligations and cash outflow through
premium collections, there is cash inflow obtained from interest and dividend
income, maturities and sales of investments. Because cash inflow from premiums
is received in advance of cash outflow required to settle claims, the Company
accumulates funds which it invests pending liquidity requirements. Therefore,
investments represent the majority (84.1%, 82.1% and 81.0% at each respective
period) of the Company's assets. Cash outflow can be unpredictable for two rea-
sons: first, a large portion of liabilities representing loss reserves have un-
certainty regarding settlement dates; and second, there is potential for losses
occurring either individually or in aggregate. As a result, the Company main-
tains adequate short-term investment programs necessary to ensure the availa-
bility of funds. The investment program is structured so that a forced sale li-
quidation of fixed maturities should not be necessary during the course of ordi-
nary business involvement and activities. The Company has no material capital
expenditure commitments.
12
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<TABLE>
INSURANCE SUBSIDIARY FINANCIAL STATEMENTS
Statutory Basis as Reported to State Regulatory Authorities
September 30, 1995, December 31, 1994 and September 30, 1994
CAPITOL INDEMNITY CORPORATION September 30, December 31, September 30,
Balance Sheets 1995 1994 1994
<S> <C> <C> <C>
ASSETS
Cash and Invested Assets $ 121,547,899 $ 96,224,984 $ 90,697,302
Other Receivables 13,278,253 10,069,285 11,960,473
Total Assets $ 134,826,152 $106,294,269 $102,657,775
LIABILITIES
Reserve for Losses and Loss Expenses $ 34,632,248 $ 26,829,156 $ 23,091,027
Unearned Premiums 29,870,215 26,167,211 26,721,403
Other Payables 13,657,686 12,645,939 10,898,038
Total Liabilities 78,160,149 65,642,306 60,710,468
SURPLUS AS REGARDS POLICYHOLDERS
Shareholder's Equity 56,666,003 40,651,963 41,947,307
Total Liabilities and Capital $ 134,826,152 $106,294,269 $102,657,775
Statements of Income
Premiums Earned $ 46,241,603 $ 51,476,687 $ 37,901,254
Underwriting Deductions 39,768,163 45,441,802 32,148,375
Net Underwriting Gain 6,473,440 6,034,885 5,752,879
Investment Income Including Sales 4,771,408 4,287,368 3,045,128
Other Income (Expense) 118,208 (40,763) (52,401)
Income Tax Expense 3,430,265 2,865,727 2,401,929
Net Income $ 7,932,791 $ 7,415,763 $ 6,343,677
CAPITOL SPECIALTY INSURANCE CORPORATION
Balance Sheets
ASSETS
Cash and Invested Assets $ 5,614,880 $ 5,283,210 $ 5,321,014
Other Receivables 83,861 75,084 71,545
Total Assets $ 5,698,741 $ 5,358,294 $ 5,392,559
LIABILITIES
Other Payables 9,155 4,786 4,134
Total Liabilities 9,155 4,786 4,134
SURPLUS AS REGARDS POLICYHOLDERS
Shareholder's Equity 5,689,586 5,353,508 5,388,425
Total Liabilities and Capital $ 5,698,741 $ 5,358,294 $ 5,392,559
Statements of Income
Premiums Earned $ 849 $ 260,879 $ 256,083
Underwriting Deductions 14,682 126,974 153,039
Net Underwriting (Loss) Gain (13,833) 133,905 103,044
Investment Income Including Sales 210,607 230,004 199,996
Other Income - 138,171 142,865
Income Tax Expense 7,891 69,248 74,707
Net Income $ 188,883 $ 432,832 $ 371,198
</TABLE>
13
<PAGE>
PART II
14
<PAGE>
Other Disclosures
Item 1. Legal Proceedings
Reference is made to footnote number 7 "Contingent
Liabilities" on Page 9 of this report.
Item 2. Changes in Securities
NONE
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders
Reference is made to the Notice of Annual Meeting of
Shareholders and Proxy Statement for the Annual
Meeting of Shareholders which was held May 8, 1995,
both of which are dated April 3, 1995 and previously
filed with the Securities and Exchange Commission
and are incorporated herein as an exhibit by
reference.
