<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________________________
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1995
[ ] 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 0-8483
CENTRAL RESERVE LIFE CORPORATION
---------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
OHIO 34-1017531
-------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
17800 ROYALTON ROAD, STRONGSVILLE, OHIO 44136
------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (216) 572-2400
______________________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes (X) No ( )
The number of shares outstanding of the registrant's Common stock at June 30,
1995 was 4,037,400.
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PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
ITEM 1. FINANCIAL STATEMENTS
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<S> <C>
A. Consolidated Condensed Balance Sheets
B. Consolidated Condensed Statements of Income
C. Consolidated Condensed Statements of Cash Flows
D. Notes to Consolidated Condensed Financial Statements
</TABLE>
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<PAGE> 3
CENTRAL RESERVE LIFE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 95 December 31
1995 1994
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(Unaudited)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities held to maturity, at amortized cost $ 13,383,159 $ 13,468,956
Fixed maturities available for sale, at fair value 69,668,742 67,409,309
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Total fixed maturities 83,051,901 80,878,265
Policy loans 109,166 101,146
Short-term investments, at cost which approximate market 10,691,039 2,250,912
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Total investments 93,852,106 83,230,323
Cash 5,246,082 7,654,487
Accrued investment income 1,083,364 1,315,937
Premiums receivable 1,151,683 1,656,225
Property and equipment, at cost 11,799,195 12,053,737
Deferred federal income taxes 765,282 935,282
Federal income taxes recoverable 341,406 245,406
Other assets 924,446 852,761
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$ 115,163,564 $ 107,944,158
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LIABILITIES AND SHAREHOLDERS' EQUITY
Policy liabilities and accruals:
Future policy benefits, losses and claims $ 28,121,318 $ 27,496,885
Other policy claims and benefits payable 36,359,877 35,219,992
Other policyholders' funds 5,920,514 5,751,966
Other liabilities 4,702,419 6,258,829
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75,104,128 74,727,672
Mortgage note payable 8,643,436 8,685,754
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Total Liabilities 83,747,564 83,413,426
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Commitments and contingencies
Shareholders' equity:
Non-Voting Preferred shares, no par value - -
Common shares, no par value, stated value $.50 2,018,700 2,018,650
Additional paid-in capital 3,476,315 3,475,690
Net unrealized holding gain (loss) 35,635 (5,427,055)
Retained earnings 25,885,350 24,463,447
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Total shareholders' equity 31,416,000 24,530,732
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$ 115,163,564 $ 107,944,158
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</TABLE>
<PAGE> 4
CENTRAL RESERVE LIFE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
June 30 June 30 June 30 June 30
1995 1994 1995 1994
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<S> <C> <C> <C> <C>
REVENUES
Premiums $ 57,894,454 $ 55,046,076 $ 114,932,365 $ 111,723,944
Net investment income 1,486,586 1,627,023 3,114,214 3,199,462
Net realized investment gains 65,749 (6,244) 75,271 162,868
Other income 12,002 11,445 12,420 18,673
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59,458,791 56,678,300 118,134,270 115,104,947
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BENEFITS, LOSSES AND EXPENSES
Benefits, claims, losses and settlement expenses 39,746,933 38,383,527 80,320,496 78,339,658
Commissions 8,411,073 8,374,316 16,674,168 16,842,107
Other operating expenses 9,411,818 8,091,420 17,674,739 16,690,337
------------- ------------- -------------- --------------
57,569,824 54,849,263 114,669,403 111,872,102
------------- ------------- -------------- --------------
Income before federal income tax 1,888,967 1,829,037 3,464,867 3,232,845
Federal income tax expense 599,000 717,724 1,074,000 1,110,790
------------- ------------- -------------- --------------
Net income $ 1,289,967 $ 1,111,313 $ 2,390,867 $ 2,122,055
============= ============= ============== ==============
Weighted average shares outstanding 4,206,301 4,209,324 4,209,725 4,204,774
------------- ------------- -------------- --------------
Net income per share $ .31 $ .26 $ .57 $ .50
============= ============= ============== ==============
</TABLE>
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<PAGE> 5
CENTRAL RESERVE LIFE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
June 30
1995 1994
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<S> <C> <C>
INSURANCE COMPANY ACTIVITIES
Cash provided by operating activities $ 4,039,055 $ 8,828,300
Purchases of investments (18,276,798) (19,891,980)
Sales or maturities of investments 13,082,070 12,555,215
Purchase of property and equipment (347,309) (129,494)
Dividends paid (950,000) (875,000)
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Increase (decrease) in cash from insurance activities (2,452,982) 487,041
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NON-INSURANCE ACTIVITIES
Dividends from subsidiaries 950,000 875,000
Dividends paid to shareholders (968,964) (886,004)
Other, net 63,451 378,200
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Increase from non-insurance activities 44,577 367,196
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Cash at beginning of period 7,654,487 6,069,187
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Cash at end of period $ 5,246,082 $ 6,923,424
============= ==============
</TABLE>
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<PAGE> 6
CENTRAL RESERVE LIFE CORPORATION
AND SUBSIDIARIES
D. Notes to Consolidated Condensed Financial Statements
----------------------------------------------------
1. These consolidated condensed financial statements should be read in
conjunction with the financial statements and notes thereto included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1994,
as certain information and footnote disclosures required to be included
with financial statements prepared in accordance with generally accepted
accounting principles have either been condensed or omitted.
