<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 SEPTEMBER 30, 1997
[ ] 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 September
30, 1997 was 4,195,172.
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
- ------- --------------------
A. Consolidated Condensed Balance Sheets
B. Consolidated Condensed Statements of Operations
C. Consolidated Condensed Statements of Cash Flows
D. Notes to Consolidated Condensed Financial Statements
- 2 -
<PAGE> 3
CENTRAL RESERVE LIFE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1997 1996
-------------- ---------------
(UNAUDITED)
ASSETS
<S> <C> <C>
Investments:
Fixed maturities held to maturity, at amortized cost $ 11,902,166 $ 11,892,925
Fixed maturities available for sale, at fair value 68,312,997 67,608,937
-------------- ---------------
Total fixed maturities 80,215,163 79,501,862
Policy loans 102,249 111,646
Short-term investments, at cost which approximate market 12,782,465 11,109,910
-------------- ---------------
Total investments 93,099,877 90,723,418
Cash 5,821,104 8,472,255
Accrued investment income 1,122,462 988,536
Premiums receivable 1,379,234 3,049,026
Property and equipment, at cost 10,733,333 11,196,987
Deferred federal income taxes 1,863,864 948,363
Federal income taxes recoverable - 2,245,530
Other assets 3,396,023 1,764,582
-------------- ---------------
$ 117,415,897 $ 119,388,697
============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Policy liabilities and accruals:
Future policy benefits, losses and claims $ 33,345,248 $ 33,741,819
Other policy claims and benefits payable 43,902,740 42,909,065
Other policyholders' funds 8,324,508 6,510,894
Other liabilities 5,499,451 6,255,346
-------------- ---------------
91,071,947 89,417,124
Note payable 5,200,000 -
Mortgage note payable 8,426,152 8,503,776
-------------- ---------------
Total liabilities 104,698,099 97,920,900
-------------- ---------------
Commitments and contingencies
Shareholders' equity:
Non-Voting Preferred shares, no par value - -
Common shares, no par value, stated value $.50 2,097,586 2,072,586
Additional paid-in capital 4,122,319 4,005,819
Net unrealized holding gain (loss) 668,482 (247,637)
Retained earnings 5,829,411 15,637,029
-------------- ---------------
Total shareholders' equity 12,717,798 21,467,797
-------------- ---------------
$ 117,415,897 $ 119,388,697
============== ===============
</TABLE>
- 3 -
<PAGE> 4
<TABLE>
<CAPTION>
CENTRAL RESERVE LIFE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30 SEPTEMBER 30
1997 1996 1997 1996
-------------- -------------- -------------- ---------------
REVENUES
<S> <C> <C> <C> <C>
Premiums $ 62,743,584 $ 66,048,280 $ 194,863,725 $ 192,556,133
Net investment income 1,627,973 1,768,634 4,845,747 5,047,803
Net realized investment gains (losses) 102,022 (71) 125,348 7,335
-------------- -------------- -------------- ---------------
64,473,579 67,816,843 199,834,820 197,611,271
-------------- -------------- -------------- ---------------
BENEFITS, LOSSES AND EXPENSES
Benefits, claims, losses and settlement expenses 50,496,272 51,667,307 155,397,719 153,348,945
Commissions 8,528,837 9,167,096 26,615,111 26,490,392
Other operating expenses 9,255,802 8,967,219 27,748,519 26,964,233
Interest expense and financing costs 339,497 202,933 742,424 610,477
-------------- -------------- -------------- ---------------
68,620,408 70,004,555 210,503,773 207,414,047
-------------- -------------- -------------- ---------------
Income (loss) before federal income taxes (4,146,829) (2,187,712) (10,668,953) (9,802,776)
Federal income tax expense (benefit) 284,665 (522,373) (861,335) (2,068,852)
-------------- -------------- -------------- ---------------
Net Income (loss) $ (4,431,494) $ (1,665,339) $ (9,807,618) $ (7,733,924)
============== ============== ============== ===============
Weighted average shares outstanding 4,195,172 4,214,629 4,178,505 4,221,694
-------------- -------------- -------------- ---------------
Net income (loss) per share $ (1.06) $ (.40) $ (2.35) $ (1.83)
============== ============== ============== ===============
</TABLE>
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<PAGE> 5
CENTRAL RESERVE LIFE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
1997 1996
-------------- --------------
INSURANCE COMPANY ACTIVITIES
<S> <C> <C>
Cash provided by (used by) operating activities $ (8,250,792) $ (8,178,950)
Purchases of investments (16,155,632) (9,890,254)
Sales or maturities of investments 16,662,039 15,230,640
Purchase of property and equipment (56,307) (167,055)
Dividends paid - (1,500,000)
Paid in capital 5,000,000 -
-------------- --------------
Decrease in cash from insurance activities (2,800,692) (4,505,619)
-------------- --------------
NON-INSURANCE ACTIVITIES
Capital contribution to subsidiary (5,000,000) -
Note payable 5,200,000 -
Dividends from subsidiaries - 1,500,000
Dividends paid to shareholders - (1,577,229)
Other, net (50,459) (227,929)
-------------- --------------
Increase (decrease) from non-insurance activities 149,541 (305,158)
-------------- --------------
Cash at beginning of period 8,472,255 9,102,020
-------------- --------------
