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 March 31, 1996 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 regis-
trant 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 (20 1/2) and low price (20), the ag-
gregate market value of voting stock held by non-affiliates of the registrant
as of March 31, 1996 was approximately $149,479,709.
Indicate the number of shares of each of the issuer's class of common stock, as
of the latest practicable date:
At March 31, 1996
Common Stock, $1.00 Par Value;
Issued: 7,591,545
Outstanding: 7,381,714
Total Pages: 21
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 Insurance Subsidiaries 13
Part II
Other Information and Exhibits
Other Disclosures 15
Officers and Directors 16
Signatures 17
Exhibit 1 (Press Release) 18 - 21
2
<TABLE>
CAPITOL TRANSAMERICA CORPORATION
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, December 31, March 31,
1996 1995 1995
<S> <C> <C> <C>
ASSETS
Investments:
Available-for-sale investment securities, at fair value
U.S. Government bonds (amortized cost $589,654, $591,928
and $605,837, respectively) $ 596,194 $ 601,571 $ 599,853
State, municipal and political subdivision bonds (amortized
cost $68,762,798, $70,020,468 and $57,794,111, respectively) 73,829,530 77,122,077 61,060,745
Corporate bonds and notes (amortized cost $882,365,
$880,859 and $1,264,902, respectively) 834,539 946,193 1,238,341
Equity securities:
Common stock (cost $52,695,040, $50,412,460 and
$38,614,069, respectively) 66,560,950 63,141,401 38,974,854
Nonredeemable preferred stock (cost $5,006,206, $3,868,836
and $2,443,496, respectively) 5,561,387 4,054,200 2,305,624
Investment real estate, at cost, net of depreciation 1,427,939 1,435,486 1,432,110
Short-term investments, at cost which
approximates fair value 2,406,332 1,915,795 9,365,085
Total Investments 151,216,871 149,216,723 114,976,612
Cash 142,741 602,775 538,295
Accrued investment income 1,707,822 1,718,254 1,308,418
Receivables from agents, insureds and others, less allowance for
doubtful accounts of $335,000, $320,000 and $277,260, respectively 13,204,217 11,874,125 10,468,649
Balances due from reinsurers 787,446 630,448 287,336
Funds held by ceding reinsurers 78,385 77,117 137,422
Reinsurance recoverable on unpaid losses 346,100 45,321 17,432
Reinsurance recoverable on paid losses 247,655 568,379 4,451
Deferred insurance acquisition costs 9,618,675 9,228,868 8,231,403
Prepaid reinsurance premiums 964,312 897,049 662,030
Due from securities brokers - 215,165 -
Income taxes receivable - 110,091 -
Other assets 1,674,177 446,263 673,358
Total Assets $179,988,401 $175,630,578 $137,305,406
</TABLE>
3
<TABLE>
CAPITOL TRANSAMERICA CORPORATION
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, December 31, March 31,
1996 1995 1995
<S> <C> <C> <C>
LIABILITIES
Policy liabilities and accruals:
Reserve for losses $ 26,824,655 $ 25,679,644 $ 20,452,434
Reserve for loss adjustment expenses 13,102,900 12,904,440 9,168,306
Unearned premiums 32,584,552 31,555,728 27,360,355
Total Policy Liabilities and Accruals 72,512,107 70,139,812 56,981,095
Accounts payable 3,717,048 4,362,308 3,649,668
Dividends payable - 745,009 -
Due to securities brokers - 370,123 802,673
Balances due to reinsurers 2,132,943 1,175,565 1,319,059
Accrued premium taxes 208,034 382,544 128,283
Income taxes payable 855,546 - 383,722
Deferred income taxes 5,751,339 5,801,337 607,314
Total Other Liabilities 12,664,910 12,836,886 6,890,719
Total Liabilities 85,177,017 82,976,698 63,871,814
SHAREHOLDERS' INVESTMENT
Common stock, $1.00 par value, authorized 15,000,000 shares,
issued 7,591,545, 6,899,060 and 6,882,575, respectively 7,591,545 6,899,060 6,882,575
Common stock distributable, 689,545 shares at $1.00 par value - 689,545 -
Paid-in surplus 20,987,134 20,949,100 7,949,591
Net unrealized appreciation (depreciation) on investment securities