Item 5. Other Information
NONE
Item 6. Exhibits and Reports on Form 8-K
NONE
15
<PAGE>
CAPITOL TRANSAMERICA CORPORATION
Subsidiaries
Capitol Indemnity Corporation
Capitol Specialty Insurance Corporation
Capitol Facilities Corporation
Board of Directors
Paul J. Breitnauer Michael J. Larson
Vice President and Treasurer President
Capitol Transamerica Corporation Bank One Madison
Sun Prairie, Wisconsin Madison, Wisconsin
George A. Fait Reinhart H. Postweiler
Chairman of the Board Retired-formerly with
and President Flad Affiliated Corp.
Capitol Transamerica Corporation Madison, Wisconsin
Madison, Wisconsin
Robert W. Goodwin Richard E. Tipple
Retired-formerly with Retired-formerly with
Dean Witter Reynolds, Inc. Univ. of Wisconsin
Clearwater, Florida Planning Department
Stoughton, Wisconsin
Officers
George A. Fait Virgiline M. Schulte
Chairman of the Board and President Secretary
Paul J. Breitnauer Jane F. Endres
Vice President and Treasurer Assistant Secretary
16
<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.
CAPITOL TRANSAMERICA CORPORATION
George A. Fait
Chairman of the Board and President
Paul J. Breitnauer
Vice President and Treasurer
Date: October 27, 1995
17
<PAGE>
CAPITOL TRANSAMERICA CORPORATION
FOR IMMEDIATE RELEASE Contact: Paul J. Breitnauer
OCTOBER 20, 1995 Phone (608) 231-4450
NEWS RELEASE
1995 EARNINGS INCREASE 25.3% THROUGH FIRST NINE MONTHS
Madison, Wisconsin, October 20, 1995- George A. Fait, Chairman, today announced
that third quarter earnings were up 9.8% over the comparable quarter of 1994.
Consolidated net income for the quarter ended September 30, 1995 was $2.9
million or $.43 per share compared with $2.6 million or $.39 per share for the
same period in 1994.
Year to date earnings were $9.8 million or $1.46 per share compared with
$7.8 million or $1.17 per share in 1994, a 25.3% increase. Nine months income
in 1995 included $868,000 or $.13 per share of pre-tax capital gains while the
first nine months of 1994 included pre-tax capital losses of $114,000 or $.02
per share. Excluding capital gains or losses, net of tax, income for the nine
months of 1995 was $1.37 per share compared with $1.18 per share for the same
period last year, a 16.8% increase.
Third quarter 1995 gross premiums written were $18.2 million compared with
$15.5 million for the same period in 1994, a $2.7 million increase or $18.0%.
Net premiums earned for the third quarter increased from $13.6 million in 1994
to $16.5 million in 1995, a 21.4% increase.
Gross premiums written for the first nine months of 1995 were $52.2 million
compared with $44.9 million for the same period in 1994, a 16.2% increase. Net
premiums earned increased 20.1% for the first nine months from $38.8 million in
1994 to $46.6 million in 1995.
Total cash and invested assets at September 30, 1995 were $138.1 million
compared with $101.6 million at September 30, 1994, an increase of 35.9%. Net
investment income for the nine months of 1995 was $4.8 million compared with
$3.9 million for the same period in 1994, a 22.9% increase.
Shareholders' equity at September 30, 1995 was $87.0 million or $12.98 per
share compared with $68.1 million or $10.20 per share for the same period in
1994, a 27.7% increase.
Dividends paid in the first nine months of 1995 totaled $.28 per share. The
Board of Directors increased the quarterly dividend policy to $.10 per share
beginning with the second quarter of 1995.
18
<PAGE>
Fait stated "the combined net loss, loss expense and general expense ratio
for the nine months of 1995 was 83.4% compared with 79.8% for the like period of
1994. The ability to maintain a favorable combined ratio while increasing prem-
ium volume indicates that we have kept true to our basic philosophy of producing
underwriting profits while continuing to increase investment income resulting in
positive earnings. Overall the Company continues to show a most favorable com-
bined ratio compared to the industry average of 106.3% for the first six months
of 1995 and 108.0% for the full year of 1994."