Cash at end of period $ 5,821,104 $ 4,291,243
============== ==============
</TABLE>
- 5 -
<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, 1996, 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 September 30, 1997 and
the consolidated condensed statements of operations and cash flows for
the nine months ended September 30, 1997 and 1996 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 September 30, 1997 and
the results of operations for the nine months then ended and cash
flows for the nine 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
Reserve Life Insurance Company, 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. On June 2, 1997 the case was continued and the stipulation
of facts were submitted in August 1997.
4. The Ohio Department of Insurance imposes risk-based capital (RBC)
requirements on insurance enterprises, including the Company's
subsidiary Central Reserve Life Insurance Company (Central). The RBC
Model serves as a benchmark for the regulation of life insurance
companies by state insurance regulators and provides for targeted
surplus levels based on formulas which specify various weighting
factors that are applied to financial balances or various levels of
activity based on the perceived degree of risk, and are set forth in
the RBC requirements. Such formulas focus on four general types of
risk: (a) the risk with respect to the company's assets (asset or
default risk); (b) the risk of adverse insurance experience with
respect to the company's liabilities and obligations (insurance or
underwriting risk); (c) the interest rate risk with respect to the
company's business (asset/liability matching); and, (d) all other
business risks (management, regulatory action, and contingencies). The
amount determined under such formulas is called the Authorized Control
Level RBC (ACL).
- 6 -
<PAGE> 7
The RBC guidelines define specific capital levels based on a company's
ACL, that are determined by the ratio of the company's total adjusted
capital (TAC) to its ACL. TAC is equal to statutory capital, plus or
minus certain other specified adjustments. The specific capital
levels, in declining order, and applicable ratios are generally as
follows: "Company Action Level" where TAC is less than or equal to 2.0
times ACL; "Regulatory Action Level" where TAC is less than or equal
to 1.5 ACL; "Authorized Control Level" where TAC is less than or equal
to 1.0 times ACL; and, "Mandatory Control Level" where TAC is less
than or equal to 0.7 times ACL. Companies at the Company Action Level
must submit a RBC financial plan to the insurance commissioner of the
state of domicile. Companies at the Regulatory Action Level are
subject to a mandatory examination or analysis by the commissioner and
possible required corrective actions. At the Authorized Control Level,
a company is subject to, among other things, the commissioner placing
it under regulatory control. At the Mandatory Control Level, the
insurance commissioner is required to place a company under regulatory
control. At December 31, 1996, Central's TAC was $17,137,515 or 1.4
times its ACL and accordingly, Central was at the Regulatory Action
Level. The RBC calculation is done annually.
On March 5, 1997, Central filed its RBC financial plan with the Ohio
Department of Insurance (ODI) outlining plans for attaining the levels
of RBC required to raise the Company's RBC above the Company Action
Level. The RBC financial plan identifies the conditions that
contributed to the Regulatory Action Level, including underpricing of
a new product, PMO, sold primarily in 1995, and state mandated
benefits and guaranteed issue. The RBC financial plan also contains
corrective actions taken by Central beginning April 1, 1996, including
an increase of PMO premium rates, changes in certain policy benefits
and the renegotiating of certain provider contracts to produce further
cost savings. The PMO plan represented approximately 40% of Central's
premiums collected in 1996. Since the PMO plan is monthly business,
the rate action taken on April 1, 1996 will not be completed until the
end of March 1997. In addition to these corrective actions, the
Company had engaged an investment banking firm to assist the Company
in its efforts to raise additional capital for Central. Raising of
additional capital will be necessary to raise Central's RBC above the
Company Action Level within the short term. The ODI notified Central
that the action plan submitted was acceptable for implementation,
subject to examination of Central's 1996 year-end claim reserves and
current premium rate levels. That examination was completed by ODI
with no specific action required at this time. Failure to meet the
capital requirements and interim capital targets included in Central's
RBC financial plan could expose Central to such actions by the ODI as
being placed under regulatory control. In line with the Company's
plans to raise additional capital for Central, it borrowed $5,200,000
in June 1997, from a bank and contributed $5,000,000 to Central. The
original note payable was due December 31, 1997 and the rate of
interest is at prime. The note has been extended to June 30, 1998.