carried at fair value, net of deferred taxes of $6,611,821, $6,830,903
and $1,175,380, respectively 12,834,716 13,259,988 2,281,622
Retained earnings 53,719,684 51,177,894 56,650,429
Shareholders' investment before treasury stock 95,133,079 92,975,587 73,764,217
Treasury stock, 209,831, 209,831 and 191,273 shares,
respectively, at cost (321,695) (321,707) (330,625)
Total Shareholders' Investment 94,811,384 92,653,880 73,433,592
Total Liabilities and Shareholders' Investment $179,988,401 $175,630,578 $137,305,406
Book Value Per Share $ 12,84 $ 12.55 $ 9.98
Shares Outstanding 7,381,714 7,378,774 7,360,432
</TABLE>
4
<TABLE>
CAPITOL TRANSAMERICA CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
For The Three Months Ended March 31, 1996 and 1995
<CAPTION>
1996 1995
<S> <C> <C>
REVENUES
Premiums earned $ 17,163,574 $ 13,814,920
Net investment income 1,709,655 1,543,149
Realized investment gains 116,259 20,225
Other revenues 31,749 98,084
Total Revenues 19,021,237 15,476,378
LOSSES AND EXPENSES INCURRED
Losses incurred 6,929,081 4,805,947
Loss adjustment expenses incurred 1,646,560 2,123,575
Underwriting, acquisition and
insurance expenses 6,036,403 4,691,449
Increase in deferred insurance
acquisition costs (389,807) (516,014)
Other expenses 312,921 282,408
Total Losses and Expenses Incurred 14,535,158 11,387,365
Income from operations before
income taxes 4,486,079 4,089,013
Income tax expense
Current 1,169,568 974,664
Deferred 36,549 81,260
1,206,117 1,055,924
Net Income $ 3,279,962 $ 3,033,089
INCOME PER SHARE $ 0.45 $ 0.41
Weighted Average Number of Shares Outstanding 7,372,169 7,349,360
5
CAPITOL TRANSAMERICA CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS INVESTMENT
<CAPTION>
Unrealized
Common Appreciation
Common Stock (Depreciation)
Stock Distributable on Securities
(Par Value (Par Value Paid-In Carried at Retained Treasury
$1.00) $1.00) Surplus Fair Value Earnings Stock
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1994 $ 6,846,410 $ - $ 7,823,147 $ 3,469,526 $47,848,653 $ (339,069)
Net income - - - - 9,247,240 -
Unrealized depreciation on available-for
sale securities, net of deferred taxes - - - (4,126,269) - -
Stock options exercised 31,186 - 108,524 - - 8,444
Cash dividends declared - - - - (2,938,618) -
Balance, December 31, 1994 6,877,596 - 7,931,671 (656,743) 54,157,275 (330,625)
Net income - - - - 13,930,406 -
Unrealized appreciation on available-for
sale securities, net of deferred taxes - - - 13,916,731 - -
Stock options exercised 21,464 - 88,460 - - 8,918
Stock dividend declared - 689,545 12,928,969 - (13,618,514) -
Cash dividend declared - - - - (3,291,273) -
Balance, December 31, 1995 6,899,060 689,545 20,949,100 13,259,988 51,177,894 (321,707)
Net income - - - - 3,279,962 -
Unrealized depreciation on available-for
sale securities, net of deferred taxes - - - (425,272) - -
Stock options exercised 2,940 - 38,034 - - -
Stock dividend issued 689,545 (689,545) - - - 12
Cash dividend declared - - - - (738,172) -
Balance, March 31, 1996
6
CAPITOL TRANSAMERICA CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
March 31, December 31, March 31,
1996 1995 1995
Cash flows provided by operating activities:
<S> <C> <C> <C>
Net Income $ 3,279,962 $ 13,930,406 $ 3,033,089
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 130,582 423,119 79,162
Realized investment gains (116,259) (3,587,323) (20,225)
Change in:
Deferred insurance acquisition costs (389,807) (1,513,479) (516,014)
Unearned premiums 1,028,824 4,761,479 566,106
Allowance for doubtful accounts receivable from agents 15,000 65,785 15,000
Accrued investment income 10,432 (352,131) 57,705
Receivables from agents, insureds and others (1,345,092) (2,595,686) (1,139,425)
Balances due to/from reinsurers 800,380 (154,893) 331,713
Reinsurance recoverable on paid and unpaid losses 19,945 (547,078) 44,739
Funds held by ceding reinsurers (1,268) 60,305 -
