<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 ENDING MARCH 31, 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
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(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 March 31,
1995 was 4,037,300.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ------- --------------------
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
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<TABLE>
CENTRAL RESERVE LIFE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<CAPTION>
MARCH 31 DECEMBER 31
1995 1994
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Investments:
Fixed maturities held to maturity, at amortized cost $ 13,422,724 $ 13,468,956
Fixed maturities available for sale, at fair value 70,141,045 67,409,309
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Total fixed maturities 83,563,769 80,878,265
Policy Loans 103,243 101,146
Short-term investments, at cost which approximate market 4,525,580 2,250,912
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Total investments 88,192,592 83,230,323
Cash 5,574,171 7,654,487
Accrued investment income 1,447,982 1,315,937
Premiums receivable 1,741,505 1,656,225
Property and equipment, at cost 12,000,164 12,053,737
Deferred federal income taxes 850,282 935,282
Federal income taxes recoverable - 245,406
Other assets 897,051 852,761
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$ 110,703,747 $ 107,944,158
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LIABILITIES AND SHAREHOLDERS' EQUITY
Policy liabilities and accruals:
Future policy benefits, losses and claims $ 27,421,766 $ 27,496,885
Other policy claims and benefits payable 35,036,400 35,219,992
Other policyholders' funds 7,082,831 5,751,966
Federal income taxes payable 144,594 -
Other liabilities 4,810,910 6,258,829
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74,496,501 74,727,672
Mortgage note payable 8,664,846 8,685,754
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Total Liabilities 83,161,347 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 $.50 2,018,650 2,018,650
Additional paid-in capital 3,475,690 3,475,690
Net unrealized holding loss (3,031,811) (5,427,055)
Retained earnings 25,079,871 24,463,447
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Total shareholders' equity 27,542,400 24,530,732
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$ 110,703,747 $ 107,944,158
============= =============
</TABLE>
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<PAGE> 4
<TABLE>
CENTRAL RESERVE LIFE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1995 1994
------------ ------------
<S> <C> <C>
REVENUES
Premiums $ 57,037,911 $ 56,677,868
Net investment income 1,627,628 1,572,439
Net realized investment gains 9,522 169,112
Other income 418 7,228
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58,675,479 58,426,647
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BENEFITS, LOSSES AND EXPENSES
Benefits, claims, losses and settlement expenses 40,573,563 39,956,131
Commissions 8,263,095 8,467,791
Other operating expenses 8,262,921 8,598,917
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57,099,579 57,022,839
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Income before Federal income taxes 1,575,900 1,403,808
Federal income tax expense 475,000 393,066
------------ ------------
Net income $ 1,100,900 $ 1,010,742
============ ============
Weighted average shares outstanding 4,212,993 4,200,537
------------ ------------
Net income per share $ .26 $ .24
============ ============
</TABLE>
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<PAGE> 5
<TABLE>
CENTRAL RESERVE LIFE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW
(UNAUDITED)
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1995 1994
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<S> <C> <C>
INSURANCE COMPANY ACTIVITIES
Cash Provided By Operating Activities 3,408,051 4,314,239
Purchases of Investments (8,775,895) (11,692,500)
Sales or Maturities of Investments 3,813,626 6,880,142
Purchase of Property and Equipment (251,148) (61,872)
Dividends Paid (475,000) (420,000)
Increase (decrease) in Cash ------------- -----------
from Insurance Activities (2,280,366) (979,991)
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NON-INSURANCE ACTIVITIES
Dividends from Subsidiaries 475,000 420,000
Dividends paid to Shareholders (484,476) (442,935)
Other, Net 209,526 382,473
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Increase (decrease) from
Non-Insurance Activities 200,050 359,538
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Cash at Beginning of Period 7,654,487 6,069,187
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Cash at End of Period $ 5,574,171 $ 5,448,734
============= ===========
</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 sheets at March 31, 1995 and the
consolidated condensed statements of income and cash flows for the
three months ended March 31, 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 March 31, 1995 and the results of
operations for the three months then ended and cash flows for the
three 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 three months ended March 31, 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 3% for the quarter ended March 31, 1995, compared to a 4%
increase in the prior year period. Central primarily invests in bonds which
amounts to about 75% 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 $17 million which have a
ready market) amounted to about 12% of total assets. In accordance with SFAS
115 the Company recorded a reduction in investments of $3,031,811 at March 31,
1995, to reflect the reporting of certain investments at fair value which was
lower than amortized cost. This compares to a recorded reduction of $5,427,055
at December 31, 1994. The charge is reflected in shareholders' equity as a
"net unrealized holding loss".