Management believes, that Central will be able to meet the plan's
capital requirements and interim targets. The accompanying
consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty (see note 7).
- 7 -
<PAGE> 8
5. RECENTLY ISSUED ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 128 ("SFAS No.
128"), "Earnings per Share." SFAS No. 128 is required to be adopted on
December 31, 1997. At that time, the Company will be required to
change the method currently used to compute earnings per share and to
restate prior periods. Under the new requirements for calculating
primary earnings per share, the dilutive effect of stock options and
stock warrants will be excluded. Because the Company reported a loss
for the quarter and period ending September 30, 1997, no material
change is expected in reported loss per share.
6. The results of operations for the nine months ending September 30,
1997 are not necessarily indicative of the results for the full year.
7. SUBSEQUENT EVENT
On November 13, 1997 the Board of Directors approved entry by the
Company into an agreement in principal (the "Agreement") to sell
5,000,000 shares of unregistered stock at a price of $5.50 per share
and warrants to acquire up to 2,500,000 shares at a price of $6.50 per
share, for gross proceeds of $27,500,000 to a group of private
investors which have formed a new vehicle for such investment,
Strategic Acquisition Partners, LLC ("Strategic Partners"). Proceeds
would be used to pay off the $5.2 million bank loan, to fund
transaction expenses and to contribute approximately $22 million to
the Company's insurance subsidiary, Central. The transaction is
subject to negotiation and execution of definitive agreements,
approval of financing of the purchase by the lender to Strategic
Partners and regulatory approvals. Shareholder approval of the
issuance is required under the rules of the Nasdaq Stock Market,
although the Company may seek a waiver of such requirement from the
NASD. The transaction is anticipated to close in the first quarter of
1998. The Agreement also provides for an interim loan of $20 million
to provide capital to Central prior to December 31, 1997, following
execution of definitive agreements concerning the share issuance.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY: The assets of the Company and its major subsidiary, Central
Reserve Life Insurance Company (Central), decreased about 2% to $117,415,897 for
the period ending September 30, 1997. Central primarily invests in bonds which
amounts to about 68% of the total assets. Central does not have any so-called
"junk" bonds or what is considered high yield type securities and 97% of the
bonds are of investment grade quality. Current assets and short term investments
(not including government bonds of about $24 million which have a ready market)
amounted to about 18% of total assets. In accordance with SFAS 115 the Company
recorded unrealized gains of $668,482 at September 30, 1997, to reflect the
reporting of certain investments at fair value which was higher than amortized
cost. This compares to unrealized losses of $247,637 at December 31, 1996. The
difference between the fair value and the amortized cost is reflected in
shareholders' equity.
Reserves and accruals for future claim payments increased slightly
from $76,650,884 at December 31, 1996 to $77,247,988 at September 30, 1997.
- 8 -
<PAGE> 9
Shareholders' equity decreased to $12,717,798 at September 30, 1997 after the
net loss of $9,807,618 for the period and a change of $916,119, due to the SFAS
115 adjustment.
CAPITAL RESOURCES: Central suffered a large decrease in its statutory
capital and surplus to $16,595,497 at December 31, 1996 from $27,477,972 at
December 31, 1995. The decrease was primarily due to the $9,321,633 statutory
loss, after tax benefits of $2,810,830. This decrease caused Central to fall
under the regulatory action level (RAL) imposed by the Ohio Department of
Insurance under the recently adopted Risk-Based Capital (RBC) requirements on
insurance enterprises (see note 4). Central's adjusted capital, under the RBC
standards (which is only calculated annually), at December 31, 1996, was
$17,137,515 and the RAL was $18,508,044 at December 31, 1996. Central is
required to, and did, submit a RBC financial plan to the Ohio Department of
Insurance reflecting certain projections and steps to be taken to return the
adjusted capital to the required levels. In June 1997, the Company negotiated a
loan from a bank for $5.2 million and contributed $5 million to the capital and
surplus of Central. The statutory capital and surplus of Central was $11,110,529
at September 30, 1997. The RBC levels for 1997 are not calculated until December
31, 1997 and if no reinsurance nor capital contribution is received by Central
before December 31, 1997, the ODI could place Central under supervision. With
the assistance of the investment banking firm it previously retained, the
Company engaged in detailed discussions with entities interested in providing
Central means of returning adjusted capital to required levels.