2. The consolidated condensed balance sheet at June 30, 1995 and the
consolidated condensed statements of income and cash flows for the six
months ended June 30, 1995 and 1994 were prepared without audit. In the
opinion of the Company, the accompanying unaudited consolidated condensed
financial statements contain all adjustments (consisting of only normal
recurring accruals) necessary to present fairly the financial position as
of June 30, 1995 and the results of operations for the six months then
ended and cash flows for the six months then ended.
3. The Federal income tax returns for the Company and its subsidiaries have
been examined by the Internal Revenue Service (IRS) for 1991 and 1992.
During the third quarter of 1994, the IRS issued a proposal for adjustments
to the Company's returns for 1991 and 1992. The proposed deficiencies are
approximately $2.4 million of which $215,303, pertaining to some non
deductible expenses and certain assets expensed and not capitalized, was
agreed to and paid in 1994. The balance primarily deals with whether or
not the Company's subsidiary, Central, qualified as a life company, for tax
purposes. The Company intends to vigorously protest the proposed
deficiency and management believes existing law supports the Company's
position. Therefore, the Company has not recorded a liability for the
difference.
If the IRS were to pursue litigation and prevail in its position that
Central no longer qualifies as a life company for tax purposes, Federal
income taxes would increase in the future. Presently, as a small life
company, Central is permitted, among other things, a deduction from the
first $3 million of income of 60% or $1.8 million. As Central's income
increases above $3 million, the special deduction is reduced
proportionately. Besides relying on favorable existing case law, Central
may have, under certain circumstances, the ability to change and market
policies that could insure its qualification as a life company for tax
purposes in the future, if the need arises.
4. The results of operations for the six months ended June 30, 1995 are not
necessarily indicative of the results for the full year.
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<PAGE> 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES: The assets of the Company and its major
subsidiary, Central Reserve Life Insurance Company ("Central"), increased
approximately 7% for the period ended June 30, 1995. Central primarily invests
in bonds which amounts to about 72% of the total assets. Central does not have
any so-called "junk" bonds or what is considered high yield type securities and
98% of the bonds are of investment grade quality. Current assets and short
term investments (not including government bonds of over $19 million which have
a ready market) amounted to about 16% of total assets. In accordance with SFAS
115 the Company recorded an increase in fixed maturities available for sale of
$35,635 at June 30, 1995, to reflect the reporting of certain investments at
fair value which was higher than amortized cost. This compares to a recorded
reduction of $5,427,055 at December 31, 1994. The excess of fair value over
the cost is reflected in shareholders' equity.
Reserves and accruals for future claim payments increased approximately 3%
from $62,716,877 at December 31, 1994 to $64,481,195 at June 30, 1995.
Shareholders' equity increased to $31,416,000 at June 30, 1995 or $6,885,268
after dividend payments and a $5,462,690 net increase due to the SFAS 115
adjustment.
RESULTS OF OPERATIONS: During the six months ending June 30, 1995,
premiums increased to $114,932,365 compared to $111,723,944 for the same period
last year. This represents a 3% increase in 1995 compared to a 12% increase
for the same period in 1994. The increase is in the group division, which
accounts for approximately 99% of the premiums. Net certificates in force for
the six months increased 6,741 to 109,700 or 7% compared to a net increase of
3,125 or 3% for the same period last year. New certificates issued for the
period were 24,100 compared to 14,679 in 1994 and lapses were down slightly to
17,359 in 1995 from 17,804 in 1994.
Net investment income decreased 3% to $3,114,214 for the six month period
ending June 30, 1995, compared to $3,199,462 for the same period in 1994.
Although total investments increased 13% to $93,852,106, lower interest rates
and an increase in the allocation of proceeds from certain investments sold to
short term investments attributed to the decrease.
Policy benefits incurred, primarily group accident and health claims,
increased to $80,320,496 in 1995 from $78,339,658 in 1994. This represents a
3% increase over 1994 as compared to a 1.5% increase in the comparable period
last year. The Company's incurred loss ratio was 69.9% for the current period
compared to 70.1% for the same period in 1994. Claims were lower in the second
quarter of 1995 thus showing an overall lower loss ratio for the six month
period. The Company continues to monitor the claims experience and to make
necessary premium rate adjustments along with utilizing various cost control
and savings programs.