Reserves and accruals for future claim payments decreased slightly
from $62,716,877 at December 31, 1994 to $62,458,166 at March 31, 1995.
Shareholders' equity increased to $27,542,400 at March 31, 1995 or $3,011,668
after dividend payments and a $2,395,244 net increase due to the SFAS 115
adjustment.
RESULTS OF OPERATIONS: During the three months, premiums were
$57,037,911 compared to $56,677,868 for the same period last year. This
represents a small increase for the first quarter of 1995 over the first
quarter of 1994 of less than 1% compared to a 15% increase in the first quarter
of 1994 compared to the first quarter of 1993. New certificates issued for the
period were 12,619 compared to 7,979 in the prior year. Lapses were up in the
first quarter of 1995 (9,347) compared to the first quarter in 1994 (8,791).
This resulted in a net increase in certificates of 3,272 to 106,231 at March
31, 1995 compared to a net increase of 812 for the first quarter ending March
31, 1994.
Net investment income increased 3% for the period ending March 31,
1995 to $1,627,628 compared to $1,572,439 in 1994. The primary source of
investment income was, again, interest on bonds. The increase in investment
income was primarily due to the increase in invested assets.
Policy benefits incurred, primarily group accident and health claims,
increased to $40,573,563 in 1995 from $39,956,131 in 1994. This represents a
1.5% increase over 1994 as compared to a 12% increase in the comparable period
last year. The Company's incurred claims loss ratio was 71.1% for the current
period compared to 70.5% for the same period in 1994. The increase was
primarily due to an increase in the number of claims processed as opposed to
large claims incurred. The Company continues to monitor the claims experience
and to make necessary rate adjustments along with utilizing various cost
control and savings programs.
Commissions were 14.5% of premiums for the quarter ending March 31,
1995, as compared to 14.9% in the same quarter in 1994. The continued growth
in renewal premiums provides a lower rate for commissions. Other operating
expenses decreased 4% over the comparable 1994 period to $8,262,921 as compared
to $8,598,917 at March 31, 1994 and were 14.5% of premiums at March 31, 1995
compared to 15.2% at March 31, 1994.
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<PAGE> 8
The Company had a net profit of $1,100,900 for the three months ending
March 31, 1995 compared to $1,010,742 for the same period in 1994. Book value
at March 31, 1995 was $6.82 ($7.57 before unrealized losses) 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 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 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 6 are either inapplicable to
Registrant or would not require a response.
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
<TABLE>
<S> <C>
Date: May 10, 1995 By: Frank W. Grimone
-------------------------------- ----------------------------------
Frank W. Grimone
Executive Vice President
Date: May 10, 1995 By: Frank W. Grimone
-------------------------------- ---------------------------------
Frank W. Grimone
Principal Financial Officer
and Chief Accounting Officer
</TABLE>
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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
4,212,993 for 1995 and 4,200,537 for 1994.
- 11 -
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 0000215403
<NAME> Central Reserve Life Corp
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<DEBT-HELD-FOR-SALE> 70,141,045
<DEBT-CARRYING-VALUE> 13,422,724
<DEBT-MARKET-VALUE> 12,683,359
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 88,192,592
<CASH> 5,574,171
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 0
<TOTAL-ASSETS> 110,703,747
<POLICY-LOSSES> 27,421,766
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 35,036,400
<POLICY-HOLDER-FUNDS> 7,082,831
<NOTES-PAYABLE> 8,664,846
<COMMON> 2,018,650
0
0
<OTHER-SE> 25,523,750
<TOTAL-LIABILITY-AND-EQUITY> 110,703,747
57,037,911
<INVESTMENT-INCOME> 1,627,628
<INVESTMENT-GAINS> 9,522
<OTHER-INCOME> 418
<BENEFITS> 40,573,563
<UNDERWRITING-AMORTIZATION> 0
<UNDERWRITING-OTHER> 0
<INCOME-PRETAX> 1,575,900
<INCOME-TAX> 475,000
<INCOME-CONTINUING> 1,100,900
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,100,900
<EPS-PRIMARY> .26
<EPS-DILUTED> .26
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