On November 13, 1997 the Board of Directors approved entry by the Company into
the Agreement to sell stock and warrants for gross proceeds of $27,500,000 to a
group of private investors. Proceeds would be used to pay off the $5.2 million
bank loan, to fund transaction expenses and to contribute approximately $22
million to the Company's insurance subsidiary, Central. The Agreement also
provides for an interim loan of $20 million to provide capital to Central prior
to December 31, 1997, following execution of definitive agreements concerning
the share issuance. (See note 7).
RESULTS OF OPERATIONS: During the quarter ending September 30, 1997,
premiums decreased 5% to $62,743,584 compared to $66,048,280 or a 13% increase
for the same quarter in 1996. Part of the decrease in premiums for the quarter
ending September 30, 1997 was due to a write-off of approximately $903,000 of
uncollected premiums due to lapses in the third quarter. For the nine month
period ending September 30, 1997, premiums increased 1% to $194,863,725 compared
to $192,556,133 or 11% for the same nine month period in 1996. The increase,
which was primarily due to rate renewals, was again, in the group life and
health division. Certificates in force at September 30, 1997 were 104,701. This
represents a net decrease of 11,603 or 10% compared to a net increase of 5,732
or 5% for the same nine month period in 1996. New certificates issued during the
nine month period ending September 30, 1997, were 22,692, down 26% from 30,567
issued during the same period in 1996. Lapses were 34,295, up 38% for the nine
month period ending September 30, 1997 compared to 24,835 for the same period in
1996. Since Central started implementing more significant rate increases in
April 1996, more unprofitable business is terminating faster than new profitable
business is being issued. This has been a major factor for the decrease in the
number of certificates in force. Management also believes the combination of
Central's risk-based capital (RBC) level and the new Kennedy-Kassebaum
legislation, effective July 1, 1997,
- 9 -
<PAGE> 10
has had a negative impact on sales. With an additional capital infusion into
Central, as planned, net certificates in force should increase.
Net investment income decreased about 4% to $4,845,747 for the nine
month period ending September 30, 1997 compared to $5,047,803 or an increase of
5% for the same period in 1996. Lower interest rates and a decrease in average
fixed maturities invested due to cash flow, were the main reasons for the
decrease.
Policy benefits, claims, losses and settlement expenses decreased slightly to
$50,496,272 for the quarter ending September 30, 1997 compared to $51,667,307 or
a 26% increase in the same quarter in 1996. The loss ratio for the quarter
ending September 30, 1997 was 80.5% compared to 78.2% for the same quarter in
1996. The decrease in the premiums for the quarter in 1997 was the primary cause
for the ratio increase. For the nine month period ending September 30, 1997,
policy benefits, claims, losses and settlement expenses increased to
$155,397,719 or 1% compared to $153,348,945 or 26% for the same nine month
period in 1996. The loss ratio for the nine month period in 1997 was 79.7%
compared to 79.6% for the same nine month period in 1996. Central has paid and
incurred a larger number of prior years claims (1996) during the first nine
months of 1997 than anticipated when the December 31, 1996 reserves were
established. The year end 1996 reserves are estimated to be understated
approximately $5 to $6 million. Although a large portion of these claims were
paid during the period in 1997, reserves were not released as of September 30,
1997, but increased approximately $1 million. Also during the first six months
of 1997, Central paid approximately $13 million in claims on policies that
terminated and only received approximately $9 million in premiums during the
same period. This run off in claims was attributed to the rate renewal actions
taken and the conversion program, for old business, started January 1, 1997 to
convert certain policies to a new policy with current rates and benefits.
Inventory of claims since year end 1996 has been reduced and claim turn-around
time has also been reduced.
Commissions were 13.6% of premiums for the quarter ending September
30, 1997 compared to 13.9% for the same quarter in 1996. For the nine month
period ending September 30, 1997 commissions were 13.7% of premiums compared to
13.8% in 1996.