The Company anticipates achieving its goal of increasing premiums written
by 15% over 1994 and is currently seeking admission in additional states. By
utilizing resources generated by its strong financial position, the Company is
continuing to meet the challenge of maintaining a steady pattern of growth and
expansion with continuing profitability.
Market value in excess of cost of the Company's investment portfolio in-
creased by $16.8 million in the first nine months due to increased values in the
equity portfolio and the decrease in interest rates which resulted in an
increase in appreciation of the Company's bond portfolio.
Capital Transamerica Corporation is an insurance holding company operating
a regional insurance business writing specialty lines of commercial property and
casualty policies as well as fidelity and surety coverages through its sub-
sidiary insurance companies Capitol Indemnity Corporation and Capitol Specialty
Insurance Corporation. A third subsidiary, Capitol Facilities Corporation, pro-
vides premium financing for the insurance companies. The Capitol Transamerica
Group operates in 33 states and is rated A+ (Superior) by A.M. Best Company,
Inc., and independent organization that analyzes the insurance industry.
Capitol Transamerica Corporation, with 6.7 million shares outstanding, is
traded on the National Over-the-Counter Stock Market under the symbol CATA.
FINANCIAL HIGHLIGHTS FOLLOW
19
<PAGE>
CAPITOL TRANSAMERICA CORPORATION
SELECTED FINANCIAL DATA
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share)
<CAPTION>
Nine months ended Three months ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
REVENUES
Gross premiums written $ 52,173 $ 44,913 $ 18,243 $ 15,467
Net premiums written 50,281 43,514 17,583 15,069
Net premiums earned 46,578 38,769 16,446 13,551
EXPENSES
Claims and claim expenses 23,583 18,695 8,255 6,491
Other underwriting expenses 15,497 13,273 6,069 4,641
Total Losses and Expenses Incurred 39,080 31,968 14,324 11,132
Underwriting income 7,498 6,801 2,122 2,419
Investment income 4,781 3,889 1,669 1,353
Realized investment gains 868 (114) (1) (135)
Other income 144 104 17 22
Income before income tax 13,291 10,680 3,807 3,659
Income tax expense 3,528 2,886 950 1,056
NET INCOME $ 9,763 $ 7,794 $ 2,857 $ 2,603
EARNINGS PER SHARE $ 1.46 $ 1.17 $ 0.43 $ 0.39
<CAPTION>
COMPARATIVE FINANCIAL HIGHLIGHTS- Nine Months Ended September 30,
1995 1994 1993 1992 1991
Per Share Information
<S> <C> <C> <C> <C> <C>
Income per share $ 1.46 $ 1.17 $ 1.01 $ 1.00 $ 1.24
Consolidated net income $ 9,762,790 $ 7,794,216 $ 6,654,705 $ 6,555,138 $ 7,980,394
Weighted average number
of shares outstanding 6,691,722 6,666,547 6,621,211 6,557,151 6,419,909
Book value per share $ 12.98 $ 10.20 $ 9.07 $ 8.00 $ 6.80
Shareholders' investment $ 87,042,856 $ 68,147,718 $ 60,292,714 $ 52,578,079 $ 44,461,395
Dividends paid $ 1,871,039 $ 2,403,711 $ 2,486,582 $ 1,373,401 $ 970,548
Shares outstanding 6,703,711 6,682,215 6,648,370 6,572,564 6,539,334
Company Statistics:
Gross premiums written $ 52,173,363 $ 44,912,718 $ 36,934,895 $ 28,871,506 $ 25,208,403
Net investment income $ 4,781,290 $ 3,889,170 $ 3,672,757 $ 3,543,910 $ 3,126,480
Invested assets $137,767,533 $101,050,768 $ 86,915,138 $ 71,671,374 $ 63,651,020
Total assets $163,902,746 $124,805,615 $109,512,123 $ 92,496,471 $ 78,487,318
Insurance Operating Ratios,
Statutory Basis:
Loss and loss adjustment
expenses: 50.5% 47.9% 49.6% 46.8% 34.2%
Underwriting expenses 32.9% 31.9% 32.6% 35.0% 33.3%