Income taxes payable 965,637 371,620 1,089,025
Deferred income taxes 169,082 (156,647) 81,260
Due to/from securities brokers (154,958) (145,042) 502,673
Prepaid reinsurance premiums (67,263) (270,011) (34,992)
Other assets (722,684) 294,732 (36,558)
Reserve for losses and loss adjustment expenses 1,343,471 11,108,761 2,145,417
Accounts payable (645,260) 448,636 (264,004)
Accrued premium taxes (174,510) 112,822 (141,439)
Net cash provided by operating activities 4,146,214 22,255,375 5,793,232
Cash flows provided by (used for) investing activities:
Proceeds from sales of available-for-sale investments 577,705 21,046,919 211,577
Purchases of available-for-sale investments (4,409,142) (47,289,410) (9,158,023)
Maturities of available-for-sale investments 1,294,239 6,447,108 3,218,671
Purchase of depreciable assets (626,856) (683,115) (268,077)
Net cash used for investing activities (3,164,054) (20,478,498) (5,995,852)
Cash flows provided by (used for) financing activities:
Cash dividends paid (1,483,180) (2,546,264) (535,304)
Stock options exercised 40,974 109,924 22,899
Net proceeds from sale of treasury stock 12 8,918 -
Net cash used for financing activities (1,442,194) (2,427,422) (512,405)
Net decrease in cash (460,034) (650,545) (715,025)
Cash, beginning of period 620,775 1,253,320 1,253,320
Cash, end of period $ 142,741 $ 602,775 $ 538,295
Cash paid during the year for:
Income taxes $ 61,911 $ 4,497,508 $ 80,000
Interest - - -
</TABLE>
7
CAPITOL TRANSAMERICA CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 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, 1995, and the Consolidated Statement
of Cash Flows as of December 31, 1995, 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 1995 annual
report on Form 10-K. Wherever applicable, prior period's information
has been restated to reflect the December 28,1995 ten percent stock
dividend and 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 1996
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.
Pior periods' information has been restated to reflect the applicable
stock splits.
(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 2,940 options exercised during the three months ended March
31, 1996 and there were 4,979 options exercised during the three
Months ended March 31, 1995. For further information regarding stock
options, refer to Note 6 of Notes to Consolidated Financial Statements
included in the Company's 1995 annual report.
(5) Dividends
1996
On February 23, 1996 a cash dividend of $.10 per share was declared to
shareholders of record March 11 and paid March 28 in the amount of
$738,171.
1995
On October 27, 1995 a ten percent stock dividend was declared to share-
holders of record December 28 and issued January 15, 1996.
On October 27, 1995 a cash dividend of $.10 per share was declared to
shareholders of record December 28 and paid January 15, 1996 in the
amount of $745,009.
On October 27, 1995 a cash dividend of $.10 per share was declared to
shareholders of record December 7 and paid December 22 in the amount
of $670,572.
8
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 9, 1995 a cash dividend of $.10 per share was declared to share-
holders 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.
(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 $137,486, $126,983 and $92,930 as of March 31, 1996, December
31, 1995 and March 31, 1995, 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
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 34 states which writes, through its insurance subsidiaries, both
property-casualty and fidelity-surety insurance. The property-casualty segement
accounts for approximately 75% of the business written while the fidelity-surety
segment accounts for approximately 25% 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 and the
property casulaty industry as a whole.