Other operating expenses increased 3% in the third quarter ending
September 30, 1997 to $9,255,802 compared with an increase in the third quarter
in 1996 of 6% to $8,967,219. For the nine month period ending September 30, 1997
other operating expenses increased 3% to $27,748,519 compared to $26,964,233 or
a 3% increase for the same period in 1996. The increase in other operating
expenses was primarily for payroll expenses related to the claim backlog and
printing and postage expenses related to the new Kennedy-Kassebaum legislation
effective July 1, 1997 and certain expenses related to the installation of the
new computer system. For the nine months ending September 30, 1997 the ratio of
other operating expenses to premiums was 14.2% compared to 14.0% at the same
time in 1996.
- 10 -
<PAGE> 11
Interest and financing costs increased in the third quarter of 1997
and the nine months ending September 30, 1997, primarily due to the $5.2 million
note payable obtained at June 30, 1997. In the past the interest was basically
for the mortgage loan on the home office building.
The Company incurred losses of $4,431,494 ($1.06 per share) for the
quarter and $9,807,618 ($2.35 per share) for the nine months ending September
30, 1997. This compares to losses of $1,665,339 ($.40 per share) for the quarter
and $7,733,924 ($1.83 per share) for the nine months ending September 30, 1996.
The combination of lower premiums in the quarter, a claims run off and prior
year claims were the primary reasons for the losses in 1997.
The book value per share at September 30, 1997 was $3.03 ($2.87 before
unrealized gains) compared to $5.18 ($5.24 before unrealized gains) at December
31, 1996.
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.
FORWARD LOOKING STATEMENTS: This report contains certain forward
looking statements with respect to the financial condition, results of
operations and business of the Company. Such forward looking statements are
subject to inherent risks and uncertainties that may cause actual results to
differ materially from those contemplated by such forward looking statements.
Factors that may cause actual results to differ materially from those
contemplated by such forward looking statements include, among others, the
results of the Company's efforts to raise additional capital, rising health care
costs, business conditions and competition in the managed care industry,
developments in health care reform and other regulatory issues.
- 11 -
<PAGE> 12
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.
- 12 -
<PAGE> 13
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: November 14, 1997 By: Frank W. Grimone
----------------------- ----------------------------------
Frank W. Grimone
Executive Vice President
Date: November 14, 1997 By: Frank W. Grimone
----------------------- ----------------------------------
Frank W. Grimone
Principal Financial Officer and
Chief Accounting Officer
- 13 -
<PAGE> 1
Exhibit 11
----------
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
-----------------------------------------------------
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"),
"Earnings per Share." Statement 128 was issued to simplify the computation of
EPS and to make the U.S. standard more compatible with the EPS standards of
other countries and that of the International Accounting Standards Committee
(IASC). It will replace Primary EPS and Fully Diluted EPS with Basic EPS and
Diluted EPS, respectively.
Basic EPS, unlike Primary EPS, excludes all dilution while Diluted
EPS, like Fully Diluted EPS, reflects the potential dilution that could occur if
securities or other contracts to issue common stock were exercised or converted
into common stock or resulted in the issuance of common stock that then shared
in the earnings of the entity.
For the quarter and period ending September 30, 1997, the net loss per
share was computed using the weighted average number of common shares
outstanding.
Because the Company uses the treasury stock method in calculating the
weighted average shares outstanding, the total earnings (loss) per share for the
period does not equal the sum of the earnings (loss) per share of each of the
quarters, primarily due to the monthly changes in options and market price
during the period.
- 14 -
<TABLE> <S> <C>
<ARTICLE> 7
<CIK> 0000215403
<NAME> CENTRAL RESERVE LIFE CORPORATION
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<DEBT-HELD-FOR-SALE> 68,312,997
<DEBT-CARRYING-VALUE> 11,902,166
<DEBT-MARKET-VALUE> 11,826,099
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 93,099,877
<CASH> 5,821,104
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 324,202
<TOTAL-ASSETS> 117,415,897
<POLICY-LOSSES> 33,345,248
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 43,902,740
<POLICY-HOLDER-FUNDS> 8,324,508
<NOTES-PAYABLE> 13,626,152
0
0
<COMMON> 2,097,586
<OTHER-SE> 10,620,212
<TOTAL-LIABILITY-AND-EQUITY> 117,415,897
194,863,725
<INVESTMENT-INCOME> 4,845,747
<INVESTMENT-GAINS> 125,348
<OTHER-INCOME> 0
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