Combined ratios 83.4% 79.8% 82.2% 81.8% 67.5%
20
</TABLE>
<PAGE>
<TABLE>
CAPITOL TRANSAMERICA CORPORATION
SELECTED FINANCIAL DATA
BALANCE SHEETS
(in thousands, except per share)
<CAPTION>
September 30, December 31, September 30,
1995 1994 1994
<S> <C> <C> <C>
ASSETS
Cash and investments $ 138,063 $ 106,038 $ 101,624
Receivables 15,467 11,597 13,787
Other assets 10,373 9,998 9,395
TOTAL ASSETS $ 163,903 $ 127,633 $ 124,806
LIABILITIES
Claims and claim expenses $ 35,421 $ 27,475 $ 24,253
Unearned premiums 30,747 26,794 27,420
Other liabilities 10,692 5,385 4,985
TOTAL LIABILITIES $ 76,860 $ 59,654 $ 56,658
SHAREHOLDERS' EQUITY
Common Stock, $1.00 par value, authorized
15,000,000 shares, issued 6,910,928,
6,877,596 and 6,868,472, respectively $ 6,895 $ 6,877 $ 6,873
Paid-in surplus 7,996 7,932 7,912
Unrealized appreciation (depreciation) on
securities carried at fair value, net of
deferred taxes 10,430 (657) 454
Retained earnings 62,044 54,157 53,239
Less treasury stock, 190,756, 191,273 and
193,148 shares, respectively, at cost (322) (330) (330)
TOTAL SHAREHOLDERS' EQUITY 87,043 67,979 68,148
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $163,903 $127,633 $124,806
SHAREHOLDERS' EQUITY PER SHARE $ 12.98 $ 10.17 $ 10.20
Increase in Shareholders' Equity -
June 30, 1994 to June 30, 1995 27.7%
June 30, 1993 to June 30, 1994 13.0%
21
</TABLE>
<PAGE>
SPECIAL NEWS RELEASE
FOR IMMEDIATE RELEASE Contact: Paul J. Breitnauer
OCTOBER 20, 1995 Phone:(608)231-4450
CAPITOL TRANSAMERICA CORPORATION SELLS ITS OWNERSHIP
IN MILWAUKEE INSURANCE GROUP
Madison, Wisconsin, October 20, 1995 - On September 1, 1995, the Milwaukee
Insurance Group, Inc. called a special meeting of shareholders to approve and
adopt an Agreement and Plan of Merger with Trinity Universal Insurance Company,
a wholly-owned subsidiary of Unitrin, Inc. a Chicago based insurance holding
company. At the special meeting held on September 27, 1995, shareholders ap-
proved of the sale of the Milwaukee Insurance Group to Trinity Universal Insur-
ance Company at a price of $22.00 per share. Unitrin, Inc. approved the trans-
action on October 2, 1995 with payment to be made during the third week in
October. Capitol Indemnity Corporation owned 242,500 shares of Milwaukee Insur-
ance group and was a 5.8425% shareholder. The total gain on this sale will be
$2,382,829 and will be recorded on the books of Capitol Transamerica Corporation
in the fourth quarter of 1995.
22
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<DEBT-HELD-FOR-SALE> 71803745
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 61976575
<MORTGAGE> 0
<REAL-ESTATE> 1469887
<TOTAL-INVEST> 135250207
<CASH> 2812827
<RECOVER-REINSURE> 195014
<DEFERRED-ACQUISITION> 9018701
<TOTAL-ASSETS> 163902746
<POLICY-LOSSES> 35421097
<UNEARNED-PREMIUMS> 30747328
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
<COMMON> 6894467
0
0
<OTHER-SE> 80470096
<TOTAL-LIABILITY-AND-EQUITY> 163902746
46578365
<INVESTMENT-INCOME> 4781290
<INVESTMENT-GAINS> 868309
<OTHER-INCOME> 143315
<BENEFITS> 23583082
<UNDERWRITING-AMORTIZATION> 14646695
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 13291400
<INCOME-TAX> 3528610
<INCOME-CONTINUING> 9762790
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9762790
<EPS-PRIMARY> 1.46
<EPS-DILUTED> 1.46
<RESERVE-OPEN> 27475323
<PROVISION-CURRENT> 13408980
<PROVISION-PRIOR> 10106688
<PAYMENTS-CURRENT> 6440685
<PAYMENTS-PRIOR> 9129209
<RESERVE-CLOSE> 35421097
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