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 quarter ended March 31, 1996 gross premiums written increased 26.7% over
the same period in 1995. The Company's goal for 1996 is a 19% to 21% increase
in premiums written. Our plan to reach this goal includes geographic expansion
and new product development. In late 1995, Capitol Indemnity Corporation, the
Company's primary insurance subsidiary, became licensed in the state of
Mississippi. We are currently attempting to obtain licensing in the states of
Virginia, Tennessee, North Carolina, and South Carolina. The Company is also
offering workers compensation insurance in Illinois for the first time. This
produce had previously been offered only in Wisconsin. Equipment breakdown in-
surance, covering breakdowns of items such as telephone and computer systems, is
a new product that we are offering in 1996.
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 $17,163,574, $63,865,500 and
$13,814,920 for the respective periods; and net unearned premiums were
$32,584,552, $31,555,728 and $27,360,355 at each respective period.
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1996 1995 1995
<S> <C> <C> <C>
Gross Premiums Written $18,876,847 $70,878,492 $14,903,166
Reinsurance Ceded 751,712 2,521,524 557,132
Net Premiums Written $18,125,135 $68,356,968 $14,346,034
Net Premiums Earned $17,163,574 $63,865,500 $13,814,920
Net Unearned Premium Reserve $32,584,552 $31,555,728 $27,360,355
10
While the Company has encouraging reports with regards to premium writings, its
basic philosophy of generating underwriting profits has not changed. Our selec-
tive underwriting practices will continue in the future. The Company's under-
writing 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. Losses 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>
March 31, December 31, March 31,
Insurance Operating Ratios (Statutory Basis): 1996 1995 1995
<S> <C> <C> <C>
Loss and Loss Adjustment Expenses 49.9% 53.2% 50.4%
Underwriting Expenses 34.5% 32.8% 33.8%
Combined Ratios 84.4% 86.0% 84.2%
The Company's combined loss and expense ratios compare very favorably with the industry average of 107.3% for 1995.
</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>
March 31, December 31, March 31,
Investments: 1996 1995 1995
<S> <C> <C> <C>
Invested Assets $ 151,216,871 $ 149,216,723 $ 114,976,612
Net Investment Income 1,709,655 6,635,123 1,543,149
Percent of Return to
Average Carrying Value 5.3% 5.7% 5.7%
Realized Gains (Losses) 116,259 3,587,323 20,225
Change in Unrealized (Losses)Gains $ (644,354) $ 21,085,956 $ 4,452,069
</TABLE>
The $644,000 decrease in unrealized gains for the first quarter of 1996 was com-
posed of a $1,507,000 increase in market value over cost of the Company's equi-
securities and a $2,151,000 decrease in market value over cost of our fixed
maturities. The decrease in the fixed maturities was caused by rising interest
rates during the first quarter. The Company continued to move more of its in-
vestment portfolio into equity securities in the first quarter of 1996. Future
investment decisions will be determined based on the economy and the stock and
bond markets. Although net investment income for the first quarter of 1996 was
up 11% over the first quarter of 1995, the overall rate of return on our invest-
ment portfolio has decreased slightly. This slight decrease is due to the fact
that, as stated above, the Company is primarily investing its excess funds in
common stock, which has an investment income rate of return typically between
2% to 2.5%, but can have a much higher rate of return when appreciation is
factored in. Net unrealized gains were $19,446,537, $20,090,891 and $3,457,004
as of March 31, 1996, December 31, 1995 and March 31, 1995.