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<PAGE> 8
Commissions were 14.5% of premiums for the period ending June 30, 1995, as
compared to 15.1% for the same period in 1994. A change in the Company's
commission structure, product mix and the increase in renewal premiums
attributed to the reduction. Other operating expenses increased 6% to
$17,674,739 in 1995 over the comparable period in 1994. At June 30, 1995,
other operating expenses were 15.4% of premiums compared to 14.9% at June 30,
1994. The major reason for the increase was due to an increase in employees
since the first part of 1994. This was required because of volume increases in
premiums, policyholders and claims.
The Company had a net profit of $2,390,867 for the six months ending June
30, 1995, compared to $2,122,055 for the same period in 1994. Book value at
June 30, 1995, was $7.78 ($7.77 before unrealized gains) compared to $6.08
($7.42 before unrealized losses) at December 31, 1994.
Federal income taxes would increase in the future if the IRS, as indicated
in note 3 to the consolidated condensed financial statements, were to pursue
litigation and prevail in their position that Central no longer qualifies as a
life company for tax purposes. Presently, as a small life company, Central is
permitted, among other things, a deduction from the first $3,000,000 of income
of 60% or $1,800,000, which is decreased by 15% for amounts over $3,000,000.
As Central's income increases the effect is lowered. Management is relying on
existing case law applied favorably to another taxpayer to resolve this issue.
Also, Central may have, under certain circumstances, the ability to change and
market policies that could insure it's qualification as a life company for tax
purposes in the future, if the need arises.
IMPACT OF INFLATION: Inflation rates impact the financial statements and
operating results in several areas. Changes in inflation rates impact the
market value of the investment portfolio and yields on new investments.
Inflation has had an impact on claim costs and overall operating costs and
although it has been lower in the last few years, hospital and medical costs
have still increased at a higher rate than general inflation. While to a
certain extent these increased costs are offset by interest rates (investment
income), hospital charges increased, more than interest rates did. The Company
will continue to increase premium rates in accordance with trends in hospital
and medical costs along with concentrating on various cost containment
programs.
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<PAGE> 9
PART II - OTHER INFORMATION
---------------------------
All items of Part II other than Item 4 and Item 6 are either inapplicable
to Registrant or would not require a response.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------
a) Central Reserve Life Corporation's 1994 Annual Meeting of
Shareholders was held on May 18, 1995.
b) Proxies were solicited by Central Reserve Life Corporation's
management pursuant to Regulation 14 under the Securities
Exchange Act of 1934, there was no solicitation in opposition
to management's nominees as listed in the proxy statement, and
all of such nominees were elected to the classes indicated in
the proxy statement pursuant to the vote of the stockholders.
The total number of shares of the Company's Common Stock, no par value,
outstanding as of April 5, 1995, the record date for the Annual Meeting, was
4,037,300.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
-----------------------------------------
a) Exhibits.
Exhibit 11 - Statement Regarding Computation of Per Share
Earnings.
Exhibit 27 - Financial Data Schedule.
b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the quarter for
which this report is filed.
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<PAGE> 10
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.
CENTRAL RESERVE LIFE CORPORATION
Date: August 9, 1995 By: Frank W. Grimone
----------------------------- -------------------------------
Frank W. Grimone
Executive Vice President
Date: August 9, 1995 By: Frank W. Grimone
----------------------------- -------------------------------
Frank W. Grimone
Principal Financial Officer and
Chief Accounting Officer
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<PAGE> 1
Exhibit 11
----------
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
-----------------------------------------------------
Net income per share is computed using the weighted average number of
common shares outstanding. These shares were increased by the number of shares
issuable on the exercise of options, reduced by the number of shares assumed to
have been purchased with the proceeds from the exercise of these common stock
equivalents. The number of shares used to calculate the earnings per share was
4,209,725 for the six month period ending June 30, 1995 and 4,204,774 for the
six month period ending June 30, 1994.
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<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 0000215403
<NAME> CENTRAL RESERVE LIFE
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<DEBT-HELD-FOR-SALE> 69,668,742
<DEBT-CARRYING-VALUE> 13,383,159
<DEBT-MARKET-VALUE> 13,138,150
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 93,852,106
<CASH> 5,246,082
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 115,163,564
<POLICY-LOSSES> 28,121,318
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 36,359,877
<POLICY-HOLDER-FUNDS> 5,920,514
<NOTES-PAYABLE> 8,643,436
<COMMON> 2,018,700
0
0
<OTHER-SE> 29,397,300
<TOTAL-LIABILITY-AND-EQUITY> 115,163,564
114,932,365
<INVESTMENT-INCOME> 3,114,214
<INVESTMENT-GAINS> 75,271
<OTHER-INCOME> 12,420
<BENEFITS> 80,320,496
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 3,464,867
<INCOME-TAX> 1,074,000
<INCOME-CONTINUING> 2,390,867
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,390,867
<EPS-PRIMARY> .57
<EPS-DILUTED> .57
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