11
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
were $39,927,555 as of March 31, 1996 compared with $38,584,084 as of December
31, 1995 and $29,620,740 as of March 31, 1995. This increase is a combination of
giving consideration for the increase in premium volume, increased retention on
all lines of coverages written and an increase in the IBNR reserves. 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 (84.0%, 85.0% and 83.7% 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
<TABLE>
INSURANCE SUBSIDIARY FINANCIAL STATEMENTS
Statutory Basis as Reported to State Regulatory Authorities
March 31, 1996, December 31, 1995 and March 31, 1995
CAPITOL INDEMNITY CORPORATION March 31, December 31, March 31,
Balance Sheets 1995 1994 1994
<S> <C> <C> <C>
ASSETS
Cash and Invested Assets $ 133,840,683 $131,071,365 $102,911,722
Other Receivables 14,582,237 13,516,319 10,231,170
Total Assets $ 148,422,920 $144,587,684 $113,232,892
LIABILITIES
Reserve for Losses and Loss Expenses $ 39,093,298 $ 37,996,923 $ 29,062,333
Unearned Premiums 31,620,240 30,658,679 26,698,325
Other Payables 14,467,259 13,313,535 15,891,091
Total Liabilities 85,180,797 81,969,137 71,651,749
SURPLUS AS REGARDS POLICYHOLDERS
Shareholder's Equity 63,242,123 62,618,547 41,581,143
Total Liabilities and Capital $ 148,422,920 $144,587,684 $113,232,892
Statements of Income
Premiums Earned $ 17,163,517 $ 63,199,650 $ 13,816,021
Underwriting Deductions 14,914,429 56,261,059 11,907,898
Net Underwriting Gain 2,249,088 6,938,591 1,908,123
Investment Income Including Sales 1,572,916 9,036,612 1,257,257
Other Income (Expense) 30,123 118,746 74,756
Income Tax Expense 919,826 4,331,395 829,531
Net Income $ 2,932,301 $ 11,762,554 $ 2,410,605
CAPITOL SPECIALTY INSURANCE CORPORATION
Balance Sheets
ASSETS
Cash and Invested Assets $ 5,913,351 $ 5,821,375 $ 5,369,326
Other Receivables 86,131 94,597 54,901
Total Assets $ 5,999,482 $ 5,915,972 $ 5,424,227
LIABILITIES
Reserve for Losses and Loss Expenses $ - $ - $ -
Unearned Premiums - - -
Other Payables 309,173 8,878 7,892
Total Liabilities 309,173 8,878 7,892
SURPLUS AS REGARDS POLICYHOLDERS
Shareholder's Equity 5,690,309 5,907,094 5,416,335
Total Liabilities and Capital $ 5,999,482 $ 5,915,972 $ 5,424,227
Statements of Income
Premiums Earned $ 57 $ 1,084 $ 248
Underwriting Deductions 6,811 17,586 6,844
Net Underwriting (Loss) Gain (6,754) (16,502) (6,596)
Investment Income Including Sales 73,003 290,079 62,847
Other Income - - -
Income Tax Expense (1,049) 35,039 3,154
Net Income $ 67,298 $ 238,538 $ 53,097
</TABLE>
13
PART II
14
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 April 29, 1996,
both of which are dated March 29, 1996 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
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
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 under-
signed thereunto duly authorized.
CAPITOL TRANSAMERICA CORPORATION
George A. Fait
Chairman of the Board and President
Paul J. Breitnauer
Vice President and Treasurer
Date: April 29, 1996
17
EXHIBIT I
CAPITOL TRANSAMERICA CORPORATION
FOR IMMEDIATE RELEASE Contact: Paul J. Breitnauer
Phone (608) 231-4450
NEWS RELEASE
FIRST QUARTER EARNINGS
Madison, Wisconsin, April 23, 1996- George A. Fait, Chairman of Capitol
Transamerica Corporation today announced that first quarter 1996 earnings were
$3.3 million or $.45 per share compared with 1995's first quarter earnings of
$3.0 million or $.41 per share, an 8.1% increase.
Gross premiums written for the first quarter rose sharply from $14.9
million in 1995 to $18.9 million for the like period in 1996. The $4.0 million
increase was 26.7% over last year.
Total invested assets increased significantly, growing from $115.0 million
at March 31, 1995 to $151.2 million at March 31, 1996, an increase of $36.2
million or 31.5%. Net investment income was $1.7 million compared with $1.5
million for the first quarter of 1995, a 10.8% increase.
Shareholders' investment soared from $73.4 million or $9.98 per share at
March 31, 1995 to $94.8 million or $12.84 per share at March 31, 1996, a 29.1%
increase.
Cash dividends amounting to $1.5 million were paid in the first quarter,
with additional payments scheduled to be made in the months of June, September
and December.
Fait stated that "the Company's combined net loss, loss expense and general
expense ratio for the first quarter of 1996 was 84.4% compared with 84.2% for
the first quarter of 1995. The Company's combined ratio continues to be most
favorable in contrast to the industry average of 107.3% for the year 1995". He
explained that "the Company's ability to significantly increase premium volume
and continue to maintain a combined ratio far below the industry average is a
result of its basic philosophy of generating underwriting profits and not
relying solely on investment income to show positive earnings.
18
Fait further commented that "continuing to increase premium volume with
business that is consistent with our underwriting standards is a daily
challange". The Company's current marketing strategy of geographic expansion
and new product development has been very successful thus far in 1996. The
Company is constantly reviewing geographic regions to determine favorable areas
for premium expansion. Applications for licensing is in process in four addi-
tional states, which would bring the total number of states the Company is li-
censed in to 38. Management is confident this plan will enable the Company to
attain its production goals for 1996.
He also noted that although the market value over cost of the Company's
equity securities increased in the first quarter by $1.5 million, the market
value over cost of the Company's fixed maturities decreased by $2.1 million due
to increasing interest rates in the first quarter of 1996. This resulted in a
slight decrease in market value over cost of the Company's investment portfolio
from $20.1 million at December 31, 1995 to $19.5 million at March 31, 1996.
The Annual Shareholders' Meeting is scheduled for April 29 at the Concourse
Hotel in Madison, Wisconsin, commencing with registration at 2:30 p.m. and the
meeting at 3:00 p.m.
Capitol 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 34 states and is rated A+
(Superior) by A.M. Best Company, Inc., an independent organization that analyzes
the insurance industry.
Capitol Transamerica Corporation, with 7.4 million shares outstanding, is
traded on the National Over-the-Counter Stock Market under the symbol CATA.
FINANCIAL HIGHLIGHTS FOLLOW
(Adjusted for the December 28, 1995 ten percent stock dividend)
19
CAPITOL TRANSAMERICA CORPORATION
SELECTED FINANCIAL DATA
(in thousands, except per share)
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Three months ended March 31,
1996 1995
<S> <C> <C>
REVENUES
Gross premiums written $ 18,877 $ 14,903
Net premiums written 18,125 14,346
Net premiums earned $ 17,164 $ 13,815
EXPENSES
Claims and claim expenses 8,576 6,930
Other underwriting expenses 5,959 4,457
Total Losses and Expenses Incurred 14,535 11,387
Underwriting income 2,629 2,428
Investment income 1,710 1,543
Realized investment gains 116 20
Other income 31 98
Income Before Income Tax 4,486 4,089
Income tax expense 1,206 1,056
NET INCOME $ 3,280 $ 3,033
EARNINGS PER SHARE $ 0.45 $ 0.41
<CAPTION>
COMPARATIVE FINANCIAL HIGHLIGHTS- Three Months Ended March 31,
1996 1995 1994 1993 1992
Per Share Information
<S> <C> <C> <C> <C> <C>
Income per share $ 0.45 $ 0.41 $ 0.36 $ 0.18 $ 0.33
Consolidated net income $ 3,280 $ 3,033 $ 2,629 $ 1,339 $ 2,409
Weighted average number
of shares outstanding 7,372 7,349 7,308 7,266 7,200
Book value per share $ 12.84 $ 9.98 $ 8.74 $ 7.68 $ 6.66
Shareholders' investment $ 94,811 $ 73,434 $ 64,135 $ 55,972 $ 48,044
Dividends paid $ 1,483 $ 535 $ 1,335 $ 1,655 $ 547
Shares outstanding 7,382 7,360 7,340 7,290 7,215
Company Statistics:
Gross premiums written $ 18,877 $ 14,903 $ 13,665 $ 10,927 $ 8,136
Net investment income $ 1,710 $ 1,543 $ 1,237 $ 1,212 $ 1,200
Invested assets $ 151,217 $ 114,977 $ 93,760 $ 82,495 $ 62,543
Total assets $ 179,989 $ 137,306 $ 116,230 $ 102,002 $ 81,400
Insurance Operating Ratios,
Statutory Basis:
Loss and loss adjustment
expenses: 49.9% 50.4% 46.7% 60.0% 40.4%
Underwriting expenses 34.5% 33.8% 33.5% 36.8% 34.5%
Combined ratios 84.4% 84.2% 80.2% 96.8% 74.9%
20
CAPITOL TRANSAMERICA CORPORATION
SELECTED FINANCIAL DATA
BALANCE SHEETS
(in thousands, except per share)
<CAPTION>
March 31, December 31, March 31
1996 1995 1995
ASSETS
<S> <C> <C> <C>
Investments
Available-for-sale investments at fair value
U.S. Government bonds (cost $590, $592 and
$606, respectively) $ 596 $ 602 $ 600
State and municipal bonds (cost $68,763,
$70,020 and $57,794, respectively) 73,830 77,122 61,061
Corporate bonds (cost $882, $881 and
$1,265, respectively) 835 946 1,238
Common stock (cost $52,695, $50,412 and
$38,614, respectively) 66,561 63,141 38,975
Preferred stock (cost $5,006, $3,869 and
$2,443, respectively) 5,561 4,054 2,306
Investment real estate 1,428 1,436 1,432
Short-term investments 2,406 1,916 9,365
Total Investments 151,217 149,217 114,977
Cash 143 603 538
Receivables 16,372 15,231 12,224
Other assets 12,257 10,572 9,567
TOTAL ASSETS $179,989 $175,623 $137,306
LIABILITIES
Reserves for losses and loss adjustment expenses $ 39,928 $ 38,584 $ 29,621
Unearned premiums 32,585 31,556 27,360
Other liabilities 12,665 12,870 6,891
TOTAL LIABILITIES $ 85,178 $ 83,010 $ 63,872
SHAREHOLDERS' EQUITY
Common stock, $1.00 par value, authorized
15,000 shares, issued 7,592, 7,589 and
6,883, respectively $ 7,592 $ 7,589 $ 6,883
Paid-in surplus 20,987 8,020 7,949
Unrealized appreciation on securities carried
at fair value, net of deferred taxes 12,835 13,260 2,282
Retained earnings 53,719 64,066 56,651
Less treasury stock, 210, 210, and 191 share,
respectively, at cost (322) (322) (331)
TOTAL SHAREHOLDERS' EQUITY 94,811 92,613 73,434
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $179,989 $175,623 $137,306
SHAREHOLDERS' EQUITY PER SHARE $ 12.84 $ 12.55 $ 9.98
21
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<DEBT-HELD-FOR-SALE> 75,260,263
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 72,122,337
<MORTGAGE> 0
<REAL-ESTATE> 1,427,939
<TOTAL-INVEST> 148,810,539
<CASH> 2,549,073
<RECOVER-REINSURE> 787,446
<DEFERRED-ACQUISITION> 9,618,675
<TOTAL-ASSETS> 179,988,401
<POLICY-LOSSES> 39,927,555
<UNEARNED-PREMIUMS> 32,584,552
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 0
<COMMON> 7,591,545
0
0
<OTHER-SE> 87,219,839
<TOTAL-LIABILITY-AND-EQUITY> 179,988,401
17,163,574
<INVESTMENT-INCOME> 1,709,655
<INVESTMENT-GAINS> 116,259
<OTHER-INCOME> 31,749
<BENEFITS> 8,575,641
<UNDERWRITING-AMORTIZATION> (389,807)
<UNDERWRITING-OTHER> 6,036,403
<INCOME-PRETAX> 4,486,079
<INCOME-TAX> 1,206,117
<INCOME-CONTINUING> 3,279,962
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,279,962
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.45
<RESERVE-OPEN> 38,584,084
<PROVISION-CURRENT> 5,881,108
<PROVISION-PRIOR> 34,046,447
<PAYMENTS-CURRENT> 1,781,335
<PAYMENTS-PRIOR> 5,738,654
<RESERVE-CLOSE> 39,927,555
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
